Annual Report 2017 Cubic Property Fund at a glance
GAV (Gross Asset Value) NAV Price (Per Share) £179m £3.189
Increase in NAV * Fund’s loan to value 9.5% 50.25%
* Before distributions and withholding tax
Pg. 19 Curzon Cinemas in Aldgate
2 Cubic Property Fund | Annual Report 2017 The Cubic Property Fund Contents 4 Chairman’s Statement is a diversified Real Estate Fund listed 6 Performance Highlights on The International Stock Exchange. 8 Portfolio Statistics 9 Portfolio Highlights The Fund’s strategic focus is to provide 10 Top Ten Assets 11 Asset Locations investors with consistent income returns Investment Adviser’s Report in conjunction with sustained capital 12 European Economic Overview 13 European Property Overview growth from a high quality commercial 13 Outlook 14 UK Economic Overview real estate portfolio. The Fund focuses 14 UK Property Overview its investment within the UK and Core Strategy European Cities, with prime portfolios 16 Strategy 17 Asset Management Strategy established. The Fund maintains a 17 Debt Strategy 17 Investment Process diversified sector spread across the 18 Gearing &Hedging portfolio with a focus on asset quality 18 Cash Flow Asset Management and value add, enabling sustained 19 New Acquisitions high levels of occupancy, rental growth 19 Acquisitions Post Year End 20 Disposals and long term lease lengths. 20 Disposals Post Year End 21 Lettings & Lease Restructuring 21 Lettings & Lease restructuring Post Year End 22 Rent Reviews 22 Rent Reviews Post Year End
Case Studies 23 Copenhagen 24 Oslo 25 West End Quay 26 Croydon 27 Curzon Cinemas 28 Balavan 29 Finance Initiatives
Financial Statements 31 Management & Administration 32 Report of the Directors 39 Custodian’s Report 40 Independent Auditors Report 42 Consolidated Statements 44 Consolidated Balance Sheet 45 Consolidated Cash Flow Statement 46 Notes to the Consolidated Financial Statements
Pg. 20 Østensjøveien 27, Oslo sold for NOK 540,000,000
3 Cubic Property Fund | Annual Report 2017 Chairman’s Statement
Our 2017 results demonstrate that The Cubic Property Fund has successfully delivered its strategy despite global economic uncertainty during the year and performed above expectations.
Dear Shareholders,
In light of the global economic uncertainty during the year (Brexit and European elections) I am oo It sold its Danish portfolio, in which it had a pleased to confirm that Cubic Property Fund has 46.83% stake, at record low yields following again performed above expectations for the year successful completion of numerous asset ended 31 March 2017. management initiatives. The sale achieved a return on its investment of over 150% during the As demonstrated by the table below on a like for like 5 years it held the investment. basis the fund showed an increase of 9.5% for the year, and increased its dividend payment by 2.7%. oo The Fund sold its 34% stake in the Oslo property, Even after the Withholding Tax Charge (see below achieving over 80% return on its equity. WHT explanation) the Fund had a closing share oo It also sold the Worcester and Ipswich properties price of 318.9p, representing a 1.8% increase on where the asset management initiatives had run March 2016 price of 313.3p. their course and the decision to sell these assets allowed the fund to re-invest into other stronger Price per share % assets. 2016 Closing Price 313.30 oo The small asset vehicle (Balavan Limited) was Gross 2017 Performance 29.77 9.5% launched during the year to take advantage of the economies of scale from having a single Less Dividend (8.53) (2.7%) mortgage and company to house smaller Less WHT (15.64) (5.0%) properties with values under £5m. During the 2017 Closing price 318.90 1.8% year the Fund acquired 7 new properties, and transferred 6 properties from existing SPV’s to The Fund continues to follow its core strategy join with the Turnham Green Property. The 14 of achieving value for shareholders through properties back up a single £20M mortgage loan targeted acquisitions/sales and by effective asset facility with Lloyds Bank, enhancing debt pricing management initiatives applied to its property and providing surplus cashflow for the fund portfolio. The Fund has been able to enhance its oo As confirmed in last year’s report, the Fund has cost of debt across the portfolio, maintained a completed on the 3 Curzon cinema investments. secured income average over 10 years and it has a During the current year a 4th Curzon investment balanced gearing profile of 50%. was being developed at Colchester.
With the strategy in mind, the Fund has had a oo The Dividend pay-out was £2,844,000, productive year with the following salient points representing 3% increase from last year which that are notable: - validates the Fund’s ability to generate cash.
4 Cubic Property Fund | Annual Report 2017
Performance Highlights
The NAV per share increased to 318.90 pence (as at 31 March 2017 (31 March 2016: 313.30 pence per share) representing NAV growth of 6.87% over the last 12 months. In combination, the fund also distributed 2.7% of NAV as dividend.
This Nav includes a provision for possible Withholding Tax (WHT). The possibility of a WHT liability, which arises from the successful Danish portfolio sale and recent changes in Danish Tax law, has been fully provided in side pocket shares which will be issued in Q3 2017 to shareholders registered at 31 December 2016. Advice from two leading international accountancy firms is positive but cannot eliminate this uncertainty and if the Danish tax position is resolved without any liability, the side pocket shareholders will receive value of 16 pence per share.
£3.189 £3.133
£0.0853 £2.739 £0.0828
£0.072
2017 2015 2016 2017 2015 2016
Share Price Dividend per Share
6 Cubic Property Fund | Annual Report 2017 100%
Focus on strong European markets
£179m
Gross asset valuation of Fund’s portfolio
10.78 yrs
Average weighted unexpired lease term
2.9m Sq ft
Of Commercial Property
124
Commercial Tenancies 89
Assets
11
Acquisitions & Disposals
7 Cubic Property Fund | Annual Report 2017 Portfolio Statistics
362% 10.5 10.6 10.78 98% 98% 97% Years Years Years 309% 285%
2015 2016 2017 2015 2016 2017 2015 2016 2017 WAULT * Occupancy Interest Cover Ratio
4.11% 3.64% 54% 52% 3.48% 50.25%
2015 2016 2017 2015 2016 2017
Cost of Funds Loan to Value
Leisure 2% Poland 1% 21% Office 77% UK Germany 3%
Sector Location Spain Weighting 5% Weighting
42% 14% Retail 35% Industrial Channel Islands
*Weighted Average Unexpired Lease Term
8 Cubic Property Fund | Annual Report 2017 Portfolio Highlights
High Street, Exeter Acquired Q4 2006 Tenant Jack Wills
West End Quay, London Pelham Street, Nottingham Acquired Q3 2006 Acquired Q1 2016 Tenants Various incl. Tesco, Tenant Revolution Superdrug
The School Yard, Harborne Acquired Q4 2014 Tenants Prezzo, Boston Tea Party
Arts Complex, Southampton Acquired Q2 2017 Tenants Various incl. Nandos, Travis Perkins, UK Costa Tenant Travis Perkins George Street, Sheffield Acquired Q3 2016 Banc de Sang, Barcelona Tenant Curzon Cinema Acquired Q1 2014 Canter Way, London Tenant Banc de Sang Acquired Q2 2016 Tenant Curzon Cinemas
High Street, Guildford Acquired Q3 2016 Tenant Gerard Darel
9 Cubic Property Fund | Annual Report 2017 Top Ten Assets
Market Let by Asset Ownership Area Annual Gross WAULT Main Tenants Value Sector Area Country (%) (Sq. Ft.) Rent (Years) (£m) %
Banc de Sang Banc de Sang 52.4 15.5% Office 146,454 2,664,426 100 42.62 Barcelona
TP1 (35) Travis Perkins Ltd 40.52 49.0% Industrial 449,398 2,439,289 100 14.43 Various UK Locations
TP2 (19) Travis Perkins Ltd 32.87 42.50% Industrial 403,276 2,091,000 100 13.38 Various UK Locations
West End Quay Superdrug Stores 17.40 95.60% Retail 30,436 931,800 100 5.64 London
50 La Colomberie Colomberie 10.50 50.0% Office 28,487 868,458 100 7.82 Jersey Services Ltd
Arnold House HSBC Bank Plc 10.00 100% Office 23,540 673,600 100 13.96 Guernsey
The Arts Complex* Mustang Sallys 8.75 100% Retail 88,315 558,101 100 12.73 Southampton Mid Kent Palmer & Harvey Business Park 8.30 100% Industrial 86,994 513,558 100 6.29 McLane Ltd Snodland Turnham Green Maison Blanc 5.30 100% Retail 3,964 156,000 41 3.59 Chiswick Curzon Cinema Curzon Ltd 5.10 40.0% Leisure TBC 168,000 100 24.47 London
*Acquired post financial year
10 Cubic Property Fund | Annual Report 2017 Asset Locations Investment Adviser’s Report
European Economic Overview developments have buoyed investor investment picked up in Q4 with a sentiment, allowing Europe to show record €86.8bn being transacted The Eurozone economy has wider and more stable economic across Europe. outperformed expectations and growth. This paired with modest earlier concerns over politics in the inflation expectations and a low In 2017 trading activity in continental bloc appear to have been overblown. interest rate environment, investors Europe increased despite elections in As the recovery is about to enter a are increasingly looking wider than several notable markets. fifth year, confidence has picked the core locations of London, Paris up, and the upswing has widened to and the main German and Nordic Following a strong end to 2016, most EU countries. cities. European commercial property investment volumes eased to €44.2 The Focus Economics GDP data Similarly, election results in the billion in Q1 2017, an 8.3% decrease reveals that Eurozone recorded Netherlands and France have compared with the corresponding robust GDP growth of 0.6% in the calmed fears that the series of major quarter of 2016. first half of 2017. This is above the European elections in 2017 would preliminary estimate and is the result in a lurch towards politicians best result in two years as growth with disruptive agendas. broadens across most European economies. European Property Overview
Recent economic and political Despite a slow start to 2016,
European Commercial Property Investment Volumes
Year on Year Change: -8.3%
Source: Real Capital Analytics / Knight Frank
12 Cubic Property Fund | Annual Report 2017 European Property Overview
The German investment market Occupational activity remained maintained the strong momentum robust across a range of which has seen it overtake the UK European markets in H2 2016 as Europe’s most active market in to H1 2017. There is therefore recent quarters. Despite keen pricing the potential for rental growth in Germany’s core cities, demand over the rest of the year, as continues to outstrip supply. the diminishing availability of prime space in European A strong start to the year was CBDs is creating increasingly also experienced by Spain, where landlord-favourable markets. an improving economy and rental growth prospects fuelled Prime rental growth prospects are international investor demand. strongest in key cities in France, Madrid overtook Paris to be the Germany, Ireland, Spain and Sweden. second most active European city investment market in Q1 2017, behind Outlook only London. The projection for the total The share of the core markets (UK, investment volume for Savills’s DE, FR) dropped further from 66.6% in survey area is that it will remain 2016 to 65.1% in 2017, as the Nordics broadly in line with last year’s levels, have increased their share from 14.5% potentially 5-10% lower, in the region to 16.5%, Netherlands from 4.7% to of €200bn. It is anticipated that we 5.7% and Spain from 3.98% to 4.9%. will see some modest further yield European weighted average This is the result of the high liquidity, compression during the course of prime office yield which has spread beyond the core the year in Frankfurt, Hamburg, 8 markets where the supply of quality Amsterdam and Milan, and some 7 softening in Paris and London, with product has become limited. 6 Investor demand for European the average CBD office yield projected real estate remains strong and it to remain slightly below 4.0%. Less 5 continues to drive yield compression, prospects for capital gains has % 4 Y-on-Y Change on the back of inward yield shifted investor focus on income. 3 - 28bps movements in markets such as 2 Amsterdam, Budapest, Prague and In the office sector good Stockholm. fundamentals shaped by economic 1 resilience, demand for quality space 0 In Q1 2017 the average European and restricted development pipeline 2004 2017 2005 2016 2003 2009 prime CBD office yield dropped for support a positive outlook for prime 2002 2006 2007 2008 2010 2011 2012 2013 2014 2015 the first time on record just below 4%. values in the CBD locations. Overall prime yields are recorded at Source: Knight Frank 90bps below the long-term average.
13 Cubic Property Fund | Annual Report 2017 Investment Adviser’s Report
UK Economic Overview Purchasing Managers’ indices of business activity 65 UK economic growth held up better than expected immediately after 60 the Brexit vote, particularly with regards to consumer spending and 55 services. Concerns about Brexit have left sterling weak against the dollar 50 and the euro, pushing up UK import prices. 45
Since June 2016, strong post Brexit 40 recoveries in the services and manufacturing sectors have tailored 35 off in early 2017. 30 2007 JAN 2008 JAN 2009 JAN 2010 JAN 2011 JAN 2012 JAN 2013 JAN 2014 JAN 2015 JAN 2016 JAN 2017 JAN Services Manufacturing Overall, the UK economy offers a mix Source: Markit/CIPS of sentiment and data that has seen a widening of views as to the next rise in base rates. The majority of economists see no change for the UK Property Overview - remainder of 2017. Investment
The graph below demonstrates that The UK investment market was we have experienced a hardening in marred by uncertainty in 2016. market average yields over the past Sentiment in the UK property market year, but the prime market average is is expected to remain somewhat yet to fall back to pre-EU referendum volatile while Brexit is being levels. negotiated, and in some of the weaker sub-markets, pricing could come under renewed pressure. Office, Retail and Industrial - Income Yield % 9 Office However, in some instances the Retail devaluation of the pound has made 8 Industrial pricing in the UK relatively attractive 7 to foreign buyers.
6 In reality, Brexit means different 5 things to different groups; some investors are looking to Europe but 4 are actively excluding the UK while others such as many Chinese and Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Source: JLL Hong Kong investors appear focused on UK real estate.
14 Cubic Property Fund | Annual Report 2017 UK Property Overview - The downward trend on current Investment yields suggest that we will continue to see a slight hardening The UK investment volume for H1 2017 despite economic and political was £27.2 billion, which is 1% higher uncertainty and the prospect of than the same period in 2016. rising gilt yields.
In terms of property sub-sectors, 39% of total investment in H1 has been for offices. Some of the UK sub-markets, particularly the retail sectors, are restricted by the availability of stock, which has constrained volumes.
Components of total return (income return vs. yield impact vs. rental growth) % Income Return 15 Yield Impact Rental Growth TR 10
5
0
-5
-10
-15 2006 2006 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: JLL
UK Property Overview - Performance
The Brexit ‘bump’ is clearly defined in the property returns graph above Total returns by sector (%)
Total returns accelerated in Q1 2017, Office Retail Industrial bringing annual total returns to 4.9% in March 2017. Fourth Quarter 2016 1.9% 1.4% 2.9% First Quarter 2017 2.1% 1.5% 3.5% A positive yield impact combined with a rise in rental growth led to Annual to March 2017 4.2% 3.0% 9.7% increasing capital values over the Source: JLL past year.
The industrial sector showed the strongest performance over the quarter, returning 9.7% year to March 2017. Returns in the office and retail sector were also positive, at 4.2% and 3.0% respectively.
