Preliminary Results
CLS Holdings PLC
28 February 2002
Embargoed Release: 28th February 2002
CLS HOLDINGS PLC
PRELIMINARY FINANCIAL RESULTS FOR THE YEAR TO 31 DECEMBER 2001
FINANCIAL HIGHLIGHTS
- NAV per share 365.0 pence up 12.1 per cent
- Total return to shareholders 15.4 per cent (based on NAV per share and
distributions)
- Intended distribution of 7.3 pence per share making a total distribution
to shareholders of 12.0 pence per share for the year
- Portfolio valued at £728.3 million up 8.5 per cent
- Net rental income (including associate and JV) £51.1 million up 21.3
per cent
- Year end available cash £55.2 million up 41.3 per cent
- Equity investments written down by £4.2 million to £6.3 million
Key statistics
31 Dec 2001 31 Dec 2000
NAV per share 365.0p 325.5p Up 12.1 %
FRS13 fair value adjustment (after tax) 16.4p 17.1p Down 4.1 %
NAV per share after fair value adjustment 348.6p 308.4p Up 13.0 %
Earnings per share 9.8p 14.6p Down 33.3 %
Shares in issue (000's) 99,266 108,129 Down 8.2 %
Distribution per share from tender offer
buy-backs 12.0p 9.6p Up 24.8 %
Other financial information
31 Dec 2001 31 Dec 2000
Property portfolio £728.3 m £671.4m Up 8.5 %
Net asset value £362.3m £351.9m Up 2.9 %
Cash £55.2m £39.1m Up 41.3 %
Gearing 101.9% 90.6% Up 11.3 %
Solidity (net assets as a ratio of gross assets) 44.7% 47.8% Down 3.1 %
Net rental income (including associate and JV) £51.1m £42.1m Up 21.3 %
Operating profit (including associate and JV) £37.7m £36.3m Up 3.8 %
Net interest payable £27.0m £24.5m Up 10.2 %
Core profit before tax £13.7 m £10.7 m Up 27.9 %
Profit before taxation £11.3m £14.8m Down 23.9 %
Profit after taxation £10.3m £14.8m Down 30.2 %
BUSINESS HIGHLIGHTS
• Refurbishment at Solna on programme, on budget and 28 per cent pre-let
• Refinancings raise £56.0 million of which £47.4 million relates to UK
portfolio
• Acquisition of four office buildings in France at a cost of £11.0 million
comprising 13,750 sq.m at an initial yield of between 9.2 per cent and 10.6 per
cent
• Acquisition of 200 Great Dover Street, London at a cost of £7.4 million
and initial yield of 9.2 per cent
CHAIRMAN'S STATEMENT
CLS Holdings plc is a British property company specialising in the purchase and
management of secure long-term commercial investments. The Company was listed
on the main market of the London Stock Exchange in 1994 and since then its
development and growth have continued.
The Company's headquarters are in central London, with further offices located
in Paris, Lyon and Stockholm. The majority of the property portfolio is located
in these four cities.
Our first priority is to meet the requirements of our tenants by providing high
quality premises incorporating the latest technical and IT facilities combined
with efficient management services.
I am pleased to report that 2001 produced yet another increase in net asset
value per share for the seventh successive year, up 12.1 per cent to 365.0 pence
per share.
The return made to shareholders, based on the increased net asset value per
share and tender offer buy-back distributions made during 2001, amounted to 15.4
per cent.
Gross rental income for the year increased by 19.3 per cent to £53.6 million,
and the annual gross rental income at the year end from the Group's portfolio
was £55.1 million.
Profit before tax decreased to £11.3 million (2000: £14.8 million) after taking
into account losses, provisions and associated overheads of £8.9 million in
respect of our equity investments.
The Company's share price as at 26 February was 212.5 pence, a discount to net
asset value per share of 41.8 per cent (31 December 2000: 38.4 per cent). In
these circumstances the Board continues to believe in the benefit of
distributing cash as capital dividends by way of a tender offer buy-back. The
Board therefore intends to recommend a tender offer buy-back of 1 in 35 shares
at a price of 255 pence per share, giving a total distribution of 12.0 pence
per share representing an increase of 24.8 per cent over the previous year and
an annual compound rate of growth of 17.0 per cent over the last five years.
During the year we raised £56.0 million by refinancing 11 of our properties with
floating rate long term loans hedged against adverse interest rate movements.
Other highlights of the year were the pre-letting of 28 per cent of the
available space in the substantially completed refurbishment of one of our
buildings at Solna ; the acquisition of four new properties in France for a
total consideration of £11.0 million; the purchase of 200 Great Dover Street at
a price of £7.4 million; and the sale of Scriptor Court for £3.0 million
producing a profit of £0.4 million. In addition we have increased annual rents
by way of new lettings or rent reviews by an aggregate of £2.4 million
representing an average increase of 7.4 per cent on the rents previously
payable : and annual indexation in respect of our French and Swedish portfolios
provides an additional £0.7 million in rental income for 2002.
Although during the latter half of 2001 we have seen a weakening of tenant
demand in some areas of London our vacancy rate in respect of our UK portfolio
is only 3.6 per cent and our average lease length (by rent payable) in the UK is
in excess of 11 years. Our exposure to possible tenant default in the UK is
reduced because 30 per cent of rental income is secured by government covenants.
Tenant demand in France remains strong and there is a large reversionary
element, with vacant space representing just 1.4 per cent of the portfolio. The
vacant space at Solna is currently generating a high level of interest and we
hope to announce more pre-lettings in the near future.
