TIDMMAX
Max Property Group Plc
Results for the year ended 31 March 2012
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 a half years from its listing in May 2009.
Highlights
Change in Change in
31 March 12 months 34 months
2012 since last year since listing
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Net assets GBP285.9m up GBP4.4m up GBP74.6m
EPRA net assets per share (1) 133.4p up 2.6% up 38.8%
EPRA earnings per share (2) 6.4p up 42.2%
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(1) excluding fair values of financial instruments and deferred
tax and including trading properties at fair value
(2) excluding property revaluation movements, profits or losses
on sales of properties, fair value movements on financial instruments and
deferred tax
Financial highlights
* EPRA NAV per share up 2.6% to 133.4p per share in the year to March 2012 and
up 38.8% since listing in May 2009
* EPRA EPS up 42.2% to 6.4p
* Low net loan to value ratio at 24.9% (27.3% including Hospitals joint
venture)
* Valuations steady over the year; portfolio initial yield 8.3% and equivalent
yield 9.3%
* Active capital recycling leaves uncommitted cash of c. GBP90 million for
acquisitions
Portfolio highlights
* GBP164.5 million acquisition of St Katharine Docks (Max share GBP98.7 million)
with performance incentive for Max on JV partner equity; early pre-letting
of 38,000 sq ft improved overall ERV by 16.4%
* Industrious vacancy rate by area 15%, down from 16% at 31 March 2011 and
21% at purchase 32 months ago
* Provincial Offices vacancy rate by area 28%, down from 39% at 31 March 2011
and 48% at purchase 28 months ago
* Overall EPRA vacancy rate(3) now 13% of ERV down from 19% at 31 March 2011
* 186 new lettings covering 751,000 sq ft signed with a net rent roll of GBP3.2
million
* Disposals of GBP13.3 million at a 2% profit over book value and a 19% profit
over historic cost
* London and South East weighting now 65%, up from 40% at 31 March 2011
(3) excluding assets not available for letting
Aubrey Adams, Chairman of Max Property Group Plc, comments:
"Max has achieved 39% EPRA NAV growth over its first three years and we believe
our strong cash position at a time of renewed market uncertainty, combined with
further value to be realised from asset management initiatives within our
existing portfolio, will propel attractive returns for shareholders over the
remainder of Max's life."
[28] May 2012
ENQUIRIES:
Prestbury Investments LLP Tel 020 7647 7647
Mike Brown
Sandy Gumm
College Hill Tel 020 7457 2020
Mike Davies
Helen Tarbet
Oriel Securities (Nominated advisor) Tel 7710 7600
Mark Young
Joe Winkley
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 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 arise after the date of this announcement.
Chairman's Statement
Dear Shareholder
I am pleased to report Max Property Group Plc's results and present the
financial statements for the year ended 31 March 2012.
Max has today been listed for exactly three years, over which time it has built
a high yielding portfolio with significant potential for growth through active
asset management. The business was established to invest during periods of
market distress and to realise value over the investment cycle, and as we have
stated in the past, over the course of the cycle we will see periods of growth
and periods of value declines. We run the business to produce attractive returns
over our anticipated life of seven to eight years, not for a stately progression
of consistent returns in every six month reporting period. We believe that we
continue to make good progress against this objective.
Results and financial position
The Group's EPRA net asset value per share at 31 March 2012 of 133.4p represents
an increase of 2.6% over the year and an increase of 38.8% in the 34 months
since listing.
The growth in net asset value per share in the year is derived primarily from
net rental surpluses, comprising 11.9 pence from rent net of direct property
costs, less 4.2 pence of net finance costs, 2.7 pence of administrative
expenses, 1.4 pence of property revaluation losses and 0.4 pence of tax. With a
0.2 pence contribution from the Hospitals joint venture, this is a net increase
of 3.4 pence per share since 31 March 2011.
As the Company's stated aim is ultimately to return cash to shareholders, we
measure also the extent to which retained results are realised in cash terms, as
opposed to being represented by valuation uplifts. Max's net assets per share
growth since listing is 51% realised. After raising a net GBP211 million upon
listing in May 2009, Max has since then purchased GBP448 million of property which
has generated a further GBP97 million of cash (after all costs, interest and tax)
to add to the Group's resources for investment. We continue to apply a
disciplined approach to capital recycling, remaining firmly focussed on
increasing net assets per share, not just growth in net assets.
EPRA earnings per share has increased by over 40% since last year, growing from
4.5p per share to 6.4p per share. As the Company has become more fully invested,
the contribution to earnings from recurring net property income has increased.
The results of this are flowing through in higher earnings and cash flow, though
we expect the contribution to be lower in the forthcoming year because of
refurbishment work at St Katharine Docks, principally at Commodity Quay, which
will reduce the Group's share of net rent by c. GBP1 million compared to the
results reported in these financial statements.
The Group's net loan to value ratio at the year end is 24.9% excluding the debt
in the Hospitals joint venture and 27.3% including Max's share of the Hospitals
debt. All debt is strictly non-recourse and all facilities are fully compliant
with banking covenants.
We report at 31 March 2012 uncommitted cash of c. GBP90 million, which includes
the GBP32 million proceeds of the financing of five of our Provincial Offices
announced on 22 May 2012 and is stated after Max's share of expected
refurbishment costs for St Katharine Docks. We believe that this war chest,
coupled with continued capital recycling efforts, leaves Max well positioned to
take advantage of further weaknesses in the market when they arise.
Our dividend policy is unchanged since listing. After the first four years of
Max's five year investment period, capital may be reinvested but not profits and
after the end of year four (so from May 2013), capital is expected to be applied
towards shareholder returns rather than investment. The Board will therefore
consider the appropriateness of dividend payments in the circumstances at that
time.
Looking back over our three year history, Max took advantage of a favourable
buying window within the early months of its life when significant purchases
totalling some GBP283 million were made against GBP211 million of shareholders'
funds raised. This created the platform for much of our capital growth; our
subsequent intensive asset management reduced voids and the sale of assets let
at much higher levels of occupancy generated healthy profits. We believe the
GBP209 million purchases of St Katharine Docks and the London Pubs portfolio will
also bear fruit over the next few years but beyond this, despite appraising
countless opportunities, we have largely chosen to bide our time, waiting for
the next attractive buying window to appear. This has required considerable
patience but we believe this will be rewarded as market dislocations are
beginning to reappear.
Outlook
We expect to see secondary prices continuing to fall reflecting the combination
of a weak economy and an extremely restricted lending market, largely due to
increasing regulation. In practice, whether quarterly GDP figures in the UK are
a small negative or positive number makes little difference to occupational
markets, which will remain challenging until economic growth reverts much closer
to historic trends. Indeed, we have seen a noticeable drop off in take-up in all
sectors over recent months as occupiers have deferred making decisions at a time
of heightened uncertainty. Notwithstanding the unpromising outlook for property
fundamentals, we believe that the pendulum of investor sentiment is likely to
swing into negative territory setting the scene for better buying conditions.
Stock selection continues to pose a challenge to all property investors. The
scale of the past crash combined with the uncertainty of how the Eurozone crisis
will play out has encouraged investors to pay an unprecedented premium for
safety. With most prime property trading at close to historic peaks it remains
to be seen whether this level of pricing can be sustained when investors
eventually become less risk averse. The gap between prime and genuinely
achievable secondary property yields is at an historic high and this is usually
a strong buy signal for the secondary market. However, in some cases yield has
now ceased to be a reliable indicator of value. Structural issues are
overwhelming parts of the secondary market with shortening unexpired lease
terms, higher vacancy costs and passing rents that may provide little indication
of an asset's capability to generate income in the medium term.
As risk aversion has increased, the definition of what constitutes prime
property has narrowed, leaving a growing secondary sector with little investor
interest. Rather than exacerbate the crisis, the UK banks, which are in de facto
control of much of the secondary stock, have tried to maximise recovery by
avoiding dumping stock on the market. As a consequence, the supply of new deals
over recent years has been much lower than many anticipated, requiring investors
to show equal patience in waiting for the right opportunity to materialise.
However, over the last year loan books have been sold to opportunistic debt
funds with shorter term investor horizons and many CMBS loans are now reaching
maturity. These events will eventually increase the volume of stock available
for purchase and amongst the upheaval, opportunities will inevitably arise. Some
assets recently relegated into the secondary tier have the potential to become
reclassified as prime in better economic times. Other secondary assets may not
be facing structural challenges but still become priced at distressed levels in
the overall investor malaise. Max is a special situations vehicle willing to
operate in both prime and secondary markets and across all property sectors.
This gives it access to the widest range of opportunities to consider and
through actively recycling equity rather than resorting to rights issues it has
remained small and nimble so that it needs only to source a few attractive
opportunities to be able to generate strong NAV per share growth.
The disappointingly slow economic recovery has lowered the trajectory of
property returns emerging from the crash. The banks' patient approach to
deleveraging has also restricted the number of attractive opportunities arising.
Nonetheless, Max has still managed to achieve 39% EPRA NAV growth over its first
three years and we believe our strong cash position at a time of renewed market
uncertainty, combined with further value to be realised from asset management
initiatives within our existing portfolio, will propel attractive returns for
shareholders over the remainder of Max's life.
