Aberdeen UK Active Property Fund plc

Transcription

1 Aberdeen UK Active Property Fund plc Interim report & unaudited consolidated financial statements For the six months ended 31 March 2010

2 Contents Introduction 1 Investment Review 2 - Financial Highlights - Overview - Economic Review - Property Investment Manager s Report - Company Information Independent Property Valuer s Report 7 Consolidated Portfolio of Investments 8 Comparative Consolidated Portfolio of Investments 9 Consolidated Income Statement 10 Company Income Statement 11 Consolidated Statement of Changes in Net Assets Attributable to Holders of Redeemable Shares 12 Consolidated Balance Sheet 13 Company Balance Sheet 14 Consolidated Statement of Cash Flows 15 Notes to the Consolidated Financial Statements 16 Management and Administration 27

3 Introduction Aberdeen UK Active Property Fund Plc, ( The Company ) is an umbrella fund established as an open ended investment company in Ireland. The Company s assets are held through two subsidiary Companies which together own a portfolio of 28 properties. The Company s shares are listed on the Irish Stock Exchange. The Company provides investors with the opportunity to participate in the principal property investment markets in the UK on a pooled basis, without taking direct responsibility for the acquisition and day to day management of individual properties. The fund aims to deliver a high and stable income yield, together with the potential for capital appreciation, by investing in a diversified portfolio of UK commercial property. Aberdeen UK Active Property Fund plc 1

4 Investment review Financial highlights to 31 March December March 2010 Published NAV per share Market value of property portfolio 68,025,000 68,430,000 Dividend per share Overview Economic overview The second estimate saw real GDP growth in Q of 0.2%, down from 0.4% in the previous quarter. The slowdown mainly reflects the impact of adverse weather conditions on the distribution industry, without which, growth is likely to have been stronger. A positive picture, painted by private sector business surveys, indicates that underlying growth was back above trend by April. The cumulative fall of 84,000 in claimant count unemployment, since last October, confirms that the labour market has turned positive. Strength in the labour market is limited to London and South East England, which have benefited from a strong revival in business and financial services activity. Retail sales and manufacturing output were disrupted by January s poor weather, although have recovered to some extent in subsequent months. In the case of consumer spending, the re-imposition of the 17.5% VAT rate also depressed sales of durable goods, having surged at the end of With companies continuing to pay down debt, business investment has collapsed and was almost 25% down on a year earlier in Q The Budget booked an undershoot in public borrowing in the 2009/2010 fiscal year, helped by higher tax revenues and lower spending on social security. The budget deficit though, is extremely high, at 11.8% of GDP. The Budget was light on how the projected halving of the deficit in the next five years will be achieved, while the GDP growth forecast for 2011 and 2012 seems unrealistically high, at 3% and above. Stable house prices, historically low interest rates, and lower-than-expected unemployment should all help to support consumer confidence and a modest rise in spending this year. The sharp rise in the savings rate, to an above average level, should mean the risk of a further major decline in consumer spending is limited. In the medium term, highly-indebted households are vulnerable when interest rates eventually start to rise, from some time in As in previous recessions, we expect the business investment pick-up to lag the wider recovery, particularly given the ongoing restrictions in credit conditions. As such, the corporate sector will provide little support to the upturn. With a fiscal squeeze also starting in earnest, the recovery will hinge on stock-building and exports. Reiterating our previous view, we expect a modest rise in GDP in 2010, led by exports and re-stocking activity. Consumer spending will also be positive, having taken a big hit in Near term growth will be moderate and we expect the Bank of England (BoE) to keep interest rates low for a prolonged period of time, most likely now until A further extension of quantitative easing is possible, although the process was put on hold earlier this year. Low interest rates will provide an offset to the tightening of fiscal policy from next year. The other factor helping to hold down interest rates will be excess capacity in the economy. There is uncertainty over the extent of spare capacity, as some skills and capital stock will have been permanently lost, while future trend growth in the economy will be lowered by constrained access to finance. A large loss of capacity is backed up by the fact that ease of recruitment and capacity utilised by firms, never plumbed the depths achieved in the shallower recession of the early 1990s. As such, we still see strong upside risks to inflation over the medium-term. UK Property Market commentary Recent market conditions The sharp pick-up in capital values for UK property is continuing. Capital values, as reported by IPD, have risen by 14% since July Fierce competition for investment product continues to drive prices higher. Overseas investors, aided by the weakness of sterling, the UK institutions, retail funds and property companies/reits, are all trying to increase their exposure to UK property. Retail funds have experienced rapid inflows of cash over the past six months and are resuming purchasing activity, after being net sellers of property in the last two years. Pooled Property Funds raised 3.2 billion of new money in Q4 2009, according to figures from the Association of Real Estate Funds. 2 Aberdeen UK Active Property Fund plc

