TIDMGPOR
RNS Number : 0379G
Great Portland Estates PLC
24 May 2017
Press Release
24 May 2017
Annual Results - strong operational performance and well
positioned
The Directors of Great Portland Estates plc announce the results
for the Group for the year to 31 March 2017.
Highlights for the year:
Valuation lower - driven by yield expansion in H1
-- Portfolio valuation down 4.9%(1) in year (developments: down
1.2%(1) ) and down 0.4%(1) in H2
-- Yield expansion of 15 bp (H1: +16 bp; H2: -1 bp)
-- Rental value decline of 1.3%(1) (H1: -0.5%; H2: -0.8%); -1.8%
offices, +0.5% retail
-- 12 month capital return of -5.1% v 0.4% for IPD Central
London Index (10 year capital return: 75.4% v 45.6%)
Resilient financial performance - strong uplift in EPRA earnings
and dividend
-- EPRA(2) NAV per share of 799 pence, down 5.7% in year and
1.7% in H2
-- Net assets of GBP2,738.4 million (March 2016: GBP2,912.2
million)
-- EPRA(2) earnings of GBP59.3 million, up 24.1% on 2016.
EPRA(2) EPS of 17.3 pence, up 28.1%
-- After revaluation deficit, reported loss before tax of
GBP140.2 million (March 2016: profit of GBP555.1 million)
-- Total dividends per share of 10.1 pence (2016: 9.2 pence), up
9.8%
Record year of capital recycling, crystallising development
profits - net sales of GBP656 million
-- Disposals of GBP727 million at a 3.1% discount to March 2016
book value, including forward sales of two long-let commercial
development schemes (73/89 Oxford Street and Rathbone Square, W1)
for GBP651 million crystallising a combined whole life profit of in
excess of GBP227 million
-- GBP71 million of bolt-on acquisitions, all in West End
Continued successful leasing activity ahead of ERV and capturing
reversion - rent roll growth potential
-- 52 new lettings (282,700 sq ft) securing annual income of
GBP20.5 million, including nine development lettings (GBP8.3
million, all on at least 10 year terms); market lettings 0.6% ahead
of March 2016 ERV
-- 32 rent reviews settled securing GBP12.9 million; 45.3% above
previous passing rent, 2.6% ahead of ERV
-- Vacancy rate at 6.8%, average office rent only GBP50.10 sq
ft, reversionary potential of 21.2% (GBP23.3 million)
-- Since year end, lettings of GBP5.1 million at 2.1% premium to
March 2017 ERV; further GBP6.9 million under offer, 2.4% above
March 2017 ERV
-- Rent roll growth of 13.2% to GBP109.6 million; total
potential future rent roll growth of 54.5% to GBP169.3 million
De-risked development programme - exceptional flexible pipeline
of opportunity (40% of existing portfolio)
-- Four schemes completed and two forward sold (500,800 sq ft,
profit on cost of 28%) since March 2016; 17 schemes now completed
since 2009, delivering 1.5 million sq ft of high quality space at
an average profit on cost of 38%
-- Three committed schemes (350,000 sq ft), 65% pre-sold,
expected profit on cost of 2%, capex to come of GBP44.5 million,
all due to complete in next nine months
-- Good progress across two near-term uncommitted consented
schemes (309,300 sq ft), both adjacent to West End Crossrail
stations with potential starts over next 12 months
-- Exceptional development opportunity from medium-term flexible
pipeline; 12 uncommitted schemes (1.3 million sq ft), 4.0 years
average lease length, income producing off low average office rents
(GBP48.20 sq ft)
Strongest ever financial position - ongoing commitment to
balance sheet discipline
-- Pro forma(3) LTV of 12.2%, weighted average interest rate
lower at only 2.7%, debt maturity extended to 6.4 years
-- Pro forma(3) cash & undrawn facilities of GBP618 million
post payment of 32.15p special dividend per share
(1) On a like for like basis, including Joint Ventures
(2) In accordance with EPRA guidance
(3) See our Financial Results
EPRA and adjusted metrics: we prepare our financial statements
using IFRS, however we also use a number of adjusted measures in
assessing and managing the performance of the business. These
include measures defined by EPRA, which are designed to enhance
transparency and comparability across the European real estate
sector, see note 9 to the financial statements. For a definition of
pro forma debt metrics see Appendix 4.
Toby Courtauld, Chief Executive, said:
"We are pleased to report resilient financial results for the
year driven by a strong operational performance. With multiple
leasing successes and record levels of capital recycling, we have
taken advantage of elevated prices to crystallise development
surpluses. As a result, our balance sheet has never been stronger
and, in addition to our recently declared special dividend, we have
raised the final dividend by 14.3%.
Today, tenant interest is healthy for our brand of high quality,
well located, sensibly priced space with GBP6.9 million of lettings
currently under offer at a 2.4% premium to March 2017 ERVs. Whilst
the weight of international capital looking to invest in London
remains high, we expect the uncertain political and economic
environment to weigh on rental levels across London's commercial
property markets in the near term. Looking longer-term, we are
optimistic that the capital will retain its status as one of only a
handful of truly global cities.
In this context, GPE is exceptionally well positioned: Four
years of net property sales combined with our recent refinancing
successes gives us unprecedented financial capacity to exploit any
market weakness with accretive acquisitions; our investment
portfolio is well let, off low average rents and with significant
reversionary potential; our remaining committed development
projects are already 65% pre-sold with strong interest in much of
the balance; our exceptional, income-producing, development
pipeline is rich with opportunity, offering more than 1.6 million
sq ft of flexible future growth potential, covering 40% of our
existing portfolio; and, our first class, refreshed team is ready
to capitalise on this period of uncertainty."
Contacts:
Great Portland Estates plc 44 (0) 20 7647 3000
Toby Courtauld, Chief Executive
Nick Sanderson, Finance Director
Finsbury Group 44 (0) 20 7251 3801
James Murgatroyd
Gordon Simpson
The results presentation will be broadcast live at 9.00am today
on our new website:
www.gpe.co.uk/investors/reports-and-presentations/presentations
A conference call facility will be available to listen to the
presentation at 9.00am today on the following numbers:
UK: 0808 109 0700 (freephone)
International: +44 (0) 20 3003 2666
Interviews with Toby Courtauld, Chief Executive and Nick
Sanderson, Finance Director are available at
www.gpe.co.uk/investors/latest-results and
http://video.merchantcantos.com/
Disclaimer
This announcement contains certain forward-looking statements.
By their nature, forward-looking statements involve risk and
uncertainty because they relate to future events and circumstances.
Actual outcomes and results may differ materially from any outcomes
or results expressed or implied by such forward-looking
statements.
Any forward-looking statements made by or on behalf of Great
Portland Estates plc (GPE) speak only as of the date they are made
and no representation or warranty is given in relation to them,
including as to their completeness or accuracy or the basis on
which they were prepared. GPE does not undertake to update
forward-looking statements to reflect any changes in GPE's
expectations with regard thereto or any changes in events,
conditions or circumstances on which any such statement is
based.
Information contained in this announcement relating to the
Company or its share price, or the yield on its shares, should not
be relied upon as an indicator of future performance.
To view the accompanying graphics please paste the below into
your web browser
http://www.rns-pdf.londonstockexchange.com/rns/0379G_-2017-5-23.pdf
Statement from the Chief Executive
We are pleased to report resilient financial results for the
year driven by our strong operational performance. With multiple
leasing successes and record levels of capital recycling, we have
taken advantage of elevated prices to crystallise development
surpluses.
EPRA NAV per share fell by 5.7% in the year following seven
consecutive years of growth delivering a cumulative uplift of 142%,
whilst EPRA EPS grew strongly by 28.1% and ordinary dividends per
share increased 9.8% to 10.1 pence. Returns to shareholders were
further enhanced by a special dividend of 32.15 pence per share
declared last month.
Less buoyant market conditions given more uncertain economic
environment
Central London's property markets remain open for business with
the weight of international capital and healthy tenant demand
supporting the prime investment and occupational markets, despite
the slowdown in activity levels over the last 12 months. Whilst the
market was already slowing ahead of the EU referendum after seven
years of consecutive capital value growth, with both rents and
yields at record levels, the increased uncertainty following the
result triggered a small increase in yields and rental falls.
Across our portfolio, yield expansion of 15 basis points and rental
falls of 1.3% resulted in a 4.9% like-for-like property valuation
decline.
In the near term, we expect London's commercial markets to
weaken further with the benefits of lower bond yields, weaker
sterling and London's continued safe-haven status to be offset by
potential further rental falls, particularly for more secondary
properties. However, we remain positive on the long-term prospects
for London as a truly global city with enduring appeal for
businesses and investors alike.
Record year of capital recycling crystallising development
profit
For the fourth consecutive year, we were a net seller with sales
of GBP727.0 million, including the forward sale of two prime,
long-let commercial development schemes at 73/89 Oxford Street, W1
and Rathbone Square, W1 which crystallised whole life capital
returns of 74% and 20% respectively (a combined profit in excess of
GBP227.0 million). Our GBP71.0 million of off-market acquisitions
secured two West End properties, both enhancing existing Group
interests. Looking ahead, we expect our investment market activity
to be more balanced as prices correct, particularly for riskier
assets.
Continued successful leasing activity ahead of ERV and capturing
reversion
We have maintained our strong leasing momentum with GBP20.5
million of annual rent secured this year, on average 0.6% above our
valuer's ERV, in a market where supply of new high quality office
space remains tight. Our 52 new lettings included nine development
lettings, which secured GBP8.3 million of rent from a diverse range
of occupiers and all on leases with a term certain of at least ten
years. Our team was also successful in capturing rental reversion
across the investment portfolio, with 32 rent reviews settled
securing GBP12.9 million at an average increase of 45.3% above the
previous rent and beating ERV by 2.6%. Taken together, our annual
rent roll increased by 13.2% over the year to GBP109.6 million and
we can look forward to further growth given our significant
reversionary potential of 21.2%, off low average office rents of
GBP50.10 per sq ft. Today, we have a further GBP6.9 million of
lettings under offer at a premium to March 2017 ERVs of 2.4%.
De-risked and reduced committed development programme, with our
exceptional pipeline of opportunity
Our committed development exposure has significantly reduced
following the successful completion of four schemes this year
combined with the two profitable forward sales. Having now
delivered 17 schemes since 2009, creating 1.5 million sq ft of high
quality space with an average profit on cost of 38%, our immediate
focus is on completing our three on-site schemes (350,000 sq ft)
over the next nine months. These include the 142 residential
apartments (with 140 already pre-sold) at Rathbone Square, W1
(151,700 sq ft), which are due to practically complete in
September, and our 161,000 sq ft office redevelopment at 160 Old
Street, EC1, where early leasing interest is encouraging ahead of
expected completion in early 2018.
Looking further ahead, excellent progress has been made in
preparing our substantial pipeline of future development
opportunities, which extends to 1.6 million sq ft across 14
schemes, including two West End projects with potential starts in
the next 12 months at Hanover Square and Oxford House on Oxford
Street, both adjacent to Crossrail stations.
Unprecedented financial strength and discipline
Our net sales activity and successful refinancing activities,
including the recent issue of GBP175 million US private placement
notes with a coupon of only 2.15%, means our financial position has
never been stronger. Our pro forma loan to value ratio is low at
12.2%, even after the disciplined capital return of the Rathbone
development profit of approximately GBP110 million to shareholders
by special dividend. Our weighted average interest rate of 2.7% is
at record low levels, with GBP618 million of cash and committed
undrawn liquidity giving us plentiful financial firepower.
Experienced and talented team
Our expanded Executive Committee, including our two new
appointments, is operating well and our Board welcomed three new
Non-Executive Directors during the year. We were delighted that the
effort of the whole team was recognised with GPE ranked first in
the property sector in Management Today's 'Britain's Most Admired
Companies'. Pleasingly, in our inaugural engagement survey, 96% of
our employees stated they would recommend GPE as a great place to
work and I would like to thank them all for making it so and for
their dedication throughout the year.
Outlook
GPE is exceptionally well positioned: Four years of net property
sales combined with our recent refinancing successes gives us
unprecedented financial capacity to exploit any market weakness
with accretive acquisitions; our investment portfolio is well let,
off low average rents and with significant reversionary potential;
our remaining committed development projects are already 65%
pre-sold with strong interest in much of the balance; our
exceptional, income-producing, development pipeline is rich with
opportunity, offering more than 1.6 million sq ft of flexible
future growth potential, covering 40% of our existing portfolio;
and, our first-class, refreshed team is ready to capitalise on this
period of uncertainty.
Our market
Our market is accompanied by graphics (see Appendix 1)
London remains a truly global city with a track record of
successfully adapting to changing market conditions. However, while
the long-term ramifications of the EU referendum result will likely
be unclear for some time, we expect London's commercial property
markets to weaken further in the near term given the political and
economic uncertainty.
The economic backdrop is more uncertain
The UK proved to be one of the fastest growing advanced
economies in 2016 with central London's economy and commercial
property markets showing unexpected strength since the EU
referendum result. Business and consumer surveys rebounded from
immediate post referendum lows and whilst activity levels in our
occupational and investment markets have declined, both remain open
for business for better quality assets. However, the small increase
in office property yields that occurred immediately following the
referendum remains and market headline rental levels have fallen
marginally.
Most economic forecasters now expect growth to slow as
uncertainty about the shape of the UK's future outside of the EU
reduces business investment and employment growth. Furthermore, the
depreciation in sterling following the vote is expected to increase
inflation and suppress consumer spending which has been a key
driver of GDP in recent years. Accordingly, Oxford Economics'
annual forecast GDP growth over the next three years has reduced
from 2.2% a year ago to 1.6% today and recent data shows GDP growth
in the first quarter of 2017 of 0.3% was the worst in the last 12
months. Moreover, the recent Deloitte survey of UK CFOs painted a
mixed picture with optimism recovering from the lows in the weeks
following the referendum, but risk appetite remaining well below
the long-term average.
Looking ahead, despite the triggering of Article 50 in March, we
remain in the early stages of a likely protracted process to both
negotiate our exit from the EU and reshape our trading arrangements
with the rest of the world. Furthermore, following seven years of
consecutive growth and with both rents and yields at record levels,
capital value growth was already slowing ahead of the referendum
with the London market in the late stage of the cycle. As a result,
our expectation is that London's commercial property markets will
weaken further in the near term with the benefits of lower bond
yields, weaker sterling and London's continued safe-haven status
being offset by reduced rental growth prospects in a potentially
more inflationary environment.
However, while the long-term ramifications will likely be
unclear for some time, London remains a truly global city with a
track record of successfully adapting to changing market conditions
and offering significant attractions for a diverse range of
businesses and investors as Europe's business capital.
London - long-term growth despite near-term uncertainties
With the largest economy of any city in Europe and generating
around 22% of UK GDP, London remains one of the world's dominant
commercial, creative and financial centres and continues to lead
the Global Power City Index. Against a backdrop of slowing UK
economic growth, London is expected to continue to outperform with
Oxford Economics forecasting annual GDP growth of 2.3% over the
next five years, making it one of Europe's fastest growing
cities.
Despite the outcome of the EU referendum, London's population is
forecast to increase to more than ten million by 2030 and
CBRE/Oxford Economics predict that this will translate into inner
London office-based employment growth with 129,000 new jobs (down
from 165,000 a year ago) created over the next five years, driven
by the professional services and creative industries. With London's
deep pool of talented labour and collection of world-class
universities and business schools, more than a third of Fortune 500
companies now have their global headquarters in London.
Notwithstanding London's long-term potential, it is likely that
the near-term outlook will be dominated by the uncertainty created
by our exit from the EU and the resultant negative impact on the
London economy and its property market. Furthermore, wider global
uncertainties persist given the recent change in the US
administration, elections in the UK and Europe, and the outlook for
global interest rates, along with a variety of other geopolitical
risks. As a result, we continue to monitor closely prevailing
market conditions and the fortunes of our diverse tenant base.
Occupational demand resilient
Whilst the growth rate of economic activity in London has
reduced, demand in our occupational markets remains resilient. For
the year ended 31 March 2017, central London take-up was 11.7
million sq ft, 20.7% below the preceding 12 months but only
marginally behind the ten year annual average of 12.4 million sq
ft. This take-up was once again from a broad range of industries,
including professional and business services (32%), TMT businesses
(22%) and banking and finance (18%). Our own leasing successes this
year reflect the diversity of the wider market, in particular
demonstrating continued demand from the TMT and professional
services sectors.
The central London market has witnessed significant growth in
the provision of flexible office space in recent years. More
recently, since the EU referendum, we have also seen some
traditional landlords offering increased lease flexibility,
including through shorter lease terms. Whilst this offering may be
attractive for some occupiers, our own leasing track record
demonstrates that for many businesses securing high quality,
well-located space for longer-term occupation is vital,
particularly as a tool for retaining and recruiting talent. In
fact, all of our nine development lettings in the year (securing an
annual rent of GBP8.3 million) were on leases with a term certain
of ten years or more.
Whilst the central London vacancy rate has increased to 4.7%, it
remains low in absolute terms which has continued to drive
occupiers to secure new space early and ahead of lease events
through pre-lets. This in turn has helped to support headline
rental values across our key markets, although tenant incentives
(including rent-frees) have increased. The average time taken from
commencing discussions with prospective tenants to finally signing
new deals has also marginally increased.
