TIDMMAX
RNS Number : 7571H
Max Property Group PLC
22 May 2014
22 May 2014
Max Property Group Plc
Results for the year ended 31 March 2014
Max Property Group Plc ("Max" / the "Company" / the "Group")
today announces its results for the year ended 31 March 2014.
31 March 31 March Change in 12 months since Change in 58 months
Highlights 2014 2013 March 2013 since listing
----------------------- --------- --------- ------------------------- -------------------
Net assets GBP359.0m GBP294.1m up 22% up 70%
EPRA NAV per share (1) 164.5p 136.5p up 21% up 71%
----------------------- --------- --------- ------------------------- -------------------
Financial highlights
-- EPRA NAV per share up 21% to 164.5p per share in the year to
31 March 2014, and up 71% since listing in May 2009
-- Property valuations up 8.4% in the last six months and up 12.4% in the year (2)
-- Net loan to value ratio at 25.4% (27.2% including Hospitals joint venture)
-- Adjusted EPRA EPS 5.7p (2013: 6.3p) (3)
-- Uncommitted cash of c. GBP48 million available before cash is returned to shareholders
-- Proposed GBP33 million (15p per share) cash return to
shareholders - 15% of original subscriptions at listing
Portfolio highlights
-- Portfolio well positioned for growth:
-- 49% of assets by value in London, showing 18% capital growth
in the year
-- 41% of assets by value in high yielding industrials seeing
renewed investor interest, with values up 11% in the year
-- ERVs up 3.4% overall
-- Development near completion on 140,000 sq ft Commodity Quay
at St Katharine Docks, with strong tenant interest
-- 49% of vacant ERV is in ongoing London office refurbishments
-- 161 new lettings in the year with a rent roll of GBP3.9 million (Max share GBP3.3 million)
-- Valuation yield of 8.0% equivalent: 6.6% net initial yield rising to 8.8% on ERV
-- Ungeared property return of 19.3% in the year and 14.8% per annum since listing in 2009
(1) excluding fair values of financial instruments and deferred
tax, and after management incentive provision of 3.8p per share
(2013: nil) as explained in note 18 to the financial statements
(2) based on Max share of portfolios
(3) excluding property revaluation movements, profits or losses
on sale of properties, fair value movements on financial
instruments, deferred tax and management incentive provision
Aubrey Adams, Chairman of Max Property Group Plc, said:
"Max has seen NAV per share growth of 21% over the year and 71%
since listing in 2009. Its portfolio of London office
refurbishments is benefitting from strong levels of occupational
demand whilst its regional holdings in high yielding industrials is
subject to increasingly buoyant investor interest. All this bodes
well for Max and we remain optimistic about its prospects for the
current year."
22 May 2014
ENQUIRIES:
Prestbury Investments Tel: 020 7647 7647
Mike Brown
Sandy Gumm
FTI Consulting Tel: 020 3727 1000
Stephanie Highett
Richard Sunderland
Nina Legge
Oriel Securities (Nominated Advisor and Tel: 020 7710 7600
Broker)
Mark Young
Nicholas How
Notes to Editors
Max Property Group Plc ("Max" or the "Company") is a Jersey
resident real estate investment company. Its Board, chaired by
Aubrey Adams, is exclusively advised by Prestbury Investments LLP,
which is owned and managed by a team led by Nick Leslau and Mike
Brown.
The Company's strategy is to exploit cyclical weakness in the UK
real estate market through opportunistic investment and active
management with a view to realising cash returns for shareholders
over an investment cycle from its listing in May 2009 through to an
anticipated conclusion in Autumn 2016.
Forward looking statements
This document includes forward looking statements which are
subject to risks and uncertainties. You are cautioned that forward
looking statements are not guarantees of future performance and
that if risks and uncertainties materialise, or if the assumptions
underlying any of these statements prove incorrect, the actual
results of operations and financial condition of the Group may
differ materially from those made in, or suggested by, the forward
looking statements. Other than in accordance with its legal or
regulatory obligations, the Company undertakes no obligation to
review, update or confirm expectations or estimates or to release
publicly any revisions to any forward looking statements to reflect
events that occur or circumstances that arise after the date of
this document.
Chairman's Statement
Dear Shareholder,
I am pleased to announce a strong set of results with a 21% rise
in the Group's EPRA NAV over the financial year, increasing to
164.5p per share.
Results and financial position
The Group's EPRA NAV per share represents an increase of 71%
since the company listed in May 2009. 43% of this growth since
listing in 2009 can be attributed to realised returns, with the
balance in as yet unrealised valuation movements.
The EPRA NAV uplift during the financial year was 28.0p per
share, with the largest contribution to growth in the period coming
from the 26.8p per share revaluation uplift, with property
valuations up 12.4% in the year and up 8.4% since 30 September
2013.
Progress to date
As it is now five years since Max raised GBP211 million of cash
it is worth recapping on the progress made to date. The remit of
the Company was to take advantage of the dislocation in the
property market caused by the Lehmans crash to acquire properties
at distressed prices, with the expectation that values would bounce
back when the economy recovered. Patience has certainly been needed
for the UK's recovery to take hold but, as we anticipated, a strong
rise in commercial property values has ensued as both investors and
tenants have regained their confidence. London, industrial property
throughout the UK and South East offices lead the way in terms of
performance: sectors to which Max's portfolio has a 96%
weighting.
Over the five years since listing, a GBP500 million portfolio
has been assembled: 50% in London acquired at an average price of a
little over GBP300psf; 40% in high yielding industrial property
acquired at GBP30psf; and the remainder largely comprising office
buildings in the South East, acquired at GBP50psf. The management
team has undertaken a great deal of asset management, with the
offices repositioned through refurbishment and c. 1,100 lettings
and lease renewals completed over five million sq ft on the
industrial premises alone. This endeavour has produced an unlevered
property return of 14.8% per annum which includes nearly GBP120
million of sales at a profit margin exceeding 30%. By contrast,
commercial property returns over the 13 years since 2000 have
averaged less than 7% per annum, a period which included one of the
UK property sector's biggest booms as well as a crash.
Max was set up with the expectation that by Autumn 2016 it would
be in a position to return value to shareholders, to coincide with
what we hoped by then would be a full recovery of the UK property
market, and this strategy remains in place but with much to do by
way of active management over the next couple of years to maximise
the value of each asset. With the Group's period for making new
property acquisitions almost at an end, however, we are pleased to
propose the first return of cash to shareholders of 15p per share,
equivalent to 15% of the original sums raised in 2009. Where
possible (subject to restrictions in certain territories)
shareholders will be able to elect to receive their cash return
either as income or capital. This return of cash is subject to
approval of the arrangements at an Extraordinary General Meeting,
details of which will be sent to shareholders with the annual
report.
Outlook
Improving economic growth combined with strong capital flows
seeking to enter the UK property market provides a favourable
backdrop to Max's business. Given the excesses of the previous boom
and severity of the downturn, the return of a buoyant property
market has prompted some to question its sustainability. Property
yields are compressing but, for the property sectors in which Max
operates, this reflects genuinely improving fundamentals. Whilst
yields may be edging towards historic lows for Central London
offices, the outlook for rental growth is excellent with falling
vacancy rates, strong occupational demand and a limited speculative
development response. Meanwhile in the regions, secondary
industrial yields have until recently remained at elevated levels
reflecting the previously fragile nature of the recovery and we
invested with the expectation of a rebound in prices once economic
confidence returned. It is, therefore, pleasing to see growing
optimism and positive sentiment now starting to be reflected in
these markets.
In short, we expect 2014 to be a good year for both Max and the
commercial property market. The extent to which this positive
momentum carries on into 2015 and beyond is dependent upon the UK's
economic recovery being sustained and the level of property prices.
In any cycle, there is always the potential for prices to overshoot
but in our judgment we are not yet at that point. In the meantime,
we believe there remains plenty of value to be extracted from Max's
portfolio.
Aubrey Adams
Chairman
22 May 2014
Report of the Property Advisor,
Prestbury Investments LLP
Prestbury Investments LLP exclusively advises Max Property Group
Plc and is pleased to report on the operations of the Group for the
year ended 31 March 2014.
The portfolio
The portfolio combines exciting added value opportunities in
London with a high yielding predominantly industrial portfolio
spread throughout the UK, with small lot sizes and a broad spread
of tenants.
Portfolio valuation movements (Max share)
Valuation Valuation Valuation ERV
change over change over change change over
one year one year over cost one year
GBPm % % %
-------------------- ------------ ------------ ---------- ------------
St Katharine Docks 19.7 16.4% 21.5% 6.4%
High Holborn Estate 12.7 24.8% 24.6% 28.7%
London Pubs 5.4 13.3% 34.4% 0.0%
Industrious 21.5 11.5% 17.3% 0.4%
Provincial Offices 2.2 5.3% 49.1% 2.0%
Nightclubs (2.6) (35.0)% (40.9)% (30.9)%
58.9 12.4% 21.0% 3.4%
-------------------- ------------ ------------ ---------- ------------
Portfolio valuation yields at 31 March 2014 (Max share)
Weighted
Net initial Equivalent Reversionary Capital average unexpired
yield yield yield value psf lease term
-------------------- ----------- ---------- ------------ ---------- -------------------
St Katharine Docks 4.3% 6.3% 7.7% GBP454 5.2 years
High Holborn Estate 2.0% 6.4% 7.9% GBP434 0.8 years
London Pubs 5.2% 6.6% 5.0% GBP410 31.9 years
Industrious 9.4% 9.6% 10.1% GBP35 3.3 years
Provincial Offices 9.2% 10.0% 12.3% GBP73 3.7 years
Nightclubs 1.1% 10.9% 14.4% GBP23 9.1 years
6.6% 8.0% 8.8% 5.7 years
-------------------- ----------- ---------- ------------ ---------- -------------------
Portfolio breakdown at 31 March 2014 (Max share)
Vacancy rate
Gross value Proportion EPRA vacancy including
GBP000 of portfolio rate * developments
----------------------- ----------- ------------- ------------ -------------
St Katharine Docks 140,196 27% 1.6% 26.5%
High Holborn Estate 63,645 13% 0.1% 30.7%
----------------------- ----------- ------------- ------------ -------------
Central London offices 203,841 40% 1.2% 27.7%
London Pubs 46,320 9% 0.0% 0.0%
Industrious 208,890 41% 11.1% 11.1%
Provincial Offices 43,943 9% 24.8% 24.8%
Nightclubs 4,920 1% 92.1% 92.1%
507,914 100% 10.7% 18.5%
----------------------- ----------- ------------- ------------ -------------
* excluding assets not available for letting
Industrious (41% of gross assets)
A portfolio of multi-let industrial estates bought out of
receivership in October 2009 for GBP244.0 million (GBP31 psf
capital value).
Activity
95% of the space vacant on acquisition has since been let or
sold
Vacancy rate by ERV has been reduced to 11.1% from 12.2% in
March 2013
Vacancy rate by floor area has been reduced to 10.4% from 20.7%
at acquisition and 12.2% in April 2013
Vacancy rate has fallen in every reporting period since
acquisition with over 1,100 lettings and lease renewals over 5.2
million sq ft
Of the 616,000 sq ft of space that is currently vacant, 100,000
sq ft (16%) is under offer
293,000 sq ft is expected to become vacant up to the end of
2014
13 sales in the year totalling GBP5.5 million, at an average
5.6% net initial yield and GBP1.1 million (27%) profit over
purchase price
Total sales since acquisition of GBP98.0 million, at an average
7.5% net initial yield and GBP22.2 million (30%) profit over
purchase price
Current portfolio
69 properties
842 tenancies
6.0 million sq ft
Average unit size: 5,800 sq ft
48% by value in the South East of England
Highly liquid: 74% of properties by number are lot sizes of GBP3
million or below
Weighted average unexpired lease term: 3.3 years
GBP21.0 million rent roll
Average contracted rent: GBP3.94 psf
The Industrious portfolio predominantly comprises smaller units
that appeal to a wide variety of users and provide a range of exit
options, from disposals of individual units to a whole portfolio
sale. Martlesham Heath Business Park, Ipswich (504,000 sq ft) makes
up over 13% of the portfolio by value and no other property makes
up more than 6%.
31 March 2014 Capital
valuation Percentage value psf Area Number of Number of
Region GBP000 of total GBP ('000 sq ft) properties units
----------------- ------------- ---------- ---------- ------------- ----------- ---------
South East 99,540 48% 60 1,662 20 417
Northern regions 69,590 33% 26 2,638 27 418
Midlands 29,980 14% 26 1,147 16 137
South West 5,575 3% 40 141 3 27
Scotland 4,205 2% 11 370 3 29
Total 208,890 100% 35 5,958 69 1,028
----------------- ------------- ---------- ---------- ------------- ----------- ---------
St Katharine Docks (27% of gross assets)
St Katharine Docks was acquired in a 60% joint venture in August
2011 for GBP164.5 million (GBP330 psf capital value). Situated on
the River Thames adjacent to Tower Bridge and the Tower of London,
it enjoys unparalleled views and includes central London's only
marina. The investment comprises 445,000 sq ft of offices,
predominantly in three buildings, with 70,000 sq ft of waterside
restaurants, bars and shops and the ten acre, 160 berth marina. The
strategy is to create a premium office destination through
repositioning the entire estate, to attract footloose central
London occupiers to a beautiful and unique location.
Commodity Quay
A GBP22 million comprehensive refurbishment of Commodity Quay is
well advanced to create 140,000 sq ft of offices and ancillary
space, with completion expected in June 2014. There has already
been a strong level of pre-letting interest, with 22,000 sq ft of
offices pre-let to technology company Six Degrees and a 6,000 sq ft
restaurant pre-let to Tom's Kitchen.
International House
The property is fully occupied with 70,000 sq ft of offices
refurbished and let. The reception area and common parts have also
been comprehensively refurbished, and new restaurant and retail
units have been created, let to Côte and Tesco.
Current estate
515,000 sq ft, of which 140,000 sq ft is under development
Weighted average unexpired lease term: 5.2 years
GBP11.5 million rent roll
Average contracted rent: GBP33.03 psf
EPRA vacancy rate: 1.6% of ERV
Vacancy rate including Commodity Quay (under refurbishment):
26.5% of ERV
Area (sq EPRA vacancy
ft) rate
------------------------------------- -------- ------------
International House 215,000 1.1%
Commodity Quay (under refurbishment) 140,000 n/a
Devon House 90,000 0.0%
Ivory House and other 70,000 4.6%
515,000 1.6%
------------------------------------- -------- ------------
High Holborn Estate (13% of gross assets)
A freehold island site of just under one acre with frontages to
High Holborn and Bedford Row, which was acquired in November 2012
for GBP47.7 million including costs (c. GBP320 psf capital
value).