5 The figure was the highest in its history which dates back to In Q4 2009, net investment from the UK institutions also turned positive for the first time since Q Although rental values continue to decline, the pace has slowed dramatically, from over 12% on an annualised basis in the spring of 2009 to less than 2% in spring Rental values are stabilising more rapidly than would be expected, given the weakness of the economic recovery. Development has been more subdued in the last few years than in previous property market upswings, such as the late 1980s, and construction levels across the office, retail and industrial sectors are currently exceptionally low. This has resulted in generally lower levels of oversupply than in previous downturns. Investment outlook A strong total return of 16% is projected for This will be driven by continued capital growth, particularly in the first half of the year. Investment demand is currently strong from institutional investors, retail funds, overseas investors (with the exception of the Irish), REITs/property companies and private investors. Although property yields have fallen by 150 basis points since the bottom of the market in summer 2009, there still exists a significant yield premium of property yields over the yields on other asset classes compared to the long term average. This is particularly the case against nominal government bonds, index-linked government bonds and cash. Property yields are in line with the long term average against equities, and remain above the long term average against corporate bonds. As a consequence, we project yields to increase in 2011, and total returns to dip back sharply, although still remaining in positive territory. The abrupt slowdown in total returns in 2011 would be similar to the correction experienced in 1995, which also followed a sharp bounce in capital values in the preceding two years. From 2012, rental growth resumes in earnest across all sectors, and total returns are projected to pick up once again. A five year annualised All Property total return of 9% is forecast, based on pricing at the end of March The majority of this (approximately 7%) will be delivered by income return, with the remainder coming from some strong capital returns over the next year, and rental growth at the back end of the forecast period. Over the next five years, the best performing sector is projected to be central London offices, driven by much stronger rental growth than in any other segment. Prime rents are already starting to rise in London, while even average rents are stabilising after falling at a pace of as high as 30% in spring Availability of Grade A space is declining rapidly, and completion levels will be exceptionally low over the next three years. South East offices are also projected to outperform, aided by a historically high yield, and recovering rental growth at the prime end in the medium term. After a particularly strong total return in 2010, which will be concentrated in the first half of the year, we expect total returns to drop back sharply in 2011, as interest rates and bond yields rise, while rental growth struggles to resume, with the exception of the central London office market. By late 2010, UK property yields will have fallen by over 200 basis points since the summer of 2009, and property s yield premium over other asset classes will look less attractive. Interest rates are projected to start increasing in earnest from early In addition, while UK yields will have fallen dramatically by this point, yields in continental Europe are only projected to come down slightly, and property in continental Europe will look more attractive as a consequence. The extremely strong investment demand currently being experienced from overseas investors looks likely to switch to continental Europe, a trend already noted in early Aberdeen UK Active Property Fund plc 3

6 Investment review continued Fund strategy The Fund Manager has not undertaken any purchase or sale transactions over the last six months and the Fund has therefore maintained its above average weighting in the high yielding office and industrial sectors. This weighting has contributed to the Fund s above average income return. Sector weightings by value relative to IPD Other Industrial Offices Retail % Relative Weighting Mar-10 Dec-09 The Board notified all investors during October of the approach by an investor who wished to acquire a significant number of additional shares. All shareholders were given the opportunity to tender their shares for sales at the net asset value as at 30 September of per share. The opportunity to tender shares was not fully subscribed and the remaining requirement was issued as new shares resulting in a net inflow of investment to the Fund. Although the suspension of redemptions remains under review, the Board renewed the suspension for a further six month period to June 2010 as a protective measure. The banking covenants for the end of the quarter reflected an LTV of 58.7% compared with a covenant of 75% and interest cover of 2.9 compared with a covenant of The Fund s LTV is now below the level where the lender requires continued amortisation however the Fund does have an inadvertent breach of the Irish Regulatory limit of 50% LTV. We have therefore approached both the lender and the regulator to discuss reducing the amortisation. In the meantime payments will continue. The NAV has increased by a total of 15.6% since its lowest level in August 2009 and the Fund continues to have a high income yield at portfolio level of 8.16% compared with the monthly index level of 6%. As at 31 March 2010 the Fund owned 28 properties with an average value of 2,443,929. Property yield: Initial 8.16% Nominal equivalent 8.70% Reversionary 8.24% Vacancy rate 18.00% The vacancy rate has risen to 18% due to an office tenant going into administration. We are close to completing a new lease in respect of this accommodation which will reduce the vacancy rate and secure income for the Fund. We continue to work to extend leases where possible and enhance income for the Fund. We completed a new letting in the Cardiff office building meaning that the property is now fully let and we are also close to completing another significant deal within the regional office portfolio. Percentage Collected in each time period 75% 50% 25% Analysis of Aberdeen UK Active Property Fund Tenant Payment Performance for March 2010 Quarter Day plus February Quarter Day (Inverness) as at 02 February % Before due date Within 7 days Within 14 days Within 21 days Within 28 days Timing of Transactions Measured from Due Date Greater than 28 days We are pleased to report that at the March quarter, 100% of rents due on a quarterly basis were collected within 28 days of the due date. Investment overview The last quarter of 2009 saw some very strong capital growth for UK property with capital values rising in 3% in December 2009, the strongest performance in the history of the IPD monthly index. Strong investment demand from UK institutions, overseas investors, REIT s and property companies lead to competitive bidding which drove up capital values. The pick up in capital values continued over the first quarter of 2010 with capital values increasing by 1%, 1.3% and 1.6% respectively in January, February and March. Although the occupational market generally remains weak, the pace of rental decline has continued to slow. The yield spread between prime and secondary property is now at an historic high and it is anticipated that this yield gap will narrow as investors, unsuccessful in bidding for prime properties, turn their attention to more secondary investments. 4 Aberdeen UK Active Property Fund plc

