Final Results - Year Ended 25 Dec 1999, Part 1
Capital & Regional Properties PLC
22 February 2000
PART ONE
1999 PRELIMINARY RESULTS
Capital and Regional Properties plc, the specialist retail and leisure
property company, today announces its preliminary results for the year ended
25 December 1999.
Highlights
Fully diluted net assets per share increased by 17% to 376p (1998: 18% to
321p)
Net rental income up 18% to £45.5m (1998: £38.5m)
Profit on revenue activities at £10.4m, up 49% (1998: £7.0m), excluding
surrender premiums £0.3m (1998: £4.5m).
Earnings per share up 1% to 12.2p (1998: 12.1p)
Dividends per share up 18% to 5.0p (1998: 4.25p)
On a same store basis, that is property owned at the end of 1998 and
retained during the whole of 1999, achieved capital growth of 6.5%.
Acquisitions of £214m during the year, including The Ashley Centre, Epsom
for £73m, Westway Shopping Park for £33m and St Andrew's Quay Retail
and Leisure Park, Hull for £24m.
Disposals of £48m including Eureka Leisure Park, Ashford, Kent for £17m.
Conditional contracts have been entered into to develop:
- a 33 acre site in Oldbury, West Midlands for a 475,000 sq ft retail and
leisure park
- a 6.35 acre town centre site in Yeovil for a 90,000 sq ft leisure
scheme
Xscape, Milton Keynes, the integrated retail and leisure entertainment
destination, with 'real snow' ski slope completes in May. Agreements
reached to develop concept in Castleford, UK and in the Ruhr, Germany.
Eight 100,000 to 130,000 sq ft retail warehouse 'Big Box' units have been
let or agreed on our existing parks and future developments.
Capital & Regional and PRICOA Property Investment Management Limited in
discussion with a number of institutional investors regarding
the establishment of a fund to invest in UK in-town covered centres. The
initial response from investors is favourable.
Current portfolio of over 80% retail and leisure, consists of 10 in-town
covered centres and 12 retail and leisure parks, including Xscape,
Milton Keynes. Portfolio value over £900m providing over 5 million sq ft,
with future developments of over 2 million sq ft.
Commenting on the results, Martin Barber, Chairman of Capital & Regional said:
'Capital & Regional has had another excellent year. The continued success of
our 'Leading Edge' management approach to retail and leisure property
investment, makes us highly confident of maintaining satisfactory and
sustainable returns to shareholders over the years to come.'
For further information please contact:
Martin Barber, Chairman, Capital & Regional 020 7932 8000
Lynda Coral, Financial Director, Capital & Regional 020 7932 8000
Sarah Carrell, Corporate Communications, Capital & Regional 020 7932 8000
CHAIRMAN'S STATEMENT
Results
1999 was another excellent year for Capital & Regional. Every year since its
flotation in 1986, the Company has produced returns, which place it at the
forefront of the UK quoted property companies sector. This year was no
exception.
Our fully diluted net assets per share of 376p have increased 17% from 321p.
Profit on revenue activities at £10.4m has increased 49% (1998: £7.0m),
excluding surrender premiums £0.3m (1998: £4.5m). Earnings per share up 1% to
12.2p (1998: 12.1p). A final dividend of 3.0p is proposed, making a total for
the year of 5.0p per share (1998: 4.25p), an increase of 18%. Our facility for
dividend reinvestment by shareholders established last year continues.
When one adds the increase in the balance sheet reserves to the dividend, the
Company has delivered a return of £66.7m (1998: £58.6m), representing a return
of 20% on opening shareholder's funds.
Operating Strategy
Capital & Regional's success is based on a distinctive business style, a
'Leading Edge' management approach. We invest in and manage in-town covered
centres and out-of-town retail and leisure parks, which have the potential to
provide consumers with an enjoyable, rewarding and stress free shopping and
leisure opportunity. Through adding our 'Leading Edge' approach, we aim to
increase the profitability of the retailers and leisure operators who are our
tenants, and so add value to their businesses.
Many of our management team have been recruited from retailing, leisure and
other commercial backgrounds, enabling them to communicate effectively with
the operators and understand their needs. We operate as proactive business
managers rather than traditional property asset managers, and we approach our
properties very much as department store owners. While the restructuring of
leases, renovation of properties, development of greenfield sites and the
expansion of existing properties continue to play a part in our strategy, we
have also developed significant operational capabilities including facilities
management and marketing and promotion.
As a result we can apply, from our own resources, an integrated management
approach focused on adding value to tenant's businesses by increasing their
ability to make sales. This in turn raises the rental and capital values of
our centres.
Our tenants understand our management culture and value our creative and
innovative approach. They consider themselves to be in partnership with us in
our efforts to enhance profitability for tenant and landlord alike.
Most of the property we own is orientated towards 'value retailing' and UK
consumers are increasingly value conscious. Feedback from our tenants
demonstrates that they are trading well in our properties.
By increasing relevant footfall, the primary driver of retail profitability,
we provide our tenants with more opportunities to sell. At the same time our
in-house facilities management team, works to reduce the costs to tenants of
security, cleaning, utilities and all the other services which keep a centre
alive. This year, for example, a partnership agreement with Powergen has
enabled us to provide direct savings for tenants in the form of guaranteed
lower prices for electricity.
