TIDMMAX
Max Property Group PLC
Results for the six months ended 30 September 2011
Highlights
30 September 2011 31 March 6 months since 28 months since
2011 31 March 2011 listing
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Net assets GBP283.2m GBP281.5m up GBP1.7m up GBP71.8m
EPRA net assets 132.3p 130.0p up 37.7%
per share * up 1.8%
EPRA earnings per 2.9p 4.5p
share **
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* 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
Financial highlights
* EPRA NAV per share up 37.7% since listing in May 2009 and up 1.8% to 132.3p
per share in the six months to September 2011
* EPRA EPS up 52.6% to 2.9p (30 September 2010: 1.9p)
* Valuations steady; portfolio initial yield 8.8% and equivalent yield 9.1%
* Low net loan to value ratio at 26.1% (28.3% including Hospitals joint
venture)
* Active capital recycling leaves uncommitted cash of GBP55.2m
Portfolio highlights
* GBP164.5m acquisition of St Katharine Docks (Max share GBP98.7m) with
performance incentive for Max on JV partner equity
* Disposals of GBP9.9m at a 5% profit over book value and a 26% profit over
historic cost
* London weighting now 33%, up from 14% at 31 March 2011
* London and South East weighting now 64%, up from 40% at 31 March 2011
* 100 new leases covering 410,000 sq ft signed with a net rent roll of GBP1.8m
* Industrious vacancy rate by area down over six months to 15.0% from 15.9%
(20.7% at purchase 25 months ago)
* Provincial Offices vacancy rate by area down over six months to 32% from
39% (48% at purchase 22 months ago)
* Overall vacancy rate now 15.8% of ERV, rising to 19.1% next March on
commencing 130,000 sq ft Commodity Quay refurbishment at St Katharine Docks
Aubrey Adams, Chairman of Max Property Group Plc, comments:
"The economic outlook presents many business threats, but for Max with its low
gearing, cash available for new deals and a fleet of foot management team with
extensive experience of difficult markets, the current uncertainties also
present an opportunity. Our investment in St Katharine Docks is a classic
example: a large mixed use estate in a beautiful waterside environment with
stunning views of some of London's most iconic landmarks acquired at the pricing
levels of a fringe office scheme. We believe considerable value can be unlocked
from this investment and we shall continue to seek out similar opportunities."
1 December, 2011
ENQUIRIES:
Prestbury Investments Tel: 020 7647 7647
Mike Brown
Sandy Gumm
Nick Leslau
College Hill Tel: 020 7457 2020
Mike Davies
Morgan Stanley (Nominated Advisor & Joint Broker) Tel: 020 7425 8000
Edward Knight
Oriel Securities (Joint Broker) Tel: 020 7710 7600
Mark Young
Notes to Editors
Max Property Group Plc ("Max" or the "Company") is a Jersey resident real estate
investment company. Its Board, chaired by Aubrey Adams, 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 a half years from its listing in May 2009.
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 differ materially from those made in, or suggested by, the forward looking
statements. Other than in accordance with its legal or regulatory obligations,
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 occur or circumstances that arise after the
date of this document.
Chairman's Statement
Dear Shareholder,
I am pleased to report Max Property Group Plc's results for the six months ended
30 September 2011.
In the period since our last report to shareholders, we have continued to drive
down our vacancy rate through highly focussed asset management. We also
purchased an exciting new project at St Katharine Docks for GBP164.5 million.
This acquisition has introduced an undermanaged Central London estate into our
portfolio and brought Max's share of gross property asset purchases to GBP448.3
million within 27 months of raising GBP211.4 million on listing in May 2009.
Active capital recycling has also continued with GBP9.9 million of disposals at
profits of 5% over book value and 26% over cost.
Our focus remains on creating, through astute acquisitions, a diversified
portfolio that is able through active management and judicious employment of the
Company's capital, to be positioned for profitable realisations at the end of
the life cycle of the Company.
Results and financial position
For the half year to 30 September 2011 we report EPRA net assets per share up
1.8% since 31 March 2011 at 132.3p, and up 37.7% since the Company listed.
The growth in EPRA NAV in the last six months and since listing is set out
below:
NAV growth in 6 months NAV growth in 28 months
since 31 March 2011 since listing
(pence per share) (pence per share)
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Net rental income 6.3 21.6
Running costs (1.3) (5.9)
Net finance costs (2.0) (6.0)
Surpluses on sales 0.2 9.9
Tax (0.3) (2.0)
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Realised profit 2.9 17.6
Share of Hospitals joint 0.8
venture 0.2
Stepped rent adjustment (0.6) (1.2)
Property revaluation (0.2) 19.0
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Growth in EPRA NAV per share 2.3 36.2
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We have cautioned in past shareholder reports that a comparison of the results
of each reporting period is unlikely to show a smooth progression and we make
the point again that the business is run to optimise the returns over its seven
and a half year life rather than for short term results.
Having now built up a substantial and high yielding portfolio, the realised
returns generated from that portfolio continue to provide a meaningful
contribution to the Group's performance, generating cash flow both for
reinvestment in the existing portfolio and in new acquisitions.
Since raising net proceeds of GBP211.4 million on listing, we have been able to
invest GBP226.2 million of the Company's equity in property acquisitions. We
still retain a free cash balance (excluding cash secured to banks or committed
to working capital requirements) of GBP55.2 million at 30 September 2011.
Outlook
Two years ago in our maiden interim results we forecast a corrugated recovery in
property markets in which management teams would need to show patience and
discipline interspersed with bursts of activity to prosper. With the sovereign
debt crisis now dominating sentiment and banks increasingly reluctant to lend,
the operating environment for property companies has again become challenging.
We should try to keep in mind the valuation context in which we have entered
this new chapter of economic uncertainty. Whereas commercial property went into
the 2008 downturn at peak valuations with historically low yields, today the
margin of secondary property yields over gilt yields is at a historic high.
This is at a time when opportunities for investors to earn acceptable income
returns are scarce.
Economic weakness carries with it the attendant risk of rising tenant defaults
and vacancy rates and it would be naïve to rule out a fall in values in such
circumstances. However, it is critical to distinguish between those assets that
might suffer a temporary dip in cash flow and those in structural decline; only
the former will recover as and when the economy recovers. With this in mind we
continue to avoid secondary retail property. Many shopping centres and high
streets have in our view a rising embedded vacancy rate that is yet to be
adequately reflected in market pricing.
In contrast, over two thirds of the space that was empty in the Industrious
portfolio at the time of our acquisition has now been let or sold. In the
industrial market there will always be tenant 'turnover' but we have no
evidence, in the post Lehman world, of embedded voids in our small unit estates.
Currently 30 of our 76 industrial estates are fully let. Sales at full
occupancy have been profitable, as evidenced by our GBP74 million of sales to
institutions at a 28% margin over gross cost.
Even in tough economic times special situations can arise in the property market
where there is the potential for transformation. St Katharine Docks is a
classic example: a large mixed use estate in a beautiful waterside environment
with stunning views of some of London's most iconic landmarks, but acquired at
the pricing levels of a fringe office scheme. We believe this can be
transformed through astute asset management into a premium destination.
The economic outlook is highly uncertain and we are mindful of the challenges
this presents to all businesses. Those companies best placed to navigate their
way through stormy waters have strong balance sheets with low levels of debt,
cash in hand and experienced management teams who have worked successfully
through difficult markets in the past. We should not forget that crises create
market dislocations and that Max was floated specifically to take advantage of
opportunities that arise in such circumstances.
Aubrey Adams
Chairman
1 December, 2011
Report from the Property Advisor
Prestbury Investments LLP, advisor to Max Property Group Plc, is pleased to
report on the operations of the Group for the six months ended 30 September
2011.
The portfolio
A diverse and high yielding portfolio has been created with low average lot
sizes and a broad spread of tenants, with a geographic concentration in London
and the South East.
