RNS Number : 0883K
O Twelve Estates Limited
15 December 2008
O TWELVE ESTATES LIMITED ('O Twelve' / the 'Company')
UNAUDITED HALF YEARLY RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2008
O Twelve Estates Limited today announces results for the six months ended 30
September 2008. The Company's objective is to generate an attractive return for
Shareholders through the assembly of a portfolio of investment properties in
its Target Area which comprises the Thames Gateway and the adjacent areas of
east London, Essex, south Hertfordshire and north Kent.
Highlights
* Property valuation of £232.9 million (31 March 2008: £249.8 million), a
reduction of 7.2% compared to a fall in the IPD All Property Monthly Index of
10.0%
* Rental value increased by 1.4% on a like for like basis, vs the IPD All
Property Monthly Index of -0.4%. Retail assets achieved rental growth of 3.5%
compared to 0% reported by the IPD and was the best performing sector
* The portfolio's estimated rental value ("ERV") of £18.0 million per annum,
shows additional potential rental income from reversions and letting vacant
units of £4.1 million per annum
* 53% of income is from leases with more than five years to expiry
* Consolidated Net Asset Value of £68.0 million, or 55.55 pence per share (31
March 2008: £84.9 million, 69.32p)
Commenting on the results, Phillip Rhodes, Chairman of O Twelve, said:
"The credit crunch and the financial turmoil that continues to plague global
markets has been hard hitting for many companies across all sectors, and O
Twelve is no exception. However, we expect our Target Area to be more resilient
to the knock-on effects of these problems due to the ongoing positive impact of
the regeneration of the 2012 Olympic region. Pleasingly, we are again reporting
returns in excess of the IPD monthly indices for rental value growth and
capital value movement. On a day to day basis, the portfolio is being managed
with a view to maximising rental income and action is being taken to reduce
costs."
David Tye of Rugby Asset Management added:
"Whilst positive absolute returns cannot be anticipated for the immediate
future, the Group's portfolio has so far proved to be relatively resilient. The
Target Area of east London and the Thames Gateway are responding robustly to
the economic turmoil and we firmly believe the Group's portfolio will continue
to benefit after 2012 from the legacy of the Olympic Games. Our focus for the
immediate future is to maintain rental income and to minimise voids, capital
expenditure and property outgoings"
For further information please contact:
David Tye / Andrew Wilson
Rugby Asset Management Limited
Tel: +44 20 7016 0050
Jeremy Porter / Simon Bennett / Laura Littley
Fairfax I.S. PLC
Tel: +44 20 7598 5368
Dido Laurimore / Stephanie Highett / Laurence Jones / Rachel Drysdale
Financial Dynamics
Tel: +44 20 7831 3113
CHAIRMAN'S STATEMENT
I am pleased to present the results of O Twelve Estates Limited (the "Company")
together with its subsidiaries (the "Group") for the six months ended 30
September 2008.
Results
The Group reported a net loss for the period ended 30 September 2008 of £16.9
million (30 September 2007: loss of £10.6 million, 31 March 2008: loss of £34.1
million), representing a loss per Ordinary share of 13.77p (30 September 2007:
loss of 8.69p, 31 March 2008: loss of 27.83p). The consolidated net asset value
at 30 September 2008 was £68.0 million (30 September 2007: £109.0 million, 31
March 2008: £84.9 million) being 55.55p per Ordinary share (30 September 2007:
88.95p per Ordinary share, 31 March 2008: 69.32p per Ordinary share).
At 30 September 2008 the Group's property investment portfolio was valued by CB
Richard Ellis ("CBRE") at £232.9 million (30 September 2007: £267.6 million, 31
March 2008: £249.8 million). During the period, the portfolio valuation fell by
7%. This compares favourably with UK commercial properties generally which
recorded capital value reductions of 10% for the same period. This
outperformance, which unfortunately is only relative rather than absolute,
demonstrates the underlying soundness of the Group's focus on its Target Area
to the east of London which is benefitting from major regeneration initiatives
and infrastructure improvements. The Olympic and Paralympic Games to be held in
and around Stratford, east London, in 2012 are a major catalyst for these
improvements which we believe will result in a significant structural, economic
and cultural repositioning of the Target Area. Further details of the portfolio
are set out in the Property Adviser's Report.