As to the future, much has been said and written about the effects of low
inflation and the internet on retail property values. Capital & Regional has
proved its ability to increase both rental and capital values in an
environment of low inflation.
Similarly, whilst the internet and e-shopping will undoubtedly have an impact
on the UK retail property industry, we believe that Capital & Regional is well
placed to exploit the opportunities that arise through changes in consumer
preferences. Using our 'Leading Edge' management approach and working in
partnership with the tenants, we facilitate a successful and controlled
environment that will continue to suit the needs of the shopper, and enable
our properties to prosper at the expense of competing properties in the
surrounding area. We are developing our internet strategy which will embrace
branded community mall web sites and possibly a convenient retail portal.
Strategic Initiatives
In-Town Centre Partnership Fund
In October we announced that, together with PRICOA Property Investment
Management Limited, Capital & Regional was in discussion with a number of
institutional investors regarding the establishment of a fund to invest in UK
in-town covered centres, using Capital & Regional's proven ability to enhance
values in the retail and leisure sectors. The initial response from
institutional investors to this proposal has been favourable.
Consideration is being given to including within the initial portfolio a
number of in-town centres currently owned by Capital & Regional and then
enlarging the fund's portfolio through the injection of properties from
investors and by open-market acquisitions.
If successfully launched, it is anticipated that Capital & Regional will be
incentivised by management fees and a participation in the fund's performance
over an agreed hurdle. The scale of the fund combined with Capital &
Regional's own operations, will serve to amplify the effectiveness of Capital
& Regional's 'Leading Edge' management approach.
Industrial
In order to concentrate even further our resources into our core business of
retail and leisure properties, we are giving consideration to the sale of our
industrial property investment portfolio. We hope to report further to
shareholders in due course.
Purchase of Own Securities
We have noted the disconnection between the valuation placed on listed
property company shares and the market value of their underlying assets. If
the current substantial discount to our assets remains, Capital & Regional
will give active consideration to re-deploying capital into acquiring a
significant proportion of shares for cancellation.
The Team
Capital & Regional has grown into a people business, focused on creating value
for our tenants and shareholders through the energetic and dynamic management
of our properties. Our culture and philosophy is about working in
'partnership', whether it be with investors, retailers, colleagues or local
communities. To make this happen, you require a skilled and enthusiastic team
of people - we have those people and these results reflect the strength of
this team. On behalf of the Board and all our shareholders, I would like to
thank everyone for their contribution to our success.
Over the past year, we have also examined and restructured our whole
management team into focused departments, providing a specific function, for
example, asset and facilities management. These are primarily 'service
providers' to the leasing and acquisitions team, 'the dealmakers' within the
Company. The six Executive Directors now form the Executive Directors
Committee whose function collectively, is the overall decision making process.
In addition, they have specific responsibilities and areas of expertise.
This new structure has enabled us to fully integrate our in-town and out-of-
town property teams into one single operating unit, which has benefited
enormously from cross portfolio tenant synergies.
The Company has moved to new offices at 10 Lower Grosvenor Place, London that
provides us with significant operating efficiencies.
We have unveiled a new corporate identity for Capital & Regional and the
design represents our strategy of 'partnership' to build something stronger.
The Company will be proposing a resolution at the Annual General Meeting, to
remove 'Properties' from its statutory name, as the business is rapidly
becoming an 'operating' rather than a 'property' company and will be known as
Capital & Regional.
Capital & Regional is also progressing an action plan to achieve the Investors
in People accreditation over this year.
These initiatives provide us with a strong platform for future growth.
All Employee Share Plan
Capital & Regional operates an Inland Revenue approved profit sharing scheme
that will be replaced by a new All Employee Share Plan once legislation is
introduced later this year.
Outlook
The continued success of Capital & Regional's 'Leading Edge' management
approach to retail property investment and management, makes us highly
confident of maintaining satisfactory and sustainable returns to shareholders
over the years to come.
Martin Barber
Chairman
OPERATING REVIEW
1999 was again a very active year, with acquisitions totalling almost £214m
and sales of £48m. Our portfolio has performed extremely well. On a same
store basis, that is property owned at the end of 1998 and retained during the
whole of 1999, capital growth of 6.5% was achieved. Our portfolio now
comprises 83% retail and leisure, 14% industrial and 3% other.
It is worth noting that our portfolio is highly reversionary. The estimated
rental value being about £18.8m higher than the £62.3m rents passing at the
end of the year. This does not take into account the significant expansion
and development opportunities within the portfolio, some of which are noted in
this statement.
The rental income from the investment portfolio is high quality, with 67% of
passing rent derived from leases expiring after more than ten years.
Investment and Development Market
1999 was a year of improving sentiment as fears of international economic
instability failed to materialise and sentiment changed rapidly to a much more
optimistic stance.
There is a general shortage of in-town and out-of-town retail and leisure
investments and developments with the characteristics for growth and intense
competition for these investments when generally available.
However, Capital & Regional is finding that, with the benefit of our knowledge
of the marketplace and contacts with the retail and leisure operators,
development opportunities are being directed to us by these operators, who
understand our management and how we can mutually benefit from our involvement
in the proposed project. Recent examples include Eureka Leisure Park,
Ashford, Yeovil and St Andrew's Quay, Hull, all referrals from tenant
contacts.
