Canary Wharf Group - Preliminary Results-Part 1
RNS Number:2184R
Canary Wharf Group PLC
20 September 2000
Part 1
CANARY WHARF GROUP PLC
PRELIMINARY ANNOUNCEMENT OF RESULTS
YEAR ENDED 30 JUNE 2000
FINANCIAL HIGHLIGHTS
Year Year
ended ended
30 June 30 June
Notes 2000 1999 Change
------ ------- ------- -------
£m £m %
Turnover - rents and
service charges 114.4 79.6 43.7
Gross profit 82.9 51.7 60.3
Exceptional item: net
profit on sale of
completed properties 39.1 -
Operating profit 102.0 25.0 308.0
Net interest payable (47.8) (67.6) 29.3
Profit/(loss) on ordinary
activities before and
after taxation 54.1 (42.8)
Basic earnings/(loss) per
share 7.9p (7.9)p
Diluted earnings/(loss) per
share 7.8p (7.9)p
At At
30 June 30 June
2000 1999 Change
------- ------- -------
£m £m %
Investment properties (1)
Held throughout the year 1,623.4 1,479.0 9.8
Acquired during the year 413.0 -
Completed during the year 160.3 -
------- -------
2,196.7 1,479.0
Properties under
construction and
properties held for
development (2) 472.0 535.4
Net debt (596.3) (155.3)
Deferred income (445.2) (539.3)
Other net liabilities (3) (107.1) (112.1)
------- -------
Net assets at net book value 1,520.1 1,207.7
At At
30 June 30 June
2000 1999
------- -------
£m £m
Properties under construction (4)
and properties held for
development
- at Open Market Value 1,432.0 1,377.5
- at present value of Net
Realisable Value 2,590.5 2,572.0
Net Asset Value per share
based £5.31 £4.74
on Net Realisable Value
(1) Investment properties stated at Open Market Value
(2) Properties under construction and properties held for
development stated at cost
(3) Including accrual for final contribution to the Jubilee
Line Extension of £50.2 million
(4) Refer to Operating and Financial Review - Valuations of
the preliminary announcement for an explanation of the
basis of valuation.
AT 30 JUNE 2000:
* The group's investment portfolio (totalling 4.4 million sq
ft) was 99.9% let.
* Properties under construction totalled 3.2 million sq ft of
which 2.5 million sq ft was pre-let or subject to agreements
to be sold upon completion.
DURING THE YEAR:
* The construction of four properties was completed, two of
which were retained as investment properties (17 Columbus
Courtyard and the Canada Place Retail Centre) and two of which
were sold (20 Columbus Courtyard and 33 Canada Square).
* The 65,000 sq ft Canada Place Retail Centre was
substantially let and opened for trading in March 2000. The
Centre also provides 900 car parking spaces.
* 33 Canada Square was leased to Citibank. Citibank's long
lease of this property was subsequently purchased from
Citibank who now occupy the entire building on the basis of a
27 year lease.
* Citigroup exercised options over a further 0.6 million sq
ft and will fully occupy 25 Canada Square, a 1.2 million sq ft
office building.
* 1 Westferry Circus, a 217,000 sq ft office building, was
acquired from Texaco.
* Morgan Stanley pre-leased in its entirety 15 Westferry
Circus, a 175,000 sq ft office building.
* Construction commenced on a speculative basis of 5 Canada
Square, a 500,000 sq ft office building.
* The group completed a £475 million securitisation.
RECENT EVENTS
* Agreement was reached, subject to contract, with Clifford
Chance to pre-let 750,000 square feet of a 1 million square
foot building.
* The group agreed outline terms, subject to contract, of a
letting to Enron of approximately 1.4 million sq ft.
* The group agreed terms, subject to contract, with Northern
Trust Company to lease 135,000 sq ft in a new office
development of 210,000 sq ft. The group also announced that
Waitrose Food & Home will take 80,000 sq ft in a new retail
building of 200,000 sq ft to the east of Canada Square.
Paul Reichmann, the Chairman, stated:
This year has been the most successful year in Canary Wharf's
history. The level of leasing activity has been the highest
achieved in any single year, rents have reached new highs and
the construction now underway, most of which is pre-let, will
eventually provide more space than all the existing completed
buildings. Canary Wharf is well ahead of the leasing and
development timetable outlined at the time of our flotation in
April 1999.