Financing
The Group's borrowings are provided by an initial £250 million loan facility
with Nationwide Building Society ("Nationwide"). Nationwide has syndicated part
of the loan to two other financial institutions (collectively, the "Lenders").
Total drawings under this facility are £170 million and the undrawn balance of
the facility has now been cancelled. The loan is repayable in full in December
2014. Interest is payable at a margin of 0.65% per annum over LIBOR. Of the
total amount drawn, £138 million (81%) is fixed until December 2014 at an
average interest rate, including margin, of 6.1%. The balance bears interest at
a floating rate. Taking three month LIBOR as at 5 December 2008 of 3.38%, the
blended average rate payable on borrowings as at that date was 5.72% per annum.
The covenants under the loan facility include a loan to value ratio ("LTV") of
75% and an income cover ratio of 120%. A "Cash Lock Up" event, which is not an
event of default, occurs if LTV is between 70% and 75% or income cover is
between 120% and 115%. The valuation of properties charged as security as at 30
September 2008 was £232.4 million, an LTV of 73.1%. Thus, whilst the Group is
not in default under the loan facility, it is in Cash Lock Up. The effect of
Cash Lock Up is that rental income in excess of financing costs is retained by
the Lenders as cash collateral which may be used in partial repayment of the
loan. Accordingly, the Group does not currently have access to surplus
operating cash flow and must rely on other resources in order to pay overheads
and other expenses. At 30 September 2008, the Group had total cash balances of
£8.9 million of which £6.4 million is available to meet such expenses. The
Board is also in discussions to revise and reduce the management fees, which it
hopes to conclude early in the new year. The Directors estimate that the Group
can continue to operate for approximately 18 months without access to the
operating cash flow.
Dividend
In the current economic environment and in view of the Group's financing
uncertainties, conservation of cash is paramount and the Board does not
recommend payment of an interim dividend.
Outlook
The "Credit Crunch" and the financial turmoil that continues to plague global
markets has been hard hitting for many companies, across all sectors, and
your Company is no exception. As noted above, the key immediate issue facing
the Group is the probability that continuing falls in property values
generally will lead to a breach of the existing LTV covenant under its loan
facility. This is being closely monitored and the Board also continues to
consider with its advisers whether asset sales or new capital raising are
realistic possibilities. As yet, there is no indication of when, or at what
level, property values will bottom-out and until there is some sense of
stabilisation, any transaction would probably be on "fire-sale" terms and of
little benefit to shareholders.
Whilst the current economic recession has not yet had a material visible
effect on tenant demand in our portfolio it is possible that a prolonged
recession would lead to falling rental values and increased voids. However,
we expect our Target Area to be more resilient to these effects than the UK
generally due to the ongoing positive impact of the regeneration of the 2012
Olympic region. Pleasingly, we are again reporting returns in excess of both
the IPD monthly indices for rental value growth and capital value movement.
On a day to day basis, the portfolio is being managed with a view to
maximising rental income and action, including a review of RAM's fees, is
being taken to reduce costs. Given a degree of stability in global markets
generally, your Board believes the Group's diversified portfolio,
professional management and geographic focus will produce good shareholder
returns.
Phillip Rhodes
Chairman
12 December 2008
PROPERTY ADVISER'S REPORT
Rugby Asset Management Limited ("RAM"), a member of the Rugby Estates Plc
Group, was appointed Property Adviser to the Group on the Company's admission
to AIM on 27 March 2006. Our role is to identify transactions for
recommendation to, and consideration by, the Board of the Company and to
negotiate on its behalf. We undertake, on a day to day basis, under delegated
authority from the Board, all aspects of assembling, managing and financing
the Group's property portfolio. Rugby Estates Plc Group holds a 5.46%
interest in O Twelve Estates Ltd.