We continue to find value in opportunities presented to us that other
investors are not placed to exploit without these valuable contacts. The
current year continues to be competitive and we are already demonstrating the
abilities of our team to source exciting opportunities.
In-town Centres
The in-town centre portfolio has performed well during 1999. Our consumer
driven 'value retail' philosophy focused on affordable, accessible, well-
managed community malls has proved to be resilient in the retail climate.
Capital & Regional's 'Leading Edge' management approach is entirely at home in
this consumer driven market. Knowing what shoppers want and giving it to them
is the key to success, for retailers and ourselves. Our approach to
delivering quality services to our retailers at competitive costs of
occupation, whilst aggressively marketing and promoting our centres to the
shopping public continues to deliver positive results across the portfolio.
The Pallasades, Birmingham
The Pallasades continues to perform well and attract major new retailers at
progressively improving rental levels such as HMV, which has taken a unit at
£220 per sq ft in Zone A. Negotiations are continuing with Railtrack on the
possible extension of the retail area coupled with a greater integration of
the station and retail elements. All with a view to improving station
environs and retail opportunities, reinforcing the centre's hub status as the
principal entry point to Central Birmingham.
Shopping City, Wood Green
The major refurbishment and extension programme continued throughout the year
with Phase I completing prior to Christmas. This provided a newly refurbished
single level fully let market hall, a new 30,000 sq ft unit for Wilkinsons,
who are currently fitting out, a re-fitted ground floor Boots and a new mall
environment. Phase 2, including the multiplex cinema and associated
restaurants, will complete in the Summer. The retail element remains strong
with Next and Ottakar's being introduced during the year. The Centre as
extended will comprise over 600,000 sq ft of contemporary retail and leisure,
and Shopping City will be a major community focus in this strong catchment
area.
The Ashley Centre, Epsom
In September, we purchased The Ashley Centre, Epsom from Standard Life for
£73m. The Centre comprises 263,000 sq ft of retail with an 800 space car
park, and includes approximately 70,000 sq ft of office space. Anchor tenants
include Dickens & Jones, Marks and Spencer and Waitrose with fashion retailers
such as Gap, Next and Hennes. We plan to re-brand and reconfigure the Centre
to satisfy tenant demand together with an extensive marketing programme aimed
at re-establishing it within a wealthy catchment.
The Howgate Centre, Falkirk
The six month programme of major works to the Marks and Spencer atrium was
completed at Christmas. This included rationalisation of escalators and the
relocation of the catering offer to the main mall level. Early indications
are that this initiative is producing the desired results of greater footfall
and longer dwell times in the Centre as a whole, with the prospect of
increased rental growth in the units immediately surrounding the atrium. The
modernisation of the integrated centre management car park has commenced and
is due to complete in the first half of this year.
Selborne Walk, Walthamstow
Selborne Walk is now substantially fully let and continues to dominate its
catchment area. Current tenancy led initiatives being pursued will both
satisfy current retailer demand and establish continuing rental growth
patterns. Planning consent has been achieved to provide an additional retail
area of 45,000 sq ft with a 45,000 sq ft leisure component, which will be
developed to tenant demand.
The Trinity Centre, Aberdeen
Since its purchase by Capital & Regional in 1993, the Centre has been
transformed through considerable investment in the malls and car park. It is
now fully let and anchors include Ottakar's bookshop, HMV and Debenhams. The
centre continues to demonstrate an annual increase in footfall of 11.7%,
driving rental growth of over 10% in the year. Work is underway to install
the frontage canopy and branding will be complete in the first quarter of this
year.
Sauchiehall Centre, Glasgow
The successful introduction in December of a Healthland Fitness Centre at the
Centre's upper levels is consistent with the Company's strategy of mixing
retail and leisure to broaden our property's appeal over a longer trading day.
We continue to appraise redevelopment options for the Centre to focus value on
the improving Sauchiehall Street frontage.
Liberty 2, Romford
Liberty 2 is the 'value retail' centre within a strong value-orientated
catchment. Substantially fully let, terms have been agreed to acquire from
the Local Authority the former 'wet leisure' centre, the Dolphin Centre, which
we plan to re-develop to provide inter alia 60,000 sq ft retail, all of which
is under pre-let discussion. This extension will reinforce the Centre's
attraction by increasing its critical mass by approximately 70%. It is
anticipated that buildings will start on site during the current year.
Alhambra Centre, Barnsley
With the closure of the adjacent Co-op Living department store in July, the
Alhambra Centre has had a challenging year. However the on-site management
team have worked hard and increased footfall by 18.7% and as a consequence a
majority of the retailers' turnover has been retained. We have agreed to
purchase the Co-op store and plan to introduce new retailers to the Centre
from the reconfigured space.
Eldon Garden, Newcastle
Eldon Garden has become a significant, quality destination retail centre for
Newcastle. Highlights during the year were a major letting to The Pier,
taking approximately 20% of the retail area and an award by the British
Council of Shopping Centres for Community Marketing. We are currently
exploring extension opportunities for the centre.
Retail and Leisure Parks
During the year, we acquired a number of strategic investments and secured
some exciting development opportunities, which we believe will produce
excellent future results. We are confident these will produce excellent
results in the future.