Aubrey Adams
Chairman
28 May 2012
Report from 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
A diverse, liquid 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 valuation movements in the year to 31 March 2012
Market Market value ERV
value (Max Market value compared to compared to
Proportion of share) compared to 31 March 31 March
portfolio GBP000 cost 2011 2011
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Industrious 49% 201,595 9.3% (4.1)% (2.4)%
St Katharine
Docks 25% 102,222 3.1% 3.1%* 16.4%*
Provincial
Offices 10% 43,839 49.7% 0.3% (8.5)%
London Pubs 10% 43,355 10.6% 7.1% 4.0%
Hospitals 4% 15,552 10.3% 1.3% 0.0%
Nightclubs 2% 8,380 (8.2)% (11.0)% (7.1)%
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100% 414,943 10.5% (0.7)% 0.7%
=-------------------------------------------------------------------------------
* acquired during the year so comparison is to purchase cost (including costs)
and ERV at acquisition
Portfolio valuation yields at 31 March 2012
Capital Weighted average
Initial Equivalent Reversionary value unexpired
yield yield yield psf lease term
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Industrious 9.8% 10.6% 11.3% GBP32 3.7 years
St Katharine Docks 5.8% 6.7% 9.3% GBP340 6.0 years
Provincial Offices 8.3% 9.8% 12.5% GBP72 3.4 years
London Pubs 6.0% 7.5% 6.0% GBP376 33.9 years
Hospitals 6.8% 6.8% 7.1% n/a 23.2 years
Nightclubs 16.5% 17.9% 11.6% GBP37 22.8 years
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8.3% 9.3% 10.2% 7.7 years
=-------------------------------------------------------------------------------
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
* Vacancy rate down to 15.1% from 20.7% at acquisition and 15.9% at 31 March
2011
* 76% of the space vacant on acquisition has since been let or sold
* Total sales of non-core assets since acquisition of GBP85.1 million at an
average 7.8% net initial yield and GBP19.3 million (30%) profit over purchase
price
* GBP76.3 million of sales were mainly to institutions at capital values
averaging GBP93 psf, with the sold portfolio having a vacancy rate of 2% and
realising GBP16.7 million (29%) over purchase price
* GBP8.8 million of sales of mainly vacant units to owner occupiers realising
GBP2.6 million (43%) over purchase price
* Of the 958,000 sq ft currently vacant:
* 72,000 sq ft (7.5%) is under offer to let
* 14,000 sq ft (1.4%) is under offer to owner occupiers
* 144,000 sq ft is known to be coming vacant up to the end of 2012
Current portfolio
* 74 properties
* 885 tenancies
* 6.3 million sq ft
* Average unit size: 5,900 sq ft
* 46% of properties 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: 3.7 years
* GBP21.8 million rent roll
* Average contracted rent: GBP4.19 psf
The Industrious portfolio predominantly comprises smaller units that appeal to a
wide variety of users and provide a range of exit options, from disposals of
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 no other property makes up more than 5% of portfolio value.
31 March
2012 Percentage Capital
valuation* of total value psf Area Number of Number of
Region GBP000 % GBP sq ft properties units
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South East 93,330 46% 52 1,797,771 22 436
Northern regions 67,240 33% 25 2,734,686 29 435
Midlands 29,600 15% 24 1,241,118 16 144
Scotland 5,950 3% 14 429,805 4 35
South West 5,475 3% 39 140,818 3 27
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Total 201,595 100% 32 6,344,198 74 1,077
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* including trading property at its 31 March 2012 valuation of GBP1.8 million
St Katharine Docks
St Katharine Docks was acquired in August 2011 for GBP164.5 million, reflecting
GBP330 psf of capital value. The properties were acquired by a joint venture
between Max and Newmarket Property Holdings Limited, a subsidiary of an overseas
family trust. Max has 60% of the ownership and voting rights plus an additional
participation of 20% of the trust's interests after cash returns of 11% per
annum are achieved. It also controls the management of the portfolio and has
sole control over the timing of any disposal.
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. 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.
International House is the largest asset within the estate, comprising 210,000
sq ft of office space. The 30,000 sq ft third floor, which was vacant at
acquisition, is in the course of refurbishment and has been pre-let to leading
technology learning company QA on a ten year term at GBP37.50 psf against an
average rent passing in the building of c. GBP30 psf. In addition, since the year
end an 8,000 sq ft suite has been let at GBP39 psf to a TMT company, Sitecore.
Planning consent has been granted for a ground floor extension and conversion of
office space to restaurant use, and pre-letting discussions are ongoing.
Max acquired St Katharine Docks in the knowledge that the leases on the 130,000
sq ft Commodity Quay were due to expire in March 2012, providing an opportunity
to upgrade the space. Refurbishment works are underway to provide high quality,
essentially new space behind existing facades and the building is expected to be
launched into the letting market in autumn next year.
* 501,000 sq ft
* Weighted average unexpired lease term: 6.0 years
* GBP10.5 million rent roll
* Average contracted rent: GBP32.51 psf
* EPRA vacancy rate: 3.3%
* Vacancy rate including Commodity Quay (undergoing refurbishment): 32.0% of
ERV
Vacancy rate
-------------------------------
Area sq ft At 28 May 2012 At purchase
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International House 210,000 4.4% 20.8%
Commodity Quay 130,000 n/a* 19.2%
Devon House 90,000 0% 0%
Ivory House and other 71,000 3.7% 3.7%
=------------------------------------------------------------------
501,000 3.3% 14.0%
=------------------------------------------------------------------
* Commodity Quay is undergoing comprehensive refurbishment and is not available
for letting
Provincial Offices
A portfolio of predominantly late 1980s air conditioned offices purchased in
February 2010 for GBP39.0 million cash ( GBP50 psf capital value) from a property
fund seeking liquidity to meet redemptions.
In recent weeks, a GBP32 million loan at c. 80% LTV has been secured against a
420,000 sq ft portfolio of five of the properties: in Manchester, Horsham,
Newbury, Fareham and part of Silbury Court in Milton Keynes. Combined with
earlier sales, this financing allows Max to have recovered its entire investment
while retaining a further 214,000 sq ft of assets in Milton Keynes and Bristol
debt-free, together with the majority of the future performance of the financed
properties. Given the high loan to value ratio of the new loan, the interest
coupon is 9% per annum and carries an exit fee equivalent to 30% of the surplus
once Max has received its remaining equity and a 9% per annum return.
* 27 lettings since purchase on c.174,000 sq ft
* Vacancy rate down from 48% at acquisition to 28%
* Two properties sold since acquisition for GBP6.7 million at 41% over purchase
price
* Eight properties
* Seven freeholds; one 103 year peppercorn leasehold
* 634,000 sq ft
* Average lot size: GBP5.7 million
* GBP3.9 million rent roll
* Average contracted rent: GBP10.21 psf
Vacancy rate
-------------------------------------------
Area sq ft At 28 May 2012 At 13 June 2011 At purchase
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Concord, Manchester 125,000 32% 57% 66%
Broadlands, Horsham 116,000 8% 15% 34%
Centric, Milton Keynes* 103,000 85% 82% 50%
Silbury Court, Milton
Keynes* 77,000 26% 22% 34%
Solent Centre, Fareham 72,000 19% 27% 56%
Overbridge Square, Newbury 67,000 9% 9% 29%
New Bond House, Bristol 47,000 6% 30% 63%
Rookesley, Milton Keynes* 27,000 0% 0% 0%
Aldrin Place, Farnborough
(sold December 2011) n/a n/a 100% 100%
=-------------------------------------------------------------------------------
634,000 28% 39% 48%
=-------------------------------------------------------------------------------
* properties held in joint venture where Max has an 83.3% interest
London Pubs
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 pubs had a floor area of 150,000 sq ft. The independently
assessed vacant possession value of the portfolio at the time of acquisition,
subject to the 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 GBP4.5 billion. In its most recent interim results announcement
in May 2012 the Enterprise group reported EBITDA of GBP168 million and profit
before tax of GBP64 million for the six months ended 31 March 2012.
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 two sales was GBP1.1 million,
21% above the gross purchase price.
The current passing rent is GBP2.7 million per annum following a 4% increase in
January 2012, and the average lot size is GBP1.6 million.
Nightclubs
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%.
Ten 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.
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 was 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 properties that were vacant on acquisition, Banbury
has been let on a new 20 year lease, leaving Middlesbrough, with a value of
under GBP0.5 million, still vacant.
The portfolio currently produces GBP1.3 million annual rent. The nightclubs
sector is proving very challenging for many operators and this is reflected in
the 11% valuation fall ( GBP1.0 million) over the year.
Hospitals
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 joint venture's administrative
expenses include GBP0.1 million (2011: GBP0.1 million) of management fees which are
paid direct to the Property Advisor and which result in a corresponding
reduction of fees paid to the Property Advisor under the Company's contract with
it. 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 on full repairing and
insuring terms 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. 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 ended 30 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 financial year, the
first review has resulted in a rental uplift of 6.1% to GBP2.5 million per annum.
The second review is expected to result in a 3.5% increase.
The portfolio was independently valued at GBP34.6 million at 31 March 2012, up
from GBP34.1 million at 31 March 2011, resulting in a carrying value of Max's 45%
joint venture interest, net of debt, of GBP1.3 million.
Financial review
Balance sheet
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 realising
value over the investment cycle. 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 34 months from listing to
31 March 2012, Max has generated a 39% increase in EPRA NAV per share which is
an increase of 37.3 pence per share.
