Property Development Update

12 Jun 2007 10:00

Formation Group PLC12 June 2007 FRM.L Formation Group plc ("Formation Group" or the "Company") Property Development Project (Commercial Road, London) Formation Group is pleased to announce an update regarding the progress of theresidential and commercial property development project at 52-58 CommercialRoad, London, with which it is involved as investment adviser to The WhitechapelProperty Fund ("Whitechapel"). Contracts have been exchanged with one purchaserfor all the residential units, excluding those units allocated for affordablehousing and live/work units, for total sales proceeds of £37.2m. A deposit of £1.86m, representing 5 per cent. of the purchase price for the 98units acquired, has been paid and two further deposits of 5 per cent. each willbe paid by the purchaser at agreed dates within the construction timetable. Thedevelopment is projected to cost a total of £43.5m and is expected to becompleted in 2009. Formation anticipates that the sale of the remaining units,comprising office and retail space, live/work units, car parking and socialhousing, will more than cover the residual costs of the build. As announced on 30 November 2006, Formation is investment advisor to TheWhitechapel Property Fund, which has been created to provide an opportunity forhigh net worth individuals (in particular Formation's client base) to invest inthe development at Commercial Road. Individual investors, principally comprisingthe clients of Formation's Wealth Management Division, Kingsbridge, were able toparticipate in the investment opportunity by way of the issue of juniorunsecured loan notes (the "Loan Notes") with a fixed compounded return. The LoanNotes will be in issue for a minimum period of two years and a maximum of four,depending on the build programme and success of the scheme. Whitechapel issued£5,400,000 worth of Loan Notes and these were admitted to trading on theOfficial List of the Channel Islands Stock Exchange on 28 February 2007. Bankfunding provided the balance of the required funding. The Loan Notes have been underwritten by Formation Group and the BalchanManagement Trust Limited as Trustee of The Impala Discretionary Settlement. Inthe event that the development at Commercial Road does not provide sufficientfunds to satisfy the Loan Notes, both parties who have underwritten the issue ofthe Loan Notes will pay the Loan Note holders back their original investmentplus the relevant interest. Should any shortfall arise, Formation's maximumliability under the underwriting arrangement is £4 million. This exchange ofcontracts materially reduces the risk that Formation will have to make anypayment under this arrangement. In return for providing the underwriting facilities, Formation is entitled to anintroducer's fee as well as a further payment of approximately 40% share of anyresidual profits on conclusion of the development at Commercial Road (the"Additional Introducer's Fee"). Assuming the sale of all units on the site, theBoard believe that the Additional Introducer's Fee could be in the order of £2.5million. Neil Rodford, Chief Executive of Formation Group, said, "The Whitechapel Property Fund was the first bespoke investment product we wereable to offer our clients and I am delighted that every residential unit -excepting the social housing component and live/work units - has been sold soearly in the development. Our proposed acquisition of Columbia Design and Build, announced on 29 May,offers us significant opportunities to develop further bespoke investmentopportunities in the property arena for both our own client base and the widerinvestment communities. " For further information, please contact: Neil Rodford Formation Group plc 01625 539832 David Youngman/ Katy Mitchell WH Ireland Ltd. 0161 832 2174 Katie Tzouliadis Biddicks 020 7448 1000 This information is provided by RNS The company news service from the London Stock Exchange