TIDMMAX
RNS Number : 5066D
Max Property Group PLC
03 December 2009
Max Property Group Plc
Interim Results for the period ended 30 September 2009
Max Property Group Plc ("Max" or "the Company") is a Jersey-incorporated
closed-ended property investment company. The Company has an experienced board
of Directors, chaired by Aubrey Adams, and is externally managed by Prestbury
Investments LLP ("Prestbury Investments"), which is owned and managed by a team
led by Nick Leslau, Mike Brown, Tim Evans and Sandy Gumm.
Key points
* GBP211.4m net of expenses raised on 27 May, 2009 upon listing on AIM and CISX
* Maiden acquisition - Industrious portfolio:
- Seven properties acquired prior to 30 September for GBP12.9m including costs
- Balance of portfolio acquired for GBP231.2m including costs on 7 October -
unconditional on 25 August, and included in the accounts as acquired on that
date.
* Two properties sold in the period for GBP20.5m and a third property sold after
the period end for GBP2.7m
* GBP113m of pro forma uncommitted cash post acquisition
* Pro forma net debt post acquisition of GBP14.4m
* NAV per share* 103p
* NAV is measured on a basis consistent with guidance given by the European
Public Real Estate Association ("EPRA").
Aubrey Adams, proposed Chairman of Max Property Group Plc, comments:
"We believe we have had a positive start to the Company's life, have put in
place a good foundation from which we can continue to build the business and
look forward to the future with huge enthusiasm."
3 December 2009
ENQUIRIES:
+---------------------------------------+---------------------------------+
| Prestbury Investments | Tel: 020 7647 7647 |
+---------------------------------------+---------------------------------+
| Nick Leslau | |
+---------------------------------------+---------------------------------+
| | |
+---------------------------------------+---------------------------------+
| College Hill | Tel: 020 7457 2020 |
+---------------------------------------+---------------------------------+
| Gareth David | |
+---------------------------------------+---------------------------------+
| | |
+---------------------------------------+---------------------------------+
| Morgan Stanley (Nominated Adviser) | Tel: 020 7425 8000 |
+---------------------------------------+---------------------------------+
| Mark Brooker | |
+---------------------------------------+---------------------------------+
Chairman's Statement
It is my pleasure to be writing my maiden interim report to you as Chairman of
this new
business.
The Company was successfully launched on AIM and CISX in May of this year,
raising net proceeds of GBP211.4 million through the issue of new shares. The
Company took little time in deploying substantial resources in making what now
appears to have been a very well timed acquisition in the form of the
Industrious industrial portfolio out of receivership. It was a rare opportunity
to acquire a high yielding, diverse portfolio with a c. 50% South East weighting
and where there are many opportunities to drive income and capital values over
the next five years.
The Company's website provides details of the portfolio, which I will not repeat
here, but it is worth mentioning that the next couple of years will present
significant challenges to maintaining income during what will remain uncertain
economic times. However, the management team has a longstanding reputation for
dynamic hands on management and will be working tirelessly to enhance a
portfolio which has been neglected for some time due to the constraints imposed
upon it through lack of capital investment, the straight jacket of the former
owner's CMBS structure and, of course, receivership.
The entry price of GBP31 psf capital value is about 40% of replacement cost and
with a spread of more than 800 tenants will significantly help protect the
downside of this project. The income from the portfolio will deliver high cash
on cash returns before any capital value uplift.
We deployed some GBP96 million of equity in this deal for which we have high
expectations. This acquisition leaves us with another GBP113 million of free
cash available to make further acquisitions.
The management team is looking at potential acquisitions daily and it is
considered that, towards Christmas and in the New Year, a lot of new stock will
start to be released to the market which will provide further opportunities for
those with cash and suitable management skills.
It is worth noting that in recent months the prime markets have tightened very
considerably, making the sourcing of profitable business in that particular
arena very challenging. However, your Company does not generally intend to
operate in these prime markets and believes there is much more scope for
significant value accretion through operating in the non-prime markets where
downside can still be well protected by a judicious acquisition approach and the
upside, which can be considerable, is much more of a function of management's
ability to turn an ugly duckling into a beautiful swan.
We remain very confident that there will be many opportunities to find
properties which satisfy all the investment and financing criteria we set out
for you in our flotation prospectus. It is reassuring to know that we are not
constrained by sector or geography within the UK, as management has a long
proven record of operating in virtually every area within the UK property
industry.
Financial results and position
The results for the period and the balance sheet are significantly affected by
the acquisition of the Industrious portfolio at a cost of GBP244.1 million and
the subsequent disposal of two properties originally acquired as part of that
portfolio for cash consideration of GBP20.5 million. Under the Company's
accounting policies and in compliance with applicable accounting standards the
acquisition is accounted for as a 'business combination', therefore:
* the date on which acquisitions and disposals are accounted for is the date on
which they become unconditional, and not the date of completion; and
* the book value of the properties when acquired is taken as their 'fair value',
based on an open market valuation on the assumption of a willing buyer and
willing seller, rather than the amount actually paid which takes into account
the actual circumstances of the transaction.
The accounting applied in the period is explained in note 4 to the Interim
Report. The principal impact of applying this treatment is that a 'discount on
acquisition' of GBP14.9 million is recognised (being the difference between the
price paid and the fair value of the portfolio on the date of acquisition) and a
GBP3.1 million profit is recognised on the property disposals that were
unconditionally committed to before the period end.
The pre-tax profit for the period before taking into account the discount on
acquisition and revaluation surplus was GBP2.1 million, principally being the
GBP3.1 million profit on the disposal of properties after administrative
expenses of GBP1.5 million.