We believe 2000 will be the 'Year of the Big Box'. An improving housing
market and the impact of interior and garden design television programmes has
boosted consumer spending in this area and led B&Q, Homebase and Focus to seek
units of between 100,000 and 130,000 sq ft.
Woolworth's new Big W operation, effectively a small out-of-town department
store, is seeking units of similar size and we understand Asda/Wal-Mart are
also requiring non-food 'Big Box' units which will further intensify
competition.
Overall, Capital & Regional is extremely well placed to take advantage of
'Y2K Big Box'; we are currently actively involved in eight such deals.
Matalan, Comet and Currys are actively seeking units of 30,000 sq ft and
upwards. Demand for smaller sized units will probably be more selective. More
retailers will adopt pilot stores out-of-town, and latest reports suggest that
out-of-town rents will continue to rise steeply.
In terms of the leisure sector, the consolidation in cinemas seen in 1999 is
expected to continue in 2000. Lifestyle changes have led to mass market
demand for health clubs; the strong rate of openings in 1999 will continue in
2000.
A strong economy has intensified demand for eating out, and cafes, bars and
restaurants will continue to grow steadily.
As consumers seek to make better use of their valuable time, bringing retail
and leisure together to provide greater choice is proving successful within
our in-town centres and retail parks.
Renfrew Retail Park, Glasgow (formerly Blythswood Retail Park)
Re-branding of the retail park to Renfrew Retail Park, including new signage
has been completed. Further retail floor space of up to 50,000 sq ft is
proposed, replacing existing industrial units where vacant possession has
already been substantially obtained. Upon completion, this 270,000 sq ft
retail park will be one of the largest in Scotland dominating its immediate
catchment area.
Westway Shopping Park, Greenford
The latest letting to Sports Soccer for 10,000 sq ft and the opening of the
Next store has encouraged other fashion retailers to make proposals for the
remaining three units. Re-branding and physical improvements will be carried
out this year. Westway is one of the few fashion orientated parks in London
and we are confident of significant further rental increases in the medium
term.
Wembley Retail Park, London
Further improvements have been put on hold pending discussions with adjacent
landowners, English Partnership (Wembley Task Force) and the Local Authority,
regarding a major comprehensive development programme, predominantly for
retail and leisure uses, to proceed alongside the imminent redevelopment of
Wembley Stadium.
St Andrew's Quay, Hull
In December, we acquired St Andrew's Quay Retail and Leisure Park from
Associated British Ports and Grosvenor Waterside Group for £24m. The site is
75 acres, part of which comprises a 180,000 sq ft retail and leisure park,
with tenants including Focus DIY, Comet and UCI Cinemas.
The undeveloped land comprises 38.7 acres of which 5.9 acres has planning
consent for 75,000 sq ft of additional retail space and 15.3 acres has consent
for 150,000 sq ft of leisure. Construction of the additional retail space will
commence this year and Agreements for Lease have already been exchanged with
DFS for a new 20,000 sq ft unit, together with a 100,000 sq ft 'Big Box' let
to B&Q. We believe that St Andrew's Quay will become the premier retail and
leisure park for the City.
Beckton Retail Park, London
The latest letting of 100,000 sq ft to Woolworth's Big W and 30,000 sq ft to
Matalan will initiate a major refurbishment of the park. With the addition of
these tenants and its Open A1 planning consent, this 173,000 sq ft development
is set to become one of the few sizeable, quality parks in London.
Junction 10 Retail Park, Glasgow
A planning application has been submitted for a 500,000 sq ft open A1 retail
and leisure development on a site of approximately 90 acres, adjacent to our
existing 100,000 sq ft park. Planning consent, subject to a referral to the
Scottish Executive, is anticipated in the Spring, allowing us the opportunity
to develop one of the most significant retail and leisure schemes of its kind
in the UK.
Wyrley Brook Retail Park, Cannock
Construction of the new B&Q store and the refurbishment of the park is now
complete, transforming Wyrley Brook into a modern retail park. Significant
additional floor space is proposed.
Lancaster Retail Park
At Lancaster Retail Park, two new lettings to JJB Sports and Matalan, subject
to consent, will significantly enhance the profile of the park and its
prospects for future rental growth.
Bognor Regis Retail Park
Letting of the final unit to Dreams in this reconfigured and refurbished
retail park is now agreed. Further extensions and lease restructuring are
proposed.
Channons Hill Retail Park, Bristol
At Channons Hill Retail Park, a tired, old retail cluster has been rejuvenated
by refurbishing and extending two units which have been let to Curry's and
LIDL who are now open and trading. A planning application has been submitted
to extend the remaining unit from 7,000 sq ft to 12,000 sq ft.
The Enterprise Retail Park, Swansea
Since the year end, we have acquired a 50,000 sq ft retail investment, let to
MFI, adjacent to our existing investment which is let to B&Q. B&Q have
surrendered their lease and Comet entered into a new agreement to lease for a
30,000 sq ft store. Our plans are to redevelop the scheme as a 150,000 sq ft
open A1 retail park. An anchor 'Big Box' unit of 100,000 sq ft has been let
to Woolworth's Big W.