On acquisition, nine buildings provided nearly 150,000 sq ft of
unrefurbished space let to 50 tenants at low rental levels
averaging just GBP15 psf on short term leases. The low rental
levels reflected the tenants' lack of security of tenure resulting
from the former landlord's development break clauses.
Of these nine buildings, High Holborn House at 87,000 sq ft
represents over half the value of the estate. A comprehensive
refurbishment of the reception areas and common parts has been
completed at a cost of GBP1.7 million. Six office suites totalling
20,000 sq ft have also been refurbished and let, with the most
recent rent achieved at GBP42 psf. Two pre-lettings of refurbished
units totalling 15,000 sq ft are in solicitors' hands, with a
further 27,000 sq ft to be refurbished over the next year.
At Caroline House, vacant possession of all the offices has been
secured and a comprehensive refurbishment, including recladding the
High Holborn façade, is due to complete in August 2014 at a cost of
GBP2.4 million. Rents in the mid to high GBP40s psf range are
expected and there is already strong tenant interest.
The smaller buildings fronting Bedford Row and Hand Court,
totalling 31,000 sq ft, have potential for change of use to
residential. The retail units fronting High Holborn (11,000 sq ft)
have been reconfigured into larger units that are all under
offer.
Area
(sq ft) Asset plan
--------------------------------- -------- ---------------------------
High Holborn House 87,000 Rolling refurbishment
Caroline House 19,000 Comprehensive refurbishment
Brownlow House 10,000 Rolling refurbishment
--------------------------------- -------- ---------------------------
Properties fronting High Holborn 116,000
Six properties fronting Bedford 31,000 Potential change of
Row and Hand Court use to residential
147,000
--------------------------------- -------- ---------------------------
The current rent roll is GBP1.4 million and the EPRA vacancy
rate is 0.1%.
London Pubs (9% of gross assets)
29 freehold pubs with a total floor area of 150,000 sq ft,
situated in high value residential areas of London, were acquired
in January 2011 for GBP44.4 million (GBP300 psf capital value). The
pubs are located in Marylebone, Notting Hill, Chelsea, Clerkenwell,
Spitalfields, Southwark, Camden, Highgate, Islington, Barnes,
Sheen, Chiswick, Battersea, Clapham, Balham, Tooting and
Fulham.
At acquisition, the initial yield on the portfolio was 6.7%,
which has subsequently risen to 7.4% on cost due to the annual
increases in the rent roll. The independently assessed vacant
possession value of the portfolio at the time of acquisition,
subject to existing use as pubs, was approximately the same as the
purchase price, and many of the properties are considered by the
management team to have a higher alternative value for residential
use in the event that they should fall vacant and planning consent
for change of use secured.
During the year, two pubs in Islington and Whitechapel were sold
at a combined price of GBP5.3 million, representing an initial
yield of 4.9% and a profit of 42% over cost. Including pubs sold in
prior periods, total profits on sale to date amount to GBP3.1
million, which is 31% over cost, and following those sales, the
average lot size is now GBP1.9 million at the most recent
valuation.
The pubs are let to Enterprise Inns Plc on 35 year full
repairing and insuring leases commencing in January 2011 at market
rents well covered by trading profits. Rents initially totalled
GBP3.0 million per annum (GBP2.3 million for the portfolio still
owned), with minimum 3% per annum and maximum 4% per annum
RPI-linked uplifts occurring annually for the first five years and
every five years thereafter. After the disposals mentioned above,
the passing rent is now GBP2.5 million per annum, with rents having
increased by just over 10% since acquisition.
Provincial Offices (9% of gross assets)
A portfolio of predominantly late 1980s air conditioned offices,
purchased in February 2010 for GBP39.0 million (GBP50 psf capital
value) from a property fund seeking liquidity to meet
redemptions.
Activity
Vacancy rate by area reduced to 25% from 48% at acquisition (26%
in April 2013)
GBP32.0 million raised in May 2012 on a non-recourse financing
of five properties with 18% vacancy rate
Two properties sold since acquisition for GBP6.7 million at 43%
over purchase price
Remaining uncharged assets are valued at GBP11.9 million (GBP55
psf) and have a 36% vacancy rate. 95% of that vacant space is
refurbished
Current portfolio
Nine properties (eight freeholds; one 101 year peppercorn
leasehold)
64% by value in the South East, 30% in Manchester, 6% in
Bristol
639,000 sq ft
Average lot size: GBP5.1 million
GBP4.6 million rent roll
Average contracted rent: GBP10.24 psf
Nightclubs (1% of gross assets)
The Nightclubs portfolio was acquired in October 2010 for GBP9.8
million. At the time of acquisition, three of the 14 clubs were
vacant and the initial yield on acquisition was 14.9%. Three
properties were sold between 2010 and 2012 and the net income from
acquisition to the balance sheet date, including those sale
proceeds, was GBP5.3 million which represents 53% of the original
purchase price.
Nine of the nightclubs were let to Atmosphere Bars and Clubs
Limited, which went into administration in May 2013. All but one of
their units, which was sublet to other occupiers, has now closed.
This has led to a GBP2.7 million (35%) writedown in the value of
the portfolio to GBP4.9 million. Since the year end, contracts have
been exchanged on the sale of three properties totalling GBP1.2
million, with terms agreed on the sale of two others for GBP1.4
million, prices at or above book value at the balance sheet date,
and a further two lettings have been agreed totalling GBP62,000 per
annum.
Hospitals (held in joint venture, 0.1% of net assets)
Four freehold private hospitals in Blackburn, Liverpool, Ayr and
Stirling were acquired in a joint venture with Lloyds Banking Group
in May 2010. Max invested a nominal sum in the joint venture to
acquire a 45% interest and Lloyds injected the assets with
associated debt funding. A joint venture between Texas Pacific
Group and Goldman Sachs now owns the former Lloyds interests.
The joint venture paid GBP31.6 million for the portfolio, which
was fully debt financed on a non-recourse basis by Lloyds. Each
hospital is let on full repairing and insuring terms to BMI
Healthcare Limited, guaranteed by General Healthcare Group Limited,
for a term of 25 years from May 2010 with a tenant option to renew
for a further ten years, with annual, upwards only uncapped
RPI-linked rent reviews throughout the term. The rent is now GBP2.6
million per annum.
Financial review
Balance sheet
Max remains focussed on creating growth in NAV per share, the
ultimate aim of the Board being to return cash to investors after
realising value over the investment cycle. The Group's progress is
measured principally through its growth in EPRA NAV per share
(which excludes interests attributable to third party equity
providers and strips out the impact of hedging revaluations) over
the period since listing in 2009. In just under five years from
listing to the balance sheet date, Max has generated a 71% increase
in EPRA NAV per share, representing an increase of 68.4p per share.
The increase in EPRA NAV over the year ended 31 March 2014 and
since listing comprises:
NAV growth since
NAV growth in year listing
Pence per Pence per
GBPm share GBPm share
--------------------------------------------- -------- ---------- ------- ---------
Net rental income 31.2 14.2 127.3 57.8
Rent smoothing adjustments* (2.5) (1.2) (11.3) (5.1)
--------------------------------------------- -------- ---------- ------- ---------
Net rent excluding future rental
uplifts 28.7 13.0 116.0 52.7
Surpluses on property sales 1.4 0.6 26.1 11.9
--------------------------------------------- -------- ---------- ------- ---------
Realised property surpluses 30.1 13.6 142.1 64.6
Running costs (6.8) (3.1) (28.6) (13.0)
Net finance costs (12.8) (5.8) (43.3) (19.7)
Tax (1.2) (0.5) (5.7) (2.6)
--------------------------------------------- -------- ---------- ------- ---------
Realised profit 9.3 4.2 64.5 29.3
Share of Hospitals joint venture (0.9) (0.4) 0.2 0.1
Reallocation of profits from non-controlling
interests under St Katharine Docks
incentive arrangements 2.7 1.2 2.7 1.2
Provision for management incentive
payments (8.4) (3.8) (8.4) (3.8)
Property revaluation 58.9 26.8 91.5 41.6
EPRA NAV uplift 61.6 28.0 150.5 68.4
--------------------------------------------- -------- ---------- ------- ---------
* Accounting standards require lease incentives and fixed or
guaranteed rental uplifts to be spread evenly over the term of each
lease. The amounts described above as 'rent smoothing adjustments'
represent the effect of spreading uplifts and incentives and relate
principally to the leases on the London Pubs portfolio where there
are 3% per annum minimum uplifts throughout the 35 year lease
term.
Given the Group's strategy of returning cash to shareholders
over the investment cycle, the Board focuses not only on NAV
growth, but on the extent to which that growth is realised. By
'realised', we refer to returns that are substantially cash
returns, as opposed to valuation movements. We split out in the
table above the elements considered realised and unrealised, and
note that, for the period since listing, the realised movements
account for 43% of NAV growth.
With this focus on cash returns to investors over the life of
the Company, the Property Advisor stands to earn an incentive
payment of up to 20% of total shareholder returns, only once
shareholders have received back the net cash raised on listing plus
cash returns of 11% per annum. Incentive payments will not be made
until shareholders have received those cash returns but, using the
NAV of the Group at 31 March 2014 as an indication of the value
that could theoretically be returned to shareholders at that date,
a potential incentive payment amounting to GBP8.4 million or 3.8p
per share would be made. The basis of the provision and the
potential impact on future shareholders returns is set out in note
18 to the financial statements.
There is a similar incentive arrangement between the Company and
the joint venture partner in St Katharine Docks whereby the Company
(rather than the Property Advisor) stands to earn enhanced returns
if the hurdle rate of return on cash invested in the joint venture
is achieved, also on a cash basis. The net assets attributable to
shareholders are stated after including an additional GBP2.7
million or 1.2p per share of enhanced profit allocation to the
Company under these incentive arrangements, as explained in note 8
to the financial statements.
EPRA triple net asset value is the NAV after deducting certain
adjustments for the mark to market costs of debt and hedging
instruments, and after deducting any inherent tax liabilities not
provided for in the financial statements. As a Jersey resident
group, there is no tax liability on investment property sales other
than those held in UK corporate structures. The Hospitals portfolio
is the only one held that way, but there is a revaluation loss on
those properties so no deferred tax liability arises.
The Group's EPRA triple net asset value is as follows:
31 March 2014 31 March 2013
GBPm Pence per share GBPm Pence per share
------------------------------------------------------- ----- --------------- ----- ---------------
EPRA NAV 361.9 164.5 300.3 136.5
Fair value of hedging instruments, net of deferred tax (3.0) (1.3) (6.2) (2.8)
Fair value of fixed rate debt 0.1 - (0.6) (0.3)
EPRA triple net asset value 359.0 163.2 293.5 133.4
------------------------------------------------------- ----- --------------- ----- ---------------
The Group's accounting policies are stated in note 2 to the
financial statements, which highlights the key judgement areas in
preparing these results. The more material areas include the
property and derivatives valuations, where independent open market
valuations are obtained. There have been no changes in accounting
policies since listing.
Income statement
While accounting standards require the income statement to
include 100% of all rents, running costs and interest, only
reflecting the amounts attributable to our joint venture partners
as a single line described as "non-controlling interests", we show
below the income statement excluding from each line item the
elements not attributable to Max shareholders.
Year ended 31 March 2014 Year ended 31 March 2013
Pence Pence
Profits net of joint venture partners' interests GBPm per share GBPm per share
Net rental income 31.2 14.2 33.0 15.0
Profit on sale of investment properties 1.4 0.6 0.9 0.4
-------------------------------------------------------------- --------- --------------- --------- ---------------
Property surpluses 32.6 14.8 33.9 15.4
Provision for management incentive payments (8.4) (3.8) - -
Reallocation of profits from non-controlling interests under
St Katharine Docks incentive
arrangements 2.7 1.2 - -
Administrative expenses (6.9) (3.1) (6.1) (2.7)
Investment property revaluation 56.4 25.5 (7.1) (3.3)
Other items - - 0.1 -
Operating profit 76.4 34.6 20.8 9.4
Share of loss of joint venture (0.8) (0.3) (0.4) (0.2)
Net finance costs (12.1) (5.4) (12.0) (5.4)
-------------------------------------------------------------- --------- --------------- --------- ---------------
Profit before tax 63.5 28.9 8.4 3.8
Tax charge (0.9) (0.4) (0.1) -
Profit for the year 62.6 28.5 8.3 3.8
-------------------------------------------------------------- --------- --------------- --------- ---------------
Movements in the property revaluations shown in the income
statement are described in the portfolio section of this report.
The other key elements of the income statement are described
below.
Net income from property activities
Rental surpluses and surpluses on sales have, in the period from
listing to 31 March 2014, contributed 64.6p of the net 68.4p per
share growth in that period, covering all running costs, interest
and tax approximately twice.
Year ended 31 March
2014 Period since listing
Pence Pence
Property rent and disposal surpluses GBPm per share GBPm per share
----------------------------------------- ------- ------------ -------- ------------
Gross rent 38.0 17.3 162.2 73.6
Direct property costs (6.8) (3.1) (34.9) (15.8)
----------------------------------------- ------- ------------ -------- ------------
Rental surplus 31.2 14.2 127.3 57.8
----------------------------------------- ------- ------------ -------- ------------
Proceeds from sale of trading properties - - 28.8 13.1
Cost of trading properties sold - - (22.8) (10.4)
----------------------------------------- ------- ------------ -------- ------------
Result from trading property sales - - 6.0 2.7
----------------------------------------- ------- ------------ -------- ------------
Proceeds from sale of investment
properties 10.8 4.9 88.8 40.5
Cost of investment properties sold (9.4) (4.3) (68.7) (31.3)
----------------------------------------- ------- ------------ -------- ------------
Profit on sale of investment properties 1.4 0.6 20.1 9.2
----------------------------------------- ------- ------------ -------- ------------
Property surplus reported in the
income statement 32.6 14.8 153.4 69.7
Rent smoothing adjustments classified
within revaluation movements (2.5) (1.2) (11.3) (5.1)
----------------------------------------- ------- ------------ -------- ------------
Realised property surpluses attributable
to shareholders 30.1 13.6 142.1 64.6
----------------------------------------- ------- ------------ -------- ------------
Provisions for rent, service charge and other billed amounts
considered irrecoverable from tenants amounted to GBP0.3 million in
the year compared to GBP0.2 million in the year to 31 March 2013.
Rental bad debts were 0.7% of the rent billed compared to 0.4% in
the year to 31 March 2013.
