TIDMMAX
Results for the period ended 31 March 2010
Max Property Group Plc is a Jersey resident real estate investment company. It
has an experienced Board, chaired by Aubrey Adams, and is exclusively advised by
Prestbury Investments LLP, which is owned and managed by a team led by Nick
Leslau and Mike Brown.
The Company's strategy is to exploit cyclical weakness in the UK real estate
market through opportunistic investment and active management with a view to
realising cash returns for shareholders over an investment cycle of
approximately seven and half years from its listing in May 2009
Highlights
* GBP211.4m net of expenses raised on 27 May, 2009 upon listing on AIM
and CISX
* Net assets excluding minority interests of GBP261.5m at 118.9p per
share*, up 24% in the ten months from listing
* Over GBP300m of transactions in year one including:
* two portfolio acquisitions to 31 March, 2010 totalling
GBP282m including costs and 45% JV interest in GBP31.6m of property acquired
after the balance sheet date
* 200 lettings, lease renewals and restructurings in
Industrious portfolio over first nine months of ownership has reduced
the vacancy rate from 20% to 18%
* 31 March, 2010 property assets of GBP291m:
* GBP285.4m investment properties; GBP5.3m property held for
resale at cost increasing to GBP6.9m at fair value
* 91 properties: 84% by value Industrial, 16% Offices
* 848 tenancies
* Portfolio spread across the UK
* Uncommitted cash of GBP90m and ungeared property assets of GBP49m
* Profit after tax excluding minority interests of GBP48.3m
* Earnings per share of 3.1p **
* NAV on an EPRA basis, excluding fair values of financial instruments and
deferred tax and
including properties held for resale at fair value
** EPS on an EPRA basis, excluding revaluation movements and profits on
investment
property sales
Aubrey Adams, Chairman of Max Property Group Plc, comments:
"Through our acquisitions in the past year, I believe that we have enhanced our
well established reputation for reliability in deal execution and tried and
tested deal selection criteria and our asset management expertise has held us in
good stead. We have entered our second year of operation with, we believe, a
portfolio acquired at sensible entry prices and a robust balance sheet. Against
the background of a weak economy, we look to the future with huge enthusiasm and
a commitment to deliver net asset value per share growth for our shareholders."
28 June, 2010
ENQUIRIES:
Prestbury Investments Tel: 020 7647 7647
Mike Brown
Sandy Gumm
College Hill Tel: 020 7457 2020
Gareth David
Mike Davies
Morgan Stanley (Nominated Adviser) Tel: 020 7425 8000
Edward Knight
Presentation by Max Property Group's Property Advisor
Prestbury Investments LLP, the Company's Property Advisor, will be presenting to
investors and analysts at College Hill, The Registry, Royal Mint Court, London
EC3N 4QN at 3:30pm on Monday 28 June, 2010.
Forward looking statements
This document includes forward looking statements which are subject to risks and
uncertainties. You are cautioned that forward looking statements are not
guarantees of future performance and that if risks and uncertainties
materialise, or if the assumptions underlying any of these statements prove
incorrect, the actual results of operations and financial condition of the Group
may materially differ from those made in, or suggested by, the forward looking
statements. Other than in accordance with its legal or regulatory obligations,
The Company undertakes no obligation to review, update or confirm expectations
or estimates or to release publicly any revisions to any forward looking
statements to reflect events that occur or circumstances that arise after the
date of this document.
Chairman's Statement
Dear Shareholder,
I am pleased to present the first annual report and accounts of Max Property
Group Plc.
In just over a year since the flotation of the Company in May 2009, the Board
and management team has been focussed on finding the right investment
opportunities for shareholders and on exploiting the cyclical opportunities
presented by the stresses that continue today in financial and property markets.
We are pleased to have acquired two portfolios during the period, acquiring
around 100 properties with some 850 tenants for c. GBP282 million. The Group's
Property Advisor, Prestbury Investments LLP, comments on these portfolios in its
report on the following pages. Suffice it to say at this stage that the
portfolios are producing satisfactory returns to date, against the background of
a weak economy and fierce competition.
Results and financial position
Having commenced business on listing in May 2009 with a net asset value of
GBP211.4 million (96.1p per share), we report at the end of March 2010 net assets
(on an EPRA basis excluding the revaluation of hedging products and excluding
minority interests) of GBP261.5 million, or 118.9p per share, an increase of 24%
in ten months.
The increase in net asset value of GBP50.1 million (22.8p per share) principally
comprises:
* realised trading and investment property surpluses of GBP6.4 million
(2.9p per share);
* GBP41.4 million (18.8p per share) of unrealised uplift in property
values over cash cost arising over the weighted average six month period
since the investments were acquired;
* GBP11.1 million of net rental income (5.1p per share);
* net of all running costs, finance costs, tax and the revaluation of
hedging instruments totalling GBP8.8 million (4.0p per share).
All of these are more fully described in the Property Advisor's Report.
At 31 March, 2010, the Group had GBP119.2 million of non-recourse bank debt which
is secured only on the investment properties within the Industrious portfolio,
valued at the end of the period at GBP240.1 million. It remains important to the
Board that the Group is financed in such a way that financing risks are
ring-fenced within portfolios so that the resources of the Group as a whole are
not put at risk and that principle has underpinned the approach to financing
this portfolio.
As at 31 March, 2010, the Group holds GBP139.4 million of assets which are
entirely unleveraged and not secured under any financing arrangements, including
GBP90.3 million of uncommitted cash.
Events since the balance sheet date
We are doing business at a time of enormous uncertainty in the property and
financing markets. However, interest rates are currently at historically very
low levels. With a view to capturing the benefit of these relatively low
interest rates for future transactions, on 8 April, 2010 a Group company entered
into an interest rate cap arrangement on a notional amount of GBP100 million with
a maximum interest rate of 3.5% per annum. The premium paid for the cap was GBP2.6
million. It is intended that the cap will be used to manage interest rate risk
on the financing of future acquisitions.
On 28 May, 2010, the Group entered into a joint venture agreement with Lloyds
Banking Group whereby the Group owns 45% of the economic benefits and 50% of the
voting rights in a portfolio of four hospitals held as investment properties and
valued at the time of acquisition at GBP31.6 million. The hospitals are let to
GHG, the UK's largest private hospital group, and are held on 25 year full
repairing and insuring leases at GBP2.3 million per annum initially with annual
upwards-only rent reviews in line with the Retail Price Index. The Group will
earn a management fee of GBP100,000 per annum. No cash was invested in the joint
venture by the Group, which also has no exposure to any liabilities in the joint
venture. The assets are financed by a five year non-recourse facility of up to
GBP31.6 million from Lloyds Banking Group.
Also since the balance sheet date, contracts were unconditionally exchanged to
sell one of the Office properties, WestPoint in Manchester. The disposal will
add c. GBP4.8 million to the Group's cash resources and will contribute a profit
over book value of some GBP1.6 million.
Board appointment
As a Board, we are aware of our need to ensure that we have the right mix of
skills, independence and experience appropriate to the business. As the business
has grown, we have decided to make a further Board appointment. I am pleased to
announce the appointment of Freddie Cohen to the Board with effect from today's
date. Freddie, 52, was elected as Senator in the States of Jersey in 2005 and
was appointed Minister for Planning and Environment in that year. He was a
Trustee and Vice Chairman of Jersey Heritage Trust from 1998 to 2005 and has
previously run a private residential and commercial property development and
investment company. We welcome Freddie to the Board.
Outlook
The commercial property market has experienced a period of exceptional
volatility in recent years. The debt fuelled boom pushed yields to historic lows
and the subsequent collapse saw prices fall further and faster than in previous
crashes. The speed and extent of the recent market recovery which has taken
place during the Company's first year of operations has surprised many, leading
to a debate as to its sustainability. Certainly commercial property faces a
number of challenges. Average lease durations are much shorter and voids are
more painful with the introduction of full rates liabilities on vacant property.
Property owners are finding that their cash flow is less predictable than in the
past and their rents are under pressure as landlords compete to minimise their
voids. The extent to which this is a temporary problem or a more permanent
structural shift will depend on the strength of the economic recovery. Should
cuts in Government spending and tax rises lead to an extended period of anaemic
economic growth, then occupational markets will remain difficult for an equally
protracted time.
In a world where long leases are increasingly scarce, property investors pay
heavily for safety. Well let properties command yields close to previous boom
levels and at this level of pricing are, in our view, likely to provide
pedestrian returns. To venture into the secondary markets carries considerable
risks and investors need to exhibit great care as to the nature of assets they
buy and the prices they pay for them.
However, in an era of extremely low interest rates, few asset classes offer an
attractive income return and commercial property is a rare exception. Whilst the
risks and challenges of managing rent roll are higher than in the past it is
possible to achieve very attractive cash flow returns on equity net of debt
servicing costs. Further, there remains much impaired secondary property in the
hands of the banks, and we believe this will provide a steady flow of
transactions with the appropriate cocktail of sensible entry prices and asset
management opportunities.
Through our acquisitions in the past year, I believe that we have enhanced our
well established reputation for reliability in deal execution and tried and
tested deal selection criteria and our asset management expertise has held us in
good stead. We have entered our second year of operation with, we believe, a
portfolio acquired at sensible entry prices and a robust balance sheet. Against
the background of a weak economy, we look to the future with huge enthusiasm and
a commitment to deliver net asset value per share growth for our shareholders.
Aubrey Adams
Chairman
28 June, 2010
Report from the Property Advisor
Prestbury Investments LLP exclusively advises Max Property Group Plc and is
pleased to report on the Group's first year of operations.
Industrious Portfolio
* Industrial portfolio acquisition completed October 2009 for GBP244.0
million including purchase costs
* A receivership sale of multi-let industrial estates valued at c. GBP700
million at the peak of the market; replacement cost at acquisition estimated
at GBP544 million
* Gross initial yield on purchase 12.7%; GBP31psf capital value; 20%
vacancy rate by area
* Total sales of non core assets of c. GBP40 million at c. GBP10 million over
gross purchase prices comprising sales of GBP37.0 million to institutions at
an average yield of 7.5% and capital value of GBP130psf plus a GBP2.7 million
sale of the biggest void by value to an owner occupier
* Over 200 lettings and lease renewals and restructurings in the first
nine months has brought the vacancy rate down to 18%
Current portfolio
* 81 properties
* 800 tenants
* 1,233 lettable units
* 7.1 million sq ft
* Average unit size: 5,700 sq ft
* Highly liquid: 75% of properties by number are lot sizes of GBP3
million or below
* 50% of properties by value in South of England
* Weighted average unexpired lease term: 4 years
The Industrious portfolio predominantly comprises smaller units that appeal to a
wide variety of users. A very high level of asset management activity has
reduced voids by 10% since purchase. At the moment we are aware of tenants
planning to vacate 2% of the units by floor area during the current financial
year, matched by a similar volume of floor space under offer to let.
Two properties make up 21% of the portfolio by value:
* Castle Estate, High Wycombe; 372,000 sq ft
* Martlesham Heath Business Park, Ipswich; 503,000 sq ft
All other properties each make up less than 5% of the portfolio value.
