RNS Number:8520E
Warner Estate Holdings PLC
20 June 2006
PART 1
Warner Estate Holdings PLC
A YEAR OF EXCELLENT PERFORMANCE AND STRATEGIC PROGRESS
Warner Estate Holdings PLC ("Warner Estate" or "Group"), the property investment
company has today announced its preliminary results for the year ended 31 March
2006.
Financial Highlights
* Total adjusted return 30.7% (2005: 19.6%)(i) - #85.3million (2005: #47.0
million)
* Adjusted net asset value per share up 25% to 741p(ii)
* Net asset value per share up 22% to 660p
* Triple net asset value per share up 21% to 669p (iii)
* Recurring earnings per share 22.9p (2005: 22.3p restated)(iv)
* Earnings per share 140.2p (2005: 89.2p)
* 35th successive year of dividend growth(v)
* Average dividend growth over the last five years of 6.8% per annum(v)
* Dividend raised by 6.8% to 19.5p
Business Highlights
* Property owned and under management up 131% to #2.5billion
* Commercial rent roll owned and under management #152million
* Successful acquisition and integration of Ashtenne Holdings PLC
* Acquisition goodwill on Ashtenne #11.2million, substantially less than
#28.9million anticipated(v)
* Launch of #256million Apia Regional Office Fund with Morley Fund Management
* Substantial expansion of Apia via the purchase of #120million of property
* Establishment of the #312million Agora Max Shopping Centre Fund
(i) See table 5 for explanation
(ii) Adjusted for deferred tax on fair value gains and other items per table 16
(iii) Adjusted as in (ii) and for deferred tax and the fair value of debt per
table 16
(iv) Adjusted for net gains on investment properties and other items per table
6
(v) Dividend paid and proposed out of profit for the year
(vi) This is less than anticipated due to higher than expected fair values on
assets offset by deferred tax on the fair value
Philip Warner, Chairman of Warner Estate commented
"This has been another year of considerable achievement with the Group achieving
a total adjusted return of 30.7% on its shareholders' triple net asset funds
against an IPD return of 20.7%. and, following the successful integration of
Ashtenne, assets under management rising from #1.1 billion to #2.5billion. We
have made the move from 50:50 joint ventures to multi-investor funds..
The Group continues actively to seek opportunities and since the year end we
have made a further acquisition for our Radial Distribution Fund and our first
significant Central London office purchase for a number of years.
We have a skilled and experienced team in place to ensure that progress
continues.
Date: 20 June 2006
For further information contact:
Warner Estate Holdings PLC City Profile
Philip Warner, Chairman Simon Courtenay
Peter Collins, Finance Director Tel: 020-7448-3244
Michael Stevens, Property Director
Tel: 020-7907-5100
Web: www.warnerestate.co.uk
We can be contacted through City Profile until 1pm,
and from 2pm at our offices
CHAIRMAN'S STATEMENT
I am pleased to report another year of considerable success for Warner Estate,
in terms of both performance and strategic progress. An excellent performance
generated a rise of 21% in triple net asset value and a total adjusted return of
31%. The Group's asset management business made the strategic move from 50:50
joint ventures to multi-investor funds through the successful acquisition and
integration of Ashtenne Holdings PLC and the establishment and expansion of the
Apia Regional Office Fund with Morley Fund Management. Property under
management, including that wholly owned, rose from #1.1billion last March to
#2.5billion at the year end and that managed throughout the year increased in
value by 13%.
Results Overview
This is the first year we have reported results prepared under International
Financial Reporting Standards (IFRS). As I advised in my statement in the
interim accounts to 30 September 2005, these results are very different in their
appearance, but this is purely presentational and has no impact on the substance
of the business. Nevertheless, the last year has been one of substantial change
which, coupled with the implementation of IFRS, makes it more difficult to
understand the present position of the business.
The changes have largely arisen in the asset management business of the Group as
a result of which properties under management, excluding those wholly owned,
have risen in value from #0.74billion to #2.13billion at the year end, employees
have increased from 71 to 187 and the Group now has six regional offices. The
value of properties wholly owned by the Group has remained relatively constant
at #0.35billion (2005: #0.33billion). Although the accounts show the
performance of the Group for the year, the full benefits of the year's activity
are expected to be more apparent during the current financial year particularly
in terms of the asset management business. Pro forma unaudited information for
the Apia Regional Office Fund and the Ashtenne Industrial Fund (AIF) asset
management businesses showing the level of profitability of these businesses as
if they had been wholly owned and operational for the year compared to the
actual results incorporated in these accounts, together with information on the
terms on which the management fees are earned, will be found in the Finance
Review.
In the year to 31 March 2006 adjusted net asset value per share increased by 25%
from 592p to 741p, net asset value by 22% from 540p to 660p and triple net asset
value (TNAV), on which the Group assesses its total return, by 21% from 551p to
669p. At the time of the Ashtenne acquisition we estimated goodwill at
#22.8million before taking into account an additional #6.1million of goodwill in
respect of deferred tax required under IFRS, bringing the total estimated
goodwill to #28.9million, which we considered a fair reflection of the value of
the asset management business. However, subsequent disposals of property assets
have produced a surplus of #17.7million, equivalent to 33p a share, which
reduced the goodwill to #11.2million, although the real worth of the asset
management business has been maintained, if not increased. The total adjusted
return of 31% takes that surplus into account and comfortably exceeds the IPD
All Fund Universe (March 2006) return of 20.7%.
Pre-tax profits have increased by #36million to #91million. A significant
proportion of this increase is due to a #35million increase in the fair value
gains (including our share of joint ventures) to #73million. The Group also
made substantial realised profits of #11million on the disposal of properties
and investments, an increase of #3million on last year. Recurring pre-tax
profits, which are a measure of the Group's core maintainable income, were up 9%
to #15.9million (2005:#14.6million).
Recurring earnings per share were 22.86p (2005: 22.28p) and basic earnings per
share, which include the fair value gains, were 140.17p (2005: 89.20p). The
growth in earnings was depressed by the placing of 5% of the Company's shares in
early April 2005, to help fund the acquisition of Ashtenne Holdings PLC in late
May 2005, the full benefits of which did not start to flow until 100% ownership
was achieved on 1 December 2005.
Adjusted shareholders' funds were #393million (2005: #298million) which, after
deducting for the #13.6million of equity raised in April 2005 to help fund the
purchase of Ashtenne Holdings PLC, represents an increase of 27% after
dividends. Shareholders' funds were #351million (2005: #272million).
Adjusted gearing decreased slightly to 48% (2005: 51%) and currently stands at
51% following the recently announced London office purchase, still comfortably
below the Group's internal policy ceiling of 100%. The Group's share of debt
within the funds and joint ventures was #348million (2005: #323million), all of
which is non-recourse. Interest was covered 1.9 times (2005: 1.6 times) by
recurring profit before interest and tax.
A more detailed analysis of the year will be found in the Reviews from the
Property Director and the Finance Director that follow this statement.
The Board recommends a 6.8% rise in dividends per share from 18.25p to 19.5p,
the Company's 35th successive annual increase. Over the last five years the
dividend has been raised by 6.8% per annum compound, well above the rate of
inflation. The dividend is covered 1.2 times by recurring revenue earnings and,
if approved at the Annual General Meeting, the final dividend per share of 10.0p
will be paid on 15 September 2006 to shareholders on the register at close of
business on 18 August 2006. It remains the Board's policy to pay a progressive
and above inflation increase in dividend.
Strategy
Five years ago the Group embarked upon the still current and successful strategy
of building an asset management business with an emphasis on the quality and
quantity of income. Last year's transactions illustrate particularly well the
progress which has been made from the wholly owned #290million portfolio in
March 2001 to the #2.5billion of property under management at this year end,
with the ownership structure moving from wholly owned to include 50:50 joint
ventures and multi investor funds as the Group established its reputation.
During the year we acquired Ashtenne for its asset management of the AIF which
had assets under management of #690million and six regional offices. Following
successful integration, AIF achieved a 25.7% return in its year to December 2005
and at the year end had #986million of assets under management. Ashtenne also
owned a number of other assets including European assets, most of which have
been sold, but a move by the Group into Europe in due course has not been ruled
out.
In June 2005, the Apia Regional Office Fund was established with the merger of
assets held in the Skipper Jersey Property Unit Trust (JPUT) with a #63million
JPUT owned by Morley Fund Management. This created a #256million fund which was
subsequently increased by #120million through a purchase of further properties
in November 2005 from the Co-operative Insurance Society. The Fund had
#417million of assets under management at the year end and now has five
investors.
In October 2005, the Group created the Agora Max JPUT, a sub-regional shopping
centre fund valued at #312 million and owned 50:50 by ourselves and Bank of
Scotland, as is the Radial Distribution joint venture, which now has #198million
of assets under management following an #18million purchase after the year end.
It remains our intention to continue this expansion through both the existing
funds, where the Group has asset management contracts, and the formation or
acquisition of further funds as dictated by research and opportunity.
An important part of our asset management process is development, particularly
in the Agora and Agora Max shopping centres where there is a pipeline of more
than 500,000sq.ft. Outside the funds, our 200,000sq.ft. shopping centre
development at Folkestone with Bride Hall Group, the specialist development
company in which we have a 25% interest, is making good progress and we expect
the Bride Hall connection to lead to further such projects. In particular, in
Aylesbury, where the Group owns the Hale Leys shopping centre, a Collaboration
Agreement has been signed with Aylesbury Vale District Council for the
development with Bride Hall of 265,000sq.ft. of new retail space. We are
building our own in-house team to manage the increase in the Group's development
opportunities.
The year has also seen the promise of a welcome change to the regulatory
environment in the proposed legislation to permit the formation of Real Estate
Investment Trusts (REITs) with effect from 1 January 2007. As presently drafted,
it is probable that the Group will take advantage of this change. However, we
shall review the legislation when the Finance Bill is enacted and the
regulations published and consider at that time whether conversion to REIT
status is in shareholders' interests.
Shareholders
As referred to above, 5% of additional stock was issued in April, raising a net
#13.6million. In February 2006, 14% of the Company's equity, which was held by
Trefick Ltd, was placed with a group of institutional shareholders, reducing
Trefick Ltd's stake to 13.75%. These transactions have given the Group a much
broader shareholder base and encouraged an increased turnover in the Company's
shares.
Prospects
The Group is well placed, with #2.5billion of property under management, to
benefit from the sustained strong performance of the commercial property market.
Despite rises in gilt yields and swap rates, demand for property continues,
driving prices still higher. The advent of REITs is expected to reinforce
demand, although the concerns leading to falls in equity markets worldwide may
prove a sobering influence. Rising prices will make the task of expanding our
funds more challenging. However, we have bought well and, with efficient
management of existing assets and a substantial development pipeline, the
Group's performance is not dependent on further purchasing. I am confident of
continuing progress and thank our skilled and experienced team for making this
possible.
Philip Warner
Chairman
PROPERTY REVIEW
This year we have more than doubled our assets under management, from
#1.1billion (March 2005) to #2.5billion (March 2006). It is rewarding that this
has been achieved through a number of factors: organic growth from enhancing the
values of existing stock; the acquisition of new assets by existing businesses
when competition for stock has been fierce; and corporate activity in purchasing
Ashtenne Holdings PLC.
Through acquiring Ashtenne, we took over the asset management remit for the
#690million Ashtenne Industrial Fund (AIF), a mature, multi-investor fund,
co-managed by Morley Fund Management. This was an important step, being our
first multi-investor fund, rapidly increasing our exposure to multi-let
industrial investments, for which we had earlier set up our #27million Bareway
joint venture with Barclays. The Bareway properties along with #51million from
our wholly owned portfolio were subsequently sold to the Ashtenne Industrial
Fund. In November 2005 we sold the t3 Trade Park Fund, co-managed by Ashtenne
with AXA REIM for #96million, triggering a performance fee of #4.4million which
was taken as a reduction in the purchase cost of Ashtenne.