The decline in property capital values which began in mid 2007 has continued
unabated. In the six months to September 2008 overall capital values for
commercial properties fell by 10%; this reduction was attributable wholly to
increased capitalisation rates with no rental growth across the market
generally for the period. The difficulties in the credit markets have now
spread into the real economy and, although we have not yet seen any material
adverse effects, this is likely to cause a weakening of occupational demand
in addition to the continuing decline in capital values. However, the Group's
portfolio has performed significantly better than the market as a whole with
capital values having fallen by 7% over the period. Whilst rental growth has
slowed, we have not yet experienced difficulties in securing lettings and
lease renewals at rental values which are at, or in excess of, those expected
at the start of the year.
Rental value levels within the portfolio have been resilient, driven forward
by the asset management initiatives which the Group is undertaking and the
regeneration initiatives in the Target Area. During the six months to 30
September 2008, the rental value of the portfolio increased by 1.4% on a like
for like basis. Over the same period the IPD All Property Monthly Index
showed -0.4% rental growth. The best performing sector within the portfolio
was retail where rental growth of 3.5% was achieved compared with zero
reported by IPD.
Investment yields have continued to increase since March 2008. The equivalent
yield for the portfolio has increased by 60 basis points from 6.43% to 7.03%
at September 2008. The IPD All Property equivalent yield increased by 70
basis points from 6.54% to 7.24% over the same period.
Notwithstanding current uncertainties in the real estate market and in the
wider economy, we believe that the Target Area will continue to show greater
resilience than many other areas of London and the UK where the backdrop of
eroding values is likely to be significant. The Target Area continues to be
stimulated by the regeneration initiatives and investment, both public and
private, planned, and under way, particularly for the area around Stratford
in east London and for the Thames Gateway generally. In a number of cases
these initiatives have resulted in rental levels in excess of valuation
rental values being achieved when properties have been offered in the open
market. The Olympic Games in 2012 is a major catalyst for these improvements.
Portfolio Review as at 30 September 2008
* Valuation £232.9 million
* 22 properties
* Average lot size of £10.6 million
* Contracted annual rental income of £13.9 million
* The portfolio's estimated rental value ("ERV") is £18.0 million per annum,
shows additional potential rental income from reversions and letting vacant
units of £4.1 million per annum
* 206 separately lettable units (excludes long leasehold and assured
shorthold tenancies)
* 170 units are let to 147 tenants
* 36 units are vacant and available for letting with an ERV of £2.6 million
per annum
* 53% of income is from leases with more than 5 years to expiry
* Weighted average unexpired lease term is 6 years
* Portfolio equivalent yield of 7%
Valuation
The external valuation of the Group's properties as at 30 September 2008 was £232.9 million. Over the period, and after taking into account
capital
expenditure, the reduction in value was 7.2% on a like for like basis. This compares favourably with the IPD All Property Capital Value
Index, which
showed a fall of 10.0% over the same period. A sector analysis is shown below.
Capital Value Movement compared to IPD Monthly Index
O
Twelve IPD
All Property
-7.2% -10.0%
Retail
-9.2% -10.1%
Office
-5.9% -10.4%
Industrial
-6.5% -9.1%
Rental Value Movement compared to IPD Monthly Index
O Twelve IPD
All Property 1.5% -0.4%
Retail 3.5% 0.0%
Office -0.2% -1.0%
Industrial 0.5% -0.3%
Rental Value Analysis - 30 September 2008
£m
Current annualised income 13.7
Rent free periods 0.2
Available for letting 2.6
Reversions 1.5
Rental value 18.0
The reversionary potential for each sector is shown below:
ERV £m Rent £m
Retail 6.5 5.6
Office 3.6 2.8
Industrial 7.4 4.8
Residential 0.5 0.5
Void Analysis
At 30 September 2008 the void rate in the portfolio stood at 14% by rental
value. Approximately 40% of space currently vacant has been deliberately
taken back in order to undertake significant refurbishments. Once lettings
currently in solicitor's hands complete, the void rate will fall to 13% of
rental value.