7 Income distribution analysis Quarterly distributions Quarter to 31 December 2009 Quarter to 31 March 2010 Gross income 1,663,093 1,659,759 Property Expenses and Finance Costs 1,320,435 1,318,097 Company Administration Costs Including Taxation 263, ,247 Net Income After tax 79,410 (7,586) Net distribution 79,410 0 Shares in issue 61,558,345 61,592,321 Distribution per share Company information Subscription and redemption policy Applications for shares in the fund can be made at any time. Applications received up to 5:00pm on the business day preceding the last business day of each month will normally be accepted and contract notices evidencing ownership of the shares will be sent to the successful applicants within five business days after the last business day of each month. The subscription price per share shall be equal to the net asset value per share plus an appropriate provision for duties and charges. Redemption notices may be made to the company with the same time scale as above. Payment of redemption proceeds will be paid by the company not later than the last business day of the third month after the last business day of the month in which the shares were redeemed. The redemption price per share shall be equal to the net asset value per share less an appropriate provision for duties and charges. If redemptions amounting to 10% or more of the total number of shares in issue at the time such redemptions are received, the Company may, by notice in writing to all Shareholders, elect to suspend redemption in whole or in part for such period (not exceeding 12 months) as the Directors shall consider reasonable. In order to provide sufficient cash to satisfy these redemption requests, the Company would need to execute a number of property sales. The required volume of sales would be difficult to achieve in current market conditions and it is likely that proceeding with such sales at this time would have an adverse effect on the interests of the continuing holders of shares in the company. As a result of the current market conditions, the Directors consider it would be prejudicial to the interests of the shareholders to persue a programme of property sales to meet redemption requests. Therefore they have extended the suspension of redemptions ending in December 2009 to 10 June Distribution arrangements Net income of the Fund, after deduction of costs and expenses applicable to the Fund, and its proportionate share of costs and expenses of the Company and after deduction of interest and any amortising loans shall be distributed as dividends quarterly within twenty Business Days of each quarter, being the last business days of March, June, September and December. Distributions are likely to be affected by the requirement to amortise the loan facility. Share turnover As at 31 March 2010, 61,592,321 shares were in issue. The number of shares issued and redeemed during the period ended 31 March 2010 were: Period Ended 31 March 2010 No of shares Issued: 1,273,738 Redeemed: - Quarter end published bid and offer prices Date Number of shares in issue Bid price per share Offer price per share Dec ,558, Mar ,592, Valuations All the Fund s interests are re-valued monthly. Valuations are undertaken in accordance with the current edition of the Appraisal and Valuation Standards issued by the Royal Institution of Chartered Surveyors. The figure represents the aggregate of the individual values and should not be regarded as a valuation of the portfolio as a single lot. Gearing The Company is able to borrow to finance its investments. Borrowing is limited to 100% of the net assets of the portfolio and shall not exceed 50% of the gross assets of the portfolio. Borrowings may be secured on the properties held within the portfolio. The Financial Regulator limit is 50% of the gross assets of the portfolio, but the loan facility allows the Company to borrow up to 75% in exceptional circumstances. Aberdeen UK Active Property Fund plc 5

8 Investment review continued Shareholder analysis Ownership band % Number of shareholders Total percentage holdings % Less than 1.0% % 1.0% to 2.0% % 2.0% to 4.0% % Greater than 4.0% % Management fees The Investment Manager receives a base fee at a rate up to 1.25% per annum of the Gross Asset Value of the Fund. The Investment Manager is also entitled to but does not usually claim a sales fee up to 2% of any subscription price, in respect of each shareholder which subscribed during the month. Aberdeen Property Investment Management Limited May Aberdeen UK Active Property Fund plc

9 Independent property valuer s report The portfolio was valued by CB Richard Ellis as at 31 March 2010 at 68,430,000. The properties were valued individually and no account was taken of any discount or premium that may be negotiated in the market if all or part of the portfolio was to be marketed simultaneously, either in lots or as a whole. A full copy of the Valuation Statement is available by application to the administrator, Northern Trust. Aberdeen UK Active Property Fund plc 7

