Final Results - Year Ended 31 December 1999

London & Assoc Properties PLC 28 February 2000 LONDON & ASSOCIATED PROPERTIES PLC PRELIMINARY RESULTS FOR THE YEAR ENDING 31 DECEMBER 1999 H I G H L I G H T S 1999 1998 Net Asset Value per share (diluted) ** 57.6p 52.0p + 10.7% Net Assets ** £46.6m £41.5m + 12.3% Rental Income £7.9m £7.4m + 6.4% Profits Before Tax £2.1m 2.0m + 5% Dividends 1.1p 1.0p + 10% ** including current asset investments at market value * Acquisition of Orchard Square, Sheffield, for £15.8 million means that 62% of portfolio in five largest shopping centres * Property portfolio increase of £5 million driven by strong tenant demand for well-located space and investor demand for in-town shopping centres * Four principal centres owned for whole year grew by 8.6% * Company gross assets exceed £100 million for first time 'For the first time in the Company's history gross assets have exceeded the £100 million level and our property portfolio, comprising in-town shopping centres and precincts, has been independently valued at £96.1 million. This compares with £75.1 million in the previous year and reflects both net acquisitions during the year of £15.4 million and growth achieved through intensive management of our existing properties. On a like-for-like basis the Company's property investments rose in value by over £5 million.' Michael Heller, Chairman. CHAIRMAN'S STATEMENT It is with great pleasure that I report a 10.7% increase in London & Associated Properties' net assets per share from 52.0p to 57.6p for the 12 months to 31st December 1999 with a 12.3% increase in total net assets to £46.6 million up from £41.5 million, including current asset investments at market value. During the year LAP's gross rental income rose by over 6% to approaching £8 million a year while, more relevantly, we have contracted further annualised rental income of £365,000 a year. The net effect of this additional income, which does not include new acquisitions, will flow through to profits as rent free periods expire. Pre-tax profits, which are derived mainly from rental income, grew to £2.1 million compared with last year's £2.0 million. The Board is recommending a final dividend of 1.1p a share, an increase of 10% and I am pleased to record that the annual dividend growth over the past five years has been over 10% compound. The final dividend will be payable on 14th July 2000 to those shareholders on the register at 10th March 2000. For the first time in the Company's history gross assets have exceeded the £100 million level and our property portfolio, comprising in-town shopping centres and precincts, has been independently valued at £96.1 million. This compares with £75.1 million in the previous year and reflects both net acquisitions during the year of £15.4 million and growth achieved through intensive management of our existing properties. On a like-for-like basis the Company's property investments rose in value by over £5 million. As a Group, gross assets, including those of our 42% owned associate Bisichi Mining plc and our 50% joint venture, Dragon Retail Properties Ltd, now stands at £115 million, of which property is some £107 million and generates more than £9 million a year in rental income. Almost 80% of our total rent roll is derived from multiples. Demand for retail space across our portfolio remains strong and, as a result, there are few vacant units. Over the past year or so we have seen the emergence and rapid growth of a number of new retailing groups who are beginning to replace some of the more familiar but older established High Street outlets. Shareholders will have seen the extensive press coverage about the growth of e-commerce. While we monitor the situation closely, we have seen no real impact on demand for our units to date. The highlight of 1999 was the acquisition of the Orchard Square Shopping Centre in Sheffield for £15.8 million. Producing gross rents of over £1.3 million a year, the centre occupies a 1.5 acre site in Sheffield's city centre and offers tremendous opportunity for both capital and income growth over the medium term. Following the purchase of Orchard Square our five large shopping centres now account for 62% of LAP's total property portfolio, a substantial increase from 50% last year. This dominance of larger centres will continue to grow as we pursue our strategy of disposing of smaller retail centres and precincts. We have identified a number of smaller centres for sale and, in light of ongoing negotiations, I hope to report on progress in this area shortly. In the year under review we completed a new £21 million loan facility from NatWest to finance the purchase of Orchard Square and to refinance some shorter term debt. All our term borrowings have at least nine years unexpired, of which 53% are at variable rates. Our gearing, net of listed investments, is a comfortable 102%. Dragon Retail Properties, our joint venture with Bisichi Mining, made excellent progress during the year with a number of key lettings as well as strong rental growth at its property in Bromsgrove. This led to an increase of 51% in