The profit before tax for the period was GBP17.1 million and the profit after
tax was GBP16.3 million.
The net asset value of the Group, including the Industrious assets at their 30
September, 2009 independent valuation, is GBP226.6 million or 103 pence per
share, against 96 pence per share immediately upon listing.
Of the amount paid for the Industrious portfolio, GBP33.1 million was paid
before 30 September and the remaining GBP199.4 million was paid on completion on
7 October. The transaction was partly financed by drawing at completion on a
non-recourse debt facility amounting to GBP127.7 million. Adjusting for the post
balance sheet payments relating to the acquisition, disposal receipts and
borrowings, pro forma net debt amounts to GBP14.4 million.
Outlook
As has been noted by a number of property companies, the market's recovery is
unlikely to follow a seamless, straightforward path. The occupational markets
will remain difficult, lagging any economic recovery by a couple of years. With
leases shorter than in past cycles and void costs much higher, maintaining cash
flow in the intervening period will present a considerable challenge to all
property owners. Meanwhile the investment markets will eventually have to face
the twin headwinds of rising interest rates and a protracted deleveraging by the
banks.
We believe these issues have the capacity to overwhelm temporarily any recovery,
providing windows for attractive acquisitions. Management teams will need to
show discipline and patience, interspersed with bursts of activity to assemble
the best performing portfolios at the most attractive prices and show excellent
asset management skills in the meantime to maintain cash flow. The scene is set
for a corrugated recovery.
We believe we have had a positive start to the Company's life, have put in place
a good foundation from which we can continue to build the business and look
forward to the future with huge enthusiasm.
AUBREY ADAMS
Chairman
3 December 2009
Auditor's independent review report to Max Property Group Plc
Introduction
We have been engaged by the Company to review the condensed financial statements
included within this Interim Report for the period from 17 April, 2009 to
30 September, 2009 which comprises the Group Income Statement, Group Statement
of Comprehensive Income, Group Statement of Changes in Equity, the Group Balance
Sheet, Group Cash Flow Statement and related notes.
We have read the other information contained in the Interim Report and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
Directors' responsibilities
The Interim Report, including the financial information contained therein, is
the responsibility of, and has been approved by, the Directors. The Directors
are responsible for preparing the Interim Report in accordance with the rules of
the London Stock Exchange for companies trading on the Alternative Investment
Market and the rules for companies trading securities on the Channel Islands
Stock Exchange. These rules require that the Interim Report be presented and
prepared in a form consistent with that which will be adopted in the Company's
annual accounts having regard to the accounting policies applicable to such
annual accounts.
As disclosed in note 2, the condensed set of financial statements included in
this Interim Report has been prepared in accordance with International
Accounting Standard 34, "Interim Financial Reporting" as adopted by the European
Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the Interim Report based on our review.
Our report has been prepared in accordance with the terms of our engagement to
assist the Company in meeting the requirements of the rules of the London Stock
Exchange for companies trading securities on the Alternative Investment Market
and the rules for trading securities on the Channel Islands Stock Exchange and
for no other purpose. No person is entitled to rely on this report unless such a
person is entitled to rely upon this report by virtue of and for the purpose of
our terms of engagement or has been expressly authorised to do so by our prior
written consent. Save as above, we do not accept responsibility for this report
to any other person or for any other purpose and we hereby expressly disclaim
any such liability.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity", issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly, we
do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the Interim Report for the
period ended 30 September 2009 is not prepared, in all material respects, in
accordance with International Accounting Standard 34, as adopted by the European
Union, the rules of the London Stock Exchange for companies trading securities
on the Alternative Investment Market and the rules for companies trading
securities on the Channel Islands Stock Exchange.
BDO LLP
Chartered Accountants and Registered Auditors
Epsom
Surrey
United Kingdom
3 December, 2009
BDO LLP is a limited liability partnership registered in England and Wales (with
registered number OC305127).
Group income statement
+--------------------------------------+-------+--------------------------+
| | | Unaudited |
+--------------------------------------+-------+--------------------------+
| | | 17 April 2009 to |
+--------------------------------------+-------+--------------------------+
| | | 30 September 2009 |
+--------------------------------------+-------+--------------------------+
| | Note | GBP000 |
+--------------------------------------+-------+--------------------------+
| | | |
+--------------------------------------+-------+--------------------------+
| Gross rental income | | 137 |
+--------------------------------------+-------+--------------------------+
| Proceeds from sale of trading | 4(c) | 20,531 |
| properties | | |
+--------------------------------------+-------+--------------------------+
| | | 20,668 |
+--------------------------------------+-------+--------------------------+
| | | |
+--------------------------------------+-------+--------------------------+
| Property outgoings | | (14) |
+--------------------------------------+-------+--------------------------+
| Cost of properties sold | 4(c) | (17,453) |
+--------------------------------------+-------+--------------------------+
| | | |
+--------------------------------------+-------+--------------------------+
| | | (17,467) |
+--------------------------------------+-------+--------------------------+
| Net rental income | | 123 |
+--------------------------------------+-------+--------------------------+
| Profit on sale of properties held | | 3,078 |
| for resale | | |
+--------------------------------------+-------+--------------------------+
| | | |
+--------------------------------------+-------+--------------------------+
| Gross profit | | 3,201 |
+--------------------------------------+-------+--------------------------+
| Administrative expenses: | | |
+--------------------------------------+-------+--------------------------+
| General administrative expenses | | (1,371) |
+--------------------------------------+-------+--------------------------+
| Corporate costs | | (168) |
+--------------------------------------+-------+--------------------------+
| | | |
+--------------------------------------+-------+--------------------------+
| Total administrative expenses | | (1,539) |
+--------------------------------------+-------+--------------------------+
| Revaluation surplus | 8 | 95 |
+--------------------------------------+-------+--------------------------+
| Discount on acquisition | 4 | 14,870 |
+--------------------------------------+-------+--------------------------+
| | | |
+--------------------------------------+-------+--------------------------+
| Operating profit | | 16,627 |
+--------------------------------------+-------+--------------------------+
| Finance income | 5 | 685 |
+--------------------------------------+-------+--------------------------+
| Finance costs | 5 | (248) |
+--------------------------------------+-------+--------------------------+
| | | |
+--------------------------------------+-------+--------------------------+
| Profit before tax | | 17,064 |
+--------------------------------------+-------+--------------------------+
| Taxation charge | 6 | (810) |
+--------------------------------------+-------+--------------------------+
| | | |
+--------------------------------------+-------+--------------------------+
| Profit for the period | | 16,254 |
+--------------------------------------+-------+--------------------------+
| | | |
+--------------------------------------+-------+--------------------------+
| Earnings per share | | pence per share |
+--------------------------------------+-------+--------------------------+
| Basic and diluted | 7 | 7.4 |
+--------------------------------------+-------+--------------------------+
All amounts relate to continuing activities.