10 Consolidated portfolio of investments As at 31 March 2010 Property Principal tenants Fair value % of net assets 82 Abington Street, Northhampton Caversham Finance Ltd 1,450, Corporation Street, Rotherham Wilkinson Hardware Stores Ltd 1,175, High Street, Slough Home World Ltd 2,835, High Street, Southend Thomas Cook Retail Ltd 600, Park Street, Walsall T-Mobile (UK) Ltd 900, High Street, West Bromwich Allied Carpets 700, Well Street, Bradford 1,880, Devonshire House, Elmfield Road, Bromley Burnhill Business Centre Ltd 1,800, Cathedral Road, Cardiff Nestor Prime Care Services Ltd 1,215, SCA Hygiene Building, Southfield Road, Dunstable SCA Hygiene Products (UK) Ltd 2,900, Rosebery House, East Street, Epsom Bacon & Woodbrow Properties Co 1,830, Saxley Court, Victoria Road, Horley LSG Skychefs UK Ltd 2,020, Ballantyne House, Academy Street, Inverness Highland and Islands Arts Ltd 1,575, Caburn House, Lewes Halifax Premises Ltd 1,430, Wyfold Road, Fulham, London Tele2 UK Services Ltd 2,810, Park View House, Front Street, Longbenton, Newcastle-Upon-Tyne Children & Family Court Advice 1,425, Newcastle Technopole, Kings Manor, Newcastle-Upon-Tyne Orchard Information Systems Ltd 6,150, Atrium & Merchants Court, St George's Street, Norwich Pricewaterhouse Coopers LLP 4,050, Berkshire House, Reading Executive Communications Centre Ltd 3,060, Wavertree Town Hall, 89 High Street, Wavertree, Liverpool Carlsberg UK Ltd 240, Marsh Barton IE, Cofton Road, Exeter Crown Records Management Ltd 1,095, Trafford Park Road, Trafford Park, Manchester Crown Records Management Ltd 1,950, Willow Lane, Mitcham Sirva UK Ltd 3,125, Halfords, Lakeside Industrial Estate, Redditch Halfords Ltd 4,270, Apollo Works, Neepsend Lane, Sheffield Nortene Ltd 1,985, Units 1-4, 31 Chesford Grange, Warrington Dreams 5,890, Crowther Industrial Estate, Tilley Road, Washington Anglican Windows Ltd 4,000, Corus Plant, Qualcast Road, Wolverhampton Corus UK Ltd 6,070, Total value of investment property 68,430, Other net liabilities including borrowing (42,004,293) (158.95) Total value of consolidated Group as at 31 March ,425, Aberdeen UK Active Property Fund plc

11 Comparative consolidated portfolio of investments As at 30 September 2009 Property Principal tenants Fair value % of net assets 82 Abington Street, Northhampton Caversham Finance Ltd 1,270, Corporation Street, Rotherham Wilkinson Hardware Stores Ltd 1,160, High Street, Slough Home World Ltd 2,360, High Street, Southend Thomas Cook Retail Ltd 645, Park Street, Walsall T-Mobile (UK) Ltd 810, High Street, West Bromwich Allied Carpets 750, Well Street, Bradford Equity Insurance Management Ltd 1,995, Devonshire House, Elmfield Road, Bromley Burnhill Business Centre Ltd 1,640, Cathedral Road, Cardiff Nestor Prime Care Services Ltd 1,125, SCA Hygiene Building, Southfield Road, Dunstable SCA Hygiene Products (UK) Ltd 2,900, Rosebery House, East Street, Epsom Bacon & Woodbrow Properties Co 1,830, Saxley Court, Victoria Road, Horley LSG Skychefs UK Ltd 2,030, Ballantyne House, Academy Street, Inverness Western Ridge Properties Lagonda Ltd 1,440, Caburn House, Lewes Halifax Premises Ltd 1,520, Wyfold Road, Fulham, London Tele2 UK Services Ltd 2,750, Park View House, Front Street, Longbenton, Newcastle-Upon-Tyne Newcastle Primary Care Trust 1,445, Newcastle Technopole, Kings Manor, Newcastle-Upon-Tyne Orchard Information Systems Ltd 5,960, Atrium & Merchants Court, St George's Street, Norwich Pricewaterhouse Coopers LLP 4,630, Berkshire House, Reading Executive Communications Centre Ltd 2,670, Wavertree Town Hall, 89 High Street, Wavertree, Liverpool Carlsberg UK Ltd 240, Marsh Barton IE, Cofton Road, Exeter Crown Records Management Ltd 985, Trafford Park Road, Trafford Park, Manchester Crown Records Management Ltd 1,675, Willow Lane, Mitcham Sirva UK Ltd 3,125, Halfords, Lakeside Industrial Estate, Redditch Halfords Ltd 4,270, Apollo Works, Neepsend Lane, Sheffield Nortene Ltd 1,940, Units 1-4, 31 Chesford Grange, Warrington Dreams 5,110, Crowther Industrial Estate, Tilley Road, Washington Anglican Windows Ltd 4,090, Corus Plant, Qualcast Road, Wolverhampton Corus UK Ltd 5,310, Total value of investment property 65,675, Other net liabilities including borrowing (43,105,181) (190.98) Total value of consolidated Group as at 30 September ,569, Aberdeen UK Active Property Fund plc 9

