Quintain Estates & Development PLC
05 February 2008
5 February 2008
Quintain Estates & Development PLC
('Quintain' / 'Company' / 'Group')
INTERIM MANAGEMENT STATEMENT
GOOD PROGRESS IN SPECIAL PROJECTS AND FUND MANAGEMENT HIGHLIGHTS BENEFIT OF
DIVERSIFIED BUSINESS MODEL
Quintain's diversified and entrepreneurial business model has continued to
deliver good progress during the third quarter and the start of 2008.
• Continued strong momentum on the Company's major special projects:
- Start of construction on the first commercial building at Greenwich
Peninsula, following the 135,000 sq ft pre-let to Transport for London
- Start on site of the second residential building at Wembley, of which
90% has been pre-sold
- Following the acquisition of the 13 acre Wembley Retail Park in
November, the strategic purchase of a 5.7 acre site at Second Way,
Wembley for £15m in December
- Start of enabling works at Wembley on the UK's first Envac waste
• Quintain Fund Management records excellent performance and high levels of
ongoing activity during the period:
- Growth of funds under management from £895m to £972m
- £45.8m of acquisitions by Quercus during the period at an average
initial yield of 7.1%; fund expects to achieve strong returns for the
12 months to 31 December 2007
- Ongoing operational progress for Quintain's iQ fund, including the
grant of planning permission for a 634 room student accommodation scheme
• Quintain has increased its financial resources by raising £300m of debt
since 30 September 2007
Adrian Wyatt, Chief Executive of Quintain, commented:
'Since 30 September 2007, Quintain has continued to achieve key milestones on
its major regeneration projects, increased the level of funds under management
and has raised a further £300m of debt funding. This funding provides us with
the capacity to seize opportunities that arise as a result of the re-pricing of
the investment market as well as extracting value from our existing portfolio.
'Over the last three years we have repositioned our Investment Portfolio,
reducing our level of exposure to the more traditional sectors and thereby
mitigating the impact of current market conditions. Activity in the period also
demonstrates our measured approach to the management of our major development
projects, where we have introduced third party equity or achieved pre-lets and
pre-sales prior to going on site. The timing of our major special projects
remains firmly within our control and we will manage the roll-out to suit our
balance sheet, market conditions and competing opportunities.
'Over the next few years, the opportunities to create significant value in our
major assets and the resilient nature of our fund management business will
continue to produce rewards and position us to maintain Quintain's track record
of value creation.'
For further information please contact:
Quintain Estates and Development plc
Tel: +44 (0) 20 7495 8968
Stephanie Highett / Dido Laurimore / Laurence Jones
Tel: +44 (0) 20 7831 3113
Quintain's business model, which is diversified both in terms of activity and
sector, continues to focus on the identification of assets and situations where
our skills can unlock hidden value.
Quintain has considerable opportunities to create shareholder value through its
significant regeneration schemes, most notably at Wembley and Greenwich. We
continue to drive these opportunities forward and have made solid progress since
September 2007 as detailed below. However, we continually maintain a financially
disciplined approach, stringently monitoring and managing risk by controlling
timing, limiting obligations and mitigating market exposure through pre-sales,
pre-lets and the introduction of third party capital.
This is particularly relevant against the background of current market
conditions where we will not be immune from weakening market sentiment. However,
we remain confident in the essential durability of the London mid-market
residential sector, where we have greatest exposure, and the unique appeal of
the destinations we are creating. We still expect to see stronger long-term
performance in London than the rest of the UK in the light of net immigration
and the ongoing trend for smaller family unit households.
Strong momentum was maintained across our Special Projects business during the
• Construction of the first residential building, W01, remains on schedule
for practical completion in August of this year. In order to mitigate market
risk we pre-sold 100% of the apartments. Significant residential price
inflation since these sales were made means that we expect a high level of
• Construction of the adjacent residential plot, W04, began in November. 90%
of the homes have been pre-sold privately or to housing associations.
• We have continued our policy of strategic land acquisition with the
purchase of the 13 acre Wembley Retail Park site in October 2007, and 5.7
acres at Second Way in Wembley in December 2007. This latter acquisition is
a key site for logistics and transport management, increasing our
flexibility as we masterplan the Northern Lands. These new acquisitions are
in addition to Stadium Retail Park which was acquired earlier in the
• Masterplanning for the Northern Lands, incorporating the Palace of Arts
and Industries and the Wembley and Stadium Retail Parks has moved into the
first phase of consultation. It is anticipated that an application will be
made this year to increase the overall consent from 6.3m sq ft to in excess
of 10m sq ft.
• Enabling work for the UK's first Envac waste removal system began at
Wembley after the period end. This system, which has been successfully
deployed in 30 countries, eliminates the need for road-based collection of
domestic waste and stimulates a higher level of recycling by residents.
At Greenwich Peninsula:
• Construction has commenced on the first commercial building following the
pre-let in November 2007 to Transport for London ('TfL') for 135,000 sq ft.
TfL retains an option for a further 60,000 sq ft of space.
