RNS Number:5855Y
Warner Estate Holdings PLC
19 June 2007
Part 1 of 2
Warner Estate Holdings PLC
A YEAR OF CONTINUED MOMENTUM AND REIT CONVERSION
Warner Estate Holdings PLC ("Warner Estate" or "Group"), the property investment
and management company has today announced its preliminary results for the year
ended 31 March 2007.
Financial Highlights
* Total return 18.2% (2006: 31.2%)(i) - #63.9million (2006: #85.0million)
* Adjusted net asset value per share, after REIT conversion charge, 800p
(2006: 721p)(ii)
* Net asset value per share, after REIT conversion charge, up 17% to
774p(iii)
* Recurring earnings per share 30.5p (2006: 22.9p)(iv)
* Earnings per share 129.3p (2006: 140.2p)
* 36th successive year of dividend growth
* Average dividend growth over the last five years of 7.6% per annum
* Dividend raised by 7.7% to 21p (2006: 19.5p)
Business Highlights
* Property owned and under management up 29% to #3.2billion
* Commercial rent roll owned and under management up 16% to #175million
per annum
* Elected to convert to a REIT and converted on 1 April 2007
* Successful acquisition and integration of JS Real Estate Plc
(i) See table for explanation
(ii) Adjusted for deferred tax on fair value gains and other items
(iii) The NAV includes deferred tax on assets not within the REIT
election and is before the proposed final dividend
(iv) Adjusted for net gains on investment properties and other items
Philip Warner, Chairman of Warner Estate commented
"This has been a successful year for the Group, maintaining the momentum of the
last few years. Adjusted net asset value has risen to 800p and the dividend has
been increased for the 36th consecutive year. Immedately after the year end, on
1 April, the Group converted to a REIT.
Expansion of our property fund management business has continued and we now
manage over #3.2billion of property assets, including our wholly owned
portfolio. Adding value through development is an important part of our asset
management process and we have a significant pipeline of more than one million
square feet.
We completed the corporate acquisition of JS Real Estate Plc, adding #130million
to our wholly owned portfolio and improving our London and South East weighting.
A new joint venture was formed and bought two office buildings in the City of
London for #98million. We have since made further purchases of offices in
Greater London.
The outlook for the Group remains promising. We have the team to deliver
further growth and I am confident that it will be delivered."
Date: 19 June 2007
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
Chairman's Statement
This has been a year of continuing success and of further significant change,
which together maintain the momentum steadily built up over the last few years.
Net asset value rose by 17% and the total adjusted return was 18%, figures which
evidence a first class performance. Following shareholder approval in March,
the Group became a Real Estate Investment Trust (REIT) on 1 April 2007,
immediately following the year end, a change which is not expected to impinge
upon our profitable strategy of co-investment and fund management. By
converting, the Group will no longer pay tax on REIT qualifying profits and
gains, thereby removing from those profits the element of double taxation
suffered by many shareholders. The imminence of conversion inspired our agreed
bid and subsequent takeover of JS Real Estate Plc (JSRE), adding #130million to
our wholly owned portfolio and improving our London and South East weighting.
Property under management, including that wholly owned, rose from #2.5billion
last March to #3.2billion at the year end and that managed throughout the year
increased in value by 9%.
Results Overview
Conversion to a REIT has brought the net asset value calculation under
International Financial Reporting Standards (IFRS) much closer to the key
performance measure of triple net asset value used in prior years, due to the
elimination of most of our deferred tax provisions. Consequently, we shall, for
this year and in future, use the IFRS calculation which should reduce the scope
for confusion.
Net asset value per share rose by 17%, from 660p to 774p and adjusted net asset
value increased to 800p. However, as I pointed out last year, these figures
take little account of the contribution made by the fund management business. In
particular, Ashtenne Asset Management made a profit before tax and head office
recharges of #3.7million, without a performance fee, Apia Asset Management on
the same basis made #2.6million, including a #1.8million performance fee, and
operating margins improved for both. The Group's accounts show goodwill of only
#11million in respect of Ashtenne and nothing in respect of Apia when clearly
their real worth is substantially more.
Properties under management, excluding those wholly owned, have risen in value
from #2.14billion to #2.76billion at the year end and those wholly owned from
#0.34billion to #0.46billion, boosted by the acquisition of JSRE. The number of
employees has increased from 187 to 202 and, following the Ashtenne Industrial
Fund's successful bid for the management of a #140million portfolio with the
North West Development Agency, the number of regional offices has been increased
to seven (2006: six).
Recurring pre-tax profits were up 14% to #18.1million (2006: #15.9million),
mainly as result of increased performance fees following the renegotiation of
asset management agreements. Pre-tax profits have fallen from #91million to
#68million. A significant proportion of this reduction was due to lower fair
value gain on investment properties (including our share of joint ventures) of
#29million (2006: #56million). Realised profits on the disposal of properties
and investments were also down from #18million to #4million. However, the change
in the fair value of debt made a substantial contribution of #10million (2006:
loss of #2million), due to rises in interest rates.
A direct result of REIT conversion, including movement associated with joint
ventures, was a net positive impact, post tax, of #20million from conversion
charges of #14million being more than offset by deferred taxation releases of
#34million. The Group took the opportunity to repay high coupon debt at a cost
of #9million but with significant benefits in the form of lower future interest
payments.
Recurring earnings per share were 30.5p (2006: 22.9p) and earnings per share,
which include the fair value gains, were 129.3p (2006: 140.2p).
Equity shareholders' funds rose from #351million to #433million and adjusted
equity shareholders' funds increased by #64million to #447million. After
deducting for the #21.4million of equity raised in January 2007 to help fund the
purchase of JSRE, this represents an increase of 11% after dividends. As noted
above, these figures include only #11million in respect of our fund management
business.
Adjusted gearing increased to 66% (2006: 48%) and currently stands at 75%
following the recently announced London office purchases, still comfortably
below the Group's internal policy ceiling of 100%. The Group's share of debt
within the funds and joint ventures was #412million (2006: #348million), all of
which is non-recourse. Interest was covered 1.8 times (2006: 1.9 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 7.7% rise in dividends per share from 19.5p to 21p, the
Company's 36th successive annual increase. Over the last five years the dividend
has been raised by 7.6% per annum compound, well above the rate of inflation.
The dividend is covered 1.45 times by recurring earnings and, if approved at the
Annual General Meeting, the final dividend per share of 11p will be paid on 21
September 2007 to shareholders on the register at close of business on 24 August
2007. REIT conversion will support the Board's policy of paying a progressive
and above inflation increase in dividend. This Company has always sought to
distribute income as a reasonable part of its total return to shareholders and
the REIT requirement to pay out at least 90% of REIT profits will reinforce that
policy.
Strategy
The conversion to REIT status has not changed the Group's strategy of building a
co-investing fund management business which complements its property investment
business. REIT rules require at least 75% of assets and profits to be REIT
qualifying and although our profits from fund management are not REIT qualifying
we have both the capacity and the ambition for significant expansion. The
acquisition of JSRE in the wholly owned portfolio has benefited the REIT
equation providing a further reason for our maintenance of a wholly owned
investment portfolio on balance sheet. The wholly owned portfolio will continue
to be a flexible investor with a view to using that freedom to pursue profitable
opportunities in any sector and to provide the seed corn for new funds.
During the year both the multi-investor funds which we manage, the Ashtenne
Industrial Fund (AIF) and the Apia Regional Office Fund (Apia), have beaten
their benchmarks, providing their investors with improving returns and the Group
with an improving and profitable income stream, both as investor and as asset
manager. Both have continued to expand, AIF from #986million to #1.3billion and
Apia from #417million to #501million, and we expect further growth to bring
increased profits both to investors and to the Group.
Our shopping centre joint ventures with Bank of Scotland, Agora Max and Agora,
have also risen in value but made no purchases during the year although it
remains our intention for them to do so as and when we see value opportunity.
However we do see value in the one million sq.ft. development programme for the
existing shopping centre assets, including those in our wholly owned portfolio.
Capital expenditure is expected to be in excess of #300million, from which we
anticipate realising profit over the next four years. It is an objective of our
development team not only to manage but also to extend the development pipeline.
Our distribution warehouse joint venture with Bank of Scotland, Radial, has been
successful in growing during the year from #180million to #304million. The
objectives for this fund, in addition to continuing expansion, are to bring in
new investors and to venture further across Europe.
It remains our intention to continue to build our fund management business
through both the existing funds, where the Group has asset management contracts,
and the formation or acquisition of additional funds as dictated by research and
opportunity. During the year we began purchasing offices in Greater London and a
further joint venture was formed, this time with Barclays Capital, to acquire
two office buildings in the City of London for #96million. We would like to
increase our investment in this sector and have since the year end made more
Greater London office purchases. A fund may follow.
Shareholders
As referred to above, #21.5million was raised during March through the placing
of additional stock with a group of institutional shareholders. This transaction
continues the trend started last year of broadening the Group's shareholder
base.
Prospects
The outlook for the Group remains promising. Although, in the property market
as a whole, yield compression has all but ended and there are signs of yields
moving out on secondary property, the entire thrust of the Group's strategy has
been and is to take active steps to improve property under management and
thereby to maintain and increase value. Even if interest rates rise further, as
expected, they remain at historically low levels and the underlying economic
outlook is benign. Strong demand for property persists but if higher interest
rates remove some buyers from the market, opportunities for us to purchase
improve, the more so should property yields move out. Property share prices may
have fallen in recent months but, as these results illustrate, the value of the
Group continues to rise. That value, derived from active management, depends
upon the efforts of our staff. I thank them on behalf of shareholders and I
remain confident they will ensure a further increase in value in the forthcoming
year.
Philip Warner
Chairman
Property Review
Total property assets under management grew by 29% in the period to #3.22billion
and it is easy to forget how far we have come from just two years ago when we
reported #1.1billion under management. We now run seven business units
operating across the office, industrial and retail sectors with the important
addition this year of investment in Greater London offices through a joint
venture with Barclays Capital. Each business is run by a specialist team
focusing exclusively on its particular area. We achieve leverage of our
resources, both people and infrastructure, and there is clear focus to their
delivery with the potential to achieve greater scale.
We remain committed to co-investment in and the management of property in each
of the principal commercial sectors, offices, industrial and retail, and in
their respective submarkets where we can add most value. Our pan-sector
commitment provides broad risk management and we adjust weightings in a
pre-cyclical fashion. We have continued to re-weight our investment away from
retail and in favour of offices, most notably through the #98million London
offices joint venture. With disposals of secondary shopping centres over recent
years coupled with our ongoing refurbishment and extension of existing centres
the investment quality of our retail businesses increasingly leans towards
prime.
We are excited by the prospect of the next cycle in the market. Returns will be
driven by aggressive active management and surpluses from well managed
development activity. These have been core values of our business model for
some years and continue to be at the heart of our process.
Overview
We have three areas of activity:
* Fund Management and Joint Ventures
* Wholly Owned
* Development
Fund Management and Joint Ventures
The Apia Regional Office Fund and the Ashtenne Industrial Fund (AIF) are
multi-investor vehicles which we co-manage with Morley Fund Management (MFM). We
concentrate on property asset management and MFM's responsibilities are investor
relations and fund administration. We have joint ventures with HBoS on our two
shopping centre businesses, Agora and Agora Max, and on the Radial Distribution
business; and with Barclays Capital on Greater London Offices. The chosen
ownership format suits the relative maturity and size of each fund.
Our regional office network gives us proximity to the industrial estates which
we manage, ensuring very close contact with our customers - a philosophy which
distinguishes AIF from its competitors, increases the likelihood of rent
retention and represents a key feature of our active management discipline.
Wholly Owned
Our wholly owned portfolio has increased its geographical bias towards the South
East, primarily through the purchase in March of JS Real Estate Plc (JSRE),
which increased our weighting in London and the South East to 80%. Its
principal asset is an unbroken block of 27 shops in St Johns Wood High Street,
London, NW8, with residential over, which provides significant opportunity for
asset management performance off existing rents of #100 to #130 Zone A. A
comprehensive five year plan is being worked up for this asset.
Development
For more than three years we have been building a development pipeline across
all areas of our business and since John Peacock's arrival last year as
Divisional Director responsible for development we have built up a six strong
team, in addition to our 25% interest in Bride Hall. We now manage a pipeline
of 1.4million sq.ft. and 240 acres of development land, of which approximately
half is on site and a further 330,000 sq.ft. has planning consent. Whilst
delivery is being controlled evenly over each of the next four years, this year
we have initiated 188,500 sq.ft. in new retail schemes, completed 55,972 sq.ft.
at our shopping centres in Birkenhead, Preston and Middleton; and started or
completed four new industrial schemes through AIF, totalling 315,000 sq.ft.
Our developments are typically 60-70% pre-let before we start construction, and
building contracts are awarded on a fixed price or maximum price basis.
Market Comment
There is still considerable appetite for UK and particularly Central London
investments. Any dwindling domestic demand is being replaced in at least equal
measure by overseas purchasers attracted by the UK's investment transparency and
liquidity, sound legal infrastructure, expected transport improvements needed to
service the 2012 Olympics and the relatively efficient corporate trading
environment. #55billion of investment transactions were reported in the 2006
calendar year, against the #57billion record set in 2005.