We have sold the majority of the properties wholly owned by Ashtenne which were
surplus to our requirements, including development land at Falkirk and Hull,
three small properties in Germany and Belgium and a portfolio of nine assets,
some with residential potential. Disposals were achieved ahead of the values
anticipated at the time of purchase of Ashtenne, which again reduced the cost of
this purchase.
In June 2005 we launched the Apia Regional Office Fund, also co-managed with
Morley. The assets from our Skipper Regional Office Jersey Property Unit Trust
(JPUT) with Royal Bank of Scotland were merged with #63million of complementary
stock from Morley, creating a fully fledged #256million unitised fund. In
November 2005 a further #120million of regional office investments were acquired
and the Fund now stands at over #400million with a target size of #750million by
the end of 2008. In March and May 2006 two new investors joined the Fund,
increasing its profile as a multi-investor vehicle.
In October we launched the Agora Max Shopping Centre Fund, with the #152million
purchase of The Pallasades Shopping Centre, Birmingham in a JPUT. This created
a second shopping centre joint venture with Bank of Scotland, building on the
success and experience of the Agora Shopping Centre Fund. A second asset, the
combined shopping centres of The Grange and Pyramids at Birkenhead, was
purchased from the Agora Shopping Centre Fund in March 2006 and the Agora Max
Shopping Centre Fund now has over #300million under management. It will own
sub-regional shopping centres of #100million to #200million in value, with
strong medium term development potential.
The Agora Shopping Centre Fund sold The Square at Sale, Greater Manchester in
November for #40million after a successful #7million extension and
refurbishment. Zone A rents were driven from around #30 per sq.ft. to over #50
per sq.ft., well ahead of expectation and with the first wave of active
management initiatives completed it was logical to sell, earning our second
performance fee from Agora. We continue to make good progress with our
preparations to redevelop and extend The Market Place at Bolton and Fishergate,
Preston, both of which we expect to start this year. The 45,000 sq.ft. (4,180
sq.m.) first phase extension to the Middleton Shopping Centre completes in June
this year with 73% pre-let to Peacocks, Quality Save and Streetwise Sports.
Our Radial Distribution Fund joint venture with Bank of Scotland acquired
Immanis, a warehouse let to Panasonic at Brackmills, Northampton for #8million
and since the year end has purchased the 218,872 sq.ft. (20,333 sq.m.) Accident
Exchange Group warehouse at Hams Hall, Birmingham for #18million. Radial sold
the former Sainsbury's distribution unit at Yate, Avon in September 2005 for
#18.6million after a successful lease re-gearing with Morrisons supermarket
group.
Our policy of co-investment in each fund aligns our interests with our partners
and allows us to leverage our resources. We concentrate on asset management and
making the property assets perform; our fund management partners deal with
investor relations, fund marketing and FSA compliance issues.
As indicated last year, the wholly owned properties are no longer treated as a
fund. Their performance is part of the benchmarking of the whole Group which
allows for more entrepreneurial activity and less adherence to sector weighting.
The Royals Shopping Centre, Southend was purchased for #48million in November
2005 from Co-operative Insurance Society along with a leasehold liability
portfolio of 105 former CIS offices, which will be sublet, surrendered or
assigned; we have to date already disposed of 18 with a further 9 in solicitors'
hands. Construction started on the 200,000 sq.ft. (18,581 sq.m.) Bouverie Place
Shopping Centre at Folkestone which we are developing in partnership with Bride
Hall Group, the specialist development company in which we have a 25% interest
and we signed a Collaboration Agreement with Aylesbury Vale District Council in
March 2006 as preferred developer for the 265,000 sq.ft. (24,620 sq.m.)
extension to Hale Leys Shopping Centre, Aylesbury.
We have grown each area of our business throughout the year. The teams which
run each fund are specialists in their fields. Their concentration on
specialisation increases focus which is the key to out-performance, in
particular knowledge of our markets and our tenants and anticipating tenant
business needs for mutual benefit. Each team is now led by a managing director
of the business unit, increasing the sense of ownership and responsibility. The
specialist business units have been established with REITs in mind - investors
can judge the risk/return characteristics of each property sector/sub-sector and
make their choices accordingly.
Our challenge for next year is to grow our asset management business by
increasing the size of those funds already established and ensuring their
relative out-performance, by establishing new funds and by generating new and
better quality income streams. Sector specific derivatives and increased levels
of secondary trading of property fund units will bring greater sophistication
and liquidity to the market. However, owning tangible assets with the potential
to add value remains the key attraction of the property sector. Whilst a
multitude of investment vehicles have brought investors into property, the
challenge for management is to deliver returns in line with expectations in a
climate of more limited yield compression. In such an environment we are
confident that our asset management abilities will come to the fore allowing us
to continue to deliver out-performance.
Valuation/Performance
During the year, properties under management increased from #1.077billion to
#2.487billion due to activities described above. Our standing investments,
those held throughout the twelve months (excluding trading), increased overall
by 13.4% from #935million to #1,060million, a #125million uplift over the year.
The IPD All Fund Universe Index over the 12 months to March 2006 recorded total
returns for all property at an average of 20.7%, driven substantially by strong
capital returns as its all property average net initial yield fell from 6.6% to
4.9%. There was around #51billion of investment activity in the 2005 calendar
year beating the previous record set in 2004 by #11billion.
Our preliminary results for individual funds are as follow:-
Table 1
Performance Sub-Sector Benchmark
(Total Return)
Apia* 33.7% 19.5%
AIF 31.3 19.2%
Agora Max n/a 17.6%
Agora 42.2 17.6%
Radial 54.2% 18.3%
*From inception in June 2005
These returns do take account of transactions during the year.
Development Activity
We are undertaking development projects in both the wholly owned portfolio and
all of our funds. These initiatives are planned to generate additional new
income, development profit and improved investment performance. Projects will
be undertaken either in house under John Peacock, our newly appointed Director
of Development, or in conjunction with Bride Hall.
A summary of our development activity: Table 2
Scheme Business Size (sq.ft.) Status
Area
AIF - Development Land AIF 190 acres Various schemes under consideration
AIF - Chippenham AIF 50 acre existing Outline planning application submitted in
industrial site March 2006 with ASDA for potential retail
and residential uses.
The Grange and Pyramids Shopping Agora Max 6 new units - 1,000 Works on site. Practical completion
Centre each programmed for July 2006.
Birkenhead - Phase 1, New
Foodcourt
The Grange and Pyramids Shopping Agora Max 30,000 Proposed new retail unit at entrance to
Centre shopping centre. Planning permission
granted May 2006.
Birkenhead - Phase 2, New retail
unit
The Grange and Pyramids Shopping Agora Max c. 100,000+ A master plan being discussed with the
Centre local authority.
Birkenhead - Master planning
Pallasades, Birmingham Agora Max c. 100,000+ Discussions ongoing with Network Rail and
local authority over plans to upgrade
station and retail area above.
Preston, Fishergate Agora 190,000 Planning permission granted in September
2004. Scheme will be phased.
Bolton Market Place Agora 100,000 Planning permission and Listed Building
Consent granted in March 2005.
Middleton - Phase 1 Agora 45,000 Works on site. Practical completion
programmed for June 2006.
Middleton - Phase 2 Agora 17,500 Planning permission granted in April
2005.
Bardon, Leicester Radial 51,500 Planning consent granted for warehouse
extension in April 2006.
Severnside, Bristol Radial 30,000 Planning permission for warehouse
extension granted in February 2006.
Folkestone Wholly owned 200,000 Forward funding, works on site;
programmed to complete in June 2007.
Aylesbury, Hale Leys Shopping Wholly owned 265,000 Preferred developer appointed by local
Centre - Phase 2 authority in March 2006.
Southend, The Royals Shopping Wholly owned 38,000 (incl. Extension of existing TK Maxx Store.
Centre - Phase 1 existing)
Long Eaton Wholly owned 45,600 Viability and feasibility assessments
underway.
Total 1,218,600 + 240 Of which 670,000 sq.ft. (55%) has
acres planning consent and / or has started
The scale of development and refurbishment activity varies considerably in size,
but all projects are carefully managed to control risk through pre-letting
before construction starts and securing maximum price or fixed price contracts
from builders. In Bolton for example, we have agreed on behalf of Agora terms
providing the Fund with an option to secure vacant possession when it is ready
to proceed with the Market Hall development. This is expected to be in 2007.
In Bardon, we have secured planning approval for Radial for an extension to its
distribution warehouse investment and discussions are now progressing with an
occupier. For AIF, we continue to identify development initiatives across its
portfolio.
KEY STATISTICS
Table 3
Total under management Wholly owned*
31 March 2006 31 March 2005 31 March 2006 31 March 2005
Capital Value #2,487million #1,077million #344million #327million
Annualised rent roll #151.5million #72.8million #20.7million #23.7million
Initial Yield 5.8% 6.5% 5.7% 6.9%
Average Unexpired Lease 4.25 yrs 9.4 yrs 12.2 yrs 10.6 yrs
Term
Void Rate 9.5% 3.0% 4.0% 4.0%
Number of Properties 499 104 75 72
Average Lot Size #4.99million #10.36million #4.59million #4.54million
* Investment properties and properties under the course of development, where
the capital value is before the accounting adjustment for ground lease interest
for leasehold properties of #1.1m (2005: #1.1m).
The breakdown by sector at 31 March 2006 was as follows:
Table 4
No. of Capital Annual ERV Net Weighting
Properties Value Rent Roll initial
#million #million #million yield
Retail
Retail Warehouses 6 26.6 6.4
High Street 11 117.2 1.7
Retail sub total 17 143.8 8.1 9.6 5.30% 42%
Offices sub total 26 118.0 8.1 8.8 6.48% 34%
Distribution 3 16.4 0.9
Industrial 14 53.3 3.6
Distribution & Industrial sub total 17 69.7 4.5 5.4 6.07% 20%
Land 5 0.5 - - - -
Development 1 12.3 - - - 4%
Total 66 344.3 20.7 23.8 5.63% 100%
Trading (Inventories) 10 10.9 0.5 0.7 6.36%
Total wholly owned 76 355.2 21.2 24.5 5.68%
No. of Capital Annual ERV Net
Properties Value Rent Roll initial
#million #million #million yield
Aggregate of all properties
Apia Regional Offices 20 417.3 26.0 28.9 5.85%
Ashtenne Industrial 387 986.0 63.0 76.9 6.03%
Agora Max Shopping Centres* 2 311.9 16.9 22.9 5.10%
Agora Shopping Centres* 4 236.7 12.9 15.4 5.03%
Radial Distribution* 10 180.0 11.5 11.6 6.03%
Wholly owned* 76 355.2 21.2 24.5 5.68%
Total under management 499 2,487.1 151.5 182.2 5.75%
* Capital value is before accounting adjustments for ground lease interest for
leasehold properties, and certain properties treated as finance lease assets.
APIA REGIONAL OFFICE FUND - Value #417million - Rental Income #26million pa
The Apia Regional Office Fund was established in June 2005 and has an existing
portfolio of 20 properties with a combined value of #417million representing
over 1.7million sq.ft. (159,140 sq.m.) under management. The Fund focuses on
office investments with asset management potential in the principal regional
cities in the UK. Apia is asset managed by Warner Estate; the Fund Manager is
Morley Fund Management. There were four investors in the fund at 31 March. A
fifth joined in May 2006.
Offices have become the favoured sector over the last year with investors taking
advantage of the potential growth in the financial services sector boosting
rental growth in the short to medium term, not only in central London, but also
in prime locations within the stronger regional economic centres where total
returns have historically been less volatile than London and underpinned by a
higher proportion of income and less speculative development.
ABERDEEN, NEW TELECOM HOUSE
Size - 84,764 sq.ft. (7,874 sq.m.)
An eleven storey, 1970's office investment close to Aberdeen railway station
with 47 car parking spaces. The building is let to British Telecommunications.
EDINBURGH, APEX 123, HAYMARKET TERRACE
Size - 94, 522 sq.ft. (8,781 sq.m.)
