9th May 2006 07:02
Mapeley Limited09 May 2006 Press ReleaseNot for release before 07:00, 9th May 2006 MAPELEY LIMITED Interim results for the three months ended 31 March 2006 Mapeley Limited (LSE: MAY), the property investment and outsourcing company,announces today its interim results for the three months ended 31 March 2006. Key performance indicators- Funds from operations ("FFO", see note 16) increased 162.6% to £10.2 million, equating to 40 pence per share, based on the weighted average number of shares in issue for the period on an undiluted basis (31 March 2005: £3.9 million, equating to 25 pence per share).- Dividends proposed and declared for the period of 39 pence per share, equating to £10.3 million; - increased from 30 pence per share for the first quarter ended 31 March 2005; - increased 5.4% from 37 pence per share for the fourth quarter ended 31 December 2005. Highlights- Revenue up 10.1% to £87.1 million (2005: £79.1 million).- EBITDA (see note 15) increased by 17.6% to £20.2 million (31 March 2005: £17.1 million) driven both by growth from existing outsourcing contracts and new acquisitions.- Profit before tax of £14.7 million (31 March 2005: loss before tax of £5.4 million).- Freehold investment property acquisitions in the period of £90.2 million.- Total asset value up 36.1% to £1,943.1 million (31 March 2005: £1,427.2 million).- Secondary issue completed in January 2006, raising net proceeds of £106.5 million Jamie Hopkins, CEO of Mapeley, commented:"Mapeley has made an excellent start to 2006. In the first quarter, we were awarded the Identity and Passport Service (IPS) interview centre outsourcing contract, have made continued good progress on the acquisition of high credit quality UK commercial real estate and have increased profitability from the existing portfolios. Our performance during the first quarter is encouraging and has allowed us to raise our dividend by over 5% compared to the last quarter. We have now raised our dividend every quarter since the IPO, leading to an increase of 30% in the dividend paid to shareholders over this period. We remain focussed on creating long-term value for our shareholders and this will be delivered by capitalising on the strong pipeline of opportunities we have in both the direct property investment and the outsourcing business." Conference callManagement will host an earnings conference call on Tuesday, 9 May 2006 to review the Company's financial results for the three month ended 31 March 2006. The conference call is scheduled for 1:30 p.m. London time (8:30 a.m. New York time). All interested parties are welcome to participate on the live call. You can access the conference call by dialling +1-866-323-3742 (from within the US) or +1-706-643-0550 (from outside the US) ten minutes prior to the scheduled start of the call; please reference "Mapeley First Quarter 2006 Earnings Call". Attached is the interim report for the three months ended 31 March 2006. For further information, please contact:Tim McCall Tel: +44(0)20 7491 7776 / +44(0)7753 561 862MJ2 Business Communications Email: [email protected] / [email protected] Operating review The Group's real estate portfolio is split into two distinct segments -outsourcing contracts and investment property. Outsourcing Contracts HMRC Portfolio As at 31 March 2006 the HMRC portfolio (see note 8) had a value of £578.7 million (31 March 2005: £548.8 million). It comprised 144 freehold or long leasehold properties (31 March 2005: 144) and 400 rack rented leasehold properties (31 March 2005:410). Portfolio occupancy (based on area) was 98.5% at 31 March 2006 (31 March 2005:98.6%). Facility management contract Mapeley has awarded a contract to Alfred McAlpine Business Services ("AMBS"), asubsidiary of Alfred McAlpine Plc, to deliver Facilities Management ("FM")services to the HMRC portfolio and other properties. The contract was awarded to AMBS on 3 February 2006 and it will run until Spring 2021. Abbey Portfolio As at 31 March 2006 the Abbey portfolio (see note 9) had a value of £550.2 million (31 March 2005: £525.8 million). It comprised 367 freehold or long leasehold properties (31 March 2005: 367) and 727 rack rented leasehold properties (31 March 2005:749). Portfolio occupancy (based on area) was 91.6% at 31 March 2006 (31 March 2005:91.7%). Identity and Passport Service (IPS) Interview Centre Outsourcing Contract Mapeley has recently signed a contract for a term of between 3 and 5 years withthe Identity and Passport Service ("IPS"), an executive agency of the HomeOffice. The purpose of the contract is to acquire, fit out and deliver servicedaccommodation to 69 interview offices throughout the UK. Mapeley will acquireand fit out approximately 17,500 sqm of office space during 2006 in a phasedroll-out programme. Thereafter, Mapeley will provide property management andfacilities management services to the network of offices, which will be used bythe IPS to interview first-time passport applicants and to utilise biometrictesting as part of their continuing efforts to crack down on identity fraud. Investment Property Direct Property Investment (DPI) Portfolio During the first three months of the year, the Group continued to successfullypursue its strategy of acquiring individual properties or portfolios of regionaloffice properties. The Group focused on purchasing property primarily withstrong credit quality tenants, who are expected to stay in the properties overthe long-term. In the three months to 31 March 2006, the Group purchased investment property ata cost of £90.2 million with an average initial yield of 6.9% (including thecost of purchase) and continued to identify a significant target pool ofproperties it may consider acquiring in the future. As at 31 March 2006, the DPI portfolio (see note 9) comprised of 45 properties (31 March 2005: 14) with a value of £625.3 million (31 March 2005: £141.8 million). The net initial yield on this portfolio as at 31 March 2006 was 7.1%. The properties were 98.5% let on fully repairing and insuring leases to central and local government and major corporate tenants and the average unexpired lease length was 8 years. Financing Secondary issue of shares On 27 January 2006, Mapeley Limited (the "Company") issued a further 4,036,697ordinary shares at a price of £27.25 per share and raised proceeds of £106.5million, net of issue costs. The proceeds were used to repay a portion of therevolving acquisition facility - resulting in a reduction in interest costs andenabling the Mapeley Limited group ("Mapeley" or the "Group") to draw fundsunder the revolving acquisition facility for future acquisitions. Share performance data Closing share price on 31 March 2006 £35.03 per shareDividends proposed and declared for the three months ended 31 March 2006 £0.39 per share Debt finance Conversion of revolving acquisition facility to term facility In January 2006, at the time of the secondary share issue, the Group convertedthe £300.0 million revolving acquisition facility into a 10 year, £208.6 million term facility with a fixed interest rate of 4.55% plus 0.75% mandatory costs. The rate of interest payable reflects underlying swap agreements which were terminated at no cost to the Group on the same date. New revolving facility Having paid down the previous revolving acquisition facility (with the new termfacility and equity, as described above) the Group also arranged a new 2 year,£300.0 million revolving loan facility (the "Gamma acquisition facility") to finance the future acquisition of investment property. The interest rate payable on the facility is LIBOR plus 1.5 % plus mandatory costs (if any). The Group has also put in place a 10 year, 4.37% £200.0 million swap to fix its anticipated long term exposure to interest rate risk on these property acquisitions. STEPS refinancing The Group is currently in negotiations to refinance the loan facility enteredinto by Mapeley STEPS Limited and Mapeley STEPS Contractor Limited in 2001. Thiswill involve the repayment of the current 20 year, £177.3 million loan andreplacing it with a 7 year, £180.0 million term facility. As a result, the Grouphas writen off an exceptional charge of £4.4 million unamortised loan finance costs on the original borrowings. The Group intends to enter fixed interest rateagreements at the start of the new facility to fix the interest payable. If the transaction had occurred on 31 March 2006, swap breakage costs on the current facility would have amounted to £16.9 million. Dividend proposed and declared At a Board meeting held on 27 April 2006, the Board of the Company declared adividend for the quarter of £10.3 million, equating to £0.39 per share (Quarterended 31 December 2005: £8.3 million, equating to £0.37 per share). The recorddate for this dividend will be 12 May 2006 and the payment date will be 31 May2006. Key financial information Key Performance Indicators Three months ended Three months ended Year ended 31 March 2006 31 March 2005 31 December 2005 £million £million £million Funds from operations (FFO) (refer to note 16) 10.2 3.9 25.5Interim dividends declared 10.3 4.6 25.4Dividend per share (pence/share) * 39p 30p 130pFFO per share (pence/share) ** (refer to note 16) 40p 25p 130p Income Statement Three months ended Three months ended Year ended 31 March 2006 31 March 2005 31 December 2005 £million £million £million Revenue 87.1 79.1 339.4Property operating expenses (65.3) (62.0) (268.3)Net valuation surplus/(deficit) on investment property 10.6 (3.0) 18.0Administrative and other expenses (4.6) (3.8) (19.7)EBITDA (refer to note 15) 20.2 17.1 64.8Finance costs (14.1) (16.7) (129.7)Gain/(loss) on interest rate swap included in finance costs 6.7 (1.1) (1.4)Exceptional finance charge included in finance costs (4.4) - (72.7)Profit/(loss) for the period 14.6 (5.4) (56.5) Balance Sheet As at As at As at 31 March 2006 31 March 2005 31 December 2005 £million £million £million Portfolio value 1,755.4 1,219.2 1,643.2Total non-current assets 1,772.6 1,226.7 1,650.2Financial instrument asset included in Total non-current assets 10.7 - -Bank loans excluding loan finance costs 1,092.0 792.0 1,086.6Financial instrument liabilities 16.9 57.1 28.0Net assets (refer to note 18) 598.8 358.2 457.0Gearing (refer to note 17) 167% 200% 220% * Dividend per share calculations are based on the number of shares in issue on an undiluted basis during the period.