There are good signs of rental growth across all three main sectors and the most
prevalent are in offices, particularly Central London and the major regional
centres. However, rental growth has to be initiated by matching occupiers'
increasingly sophisticated demands with an efficient and cost effective property
proposition. New supply across all sectors is relatively low and this
constraint, alongside the continuing conversion of commercial property to
alternative uses such as residential and hotels, bolsters confidence for the
medium term.
During the year to 31 March 2007, the market experienced a strong first half,
with our values appreciating by 5.4% and a continued hardening of yields; in the
second half that yield compression began to flatten out and our capital growth
was 2.6%. These compare against the IPD Universe of 6.3% and 3.6%. Going
forward, in the short to medium term we expect returns to be dominated by income
rather than capital growth, with any superior-to-benchmark returns coming from
asset management and development-led successes.
A feature of our portfolio is a net initial yield of 5.14%, some 61bps lower
than at the start of the year and still a healthy premium to the IPD Universe
(Monthly Index March 2007) net initial yield of 4.58 %
Our standing investments, those owned and managed throughout the year, grew by
9.02%, an uplift of #215million.
Our un-geared property total return across all businesses of 14.5% and geared
total return of 22.6% compares against the IPD All Fund Universe Index for the
12 months to March 2007 of 15.8%.
March 2007
Capital Value Net Rental Income ERV Initial Yield Change in Capital Value
#million #million #million % %
AIF 1,271.9 70.7 93.6 5.25 29.0
Apia 501.1 28.0 32.5 5.21 20.7
Agora Max 327.6 16.7 23.1 4.81 5.03
Agora 256.1 12.1 15.2 4.60 8.2
Radial 303.7 18.3 18.4 5.70 68.7
GLOF 98.9 4.9 5.7 4.73 -
Wholly Owned 461.3 24.5 28.4 5.02 29.9
Total 3,220.6 175.2 216.9 5.14 29.5
Business Review
The Ashtenne Industrial Fund, our largest individual business, grew by
#286million (29%) to #1.27billion. AIF won the competitive tender to buy a 50%
interest in, and co-manage, a #140million portfolio with the North West
Development Agency, since re-branded as Space NorthWest. A new office was
established in Liverpool to serve this business. The Fund produced a 29.2%
total return during its financial year to 31 December 2006, against its
benchmark of 17.7%.
The Apia Regional Office Fund has now reached over #0.5billion, nearly twice the
size at launch in June 2005 and on track for its target of #750million by the
end of 2008. Growth was 20% over the last 12 months. Notable additions included
St Magnus House, Aberdeen and New Castle House, Nottingham for a combined
#48million. The Fund outperformed its benchmark of 18.1% with total returns of
31.5% for the 12 months to 31 December 2006. Robert Game joined as Managing
Director of the Apia Asset Management business in October 2006 to concentrate on
this Fund.
The thrust of activity in both our shopping centre businesses, Agora Max and
Agora, has been realising asset management potential and progressing our
development opportunities. Phase I of Middleton completed in June 2006, fully
let and 28% ahead of anticipated rental value and we are now working up plans
for Phase 2. The 100,000 sq.ft. development of the Victorian Market Hall,
within our Market Place shopping centre in Bolton, started in January, already
over 70% pre-let, and also ahead of estimated rental value. Phase I at
Birkenhead, a six unit scheme, completed in July 2006 and we secured a planning
permission for the 30,000 sq.ft. Phase 2 in June 2006. 14 of the 18 units
vacant at acquisition of The Pallasades, Birmingham have been let or are in
solicitors' hands, at or ahead of ERV. Phases 1 and 2 at Fishergate, Preston
both completed in 2006, creating a fresh and vibrant entrance to the main Mall.
Our Radial Distribution joint venture grew by nearly 70% from #180million to
#304million, with new acquisitions at some of the country's leading logistic
parks - Hams Hall, Birmingham; DIRFT, Daventry; Magna Park, Leicestershire;
Brackmills, Northampton and the Marks and Spencer regional facility at Radial
Point, Stoke. A European dimension remains a target for this business.
A highlight of our year has been our acquisition of office investments in
Greater London, in particular the establishment of a #98million joint venture
with Barclays Capital which purchased Central House, Camperdown Street, and 55
Old Broad Street, both in the City of London. These followed an earlier Wholly
Owned purchase of 24/26 Minories, EC3 for #11million and post year end, further
acquisitions have been made at 16 Upper Woburn Place, WC1 and 2 America Square,
EC3, demonstrating the use of the Wholly Owned as a platform for launching new
JVs and funds.
Challenges
We expect to grow the scale of our funds under management and continue to widen
the investor base in each. Where appropriate we will continue the gravitation
of our joint ventures into fully fledged funds, and our Radial Distribution
business is ripe for conversion and growth into Europe.
Now that AIF has reached the #1bn threshold of assets under management, which
has been achieved with record returns to investors in that business, this should
be the next target for all our funds and JV's. Scale at this level brings
market presence, higher chance of tenant retention and repeat business, and
greater buying power for services and funding.
We also have to continue to convert the significant value potential inherent in
our businesses. Our aggregate estimated rental value is #217million pa, some
24% ahead of rent received. We have recently bought good quality, vacant and
part vacant property, particularly in offices and warehouses/industrial and in
areas of low supply over the last 12 months - some with developers guarantees -
as a platform for generating above market returns. Our overall void rate is
10.8% (Ashtenne Industrial Fund carries a target void rate of 10-14% to ensure
we have opportunities for tenants to move within our estates as their needs
dictate); excluding AIF, our void rate is 6.3%, which we target to reduce to
below 5%. The adjusted void rate of 6.3% (i.e. excluding AIF) computes to an
annual rental potential of #7.8m.
We expect to deliver 400,000 sq ft of development completions next year which is
a valuable source of new income and expected surpluses from development profit,
and initiate a further 300,000 sq ft, to maintain the momentum built up from
this activity.
Key Statistics
Total under management Wholly owned*
31 March 2007 31 March2006 31 March 2007 31 March 2006
Capital Value #3,220.6million #2,487.1million #461.3million #344.3million
Annualised rent roll #175.2million #151.5million #24.5million #20.7million
Initial Yield 5.14% 5.8% 5.13% 5.7%
Average Unexpired Lease 7.16 years 4.25 years 6.42 years 12.2 years
Term
Void Rate 10.8% 9.5% 8.6% 4.0%
Number of Properties 562 499 84 75
Average Lot Size #5.73million #4.99million #5.49million #4.59million
*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 #1.5m (2006: #1.1m).
Wholly Owned
Number of Capital Annual
Properties Value Rent Roll ERV Weighting
#million #million #million %
Retail
Retail Warehouses 7 29.9 1.9 1.9
Shopping Centres 2 84.6 4.4 5.2
High Street 14 89.1 4.3 5.0
Retail sub total 23 203.6 10.6 12.1 45
Office sub total 35 159.5 9.9 11.5 35
Distribution 2 14.1 1.0 1.0
Industrial 19 47.9 2.6 3.3
Distribution & Industrial sub total 21 62.0 3.6 4.3 14
Residential 1 10.7 0.4 0.4 2
Land 2 1.7 - 0.1 -
Development (shopping centres) 1 19.7 - - 4
Total Wholly Owned 83 457.2 24.5 28.4 100
Overseas Property 1 4.1 - -
Total Wholly Owned plus Overseas property 84 461.3 24.5 28.4
Under Management
Net
Initial
No. of Capital Annualised Yield
Properties Value Rent Roll ERV
#million #million #million %
Aggregate of all properties
Ashtenne Industrial* 434 1,271.9 70.7 93.6 5.25
Apia Regional Offices 22 501.1 28.0 32.5 5.21
Agora Max Shopping Centres** 2 327.6 16.7 23.1 4.81
Agora Shopping Centres** 4 256.1 12.1 15.2 4.60
Radial Distribution** 14 303.7 18.3 18.4 5.70
Greater London Offices** 2 98.9 4.9 5.7 4.73
Wholly Owned** 84 461.3 24.5 28.4 5.13
Total under management 562 3,220.6 175.2 216.9 5.14
*Includes 100% of the Space Northwest JV portfolio
**Capital value is before accounting adjustments for ground lease interest for
leasehold properties, and certain properties treated as finance lease assets.
THE ASHTENNE INDUSTRIAL FUND (AIF)
VALUE - #1.27BILLION (KING STURGE/DTZ)
RENTAL INCOME - #70.7MILLION PA
Ashtenne Industrial Fund grew from #986million to #1.27billion during the year
and saw further expansion of the regional office network and delivered record
above-benchmark returns to investors.
AIF transacted over #250million of property, selling approximately #73million of
challenging, non-core assets and acquiring #196million of asset management
opportunities; the high note being the acquisition of a fifty percent interest
in a #140million joint venture with the North West Development Agency, now
branded as Space Northwest. This acquisition prompted the opening of a new
Ashtenne office in Liverpool and the Leeds office moved into new, high quality
premises adjacent to the M1. The network is well positioned to intensively
manage its assets in the coming year.
The Fund continued to show out-performance against its benchmark and for the
year to 31 December 2006 produced a 29.21% return against a benchmark of 17.70%.
Equity was raised at a premium from both existing and new investors during
2006 demonstrating the appetite from the market for exposure to AIF and the
secondary industrial sector.
As at March 2007 the Fund had a gross asset value of #1.272billion comprising
434 assets totalling 21.25million sq ft (1.97million sq m).
After strong yield compression in the sector over the last 18 months, above
benchmark returns in future will derive from aggressively managed stock. Our
regional network is uniquely placed to cater for occupiers' immediate needs and
maintain high customer satisfaction and property standards. A two tier market
is emerging between estates which are well managed and those where a poor level
of ongoing management and investment will lead to obsolescence.
Space Northwest
After a nine month tender and due diligence process in December 2006, The
Ashtenne Industrial Fund secured the transfer of 40 industrial and office
properties owned by the North West Development Agency into a new #140million
joint venture.
The property portfolio comprises well specified, multi-let industrial and
business assets located throughout the Merseyside and Cumbria region, offering
substantial value enhancement and reversionary potential with an initial void
rate of c40%.
The largest industrial asset is a highly prominent industrial area immediately
adjacent to Liverpool's John Lennon Airport extending to some 360,000 sq ft of
accommodation and providing a diverse range of unit sizes. The former Marconi
headquarters complex in Wavertree, Liverpool is also included on a 29 acre site
comprising a range of industrial and office accommodation with significant
refurbishment and development opportunities.
Chippenham, Langley Park
Langley Park is a 50 acre industrial estate, of which approximately 17 acres,
adjacent to Chippenham mainline railway station, has been allocated within the
North Wiltshire Local Plan for mixed use redevelopment.
An intricate planning strategy has been implemented to achieve an optimum mix of
alternative use development at the earliest opportunity, whilst also ensuring
that the investment value of the remaining industrial asset is sustained post
development.
In March 2007 a revised outline planning application was submitted for the
development of 192 houses as well as a detailed application for a large scale
retail store for ASDA.
Ashtenne Regional Offices
The regional office network is central to the continued out-performance of AIF.
The structure provides direct representation in areas where there is an existing
concentration of assets. This network of offices differentiates us from our
competitors and provides significant benefits for the day to day management of
the assets within AIF, enabling direct contact with occupiers in order to
maximize income and reduce the vacancy rates for the portfolio as a whole.
APIA REGIONAL OFFICE FUND
VALUE #501MILLION (DTZ)
RENTAL INCOME #28.0MILLION PA
Jointly established in June 2005 by Warner Estate and Morley Fund Management,
the Apia Regional Office Fund is one of a few specialists investing exclusively
in city centre offices outside Central London. In its first full financial year
to 31 December 2006, the Fund delivered a total return in excess of 30%,
significant relative outperformance and a top quartile placing in the HSBC/AREF
Pooled Property Fund Index for specialist vehicles.
This track record and the scale and diversification that a #501million UK wide
portfolio of 22 properties offers has contributed to attracting #24 million new
investor equity.
The regional office markets have performed strongly over the last 12 months.
Office demand in key regional cities has improved, bolstered by growth in the
financial and professional service sector. The rental growth achieved across the
UK has fuelled demand for investment product and lead to a further hardening of
yields.
Prospects for the office sector as a whole appear positive on the back of the
improved letting activity, full vacancy rates and healthy levels of active
demand.
Aberdeen, St Magnus House
Size - 80,180 sq.ft. (7,448 sq.m.)
A six storey office building with 104 car spaces in a prime city centre location
overlooking Aberdeen harbour and purchased by Apia in March 2007. Originally
constructed in 1984, the building has recently undergone re-cladding and
substantial upgrading to provide Grade A office accommodation. Fully let on
various lease terms to four tenants including The Scottish Ministers and CNR
International (UK) Ltd.
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. Following the 2006 refurbishment of
17,836 sq.ft. (1,657 sq.m.), 2,500 sq.ft. (232 sq.m.) has been let to Mapeley.
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 Faber
Maunsell. Faber Maunsell took a pre-let of one of the floors formerly occupied
by Teletech. Refurbishment of the remaining three floors is nearing completion
and one is currently under offer.
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 seven tenants including The Scottish
Ministers, 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 Dickinson Dees Solicitors.