CONTACTS
George Iacobescu
Chief Executive
Peter Anderson
Managing Director, Finance
Canary Wharf Group plc
Telephone: 020 7418 2000
David Beck/Emma Kent
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.
Chairman's and Chief Executive's Statement
This year has been the most successful year in Canary Wharf's
history. The level of leasing activity has been the highest
achieved in any single year, rents have reached new highs and
the construction now underway, most of which is pre-let, will
eventually provide more space than all the existing completed
buildings. Canary Wharf is well ahead of the leasing and
development timetable outlined at the time of our flotation in
April 1999.
The profit on ordinary activities for the period was £54.1
million, after interest, up by £96.9 million on 1999. This
increase was driven by the net profit on the sale of completed
properties, the increase in rental income and the reduction in
net interest payable. The board is confident that thyear we leased over 1.7 million square
feet, including over 700,000 square feet in the Texaco and
Citibank buildings, which were re-acquired during the year in
accordance with the strategy outlined at the time of the
flotation, and pre-lets to Citigroup totalling over 600,000
square feet that resulted in their having pre-leased the
entire 42 storey Citigroup tower now under construction.
The investment property portfolio increased in value from
£1,479 million to £2,197 million in part as a result of the
acquisition of the two buildings referred to above and the
completion of two further buildings. Investment properties
held throughout the year increased in value by 9.8%.
Taking into account agreements for lease in place at 30 June
2000, properties under construction and held for development
were valued at that date on the basis of the present value of
the Net Realisable Value ('NRV') at £2,591 million. On the
NRV basis net asset value increased during the year from £4.74
per share to £5.31 per share.
Following the financial year end we have agreed, subject to
contract, heads of terms to let a total of over 2.3 million
square feet to new tenants at Canary Wharf. Clifford Chance,
the UK's largest law firm, is to take 750,000 square feet in
a 1 million square foot 30 storey tower on the Canary Wharf
South site (formerly Heron Quays) fronting the new Jubilee
Park. Enron, a rapidly growing energy and energy lt during the first phase of Canary Wharf. We are now
seeing the advantages of a rolling programme of developing
readily flexible designs and the pre-staging of infrastructure
and foundation works in advance of full development. Two
years ago, to accelerate delivery of buildings, we initiated a
programme of infrastructure works on all significant sites.
This programme is now nearing completion. By December 2000 we
will have completed the last remaining cofferdams and piling
and raft work will be underway on all the remaining sites.
In July, on the occasion of a visit by the Chancellor of the
Exchequer, Gordon Brown, we unveiled the master plan of Canary
Wharf South, that is featured on the cover of this report.
This third major phase of development will include the new
Clifford Chance and Northern Trust buildings in a development
totalling approximately 3.0 million square feet of office
space overlooking a six acre park above the Jubilee Line
station. A new 85,000 square foot retail mall will link all
these buildings at the concourse level and will have direct
connections into the Jubilee Line station.
Our retail activities are a highly visible example of the
growth and success of the development. In March we opened
Canada Place, a 65,000 square foot fashion led mall which has
transformed the retail experience and mix. We have recently
commenced work on a 200,000 square foot retail building to
complete Canada Place Mall that will be anchored by an 80,000
square foot Waitrose Food & Home store, a concept by John
Lewis Partnership. The building will also house a 90,000
square foot health club, and rooftop restaurants overlooking
Canada Square. Once all planned retail construction is
completed total retail capacity will exceed 500,000 square
feet and Canary Wharf will approach regional mall status.
The Central London property market is the strongest it has
been for some years, experiencing tight supply and strong
demand across all sectors. This demand has been enhanced by
the emergence of the new economy, or Telecommunications, Media
and Technology sector, coupled with sustained merger and
acquisition activity, which has brought significant
consolidation in the banking and financial services sector.
There are only a few readily available development sites in
Central London that can offer the building size, speed of
delivery and quality that these occupiers require. In view of
the general short supply of large Grade A office
accommodation, we expect that demand for space will remain
buoyant.
As part of our financing programme we completed a £475 million
long term financing in June which is the second securitisation
we have undertaken. Our strategy in building our capital
structure is to seek the longest maturities available to match
the maturities of our lease cashflows, enabling us to achieve
maximum proceeds and the lowest overall cost of capital. The
securitisation market provides the best means of achieving
these objectives and we have incorporated several innovations
that will further facilitate our access to the capital
markets. One example of this innovation is provision within
the second securitisation for the issue of up to £500 million
in Revolving Notes which will enable us to borrow immediately
on a short term basis against new buildings as they are
completed and leased. By adding additional buildings to a
single pool we expect also to benefit significantly from the
diversification this brings in the form of higher proportions
of AAA and AA rated debt.
