RNS Number:0450X
Warner Estate Holdings PLC
11 June 2002
PART 1
WARNER LOOKS TO THE FUTURE WITH CONFIDENCE AS TRANSFORMATION COMPLETED
Warner Estate Holdings PLC ("Warner"), the property investment company has today
announced its preliminary results for the year to 31 March 2002.
HIGHLIGHTS
• Revenue profits up 59% to £13.1million (2001* : £8.2million)
• ++Adjusted revenue earnings per share up 37% to 21.4p (2001* : 15.6p)
• ++Adjusted NAV up 5% to 423p (2001 : 404p)
• "Triple net asset value" (adjusted for deferred tax and fair value of debt) up
5% to 403p (2001 : 384p)
• IPD top quartile performance (27th out of 227)
• Annualised rent roll up to £37million (March 2001 : £26million)
• Final dividend of 7.75p making a total for the year of 15p (*2001 : 14p) -
31st year of successive dividend increases
* Unaudited 12 months to March 2001
++ Before adjustment for FRS 19 deferred tax
Philip Warner commented,
"The transformation of Warner is complete. These results are our first as a
purely commercial property company. We have enjoyed a very active year,
completing £275million of transactions. The new acquisitions are bedding down
well and there are plenty of opportunities for us to achieve further value from
our portfolio.
The Warner team has been strengthened considerably during the year. We now
have the skills to actively manage an expanding portfolio of property in our
chosen sub-sectors.
We have made good progress in pursuit of our strategy to generate long term
performance from asset management both of our own property and of that owned in
partnership. We remain well-placed to enhance our existing portfolio and to
take advantage of opportunies for further growth".
- ends --
For further information contact:
Warner Estate Holdings PLC City Profile Group
Philip Warner, Chairman Simon Courtenay
Peter Collins, Finance Director Ed Senior
Richard Moore Property Director
020 7907-5100 020 7448-3244
Web: www.warnerestate.co.uk e-mail: simon.courtenay@city-profile.com
CHAIRMAN'S STATEMENT
Results Overview
I am pleased to report on a successful first year as a purely commercial
property investment company, following the disposal last year of our residential
assets. Net asset value per share rose during the year from 404p to 423p and
triple net asset value per share, which adjusts for deferred tax and fair value
of debt, from 384p to 403p.
Our benchmarked property assets performed well, recording a return of 10.0 per
cent against the 6.8 per cent achieved by their benchmark, the IPD All Fund, and
placing us in the top quartile. In line with our strategy, we have continued
to make purchases in a competitive market both for our own portfolio and with a
view to forming and managing limited partnerships, the alliances to which I
referred last year. Thirteen investment properties were bought at a cost of
£138 million and, after disposals, the valuation of the 93 properties in the
investment portfolio was £403 million at the year end (March 2001 : 90
properties and £290 million).
Pre-tax profits were £15.2 million (unaudited 12 months to March 2001 : £21.7
million) and adjusted earnings per share 24.98p (12 months to March 2001 :
40.39p). Last year's figures included the substantial profit made on the
disposal of our residential properties. Excluding net gains on fixed asset
disposals, our results were excellent. Revenue profits before tax were £13.1
million (12 months to March 2001 : £8.2 million) and adjusted earnings per share
21.42p (12 months to March 2001 : 15.61p), rises of 59 per cent and 37 per cent
respectively. The Board intends to report a further measure of performance,
recurring revenue profits and earnings, which derive from the Group's core
maintainable income. This will provide a better guide for shareholders as to
the underlying progress and robustness of the Group. These profits were £11.0
million (12 months to March 2001 : £7.3 million) and earnings 18.3p (12 months
to March 2001 : 13.6p) rises of 50 per cent and 35 per cent respectively.
A more detailed analysis of the period will be found in the Reviews from the
Property Director and the Finance Director.
The Board recommends a further rise in dividends per share from last year's
annualised 14.0p to 15.0p, the Company's 31st successive increase. The
dividend is covered 1.23 times by recurring revenue earnings and 1.43 times by
revenue earnings. If approved at the Annual General Meeting, the final
dividend per share of 7.75p will be paid on 30 August 2002 to shareholders on
the register at close of business on 2 August 2002. I draw shareholders'
attention to the dividend payment date. The Board considers that dividend
payments should follow more closely the announcement of results.
Strategy
The Group has made good progress in pursuit of the strategy outlined last year.
In summary, this is to generate long-term performance from the asset
management of a larger portfolio, which will permit improved sector allocation.
