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17 Feb 2009 07:00
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Warner EstateΒ Holdings PLC ("the Group")
Interim Management Statement
17thΒ February 2009Β
Business Review
The property market remains a challenging environment as valuations continue to fall and the general economy moves deeper into recession. The GroupΒ continues to focus on those actionsΒ thatΒ reduce debt and costs, whilst maintainingΒ recurring profitabilityΒ and cashΒ flow.Β
The Group's profitability is in line with expectations,Β with the exception ofΒ income fromΒ itsΒ investment in the ApiaΒ Regional OfficeΒ FundΒ ("Apia").Β Recurring profitΒ fromΒ the wholly owned property investment business,Β investments in joint venturesΒ andΒ theΒ asset management business is ahead ofΒ that inΒ the equivalent period last year. However, distributionsΒ from the Group's investment in ApiaΒ have been reduced owing toΒ the losses on disposals within that Fund. The impact of these reduced distributionsΒ more than offsets the improved performance in otherΒ parts of theΒ businessΒ with the result thatΒ the Group's overall recurring profit for theΒ nine monthsΒ toΒ 31Β December 2008 is Β£1.4millionΒ below that ofΒ the same periodΒ lastΒ year.Β
However, as reported at theΒ interimΒ results presentation in November,Β cost savings and other initiatives will improve profitability in the current financial year and deliver an annualised improvement to recurring profit of Β£3million p.a. These savings come primarily from the wholly owned property investment business andΒ itsΒ supporting functions.
Cash collection remains strong with over 96% of rents collected within 28 days of the December 2008 quarter day withinΒ bothΒ the wholly owned and theΒ total managedΒ portfolios. As announcedΒ withΒ theΒ interimΒ results,Β the net proceedsΒ fromΒ disposals arising since the half year have been used to reduce the Group's net debt, which was Β£323million at 31 DecemberΒ 2008, downΒ from Β£349millionΒ at the half year.
Wholly Owned Portfolio
The Group has made good progress in managingΒ its wholly owned portfolio. Although the level of voids has increased from 3.8% atΒ 30Β SeptemberΒ 2008Β to 6.2% at 31 December 2008 (IPD benchmark: 10.4%),Β void unitsΒ have been let atΒ 8% above ERVΒ forΒ Β£0.4million p.a.,Β offsettingΒ rentΒ of Β£0.8million p.a.Β fromΒ leases which have expired and not been renewed.Β Rent reviews and lease renewals haveΒ increased income byΒ Β£0.3million p.a.,Β onlyΒ 2%Β belowΒ ERVΒ andΒ 22%Β above the previous rent.Β
Since the half year,Β sevenΒ properties,Β totalling Β£34.7million, have been sold from the wholly owned portfolio atΒ an averageΒ priceΒ of 5.1%Β belowΒ SeptemberΒ 2008 values. A further vacant building has exchanged, subject to planning, for consideration of Β£3.0million,Β in line with its September 2008 value.Β Two significant lettings have been achieved, both to Waitrose. At Weston-super-Mare, a 34,200 sq. ft. store has been let for 36 years, with a tenant break at 21 years, forΒ almostΒ Β£0.7millionΒ p.a. At Waterside,Β the phase two extension to the Hale Leys shopping centreΒ inΒ Aylesbury,Β a 30,900 sq. ft. store has been pre-let, subject to planning, for 20 years atΒ overΒ Β£0.6millionΒ p.a.Β which,Β together with the Debenhams pre-letting in December 2007,Β means thatΒ thisΒ proposedΒ extensionΒ isΒ 45% forward committed with both anchor tenantsΒ in place.