Portfolio by sector (Max share) as at 30 September 2011
* Valuation
GBP000 Percentage of total
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Industrial 210,140 50%
Office 144,382 34%
Leisure 50,420 12%
Healthcare 15,557 4%
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420,499 100%
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* includes trading property at its 30 September 2011 valuation of GBP2.5 million
Lot size of portfolio (gross value) as at 30 September 2011
Number of properties Valuation
GBP000 Percentage of total
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St Katharine Docks 1 164,000 32%
Over GBP20 million 1 24,570 5%
GBP10 million to GBP20 million 4 50,970 10%
GBP5 million to GBP10 million 12 85,350 17%
GBP3 million to GBP5 million 11 46,925 9%
Below GBP3 million 100 135,290 27%
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129 507,105 100%
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Average lot size: GBP3.9 million ( GBP2.7 million excluding St Katharine Docks)
Geographic spread of portfolio (Max share) as at 30 September 2011
Valuation
GBP000 Percentage of total
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London 139,625 33%
South East 128,092 31%
Northern regions 96,839 23%
Midlands 33,320 8%
Scotland 14,248 3%
South West 8,375 2%
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420,499 100%
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Tenure of portfolio (Max share) as at 30 September 2011
Valuation
GBPm Percentage of total
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Freehold/virtual freehold 387,449 92%
Long leasehold 31,725 8%
Short leasehold 1,325 0%
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420,499 100%
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Portfolio valuation movements in the six month period to 30 September 2011
Market value
Proportion of (Max share) Compared to Compared to
portfolio GBP000 purchase price 31 March 2011
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Industrious 50% 210,140 13.6% (1.0)%
St Katharine Docks
(60% owned) 23% 98,400 (0.3)% n/a
Provincial Offices
(inc Milton Keynes
assets 83.3% 11% 45,982
owned) 54.4% 3.3%
London Pubs 10% 41,225 5.2% 1.1%
Hospitals (45% 4% 15,557 1.4%
owned) 9.4%
Nightclubs 2% 9,195 0.8% (2.3)%
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100% 420,499 11.8% 0.0%
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Portfolio valuation yields at 30 September 2011
Weighted
average
Net initial Equivalent Reversionary Capital unexpired
yield yield yield value psf lease term
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Industrious 9.9% 10.5% 10.9% GBP33 3.6 years
St Katharine Docks 7.8% 6.5% 8.5% GBP327 6.8 years
Provincial Offices 8.2% 9.7% 12.8% GBP73 3.7 years
London Pubs 6.0% 7.7% 6.0% GBP324 34.4 years
Hospitals 6.8% 8.4% 7.1% n/a 23.7 years
Nightclubs 15.0% 16.2% 11.9% GBP40 23.3 years
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Average (Max share) 8.8% 9.1% 9.9% 7.6 years
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Industrious Portfolio
A portfolio of multi-let industrial estates bought out of receivership in
October 2009 for GBP244.0 million reflecting a GBP31 psf capital value.
Activity
The vacancy rate by area has reduced to 15.0% from 15.5% in June 2011, 15.9% in
March 2011 and 20.7% at acquisition. In the first two years of ownership, we
have concluded just under 600 lettings, sales of empty units, lease renewals and
lease regears on 2.9 million sq ft of space. This excludes asset management
activity carried out on the GBP74 million of assets that have been sold to
institutions.
* Total sales of non core assets since acquisition of GBP82.5 million at an
average 7.9% net initial yield and an GBP18.3 million (29%) profit over
purchase price
* GBP74.4 million of sales were to institutions at capital values of GBP95
psf, with the sold portfolio having a vacancy rate of 2% and realising
GBP16.0 million (28%) over purchase price
* GBP8.1 million of sales of mainly vacant units to owner occupiers
realising GBP2.3 million (41%) over purchase price
* Vacancy rate down from 20.7% at acquisition to 15.0%
* Of the 968,000 sq ft currently vacant:
* 164,000 sq ft (17%) is under offer to let
* 45,000 sq ft (5%) is under offer to owner occupiers
* 205,000 sq ft is known to be coming vacant up to the end of 2012
* Over two thirds of the space vacant on acquisition has since been let or
sold
Current portfolio
* 76 properties
* 905 tenancies
* 6.4 million sq ft
* Average unit size: 5,850 sq ft
* 45% by value in the South East of England
* Highly liquid: 76% of properties by number are lot sizes of GBP3 million or
below
* Weighted average unexpired lease term: 3.6 years
* GBP22.1 million rent roll
* Average contracted rent: GBP4.25 psf
The Industrious portfolio predominantly comprises smaller units that appeal to a
wide variety of users and results in a portfolio with a range of exit options
from individual units to a whole portfolio sale. Martlesham Heath Business
Park, Ipswich (503,000 sq ft) makes up over 10% of the Industrious portfolio by
value and all other properties each make up less than 6%.
30 September
2011 Capital
valuation * Percentage of value psf Area Number of Number
Region GBP000 total GBP sq ft properties of units
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South East 95,315 45% 52 1,843,565 22 432
Northern
regions 71,990 34% 26 2,778,952 31 462
Midlands 30,880 15% 25 1,241,118 16 144
Scotland 6,350 3% 15 429,805 4 35
South West 5,605 3% 40 140,818 3 27
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210,140 100% 33 6,434,258 76 1,100
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* includes trading property at its 30 September 2011 valuation of GBP2.5 million
St Katharine Docks
St Katharine Docks was acquired in August 2011 for GBP164.5 million, reflecting a
GBP330 psf capital value. The purchase was acquired through a joint venture with
Newmarket Property Holdings Limited, a subsidiary of an overseas family trust.
Max has a 60% share plus a participation of 20% of the of the trust's interests
after returns of 11% per annum are achieved. Max also controls the management
of the portfolio. These results include only eight weeks' contribution from the
estate.
St Katharine Docks is situated on the Thames adjacent to Tower Bridge and the
Tower of London, with some of the capital's best views. It includes central
London's only marina, extending to ten acres and 160 berths, and comprises
450,000 sq ft of offices, predominantly in three buildings, with 50,000 sq ft of
waterside restaurants, bars and shops.
The rent roll is currently GBP11.9 million with a vacancy rate of 14% by ERV.
Commodity Quay, comprising 130,000 sq ft, falls vacant in March next year when
the lease on the final 80,000 sq ft expires. Commodity Quay will then be fully
refurbished to a high specification and launched into the lettings market in
2013.
This purchase presented a rare opportunity to reposition an undermanaged estate,
attracting footloose central London occupiers to a beautiful location and
creating a premium office destination.
Provincial Office Portfolio
A portfolio of predominantly late 1980s air conditioned offices purchased in
February 2010 for GBP39.0 million ( GBP50 psf capital value) from a property fund
seeking liquidity to meet redemptions.
With the portfolio being nearly half vacant on purchase the focus has been on
letting vacant space. Significantly, in August 2011 Brabazon House, a 30,000 sq
ft building in Manchester's Concord Business Park, was let to Shell in one of
the largest lettings in the Manchester market in the past couple of years.
Activity
* 21 lettings since purchase on c. 145,000 sq ft
* Vacancy rate down from 48% at acquisition to 32%
* Non core asset in Manchester sold last year for GBP5.8 million at 57% above
cost
Current portfolio
* Nine properties
* Eight freeholds; one 104 year peppercorn leasehold
* 658,000 sq ft
* Average lot size GBP5.3 million
* GBP4.3 million rent roll
* Average contracted rent GBP11.56 psf
Area sq ft Vacancy rate
At 31 October 2011 At 13 June At purchase
2011
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Concord, Manchester 125,000 32% 57% 66%
Broadlands, Horsham 116,000 15% 15% 34%
Centric, Milton Keynes * 103,000 82% 82% 50%
Silbury Court, Milton 77,000 13% 22% 34%
Keynes *
Solent Centre, Fareham 72,000 24% 27% 56%
Overbridge Square, Newbury 67,000 9% 9% 29%
New Bond House, Bristol 47,000 33% 30% 63%
Rookesley, Milton Keynes * 27,000 0% 0% 0%
Adrin Place, Farnborough 24,000 100% 100% 100%
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658,000 32% 39% 48%
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* properties held in joint venture where Max has an 83.3% interest
London Pubs Portfolio
In January 2011, 29 freehold pubs situated in high value residential areas in
London were acquired for GBP44.4 million. The pubs were let on new 35 year full
repairing and insuring leases to Enterprise Inns Plc at market rents well
covered by trading profits and totalling GBP3.0 million per annum, with minimum
3% per annum and maximum 4% per annum RPI-linked uplifts occurring annually for
the first five years and every five years thereafter.