15 Cubic Property Fund | Annual Report 2017 Strategy
FOCUS STRATEGIC BALANCED MODEST DEFENSIVE ON CAPITAL UK LOCATIONS CROSS SECTOR PORTFOLIO LONG TERM GROWTH & & CORE COMMERCIAL GEARING OF INTEREST RATE INCOME EUROPEAN REAL ESTATE 50%-60% HEDGING - CITIES 50%
The Fund’s ultimate strategy is to The Fund will specifically focus on: • Longer term secure income from provide investors with a blend of acquiring industrial / logistics in both income and capital return by • Expanding its UK Small Asset the UK and Northern Europe. investing in quality real estate across Portfolios with exposure of • A sub 10% equity allocation into the UK and a City centric approach across asset classes to achieve emerging European markets that within strategic locations in Western a portfolio of secure income and we feel are priced competitively Europe. The Fund balances its value add capital growth. to their developed peers and offer geographical exposure between the an opportunity for significant UK and Western Europe to achieve • Investing in targeted Northern capital growth, through a cross currency spread through European cities, expanding on developing economic conditions varying currency environments. the Funds existing knowledge and value add strategies. The Fund’s successful track record base within those Cities within the UK, German, Nordic and displaying strong tourism and Within this over-arching strategy Spanish markets has established a business growth, the focus will we will maintain a diversified blend significant pipeline of investment be a towards a blend of capital of fixed, inflation linked and OMR opportunities within these markets and income growth where rent reviews to ensure the Fund is which are to be further developed implementation of value add both protected against significant over the short to medium term. strategies can be achieved. inflationary movements but also does not become over-rented in a stable economic environment. The Arts Complex, Southampton This, coupled with a modest debt strategy and maintaining a long WAULT, positions the Fund strongly to perform over the coming stages of the cycle.
16 Cubic Property Fund | Annual Report 2017 Strategy
Asset Management Strategy Debt Strategy
Detailed Working Strong Asset Tenant Mix of Long Term Market Moderate LTV Knowledge to Relationships Lenders Debt Drive Value Knowledge
Hedging Key High Risk Strategy Financial Interest Cover Management to Secure Controls Rates Long Term Income
The Arts Complex, Southampton
Investment Process
Macro Research Select Key Micro Location Property Analyse Cities Analysis Fundamentals Investment
The Fund adopts a top-down investment approach across its European portfolio to complement its UK holdings whereby it identifies key cities within Europe, and determines the merits of the different sectors within the city. We then analyse specific investment opportunities focusing on property fundamentals such as; tenants, the occupation market, the local investment market and the development pipeline.
17 Cubic Property Fund | Annual Report 2017 Strategy
Gearing basis. The current low interest rate market combined with the cross collateralisation of these assets The fund remains below its target in a single company will allow the Loan to Value range of 50-60% with 54% Fund to benefit from substantial 52% 50.25% a current LTV of 50.5%. The Fund has efficiencies both in the costs of debt reduced its Loan to Value by 2% from and administrative running costs. last year through refinancing and debt restructuring as well as paying Furthermore, the structure would down existing loans. allow the Fund to continue its
exposure to a blend of larger The focus for the Fund going forward (institutional) assets in conjunction 2015 2016 2017 will be continuing to balance return with portfolios of smaller, more enhancing gearing levels with a Loan to Value diverse assets, providing the ideal defensive LTV profile, in conjunction real estate ‘spread’. A lower LTV with continued investment into profile has been adopted for these property with solid real estate assets to reflect the portfolio nature quality real estate fundamentals. The fundamentals. Moving forward we of the debt. Dividend paid in March 2017 of 8.53 continue to examine refinancing p / share represented an increase on opportunities in order to maximise the 2016 dividend of 12%. cash flow for the Fund and maintain Hedging a spread of loan expiries. The Fund remains focused on The Fund continues to maintain delivering sustainable cash flows The continued low interest rate a strong hedging position with through investment into a balance market across Europe has allowed slightly over 38% of the Fund’s assets of capital growth and income based the Fund to maintain a cost of debt hedged for over 5 years. The Fund opportunities. The efficiencies gained below the 2011 target of 4.5% through is constantly monitoring different from cross collaterisation of the sub strategic refinancing activities. hedging options both for new £5m assets combined with ongoing acquisitions and refinancing in order asset management initiatives and Currently the cost of debt for the to gain the best balance between further acquisitions of high quality Fund is 3.64% which represents a cash flow to the fund and protection real estate will help to deliver a reduction of 0.47% from last year’s from future interest rate increases. strong cash flow for the coming year. figure of 4.11%. Cash flow The Fund has a balance of rent The Fund is currently executing a review structures with 25% of the strategy to amalgamate the sub- Following the payments of the Fund’s leases being index linked, 11% having £5m assets into small portfolios dividend in March 2016 the Fund fixed uplifts, and the remaining 64% with a single bank lending on each has continued to enhance cash being open market rent reviews. portfolio on a cross collateralised flow through its investment into This provides a balance of cash flow enhancing income growth while ensuring the Fund doesn’t risk becoming over rented in the future.
25% Index Linked Rent 64% Review Structure OMV 11% Fixed Uplifts
18 Cubic Property Fund | Annual Report 2017 6 Asset Management Rent Reviews
New acquisitions during 2 (HS2). Local occupiers and the the year surrounding area will benefit, with the first phase to complete in 2026 and the second phase in 2033. In Q3 2016 the Fund acquired a single-let industrial headquarters Three separate prime retail units facility in Normanton, West 7 with residential upper parts on North Yorkshire, for £2.22m (8.47% NIY). Let End Road, Croydon were acquired New Lettings to the strong covenant of Harvard in Q3, for £6.05m (4.31% NIY). The Engineering Limited for a further 9.5 assets are centrally located in years. Croydon (London’s largest borough) and are set to directly benefit from The Fund acquired a prime retail unit the Westfield’s and Hammerson’s in Q3, in one of the country’s most £1.5bn adjacent redevelopment of the affluent high streets in Guildford, Whitgift Shopping Centre. Surrey, for £2.462m (4.81% NIY) with the yield anticipated to rise to 6.2% In Q2 2016 the Fund acquired a 40% following the settlement of the 2019 stake in a further Curzon Cinema led rent review. property investment in Aldgate, The City of London. The investment was In Q2 2016 the Fund acquired a entered into at cost and will provide 7 central London retail parade in two newly built restaurant units, Acquisitions Euston for £1.6m (4.5% NIY) with alongside a new cinema, that will sit immediate potential to enhance within Berkeley’s Goodman’s Fields income from letting the vacant development. The property was unit. The parade is set to directly acquired for £2,900,000 and has an benefit from its close proximity initial value of £4,700,000. to Euston railway station in light of the government’s ongoing and The Fund acquired two ground floor committed £2.25bn redevelopment retail units with three upper floors program to support High Speed
Curzon Cinema, Aldgate 4 Disposals
of office space in Royal Leamington Spa in Q4 2016, for £2,090,000 (6.05% blended NIY). The property is located in a 100% prime pitch on The Parade.
In Q4 2016 the Fund acquired a 40% stake in a further Curzon Cinema led property investment in Colchester on the former ‘Keddies’ department store site at Roman House on Queens Street with a site value of £525,000. The site is being redeveloped into a luxury three-screen boutique cinema and two restaurants.
19 Cubic Property Fund | Annual Report 2017 Asset Management
Acquisitions post year end The Arts Complex, Southampton
In Q2 2017 the Fund acquired a newly developed Southampton City Centre leisure scheme consisting of seven restaurant units, upper level arts centre leased back to the council on a 999 year lease at a peppercorn and 38 residential units sold off on 125 year long leaseholds for £8,750,000 reflecting a net initial yield of 6.1%.
We are currently drafting proposals on the acquisition of a 40% stake in our fifth Curzon led property investment. The property is located in Hoxton, in the heart of the City of London and will provide a new residential development along with restoration of the old Hoxton cinema back into its former use.
Disposals
In Q1 2017 the Fund disposed the Copenhagen Portfolio (22, 24, 26
Købmagergade) to Hines for DKK Disposals post year end 885,000,000 representing a record yield of 3.1% and a 151% return on In Q2 2017 the Fund has disposed equity. of 75 North End Road, Croydon for £2,674,000 a 27% increase from The Fund disposed of the when we purchased the asset in Q4 Oslo asset in Q1 2017, at NOK 2016 at £2,100,000. 540,000,000, representing an 81.7% return on equity and 23.5% The Fund remains under offer to IRR. dispose of the Wallis Portfolio in Germany to FIM for €5,750,000 In Q3 the Fund disposed of its which represents a 11% premium Ipswich investment with an to valuation. (at the balance sheet achieved price of £4.1m. The asset date). was approaching an unexpired lease term of 10 years, which is often seen as a benchmark in the investment market and so the opportunity was taken to re-cycle capital into further growth assets.
The Fund has disposed of its Worcester investment in Q4 2016, to Surrey County Council Pension Fund with an achieved price of £11,800,000. 22 Købmagergade, Copenhagen
20 Cubic Property Fund | Annual Report 2017 Lettings and lease restructuring
In Q2 2016 the Fund completed on a new 10 year lease at Unit 3, The School Yard, Harborne to a café and tapas operator, at an annual rent of £18,000 per annum (12.50% increase on previous rent) with 15 months rent free.
Prior to the sale of the Danish portfolio a further office letting was completed at 26 Købmagergade, to GoViral on a 4 year lease, subject to 6 months rent free.
In Q4 2016 the Fund completed a new straight 10 year lease at Unit 12, West The School Yard, Harborne End Quay, London, with Quest Estates Ltd at an annual rent of £60,000 per annum (100% rental increase) with 12.5 months rent free. This was ahead lease in Q3 2016 on the upper floor at the lease renewal with Carphone of our valuer’s expectations. Red Lion Street, Norwich, to The City Warehouse at Unit 3, West End Quay, Escapes Spa Ltd at an annual rent London, for a 5 year lease at £51,800 The Fund completed a new 15 year of £20,000 per annum, with stepped per annum (3.5% rental increase), with lease at Unit 11 & 11A, West End Quay, rents, rising to £30,000 per annum in an additional £3,000 due in interim London in Q4 2016 to Montessori year 6, with 7.5 months rent free. rents. School at an annual rent of £65,000 per annum with 9 months rent free, Lettings and lease Following the successful surrender following the surrender of Unit 11 restructuring post year of the Fat Face unit at Turnham to Quest Estates. This increases Green Terrace, Chiswick, in Q2 2017 end the Fund remains under offer to an the total income for the two units international retailer for a new 15 year combined by £5,000 (8% rental In Q2 2017 the Fund completed on lease at an annual rent of £115,000 pa increase). a new 10 year lease at Unit 13, West (23% increase on the Fat Face rent of End Quay to the gym operator F45 £93,600 pa) with 6 months rent free. In Q4 2016 the Fund completed a at an annual rent of £65,000 per The Fund has also completed on the new 25 year lease at the cinema annum with 6 months rent free. This assignment of Unit 4 & 5 from Maison unit, Aldgate, The City of London, to provides a 100% increase in rent Blanc to Stonebeach Limited (t/a Corinthian Curzon Ltd with RPI rent following the successful change of Patisserie Valerie), who are a stronger reviews of 2% - 4% at £168,000 per use to D1. F45 are currently fitting covenant. annum. out the unit and anticipate opening in August. In Q2 2017 the Fund remains under The Fund completed on a new 10 year In Q2 2017 the Fund completed on offer to the photography studio on the vacant Unit E, Drummond Street, Euston, London for a new 15 year lease at an annual rent of £28,000 per annum (115% rental increase on the ERV of £13,000 per annum), with 9 months rent free. This is now in solicitors hands.
West End Quay, London
21 Cubic Property Fund | Annual Report 2017 Asset Management
Lettings and lease December 2015 rent review with restructuring post year Pandora at £97,500 per annum (33% Rent reviews post year end end uplift in rent). At West End Quay, London the The Fund has completed the letting Travis Perkins Portfolio No. 1 – second rent review at Unit 1 (Grand Union) to Café Nar at Unit 6, Aldgate, The phase of rent reviews have been remains outstanding however we City of London, on a 20 year lease, at agreed on 1/3rd of the portfolio for expect to settle at c. £125,000 per a rent of £55,000. Unit 8 also remains December quarter. This represents annum (39% rental increase). under offer, at an annual rent of 3% annualised increase and £125,760 £120,000 pa. per annum increase in rent. At West End Quay, London rent review surveyors have been The Fund will look to ‘relaunch’ the At West End Quay, London we have instructed on Unit 6 (The Post Office) marketing of the two restaurant agreed the rent review at Unit 10 for the upcoming review in Q2 2017 units at the Curzon led scheme in (Stanley Racing t/a William Hill) and expect to settle at £100,000 p.a. Colchester via Savills agency team in at £81,000 per annum (4% rental (8% rental increase). early September following PC of the increase). development in Q3 2017. At Turnham Green, Chiswick, At Sadler House in Jersey the passing following the assignment of Unit 4 & rent has increased to £868,558 in 5 from Maison Blanc to Stonebeach accordance with the 2% annual rental Limited (t/a Patisserie Valerie), rent uplift as stated in the lease. review surveyors Douglas Rackley are instructed on the upcoming rent At Exeter, the outstanding 2015 rent review in September this year. We review was settled at a nil uplift in Q1 expect to see an increase of Zone A’s 2017 due to the fact that the unit is from £100 psf to £110 psf to c£108,460 over rented at £200,000 per annum. per annum (8% rental increase).
Turnham Green, Chiswick
Rent reviews
Wandsworth rent review settled at £189,500 per annum, which is a significant uplift and above the Savills ERV of £177,000 per annum and 18% uplift against passing rent (£160,000 per annum).
At 75 North End Road, Croydon CGI of Curzon Cinemas, Colchester we have agreed the outstanding
22 Cubic Property Fund | Annual Report 2017 Case Study - Copenhagen
In 2011, The Fund’s investment advisers identified the Copenhagen retail market as having significant growth opportunities, offered by its rapidly growing tourism industry and high domestic spending power; it was a retail market largely under- served by international retailers.
A retail portfolio was assembled for the Fund between Q2 2012 and Q1 2014, at a time when few international investors were in the market and yields were heavily discounted, in comparison to other European capital cities.
The portfolio consists of five prime retail assets; a block of three located on Købmagergade, a prime pedestrian shopping street in the Old Town of Copenhagen, whilst
the other two are on Østergade and and capital value of the assets. Vimmelskaftet. The units are let to international retailers, including The portfolio was sold in Q1 2017 for Superdry and Benneton. €119m, achieving a 154% return on equity. Active asset management initiatives helped to further increase the value of the portfolio. The development of a new 8,000 sq ft ground floor unit within the Købmagergade property, which was completed in Q2 2016, was let to international retailer Superdry, increasing rent by 200% since acquisition.
Since entering the Copenhagen market in 2012, the local retail market has evolved due to the influx of international retailers entering the market, helping to drive the rental
23 Cubic Property Fund | Annual Report 2017 Case Study - Oslo
In 2014 Østensjøveien 27 was identified as an opportunity to purchase a high-quality environmental impact building in a growth area of Oslo.
Oslo is the capital and most populous city in Norway with an urban population of approximately 940,000. The property is located in the Helsfyr district, a residential and commercial location approximately 3km east of the CBD and near several public transportation hubs.
Østensjøveien 27 comprises 16,766 sqm (180,000 sq ft) of high quality open plan office accommodation, arranged over six floors. The building was designed by Danish architect Henning Larsen Architects and holds a BREEAM "Excellent"
rating, owning to its sustainability credentials, and on completion in Q3 2014 was ranked one of the 100 most sustainable office buildings in the world.