New developments
Retail and Leisure Park, Oldbury
Since the year end, contracts have been conditionally exchanged to develop a
major 33 acre retail and leisure park of up to 475,000 sq ft, proposed in two
phases. Planning permission has been obtained for approximately 270,000 sq ft
of leisure and restaurants for Phase I. Change of use planning consent has
been obtained, subject to referral to the Secretary of State, for 100,000 sq
ft of open non food retail use in Phase I. Pre-lets to AMC Cinema and Pizza
Hut have been exchanged and a further 230,000 sq ft of retail space is in
solicitors' hands.
International Sports Village, Cardiff
Progress has been made to further our position as developer of this 75-acre
site, with a sale agreed for 19 acres of residential use and a letting agreed
for a 110,000 sq ft retail warehouse. Negotiations continue with Cardiff
County Council regarding the provision of the sporting elements of the scheme.
Yeovil
Conditional agreements have been entered into to develop a 6.35 acre town
centre site in Yeovil, currently owned by South Somerset District Council.
The site currently has outline planning permission for a 90,000 sq ft leisure
scheme. Pre-lettings have already been entered into with Cine UK for a ten
screen cinema and with Wessex Bowl. Discussions are underway with tenants for
the remaining restaurant/retail space and the development should commence in
the Spring.
Larkswood Leisure Park, Chingford
Following our selection by Waltham Forest Borough Council to develop this
70,000 sq ft leisure park, pre-lets have been agreed with a Greenalls
healthclub, Jigsaw nursery and Bass for a public house. Terms have also been
agreed to forward fund the development, which should commence during the first
half of the year.
Xscape
Fuelled by the ongoing success of Milton Keynes, a dedicated team has
completed the generic designs to commence the roll out programme of the Xscape
concept, to selective European locations within the United Kingdom, Germany
and Benelux.
Xscape, Milton Keynes
The construction is progressing both on time and on budget, ready to open at
the end of May 2000. Many of the proposed occupiers are creating new and
diverse concepts for Xscape and we are encouraged by the level of tenant
interest. The scheme is anticipated to open approximately 95% pre-let.
Xscape, Castleford
Xscape has entered into an exclusivity agreement for the development of a
further Xscape for the UK. The scheme is approximately 500,000 sq ft gross,
broadly similar to the successful format of the Milton Keynes Xscape. The
Castleford Xscape is located alongside the Freeport Leisure factory outlet
village and is adjacent to Junction 32 of the M62 motorway. The development
already benefits from outline planning permission and plans are to open in
late 2002.
Xscape, Ruhr
An agreement has been reached with the Town of Castrop-Rauxel to exclusively
support the first Xscape in Continental Europe. Castrop-Rauxel is located 12km
from Dortmund and as part of the 'Ruhrgebeit' benefits from approximately 3.2
million people within a 20 minute drive time. The development will extend the
Milton Keynes concept to include a hotel, Imax theatre and other attractions
up to a maximum potential development area of 900,000 sq ft.
Xavier Pullen Ken Ford Andrew Lewis-Pratt
Executive Director Executive Director Executive Director
FINANCIAL REVIEW
FINANCIAL STATEMENTS
Accounting developments
Financial Reporting Standard ('FRS') No.15 (Tangible Fixed Assets) is not
effective for accounting periods ending before March 2000, but its impact on
the Group's financial statements and policies has been reviewed. The FRS
excludes investment properties but applies strict criteria to the
capitalisation of development costs including interest. The Group's method to
estimate the period of development as disclosed in accounting policies has
been restated from prior years with no impact on profit or net assets.
The Group's policy on calculation of gain or loss on sale of investment
properties by reference to valuation has been changed to refer to the last
financial year-end rather than a half-year valuation. There is no effect on
the results of the prior year as a result of the change in policy.
Consideration is being given to the potential effect of the proposals issued
by the Accounting Standards Board, namely the Discussion Paper on Reporting
Financial Performance, Leases: Implementation of a New Approach, and the
Exposure Draft on Deferred Tax (FRED 19).
Profit and Loss Account
Results for the year
Profit before tax has increased to £12.8m (1998: £11.5m) which includes gains
of £2.1m (1998: loss £38,000) on investment portfolio sales. Profit in the
second half of the year is £6.2m compared to £6.6m reported for the first
half.
Rental Income
Group rental income increased by 19% to £53.6m as shown in the table below.
Also shown is the effect of the changes during 1999 on gross passing rent to
arrive at £62.3m at the year end.
1999 1999
Group Gross
rental passing
income rent
£m £m
Year ended 25 December 1998 44.9 46.3
Full year effect of acquisitions and 5.0 -
disposals in 1998 5.7 12.9
Properties acquired in 1999 (0.3) (0.4)
Properties sold in 1999 3.0 5.1
Net new lettings (1.1) (3.1)
Leases surrendered (4.2) -
Surrender premiums 0.6 1.5
Rent increases including reviews 53.6 62.3
Year ended 25 December 1999
The gross passing rent at the end of 1999 does not include additional rent of
£5.4m (1998: £2.2m) committed under agreements for lease executed to date.
Net Property Costs
The increase of £1.7m compared to the previous year is due mainly to the
effect of acquisitions in 1999 and the full year effect of acquisitions made
in 1998.