12 Consolidated income statement For the six months ended 31 March 2010 (All amounts stated in GBP) Year ended 31 March 2010 Year ended 30 September 2009 Notes Income Gross rental income 2,899,525 7,049,089 Service charge income 304, ,975 Financial income (4,142) 34,861 Net realised losses on investment property disposals (31,529) (5,773,276) Movement in unrealised valuation gains and losses on 2,757,713 (13,797,719) investment property Movement in unrealised gains and losses on swap (395,561) (1,491,158) Total net income/(loss) 5,530,392 (13,381,228) Expenses Property operating expenses 1 (691,813) (1,318,567) Administrative expenses 2 (522,979) (1,542,333) Total operating expenses (1,214,792) (2,860,900) Operating profit/(loss) 4,315,600 (16,242,128) Finance costs Financial expenses 5 (1,326,066) (3,632,357) Profit/(loss) after finance costs and before tax 2,989,534 (19,874,485) Tax 4 331,231 (324,807) Inrease/Decrease in net assets attributable to holders of redeemable shares from operations 3,320,765 (20,199,292) The accompanying notes form an integral part of the financial statements. 10 Aberdeen UK Active Property Fund plc

13 Company income statement For the six months ended 31 March 2009 (All amounts stated in GBP) Year ended 31 March 2010 Year ended 30 September 2009 Notes Income Dividend income 22, ,931 Financial income 230, ,727 Capital contributions to subsidiaries (175,950) (192,231) Total net income 77,174 1,057,427 Expenses Administrative expenses 2 (81,324) (136,413) Total operating expenses (81,324) (136,413) Operating (loss)/profit (4,150) 921,014 Finance costs Financial expenses 5 (79,169) (910,623) (79,169) (910,623) (Loss)/Profit after finance costs and before tax (83,319) 10,391 Tax 4 Decrease/Increase in net assets attributable to holders of redeemable shares from operations (83,319) 10,391 The accompanying notes form an integral part of the financial statements. Aberdeen UK Active Property Fund plc 11

14 Consolidated statement of changes in net assets attributable to holders of redeemable shares For the six months ended 31 March 2010 (All amounts stated in GBP) Year ended 31 March 2010 Year ended 30 September 2009 Balance at the beginning of the year 22,569,822 42,604,795 Change in net assets attributable to holders of redeemable shares from operations for the year 3,320,760 (20,199,292) Issue of redeemable shares during the year 535, ,316 Redemption of redeemable shares during the year Balance at the end of the year 26,425,705 22,569, Aberdeen UK Active Property Fund plc

15 Consolidated balance sheet As at 31 March 2010 Notes As at 31 March 2010 As at 30 September 2009 Assets Non-current Assets Investment property 6 68,430,000 65,675,000 Total non-current assets 68,430,000 65,675,000 Current Assets Trade and other receivables 8 2,502,481 2,651,763 Cash and cash equivalents 7 2,786,460 2,712,812 Total current assets 5,288,941 5,364,575 Total assets 73,718,941 71,039,575 Liabilities Non-current liabilities Interest bearing loans and borrowings 3 (39,988,820) (40,750,936) Total non-current liabilities (39,988,820) (40,750,936) Current Liabilities Trade and other payables 9 (5,104,410) (5,823,654) Financial liabilities at fair value through profit and loss (1,800,000) (1,404,447) Loan amortisation (400,000) (400,000) Dividends payable 5 (90,719) Total current liabilities (7,304,417) (7,718,820) Total liabilities (excluding net assets attributable to holders of redeemable shares) (47,293,237) (48,469,756) Net assets attributable to holders of redeemable shares 26,425,707 22,569,819 Represented by: Net assets attributable to holders of redeemable shares 26,425,707 22,569,819 Number of redeemable shares in issue 61,592,321 60,318,583 Net asset value per share based on shares issued The accompanying notes form an integral part of the financial statements. Aberdeen UK Active Property Fund plc 13

16 Company balance sheet As at 31 March 2010 (All amounts stated in GBP) Notes As at 31 March 2010 As at 30 September 2009 Assets Non-current Assets Investments in subsidiaries Loans to subsidiaries 3 71,602,843 71,142,843 Total non-current assets 71,602,847 71,142,847 Current Assets Trade and other receivables 8 191, ,580 Cash and cash equivalents 7 344, ,085 Total current assets 536, ,665 Total Assets 72,138,999 71,791,512 Liabilities Curent Liabilities Trade and other payables 9 (278,088) (291,686) Dividends payable 5 (90,719) Total current liabilities (278,088) (382,405) Total liabilities (excluding net assets attributable to holders of redeemable shares) (278,088) (382,405) Net assets attributable to holders of redeemable shares 71,860,911 71,409,107 Represented by: Net assets attributable to holders of redeemable shares 71,860,911 71,409,107 The accompanying notes form an integral part of the financial statements. 14 Aberdeen UK Active Property Fund plc