The increased level of construction expenditure requires a
commensurate increase in financing. To date we have been able
to finance our construction expenditure from the flotation
proceeds and the long term securitisation of completed
buildings. The acceleration of the development programme will
now be funded by committed revolving construction loan
facilities that are currently being put in place. We intend
to repay these construction loans by securitising the assets
on completion. The committed construction loan will revolve,
so that as buildings are completed and refinanced, new
buildings can immediately be added to the facility thus
ensuring availability of funding for such a large construction
programme.
Transportation continued to improve. The Jubilee Line opened
in September 1999 integrating Canary Wharf into the London
Underground network. In November 1999 the DLR opened its
extension to Greenwich, Blackheath and Lewisham, thus making
Canary Wharf a major interchange point for commuters in the
southeastern part of London. The Secretary of State has
approved plans for a further extension to the DLR to City
Airport, which is expected to become operational in 2003. In
conjunction with the DLR, Canary Wharf is substantially
upgrading the Heron Quays station to comfortably accommodate
the significant increase in passenger numbers which are
expected with the development of the Jubilee Park district.
It will continue to take focus, commitment and a lot of hard
work to achieve success and to complete what we have started
so successfully. The Board would like to thank the
management and staff for their extraordinary efforts this
year. We believe we have an exceptional team, which has
responded in an outstanding manner to the challenges and
workload over the last year. Their professionalism and
dedication, as well as the quality of their work, are
exhibited in every building and public space we create and in
the high standards demonstrated on a daily basis in
maintaining Canary Wharf as one of the world's premier office
locations.
OPERATING AND FINANCIAL REVIEW
Property portfolio
The activities of the group are concentrated on the Canary
Wharf development (including Heron Quays). 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.
Approx.
Net
Internal External
Area % Valuation
Property Address (sq ft) Leased £m Principal Tenants
------------------ --------- ------ --------- -------------------
1 Westferry Circus 230,700 100.0 103.0 Texaco, CSFB
7 Westferry Circus 175,000 99.4 75.0 EDS, EMEA, Edward S
Jones
17 Columbus 198,000 100.0 100.0 CSFB
Courtyard
10 Cabot Square 635,900 100.0 255.0 Barclays Bank, WPP
Group
20 Cabot Square 558,400 100.0 244.0 Morgan Stanley Dean
Witter, Barclays
Capital
One Canada Square 1,235,200 99.9 650.0 Daily Telegraph,
KPMG, Mirror Group
Newspapers, State
Street Bank, Bear
Stearns, Bank of
New York
33 Canada Square 560,000 100.0 310.0 Citibank
25 North Colonnade 359,800 100.0 180.0 Financial Services
Authority
30 South Colonnade 294,500 100.0 142.5 London Underground
Cabot Place Retail 96,300 100.0 48.0 Various retail
tenants
Canada Place 65,000 98.0 42.0 Various retail
Retail tenants
Car Parks - - 47.2
--------- ------ ---------
Total 4,408,800 99.9 2,196.7
========= ====== =========
During the year ended 30 June 2000 the group completed the
construction of four properties, two of which were retained as
investment properties (17 Columbus Courtyard and the Canada
Place Retail Centre) and two of which were sold (20 Columbus
Courtyard and 33 Canada Square).
* 17 Columbus Courtyard is a 198,000 square foot office
building which has been let in its entirety to CSFB.
* The Canada Place Retail Centre is a 65,000 square foot
retail mall which has been substantially let to leading high
street names. The centre also provides 900 car parking
spaces.
* 20 Columbus Courtyard is a 270,000 square foot office
building which was, on completion, sold to CSFB under the
terms of an agreement entered into in December 1997 and
provides expansion space for their existing headquarters at
Canary Wharf.
* 33 Canada Square is a 560,000 square foot office building
which was leased to Citibank under the terms of an agreement
entered into in December 1996. The terms of the lease to
Citibank were such that the group has accounted for this
transaction as a sale. Subsequently Citibank's long lease of
this property was purchased from Citibank who now occupy the
entire building on the basis of a 27 year lease.
During the year the group also acquired 217,000 square feet of
office space in 1 Westferry Circus, for a consideration of
£82.9 million.
