I am pleased to report on another period of satisfactory progress for LAP against a difficult economic backdrop. The quality of our portfolio of shopping centres reflects the high level of investment and strategic management which we apply to all of our assets. This has protected us from the worst of the property recession.
As at 31 December 2010, our directly owned portfolio of shopping centres and other retail property was independently valued at £195 million compared to £214 million the previous year. This follows a number of disposals of properties and on a like for like basis the valuation of our portfolio grew by 1%.
Rental income in 2010 was £16.5 million compared to £17.1 million in the previous year. However, again on a like for like basis, rental income grew by 2.4%. We have achieved this increase in sustainable income in spite of selling properties which had a combined annualised rental income of £1.3 million per annum. This is a commendable achievement considering that tenant demand is widely regarded as being weak and IPD reports that rental levels across the retail sector have dropped significantly.
Void levels remain low at just 1.5% of our portfolio by rental value. This has enabled us to drive our rental values forward, which in turn has supported our valuations. We have also been decisive in disposing of those properties from which we could see no further opportunities for growth. During 2010, we sold Antiquarius in King’s Road, Chelsea for £17.8 million. We acquired this property as part of the London Portfolio in 2006 and, in 2009, we were successful in achieving a listed building consent in the face of considerable opposition to our plans.
We pre-let the retail space to Anthropologie, the American fashion retailer, and carried out a significant refurbishment of the property. We believe that we had achieved maximum value of this asset, and consequently saw little point in holding it at a time when prime London retail property was commanding premium values.
Asset management continues to be a key feature of our business. At King Edward Court, Windsor, which now accounts for almost half the value of our portfolio, we undertook a redevelopment of three poorly configured units to provide three modern shops. These had been pre-let to Fat Face, Robert Gatward Jewellers and Mystique Lingerie. The new units achieved record rents per square foot reinforcing the rental levels at the centre and demonstrating the continuing strong demand from retailers for shops at King Edward Court.
Orchard Square, Sheffield, has remained fully let during the year and we have been able to achieve growth at rent review. This led to rental values growing by 5% at this centre on an annualised basis. This centre plus King Edward Court at Windsor account for rental income approaching £11 million per annum and the combined annualised rents grew by 3% over the last year.
Our two markets in Brixton have been strong performers in terms of rental growth. These assets were also acquired as part of the London Portfolio. Since 2009, we have spent considerable time and effort in re-branding the markets as more exciting places to shop, with a particular emphasis on quality food and restaurants as well as cutting edge fashion. The net result of this input is that rents have grown by some 8% and Brixton Village, one of the markets, is fully let for the first time in some 20 years. As detailed in the Chief Executive’s report, we have plans to work with a leading market operator to ensure the next phase of this asset’s growth.
Under International Financial Reporting Standards (IFRS), the net assets of the Group were £55.8 million. This compares to £59.1 million the previous year. However, this figure reflects the carrying cost of our interest rate swaps which has been marked to market as a negative £13.6 million, a liability some £7.3 million greater than at the end of 2009. Had the swaps been valued at today’s date, the £7.3 million additional charge would be £ 1.7 million.
We have stated previously that these swaps were contracted to ensure that we had certainty over our interest payments which are our most significant item of expense. We do not trade these swaps. It is important to note that under the standards of the European Real Estate Association (EPRA), as used by most property companies, our net assets stood at £72.1 million in December 2010 compared to £72.8 million as at December 2009. Under EPRA net asset per share is now 87.5p compared to 91.5p a year ago. This largely reflects the issue of additional shares as part of last year’s dividend.
Operating profit, on a management adjusted basis, grew to £11.1 million compared with £9.7 million in 2009 , as shown in the table in the Finance Director’s report on page 17. This excludes marking to market the carrying values of our properties and financial instruments. The growth in operating profit is partly a result of lower property expenses and other overheads incurred during the year. Our loss before tax over the same period has increased to £4.2 million from £2.5 million although this is after deducting a £3.5 million expense incurred in breaking swaps with a nominal value of £19.6 million. The annual cash saving from breaking these swaps is £0.8 million.
We remain over-hedged by a nominal £10.4 million. This has an annualised negative effect on cash flow of £0.5 million. The cost of breaking the over-hedge has fluctuated significantly over the year. We continue to monitor this situation closely and will break the hedge when it is most appropriate to do so.
It has been widely reported that bank lending remains subdued for real estate transactions. Against this backdrop, we have explored alternative sources of finance from property funds looking for joint venture partners. While it is too early to report any specific deals, we are currently examining a potential acquisition with one such partner and I hope to be able to report that this transaction has successfully concluded in the near future. We are looking to co-invest with suitable partners and we continue to hold an unencumbered cash reserve of some £5 million to take advantage of opportunities as they arise.
During the year we were appointed by Grant Thornton, a firm of chartered accountants, to take on the asset management of a portfolio of shopping centres where they had been appointed as Administrators. Following the disposal of the properties this project has now been completed. We understand that the bank client of Grant Thornton regards the result as a great success. LAP received a fee for advising on the management of the centres and overseeing the disposal in 2011.
Total Group assets , including those of Bisichi Mining PLC, our associate company, and Dragon Retail Properties, our joint venture with Bisichi, now stand at £289 million compared to £306 million the previous year.
Bisichi Mining PLC, our associate company, had a difficult year and our share of their loss after taxation was £0.5 million. This was as a result of lower coal prices combined with a strong South African Rand against the US dollar and a shortage of railway trucks to transport the coal. Measures have been taken to address these issues and it is expected that they will return to acceptable profitability in the second half of 2011.
We believe that LAP has performed well against a testing economy, although we remain mindful of the reduced bank lending currently available, and the negative forces facing consumers following last year’s budget. As a result, the Board has taken the decision this year to maintain the cash element of the dividend at the level paid in 2010. There will be a final dividend of 0.4p payable on 1 July 2011 to shareholders on the register as at 10 June 2011, making a total dividend for the year of 1.15p. However, the Board has decided against the capitalisation issue of new shares as in previous years as this is felt to be too dilutive at the current price.
Michael Stevens will be retiring this year after 25 years as a director and Company Secretary of LAP. I would like to take this opportunity to thank him for all of his hard work over this time, and wish him well in his retirement. We have promoted Heather Curtis, who joined the company in 2002,to Group Company Secretary.
The economy in 2011 shows little sign of being an improvement over 2010. I remain confident that the quality of our assets and our ability to drive rental income through intensive management means that we are well placed to make further progress through 2011.
Finally I would like to thank all of the directors, staff and advisors who have contributed to our progress this year.
Michael Heller, Chairman 15 April 2011