Throughout ownership the property provided consistent returns to investors alongside sustained capital growth.
In Q4 2016, Østensjøveien 27 sold for NOK 540,000,000 and represented an 81.7% return on equity and 23.5% IRR.
24 Cubic Property Fund | Annual Report 2017 Case Study - West End Quay
Having acquired West End Quay in • Carphone Warehouse (Unit 3) Paddington, London in Q3 2004, West • F45 (Unit 13) – Completion on a – Completion on a new 5 year end Quay is one of the major UK new 10 year lease at £65,000 pa lease re-gear at £51,800 pa (3.5% assets within The Fund’s portfolio. (100% increase). increase).
Consisting of 13 ground floor retail • Robert Fraser (Unit 12) – • William Hill (Unit 10) – units, a number of active asset Completion on a new 10 year Completion on the RR settlement management plans have been carried lease at £60,000 pa (100% at £81,000 pa (4% increase). out over the last year, which has had increase) a significant effect on the overall Having purchased the asset for value of the asset by £600,000. • Hope Montessori (Unit 11 & 11A) £11.69m in 2004 we still believe in These pro-active asset management – Completion on a new 15 year the Paddington growth story as initiatives include 3 lettings (one just lease at £65,000 pa (8% increase the area continues to benefit from post year end), 1 re-gear and 1 rent- for combining the two units). development and regeneration. review: The recent addition of the Merchant Square Floating Park on the Paddington Basin, and the surrounding development will help to improve footfall to the area.
With the asset now 100% fully let and with a current annual rent roll of £925k, our aim is to continue with our ongoing pro-active asset management so we can hit the £1,000,000 pa rent roll mark.
25 Cubic Property Fund | Annual Report 2017 Case Study - Croydon
In Q3 2016 the Fund acquired for £2,700,000, a 30% increase from three separate prime retail units when we purchased the asset in Q4 with residential upper parts on 2016 at £2,100,000, reflecting a 70% the popular North End Road in the IRR. centre of Croydon for £6.05m (4.31% NIY). Let to retailers Pandora, Costa The Fund still holds the two Coffee and Carphone Warehouse, the remaining assets on North End assets are centrally located in the Road, 63 and 129-131 where we town and are set to directly benefit can continue to benefit from the from Westfield’s and Hammerson’s adjacent redevelopments and £1.5bn adjacent redevelopment of the regeneration in the town centre. Whitgift Shopping Centre. We still have a number of active asset management opportunities At 75 North End Road, the Fund which include capitalising on immediately settled the outstanding rental growth, re-gearing leases 2015 rent review to the retailer and adding value on the residential Pandora, and increased the annual uppers. rent to £97,500 per annum (44% rental increase). Following this asset management initiative we disposed of the asset 6 months later to Hermes Investment Management
CGI of Hammerson’s Westfield Croydon
26 Cubic Property Fund | Annual Report 2017 Case Study - Curzon Cinemas
The Fund entered a joint venture with Curzon Cinemas, the historic UK Cinema chain in 2014, and are supporting their expansion to create a portfolio of well-located long let cinema and restaurant led investment opportunities.
Curzon is an 85-year-old cinema brand that has been built into a 21st century content-led business that provides unforgettable films in quality surroundings. The first cinema opened in London in 1934 and developed a worldwide reputation for showcasing the latest in foreign language cinema and art house films. Curzon is a brand that has stood the test of time, evolving to meet the demands of audiences and the fast changes of a dynamic film industry.
The JV partnership acquires an asset and simultaneously exchanges an agreement for lease with Curzon Cinemas who will operate cinema and restaurant uses from these
sites. The typical lease structures of the properties are accretive to income returns, with 25year index leases with annual RPI increases
The JV has already provided investment into five sites, three of which are already trading (Sheffield, Canterbury and Aldgate).
The business plan is to continue to acquire / develop a number of similar cinemas and create a desirable portfolio of Curzon Cinema with attractive lease structures and benefit from the improving brand and financials of Curzon Cinema. We are currently working on a further site at Hoxton.
27 Cubic Property Fund | Annual Report 2017 Case Study - Balavan
The first phase of a strategy to amalgamate the sub-£5m assets into small portfolios for each lender with single Hold Co above has allowed the fund to create efficiencies from existing assets through reduction in running costs and enhanced debt terms providing significant increase in cash generation to the Fund. Furthermore, the structure would allow Cubic to continue its exposure to a blend of larger (institutional) assets in conjunction with portfolios of smaller, more diverse assets, providing the ideal real estate ‘spread’.
Small Asset Portfolio I (SAP I) was created with a £20m loan facility from Lloyds international with 3-year facility at a reduced margin of 2% with 50% to be hedged for 8 years Revolution, Cheltenham to protect against interest rate movements. 2. Strategic locations with the UK savings by consolidation into The criteria for the Small Assets 3. Focus on a blend of core assets, one corporate vehicle. SAP I has Portfolio within Cubic are: to provide long term secure provided savings of approx. income, and value add assets £70,000 pa in administration 1. Sub £5m assets with focus on to provide income and capital costs retail, leisure and industrial growth opportunities 4. Enhanced debt terms through 4. Spread of 3 x lender SPV’s spread of real estate risk and 5. Moderate gearing below 55% quantum. SAP I cashflow has 6. ICR ratio of 300% - (ability to lose been enhanced by £175,000pa 2/3rds of portfolio income and (36% increase) from previous still service debt interest) individual debt profiles. 7. DSCR ratio of 200% - (ability to lose 1/2 of portfolio income and still service debt interest and amortisation) 8. Minimum 50% interest rate hedging 9. Target portfolio WAULT of 5 yrs
The Benefits:
1. Ability for the fund to access a growth market that is below the appetite of the institutional market 2. Enhance value / liquidity by creation of a larger ‘collective’ of assets that would be attractive to the wider market The School Yard Harborne 3. Provide strong administration
28 Cubic Property Fund | Annual Report 2017 Finance Initiatives 13 Re-financings
The Small Assets Portfolio (SAP) was borrowing. Margin reduced to 2.25% created with a new revolving debt and 75% of the debt is fixed for 5 facility with Lloyds of £20m on a years. 3-year facility at a reduced margin of 2% with 50% to be hedged for 8 Post year end Sadler House, Jersey. years to protect against interest rate Refinanced with RBSi. new £5.375m movements. loan for 4yrs at 2.75% above floating rate (to be fixed) and £50,000 per The facility allows the Fund to trade quarter of amortisation, providing assets within the facility and also 11.7% pa of return on capital and expand with new assets. Properties 7.8%pa cash return. £1,115m included into the portfolio are: Amortised Post year end, terms agreed for £5m • Sidcup, London extension to SAP at 2.5% margin. • Harborne, Birmingham Terms also agreed with RBSi to create • Croydon SAP II which will be implemented • Chiswick, London during the 2nd half of 2017. • Norwich • Normanton, Leeds • Euston, London • Southport • Cheltenham • Guildford • Leamington Spa 3.84% Travis Perkins Portfolio No.1 Cost of debt reduced refinanced with a new £22.5m facility, providing an all-in cost of borrowing at 3.12%. This is a reduction of 71 bps on the previous all-in cost of
29 Cubic Property Fund | Annual Report 2017
The School Yard, Harborne Financial Statements
Cubic property Fund Audited Consolidated Financial statements for the Year Ended 31 March 2017
30 Cubic Property Fund | Annual Report 2017 Management & Administration
Richard van Vliet (Chairman) Eric Mounier Directors Michael Fienberg Kerry Fynn
Kingsway House, Havilland Street, Registered Office St Peter Port, Guernsey, GY1 2QE
Cannon Asset Management Limited Administrator, Secretary, Registrar, Designated Manager and Kingsway House, Havilland Street, The International Stock Exchange Listing Sponsor St Peter Port, Guernsey, GY1 2QE
Montreux Advisers Limited, Kingsway House, Havilland Street, Investment Adviser St Peter Port, Guernsey, GY1 2QE
ABN AMRO (Channel Islands) Limited, Martello Court, Admiral Park, Custodian St Peter Port, Guernsey, GY1 3QJ Moore Stephens PO Box 146, Town Mills South, La Rue du Pre, St Independent Auditor Peter Port, Guernsey, GY1 3HZ
Carey Olsen, Legal Advisers Carey House, Les Banques, St Peter Port, Guernsey, GY1 4BZ
Cannon Asset Management Ltd, SPV Administrator and Kingsway House, Havilland Street, Financial Accountants St Peter Port, Guernsey, GY1 2QE
Avignon Capital Limited Property Adviser to Montreux Advisers Limited 28 Margaret Street, London, W1W 8RZ
Savills (UK) Limited Property Portfolio Valuer 33 Margaret Street, London, W1G 0JD
31 Cubic Property Fund | Annual Report 2017 Report of the Directors
The Directors submit their annual report and audited consolidated financial statements (the “consolidated financial statements”) of Cubic Property Fund Limited (the “Company” or “Fund”) for the year ended 31 March 2017.
Incorporation and structure
The Company was incorporated in Jersey on 24 July 2006 with limited liability under the provisions of the Companies (Jersey) Law, 1991 and its shares were listed on the Channel Islands Stock Exchange (subsequently renamed The International Stock Exchange, “TISE”) on 28 December 2006.
Approval was obtained from the Guernsey Financial Services Commission (the “GFSC”) for the migration of the Company to Guernsey on 17 June 2011. From the date of migration the Company has been governed under The Companies (Guernsey) Law, 2008 and The Protection of Investors (Bailiwick of Guernsey) Law, 1987.
The Company is an open-ended investment company, able to issue and redeem participating shares representing the rights of investors at prices based on the underlying value of the properties. The Company is authorised by the GFSC as a Class “B” Collective Investment Scheme.
The Articles of Association allow for more than one class of participating share to be issued.
At the year-end date the Company had only one active Class Fund, the UK and European Class Fund, which has two share classes in issue: A Class participating shares and P Class preference shares. The UK and European Class Fund Shares are denominated in Sterling.
No limit has been set with respect to the duration of the Company.
Consolidation
These consolidated financial statements include the results of the Company, its subsidiaries, joint ventures and associates (together the “Group”) (see note 12).
Objective and investment policy
The investment objective of the Fund is to provide sophisticated, high net worth and institutional investors with the means of participating in UK and European real estate markets. The primary investment objective of the Fund is to achieve appropriate levels of rental income and medium to long term capital growth from a diversified portfolio of property and property-related assets. The Class Fund seeks to acquire a diversified portfolio of predominantly commercial properties in the retail, retail warehouse, office, industrial warehousing and leisure sectors. It may also acquire residential properties, hotels and development land. All investment decisions are made by the Directors of the Company, as advised by the Investment Adviser, and continue to reflect the medium to long term objective of maximising total return consisting of rental income and capital appreciation.
The Class Fund will invest in properties via its subsidiaries, joint ventures, associates and investments. A separate special purpose vehicle (“SPV”) may be used to hold each separate property. Any finance sought for property acquisitions will be at the SPV level, thus endeavouring to ring-fence the finance to the property to which it pertains. Neither the Class Fund nor any SPV has at present provided guarantees to any other SPV, with the exception of Bridson Limited and Nevayah Limited. HSBC, the provider of the mortgage, has required that the properties be cross- guaranteed (see note 27). The Directors’ intention is to maximise returns to investors and therefore the Directors may hedge any exposure which is not in the functional currency of the Company.
32 Cubic Property Fund | Annual Report 2017 Report of the Directors (Continued)
Strategy
The strategy of the Fund is to provide value for shareholders through targeted acquisitions and sales of assets, efficient refinancing of loans as well as effective asset management of its property portfolio (please refer to page 16 of this report - Strategy) The result of the continued refinancing, targeted acquisitions and selected sales means that the overall loan-to-value LTV ratio at the year-end date is 55.75% (2016: 53.4%).
Results and dividends
The results of the Group for the year are set out in the Consolidated Statement of Total Return on page 42. A dividend of £2,844,000 was declared in March 2017 (and paid after the year end) in respect of the participating shares relating to the year ended 31 March 2017 (2016: £2,759,000). This is equivalent to income of £0.0854 per participating share (2016: £0.0829) The preference shareholders received interest of £779,565 (2016: £743, 952) in line with the P Class shares.
The Company continues to be a Reporting Fund for UK tax purposes in accordance with the Offshore Funds Regulations and accordingly we hereby notify any UK shareholders that the reportable income is £0.0854 per participating share (2016: £0.0829) in respect of the dividend declared for the year and, the additional reportable income for the year to 31 March 2017 is £Nil per participating share (2016: £Nil).
Directors
The Directors of the Company are listed on page 31.
Directors’ shareholdings and other interests
At the date of signing of this report the Directors have the following direct or indirect interests in the shares of the Company, as shown in the table below.
Eric Mounier is a director of, and a shareholder in, Montreux Advisers Limited (“Montreux”), the investment adviser to the Company.
Richard van Vliet is a director of Cannon Asset Management Limited, the administrator and financial accountant to the majority of the Company’s SPVs and the administrator, secretary, designated manager and TISE listing sponsor to the Company. He is also a director of and shareholder in Cannon Capital Advisors Limited, which has a small shareholding in Montreux. On 28 April 2014 Mr van Vliet was appointed as an alternate director to the Montreux board.
Michael Fienberg is as a non-executive director of the Company. He is also a non-executive director of Cannon Asset Management Limited.
Kerry Fynn was appointed as a non-executive director of the Company on 21 April 2016.
A Class participating P Class preference shares shares Number number Eric Mounier 288,457.000 27,057.243 Richard van Vliet 22,984.701 2,987.811 Michael Fienberg - - Kerry Flynn - -
33 Cubic Property Fund | Annual Report 2017 Report of the Directors (Continued)
Company statistics
Net asset Net asset value per Change Number of value share in period shares in issue GBP GBP %
UK and European Class Fund
31 March 2015
Per consolidated financial statements* 86,660,148 2.58 15.18 33,540,833
Per reported NAV 91,897,891 2.74 13.22
31 March 2016
Per consolidated financial statements* 100,752,464 3.03 16.26 33,299,497
Per reported NAV 104,328,030 3.13 14.23
31 March 2017
Per consolidated financial statements* 100,813,759 3.03 0.06 33,323,792
Per reported NAV 106,251,896 3.19 1.84
*A detailed reconciliation between the NAV per share per these consolidated financial statements and the NAV per share reported on a quarterly basis is set out on note 23 to the consolidated financial statements
34 Cubic Property Fund | Annual Report 2017 Report of the Directors (Continued)
Company statistics (continued)
Share Analysis
Number of shares A Class P Class C Class Total number of shares 31-Mar-17 24,912,229 8,411,563 - 33,323,792 31-Mar-16 4,916,795 8,411,563 19,971,139 33,299,497 31-Mar-15 5,136,042 8,433,652 19,971,139 33,540,833 31-Mar-14 4,927,844 8,433,652 19,971,139 33,332,635 31-Mar-13 6,295,877 8,433,652 - 14,729,529 Proportionate value of the Total NAV as per A Class P Class C Class Fund in GBP Financial Statements 31-Mar-17 75,366,436 25,447,323 - 100,813,759 31-Mar-16 14,876,477 25,450,406 60,425,581 100,752,464 31-Mar-15 13,270,099 21,790,202 51,599,847 86,660,148 31-Mar-14 11,015,261 18,851,830 44,641,695 74,508,786 31-Mar-13 16,276,465 21,803,165 - 38,079,630
Price analytics Distribution per share for all Additional Distribution per Year High price Low price share classes P share 31-Mar-17 3.3312 3.1855 0.0854 0.093 31-Mar-16 3.1330 2.8453 0.0829 0.088 31-Mar-15 2.7399 2.4674 0.0721 0.091 31-Mar-14 2.4171 2.1708 - 0.091 31-Mar-13 3.0619 3.0028 - 0.090
All shares are priced equally. The highest and lowest prices shown above reflect the highest and lowest prices in the year for each class of share.