A four storey modern air conditioned building located close to Haymarket
Station, one mile west of the city centre with 135 car spaces. Tenants include
Scottish Enterprise, Secretary of State for the Environment, Edinburgh Fund
Managers and Abbey National Bank PLC. A refurbishment of 17, 836 sq.ft. (1,657
sq.m.) has just completed and the upgraded space will be let to generate
evidence of rental growth.
GLASGOW, 225 BATH STREET
Size - 87,578 sq.ft. (8,136 sq.m.)
A seven storey office building, built in 1978 and substantially refurbished in
1997, located in Glasgow's CBD (central business district) with 33 surface car
spaces, let to two principal tenants, National Australia Group and Teletech Ltd.
Teletech's lease on 65,439 sq.ft. (6,079 sq.m.) expires in July 2006. We have
been working with them to secure new tenants and have pre-let a floor (13,383
sq.ft./1,244 sq.m.) to Faber Maunsell. A refurbishment programme will be
initiated in the summer this year to upgrade the vacant space and create
improved rental income.
GLASGOW, LOMOND HOUSE
Size - 64,331 sq.ft. (5,976 sq.m.)
An eleven storey 1990's office investment within Glasgow's CBD with 23 basement
car parking spaces. The building is let to Intel and Deloitte & Touche.
NEWCASTLE, ST ANN'S WHARF
Size - 57,897 sq.ft. (5,378 sq.m.)
A five storey 1990's multi-let Grade A office investment on Newcastle's Quayside
with 197 car parking spaces. Principally let to Dickenson Dee Solicitors with
whom agreement has been reached for a lease variation which will increase rental
income.
NEWCASTLE, HAMPSHIRE COURT
Size - 118,246 sq.ft. (10,985 sq.m.)
Three office buildings on Newcastle Business Park, 1.5 miles from Newcastle City
centre with 387 car parking spaces let to Lombard North Central, WSP, Fujitsu,
Norwich Union and SoS for the Environment. Discussions are underway with a
number of tenants to extend their leases.
LEEDS, YORKSHIRE HOUSE, GREEK STREET
Size - 81,293 sq.ft. (7,552 sq.m.)
A seven storey office building with ground floor retail and A3 units and 45
basement car parking spaces in Leeds CBD. The office tenants include Lupton
Fawcett and AIG with the retail units let to Lloyds TSB, Target PIL and Regent
Inn. A refurbishment programme is being discussed with the principal tenant,
Lupton Fawcett, to upgrade their specification and re-gear their leases.
PRESTON, PRESTON OFFICE CENTRE
Size - 144,417 sq.ft. (13,417 sq.m.)
A ten storey, 1970's office investment within Preston city centre with 97 car
parking spaces. Let principally to Trillium (Prime) Property and occupied by
Government departments.
MANCHESTER, NORFOLK HOUSE
Size - 54,614 sq.ft. (5,073 sq.m.)
A five storey modern air conditioned office building built in 1996 within
Manchester's prime office core, providing 47 car parking spaces. Occupiers
include Halliwells LLP, Secretary of State, Zurich and Watson Wyatt LLP. The
common parts are being upgraded and refurbished to enhance the building
appearance.
MANCHESTER, 81 FOUNTAIN STREET
Size - 39,900 sq.ft. (3,707 sq.m.)
A nine storey office building constructed in 1987 and located in Manchester's
office core, with 19 car parking spaces. The building is let to BUPA. Sub-let
space which has become vacant will be upgraded and refurbished which should
improve the rental tone in the building, when re-let.
MANCHESTER, SUNLIGHT HOUSE
Size - 197,289 sq.ft. (18,329sq.m.)
A fifteen storey, 1930's landmark office investment within Manchester's Central
Business District with 212 car parking spaces. Let to SoS for the Environment,
SoS for Transport, Building Design Partnership, Capita and others.
NOTTINGHAM, YORK HOUSE
Size 79,020 sq.ft. (7,341 sq.m.)
An eight storey, 1960's office investment within Nottingham city centre with 73
car parking spaces. Let principally to Nottingham Trent University until 2008.
BIRMINGHAM, 120 EDMUND STREET
Size - 138,200 sq.ft. (12,839 sq.m.)
A nine storey Grade A office building in Birmingham's prime office district with
104 basement car parking spaces. The building is let to tenants including HSBC
Bank and Donaldsons. A vacant part floor of 6,992 sq.ft. (650 sq.m.) is being
marketed.
SOLIHULL, SAPPHIRE COURT, STREETSBROOK ROAD
Size - 87,563 sq.ft. (8,134 sq.m.)
A three storey multi-let office building close to Solihull Railway Station,
constructed in 1986 including 266 surface car parking spaces. 45% of the income
is received from the Government with the remainder let to investment grade
covenants or subsidiaries. Sub-let space which has become vacant will be
upgraded and re-let to improve the rental tone in the building.
MILTON KEYNES, ASHTON / NORFOLK HOUSE
Size - 120,019 sq.ft. (11,150 sq.m.)
A three storey, two building 1970's multi-let office investment within Milton
Keynes CBD. The building is let to tenants including Deloitte & Touche, Abbey
National and Barclays Bank.
CARDIFF, OAKLEIGH HOUSE
Size - 41,038 sq.ft. (3,813 sq.m.)
A three storey 1990's single let office investment within Cardiff's CBD with 23
car parking spaces. The building is let to Cunningham Lindsey.
WIMBLEDON, ST GEORGE'S EAST
Size - 59,604 sq.ft. (5,537 sq. m)
A six storey, 1980's mixed use office and retail investment within Wimbledon
town centre with 35 car parking spaces. The office building is let and occupied
by the BIS Group Company and the retail units are let to Lloyds TSB, Starbucks
and Dixons.
KINGSTON, SURREY & LEVER HOUSE
Size - 164,851 sq.ft. (15,315 sq.m.)
A prominent island site at the southern tip of Kingston town centre, with two
principal office buildings (Surrey House and Lever House) providing office
accommodation including ancillary retail units at ground floor level, a
nightclub and a three storey car park. Tenants include Lever Faberge, HMV and
Multiyork. We expect the multi storey car park may shortly be re-let by tender
on a conventional lease of 10-15 years.
BRISTOL, WESTGATE
Size - 90,924 sq.ft. (8,446 sq.m.)
A six storey landmark Grade A building in Bristol city centre, comprehensively
refurbished in 1992 with 63 basement car parking spaces. Royal & Sun Alliance
occupy the entire building.
BRIGHTON, SUSSEX HOUSE
Size - 36,996 sq.ft. (3,437 sq.m.)
A six storey, 1980's office investment within Brighton town centre with six
basement car parking spaces. The building is let to Lloyds TSB.
ASHTENNE INDUSTRIAL FUND - Value #986million - Rental Income #63.0million pa
The Ashtenne Industrial Fund was established in July 2001. The Fund invests in
multi-let industrial properties throughout the UK. The focus of the Fund is
intensive asset management, with a view to generating both a high income return
and consistent capital returns. AIF is asset managed by Warner Estate from six
offices around the country and fund managed by Morley Fund Management.
The Market has been strong throughout the last 12 months for industrial
property, particularly multi-let estates which offer asset management potential.
However, investors have become more selective and demand has concentrated on
well located, recently built estates with rental growth potential.
As at 31st March 2006, the Fund had a gross asset value of #986million,
comprising 387 assets totalling 19.4million sq.ft. (1,803,984 sq.m.). The Fund
is open to professional investors with over #1million to invest. A sample of
the main properties is set out below:-
CREWE, CHESHIRE, RADWAY 16
Size - 273,900 sq.ft. (25,500 sq.m.)
The well established Business Centre has been redeveloped and refurbished to
provide a variety of business space designed to meet the demands of today's 24
hour / 365 day business occupiers. The Business Centre is set within secure
landscaped grounds, with excellent circulation and parking facilities.
CHIPPENHAM, LANGLEY PARK
Langley Park comprises a large prominent industrial estate lying adjacent to
Chippenham railway station and Hathaway Retail Park on the north eastern side of
the town.
The Park extends to 48 acres and comprises 815,000 sq.ft. (75,716 sq.m.) of
industrial accommodation.
Langley Park is a landmark site which has been identified in the Local Plan for
future mixed use redevelopment. An outline planning application was submitted
in March 2006 for the redevelopment of 33 acres.
CRAYFORD, KENT, OPTIMA PARK
The site extends to 11.93 acres which is being developed in two phases. Phase 1
comprised 140,000 sq.ft. (13,006 sq.m.) of B1(c), B2 and B8 uses and was
completed in November 2005. The units range in size from 2,000 to 25,000
sq.ft., with the terrace fronting onto Thames Road, being ideal for trade
counter operators. Nine industrial units have been sold totalling 70,300 sq.ft.
equating to circa #7.1million of sales.
The remaining 4.95 acres (Phase 2) offers design and build opportunities for
occupiers' requirements from circa 20,000 sq.ft. to 80,000 sq.ft.
PORTSMOUTH, MOUNTBATTEN BUSINESS PARK
Mountbatten Business Park is prominently located at Jackson Close, to the north
of Portsmouth town centre. The development comprises two phases of industrial
accommodation extending to 151,612 sq.ft. (14,084 sq.m.) in total. Planning
consent includes uses within B1, Bs and B8. A recent letting of one of the
Trade Units has just been completed at #10.00 per sq.ft.
AGORA MAX SHOPPING CENTRE FUND - Value #312million - Rental Income #16.9million
pa
Agora Max Shopping Centre Fund, which is a Jersey Property Unit Trust, was
created in October 2005 with the aim of producing consistent high investment
returns from the ownership and active management of a portfolio of sub-regional
shopping centres across the UK. It is owned 50/50 with Bank of Scotland and
invests in shopping centres of between #100million and #200million with strong
medium term development potential.
The Fund acquired the Pallasades Shopping Centre in Birmingham in October 2005.
The Grange and Pyramids shopping centres in Birkenhead were purchased from the
Agora Shopping Centre Fund in March 2006. We have 0.9million sq.ft. (83,864
sq.m.) under management.
The retail sector has suffered from challenging trading conditions on the High
Street with retailers squeezing suppliers to maintain their margins. As
investment yields have continued to fall, the best prospects lie with asset
managers who can improve the shopping experience and retail offer to attract
more discerning consumers into their schemes, whether in shopping centres or
out-of-town retail parks.
BIRKENHEAD, THE GRANGE & PYRAMIDS SHOPPING CENTRE
Size - 613,000 sq.ft. (56,949 sq.m.)
The scheme comprises the major retailing element of the town centre, anchored by
a number of major national retailers including Marks & Spencer, Argos, Dixons,
WH Smith, Next and TJ Hughes, providing circa 160 retail units and 1,225 car
parking spaces. Phase I of our redevelopment, a major reconfiguration of the
food court providing 6 new units, 4 of which are pre-let to Burger King, Say
Potato, Subway and BB's Cake & Muffins, is due to complete in June 2006. Our
planning application for Phase II, a 30,000 sq.ft. (2,787 sq.m.) reconfiguration
of the St John's Pavement site was submitted in March 2006 and approved in May
2006. A master planning exercise has been initiated to provide new space for
retailers currently unrepresented in the town.
BIRMINGHAM, PALLASADES SHOPPING CENTRE
Size - 290,000 sq.ft. (26,915 sq.m.)
Pallasades Shopping Centre occupies a prime location above Birmingham's New
Street Station and forms part of Network Rail and Birmingham City Council's
plans for the redevelopment of the station and its immediate surroundings.
Pallasades is anchored by a number of major national retailers including Argos,
Boots, HMV and Woolworths and served by a 1,000 space multi-storey car park.
Our asset management plan identifies a number of initiatives to attract new
retailers to the scheme to help improve the footfall circulation and reposition
the tenant mix.
AGORA SHOPPING CENTRE FUND - Value #237million - Rental Income #12.9million pa
The Agora Shopping Centre Fund is a 50/50 joint venture with Bank of Scotland
which was launched in March 2003. The business owns town and city centre
shopping centres in the heart of the Northwest. Each shopping centre is capable
of dominating the local retail offer and has strong asset management potential.
Agora currently owns four shopping centres totalling 1.07million sq.ft. (99,232
sq.m.) following the disposal of The Square, Sale, in November 2005.