Newcastle, Hampshire Court
Size - 118,246 sq.ft. (10,985 sq.m.)
A fully let campus comprising of three office buildings (387 car spaces) located
on Newcastle Business Park, approximately 1.5 miles from the city centre. One
of the buildings is let in its entirety to SoS for the Environment. The
remaining buildings are let to tenants including Lombard North Central, WSP,
Fujitsu and Norwich Union.
Leeds, Yorkshire House, Greek Street
Size - 72,938 sq.ft. (6,776 sq.m.)
A seven storey office building with ground floor retail and restaurant units
with 45 basement car parking spaces in Leeds' CBD. The offices are let to
Lupton Fawcett and AIG and the retail units let to Lloyds TSB, Target PIL and
Regents Inn. A refurbishment programme is being discussed with the principal
tenant, Lupton Fawcett, to upgrade their accommodation 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 (1996 built) air conditioned office building within
Manchester's prime office core with 47 car parking spaces. Occupiers include
Halliwells LLP, Secretary of State for Health, Zurich Insurance, Watson Wyatt
LLP and more recently Lloyds TSB. The common parts have recently undergone
upgrading and refurbishment.
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 in its entirety to
BUPA.
Manchester, Sunlight House
Size - 197,289 sq.ft. (18,329 sq.m.)
A fifteen storey 1930's landmark office investment within Manchester's CBD with
212 car parking spaces. Let to SoS for the Environment, SoS for Transport,
Building Design Partnership, Capita and others. The rolling refurbishment and
upgrading of the building's common parts and vacant suites is underway.
Nottingham, New Castle House
Size - 71,630 sq.ft. (6,654 sq.m.)
An imposing four storey art deco building constructed by Viyella in 1929. The
building occupies a prominent position, a short distance west of the railway
station and city centre. The property was comprehensively redeveloped and
extended to the rear in 1989 and now provides large floors of mainly open plan
accommodation with 164 parking spaces. 53% of the current income is derived
from the Gala Coral Group Ltd and 46% from UPS Ltd.
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
Size - 87,563 sq.ft. (8,134 sq.m)
A four storey multi-let office building with extensive car parking located close
to Solihull Railway Station. Constructed during the early 1970's and
refurbished in 1986, 48% of the income is received from the Environment Agency
with the remainder from investment grade companies or subsidiaries.
Milton Keynes, Ashton / Norfolk House
Size - 131,143 sq.ft. (12,183 sq.m.)
A four storey, two building 1970's multi-let office investment within Milton
Keynes CBD. The buildings are let to tenants including Deloitte & Touche, Abbey
National and Barclays Bank. 33,850 sq ft (3,144 sq.m.) of office accommodation
has recently undergone upgrading and refurbishment to include air conditioning.
Of this amount, 15,261 sq.ft. (1,471 sq.m.) has been pre-let.
Cardiff, Oakleigh House
Size - 41,038 sq.ft. (3,813 sq.m.)
A four storey 1990's single let office investment within Cardiff's CBD with 23
car parking spaces. The building is let to Cunningham Lindsey.
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.
Wimbledon, St George's East
Size - 54,877 sq.ft. (5,098 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
MYSIS and the retail units are let to Lloyds TSB, Starbucks and Dixons. MISYS
have announced their intention to vacate their offices, 42,422 sq.ft. (3,941
sq.m.), on lease expiry in 2008, creating an excellent opportunity for the Fund
to refurbish, upgrade, and capitalise on improved rental values.
Kingston, Surrey & Lever House
Size - 154,717 sq.ft. (14,373 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, ancillary retail units at ground floor level, a nightclub and a
six storey car park. Tenants include Lever Faberge, HMV, Multiyork and NCP.
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.
AGORA MAX SHOPPING CENTRES
VALUE #328MILLION (DTZ)
RENT ROLL #16.7MILLION PA
The Agora Max Shopping Centre joint venture, which is a Jersey Property Unit
Trust, is a 50/50 joint venture with Bank of Scotland, launched in October 2005.
The joint venture invests in shopping centres between #100million and
#200million in value, with active asset management and medium term development
potential.
Birkenhead, The Grange & Pyramids Shopping Centre
Size - 613,000 sq.ft. (56,949 sq.m.)
Providing 160 retail units and 1,225 car spaces the scheme comprises the major
retail element of Birkenhead town centre, the dominant retail centre for the
Wirral. Phase 1 of our development programme was completed in July with the
reconfiguration of the food court area into six new food units, a newsagent and
a juice bar. Planning consent has been obtained for Phase II, a 30,000 sq.ft.
(2,787 sq.m.) redevelopment of St John's Pavement. Pre-letting discussions are
underway with a major fashion retailer and the scheme could be initiated in
autumn 2007. A new 1,400 sq.ft. (130 sq.m) sustainable cafe is planned for St
Werburgh's Square, for which a planning application was submitted in March 2007,
with work due to commence in summer 2007.
Birmingham, Pallasades Shopping Centre
Size - 290,000 sq. ft. (26,915 sq.m.)
Pallasades Shopping Centre is situated in a prime location above Birmingham New
Street Station. Part of the centre is to be redeveloped under Network Rail and
Birmingham City Council's Gateway Project which involves the modernisation of
the station's environment and connections with the City.
Pallasades is anchored by a number of major national retailers including Argos,
Peacocks, HMV and Woolworths and served by a 1,000 space multi-storey car park.
Since acquiring the Pallasades in November 2005 14 new tenants have been secured
and this has started the process of improving the tenant mix and rental values
within the Centre.
AGORA SHOPPING CENTRES
VALUE #256MILLION (DTZ)
RENT ROLL #12.1MILLION PA
The Agora joint venture was launched in March 2003 and currently owns four
shopping centres totalling 1.12million sq.ft. (103,500 sq.m.). It is owned 50/50
with Bank of Scotland and invests in shopping centres in the heart of the
north-west with potential for improvement through pro-active asset management
and refurbishment/extension projects.
Preston Fishergate Shopping Centre
Size - 360,000 sq.ft. (33,445 sq.m.)
Fishergate Shopping Centre occupies a prime location next to Preston railway
station. It covers an eleven acre city centre site and is anchored by
Debenhams. Extension works to the entrance to the centre have been
successfully completed during the year with lettings to Lush, Starbucks and H
Samuel. This combined with the opening of the new flagship Primark store within
the scheme has generated a significant rise in pedestrian flow at the centre
adding to the potential for rental growth. Pre-letting discussions with tenants
for the phased 190,000 sq.ft.(17,625 sq.m.) extension for which permission was
initially granted in 2004, continue.
Bolton, Market Place Shopping Centre And Market Hall
Size - 333,123 sq.ft. (30,948 sq.m.)
Market Place is the prime retail location in Bolton. Work has commenced on the
redesign and extension of the attached listed Victorian Market Hall, scheduled
to complete in September 2008, creating 100,000 sq. ft. (9,290 sq. m.) of new
retail space, 70% pre-let to tenants including Zara, H&M, Office, Joy and
Starbucks.
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
Offices
Cavern Walks continues to attract high fashion retailers into the heart of
Liverpool's city centre. Cricket, a leading retailer in this market, has
expanded their presence in the centre this year with an additional store. With
investment in the retail environment planned, we expect to improve further the
tenant mix and dwell time. Refurbishment of the 7th floor of Cavern Court (the
office building above) has been successfully completed and, as a result, a lease
to Tweeds renewed.
Manchester, Middleton Shopping Centre
Size - 317,300 sq.ft. (29,500 sq.m.)
The scheme has seen marked progress this year, starting with the successful
completion in June of the 45,000 sq. ft. (4,181 sq.m.) Phase 1 extension fully
let to Peacocks, Bon Marche, Streetwise Sports, Cool Trader and Quality Save.
Works to improve the vertical circulation including the introduction of a new
mall cafe let to BB's Coffee and Muffins were completed in the autumn, followed
by the opening of the newly extended 32,000 sq.ft. (2,973 sq.m.) Wilkinsons
store. Plans are now being prepared for the second phase of development together
with the refurbishment of the car park.
RADIAL DISTRIBUTION
VALUE #304MILLION (DTZ)
RENT ROLL #18.3MILLION PA
Radial Distribution was established in 2003 as a 50/50 joint venture with Bank
of Scotland, responding to the significant changes occurring in the distribution
and logistics markets. Radial focuses specifically on distribution warehouses,
typically 200,000 to 500,000 sq.ft., and located at major motorway
intersections, ports, airports or rail freight terminals. The Fund now owns
sixteen purpose built distribution centres, at ten of the UK's most popular
logistics locations.
The joint venture's strategy reflects the prevailing trends in the occupational
market for distribution warehouses, which show increasing preference for larger
properties. The Fund is currently building 54,000 sq.ft (5,016 sq.m.) of
additional warehouse and office space at Interlink Park in Leicestershire, in
return for an extended lease commitment from the existing tenant.
In addition to its management activities, Radial grew substantially this year
through new acquisitions. Five new acquisitions were made, totalling #95
million. One small disposal was also made, reflecting the Fund's focus on larger
and more modern properties. Overall, space under management has increased during
the year by 1.21 million sq ft (112,400 sq.m.) to 3.31 million sq ft (307,500
sq.m.) - an increase of 57%.
Glasgow, Cambuslang Investment Park
Size - 123,871 sq.ft (11,508 sq.m.)
Cambuslang Investment Park is situated 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.
Stoke On Trent, Radial Point
Size - 183,750 sq. ft. (17,071 sq.m.)
Radial Point is situated at the junction of the A500 and A50 on the outskirts of
Stoke, just off junction 15 of the M6. Major occupiers in the area include
Michelin, Sainsbury's, Screwfix Direct, HW Plastics and Waterford Wedgwood. The
building is let to Marks & Spencer from August 2006 for a term of ten years,
with breaks in the third and fifth years.
Lutterworth, Magna Park
Size - 195,758 sq.ft. (18,185.9 sq.m.)
Located within the Golden Triangle in Lutterworth, Leicestershire, Magna Park
was Britain's first dedicated distribution park, acclaimed within the industry
for setting new standards in concept and design. Covering 500 acres, Magna Park
provides close to 7.7 million sq ft of B8 distribution floor space. Unit 5220 is
let to Unipart Logistics Ltd for a term of ten years, from December 2004.
Leicester, 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. The 5.05 hectare
(12.47 acre) site is still capable of further expansion by 54,000 sq ft (5,017
sq.m.). Radial is presently on site building this extension for the tenant and
completion is expected in October 2007.
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 logistics occupiers include Britvic, Morrisons, DHL and
Headlam Flooring. The property is let to NYK Logistics until 2018.
Coleshill, Birmingham, Highway Point
Total Space Held On Park - 260,884 sq.ft. (24,236 sq.m.)
Highway Point is a purpose built distribution scheme between Junction 9 (M42)
and Junction 4 of the M6. Both units are let until 2027, to Greenwoods
Communications and Lucas Aerospace respectively. Each has expansion land, with
potential for an additional 40,000 sq ft (3,716 sq.m.).
Birmingham, Hams Hall Distribution Park
Size - 218,872 sq.ft. (20,333 sq.m.)
Hams Hall Distribution Park covers an area of approximately 430 acres (174
hectares) and has its own international rail freight terminal, located 1 mile
(1.6 km) from Junction 9 of the M42; Birmingham International Airport is eight
miles to the south. Unit Alpha One is let to Accident Exchange until 2021 with
a tenant break option in 2016.
Daventry, Units A, B, C And E1, DIRFT Logistics Park
Total space held on park - 834,349 sq.ft. (7,752 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 (which
can be accessed directly from the park's dedicated rail port). Other occupiers
on DIRFT include Tesco, Royal Mail, DHL Logistics, Malcolm Group and Nissin UK.
Units A and B are both let to Eddie Stobart Ltd until 2025, with subleases to
DHL and Tesco (both have break options in 2015). Unit C is let to Ingram Micro
until 2010. Unit E1 (222,752 sq.ft, or 20,694 sq.m), which was newly purchased
in January 2007, is subject to an 18 month rental guarantee which expires in
July 2008 and the unit is presently being marketed.
Northampton, Brackmills Industrial Estate
Total space held on park 610,061 sq.ft. (56,675 sq.m.)
Brackmills is a dedicated distribution park, with dual carriageway access to
Junction 15 of the M1. Occupiers on the park include John Lewis, Stanley Tools,
Black & Decker, Office Depot and GE Lighting. Radial owns two buildings on the
park; the first is a 126,974 sq.ft. unit (11,795 sq.m.)let to Panasonic
Logistics until April 2009, while the much larger of the two units (483,650 sq.
ft, or 44,933 sq. m.) is let to Howdens Kitchens Properties Ltd until March
2022.
Weybridge, 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/Mercedes Benz, Marks
& Spencer and Sony. The unit is let to Tesco until 2014 and is one of very few
large format retail distribution hubs located inside the Western section of the
M25.
Bristol, 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 and junction 18 of the M5. 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.
GREATER LONDON OFFICES
VALUE #99MILLION
RENT ROLL #4.9MILLION PA
In September 2006 we launched our new Greater London Offices joint venture with
Barclays Capital, following the purchase of #96million of offices at 55 Old
Broad Street, London, EC2 and Central House, Camperdown Street, London, E1, both
in well established City of London locations.