** Undiluted per share calculations for the three months ended 31 March 2006 are based on the weighted average number of ordinary shares in issue during the period of 25,290,653 shares. Undiluted per share calculations for the three months ended 31 March 2005 are based on the weighted average number of ordinary shares in issue during the period of 15,382,100 shares. Undiluted per share calculations for the year ended 31 December 2005 are based on the weighted average number of ordinary shares in issue during the period of 19,510,770 shares. To aid comparability, the weighted average number of ordinary shares for the three months ended 31 March 2005 has been restated to reflect the share for share exchange that took place on 2 June 2005, in which existing shareholders were offered 100 ordinary shares in the Company for each share held in Mapeley UK Co Limited ("MUKCO"). Financial Review Funds from operations ("FFO") Funds from operations is a non-GAAP financial management measure used to demonstrate the underlying operating performance of real estate businesses such as the Company. It provides investors with information regarding the Group's ability to service debt and make capital expenditure. Further information on FFO is set out in note 16. Funds from operations were £10.2 million in the three months ended 31 March 2006, compared with £3.9 million in the three months ended 31 March 2005. The increase in FFO of £6.3 million was primarily driven by income generated by investment properties acquired in the period and stronger performance from the Group's existing outsourcing contracts. Dividends On 27 April 2006, the Board of Directors declared a dividend of £0.39 per share for the quarter ended 31 March 2006 (quarter ended 31 December 2005: £0.37), an increase of 5.4% per share on the prior quarter, reflecting the Company's policy of paying stable and growing dividends. Revenue Group turnover for the three months ended 31 March 2006 was £87.1 million, anincrease of £8.0 million (10.1%) over the same period last year. The increasewas driven by an increase in rental income of £8.9 million from the DirectProperty Investment (DPI) portfolio. There was an increase, net of vacations, of£0.3 million of contractual income from outsourcing contracts offset by a fallin other income of £1.2 million. Property operating expenses The Group's property operating expenses consist of property rental, lifecycleand facilities management costs, depreciation of property, plant and equipmentand the costs of trading property disposals. The property operating expenses of the Group in the three months ended 31 March2006 were £65.3 million (of which £43.2 million was rentals payable) compared to£62.0 million (£39.9 million rentals payable) for the same period in the previous year, an increase of 5.3%. Administrative and other expenses Administrative and other expenses comprise primarily staff costs, depreciationrelating to operating assets and other administrative costs. Staff costs consistmainly of wages paid to employees of the Group. Other administrative costsconsist mainly of IT, travel, accommodation related expenditure and legal andprofessional fees. Administrative and other expenses were £4.6 million for the three months ended31 March 2006 compared to £3.8 million for the three months ended 31 March 2005,an increase of 23.0%. The increase of £0.8 million was largely caused by a sharebenefit expense of £0.7 million (31 March 2005: £Nil) in connection with sharesoffered to employees and Non-executive Directors under the Group's EmployeeShare Plan (implemented at the time of the Company's Initial Public Offer inJune 2005). EBITDA EBITDA (see note 15) was £20.2 million for the three months ended 31 March 2006,compared to £17.1 million for the three months ended 31 March 2005, an increaseof 17.6%. This was a direct result of revenue growth of 10.1% outstripping totalcost growth by 3.9%. Finance costs Finance costs decreased in the three months ended 31 March 2006 by £2.6 millionto £14.1 million compared with £16.7 million in the three months ended 31 March2005. This decrease was due to a gain on interest rate swaps of £6.7 millionwhich was offset by exceptional accelerated write off of unamortised loan issuecosts of £4.4 million as a consequence of the imminent refinancing of certain of the Group's borrowings. The gain on the interest rate swap of £6.7 million has largely arisen as aresult of a fair value adjustment on the £200 million swap taken out in January2006 on the Gamma acquisition facility in order to fix the Group's anticipated long term exposure to interest rate risk on property acquisitions. Taxation The Group has made a tax provision of £0.1 million in respect of the three month period to 31 March 2006. Certain Group companies are resident in Bermuda and are classified as UK Non-resident Landlords for tax purposes. Taxable profits in these companies are subject to UK Income Tax and are exempt from local Bermuda taxes. The Group has significant tax losses available for carry forward to future years and in many cases these losses are only available to offset against future taxable profits in the entity in which the losses arose. The Group and its subsidiaries have not paid income or corporation tax in 2005 in any of the jurisdictions in which they operate due to their tax residence status, current year losses and the availability of losses brought forward from prior years. Non-current assets Non-current assets, comprising investment property, property plant andequipment, premiums paid for operating leases, non-current trade and otherreceivables and Financial Instruments, increased by £122.4 million between 31December 2005 and 31 March 2006. Investment property increased to £1,179.1 million from £1,077.4 million at 31December 2005. This reflects the acquisition of new investment property in thethree months to 31 March 2006 of £90.2 million. Over the same period, property, plant and equipment increased to £539.4 millionfrom £527.9 million at 31 December 2005, principally due to the revaluation ofcertain of the Group's freehold and long leasehold properties. Bank loans The Group seeks to finance its property investments with long-term debt facilities and on which the interest rates have been fixed by utilising a mixture of fixed rate debt and floating rate debt with matching interest rate swap agreements. At 31 March 2006, £1,092.0 million (31 December 2005: £1,086.6 million), had been drawn under the Group's loan facilities. The Group drew down funds of £294.9 million in the period and repaid loans of £289.5 million, further described in the "Operating Review". Independent review report to Mapeley Limited on the interim IFRS financial information for the three months ended 31 March 2006 Gearing The Group's financial strategy is to maintain an optimal gearing ratio (see note 17) to ensure that shareholders benefit from maximum leveraged returns. The Group purchases investment property in accordance with its strategy. Investment property is initially funded using short term, revolving facilities for 100% of the cost of acquisition (including purchase costs). These facilities are subsequently refinanced at a 70 - 75% Loan To Value ratio ("LTV") using long-term debt with a lower interest rate, with the balance being funded by new equity raised. At 31 March 2006, the Group had a gearing ratio of 167% (31 December 2005: 220%). The decrease in gearing was primarily driven by an increase in equity following the Group's secondary issue of shares in January 2006 and the use of the proceeds raised to partially refinance the £300 million revolving acquisition facility resulting in a lower LTV. Introduction We have been instructed by the Company to review the financial information forthe three months ended 31 March 2006 which comprises the Consolidated IncomeStatement, Consolidated Balance Sheet, Consolidated Cash Flow Statement,Consolidated Statement of Changes in Equity, and the related notes 1 to 18. Wehave read the other information contained in the interim report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. This report is made solely to the Company in accordance with guidance containedin Bulletin 1999/4 'Review of interim financial information' issued by theAuditing Practices Board. To the fullest extent permitted by law, we do notaccept or assume responsibility to anyone other than the Company, for our work,for this report, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the Directors. The Directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority. As disclosed in note 2.2, the next annual financial statements of the Group willbe prepared in accordance with those IFRSs adopted for use by the EuropeanUnion. The financial information for the three months ended 31 March 2006 hasbeen prepared on the basis of the accounting policies which the Directors intendto use in the next financial statements. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4'Review of interim financial information' issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of making enquiriesof group management and applying analytical procedures to the financialinformation and underlying financial data, and based thereon, assessing whetherthe accounting policies have been applied. A review excludes audit proceduressuch as tests of controls and verification of assets, liabilities andtransactions. It is substantially less in scope than an audit performed inaccordance with International Auditing Standards on Auditing (UK and Ireland)and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review, we are not aware of any material modifications thatshould be made to the financial information as presented for the three monthsended 31 March 2006. Ernst & Young LLP London8 May 2006 Consolidated income statementFor the three months ended 31 March 2006 Notes Three months ended Three months ended Year ended 31 March 2006 31 March 2005 31 December 2005 Unaudited Unaudited Audited £000 £000 £000 Revenue 3 87,114 79,091 339,402Property operating expenses (65,333) (62,021) (268,303) ----------- ----------- ------------ Net contract, rental & related income 21,781 17,070 71,099 Net valuation surplus / (deficit) on investment property 9 10,581 (3,046) 18,037Impairment of non-investment property - - (589)Reversal of impairment of non-investment property 8 151 - -Gain on disposal of subsidiaries - - 599Administrative and other expenses (4,618) (3,755) (19,708) ----------- ----------- ------------ Operating profit 27,895 10,269 69,438 Finance costs 4 (14,110) (16,713) (129,718)Finance income 896 1,086 3,805 ----------- ----------- ------------ Profit/(loss) before tax 14,681 (5,358) (56,475) Income tax expense- Guernsey 5 - - -- UK 5 (118) - -- Overseas 5 - - - ----------- ----------- ------------Profit/(loss) for the period 14,563 (5,358) (56,475)Attributable to equity holders of the parent company Dividends- paid 6 8,312 - 17,052- proposed and declared 6 10,342 4,615 8,312 =========== =========== ============ Earnings/(loss) per share £/share £/share £/share Restated- basic 7 0.57 (0.35) (2.9)- diluted 7 0.57 (0.35) (2.9) =========== =========== ============ Consolidated statement of changes in equityat 31 March 2005 and 31 December 2005 Asset Issued Share Unrealised Retained revaluation Other Total capital premium losses earnings reserve reserves equity £000 £000 £000 £000 £000 £000 £000 ------ ------ ------- ------- -------- ------ --------At 31 December 2004 (Audited) - - (63,623) (1,911) 298,914 120,808 354,188 Revaluation deficit - - - - (57) - (57)Depreciation written back on revaluation of non-investment property - - - - 1,737 - 1,737Transfer of excess revaluation depreciation - - - 1,512 (1,512) - -Gain on cash flow hedges - - 7,644 - - - 7,644 ------ ------ ------- ------- -------- ------ --------Total profit for the period recognised directly in equity - - 7,644 1,512 168 - 9,324Loss for the period - - - (5,358) - - (5,358) ------ ------ ------- ------- -------- ------ --------Total income / (expense) for the period - - 7,644 (3,846) 168 - 3,966 ------ ------ ------- ------- -------- ------ --------At 31 March 2005 (Unaudited) - - (55,979) (5,757) 299,082 120,808 358,154 ------ ------ ------- ------- -------- ------ -------- Impairment of non-investment property reclassified to non-current assets held for sale - - - - (255) - (255)Revaluation surplus - - - - 19,494 - 19,494Depreciation written back on revaluation of non-investment property - - - - 5,133 - 5,133Transfer of excess revaluation depreciation - - - 4,832 (4,832) - -Loss on cash flow hedges - - (34,462) - - - (34,462)Realised loss on cash flow hedge - - 63,880 - - - 63,880Total profit for the period recognised directly in equity - - 29,418 4,832 19,540 - 53,790Loss for the period - - - (51,117) - - (51,117) ------ ------ ------- ------- -------- ------ --------Total income / (expense) for the period - - 29,418 (46,285) 19,540 - 2,673Capitalised shareholder loans - - - - - 8,086 8,086Repaid other reserves - - - - - (29,000) (29,000)Issue of ordinary shares on listing of Company - 140,800 - - - - 140,800Costs related to issue of ordinary shares on listing of Company - (8,411) - - - - (8,411)Issue of shares to Non-executive Directors - - - - - 805 805Issue of shares to employees under the Employee Share Plan - - - - - 899 899Equity dividends - - - (17,052) - - (17,052) ------ ------ ------- ------- -------- ------ --------At 31 December 2005 (Audited) - 132,389 (26,561) (69,094) 318,622 101,598 456,954 ------ ------ ------- ------- -------- ------ -------- Consolidated statement of changes in equityat 31 March 2006 Asset Issued Share Unrealised Retained revaluation Other Total capital premium losses earnings reserve reserves equity £000 £000 £000 £000 £000 £000 £000 ------ ------ ------- ------- -------- ------ --------At 31 December 2005 (Audited) - 132,389 (26,561) (69,094) 318,622 101,598 456,954 Revaluation surplus - - - - 11,409 - 11,409Depreciation written back on revaluation of non-investment property - - - - 1,837 - 1,837Transfer of excess revaluation depreciation - - - 1,721 (1,721) - -Net gains on cash flow hedges - - 15,115 - - - 15,115 ------ ------ ------- ------- -------- ------ --------Total income for the period recognised directly in equity - - 15,115 1,721 11,525 - 28,361Profit for the period - - - 14,563 - - 14,563 ------ ------ ------- ------- -------- ------ -------- Total income for the period - - 15,115 16,284 11,525 - 42,924Issue of ordinary shares on listing of Company - 110,000 - - - - 110,000Cost related to issue of ordinary shares on listing of Company - (3,492) - - - - (3,492)Issue of shares to Non-executive Directors - - - - - 262 262Issue of shares to employees under the Employee Share Plan - - - - - 418 418Equity dividends - - - (8,312) - - (8,312) ------ ------ ------- ------- -------- ------ --------At 31 March 2006 (Unaudited) - 238,897 (11,446) (61,122) 330,147 102,278 598,754 ====== ======= ======= ======= ======== ======= ======== Consolidated balance sheetat 31 March 2006 Notes 31 March 2006 31 March 2005 31 December 2005 Unaudited Unaudited Audited £000 £000 £000ASSETSNon-current assetsProperty, plant and equipment 8 539,410 512,224 527,945Investment property 9 1,179,079 666,775 1,077,429Premiums on operating leases 37,470 41,122 38,432Trade and other receivables 11 5,965 6,537 6,405Financial Instruments 10,708 - - ----------- ----------- ------------Total non-current assets 1,772,632 1,226,658 1,650,211 ----------- ----------- ------------Current assetsInventories 10 17,833 18,617 18,509Trade and other receivables 11 61,273 104,443 48,889Cash and short-term deposits - in controlled accounts 26,845 67,628 25,704 - for operational purposes 63,176 9,895 55,452 ----------- ----------- ------------Total current assets 169,127 200,583 148,554 ----------- ----------- ------------ Non-current assets held for sale 1,376 - 1,376 TOTAL ASSETS 1,943,135 1,427,241 1,800,141 =========== =========== ============EQUITY AND LIABILITIESEquity attributable to equity holders of Mapeley LimitedIssued capital (net of treasury shares) 12 - - -Share premium 12 238,897 - 132,389Unrealised losses (11,446) (55,979) (26,561)Retained earnings (61,122) (5,757) (69,094)Asset revaluation reserve 330,147 299,082 318,622Other reserves 12 102,278 120,808 101,598 ----------- ----------- ------------Total equity 598,754 358,154 456,954 ----------- ----------- ------------Non-current liabilitiesTrade and other payables 5,441 4,864 5,413Interest & non-interest bearing loans and borrowings 13 914,561 793,331 797,792Provisions 28,853 27,805 28,235Financial instruments - 55,979 26,561Deferred asset management receipts 76,500 65,477 74,011Current liabilitiesTrade and other payables 107,924 103,784 108,764Interest & non-interest bearing loans and borrowings 13 177,384 3,138 285,422Provisions 11,424 9,328 10,366Financial instruments 16,925 1,135 1,439Deferred asset management receipts 5,369 4,246 5,184 ----------- ----------- ------------Total liabilities 1,344,381 1,069,087 1,343,187 ----------- ----------- ------------ TOTAL EQUITY AND LIABILITIES 1,943,135 1,427,241 1,800,141 =========== =========== ============ Approved by the Board of Directors on 8 May 2006 and signed on its behalf byJ P Hopkins, Director Consolidated cash flow statementfor the three months ended 31 March 2006 Notes Three months ended Three months ended Year ended 31 March 2006 31 March 2005 31 December 2005 Unaudited Unaudited Audited £000 £000 £000 Cash flows from operating activitiesOperating profit 27,895 10,269 69,438Adjustment for:Reversal of impairment of non-investment property 8 (151) - -Impairment of non-investment property - - 589Net valuation (surplus) / deficit on investment property 9 (10,581) 3,046 (18,037)Depreciation and amortisation 8 2,991 3,823 13,420Gain on disposal of subsidiaries - - (599)Share benefit expense 680 - 1,704 ---------- ---------- ----------Operating profit before changes in working capital 20,834 17,138 66,515 (Increase) in inventories (146) (1,344) (1,236) (Increase) / decrease in trade & other receivables (11,942) (6,108) 21,177 Increase in trade & other payables 919 278 5,547 Increase / (decrease) in provisions 1,195 (2,217) (2,224) Increase in deferred asset management receipts 2,674 1,636 11,108 ---------- ---------- ----------Cash generated from operations 13,534 9,383 100,887Interest paid (17,036) (8,689) (48,848)Interest received 896 1,086 3,805 ---------- ---------- ----------Net cash flows from operating activities (2,606) 1,780 55,844 ---------- ---------- ---------- Cash flows from investing activitiesPurchase of property, plant and equipment 8 (96) (175) (333)Purchase of investment property 9 (90,247) (120,497) (507,161) ---------- ---------- ----------Net cash flows used in investing activities (90,343) (120,672) (507,494) ---------- ---------- ---------- Cash flows from financing activitiesCosts of raising finance 13 (1,658) (1,088) (8,185)Payment of finance lease liabilities (119) (43) (589)Receipt of shareholder loans - 675 675Swap and loan termination fees - - (65,931)Receipt of new bank loans 13 294,895 122,027 