New office supply remains tight, reflecting more uncertain
backdrop
Development completions across central London have been rising,
albeit from a low base with Grade A vacancy rates still near
historical lows. Central London office development completions for
the year to 31 March 2017 rose to 5.8 million sq ft, up from 3.6
million sq ft in the preceding 12 months. However, in the core of
the West End, the focus of our development activities, development
completions totalled only 2.1 million sq ft over the year. This has
helped support rental values and letting activity across our
markets as tenants continue to secure space in advance of buildings
completing with pre-lets representing around a quarter of central
London office take-up during the year to 31 March 2017.
Looking ahead, 20.1 million sq ft of new office space is
expected to be delivered in central London over the five years to
December 2021, of which 1.6 million sq ft is in the West End core,
equating to only 0.6% per annum. Whilst the speculative development
pipeline is forecast to increase from the lows of recent years, the
heightened uncertainty created by the EU referendum has moderated
the forecast growth, with some developers reluctant to commit until
greater clarity prevails, particularly as construction costs
continue to rise. As a result, the speculative development pipeline
between 2017 and 2020 is now lower than the position we reported at
31 March 2016 with forecast completions reduced by 2.5 million sq
ft or 13.1% over the year.
West End occupational markets
Over the year to 31 March 2017, West End office take-up was 3.8
million sq ft, 11.5% lower than the preceding year. Whilst
availability has increased to 4.6 million sq ft (up from 4.3
million sq ft in the prior year), vacancy rates remain low with
Grade A space vacancy estimated by CBRE to be only 3.2%. CBRE has
reported that prime office rental values in the West End reduced
over the year to GBP110 per sq ft, down from last year's peak of
GBP120 per sq ft. In addition, rent free periods on average
increased by six months over the last year to around 22 months on a
ten year term. Looking ahead, CBRE are forecasting a reduction in
rental values with West End prime office rents expected to reduce
by around 6% over the next two years.
The West End prime retail market (where 31.2% of our West End
portfolio by value is located) has continued to outperform offices.
Over the last year, sustained demand for prime retail space has
maintained a near zero vacancy, with leasing activity supporting
prime rental values. Demand for retail space has been supported by
increased spending from tourist visitors benefiting from weaker
sterling, although business rates increases and the forecast
squeeze on domestic consumer spending are likely to have some
offsetting impact.
City, Midtown and Southwark occupational markets
Over the year to 31 March 2017, City office take-up was 4.6
million sq ft, down 23.0% on the preceding year, with availability
rising to 6.2 million sq ft (up 26.7%) but in line with the ten
year average. Although higher than in the West End, vacancy rates
remain low with Grade A vacancy estimated by CBRE to be only 4.0%.
CBRE has also reported that prime City rental values remained
stable at GBP70 per sq ft.
Midtown and Southwark office take-up was 2.3 million sq ft, down
21.1% on the preceding year, while availability at 31 March 2017
was 2.5 million sq ft, slightly ahead of the ten year average. CBRE
reported prime office rents in Southwark remained stable at
GBP62.50 per sq ft with Midtown office rents reducing to GBP76.50
per sq ft from GBP80.00 per sq ft a year earlier.
GPE occupational market positioning
Whilst occupational demand has remained resilient to date and
supply remains limited, the impact of the EU referendum means
tenants have become increasingly discerning on the nature and
pricing of their space requirements. Against this backdrop, we are
well positioned: our leasing record remains strong, our committed
development programme is nearing completion with the majority
pre-sold, our average rents are low with further reversionary
potential across the Group of 21.2% and 85% of our portfolio is
within walking distance of a Crossrail station. However, we
estimate that for the next 12 months rental values will reduce
across our office and retail portfolio by between 0% and 7.5%,
although our leasing transactions since 31 March 2017 would
indicate we are more likely to be at the tighter end of this
range.
Investment markets
Central London office investment activity was volatile in 2016.
Activity slowed in the months leading up to the EU referendum and
remained muted in the months immediately thereafter, barring a
small number of forced sales by UK open-ended funds experiencing
redemptions. However, following the significant weakening in
sterling and reductions to both UK interest rates and bonds yields,
activity returned to more normalised levels during the last quarter
of 2016. In total, investment volumes were robust with CBRE
reporting GBP13.1 billion of deals in 2016, a reduction of GBP3.0
billion on 2015, albeit in line with the ten year average. In the
first quarter of 2017, investment transactions in central London
totalled GBP4.9 billion, an increase on the last quarter of 2016 as
investor sentiment remained robust, particularly at the prime end
of the market with strong liquidity in large lot size City office
properties.
Overseas investors continue to be the largest buyer
constituency, accounting for 70% of transactions over the 12 months
to December 2016, with Asian investors particularly active. The
depreciation in sterling has added to London's attractiveness and
it has maintained its reputation as a safe investment haven for
international investors seeking to diversify away from their
domestic markets. As we reported last year, strong competition for
limited stock had driven investment yields for office properties to
record lows. Subsequent to the EU referendum, prime yields adjusted
upwards by 25 basis points as investors approached pricing with
more caution (West End and City rising to 3.75% and 4.25%
respectively). However, in the first quarter of 2017, the strength
of demand for City offices reversed this outward movement returning
the prime City yield to 4.00%, unchanged from March 2016.
2016 proved to be strong for retail investment volumes, with
GBP2.2 billion of turnover broadly in line with the five year
average of GBP2.3 billion. As a result, prime yields remained firm
during the year at 2.25% on Bond Street and 2.50% on Oxford Street.
In November 2016, we took advantage of the supportive retail
investment market selling 73/89 Oxford Street, W1 for GBP275.2
million, reflecting a net initial yield to the buyer of 3.2%,
recycling capital out of an asset where we have created significant
value.
The central London residential market continues to be muted as
increased stamp duty rates, over-supply concerns and cooling
measures implemented in some Asian international markets continue
to weigh on demand. Whilst transactional activity picked up in the
last quarter of 2016, helping to deliver year-on-year house price
growth of 1.6%, so did residential construction starts. As a
result, the outlook remains challenging. Today, our residential
exposure is limited, totalling some 9% of the portfolio by value or
less than 1% if pre-sold units are removed. At Rathbone Square, W1,
we have exchanged contracts to sell 140 of the 142 private units
and we expect completions to start from September once we
practically complete the residential building. Pricing on the
Rathbone apartments which have been assigned in the secondary
market is supportive of valuations.
Weight of money continues to support yields
The excess of equity capital to invest over commercial property
available for sale across central London has remained high
(estimated at GBP39.5 billion versus GBP5.3 billion respectively)
as a number of international investors, particularly high net worth
individuals, looked to deploy capital in the London market
immediately after the EU referendum.
Whilst London real estate continues to offer relative value in a
global environment where yield is scarce, we expect to witness some
further modest expansion of prime yields in the medium term given
the rental outlook, as the economic uncertainty persists as the UK
negotiates its exit from the EU. For some secondary properties, we
are seeing additional further upward pressure on yields as buyers
look to discount prices to reflect the greater risks these assets
possess.
GPE investment market positioning
Yield expansion tends to occur ahead of falls in rental values
towards the end of a property cycle. With yields moving out last
summer, we would expect rents to follow and, therefore, values to
reduce.
In advance of this less favourable backdrop, GPE has been a net
seller for the last four financial years, taking advantage of
cyclically low yields to crystallise surpluses, either recycling
the proceeds into our accretive development programme or using them
to reduce the Group's leverage. Looking forward, with the bulk of
our sales programme complete, we expect our investment market
activity to be more balanced if vendors become more realistic on
pricing, particularly for properties with a higher risk
profile.
Our lead indicators have weakened
Given the cyclical nature of our markets, we actively monitor
numerous lead indicators to help identify key trends in our
marketplace. Over the last 12 months, we have seen our property
capital value indicators weaken. Whilst investment activity in the
central London commercial property market is robust and the real
yield spread over gilt yields remains supportive, yields increased
modestly in 2016 and we expect this trend to continue for more
secondary properties. Moreover, although forecast rates of economic
growth and business confidence levels bounced back from immediate
post referendum lows, they remain lower than this time last year.
Therefore, we expect further rental value declines over the next 12
months.
Valuation
Valuation is accompanied by graphics (see Appendix 2)
The valuation of the Group's properties reduced to GBP3,145.5
million from GBP3,703.9 million during the year. The reduction was
due to our significant profitable recycling activities with net
sales of GBP656.0 million and a valuation decline of 4.9% on a
like-for-like basis.
At 31 March 2017, the wholly-owned portfolio was valued at
GBP2,580.0 million and the Group had four active joint ventures
which owned properties valued at GBP565.5 million (our share) by
CBRE. The combined valuation of the portfolio of GBP3,145.5 million
was down 4.9% on a like-for-like basis or GBP162.2 million since 31
March 2016.
Market uncertainty reducing valuations
The key drivers behind the Group's valuation movement for the
year were:
-- rental value decline - in the past 12 months rental values
reduced by 1.3% on a like-for-like basis, predominantly driven by a
1.8% decline for offices, offset by an increase of 0.5% in retail
rental values. At 31 March 2017, the portfolio was 21.2%
reversionary;
-- development properties - the valuation of current development
properties decreased by 1.2% on a
like-for-like basis to GBP392.6 million during the year;
-- intensive asset management - during another strong year, 84
new leases, rent reviews and renewals were completed, securing
GBP27.6 million (our share) of annual income, supporting the
valuation over the year; and
-- higher investment yields - in the immediate period following
the EU referendum yields increased as investors sought higher
returns given the more uncertain market outlook. Our portfolio
equivalent yield rose by 15 basis points (2016: 20 basis point
reduction) during the year (with a 16 basis point increase in the
first half of year and a 1 basis point reduction in the second
half). At 31 March 2017, the portfolio equivalent yield was
4.5%.
Including rent from pre-lets and leases currently in rent-free
periods, the adjusted initial yield of the investment portfolio at
31 March 2017 was 3.5%, 30 basis points higher than at the start of
the financial year.
Our Rest of West End portfolio produced the most resilient
performance over the year, reducing in value by 4.1% on a
like-for-like basis, in part driven by retail capital value growth
of 2.7%. Our North of Oxford Street assets saw a 5.7% fall in
values and the City, Midtown and Southwark properties reduced by
6.3%. Our joint venture properties fell in value by 8.0% over the
year while the wholly-owned portfolio fell by 4.2% on a
like-for-like basis.
The Group delivered a total property return (TPR) for the year
of -3.0%, compared to the central London IPD benchmark of 3.6% and
a capital return of -5.1% versus 0.4% for IPD. This relative
underperformance resulted from our lower than benchmark exposure to
long-dated investment properties, whose valuations proved more
resilient in the year. Typically, we have sought to monetise
surpluses created through the development of such assets allowing
us to focus on the longer term growth opportunities available from
our future development pipeline and active asset management
properties, where income is necessarily shorter.
Our business
Our business is accompanied by graphics (see Appendix 3)
Investment management
Overview
Our profitable recycling activities continued as we crystallised
material surpluses including the sale of two of our exceptional
pre-let development schemes. As a result, for the fourth
consecutive year, we were a net seller, with sales of GBP727.0
million and acquisitions of GBP71.0 million during the year.
Crystallising profits from our pre-let developments with
GBP727.0 million of sales
Whilst the economic backdrop became more uncertain after the
summer's referendum result, investment pricing for long-let,
well-located, prime assets remained robust. We took advantage of
these market conditions with the forward sales of both 73/89 Oxford
Street, W1 and our largest ever development, Rathbone Square, W1
locking in significant development profits. In total, sales
generated GBP727.0 million in gross proceeds at a 3.1% discount to
31 March 2016 book values.
In April 2016, we sold Mortimer House, 37/41 Mortimer Street, W1
for GBP27.0 million having secured the necessary planning consents
to undertake a comprehensive refurbishment of the 23,800 sq ft
office property. However, as a consequence of the strong demand at
the time for vacant refurbishment opportunities, we sold the
property and secured our profit without taking any development or
letting risk.
Following the profitable disposal of 95 Wigmore Street, W1 in
April 2015, we have continued to dispose of the residual buildings
that comprise the Wigmore Island Site within the Great Wigmore
Partnership, our joint venture with Aberdeen Asset Management. In
June 2016, we sold the majority of the remaining properties and
subsequently we have sold nearly all of the residential element for
a combined price, to date, of GBP34.8 million (our share: GBP17.4
million).
In November 2016, we forward sold the freehold of 73/89 Oxford
Street, W1 to Norges Bank Real Estate Management ('Norges') for a
price of GBP275.2 million, reflecting a net initial yield to the
buyer of 3.2%. Norges paid GBP205.2 million, with two further
payments due on completion of the leases in July 2017 of GBP44.9
million in respect of deferred consideration and GBP25.1 million to
reimburse us for the development costs on completing the
scheme.
73/89 Oxford Street, W1 is a retail and office development
located at the eastern end of Oxford Street and is currently under
construction with practical completion expected in July 2017. With
the scheme pre-let to New Look, Benetton and Moneysupermarket.com
on an average lease length of 17.0 years, and the freehold acquired
to augment our interest in May 2016, our activities created
significant value. The sale crystallised a whole-life capital
return of 74% (or GBP117.2 million).
In February 2017, we sold the freehold of Rathbone Square, W1 to
Rathbone Place Jersey Limited, an entity owned by WestInvest
Gesellschaft Für Investmentfonds mbH and Deka Immobilien Investment
GmbH ('Deka'), for a headline price of GBP435.5 million (adjusted
for final office area remeasurement), reflecting a net initial
yield to the buyer of 4.25%.
The headline price was before deductions for Facebook tenant
incentives and retail unit rent guarantees, totalling GBP59.6
million, resulting in a net price payable by Deka of GBP375.9
million (subject to settlement of the retail rental guarantees).
The consideration comprised GBP369.4 million in respect of the
freehold sale and GBP6.5 million for reimbursement of the
development costs, under a development agreement, to complete the
scheme. Deka paid GBP113.5 million on completion of the sale with a
further GBP213.0 million paid in April 2017 on completion of the
Facebook leases. A further GBP30.8 million is due on practical
completion ('PC') of the retail units and GBP16.6 million on PC of
the residential units and central garden in the summer of 2017 with
a payment of GBP2.0 million 12 months thereafter. GPE retains the
residual risk for completion of the sales of the private
residential units, including the two remaining available units
(after a further unit was sold during the year).
We expect the sale to crystallise a whole-life profit for GPE
from the entire development project of approximately GBP110.0
million, equating to a 19.9% profit on cost and an annualised
unlevered IRR of 12.1%.
In March 2017, the Great Victoria Partnership (our joint venture
with Liverpool Victoria) sold 40/48 Broadway & 1/15 Carteret
Street for GBP43.8 million (our share: GBP21.9 million) reflecting
a net initial yield of 2.8%.
GBP71.0 million of off-market acquisitions
Rather than compete for assets in a highly competitive
investment market, during the year we bought two properties, in a
single off-market transaction, both of which enhanced existing
interests.
In May 2016, we acquired the entire issued share capital of
73/77 Oxford Street Ltd, a debt-free company, for GBP71.0 million.
The company owned two properties in London's West End, with the
consideration split as follows:
-- GBP38.5 million for the freehold interest at 73/89 Oxford
Street, W1. The purchase improved our existing leasehold interest
and created a 100% prime asset which helped unlock the sale to
Norges, as set out above.
-- GBP32.5 million for 95/96 New Bond Street, W1. This mixed-use
virtual freehold/short leasehold site comprises 9,600 sq ft of
retail and office space at the northern end of Bond Street, W1 and
sits opposite the GHS Partnership's Hanover Square estate, which is
set to benefit from our future development activity and the opening
of Crossrail in 2018.
More balanced outlook for sales and acquisitions
Having been a net seller for the past four financial years, our
material sales programme is now largely complete. Looking forward,
given our expectation that property values may soften over the next
12 months, we expect our sale and acquisition activity to be more
balanced if vendors become more realistic on pricing, particularly
for riskier assets. Moreover, with our unprecedented financial
strength, we have significant capacity to exploit any market
weakness with the ability to take advantage of any attractive
acquisition opportunities that may arise should a more substantial
correction in the market occur.
Development management
Overview
Since 31 March 2016, our committed development exposure has
significantly reduced following successful completion of four
schemes and the profitable forward sale of a further two. Today, we
have only 350,000 sq ft on-site across three schemes of which 65.2%
is pre-sold. However, the long-term opportunity is substantial with
40% of our existing portfolio in our development pipeline.
1.5 million sq ft of high quality developments completed so far
this cycle
Since 2009, we have completed 17 schemes, delivering 1.5 million
sq ft of high quality space with an average profit on cost of 38%.
This includes four completions and two forward sales since 31 March
2016, delivering a profit on cost of 27.7%. We currently have three
committed schemes (350,000 sq ft of space), with two in the West
End and one in the City fringe. Taken together, these schemes have
an expected profit on cost of 2.0%, a yield on cost of 5.8% and an
annualised unlevered IRR of 6.7%. To date, 65.2% of the space has
already been pre-sold, helping to manage our development risk.
Capital expenditure to come at our committed schemes totals GBP44.5
million, which could rise to GBP196.5 million (our share) if the
two near-term uncommitted schemes were to commence. At 31 March
2017, the committed development properties were valued at GBP392.6
million and the near-term development properties at GBP250.8
million (our share).
Four schemes completed since 31 March 2016
At 30 Broadwick Street, W1, our 92,300 sq ft new build, office
and retail scheme, construction work completed in November
delivering the only new build office completion in the Soho market
in 2016. Letting interest in the building has been strong and we
pre-let the 7,950 sq ft restaurant unit to The Ivy Soho Brasserie
and the third floor (14,600 sq ft) to EQT, the European private
equity business. Since we finished the building, we have let three
further office floors and the remainder of the retail space. In
total, we have secured GBP5.6 million of rental income within seven
months of completion. The building is now 69% let, with two office
floors remaining (28,100 sq ft) of which a part floor is under
offer with good interest in the remainder.