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, subject to their existing use
as pubs, 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.
Enterprise is the UK's largest tenanted pub company, owning over 6,000 pubs
which it values at GBP4.6 billion. In its most recent results announcement in
November 2011 the Enterprise group reported EBITDA of GBP366 million and profit
before tax of GBP157 million before exceptional items for the year ended 30
September 2011.
The pubs acquired were located in Marylebone, Notting Hill, Chelsea,
Clerkenwell, Spitalfields, Southwark, Camden, Highgate, Islington, Barnes,
Sheen, Chiswick, Battersea, Clapham, Balham, Tooting and Fulham.
The Rose & Crown in Chelsea was sold to a private investor for GBP2.1 million in
March 2011, reflecting a net initial yield of 4.5%. The Bedford in Balham was
sold to the Co-operative Group for GBP4.3 million in July 2011, reflecting a net
initial yield of 5.5%. The profit over cost on these sales was GBP1.1 million,
21% above the gross purchase price.
The current passing rent is GBP2.6 million per annum and the average lot size is
GBP1.5 million.
Hospitals Portfolio
Four freehold private hospitals in Blackburn, Liverpool, Ayr and Stirling were
acquired in a joint venture with Lloyds Banking Group in May 2010. Max invested
a nominal sum in the joint venture to acquire a 45% interest and Lloyds injected
the assets with associated debt funding. The Group earns a management fee of
GBP105,000 per annum from the joint venture (increasing annually in line with
RPI). The joint venture is deadlocked with Max and Lloyds each controlling 50%
of the votes.
The joint venture paid GBP31.6 million for the 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. GHG is the UK's largest private healthcare
provider with 73 hospitals and treatment centres across the UK, and generated an
EBITDA of GBP222 million in the year to September 2010.
The initial rent was GBP2.3 million per annum with annual, upwards only uncapped
RPI-linked rent reviews throughout the term. During the period, the first
annual rent review date has occurred, resulting in a rental uplift of 6.1% and a
rent of GBP2.5 million per annum.
The portfolio was independently valued at GBP34.6 million at 30 September 2011, up
from GBP34.1 million at 31 March 2011, resulting in a carrying value of Max's 45%
joint venture interest of GBP1.1 million. This carrying value is stated after
losses on hedging valuations and deferred tax of GBP0.4 million. These amounts
are ignored in calculating the Group's EPRA NAV therefore the joint venture's
contribution to EPRA NAV growth, including the fee income, is GBP0.3 million in
the period and GBP1.7 million since acquisition.
Nightclubs Portfolio
The Nightclubs portfolio was acquired in October 2010 for GBP9.8 million in a deal
struck with a lender seeking an exit for a larger portfolio. At the time of
acquisition, three of the 14 clubs were vacant and the net initial yield on
acquisition was 14.9%.
10 of the nightclubs are let to Atmosphere Bars and Clubs Limited on 30 year
full repairing and insuring leases from January 2010 with a tenant break option
at year 25. The aggregate initial 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 formed to
acquire the best of the units from the 3D Entertainment Group.
Two properties have been sold, including the vacant Maidenhead property which
was sold in July 2011 for GBP0.5 million, realising a profit over cost of GBP0.2
million. The Colchester property had been sold in December 2010 for GBP0.8
million, realising a profit over cost of GBP0.4 million and representing an 8.0%
initial yield.
Of the two remaining vacant properties Banbury has been let on a new 20 year
lease, leaving Middlesbrough, with a value of under GBP0.5 million, still vacant.
The current portfolio produces GBP1.5 million annual rent.
Financial review
Balance sheet
Movements in net asset value
Max remains focussed on creating growth in net asset value per share, the
ultimate aim of the Board being to return cash to investors after the investment
cycle has run its course. The Group's progress is measured principally through
its growth in EPRA NAV per share (excluding interests attributable to third
party equity providers and stripping out the impact of hedging revaluations)
over the period since listing. In the 28 months from listing to 30 September
2011, Max has generated a 38% increase in EPRA NAV per share which is an
increase of 36.2 pence per share.
The increase in EPRA NAV over the period ended 30 September 2011 and since
listing comprises:
NAV growth in six NAV growth in 28
months months
since 31 March 2011 since listing
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Pence Pence
GBPm per share GBPm per share
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Net rental income 13.8 6.3 47.1 21.6
Running costs (2.8) (1.3) (12.7) (5.9)
Net finance costs (4.5) (2.0) (13.1) (6.0)
Surpluses on sales 0.5 0.2 21.7 9.9
Tax (0.6) (0.3) (4.2) (2.0)
=----------------------------------------------------------------------------
Realised profit 6.4 2.9 38.8 17.6
Share of Hospitals joint venture 0.2 0.2 1.5 0.8
Stepped rent adjustment (1.3) (0.6) (2.6) (1.2)
Property revaluation (0.4) (0.2) 41.9 19.0
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EPRA NAV uplift 4.9 2.3 79.6 36.2
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Accounting standards require stepped rents or any fixed or guaranteed rental
uplifts to be spread evenly over the term of a lease and the adjustments arising
in these financial statements relate principally to the leases to Enterprise
Inns where there are 3% per annum minimum uplifts throughout the 35 year lease
term. The effect of including all stepped rent and rent reviews in the
portfolio is to increase net rent in the period ended 30 September 2011 by GBP1.3
million.
As explained in note 15, the Board has assessed the likelihood of any management
team incentive fees becoming payable and has concluded that it is not
sufficiently certain that a payment will be made for a provision to be made in
these financial statements.
EPRA triple net asset value
EPRA triple net asset value is the net asset value after deducting certain
adjustments in the balance sheet for the mark to market costs of debt and
hedging instruments, and after deducting any inherent tax liabilities not
provided for in the financial statements. 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 is the only portfolio held in a
UK resident structure, therefore the only relevant adjustment is the Group's
45% share of the inherent tax in this joint venture.
The Group's EPRA triple net asset value is shown below:
30 September
2011 31 March 2011
Pence Pence
GBPm per share GBPm per share
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EPRA NAV (note 14) 291.0 132.3 286.1 130.0
Share of inherent capital gains tax in Hospitals
joint venture (0.1) - - -
Deferred tax on trading property valuation
surplus (0.1) - - -
Fair value of hedging instruments, net of
deferred tax (7.3) (3.4) (4.1) (1.8)
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EPRA triple net asset value 283.5 128.9 282.0 128.2
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Gearing
The Group's operations are financed by a combination of existing cash resources,
cash arising from operations and non recourse debt finance. The use of non
recourse debt means that the assets at risk in the event that any debt facility
were to default are limited to those within a specific ring-fenced structure.
The Group's share of the gross and net debt position (excluding the joint
venture) is as follows:
St Katharine
Docks Unsecured
Industrious London Pubs (60%) assets Total
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Gross debt (100.9) (22.0) (52.0) - (174.9)
Secured cash 5.2 0.7 6.8 - 12.7
Other cash 4.4 0.6 2.2 49.5 56.7
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Net debt (91.3) (20.7) (43.0) 49.5 (105.5)
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Property value
at
30 September
2011 207.6 41.2 98.4 57.7 404.9
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Gross LTV 48.6% 53.4% 52.8% 43.2%
Net LTV 44.0% 50.2% 43.7% 26.1%
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Max's share of the Hospitals joint venture gross debt is GBP14.0 million, net debt
GBP13.6 million and property value GBP15.6 million. The Group's net gearing
including the Hospitals joint venture is 28.3%.