its net asset value to £1.3 million. As shareholders know LAP manages the Dragon Retail Properties' portfolio. Our results reflect the unstinting hard work of all my colleagues throughout the Group and, on behalf of both shareholders and the Board, I would like to express my thanks. Over the coming year we will continue our intensive property management programme as we seek to generate greater value from our existing portfolio while disposing of some of our smaller assets which have reached maturity. At the same time we shall be looking to reinvest the proceeds of any sales into larger shopping centres which we consider to have good growth potential. Against this background I view the future with great confidence. Michael Heller 28 February 2000 Chairman OPERATING REVIEW 1999 was an extremely positive year for LAP. Growth has been underpinned by strong and consistent tenant demand for space within our centres, while values increased through strong investor demand for well located in-town shopping centres. The four principal centres that we owned for the whole year grew by 8.6%. Following the acquisition of Orchard Square, Sheffield, we now own five major shopping centres accounting for 62% of our entire portfolio. This compares with around 50% a year ago. This trend towards larger properties will continue as we dispose of smaller more mature centres and reinvest the proceeds into larger shopping centres with greater opportunities for medium term growth. We continue to let units to those retailers who can be clearly categorised as part of the trend towards destination shopping. These include fashion retailers, niche retailers such as Claire's Accessories, and those other retailers who clearly form part of the experience of shopping as a recognised form of leisure. Orchard Square, Sheffield We acquired this freehold shopping centre which occupies a 1.5 acre site on Fargate, Sheffield's principal retail location for £15.8 million last July. The centre provides a total of 30 retail units, extending to more than 104,000 sq ft built around a self-contained square. Anchored by TK Maxx, Waterstones and Virgin Megastore, Orchard Square currently produces over £1.3 million a year in rental income. The centre was fully let at the time of purchase, although there are significant opportunities to reconfigure and extend the existing shops whilst improving the overall retail offer. We have already taken a surrender from one tenant which has enabled us to seek planning consent for the first of several large units that we intend creating within the centre. It is our intention to pre-let these larger units before commencing construction, and I am pleased to report that retailer response to our proposals has been very positive reflecting the strong demand for bigger units in the prime Sheffield shopping area. Advanced negotiations are underway with a number of potential tenants and we expect to sign a lease agreement shortly. We also intend to make dramatic improvements to Orchard Square's visibility and branding. We are seeking consent to erect tall banners on the Fargate frontage and create a more prominent entrance to the centre. The retail offer in Sheffield as a city has significantly improved since the early 1990's and today there is substantial development within the prime retail areas. Orchard Square is ideally located to benefit from this improvement as underlined by a recent letting to The Gap in an adjacent building at the Orchard Square end of Fargate. This letting further confirms Orchard Square's prominent position in Sheffield's prime retail pitch and ensures that demand for our units will remain high. Saxon Square, Christchurch Demand for space at Saxon Square remains strong and in March we were able to offer a relatively large unit for letting for the first time since we acquired the property more than two years ago. Within weeks of offering the unit it was acquired by a large regional multiple at double the previous passing rent and at a Zone A rate of £41 a sq ft. This unit is to the rear of the scheme suggesting that the more sought after shops at the front, where the historic Zone A rate is only £34 a sq ft, are under rented. Although the centre is currently fully let, demand for prime units remains strong and we are confident that the scheme will continue to grow over the medium term. King's Square, West Bromwich The most notable activity at King's Square, which is fully let, was the relocation of an existing tenant, Bewise, into a substantially larger unit where we had agreed a surrender of a lease to Kwik Save. Bewise agreed a near 30% increase in the rental of this unit to £95,000 a year. We are currently dividing the former Bewise unit into three shops at a cost of £100,000. All of these new shops are under offer confirming the demand for prime space in the centre. The total estimated rental value of the three units is more than £100,000 a year compared to the £84,000 a year that we were receiving. In total therefore, the incremental rent from this transaction will be over £39,000 a year. Over the course of the year we have seen a further