Industrial Portfolio
+-----------+------------+--------+----------+---------+-------------+---------+
| | | | | | | |
| | 31 March| | | | | |
| | 2010| Percent| Capital| | Number of|Number of|
|Region | | | value psf| Area| properties| units|
| | Valuation *|of total| | | | |
+-----------+------------+--------+----------+---------+-------------+---------+
| | GBP000| %| GBP| sq ft| | |
+-----------+------------+--------+----------+---------+-------------+---------+
+-----------+------------+--------+----------+---------+-------------+---------+
|South East | 77,005| 32| 61.44|1,253,352| 14| 258|
+-----------+------------+--------+----------+---------+-------------+---------+
|East Anglia| 23,315| 10| 42.83| 544,374| 2| 149|
+-----------+------------+--------+----------+---------+-------------+---------+
|South West | 15,720| 7| 39.20| 401,061| 8| 100|
+-----------+------------+--------+----------+---------+-------------+---------+
|Midlands | 37,005| 15| 25.89|1,429,208| 18| 182|
+-----------+------------+--------+----------+---------+-------------+---------+
|North West | 30,005| 13| 26.07|1,151,006| 17| 224|
+-----------+------------+--------+----------+---------+-------------+---------+
|Yorkshire | 12,650| 5| 40.83| 309,810| 11| 175|
+-----------+------------+--------+----------+---------+-------------+---------+
|North East | 31,875| 13| 22.88|1,393,114| 3| 94|
+-----------+------------+--------+----------+---------+-------------+---------+
|Scotland | 11,625| 5| 20.20| 575,529| 8| 51|
+-----------+------------+--------+----------+---------+-------------+---------+
+-----------+------------+--------+----------+---------+-------------+---------+
+-----------+------------+--------+----------+---------+-------------+---------+
|Total | 239,200| 100| 33.89|7,057,454| 81| 1,233|
+-----------+------------+--------+----------+---------+-------------+---------+
+-----------+------------+--------+----------+---------+-------------+---------+
* The valuation above includes properties held for resale at 31 March 2010 at
a value of GBP2,080,000
Office portfolio
* Acquired January 2010 for c. GBP39 million ( GBP1 million of which
completed after the balance sheet date) including purchase costs
* Ten office investments, mainly late 1980s air conditioned
* Reinstatement cost c. GBP180 million
* Nine freeholds; one 105 year peppercorn leasehold
* 760,000 sq ft in 21 buildings
* 61% South East, 33% Manchester, 6% Bristol
* Multi-let to 48 tenants typically on five-year leases
* 46% vacant by floor area, 70% of which was already refurbished at
acquisition
* Rents passing GBP5.0 million ( GBP12psf)
* GBP5.9 million from vendor in escrow to be drawn against outgoings on
voids for three years
* 12.7% initial yield
* GBP50psf capital value
Post period end, the only property within the portfolio built before the late
1980s - WestPoint, a 15 storey 1970s office building in Old Trafford, Manchester
- was sold for GBP5.8 million providing an initial profit over 31 March, 2010 book
value of GBP1.6 million with a potential further contingent receipt of c. GBP0.25
million.
The remaining properties are:
Concorde Business Park, Manchester 125,000 sq ft
* Late 80s park of five air conditioned buildings near Manchester
airport
* Two buildings recently let to Serco and Trevor Jones accountants at
GBP15psf
* Three buildings are empty, two of which are recently refurbished by
the vendor
* New café constructed
* Leasehold 105 years unexpired at peppercorn
Broadlands Business Campus, Horsham 116,000 sq ft
* Late 80s park of two air conditioned buildings plus consent for
100,000 sq ft
* 66% let to Ericsson and Rockwell subsidiaries and C Med at GBP13psf
average
* 34% vacant but refurbished by the vendor
Centric MK, Milton Keynes 107,000 sq ft
* 1990s decentralised air conditioned office building
* 50% let to Getronics and Computercenter at GBP12psf average
* 50% vacant but refurbished by the vendor
* Minority interest of 16.7% held by experienced local investors who
invested GBP1 million in all three of the Group's Milton Keynes assets
Silbury Court, Milton Keynes 77,000 sq ft
* 1980s town centre air conditioned office building
* Let on 20 leases to 13 tenants at GBP15psf average
* 34% vacant, three quarters of which has been refurbished by the
vendor
Solent Centre, Fareham 71,000 sq ft
* Three late 80s air conditioned office buildings
* Lakeside location in premier South Coast business park
* Let to 12 tenants at GBP13psf average
* 55% vacant, two thirds of which has been refurbished by the vendor
Overbridge Square, Newbury 66,000 sq ft
* Five 1980s air conditioned office buildings, just off the A4
* Let to five tenants at average GBP15psf
* 30% of the space is unlet but refurbished by the vendor
New Bond House, Bristol 47,000 sq ft
* 1980s air conditioned development behind Georgian façade
* Refurbished in 2009 by the vendor
* 67% empty
Workplace Building, Rooksley, Milton Keynes 27,000 sq ft
* 1980s air conditioned office building with self contained industrial
unit
* Let until Sept 2013
* Low site cover
Aldrin Place, Farnborough 25,000 sq ft
* Late 1980s air conditioned office building
* Zurich Insurance vacated in 2009
* Vacant and unrefurbished
Hospitals portfolio
* Portfolio of four freehold private hospitals in Blackburn, Liverpool,
Ayr and Stirling acquired by joint venture company in May 2010 for GBP31.6
million
* Joint venture with Lloyds Banking Group - Max has 45% of the
economics and 50% of the votes (Lloyds has 50% of votes and economics)
* Non recourse debt at 100% of purchase price
* Each hospital is let to BMI Healthcare Limited, guaranteed by General
Healthcare Group Limited (GHG) for a term of 25 years from May 2010 with a
tenant option to renew for a further ten years on full repairing and
insuring terms with the tenant responsible for all outgoings
* Initial rent of GBP2.3 million pa
* Annual, upwards only RPI-linked rent reviews throughout the term
* GHG is the UK's largest private healthcare provider with 67 hospitals
and treatment centres across the UK, and generated an EBIDTA of GBP220.6
million in 2009, up from GBP203.9 million in 2008
Portfolio valuation movements in the period to 31 March 2010
+------------+----------------------------------+-----------------------------+
| | Uplift over gross purchase price | IPD* over equivalent period |
+------------+----------------------------------+-----------------------------+
| Industrial | 13.4% | 8.1% (7 months) |
+------------+----------------------------------+-----------------------------+
| Offices | 24.5% | 3.0% (2 months) |
+------------+----------------------------------+-----------------------------+
+------------+----------------------------------+-----------------------------+
| Average | 15.0% | |
+------------+----------------------------------+-----------------------------+
* Investment Property Databank monthly capital growth index for the relevant
sector
Portfolio valuation yields at 31 March 2010
+----------+-----------+--------------+----------------+----------+------------+
| | | | | | Weighted|
| | | | | | average|
| | | Equivalent| Reversionary| Capital| unexpired|
| | Initial| yield| yield| value psf| lease term|
| | yield| | | | |
+----------+-----------+--------------+----------------+----------+------------+
+----------+-----------+--------------+----------------+----------+------------+
|Industrial| 10.58%| 10.63%| 11.30%| GBP33| 4.0 years|
+----------+-----------+--------------+----------------+----------+------------+
|Offices | 8.97%| 10.87%| 15.49%| GBP68| 3.1 years|
+----------+-----------+--------------+----------------+----------+------------+
+----------+-----------+--------------+----------------+----------+------------+
+----------+-----------+--------------+----------------+----------+------------+
|Average | 10.30%| 10.67%| 11.96%| GBP36| 3.9 years|
+----------+-----------+--------------+----------------+----------+------------+
Financial review
Movements in net asset value
The increase in the Group's net asset value over the ten months from listing to
31 March, 2010 comprises:
+--------------------------+-----+---------+-------------------------+---------+
| | | | | |
| | | | | |
| | | | | Pence|
| | | Minority| Attributable to| |
| |Gross| | Shareholders|per share|
| | |interests| | |
+--------------------------+-----+---------+-------------------------+---------+
| | GBPm| GBPm| GBPm| |
+--------------------------+-----+---------+-------------------------+---------+
+--------------------------+-----+---------+-------------------------+---------+
|Property revaluation | 24.8| (0.5)| 24.3| 11.0|
|surpluses | | | | |
+--------------------------+-----+---------+-------------------------+---------+
|Discount on acquisition of| | | | |
|Industrious portfolio | 15.5| -| 15.5| 7.0|
+--------------------------+-----+---------+-------------------------+---------+
|Portfolio uplift over cash| 40.3| (0.5)| 39.8| 18.0|
|cost | | | | |
+--------------------------+-----+---------+-------------------------+---------+
|Net property income and | | | | |
|surpluses on sales | 17.4| -| 17.4| 8.0|
+--------------------------+-----+---------+-------------------------+---------+
|Running costs |(4.2)| -| (4.2)| (1.9)|
+--------------------------+-----+---------+-------------------------+---------+
|Revaluation of hedging | | | | |
|instruments, net of tax |(2.8)| -| (2.8)| (1.3)|
+--------------------------+-----+---------+-------------------------+---------+
|Net finance costs |(2.9)| -| (2.9)| (1.3)|
+--------------------------+-----+---------+-------------------------+---------+
|Tax |(1.8)| -| (1.8)| (0.8)|
+--------------------------+-----+---------+-------------------------+---------+
|Minority interest | 1.0| (1.0)| -| -|
+--------------------------+-----+---------+-------------------------+---------+
+--------------------------+-----+---------+-------------------------+---------+
+--------------------------+-----+---------+-------------------------+---------+
|Group balance sheet NAV | 47.0| (1.5)| 45.5| 20.7|
|uplift | | | | |
+--------------------------+-----+---------+-------------------------+---------+
+--------------------------+-----+---------+-------------------------+---------+
|Add trading property fair | 1.6| -| 1.6| 0.7|
|value uplift | | | | |
+--------------------------+-----+---------+-------------------------+---------+
|Add back fair value of | | | | |
|hedging instruments, net | 3.0| -| 3.0| 1.4|
|of tax | | | | |
+--------------------------+-----+---------+-------------------------+---------+
+--------------------------+-----+---------+-------------------------+---------+
|EPRA NAV Uplift | 51.6| (1.5)| 50.1| 22.8|
+--------------------------+-----+---------+-------------------------+---------+
+--------------------------+-----+---------+-------------------------+---------+
The EPRA net asset value measure strips out the effects of hedging valuation
movements, because hedging instruments are held for long term benefit and are
expected to unwind over time, rather than to crystallise at the balance sheet
date. It also includes an adjustment to reflect trading property at fair value.
The uplift in the fair value of trading properties shown above relates to the
WestPoint office building in Manchester, which was sold after the balance sheet
date, and the trading property fair value uplift above has been realised on sale
and will be reflected as a realised profit in the 2011 financial statements.
Revaluation uplift
The Group's investment property portfolio was valued by independent property
valuers CB Richard Ellis Limited as at 31 March, 2010. In their opinion, the
open market value of the investment property portfolio at that date was GBP283.9
million, comprising GBP240.1 million for the Industrial portfolio and GBP43.8
million for the Office portfolio. Of the total revaluation surplus of GBP24.8
million, GBP15.5 million is attributable to the Industrial portfolio and GBP9.3
million to the Offices.
Discount on acquisition
The discount on the acquisition of the Industrial portfolio of GBP15.5 million is
the amount by which the fair value of the assets acquired as at the date of
acquisition exceeded the consideration paid for it. The accounting treatment of
the acquisition and the composition of the discount on acquisition is explained
in note 6.
The Directors have reassessed the fair value of certain trade debtors which were
assigned to the Group at the time of the acquisition. The recoverability of the
debts, all of which were past due, was considered to be doubtful at the time of
acquisition. However, intensive debt recovery efforts have resulted in the
recovery of GBP0.5 million of these historic debtors, resulting in a reassessment
of their fair value and consequently an increase in the discount on acquisition
over the amount included in the interim report for the period ended 30
September, 2009.
Had the Industrious acquisition been treated as a straightforward property
acquisition and not as a 'business combination' with the assets treated as
having been acquired at fair value, GBP15.1 million of the GBP15.5 million disclosed
in these accounts as a discount on acquisition would have been included in the
income statement as part of the total revaluation uplift for assets still owned
at the balance sheet date and within profits on disposal for assets that have
been sold in the period. Of the GBP15.5 million of discount on acquisition, GBP3.5
million or 23% relates to properties that have been sold in the period. Had the
Industrious acquisition been treated as a straightforward property acquisition,
the surplus on investment property sales would have been GBP5.6 million rather
than GBP1.8 million and that profits on trading properties would have been GBP4.3
million rather than the GBP4.6 million reported.