Administrative expenses
The increase in general administrative costs reflects the growth in the total
property portfolio during the last two years. Underlying administrative costs
represent under 0.7% (1998: 0.9%) of the total property portfolio.
Performance related bonus payments to employees and executive directors,
including an allocation for the profit sharing scheme, totalled £1.7m (1998:
£1.4m).
Net interest payable
Net interest costs have increased by £7.8m during the year reflecting the
financing of acquisitions by additional bank debt. Approximately £2m (1998:
£856,000) of interest has been capitalised during the year, principally in
relation to Shopping City, Wood Green; Eureka Leisure Park, Ashford; Xscape,
Milton Keynes; and the industrial portfolio.
Taxation
The taxation charge is 3% of profit before tax due to the utilisation of
capital allowances, capital losses and excess management expenses brought
forward. At the end of 1999 there is approximately £365,000 (1998: £200,000)
of advance corporation tax which has been written off. The tax written down
value of assets subject to capital allowance claims is estimated at
approximately £38m (1998: £28m) and unutilised losses carried forward have
been reduced to £228,000 (1998: £4.3m).
Earnings and dividends per share
Earnings per share on revenue activities have fallen to 10.2p from 12.2p but
would show an increase to 9.9p from 7.3p if surrender premiums were excluded.
Profit attributable to shareholders increased from £11.1m in 1998 to £12.0m
this year and earnings per share rose from 12.1p to 12.2p. The total dividend
of 5.0p per share is more than twice covered by profit on revenue activities.
Balance sheet
Property assets
The table below summaries the movement in the Company's total property
portfolio during the year.
Investment Properties Head Current
under office property
properties construction assets Total
£m £m £m £m £m
At 25 December 1998 646.9 7.7 - 24.4 679.0
Acquisitions 174.2 2.3 13.1 24.8 214.4
Refurbishment and 45.2 15.3 0.6 15.7 76.8
development
Disposals (14.9) - - (30.2) (45.1)
Revaluation surplus 52.2 4.2 (0.6) - 55.8
At 25 December 1999 903.6 29.5 13.1 34.7 980.9
Associates and joint ventures
The following table shows the movement during 1999 in the Group's total
investment in joint ventures and associates:
Debtors 1999 1998
Investment after Total Total
1 year £m £m
£m £m
Associates - - - 3.4
Joint ventures 2.2 4.8 7.0 6.2
2.2 4.8 7.0 9.6
In accordance with FRS 9, the Xscape Milton Keynes Partnership is treated as a
joint arrangement that is not an entity and the Group's financial statements
include its share of assets, liabilities and cash flows. As a result of buying
in the industrial properties formerly owned in partnership with Phillips &
Drew Fund Management Limited the investment in associates has been realised.
Minority interests
Minority interests at the end of 1999 represents the participation by Peter
Taylor and his associates in Easter Capital Investment Holdings.
FINANCE
Summary
The Group's borrowings at 25 December 1999 were £603.0m (1998: £366.1m)
including £24.6m
(1998: £24.6m) of Convertible Subordinated Unsecured Loan Stock (CULS).
Borrowings by associates and joint ventures were an additional £5.3m (1998:
£16.9m). Net cash balances were £7.4m (1998: £5.5m) and the Group had
approximately £21.5m (1998: £59.8m) of undrawn secured facilities. The
increase in borrowing during 1999 reflects the financing of acquisitions and
the refurbishment of and improvements to properties during the year net of
property disposals.
The increase in the fully diluted level of gearing to 134% (1998: 93%) and the
reduction to 45% (1998: 79%) in percentage of debt on which interest rates
have been hedged reflect the strategic initiatives under consideration as set
out in the Chairman's Statement.
Financing Strategy
The Group has a financing strategy with banks that, in the opinion of the
Directors, have experienced property teams and long-term commitment to the UK
property market. The Group's strategy is to enter into extendable secured
revolving credit facilities with broadly similar terms and covenants. These
facilities provide the group with the flexibility to draw down and repay
borrowings within the covenant parameters, and provide a cost efficient
structure which allows for the addition and disposal of properties as
security.
Project loan finance is separately arranged as required for specific
developments and joint ventures.
Interest Rate Hedging Strategy
The Group's strategy is to enter into mainly five year interest rate swaps on
a rolling basis, which provides both protection against any sudden rise in
interest rates and scope to take advantage of fluctuating rates on expiring
swaps and unhedged borrowings. The balance between borrowing on floating and
hedged interest rates is continually reviewed in the light of capital market
conditions and business requirements.
Fixed and swapped interest rates at 25 December 1999 applied to borrowings of
£272.4m (1998: £287.8m) with the balance of £330.6m (1998: £78.3m) being at
variable interest rates based on three month LIBOR. The weighted average
interest rate cost for fixed and swapped borrowings at 25 December 1999, was
7.8% (1998: 7.9%) and for variable rates 6.9% (1998: 7.5%).
The weighted average interest rate cost of total borrowings at the year end
has reduced to 7.3% compared to 7.8% at the end of 1998. The weighted average
period for which interest rates are fixed on Group bank borrowings is 2.64
years (1998: 3.39) and 3.89 years including CULS (1998: 4.58).
