TIDMMAX
Max Property Group Plc
("Max Property")
Results for the six months ended 30 September 2012
Highlights
Six months to 12 months to Change in six Change in
30 September 2012 31 March months since 40 months since
2012 31 March 2012 listing
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Net assets GBP287.6m GBP285.9m up 0.6% up 36%
EPRA NAV per 134.1p 133.4p up 40%
share(1) up 0.5%
EPRA earnings per 3.6p 6.4p
share(2)
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Financial highlights
* EPRA NAV per share up 0.5% to 134.1p per share in the six months to 30
September 2012 and up 40% since listing in May 2009
* EPRA earnings per share up 24% to 3.6p (30 September 2011: 2.9p)
* Valuations down 1%: portfolio net initial yield 8.2% and equivalent yield
9.3%
* Net loan to value ratio at 24.1% (26.3% including Hospitals joint venture)
* Net loan to value ratio adjusted for November 2012 High Holborn Estate
acquisition at 32.4% (34.1% including Hospitals joint venture)
* Uncommitted cash of c. GBP40 million for acquisitions(3)
Portfolio highlights
* Purchase of High Holborn Estate in November 2012 for cash consideration of
GBP45.3 million plus costs
* Development commenced on 140,000 sq ft Commodity Quay at St Katharine Docks,
for completion in late 2013
* London weighting now 43%(3), up from 35% at 31 March 2012
* Overall vacancy rate(4) now 12.7% of ERV (proforma 12.4% including High
Holborn Estate) compared to 13.3% at 31 March 2012
* 75 new lettings with a net rent roll of GBP2.5 million (Max share GBP2.0
million)
1 excluding fair values of financial instruments and deferred tax, and
including trading properties at fair value
2 excluding property revaluation movements, profits or losses on sale of
properties, fair value movements on financial instruments and deferred tax
3 adjusted for High Holborn Estate cash acquisition at cost
4 excluding assets not available for letting
Aubrey Adams, Chairman of Max Property Group Plc, comments:
"We now have a portfolio split broadly between exciting Central London real
estate and well diversified high yielding industrial property. This blend
provides a platform for capital growth via added value refurbishment whilst
providing above average income returns. Although the economic and property
market outlook remains uncertain, I remain confident that our external managers,
with nearly 30 years' experience of operating successfully across property
cycles and over GBP25 million invested in the business, will continue to find and
unlock value whilst maintaining a conservative approach to downside protection."
23 November 2012
ENQUIRIES:
Prestbury Investments Tel: 020 7647 7647
Mike Brown
Sandy Gumm
Nick Leslau
College Hill Tel: 020 7457 2020
Mike Davies
Helen Tarbet
Oriel Securities (Nominated Advisor and Broker) Tel: 020 7710 7600
Mark Young
Joe Winkley
Notes to Editors
Max Property Group Plc ("Max" or the "Company") is a Jersey resident real estate
investment company. Its Board, chaired by Aubrey Adams, 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 a half years from its listing in May 2009.
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 differ materially 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 report Max Property Group Plc's results for the six months ended
30 September 2012.
Results and financial position
For the half year to 30 September 2012 we report EPRA net assets per share up
0.5% since 31 March 2012 at 134.1p, and up 40% since the Company listed.
The growth in EPRA NAV in the six months and since listing is set out below:
Six months since 40 months
31 March 2012 since listing
(pence per share) (pence per share)
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Net rental income 6.7 33.3
Running costs (1.4) (8.7)
Net finance costs (2.8) (11.0)
Surpluses on sales - 10.3
Tax 0.1 (2.0)
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Realised profit 2.6 21.9
Share of Hospitals joint venture 0.1 0.9
Property revaluation (2.0) 15.2
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Growth in EPRA NAV per share 0.7 38.0
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Max's portfolio is an attractive blend of genuine asset management opportunities
supported by strong underlying cash flow.
Nearly half of our equity is now invested in London. The recent purchase of the
High Holborn Estate shares many characteristics of last year's acquisition of St
Katharine Docks. Both were acquired at a low entry price of around GBP300 psf,
and they are sizeable estates in land providing a multiplicity of buildings and
tenancies let at modest rental levels with the potential to create value, by
repositioning the assets through rolling refurbishment and change of use. We
look forward to the performance of these projects adding to our NAV over the
next three years. In the meantime, our London Pubs portfolio continues to
attract unsolicited bids on individual assets at premium levels from private
investors. With an income return on equity net of financing costs in double
figures, annual minimum rental uplifts of 3% per annum and continued growth in
underlying alternate use value, we believe there is more value to come from the
portfolio.
Outside London, our holdings are dominated by our c. GBP200 million high yielding
industrial portfolio. Despite a weak economy, we have secured over GBP1 million
per annum in rent roll from 71 lettings totalling 274,000 sq ft since 31 March
2012, with a further 216,000 sq ft in solicitors' hands. Activity slowed in
April and May, but since then the pace of letting activity has returned to its
three year average. Our EPRA vacancy rate (measured by rental value) has fallen
from 15.2% at 31 March 2012 to 14.4%. Critically, only 14% of the space vacant
on purchase three years ago remains unlet. Our units are highly affordable even
in tough economic times - the typical rent in our portfolio is GBP24,000 per
annum, based on our average contracted rent of GBP4 psf and average unit size of
6,000 sq ft. A weak investment market resulted in our industrial values falling
by 2% in the six month period. This valuation reflects a capital value of just
GBP31 psf despite nearly half of the holding by value being located in the South
East.
All of our original equity has been returned from our Provincial Offices
portfolio, due to earlier sales combined with GBP32 million raised in May 2012 in
a non recourse financing. This leaves us with uncharged properties valued at
over GBP9 million plus our remaining equity stake in the newly financed part of
this portfolio.
Our uncommitted cash is nearly GBP40 million with the High Holborn Estate also
uncharged and our net LTV ratio after this acquisition is 32.4%.
Outlook
Interesting opportunities in Central London are relatively scarce and usually
strongly competed for, so we are pleased to have added the High Holborn Estate
to our Central London portfolio at an attractive price. The provincial
investment market has loosened up and pricing has become far more realistic.
Unfortunately, much of the secondary market is blighted by stock which, once
vacant, is difficult to relet and this will continue to drag down values as cash
flows deteriorate on lease expiries. If the cash flow is not sustainable, a
more realistic entry point is still an insufficient reason to buy. Our starting
point for any acquisition continues to be whether we believe it is possible to
drive down the vacancy rate and increase cash flow generation. Viewed through
this prism we continue to reject the majority of portfolios, but we are
confident of identifying suitable opportunities for our remaining cash, which,
it is worth noting, has already been invested once and comes from income
surpluses and recycling of net cash proceeds from earlier acquisitions.
Outside London's global investment market, property is inextricably linked to
its local economy and anaemic economic growth cannot create a strong property
market. However, across all asset classes investors are having to become
acclimatised to lower returns expectations and are paying a very high premium
for safety of cash, core government bonds and super prime property. The current
property market can offer investors the prospect of higher income returns and
greater capital appreciation from repositioning undermanaged assets. However,
it comes with execution risk and requires a highly selective approach. It is a
market for seasoned operators who can combine stock picking and asset management
skills. In the case of Max, our external managers have almost 30 years'
experience of operating successfully across property cycles. Max shareholders
may also look to earn an additional return from the closing of the share price
discount to NAV on liquidation of the business, anticipated to complete by
2016. Although the economic and property market outlook remains uncertain, I
remain confident that our external managers, with over GBP25 million invested in
the business, will continue to find and unlock value whilst maintaining a
conservative approach to downside protection.
Aubrey Adams
Chairman
23 November 2012
Report from the Property Advisor
Prestbury Investments LLP, Max's Property Advisor, presents its report on the
operations of the Group for the six months ended 30 September 2012.
The portfolio
The portfolio combines exciting added value opportunities in London with a high
yielding predominantly industrial portfolio, with small lot sizes and a broad
spread of tenants.