We also finished a collection of three smaller schemes at 78/82,
84/86 and 90/92 Great Portland Street, W1. These mixed-use schemes
completed between August 2016 and May 2017 and total some 49,200 sq
ft of new space, comprising 18,000 sq ft of offices, 10,700 sq ft
of retail space and 26 residential units, including a number of
off-site residential planning requirements for our developments at
Hanover Square, 30 Broadwick Street and 55 Wells Street, all W1. We
sold the affordable housing (nine units) to a housing association
and we will start marketing 15 units for private sale shortly. In
April 2017, we pre-let the 18,000 sq ft self-contained office unit
at 84/86 Great Portland Street to a not-for-profit organisation for
an annual rent of GBP1.2 million on a ten-year term (no breaks),
17.6% ahead of the March 2016 ERV.
Two schemes profitably forward sold
During the year we took advantage of supportive market
conditions to forward sell both 73/89 Oxford Street, W1 and the
commercial element of our largest ever development at Rathbone
Square, W1, locking in significant development profits.
Three committed schemes all completing in next nine months
With the commercial element of Rathbone Square forward sold and
the offices completed, our activities on the site now focus on
delivering the 142 private residential units. Whilst the
residential element of the scheme made a small loss (based on land
valuation at scheme commitment), it helped unlock a whole life
surplus in excess of GBP110.0 million for the scheme as a whole.
Fit-out of the apartments is progressing well and we expect to
achieve practical completion in September. We have forward sold 140
of the 142 units with 25% cash deposits already paid by the
majority of buyers. We expect to be able to start completing the
sales and handing over the apartments to the buyers in stages
shortly after completion, with the remaining 75% of the sales
proceeds to be collected by the end of the year.
At 160 Old Street, EC1 (formerly 148 Old Street), owned in our
50:50 joint venture with the BP Pension Fund, the construction
works are well underway to transform the old 97,800 sq ft building
into around 161,000 sq ft of high quality office and retail space.
We are targeting completion of the fully consented scheme in early
2018 and, with our marketing campaign recently launched, early
leasing interest is encouraging given the low average ERV of only
GBP53.35 per sq ft across the office space.
At 55 Wells Street, W1 (formerly Tasman House), we completed the
demolition of the existing 1950s building earlier in the year and
the main construction contract is progressing well. The new
building will deliver 37,300 sq ft of well-specified office and
retail space into an area that is benefiting from significant local
investment, including our activities at Rathbone Square. The 4,500
sq ft of retail space is under offer to a restaurant operator and
marketing for the office space will commence shortly, although we
expect it to be let on a floor-by-floor basis after completion,
given the size of the building.
Two near-term schemes
Our near-term development programme comprises two schemes
(309,300 sq ft), both with potential project starts over the next
12 months.
At Oxford House, 76 Oxford Street, W1, we achieved planning
approval in June 2016 for a 89,100 sq ft major mixed-use
refurbishment. As part of the letting to Facebook at Rathbone
Square, Facebook had a right of first offer to take all of the
55,700 sq ft of office space which they chose not to exercise. We
are now exploring whether a more substantial redevelopment,
including improving the quality and scale of the retail space,
would add additional value given the strong demand for high quality
retail units at the eastern end of Oxford Street due to the opening
of Crossrail in 2018.
At Hanover Square, W1, we have demolished the buildings facing
New Bond Street on the western side of the site. These limited
works give us the option, should the market be supportive, to
accelerate the construction programme for the wider scheme ahead of
delivery of the station structure by Crossrail in 2018. The
development is owned in the GHS Partnership, our 50:50 joint
venture with the Hong Kong Monetary Authority.
Substantial medium-term development pipeline already in
place
Beyond our committed and near-term schemes, we have an extensive
further pipeline of 12 uncommitted schemes (1.3 million sq ft),
which we are preparing for the next cycle. These schemes include a
number of exciting projects, including New City Court, SE1 where we
hope to materially increase the size of the existing 97,800 sq ft
building which sits within the regenerating London Bridge Quarter.
At Mount Royal, W1, located at the western end of Oxford Street, we
are drawing up early plans to redevelop this two acre site into a
retail-led development scheme.
As we work up our development proposals, we are mindful of
occupiers evolving space and use requirements together with the
impact of climate change, both areas that we are assessing further
as part of our in-house Disruption Project.
The future development opportunity for the next cycle is
substantial. Together with our near-term schemes, our pipeline
totals some 1.1 million sq ft, with the potential to increase this
to more than 1.6 million sq ft post development. In total, our
potential development programme covers 40% of GPE's existing
portfolio by value and will form the bedrock of our development
activities for the next cycle.
Asset management
Overview
Momentum from last year's record leasing has continued and we
have delivered another 12 months of strong leasing performance. We
agreed 52 new lettings, securing GBP20.5 million of rent, 0.6%
ahead of March 2016 ERVs. This combined with 32 successful rent
reviews helped capture significant reversion across the
portfolio.
Activity has remained high following record leasing last
year
Against a backdrop of more uncertain market conditions and
marginally lower rental values, down 1.3% in the year, we have
delivered positive leasing results across the portfolio, in
particular at our recently completed developments, and have also
captured significant reversion.
The key highlights of a busy year included:
-- 52 new leases and renewals completed during the year (2016:
52 leases) generating annual rent of GBP20.5 million (our share:
GBP19.1 million; 2016: GBP31.1 million), market lettings 0.6% ahead
of ERV;
-- 32 rent reviews securing GBP12.9 million of rent (our share:
GBP8.6 million; 2016: GBP6.6 million) were settled at an increase
of 45.3% over the previous rent, 2.6% ahead of ERV and capturing
significant reversion;
-- total space covered by new lettings, reviews and renewals was
480,000 sq ft (2016: 562,800 sq ft);
-- GBP5.5 million reversion captured (our share) in the year to
31 March 2017; and
-- tenant retention high; 71% of space that was subject to
tenant break or expiry retained, refurbished or re-let/under offer
at the year end.
Our average office rent remains low at GBP50.10 per sq ft and
our investment portfolio vacancy rate increased to 6.8% at 31 March
2017 (2016: 3.1%) due to recent development/refurbishment
completions.
Since 31 March 2017, we have completed 14 lettings delivering
GBP5.1 million (our share: GBP4.4 million). We have a further 21
lettings currently under offer accounting for GBP6.9 million p.a.
of rent (our share: GBP6.6 million), 2.4% ahead of March 2017 ERV.
Should we convert all of the space under offer into lettings, the
vacancy rate would fall to 4.3%.
Leasing momentum continued
We were encouraged by the continued positive momentum in the
occupational market after the EU referendum for well-specified
space with our leasing marginally accelerating in the second half
of our financial year.
At our newly-completed development at 30 Broadwick Street, W1,
we let a total 63,500 sq ft, including four office floors, for a
combined annual rent of GBP5.6 million, all with a minimum ten
years on the lease (no breaks). The new tenants in the building are
from a variety of sectors including private equity (Exponent and
EQT), digital gaming (Jagex) and digital ventures (BCG Digital
Ventures). The lettings were 3.6% ahead of the March 2016 ERV,
including a new record Soho office rent of GBP110 per sq ft
demonstrating that, even in more uncertain markets, delivering
quality buildings into a supply-restricted market can drive rental
growth.
At Mount Royal, W1, the Great Victoria Partnership agreed a
back-to-back surrender and re-letting to replace an existing
retailer with Holland & Barrett in a unit at our prime retail
site at the western end of Oxford Street. Holland & Barrett
will occupy the 10,200 sq ft store on a ten year lease paying
annual rent of GBP1.6 million (GBP608 per sq ft Zone A), 26% ahead
of the previous passing rent.
Capturing reversion through rent review
One of our strategic priorities for the year was to capture the
significant reversionary potential (the difference between the
passing rent and market rental value) within our investment
portfolio. Of the reversion that could be captured this financial
year, a large proportion was available through rent review. As a
result, it was essential that we settled these reviews at, or ahead
of, the market rental value. As the table below demonstrates, we
had a busy year, settling 32 rent reviews, a record for this cycle,
45.3% ahead of the previous passing rent and at a 2.6% premium to
ERV.
Significant transactions included:
-- at Mount Royal, W1, we settled a rent review with Next plc,
achieving an increase in the annual rent of GBP0.9 million to
GBP2.9 million, equating to a Zone A rent of GBP615 per sq ft, up
45% from the previous rent; and
-- at 200 Gray's Inn Road, WC1, we settled a number of rent
reviews with Carlton Communications increasing the combined passing
rent by GBP0.9 million, an increase of 37%.
Reversion reduced with the remainder near dated
Our activities over the past 12 months have reduced the
portfolio reversion from 33.1% to 21.2% at 31 March 2017. Looking
forward, 69% of the reversion is available within the next 24
months and capturing this remains a priority for the asset
management team.
Together, the combination of settling rent reviews and letting
new space increased our rent roll (including share of joint
ventures) by 13.2% to GBP109.6 million, up from GBP96.8 million
last year. We have also maintained a diverse tenant base focused on
retail and leisure (32%), TMT (27%) and professional services (18%)
sectors, with less than 1.5% of rent roll coming from investment
banking, securities trading and insurance companies.
Rent collection
Our quarterly cash collection performance throughout the year
has remained very strong. We secured 99.4% of rent within seven
working days following the March 2017 quarter date (March 2016:
99.9%). The average collection rate across the four quarters of the
year was 99.6% (2016: 99.7%). Tenants on monthly payment terms
represent around 3% of our rent roll (2016: 4%).
Financial management
Overview
Our balance sheet has never been stronger. With a pro forma loan
to value ratio of just 12.2% and GBP618 million of cash and
committed undrawn liquidity, we are very well placed for the
current uncertain market conditions.
Reducing Group interest rates and extending maturities
The Group's sources of debt funding are diverse, both secured
and unsecured, and include the public, private and bank markets.
Our financing activities this year focused on further reducing our
cost of debt and enhancing our debt maturity profile. In October
2016, we obtained bank consent to extend the maturity date of our
flexible, low cost GBP450 million revolving credit facility by 12
months to October 2021. In May 2017, we issued GBP175 million of
new seven-year US private placement notes with a fixed rate coupon
of only 2.15% in order to refinance GBP160 million of existing
notes with shorter maturity dates and a coupon of 5.32%. Shortly
after year end, following receipt of the majority of the Rathbone
Square, W1 sales proceeds, we repaid our remaining GBP128 million
of existing US private placement notes and will pay a special
dividend of GBP110 million on 31 May 2017.
At 31 March 2017, our loan to value (LTV) ratio was 18.3%,
weighted average interest rate was 3.0% and weighted average drawn
debt maturity was 5.1 years. Pro forma for the above transactions
and the receipt of the outstanding deferred consideration from our
recycling activities, these metrics improve to 12.2%, 2.7% and 6.4
years respectively.
At 31 March 2017, we had GBP378 million of cash and undrawn
committed debt facilities (GBP618 million on a pro forma basis),
giving us significant financial flexibility going forward and
meaning that we have no immediate additional debt funding
requirements with our next debt maturity not until September
2018.
Low cost, flexible and diverse sources of debt finance -
predominantly unsecured
At 31 March 2017, 75% of our total drawn debt (and 48% of our
total debt) was from non-bank sources with 63% (and 76% of total
debt) borrowed on an unsecured basis.
Due to the treatment of capitalised interest under our Group
covenants, there is no net interest charge in the year applicable
for the purposes of calculating our interest cover ratio. Given our
low weighted average interest rate and increased earnings (with
EPRA EPS rising 28.1% to 17.3 pence for the year), even without the
benefit of interest capitalised, interest cover would be a very
healthy 3.4 times.
Balance sheet discipline and GBP110 million special dividend
When considering the appropriate level of financial leverage in
the business, we apply the same capital discipline that we use when
making asset level decisions. Typically, we aim for a loan to value
ratio of between 10%-40% through the cycle and today we are at the
lower end of the range given our portfolio activities and market
cycle position. Additionally, we have a track record of accretively
raising and returning equity capital to shareholders at the
appropriate time and in the appropriate circumstances. Our key
considerations when making such capital decisions include:
-- the market outlook;
-- opportunities for growth (both capital expenditure and
acquisitions);
-- opportunities for profitable recycling activity; and
-- current and prospective debt ratios (including LTV and
interest cover).
The most recent example of this discipline in action was our
announcement in April 2017 of a GBP110 million special
dividend.
Our financial results
Our financial results is accompanied by graphics (see Appendix
4)
We calculate adjusted net assets and earnings per share in
accordance with the Best Practice Recommendations issued by the
European Public Real Estate Association (EPRA). The recommendations
are designed to make the financial statements of public real estate
companies clearer and more comparable across Europe enhancing the
transparency and coherence of the sector. We consider these
standard metrics to be the most appropriate method of reporting the
value and performance of the business and a reconciliation to the
IFRS numbers is included in note 9 to the accounts.
Lower EPRA NAV driven by valuation declines
EPRA net assets per share (NAV) at 31 March 2017 was 799 pence
per share, a decrease of 5.7% over the year, largely due to the
like-for-like reduction in value of the property portfolio. At 31
March 2017, the Group's net assets were GBP2,738.4 million, down
from GBP2,912.2 million at 31 March 2016.
The main drivers of the 48 pence per share decrease in NAV from
31 March 2016 were:
-- the reduction of 49 pence per share arising from the
revaluation of the property portfolio;
-- losses on property disposals of 9 pence per share reduced
NAV;
-- EPRA earnings for the year of 17 pence per share enhanced
NAV;
-- dividends paid of 9 pence per share reduced NAV;
-- the removal of the potential dilution arising from the
convertible bond increased NAV by 8 pence per share;
-- the prepayment of US private placement notes reduced NAV by 5
pence per share; and
-- other movements reduced NAV by 1 pence per share.
EPRA NNNAV was 782 pence at 31 March 2017 compared to 831 pence
at 31 March 2016 (down 5.9%). At the year end, the difference
between NAV and NNNAV was due to the negative mark to market of the
Group's 2029 debenture and remaining private placement notes
combined with the potential tax due on the Group's sale of the
residential element of Rathbone Square, W1 more than offsetting the
positive valuation of the Group's derivatives.
Attractive EPRA earnings per share growth
EPRA earnings were GBP59.3 million, 24.1% higher than last year
predominantly due to increased rental income, increased capitalised
interest from our development activity and lower provisions for
performance related pay including share-based payments.
Rental income from wholly-owned properties and joint venture
fees for the year were GBP80.2 million and GBP4.1 million
respectively, generating a combined income of GBP84.3 million, up
GBP4.7 million or 5.9% on last year. This increase predominantly
resulted from GBP3.4 million of like-for-like growth through
capturing reversion on lease renewals and rent reviews, GBP2.1
million of development lettings offset by GBP0.8 million of net
income lost by our net sales activity in the prior year. Adjusting
for acquisitions, disposals and transfers to and from the
development programme, like-for-like rental income (including joint
ventures) increased 8.6% on the prior year.
Following the completion in November 2015 of our forward sold
development at 12/14 New Fetter Lane, EC4, development management
profits reduced to GBPnil from GBP4.0 million in the prior
year.
EPRA earnings from joint ventures were GBP2.5 million, down
GBP1.3 million from GBP3.8 million last year, reflecting lower
levels of joint venture activity following the sale, last year, of
95 Wigmore Street, W1 and securing vacant possession at Hanover
Square, W1.
Property expenses were GBP0.9 million lower at GBP7.3 million
predominantly due to reduced marketing activities as a result of
lower pre-letting activity in the development programme.
Administration costs were GBP20.1 million, a reduction of GBP4.3
million on last year, largely as a result of lower provisions for
performance related pay including payments under share incentive
plans.
Gross interest paid on our debt facilities was GBP25.7 million
(in line with the prior year), although we capitalised interest of
GBP18.3 million (2016: GBP13.3 million) as we continued to deliver
our committed developments including Rathbone Square, W1, 30
Broadwick Street, W1 and 55 Wells Street, W1. As a result, the
Group had an underlying net finance expense (including interest
receivable on joint venture balances) of GBP0.2 million (2016:
GBP7.0 million).
The revaluation deficit of the Group's investment properties led
to the Group's reported IFRS loss after tax of GBP139.4 million
(2016: profit of GBP556.2 million). Basic IFRS EPS for the year was
a loss of 40.8 pence, compared to a profit of 162.6 pence for 2016.
Diluted IFRS EPS for the year was a loss of 40.8 pence compared to
a profit of 161.9 pence for 2016. Diluted EPRA EPS was 17.3 pence
(2016: 13.5 pence), an increase of 28.1% and cash EPS of 10.6 pence
(2016: 8.9 pence).
Results of joint ventures
The Group's net investment in joint ventures was GBP480.8
million, a decrease from GBP543.4 million at 31 March 2016, largely
due to the reduction in value of the property portfolio as well as
several non-core asset disposals during the year. Our share of
joint venture net rental income was GBP17.4 million, an increase of
2.4% on last year due to increased asset management transactions
capturing reversion. Our share of non-recourse net debt in the
joint ventures was lower at GBP74.0 million at 31 March 2017 (2016:
GBP76.1 million) predominantly due to a higher cash balance being
held.
