Canary Wharf Group - Final Results - Part 1
RNS Number:9265J
Canary Wharf Group PLC
13 September 2001
PART 1
CANARY WHARF GROUP PLC
13 September 2001
PRELIMINARY ANNOUNCEMENT OF RESULTS
YEAR ENDED 30 JUNE 2001
FINANCIAL HIGHLIGHTS
Year Year
ended ended
30 June 30 June Change
Notes 2001 2000
£m £m %
Turnover - rents and service charges 159.2 114.4 39.2
Gross profit 126.4 82.9 52.5
Operating profit before exceptional item 91.7 62.9 45.8
Exceptional item: net profit on sale of
completed properties - 39.1
Operating profit 91.7 102.0
Net interest payable (48.8) (47.8)
Profit on ordinary activities before and
after taxation 42.5 54.1
Basic earnings per share before
exceptional item 6.2p 2.2p
Diluted earnings per share before
exceptional item 6.1p 2.2p
Basic earnings per share 6.2p 7.9p
Diluted earnings per share 6.1p 7.8p
At 30 At 30 Change
June June
2001 2000
£m £m %
Investment properties (1) 2,300.5 2,196.7 4.7
Properties under construction and
properties held for development (2) 1,129.8 472.0
Net debt (1,191.7) (596.3)
Deferred income relating to building (467.0) (424.6)
sales
Other net liabilities (133.7) (127.7)
Net assets at net book value 1,637.9 1,520.1 7.7
At 30 At 30
June June
2001 2000
£m £m
Properties under construction and
properties held for development (3)
- at Open Market Value 2,580.5 1,432.0
- at present value of Net Realisable 4,264.5 2,590.5
Value
Net Asset Value per share based on Net
Realisable Value £6.95 £5.31 30.9
Diluted Net Asset Value per share based
on
Net Realisable Value £6.73 £5.18 29.9
(1) Investment properties stated at Open Market Value
(2) Properties under construction and properties held for development stated
at cost
(3) Refer to Operating and Financial Review - Valuations of the preliminary
announcement for an explanation of the basis of valuation.
AT 30 JUNE 2001:
* The group's investment portfolio totalling 4.4 million sq ft was fully
let.
* Properties under construction totalled 7.1 million sq ft of which 5.8
million sq ft was pre-let or subject to agreements to be sold upon
completion. A further 0.7 million sq ft was subject to option.
DURING THE YEAR:
* Waitrose Food and Home leased 80,000 sq ft in a new 205,000 sq ft retail
building (DS8) in Canada Square.
* Morgan Stanley pre-leased a 516,000 sq ft building (HQ1) in its
entirety.
* Clifford Chance LLP entered into an agreement to lease 785,000 sq ft in
a 1 million sq ft building (HQ5).
* The Northern Trust Company agreed to lease 134,000 sq ft in a 217,400 sq
ft building (HQ4).
* The McGraw Hill Companies agreed to lease 310,000 sq ft in a 535,500 sq
ft building (DS4).
* CSFB entered into an agreement to lease 5 Canada Square, a 516,600 sq ft
building, in its entirety.
* Lehman Brothers entered into an agreement to lease a 1 million sq ft
building (HQ2) in its entirety.
* Construction commenced on HQ3, a 600,000 sq ft office building on Heron
Quays.
* The group regained full ownership and control of a prime 4.5 acre area
of land with planning permission for approximately 1 million sq ft gross
of development following the restructuring of the Canary Riverside joint
venture.
* The group acquired a 6.7 acre site immediately to the north of Canary
Wharf. This site has planning permission for approximately 1.9 million sq
ft gross of development.
* The group increased (or tapped) its existing securitisations raising £
1,029.5 million including premia.
RECENT EVENTS
* In August 2001 Reebok leased 92,000 sq ft in DS8 for a state of the art
health club which will be the largest in the UK.
* In September 2001 Barclays reached an agreement in principle to lease
650,000 sq ft in a 1 million sq ft building.
* Also in September 2001 the group announced that it has agreed terms,
subject to contract, with Allen & Overy for 60,000 sq ft and is in
advanced discussions with Skadden, Arps, Slate, Meagher & Flom LLP for
140,000 sq ft, both lettings being in the new 600,000 sq ft building at
parcel HQ3.
CONTACTS
George Iacobescu
Chief Executive
Peter Anderson
Managing Director, Finance
Canary Wharf Group plc
Telephone: 020 7418 2000
David Beck/Wendy Timmons
Bell Pottinger Financial
Telephone: 020 7353 9203
A copy of the annual report will be sent to shareholders and copies will be
made available to the public on request to the Group Company Secretary at the
registered office, One Canada Square, Canary Wharf, London E14 5AB.
The information in this announcement, which was approved by the board of
directors on 12 September 2001, does not comprise statutory accounts within
the meaning of the Companies Act 1985.
CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT
This has been a year of considerable progress for Canary Wharf. By the end of
2004 we can envisage the completion of the 13.5 million sq ft development and
business plan we outlined at the time of our flotation in 1999 . We are well
ahead of schedule on leasing, construction and financing and have already
initiated our return of capital programme. We are now also taking strategic
steps to enlarge the Canary Wharf district, which we anticipate will be
capable of expanding our aggregate square footage by almost 50%.
Our results for the year ended 30 June 2001 demonstrate the group's strong
performance during the period. Turnover increased from £114.4 million for the
year ended 30 June 2000 to £159.2 million for the year ended 30 June 2001, an
increase of 39.2%. The increase in turnover fed through to a profit after
interest of £42.5 million in comparison with a profit of £15.0 million before
the exceptional profit on sale of completed properties of £39.1 million
recorded in the previous year. Net asset value per share based on Net
Realisable Value increased from £5.18 at 30 June 2000 to £6.73 at 30 June 2001
on a fully diluted basis, an increase of 29.9%.
Progress on leasing remained strong. During this financial year we pre-let
approximately 3.3 million sq ft; to Clifford Chance LLP (785,000 sq ft),
Northern Trust (134,000 sq ft), McGraw Hill (310,000 sq ft), Lehman Brothers
(1 million sq ft), Morgan Stanley (516,000 sq ft) and Credit Suisse First
Boston (516,600 sq ft). The majority of these pre-lets were to new tenants
moving their headquarters to Canary Wharf, a factor which emphasises the
position of Canary Wharf alongside the City at the heart of a growing economic
and business district and significantly adds to the diversity of our tenant
base. Since the year end we have a further 1.2 million sq ft under heads of
terms, following the recent announcement that agreement in principle has been
reached with Barclays PLC in relation to a new 1 million sq ft building and
with Skadden Arps Slate Meagher & Flom LLP (140,000 sq ft) and Allen & Overy
(60,000 sq ft) for space in the new 600,000 sq ft speculative building
currently under construction on Heron Quays. Demand for retail units has also
remained strong. Since July 2000 we have let 20 retail units with an aggregate
square footage in excess of 110,000 sq ft. We also recently announced a
letting to Reebok for a 92,000 square foot state-of-the-art health club which
will be the largest in the UK. This health club will be in Canada Place which
will also house Waitrose Food & Home.
Development activity has continued to increase with 7.1 million sq ft of
office and retail space under construction in 10 office buildings and 2 retail
complexes, of which 5.8 million sq ft is subject to agreements for lease or
sale and a further 0.7 million sq ft is subject to option. All the buildings
on Heron Quays are now underway, comprising five buildings totaling 3.3
million sq ft of office space, and a new 85,000 sq ft retail mall under
Jubilee Park which will bring our total retail area at Canary Wharf to 585,000
sq ft by 2003.
In June 2001 we completed an £875 million securitisation of three buildings
that were still in the course of construction. This technique brought forward
our permanent financing by over a year and enabled us to lock into fixed rate
financing at current rates. All of the debt issued in this securitisation was
AAA or AA rated, long term debt. We intend to make further use of this
technique in future securitisations.
In June 2001, we also announced that we were in a position to commence a
return of capital earlier than envisaged at the time of the flotation. We
currently estimate that approximately £2 billion could be returned to
shareholders over the next four years although the total amount and timing
will very much depend upon market conditions at the time the decisions are
taken and upon the group's ability to raise long term debt through the
securitisation of rental income at a target rate of loan to property value of
at least 70%.
This return of capital programme commenced with the buy back of 24.75 million
shares at a cost of £131.4 million and, subject to market conditions, it is
intended that these share purchases will continue, utilising distributable
reserves which at 30 June 2000 were approximately £450m. To facilitate further
future returns of capital we are also undertaking various procedural steps
which will involve a corporate restructuring and a scheme of arrangement,
requiring approval by shareholders and the Court, whereby shareholders will
exchange on a one for one basis their existing shares for shares in a new
holding company to be renamed Canary Wharf Group plc. The proposed
restructuring will not in itself result in any return of capital to
shareholders, nor does it accelerate the timing of any returns of capital but
it will enable the Board to act once it has been decided that further returns
of capital are appropriate and in the best interests of shareholders. We
expect that returns of capital will occur as buildings are completed and let.
A circular providing full details of the restructuring will be sent to
shareholders in due course.
The directors believe that the scale of the Canary Wharf development and our
integrated business approach have enabled us to develop innovative,
world-class building techniques executed by an exceptional team of
individuals, focused on large scale office development which have put us at
the forefront of the construction industry. We act as our own general
contractor for the construction of our buildings and most of the fitout works,
giving us not only cost control, but as importantly, quality control and
greater assurance of on time delivery. Our leasing activities are led in-house
by a group of executives which has demonstrated considerable success at
pre-letting major headquarters buildings. We combine this in-house
construction and leasing capability with a development group that works on
overall planning, as well as working with architects on individual buildings.
This provides valuable continuity and control over the future development
process and has assisted greatly in anticipating our development requirements.
Our approach to financing has enabled us to raise a record amount of funding
for new development at some of the lowest borrowing spreads in the industry.