The notes form part of this Interim Report.
Group statement of comprehensive income
+--------------------------------------+-------+-------------------------+
| | | Unaudited |
+--------------------------------------+-------+-------------------------+
| | | 17 April 2009 to |
+--------------------------------------+-------+-------------------------+
| | | 30 September 2009 |
+--------------------------------------+-------+-------------------------+
| | Note | GBP000 |
+--------------------------------------+-------+-------------------------+
| | | |
+--------------------------------------+-------+-------------------------+
| Profit for the period | | 16,254 |
+--------------------------------------+-------+-------------------------+
| Market value adjustment of interest | 12 | (1,243) |
| rate derivatives, recognised | | |
| directly in equity | | |
+--------------------------------------+-------+-------------------------+
| Tax effect of interest rate | 6 | 249 |
| derivative valuation adjustment | | |
+--------------------------------------+-------+-------------------------+
| | | |
+--------------------------------------+-------+-------------------------+
| Total comprehensive income for the | | 15,260 |
| period, net of tax | | |
+--------------------------------------+-------+-------------------------+
Group statement of changes in equity
+--------------------------------+----------+----------+----------+----------+
| | Stated | Hedging | Retained | |
+--------------------------------+----------+----------+----------+----------+
| | capital | reserve | earnings | Total |
| | | | | |
+--------------------------------+----------+----------+----------+----------+
| | GBP000 | GBP000 | GBP000 | GBP000 |
+--------------------------------+----------+----------+----------+----------+
| At incorporation | - | - | - | - |
+--------------------------------+----------+----------+----------+----------+
| | | | | |
+--------------------------------+----------+----------+----------+----------+
| Profit for the period | - | - | 16,254 | 16,254 |
+--------------------------------+----------+----------+----------+----------+
| | | | | |
+--------------------------------+----------+----------+----------+----------+
| Market value adjustment of | - | (1,243) | - | (1,243) |
| interest rate derivatives | | | | |
+--------------------------------+----------+----------+----------+----------+
| | | | | |
+--------------------------------+----------+----------+----------+----------+
| Tax effect of interest rate | - | 249 | - | 249 |
| derivative valuation | | | | |
| adjustment | | | | |
+--------------------------------+----------+----------+----------+----------+
| | | | | |
+--------------------------------+----------+----------+----------+----------+
| Total comprehensive income for | - | (994) | 16,254 | 15,260 |
| the period, net of tax | | | | |
+--------------------------------+----------+----------+----------+----------+
| | | | | |
+--------------------------------+----------+----------+----------+----------+
| Issue of ordinary shares of no | 220,000 | - | - | 220,000 |
| par value | | | | |
+--------------------------------+----------+----------+----------+----------+
| | | | | |
+--------------------------------+----------+----------+----------+----------+
| Share issue costs | (8,623) | - | - | (8,623) |
+--------------------------------+----------+----------+----------+----------+
| | | | | |
+--------------------------------+----------+----------+----------+----------+
| Balance at 30 September 2009 | 211,377 | (994) | 16,254 | 226,637 |
| (unaudited) | | | | |
+--------------------------------+----------+----------+----------+----------+
The notes form part of this Interim Report.