1,059,595Repayment of bank loans 13 (289,500) - (642,940)Receipt of other reserves - - 29,000Repaid other reserves - - (29,000)Proceeds from issue of ordinary shares on secondary issue / IPO 110,000 - 140,800Costs related to issue of ordinary shares on secondary issue / IPO (3,492) - (8,411) Dividend paid to equity holders 6 (8,312) - (17,052) ---------- ---------- ----------Net cash flows from financing activities 101,814 121,571 457,962 ---------- ---------- ---------- Net increase in cash and short-term deposits 8,865 2,679 6,312Cash and cash equivalents at start of period 81,156 74,844 74,844 ---------- ---------- ----------Cash and cash equivalents at end of period 90,021 77,523 81,156 ========== ========== ========== Notes to the unaudited interim resultsat 31 March 2006 1. General information Mapeley Limited was registered in Guernsey on 26 April 2005 under the provisionsof the Companies (Guernsey) Law, 1994 and issued two shares on incorporation. On2 June 2005, the Company issued 16,037,098 shares to the shareholders of MapeleyUK Co Limited ("MUKCO"), the former parent company of the Group, to acquire itsissued share capital, assets, liabilities and business. On 21 June 2005, throughits initial public offering, the Company issued 6,121,739 ordinary shares toinvestors at a price of £23 each. At the same time, the Company issued 291,308ordinary shares under the Group's Employee Share Plan ("the Plan") for employeesand 5,000 ordinary shares each to J W Harris, R W Carey and C N K Parkinson intheir capacity as Non-executive Directors of the Company. The shares issuedunder the Plan and to the Non-executive Directors were issued for £nilconsideration. On 27 January 2006, through its secondary issue, the Companyissued a further 4,036,697 ordinary shares at an offer price of £27.25. The Directors regard Fortress Investment Trust II and Fortress Registered Investment Trust, both registered in the USA, as the Company's ultimate controlling parties Amounts stated in the consolidated balance sheet at 31 March 2005 and 31 December 2005 and in the consolidated statement of changes in equity for the periods then ended have been adjusted to reflect the adoption of merger accounting as set out below. The consolidated interim financial statements of the Group for the three monthsended 31 March 2006 comprise the Company and its subsidiaries and wereauthorised by the Board for issue on 8 May 2006. The Company's registered office is located at Suite 6, Borough House, Rue du Pre, St Peter Port, Guernsey GY1 3RH. 2.1 Basis of preparation The interim consolidated financial statements of the Group have been prepared inaccordance with International Financial Reporting Standards adopted for use inthe European Union ("IFRS") and the Companies (Guernsey) Law 1994 on thehistorical cost basis, except for investment property, non-investment propertyheld as part of property, plant and equipment, derivative financial instrumentsand available for sale financial assets that have been measured at fair value.The interim consolidated financial statements are presented in pounds sterlingand all values are rounded to the nearest thousand (£000) except where otherwiseindicated. The functional currency of the Group is pounds sterling. After making appropriate enquires, the Directors have a reasonable expectationthat the Group has adequate resources to continue in operation for theforeseeable future. For this reason, they continue to adopt the going concernbasis in preparing the financial statements. Basis of consolidation The consolidated interim financial statements comprise the financial statements of Mapeley Limited and its subsidiaries for the period ended 31 March 2006. MUKCO's special purpose consolidated IFRS financial statements were prepared for the year ended 31 December 2004 in readiness for Listing on the London Stock Exchange. The subsequent restructuring of the Group during the year ended 31 December 2005 involved a share for share exchange, which introduced a new holding company, Mapeley Limited. At the time of reorganisation both companies were under common control. The relative rights of the former shareholders of MUKCO were not altered and this restructuring has been accounted using the merger method of accounting, in line with guidance from UK Generally Accepted Accounting Principles ("UK GAAP") a similar, principles based GAAP to IFRS. UK FRS 6 Acquisition and Mergers states that the merger method of accounting on group restructuring is allowable provided the relative rights of the shareholders were not altered. This basis of consolidation has been adopted as best practice by the Group as no guidance currently exists on group restructuring under IFRS 3 Business Combinations. Although Mapeley Limited was only formed on 26 April 2005 and acquired MUKCO on 2 June 2005, the accounting information, in line with the merger method of accounting, has been prepared as if the Group had always been in existence in its current form. The prior period comparatives are accordingly presented with appropriate adjustments being made to the MUKCO special purpose consolidated financial statements to reflect the Group's reorganisation and its accounting in accordance with the merger method of accounting. Except as noted above in connection with the formation of the Mapeley Limited group, subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred from the Group. The financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies. All intra-group transactions are eliminated as part of the consolidation process. Prior year comparatives Certain comparative figures for the three months ended 31 March 2005 have been adjusted or extended to conform to the presentation adopted in respect of the three months ended 31 March 2006 and the year ended 31 December 2005. The adjustments are explained below: - Trade and other receivables and trade and other payables have been reclassified between current and non-current assets and liabilities respectively. The impact of this reclassification has increased non-current assets by £6.5 million (current assets reduced by the same amount) and qincreased non-current liabilities by £4.9 million (current liabilities reduced by the same amount); - Provisions have been reclassified between current and non-current liabilities. The impact of this reclassification has increased current liabilities by £9.3 million (non-current liabilities reduced by the same amount); - Financial derivatives have been reclassified between current and non-current liabilities. The impact of this reclassification has increased non-current liabilities by £55.9 million (current liabilities reduced by the same amount); - There has been a change in the definition of business segments, and comparatives for the 3 months ended 31 March 2005 have been conformed to the presentation adopted in the financial statements for the year ended 31 December 2005. Further information on business segments is set out in note 3; and - The other change has been to adjust the earnings per share calculation to reflect the Group reorganisation during 2005 as further described in note 7. 2.2 Summary of significant accounting policies The consolidated interim financial statements of Mapeley Limited have been prepared in accordance with IFRS as adopted for use in the EU and the accounting policies as reported in the Group's annual report for the year ended 31 December 2005 except where such policies have been revised to reflect amendments to International Accountancy Standard ("IAS") and the adoption of new IFRS which became effective from 1 January 2006. The following standards, which became effective from 1 January 2006, have been adopted by the Group in preparing these interim financial statements. IAS 39 Amendments to IAS39 Financial Instruments: Recognition and Measurement The Fair Value optionIFRIC 4 Determining whether an Arrangement contains a lease The financial statements of the Group for the year ended 31 December 2006 will be prepared in accordance with IFRS as adopted for use by the European Union at 31 December 2006. IFRS issued but not yet effective The Group has not adopted the following standards in the preparation of the interim financial statements as they were not effective at 31 March 2006: IFRS 7 IFRS 7 Financial Instruments: DisclosuresIAS 1 Amendments to IAS 1 Presentation of Financial Statements Capital DisclosuresIFRIC 8 Scope of IFRS 2IFRIC 9 Reassessment of Embedded Derivatives 3. Revenue and segmental information The business segments have been defined in accordance with the Group's strategyof acquiring property related outsourcing contracts and investment property notacquired under outsourcing contracts. The segments are described below: Outsourcing contracts This segment consists of activities arising from long term contracts with HMRC, Abbey and IPS. The main characteristics of these arrangements include those listed below: - long term contracts (the contracts run over a period between 5 and 20 years);- agreements are tailored in accordance with the client's accommodation requirements (from simple purchase and lease back to fully serviced accommodation);- the agreements allow tenants to exercise flexibility to vacate properties within defined parameters; and - the revenue earned is subject to annual increases. Investment property The Group has embarked on a strategy of acquiring individual andportfolios of office property. The Group's activities within this segment willfocus on purchasing property primarily let to strong credit quality tenants, whoare likely to stay in the properties for a minimum term of 5 years. The definitions of the business segments have been changed since the results for the three months to 31 March 2005 were originally published. Previously there were two business segments - "Property investment" and "Outsourcing