We intend to utilise a proportion of the cash surplus from our refinancing
activities for selective purchases in our three main markets of London, France
and Sweden. Since the year end we have purchased a further office building at
Solna Business Park in Stockholm and a portfolio in Gothenburg comprising 33,494
sq.m (359,926 sq.ft) commercial space and 1,282 residential apartments. We are
also negotiating the purchase of further properties in France.
The Group continues to concentrate on cash management and is projecting a
substantial increase in cash generated from core operating activities this year.
The principal underlying drivers for this increase are:
Anticipated reduced cost of borrowing due to lower interest rates
compared to the previous year
Letting of space at the newly refurbished development at Solna
Increased rents due to indexation of 2.6 per cent in Sweden
Increased rents due to indexation of at least 3.5 per cent in France
Increased rental income through rent reviews, lease renewals and lease
restructuring
Acquisition of new properties during the year
Lower administration costs
We anticipate that at the end of the year our gross annualised rental income
will be £68 million (December 2001: £52.7 million) and net rental income of £62
million (December 2001: £51.1 million) based on the current portfolio. This
increased income, coupled with our reduced exposure to any increase in interest
rates as a result of our interest hedging policy, should constitute a firm
financial platform for substantial profit growth during the year.
In October 2001 Glyn Hirsch resigned as Chief Executive after nearly six and a
half years in that role and I would like to put on record my thanks for the
valuable contribution he made to the Company during this period. Tom Thomson,
who has worked for the Group for many years, became Vice Chairman and Acting
Chief Executive.
I would like to take this opportunity to thank my fellow directors, our staff,
advisors, bankers and shareholders for their support during the year.
Sten Mortstedt
Executive Chairman
FINANCIAL REVIEW
Introduction - The Group has continued to deliver solid growth during 2001 and
the results include a full year's contribution from the French division, Citadel
Holdings plc, which was acquired in September 2000.
The Net Asset Value per share increased by 12.1 per cent to 365.0 pence
(December 2000: 325.5 pence). At the year end the post tax FRS 13 fair value
adjustment amounted to 16.4 pence per share (December 2000: 17.1 pence). Over
the last five years Net Asset Value per share has grown by 21.2 per cent
compound per annum, or a total of 160.7 per cent. The organic growth in net
asset value per share over the same period (after allowing for net asset value
growth per share attributable to the purchase of shares on the market for
cancellation) has been 137 per cent.
The return in the year to shareholders based on the increase in NAV per share
and distributions by way of tender offer buy back was 15.4 per cent (December
2000: 37.5 per cent).
During the year the Company distributed £11.1 million (10.5 pence per share) to
shareholders by way of tender offer buy-backs and purchased 6.6 million shares
on the market for cancellation (6.1 per cent of the shares in issue as at 1
January 2001) at a cost of £14.3 million (representing an average cost per share
of 217 pence). Since 1998 a total of £31.4 million has been returned to
shareholders through tender offer buy-backs, and 18.9 million shares have been
purchased for cancellation at a cost of £31.6 million, in all a total of £63.0
million.
Net assets grew by £10.4 million to £362.3 million in the year and was net of
negative foreign exchange translation movements of £6.1 million (mainly relating
to the Group's Swedish assets). Net asset growth was also net of the cost of
tender offer buy back distributions and market repurchases made during the year
totalling £25.4 million.
Gearing at the year end increased to 101.9 per cent (2000: 90.6 per cent). The
purchase of shares in the market and tender offer buy-backs during the year had
the impact of increasing gearing by 7 per cent and the adverse effect of foreign
exchange translation of overseas net assets during 2001 further increased
gearing by 1.5 per cent.
The Group held £55.2 million cash as at 31 December 2001 (December 2000: £39.1
million). The increase was largely attributable to refinancing the UK
portfolio.
The equity investments of the Group have not performed well during 2001. We
have sold most of our listed investments to avoid further exposure and made
additional provisions against unlisted investments. The book value of our
investments has now been reduced to £6.3 million, of which £5.6 million are
unlisted investments and these are held at the lower of cost or written down
value, in line with British Venture Capital Association valuation guidelines.
We do not intend to make any further investments in new ventures.
In January 2002 the Group made two further property acquisitions in Sweden
comprising a mixed residential and commercial portfolio in Lovgardet near
Gothenburg and a mixed office and light industrial property adjoining our
development at Solna, Stockholm. The increase in gross rentals from these
acquisitions is £5.9 million generating additional net operating cash flows of
£2.9 million per annum.
The underlying elements of the growth in equity shareholders' funds are set out
below:
£m
Equity shareholders' funds at 31 December 2000 351.9
Direct investment
Income from investments in property 52.6
Losses and write downs in equity investments (6.3)
Administrative expenses (8.0)
Net interest payable (27.0)
Profit before taxation 11.3
Taxation (1.0)
Retained profit 10.3
Indirect investment
Revaluations 30.3
Exchange and other movements (6.1)
24.2
Increase in equity due to direct and indirect investment 34.5
Other equity movements
Capital distributions by tender offer buy-backs (11.2)
Other share buy backs (14.4)
Share Issues 1.5
Equity shareholders' funds at 31 December 2001 362.3
The Group's core profit has been calculated to show the profit arising solely
from rental income. The elements included in the calculation are as follows:
2001 2000
£m £m
Profit before tax 11.3 14.8
Deduct:
Equity investment (losses) / profit (6.3) 0.6
Profit on sale of properties 0.5 3.2
Lease surrenders and variations 0.8 0.3
Profit on trading stock 0.4 -
Negotiated settlement in France 2.6 -
Fees re aborted purchase (0.4) -
(2.4) 4.1
Core profit 13.7 10.7
REVIEW OF THE PROFIT AND LOSS ACCOUNT
Financial Results by Location - The results of the Group have been analysed by
location and main business activity as set out below:
2001 Equity
Total UK* Sweden France investments 2000
£m £m £m £m £m £m
Net rental income 51.1 31.9 7.6 11.6 - 42.1
Less associate/JV income (0.9) (0.9) - - - (1.9)
Other property related income 4.3 1.9 - 2.4 - 1.3
Net rental and property related income
(excluding associate / JV) 54.5 32.9 7.6 14.0 - 41.5
Operating expenses (11.3) (6.6) (1.7) (1.7) (1.3) (7.4)
(Losses and write-downs)/profit from equity (6.3) - - - (6.3) 0.6
investments
Associate / JV operating profit 0.9 0.9 - - - 1.6
Operating profit 37.8 27.2 5.9 12.3 (7.6) 36.3
Gains from sale of investment properties 0.5 0.4 0.1 - - 3.0
Net interest payable and related charges (27.0) (15.9) (5.7) (4.1) (1.3) (24.5)
Profit on ordinary activities before tax 11.3 11.7 0.3 8.2 (8.9) 14.8
Profit on ordinary activities before tax for the year
ended 31 December 2000 14.8 11.0 2.1 1.7 1.7 16.9
* Results relating to Germany were immaterial in the context of the overall
results of the Group and have therefore been included within the UK.