The Group's gearing ratio (net debt to equity) at 30 September, 2011 is 37.3%
excluding the Hospitals joint venture (42.1% including the joint venture). The
Group has unsecured cash and property assets at 30 September 2011 amounting to
GBP107.2 million.
All facilities remain, and have remained throughout the period, well within the
terms of the credit agreements, with headroom on all financial covenants.
Cash flow
The movements in cash over the six months to 30 September 2011 and in the period
since listing may be summarised as:
Cash flows in 6 months Cash flows in 28 months
since 31 March 2011 since listing
GBPm GBPm
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Cash from operations 20.8 67.8
Net cash from investment
property sales 7.0 35.5
Benefit of Provincial Offices
escrow account 2.7 5.4
Net interest payable (2.9) (9.7)
Capital expenditure (2.4) (5.7)
Property acquisitions (43.7) (226.2)
Purchase of interest rate cap - (2.6)
Net funds raised on listing - 211.4
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Cash flow in the period (18.5) 75.9
Cash at the start of the
period 94.4 -
=-------------------------------------------------------------------------------
Cash at 30 September 2011 75.9 75.9
=-------------------------------------------------------------------------------
Group Max share
Comprising: GBPm GBPm
=-------------------------------------------------------------------------------
Free cash 58.7 56.7
Cash secured under banking
facilities 17.2 12.7
=-------------------------------------------------------------------------------
75.9 69.4
=-------------------------------------------------------------------------------
Included in secured cash is GBP9.0 million (of which the Company contributed GBP5.4
million and its joint venture partner the balance) which represents an estimate
of the capital expenditure required for the first three years of the major
refurbishment projects at St Katharine Docks, in addition to cash flows from net
rental income at St Katharine Docks that will be applied towards that capital
expenditure. The main capital project is the complete refurbishment of the
130,000 sq ft Commodity Quay which falls vacant in March 2012.
Other than at St Katharine Docks, the capital expenditure requirements in the
portfolio are relatively modest and expected to be broadly in line with levels
of expenditure in the past.
Income statement
Movements in property revaluations 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
The rental surplus from Max's high yielding portfolio together with surpluses on
sales have in the period from listing to 30 September 2011 accounted for 31.5p
of the total 36.2p per share growth in that period, covering all running costs,
interest and tax by approximately 2.3 times.
Net income in six months Net income in 28 months
to 30 September 2011 since listing
Pence Pence
GBPm per share GBPm per share
=-------------------------------------------------------------------------------
Gross rent 17.9 8.1 63.2 28.8
Direct property costs (4.1) (1.8) (16.1) (7.2)
=-------------------------------------------------------------------------------
Rental surplus 13.8 6.3 47.1 21.6
=-------------------------------------------------------------------------------
Proceeds from sale of
trading properties - - 28.1 12.8
Cost of trading
properties sold - - (21.8) (9.9)
=-------------------------------------------------------------------------------
Surplus from trading
property sales - - 6.3 2.9
=-------------------------------------------------------------------------------
Proceeds from sale of
investment properties 9.9 4.5 67.0 30.5
Cost of investment
properties sold (9.4) (4.3) (51.6) (23.5)
=-------------------------------------------------------------------------------
Profit on sale of
investment properties 0.5 0.2 15.4 7.0
=-------------------------------------------------------------------------------
Group's share of realised
property surpluses 14.3 6.5 68.8 31.5
=-------------------------------------------------------------------------------
The Max portfolio comprises over 1,000 tenants providing strong diversification
of risk of tenant default. The tenant contributing the greatest proportion of
the rent roll is Enterprise Inns Plc with a GBP2.6 million per annum passing rent,
c. 5.9% of total passing rent. We consider Enterprise to be a sufficiently
strong covenant to comfortably service the lease liabilities, which represent a
profitable part of their portfolio in desirable locations, but it is worth
noting that the valuation of the London pubs portfolio is underpinned by its
vacant possession value. Commodity Quay in St Katharine Docks has been acquired
for refurbishment but is let until March 2012 to Reuters Plc, who account for
5.2% of total rents. All other tenants account for less than 5% of total
passing rent, and all but eight of those also represent less than 1% of total
passing rent.
Provisions for rent, service charge and other billed amounts considered
irrecoverable from tenants amounted to GBP0.2 million in the period compared to
GBP0.4 million in the year to 31 March 2011. The rental element of irrecoverable
amounts equates to 1.0% of rent billed compared to 1.2% in the year to 31 March
2011.
Net financing costs
The Group's net financing cost of GBP5.4 million for the period principally
comprises GBP4.1 million of interest payable (including amortised finance fees) on
the three non recourse secured loan facilities financing the Industrious, London
Pubs and St Katharine Docks portfolios, and GBP1.5 million of reduction in the
value of interest rate derivatives.
Interest rate risk is managed through a combination of interest rate caps and
swaps with 99% to 100% of the amount of notional principal hedged in each of the
debt facilities.
The average and maximum rates of interest payable during the period to 30
September 2011 were as follows:
Average rate paid Maximum rate payable
=--------------------------------------------------------------
Industrious 5.3% 6.4%
St Katharine Docks 4.7% 4.7%
London Pubs 3.2% 5.9%
=--------------------------------------------------------------
Average 4.9% 6.0%
=--------------------------------------------------------------
The Hospitals portfolio interest cost is reported through the share of profits
of joint venture line in the income statement. Interest on the Hospitals
portfolio debt facility is fixed at 5.5%.
Tax
UK income tax is payable at 20% of net rental surpluses after deduction of costs
(principally financing costs) and allowances (principally capital allowances).
No tax is payable in Jersey on the interest or dividend income of Jersey
incorporated and tax resident companies nor on investment property capital
gains. The tax charge for the period represents an effective underlying tax
rate of 6.7% on profits excluding property revaluations, derivative revaluations
and joint venture contribution.
As a management team, we are firmly focussed on generating value through a
diverse portfolio generating strong cash flow and with a robust balance sheet
which provides firepower for substantial deals when the right value creating
opportunities are identified. We remain very motivated by our combined 11.5%
shareholding in the Company to create attractive returns for all shareholders,
whilst doing our utmost to protect the business from downside.
Mike Brown, Chief Executive
Prestbury Investments LLP
1 December, 2011
Condensed Group Income Statement
Unaudited Unaudited Audited
six months to six months to year to
30 September 2011 30 September 31 March
2010 2011
Note GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Gross rental income 19,010 15,316 30,736
Proceeds from sale of - 4,873 4,873
trading properties
=-------------------------------------------------------------------------------
19,010 20,189 35,609
=-------------------------------------------------------------------------------
Property outgoings (4,481) (4,490) (8,379)
Cost of properties - (3,142) (3,142)
sold
=-------------------------------------------------------------------------------
(4,481) (7,632) (11,521)
+------------------------------------------------------------------------------+
|Net rental income 14,529 10,826 22,357|
| |
|Profit on sale of - 1,731 1,731|
|trading properties |
+------------------------------------------------------------------------------+
Gross profit 14,529 12,557 24,088
Administrative
expenses:
+------------------------------------------------------------------------------+
|General administrative (2,646) (2,378) (5,037)|
|expenses |
| |
|Corporate costs (387) (404) (700)|
+------------------------------------------------------------------------------+
Total administrative (3,033) (2,782) (5,737)
expenses
Investment property (1,953) 4,614 11,566
revaluation
Profit on sale of 489 1,247 2,628
investment properties
Other income 54 - 85
=-------------------------------------------------------------------------------
Operating profit 10,086 15,636 32,630
Share of profits of 9 266 469 1,097
joint venture
Finance income 4 268 311 675
Finance costs 4 (5,657) (5,649) (8,339)
=-------------------------------------------------------------------------------
Profit before tax 4,963 10,767 26,063
Tax charge 5 (448) (1,121) (1,686)
=-------------------------------------------------------------------------------
Profit for the period 4,515 9,646 24,377
=-------------------------------------------------------------------------------
Profit for the period
attributable to:
Owners of the parent 4,450 9,548 24,141
Non-controlling 6 65 98 236
interests
=-------------------------------------------------------------------------------
4,515 9,646 24,377
=-------------------------------------------------------------------------------
Earnings per share Pence per share Pence per share Pence per share
=-------------------------------------------------------------------------------
Basic and diluted 7 2.0p 4.3p 11.0p
=-------------------------------------------------------------------------------
All amounts relate to continuing activities.
