London & Associated Properties Regulatory News (LAS)

LONDON AND ASSOCIATED PROPERTIES PLC - Half Year Results to 30 June 2019

PR Newswire

London, August 27

FOR IMMEDIATE RELEASE

28 August 2019

LONDON & ASSOCIATED PROPERTIES PLC

HALF YEAR RESULTS TO 30 JUNE 2019

London & Associated Properties PLC (“LAP” or “the Group”) is a main market listed property investment group that specialises in industrial and community retail.

It also holds a substantial stake in the main market listed Bisichi Mining PLC which operates coal mines in South Africa and owns UK property investments.

HIGHLIGHTS

“The market for retail and retail property remains extremely challenging. However, we are satisfied that our portfolio remains relevant and fit for purpose. This can be evidenced by the strong lease renewal programme that we have recently completed at Orchard Square …... while the remainder of our directly owned portfolio remains well-let with 93.7% occupancy levels.” Sir Michael Heller, Chairman and John Heller, Chief Executive 

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Contact:

London & Associated Properties PLC Tel: 020 7415 5000John Heller, Chief Executive 

Baron Phillips Associates Tel: 07767 444193Baron Phillips

Half year results for the period ended 30 June 2019

Half year review

We are pleased to report on anther period of progress for LAP. 

Group revenue increased by 7.2% to £30.0 million from £28.0 million as compared with the same period last year. Profits before tax decreased to £1.3 million from £3.5 million last year. The current periods profits have been affected by movements in the value of two investments at Fargate, Sheffield and Project Harrogate, as described below.

During the period under review and since the half-year end, we have completed a number of important transactions that have further strengthened the Group. The most significant of these was the disposal in July of our flagship unit in Fargate to Metro Bank for £9.5 million. This unit was developed by us in 2007/8 for River Island who were still in occupation at the time of disposal, although they had executed their break clause. They were paying £475,000, a level of rent that would have been hard and very expensive to replace once the unit had become vacant. In agreement with our lenders, the net proceeds of the disposal which amounted to £9.3 million were used to pay down debt. The negotiations with Metro Bank had been ongoing for a considerable period of time and as a result the Fargate property had been valued at £10.3 million at the 2018 year end. However, we believe that this result represents an excellent outcome for shareholders and significantly de-risks this asset.

We also completed in July the sale of our nightclub building in Coldharbour Lane, Brixton to an overseas purchaser for £2.35 million. The property was valued at £2.35 million, less costs, at the year end to reflect the fact that we had exchanged conditional contracts at that time. It had previously been valued at £1.15 million. The nightclub had produced just £37,500 per annum and the proceeds should produce a significant increase to our cashflow once they are reinvested.

As mentioned at the year end, the loan from Santander and Europa Mezzanine which is secured against Orchard Square and a property in Wickersley, South Yorkshire, expired in July this year and we commenced a search for new lenders. The total amount outstanding at the year end was £28.3 million; however, following the sale of the Fargate property plus cash accrued in the Special Purpose Vehicle that owns these two assets, the current amount outstanding is £18.3 million. We have negotiated an extension of these loans until the beginning of October 2019.

We are currently in detailed negotiations with a new lender to finance Orchard Square alone, and I hope to be able to provide an update in the near future. However, these are extremely uncertain times in the lending market and completion of this loan cannot be taken for granted. The smaller Wickersley property will be refinanced through our existing facilities and cash resources.

The market for retail and retail property remains extremely challenging. However, we are satisfied that our portfolio remains relevant and fit for purpose. This can be evidenced by the strong lease renewal programme that we have recently completed at Orchard Square where all but two of the retailers renewed on rents that were on average at 82.5% of previously passing rents, while the remainder of our directly owned portfolio remains well-let with 93.7% occupancy levels.

At Manor Park, Runcorn, our first industrial investment, we are pleased to report on strong progress with agreed leasing transactions where we have now achieved £5.00 psf. This growth has been a result of creating additional space through active management to meet tenant requirements, and compares favourably to the passing rent of just over £4.00 psf at time of acquisition. We also are shortly to have our first vacant and to let property which we anticipate will offer an opportunity to build on the growth seen to date.

We continue to manage intensively all of our properties and were pleased to extend the headlease on a property that we own in Castleford by 55 years for a single cash payment of £57,000. This should have a positive effect on the valuation of this property going forward.

At West Ealing, our joint venture with Bisichi and Metroprop which we acquired in October last year, we have now submitted a planning application for 54 apartments following a positive pre-application with the Council. We should receive the decision in the second half of this year and I will update shareholders in due course. 

As announced in June, our £1.7 million investment in the Project Harrogate joint venture has been written off following the decision by Oaktree Capital Management, the 97% shareholder, not to cure a Loan-to-Value breach following a revaluation by the agents of the CMBS secured against the portfolio. The value of the properties dropped from £104 million to £86 million in a single year reflecting the difficulties that the vast majority of secondary shopping centres are facing in the current markets. LAP owned less than 3% of the equity of this joint venture following a decision in December 2017 to invest no further funds at the time of refinancing the portfolio. This decision has been borne out by subsequent events.