35 Cubic Property Fund | Annual Report 2017 Report of the Directors (Continued)
Company statistics (continued)
Comparative Table (As Per Financial Statements) 31-Mar-17 31-Mar-16 31-Mar-15 £ £ £ Change in net assets per share Opening net asset value per share 3.034 2.581 2.240
Return before operating charges* 0.396 0.862 0.691 Operating charges (0.167) (0.326) (0.278) Return after operating charges 0.229 0.536 0.413
Closing net asset value per share 3.263 3.117 2.653 before distributions Distributions (0.085) (0.083) (0.072) Distributions to non-controlling (0.153) - - interest
Closing net asset value per share 3.025 3.034 2.581
*after direct transactions costs of - - -
Performance Return after charges 7.5% 20.70% 15.20%
Other information Closing net asset value per valuation 106,251,896 104,328,031 91,897,891 Net revenue 4,295,385 777,042 598,008 Closing number of shares 33,323,792 33,299,497 33,540,833 Operating charges 5% 8% 4% Direct transaction costs 0% 0% 0%
Highest offer price per valuation 3.3312 3.1330 2.7399
36 Cubic Property Fund | Annual Report 2017 Report of the Directors (Continued)
Mortgage facilities and going concern issues
At 31 March 2017, the Group had long term mortgage loans in place with its lenders as detailed in note 14. Each mortgage loan was put in place to enable a specific subsidiary, or special purpose vehicle (“SPV”), to purchase the underlying property/ies held by that SPV, and each mortgage loan is secured against the property and, in some instances, other specified assets of that SPV, but not against the assets of the other SPVs or the Company. With the exception of Bridson Limited and Nevayah Limited, as stated above in the Objective and Investment Policy, the Company has not given any further guarantees.
Each mortgage loan has been arranged under specific terms for each property/ies within an SPV. Please refer to note 14 of the consolidated financial statements for details of specific maturity dates for each mortgage. The majority of the mortgage loans require some amortisation of principal which will occur before the maturity date.
The Group’s borrowing arrangements include specific financial covenants, primarily requiring the maintenance of loan to value (“LTV”) ratios for each property ranging between 35% and 66% and interest cover ratios of 100% to 140%.
The continued improved economic conditions for commercial property and the on-going implementation of the Fund’s strategy of lowering its finance costs has meant that all of its SPVs in the current year were compliant with their LTV covenants in their related mortgage loan agreements.
Considerable effort has been made to ensure that potential breaches are monitored closely and resolved through negotiation with lenders as soon as practicable.
The Group continues to have strong rental inflows and most of the tenants are high quality which provides low risk of tenant failure.
Cash Flow
The Directors and Investment Adviser monitor the cash flow of the Group to ensure that there is adequate operating cash in the Company and in each SPV. Based on the current cash flow projections, the Group is expected to generate enough cash from rental income to meet its mortgage commitments and operating expenses for the foreseeable future.
Redemption policy
The Directors reduced the redemption exit charge to 2.5% from 5% for redeeming shareholders of the Fund, as at 1 October 2016. The Directors believe that this represents a reasonable exit cost for shareholders as it relates closely to the estimated costs of selling property owned by the Fund in order to realise funds to facilitate the payment to redeeming shareholders.
Corporate governance
As a Guernsey resident company, the Company complies with the Code of Corporate Governance issued by the Guernsey Financial Services Commission.
Independent Auditor
Moore Stephens have indicated their willingness to continue in office. A resolution to reappoint Moore Stephens will be proposed at the Annual General Meeting.
37 Cubic Property Fund | Annual Report 2017
Consolidated Statement of Total Return
For the year ended 31 March 2017 Notes 2017 GBP 2017 GBP 2016 GBP 2016 GBP Net capital gain 3 11,851,391 28,508,757
Revenue 4 16,231,220 13,973,612 Less: share of joint venture turnover 16 (810,705) (420,440)
Less: share of associates turnover 16 (1,210,153) (2,382,454)
Group’s revenue 4 14,210,362 11,170,718 Expenses 5 (5,597,784) (4,858,940) Finance costs – loan interest (4,842,132) (3,826,545)
Finance costs – loan fees (1,055,312) (2,172,483) Finance costs – participating preference share dividend (779,565) (743,952) Net gain/(loss) for the year before share of joint ventures and 1,935,569 (431,202) associates
Share of joint ventures’ results 16 410,870 207,637
Share of associates’ results 16 560,299 991,718 Gain/(loss) on unquoted investment 16 244,681 (189,653) Foreign exchange gains 1,143,966 198,542 Net income for the year before taxation and capital items 6 4,295,385 777,042
Taxation charge 6 (2,362,339) (3,830,225)
Net gain/(loss) for the year after taxation 1,933,046 (3,053,183) Unrealised loss on revaluation of financial statements (23,273) - 13,761,164 25,455,574
Distribution to shareholders (2,844,000) (2,759,000) Distributions to non-controlling interest (4,315,494) - Withholding tax 6 (11,112,135) - Non-controlling interest share in net gain/(loss) 4,424,303 (8,426,322)
(Decrease)/increase in net assets attributable to participating (86,162) 14,270,252 shareholders
(Loss)/profit per participating share Basic and Diluted 9 (0.003) 0.429
All items in the above statement derive from continuing operations. The accompanying notes on pages 46 to 80 form an integral part of these financial statements.
42 Cubic Property Fund | Annual Report 2017 Consolidated Statement of Movements in Net Assets Attributable to Participating Shareholders
For the year ended 31 March 2017 Notes 2017 GBP 2017 GBP 2016 GBP 2016 GBP
Net assets attributable to participating 100,752,464 86,660,148 shareholders at the beginning of the year
Movements due to the issue and redemption of shares:
Amounts received on issue of A Class participating 19 457,510 368,699 shares
Less: Amounts paid on redemption of A Class 19 (384,995) (1,008,280) participating shares
Less: Amounts paid on redemption of P Class 19 - (63,351) participating shares 72,515 (702,932)
Decrease/(increase) in net assets attributable to (86,162) 14,270,252 participating shareholders
Exchange difference on retranslation of net assets 74,942 524,996 of subsidiary undertakings
Net assets attributable to participating 23 100,813,759 100,752,464 shareholders at the end of the year
The accompanying notes on pages 46 to 80 form an integral part of these financial statements.
43 Cubic Property Fund | Annual Report 2017
Consolidated Cash Flow Statement
For the year ended 31 March 2017
Notes 2017 GBP 2016GBP
Net cash (outflow)/inflow from operating activities 7 (15,684,088) 7,581,441
Investing activities
Purchase of investment properties 8 (31,789,598) (60,623,825)
Sale of investment properties 127,374,971 23,399,466 Funds in transit for acquisition of investment properties (910,000) 10,825,246 Sale of associate 6,184,154 - Retranslation of foreign assets 74,942 524,997 Acquisition of associates - (1,000,000) Net cash inflow/(outflow) from investing activities 100,934,469 -26,874,116
Financing activities
Distributions to participating preference shareholders (761,658) (743,952) Distributions to participating shareholders (2,759,000) -
Distributions to non-controlling interest (4,315,494) -
Loan interest received 8,627 39,678 Loan interest paid (4,745,453) (2,971,945) Loan fees paid (1,055,312) (2,172,483)
Amounts received on issue of A Class participating non-preference shares 19 457,510 368,699
Amounts paid on redemption of A Class participating non-preference shares 19 (384,995) (1,008,280) Amounts paid on redemption of P Class participating non-preference shares 19 - (63,351)
Amounts drawn down on loans 19,554,506 40,929,845
Amounts repaid on loans (70,039,155) (4,477,234) Unsettled trades 11 (346,019) -
Net cash (outflow)/inflow from financing activities (64,386,443) 29,900,977
Net increase in cash and cash equivalents for the year 20,863,938 10,608,302
Effect of foreign exchange movements 1,143,966 198,542
Cash at beginning of the year 21,217,491 10,410,647
Cash at end of the year 43,225,395 21,217,491
Non-cash transactions:
Transfer from investment in associates to unquoted investments 16 3,907,823 -
Prior year adjustment on investment property cost 2,349,507 -
The accompanying notes on pages 46 to 80 form an integral part of these financial statements.
45 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements
For the year ended 31 March 2017 Accounting convention 10% of the redemption proceeds. On The consolidated financial 19 June 2014, the Directors agreed 1. General Information statements have been prepared in to reduce the redemption charge for These consolidated financial accordance with Financial Reporting redeeming shareholders of the Fund statements include the results Standard 102 (FRS 102), under from 10% to 5%. This was further of Cubic Property Fund Limited the historical cost convention, reduced to 2.5% on 1 October 2016. (the “Company”), its subsidiaries, as modified by the revaluation of Payment of redemption proceeds associates and its joint ventures investment property and derivatives may be delayed should insufficient (together the “Group”). and in accordance with applicable funds be available. Guernsey law, and the Statement The registered office during the of Recommended Practice for There is no requirement for assets financial year was Kingsway House, Authorised Funds (“SORP”) issued by to be realised to meet redemptions Havilland Street, St Peter Port, the Investment Association in May should the Directors believe that Guernsey GY1 2QE, Channel Islands. 2014. such realisations required to meet redemptions would be detrimental to The Company was incorporated The functional and presentational the remaining shareholders. as an open-ended investment currency of the Company is Pounds company with limited liability in Sterling (“GBP”). b. Investment property Jersey, Channel Islands on 24 July Property that is held for long 2006. With effect from 17 June 2011 2. Accounting Policies term rental yields or for capital the Company has been registered The following accounting policies appreciation or both, and that is not in Guernsey as an authorised open- have been applied consistently occupied by companies in the Group, ended Class B collective investment in dealing with items which are is classified as investment property. scheme under the provisions of the considered material in relation to Investment property is measured Protection of Investors (Bailiwick of the Group’s consolidated financial initially at its cost, including related Guernsey) Law, 1987. statements: transaction costs. After initial recognition, investment property The investment objectives of the a. Fundamental accounting is carried at fair value. Changes in Group is to provide sophisticated, concept fair value are recognised in full in high net worth and institutional The Directors and Investment the Consolidated Statement of Total investors with the means of Adviser are monitoring the cash flow Return. participating in UK and European of the Group to ensure that there real estate markets by achieving is adequate operating cash in the Subsequent expenditure is added appropriate levels of rental income Company and each SPV. Based on to the asset’s carrying amount and medium to long term capital the current cash flow projections, only when it is probable that future growth from a diversified portfolio the Group is expected to generate economic benefits associated with of property and property-related enough cash from rental income to the asset will flow to the Group and assets. The Group seeks to acquire a meet its mortgage commitments the cost of the item can be measured diversified portfolio of predominantly and operating expenses in the reliably. commercial properties in the retail, foreseeable future and as such these retail warehouse, office, industrial consolidated financial statements Investment property is derecognised warehousing and leisure sectors. have been prepared on a going when the right to receive cash flows It may also acquire residential concern basis. from the property has expired or properties, hotels and development been transferred and the Group has land. All investment decisions have The Directors are also monitoring the transferred substantially all the risks been made by the Directors of the redemption policy of the Company and rewards of ownership. Realised Company, advised by the Investment to ensure redemption requests and unrealised changes in fair value Adviser, and reflects the objective can be met and to date there are are recorded in the Consolidated to maximise total return, consisting no outstanding redemptions. The Statement of Total Return. of rental income plus capital redemption terms as set out in the appreciation. Company’s Offering Memorandum Supplement allow for the Directors to levy redemption charges of up to
46 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017 f. Expenses All expenses are accounted for on (ii) Investments in associates 2. Accounting Policies an accrual basis and allocated to Associates are entities, other than (continued) the Consolidated Statement of Total subsidiaries, in which the Group Return. The Class Fund is responsible holds 20% or more of the equity share c. Income for the payment of management capital and over which the Group Properties are rented out under fees, Investment Adviser’s fees and exercises significant influence. The operating leases. Rental income Custodian fees and the payment of Group’s share is accounted for at under operating leases is accounted other expenses as detailed in the fair value with changes in fair value for on a straight line basis over the Company’s prospectus. recognised in The Consolidated term of the relevant lease and as Statement of Total Return. further detailed in note 2(m) on g. Formation expenses Leases. Interest income and other Formation costs relating to the set- (iii) Non-controlling interest income are accounted for on an up of the Company’s subsidiaries and Non-controlling interest is separately effective yield basis. the Class Fund have been written off disclosed on the Consolidated in full as incurred. Balance Sheet. This represents the d. Share capital aggregate share of net assets or Ordinary management shares are h. Basis of consolidation liabilities of subsidiary undertakings classed as equity. The consolidated financial included in the consolidated statements include the results for financial statements that are e. Participating share issues and the year ended 31 March 2017 for the attributable to the non-controlling redemptions Company, its underlying subsidiaries interest. In accordance with UK Participating shares may be issued (see note 12), joint ventures and Accounting Standards, profit or loss or redeemed at the relevant price on associates. Intra-group transactions, movements in the Statement of Total the quarterly subscription days at balances and unrealised gains Return are shown net of the portion the prices calculated in accordance on transactions within the Group attributable to the non-controlling with the Company’s prospectus and are eliminated on consolidation. interest even if this results in the based on the value of the underlying Unrealised losses are also eliminated non-controlling interest having a investments held. The Directors’ unless the transaction provides deficit balance. present policy is that: - evidence of an impairment of the asset transferred. Adjustments in i. Cash and cash equivalents (i) On the issue of participating subsidiaries have been made where Cash comprises cash at bank. Cash shares, the amount received is necessary to ensure consistency with equivalents are short term, highly credited to the share capital account. the accounting policies adopted by liquid investments that are readily Any component of such shares that the Group. convertible to known amounts creates a financial liability of the of cash and which are subject to group is presented as a liability in Subsidiaries are fully consolidated insignificant changes in value. the Balance Sheet; measured initially from the date on which control is at fair value net of transaction costs transferred to the Group. They are de- j. Foreign currency and thereafter at amortised cost consolidated from the date on which The assets and liabilities of the until extinguished on conversion control ceases. Group are translated into Sterling or redemption. The corresponding at the closing rate and its profit and dividends relating to the liability (i) Investments in a joint venture loss account is translated at average component are charged as a finance Joint ventures are entities in which rates, with the resulting exchange cost in the statement of total return. the Group holds an interest on a differences arising taken directly to long-term basis and which are the translation reserve (see note 24). (ii) On redemption, the amount jointly controlled by the Group and paid is debited to the share capital other ventures under a contractual account. Should that account be agreement. The Group’s share fully utilised, the amount payable is accounted at fair value with on redemption is debited to realised changes in value recognised in the reserves. Consolidated Statement of Total Return.