Expansion of the portfolio this year has derived mainly from the purchase of
regional offices, let to strong covenants with good income streams, emphasising
the importance we place on income as well as capital. Some of these will form
the basis of our first limited partnership, which I expect to announce later
this year. We shall continue to seek opportunities, which include development,
in our chosen sub sectors, as economic and market conditions permit. As the
quantum of property under management approaches our initial target of £500
million, the increase will drive forward recurring revenue profit from both our
investment portfolio and the asset management of limited partnerships. The
annualised rent roll at 31 March 2002 was £37 million (March 2001 : £26
million). Further detail will be found in the Property Review.
Gearing, having fallen below 70 per cent last June, was 116 per cent at the year
end (March 2001 : 93 per cent). Shareholders should expect this figure to vary
as property is purchased and retained or moved into a partnership. The Group
maintains a prudent hedging policy to ensure the level of debt at any one time
does not jeopardise the objective of achieving value for shareholders. Further
detail will be found in the Finance Review.
We remain committed to the public market in both the issuing and buying back of
our shares as a further means for maximising total return for shareholders.
During the year the Company purchased 1,689,190 shares for cancellation,
producing an uplift in net asset value of 3.4p per share. We shall seek to
renew the authority to buy back up to 14.99 per cent at the forthcoming Annual
General Meeting.
Prospects
Competition in the market will intensify as institutions raise their allocations
to property and bring their purchasing power to bear. This should have a
positive effect on yields and raise capital values. The outlook for rental
growth is more uncertain, but is probably best in the retail sector, encouraged
by consumers, where we expect our shopping centre development plans to benefit.
Conflicting data emanating from the economy makes it difficult to predict the
speed and direction of movements in inflation and interest rates, but not even
the more pessimistic pundits are forecasting significant rises over the next
twelve months. Your Company, with its strong income stream and asset
management skills, is well placed to enhance its existing portfolio and to take
advantage of opportunities for further growth.
Philip Warner
Chairman
PROPERTY REVIEW
This year has produced clear evidence of our strategy at work. Our
transformation from a multi-faceted property company into a purely commercial
investment organisation has been successfully achieved. The decision to
specialise within each sector, generating performance through our sub-sector
choice, has been rewarded.
The property market in 2001 was dominated by the differential between interest
rates and rental income. Rental growth in most sectors was negligible thereby
emphasising, as we anticipated, the importance of income in total returns. The
unwillingness of investment funds to sell property and their inability to buy
new stock, due to their relative asset weighting, created a challenging
environment not helped by the strong demand from debt finance private buyers
leading to, in our view, over-bidding in some areas. We have succeeded in
buying strong covenant backed, above average yield, stock in a very competitive
market. The major features were Billsdale (£43.5m) and Moorfield (£97.5m)
part of some 15 properties having a value of approximately £169m.
Benchmarking provides transparency for investors. Our IPD performance has been
impressive. The turnaround this year is evidence of the excellent work, which
has driven our performance to the top quartile of the IPD All Fund index.
Cushman & Wakefield Healey & Baker continue in their role as our valuers.
Following valuation at the end of March 2002, the investment portfolio stood at
£403m. Key statistics are:-
Key Statistics March 2002 March 2001 March 2000
Capital Value £403 M £290 M £230 M
Annualised Rent Roll £32.5 M £22.6 M £19.2 M
Initial Yield 8.06% 7.9% 8.35%
Average Unexpired Lease Term 11.5 yrs 10.3 yrs 11.9 yrs
Void Rate 5% 8% 9%
Number or Properties 93 90 89
Average Lot Size £4.3 M £3.2 M £2.6 M
One further pleasing aspect is the reduction in our void level from last year's
8% to 5% even though the stock has grown considerably. 1% is held vacant
deliberately to facilitate the developments at Ellesmere Port and Sale.
RETAIL £ 117.90 M INITIAL YIELD 7.31% WEIGHTING 29.2%
One of our key targets is to increase our current holding of secondary shopping
centres preferably in the North West. Our criteria require a balance between
income and sufficient scope within the centre for our 'added value' initiatives
to work. Competition has intensified and because of the planning restrictions
on regional out of town centres and the fragmentation of High Street ownership,
the importance of this type of centre will increase.