Portfolio valuation movements March 2012 to September 2012
Market value ERV
compared to Market value compared to
31 March 2012 compared to cost 31 March 2012
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Industrious (2.0)% 7.0% (3.4)%
St Katharine Docks (60%
owned) 0.3% 3.3% 1.5%
London Pubs 3.0% 13.9% 0.0%
Provincial Offices
(including Milton Keynes
assets 83.3% owned) (4.5)% 43.1% (1.7)%
Hospitals (45% owned) 0.4% 10.7% 3.8%
Nightclubs 0.4% (7.8)% (7.8)%
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Average (Max share) (1.0)% 9.3% (1.8)%
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Portfolio valuation yields at 30 September 2012
Weighted
average
Net initial Equivalent Reversionary Capital unexpired
yield yield yield value psf lease term
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Industrious 10.0% 10.6% 11.1% GBP31 3.8 years
St Katharine Docks 5.5% 6.8% 9.3% GBP342 5.8 years
Provincial Offices 8.5% 10.1% 12.8% GBP69 3.1 years
London Pubs 5.8% 7.3% 5.8% GBP376 33.4 years
Hospitals 7.0% 7.0% 7.4% n/a 22.4 years
Nightclubs 16.4% 18.0% 11.7% GBP37 22.3 years
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Average (Max share) 8.2% 9.3% 10.1% 7.6 years
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Portfolio breakdown including High Holborn Estate, acquired November 2012
Gross value EPRA NAV EPRA
(Max share) Proportion of invested * Proportion of vacancy
GBP000 portfolio GBP000 EPRA NAV rate
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St Katharine
Docks 105,738 23% 67,054 23% 3.4%
High Holborn
Estate 45,250 10% 52,523 18% 8.7%
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Central London
offices 150,988 33% 119,577 41% 5.0%
London Pubs 44,635 10% 22,555 8% 0.0%
Industrious 196,650 43% 100,842 34% 14.4%
Provincial
Offices 41,851 9% 14,475 5% 27.9%
Hospitals 15,615 3% 1,712 1% 0.0%
Nightclubs 8,415 2% 8,371 3% 7.8%
Cash n/a n/a 27,588 8% n/a
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458,154 100% 295,120 100% 12.4%
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* includes cash balances allocated for refurbishment programmes
Industrious (43% of gross assets, 34% of EPRA NAV)
A portfolio of multi-let industrial estates bought out of receivership in
October 2009 for GBP244.0 million ( GBP31 psf capital value).
Activity
* Vacancy rate by ERV reduced to 14.4% from 15.2% in March 2012
* Vacancy rate by floor area unchanged from March 2012 at 15.0%, down from
20.7% at acquisition
* 86% by floor area of the space vacant on acquisition has since been let or
sold
* Of the 942,000 sq ft currently vacant, 216,000 sq ft (23%) is under offer
* A further 106,000 sq ft is known to be coming vacant up to June 2013
* Total sales of non core assets since acquisition of GBP86.3 million at an
average 7.9% net initial yield and a GBP19.3 million (30%) profit over
purchase price:
* GBP76.9 million of sales were mainly to institutions at capital values
averaging GBP89 psf, with the sold portfolio having a vacancy rate of 2%
and realising GBP16.7 million (28%) over purchase price
* GBP9.4 million of sales of mainly vacant units to owner occupiers
realising GBP2.6 million (41%) over purchase price
Current portfolio
* 73 properties
* 876 tenancies
* 6.3 million sq ft
* Average unit size: 5,900 sq ft
* 46% by value in the South East of England
* Highly liquid: 75% of properties by number are lot sizes of GBP3 million or
below
* Weighted average unexpired lease term: 3.8 years
* GBP21.2 million rent roll
* Average contracted rent: GBP4.05 psf
The portfolio predominantly comprises smaller units that appeal to a wide
variety of users and as a result has a range of exit options, from individual
units to a whole portfolio sale. Martlesham Heath Business Park, Ipswich
(503,000 sq ft) makes up over 10% of the portfolio by value and no other
property makes up more than 6%.
30 September
2012 Capital Area
valuation * Percentage of value psf sq ft Number of Number
Region GBP000 total GBP 000 properties of units
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South East 91,165 46% GBP51 1,787 22 434
Northern
regions 66,190 34% GBP25 2,693 28 426
Midlands 28,370 14% GBP23 1,241 16 144
Scotland 5,685 3% GBP13 430 4 35
South West 5,240 3% GBP37 141 3 27
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196,650 100% GBP31 6,292 73 1,066
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* includes trading property at its 30 September 2012 valuation of GBP1.8 million
St Katharine Docks (23% of gross assets, 23% of EPRA NAV)
St Katharine Docks was acquired in August 2011 for GBP164.5 million, reflecting
GBP330 psf of capital value in a 60% joint venture. Situated on the Thames
adjacent to Tower Bridge and the Tower of London, it enjoys unparalleled views
and includes Central London's only marina. The investment comprised 450,000 sq
ft of offices, predominantly in three buildings, with 50,000 sq ft of waterside
restaurants, bars and shops plus the ten acre, 160 berth marina. The current
passing rent is GBP10.3 million per annum. The goal is to create a premium office
destination through repositioning this undermanaged estate, attracting footloose
Central London occupiers to a beautiful location.
Phase 1:
Refurbishment of International House entrance hall plus nearly 40,000 sq ft of
offices, now fully let: 30,000 sq ft to IT training business QA at GBP37.50 psf
and 8,000 sq ft to web content management company Sitecore at GBP39 psf, compared
to average passing rent of c. GBP30 psf in the property.
Phase 2:
Ongoing rationalisation of smaller suites at International House to increase the
net lettable area and introduce complementary uses at ground floor level:
20,000 sq ft of offices and a 3,250 sq ft restaurant unit (prelet to Côte
Restaurant) in course of refurbishment, plus a 3,250 sq ft retail unit (under
offer subject to planning consent).
Phase 3:
Comprehensive refurbishment of Commodity Quay. Planning consent has been
obtained and development commenced, with completion planned for late 2013. The
office net lettable area will be increased by 10% to 110,000 sq ft on the upper
floors, with a 10,000 sq ft restaurant and 20,000 sq ft of leisure uses proposed
for the ground floor and basement.
Area
(sq ft) Area (sq ft) in refurbishment EPRA vacancy rate
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International House 215,000 27,000 3.0%
Commodity Quay 140,000 140,000 n/a
Devon House 90,000 - 0%
Ivory House and other 70,000 - 9.3%
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515,000 167,000 3.4%
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High Holborn Estate (10% of gross assets, 18% of EPRA NAV)
A freehold island site of just under one acre with frontages to High Holborn and
Bedford Row was acquired earlier this month for GBP45.3m million plus costs in
cash, reflecting c. GBP320 psf of capital value.
The nine buildings provide nearly 150,000 sq ft of unrefurbished space let to
over 60 tenants at low rental levels averaging just GBP15 psf on short term
leases. The property has previously been held as an income producing site, with
the low rental levels reflecting the tenants' lack of security of tenure created
by the landlord's rolling development break clauses. A rolling refurbishment
programme over the next two to three years to upgrade the common parts and
offices should significantly increase rental levels on longer leases. The
current office vacancy rate in the WC1 postcode is under 4%.
A number of the smaller buildings fronting Bedford Row and Hand Court have
potential for change of use to residential. The retail units fronting High
Holborn have scope to be consolidated into larger units that enjoy stronger
demand from higher quality operators.
Area
(sq ft) Asset plan
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High Holborn House 87,000 Rolling refurbishment of the offices
and common parts
Caroline House 19,000
Brownlow House 10,000
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Properties fronting High Holborn 116,000
Six properties fronting Bedford 31,000 Potential change of use to
Row and Hand Court residential
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147,000
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London Pubs (10% of gross assets, 8% of EPRA NAV)
29 freehold pubs situated in high value residential areas in London were
acquired in January 2011 for GBP44.4 million. The pubs are located in Marylebone,
Notting Hill, Chelsea, Clerkenwell, Spitalfields, Southwark, Camden, Highgate,
Islington, Barnes, Sheen, Chiswick, Battersea, Clapham, Balham, Tooting and
Fulham. Two pubs, in Chelsea and Balham, have been sold since acquisition at
net initial yields of 4.5% and 5.5% respectively.
The pubs are let on new 35 year full repairing and insuring leases to Enterprise
Inns Plc commencing in January 2011 at market rents well covered by trading
profits and initially totalling GBP3.0 million per annum, with minimum 3% per
annum and maximum 4% per annum RPI-linked upwards only reviews occurring
annually for the first five years and every five years thereafter.