LAMS, our asset management subsidiary, will cease to asset manage the Harrogate portfolio from the end of September. This will impact on our cash flow as LAMS received management fees of £0.4 million per annum, although this deficit will be partly offset by savings to our overhead.

Bisichi Mining plc, our 42% owned subsidiary, had another successful six months with profit before tax of £4.4 million (2018: £3.9 million) from revenue of £26.4million (2018: £24.8million).

These results can be attributed to another strong performance from the group’s South African coal mining and coal processing operations. During the first half of 2019, Black Wattle Colliery, their South African mining operation, achieved total production of 655,000 metric tonnes, consistent with total production of 670,000 metric tonnes achieved in the first half of 2018. In addition, strong demand for their coal continued to impact positively on the prices achievable for their coal and overall group revenue in the first half of the year.

In terms of markets, Bisichi has continued to see global economic factors impacting coal demand in the international market. At the end of June 2019 the average weekly price of Free on Board (FOB) Coal from Richard Bay Coal Terminal (API4 price) reached levels below US$65 per metric tonne, compared to US$95 at the end of 2018. Although Bisichi expect demand for our coal to remain stable, the weakening of prices in the international market may impact overall group revenue in the second half the year. Management will focus on maintaining production levels and keeping the cost of production low in order to ensure the group remains in a strong position to achieve significant value from its South African mining operations during the second half of the year.

Black Wattle signed an agreement in 2018 to acquire a new coal reserve contiguous to Black Wattle’s operations. The reserve has an expected run of mine tonnage of 1.9 million metric tonnes, can be mined by opencast and is of a similar quality to Black Wattle’s existing reserves. At present the acquisition remains subject to regulatory approval from the South African Department of Mineral Resources and Bisichi have no further news to report at this stage. Looking forward, the group continues to seek further opportunities to extend the life of mine of its existing mining operations or to develop new independent mining operations in South Africa.

We do not intend to pay a dividend at the half year point; however, our strategy is to maximise income over the medium term and our dividend policy will reflect this once our cash has been reinvested and our income has returned to previous levels. We continue to explore new opportunities and have bid on a number of properties and portfolios over the last year. However, we do not intend to overpay and are unwilling to match offers from other parties that would not bring our requisite levels of return. 

Following approval at the June 2018 Annual General Meeting, the 2018 final dividend of 0.18 pence per share is payable on 13 September 2019, to shareholders on the register at the close of business on 16 August 2019.

Sir Michael Heller John HellerChairman Chief Executive28 August 2019

Consolidated income statementfor the six months ended 30 June 2019

A revenue recognition error was identified in the second half of 2018 in respect of Bisichi’s 2018 financial year end. In respect of the comparative 6 month period ended 30 June 2018 the error amounted to £1,408,000 which had been incorrectly recorded as a deduction against revenue rather than shown as an operating cost. There is no profit or net asset impact as a result of the prior period restatement. The above comparatives have been restated accordingly. Refer to note 11 – Financial Information

Consolidated statement of comprehensive incomefor the six months ended 30 June 2019

Consolidated balance sheetat 30 June 2019

Consolidated statement of changes in shareholders’ equityfor the six months ended 30 June 2019

Consolidated statement of changes in shareholders’ equity - continuedfor the six months ended 30 June 2019

Consolidated cash flow statementfor the six months ended 30 June 2019

Consolidated cash flow statement - continuedfor the six months ended 30 June 2019

The cash flows above relate to continuing and discontinued operations.

Cash and cash equivalents

For the purpose of the cash flow statement, cash and cash equivalents comprise the following balance sheet amounts:

£340,000 of cash deposits at 30 June 2019 were charged as security to debenture stocks.

£500,000 of cash deposits at 30 June 2019 were charged as security to bank loans.

Notes to the half year reportfor the six months ended 30 June 2019

5. Properties

Properties at 30 June 2019 are included at valuation as at 31 December 2018, plus additions in the period, or at value where a sale has been agreed.

No properties were sold during the six months ended 30 June 2019.

£2.285 million of assets held for sale at 30 June 2019, were sold in July 2019.

£9.30 million of assets held as inventory at 30 June 2019 were sold in July 2019.

6. Interest rate derivatives

At 30 June 2019 the fair value liability was £nil, with the sole derivative expiring on 1 July 2019 (30 June 2018: £267,000, 31 December 2018: £168,000).

Under IFRS 13 the hedges are not deemed to be eligible for hedge accounting and any movement in the value of the hedge is charged directly to the consolidated income statement.