The increase in EPRA NAV over the year ended 31 March 2012 and since listing
comprises:
NAV growth since
NAV growth in year listing
---------------------------------------------
GBPm Pence per share GBPm Pence per share
=-------------------------------------------------------------------------------
Net rental income 29.9 13.5 63.2 28.8
Rent smoothing adjustments* (3.6) (1.6) (4.9) (2.2)
=-------------------------------------------------------------------------------
Net rent excluding future rental
uplifts 26.3 11.9 58.3 26.6
Running costs (6.0) (2.7) (15.8) (7.3)
Net finance costs (9.3) (4.2) (18.0) (8.2)
Surpluses on property sales 0.1 - 22.6 10.2
Tax (0.8) (0.4) (4.5) (2.1)
=-------------------------------------------------------------------------------
Realised profit 10.3 4.6 42.6 19.2
Share of Hospitals joint venture 0.3 0.2 1.6 0.8
Property revaluation (3.0) (1.4) 38.0 17.3
=-------------------------------------------------------------------------------
EPRA NAV uplift 7.6 3.4 82.2 37.3
=-------------------------------------------------------------------------------
* Accounting standards require lease incentives or any fixed or guaranteed
rental uplifts to be spread evenly over the term of a lease. The amounts
described above as 'rent smoothing adjustments' represent this adjustment and
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 smoothing all
lease incentives and fixed rental uplifts in the financial statements is to
increase net rent in the year by GBP2.9 million and GBP4.1 million since
acquisition.
Given the Group's strategy of returning cash to shareholders over the investment
cycle, we focus in these reports not only on NAV growth, but on the extent to
which that growth is realised. By 'realised', we refer to returns that are
substantially cash returns, as opposed to valuation movements. We split out the
elements considered realised and unrealised in the table above, and note that,
for the period since listing, the realised NAV movements account for 51% of NAV
growth.
The GBP1.3 million carrying value of the Hospitals joint venture is stated after
losses on hedging valuations and deferred tax of GBP0.3 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 GBP0.4 million in
the year and GBP1.8 million since acquisition.
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 more material areas include the property and
derivatives valuations, where independent open market valuations are obtained.
There have been no changes in accounting policies since listing.
EPRA triple net asset value is the net asset value after deducting certain
adjustments 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 that way, therefore the only relevant tax
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:
31 March 2012 31 March 2011
--------------------------------------------
GBPm Pence per share GBPm Pence per share
=-------------------------------------------------------------------------------
EPRA NAV 293.5 133.4 286.1 130.0
Share of inherent capital gains tax
in Hospitals joint
venture (0.1) (0.1) - -
Deferred tax on trading property
valuation surplus (0.2) (0.1) - -
Fair value of hedging instruments,
net of deferred tax (6.5) (2.9) (4.1) (1.8)
=-------------------------------------------------------------------------------
EPRA triple net asset value 286.7 130.3 282.0 128.2
=-------------------------------------------------------------------------------
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.
The income statement, adjusted to exclude the non-controlling interests in St
Katharine Docks and the Milton Keynes offices from each line, is shown below. As
the non-controlling interest in St Katharine Docks, at 40%, is relatively
significant, we adopt this form of presentation here to more clearly present the
constituent parts of net income attributable to Max shareholders.
Year ended
31 March
Year ended 31 March 2012 2011
GBPm GBPm
=------------------------------------------------------------------------------
Net rental income 29.9 22.3
(Loss)/profit on sale of trading properties (0.3) 1.7
=------------------------------------------------------------------------------
Gross profit 29.6 24.0
Administrative expenses (6.1) (5.7)
Investment property revaluation (7.3) 11.4
Profit on sale of investment properties 0.4 2.6
Other income 0.1 0.1
=------------------------------------------------------------------------------
Operating profit 16.7 32.4
Share of profit of joint venture 0.4 1.1
Net finance costs (9.4) (7.7)
=------------------------------------------------------------------------------
Profit before tax 7.7 25.8
Tax charge (0.9) (1.7)
=------------------------------------------------------------------------------
Profit for the year 6.8 24.1
=------------------------------------------------------------------------------
Movements in the property revaluations shown in the income statement 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
31 March 2012 accounted for 36.8p of the net 37.3p per share growth in that
period, covering all running costs, interest and tax by approximately 2.1 times.
Net income in year Net income
ended in 34 months
31 March 2012 since listing
----------------------------------------
Pence Pence
GBPm per share GBPm per share
=-------------------------------------------------------------------------------
Gross rent 38.4 17.4 83.7 38.1
Direct property costs (8.5) (3.9) (20.5) (9.3)
=-------------------------------------------------------------------------------
Rental surplus 29.9 13.5 63.2 28.8
=-------------------------------------------------------------------------------
Proceeds from sale of trading properties 0.8 0.3 28.8 13.1
Cost of trading properties sold (1.1) (0.5) (22.8) (10.4)
=-------------------------------------------------------------------------------
Result from trading property sales (0.3) (0.2) 6.0 2.7
=-------------------------------------------------------------------------------
Proceeds from sale of investment
properties 12.6 5.7 69.7 31.7
Cost of investment properties sold (12.2) (5.5) (53.1) (24.2)
=-------------------------------------------------------------------------------
Profit on sale of investment properties 0.4 0.2 16.6 7.5
=-------------------------------------------------------------------------------
Property surplus reported in the income
statement 30.0 13.5 85.8 39.0
Rent smoothing adjustments classified
within revaluation movements (3.6) (1.6) (4.9) (2.2)
=-------------------------------------------------------------------------------
Realised property surpluses attributable
to shareholders 26.4 11.9 80.9 36.8
=-------------------------------------------------------------------------------
Provisions for rent, service charge and other billed amounts considered
irrecoverable from tenants amounted to GBP0.5 million in the year compared to GBP0.7
million in the year to 31 March 2011. The rental element of irrecoverable
amounts equates to 1.3% of rent billed compared to 1.2% in the year to 31 March
2011.
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 GBP2.7 million per annum passing rent,
c.7% of the total passing rent. We consider Enterprise to be a sufficiently
strong covenant to comfortably service their lease liabilities, which relate to
a profitable part of their portfolio in desirable locations, but it is worth
noting that the acquisition cost of the London Pubs portfolio was substantially
underpinned by its vacant possession value. All other tenants account for less
than 5% of total passing rent, and all but 13 of those also represent less than
1% of total passing rent, providing a low concentration of tenant risk.
Running costs
The Group's running costs principally comprise the fee payable to its external
manager, Prestbury Investments LLP, which amounted to GBP5.4 million in the year
(2011: GBP4.7 million) of which GBP0.4 million (2011: GBPnil) was borne by the non-
controlling interests, therefore Max shareholders' share of the manager's fee is
GBP5.0 million (2011: GBP4.7 million). The other principal component of the total
GBP6.1 million (2011: GBP5.7 million) running costs attributable to Max shareholders
is GBP0.8 million (2011: GBP0.7 million) of corporate costs, which 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, costs
attributable to Max shareholders have remained relatively stable since the prior
year.
Financing
The financing strategy laid down by the Board is to use non-recourse leverage
with a view to enhancing equity returns while 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 been consistently applied in the period since listing.
Of the six portfolios owned by the Group at the balance sheet date, four - the
Industrious, St Katharine Docks, Hospitals and London Pubs portfolios - are debt
financed. All facilities are financed on a strictly non-recourse basis and with
no cross default provisions between those subgroups.
The Group's share of the gross and net debt position (excluding the Hospitals
joint venture) is as follows:
St Katharine
Docks Unsecured
Industrious London Pubs (60%) assets Total
GBPm GBPm GBPm GBPm GBPm
=-------------------------------------------------------------------------------
Gross debt 100.9 22.0 52.0 - 174.9
Secured cash (4.5) (0.7) (8.1) - (13.3)
Other cash (1.3) (0.1) (2.3) (58.3) (62.0)
=-------------------------------------------------------------------------------
Net debt 95.1 21.2 41.6 (58.3) 99.6
=-------------------------------------------------------------------------------
Property value at 31 March
2012 199.8 43.4 102.2 53.9 399.3
=-------------------------------------------------------------------------------
Gross LTV 50.5% 50.7% 50.9% 43.8%
Net LTV 47.6% 48.8% 40.7% 24.9%
=-------------------------------------------------------------------------------
The Hospitals portfolio is held in a joint venture where Max has a 45% economic
interest. The non-recourse 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 2012 was GBP1.3 million. The portfolio was fully debt
financed at acquisition 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. Max's share of the Hospitals joint venture gross debt is GBP13.9
million, net debt GBP13.5 million and property value GBP15.6 million. The Group's
net gearing including the Hospitals joint venture is 27.3%.
The Group's gearing ratio (net debt to equity) at 31 March 2012 is 34.8%
excluding the Hospitals joint venture (39.6% including the joint venture). The
Group has unsecured cash and property assets amounting to GBP112.2 million at
their 31 March 2012 valuations.
The debt facilities all remain within 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. As at the most recent
test dates at the end of April 2012, the valuations would need to fall by 16%
before a covenant breach would occur on the Industrious portfolio, by 27% to
breach the covenant on St Katharine Docks, by 28% to breach the covenant on the
London Pubs, and by 28% to breach the covenant on the Hospitals.
