RNS Number:9303H
Bourne End Properties PLC
27 March 2000
PART 1
BOURNE END PROPERTIES PLC:
PRELIMINARY RESULTS -12 MONTHS TO 31 DECEMBER 1999
HIGHLIGHTS
* Net asset value per share advances to 85.8p - an increase of 22% *
* Post interest operating profits rise to #1.6m - an increase of over
50%
* Year end gross value of property portfolio amounted to #170m
* Portfolio generates net annual rents of #13.8m - reflecting gross yield of
8.1%
* Reversionary nature of portfolio - net ERV of approximately #16.8m
* Core portfolio showed capital growth of 9.6%
* During year:
Company disposed of #74.1m non - core properties
Eliminated #57.3m of long term high coupon debt
Reduced gearing
Re-focused portfolio into primarily shopping centre investments
* Shopping centres now account for 85% of total portfolio against 59% a year
ago
"Given the proven abilities of our management team to win value from
under-performing and under-managed shopping centre assets we are exploring a
wide range of options that may allow us to engage in the management of larger
portfolios to the revenue and capital benefit of our shareholders.... We
believe that we have good value opportunities for value creation within our
current shopping centre portfolio," Mick Newmarch, Chairman.
(* Increase based on director's pro forma estimates following last Autumn's
restructuring)
CHAIRMAN'S STATEMENT
During 1999 your company accelerated the transformation that we have been
arguing as desirable in our statements of recent years.
You will know, from the various communications you have had from us since
last year's interim report, that in the latter half of last year we completed
a complex multi-faceted transaction. The essential elements of these
arrangements have moved your company bodily towards achieving the major
strategic ambition we have spelled out in past years. Bourne End is now
overwhelmingly engaged in owning and managing in-town shopping centres. At
the close of the financial year two new shopping centre investments were
made, in Hounslow and Torquay, meaning that now 85% of our investment
portfolio comprises shopping centres, which compares with 59% when I wrote to
you at this time last year.
You have already been appraised of, and approved, the details of this
transaction, but I should like to re-iterate the main strands so as to
emphasise their importance.
We disposed of a portfolio of #71.3m of property assets that we regarded as
either non-core or mature. In parallel with this disposal we transferred to
the purchaser the entire liability for a long-term debenture with Norwich
Union with a nominal value of #57.3m and an estimated market value of #72.4m.
In consideration of all of this by means of a Scheme of Arrangement we
effected a reduction of capital which allowed the cancellation of some 12% of
the then issued capital held by the purchaser and his family interests.
We believe these actions secured a number of substantial benefits for your
company.
* We eliminated #57.3 m of long-term debt, repayable in 2016, with a coupon
of 9.8%pa, without suffering any early repayment penalties.
* This elimination had a significant positive impact on the FRS 13 adjusted
net asset value per share.
* Our level of equity gearing was reduced.
* In a concentrated way we disposed of a portfolio of non-core assets and one
largely mature shopping centre asset, which we felt had been managed to
yield the major opportunities we perceived at the time of acquisition.
* We accelerated the re-focussing of our portfolio.
* And finally we have ended the company's relationship with its previous
Chief Executive.
As we envisioned in the circular, the transaction resulted in an overall loss
of #15.5m representing the loss arising on the disposal of the relevant
subsidiaries' net assets and the related transaction costs.
Because of the reduction in capital during the year the published audited
totals of shareholders funds for 1999 and 1998, respectively #52.2m and
#55.6m, are not comparable. For the same reason the published figures of net
assets per share, at 85.8p for 1999 and 80.3p for 1998 are similarly not
comparable. For your guidance, your directors have estimated, on a pro-forma
basis, that, hypothetically, if the transaction had been completed at the end
of 1998, the net asset value per share at that date would have been 70.2p. We
believe that the notional increase in net assets per share from 70.2p to
85.8p more reasonably reflects your company's operational performance.
Revenue profits after interest for 1999 increased by over 50% to #1.6m when
compared with 1998. However, the loss incurred on the transaction has been
taken through the profit and loss account, in accordance with accepted
accounting practice. As a result, the company reports a loss for the year of
#18.6m or 26.9p per share for 1999.