• Progress continues on the residential programme, with applications for
detailed consent made in December 2007 and January 2008 for two further
buildings comprising 512 homes. Both will feature a range of environmentally
sustainable measures in line with the wider scheme's ambitions.
• An estimated four million people have visited The O2 since it opened on 24
June 2007, demonstrating the viability of the location as a leisure
destination. During the fourth quarter, work will begin on a marketing suite
designed to convert this substantial footfall at Greenwich Peninsula into
sales leads for our residential and commercial offer and capitalise on the
animation created by the venue.
The establishment of our zero carbon business, BioRegional Quintain, as the
leader in its field continues. Construction of our One Brighton site in the New
England Quarter of the town adjacent to the main train station is on schedule
and within budget. At Middlehaven, where we are building the UK's largest zero
carbon community, the new identity of the dockside location - Riverside One -
was unveiled during the period, driving interested homebuyers to register
through the development's new website. Construction of the marketing suite is in
the final phase.
Having acquired 100% of the City Park Gate development next to Moor Street
Station in Birmingham, we achieved outline planning consent for the 1 million sq
ft scheme in November 2007. Work is now taking place to design apartments that
achieve Level 3 on the Code for Sustainable Homes, and BREEAM rating of '
Excellent' for the offices within the development.
We continue to invest in the 'Running Towns as Businesses' concept, namely our
strategic objective to deliver shareholder benefit from an ongoing share of
revenues generated by the provision of infrastructure and utilities to the
residents and tenants of the buildings on our major schemes. To this end James
Saunders has been recruited to head up this business. His appointment brings
executive-level operational and marketing expertise to Quintain in areas such as
new media, telecommunications and global brands.
The performance of our specialist healthcare, student accommodation and science
park funds has been strong both in absolute terms and relative to the wider
market. Core demographics continue to support valuations and underpin our
confidence that our Fund Management business model, focused on non-traditional
sectors, will continue to drive growth.
During the period funds under management grew from £895m to £972m:
• In the quarter to 31 December 2007, our Quercus healthcare fund made
acquisitions totalling £45.8m at an average initial yield of 7.1%. The fund
continues to deliver exceptional performance compared with the market as a
whole, and it is anticipated to deliver a total return for the 12 months to
31 December 2007 in the high teens.
• Within our student accommodation fund, iQ, the four schemes currently
operational have achieved 97% occupancy rates. We expect to open a further
three developments in September 2008, enlarging the operational portfolio to
seven schemes and total beds to 2,625. In addition, we gained planning
permission during the period for a 634-room scheme in Crowther Place, Leeds.
Work has started on site with the demolition phase close to completion. This
scheme will come into operation in September 2009.
• Quantum, our specialist science park fund, achieved consent for the
amendment to the revised masterplan for the Bristol and Bath Science Park.
Construction of the first phase of the 800,000 sq ft scheme is scheduled to
start in summer 2008.
Quintain was a net seller of assets in its Investment Portfolio between 2005 and
2007. As a result, the Company has a substantially reduced exposure to the
uncertainty within the commercial property sector. Concurrently, the business
retains strategic interest in key holdings where we believe value creation
opportunities will emerge in the longer term.
The swift adjustment in commercial property yields should ensure that
opportunities to acquire assets with the potential to create value will emerge
within this calendar year. The additional debt raised in the period gives us the
capacity to make such acquisitions as they arise.
The tenant market remains resilient to date, evidenced by achieving lettings at
new record rents at our properties in Cardiff, Birmingham and Dartford during
Quintain now has total debt facilities of £795m with an average maturity of 3.5
years. Following on from the £150m facility raised with Bank of Scotland
Corporate in November 2007, the Company has secured a further £150m of debt on
the same terms with HSBC, Lloyds TSB and Barclays Capital, each contributing
These additional facilities have the potential to be used across the portfolio:
in particular we anticipate more opportunities to grow our fund management
business and investment portfolio due to market re-pricing. We have significant
flexibility and will utilise these funds as appropriate between competing uses.
Net debt at 31 December 2007 was £485m, with gearing standing at 54%. The
increase from 39% at 30 September 2007 was driven by acquisitions. Market
conditions have brought forward opportunities for strategic land purchases
around Wembley and, since the half year, Quintain has bought Wembley Retail Park
for £85m and the site at Second Way, Wembley for £15m. For the quarter to 31
December 2007 acquisitions totalled £105m. Capital expenditure was £11m, mainly
relating to the development at Wembley and including £3.2m of capitalised
interest. There were no sales in the period.
As additional debt has been drawn down we have put in place further hedges in
order to maintain our position of being between 50% and 100% hedged on our
interest rate exposure. At 31 December 2007 the proportion of our debt hedged
was slightly below target at 46%. Since then we have taken advantage of improved
market pricing and obtained £100m of swaps at an average price of 4.975% and
£50m of caps at an average price of 5.625%, both with maturities of 5 years.
At 31 December 2007 the market value of our interest rate hedges was £0.9m (30
September 2007: £1.6m) and the average cost of our debt 7.4% (30 September 2007:
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
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 or 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 circumstances on which any such statement is
Information contained in this document relating to the Company should not be
relied upon as an indicator of future performance.
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