The Group's largest rent is payable by Enterprise Inns Plc with
GBP2.5 million passing rent per annum, c. 6% of the total passing
rent as at 31 March 2014. Enterprise Inns is the UK's largest
tenanted pub company, owning approximately 5,500 pubs which it
values at GBP3.9 billion. In its most recent interim results
announcement in May 2014, it reported EBITDA of GBP147 million and
profit before tax of GBP55 million for the six months ended 31
March 2014 before exceptional items. We consider Enterprise Inns to
be sufficiently strong to comfortably service these lease
liabilities, which relate to a profitable part of their portfolio
in desirable locations, but it is still worth noting that the
acquisition cost of the London Pubs portfolio was substantially
underpinned by its vacant possession value at that time. All other
tenants each account for less than 5% of total passing rent, and
all but 12 of those also represent less than 1% of total passing
rent. This, together with the fact that the portfolio comprises
over 1,000 tenants, provides a low concentration of tenant
risk.
Running costs
As an externally managed business, the majority of the Group's
overhead is borne by the Property Advisor, so the Group's running
costs principally comprise the management fee, payable at 1.75% per
annum of net assets, which amounted to GBP6.5 million in the year
(2013: GBP5.8 million). Of that total, GBP0.9 million (2013: GBP0.7
million) was borne by the non-controlling interests, therefore Max
shareholders' share of the manager's fee is GBP5.6 million (2013:
GBP5.1 million).
The other principal component of the total GBP6.9 million (2013:
GBP6.1 million) running costs attributable to shareholders is
GBP0.7 million (2013: GBP0.8 million) of corporate costs, which are
the costs necessarily incurred as a result of the Company being
listed, such as stock exchange fees and Non-Executive Directors'
fees. Other than the management fee, which is linked to movements
in the value of shareholders' equity, costs attributable to Max
shareholders have remained relatively stable since the prior
year.
Financing
The financing strategy set by the Board is to use non-recourse
leverage with a view to enhancing equity returns while maintaining
prudent levels of interest cover and protecting shareholders'
funds. The Board's intention is to ensure that:
-- interest rate risk is hedged such that the maximum interest
cost on any loan is fixed or capped over the term of the loan;
-- maturity profiles are managed to reduce refinancing risk; and
-- interest cover is considered having regard to both upside and downside scenarios.
This approach has been consistently applied in the period since
the Company listed in 2009.
Of the seven portfolios owned by the Group at the balance sheet
date, five - the Industrious, St Katharine Docks, Provincial
Offices, Hospitals and London Pubs portfolios - are partly debt
financed. GBP80.9 million of property assets and GBP37.7 million of
cash at 31 March 2014 is uncharged and therefore beyond the reach
of any lender. All facilities are financed on a strictly
non-recourse basis and with no cross default provisions between
subgroups.
The Provincial Offices facility is fixed rate debt. On the
remaining floating rate facilities, interest rate risk is managed
through a combination of interest rate caps and swaps, with 99% to
100% of the loan hedged in each of the debt facilities for no
longer than the term of the relevant loan.
The Group's share of gross and net debt for the directly owned
portfolios is as follows:
Industrious St Katharine Docks Provincial Offices London Pubs Unsecured assets Total
GBPm GBPm GBPm GBPm GBPm GBPm
Gross debt (89.4) (52.0) (31.4) (19.2) - (192.0)
Secured cash 5.3 3.8 1.7 0.6 - 11.4
Free cash 10.0 1.7 0.1 2.3 37.7 51.8
------------------------- ----------- ------------------ ------------------ ----------- ---------------- -------
Net debt (74.1) (46.5) (29.6) (16.3) 37.7 (128.8)
------------------------- ----------- ------------------ ------------------ ----------- ---------------- -------
Property value at 31
March 2014 206.9 140.2 33.6 46.3 80.9 507.9
------------------------- ----------- ------------------ ------------------ ----------- ---------------- -------
Gross LTV 43.2% 37.1% 93.5% 41.5% 37.8%
Net LTV * (+) 35.8% 33.2% 88.1% 35.2% 25.4%
August August January
Maturity date 2016 2016 September 2016 2016
------------------------- ----------- ------------------ ------------------ ----------- ---------------- -------
* St Katharine Docks secured cash includes cash set aside to
fund the major capital expenditure programme. Assuming that the
cash is set aside to complete the capital projects and not to
reduce debt, net LTV is 33.7% if capex is completed and valued at
cost.
(+) If the proposed return of GBP33.0 million to shareholders is
approved at the forthcoming Extraordinary General Meeting, the
Group's net LTV at 31 March 2014 would increase to 31.9% on a pro
forma basis.
The weighted average term to maturity of the Group's debt is 2.4
years, with the first debt maturity being the London Pubs facility
in January 2016.
The debt facilities include financial and other covenants, and
all covenants have been complied with at all times throughout the
year. The key covenants in each facility are loan to value ('LTV')
and interest cover tests. These are monitored throughout the year
by the management team and the Board, and there have been no
defaults or potential defaults in any facility.
As at the most recent test dates at the end of April 2014, the
valuations would have needed to fall by 24% to breach the LTV
covenant breach on the Industrious portfolio, by 47% to breach the
covenant on St Katharine Docks and by 41% to breach the covenant on
the London Pubs. There is no LTV covenant on the Provincial Offices
debt.
Interest cover is tested on the basis of projections of rent
(taking into account only contracted rent), property running and
void costs, and interest costs. The risk on the net rental income
line is managed through active asset management and strong credit
control, and the risk on the interest line by interest rate hedging
in order to fix or cap the maximum level of interest cost payable.
When most recently tested in April 2014, there was 35% headroom on
the Industrious interest cover test, 42% on St Katharine Docks, and
23% on the London Pubs. There is no interest cover threshold on the
Provincial Offices loan, though the Group's ability to withdraw
cash from the relevant subgroup is restricted if net rental income
falls below GBP3.4 million per annum. It is currently GBP3.6
million per annum.
Medium term interest rates remain at historically low levels,
meaning that the strategy of managing a portion of the interest
rate risk by way of interest rate caps has proved useful in
enabling the Group to take advantage of these low rates while still
capping the potential rates payable at an affordable level in the
event that rates rise. The potential maximum rates payable and the
average rates paid during the year for each on balance sheet
facility are:
Average Maximum
Hedging method rate paid rate payable
------------------- --------------- ---------- -------------
Industrious Swap & cap 5.5% 6.4%
St Katharine Docks Swap 4.6% 4.6%
Provincial Offices Fixed rate 9.0% 9.0%
London Pubs Cap 2.9% 5.9%
Weighted average 5.4% 6.0%
------------------------------------ ---------- -------------
The Hospitals portfolio is held in a joint venture in which Max
has a 45% economic interest. The non-recourse debt is held within
the joint venture company, where Max's capital at risk is limited
to the equity in the joint venture which at 31 March 2014 was
GBP0.2 million. The risk of interest rate movements is managed by
an interest rate cap which hedges 100% of the debt for the term of
the loan and fixes the maximum cost at 5.5% per annum but which in
the five month period since the cap was incepted has averaged 3.3%
per annum. Max's share of the Hospitals joint venture gross debt is
GBP13.4 million, net debt GBP13.0 million and property value
GBP13.6 million. As at the most recent test date at the end of
April 2014, the valuation would have needed to fall by 11% to
breach the LTV covenant and rent to fall by 35% to breach the
interest cover covenant on this debt. The loan matures in May
2015.
The Group's gearing ratio (net debt to equity) at 31 March 2014
is 35.9% excluding the Hospitals joint venture and 39.5% including
the joint venture. If the proposed return of GBP33 million to
shareholders is approved, gearing at 31 March 2014 would increase
to 49.6% on a pro forma basis.
Tax
UK income tax is payable at 20% of net rental surpluses after
deduction of costs (principally financing costs and costs of
holding vacant property) and deductions for capital allowances. No
tax is payable in Jersey on the interest or dividend income of
Jersey incorporated and tax resident companies nor on investment
property capital gains. The tax charge for the period represents an
effective underlying tax rate of 7.5% (2013: 6.0%) on profits
excluding property revaluations, derivative revaluations and joint
venture contribution.
Cash flow
The movements in cash over the year and in the period since
listing may be summarised as:
Cash flows in year ended
31 March 2014 Cash flows in 58 months since listing
GBPm GBPm
----------------------------------------------------- ------------------------ -------------------------------------
Cash from operations 25.4 127.8
Property acquisitions net of debt finance (1.0) (239.4)
Net cash from investment and trading property sales 6.5 42.9
Net interest payable (12.9) (39.7)
Capital expenditure and purchase of property, plant
and equipment (21.1) (38.5)
Other movements (0.1) 2.7
Net funds raised on listing - 211.4
----------------------------------------------------- ------------------------ -------------------------------------
Cash flow in the period (3.2) 67.2
Cash at the start of the period 70.4 -
Cash at the end of the period 67.2
----------------------------------------------------- ------------------------ -------------------------------------
Group Max share
GBPm GBPm
-------------------------------------- ----- ---------
Free cash 53.2 51.8
Cash secured under banking facilities 14.0 11.4
Cash at the end of the period 67.2 63.2
-------------------------------------- ----- ---------
The most significant capital project under way during the year
has been the refurbishment of Commodity Quay at St Katharine Docks,
where the 140,000 sq ft building has been stripped out and has been
undergoing a major internal refurbishment and reglazing, which is
expected to complete in June 2014. As at the balance sheet date,
Max's share of the remaining anticipated capital expenditure for
that project is GBP1.6 million.
A significant improvement programme is also taking place at the
High Holborn Estate involving a rolling GBP7.9 million
refurbishment programme, improving common parts and refurbishing
office space. As at the balance sheet date, the remaining
anticipated capital expenditure for that project is GBP4.6
million.
Capital expenditure requirements in the rest of the portfolio
are relatively modest and are expected to remain broadly in line
with levels of past expenditure, which has averaged around GBP2
million per annum over the last three years.
Uncommitted cash at the balance sheet date is calculated as
follows:
GBPm
---------------------------------------------- ------
Free cash 51.8
Committed capital expenditure from free cash:
---------------------------------------------- ------
St Katharine Docks (1.6)
High Holborn Estate (4.6)
(6.2)
Cash realised from working capital 2.7
Uncommitted cash 48.3
Proposed cash return to shareholders (33.0)
Pro forma uncommitted cash 15.3
---------------------------------------------- ------
Mike Brown
Chief Executive
Prestbury Investments LLP
22 May 2014
Group Income Statement
Year to Year to
31 March 31 March
2014 2013
Note GBP000 GBP000
---------------------------------------------- ---- --------- ---------
Gross rental income 42,922 45,093
Property outgoings 10 (7,949) (8,977)
---------------------------------------------- ---- --------- ---------
Gross profit 34,973 36,116
Administrative expenses:
---------------------------------------------- ---- --------- ---------
General administrative expenses (7,178) (6,170)
Corporate costs (700) (757)
Depreciation of property, plant and equipment 12 (51) -
Provision for incentive payments 18 (8,441) -
---------------------------------------------- ---- --------- ---------
Total administrative expenses (16,370) (6,927)
Investment property revaluation 10 69,013 (6,356)
Profit on sale of investment properties 1,378 947
Other income 112 108
Operating profit 4 89,106 23,888
Share of loss of joint venture 11 (822) (443)
Finance income 6 161 215
Finance costs 6 (13,926) (14,224)
---------------------------------------------- ---- --------- ---------
Profit before tax 74,519 9,436
Tax charge 7 (1,240) (67)
---------------------------------------------- ---- --------- ---------
Profit for the year 73,279 9,369
---------------------------------------------- ---- --------- ---------
Profit for the year attributable to:
Owners of the parent 62,640 8,269
Non-controlling interests 8 10,639 1,100
---------------------------------------------- ---- --------- ---------
73,279 9,369
---------------------------------------------- ---- --------- ---------
Pence per Pence per
Earnings per share share share
Basic and diluted 9 28.5p 3.8p
---------------------------------------------- ---- --------- ---------
All amounts relate to continuing activities.
