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Chairman’s statementOverview Auditors’ Report
St Christopher’s Place, London
2022 Annual Report and Consolidated Financial Statements | 13
Strategic Report
Strategic Report Governance Report Financial Report Notice of AGM
Other Information
Overview Auditor’s Report
Highest Risks Mitigation Actions taken in the year
Investment Performance Risk
Unfavourable markets, poor stock selection,
including inappropriate asset allocation and
underperformance against the benchmark. This
risk may be exacerbated by gearing levels.
Economic backdrop of inflationary pressures
and increasing interest rates.
An illiquid investment market with a significant
negative pricing adjustment in the second half
of 2022.
ESG risk attached to the developing regulatory
backdrop and capital expenditure required to
maintain compliance.
Increased in the year under review
The investment performance,
gearing and income forecasts
are reviewed with the Investment
Managers at each Board Meeting.
The Managers provide regular
information on the expected level of
rental income that will be generated
from underlying properties.
The portfolio is well diversified
by geography and sector and the
exposure to individual tenants is
monitored and managed to ensure
there is no over exposure.
The Managers in-house ESG team
continually monitor regulatory
background and best practice
standards, while the overall quality
of the portfolio provides some
protection against this.
The Board reviews the Managers' performance at quarterly
Board meetings against key performance indicators as set
out on page 11.
Significant lettings achieved, particularly in the industrial
portfolio and the retail parks, at increased rents helping
performance during a period of falling valuations.
The practical completion of development fundings on two
industrial assets with high ESG specifications has removed
a substantial element of development risk from the portfolio.
All portfolio assets have been subject to net zero carbon
assessments and MEES building reports to enable the
modelling of a pathway to compliance. A number of ESG
initiatives have been progressed over the year, most notably
the progression of solar PV schemes across the industrial
portfolio.
Discount/Premium Risk
Share price of the investment company is
lower/higher than the NAV. As a result of such
imbalances, the attractiveness of the Company
to investors is diminished.
The discount has widened during the year
as interest rates increased and sentiment
reduced.
Increased in the year under review
The discount is reported to and
reviewed by the Board at least
quarterly. Share buybacks as a
means of narrowing the discount
or as an attractive investment
for the Company are considered
and weighed up against the risks.
The position is monitored by the
Managers’ and Broker on a daily
basis and any material changes are
investigated and communicated to
the Board.
Investors have access to the Managers and the underlying
team who will respond to any queries they have on the
discount. The level of discount is kept under constant review
and the Company conducted share buybacks during the year
to help manage this.
The Broker and the Managers’ sales team liaise with current
and prospective investors to try and generate demand for
the Company’s shares.
Financial Management Risk
Risk of financial or reputational damage due to
a failure to appropriately manage financial risk.
This includes management of cash resources
and debt.
The company’s principal £260 million debt
facility expires on 31 December 2024 and the
£100 million facility with Barclays expires in
July 2024. New finance will have to be put in
place against a backdrop of higher interest
rates.
Increased in the year under review
T
he level of cash is continually
monitored by the Managers. A
financial model is maintained, which
includes a 5-year cash flow forecast
and is reviewed at quarterly Board
meetings.
The cash position is also reviewed by
the Board on a monthly basis as part
of the dividend approval process.
Loan covenants are monitored
carefully by the Managers and
reviewed at least quarterly at Board
meetings.
The strategy for the refinancing of
debt is under active consideration.
The Company has paused share buybacks since September
2022, with the preservation of cash taking precedence in
current markets.
The Company elected to use a one-year extension option
of its £100 million facility with Barclays, which was due to
expire in July 2023. This has been extended to July 2024.
The Company has been reviewing its options on longer term
debt and believes that, based on advice received and current
market conditions there is lender appetite for refinancing the
Company's debt. Since the year end the Board has engaged
debt advisors to consider the financing options available in
order to formulate a long term debt strategy in terms of cost
and the appropriate level of gearing.
Product Strategy Risk
Risk that the Product Strategy (including
investment guidelines and policies) lacks
sustainability or is not relevant.
Risk that the strategy is not clearly defined/
articulated or directed to the correct target
audience.
ESG related initiatives are a core part of the
long-term strategy.
Unchanged in the year under review
The underlying investment strategy
is kept under constant appraisal
and the Board will have a strategy
session annually, in conjunction with
the Managers.
The strategy of having a balanced portfolio has aided
performance in a declining market with the significant retail
investment at St Christopher’s Place outperforming the wider
real estate market.
The strategy is communicated to interested parties on
a regular basis via stock exchange announcements, the
interim and annual report and investor/consultant calls and
visits.
Significant ongoing work on the Company’s ESG strategy
including the collection of relevant ESG data and the
formation on individual asset plans.
ESG enhancements performed on some of the Company’s
assets where opportunities have arisen.
The highest risks encountered during the year, how they are mitigated, and actions taken to address these are set out in the table below.
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