Net income from property activities
The property income and surpluses comprise the following:
+-------------------------------------------------------+------+---------------+
| | | |
| | | |
| | |Pence per share|
| | GBPm| |
+-------------------------------------------------------+------+---------------+
+-------------------------------------------------------+------+---------------+
|Gross rent | 14.9| 6.7|
+-------------------------------------------------------+------+---------------+
|Direct property costs | (3.8)| (1.7)|
+-------------------------------------------------------+------+---------------+
|Rental surplus | 11.1| 5.0|
+-------------------------------------------------------+------+---------------+
+-------------------------------------------------------+------+---------------+
|Proceeds from sale of trading properties | 23.2| 10.6|
+-------------------------------------------------------+------+---------------+
|Cost of trading properties sold |(18.7)| (8.5)|
+-------------------------------------------------------+------+---------------+
|Surplus from sale of trading properties | 4.5| 2.1|
+-------------------------------------------------------+------+---------------+
+-------------------------------------------------------+------+---------------+
|Proceeds from sale of investment properties | 16.5| 7.5|
+-------------------------------------------------------+------+---------------+
|Cost of investment properties sold |(14.7)| (6.7)|
+-------------------------------------------------------+------+---------------+
|Profit on sale of investment properties | 1.8| 0.8|
+-------------------------------------------------------+------+---------------+
+-------------------------------------------------------+------+---------------+
|Total earned income from net rent and property sales,| | |
|before tax | 17.4| 7.9|
+-------------------------------------------------------+------+---------------+
+-------------------------------------------------------+------+---------------+
Under the terms of the acquisition of the Office portfolio, the seller deposited
GBP5.9 million into an escrow account, which is used to meet the running costs in
relation to that portfolio for the three years following completion of the
acquisition on 5 February, 2010. In accordance with applicable current
accounting standards, the positive benefit of the escrow account is not
reflected in the income statement but as a reduction in the cost of the assets.
Consequently the benefit of the escrow account is shown in the income statement
as an increase in the revaluation movement in the period. The benefit of the
escrow arrangements reflected in the income statement for the two month period
from the acquisition to 31 March 2010 was GBP0.3 million and the cash flow benefit
in the period was GBP0.5 million.
The net rental surplus of GBP11.1 million is net of provisions for specific tenant
arrears for rent, service charges and other tenant billings that are not likely
to be recovered. This amounts to GBP0.9 million in the period, the rental element
of which is GBP0.8 million or 3.5% of the rent billed in the period.
'Triple net asset value'
The 'triple net asset value' in a property investment group is the net asset
value after excluding the mark to market costs of debt and hedging instruments
and any inherent tax. For Jersey resident entities, there is no tax liability on
investment property sales, therefore there is no adjustment for inherent tax.
The Group's triple net asset value at 31 March 2010 is shown below:
+--------------------------------------------------------+-----+---------------+
| | |Pence per share|
| | GBPm| |
+--------------------------------------------------------+-----+---------------+
+--------------------------------------------------------+-----+---------------+
|Net asset value attributable to owners of the Company |256.9| 116.8|
|per the Group financial statements | | |
+--------------------------------------------------------+-----+---------------+
|Adjustments: | | |
+--------------------------------------------------------+-----+---------------+
|Fair value of trading properties | 1.6| 0.7|
+--------------------------------------------------------+-----+---------------+
|Fair value of hedging instruments | 3.8| 1.7|
+--------------------------------------------------------+-----+---------------+
|Deferred tax |(0.8)| (0.3)|
+--------------------------------------------------------+-----+---------------+
+--------------------------------------------------------+-----+---------------+
+--------------------------------------------------------+-----+---------------+
|EPRA net asset value |261.5| 118.9|
+--------------------------------------------------------+-----+---------------+
|Less fair value of hedging instruments, net of deferred|(3.0)| (1.4)|
|tax | | |
+--------------------------------------------------------+-----+---------------+
+--------------------------------------------------------+-----+---------------+
+--------------------------------------------------------+-----+---------------+
|Triple net asset value on an EPRA basis |258.5| 117.5|
+--------------------------------------------------------+-----+---------------+
+--------------------------------------------------------+-----+---------------+
Administrative expenses
As an externally managed business, the Group's running costs principally
comprise the management fee payable to Prestbury Investments LLP, which amounted
to GBP3.4 million in the period. The other principal component of the Group's GBP4.2
million running costs is GBP0.6 million of corporate costs. Corporate costs are
the costs necessarily incurred by virtue of the Company being a listed company,
such as listing fees and Non-Executive Directors' fees.
Cash flow
The Group has produced strong cash flows from operations of GBP36.4 million,
represented by cash returns generated by the Group's property activities before
financing. Cash flows after net cash outflow for servicing debt net of interest
income was GBP32.9 million.
During the period, GBP278.0 million has been employed in the acquisition of real
estate. A net GBP117.1 million has been raised from bank debt (after the financing
costs incurred) and GBP1.0 million from a minority investor, resulting in GBP159.9
million of the Group's cash resources being deployed in property investment in
the period to 31 March, 2010.
Tax
The tax charge for the year of GBP1.8 million represents an effective tax rate of
17.5% on the GBP10.4 million of pre tax profit excluding the discount on
acquisition and investment property revaluation surplus. Tax is payable at a
rate of 20% on the net rental surplus after deductible interest costs. There is
no tax payable on investment property capital gains, which is the principal
reason for the difference between the income tax rate of 20% and the effective
tax rate.
Financing
The Group's financing strategy is to use leverage with a view to enhancing
equity returns whilst maintaining prudent levels of interest cover and
protecting shareholders' funds. As stated at the time of the Company's listing
last year, the Board intends to ensure that:
* interest rate risk is hedged such that the maximum interest cost on
any loan is predictable over the term of the loan;
* maturity profiles are managed to reduce refinancing risk; and
* interest cover is considered having regard to upside and downside
scenarios.
This approach has been consistently applied in the period.
The acquisition of the Industrious portfolio was partially debt financed. A
non-recourse loan of GBP127.7 million was drawn on acquisition. Debt repaid out of
the proceeds of property sales had, by 31 March, 2010, reduced the debt to
GBP119.2 million.
The assets on which the debt is secured are solely those within the partnership
that owns the Industrial portfolio of investment properties. As at 31 March,
2010, the principal assets held as security for the bank debt were the
investment property assets valued independently at GBP240.1 million and secured
cash held within the structure at that date of GBP5.0 million. The lender has no
recourse to other assets of the Group beyond those within the Industrious
investment property substructure.
Disposals since the period end have further reduced the gross debt to GBP117.8
million secured on investment property with a 31 March, 2010 valuation of GBP237.0
million.
The interest rate risk on the facility has been managed by way of interest rate
hedging products. The Group has the benefit of an interest rate swap fixing the
cost of funds on GBP70.6 million at 4.0% per annum and an interest rate cap
protecting the cost of funds on a further GBP56.75 million at the prevailing
market rate for three month LIBOR subject to a maximum of 4.0% per annum. The
average interest cost of the facility over the period to 31 March, 2010
including the lender's margin was 4.9%. The maximum rate payable is 6.7% per
annum, which would be payable in the event that three month LIBOR reaches or
exceeds 4.0%. This includes currently 0.3% per annum arising from a small
overhedged position on the facility. The arrangement fees and other costs of the
debt agreement are apportioned across the portfolio and written off over the
term of the loan or to the date of sale of an asset, whichever is the earlier.
This adds c. 0.3% per annum, included in the cost of finance reflected in the
income statement.
The loan falls due for repayment on 4 August, 2014. The term of each of the
hedging instruments is coterminous with the term of the debt.
As is usual in facilities of this nature, the borrower has committed to certain
loan covenants. The principal financial covenants are those relating to the loan
to value ratio and the interest cover ratio. The loan to value ratio is tested
on the basis of the half yearly valuations. In the event that the loan to value
ratio exceeds 60% but is less than 65%, then all surplus rent from the
investments are applied in amortisation of the loan. In the event that the loan
to value ratio exceeds 65%, a default would occur, however it should be noted
that any such breach could be cured by way of a cash prepayment. The valuation
of the portfolio as at 31 March, 2010 could fall by 24% before the 65% LTV level
is breached.
The interest cover ratio is tested quarterly on a 12 month projection of
contracted income net of expected property costs and must meet a minimum
required level of finance costs 1.75 times covered by net rent. As at the most
recent test date on 29 April, 2010, the projected net rent could fall by 30%
before a breach would occur.
The facility is an interest only facility for as long as the loan to value ratio
is maintained within specified levels, and these levels have been maintained to
date.
The Office portfolio was financed wholly from the Group's cash resources. The
Directors concluded that the cash flow profile of the portfolio was such that
debt finance is not currently considered appropriate, however this will be
reassessed regularly.
The joint venture transaction entered into after the balance sheet date is
financed on a non-recourse basis, meaning that none of the Group's capital is at
risk in this transaction. The interest rate risk on the portfolio finance has
been managed by way of a swap for the term of the loan that fixes the rate
payable on the debt at 5.6% per annum.
Mike Brown, Chief Executive
Prestbury Investments LLP
28 June, 2010
Group Income Statement
+------------------------------------------+------+------------------+
| | | 17 April 2009 to |
+------------------------------------------+------+------------------+
| | | 31 March 2010 |
+------------------------------------------+------+------------------+
| | Note | GBP000 |
+------------------------------------------+------+------------------+
+------------------------------------------+------+------------------+
| Gross rental income | | 14,890 |
+------------------------------------------+------+------------------+
| Proceeds from sale of trading properties | | 23,225 |
+------------------------------------------+------+------------------+
+------------------------------------------+------+------------------+
| | | 38,115 |
+------------------------------------------+------+------------------+
+------------------------------------------+------+------------------+
| Property outgoings | | (3,789) |
+------------------------------------------+------+------------------+
| Cost of properties sold | | (18,659) |
+------------------------------------------+------+------------------+
+------------------------------------------+------+------------------+
| | | (22,448) |
+------------------------------------------+------+------------------+
| Net rental income | | 11,101 |
+------------------------------------------+------+------------------+
| Profit on sale of trading properties | | 4,566 |
+------------------------------------------+------+------------------+
+------------------------------------------+------+------------------+
| Gross profit | | 15,667 |
+------------------------------------------+------+------------------+
| Administrative expenses: | | |
+------------------------------------------+------+------------------+
| General administrative expenses | | (3,568) |
+------------------------------------------+------+------------------+
| Corporate costs | | (627) |
+------------------------------------------+------+------------------+
| Total administrative expenses | | (4,195) |
+------------------------------------------+------+------------------+
| Investment property revaluation surplus | | 24,752 |
+------------------------------------------+------+------------------+
| Profit on sale of investment properties | | 1,838 |
+------------------------------------------+------+------------------+
| Discount on acquisition | 6 | 15,490 |
+------------------------------------------+------+------------------+
+------------------------------------------+------+------------------+
| Operating profit | 4 | 53,552 |
+------------------------------------------+------+------------------+
| Finance income | | 1,069 |
+------------------------------------------+------+------------------+
| Finance costs | | (3,960) |
+------------------------------------------+------+------------------+
+------------------------------------------+------+------------------+
| Profit before tax | | 50,661 |
+------------------------------------------+------+------------------+
| Tax charge | | (1,828) |
+------------------------------------------+------+------------------+
+------------------------------------------+------+------------------+
| Profit for the period | | 48,833 |
+------------------------------------------+------+------------------+
+------------------------------------------+------+------------------+
| Profit for the period attributable to: | | |
+------------------------------------------+------+------------------+
| Owners of the parent | | 48,334 |
+------------------------------------------+------+------------------+
| Minority interest | 9 | 499 |
+------------------------------------------+------+------------------+
+------------------------------------------+------+------------------+
| | | 48,833 |
+------------------------------------------+------+------------------+
+------------------------------------------+------+------------------+
+------------------------------------------+------+------------------+
| Earnings per share | | pence per share |
+------------------------------------------+------+------------------+
| Basic and diluted | 10 | 22.0 |
+------------------------------------------+------+------------------+
+------------------------------------------+------+------------------+
All amounts relate to continuing activities.