Debt Valuation
A valuation was carried out by J C Rathbone Associates Limited as at 25
December 1999 and 25 December 1998 , to calculate the market value of fixed
rate debt instruments on a replacement basis and the expiry profile of the
resulting fair value adjustment.
The following table shows the market value of fixed rate debt instruments, and
reflects the difference between the interest rate yield curve as at 25
December 1999 and the rates historically committed; namely the fair value
adjustment.
Book Notion Market Fair value
Fixed Rate Debt Instrument value principal value adjustment
1999 1998
£ m £ m £ m £ m £ m
CULS 24.6 n/a 24.6 - 0.7
Bank borrowings 15.3 n/a 15.3 - 0.8
Interest rate swaps n/a 232.5 231.0 (1.5) 9.8
39.9 232.5 270.9 (1.5) 11.3
Minority Interests - (0.2)
Fair Value Adjustment (1.5) 11.1
Attributable to Group
Net of tax at 30% (1998: 31%) (1.1) 7.7
The fair value adjustment at 25 December 1999 would have had a positive effect
on net asset value of £1.5m compared to a negative effect of £11.1m at 25
December 1998. This reflects the rise in term interest rates during the year.
On the 18 November 1998, Xscape, Milton Keynes Partnership, in which the group
has a 50% interest, entered into a five year interest rate swap for £25m, with
a forward start date of 24 July 2000. The group's share of this financial
instrument is not included in the table above, but if it had been, the fair
value adjustment would be more positive by £607,000 (1998: negative £143,000).
The expiry profile of the fair value adjustment is as follows:-
1999 1998
Fair value Fair value
adjustment adjustment
£m £m
1999 - 3.7
2000 (1.4) 3.1
2001 (2.2) 2.1
2002 1.2 1.4
2003 0.9 0.5
2004-2016 - 0.5
Total (1.5) 11.3
The fair value adjustment represents approximately 0.25% (1998: 3%) of Group
borrowings and has a notional beneficial effect on net asset value per share
of 1.0p at 25 December 1999 (1998: adverse 7p).
Debt Maturity
The table below shows the maturity profile of Group borrowings and undrawn
secured facilities at 25 December 1999. Over 93% (1998: 97%) of bank
borrowings had the benefit of 'evergreen' arrangements which we expect will
extend maturity dates beyond the earliest repayment date shown. The evergreen
arrangements provide a minimum of two years' notice of repayment.
Drawn Undrawn
Repayment Earliest 'Evergreen' Earliest 'Evergreen'
£m £m £m £m
2000 3.52 - 12.59 -
2001 65.71 52.50 5.85 5.85
2002 396.9 396.75 3.05 3.05
2003 5 33.00 - -
2004 33.20 57.00 - -
2006 57.20 - - -
2009 12.77
9.00
- - -
Bank borrowings 578.35 539.25 21.49 8.90
2006/16 Convertible 24.64 - - -
loan stock
602.99 539.25 21.49 8.90
Gearing
Net debt to capital employed has risen to 149% at the year end (1998: 107%)
and reduces to 134% (1998: 93%) assuming the conversion of the loan stock to
equity.
Rental income as a ratio to net interest payable including capitalised
interest for 1999 is unchanged at 1.6 times when calculated excluding
surrender premiums. The margin by which rental income exceeds total net
interest payable has remained at approximately £20m for the year ended 25
December 1999.
Lynda Coral Roger Boyland
Financial Director Executive Director
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 25 December 1999
Unaudited
1999 1998
Notes £000 £000
Turnover: group rental income and 2 60,211 52,732
share of joint ventures' turnover
Less: share of joint ventures' 12 (6,614) (7,822)
turnover
Group rental income 53,597 44,910
Net property costs (8,085) (6,403)
Net rental income 45,512 38,507
Profit on the sale of trading and 3 1,646 517
development properties
47,158 39,024
Administrative expenses (7,163) (6,259)
39,995 32,765
Other operating income 955 669
Group operating profit 40,950 33,434
Share of operating profit in joint 12 594 789
ventures
Share of operating profit in 13 100 684
associates
41,644 34,907
Income from listed investments 1,337 1,095
Interest receivable and similar 4 719 807
income
Interest payable and similar 5 (33,005) (25,290)
charges
Profit on revenue activities 10,695 11,519
Profit/(loss) on sale of 3 1,284 (38)
investment properties
Profit on sale of investment 859 -
Profit on ordinary activities 12,838 11,481
before taxation
Taxation 6 (409) (347)
Profit on ordinary activities 12,429 11,134
after taxation
Equity minority interests 22 (426) (42)
Profit attributable to the
shareholders of the Company 12,003 11,092
Equity dividends paid and payable 7 (4,913) (4,176)
Profit retained in the year 21 7,090 6,916
Earnings per share 8 12.2p 12.1p
Earnings per share - diluted 8 12.2p 12.1p
Earnings per share on revenue 8 10.2p 12.2p
activities
The results of the Group for the year related entirely to continuing
operations within the meaning of Financial Reporting Standard No. 3.