Net rental income - Net rental income has increased by 21.3 per cent to £51.1
million and reflects the inclusion of French division rents of £11.6 million for
a full year (December 2000: £3.4 million for four months). The second phase of
the major refurbishment (35,892 sq.m; 383,039 sq.ft) currently nearing
completion at Solna was not income producing during 2001.
Other property related income - Other property related income of £4.3 million
(2000: £1.3 million) comprised two main elements; a negotiated settlement of a
property dispute in Paris amounting to £2.6 million and lease surrenders and
variations at New London House and Vista Office Centre amounting to £0.8
million. In addition a profit of £0.4 million was realised on the sale of a
property acquired for the purpose of trading.
Administrative expenditure - Administrative expenditure increased by £1.6
million to £8.0 million. Of this increase, expenditure amounting to £1.0
million is not expected to recur.
The principal reasons for the increase were:
- The inclusion of French division direct overhead expenditure for the full
year amounted to £0.6 million (December 2000: £0.2 million, four months).
- Costs of £0.5 million in respect of professional fees mainly relating to
the potential purchase of a substantial overseas portfolio that did not proceed.
- Costs of £0.5 million in respect of the reduction of UK based staff
including the departure of Glyn Hirsch.
Non recoverable property expenses - Non recoverable property expenses of £3.3
million (December 2000: £1.0 million) included an amount of £1.2 million
depreciation of a short leasehold interest which had been held at a carrying
value of £2.4 million. A provision for bad and doubtful debts was made,
amounting to £0.5 million (December 2000: a recovery of £0.1 million) and this
mainly related to two specific tenants. In addition fees of £0.3 million were
incurred relating to the negotiation of rent reviews, the benefit of which is
not expected until 2002.
Other operating (losses) / income - Other operating (losses) / income
represents a combination of losses and write downs resulting from equity
investment activities that amounted to £6.3 million. Poor investment markets
adversely affected performance of our listed equity holdings which have been
substantially reduced. Our remaining holding of unlisted investments which are
held in our books at £5.6 million, have a current value of £10.5 million,
utilising the British Venture Capital Association guidelines. We have provided
against any holding where its carrying value is in doubt. An analysis of the
results are set out below:
2001 2000
£m £m
(Losses) / profit relating to listed investments (4.3) 2.3
Provisions against unlisted investments (2.0) (1.7)
(6.3) 0.6
Net interest and financial charges - Net interest and financial charges
amounted to £27.0 million and showed an increase of £2.5 million over net
expenditure in 2000, reflecting the inclusion of the French division results for
the whole year of £4.1 million (December 2000: £1.9 million, four months).
Increased interest payable of £3.2 million, as a result of the re-financing of
the UK portfolio during 2001 was more than offset by falling interest rates and
higher interest receivable.
Interest cover at 1.42 times (December 2000: 1.61 times) was lower mainly as a
result of losses incurred due to equity investment write-downs.
The Company's policy is to expense all interest payable to the profit and loss
account, including interest incurred in the funding of refurbishment and
development projects
A breakdown of the net charge is set out below:
2001 2000 Difference
£m £m £m
Interest receivable 2.7 1.8 0.9
Foreign exchange (0.5) (0.4) (0.1)
Interest receivable and financial income 2.2 1.4 0.8
Interest payable and related charges (29.2) (25.9) (3.3)
Net interest and financial charges (27.0) (24.5) (2.5)
Interest payable and related charges of £29.2 million (2000: £25.9 million)
included joint venture interest of £ 0.9 million (2000: £0.6 million) relating
to the Group's interest in Teighmore Limited, owner of Southwark Towers.
Interest costs included £0.9 million incurred in respect of development loans
relating to the refurbishment of Phase II at Solna Business Centre for which no
rental income was received during 2001.
The average cost of borrowing for the Group at December 2001 is set out below:
December 2001 UK Sweden France Total
Average interest rate on fixed rate debt 10.2% 6.1% 4.9% 7.7%
Average interest rate on variable rate debt 5.9%* 5.0% 4.4% 5.5%
Overall weighted average interest rate 7.0% 5.6% 4.6% 6.3%
December 2000
Average interest rate on fixed rate debt 10.2% 6.2% 4.9% 7.7%
Average interest rate on variable rate debt 7.8% 5.0% 5.8% 7.1%
Overall weighted average interest rate 8.6% 5.9% 5.4% 7.4%
* On the assumption that the UK interest rate remains at today's rate, the
average interest rate on variable rate debt will fall during 2002 to 5.5 per
cent ( including cap amortisation of 0.4%).