At acquisition, the net initial yield on the portfolio was 6.7%, which has
subsequently risen to 7.0% on cost and is due to rise to at least 7.2% in
January 2013. The capital value at cost was GBP300 psf and the total area
acquired was 150,000 sq ft. The independently assessed vacant possession value
of the portfolio at acquisition, subject to their existing use as pubs, was
approximately the same as the purchase price, and many of the properties are
considered by the management team to have a higher alternative value for
residential use in the event that they fall vacant and planning consent is
secured.
The current passing rent is GBP2.7 million per annum and the average lot size is
GBP1.7 million.
Provincial Offices (9% of gross assets, 5% of EPRA NAV)
A portfolio of predominantly late 1980s air conditioned offices purchased in
February 2010 for GBP38.7 million ( GBP50 psf capital value).
Activity
* Vacancy rate by ERV unchanged from March 2012 at 28%
* Vacancy rate by area 29%, compared to 28% at March 2012 and 48% at
acquisition
* Two properties sold since acquisition for GBP6.7 million at 43% over purchase
price
* GBP32.0 million raised in May 2012 on a non recourse financing of five
properties at c. 80% LTV
* Remaining assets are valued at GBP9.3 million and held uncharged
Current portfolio
* Eight properties (seven freehold, one 103 year peppercorn leasehold)
* 62% by value in the South East, 31% in Manchester, 7% in Bristol
* 634,000 sq ft
* Average lot size GBP5.5 million
* GBP3.9 million rent roll
* Average contracted rent GBP10.89 psf
Nightclubs Portfolio (2% of gross assets, 3% of EPRA NAV)
The Nightclubs portfolio was acquired in October 2010 for GBP9.8 million in a deal
struck with a lender seeking an exit for a larger portfolio. At the time of
acquisition, three of the 14 clubs were vacant and the net initial yield on
acquisition was 14.9%.
Ten of the nightclubs are let to Atmosphere Bars and Clubs Limited on 30 year
full repairing and insuring leases from January 2010 with a tenant break option
at year 25. Two of the properties have been sold since acquisition for a total
of GBP1.3 million at a profit of 86% over purchase price. Of the two remaining
properties that were vacant on acquisition, Banbury was let on a new 20 year
lease in 2011, leaving only Middlesbrough, with a value of under GBP0.5 million at
30 September 2012, still vacant.
The current passing rent is GBP1.3 million per annum and the average lot size is
GBP0.7 million.
Hospitals Portfolio (3% of gross assets, 1% of EPRA NAV)
Four freehold private hospitals in Blackburn, Liverpool, Ayr and Stirling were
acquired in a joint venture with Lloyds Banking Group in May 2010. Max invested
a nominal sum in the joint venture to acquire a 45% interest and Lloyds injected
the assets with associated debt funding.
The joint venture paid GBP31.6 million for the portfolio, fully debt financed on a
non recourse basis by Lloyds. Each hospital is let on full repairing and
insuring terms to BMI Healthcare Limited, guaranteed by General Healthcare Group
Limited, for a term of 25 years from May 2010 with a tenant option to renew for
a further ten years. The initial rent was GBP2.3 million per annum with annual,
upwards only uncapped RPI-linked rent reviews throughout the term. During the
period, the second rent review has resulted in a rental uplift of 3.0% and the
rent is now GBP2.6 million per annum.
Financial review
Balance sheet
Movements in net asset value
The increase in EPRA NAV over the period ended 30 September 2012 and since
listing comprises:
NAV growth in six NAV growth in 40
months months
since 31 March 2012 since listing
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Pence Pence
GBPm per share GBPm per share
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Net rental income 16.6 7.6 79.8 36.4
Rent smoothing adjustments* (1.9) (0.9) (6.8) (3.1)
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Net rent excluding future rental
uplifts 14.7 6.7 73.0 33.3
Running costs (3.0) (1.4) (18.8) (8.7)
Net finance costs (6.1) (2.8) (24.1) (11.0)
Surpluses on property sales 0.1 - 22.8 10.3
Tax 0.3 0.1 (4.2) (2.0)
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Realised profits 6.0 2.6 48.7 21.9
Share of Hospitals joint venture 0.1 0.1 1.7 0.9
Property revaluation (4.4) (2.0) 33.4 15.2
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EPRA NAV uplift 1.7 0.7 83.8 38.0
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* Accounting standards require lease incentives and fixed or guaranteed rental
uplifts to be spread evenly over the term of a lease. The amounts described
above as "rent smoothing adjustments" represent this adjustment and relate
principally to the leases on the Pubs portfolio to Enterprise Inns where there
are minimum 3% per annum uplifts throughout the 35 year lease term. The effect
of smoothing all lease incentives and fixed rental uplifts in the financial
statements is to increase rent over and above cash rents received in the period
by GBP1.6 million and GBP6.3 million since acquisition.
EPRA triple net asset value
EPRA triple net asset value is the net asset value after deducting adjustments
for unrealised market valuation movements in costs of debt and hedging
instruments, and after deducting any inherent tax liabilities not provided for
in the financial statements.
The Group's EPRA triple net asset value is shown below:
30 September
2012 31 March 2012
Pence Pence
GBPm per share GBPm per share
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EPRA NAV 295.1 134.1 293.5 133.4
Fair value of hedging instruments, net of
deferred tax (6.6) (3.0) (6.5) (2.9)
Fair value of fixed rate debt (0.5) (0.2) - -
Deferred tax on trading property valuation
surplus (0.2) (0.1) (0.2) (0.1)
Share of inherent capital gains tax in Hospitals
joint venture - - (0.1) (0.1)
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EPRA triple net asset value 287.8 130.8 286.7 130.3
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Gearing
The Group's operations are financed by a combination of cash resources and non
recourse debt finance. Non recourse debt means that the assets at risk in the
event that any debt facility were to default are limited to those within a
specific ring-fenced structure.
During the period, a GBP32 million loan at c. 80% loan to value at the time of
financing was secured against a 420,000 sq ft portfolio of five of the
Provincial Offices properties: Manchester, Horsham, Newbury, Fareham and Silbury
Court East in Milton Keynes. Combined with earlier sales, this financing
allowed Max to recover its entire investment while retaining a further 214,000
sq ft of assets in Milton Keynes and Bristol debt-free, together with the
majority of the future performance of the financed properties. Given the high
loan to value ratio of the new loan, the interest coupon is 9% per annum and
carries an exit fee equivalent to 30% of any surplus once Max has received a 9%
per annum return on its equity.
The Group's share of gross and net debt (excluding the joint venture) is as
follows:
St Katharine
Docks Provincial London Unsecured
Industrious (60%) Offices* Pubs assets Total
GBPm GBPm GBPm GBPm GBPm GBPm
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Gross debt (98.8) (52.0) (31.4) (22.0) (204.2)
Secured
cash 5.4 4.9 1.9 0.7 12.9
Other cash 3.0 2.4 0.3 0.3 89.5 95.5
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Net debt (90.4) (44.7) (29.2) (21.0) 89.5 (95.8)
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Property value
at 30 September
2012 194.9 105.7 33.6 44.6 18.5 397.3
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Gross LTV 50.7% 49.2% 93.5% 49.3% 51.4%
Net LTV 46.4% 42.3% 86.9% 47.1% 24.1%
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* excluding 16.7% non-controlling interest in Milton Keynes asset
The Hospitals portfolio is held in a joint venture where Max has a 45% economic
interest. The non recourse debt is held within the joint venture company so
Max's capital at risk in that transaction is limited to the equity in the joint
venture which at 30 September 2012 was GBP1.5 million. Max's share of the
Hospitals joint venture gross debt is GBP13.1 million, net debt GBP12.6 million and
property value GBP15.6 million. The Group's net LTV including the Hospitals joint
venture is 26.3%.
The Group's gearing ratio (net debt to equity) at 30 September 2012 is 33.3%
excluding the Hospitals joint venture (37.7% including the joint venture). At
the balance sheet date, the Group had unsecured cash and property assets
amounting to GBP108.0 million at their 30 September 2012 valuations.
All facilities remain within the relevant covenants.