Strongest ever financial position
Group consolidated net debt reduced to GBP502.8 million at 31
March 2017, down from GBP568.0 million at 31 March 2016 as proceeds
from property disposals more than offset the Group's acquisitions
and capital expenditure against a backdrop of broadly stable
working capital. Group gearing fell to 18.4% at 31 March 2017 from
19.5% at 31 March 2016.
Including non-recourse debt in joint ventures, total net debt
was GBP576.8 million (2016: GBP644.1 million) equivalent to a low
loan-to-property value of 18.3% (2016: 17.4%). The proportion of
the Group's total net debt represented by our share of net debt in
joint ventures was 12.8% at 31 March 2017, compared to 11.8% a year
earlier. At 31 March 2017, the Group, including its joint ventures,
had cash and undrawn committed credit facilities of GBP378
million.
Pro forma for the receipt of remaining deferred consideration on
property sales, the special dividend of GBP110 million and the
refinancing of the Group's remaining private placement notes in May
2017, the Group's loan-to-property value was 12.2%.
The Group's weighted average cost of debt for the year,
including fees and joint venture debt, was 4.0%, an increase of 10
basis points compared to the prior year. The weighted average
interest rate (excluding fees) at the year end decreased to 3.0%
(2016: 3.7%) due to the repayment in March 2017 of GBP159.7 million
of private placement notes which had a blended fixed rate coupon of
5.3% and were due to mature in 2018 and 2021. The premium paid for
the early repayment of these notes was GBP16.8 million (or 5 pence
per share), representing the redemption value over book value of
GBP51.5 million offset by GBP34.7 million received on the
cancellation of the associated cross currency swaps. These notes
were replaced with a new issue of seven-year private placement
notes at a fixed rate coupon of 2.15% in May 2017.
At 31 March 2017, 82% of the Group's total debt (including
non-recourse joint ventures) was at xed or hedged rates (2016:
100%). The Group, including its joint ventures, is operating with
substantial headroom over its debt covenants.
Robust tenant base
None of our tenants went into administration around the March
2017 quarter day (March 2016: none) and we had no tenant
delinquencies in the year (2016: two). However, we are vigilant and
continue to monitor the nancial position of our tenants on a
regular basis.
Taxation
The tax credit in the income statement for the year is GBP0.8
million (2016: GBP1.1 million) and the underlying effective tax
rate is 0% (2016: 0%) as a result of the tax free nature of much of
the Group's income, and other allowances being available to set
against non-REIT profits. The Group complied with all relevant REIT
tests for the year to 31 March 2017.
All entities within the Group are UK tax resident; as our
business is located wholly in the UK, we consider this to be
appropriate. The Group maintains an open working relationship with
HMRC and seeks pre-clearance in respect of complex transactions.
HMRC regards the Group as 'low risk' and maintaining this status is
a key objective of the Group.
As a REIT, we are exempt from UK corporation tax in respect of
our property rental business, provided we meet a number of
conditions including distributing at least 90% of the rental income
profits of this business (known as Property Income Distributions
(PIDs)) on an annual basis. These PIDs are then typically treated
as taxable income in the hands of shareholders. The Group's REIT
exemption does not extend to either profits arising from the sale
of investment properties in respect of which a major redevelopment
has completed within the preceding three years or profits arising
from trading properties (including the sale of the residential
units at Rathbone Square, W1).
Despite being a REIT, we are subject to a number of other taxes
and certain sector specific charges in the same way as non-REIT
companies. During the year, we incurred GBP8.9 million in respect
of stamp taxes, section 106 contributions, community infrastructure
levies, empty rates in respect of vacant space, head office rates,
employer's national insurance and irrecoverable VAT.
Dividend growth
The Group operates a low and progressive ordinary dividend
policy. The Board has declared a nal dividend of 6.4 pence per
share (2016: 5.6 pence) which will be paid in July 2017. All of
this final dividend will be a REIT PID in respect of the Group's
tax exempt property rental business. Together with the interim
dividend of 3.7 pence, the total dividend for the year is 10.1
pence per share (2016: 9.2 pence), a 9.8% increase in the 12
months.
In addition, following the sale of the commercial element of
Rathbone Square, W1, we announced a special dividend in April 2017
of GBP110 million, or 32.15 pence per share, representing
approximately the whole life surplus generated from the development
scheme. The special dividend will be paid on 31 May 2017
accompanied by a 19 for 20 share consolidation of the Company's
ordinary share capital to maintain the Group's share price and per
share financial metrics.
Group income statement
For the year ended 31 March 2017
2017 2016
Notes GBPm GBPm
------------------------------------------- ----- ------- ------
Total revenue 2 121.9 128.8
Net rental income 3 80.2 75.5
Joint venture management fee income 12 4.1 4.1
------------------------------------------- ----- ------- ------
Rental and joint venture fee income 84.3 79.6
Property expenses 4 (7.3) (8.2)
------------------------------------------- ----- ------- ------
Net rental and related income 77.0 71.4
Administration expenses 5 (20.1) (24.4)
------- ------
Development management revenue 14 25.2 37.6
Development management costs 14 (25.2) (33.6)
------- ------
- 4.0
Trading property - cost of sales (0.3) (0.6)
------------------------------------------- ----- ------- ------
Operating profit before surplus on
property and results of joint ventures 56.6 50.4
(Deficit)/surplus from investment property 10 (136.9) 422.2
Share of results of joint ventures 12 (57.2) 66.8
------------------------------------------- ----- ------- ------
Operating (loss)/profit (137.5) 539.4
Finance income 6 9.0 7.8
Finance costs 7 (9.2) (14.8)
Premium paid on cancellation of private
placement notes 16 (51.5) -
Fair value movement on convertible
bond 10.1 13.5
Fair value movement on derivatives 38.9 9.2
------------------------------------------- ----- ------- ------
(Loss)/profit before tax (140.2) 555.1
Tax 8 0.8 1.1
------------------------------------------- ----- ------- ------
(Loss)/profit for the year (139.4) 556.2
------------------------------------------- ----- ------- ------
Basic (loss)/earnings per share 9 (40.8)p 162.6p
------------------------------------------- ----- ------- ------
Diluted (loss)/earnings per share 9 (40.8)p 161.9p
------------------------------------------- ----- ------- ------
Basic EPRA earnings per share 9 17.3p 14.0p
------------------------------------------- ----- ------- ------
Diluted EPRA earnings per share 9 17.3p 13.5p
------------------------------------------- ----- ------- ------
All results are derived from continuing operations in the United
Kingdom.
Group statement of comprehensive income
For the year ended 31 March 2017
2017 2016
Notes GBPm GBPm
--------------------------------------- ----- ------- -----
(Loss)/profit for the year (139.4) 556.2
Items that will not be reclassified
subsequently to profit and loss
Actuarial (deficit)/gain on defined
benefit scheme 25 (3.6) 0.1
--------------------------------------- ----- ------- -----
Total comprehensive expense and income
for the year (143.0) 556.3
--------------------------------------- ----- ------- -----
Group balance sheet
At 31 March 2017
2017 2016
Notes GBPm GBPm
-------------------------------------- ----- ------- -------
Non-current assets
Investment property 10 2,351.9 2,932.1
Investment in joint ventures 12 480.8 543.4
Plant and equipment 13 5.1 1.1
Deferred tax 8 2.0 1.3
-------------------------------------- ----- ------- -------
2,839.8 3,477.9
-------------------------------------- ----- ------- -------
Current assets
Trading property 11 246.7 172.4
Trade and other receivables 14 351.8 37.0
Corporation tax 8 1.0 0.6
Cash and cash equivalents 25.5 12.7
-------------------------------------- ----- ------- -------
625.0 222.7
-------------------------------------- ----- ------- -------
Total assets 3,464.8 3,700.6
-------------------------------------- ----- ------- -------
Current liabilities
Trade and other payables 15 (147.0) (135.0)
-------------------------------------- ----- ------- -------
(147.0) (135.0)
-------------------------------------- ----- ------- -------
Non-current liabilities
Interest-bearing loans and borrowings 16 (537.7) (600.2)
Obligations under finance leases 18 (35.9) (50.5)
Pension liability 25 (5.8) (2.7)
-------------------------------------- ----- ------- -------
(579.4) (653.4)
-------------------------------------- ----- ------- -------
Total liabilities (726.4) (788.4)
-------------------------------------- ----- ------- -------
Net assets 2,738.4 2,912.2
-------------------------------------- ----- ------- -------
Equity
Share capital 19 43.0 43.0
Share premium account 352.0 352.0
Capital redemption reserve 16.4 16.4
Retained earnings 2,330.8 2,509.9
Investment in own shares 20 (3.8) (9.1)
-------------------------------------- ----- ------- -------
Total equity 2,738.4 2,912.2
-------------------------------------- ----- ------- -------
Net assets per share 9 796p 847p
-------------------------------------- ----- ------- -------
EPRA NAV 9 799p 847p
-------------------------------------- ----- ------- -------
Approved by the Board on 24 May 2017 and signed on its behalf
by:
Toby Courtauld Nick Sanderson
Chief Executive Finance Director
Group statement of cash flows
For the year ended 31 March 2017
2017 2016
Notes GBPm GBPm
------------------------------------------ ----- ------- -------
Operating activities
Operating (loss)/profit (137.5) 539.4
Adjustments for non-cash items 21 192.4 (491.8)
Deposits received on forward sale of
residential units 8.8 34.9
Development of trading property (75.0) (45.2)
(Increase)/decrease in receivables (12.7) 6.8
Decrease in payables (5.4) (1.5)
------------------------------------------ ----- ------- -------
Cash (absorbed)/generated from operations (29.4) 42.6
Interest paid (29.0) (27.4)
Tax repaid 0.1 -
------------------------------------------ ----- ------- -------
Cash flows from operating activities (58.3) 15.2
------------------------------------------ ----- ------- -------
Investing activities
Distributions from joint ventures 56.2 110.3
Purchase and development of property (187.3) (365.8)
Purchase of plant and equipment (4.9) (1.1)
Sale of properties 346.5 321.0
Investment in joint ventures (6.7) (4.4)
------------------------------------------ ----- ------- -------
Cash flows from investing activities 203.8 60.0
------------------------------------------ ----- ------- -------
Financing activities
Revolving credit facility drawn/(repaid) 109.0 (28.0)
Redemption of private placement notes (159.7) -
Premium paid on redemption of private
placement notes 16 (51.5) -
Termination of cross currency swaps 16 34.7 -
Funds to joint ventures (33.6) (0.1)
Purchase of own shares - (8.1)
Equity dividends paid (31.6) (30.6)
------------------------------------------ ----- ------- -------
Cash flows from financing activities (132.7) (66.8)
------------------------------------------ ----- ------- -------
Net increase in cash and cash equivalents 12.8 8.4
Cash and cash equivalents at 1 April 12.7 4.3
------------------------------------------ ----- ------- -------
Cash and cash equivalents at 31 March 25.5 12.7
------------------------------------------ ----- ------- -------
Group statement of changes in equity
For the year ended 31 March 2017
Investment
Share Capital in
Share premium redemption Retained own Total
capital account reserve earnings shares equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ----- -------- -------- ----------- --------- ---------- -------
Total equity at 1
April 2016 43.0 352.0 16.4 2,509.9 (9.1) 2,912.2
Loss for the year - - - (139.4) - (139.4)
Actuarial deficit on defined
benefit scheme - - - (3.6) - (3.6)
--------------------------------- -------- -------- ----------- --------- ---------- -------
Total comprehensive
expense for the year - - - (143.0) - (143.0)
-------------------------- ----- -------- -------- ----------- --------- ---------- -------
Employee Long-Term
Incentive Plan and
Share Matching Plan
charge 20 - - - - 1.0 1.0
Dividends to shareholders 22 - - - (31.8) - (31.8)
Transfer to retained
earnings 20 - - - (4.3) 4.3 -
-------------------------- ----- -------- -------- ----------- --------- ---------- -------
Total equity at 31
March 2017 43.0 352.0 16.4 2,330.8 (3.8) 2,738.4
-------------------------- ----- -------- -------- ----------- --------- ---------- -------
Group statement of changes in equity
For the year ended 31 March 2016
Investment
Share Capital in
Share premium redemption Retained own Total
capital account reserve earnings shares equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ----- -------- -------- ----------- --------- ---------- -------
Total equity at 1
April 2015 43.0 352.0 16.4 1,991.2 (11.7) 2,390.9
Profit for the year - - - 556.2 - 556.2
Actuarial gain on
defined benefit scheme - - - 0.1 - 0.1
-------------------------- ----- -------- -------- ----------- --------- ---------- -------
Total comprehensive
income for the year - - - 556.3 - 556.3
-------------------------- ----- -------- -------- ----------- --------- ---------- -------
Employee Long-Term
Incentive Plan and
Share Matching Plan
charge 20 - - - - 4.2 4.2
Purchase of own shares 20 - - - - (8.1) (8.1)
Dividends to shareholders 22 - - - (31.1) - (31.1)
Transfer to retained
earnings 20 - - - (6.5) 6.5 -
-------------------------- ----- -------- -------- ----------- --------- ---------- -------
Total equity at 31
March 2016 43.0 352.0 16.4 2,509.9 (9.1) 2,912.2
-------------------------- ----- -------- -------- ----------- --------- ---------- -------
Notes forming part of the Group financial statements
1 Accounting policies
Basis of preparation
The financial information contained in this announcement has
been prepared on the basis of the accounting policies set out in
the financial statements for the year ended 31 March 2017. Whilst
the financial information included in this announcement has been
prepared in accordance with International Financial Reporting
Standards (IFRS), as adopted by the European Union, this
announcement does not itself contain sufficient information to
comply with IFRS. The financial information does not constitute the
Company's financial statements for the years ended 31 March 2017 or
2016, but is derived from those financial statements.
Financial statements for 2016 have been delivered to the
Registrar of Companies and those for 2017 will be delivered
following the Company's Annual General Meeting. The auditor's
reports on both the 2017 and 2016 financial statements were
unqualified; did not draw attention to any matters by way of
emphasis; and did not contain statements under s498(2) or (3) of
the Companies Act 2006.
The financial statements are prepared on the going concern basis
and have been prepared on the historical cost basis, except for the
revaluation of properties and financial instruments.
Significant judgements and sources of estimation uncertainty
In the process of preparing the financial statements, the
directors are required to make certain judgements, assumptions and
estimates. Not all of the Group's accounting policies require the
directors to make difficult, subjective or complex judgements or
estimates. Any estimates and judgements made are continually
evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be
reasonable under the circumstances. Although these estimates are
based on the director's best knowledge of the amount, event or
actions, actual results may differ from those estimates.
The following is intended to provide an understanding of the
policies that management consider critical because of the level of
complexity, judgement or estimation involved in their application
and their impact on the financial statements.
Significant judgements: recognition of sales and purchases of
property
The Group recognises sales and purchases of property when the
risks and rewards of ownership transfer to the new owner. Whilst in
most instances this assessment is straightforward, arrangements
such as forward sales, significant levels of deferred consideration
or transactions with other complex arrangements require the
directors to exercise judgement in recognising the transaction.
Key source of estimation uncertainty: property portfolio
valuation
The valuation to assess the fair value of the Group's investment
properties is prepared by its external valuer. The valuation is
based upon a number of assumptions including future rental income,
anticipated maintenance costs, future development costs and an
appropriate discount rate. The valuers also make reference to
market evidence of transaction prices for similar properties. For
the current year and prior year the directors adopted the valuation
without adjustment, further information is provided in the
accounting policy for investment property and note 10.
New accounting standards
During the year ended 31 March 2017, the following accounting
standards and guidance were adopted by the Group:
-- Amendments to IFRS (Annual improvements 2012-2014 cycle)
-- Amendments to IFRS 11
-- Amendments to IAS 16 and IAS 38
-- Amendments to IAS 27
-- Amendments to IAS 1
-- Amendments to IAS 10, IFRS 12 and IAS 28
The adoption of the Standards and Interpretations has not
significantly impacted these financial statements.
At the date of approval of these financial statements, the
following Standards and Interpretations were in issue but not yet
effective (and in some cases had not yet been adopted by the EU)
and have not been applied in these financial statements:
-- Amendments to IAS 7 Statement of cash flows; disclosure
initiative
-- Amendments to IAS 12 Income taxes; recognition of deferred
tax assets for unrealised losses
-- Amendments to IFRS 2 Share-based payments; clarifying how to
account for certain types of share-based payment transactions
-- IFRS 9 Financial instruments
-- IFRS 15 Revenue from contracts with customers
-- IFRS 16 Leases
-- Amendments to IFRS 4 Insurance contracts; regarding the
implementation of IFRS 9 Financial instruments
-- Amendment to IAS 40 Investment property; relating to
transfers of investment property
-- Annual improvements (2014-2016 cycle)
-- IFRIC 22 Foreign currency transactions and advance
consideration
None of these are expected to have a significant effect on the
financial statements of the Group. Certain Standards which may have
an impact are discussed below.
-- IFRS 9 Financial instruments
IFRS 9 replaces the classification and measurement models for
financial instruments in IAS 39 (Financial Instruments: recognition
and measurement) with three classification categories: amortised
cost, fair value through profit or loss and fair value through
other comprehensive income. Due to the Group's limited use of
complex financial instruments, IFRS 9 is not expected to have a
material impact on its reported results.
-- IFRS 15 Revenue from contracts with customers
IFRS 15 establishes a single, principles-based revenue
recognition model to be applied to all contracts with customers.