No. Tenants Area Income Value
Shopping Centres 3 175 52,393 sq m £4.19 M £58.43 M
(563,953 sq ft)
Retail Warehouse 7 7 18,249 sq m £1.66 M £20.35 M
(196,437 sq ft)
High Street 17 50 22,689 sq m £2.77 M £39.12 M
(244,232 sq ft)
Our commitment to the sector is indicated by: -
Shopping Centres
Ellesmere Port - The Port Arcades Shopping Centre, Pre-Development
Area 22,919 sq m (246,709 sq ft); Including Developed Area 24,560sq m
(264,361 sq ft)
The Marina Walk section of the Port Arcades is the longest held investment in
the portfolio. It now requires upgrading and the creation of new units to
satisfy retailers' current demands. A comprehensive review with the Local
Authority has been undertaken to ensure it continues to be an attractive centre
for shoppers . Adjacent to our centre is one of the largest indoor markets in
the northwest. We have obtained detailed planning consent to redevelop Marina
Walk and will create 7,711 sq m (83,000 sq ft) of new floor space. The Port
Arcades has been redesigned to attract complementary shoppers and retailers and
the first part of our tenant line-up will be announced shortly. Our
redevelopment will merge Port Arcades and Marina Walk into a single shopping
centre.
Sale - The Square Shopping Centre Pre-development Area 17,663 sq m (190,125
sq ft); Including Developed Area 19,364 sq m (208,432 sq ft)
This shopping centre was originally purchased in 1997 as a joint venture and it
became wholly owned in July 2000. We are committed, with support from the
Local Authority, to ensure regeneration takes place. We have obtained full
planning consent for our redevelopment and will create 6,132 sq m (66,000 sq ft)
of new retail floor space. Initially some of the 'new' area had been designated
for leisure purposes, but the retail demand is sufficiently strong for the
leisure element to be excluded from the scheme. The enabling works commence in
June, and the major tenant line-up will be announced shortly thereafter.
Liverpool - Cavern Walks 10,137 sq m (109,120 sq ft)
Cavern Walks is our most recent acquisition, and generated considerable media
interest. We obtained more column inches for this one piece of real estate than
the rest put together. Enquiries came in from as far a field as Australia and
Canada. The centre divides into two distinct parts with retail on the lower
ground and ground floors of some 3,000 sq m (31,000 sq ft) and Cavern Court, a
seven-storey office tower of some 7,000 sq m (79,000 sq ft) above. Considerable
refurbishment of the offices took place during 2000 and increased rental income
will be achieved on re-letting this space. The retail element has considerable
potential for improvement utilising the uniqueness and vibrancy of the location
and historical significance of the Cavern quarter. Planning for the changes
will not, however, be rushed.
Retail Warehouses
Our desire to purchase suitable stock in this sector remains strong. Critical
mass and location are the keys and we are moving away from individual stand
alone units. Bidding has been strong throughout the year which has had an
impact on our expansion plans. We have continued to work on our current assets
with a marginal increase in income.
High Street
This sector fell out of favour in 2000, but is showing the signs of returning
confidence led by sustained consumer spending. We retain a desire to hold, but
only in those locations, which offer substantial opportunities for us to add
value. For example:
Liverpool, Williamson Street 2,470 sq m (26,587 sq ft)
Purchased in November 1997, this retail property on ground and three floors has
been one of the successful asset enhancement initiatives completed. We
comprehensively refurbished a large fringe store and have already let the upper
floors of c. 14,500 sq ft to Slater Menswear. Two further ground floor shops
have been constructed with strong interest being shown from high street
multiples. When completed, we anticipate these initiatives will have added c.
£100,000 per annum extra income and will improve our valuation by over 60%.
Ashford, 1/5 Kings Parade 487 sq m (5,242 sq ft)
We received a commendation for our sensitive refurbishment work at Kings Parade,
Ashford, Kent which has underpinned asset value and improved the shopping
environment.
OFFICES £218.40 M INITIAL YIELD 8.35% WEIGHTING 54.2 %
We have benefited considerably by not following the trends and by concentrating
our portfolio in areas where growth continues. By recognising early the
significance this year of income as opposed to capital growth, we have in both
acquisitions and performance seen offices as our best sector.
No Tenants Area Income Value
Regional 22 88 80,637 sq m £11.64 M £138.05 M
Offices (867,975 sq ft)
M25 Offices 22 46 34,010sq m £6.6 M £80.35 M
& London (366,085 sq ft)
Investment Office Property held for resale (by transfer to an appropriate
alliance)
Edinburgh - Apex 123 9,044 sq m (94,683 sq ft)
This was our single largest purchase at £26.75m. It is the cornerstone of our
limited partnership portfolio. Apex 123 is situated within the Haymarket area
of the city on the edge of the west end business area. The location has
improved with several major office developments currently underway. The
property was constructed in 1989/90 and is arranged on ground and four floors
with the benefit of two basement levels for car parking. It was originally
designed to be let either as a whole, or in individual floors or divided into
three buildings.
Major tenants include Abbey National, GE Capital Bank, Scottish Enterprise
Board, Edinburgh Fund Manager and the Secretary of State for the Environment.