Condensed Group Statement of Comprehensive Income
Unaudited Unaudited Audited
six months to 30 six months to 30 year to
September 2011 September 2010 31 March
2011
Note GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Profit for the period 4,515 9,646 24,377
Market value adjustment
of interest rate
derivatives in effective
hedges 13 (4,000) (1,542) 787
Amortisation of interest
rate derivatives,
transferred to income
statement (121) (67) (183)
Tax effect of interest
rate derivative market
value adjustment 5 824 321 (121)
Share of market value
adjustment of interest
rate derivatives in
effective hedges in
joint venture, net of
deferred tax 9 (252) (379) (37)
=-------------------------------------------------------------------------------
Total comprehensive
income for the period,
net of tax 966 7,979 24,823
=-------------------------------------------------------------------------------
Total comprehensive
income for the period,
net of tax, attributable
to:
Owners of the parent 1,690 7,881 24,587
Non-controlling
interests (724) 98 236
=-------------------------------------------------------------------------------
966 7,979 24,823
=-------------------------------------------------------------------------------
Condensed Group Statement of Changes in Equity
Period ended Equity
30 September attributable Non-
2011 Stated Hedging Retained to owners of controlling
(unaudited) capital reserve earnings the parent interests Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
At 31 March
2011 (audited) 211,367 (2,352) 72,475 281,490 1,735 283,225
Profit for the
period - - 4,450 4,450 65 4,515
Market value
adjustment of
interest rate
derivatives - (3,112) - (3,112) (1,009) (4,121)
Tax effect of
interest rate
derivative
market value
adjustment - 604 - 604 220 824
Share of market
value
adjustment of
interest rate
derivatives in
joint venture,
net of deferred
tax - (252) - (252) - (252)
=-------------------------------------------------------------------------------
Total
comprehensive
income for the
period, net of
tax - (2,760) 4,450 1,690 (724) 966
Equity
contribution
from non-
controlling
investor - - - - 35,440 35,440
=-------------------------------------------------------------------------------
At 30 September
2011
(unaudited) 211,367 (5,112) 76,925 283,180 36,451 319,631
=-------------------------------------------------------------------------------
Period ended Equity
30 September attributable Non-
2010 Stated Hedging Retained to owners of controlling
(unaudited) capital reserve earnings the parent interests Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
At 31 March
2010 (audited) 211,367 (2,798) 48,334 256,903 1,499 258,402
Profit for the
period - - 9,548 9,548 98 9,646
Market value
adjustment of
interest rate
derivatives - (1,609) - (1,609) - (1,609)
Tax effect of
interest rate
derivative
market value
adjustment - 321 - 321 - 321
Share of market
value
adjustment of
interest rate
derivatives in
joint venture,
net of deferred
tax - (379) - (379) - (379)
=-------------------------------------------------------------------------------
Total
comprehensive
income for the
period, net of
tax - (1,667) 9,548 7,881 98 7,979
=-------------------------------------------------------------------------------
At 30 September
2010
(unaudited) 211,367 (4,465) 57,882 264,784 1,597 266,381
=-------------------------------------------------------------------------------
Condensed Group Balance Sheet
Unaudited Unaudited Audited
30 September 2011 30 September 2010 31 March
2011
Note GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Non-current assets:
Investment properties 8 468,863 260,557 316,103
Investment in joint
venture 9 1,074 90 1,060
Interest rate
derivatives at market
value 13 932 - 1,305
Deferred tax asset 5 1,352 1,158 639
=-------------------------------------------------------------------------------
472,221 261,805 319,107
=-------------------------------------------------------------------------------
Current assets:
Trading properties 2,086 1,982 2,033
Trade and other
receivables 10 8,727 5,689 16,022
Cash deposits with
maturities of more than
three months - 40,919 6,695
Cash and cash
equivalents 11 75,879 83,695 87,634
=-------------------------------------------------------------------------------
86,692 132,285 112,384
=-------------------------------------------------------------------------------
Total assets 558,913 394,090 431,491
=-------------------------------------------------------------------------------
Current liabilities:
Trade and other
payables 12 (20,587) (15,478) (14,873)
Tax payable (1,823) (3,086) (2,016)
Interest rate
derivatives at market
value 13 (2,545) (1,818) (1,596)
=-------------------------------------------------------------------------------
(24,955) (20,382) (18,485)
=-------------------------------------------------------------------------------
Non-current
liabilities:
Borrowings 13 (206,601) (102,561) (126,355)
Interest rate
derivatives at market
value 13 (6,035) (3,051) (1,788)
Obligations under
finance leases 13 (1,691) (1,715) (1,638)
=-------------------------------------------------------------------------------
(214,327) (107,327) (129,781)
=-------------------------------------------------------------------------------
Total liabilities (239,282) (127,709) (148,266)
=-------------------------------------------------------------------------------
Net assets 319,631 266,381 283,225
=-------------------------------------------------------------------------------
Equity attributable to
owners of the parent:
Stated capital 211,367 211,367 211,367
Hedging reserve (5,112) (4,465) (2,352)
Retained earnings 76,925 57,882 72,475
=-------------------------------------------------------------------------------
283,180 264,784 281,490
Non-controlling
interests 6 36,451 1,597 1,735
=-------------------------------------------------------------------------------
Total equity 319,631 266,381 283,225
=-------------------------------------------------------------------------------
Pence per share Pence per share Pence per share
=-------------------------------------------------------------------------------
Basic and diluted NAV
per share 14 128.7p 120.4p 128.0p
EPRA NAV per share 14 132.3p 123.7p 130.0p
=-------------------------------------------------------------------------------
Condensed Group Cash Flow Statement
Unaudited Unaudited Audited
six months to 30 six months to 30 year to
September 2011 September 2010 31 March
2011
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Cash flows from operating
activities:
Profit before tax 4,963 10,767 26,063
Adjustments for non-cash
items:
Investment property
revaluation 1,953 (4,614) (11,566)
Profit on sale of
investment properties (489) (1,247) (2,628)
Share of profits of joint
venture (266) (469) (1,097)
Net finance costs 5,389 5,338 7,664
=-------------------------------------------------------------------------------
Cash flow from operations
before changes in working
capital 11,550 9,775 18,436
Change in trade and other
receivables 5,163 (386) (9,247)
Change in trade and other
payables 4,618 (206) (261)
Change in trading
properties - 3,270 3,219
Tax paid (526) - (1,557)
=-------------------------------------------------------------------------------
Cash flows from
operations 20,805 12,453 10,590
=-------------------------------------------------------------------------------
Investing activities:
Investment property
acquisitions (164,247) (814) (55,694)
Capital expenditure on
investment properties (2,363) (2,125) (3,269)
Recoveries from escrow
account 2,709 - 2,499
Proceeds from sale of
investment properties 11,789 33,211 37,349
Cash received from /
(placed on) short term
deposit 6,695 (5,219) 29,005
Interest received 315 269 741
=-------------------------------------------------------------------------------
Cash flows from investing
activities (145,102) 25,322 10,631
=-------------------------------------------------------------------------------
Financing activities:
Loans drawn down 86,652 - 25,500
Loan arrangement fees
paid (1,556) (36) (632)
Loans repaid (4,765) (15,293) (16,638)
Interest paid (3,229) (3,056) (6,122)
Purchase of interest rate
cap - (2,611) (2,611)
Contribution from non-
controlling investors 35,440 - -
=-------------------------------------------------------------------------------
Cash flows from financing
activities 112,542 (20,996) (503)
=-------------------------------------------------------------------------------
Net (decrease) / increase
in cash and cash
equivalents (11,755) 16,779 20,718
Cash and cash equivalents
at start of period 87,634 66,916 66,916
=-------------------------------------------------------------------------------
Cash and cash equivalents
at end of period 75,879 83,695 87,634
=-------------------------------------------------------------------------------
Notes to the Interim Report
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 financial information set out in this report covers the six month period to
30 September 2011, with comparative amounts relating to the six month period to
30 September 2010 and the year to 31 March 2011.
This financial report includes the results and net assets of the Company and its
subsidiaries, together referred to as the Group, along with the Group's interest
in the results and net assets of its joint venture.