Interest cover is tested on the basis of projections of rent (taking into
account only contracted rent), property running and void costs, and interest
costs. The risk on the net rental line is managed through active asset
management and the risk on the interest line by interest rate hedging in order
to fix or cap the maximum level of interest cost payable. When most recently
tested in April 2012 there was 32% headroom on the Industrious interest cover
test, 17% on St Katharine Docks, 18% on the London Pubs, and 12% on the
Hospitals.
Medium term interest rates remain at very low levels, meaning that 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, in the event that rates rise, 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, St Katharine Docks and London Pubs portfolio facilities are:
Average Maximum
rate paid rate payable
=-----------------------------------------------
Industrious 5.3% 6.4%
St Katharine Docks 4.6% 4.6%
London Pubs 3.3% 5.9%
=-----------------------------------------------
Weighted average 4.8% 5.8%
=-----------------------------------------------
Since the balance sheet date, a non-recourse financing agreement has been
entered into to raise GBP32 million secured against five assets in the Provincial
Offices portfolio. The facility has a September 2016 maturity date and includes
a potential exit fee payable to the lender equal to 30% of surpluses realised.
The interest rate on the debt is fixed at 9% per annum. Including this new
facility, the pro forma maximum interest rate payable is 6.3% and the
hypothetical average rate paid in the year would have been 5.5%.
Tax
UK income tax is payable at 20% of net rental surpluses after deduction of costs
(principally financing costs and costs of holding vacant property) and
deductions for 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 7.4% (2011: 12.7%) on profits excluding
property revaluations, derivative revaluations and joint venture contribution.
Cash flow
The movements in cash over the year and in the period since listing may be
summarised as:
Cash flows in year ended Cash flows in 34 months
31 March 2012 since listing
GBPm GBPm
=-------------------------------------------------------------------------------
Cash from operations 33.3 80.2
Net cash from investment and
trading property sales 6.7 35.3
Benefit of Provincial Offices
escrow account 2.7 5.4
Net interest payable (7.9) (14.7)
Purchase of interest rate cap - (2.6)
Capital expenditure (2.9) (6.3)
=-------------------------------------------------------------
Cash generated from own resources 31.9 97.3
Property acquisitions net of debt finance (43.6) (226.1)
Net funds raised on listing - 211.4
=-------------------------------------------------------------
Cash flow in the year/period (11.7) 82.6
Cash at the start of the year/period 94.3 -
=-------------------------------------------------------------
Cash at the end of the year/period 82.6 82.6
=-------------------------------------------------------------
31 March 2012
Group Max share
GBPm GBPm
=----------------------------------------------------------
Free cash 64.0 62.0
Cash secured under banking facilities 18.6 13.3
=----------------------------------------------------------
Cash at the end of the year 82.6 75.3
=----------------------------------------------------------
Other than at St Katharine Docks, the capital expenditure requirements in the
portfolio are relatively modest and expected to remain broadly in line with
levels of past expenditure.
The most significant project at St Katharine Docks is the refurbishment of
Commodity Quay. This project is currently being tendered and therefore, at the
date of this report, there is no capital commitment relating to this project for
disclosure in note 21 to the financial statements apart from GBP1.0 million of
strip-out costs, of which Max's share is GBP0.6 million. The refurbishment period
is expected to run until the third quarter of 2013.
St Katharine Docks is held in a structure with 60% ownership by Max and 40% by a
third party. At acquisition each partner injected cash to cover the projected
capital expenditure and working capital needs of the project that were estimated
at that time, for the following three years. The cash for all refurbishment
projects at St Katharine Docks is provided in the main by an existing ring
fenced cash deposit within the joint venture structure, to which net cash flows
arising from rent and marina operations are added. Further value enhancing
improvements have been identified, but not yet committed to, that are currently
estimated to require an additional GBP6 million cash injection from Max. This sum,
in addition to the cash in this structure, is regarded as ring-fenced and has
been deducted in calculating Max's reported uncommitted cash balance of c. GBP90
million.
We are operating in a tough environment, with sluggish economic recovery and
strictly rationed credit. Despite these challenging conditions, the management
team remains very active in seeking out for shareholders suitable acquisition
opportunities, and further opportunities for capital recycling to deliver
attractive realised returns over the investment cycle.
Mike Brown
Chief Executive
Prestbury Investments LLP
28 May 2012
Group Income Statement
Year to Year to
31 March 31 March
2012 2011
Note GBP000 GBP000
=-------------------------------------------------
Gross rental income 42,235 30,736
Proceeds from sales of trading properties 750 4,873
=----------------------------------------------------------------------------
42,985 35,609
Property outgoings 10 (9,793) (8,379)
Cost of sales of trading properties (1,031) (3,142)
=----------------------------------------------------------------------------
(10,824) (11,521)
+---------------------------------------------------------------------------+
| Net rental income 32,442 22,357 |
| |
| (Loss)/profit on sales of trading properties (281) 1,731 |
+---------------------------------------------------------------------------+
Gross profit 32,161 24,088
Administrative expenses:
+---------------------------------------------------------------------------+
| General administrative expenses (5,819) (5,037) |
| |
| Corporate costs (755) (700) |
+---------------------------------------------------------------------------+
Total administrative expenses (6,574) (5,737)
Investment property revaluation 10 (5,016) 11,566
Profit on sale of investment properties 355 2,628
Other income 106 85
=----------------------------------------------------------------------------
Operating profit 4 21,032 32,630
Share of profits of joint venture 11 373 1,097
Finance income 6 365 675
Finance costs 6 (10,837) (8,339)
=----------------------------------------------------------------------------
Profit before tax 10,933 26,063
Tax charge 7 (881) (1,686)
=----------------------------------------------------------------------------
Profit for the year 10,052 24,377
=----------------------------------------------------------------------------
Profit for the year attributable to:
Owners of the parent 6,829 24,141
Non-controlling interests 8 3,223 236
=----------------------------------------------------------------------------
10,052 24,377
=----------------------------------------------------------------------------
Pence per Pence per
Earnings per share share share
=----------------------------------------------------------------------------
Basic and diluted 9 3.1p 11.0p
=----------------------------------------------------------------------------
All amounts relate to continuing activities.
Group Statement of Comprehensive Income
Year to Year to
31 March 31 March
2012 2011
Note GBP000 GBP000
=-------------------------------------------------------------------------------
Profit for the year 10,052 24,377
Market value adjustment of interest rate derivatives in
effective hedges 15b (3,794) 787
Amortisation of interest rate derivatives, transferred to
income statement (258) (183)
Tax effect of interest rate derivative market value adjustment 7 805 (121)
Share of market value adjustment of interest rate derivatives in
effective hedges in joint venture, net of deferred tax 11 (178) (37)
=-------------------------------------------------------------------------------
Total comprehensive income for the year, net of tax 6,627 24,823
=-------------------------------------------------------------------------------
Total comprehensive income for the year, net of tax,
attributable to:
Owners of the parent 4,429 24,587
Non-controlling interests 2,198 236
=-------------------------------------------------------------------------------
6,627 24,823
=-------------------------------------------------------------------------------
Group Statement of Changes in Equity
Equity
attributable
to owners Non-
Stated Hedging Retained of the controlling
capital reserve earnings parent interests Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
At 31 March 2011 211,367 (2,352) 72,475 281,490 1,735 283,225
Profit for the year - - 6,829 6,829 3,223 10,052
Market value
adjustment of
interest rate
derivatives - (2,793) - (2,793) (1,259) (4,052)
Tax effect of
interest rate
derivative market
value adjustment - 571 - 571 234 805
Share of market value
adjustment of
interest rate
derivatives in joint
venture, net of
deferred tax - (178) - (178) - (178)
=-------------------------------------------------------------------------------
Total comprehensive
income for the year,
net of tax - (2,400) 6,829 4,429 2,198 6,627
Equity contribution
from non-controlling
investor - - - - 35,440 35,440
Distributions paid to
non-controlling
investors - - - - (27) (27)
=-------------------------------------------------------------------------------
At 31 March 2012 211,367 (4,752) 79,304 285,919 39,346 325,265
=-------------------------------------------------------------------------------
Equity
attributable
to owners Non-
Stated Hedging Retained of the controlling
capital reserve earnings parent interests Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
At 31 March 2010 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 market
value 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
=-------------------------------------------------------------------------------
Group Balance Sheet
31 March 31 March
2012 2011
Note GBP000 GBP000
=-------------------------------------------------------------------------------
Non-current assets:
Investment properties 10 464,125 316,103
Investment in joint venture 11 1,255 1,060
Interest rate derivatives at market value 15b 900 1,305
Deferred tax asset 7 1,102 639
=-------------------------------------------------------------------------------
467,382 319,107
=-------------------------------------------------------------------------------
Current assets:
Trading properties 864 2,033
Trade and other receivables 12 11,258 16,022
Cash deposits with maturities of more than three months - 6,695
Cash and cash equivalents 13 82,631 87,634
=-------------------------------------------------------------------------------
94,753 112,384
=-------------------------------------------------------------------------------
Total assets 562,135 431,491
=-------------------------------------------------------------------------------
Current liabilities:
Trade and other payables 14 (19,089) (14,873)
Tax payable (1,106) (2,016)
Interest rate derivatives at market value 15b (2,578) (1,596)
=-------------------------------------------------------------------------------
(22,773) (18,485)
=-------------------------------------------------------------------------------
Non-current liabilities:
Borrowings 15a (206,983) (126,355)
Interest rate derivatives at market value 15b (5,462) (1,788)
Obligations under finance leases 16 (1,652) (1,638)
=-------------------------------------------------------------------------------
(214,097) (129,781)
=-------------------------------------------------------------------------------
Total liabilities (236,870) (148,266)