Taken together, this team represents a significant franchise value that we
believe will continue to create superior shareholder returns. We are now
pursuing a strategy that will enable this team to continue to work together
beyond the completion of Canary Wharf, as originally envisaged, and
accordingly have examined the potential for a new development company.
Initially this new development company would be a subsidiary of Canary Wharf
Group plc, and we would intend to develop new projects within this vehicle.
When we report our December interim results in March 2002 next year, we will
incorporate additional disclosure which will show separately the results of
this proposed new development company.
In addition to the undeveloped land at Canary Wharf, we have already taken
steps to acquire further land. During the year the group regained control of a
4.5 acre area of land at Riverside South which has the benefit of planning
permission for approximately 1 million sq ft gross of development. The group
also acquired a 6.7 acre site immediately to the north of Canary Wharf with
planning permission for approximately 1.9 million sq ft gross of mixed
commercial development. The group is currently considering the most
appropriate means of maximising the use and, therefore, value of these new
sites, whilst also focussing strongly on provision of additional related
infrastructure and will be applying for new planning permissions, increasing
the development to an aggregate net area of approximately 4 million sq ft.
Accordingly, Canary Wharf currently has land available on which, subject to
planning and other consents where necessary, it will be possible to build up
to 6.6 million sq ft of additional development. As in the past we continue to
be actively engaged with the relevant authorities to ensure that London's
expected transport improvements will support anticipated growth in East
London.
In the short term, the cyclical slowdown of the economy, and the financial
services sector will inevitably have an effect on the London office market in
general. Canary Wharf has, however, led the market by accommodating the needs
of large companies to consolidate all their operations under one roof in
efficient high specification buildings, to enable them to secure the benefits
of economy and synergy. Such consolidations will continue and the attractions
of Canary Wharf should enable us to attract high quality tenants. Moreover,
the leases entered into by Canary Wharf are usually long term leases of 25 or
30 year terms therefore mitigating the effect of market cycles. The buildings
which have already been completed at Canary Wharf are fully let. Completion of
the buildings now under construction will, over the next three years, produce
approximately 1 million sq ft of additional available space. Whilst remaining
positive about our prospects, we recognise the current economic climate and
are reviewing our strategy towards speculative buildings. Canary Wharf has had
a policy of having one speculative building in progress at all times and we
are currently constructing a new 600,000 sq ft building on Heron Quays, with
leasing underway, which is scheduled to be completed in 2003. However, it is
not our intention to start any further speculative buildings before the market
outlook becomes clearer.
Your directors believe not only that London has established itself and will
continue to grow, as the pre-eminent financial centre in Europe, but that it
has all the key long term fundamentals for success and will continue to
require significant amounts of new, world class space to sustain its growth.
It is for this reason that we are very optimistic about our longer term
prospects and the success of a new development company.
Your directors are proud of your company's outstanding performance, an
achievement which would not have been possible without the exceptional effort
put in at all levels of the Canary Wharf staff. We and the Board wish to
express our appreciation for all of their individual efforts.
OPERATING AND FINANCIAL REVIEW
Property portfolio
The activities of the group are focused on the Canary Wharf development
(including Heron Quays and the adjacent sites at Canary Riverside and North
Quay). The group has two principal business streams: property investment and
property development. The investment arm comprises eleven completed properties
(out of the fifteen constructed at Canary Wharf) totalling 4.4 million square
feet of net internal area ('NIA'). The properties included in this total are
shown in the table below.
External
Approx. Net % Valuation
Internal Area Leased
Property (sq ft) £m Principal Tenants
Address
1 Westferry 219,000 100.0 107.5 Texaco, CSFB
Circus
7 Westferry 179,300 100.0 79.0 EDS, EMEA, Edward S Jones, CSFB
Circus
17 Columbus 199,500 100.0 105.0 CSFB
Courtyard
10 Cabot 636,600 100.0 260.0 Barclays Bank, WPP Group
Square
20 Cabot 558,400 100.0 254.0 Morgan Stanley, Barclays Capital
Square
One 1,246,200 100.0 710.0 Daily Telegraph, KPMG, Mirror Group
Canada Newspapers, State Street Bank, Bear
Square Stearns, Bank of New York
33 Canada 562,700 100.0 310.0 Citibank
Square
25 North 363,200 100.0 186.5 Financial Services Authority
Colonnade
30 South 296,100 100.0 145.2 London Underground
Colonnade
Cabot 98,400 100.0 50.0 Various retail tenants
Place
Retail
Canada 67,000 100.0 42.5 Various retail tenants
Place
Retail
Car Parks - - 50.8
Total 4,426,400 100.0 2,300.5
Significant letting progress was made during the year.
* In September 2000, Waitrose Food & Home leased 80,000 sq ft in a new
205,000 sq ft. retail building (parcel DS8) in Canada Square. Subsequent
to the year end, in August 2001 Reebok leased a 92,000 sq ft health club
in the same building. It is envisaged that this building will also contain
two restaurants.