Interest payable and related charges also include the depreciation of interest
rate caps amounting to £0.6 million (2000: £0.9 million) and amortisation of
issue costs of loans of £0.8 million (2000: £0.5 million).
Taxation - The Group's taxation charge has benefited from substantial
corporation tax losses brought forward in some subsidiaries, significant capital
allowances on many of the Group's UK properties, and amortisation deductions in
Sweden and France. These factors will have less effect in the future as
corporation tax losses are used against expected profits and as allowances and
amortisation deductions decrease.
REVIEW OF THE BALANCE SHEET
Investment Properties - The property assets of the Group (including plant and
machinery) have increased by 8.6 per cent to £ 729.8 million (2000: £672.2
million). The net increase of £57.6 million included the addition of four new
French properties (one in Antibes, two in Lille and one in Paris) at a cost of
£11.0 million and one in Great Dover Street, London purchased for £7.4 million.
This was offset by the sale of Scriptor Court, London (book value £2.6 million)
and adverse foreign exchange translation movements of £13.9 million.
The revaluation gain of the Group's investment properties was as follows:
Revaluation of property in 2001 2001 2000
£m £m
UK 7.8 37.3
Sweden 11.7 18.9
France 10.8 17.4
Total Revaluation 30.3 73.6
Annualised contracted rent receivable at 31 December 2001 was £57.5 million
(2000: £52.5 million) equating to a yield of 7.9 per cent (2000: 7.8 per cent).
An analysis of the location of investment property assets and related loans is
set out below:
Total
Balance
Sheet
UK • Sweden France
December 2001 £m % £m % £m % £m %
Investment Properties 728.3 100.0 423.9 58.2 147.8 20.3 156.6 21.5
Loan (421.1) 100.0 (257.5) 61.1 (69.2) 16.4 (94.4) 22.5
Equity in Property 307.2 100.0 166.4 54.2 78.6 25.6 62.2 20.2
Assets
Other 55.1 100.0 49.7 90.2 0.5 0.9 4.9 8.9
Net Equity 362.3 100.0 216.1 59.6 79.1 21.8 67.1 18.5
Equity in Property as
a Percentage of
Investment 42.2% 39.2% 53.2% 39.7%
£m £m £m £m
Opening Equity 351.9 227.9 71.4 52.6
Increase during 2001 10.4 (11.8) * 7.7 14.5
Closing Equity 2001 362.3 216.1 79.1 67.1
• Results relating to Germany were immaterial in the context of the
overall results of the Group and have therefore been included within the UK. The
following exchange rates' were used to translate assets and liabilities at the
year end : GBP/SEK 15.2667 : GBP/Eur 1.6346: GBP/DM 3.197.
* Net assets were reduced by payments for share purchases and tender offer
distribution which are included within the results of the UK.
Debt Structure - Financial instruments are held by the Group principally to
finance holdings of investment properties and to manage interest and exchange
rate risk. This has been accomplished by borrowing in the respective local
currencies from specialist property lending institutions, the purchase of
interest rate hedging instruments and securing fixed rate borrowing
arrangements. The Group has thereby hedged all of its interest rate exposure
and a significant proportion of its exchange rate exposure.
The activities of the Group are mainly financed through share capital, reserves
and long term loans, which are secured against the properties to which they
relate.
Total UK Sweden France
Net Interest Bearing Debt £m % £m % £m % £m %
Fixed Rate Loans (147.3) 100.0 (68.7) 46.6 (40.3) 27.4 (38.3) 26.0
Floating Rate Loans (273.8) 100.0 (188.8) 69.0 (28.9) 10.5 (56.1) 20.5
(421.1) 100.0 (257.5) 61.1 (69.2) 16.4 (94.4) 22.5
Bank and investments 56.3 100.0 46.0 81.7 4.9 8.7 5.4 9.6
Net Interest Bearing Debt (364.8) 100.0 (211.5) 58.0 (64.3) 17.6 (89.0) 24.4
2000 (305.7) 100.0 (170.2) 55.7 (52.7) 17.2 (82.8) 27.1
Non interest bearing debt amounted to £29.8 million (December 2000: £27.5
million)
Total UK Sweden France
Floating rate loan caps % % % %
2001
Percentage of net floating rate loans capped 99 100 100 93
Average interest rate at which loans are capped 6.6 6.6 6.3 6.8
2000
Percentage of net floating rate loans capped 100 100 100 100
Average interest rate at which loans are capped 7.6 8.0 6.7 6.9
In relation to its London based portfolio the Group has continued to pursue a
financial strategy to raise floating rate long term loans hedged against adverse
interest rate movements by the acquisition of interest rate caps. Caps are
normally purchased on a five year basis.
New Printing House Square was financed in 1992 through a securitisation of its
rental income by way of a fully amortising bond, which has a current outstanding
balance of £43.7 million at an interest rate of 10.8 per cent with a maturity
date of 2025; and a zero coupon bond, with a current outstanding balance of £3.6
million, with matching interest rate and maturity date.
If interest rates were to rise to our cap ceilings the full year additional cost
of borrowing would amount to £4.9 million.
Swedish property acquisitions have been financed through a combination of
equity, long term fixed rate loans at an average interest rate of 6.1 per cent
and floating rate loans for which the average interest rate in 2001 was 5.0
per cent. In addition, the Group entered into forward foreign exchange
contracts in order to hedge its exposure to foreign currency transactions in
relation to the refurbishment of Solna Business Park.