Income Security
Given the current uncertainty in the economy and in the wider banking and
financial markets, it is appropriate that we focus ever more closely on rent
collection, minimising irrecoverable outgoings and monitoring security of
income and tenant covenant strength. Within the portfolio approximately 53%
of the contracted rent is secure for more than five years. Where leases are
for less than five years, opportunities exist to refurbish or consider
changes of use in order to maximise value. In our view the portfolio offers a
good balance between income security and those opportunities to add value.
Income expiry profile - 30 September
2008
<5 years 47%
5-10 years 30%
>14 years 23%
Of the portfolio's 147 tenants, 20 account for 48% of the contracted rental income with the top 10 accounting for 33%. Tenants of, in our
view, undoubted or of a "national" standard account for 76% of the contracted rent, while smaller
regional and local companies account for 24% of the contracted rent. A more detailed analysis is shown below:
Tenant Covenant Strength by Contracted Rent
Grade A (Very strong)
36%
Grade B (National)
40%
Grade C (Regional)
14%
Grade D (Local)
9%
Vacant Rent Guarantee
1%
Tenants in the portfolio include:
Chelmsford Star Co - Operative Hitachi Kokusai Sainsbury Target Express Parcels Ltd
Society Ltd Electric UK Ltd Supermarkets Ltd
Chubb Electronic Security Ltd London Eastern Secretary of State Telford Homes plc
Railways Ltd
Coutts Retail Communications Mellon Bank Smyths Toys Ltd Toyota Tsusho Automobile London Holdings
Ltd Ltd
GE Transportation Systems Ltd Moss Bros Group Plc Somerfield Stores WH Smith Plc
Ltd
Halfords O2 (UK) Ltd Staples Wilkinson Hardware Stores Ltd
Portfolio at 30 September 2008
Valuation band at
30 September 2008
£ m
Property Type
Gascoigne Road, Barking Distribution warehousing 10 - 15
QED, Thurrock Distribution warehousing 10 - 15
Western Avenue, Thurrock Distribution warehousing 10 - 15
Bakers Court, Basildon Industrial 0 - 5
Barratt Industrial Estate, Bow Industrial 0 - 5
Larkfield Mill, Aylesford Industrial 20 - 25
Mill River Trading Estate, Industrial 5 - 10
Enfield
The Interchange, Swanley Industrial 20 - 25
Baytree Shopping Centre, Shopping centre 30 - 35
Brentwood
George Yard, Braintree Shopping centre 20 - 25
The Mall, Dagenham Shopping centre 10 - 15
214/216 Heathway, Dagenham Retail 0 - 5
38-42 High Street, Brentwood Retail 0 - 5
75 High Street, Brentwood Retail 0 - 5
Grove Farm, Chadwell Heath Retail park 10 - 15
Inspira House, Welwyn Garden Office 0 - 5
City
Mellon House, Brentwood Office 5 - 10
Queensgate, Waltham Cross Office 10 - 15
Redwing Court, Romford Office 0 - 5
Solar House, Stratford Office 10 - 15
34 St Thomas Road, Brentwood Residential 0 - 5
Salway Place, Stratford Residential 5 - 10
Sector Split by Capital Value
Industrial 41%
Offices 18%
Residential 4%
Retail 37%
Looking Forward
The Group is now well established as a major investor within its Target Area,
holding a well located, diversified real estate portfolio.
