TIDMMAX
Max Property Group PLC
Results for the year ended 31 March 2011
Max Property Group Plc is a Jersey resident real estate investment company. It
has an experienced Board, chaired by Aubrey Adams, and is exclusively advised by
Prestbury Investments LLP, which is owned and managed by a team led by Nick
Leslau and Mike Brown.
The Company's strategy is to exploit cyclical weakness in the UK real estate
market through opportunistic investment and active management with a view to
realising cash returns for shareholders over an investment cycle of
approximately seven and half years from its listing in May 2009.
31 March 31 March 12 months 22 months since
2011 2010 since last year listing
Net assets GBP281.5m GBP256.9m up GBP24.6m up GBP70.1m
EPRA net assets per share * 130.0p 118.9p up 9.3% up 35.3%
EPRA earnings per share** 4.5p 1.1p up 246% n/a
* excluding fair values of financial instruments and deferred tax and including
trading properties at fair value.
** excluding property revaluation movements, profits on sale of properties, fair
value movements on financial instruments and deferred tax.
* EPRA net assets up 9% in the year and 35% in the 22 months since listing
* Active recycling of capital leaves uncommitted cash for future investment of
GBP89m
* Over GBP100m of investment transactions in the year including:
* London Pubs portfolio acquisition for GBP42.6m
* Nightclubs portfolio acquisition for GBP9.4m
* acquisition of 45% JV interest - Hospitals portfolio acquired by JV for
GBP31.6m
* disposals realising net sale proceeds of GBP44.1m, increasing cash
resources after debt repayments by GBP26.5
* Intense management activity resulting in 450 lettings, lease renewals and
restructurings since purchase
* Reduction of vacancy rates since acquisition:
* Industrious down from 21% in October 2009 to 16%
* Offices down from 48% in January 2010 to 39% (would further reduce to
34% on completion of deals in hand)
* Nightclubs down from 19% in October 2010 to 12%
* London Pubs and Hospital portfolios all fully let since acquisition
* Over 900,000 sq ft of space vacant at acquisition since let or sold to
owner occupiers
* Property assets valued at GBP318.4m as at 31 March 2011:
* GBP316.0m investment properties; GBP2.4m trading property plus 45% interest
in GBP34.1m hospitals portfolio held in joint venture
* 132 properties: 64% by value industrial, 15% offices, 16% leisure, 5%
private hospitals
* 1,014 tenancies
* Wide geographical spread including 32% London & South East
* Average lot size GBP2.5m with 80% of properties valued at GBP10m or less
* In 22 months since raising GBP211.4m on listing, GBP334.0m of property
acquisitions completed
Aubrey Adams, Chairman of Max Property Group Plc, comments:
"The key for successful investment in the secondary market is to be highly
selective about the assets acquired, disciplined about the prices paid and then
be prepared to work very hard on asset management. Of paramount importance is a
low entry price that provides flexibility to undercut markets to secure new
lettings yet still leaving a margin so that reducing vacancy rates delivers
capital growth."
"We have assembled a portfolio of defensive high yielding assets providing us
with excellent opportunities to generate strong cash flow returns with the
prospect of further capital growth as the vacancy rate continues to reduce. We
are excited about the prospects for the business and remain resolutely single
minded in our focus on growing NAV per share, building on the 35% achieved in
the 22 months since listing."
13 June 2011
ENQUIRIES:
Prestbury Investments Tel 020 7647 7647
Mike Brown
Sandy Gumm
College Hill Tel 020 7457 2020
Gareth David
Morgan Stanley (Nominated advisor & Joint Broker) Tel 020 7425 8000
Edward Knight
Oriel Securities (Joint Broker) Tel 020 7710 7600
Mark Young
Forward looking statements
This document includes forward looking statements which are subject to risks and
uncertainties. You are cautioned that forward looking statements are not
guarantees of future performance and that if risks and uncertainties
materialise, or if the assumptions underlying any of these statements prove
incorrect, the actual results of operations and financial condition of the Group
may materially differ from those made in, or suggested bym the forward looking
statements. Other than in accordance with its legal or regulatory obligation,
the Company undertakes no obligation to review, update or confirm expectations
or estimates or to release publicly any revisions to any forward looking
statements to reflect events that arise after the date of this document.
Chairman's Statement
Dear Shareholder,
It gives me great pleasure to report to you Max Property Group Plc's results for
the year ended 31 March 2011.
We have been able to add significantly to the foundations laid in the first year
after listing to create a property investment business with a strong balance
sheet, a high running yield and an exciting future.
Results and financial position
We are pleased to report net asset value (on an EPRA basis) at 31 March 2011 of
GBP286.1 million, or 130.0 pence per share which is an increase of 35% in the 22
months since listing and 9% since 31 March 2010.
The net assets growth in the year to 31 March 2011 arose from:
* net rental income surpluses of 10.2 pence per share;
* property revaluation surpluses of 5.3 pence per share;
* realised trading and investment property disposal profits of 1.2 pence per
share;
* the share of profit from the hospitals joint venture of 0.6 pence per share;
* all of which significantly cover all administrative, financing and tax costs
of 6.2 pence per share;
resulting in 11.1p per share of net assets growth.
The Board's strategy is to use Max's capital to create value over the real
estate cycle and to return cash to shareholders towards the end of the
investment period. In that context, it is pleasing to note that of the 33.9
pence per share growth in net asset value since listing, over 29% is represented
by profits realised in cash.
The timing of our investments is driven by market opportunities and these do not
arise smoothly over time. As a result, our reported returns in any reporting
period can be expected to be lumpy rather than showing a smooth progression. We
make decisions for the long term prospects of the business rather than with an
eye to the next six months' results.
We work very hard to recycle capital through rental surpluses and timely asset
disposals to add to the Group's cash resources for acquisitions during the
investment phase of Max's life. Having raised GBP211.4 million on listing in May
2009, the Group has deployed GBP334.0 million of cash in asset purchases and has
realised total net proceeds of property sales of GBP83.4 million. Together with
the use of non-recourse debt financing where the risk profile of a portfolio
warrants it, this has enabled the Group to invest in five portfolios across four
sectors, spreading risk over 132 individual assets and over 1,000 tenancies.
The balance sheet remains strong and the strategy of financing assets only on a
strictly non-recourse basis continues to be consistently applied. The gross
debt on the balance sheet of GBP128 million is secured only against the specific
assets financed (those in the Industrious and London Pubs portfolios) which were
valued at 31 March 2011 at GBP259 million. There is no recourse to shareholders'
funds outside the ring fenced debt financed structures. Uncommitted cash at the
balance sheet date amounted to GBP89 million.
Portfolio update
We are proud of our progress in estate management and our achievements to date.
The Industrious portfolio which was acquired for GBP244 million in October 2009
has seen GBP77 million of disposals at margins over cost of c. 30%, and a vacancy
reduction from 21% on acquisition to under 16% today through no fewer than 430
lettings and lease regearings. 61% of the vacant space on acquisition of
approximately one million square feet has now been let or sold, demonstrating
that demand for this space is very much alive and kicking. The yield on cost of
this portfolio after deducting sales is 13.7% (11.6% after deduction of
irrecoverable rates and service charges) and over 20% on equity at our current
cost of finance. The average rent is GBP3.60 per square foot and the average unit
size is 6,000 square feet. We have a good foundation for rental growth as and
when occupational markets improve.
The Office portfolio acquired in January 2010 for GBP39 million or GBP50psf capital
value has, including deals currently in solicitors' hands, seen the vacancy rate
shrink from nearly 50% on acquisition to under 34% today. The yield on cost
after deducting sales is 12.4% rising to 13.7% on expiry of rent free periods.
Outgoings continue to be met by the GBP5.9 million escrow funds negotiated at
purchase.
Our approach to acquisitions has always included a keen focus on the entry
price. The relatively low purchase price of both the Office and Industrious
portfolios means that local competition can be undercut to secure lettings while
still providing very healthy cash on cash returns. In this way, the portfolio
is being repositioned and the vacancy rate significantly reduced, even in a very
competitive letting market.
During the second half of the financial year we were able to structure a deal
with Enterprise Inns Plc to acquire 29 very well located London pubs for GBP42.6
million, leased back to Enterprise for 35 years. Income is reviewed annually to
RPI subject to minimum 3% and maximum 4% per annum uplifts. The initial yield
was 6.7% and the purchase price was independently assessed as being not less
than the vacant possession value. We have sold our only pub that already had its
upper parts sold off (in Chelsea) and we achieved a yield of 4.5% on the sale,
41% above purchase price. The portfolio yield on cost rises over the next 60
months to between 7.8% and 8.2% as a result of the guaranteed uplifts. At the
end of that period there will still be 30 years remaining on the leases. Not
all deals have to be short leases to be financially exciting.
In October 2010 we acquired 14 nightclubs leased predominantly to Atmosphere
Bars & Clubs on 25 year lease arrangements. Like the London Pubs deal, we paid
vacant possession value for these properties and received an initial yield of
15.4% on cost. We have sold one investment at nearly double the purchase price
and of the three properties that were empty on acquisition, one has been let on
a new 20 year lease with upward only RPI-linked reviews and one has been sold
since the year end for proceeds of approximately twice its cost. Our current
yield on cost is 15.4% rising to 16.8% on completion of the sale. The portfolio
yield on letting the empty unit will rise to 17.8% and then to 20.3% in 2015
when the guaranteed uplifts on the Atmosphere lettings apply. We believe we
are being adequately rewarded for the risk profile of this portfolio.
We have structured our portfolio to ensure that it is very liquid, as
demonstrated by the average lot size across the entire portfolio of GBP2.5
million. The portfolio offers excellent defensive qualities whilst at the same
time providing an average yield on cost after deducting sales of 12.5%.
Outlook
The property market has become increasingly polarised. Prime assets have
recovered but current low capitalisation rates are more often than not an
indicator of the safety of the income stream rather than its growth potential.
In such cases we believe prospective returns will be pedestrian; being a bond
proxy is unlikely to deliver much excitement with bond yields at historic lows.
Central London is the one exception with rental growth both evident and likely
to continue while supply remains tight. Unfortunately much of the stock
available for purchase comprises either trophy assets at trophy prices or over-
rented City buildings with lease expiries likely to coincide with the next wave
of development completions. Genuine added value situations in London have been
rare and competitively fought over.
With interesting deals so scarce, the market is starting to pick over the corpse
of the secondary market and beginning to reappraise its potential,
notwithstanding the huge dispersion in prospective returns. 1960s provincial
office buildings and poorer quality secondary shops will continue to decline in
value as leases expire and vacancy rates continue to increase. Much of this
decline will be terminal. At the other extreme secondary assets that continue to
meet occupational requirements can offer sustainable cash flow returns far in
excess of prime. Letting up voids can also manufacture capital growth at a time
when the outlook for capital values outside London is flat now that yield shift
has run its course. The key for successful investment in the secondary market is
to be highly selective about the assets acquired, disciplined about the prices
paid and then be prepared to work very hard on asset management. Of paramount
importance is a low entry price that makes sufficient allowance for capital
expenditure to be able to turn round assets, provides flexibility to undercut
markets to secure new lettings yet still leaves a margin so that reducing
vacancy rates delivers capital growth.
We find it surprising that despite the unprecedented overhang of secondary
assets being held by the banks, few deals reached the market last year that met
our criteria. Fortunately banks are not the only source of deals; institutions
and property companies are selling as they seek to upgrade their portfolios and
companies such as Enterprise are carrying out sale and leasebacks. NAMA
announced recently that it was hoping to withdraw from its EUR9 billion UK loan
portfolio over the next two years so there is good reason to believe that we
will begin to see a greater flow of sales from banks and NAMA. The deleveraging
process has so far taken place at a snail's pace with most of it remaining to be
done. Whilst this process continues there is an unusually high number of factors
that might severely impair investor sentiment - stagflation in the UK, a
sovereign debt crisis in Europe, double dip recession in the US or any of a
variety of possible asset bubbles bursting from housing in China to internet
stocks. In such circumstances we think there's a good chance of a further buying
window for secondary property at highly attractive prices.
Putting potential external crises aside, we have assembled a portfolio of
defensive high yielding assets providing us with excellent opportunities to
generate strong cash flow returns with the prospect of further capital growth as
the vacancy rate continues to reduce. Unlike the prime market, secondary
property yields have not enjoyed any re-rating and this would provide a further
capital kicker if investors begin to compete for higher yielding assets as they
have done in past cycles. The usual pattern is for prime to recover first and
secondary at a later point when the economy has gained sufficient traction for
secondary rents to begin to rise. As we have already stated, many secondary
assets will fail to recover in this cycle and the uncertain outlook may
considerably extend the period before recovery. However, we are already
beginning to see the first sign of a rise in some secondary rents in central
London before prime rents have begun to grow in assets outside the capital.
In the meantime we are resolutely single minded in our focus on growing NAV per
share and building on the 35% achieved to date. We are excited about the
prospects for the business.