47 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017 terms, other than a renewal or fair value of the derivatives held at extension of the arrangement; the balance sheet date is determined 2. Accounting Policies by reference to their observable rates. (continued) (ii) A renewal option is exercised or extension granted, unless the term o. Distributions k. Mortgage loans of the renewal or extension was The Directors intend to make Mortgage loans are recognised when originally included in the lease term; distributions when the Class Fund the proceeds have been received. has sufficient income and cash. The Amounts held by other parties on (iii) There is a change in the Class Fund is registered for reporting retention accounts are recognised determination of whether fulfilment status as set out under The Offshore separately as other long-term current is dependent on a specified asset; or Funds (Tax) Regulations 2009. As assets. Interest payable is calculated a reporting fund, the Class Fund is on an effective yield basis. When (iv) There is a substantial change to required to report its income to HMRC terms of mortgage loan agreements the asset. on an annual basis as stated in Part are breached and the breach renders III Chapter III of The Offshore Funds the loan potentially repayable Where a reassessment is made, (Tax) Regulations 2009. upon demand, the whole loan is lease accounting shall commence or reclassified as a current liability. cease from the date when the change p. Performance Fee in circumstances gave rise to the The Investment Adviser is entitled to l. Deferred tax reassessment for scenarios (i), (iii) a performance fee in respect of the Provision is made for deferred or (iv) and at the date of renewal or Class Fund. The performance fee is tax liabilities, using the liability extension period for scenario (ii). payable quarterly and calculated and method, on all material timing Any lease surrender income received accrued on each Subscription Day. differences, including revaluation is taken to the Consolidated gains and losses recognised in the Statement of Total Return in the The performance fee is payable on Consolidated Statement of Total period in which it is received. the increase of the NAV of the Class Return. Deferred tax is calculated Under FRS 102, lease incentives are Fund over the previous highest at the rates at which it is expected recognised through the Consolidated NAV recorded for the Class Fund that the tax will arise. Deferred tax Statement of Total Return over the (after adding an amount equal to is recognised in the Consolidated lease term. all subsequent subscriptions less Statement of Total Return for the Rent reviews are recognised when redemptions). period, except to the extent that agreed with the tenant, with effect it is attributable to a gain or loss from the date of the rent review. The performance fee is equal to 20% that is recognised directly in the Leases, under the terms of which of the relevant increase in the NAV statement of movements in net the Group retains substantially all of the Class Fund over and above the assets attributed to participating the risks and rewards of ownership, Hurdle Rate Return. shareholders. Deferred tax balances are classified as operating leases. are not discounted. Receipts from operating leases The "Hurdle Rate Return" is equal to are credited to the Consolidated an amount calculated by applying a m. Leases Statement of Total Return on an compound annual rate of return of The determination of whether an accrual basis over the period of the 10% to the aggregate of (i) and (ii) arrangement is, or contains, a lease. minus (iii) where: lease is based on the substance of the arrangement at inception n. Derivative instruments (i) is the highest NAV of the Class date whether the fulfilment of the The Group’s only derivative Fund as at any previous date upon arrangement is dependent on the use instruments are interest rate swaps. which the performance fee has been of a specific asset or assets, or the The Group uses interest rate swaps paid; arrangement conveys a right to use to adjust interest rate exposures. the lease. A reassessment is made The Group does not designate (ii) is the total of all subsequent after inception of the lease only if one derivatives as hedge instruments for subscriptions less all subsequent of the following applies: hedge accounting purposes as the redemptions (calculated at the instruments do not meet the criteria time of the relevant subscription or (i) There is a change in contractual to qualify for hedge accounting. The redemption) made in respect of the
48 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017 date between a willing buyer and Balance Sheet. A comprehensive a willing seller in an arm’s length review of the Group’s capital 2. Accounting Policies transaction after proper marketing management is included in the (continued) and where the parties had each Investment Adviser’s report. acted knowledgeably, prudently and Performance Fee (continued) without compulsion.” t. Foreign currency transactions Class Fund since the date on which These estimates are regularly and balances the figure determined pursuant to (i) compared to actual market data and “Functional currency” is the above is recorded; and actual transactions entered into by currency of the primary economic the Fund. In the event of a sale, the environment in which the Fund (iii) is the total of all distributions Fund might not realise the valuation operates. If indicators of the made in respect of the Shares in the price. primary economic environment Class Fund since the date on which are mixed, then management the previous highest NAV is recorded (ii) Income taxes uses its judgement to determine for the Class Fund (calculated as The Fund is subject to income taxes the functional currency that most at the relevant dates upon which in different jurisdictions. Significant faithfully represents the economic distributions have been made). judgment is required in determining effect of the underlying transactions, the Fund’s provision for income taxes events and conditions. The majority q. Depreciation and deferred taxes. There are many of the Fund’s investor subscriptions Where a property has undergone transactions and calculations for and redemptions, determined by net a significant refit in order for it to which the ultimate tax determination asset value, are received and paid gain a tenancy, then the costs of is uncertain. Tax provisions are in Sterling. Expenses (including the work and fixtures and fittings determined based on the Fund’s management fees, custodian will be capitalised and depreciated structure and tax legislation existing fees, and administration fees) are over a period which will be based on at the year-end date. If a change denominated and paid in Sterling. the terms and conditions of each in either one of these would result Accordingly, management has Lease Agreement. These fixtures and in significantly different amounts determined that the functional fittings will be depreciated using the than those initially recorded, then currency of the Fund is Sterling. straight line method. any such change will impact the tax provisions in the period in which r. Estimates the change occurs. In recognising The Directors make estimates and deferred taxes on revaluations of assumptions concerning the Group’s investment property, consideration future. The resulting accounting has been given to their recoverability estimates will, by definition, seldom during the lifetime of the Fund based equal the related actual results. The on current market data, historical estimates and assumptions that experience and other factors. have a significant risk of causing a Estimates and judgments are material adjustment to the carrying continually evaluated and are based amounts of assets and liabilities on historical experience and other within the next financial year are factors, including expectations of discussed below. future events that are believed to be reasonable under the circumstances. (i) Investment property The fair values of investment s. Capital management property are determined by The Group’s principal capital items independent qualified valuers. The are its investment properties and valuations are prepared on the cash and liquid resources. The Group basis of Market Value as defined in has engaged its Investment Adviser Valuation Practice Statement 8) I4 1.2 to advise on strategies for managing of the Red Book, being: The estimated its capital. Quantitative information amount for which an asset or liability on the Group’s capital assets is should exchange on the valuation contained in the Consolidated
49 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
3. Net capital gain
2017 GBP 2016 GBP Non-derivative securities: Net unrealised (loss)/gain on investment properties (21,711,328) 24,839,956 Net unrealised gain on investment properties from joint ventures (see note 16) 195,945 200,000 Net unrealised (loss)/gain on investment properties from associates (see note (58,250) 2,918,385 16) Net unrealised foreign exchange gain/(loss) on retranslation of fund assets 1,044,671 (1,782,461) Gain on sale of properties* 33,472,905 4,247,801 Loss on transfer of properties** (1,567,175) - Other capital losses (73,013) - Gain on sale of associate 1,140,380 - Loss on foreign mortgage – breakage costs (781,010) - Loss on repossessed asset - (6,202,142) Gain on mortgage of repossessed asset - 5,047,585
Derivative securities: Net realised gain/(loss) on interest rate swaps 188,266 (760,367) Net capital gain 11,851,391 28,508,757
2017 GBP
*Gain on sale of properties
3 Bank Street, Ashford (Ashford Property Holdings Limited) (2,376) 13 – 15 Cornhill, Ipswich (McKenna Property Holdings Limited) (227,711) The Cromwells, Friar Street, Worcester (Bewcastle Holdings Limited) 1,658,697 Spirasol group properties 32,044,295 Total realised gain 33,472,905
50 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
3. Net capital gain (continued)
2017 GBP **Loss on transfer of properties Revolution Bar, Clarence Parade, Cheltenham (Arkle Holdings Limited) (229,188) 11 – 15 Pelham Street, Nottingham (Benbow House Limited) (155,687) 23 – 24 High Street, Sidcup (Hanford Property Holdings Limited) 38,050 The School Yard, High Street, Harborne (Harborne Holdings Limited) (141,229) 19 – 25 Red Lion Street, Norwich (Northcroft Limited) (1,093,118) 353 Lord Street, Southport (Travaldo Properties Limited) 13,997 Total realised loss (1,567,175)
During the year the above mentioned properties were transferred from their respective companies into Balavan Limited as part of a restructuring exercise. The purpose of this was to enable more favourable loan finance terms to be agreed upon.
4. Revenue
2017 GBP 2016 GBP Rental income 10,842,160 10,301,677 Interest income 8,627 39,678 Other income 3,359,575 829,363 Group’s revenue 14,210,362 11,170,718
Share of joint ventures’ income (see note 16) 810,705 420,440
Share of associates’ income (see note 16) 1,210,153 1,988,136
Share of associates’ other income (see note 16) - 394,318 Revenue 16,231,220 13,973,612
Total rental income receivable for the year, including that arising from the Group’s joint ventures and associates, amounted to £12,863,018 (2016: £12,710,253).
Within other income £3,359,149 (2016: £2,329,744) relates to investment income received by a subsidiary of Spirasol.
51 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
5. Expenses
2017 GBP 2016 GBP Investment Adviser’s fees 2,578,742 1,911,481
Property management fees and other property expenses 723,639 277,951
Directors’ fees 44,760 31,370
Property valuation fees 129,531 147,735
Fund Administration fees 102,837 92,369
Custodian fees 61,663 55,206
Legal and professional fees 461,799 790,183
Arbitration costs - 406,012
Administration fees 751,505 271,036
Property utility expenses - 365,948
Bank charges 19,570 55,629
Audit fees 79,325 98,363
Depreciation (see note 10) 11,483 111,218
Other expenses 502,930 244,439
Bad debt expense 130,000 - 5,597,784 4,858,940
6. Taxation The Directors conduct the Group’s affairs such that management and control is not exercised in the United Kingdom and so that neither the Company nor any of its subsidiaries carry on any trade in the United Kingdom. Accordingly, the Company and its subsidiaries are not liable for United Kingdom taxation on their income or gains other than certain income deriving from a United Kingdom source. The Group is subject to United Kingdom income tax on income arising on the UK property portfolio after deduction of its allowable debt financing costs and other allowable expenses. The Company also has subsidiaries in other overseas jurisdictions such as Poland, Denmark and Germany which are also liable for overseas taxes. The major components of income tax for the year ended 31 March 2017 are as follows:
2017 GBP 2016 GBP
Taxation charge on ordinary activities 2,362,339 3,830,225
Withholding tax charge* 11,112,135 3,830,225
Tax reconciliation: Net profit for the year before taxation and capital items 429,385 777,042
52 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
6. Taxation (continued)
2017 GBP 2016 GBP
Profit on ordinary activities multiplied by standard rate of tax in - - Guernsey at 0%
Higher tax rates on overseas earnings 2,362,339 3,830,225
Taxation charge 2,362,339 -
*A provision for withholding tax has been created relating to distributions within the Spirasol structure. Spirasol Limited is a Cyprus based company that invested in Danish properties through a subsidiary incorporated in Denmark. When the properties were sold the funds were distributed to Spirasol Limited without withholding tax being deducted. Denmark ordinarily imposes withholding tax on distributions; however, there are some exemptions. These primarily relate to beneficial ownership. Although Spirasol Limited is a subsidiary of Cubic Property Fund it makes its own investment decisions and uses the funds it receives to finance these investments. As such, in the opinion of the directors, Spirasol Limited is deemed to be the beneficial owner of the property holding subsidiary and therefore is not subject to withholding tax. However, the Danish tax authorities may take a view that the Spirasol structure is a tax avoidance structure. This would be covered by the Danish general anti-abuse rule (GAAR) and as such would mean withholding tax is payable on distributions. Although the directors are of the opinion no withholding tax will be payable, to ensure future investors in the fund are not prejudiced, the directors have created a side pocket for the withholding tax in case withholding tax is payable
2017 GBP 2016 GBP
Deferred tax asset/ (liability)
Balance at the beginning of the year (6,364,779) (2,094,417)
Timing differences on revaluation of investment properties 6,364,779 (4,270,362)
Balance at the end of the year - (6,364,779)
53 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
7. Notes to the consolidated cash flow statement
2017 GBP 2016 GBP
Cash flows from operating activities
(Decrease)/increase in net assets attributable to participating (86,162) 14,270,252 shareholders
Adjustments: Foreign exchange gains (1,143,966) (198,542) Interest income (8,627) (39,678) Finance costs – loan interest 4,842,132 3,826,545 Finance costs – loan fees 1,055,312 2,172,483 Finance costs – participating preference share 779,565 743,952 Finance costs – participating shareholder dividend 2,844,000 2,759,000 Finance costs – non-controlling interest dividend 4,315,494 - Realised gain on sale of investment properties (31,905,730) (4,247,801) Unrealised gain/(loss) on investment properties 19,361,821 (24,839,965) Realised loss on repossessed assets - 6,202,142 Realised gain on mortgage from repossessed asset - (5,047,585) Realised gain on sale of associate (1,140,380) - Unrealised (gain)/loss on financial assets/liabilities (188,268) 760,367 Depreciation of fixtures and fittings 11,483 111,218 Taxation charge 2,362,339 3,830,225 Non-controlling interest (4,424,303) 8,426,322 (Increase)/decrease in receivables 9,536,713 631,506 Decrease in payables (1,533,239) (19,022) Increase in joint ventures’ assets and liabilities (3,010,636) (160,486) Increase in associates’ assets and liabilities (1,188,411) (2,092,320) Decrease/ (increase) in unquoted investments 244,681 (191,564) (Decrease)/increase in deferred income (512,550) 303,501 Increase in bad debt provision 130,000 - Increase in withholding tax provision 11,112,135 - Taxation charge (paid)/recovered (8,732,520) 380,891 Net cash (outflow)/inflow from operating activities (16,352,543) 7,581,441
54 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
8. Investment properties
2017 GBP 2016 GBP Cost at the beginning of the year 193,399,632 158,129,614 Purchases at cost 15,437,448 60,623,825 Purchases at cost – transfer of properties 16,352,150 - Disposals at cost (77,469,828) (19,151,665) Disposals at cost – transfer of properties (17,999,413) - Property repossessed - (6,202,142) Cost at the end of the year 129,719,989 193,399,632 Cumulative fair value adjustments (4,180,978) 15,180,843 At fair value at the end of the year 125,539,011 208,580,475
Refer to the Consolidated Portfolio Statement in note 26 for details of the investment properties.
The repossessed properties, 239 – 245 The Marlowes & 1 Seldon Hill, were as a result of the inability to rent the empty space which led to a breach of LTV requirements. On 10 June 2015, LPA Receivers were appointed by Newcastle Building Society at which point the Fund no longer controlled the property. The directors wrote off the cost of the properties at this point.
Investment properties, including freehold and long-term leasehold properties are independently valued each quarter by Savills (UK) Limited (2016: Savills (UK) Limited). The valuation has been prepared on the basis of Market Value as defined in Valuation Practice Statement 8) I4 1.2 of the Red Book, being: “The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”
At the year end, the Directors are not aware of any material changes in the values of the properties as reported by Savills (UK) Limited.
For details of the respective proportions of these assets attributable to the Group and to non-controlling interest, please refer to note 28.