Group balance sheet
+-------------------------------------+----------+-------------------------+
| | | Unaudited |
+-------------------------------------+----------+-------------------------+
| | | As at 30 |
+-------------------------------------+----------+-------------------------+
| | | September 2009 |
+-------------------------------------+----------+-------------------------+
| | Note | GBP000 |
+-------------------------------------+----------+-------------------------+
| Non-current assets: | | |
+-------------------------------------+----------+-------------------------+
| Investment properties | 8 | 240,335 |
+-------------------------------------+----------+-------------------------+
| Deferred tax asset | 6 | 285 |
+-------------------------------------+----------+-------------------------+
| | | 240,620 |
+-------------------------------------+----------+-------------------------+
| Current assets: | | |
+-------------------------------------+----------+-------------------------+
| Properties held for resale | | 3,280 |
+-------------------------------------+----------+-------------------------+
| Trade and other receivables | 9 | 21,477 |
+-------------------------------------+----------+-------------------------+
| Cash deposits with maturities | | |
+-------------------------------------+----------+-------------------------+
| of more than three months | 10 | 110,501 |
+-------------------------------------+----------+-------------------------+
| Cash and cash equivalents | 10 | 67,895 |
+-------------------------------------+----------+-------------------------+
| | | 203,153 |
+-------------------------------------+----------+-------------------------+
| Total assets | | 443,773 |
+-------------------------------------+----------+-------------------------+
| Current liabilities: | | |
+-------------------------------------+----------+-------------------------+
| Trade and other payables | 11 | (214,178) |
+-------------------------------------+----------+-------------------------+
| Non-current liabilities: | | |
+-------------------------------------+----------+-------------------------+
| Interest rate swap and cap at | 12 | (1,243) |
| market value | | |
+-------------------------------------+----------+-------------------------+
| Obligations under finance leases | 13 | (1,715) |
+-------------------------------------+----------+-------------------------+
| | | (2,958) |
+-------------------------------------+----------+-------------------------+
| Total liabilities | | (217,136) |
+-------------------------------------+----------+-------------------------+
| Net assets | | 226,637 |
+-------------------------------------+----------+-------------------------+
| Equity: | | |
+-------------------------------------+----------+-------------------------+
| Stated capital | | 211,377 |
+-------------------------------------+----------+-------------------------+
| Hedging reserve | | (994) |
+-------------------------------------+----------+-------------------------+
| Retained earnings | | 16,254 |
+-------------------------------------+----------+-------------------------+
| Total equity | | 226,637 |
+-------------------------------------+----------+-------------------------+
| | | |
+-------------------------------------+----------+-------------------------+
| Net asset value per share (pence) | | 103p |
+-------------------------------------+----------+-------------------------+
The notes form part of this Interim Report.
Group cash flow statement
+----------------------------------------+----------+---------------------+
| | | Unaudited |
+----------------------------------------+----------+---------------------+
| | | 17 April 2009 to 30 |
| | | September 2009 |
+----------------------------------------+----------+---------------------+
| | Note | GBP000 |
+----------------------------------------+----------+---------------------+
| Cash flows from operating activities: | | |
+----------------------------------------+----------+---------------------+
| Profit before tax | | 17,064 |
+----------------------------------------+----------+---------------------+
| Adjustments for non-cash items: | | |
+----------------------------------------+----------+---------------------+
| Discount on acquisition | | (14,870) |
+----------------------------------------+----------+---------------------+
| Revaluation surplus | | (95) |
+----------------------------------------+----------+---------------------+
| Net finance income | | (437) |
+----------------------------------------+----------+---------------------+
| Cash flows from operations before | | |
+----------------------------------------+----------+---------------------+
| changes in working capital | | 1,662 |
+----------------------------------------+----------+---------------------+
| Change in trade and other receivables | | (20,958) |
+----------------------------------------+----------+---------------------+
| Change in trade and other payables | | 1,896 |
+----------------------------------------+----------+---------------------+
| Change in properties held for resale | | 17,190 |
+----------------------------------------+----------+---------------------+
| Cash flows from operations | | (210) |
+----------------------------------------+----------+---------------------+
| Investing activities: | | |
+----------------------------------------+----------+---------------------+
| Cash flows related to the acquisition | 4 | (33,057) |
+----------------------------------------+----------+---------------------+
| Cash placed on long term deposit | | (110,501) |
+----------------------------------------+----------+---------------------+
| Interest received | | 166 |
+----------------------------------------+----------+---------------------+
| Cash flows from investing activities | | (143,392) |
+----------------------------------------+----------+---------------------+
| Financing activities: | | |
+----------------------------------------+----------+---------------------+
| Net proceeds from share issue | | 211,497 |
+----------------------------------------+----------+---------------------+
| Cash flows from financing activities | | 211,497 |
+----------------------------------------+----------+---------------------+
| Net increase in cash and cash | | 67,895 |
| equivalents | | |
+----------------------------------------+----------+---------------------+
| Cash and cash equivalents at | | - |
| incorporation | | |
+----------------------------------------+----------+---------------------+
| Cash and cash equivalents at end of | | 67,895 |
| period | | |
+----------------------------------------+----------+---------------------+
The notes form part of this Interim Report.
Notes to the interim report
1. General information about the Group
Max Property Group Plc was listed on the AIM and CISX markets on 27 May, 2009.
It is a closed-ended real estate investment company that was incorporated in
Jersey on 17 April, 2009.
This interim financial report includes the results and net assets of the Company
and its subsidiaries, together referred to as the Group.
The unaudited financial information set out in this report covers the period
from the date of incorporation to 30 September, 2009 and does not constitute
statutory accounts. The Company has not previously published or filed any
financial statements.
Further general information about the Company can be found on its
website: www.maxpropertygroup.com.
2. Basis of preparation
The financial information contained in this report has been prepared in
accordance with IAS 34, "Interim Financial Reporting".
The accounting policies adopted in this report are consistent with those
included on pages 50 to 54 of the admission document issued by the Company on 27
May, 2009, and are also consistent with those that are expected to be applied in
the Group's first annual report and financial statements for the period ending
31 March, 2010. The admission document is available from the 'Investor Centre'
page of the Company's website, www.maxpropertygroup.com, or by writing to the
Company Secretary at the address at the back of this document.
3. Segmental information
During the period, the Group operated in and was managed as one business
segment, being property investment and trading, with all properties located in
the United Kingdom.
