New Valuation and Projects Update (8631R)
10 Novembre 2011 - 12:00PM
UK Regulatory
TIDMHRCO
RNS Number : 8631R
Hirco plc
10 November 2011
News Release
10 November, 2011
Announcement of New Valuation and Projects Update
LONDON - Hirco PLC (AIM: HRCO), ("Hirco" or the "Company"),
announces that CBRE has valued Hirco's Indian property investments
as at 30 September 2011 at GBP343m.
The GBP343m figure comprises the Panvel development, which CBRE
has valued at GBP217m, and the Chennai development, which CBRE has
valued at GBP126m. As at the last valuation date of 30 September
2010, Jones Lang LaSalle (JLL) had valued Panvel at GBP404m and
Chennai at GBP420m for a total of GBP824m at current exchange
rates. As previously announced, because JLL had valued Hirco's
property assets since Hirco's initial public offering in 2006, the
Board has considered it timely to periodically rotate valuers.
Accordingly JLL was replaced by CBRE this past summer. The CBRE
valuation report is available on the Company's website and can be
accessed by contacting the Company Secretary, Mr. Nigel McGowan
(details below).
Because of the magnitude of the difference between the CBRE and
JLL valuation figures, Hirco's board has offered the projects'
developer, Hirco Developments Private Ltd. ("HDPL"), the
opportunity to provide a comprehensive analysis of the CBRE report.
To date, however, this analysis has not been forthcoming. Hirco's
Board expects to take the CBRE valuation (and any response from
HDPL) into consideration in preparing its Directors' valuation to
be included in Hirco's annual report and accounts for the year
ended 30 September 2011. This may result in a substantial write
down to Hirco's assets. Hirco currently anticipates that its year
end accounts will be released no later than 31 December 2011.
The principal reasons for the difference between the CBRE and
JLL valuation figures are substantial differences in assumptions,
in particular: (i) CBRE has used a weighted average cost of capital
of 24.4% for Panvel and 29.6% for Chennai while JLL used a cost of
capital of 13% for both projects; (ii) CBRE has estimated
completion of Panvel in 2024 and Chennai in 2027 while JLL had
estimated completion for both projects in 2020; and (iii) CBRE
estimated higher build costs and lower sale prices than JLL,
especially in connection with the projected sale prices of Chennai
residential space and Panvel office space. CBRE has also raised
questions about the optimal product mix in connection with the
Panvel and Chennai projects and is of the view that changing the
product mix would substantially increase their value. As Panvel and
Chennai have zoning approval for close to 100 million square feet
of development, which may take in excess of twenty-five years to
complete, relatively small changes in assumptions can result in
large differences in present value.
Projects Update
The Panvel and Chennai projects have been divided into phases,
with Phase One comprising the construction of 4.226m square feet
(2,666 units) of residential space outside of Chennai and 4.152m
square feet (2,792 units) of residential space and approximately
1.9 million square feet of office space at Panvel, outside of
Mumbai. Phase One encompasses approximately ten per cent of the
total buildable area for the two projects.
Hirco lacks clear visibility over the developments because Hirco
has never received a comprehensive development plan for the
projects and other information it is contractually entitled to.
Hirco receives monthly reports prepared by HDPL that contain
unaudited development and sales figures. According to these
reports, of the 2,666 Phase One residential units at Chennai, 1,570
have been sold and 1,096 remain available for sale. Of the 2,792
Phase One residential units at Panvel, 2,414 have been sold and 378
remain available for sale. In analysing these figures, shareholders
should bear in mind that Hirco does not have clear visibility into
the terms of these residential sales or the cash flows that they
may generate.
The construction of the two Phase One Panvel office buildings is
being carried out on a speculative basis with no tenants yet in
place. Their leasing success is in CBRE's view highly dependent on
the Indian government's construction of appropriate infrastructure,
including a second international airport in Mumbai, a major new
bridge link to the south of Mumbai, and improvements to the local
rail network. Without these improvements, it takes approximately
two hours to commute from Panvel to downtown Mumbai, which may
affect demand for this space. These office buildings, when
completed, represent approximately 25% of the typical annual take
up of office space in the Mumbai market. It is CBRE's view that
given current and projected demand, the lease up of these buildings
could take up to four years post their completion in 2013.
Consequently, clarity is currently being sought from HDPL as to the
projected costs and values of these two office buildings.
The Hirco board's current focus is on obtaining better
information in accordance with Hirco's contractual rights so it can
better evaluate the likely success of these projects. This would
include appropriate audited financial information and a
comprehensive development plan. The Hirco board has hired a third
party advisor to assist in estimating the projects' likely level of
profitability through to the completion of Phase One in December
2014 and the surplus available for distribution. The Hirco board is
also analyzing the merits of other strategies including altering
the product mix and selling a portion of the projects. Further
information into possible strategies will be provided within
Hirco's 30 September 2011 year-end results.
Contacts:
Hirco
Nigel McGowan
Company Secretary
ir@hircoplc.co.im
Singer Capital Markets Limited
James Maxwell (Corporate Finance)
+44 (0)20 3205 7500
This information is provided by RNS
The company news service from the London Stock Exchange
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