Notes to the half year report - continued

8. Related party transactions

The related parties and the nature of costs recharged are as disclosed in the group’s annual financial statements for the year ended 31 December 2018.

9. Dividends

There is no interim dividend payable for the period (30 June 2018: Nil).

The final dividend in respect of 2018 of 0.18p per share, amounting to £154,000, is payable on 13 September 2019. As the 2018 final dividend was approved by the shareholders at the Annual General Meeting held on 12 June 2019, it is included as a liability in these interim financial statements.

10. Risks and uncertainties

The group’s principal risks and uncertainties are reported on pages 7 and 8 in the 2018 Annual Report. They have been reviewed by the Directors and remain unchanged for the current period.

The largest area of estimation and uncertainty in the interim financial statements is in respect of the valuation of investment properties (which are not revalued at the half year) and the valuation of interest rate derivatives.

For our subsidiary, Bisichi Mining PLC, it also relates to currency movements and coal mining activities in South Africa, including depreciation, impairment and the provision for rehabilitation (relating to environmental rehabilitation of mining areas).

Notes to the half year report - continued

11. Financial information

The above financial information does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The figures for the year ended 31 December 2018 are based upon the latest statutory accounts, which have been delivered to the Registrar of Companies; the report of the auditor on those accounts was unqualified and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

As required by the Disclosure and Transparency Rules of the UK's Financial Conduct Authority, the interim financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) and in accordance with both IAS 34 'Interim Financial Reporting' as adopted by the European Union and the disclosure requirements of the Listing Rules.

The half year results have not been audited or subject to review by the company's auditor.

The annual financial statements of London & Associated Properties PLC are prepared in accordance with IFRS as adopted by the European Union. The same accounting policies are used for the six months ended 30 June 2019 as were used for the year ended 31 December 2018.

During the 2018 year-end review of revenue recognition in South Africa a revenue recognition error was identified in respect of the treatment of transport and loading costs to deliver export coal under certain export agreements. The costs had been incorrectly recorded as a deduction against revenue rather than shown as an operating cost. In the Annual Financial Statements for the year ended 31 December 2018, such costs have been recorded in operating costs and the comparatives restated accordingly.

The impact on the interim results for the six months ended 30 June 2019 is a restatement of the prior period comparatives for the six months ended 30 June 2018. Both revenue and operating costs in the comparatives have been increased by £1,408,000. There is no profit or net assets impact as a result of the prior year restatement.

As stated in the 2018 Annual Report in the group accounting policies, Bisichi Mining PLC and Dragon Retail Properties Limited are consolidated with LAP, as required by IFRS 10. 

The assessment of new standards, amendments and interpretations issued but not effective, is that these are not anticipated to have a material impact on the financial statements.

The following new standards have become effective and have been adopted by the Group during the year:

IFRS 16 – Leases

There is no significant impact on the Group as a lessor. The impact of the adoption of the IFRS 16 leasing standard on the Group as a lessee and the new accounting policies are disclosed below.

The Group has applied IFRS 16, ‘Leases’ on 1 January 2019. In accordance with the transition provisions in IFRS 16, the new rules have been adopted retrospectively, with the cumulative effect of initially applying the new standard recognised on 1 January 2019. Comparatives for the 2018 financial year have not been restated. On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the principles of IAS 17. Until the 2019 financial year, the payments made under the operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight line basis over the period of the lease. The Group holds three types of ‘operating leases’.

Upon initial recognition the lease liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of 1 January 2019. The associated right-of-use “(ROU)” assets were measured equal to the lease liability. As a result, there is no impact on opening retained earnings at 1 January 2019. In applying IFRS 16 for the first time, the Group has used the practical expedients permitted by the standard. The Balance Sheet impact of recognising the lease liability and associated ROU asset upon adoption at 1 January 2019 and subsequently at 30 June 2019 is set out below.

There was no material impact on the profit after tax for the 6 months period ended 30 June 2019. There was no impact on Adjusted EPS.

12. Board approval

The half year results were approved by the Board of London & Associated Properties PLC on 27 August 2019.

Directors' responsibility statement

The Directors confirm that to the best of their knowledge:

(a) the condensed set of financial statements have been prepared in accordance with applicable accounting standards and IAS 34 Interim Financial Reporting as adopted by the EU;

(b) the interim management report includes a fair review of the information required by:

 (1) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(2) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

This report contains forward-looking statements. These statements are based on current estimates and projections of management and currently available information. Future statements are not guarantees of the future developments and results outlined therein. Rather, future developments and results are dependent on a number of factors; they involve various risks and uncertainties and are based upon assumptions that may not prove to be accurate. Risks and uncertainties identified by the Group are set out on pages 7 and 8 of the 2018 Annual Report & Accounts. We do not assume any obligation to update the forward-looking statements contained in this report.

Signed on behalf of the Board on 27 August 2019

Sir Michael Heller Jonathan Mintz

Director Director