contracts". There are now two new segments - "Outsourcing contracts" and "Investment property". The new outsourcing contract segment includes a significant amount of business that was previously included under property investment. The segmental analysis for the three months ended 31 March 2005 has been restated to reflect these changes. The impact on the outsourcing contract segment is as follows. Revenue is now £23.5 million higher, the Segment Result is £9.5 million higher, assets are £586.0 million higher and liabilities are £72.1 million higher. There are corresponding decreases in the same figures for the former "property investment" segment. The Group has a single geographical segment, being the UK commercial propertymarket. Three months ended 31 March 2006 (Unaudited) Business segments Investment Outsourcing Total property contracts operations £000 £000 £000 Rental revenue 9,966 - 9,966Property trading - 95 95 ----------- ----------- ------------ Facility unitary charge - 50,951 50,951 Contractual rents - 19,505 19,505 Third party rents - 6,597 6,597 ----------- ----------- ------------Contractual revenue 77,053 77,053 Segment revenue 9,966 77,148 87,114Rentals payable (67) (43,184) (43,251)Other direct property and contract expenditure * (246) (21,836) (22,082) ----------- ----------- ------------Net contract, rental & related income 9,653 12,128 21,781Reversal of impairment of non-investment property - 151 151Net valuation surplus on investment property 5,844 4,737 10,581 ----------- ----------- ------------ Segment result 15,497 17,016 32,513 =========== =========== Unallocated expenses (4,618) ------------Operating profit 27,895Net finance costs (13,214)Income tax (118)Profit for the period 14,563 ============Assets and liabilitiesSegment assets 629,417 1,213,321 1,842,738 =========== ===========Unallocated assets 100,397 ------------Total assets 1,943,135 ============Segment liabilities 16,360 401,022 417,382 =========== ===========Unallocated liabilities 926,999 ------------Total liabilities 1,344,381 ============Other segment informationDepreciation and amortisation - (2,851) 2,851Expenditure on purchase of investment property 90,247 - 90,247 =========== =========== ============ * Other direct property and contract expenditure includes depreciation. Three months ended 31 March 2005 Restated (Unaudited) Business segments Investment Outsourcing Total property contracts operations £000 £000 £000 Rental revenue 1,046 - 1,046Property trading 44 1,260 1,304 ----------- ----------- ------------ Facility unitary charge - 50,613 50,613 Contractual rents - 19,593 19,593 Third party rents - 6,535 6,535 ----------- ----------- ------------Contractual revenue 76,741 76,741 Segment revenue 1,090 78,001 79,091Rentals payable (1) (39,874) (39,875)Other direct property and contract expenditure * (22,146) (22,146) ----------- ----------- ------------Net contract, rental & related income 1,089 15,981 17,070Net valuation (deficit) on investment property (3,042) (4) (3,046) ----------- ----------- ------------ Segment result (1,953) 15,977 14,024 =========== =========== Unallocated expenses (3,755) ------------Operating profit 10,269Net finance costs (15,627) ------------Loss for the period (5,358) ============ Assets and liabilitiesSegment assets 142,839 1,205,230 1,348,069 =========== ===========Unallocated assets 79,172 ------------Total assets 1,427,241 ============ Segment liabilities 3,917 212,576 216,493 =========== ===========Unallocated liabilities 852,594 ------------Total liabilities 1,069,087 ============Other segment informationDepreciation and amortisation - (3,557) (3,557)Expenditure on purchase of investment property 120,497 - 120,497 =========== =========== ============ * Other direct property and contract expenditure includes depreciation. Year ended 31 December 2005 (Audited) Business segments Investment Outsourcing Total property contracts operations £000 £000 £000 Rental revenue 15,880 - 15,880Property trading 330 2,176 2,506 ----------- ----------- ------------ Facility unitary charge - 213,779 213,779 Contractual rents - 81,152 81,152 Third party rents - 26,085 26,085 ----------- ----------- ------------Contractual revenue - 321,016 321,016 Segment revenue 16,210 323,192 339,402Rentals payable (19) (167,676) (167,695)Other direct property and contract expenditure * (424) (100,184) (100,608) ----------- ----------- ------------Net contract, rental & related income 15,767 55,332 71,099Impairment of non-investment property - (589) (589)Net valuation (deficit) / surplus on investment property (2,289) 20,326 18,037 ----------- ----------- ------------ Segment result 13,478 75,069 88,547 =========== ===========Gain on disposal of subsidiaries 599Unallocated expenses (19,708) ------------Operating profit 69,438Net finance costs (125,913) ------------Loss for the year (56,475) ============ Assets and liabilitiesSegment assets 534,038 1,184,129 1,718,167 =========== ===========Unallocated assets 81,974 ------------Total assets 1,800,141 ============ Segment liabilities 12,666 184,154 196,820 =========== ===========Unallocated liabilities 1,146,367 ------------Total liabilities 1,343,187 ============Other segment informationDepreciation and amortisation - (12,670) (12,670)Expenditure on purchase of investment property 507,161 - 507,161 =========== =========== ============ * Other direct property and contract expenditure includes depreciation. 4. Finance costs Three months ended Three months ended Year ended 31 March 2006 31 March 2005 31 December 2005 Unaudited Unaudited Audited £000 £000 £000 Bank loans and overdrafts 20,225 14,997 59,996Shareholder interest payable - 16 13Finance charges payable under finance leases 72 96 395(Gain) / loss on interest swap (6,668) 1,106 1,410Loss on breaking interest rate swap - - 63,880Loan termination costs - - 2,051Unwinding of discount on provisions 481 498 1,973 ------------- ------------- ------------ 14,110 16,713 129,718 ============= ============= ============ Bank loans and overdraft charges include amortisation of loan finance fees of£5.0 million (Three months ended 31 March 2005: £3.0 million; year ended 31December 2005: £8.8 million). Amortisation of loan finance fees includes exceptional accelerated amortisation charges of £4.4 million (Three months ended 31 March 2005: £Nil; year ended 31 December 2005: £6.8 million) in respect of loan finance fees on certain of the Group's borrowings. In accordance with IAS 39 Financial Instruments: Recognition and Measurement, unamortised loan finance fees at 31 March 2006, incurred in connection with terminated borrowings, have been charged over the period from 31 December 2005 to the expected date of repayment of those borrowings. 5. Income tax expense The major components of income tax are: a) Tax on profit on ordinary activities Three months ended Three months ended Year ended 31 March 2006 31 March 2005 31 December 2005 Unaudited Unaudited Audited £000 £000 £000Tax charged in the income statementCurrent income taxGuernsey Income tax - - -UK Income tax 118 - -Other overseas tax - - - ------------- ------------- ------------Current income tax charge 118 - - Amounts overprovided in previous years - - - ------------- ------------- ------------Total current income tax 118 - - ------------- ============= ============ Deferred taxOrigination and reversal of temporary differences - - - ------------- ------------- ------------Total deferred tax - - - ------------- ------------- ------------Tax charge in the income statement 118 - - ============= ============= ============ Deferred tax relating to items charged or credited to equity No income tax or deferred income tax has been charged or credited to equity. b) Reconciliation of income tax charge Three Three Three Three Year Year months months months months ended ended ended ended ended ended 31 31 31 March 31 March 31 March 31 March December December 2006 2006 2005 2005 2005 2005 Unaudited Unaudited Unaudited Unaudited Audited Audited % £000 % £000 % £000 Profit / (loss) before income tax 100.0 14,681 100.0 (5,358) 100.0 (56,475) At the weighted average income tax rate for the Group 5.1 753 19.6 (1,049) 24.5 (13,833) ======== ======== ======== ======== ======== ========Revaluation gains on investment properties not taxable (16.8) (2,469) 0.0 1 (0.6) 315Expenses not deductible for tax purposes 8.6 1,258 (23.9) 1,282 (4.9) 2,795Unutilised current year tax losses 10.5 1,546 (13.4) 719 (23.4) 13,200Utilisation of previously unrecognised losses (7.2) (1,051) 22.4 (1,202) 3.2 (1,793)Depreciation in excess of capital allowances (0.8) (124) (1.5) 80 1.5 (849)Other 1.4 205 (3.2) 169 (0.3) 165 -------- -------- -------- -------- -------- --------At effective income tax rate of 0.8% / 0% / 0% 0.8 118 - - - - ======== ======== ======== ======== ======== ======== The weighted average income tax rate for the period of 5.1% (31 March 2005: 19.6%; 31 December 2005 24.5%) is based on the weighted average tax rate applicable across the Group's operations. This has been calculated by dividing (1) Group companies' profits before tax multiplied by the tax rate applicable for each Group company by (2) the Group's profit before tax. c) Deferred income tax The Group has tax losses arising in prior periods that would be availableindefinitely for offset against future taxable profits of the companies in whichthe losses arose. The Group has not recognised any deferred income tax asset asthe Directors do not consider there is sufficient certainty in the timing andamount of future taxable profits that would allow reversal of the asset arisingin the relevant Group companies. The unrecognised deferred tax asset balances are as follows: As at As at As at 31 March 2006 31 March 2005 31 December 2005 £000 £000 £000 Revaluation of interest rate swaps to fair value 2,632 13,397 6,687Losses not utilised 32,179 19,713 34,479Decelerated capital allowances 2,893 5,567 3,240Movement in the provision for onerous leases 4,027 2,917 3,461Movement in the deferral of asset management receipts 18,203 15,057 17,741Other temporary differences 1,941 1,528 1,736Deferred tax asset recoverable in the event of sale of revalued properties at market value owned by UK incorporated companies (223) (10) (48) ------------- ------------- ------------Total unrecognised deferred tax asset balance 61,652 58,169 67,296 ============= ============= ============ There would be no material tax liability if the Group's other properties were to be sold at the valuation at which they are stated in the balance sheet. 