Bristol - Westgate 8,447 sq m (90,924 sq ft)
Westgate was a key acquisition and started the process of building a regional
identity. Situated in the prime office area of the city and purchased in
September 2001, this five-storey building was redesigned behind the existing
facade
in 1992 and our tenant, Royal & Sun Alliance Insurance PLC, has subsequently
heavily invested in IT improvements. Benefits exist to restructure the lease
subject to the tenant's wishes.
Leeds - Yorkshire House 7,315 sq m (78,738 sq ft)
Situated in the central business district of Leeds, the building was developed
in 1960 and comprises a seven storey tower block linked to a five storey podium
at the rear. Although there has been some improvement and A3 retail units
incorporated at ground floor, the property possesses considerable potential for
further enhancement. Our tenants have already indicated their desire to stay
in the offices and be part of the renovation process. Initial plans have been
presented and we are looking towards a start in early 2003. Major tenants
include Lupton Fawcett, AIG, John Gordon Walton, Regent Inns, Lloyds TSB and
Whitbread.
Birmingham (Solihull) - Sapphire Court 8,040 sq m (86,541 sq ft)
Constructed in 1975 and comprehensively refurbished in 1997. The offices
benefit from a high specification and are situated on the edge of the town
centre. The buildings are multi-let until 2013 and 2014, with a significant
number of asset management initiatives available through tenants requiring to
expand or restructure their leases. Secure income from major tenants include
Lombard North Central plc, Nationwide plc, Allied Dunbar plc, The Environment
Agency, The Secretary of State for the Environment, Lloyds TSB and Scottish
Provident.
Redhill - St Paul's House 4,555 sq m (49,000 sq ft)
This is an impressive Grade A office building which was completed in 1991. It
is constructed on ground and three upper floors which are arranged in two wings
with a central atrium. Initial assessments indicate the site will benefit from
developing additional space. It is in the prime office pitch of the town
centre, in close proximity to all major access routes, and let to St Pauls
Management Ltd, part of one of the world's largest financial service companies.
Bournemouth - Holland House 7,450 sq m (80,187 sq ft)
This was constructed in the mid-1980's and is an imposing office building on
ground and seven upper floors. It is located within the office core of the town
on the northwest side. Dialogue has already commenced with Maperley over
restructuring the lease terms. It is fully let to The Secretary of State for
the Environment.
Investment Office Property
In terms of the properties held throughout the full 12 month period our
activities have produced sparkling performances in particular: -
Horsham - Springfield House 2,350 sq m (24,600 sq ft)
Purchased in September 1999, this five storey 1980's brick clad building was let
to Royal & Sun Alliance on two leases expiring in September 2009 with a rent
roll of £253,000 p.a. We took a surrender of the leases and simultaneously
granted a new 18-year lease to Direct Auto Finance. At the same time a retrofit
upgrade of the building to install air-conditioning took place, and our rent
roll has increased by almost 50% to £372,000 p.a.
Woking - Goldvale House 2,016 sq m (21,133 sq ft).
This three storey 1985 constructed building was purchased in March 2000.
Completion of the 2nd and 3rd floor rent reviews has increased the rent from
£193,000 p.a. to £215,000 p.a. We have improved the existing lease terms and
will inherit the benefit of air-conditioning within part of the building as a
result of a conditional lease restructure. We anticipate a capital value
improvement by around 20% over the next 12 months.
INDUSTRIAL £66.89 M INITIAL YIELD 8.46% WEIGHTING 16.6%
As a sector, performance nationally declined as manufacturing in the UK economy
felt the brunt of the downturn. Although our industrial portfolio has the
smallest weighting, our assets are concentrated on South East distribution
units. Several of our Midlands properties were sold last year and the money
reallocated to the South East. We continue to look at increasing our holdings
in this sector, with a preference for larger well-located accommodation.
No Tenants Area Income Value
Industrial 22 110 119,388 sq m £5.66 M £66.89 M
(1,285,091 sq ft)
Active management is key to our success as indicated by: -
Harlow - Crammond Park 5,777 sq m (62,189 sq ft)
Built in the late 1990's, we acquired Crammond Park last year when it was only
half let. Improvements to access, signage and the environment have led to the
park now being fully let. Further asset enhancement initiatives have been
identified. We are analysing the new opportunity for a surrender and renewal
based on the demand already shown from the new lettings.
Luton - Scott Road 7,630 sq m (82,130 sq ft)
Phase I was completed in 2000 with Phase II consent obtained but never built.
We purchased the estate in autumn 2001 before it had been fully let. It is now
100% let and the next asset management initiatives are to improve the tenant mix
and the security of lease terms. Phase II gives us the added advantage of
offering a bespoke unit for a distributor's requirements. We are reviewing a
design and build opportunity with existing tenants to both relocate and expand.
