Interim Management Statement

RNS Number : 6240A

Quintain Estates & Development PLC

05 August 2008

 



5 August 2008 

Quintain Estates & Development PLC

('Quintain' / 'Company' / 'Group')

FIRST QUARTER INTERIM MANAGEMENT STATEMENT

Highlights

• £16.9m of disposals at or above March valuations

• Delivery of two new schemes within iQ, generating new income from September 2008

• £95m of corporate debt and £101m non-recourse joint venture debt raised since 1 April 2008

• Strengthened focus on realising cash opportunities over next twelve months and measures taken to preserve cash including decision to withhold the dividend for up to two years.

Adrian Wyatt, Chief Executive of Quintain, commented: 

'Conditions continue to prove challenging and are likely to remain so throughout the financial year. Quintain's business model provides important diversification that is of particular value in these markets and the financial and operational fundamentals of the business remain unchanged. The Board has adopted measures that will protect Quintain's interests should a further significant decline occur and ensure the Group will be positioned to exploit opportunities when markets recover.

'Despite difficult market conditions Quintain has continued to make progress, with selective disposals made above March valuations, strong growth of income from our counter-cyclical funds and £196m of debt raised in the last four months.'

Business Review

Market conditions have continued to deteriorate throughout the first quarter and the environment will remain challenging into the next financial year. The Company has responded to these tougher conditions and is equipped for them to continue for the foreseeable future. We have three priorities:

• Firm management of risk

• Strengthened focus on preserving cash

• Selective exploitation of the strongest value-creating opportunities.

Firm management of risk

Four key areas of risk are particularly pertinent to the current market:

• Of Quintain's gross assets only 29% are in residential land and the Group's total exposure in terms of residential sales is limited: £9.5m of completions are due this calendar year, £6.0m during 2009 and £22.8m in 2010

• 24% of Quintain's gross assets are in commercial land and 25% in commercial investment properties. The income-generating portfolio has a diverse covenant base and, with the exception of Wembley Arena where we retain financial control, no single tenant represents more than 3% of the rent roll. An active programme of tenant liaison is in place and we have not seen a build-up of bad debts or arrears

• Our gearing at 30 June 2008 of 64% compares with a covenant of 110%, and the cash repatriation programme outlined below will deliver further headroom to the business

• Quintain's financial commitments are limited and, in line with Company policy to minimise exposure, new developments within Special Projects will only be taken forward when a pre-determined level of sales or lettings have been secured.

Strengthened focus on preserving cash

In order to create greater flexibility, both to withstand any significant worsening of conditions and to position the Company advantageously for the market's eventual recovery, a programme of cash preservation and creation is underway, the key points of which include:

• The activation of opportunities to release up to £100m of cash from investments over the next twelve months, with £16.9m raised since 1 April

• A programme to secure additional equity investment in our development at Wembley

• Preservation of cash with no dividend payment for up to two years 

• 10% reduction in overheads, and re-alignment of resources to business requirements, with a reduction in headcount at Wembley (London) Ltd from 29 to 13 and a reduction in the running costs of Greenwich Peninsula Regeneration Ltd of £4.1m.

Selective exploitation of the strongest value-creating opportunities

Quintain will take very limited development exposure based on the best risk-adjusted returns. Within Fund Management there are many high quality opportunities that can be leveraged using third party equity, supporting progress in this counter-cyclical, income-generating business.    

Special Projects Update

The purpose of the Special Projects business is the creation of exceptional value in the long-term. The scale and mixed-use nature of Quintain's schemes enable resources to be directed towards the best risk-adjusted opportunities as conditions evolve, securing progress and future income. The business is heavily London-focused, where new projections released by the Greater London Authority in June forecast population growth between 2006 and 2031 of 17.9%.

Construction activity is firmly contained. Work to secure planning consents continues in order to enhance the value of schemes and expand Quintain's portfolio of detailed consents for development when the market recovers.

Construction is underway on only four sites, alongside appropriate infrastructure work:

• Forum House (W01) at Wembley City will reach practical completion this month. All private apartments were reserved in 2006 with deposits of between 10 and 15% 

• W04 at Wembley is scheduled for completion in March 2010. 65 of the 90 private apartments were reserved in May 2007, the balance being reserved for sale on completion

• The first commercial buildings at Greenwich Peninsula, of which 136,000 sq ft of space is pre-let to Transport for London ('TfL'), will complete in Spring 2009. TfL retains an option for a further 60,000 sq ft of space

• The marketing suite at One Brighton, of which we own 25%, will open in September to introduce the scheme to owner occupiers. 172 apartments are under construction and Quintain's maximum exposure is £6m.