Group Statement of Comprehensive Income
+------------------------------------------------------++-----+----------------+
| || |17 April 2009 to|
+------------------------------------------------------++-----+----------------+
| || | 31 March 2010|
+------------------------------------------------------++-----+----------------+
| ||Note | GBP000|
+------------------------------------------------------++-----+----------------+
+------------------------------------------------------++-----+----------------+
|Profit for the period || | 48,833|
+------------------------------------------------------++-----+----------------+
|Market value adjustment of interest rate || | |
+------------------------------------------------------++-----+----------------+
|derivatives, recognised directly in equity ||15(b)| (3,329)|
+------------------------------------------------------++-----+----------------+
|Amortisation of interest rate swap, transferred || | |
| || | (169)|
|to income statement || | |
+------------------------------------------------------++-----+----------------+
|Tax effect of interest rate derivative valuation || | |
+------------------------------------------------------++-----+----------------+
|adjustment || | 700|
+------------------------------------------------------++-----+----------------+
+------------------------------------------------------++-----+----------------+
|Total comprehensive income for the period, net of tax || | 46,035|
+------------------------------------------------------++-----+----------------+
+------------------------------------------------------++-----+----------------+
+------------------------------------------------------++-----+----------------+
|Total comprehensive income for the period, net of tax,|| | |
|attributable to: || | |
+------------------------------------------------------++-----+----------------+
|Owners of the parent || | 45,536|
+------------------------------------------------------++-----+----------------+
|Minority interest || | 499|
+------------------------------------------------------++-----+----------------+
+------------------------------------------------------++-----+----------------+
| || | 46,035|
+------------------------------------------------------++-----+----------------+
+------------------------------------------------------++-----+----------------+
Group Statement of Changes in Equity
+-------------------------------+-------+-------+--------+---------+-------+
| | Stated|Hedging|Retained| Minority| |
+-------------------------------+-------+-------+--------+---------+-------+
| |capital|reserve|earnings|interests| Total|
+-------------------------------+-------+-------+--------+---------+-------+
| | GBP000| GBP000| GBP000| GBP000| GBP000|
+-------------------------------+-------+-------+--------+---------+-------+
+-------------------------------+-------+-------+--------+---------+-------+
|At incorporation | -| -| -| -| -|
+-------------------------------+-------+-------+--------+---------+-------+
+-------------------------------+-------+-------+--------+---------+-------+
|Profit for the period | -| -| 48,334| 499| 48,833|
+-------------------------------+-------+-------+--------+---------+-------+
+-------------------------------+-------+-------+--------+---------+-------+
|Market value adjustment | | | | | |
+-------------------------------+-------+-------+--------+---------+-------+
|of interest rate derivatives | -|(3,498)| -| -|(3,498)|
+-------------------------------+-------+-------+--------+---------+-------+
+-------------------------------+-------+-------+--------+---------+-------+
|Tax effect of interest rate | | | | | |
+-------------------------------+-------+-------+--------+---------+-------+
|derivative valuation adjustment| -| 700| -| -| 700|
+-------------------------------+-------+-------+--------+---------+-------+
+-------------------------------+-------+-------+--------+---------+-------+
+-------------------------------+-------+-------+--------+---------+-------+
|Total comprehensive income | | | | | |
+-------------------------------+-------+-------+--------+---------+-------+
|for the period, net of tax | -|(2,798)| 48,334| 499| 46,035|
+-------------------------------+-------+-------+--------+---------+-------+
+-------------------------------+-------+-------+--------+---------+-------+
|Loan capital issued to minority| | | | | |
+-------------------------------+-------+-------+--------+---------+-------+
|investor | -| -| -| 1,000| 1,000|
+-------------------------------+-------+-------+--------+---------+-------+
+-------------------------------+-------+-------+--------+---------+-------+
|Issue of ordinary shares | | | | | |
+-------------------------------+-------+-------+--------+---------+-------+
|of no par value |220,000| -| -| -|220,000|
+-------------------------------+-------+-------+--------+---------+-------+
+-------------------------------+-------+-------+--------+---------+-------+
|Share issue costs |(8,633)| -| -| -|(8,633)|
+-------------------------------+-------+-------+--------+---------+-------+
+-------------------------------+-------+-------+--------+---------+-------+
+-------------------------------+-------+-------+--------+---------+-------+
|At 31 March 2010 |211,367|(2,798)| 48,334| 1,499|258,402|
+-------------------------------+-------+-------+--------+---------+-------+
+-------------------------------+-------+-------+--------+---------+-------+
Group Balance Sheet
+---------------------------------------------------++-----+-------------------+
| || |As at 31 March 2010|
+---------------------------------------------------++-----+-------------------+
| ||Note | GBP000|
+---------------------------------------------------++-----+-------------------+
+---------------------------------------------------++-----+-------------------+
|Non-current assets: || | |
+---------------------------------------------------++-----+-------------------+
|Investment properties || | 285,358|
+---------------------------------------------------++-----+-------------------+
|Deferred tax asset || | 700|
+---------------------------------------------------++-----+-------------------+
+---------------------------------------------------++-----+-------------------+
| || | 286,058|
+---------------------------------------------------++-----+-------------------+
|Current assets: || | |
+---------------------------------------------------++-----+-------------------+
|Properties held for resale || | 5,252|
+---------------------------------------------------++-----+-------------------+
|Trade and other receivables || | 4,765|
+---------------------------------------------------++-----+-------------------+
|Cash deposits with maturities of more than three|| | 35,700|
|months || | |
+---------------------------------------------------++-----+-------------------+
|Cash and cash equivalents || | 66,916|
+---------------------------------------------------++-----+-------------------+
+---------------------------------------------------++-----+-------------------+
| || | 112,633|
+---------------------------------------------------++-----+-------------------+
+---------------------------------------------------++-----+-------------------+
|Total assets || | 398,691|
+---------------------------------------------------++-----+-------------------+
|Current liabilities: || | |
+---------------------------------------------------++-----+-------------------+
|Trade and other payables || | (15,529)|
+---------------------------------------------------++-----+-------------------+
|Corporation tax || | (1,828)|
+---------------------------------------------------++-----+-------------------+
|Interest rate swap and cap at market value ||15(b)| (2,308)|
+---------------------------------------------------++-----+-------------------+
+---------------------------------------------------++-----+-------------------+
| || | (19,665)|
+---------------------------------------------------++-----+-------------------+
|Non-current liabilities: || | |
+---------------------------------------------------++-----+-------------------+
|Borrowings || ( | (117,466)|
+---------------------------------------------------++-----+-------------------+
|Interest rate swap and cap at market value || (b) | (1,443)|
+---------------------------------------------------++-----+-------------------+
|Obligations under finance leases || | (1,715)|
+---------------------------------------------------++-----+-------------------+
+---------------------------------------------------++-----+-------------------+
| || | (120,624)|
+---------------------------------------------------++-----+-------------------+
+---------------------------------------------------++-----+-------------------+
|Total liabilities || | (140,289)|
+---------------------------------------------------++-----+-------------------+
+---------------------------------------------------++-----+-------------------+
|Net assets || | 258,402|
+---------------------------------------------------++-----+-------------------+
+---------------------------------------------------++-----+-------------------+
|Equity attributable to owners of the parent: || | |
+---------------------------------------------------++-----+-------------------+
|Stated capital || | 211,367|
+---------------------------------------------------++-----+-------------------+
|Hedging reserve || | (2,798)|
+---------------------------------------------------++-----+-------------------+
|Retained earnings || | 48,334|
+---------------------------------------------------++-----+-------------------+
+---------------------------------------------------++-----+-------------------+
| || | 256,903|
+---------------------------------------------------++-----+-------------------+
|Minority interest || 9 | 1,499|
+---------------------------------------------------++-----+-------------------+
+---------------------------------------------------++-----+-------------------+
|Total equity || | 258,402|
+---------------------------------------------------++-----+-------------------+
+---------------------------------------------------++-----+-------------------+
|Basic and diluted net asset value per share (pence)|| 19 | 116.8p|
+---------------------------------------------------++-----+-------------------+
+---------------------------------------------------++-----+-------------------+
|Adjusted (EPRA) net asset value per share (pence) || 19 | 118.9p|
+---------------------------------------------------++-----+-------------------+
+---------------------------------------------------++-----+-------------------+
Group Cash Flow Statement
+--------------------------------------------------------+----+----------------+
| | |17 April 2009 to|
+--------------------------------------------------------+----+----------------+
| | | 31 March 2010|
+--------------------------------------------------------+----+----------------+
| |Note| GBP000|
+--------------------------------------------------------+----+----------------+
+--------------------------------------------------------+----+----------------+
|Cash flows from operating activities: | | |
+--------------------------------------------------------+----+----------------+
|Profit before tax | | 50,661|
+--------------------------------------------------------+----+----------------+
|Adjustments for non-cash items: | | |
+--------------------------------------------------------+----+----------------+
|Investment property revaluation surplus | | (24,752)|
+--------------------------------------------------------+----+----------------+
|Profit on sale of investment properties | | (1,838)|
+--------------------------------------------------------+----+----------------+
|Discount on acquisition | | (15,490)|
+--------------------------------------------------------+----+----------------+
|Net finance costs | | 2,891|
+--------------------------------------------------------+----+----------------+
+--------------------------------------------------------+----+----------------+
|Cash flows from operations before changes in working | | 11,472|
|capital | | |
+--------------------------------------------------------+----+----------------+
|Change in trade and other receivables | | (4,162)|
+--------------------------------------------------------+----+----------------+
|Change in trade and other payables | | 13,829|
+--------------------------------------------------------+----+----------------+
|Change in properties held for resale | | 15,218|
+--------------------------------------------------------+----+----------------+
+--------------------------------------------------------+----+----------------+
|Cash flows from operations | | 36,357|
+--------------------------------------------------------+----+----------------+
+--------------------------------------------------------+----+----------------+
|Investing activities: | | |
+--------------------------------------------------------+----+----------------+
|Cash flows related to business acquisition | 6 | (243,895)|
+--------------------------------------------------------+----+----------------+
|Investment property acquisitions | | (34,133)|
+--------------------------------------------------------+----+----------------+
|Capital expenditure on investment properties | | (116)|
+--------------------------------------------------------+----+----------------+
|Proceeds from sales of investment properties | | 16,313|
+--------------------------------------------------------+----+----------------+
|Cash placed on short term deposit | | (35,700)|
+--------------------------------------------------------+----+----------------+
|Interest received | | 951|
+--------------------------------------------------------+----+----------------+
+--------------------------------------------------------+----+----------------+
|Cash flows from investing activities | | (296,580)|
+--------------------------------------------------------+----+----------------+
+--------------------------------------------------------+----+----------------+
|Financing activities: | | |
+--------------------------------------------------------+----+----------------+
|Net proceeds from share issue | | 211,367|
+--------------------------------------------------------+----+----------------+
|New borrowings | | 127,709|
+--------------------------------------------------------+----+----------------+
|Repayment of borrowings | | (8,515)|
+--------------------------------------------------------+----+----------------+
|Interest paid | | (2,353)|
+--------------------------------------------------------+----+----------------+
|Loan arrangement fees paid | | (2,069)|
+--------------------------------------------------------+----+----------------+
|Loan capital from minority investors | | 1,000|
+--------------------------------------------------------+----+----------------+
+--------------------------------------------------------+----+----------------+
|Cash flows from financing activities | | 327,139|
+--------------------------------------------------------+----+----------------+
+--------------------------------------------------------+----+----------------+
|Net increase in cash and cash equivalents | | 66,916|
+--------------------------------------------------------+----+----------------+
|Cash and cash equivalents at incorporation | | -|
+--------------------------------------------------------+----+----------------+
+--------------------------------------------------------+----+----------------+
|Cash and cash equivalents at 31 March, 2010 | | 66,916|
+--------------------------------------------------------+----+----------------+
+--------------------------------------------------------+----+----------------+
Notes to the preliminary announcement
The following notes are an extract from the Company's Annual Report and
Financial Statements for the period to 31 March 2010 which has been prepared in
accordance with International Financial Reporting Standards and upon which an
unqualified audit report has been given.
1. General information about the Group
Max Property Group Plc was listed on AIM and CISX on 27 May, 2009. It is a
closed-ended real estate investment company incorporated in Jersey on 17 April,
2009. The financial information set out in this report covers the period from
the date of incorporation to 31 March, 2010. The Company did not trade prior to
the date of listing.
This financial report includes the results and net assets of the Company and its
subsidiaries, together referred to as the Group.
Further general information about the Company 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.
i. Estimates and judgements
The financial statements are prepared on the historical cost basis except
that investment properties and derivative financial instruments are stated at
fair value. The accounting policies have been applied consistently in all
material respects.
The preparation of financial statements requires the Board to make
judgements, estimates and assumptions that may affect the application of
accounting policies and the reported amounts of assets and liabilities as at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Any estimates and assumptions are based on
experience and any other factors that are believed to be relevant under the
circumstances and which the Board considers reasonable. Actual outcomes may
differ from these estimates.
Any revisions to accounting estimates will be recognised in the period in
which the estimate is revised if the revision affects only that period. If the
revision affects both current and future periods, the change will be recognised
over those periods.