As well as the rental income generated from the eleven
completed properties, 99.9% 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 square feet 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
2000 the weighted average un-expired lease term for the office
portfolio was 20.8 years (or 17.0 years after taking account
of break options). Only 32% 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.
At 30 June 2000 five buildings (totalling 3.2 million square
feet Net Internal Area) were under construction as set out in
the table below.
Approx Expected
Property Address Net Internal Completion
Area (sq ft) Date Status
--------------- ------------ ------------- ------------------
5 Canada Square 500,000 December 2001 Unlet
8 Canada Square 1,100,000 April 2002 Agreed to be sold
to HSBC Group
25 Canada Square 1,220,000 May 2002 Agreed to be
leased to
Citigroup
15 Westferry 175,000 May 2001 Agreed to be
Circus leased to Morgan
Stanley Dean
Witter
Canada Place 200,000 July 2002 80,000 sq ft let
Retail subsequent to year
extension end
----------
3,195,000
==========
The group entered into an agreement with HSBC Group in October
1998 for the sale upon completion of 10 Canada Square, a new
1.1 million square foot office building which will become
HSBC's worldwide headquarters. Construction commenced in
January 1999 with completion forecast for April 2002.
In February 1999 the group entered into an agreement for lease
with Citigroup for 600,000 square feet in a new 1.22 million
square foot building (25 Canada Square). During 2000
Citigroup exercised options that took their total occupancy in
that building to the full 1.22 million square feet.
Construction commenced in March 1999 with completion forecast
for May 2002.
15 Westferry Circus, which when complete will provide 175,000
square feet of office space, was pre-leased in its entirety by
Morgan Stanley Dean Witter in February 2000. Following this
letting, and the additional lettings in 25 Canada Square, the
decision was taken to commence construction of the 500,000
square foot building designed for 5 Canada Square. In
addition, following the opening of the Canada Place Retail
Centre in March 2000, construction of the next phase of retail
at Canary Wharf commenced, being a 200,000 square foot retail
building on the east side of Canada Square.
In June 2000 the group reached agreement, subject to contract,
with Clifford Chance to pre-let 750,000 square feet of a 1
million square foot building. The group has also commenced
construction to shell of an adjacent 210,000 square foot
office building. In July 2000 the group agreed outline terms,
subject to contract, of a letting to Enron of approximately
1.4 million square foot of space at Canary Wharf. These
buildings take the development programme to approximately 6.0
million square feet. In addition the group owns land on which
it proposes to build about a further 2.0 million square feet.
Sub-structure works have commenced on Heron Quays, as a
preliminary to the development of that part of the estate. In
addition work has commenced on completing the roads and other
infrastructure on the eastern part of Canary Wharf.
Construction of further buildings will commence as and when
market conditions allow.
Valuations
The net assets of the group, as stated in its consolidated
balance sheet as at 30 June 2000, were £1,520.1 million. In
arriving at this total:
(i) properties held as investments were carried at £2,196.7
million, which represents the Open Market Value of those
properties at that date as determined by the group's external
valuers, FPDSavills o4 per square foot in comparison with £117.8
per square foot at 30 June 1999.
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 2000 is
consistent with that adopted for the previous year end. In
summary this involves the following six steps:
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 2000 the valuers adopted a discount rate of
7.2%, 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 7.1%.
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 2000 was £1,110.5 million.
Their joint opinion of the present value of the Net Realisable
Value of properties held for development at that date was
£1,480.0 million. In the case of the properties held for
development, this is equivalent to a valuation at June 2000 of
£325.3 per square foot in comparison with £289.3 per square
foot at 30 June 1999.
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 2000
-----------------------------------------
Present
Value
Open Market Of Net
Carrying Value in Realisable
Value Existing State Value
---------- ---------- ----------
£m £m £m
Investment 2,196.7 2,196.7 2,196.7
properties (Note)
Properties
under
construction 325.0 757.0 1,110.5
Properties
held for
development 147.0 675.0 1,480.0
---------- ---------- ----------
Total 2,668.7 3,628.7 4,787.2
========== ========== ==========
30 June 1999
-----------------------------------------
Present
Value
Open Market Of Net
Carrying Value in Realisable
Value Existing State Value
---------- ---------- ----------
£m £m £m
Investment 1,479.0 1,479.0 1,479.0
properties (Note)
Properties
under
construction 394.8 760.5 1,057.0
Properties
held for
development 140.6 617.0 1,515.0
---------- ---------- ----------
Total 2,014.4 2,856.5 4,051.0
========== ========== ==========
Note: Investment properties are stated at Open Market Value.