French property acquisitions have been funded by a mixture of equity and
external bank finance. The bank funding has been raised long term (mainly
fifteen year), 60 per cent of which is on a floating rate basis, hedged for the
first five years against adverse interest rate movements by the acquisition of
interest caps and 40 per cent of the loan book is fixed for five years at an
average interest rate of 4.9 per cent.
The net borrowings of the Group at 31 December 2001 of £364.8 million showed an
increase of £59.1 million over the previous year, reflecting the Group's
programme of acquisitions and refinancings.
The Group has adopted the requirements of FRS13, which addresses among other
things, disclosure in relation to derivatives and other financial instruments.
If our loans were held at fair value then the Group's fixed rate debt at the
year end would be in excess of book value by £23.2 million (2000: £26.3 million)
which net of tax at 30 per cent equates to £16.2 million (2000: £18.4 million).
A substantial amount of this is attributable to the long-term securitisation of
New Printing House Square.
The contracted future cash flows from the properties securing the loans are
currently sufficient to meet all interest and ongoing loan repayment
obligations. Only £29.1 million (6.9 per cent) of the Group's total bank debt of
£421.1 million is repayable within the next 12 months with £225.8 million (53.6
per cent) maturing after five years.
Share Capital - The share capital of the Company totalled £24.8 million at 31
December 2001, represented by 99,266,400 ordinary shares of 25 pence each which
are quoted on the main market of the London Stock Exchange.
As the shares continued to trade at a discount to NAV during the year, the Group
maintained its strategy of buying back its own shares in the market for
cancellation. During the year a total of 6.6 million shares, 6.1 per cent of
opening shares, were purchased in the market and cancelled, at an average cost
per share of 217 pence. This has involved a total cash expenditure of £ 14.3
million. A capital distribution payment by way of tender offer buy-back was
made both in May and November of 2001 resulting in the purchase of 3.7 million
shares and providing a distribution of £11.1 million to shareholders.
A total of 34.7 million shares has been purchased at a total cost of £63.0
million since the programme of buy backs started in 1998. The average cost of
shares purchased for cancellation over this period was 182 pence per share.
The average mid-market price of the shares traded in the market during the year
ended 31 December 2001 was 230 pence with a high of 259 pence in March 2001
and a low of 199 pence in January 2001.
Should the proposed tender offer buy back be fully taken up, the number of
shares in issue would be reduced by 2,836,182 to 96,430,218.
An analysis of share movements during the year is set out below:
No of shares No of shares
Million Million
2001 2000
Opening shares 108.1 102.0
Tender offer buy back (3.7) (4.0)
Buybacks in the market for cancellation (6.6) (6.6)
Issue for Citadel portfolio - 16.6
Shares issued for the exercise of options 1.5 0.1
Closing shares 99.3 108.1
In total 18.3 million shares were traded in the market during 2001. The share
price at 26 February 2002 was 212.5 pence.
The share price of CLS increased by 6.0 per cent in the year to 31 December
2001 compared to a decrease of 8.7 per cent in the FTSE All Share Real Estate
Index.
An analysis of the ownership structure is set out below:
Number of shares Percentage of shares
Institutions 46,686,621 47.0
Private investors 613,071 0.6
Sten and Bengt Mortstedt 49,810,963 50.2
Other 2,155,745 2.2
Total 99,266,400 100.0
The Company operates share option schemes to enable its staff to participate in
the prosperity of the Group. At 31 December 2001 there were 779 thousand
options in existence with an average exercise price of 137 pence.
Distribution - As the current share price remains at a considerable discount
to net asset value, your Board is intending to propose a further tender offer
buy-back of shares in lieu of paying a cash dividend, on the basis of 1 in 35
shares at a price of 255 pence per share. This will enhance net asset value per
share and is equivalent in cash terms to a final dividend per share of 7.3
pence, yielding a total distribution in cash terms of 12.0 pence per share for
the year (2000: 9.6 pence).
Corporate Structure - The aim has been to continue to hold individual
properties within separate subsidiary companies, each with one loan on a
non-recourse basis.
PROPERTY REVIEW
Introduction - We continue to focus upon low risk high return properties in
our core locations of London, France and Sweden. At the same time we manage the
portfolio with a view to maximising capital returns.
Strategy - Our strategy is to target above average returns on equity through
acquisition, active management, refurbishment, and selective sales.
An analysis of contracted rent, book value and yields is set out below:
Region Total Rent % Book Value % Yield on Yield
contracted When
£000 £000 rent Fully
Let
London Mid Town 7,198 12.5 96,850 13.3 7.4
London West End 4,898 8.5 72,560 10.0 6.8
London West 6,154 10.7 69,378 9.5 8.9
London South Bank 8,747 15.2 110,430 15.2 7.9
London South West 2,333 4.1 27,800 3.8 8.4
London North West 4,235 7.4 39,600 5.4 10.7
Outside London 345 0.6 3,495 0.5 9.9
Total UK 33,910 58.9 420,113 57.7 8.1 8.3*
Germany 223 0.4 3,754 0.5 6.0
Total Germany 223 0.4 3,754 0.5 6.0 6.0
Sweden Stockholm 7,205 12.5 106,768 14.7 6.7
Sweden Vanersborg 3,894 6.8 41,070 5.6 9.5
Total Sweden 11,099 19.3 147,838 20.3 7.5 9.0**
France Paris 9,372 16.3 122,166 16.8 7.7
France Lyon 2,179 3.8 26,443 3.6 8.2
France Other 756 1.3 7,986 1.1 9.5
Total France 12,307 21.4 156,595 21.5 7.9 8.0
Group Total 57,539 100.0 728,300 100.0 7.9 8.4
Conversion Rates: GBP/DM: 3.197; GBP/Eur: 1.6346; GBP/SEK: 15.2667
(*) Yields based on receivable rent and potential rents have been calculated on
the assumption that year end book values will increase by anticipated
refurbishment expenditure of £3.9 million in respect of refurbishment projects
in the UK.