55 Old Broad Street
Size: 98,047 sq.ft. (5,316 sq.m.)
An 11 storey office building which has 75,497 sq. ft. of offices and 22,550 sq.
ft. of retail occupying a prime corner location with Old Broad Street and London
Wall in the heart of the City. The building is multi-let and by taking back
selected floors and refurbishing the accommodation we are generating strong
rental growth.
Central House, Camperdown Street
Size: 57,225 sq.ft. (5316 sq.m.)
A 7 storey office building let to one of the worlds largest shipping companies,
Maersk. The building is located to the South of the Aldgate Gyratory which is
scheduled to see transport and public realm improvements.
WHOLLY OWNED INVESTMENTS
VALUE #461MILLION
RENT ROLL #24.5MILLION PA
The Wholly Owned Portfolio comprises 84 properties across all the major property
sectors. It is a diverse portfolio, increasingly focused toward the south east.
It is a flexible and pro-active area of the Group's activities and also an
incubator platform for new funds.
The portfolio acquired the property assets of JS Real Estate PLC, an AIM listed
property company with #130 million of property largely based in the south east,
increasing the weighting of the portfolio in the South East from 72% to 80%.
St Johns Wood High Street, London
Retail size - 24,852 sq.ft. (2,310 sq.m.)
This asset is the largest of those acquired from JS Real Estate. It comprises
27 ground floor retail units on the west of the street which are let to a range
of retailers, predominantly fashion outlets. An active management programme
will be initiated to re-brand and revitalize the retail offer in this affluent
catchment area.
Above the retail parade are 65 residential flats that are let on a range of
tenancy types.
Southend-On-Sea, The Royals Shopping Centre
Size - 284,649 sq.ft. (26,454 sq.m.)
Acquired in November 2005, this modern shopping centre is anchored by a 122,000
sq. ft. Debenhams department store, 32,000 sq. ft. TK Maxx unit which is
currently being extended to 38,000 sq. ft. as part of our Phase I initiative and
25,500 sq. ft. Boots unit. Phase II proposals to create another large retail
unit are being progressed.
Aylesbury, Hale Leys Shopping Centre
Size - 89,662 sq.ft. (8,333 sq.m.)
This is a modern town centre shopping centre originally constructed in 1983.
Over the year through aggressive management the Zone A headline rent has risen
from #80.00 Zone A to #93.00 Zone A. The scheme provides 30 units which are
substantially let to major national retailers including Boots, Next and River
Island. The Group has entered into a Collaboration 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.)
A new shopping centre development funded by WEH and being developed by Bride
Hall, which includes pre-lettings of 83,000 sq.ft. to Asda, 21,000 sq. ft. to
BhS, 19,000 sq. ft. to Next plus George, HMV, New Look, Peacocks and Starbucks.
The scheme is programmed for completion in September 2007.
Leicester, St John's House
Size - 24,586 sq.ft. (2,281 sq.m.)
A nine-storey multi-let office investment in Leicester's City Centre. The
building is principally let to the Secretary of State for Health and other
occupiers include NatWest Bank and RBS Plc.
London, Minories
Size - 25,169 sq.ft. (3,750 sq.m.)
A six-storey building in the City of London purchased in May 2006. The upper
floor offices are let to Groupama UK Services Limited and the ground floor
retail unit is let to Barclays Bank PLC.
DEVELOPMENT
Our development activity is growing both within the funds and in our Wholly
Owned portfolio. We have increased the size of our in-house development team
and all projects are carefully managed to control risks associated with their
completion.
A summary of our development activity is as follows:
Scheme Business Size (sq Comments Estimate Estimate Capital
Unit ft) Start Date PC Investment
Outlay
AIF - Development Land AIF 190 acres Various schemes under
consideration and / or underway,
including :-
70,000 sq ft started at Q1 2007 Q3 2007
Thameside, Manchester
85,500 sq ft started at Q3 2006 Q1 2007
Quedgeley, Glos. Phase 2
80,000 sq ft, manufacturing Q4 2007 Q3 2008
facility at Quedgeley, Glos.
Phase 3
93,000 sq ft Optima Park, Q1 2007 Q3 2007
Dartford Phase 2. Planning
granted November 2006
38,000 sq ft, Autobase, Tipton, Q2 2007 Q4 2007
West Midlands
AIF - Chippenham AIF 50 acre Revised planning application Q3 2008 Q3 2010
existing submitted March 2007 for c #32million
industrial potential retail and residential
site uses.
Birkenhead - The Grange Agora Max
and Pyramids Shopping
Centre
Phase 2 - New retail unit Phase 2 - Proposed new retail unit at Q4 2007 Q3 2008
30,000 sq entrance to shopping centre.
ft Planning granted June 2006.
Phase 3 - Cafe in Phase 3 - Planning application April 2007. Q3 2007 Q1 2008
Werbergh Square 3,000 sq ft
Phase 4 - Mall anchor Phase 4 - Re-development of Milton Q2 2008 Q2 2010
scheme 50,000 sq Pavement and introduction of new
ft anchor.
Birmingham - Pallasades Agora Max
Shopping Centre
Ladywood House 90,000 sq Office refurbishment. Q1 2008 Q2 2009
ft
c #61million
Network Rail T.B.A. Discussions ongoing with Network - -
Rail and local authority over
plans for a new station and
retail area above.
Middleton - Middleton Agora
Shopping Centre
Phase 2 17,500 sq Plaza units being designed. Q4 2007 Q1 2008
ft Planning permission received
June 2006.
Bolton - Market Place Agora 100,000 sq Over 70% pre-let. Started on Q1 2007 Q4 2008
ft site January 2007.
Preston - Fishergate Agora 190,000 sq Revised planning permission Q2 2006 Q2 2010
Shopping Centre ft granted January 2007.
Pre-letting negotiations
ongoing. 4 phases. 2 c
completed. #120million
Leicester - Antalis Radial 54,000 sq Started on site March 2007. Q2 2007 Q4 2007. c #5million
Extension ft
Folkestone - Bouverie Wholly 200,000 sq Forward funding, works on site. Q2 2005 Q3 2007
Place Shopping Centre Owned ft 80% pre-let.
Southend - The Royals Wholly 38,000 sq Extension in negotiation. Q4 2006 Q3 2007
Shopping Centre - Phase 1 Owned ft (incl.
existing)
Aylesbury - Hale Leys Wholly 265,000 sq Collaboration Agreement signed Q1 2008 Q4 2010
Shopping Centre - Phase 2 Owned ft with local authority March 2006. c
Planning application to be #134million
submitted July 2007.
TOTALS 1.4m sq ft + 240 acres #352million*
Key projects include:
Bolton, Market Hall (Agora)
Size - 100,000 sq.ft. (9,290 sq.m.) extension
A new retail insertion within this Victorian Grade II Listed Market Hall. New
tenants secured to date include anchor units for Zara and Hennes with over 70%
of the new floor space pre-let. Building works commenced in January 2007 with
completion anticipated in Autumn 2008. The new tenants will add to the
attraction of Bolton as a shopping destination and should benefit the adjacent
existing Market Place.
Preston, Fishergate Shopping Centre (Agora)
Size - 190,000 sq.ft. (17,651 sq.m.) extension
A revised planning approval was granted in January 2007. Discussions on
pre-lettings are continuing alongside the promotion of a Compulsory Purchase
Order to secure vacant possession of the extension area (Phase 3). The scheme
will add critical mass and car parking to the existing centre and is expected to
generate an uplift in the value of the existing centre.
The first 2 phases completed in 2006 with lettings of new units for Lush, H
Samuel and Starbucks, around the new 40,000 sq.ft. Primark Store.
Aylesbury, Hale Leys Shopping Centre Phase Two (Wholly Owned)
Size 280,000 sq.ft. (8,176 sq.m.) extension
Negotiation of a Development Agreement with Aylesbury Vale District Council is
progressing following our appointment as chosen developer by AVDC in 2006.
Discussions with a department store and supermarket anchors are underway and a
planning application will be submitted in the summer of 2007. The extension
will help Aylesbury to capitalise more fully on its affluent catchment
population connecting with our existing ownership of Hale Leys Shopping Centre.
Folkestone, Bouverie Place Shopping Centre (Wholly Owned)
Size - 200,000 sq.ft. (18,580 sq.m.) new development
We are funding Bride Hall's development of Bouverie Place and will own the asset
on completion in Autumn 2007. The scheme is anchored by a 83,000 sq ft (7,711
sq m) Asda supermarket and is 80% pre-let by area. Final lettings in the
development should establish reversionary rental value. Bouverie Place will
continue the on-going regeneration of Folkestone.
Birmingham, Pallasades Shopping Centre/New Street Station 'Gateway' (Agora Max)
Development
Network Rail, Birmingham City Council and Advantage West Midlands are promoting
significant works to New Street Station and the Pallasades Shopping Centre
above. We are in active discussions with the consortium with a view to securing
a beneficial joint venture relationship. Planning consent is expected to be
granted for the consortium's scheme which has announced that works are planned
to start in 2008.
There is additional potential to refurbish and upgrade Ladywood House, a 95,000
sq.ft. office building over the station, for the existing occupier Secretary of
State for the Environment.
Leicester, Bardon Antalis Unit (Radial)
Size - 54,000 sq.ft. (5,017 sq.m.) extension
The Radial Distribution Fund has agreed to extend the existing building by
54,000 sq ft, to accommodate the tenant's continued expansion which, once
completed will consolidate Antalis' occupation into a 279,000 sq.ft. national
facility. The project, which incorporates 9,500 sq ft of 2-storey office
accommodation, will complete in late October 2007 and incorporates a
simultaneous lease re-gear/extension.
Michael Stevens
Property Director
Finance Review
This is another year in which there has been significant change in the financial
environment in which the Group operates. Last year we reported for the first
time under International Financial Reporting Standards (IFRS) which resulted in
the Report and Accounts almost doubling in size. This year we have prepared the
Group for conversion to a Real Estate Investment Trust (REIT) and converted on 1
April 2007. The election, prior to the year end, to convert has meant that the
2% conversion charge and the release of deferred tax no longer required are
accounted for in this year's results. We have also acquired JS Real Estate Plc
(JSRE), a transaction which was completed on 14 March 2007.
The net effect of the REIT election has been to increase the post-tax profits of
the Group by #11.3million to #69.4million of which #19.8million relates to the
net deferred taxation released on conversion to a REIT and #8.5million to the
net reorganisation costs arising from REIT conversion. The full impact of the
restructuring that has taken place and the implications for the Group of being a
REIT are detailed under Significant Events. In addition to the post-tax
profits, which contributed #69.4million of the #83.9million increase in equity
shareholders' funds to #432.7million, the other main contributors were the
#21.4million of additional equity raised in January 2007 to help fund the
acquisition of JSRE, the deduction of #10.7million of dividends paid in the year
and #2million in other equity movements.
Significant Events
1. Conversion to a REIT
In March 2007 our shareholders approved our conversion to a REIT with effect
from 1 April 2007. In order to convert, the Group confirmed that it met the
REIT tests as at conversion and undertook detailed modelling to satisfy itself
that it was likely to do so in the future. By converting to a REIT, members of
the Warner Estate Group will no longer pay UK direct tax on the profits and
gains from their qualifying property rental businesses in the UK and elsewhere,
provided that they meet certain conditions. Non-qualifying profits and gains of
the Warner Estate Group will continue to be subject to corporation tax as
before.
The benefit the Group obtains, as long as it complies with the rules and, in
particular, continues to meet the rule that 75% of profits and assets derive
from the property rental business, is that it is no longer liable for tax on any
current or future capital gains on its investment properties nor will it pay tax
on its profits from its property rental business as defined under the REIT
legislation; with the result being that, in future, shareholders will not suffer
from profits being, in effect, taxed twice.
The current year's accounts reflect a conversion charge at 2% of the Group's
qualifying assets totalling #13.5million, of which #2.6million relates to the
acquisition of JSRE. This #2.6million has been treated as part of the cost of
acquisition and the balance of #10.9million has been included within the tax
charge for the year. This 2% charge applies to the value of the Group's
investment properties and our share of the value of the properties held by the
Apia and AIF JPUTs in which the Group has 28.07% and 6.52% investments
respectively. In addition, where we have elected our joint ventures into the
REIT regime, their results also include a conversion charge. Our share of the
charge in respect of Agora Shopping Centres Limited (Agora) and Radial
Distribution Limited (Radial), both of which were REIT elected, is #2.8million
and, as a result, we have been able to release #22.3million of deferred tax
relating to contingent tax on capital gains as a tax credit. Similarly, the
joint ventures' results contain a release of #11.2million. In addition, the
results this year contain a significant number of costs and profits which have
arisen specifically as a result of preparing the Group for conversion so that
the Group can ensure that it obtains the maximum benefit from being a REIT and
can operate without being in danger of not complying with the REIT rules.
The full effect of the decision to convert to a REIT in terms of the conversion
charge and the deferred tax released together with the costs and profits
connected with the decision are summarised in the table below.