PRESTON, FISHERGATE SHOPPING CENTRE
Size - 360,000 sq.ft. (33,445 sq.m.)
Fishergate Shopping Centre is situated next to Preston railway station on an
eleven acre site and is anchored by Debenhams. Primark are opening a new
flagship store over the summer, and we are underway with a scheme to finish
refurbishing the Fishergate entrance, which has seen the introduction of
Starbucks and Lush to the tenant line up. Discussions with potential tenants to
pre-let our phased 190,000 sq.ft. (17,625 sq.m.) extension are underway.
BOLTON, MARKET PLACE SHOPPING CENTRE AND MARKET HALL
Size - 333,123 sq.ft. (30,948 sq.m.)
Market Place is a prime retail location in Bolton. Planning consent has been
obtained for a redesign and extension of 100,000 sq.ft. (9,290 sq.m.) to the
attached Listed Victorian Market Hall. In February 2006, we secured conditional
agreement with all of the Market Hall tenants to achieve vacant possession ahead
of the development. Pre-letting discussions are underway with new tenants and
the scheme could be initiated in early 2007.
LIVERPOOL, CAVERN WALKS SHOPPING CENTRE
Size - 30,580 sq.ft. (2,842 sq.m.) of retail and 79,240 sq.ft. (7,362 sq.m.) of
office space
Cavern Walks Shopping Centre, although the smallest of the Agora shopping
centres, is the most fashion led in the group offering a wide variety of high
profile designer retailers right in the heart of Liverpool's city centre.
Tenants include Cricket Designwear, Versace, Dolce & Gabbana, Arrogant Cat and
Vivienne Westwood. We are seeking to capitalise on these lettings, and improve
dwell times by further improving the tenant mix with complementary leisure and
beauty orientated uses. The office accommodation, now fully let, adds
significantly to the footfall.
MANCHESTER, MIDDLETON SHOPPING CENTRE
Size - 272,300 sq.ft. (25,300 sq.m.)
Situated on the main route north of Manchester between Oldham and Rochdale,
Middleton Shopping Centre is undergoing an extensive development and
refurbishment, scheduled to complete in June 2006, creating a further 45,000
sq.ft. (4,181 sq.m.) of new retail space, pre-let to Streetwise Sports, Quality
Save and Peacocks. Wilkinsons are on site fitting out an extended 32,000 sq.ft.
(2,973 sq.m.) unit. Improvements to the vertical circulation and the
introduction of a Mall Cafe are also planned for Summer 2006. Planning consent
for a further 17,500 sq.ft. was granted in April 2005.
RADIAL DISTRIBUTION FUND - Value #180million - Rental Income #11.5million pa
The Radial Distribution Fund was established in 2003 as a joint venture with
Bank of Scotland, responding to the significant changes occurring in the
distribution and logistics markets. It owns ten sites with over 2.3million
sq.ft. (214,918 sq.m.) under management.
The fund specifically targets large distribution properties with active
management potential and low site cover close to major transport interchanges,
ports, airports and rail freight terminals.
There is an occupier trend towards bigger and strategically located high bay
distribution units of 200,000 sq.ft. (18,580 sq.m.) or more, driven by
efficiency demands in supply chain technology. Higher fuel costs, availability
of labour and the new European Working Time Directive restricting drivers to a
typical 48 hour (rather than 60 hour) week have focused operators onto the best
located sites polarising demand for them. Availability continues to be
restrained by increasingly restrictive planning policies. Investor appetite has
remained strong with purchasers attracted by relatively high initial yields and
secure lease terms, typically 10 years or more.
GLASGOW, KUEHNE & NAGEL LOGISTICS UNIT, CAMBUSLANG INVESTMENT PARK
Size - 123,871 sq.ft. (11,508 sq.m.)
Cambuslang Investment Park is one of the most popular distribution locations in
Scotland, located 8 miles south of Glasgow and very close to Junctions 1 & 2 of
the M74. The unit stands on a site of 3.25 hectares (8.02 acres) and has low
site coverage of around 35%. The unit is let to Kuehne & Nagel Logistics
Limited, who use the site for a contract with B&Q.
MANCHESTER, STAKEHILL DISTRIBUTION PARK
Size - 102,526 sq.ft. (9,525 sq.m.)
Stakehill Distribution Park lies 8 miles north east of Manchester, just south of
Junction 19 of the M62 and 2 miles from Junction 20 of the M60. The property
has a site area of 2.94 hectares (7.25 acres) with site coverage of 32%.
Neighbouring occupiers include Booker, Christian Salvesen, Aldi, Cert Logistics
and Tesco. The property is let to Dunlop Tyres until 2020, with a tenant break
option in 2010.
LEICESTER, ANTALIS UNIT, INTERLINK PARK, BARDON
Size - 227,763 sq.ft. (21,160 sq.m.)
Interlink Park is close to Junction 22 of the M1. The Antalis unit was built
for the tenant in 1997 and was subsequently extended in 2001. Site coverage on
the 5.05 hectare (12.47 acre) site is still only 42% and there is potential for
expansion by a further 50,000 sq.ft. (4,654 sq.m.) for which planning permission
was granted in February 2006. The property is let on institutional terms until
2017.
TAMWORTH, RELAY POINT
Size - 85,903 sq.ft. (7,981 sq.m.)
Relay Point is a recently built manufacturing and distribution park, adjacent to
Junction 10 of the M42 at its intersection with the A5 trunk road in
Staffordshire. The site is 2.28 hectares (5.62 acres), providing 35% site
coverage. Neighbouring occupiers include Britvic, Safeway Distribution, AAH
Pharmaceuticals and Swish Products. The property is let to NYK Logistics until
2018.
BIRMINGHAM, COLESHILL, HIGHWAY POINT, GORSEY LANE
Size - 260,884 sq.ft. (24,236 sq.m.)
Highway Point is a purpose built distribution scheme, with excellent motorway
connections. Junction 9 of the M42 lies just to the north and Junction 4 of the
M6 a mile to the south. Both units are let until 2027, to Greenwoods
Communications and Lucas Aerospace. Both units have expansion land each
providing an additional 40,000 sq.ft. (3,716 sq.m.)
DAVENTRY, UNITS A, B AND C, DIRFT
Size - 609,349 sq.ft. (56,609 sq.m.)
DIRFT (Daventry International Rail Freight Terminal) is one of the premier
distribution locations in the UK. The park is located at Junction 18 of the M1,
where it intersects with the A5 trunk road and the West Coast Mainline. Other
occupiers on DIRFT include Tesco, Royal Mail, Exel Logistics and Wincanton.
Units A and B are both let to Eddie Stobart Ltd until 2025 (with break options
in 2015). Unit C is let to Ingram Micro until 2010.
NORTHAMPTON, BRACKMILLS, PANASONIC DISTRIBUTION UNIT
Size - 126,411 sq.ft. (11,743 sq.m.)
Brackmills is a dedicated distribution park, with dual carriageway access to
Junction 15 of the M1. Other occupiers on the park include John Lewis, Stanley
Tods, MFI, Black & Decker, Office Depot and GE Lighting. The unit is let to
Panasonic Logistics until April 2009.
BRISTOL, FOCUS DIY, WESTERN APPROACH DISTRIBUTION PARK
Size - 244,115 sq.ft. (22,679 sq.m.)
Western Approach Distribution Park is one of the South West's premier logistics
locations, lying close to Junction 22 of the M4. The unit is let to Focus DIY
until March 2022 and is capable of expansion by a further 30,000 sq.ft. (2,787
sq.m.) for which planning permission was granted in April 2006.
WEYBRIDGE, TESCO DISTRIBUTION UNIT, BROOKLANDS BUSINESS PARK
Size - 313,135 sq.ft. (29,091 sq.m.)
Brooklands Business Park is close to Junctions 10 and 11 of the M25 and to the
A3 artery into London. Occupiers include Waitrose, Daimler Chrysler, Marks &
Spencer and Sony. The unit is let to Tesco until 2014.
Post 31 March - Year End Purchase
BIRMINGHAM, HAMS HALL NATIONAL DISTRIBUTION PARK, ALPHA ONE
Size - 218,872 sq.ft. (20,333 sq.m.)
Hams Hall National Distribution Park covers an area of approximately 430 acres
(174 hectares) and has its own international rail freight terminal. It lies
approximately twelve miles (18 km) north east of Birmingham City Centre and one
mile (1.6km) from Junction 9 off the M42. Birmingham International Airport is
eight miles to the south. The building is let to Accident Exchange until 2021
with a tenant break option in 2016.
WHOLLY OWNED INVESTMENTS - Value #355million - Rental Income #21.2million pa
The wholly owned portfolio, including trading, comprises 76 properties and
represents a flexible and pro-active area of the Group's activities. Its remit
is to create value through entrepreneurial asset management initiatives with the
added possibility of providing property for funds and joint ventures, either
current or future.
SOUTHEND-ON-SEA, THE ROYALS SHOPPING CENTRE
Size - 284,649 sq.ft. (26,454 sq.m.)
Acquired in November 2005, this modern centre is anchored by a 122,000 sq.ft.
Debenhams department store, 32,000 sq.ft. TK Maxx unit and 25,500 sq.ft. Boots
unit.
AYLESBURY, HALE LEYS SHOPPING CENTRE
Size 89,662 sq.ft. (8,333 sq.m.)
Modern town centre shopping centre originally constructed in 1983. The scheme
provides 30 units which are substantially let to major national retailers
including Boots, Next and River Island. The Group has entered into an
exclusivity agreement with Aylesbury Vale District Council to progress the
development of a further 265,000 sq.ft. of retailing adjacent to Hale Leys
designed around a new 80,000 sq.ft. department store and 50,000 sq.ft. food
store.
FOLKESTONE, BOUVERIE PLACE SHOPPING CENTRE
Size - 200,000 sq.ft. (18,581 sq.m.)
Shopping centre development funded by the Group and being developed by Bride
Hall. The scheme includes pre-lettings to Asda of 70,000 sq.ft., 21,000 sq.ft.
to Bhs, 19,000 sq.ft. to Next plus George, HMV, New Look and Peacocks. The
scheme is programmed for completion in June 2007.
REDHILL, ST PAULS HOUSE
Size - 49,025 sq.ft. (4,554 sq.m.)
Headquarters office building let to St Paul Travellers Management Limited to
December 2016. The property has planning consent for a further 15,000 sq.ft. of
additional offices.
LONDON, LANCASTER HOUSE, 31/37 ISLINGTON HIGH ST
Size - 24,301 sq.ft. (2,257 sq.m.)
Mixed retail and office building let to Boots and Burger King on the ground
floor and basement with a lease to Prudential on the upper offices.
LIVERPOOL, FALLOWS WAY, WHISTON
Size - 135,885 sq.ft. (12,623 sq.m.)
Warehouse let to Littlewoods subsidiary for a term expiring June 2018.
Post 31 March 2006 Year End Purchase
LONDON, EC3, 24/26 MINORIES
Size - 25,169 sq.ft. (2,338 sq.m.)
A City of London office building let to Barclays Bank and Groupama until 2009
having been comprehensively refurbished in 2000. It was acquired in May 2006.
Michael Stevens
Property Director
FINANCE REVIEW
IFRS
This is the first set of audited annual results prepared by the Group under
International Financial Reporting Standards (IFRS), as adopted in the EU, and
their appearance is very different to those previously reported. This is mainly
because unrealised fair value gains and losses are now shown as Income Statement
items rather than reserve movements with only a Balance Sheet impact. The other
significant change is the inclusion in the Balance Sheet of the tax that may
arise on the disposal of all the properties and investments owned by the Group.
Of less significance is the treatment of the Group's investment in Bride Hall
which had previously been reported as an investment, but under IFRS must now be
treated as an associate. However, these changes are purely presentational and
have no impact on the cash flow of the Group, or its underlying performance.
Details of the effect of these changes are provided in Note 38 to the accounts.
The interim report for the six months to September 2005, a copy of which can be
found on the Group's website, www.warnerestate.co.uk, was also prepared under
IFRS.