Revenue is recognised when a customer obtains control of a good or
service and thus has the ability to direct the use and obtain the
benefits from the good or service. IFRS 15 replaces IAS 18 Revenue
and IAS 11 Construction Contracts and related interpretations. New
disclosure requirements are also introduced. The majority of the
Group's revenue is derived from rental income which is within the
scope of IFRS 15. As a result, it is not anticipated that the new
standard will have a material impact on the Group's reported
results.
-- IFRS 16 Leases
IFRS 16 replaces IAS 17 Leases and requires all operating leases
in excess of one year, where the Group is the lessee, to be
included on the Group's balance sheet, and recognise a right-of-use
asset and a related lease liability representing the obligation to
make lease payments. The right-of-use asset will be assessed for
impairment annually (incorporating any onerous lease assessments)
and amortised on a straight-line basis, with the lease liability
being amortised using the effective interest method. Lessor
accounting is unchanged from previous guidance. As the Group is
primarily a lessor, it is not anticipated that the new standard
will have a material impact on the Group's reported results.
Basis of consolidation
The Group financial statements consolidate the financial
statements of the Company and all its subsidiary undertakings for
the year ended 31 March 2017. Subsidiary undertakings are those
entities controlled by the Group. Control is assumed when the Group
directs the financial and operating policies of an entity to
benefit from its activities.
Rental income
This comprises rental income and premiums on lease surrenders on
investment properties for the year, exclusive of service charges
receivable.
Tenant leases
The directors have considered the potential transfer of risks
and rewards of ownership in accordance with IAS 17 - Leases for all
properties leased to tenants and in their judgement have determined
that all such leases are operating leases.
Lease incentives
Lease incentives, including rent-free periods and payments to
tenants, are allocated to the income statement on a straight-line
basis over the lease term or on another systematic basis, if
applicable. The value of resulting accrued rental income is
included within the respective property.
Other property expenses
Irrecoverable running costs directly attributable to speci c
properties within the Group's portfolio are charged to the income
statement as other property expenses. Costs incurred in the
improvement of the portfolio which, in the opinion of the
directors, are not of a capital nature are written-off to the
income statement as incurred.
Administration expenses
Costs not directly attributable to individual properties are
treated as administration expenses.
Share-based payment
The cost of granting share-based payments to employees and
directors is recognised within administration expenses in the
income statement. The Group has used the Stochastic model to value
the grants, which is dependent upon factors including the share
price, expected volatility and vesting period, and the resulting
fair value is amortised through the income statement over the
vesting period. The charge is reversed if it is likely that any
non-market-based criteria will not be met.
Segmental analysis
The directors are required to present the Group's financial
information by business segment or geographical area. This requires
a review of the Group's organisational structure and internal
reporting system to identify reportable segments and an assessment
of where the Group's assets or customers are located.
All of the Group's revenue is generated from investment
properties located in central London. The properties are managed as
a single portfolio by an asset management team whose
responsibilities are not segregated by location or type, but are
managed on an asset-by-asset basis. The majority of the Group's
assets are mixed-use, therefore the office, retail and any
residential space is managed together. Within the property
portfolio, the Group has a number of properties under development.
The directors view the Group's development activities as an
integral part of the life cycle of each of its assets rather than a
separate business or division. The nature of developing property
means that whilst a property is under development it generates no
revenue and has no operating results. Once a development has
completed, it returns to the investment property portfolio, or if
it is a trading property, it is sold. The directors have considered
the nature of the business, how the business is managed and how
they review performance and, in their judgement, the Group has only
one reportable segment. The components of the valuation, as
provided by the external valuer, are set out in note 10.
Investment property
Investment properties and investment properties under
development are professionally valued on a fair value basis by
qualified external valuers and the directors must ensure that they
are satisfied that the valuation of the Group's properties is
appropriate for inclusion in the accounts without adjustment.
The valuations have been prepared in accordance with the RICS
Valuation - Professional Standards Global January 2014 including
the International Valuation Standards and the RICS Valuation -
Professional Standards UK January 2014 (revised April 2015) ("the
Red Book") and have been primarily derived using comparable recent
market transactions on arm's length terms.
For investment property, this approach involves applying
market-derived capitalisation yields to current and market-derived
future income streams with appropriate adjustments for income voids
arising from vacancies or rent-free periods.
These capitalisation yields and future income streams are
derived from comparable property and leasing transactions and are
considered to be the key inputs in the valuation. Other factors
that are taken into account in the valuations include the tenure of
the property, tenancy details, planning, building and environmental
factors that might affect the property.
In the case of investment property under development, the
approach applied is the 'residual method' of valuation, which is
the investment method of valuation as described above with a
deduction for the costs necessary to complete the development,
together with an allowance for the remaining risk.
Sales and purchases of investment properties are recognised when
the risks and rewards of ownership transfer, based on the terms and
conditions of each transaction.
Trading property
Trading property is being developed for sale or being held for
sale after development is complete, and is carried at the lower of
cost and net realisable value. Cost includes direct expenditure and
capitalised interest. Cost of sales, including costs associated
with off-plan residential sales, are expensed to the income
statement as incurred.
Depreciation
No depreciation is provided in respect of freehold investment
properties and leasehold investment properties. Plant and equipment
is held at cost less accumulated depreciation. Depreciation is
provided on plant and equipment, at rates calculated to write off
the cost, less residual value prevailing at the balance sheet date
of each asset evenly over its expected useful life, as follows:
Fixtures and fittings - over three to five years.
Leasehold improvements - over the term of the lease.
Joint ventures
Joint ventures are accounted for under the equity method where,
in the directors' judgement, the Group has joint control of the
entity. The Group's level of control in its joint ventures is
driven both by the individual agreements which set out how control
is shared by the partners and how that control is exercised in
practice. The Group balance sheet contains the Group's share of the
net assets of its joint ventures. Balances with partners owed to or
from the Group by joint ventures are included within investments.
The Group's share of joint venture profits and losses are included
in the Group income statement in a single line. All of the Group's
joint ventures adopt the accounting policies of the Group for
inclusion in the Group financial statements.
Income tax
Current tax is the amount payable on the taxable income for the
year and any adjustment in respect of previous years. Deferred tax
is provided in full on temporary differences between the tax base
of an asset or liability and its carrying amount in the balance
sheet. Deferred tax is determined using tax rates that have been
enacted or substantively enacted by the balance sheet date and are
expected to apply when the asset is realised or the liability is
settled. Deferred tax assets are recognised when it is probable
that taxable profits will be available against which the deferred
tax assets can be utilised. No provision is made for temporary
differences arising on the initial recognition of assets or
liabilities that affect neither accounting nor taxable profit. Tax
is included in the income statement except when it relates to items
recognised directly in other comprehensive income or equity, in
which case the related tax is also recognised directly in other
comprehensive income or equity.
Pension benefits
The Group contributes to a de ned bene t pension plan which is
funded with assets held separately from those of the Group. The
full value of the net assets or liabilities of the pension fund is
brought on to the balance sheet at each balance sheet date.
Actuarial gains and losses are taken to other comprehensive income;
all other movements are taken to the income statement.
Capitalisation of interest
Interest associated with direct expenditure on investment and
trading properties under development is capitalised. Direct
expenditure includes the purchase cost of a site if it has been
purchased with the specific intention to redevelop, but does not
include the original book cost of a site where no intention
existed. Interest is capitalised from the start of the development
work until the date of practical completion. The rate used is the
Group's weighted average cost of borrowings or, if appropriate, the
rate on specific associated borrowings.
Financial instruments
i Derivatives The Group uses derivative financial instruments to
hedge its exposure to foreign currency fluctuations and interest
rate risks. The Group's derivatives are measured at fair value in
the balance sheet. Derivatives are initially recognised at fair
value at the date a derivative contract is entered into.
ii Borrowings The Group's borrowings in the form of its
debentures, private placement notes and bank loans are recognised
initially at fair value, after taking account of any discount or
premium on issue and attributable transaction costs. Subsequently,
borrowings are held at amortised cost, with any discounts, premiums
and attributable costs charged to the income statement using the
effective interest rate method.
iii Convertible bond The Group's convertible bond can be settled
in shares, cash or a combination of both at the Group's discretion.
The bonds have been designated at fair value through profit and
loss upon initial recognition, with any gains or losses arising
subsequently due to re-measurement being recognised in the income
statement.
iv Cash and cash equivalents Cash and cash equivalents comprise
cash in hand, demand deposits and other short-term highly liquid
investments that are readily convertible into a known amount of
cash and are subject to insignificant risk of changes in value.
v Trade receivables and payables Trade receivables and payables
are initially measured at fair value, and are subsequently measured
at amortised cost using the effective interest rate method.
Head leases
The present value of future ground rents is added to the
carrying value of a leasehold investment property and to long-term
liabilities. On payment of a ground rent, virtually all of the cost
is charged to the income statement, principally as interest
payable, and the balance reduces the liability; an equal reduction
to the asset's valuation is charged to the income statement.
Development management agreements
Should the Group sell a development property prior to
completion, it will often have a development management agreement
with the buyer to construct the remainder of the building on their
behalf. Where the outcome of this development management agreement
can be estimated reliably, revenue and costs are recognised by
reference to the stage of completion of the contract at the balance
sheet date. This is normally measured as the proportion that
contract costs incurred for work performed bear to the estimated
total contract costs. Variations in work, claims and incentive
payments are included to the extent that they have been agreed with
the counterparty.
Where the outcome of the development management agreement cannot
be estimated reliably, contract revenue is recognised to the extent
of costs incurred where it is probable they will be recoverable.
Costs are recognised as expenses in the period in which they are
incurred. When it is probable that total costs will exceed total
revenue, the expected loss is recognised as an expense
immediately.
2 Total revenue
2017 2016
GBPm GBPm
------------------------------------- ----- -----
Gross rental income 77.7 72.8
Spreading of tenant lease incentives 3.1 3.0
Service charge income 11.8 11.3
Joint venture fee income 4.1 4.1
Development management revenue 25.2 37.6
------------------------------------- ----- -----
121.9 128.8
------------------------------------- ----- -----
3 Net rental income
2017 2016
GBPm GBPm
------------------------------------- ----- -----
Gross rental income 77.7 72.8
Spreading of tenant lease incentives 3.1 3.0
Ground rents (0.6) (0.3)
------------------------------------- ----- -----
80.2 75.5
------------------------------------- ----- -----
4 Property expenses
2017 2016
GBPm GBPm
------------------------ ------ ------
Service charge income (11.8) (11.3)
Service charge expenses 13.9 12.3
Other property expenses 5.2 7.2
------------------------ ------ ------
7.3 8.2
------------------------ ------ ------
5 Administration expenses
2017 2016
GBPm GBPm
------------------------ ----- -----
Employee costs 13.9 20.1
Depreciation 0.9 0.2
Other head office costs 5.3 4.1
------------------------ ----- -----
20.1 24.4
------------------------ ----- -----
Included within employee costs is an accounting charge for the
LTIP and SMP schemes of GBP1.0 million (2016: GBP4.2 million).
Employee costs, including those of directors, comprise the
following:
2017 2016
GBPm GBPm
-------------------------------------------- ----- -----
Wages and salaries 13.8 19.2
Social security costs 1.5 2.5
Other pension costs 1.6 1.5
-------------------------------------------- ----- -----
16.9 23.2
-------------------------------------------- ----- -----
Less: recovered through service charges (1.0) (1.0)
Less: capitalised into development projects (2.0) (2.1)
-------------------------------------------- ----- -----
13.9 20.1
-------------------------------------------- ----- -----
The emoluments and pension benefits of the directors are set out
in detail within the Directors' remuneration report on pages 104 to
130. The Executive Directors are considered to be key management
for the purposes of IAS 24 'Related Party Transactions'. The
Group's key management, its pension plan and joint ventures are the
Group's only related parties.
Employee information
The average number of employees of the Group, including
directors, was:
2017 2016
Number Number
------------------------------------ ------- -------
Head office and property management 102 96
------------------------------------ ------- -------
Auditor's remuneration
2017 2016
GBP000's GBP000's
-------------------------------------------- --------- ---------
Audit of the Company's annual accounts 106 114
Audit of subsidiaries 98 96
-------------------------------------------- --------- ---------
204 210
Audit-related assurance services, including
the interim review 62 61
-------------------------------------------- --------- ---------
Total audit and audit-related services 266 271
Services related to taxation (advisory) 21 11
-------------------------------------------- --------- ---------
287 282
-------------------------------------------- --------- ---------
6 Finance income
2017 2016
GBPm GBPm
----------------------------------------- ----- -----
Interest on balances with joint ventures 9.0 7.8
----------------------------------------- ----- -----
7 Finance costs
2017 2016
GBPm GBPm
--------------------------------------------- ------ ------
Interest on revolving credit facilities 3.3 3.4
Interest on private placement notes 12.9 12.9
Interest on debenture stock 8.0 8.0
Interest on convertible bond 1.5 1.5
Interest on obligations under finance leases 1.8 2.3
--------------------------------------------- ------ ------
Gross finance costs 27.5 28.1
Less: capitalised interest at an average
rate of 4.1% (2016: 3.9%) (18.3) (13.3)
--------------------------------------------- ------ ------
9.2 14.8
--------------------------------------------- ------ ------
8 Tax
2017 2016
GBPm GBPm
------------------------------------ ----- -----
Current tax
UK corporation tax - -
Tax over provided in previous years (0.1) (0.6)
------------------------------------ ----- -----
Total current tax (0.1) (0.6)
Deferred tax (0.7) (0.5)
------------------------------------ ----- -----
Tax credit for the year (0.8) (1.1)
------------------------------------ ----- -----
The difference between the standard rate of tax and the
effective rate of tax arises from the items set out below:
2017 2016
GBPm GBPm
----------------------------------------------- ------- ------
(Loss)/profit before tax (140.2) 555.1
----------------------------------------------- ------- ------
Tax (credit)/charge on (loss)/profit at
standard rate of 20% (2016: 20%) (28.0) 111.0
REIT tax-exempt rental profits and gains (4.0) (18.4)
Changes in fair value of properties not
subject to tax 32.8 (89.3)
Changes in fair value of financial instruments
not subject to tax (2.9) (4.5)
Prior periods' corporation tax (0.1) (0.6)
Other 1.4 0.7
----------------------------------------------- ------- ------
Tax credit for the year (0.8) (1.1)
----------------------------------------------- ------- ------
During the year, GBPnil (2016: GBPnil) of deferred tax was
credited directly to equity. The Group's net deferred tax asset at
31 March 2017 was GBP2.0 million (2016: GBP1.3 million), based on a
19% tax rate. This consists of a deferred tax liability of GBP2.8
million (2016: GBPnil) and a deferred tax asset of GBP4.8 million
(2016: GBP1.3 million).
Movement in deferred tax
Recognised
At 1 April in the income At 31 March
2016 statement 2017
GBPm GBPm GBPm
----------------------------------------- ---------- -------------- -----------
Deferred tax liability in respect of
GBP150 million 1.00% convertible bonds
2018 - (2.8) (2.8)
Deferred tax asset in respect of revenue
losses 1.3 2.7 4.0
Deferred tax asset in respect of other
temporary differences - 0.8 0.8
----------------------------------------- ---------- -------------- -----------
Net deferred tax asset 1.3 0.7 2.0
----------------------------------------- ---------- -------------- -----------
A deferred tax asset of GBP3.4 million (2016: GBP3.8 million),
mainly relating to revenue losses, contingent share awards and the
pension liability was not recognised because it is uncertain
whether future taxable profits will arise against which this asset
can be utilised.
As a REIT, the Group is largely exempt from corporation tax in
respect of its rental profits and chargeable gains relating to its
property rental business. The Group is otherwise subject to
corporation tax. In particular, the Group's REIT exemption does not
extend to either profits arising from the sale of investment
properties in respect of which a major development has completed
within the preceding three years or profits arising from trading
properties (including the sale of the residential units at Rathbone
Square, W1).
In order to ensure that the Group is able to both retain its
status as a REIT and to avoid financial charges being imposed, a
number of tests (including a minimum distribution test) must be met
by both Great Portland Estates plc and by the Group as a whole on
an ongoing basis. These conditions are detailed in the Corporation
Tax Act 2010.
9 Performance measures and EPRA metrics
Adjusted earnings and net assets per share are calculated in
accordance with the Best Practice Recommendations issued by the
European Public Real Estate Association (EPRA). The recommendations
are designed to make the financial statements of public real estate
companies clearer and more comparable across Europe enhancing the
transparency and coherence of the sector. The directors consider
these standard metrics to be the most appropriate method of
reporting the value and performance of the business.