NOTE OF HISTORICAL COST PROFITS AND LOSSES
For the year ended 25 December 1999
Unaudited
1999 1998
£000 £000
Reported profit on ordinary activities before taxation 12,838 11,481
Realisation of property revaluation surplus of previous 2,136 1,313
years
Realisation of other investment revaluation deficit of (774) -
previous years
Realisation of property revaluation deficit of previous
years in joint ventures - (54)
Historical cost profit on ordinary activities before 14,200 12,740
taxation
Historical cost profit for year retained after taxation, 8,452 8,010
minority interests and dividends
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the year ended 25 December 1999
Unaudited
1999 1998
Notes £000 £000
Share of unrealised surplus on valuation of 21 54,520 48,694
investment properties
Share of unrealised deficit on valuation of 21 (596) -
other fixed assets
Share of unrealised surplus on valuation of 12 46 87
properties in joint ventures
Share of unrealised surplus on valuation of 13 - 113
properties in associates
Revaluation surplus/(deficit) on other 11 675 (979)
investments
Tax on revaluation surpluses realised in year - (165)
Exchange differences 1 -
54,646 47,750
Profit attributable to shareholders 12,003 11,092
Total recognised gains and losses relating to 66,649 58,842
the year
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
For the year ended 25 December 1999
Unaudited
1999 1998
Notes £000 £000
Profit for the year attributable to shareholders 12,003 11,092
of the Company
Equity dividends paid and payable 7 (4,913) (4,176)
Profit retained in the year 7,090 6,916
Share capital and share premium issued in year 14 59,128
(net of expenses)
Goodwill written off - (277)
Other recognised gains and losses relating to 54,646 47,750
year (see above)
Net addition to shareholders' funds 61,750 113,517
Opening shareholders' funds 330,816 217,299
Closing shareholders' funds 392,566 330,816
CONSOLIDATED BALANCE SHEET
As at 25 December 1999
Unaudited
1999 1998
Notes £000 £000 £000 £000
Fixed assets
Property assets 9 933,140 654,606
Other fixed assets 10 14,073 844
947,213 655,450
Other investments 11 21,120 22,000
Investment in joint ventures: 12
share of gross assets 8,650 7,715
share of gross liabilities (6,428) (5,448)
2,222 2,267
Investment in associates 13
5 3,446
970,560 683,163
Current assets
Property assets 14 34,660 24,412
Debtors:
amounts falling due after more 15
than one year 15 4,840 3,914
amounts falling due within one 40,389 18,802
year
Cash at bank and in hand
7,388 5,476
87,277 52,604
Creditors: amounts falling due 16 (58,178) (35,120)
within one year
Net current assets 29,099 17,484
Total assets less current 999,65 700,64
liabilities 9 7
Creditors: amounts falling due
after more than one year 17 (598,7 (364,4
(including convertible unsecured 52) 80)
loan stock)
Net assets 400,907 336,167
Capital and reserves
Called up share capital 20 9,827 9,826
Share premium account 21 161,876 161,863
Revaluation reserve 21 184,836 131,553
Other reserves 21 591 591
Profit and loss account 21
35,436 26,983
Equity shareholders' funds 392,566 330,816
Equity minority interests 22 4,341 2,101
Non-equity funding by joint 23
arrangement partners 4,000 3,250
Capital employed 400,907 336,167
Net assets per share adjusted for
minority interests 24 399.5p 336.7p
and non-equity funding
Net assets per share adjusted for
minority interests 24 376.4p 320.6p
and non-equity funding - diluted
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 25 December 1999
Unaudited
1999 1998
Notes £000 £000 £000 £000
Net cash inflow from operating 27(a) 42,269 31,303
activities
Dividends received from joint 300 3,526
ventures
Dividends received from 714 660
associates
Returns on investments and
servicing of finance
Dividends received from listed 1,095 935
investments
Interest received 686 811
Interest paid (32,291) (24,065)
Dividend paid to minority (87) -
interests
Loan arrangement costs
(331) (535)
(30,928) (22,854)
12,355 12,635
Taxation
UK corporation tax paid - (315)
UK advance corporation tax paid - (606)
UK income tax deducted at source (66) (90)
UK income tax recovered 161 166
USA tax paid - (35)
USA withholding tax recovered
17 -
112 (880)
Net operating cash flow 12,467 11,755
Capital expenditure and
financial investment
Payments for:
Additions to investment
properties (230,024) (202,465)
Additions to properties held as
current assets (34,205) (27,759)
Additions to other tangible
assets (13,794) (738)
Additions to listed investments - (2,328)
Investment in associate - (270)
Loans to joint ventures (4,884) (5,109)
Receipts from:
Sale of investment properties 16,225 40,371
Sale of properties held as 16,027 17,671
current assets
Sale of other tangible assets 37 173
Sale of investments 2,414 -
Repayment of capital and loans
from associates 2,829 -
Repayment of loan by joint 4,023 4,250
venture
(241,352) (176,204)
(228,885) 164,449)
Acquisitions and disposals
Additions to joint ventures
- (725)
(228,885) (165,174)
Equity dividends paid
(6,141) (1,910)
Cash outflow before financing (235,026) (167,084)
Financing
Issue of ordinary share capital 14 61,198
Expenses of share issue - (2,070)
Bank loans received 349,170 200,934
Bank loans repaid (112,246) (96,731)
236,938 163,331
Increase/(decrease) in cash 27(b)
1,912 (3,753)
MORE TO FOLLOW
FR KKBKQKBKKABB
Tuesday, 14th May 2024
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