=-------------------------------------------------------------------------------
Net assets 325,265 283,225
=-------------------------------------------------------------------------------
Equity attributable to owners of the parent:
Stated capital 17 211,367 211,367
Hedging reserve (4,752) (2,352)
Retained earnings 79,304 72,475
=-------------------------------------------------------------------------------
285,919 281,490
Non-controlling interests 8 39,346 1,735
=-------------------------------------------------------------------------------
Total equity 325,265 283,225
=-------------------------------------------------------------------------------
Pence per Pence per
share share
=-------------------------------------------------------------------------------
Basic and diluted NAV per share 19 130.0p 128.0p
EPRA NAV per share 19 133.4p 130.0p
=-------------------------------------------------------------------------------
Group Cash Flow Statement
Year to Year to
31 March 31 March
2012 2011
Note GBP000 GBP000
=-------------------------------------------------------------------------------
Cash flows from operating activities:
Profit before tax 10,933 26,063
Adjustments for non-cash items:
Investment property revaluation 10 5,016 (11,566)
Profit on sale of investment properties (355) (2,628)
Share of profits of joint venture 11 (373) (1,097)
Net finance costs 6 10,472 7,664
=-------------------------------------------------------------------------------
Cash flows from operating activities before changes in
working capital 25,693 18,436
Change in trade and other receivables 4,484 (9,247)
Change in trade and other payables 3,388 (261)
Change in trading properties 1,229 3,219
Tax paid (1,449) (1,557)
=-------------------------------------------------------------------------------
Cash flows from operating activities 33,345 10,590
Investing activities:
Investment property acquisitions (164,173) (55,694)
Capital expenditure on investment properties (2,912) (3,269)
Recoveries from escrow account 10 2,709 2,499
Proceeds from sales of investment properties 11,953 37,349
Cash received from short term deposit 6,695 29,005
Interest received 416 741
=-------------------------------------------------------------------------------
Cash flows from investing activities (145,312) 10,631
Financing activities:
Loans drawn down 86,652 25,500
Loan arrangement fees paid (1,559) (632)
Loans repaid (5,207) (16,638)
Interest paid (8,335) (6,122)
Purchase of interest rate cap 15b - (2,611)
Distribution to non-controlling investors (27) -
Capital contribution from non-controlling investors 8 35,440 -
=-------------------------------------------------------------------------------
Cash flows from financing activities 106,964 (503)
=-------------------------------------------------------------------------------
Net (decrease)/increase in cash and cash equivalents (5,003) 20,718
Cash and cash equivalents at the start of the year 87,634 66,916
=-------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year 82,631 87,634
=-------------------------------------------------------------------------------
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 2012 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. 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 Statement and the Report from the Property Advisor.
The financial information set out in this report covers the year to 31 March
2012 with comparative amounts relating to 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 Group 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 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; and
* 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.
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 IFRS Interpretations Committee ('IFRIC') have
led to any material changes in the Group's accounting policies or disclosures
during the year.
iii) 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 for periods
commencing from
=-------------------------------------------------------------------------------
Presentation of Other Comprehensive
IAS 1 (2011) Income 1 July 2012
IAS 12 Deferred tax 1 January 2012
IFRS 9 Financial instruments 1 January 2015
IFRS 10 Consolidated financial statements 1 January 2013
IFRS 11 Joint arrangements 1 January 2013
Disclosures of interests in other
IFRS 12 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 Group has provided certain information required by IFRS 12 in relation to
its St Katharine Docks subsidiaries in note 8 as the Directors consider this to
be meaningful to users of the financial statements.
The IASB and IFRIC have also issued or revised IFRS 1, IFRS 3, IFRS 7, IAS 19,
IAS 24, IAS 27, IAS 28, IAS 32, IAS 34, IFRIC 13, IFRIC 14, IFRIC 19 and IFRIC
20 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 profits and losses and net
assets not held by the Group. They are included in full in the relevant income
statement, statement of comprehensive income and balance sheet captions, then
presented separately in the income statement and statement of comprehensive
income, and within equity in the consolidated balance sheet, to clarify the
relevant share of earnings and net assets attributable to shareholders and non-
controlling interests respectively.
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 those 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 audited 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 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;
* 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.
Where this income or these costs are 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.
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.
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
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 revaluation of 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 the revaluation of
derivative financial instruments which are classified as held for trading
because they are not effective hedges is recognised in the income statement.
Only the intrinsic value of a cap is designated as a hedging instrument, with
changes in the time value taken directly to 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 they become legally
payable.
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. Incentive fees earned that are
reasonably likely to become payable will be 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 owns 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 all the portfolios and focuses on total returns on
shareholders' equity. The Board has therefore concluded that in the period from
incorporation to 31 March 2012 the Group was operated in and was managed as one
business segment, being property investment. All revenue arises from the Group's
property activities, with all properties located in the United Kingdom. No
single tenant represented 10% or more of the Group's revenues in either the
current or the prior year.
4. Operating profit
Operating profit is stated after charging:
Year to Year to
31 March 31 March
2012 2011
GBP000 GBP000
=-------------------------------------------------------------------------------
Directors' fees 228 218
Auditors' remuneration for the audit of the Group and Company
financial statements 125 154
=-------------------------------------------------------------------------------
The auditors received no payments in either the current or the prior year in
relation to non-audit services.
The Group had no employees in either the current or the prior year.
Directors' fees payable in the year are as follows:
Year to Year to
31 March 31 March
2012 2011
GBP000 GBP000
=-------------------------------------------------------------
Aubrey Adams 70 70
Mike Brown - -
Freddie Cohen (appointed 28 June 2010) 30 23
Keith Hamill 30 30
Nick Leslau - -
Alex Ohlsson 38 35
John Stephen 30 30
David Waters 30 30
=-------------------------------------------------------------
Total charged to the income statement 228 218
=-------------------------------------------------------------
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.
31 March 31 March
2012 2011
GBP000 GBP000
=------------------------------------------------
Minimum rents receivable:
within one year 34,884 27,013
in two to five years 99,354 70,665
in more than five years 214,758 216,048
=------------------------------------------------
348,996 313,726
=------------------------------------------------
There was no contingent rental income in the year (2011: GBPnil).
6. Finance income and costs
Year to Year to
31 March 31 March
2012 2011
GBP000 GBP000
=-------------------------------------------------------------------------------
Recognised in the income statement:
Finance income
=-------------------------------------------------------------------------------
Interest on cash deposits 365 675
=-------------------------------------------------------------------------------
Finance costs
Interest on secured debt 8,902 5,952
Amortisation of loan issue costs 739 660
Market value adjustment of interest rate derivatives in
ineffective hedges (note 15b) 1,267 1,726
Amount recycled from the hedging reserve (258) (183)
Finance lease interest 187 184
=-------------------------------------------------------------------------------
Total finance costs 10,837 8,339
=-------------------------------------------------------------------------------
Net finance costs recognised in the income statement 10,472 7,664
=-------------------------------------------------------------------------------
Year to Year to
31 March 31 March
2012 2011
GBP000 GBP000
=-------------------------------------------------------------------------------
Recognised in other comprehensive income:
Market value adjustment of interest rate derivatives in
effective hedges (3,794) 787
Amount recycled to the income statement (258) (183)
=-------------------------------------------------------------------------------
Net finance (costs)/income recognised in other comprehensive
income (4,052) 604
=-------------------------------------------------------------------------------
Net finance costs analysed by the categories of financial asset and liability
shown in note 15c are as follows:
Year to Year to
31 March 31 March
2012 2011
GBP000 GBP000
=-------------------------------------------------------------------------------
Loans and receivables (365) (675)
Financial assets held for trading 880 1,154
Derivatives in effective hedges 129 389
Financial liabilities measured at amortised cost 9,641 6,612
=-------------------------------------------------------------------------------
10,285 7,480
Non-financial assets and liabilities - obligations under
finance leases 187 184
=-------------------------------------------------------------------------------
Net finance costs recognised in the income statement 10,472 7,664
=-------------------------------------------------------------------------------
Further information about the hedging instruments, including details of their
valuation at the balance sheet date, is included in note 15b.
The Group's sensitivity to changes in interest rates, calculated on the basis of
a 1% increase or decrease in LIBOR such that LIBOR is not more than 3.5%, was as
follows:
Year to Year to
31 March 31 March
2012 2011
GBP000 GBP000
=-----------------------------------------------------------
Effect on profit before tax 148 360
Effect on other comprehensive income 331 214
=-----------------------------------------------------------
Effect on equity 479 574
=-----------------------------------------------------------
Figures will differ if LIBOR exceeds 3.5% and 4.0% as these are the strike rates
of the interest rate caps held by the Group. Any increase in LIBOR above 4.0%
will have no effect on financing costs, as the maximum average rate payable of
5.8% will have been reached.
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 4.8%
(2011: 5.2%). The maximum rate payable in the year was 5.8% (2011: 6.3%).