Aubrey Adams
Chairman
13 June 2011
TIMELINE
* May 2009 GBP211.4m net raised on IPO
* Oct 2009 GBP244.0m acquisition of Industrious portfolio
* Oct 2009 GBP20.3m net disposal proceeds on sale of London industrial assets
(18% profit)
* Jan 2010 disposal of Farnborough business park for net proceeds of GBP16.3m
(52% profit)
* Feb 2010 GBP39m acquisition of Office portfolio
* May 2010 45% interest in GBP31.6m Hospitals JV with Lloyds Bank
* Jul 2010 net proceeds on sale of Manchester office GBP4.8m (57% profit)
* Sept 2010 net proceeds on sale of High Wycombe industrial property GBP29.4m
(22% profit)
* Oct 2010 GBP9.4m Nightclubs portfolio purchase
* Jan 2011 GBP42.6m London Pubs portfolio acquired
* Apr 2011 GBP2.1m net proceeds on sale of Chelsea pub (41% profit)
* Over 450 lettings, lease renewals and regears over the period
Timeline excludes 12 smaller disposals with total net proceeds of GBP10.5m at
average 48% profit
All profits quoted are profits over cost
REPORT OF THE PROPERTY ADVISOR, PRESTBURY INVESTMENTS, LLP
Prestbury Investments LLP exclusively advises Max Property Group Plc and is
pleased to report on the operations of the Group.
The portfolio
Over the first two years since listing, a diverse portfolio has been assembled
with a spread of tenant and sector risk, and with low average lot sizes with a
view to maximizing flexibility for the disposal of the assets at the end of the
investment cycle when the time comes to wind the business down and return cash
to investors.
Portfolio valuation movements in the period to 31 March 2011
Uplift above purchase price
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31 March 31 March Uplift above
2011 2010 prior year
=------------------------------------------------------------------------------
Industrial 15.2% 13.4% 2.2%
Offices 45.9% 24.5% 15.3%
Hospitals (acquired May 2010) 8.8% - -
Nightclubs (acquired October 2010) 4.7% - -
London Pubs (acquired January 2011) 3.8% - -
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Average 16.5% 15.0% 4.4%
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Portfolio valuation yields at 31 March 2011
Weighted
average
Initial Equivalent Reversionary Capital unexpired
yield yield yield value psf lease term
=---------------------------------------------------------------------------
Industrial 9.8% 10.5% 11.1% GBP33 3.7 years
Offices 8.3% 10.3% 13.6% GBP74 3.0 years
Hospitals 6.5% 6.8% 7.2% n/a 24.2 years
Nightclubs 13.5% 16.3% 18.1% GBP39 24.0 years
London Pubs 6.0% 7.7% 6.0% GBP308 34.9 years
=---------------------------------------------------------------------------
Average 9.0% 10.1% 10.8% 7.8 years
=---------------------------------------------------------------------------
Industrious portfolio
The Industrious portfolio is a portfolio of multi-let industrial estates bought
out of receivership in a deal completed in October 2009 for GBP244 million
including purchase costs. This estate was valued under its previous ownership
at c. GBP700 million at the peak of the market and the purchase price of GBP244
million compares to a replacement cost at acquisition estimated at GBP544
million. The gross initial yield on purchase was 12.7%, capital value was low
at GBP31 psf and the vacancy rate by area in October 2009 was 20.7%.
We explain below the active management since acquisition that has gone a long
way towards the repositioning of the estate.
Activity
In Max's first 18 months of ownership, 430 lettings, sales of empty units, lease
renewals and lease regearings on 2.3 million sq ft of space have been
concluded. This understates our asset management activity as GBP70 million of
disposals of properties sold to institutions are excluded from these figures and
from the analysis below.
% of space
Number of vacant at
units Area (sq ft) purchase
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Vacant at purchase in October 2009, now let 158 645,692 48.7%
Vacant at purchase, now sold to owner
occupiers 7 166,199 12.6%
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Total before new vacancies since acquisition 165 811,891 61.3%
Let at acquisition, now vacant (101) (515,905)
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Net improvement 64 295,986
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* Total sales of non core assets since acquisition of GBP77.4 million at an
average 7.8% net initial yield and GBP17.0 million profit (29%) over purchase
price
* Of the total sales, GBP70.5 million of sales were to institutions at capital
values of GBP99 psf, with the sold portfolio having a vacancy rate of 2% and
realising GBP15.0 million (28%) above cost
* GBP6.9 million of sales of vacant units to owner occupiers realising GBP2.0
million (43%) over cost
* Vacancy rate down from 20.7% at acquisition to 15.5%
* 61% of the space vacant on acquisition has since been let or sold
* Of the 1,014,000 sq ft currently vacant:
* 165,000 sq ft is under offer to let
* 45,000 sq ft is under offer to owner occupiers
* 145,000 sq ft is known to be coming vacant, including space being taken back
to secure larger lettings
Current portfolio
* 78 properties
* 907 tenancies
* 6.6 million sq ft
* Average unit size: 6,000 sq ft
* Highly liquid: 76% of properties by number are lot sizes of GBP3 million or
below
* 43% of properties by value in South of England
* Weighted average unexpired lease term: 3.7 years
The Industrious portfolio predominantly comprises smaller units that appeal to a
wide variety of users. Martlesham Heath Business Park in Ipswich (503,000 sq
ft) makes up over 10% of the portfolio by value. All other properties each make
up less than 6% of the portfolio value.
Industrial portfolio at 13 June 2011
31 March
2011 Percentage Capital Number of Number of
Region valuation* of total value psf Area properties units
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GBP000 % GBP sq ft
South East 50,635 24% 59.58 849,861 13 214
East Anglia 26,030 12% 47.81 544,482 2 125
South West 15,885 7% 39.62 400,962 8 93
Midlands 38,050 18% 26.62 1,429,208 18 165
North West 30,805 14% 26.86 1,146,822 17 190
Yorkshire 12,310 6% 39.73 309,810 11 162
North East 30,290 14% 22.82 1,327,332 3 107
Scotland 10,745 5% 19.40 553,859 6 42
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Total 214,750 100% 32.72 6,562,336 78 1,098
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* Includes trading property at 31 March 2011 at its valuation of GBP2,400,000.
Office portfolio
The Office portfolio was acquired in February 2010 for c. GBP39 million ( GBP50 psf
capital value) from a property fund seeking to meet redemptions. The portfolio
of predominantly late 1980s air conditioned offices was approximately half
vacant at acquisition and some 70% of the vacant space had already been
refurbished to a high specification by the vendor. The net initial yield was
12.7%. The purchase price compared very favourably to an estimated
reinstatement cost at that time of GBP180 million. The terms of the transaction
included the vendor funding a GBP5.9 million escrow account which is being used to
cover void costs up to three years after acquisition.
Management activity has focussed on letting activity and the disposal of a non
core asset.
Activity
* 19 lettings since purchase on c.100,000 sq ft
* Vacancy rate down from 48% to 39% since acquisition
* Over 30,000 sq ft of lettings in solicitors' hands would bring the vacancy
rate down further to 34% on signing
* Some 50,000 sq ft has fallen vacant since acquisition of which 70% relates
to a tenant break at Centric, Milton Keynes, which was known about at the
time of purchase and was reflected in the price
* Disposal of Manchester office building for GBP5.8 million realising a profit
of GBP1.7 million (57%) above cost
Current portfolio
* Nine properties
* Eight freeholds; one 105 year peppercorn leasehold
* 661,000 sq ft
* 70% South, 25% Manchester, 5% Bristol
Area Vacancy rate Tenants
=-------------------------------------------------------------------------------
At 13 At 13 June
At June 2011 inc space
sq ft purchase 2011 under offer
=-------------------------------------------------------------------------------
Serco, Trevor Jones
Concord, Accountants,
Manchester 125,000 66% 57% 32% Thyssenkrupp
Ericsson & Rockwell
subsidiaries,
Broadlands, C-Med, Fender, SIG
Horsham 116,000 34% 15% 15% Komfort
Centric,
Milton Keynes * 103,000 50% 82% 82% Computacenter
Silbury Court,
Milton Keynes* 80,000 34% 22% 22% 13 tenants
Solent Centre,
Fareham 72,000 56% 27% 27% 18 tenants
Overbridge Square,
Newbury 67,000 29% 9% 9% 7 tenants
New Bond House,
Bristol 47,000 63% 30% 0% 8 tenants
Rookesley,
Milton Keynes * 27,000 0% 0% 0% Workplace
Aldrin Place,
Farnborough 24,000 100% 100% 100% Vacant
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661,000 48% 39% 34%
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* Properties held in joint venture where Max has an 83.3% interest.
Hospitals portfolio
The Group together with Lloyds Banking Group acquired a portfolio of four
freehold private hospitals in Blackburn, Liverpool, Ayr and Stirling in May
2010. Max invested a nominal sum in the joint venture capital and Lloyds
injected the assets with the associated debt funding. The Company earns a
management fee of GBP100,000 pa from the joint venture. Under the joint venture
arrangements, Max has 45% of the economics and 50% of the votes (Lloyds has 50%
of votes and economics).
The joint venture paid GBP31.6 million for the Hospitals portfolio, fully debt
financed on a non-recourse basis by Lloyds. Each hospital is let to BMI
Healthcare Limited, guaranteed by General Healthcare Group Limited (GHG) for a
term of 25 years from May 2010 with a tenant option to renew for a further ten
years, on full repairing and insuring terms with the tenant responsible for all
outgoings. The initial rent was GBP2.3 million pa with annual, upwards only
uncapped RPI-linked rent reviews throughout the term. Since the balance sheet
date, the first annual rent review date has occurred, resulting in a rental
uplift of 6.2% and a new rental level of GBP2.5 million pa.
GHG is the UK's largest private healthcare provider with 67 hospitals and
treatment centres across the UK, and generated an EBITDA of GBP222 million in the
year to September 2010 ( GBP221 million in 2009).
The portfolio was independently valued at GBP34.1 million at 31 March 2011,
resulting in a carrying value of Max's 45% joint venture interest of GBP1.1
million.
Nightclubs portfolio
In October 2010, 14 nightclubs were acquired for GBP9.4 million in a deal struck
with a lender seeking an exit for a larger portfolio. At the time of
acquisition, three of the clubs were vacant and the net initial yield on
acquisition was 15%, expected to rise to 16% on letting of the vacant space and
19% after the guaranteed rental uplifts in year five. 11 of the units are let
to Atmosphere Bars & Clubs for a 25 year term certain. 13 sites were held
freehold and one leasehold.
The units held by Atmosphere are let on 30 year leases from January 2010 with a
tenant break option at year 25. The aggregate net rent of GBP1.4 million rises by
15% to GBP1.6 million in 2015 with five-yearly upwards only open market reviews
thereafter. The tenant is a debt free company backed by Sun Capital Partners
and was formed to acquire the best of the units from the former 3D Entertainment
Group.
Since acquisition one freehold property in Colchester has been sold for GBP0.8
million realising a profit of GBP0.4 million. Of the three properties vacant at
acquisition, one has been let on a new 20 year lease, one has been sold since
the year end for proceeds of approximately twice its cost and one, with an ERV
of GBP60,000, remains vacant. The yield expectation after the first review of the
Atmosphere units, the letting of the vacant unit and the signing of the sale in
hand is now expected to be in excess of 20%.
London Pubs portfolio
Max structured a sale and leaseback transaction in January 2011 in which 29
freehold pubs situated in high value residential areas in and around London were
acquired for GBP42.6 million. The pubs were let on new 35 year leases to
Enterprise Inns Plc at market rents totalling GBP3.0 million with minimum 3% pa
and maximum 4% pa annual RPI-linked uplifts. The net initial yield on the
portfolio was 6.7% and the capital value at cost was GBP300 psf. The total area
acquired was 150,000 sq ft. The independently assessed vacant possession value
of the portfolio was approximately the same as the purchase price, and many of
the properties are considered by the management team to have a higher
alternative value for residential use in the event that they fell vacant and
planning consent were secured.
The pubs acquired are located in Marylebone, Notting Hill, Chelsea,
Spitalfields, Southwark, Camden, Highgate, Islington, Barnes, Sheen, Chiswick,
Battersea, Clapham, Balham, Tooting and Fulham.
Enterprise is the UK's largest tenanted pub company, owning over 7,000 pubs
which the company values at over GBP5 billion. In its most recent results
announcement in May 2011 the Enterprise group reported EBITDA of GBP179 million
and profits before tax of GBP61 million.
Since acquisition, the Rose & Crown pub in Chelsea has been sold for GBP2.1
million at a net initial yield of 4.5% which equates to a GBP650 psf capital
value, realising a profit of GBP0.6 million, 41% above the gross purchase price.
Financial review
Max's investment mandate is to create value and return cash to shareholders over
an investment cycle. The focus of financial performance is therefore
principally on net asset value ("NAV") per share growth, as the Group's NAV per
share is a useful benchmark against which to measure progress in creating
shareholder value.
