Over the year to the end of March 2016, Value and Income Trust generated a Net Asset Value total return (with debt at par) of 0.2%. this compares to a FTSE All-Share Index total return of -3.9%. However the Share price total return was -9.6%. The Board is recommending a substantial increase in the final dividend, which would make total dividends of 10.5p for the year to 31 March 2016, compared to 9p in the previous year, an increase of 16.7%. This is Value and Income Trust’s 29th year of dividend increases. It is their intention to pay dividends quarterly in future.
The Board has been concerned for some time about the persistently high discount to NAV on VIN’s shares. It is 21% (excluding income) as this is written. The increased dividend would put the shares on a dividend yield of 4.7% with the prospect of further increases, especially after the first debenture, which carries an interest rate well above current levels, is repaid. They are proposing that Shareholders should have an opportunity to realise their investment at NAV less costs after November 2026, when the second of their two debentures will be repaid.
They are therefore putting a proposal to Shareholders at our Annual General Meeting in July for an amendment to the Articles of Association which requires the Board to put an Ordinary Resolution to Shareholders in 2024 in relation to the future direction of the Company, including proposals that provide an opportunity for any Shareholder to realise their investment in full at NAV, less costs, by 31 March 2027 at the latest. The reason for doing this in 2024 is to give sufficient time for refinancing the debt or for selling properties as required. They are also proposing to reflect other recent legislative changes in the Articles.
To take advantage of the low rates for long term money, they have borrowed GBP15 million from Santander UK plc for ten years at a rate of 4.5% p.a. including all costs. The money is being invested in properties with yields well above this, and it replaces the original GBP5 million loan arranged in February 2015.
Debentures are measured at amortised cost in the Financial Statements. The first of their two debentures is repayable for GBP15,000,000 in 2021 at par (100). In order to calculate our NAV with borrowings at fair value, we value these debentures by reference to the market, which means that the 2021 debenture is valued at GBP19,463,000. This value will reduce to par by the time that it is repaid and so will increase the NAV over the period, as will the second debenture which is repayable in 2026 for GBP20,000,000 (currently valued at GBP27,567,000).
VIN’s equity performance was significantly ahead of the FTSE All-Share Index. In capital terms it fell by 4.0%, compared with the fall of 7.3% in the Index and its total return was +0.5% compared to the Index total return of -3.9%.
Underweight allocations to the Bank, Pharmaceutical and Mining sectors continued to make a positive contribution to performance. An overweighting in Non-Life Insurance and Personal Goods also benefitted the portfolio. In stock selection a holding of Conviviality rose by 66% and Amlin, the specialist insurer, was taken over at a price 32% higher than at the beginning of our year. The housebuilder Crest Nicholson rose by 32% and, in the Electronics sector, Halma rose by 30%. Negative performance in the portfolio came from Rotork (-26%) and Amec Foster Wheeler (-50%) which were both affected by the fall in the oil price, which reduced demand for actuators and oil services.
Value and Income’s property portfolio produced a total return of 5% over the past 6 months, and 10% over the year to March. Their index-related properties produced a total return of 13% last year, against 7% for non-indexed properties. Five mainly overrented shops were sold for GBP3.5 million at a net yield of 8% during the year, in Ayr, Kelso and Oban in Scotland and Lynton and Melton Mowbray in England. GBP2.8 million of the sale proceeds were re-invested in two shops in High Street, Stratford-upon-Avon at a net initial yield of 8.7% after the sale of the upper parts.
Since the year end they have also sold three more small properties in Ayr, Dundee and Sherborne for GBP2.6 million at a net yield of 5.7% and bought a shop in Bedford and a pub/restaurant in Thornton-Cleveleys for GBP2.8 million in total at a net yield of 7.7%. All properties are fully let on full repairing and insuring leases, with upward only rent reviews and an average unexpired lease length of 13 years. The portfolio has been fully let and income-producing throughout the year apart, briefly, the vacant upper parts above the shops at Stratford- upon-Avon. 25% of rental income is reviewed annually, with 75% five yearly. 51% of the portfolio’s rental income comes from index-related leases (up from 35% four years ago).
VIN : Value and Income offers cash exit in 2027