Group Statement of Comprehensive Income
Year to Year to
31 March 31 March
2014 2013
Note GBP000 GBP000
------------------------------------------------------------------------------------------ ---- --------- ---------
Profit for the year 73,279 9,369
Items that may be reclassified subsequently to profit or loss:
Fair value adjustment of interest rate derivatives in effective hedges 16b 3,907 (119)
Amortisation of interest rate derivatives, transferred to income statement 6 (190) (284)
Tax effect of interest rate derivatives fair value adjustment 7 (737) 79
Share of fair value adjustment of interest rate derivatives in effective hedges in joint
venture,
net of deferred tax 11 55 159
------------------------------------------------------------------------------------------ ---- --------- ---------
Total comprehensive income for the year, net of tax 76,314 9,204
------------------------------------------------------------------------------------------ ---- --------- ---------
Total comprehensive income for the year, net of tax, attributable to:
Owners of the parent 64,860 8,172
Non-controlling interests 11,454 1,032
76,314 9,204
------------------------------------------------------------------------------------------ ---- --------- ---------
Group Statement of Changes in Equity
Equity
attributable
to owners
of the Non-controlling
Stated capital Hedging reserve Retained earnings parent interests Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------ -------------- --------------- ------------------ ----------------- ----------------- -------
At 31 March 2013 211,367 (4,849) 87,573 294,091 46,163 340,254
Profit for the
year - - 62,640 62,640 10,639 73,279
Fair value
adjustment of
interest rate
derivatives - 3,029 - 3,029 688 3,717
Tax effect of
interest rate
derivatives fair
value adjustment - (864) - (864) 127 (737)
Share of fair
value adjustment
of interest rate
derivatives in
joint venture,
net of deferred
tax - 55 - 55 - 55
------------------ -------------- --------------- ------------------ ----------------- ----------------- -------
Total
comprehensive
income for the
year, net of tax - 2,220 62,640 64,860 11,454 76,314
Distributions paid
to
non-controlling
interests - - - - (18) (18)
At 31 March 2014 211,367 (2,629) 150,213 358,951 57,599 416,550
------------------ -------------- --------------- ------------------ ----------------- ----------------- -------
Equity
attributable
to owners
of the Non-controlling
Stated capital Hedging reserve Retained earnings parent interests Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------ -------------- --------------- ------------------ ----------------- ----------------- -------
At 31 March 2012 211,367 (4,752) 79,304 285,919 39,346 325,265
Profit for the
year - - 8,269 8,269 1,100 9,369
Fair value
adjustment of
interest rate
derivatives - (296) - (296) (107) (403)
Tax effect of
interest rate
derivatives fair
value adjustment - 40 - 40 39 79
Share of fair
value adjustment
of interest rate
derivatives in
joint venture,
net of deferred
tax - 159 - 159 - 159
------------------ -------------- --------------- ------------------ ----------------- ----------------- -------
Total
comprehensive
income for the
year, net of tax - (97) 8,269 8,172 1,032 9,204
Equity
contribution from
non-controlling
interests - - - - 5,800 5,800
Distributions paid
to
non-controlling
interests - - - - (15) (15)
------------------ -------------- --------------- ------------------ ----------------- ----------------- -------
At 31 March 2013 211,367 (4,849) 87,573 294,091 46,163 340,254
------------------ -------------- --------------- ------------------ ----------------- ----------------- -------
Group Balance Sheet
31 March 31 March
2014 2013
Note GBP000 GBP000
--------------------------------------------- ---- --------- ---------
Non-current assets:
Investment properties 10 591,520 509,864
Investment in joint venture 11 204 971
Interest rate derivatives 16b 51 1,425
Deferred tax asset 7 - 881
Property, plant and equipment 12 605 -
--------------------------------------------- ---- --------- ---------
592,380 513,141
--------------------------------------------- ---- --------- ---------
Current assets:
Trade and other receivables 13 18,552 17,512
Interest rate derivatives 16b 697 -
Cash and cash equivalents 14 67,223 70,386
--------------------------------------------- ---- --------- ---------
86,472 87,898
--------------------------------------------- ---- --------- ---------
Total assets 678,852 601,039
--------------------------------------------- ---- --------- ---------
Current liabilities:
Trade and other payables 15 (23,591) (20,705)
Tax payable (451) (280)
Interest rate derivatives 16b (2,242) (2,384)
--------------------------------------------- ---- --------- ---------
(26,284) (23,369)
--------------------------------------------- ---- --------- ---------
Non-current liabilities:
Borrowings 16a (224,388) (229,000)
Interest rate derivatives 16b (2,240) (6,764)
Deferred tax liability 7 (71) -
Obligations under finance leases 17 (878) (1,652)
Provision for incentive payments 18 (8,441) -
--------------------------------------------- ---- --------- ---------
(236,018) (237,416)
--------------------------------------------- ---- --------- ---------
Total liabilities (262,302) (260,785)
--------------------------------------------- ---- --------- ---------
Net assets 416,550 340,254
--------------------------------------------- ---- --------- ---------
Equity attributable to owners of the parent:
Stated capital 19 211,367 211,367
Hedging reserve (2,629) (4,849)
Retained earnings 150,213 87,573
--------------------------------------------- ---- --------- ---------
358,951 294,091
Non-controlling interests 8 57,599 46,163
--------------------------------------------- ---- --------- ---------
Total equity 416,550 340,254
--------------------------------------------- ---- --------- ---------
Pence per Pence per
share share
--------------------------------------------- ---- --------- ---------
Basic and diluted NAV per share 21 163.2p 133.7p
EPRA NAV per share 21 164.5p 136.5p
--------------------------------------------- ---- --------- ---------
The Group financial statements were approved and authorised for
issue by the Board of Directors on 22 May 2014 and were signed on
its behalf by:
Aubrey Adams David Waters
Chairman Director
Group Cash Flow Statement
Year to Year to
31 March 31 March
2014 2013
Note GBP000 GBP000
----------------------------------------------------------------------- ---- --------- ---------
Cash flows from operating activities:
Profit before tax 74,519 9,436
Adjustments for non-cash items:
Investment property revaluation 10 (69,013) 6,356
Profit on sale of investment properties (1,378) (947)
Depreciation of property, plant and equipment 12 51 -
Provision for incentive payments 18 8,441 -
Share of loss of joint venture 11 822 443
Net finance costs 6 13,765 14,009
----------------------------------------------------------------------- ---- --------- ---------
Cash flows from operating activities before changes in working capital 27,207 29,297
Change in trade and other receivables (3,108) (6,035)
Change in trade and other payables 1,809 (233)
Tax paid (549) (898)
----------------------------------------------------------------------- ---- --------- ---------
Cash flows from operating activities 25,359 22,131
----------------------------------------------------------------------- ---- --------- ---------
Investing activities:
Investment property acquisitions (896) (47,488)
Capital expenditure on investment properties (20,572) (11,165)
Recoveries from escrow account - 41
Proceeds from sales of investment properties 12,328 8,251
Purchase of property, plant and equipment (463) -
Interest received 162 215
----------------------------------------------------------------------- ---- --------- ---------
Cash flows from investing activities (9,441) (50,146)
----------------------------------------------------------------------- ---- --------- ---------
Financing activities:
Loans drawn down - 32,000
Loan arrangement fees paid (137) (2,540)
Loans repaid (5,869) (7,102)
Interest paid (13,028) (12,373)
Purchase of interest rate cap (29) -
Distributions to non-controlling interests 8 (18) (15)
Capital contribution from non-controlling interests 8 - 5,800
----------------------------------------------------------------------- ---- --------- ---------
Cash flows from financing activities (19,081) 15,770
----------------------------------------------------------------------- ---- --------- ---------
Net decrease in cash and cash equivalents (3,163) (12,245)
Cash and cash equivalents at the start of the year 70,386 82,631
Cash and cash equivalents at the end of the year 14 67,223 70,386
----------------------------------------------------------------------- ---- --------- ---------
Notes to the preliminary announcement
The financial information contained within this announcement is
extracted from the Company's Annual Report and Financial Statements
for the year ended 31 March 2014 which has been prepared in
accordance with International Financial Reporting Standards and
upon which an unqualified audit report has been given.
1. General information about the Group
Max Property Group Plc was listed on AIM and CISE on 27 May
2009. It is a closed-ended real estate investment company
incorporated in Jersey, with a registered office at 26 New Street,
St Helier, Jersey, JE2 3RA. The nature of the Group's operations
and its principal activities are set out in the Chairman's
Statement and the Report from the Property Advisor.
The financial information set out in this report covers the year
to 31 March 2014 with comparative amounts relating to the year to
31 March 2013.
This financial report includes the results and net assets of the
Company and its subsidiaries, together referred to as the Group,
along with the Group's interest in the results and net assets of
its joint venture.
Further general information about the Group can be found on its
website www.maxpropertygroup.com.
2. Accounting policies
a) Statement of compliance
The consolidated financial statements have been prepared in
accordance with the International Financial Reporting Standards
('IFRS') adopted for use in the European Union and therefore comply
with Article 4 of the EU IAS Regulation.
b) Basis of preparation
The Group and Company financial statements are presented in
pounds sterling.
The Board has, at the time of preparing the financial
statements, a reasonable expectation that the Company and the Group
have adequate resources to continue in operational existence for
the foreseeable future and therefore continue to adopt the going
concern basis of accounting in preparing the financial
statements.
i) Estimates and judgements
The financial statements are prepared on the historical cost
basis except that investment properties and derivative financial
instruments are stated at fair value. The accounting policies have
been applied consistently in all material respects.
The preparation of financial statements requires the Board to
make judgements, estimates and assumptions that may affect the
application of accounting policies and the reported amounts of
assets and liabilities as at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Any estimates and assumptions are based on
experience and any other factors that are believed to be relevant
under the circumstances and which the Board considers reasonable.
Actual outcomes may differ from these estimates.
Any revisions to accounting estimates will be recognised in the
period in which the estimate is revised if the revision affects
only that period. If the revision affects both current and future
periods, the change will be recognised over those periods.
Certain accounting policies which have a significant bearing on
the reported financial condition and results of the Group require
subjective or complex judgements. The principal such areas of
judgement are:
-- property valuation, where the opinion of independent,
external valuers is obtained as at every reporting date;
-- the value of derivative financial instruments used to hedge
interest rate exposures, where the valuations adopted are
independently assessed as at every reporting date on the basis of
market rates and credit risk as at the balance sheet date; and
-- the likelihood of payments being made or received under the
Group's incentive payment arrangements, where the position is
monitored by the Board through consideration of relevant internal
and external data.
The Group's accounting policies for these matters where outcomes
are more reliant on judgement, together with other policies
material to the Group, are set out below.
ii) Adoption of new and revised standards
During the year the Group has adopted the amendments to IAS 1
"Presentation of Items of Other Comprehensive Income" and IFRS 13
"Fair Value Measurement". The amendments to IAS 1 require items of
comprehensive income to be grouped by those items that will be
reclassified subsequently to profit or loss and those that will
never be reclassified, as well as their associated income tax. IFRS
13 impacts the disclosure and measurement of certain balances held
at fair value, as set out in relation to investment properties in
note 10 and financial instruments in note 16, but its adoption has
not had any material impact on the carrying value of balances
contained within these financial statements.
No other new standards or interpretations issued by the
International Accounting Standards Board ('IASB') or the IFRS
Interpretations Committee ('IFRIC') have led to any material
changes in the Group's accounting policies or disclosures during
the year.
iii) Standards and interpretations in issue not yet adopted
The IASB and IFRIC have issued or amended the following
standards and interpretations that are mandatory for later
accounting periods, and which are relevant to the Group and have
not been adopted early. These are:
Effective date
(periods commencing)
-------------- ------------------------------------------ ---------------------
IFRS 9 Financial instruments Not yet determined
IFRS 10/IAS 27 Consolidated financial statements 1 January 2014
IFRS 11/IAS 28 Joint arrangements 1 January 2014
IFRS 12 Disclosures of interests in other entities 1 January 2014
-------------- ------------------------------------------ ---------------------
The Directors do not anticipate that the adoption of these
standards and interpretations will have a material impact on the
Group's financial statements in the period of initial application,
other than on presentation and disclosure.
The Group has provided certain information required by IFRS 12
in relation to its St Katharine Docks subsidiaries in note 8 as the
Directors consider this to be meaningful to users of the financial
statements.
The IASB has also issued or revised IFRS 14, IAS 19, IAS 32, IAS
36, IAS 39 and IFRIC 21 but these changes either have no impact or
are not expected to have a material effect on the operations of the
Group.
c) Basis of consolidation
i) Subsidiaries
The consolidated financial statements include the financial
statements of subsidiaries, prepared to 31 March each year under
the same accounting policies as the Group as a whole, using the
acquisition method. All intra-group balances, income and expenses
are eliminated on consolidation.
Subsidiaries are those entities controlled by the Group. When
the Group has the power to govern the financial and operating
policies of an entity to gain benefits from its activities, it has
control within the meaning of this policy.
Non-controlling interests represent the portion of profits or
losses and net assets not held by the Group. They are included in
full in the relevant income statement, statement of comprehensive
income and balance sheet captions, then presented separately in the
income statement and statement of comprehensive income, and within
equity in the consolidated balance sheet, to clarify the relevant
share of earnings and net assets attributable to shareholders and
non-controlling interests respectively.
ii) Business combinations
Under the acquisition method, an acquisition is recognised at
the aggregate of the consideration transferred, measured at
acquisition date fair value, and the amount of any non-controlling
interest in the acquiree. Acquisition costs incurred prior to the
revision of IFRS 3 were included as part of the cost of the
acquisition; acquisition costs incurred since the revision of IFRS
3 in the year ended 31 March 2011 are expensed. In the consolidated
balance sheet, the identifiable net assets, liabilities and
contingent liabilities of any acquired entity are also recognised
initially at fair value as at the acquisition date. The results of
subsidiaries are included in the consolidated financial statements
from the date control commences until the date that it ceases.
Where properties are acquired through corporate acquisitions and
there are no significant assets or liabilities other than those
directly relating to property, an acquisition is treated as an
asset acquisition and fair value accounting at the date of
acquisition will not apply. In other cases, the acquisition method
will be used.
iii) Joint ventures
A joint venture is an entity over which the Group has joint
control, established by contractual agreement. Joint ventures are
accounted for under the equity method, whereby the consolidated
financial statements incorporate the Group's share of net assets
and results. The results are after tax and include revaluation
movements on investment properties and interest rate derivatives.
The results of joint ventures are included on the basis of
accounting policies consistent with those of the Group.
Joint ventures are reviewed to determine whether any impairment
loss should be recognised at the end of the reporting period.
iv) Goodwill and discounts on acquisition
In the event that there is an excess of the purchase price of
any business acquired over the fair value of the business acquired
- that is, its identifiable assets, liabilities and contingent
liabilities purchased and any resulting deferred tax thereon - the
excess is recognised as goodwill.
Any goodwill is recognised as an asset and will be reviewed by
the Board for impairment at least annually. Any impairment is
recognised immediately in the income statement and will not be
subsequently reversed. A discount on acquisition arises where there
is an excess of the fair value of the business acquired over the
purchase price. Any discount arising is credited to the income
statement in the period of acquisition.
d) Property portfolio
i) Investment properties
Investment properties are properties owned or held leasehold by
the Group which are held for capital appreciation, rental income or
both. They are initially recorded at cost (or fair value where
acquired as part of a business combination) and subsequently valued
at each balance sheet date at fair value as determined by
professionally qualified independent external valuers.
Valuations are calculated, in accordance with the RICS Valuation
- Professional Standards January 2014, by applying capitalisation
yields to current and future rental cash flows, based on observable
inputs from comparable market transactions, together with an
assessment of the security of income. Properties under
refurbishment are valued in the same way, less an adjustment for
costs of refurbishment still to be incurred and development
risk.
Gains or losses arising from changes in the fair value of
investment properties are recognised in the income statement in the
period in which they arise.
Depreciation is not provided in respect of investment
properties.
Acquisitions and disposals of investment properties are
recognised on unconditional exchange of contracts where it is
reasonable to assume at the balance sheet date that completion of
the acquisition or disposal will occur. Gains on disposal are
determined as the difference between net disposal proceeds and the
carrying value of the asset in the previous balance sheet adjusted
for any subsequent capital expenditure or capital receipts.
ii) Trading properties
Trading properties are initially recognised at cost and
subsequently at the lower of cost and net realisable value.
iii) Occupational leases
The Board exercises judgement in considering the potential
transfer of the risks and rewards of ownership in accordance with
IAS 17 for all properties leased to tenants and determines whether
such leases are operating leases. A lease is classified as a
finance lease if substantially all of the risks and rewards of
ownership transfer to the lessee. If the Group substantially
retains those risks, a lease is classified as an operating
lease.
iv) Headleases
Where an investment property is held under a headlease, the
headlease is initially recognised as an asset at cost plus the
present value of minimum ground rent payments. The corresponding
rental liability to the head leaseholder is included in the balance
sheet as a finance lease obligation.
v) Net rental income
Revenue comprises rental income exclusive of VAT. Rental income
is recognised in the income statement on an accruals basis.
Contingent income, such as rent reviews and indexation, is recorded
in the income statement in the periods in which it is earned.