4. Acquisition of the Industrious portfolio
Details of the costs and fair values of the assets and liabilities acquired are
as follows:
+----------------------------------+----------+--------------+-------------+
| | Price | | Fair |
+----------------------------------+----------+--------------+-------------+
| | paid | Adjustments | value |
+----------------------------------+----------+--------------+-------------+
| | GBP000 | GBP000 | GBP000 |
+----------------------------------+----------+--------------+-------------+
| Investment properties | 223,622 | 16,618 | 240,240 |
+----------------------------------+----------+--------------+-------------+
| Properties held for resale | 20,503 | (33) | 20,470 |
+----------------------------------+----------+--------------+-------------+
| Obligations under finance leases | - | (1,715) | (1,715) |
+----------------------------------+----------+--------------+-------------+
| Total | 244,125 | 14,870 | 258,995 |
+----------------------------------+----------+--------------+-------------+
| | | | |
+----------------------------------+----------+--------------+-------------+
| Cash consideration comprises: | | | |
+----------------------------------+----------+--------------+-------------+
| Amounts paid in cash prior to | | | 33,057 |
| period end | | | |
+----------------------------------+----------+--------------+-------------+
| Accrued acquisition costs | | | 11,687 |
+----------------------------------+----------+--------------+-------------+
| Due to vendor at completion | | | 199,381 |
+----------------------------------+----------+--------------+-------------+
| Total acquisition cost | | | 244,125 |
+----------------------------------+----------+--------------+-------------+
| | | | |
+----------------------------------+----------+--------------+-------------+
| Discount on acquisition: excess of fair value over cost | 14,870 |
+----------------------------------+----------+--------------+-------------+
(a) Description of the acquisition
The acquisition comprised two transactions under contracts with the same vendor
and in respect of 87 properties. The first transaction was the acquisition of
seven properties, acquired unconditionally at auction on 16 July, 2009, with
cash consideration before costs of acquisition of GBP12,220,000. The first
transaction was completed on 27 August, 2009, prior to the end of the period.
The second transaction was for 80 properties with cash consideration before
costs of acquisition of GBP219,881,000. Contracts for this acquisition were
exchanged on 4 August, 2009 and became unconditional on 25 August, 2009, prior
to the end of the period. The acquisition completed after the balance sheet
date, on 7 October, 2009.
The total consideration before expenses for the two transactions was
GBP232,101,000 and the costs of acquisition for the transaction (principally
comprising stamp duty land tax at 4% of the contract price) amounted to
GBP12,024,000, resulting in a total cost of GBP244,125,000. The cost was settled
by payments of GBP33,057,000 made prior to the period end, and the balance,
comprising GBP199,381,000 paid to the vendor and GBP11,687,000 of costs, was
paid after the balance sheet date. The costs paid prior to the period end
included the cash consideration paid for the auction properties, the deposit
paid on exchange of contracts of the second contract, and certain acquisition
costs paid on account.
(b) Explanation of accounting for the transaction
The acquisition has been accounted for under the Company's accounting policies
which are in accordance with applicable current accounting standards. Under
these policies, the two transactions have been accounted for as a single
acquisition and the dates on which the transactions took place have been taken
as the dates on which contracts became unconditional and not the completion date
or the date on which the consideration was paid. The unconditional dates for
both transactions were prior to the period end. Assets and liabilities acquired
and costs not paid at the period end have been included in the balance sheet
under "trade and other payables".
The transaction has been accounted for as a "business combination". As a result,
the separable intangible and tangible assets and liabilities acquired have been
identified and accounted for at fair value. For this purpose fair value is
determined as the open market value of each separable asset and liability,
including each individual property, as at the acquisition date between a
theoretical willing buyer and willing seller in an arm's length transaction
involving parties who are in an equivalent position. It does not take account
of special characteristics of the parties such as financing issues and long term
objectives, or the effect of assets being acquired as part of a portfolio. A
deduction is made to reflect the acquisition cost of any future purchaser. The
fair value of the separable assets and liabilities does not take account of the
actual consideration paid, which reflects the particular circumstances of the
parties to the transaction.
The difference between the fair value of the assets and liabilities acquired and
the costs of the transaction is treated as goodwill, if the aggregate fair value
is less than the costs, and as a discount on acquisition, if the aggregate fair
value is more than the costs. Under the applicable accounting standards, a
discount on acquisition is taken to the income statement for the period in which
the acquisition is accounted for.
The assets or liabilities identified as a result of the acquisition of the
Industrious portfolio were investment properties and obligations (arising on
long leasehold properties) under finance leases. No significant intangible
assets were identified. The fair value of each of the properties acquired as at
the accounting acquisition date was determined, in accordance with the
accounting policies, by CB Richard Ellis Limited, Chartered Surveyors, applying
the Royal Institution of Chartered Surveyors' Appraisals and Valuation
Standards.
The fair value adjustments for the transaction are set out in the table
above. The fair value of the net assets acquired exceeded the cost of the
transaction by GBP14,870,000 and this amount has been included as a discount on
acquisition in the profit for the period.
(c) Sale of properties
Four of the properties acquired were identified as assets held for resale. These
properties had a fair value of GBP20,503,000 which, in accordance with the
Company's accounting policies and applicable accounting standards, was arrived
at on the same basis as the rest of the portfolio acquired. Two of these
properties, with a fair value of GBP17,190,000 were disposed of for cash
proceeds of GBP20,531,000 under a contract which became unconditional on 16
September, 2009, although the contract was not completed until 7 October, 2009.
The disposal has been accounted for as taking place on the unconditional date
giving rise to a profit in the period to 30 September, 2009 of GBP3,078,000. The
net proceeds have been included in the balance sheet as "other receivables".