The Group has made a decision in presenting these results not to reconcile back
to UK GAAP numbers because the results which management formerly concentrated on
were those where adjustments had been made to the UK GAAP figures. These
adjusted numbers more accurately reflect management's view of the Group's
performance.
Return on Capital
As previously reported, the Group measures its performance by the total return
it achieves on shareholders' triple net asset funds, which has increased to
30.7% (2005 19.6%). Whilst a total return calculated under IFRS on the current
results would be similar to the total return calculated below, we shall continue
to use our method of calculation. The reason for this is that there are
fundamental differences between the two calculations in the computation of
deferred tax, treatment of finance lease assets and dividends payable.
Specifically, the calculation of deferred tax under IFRS on fair value gains
does not allow for any mitigation of that liability through tax planning on
investment properties and similar non-current assets. Under IFRS, we have to
treat an element of our property portfolio as finance leases. This reduces the
net asset value of those assets below their latest independent valuation. In
the case of dividends, because these are now only charged when declared, the
final dividend liability is no longer accrued within the accounts, so that the
impact of the Group's continued increase in the dividend payable is not taken
into account.
In addition, the return this year has been adjusted to add back the net profits
of #17.7million of fair value gains arising on assets from Ashtenne Holdings PLC
deemed surplus to the Group's requirements but which reduced the goodwill
arising on the purchase from #28.9million previously indicated last year to
#11.2million.
Table 5
31 March 31 March
2006 2005
#million #million
Profit for the year 74.4 45.0
Add back effect of treating investment properties as finance leases 0.3 0.8
Add back deferred tax on fair value gains (including joint ventures) 9.2 9.3
Add back fair value adjustments on derivative financial instruments 1.4 0.8
Add back goodwill reduction on Ashtenne asset management business 17.7 -
103.0 55.9
Deferred tax arising from unrealised gains (17.2) (9.5)
Change in fair value of debt, net of tax (0.5) 0.6
Total adjusted return for the year 85.3 47.0
Shareholders' triple net asset funds at start of period 277.7 239.7
Return on shareholders' triple net asset funds 30.7% 19.6%
Of which
Post tax profit 10.8% 7.5%
Net gain from fair value adjustment on properties 15.1% 11.5%
Net gain from fair value adjustment on investments 5.0% 0.3%
Change in fair value of debt (0.2)% 0.3%
Results
Table 6 illustrates the different constituents that make up the results for the
year. As can be seen, recurring profits are #15.9million (2005: #14.6million).
These results are further analysed to show the respective contribution from
asset management and wholly owned activities in tables 7 and 8 below.
Table 6
Income Statement 31 March 31 March
2006 2005
#million #million
Recurring profit 15.9 14.6
Property disposals and other non-recurring profit 12.2 7.3
Profit before fair value gains 28.1 21.9
Net fair value gains 71.0 36.7
Profit including joint ventures and associates before tax 99.1 58.6
Current tax(a) (15.7) (4.5)
Deferred tax(a) (8.9) (9.1)
Profit for the year 74.5 45.0
(a) This includes #2.9million (2005: #0.4million) of current tax and
#5.2million (2005: #3.0million) of deferred tax in joint ventures and
associates.
Table 7
Profit Analysis - Year to 31st March Property
2006 Joint Investment
Ventures and Head
(our 50% Office Other
share) Costs Income
Asset Sub Total Total
Management
Under Management Wholly Owned
Asset value #'000 #'000 #'000 #'000 #'000 #'000
100% of Properties Managed / Owned 1,403,000 729,000 2,132,000 355,000 - 2,487,000
Income
Rental and similar income - 22,168 22,168 24,003 - 46,171
Asset management fees receivable 6,065 3,187 9,252 - - 9,252
Asset management fees payable - (3,005) (3,005) - - (3,005)
Performance fees receivable 3,271 - 3,271 - - 3,271
Performance fees payable - (1,947) (1,947) - - (1,947)
Expenses (3,512) (3,002) (6,514) (8,003) - (14,517)
Operating profit 5,824 17,401 23,225 16,000 - 39,225
Investment income 3,363 491 3,854 - 1,247 5,101
Interest receivable/(payable) 3,540 (19,521) (15,981) (12,461) - (28,442)
Recurring profit 12,727 (1,629) 11,098 3,539 1,247 15,884
Net gain from fair value adjustments - 28,915 28,915 27,101 - 56,016
on investment properties
Net gain from fair value adjustments 14,968 1,063 16,031 - 1,082 17,113
on investments
Profit on sale of investment - 4,700 4,700 3,102 - 7,802
properties
Profit on sale of investments 98 77 175 - 2,926 3,101
Profit on sale of trading properties - 420 420 6,583 - 7,003
Non-recurring expenses (578) (1,992) (2,570) (2,573) - (5,143)
Investment properties treated as - (237) (237) - - (237)
finance lease assets
Change in fair value of derivative - (2,016) (2,016) (72) - (2,088)
financial instruments
Cost of employee share option - - - (375) - (375)
schemes
Profits before tax including joint 27,215 29,301 56,516 37,305 5,255 99,076
ventures and associates
Taxation - current - (2,772) (2,772) - (110) (2,882)
Taxation - deferred - (5,238) (5,238) - - (5,238)
Profit before income tax 27,215 21,291 48,506 37,305 5,145 90,956
Percentage of operating profit 14.8% 44.4% 59.2% 40.8% n/a 100.0%
Note: the interest costs within the Group have not been reapportioned to reflect the cost of the Group's equity
investments in the funds and joint ventures.
Table 8
Profit Analysis - Year to 31st March Property
2005 Joint Investment
Ventures and Head
Asset our 50% Office Other
Management share Costs Income
Sub Total Total
Under Management Wholly Owned
Asset value #'000 #'000 #'000 #'000 #'000 #'000
100% of Properties Managed / Owned - 742,000 742,000 335,000 - 1,077,000
Income
Rental and similar income - 23,528 23,528 26,521 - 50,049
Asset management fees receivable 2,265 - 2,265 - 2,265
Asset management fees payable - (2,265) (2,265) - - (2,265)
Performance fees receivable 1,650 - 1,650 - - 1,650
Performance fees payable - (1,650) (1,650) - - (1,650)
Expenses (1,437) (278) (1,715) (5,596) - (7,311)
Operating profit 2,478 19,335 21,813 20,925 - 42,738
Investment income - - - - 533 533
Interest receivable / (payable) 5,842 (20,114) (14,272) (14,383) - (28,655)
Recurring profit 8,320 (779) 7,541 6,542 533 14,616
Net gain from fair value adjustments - 13,530 13,530 21,871 - 35,401
on investment properties
Net gain from fair value adjustments - - - - 2,397 2,397
on investments
Profit on sale of investment - 5,415 5,415 2,260 - 7,675
properties
Profit on sale of trading properties - - - 1,658 - 1,658
Non recurring expenses - (294) (294) (1,362) - (1,656)
Investment properties treated as - (274) (274) - - (274)
finance lease assets
Change in fair value of derivative - (1,403) (1,403) 315 - (1,088)
financial instruments
Cost of employee share option - - - (95) - (95)
schemes
Profits before income tax including 8,320 16,195 24,515 31,189 2,930 58,634
joint ventures and associates
Taxation - current - (429) (429) - - (429)
Taxation - deferred - (3,042) (3,042) - - (3,042)
Profit before income tax excluding 8,320 12,724 21,044 31,189 2,930 55,163
minority interests
Percentage of operating profit 5.8% 45.2% 51.0% 49.0% n/a 100.0%
Note: the interest costs within the Group have not been reapportioned to reflect the cost of the Group's equity
investments in the funds and joint ventures.
Asset Management Business
The asset management business employs 128 people, of which 36 are service
chargeable (i.e. recovered through the service charge). It has six regional
offices throughout the UK and the business manages some #2.1billion of property
through management contracts. There are two funds and three joint ventures
contracts for which range in length from two to fifteen years; the business also
receives income from its equity and loan investments in these funds and joint
ventures.
Table 9
Asset Management Personnel of which
service
chargeable
Total
Apia Regional Office Fund 5 -
Ashtenne Industrial Fund 67 20
Agora Max Shopping Centre Fund* 9 6
Agora Shopping Centre Joint Venture 16 10
Radial Distribution Joint Venture 1 -
Finance & Administration 30 -
128 36
*Treated as a joint venture
The Profit Analysis tables above show the results for this business for the
years ending March 2005 and 2006. The results for 2006 have been materially
affected by the following key events:-
1. The Purchase of Ashtenne Holdings PLC in May 2005
The Ashtenne asset management business was acquired as part of the purchase of
Ashtenne Holdings PLC by Industrial Funds Ltd (IFL) a joint venture owned 50:50
with Anglo Irish Bank. The Group purchased the other 50% in IFL from our
partner on 1st December 2005 and this is now a wholly owned business.
The business manages the property assets of the Ashtenne Industrial Fund (AIF)
which, at 31st March, had a value of #986million funded as to 44% by debt and
56% by equity. Our equity stake was worth #39million, representing a 7% stake in
the Fund's equity. The Group, in addition to the investment income it earns
from its equity interest in the Fund, earns management fees plus fees for
lettings, rent reviews, acquisitions and disposals as well as a performance fee.
The table below shows the results of this business as if it had been wholly
owned for the twelve months to 31st March 2006 compared to the actual results
included in the Group's accounts using a notional tax rate of 30%. The reason
for this is to provide a better understanding of the profitability of this
business because the accounts for the year to 31st March 2006 only include this
business on a 100% basis from the 1st December 2005 when IFL became a wholly
owned subsidiary. Prior to that IFL was a joint venture from 31st May 2005 to
1st December 2005 and accounted for as such.
Table 10
Ashtenne Asset Management Unaudited Unaudited
Business Pro Forma Amount included in the Financial Statements
Actual
Our share Wholly Total
of the IFL owned
12 months joint
venture
01/04/2005 01/06/2005 01/12/2005 01/06/2005
to 30/11/ to 31/03/
to 2005 2006 to
31/03/2006 31/03/2006
#'000 #'000 #'000 #'000
Asset management fees 4,440 1,087 1,591 2,678
Letting and other fees 2,296 800 435 1,235
Total fees 6,736 1,887 2,026 3,913
Costs (4,565) (1,139) (1,660) (2,799)
Profit before performance fees 2,171 748 366 1,114
Performance fees 1,324 - 1,324 1,324
Recurring profit 3,495 748 1,690 2,438
Notional tax charge @ 30% (1,049) (224) (507) (731)
2,447 524 1,183 1,707
Goodwill in financial statements 11,205
P/E ratio based on that used for 12.7
Ashtenne on acquisition
Assessed value of Ashtenne asset 31,000
management business on this
basis
Investment in AIF
Distributions from fund 3,058 1,959
Value of units at 31st March 38,572 38,572
2006
% share of fund 7.09% 7.09%
Yield on 12 month holding 7.93% n/a
2. The Establishment of the Apia Regional Office Fund
In June 2005 the #256million Apia Regional Office Fund was formed from the
#175million Skipper Regional Office Jersey Property Unit Trust ("JPUT"), in
which the Group had a 50% stake an #18million property from the Group's wholly
owned portfolio held in a JPUT and a #63million JPUT from Morley Fund Management
as their equity contribution to the Fund. The Fund subsequently expanded in
November 2005 with the acquisition of a #120million portfolio from the
Co-operative Insurance Society. Following the year end revaluation of the Fund,
property assets were #417million at 31st March 2006. The Fund is financed as to
47% by debt and 53% by equity. The Group's share of the equity investment at
31st March 2006 was 29%. In order to provide a better understanding of the
impact of 10 months ownership, table 11 shows the results for Apia for the ten
month period since inception and those results on an annualised basis together
with a notional tax rate of 30%.