Operating results
In the following review of operating results, references to
2000 and 1999 should be read as references to the years ended
30 June 2000 and 30 June 1999 respectively.
The group's turnover is generated primarily by the rents and
service charges it levies on its tenants at Canary Wharf.
Turnover increased from £79.6 million in 1999 to £114.4
million in 2000, an increase of £34.8 million or 43.7%.
Rental income increased from £50.0 million to £81.6 million,
an increase of £31.6 million or 63.2%, due primarily to the
expiry of rent-reduced and rent-free periods, rent reviews and
the commencement of rent on newly completed or acquired
properties. Service charge income increased from £21.4
million to £25.7 million, an increase of £4.3 million or
20.1%, due primarily to the increased level of occupancy on
the estate. Miscellaneous income, comprising ground rents,
insurance recoveries and tenant service income over and above
standard service charge recoveries, reduced from £8.2 million
to £7.1 million, reflecting lower insurance costs and hence
recoveries.
Rents payable and property management costs increased from
£27.9 million to £31.5 million, an increase of £3.6 million or
12.9%, 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 the year ended 30 June 2000.
Gross profits increased from £51.7 million in 1999 to £82.9
million in 2000, an increase of £31.2 million or 60.3% over
the previous year. The gross profit percentage for the year
was 72.5% in comparison with 64.9% for 1999. The increase in
the gross profit percentage was attributable to the increase
in rental income.
Administrative expenses reduced from £27.8 million in 1999 to
£23.3 million in 2000, a decrease of £4.5 million. The
directors estimate that £13.8 million (or approximately 59.2%
of the total for 2000) was attributable to the group's
corporate and property investment activities. For the
previous year administrative expenses attributable to these
activities were estimated at £14.4 million, or 51.8% of the
total. Corporate administrative expenses have therefore
remained at a broadly similar level with the previous year.
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 the year ended 30 June 2000 such unallocated
development overheads totalled £9.5 million representing
approximately 40.8% of administrative expenses. For the
previous year development overheads totalled £13.4 million or
48.2% of the total. The reduction in development overheads
over the previous year is attributable to a reduction in
office leasing costs. The directors consider that development
overheads will in due course reduce to an insignificant level
upon completion of the development programme.
Operating profit increased from £25.0 million in 1999 to
£102.0 million in 2000, an increase of £77.0 million.
Included within the total for the year ended 30 June 2000 was
a net profit of £39.1 million on disposal of two properties at
Canary Wharf (33 Canada Square and 20 Columbus Courtyard).
33 Canada Square was the first major building to be commenced
at Canary Wharf after a gap of five years. The disposal of
this building generated an incremental cash inflow to the
group of £7.3 million before cost allocations in respect of
contributions towards the Jubilee Line Extension (JLE) and
historical land and infrastructure. In addition, the group
entered into a finance lease transaction which is expected to
generate a benefit to the group of £34.0 million. Allowing
for this benefit, the completion and sale of 33 Canada Square
is expected to generate a total benefit in cash terms of £41.3
million. After cost allocations in respect of the JLE and
historical land and infrastructure, the disposal of 33 Canada
Square generated an accounting loss of £5.4 million. The
benefit from entering into the finance lease will be
recognised over the term of the lease in accordance with
applicable accounting standards.
In the case of 20 Columbus Courtyard, the disposal of this
building generated an incremental cash inflow to the group of
£48.0 million before cost allocations in respect of the JLE
and historical land and infrastructure. After such
allocations, an accounting profit of £44.5 million was earned.
Before the exceptional net profit on disposals, the operating
profit for the year was £62.9 million in comparison with £25.0
million for the previous year end. The improvement in the
underlying operating profit earned by the group is primarily
attributable to the increase in turnover.
The operating results for the second half of the year
continued the favourable trend established during the six
months ended 31 December 1999.
Net interest payable reduced from £67.6 million in 1999 to
£47.8 million in 2000. This reduction was partly the result
of the lower level of long term debt finance following the
group's Initial Public Offering (IPO) in March 1999. In
addition, a reduced interest charge for the second half of the
year reflects the capitalisation of £9.0 million of interest
payable on corporate facilities in respect of properties under
construction as permitted by FRS15 (Tangible Fixed Assets).
This was partially offset by an increased interest charge due
to the launch of the group's second securitisation in June
2000 and a reduction in cash balances as a result of the
ongoing construction programme.