Subject to planning, start on site could commence late October 2002. Major
tenants include Chubb Fire, BSS Group plc and The Secretary of State for Health.
Abingdon - Eyston Way 7,526 sq m (81,008 sq ft)
This is an example of profitable expansion in an existing location. Having
purchased 3/7 Eyston Way from Morley in December 2000, we were able to buy 'off
market' nos. 8/13 from a private fund. The variety and length of the current
leases create the opportunity for dialogue with the tenants.
TRADING PORTFOLIO
As indicated last year, trading is now no more than an adjunct to our main
business of property asset management. We hold 20 properties, shown as current
assets on the balance sheet at £53.4million. These include two purchases, in
Kingston-upon-Thames and Blackpool, bought as part of the Moorfield portfolio.
Kingston is a combined retail, office and leisure development, the latter being
in two buildings with an area of 13,898 sq m (160,896 sq ft) which we see as
holding significant potential for partial redevelopment.
Blackpool comprises a substantial A3 block adjacent to the town centre with
various opportunities for improvement in income and lease restructuring.
A valuation by the Directors shows a surplus of £1.2 million on stock brought
forward from last year, a current yield of 8% with a very healthy 12%
reversionary yield.
DEVELOPMENT
All balanced property portfolios need a degree of exposure to development. We
see some positive opportunities, but are not forming our own internal team.
Developments will be on a property specific basis with alliances our preferred
approach. We have already entered into dialogue with our preferred developer
and should be in a position to name both the company and planned approach
shortly.
DISPOSALS
Proceeds from properties sold during the year amounted to £41.1million which
included nine investment/development properties which no longer met our
performance criteria or lot size and eight trading properties. These sales,
which included Waterfields Retail Park, Watford, generated a profit of £840,000.
PROSPECTS
The direction of Warner Estate is now clear. We are asset managers and
specialists in our chosen markets. We purchase strong covenanted, above
average yield stock, to which we apply our expertise to create value. Our
strategy of purchasing property for limited partnerships, as well as for our own
portfolio, will continue, increasing the assets under management and adding fees
to our income stream. Investing across the three sectors of retail, office and
industrial spreads risk and broadens our skills base, providing greater
opportunity to spot future growth areas for the benefit of our shareholders.
A key component in our growth is the skill of our team. Both Kevin Leaver, who
joined us from HBoS as Asset Manager (Development) in February, and Paul
Hodgson, who joined us on 5 June from Invenys as Senior Asset Manager (Offices)
have considerable market knowledge. Warner Estate's one team approach of
marrying property and financial abilities puts us at the forefront of the
sector. Our prospects are indeed exciting.
Richard Moore
Property Director
FINANCE REVIEW
These accounts cover the twelve months to 31 March 2002, whilst the comparatives
cover the eighteen months to 31 March 2001, due to the decision last year to
change the Group's year end from September to March. This makes a meaningful
comparison, particularly with respect to the Profit & Loss Account, difficult.
For this reason, as well as reviewing the results with those for the eighteen
months to March 2001, the results have also been compared to the unaudited
results for the twelve months to March 2001, where it provides a more worthwhile
comparison. This information, which was included in last year's report and
accounts, has been extracted from the March 2001 audited results as restated and
the unaudited interims to March 2000.
Year End Year End 18 months to
31 March 2002 31 March 2001 31 March 2001
Audited Unaudited Audited and
restated
£m £m £m
Turnover 34.4 56.7 86.5
Recurring profit (see below) 11.0 7.3 10.3
Revenue profit 13.1 8.2 12.9
Capital profit 2.1 13.5 14.3
Profit before tax 15.2 21.7 27.2
Earnings per share p p p
Revenue 19.16 14.64 21.33
Capital 3.56 24.78 25.88
Adjusted earnings per share
Revenue 21.42 15.61 22.56
Capital 3.56 24.78 25.88
Results
The main factor behind the 59% improvement in revenue profit before tax
(excluding the effect of capital profits) to £13.1m compared to the previous
twelve months is the strong growth in the Group's core maintainable income ("
recurring profit"). This income, which comprises rental income and investment
income less property outgoings, administration costs and net interest, rose to
£11.0m from £7.3m in the previous twelve months as a direct result of the
Group's strategy to dispose of its residential and other non-core low yielding
assets and reinvest the proceeds in commercial property. The net proceeds, which
totalled some £165m (£57m in March 01, £60m May 01, £9m June 01 and £21m
December 01, with the balance spread over the year) were initially used to
reduce debt, prior to £169m being reinvested in commercial properties, of which
£127m took place at the end of March 2002, at an average initial yield of 7.25%.