The remaining two properties, with a fair value of GBP3,280,000 have been
included in the balance sheet as "properties held for resale".
5. Finance income and costs
+-----------------------------------------------+----------------------+
| | Unaudited |
+-----------------------------------------------+----------------------+
| | 17 April 2009 to |
+-----------------------------------------------+----------------------+
| | 30 September 2009 |
+-----------------------------------------------+----------------------+
| | GBP000 |
+-----------------------------------------------+----------------------+
| Finance income: | |
+-----------------------------------------------+----------------------+
| Interest on cash deposits | 685 |
+-----------------------------------------------+----------------------+
| | |
+-----------------------------------------------+----------------------+
| Finance costs: | |
+-----------------------------------------------+----------------------+
| Commitment fees in respect of committed | 248 |
| credit line | |
+-----------------------------------------------+----------------------+
6. Taxation
+-----------------------------------------------+----------------------+
| | Unaudited |
+-----------------------------------------------+----------------------+
| | 17 April 2009 to |
+-----------------------------------------------+----------------------+
| | 30 September 2009 |
+-----------------------------------------------+----------------------+
| | GBP000 |
+-----------------------------------------------+----------------------+
| The tax charge for the period comprises: | |
+-----------------------------------------------+----------------------+
| Current tax: | |
+-----------------------------------------------+----------------------+
| Tax on results for the period | 846 |
+-----------------------------------------------+----------------------+
| Deferred tax | |
+-----------------------------------------------+----------------------+
| Change in deferred tax in the period | (36) |
+-----------------------------------------------+----------------------+
| Total taxation charges in the income | 810 |
| statement | |
+-----------------------------------------------+----------------------+
The tax assessed for the period varies from the standard rate of income tax in
the UK of 20%. The differences are explained below:
+-------------------------------------------------+---------------------+
| Profit before tax | 17,064 |
+-------------------------------------------------+---------------------+
| | |
+-------------------------------------------------+---------------------+
| Profit before tax at the standard rate of | 3,413 |
| income tax in the UK of 20% | |
+-------------------------------------------------+---------------------+
| Effects of: | |
+-------------------------------------------------+---------------------+
| Expenses not deductible for tax | 307 |
+-------------------------------------------------+---------------------+
| Income not subject to tax | (148) |
+-------------------------------------------------+---------------------+
| Discount on acquisition not subject to tax | (2,974) |
+-------------------------------------------------+---------------------+
| Revaluation surplus not subject to tax | (19) |
+-------------------------------------------------+---------------------+
| Trading profits subject to UK tax at 28% | 231 |
+-------------------------------------------------+---------------------+
| | 810 |
+-------------------------------------------------+---------------------+
Deferred tax assets:
+--------------------------------+---------------+-------------+--------+
| | Other | | |
+--------------------------------+---------------+-------------+--------+
| | temporary and | Excess | |
+--------------------------------+---------------+-------------+--------+
| | deductible | property | |
+--------------------------------+---------------+-------------+--------+
| | differences | expenses | Total |
+--------------------------------+---------------+-------------+--------+
| | GBP000 | GBP000 | GBP000 |
+--------------------------------+---------------+-------------+--------+
| At incorporation | - | - | - |
+--------------------------------+---------------+-------------+--------+
| Credited during the period to | - | 36 | 36 |
| the income statement | | | |
+--------------------------------+---------------+-------------+--------+
| Tax on interest rate | 249 | - | 249 |
| derivative adjustment, | | | |
| credited to other | | | |
| comprehensive income | | | |
+--------------------------------+---------------+-------------+--------+
| | | | |
+--------------------------------+---------------+-------------+--------+
| At 30 September 2009 | 249 | 36 | 285 |
| (Unaudited) | | | |
+--------------------------------+---------------+-------------+--------+
7. Earnings per share
The calculation of earnings per share is based on 220,000,002 ordinary shares of
no par value in issue throughout the period during which profits were earned and
is based on profits attributable to ordinary shareholders for the period ended
30 September, 2009 of GBP16,254,000.
There are no share options or other equity instruments in issue and therefore no
adjustments to be made for dilutive or potentially dilutive equity arrangements.
International Financial Reporting Standards require that the effects of
unrealised revaluation gains and losses on the Group's investment properties are
reported through the group income statement. Adjusting earnings to strip out any
unrealised market valuation movements, the EPS for the Group would be 0.6p per
share for the period.
8. Investment properties
+--------------------------------------+----------+------------+------------+
| | Unaudited as at 30 September 2009 |
+--------------------------------------+------------------------------------+
| | | Long | |
+--------------------------------------+----------+------------+------------+
| | Freehold | Leasehold | Total |
+--------------------------------------+----------+------------+------------+
| | GBP000 | GBP000 | GBP000 |
+--------------------------------------+----------+------------+------------+
| At incorporation | - | - | - |
+--------------------------------------+----------+------------+------------+
| Acquisition at fair value | 191,165 | 49,075 | 240,240 |
+--------------------------------------+----------+------------+------------+
| Revaluation movement | 875 | (780) | 95 |
+--------------------------------------+----------+------------+------------+
| Carrying value as at 30 September | 192,040 | 48,295 | 240,335 |
| 2009 | | | |
+--------------------------------------+----------+------------+------------+
| Head lease liabilities (note 13) | - | (1,715) | (1,715) |
+--------------------------------------+----------+------------+------------+
| Total group property portfolio | | | |
+--------------------------------------+----------+------------+------------+
| valuation at 30 September 2009 | 192,040 | 46,580 | 238,620 |
+--------------------------------------+----------+------------+------------+
The acquisition of the investment properties and the basis on which they are
included in this Interim Report are explained in note 4.