#million #million
REIT conversion charge (10.9)
Deferred taxation released 22.3
Impact on taxation charge in income statement 11.4
Share of conversion charge payable by joint ventures (2.8)
Share of joint ventures' deferred taxation released 11.2
Impact on share of joint ventures' post tax profits in income 8.4
statement
Net deferred taxation released on conversion to a REIT 19.8
Net cost of reorganisation of Group debt (8.7)
Advisory fees on conversion to a REIT (1.4)
Liquidation fees (0.2)
Net cost of reorganisation of Group structure (1.6)
Performance fees receivable from joint ventures crystallised 6.7
Share of performance fees payable by joint ventures (3.4)
Net effect of joint venture agreements review 3.3
Profits on appropriation of trading properties 0.3
Taxation payable on appropriation of trading properties (1.8)
Net effect of appropriation of trading properties (1.5)
Net reorganisation costs on conversion to a REIT (8.5)
Net impact on the profit for the year 11.3
1. Reorganisation of Group Debt
The Groups debt has been reorganised so as to improve flexibility and cost, as
well as providing the Group with better interest cover as detailed in the debt
section of this review.
2. Corporate Structure
As part of the process of preparing for REIT conversion, the Group implemented a
strategy to create a simplified corporate structure which resulted in thirty
seven subsidiaries and twenty four joint venture companies being made dormant
and liquidated or prepared for liquidation. This process proved more
complicated than anticipated due to the REIT legislation on joint venture
groups, which was scheduled to be in place before December 2006, still not being
finalised. As a result, in order to ensure that the Group was not exposed to
unknown legislation, the Agora and Radial joint venture groups had to be
converted into single entity joint ventures at a cost to the Group of
#0.1million.
3. Financial Reporting System
An upgraded software system has been put in place together with a new payroll
system to ensure that the Group can accurately report its REITable and
non-REITable profits and support this analysis. The majority of these costs of
#0.2million were written off in 2006.
4. Joint Venture Agreements
Prior to conversion, all the joint venture agreements, most of which had been
put in place some years earlier, were reviewed. As a result of this review a
number of the agreements were renegotiated to ensure that, in future,
performance fees from joint ventures, which are non-REITable profits, are
received annually rather than every five years or on the disposal of an asset.
The aim is that, as far as possible, non-REITable profits are not affected in
any one year by large one-off performance fees earned over a number of years.
Under the renegotiated agreements #6.7million of performance fees from these
joint ventures have been agreed as payable to the Group at 31 March 2007
increasing this year's profit by a net #3.3million. However, no further
performance fees will be due under these agreements for Agora or Radial which
run to April 2008 and December 2009 respectively. In the case of the Agora Max
JPUT all future performance fees will accrue on an annual basis. The management
fees receivable from Agora and Radial have also been agreed at 1.5% of rental
income collected against a previous level of 5% in return for a 40bps reduction
in the interest margin payable by Agora and Radial on their debt, the net effect
of which is neutral in terms of the profit the Group receives. Also, as part of
the renegotiation, it has been agreed that whilst the respective joint ventures
will pay the conversion charge of #2.8million detailed above, the Group, as the
REIT, will receive 100% of the benefit of conversion.
5. Trading Properties
The Group's trading properties, including those under development, have been
transferred at market values to Investment Properties and re-valued as at 31
March 2007. This has led to an increase in profit on trading activities of
#0.3million, an increase in tax payable of #1.8million and a 2% conversion
charge of #0.6million payable on these assets, the benefit to the Group being
that future capital appreciation and rental income will not be taxed.
6. Investments in Funds
Another result of the Group making the REIT election is to bring its holdings in
the Apia and AIF unit trusts within the REIT at an entry charge of #4.3million.
The benefit of this election is that the income received from these units will
not be taxable although any future disposal of the units may be subject to tax.
The treatment of the income and the assets under the rules for REIT compliance
differ between Apia and AIF as the Group's holding in Apia is greater than 20%
of the units in the Fund. In Apia's case all our share of the income and assets
of this Fund count toward the REIT tests, whereas for AIF, where we hold only
6.52% of the Fund, whilst the income is tax free and 90% of this income has to
be distributed, it is classified as not being qualifying income for the purpose
of the 75% balance of business test under the REIT rules.
2. Acquisition of JS Real Estate PLC (JSRE)
On the 26 January 2007 the Group made a recommended cash bid with a loan note
alternative of 700p a share for JSRE valuing that business at approximately
#114million plus costs. The purchase was to be funded by way of a placing at
850p a share, of 2,517,647 new shares in the Group which raised #21.4million and
a new bank borrowing facility of #90million. However, at practical completion on
14 March 2007, #19.9million of the consideration was paid for by way of the loan
note alternative rather than bank borrowing.
The acquisition enabled the Group to purchase a South East based property
portfolio worth #129.8million which, together with debt and other net
liabilities, including the 2% REIT conversion charge of #2.6million, had a fair
value on acquisition of #116.6million for an overall purchase price after costs
of #116.7million. The difference of #0.1million has been recorded in the
Group's accounts as goodwill. If the purchase had been a straight property
purchase then the costs paid, over and above the acquisition value, would
typically have been of the order of 5% to 5.75% of the acquisition value.
The profit arising in the Group's accounts from this acquisition to 31 March
2007 is #0.2million.
Return on Capital
The return on capital uses a slightly different base from that used in previous
years as the introduction of IFRS accounting, which records unrealised fair
value movements through the income statement coupled with the Group's decision,
prior to 31 March 2007, to convert to a REIT from 1 April 2007, means that the
income statement and shareholders' funds reports reflect very similar results to
the Group's previously calculated adjusted return and shareholders' triple net
asset funds. Therefore, it now makes sense to use the results amended only for
any remaining deferred tax and fair value movements, whilst accepting the need
to take account of one off items such as the goodwill adjustment incorporated in
last year's calculation. This year however, because of REIT conversion, there
are still a number of adjustments required as shown in the table below.
Return: 2007 2006
#million #million
Profit for the year 69.4 74.4
Deferred tax arising on fair value gains during the year 7.5 9.2
Change in fair value of fixed rate debt, net of tax 5.8 0.9
Add back REIT conversion charges 13.7 -
Add back one-off costs arising from REIT conversion 8.5 -
Release of deferred tax on fair value gains due to REIT (33.5) -
conversion
Add back goodwill reduction on Ashtenne asset management - 17.7
business
Deferred tax arising from unrealised gains (7.5) (17.2)
Adjusted total return for the year 63.9 85.0
Equity shareholders' funds at start of year 350.6 272.1
Return on equity shareholders' funds 19.8% 27.3%
Adjusted return on equity shareholders' funds 18.2% 31.2%
The return on equity shareholders' funds was 19.8% (2006: 27.3%) and the
adjusted shareholders' return, which includes the elimination of REIT
conversion, was 18.2% this year. The main reason for this reduced return is
that fair value gains in the Group's wholly owned portfolio and joint ventures
are some #28million lower than in 2006 when the Group had also made realised
gains of #17.7million on assets sold out of the Ashtenne acquisition. Another
significant element of the return this year has been the reduction in the fair
value of debt. This is due to the rise in interest rates in the second half of
the year which impacted on the value of fixed rate debt and on hedging
instruments taken out on debt. In particular, this benefited hedges in the
joint ventures, where there are circa #357million of interest rate swaps and
caps at rates of 4.6% or below and a further #245million at between 4.6% and 5%.
Results for the year ended 31 March 2007
The table below illustrates the constituent parts of the results for the year
which are analysed in full at the end of this review. As can be seen, recurring
profits are #18.1million (2006: #15.9million).
Income Statement
31 March 2007 31 March 2006
#million #million
Recurring profit before taxation 18.1 15.9
Non-recurring (losses) / profits (6.5) 12.2
Net fair value gains 52.7 71.0
Taxation 5.1 (24.6)
Profit for the year 69.4 74.5
The key features of this year's results are the impact of REIT conversion on
tax, as detailed in the tax section of this review, and the profits and costs
arising from preparing for conversion. Recurring profits include a net
#3.3million of performance fees as a result of the renegotiation of the joint
venture asset management agreements. Non-recurring losses of #6.5million (2006:
#12.2million profit) include an #8.7million cost of reorganising the Group's
debt and a #1.6million cost of reorganising the Group's structure. The other
significant components were a reduction of #18.3million in net gains from fair
value adjustments (revaluation increases in assets) at #52.7million and the
contribution of a full year's results from the asset management businesses for
the AIF and Apia Funds. The following summarises the key aspects of these
results.
Recurring Profit
31 March 2007 31 March 2006
#million #million
Property investment and other income 23.1 28.6
Net contribution from joint ventures 4.4 (1)5.5
Net income from fund asset management activities 4.4 2.2
Head office costs (1.6) (2)(8.0)
Net interest payable (12.2) (12.4)
18.1 15.9
Of which performance fees:
Funds 1.8 1.3
Joint ventures(3) 3.3 1.0
5.1 2.3
(1) This includes #0.8m of profits from the AIF fund management business whilst
it was owned through Industrial Funds Limited as a 50% joint venture.
(2) Head office costs were not reallocated across the different businesses in
2006.
(3) This represents the performance fee receivable less our share of the
performance fee payable by the joint ventures.
A straight comparison between the returns from each of the above activities is
difficult because Head Office costs were not reallocated across the various
activities in 2006. However, a best estimate would apportion #3million of the
costs against property investment, #1.3million against fund asset management and
#1.6million against the joint ventures. Taking this into account the profit
from property investment and other income fell by #2.5million as rental income
fell by some #2.7million despite the portfolio increasing by a net #106million,
including #170million of acquisitions, to #462million. This apparent anomaly is
due to the fact that #130million of the purchases were acquired via JSRE in
mid-March 2007 whilst the majority of the #70million of disposals occurred much
earlier in the year. The rent roll as at 31 March 2007 was #24.5million (March
2006 #21.2million). In addition, property costs increased by #1.1million, due
to increased costs on rent renewals and new lettings, a significant element of
this being surrender premiums paid on lease terminations, together with a rise
in void costs. Other income is up #1.1million to #6.2million including
#6million received from the Group's investments in the AIF and Apia funds
compared to #3.8million in 2006 when the Group had only held these investments
for part of the year. Using an annualised comparison for 2006, the income
received from these investments showed a year on year growth of 12%. The
decline in income from other sources is mainly due to the disposal of the
Group's investment in East Surrey Holdings Plc in 2006.
The results of the joint ventures include our share of recurring profits,
performance fees and asset management fees. Within this, the Group's share of
the joint ventures' loss was #2.8million which arose due to #6.7million of
performance fees being charged by the Group to the Agora Max and Agora joint
ventures without which the Group's share of the joint ventures would have been a
profit of #0.5million. This is a direct result of the renegotiation of the
management agreements with the Agora Max, Agora and Radial joint ventures
reported in the section on conversion to a REIT above. The net effect of this
is that the Group's recurring profit is #3.3million higher this year.
The other major change is the increased contribution from the fund management
business.
Non-recurring (Losses) / Profit
31 March 2007 31 March 2006
#million #million
Profit on sale of investment properties and investments (Group and 3.1 10.9
joint ventures)
Profit on sale of trading properties (Group and joint ventures) 1.1 7.0
Costs relating to conversion to a REIT (Group and joint ventures) (10.3) -
(1)
Other net non-recurring costs (Group and joint ventures) (0.4) (5.7)
(6.5) 12.2
(1) This includes #8.7million of debt reorganisation costs.
This year's results contained a significant number of one-off costs that relate
directly to the preparation for REIT conversion with other one-off costs being
negligible. In addition, the Group disposed of the majority of its listed
investments for a profit of #1million in the year.
Net Fair Value Gains
31 March 2007 31 March 2006
#million #million
Net gain from fair value adjustments on investment properties (Group 28.9 56.0
and joint ventures)
Net gain from fair value adjustments on investments in funds (Group
and joint ventures)
AIF 6.0 4.7
Apia 10.9 11.1
16.9 15.8
Net (loss)/gain from fair value adjustments on other investments (2.8) 1.2
Change in fair value of derivative financial instruments (Group and 9.7 (2.0)
joint ventures)
52.7 71.0
There are three significant changes this year, firstly the reduction in the fair
value gains arising in the year which was #28.9million compared with #56million
last year, secondly the reduction in the value of the investment in Bride Hall
by #3million to #12million, which is included in other investments and finally
the positive benefit arising from the change in the value of the Group's hedging
instruments arising from the increase in UK interest rates.
Taxation
This year, due to the decision to convert to a REIT, the explanation of the
Group's taxation is not straight forward.
The REIT charge of #10.9million payable by the Group and #2.8million payable by
the Joint Ventures has enabled the release of deferred tax provisions held on
properties of #22.3milllion and #11.2million respectively. The Group has also
had to pay a #2.6million REIT charge on the acquisition of JS Real Estate, but
this has been treated as an acquisition cost and offset against goodwill. The
JS Real Estate REIT charge has enabled approximately #19million of potential
capital gains to be extinguished.
Included in the #10.9million Group REIT charge is a #4.3million conversion fee
on our holdings in the AIF and Apia funds. This charge enables distributions
received from these two funds to be treated as REIT income and therefore exempt
from corporation tax. However, the asset value of these holdings are treated as
non- REIT under the REIT assets test and so remain liable for capital gains tax
which is the main reason for the continuance of a deferred tax liability.