* In October 2000, a 516,000 sq ft building on Heron Quays (parcel HQ1)
was pre-leased in its entirety to Morgan Stanley.
* In November 2000, the group entered into an agreement with Clifford
Chance LLP to lease 785,000 sq ft in a new 1 million sq ft building under
construction on Heron Quays (parcel HQ5).
* In the same month agreement was reached with The Northern Trust Company
to lease 134,000 sq ft in an adjacent 217,400 sq ft building (parcel HQ4).
* In December 2000, agreement was reached with The McGraw-Hill Companies
to lease 310,000 sq ft in a new 535,500 sq ft building in Canada Square
(parcel DS4).
* In January 2001, CSFB entered into an agreement to lease 5 Canada
Square, a 516,600 sq ft building which is scheduled to be completed by the
Spring of 2002.
* In March 2001, the group entered into an agreement to lease a 1 million
sq ft building in its entirety to Lehman Brothers (parcel HQ2).
Following the year end, in September 2001, the group reached an agreement in
principle with Barclays PLC for the lease of 650,000 sq ft in a new 1 million
sq ft building (parcel BP1).
Also in September 2001 the group announced that it has agreed terms, subject
to contract, with Allen & Overy for 60,000 sq ft and is in advanced
discussions with Skadden, Arps, Slate, Meagher & Flom LLP for 140,000 sq ft,
both lettings being in the new 600,000 sq ft building at parcel HQ3.
OPERATING AND FINANCIAL REVIEW
The group has also commenced construction of a further building on Heron Quays
at parcel HQ3. This will provide 600,000 sq ft of office space and will, like
all properties on Heron Quays, link to the Canary Wharf Jubilee Line station
and a retail mall of 85,000 sq ft.
As a result of the lettings referred to above and previous lettings, there
were twelve properties under construction at 30 June 2001 totalling 7.1
million sq ft net, of which 81.3% is subject to agreements for lease or sale.
Upon completion it is intended that eleven of these properties will be held as
investments as set out in the table below. In addition the group previously
entered into an agreement with HSBC Group for the sale upon completion of 8
Canada Square, a new 1.1 million sq ft office building which will become
HSBC's worldwide headquarters. Construction commenced in January 1999 with
completion forecast for April 2002.
Properties under construction at 30 June 2001 comprised the following:
Approx. Expected
Property NIA (sq Completion Status
Address ft) Date
5 Canada 516,600 May 2002 Agreed to be leased to CSFB.
Square (DS1)
8 Canada 1,100,000 April 2002 Agreed to be sold to HSBC.
Square (DS2)
25 Canada 1,193,600 May 2002 Agreed to be leased to Citigroup.
Square (DS5)
15 Westferry 175,000 September Agreed to be leased to Morgan
Circus (WF9) 2001 Stanley.
DS4 535,500 December 310,000 sq ft agreed to be leased to
2002 The McGraw-Hill Companies.
HQ1 516,000 August Agreed to be leased to Morgan
2003 Stanley.
HQ2 1,000,000 August Agreed to be leased to Lehman
2003 Brothers.
HQ3 600,000 July 2003 Under construction.
HQ4 217,400 June 2002 134,000 sq ft agreed to be leased to
The Northern Trust Company.
HQ5 1,000,000 July 2003 785,000 sq ft agreed to be leased to
Clifford Chance LLP.
Canada Place 205,000 September 80,000 sq ft pre-let to Waitrose Food
Retail 2002 & Home; 92,000 sq ft pre-let to
extension Reebok subsequent to year-end.
(DS8)
Jubilee Place
Retail Centre 85,000 July 2003 Under construction.
(RT3)
7,144,100
As well as the properties under construction referred to above, the group is
continuing substructure works on the remaining sites on Canary Wharf,
comprising the sites known as DS3 and Blackwall Place, as a preliminary to the
development of these parts of the estate. Construction of other buildings will
commence as and when market conditions require.
OPERATING AND FINANCIAL REVIEW
During the year ended 30 June 2001 the interests of the Canary Wharf Riverside
joint venture partners were restructured. As part of this restructuring the
group's share in the completed first phase of Canary Riverside was transferred
to the other two joint venture partners for a nominal sum. A payment of £34
million was also made to the two remaining partners to buy-out the contract
relating to phases 2 and 3 of the development. As a result of this transaction
the group regained full ownership and control of a prime 4.5 acre area of land
which is integral to the Canary Wharf estate and which has the benefit of
planning permission for approximately 1 million sq ft gross of development. A
further payment of £1 million will become due in the event that planning
consent is achieved for significant incremental development on this site.
During the year the group also acquired a 6.7 acre site immediately to the
north of Canary Wharf, for a consideration of £57.9 million (including stamp
duty and other costs). The site has planning permission for approximately 1.9
million sq ft gross of mixed commercial development. The group is considering
what form the development should take and application will be made for the
planning permission to be modified when appropriate.