Cash flow
The movements in cash over the six months to 30 September 2012 and in the period
since listing may be summarised as:
Cash flows in six months Cash flows in 40 months
since 31 March 2012 since listing
GBPm GBPm
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Cash from operations 9.8 90.1
Property acquisitions net of
debt raised 30.8 (195.4)
Net cash from investment
property sales 2.2 37.5
Net interest payable (5.6) (20.3)
Capital expenditure (6.1) (12.4)
Benefit of Provincial Offices
escrow account 0.1 5.5
Purchase of interest rate cap - (2.6)
Net funds raised on listing - 211.4
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Cash flow in the period 31.2 113.8
Cash at the start of the
period 82.6 -
=-------------------------------------------------------------------------------
Cash at 30 September 2012 113.8 113.8
=-------------------------------------------------------------------------------
Group Max share
Comprising: GBPm GBPm
=-------------------------------------------------------------------------------
Free cash 97.6 95.5
Cash secured under lending
facilities 16.2 12.9
=-------------------------------------------------------------------------------
113.8 108.4
=-------------------------------------------------------------------------------
Other than at St Katharine Docks and the High Holborn Estate, where major
refurbishment programmes are planned or under way, the capital expenditure
requirements in the portfolio are relatively modest and expected to remain
broadly in line with levels of past expenditure. Excluding the major projects,
ongoing capital expenditure has averaged around GBP2.6 million per annum over the
last two and a half years.
The most significant project at St Katharine Docks is the refurbishment of
Commodity Quay. The major works are expected to complete in late 2013 and as at
30 September 2012 Max's share of the remaining anticipated capital expenditure
for that project through to its completion is GBP10.9 million.
Having only just acquired the High Holborn Estate, we are still refining our
refurbishment plans but expect to be spending in the order of GBP5 million over
the next two to three years on a rolling refurbishment programme.
Since listing, and including the GBP48 million purchase of the High Holborn Estate
just after the balance sheet date, the Group has invested GBP250 million (net of
debt financing) in its portfolios. Following the equity raising of GBP211 million
in May 2009, this has been achieved by recycling much of our GBP90 million of net
cash from operations and GBP38 million of net sales proceeds back into our
investment activities.
Income statement
Movements in property revaluations are described in the portfolio section of
this report. The other key elements of the income statement are described
below.
Net income from property activities
The rental surplus from Max's high yielding portfolio together with surpluses on
sales have in the period from listing to 30 September 2012 contributed 43.7p to
the total 38.0p NAV per share growth in that period, covering all running costs,
interest and tax by approximately 2.0 times.
Net income in
six months to Net income in 40 months since
30 September listing
2012
Pence Pence
GBPm per share GBPm per share
=-------------------------------------------------------------------------------
Gross rent 20.2 9.3 104.0 47.4
Direct property costs (3.6) (1.7) (24.2) (11.0)
=-------------------------------------------------------------------------------
Rental surplus 16.6 7.6 79.8 36.4
=-------------------------------------------------------------------------------
Proceeds from sale of trading
properties - - 28.8 13.1
Cost of trading properties
sold - - (22.8) (10.4)
=-------------------------------------------------------------------------------
Surplus from trading property
sales - - 6.0 2.7
=-------------------------------------------------------------------------------
Proceeds from sale of
investment properties 1.2 0.6 70.9 32.3
Cost of investment properties
sold (1.1) (0.5) (54.1) (24.6)
=-------------------------------------------------------------------------------
Profit on sale of investment
properties 0.1 0.1 16.8 7.7
=-------------------------------------------------------------------------------
Property surplus reported in
the income statement 16.7 7.7 102.6 46.8
Rent smoothing adjustments
classified within revaluation
movements (1.9) (0.9) (6.8) (3.1)
=-------------------------------------------------------------------------------
Realised property surpluses
attributable to shareholders 14.8 6.8 95.8 43.7
=-------------------------------------------------------------------------------
Provisions for rent, service charge and other billed amounts considered
irrecoverable from tenants amounted to GBP0.1 million in the period compared to
GBP0.7 million in the year to 31 March 2012 and GBP0.2 million in the six months to
30 September 2011. The rental element of irrecoverable amounts equates to 0.2%
of rent billed compared to 1.3% in the year to 31 March 2012 and 1.0% in the six
months to 30 September 2011.
The tenant contributing the greatest proportion of the rent roll is Enterprise
Inns Plc with a GBP2.7 million per annum passing rent, 7% of total passing rent as
at 30 September 2012. We consider Enterprise to be a sufficiently strong
covenant to comfortably service the lease liabilities, which represent a
profitable part of their portfolio in desirable locations, but it is worth
noting that the valuation of the London pubs portfolio is substantially
underpinned by its vacant possession value. All other tenants account for less
than 5% of total passing rent, and all but 12 of those also represent less than
1% of total passing rent. This, together with the fact that the portfolio
comprises over 1,000 tenants, provides a low concentration of tenant risk.
Net financing costs
The Group's net financing cost of GBP7.0 million for the period principally
comprises GBP6.0 million of interest payable on the four non recourse secured loan
facilities financing the Industrious, London Pubs, Provincial Offices and St
Katharine Docks portfolios, GBP0.5 million of amortised finance fees and a GBP0.3
million reduction in the value of interest rate derivatives.
The Provincial Offices facility (15% of gross debt at 30 September 2012) is
fixed rate debt. On the remaining floating rate facilities, interest rate risk
is managed through a combination of interest rate caps and swaps, with 99% to
100% of the amount of notional principal hedged in each of the debt facilities
for the term of the relevant loan.
The average and maximum rates of interest payable during the period to 30
September 2012 were as follows:
Hedging method Average rate paid Maximum rate payable
=-------------------------------------------------------------------------------
Industrious Swap/cap 5.3% 6.4%
St Katharine Docks Swap 4.6% 4.6%
Provincial Offices Fixed rate 9.0% 9.0%
London Pubs Cap 3.3% 5.9%
=-------------------------------------------------------------------------------
Average 5.2% 5.9%
=-------------------------------------------------------------------------------
The Hospitals portfolio was fully debt financed at acquisition by Lloyds Bank
and the risk of interest rate movements is managed by interest rate swaps which
fix the total cost of the debt at 5.5% per annum. This interest cost is
reported through the share of profits of joint venture line in the income
statement.
The weighted average term to maturity of the Group's debt is 3.0 years, with the
first debt maturity being the Industrious facility which matures in August 2014.
Tax
UK income tax is payable at 20% of net rental surpluses after deduction of costs
(principally financing costs) and capital allowances. No tax is payable in
Jersey on the interest or dividend income of Jersey incorporated and tax
resident companies nor on investment property capital gains. The current tax
charge for the period represents an effective underlying tax rate of 5.2% on
profits excluding property revaluations, derivative revaluations and joint
venture contribution.
Mike Brown, Chief Executive
Prestbury Investments LLP
23 November 2012
Condensed Group Income Statement
Unaudited Unaudited Audited
six months to six months to year to
30 September 2012 30 September 31 March
2011 2012
Note GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Gross rental income 22,498 19,010 42,235
Proceeds from sale of - - 750
trading properties
=-------------------------------------------------------------------------------
22,498 19,010 42,985
=-------------------------------------------------------------------------------
Property outgoings (4,431) (4,481) (9,793)
Cost of trading - - (1,031)
properties sold
=-------------------------------------------------------------------------------
(4,431) (4,481) (10,824)
+------------------------------------------------------------------------------+
|Net rental income 18,067 14,529 32,442 |
| |
|Loss on sale of - - (281) |
|trading properties |
+------------------------------------------------------------------------------+
Gross profit 18,067 14,529 32,161
Administrative
expenses:
+------------------------------------------------------------------------------+
|General administrative (3,099) (2,646) (5,819) |
|expenses |
| |
|Corporate costs (386) (387) (755) |
+------------------------------------------------------------------------------+
Total administrative (3,485) (3,033) (6,574)
expenses
Investment property (6,489) (1,953) (5,016)
revaluation
Profit on sale of 77 489 355
investment properties
Other income 54 54 106
=-------------------------------------------------------------------------------
Operating profit 8,224 10,086 21,032
Share of profits of 9 154 266 373
joint venture
Net finance costs 4 (6,960) (5,389) (10,472)
=-------------------------------------------------------------------------------
Profit before tax 1,418 4,963 10,933
Tax credit / (charge) 5 287 (448) (881)
=-------------------------------------------------------------------------------
Profit for the period 1,705 4,515 10,052
=-------------------------------------------------------------------------------
Profit for the period
attributable to:
Owners of the parent 1,803 4,450 6,829
Non-controlling 6 (98) 65 3,223
interests
=-------------------------------------------------------------------------------
1,705 4,515 10,052
=-------------------------------------------------------------------------------
Earnings per share Pence per share Pence per share Pence per share
=-------------------------------------------------------------------------------
Basic and diluted 7 0.8p 2.0p 3.1p
=-------------------------------------------------------------------------------
All amounts relate to continuing activities.