Certain accounting policies which have a significant bearing on the reported
financial condition and results of the Group require subjective or complex
judgements. The principal such areas of judgement are:
* property valuation, where the opinion of independent, external
valuers is obtained every six months; and
* the value of derivative financial instruments used to hedge
interest rate exposures, where the valuations adopted are independently
assessed every six months on the basis of market rates as at the balance
sheet date.
The Group's accounting policies for these matters where outcomes are more
reliant on judgement, together with other policies material to the Group, are
set out below.
ii) Adoption of new and revised standards
No new standards or interpretations issued by the International Accounting
Standards Board (IASB) or the International Financial Reporting Interpretations
Committee have led to any changes in the Group's accounting policies since
listing.
Standards and interpretations in issue not yet adopted
The IASB and the International Financial Reporting Interpretations Committee
have issued the following standards and interpretations that are mandatory for
later accounting periods and which have not been adopted early. These are:
Effective date
IFRS3 Business combinations (revised) 1 July 2009
IFRIC 19 Extinguishing financial liabilities with equity 1 April 2010
instruments
IAS 24 Revised related party disclosures 1 January 2011
IFRS 9 Financial instruments 1 January 2013
The Directors do not anticipate that the adoption of these standards and
interpretations will have a material impact on the Group's financial statements
in the period of initial application, other than on presentation and disclosure.
The IASB has also issued or revised IAS19, IAS27, IAS32, IAS39, IFRIC17 and
IFRIC18 which are not relevant to the operations of the Group.
c) Basis of consolidation
i) Subsidiaries
The consolidated financial statements include the financial statements of
all Group entities using the acquisition method. 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. In the consolidated balance sheet,
the identifiable net assets, liabilities and contingent liabilities of any
target entity will be 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 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.
ii) 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 assets,
liabilities and contingent liabilities purchased and any resulting deferred tax
thereon - the excess is recognised as goodwill. Any goodwill is recognised as an
asset and will be reviewed by the Board for impairment at least annually. Any
impairment is recognised immediately in the income statement and will not be
subsequently reversed. A discount on acquisition arises where there is an excess
of the fair value of the business acquired over the purchase price. Any discount
arising is credited to the income statement in the period of acquisition.
d) Property portfolio
i) Investment properties
Investment properties are properties owned or held leasehold by the Group
which are held for capital appreciation, rental income or both. They are
initially recorded at cost (or fair value where acquired as part of a business
combination) and subsequently valued at each balance sheet date at fair market
value on an open market basis as determined by professionally qualified
independent external valuers.
Gains or losses arising from changes in the fair value of investment
properties are recognised in the income statement in the period in which they
arise.
Depreciation is not provided in respect of investment properties.
Acquisitions and disposals of investment properties are recognised on
unconditional exchange of contracts where it is reasonable to assume at the
balance sheet date that completion of the acquisition or disposal will occur.
ii) Properties held for resale
Properties held for resale 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 turnover rents, rent reviews and indexation are recorded in the income
statement in the periods in which they are earned. Specifically:
* rent reviews are recognised when formally agreed;
* any rental income from fixed and minimum guaranteed rent reviews
are recognised on a straight line basis over the shorter of the term to
lease expiry or to the first tenant break option and where such income is
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;
* 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.
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.
vi) Surplus on sale of investment properties
Surpluses on sales of investment properties are calculated by reference to
the carrying value at the previous published balance sheet date, adjusted for
any subsequent capital expenditure or capital receipts.
e) Financial assets and liabilities
Financial assets and liabilities are recognised when the relevant Group
entity becomes a party to the contractual terms of the instrument. Unless
otherwise indicated, the carrying amounts of financial assets and liabilities
are a reasonable estimate of their fair values.
i) Trade and other receivables
Trade and other receivables are recognised initially at their fair value and
subsequently at their amortised cost. If there is objective evidence that the
recoverability of the asset is at risk, appropriate allowances for any estimated
irrecoverable amounts are recognised in the income statement.
ii) Trade and other payables
Trade and other payables are recognised initially at their fair value and
subsequently at their amortised cost.
iii) Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, deposits held at call with
banks and financial institutions and other short-term highly liquid investments
with original maturities of three months or less.
iv) Other financial assets
Other financial assets comprise deposits held with banks and other financial
institutions where the original term to maturity was more than three months.
v) Equity instruments
Equity instruments issued by the Company are recorded at the proceeds
received, net of direct issue costs.
vi) Borrowings and finance charges
Borrowings are initially recognised at their fair value, net of any
transaction costs directly attributable to their issue. Subsequently, loans are
carried at their amortised carrying value using the "effective interest
method", which spreads the interest expense over the period to maturity at a
constant rate on the balance of the liability carried in the balance sheet for
the relevant period.
Finance charges, including premiums payable on settlement or redemption, are
accounted for on an accruals basis using the effective interest method and are
added to the carrying amount of the instrument to the extent that they are not
settled in the period in which they arise.
vii) Derivative financial instruments
The Group uses derivative financial instruments to hedge its exposure to
cash flow interest rate risks.
It is anticipated that, generally, all hedging arrangements will be
"effective" within the meaning of IFRS and that the criteria necessary for
applying hedge accounting will be met. Therefore the gain or loss on the portion
of an instrument that qualifies as an effective hedge of cash flow interest rate
risk is recognised directly in other comprehensive income.
Any derivative financial instruments which are not effective hedges will be
recognised at fair value, with changes in fair value being included in the
income statement.
f) Provisions
A provision is recognised when a legal or constructive obligation exists as
a result of an event that has occurred prior to the balance sheet date and where
it is probable that an outflow of economic benefits will be required to settle
the obligation. Provisions will be measured at the Directors' best estimate of
the expenditure required to settle that obligation as at the balance sheet date,
and will be discounted to present value if the effect is material.
g) Distributions
Distributions relating to equity shares will be recognised when declared.
h) Management fees and incentive arrangement payments
Management fees and incentive arrangement payments are recognised in the
income statement in the period to which they relate. Amounts that are reasonably
likely to become payable are provided for in the financial statements and
balances will be discounted to reflect the deferred payment.
i) Tax
Tax is included in the income statement except to the extent that it relates
to income or expense items recognised directly in equity, in which case the
related tax will be recognised in equity.
Current tax is the expected tax payable on taxable income for the reporting
period, using tax rates enacted or substantively enacted at the balance sheet
date, together with any adjustment in respect of previous years.
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. Segmental information
During the period, the Group operated in and was managed as one business
segment, being property investment and trading, with all properties located in
the United Kingdom.
4. Operating profit
+----------------------------------------------------------++++----------------+
| ||||17 April 2009 to|
+----------------------------------------------------------++++----------------+
| |||| 31 March 2010|
+----------------------------------------------------------++++----------------+
| |||| GBP000|
+----------------------------------------------------------++++----------------+
+----------------------------------------------------------++++----------------+
|Operating profit is stated after charging: |||| |
+----------------------------------------------------------++++----------------+
|Property Advisor's management fees |||| 3,394|
+----------------------------------------------------------++++----------------+
|Directors' fees |||| 169|
+----------------------------------------------------------++++----------------+
|Auditors' remuneration for the audit of the Group and|||| |
|Company financial statements |||| 114|
+----------------------------------------------------------++++----------------+
The auditors were paid GBP150,000 during the period in relation to services
provided in connection with the flotation. These costs have been treated as
issue costs and charged directly to the stated capital reserve.
The Group has no employees.
Fees payable to the Directors in the period are as follows:
+---------------------------------------+++--------------------------------+
| ||| 17 April 2009 to 31 March 2010 |
+---------------------------------------+++--------------------------------+
| ||| GBP000 |
+---------------------------------------+++--------------------------------+
+---------------------------------------+++--------------------------------+
| Aubrey Adams ||| 59 |
+---------------------------------------+++--------------------------------+
| Mike Brown ||| - |
+---------------------------------------+++--------------------------------+
| Sandy Gumm ||| - |
+---------------------------------------+++--------------------------------+
| Keith Hamill ||| 25 |
+---------------------------------------+++--------------------------------+
| Nick Leslau ||| - |
+---------------------------------------+++--------------------------------+
| Alex Ohlsson ||| 31 |
+---------------------------------------+++--------------------------------+
| John Stephen ||| 25 |
+---------------------------------------+++--------------------------------+
| David Waters ||| 29 |
+---------------------------------------+++--------------------------------+
+---------------------------------------+++--------------------------------+
+---------------------------------------+++--------------------------------+
| Total charged to the income statement ||| 169 |
+---------------------------------------+++--------------------------------+
+---------------------------------------+++--------------------------------+
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 (depending on the type of property) and 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 as at 31
March, 2010 are set out in the table below and are calculated on the assumption
that any tenant with a break option does exercise that option.
+---------------------------+---------------------+
| | As at 31 March 2010 |
+---------------------------+---------------------+
| | GBP000 |
+---------------------------+---------------------+
+---------------------------+---------------------+
| Minimum rents receivable: | |
+---------------------------+---------------------+
| within one year | 1,414 |
+---------------------------+---------------------+
| in two to five years | 74,236 |
+---------------------------+---------------------+
| in more than five years | 49,419 |
+---------------------------+---------------------+
+---------------------------+---------------------+
| | 125,069 |
+---------------------------+---------------------+
+---------------------------+---------------------+
5. Acquisition of industrial portfolio
Details of the costs and fair values of the assets and liabilities acquired by
the Group on the acquisition of the Industrious portfolio are as follows:
+----------------------------------+---------+-------------+---------+
| | Price | | Fair |
+----------------------------------+---------+-------------+---------+
| | paid | Adjustments | value |
+----------------------------------+---------+-------------+---------+
| | GBP000 | GBP000 | GBP000 |
+----------------------------------+---------+-------------+---------+
+----------------------------------+---------+-------------+---------+
| Investment properties | 223,477 | 16,763 | 240,240 |
+----------------------------------+---------+-------------+---------+
| Properties held for resale | 20,513 | (43) | 20,470 |
+----------------------------------+---------+-------------+---------+
| Trade receivables | - | 485 | 485 |
+----------------------------------+---------+-------------+---------+
| Obligations under finance leases | - | (1,715) | (1,715) |
+----------------------------------+---------+-------------+---------+
+----------------------------------+---------+-------------+---------+
| Total | 243,990 | 15,490 | 259,480 |
+----------------------------------+---------+-------------+---------+
+----------------------------------+---------+-------------+---------+
+----------------------------------+---------+-------------+---------+
| Cash consideration comprises: | | | |
+----------------------------------+---------+-------------+---------+
| Purchase price | | | 232,101 |
+----------------------------------+---------+-------------+---------+
| Acquisition costs | | | 11,889 |
+----------------------------------+---------+-------------+---------+
+----------------------------------+---------+-------------+---------+
| Total acquisition cost | | | 243,990 |
+----------------------------------+---------+-------------+---------+
+----------------------------------+---------+-------------+---------+
+----------------------------------+---------+-------------+---------+
| Discount on acquisition: excess of fair value over cost | 15,490 |
+-----------------------------------+---------+------------+---------+
+-----------------------------------+---------+------------+---------+
Acquisition costs include GBP95,000 of accrued costs, included within trade and
other payables.
Substantially all of the income and gross profit in the Group for the period
relates to the Industrious portfolio.
(a) Description of the acquisition
The acquisition comprised two transactions under contracts with the same vendor
group and in respect of 87 properties. The first transaction was the acquisition
of seven properties, acquired unconditionally at auction on 16 July, 2009. The
second transaction was for 80 properties, contracts for which became
unconditional on 25 August, 2009.
The total consideration before expenses for the two transactions was
GBP232,101,000 and the costs of acquisition for the transaction (principally
comprising stamp duty land tax at 4% of the contract price) amounted to
GBP11,889,000 resulting in a total cost of GBP243,990,000.
(b) Explanation of accounting for the transaction
The acquisition has been accounted for under the Company's accounting policies
which are in accordance with applicable current accounting standards. Under
these policies, the two transactions have been accounted for as a single
acquisition and the dates on which the transactions took place for accounts
purposes are the dates on which contracts became unconditional.
The transaction has been accounted for as a "business combination". As a result,
the separable intangible and tangible assets and liabilities acquired have been
identified and accounted for at fair value. For this purpose, fair value is
determined as the open market value of each separable asset and liability,
including each individual property, as at the acquisition date between a
theoretical willing buyer and willing seller in an arm's length transaction
involving parties who are in an equivalent position. It does not take account of
special characteristics of the parties such as financing issues and long term
objectives, or the effect of assets being acquired as part of a portfolio. A
deduction is made to reflect the acquisition costs of any future purchaser. The
fair value of the separable assets and liabilities does not take account of the
actual consideration paid, which reflects the particular circumstances of the
parties to the transaction.