The table below shows the taxation charge and effect of the above:
31 March 2007 31 March 2006
#million #million
Current taxation (Group and joint ventures) (4.6) (15.7)
Deferred taxation movement during the year(1) (10.1) (8.9)
REIT conversion charge (Group and joint ventures) (13.7) -
Release of deferred taxation due to REIT conversion 33.5 -
5.1 (24.6)
Of which Group (see reconciliation below) 1.7 (16.5)
Joint Ventures 3.4 (8.1)
(1) This relates to deferred taxation remaining on our balance sheet on
the fair value gains on the investment in funds and listed investments, as well
as our share of fair value gains in Agora Max and Greater London Offices, which
have not been elected for REIT status. In addition there is deferred taxation
on the fair value adjustments on derivatives and on the cost of share based
payments.
The current year tax charge has also been reduced due to loan breakage costs on
the redemption of the 2015 Debenture Stock and also as a result of the
resolution of the prior year's tax charge.
The table below shows the tax reconciliation for the last two years:
RECONCILIATION OF TAX CHARGE
2007 2006
#million #million
Profit on ordinary activities before taxation 67.8 91.0
Tax @ 30% 20.3 27.3
Share of joint venture and associate post tax profits (8.1) (6.6)
Net tax on assets sold during the year (1.5) (0.4)
Net capital allowances on asset disposal (1.9) (4.3)
Share scheme timing differences (0.3) 0.7
Disallowable expenses 0.8 0.3
Other - (0.2)
REIT election - elimination of deferred tax balances (18.3) -
REIT conversion charge 10.9 -
Tax on properties appropriated to investment properties 1.8 -
Net tax movement on fair value gains of assets (2.5) 0.6
Over provision in respect of prior years (2.9) (0.9)
Total tax (credit) / charge in the accounts (1.7) 16.5
Of which: Current tax 5.2 12.8
Deferred tax (17.8) 3.7
REIT conversion charge 10.9 -
Fund Management
This business now manages #1.8billion (2006: #1.4billion) of assets and has
seven regional offices which employ 121 people (2006: 102 people) of which 31
(2006: 20) are service charge recoverable. The two funds have four and
fourteen years respectively to run.
2007 2006
Personnel of which of which
service service
chargeable chargeable
Total Total
Ashtenne Industrial Fund (AIF) 90 31 67 20
Apia Regional Office Fund 4 - 5 -
Finance 27 - 30 -
Total 121 31 102 20
Fund management income statement
Annualised
31 March 2007 31 March 2006
#million #million
Asset management and other fees 11.3 8.0
Costs (6.8) (5.2)
Head Office recharges (1.9) (1.9)
2.6 0.9
Performance fees 1.8 1.3
4.4 2.2
AIF Asset Management
Income statement
2007 2006
Unaudited Pro
Forma
Results Actual 12
included in Months (a)
Financial 01/04/2005
Statements To 31/03/2006
#'000 #'000
Asset management fees 5,477 4,440
Letting and other fees 4,063 2,296
Total fees 9,540 6,736
Costs (5,837) (4,565)
Head Office charges (1,628) (1,600)
Profit before performance 2,075 571
fees
Performance fees - 1,324
Recurring profit 2,075 1,895
Notional tax charge @ 30% (622) (569)
1,453 1,326
Group investment in AIF
Distributions from fund 2,838 3,058
Value of units at 31 March 44,828 38,572
2007
% share of fund 6.52% 7.09%
Yield on holding 6.33% 7.93%
(a) This business was only owned for ten months last year and for seven of
those only through IFL a 50% joint venture.
Annualised comparative numbers have been used as this business was only owned
for 10 months last year and for seven of those as a joint venture. A best
estimate of the Head Office recharge has been used for the 2006 results.
On this basis, total fees earned by this business increased by 42% year-on-year
with the profit before performance fees and the Head Office recharge being some
71% higher at #3.7million as a result of operating margins rising to 39% from
32%. However, despite the Fund managed by this business returning a record
27.7% return in the year, no performance fees were earned. Negotiations are in
hand to review the formulae for the performance fee assessment and to extend the
life of the Fund which currently has four years to run.
This business is carried in the Group's accounts with a goodwill of only
#11million due to the surpluses made on the disposal of assets purchased as part
of the acquisition being accounted for as a reduction in goodwill. This year
this business made a profit of #2.1million before tax which on a notional tax
charge of 30% equates to a P/E of 7.
Apia Asset Management
Income statement
2007 2006
Unaudited
Pro Forma
Results included Annualised
in the Financial results for
Statements 12 months
(based on 10
months Accounts)
#'000 #'000
Asset management fees 1,830 1,241
Costs (927) (640)
Head Office recharges (312) (300)
Profit before performance fees 591 301
Performance fees 1,776 -
Recurring profit 2,367 301
Notional tax charge @ 30% (710) (90)
1,657 211
Group investment in Apia
Distributions from fund 3,130 2,263
Value of units at 31 March 2007 74,817 64,374
% share of fund 28.07% 28.78%
Yield on holding 4.18% 3.52%
In order to understand the full impact of this business this year the
comparatives are annualised numbers as the Fund was only formed in early June
2005. Also a best estimate of an annualised recharge of Head Office costs has
been used for the 2006 results.
In the year to March 2007 the business earned #1.83million in management fees,
an increase of 47% on a year-on-year basis with an operating margin, before Head
Office recharges, of 49% compared with 48% last year. The profit before tax was
#2.4million, which included #1.8million of performance fees. There were no
performance fees in the year ended 31 March 2006 as the Fund had been
established for less than a year.
The Group's accounts and therefore the NAV do not include any value for the Apia
Fund Management business which was set up some eighteen months ago. This is
because the business was established in-house rather than purchased from a third
party.
Management Fees
The table below briefly summarises the main terms on which the Group received
its management fee income from each of the funds.
Management Management Property
Year Fee % Fee % Valuation Rent Roll
Name End Property Rent Other Fees Performance Fees 31 March 2007 31 March 2007
AIF 31/12 0.5% N/A Lettings, Based on outperforming the IPD #1,271.9million #70.7million
(a) rent all industrial index on a 3-year
reviews, rolling basis
disposals,
additions
etc
Apia 31/12 0.4%(b) N/A N/A Based on outperforming the IPD #501.1million #28.0million
(a) regional office index (excluding
business parks) on a 3-year
rolling basis
(a): The performance fees in these Funds are receivable in the second half of
the Group's financial year to 31 March as the fees are calculated on the
results of the Funds for the year to 31 December.
(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.
Joint Ventures
This business now manages #1billion (2006: #0.73billion) of assets employing 30
people (2006: 28) of which 16 are service charge recoverable. There are four
joint ventures which have between one and fourteen years to run. Ahead of its
election for REIT status, discussions took place on the life of the Agora
Shopping Centre joint venture, which has one year to run, and it was agreed in
principle that this joint venture would be extended.
2007 2006
Personnel of which of which
service service
charge charge
Total recoverable Total recoverable
Agora Max Shopping Centre Fund 8 6 9 6
Agora Shopping Centre Joint Venture 17 10 16 10
Radial Distribution Joint Venture 2 - 1 -
Greater London Offices Joint Venture 1
Finance 2 - 2 -
Total 30 16 28 16
These joint ventures earned the Group net fees of #94.7million (2006:
#42.5million) including performance fees of a net #3.3million (2006;
#1.0million). The terms on which the Group currently earns fees and will earn in
future are detailed below
The other main change in the year was the formation of the Greater London
Offices joint venture. This joint venture was established with Barclays Capital
in September 2006 and purchased two central London properties for #96.5million.
Management Fees
The table below summarises the main terms on which the Group received its
management fee income from each of the joint ventures in the year to 31 March.
The joint venture agreements in respect of Agora Max, Agora and Radial have been
renegotiated and the new terms are detailed in the notes below.
Management Management Property
Valuation
Year Fee % Fee % Rent Roll
Name End Property Rent Other Fees Performance Fees 31 March 2007 31 March 2007
Agora Max 31/03 N/A 5% N/A Based on exceeding an IRR of 20% #327.6million #16.7million
over the life of the funds or on
disposal. This has been
renegotiated with effect from 31
March 2007(a)
Agora(b) 31/03 N/A 5% Based on exceeding an IRR of 20% #256.1million #12.1million
over the life of the funds or on
disposal
Radial(c) 31/03 N/A 5% N/A Profit share at end of joint #303.7million #18.3million
venture
Greater 31/03 N/A Fixed N/A N/A #98.9million #4.9million
London #65kpa
Offices
(d)
(a) A fee of #3.7million was agreed as the performance fee receivable as at 31
March 2007. In future, the performance fee will be charged annually,
subject to clawback, based on exceeding a 20% IRR.
(b) A fee of #3.0million was agreed as the performance fee receivable as at 31
March 2007. The current joint venture agreement ends in early March 2008
and no further performance fees will arise in the period remaining.
(c) The profit share agreement has been cancelled as part of the renegotiation
of the asset management agreement.
(d) The fees receivable under the management agreement have yet to be concluded
pending the finalisation of the REIT legislation in respect to joint
ventures.
Earnings per Share
Earnings per share were 129.3p (2006: 140.2p) and recurring earnings per share
were 30.5p (2006: 22.9p). Earnings per share include the fair value gains on
properties and investments of 121.1p (2006: 103.8p) and one-off losses of 22.3p
(2006: 13.5p profits) which are excluded from recurring earnings.
Cashflow
March 2007 March 2006
#million #million #million #million
Cash generated from operations 6 25
Net interest (19) (8)
Tax (11 (11)
Cash flows from operating activities (24) 6
Acquisitions (128) (160)
Disposals 59 152
Dividends received 8 9
Cash flows from investing activities (61) 1
Issue of shares 21 14
Net repayment of bank loans (68) (92)
Dividends (11) (10)
Other cash flows - 1
Cash flows from financing activities (58) (87)
Net cash (outflow) / inflow (143) (80)
Balance Sheet
As at 31 March 2007, shareholders' funds were #432.7million (2006:
#350.6million), an increase of 17% excluding the impact of the additional equity
of #21.4million which was raised through a placing in January 2007. The
underlying elements of the growth in equity shareholders' funds is analysed in
the table below.
Pence per
#million share
Equity shareholders' funds at 31 March 2006 350.6 660.3
Change in number of shares in issue (33.3)
627.0
Movement in the year to 31 March 2007
Profit before fair value gains 11.6 20.7
Net fair value gains 52.7 94.3
Taxation - current (4.6) (8.2)
Taxation - deferred 23.4 41.8
REIT conversion costs (13.7) (24.5)
Profit for the year 69.4 124.1
Other equity movements
Shares issued 21.4 38.3
Dividends paid (10.7) (19.2)
Investment in own shares 0.2 0.4
Share based payments reserve 1.8 3.2
Equity shareholders' funds at 31 March 2007 432.7 773.8
As shown in the table below, the equity shareholders' funds have been adjusted
for the remaining deferred tax on fair value gains on the Group's investment in
Apia and AIF along with our share of the fair value gains in Agora Max and
Greater London Offices which have not been elected for REIT status. The Group
does not anticipate this deferred tax to materialise. In addition, we have
adjusted for the fair value on fixed rate debt which is not included on the
balance sheet along with the final proposed dividend which is also excluded.
As stated earlier in this report, as part of the conversion to a REIT, we
elected for our trading and development properties to be treated as investment
properties which resulted in a taxation charge. However, in the case of our
development at Folkestone, under the current accounting rules, the property must
be held at cost until the development reaches practical completion and, although
the income statement includes a current taxation charge of #0.3million, a REIT
conversion charge of #0.4million, which reduces net assets by #0.7million, we
have not been able to include the fair value gain in the accounts as at 31 March
2007. We have therefore shown the effect on net asset value of this fair value
gain of #1.2million at 31 March 2007 in the table below.
These adjustments result in an adjusted net asset value per share of 800.2p.
This would have increased to 845.8p per share if the costs of conversion to a
REIT had been eliminated.
31 March 2007 31 March 2006
#million Pence per #million Pence per
share share
Equity shareholders' funds 432.7 773.8 350.6 660.3
Add back deferred tax on fair value gains (including 19.0 34.0 42.9 80.8
JVs)
Add / (less) fair value adjustments on fixed rate 0.7 1.3 (5.1) (9.6)
debt, net of tax
Less proposed dividend (6.2) (11.0) (5.3) (10.0)
Add fair value gain on Folkestone 1.2 2.1 - -
Adjusted equity shareholders' funds 447.4 800.2 383.1 721.5
Add back REIT conversion charge 13.7 24.5 - -
Add back one-off costs arising from REIT conversion 11.8 21.1 - -
Adjusted equity shareholders' funds pre REIT 472.9 845.8 383.1 721.5
conversion costs
Bride Hall
In previous years we were required to equity account for this investment as an
associate but we have now renegotiated our equity holding to ensure we are not
able to exert significant influence and we have therefore reclassified our
investment as "investments in listed and unlisted shares" (See notes 18 and 19
to the Financial Statements). As explained in the Net Fair Value Gains section
above, the value of this investment has reduced by #3m to #12m during the year.