Weighted average number of ordinary shares
2017 2016
Number Number
of of
shares shares
------------------------------------------- ----------- -----------
Issued ordinary share capital at 1 April 343,926,149 343,926,149
Investment in own shares (1,933,616) (1,811,076)
------------------------------------------- ----------- -----------
Weighted average number of ordinary shares
- Basic 341,992,533 342,115,073
------------------------------------------- ----------- -----------
Basic and diluted (loss)/earnings per share
Loss Number Loss Profit Number Earnings
after of per after of per
tax shares share tax shares share
2017 2017 2017 2016 2016 2016
GBPm million pence GBPm million pence
------------------------ ------- -------- ------ ------ -------- --------
Basic (139.4) 342.0 (40.8) 556.2 342.1 162.6
Dilutive effect of LTIP
shares - - - - 1.4 (0.7)
------------------------ ------- -------- ------ ------ -------- --------
Diluted (139.4) 342.0 (40.8) 556.2 343.5 161.9
------------------------ ------- -------- ------ ------ -------- --------
Basic and diluted EPRA (loss)/earnings per share
(Loss)/
(Loss)/profit Number earnings Profit Number Earnings
after of per after of per
tax shares share tax shares share
2017 2017 2017 2016 2016 2016
GBPm million pence GBPm million pence
------------------------------- ------------- -------- --------- ------- -------- --------
Basic (139.4) 342.0 (40.8) 556.2 342.1 162.6
Deficit/(surplus) from
investment property (note
10) 136.9 - 40.1 (422.2) - (123.4)
Deficit/(surplus) from
joint venture investment
property (note 12) 59.6 - 17.4 (64.6) - (18.9)
Movement in fair value
of derivatives (38.9) - (11.4) (9.2) - (2.7)
Movement in fair value
of convertible bond (10.1) - (3.0) (13.5) - (4.0)
Movement in fair value
of derivatives in joint
ventures (note 12) 0.1 - - 1.0 - 0.3
Trading property - cost
of sales 0.3 - 0.1 0.6 - 0.2
Premium paid on cancellation
of private placement notes
(note 16) 51.5 - 15.1 - - -
Deferred tax (note 8) (0.7) - (0.2) (0.5) - (0.1)
------------------------------- ------------- -------- --------- ------- -------- --------
Basic EPRA earnings 59.3 342.0 17.3 47.8 342.1 14.0
------------------------------- ------------- -------- --------- ------- -------- --------
Dilutive effect of LTIP
shares - 0.3 - - 1.4 (0.1)
Dilutive effect of convertible
bond - - - 1.5 21.0 (0.4)
------------------------------- ------------- -------- --------- ------- -------- --------
Diluted EPRA earnings 59.3 342.3 17.3 49.3 364.5 13.5
------------------------------- ------------- -------- --------- ------- -------- --------
EPRA net assets per share
Net Net
Number assets Number assets
Net of per Net of per
assets shares share assets shares share
2017 2017 2017 2016 2016 2016
GBPm million pence GBPm million pence
------------------------------- ------- -------- ------- ------- -------- -------
Basic net assets 2,738.4 343.9 796 2,912.2 343.9 847
Investment in own shares - (1.8) 4 - (2.6) 6
Dilutive effect of convertible
bond - - - 150.0 21.0 (8)
Dilutive effect of LTIP
shares - 0.3 (1) - 1.4 (3)
------------------------------- ------- -------- ------- ------- -------- -------
Diluted net assets 2,738.4 342.4 799 3,062.2 363.7 842
Surplus on revaluation
of trading property (note
11) 17.3 - 5 22.2 - 6
Fair value of convertible
bond (note 17) 9.4 - 3 19.5 - 5
Fair value of derivatives
(note 17) (28.5) - (8) (24.3) - (6)
Fair value of derivatives
in joint ventures (note
12) 1.3 - - 1.2 - -
Deferred tax (note 8) (2.0) - - (1.3) - -
------------------------------- ------- -------- ------- ------- -------- -------
EPRA NAV 2,735.9 342.4 799 3,079.5 363.7 847
------------------------------- ------- -------- ------- ------- -------- -------
Fair value of financial
liabilities (note 17) (71.0) - (21) (75.5) - (21)
Fair value of financial
liabilities in joint ventures
(note 12) (2.1) - (1) (1.6) - -
Fair value of convertible
bond (note 17) (9.4) - (3) - - -
Fair value of derivatives
(note 17) 28.5 - 8 24.3 - 6
Fair value of derivatives
in joint ventures (note
12) (1.3) - - (1.2) - -
Tax arising on sale of
trading properties (3.3) - (1) (4.2) - (1)
Deferred tax (note 8) 2.0 - 1 1.3 - -
------------------------------- ------- -------- ------- ------- -------- -------
EPRA NNNAV 2,679.3 342.4 782 3,022.6 363.7 831
------------------------------- ------- -------- ------- ------- -------- -------
The Group has GBP150.0 million of convertible bonds in issue
with an initial conversion price of GBP7.15 per share. The dilutive
effect of the contingently issuable shares within the convertible
bond is required to be recognised in accordance with IAS 33 -
Earnings per Share. For the current and prior year the convertible
bond had no dilutive impact on IFRS EPS. In accordance with the
EPRA Best Practice Recommendations, we have presented EPRA earnings
per share on a basic and diluted basis.
EPRA cost ratio (including share of joint ventures)
2017 2016
GBPm GBPm
-------------------------------------------- ------- -------
Administration expenses 20.1 24.4
Property expenses 7.3 8.2
Joint venture management fee income (4.1) (4.1)
Joint venture property and administration
costs 4.1 2.2
-------------------------------------------- ------- -------
EPRA costs (including direct vacancy costs)
(A) 27.4 30.7
-------------------------------------------- ------- -------
Direct vacancy costs (3.2) (2.3)
Joint venture direct vacancy costs (1.8) (1.1)
-------------------------------------------- ------- -------
EPRA costs (excluding direct vacancy costs)
(B) 22.4 27.3
-------------------------------------------- ------- -------
Net rental income 80.2 75.5
Joint venture net rental income 17.4 17.0
-------------------------------------------- ------- -------
Gross rental income (C) 97.6 92.5
-------------------------------------------- ------- -------
Portfolio at fair value including joint
ventures (D) 3,145.5 3,703.9
-------------------------------------------- ------- -------
Cost ratio (including direct vacancy costs)
(A/C) 28.1% 33.2%
Cost ratio (excluding direct vacancy costs)
(B/C) 23.0% 29.5%
Cost ratio (by portfolio value) (A/D) 0.9% 0.8%
-------------------------------------------- ------- -------
EPRA capital expenditure is included in note 10.
Net debt
2017 2016
GBPm GBPm
--------------------------------------------- ------ ------
GBP142.9 million 5(5) (8) % debenture stock
2029 143.9 144.0
GBP450.0 million revolving credit facility 107.0 -
Private placement notes 127.4 286.7
GBP150.0 million 1.00% convertible bonds
2018 (at nominal value) 150.0 150.0
Less: cash balances (25.5) (12.7)
--------------------------------------------- ------ ------
Net debt excluding joint ventures 502.8 568.0
Joint venture bank loans (at share) 84.6 84.5
Less: joint venture cash balances (at share) (10.6) (8.4)
--------------------------------------------- ------ ------
Net debt including joint ventures 576.8 644.1
--------------------------------------------- ------ ------
10 Investment property
Investment property
Freehold Leasehold Total
GBPm GBPm GBPm
---------------------------------------- -------- --------- -------
Book value at 1 April 2015 1,027.3 908.7 1,936.0
Acquisitions 124.9 213.7 338.6
Costs capitalised 4.0 22.4 26.4
Disposals (102.8) (192.1) (294.9)
Transfer to investment property under
development (30.4) - (30.4)
Transfer from investment property under
development 7.5 - 7.5
Net valuation surplus on investment
property 103.0 94.2 197.2
---------------------------------------- -------- --------- -------
Book value at 31 March 2016 1,133.5 1,046.9 2,180.4
---------------------------------------- -------- --------- -------
Acquisitions - 32.5 32.5
Costs capitalised 6.0 14.9 20.9
Disposals (31.1) - (31.1)
Transfer from investment property under
development 176.1 - 176.1
Net valuation deficit on investment
property (61.6) (53.2) (114.8)
---------------------------------------- -------- --------- -------
Book value at 31 March 2017 1,222.9 1,041.1 2,264.0
---------------------------------------- -------- --------- -------
Investment property under development
Freehold Leasehold Total
GBPm GBPm GBPm
-------------------------------------- -------- --------- -------
Book value at 1 April 2015 276.5 135.7 412.2
Costs capitalised 96.2 12.9 109.1
Interest capitalised 7.9 0.8 8.7
Transfer from investment property 30.4 - 30.4
Transfer to investment property (7.5) - (7.5)
Net revaluation surplus on investment
property under development 133.1 65.7 198.8
-------------------------------------- -------- --------- -------
Book value at 31 March 2016 536.6 215.1 751.7
-------------------------------------- -------- --------- -------
Costs capitalised 107.1 48.1 155.2
Interest capitalised 9.1 0.9 10.0
Transfer to investment property (176.1) - (176.1)
Disposals (392.2) (264.1) (656.3)
Net revaluation surplus on investment
property under development 3.4 - 3.4
-------------------------------------- -------- --------- -------
Book value at 31 March 2017 87.9 - 87.9
-------------------------------------- -------- --------- -------
Total investment property 1,310.8 1,041.1 2,351.9
-------------------------------------- -------- --------- -------
The book value of investment property includes GBP35.9 million
(2016: GBP50.5 million) in respect of the present value of future
ground rents, the market value of the portfolio (excluding these
amounts) is GBP2,316.0 million. The market value of the Group's
total property portfolio, including trading properties, was
GBP2,580.0 million (2016: GBP3,076.2 million). The total portfolio
value including joint venture properties of GBP565.5 million (see
note 12) was GBP3,145.5 million.
At 31 March 2017, property with a carrying value of GBP380.9
million (2016: GBP403.4 million) was secured under the first
mortgage debenture stock (see note 16).
The cumulative interest capitalised in investment property was
GBP20.1 million (2016: GBP26.1 million).
(Deficit)/surplus from investment property
2017 2016
GBPm GBPm
----------------------------------------------- ------- -----
Net valuation (deficit)/surplus on investment
property (111.4) 396.0
(Loss)/profit on sale of investment properties (25.5) 26.2
----------------------------------------------- ------- -----
(136.9) 422.2
----------------------------------------------- ------- -----
The Group's investment properties, including those held in joint
ventures (note 12), were valued on the basis of Fair Value by CBRE
Limited (CBRE), external valuers, as at 31 March 2017. The
valuations have been prepared in accordance with the RICS Valuation
- Professional Standards Global January 2014 including the
International Valuation Standards and the RICS Valuation -
Professional Standards UK January 2014 (revised April 2015) ("the
Red Book") and have been primarily derived using comparable recent
market transactions on arm's length terms.
The total fees, including the fee for this assignment, earned by
CBRE (or other companies forming part of the same group of
companies within the UK) from the Group are less than 5.0% of total
UK revenues.
The principal signatories of the CBRE valuation reports have
continuously been the signatories of valuations for the same
addressee and valuation purpose as this report since 2012. CBRE has
continuously been carrying out valuation instructions for the Group
for in excess of 20 years. CBRE has carried out valuation, agency
and professional services on behalf of the Group for in excess of
20 years.
Real estate valuations are complex and derived using comparable
market transactions which are not publicly available and involve an
element of judgement. Therefore, in line with EPRA guidance, we
have classified the valuation of the property portfolio as Level 3
as defined by IFRS 13. There were no transfers between levels
during the year. Inputs to the valuation, including capitalisation
yields (typically the true equivalent yield) and rental values, are
defined as 'unobservable' as defined by IFRS 13.
Key inputs to the valuation
ERV True equivalent yield
------------------------ -----------------------
Average
GBP per Range Average Range
sq ft GBP per sq ft % %
-------------------------- ------- -------- -------------- ---------- -----------
North of Oxford Street Office 68 47 - 84 4.5 4.1 - 6.4
Retail 66 34 - 181 3.7 2.9 - 5.9
Rest of West End Office 81 64 - 96 4.5 3.7 - 6.0
Retail 103 15 - 257 4.2 3.5 - 5.5
City, Midtown & Southwark Office 54 45 - 60 5.2 4.8 - 5.9
Retail 71 32 - 116 5.0 4.6 - 6.5
Capital value
------------------------
Average
GBP per Range
sq ft GBP per sq ft
-------------------------- ------- -------- -------------- ---------- -----------
Residential 1,926 1,575 - 2,700 n/a n/a
----------------------------------- -------- -------------- ---------- -----------
Everything else being equal, there is a positive relationship
between rental values and the property valuation, such that an
increase in rental values will increase the valuation of a property
and a decrease in rental values will reduce the valuation of a
property. However, the relationship between capitalisation yields
and the property valuation is negative; therefore an increase in
capitalisation yields will reduce the valuation of a property and a
reduction will increase its valuation. There are interrelationships
between these inputs as they are determined by market conditions,
and the valuation movement in any one period depends on the balance
between them. If these inputs move in opposite directions (i.e.
rental values increase and yields decrease) valuation movements can
be amplified, whereas if they move in the same direction they may
offset, reducing the overall net valuation movement.
At 31 March 2017, the Group had capital commitments of GBP27.1
million (2016: GBP241.5 million).
EPRA capital expenditure
2017 2016
GBPm GBPm
-------------------------------------------- ----- -----
Group
Acquisitions 32.5 338.6
Developments (including trading properties) 221.2 161.0
Investment property 20.9 26.4
Interest capitalised (including trading
properties) 18.3 13.3
Joint ventures (at share)
Developments 11.9 5.0
Investment property 16.9 13.3
Interest capitalised 1.2 0.7
-------------------------------------------- ----- -----
322.9 558.3
-------------------------------------------- ----- -----
11 Trading property
Total
GBPm
--------------------- -----
At 1 April 2016 172.4
Costs capitalised 66.0
Interest capitalised 8.3
--------------------- -----
At 31 March 2017 246.7
--------------------- -----
The Group is developing a large mixed-use scheme at Rathbone
Square, W1. Part of the approved scheme consists of residential
units which the Group holds for sale. As a result, the residential
element of the scheme is classified as trading property. The fair
value of the trading property was GBP264.0 million (2016: GBP194.6
million), representing a level 3 valuation as defined by IFRS 13
(see note 10), and cumulative valuation uplift of GBP17.3 million
(2016: GBP22.2 million).
12 Investment in joint ventures
The Group has the following investments in joint ventures:
Balances
with 2017 2016
Equity partners Total Total
GBPm GBPm GBPm GBPm
--------------------------------------- ------ --------- ------ -------
At 1 April 355.8 187.6 543.4 636.7
Movement on joint venture balances - 42.6 42.6 44.6
Additions 8.2 - 8.2 4.4
------ --------- ------ -------
Share of profit of joint ventures 2.4 - 2.4 2.8
Share of revaluation (deficit)/surplus
of joint ventures (55.6) - (55.6) 50.0
Share of (loss)/profit on disposal
of joint venture properties (4.0) - (4.0) 14.0
------ --------- ------ -------
Share of results of joint ventures (57.2) - (57.2) 66.8
Transfer to subsidiaries -
Great Star Partnership - - - (98.8)
Distributions (56.2) - (56.2) (110.3)
--------------------------------------- ------ --------- ------ -------
At 31 March 250.6 230.2 480.8 543.4
--------------------------------------- ------ --------- ------ -------
The investments in joint ventures comprise the following:
2017 2016
Country of registration ownership ownership
---------------------------------------- ------------------------ ---------- ----------
The GHS Limited Partnership Jersey 50% 50%
The Great Capital Partnership (dormant) United Kingdom 50% 50%
The Great Ropemaker Partnership United Kingdom 50% 50%
The Great Victoria Partnerships United Kingdom 50% 50%
The Great Wigmore Partnership United Kingdom 50% 50%
---------------------------------------- ------------------------ ---------- ----------
All of the Group's joint ventures operate solely in the United
Kingdom.
The Group's share in the assets and liabilities, revenues and
expenses for the joint ventures is set out below:
The The The The The
GHS Great Great Great Great 2017 2016
Limited Capital Ropemaker Victoria Wigmore 2017 At At
Partnership Partnership Partnership Partnerships Partnership Total share share
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ----------- ----------- ----------- ------------ ----------- ------- ------- -------
Balance sheets
Investment
property 223.2 - 687.9 228.6 1.7 1,141.4 570.7 632.9
Current assets 0.3 - 0.4 0.1 0.9 1.7 0.9 0.7
Cash 1.3 0.1 14.6 4.6 0.6 21.2 10.6 8.4
Balances
(from)/to
partners (86.8) - (384.4) 10.9 - (460.3) (230.2) (187.6)
Bank loans - - (89.5) (79.6) - (169.1) (84.6) (84.5)
Derivatives - - (2.6) - - (2.6) (1.3) (1.2)
Current
liabilities (3.8) - (11.9) (4.9) (0.1) (20.7) (10.3) (7.7)
Finance leases - - (10.3) - - (10.3) (5.2) (5.2)
--------------- ----------- ----------- ----------- ------------ ----------- ------- ------- -------
Net assets 134.2 0.1 204.2 159.7 3.1 501.3 250.6 355.8
--------------- ----------- ----------- ----------- ------------ ----------- ------- ------- -------
Income
statements
----------- ----------- ----------- ------------ ----------- ------- ------- -------
Net rental
income - - 21.6 13.1 0.1 34.8 17.4 17.0
Property and
administration
costs (1.6) - (5.8) (0.5) (0.2) (8.1) (4.1) (2.2)
Net finance
costs (4.1) - (14.4) (3.1) - (21.6) (10.8) (11.0)
Movement in
fair
value of
derivatives - - (0.2) - - (0.2) (0.1) (1.0)
----------- ----------- ----------- ------------ ----------- ------- ------- -------
(Loss)/profit
from joint
ventures (5.7) - 1.2 9.5 (0.1) 4.9 2.4 2.8
Revaluation of
investment
property (65.8) - (26.1) (13.2) (0.1) (105.2) (55.6) 50.0
(Loss)/profit
on sale of
investment
property - - - (8.9) 0.9 (8.0) (4.0) 14.0
--------------- ----------- ----------- ----------- ------------ ----------- ------- ------- -------
Share of
results
of joint
ventures (71.5) - (24.9) (12.6) 0.7 (108.3) (57.2) 66.8
--------------- ----------- ----------- ----------- ------------ ----------- ------- ------- -------
The non-recourse debt facilities of the joint ventures at 31
March 2017 are set out below:
Nominal
value
(100%) Interest
Joint venture debt facilities GBPm Maturity Fixed/floating rate
-------------------------------- ------- --------- -------------- ------------
December
The Great Ropemaker Partnership 90.0 2020 Floating LIBOR +1.25%
The Great Victoria Partnership 80.0 July 2022 Fixed 3.74%
-------------------------------- ------- --------- -------------- ------------
Total 170.0
-------------------------------- ------- --------- -------------- ------------
The Great Ropemaker Partnership has two interest rate swaps with
a fixed rate of 1.42%, which expire coterminously with the bank
loan in 2020, with a notional principal amount of GBP90.0 million.