Specifically:
-- rent reviews are recognised when formally agreed;
-- any rental income from fixed and minimum guaranteed rent
reviews is recognised on a straight-line basis over the shorter of
the term to lease expiry or to the first tenant break option;
-- rent free periods, other lease incentives and any costs
associated with entering into occupational leases are allocated
evenly over the period from the date of lease commencement to the
first break option or, in the unusual event that the probability
that the break option will be exercised is considered sufficiently
low, over the lease term; and
-- in the event that any premium is received on a lease
surrender, the profit, net of any payments for dilapidations and
non-recoverable outgoings, is reflected in the income statement in
the period in which the surrender becomes legally binding.
Where this income or these costs are recognised in advance of
the related cash flows, an adjustment is made to ensure that the
carrying value of the relevant property including accrued rent does
not exceed the external valuation.
Property operating costs, including any property operating
expenditure not recovered from tenants, for example through service
charges, are expensed through the income statement on an accruals
basis.
e) Financial assets and liabilities
Financial assets and liabilities are recognised when the
relevant group entity becomes a party to the contractual terms of
the instrument. Unless otherwise indicated, the carrying amounts of
financial assets and liabilities are a reasonable estimate of their
fair values.
i) Trade and other receivables
Trade and other receivables are recognised initially at their
fair value and subsequently at their amortised cost. If there is
objective evidence that the recoverability of the asset is at risk,
appropriate allowances for any estimated irrecoverable amounts are
recognised in the income statement.
ii) Trade and other payables
Trade and other payables are recognised initially at their fair
value and subsequently at their amortised cost.
iii) Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, deposits held
at call with banks and financial institutions and other short-term
highly-liquid investments with original maturities of three months
or less.
iv) Other financial assets
Other financial assets comprise deposits held with banks and
other financial institutions where the original term to maturity
was more than three months.
v) Equity instruments
Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs.
vi) Borrowings and finance charges
Borrowings are initially recognised at their fair value, net of
any transaction costs directly attributable to their issue.
Subsequently, borrowings are carried at their amortised carrying
value using the 'effective interest method', which spreads the
interest expense over the period to maturity at a constant rate on
the balance of the liability carried in the balance sheet for the
relevant period.
vii) Derivative financial instruments
The Group uses derivative financial instruments to hedge its
exposure to cash flow interest rate risks. Derivatives are
initially recognised at fair value on the date on which the
derivative contract is entered into and are subsequently measured
at fair value.
Derivatives are classified either as derivatives in effective
hedges or held for trading. It is anticipated that, generally,
hedging arrangements will be 'highly effective' within the meaning
of IAS 39 and that the criteria necessary for applying hedge
accounting will be met. Hedges are assessed on an ongoing basis to
ensure they continue to be effective.
The gain or loss on the revaluation of the portion of an
instrument that qualifies as an effective hedge of cash flow
interest rate risk is recognised directly in other comprehensive
income. The gain or loss on the revaluation of derivative financial
instruments which are classified as held for trading because they
are not effective hedges is recognised in the income statement.
Only the intrinsic value of a cap is designated as a hedging
instrument, with changes in the time value taken directly to the
income statement.
f) Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation and any recognised impairment loss. Depreciation is
recognised so as to write off the cost of assets less their
residual values over their useful lives, using the straight-line
method, on the following basis:
Marina equipment 25-50 years
Any gain or loss arising on the disposal of an asset is
determined as the difference between the sales proceeds and the
carrying value of the asset and is recognised in income.
g) Provisions
A provision is recognised when a legal or constructive
obligation exists as a result of an event that has occurred prior
to the balance sheet date and where it is probable that an outflow
of economic benefits will be required to settle the obligation.
Provisions will be measured at the Board's best estimate of the
expenditure required to settle that obligation as at the balance
sheet date, and will be discounted to present value if the effect
is material.
h) Distributions
Distributions relating to equity shares are recognised when they
become legally payable.
i) Management fees and incentive arrangement payments
Management fees and incentive arrangement payments are
recognised in the income statement in the period to which they
relate. Incentive payments that are more likely than not to become
payable will be provided for in the financial statements and will
be discounted to reflect the deferred payment if the effect is
material.
j) Tax
Tax is included in the income statement except to the extent
that it relates to income or expense items recognised directly in
equity, in which case the related tax will be recognised in
equity.
Current tax is the expected tax payable on taxable income for
the reporting period, using tax rates enacted or substantively
enacted at the balance sheet date, together with any adjustment in
respect of previous periods. Deferred tax is provided using the
balance sheet liability method, providing for temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for tax
purposes.
The tax effect of the following differences is not provided
for:
-- the initial recognition of goodwill;
-- goodwill for which amortisation is not tax deductible;
-- the initial recognition of an asset or liability in a
transaction which is not a business combination and at the time of
the transaction affects neither accounting or taxable profit;
and
-- investments in subsidiaries, associates and jointly
controlled entities where the Group is able to control the timing
of the reversal of the difference and it is probable that the
difference will not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of
assets and liabilities, using tax rates enacted or substantively
enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the asset can be utilised.
3. Operating segments
IFRS 8 requires operating segments to be identified on the basis
of internal reports about components of the Group that are reviewed
by the chief operating decision maker to make decisions about
resources to be allocated between segments and assess their
performance. The Group's chief operating decision maker is
considered to be the Board.
The Group owns a number of property portfolios. Although these
are described individually elsewhere in this Annual Report, they
are not separately managed and the Board receives quarterly
management accounts prepared on a basis which aggregates the
performance of all the portfolios and focuses on total returns on
shareholders' equity. The Board has therefore concluded that in the
period from incorporation to 31 March 2014 the Group has operated
in and was managed as one business segment, being property
investment. All revenue arises from the Group's property
activities, with all properties located in the United Kingdom. No
single tenant represented 10% or more of the Group's revenues in
either the current or the prior year.
4. Operating profit
Operating profit is stated after charging:
Year to Year to
31 March 31 March
2014 2013
GBP000 GBP000
-------------------------------------------------- --------- ---------
Depreciation of property, plant and equipment 51 -
Directors' fees 228 228
Auditors' remuneration for the audit of the Group
and Company financial statements 146 117
-------------------------------------------------- --------- ---------
The auditors received no payments in either the current or the
prior year in relation to non-audit services.
The Group had no employees in either the current or the prior
year. Directors' fees payable in the year were as follows:
Year to Year to
31 March 31 March
2014 2013
GBP000 GBP000
-------------------------------------- --------- ---------
Aubrey Adams 70 70
Mike Brown - -
Freddie Cohen 30 30
Keith Hamill 30 30
Nick Leslau - -
Alex Ohlsson 38 38
John Stephen 30 30
David Waters 30 30
Total charged to the income statement 228 228
-------------------------------------- --------- ---------
5. Operating leases
As a commercial property investor, the Group enters into
operating leases on its real estate assets. Leases are for fixed
terms, typically between five and 15 years, but potentially up to
35 years depending on the type of property. They include terms that
reflect market conditions at the time of letting, including
landlord and/or tenant break options before expiry and periodic
rent reviews, the vast majority of which are upwards only open
market reviews.
Future minimum rents receivable under non-cancellable operating
leases are set out in the table below, calculated on the assumption
that any tenant with a break option does exercise that option.
31 March 31 March
2014 2013
GBP000 GBP000
-------------------------- -------- --------
Minimum rents receivable:
within one year 37,151 35,974
in two to five years 86,975 96,064
in more than five years 153,903 204,050
278,029 336,088
-------------------------- -------- --------
6. Finance income and costs
Year to Year to
31 March 31 March
2014 2013
GBP000 GBP000
------------------------------------------------------- --------- ---------
Recognised in the income statement:
Finance income
Interest on cash deposits 161 215
------------------------------------------------------- --------- ---------
Finance costs
Interest on secured debt (12,413) (12,269)
Amortisation of loan issue costs (1,252) (1,096)
Other finance costs (362) (493)
Fair value adjustment of interest rate derivatives
in ineffective hedges (note 16b) 53 (464)
Amortisation of interest rate derivatives, transferred
from the hedging reserve 190 284
Finance lease interest (142) (186)
------------------------------------------------------- --------- ---------
Total finance costs (13,926) (14,224)
Net finance costs recognised in the income statement (13,765) (14,009)
------------------------------------------------------- --------- ---------
Year to Year to
31 March 31 March
2014 2013
GBP000 GBP000
------------------------------------------------------- --------- ---------
Recognised in other comprehensive income:
Fair value adjustment of interest rate derivatives
in effective hedges (note 16b) 3,907 (119)
Amortisation of interest rate derivatives, transferred
to the income statement (190) (284)
Net finance costs recognised in other comprehensive
income (3,717) (403)
------------------------------------------------------- --------- ---------
Net finance costs analysed by the categories of financial asset
and liability shown in note 16c are as follows:
Year to Year to
31 March 31 March
2014 2013
GBP000 GBP000
----------------------------------------------------- --------- ---------
Loans and receivables 161 215
Financial assets held for trading (6) (88)
Derivatives in effective hedges 249 (92)
Financial liabilities measured at amortised cost (14,169) (14,044)
----------------------------------------------------- --------- ---------
Net finance costs recognised in the income statement (13,765) (14,009)
----------------------------------------------------- --------- ---------
Further information about the hedging instruments, including
details of their valuation at the balance sheet date, is included
in note 16b.
The Group's sensitivity to changes in interest rates, calculated
on the basis of a 1% increase in LIBOR such that LIBOR is not more
than 3.0%, was as follows:
Year to Year to
31 March 31 March
2014 2013
GBP000 GBP000
------------------------------------- --------- ---------
Effect on profit for the year 141 (142)
Effect on other comprehensive income 249 184
Effect on equity 390 42
------------------------------------- --------- ---------
The figures shown above will differ for sensitivities at which
LIBOR exceeds 3.0%, as that is the lowest strike rate of the
interest rate caps held by the Group. Any increase in LIBOR above
3.5% will have no effect on financing costs, as the maximum average
rate payable of 6.0% will have been reached.
The average interest rate payable by the Group on its secured
loans for the year, including all lender's margins but excluding
amortised finance costs, was 5.4% (2013: 5.3%). The maximum rate
payable in the year, had market rates exceeded the various fixed
and capped rates protected by hedging transactions, would have been
6.0% (2013: 6.0%).
7. Taxation
The tax charge for the year recognised in the income statement
was as follows:
Year to Year to
31 March 31 March
2014 2013
GBP000 GBP000
----------------------------------------------------- --------- ---------
Current tax charge - current year 1,086 987
Current tax credit - adjustments in respect of prior
years (62) (1,220)
Deferred tax charge 216 300
1,240 67
----------------------------------------------------- --------- ---------
The tax charge for the year varies from the standard rate of
income tax in the UK of 20%. The differences are explained
below:
Year to Year to
31 March 31 March
2014 2013
GBP000 GBP000
-------------------------------------------------------- --------- ---------
Profit before tax 74,519 9,436
-------------------------------------------------------- --------- ---------
Profit before tax at the standard rate of income
tax in the UK of 20% 14,904 1,887
Adjustments in respect of prior years (62) (1,220)
Adjusted for the effects of:
Revaluations not subject to tax (13,803) 1,271
Income and property disposal profits not subject
to tax (2,654) (2,730)
Share of loss of joint venture shown after tax 164 89
Expenses, including provision for incentive payments,
not deductible for tax 2,091 610
Tax losses not yet utilised 598 160
Other items taxed at different rates 2 -
1,240 67
-------------------------------------------------------- --------- ---------
The movement on the deferred tax asset/(liability) was as
follows:
Year to Year to
31 March 31 March
2014 2013
GBP000 GBP000
----------------------------------------------------------- --------- ---------
At the start of the year 881 1,102
Tax on recognition of fixed and minimum guaranteed
rent reviews,
charged to the income statement (153) (314)
Tax on fair value adjustment of interest rate derivatives,
(charged)/credited to the income statement (62) 14
Tax on fair value adjustment of interest rate derivatives,
(charged)/credited to other comprehensive income (737) 79
At the end of the year (71) 881
----------------------------------------------------------- --------- ---------
Tax status of the Company and its subsidiaries
Any Group undertakings earning income are either tax resident in
Jersey or are tax transparent entities owned by Jersey resident
entities. Jersey has a corporate income tax rate of zero, so the
Company and its subsidiaries are not subject to tax in Jersey on
their income or gains. The Company is not subject to UK corporation
tax on any dividend or interest income it receives.
The Group's real estate assets are located in the United Kingdom
and the net rental income earned, less deductible costs including
void property costs and interest, is subject to UK income tax
currently at a rate applicable to Group undertakings of 20% (2013:
20%). The joint venture investment is held in two UK companies
which were subject to UK corporation tax on profits at 23% for the
year (2013: 24%).
8. Non-controlling interests
The non-controlling interests represent a 16.7% investment by a
third party in four properties in Milton Keyneswithin the
Provincial Offices portfolio and a 40% investment by another third
party in St Katharine Docks.
Year to Year to
31 March 31 March
2014 2013
GBP000 GBP000
------------------------------------------------------ --------- ---------
At the start of the year 46,163 39,346
Capital invested by third party in St Katharine Docks - 5,800
Share of profit for the year 10,639 1,100
Share of other comprehensive income for the year 815 (68)
Dividends paid to non-controlling interests (18) (15)
At the end of the year 57,599 46,163
------------------------------------------------------ --------- ---------
The non-controlling investor in St Katharine Docks holds a 40%
interest in subsidiary undertakings MPG St Katharine GP Limited,
MPG St Katharine Limited Partnership and SKD Marina Limited. The
principal place of business of these entities, which between them
own the real estate and marina investments at St Katharine Docks,
is the United Kingdom. As St Katharine Docks is such a material
investment, we include below summarised financial information in
relation to that investment.
Once the investors in the St Katharine Docks joint venture have
received cash returns equal to their original investment (currently
totalling GBP103.1 million) plus an 11% per annum preferred return,
any cash returns over and above that amount will be shared between
the Group and the non-controlling interests following the same
methodology as the management incentive arrangements described in
note 18, with an initial 'catch-up' period under which returns
above that hurdle are split 50:50 between the Company and the
non-controlling interests such that surpluses over the amounts
invested may ultimately be shared 68% to the Group and 32% to the
non-controlling interests. Under these incentive arrangements, an
additional GBP2.7 million or 1.2p per share (2013: GBPnil) of the
profits of the joint venture would be allocated to the Group and
the non-controlling interest would be reduced, had the net assets
of the joint venture been realised at their 31 March 2014 values
and returned to investors in cash.