As I informed you last October one impact of the losses deriving from the
transaction would be to extinguish distributable reserves. This prevents the
directors from making a final dividend recommendation for 1999. However, the
directors expect this position to ameliorate, and propose to pay a first
interim dividend for the year ending 31 December 2000 in July 2000, in lieu
of a final dividend for 1999. We expect to announce the level of this
dividend at the Annual General Meeting on June 13 2000.
Net debt at the end of 1999 stood at #115.2m implying gearing of 220% which
compares with 273% at the end of 1998. The overall cost of our debt was
marginally below ruling market rates leading to a positive FRS13 adjustment
of 1.6p per share. This compares with an adverse adjustment of 34.9p per
share for 1998.
Your management team, led by David Roberts, has worked hard and effectively
during the past year both to deliver the more focused and more efficient
company we now have, but also to improve the returns from the core assets we
own. I should like publicly to thank them all for their efforts.
They have, of course, been operating against an equity market background
which implies that institutional investors remain uninterested in property
companies, and in particular, in small property companies. This lack of
interest poses a conundrum given the relative buoyancy of the direct property
market with institutional demand still relatively firm. The substantial
discounts to underlying asset values that prevail in the property equity
market appear anomalous. One assumes that at some stage efficient capital
will flow to redress the balance.
Clearly your company's current size, market sentiment and the perceived lack
of shareholder enthusiasm presently inhibits opportunities for expanding our
shopping centre portfolio. However, given the proven abilities of our
management team to win value from under-performing and under-managed shopping
centre assets we are exploring a wide range of options that may allow us to
engage in the management of larger portfolios to the revenue and capital
benefit of our shareholders. Also, fundamentally, of course, we believe that
we have good opportunities for value creation with our current shopping
centre portfolio. Therefore, although the equity market environment in which
we operate is presently unsupportive, I am confident that your company is in
good shape and I shall look forward to reporting good operational progress
later this year.
Mick Newmarch
CHAIRMAN
27 March 2000
OPERATING REVIEW
Our focus over the past year has been twofold: re-structuring the business
and enhancing the company's core assets. I am pleased to report that we have
been successful on both fronts as Bourne End is close to achieving the
objectives I set three years ago which was to create a vibrant retail
property investment company focused on in-town shopping centres.
As the Chairman has already mentioned, and we cannot stress this enough, last
October's transaction with Leo Noe, our former Chief Executive, enabled us to
achieve three of my original key objectives: eradication of our expensive
long term Norwich Union debenture, disposal of a substantial portfolio of
non-core or mature properties, and the cancellation of the shares owned by
the Noe Family Interests. At the outset I believed it would take us longer to
achieve those objectives and it is a credit to the management team that they
have been successfully delivered earlier.
Portfolio
The gross value of Bourne End's property portfolio, as at 31 December 1999
amounted to #169.9m generating annualised net rental income of around #13.8m
reflecting an overall gross yield of approximately 8.1%. The revaluation
surplus of #9.5M over 1998 values represents an overall increase of 6.0% with
our core shopping centre portfolio, on the same basis, showing an increase of
9.6% in 1999. Our portfolio is considerably reversionary with the estimated
net rental value being almost #3m higher than current passing rents.
IPD has reviewed the performance of this core portfolio and based on its
definition of capital growth, (adjusted for the timing of purchases and
reinvestment of income) the capital growth in 1999 was 9.0% compared with the
IPD All-Fund rate of 8.5%. If income return is included our core portfolio's
total return was 17.1% compared with the IPD All-Fund return of 15.2%. These
figures are on an ungeared basis.
Since the year-end we have purchased the Fleet Walk Shopping Centre in
Torquay for #15.1m and the portfolio now comprises 10 Shopping Centres
accounting for 85% of the total, our retail park at Bridgwater and some
smaller retail or mixed-use investments. As a result the management team can
focus its resources and talent on what it does best - creating shareholder
value and long term growth from shopping centre investments without the
distraction of a disparate non-core portfolio.
We wish to dismiss the notion, believed by some people, that it is only the
very large city centre and out of town shopping centres that are showing real
performance. At the heart of the growth in value of our portfolio has been
our ability to let vacant space, increase Zone A rents, and improve yields
through improving the properties.