The properties were valued as at 30 September, 2009 for accounts purposes by CB
Richard Ellis Limited, Chartered Surveyors in their capacity as external
valuers. The valuation was undertaken in accordance with the Royal Institution
of Chartered Surveyors' Appraisal and Valuation Standards on the basis of market
value. Market value represents the estimated amount for which a property would
be expected to exchange at the date of valuation between a willing buyer and a
willing seller in an arms' length transaction after proper marketing wherein the
parties had each acted knowledgeably, prudently and without compulsion. A
deduction is made to reflect an estimate of the acquisition costs of any
purchaser.
The historical cost of the Group's investment properties as at 30 September,
2009 was GBP223,622,000.
Since the date that the properties were acquired, the portfolio has accounted
for 100% of the Group's rental income and direct property costs.
9. Trade and other receivables
+------------------------------------------------------+----------------+
| | Unaudited |
+------------------------------------------------------+----------------+
| | As at 30 |
+------------------------------------------------------+----------------+
| | September 2009 |
+------------------------------------------------------+----------------+
| | GBP000 |
+------------------------------------------------------+----------------+
| Trade receivables | 412 |
+------------------------------------------------------+----------------+
| Other receivables | 20,531 |
+------------------------------------------------------+----------------+
| Interest receivable | 519 |
+------------------------------------------------------+----------------+
| Prepayments | 15 |
+------------------------------------------------------+----------------+
| | 21,477 |
+------------------------------------------------------+----------------+
All amounts above are due within one year.
Other receivables comprise the proceeds due from buyers of the trading
properties sold in the period (see note 4(c)). The proceeds were received on 7
October, 2009.
10. Cash and cash equivalents
Total cash deposits held at 30 September, 2009 amounted to GBP178,396,000 of
which GBP110,501,000 is separately disclosed in the group balance sheet as its
original maturity period was more than three months.
11. Trade and other payables
+-----------------------------------------------------+------------------+
| | Unaudited |
+-----------------------------------------------------+------------------+
| | as at 30 |
+-----------------------------------------------------+------------------+
| | September 2009 |
+-----------------------------------------------------+------------------+
| | GBP000 |
+-----------------------------------------------------+------------------+
| Trade payables | 78 |
+-----------------------------------------------------+------------------+
| Amount due to vendor for Industrious portfolio | 199,381 |
| acquisition | |
+-----------------------------------------------------+------------------+
| Accrued acquisition costs | 11,687 |
+-----------------------------------------------------+------------------+
| Corporation tax | 846 |
+-----------------------------------------------------+------------------+
| Rent received in advance | 373 |
+-----------------------------------------------------+------------------+
| Other amounts payable | 1,073 |
+-----------------------------------------------------+------------------+
| Other accruals | 740 |
+-----------------------------------------------------+------------------+
| | 214,178 |
+-----------------------------------------------------+------------------+
All amounts above are due within one year.
The amount due to the vendor for the Industrious portfolio acquisition was
satisfied on 7 October, 2009 by bank borrowings net of arrangement fees of
GBP125,453,000 and the balance from the Group's cash resources.
12. Borrowings
As at 30 September, 2009 the Group had no borrowings.
On 4 August, 2009 the Group entered into a facility agreement with Eurohypo AG
for a five year non-recourse debt facility, to be secured against the assets
that were ultimately acquired from the receivers of the Industrious Group. The
agreement was conditional upon certain conditions precedent being met as is
standard for this sort of agreement. All conditions were met and a loan
amounting to GBP127,709,000 was drawn on 7 October, 2009. The loan is now
secured by fixed charges over the investment property portfolio.
In order to protect the interest rate risk on the acquisition of the portfolio,
the following derivative instruments were in place as at 30 September, 2009:
+--------------------+-----------+------------+---------------+---------------+
| | | | Movement | |
+--------------------+-----------+------------+---------------+---------------+
| | | | recognised | Unaudited |
| | | | in | |
+--------------------+-----------+------------+---------------+---------------+
| | | | group | market |
+--------------------+-----------+------------+---------------+---------------+
| | | | statement of | value at |
| | | | | |
+--------------------+-----------+------------+---------------+---------------+
| | Protected | | comprehensive | 30 September |
+--------------------+-----------+------------+---------------+---------------+
| | rate | Expiry | income | 2009 |
+--------------------+-----------+------------+---------------+---------------+
| | % | | GBP000 | GBP000 |
+--------------------+-----------+------------+---------------+---------------+
| GBP70.5m | 4.0 | August | (2,789) | (2,789) |
| amortising swap | | 2014 | | |
+--------------------+-----------+------------+---------------+---------------+
| GBP56.75m cap | 4.0 | August | 1,546 | 1,546 |
| | | 2014 | | |
+--------------------+-----------+------------+---------------+---------------+
| | | | (1,243) | (1,243) |
+--------------------+-----------+------------+---------------+---------------+
The derivative contracts have been valued by reference to interbank bid market
rates as at the close of business on 30 September, 2009 by JC Rathbone
Associates Limited, and include the full LIBOR basis spread. These derivatives
are valued 'clean' and therefore do not take account of any accrued benefit or
liability for the period ended 30 September, 2009 because the accrued net cost
for that period is included within the interest accrual at the period end.
The market value of hedging instruments changes constantly with interest rate
fluctuations, but the exposure of the Group to movements in interest rates is
protected by way of the hedging products listed above. The valuation above does
not necessarily reflect the cost or gain to the group of cancelling its interest
rate protection at 30 September, 2009, which is generally a marginally higher
cost (or smaller gain) than a market valuation.