hardening of Zone A rentals as we have concluded a number of lease renewals. By the year end Zone A levels were confirmed at £59.50 a sq ft, following the latest lease renewal, compared to £58 a year ago. We believe there is further growth to come through at King's Square and we are aware of significant demand from retailers for space at the centre. The Mall, Dagenham A number of key lettings at The Mall together with several tenants refurbishing their shops have contributed to a much higher level of traffic in the centre. Following a letting to Benson Shoes the scheme is now fully let on two of its three malls and we are looking to reconfigure two of the larger units in the third mall to create more regular, and, hence, more lettable, units. Tenant response to these proposed units has been good, with one new unit already under offer, and we expect to make further letting progress during the course of the next few months. Brunel Centre, Bletchley The main concourse at the Brunel Centre is now fully let apart from one small kiosk, which is under offer. Over the past year this centre has performed especially well as we concluded lettings with a number of new tenants. These include Ethel Austin, the fashion multiple, which is trading from a 3,000 sq ft unit, and Benson Shoes which has leased a 2,000 sq ft unit. The impact of the successful letting programme during 1999 has meant that the Centre is becoming far more popular with shoppers. The number of car-borne shoppers, which we monitor weekly, has increased by 12% over the comparable period a year ago. We can also report that Woolworth has signed an agreement to lease for a 12,000 sq ft store on the former Wetherburn Court site. Disappointingly, we were refused planning permission for the unit that we had designed for them. However, we intend to appeal this decision and hope to report further progress to shareholders in the near future. Demand for shops within our smaller retail investments has also been pleasing over the year and we have been able to capitalise on the hard work we have been applying to these schemes during the past 18 months. Following the 1998 letting to the Post Office in the Moor Centre, Brierley Hill, we have leased space to Grattan plc for a catalogue shop, as well as to a Midlands-based chain of newsagents, and to a new cafe. We have also relocated certain tenants within the scheme to enable reconfiguration of several units to create additional space for which we know there is demand. At Barnsley, South Yorkshire, following the letting of a triple unit to a theme bar operator, we have refurbished and let the entire upper parts to Barnsley City Council at an annual rent of £103,000. To achieve the letting we had to create a new entrance to the offices by removing one of the shops, yet we have still achieved an increase in rent over the original estimated rental value of both the offices and the shop, of more than £45,000 a year. We are now reaping the benefits of our refurbishment programme at Hebburn, South Tyneside, where we have added nearly 10% to the rent roll through new lettings, mostly to national retailers. This, combined with a number of successful lease renewals, has resulted in capital growth at this centre of over 11%. We continue to look to dispose of centres that no longer meet our investment criteria. In addition to completing the sale of a small mature block of shops in Wolverhampton we are at an advanced stage of negotiation to sell a number of smaller retail investments and we hope to make further announcements shortly. John Heller Executive Director Mike Dignan Property Director 28 February 2000 FINANCE DIRECTOR'S REPORT Financing Strategy As shareholders will know, it is LAP's declared policy to finance our property acquisitions with longer-term debt. To this end, we agreed in July a new £21 million loan for a term of 10 years to both purchase Orchard Square and to refinance an existing five year loan. This new loan carries a lower margin than the one that it replaces which will have a positive impact on profits. Our term debt stands at £48.7 million with 53% at variable rates. We constantly monitor the long term fixed rate debt market, and it remains our policy to fix rates for the longer term when we consider it appropriate. However, during the course of 1999, the relative cost of fixing rates was not attractive. It is not the Group's intention to repay any of the fixed-rate debt prior to maturity. However, an adjustment under FRS13 has a notional impact of 3.5p per share, or £2.98 million. The new loan for the acquisition of Orchard Square increased gearing, net of listed investments, to 102% (1998: 80%). This is a level with which your board feels comfortable, particularly in light of rental income covering interest payable by 2.12 times (1998: 2.01 times). Profit and Loss We have continued our conservative policy of writing off all property expenses to the Profit and Loss Account in the year in which they are incurred. The tax rate for the year was 25.3% (1998: 23.5%). We continue to benefit from capital allowances, which have reduced the tax charge