Table 11
Apia Asset Management Business Unaudited Unaudited
Pro Forma Amount
included in the
Financial Statements
Annualised results
for
(10 months)(a)
12 months
(based on 10
months Accounts)
#'000 #'000
Asset management fees 1,241 1,034
Performance fees - -
Total fees 1,241 1,034
Costs (640) (533)
Recurring profit 601 501
Notional tax charge @ 30% (180) (150)
421 351
Goodwill in financial statements -
P/E ratio based on that used for Ashtenne on acquisition 12.7
Assessed value of Apia Asset Management Business on this 5,300
basis using annualised figures
Investment in Fund
Distributions from fund 2,263 1,886
Value of units at 31st March 2006 64,374 64,374
% share of fund 28.78% 28.78%
Yield on 12 month holding on a pro-rata basis(b) 3.52% n/a
(a) Since inception on 7 June 2005
(b) The yield is depressed by the write off of set up costs in the period. The yield in
the quarter to March 2006 was 6.42%
The value of the asset management business applicable to AIF and Apia on a price
earnings ratio of 12.7 is approximately #36million, of which only #11.2million
is included in the accounts as goodwill. The value of this business is
equivalent to a further 58p per share.
3. The Establishment of the Agora Max Shopping Centre Fund
In October 2005, the Agora Max Shopping Centre Fund was established and
purchased the Pallasades Shopping Centre via a JPUT for #152million. The
shopping centres in Birkenhead, which had previously been limited company joint
ventures with Bank of Scotland, were converted into JPUTs in early December 2005
and were subsequently purchased by the Agora Max Shopping Centre Fund in March
2006. This Fund had a value of #312million at 31st March 2006 with the
ownership of the units being held as to 50% by the Group and 50% by the Bank of
Scotland and as such is treated as a joint venture in the Group's results.
The Group earns management fees from this Fund as detailed below.
Management Fees
The following is a brief summary of the terms on which the business receives its
management fee income from each of the funds and joint ventures.
Table 12
Management Management Property Rent Roll
Valuation 31 March
Year Fee % Fee % Performance Fees 31 March 2006 2006
Name End Property Rent Other Fees
Funds
Apia 31/12 0.4%(b) N/A N/A Based on outperforming the IPD #417million #26million
(a) regional office index (excluding
business parks) on a 3-year rolling
basis
AIF 31/12 0.5% N/A Lettings, Based on outperforming the IPD all #986million #63million
(a) rent industrial index on a 3-year rolling
reviews, basis
disposals,
additions
etc
Joint Ventures
Agora Max 31/03 N/A 5% N/A Based on exceeding an IRR of 20% over #312million #17million
the life of the funds or on disposal
Agora 31/03 N/A 5% Based on exceeding an IRR of 20% over #237million #13million
the life of the funds or on disposal
(c)
Radial 31/03 N/A 5% N/A Profit share at end of joint venture #180million #12million
(a): The performance fees in these Funds will always be receivable in the second half of the Group's
financial year to 31 March because the fees are calculated on the results of the Funds for the year to 31
December. In the case of Apia, as the Fund was only established in June 2005, no performance fee is currently
receivable.
(b): The Apia management fee reduces to 0.35% on the property assets managed between #0.5billion and
#1.0billion and to 0.3% on the property assets managed over #1.0billion.
(c): During the year ended 31 March 2006, #1.9million in performance fees was achieved on the disposal of
Sale Shopping Centre (2005: #1.6million on the disposal of Ellesmere Port Shopping Centre).
The Group's Wholly Owned Properties
Rental income from the Group property portfolio is some #2.5million lower than
last year at #24million. This is due to the disposal of higher yielding
industrial properties and their replacement with lower yielding retail
properties as well as the increased investment in the development programme
which is currently non-yielding.
Other Income
The other income receivable in the year was #1.25million (2005: #0.53million).
This was dividend income from our quoted investments and our share of profits
from Bride Hall Group Ltd which is treated as an associate. The dividend income
includes #0.31million from East Surrey Holdings plc, an investment which was
disposed of in November 2005. The investment in Bride Hall took place in
September 2004 and the March 2005 results do not include any share of profits
from that investment.
Taxation
The Group has a clearly defined tax strategy; namely the aim is to actively
manage our tax planning without compromising the Group's ability to carry out
its business. We do this by maximising the availability and use of capital and
industrial buildings allowances as well as setting up tax efficient corporate
structures both on and off-shore.
The tax charge for the year in the Group, excluding tax in joint ventures of
#8.0million (2005: #3.6million), is #16.5million (2005: #10.2million) of which
#12.8million (2005: #4.1million) is current tax and #3.7million (2005:
#6.1million) is deferred tax.
Material factors affecting the tax charge were:
i. A credit of #1.8million of deferred tax released on disposal of properties.
ii. The disposing of all properties within individual subsidiaries, thereby
allowing the balance of capital allowances to be utilised during the year.
iii. The use of losses available reducing the tax charge by #2.4million.
iv. Under IFRS, the whole proportion of capital gains tax on disposals is
charged to the current year tax compared to UK GAAP, where only the portion
applicable to the profit on the disposal is charged to income, with the
balance being a reserve movement. During the current year, the accounting
profit on disposal of the shares in East Surrey Holdings plc was
#2.8million, compared to the overall gain over the period of ownership of
#14.2million which generated a capital gains tax of #4.2million. Tax
provided on the previous year's fair value gains has been released from
deferred tax.
The table below shows the tax reconciliation for the last two years:
Reconciliation of tax charge
Table 13
2006 2005
#million #million
Profit on ordinary activities before taxation 91.0 55.2
Tax @ 30% 27.3 16.5
Share of joint venture and associate post tax profits (6.6) (3.8)
Net tax on assets sold during the year (0.4) (0.6)
Net capital allowances on asset disposal (4.3) (0.5)
Share Scheme timing differences 0.7 -
Other 0.1 0.1
Net tax movement on fair value gains of assets 0.6 (1.6)
(Over) / under provision in respect of prior years (0.9) 0.1
Total tax charge in the accounts 16.5 10.2
Of which: Current tax 12.8 4.1
Deferred tax 3.7 6.1
Earnings Per Share
Earnings per share were 140.2p (2005: 89.2p) and recurring earnings per share
were 22.9p (2005: 22.3p restated). Earnings per share include the fair value
gains of 103.8p (2005: 56.2p) and one-off profits of 13.5p (2005: 10.7p) which
are excluded from recurring earnings. The growth in earnings was depressed by
the placing of 5% of the Company's shares in early April 2005 to help fund the
acquisition of Ashtenne Holdings PLC in late May 2005 the full benefits of which
did not start to flow until 100% ownership was achieved on 1 December 2005.
Cash Flow
Table 14
March 2006 March 2005
#million #million #million #million
Cash generated from operations 25 34
Net interest (8) (8)
Tax (11) (3)
Cash flows from operating activities 6 23
Acquisitions (160) (62)
Disposals 152 69
Dividends received 9 1
Cash flows from investing activities 1 8
Issue of shares 14 -
Net repayment of bank loans (92) (3)
Dividends (10) (9)
Other cash flows 1 -
Cash flows from financing activities (87) (12)
Net cash (outflow) / inflow (80) 19
The cash flow statement is the one area under IFRS which is not materially
different, except presentationally, to that previously reported. During the
year cash generated from operations was #25 million (March 2005 #34 million).
The reduction in the cash generated is largely due to the acquisition of the
remaining 50% of Industrial Funds Limited and also Skipper Offices Limited on
selling its property portfolio to Apia. Between them, they contained #22 million
in cash which was offset by movements in debtors and creditors. There has been
an increase in receipts from the disposal of trading properties which is due
mainly to the disposal of properties acquired through Industrial Funds Limited.
If this effect is adjusted, the Group generates a net inflow from operations
during the year of #22 million (March 2005 #25 million). This is cash generated
excluding any property additions and disposals, to pay interest, tax and
dividends.
The main flows resulting in the net outflow of #80 million arose through
purchases of investment properties less leasehold liabilities of #46 million,
investments made in Apia and the Ashtenne Industrial Fund of #67 million,
investments in joint ventures and associates of #67 million. This is offset by
sales of investment properties of #95 million, sales of investments of #15
million, loans repaid and dividends received from joint ventures, associates and
investments of #49 million and cash acquired through purchase of subsidiaries of
#22 million.
The tax paid is significantly higher than last year due to the profits made by
the Group on disposals of properties and the investment in East Surrey Holdings.
In addition the placing of shares during the year raised #14 million and
restructuring of the Group's debt resulted in an outflow of #92 million.
Balance Sheet
As at 31 March 2006, Equity Shareholders' funds were #350.6million (2005:
#272.1million), an increase of 24% excluding the impact of the additional equity
of #13.6million which was raised through a placing in April 2005. The underlying
elements of the growth in Shareholders' funds is analysed in the table below,
but it is not expected that the deferred taxation provided would become payable
in full if the properties and investments were sold.
Table 15
Pence per
#million share
Shareholders funds under IFRS at 31st March 2005 272.1 539.9
Change in weighted average number of shares (27.5)
512.4
Movement in the Year to March 2006
Profit before fair value gains 28.6 53.9
Net fair value gains 71.0 133.7
Effect of the treatment of investment properties as finance leases (0.2) (0.4)
Cost of employee share option schemes (0.4) (0.8)
Taxation - current (15.7) (29.5)
Taxation - deferred (8.9) (16.8)
Profit for the year 74.4 140.1
Other equity movements
Shares issued 13.6 25.6
Dividends paid (10.1) (19.0)
Actuarial losses on retirement benefit obligations (0.1) (0.1)
Investment in own shares 0.7 1.3
Shareholders' funds under IFRS at 31st March 2006 350.6 660.3
Adjusted Shareholders' funds, as shown in the table 16 below, rose by 32%
(excluding the impact of the #13.6million of equity raised in the year this
would be 27%) to #393.5million (2005: #298.3million). This uplift is after
deducting paid and proposed dividends of #10.3million (19.5p per share) which,
if included, gives an overall uplift of 31%. In IFRS terms, the Group's NAV per
share was 660p (March 2005: 540p), whilst adjusted NAV per share was 741p (March
2005: 592p) and TNAV 669p (March 2005: 551p).
Table 16
31 March 2006 31 March 2005 Increase
Pence Pence Including Excluding
new new
per per equity % equity %
#million share #million share
Shareholders' funds under IFRS 350.6 660.3 272.1 539.9 29 24
Add back deferred tax on fair value gains (including 42.9 80.8 27.6 54.7
joint ventures)
Add back effects of treating investment properties as 3.9 7.3 3.6 7.1
finance leases
Less proposed dividend (5.3) (10.0) (4.8) (9.5)
Add back/(less) fair value adjustments on derivative 0.4 0.8 (1.0) (2.0)
financial instruments
Add other IFRS adjustments 1.0 1.9 0.8 1.6
Adjusted Shareholders' funds 393.5 741.1 298.3 591.8 32 27
Less potential deferred tax (32.9) (62.0) (15.7) (31.1)
Less fair value adjustment net of tax on debt (5.4) (10.2) (4.9) (9.8)
Shareholders' triple net asset funds 355.2 668.9 277.7 550.9 28 23
Investment in Asset Management Business
As referred to earlier, the Group purchased Ashtenne Holdings PLC for
#120million through IFL, a joint venture owned 50:50 with Anglo Irish Bank. The
purpose of this acquisition was to acquire the asset management business
represented by the AIF and t3 Funds which, when the other assets of Ashtenne
were sold, would result in IFL owning a business that cost circa #56million
(restated). This was represented by #27million of units owned in the Funds
under management and #28.9million of goodwill which was the value attributed to
the asset management business. Subsequently, in early December 2005 we
purchased Anglo Irish's 50% stake in IFL for #0.35million. Since the purchase,
the majority of the assets and the t3 Fund have been disposed of at a profit of
#17.7million which has been used to reduce the goodwill paid for the asset
management business to #11.2million. The result is that we have acquired for
#11.2million a business which last year generated #3.5million before tax,
compared to the value we had expected to pay for this business of #28.9million.
This #17.7million of additional value created by the Group is not recognised
within the Group Balance Sheet even though in practice the AIF asset management
business is probably worth more today than the value it was originally purchased
for, let alone the written down value in these accounts. However the
#17.7million has been added back to get to the total adjusted return.