Movements in net asset value
As Max's objective is to deliver attractive cash on cash returns to investors
over an estimated seven and a half year investment cycle, it is important to the
management team to be able to deliver meaningful realised profits while
repositioning its portfolio through active asset management until it is time to
start the disposal process. Of the 11.1 pence per share uplift in net asset
value in the year, approximately half is attributable to profits realised in
cash.
In the 22 months from listing to 31 March 2011, Max has generated a 35% increase
in net asset value per share. Of this 33.9 pence per share increase, 29%
relates to cash profits which have added to the Group's resources for its
investment activities.
The increase in EPRA net asset value over the year ended 31 March 2011
comprises:
NAV
movements
since listing
NAV movements since 31 March 2010 in May 009
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Interests
held by third Attributable to
Gross parties shareholders Pence Pence
GBPm GBPm GBPm per share per share
=-------------------------------------------------------------------------------
Property revaluation
surpluses 11.9 (0.2) 11.7 5.3 23.3
Net property income 22.3 - 22.3 10.2 15.2
Surpluses on sales 2.7 - 2.7 1.2 4.9
Running costs (5.7) - (5.7) (2.6) (4.5)
Share of joint
venture result,
after tax 1.3 - 1.3 0.6 0.6
Net finance costs (6.1) - (6.1) (2.8) (4.0)
Tax (1.7) - (1.7) (0.8) (1.6)
=-------------------------------------------------------------------------------
EPRA NAV uplift 24.7 (0.2) 24.5 11.1 33.9
=-------------------------------------------------------------------------------
The EPRA net asset value measure strips out the effects of hedging valuation
movements where hedging instruments are held for long term benefit and are
expected to unwind over time, rather than to crystallise at the balance sheet
date. It also includes an adjustment to reflect trading property at fair value.
The accounting policies applied in arriving at the net assets are stated in note
2 to the financial statements which highlights the key judgement areas in
preparing these results. The key areas include the property and derivatives
valuations, where independent open market valuations are obtained, and also the
consideration of whether any carried interest payments are likely to be made in
future to the external manager. As explained in note 21 to the financial
statements, the Board has concluded that on the basis of external evidence,
there is not sufficient certainty at this stage that any payment will be made,
therefore no provision has been made in these results for potential incentive
fees payable. The Board regularly assesses the performance of the management
team and the appropriateness of the alignment of its interests in the Company
and is satisfied that regardless of the position on carried interests at this
early stage in the life of the Company, and with some GBP30 million invested in
it, the management team remains acutely focussed on the business and has a
strong alignment of interests with all shareholders.
'Triple net asset value'
The 'triple net asset value' is the net asset value after excluding the mark to
market costs of debt and hedging instruments and any inherent tax. As a Jersey
resident group there is no tax liability on investment property sales other than
those held in UK corporate structures (the Hospitals portfolio), therefore the
only adjustment for inherent tax is the Group's 45% share of inherent tax in the
Hospitals joint venture.
The Group's triple net asset value is shown below:
31 March 2011 31 March 2010
=-------------------------------------------------------------------------------
Pence Pence
GBPm per share GBPm per share
=-------------------------------------------------------------------------------
Net asset value attributable to owners of the
Company 281.5 128.0 256.9 116.8
Adjustments:
Fair value of trading properties 0.4 0.2 1.6 0.7
Fair value of hedging instruments (including in
joint venture) 4.7 2.1 3.8 1.7
Deferred tax (including in joint venture) (0.5) (0.3) (0.8) (0.3)
=-------------------------------------------------------------------------------
EPRA net asset value 286.1 130.0 261.5 118.9
Less fair value of hedging instruments, net of
deferred tax (4.1) (1.8) (3.0) (1.4)
=-------------------------------------------------------------------------------
Triple net asset value on an EPRA basis 282.0 128.2 258.5 117.5
=-------------------------------------------------------------------------------
Income statement
Given the objective to grow net asset value and the fact that the Group's equity
is deployed in a series of transactions over time, not only is NAV growth
unlikely ever to show a smooth progression, results in the income statement are
likely to be 'lumpy' too.
Movements in the property revaluations, which contribute 5.3 pence per share to
the Group's NAV growth in the year for the Group's directly held assets and a
further 0.6 pence per share for the joint venture investment, are described in
the portfolio section of this report. The other key elements of the income
statement are described below.
Net income from property activities
Property income and surpluses on disposal comprise the following:
Year ended Period ended
31 March 2011 31 March 2010
=-------------------------------------------------------------------------------
Pence Pence
GBPm per share GBPm per share
=-------------------------------------------------------------------------------
Gross rent 30.7 14.0 14.9 6.7
Direct property costs (8.4) (3.8) (3.8) (1.7)
=-------------------------------------------------------------------------------
Rental surplus 22.3 10.2 11.1 5.0
=-------------------------------------------------------------------------------
Proceeds from sale of trading properties 4.9 2.2 23.2 10.6
Cost of trading properties sold (3.1) (1.4) (18.7) (8.4)
=-------------------------------------------------------------------------------
Surplus from sale of trading properties 1.8 0.8 4.5 2.2
=-------------------------------------------------------------------------------
Proceeds from sale of investment properties 40.6 18.5 16.5 7.5
Cost of investment properties sold (38.0) (17.3) (14.7) (6.7)
=-------------------------------------------------------------------------------
Profit on sale of investment properties 2.6 1.2 1.8 0.8
=-------------------------------------------------------------------------------
Total earned income from net rent and property
sales, before tax 26.7 12.2 17.4 8.0
=-------------------------------------------------------------------------------
The 2011 results reflect a full year's ownership of the Industrious and Office
portfolios, ten months' contribution from the Hospitals joint venture, five
months from the Nightclubs portfolio and two months from the London Pubs
portfolio. The 2010 results included six months' contribution from the
Industrious portfolio and two months from the Offices portfolio, therefore
comparisons of net income by portfolio from year to year are not particularly
meaningful. However progress in stabilising income and current portfolio
running yields are explained in the portfolio section of this report in
particular in the progress in reducing void rates, which is the key driver for
creating value at this time in the cycle when capitalisation rates are
relatively stable.
Under the terms of the acquisition of the Office portfolio, the seller deposited
GBP5.9 million into an escrow account, which is used to meet the running costs in
relation to that portfolio for up to three years following completion of the
acquisition in February 2010. In accordance with accounting principles, the
positive benefit of the escrow account is not shown as a reduction of direct
property costs within the income statement but as a reduction in the cost of the
assets. Consequently the benefit of the escrow account is shown in the income
statement as an increase in the revaluation movement in the relevant period.
The benefit of the escrow arrangements for the year was GBP2.7 million ( GBP0.2
million for the two month period from the acquisition to 31 March 2010).
The net rental surpluses above are shown net of provisions for specific tenant
arrears for rent, service charges and other tenant billings that are not likely
to be recovered. This amounts to GBP0.4 million in the year ( GBP0.9 million in the
prior period), the rental element of which is GBP0.3 million ( GBP0.8 million in the
prior period) or 1.2% (3.5% in the prior period) of the rent billed in the
period.
Running costs
As an externally managed business, the Group's running costs principally
comprise the management fee payable to Prestbury Investments LLP, which amounted
to GBP4.6 million in the year ( GBP3.4 million in the ten month prior period). The
other principal component of the Group's GBP5.7 million (prior period GBP4.2
million) running costs is GBP0.7 million (prior period GBP0.6 million) of corporate
costs. Corporate costs are the costs necessarily incurred as a result of the
Company being a listed company, such as listing fees and Non-Executive
Directors' fees. Other than the Prestbury fee, which is linked to increases in
the value of shareholders' equity (as explained in note 21), costs have remained
relatively stable since the prior period.
Cash flow
The Group has produced cash flows from operations of GBP10.6 million ( GBP36.4
million in the prior period including a GBP15.2 million contribution from trading
property sales), represented by cash returns generated by the Group's property
activities before financing. The 2011 net cash flow from operations reflects
lower net proceeds from trading properties given the substantially smaller
trading portfolio in the year, and is also impacted by a GBP7.5 million timing
difference in VAT cash flows on the London Pubs portfolio acquisition that will
reverse early in the new financial year when the VAT is recovered.
During the year, GBP55.7 million has been employed in the acquisition of real
estate bringing total gross acquisitions since listing to GBP334.0 million. A net
GBP24.9 million has been raised in the year from non-recourse bank debt resulting
in GBP30.8 million of the Group's cash resources being deployed in property
investment in the period to 31 March 2011 and GBP181.4 million since the Company
raised GBP211.4 million on listing.
With the majority of the assets acquired by the Group being high yielding assets
with relatively low gearing, the income surpluses produced, together with cash
raised through disposals, significantly adds to the Group's cash firepower.
Investment property disposal proceeds in the year net of debt repayments added
GBP20.7 million to the Group's cash resources in the year (a further GBP1.1 million
was received after the year end) and, added to the GBP10.6 million generated from
operations, the cash flow generated at GBP31.3 million was sufficient to fund the
GBP30.8 million of net cash invested in new acquisitions. While in the investment
phase of Max's life, our efforts will continue to be directed towards efficient
recycling of capital in this way.
Tax
The tax charge for the year of GBP1.7 million represents an effective tax rate of
12.7% on the GBP13.4 million of pre tax profit excluding the investment property
revaluation surplus and the results of joint ventures. UK Income Tax is payable
at a rate of 20% on the net rental surplus after deduction of interest costs.
There is no tax payable on the interest income of the Jersey companies within
the Group (which principally earn interest income) nor on investment property
capital gains, which are the principal reasons for the difference between the
income tax rate of 20% and the effective tax rate.
Financing
The financing strategy laid down by the Board is to use non-recourse leverage
with a view to enhancing equity returns whilst maintaining prudent levels of
interest cover and protecting shareholders' funds. The Board's intention is to
ensure that:
* interest rate risk is hedged such that the maximum interest cost on any loan
is fixed or capped over the term of the loan;
* maturity profiles are managed to reduce refinancing risk; and
* interest cover is considered having regard to upside and downside scenarios.
This approach has again been consistently applied in the period since listing.
Of the five portfolios owned by the Group at the balance sheet date, three - the
Industrious, Hospitals and London Pubs portfolios - are partly debt financed.
All facilities are financed on a strictly non-recourse basis and with no cross
default provisions.
In each case, there is and has consistently been throughout the year comfortable
levels of headroom on the relevant banking covenants. The key financial
covenants in each case are the loan to value and interest cover tests. These
are monitored throughout the year by the management team and there have been no
defaults or potential defaults in any facility.
The debt within the Industrious portfolio of GBP102.6 million at 31 March 2011 is
secured on assets independently valued at that date at GBP212.4 million. The
London Pubs portfolio debt of GBP25.5 million was secured on assets independently
valued at GBP46.6 million and since the balance sheet date the debt has been
reduced through disposals to GBP24.5 million secured on assets valued at 31 March
2011 at GBP44.9 million. Each sits well within the loan to value covenants. At
the most recent test dates at the end of April 2011 the valuations would need to
fall by 25% before a covenant breach would occur on the Industrious portfolio
and by 20% to breach the covenant on the London Pubs portfolio.
Interest cover is tested on the basis of conservative projections of rent and
interest costs. The risk on the rental line is managed through active asset
management and the risk on the interest line by interest rate hedging in order
to fix the maximum level of interest cost payable. When most recently tested in
April 2011 there was 22% headroom on the Industrious interest cover test and
15% on the London Pubs portfolio.
As medium term interest rates at the time of writing are at close to all time
lows, the strategy of managing a portion of the interest rate risk by way of
interest rate caps has proved useful in enabling Max to take advantage of these
low rates while still capping the potential rate payable at a rate considered to
be affordable in the context of the portfolio income streams. The potential
maximum rates payable and the rates payable during the year for the Industrious
and London Pubs portfolio facilities are:
Actual average rate payable
in the year to 31 March 2011 Maximum rate payable
=-----------------------------------------------------------------------
Industrious 5.3% 6.4%
London Pubs 3.1% 5.9%
=-----------------------------------------------------------------------
Weighted average 5.2% 6.3%
=-----------------------------------------------------------------------
The Hospitals portfolio is held in a joint venture where Max has a 45% economic
interest. The debt is held within the joint venture company where Max's capital
at risk in that transaction is limited to the equity in the joint venture which
at 31 March 2011 was GBP1.1 million. The portfolio was fully debt financed by
Lloyds Bank and the risk of interest rate movements is managed by interest rate
swaps which fix the total cost of the debt at 5.5% per annum. At the most
recent test date in April 2011, the headroom on the loan to value covenant was
22% and headroom on the interest cover test was 4%.
Whilst the management team is pleased to see the results of its efforts
translating into healthy NAV per share growth, we are never complacent and
remain fiercely focussed on growing the business while preserving the value of
shareholders' equity, including our own c. GBP30 million investment.