9. (Loss)/profit per participating share
The basic loss per participating share for the year ended 31 March 2017 has been calculated as £0.003 (2016: Profit £0.429), being £86,162 decrease (2016: £14,270,252 increase) divided by 33,323,792 (2016: 33,299,497) weighted average number of participating shares in issue during the year, in accordance with the following formula:
Net increase after tax, distributions and amounts attributable to non-controlling interest Weighted average number of participating shares in issue during the year
The diluted profit per participating share ratio has been calculated using the following formula:
Net increase after tax, distributions and amount attributable to non-controlling interest Weighted average number of participating shares in issue during the year plus any dilutive participating shares
55 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
9. (Loss)/profit per participating share (continued)
There were no dilutive participating shares in issue during the year under review and therefore the diluted profit per participating share is the same as the basic profit per participating share computed above.
10. Fixtures and fittings
A reconciliation of the movement is set out below:
2017 GBP 2016 GBP
Net book value at the beginning of the year 11,483 122,701
Depreciation for the year (11,483) (111,218)
Net book value at the end of the year - 11,483
The balance relates to refits of two properties for the purpose of re-letting the properties to new tenants. The cost of the refits has been capitalised and is depreciated over the initial period of the leases using the straight line method.
11. Trade and other debtors
2017 GBP 2016 GBP
Rent receivable 502,567 630,070
Less: Bad debt provision (130,000) -
372,567 - Property purchase paid in advance 910,000 - Other debtors and prepayments 318,916 1,969,581 Unsettled trades* 346,019 - Funds held in escrow on sale of Viking properties 9,274,969 - Fixed deposits 2,039,912 - 13,262,383 2,599,651
*These trades relate to the 3 January 2017 dealing date which was delayed until 3 April 2017 due to discussions surrounding the treat- ment of the withholding tax provision (see note 6).
12. Investments in underlying entities
The Group consists of the following subsidiaries which are owned and controlled by the Company in the proportions indicated:
>50% owned entities: Country of incorporation % owned
Arkle Holdings Limited Guernsey 100
Arnold House Holdings Limited Guernsey 100
56 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
12. Investments in underlying entities(continued)
>50% owned entities: Country of incorporation % owned
Ashford Property Holdings Limited British Virgin Islands 100
Balavan Limited British Virgin Islands 100 Bellbrook Estates Limited British Virgin Islands 97.11 Benbow House Limited British Virgin Islands 100 Bewcastle Holdings Limited Jersey 100 Bonnybridge Limited Guernsey 100 Bridson Limited British Virgin Islands 100 Cheffins Limited* British Virgin Islands 50 Cool Ridge Property Development Limited British Virgin Islands 100 Dartford Property Holdings Limited British Virgin Islands 96 Don Holdings Limited Guernsey 100 Exeter Properties Group Limited British Virgin Islands 95.24 Footprint Sp zoo Poland 100 Hanford Property Holdings Limited British Virgin Islands 100 Hansodeal Limited Cyprus 100 Harborne Holdings Limited Guernsey 100 Karrera Properties Limited British Virgin Islands 100 Kerrymay Properties Limited British Virgin Islands 100 Macein Limited* Guernsey 50 McKenna Property Holdings Limited British Virgin Islands 100 Nevayah Limited British Virgin Islands 100 Northcroft Limited British Virgin Islands 100 Robinia Holdings Limited British Virgin Islands 100 Sadler House Limited Jersey 50 San Pier Limited British Virgin Islands 100 Tarvin Properties Limited British Virgin Islands 100 Tradebridge Limited Guernsey 85 Travaldo Properties Limited British Virgin Islands 100 Wallis Holdings Limited Guernsey 100 Wallis Properties Sarl Luxembourg 100 Wallis Property Holdings Limited British Virgin Islands 100 West End Quay Limited British Virgin Islands 95.6 Westmead Property Holdings Limited British Virgin Islands 97.88
57 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
12. Investments in underlying entities (continued)
<50% owned: Country of incorporation % owned Aldgate Property Limited** Guernsey 40 Corinthian Curzon (Canterbury) Limited** Guernsey 40 Corinthian Curzon (Colchester) Limited** Guernsey 40 Corinthian Curzon (George) Limited** Guernsey 40 Merchant Properties Unit Trust*** Guernsey 49.01 Merchant Properties LP*** UK 48.54 Merchant Property Limited**** Guernsey 42.5 Sang Holding Limited***** British Virgin Islands 15.48 Spirasol Limited*** Cyprus 46.83 Saresco International Limited***** British Virgin Islands 16.9 Viking One ApS****** Denmark 46.83 Viking Two ApS****** Denmark 46.83 Viking Four ApS****** Denmark 46.83 Viking Five ApS****** Denmark 46.83 Viking Six ApS****** Denmark 46.83 Viking Seven ApS****** Denmark 46.83
Østensjøveien 27 ANS*** Norway 34 Østensjøveien 27 Holding AS*** Norway 34 Østensjøveien 27 Invest AS*** Norway 34
*The Company is a 50% joint venture. **The Company owns an effective 40% of this entity, through its holding in Macein Limited which is a 50% joint venture. ***The Company owns less than 50% of these entities and does not control them, but is deemed to have significant influence over them. As a result these entities are treated as associates of the Company and have been accounted for on an equity basis in the Group’s financial statements. ****The Company owns an effective 42.5% of this entity, through its holding in Tradebridge Limited which owns 50% of this entity. As the Company Directors have a majority on the board the entity is treated as a subsidiary of the Company and is consolidated in the Group’s financial statements. *****The Company owns less than 20% of this entity. As a result this entity is treated as an unquoted investment for the Company and has been accounted for on a cost less impairment basis in the Group’s financial statements. ******Whilst the Company owns less than 50% of the total equity of these companies, it owns more than 50% of the voting shares and therefore controls the companies. As a result of this these companies are treated as subsidiaries of the Company and are consolidated in the Group’s financial statements. The following companies were disposed of during the year: Viking Two ApS, Viking Five ApS, Viking Six ApS, Viking Seven ApS, Østensjøveien 27 ANS, Østensjøveien 27 Holding AS, Østensjøveien 27 Invest AS. The principal activity of all the above subsidiaries is property holding. No goodwill arose on the acquisition of any subsidiary.
58 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
13. Creditors and accruals
2017 GBP 2016 GBP
Interest payable 290,056 310,574 VAT payable 334,969 374,922 Investment Adviser’s fees payable 560,202 438,050 Taxation payable 75,686 81,088 Property valuation and property management fees payable 27,922 33,006 Directors’ fees payable 7,500 7,500 Administration fees payable 20,251 20,392 Custodian fees payable 26,672 12,974 Sundry creditors 289,667 653,306 Stamp duty payable - 191,375 Participating preference share dividend payable 761,859 743,952 Audit fees payable 82,392 75,000 Shareholder loan interest payable to non-controlling interest 986,427 869,230 3,463,603 3,811,369
14. Mortgage loans payable
As at 31 March 2017 Short-term portion Long-term portion Total Notes Lender/Subsidiary GBP GBP GBP (see below)
Aldermore Bank Plc Dartford Property Holdings Limited 17,982 805,441 823,423 1 Royal Bank of Scotland Tradebridge Limited 180,000 20,685,271 20,865,271 2 Lloyds Bank Balavan Limited - 19,554,506 19,554,506 3 Arnold House Holdings Limited - 6,814,132 6,814,132 4 BZ WBK Footprint Sp Zoo 779,375 - 779,375 5 Nationwide Building Society Karrera Properties Limited 1,485,890 - 1,485,890 6
59 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
14. Mortgage loans payable (continued)
As at 31 March 2017 Short-term portion Long-term portion Total Notes Lender/Subsidiary GBP GBP GBP (see below) HSBC Exeter Properties Group Limited 34,842 1,765,732 1,800,574 7 Bridson Limited 60,353 1,300,330 1,360,683 8 Nevayah Limited 63,028 1,236,537 1,299,565 9 Santander Robinia Holdings Limited 2,940,000 - 2,940,000 10 West End Quay Limited 180,000 8,955,000 9,135,000 11 Kerrymay Properties Limited 26,000 629,000 655,000 12 5,767,470 61,745,949 67,513,419
For details of the respective proportions of these liabilities attributable to the Group and to non-controlling interest, please refer to note 28.
Note Maturity Interest rate Properties 1 14-Dec-30 3 Month LIBOR plus 5.25% 36 Westgate Road, Dartford, Kent 2 12-Nov-20 £15,688,125 SWAP agreement fixed rate 1.46% plus lenders margin Various properties (see note 26) 2.35%, remainder LIBOR plus 2.35% 3 15-Aug-19 2% above the Bank’s base rate Balavan properties* 4 26-Nov-20 Fixed rate of 3.68% on the first 70% and the remaining portion at Arnold House, St Julian’s Avenue, St Peter 2.05% above the Bank’s base rate Port, Guernsey 5 31-Mar-17 3.69% fixed 20c, Fabryczna Street, Pietrzykowice, Poland 6 16-May-17 6.72% fixed Omega House, Smugglers Way, Wand- sworth, London 7 11-Feb-21 2.5% above the Bank’s base rate 65 High Street, Exeter 8 22-Mar-21 2.5% above the Bank’s base rate Build Centre, Coldhurst Street, Oldham 9 31-Jan-21 2.5% above the Bank’s base rate Build Centre, Station Lane, Witney, Oxford- shire and Build Centre, Fitzherbert Road, Farlington, Portsmouth 10 20-Feb-17 Fixed rate of 4.38% on first 50% and the remaining 50% at 3 month Palmer & Harvey Unit, Sortmill Road, Snod- LIBOR plus 2.75%. As at the year end the facility was in the process land, Kent of being refinanced. 11 30-Apr-22 LIBOR plus Margin (2.15%) and SWAP agreement fixed rate 1.9125% 1-3 West End Quay, Paddington, London plus 3 Month LIBOR) 12 3-Jul-19 Fixed rate of 2.38% above the Bank’s margin on first 50% and the Tritton Road, Lincoln remaining portion at the Bank’s margin plus 3 month LIBOR
60 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
14. Mortgage loans payable (continued)
*Balavan Properties 18 - 28 Turnham Green Terrace, London 141-153 Drummond Street, Euston, London Unit G1, Tyler Close, Normanton Industrial Estate, Normanton 159 High Street, Guildford, Surrey 63 North End, Croydon 75 North End, Croydon 129/131 North End, Croydon The Schoolyard, High Street, Harborne, Birmingham 353 Lord Street, Southport 19-25 Red Lion Street, Norwich Revolution Bar, Salem Baptist Church, Clarence Parade, Cheltenham 24-34(even numbers) High Street, Sidcup, Kent 11-15 Pelham Street, Nottingham 49-51, The Parade Leamington Spa
All loans are secured by a first legal charge over the properties to which each loan relates and, in addition, by a Deed of Rental Assignment. Cross-guarantees are in place relating to the loans payable by Bridson Limited and Nevayah Limited to GE Capital Bank.
All loans are denominated in Sterling except the loan from BZ WBK S.A., which is denominated in Euro.
As at 31 March 2016 Short-term portion Long-term portion Total Lender/Subsidiary GBP GBP GBP Aldermore Bank Plc Dartford Property Holdings Limited 27,652 805,441 833,093 Royal Bank of Scotland Tradebridge Limited 180,000 20,737,500 20,917,500 BRFkredit Bank Viking Two ApS - 9,022,229 9,022,229 Viking Five ApS 187,242 8,194,490 8,381,732 Viking Six ApS - 10,310,659 10,310,659 Viking Seven ApS - 8,101,620 8,101,620
61 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
14. Mortgage loans payable (continued)
As at 31 March 2016 Short-term portion Long-term portion Total Lender/Subsidiary GBP GBP GBP Lloyds Balavan Limited - 2,499,800 2,499,800 Harborne Holdings Limited - 1,650,000 1,650,000
Arnold House Holdings Limited - 6,814,132 6,814,132
Hanford Property Holdings Limited 16,000 2,890,000 2,906,000 Northcroft Limited - 1,350,000 1,350,000 Benbow House Limited 29,500 1,257,775 1,287,275 Travaldo Properties Limited - 388,763 388,763 BZ WBK S.A Footprint Sp Zoo 936,658 - 936,658 Nationwide Building Society Karrera Properties Limited 5,400 1,485,966 1,491,366 Bewcastle Holdings Limited 151,670 6,895,948 7,047,618 HSBC Exeter Properties Group Limited 34,842 1,835,158 1,870,000 Bridson Limited 60,353 1,369,472 1,429,825 Nevayah Limited 63,028 1,307,147 1,370,175 Santander McKenna Property Holdings Limited 2,348,000 - 2,348,000 Robinia Holdings Limited 3,100,000 - 3,100,000 West End Quay Limited 180,000 9,135,000 9,315,000 Kerrymay Properties Limited 26,000 655,000 681,000
7,346,345 96,706,100 104,052,445
15. Financial liabilities
Typically, the derivative contracts that the Group holds are aimed at reducing the risk to the Group (the Group does not designate any derivative as a hedging instrument for hedge accounting purposes). The Group holds derivatives in the form of interest rate swap agreements.
Interest rate swap agreements are contractual agreements between two parties to exchange streams of payments over time based on specified notional amounts. The interest rate swaps are contracts taken out between the Company’s SPVs and lenders of the mortgage loans with the aim of fixing interest rates payable on floating rate mortgage loans.
62 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
15. Financial liabilities (continued)
Derivative contracts 2017 GBP 2016 GBP
Interest rate swaps 710,769 889,037
The total notional amount of the swaps is £16,453,125 (2016: £35,722,625). The Group pays fixed interest rates of between 0.89% and 2.00% (2016: between 0.89% and 2.00%). The maturity dates of the swap contracts range between October 2020 and September 2024 (2016: February 2017 and October 2022). There are no options contained within the swap instruments.