The table below shows the anticipated purchase cost at the end of May 2005 and
the actual purchase cost. The profit figures are the pro forma profit figures
used in May 2005 and the pro forma profit figures for this business for the year
to 31st March 2006.
Table 17
Anticipated Disposal Actual purchase
purchase cost at surpluses cost at
May 2005 May 2005
#million #million #million
Fixed Assets
Goodwill 22.8 (17.7) 5.1
Adjustment for IFRS 6.1 - 6.1
Goodwill (restated) 28.9 (17.7) 11.2
Investment in Funds
AIF 20.8 - 20.8
t3 6.3 (6.3) -
27.1 (6.3) 20.8
IFRS deferred tax (6.1) - (6.1)
Net assets 49.9 (24.0) 25.9
Proforma to Proforma to March
December 2004 2006
#million #million
Fund Fees(i) Management fees 4.4 6.7
Performance fees 2.2 1.3
Costs (4.0) (4.5)
Profit before tax 2.6 3.5
Less tax @ 30% (0.8) (1.0)
1.8 2.5
Goodwill(ii) #22.8million #5.1million
Multiple paid for asset 12.7 p/e 2.0 p/e
management business
Note:
(i) The return does not include investment income or investment in the Funds
(ii) Goodwill utilised for this purpose is that paid before adjusting for IFRS
deferred tax
However, the Balance Sheet continues to recognise some value for this business
which, as reported above, made #3.5million pre tax profit over the last twelve
months to March 2006 on a pro forma basis, whereas it contains no value for the
rest of the asset management business in respect of the fees being generated
from the Apia Regional Office Fund, or the Agora Max, Agora and Radial joint
ventures.
At the year end, the value of the investment in AIF was #38.7million, including
the purchase of #12million additional units in August 2005, and that in Apia
#64.4million.
Disposal of Industrial Properties to AIF
The AIF asset management agreement contains a non-compete clause regarding the
purchase of industrial property. As a result, the Group disposed of #51million
of wholly owned industrial property to AIF together with #27million of
properties in Bareway, the Group's joint venture with Barclays, in November
2005. The Group continues to own some industrial property although this is
currently under review.
Bride Hall
Under IFRS, this investment has been accounted for as an associate having been
previously treated as an investment under UK GAAP and so, rather than being
shown as a fixed asset investment, it is equity accounted. This results in our
recording our share of profits receivable in the Income Statement rather than in
dividends received and reporting the value of the investment on the Balance
Sheet as our share of the company's net assets plus goodwill. During the year,
under the terms of the purchase agreement with the owner of Bride Hall, a
further #10million payment was made in respect of our 25% stake in that
business, bringing our total cost of this investment to #15million. This
payment was based upon an earn out agreement which was capped at #15million so
no further payments will be due.
Leasehold Liability Portfolio
The balance sheet includes #12million (#13.75million at acquisition) in respect
of liabilities acquired with the portfolio of properties purchased in December
2005 from the Co-operative Insurance Society. Since purchase, the liability has
been reduced by #1.75million which represents the net payments of liabilities to
March 2006. The overall liability that would arise if no management initiatives
were undertaken is #38million. However, the Group has reassessed the value of
the liability at March 2006 and remains of the opinion that the value at which
the liability was acquired, less subsequent payments, remains unchanged and no
profit or loss has been recorded. This assessment has been supported by offers
in respect of these liabilities received by the Group.
Contingent Assets
No provision has been included in these accounts for potential performance fees
arising under the Agora Shopping Centre and Radial Distribution joint venture
agreements. The contingent asset which is included as a note to these accounts
represents the potential profit that could arise over the next two to three
years of #6million being #5million in respect of Agora and #1million in respect
of Radial.
Borrowings
Debt
Total net borrowings for the Group at the year end were #185.6million (2005:
#153million). Since the year end, net debt has increased by #11million to fund
an acquisition for the wholly owned property portfolio, increasing net debt to
#197million and raising net gearing on adjusted shareholders' funds at the year
end from 48% (2005: 50%) to 51% currently.
Table 18
On balance Share of joint Share of
sheet ventures funds Total
#million #million #million #million
Net short-term debt (96.4) (11.0) - (107.4)
Long term debt 282.0 271.2 87.8 641.0
Total net debt at 31 March 2006 185.6 260.2 87.8 533.6
Of which:
Total net recourse debt 137.1 - 137.1
Long-term non-recourse debt 48.5 260.2 87.8 396.5
Gearing (on adjusted shareholders' funds) 48% 138%
Recourse gearing 35% 35%
Total net debt at 31 March 2005 153.0 323.1 - 476.1
Gearing (on adjusted shareholders' funds) 51% 160%
Recourse gearing 35% 35%
The Group's average cost of debt was 6.07% (2005: 6.91%) at the year end.
During the year the Group refinanced two long term loans totalling #57million
which had been reclassified as short term loans in last year's accounts because
the decision had been made to repay them prior to 31 March 2005. This was
funded via a new #26million six year term loan with Canada Life and an increase
in the Group's Barclays three-year revolving facility from #25million to
#60million with Barclays. In addition the Group also extended its Royal Bank of
Scotland three year revolving facility from #60million to #100million so as to
provide the Group with the flexible finance needed to be able to respond quickly
to purchasing opportunities.
A dedicated financing line of #25million has been put in place with Anglo Irish
Bank PLC to fund the development of a new shopping centre at Folkestone. At 31
March 2006, #11million of this facility had been drawn down.
The Group has repaid a #21million fixed term loan from disposal proceeds arising
from the sale of properties to AIF in November 2005.
The Group had unutilised facilities of #44million (2005: #53million) at 31 March
2006, which are sufficient to meet our working capital requirements.
IFL, the joint venture with Anglo Irish Bank which purchased Ashtenne was
financed in part by an #80million bank loan. Some #37million of this loan was
repaid from cash within Ashtenne at acquisition and the proceeds of disposals
prior to the Group acquiring Anglo Irish's shares in IFL in December 2005.
Subsequent to the Group acquiring IFL as a subsidiary the outstanding bank debt
of #43million was repaid by the end of January 2006.
In the joint ventures, the Agora Max Shopping Centre Fund established during the
year had debt of #234million at 31st March 2006. This joint venture is financed
as to 66% by debt and 34% equity and rental income covers interest 1.6 times.
In the Agora Shopping Centre Fund ("Agora"), the disposal of the Sale Shopping
Centre in the year brought external debt down to #142million at the year end.
This joint venture at 31 March 2006 had an external loan to value ratio of 60%
and rental income covered external interest 1.4 times. In Radial, the
acquisition of the property at Brackmills for #8million and the disposal of the
property at Yate for #18million resulted in external debt being reduced to
#126million by the year end. This joint venture had an external loan to value
ratio of 70% and rental income to interest cover of 1.4 times. The Bareway
joint venture disposed of its properties to AIF in November 2005 and used the
proceeds to repay an #18million term loan. Both the Agora and Radial joint
ventures are partially funded by debt as well as equity from the partners. This
has been excluded from the Group debt information.
At 31 March 2006, the Group held investments in the Apia Regional Office Fund
and Ashtenne Industrial Fund amounting to 29% and 7% respectively. Apia has
drawn down debt of #196million and AIF has net debt of #427million. Both Funds
have loan-to-value ratios of less than 50% and more than 2.5 times rental income
to interest cover. There is headroom within the existing facilities of Apia and
AIF of #21million and #53million respectively as at 31 March 2006.
Hedging
The interest rate exposure on the Group's debt is managed to ensure that there
is a balance between flexibility and certainty over the interest cost on our
current level of borrowings. In terms of the Group debt, #74.3million is fixed
and the balance is fully covered by derivatives (interest rate swaps and caps).
As can be seen from the table below, the Group's hedging strategy has
historically been to protect the Group from large movements in interest rates
rather than to cap specific exposures on what is, essentially, working capital
debt. However, the Group has taken advantage of a 10 year cancellable swap
effective from 31 March 2006, whereby the interest charge is fixed at 3.5% for
the first six months to 30 September 2006 and thereafter at 4.19% for the
remaining 91/2 years. The Bank has the right to cancel the swap on 30 September
2006 or at the end of each quarter thereafter. This cancellable swap
effectively covers the drawn balance of #90million on the two revolving credit
facilities with The Royal Bank of Scotland and Barclays at 31 March 2006.
Table 19
Share of
Group joint
Net Debt as at 31 March 2006 on balance sheet ventures
#million #million
Fixed rate debt 74.3 -
Floating rate debt 111.3 260.2
185.6 260.2
Percentage of floating rate loans at 31 March 2006
Covered by swaps 91% 75%
Covered by caps 9% 25%
100% 100%
Percentage of floating rate loans at 31 March 2005
Covered by swaps 30% 76%
Covered by caps 70% 5%
100% 81%
In respect of the Group's share of #520.4million of net debt in the joint
ventures, approximately one quarter is fixed at 4.1% by a swap, another quarter
is fixed by a swap at 4.96% and a third quarter is fixed by a swap at 4.5775%.
The remainder is covered by two enhanced collars, the first for #124million is
capped at 5.0% and the second for #27million is capped at 5.5%.
Both of the Funds, Apia and AIF, were virtually fully hedged through a
combination of swaps and caps as at 31 March 2006.
Post Balance Sheet Events
There have been no material post balance sheet events requiring adjustment. A
list of the material, though non-adjusting events and transactions, are noted in
the Significant Events post 31 March 2006 section.
Business Risks
The Group reviews regularly business risks with the aim of ensuring that the key
controllable risks faced by the Group are kept to a minimum. Risks that are
outside our control, particularly legislative, the Group, and industry in
general, can do little to mitigate.
As advised earlier in this report, this year the Group has gone through a period
of significant expansion both in terms of the assets under management, which
increased by #1.4billion to #2.1billion, and as a result of the acquisition and
integration of the AIF asset management business which has seen numbers employed
increasing from 71 to 187 people and the incorporation of a substantial regional
office network. This has involved a significant logistical exercise to ensure
that the right systems and controls are in place to manage the enlarged Group.
Specifically, the management structure of the Group has been overhauled with the
appointment of divisional directors who have management responsibility for their
own business units, and the recruitment of directors of Development and Human
Resources. The business software has been integrated and an upgrade of the
current software is currently being rolled out across the Group. New procedures
have been, and are continuing to be, put in place to ensure that personnel who
have been empowered have the authority as well as the information to be able to
run their businesses.
In addition, the Group has appointed Grant Thornton as internal auditors
reporting to the Audit Committee. They are carrying out a programme of audit
work set by that committee based around a risk matrix which was prepared for the
enlarged Group. The internal audit work that will be performed by Grant
Thornton should give increasing assurance that the risks from the recent
expansion and planned future expansion are minimised.
Another area where the Group faces a key business risk is in its asset
management business where there is a need to perform to certain agreed standards
if contracts are to be retained. Equally, above average fund business
performance secures for the Group potentially significant performance fees as
well as the opportunity to further expand this profitable business.
The key financial risks arising in the business are liquidity, interest rate and
market price risks. Liquidity risk is managed by ensuring that there is always
sufficient headroom available to meet the working capital requirements of the
business. The interest rate and market price risk is managed by the use of
financial instruments such as swaps and caps to eliminate substantially all the
exposure to interest rate and market price fluctuations. This provides
certainty over the amount of interest payable both in the short-term and the
long-term, given the current level of borrowings.
The Group has had to become much more proactive as a result of the continuing
rapid expansion of the business. The broad nature of this expansion has ensured
that the Group's spread of property activities should provide protection from
short term changes, in individual property sectors. Furthermore, should there
be a very significant increase in property yields, something the Group does not
currently anticipate, the financial strength of the Group, the lack of any
pressure on borrowing covenants and the financial hedging that the Group
undertakes should ensure that the Group can cope with such an eventuality.
On the legislative front, as highlighted in last year's accounts, the reporting
pressures continue to mount resulting in more cost to the Group with little or
no benefit. The forthcoming REIT legislation, however, could well be a first in
terms of legislative benefit, although this has yet to be finalised.