(**)Yields based on receivable rent and potential rents have been calculated on
the assumption that year-end book values will increase by anticipated
refurbishment expenditure of approximately £73.2 million in respect of
refurbishment projects in Solna, Stockholm, Sweden
Rent analysed by length of lease and location
Contracted Space under
but not refurb. or
Contracted income Unlet space with plan.
Aggregate producing at ERV consent at ERV Total
Rental
Description Sq.m. Sq.ft. £000 £000 £000 £000 £000
UK < 5 years 36,088 388,419 7,119 - - - 7,119
UK 5 - 10 years 44,978 484,124 10,865 - - - 10,865
UK > 10 years 72,247 777,754 15,002 556 - - 15,558
Refurbished space 1,719 18,500 - 368 - 250 618
Vacant 5,827 62,736 - - 879 - 879
Total UK 160,859 1,731,533 32,986 924 879 250 35,039
Germany - let 4,216 45,382 223 - - - 223
Vacant 1,064 11,453 - 21 - 21
Total Germany 5,280 56,835 223 - 21 - 244
Sweden <5 years 91,766 987,793 6,634 - - - 6,634
Sweden 5-10 years 10,025 107,912 - 1,485 - - 1,485
Sweden >10 years 29,378 316,233 2,980 - - - 2,980
Refurbished space 26,145 281,432 - - - 8,230 8,230
Vacant 9,729 104,726 - - 510 - 510
Total Sweden 167,043 1,798,096 9,614 1,485 510 8,230 19,839
France < 3 years 78,104 840,725 8,804 - - - 8,804
France 3-6 years 25,697 276,607 3,503 - - - 3,503
Vacant 1,494 16,082 - 179 - 179
Total France 105,295 1,133,414 12,307 - 179 - 12,486
GROUP TOTAL 438,477 4,719,878 55,130 2,409 1,589 8,480 67,608
The above table shows rental income by category and the future potential income
available from new lettings and refurbishments.
We estimate that open market rents are approximately 17.0 per cent higher than
current contracted rents receivable, which represents a potential increase of
£9.8 million per annum. This excludes the additional rents we will receive as a
result of our refurbishment programme. These increases are divided amongst the
portfolio as follows:
Estimated Rental Reversionary Element
Contracted Rent Value
£ Million £ Million %
UK & Germany 34.1 38.2 12.0
Sweden 11.1 12.2 9.8
France 12.3 16.9 37.3
Total 57.5 67.3 17.0
The total potential gross rental income (comprising estimated rental value of
contracted rentals, unlet space and refurbishment) of the portfolio is £77.4
million p.a.
UK Portfolio
Despite the well documented downturn in demand for London offices in the last
quarter of 2001 we have seen net increases in income and in the value of the
portfolio over the year as a whole.
The majority of the increase has been achieved from restructuring leases, lease
renewals and rent reviews at Spring Gardens, Brent House, Chancel House, and
Vauxhall Cross.
We have also sold two properties in the year. Scriptor Court at Farringdon,
which was purchased by the Company in 1996 for £0.9 million, was sold in June
for £3.0 million (£0.4 million above book value). A residential apartment at
Petersham House Kensington held by us as trading stock was sold for £2.5
million, which resulted in a profit of £0.4 million.
In October we completed the purchase of 200 Great Dover Street, London SE1. The
3,376 sq.m (36,345 sq.ft) building was bought for £7.4 million giving an initial
yield on purchase of 9.2% after costs. The property is let to Conoco Oil Ltd on
a lease expiring in June 2011. The property offers a secure income at a high
initial yield within an improving area.
In the course of rationalising our portfolio we have also obtained a number of
early surrender premiums which amount to £0.8 million in one off payments.
In addition we have completed the extension to our serviced offices at Buspace
Studios, Notting Hill, increasing its net lettable area to 3,150 sq.m (34,000
sq.ft.) from 2,500 sq.m (27,000 sq.ft). The annualised rental income at the
property has risen from £0.3 million at the end of 2000 to £0.5 million as at
31st December 2001.
Although at the end of the year the vacant space within our UK portfolio has
increased to 3.6 per cent from 2.6 per cent at the end of 2000 and demand in
general for offices in London is weaker than at this time last year, we are
confident of further growth in rental income through rent reviews and lease
restructuring. Core rental income should remain protected by the fact that only
4.8 per cent of our available space is affected by lease terminations or break
options during the year. Furthermore, 80 per cent of our UK portfolio is leased
to government tenants, major corporates and major partnerships. Additionally 72
per cent of our income is secured for more than 5 years.
At Southwark Towers, which is one third owned by us, a development agreement has
been concluded with Railtrack plc and the result of our application for planning
permission for a new tower is likely to be known in March.
We also anticipate that by the end of March 2002 the assignment of the
occupational lease of One Leicester Square to Regent Inns plc will be completed.
At New Printing House Square, the rent review is currently being determined by
an arbitrator and we expect this to result in a significant increase which will
be back-dated to July 2000.
We are due to complete the development of an 18 flat residential scheme at
Coventry House, W1 in September 2002 and the planned letting of the flats should
further increase rental value. In addition planning permission has been granted
for the erection of a new illuminated sign on the roof of the building
overlooking Piccadilly Circus and we hope that this will become operational
later in the year.
In the first half of the year the Company made a commitment to acquire a 25 per
cent share in a leisure development in Portsmouth at a cost of £1.9 million
including a loan of £1.4 million. The development was completed in December
2001 and is open and trading.