The difference between the fair value of the assets and liabilities acquired and
the costs of the transaction is treated as goodwill if the aggregate fair value
is less than the cost, and as a discount on acquisition if the aggregate fair
value is more than the cost. Under the applicable accounting standards, a
discount on acquisition is taken to the income statement for the period in which
the acquisition is accounted for.
The assets or liabilities identified as a result of the acquisition of the
portfolio were investment properties, trade receivables and obligations (arising
on long leasehold properties) under finance leases. No significant intangible
assets were identified. The market value of each of the properties acquired as
at the acquisition date was determined, in accordance with the accounting
policies, by CB Richard Ellis Limited, Commercial Real Estate Advisors, applying
the Royal Institution of Chartered Surveyors' Appraisal and Valuation Standards.
The fair value adjustments for the transaction are set out in the table above.
The fair value of the net assets acquired exceeded the cost of the transaction
by GBP15,490,000 and this amount has been included as a discount on acquisition in
the income statement for the period. The discount arises principally because the
Group was in a position to acquire a large portfolio from a motivated seller
whereas the valuation at fair value, as noted above, reflects a willing buyer
and willing seller and cannot take into account the specific circumstances of
the transaction.
5. Finance income and costs
+------------------------------------------------------------++----------------+
| ||17 April 2009 to|
+------------------------------------------------------------++----------------+
| || 31 March 2010|
+------------------------------------------------------------++----------------+
| || GBP000|
+------------------------------------------------------------++----------------+
+------------------------------------------------------------++----------------+
|Recognised in the income statement: || |
+------------------------------------------------------------++----------------+
|Finance income || |
+------------------------------------------------------------++----------------+
|Interest on cash deposits || 1,069|
+------------------------------------------------------------++----------------+
+------------------------------------------------------------++----------------+
+------------------------------------------------------------++----------------+
+------------------------------------------------------------++----------------+
|Finance costs || |
+------------------------------------------------------------++----------------+
|Bank interest and charges || 3,266|
+------------------------------------------------------------++----------------+
|Amortisation of loan issue costs || 341|
+------------------------------------------------------------++----------------+
|Reduction in value of interest rate cap in the period || 422|
+------------------------------------------------------------++----------------+
|Straight line amortisation of interest rate swap transferred|| |
|from hedging reserve || (169)|
+------------------------------------------------------------++----------------+
+------------------------------------------------------------++----------------+
|Finance costs in respect of bank loans || 3,860|
+------------------------------------------------------------++----------------+
|Finance lease interest || 100|
+------------------------------------------------------------++----------------+
+------------------------------------------------------------++----------------+
|Finance costs || 3,960|
+------------------------------------------------------------++----------------+
+------------------------------------------------------------++----------------+
+------------------------------------------------------------++----------------+
|Net finance costs recognised in income statement || 2,891|
+------------------------------------------------------------++----------------+
+------------------------------------------------------------++----------------+
+------------------------------------------------------------++----------------+
| ||17 April 2009 to|
+------------------------------------------------------------++----------------+
| || 31 March 2010|
+------------------------------------------------------------++----------------+
| || GBP000|
+------------------------------------------------------------++----------------+
+------------------------------------------------------------++----------------+
|Recognised in other comprehensive income: || |
+------------------------------------------------------------++----------------+
|Losses recognised on mark to market adjustment || |
+------------------------------------------------------------++----------------+
|to hedging instruments || 3,329|
+------------------------------------------------------------++----------------+
|Transfer of amortisation of interest rate swap || 169|
+------------------------------------------------------------++----------------+
+------------------------------------------------------------++----------------+
+------------------------------------------------------------++----------------+
|Net finance costs recognised in other comprehensive income || 3,498|
+------------------------------------------------------------++----------------+
+------------------------------------------------------------++----------------+
Further information about the hedging instruments, including details of their
valuation at the balance sheet date, is included in note 15.
At 31 March 2010 the Group had GBP70,552,000 of swaps and GBP56,750,000 of caps in
place. For rates below the 4% capped level, a 1% change in interest rates would
decrease or increase the Group's annual profit before tax by GBP486,000. A 1%
change in interest rates above the 4% capped rate would have no effect on
increase or decrease the Group's annual profit before tax.
The average interest rate payable by the Group on bank borrowings for the period
ended 31 March 2010, including all lender's margins but excluding amortised
finance costs, was 4.9%. The maximum rate payable in the period was 6.7%.
5. Taxation
+------------------------------------------------------------++----------------+
| ||17 April 2009 to|
+------------------------------------------------------------++----------------+
| || 31 March 2010|
+------------------------------------------------------------++----------------+
| || GBP000|
+------------------------------------------------------------++----------------+
+------------------------------------------------------------++----------------+
|Tax charge for the period recognised in the income || |
|statement: || |
+------------------------------------------------------------++----------------+
+------------------------------------------------------------++----------------+
|Current tax: || |
+------------------------------------------------------------++----------------+
|Tax on results for the period || 1,828|
+------------------------------------------------------------++----------------+
+------------------------------------------------------------++----------------+
The tax assessed for the period varies from the standard rate of income tax in
the UK of 20%. The differences are explained below:
+-------------------------------------------------------------+----------------+
| |17 April 2009 to|
+-------------------------------------------------------------+----------------+
| | 31 March 2010|
+-------------------------------------------------------------+----------------+
| | GBP000|
+-------------------------------------------------------------+----------------+
+-------------------------------------------------------------+----------------+
|Profit before tax | 50,661|
+-------------------------------------------------------------+----------------+
+-------------------------------------------------------------+----------------+
+-------------------------------------------------------------+----------------+
|Profit before tax at the standard rate of income tax in | |
+-------------------------------------------------------------+----------------+
|the UK of 20% | 10,132|
+-------------------------------------------------------------+----------------+
|Adjusted for the effects of: | |
+-------------------------------------------------------------+----------------+
|Revaluation surplus not subject to tax | (4,950)|
+-------------------------------------------------------------+----------------+
|Discount on acquisition not subject to tax | (3,001)|
+-------------------------------------------------------------+----------------+
|Income and investment property disposal profits not subject| (1,030)|
|to tax | |
+-------------------------------------------------------------+----------------+
|Expenses not deductible for tax | 711|
+-------------------------------------------------------------+----------------+
|Other | (34)|
+-------------------------------------------------------------+----------------+
+-------------------------------------------------------------+----------------+
| | 1,828|
+-------------------------------------------------------------+----------------+
+-------------------------------------------------------------+----------------+
+-------------------------------------------------------------+----------------+
|Deferred tax asset: | |
+-------------------------------------------------------------+----------------+
| | GBP000|
+-------------------------------------------------------------+----------------+
+-------------------------------------------------------------+----------------+
|At incorporation | -|
+-------------------------------------------------------------+----------------+
|Tax on interest rate derivative adjustment, | |
+-------------------------------------------------------------+----------------+
|credited to other comprehensive income | 700|
+-------------------------------------------------------------+----------------+
+-------------------------------------------------------------+----------------+
|At 31 March 2010 | 700|
+-------------------------------------------------------------+----------------+
+-------------------------------------------------------------+----------------+
Tax Status of the Company and its Subsidiaries
Any Group undertakings with 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 on their income or gains in Jersey. 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 interest costs is subject to UK income tax,
currently at a rate applicable to Group undertakings of 20%.
5. Minority interest
The minority interest is represented by a 16.7% investment by a third party in
three properties in Milton Keynes within the Offices portfolio.
+---------------------------------------------+-------+
| | GBP000 |
+---------------------------------------------+-------+
+---------------------------------------------+-------+
| At incorporation | - |
+---------------------------------------------+-------+
| Loan capital injected by minority investor | 1,000 |
+---------------------------------------------+-------+
| Minority interest in results for the period | 499 |
+---------------------------------------------+-------+
+---------------------------------------------+-------+
| At 31 March 2010 | 1,499 |
+---------------------------------------------+-------+
+---------------------------------------------+-------+
5. Earnings per share
The calculation of earnings per share is based on 220,000,002 ordinary shares in
issue throughout the period during which profits were earned and is based on
profits attributable to ordinary shareholders of the Company for the period
ended 31 March, 2010 of GBP48,334,000.
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:
+----------------------------------------------++++--------+---------------+
| |||| GBP000|Pence per share|
+----------------------------------------------++++--------+---------------+
+----------------------------------------------++++--------+---------------+
|Basic earnings |||| 48,334| 22.0|
+----------------------------------------------++++--------+---------------+
+----------------------------------------------++++--------+---------------+
|Less: |||| | |
+----------------------------------------------++++--------+---------------+
|Investment property revaluation movements, net|||| | |
+----------------------------------------------++++--------+---------------+
|of minority interests ||||(24,253)| (11.0)|
+----------------------------------------------++++--------+---------------+
|Discount on acquisition ||||(15,490)| (7.1)|
+----------------------------------------------++++--------+---------------+
|Profit on sale of investment properties |||| (1,838)| (0.8)|
+----------------------------------------------++++--------+---------------+
+----------------------------------------------++++--------+---------------+
|EPRA Earnings |||| 6,753| 3.1|
+----------------------------------------------++++--------+---------------+
+----------------------------------------------++++--------+---------------+
5. Investment properties
+---------------------------------------+-------------------------------------+
| | As at 31 March 2010 |
+---------------------------------------+--------+---------+---------+--------+
| | | Long| Short| |
+---------------------------------------+--------+---------+---------+--------+
| |Freehold|Leasehold|Leasehold| Total|
+---------------------------------------+--------+---------+---------+--------+
| | GBP000| GBP000| GBP000| GBP000|
+---------------------------------------+--------+---------+---------+--------+
+---------------------------------------+--------+---------+---------+--------+
|At incorporation | -| -| -| -|
+---------------------------------------+--------+---------+---------+--------+
|Acquisition of Industrious portfolio at| | | | |
+---------------------------------------+--------+---------+---------+--------+
|fair value | 169,660| 69,690| 890| 240,240|
+---------------------------------------+--------+---------+---------+--------+
|Acquisition of Office portfolio at cost| 25,195| 9,609| -| 34,804|
+---------------------------------------+--------+---------+---------+--------+
|Additions | 101| 167| -| 268|
+---------------------------------------+--------+---------+---------+--------+
|Drawings from escrow account | (175)| (56)| -| (231)|
+---------------------------------------+--------+---------+---------+--------+
|Revaluation movement | 25,083| (361)| 30| 24,752|
+---------------------------------------+--------+---------+---------+--------+
|Disposals |(14,475)| -| -|(14,475)|
+---------------------------------------+--------+---------+---------+--------+
+---------------------------------------+--------+---------+---------+--------+
|Carrying value as at 31 March 2010 | 205,389| 79,049| 920| 285,358|
+---------------------------------------+--------+---------+---------+--------+
|Headlease liabilities (note ) | -| (1,715)| -| (1,715)|
+---------------------------------------+--------+---------+---------+--------+
|Rent free periods (note 12) | 241| 66| -| 307|
+---------------------------------------+--------+---------+---------+--------+
+---------------------------------------+--------+---------+---------+--------+
|Total Group property portfolio | | | | |
+---------------------------------------+--------+---------+---------+--------+
|valuation at 31 March 2010 | 205,630| 77,400| 920| 283,950|
+---------------------------------------+--------+---------+---------+--------+
+---------------------------------------+--------+---------+---------+--------+
The investment properties acquired at fair value relate to the Industrious
portfolio acquisition and the accounting treatment is explained in note 6.
The properties were valued as at 31 March, 2010 by CB Richard Ellis Limited,
Commercial Real Estate Advisors, in their capacity as external valuers. The
valuation was undertaken in accordance with the Royal Institution of Chartered
Surveyors' Appraisal and Valuation Standards on the basis of market value.
Market value represents the estimated amount for which a property would be
expected to exchange at 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. A
deduction is made to reflect an estimate of the acquisition costs of any
purchaser.