13. Obligations under finance leases
Finance lease obligations in respect of rents payable on leasehold properties
are payable as follows:
+----------------------+-------------------------+-----------+--------------+
| | | | Present |
| | | | value |
+----------------------+-------------------------+-----------+--------------+
| | Minimum | | of minimum |
+----------------------+-------------------------+-----------+--------------+
| | lease | | lease |
+----------------------+-------------------------+-----------+--------------+
| | payments | Interest | payments |
+----------------------+-------------------------+-----------+--------------+
| | GBP000 | GBP000 | GBP000 |
+----------------------+-------------------------+-----------+--------------+
| | | | |
+----------------------+-------------------------+-----------+--------------+
| Less than one year | 194 | (194) | - |
+----------------------+-------------------------+-----------+--------------+
| Between one and two | 194 | (194) | - |
| years | | | |
+----------------------+-------------------------+-----------+--------------+
| Between two and five | 581 | (581) | - |
| years | | | |
+----------------------+-------------------------+-----------+--------------+
| More than five years | 17,303 | (15,588) | 1,715 |
+----------------------+-------------------------+-----------+--------------+
| | | | |
+----------------------+-------------------------+-----------+--------------+
| | 18,272 | (16,557) | 1,715 |
+----------------------+-------------------------+-----------+--------------+
14. Related party transactions and balances
Interests in shares
The interests of the Directors and their families in the share capital of the
company are as follows:
+--------------------------------------------+----------------------------+
| | Interests in |
+--------------------------------------------+----------------------------+
| | ordinary shares |
+--------------------------------------------+----------------------------+
| | held at 30 |
+--------------------------------------------+----------------------------+
| | September |
+--------------------------------------------+----------------------------+
| | 2009 |
+--------------------------------------------+----------------------------+
| Aubrey Adams | 100,000 |
+--------------------------------------------+----------------------------+
| Mike Brown | 5,000,000 |
+--------------------------------------------+----------------------------+
| Keith Hamill | 40,000 |
+--------------------------------------------+----------------------------+
| Nick Leslau | 20,000,000 |
+--------------------------------------------+----------------------------+
| Alex Ohlsson | 40,000 |
+--------------------------------------------+----------------------------+
| John Stephen | 40,000 |
+--------------------------------------------+----------------------------+
| David Waters | 25,000 |
+--------------------------------------------+----------------------------+
The interests disclosed above include both direct and indirect interests in
shares.
Fees
Directors' fees of GBP66,000 were payable for the period ended 30 September,
2009. As at 30 September, 2009 GBP55,000 of fees payable remained outstanding
and are included within other amounts payable (note 11).
Nick Leslau and Mike Brown hold partnership interests in, and are Chairman and
Chief Executive respectively of, Prestbury Investments LLP, which is investment
advisor to the Group.
Management fees of GBP1,322,000 were payable to Prestbury Investments LLP in
respect of the period ended 30 September, 2009, of which GBP968,000 was payable
as at the balance sheet date and is included within other amounts payable (note
11).
Under the terms of the carried interest arrangements between the company and
Prestbury (Scotland) LP (a partnership in which Nick Leslau and Mike Brown have
interests), once the GBP211,377,000 of net funds raised on flotation has been
returned to shareholders (assuming no further share issues), then cash returns
over and above that amount may ultimately be shared as to 80% to the
shareholders and a carried interest payment of 20% to Prestbury (Scotland) LP
and Och-Ziff, subject to shareholders having first received an 11%pa preferred
return.
The carried interest payments are based on cash realisations other than where
either the Investment Advisory Agreement has been terminated (where the net
asset value of the company is used in the calculation as if that amount had been
returned to shareholders in cash) or there has been a takeover of the company
(in which case the offer price is used in the calculation).
No carried interest payment has yet crystallised. If the net asset value of the
Group as at 30 September, 2009 was used as the basis of the calculation, this
would theoretically amount to GBP2,583,000 payable to Prestbury (Scotland) LP.
This amount has not been included as a liability in this Interim Report on the
basis that the uplift in value giving rise to the theoretical carried interest
adjustment arises over a very short period of time, during which the hurdle rate
has only accrued for some four months, resulting in a disproportionately low
hurdle at the period end. The carried interest calculations will be reviewed in
the year end accounts and will be provided for if material.
Other transactions
Transactions between the Company and its subsidiaries are not disclosed, as
these are eliminated on consolidation.
15. Post balance sheet events
On 7 October, 2009, the Group completed the acquisition of the portfolio of 76
investment properties and four trading properties for GBP231,236,000 including
costs of acquisition. The accounting for this transaction is explained in note
4.On the same date, a group company drew down the credit line described in note
0, drawing GBP127,709,000 of debt, which amounted to GBP125,453,000 after
arrangement fees and the other costs of debt finance were offset. The properties
securing the debt include the seven properties acquired at auction on 16 July,
2009 but exclude any properties held for resale.
Also on 7 October, 2009, a group company completed the disposal of two
properties held for resale which were sold for cash consideration of
GBP20,531,000, resulting in a profit of GBP3,078,000. The accounting for this
transaction is explained in note 4.
On 14 October 2009 the third of the four properties held for resale was sold for
cash consideration of GBP2,694,000, resulting in a profit of GBP1,460,000.
The properties sold were not financed by the Group's external debt facility and
the net cash proceeds realised of GBP22,934,000 were placed on deposit.
This information is provided by RNS
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