16. Other Investments
Interest in joint ventures
The Group has entered into two joint venture agreements (March 2016: two joint venture agreements), in which it holds a 50% stake in each. The principal activities of the joint ventures are property investment. The Group has no contingent liabilities or further capital commitments to the joint ventures. Cumulatively, the Group has advanced the joint ventures a total of £4,643,571 (2016: £2,109,886) in the form of shareholder loans. The following is the Group’s share of the joint ventures:
2017 GBP 2016 GBP Fixed assets 10,068,753 5,863,076 Current assets 1,281,604 75,831 Share of gross assets 11,350,357 5,938,907
Liabilities due within a year (464,171) (137,430) Liabilities due after more than one year (4,996,573) (2,922,500) Share of gross liabilities (5,460,744) (3,059,930)
Share of net assets 5,889,613 2,878,977
Net capital loss for the year:
Net unrealised gain on investment property 195,945 200,000
Revenue 810,705 420,440 Expenses (399,835) (212,803) Profit from operations 410,870 207,637 Profit for the year 606,815 407,637
63 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
16. Other Investments (continued)
Interest in associates
The Group has a 49.0085% stake in Merchant Properties LP. During the year the Group disposed of their 34% stake in Østensjøveien 27 ANS. The 15.49% investment into the Sang Holdings Limited property investment in which the Group retains a significant interest was recognised as an associate in the prior year; however, this is now recognised as an unquoted investment as the directors are of the opinion that this more accurately reflects the commercial nature of the investment. The Group has no contingent liabilities or further capital commitments to the associates. Cumulatively, the Group has advanced the associates a total of £Nil (2016: £10,791,266) in the form of shareholder loans. The following is the Group’s share of the associates:
2017 GBP 2016 GBP Fixed assets 19,058,848 40,099,484 Current assets 631,480 1,245,378 Share of gross assets 19,690,328 41,344,862
Liabilities due within a year (330,553) (586,787)
Liabilities due after more than one year (10,885,522) (23,834,274)
Share of gross liabilities (11,216,075) (24,421,061)
Share of net assets 8,474,253 16,923,801
Net capital (loss)/gain for the year:
Net unrealised (loss)/gain on investment (58,250) 2,918,385 property
Revenue 1,210,153 2,382,454 Expenses (649,854) (1,390,736) Profit from operations 560,299 991,718
Profit for the year 502,049 3,910,103
64 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
16. Other Investments (continued)
Unquoted investments
The Group holds a 16.90% stake in Saresco International Limited. Its principal activity is property investment. The Group reclassified its 15.48% investment in Sang Holding Limited as an unquoted investment (associate in prior year) as the Directors are of the opinion that this more accurately reflects the commercial nature of this investment. This adjustment has only been reflected in the current year. Its principal activity is property investment. Cumulatively, the Group has advanced the investment a total of £1,000,000 in the form of equity and shareholder loans. The following is the Group’s share of the investment:
2017 GBP 2016 GBP Net Asset Value 4,854,706 1,191,564
Gain/(loss) on investment 244,681 (189,653)
17. Other loans payable
2017 GBP 2016 GBP Loans payable to non-controlling shareholders of the subsidiaries and joint ventures. 4,439,057 18,384,680
The loans bear interest at rates to be determined from time to time by the Directors, are unsecured and have no fixed dates for repayment. Although the loans have no fixed dates for repayment, the Directors believe that these will not have to be repaid in the next 12 months and have therefore classified the loans as long-term liabilities.
18. Other long term liabilities
2017 GBP 2016 GBP Security deposits payable to tenants 52,330 1,336,539 Sundry creditors 190,013 - 242,343 1,336,539
65 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
19. Share capital
Authorised share capital Cubic Property Fund Limited is authorised to issue 10 management shares and an unlimited number of participating redeemable preference shares (“participating shares”) of no par value.
Management shares were issued for cash at £1 each to the Manager in order to comply with Jersey law, which requires that participating shares must have a preference over another class of capital. The same requirement exists in Guernsey law now that the Company has migrated to Guernsey. The holders of management shares carry no right to vote at general meetings. The holders of management shares are not entitled to a dividend and the shares are not redeemable. In a winding up, they rank only for a return of paid up nominal capital pari passu out of the assets of the Company (after the return of nominal capital paid up on participating shares). The management shares were issued to the Manager at par and the proceeds of the issue are represented by a separate management fund.
All participating shares, including A Class shares, C Class shares and P Class shares, carry the right to a proportionate share in the assets of the relevant Class Fund and to any dividends that may be declared.
Holders of the participating shares are entitled to receive notice of all general meetings of the Company and to attend such meetings and vote. The holders of participating shares are entitled to one vote for each whole share of which they are a holder. Shares are redeemable by shareholders at prices based on the value of the net assets of the relevant Class Fund as determined in accordance with the Company’s Articles of Association.
A Class shares may be subscribed for or redeemed on the first business day of each calendar quarter.
P Class shares receive a preference dividend of 3% per annum on the amount paid up per share.
On 2 April 2013, the Company raised £30,571,820 of new shareholder capital, through a rights issue, in the form of C Class (2013 series) shares being converted to A Class shares on the third anniversary of their issue.
On 1 April 2016, the C Class (2013 series) shares were converted and rolled into the A Class.
66 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
19. Share capital (continued)
For the year ended 31 March 2017 Number of shares A Class C Class P Class Management Brought forward 4,916,795 19,971,139 8,411,563 10 Converted in the year 19,971,139 (19,971,139) - - Issued in the year 142,221 - - - Redeemed in the year (117,926) - - - Carried forward 24,912,229 - 8,411,563 10
Amount A Class C Class P Class Management Total GBP GBP GBP GBP GBP Brought forward 44,334,495 30,571,820 25,391,941 10 100,298,266 Converted in the year 30,571,820 (30,571,820) - - - Issued in the year 457,510 - - - 457,510 Redeemed in the year (384,995) - - - (384,995) Carried forward 74,978,830 - 25,391,941 10 100,370,781
For the year ended 31 March 2016 Number of shares A Class C Class P Class Management Brought forward 5,136,042 19,971,139 8,433,652 10 Issued in the year 130,067 - - - Redeemed in the year (349,31) - (22,089) - Carried forward 4,916,795 19,971,139 8,411,563 10
Amount A Class C Class P Class Management Total GBP GBP GBP GBP GBP
Brought forward 44,974,076 30,571,820 25,455,292 10 101,001,198
Issued in the year 368,699 - - - 368,699 Redeemed in the year (1,008,280) - (63,351) - (1,071,631) Carried forward 44,334,495 30,571,820 25,391,941 10 100,298,266
A dividend of £2,844,000 has been declared in relation to the participating A Class shares in respect of the year ended 31 March 2017 (2016: £2,759,000).
67 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
20. Related party transactions
Cannon Asset Management Limited and Montreux Advisors Limited are considered related parties. Cannon Asset Management Limited, acted as the Administrator, Secretary, Registrar and Designated Manager (hereinafter referred to as the “Administrator”) for the year. Montreux Advisers Limited acted as the Investment Adviser and Cannon Asset Management Limited was the administrator to most of the Group’s SPV companies.
The Administrator is considered a related party as Richard van Vliet and Michael Fienberg are directors of the Administrator. Further the Investment Adviser is considered a related party due to contractual arrangements and the fact that it influences key investment decisions for the Group. The SPV Administrator is considered a related party as Richard van Vliet and Michael Fienberg are Directors of the Company and of the SPV Administrator.
Fees payable are as follows:
The Investment Adviser is entitled to receive an investment advisory fee of 0.68% per annum of the Gross Asset Value of the Class Fund. The Investment Adviser receives acquisition fees of up to 1.5% of the purchase price of any new property acquisition and a disposal fee of up to 1.5% of the sale price of any property disposals. In addition should an initial charge, not exceeding 5%, on subscription for participating shares be paid to the Investment Adviser, such charges in the majority of cases are paid by the Investment Adviser to the introducing financial advisor. All other costs and expenses, including performance fees, are borne by the Class Fund. During the year, the Investment Adviser’s fees amounted to £2,578,742 (2016: £1,911,481) and at the year end the amount still outstanding was £560,202 (2016: £438,050). No performance fee was paid during the year (2016: £Nil).
The Administrator is entitled to receive an administration fee of 0.10% per annum of the Net Asset Value of the Class Fund subject to a minimum of £60,000 per annum, plus transaction fees, paid quarterly in arrear. The Fund administration fees in the year amounted to £102,837 (2016: £92,369) and at the year end the amount still outstanding was £20,251 (2016: £20,392).
The Directors are entitled to the sum of £10,000 each per annum for their services to the Company. The Directors may also receive Directors’ fees in respect of services provided to the subsidiaries. Directors fees of £44,760 were paid for the year (2016: £31,370) and at the year end the amount still outstanding was £7,500 (2016: £7,500). £5,358 was paid in the current year relating to the Directors’ services to the subsidiaries (2016: £Nil). The fees payable are as disclosed in note 5 with the amounts outstanding at the year-end disclosed in note 13.
Lorca Management Limited has a significant interest of 45.22% in the Viking investments in Copenhagen and Lorca is a 45% JV partner in Cheffins Limited, the Sadler House property in Jersey. It also has a 50% interest in Macein Limited.
68 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
21. Controlling Party The immediate and ultimate controlling party by virtue of their shareholding in the Fund, as defined by Financial Reporting Standard 102 Section 33 (Related Party Disclosures), is Lorca Management Limited.
22. Financial instruments
Fair values The Directors consider that the carrying amounts of trade and other receivables, cash and cash equivalents, creditors and accruals, mortgage loans payable, other loans payable and net assets attributable to participating shareholders approximate their fair values.
The Group’s investing activities expose it to various types of risk that are associated with financial instruments and markets in which it invests. These risks are dealt with at length in the private placement memorandum. Some of the most important types of financial risk to which the Group is exposed are summarised as follows:
Fair value hierarchy
The following table analyses the Group’s assets and liabilities measured at fair value. The different levels have been defined as follows:
• Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities; • Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Level 1 Level 2 Level 3 Total 31-Mar-17 GBP GBP GBP GBP Interest rate swaps - (710,769) - (710,769)
31-Mar-16 Interest rate swaps - (899,037) - (899,037)
Credit risk
Credit risk is the risk that a counterparty will be unable or unwilling to meet commitments it has entered into with the Group. The Group’s main credit risk arises from the possibility of defaults on rental income. As at the year-end date, the maximum exposure relating to tenant default is the entire balance of rental debtors, amounting to £502,567 (2016: £630,070). In the event of default by an occupational tenant, the Group may additionally suffer a rental income shortfall and incur additional costs including legal expenses and expenses relating to re-letting the property. The Directors consider the inherent risk small due to their policy of investing in large-size properties and letting out to well-known and reputable businesses.
69 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
22. Financial instruments (continued) Liquidity risk
Liquidity risk is the risk the Group will encounter in realising assets or otherwise raising funds to meet financial commitments, including potential quarterly redemptions. As the Group invests substantial amounts in individual investments, there is also an inherent risk, should a shareholder wish to redeem, that sufficient cash will not be available to meet the redemption without the need for forced sales. This risk is mitigated as dealing in the Company can only occur quarterly. In the event of insufficient funds being available to meet redemption requests, the Directors are permitted to delay such redemptions until sufficient assets are realised. The Directors may also impose redemption charges.
The Group’s liquidity position has been monitored on a regular basis by the Board of Directors.
The following tables analyse the Group’s non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the year end to the contractual maturity date.
More than 5 years or Total 0-1 year 1-2 years 2-5 years no maturity GBP GBP GBP GBP GBP For the year ended 31 March 2017 Mortgage loans (67,513,419) (5,767,470) (20,143,534) (32,740,691) (8,861,724) Other loans payable (4,439,057) - - - (4,439,057) Creditors (3,705,946) (3,705,946) - - - Distributions payable (2,844,000) (2,844,000) - - - (78,502,422) (12,317,416) (20,143,534) (32,740,691) (13,300,781)
For the year ended 31 March 2016
Mortgage loans (104,052,445) (7,346,345) (11,686,331) (41,029,906) (43,989,863) Other loans payable (18,384,680) - - - (18,384,680) Creditors (5,147,908) (5,147,908) - - - Distributions payable (2,759,000) (2,759,000) - - - (130,344,033) (15,253,253) (11,686,331) (41,029,906) (62,374,543)
70 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
22. Financial instruments (continued) Market price risk
The Group is exposed to market price risk in relation to the fair value of its interest rate swaps. No sensitivity analysis has been performed in respect of this risk exposure as the amounts concerned are not material.
Changes in market conditions may adversely affect rental income arising from the Group’s property portfolio and the market value of the properties. Furthermore, the Group has various loan covenants for the mortgage loans such as LTV ratios which may also be adversely affected by any adverse movements in property values. The conditions are regularly reviewed by the Directors with guidance from the Investment Adviser to ensure that the Group’s positions are adequately balanced to minimise the impact of market price risk.
Interest rate risk
The floating rate loans taken out by the subsidiaries to finance property purchases leave the Group exposed to risks associated with the effects of fluctuations in the prevailing levels of market interest rates. The following tables summarise the Group’s exposure to interest rate risk and set out the carrying amount, by maturity, of the Group’s financial instruments that are exposed to interest rate risk.
More than 5 years or Total 0-1 year 1-2 years 2-5 years no maturity GBP GBP GBP GBP GBP For the year ended 31 March 2017 Mortgage loans - Variable (62,970,621) (2,030,113) (20,102,752) (32,602,756) (8,235,000) Mortgage loans - Fixed (4,542,798) (3,737,357) (40,782) (137,935) (626,724) Other loans payable (4,439,057) - - - (4,439,057) Cash at bank 43,225,395 43,225,395 - - - (28,727,081) 37,457,925 (20,143,534) (32,740,691) (13,300,781)
For the year ended 31 March 2016 Mortgage loans - Variable (99,182,694) (3,282,035) (11,658,679) (40,946,950) (43,295,030) Mortgage loans - Fixed (4,869,751) (4,064,310) (27,652) (82,956) (694,833) Other loans payable (18,384,680) - - - (18,384,680) Cash at bank 21,217,491 21,217,491 - - - (101,219,634) 13,871,146 (11,686,331) (41,029,906) (62,374,543)
71 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
22. Financial instruments (continued) Interest rate risk (continued)
The sensitivity analyses below have been determined based on the Group’s exposure to interest rates for interest bearing assets and liabilities (included in the interest rate exposure table above) at the 31 March 2017 and the stipulated change taking place at the beginning of the financial year and held constant through the reporting year in the case of instruments that have floating interest rates.
If interest rates had been 1% higher/lower, for assets and liabilities as at 31 March 2017 that are subject to changing interest rates, and all other variables were held constant, the Group’s change in net assets attributable to participating shareholders for the year would have been a decrease/increase of £674,097 (2016: £1,071,782) due to the increase/decrease in the interest paid on the Group’s floating rate net interest bearing liability.
Currency risk
The Group invests in properties that are domiciled in countries with different currencies from the Group’s reporting currency of Sterling. Accordingly, any changes in exchange rates may significantly affect the cash flows from the rentals and the value of the property in the Group’s books. This risk is managed through the investment strategies for each Class Fund. With regards to the UK and European Class Fund, which is the only Class Fund at the year-end date, investments are limited to properties in the UK and European markets. The currency exposure as at 31 March 2017 was as follows:
Investment properties Cash Other net liabilities Total net assets % of exposure GBP GBP GBP GBP GBP GBP 119,240,000 29,364,988 (54,581,252) 94,023,736 93.26 EUR 4,432,322 181,076 (4,870,866) (257,468) (0.26) DKK - 13,499,597 (6,449,061) 7,050,536 6.99 NOK - 162,242 (162,242) - - PLN 1,866,689 17,492 (1,887,226) (3,045) - 125,539,011 43,225,395 (67,950,647) 100,813,759 100.00
The currency exposure as at 31 March 2016 was as follows:
Other net (liabilities) Investment properties Cash Total net assets % of exposure / assets GBP GBP GBP GBP GBP GBP 120,630,000 6,221,536 (54,475,350) (72,376,186) 71.84 EUR 3,692,259 723,055 787,039 5,202,353 5.16 DKK 82,594,319 14,163,495 (75,260,582) 21,497,232 21.34 NOK - 19,254 (37,161) (17,907) (0.02) PLN 1,663,897 90,151 (59,448) 1,694,600 1.68 208,580,475 21,217,491 (129,045,502) 100,752,464 100.00
72 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
22. Financial instruments (continued) The sensitivity analysis below has been determined based on the sensitivity of the Group’s outstanding foreign currency denominated financial assets and liabilities to a 10% increase/decrease in Sterling against Euro, Danish Kroner, Polish Zloty and Norwegian Kroner translated at the year-end date.