I can report that demand for space in our Centres from value retailers has
remained strong. However we recognise the changing face of demand for retail
space right across the whole shopping centre spectrum. This demand is from a
wide variety of users who have not been traditional retail centre tenants and
increasingly reflect consumers shifting attitudes towards shopping.
Shopping is increasingly being viewed as part of the whole leisure experience
and retailing has to adapt accordingly. As a result, new "retailers", such as
national coffee house chains and mobile telephone groups, are coming into our
Centres. At the same time we are seeing demand from operators ranging from
fitness centres, bar operators, restaurant and fast food chains who all
believe that shopping centres are becoming lifestyle destination centres.
With longer opening hours we have to ensure that our properties are
attractive and secure. This equally applies to those shopping centres with
car parks attached where there is the opportunity to secure higher revenue
from parking, provided they are safe and secure and encourage people to make
use of the facility, particularly in the evenings.
We consider car parks to be both an important Centre facility and a key
source of income and are devoting management time to ensure that our car
parks are attractive and profitable as experience shows us that a successful
car park usually means a successful shopping centre.
Centre review
Loreburne Centre, Dumfries
Letting activity has been particularly robust with five new lettings to
retailers including Next and Time Computers adding over #200,000 to our lease
income and increasing Zone A's by over 20% to #43 a sq ft. At the time of
purchase the gross annual income was #843,000 and there were 12 vacant units
accounting for approximately 22% of the total retail floor space. Today the
annual income is #1.175m and is strongly reversionary. The vacant space, in
rental value terms, has now fallen to approximately 7.5%.
The Hart Centre, Fleet
Four new lettings were concluded in 1999 to retailers including Regis and
Cafe BB's increasing annual rents by over #100,000. Zone A rates have
increased by over 10% to #44 a sq ft and the current annual income of #2.0m
compares favourably with #1.67m at the time of acquisition in March 1998.
We have also signed an agreement for lease with Woolworths for a new 22,500
sq.ft. store which will provide a new anchor for the scheme. This unit forms
part of an overall #3.0m development of 40,000 sq.ft. and we are currently in
the advance stage of negotiations with a fitness operator to take the leisure
space above the Woolworths unit. We shall be starting development shortly and
expect to complete by the middle of next year.
Clarendon Square, Hyde
New lettings to several retailers including Card Warehouse and the Phone
People, together with agreeing the rent review on the Tesco store which
anchors the scheme, have increased net annual income by #130,000. We have
recently exchanged contracts with John Menzies for the surrender of their
7,500 sq.ft. unit for a significant premium, which will enable us to relocate
an existing tenant within the scheme into the majority of the space and we
are in discussions with several new tenants to take the resultant free space
arising from this transaction.
We are also discussing with the local authority a proposal to extend the
Centre on to adjoining land to facilitate a 40,000 sq.ft. extension in return
for a regearing of the head lease.
Bramley Centre, Leeds
Five new lettings have been concluded in 1999 adding over #80,000 to our
annual rental income which is now approximately #1.0m and Zone A rates have
increased by over 10% to #40 a sq ft. We are currently in discussions with
Morrisons, the anchor tenant at the Centre, for a 20,000 sq.ft. extension of
their existing unit to create a superstore of over 60,000 sq.ft.
Waterborne Walk, Leighton Buzzard
We have rebranded the Centre and, following the refurbishment and extension
of certain units, we have secured lettings to New Look and Countryside
Taverns which have added #100,000 to annual rental income.
Abbeygate Centre, Nuneaton
Since its acquisition in March 1998 our strategy had been to reduce residual
liabilities and increase income by letting vacant units and converting
short-term inclusive licenses onto longer-term exclusive lettings. By the end
of 1999 we had secured full occupancy of all the retail units in the Centre.
Prescot Centre, Prescot
We continue to maintain high-level occupancy at the Centre. During the year
we accepted a surrender by Tandy of their lease with an unexpired term of 14
years and simultaneously re-let the property to Shoefayre on similar terms.
Victoria Plaza, Southend
We concluded a number of new lettings including to HSBC and the Ministry of
Defence increasing annual rental income by over #100,000. In January this
year we acquired the leasehold interest in the 36,250 sq ft C&A store for
#1.5m. The interest had an unexpired term of 72 years and on which C & A was
paying a peppercorn rent. We are currently negotiating with interested
parties in respect of this space.