Further general information about the Company and the Group can be found on its
website: www.maxpropertygroup.com.
2. Basis of preparation
The financial information contained in this report has been prepared in
accordance with IAS 34, "Interim Financial Reporting" as adopted by the European
Union, and on a going concern basis.
The condensed financial statements for the interim period are unaudited and do
not constitute statutory accounts for the purposes of the Companies (Jersey) Law
1991. They should be read in conjunction with the Group's statutory accounts
for the year ended 31 March 2011, which are prepared under IFRS and upon which
an unqualified auditors' report was given.
The accounting policies adopted in this report are consistent with those
included in the financial statements of the Group for the year ended 31 March
2011 and are expected to be consistently applied in the year ending 31 March
2012. The annual report is available from the Investor Centre page of the
Company's website, www.maxpropertygroup.com, or by writing to the Company
Secretary or Property Advisor.
The Group's financial performance is not subject to material seasonal
fluctuations.
3. Operating segments
During the current and prior periods, the Group operated in and was managed as
one business segment, being property investment. All revenue arises from
property investment and trading, with all properties located in the United
Kingdom. No single tenant represented more than 10% of the Group's revenues
during the current or any prior periods.
4. Finance income and costs
Unaudited Unaudited Audited
six months to 30 six months to 30 year to
September 2011 September 2010 31 March
2011
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Recognised in the income
statement:
Finance income
=-------------------------------------------------------------------------------
Interest on cash deposits 268 311 675
=-------------------------------------------------------------------------------
Finance costs
Bank interest and charges (3,759) (3,014) (5,952)
Amortisation of loan issue
costs (357) (424) (660)
Market value adjustment of
interest rate derivatives
in ineffective hedges
(note 13) (1,569) (2,187) (1,726)
Amount recycled from the
hedging reserve 121 67 183
=-------------------------------------------------------------------------------
Finance costs in respect
of bank loans (5,564) (5,558) (8,155)
Finance lease interest (93) (91) (184)
=-------------------------------------------------------------------------------
Total finance costs (5,657) (5,649) (8,339)
=-------------------------------------------------------------------------------
Net finance costs
recognised in the income
statement (5,389) (5,338) (7,664)
=-------------------------------------------------------------------------------
Unaudited Unaudited Audited
six months to 30 six months to 30 year to
September 2011 September 2010 31 March
2011
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Recognised in other
comprehensive income:
Market value adjustment of
interest rate derivatives
in effective hedges (4,000) (1,542) 787
Amount recycled to the
income statement (121) (67) (183)
=-------------------------------------------------------------------------------
Net finance (costs) /
income recognised in other
comprehensive income (4,121) (1,609) 604
=-------------------------------------------------------------------------------
Further information about the hedging instruments, including details of their
valuation at the balance sheet date, is included in note 13.
The weighted average interest rate payable by the Group on bank borrowings for
the period ended 30 September 2011, including all lender's margins but excluding
amortised finance costs, was 4.9% (30 September 2010: 5.0%; 31 March
2011: 5.2%). The maximum rate payable in the period was 6.0% (30 September
2010: 6.4%; 31 March 2011: 6.3%). There is no cross-collateralisation between
loan facilities.
5. Taxation
Unaudited Unaudited Audited
six months to 30 six months to 30 year to
September 2011 September 2010 31 March
2011
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Tax charge for the
period recognised in the
income statement:
Current tax 337 1,258 1,746
Deferred tax 111 (137) (60)
=-------------------------------------------------------------------------------
448 1,121 1,686
=-------------------------------------------------------------------------------
The tax assessed for the period varies from the standard rate of income tax in
the UK of 20%. The differences are explained below:
Unaudited Unaudited Audited
six months to 30 six months to 30 year to
September 2011 September 2010 31 March
2011
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Profit before tax 4,963 10,767 26,063
=-------------------------------------------------------------------------------
Profit before tax at the
standard rate of income
tax in the UK of 20% 993 2,153 5,213
Adjusted for the effects
of:
Revaluations not subject
to tax 391 (923) (2,313)
Income and property
disposal profits not
subject to tax (1,518) (897) (2,071)
Share of profit of joint
venture shown after tax (53) - (219)
Expenses not deductible
for tax 661 767 1,115
Other (26) 21 (39)
=-------------------------------------------------------------------------------
448 1,121 1,686
=-------------------------------------------------------------------------------
The movement on the deferred tax asset was as follows:
Unaudited Unaudited Audited
six months to 30 six months to 30 year to
September 2011 September 2010 31 March
2011
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
At the start of the period 639 700 700
Tax on recognition of
fixed or minimum
guaranteed rent reviews,
charged to the income
statement (183) - (69)
Tax on interest rate
derivative market value
adjustment, credited to
the income statement 72 137 129
Tax on interest rate
derivative market value
adjustment, credited /
(charged) to other
comprehensive income 824 321 (121)
=-------------------------------------------------------------------------------
At the end of the period 1,352 1,158 639
=-------------------------------------------------------------------------------
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 in Jersey on their income or gains. 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 costs including interest, is subject to UK
income tax currently at a rate applicable to Group undertakings of 20%.
The joint venture investment is held in two UK companies which were subject to
UK Corporation tax on profits at 26% for the period ended 30 September 2011 (30
September 2010 and 31 March 2011: 28%).
5. Non-controlling interests
The non-controlling interests represent a 16.7% investment by a third party in
three properties in Milton Keynes within the Provincial Offices portfolio and a
40% investment by another third party in St Katharine Docks.