Together with the remaining sites on Canary Wharf, the land acquisitions in
the year increased the group's development capacity, based on existing
planning permissions and density agreements to approximately 3.3 million sq ft
net. The group is in negotiations to increase the square footage which may be
constructed on Canary Wharf and also intends applying for new planning
permission in relation to the sites acquired in the year. Together these could
increase the development by up to a further 3.3 million sq ft to 6.6 million
sq ft, although future development will be dictated by the market.
As well as the rental income generated from the eleven completed properties,
all of which have been leased, the group generates income from managing the
entire Canary Wharf estate which, in addition to the completed properties in
the ownership of the group, includes four properties totalling 1.4 million sq
ft which are in other ownerships.
The properties of the group are under lease to high quality tenants which
provide a diversified income stream. At 30 June 2001 the weighted average
un-expired lease term for the office portfolio was 23.6 years (or 20.4 years
after taking account of break options). Only 21.4% of the square footage under
lease will expire or be capable of being terminated by tenants during the next
ten years. As a result of the expiry of rent free periods, stepped rents, rent
reviews and the completion of new buildings, the group's aggregate rental
income is expected to increase significantly over the next three years.
Valuations
The net assets of the group, as stated in its consolidated balance sheet as at
30 June 2001, were £1,637.9 million. In arriving at this total:
(i) properties held as investments were carried at £2,300.5
million, which represents the Open Market Value of those properties at
that date as determined by the group's external valuers, FPDSavills or
CB Hillier Parker;
(ii) properties under construction and properties held for
development, shown as fixed assets, were carried at £755.4 million and
£124.8 million respectively, representing their cost to the group; and
(iii) properties under construction and properties held for
development, shown as current assets, were carried at £249.6 million,
representing their cost to the group.
The valuation of the investment portfolio increased from £2,196.7 million at
30 June 2000 to £2,300.5 million at 30 June 2001, an increase of £84.4
million, net of additions, or 3.8%.
As well as valuing the investment properties, FPDSavills or CB Hillier Parker
have valued all properties under construction, comprising those properties set
out in the table above. Including 8 Canada Square, which upon completion is
contracted to be sold to HSBC and is held as a current asset. The Open Market
Value of properties under construction at 30 June 2001 was £2,142.5 million in
comparison with a carrying value for accounts purposes of £1,005.0 million. In
valuing the properties under construction, the valuers have allowed for
estimated costs to complete totalling £1,165.8 million, representing the
construction cost to Category A specification. In addition they have allowed
for letting, disposal and marketing costs and financing costs.
As regards properties held for development, the valuers have provided joint
opinions as at 30 June 2001 that the Open Market Value was £438.0 million in
comparison with a carrying value for accounts purposes of £124.8 million.
Those properties acquired during the year were valued at 30 June 2001 at £
155.0 million compared with an acquisition cost of £99.3 million (including
stamp duty and fees), representing an increase of £55.7 million or 56.1%. In
valuing the properties held for development, the valuers have assumed
developments on these sites totalling 4.7 million sq ft and have allowed for
estimated costs to complete totalling £1,121.3 million, representing the
construction cost to Category A specification. In addition they have allowed
for letting, disposal and marketing costs and financing costs.
At the same time as providing their opinion of the Open Market Value of
properties under construction or held for development, the valuers were also
instructed to give their opinion of the present value of the Net Realisable
Value of such properties. Net Realisable Value is defined in SSAP 9 (Stocks
and Long-term Contracts) as 'the actual or estimated selling price (net of
trade but before settlement discounts) less: (a) all further costs to
completion; and (b) all costs to be incurred in marketing, selling and
distributing.' This same definition of Net Realisable Value is reproduced in
Practice Statement 21 of the RICS Manual 'Valuations of Trading Stock and Work
in Progress, including Land and Buildings'. The Net Realisable Value of the
group's properties under construction and properties held for development
comprises an assessment of the total value to the group, arising from owning
and developing those properties, being the aggregate of:
a. the Open Market Value of the land;
b. developer's profit;
c. the effect on value of Enterprise Zone Allowances (EZAs); and
d. finance holding costs on the site value (and other minor items) arising
from the fact that the land is already in the ownership of the group.
Thus, Net Realisable Value allows consideration to be given to the enhancement
in value to the group arising from (b), (c) and (d) which do not form part of
Open Market Value in the properties' existing state.
The approach adopted by the valuers in arriving at the present value of the
Net Realisable Value at 30 June 2001 is consistent with that adopted for the
previous year end. In summary this involves the following six steps:
OPERATING AND FINANCIAL REVIEW
Step One - Consider a phased development programme
for the remaining sites on the Estate, taking into account
the amount of space to be developed and the rate of
take-up.
Step Two - Estimate the completed development
value, with growth, of the buildings, but excluding EZAs.
Step Three- Estimate the value enhancement resulting from
EZAs.
Step Four - Estimate the cost of development, with
inflation.
Step Five - Calculate the Net Realisable Value on
completion of development by deducting the cost of the
development, with inflation, from the total value with
growth of the completed buildings.
