Britannia Invest A/S

Development in activities and finances2022 has been a challenging year, at the start of year conditions were starting to improve, Covid-19 related headwinds were abating and there was a sense of hope that the world would return to some sort of normality. But the optimism was short-lived. Russia invaded Ukraine, energy prices spiked, and interest rates began to climb at a gradient, not witnessed for 30 years. In the UK, markets had to navigate political volatility through the tragically mismanaged mini-budget. So, by the end of the year the positive tones were replaced with a negative outlook. As property markets are intrinsically linked to the cost of debt, confidence declined significantly in the second half of 2022 with capital values falling in response to the reduced risk premium. Forecasts for 2023 include a global economic slowdown and continued tightening of interest rates in order to combat inflation.

The property investment sector experienced a significant impact in 2022, with reduced transaction activity in Q4. However, the rental market for high-quality properties remained resilient. Despite the adverse conditions, Britannia Invest A/S demonstrated relative resilience, having secured several rental agreements and re-negotiations.

As per MSCI data, the total yield for all property asset classes in the UK was -10.2% in 2022. The office sector recorded a return of -10.1%, industrial properties -14.9% and retail properties -3.7%. The overall capital growth was -14.2%, with offices experiencing -14.1% growth and industrial assets recording the lowest growth at -18.0%.

Britannia Invest A/S recorded a return on equity of -15.0% and incurred a tax loss of GBP -31.1m, inclusive of net property revaluation of GBP -33.8m.

The core business return is presented as “the basic primary rental business without balance sheet adjustments”.

Due to financial reporting requirements, “Revenue” and “Gross profit” in the income statement do not include financial expenses.

Britannia Invest A/S’s conventional way of showing the profit from primary operations (“the basic primary rental business without balance sheet adjustments”) is as follows:





Revenue from normal rental income decreased compared to 2021 due to a string of lease expires. Property costs increased but remained well below budgeted levels of GBP 13.9m. Increased interest level meant that finance costs have increase by 36% even with the loan remaining unchanged. There were no acquisitions and no disposals of properties during the year, but despite market uncertainties in the second half of the year, it was still an active asset management year.

There were no acquisitions and no disposals of properties during the year, but in spite of the continued Covid-19 disruptions, it was still a very active asset management year.

The portfolio had a net negative market revaluation of GBP -33.8m, after investing GBP 4.5m in the portfolio over the year.

Overall borrowing remained unchanged at GBP 268m. of which GBP 5m is accrued dividend to the shareholders. The shareholder loan remains at GBP 230m. The external funding remains at GBP 33m so with revalued properties, the overall LTV remains modest at 57% and LTV from external funding is only 7%.
Britannia invest A/S' loss after tax amounts to GBP -31.1m compared to a profit of GBP 12,8m in 2021. In the annual report for 2021, the expected profit after tax for 2022 was GBP 9.5m.

The rate of exchange of the British pound fell from 8.8604 to 8.3845 from 31 December 2021 to 31 December 2022.

At year-end 2022, the portfolio of properties was valued at GBP 460.0m, a like-for-like decrease of GBP 29.4m. The external valuer Savills has valued the portfolio at GBP 460.0m.

The balance sheet total decreased by 6%, from GBP 501.4m to GBP 469.3m. Equity decreased by GBP 31.1m from GBP 222.8m to GBP 191.7m. Return on equity was -15%, and the intrinsic share value decreased by 19% from 444 to 361 from 31 December 2021 to 31 December 2022.

Since 2003 the Company has been owned by shareholders who are subject to taxation under the Danish Pension Investment Return Tax Act. This means that the Company, being subject to the Pension Investment Return Tax Act, is not liable to pay tax in Denmark, and no tax expense on income earned in Denmark has been recognised in the annual report. However, in the UK, tax at a rate equivalent to 20% will be payable on profit on UK activities. Interest payments and tax depreciation on properties reduce the operating profit in the UK, and a tax payment of GBP 1.3m has been recognised for 2022.

The Board of Directors considers the financial perfomance of the year unsatisfactory.


Acquisition and disposal of properties
There were no acquisitions or disposals in the period.

Portfolio of properties

On 31 December 2022, the Company’s portfolio of properties consists of 15 well-located office buildings with a geographic spread throughout the UK, 13 of which are freehold and 2 are leasehold.

The total area is 1,250,656 sq. ft., of which 288,867 sq. ft. are vacant at year-end.
The vacant space in the portfolio has increased from 205,140 sq. ft. in 2021. The increase was expected and due to lease expiries.

Both 76 Hammersmith Road, London, and Temple Quay Bristol have been stripped out and as such not in a lettable state but a development case rather than part of the normal lettable office space within the portfolio. Reducing the real lettable space to 208.613 sq. ft. and again out of that some 58.489 sq. ft. are in the process of being refurbished.

The total acquisition cost of the property portfolio is GBP 464.1m, and the contractual rent at year-end is GBP 24.6m, giving a return of 5.3% on the market value. At year-end total borrowing is GBP 263m, and over the year interest payments were GBP 10.4m, showing an interest cover of 237%.




Asset management
On the asset management side, it was a satisfactory and active year.

Leeds in Whitehall 2 a tenant took half a floor of the three newly refurbished floors, and a further floor is under offer at year end.

In Mainpoint in Edinburgh after a lease expiry on half a floor it was relet in its present condition on a 3-year lease without any need for the budgeted refurbishment and the rent increased from GBP 26.50 psf to GBP 32.00 psf. In the communal area a creation of shower facilities is ongoing. For two tenants, within the building, a rental increase of GBP 3.00 psf has been secured in rent reviews, a third is agreed and in the process of getting documented.

in Manchester at Corner Block, the suite on the 6th floor which was fully fitted Grade B during the year got let on a new 5-year lease. And at Bridgewater House two small suites were on a let 3-year and a 10-year term. Two full floors were taken back as an early surrender and one is in the process at getting refurbished, the other is partly let out till early 2023.

In 1 Colmore Row, Birmingham, two floors have been fully refurbed and one floor was split into two suites, one which the smaller and fully fitted has been let on a 5-year term with break after 3 years.

In Citygate in Newcastle, a refurbishment of 16.479 sq ft and upgrade of the reception and creation of new cycle and shower facilities are ongoing. Part of the office space will be fully fitted.

The two Hammersmith Road properties and the Aberdeen properties had all been under offer for sale, but transactions did not complete. Sale options will be explored during 2023.

External valuation of the property portfolio

In accordance with company policy the valuation of the entire property portfolio is conducted by an independent valuer appointed by the Company, at the end of every 6 months. Savills, a reputable firm, has performed an independent valuation of the portfolio and determined its value to be GBP 460m as of 31. December 2022.

In the annual report, Management has estimated the value of the portfolio to be GBP 460m. This estimation was based on a going concern approach and was the result of a thorough analysis of each property, including its condition, location, current and projected rental income, the financial stability of tenants, and offers received for certain properties.