The Group has the benefit of an escrow account established by the seller of the
Office portfolio from which funds can be drawn to meet void costs for the period
from the portfolio acquisition in February 2010 until 31 December, 2012. In
accordance with accounting standards, drawings from the escrow account are
treated as reductions in the cost of the assets. The escrow account was
GBP5,899,000 initially, against which GBP231,000 has been drawn in the period.
The historic cost of the Group's investment properties as at 31 March, 2010 was
GBP247,593,000.
5. Trade and other receivables
+--------------------------------------+------------------+
| | At 31 March 2010 |
+--------------------------------------+------------------+
| | GBP000 |
+--------------------------------------+------------------+
+--------------------------------------+------------------+
| Trade receivables | 4,439 |
+--------------------------------------+------------------+
| Less provision for doubtful debts | (896) |
+--------------------------------------+------------------+
+--------------------------------------+------------------+
| Trade receivables - net | 3,543 |
+--------------------------------------+------------------+
| Interest receivable | 118 |
+--------------------------------------+------------------+
| Rent free periods granted to tenants | 307 |
+--------------------------------------+------------------+
| Prepayments and accrued income | 797 |
+--------------------------------------+------------------+
+--------------------------------------+------------------+
| | 4,765 |
+--------------------------------------+------------------+
+--------------------------------------+------------------+
Other than GBP263,000 of rent free periods which are due in more than one year,
all amounts above are due within one year.
5. Cash and cash equivalents
Included within the Group's cash and cash equivalents balance as at 31 March
2010 of GBP66,916,000 are cash deposits of GBP5,040,000 in accounts held as security
by the provider of the secured bank debt.
5. Trade and other payables
+---------------------------------+------------------+
| | At 31 March 2010 |
+---------------------------------+------------------+
| | GBP000 |
+---------------------------------+------------------+
+---------------------------------+------------------+
| Trade payables | 2,526 |
+---------------------------------+------------------+
| Rent received in advance | 7,253 |
+---------------------------------+------------------+
| Other taxes and social security | 1,609 |
+---------------------------------+------------------+
| Other amounts payable | 1,358 |
+---------------------------------+------------------+
| Accruals and deferred income | 2,783 |
+---------------------------------+------------------+
+---------------------------------+------------------+
| | 15,529 |
+---------------------------------+------------------+
+---------------------------------+------------------+
All amounts above are due within one year.
5. Financial assets and liabilities
1. Non-current financial liabilities
+--------------------------------------------++------------------+
| || At 31 March 2010 |
+--------------------------------------------++------------------+
| || GBP000 |
+--------------------------------------------++------------------+
+--------------------------------------------++------------------+
| Non-current || |
+--------------------------------------------++------------------+
| Bank loans (secured) || 119,194 |
+--------------------------------------------++------------------+
| Unamortised finance costs || (1,728) |
+--------------------------------------------++------------------+
| || 117,466 |
+--------------------------------------------++------------------+
| Obligations under finance leases (note ) || 1,715 |
+--------------------------------------------++------------------+
| Interest rate swap and cap at market value || 1,443 |
+--------------------------------------------++------------------+
+--------------------------------------------++------------------+
| || 120,624 |
+--------------------------------------------++------------------+
+--------------------------------------------++------------------+
There was no difference between the book value and fair value of non-current
financial liabilities at 31 March, 2010.
On 4 August, 2009 a Group entity entered into an agreement with Eurohypo AG for
a five year non-recourse debt facility. A loan amounting to GBP127,709,000 was
drawn on 7 October, 2009, secured against the investment properties in the
Industrious portfolio. GBP8,515,000 of the loan was repaid during the period
following the sale of certain properties. The loan is due for repayment on 4
August, 2014 and, subject to remaining within agreed loan to value ratios, is an
interest only facility. It is secured on investment properties with a 31 March,
2010 valuation of GBP240,120,000.
The Group has no undrawn, committed borrowing facilities at 31 March, 2010.
2. Derivative financial instruments
The following derivative instruments were in place as at 31 March, 2010:
+------------------------+-----------+-------------+----------+
| | | | Market |
+------------------------+-----------+-------------+----------+
| | | | value at |
+------------------------+-----------+-------------+----------+
| | Protected | | 31 March |
+------------------------+-----------+-------------+----------+
| | rate | Expiry | 2010 |
+------------------------+-----------+-------------+----------+
| | % | | GBP000 |
+------------------------+-----------+-------------+----------+
+------------------------+-----------+-------------+----------+
| GBP70.6m amortising swap | 4.0 | August 2014 | (4,507) |
+------------------------+-----------+-------------+----------+
| GBP56.75m cap | 4.0 | August 2014 | 756 |
+------------------------+-----------+-------------+----------+
+------------------------+-----------+-------------+----------+
| | | | (3,751) |
+------------------------+-----------+-------------+----------+
+------------------------+-----------+-------------+----------+
Movements in the valuation of hedging instruments in the period are as follows:
+--------------------------------------+------------------+
| | At 31 March 2010 |
+--------------------------------------+------------------+
| | GBP000 |
+--------------------------------------+------------------+
+--------------------------------------+------------------+
| At incorporation | - |
+--------------------------------------+------------------+
| Charged to income statement (note 7) | (422) |
+--------------------------------------+------------------+
| Charged directly to hedging reserve | (3,329) |
+--------------------------------------+------------------+
+--------------------------------------+------------------+
+--------------------------------------+------------------+
| | (3,751) |
+--------------------------------------+------------------+
+--------------------------------------+------------------+
+-------------------------------+------------------+
| | At 31 March 2010 |
+-------------------------------+------------------+
| | GBP000 |
+-------------------------------+------------------+
+-------------------------------+------------------+
| The liability above is split: | |
+-------------------------------+------------------+
| within one year | 2,308 |
+-------------------------------+------------------+
| in more than one year | 1,443 |
+-------------------------------+------------------+
+-------------------------------+------------------+
| | 3,751 |
+-------------------------------+------------------+
+-------------------------------+------------------+
The derivative contracts have been valued by reference to interbank bid market
rates as at the close of business on 31 March, 2010 by JC Rathbone Associates
Limited, and include the full LIBOR basis spread. This is a 'level 2' fair value
movement as defined in IFRS7, Derivative Financial Instruments Disclosures.
These derivative valuations do not take account of any accrued benefit or
liability for the period from the last rollover date until 31 March, 2010
because the accrued net cost for that period is included within the interest
accrual at the period end.
The market values of hedging instruments change constantly with interest rate
fluctuations, but the exposure of the Group to movements in interest rates is
protected by way of the hedging products listed above. The valuation above does
not necessarily reflect the cost or gain to the Group of cancelling its interest
rate protection at 31 March, 2010, which is generally a marginally higher cost
or smaller gain than a market valuation.
The interest rate swap and cap have been entered into in order to hedge the
interest rate liabilities on the Group's secured debt, which matures in August
2014. The interest rate swap and cap mature at the same time and the profile of
the notional swapped and capped amounts has been estimated to match the expected
loan profile reasonably closely. The loan profile cannot be predicted with
certainty therefore the swap and cap profiles are monitored regularly and
adjusted as necessary.
3. Categories of financial instruments
+---------------------------------------------------------++------------------+
| || Financial assets |
+---------------------------------------------------------++------------------+
| || GBP000 |
+---------------------------------------------------------++------------------+
+---------------------------------------------------------++------------------+
| Current assets: || |
+---------------------------------------------------------++------------------+
| Cash and cash equivalents (note 13) || 66,916 |
+---------------------------------------------------------++------------------+
| Cash deposits with maturities of more than three months || 35,700 |
+---------------------------------------------------------++------------------+
| Trade receivables (note 12) || 3,543 |
+---------------------------------------------------------++------------------+
| Interest receivable (note 12) || 118 |
+---------------------------------------------------------++------------------+
+---------------------------------------------------------++------------------+
+---------------------------------------------------------++------------------+
| At 31 March 2010 || 106,277 |
+---------------------------------------------------------++------------------+
+---------------------------------------------------------++------------------+
+---------------------------------------------++-----------------------+
| || Financial liabilities |
+---------------------------------------------++-----------------------+
| || GBP000 |
+---------------------------------------------++-----------------------+
+---------------------------------------------++-----------------------+
| Current liabilities: || |
+---------------------------------------------++-----------------------+
| Trade payables (note 14) || 2,526 |
+---------------------------------------------++-----------------------+
| Accrued interest || 1,013 |
+---------------------------------------------++-----------------------+
| Derivative financial instruments (note 15b || 2,308 |
+---------------------------------------------++-----------------------+
+---------------------------------------------++-----------------------+
| Non current liabilities: || |
+---------------------------------------------++-----------------------+
| Borrowings (note 15a) || 117,466 |
+---------------------------------------------++-----------------------+
| Derivative financial instruments (note 15b) || 1,443 |
+---------------------------------------------++-----------------------+
+---------------------------------------------++-----------------------+
| At 31 March 2010 || 124,756 |
+---------------------------------------------++-----------------------+
+---------------------------------------------++-----------------------+
All financial assets and liabilities are measured at amortised cost except for
derivative financial instruments which are measured at fair value.
4. Financial risk management
Through the Group's operations and use of debt financing it is exposed to a
variety of risks. 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 recipient 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 period end, there were eight
approved banks on the panel (an increase of one since listing) and deposits are
spread across the banks and across a range of maturities. The credit ratings of
the banks are monitored by the Property Advisor and reported to the Board at
least quarterly with changes made as necessary to manage risk. The Board does
not consider that there is a significant concentration of counterparty risk.
Rigorous credit control procedures are applied to facilitate 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 are managed through appropriate 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 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 future ongoing liabilities and
entering into future transactions as required.
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.
iv. Capital risk management
The Group monitors all components of equity, that is stated capital,
retained earnings, and the hedging reserve. The Group's objectives when
monitoring capital are to safeguard the entity's ability to continue as a going
concern.
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.
5. Obligations under finance leases
Finance lease obligations in respect of rents payable on long leasehold
properties are payable as follows:
+----------------------------+----------+----------+---------------+
| | | | Present value |
+----------------------------+----------+----------+---------------+
| | Minimum | | of minimum |
+----------------------------+----------+----------+---------------+
| | lease | | lease |
+----------------------------+----------+----------+---------------+
| | payments | Interest | payments |
+----------------------------+----------+----------+---------------+
| | GBP000 | GBP000 | GBP000 |
+----------------------------+----------+----------+---------------+
+----------------------------+----------+----------+---------------+
+----------------------------+----------+----------+---------------+
| Less than one year | 194 | (194) | - |
+----------------------------+----------+----------+---------------+
| Between one and two years | 194 | (194) | - |
+----------------------------+----------+----------+---------------+
| Between two and five years | 581 | (581) | - |
+----------------------------+----------+----------+---------------+
| More than five years | 17,230 | (15,515) | 1,715 |
+----------------------------+----------+----------+---------------+
+----------------------------+----------+----------+---------------+
+----------------------------+----------+----------+---------------+
| | 18,199 | (16,484) | 1,715 |
+----------------------------+----------+----------+---------------+
+----------------------------+----------+----------+---------------+
5. Stated capital
The Company's share capital comprises:
Authorised share capital of no par value: an unlimited number of shares
Issued and fully paid shares of no par value: 220,000,002 shares
The Company was incorporated on 17 April, 2009 on which date two shares paid up
at GBP1 per share were issued to the subscriber.
On 27 May, 2009 the Company issued a further 220,000,000 shares paid up as to GBP1
per share. All of the Company's shares were then admitted to trading on AIM and
CISX.
The stated capital reserve is made up as follows:
+-----------------------------------------------+------------------+
| | At 31 March 2010 |
+-----------------------------------------------+------------------+
| | GBP000 |
+-----------------------------------------------+------------------+
+-----------------------------------------------+------------------+
+-----------------------------------------------+------------------+
| 220,000,002 ordinary shares issued at GBP1 each | 220,000 |
+-----------------------------------------------+------------------+
| Share issue costs | (8,633) |
+-----------------------------------------------+------------------+
+-----------------------------------------------+------------------+
+-----------------------------------------------+------------------+
| | 211,367 |
+-----------------------------------------------+------------------+
+-----------------------------------------------+------------------+
5. Reserves
The nature and purpose of each reserve within equity is as follows:
Stated capital represents the excess of the value 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 are the cumulative profits and losses recognised in the
Group statement of comprehensive income.