Mike Brown
Chief Executive
Prestbury Investments LLP
13 June 2011
GROUP INCOME STATEMENT
Year to 17 April 2009 to
31 March 2011 31 March 2011
Note GBP000 GBP000
=-----------------------------------------------------------------------------
Gross rental income 30,736 14,890
Proceeds from sale of trading properties 4,873 23,225
=-----------------------------------------------------------------------------
35,609 38,115
=-----------------------------------------------------------------------------
Property outgoings 11 (8,379) (3,789)
Cost of sales of trading properties (3,142) (18,659)
=-----------------------------------------------------------------------------
(11,521) (22,448)
+----------------------------------------------------------------------------+
|Net rental income 22,357 11,101 |
| |
|Profit on sale of trading properties 1,731 4,566 |
+----------------------------------------------------------------------------+
Gross profit 24,088 15,667
Administrative expenses:
+----------------------------------------------------------------------------+
|General administrative expenses (5,037) (3,568) |
| |
|Corporate costs (700) (627) |
+----------------------------------------------------------------------------+
Total administrative expenses (5,737) (4,195)
Investment property revaluation surplus 11,566 24,752
Profit on sale of investment properties 2,628 1,838
Other income 85 -
Discount on acquisition 6 - 15,490
=-----------------------------------------------------------------------------
Operating profit 4 32,630 53,552
Share of profit of joint venture 12 1,097 -
Finance income 7 675 1,069
Finance costs 7 (8,339) (3,960)
=-----------------------------------------------------------------------------
Profit before tax 26,063 50,661
Tax charge 8 (1,686) (1,828)
=-----------------------------------------------------------------------------
Profit for the period 24,377 48,833
=-----------------------------------------------------------------------------
Profit for the period attributable to:
Owners of the parent 24,141 48,334
Non-controlling interest 9 236 499
=-----------------------------------------------------------------------------
24,377 48,833
=-----------------------------------------------------------------------------
Pence Pence
Earnings per share per share per share
=-----------------------------------------------------------------------------
Basic and diluted 10 11.0 22.0
=-----------------------------------------------------------------------------
All amounts relate to continuing activities.
GROUP STATEMENT OF COMPREHENSIVE INCOME
Year to 17 April 2009 to
31 March 2011 31 March 2010
Note GBP000 GBP000
=-------------------------------------------------------------------------------
Profit for the period 24,377 48,833
Market value adjustment of interest rate
derivatives, recognised directly in equity 16b 787 (3,329)
Amortisation of interest rate swap,
transferred to income statement (183) (169)
Tax effect of interest rate derivative
valuation adjustment 8 (121) 700
Share of market value adjustment of interest
rate derivatives in joint venture,
recognised directly in equity, net of
deferred tax 12 (37) -
=-------------------------------------------------------------------------------
Total comprehensive income for the period,
net of tax 24,823 46,035
=-------------------------------------------------------------------------------
Total comprehensive income for the period,
net of tax, attributable to:
Owners of the parent 24,587 45,536
Non-controlling interest 9 236 499
=-------------------------------------------------------------------------------
24,823 46,035
=-------------------------------------------------------------------------------
GROUP STATEMENT OF CHANGES IN EQUITY
Equity
attributable to Non-
Stated Hedging Retained owners of the controlling
capital reserve earnings parent interests Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
At the start of the
year 211,367 (2,798) 48,334 256,903 1,499 258,402
Profit for the year - - 24,141 24,141 236 24,377
Market value
adjustment of
interest rate
derivatives - 604 - 604 - 604
Tax effect of
interest rate
derivative
valuation
adjustment - (121) - (121) - (121)
Share of market
value adjustment of
interest rate
derivatives in
joint venture, net
of deferred tax - (37) - (37) - (37)
=-------------------------------------------------------------------------------
Total comprehensive
income for the
year, net of tax - 446 24,141 24,587 236 24,823
=-------------------------------------------------------------------------------
At 31 March 2011 211,367 (2,352) 72,475 281,490 1,735 283,225
=-------------------------------------------------------------------------------
Equity
attributable to Non-
Stated Hedging Retained owners of the controlling
capital reserve earnings parent interests Total
GBP000 GBP000 GBP000 GBP000 GBP000 ÂGBP000
=-------------------------------------------------------------------------------
At incorporation - - - - - -
Profit for the
period - - 48,334 48,334 499 48,833
Market value
adjustment of
interest rate
derivatives - (3,498) - (3,498) - (3,498)
Tax effect of
interest rate
derivative
valuation
adjustment - 700 - 700 - 700
=-------------------------------------------------------------------------------
Total comprehensive
income for the
period, net of tax - (2,798) 48,334 45,536 499 46,035
Loan capital issued
to non-controlling
investor - - - - 1,000 1,000
Issue of ordinary
shares of no par
value 220,000 - - 220,000 - 220,000
Share issue costs (8,633) - - (8,633) - (8,633)
=-------------------------------------------------------------------------------
At 31 March 2010 211,367 (2,798) 48,334 256,903 1,499 258,402
=-------------------------------------------------------------------------------
GROUP BALANCE SHEET
As at As at
31 March 2011 31 March 2010
Note GBP000 GBP000
=-------------------------------------------------------------------------------
Non-current assets:
Investment properties 11 316,103 285,358
Investment in joint venture 12 1,060 -
Interest rate derivatives at market value 16b 1,305 -
Deferred tax asset 8 639 700
=-------------------------------------------------------------------------------
319,107 286,058
=-------------------------------------------------------------------------------
Current assets:
Trading properties 2,033 5,252
Trade and other receivables 13 16,022 4,765
Cash deposits with maturities of more than
three months 6,695 35,700
Cash and cash equivalents 14 87,634 66,916
=-------------------------------------------------------------------------------
112,384 112,633
=-------------------------------------------------------------------------------
Total assets 431,491 398,691
=-------------------------------------------------------------------------------
Current liabilities:
Trade and other payables 15 (14,873) (15,529)
Corporation tax (2,016) (1,828)
Interest rate derivatives at market value 16b (1,596) (2,308)
=-------------------------------------------------------------------------------
(18,485) (19,665)
=-------------------------------------------------------------------------------
Non-current liabilities:
Borrowings 16a (126,355) (117,466)
Interest rate derivatives at market value 16b (1,788) (1,443)
Obligations under finance leases 17 (1,638) (1,715)
=-------------------------------------------------------------------------------
(129,781) (120,624)
=-------------------------------------------------------------------------------
Total liabilities (148,266) (140,289)
=-------------------------------------------------------------------------------
Net assets 283,225 258,402
=-------------------------------------------------------------------------------
Equity attributable to owners of the parent:
Stated capital 18 211,367 211,367
Hedging reserve (2,352) (2,798)
Retained earnings 72,475 48,334
=-------------------------------------------------------------------------------
281,490 256,903
Non-controlling interest 9 1,735 1,499
=-------------------------------------------------------------------------------
Total equity 283,225 258,402
=-------------------------------------------------------------------------------
Pence Pence
per share per share
=-------------------------------------------------------------------------------
Basic and diluted net asset value per share 20 128.0p 116.8p
EPRA net asset value per share 20 130.0p 118.9p
=-------------------------------------------------------------------------------
GROUP CASH FLOW STATEMENT
Year to 17 April 2009 to
31 March 2011 31 March 2010
Note GBP000 GBP000
=-------------------------------------------------------------------------------
Cash flows from operating activities:
Profit before tax 26,063 50,661
Adjustments for non-cash items:
Investment property revaluation surplus 11 (11,566) (24,752)
Profit on sale of investment properties (2,628) (1,838)
Discount on acquisition 6 - (15,490)
Share of profits of joint venture 12 (1,097) -
Net finance costs 7 7,664 2,891
=-------------------------------------------------------------------------------
Cash flows from operating activities before
changes in working capital 18,436 11,472
Change in trade and other receivables (9,247) (4,162)
Change in trade and other payables (261) 13,829
Change in trading properties 3,219 15,218
Tax paid (1,557) -
=-------------------------------------------------------------------------------
Cash flows from operating activities 10,590 36,357
=-------------------------------------------------------------------------------
Investing activities:
Cash flows related to business acquisition - (243,895)
Investment property acquisitions (55,694) (34,364)
Capital expenditure on investment properties (3,269) (116)
Drawings from escrow account 2,499 231
Proceeds from sales of investment properties 37,349 16,313
Cash received from/(placed on) short term
deposit 29,005 (35,700)
Interest received 741 951
=-------------------------------------------------------------------------------
Cash flows from investing activities 10,631 (296,580)
=-------------------------------------------------------------------------------
Financing activities:
Net proceeds from share issue - 211,367
New borrowings 25,500 127,709
Repayment of borrowings (16,638) (8,515)
Interest paid (6,122) (2,353)
Loan arrangement fees paid (632) (2,069)
Purchase of interest rate cap 16b (2,611) -
Loan capital from non-controlling investors - 1,000
=-------------------------------------------------------------------------------
Cash flows from financing activities (503) 327,139
=-------------------------------------------------------------------------------
Net increase in cash and cash equivalents 20,718 66,916
Cash and cash equivalents at the start of
the period 66,916 -
=-------------------------------------------------------------------------------
Cash and cash equivalents at the end of the
period 87,634 66,916
=-------------------------------------------------------------------------------
Notes to the Preliminary Announcement
The following notes are an extract from the Company's Annual Report and
Financial Statements for the year ended 31 March 2011 which has been prepared in
accordance with International Financial Reporting Standards and upon which an
unqualified audit report has been given.
1. General information about the Group
Max Property Group Plc was listed on AIM and CISX on 27 May 2009. It is a
closed-ended real estate investment company incorporated in Jersey on 17 April
2009. The address of the registered office is 26 New Street, St Helier, Jersey
JE2 3RA. The nature of the Group's operations and its principal activities are
set out in the Chairman's Report and the Report of the Property Advisor.
The financial information set out in this report covers the year to 31 March
2011 with comparative amounts relating to the period from incorporation to 31
March 2010, though the Company did not trade prior to the date of listing.
This financial report includes the results and net assets of the Company and its
subsidiaries, together referred to as the Group.
Further general information about the Company can be found on its website
www.maxpropertygroup.com.
2. Accounting policies
a) Statement of compliance
The consolidated financial statements have been prepared in accordance with the
International Financial Reporting Standards ('IFRS') adopted for use in the
European Union and therefore comply with Article 4 of the EU IAS Regulation.
b) Basis of preparation
The Group and Company financial statements are presented in pounds sterling.
The Board has, at the time of preparing the financial statements, a reasonable
expectation that the Company and the Group have adequate resources to continue
in operational existence for the foreseeable future and therefore continue to
adopt the going concern basis of accounting in preparing the financial
statements.
i) Estimates and judgements
The financial statements are prepared on the historical cost basis except that
investment properties and derivative financial instruments are stated at fair
value. The accounting policies have been applied consistently in all material
respects.
The preparation of financial statements requires the Board to make judgements,
estimates and assumptions that may affect the application of accounting policies
and the reported amounts of assets and liabilities as at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Any estimates and assumptions are based on experience and
any other factors that are believed to be relevant under the circumstances and
which the Board considers reasonable. Actual outcomes may differ from these
estimates.
Any revisions to accounting estimates will be recognised in the period in which
the estimate is revised if the revision affects only that period. If the
revision affects both current and future periods, the change will be recognised
over those periods.
Certain accounting policies which have a significant bearing on the reported
financial condition and results of the Group require subjective or complex
judgements. The principal such areas of judgement are:
* property valuation, where the opinion of independent, external valuers is
obtained every six months;
* the likelihood of payments being made under the Group's carried interest
arrangements, where the position is monitored by the Board through
consideration of relevant external data; and
* the value of derivative financial instruments used to hedge interest rate
exposures, where the valuations adopted are independently assessed every six
months on the basis of market rates as at the balance sheet date.
The Group's accounting policies for these matters where outcomes are more
reliant on judgement, together with other policies material to the Group, are
set out below.
ii) Adoption of new and revised standards
No new standards or interpretations issued by the International Accounting
Standards Board (IASB) or the International Financial Reporting Interpretations
Committee (IFRIC) have led to any material changes in the Group's accounting
policies or disclosures during the year.
Standards and interpretations in issue not yet adopted
The IASB and IFRIC have issued or amended the following standards and
interpretations that are mandatory for later accounting periods and which are
relevant to the Group and have not been adopted early. These are:
Effective date
=----------------------------------------------------------------------
IAS 12 Deferred tax 1 January 2012
IAS 24 Revised related party disclosures 1 January 2011
IFRS 9 Financial instruments 1 January 2013
IFRS 10 Consolidated financial statements 1 January 2013
IFRS 11 Joint arrangements 1 January 2013
IFRS 12 Disclosures of interests in other entities 1 January 2013
IFRS 13 Fair value measurement 1 January 2013
=----------------------------------------------------------------------
The Directors do not anticipate that the adoption of these standards and
interpretations will have a material impact on the Group's financial statements
in the period of initial application, other than on presentation and disclosure.