Unaudited Unaudited Audited
six months to 30 six months to 30 year to
September 2011 September 2010 31 March
2011
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
At the start of the period 1,735 1,499 1,499
Capital invested in St 35,440 - -
Katharine Docks
Share of profit for the 65 98 236
period
Share of other (789) - -
comprehensive income for
the period
=-------------------------------------------------------------------------------
At the end of the period 36,451 1,597 1,735
=-------------------------------------------------------------------------------
5. Earnings per share
Earnings per share is calculated as profits attributable to ordinary
shareholders of the Company for each period divided by 220,000,002 ordinary
shares in issue throughout each relevant period during which profits were
earned. 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, with all
figures shown net of any non-controlling interests:
Unaudited Unaudited Audited
six months to 30 six months to 30 year to
September 2011 September 2010 31 March 2011
GBP000 Pence per GBP000 Pence per GBP000 Pence per
share share share
=-------------------------------------------------------------------------------
Basic earnings 4,450 2.0 9,548 4.3 24,141 11.0
Less:
Investment property
revaluation 1,768 0.8 (4,566) (2.1) (11,382) (5.2)
Profit on sale of
investment
properties (489) (0.2) (1,247) (0.6) (2,628) (1.2)
Profit on sale of
trading properties - - (1,731) (0.8) (1,731) (0.8)
Property
acquisition costs
recognised in the
income statement 85 0.1 - - - -
Market value
adjustment of
interest rate
derivatives, net of
tax 470 0.2 2,034 1.0 1,465 0.7
Market value
adjustment of
interest rate
derivatives within
joint venture, net
of tax 17 - 132 0.1 29 -
=-------------------------------------------------------------------------------
EPRA earnings 6,301 2.9 4,170 1.9 9,894 4.5
=-------------------------------------------------------------------------------
5. Investment properties
Long Short
Freehold leasehold leasehold Total
GBP000 GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Audited:
Carrying value as 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 Provincial Office
property 961 - - 961
Capital expenditure 2,665 303 - 2,968
Drawings from escrow account (1,823) (676) - (2,499)
Disposals (35,947) (853) - (36,800)
Movement in rent free periods and fixed or
guaranteed rent reviews (959) (292) (5) (1,256)
Revaluation movement 12,382 640 (200) 12,822
=-------------------------------------------------------------------------------
Carrying value as at 31 March 2011 236,762 78,171 1,170 316,103
Unaudited:
Acquisition of St Katharine Docks 162,216 2,312 - 164,528
SDLT recovery on London Pubs portfolio (301) - - (301)
Capital expenditure 1,373 1,043 - 2,416
Recoveries from escrow account (2,581) (128) - (2,709)
Disposals (9,221) - - (9,221)
Movement in rent free periods and fixed or
guaranteed rent reviews (1,232) (40) (29) (1,301)
Revaluation movement 684 (1,486) 150 (652)
=-------------------------------------------------------------------------------
Carrying value as at 30 September 2011 387,700 79,872 1,291 468,863
=-------------------------------------------------------------------------------
The following table reconciles the carrying values of the investment properties
to their market values:
Long Short
Freehold leasehold leasehold Total
GBP000 GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Audited:
Carrying value as at 31 March 2011
(audited) 236,762 78,171 1,170 316,103
Headlease liabilities (note 13) - (1,638) - (1,638)
Rent free periods and fixed or guaranteed
rent reviews, included within other
receivables 1,213 342 5 1,560
=-------------------------------------------------------------------------------
Portfolio valuation as at 31 March 2011 237,975 76,875 1,175 316,025
=-------------------------------------------------------------------------------
Unaudited:
Carrying value as at 30 September 2011 387,700 79,872 1,291 468,863
Headlease liabilities (note 13) - (1,673) (18) (1,691)
Rent free periods and fixed or guaranteed
rent reviews, included within other
receivables 2,480 331 52 2,863
=-------------------------------------------------------------------------------
Portfolio valuation as at 30 September 2011 390,180 78,530 1,325 470,035
=-------------------------------------------------------------------------------
The properties were valued as at 30 September 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 property value.
The valuation was undertaken in accordance with the Royal Institution of
Chartered Surveyors' Appraisal and Valuation Standards Seventh 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 had the benefit of an escrow account established by the seller of the
Provincial Office portfolio from which funds could be drawn to meet void costs
for the period from the portfolio acquisition in February 2010 until 31 December
2012. The agreement was terminated in August 2011 at which time GBP2.0 million
was received by the Group in consideration net of costs. Drawings from the
escrow account are treated as reductions in the cost of the assets. During the
period but before the date of termination, GBP0.7 million (30 September 2010: GBP1.0
million; 31 March 2011: GBP2.5 million) was drawn.
The historic cost of the Group's investment properties as at 30 September 2011
was GBP429.1 million (30 September 2010: GBP223.4 million; 31 March 2011: GBP273.1
million).
5. Investment in joint venture
The investment in joint venture represents the Group's 45% economic interest in
MPG Hospital Holdings Limited, a company incorporated in England & Wales and
operating in the United Kingdom.
The movement in the investment in joint venture in the period was as follows:
Unaudited Unaudited Audited
six months to 30 six months to 30 year to
September 2011 September 2010 31 March
2011
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
At the start of the period 1,060 - -
Share of profits for the
period recognised in the
income statement 266 469 1,097
Share of other
comprehensive income (252) (379) (37)
=-------------------------------------------------------------------------------
1,074 90 1,060
=-------------------------------------------------------------------------------
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 current rent of GBP2.5 million (30 September 2010 and 31
March 2011: GBP2.3 million) per annum. Throughout the period of ownership, the
joint venture has been funded with non recourse debt facilities, which at 30
September 2011 totalled GBP31.0 million (30 September 2010: GBP31.5 million; 31
March 2011: GBP31.2 million). The properties were independently valued at GBP34.6
million (30 September 2010: GBP32.5 million; 31 March 2011: 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 Seventh Edition on the basis of Market
Value, supported by reference to market evidence of transaction prices for
similar properties.
The Group has no capital commitments or contingent liabilities in relation to
the joint venture.
5. Trade and other receivables
Unaudited Unaudited Audited
30 September 2011 30 September 2010 31 March
2011
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Net trade receivables 3,114 2,416 2,500
Receivable from investment property
disposal - - 2,079
VAT receivable - - 7,535
Interest receivable 5 160 52
Rent free periods and fixed or
guaranteed rent reviews 2,878 854 1,560
Prepayments and accrued income 2,564 1,760 1,936
Other receivables 166 499 360
=-------------------------------------------------------------------------------
8,727 5,689 16,022
=-------------------------------------------------------------------------------
Other than GBP2.0 million (30 September 2010: GBP0.7 million; 31 March 2011: GBP1.0
million) of rent free periods and fixed or guaranteed rent reviews which are due
in more than one year, all amounts above are due within one year.
5. Cash and cash equivalents
Included within the Group's cash and cash equivalents balance of GBP75.9 million
as at 30 September 2011 (30 September 2010: GBP83.7 million; 31 March 2011: GBP87.6
million) are cash deposits of GBP17.2 million (30 September 2010: GBP3.9 million;
31 March 2011: GBP7.5 million) in blocked accounts held as security by the
provider of the secured bank debt.
5. Trade and other payables
Unaudited Unaudited Audited
30 September 2011 30 September 2010 31 March
2011
GBP000 GBP000 GBP000
=---------------------------------------------------------------------------
Trade payables 1,653 3,351 3,056
Rent received in advance 9,623 6,152 6,541
Other taxes and social security 2,532 1,300 1,912
Other amounts payable 3,101 1,768 576
Accruals and deferred income 3,678 2,907 2,788
=---------------------------------------------------------------------------
20,587 15,478 14,873
=---------------------------------------------------------------------------
All amounts above are due within one year and none incur interest.
13. Financial assets and liabilities
Non-current financial liabilities
Unaudited Unaudited Audited
30 September 2011 30 September 2010 31 March
2011
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Secured bank loans 209,501 103,901 128,056
Unamortised finance costs (2,900) (1,340) (1,701)
=-------------------------------------------------------------------------------
206,601 102,561 126,355
Obligations under finance leases 1,691 1,715 1,638
(note 8)
Interest rate derivatives at market 6,035 3,051 1,788
value
=-------------------------------------------------------------------------------
214,327 107,327 129,781
=-------------------------------------------------------------------------------
There was no difference between the book value and fair value of the non-current
financial liabilities shown above.
The Group's principal borrowing arrangements are as follows:
Industrious London Pubs St Katharine Docks
facility facility facility
=-------------------------------------------------------------------------------
Lender Eurohypo AG Eurohypo AG Eurohypo AG
Recourse beyond ring-
fenced sub-group None None None
Loan drawn Oct 2009 Jan 2011 Aug 2011
Initial drawdown GBP127.7m GBP25.5m GBP86.7m
Balance at 30 September
2011 GBP100.9m GBP22.0m GBP86.7m
Value of secured
properties at 30 September
2011 GBP207.6m GBP41.2m GBP164.0m
Gross LTV ratio 48.6% 53.4% 52.8%
Net LTV ratio 44.0% 50.2% 43.7%
Current repayment terms Interest only Interest only Interest only
Repayment date Aug 2014 Jan 2016 Aug 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 relevant
security group. There have been no defaults or other breaches of financial
covenants under any of the loans during the current or prior periods, or in the
period since the balance sheet date.