Swedish Portfolio -
Vanerparken
At Vanerparken the refurbishment of a former empty building designed for the
extension of areas to the existing local government tenant was completed on
schedule and on budget in December 2001. The school moved in on a new lease
expiring on 30th June 2006 at a rent of £0.2 million (SEK 2.4 million).
Solna Business Park
Although tenant demand for offices in the central business district in Stockholm
has weakened during the year there is still good demand in the Solna area.
Our phase 2 development comprising the refurbishment of the building known as
Frasaren 11 has remained on budget and on schedule. We have signed lease
agreements with three new tenants covering 28% of the area at a level of rent
which is among the highest in Solna and we are negotiating with several
potential new tenants. The three tenants take occupation in January, March and
August 2002. The whole building is planned to be completed by the end of 2002.
The refurbished space at Frasaren 11 now offers high quality accommodation
coupled with excellent facilities. A large well equipped gym has been installed
and a new apartment hotel will be ready at the end of the year together with a
number of new shops and restaurants. We are confident that these facilities
together with the existing excellent network of communications and the pricing
of the property at rates considerably below offices in the centre of Stockholm
will lead to the remaining space in the building being let during the year.
We are now commencing the utility study for Phase 3 of our planned
redevelopment.
On 31 January 2002 we completed the acquisition of the fifth property in Solna
Business Park. It is located close to our other properties and has development
potential of 5,000 - 10,000 sq m of office space. It comprises 4,862 sq m
(52,247 sq.ft), gives an initial yield of 9% and produces a gross annual rental
of £0.3 million (SEK5.1 million).
Gothenburg
On 31 January 2002 we purchased a mixed residential and commercial property
portfolio at Lovgardet, Gothenburg. The residential element comprises 1,282
apartments which are fully let with a total area of 79,614 sq m (855,532 sq ft).
The gross rental income generated, before all property related costs, is SEK
53.4 million p.a. (£3.6 million). The commercial properties (including a school)
comprise 33,494 sq m (359,926 sq ft), which are fully let, mainly to Gothenburg
Council, on leases maturing in 2012-2014. These generate a gross rental income
of SEK 29.3 million (£2.0 million) p.a.
Gothenburg is the second largest city in Sweden, with a strong and expanding
economy. Within Gothenburg the demand is accordingly strong for residential
accommodation and we anticipate long term secure income.
French Portfolio -
The portfolio comprises well-let modern office buildings in Paris, Lyon, Lille
and Antibes and is let to 198 tenants on 266 leases and produces a gross income
of £12.3 million (€ 20.1 million) per annum. The portfolio is 98.6 per cent let
with 112 sq.m (1,206 sq.ft) vacant in Lyon, 614 sq.m (6,609 sq.ft) vacant in
Paris, 301 sq.m (3,240 sq.ft) in Antibes and 467 sq.m (5,027 sq.ft) in Lille .
Since the acquisition of the Citadel portfolio by CLS the day to day management
has not changed significantly and the reporting structure has been integrated
within the rest of the Group.
As the portfolio has a large reversionary element our strategy is to accelerate
rental increases by restructuring leases. During 2001, 9,506 sq.m (102,325
sq.ft) representing 9.1 per cent of the portfolio was renegotiated, leading to a
rental increase of £543K, 56 per cent on the accommodation involved.
Indexation contributed a further £421K.
Four new property investments were made during the year.
Two new freehold properties were bought during September in Lille, in the North
of France. Lille is a well identified regional market which benefits from an
excellent location and easy access by Eurostar from London, Brussels and Paris.
Both properties were purchased on a net initial yield of 10.6 per cent.
One property is at 96, rue Nationale in the heart of the city of Lille close to
the Town Hall office area, a 25 year old-building of 2,243 sq.m (24,144 sq.ft)
of offices with 52 car spaces. It is let on various leases expiring in the next
7 years with two major tenants, BNP-Paribas Group and the MEDEF which is the
French Employer Union, and 6 other smaller tenants. The current rent is £171.8K
(€280.8K). The second building is 105, Avenue de La Republique in La Madeleine
area on the Grands Boulevard sector which is an office district very close to
the well-known Euralille development next to the international train station.
The building was constructed 23 years ago and comprises 4,008 sq.m (43,143
sq.ft) of offices with 136 car spaces, multi-let to 14 different tenants,
including the French Inland Revenue. The current rent is £260.3K (€425.6K) and
we received a one year guarantee from the vendor for a maximum sum of £20.1K
(€34.3K) for 264 sq.m (2,842 sq.ft) which is currently unlet.
The freehold property, Chorus Nova-Antipolis, Antibes was acquired in early 2001
and comprised 4,333 sq. m (46,640 sq.ft) and 145 car parking spaces. The anchor
tenant is an agency of the French government. The investment produced an
initial yield of 9.7 per cent based on gross rent of €545K (£333K) and a
purchase price inclusive of costs of €5.5 million (£3.5 million).
We also completed the purchase of a building in Genevilliers, a North-West
suburb of Paris, 2 rue Pierre Timbaud. Genevilliers is a mixed activity and
office area with very efficient transportation links to the West of Paris and
all major suburbs. This freehold property is 7 years old and comprises 3,170
sq.m (34,123 sq.ft) with 37 car parking spaces and is let to a single tenant,
Gaz de France, a Government body in charge of gas distribution in France.
Current annual rent is £280.2K (€458.1K); at the purchase price of £2.8 million
(€4.6 million) inclusive of all costs the acquisition shows a net initial yield
of 9.3 per cent.