Condensed Group Statement of Comprehensive Income
Unaudited Unaudited Audited
six months to 30 six months to 30 year to
September 2012 September 2011 31 March
2012
Note GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Profit for the period 1,705 4,515 10,052
Market value adjustment
of interest rate
derivatives in effective
hedges 13 (435) (4,000) (3,794)
Amortisation of interest
rate derivatives,
transferred to income
statement (152) (121) (258)
Tax effect of interest
rate derivative market
value adjustment 5 116 824 805
Share of market value
adjustment of interest
rate derivatives in
effective hedges in
joint venture, net of
deferred tax 9 55 (252) (178)
=-------------------------------------------------------------------------------
Total comprehensive
income for the period,
net of tax 1,289 966 6,627
=-------------------------------------------------------------------------------
Total comprehensive
income for the period,
net of tax, attributable
to:
Owners of the parent 1,631 1,690 4,429
Non-controlling
interests (342) (724) 2,198
=-------------------------------------------------------------------------------
1,289 966 6,627
=-------------------------------------------------------------------------------
Condensed Group Statement of Changes in Equity
Period ended Equity
30 September attributable Non-
2012 Stated Hedging Retained to owners of controlling
(unaudited) capital reserve earnings the parent interests Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
At 31 March
2012 (audited) 211,367 (4,752) 79,304 285,919 39,346 325,265
Profit for the
period - - 1,803 1,803 (98) 1,705
Market value
adjustment of
interest rate
derivatives - (260) - (260) (327) (587)
Tax effect of
interest rate
derivative
market value
adjustment - 33 - 33 83 116
Share of market
value
adjustment of
interest rate
derivatives in
joint venture,
net of deferred
tax - 55 - 55 - 55
=-------------------------------------------------------------------------------
Total
comprehensive
income for the
period, net of
tax - (172) 1,803 1,631 (342) 1,289
Equity
contribution
from non-
controlling
interests - - - - 600 600
=-------------------------------------------------------------------------------
At 30 September
2012
(unaudited) 211,367 (4,924) 81,107 287,550 39,604 327,154
=-------------------------------------------------------------------------------
Period ended Equity
30 September attributable Non-
2011 Stated Hedging Retained to owners of controlling
(unaudited) capital reserve earnings the parent interests Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
At 31 March
2011 (audited) 211,367 (2,352) 72,475 281,490 1,735 283,225
Profit for the
period - - 4,450 4,450 65 4,515
Market value
adjustment of
interest rate
derivatives - (3,112) - (3,112) (1,009) (4,121)
Tax effect of
interest rate
derivative
market value
adjustment - 604 - 604 220 824
Share of market
value
adjustment of
interest rate
derivatives in
joint venture,
net of deferred
tax - (252) - (252) - (252)
=-------------------------------------------------------------------------------
Total
comprehensive
income for the
period, net of
tax - (2,760) 4,450 1,690 (724) 966
Equity
contribution
from non-
controlling
interests - - - - 35,440 35,440
=-------------------------------------------------------------------------------
At 30 September
2011
(unaudited) 211,367 (5,112) 76,925 283,180 36,451 319,631
=-------------------------------------------------------------------------------
Condensed Group Balance Sheet
Unaudited Unaudited Audited
30 September 2012 30 September 2011 31 March
2012
Note GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Non-current assets:
Investment properties 8 462,082 468,863 464,125
Investment in joint
venture 9 1,464 1,074 1,255
Interest rate
derivatives at market
value 13 1,276 932 900
Deferred tax asset 5 1,080 1,352 1,102
=-------------------------------------------------------------------------------
465,902 472,221 467,382
=-------------------------------------------------------------------------------
Current assets:
Trading properties 864 2,086 864
Trade and other
receivables 10 13,119 8,727 11,258
Cash and cash
equivalents 11 113,791 75,879 82,631
=-------------------------------------------------------------------------------
127,774 86,692 94,753
=-------------------------------------------------------------------------------
Total assets 593,676 558,913 562,135
=-------------------------------------------------------------------------------
Current liabilities:
Trade and other
payables 12 (19,508) (20,587) (19,089)
Tax payable (62) (1,823) (1,106)
Interest rate
derivatives at market
value 13 (3,058) (2,545) (2,578)
=-------------------------------------------------------------------------------
(22,628) (24,955) (22,773)
=-------------------------------------------------------------------------------
Non-current
liabilities:
Borrowings 13 (236,045) (206,601) (206,983)
Interest rate
derivatives at market
value 13 (6,197) (6,035) (5,462)
Obligations under
finance leases 13 (1,652) (1,691) (1,652)
=-------------------------------------------------------------------------------
(243,894) (214,327) (214,097)
=-------------------------------------------------------------------------------
Total liabilities (266,522) (239,282) (236,870)
=-------------------------------------------------------------------------------
Net assets 327,154 319,631 325,265
=-------------------------------------------------------------------------------
Equity attributable to
owners of the parent:
Stated capital 211,367 211,367 211,367
Hedging reserve (4,924) (5,112) (4,752)
Retained earnings 81,107 76,925 79,304
=-------------------------------------------------------------------------------
287,550 283,180 285,919
Non-controlling
interests 6 39,604 36,451 39,346
=-------------------------------------------------------------------------------
Total equity 327,154 319,631 325,265
=-------------------------------------------------------------------------------
Pence per share Pence per share Pence per share
=-------------------------------------------------------------------------------
Basic and diluted NAV
per share 14 130.7p 128.7p 130.0p
EPRA NAV per share 14 134.1p 132.3p 133.4p
=-------------------------------------------------------------------------------
Condensed Group Cash Flow Statement
Unaudited Unaudited Audited
six months to 30 six months to 30 year to
September 2012 September 2011 31 March
2012
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Cash flows from
operating activities:
Profit before tax 1,418 4,963 10,933
Adjustments for non-cash
items
Investment property
revaluation 6,489 1,953 5,016
Profit on sale of
investment properties (77) (489) (355)
Share of profits of
joint venture (154) (266) (373)
Net finance costs 6,960 5,389 10,472
=-------------------------------------------------------------------------------
Cash flows from
operations before
changes in working
capital 14,636 11,550 25,693
Change in trade and
other receivables (3,711) 5,163 4,484
Change in trade and
other payables (512) 4,618 3,388
Change in trading
properties - - 1,229
Tax paid (618) (526) (1,449)
=-------------------------------------------------------------------------------
Cash flows from
operations 9,795 20,805 33,345
=-------------------------------------------------------------------------------
Investing activities:
Investment property
acquisitions (478) (164,247) (164,173)
Capital expenditure on
investment properties (6,079) (2,363) (2,912)
Recoveries from escrow
account 41 2,709 2,709
Proceeds from sale of
investment properties 3,084 11,789 11,953
Cash received from short
term deposit - 6,695 6,695
Interest received 136 315 416
=-------------------------------------------------------------------------------
Cash flows from
investing activities (3,296) (145,102) (145,312)
=-------------------------------------------------------------------------------
Financing activities:
Loans drawn down 32,000 86,652 86,652
Loan arrangement fees
paid (1,362) (1,556) (1,559)
Loans repaid (884) (4,765) (5,207)
Interest paid (5,693) (3,229) (8,335)
Distribution to non-
controlling interests - - (27)
Capital contribution
from non-controlling
interests 600 35,440 35,440
=-------------------------------------------------------------------------------
Cash flows from
financing activities 24,661 112,542 106,964
=-------------------------------------------------------------------------------
Net increase /
(decrease) in cash and
cash equivalents 31,160 (11,755) (5,003)
Cash and cash
equivalents at start of
period 82,631 87,634 87,634
=-------------------------------------------------------------------------------
Cash and cash
equivalents at end of
period 113,791 75,879 82,631
=-------------------------------------------------------------------------------
Notes to the Interim Report
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 six month period to
30 September 2012, with comparative amounts relating to the six month period to
30 September 2011 and the year to 31 March 2012.
This financial report includes the results and net assets of the Company and its
subsidiaries, together referred to as the Group, along with the Group's interest
in the results and net assets of its joint venture.
Further general information about the Company and the Group can be found on its
website: www.maxpropertygroup.com.
2. Basis of preparation
The financial information contained in this report has been prepared in
accordance with IAS 34, "Interim Financial Reporting" as adopted by the European
Union, and on a going concern basis.