Leasehold Liability Portfolio
The balance sheet includes #5million (#12million at acquisition) in respect of
liabilities acquired with the portfolio of properties purchased in December 2005
from the Co-operative Insurance Society. Since purchase, this liability has
been reduced by #7million which represents the net payments of liabilities to
March 2007. At the start of this process, there were 105 separate leasehold
liabilities which had been reduced to 34 by 31 March 2007. The Group has
reassessed the value of these liabilities at March 2007 using a model that has
been used since the purchase of this portfolio of liabilities to assess its
value 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.
Contingent Assets
As advised above in the section on Conversion to a REIT, the joint venture
agreements have been renegotiated and the potential #6million of performance
fees which were previously reported in the accounts to March 2006 as contingent
assets arising over the next two to three years have now been crystallised.
Borrowings
Debt
Total net borrowings for the Group at the year end, including #19.9million of
loan notes issued to acquire JSRE, were #296.6million (2006: #185.6million) and
are summarised in the table below. Since the year end, net debt has increased
by #39million to fund the acquisition of two properties for the wholly owned
property portfolio, increasing net debt to #336million and raising net gearing
on adjusted equity shareholders' funds at the year end from 66% (2006: 48%) to
75% currently.
On balance Share of joint Share of
sheet ventures funds Total
#million #million #million #million
Net short-term debt 11.4 59.4 (5.1) 65.7
Long term debt 285.2 262.4 95.8 643.4
Total net debt at 31 March 2007 296.6 321.8 90.7 709.1
Of which:
Total net recourse debt 271.0 - - 271.0
Long-term non-recourse debt 25.6 321.8 90.7 438.1
Gearing (on adjusted shareholders' funds) 66% 158%
Recourse gearing 61% 61%
Total net debt at 31 March 2006 185.6 260.2 87.8 533.6
Gearing (on adjusted shareholders' funds) 48% 138%
Recourse gearing 35% 35%
The Group's average cost of debt at the year end was 6.18% (2006: 6.07%).
Whilst the margin at which the Group borrows has reduced and high interest fixed
rate debt cancelled the effect of the #90million 3.5% callable swap being
cancelled in the year and underlying interest rates rising has resulted in this
small increase.
During the year the Group carried out a substantial reorganisation of its
borrowing facilities so as to provide it with more flexible and cheaper sources
of funds. Specifically, the Group redeemed two term loans totalling #44million
at a cost of #0.9million of which #0.2million was in respect of the break costs
and the balance a write off of a fair value adjustment. One loan was with Bank
of Scotland, which had a blended rate of interest of 5.5% plus a margin of 1%
and the other was with The Royal Bank of Scotland, which had interest set at
LIBOR plus a margin of 1%. Both these loans were replaced by increasing the
revolving credit facility with The Royal Bank of Scotland from #100million to
#135million and the margin was reset to 60bps from the previous margin of 80bps.
The Group also extended its Barclays three year revolving facility from
#60million to #90million at the same margin as previously of 60bps. Finally, in
March of this year, the #10million 11.655% debenture and the #12.5million 9.635%
debenture held with the Prudential were repaid at a break cost of #7.8million
and replaced by a new #60million three year revolving credit facility with Bank
of Scotland at a margin of 60bps. The interest cost of #2.37million p.a. on the
debentures has been reduced by approximately #0.7million p.a. after taking
account of the additional interest payable on the break cost of #7.8million. Of
the total costs of #8.7million in respect of these loans the fair value in the
notes to the accounts at 31 March 2006 was #7.3million of which #8.3million
related to this debt. The overall effect of these changes, after taking into
account the associated break costs and facility fees, is to reduce the Group's
interest costs on an ongoing basis by approximately #1.5million p.a. at current
borrowing levels. These savings on the margins the Group pays over and above
the headline rate of interest on the Group's debt will be reduced by the impact
of interest rate rises where every 25bps rise in LIBOR increases the Group's
interest rate burden by approximately #0.5million p.a. until the 6.25%
#150million cap is reached when the impact falls to approximately #0.2million
p.a.
In addition to the above, the Group funded the acquisition of JSRE by way of a
share placing that raised #21million and a new #90million dedicated facility
with The Royal Bank of Scotland at a margin of 60bps. This facility is
currently only drawn to #77million as shareholders in JSRE elected to take
#20million of consideration in the form of redeemable loan notes rather than
cash. The overall effect of this transaction on the Group's loan to value and
income cover ratios at the year end is set out below:
Pre - JS RE Post -
Acquisition Acquisition Acquisition
#million #million #million
Net Debt 203.5 93.1 296.6
Property 331.6 129.8 461.4
Loan to Value % 61.4% 71.7% 64.3%
Rental Income 22.2 6.8 29.0
Interest Payable 10.5 5.4 15.9
Income Cover 2.11 1.26 1.82
Since the year end, #4.1million of debt in JSRE, which had a blended rate of
7.33%, has been redeemed using surplus cash from within JSRE.
The dedicated financing line of #25million with Anglo Irish Bank PLC to fund the
development of a new shopping centre at Folkestone has been extended to
#27.75million to the end of November 2007. At 31 March 2007, #16.3million of
this facility had been drawn down.
The Group had un-utilised facilities at 31 March 2007 of #64million (2006:
#44million), which are sufficient to meet our working capital requirements.
In the joint ventures, Agora Shopping Centres and Radial Distribution Fund were
included as part of the REIT election and the margins on their debt were reduced
by 40bps. The Agora Shopping Centre joint venture is financed as to 57% by debt
and 43% equity and rental income covers interest 1.4 times. It has a dedicated
funding line of #35million in place to facilitate the development of the Bolton
Shopping Centre. In Radial, a second facility was put in place during the year
for #120million which will allow property to be acquired up to a value of
#150million. This facility has already been utilised by more than 60%,
acquiring property of #95million. At 31 March 2007, the Radial joint venture
had a loan to value ratio of 73% and rental income covered interest 1.4 times.
The Agora Max joint venture is funded 71% by debt and 29% equity and rental
income covers interest 1.2 times. The Agora Max joint venture is partially
funded by debt as well as equity from the partners. This has been excluded from
the Group debt information. The Greater London Office joint venture was
established during the year. It had debt of #72.2million as at 31 March 2007
and is financed 73% by debt and 27% equity and rental income covers interest
1.26 times.
At 31 March 2007, the Group held investments in the Apia Regional Office Fund
and the Ashtenne Industrial Fund amounting to 28.1% and 6.5% respectively. As
at that date, Apia had debt of #237million with property under management of
more than #500million and AIF had debt of #445million with property under
management of more than #1.1billion. Both Funds have loan-to-value ratios of
less than 50% and have 2.2 and 2.4 times rental income to interest cover
respectively.
Hedging
The interest rate exposure on the Group's debt is managed to ensure that there
is a balance between flexibility and certainty. In terms of the Group debt, the
Group put in place #200million of new hedging against Group debt during the year
comprising a #150million 5-year cap at 6.25%, put in place at a cost of #881k,
to replace the #100million cap at 7.25% which matures in June 2007 and two
#25million 25-year cancellable swaps, one of which is effective from 31 March
2007 at a rate of 4.34% and callable by the bank every two years thereafter, the
other is effective from 31 March 2008 at a rate of 4.16% with the first call at
31 December 2009 and then every two years thereafter. The cancellable swaps
have a blended rate of 4.25% and have been staggered so that there are different
call dates. The Group intends to put further swaps in place at the appropriate
time to build up 80% to 90% of cover on the floating rate debt. The intention
is that these swaps will have different maturity and call dates, thereby
ensuring that if any one of the swaps is called there will still be more than
75% of cover on the floating rate debt.
At the start of the year, we had four fixed rate loans, totalling #93million.
As advised above, three of these with a face value of #66.5million were redeemed
during the year. As a result at the year end there was only #39.7million of
fixed rated debt together with swaps of #46million and a cap of #100million
providing coverage of 57% of the floating rate debt. When combined, the total
amount of hedging and fixed rate debt comprises 63% of the total Group debt.
During the year, a 10 year cancellable swap effective from 31 March 2006,
whereby the interest charge was fixed at 3.5% for the first six months to 30
September 2006 and thereafter at 4.19% for the remaining 91/2 years, was called
by the Bank on 31 December 2006.
Group Share of
Joint
Net Debt as at 31 March 2007 on Balance Sheet Ventures
#million #million
Fixed rate debt 39.7 -
Floating rate debt 256.9 321.8
296.6 321.8
Percentage of floating rate loans at 31 March 2007
Covered by swaps 18% 70%
Covered by caps 39% 23%
57% 93%
Percentage of floating rate loans at 31 March 2006
Covered by swaps 91% 75%
Covered by caps 9% 25%
100% 100%
In respect of the Group's share of #643.0million of net debt in the joint
ventures, approximately one quarter is fixed at 4.1% by two swaps, #95million is
fixed by a swap at 4.96%, #109.5million is fixed by a swap at 4.5775% and
another #72million is fixed by two callable swaps at 4.49%. There are two
enhanced collars, the first for #124million is capped at 5.0% and the second for
#27million is capped at 5.5%, leaving approximately #40million uncovered. The
favourable rates obtained for the hedges in the joint ventures means that the
fair value adjustments for the hedging in the joint ventures equates to
#2.3million in Agora, #2.4million in Radial, #1.9million in the Greater London
Offices joint venture and #13.1million in Agora Max.
Both of the Funds, Apia and AIF, were more than 80% covered through a
combination of swaps and caps as at 31 March 2007.
Post Balance Sheet Events
There have been no material post balance sheet events that require adjustment.
A list of the material, though non-adjusting events and transactions, are noted
in the Significant Events post 31 March 2007 section following this report.
Business Risks
The Group regularly reviews business risks with the aim of ensuring that the key
controllable risks faced by the Group are kept to a minimum and a comprehensive
risk matrix is utilised. Risks that are outside our control, particularly
legislative, the Group, and industry in general, can do little to mitigate.
This year the Group has continued to expand with another corporate acquisition,
the establishment of a Greater London Office joint venture and, through the
Ashtenne Industrial Fund, a joint venture with the North West Development Agency
and converted to a REIT on 1 April 2007. As part of this process the Group has
appointed a senior executive as a REIT Compliance Officer, commenced recruitment
for a Health & Safety executive, carried out a comprehensive update of its
accounting, property and payroll software for REIT compliance purposes,
reorganised the Group's debt and simplified the Group's corporate structure. In
addition the Group's internal financial reporting has been modified to ensure
that compliance with the REIT rules is monitored on a regular basis.
The Group's internal auditors, Grant Thornton, have carried out a number of
investigations during the year under the direction of the Audit Committee and a
three year rolling programme has been established based upon the Group's risk
matrix which was updated in April 2007. The reports prepared to date have
identified some issues on which the Group has taken action but none of which
were of a material nature.
There are a number of areas where the Group faces key business risks which, with
the exception of the need to comply with the REIT rules, remain those previously
outlined namely:-
The 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 reduce the exposure to interest
rate and market price fluctuations. This provides certainty over the amount of
interest payable both in the short-term and in 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. Even so, the Group is
currently looking at the new property derivatives market to ascertain whether
further protection from adverse movement in individual property sectors can be
put in place. 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 previous year's accounts, the
reporting pressures continue to mount with the passing of the 2006 Companies Act
and the implementation in February 2007 of the Transparency Directive. A
particular example of the cost of this ever changing and increasing burden being
the fact that in the case of the JSRE acquisition the original offer included an
element of shares which a year ago would not have required a prospectus. This
changed last summer and as a result the Group had to place the shares for cash
to institutional investors as the cost of a prospectus was prohibitive.
Profit Analysis - Year to 31 March Joint Property
2007 Ventures Investment Head
(our 50% & Other Office
Asset share) Income Costs(i)
Management Sub Total Total
Under Management Wholly Owned
Asset value #'000 #'000 #'000 #'000 #'000 #'000
100% of Properties Managed / Owned 1,773,000 986,300 2,759,300 461,300 - 3,220,600
Income
Rental and similar income - 28,275 28,275 25,776 - 54,051
Asset management fees receivable 11,370 2,569 13,939 - - 13,939
Asset management fees payable - (1,229) (1,229) - - (1,229)
Performance fees receivable 1,776 6,708 8,484 - - 8,484
Performance fees payable - (3,354) (3,354) - - (3,354)
Expenses (8,704) (10,511) (19,215) (8,877) (1,581) (29,673)
Recurring operating profit 4,442 22,458 26,900 16,899 (1,581) 42,218
Investment income - - - 6,199 - 6,199
Interest receivable/(payable)(ii) - (18,059) (18,059) - (12,249) (30,308)
Recurring profit 4,442 4,399 8,841 23,098 (13,830) 18,109
Net gain from fair value adjustments - 17,707 17,707 11,198 - 28,905
on investment properties
Net gain from fair value adjustments - - - 14,124 14,124
on investments
Change in fair value of derivative - 8,713 8,713 - 1,011 9,724
financial instruments
Profit on sale of investment - 374 374 1,751 - 2,125
properties
Profit on sale of investments - - - 987 987
Profit on sale of trading properties - - - 1,055 - 1,055
Non-recurring income / (expenses) - (235) (235) 396 (10,865) (10,704)
Profits before tax including joint 4,442 30,958 35,400 52,609 (23,684) 64,325
ventures and associates
Taxation including joint ventures - 483 483 - - 483
and associates - current
Taxation including joint ventures - 5,727 5,727 - - 5,727
and associates - deferred
REIT conversion charge - (2,796) (2,796) - - (2,796)
Minority interests - 15 15 - - 15
Profit before income tax 4,442 34,387 38,829 52,609 (23,684) 67,754
Percentage of recurring operating 10.4% 53.2% 63.6% 40.0% (3.6)% 100.0%
profit
Being:
Share of joint ventures' post tax 27,157
profits
Asset management fees receivable 2,569
Performance fees receivable 6,708
Asset management expenses (3,513)
Interest receivable 1,466
34,387
Note: (i) The Head Office expenses have been reapportioned across each of
the business activities using the model that was prepared for the
REIT conversion. In terms of salary costs, these are specific
recharges but other costs are an apportionment based upon the
salary cost recharge.