6. Dividends Three months ended Three months ended Year ended 31 March 2006 31 March 2005 31 December 2005 Unaudited Unaudited Audited £000 £000 £000 Declared and paid during the period: Equity dividends on ordinary shares: First interim dividend for 2005: £0.30 per share - - 4,615 Second interim dividend for 2005: £0.27 per share - - 4,275 Third interim dividend for 2005: £0.03 per share - - 748 Fourth interim dividend for 2005: £0.33 per share - - 7,414 Fifth interim dividend for 2005: £0.37 per share, paid 5 January 2006 8,312 - - ------------- ------------- ------------ 8,312 - 17,052 ============= ============= ============ Proposed and approved at the Board meeting on 27 April 2006 (To be deducted from retained earnings in the three months ending 30 June 2006) Equity dividends on ordinary shares: First interim dividend for 2006: £0.39 per share; (31 March 2005: £0.30 per share; 31 December 2005: £0.37 per share) 10,342 4,615 8,312 ============= ============= ============ 7. Earnings / (loss) per share The calculation of basic and diluted earnings per share figures is based on thefollowing: - Net profit attributable to equity holders of the Company for the period of £14.6 million (three months ended 31 March 2005: loss of £5.4 million; year ended 31 December 2005: loss of £56.5 million)- Weighted average number of ordinary shares for basic earnings per share 25,290,653 (three months ended 31 March 2005: 15,382,100; year ended 31 December 2005: 19,510,770)- Weighted average number of ordinary shares for diluted earnings per share 25,315,333 (three months ended 31 March 2005: 15,382,100; year ended 31 December 2005: 19,527,249) To aid comparability, the weighted average numbers of ordinary shares for thethree months ended 31 March 2005 have been restated to reflect the share forshare exchange that took place on 2 June 2005, in which existing shareholderswere offered 100 ordinary shares in the Company for each share held in MUKCO.The effect of this was to reduce the basic loss per share from £35.0 per shareto £0.35 per share and diluted loss per share from £35.0 per share to £0.35 pershare. 8. Property, plant and equipment Property acquired Freehold under finance Plant and property leases equipment Total £000 £000 £000 £000 Cost or valuation:At 31 December 2005 487,271 42,213 16,303 545,787Additions - - 96 96Reversal of impairment 151 - - 151Revaluations 10,309 1,100 - 11,409 -------- -------- -------- --------At 31 March 2006 497,731 43,313 16,399 557,443 ======== ======== ======== ======== Accumulated depreciation:At 31 December 2005 - (2,123) (15,719) (17,842)Provided during the year (1,763) (125) (140) (2,028)Written back on Revaluation 1,763 74 - 1,837 -------- -------- -------- --------At 31 March 2006 - (2,174) (15,859) (18,033) ======== ======== ======== ======== Net book value:At 31 March 2006 497,731 41,139 540 539,410 ======== ======== ======== ======== At 31 December 2005 487,271 40,090 584 527,945 ======== ======== ======== ======== Freehold property and property acquired under finance leases is included inproperty, plant and equipment where the Group provides significant ancillaryservices to tenants, and is carried at fair value. During the year, the impairment of certain of the Group's non-investmentproperties, amounting to £151,000 has been reversed. The reversal of thisimpairment has been credited to the current periods's income statement. Freehold property held at 31 March 2006 of £497,730,000 (31 December 2005:£487,271,000) and the majority of the property acquired under finance leases at31 March 2006 of £38,760,000 (31 December 2005: £37,660,000) were valued at 31March 2006 by Savills Commercial Limited ("Savills"), a valuer external to theGroup as part of the valuation of all the valuable properties held by the Groupunder the HMRC contract. These valuations have been incorporated into theinterim financial statements. Savills have consented to the use of their name inthese interim financial statements. The total of this valuation at 31 March 2006was £578,683,000 (31 December 2005: £566,613,000) and an analysis of where theassets valued are recorded in the financial statements is shown in the tablebelow: 31 March 2006 31 December 2005 £000 £000 Freehold property 497,730 487,271Property acquired under finance leases 38,760 37,660 -------- --------Recorded in property, plant and equipment 536,490 524,931 Properties held within premiums on operating leases 39,130 38,628Properties held as non-current assets held for sale 3,063 3,054 -------- --------Total valuation of the Group's assets valued by Savills 578,683 566,613 ======== ======== Long leasehold properties with a valuation of £39,130,000 (31 December 2005:£38,628,000) are classified as Premiums on operating leases and are recorded athistorical cost less amortisation. Five properties with a valuation of£3,063,000 (31 December 2005: £3,054,000) became vacant during 2005 and arebeing actively marketed for sale in 2006. The valuation at 31 March 2006 has been carried out in accordance with The RoyalInstitution of Chartered Surveyors' ("RICS") Appraisal and Valuation Standardspublished in February 2003 (the "Red Book") and the CESR Guidance on propertyvaluations. The valuation was carried out using the discounted cash flow methodof valuation. Under this method the estimated future income stream from eachproperty and the estimated residual value of each property have been capitalisedat appropriate discount rates that reflect the tenure, location, age, size andquality of buildings, the terms of the outsourcing contract and the potentialrisk that some of the properties may fall vacant either during or at the end ofthe contract. The valuations have been prepared in accordance with the Red Book on the basisof Market Value, which is defined as follows: "The estimated amount for which a property should exchange on the date ofvaluation between a willing buyer and a willing seller in an arm's-lengthtransaction after proper marketing wherein the parties had each actedknowledgeably, prudently and without compulsion." The following assumptions were used in determining the valuations which werespecific to the Group: - For the purpose of the valuations, each Property has been valued individually and not as part of a portfolio notwithstanding the overriding terms of the Group's contract with HMRC and the non-assignable nature of this contract. The valuations assume that the contract is freely assignable in the open market.- No allowances have been made for any expenses of realisation nor for taxation which might arise in the event of a disposal of a Property. The valuations are, however, net of acquisition costs (if any).- Purchasers' costs have been deducted in arriving at the valuations. These are based on 1% agents fees, 0.5% legal fees (fees include VAT at 17.5%) and stamp duty land tax at the relevant rate, dependent upon the value of each property.- Under the terms of the contract with HMRC, it is entitled to bring a proportion of its leases to an end earlier than the 20 year term and vacate the premises subject to (i) 12 months' notice; and (ii) agreed limits on the amount and type of space that can be vacated each year. The valuations assumed a hypothetical weighted average lease term for the leases with HMRC to reflect these termination rights, and taking into account HMRC's stated intentions. These hypothetical weighted average lease terms are as follows: - Properties designated "Core" by the HMRC contract - leased until 31 March 2021; - Properties designated "Intermediate" by the HMRC contract - leased until the contractual lease expiry date; and - Properties designated "Flexible" by the HMRC contract - leased until 30 September 2011. - HMRC pays the Group amounts under the contract which cover the charge for both the accommodation provided and the related services. The payment is subject to deductions for failures to meet specified performance standards and unavailability for use. Services provided to HMRC include maintenance, lifecycle replacement, cleaning, help desk, security, catering, childcare, health and safety, utilities, equipment management, churn, vending and landscaping. The valuations rely upon the Group for its assessment of the cost of providing these services, the level of deductions and how they will vary over time.