Step Six - Discount the Net Realisable Value at
completion back to the date of assessment in recognition
of the time cost of money, in order to arrive at the
present value of the Net Realisable Value. At 30 June 2001
the valuers adopted a discount rate of 7.25%, which
represents a notional cost of borrowing equal to 2% above
the 10 year gilt rate. This compares with a rate adopted
at the previous year end of 7.2%.
On the basis outlined above the valuers' opinion of the present value of the
Net Realisable Value of the properties under construction at 30 June 2001 was
£3,074.5 million. Their joint opinion of the present value of the Net
Realisable Value of properties held for development at that date was £1,190.0
million. These valuations are net of the estimated costs to complete referred
to above.
The carrying value of the group's properties for accounts purposes in
comparison with the supplementary valuations provided by the external valuers
is summarised in the table below:
30 June 2001 30 June 2000
Present Present
Open Value Value
Market Of Net Open Of Net
Value in Market
Carrying Existing Realisable Carrying Value in Realisable
Value State Value Value Existing Value
State
£m £m £m £m £m £m
Investment
properties 2,300.5 2,300.5 2,300.5 2,196.7 2,196.7 2,196.7
(Note) (Note)
Properties 1,005.0 2,142.5 3,074.5 325.0 757.0 1,110.5
under
construction
Properties 124.8 438.0 1,190.0 147.0 675.0 1,480.0
held
for
development
Total 3,430.3 4,881.0 6,565.0 2,668.7 3,628.7 4,787.2
Note: Investment properties are stated at Open Market Value.
OPERATING AND FINANCIAL REVIEW
Operating results
In the following review of operating results, references to 2001 and 2000
should be read as references to the years ended 30 June 2001 and 30 June 2000
respectively.
The group's turnover is generated primarily by the rents and service charges
earned from its property interests at Canary Wharf. Turnover increased from £
114.4 million in 2000 to £159.2 million in 2001, an increase of £44.8 million
or 39.2%. Rental income increased from £81.6 million to £121.7 million, an
increase of £40.1 million or 49.1%, due primarily to the expiry of
rent-reduced and rent-free periods, rent reviews and the commencement of rent
on recently completed or acquired properties. Service charge income increased
from £25.7 million to £28.4 million, an increase of £2.7 million or 10.5%, due
primarily to the increased level of occupancy on the estate. Miscellaneous
income, comprising ground rents, insurance recoveries and tenant service
income increased from £7.1 million to £9.1 million, reflecting the increased
provision of tenant services (outside of the standard service charge) as
occupancy on the estate increases.
Rents payable and property management costs increased from £31.5 million to £
32.8 million, an increase of £1.3 million or 4.1%, due primarily to the
increase in occupancy on the estate. After allowing for service charge and
other recoveries included within turnover, there was a full service charge
recovery for 2001.
Gross profits increased from £82.9 million in 2000 to £126.4 million in 2001,
an increase of £43.5 million or 52.5% over the previous year, attributable to
the increase in rental income.
During 2001, the lease of a vacant leasehold property was assigned to a third
party. As a result of this assignment, the surplus provision relating to
vacant leaseholds of £2.6 million was released to the profit and loss account
and shown within cost of sales.
Administrative expenses for 2001 were £36.6 million in comparison with £23.3
million for the previous year. The current year included leasing costs of £
10.9 million whereas for the previous year such costs totalled only £3.6
million. This reflects the high level of leasing activity during the current
year.
The directors estimate that administrative expenses of £16.4 million (or
approximately 44.8% of the total for 2001) were attributable to the group's
corporate and property investment activities. For the previous year
administrative expenses attributable to these activities were estimated at £
13.8 million, or 59.2% of the total.
The remainder of the administrative expenses are attributable to unallocated
overheads associated with the group's development programme which are expensed
to the profit and loss account (as opposed to costs directly attributable to
and capitalised as part of the cost of construction of particular buildings).
For 2001 such unallocated development overheads totalled £20.2 million
representing approximately 55.2% of administrative expenses. For the previous
year development overheads totalled £9.5 million or 40.8% of the total. The
increase in development overheads over the previous year is largely
attributable to letting costs on properties where agreements for lease were
concluded during the period. This was combined with an increase in development
overheads associated with the increased pace of development on the estate. The
directors consider that these development overheads will in due course reduce
to an insignificant level upon completion of the development programme.
OPERATING AND FINANCIAL REVIEW
For 2001 operating profit was £91.7 million, in comparison with a profit of £
102.0 million for 2000. Included within the total for 2000 was a net profit on
disposal of two properties at Canary Wharf totalling £39.1 million. Before
this exceptional item the operating profit for the year of £91.7 million
compares with £62.9 million for the previous year, an increase of £28.8
million or 45.8%. The improvement in underlying profit earned by the group is
primarily attributable to the increase in turnover.