17 Consolidated statement of cash flows For the six months ended 31 March 2010 (All amounts stated in GBP) As at 31 March 2010 As at 30 September 2009 Net profit/(loss) before taxation 2,989,534 (19,874,485) Adjustments for: Movement in unrealised valuation gains and losses on (2,488,097) 13,565,741 investment property Interest expense 1,246,897 2,721,732 Movement in unrealised gain on swap position 395,561 1,491,158 Interest income 4,142 (34,861) Tax (credit)/expense (331,231) 324,807 Dividend expense 79, ,625 Operating profit/(loss) before changes in operating assets and libilities 1,895,975 (895,283) Cash flows from operating activities Proceeds from sale of fixed assets 11,962,281 Interest received (4,142) 34,862 Decrease/(increase) in trade and other receivables 149,280 (1,083,753) (Decrease) in trade and other payables (323,684) (1,211,914) Net cash used in operating activities 1,717,429 8,806,193 Cash flows from financing activities Proceeds from the issue of share capital 535, ,316 External loan (repaid)/drawndown (762,116) (6,146,731) Interest paid (1,246,897) (2,721,733) Dividends paid (169,888) (1,351,617) Net cash from financing activities (1,643,778) (10,055,765) Net increase/(decrease) in cash and cash equivalents 73,651 (1,249,572) Cash and cash equivalents at beginning of the year 2,712,812 3,962,384 Cash and cash equivalents at end of the year 2,786,463 2,712,812 Aberdeen UK Active Property Fund plc 15

18 Notes to the consolidated financial statements For the six months ended 31 March 2010 Significant accounting policies Aberdeen UK Active Property Fund plc is a company domiciled in Ireland, which was incorporated on 16 July The Company is an open-ended investment company with variable capital authorised by the Irish Financial Regulator and pursuant to Part XIII of the Companies Act, 1990 and in accordance with the Non-UCITS Notices issued by the Financial Regulator. The Company commenced operations on 3 March Aberdeen UK Active Property Fund plc shares are listed on the Irish Stock Exchange. Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations currently endorsed by the International Accounting Standards Board (IASB). Basis of preparation The financial statements are presented in pounds sterling and are prepared on the historical cost basis as modified by the inclusion of investment property and derivative positions stated at fair value. The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an on going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The financial statements are prepared for the period ended 31 March IFRS 7, Financial Instruments Disclosures and all the complementary amendments to IAS 1, Presentation of financial statements Capital disclosures, introduces new disclosures relating to financial instruments. These have been adopted within these financial statements. There has been no impact on the valuations. Basis of consolidation Subsidiaries are those entities, including special purpose entities, controlled by the Company. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Aberdeen UK Active Property Fund Asset Company ( No 1 ) Limited ( Subsidiary No. 1 ), a limited liability company incorporated in Jersey, is a wholly owned subsidiary. Aberdeen UK Active Property Fund Asset Company ( No 2 ) Limited ( Subsidiary No. 2 ), a limited liability company incorporated in Jersey, is a wholly owned subsidiary. The Company records the Subsidiaries at cost. The Subsidiaries hold the portfolio of properties as listed on page 8. These consolidated financial statements include the results and assets of the Subsidiaries consolidated with the Company s results and assets to provide the results and assets of the Group. Transactions eliminated on consolidation Inter-group balances and any unrealised gains and losses arising from inter-group transactions are eliminated in preparing the consolidated financial statements. Investment property Investment properties are those which are held either to earn rental income or for capital appreciation or for both. Investment properties are stated at fair value. An external, independent valuation company, having an appropriate recognised professional qualification and recent experience in the location and category of property being valued, values the portfolio every month. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arms length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. Property held under finance lease is classified as investment property and is stated at fair value. The valuation of investment properties has been prepared on an open market basis as defined by the current edition of the Appraisal and Valuation Manual of the Royal Institution of Chartered Surveyors. The open market value means an opinion on the best price at which the sale of an interest in property would have been completed unconditionally for cash consideration on the date of valuation. No account is taken of any discount or premium that may be negotiated in the market if all or part of the portfolio was to be marketed simultaneously, either in lots or as a whole. Gains or losses arising from a change in fair value are recognised in the Income Statement. 16 Aberdeen UK Active Property Fund plc