- The valuations have been carried out by taking account of the benefit of the contract with HMRC and the various occupational leases and the subsequent sale of the Property at expiry of these arrangements. In assessing the future sales proceeds, Savills have estimated the current vacant possession value of the properties and assumed that these decline in real terms at rates between 0.5% and 1.25% per annum. In order to arrive at their valuation, Savills discounted net annual rents receivable at a weighted average rate of 6.3% and residual sales values were discounted at a weighted average rate of 10.4%. Certain other properties held under finance leases and included within property,plant and equipment were valued in accordance with the Red Book by the Directorsat a Market Value of £2,380,000 (31 December 2005: £2,430,000) having takenadvice from a suitably-qualified employee (a member of The Royal Institution ofChartered Surveyors). The valuations for the finance leases were determined by: - taking into account the estimated future income stream from each property; and using- appropriate discount rates that reflect the incremental borrowing rate of the Group at the time the leases were taken out, being 7.5% (31 December 2005: 7.5%). If freehold property and property acquired under finance leases were measuredusing the historical cost model, the carrying amounts would be as follows: 31 March 2006 31 December 2005 £000 £000Freehold Cost 190,842 190,842 Reversal of impairment 151 - Accumulated depreciation (3,313) (3,198) -------- --------Net book value 187,680 187,644 ======== ========Acquired under finance leases Cost 23,736 23,736 Accumulated depreciation (2,342) (2,286) -------- --------Net book value 21,394 21,450 ======== ======== All leased assets are pledged as security for the related finance leaseobligation. 9. Investment property Property Freehold acquired under property finance leases Total £000 £000 £000At valuation:At 31 December 2005 1,054,305 23,124 1,077,429Additions 90,247 - 90,247Transfers from inventories 420 402 822Revaluations 9,545 1,036 10,581 --------- ------- ---------At 31 March 2006 1,154,517 24,562 1,179,079 ========= ======= ========= During the period ended 31 March 2006, 4 properties were transferred from inventories to investment property as the Group intends to hold these properties on a long term basis. It is the Group's policy to carry investment property at fair value inaccordance with IAS 40 "Investment Property". Investment property was valued at31 March 2006 by CB Richard Ellis Limited ("CBRE") and Savills, valuers externalto the Group. These valuations have been incorporated into the interim financial statements.Both Savills and CBRE have consented to the use of their names in thesefinancial statements. Investment property comprises the Group's Abbey portfolio and its directproperty investments. CBRE's valuation of the Abbey portfolio of properties was£550,226,000 (31 December 2005: £546,503,000). Certain properties with avaluation of £nil (31 December 2005: £1,841,000) included within this valuationare being marketed for sale and as such are classified as trading propertieswithin inventories. These are carried at the lower of cost or net realisablevalue in the financial statements. Savills and CBRE both carried out valuations of the Group's other propertiesheld within investment property, which were valued as at 31 March 2006 at£24,950,000 (31 December 2005: £24,825,000), and at £600,366,000 (31 December2005: £504,399,000) respectively as at 31 March 2006. The remaining properties held under Property acquired under finance leases werevalued by the Directors at a Market Value of £3,537,000 (31 December 2005:£3,543,000), having taken advice from a suitably-qualified employee (a member ofThe Royal Institution of Chartered Surveyors). These valuations are summarised below: 31 March 2006 31 December 2005 £000 £000 Valuation of Abbey portfolio by CBRE 550,226 546,503Less properties valued by CBRE held in inventories at lower of cost or net realisable value - (1,841) --------- --------- 550,226 544,662Valuation of direct property investments by Savills 24,950 24,825Valuation of direct property investments by CBRE 600,366 504,399Valuation of certain finance leases by the Directors 3,537 3,543 --------- --------- 1,179,079 1,077,429 ========= ========= The valuations at 31 March 2006 and 31 December 2005 have been carried out inaccordance with The Royal Institution of Chartered Surveyors' ("RICS") Appraisaland Valuation Standards published in February 2003 (the "Red Book") and the CESRGuidance on property valuations. The valuations have been prepared in accordance with the Red Book on the basisof Market Value, which is set out in note 8. The following assumptions were used in determining the valuations which werespecific to the Group: - No allowances have been made for any expenses of realisation or for taxation which might arise in the event of a disposal of a property. The valuations are, however, net of acquisition costs (if any).- Purchasers' costs have been deducted in arriving at the valuations. These are based on 1% agents fees, 0.5% legal fees (fees include VAT at 17.5%) and stamp duty land tax at the relevant rate, dependent upon the value of each property.- The valuations have been undertaken assuming that in the case of the Abbey properties, each property is subject to a standard-form lease agreed between the Group and Abbey and that these leases commenced on 1 January 2001 without options to break on the part of either the tenant or the landlord. There are overriding provisions for Abbey to terminate occupational leases earlier than the original lease end date. These are set out within a master agreement entered into with Abbey. In the case of the DPI properties, the valuation for each of the properties has been undertaken determined by the specific term of the individual leases.- Abbey's ability to exercise its right to end leases and vacate property early is constrained by the fact that the aggregate rent payable by Abbey in the following years of the master agreement's 20 year term cannot fall below the following percentages of the projected aggregate rents for those years: Years 5 to 6 95% Years 7 to 11 85% Years 12 to 15 80% Years 16 to 20 90% Constraints over the remaining investment properties are determined by the specific term of the individual leases.- In return for the flexibility in the Abbey portfolio, there are compensation mechanisms provided within the master agreement which are intended broadly to leave the Group in a neutral position. Whilst invariably the computation on a property by property basis may result in some properties being under compensated or vice versa, the valuations consider that overall the position is indeed likely to remain neutral.- It should also be noted that the rental increments broadly hold the rental flow at a similar level even on the presupposition that Abbey exercises maximum flexibility. The Directors valued certain finance leases at 31 March 2006, having takenadvice from a suitably qualified employee (a member of The Royal Institution ofChartered Surveyors), on the following basis: - taking into account the estimated future income stream from each property; and using- appropriate discount rates that reflect the incremental borrowing rate of the Group at the time the leases were taken out, being 7.5% (31 December 2005: 7.5%) 10. Inventories 31 March 2006 31 December 2005 £000 £000 Trading properties 822 822Transfer to investment properties (822) - --------- ---------Trading properties - 822Work in progress (at cost) 17,833 17,687 --------- --------- 17,833 18,509 ========= ========= During the period, trading properties were transferred to investment property and further information is set out in note 9. Work in progress represents costs on long term contracts not yet taken to the income statement less any foreseeable losses and payments on account. 11. Trade and other receivables 31 March 2006 31 December 2005 £000 £000Non current Other receivables 121 121 Accrued income 5,844 6,284 --------- --------- 5,965 6,405 ========= ========= 31 March 2006 31 December 2005 £000 £000Current Trade receivables 17,998 8,868 Other receivables 215 70 Prepayments and accrued income 43,060 39,951 --------- --------- 61,273 48,889 ========= ========= Trade receivables are non-interest bearing. Amounts receivable from HMRC arereceived one month in arrears. Amounts receivable on all other contracts andleases are receivable quarterly in advance. 12. Issued capital and reserves 31 March 2006 Authorised No. of ordinary shares £000 Ordinary shares at par value of £nil 26,519,903 - ========== ====== Issued No. of shares £000At 1 January 2006 (net of 1,460 treasury shares) 22,463,687 -Issued on 25 January 2006 4,036,697 -Issued on 17 March 2006 under the Employee share plan 13,059 -Issued on 17 March 2006 to the Non-executive Directors 5,000 -Treasury shares (766) - ---------- ------At 31 March 2006 (net of treasury shares) 26,517,677 - ========== ====== On 25 January 2006, through an additional public offering, the Company issued afurther 4,036,697 ordinary shares to investors at a price of £27.25 each. TheCompany also issued 13,059 ordinary shares under the share Plan for employeesand 5,000 ordinary shares M Fascitelli who was appointed as a Non-executiveDirector on 20 December 2005. The ordinary shares issued to the Employee SharePlan and to the Non-executive Directors were issued for £nil consideration. Share premium Share premium represents the excess of proceeds raised on the issue of shares over the nominal value of those shares. Costs incurred in issuing additional shares of £3,492,000 have been deducted from share premium during the period ended 31 March 2006. Other reserves Other reserves includes a credit of £418,000 for the period ended 31 March 2006 in respect of shares issued under the Plan and charged to the income statement. Other reserves also include a credit of £262,000 which relates to the share benefits expense for shares issued to the four Non-executive Directors and charged to the income statement. 