The IASB and IFRIC have also issued or revised IFRS 1, IFRS 2, IFRS 3, IFRS 7,
IAS 27, IAS 32, IAS 39, IFRIC 14, IFRIC 17 and IFRIC 19 but these changes either
have no impact or are not expected to have a material effect on the operations
of the Group.
c) Basis of consolidation
i) Subsidiaries
The consolidated financial statements include the financial statements of
subsidiaries, prepared to 31 March each year under the same accounting policies
as the Group as a whole, using the acquisition method. All intra-group
balances, income and expenses are eliminated on consolidation.
Subsidiaries are those entities controlled by the Group. When the Group has the
power to govern the financial and operating policies of an entity to gain
benefits from its activities, it has control within the meaning of this policy.
Non-controlling interests represent the portion of profit or loss and net assets
not held by the Group and are presented separately in the income statement and
within equity in the consolidated balance sheet, separately from equity
attributable to owners of the parent.
ii) Business combinations
Under the acquisition method, an acquisition is recognised at the aggregate of
the consideration transferred, measured at acquisition date fair value and the
amount of any non-controlling interest in the acquiree. Acquisition costs
incurred prior to the revision of IFRS 3 were included as part of the cost of
the acquisition; acquisition costs incurred since the revision of IFRS 3 in the
year ended 31 March 2011 are expensed. In the consolidated balance sheet, the
identifiable net assets, liabilities and contingent liabilities of any target
entity are also recognised initially at fair value as at the acquisition date.
The results of subsidiaries are included in the consolidated financial
statements from the date control commences until the date that it ceases.
Where properties are acquired through corporate acquisitions and there are no
significant assets or liabilities other than directly relating to property, an
acquisition is treated as an asset acquisition and fair value accounting at the
date of acquisition will not apply. In other cases, the acquisition method will
be used.
iii) Joint ventures
A joint venture is an entity over which the Group has joint control, established
by contractual agreement. Joint ventures are accounted for under the equity
method, whereby the consolidated financial statements incorporate the Group's
share of net assets and results. The results are after tax and include
revaluation movements on investment properties and interest rate derivatives.
The results of joint ventures are included on the basis of accounting policies
consistent with those of the Group.
Joint ventures are reviewed to determine whether any impairment loss should be
recognised at the end of the reporting period.
iv) Goodwill and discounts on acquisition
In the event that there is an excess of the purchase price of any business
acquired over the fair value of the business acquired - that is, its
identifiable assets, liabilities and contingent liabilities purchased and any
resulting deferred tax thereon - the excess is recognised as goodwill.
Any goodwill is recognised as an asset and will be reviewed by the Board for
impairment at least annually. Any impairment is recognised immediately in the
income statement and will not be subsequently reversed. A discount on
acquisition arises where there is an excess of the fair value of the business
acquired over the purchase price. Any discount arising is credited to the
income statement in the period of acquisition.
d) Property portfolio
i) Investment properties
Investment properties are properties owned or held leasehold by the Group which
are held for capital appreciation, rental income or both. They are initially
recorded at cost (or fair value where acquired as part of a business
combination) and subsequently valued at each balance sheet date at fair market
value on an open market basis as determined by professionally qualified
independent external valuers.
Gains or losses arising from changes in the fair value of investment properties
are recognised in the income statement in the period in which they arise.
Depreciation is not provided in respect of investment properties.
Acquisitions and disposals of investment properties are recognised on
unconditional exchange of contracts where it is reasonable to assume at the
balance sheet date that completion of the acquisition or disposal will occur.
Gains on disposal are determined as the difference between net disposal proceeds
and the carrying value of the asset in the previous published balance sheet
adjusted for any subsequent capital expenditure or capital receipts.
ii) Trading properties
Trading properties are initially recognised at cost and subsequently at the
lower of cost and net realisable value.
iii) Occupational leases
The Board exercises judgement in considering the potential transfer of the risks
and rewards of ownership in accordance with IAS 17 for all properties leased to
tenants and determines whether such leases are operating leases. A lease is
classified as a finance lease if substantially all of the risks and rewards of
ownership transfer to the lessee. If the Group substantially retains those
risks, a lease is classified as an operating lease.
iv) Headleases
Where an investment property is held under a headlease, the headlease is
initially recognised as an asset at cost plus the present value of minimum
ground rent payments. The corresponding rental liability to the head
leaseholder is included in the balance sheet as a finance lease obligation.
v) Net rental income
Revenue comprises rental income exclusive of VAT. Rental income is recognised
in the income statement on an accruals basis. Contingent income, such as
turnover rents, rent reviews and indexation are recorded in the income statement
in the periods in which they are earned. Specifically:
* rent reviews are recognised when formally agreed;
* any rental income from fixed and minimum guaranteed rent reviews are
recognised on a straight line basis over the shorter of the term to lease
expiry or to the first tenant break option. Where such income is recognised
in advance of the related cash flows, an adjustment is made to ensure that
the carrying value of the relevant property including accrued rent does not
exceed the external valuation;
* rent free periods, other lease incentives and any costs associated with
entering into occupational leases are allocated evenly over the period from
the date of lease commencement to the first break option or, in the unusual
event that the probability that the break option will be exercised is
considered sufficiently low, over the lease term; and
* in the event that any premium is received on a lease surrender, the profit,
net of any payments for dilapidations and non-recoverable outgoings, is
reflected in the income statement in the period in which the surrender
becomes legally binding.
Property operating costs, including any property operating expenditure not
recovered from tenants, for example through service charges, are expensed
through the income statement on an accruals basis.
e) Financial assets and liabilities
Financial assets and liabilities are recognised when the relevant group entity
becomes a party to the contractual terms of the instrument. Unless otherwise
indicated, the carrying amounts of financial assets and liabilities are a
reasonable estimate of their fair values.
i) Trade and other receivables
Trade and other receivables are recognised initially at their fair value and
subsequently at their amortised cost. If there is objective evidence that the
recoverability of the asset is at risk, appropriate allowances for any estimated
irrecoverable amounts are recognised in the income statement.
ii) Trade and other payables
Trade and other payables are recognised initially at their fair value and
subsequently at their amortised cost.
iii) Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, deposits held at call with
banks and financial institutions and other short-term highly liquid investments
with original maturities of three months or less.
iv) Other financial assets
Other financial assets comprise deposits held with banks and other financial
institutions where the original term to maturity was more than three months.
v) Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received,
net of direct issue costs.
vi) Borrowings and finance charges
Borrowings are initially recognised at their fair value, net of any transaction
costs directly attributable to their issue. Subsequently, loans are carried at
their amortised carrying value using the 'effective interest method', which
spreads the interest expense over the period to maturity at a constant rate on
the balance of the liability carried in the balance sheet for the relevant
period.
Finance charges, including premiums payable on settlement or redemption, are
accounted for on an accruals basis using the effective interest method and are
added to the carrying amount of the instrument to the extent that they are not
settled in the period in which they arise.
vii) Derivative financial instruments
The Group uses derivative financial instruments to hedge its exposure to cash
flow interest rate risks. Derivatives are initially recognised at fair value on
the date on which the derivative contract is entered into and are subsequently
re-measured at fair value.
Derivatives are classified either as derivatives in effective hedges or held for
trading. It is anticipated that, generally, hedging arrangements will be
'highly effective' within the meaning of IAS 39 and that the criteria necessary
for applying hedge accounting will be met. Hedges are assessed on an ongoing
basis to ensure they continue to be effective.
The gain or loss on the portion of an instrument that qualifies as a effective
hedge of cash flow interest rate risk is recognised directly in other
comprehensive income. The gain or loss on derivative financial instruments
which are classified as held for trading because they are not effective hedges
is recognised in the income statement.
f) Provisions
A provision is recognised when a legal or constructive obligation exists as a
result of an event that has occurred prior to the balance sheet date and where
it is probable that an outflow of economic benefits will be required to settle
the obligation. Provisions will be measured at the Directors' best estimate of
the expenditure required to settle that obligation as at the balance sheet date,
and will be discounted to present value if the effect is material.
g) Distributions
Distributions relating to equity shares are recognised when declared.
h) Management fees and incentive arrangement payments
Management fees and incentive arrangement payments are recognised in the income
statement in the period to which they relate. Amounts that are reasonably
likely to become payable are provided for in the financial statements and
balances will be discounted to reflect the deferred payment.
i) Tax
Tax is included in the income statement except to the extent that it relates to
income or expense items recognised directly in equity, in which case the related
tax will be recognised in equity.
Current tax is the expected tax payable on taxable income for the reporting
period, using tax rates enacted or substantively enacted at the balance sheet
date, together with any adjustment in respect of previous periods.
Deferred tax is provided using the balance sheet liability method, providing for
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for tax purposes. The tax
effect of the following differences is not provided for:
* the initial recognition of goodwill;
* goodwill for which amortisation is not tax deductible;
* the initial recognition of an asset or liability in a transaction which is
not a business combination
and at the time of the transaction affects neither accounting or taxable
profit; and
* investments in subsidiaries, associates and jointly controlled entities
where the Group is able to control the timing of the reversal of the
difference and it is probable that the difference will not reverse in the
foreseeable future.
The amount of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities,
using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be
utilised.
3. Operating segments
IFRS 8 requires operating segments to be identified on the basis of internal
reports about components of the Group that are reviewed by the chief operating
decision maker to make decisions about resources to be allocated between
segments and assess their performance. The Group's chief operating decision
maker is considered to be the Board.
The Group has acquired a number of property portfolios. Although these are
described individually elsewhere in this annual report, they are not separately
managed and the Board receives quarterly management accounts prepared on a basis
which aggregates the performance of the portfolios and focuses on total returns
on shareholders' equity. The Board has therefore concluded that the Group
operated in and was managed as one business segment, being property investment,
during the current year and the prior period. All revenue arises from property
investment and trading, with all properties located in the United Kingdom. No
single tenant represented 10% or more of the Group's revenues in either the
current year or the prior period.
4. Operating profit
Year to
31 March 17 April 2009 to
2011 31 March 2010
GBP000 GBP000
=-------------------------------------------------------------------------------
Operating profit is stated after charging:
Directors' fees 218 169
Auditors' remuneration for the audit of the Group and
Company financial statements 154 114
=-------------------------------------------------------------------------------
The auditors received no payments (2010: GBP150,000) during the period in relation
to non-audit services. The comparative figure related to services provided in
connection with the flotation which were treated as issue costs and charged
directly to the stated capital reserve.
The Group had no employees in either the current year or the prior period.
Fees payable to the Directors in the period are as follows:
Year to
31 March 17 April 2009 to
2011 31 March 2010
GBP000 GBP000
=--------------------------------------------------------------------
Aubrey Adams 70 59
Mike Brown - -
Freddie Cohen 23 n/a
Sandy Gumm n/a -
Keith Hamill 30 25
Nick Leslau - -
Alex Ohlsson 35 31
John Stephen 30 25
David Waters 30 29
=--------------------------------------------------------------------
Total charged to the income statement 218 169
=--------------------------------------------------------------------
5. Operating leases
As a commercial property investor, the Group enters into operating leases on its
real estate assets. Leases are for fixed terms, typically between five and 15
years but potentially up to 35 years depending on the type of property. They
include terms that reflect market conditions at the time of letting including
landlord and/or tenant break options before expiry and periodic rent reviews,
the vast majority of which are upwards only open market reviews.
Future minimum rents receivable under non-cancellable operating leases are set
out in the table below, calculated on the assumption that any tenant with a
break option does exercise that option.
As at As at
31 March 31 March 2010
2011 (restated)
GBP000 GBP000
=-----------------------------------------------------
Minimum rents receivable:
within one year 27,013 31,852
in two to five years 70,665 66,263
in more than five years 216,048 26,954
=-----------------------------------------------------
313,726 125,069
=-----------------------------------------------------
Prior year figures have been restated to amend the maturity profile, but the
total remains the same.
6. Acquisition of Industrious portfolio
Details of the costs and fair values of the assets and liabilities acquired by
the Group on the acquisition of the Industrious portfolio in the prior period
are as follows:
Price Fair
paid Adjustments value
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Investment properties 223,477 16,763 240,240
Trading properties 20,513 (43) 20,470
Trade receivables - 485 485
Obligations under finance leases - (1,715) (1,715)
=-------------------------------------------------------------------------------
Total 243,990 15,490 259,480
=-------------------------------------------------------------------------------
Cash consideration comprised:
Purchase price 232,101
Acquisition costs 11,889
=-------------------------------------------------------------------------------
Total acquisition cost 243,990
=-------------------------------------------------------------------------------
Discount on acquisition: excess of fair value over
cost 15,490
=-------------------------------------------------------------------------------
The fair value of the net assets acquired exceeded the cost of the transaction
and this difference was included as a discount on acquisition in the income
statement in the prior period. The discount arose principally because the Group
was in a position to acquire a large portfolio from a motivated seller whereas
the valuation at fair value reflected a willing buyer and willing seller and
could not take into account the specific circumstances of the transaction.