from the standard Company rate of 30.25%. These benefits will continue for the coming year. Balance Sheet Our associate company, Bisichi Mining, in which we have a 42% stake, announced a loss for the year of £263,000 before tax and after minority interests (1998: £215,000 profit). This is a result of geological difficulties in its coal mining subsidiary. We are confident that this is a temporary setback; Bisichi has already acquired new reserves and this, coupled with the increased levels of production already being achieved, should return the direct mining activity to profit shortly. In the meantime, the performance of the property portfolio, which we manage on Bisichi's behalf and for which we receive a fee, has been very good with an increase in the value of the portfolio of 5%, net of acquisitions. Dragon Retail Properties, our joint venture with Bisichi, performed particularly strongly. Net assets grew by 51% on the back of several key lettings on and around the High Street in Bromsgrove, Worcestershire, where Dragon's main asset is located. These lettings were to excellent covenants as well as at record rents. Our equity portfolio performed strongly and its market value rose to £3.8 million (1998: £3.1 million). Shareholders will be aware that these holdings consist entirely of investments in fully listed UK companies, almost exclusively in FTSE 350. As a result they are extremely liquid, and can be treated as virtual cash. Robert Corry Finance Director 28 February 2000 Consolidated profit and loss account for the year ended 31 December 1999 1999 1998 £000 £000 Revenue Notes Property: Income 7,911 7,438 Less - ground rents (406) (396) - direct property expenses (901) (820) - attributable overheads (1,330) (1,233) ________ ________ 5,274 4,989 ________ ________ Listed investments: Investment sales 619 951 Cost of sales (381) (656) ________ ________ 238 295 Dividends receivable 113 125 Less - attributable overheads (12) (10) ________ ________ 339 410 ________ ________ Operating profit 5,613 5,399 Share of operating profit of associate 1 90 Share of operating profit of joint venture 113 14 ________ ________ 5,727 5,503 Interest receivable 48 96 Interest payable (3,665) (3,584) Exceptional items - profit (loss) on sale of fixed assets 1 (10) (1) ________ ________ Profit on ordinary activities before taxation 2,100 2,014 Taxation on profit on ordinary activities 2 531 474 ________ ________ Profit on ordinary activities after taxation 1,569 1,540 Dividend 840 758 ________ ________ Retained profit for the year 3 729 782 ________ ________ Earnings per share - basic 4 2.06p 2.04p - fully diluted 4 1.98p 1.96p ________ ________ Dividend per share 5 1.10p 1.00p ________ ________ The revenue and operating profit for the year derives from continuing operations carried out in the United Kingdom. Consolidated Balance sheet at 31 December 1999 1999 1998 £000 £000 Fixed Assets Tangible assets 96,273 75,614 Investments 3,294 3,053 ________ ________ 99,567 78,667 ________ ________ Current assets Debtors 1,485 1,292 Investments at cost 2,451 2,422 (Market value £3,773,000 (1998:£3,138,000)) Bank balances 1,085 2,066 ________ ________ 5,021 5,780 Creditors Amounts falling due within one year (11,121) (9,174) ________ ________ Net current liabilities (6,100) (3,394) ________ ________ Total assets less current liabilities 93,467 75,273 Creditors Amounts falling due after more than one year (48,121) (34,335) Provision for liabilities and charges (94) (111) ________ ________ Net assets 45,252 40,827 ________ ________ Capital and reserves Share capital 7,638 7,579 Share premium account 3,912 3,809 Capital redemption reserve 15 15 Revaluation reserve 23,211 19,825 Other reserves 429 429 Retained earnings 10,047 9,170 ________ ________ Shareholders' funds 45,252 40,827 ________ ________ Net assets per share * Basic 60.98p 54.81p Diluted 57.57p 52.00p * Including current asset investments at market value. Consolidated statement of total recognised gains and losses for the year ended 31 December 1999 1999 1998 £000 £000 Profit for the financial year 1,569 1,540 Currency translation difference on foreign currency net investments of associate (2) (41) Increase on revaluation of investment properties Company 3,130 347 Associate and joint venture 406 45 ________ ________ Total gains and losses recognised in the year 5,103 1,891 ________ ________ Reconciliation of movement in shareholders' funds for the year ended 31 December 1999 1999 1998 £000 £000 Profit for the financial year 1,569 1,540 Dividend (840) (758) ________ ________ Retained profit for the year 729 782 Currency translation difference on foreign currency net investments (2) (41) Unrealised changes on revaluation of investment properties 3,536 392 Shares issued 59 43 Shares purchased - (49) Share premium account movements 103 99 ________ ________ 4,425 1,226 Shareholders' funds at 1 January 1999 40,827 39,601 ________ ________ Shareholders' funds at 31 December 1999 45,252 40,827 ________ ________ Consolidated cash flow statement for the year ended 31 December 1999 1999 1998 £000 £000 £000 £000 Net cash inflow from