Net interest payable increased from £47.8 million in 2000 to £48.8 million in
2001. The increase in net interest reflects increased borrowings following the
second securitisation in June 2000 and the tap issues on both the first and
second securitisations during 2001. This was partially offset by increased
interest receivable, including a net gain to the group of £4.5 million derived
from the unwind of interest rate swaps relating to certain deposits that were
released from security in the year (Note 3). In addition, interest payable is
stated net of an increased transfer to development properties of £19.4 million
(June 2000 - £9.0 million) in respect of the cost of funds forming part of the
group's general borrowings, reflecting the increased level of construction
activity in comparison with the previous year.
The profit on ordinary activities after interest for the year was £42.5
million, in comparison with £54.1 million for 2000, a reduction of £11.6
million, because of the inclusion in the previous year of the net profit on
sale of completed properties. Before this exceptional item the profit on
ordinary activities for the year of £42.5 million compares with £15.0 million
for the previous year, an increase of £27.5 million.
The profit on ordinary activities for the six months to 30 June 2001 was £20.0
million in comparison with £22.5 million for the six months to 31 December
2000 which included the net gain on interest swaps of £4.5 million referred to
above. Operating profit increased in the second half of the year from £42.0
million to £49.7 million but this was offset by a higher net interest charge.
No provision for corporation tax has been made in respect of 2001 due to the
availability of tax losses brought forward from previous periods and other tax
reliefs available to offset the profit for the year.
Balance sheet
Net assets increased by £117.8 million from £1,520.1 million at 30 June 2000
to £1,637.9 million at 30 June 2001. The increase in net assets was primarily
attributable to the group's profit for the year of £42.5 million and
revaluation gains amounting to £84.4 million.
Shares issued during the year under the group's share option plans increased
share capital and the share premium account by £2.9 million. However, this was
offset by the re-purchase of shares in the market. Up to 30 June 2001 a total
of 2,474,708 shares were purchased at a cost of £13.7 million including fees,
in connection with the company's return of capital programme and cancelled.
Subsequent to the year-end a further 22,273,157 shares were purchased at a
cost of £117.7 million in connection with the return of capital programme and
OPERATING AND FINANCIAL REVIEW
Borrowings
In November 2000, the group arranged a seven year £1 billion revolving
construction loan facility, of which £167.3 million including finance costs
was drawn down and subsequently repaid in June 2001. The full amount of the
facility was therefore available at 30 June 2001 to fund future construction
activity.
In February 2001, a tap issue on the December 1997 (first) securitisation was
completed by the group. The tap consisted of an additional £120 million of AAA
and AA rated notes being issued at a premium of £14.7 million. The combined
pool of notes for the first securitisation is now £675 million.
Subsequently, in June 2001 a tap issue on the June 2000 (second)
securitisation was completed, involving the issue of £875 million of AAA and
AA rated notes at a premium of £19.8 million. The proceeds were used in part
to repay the amount drawn down under the £1 billion construction facility and
in addition £183.0 million was set aside in certain reserves required to fund
completion of the three additional properties included in the securitisation.
The remainder of the proceeds was retained for general corporate purposes. The
combined pool of notes for the second securitisation is now £1,350 million, of
which £1,260 million is rated AAA and AA. The balance of £90 million, rated A
or BBB, has been repurchased by the group but will be available for resale
following completion of the three additional properties referred to above.
An analysis of net debt is given below. The increase in gross borrowings from
£1,616.9 million to £2,650.1 million reflects the tap issues of both the first
and second securitisations. The increase in gross borrowings was accompanied
by an increase in cash and term deposits to £1,458.4 million from £1,020.6
million primarily as a result of the tap issues generating more funds than
were expended on funding development costs and the acquisition of land. At 30
June 2001 the group's weighted average cost of debt was 6.7% (2000 - 7.2%).
The group expects initially to fund its future construction activities either
from existing resources or from the £1 billion construction facility.
At 30 June 2001 net debt (after allowing for cash in hand and cash collateral)
stood at £1,191.7 million, up from £596.3 million at the previous year end,
comprising:
At 30 June At 30 June
2001 2000
£m £m
Securitised debt 1,973.3 941.8
Finance lease obligations 676.8 675.1
Total borrowings 2,650.1 1,616.9
Less: cash collateral for borrowings (707.2) (574.8)
Less: other cash collateral excluding prepayments (2.3) (2.3)
(see below)
1,940.6 1,039.8
Less: cash deposits (703.0) (236.5)
Net debt excluding prepayments 1,237.6 803.3
Cash deposits arising from prepayments in (45.9) (207.0)
respect of buildings contracted to be sold
Net debt 1,191.7 596.3
OPERATING AND FINANCIAL REVIEW
Cashflow
Net cashflow from operating activities reduced from £83.2 million in 2000 to £
71.1 million in 2001, a reduction of £12.1 million, driven primarily by
movements in working capital, partially offset by the increase in rental
income. Capital expenditure reduced from £702.1 million in 2000 to £611.5
million in 2001. Expenditure in 2001 included land purchases of £92.1 million
and development expenditure of £511.1 million. Expenditure in 2000 included
the purchase of 1 Westferry Circus (£85.5 million including stamp duty and
acquisition expenses) and 33 Canada Square (£288.3 million including
acquisition expenses), together with development expenditure of £323.7
million. This was partially offset by proceeds of £254.1 million relating to
the disposal of property.