The condensed financial statements for the interim period are unaudited and do
not constitute statutory accounts for the purposes of the Companies (Jersey) Law
1991. They should be read in conjunction with the Group's statutory accounts
for the year ended 31 March 2012, which are prepared under IFRS and upon which
an unqualified auditors' report was given.
The accounting policies adopted in this report are consistent with those
included in the financial statements of the Group for the year ended 31 March
2012 and are expected to be consistently applied in the year ending 31 March
2013. The annual report is available from the Investor Centre page of the
Company's website, www.maxpropertygroup.com, or by writing to the Company
Secretary or Property Advisor.
The Group's financial performance is not subject to material seasonal
fluctuations.
3. Operating segments
During the current and prior periods, the Group operated in and was managed as
one business segment, being property investment. All revenue arises from
property investment and trading, with all properties located in the United
Kingdom. No single tenant represented more than 10% of the Group's revenues
during the current or any prior periods.
4. Finance income and costs
Unaudited Unaudited Audited
six months to 30 six months to 30 year to
September 2012 September 2011 31 March
2012
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Recognised in the income
statement:
Finance income
Interest on cash deposits 136 268 365
=-------------------------------------------------------------------------------
Finance costs
Interest on secured debt (5,965) (3,685) (8,757)
Amortisation of loan issue
costs (503) (357) (739)
Other finance costs (287) (74) (145)
Market value adjustment of
interest rate derivatives
in ineffective hedges
(note 13) (404) (1,569) (1,267)
Amount recycled from the
hedging reserve 152 121 258
Finance lease interest (89) (93) (187)
=-------------------------------------------------------------------------------
Total finance costs (7,096) (5,657) (10,837)
=-------------------------------------------------------------------------------
Net finance costs
recognised in the income
statement (6,960) (5,389) (10,472)
=-------------------------------------------------------------------------------
Unaudited Unaudited Audited
six months to 30 six months to 30 year to
September 2012 September 2011 31 March
2012
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Recognised in other
comprehensive income:
Market value adjustment of
interest rate derivatives
in effective hedges (435) (4,000) (3,794)
Amount recycled to the
income statement (152) (121) (258)
=-------------------------------------------------------------------------------
Net finance costs
recognised in other
comprehensive income (587) (4,121) (4,052)
=-------------------------------------------------------------------------------
Further information about the hedging instruments, including details of their
valuation at the balance sheet date, is included in note 13.
The weighted average interest rate payable by the Group on its secured loans for
the period ended 30 September 2012, including all lenders' margins but excluding
amortised finance costs, was 5.2% (30 September 2011: 4.9%; 31 March
2012: 4.8%). The maximum rate payable in the period, had market rates exceeded
the various fixed and capped rates protected by hedging transactions, would have
been 5.9% (30 September 2011: 6.0%; 31 March 2012: 5.8%).
5. Taxation
Unaudited Unaudited Audited
six months to 30 six months to 30 year to
September 2012 September 2011 31 March
2012
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Tax (credit) / charge for
the period recognised in
the income statement:
Current tax: current year 415 337 814
Current tax: adjustments (840) - (274)
in respect of prior years
Deferred tax 138 111 341
=-------------------------------------------------------------------------------
(287) 448 881
=-------------------------------------------------------------------------------
The tax assessed for the period varies from the standard rate of income tax in
the UK of 20%. The differences are explained below:
Unaudited Unaudited Audited
six months to 30 six months to 30 year to
September 2012 September 2011 31 March
2012
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Profit before tax 1,418 4,963 10,933
=-------------------------------------------------------------------------------
Profit before tax at the
standard rate of income
tax in the UK of 20% 284 993 2,187
Adjustments in respect of
prior years (840) - (274)
Adjusted for the effects
of:
Revaluations not subject
to tax 1,298 391 1,003
Income and property
disposal profits not
subject to tax (1,408) (1,518) (2,860)
Share of profit of joint
venture shown after tax (31) (53) (75)
Expenses not deductible
for tax 403 661 893
Other 7 (26) 7
=-------------------------------------------------------------------------------
(287) 448 881
=-------------------------------------------------------------------------------
The movement on the deferred tax asset was as follows:
Unaudited Unaudited Audited
six months to 30 six months to 30 year to
September 2012 September 2011 31 March
2012
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
At the start of the period 1,102 639 639
Tax on recognition of
fixed and minimum
guaranteed rent reviews,
charged to the income
statement (170) (183) (352)
Tax on interest rate
derivative market value
adjustment, credited to
the income statement 32 72 10
Tax on interest rate
derivative market value
adjustment, credited to
other comprehensive income 116 824 805
=-------------------------------------------------------------------------------
At the end of the period 1,080 1,352 1,102
=-------------------------------------------------------------------------------
Tax status of the Company and its subsidiaries
Any Group undertakings earning 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 in Jersey on their income or gains. 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 costs including interest, is subject to UK
income tax currently at a rate applicable to Group undertakings of 20%. The
joint venture investment is held in two UK companies which were subject to UK
Corporation tax on profits at 24% for the period ended 30 September 2012 (30
September 2011 and 31 March 2012: 26%).
6. Non-controlling interests
The non-controlling interests represent a 16.7% investment by a third party in
three properties in Milton Keynes within the Provincial Offices portfolio and a
40% investment by another third party in St Katharine Docks.
Unaudited Unaudited Audited
six months to 30 six months to 30 year to
September 2012 September 2011 31 March
2012
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
At the start of the period 39,346 1,735 1,735
Capital invested by third
party in St Katharine
Docks 600 35,440 35,440
Share of (loss) / profit (98) 65 3,223
for the period
Share of other (244) (789) (1,025)
comprehensive income for
the period
Distributions paid to non- - - (27)
controlling interests
=-------------------------------------------------------------------------------
At the end of the period 39,604 36,451 39,346
=-------------------------------------------------------------------------------
7. Earnings per share
Earnings per share is calculated as profits attributable to ordinary
shareholders of the Company for each period divided by 220,000,002 ordinary
shares in issue throughout each relevant period during which profits were
earned. 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,
with all figures shown net of any non-controlling interests:
Unaudited Unaudited Audited
six months to 30 six months to 30 year to
September 2012 September 2011 31 March 2012
Pence per Pence per Pence per
GBP000 share GBP000 share GBP000 share
=-------------------------------------------------------------------------------
Basic earnings
attributable to
shareholders 1,803 0.8 4,450 2.0 6,829 3.1
Adjusted for:
Investment property
revaluation 6,308 2.9 1,768 0.8 7,230 3.3
Market value
adjustment of
interest rate
derivatives, net of
tax (131) (0.1) 470 0.2 15 -
Profit on sale of
investment
properties (77) - (489) (0.2) (355) (0.2)
Market value
adjustment of
interest rate
derivatives within
joint venture, net
of tax 3 - 17 - 32 -
Loss on sale of
trading properties - - - - 281 0.2
Property acquisition
costs recognised in
the income statement - - 85 0.1 51 -
=-------------------------------------------------------------------------------
EPRA earnings 7,906 3.6 6,301 2.9 14,083 6.4
=-------------------------------------------------------------------------------
8. Investment properties
Long Short
Freehold leasehold leasehold Total
GBP000 GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Audited:
Carrying value as at 31 March 2011 236,762 78,171 1,170 316,103
Acquisition of St Katharine Docks 162,216 2,272 - 164,488
SDLT recovery on London Pubs portfolio (301) - - (301)
Capital expenditure net of dilapidation
receipts 1,944 932 50 2,926
Recoveries from escrow account (2,581) (128) - (2,709)
Disposals (10,766) (600) - (11,366)
Revaluation movements (545) (4,379) (92) (5,016)
=-------------------------------------------------------------------------------
Carrying value as at 31 March 2012 386,729 76,268 1,128 464,125
Unaudited:
SDLT recovery on Provincial Offices
portfolio (200) (36) - (236)
Capital expenditure net of dilapidation
receipts 5,957 (74) 57 5,940
Recoveries from escrow account (41) - - (41)
Disposals (713) (504) - (1,217)
Revaluation movements (4,795) (1,635) (59) (6,489)
=-------------------------------------------------------------------------------
Carrying value as at 30 September 2012 386,937 74,019 1,126 462,082
=-------------------------------------------------------------------------------
The following table reconciles the carrying values of the investment properties
to their market values:
Long Short
Freehold leasehold leasehold Total
GBP000 GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Audited:
Carrying value as at 31 March 2012 386,729 76,268 1,128 464,125
Headlease liabilities (note 13) - (1,634) (18) (1,652)
Rent free periods and fixed or guaranteed
rent reviews (note 10) 3,908 596 67 4,571
Capitalised letting fees 333 225 13 571
=-------------------------------------------------------------------------------
Portfolio valuation as at 31 March 2012 390,970 75,455 1,190 467,615
=-------------------------------------------------------------------------------
Unaudited:
Carrying value as at 30 September 2012 386,937 74,019 1,126 462,082
Headlease liabilities (note 13) - (1,634) (18) (1,652)
Rent free periods and fixed or guaranteed
rent reviews (note 10) 5,272 909 73 6,254
Capitalised letting fees 836 246 9 1,091
=-------------------------------------------------------------------------------
Portfolio valuation as at 30 September 2012 393,045 73,540 1,190 467,775
=-------------------------------------------------------------------------------
Revaluation movements comprise:
Unaudited Unaudited Audited
six months to 30 six months to 30 year to
September 2012 September 2011 31 March
2012
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Property revaluation (4,286) (652) (1,440)
Movement in rent free
periods, fixed or
guaranteed rent reviews
and capitalised letting
fees (2,203) (1,301) (3,576)
=-------------------------------------------------------------------------------
Investment property
revaluation in the income
statement (6,489) (1,953) (5,016)
Investment property
revaluation attributable
to non-controlling
interests 181 185 (2,214)
=-------------------------------------------------------------------------------
Investment property
revaluation attributable
to owners of the parent (6,308) (1,768) (7,230)
=-------------------------------------------------------------------------------
The properties were independently valued as at 30 September 2012 by CBRE
Limited, Commercial Real Estate Advisors, in their capacity as external
valuers. The valuation was prepared on a fixed fee basis, independent of the
property value, and in accordance with the RICS Valuation - Professional
Standards (2012) on the basis of Market Value, supported by reference to market
evidence of transaction prices for similar properties. Market Value represents
the estimated amount for which a property should exchange on 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.