The French investment market was very active in 2001 and the volume of real
estate investments reached a new record, signalling investor confidence in the
market. For 2002, we intend to actively manage the portfolio and to buy new
properties in line with our usual criteria. We keep close relationships with our
tenants and intend to continue the restructuring of leases within the portfolio.
The renovation of common parts in several buildings in Lyon and Paris will also
be carried out during the year.
Consolidated Profit and Loss Account...
for the year ended 31 December 2001
2001 2000
£000 £000
Net rental income (including associates & joint 51,100 42,112
ventures)
Continuing operations 50,562 42,112
Acquisitions 538 -
Less: Joint venture (924) (706)
Associate - (1,191)
50,176 40,215
Other property related income 4,309 1,315
54,485 41,530
Administrative expenses (8,010) (6,358)
Net property expenses (3,318) (1,026)
(11,328) (7,384)
Other operating (losses)/ (6,301) 552
income
Group Operating Profit 36,856 34,698
Continuing operations 36,490 34,698
Acquisitions 366 -
Share of joint ventures' operating profit 873 690
Share of associates' operating profit - 959
Operating Profit including joint ventures and 37,729 36,347
associates
Gains from sale of investment property 524 2,969
Profit on Ordinary Activities Before Interest 38,253 39,316
Interest receivable and financial income:
Group 2,223 1,353
Joint Venture 17 13
Associate - 25
Interest payable and related charges:
Group (28,350) (24,772)
Joint Venture (864) (622)
Associate - (484)
Profit on Ordinary Activities Before Taxation 11,279 14,829
Tax on Profit on ordinary activities:
Group (938) 46
Joint Venture - -
Associate - (57)
Profit on ordinary activities after taxation 10,341 14,788
Equity minority interest - (7)
Retained Profit For The Year 10,341 14,811
Basic Earnings per Share 9.8p 14.6p
Diluted Earnings per Share 9.7P 14.5p
Consolidated Balance Sheet...
at 31 December 2001
2001 2000
£000 £000
Fixed assets
Tangible assets 729,760 672,150
Investments:
Interest in joint venture:
Share of gross assets 15,257 12,320
Share of gross liabilities (13,147) (10,547)
2,110 1,773
Other Investments 712 161
732,582 674,084
Current assets
Stocks - trading properties - 2,185
Debtors - amounts falling due after more than one year 5,179 2,363
Debtors - amounts falling due within one year 11,740 6,787
Investments 6,275 10,609
Cash at bank and in hand 55,239 39,100
78,433 61,044
Creditors: amounts falling due within one year (58,933) (41,086)
Net current assets 19,500 19,958
Total assets less current liabilities 752,082 694,042
Creditors: amounts falling due after more than one year
Bank and Other Loans (389,788) (342,094)
Net Assets 362,294 351,948
Capital and reserves
Called up share capital 24,817 27,032
Share premium account 68,476 67,293
Revaluation reserve 202,022 178,851
Capital Redemption Reserve 8,675 6,111
Other reserves 19,657 20,196
Profit and loss account 38,647 52,351
Total equity shareholders' funds 362,294 351,834
Equity minority interests - 114
Capital employed 362,294 351,948
Consolidated Cash Flow Statement...
for the year ended 31 December 2001
2001 2000
£000 £000
Restated
Net cash inflow from operating activities 38,851 29,085
Returns on investments and servicing of finance
Interest received 2,627 1,753
Interest paid (25,968) (22,860)
Issue costs on new bank loans (1,940) (753)
Interest rate caps purchased (2,275) (72)
Net cash outflow from returns on investments
and servicing of finance (27,556) (18,261)
Taxation (887) 247
Capital expenditure and financial investment
Purchase and enhancement of properties (41,947) (16,262)
Sale of investment properties 3,488 39,729
Purchase of other fixed assets (1,609) (123)
Purchase of own shares (25,604) (19,790)
Net cash (outflow) / inflow for capital expenditure and
financial investment (65,672) 3,554
Acquisitions and disposals
Investment in joint venture (331) -
Net cash (outflow) / inflow before use of liquid resources and financing (55,595) 20,115
Management of liquid resources
Cash released from / (placed on) short term deposits 12,732 (4,998)
Financing
Issue of ordinary share capital 1,446 211
New loans 139,699 28,188
Repayment of loans (69,577) (35,916)
Net cash inflow / (outflow) from financing 71,568 (7,517)
Increase / (decrease) in cash 28,705 (1,561)
Statement of Total Recognised Gains & Losses...
for the year ended 31 December 2001
2001 2000
£000 £000
Profit for the financial year 10,341 14,811
Unrealised surplus on revaluation of properties 30,344 72,602
Share of joint venture unrealised surplus on revaluation of properties - 1,000
Currency translation differences on foreign currency net investments (6,152) 658
Share of Associate other reserves - (10)
Other recognised gains relating to the year 24,192 74,250
Total gains and losses recognised since last annual report 34,533 89,061
Reconciliation of Historical Cost Profits & Losses...
For the year ended 31 December 2001
2001 2000
£000 £000
Reported profit on ordinary activities before taxation 11,279 14,829
Realisation of property revaluation gains of previous years 1,559 11,769
Historical cost profit on ordinary activities before taxation 12,838 26,598
Historical cost profit for the year retained after taxation and dividends 11,900 26,580
Reconciliation of Movements in Shareholders' Funds...
for the year ended 31 December 2001
2001 2001
£000 £000
Profit for the financial year 10,341 14,811
Other recognised gains relating to the year 24,192 74,250
New share capital issued 1,532 33,842
Purchase of own shares (25,344) (19,617)
Expenses of share issue/purchase of own shares (261) (170)
Net additions to shareholders' funds 10,460 103,116
Opening shareholders' funds 351,834 248,718
Closing shareholders' funds 362,294 351,834
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