Together with the swaps the loan has an all-in hedged coupon of
2.67% for its duration. At 31 March 2017, the Great Victoria
Partnership loan had a fair value of GBP84.2 million (2016: GBP83.2
million). All interest-bearing loans are in sterling. At 31 March
2017, the joint ventures had GBPnil undrawn facilities (2016:
GBPnil).
Transactions during the year between the Group and its joint
ventures, which are related parties, are disclosed below:
2017 2016
GBPm GBPm
------------------------------------------ ------- -------
Movement on joint venture balances during
the year (42.6) (20.8)
Balances receivable at the year end from
joint ventures (230.2) (187.6)
Distributions 56.2 110.3
Management fee income 4.1 4.1
------------------------------------------ ------- -------
The joint venture balances are repayable on demand and bear
interest as follows: the GHS Limited Partnership at 5.3% on
balances at inception and 4.0% on any subsequent balances, the
Great Ropemaker Partnership at 4.0% and the Great Wigmore
Partnership at 4.0%.
The investment properties include GBP5.2 million (2016: GBP5.2
million) in respect of the present value of future ground rents,
net of these amounts the market value of our share of the total
joint venture properties is GBP565.5 million. The Group earns fee
income from its joint ventures for the provision of management
services. All of the above transactions are made on terms
equivalent to those that prevail in arm's length transactions.
At 31 March 2017, the Group had GBPnil contingent liabilities
arising in its joint ventures (2016: GBPnil). At 31 March 2017, the
Group had capital commitments in respect of its joint ventures of
GBP48.1 million (2016: GBP117.9 million).
13 Plant and equipment
Fixtures
Leasehold and
improvements fittings/other Total
GBPm GBPm GBPm
------------------------------------- ------------- --------------- -----
Cost
At 1 April 2015 2.1 1.6 3.7
Costs capitalised 1.0 0.1 1.1
Disposals (2.0) - (2.0)
------------------------------------- ------------- --------------- -----
At 31 March 2016 1.1 1.7 2.8
Costs capitalised in respect of head
office refurbishment 4.1 0.8 4.9
Disposals - (1.5) (1.5)
------------------------------------- ------------- --------------- -----
At 31 March 2017 5.2 1.0 6.2
------------------------------------- ------------- --------------- -----
Depreciation
At 1 April 2016 0.1 1.6 1.7
Charge for the year 0.6 0.3 0.9
Disposals - (1.5) (1.5)
------------------------------------- ------------- --------------- -----
At 31 March 2017 0.7 0.4 1.1
------------------------------------- ------------- --------------- -----
Carrying amount at 31 March 2016 1.0 0.1 1.1
------------------------------------- ------------- --------------- -----
Carrying amount at 31 March 2017 4.5 0.6 5.1
------------------------------------- ------------- --------------- -----
14 Trade and other receivables
2017 2016
GBPm GBPm
------------------------------------------- ----- -----
Trade receivables 4.0 3.9
Allowance for doubtful debts (0.1) (0.2)
------------------------------------------- ----- -----
3.9 3.7
Prepayments and accrued income 0.7 1.2
Work in progress on development management
contracts 14.7 2.4
Other trade receivables 3.2 5.4
Deferred consideration on property sales 300.8 -
Derivatives 28.5 24.3
------------------------------------------- ----- -----
351.8 37.0
------------------------------------------- ----- -----
Trade receivables consist of rent and service charge monies,
which are due on the quarter day with no credit period. Interest is
charged on trade receivables in accordance with the terms of the
tenant's lease. Trade receivables are provided for based on
estimated irrecoverable amounts determined by past default
experience and knowledge of the individual tenant's circumstance.
Debtors past due but not impaired were GBP2.8 million (2016: GBP3.0
million) of which GBP2.0 million (2016: GBP1.8 million) is over 30
days.
Work in progress on development management contracts is an
amount due to the Group in relation to development properties sold
prior to its completion where the Group has a contract with the
buyer to construct the remainder of the building on their behalf.
During the year, the Group received payments on account of GBP12.9
million (2016: GBP41.2 million). At 31 March 2017, the aggregate
cumulative cost incurred was GBP67.7 million (2016: GBP42.5
million) and the cumulative profits less losses recognised were
GBP5.7 million (2016: GBP5.7 million). There are no material
project retentions.
Deferred consideration on property sales relates to the amounts
outstanding on the disposal of both Rathbone Square, W1 and 73/89
Oxford Street, W1. At 31 March 2017, GBP28.0 million of the
derivatives were due in excess of one year (see note 17).
2017 2016
GBPm GBPm
----------------------------------------- ----- -----
Movements in allowance of doubtful debts
Balance at the beginning of the year (0.2) (0.1)
Amounts provided for during the year (0.2) (0.1)
Amounts written-off as uncollectable 0.3 -
----------------------------------------- ----- -----
(0.1) (0.2)
----------------------------------------- ----- -----
15 Trade and other payables
2017 2016
GBPm GBPm
------------------------------------------------- ----- -----
Rents received in advance 22.8 21.1
Deposits received on forward sale of residential
units 66.0 57.2
Non-trade payables and accrued expenses 58.2 56.7
------------------------------------------------- ----- -----
147.0 135.0
------------------------------------------------- ----- -----
Non-trade payables and accrued expenses includes capital
accruals such as amounts in respect of overage arrangements.
16 Interest-bearing loans and borrowings
2017 2016
GBPm GBPm
--------------------------------------------- ----- -----
Non-current liabilities at amortised cost
Secured
GBP142.9 million 5(5) (8) % debenture stock
2029 143.9 144.0
Unsecured
GBP450 million revolving credit facility 107.0 -
GBP30.0 million 5.09% private placement
notes 2018 - 29.9
$130.0 million 4.81% private placement notes
2018 - 80.9
$78.0 million 5.37% private placement notes
2021 - 48.5
$160.0 million 4.20% private placement notes
2019 101.9 101.9
$40.0 million 4.82% private placement notes
2022 25.5 25.5
Non-current liabilities at fair value
Unsecured
GBP150.0 million 1.00% convertible bonds
2018 159.4 169.5
--------------------------------------------- ----- -----
537.7 600.2
--------------------------------------------- ----- -----
The Group's GBP450.0 million revolving credit facility is
unsecured, attracts a floating rate based on a ratchet of between
105-165 basis points above LIBOR, based on gearing, and expires in
2021.
In March 2017, the Group repaid its 2018 and 2021 private
placement notes for a total redemption premium of GBP16.8 million
representing GBP51.5 million premium (including early redemption
premium and currency movements since issue) on the private
placement notes net of GBP34.7 million receipt on cancellation of
the associated cross currency swaps.
In May 2017, the Group repaid its 2019 and 2022 private
placement notes for a total redemption premium of GBP13.2 million
representing GBP36.8 million premium (including early redemption
premium and currency movements since issue) on the private
placement notes net of GBP23.6 million receipt on cancellation of
the associated cross currency swaps.
In May 2017, the Group closed the issue of GBP175 million of new
seven year US private placement notes. The Sterling denominated
unsecured debt has a fixed rate coupon of 2.15% (representing a
margin of 125 basis points over the relevant Gilt).
At 31 March 2017, the Group had GBP342.0 million (2016: GBP451
million) of undrawn credit facilities.
17 Financial instruments
Amounts recognised Amounts recognised
Carrying in income Gain/(loss) Carrying in income Gain/(loss)
amount statement to equity amount statement to equity
Categories of financial 2017 2017 2017 2016 2016 2016
instrument GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- -------- ------------------ ----------- -------- ------------------ -----------
Convertible bond (159.4) 8.6 - (169.5) 12.0 -
---------------------------- -------- ------------------ ----------- -------- ------------------ -----------
Non-current liabilities
at fair value (159.4) 8.6 - (169.5) 12.0 -
---------------------------- -------- ------------------ ----------- -------- ------------------ -----------
Interest rate floor 0.5 0.7 - 2.0 0.9 -
Cross currency swaps 28.0 40.2 - 22.3 10.1 -
---------------------------- -------- ------------------ ----------- -------- ------------------ -----------
Non-current assets
held at fair value 28.5 40.9 - 24.3 11.0 -
---------------------------- -------- ------------------ ----------- -------- ------------------ -----------
Trade receivables 324.3 (0.1) - 12.1 (0.1) -
Cash and cash equivalents 25.5 - - 12.7 - -
---------------------------- -------- ------------------ ----------- -------- ------------------ -----------
Loans and receivables 349.8 (0.1) - 24.8 (0.1) -
---------------------------- -------- ------------------ ----------- -------- ------------------ -----------
Trade and other payables (69.1) - - (62.9) - -
Interest-bearing loans
and borrowings (378.3) (7.9) - (430.7) (12.8) -
Obligations under
finance leases (35.9) (1.8) - (50.5) (2.3) -
---------------------------- -------- ------------------ ----------- -------- ------------------ -----------
Liabilities at amortised
cost (483.3) (9.7) - (544.1) (15.1) -
---------------------------- -------- ------------------ ----------- -------- ------------------ -----------
Total financial instruments (264.4) 39.7 - (664.5) 7.8 -
---------------------------- -------- ------------------ ----------- -------- ------------------ -----------
Financial risk management objectives
Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group.
The Group has a policy of only dealing with creditworthy tenants
and obtaining sufficient rental cash deposits or third party
guarantees as a means of mitigating financial loss from
defaults.
The concentration of credit risk is limited due to the large and
diverse tenant base. Accordingly, the directors believe that there
is no further credit provision required in excess of the allowance
for doubtful debts. The carrying amount of financial assets
recorded in the financial statements, which is net of impairment
losses, represents the Group's maximum exposure to credit risk
without taking account of the value of rent deposits obtained.
Details of the Group's receivables are summarised in note 15 of the
financial statements.
The Group's cash deposits are placed with a diversified range of
banks and strict counterparty limits ensure the Group's exposure to
bank failure is minimised.
Capital risk
The Group manages its capital to ensure that entities in the
Group will be able to continue as going concerns and as such it
aims to maintain an appropriate mix of debt and equity financing.
The current capital structure of the Group consists of a mix of
equity and debt. Equity comprises issued share capital, reserves
and retained earnings as disclosed in the Group statement of
changes in equity. Debt comprises long-term debenture stock,
private placement notes, convertible bonds and drawings against
committed revolving credit facilities from banks.
The Group operates solely in the United Kingdom, and its
operating profits and net assets are sterling denominated. As a
result, the Group's policy is to have no unhedged assets or
liabilities denominated in foreign currencies. The currency risk on
overseas transactions is fully hedged through foreign currency
derivatives to create a synthetic sterling exposure.
Liquidity risk
The Group operates a framework for the management of its short-,
medium- and long-term funding requirements. Cash flow and funding
needs are regularly monitored to ensure sufficient undrawn
facilities are in place. The Group's funding sources are
diversified across a range of bank and bond markets and strict
counterparty limits are operated on deposits.
The Group meets its day-to-day working capital requirements
through the utilisation of its revolving credit facility. The
availability of this facility depends on the Group complying with a
number of key financial covenants; these covenants and the Group's
compliance with them are set out in the table below:
March 2017
Key covenants Covenant actuals
------------------------------------ --------- ----------
Group
Net debt/net equity <1.25x 0.18x
Inner borrowing (unencumbered asset
value/unsecured borrowings) >1.66x 5.36x
Interest cover >1.35x n/a
------------------------------------ ---------- ----------
Due to the treatment of capitalised interest under our Group
covenants, there is no net interest charge in the year applicable
for the purposes of calculating the interest cover ratio. The Group
has undrawn credit facilities of GBP342.0 million and has
substantial headroom above all of its key covenants. As a result,
the directors consider the Group to have adequate liquidity to be
able to fund the ongoing operations of the business.
The following tables detail the Group's remaining contractual
maturity on its financial instruments and have been drawn up based
on the undiscounted cash flows of financial liabilities based on
the earliest date on which the Group is required to pay and
conditions existing at the balance sheet date:
Less More
Contractual than One to Two to than
Carrying cash one two five five
amount flows year years years years
At 31 March 2017 GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- -------- ----------- ----- ------ ------ ------
Non-derivative financial
liabilities
GBP142.9 million 5(5)
(8) % debenture stock
2029 143.9 237.9 8.0 8.0 24.1 197.8
GBP450.0 million revolving
credit facility 107.0 113.1 1.6 1.6 109.9 -
Private placement notes 127.4 142.6 5.2 5.3 106.4 25.7
GBP150.0 million 1.00%
convertible bonds 2018 159.4 152.1 1.5 150.6 - -
Derivative financial
instruments
Cross currency swaps
(note 14) (28.0) 0.7 0.3 0.2 0.2 -
Interest rate floor (note
14) (0.5) (1.0) (1.0) - - -
--------------------------- -------- ----------- ----- ------ ------ ------
509.2 645.4 15.6 165.7 240.6 223.5
--------------------------- -------- ----------- ----- ------ ------ ------
Less More
Contractual than One to Two to than
Carrying cash one two five five
amount flows year years years years
At 31 March 2016 GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- -------- ----------- ----- ------ ------ ------
Non-derivative financial
liabilities
GBP142.9 million 5(5)
(8) % debenture stock
2029 144.0 245.9 8.0 8.0 24.1 205.8
GBP450.0 million revolving
credit facility - - - - - -
Private placement notes 286.7 332.8 13.0 13.1 230.5 76.2
GBP150.0 million 1.00%
convertible bonds 2018 169.5 153.6 1.5 1.5 150.6 -
Derivative financial
instruments
Cross currency swaps
(note 14) (22.3) 1.7 0.5 0.5 0.6 0.1
Interest rate floor (note
14) (2.0) (2.1) (1.3) (0.8) - -
--------------------------- -------- ----------- ----- ------ ------ ------
575.9 731.9 21.7 22.3 405.8 282.1
--------------------------- -------- ----------- ----- ------ ------ ------
Market risk
Interest rate risk arises from the Group's use of
interest-bearing financial instruments. It is the risk that future
cash flows arising from a financial instrument will fluctuate due
to changes in interest rates. It is the Group's policy to reduce
interest rate risk in respect of the cash flows arising from its
debt finance either through the use of fixed rate debt or through
the use of interest rate derivatives such as swaps, caps and
floors. It is the Group's usual policy to maintain the proportion
of floating interest rate exposure to between 20% - 40% of forecast
total debt. However, this target is flexible, and may not be
adhered to at all times depending on, for example, the Group's view
of future interest rate movements.
Interest rate swaps
Interest rate swaps in the joint ventures enable the Group to
exchange its floating rate interest payments on its bank debt for
fixed rate payments on a notional value. Such contracts allow the
Group to mitigate the risk of changing interest rates on the cash
flow exposures on its variable rate bank loans by locking in a
fixed rate on a proportion of its debt.
Interest rate floors
Under the terms of an interest rate floor, one party (the
'seller') makes a payment to the other party (the 'buyer') if an
underlying interest rate is below a specified rate. The Group has
bought an interest rate floor, which, when combined with fixed
debt, gives rise to the same economic effect as purchasing an
interest rate cap in respect of floating rate debt.
Cross currency swaps
Cross currency swaps enable the Group to exchange receipts or
payments denominated in currencies other than sterling for receipts
or payments denominated in sterling. Such contracts allow the Group
to eliminate foreign exchange risk arising from fluctuating
exchange rates between sterling and other currencies.