Financing cash flows increased from £437.1 million in 2000 to £1,018.7 million
in 2001, an increase of £581.6 million. In 2001, financing cashflows reflected
the tap issues on the two securitisations whereas for 2000, financing cash
flows reflected the completion of the second securitisation and inception of a
finance lease on 33 Canada Square. This increase in borrowings has also
impacted the net cash expended on debt service which rose from £53.1 million
in 2000 to £70.6 million in 2001.
EXTRACTS FROM THE DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2001
Dividends and reserves
The directors do not recommend the payment of a dividend for the year ended 30
June 2001 and the retained profit of £42.5 million (year ended 30 June 2000 -
£54.1 million) is to be transferred to reserves.
Annual General Meeting
The Annual General ('AGM') will be held at 11.00 am on Wednesday 14 November
2001 in the Ballroom, Four Seasons Hotel, Canary Wharf, London, E14 8RS.
CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 JUNE 2001
Year ended Year ended
30 June 30 June
Notes 2001 2000
£m £m
Turnover - rents and service charges 159.2 114.4
Cost of sales
* rents and property management
costs (32.8) (31.5)
GROSS PROFIT 126.4 82.9
Administrative expenses (36.6) (23.3)
Other operating income
- before exceptional item 1.9 3.3
- exceptional item: net profit on
sale of completed properties 8 - 39.1
OPERATING PROFIT 2 91.7 102.0
Share of operating loss in associates 10 (0.4) (0.1)
Interest receivable - group 3 50.7 36.9
Interest payable - group 4 (99.5) (84.7)
PROFIT FOR THE FINANCIAL YEAR
TRANSFERRED TO RESERVES 17 42.5 54.1
Before exceptional items:
Basic earnings per share 7 6.2p 2.2p
Diluted earnings per share 7 6.1p 2.2p
After exceptional items:
Basic earnings per share 7 6.2p 7.9p
Diluted earnings per share 7 6.1p 7.8p
The above results relate to the continuing activities of the group and its
share of associates attributable to the group to the date of disposal.
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR
ENDED
30 JUNE 2001
Year Year
ended ended
30 June 30 June
Notes 2001 2000
£m £m
Profit/(loss) for the financial year of the group and
its share of associates
- group 42.9 54.2
- share of associates (0.4) (0.1)
Unrealised surplus on revaluation of investment
properties
- group 8 84.4 256.9
TOTAL RECOGNISED GAINS AND LOSSES RELATING TO THE 126.9 311.0
YEAR
CONSOLIDATED BALANCE SHEET AT 30 JUNE 2001
30 June 30 June
Notes 2001 2000
£m £m
FIXED ASSETS
Investment properties 8 2,300.5 2,196.7
Properties under construction 8 755.4 182.4
Properties held for development 8 124.8 147.0
Other tangible fixed assets 9 9.6 3.8
Investments 10 15.8 6.6
3,206.1 2,536.5
CURRENT ASSETS
Properties under construction and properties
held for development 8 249.6 142.6
Debtors 11 86.5 31.9
Cash at bank and in hand 12 1,458.4 1,020.6
1,794.5 1,195.1
CREDITORS: Amounts falling due within 13 (742.0) (185.0)
one year
NET CURRENT ASSETS 1,052.5 1,010.1
TOTAL ASSETS LESS CURRENT LIABILITIES 4,258.6 3,546.6
CREDITORS: Amounts falling due after 14 (2,620.4) (2,023.6)
more than one year
Provisions for liabilities and charges 15 (0.3) (2.9)
NET ASSETS 1,637.9 1,520.1
CAPITAL AND RESERVES
Called up share capital 16 6.9 6.9
Reserves
- Share premium 17 575.5 572.6
- Revaluation reserve 17 1,055.5 971.1
- Capital redemption reserve 17 0.1 -
- Capital reserve 17 61.3 61.3
- Profit and loss account 17 (61.4) (91.8)
SHAREHOLDERS' FUNDS - EQUITY 1,637.9 1,520.1
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2001
Year ended Year ended
30 June 30 June
Notes 2001 2000
£m £m
NET CASH INFLOW FROM
OPERATING ACTIVITIES 20 71.1 83.2
Returns on investments and servicing of 21 (70.6) (53.1)
finance
Capital expenditure and financial investment 21 (579.3) (463.5)
Acquisitions 21 (2.1) -
(652.0) (516.6)
Cash outflow before management of
liquid resources and financing (580.9)
Management of liquid resources 21 28.7
Financing 21 1,018.7
INCREASE/(DECREASE) IN CASH IN THE YEAR 22 466.5 (36.3)
The above cash flows relate to the continuing activities of the group.
Notes 20 to 22 form an integral part of this consolidated cash flow statement.
MORE TO FOLLOW
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