19 Financial assets and financial liabilities at fair value through profit or loss: The Fund classifies its financial assets at fair value through the profit and loss. Management determines the classification of its financial assets at initial recognition. a) Financial assets at fair value through the profit and loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. The Fund had no derivatives that are classified as hedges. The Fund s financial instruments are carried at fair value on the Balance Sheet. Usually the fair value of the financial instruments can be reliably determined within a reasonable range of estimates. For certain other financial instruments, including accounts payable and accrued expenses, the carrying amounts approximate fair value due to the immediate or shortterm nature of these financial instruments. The carrying value of all the Fund s financial assets and liabilities at the Balance Sheet date approximated their fair values. The major methods and assumptions used in estimating the fair values of financial instruments are disclosed in the statement of accounting policies section. Fair values for derivative financial instruments and fixed debt are provided by the Investment Managers treasury team. Fair value estimates are made at a specific point in time, based on market conditions and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgement on part of the Independent Valuer. Investment property held for sale Investment properties held for sale at the period end date are stated at their fair value. Rental income Rental income from investment property leased out under the operating lease is recognised in the Income Statement on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income. Income and expense recognition Rental income, bank interest and expenses are accounted for on an accruals basis. All expenses are recognised in the Consolidated Income Statement with the exception of transaction costs incurred on the acquisition of an investment property, which are recognised as part of the acquisition cost of the property. Dividend recognition Dividends on redeemable participating shares are recognised as a liability on an accruals basis. Other dividends are recognised as a liability in the period in which they are declared. Amortisation payments funded from income will have the effect of reducing the income distributions paid, compensated by a reduction in external borrowings of the same amount. A retained profit reserve will be carried forward to represent the amount of amortisation paid from income to date Interest rate swaps The subsidiaries may use interest rate swaps to commercially hedge their exposure to interest rate risks arising from operational, financing and investing activities. Interest rate swaps outstanding at the end of the period are valued at their fair value. The discounted value of each single inflow and outflow of interest and capital is calculated at the period end. The net difference arising on this calculation is included as the mark to market value of the swap and is recorded as an unrealised gain/loss in the income statement. This net difference is not included in the NAV calculation for unit trading purposes as the liabilities against which these swaps are entered into are not fair valued. For Financial Statement reporting purposes, however, these swaps do not meet the criteria set down in IFRS 7 to be accounted for as hedges. Aberdeen UK Active Property Fund plc 17

20 Notes to the consolidated financial statements continued For the six months ended 31 March 2010 Taxation Income tax on the profit or loss for the period comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous periods. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the tax related benefit would be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend. Net financing costs Net financing costs comprise interest payable on borrowings calculated using the effective interest rate method net of interest capitalised, dividend income, foreign exchange gains and losses, and gains and losses on hedging instruments that are recognised in the Income Statement. Interest-bearing borrowings Interest bearing borrowings are recognised initially at fair value, less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the Consolidated Income Statement over the period of the borrowings on an effective interest basis. Redeemable shares All redeemable shares issued by the Company provide the investors with the right to require redemption for cash of the value proportionate to the investors share in the Company s net assets at the redemption date. In accordance with IAS 32, such investments give rise to a financial liability for the present value of the redeemable amount. Foreign currency translation (a) Functional and presentation currency The Fund s investors are mainly from the United Kingdom with subscriptions and redemptions of redeemable shares denominated in Pounds Sterling. The Fund s investments are in the United Kingdom. The performance of the Fund is measured and reported to investors in Pounds Sterling. The financial statements are presented in Pounds Sterling, which is the Fund s functional and presentation currency. (b) Transactions and balances Transactions in foreign currencies are translated to the functional currency using the exchange rates prevailing at the dates of transactions. Foreign currency assets and liabilities are translated into the functional currency using the exchange rates prevailing at the balance sheet date. Foreign exchange gains and losses arising from translation are included in the Income Statement. 18 Aberdeen UK Active Property Fund plc

21 1. Property Operating Expenses Consolidated Consolidated Company Company Irrecoverable insurance and service charge 51,594 (115,752) Direct recoverable expenditure (41,221) (81,248) Valuation fee (12,539) (25,570) Service charges recoverable (262,664) (516,155) Non-recoverable expenditure (225,682) (384,668) Bad and doubtful debts (110,366) (115,861) Legal and letting fees (90,385) (71,593) Property management fees (550) (7,720) (691,813) (1,318,567) 2. Administrative expenses Consolidated Consolidated Company Company Investment and asset managers' fee (417,481) (919,679) Administration fee (41,580) (141,832) (5,564) (11,273) Custodian fee (1,855) (3,757) (1,855) (3,757) Audit fee (29,361) (82,532) (12,868) (11,998) Directors fees (18,320) (36,175) (8,825) (17,919) Operational expenses (14,382) (358,357) (52,213) (91,466) (522,979) (1,542,333) (81,324) (136,413) The Independent Valuer receives an annual fee of % of the value of the plus an additional fee for new acquisition of 1,000 for properties up to 2 million and 1,500 for properties above 2 million. 3. Financing costs Subsidiary No 1 has a revolving credit facility from Eurohypo of 23,900,000 which is due to be repaid in full on 8 December The current rate of interest being paid is 3 month libor + 1.5% Margin. As at 31 March 2010, 20,185,815 of the facility had been drawn down. Subsidiary No 2 has a revolving credit facility from Eurohypo of 26,100,000 which is due to be repaid in full on 8 December The current rate of interest being paid is 3 month libor + 1.5% Margin. As at 31 March 2010, 19,803,005 of the facility had been drawn down. The loans are secured on the portfolio of assets held by the Subsidiaries. The liability of 39,988,820 included in the Balance Sheet is as follows: Gross facility 50,000,000 50,000,000 Amount not drawn down at the period end (9,410,745) (8,611,072) 40,589,255 41,388,928 Loan amortisation payment accrued at 30 September 2009 (400,000) (400,000) Loan fees not amortised at the period end (200,435) (237,992) Long term loan balance as at 30 September ,988,820 40,750,936 For more information about the Company s exposure to interest rate risk, see note 12. Aberdeen UK Active Property Fund plc 19