Year to 31 March 2014 Year to 31 March 2013
Non-controlling Non-controlling
Max interest's Max interest's
Investment in St Katharine 60% share 40% share Total 60% share 40% share Total
Docks GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------- ---------- --------------- ------- ---------- --------------- -------
At the start of the year 66,564 44,376 110,940 56,132 37,422 93,554
Equity and loan capital
injected - - - 8,700 5,800 14,500
Share of profit recognised
in the income statement 20,057 13,372 33,429 1,860 1,240 3,100
Allocation of value under
incentive arrangements 2,716 (2,716) - - - -
Share of other comprehensive
income 826 550 1,376 (128) (86) (214)
---------- --------------- -------
At the end of the year 90,163 55,582 145,745 66,564 44,376 110,940
----------------------------- ---------- --------------- ------- ---------- --------------- -------
31 March 2014 31 March 2013
Non-controlling Non-controlling
Max interest's Max interest's
Investment in St Katharine 60% share 40% share Total 60% share 40% share Total
Docks - balance sheet GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------ ---------- --------------- -------- ---------- --------------- --------
Investment properties 138,281 92,187 230,468 109,217 72,811 182,028
Cash and cash equivalents 1,703 1,135 2,838 1,819 1,212 3,031
Cash and cash equivalents
held as security for bank
debt 3,774 2,516 6,290 11,041 7,361 18,402
Other current assets 991 660 1,651 198 132 330
Current liabilities (4,916) (3,276) (8,192) (2,623) (1,749) (4,372)
Secured non-recourse bank
debt (51,992) (34,661) (86,653) (51,992) (34,661) (86,653)
Reallocation under incentive
arrangements 2,716 (2,716) - - - -
Other non-current liabilities (394) (263) (657) (1,096) (730) (1,826)
Net assets 90,163 55,582 145,745 66,564 44,376 110,940
------------------------------ ---------- --------------- -------- ---------- --------------- --------
Year to 31 March 2014 Year to 31 March 2013
Non-controlling Non-controlling
Max interest's Max interest's
Investment in St Katharine 60% share 40% share Total 60% share 40% share Total
Docks - income statement GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------- ---------- --------------- ------- ---------- --------------- -------
Rental income 7,182 4,789 11,971 6,633 4,422 11,055
Property outgoings (1,655) (1,103) (2,758) (2,041) (1,360) (3,401)
Administrative expenses (1,481) (988) (2,469) (1,174) (785) (1,959)
Net finance costs (2,611) (1,741) (4,352) (2,618) (1,745) (4,363)
Investment property revaluation 18,595 12,396 30,991 1,256 838 2,094
Fair value adjustment of
interest rate derivatives
net of deferred tax 62 42 104 (192) (128) (320)
Tax charge (35) (23) (58) (4) (2) (6)
Profit for the year 20,057 13,372 33,429 1,860 1,240 3,100
-------------------------------- ---------- --------------- ------- ---------- --------------- -------
Year to 31 March 2014 Year to 31 March 2013
Non-controlling Non-controlling
Investment in St Katharine Max interest's Max interest's
Docks - 60% share 40% share Total 60% share 40% share Total
other comprehensive income GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- ---------- --------------- ------- ---------- --------------- -------
Fair value adjustment of
interest rate derivatives 1,032 688 1,720 (160) (107) (267)
Tax effect of interest
rate derivative fair value
adjustment (206) (138) (344) 32 21 53
Other comprehensive income
for the year 826 550 1,376 (128) (86) (214)
---------------------------- ---------- --------------- ------- ---------- --------------- -------
9. Earnings per share
Earnings per share is calculated as profits attributable to
shareholders of the Company for each year divided by 220,000,002
shares in issue. There are no share options or other equity
instruments in issue and therefore no adjustments to be made for
dilutive or potentially dilutive equity arrangements.
The European Public Real Estate Association ('EPRA') publishes
guidelines for calculating adjusted earnings designed to represent
core operational activities. The adjusted EPRA earnings per share
calculation is as follows, with all figures shown net of any
non-controlling interests:
Year to 31 March 2014 Year to 31 March 2013
Pence Pence
GBP000 per share GBP000 per share
------------------------------------------ ---------- ----------- -------- -------------
Basic earnings attributable to
shareholders 62,640 28.5 8,269 3.8
Adjusted for:
Investment property revaluation (56,363) (25.6) 7,085 3.2
Profit on sale of investment properties (1,378) (0.6) (947) (0.5)
Fair value adjustment of interest
rate derivatives, net of tax (696) (0.3) (464) (0.2)
Fair value adjustment of interest
rate derivatives within joint
venture, net of tax (23) (0.1) (11) -
EPRA earnings 4,180 1.9 13,932 6.3
Adjusted for:
Provision for incentive payments 8,441 3.8 - -
------------------------------------------ ---------- ----------- -------- -------------
Adjusted EPRA earnings 12,621 5.7 13,932 6.3
------------------------------------------ ---------- ----------- -------- -------------
Since the incentive payments are largely derived from investment
property revaluations, they have been excluded from the adjusted
EPRA earnings calculation to enable a consistent comparison of
underlying earnings.
10. Investment properties
Long Short
Freehold leasehold leasehold Total
GBP000 GBP000 GBP000 GBP000
------------------------------------ -------- ---------- ---------- -------
Carrying value at 31 March 2012 386,729 76,268 1,128 464,125
Acquisition of High Holborn Estate 47,724 - - 47,724
Transfer from trading property 864 - - 864
SDLT recovery on Provincial Offices
portfolio (200) (36) - (236)
Capital expenditure net of capital
receipts 11,113 (78) 57 11,092
Recoveries from escrow account (41) - - (41)
Disposals (6,424) (884) - (7,308)
Revaluation movement (3,316) (2,891) (149) (6,356)
------------------------------------ -------- ---------- ---------- -------
Carrying value as at 31 March
2013 436,449 72,379 1,036 509,864
Purchase of freehold of existing
leasehold property 5,716 (5,594) - 122
Capital expenditure net of capital
receipts 21,796 (65) - 21,731
Disposals (9,210) - - (9,210)
Revaluation movement 64,200 4,749 64 69,013
------------------------------------ -------- ---------- ---------- -------
Carrying value as at 31 March
2014 518,951 71,469 1,100 591,520
------------------------------------ -------- ---------- ---------- -------
The following table reconciles the carrying values of the
investment properties to their independent valuation:
Long Short
Freehold leasehold leasehold Total
GBP000 GBP000 GBP000 GBP000
----------------------------------- -------- ---------- ---------- -------
Carrying value as at 31 March
2013 436,449 72,379 1,036 509,864
Headlease liabilities (note 17) - (1,634) (18) (1,652)
Rent free periods and fixed or
guaranteed rent reviews (note
13) 7,162 1,169 76 8,407
Capitalised letting fees (note
13) 934 266 6 1,206
----------------------------------- -------- ---------- ---------- -------
Portfolio valuation as at 31 March
2013 444,545 72,180 1,100 517,825
----------------------------------- -------- ---------- ---------- -------
Carrying value as at 31 March
2014 518,951 71,469 1,100 591,520
Headlease liabilities (note 17) - (860) (18) (878)
Rent free periods and fixed or
guaranteed rent reviews (note
13) 9,771 1,387 18 11,176
Capitalised letting fees (note
13) 1,463 304 - 1,767
Portfolio valuation as at 31 March
2014 530,185 72,300 1,100 603,585
----------------------------------- -------- ---------- ---------- -------
The historic cost of the Group's investment properties as at 31
March 2014 was GBP495.6 million (2013: GBP480.3 million).
Revaluation movements in the year comprise:
Year to Year to
31 March 31 March
2014 2013
GBP000 GBP000
---------------------------------------------------------------- --------- ---------
Property revaluation 72,343 (1,974)
Movement in rent free periods, fixed or guaranteed
rent reviews and capitalised letting fees (3,330) (4,382)
---------------------------------------------------------------- --------- ---------
Investment property revaluation in the income statement 69,013 (6,356)
Investment property revaluation attributable to non-controlling
interests (12,650) (729)
Investment property revaluation attributable to owners
of the parent 56,363 (7,085)
---------------------------------------------------------------- --------- ---------
The properties were valued as at 31 March 2014 by CBRE Limited,
Commercial Real Estate Advisors, in their capacity as external
valuers. The valuation was prepared on a fixed fee basis,
independent of the portfolio value. The valuation was undertaken in
accordance with the RICS Valuation - Professional Standards January
2014 on the basis of fair value, supported by reference to market
evidence of transaction prices for similar properties. Fair value
represents the estimated amount for which a property should
exchange on the date of valuation between a willing buyer and a
willing seller in an arm's length transaction after proper
marketing wherein the parties had each acted knowledgeably,
prudently and without compulsion.
The fair value of the property portfolio has been determined
using an income capitalisation technique, whereby contracted and
market rental values are capitalised with a market capitalisation
rate. The resulting valuations are cross-checked against the yields
and the fair market values per square foot derived from comparable
recent market transactions on arm's length terms.
For properties under construction, the fair value is calculated
by estimating the fair value of the completed property using the
income capitalisation technique less estimated costs to completion
and a risk premium.
These techniques are consistent with the principles in IFRS 13
and use significant unobservable inputs, such that the fair value
measurement of each property within the portfolio has been
classified as Level 3 in the fair value hierarchy as defined in
IFRS 13. There have been no transfers to or from other levels of
the fair value hierarchy during the year.
The key inputs for the Level 3 valuations were as follows:
Inputs
Fair value Key unobservable Weighted
Portfolio GBP000 input Range average
---------------------------- ---------- ------------------- ------------- --------
St Katharine Docks 233,660 Gross ERV psf per GBP15 - GBP37
annum GBP84
Net initial yield 0% - 10.0% 4.3%
Reversionary yield 4.2% - 10.0% 6.3%
Industrious 208,890 Gross ERV psf per GBP1 - GBP12 GBP4
annum
Net initial yield 0% - 55.1% 9.3%
Reversionary yield 6.8% - 17.9% 9.6%
High Holborn Estate 63,645 Gross ERV psf per GBP10 - GBP34
annum GBP52
Net initial yield 0.1% - 3.8% 2.0%
Reversionary yield 6.0% - 6.5% 6.4%
London Pubs 46,320 Gross ERV psf per GBP10 - GBP22
annum GBP45
Net initial yield 5.0% - 5.5% 5.2%
Reversionary yield 6.4% - 7.0% 6.6%
Provincial Offices 46,150 Gross ERV psf per GBP6 - GBP24 GBP9.50
annum
Net initial yield 4.6% - 16.2% 9.1%
Reversionary yield 8.3% - 10.8% 10.0%
Nightclubs 4,920 Gross ERV psf per GBP2 - GBP7 GBP3
annum
Net initial yield 0% - 6.7% 1.1%
Reversionary yield 7.4% - 16.2% 10.9%
Hospitals (included in joint 30,250 Net initial yield 8.3% - 8.4% 8.3%
venture in note 11)
Reversionary yield 8.3% - 8.4% 8.3%
---------------------------- ---------- ------------------- ------------- --------
Sensitivities of measurement to variations in the significant
unobservable inputs are as follows:
-- increases in the ERV or rental growth will increase the fair value; and
-- decreases in the net initial yield and reversionary yield will increase the fair value.
The Board determines the Group's valuation policies and
procedures, and is responsible for appointing independent external
valuers. Valuations are based on information provided from the
Company's financial and property reporting systems, such as current
rents, terms and conditions of lease agreements, service charges,
capital expenditure, etc, and assumptions used by the valuers
(which are based on market observation and their professional
judgement) in their valuation models.
At each reporting date, partners of the Property Advisor, who
have recognised professional qualifications and are experienced in
valuing the types of property owned by the Group, initially analyse
the movements in the external valuations from the preceding
reporting date. Fair value changes (positive or negative) over a
certain threshold are considered for further discussion with the
external valuers. Changes in fair value are also compared to
external sources (such as the Investment Property Databank or other
relevant benchmarks) for reasonableness. Once the Property Advisor
has considered the valuations, the external valuers discuss their
results with the Group's independent auditors, with the Chairman of
the Audit Committee present, focussing on properties with
unexpected fair value changes and properties undergoing significant
refurbishment. The Audit Committee considers the valuation process
as part of its overall responsibilities.
Property outgoings were split as follows:
Year to Year to
31 March 31 March
2014 2013
GBP000 GBP000
------------------------------------------------- --------- ---------
Property outgoings from investment properties
that generated rental income in the year 7,472 8,317
Property outgoings from investment properties
that did not generate rental income in the year 477 660
Total property outgoings 7,949 8,977
------------------------------------------------- --------- ---------
11. Investment in joint venture
The joint venture investment represents the Group's 45% economic
interest (50% voting interest) in MPG Hospital Holdings Limited, a
company incorporated in England & Wales and operating in the
United Kingdom. The movement in the investment in joint venture
during the year was as follows:
Year to Year to
31 March 31 March
2014 2013
GBP000 GBP000
------------------------------------------------- --------- ---------
At the start of the year 971 1,255
Share of loss recognised in the income statement (822) (443)
Share of other comprehensive income 55 159
At the end of the year 204 971
------------------------------------------------- --------- ---------
The net assets and results of the joint venture for the year
were as follows:
31 March 31 March
2014 2013
Balance sheet GBP000 GBP000
---------------------------------------------------- -------- --------
Investment properties 30,250 32,850
Other non-current assets - 1,350
Cash and cash equivalents 210 121
Cash and cash equivalents held as security for bank
debt 660 642
Net current liabilities (1,003) (1,553)
Secured non-recourse bank debt (29,663) (30,272)
Other non-current liabilities - (981)
---------------------------------------------------- -------- --------
Net assets 454 2,157
---------------------------------------------------- -------- --------
Group share of net assets 204 971
---------------------------------------------------- -------- --------
Year to Year to
31 March 31 March
2014 2013
Income statement GBP000 GBP000
--------------------------------------------------- --------- ---------
Net rental income 2,617 2,544
Administrative and other expenses (169) (166)
Net finance costs (1,459) (1,764)
Investment property revaluation (2,600) (1,710)
Fair value adjustment of interest rate derivatives 30 16
Tax (charge) / credit (243) 95
--------------------------------------------------- --------- ---------
Loss for the year (1,824) (985)
--------------------------------------------------- --------- ---------
Group share of loss for the year (822) (443)
--------------------------------------------------- --------- ---------
Year to Year to
31 March 31 March
2014 2013
Other comprehensive income GBP000 GBP000
--------------------------------------------------- --------- ---------
Fair value adjustment of interest rate derivatives 182 470
Tax effect of interest rate derivative fair value
adjustment (61) (116)
--------------------------------------------------- --------- ---------
Other comprehensive income for the year 121 354
--------------------------------------------------- --------- ---------
Group share of other comprehensive income for the
year 55 159
--------------------------------------------------- --------- ---------
The joint venture owns four private hospitals in Blackburn,
Liverpool, Ayr and Stirling, all held on long leases with annual
upward only RPI-linked uplifts throughout the term, with an
aggregate current rent of GBP2.6 million (2013: GBP2.6 million) per
annum. Throughout the period of ownership, the joint venture has
been funded with non-recourse debt, which at 31 March 2014 totalled
GBP29.7 million (2013: GBP30.3 million).