(ii) 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.
Profit Analysis - Year to 31 March Joint Property
2006 Ventures Investment Head
Asset (our 50% & Other Office
Management share) Sub Total Income Costs (i) Total
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 3,064 6,188 9,252 - - 9,252
Asset management fees payable - (3,005) (3,005) - - (3,005)
Performance fees receivable 1,324 1,947 3,271 - - 3,271
Performance fees payable - (973) (973) - - (973)
Expenses (2,193) (5,295) (7,488) - (8,003) (15,491)
Recurring operating profit 2,195 21,030 23,225 24,003 (8,003) 39,225
Investment income - 491 491 4,610 - 5,101
Interest receivable/(payable)(ii) - (15,981) (15,981) - (12,461) (28,442)
Recurring profit 2,195 5,540 7,735 28,613 (20,464) 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 - 1,063 1,063 16,050 - 17,113
on investments
Change in fair value of derivative - (2,016) (2,016) - (72) (2,088)
financial instruments
Profit on sale of investment - 4,700 4,700 3,102 - 7,802
properties
Profit on sale of investments - 77 77 3,024 - 3,101
Profit on sale of trading properties - 420 420 6,583 - 7,003
Non-recurring expenses (578) (2,229) (2,807) - (2,948) (5,755)
Profits before tax including joint 1,617 36,470 38,087 84,473 (23,484) 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 1,617 28,460 30,077 84,473 (23,594) 90,956
Percentage of recurring operating 5.6% 53.6% 59.2% 40.8% 100.0%
profit
Being:
Share of joint ventures' post tax 21,291
profits
Asset management fees receivable 3,001
Performance fees receivable 1,947
Asset management expenses (1,319)
Interest receivable 3,540
28,460
Note: (i) The Head Office costs have not been recharged across the different
businesses as the analysis was not available in 2006.
(ii) 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.
Peter Collins
Finance Director
Significant events during the year ended 31 March 2007
Date Detail Category
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
September 2006 Sale of industrial portfolio to Ashtenne Industrial Fund for #41.85 Group Investment
million Property
September 2006 Establishment of the Greater London Office Fund, a joint venture with Joint venture
Barclays Capital, and the purchase of 55 Old Broad Street, London EC2
and Central House, Camperdown Street, London E1 for #96.5 million
September 2006 Purchase of Howdens Joinery Distribution Warehouse, Brackmills Joint venture
Industrial Estate, Northampton by Radial Distribution joint venture
for #41.7 million
September 2006 Purchase of Marks & Spencer Distribution Unit, Radial Point, Stoke on Joint venture
Trent by Radial Distribution joint venture for #14.3 million
October 2006 Purchase of Unit 1E, DIRFT, Daventry by Radial Distribution joint Joint venture
venture for #17.95 million
October 2006 Repayment of #25.5million term loan with Bank of Scotland Group
October 2006 Company joins the FTSE 250 for the first time Group
December 2006 Launch of Norwebb PP, a public private partnership between Ashtenne Funds
Industrial Fund and Northwest Regional Development Agency for a
portfolio of commercial properties situated across the North West
region
December 2006 Purchase of Unipart unit, Magna Park, Lutterworth by Radial Joint venture
Distribution joint venture for #18.25 million
January 2007 Significant pre-lets announced for Agora's #40 million addition at Joint venture
Market Place Shopping Centre, Bolton
January 2007 Purchase of New Castle House, Nottingham by Apia Regional Office Fund Funds
for #15.3 million
January 2007 4.7% placing of shares in Warner Estate Holdings PLC to part finance Group
the acquisition of JS Real Estate Plc
February 2007 Announcement of 54,000 sq ft extension of the Antalis unit at Joint Venture
Interlink Park, Leicestershire, owned by Radial Distribution
February 2007 Strategic purchase of the Miltons Pub long leasehold interest Joint Venture
adjacent to Pyramids and Grange Shopping Centre, Birkenhead by Agora
Max joint venture for #300,000
March 2007 Offer to acquire JS Real Estate Plc is declared unconditional Group
March 2007 Two First Mortgage Debenture Stocks with Prudential redeemed and Group
replaced by #60 million revolving credit facility with Halifax Bank
of Scotland
SIGNIFICANT EVENTS POST 31 MARCH 2007
Date Detail Category
April 2007 Company converts to a Real Estate Investment Trust (REIT) Group
April 2007 Purchase of St Magnus House, Aberdeen by Apia Regional Office Funds
Fund for #23.7 million
May 2007 Purchase of 2 America Square, London EC3 for #25.1 million and Group Investment
16 Upper Woburn Place, London WC1 for #21.75million Property
CONSOLIDATED INCOME STATEMENT
For the year ended 31 March 2007
Notes 2007 2006
#'000 #'000
Revenue 53,424 67,478
Rental and similar income 21,604 24,003
Turnover from property trading activities 5,225 31,167
Cost of sales of property trading activities (4,170) (24,584)
Service charge and similar income 4,172 2,972
Service charge expense and similar charges (4,703) (3,591)
Net rental and trading income 2 22,128 29,967
Turnover from asset management activities 22,423 9,336
Asset management expenses (12,215) (3,512)
Net income from asset management activities 2 10,208 5,824
Administrative expenses (3,757) (2,390)
Property management expenses (3,778) (7,517)
Operating profit before net gains on investments 2 24,801 25,884
Net gain from fair value adjustments on 11,198 27,101
investment properties
Net gain from fair value adjustment on 14,124 16,050
investments
Profit on sale of investment properties 5 1,751 3,102
Profit on sale of investments 6 987 3,024
Operating profit 52,861 75,161
Finance income 7 8,185 8,306
Finance expense 8 (21,460) (14,445)
Change in fair value of derivative financial 1,011 (72)
instruments
Share of associates' post tax profits 19 - 715
Share of joint ventures' post tax profits 16 27,157 21,291
Profit before income tax 67,754 90,956
Taxation - current 9 (5,182) (12,842)
Taxation - deferred 9 17,787 (3,659)
REIT conversion charge (10,917) -
Profit for the year 69,442 74,455
Attributable to:
Equity holders 69,425 74,432
Minority interests 17 23
p p
Earnings per share 12 129.26 140.17
Fully diluted earnings per share 12 127.69 138.79
BALANCE SHEETS
Group Company
Notes 2007 2006 2007 2006
#'000 #'000 #'000 #'000
ASSETS
Non-current assets
Goodwill 13 11,279 11,205 - -
Investment properties 14 437,832 333,198 - -
Properties under the course of development 14 19,658 12,261 - -
Plant and equipment 15 539 465 - -
Investments in joint ventures 16 151,568 103,372 - -
Investments in funds 17 120,622 104,081 - -
Investments in listed and unlisted shares 18 13,260 5,115 261,974 113,476
Investments in associates 19 24 15,518 - 15,009
Net investment in finance leases 21 5,283 - - -
Deferred income tax assets 25 1,343 552 1,095 -
Derivative financial assets 24 810 - - -
Trade and other receivables 20 33 363 - -
762,251 586,130 263,069 128,485
Current assets
Inventories 14 - 10,939 - -
Net investment in finance leases 21 9 - - -
Trade and other receivables 20 29,754 23,096 351,802 249,103
Current income tax assets 384 - 1,576 6,632
Cash and cash equivalents 34,333 98,358 - -
64,480 132,393 353,378 255,735
Total assets 826,731 718,523 616,447 384,220
LIABILITIES
Non-current liabilities
Borrowings, including finance leases 22 (286,725) (283,625) (119,614) (75,915)
Trade and other payables 27 (14,238) - - -
Derivative financial liabilities 24 (451) (1,361) - -
Deferred income tax liabilities 25 (11,814) (29,563) - -
Retirement benefit obligations 3 (378) (481) - -
Other provisions 26 (5,334) (12,503) - (503)
(318,940) (327,533) (119,614) (76,418)
Current liabilities
Borrowings, including finance leases 22 (25,803) (1,893) - -
Trade and other payables 27 (46,754) (29,569) (277,629) (104,157)
Current income tax liabilities - (5,608) - -
(72,557) (37,070) (277,629) (104,157)
Total liabilities (391,497) (364,603) (397,243) (180,575)
Net assets 435,234 353,920 219,204 203,645
EQUITY
Capital and reserves attributable to the Company's
equity holders
Share capital 28 2,805 2,675 2,805 2,675
Reserves 29 430,661 348,837 217,139 201,896
Investment in own shares 30 (740) (926) (740) (926)
Equity shareholders' funds 432,726 350,586 219,204 203,645
Minority interest 37 2,508 3,334 - -
Total equity 435,234 353,920 219,204 203,645
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
For the year ended 31 March 2007
Group Company
Notes 2007 2006 2007 2006
#'000 #'000 #'000 #'000
Profit for the year 69,425 74,432 2,835 8,438
Actuarial profits / (losses) on retirement 3 22 (219) - -
benefit obligations recognised directly in
equity
Deferred tax arising on retirement benefit 3 (31) 43 - -
obligations
Total recognised income and expense for the year 69,416 74,256 2,835 8,438
attributable to equity shareholders
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2007
Group Company
Notes 2007 2006 2007 2006
#'000 #'000 #'000 #'000
Opening equity shareholders' funds 350,586 272,103 203,645 190,980
Shares issued 28 130 127 130 127
Share premium on shares issued 29 21,311 13,493 21,311 13,493
Acquisition of investment in own shares 30 (386) (139) (386) (139)
Disposal of investment in own shares 30 572 880 572 880
Cost of share based payments 1,004 - 1,004 -
Deferred tax arising on share based payments 784 - 784 -
374,001 286,464 227,060 205,341
Total recognised income and expense for the year 69,416 74,256 2,835 8,438
Dividend paid in year 11 (10,691) (10,134) (10,691) (10,134)
Closing equity shareholders' funds 432,726 350,586 219,204 203,645
CASH FLOW STATEMENTS
For the year ended 31 March 2007
Group Company
Notes 2007 2006 2007 2006
#'000 #'000 #'000 #'000
Cash flows from operating activities
Cash generated from operations 32 6,105 24,703 (35,904) (22,416)
Interest paid (21,601) (13,209) (6,560) (3,077)
Interest received 2,330 5,285 151 119
UK Corporation tax paid (11,249) (10,604) (7,293) (2,452)
Net cash inflow / (outflow) from operating activities (24,415) 6,175 (49,606) (27,826)
Cash flows from investing activities
Purchase of investment properties and related capital (15,336) (59,787) - -
expenditure
Sale of investment properties 51,812 95,063 - -
Purchase of plant and equipment (225) (154) - -
Purchase of investments in listed shares (209) - - -
Sale of investments in listed shares 5,242 14,411 - -
Purchase of investments in funds - (66,910) - -
Sale of investments in funds 500 1,000 - -
Purchase of investments in unlisted shares (5,000) - (5,000) -
Purchase of investments in associates - (5,000) - (5,000)
Net cash acquired from purchase of shares in subsidiary 38 (82,984) 22,600 - -
company
Purchase of shares in joint ventures (11,062) (16,676) - -
Loans to joint ventures (13,299) (47,544) - -
Loans repaid by joint ventures 1,883 37,559 - -
Loans repaid by associates - 4,651 - -
Payment received for leasehold liabilities - 13,750 - -
Dividends received from listed investments 123 422 - -
Dividends received from unlisted investments 87 - 87 -
Dividends received from funds 6,340 1,566 - -
Dividends received from joint ventures 1,274 1,000 - -
Dividends received from associates 373 5,058 - 995
Net cash inflow / (outflow) from investing activities (60,481) 1,009 (4,913) (4,005)
Cash flows from financing activities
Net proceeds from issue of ordinary share capital 21,441 13,620 21,441 13,620
Purchase of own shares for AESOP scheme (386) (139) (386) (139)
Disposal of own shares for share option scheme 456 807 456 807
Dividends paid (10,691) (10,134) (10,691) (10,134)
Purchase of derivative financial instruments (882) - - -
Net proceeds from issue of new bank loan 3,549 37,915 - -
Repayment of bank loans (71,200) (72,232) - -
Repayment of other loans (384) (57,346) - -
Net cash (outflow) / inflow from financing activities (58,097) (87,509) 10,820 4,154
Net decrease in cash and cash equivalents* (142,993) (80,325) (43,699) (27,677)
Cash and cash equivalents at beginning of year (77,672) 2,653 (75,915) (48,238)
Cash and cash equivalents at end of year (220,665) (77,672) (119,614) (75,915)
* 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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