22 For more information about the Company s exposure to interest rate risk, see note 12. The Subsidiaries have the following inter-company loans from the Company: Interest bearing inter-group loan 14,154,071 11,151,071 Non interest bearing inter-group loan 57,448,772 59,991,772 71,601,843 71,142, With the 50,000,000 Eurohypo facility the loan to value limit was increased from 60% to 75% for two years after the signing of the agreement in March When from the second anniversary of the signing to the third anniversary, this reduces to 67.5% and to 65% thereafter. The margin of the facility is 150 basis points and for every quarter the loan to value ratio exceeds 60%, the Fund must repay 400,000 to the facility provider. 4. Tax liability The Company is not liable to tax in respect of its income and gains, other than on the occurrence of a chargeable event. Shareholders, other than Irish residents, who complete a declaration confirming that they are not Irish residents, will not be liable to Irish tax on income or gains arising to them from their investment in the Fund and no tax will be deducted on distributions from the Company or payments by the Company in respect of a redemption or other disposal of their investment. In the absence of an appropriate declaration, the Company will be liable to Irish tax on the occurrence of a chargeable event. A chargeable event includes any distribution to Shareholders or any redemption or transfer of shares. A chargeable event does not include: (i) any transactions in relation to Shares held in a recognised clearing system as designated by order of the Revenue Commissioners of Ireland; or (ii) an exchange of Shares arising on a qualifying amalgamation or reconstruction of the Company with another fund. Capital gains, dividends and interest received may be subject to withholding taxes imposed by the country of origin and such taxes may not be recoverable by the Company or its Shareholders. The Subsidiaries invest in UK property and therefore are liable to income tax in the UK on the net rental profits. The current rate of UK income tax for a non-resident company is 20%. Based on current UK law, the Subsidiaries will not be liable to UK capital gains tax, or corporation tax on capital gains, on the realisation of UK investment property gains. The taxation credit/(charge) for the period of 331,231 (30 September 2009: (324,807) relates to UK income taxation payable in respect of the Subsidiaries. The tax credit/(charge) is only applicable to the Subsidiaries as the Company is not liable to tax. 5. Dividends payable Dividends are included in financial expenses. Net income, excluding unrealised gains and losses, after deduction of costs and expenses applicable to the Company and its proportionate share of costs and expenses of the Company and after deduction of interest and any amortising loans shall be distributed as dividends quarterly within twenty business days of each quarter being the last business days of March, June, September and December in each year by electronic transfer. Dividends are paid out of capital. Dividends of 79,169 (30 September 2009:910,623) were declared for the Group for the period of which Nil (30 September 2009: 90,719) is outstanding as at 31 March The dividend per share outstanding at 31 March 2010 is Nil (30 September 2009: 0.015). 20 Aberdeen UK Active Property Fund plc

23 Notes to the consolidated financial statements continued For the six months ended 31 March Investments a. Investment property The book cost of properties as at 31 March 2010 was 103,849,067 (30 September 2009: 114,074,204). The carrying amount of investment property is the fair value of the property as determined by a registered independent appraiser having an appropriate recognised professional qualification and recent experience in the location and category of the property being valued. Fair values were determined having regard to recent market transactions for similar properties in the same location as the Group s investment property. Investment property comprises a number of commercial properties that are leased to third parties Consolidated Consolidated Company Company Cost of investments as at 1 October ,675,000 91,435,000 Properties acquired during the period - - Properties disposed of during the period - (11,962,281) Fair value adjustment 2,755,000 (13,797,719) Market value as at 31 March ,430,000 65,675,000 b. Investments in Subsidiaries Investments in subsidiaries were as follows: Number of Shares Held Overall Holding % AUKAPF Asset Company (No 1) Ltd AUKAPF Asset Company (No 2) Ltd The principal activities of all the subsidiaries is property investment. Their registered office is 22 Grenville Street, St Helier, Jersey JE4 8PX, Channel Islands. 7. Cash and cash equivalents Cash is held with on current and call accounts with the Barclays (Glasgow), Northern Trust (London) and Royal Bank of Scotland (Jersey). 8. Trade and other receivables Consolidated Consolidated Company Company Interest on inter company loan 191, ,605 Intercompany dividend receivable 141,250 Rental income receivable 1,836,718 2,083,095 Other receivables 50, ,975 2,290 Prepayments and accrued income 615, , ,502,481 2,651, , ,580 Aberdeen UK Active Property Fund plc 21