7. Taxation
The tax charge for the year recognised in the income statement was as follows:
Year to Year to
31 March 31 March
2012 2011
GBP000 GBP000
=--------------------------------------------------------------------------
Current tax - current year 814 1,746
Current tax - adjustments in respect of prior years (274) -
Deferred tax 341 (60)
=--------------------------------------------------------------------------
Tax on results for the year 881 1,686
=--------------------------------------------------------------------------
The tax charge for the year varies from the standard rate of income tax in the
UK of 20%. The differences are explained below:
Year to Year to
31 March 31 March
2012 2011
GBP000 GBP000
=-------------------------------------------------------------------------------
Profit before tax 10,933 26,063
=-------------------------------------------------------------------------------
Profit before tax at the standard rate of income tax in the UK
of 20% 2,187 5,213
Adjustments in respect of prior years (274) -
Adjusted for the effects of:
Revaluations not subject to tax 1,003 (2,313)
Income and property disposal profits not subject to tax (2,860) (2,071)
Share of profit of joint venture shown after tax (75) (219)
Expenses not deductible for tax 893 1,115
Other 7 (39)
=-------------------------------------------------------------------------------
881 1,686
=-------------------------------------------------------------------------------
The movement on the deferred tax asset was as follows:
Year to Year to
31 March 31 March
2012 2011
GBP000 GBP000
=-------------------------------------------------------------------------------
At the start of the year 639 700
Tax on recognition of fixed and minimum guaranteed rent
reviews, charged to the income statement (352) (69)
Tax on market value adjustment of interest rate derivatives,
credited to the income statement 10 129
Tax on market value adjustment of interest rate derivatives,
credited/(charged) to other comprehensive income 805 (121)
=-------------------------------------------------------------------------------
At the end of the year 1,102 639
=-------------------------------------------------------------------------------
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 void property costs and
interest, is subject to UK income tax currently at a rate applicable to Group
undertakings of 20%.
The joint venture comprises two UK companies which are subject to UK Corporation
tax on profits at 26% (2011: 28%).
8. 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.
Year to Year to
31 March 31 March
2012 2011
GBP000 GBP000
=----------------------------------------------------------------------------
At the start of the year 1,735 1,499
Capital invested by third party in St Katharine Docks 35,440 -
Share of profit for the year 3,223 236
Share of other comprehensive income for the year (1,025) -
Dividends paid to non-controlling interests (27) -
=----------------------------------------------------------------------------
At the end of the year 39,346 1,735
=----------------------------------------------------------------------------
The non-controlling investor in St Katharine Docks holds a 40% interest in
subsidiary undertakings MPG St Katharine Limited Partnership and SKD Marina
Limited. The principal place of business of these entities, which between them
own the real estate and marina investments at St Katharine Docks, is the United
Kingdom. As St Katharine Docks is such a material investment, we include below
summarised financial information in relation to that investment.
Year to 31 March 2012
--------------------------------------------
Max Non-controlling interest's
60% share 40% share Total
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
At the start of the year - - -
Equity and loan capital injected 53,160 35,440 88,600
Share of profit recognised in the
income statement 4,483 2,989 7,472
Share of other comprehensive income (1,511) (1,007) (2,518)
=------------------------------------------------------------------
At the end of the year 56,132 37,422 93,554
=------------------------------------------------------------------
31 March 2012
Max Non-controlling interest's
60% share 40% share Total
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Net assets
Investment properties 102,190 68,126 170,316
Cash and cash equivalents 2,275 1,516 3,791
Cash and cash equivalents held as
security for bank debt 8,085 5,390 13,475
Other current assets 524 352 876
Current liabilities (3,793) (2,529) (6,322)
Secured non-recourse bank debt (51,992) (34,661) (86,653)
Other non-current liabilities (1,157) (772) (1,929)
=-------------------------------------------------------------------------------
Net assets 56,132 37,422 93,554
=-------------------------------------------------------------------------------
Year to 31 March 2012
Max Non-controlling interest's
60% share 40% share Total
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Profits
Rental income 5,486 3,658 9,144
Property outgoings (1,794) (1,196) (2,990)
Administrative expenses (661) (440) (1,101)
Net finance costs (1,709) (1,140) (2,849)
Investment property revaluation 3,077 2,051 5,128
Market value adjustment of interest
rate derivatives 132 88 220
Tax charge (48) (32) (80)
=-------------------------------------------------------------------------------
Profit for the period 4,483 2,989 7,472
=-------------------------------------------------------------------------------
Year to 31 March 2012
Max Non-controlling interest's
60% share 40% share Total
GBP000 GBP000 GBP000
Other comprehensive income
Market value adjustment of interest
rate derivative (1,888) (1,259) (3,147)
Tax effect of interest rate
derivative market value adjustment 377 252 629
=-------------------------------------------------------------------------------
Other comprehensive income for the
period (1,511) (1,007) (2,518)
=-------------------------------------------------------------------------------
Profits were earned from 8 August 2011, which was the date of completion of the
St Katharine Docks acquisition.
9. Earnings per share
Earnings per share is calculated as profits attributable to shareholders of the
Company for each year divided by 220,000,002 shares in issue. 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:
Year to 31 March Year to 31 March
2012 2011
Pence Pence
GBP000 per share GBP000 per share
=-------------------------------------------------------------------------------
Basic earnings attributable to
shareholders 6,829 3.1 24,141 11.0
Adjusted for:
Investment property revaluation 7,230 3.3 (11,382) (5.2)
Profit on sale of investment properties (355) (0.2) (2,628) (1.2)
Loss/(profit) on sale of trading
properties 281 0.2 (1,731) (0.8)
Property acquisition costs recognised in
the income statement 51 - - -
Market value adjustment of interest rate
derivatives, net of tax 15 - 1,465 0.7
Market value adjustment of interest rate
derivatives within joint venture, net of
tax 32 - 29 -
=-------------------------------------------------------------------------------
EPRA earnings 14,083 6.4 9,894 4.5
=-------------------------------------------------------------------------------
10. 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 Provincial Offices
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)
Revaluation movements 11,423 348 (205) 11,566
=-------------------------------------------------------------------------------
Carrying value as at 31 March 2011 236,762 78,171 1,170 316,103
Acquisition of St Katharine Docks 162,216 2,272 - 164,488
SDLT recovery on London Pubs portfolio (301) - - (301)
Capital expenditure 1,944 932 50 2,926
Recoveries from escrow account (2,581) (128) - (2,709)
Disposals (10,766) (600) - (11,366)
Revaluation movements (545) (4,379) (92) (5,016)
=-------------------------------------------------------------------------------
Carrying value as at 31 March 2012 386,729 76,268 1,128 464,125
=-------------------------------------------------------------------------------
Revaluation movements comprise:
Year to Year to
31 March 2012 31 March 2011
GBP000 GBP000
=----------------------------------
=-------------------------------------------------------------------------------
Property revaluation (1,440) 12,822
Movement in rent free periods, fixed or guaranteed rent reviews
and capitalised letting fees (3,576) (1,256)
=-------------------------------------------------------------------------------
Investment property revaluation in the income statement (5,016) 11,566
Investment property revaluation attributable to non-controlling
interests (2,214) (184)
=-------------------------------------------------------------------------------
Investment property revaluation attributable to owners of the
parent (7,230) 11,382
=-------------------------------------------------------------------------------
The following table reconciles the carrying values of the investment properties
to their independent valuation:
Long Short
Freehold leasehold leasehold Total
GBP000 GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Carrying value as at 31 March 2011 236,762 78,171 1,170 316,103
Headlease liabilities (note 16) - (1,638) - (1,638)
Rent free periods and fixed or guaranteed
rent reviews, included within trade and
other receivables (note 12) 1,213 342 5 1,560
=-------------------------------------------------------------------------------
Portfolio valuation as at 31 March 2011 237,975 76,875 1,175 316,025
=-------------------------------------------------------------------------------
Carrying value as at 31 March 2012 386,729 76,268 1,128 464,125
Headlease liabilities (note 16) - (1,634) (18) (1,652)
Capitalised letting fees 333 225 13 571
Rent free periods and fixed or guaranteed
rent reviews, included within trade and
other receivables (note 12) 3,908 596 67 4,571
=-------------------------------------------------------------------------------
Portfolio valuation as at 31 March 2012 390,970 75,455 1,190 467,615
=-------------------------------------------------------------------------------
The properties were valued as at 31 March 2012 by CBRE 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 RICS Valuation - Professional Standards
(2012) 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 Offices 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 year but
before the date of termination, GBP0.7 million (2011: GBP2.5 million) was drawn.
The historic cost of the Group's investment properties as at 31 March 2012 was
GBP428.2 million (2011: GBP273.1 million).