Planning progress has been achieved since 1 April 2008 on the following sites, which will provide significant value opportunities when the market recovers:

• In June, W07 and York House at Wembley City received detailed consent for 251 homes, 112,000 sq ft of retail space and a 10 screen cinema

• Also in June, 153 more homes received detailed consent at Greenwich Peninsula within plot M0116, taking the total consented to 894. An application for further homes in the north west of the Peninsula, on Quintain-owned land, has been submitted 

• A reserved matters application regarding City Park Gate was submitted in August for two buildings comprising 256,000 sq ft of commercial space, immediately adjacent to Moor Street Station in Birmingham

• A planning application regarding the One Gallions site, of which we own 25%, has been submitted, after receiving approval from the London Development Agency. 

Two schemes have experienced delays at planning stage:

• The application regarding the 491,000 sq ft edge-of-centre scheme in Beverley, Yorkshire, of which Quintain owns 19%, has been called in for determination by the Secretary of State, along with an out-of-town retail scheme by another developer

• The level of affordable housing within our Emersons Green scheme led to planning consent being refused in July. Negotiations are underway with South Gloucestershire to resolve this and our consortium retains the option of appeal, if required.

Further progress:

• Following the exchange of contracts in June with the London Borough of Brent securing the creation of their new civic centre at Wembley City, the Northern Lands masterplan is under review to accommodate their 2.25 acre scheme in the most advantageous way

• Our development partner, the London Development Agency ('LDA'), is now actively engaged in strategic discussions regarding the 12.6 acre Silvertown site following a change of administration at the Mayor of London's office and new appointments to the LDA Board. Our interest in Silvertown amounts to 66% of the site, the balance being held by the LDA

• The international success of The O2, of which Quintain and its partner Lend Lease (Europe) are landlords and receive a turnover rent, has been confirmed with the Arena ranked by Pollstar as the world's best-selling music venue in its first year of operation

• The world's largest public art project was unveiled last month by Anish Kapoor at Middlehaven, adjacent to our RiversideOne site. The iconic sculpture, to which we have made a nominal contribution, will span 110 metres, stand 64 metres high and be completed next summer and lend an immediate and unique sense of identity to the new community.

Investment Portfolio Update

Quintain's position has been a net seller of assets since 2005, substantially reducing the Group's exposure to the investment market. This position continues and contracts have been exchanged, at or above March valuations, on Fulton and Malcolm Houses at Wembley, and St David's House in Cardiff since 1 April 2008. The combined total of these sales is £16.9m.

Leases amounting to £417,000 per annum have been agreed since 1 April. These include Sandringham House, Harlow, units at Wembley Retail Park and Tolworth, and Commercial House in Jersey.

Quintain Fund Management Update

During the quarter our income-producing funds continued to demonstrate their relative resilience to the issues affecting the wider property market, with funds under management rising 4% to £1.04bn. 

• Our healthcare fund, Quercus, continues to outperform the Investment Property Databank Index, although a nominal 0.8% negative return for the quarter was seen due to softening yields. During this period nine elderly care homes were acquired. Following the £30m of equity raised between January and March, a further £55m has been raised. The equity raising to date includes £50m from three new investors. Strong rental growth resulted in annual reviews during the quarter at an average increase of 4.1%. Covenant risk within Quercus is carefully monitored and no single operator constitutes more than 7% of the Fund 

• Part way through the traditional letting period, 80% of beds within the six iQ schemes operational this September have already been reserved. The opening of the new 189-bed Sheffield scheme has been deferred due to late delivery by the developer. The new 677-bed Preston and 255-bed Kingston schemes are complete and 93% and 100% let, respectively.

Finance

As at 30 June net borrowings, excluding non-recourse debt within joint ventures, amounted to £587m. Of this 63% was hedged and the average cost of debt was 6.4%. In the period we cancelled £75m of swaps giving rise to a realised profit of £3.4m. Since this date we have put in place an additional £150m of caps at 7.5% resulting in 85% of our debt being hedged through swaps or caps.

Following the refinancing in March giving facilities of £620m, in April we raised a further £95m of corporate debt. Since the period end, in joint venture with Lend Lease, we have raised £101m of non-recourse debt with a fixed charge against the first commercial buildings at Greenwich, incorporating the letting to Transport for London. 

For further information please contact:

Quintain Estates & Development plc

Rebecca Worthington

Tel:    [phone]

Financial Dynamics

Stephanie Highett / Dido Laurimore / Laurence Jones

Tel:    [phone]

Forward looking statements

This document may contain certain forward looking statements. By their nature forward looking statements involve risk and uncertainty because they relate to future events and circumstances. Actual outcomes and results may differ materially from any outcomes of results expressed or implied by such forward looking statements.

Any forward looking statements made by or on behalf of Quintain speak only as at the date they are made and no representation or warranty is given in relation to them, including as to their completeness for accuracy or the basis on which they were prepared. Quintain does not undertake to update forward looking statements to reflect any changes in Quintain's expectations with regard thereto or any changes in events, conditions or circumstance on which any such statement is based.

Information contained in this document relating to the Company should not be relied upon as an indicator of future performance.

 

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