After interest, the profit on ordinary activities for the
period was £54.1 million, an increase in profit of £96.9
million over 1999, driven primarily by the net profit on sale
of completed properties, the increase in rental income and the
reduction in net interest payable.
No provision for corporation tax has been made in respect of
the year ended 30 June 2000 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 £312.4 million from £1,207.7 million
at 30 June 1999 to £1,520.1 million at 30 June 2000. The
increase in net assets was attributable to the group's profit
for the year of £54.1 million, together with revaluation gains
amounting to £256.9 million. Shares issued during the year
under the 1997 Executive Share Option plan increased share
capital by £0.1 million and share premium by £1.3 million.
Borrowings
In June 2000, the group arranged a £975 million securitisation
which is listed on the London Stock Exchange. The
securitisation provides for £475 million of long term funding
with a final maturity of up to 30 years at favourable interest
rates. It also provides the ability to make further drawings,
in any freely convertible currency and at the prevailing
market rate of interest, upon the construction and lease of
new buildings. £90 million of the term notes were immediately
repurchased by the group and may be resold at any time. In
addition the securitisation allows for £500 million of
revolving short-term notes, of which £250 million is
underwritten for 5 years. Drawings under the revolving notes
will be permitted once further fully constructed and leased
properties are added to the securitisation portfolio, and may
be used as an intermediate form of borrowing, until further
term notes are issued. The proceeds of the securitisation
were used in part to repay or refinance certain existing loans
and the balance was retained by the group for its general
corporate purposes including funding the construction of new
buildings on the estate.
An analysis of net debt is given below. The increase in gross
borrowings from £1,172.2 million to £1,616.9 million reflects
the launch of the group's second securitisation and the
inception of a new finance lease, offset by the repayment of
the group's construction loan facilities and a facility
secured on the group's retail and parking properties. The
increase in gross borrowings was accompanied by an increase in
cash and term deposits to £1,020.6 million from £1,016.9
million primarily as a result of the second securitisation and
a finance lease generating more funds than were expended on
funding development costs and the acquisition of two
buildings.
The group expects initially to fund its future construction
activities either from existing resources or from additional
construction facilities secured on pre-leased properties. At
30 June 2000 the group's weighted average cost of debt was
7.2% (1999 7.5%).
At 30 June 2000, net debt (after allowing for cash in hand and
cash collateral) stood at £596.3 million, up from £155.3
million at the previous year end, comprising:
At 30 At 30
June June
2000 1999
------- -------
£m £m
Securitised debt 941.8 555.9
Loans - 144.5
Finance lease obligations 675.1 471.8
------- -------
Total borrowings 1,616.9 1,172.2
Less: cash collateral for borrowings (574.8) (405.9)
Less: other cash collateral
excluding prepayments (2.3) (18.0)
(see below)
------- -------
1,039.8 748.3
Less: cash deposits (236.5) (272.8)
------- -------
Net debt excluding prepayments 803.3 475.5
======= =======
Cash deposits arising from
prepayments in respect of buildings
contracted to be sold (207.0) (320.2)
======= =======
Cashflow
Net cashflow from operating activities increased from £42.5
million in 1999 to £83.2 million in 2000, an increase of £40.7
million driven primarily by the increase in rental income.
Capital expenditure increased from £298.3 million in 1999 to
£702.1 million in 2000, reflecting 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. The net
inflow for the previous year of £127.9 million was
attributable to prepayments arising from agreements for the
sale of certain buildings upon completion.
Financing cash flows increased from £338.3 million in 1999 to
£437.1 million in 2000, an increase of £98.8 million. In
2000, financing cash flows reflected the completion of the
second securitisation and inception of a finance lease on 33
Canada Square. 1999 saw the completion of the IPO, net of the
repayment of elements of the group's existing debt. This
increase in borrowings has also impacted the net cash expended
on debt service which rose from £43.1 million in 1999 to £53.1
million in 2000.
EXTRACTS FROM THE DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE
2000
Dividends and reserves
The directors do not recommend the payment of a dividend for
the year ended 30 June 2000 and the retained profit of £54.1
million (year ended 30 June 1999 - loss of £87.4 million) is
to be transferred to reserves.
Annual General Meeting
The Annual General Meeting will be held at 11.00 am on
Wednesday 8 November 2000 on the 50th Floor, One Canada
Square, Canary Wharf, London E14 5AB.
MORE TO FOLLOW
FR IFFEFASIALII
|