operating activities 6,636 6,132 Returns on investments and servicing of finance Interest received 44 53 Interest paid (3,559) (3,628) _______ _______ Net cash outflow from returns on investments and servicing of finance (3,515) (3,575) Taxation Corporation tax (111) (151) Capital expenditure and financial investment Sale of fixed asset investments - 1 Redemption of fixed asset investment - 3 Sale of properties 391 1,605 Sale of office equipment and motor cars - 9 Purchase of properties (17,640) (1,292) Purchase of office equipment and motor cars (44) (105) _______ _______ Net cash (outflow) inflow for capital expenditure and financial investment (17,293) 221 Equity dividends paid (591) (532) _______ _______ Net cash (outflow) inflow before use of liquid resources and financing (14,874) 2,095 Net cash (outflow) from management of liquid resources (Repayment) of short term loan from joint venture - (810) Financing Purchase of share capital - (49) Issue expenses (5) (6) Drawdown of bank loan 14,000 - _______ _______ Net cash inflow (outflow) from financing 13,995 (55) _______ _______ (Decrease) increase in cash in the period (879) 1,230 _______ _______ Reconciliation of net cash flow to movement in net debt for the year ended 31 December 1999 1999 1998 £000 £000 (Decrease) increase in cash in the period (879) 1,230 Net cash inflow from increase in debt (14,000) - _______ _______ (14,879) 1,230 Other movements on current asset investments 29 4 _______ _______ Movement in net debt in the period (14,850) 1,234 Net debt at 1 January 1999 (33,886) (35,120) _______ _______ Net debt at 31 December 1999 (48,736) (33,886) _______ _______ Reconciliation of operating profit to net cash inflow from operating activities 1999 1998 £000 £000 Operating profit 5,613 5,399 Depreciation charges 107 98 Profit on disposal of fixed assets - (4) Dividend from associated company 48 49 (Increase) decrease in debtors (182) 60 Increase in creditors 1,079 534 (Increase) in current asset investments (29) (4) _______ _______ 6,636 6,132 _______ _______ Analysis of net debt At At 31 1 January Cash Other December 1999 flow movements 1999 £000 £000 £000 £000 Bank balances in hand 2,066 (981) - 1,085 Bank overdrafts (3,114) (458) - (3,572) Bank bridging loan (560) 560 - - Debt due within one year - (200) - (200) Debt due after one year (34,700) (13,800) - (48,500) Current asset investments 2,422 - 29 2,451 _______ _______ _______ _______ (33,886) (14,879) 29 (48,736) _______ _______ _______ _______ Notes 1999 1998 1 Profit (loss) on sale of fixed assets £000 £000 Freehold property 17 (72) Investment - 1 _______ _______ 17 (71) Associate - investment (27) 70 _______ _______ (10) (1) _______ _______ 2 Taxation 1999 1998 £000 £000 Based on the results of the year: Corporation Tax at 30 per cent (1998: 31 per cent) 496 315 Tax attributable to franked investment income 22 35 Deferred taxation (17) 111 Adjustment in respect of previous years - (9) _______ _______ 501 452 Associate 26 19 Joint venture 4 3 _______ _______ 531 474 _______ _______ The tax charge for both 1999 and 1998 has been reduced due to the effect of accelerated capital allowances. 3 Profit attributable to London & Associated Properties PLC 1999 1998 £000 £000 Dealt with in the financial statements of: London & Associated Properties PLC 892 739 Associate (179) 32 Joint venture 16 11 _______ _______ 729 782 _______ _______ 4 Earnings per share Earnings Shares in issue Earnings per share 1999 1998 1999 1998 1999 1998 £000 £000 000 000 Pence Pence The earnings per share have been calculated as follows: Group profit on ordinary activities after tax 1,569 1,540 Weighted average share capital for period 76,060 75,631 _______ _______ _______ _______ Basic earnings per share 1,569 1,540 76,060 75,631 2.06 2.04 Adjustments: Conversion of convertible debenture stock 43 43 4,640 4,640 Share options 25 19 1,777 1,346 _______ _______ _______ _______ Fully diluted earnings per share 1,637 1,602 82,477 81,617 1.98 1.96 _______ _______ _______ _______ _______ _______ 5 Dividend The proposed final dividend of 1.10p will be paid on 14 July 2000 to shareholders registered at the close of business on 10 March 2000. 6 The figures for the year ended 31 December 1998 are based on the audited accounts for that year, which have been delivered to the Registrar of Companies and on which the Auditors gave an unqualified report. The statutory accounts for the year ended 31st December 1999 have been completed and an unqualified opinion has been issued. The figures in the preliminary announcement are an extract and do not constitute statutory accounts within the meaning of the Companies Act 1985. The preliminary announcement has been prepared on the basis of the accounting policies set out in the company's published accounts for the year ended 31 December 1998. This preliminary statement was approved by the board on 28 February 2000. Contact: Michael Heller, John Heller or Robert Corry London & Associated Properties Plc Tel: 020 7415 5000 Baron Phillips, Bankside Consultants. Tel: 020 7220 7477

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