Another significant problem has been the introduction of IFRS this year which
has been costly for the Group in terms of its implementation and presented a
real problem as to how to explain to our shareholders what is actually going on
in our business.
Real Estate Investment Trusts ("REITs")
The Group has reviewed the proposed draft legislation in respect of REIT's and,
if the legislation that is enacted and the regulations arising from this accord
with the draft legislation, then the Group sees considerable potential benefits
to the shareholders from these proposals.
Peter Collins
Finance Director
SIGNIFICANT EVENTS DURING THE YEAR ENDED 31 MARCH 2006
Date Detail Category
April 2005 5% placing of shares in Warner Estate Holdings PLC to part finance the Group
acquisition of Ashtenne Holdings PLC
April 2005 Purchase of Townsend Farm Industrial Estate, Dunstable by Bareway Joint venture
Industrial joint venture for #5.5million
May 2005 Offer to acquire Ashtenne Holdings PLC is declared unconditional Joint venture
June 2005 #256million Apia Regional Office Fund established in conjunction with Funds
Morley Asset Management which combined the Skipper Offices properties and
Westgate, Bristol from the Wholly Owned Portfolio with Morley's existing
#63million portfolio of offices.
June 2005 Sale of 120 Ham Road, Worthing for #8.6million Group Investment
Property
July 2005 Completion of acquisition of Ashtenne Holdings PLC by Industrial Funds Ltd Joint venture
August 2005 Purchase of "Immanis" at Brackmills Distribution Park, Northampton by Joint venture
Radial Distribution joint venture for #8million
August 2005 Purchase of 7,993,098 units in Ashtenne Industrial Fund for #12million, Group Investment
representing 2.69% of the Fund to add to 5.168% owned by Ashtenne
September 2005 Sale of Great Western Business Park, Yate by Radial Distribution joint Joint venture
venture for #18.55million
October 2005 Establishment of Agora Max Shopping Centre Fund and the purchase of The Joint venture
Pallasades Shopping Centre via a Jersey Property Unit Trust for
#152million
October 2005 Sale of land at Pollards Lane, Leeds by Industrial Funds Ltd for Joint venture
#7.2million
November 2005 Sale of all industrial properties owned by t3, in which Industrial Funds Joint venture
Ltd had a 17% stake, for #96million
November 2005 Sale of The Square Shopping Centre, Sale by Agora Shopping Centres joint Joint venture
venture for #40million
November 2005 Consideration of #14million received in settlement of offer by Kellen Group Investment
Acquisitions Ltd for shares in East Surrey Holdings plc
November 2005 Sale of all industrial properties owned by Bareway Industrial joint Joint venture
venture to Ashtenne Industrial Fund for #29million
November 2005 Sale of industrial portfolio to Ashtenne Industrial Fund for #51million Group Investment
Property
November 2005 Purchase of The Royals Shopping Centre in Southend and a lease liability Group Investment
portfolio for a net #33million Property
SIGNIFICANT EVENTS DURING THE YEAR ENDED 31 MARCH 2006 CONT'D
Date Detail Category
November 2005 Purchase of a portfolio of seven regional office buildings by Apia Funds
Regional Office Fund for #120million
December 2005 Sale of three industrial buildings in Europe by Industrial Funds Ltd for Group Investment
#12.7million (Euro18.4million) Property
December 2005 Sale of a portfolio of buildings and land by Industrial Funds Ltd for Group Property
#9.7million
December 2005 Purchase of remaining 50% stake in Industrial Funds Ltd from Anglo Irish Group Investment
Bank for #0.35million
January 2006 Sale of two ex-Ashtenne properties for #12.7million Group Property
February 2006 Secondary Placing of 7,356,223 shares by Trefick Limited reducing its Group
shareholding to 13.75%
March 2006 Pyramids and The Grange shopping centres in Birkenhead transferred to the Joint venture
Agora Max Shopping Centre Fund
March 2006 Collaboration Agreement signed with Aylesbury Vale District Council Group Investment
appointing the Company as principal developer for the multi million pound Property
retail element of the waterside development scheme integrating Hale Leys
Shopping Centre
SIGNIFICANT EVENTS POST 31 MARCH 2006
April 2006 Purchase of Alpha 1 at Hams Hall National Distribution Park, Joint venture
Birmingham by Radial Distribution joint venture for #17.62million
May 2006 Purchase of 24-26 Minories, London EC3 for #10.85million Group Investment
Property
CONSOLIDATED INCOME STATEMENT
For the year ended 31 March 2006
Notes 2006 2005
#'000 #'000
Revenue 64,506 45,052
Rental and similar income 24,003 26,521
Turnover from property trading activities 31,167 12,446
Cost of sales of property trading activities (24,584) (10,788)
Service charge and similar income 2,972 2,170
Service charge expense and similar charges (3,591) (2,773)
Net rental and trading income 3 29,967 27,576
Turnover from asset management activities 9,336 3,915
Asset management expenses (3,512) (1,437)
Net income from asset management activities 3 5,824 2,478
Administrative expenses (2,390) (1,755)
Property management expenses (7,517) (4,453)
Operating profit before net gains on investments 3 25,884 23,846
Net gain from fair value adjustments on 27,101 21,871
investment properties
Net gain from fair value adjustment on 16,050 2,397
investments
Profit on sale of investment properties 6 3,102 2,260
Profit on sale of investments 7 3,024 -
Operating profit 75,161 50,374
Finance income 8 8,306 6,698
Finance expense 9 (14,445) (14,948)
Change in fair value of derivative financial (72) 315
instruments
Share of associates' post tax profits 20 715 -
Share of joint ventures' post tax profits 17 21,291 12,724
Profit before income tax 90,956 55,163
Taxation - current 10 (12,842) (4,098)
Taxation - deferred 10 (3,659) (6,109)
Profit for the year 74,455 44,956
Attributable to:
Equity holders 74,432 44,954
Minority interests 23 2
p p
Earnings per share 13 140.17 89.20
Fully diluted earnings per share 13 138.79 88.59
BALANCE SHEETS
Group Company
Notes 2006 2005 2006 2005
#'000 #'000 #'000 #'000
ASSETS
Non-current assets
Goodwill 14 11,205 - - -
Investment properties 15 333,198 327,737 - -
Properties under the course of development 15 12,261 - - -
Plant and equipment 16 465 347 - -
Investments in joint ventures 17 103,372 102,517 - -
Investments in funds 18 104,081 - - -
Investments in listed and unlisted shares 19 5,115 15,518 113,476 113,476
Investments in associates 20 15,518 5,327 15,009 5,327
Deferred income tax assets 25 552 450 - -
Derivative financial assets 24 - 11 - 11
Trade and other receivables 21 363 350 - -
586,130 452,257 128,485 118,814
Current assets
Inventories 10,939 8,235 - -
Trade and other receivables 21 23,096 9,051 249,103 169,338
Current income tax assets - - 6,632 2,973
Cash and cash equivalents 98,358 109,366 - -
132,393 126,652 255,735 172,311
Total assets 718,523 578,909 384,220 291,125
LIABILITIES
Non-current liabilities
Borrowings, including finance leases 22 (283,625) (195,638) (75,915) -
Derivative financial liabilities 24 (1,361) (1,162) - -
Deferred income tax liabilities 25 (29,563) (20,112) - -
Retirement benefit obligations 4 (481) (336) - -
Provisions for other liabilities and charges 26 (12,503) (128) (503) (128)
(327,533) (217,376) (76,418) (128)
Current liabilities
Borrowings, including finance leases 22 (1,893) (68,269) - (48,238)
Trade and other payables 27 (29,569) (18,791) (104,157) (51,779)
Current income tax liabilities (5,608) (2,118) - -
(37,070) (89,178) (104,157) (100,017)
Total liabilities (364,603) (306,554) (180,575) (100,145)
Net assets 353,920 272,355 203,645 190,980
EQUITY
Capital and reserves attributable to the Company's
equity holders
Share capital 28 2,675 2,548 2,675 2,548
Reserves 29 348,837 271,222 201,896 190,099
Investment in own shares 30 (926) (1,667) (926) (1,667)
Equity shareholders' funds 350,586 272,103 203,645 190,980
Minority interest 37 3,334 252 - -
Total equity 353,920 272,355 203,645 190,980
STATEMENT OF RECOGNISED INCOME AND EXPENSE
For the year ended 31 March 2006
Group Company
Notes 2006 2005 2006 2005
#'000 #'000 #'000 #'000
Profit for the year 74,432 44,954 8,438 7,696
Actuarial (losses) / profits on retirement 4 (219) 50 - -
benefit obligations recognised directly in
equity
Deferred tax arising on retirement benefit 4 43 (33) - -
obligations
Total recognised income and expense for the year 74,256 44,971 8,438 7,696
attributable to equity shareholders
Reconciliation of Movements in Shareholders' Funds
For the year ended 31 March 2006
Group Company
Notes 2006 2005 2006 2005
#'000 #'000 #'000 #'000
Opening equity shareholders' funds 272,103 235,951 190,980 192,103
Shares issued 28 127 - 127 -
Share premium on shares issued 29 13,493 - 13,493 -
Acquisition of investment in own shares 30 (139) (169) (139) (169)
Disposal of investment in own shares 30 880 191 880 191
286,464 235,973 205,341 192,125
Total recognised income and expense for the year 74,256 44,971 8,438 7,696
Dividend paid in year 12 (10,134) (8,841) (10,134) (8,841)
Closing equity shareholders' funds 350,586 272,103 203,645 190,980
CASH FLOW STATEMENTS
For the year ended 31 March 2006
Group Company
Notes 2006 2005 2006 2005
#'000 #'000 #'000 #'000
Cash flows from operating activities
Cash generated from operations 32 24,703 34,020 (22,416) 313
Interest paid (13,209) (14,097) (3,077) (1,720)
Interest received 5,285 6,735 119 239
UK Corporation tax paid (10,604) (3,209) (2,452) (339)
Net cash inflow / (outflow) from operating activities 6,175 23,449 (27,826) (1,507)
Cash flows from investing activities
Purchase of investment properties and related capital (59,787) (30,963) - -
expenditure
Sale of investment properties 95,063 46,179 - -
Purchase of plant and equipment (154) - - -
Sale of investments in listed shares 14,411 - - -
Purchase of investments in funds (66,910) - - -
Sale of investments in funds 1,000 - - -
Purchase of investments in associates (5,000) (5,327) (5,000) (5,327)
Net cash acquired from purchase of shares in subsidiary 37 22,600 250 - -
company
Purchase of shares in joint ventures (16,676) (4,175) - -
Sale of shares in joint ventures - 205 - 205
Loans to joint ventures (47,544) (22,440) - -
Loans repaid by joint ventures 37,559 23,276 - 3,764
Loans repaid by associates 4,651 - - -
Payment received for leasehold liabilities 13,750 - - -
Dividends received from listed investments 422 533 - -
Dividends received from funds 1,566 - - -
Dividends received from joint ventures 1,000 - - -
Dividends received from associates 5,058 995 -
Net cash inflow / (outflow) from investing activities 1,009 7,538 (4,005) (1,358)
Cash flows from financing activities
Net proceeds from issue of ordinary share capital 13,620 - 13,620 -
Purchase of own shares for AESOP scheme (139) (169) (139) (169)
Disposal of own shares for share option scheme 807 175 807 175
Dividends paid (10,134) (8,841) (10,134) (8,841)
Net proceeds from issue of new bank loan 37,915 - - -
Repayment of bank loans (72,232) (2,250) - -
Repayment of mortgages and other loans (57,346) (794) - -
Net cash (outflow) / inflow from financing activities (87,509) (11,879) 4,154 (8,835)
Net (decrease) / increase in cash and cash equivalents* (80,325) 19,108 (27,677) (11,700)
Cash and cash equivalents at beginning of year 2,653 (16,455) (48,238) (36,538)
Cash and cash equivalents at end of year (77,672) 2,653 (75,915) (48,238)
* Includes overdraft facility balances shown in borrowings
This information is provided by RNS
The company news service from the London Stock Exchange
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