chairman's statement
I am pleased to report on a year of satisfactory progress. Once again the quality of our property portfolio, coupled with successful strategic management of our properties during the year, have contributed to this creditable performance. The harsh economic conditions of 2008 continued into the first half of 2009; however the second half of the year saw some improvement in values with the final quarter witnessing strong demand for quality properties with stable income streams. A significant proportion of our portfolio meets these criteria, and our year end valuation reflects this improvement.
Our property portfolio was valued at £213.6 million at 31st December 2009. This represents an increase of 4.6% on a like-for-like basis which compares favourably with the Investment Property Databank (IPD), the property industry’s valuation index, which showed retail property capital values had fallen by 4.3% over the same period.
Over the year we also grew our rental income from £16.8 million per annum to £17.1 million. This has been achieved during a difficult period across the property market, which has witnessed substantial rental declines and a rise in vacant properties. Our estimated rental value now stands at £17.4 million per annum.
A number of key factors have been responsible for this performance: First of all, we have suffered relatively low levels of tenant default. From September 2008, when the property recession commenced in earnest, to date, we have lost £681,000 of rental income due to tenant failure. This figure is somewhat distorted by the failure of Zavvi, the music retailer, who occupied a prime unit at Orchard Square, Sheffield, and who were paying £368,000 per annum. This unit has since been re-let to Republic at a base rent of £400,000 per annum. Republic is a fashion retailer with a more dynamic retail offer and a wider customer audience. To date we have completed lettings with an aggregate rental income of 108% of the previously passing rent in the vacated units mentioned above. This has been achieved notwithstanding the fact that three of these units are still to be re-let.
Secondly, we obtained planning and listed building consents to redevelop our properties at King’s Road, Chelsea and at Upper Street, Islington. We successfully carried out developments at both of these properties during the year and this work has added significantly to their respective values. Both of these developments had been pre-let.
Thirdly, we pre-let three units at King Edward Court, Windsor at rents in excess of £115 zone A. This represents a higher rate per square foot than had been previously achieved in this part of the centre and underscores the resilience of this shopping centre during the current recession. In fact, both our larger shopping centres at Windsor and Sheffield, which together account for rental income approaching £11 million per annum, have continued to demonstrate rental growth and are fully let, with the exception of one small unit at Sheffield which forms part of a future redevelopment site.
Finally, we took advantage of the market for prime property and sold, or exchanged contracts to sell, three properties during the year for a combined value of £21.9 million. These disposals show an aggregate surplus over book value of £0.9 million. Total disposals over the last 4 years have now reached some £159.8 million.
Under the International Financial Reporting Standards (IFRS), the net assets of the company grew in 2009 by some 47% from £40.3 million to £59.1 million. These figures are distorted by the requirement to mark to market the interest rate derivatives that we have in place to hedge our interest payments. Over the year the gap between the prevailing swap rate and the level at which we started these contracts has closed substantially. This has led to a write back of £13.3 million to the net assets.
During the year under the more appropriate and generally accepted standards of the European Real Estate Association (EPRA), our EPRA adjusted net assets per share grew by 11.5% to 91.5p. When looked at on an EPRA Triple NAV basis, our NNNAV per share has risen by some 41% over the period to 74.2p from 52.7p, taking account of the requirement to mark to market the value of our interest rate derivatives.
On a management adjusted basis, as detailed in the Finance Director’s report, and without capitalising interest we made a loss before tax of £2.5 million. This was mainly due to the expected reduction in income from our development sites, at Kings Road, Islington and Windsor during construction. This year we expect to move back into profit following the successful completion of our development programme.
The last few years have seen intensive management of our property portfolio as we have reconfigured and improved our Centres to increase rental values and drive forward cash flows. These capital intensive projects have now drawn to a successful conclusion. Over the last 4 years we have invested £49.3 million into our portfolio. This includes a gross investment of £30.7 million into King Edward Court Windsor, which at the time was held in a joint venture with the Bank of Scotland. The remaining £18.6 million of investment has been funded from our existing cash resources. LAP still has some £5 million in unencumbered cash available to exploit opportunities as they arise.
While property values have shown considerable improvements over the last two quarters and our experience on tenant failure has been below average, the Board remains cautious about the strength and durability of the current recovery. In view of this the Board feels that the Group should continue to conserve cash in the business. Therefore, the Board has taken the decision to maintain the dividend at the same level as last year. This will be a final cash dividend of 0.4p per share and a capitalisation issue of new shares worth 0.8p per share.
The total assets of the Group, including those of Bisichi Mining PLC, our associate company, and Dragon Retail Properties, our joint venture with Bisichi, now stand at £306.4 million.
Bisichi had another successful year and generated a profit before tax of £5.0 million.
Given the backdrop of a testing occupational market, our performance in 2009 has been positive. I am satisfied that our policy of upgrading and investing in the quality of our portfolio has insulated us from the worst of the economic downturn. Although it is too early to say with certainty that we are through the worst of this recession, I remain reasonably optimistic that we are well placed to cope with what is likely to be another challenging year for property companies.
Michael Heller
, Chairman
16 April 2010