The Group had no undrawn, committed borrowing facilities at 30 September 2011 or
at the end of any prior period.
Derivative financial instruments
The following derivative financial instruments were in place as at 30 September
2011:
Principal amount Fair value
Unaudited Unaudited Unaudited Unaudited Audited
30 30 Audited 30 30 31
September September 31 March September September March
Expiry 2011 2010 2011 2011 2010 2011
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
4.0%
amortising August
swap 2014 65,744 70,552 68,059 (5,164) (6,048) (3,712)
4.0% cap August
2014 56,750 56,750 56,750 15 259 328
=-------------------------------------------------------------------------------
122,494 127,302 124,809 (5,149) (5,789) (3,384)
2.3%
amortising August
swap 2016 86,000 - - (2,744) - -
3.5% cap March
2015 100,000 100,000 100,000 245 920 1,305
=-------------------------------------------------------------------------------
308,494 227,302 224,809 (7,648) (4,869) (2,079)
=-------------------------------------------------------------------------------
Movements in the valuation of derivative financial instruments in the period
were as follows:
Unaudited Unaudited Audited
six months to 30 six months to 30 year to
September 2011 September 2010 31 March
2011
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
At the start of the (2,079) (3,751) (3,751)
period
Charged to the income (1,569) (2,187) (1,726)
statement (note 4)
(Charged) / credited (4,000) (1,542) 787
directly to the hedging
reserve
Premium paid on - 2,611 2,611
acquisition of interest
rate cap
=-------------------------------------------------------------------------------
At the end of the period (7,648) (4,869) (2,079)
=-------------------------------------------------------------------------------
Derivative financial instruments are categorised as follows:
Unaudited Unaudited Audited
30 September 2011 30 September 2010 31 March
2011
GBP000 GBP000 GBP000
=---------------------------------------------------------------------------
Financial assets
within one year - - -
in more than one year 932 - 1,305
Financial liabilities
within one year (2,545) (1,818) (1,596)
in more than one year (6,035) (3,051) (1,788)
=---------------------------------------------------------------------------
(7,648) (4,869) (2,079)
=---------------------------------------------------------------------------
The derivative contracts have been valued by reference to interbank bid market
rates as at the close of business on 30 September 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 IFRS 7 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 interest rate protection relates in the main to specific ring-fenced
financing structures as follows:
* the 4% interest rate swap and 4% interest rate cap hedge the interest
rate liabilities on the Industrious portfolio loan, maturing in August
2014;
* a cap at 3.5% on GBP25.5 million of notional principal hedges the interest
rate liabilities on the London Pubs portfolio loan, maturing in March
2015; and
* the 2.3% interest rate swap hedges the interest rate liabilities on the
debt secured on St Katharine Docks, maturing in August 2016.
In addition, a Group company holds the benefit of a 3.5% interest rate cap
expiring in March 2015 at GBP74.5 million nominal for potential use in financing
future acquisitions.
The profile of the notional swapped and cap amounts have been estimated to match
the expected loan profiles reasonably closely. Since the loan profiles cannot
be predicted with certainty the swap and cap profiles are monitored regularly
and adjusted as necessary.
14. 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 of 220,000,002.
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 are considered to 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, with all figures
shown net of any non-controlling interests:
Unaudited Unaudited Audited
30 September 2011 30 September 2010 31 March
2011
GBP000 Pence per GBP000 Pence per GBP000 Pence per
share share share
=-------------------------------------------------------------------------------
Basic NAV 283,180 128.7 264,784 120.4 281,490 128.0
Adjustments:
Fair value of
trading property in
excess of book
value 414 0.2 718 0.3 367 0.2
Fair value of
financial
instruments 8,386 3.9 7,480 3.3 4,690 2.1
Deferred tax (1,444) (0.7) (1,158) (0.5) (708) (0.3)
Fair value of
financial
instruments in
joint venture, net
of deferred tax 317 0.1 379 0.2 51 -
Share of inherent
capital gains tax
in joint venture 144 0.1 - - 177 -
=-------------------------------------------------------------------------------
EPRA NAV 290,997 132.3 272,203 123.7 286,067 130.0
=-------------------------------------------------------------------------------
14. Related party transactions and balances
Interests in shares
The direct and indirect interests of the Directors and their families in the
share capital of the Company are as follows:
Unaudited
Unaudited Unaudited 31 March
30 September 2011 30 September 2010 2011
=-------------------------------------------------------------------
Aubrey Adams 100,000 100,000 100,000
Mike Brown 5,000,000 5,000,000 5,000,000
Freddie Cohen 20,000 20,000 20,000
Keith Hamill 40,000 40,000 40,000
Nick Leslau 20,000,000 20,000,000 20,000,000
Alex Ohlsson 150,000 66,000 66,000
John Stephen 40,000 40,000 40,000
David Waters 25,000 25,000 25,000
=-------------------------------------------------------------------
Directors' fees
Directors' fees of GBP0.1 million (period to 30 September 2010: GBP0.1 million; year
to 31 March 2011: GBP0.2 million) were payable for the period ended 30 September
2011. As at 30 September 2011, GBP9,000 (30 September 2010: GBP22,000; 31 March
2011: GBP12,000) of these fees remained outstanding and are included within other
amounts payable (note 12).
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 GBP2.5 million (period to 30 September 2010: GBP2.2 million; year to 31 March
2011: GBP4.7 million) were payable to Prestbury Investments LLP in respect of the
period, of which GBP11,000 (30 September 2010: GBP1.1 million; 31 March 2011: GBP0.1
million) was outstanding as at the balance sheet date and is included within
trade payables (note 12). GBP0.1 million (period to 30 September 2010: GBPnil; year
to 31 March 2011: GBP0.1 million) of this fee has been reduced by the Property
Advisor in recognition of the fact that it directly receives a management fee
from the Hospitals joint venture described in note 9, in relation to the
services provided which are sub-contracted by the Company. This amount is
included in 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
period, Prestbury has recharged at cost GBP18,000 (period to 30 September 2010:
GBP59,000; year to 31 March 2011: GBP79,000) to the Group in this respect, of which
GBPnil (30 September 2010: GBP7,000; 31 March 2011: GBPnil) remains outstanding at 30
September 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 an amount in excess of a
'hurdle', being 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 GBP5.1 million (30 September
2010: GBP8.3 million; 31 March 2011: GBP9.8 million) payable to Prestbury Scotland
and GBP1.5 million (30 September 2010: GBP2.4 million; 31 March 2011: GBP2.8 million)
payable to Och-Ziff, totalling GBP6.6 million or 3.0 pence per share (30 September
2010: GBP10.7 million or 4.9 pence per share; 31 March 2011: GBP12.6 million or 5.7
pence per share). The hurdle increases by 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 general property value growth
over the medium term, the Directors have 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.
14. Commitments and contingent liabilities
At 30 September 2011 the Group had capital commitments in respect of
refurbishment works on its investment and trading properties amounting to GBP1.2
million (30 September 2010: GBP1.4 million; 31 March 2011: GBP2.2 million).
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 non-
controlling 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
ERV Estimated rental value: the open market rental
value expected to be achievable at the current
time
Initial Yield Annualised net rents on investment properties as a
percentage of the investment property valuation
Investment Advisory Agreement The agreement made between the Company, Prestbury
Investments LLP and Gallium Fund Solutions Limited
under which Prestbury provides certain services to
the Group
LTV The outstanding amount of a loan as a percentage
of property value. Gross LTV is the calculation
for the gross loan amount and net LTV offsets cash
balances against the loan amount
NAV Net asset value
Property Advisor or Prestbury Prestbury Investments LLP
psf Per square foot
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
[HUG#1567953]
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