The historic cost of the Group's investment properties as at 30 September 2012
was GBP432.7 million (30 September 2011: GBP429.1 million; 31 March 2012: GBP428.2
million).
9. Investment in joint venture
The investment in joint venture represents the Group's 45% economic interest
(50% voting interest) in MPG Hospital Holdings Limited, a company incorporated
in England & Wales and operating in the United Kingdom. The movement in the
investment in joint venture in the period was as follows:
Unaudited Unaudited Audited
six months to 30 six months to 30 year to
September 2012 September 2011 31 March
2012
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
At the start of the period 1,255 1,060 1,060
Share of profits for the
period recognised in the
income statement 154 266 373
Share of other
comprehensive income 55 (252) (178)
=-------------------------------------------------------------------------------
1,464 1,074 1,255
=-------------------------------------------------------------------------------
The properties in the joint venture were independently valued as at 30 September
2012 at GBP34.7 million (30 September 2011 and 31 March 2012: GBP34.6 million) by
CBRE Limited, Commercial Real Estate Advisors, in their capacity as external
valuers. The valuation was prepared on a fixed fee basis, independent of the
property value, and in accordance with the RICS Valuation - Professional
Standards (2012) on the basis of Market Value, supported by reference to market
evidence of transaction prices for similar properties.
The Group has no capital commitments or contingent liabilities in relation to
the joint venture, and the joint venture itself has no capital commitments or
contingent liabilities.
10. Trade and other receivables
Unaudited Unaudited Audited
30 September 2012 30 September 2011 31 March
2012
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Net trade receivables 3,462 3,114 3,244
Receivable from investment property
disposal - - 1,847
VAT receivable 972 - -
Interest receivable 1 5 1
Rent free periods and fixed or
guaranteed rent reviews -
investment properties 6,254 2,878 4,571
Rent free periods and fixed or
guaranteed rent reviews - trading
properties 151 - 88
Prepayments and accrued income 2,092 2,564 1,482
Other receivables 187 166 25
=-------------------------------------------------------------------------------
13,119 8,727 11,258
=-------------------------------------------------------------------------------
GBP0.7 million (30 September 2011: GBP0.8 million; 31 March 2012: GBP1.0 million) of
rent free periods and fixed or guaranteed rent reviews are due within one year,
with the remainder due in more than one year. GBP1.2 million (30 September 2011:
GBP2.3 million; 31 March 2012: GBP1.1 million) of prepayments and accrued income are
due within one year, with the remainder due in more than one year.
11. Cash and cash equivalents
Unaudited Unaudited Audited
30 September 2012 30 September 2011 31 March
2012
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Cash and cash equivalents 97,603 58,657 63,977
Cash and cash equivalents secured
under lending facilities 16,188 17,222 18,654
=-------------------------------------------------------------------------------
113,791 75,879 82,631
=-------------------------------------------------------------------------------
GBP5.6 million (30 September 2011: GBP6.5 million; 31 March 2012: GBP7.4 million) of
the Group's cash and cash equivalents balance is attributable to non-controlling
interests.
12. Trade and other payables
Unaudited Unaudited Audited
30 September 2012 30 September 2011 31 March
2012
GBP000 GBP000 GBP000
=---------------------------------------------------------------------------
Trade payables 1,999 1,653 2,437
Rent received in advance 8,821 9,623 8,728
Other taxes and social security 1,217 2,532 1,783
Other amounts payable 3,506 3,101 2,689
Accruals and deferred income 3,965 3,678 3,452
=---------------------------------------------------------------------------
19,508 20,587 19,089
=---------------------------------------------------------------------------
All amounts above are due within one year and none incur interest.
13. Financial assets and liabilities
Non-current financial liabilities
Unaudited Unaudited Audited
30 September 2012 30 September 2011 31 March
2012
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Secured loans 239,422 209,501 209,504
Unamortised finance costs (3,377) (2,900) (2,521)
=-------------------------------------------------------------------------------
236,045 206,601 206,983
Obligations under finance leases 1,652 1,691 1,652
(note 8)
Interest rate derivatives at market 6,197 6,035 5,462
value
=-------------------------------------------------------------------------------
243,894 214,327 214,097
=-------------------------------------------------------------------------------
There was no difference between the book value and fair value of the non-current
financial liabilities shown above, with the exception of one fixed rate loan
which had a book value of GBP32.0 million (30 September 2011: GBPnil; 31 March
2012: GBPnil) and a fair value of GBP32.5 million (30 September 2011: GBPnil; 31 March
2012: GBPnil).
The Group's principal borrowing arrangements are as follows:
Provincial
Industrious St Katharine Offices London Pubs
facility Docks facility facility facility
=-------------------------------------------------------------------------------
Lender Hypothenkenbank Hypothenkenbank Longbow Hypothenkenbank
Frankfurt AG Frankfurt AG Investment Frankfurt AG
No.2 SÃ rl
Recourse
beyond ring-
fenced sub-
group None None None None
Loan drawn May/June
Oct 2009 Aug 2011 2012 Jan 2011
Initial
drawdown GBP127.7m GBP86.7m GBP32.0m GBP25.5m
Balance at
30 September
2012 GBP98.8m GBP86.7m GBP32.0m GBP22.0m
Market value
of secured
properties at
30 September
2012 GBP194.9m GBP176.2m GBP34.3m GBP44.6m
Gross LTV
ratio at 30
September
2012 50.7% 49.2% 93.5% 49.3%
Net LTV ratio
at 30
September
2012 46.4% 42.3% 86.9% 47.1%
Current
repayment Interest
terms Interest only Interest only only Interest only
Repayment
date Aug 2014 Aug 2016 Sept 2016 Jan 2016
=-------------------------------------------------------------------------------
The terms of the loans may, in the event of a covenant default, restrict the
ability of certain subsidiaries to transfer funds outside the relevant security
group. There have been no defaults or other breaches of financial covenants
under any of the loans during the current or prior periods, or in the period
since the balance sheet date.
The Group had no undrawn, committed borrowing facilities at 30 September 2012 or
at the end of any prior period.