Joint VenturesΒ and Funds
The Group's share of recurring profit from its 50%Β investment inΒ fourΒ joint ventures ("JVs"),Β Agora Shopping Centres, Agora MaxΒ Shopping Centres, Greater London Offices and Radial Distribution,Β and thatΒ arising fromΒ the asset management business areΒ in line with expectations and ahead of the equivalent period last year. Although the core asset management fees arising from the Ashtenne Industrial Fund and Apia areΒ down on the prior year, as they areΒ linked toΒ fallingΒ grossΒ assetΒ values,Β this reduction has been more than offsetΒ by other fees and cost saving initiatives across theΒ rest of theΒ asset management business.Β TheΒ carrying value of theΒ Group's investment in JVsΒ as at 30 September 2008Β was Β£39.7million.Β The debt inΒ each one ofΒ theseΒ is non recourse.Β The decline in property values and the maturing ofΒ certainΒ facilities has led to discussionsΒ with each of the JV lendersΒ to establish the most appropriate form of financing structuresΒ for the JVs. The Board will provide further information on the progress of these discussions in due course.
FinanceΒ Review
In the Group's interim results statement for the half year ended 30 September 2008 it was announced that discussions with the Group's relationship banks had commenced regarding the renewal of the Group's facilities in respect of its wholly owned property portfolio (theΒ "Facilities")Β and that actions had been initiated to ensure that the Group continuedΒ to remain in compliance with its banking covenants. These actions includedΒ increasingΒ certain loan to value covenants to create more headroom under certain of the Group's Facilities.
However, since 30 September 2008, and in line with the overall trend in the UK property investment market, the Group has continued to experience further declines in the value of its property portfolio. This has further increased the pressure on the Group's valuation relatedΒ banking covenants.Β Furthermore, the significant fall in interestΒ ratesΒ has had a material impact on the Group'sΒ interest rate hedging of itsΒ Facilities. These hedges,Β when 'marked to market' as at 31 December 2008,Β were Β£20.8millionΒ 'out of the money' as againstΒ the 30 SeptemberΒ netΒ liabilityΒ of Β£2.0million.
Interest cover is satisfactory.Β The Group's rental income stream remains resilient with an income cover ratio, as at 31 DecemberΒ 2008,Β ofΒ passingΒ rent to interest of 1.8:1.Β The strength and breadth of the business is such that the Group is not overly dependent on any particular sector or tenant. Although there has been an increase in requests, predominantly from retailΒ tenants,Β to move to monthly payments, tenant defaults and provisions wereΒ 0.7%Β of passing rentΒ at 31Β December 2008,Β compared to an average of 0.8% over the previous twelve months.
The Group appointedΒ Rothschild in late November 2008Β bothΒ to assistΒ in theΒ discussions with its lendersΒ in relation to the Facilities and associated covenantsΒ and to advise the Board onΒ the most appropriate capital structure for the Group, takingΒ into account the requirements of all relevant stakeholders.Β Discussions continue with each lender on a range of options to resolve valuation related covenant issues and the Board willΒ provide further information on progressΒ in due course.
Since 31 December 2008, as part of these discussions and in line with the planned reduction in debt,Β Β£75millionΒ of hedging, representing Β£14.8million of the Β£20.8million liabilityΒ referred to above,Β hasΒ been cancelled for just underΒ Β£12million,Β to be settledΒ on 29 May 2009. FallingΒ interest rates,Β combined with the cancellation of these hedges, haveΒ reduced theΒ Group'sΒ average cost of debt to 3.94% (September 2008: 4.71%).
For further information contact:
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Warner Estate Holdings PLC |
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Philip Warner, Chairman |
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Michael Stevens, Property Director |
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Mark Keogh, Finance Director |
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Tel: 020-7907-5100 |
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Web:Β www.warnerestate.co.uk |
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City Profile |
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Simon Courtenay William Attwell |
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Tel: 020-7448-3244 |
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Any statements made in this announcement that are not based on current or historical facts are forward-looking in nature. These forward-looking statements speak only as at the date of this announcement. Warner Estate expressly disclaims any obligations or undertaking (other than reporting obligations imposed on it in relation to its listing on the official list of the London Stock Exchange plc) to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any changes in the Group's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
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