We have obtained detailed planning consent for a new 12,000 sq.ft. unit
adjacent to the high street entrance and we are discussing terms with the
local authority to take back control of the mall walkways to facilitate their
refurbishment.
Bridgwater Retail Park
We have successfully secured a widening of the existing planning use to
facilitate new lettings of the existing 20,000 sq.ft. of vacant space on the
park. Already we have signed an agreement for lease with Jollyes Pet Foods
for 6,000 sq.ft. and are in discussions with other retailers on the remaining
space. We are now in the process of agreeing the September 1999 rent reviews
which are showing a significant increase over current passing rent of more
than 25%.
Acquisitions
Although we have been focussed on completing the company's transformation,
and consolidating our shopping centre portfolio, we recently acquired another
#30m of high quality shopping centre investments.
Treaty Centre, Hounslow
In December we acquired a 50% leasehold interest in the 280,000 sq.ft. Treaty
Centre, Hounslow for #15.5m. The leasehold interest in the Centre is for an
unexpired term of 135 years. Developed in 1985, the fully let Centre is
anchored by a Debenhams department store together with national multiples
including Superdrug, Lloyds TSB, Wilkinsons, Arcadia, Thomas Cook, River
Island and Clinton Cards. The property also includes a 700 space multi-storey
car park. Currently the Centre generates annual net rents of approximately
#2.5m of which we shall receive approximately half. The remaining 50%
leasehold interest is held by Threadneedle Property Managers and we are
responsible for the strategic management of the Centre.
There is a wide divergence of Zone A's in the Centre and we believe that in
applying our management techniques we shall be able to significantly increase
passing rents and ERV's. We are bringing the management of the car park
in-house which will provide significant benefits. We also anticipate making
other improvements to the branding, signage and lighting of the Centre,
making it a more attractive destination for consumers, as well as
constructing up to 30,000 sq.ft. of new space over the next two years.
Fleet Walk, Torquay
In January of this year we acquired the 130,000 sq.ft. Fleet Walk Shopping
Centre in Torquay for #15.1m. Originally developed in 1990 by Rosehaugh
Heritage, the centre currently generates approximately #1.02m of annual net
rental income from a wide range of national multiples including Laura Ashley,
Hamills, Superdrug, WH Smith, C&J Clark, Virgin and Arcadia. There is
considerable scope for letting vacant space within the Centre, particularly
12,000 sq.ft. of retail space at ground floor level and another 30,000 sq.ft.
which is suited to leisure use. We are currently in discussions with a number
of potential tenants for this space. The Centre also includes a 450 space
multi-storey car park which provides scope for improvement.
David Roberts
CHIEF EXECUTIVE
27 March 2000
FINANCE DIRECTOR'S REVIEW
Introduction
Before commenting on the results for the year it is important to summarise
the major transaction undertaken at the end of last year which has had a very
material effect on the results for the year and their presentation.
On 23 December 1999 the Company completed the disposal of various subsidiary
companies to Vivienne Properties Limited, a transaction which was described
in a circular to shareholders dated 29 October 1999 and which was approved by
them at an Extraordinary General Meeting on 24 November 1999. In summary,
those subsidiaries owned a portfolio of properties with a market value of
#71.3m, current assets and liabilities attaching to those properties and a
#57.3m 9.8% Norwich Union Debenture 2016.
The disposal was effected by way of transfer of the subsidiaries in
consideration for the cancellation of 8,436,131 ordinary shares in Bourne End
held by Leo Noe and his family Trusts who are connected to Vivienne
Properties Limited. The share cancellation was effected by means of a Scheme
of Arrangement under section 425 of the Act. In addition, the Company
obtained the approval of shareholders and the consent of the High Court for a
reduction of #15.5m in the Company's share premium account to eliminate the
losses which would arise on the transaction.
In accordance with recognised accounting practice the loss on disposal of the
subsidiaries of #15.5m, being the net assets in the sale companies at
completion and the transaction costs, has been taken to the profit and loss
account in arriving at the loss before taxation for the year.
One of the important achievements of the transaction was to remove the
expensive debt from the Group without incurring any early redemption
penalties which would have been very significant. The Directors estimated the
market value of the Norwich Union Debenture at the time of the transaction to
be #72.4m in accordance with FRS13, more than the value of the properties
which secured the debenture.