Derivative financial instruments
The following derivative financial instruments were in place as at 30 September
2012:
Notional amount Fair value
Unaudited Unaudited Unaudited Unaudited Audited
30 30 Audited 30 30 31
September September 31 March September September March
Expiry 2012 2011 2012 2012 2011 2012
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
4.0%
amortising August
swap 2014 64,242 65,744 64,242 (3,998) (5,164) (4,359)
4.0% cap August
2014 56,750 56,750 56,750 2 15 22
2.3%
amortising August
swap 2016 86,000 86,000 86,000 (5,257) (3,416) (3,681)
2.3%
receivers August
swaption 2016 86,000 86,000 86,000 1,249 672 754
3.5% cap March
2015 25,500 25,500 25,500 6 62 32
3.5% cap held
for future March
transactions 2015 74,500 74,500 74,500 19 183 92
=-------------------------------------------------------------------------------
(7,979) (7,648) (7,140)
=-------------------------------------------------------------------------------
The profile of the notional swapped and cap amounts have been estimated to match
the expected loan profiles reasonably closely. Since the loan profiles cannot
be predicted with certainty the swap and cap profiles are monitored regularly
and adjusted as necessary.
Movements in the valuation of derivative financial instruments in the period
were as follows:
Unaudited Unaudited Audited
six months to 30 six months to 30 year to
September 2012 September 2011 31 March
2012
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
At the start of the (7,140) (2,079) (2,079)
period
Charged to the income (404) (1,569) (1,267)
statement (note 4)
Charged directly to the (435) (4,000) (3,794)
hedging reserve
=-------------------------------------------------------------------------------
At the end of the (7,979) (7,648) (7,140)
period
=-------------------------------------------------------------------------------
Derivative financial instruments are categorised as follows:
Unaudited Unaudited Audited
30 September 2012 30 September 2011 31 March
2012
GBP000 GBP000 GBP000
=---------------------------------------------------------------------------
Financial assets
within one year - - -
in more than one year 1,276 932 900
Financial liabilities
within one year (3,058) (2,545) (2,578)
in more than one year (6,197) (6,035) (5,462)
=---------------------------------------------------------------------------
(7,979) (7,648) (7,140)
=---------------------------------------------------------------------------
The derivative contracts and the fixed rate loan have been valued by reference
to interbank bid market rates as at the close of business on 28 September 2012
by JC Rathbone Associates Limited, and include the full LIBOR basis spread. All
derivative financial instruments are classified as "level 2" as defined in IFRS
7 as their fair value measurements are those derived from inputs other than
quoted prices in active markets for identical assets and liabilities, but that
are observable either directly or indirectly. The fixed rate loan is classified
as "level 3" as defined in IFRS 7 as not all of its fair value measurements are
those derived from inputs that are observable directly or indirectly.
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. These valuations do not
necessarily reflect the cost or gain to the Group of cancelling its interest
rate protection, which is generally a marginally higher cost or smaller gain
than a market valuation.
14. Net asset value per share
Net asset value per share is calculated as the net assets of the Group
attributable to shareholders at each balance sheet date, divided by the number
of shares in issue at that date.
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") 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 are considered to 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, with all figures
shown net of any non-controlling interests:
Unaudited Unaudited Audited
30 September 2012 30 September 2011 31 March
2012
Pence per Pence per Pence per
GBP000 share GBP000 share GBP000 share
=-------------------------------------------------------------------------------
Basic NAV 287,550 130.7 283,180 128.7 285,919 130.0
Adjustments:
Fair value of
trading property in
excess of book
value 916 0.4 414 0.2 961 0.4
Fair value of
financial
instruments 7,686 3.5 8,386 3.9 7,542 3.4
Deferred tax (1,280) (0.6) (1,444) (0.7) (1,219) (0.6)
Fair value of
financial
instruments in
joint venture, net
of deferred tax 199 0.1 317 0.1 252 0.1
Share of inherent
capital gains tax
in joint venture 49 - 144 0.1 88 0.1
=-------------------------------------------------------------------------------
EPRA NAV 295,120 134.1 290,997 132.3 293,543 133.4
=-------------------------------------------------------------------------------
15. Related party transactions and balances
Interests in shares
The direct and indirect interests of the Directors and their families in the
share capital of the Company are as follows:
Unaudited
Unaudited Unaudited 31 March
30 September 2012 30 September 2011 2012
=-------------------------------------------------------------------
Aubrey Adams 100,000 100,000 100,000
Mike Brown 5,000,000 5,000,000 5,000,000
Freddie Cohen 20,000 20,000 20,000
Keith Hamill 40,000 40,000 40,000
Nick Leslau 20,000,000 20,000,000 20,000,000
Alex Ohlsson 150,000 150,000 150,000
John Stephen 40,000 40,000 40,000
David Waters 25,000 25,000 25,000
=-------------------------------------------------------------------
Directors' fees
Directors' fees of GBP0.1 million (period to 30 September 2011: GBP0.1 million; year
to 31 March 2012: GBP0.2 million) were payable for the period ended 30 September
2012. As at 30 September 2012, GBP19,000 (30 September 2011: GBP9,000; 31 March
2012: GBP28,000) of these fees remained outstanding and are included within other
amounts payable (note 12).
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 GBP2.5 million (period to 30 September 2011: GBP2.5 million; year to 31 March
2012: GBP5.0 million) were payable to Prestbury in respect of the period, of which
GBPnil (30 September 2011: GBP11,000; 31 March 2012: GBPnil) was outstanding as at the
balance sheet date and is included within trade payables (note 12). GBP0.1
million (period to 30 September 2011: GBP0.1 million; year to 31 March 2012: GBP0.1
million) of this fee has been reduced by the Property Advisor in recognition of
the fact that it directly receives a management fee from the Hospitals joint
venture described in note 9, in relation to the services provided which are sub-
contracted by the Company. This amount is included in other income in the
income statement.
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 GBP12,000 (period to 30 September 2011:
GBP18,000; year to 31 March 2012: GBP50,000) to the Group in this respect, of which
GBPnil (30 September 2011 and 31 March 2012: GBPnil) remained outstanding as at the
balance sheet date.
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 GBP211.4 million 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 an amount in excess of a
'hurdle', being 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. 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 stage. The Board keeps this position under review
and will provide for a liability for incentive payments if there is more
certainty than not that payments will be made.
16. Commitments and contingent liabilities
Unaudited Unaudited Audited
30 September 2012 30 September 2011 31 March
2012
GBP000 GBP000 GBP000
=-------------------------------------------------------------------------------
Capital commitments - Max share 1,099 1,156 2,537
Capital commitments - share from
non-controlling interests 588 30 948
=-------------------------------------------------------------------------------
1,687 1,186 3,485
=-------------------------------------------------------------------------------
Capital commitments are in respect of refurbishment works on investment and
trading properties.
17. Events after the balance sheet date
On 2 October 2012, the group unconditionally exchanged on the purchase of the
High Holborn Estate in London for cash consideration of GBP47.7 million including
costs. Completion took place on 6 November 2012. The estate comprises nine
buildings making up the whole of a one acre island site fronting High Holborn
and Bedford Row, London, WC1. The Group intends to carry out a rolling
refurbishment of the principal office buildings and to investigate converting
the peripheral assets back to their original residential use.
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
EPRA EPS A measure of earnings per share designed by EPRA
to present underlying earnings from core operating
activities
EPRA NAV A measure of net asset value designed by EPRA to
present net asset value excluding the effects of
fluctuations in value in instruments that are held
for long term benefit, net of deferred tax
EPRA Vacancy Rate ERV of vacant space divided by ERV of the whole
portfolio, excluding in each case any property
under development
EPS Earnings per share, calculated as the earnings for
the period after tax attributable to members of
the parent Company (that is, excluding any non-
controlling interests) divided by the weighted
average number of shares in issue in the period
Equivalent Yield The constant capitalisation rate which, if applied
to all cash flows from an investment property,
equates to the market value
ERV Estimated rental value: the open market rental
value expected to be achievable at the date of
valuation
Initial Yield Annualised net rents on investment properties as a
percentage of the investment property valuation
Investment Advisory Agreement The agreement made between the Company, Prestbury
Investments LLP and Gallium Fund Solutions Limited
under which Prestbury provides certain services to
the Group
LTV The outstanding amount of a loan as a percentage
of property value. Gross LTV is the calculation
for the gross loan amount and net LTV offsets cash
balances against the loan amount
NAV Net asset value
Property Advisor Prestbury Investments LLP
or Prestbury
psf Per square foot
Reversionary Yield The anticipated yield to which the Initial Yield
will rise once the rent reaches the ERV, which is
the market rental value of lettable space
sq ft Square feet
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. 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.
Source: Max Property Group plc via Thomson Reuters ONE
[HUG#1660165]
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