Property outgoings were split as follows:
Year to Year to
31 March 31 March
2012 2011
GBP000 GBP000
=-------------------------------------------------------------------------------
Property outgoings arising from investment properties that
generated rental
income in the year 9,608 8,158
Property outgoings arising from investment properties that did
not generate
rental income in the year 185 221
=-------------------------------------------------------------------------------
Total property outgoings 9,793 8,379
=-------------------------------------------------------------------------------
11. Investment in joint venture
The joint venture investment represents the Group's 45% economic interest (50%
voting 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 during the year was as follows:
Year to Year to
31 March 31 March
2012 2011
GBP000 GBP000
=-------------------------------------------------------------------------
At the start of the year 1,060 -
Share of profit recognised in the income statement 373 1,097
Share of other comprehensive income (178) (37)
=-------------------------------------------------------------------------
At the end of the year 1,255 1,060
=-------------------------------------------------------------------------
The net assets and results of the joint venture for the year were as follows:
31 March 31 March
2012 2011
GBP000 GBP000
=-------------------------------------------------------------------------------
Investment properties 34,560 34,100
Other non-current assets 1,037 137
Cash and cash equivalents 258 156
Cash and cash equivalents held as security for bank debt 623 614
Other net current liabilities (1,672) (1,104)
Secured non-recourse bank debt (30,893) (31,182)
Other non-current liabilities (1,126) (366)
=-------------------------------------------------------------------------------
Net assets 2,787 2,355
=-------------------------------------------------------------------------------
Group share of net assets 1,255 1,060
=-------------------------------------------------------------------------------
Year to Year to
31 March 31 March
2012 2011
GBP000 GBP000
=---------------------------------------------------------------------------
Rental income 2,493 1,982
Property outgoings (6) (4)
Administrative expenses (181) (139)
Net finance costs (1,793) (1,502)
Investment property revaluation 460 2,762
Market value adjustment of interest rate derivatives (43) (41)
Tax charge (101) (622)
=---------------------------------------------------------------------------
Profit for the period 829 2,436
=---------------------------------------------------------------------------
Group share of profit for the period 373 1,097
=---------------------------------------------------------------------------
Year to Year to
31 March 31 March
2012 2011
GBP000 GBP000
=-------------------------------------------------------------------------------
Market value adjustment of interest rate derivative (541) (113)
Tax effect of interest rate derivative market value adjustment 145 32
Other comprehensive income for the period (396) (81)
=-------------------------------------------------------------------------------
Group share of other comprehensive income for the period (178) (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 current rent of GBP2.5 million (2011: GBP2.3 million) per
annum. Throughout the period of ownership, the joint venture has been funded
with non-recourse debt, which at 31 March 2012 totalled GBP30.9 million (2011:
GBP31.2 million).
The properties were independently valued at GBP34.6 million (2011: GBP34.1 million)
by CBRE 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 RICS
Valuation - Professional Standards (2012) on the basis of Market Value,
supported by reference to market evidence of transaction prices for similar
properties.
Administrative expenses include GBP0.1 million (2011: GBP0.1 million) of management
fees paid to the Property Advisor, which results in a corresponding reduction of
fees paid to the Property Advisor by the Group 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.
12. Trade and other receivables
31 March 31 March
2012 2011
GBP000 GBP000
=-------------------------------------------------------------------------------
Trade receivables 4,367 3,486
Provision for doubtful debts (1,123) (986)
=-------------------------------------------------------------------------------
Net trade receivables 3,244 2,500
Investment property disposal proceeds receivable 1,847 2,079
VAT receivable - 7,535
Interest receivable 1 52
Rent free periods and fixed or guaranteed rent reviews -
investment properties 4,571 1,560
Rent free periods and fixed or guaranteed rent reviews -
trading properties 88 -
Prepayments and accrued income 1,482 1,936
Other receivables 25 360
=-------------------------------------------------------------------------------
11,258 16,022
=-------------------------------------------------------------------------------
Other than GBP1.0 million (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.
The Group's net trade receivables comprise amounts payable by tenants of the
Group's investment properties. The ageing of net trade receivables was as
follows:
31 March 31 March
2012 2011
GBP000 GBP000
=----------------------------------------
Less than 30 days 2,713 2,330
30 to 60 days 21 33
60 to 120 days 193 47
Over 120 days 317 90
=----------------------------------------
3,244 2,500
=----------------------------------------
The Group holds collateral of GBP2.4 million (2011: GBP1.9 million) in the form of
rent deposits received from tenants. The average age of net trade receivables is
11 days (2011: 18 days).
The movement in the provision for doubtful debts was as follows:
Year to Year to
31 March 31 March
2012 2011
GBP000 GBP000
=-----------------------------------------------------------
At the start of the year 986 896
Amounts written off as uncollectable (976) (169)
Amounts recovered (548) (364)
New amounts provided for 1,661 623
=-----------------------------------------------------------
At the end of the year 1,123 986
=-----------------------------------------------------------
13. Cash and cash equivalents
Included within the Group's cash and cash equivalents balance as at 31 March
2012 of GBP82.6 million (2011: GBP87.6 million) are cash deposits of GBP18.7 million
(2011: GBP7.5 million) in blocked accounts held as security by the provider of the
secured bank debt. GBP7.4 million (2011: GBP0.3 million) of the Group's cash and
cash equivalents balance is attributable to non-controlling interests.
14. Trade and other payables
31 March 31 March
2012 2011
GBP000 GBP000
=------------------------------------------------------
Trade payables 2,437 3,056
Rent received in advance 8,728 6,541
Other taxes and social security 1,783 1,912
Other amounts payable 2,689 576
Accruals and deferred income 3,452 2,788
=------------------------------------------------------
19,089 14,873
=------------------------------------------------------
All amounts above are due within one year and none incur interest.
15. Financial assets and liabilities
a) Non-current financial liabilities
31 March 31 March
2012 2011
GBP000 GBP000
=-----------------------------------------------------------------
Secured bank loans 209,504 128,056
Unamortised finance costs (2,521) (1,701)
=-----------------------------------------------------------------
206,983 126,355
Obligations under finance leases (note 16) 1,652 1,638
Interest rate derivatives at market value 5,462 1,788
=-----------------------------------------------------------------
214,097 129,781
=-----------------------------------------------------------------
There is 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:
St Katharine Docks London Pubs
facility Industrious facility facility
=-------------------------------------------------------------------------------
Lender Eurohypo AG Eurohypo AG Eurohypo AG
Recourse beyond
ring-fenced sub-
group None None None
Drawdown date August 2011 October 2009 January 2011
Initial drawdown GBP86.7m GBP127.7m GBP25.5m
Balance at 31 March
2012 GBP86.7m GBP100.9m GBP22.0m
Value of secured
properties at 31
March 2012 GBP170.4m GBP199.8m GBP43.4m
Gross LTV ratio at
31 March 2012 50.9% 50.5% 50.7%
Net LTV ratio at 31
March 2012 40.7% 47.6% 48.8%
Current repayment
terms Interest only Interest only Interest only
Repayment date August 2016 August 2014 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 relevant
security group. There have been no defaults or other breaches of financial
covenants under any of the loans during the current or the prior year, or in the
period since the balance sheet date.
The Group had no undrawn, committed borrowing facilities at 31 March 2012 or 31
March 2011.
b) Derivative financial instruments
The following derivative financial instruments were in place as at each balance
sheet date:
Principal amount Fair value
------------------------------------
31 March 31 March 31 March 31 March
2012 2011 2012 2011
Expiry GBP000 GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
4% amortising swap August 2014 64,242 68,059 (4,359) (3,712)
4% cap August 2014 56,750 56,750 22 328
2.3% amortising swap and
swaption August 2016 86,000 - (2,927) -
3.5% cap March 2015 25,500 25,500 32 333
3.5% cap held for future
transactions March 2015 74,500 74,500 92 972
=-------------------------------------------------------------------------------
306,992 224,809 (7,140) (2,079)
=-------------------------------------------------------------------------------
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 notional principal hedges the interest rate
liabilities on the London Pubs portfolio loan, maturing in March 2015; and
* the 2.3% interest rate swap and swaption hedge the interest rate liabilities
on the St Katharine Docks loan, maturing in August 2016.
In addition, a Group company holds the benefit of a 3.5% cap on GBP74.5 million
notional principal, maturing in March 2015, for potential use in financing
future acquisitions. Accounting standards require this to be classified as 'held
for trading' in note 15c below.
The profiles of the notional swapped and capped 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.
Movements in the valuation of derivative financial instruments in the year were
as follows:
Year to Year to
31 March 31 March
2012 2011
GBP000 GBP000
=-------------------------------------------------------------------------
At the start of the year (2,079) (3,751)
Charged to the income statement (note 6) (1,267) (1,726)
(Charged)/credited directly to the hedging reserve (3,794) 787
Premium paid on acquisition of interest rate cap - 2,611
=-------------------------------------------------------------------------
At the end of the year (7,140) (2,079)
=-------------------------------------------------------------------------
Derivative financial instruments are categorised as follows:
31 March 31 March
2012 2011
GBP000 GBP000
=----------------------------------------------
Financial assets
within one year - -
in more than one year 900 1,305
Financial liabilities
within one year (2,578) (1,596)
in more than one year (5,462) (1,788)
=----------------------------------------------
(7,140) (2,079)
=----------------------------------------------
The derivative contracts have been valued by reference to interbank bid market
rates as at the close of business as at 31 March 2012 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 cash flow exposure of the Group to movements in interest
rates is protected by way of its effective hedges. These valuation movements 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.
c) Categories of financial instruments
31 March 31 March
2012 2011
GBP000 GBP000
=----------------------------------------------------------------------------
Financial assets
Loans and receivables:
Cash and cash equivalents (note 13) 82,631 87,634
Cash deposits with maturities of more than three months - 6,695
Trade receivables (note 12) 3,244 2,500
Interest receivable (note 12) 1 52
Financial assets held for trading:
Interest rate cap (note 15b) 92 972
Derivatives in effective hedges:
Interest rate cap and swaption 808 333
=----------------------------------------------------------------------------
86,776 98,186
=----------------------------------------------------------------------------
Financial liabilities
Financial liabilities at amortised cost:
Trade payables (note 14) (2,437) (3,056)
Accrued interest (1,781) (1,027)
Borrowings (note 15a) (206,983) (126,355)
Derivatives in effective hedges:
Interest rate swap and cap (8,040) (3,384)
=----------------------------------------------------------------------------
(219,241) (133,822)
=----------------------------------------------------------------------------
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
certain 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 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 year end, there were eleven
(2011: nine) approved banks on the panel and deposits are spread across the
banks according to guidelines that are regularly reassessed by the Board, and
across maturities that are considered appropriate to the Group's needs. The
credit ratings of the institutions are monitored by the Board at least quarterly
with changes made as necessary to manage risk. The Board weighs up counterparty
risk and maturity profiles, having regard to credit ratings and other financial
information, and aims to avoid inappropriate concentration of 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 both 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 liabilities when they fall due 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.