The properties were independently valued at GBP30.3 million
(2013: GBP32.9 million) by CBRE Limited, Commercial Real Estate
Advisors, in their capacity as external valuers. The valuation was
prepared on a fixed fee basis, independent of the portfolio value.
The valuation was undertaken in accordance with the RICS Valuation
- Professional Standards January 2014 on the basis of fair value,
supported by reference to market evidence of transaction prices for
similar properties.
Administrative expenses include GBP0.1 million (2013: GBP0.1
million) of management fees paid to the Property Advisor, which
results in a corresponding reduction of fees paid to the Property
Advisor by the Group under the Investment Advisory Agreement. The
Group has no capital commitments or contingent liabilities in
relation to the joint venture, and the joint venture itself has no
capital commitments or contingent liabilities.
12. Property, plant and equipment
Marina equipment Total
GBP000 GBP000
------------------------- ---------------- -------
Cost or valuation
Additions 656 656
At the end of the year 656 656
Depreciation
Charge for the year (51) (51)
------------------------- ---------------- -------
At the end of the year (51) (51)
Carrying amount
At the start of the year - -
At the end of the year 605 605
------------------------- ---------------- -------
The marina equipment totalling GBP0.6m (2013: GBPnil) is subject
to a fixed and floating charge in favour of the lender to the St
Katharine Docks joint venture.
13. Trade and other receivables
31 March 31 March
2014 2013
GBP000 GBP000
Net trade receivables 2,496 3,328
Investment property disposal proceeds receivable - 1,763
VAT receivable 265 408
Tax recoverable - 305
Interest receivable - 1
Rent free periods and fixed or guaranteed rent reviews 11,176 8,407
Capitalised letting fees 1,767 1,206
Prepayments and accrued income 1,579 1,713
Other receivables 1,269 381
18,552 17,512
------------------------------------------------------- -------- --------
GBP1.1 million (2013: GBP0.8 million) of rent free periods and
fixed or guaranteed rent reviews are due within one year, with the
remainder due in more than one year. GBP0.4 million (2013: GBP0.3
million) of capitalised letting fees are due within one year, with
the remainder due in more than one year.
The Group's net trade receivables comprise amounts payable by
tenants of the Group's investment properties. The ageing of net
trade receivables was as follows:
31 March 31 March
2014 2013
GBP000 GBP000
------------------ -------- --------
Less than 30 days 1,743 2,540
30 to 60 days 311 180
60 to 120 days 280 407
Over 120 days 162 201
2,496 3,328
------------------ -------- --------
The Group holds collateral of GBP2.7 million (2013: GBP2.7
million) in the form of rent deposits received from tenants. The
average age of net trade receivables is 10 days (2013: 16
days).
The movement in the provision for doubtful debts was as
follows:
Year to Year to
31 March 31 March
2014 2013
GBP000 GBP000
------------------------------------- --------- ---------
At the start of the year 616 1,123
Amounts written off as uncollectable (247) (723)
Amounts recovered (336) (518)
New amounts provided for 1,304 734
At the end of the year 1,337 616
------------------------------------- --------- ---------
14. Cash and cash equivalents
31 March 31 March
2014 2013
GBP000 GBP000
----------------------------------------------------------- -------- --------
Cash and cash equivalents 53,233 43,201
Cash and cash equivalents secured under lending facilities 13,990 27,186
67,223 70,386
----------------------------------------------------------- -------- --------
GBP4.0 million (2013: GBP9.0 million) of the Group's cash and
cash equivalents balance is attributable to non-controlling
interests.
15. Trade and other payables
31 March 31 March
2014 2013
GBP000 GBP000
-------------------------------- -------- --------
Trade payables 5,780 3,575
Rent received in advance 9,411 9,029
Other taxes and social security 1,330 1,917
Other amounts payable 814 1,926
Accruals and deferred income 6,256 4,258
23,591 20,705
-------------------------------- -------- --------
All amounts above are due within one year and none incur
interest.
16. Financial assets and liabilities
a) Non-current financial liabilities
31 March 31 March
2014 2013
GBP000 GBP000
------------------------------------------- -------- --------
Secured loans 227,235 233,104
Unamortised finance costs (2,847) (4,104)
------------------------------------------- -------- --------
224,388 229,000
Obligations under finance leases (note 17) 878 1,652
Interest rate derivatives at fair value 2,240 6,764
227,506 237,416
------------------------------------------- -------- --------
There is no difference between the book value and fair value of
the non-current financial liabilities shown above, with the
exception of one fixed rate secured loan which had a book value of
GBP32.0 million (2013: GBP32.0 million) and a fair value of GBP32.0
million (2013: GBP32.6 million).
The Group's principal borrowing arrangements are as follows:
St Katharine Provincial
Industrious Docks Offices London Pubs
---------------------------- -------------------- -------------- --------------- --------------
Wells Fargo
Bank International/
Abbey National Wells Longbow Wells
Treasury Services Fargo Bank Investment Fargo Bank
Lender Plc International No.2 Sàrl International
Recourse beyond ring-fenced
subgroup None None None None
May/June January
Drawdown date October 2009 August 2011 2012 2011
Initial drawdown GBP127.7m GBP86.7m GBP32.0m GBP25.5m
Balance at 31 March 2014 GBP89.4m GBP86.7m GBP32.0m GBP19.2m
Value of secured properties
at 31 March 2014 GBP206.9m GBP233.7m GBP34.3m GBP46.3m
Gross LTV ratio at 31 March
2014 43.2% 37.1% 93.5% 41.5%
Net LTV ratio at 31 March
2014 35.8% 33.2% 88.1% 35.2%
Interest Interest Interest
Current repayment terms Interest only only only only
September January
Repayment date August 2016 August 2016 2016 2016
---------------------------- -------------------- -------------- --------------- --------------
The terms of the loans may, in the event of a covenant default,
restrict the ability of certain subsidiaries to transfer funds
outside the relevant security group. There have been no defaults or
other breaches of financial covenants under any of the loans during
the current or the prior year, or in the period since the balance
sheet date.
The Group had no undrawn committed borrowing facilities at 31
March 2014 or 31 March 2013.
b) Derivative financial instruments
The following derivative financial instruments were in place as
at each balance sheet date:
Principal amount Fair value
31 March 31 March 31 March 31 March
2014 2013 2014 2013
Expiry GBP000 GBP000 GBP000 GBP000
------------------------- ------------ -------- -------- -------- --------
2.6% swap August 2016 63,755 63,755 (2,121) (4,259)
3% cap August 2016 32,843 32,843 47 43
4% cap August 2014 56,750 56,750 - -
2.3% amortising swap August 2016 86,000 86,000 (2,361) (4,889)
2.3% receivers swaption August 2016 86,000 86,000 697 1,376
3.5% cap March 2015 19,183 25,500 - 2
January
3.5% cap from April 2015 2016 19,183 - 4 -
3.5% cap held for future
transactions March 2015 80,817 74,500 - 4
(3,734) (7,723)
-------------------------------------- -------- -------- -------- --------
The interest rate protection relates in the main to specific
ring-fenced financing structures as follows:
-- a 2.6% interest rate swap and 3% interest rate cap hedge the
interest rate liabilities on the Industrious portfolio loan;
-- a further 4% interest rate cap provides additional hedging
headroom on the Industrious portfolio loan;
-- two caps at 3.5% hedge the interest rate liabilities on the London Pubs portfolio loan; and
-- a 2.3% interest rate swap and swaption hedge the interest
rate liabilities on the St Katharine Docks loan.
In addition, a Group company holds a 3.5% cap on GBP80.8 million
notional principal, maturing in March 2015, which had been retained
for potential use in financing future acquisitions. Accounting
standards require this to be classified as 'held for trading' in
note 16c below.
The profiles of the notional swapped and capped amounts have
been estimated to match the expected loan profiles reasonably
closely. Since the loan profiles cannot be predicted with
certainty, the swap and cap profiles are monitored regularly and
adjusted as necessary.
Movements in the valuation of derivative financial instruments
in the year were as follows:
Year to Year to
31 March 31 March
2014 2013
GBP000 GBP000
------------------------------------------------------------ --------- ---------
At the start of the year (7,723) (7,140)
Credited/(charged) to the income statement (note 6) 53 (464)
Credited/(charged) directly to the hedging reserve (note 6) 3,907 (119)
Premium paid on acquisition of interest rate cap 29 -
At the end of the year (3,734) (7,723)
------------------------------------------------------------ --------- ---------
Derivative financial instruments are categorised as follows:
31 March 31 March
2014 2013
GBP000 GBP000
----------------------- -------- --------
Financial assets
within one year 697 -
in more than one year 51 1,425
Financial liabilities
within one year (2,242) (2,384)
in more than one year (2,240) (6,764)
(3,734) (7,723)
----------------------- -------- --------
The derivative contracts have been valued by reference to
interbank bid market rates as at the close of business on 31 March
2014 by JC Rathbone Associates Limited, and include an adjustment
for credit risk. The fair values of hedging instruments change
constantly with interest rate fluctuations, but the cash flow
exposure of the Group to movements in interest rates is protected
by way of its effective hedges.
c) Categories of financial instruments
31 March 31 March
2014 2013
GBP000 GBP000
-------------------------------------------------- --------- ---------
Financial assets
Loans and receivables:
Cash and cash equivalents (note 14) 67,223 70,386
Trade receivables (note 13) 2,496 3,328
Investment property disposal proceeds receivable
(note 13) - 1,763
Interest receivable (note 13) - 1
Financial assets held for trading:
Interest rate cap (note 16b) - 4
Derivatives in effective hedges:
Interest rate cap and swaption 748 1,421
-------------------------------------------------- --------- ---------
70,467 76,903
-------------------------------------------------- --------- ---------
Financial liabilities
Financial liabilities at amortised cost:
Trade payables (note 15) (5,780) (3,575)
Accrued interest (2,245) (2,497)
Borrowings (note 16a) (224,388) (229,000)
Obligations under finance leases (note 17) (878) (1,652)
Derivatives in effective hedges:
Interest rate swaps (4,482) (9,148)
(237,773) (245,872)
-------------------------------------------------- --------- ---------
All financial assets and liabilities are measured at amortised
cost except for derivative financial instruments which are measured
at fair value. All derivative financial instruments are classified
as Level 2 as defined in IFRS 13 and their fair values are
calculated using the present values of future cash flows, based on
market forecasts of interest rates and adjusted for the credit risk
of the counterparties. There have been no transfers to or from
other levels of the fair value hierarchy during the year.
d) Financial risk management
Through the Group's operations and use of debt financing it is
exposed to certain risks. The Group's financial risk management
objectives are to minimise the effect of these risks by using
derivative financial instruments, particularly to manage exposure
to fluctuations in interest rates. Such instruments are not
employed for speculative purposes. The use of any derivatives is
approved by the Board, which provides guidelines on acceptable
levels of interest rate risk, credit risk and liquidity risk.
The exposure to each risk considered potentially material to the
Group, how it arises and the policy for managing it is summarised
below.
i) Credit risk
Credit risk is the risk of financial loss to the Group if a
counterparty fails to meet its contractual obligations. The
relevant counterparties are in the main tenants in respect of
amounts receivable under operating leases and banks acting either
as hedging counterparties or as recipients of the Group's cash
deposits.
The Group places cash deposits for a range of maturities with a
panel of reputable Board approved institutions. As at the year end,
there were nine (2013: ten) approved banks on the panel and
deposits are spread across the banks according to guidelines that
are regularly reassessed by the Board, and across maturities that
are considered appropriate to the Group's needs. The credit ratings
of the institutions are monitored by the Board at least quarterly
with changes made as necessary to manage risk. The Board weighs up
counterparty risk and maturity profiles, having regard to credit
ratings and other financial information, and aims to avoid
inappropriate concentration of risk.
Rigorous credit control procedures are applied to facilitate the
recovery of trade receivables. Recovery details and statistics are
benchmarked in Board reports to identify any ongoing trends or
problems. The credit risk of trade receivables is assessed on a
case by case basis and where the likelihood of recovery is
considered low, provisions are made.
The credit risk relating to counterparties transacting with the
Group for property acquisitions and disposals is managed through
appropriate due diligence and contractual protection in the
relevant agreements.
ii) Liquidity risk
Liquidity risk arises from the Group's management of working
capital and the finance charges and principal repayments on its
debt instruments. It is the risk that the Group will encounter
difficulty in meeting its financial obligations as they fall
due.
Before entering into any debt instrument, the Board assesses the
resources that are expected to be available to the Group to meet
the liabilities when they fall due. These assessments are made on
the basis of both conservative and 'downside' scenarios. The Group
prepares budgets and working capital forecasts which are reviewed
by the Board at least quarterly to assess ongoing cash requirements
and compliance with loan covenants. The Board also keeps under
review the maturity profile of the Group's cash deposits in order
to have reasonable assurance that cash will be available for the
settlement of liabilities when they fall due and entering into
future transactions as required.
The following table shows the maturity analysis for financial
assets and liabilities and, where applicable, their effective
interest rates. The table has been drawn up based on the
undiscounted cash flows of financial liabilities, including future
interest payments, based on the earliest date on which the Group
can be required to pay.
Between Between
Effective Less than one and two and More than
interest one year two years five years five years Total
31 March 2014 rate GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- --------- --------- ---------- ----------- ----------- ---------
Financial assets
Trade receivables 2,496 - - - 2,496
Cash and cash equivalents 0.2% 67,223 - - - 67,223
Derivative financial
instruments 697 14 37 - 748
-------------------------- --------- --------- ---------- ----------- ----------- ---------
70,416 14 37 - 70,467
-------------------------- --------- --------- ---------- ----------- ----------- ---------
Financial liabilities
Trade payables (5,780) - - - (5,780)
Accrued interest (2,245) - - - (2,245)
Borrowings 5.4% (10,381) (32,027) (215,239) - (257,647)
Derivative financial
instruments (2,242) (1,798) (442) - (4,482)
Obligations under
finance leases (100) (100) (299) (9,342) (9,841)
(20,748) (33,925) (215,980) (9,342) (279,995)
-------------------------- --------- --------- ---------- ----------- ----------- ---------
Between Between
Effective Less than one and two and More than
interest one year two years five years five years Total
31 March 2013 rate GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- --------- --------- ---------- ----------- ----------- ---------
Financial assets
Trade receivables 3,328 - - - 3,328
Investment property
disposal proceeds
receivable 1,763 - - - 1,763
Interest receivable 1 - - - 1
Cash and cash equivalents 0.2% 70,386 - - - 70,386
Derivative financial
instruments - 5 1,420 - 1,425
-------------------------- --------- --------- ---------- ----------- ----------- ---------
75,478 5 1,420 - 76,903
-------------------------- --------- --------- ---------- ----------- ----------- ---------
Financial liabilities
Trade payables (3,575) - - - (3,575)
Accrued interest (2,497) - - - (2,497)
Borrowings 5.3% (9,578) (9,661) (247,738) - (266,977)
Derivative financial
instruments (2,384) (2,836) (3,928) - (9,148)
Obligations under
finance leases (187) (187) (561) (16,080) (17,015)
(18,221) (12,684) (252,227) (16,080) (299,212)
-------------------------- --------- --------- ---------- ----------- ----------- ---------
iii) Market risk - interest rate risk
Market risk arises from the Group's use of debt financing. It is
the risk that the future cash flows of a financial instrument will
fluctuate because of changes in interest rates.