7. Finance income and costs
Year to 17 April 2009 to
31 March 2011 31 March 2010
GBP000 GBP000
=-------------------------------------------------------------------------------
Recognised in the income statement:
Finance income
Interest on cash deposits 675 1,069
=-------------------------------------------------------------------------------
Finance costs
Bank interest and charges 5,952 3,266
Amortisation of loan issue costs 660 341
Reduction in value of derivatives in the period 1,726 422
Amount recycled from the hedging reserve (183) (169)
=-------------------------------------------------------------------------------
Finance costs in respect of bank loans 8,155 3,860
Finance lease interest 184 100
=-------------------------------------------------------------------------------
Total finance costs 8,339 3,960
=-------------------------------------------------------------------------------
Net finance costs recognised in the income
statement 7,664 2,891
=-------------------------------------------------------------------------------
Year to 17 April 2009 to
31 March 2011 31 March 2010
GBP000 GBP000
=-------------------------------------------------------------------------------
Recognised in other comprehensive income:
Gains/(losses) recognised on market value
adjustment of interest rate derivatives 787 (3,329)
Amount recycled to the income statement (183) (169)
=-------------------------------------------------------------------------------
Net finance income/(costs) recognised in other
comprehensive income 604 (3,498)
=-------------------------------------------------------------------------------
Net finance costs analysed by the categories of financial asset and liability
shown in note 16c are as follows:
Year to 17 April 2009 to
31 March 2011 31 March 2010
GBP000 GBP000
=-------------------------------------------------------------------------------
Loans and receivables (675) (1,069)
Held for trading 1,154 -
Derivatives in effective hedges 389 253
Amortised cost 6,612 3,607
=-------------------------------------------------------------------------------
7,480 2,791
Non-financial assets and liabilities -
obligations under finance leases 184 100
=-------------------------------------------------------------------------------
Net finance costs 7,664 2,891
=-------------------------------------------------------------------------------
Net finance costs recognised in other comprehensive income relate entirely to
derivatives in effective hedges in both the current year and prior period.
Further information about the hedging instruments, including details of their
valuation at the balance sheet date, is included in note 16.
The Group's sensitivity to changes in interest rates, calculated on the
assumption of a 1% increase or decrease in LIBOR, was as follows:
Year to 17 April 2009 to
31 March 2011 31 March 2010
GBP000 GBP000
=------------------------------------------------------------------------
Effect on profit before tax 360 (486)
Effect on other comprehensive income 214 -
=------------------------------------------------------------------------
Effect on equity 574 (486)
=------------------------------------------------------------------------
The average interest rate payable by the Group on bank borrowings for the year,
including all lender's margins but excluding amortised finance costs, was 5.2%
(2010: 4.9%). The maximum rate payable in the period was 6.3% (2010: 6.7%).
8. Taxation
The tax charge for the period recognised in the income statement was as follows:
Year to 17 April 2009 to
31 March 2011 31 March 2010
GBP000 GBP000
=-----------------------------------------------------------------
Current tax 1,746 1,828
Deferred tax (60) -
=-----------------------------------------------------------------
Tax on results for the period 1,686 1,828
=-----------------------------------------------------------------
The tax assessed for the period varies from the standard rate of income tax in
the UK of 20%. The differences are explained below:
Year to 17 April 2009 to
31 March 2011 31 March 2010
GBP000 GBP000
=-------------------------------------------------------------------------------
Profit before tax 26,063 50,661
=-------------------------------------------------------------------------------
Profit before tax at the standard rate of income
tax in the UK of 20% 5,213 10,132
Adjusted for the effects of:
Revaluation surplus not subject to tax (2,313) (4,950)
Discount on acquisition not subject to tax - (3,001)
Income and property disposal profits not subject
to tax (2,071) (1,030)
Share of profit of joint venture shown after tax (219) -
Expenses not deductible for tax 1,115 711
Other (39) (34)
=-------------------------------------------------------------------------------
1,686 1,828
=-------------------------------------------------------------------------------
The movement on the deferred tax asset was as follows:
Year to 17 April 2009 to
31 March 2011 31 March 2010
GBP000 GBP000
=-------------------------------------------------------------------------------
At the start of the period 700 -
Tax on recognition of fixed and minimum
guaranteed rent reviews, charged to the income
statement (69) -
Tax on interest rate derivative adjustment,
credited to the income statement 129 -
Tax on interest rate derivative adjustment,
(charged)/credited to other comprehensive income (121) 700
=-------------------------------------------------------------------------------
At the end of the period 639 700
=-------------------------------------------------------------------------------
Tax status of the Company and its subsidiaries
Any Group undertakings earning income are either tax resident in Jersey or are
tax transparent entities owned by Jersey resident entities. Jersey has a
corporate income tax rate of zero, so the Company and its subsidiaries are not
subject to tax on their income or gains in Jersey. The Company is not subject
to UK Corporation tax on any dividend or interest income it receives.
The Group's real estate assets are located in the United Kingdom and the net
rental income earned less deductible interest costs is subject to UK income tax,
currently at a rate applicable to Group undertakings of 20%.
The joint venture is held in two UK companies which were subject to UK
Corporation tax on profits at 28% for the year ended 31 March 2011. The Group's
interest in these companies is held by a Jersey resident entity which is not
subject to UK Corporation tax on any dividend it receives.
9. Non-controlling interest
The non-controlling interest represents a 16.7% investment by a third party in
three office properties in Milton Keynes.
Year to 17 April 2009 to
31 March 2011 31 March 2010
GBP000 GBP000
=------------------------------------------------------------------------------
At the start of the period 1,499 -
Loan capital injected by minority investor - 1,000
Share of profit for the period 236 499
=------------------------------------------------------------------------------
At the end of the period 1,735 1,499
=------------------------------------------------------------------------------
10. Earnings per share
The calculation of earnings per share is based on 220,000,002 ordinary shares in
issue throughout the period during which profits were earned, and profits
attributable to ordinary shareholders of the Company of GBP24.1 million (2010:
GBP48.3 million).
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.
The European Public Real Estate Association (EPRA) publishes guidelines for
calculating adjusted earnings designed to represent core operational
activities. The adjusted EPRA earnings per share calculation is as follows:
Year to 31 March 2011 17 April 2009 to 31 March 2010
Pence per
GBP000 Pence per share GBP000 share
=-------------------------------------------------------------------------------
Basic earnings 24,141 11.0 48,334 22.0
Less:
Investment property
revaluation movements,
net of non-controlling
interests (11,382) (5.2) (24,253) (11.0)
Discount on acquisition - - (15,490) (7.1)
Profit on sale of
investment properties (2,628) (1.2) (1,838) (0.8)
Profit on sale of
trading properties (1,731) (0.8) (4,566) (2.1)
Market value adjustment
of interest rate
derivatives, net of tax 1,465 0.7 203 0.1
Market value adjustment
of interest rate
derivatives within joint
venture, net of tax 29 - - -
=-------------------------------------------------------------------------------
EPRA earnings 9,894 4.5 2,390 1.1
=-------------------------------------------------------------------------------
11. Investment properties
Long Short
Freehold leasehold leasehold Total
GBP000 GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
At 31 March 2010 205,389 79,049 920 285,358
Acquisition of Nightclubs portfolio at
cost 9,376 - 455 9,831
Acquisition of London Pubs portfolio at
cost 44,718 - - 44,718
Deferred completion of Office property 961 - - 961
Capital expenditure 2,665 303 - 2,968
Drawings from escrow account (1,823) (676) - (2,499)
Revaluation movement 11,423 348 (205) 11,566
Disposals (35,947) (853) - (36,800)
=-------------------------------------------------------------------------------
Carrying value as at 31 March 2011 236,762 78,171 1,170 316,103
Headlease liabilities (note 17) - (1,638) - (1,638)
Rent free periods (note 13) 1,213 342 5 1,560
=-------------------------------------------------------------------------------
Total Group property portfolio valuation 237,975 76,875 1,175 316,025
=-------------------------------------------------------------------------------
Long Short
Freehold leasehold leasehold Total
GBP000 GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
At incorporation - - - -
Acquisition of Industrious portfolio at
fair value 169,660 69,690 890 240,240
Acquisition of Office portfolio at cost 25,195 9,609 - 34,804
Capital expenditure 101 167 - 268
Drawings from escrow account (175) (56) - (231)
Revaluation movement 25,083 (361) 30 24,752
Disposals (14,475) - - (14,475)
=-------------------------------------------------------------------------------
Carrying value as at 31 March 2010 205,389 79,049 920 285,358
Headlease liabilities (note 17) - (1,715) - (1,715)
Rent free periods (note 13) 241 66 - 307
=-------------------------------------------------------------------------------
Total Group property portfolio valuation 205,630 77,400 920 283,950
=-------------------------------------------------------------------------------
The properties were valued as at 31 March 2011 by CB Richard Ellis Limited,
Commercial Real Estate Advisors, in their capacity as external valuers. The
valuation was prepared on a fixed fee basis, independent of the portfolio value.
The valuation was undertaken in accordance with the Royal Institution of
Chartered Surveyors' Valuation Standards Sixth Edition on the basis of Market
Value, supported by reference to market evidence of transaction prices for
similar properties. Market Value represents the estimated amount for which a
property should exchange on the date of valuation between a willing buyer and a
willing seller in an arm's length transaction after proper marketing wherein the
parties had each acted knowledgeably, prudently and without compulsion.
The Group has the benefit of an escrow account established by the seller of the
Office portfolio from which funds can be drawn to meet void costs for the period
from the portfolio acquisition in February 2010 until 31 December 2012.
Drawings from the escrow account are treated as reductions in the cost of the
assets. The escrow account was initially GBP5.9 million, against which GBP2.5
million (2010: GBP0.2 million) has been drawn in the year for investment
properties and a further GBP0.2 million (2010: GBPnil) for trading properties,
leaving an available balance of GBP3.0 million (2010: GBP5.7 million).
The historic cost of the Group's investment properties as at 31 March 2011 was
GBP273.1 million (2010: GBP247.6 million).
Property outgoings were split as follows:
Year to
31 March 17 April 2009 to
2011 31 March 2010
GBP000 GBP000
=-------------------------------------------------------------------------------
Property outgoings arising from investment properties
that generate rental income 8,158 3,753
Property outgoings arising from investment properties
that did not generate rental income 221 36
=-------------------------------------------------------------------------------
Total property outgoings 8,379 3,789
=-------------------------------------------------------------------------------
12. Investment in joint venture
The joint venture investment represents the Group's 45% economic interest (50%
voting interest) in MPG Hospital Holdings Limited, a joint venture company
incorporated in and operating in England & Wales, which was acquired for GBP45
consideration on 28 May 2010.
The movement in the investment in joint venture during the year was as follows:
28 May 2010 to
31 March 2011
GBP000
=-------------------------------------------------------------------------------
At the start of the period -
Share of profit for the period recognised in the income 1,097
statement
Share of other comprehensive income (37)
=-------------------------------------------------------------------------------
At the end of the period 1,060
=-------------------------------------------------------------------------------
The results of the joint venture were as follows:
As at
31 March 2011
GBP000
=-----------------------------------------------------------------------------
Non-current assets 34,311
Current assets 780
Current liabilities (1,834)
Non-current liabilities (30,902)
=-----------------------------------------------------------------------------
Net assets 2,355
=-----------------------------------------------------------------------------
Group share of net assets 1,060
=-----------------------------------------------------------------------------
Rental income 1,982
Property outgoings and other expenses (143)
Net finance costs (1,543)
Investment property revaluation surplus 2,762
Tax charge (622)
=-----------------------------------------------------------------------------
Profit for the period 2,436
=-----------------------------------------------------------------------------
Group share of profit for the period 1,097
=-----------------------------------------------------------------------------
Market value adjustment of interest rate derivative (113)
Tax effect of interest rate derivative market value adjustment 32
=-----------------------------------------------------------------------------
Other comprehensive income for the period (81)
=-----------------------------------------------------------------------------
Group share of other comprehensive income for the period (37)
=-----------------------------------------------------------------------------
The joint venture owns four private hospitals in Blackburn, Liverpool, Ayr and
Stirling, all held on long leases with annual RPI-linked uplifts throughout the
term, with an aggregate initial rent of GBP2.4 million per annum. At the year
end, the joint venture was funded with non-recourse debt facilities of GBP31.2
million and the properties were independently valued at GBP34.1 million by CB
Richard Ellis Limited, Commercial Real Estate Advisors, in their capacity as
external valuers. The valuation was prepared on a fixed fee basis, independent
of the portfolio value.
The valuation was undertaken in accordance with the Royal Institution of
Chartered Surveyors' Valuation Standards on the basis of Market Value, supported
by reference to market evidence of transaction prices for similar properties.
Market Value represents the estimated amount for which a property should
exchange on the date of valuation between a willing buyer and a willing seller
in an arm's length transaction after proper marketing wherein the parties had
each acted knowledgeably, prudently and without compulsion.
Property outgoings and other expenses include GBP0.1 million of management fees
paid to the Property Advisor and which result in a corresponding reduction of
fees paid to the Property Advisor under the Investment Advisory Agreement.
The Group has no capital commitments or contingent liabilities in relation to
the joint venture, and the joint venture itself has no capital commitments or
contingent liabilities.