Of these purchases, £102m in value were acquired to form the core for the
Group's stated strategy of building a portfolio of assets in limited
partnerships or similar alliances. The other factors of note impacting on the
results are a one off cost arising from last year's tender exercise initiated by
Trefick Limited of £0.24m, and the decline in income from investments of £2.1m
as a direct result of the disposals, offset by significant one off profits on
the sale of three completed joint venture trading property developments.
Whilst rental income has declined by £0.4m to £27.4m this was entirely due to
the loss of £2.1m of residential rents following the disposal of these assets in
March 2001. If this is excluded, commercial investment property rents rose by
7.3% to £24.7m benefiting both from the impact of purchases and from active
asset management which saw voids fall from 8% to 5% and a number of lease
initiatives. Trading rents were also marginally up by 1.6% to £2.7m. Recent
purchases have resulted in the annualised rent roll increasing from £26m to
£37m.
The substantial change in the Group's property and investment portfolio over the
last fifteen months, and the purchases in March 2002 as part of the limited
partnership programme, ensures that the Group's income stream is secure. The
current group rent roll of £37m is secured on leases with an average term in
excess of 11 years with £17m of rents being with low risk covenants, £8m with
medium risk and £12m with higher risk. In addition, the Group has some 476
tenants by number with no one tenant accounting for more than 5% of Group rental
income. Nor is the Group over-reliant on any one business sector or geographic
location. Looking ahead, the redevelopments now underway at our Ellesmere Port
and Sale shopping centres are expected to improve rental income in 2003/4 by
around £1.25m for an investment of £14m and the Group has an ongoing
refurbishment programme that will continue to enhance the income stream.
The increased contribution from joint ventures has arisen as a result of the
sale of the three trading properties referred to above, which contributed a
profit before tax of £0.7m this year compared to the previous twelve months when
no trading property sales were recorded. The overall contribution from these
joint ventures was:-
£m
Operating Profit 0.75
Net interest payable (0.24)
Taxation (0.13)
0.38
This represents 0.74p (3.4%) of the Group's adjusted revenue earnings per share
for the year.
The Group owned 25.1% of Merivale Moore during the year to 31 March 2002,
although subsequent to the year end, as a result of a share buy back by that
company, the stake increased to 27.2%. Merivale is accounted for as an associate
and its results have been consolidated using the twelve months to 31 December
2001, a period during which Merivale made a profit of £0.85m from sales of
trading properties and £2.77m from the sale of investment properties. The
overall contribution from this associate in our accounts was:-
£m
Operating Profit 2.35
Net interest payable (1.10)
Taxation (0.22)
1.03
This represents 2.01p (9.4%) of the Group's adjusted revenue earnings per share
for the year.
Capital profits were £2.1m compared to the previous twelve months figure of
£13.5m. The main constituent of the £2.1m profit arose from the disposal of the
Group's interest in Barlows PLC for £8.8m in June 2001, which resulted in a
capital profit of £1.8m. The large difference in capital profits reflects the
fact that the disposal of the residential estate in March 2001, through the sale
of Benchlevel Limited, resulted in an exceptional profit in the previous twelve
months of £14.6m whilst the disposal of Warner Estate, Limited, which owned the
BPT shareholding, for a net £59.9m in May 2001 only produced a net profit in the
year of £0.1m. This is because the sale price was known when last year's
accounts were prepared and the asset revalued to the disposal price, increasing
shareholders' funds in last year's accounts by £13.6m (26p per share).
Net interest costs were £12.8m, of which £11.5m related to Group companies with
the balance arising in Joint Ventures and the Associate as detailed above. The
level of interest burden directly reflects the fact that the Group benefited
from significant cash inflows early in the year, whilst property purchases
largely occurred towards the end of the year.
The Group's effective rate of tax, before the FRS 19 adjustment for deferred
tax, was 16% rising to 23% after adjustment has been made for FRS 19. The issue
of FRS 19 is dealt with separately in this review under accounting policies, but
as explained there and in our last interims, this deferred tax provision is not
expected to crystallise. The tax charge is arrived at as follows:-
£m
Profit on ordinary activities 15.2
Tax @ 30% 4.5
Use of losses (0.9)
Use of allowances (capital & industrial building) (1.3)
Other 0.1
Pre FRS 19 deferred tax provision 2.4
FRS 19 deferred tax provision 1.1
Total tax charge in the accounts 3.5
In addition the Group had tax losses and allowances available at 31 March 2002,
for use against future profits of £20m, of which £3.4m were in respect of
capital losses.