5. Net asset value per share
Net asset value per share is calculated as the net assets of the Group
attributable to shareholders of GBP256,903,000 at 31 March 2010, divided by the
number of shares in issue at that date of 220,000,002.
The European Public Real Estate Association ("EPRA") has issued guidelines aimed
at providing a measure of net asset value ("NAV") on the basis of long term fair
values. The EPRA measure excludes items that it considers have no impact in the
long term, such as the fair value of derivative instruments and deferred tax
balances. The Group's EPRA NAV is calculated as follows:
+------------------------------------------------------+-------+---------------+
| | GBP000|Pence per share|
+------------------------------------------------------+-------+---------------+
+------------------------------------------------------+-------+---------------+
+------------------------------------------------------+-------+---------------+
|Net asset value attributable to owners of the | | |
+------------------------------------------------------+-------+---------------+
|Company per the Group balance sheet |256,903| 116.8|
+------------------------------------------------------+-------+---------------+
+------------------------------------------------------+-------+---------------+
|Adjustments: | | |
+------------------------------------------------------+-------+---------------+
|Fair value of trading properties in excess of book | 1,628| 0.7|
|value | | |
+------------------------------------------------------+-------+---------------+
|Fair value of financial instruments | 3,751| 1.7|
+------------------------------------------------------+-------+---------------+
|Deferred and current tax | (750)| (0.3)|
+------------------------------------------------------+-------+---------------+
+------------------------------------------------------+-------+---------------+
|EPRA Net Asset Value at 31 March 2010 |261,532| 118.9|
+------------------------------------------------------+-------+---------------+
+------------------------------------------------------+-------+---------------+
5. Related party transactions and balances
The Group financial statements include the financial statements of Max Property
Group Plc and the following subsidiary entities, all of which are wholly owned
unless otherwise stated:
+---------------------------------+---------------+----------------------------+
| | Country of| Nature of|
+---------------------------------+---------------+----------------------------+
| | incorporation| business|
+---------------------------------+---------------+----------------------------+
+---------------------------------+---------------+----------------------------+
|Max Property GP Limited ((1)) | Jersey| General partner|
+---------------------------------+---------------+----------------------------+
|Max Property LP Limited ((1)) | Jersey| Limited partner|
+---------------------------------+---------------+----------------------------+
|Max Property Limited Partnership | Jersey|Intermediate holding company|
|((2)) | | |
+---------------------------------+---------------+----------------------------+
|MPG Opco Limited | Jersey|Intermediate holding company|
+---------------------------------+---------------+----------------------------+
|MPG Hedging Limited | Jersey| Treasury operations|
+---------------------------------+---------------+----------------------------+
|Max Industrial Limited | Jersey| Intermediate holding|
+---------------------------------+---------------+----------------------------+
| | | company|
+---------------------------------+---------------+----------------------------+
|Max Industrial Finance Limited | Jersey| Group finance|
+---------------------------------+---------------+----------------------------+
|Max Industrial 2 Limited | Jersey| Property trading|
+---------------------------------+---------------+----------------------------+
|Max Industrial Limited Partner | Jersey| Limited partner|
|Limited | | |
+---------------------------------+---------------+----------------------------+
|Max Industrial GP Limited |England & Wales| General partner|
+---------------------------------+---------------+----------------------------+
|Max Industrial Nominee Limited |England & Wales| Non trading company|
+---------------------------------+---------------+----------------------------+
|Max Industrial Limited |England & Wales| Property investment|
|Partnership | | |
+---------------------------------+---------------+----------------------------+
|Max Office Properties Limited | Jersey|Intermediate holding company|
+---------------------------------+---------------+----------------------------+
|Max Office Limited | Jersey|Intermediate holding company|
+---------------------------------+---------------+----------------------------+
|Max Office Finance Limited | Jersey| Property trading|
+---------------------------------+---------------+----------------------------+
|Max Office Limited Partner | Jersey| Limited partner|
|Limited | | |
+---------------------------------+---------------+----------------------------+
|Max Office GP Limited |England & Wales| General partner|
+---------------------------------+---------------+----------------------------+
|Max Office Nominee Limited |England & Wales| Non trading company|
+---------------------------------+---------------+----------------------------+
|Max Office Limited Partnership |England & Wales| Property investment|
+---------------------------------+---------------+----------------------------+
|Max Office 2 Limited Liability |England & Wales| Property investment|
|Partnership ((3)) | | |
+---------------------------------+---------------+----------------------------+
|Max Property Group Limited |England & Wales| Dormant|
+---------------------------------+---------------+----------------------------+
|Max Property 1 Limited |England & Wales| Dormant|
+---------------------------------+---------------+----------------------------+
|Max Property 2 Limited |England & Wales| Dormant|
+---------------------------------+---------------+----------------------------+
1 Max Property GP Limited and Max Property LP Limited are directly owned by
Max Property Group Plc. All other entities are indirectly owned.
2 Prestbury (Scotland) Limited Partnership and OZ UK Real Estate Securities
Limited have partnership interests in Max Property Limited Partnership which
entitle them to any incentives that may become payable, as more fully described
below under the heading 'incentive payments'.
3 Max Office 2 Limited Liability Partnership is 83.3% owned by the Group.
Max Property Group Plc is the ultimate controlling party of the Group.
Directors' fees
Directors' fees of GBP169,000 were payable for the period ended 31 March, 2010, as
disclosed in note 4. As at 31 March, 2010 GBP23,000 of fees payable remained
outstanding and are included within other amounts payable (note ).
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 GBP3,394,000 were payable to Prestbury Investments LLP in respect of the period
ended 31 March, 2010, of which GBP1,055,000 was payable as at the balance sheet
date and are included within trade and other amounts payable (note ).
In the course of its duties as Property Advisor and in accordance with the terms
of the Investment Advisory Agreement, Prestbury is entitled to recover the costs
and expenses properly incurred in connection with its duties. During the period,
Prestbury has recharged at cost GBP978,000 to the Group in this respect, of which
GBP19,000 remains outstanding and included within trade and other amounts payable
in the balance sheet at 31 March, 2010.
Incentive payments
Under the terms of the carried interest arrangements between the Company,
Prestbury (Scotland) Limited Partnership ("Prestbury Scotland", a partnership in
which Nick Leslau and Mike Brown have 49% and 25% interests respectively), and
OZ UK Real Estate Securities Limited ("Och-Ziff"), once the GBP211,367,000 of net
funds raised on listing have been returned to shareholders (assuming no further
share issues), then cash returns over and above that amount may ultimately be
shared as to 80% to shareholders and 20% to Prestbury Scotland and Och-Ziff,
subject to shareholders having first received the net proceeds of share issues
in cash plus an 11% per annum preferred return.
The carried interest payments are payable only on cash realisations other than
where either the Investment Advisory Agreement has been terminated (where the
net asset value of the Group is used in the calculation as if that amount had
been returned to shareholders in cash) or there has been a takeover of the
Company (in which case the offer price is used in the calculation).
No carried interest payment has yet become payable. If the net asset value of
the Group as at 31 March, 2010 is used as the basis of the calculation, this
would theoretically amount to GBP7,058,000 payable to Prestbury Scotland and
GBP2,049,000 payable to Och-Ziff, totalling GBP9,107,000. The uplift in value giving
rise to the theoretical carried interest payment arises over a relatively short
period of time during which the hurdle rate has only accrued for ten months. The
hurdle rate increases by some GBP2 million with every month that passes.
Taking account of the uncertainties arising from the length of the period over
which the incentive fee will be determined, the challenging future returns
required and current market index projections of general property value growth
over the medium term, the Directors have concluded that it would not be
appropriate to make a provision for the incentive fee at this early stage.
The Board will keep the position under review and will provide for a liability
for incentive payments once there is more certainty as to the likelihood of
payments being made.
5. Commitments and contingent liabilities
At the period end, a Group company was conditionally committed to acquire an
office property in Farnborough. The condition was satisfied after the balance
sheet date and the acquisition completed on 7 May, 2010 as further detailed in
note 22.
At 31 March, 2010 the Group had capital commitments in respect of refurbishment
works on the Industrious portfolio amounting to GBP1,702,000.
5. Post balance sheet events
On 8 April, 2010, the Group paid GBP2,600,000 to acquire an interest rate cap on a
notional amount of GBP100 million effective from 1 October 2010 to 31 March 2015.
The cap limits the Group's exposure to three month LIBOR on the notional amount
to 3.5%. It is intended that the cap will be used to hedge the interest rate
exposure on future borrowings.
Also on 8 April, 2010 an industrial property in Sevenoaks was sold for net
proceeds of GBP2,962,500. Debt of GBP1,266,895 was repaid from the proceeds and the
balance added to the Group's cash resources.
On 7 May, 2010 the acquisition of an office property in Farnborough completed.
Contracts were exchanged with the rest of the Office portfolio on 23 January,
2010, but in the case of Farnborough only, the contract was conditional. On
completion, net consideration due of GBP968,000 was paid in cash. As the
acquisition did not become unconditional until after the balance sheet date, it
is not reflected in the financial statements as at 31 March, 2010.
On 12 May, 2010 the Group exchanged unconditional contracts to sell WestPoint,
Manchester, a property held for resale acquired within the Office portfolio for
cash consideration of GBP5,810,000 plus potential further consideration receivable
depending on letting activity, which is unlikely to achieve more than a further
GBP250,000. Before the receipt of any contingent consideration, this represents a
profit over 31 March, 2010 book value of GBP1,628,000 and is net of GBP937,000 to be
paid by the Group into an escrow account on completion to assist the purchaser
in meeting ongoing void costs related to the property. There is no bank finance
secured on the property and expected net proceeds of between GBP4,800,000 and
GBP5,035,000 will increase the Group's cash resources.
On 28 May, 2010 the Group entered into a joint venture agreement with a
subsidiary of Lloyds Banking Group Plc. On the same date, the joint venture
acquired four hospital properties for GBP31.6 million including costs, funded
entirely by non-recourse bank debt. The Group will receive a 45% share of any
profits and holds 50% of the voting rights in the joint venture. The Group will
receive a management fee of GBP100,000 per annum (indexed annually upwards only in
line with the Retail Price Index).
Glossary
+-----------------------------+------------------------------------------------+
|AIM |The Alternative Investment Market of the London|
| |Stock Exchange |
+-----------------------------+------------------------------------------------+
|CISX |The Daily Official List of the Channel Islands|
| |Stock Exchange |
+-----------------------------+------------------------------------------------+
|EPRA |European Public Real Estate Association |
+-----------------------------+------------------------------------------------+
| |A measure of earnings per share designed by EPRA|
|EPRA EPS |in an effort to present underlying earnings from|
| |core operating activities |
+-----------------------------+------------------------------------------------+
| |A measure of net asset value designed by EPRA|
| |with a view to presenting net asset value|
|EPRA NAV |excluding the effects of fluctuations in value|
| |in instruments that are held for long term|
| |benefit, net of any deferred tax |
+-----------------------------+------------------------------------------------+
| |Earnings per share, calculated as the earnings|
| |for the period after tax attributable to members|
|EPS |of the parent Company (that is, excluding any|
| |minority interests) divided by the weighted|
| |average number of shares in issue in the period |
+-----------------------------+------------------------------------------------+
| |The constant capitalisation rate which, if|
|Equivalent Yield |applied to all cash flows from an investment|
| |property, equates to the market rent |
+-----------------------------+------------------------------------------------+
| |Annualised net rents on investment properties as|
|Initial Yield |a percentage of the investment property|
| |valuation |
+-----------------------------+------------------------------------------------+
| |The agreement made between the Company,|
|Investment Advisory Agreement|Prestbury Investments LLP and Partnership|
| |Incorporations Limited under which Prestbury|
| |provides certain services to the Group |
+-----------------------------+------------------------------------------------+
|NAV |Net asset value |
+-----------------------------+------------------------------------------------+
|Prestbury, or |Prestbury Investments LLP, a partnership owned|
| |by Nick Leslau (50%) and Mike Brown (25%) |
|Property Advisor | |
+-----------------------------+------------------------------------------------+
| |The anticipated yield which the Initial Yield|
|Reversionary Yield |will rise to once the rent reaches the ERV which|
| |is the market rental value of lettable space |
+-----------------------------+------------------------------------------------+
[HUG#1427649]
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The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the information contained therein.
All reproduction for further distribution is prohibited.
Source: Max Property Group plc via Thomson Reuters ONE
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