13. Trade and other receivables
As at As at
31 March 2011 31 March 2010
GBP000 GBP000
=-------------------------------------------------------------------------------
Trade receivables 3,486 4,439
Less provision for doubtful debts (986) (896)
=-------------------------------------------------------------------------------
Trade receivables - net 2,500 3,543
Receivable from investment property disposals 2,079 -
VAT receivable 7,535 -
Interest receivable 52 118
Rent free periods granted to tenants and
fixed/guaranteed rent reviews 1,560 307
Prepayments and accrued income 1,936 797
Other receivables 360 -
=-------------------------------------------------------------------------------
16,022 4,765
=-------------------------------------------------------------------------------
Other than GBP1.0 million (2010: GBP0.3 million) of rent free periods which are due
in more than one year, all amounts above are due within one year.
The Group's trade receivables comprise amounts payable by tenants of the Group's
investment properties. The ageing of trade receivables was as follows:
As at As at
31 March 2011 31 March 2010
GBP000 GBP000
=--------------------------------------------------------------
Neither past due nor impaired
Less than 30 days 2,330 3,140
30-60 days 33 134
60-120 days 47 128
Over 120 days 90 141
=--------------------------------------------------------------
2,500 3,543
=--------------------------------------------------------------
The Group holds collateral of GBP1.9 million (2010: GBP1.9 million) in the form of
rent deposits received from tenants. The average age of trade receivables is
18 days (2010: 70 days).
The movement in the provision for doubtful debts was as follows:
As at As at
31 March 2011 31 March 2010
GBP000 GBP000
=---------------------------------------------------------------------
At the start of the period 896 -
Amounts written off as uncollectable (169) -
Amounts recovered (364) -
New amounts provided for 623 896
=---------------------------------------------------------------------
At the end of the period 986 896
=---------------------------------------------------------------------
14. Cash and cash equivalents
Included within the Group's cash and cash equivalents balance as at 31 March
2011 of GBP87.6 million (2010: GBP66.9 million) are cash deposits of GBP7.5 million
(2010: GBP5.0 million) in accounts held as security by the provider of secured
bank debt.
15. Trade and other payables
As at As at
31 March 2011 31 March 2010
GBP000 GBP000
=----------------------------------------------------------------
Trade payables 3,056 2,526
Rent received in advance 6,541 7,253
Other taxes and social security 1,912 1,609
Other amounts payable 576 1,358
Accruals and deferred income 2,788 2,783
=----------------------------------------------------------------
14,873 15,529
=----------------------------------------------------------------
All amounts above are due within one year and none incur interest.
16. Financial assets and liabilities
a) Non-current financial liabilities
As at As at
31 March 2011 31 March 2010
GBP000 GBP000
=---------------------------------------------------------------------------
Bank loans (secured) 128,056 119,194
Unamortised finance costs (1,701) (1,728)
=---------------------------------------------------------------------------
126,355 117,466
Obligations under finance leases (note 17) 1,638 1,715
Interest rate derivatives at market value 1,788 1,443
=---------------------------------------------------------------------------
129,781 120,624
=---------------------------------------------------------------------------
There was no difference between the book value and fair value of non-current
financial liabilities at 31 March 2011 or 31 March 2010.
The Group's principal borrowing arrangements are as follows:
London
Industrious Pubs
facility facility
=-------------------------------------------------------------------------------
Lender Eurohypo AG Eurohypo AG
Recourse beyond ring-fenced sub-group None None
Drawdown date 7 October 2009 31 January 2011
Initial drawdown GBP127.7 million GBP25.5 million
Balance at 31 March 2011 GBP102.6 million GBP25.5 million
Value of secured properties at 31 March 2011 GBP212.4 million GBP46.6 million
Loan to value ratio 48% 55%
Current repayment terms (subject to covenant
compliance) Interest only Interest only
Repayment date 4 August 2014 31 January 2016
=-------------------------------------------------------------------------------
The terms of the bank loans may, in the event of a covenant default, restrict
the ability of certain subsidiaries to transfer funds outside the security
group.
The Group had no undrawn, committed borrowing facilities at 31 March 2011 or 31
March 2010.
There have been no defaults or other breaches of financial covenants under
either of the loans during the current year or the prior period, or in the
period since the balance sheet date.
b) Derivative financial instruments
The following derivative financial instruments were in place as at each balance
sheet date:
Principal amount Fair value
As at As at As at As at
31 March 31 March 31 March 31 March
2011 2010 2011 2010
Expiry GBP000 GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
4% amortising
swap August 2014 68,059 70,552 (3,712) (4,507)
4% cap August 2014 56,750 56,750 328 756
----------------------------------------------------
124,809 127,302 (3,384) (3,751)
3.5% cap March 2015 100,000 - 1,305 -
=-------------------------------------------------------------------------------
224,809 127,302 (2,079) (3,751)
=-------------------------------------------------------------------------------
The movements in the valuation of derivative financial instruments in the period
were as follows:
Year to 17 April 2009 to
31 March 2011 31 March 2010
GBP000 GBP000
=-------------------------------------------------------------------------
At the start of the period (3,751) -
Charged to the income statement (note 7) (1,726) (422)
Credited/(charged) directly to the hedging
reserve 787 (3,329)
Premium paid on acquisition of interest rate cap 2,611 -
=-------------------------------------------------------------------------
At the end of the period (2,079) (3,751)
=-------------------------------------------------------------------------
Derivative financial instruments are categorised as follows:
As at As at
31 March 2011 31 March 2010
GBP000 GBP000
=--------------------------------------------------
Financial assets
within one year - -
in more than one year 1,305 -
Financial liabilities
within one year (1,596) (2,308)
in more than one year (1,788) (1,443)
=--------------------------------------------------
(2,079) (3,751)
=--------------------------------------------------
The derivative contracts have been valued by reference to interbank bid market
rates as at the close of business on 31 March 2011 by JC Rathbone Associates
Limited, and include the full LIBOR basis spread. All derivative financial
instruments are classified as 'level 2' as defined in IFRS7 as their fair value
measurements are those derived from inputs other than quoted prices in active
markets for identical assets and liabilities, but that are observable either
directly or indirectly.
The market values of hedging instruments change 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. These valuations do not
necessarily reflect the cost or gain to the Group of cancelling its interest
rate protection, which is generally a marginally higher cost or smaller gain
than a market valuation.
The 4% interest rate swap and 4% interest rate cap have been entered into in
order to hedge the interest rate liabilities on the portion of the Group's debt
secured on the Industrious portfolio, maturing in August 2014. The swap and cap
mature at the same time and the profile of the notional swapped and capped
amounts has been estimated to match the expected loan profile reasonably
closely. Since the loan profile cannot be predicted with certainty the swap and
cap profiles are monitored regularly and adjusted as necessary.
The 3.5% interest rate cap was initially entered into in anticipation of the
hedging needs for future investment, taking advantage of historically low
pricing to lock into a favourable fixed rate. GBP25.5 million of the notional
principal was assigned to the borrower within the ring-fenced London Pubs sub-
group at the time of acquisition in order to hedge the interest rate risk on the
relevant secured debt. Since the loan profile cannot be predicted with
certainty the cap profile is monitored regularly and adjusted as necessary.
c) Categories of financial instruments
As at As at
31 March 2011 31 March 2010
GBP000 GBP000
=-------------------------------------------------------------------------------
Financial assets
Loans and receivables:
Cash and cash equivalents (note 14) 87,634 66,916
Cash deposits with maturities of more than three
months 6,695 35,700
Trade receivables (note 13) 2,500 3,543
Interest receivable (note 13) 52 118
Held for trading:
Interest rate cap (note 16b) 972 -
Derivatives in effective hedges:
Interest rate cap (note 16b) 333 -
=-------------------------------------------------------------------------------
98,186 106,277
=-------------------------------------------------------------------------------
As at As at
31 March 2011 31 March 2010
GBP000 GBP000
=----------------------------------------------------------------------
Financial liabilities
Liabilities at amortised cost:
Trade payables (note 15) 3,056 2,526
Accrued interest 1,027 1,013
Borrowings (note 16a) 126,355 117,466
Derivatives in effective hedges:
Interest rate swap and cap (note 16b) 3,384 3,751
=----------------------------------------------------------------------
133,822 124,756
=----------------------------------------------------------------------
All financial assets and liabilities are measured at amortised cost except for
derivative financial instruments which are measured at fair value.
d) Financial risk management
Through the Group's operations and use of debt financing it is exposed to a
variety of risks. The Group's financial risk management objectives are to
minimise the effect of these risks by using derivative financial instruments,
particularly to manage exposure to fluctuations in interest rates. Such
instruments are not employed for speculative purposes. The use of any
derivatives is approved by the Board, which provides guidelines on the
acceptable levels of interest rate risk, credit risk and liquidity risk.
The exposure to each risk considered potentially material to the Group, how it
arises and the policy for managing it is summarised below.
i) Credit risk
Credit risk is the risk of financial loss to the Group if a counterparty fails
to meet its contractual obligations. The relevant counterparties are in the
main tenants in respect of amounts receivable under operating leases and banks
acting either as hedging counterparties or as recipients of the Group's cash
deposits.
The Group places cash deposits for a range of maturities with a panel of
reputable Board approved institutions. As at the period end, there were nine
(2010: eight) approved banks on the panel and deposits are spread across the
banks and across a range of maturities. The credit ratings of the banks are
monitored by the Board at least quarterly with changes made as necessary to
manage risk. The Board does not consider that there is a significant
concentration of counterparty risk.
Rigorous credit control procedures are applied to facilitate the recovery of
trade receivables. Recovery details and statistics are benchmarked in Board
reports to identify any ongoing trends or problems. The credit risk of trade
receivables is assessed on a case by case basis and where the likelihood of
recovery is considered low, provisions are made.
The credit risk relating to counterparties transacting with the Group for
property acquisitions and disposals is managed through appropriate due diligence
and contractual protection in the relevant agreements.
ii) Liquidity risk
Liquidity risk arises from the Group's management of working capital and the
finance charges and principal repayments on its debt instruments. It is the
risk that the Group will encounter difficulty in meeting its financial
obligations as they fall due.
Before entering into any debt instrument, the Board assesses the resources that
are expected to be available to the Group to meet the liabilities when they fall
due. These assessments are made on the basis of conservative and 'downside'
scenarios. The Group prepares budgets and working capital forecasts which are
reviewed by the Board at least quarterly to assess ongoing cash requirements and
compliance with loan covenants. The Board also keeps under review the maturity
profile of the Group's cash deposits in order to have reasonable assurance that
cash will be available for the settlement of ongoing liabilities and entering
into future transactions as required.
The following table shows the maturity analysis for financial assets and
liabilities and, where applicable, their effective interest rates. The table
has been drawn up based on the undiscounted cash flows of financial liabilities,
including future interest payments, based on the earliest date on which the
Group can be required to pay.
31 March 2011 Between
Effective one Between two
interest Less than and two and five More than
rate one year years years five years Total
GBP000 GBP000 GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Financial
assets
Trade
receivables 2,500 - - - 2,500
Interest
receivable 52 - - - 52
Cash and cash
equivalents 0.4% 87,634 - - - 87,634
Cash deposits
with
maturities of
more than
three months 1.1% 6,695 - - - 6,695
Derivative
financial
instruments - 70 1,235 - 1,305
=-------------------------------------------------------------------------------
96,881 70 1,235 - 98,186
=-------------------------------------------------------------------------------
Financial
liabilities
Trade payables (3,056) - - - (3,056)
Accrued
interest (1,027) - - - (1,027)
Borrowings 5.2% (1,495) (2,475) (132,766) - (136,736)
Derivative
financial
instruments (1,596) (1,208) (580) - (3,384)
Obligations
under finance
leases (185) (185) (556) (16,369) (17,295)
=-------------------------------------------------------------------------------
(7,359) (3,868) (133,902) (16,369) (161,498)
=-------------------------------------------------------------------------------
31 March 2010 Between
Effective one Between two
interest Less than and two and five More than
rate one year years years five years Total
GBP000 GBP000 GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Financial
assets
Trade
receivables 3,543 - - - 3,543
Interest
receivable 118 - - - 118
Cash and cash
equivalents 0.3% 66,916 - - - 66,916
Cash deposits
with
maturities of
more than
three months 1.1% 35,700 - - - 35,700
=-------------------------------------------------------------------------------
106,277 - - - 106,277
=-------------------------------------------------------------------------------
Financial
liabilities
Trade payables (2,526) - - - (2,526)
Accrued
interest (1,013) - - - (1,013)
Borrowings 4.9% (1,021) (1,966) (127,987) - (130,974)
Derivative
financial
instruments (2,308) (1,443) - - (3,751)
Obligations
under finance
leases (194) (194) (581) (17,230) (18,199)
=-------------------------------------------------------------------------------
(7,062) (3,603) (128,568) (17,230) (156,463)
=-------------------------------------------------------------------------------
iii) Market risk - interest rate risk
Market risk arises from the Group's use of debt financing. It is the risk that
the future cash flows of a financial instrument will fluctuate because of
changes in interest rates.