The Group is exposed to cash flow interest rate risk from its
variable rate borrowings. The Group uses interest rate hedging
products such as swaps and caps in order to mitigate this risk.
The Group's outstanding derivative financial instruments are
described in note 16b and the Group's sensitivity to changes in
interest rates is disclosed in note 6.
iv) Capital risk management
The Group's capital comprises equity attributable to
shareholders of the Company (stated capital, retained earnings and
the hedging reserve) and debt, which includes the borrowings
disclosed in note 16a and cash and cash equivalents. The Group's
primary objective when monitoring capital is to safeguard the
entity's ability to continue as a going concern, while ensuring
that it remains within its banking covenants so as to safeguard
secured assets and avoid financial penalties. Borrowings are
secured on specific property portfolios and are non-recourse to the
Group as a whole.
In order to maintain or adjust the capital structure, the Group
keeps under review the amount of any dividends or capital returns
to be paid to shareholders, and monitors the extent to which the
issue of new shares or the realisation of assets may be
required.
The Group is not subject to any externally imposed capital
requirements.
Details of the significant accounting policies adopted,
including the criteria for recognition, the basis of measurement
and the basis on which income and expenses are recognised, in
respect of each class of financial asset, financial liability and
equity instrument are disclosed in the accounting policies in note
2.
17. Obligations under finance leases
Finance lease obligations in respect of fixed rents payable on
long leasehold properties are as follows:
31 March 31 March
2014 2013
GBP000 GBP000
----------------------------------- -------- --------
Minimum lease payments
Less than one year 100 187
Between one and two years 100 187
Between two and five years 299 561
More than five years 9,342 16,080
----------------------------------- -------- --------
9,841 17,015
Less future finance charges (8,963) (15,363)
Present value of lease obligations 878 1,652
----------------------------------- -------- --------
The earliest expiry date of all the lease obligations is in more
than five years, as at both 31 March 2014 and 31 March 2013.
18. Provision for incentive payments
The movement in the provision for incentive payments was as
follows:
Year to Year to
31 March 31 March
2014 2013
GBP000 GBP000
------------------------- --------- ---------
At the start of the year - -
Amounts provided for 8,441 -
At the end of the year 8,441 -
------------------------- --------- ---------
As was set out in the Admission Document published in connection
with the Company's listing in 2009, the Investment Advisory
Agreement entered into at that time included incentive arrangements
for the Property Advisor. Under these arrangements, Prestbury
(Scotland) Limited Partnership (which receives the fee for the
Prestbury team) and OZ UK Real Estate Securities Limited (together
the 'Recipients') can earn up to 20% of total shareholder returns
subject to certain benchmark returns first being earned in cash by
the shareholders.
Before any incentive payments are made, shareholders must first
receive in cash the total of the net funds raised on listing of
GBP211.4 million (96.1p per share) plus an 11% per annum compound
cash return on that amount. This is referred to as the 'cumulative
hurdle amount'.
Once the cumulative hurdle amount has been paid to shareholders,
incentive payments will be made at the same time as shareholder
returns and may therefore include interim incentive payments. While
total cumulative incentive payments are capped at 20% of all cash
returned to shareholders in excess of the 96.1p per share,
immediately after shareholders have received the cumulative hurdle
amount in cash, incentive payments will be made on an accelerated
basis such that the incentive payment will be 50% of the surplus
cash to be paid out, up to the 20% capped amount.
Cumulative incentive payments may therefore ultimately be less
than 20% of total shareholder returns, but they can never be more
than 20%. The table below illustrates the future hurdle levels and
the value of cumulative cash returns at which the Recipients would
have achieved 20% of total shareholder return through the catch-up
mechanism.
March September March September March September
2014 2014 2015 2015 2016 2016
------------------------------ ------- ---------- ------- ---------- ------- ----------
Hurdle net asset value
(96.1p per share plus
11% per annum return) 159.3p 167.9p 176.8p 186.3p 196.4p 206.9p
Net asset value at which
surpluses stop being shared
50:50 201.5p 215.7p 230.7p 246.5p 263.2p 280.8p
------------------------------ ------- ---------- ------- ---------- ------- ----------
The incentive payments are payable only after the cumulative
hurdle amount is returned to shareholders, other than where either
the Investment Advisory Agreement has been terminated (where the
net asset value of the Group is used in the calculation as if that
amount had been returned to shareholders in cash) or there has been
a takeover of the Company (in which case the offer price is used in
the calculation).
In determining whether to make a provision for the incentive
payment at each balance sheet date, the Board considers whether
payments under these incentive arrangements are more likely than
not to be made. At the current balance sheet date, the hurdle NAV
per share at which incentive payments would become payable is
159.3p. Since the basic NAV per share (before incentive payments)
at that date is 165.8p, a provision for incentive payments has been
made as the Board now considers that it is more likely than not
that payments will be made. The provision represents the payment
that would be due if a cash realisation had occurred at the balance
sheet date and is not discounted. Recognising that the hurdle
increases by c. GBP3 million per month and as the Group's net
assets will vary over time with retained earnings and valuation
movements, this calculation will be revisited at every period
end.
19. Stated capital
The Company has an unlimited authorised share capital of no par
value. The issued and fully paid up share capital comprises:
31 March 31 March
2014 2013
Number Number
---------------------------------------------------- ----------- -----------
Ordinary shares of no par value issued at GBP1 each 220,000,002 220,000,002
---------------------------------------------------- ----------- -----------
The stated capital reserve is made up as follows:
31 March 31 March
2014 2013
GBP000 GBP000
----------------------------------------- -------- --------
Issued and fully paid up ordinary shares 220,000 220,000
Share issue costs (8,633) (8,633)
211,367 211,367
----------------------------------------- -------- --------
20. Reserves
The nature and purpose of each reserve within equity is as
follows:
Stated capital represents the excess of cash received from the
issue of shares issued over their nominal value (which is zero),
net of issue costs.
Hedging reserve represents gains and losses arising on the
effective portion of hedging instruments carried at fair value, net
of any deferred tax.
Retained earnings represents the cumulative profits and losses
recognised in the Group statement of comprehensive income.
21. Net asset value per share
Net asset value per share is calculated as the net assets of the
Group attributable to shareholders at each balance sheet date,
divided by the number of shares in issue at that date.
There are no share options or other equity instruments in issue
and therefore no adjustments to be made for dilutive or potentially
dilutive equity arrangements.
The European Public Real Estate Association ('EPRA') has issued
guidelines aimed at providing a measure of NAV on the basis of long
term fair values. EPRA NAV excludes items that are considered to
have no impact in the long term, such as the fair value of
derivative instruments intended to be held to maturity and the
related deferred tax balances. The Group's EPRA NAV is calculated
as follows, with all figures shown net of any non-controlling
interests:
31 March 2014 31 March 2013
Pence Pence
GBP000 per share GBP000 per share
-------------------------------------- ------- ---------- ------- ----------
Basic NAV 358,951 163.2 294,091 133.7
Adjusted for:
Fair value of financial instruments 3,593 1.6 7,366 3.4
Deferred tax (614) (0.3) (1,265) (0.6)
Fair value of financial instruments
in joint venture, net of deferred
tax - - 90 -
EPRA NAV 361,930 164.5 300,282 136.5
-------------------------------------- ------- ---------- ------- ----------
22. Related party transactions and balances
Directors' fees
Directors' fees of GBP0.2 million (2013: GBP0.2 million) were
payable for the year, as disclosed in note 4. As at 31 March 2014
GBP19,000 (2013: GBP19,000) of these fees remained outstanding and
are included within other amounts payable (note 15).
Management fees payable
Nick Leslau and Mike Brown hold partnership interests in, and
are Chairman and Chief Executive respectively of, Prestbury
Investments LLP, which is Property Advisor to the Group under the
terms of the Investment Advisory Agreement entered into on 21 May
2009. Under the terms of that agreement, management fees of GBP5.6
million (2013: GBP5.1 million) were payable to Prestbury
Investments LLP in respect of the year, of which GBP1.4 million
(2013: GBPnil) was outstanding as at the balance sheet date and is
included in trade payables. GBP0.1 million (2013: GBP0.1 million)
of this fee has been offset by the Property Advisor in recognition
of the fact that the Property Advisor directly receives a
management fee of the same amount from the Hospitals joint venture
as described in note 11, in relation to the services provided which
are sub-contracted by the Company. This amount is included in other
income in the income statement.
In the course of its duties as Property Advisor and in
accordance with the terms of the Investment Advisory Agreement,
Prestbury is entitled to recover the costs and expenses properly
incurred in connection with its duties. During the year, Prestbury
has recharged at cost GBP32,000 (2013: GBP31,000) to the Group in
this respect, of which GBPnil (2013: GBPnil) was outstanding at 31
March 2014.
Incentive payments payable
As described in note 18 above, incentive payments may be payable
to Prestbury (Scotland) Limited Partnership (a partnership in which
Nick Leslau and Mike Brown have 49% and 25% interests respectively
in relation to its business regarding the Group), and OZ UK Real
Estate Securities Limited. At the balance sheet date, a provision
of GBP8.4 million (2013: GBPnil) has been made under these
arrangements. However, to date no incentive payments have been made
or are due and payable.
Subsidiary entities
The Group financial statements include the financial statements
of Max Property Group Plc and its subsidiary and joint venture
entities. Material subsidiary and joint venture entities are shown
below. Max Property Group Plc is the ultimate controlling party of
all its subsidiaries.
Country of incorporation Nature of business
---------------------------------- ------------------------ ----------------------------
Wholly owned
Max Property GP Limited(1) Jersey General partner
Max Property LP Limited(1) Jersey Limited partner
Max Property LP(2) Jersey Intermediate holding entity
MPG Opco Limited Jersey Intermediate holding company
MPG Finco Limited England & Wales Group finance
Max Industrial LP England & Wales Property investment
Max Office LP England & Wales Property investment
Max Industrial 2 Limited Jersey Property investment/trading
Provincial Offices LLP England & Wales Property investment
Max Bars LP England & Wales Property investment
MPG Pubs LP England & Wales Property investment
MPG Holborn LP England & Wales Property investment
MPG Artemis LP England & Wales Property investment
83.3% owned
Max Office 2 LLP England & Wales Property investment
Silbury Court LLP England & Wales Property investment
60% owned
MPG St Katharine LP England & Wales Property investment
SKD Marina Limited England & Wales Operator of marina
45% owned
MPG Hospital Holdings Limited(3) England & Wales Intermediate holding company
MPG Hospital Properties Limited(3) England & Wales Property investment
---------------------------------- ------------------------ ----------------------------
(1) Max Property GP Limited and Max Property LP Limited are
directly owned by Max Property Group Plc. All other entities are
indirectly owned.
(2) Prestbury (Scotland) LP and OZ UK Real Estate Securities
Limited have partnership interests in Max Property LP which entitle
them to share in any incentives that may become payable, as more
fully described above under the heading 'incentive payments
payable' and in note 18.
(3) Treated as joint ventures because the Group has 50% of the
voting rights.
23. Commitments and contingent liabilities
31 March 31 March
2014 2013
GBP000 GBP000
------------------------------------------------- -------- --------
Capital commitments - Max share 7,529 11,316
Capital commitments - non-controlling interests'
share 1,484 7,309
9,013 18,625
------------------------------------------------- -------- --------
Capital commitments are in respect of refurbishment works on
investment properties.
24. Events after the balance sheet date
Since the balance sheet date, the sales of two industrial units
have completed for cash consideration of GBP0.3 million, which is
in line with the 31 March 2014 book value. GBP0.1 million of the
proceeds were used to repay part of the loan secured on the
Industrious portfolio and the remainder was added to the Group's
cash reserves.
Since the balance sheet date, the sales of three nightclubs have
exchanged for cash consideration of GBP1.2 million, which is in
line with the 31 March 2014 book value. One sale has completed and
others are due to complete in June and September this year. The
proceeds will be added to the Group's cash reserves.
Glossary
AIM The Alternative Investment Market of the London Stock Exchange
CISE The Daily Official List of the Channel Islands Securities
Exchange
EPRA European Public Real Estate Association
EPRA EPS A measure of earnings per share designed by EPRA to
present underlying earnings from core operating activities
EPRA NAV A measure of net asset value designed by EPRA to
present net asset value excluding the effects of fluctuations in
value of instruments that are held for long-term benefit, net of
deferred tax
EPRA vacancy rate ERV of vacant space divided by ERV of the
whole portfolio, excluding in each case any property under
development or refurbishment
EPS Earnings per share, calculated as the earnings for the year
after tax attributable to members of the parent company (that is,
excluding any non-controlling interests) divided by the weighted
average number of shares in issue in the year
Equivalent Yield The constant capitalisation rate which, if
applied to all cash flows from an investment property, results in
the fair value
ERV Estimated rental value: the open market rental value
expected to be achievable at the date of valuation
Gearing Net debt as a proportion of equity attributable to
shareholders of the Group
Investment Advisory The agreement made between the Company,
Prestbury Investments LLP and Gallium Fund
Agreement Solutions Limited under which Prestbury provides
certain services to the Group
LTV The outstanding amount of a loan as a percentage of property
value. Gross LTV is the calculation for the gross loan amount and
net LTV offsets cash balances against the loan amount
NAV Net asset value
Net Initial Yield Annualised net rents on investment properties
as a percentage of the investment property valuation
Property Advisor or Prestbury Investments LLP
Prestbury
psf Per square foot
Reversionary Yield The anticipated yield to which the Net
Initial Yield will rise once the rent reaches the ERV
sq ft Square feet
This information is provided by RNS
The company news service from the London Stock Exchange
END
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