The amount of #15.5m transferred from share premium has been credited to the
Company's profit and loss account and after charging the loss on sale of the
subsidiaries the remaining balnace of #351,000 has been transferred to a
non-distributable reserve. The consequence is that at 31 December 1999 the
Company had no profit and loss distributable reserves.
Results for the year
The table below reconciles the loss on ordinary activities before taxation
shown in the Profit & Loss Account to what the Directors consider to be the
Group's revenue profits after interest from its wholly owned activities:
1999 1998
#000 #000
(Loss)/profit on ordinary activities before taxation (18,575) 442
Add back/(deduct):
Share of joint venture losses - 96
Impairment in value of joint venture - 378
(Profit)/loss on sale of investment properties (452) 107
Loss on sale of subsidiaries 15,684 -
Provision for loss on sale of investment
properties 4,953 -
Group revenue profits 1,610 1,023
Rental Income
Group rental income increased from #17.4m for the year ended 31 December 1998
to #20.1m for the year ended 31 December 1999 as analysed below:
#m
Year ended 31 December 1998 17.4
Exclusion of income on 1998 disposals (0.4)
Net effect of 1999 disposals (0.4)
Net effect of 1998 purchases 3.0
Income from 1999 purchases -
Change arising on properties owned through 1998 and 1999 0.5
Year ended 31 December 1999 20.1
Property Expenditure
Property expenditure, and its relationship to rental income, is set out below:
1999 1998
#000 #000
Property expenditure 2,055 1,718
As a percentage of Group rental income 10.2% 9.9%
Property expenditure has increased as a consequence of a full year's expenses
on the shopping centres acquired during 1998 which resulted in an increase in
the size of the property portfolio during that year.
Property expenses includes a charge of #50,000 arising on a reduction in the
value of trading stock, which is carried in the balance sheet at the lower of
cost and net realisable value.
Administrative Expenses
These expenses have increased from #1,819,000 in 1998 to #2,408,000 in 1999.
Provisions have been included for actual and estimated liabilities at 31
December 1999 under executive incentive schemes as follows:
#000
(i) 1997/1999 awards under the Long Term Incentive Scheme 103
(ii) 1999 awards under the Executive Incentive Scheme 175
(iii)Proportion of the 1999/2001 awards under the Executive
Incentive Scheme 75
As a result of Goldman Sachs Whitehall Fund's sale, in March 1999, of
its interest in the Pears Portfolio its contribution towards Group
administrative expenses ceased (1998 #53,000).
Investment Property Disposals
During the year four properties were sold with a book value of #2,825,000.
After sales costs, the aggregate profit on disposals compared to carrying
book value under FRS3 was #452,000. The profit, when compared with original
historic cost, was #527,000.
Provision for loss on sale of investment properties
There are certain non-core properties where the current market value at 31
December 1999 is below the original cost of purchase. Accordingly, these
deficits, which total #4,953,000, have been charged to
Group profits for the year.
Loss on sale of subsidiaries
The loss on sale of subsidiaries, including transaction costs, during the
year was:
#000
Queenridge Properties Limited 189
Subsidiaries sold to Vivienne Properties Limited 15,495
Finance Cost
Net interest payable of #14.0m was #1.2m higher than in 1998 reflecting the
higher average level of debt during 1999. The average interest rate on the
Group's borrowings during the year was lower reflecting both a full year's
benefit of keener margins on new loans drawn down during 1998 and the lower
medium term market rates on these loans compared to the Group's previous
fixed rate borrowings. Our variable rate borrowings were also cheaper in 1999
as average short term LIBOR rates were over 1.0% lower than in 1998.
Taxation
There is no taxation charge for the year as a result of capital allowances on
a number of the shopping centres recently acquired.
At the end of 1999 advanced corporation taxthere is approximately #700,000 of
advance corporation tax which has been written off, but could be utilised,
amounts to #700,000. Excess management expenses carried forward are
estimated to be approximately #700,000 and on that date capital losses of
approximately #4.9m were available for off set against future capital
gains.
The potential group tax liability would be further reduced by approximately
#2.7m if realised capital losses of up to #9.0m (at 30.25%) which are subject
to agreement with the Inland Revenue were recognised.