The property market as a whole is experiencing falling capital values of a
rapidity and extent unprecedented for at least 30 years. The UK economy
generally is in recession and there appears to be little prospect of a rapid
recovery. Whilst positive absolute returns cannot be anticipated for the
immediate future, the Group's portfolio has so far proved to be relatively
resilient. The Target Area of East London and the Thames Gateway are
responding robustly to the economic turmoil. We firmly believe the Group's
portfolio will continue to benefit after 2012 from the legacy of the Olympic
Games. Our focus for the immediate future is to maintain rental income and to
minimise voids, capital expenditure and property outgoings.
David Tye
Andrew Wilson
Rugby Asset Management Limited
12 December 2008
The financial information set out in this announcement does not constitute
the Group's statutory financial statements for the period ended 30 September
2008. A full version of the Group's unaudited half yearly financial
statements shall be available on the Group's website, www.otwelveestates.com,
and distributed to shareholders in due course.
CONSOLIDATED INCOME STATEMENT
for the period from 1 April 2008 to 30 September 2008 (unaudited)
1 April 2008 to 30 1 April 2007 to 30 1 April 2007 to 31
September 2008 September 2007 March 2008 (audited)
(unaudited) (unaudited)
£'000 £'000 £'000
Income
Rent receivable 7,042 7,500 15,363
Bank interest 253 201 379
Service charges receivable 1,824 1,091 2,435
------------ ------------ -----------
Total income 9,119 8,792 18,177
------------ ------------ -----------
Expenses
Administration fees (124) (145) (279)
Service charges payable (1,824) (963) (2,435)
Management fees (1,266) (1,078) (2,446)
Interest payable and similar (5,275) (4,445) (9,973)
charges
Other operating expenses (852) (1,046) (1,982)
------------ ------------ ----------
Total expenses (9,341) (7,677) (17,115)
------------ ------------ ----------
Net (loss)/gain from operating (222) 1,115 1,062
activities
Movement in fair value of 1,511 (807) (4,152)
interest rate swap
Investment gains and losses
Movement in unrealised loss on (31,432)
revaluation of investment (18,102) (10,952)
properties
Realised gain from sale of - - 599
investment properties
------------ ------------ ----------
Total investment loss (18,102) (10,952) (30,833)
------------ ------------ ----------
Loss before taxation (16,813) (10,644) (33,923)
Taxation (53) (6) (166)
------------ ------------ ----------
Loss for the period/year (16,866) (10,650) (34,089)
attributable to Equity Holders
------------ ------------ ---------
Loss per Ordinary Share - (13.77)p (8.69)p (27.83)p
basic
Loss per Ordinary Share - (13.77)p (8.69)p (27.83)p
fully diluted
Items in the above statement are derived from continuing operations.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the period from 1 April 2008 to 30 September 2008 (unaudited)
Share premium
Share capital Other reserves
Total
£'000 £'000 £'000 £'000
Balance at 1 April 2008 1,225 - 83,690 84,915
Loss for the period - - (16,866) (16,866)
Dividends paid - - - -
---------- ---------- ---------- ----------
Balance at 30 September 2008 1,225 - 66,824 68,049
---------- ---------- ---------- ----------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the period from 1 April 2007 to 30 September 2007 (unaudited)
Share premium
Share capital Other reserves
Total
£'000 £'000 £'000 £'000
Balance at 1 April 2007 1,225 115,925 3,079 120,229
Loss for the period - - (10,650) (10,650)
Dividends paid - - (612) (612)
---------- ---------- ---------- ----------
Balance at 30 September 2007 1,225 115,925 (8,183) 108,967
---------- ---------- ---------- ----------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2008 (audited)
Share premium
Share capital Other reserves