As at 31 March 2017, if Sterling had weakened by 10% against the Euro, Danish Kroner and Norwegian Kroner, with all other variables held constant, the net assets attributable to participating shareholders would have been £754,393 (2016: £12,791,373) or 0.75% higher (2016: 12.70% higher). Conversely, if Sterling had strengthened by 10% against the Euro, Danish Krona, Polish Zloty and Norwegian Kroner, with all other variables held constant, the net assets attributable to participating shareholders would have been £617,304 (2016: £10,465,692) or 0.61% lower (2016: 10.39% lower).
23. Reconciliation of net asset value
2017 GBP 2016 GBP
Per audited financial statements
Total assets 201,245,361 253,403,442 Total liabilities (90,657,027) (138,452,100)
Net assets attributable to non-controlling interest (9,774,575) (14,198,878)
Net Asset Value 100,813,759 100,752,464
Adjustments made:
Property acquisition and bank refinance costs* 4,734,499 2,729,544
Over accrued expense (7,131) (53,014)
Interest rate swap unrealised loss not included 710,769 899,037
Reported Net Asset Value 106,251,896 104,328,031
Number of participating shares 33,323,792 33,299,497
Reported Net Asset Value per share GBP 3.19 GBP 3.13
Net Asset Value per participating share as per audited consolidated financial statements GBP 3.03 GBP 3.03
*Relates to the property acquisition and bank refinancing costs which are amortised in the Company valuation but immediately expensed in the audited financial statements.
73 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
24. Other reserves
Consolidated Translation Capital reserve Statement of Net deficit Total reserves reserve GBP Total Return GBP GBP GBP GBP For the year ended 31 March 2017 Balance brought forward 3,346,701 (3,722,741) (376,040) (830,238) (454,198) Movement in the year (2,019,208) 1,933,046 (86,162) (74,942) (11,220) Balance carried forward 1,327,493 (1,789,695) (462,202) (905,180) (442,978)
For the year ended 31 March 2016 Balance brought forward (13,976,734) (669,558) (14,646,292) 305,242 (14,341,050) Movement in the year 17,323,435 (3,053,183) 14,270,252 (524,996) 14,795,248 Balance carried forward 3,346,701 (3,722,741) (376,040) (830,238) 454,198
Capital reserve comprises accumulated revaluation gains and losses of the Group’s investment property, derivatives and other capital items.
Translation reserve comprises accumulated exchange differences arising on the translation of the net investment in foreign entities into sterling.
25. Segmental reporting
The Company has two significant geographical operating segments, the United Kingdom and Continental Europe.
Continental Total United Kingdom GBP Europe GBP GBP For the year ended/as at 31 March 2017 Revenue 9,435,133 6,796,087 16,231,220
Net income before tax and capital items 784,476 3,510,906 4,295,385
Net capital (loss)/gain (1,601,781) 13,453,172 11,851,391
Net assets 94,023,736 6,790,023 100,813,759
Share of net income before tax and capital items relating to joint ventures and associates 971,169 - 971,169
Share of net capital gain relating to joint ventures and associates 137,695 1,140,380 1,278,075
74 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
25. Segmental reporting (continued)
Continental Total United Kingdom GBP Europe GBP GBP For the year ended/as at 31 March 2016
Revenue 8,697,888 5,275,724 13,973,612
Net income before tax and capital items 1,020,045 (243,003) 777,042
Net capital gain 6,594,029 21,914,728 28,508,757
Net assets 60,566,171 40,186,293 100,752,464
Share of net income before tax and capital items relating to joint ventures and associates 884,681 314,674 1,199,355
Share of net capital gain relating to joint ventures and associates 1,759,749 1,358,636 3,118,385
All revenue is derived from external tenants.
26. Consolidated Portfolio Statement
Cost Market Value Portfolio As at 31 March 2017 GBP GBP % Investment Property 1-13, West End Quay, Paddington 13,221,548 17,150,000 17.01 18-28 Turnham Green Terrace, London 4,447,720 5,050,000 5.01 19-25, Red Lion Street, Norwich 2,700,467 2,450,000 2.43 20c Fabryczna Street, Pietrzykowice, Poland 2,615,459 1,866,689 1.85 Revolution Bar, Clarence Parade, Cheltenham 2,400,467 2,500,000 2.48 24/34, High Street, Sidcup 5,000,467 5,000,000 4.96 11-15 Pelham Street, Nottingham 2,850,467 2,825,000 2.80 36, Westgate Road, Dartford, Kent 2,617,213 1,850,000 1.84 65, High Street, Exeter 3,341,161 3,400,000 3.37 Am Poggenpohl 1, Homeburg, Germany 3,022,765 1,627,992 1.61 Arnold House, St Julian’s Avenue, St Peter Port, 11,220,832 10,250,000 10.16 Guernsey Bahnhofstr. 12-14, Bad Munder, Germany 2,732,402 2,250,290 2.23 Build Centre, Coldhurst Street, Oldham 3,314,228 2,500,000 2.48
75 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
26. Consolidated Portfolio Statement (continued)
City Office Park, Tritton Road, Lincoln 1,940,867 1,150,000 1.14 Omega House, Wandsworth, London 2,973,435 2,850,000 2.83 Palmer & Harvey Unit, Snodland 7,403,892 8,300,000 8.23 The School Yard, High Street, Harborne 2,600,000 3,000,000 2.98 Plumb Centre, Fitzherbert Road, Portsmouth 1,524,192 1,550,000 1.54 Plumb Centre, Station Lane, Witney 1,306,603 1,250,000 1.24 Schongauer Str. 46, Peiting, Germany 2,279,375 554,040 0.55 353 Lord Street, Southport 800,282 700,000 0.69 129-131 North End, Croydon 2,404,141 2,200,000 2.18 75 North End, Croydon 2,235,962 2,300,000 2.28 63 North End, Croydon 1,799,817 1,700,000 1.69 Unit G1, Tyler Close, Normanton 2,369,354 2,350,000 2.33 159 High, Street, Guildford 2,649,322 2,650,000 2.63 141-153 Drummond Street, London 1,736,070 1,675,000 1.65 19-21 Parade, Leamington Spa 2,224,690 2,100,000 2.07 95,733,198 93,049,011 92.26 Tradebridge properties (as below) 33,986,791 32,490,000 32.27 129,719,989 125,539,011 124.53 Loans payable (71,952,476) (71.37) Other net assets 57,001,799 56.54 Non-controlling interests (9,774,575) (9.70) Total net asset value 100,813,759 100.00
Cost Market Value Portfolio As at 31 March 2017 GBP GBP % Tradebridge properties Station Lane, Birtley, Tyne & Wear 1,135,000 1.13 Factory Road, Blaydon , Tyne & Wear 1,450,000 1.44 The Station Yard, Blythe Bridge, Staffordshire 1,150,000 1.14 Windsor Street, Bradford, West Yorkshire 1,015,000 1.01 St Andrews Works, Bridport, Dorset 2,785,000 2.76 Hobson Industrial Estate, Burnopfield, Tyne & 825,000 0.82 Wear
76 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
26. Consolidated Portfolio Statement (continued)
Middlebrook Way, Cromer, Norfolk 1,060,000 1.05 Mid Craig Road, Dundee, Forfar 1,370,000 1.36 Law Place, East Kilbride, Lanarkshire 1,450,000 1.43 Woolley Bridge, Glossop, Derbyshire 1,370,000 1.36 Quedgeley West Business Park, Gloucester 3,250,000 3.22 Thames Way, Gravesend, Kent 3,585,000 3.56 Shore Street, Inverness, Inverness-shire 1,470,000 1.46 Mintsfeet Trading Estate, Kendal, Cumbria 1,445,000 1.43 Hamlin Way, Kings Lynn, Norfolk 2,530,000 2.51 Bamfield Road, Leek, Staffordshire 1,835,000 1.82 Trostre Road, Llanelli, Carmarthenshire 1,925,000 1.92 Livsey Street, Rochdale, Greater Manchester 1,215,000 1.22 George Holmes Way, Swadlincote, Derbyshire 1,625,000 1.62 33,986,791 32,490,000 32.27
The Tradebridge properties were purchased jointly and as such the Directors are of the opinion that the cost associated with calculating the cost of each individual property outweighs the benefit it will provide.
77 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
26. Consolidated Portfolio Statement (continued)
Cost Market Value Portfolio As at 31 March 2016 GBP GBP % Investment properties 1-13, West End Quay, Paddington 13,221,548 17,100,000 16.97 13-15 Cornhill, Ipswich 4,209,513 4,500,000 4.47 18-28 Turnham Green Terrace, London 4,447,720 4,950,000 4.91 19-25, Red Lion Street, Norwich 3,861,234 2,675,000 2.66 20c Fabryczna Street, Pietrzykowice, Poland 2,615,459 1,663,897 1.65 Revolution Bar, Clarence Parade, Cheltenham 2,611,096 2,400,000 2.38 24/34, High Street, Sidcup 4,961,950 4,975,000 4.94 11-15 Pelham Street, Nottingham 3,005,812 2,825,000 2.8 36, Westgate Road, Dartford, Kent 2,617,213 1,850,000 1.84 55-67 & 79, Friar Street, Worcester 11,604,015 11,550,000 11.46 65, High Street, Exeter 3,341,161 3,400,000 3.37 Am Poggenpohl 1, Homeburg, Germany 3,022,765 1,275,655 1.27 Arnold House, St Julian’s Avenue, St Peter Port, Guernsey 11,220,832 11,000,000 10.92 Bahnhofstr. 12-14, Bad Munder, Germany 2,732,402 1,901,597 1.89 Build Centre, Coldhurst Street, Oldham 3,314,228 2,425,000 2.41 City Office Park, Tritton Road, Lincoln 1,940,867 1,200,000 1.19
Købmagergade 22, Copenhagen, Denmark 15,197,419 20,203,285 20.05 Købmagergade 24, Copenhagen, Denmark 15,803,946 20,734,951 20.58 Købmagergade 26, Copenhagen, Denmark 13,946,684 26,583,272 26.38 Ostergard 40 + Vimmelskaflet Copenhagen 16,708,251 15,072,811 14.96 Omega House, Wandsworth, London 2,973,435 2,550,000 2.53 Palmer & Harvey Unit, Snodland 7,403,892 8,100,000 8.04 The School Yard, High Street, Harborne 2,741,229 3,000,000 2.98 Plumb Centre, Fitzherbert Road, Portsmouth 1,524,192 1,475,000 1.46 Plumb Centre, Station Lane, Witney 1,306,603 1,175,000 1.17 Schongauer Str. 46, Peiting, Germany 2,279,376 515,007 0.51 353 Lord Street, Southport 800,000 750,000 0.74 159,412,842 175,850,475 174.53 Tradebridge properties (as below) 33,986,791 32,730,000 32.49 193,399,633 208,580,475 207.02 Loans payable (122,437,125) (121.52) Other net assets 28,807,992 28.59 Non-controlling interests (14,198,878) (14.09) Total net asset value 100,752,464 100
78 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
26. Consolidated Portfolio Statement (continued)
Cost Market Value Portfolio As at 31 March 2016 GBP GBP % Tradebridge properties Station Lane, Birtley, Tyne & Wear 1,135,000 1.13 Factory Road, Blaydon , Tyne & Wear 1,445,000 1.43 The Station Yard, Blythe Bridge, Staffordshire 1,150,000 1.14 Windsor Street, Bradford, West Yorkshire 1,000,000 0.99 St Andrews Works, Bridport, Dorset 2,785,000 2.76 Hobson Industrial Estate, Burnopfield, Tyne & Wear 805,000 0.8 Middlebrook Way, Cromer, Norfolk 1,060,000 1.05 Mid Craig Road, Dundee, Forfar 1,435,000 1.42 Law Place, East Kilbride, Lanarkshire 1,500,000 1.49 Woolley Bridge, Glossop, Derbyshire 1,370,000 1.36 Quedgeley West Business Park, Gloucester, Gloucestershire 3,325,000 3.3 Thames Way, Gravesend, Kent 3,585,000 3.56 Shore Street, Inverness, Inverness-shire 1,470,000 1.48 Mintsfeet Trading Estate, Kendal, Cumbria 1,445,000 1.43 Hamlin Way, Kings Lynn, Norfolk 2,530,000 2.51 Bamfield Road, Leek, Staffordshire 1,835,000 1.82 Trostre Road, Llanelli, Carmarthenshire 1,990,000 1.98 Livsey Street, Rochdale, Greater Manchester 1,240,000 1.23 George Holmes Way, Swadlincote, Derbyshire 1,625,000 1.61 33,986,791 32,730,000 32.49
27. Contingent liabilities and commitments
Cross-guarantees are in place relating to the loans payable by Bridson Limited and Nevayah Limited to HSBC Bank because that was a condition of refinance from redeeming the loan with GE Capital Bank. The Company has no other contingent liabilities or commitments.
28. Minority interests
The Group in the main owns property through companies which are 100% owned, however there are several companies whereby the Group does not own 100% of the shares (see Note 12). Where the Group can demonstrate that it either owns a majority of the share capital of the SPV or can demonstrate that it controls the boards of the SPV, then the SPV will be classified as a subsidiary of the group and will be taken into these consolidated financial statements in full. The shares that it does not own are classified as minority interests and in these financial statements are shown on the Consolidated Balance sheet as “net assets attributable to non – controlling interest”.
79 Cubic Property Fund | Annual Report 2017 Notes to the Consolidated Financial Statements (Continued)
For the year ended 31 March 2017
28. Minority interests (continued)
Group assets with Minority interest As at 31 March 2017 Minorities Share Property investments 54,890,000 19,672,190 Cash at bank 16,851,729 8,787,095 Debtors 9,922,296 5,083,465 Creditors (14,234,133) (6,585,101) Bank loan (32,624,268) (12,518,115) Deferred tax liability - - Tenants deposits - - Loans and equity (21,462,070) (4,664,959) Total NAV 13,343,554 9,774,575
Group assets with Minority interest As at 31 March 2016 Minorities Share Property investments 137,674,319 63,723,389 Cash at bank 15,379,659 7,971,491 Debtors 1,369,258 549,927 Creditors (4,151,191) (1,412,137) Bank loan (68,751,833) (31,603,254) Deferred tax liability (6,364,779) (3,384,153) Tenants deposits (1,336,539) (710,638) Loans and equity (51,720,636) (20,935,747) Total NAV 22,098,258 14,198,878
29. Post year end events
Property Activity
On 5 May 2017, the Group completed the acquisition of The Arts Complex, Above Bar Street, Southampton for considera- tion of £8,750,000.
On 7 July 2017, the Group completed the disposal of 75 North End, Croydon for consideration of £2,674,000.
As at the date of signing the Balance Sheet the German property portfolio is in the process of being sold for €5,750,000. Contracts were exchanged on 18 August 2017 and completion is planned for some time in October.
Investors Activity
On 3 July 2017, there was a redemption of 5,361,952 shares in the A Class for consideration of £17,291,760.
80 Cubic Property Fund | Annual Report 2017 Fund Administrator Investment Adviser Property Adviser to Montreux Advisers Ltd
Cannon Asset Management Ltd Montreux Advisers Ltd Avignon Capital Ltd Kingsway House, Havilland Street PO Box 393 28 Margaret Street St Peter Port, Guernsey, GY1 2QE Kingsway House, Havilland Street London, W1W 8RZ T: +44 (0) 1481 726 141 St Peter Port, Guernsey, GY1 2QE T: +44 (0) 207 299 7850 E: [email protected] T: +44 (0) 1481 726 141 E: [email protected]