Earnings Per Share
The basic loss per share of 26.9p (1998: earnings of 1.01p) has been
calculated on the loss on ordinary activities after taxation of #18,575,000
(1998: profit #159,000) and the weighted average number of shares in issue
during the year of 69,150,564 (1998: 66,879,056).
Earnings per share on revenue activities of 2.3p (1998 - 1.5p) is based on
the loss on ordinary activities after taxation but excludes the loss on sale
of subsidiaries of #15,684,000, the profit on sale of investment properties
of #452,000 and the provision for the loss on sale of certain investment
properties of #4,953,000..
Dividends
An interim dividend of 0.65p per share was paid on 27 October 1999.
As stated above, the effect of the capital reduction was to leave the Company
with no distributable reserves at the end of 1999 from which to pay a final
dividend. The Directors intend to pay a first interim dividend in respect of
the year ending 31 December 2000, in lieu of a final dividend for 1999 and
the amount of the dividend will be announced at the Annual General Meeting on
13 June 2000. The total for 1998 was 1.2p per share.
Property Portfolio
The investment property portfolio was valued by DTZ Debenham Tie Leung at
#169.9m and the movement during the year was:
Long
Freehold Leasehold Total
#000 #000 #000
At 1 January 1999 169,478 46,092 215,570
Additions 871 16,935 17,806
Disposals (950) (1,875) (2,825)
Revaluation in
subsidiaries prior
to sale 1,570 (493) 1,077
Re-classification (933) 933 -
Revaluation surplus 9,109 458 9,567
------- ------ -------
At 31 December 1999 128,675 41,200 169,875
------- ------ -------
------- ------ -------
Net annual rental income at 31 December 1999 was #13.8m
The historical cost of investment properties at 31 December 1999 was #152.6m.
Borrowings
(i) Net Debt
1999 1998
#000 #000
Less than one year 1,022 16,446
1-2 years 15,569 1,036
2-5 years 87,504 69,785
5 years and over 13,800 70,139
117,895 157,406
Cash (2,665) (5,099)
Total 115,230 152,307
Net debt at the year end was significantly lower than a year ago following
the sale of various subsidiaries which included the #57.3m 9.8% Norwich Union
debenture 2016.
Finance Strategy
The Group borrows from a small number of banks that, in the opinion of the
directors, have a commitment to the UK Property market and have experienced
property teams with whom to develop efficient working relationships.
The Group's strategy is generally to enter into loans with a maturity date of
up to five years with broadly similar terms and covenants. The Group's policy
is to keep approximately 80% of borrowings hedged with either fixed rate
loans or interest rate swaps, again, of between three and five years
maturity. Such hedging provides the Group with protection against any sudden
increases in interest rates.
The strategy also allows for up to 20% of Group borrowings to be unhedged to
provide flexibility with debt management. This exposure is closely monitored.
The average interest rate on borrowings at 31 December 1999 was 7.8% compared
to 8.8% at the end of 1998.
Fixed Debt Maturity and Debt Valuation
Fixed and swapped interest rate loans at 31 December 1999 totalled #84.4m.
Set out below is an analysis of these loans by repayment date, or if earlier
the maturity date of the fixing, together with the market value reflecting
the difference between market interest rates applicable at 31 December 1999
and the rates historically committed at the time the fixing occurred.
Year Loan Market Fair Value
Value Adjustment
#m #m #m
2001 17.0 17.0 -
2002 18.0 18.1 (0.1)
2003 40.9 40.3 0.6
2004 8.5 8.0 0.5
Total 84.4 83.4 1.0
Net of tax at 30% 0.7
In accordance with Financial Reporting Standard No.13 the fair value
adjustment is not included in the Group's Consolidated Balance Sheet at 31
December 1999. The fair value adjustment has a notional positive impact on
net asset value, on a gross basis, of 1.6p per share.
Gearing
Group Gearing, being net debt as a percentage of shareholders
funds, was 220% compared to 273% at the end of 1998.
Duncan Bain
FINANCE DIRECTOR
27 March 2000
Contact: Bourne End Properties plc 020-7927 8000
David Roberts, Chief Executive or Duncan Bain, Finance Director
Bankside Consultants 020-7220 7477
Baron Phillips
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