Total
£'000 £'000 £'000 £'000
Balance at 1 April 2007 1,225 115,925 3,079 120,229
Reclassification of share - (115,925) 115,925 -
premium
Loss for the year - - (34,089) (34,089)
Dividends paid - - (1,225) (1,225)
---------- ---------- ---------- ----------
Balance at 31 March 2008 1,225 - 83,690 84,915
---------- ---------- ---------- ----------
CONSOLIDATED BALANCE SHEET
as at 30 September 2008 (unaudited)
30 September 2008 30 September 2007 31 March 2008 (audited)
(unaudited) (unaudited)
£'000 £'000 £'000
Non-current assets
Investment property 232,945 267,570 249,765
----------- ----------- -----------
Current assets
Receivables and prepayments 5,795 6,760 12,027
Cash and cash equivalents 8,928 14,510 4,826
----------- ----------- -----------
14,723 21,270 16,853
----------- ----------- -----------
Total assets 247,668 288,840 266,618
----------- ----------- -----------
Current liabilities
Overdraft - (7,969) -
Payables and accruals (7,216) (10,366) (7,817)
----------- ----------- -----------
(7,216) (18,335) (7,817)
Non-current liabilities
Bank loan (169,657) (160,626) (169,629)
Fair value of interest rate (2,746) (912) (4,257)
swap
------------- ------------- -------------
(172,403) (161,538) (173,886)
----------- ----------- -------------
Total liabilities (179,619) (179,873) (181,703)
----------- ----------- -------------
Net assets 68,049 108,967 84,915
----------- ----------- -------------
Capital and reserves
Called-up share capital 1,225 1,225 1,225
Share premium - 115,925 -
Other reserves 66,824 (8,183) 83,690
----------- ----------- ------------
Total equity holders' funds 68,049 108,967 84,915
----------- ----------- -------------
Net Asset Value per Ordinary 55.55p 88.95p 69.32p
Share - basic
Net Asset Value per Ordinary 55.55p 88.95p 69.32p
Share - fully diluted
CONSOLIDATED CASH FLOW STATEMENT
for the period from 1 April 2008 to 30 September 2008 (unaudited)
1 April 2008 to 30 1 April 2007 to 30 1 April 2007 to 31
September 2008 September 2007 March 2008 (audited)
(unaudited) (unaudited)
£'000 £'000 £'000
Operating activities
Rent received 6,853 7,932 14,961
Bank interest received 250 171 568
Service charges received 1,824 1,091 2,435
Loan interest and similar (5,234) (3,408) (8,707)
charges paid
Management fee paid (1,314) (693) (1,972)
Administration fee paid (127) (123) (245)
Other expenses paid (3,514) (1,615) (3,520)
VAT receipts 915 960 1,153
----------- ----------- -------------
Net cash (outflow)/inflow from (347) 4,315 4,673
operating activities
Investing activities
Purchase of/additions to (762) (87,592) (94,630)
investment property
Sale of investment property 5,225 - 275
----------- ----------- -------------
Net cash inflow/(outflow) from 4,463 (87,592) (94,355)
investing activities
Financing activities
Dividend paid on ordinary - (612) (1,225)
shares
Loan proceeds - 85,000 94,000
Loan arrangement fees paid - - (235)
----------- ----------- -------------
Net cash inflow from financing - 84,388 92,540
activities
Taxation paid (14) - (3,462)
----------- ----------- -------------
Increase/(decrease) in cash 4,102 1,111 (604)
and cash equivalents
----------- ----------- -------------
Cash and cash equivalents at 4,826 5,430 5,430
beginning of period/year
Increase/(decrease) in cash 4,102 1,111 (604)
and cash equivalents
----------- ----------- -------------
Cash and cash equivalents at 8,928 6,541 4,826
end of period/year
----------- ----------- -------------
Cash and cash equivalents at
the end of the period/year
comprise:
Cash and cash equivalents 8,928 14,510 4,826
Overdrafts - (7,969) -
----------- ----------- -------------
8,928 6,541 4,826
----------- ----------- -------------
This information is provided by RNS
The company news service from the London Stock Exchange
END
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