Total adjusted earnings per share are 24.98p of which 21.42p is attributable to
revenue profits and 3.56p to capital profits. The year on year increase in
revenue earnings per share is some 37% compared to a pre tax increase of 59%.
This arises as a result of a year on year increase in the pre-FRS 19 tax charge
to 16%. Reflecting this improvement, and in particular the improvement in
recurring revenue earnings per share by 4.77p to 18.38p, the dividend has been
increased to give a total dividend for the year of 15p. This is covered 1.4
times by revenue earnings and 1.2 times by recurring revenue earnings, a
substantial improvement on the previous twelve months (March 2001 : 1.1 times
revenue earnings).
Reconstruction
The liquidation exercise referred to in my review last year has largely been
completed, substantially reducing the number of semi-dormant/dormant companies
in the Group. However, the recent acquisitions and the need to ensure that they
are held in an appropriate manner means that the Group's overall subsidiary
count has risen, and will rise further as property is transferred into limited
partnership structures.
Cash Flow
The last twelve months has seen £103m generated from disposals, most of which
arose in the first three months, and some £169m of additions of which £127m took
place in late March 2002. In fact the Group over the last four years has carried
out asset transactions of over £0.75billion, which have been responsible for
completely transforming the Group.
Balance Sheet
Shareholders' funds now stand at £216m (excluding a £4.8m adjustment for
deferred tax now required by FRS 19) up from £211m last year. However, some
£5m was spent on share repurchases during the year and as a result adjusted NAV
per share have risen to 423p, an increase of 5% from 404p last March. In terms
of Group's performance benchmark of triple net asset value, which adjusts for
potential deferred tax on the revaluation surplus not provided for in the
accounts and adjusts debt to its market value, this has risen by 5% to 403p. The
calculation of triple net asset value is as follows:-
£000 Pence per share
Shareholders' funds at 31/3/02 210,883 413.9
Add back FRS 19 adjustment (note 19) 4,837 9.5
Adjusted shareholders' funds 215,720 423.4
Less potential deferred tax (note 19) (2,925) (5.7)
Less the fair value adjustment net of tax (note 20) (7,251) (14.2)
Triple net asset value 205,544 403.5
Within fixed assets there are £102m of freehold properties that have been
categorised as assets held for resale, including £57m that were purchased in
late March 2002 from Moorfield. These assets represent those intended to form
the core of the Group's first limited partnership or similar alliance venture.
Financing
At the start of this year the Group's overall debt level stood at £197m, a
gearing level of 93%. Disposals identified in last year's Finance Review, where
the proceeds had not been received by 31 March 2001, showed gearing falling to
around 65%. Total net debt remained at £150m for most of the year as disposals
exceeded purchases, before rising in March 2002 to £251m, a gearing level of
116% as a result of some £127m of property purchases in the month of March. In
addition, the Group's share of off balance sheet non-recourse finance, held
within its Joint Ventures is £5m.
Of the on balance sheet debt of £251m, some £138m represents long term debt, of
which £120m is fixed/hedged against interest rate movements. The rest represents
short term debt and reflects the fact that the Group is holding in fixed assets
some £102m of assets for resale. These are intended to be sold into a Limited
Partnership vehicle which will move the bulk of this debt off balance sheet and
be non-recourse, reducing gearing to below 100%.
Return on Capital
As previously reported, the Group measures its return on shareholders' funds
using triple net asset value which gives an after tax total return. On this
basis the return this year was 8.8%, which is post-tax, compared to a pre-tax
IPD return of 6.8%. This is marginally below the return reported at the
interims, which is a direct reflection of the much smaller revaluation increase
in our investment properties reported in the second half of this year.
Accounting Policies
This year the accounting policies take account of UITF 28 "Operating Lease
Incentives" and three new accounting standards FRS 17 "Retirement Benefits", FRS
18 "Accounting Policies" and FRS 19 "Deferred Tax". The Group
has adopted all these accounting policies although, as detailed below, only FRS
19 has a material impact on the Group. Of greater concern is the about to be
ratified EU requirement that all listed companies prepare their consolidated
accounts in accordance with international accounting standards from January
2005. This will result in a significant number of new standards between now and
2005. Initially there are anticipated to be seven new standards which may
come into effect sometime next year covering such topics as foreign exchange,
related party disclosures, earnings per share, post balance sheet events,
inventories, tangible assets and financial instruments. Our intention is to
incorporate these new standards in our accounts, together with a clear
explanation of their effect, as early as reasonably practicable after they have
been issued.