13. Interest and non-interest bearing loans and borrowings Three months ended Three months ended Year ended 31 March 2006 31 March 2005 31 December 2005 Unaudited Unaudited Audited £000 £000 £000Non-currentObligations under finance leases 6,113 4,471 6,160Bank loans 908,448 781,602 791,632Loans from shareholders - 7,100 -Interest due to shareholders - 158 - -------- -------- -------- 914,561 793,331 797,792 ======== ======== ========CurrentObligations under finance leases 120 151 120Bank loans 177,264 1,999 285,302Loans from shareholders - 675 -Interest due to shareholders - 313 - -------- -------- -------- 177,384 3,138 285,422 ======== ======== ======== Bank loans The table below sets out the Group's bank loans together with unamortisedfinancing costs and accrued interest as at 31 March 2006 and 31 December 2005: £000 £000 £000 £000 £000 Principal Unamortised Net Accrued Total amount financing cost loan interest At 31 December 2005 1,086,613 (9,679) 1,076,934 11,791 1,088,725Receipt of bank loans 294,895 (1,658) 293,237 - 293,237Repayment of bank loans (289,500) 5,041 (284,459) - (284,459)Interest - - - (1,851) (1,851) --------- --------- --------- --------- ---------At 31 March 2006 1,092,008 (6,296) 1,085,712 9,940 1,095,652 ========= ========= ========= ========= ========= Revolving acquisition facility A 10 year, £208.6 million fixed rate facility was arranged during the period torefinance the Group's £300 million revolving acquisition facility secured on certain of the Group properties. The interest rate payable on the facility is fixed at 4.55% plus 0.75% mandatory costs (if any). When the assets funded by the facility were initially purchased, the Directors entered into swap arrangements to fix the rate of interest payable. Once all assets had been purchased, the acquisition facility and related swap arrangements were terminated and the rate payable under the investment facility which replaced it, determined by the weighted average rate payable under the Group's matching swap contracts. Each borrower under this facility has granted security over all its assets in favour of the lender. The loan is partly repaid when properties within the portfolio are sold. Any unpaid loan balance outstanding at expiry will be repaid in full at that time. Revolving Gamma acquisition facility During the period the Group also arranged a 2 year, £300.0 million RevolvingGamma facility to finance the future acquisition of investment property. The interest rate payable on the facility is LIBOR plus 1.5 % plus mandatory costs(if any). The Group has also put in place a 10 year, 4.3725% £200.0 million swap to fix its anticipated long term exposure to interest rate risk on these property acquisitions. 14. Subsequent events Since 31 March 2006, the Group has exchanged and completed contracts for 2properties for a consideration of £29.0 million. These properties have been funded by the revolving Gamma acquisition facility. In addition, the Group has also exchanged contracts on one property for a consideration of £5.1 million, with expected completion on 26 May 2006. The Group is currently in negotiations to refinance the loan facility enteredinto by Mapeley STEPS Limited and Mapeley STEPS Contractor Limited. This will involve the repayment of the current 20 year, £177.3 million loan and replacing it with a 7 year, £180.0 million term facility. Consequently, the Group has accelerated the write off of £4.4 million unamortised loan finance costs on the original borrowings. The Group intends to enter into fixed interest rate agreements at the start of the new facility to fix interest payable. If thetransaction had occurred on 31 March 2006 swap breakage costs on the currentfacility would have amounted to £16.9 million. The Board of the Company proposed and declared a dividend of £10.3 million (31 December 2005: £8.3 million; 31 March 2005: £4.6 million) at a Board meeting held on 27 April 2006. 15. Earnings before interest, tax, depreciation and amortisation Earnings before interest, tax, depreciation and amortisation or "EBITDA" isdefined by the Group as profit before tax, finance costs, depreciation andamortisation, valuation surplus / deficit on investment property, gain ondisposal of subsidiaries and impairment / impairment reversal of non-investmentproperty. EBITDA for the year is computed as follows: Three months ended Three months ended Year ended 31 March 2006 31 March 2005 31 December 2005 Unaudited Unaudited Audited £000 £000 £000 Profit/(loss) before tax 14,681 (5,358) (56,475)Add back: Finance cost net of finance Income 13,214 15,627 125,913 Depreciation and amortisation 2,991 3,823 13,420 Net valuation (surplus)/ deficit on investment property (10,581) 3,046 (18,037) (Reversal)/impairment of non-investment property (151) - 589 Gain on disposal of Subsidiaries - - (599) -------- -------- --------EBITDA 20,154 17,138 64,811 ======== ======== ======== 16. Funds from operations Funds from operations or "FFO" is a management measure used to demonstrate theunderlying operating performance of real estate businesses such as the Company.It provides investors with information regarding the Group's ability to servicedebt and make capital expenditure. FFO does not represent cash generated fromoperating activities in accordance with IFRS, therefore it should not beconsidered an alternative to cash flow as a measure of liquidity, and is notnecessarily indicative of cash funds available. This calculation of FFO may bedifferent from the calculation used by other companies and, therefore,comparability may be limited. The Group defines "FFO" as Group "EBITDA" less "net finance costs" less the"movement in the onerous lease provision" less the "movement in work inprogress" plus the movement in "net asset management receipts" plus the chargein respect of "employee shares". More detailed definitions of these adjustmentsto EBITDA are given below: "Net finance costs" comprise finance costs less finance income as set out in theGroup income statement, adjusted to exclude amortisation of loan finance fees,gains or losses on interest rate swaps, loan termination costs and the unwindingof discounts on provisions. The "Movement in the onerous lease provision" - This is the net release (orcharge) to the Group income statement as a result of the change in the Grouponerous lease provisions, excluding interest charged on the unwinding of theprovision. Although these amounts offset rental costs in the income statement,they do not represent cash movements and are therefore excluded from thecomputation of FFO. The "Movement in work in progress"- This is the period on period change in Groupwork in progress or if negative, accrued cost. The amount represents theincrease or decrease in lifecycle costs deferred by the Group so as to matchcosts with revenue. "Net asset management receipts" - These are the total cash receipts in theperiod less amounts amortised in the financial period. "Employee shares" - Under IFRS 2, costs are charged to the Group incomestatement when share based payments are made. This is a non cash expense and istherefore excluded from the measure. Three months ended Three months ended Year ended 31 March 2006 31 March 2005 31 December 2005 Unaudited Unaudited Audited £000 £000 £000 EBITDA 20,154 17,138 64,811Net finance costs (14,361) (11,023) (47,795)Movement in the onerous lease provision 1,195 (2,221) (2,227)Movement in work in progress (146) (1,650) (2,146)Asset management receipts 2,674 1,638 11,108Share benefit expense 680 - 1,704 -------- -------- --------FFO 10,196 3,882 25,455 -------- -------- -------- FFO per share 40 pence 25 pence 130 pence -------- -------- --------- The calculation of FFO per share is based on the following: - FFO for the period of £10.2 million (Three months ended 31 March 2005: £3.9 million; year ended 31 December 2005: £25.5 million)- Weighted average number of ordinary shares of 25,290,653 (Three months ended 31 March 2005: 15,382,100; year ended 31 December 2005: 19,510,770) The weighted average number of ordinary shares for the three months ended 31March 2005 has been restated to reflect the share for share exchange that tookplace on 2 June 2005, in which existing shareholders were offered 100 ordinaryshares in the Company for each share held in MUKCO. 17. Gearing ratio Gearing is defined as Group net debt (total debt less cash and short-termdeposits) as a proportion of total consolidated equity attributable to theequity holders of the parent. "Total debt" is defined as actual current andnon-current loan balances together with any overdrafts owed to lenders andexcludes any unamortised finance costs or adjustments to apply the effectiveinterest rate method. Equity is as set out in the consolidated balance sheet.Gearing is computed as follows: As at As at As at 31 March 2006 31 March 2005 31 December 2005 Unaudited Unaudited Audited £000 £000 £000 "Total debt" 1,092,008 791,985 1,086,613Less: Cash and short-term deposits (90,021) (77,523) (81,156) ---------- ---------- ---------- Net debt 1,001,987 714,462 1,005,457Equity 598,754 358,154 456,954 ========== ========== ========== Gearing ratio 167% 199% 220% ========== ========== ========== 18. Net assets per share As at As at As at 31 March 2006 31 March 2005 31 December 2005 Unaudited Unaudited AuditedBasic net assets per share £22.58 £23.28 £20.34 ---------- ---------- ----------Diluted net assets per share £22.56 £23.28 £20.34 ---------- ---------- ---------- The calculation of basic and diluted net asset value per share figures is basedon the following: - Consolidated net assets (equity) attributable to the equity holders of the Company as at 31 March 2006 of £598.8 million (31 March 2005: net assets of £358.2 million; 31 December 2005: net assets of £457.0 million)- Number of ordinary shares for basic net asset value per share 26,517,667 (31 March 2005: 15,382,100; 31 December 2005: 22,463,687)- Number of ordinary shares for diluted net asset value per share 26,541,793 (31 March 2005: 15,382,100; 31 December 2005: 22,480,166) The number of ordinary shares at 31 March 2005 has been restated to reflect theshare for share exchange that took place on 2 June 2005, in which existingshareholders were offered 100 ordinary shares in the Company for each share heldin MUKCO. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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