The Group is exposed to cash flow interest rate risk from its variable rate
borrowings. The Group uses interest rate hedging products such as swaps and
caps in order to mitigate this risk.
The Group's outstanding derivative financial instruments are described in note
16b and the Group's sensitivity to changes in interest rates is disclosed in
note 7.
iv) Capital risk management
The Group's capital comprises debt, which includes the borrowings disclosed in
note 16a, cash and cash equivalents and equity attributable to equity holders of
the Company (stated capital, retained earnings and the hedging reserve). The
Group's primary objective when monitoring capital is to safeguard the entity's
ability to continue as a going concern, while ensuring that it remains within
its banking covenants. Borrowings are secured on specific property portfolios
and are non-recourse to the Group as a whole.
In order to maintain or adjust the capital structure, the Group keeps under
review the amount of any dividends or capital returns to be paid to
shareholders, and monitors the extent to which the issue of new shares or the
realisation of assets may be required.
The Group is not subject to externally imposed capital requirements.
Details of the significant accounting policies adopted, including the criteria
for recognition, the basis of measurement and the basis on which income and
expenses are recognised, in respect of each class of financial asset, financial
liability and equity instrument are disclosed in the accounting policies in note
2.
17. Obligations under finance leases
Finance lease obligations in respect of fixed rents payable on long leasehold
properties are as follows:
As at As at
31 March 2011 31 March 2010
GBP000 GBP000
=-----------------------------------------------------------------------
Minimum lease payments
Less than one year 185 194
Between one and two years 185 194
Between two and five years 556 581
More than five years 16,369 17,230
=-----------------------------------------------------------------------
17,295 18,199
Less future finance charges (15,657) (16,484)
=-----------------------------------------------------------------------
Present value of lease obligations 1,638 1,715
=-----------------------------------------------------------------------
The present value of lease obligations all arise in more than five years in both
the current year and prior period.
18. Stated capital
The Company has an unlimited authorised share capital of no par value. The
issued and fully paid up share capital comprises:
As at As at
31 March 2011 31 March 2010
Number Number
=----------------------------------------------------------------------------
Ordinary shares of no par value issued at GBP1 each 220,000,002 220,000,002
=----------------------------------------------------------------------------
The stated capital reserve is made up as follows:
As at As at
31 March 2011 31 March 2010
GBP000 GBP000
=-------------------------------------------------------------------------
Issued and fully paid up ordinary shares 220,000 220,000
Share issue costs (8,633) (8,633)
=-------------------------------------------------------------------------
211,367 211,367
=-------------------------------------------------------------------------
19. Reserves
The nature and purpose of each reserve within equity is as follows:
Stated capital represents the excess of the value of shares issued over
their nominal value (which is zero), net of issue costs.
Hedging reserve represents gains and losses arising on the effective portion
of hedging instruments carried at fair value, net of any
deferred tax.
Retained earnings represents the cumulative profits and losses recognised in
the Group statement of comprehensive income.
20. Net asset value per share
Net asset value per share is calculated as the net assets of the Group
attributable to shareholders at each balance sheet date, divided by the number
of shares in issue at that date.
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.
The European Public Real Estate Association (EPRA) has issued guidelines aimed
at providing a measure of net asset value (NAV) on the basis of long term fair
values. The EPRA measure excludes items that it considers have no impact in the
long term, such as the fair value of derivative instruments and deferred tax
balances. The Group's EPRA NAV is calculated as follows:
As at 31 March As at 31 March
2011 2010
Pence per Pence per
GBP000 share GBP000 share
=-------------------------------------------------------------------------------
Net asset value attributable to owners of
the Company 281,490 128.0 256,903 116.8
Adjustments:
Fair value of trading property in excess of
book value 367 0.2 1,628 0.7
Fair value of financial instruments 4,690 2.1 3,751 1.7
Deferred tax (708) (0.3) (750) (0.3)
Fair value of financial instruments in joint
venture, net of deferred tax 51 - - -
Share of inherent capital gains tax in joint
venture 177 - - -
=-------------------------------------------------------------------------------
EPRA net asset value 286,067 130 261,532 118.9
=-------------------------------------------------------------------------------
21. Related party transactions and balances
Directors' fees
Directors' fees of GBP0.2 million (2010: GBP0.2 million) were payable for the year
ended 31 March 2011, as disclosed in note 4. As at 31 March 2011 GBP12,000 (2010:
GBP23,000) of these fees remained outstanding and are included within other
amounts payable (note 15).
Management fees payable
Nick Leslau and Mike Brown hold partnership interests in, and are Chairman and
Chief Executive respectively of, Prestbury Investments LLP which is Property
Advisor to the Group under the terms of the Investment Advisory Agreement
entered into on 21 May 2009. Under the terms of that agreement, management fees
of GBP4.7 million (2010: GBP3.4 million) were payable to Prestbury Investments LLP
in respect of the year, of which GBP0.1 million (2010: GBP1.1 million) was
outstanding as at the balance sheet date and is included within trade payables
(note 15). GBP0.1 million of this fee has been reduced by the Property Advisor in
recognition of the fact that the Property Advisor directly receives a management
fee from the Hospitals joint venture described in note 12, in relation to the
services provided which are sub-contracted by the Company. This amount is shown
as other income in the income statement.
In the course of its duties as Property Advisor and in accordance with the terms
of the Investment Advisory Agreement, Prestbury is entitled to recover the costs
and expenses properly incurred in connection with its duties. During the year,
Prestbury has recharged at cost GBP79,000 (2010: GBP978,000) to the Group in this
respect, of which GBPnil (2010: GBP19,000) remains outstanding and is included
within other amounts payable in the balance sheet at 31 March 2011.
Incentive payments
Under the terms of the carried interest arrangements between the Company,
Prestbury (Scotland) Limited Partnership ('Prestbury Scotland', a partnership in
which Nick Leslau and Mike Brown have 49% and 25% interests respectively), and
OZ UK Real Estate Securities Limited ('Och-Ziff'), once the GBP211.4 million of
net funds raised on listing have 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 shareholders and 20% to Prestbury Scotland and
Och-Ziff, subject to shareholders having first received the net proceeds of
share issues in cash plus an 11% per annum preferred return.
The carried interest payments are payable only on cash realisations other than
where either the Investment Advisory Agreement has been terminated (where the
net asset value of the Group 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 become payable. If the net asset value of
the Group as at the end of the relevant period is used as the basis of the
calculation, this would theoretically amount to GBP9.8 million (2010: GBP7.1
million) payable to Prestbury Scotland and GBP2.8 million (2010: GBP2.0 million)
payable to Och-Ziff, totalling GBP12.6 million, or 5.7 pence per share (2010: GBP9.1
million or 4.1 pence per share) at 31 March 2011. The uplift in value giving
rise to the theoretical carried interest payment has arisen over a relatively
short period of time and the hurdle increases by some GBP2 million with every
month that passes.
Taking account of the uncertainties arising from the length of the period over
which the incentive fee will be determined, the challenging future returns
required and current market index projections of property value growth over the
medium term, the Board has concluded that it would not be appropriate to make a
provision for the incentive fee at this stage.
The Board will keep the position under review and will provide for a liability
for incentive payments once there is more certainty as to the likelihood of
payments being made.
Nightclubs portfolio purchase
On 27 October 2010, the Group acquired a portfolio of 14 nightclubs for cash
consideration of GBP9.4 million from a subsidiary of Prestbury 1 Limited
Partnership ("P1LP"). P1LP is considered to be a related party as Prestbury
Investments LLP controls P1LP's general partner and therefore controls the
partnership, and is also Property Advisor to Max Property Group Plc. In view of
his ownership interests in both the general partner of P1LP and the Property
Advisor, Nick Leslau did not participate in the Board's decision to make the
purchase nor in the Property Advisor's recommendations about the transaction.
Mike Brown is a member of the Property Advisor but has no involvement in its
business as it relates to P1LP and was therefore independent of the seller.
Subsidiary entities
The Group financial statements include the financial statements of Max Property
Group Plc and the following subsidiary and joint venture entities, all of which
are wholly owned unless otherwise stated:
Country of incorporation Nature of business
=-------------------------------------------------------------------------------
Max Property GP Limited(1) Jersey General partner
Max Property LP Limited(1) Jersey Limited partner
Max Property Limited Intermediate holding
Partnership(2) Jersey company
Intermediate holding
MPG Opco Limited Jersey company
MPG Finco Limited England & Wales Group finance
MPG Hedging Limited Jersey Treasury operations
Intermediate holding
Max Investor Limited Jersey company
MPG Hospital Holdings Intermediate holding
Limited(3) England & Wales company
MPG Hospital Properties
Limited(3) England & Wales Property investment
Intermediate holding
Max Industrial Limited Jersey company
Max Industrial Finance
Limited Jersey Group finance
Max Industrial 2 Limited Jersey Property trading
Max Industrial 3 Limited Jersey Group finance
Max Industrial Limited
Partner Limited Jersey Limited partner
Max Industrial GP Limited England & Wales General partner
Max Industrial Nominee
Limited England & Wales Non trading company
Max Industrial Limited
Partnership England & Wales Property investment
Max Office Properties Intermediate holding
Limited Jersey company
Intermediate holding
Max Office Limited Jersey company
Intermediate holding
Max Office Investor Limited Jersey company
Max Office Finance Limited Jersey Property trading
Max Office Limited Partner
Limited Jersey Limited partner
Max Office GP Limited England & Wales General partner
Max Office Nominee Limited England & Wales Non trading company
Max Office Limited
Partnership England & Wales Property investment
Max Office 2 Limited
Liability Partnership(4) England & Wales Property Investment
Max Bars Limited Partner
Limited Jersey Limited partner
Max Bars GP Limited England & Wales General partner
Max Bars Nominee Limited England & Wales Non trading company
Max Bars Limited Partnership England & Wales Property investment
Intermediate holding
MPG Pubs Holdings Limited Jersey company
MPG Pubs Finance Limited Jersey Group finance
MPG Pubs Limited Partner
Limited Jersey Limited partner
MPG Pubs GP Limited England & Wales General partner
MPG Pubs Nominee Limited England & Wales Non trading company
MPG Pubs Limited Partnership England & Wales Property investment
Max Property Group Limited England & Wales Dormant
Max Property 1 Limited England & Wales Dormant
Max Property 2 Limited England & Wales Dormant
=-------------------------------------------------------------------------------
(1) Max Property GP Limited and Max Property LP Limited are directly owned by
Max Property Group Plc. All other entities are indirectly owned.
(2)Prestbury (Scotland) Limited Partnership and OZ UK Real Estate Securities
Limited have partnership interests in Max Property Limited Partnership which
entitle them to any incentives that may become payable, as more fully described
below under the heading 'incentive payments'.
(3) MPG Hospital Holdings Limited and MPG Hospital Properties Limited are 45%
owned by the Group but are treated as joint ventures because the Group has a
50% voting share.
(4) Max Office 2 Limited Liability Partnership is 83.3% owned by the Group.
Max Property Group Plc is the ultimate controlling party of the Group.
22. Commitments and contingent liabilities
At 31 March 2011 the Group had capital commitments in respect of refurbishment
works on its property portfolios amounting to GBP2.2 million (2010: GBP1.7 million).
23. Events after the balance sheet date
On 7 April 2011, the sale of The Rose & Crown pub in Chelsea completed for cash
consideration of GBP2.1 million. GBP1.0 million of the proceeds was used to repay
part of the loan secured on the portfolio and the remainder was added to the
Group's cash resources.
On 8 June 2011, the Maidenhead property (part of the Nightclubs portfolio) was
sold for cash consideration of GBP0.5 million, which was GBP0.1 million over its
book value at the year end. The property was not debt financed so the entire
proceeds were added to the Group's cash resources.
GLOSSARY
AIM The Alternative Investment Market of the London Stock
Exchange
CISX The Daily Official List of the Channel Islands Stock
Exchange
EPRA European Public Real Estate Association
EPRA EPS A measure of earnings per share designed by EPRA to present
underlying earnings from core operating activities
EPRA NAV A measure of net asset value designed by EPRA to present net
asset value excluding the effects of fluctuations in value
in instruments that are held for long term benefit, net of
deferred tax
EPS Earnings per share, calculated as the earnings for the
period after tax attributable to members of the parent
Company (that is, excluding any minority interests) divided
by the weighted average number of shares in issue in the
period
Equivalent Yield The constant capitalisation rate which, if applied to all
cash flows from an investment property, equates to the
market value
Initial Yield Annualised net rents on investment properties as a
percentage of the investment property valuation
Investment The agreement made between the Company, Prestbury
Advisory Agreement Investments LLP and Partnership Incorporations Limited under
which Prestbury provides certain services to the Group
NAV Net asset value
Property Advisor or Prestbury Investments LLP
Prestbury
Reversionary Yield The anticipated yield to which the Initial Yield will rise
once the rent reaches the ERV, which is the market rental
value of lettable space
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: Max Property Group plc via Thomson Reuters ONE
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