Between
one Between two
Effective Less than and two and five More than
interest one year years years five years Total
31 March 2012 rate GBP000 GBP000 GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Financial
assets
Trade
receivables 3,244 - - - 3,244
Interest
receivable 1 - - - 1
Cash and cash
equivalents 0.4% 82,631 - - - 82,631
Derivative
financial
instruments - 16 884 - 900
=-------------------------------------------------------------------------------
85,876 16 884 - 86,776
=-------------------------------------------------------------------------------
Financial
liabilities
Trade payables (2,437) - - - (2,437)
Accrued
interest (1,781) - - - (1,781)
Borrowings 4.8% (1,609) (1,789) (213,326) - (216,724)
Derivative
financial
instruments (2,578) (2,964) (2,498) - (8,040)
Obligations
under finance
leases (187) (187) (561) (16,267) (17,202)
=-------------------------------------------------------------------------------
(8,592) (4,940) (216,385) (16,267) (246,184)
=-------------------------------------------------------------------------------
Between Between two
Effective Less than one and and five More than
interest one year two years years five years Total
31 March 2011 rate 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 with
maturities of
over 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)
=-------------------------------------------------------------------------------
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
15b and the Group's sensitivity to changes in interest rates is disclosed in
note 6.
iv) Capital risk management
The Group's capital comprises equity attributable to shareholders of the Company
(stated capital, retained earnings and the hedging reserve) and debt, which
includes the borrowings disclosed in note 15a and cash and cash equivalents. 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 so as to safeguard secured assets and avoid financial
penalties. 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 any 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.
16. Obligations under finance leases
Finance lease obligations in respect of fixed rents payable on long leasehold
properties are as follows:
31 March 31 March
2012 2011
GBP000 GBP000
=---------------------------------------------------------
Minimum lease payments
Less than one year 187 185
Between one and two years 187 185
Between two and five years 561 556
More than five years 16,267 16,369
=---------------------------------------------------------
17,202 17,295
Less future finance charges (15,550) (15,657)
=---------------------------------------------------------
Present value of lease obligations 1,652 1,638
=---------------------------------------------------------
The present value of lease obligations arises in more than five years in both
the current and prior year.
17. Stated capital
The Company has an unlimited authorised share capital of no par value. The
issued and fully paid up share capital comprises:
31 March 31 March
2012 2011
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:
31 March 31 March
2012 2011
GBP000 GBP000
=---------------------------------------------------------------
Issued and fully paid up ordinary shares 220,000 220,000
Share issue costs (8,633) (8,633)
=---------------------------------------------------------------
211,367 211,367
=---------------------------------------------------------------
18. Reserves
The nature and purpose of each reserve within equity is as follows:
Stated capital represents the excess of cash received from the issue of
shares 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.
19. 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 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:
31 March 2012 31 March 2011
Pence Pence
GBP000 per share GBP000 per share
=-------------------------------------------------------------------------------
Basic NAV 285,919 130.0 281,490 128.0
Adjustments:
Fair value of trading property in excess of
book value 961 0.4 367 0.2
Fair value of financial instruments 7,542 3.4 4,690 2.1
Deferred tax (1,219) (0.6) (708) (0.3)
Fair value of financial instruments in joint
venture, net of deferred tax 252 0.1 51 -
Share of inherent capital gains tax in joint
venture 88 0.1 177 -
=-------------------------------------------------------------------------------
EPRA NAV 293,543 133.4 286,067 130.0
=-------------------------------------------------------------------------------
20. Related party transactions and balances
Directors' fees
Directors' fees of GBP0.2 million (2011: GBP0.2 million) were payable for the year,
as disclosed in note 4. As at 31 March 2012 GBP28,000 (2011: GBP12,000) of these
fees remained outstanding and are included within other amounts payable (note
14).
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 GBP5.4 million (2011: GBP4.7 million) were payable to Prestbury Investments LLP
in respect of the year, of which GBPnil (2011: GBP0.1 million) was outstanding as at
the balance sheet date. GBP0.1 million (2011 GBP0.1 million) of this fee has been
offset by the Property Advisor in recognition of the fact that the Property
Advisor directly receives a management fee of the same amount from the Hospitals
joint venture as described in note 11, 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 year, Prestbury has recharged at cost GBP50,000 (2011: GBP79,000) to the
Group in this respect, of which GBPnil (2011: GBPnil) remains outstanding at 31
March 2012.
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 in
relation to its business regarding the Group), 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 year is used as the basis of the
calculation, at 31 March 2012 this would theoretically amount to GBP0.6 million
(2011: GBP9.8 million) payable to Prestbury Scotland and GBP0.1 million (2011: GBP2.8
million) payable to Och-Ziff, totalling GBP0.7 million or 0.3 pence per share
(2011: GBP12.6 million or 5.7 pence per share). The minimum NAV growth required to
generate incentive fees is in the order of GBP2 million per month.
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 continues to be inappropriate 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 if and when there is more certainty as to the likelihood
of payments being made.
Subsidiary entities
The Group financial statements include the financial statements of Max Property
Group Plc and the subsidiary and joint venture entities shown below. Max
Property Group Plc is the ultimate controlling party of its subsidiaries.
Country of incorporation Nature of business
=-------------------------------------------------------------------------------
Wholly owned
Max Property GP Limited(1) Jersey General partner
Max Property LP Limited(1) Jersey Limited partner
Max Property Limited Intermediate holding
Partnership(2) Jersey entity
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
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 Nominee 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 Nominee company
Max Office Limited
Partnership 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 Nominee 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 Nominee company
MPG Pubs Limited Partnership England & Wales Property investment
Intermediate holding
MPG St Katharine Limited Jersey company
MPG St Katharine Finance
Limited Jersey Group finance
MPG St Katharine Limited
Partner Limited Jersey Limited partner
MPG St Katharine Nominee 1
Limited England & Wales Nominee company
MPG St Katharine Nominee 2
Limited England & Wales Nominee company
Max Property Group Limited England & Wales Dormant
Max Property 1 Limited England & Wales Dormant
Max Property 2 Limited England & Wales Dormant
83.3% owned
Max Office 2 Limited
Liability Partnership England & Wales Property investment
60% owned
MPG St Katharine Limited
Partnership England & Wales Property investment
SKIL 3 Limited England & Wales Nominee company
SKIL 4 Limited England & Wales Nominee company
St Katharine's Estate
Management Company Limited England & Wales Estate management
SKD Marina Limited England & Wales Operator of marina
45% owned
MPG Hospital Holdings Intermediate holding
Limited(3) England & Wales company
MPG Hospital Properties
Limited(3) England & Wales Property investment
=-------------------------------------------------------------------------------
(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 share in any incentives that may become
payable, as more fully described above under the heading 'incentive payments'
(3) treated as joint ventures because the Group has 50% of the voting rights
21. Commitments and contingent liabilities
At 31 March 2012 the Group had capital commitments in respect of refurbishment
works on its property portfolios amounting to GBP3.5 million (2011: GBP2.2 million).
Of this amount, GBP2.6 million (2011: GBP2.2 million) relates to Max and GBP0.9
million (2011: GBPnil) to non-controlling interests.
22. Events after the balance sheet date
On 22 May 2012, the Company announced a new non-recourse loan facility of GBP32
million to boost acquisition firepower. The loan is secured against a previously
unencumbered 420,000 sq ft group of properties within the Provincial Offices
portfolio. The assets secured are in Fareham, Horsham, Manchester, Milton Keynes
and Newbury, following successful asset management at these properties. With a
loan to value ratio of 80%, the lender receives a priority coupon of 9% per
annum and, once Max has also received a 9% per annum return on its equity, is
entitled to 30% of net profits on sale. The loan matures in September 2016. The
net proceeds raised are included in the Group's uncommitted cash of c. GBP90
million.
On 10 May 2012, the sale of two industrial estates at Rotherham and Wakefield
completed for cash consideration of GBP1.8 million. GBP0.9 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 reserves.
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 of instruments that are held
for long-term benefit, net of deferred tax
EPRA vacancy rate ERV of vacant space divided by ERV of the whole
portfolio, excluding in each case any property
under development
EPS Earnings per share, calculated as the earnings for
the year 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 year
Equivalent Yield The constant capitalisation rate which, if applied
to all cash flows from an investment property,
results in the market value
ERV Estimated rental value: the open market rental
value expected to be achievable at the date of
valuation
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
sq ft Square feet
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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