The following table details the notional principal amounts and
remaining terms of interest rate derivatives outstanding at 31
March:
Average contracted Notional
fixed interest principal Fair value
rate amount (asset)/liability
2017 2016 2017 2016 2017 2016
% % GBPm GBPm GBPm GBPm
-------------------------- --------- --------- ------ ------ --------- ---------
Interest rate floor
Less than one year 1.80 - 159.7 - (0.5) -
Between one and two years - 1.80 - 159.7 - (2.0)
-------------------------- --------- --------- ------ ------ --------- ---------
1.80 1.80 159.7 159.7 (0.5) (2.0)
-------------------------- --------- --------- ------ ------ --------- ---------
The following table details the notional principal amounts and
remaining terms of exchange rate derivatives outstanding at 31
March:
Notional
Average exchange principal Fair value
rate Foreign currency amount (asset)/liability
------------------ ------------------ ------------ --------------------
2017 2016 2017 2016 2017 2016 2017 2016
rate rate US$m US$m GBPm GBPm GBPm GBPm
--------------------- -------- -------- -------- -------- ----- ----- --------- ---------
Cross currency swaps
Between two and
five years 1.566 1.583 160.0 290.0 102.2 183.2 (23.3) (16.4)
In excess of five
years 1.566 1.591 40.0 118.0 25.5 74.2 (4.7) (5.9)
--------------------- -------- -------- -------- -------- ----- ----- --------- ---------
1.566 1.585 200.0 408.0 127.7 257.4 (28.0) (22.3)
--------------------- -------- -------- -------- -------- ----- ----- --------- ---------
Interest rate sensitivity
The sensitivity analysis below has been determined based on the
exposure to interest rates for both non-derivative and derivative
financial instruments at the balance sheet date and represents
management's assessment of possible changes in interest rates based
on historical trends. For the floating rate liabilities the
analysis is prepared assuming the amount of the liability at 31
March 2017 was outstanding for the whole year:
Impact on profit Impact on equity
------------------ ------------------
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
----------------------------- -------- -------- -------- --------
Increase of 100 basis points 2.9 10.0 2.9 10.0
Increase of 50 basis points 1.5 5.0 1.5 5.0
Decrease of 25 basis points (0.7) (2.5) (0.7) (2.5)
----------------------------- -------- -------- -------- --------
Foreign exchange sensitivity
The sensitivity analysis below has been determined based on the
exposure to foreign exchange rates for derivative financial
instruments at the balance sheet date and represents management's
assessment of changes to the fair value of the Group's cross
currency swaps as a result of possible changes in foreign exchange
rates based on historical trends:
Impact on profit Impact on equity
------------------ ------------------
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
-------------------------------- -------- -------- -------- --------
Increase of 20% in the exchange
spot rate (28.9) (53.6) (28.9) (53.6)
Increase of 10% in the exchange
spot rate (15.8) (29.2) (15.8) (29.2)
Decrease of 10% in the exchange
spot rate 19.3 35.7 19.3 35.7
Decrease of 20% in the exchange
spot rate 43.4 80.4 43.4 80.4
-------------------------------- -------- -------- -------- --------
Fair value of interest-bearing loans and borrowings
Book value Fair value Book value Fair value
2017 2017 2016 2016
GBPm GBPm GBPm GBPm
-------------------------------------- ---------- ---------- ---------- ----------
Level 1
GBP150.0 million 1.00% convertible
bonds 2018 159.4 159.4 169.5 169.5
Level 2
Cross currency swaps (28.0) (28.0) (22.3) (22.3)
Interest rate floor (0.5) (0.5) (2.0) (2.0)
Other items not carried at fair
value
GBP142.9 million 5(5) (8) % debenture
stock 2029 143.9 177.9 144.0 172.3
Private placement notes 127.4 164.4 286.7 333.9
GBP450 million revolving credit
facility 107.0 107.0 - -
-------------------------------------- ---------- ---------- ---------- ----------
509.2 580.2 575.9 651.4
-------------------------------------- ---------- ---------- ---------- ----------
The fair value of the Group's listed convertible bonds has been
estimated on the basis of quoted market prices, representing Level
1 fair value measurements as defined by IFRS 13 Fair Value
Measurement. The fair value of the Group's outstanding interest
rate floor has been estimated by calculating the present value of
future cash flows, using appropriate market discount rates,
representing Level 2 fair value measurements as defined by IFRS 13.
The fair value of the Group's cross currency swaps has been
estimated on the basis of the prevailing rates at the year end,
representing Level 2 fair value measurements as defined by IFRS 13.
None of the Group's financial derivatives are designated as
financial hedges. The fair values of the Group's private placement
notes were determined by comparing the discounted future cash flows
using the contracted yields with those of the reference gilts plus
the implied margins.
The fair values of the Group's cash and cash equivalents and
trade payables and receivables are not materially different from
those at which they are carried in the financial statements.
18 Obligations under finance leases
Finance lease obligations in respect of the Group's leasehold
properties are payable as follows:
Minimum Present value Minimum Present value
lease of minimum lease of minimum
payments Interest lease payments payments Interest lease payments
2017 2017 2017 2016 2016 2016
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- --------- -------- --------------- --------- -------- ---------------
Less than one year 1.8 (1.8) - 2.4 (2.4) -
Between two and five
years 7.1 (7.0) 0.1 9.6 (9.5) 0.1
More than five years 178.6 (142.8) 35.8 329.1 (278.7) 50.4
--------------------- --------- -------- --------------- --------- -------- ---------------
187.5 (151.6) 35.9 341.1 (290.6) 50.5
--------------------- --------- -------- --------------- --------- -------- ---------------
The Group's finance lease obligations decreased to GBP35.9
million at 31 March 2017 due to the sale of 73/89 Oxford Street,
W1.
19 Share capital
2017 2017 2016 2016
Number GBPm Number GBPm
------------------------------ ----------- ----- ----------- -----
Allotted, called up and fully
paid ordinary shares of 12.5
pence
At 1 April and 31 March 343,926,149 43.0 343,926,149 43.0
------------------------------ ----------- ----- ----------- -----
At 31 March 2017, the Company's authorised share capital was
600,000,000 shares. On 18 May 2017, in conjunction with a special
dividend (see note 22), the Company carried out a 19 for 20 share
consolidation of the Company's ordinary share capital. After the
consolidation the Company had 326,729,852 ordinary shares with a
nominal value of 13(3) (19) pence each.
20 Investment in own shares
2017 2016
GBPm GBPm
-------------------------------------------- ----- -----
At 1 April 9.1 11.7
Employee Long-Term Incentive Plan and Share
Matching Plan charge (1.0) (4.2)
Purchase of shares - 8.1
Transfer to retained earnings (4.3) (6.5)
-------------------------------------------- ----- -----
At 31 March 3.8 9.1
-------------------------------------------- ----- -----
The investment in the Company's own shares is held at cost and
comprises 1,804,412 shares (2016: 2,569,477 shares) held by the
Great Portland Estates plc LTIP Employee Share Trust which will
vest for certain senior employees of the Group if performance
conditions are met. During the year, 765,065 shares (2016:
1,435,074 shares) were awarded to directors and senior employees in
respect of the 2013 LTIP and SMP award and no additional shares
were acquired by the Trust (2016: 1,150,000 shares). The fair value
of shares awarded and outstanding at 31 March 2017 was GBP2.1
million (2016: GBP13.2 million).
21 Adjustment for non-cash movements in the Group statement of
cash flows
2017 2016
GBPm GBPm
-------------------------------------------- ----- -------
Deficit/(surplus) from investment property 136.9 (422.2)
Employee Long-Term Incentive Plan and Share
Matching Plan charge 1.0 4.2
Spreading of tenant lease incentives (3.1) (3.0)
Profit on development management contracts - (4.0)
Share of results of joint ventures 57.2 (66.8)
Other non-cash items 0.4 -
-------------------------------------------- ----- -------
Adjustments for non-cash items 192.4 (491.8)
-------------------------------------------- ----- -------
22 Dividends
2017 2016
GBPm GBPm
--------------------------------------------- ----- -----
Ordinary dividends paid
Interim dividend for the year ended 31 March
2017 of 3.7 pence per share 19.1 -
Final dividend for the year ended 31 March
2016 of 5.6 pence per share 12.7 -
Interim dividend for the year ended 31 March
2016 of 3.6 pence per share - 12.3
Final dividend for the year ended 31 March
2015 of 5.5 pence per share - 18.8
--------------------------------------------- ----- -----
31.8 31.1
--------------------------------------------- ----- -----
A final dividend of 6.4 pence per share was approved by the
Board on 24 May 2017 and will be paid on 10 July 2017 to
shareholders on the register on 2 June 2017. The dividend is not
recognised as a liability at 31 March 2017. The 2016 final dividend
and the 2017 interim dividend were paid in the year and are
included within the Group statement of changes in equity.
In May 2017, the Company paid a special dividend of GBP110.0
million equating to 32.15 pence per share. The dividend was
approved by the Board on 11 April 2017 and will be paid on 31 May
2017 to shareholders on the register on 18 May 2017.
23 Operating leases
Future aggregate minimum rentals receivable under
non-cancellable operating leases are:
2017 2016
GBPm GBPm
--------------------------- ----- -----
The Group as a lessor
Less than one year 76.7 70.2
Between two and five years 224.3 189.8
More than five years 169.2 149.9
--------------------------- ----- -----
470.2 409.9
--------------------------- ----- -----
The Group leases its investment properties under operating
leases. The weighted average length of lease at 31 March 2017 was
5.2 years (2016: 5.0 years). All investment properties, except
those under development, generated rental income and no contingent
rents were recognised in the year (2016: GBPnil).
2017 2016
GBPm GBPm
--------------------------- ----- -----
The Group as a lessee
Less than one year 1.0 0.8
Between two and five years 4.1 4.1
More than five years 3.2 4.3
--------------------------- ----- -----
8.3 9.2
--------------------------- ----- -----
24 Reserves
The following describes the nature and purpose of each reserve
within equity:
Share capital
The nominal value of the Company's issued share capital,
comprising 12.5 pence ordinary shares.
Share premium
Amount subscribed for share capital in excess of nominal value
less directly attributable issue costs.
Capital redemption reserve
Amount equivalent to the nominal value of the Company's own
shares acquired as a result of share buy-back programmes.
Retained earnings
Cumulative net gains and losses recognised in the Group income
statement together with other items such as dividends.
Investment in own shares
Amount paid to acquire the Company's own shares for its Employee
Long-Term Incentive Plan and Share Matching Plan less accounting
charges.
25 Employee benefits
The Group operates a UK funded approved defined contribution
plan. The Group's contribution for the year was GBP0.6 million
(2016: GBP0.6 million). The Group also contributes to a defined
benefit final salary pension plan ('the Plan'), the assets of which
are held and managed by trustees separately from the assets of the
Group. The Plan has been closed to new entrants since April 2002.
The most recent actuarial valuation of the Plan was conducted at 1
April 2015 by a qualified independent actuary using the projected
unit method. The Plan was valued using the following main
assumptions:
2017 2016
% %
---------------------------------- ---- ----
Discount rate 2.60 3.60
Expected rate of salary increases 4.20 4.00
RPI inflation 3.20 3.00
Rate of future pension increases 5.00 5.00
---------------------------------- ---- ----
Life expectancy assumptions at age 65:
2017 2016
Years Years
------------------------------------ ------ ------
Retiring today age 65 24 24
Retiring in 25 years (age 40 today) 27 27
------------------------------------ ------ ------
The amount recognised in the balance sheet in respect of the
Plan is as follows:
2017 2016
GBPm GBPm
-------------------------------------- ------ ------
Present value of unfunded obligations (39.9) (31.3)
Fair value of the Plan assets 34.1 28.6
-------------------------------------- ------ ------
Pension liability (5.8) (2.7)
-------------------------------------- ------ ------
Amounts recognised as administration expenses in the income
statement are as follows:
2017 2016
GBPm GBPm
--------------------- ----- -----
Current service cost (0.3) (0.4)
Net interest cost (0.1) (0.1)
--------------------- ----- -----
(0.4) (0.5)
--------------------- ----- -----
Changes in the present value of the pension obligation are as
follows:
2017 2016
GBPm GBPm
-------------------------------------------- ----- -----
Defined benefit obligation at 1 April 31.3 31.7
Service cost 0.3 0.4
Interest cost 1.1 1.1
Effect of changes in financial assumptions 7.8 (1.3)
Benefits paid (0.6) (0.6)
-------------------------------------------- ----- -----
Present value of defined benefit obligation
at 31 March 39.9 31.3
-------------------------------------------- ----- -----
Changes to the fair value of the Plan assets are as follows:
2017 2016
GBPm GBPm
------------------------------------------ ----- -----
Fair value of the Plan assets at 1 April 28.6 28.5
Interest income 1.0 1.0
Actuarial gain/(loss) 4.2 (1.2)
Employer contributions 0.9 0.9
Benefits paid (0.6) (0.6)
------------------------------------------ ----- -----
Fair value of the Plan assets at 31 March 34.1 28.6
------------------------------------------ ----- -----
Net liability (5.8) (2.7)
------------------------------------------ ----- -----
The amount recognised immediately in the Group statement of
comprehensive income was a loss of GBP3.6 million (2016: gain of
GBP0.1 million).
Virtually all equity and debt instruments have quoted prices in
active markets. The fair value of the Plan assets at the balance
sheet date is analysed as follows:
2017 2016
GBPm GBPm
--------- ----- -----
Cash 0.1 -
Equities 14.1 11.2
Bonds 19.9 17.4
--------- ----- -----
34.1 28.6
--------- ----- -----
Other than market and demographic risks, which are common to all
retirement benefit schemes, there are no specific risks in the
relevant benefit schemes which the Group considers to be
significant or unusual. Detail on two of the more specific risks is
detailed below:
Changes in bond yields
Falling bond yields tend to increase the funding and accounting
liabilities. However, the investment in corporate and government
bonds offers a degree of matching, i.e. the movement in assets
arising from changes in bond yields partially matches the movement
in the funding or accounting liabilities. In this way, the exposure
to movements in bond yields is reduced.
Life expectancy
The majority of the obligations are to provide a pension for the
life of the member on retirement, so increases in life expectancy
will result in an increase in the liabilities. The inflation-linked
nature of the majority of benefit payments increases the
sensitivity of the liabilities to changes in life expectancy.
The effect on the defined benefit obligation of changing the key
assumptions, calculated using approximate methods based on
historical trends, is set out below:
2017 2016
GBPm GBPm
---------------------------------------- ----- -----
Discount rate -0.25% 42.0 32.9
Discount rate +0.25% 37.9 29.8
RPI inflation -0.25% 38.9 30.6
RPI inflation +0.25% 40.9 32.0
Post-retirement mortality assumption -1
year 41.5 32.4
---------------------------------------- ----- -----
The Group expects to contribute GBP0.9 million to the Plan in
the year ending 31 March 2018. The expected total benefit payments
for the year ending 31 March 2018 is GBP0.6 million, with GBP4.3
million expected to be paid over the next five years.
Responsibility statement
The statement of Directors' responsibilities below has been
prepared in connection with the Company's full Annual Report for
the year ended 31 March 2017. Certain parts of the Annual Report
have not been included in the announcement. We confirm that to the
best of our knowledge:
-- the financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
taken as a whole;
-- the strategic report includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face; and
-- the annual report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company's performance,
business model and strategy.
Approved by the Board on 24 May 2017 and signed on its behalf
by
Toby Courtauld Nick Sanderson
Chief Executive Finance Director
Glossary
Building Research Establishment Environmental Assessment
Methodology (BREEAM)
Building Research Establishment method of assessing, rating and
certifying the sustainability of buildings.
Core West End
Areas of London with W1 and SW1 postcodes.
Earnings Per Share (EPS)
Profit after tax divided by the weighted average number of
ordinary shares in issue.
EPRA metrics
Standard calculation methods for adjusted EPS and NAV and other
operating metrics as set out by the European Public Real Estate
Association (EPRA) in their Best Practice and Policy
Recommendations.
Estimated Rental Value (ERV)
The market rental value of lettable space as estimated by the
Group's valuers at each balance sheet date.
Fair value - Investment property
The amount as estimated by the Group's valuers 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. In line with market practice,
values are stated net of purchasers' costs.
IPD
The Investment Property Databank Limited (IPD) is a company that
produces an independent benchmark of property returns.
IPD central London
An index, compiled by IPD, of the central and inner London
properties in their March annual valued universes.
Like-for-like (Lfl)
The element of the portfolio that has been held for the whole of
the period of account.
Loan To Value (LTV)
Total bank loans, private placement notes, convertible bonds at
nominal value and debenture stock, net of cash (including our share
of joint ventures balances), expressed as a percentage of the
market value of the property portfolio (including our share of
joint ventures).
Net assets per share or Net Asset Value (NAV)
Equity shareholders' funds divided by the number of ordinary
shares at the balance sheet date.
Net gearing
Total Group borrowings (including the convertible bonds at
nominal value) less short-term deposits and cash as a percentage of
equity shareholders' funds, calculated in accordance with our bank
covenants.
Net initial yield
Annual net rents on investment properties as a percentage of the
investment property valuation having added notional purchaser's
costs.
Non-PIDs
Dividends from profits of the Group's taxable residual
business.
PMI
Purchasing Managers Index.
Portfolio Internal Rate of Return (IRR)
The rate of return that if used as a discount rate and applied
to the projected cash flows from the portfolio would result in a
net present value of zero.
Property Income Distributions (PIDs)
Dividends from profits of the Group's tax-exempt property rental
business.
REIT
UK Real Estate Investment Trust.
Rent roll
The annual contracted rental income.
Reversionary or under-rented
The percentage by which ERV exceeds rents passing, together with
the estimated rental value of vacant space.
Reversionary yield
The anticipated yield, which the initial yield will rise to once
the rent reaches the ERV.
Total Accounting Return (TAR)
Growth of EPRA NAV plus dividends paid.
Total Property Return (TPR)
Capital growth in the portfolio plus net rental income derived
from holding these properties plus profit on sale of disposals
expressed as a percentage return on the period's opening value.
Total Shareholder Return (TSR)
The growth in the ordinary share price as quoted on the London
Stock Exchange plus dividends per share received for the period
expressed as a percentage of the share price at the beginning of
the period.
Triple net asset value (NNNAV)
NAV adjusted to include the fair value of the Group's financial
liabilities on a diluted basis.
True equivalent yield
The constant capitalisation rate which, if applied to all cash
flows from an investment property, including current rent,
reversions to current market rent and such items as voids and
expenditures, equates to the market value having taken into account
notional purchaser's costs. Assumes rent is received quarterly in
advance.
Vacancy rate
The element of a property which is unoccupied but available for
letting, expressed as the ERV of the vacant space divided by the
ERV of the total portfolio.
Weighted Average Unexpired Lease Term (WAULT)
The Weighted Average Unexpired Lease Term expressed in
years.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FXLLLDEFFBBB
(END) Dow Jones Newswires
May 24, 2017 02:01 ET (06:01 GMT)
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