UITF 28 "Operating Lease Incentives". This abstract requires that the rent
receivable, net of any incentive, should be recognised over the period of the
lease or over the period to the next rent review, whichever is appropriate
rather than being written off immediately. The impact of this change has been to
improve rent and profits this year by £138k.
FRS 17 "Retirement Benefits". The Group has one defined benefit pension scheme.
The impact of incorporating the standard is to increase profits this year by
£35k and reduce shareholders' funds by £36k. The small exposure arises because
only three employees are in the defined benefit scheme, all other eligible
employees receiving an annual contribution from the Company into their own
personal pension plans.
FRS 18 "Accounting Policies". This requires the Group to review its accounting
policies to determine whether they remain appropriate to its business and ensure
that the policies are consistent with standards, UITF abstracts and company
legislation. The Group has carried out this review and no changes in accounting
policy have resulted.
FRS 19 "Deferred Tax". This has a material impact on the Group's financial
statements as outlined in our interim report to September 2001. FRS 19 requires
that deferred tax is provided in full on all timing differences between
accounting and tax treatments that are not permanent. However, a remaining
exception is that deferred tax arising on any revaluation surplus is still not
recognised as a balance sheet adjustment and remains only to be reported as a
contingent liability note in the accounts. Our accounting policy had previously
been to recognise deferred tax only to the extent that the potential tax
liabilities or assets are expected to crystallise. The effect of the change is
to make full provision for timing differences in the accounts, which, in our
case, arise primarily from capital and industrial building allowances. The
effect of this is that the Group's tax charge in the profit and loss account has
been increased by £1.1m (twelve months to March 2001 : £0.5m) and a balance
sheet provision created of £4.8m (March 2001: £3.7m) to show the effect as if no
capital and industrial building allowances had been claimed. When properties are
then sold any deferred tax provision that is not crystallised will be released
to the profit and loss account.
In practice, for property investment companies capital allowances do not
reverse, even on investment property disposals, and that is the commercial
policy applied by the Group. Furthermore, there has been no occasion in the last
4 years that such allowances have reversed. It is therefore our view that FRS 19
liabilities on our investment portfolio are unlikely to crystallise in practice.
Also, although within these FRS 19 liabilities there are £0.7m in respect of
industrial buildings allowances which will crystallise if the building is sold
within twenty five years of the expenditure being claimed, this is not regarded
as material. We have therefore excluded FRS 19 deferred tax liabilities when
calculating adjusted earnings per share and adjusted net assets per share in
these accounts and ignored them when considering debt levels and dividend
policy. I would also emphasise that, FRS 19 is only presentational and has no
impact on the actual tax we pay or on our triple net asset value.
Peter Collins
Finance Director
SIGNIFICANT EVENTS DURING THE YEAR ENDED 31 MARCH 2002
Date
Exchanged contracts on sale of Waterfields Retail Park, Watford for £19million April 2001
(completed December 2001)
Portfolio of four office properties purchased from Britannia Invest Holland II BV April 2001
for £14.4million
Disposal of Warner Estate, Limited (which held the Group's 13.1% interest in BPT May 2001
plc) for net proceeds of £60.8million
Purchase of 1,382,000 Ordinary shares for cancellation at a price of 299p per June 2001
share
Disposal of shares in Barlows PLC for £8.8million (£1.8million capital profit July 2001
before taxation)
Outline planning consent obtained for Ellesmere Port Shopping Centre to increase July 2001
the floor area by over 10%
Detailed planning consent granted to increase the floor area at the Sale Shopping July 2001
Centre by approximately 20%
Purchase of office property at West Gate, Bristol for £16.3million September 2001
Purchase of industrial estate in Luton for £6million October 2001
Tender offer by Trefick Limited for approximately 13.3% of the Company's Share October 2001
Capital accepted in respect of only 3.37% of the Company's Share Capital
Portfolio of seven mainly office properties purchased from Moorfield Capital December 2001
Partners for £97million (completed in March 2002)*
Purchase for cancellation of 277,190 Ordinary shares at 321.5p per share and January 2002
30,000 Ordinary shares at 323.5p per share
Purchase of office property at Apex 123, Edinburgh for £26.75million (completed in February 2002
March 2002)
SIGNIFICANT EVENTS POST 31 MARCH 2002
Date
Purchase of office property in Bath Street, Glasgow for £12.5million May 2002
Disposal of major property asset in Warrington Industrial Investments Limited May 2002
joint venture for £2.1million
* When this portfolio was purchased it was announced that £56 million of
properties was purchased to be resold and hence would be classified as current
asset investments. As the Company intends to retain some part of the equity of
these properties after resale, on advice, they were purchased as fixed assets
and included in properties held for resale.
This information is provided by RNS
The company news service from the London Stock Exchange
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