5th Feb 2008 07:01
Quintain Estates & Development PLC05 February 2008 5 February 2008 Quintain Estates & Development PLC ("Quintain" / "Company" / "Group") INTERIM MANAGEMENT STATEMENT GOOD PROGRESS IN SPECIAL PROJECTS AND FUND MANAGEMENT HIGHLIGHTS BENEFIT OF DIVERSIFIED BUSINESS MODEL Quintain's diversified and entrepreneurial business model has continued todeliver good progress during the third quarter and the start of 2008. Highlights • Continued strong momentum on the Company's major special projects: - Start of construction on the first commercial building at Greenwich Peninsula, following the 135,000 sq ft pre-let to Transport for London - Start on site of the second residential building at Wembley, of which 90% has been pre-sold - Following the acquisition of the 13 acre Wembley Retail Park in November, the strategic purchase of a 5.7 acre site at Second Way, Wembley for £15m in December - Start of enabling works at Wembley on the UK's first Envac waste removal system • Quintain Fund Management records excellent performance and high levels of ongoing activity during the period: - Growth of funds under management from £895m to £972m - £45.8m of acquisitions by Quercus during the period at an average initial yield of 7.1%; fund expects to achieve strong returns for the 12 months to 31 December 2007 - Ongoing operational progress for Quintain's iQ fund, including the grant of planning permission for a 634 room student accommodation scheme in Leeds • Quintain has increased its financial resources by raising £300m of debt since 30 September 2007 Adrian Wyatt, Chief Executive of Quintain, commented: "Since 30 September 2007, Quintain has continued to achieve key milestones onits major regeneration projects, increased the level of funds under managementand has raised a further £300m of debt funding. This funding provides us withthe capacity to seize opportunities that arise as a result of the re-pricing ofthe investment market as well as extracting value from our existing portfolio. "Over the last three years we have repositioned our Investment Portfolio,reducing our level of exposure to the more traditional sectors and therebymitigating the impact of current market conditions. Activity in the period alsodemonstrates our measured approach to the management of our major developmentprojects, where we have introduced third party equity or achieved pre-lets andpre-sales prior to going on site. The timing of our major special projectsremains firmly within our control and we will manage the roll-out to suit ourbalance sheet, market conditions and competing opportunities. "Over the next few years, the opportunities to create significant value in ourmajor assets and the resilient nature of our fund management business willcontinue to produce rewards and position us to maintain Quintain's track recordof value creation." For further information please contact: Quintain Estates and Development plcRebecca WorthingtonTel: +44 (0) 20 7495 8968 Financial DynamicsStephanie Highett / Dido Laurimore / Laurence JonesTel: +44 (0) 20 7831 3113 Business Review Quintain's business model, which is diversified both in terms of activity andsector, continues to focus on the identification of assets and situations whereour skills can unlock hidden value. Special Projects Quintain has considerable opportunities to create shareholder value through itssignificant regeneration schemes, most notably at Wembley and Greenwich. Wecontinue to drive these opportunities forward and have made solid progress sinceSeptember 2007 as detailed below. However, we continually maintain a financiallydisciplined approach, stringently monitoring and managing risk by controllingtiming, limiting obligations and mitigating market exposure through pre-sales,pre-lets and the introduction of third party capital. This is particularly relevant against the background of current marketconditions where we will not be immune from weakening market sentiment. However,we remain confident in the essential durability of the London mid-marketresidential sector, where we have greatest exposure, and the unique appeal ofthe destinations we are creating. We still expect to see stronger long-termperformance in London than the rest of the UK in the light of net immigrationand the ongoing trend for smaller family unit households. Strong momentum was maintained across our Special Projects business during theperiod. At Wembley: • Construction of the first residential building, W01, remains on schedule for practical completion in August of this year. In order to mitigate market risk we pre-sold 100% of the apartments. Significant residential price inflation since these sales were made means that we expect a high level of completions. • Construction of the adjacent residential plot, W04, began in November. 90% of the homes have been pre-sold privately or to housing associations. • We have continued our policy of strategic land acquisition with the purchase of the 13 acre Wembley Retail Park site in October 2007, and 5.7 acres at Second Way in Wembley in December 2007. This latter acquisition is a key site for logistics and transport management, increasing our flexibility as we masterplan the Northern Lands. These new acquisitions are in addition to Stadium Retail Park which was acquired earlier in the financial year. • Masterplanning for the Northern Lands, incorporating the Palace of Arts and Industries and the Wembley and Stadium Retail Parks has moved into the first phase of consultation. It is anticipated that an application will be made this year to increase the overall consent from 6.3m sq ft to in excess of 10m sq ft. • Enabling work for the UK's first Envac waste removal system began at Wembley after the period end. This system, which has been successfully deployed in 30 countries, eliminates the need for road-based collection of domestic waste and stimulates a higher level of recycling by residents. At Greenwich Peninsula: • Construction has commenced on the first commercial building following the pre-let in November 2007 to Transport for London ("TfL") for 135,000 sq ft. TfL retains an option for a further 60,000 sq ft of space. • Progress continues on the residential programme, with applications for detailed consent made in December 2007 and January 2008 for two further buildings comprising 512 homes. Both will feature a range of environmentally sustainable measures in line with the wider scheme's ambitions. • An estimated four million people have visited The O2 since it opened on 24 June 2007, demonstrating the viability of the location as a leisure destination. During the fourth quarter, work will begin on a marketing suite designed to convert this substantial footfall at Greenwich Peninsula into sales leads for our residential and commercial offer and capitalise on the animation created by the venue. Other Progress: The establishment of our zero carbon business, BioRegional Quintain, as theleader in its field continues. Construction of our One Brighton site in the NewEngland Quarter of the town adjacent to the main train station is on scheduleand within budget. At Middlehaven, where we are building the UK's largest zerocarbon community, the new identity of the dockside location - Riverside One -was unveiled during the period, driving interested homebuyers to registerthrough the development's new website. Construction of the marketing suite is inthe final phase. Having acquired 100% of the City Park Gate development next to Moor StreetStation in Birmingham, we achieved outline planning consent for the 1 million sqft scheme in November 2007. Work is now taking place to design apartments thatachieve Level 3 on the Code for Sustainable Homes, and BREEAM rating of 'Excellent' for the offices within the development. We continue to invest in the "Running Towns as Businesses" concept, namely ourstrategic objective to deliver shareholder benefit from an ongoing share ofrevenues generated by the provision of infrastructure and utilities to theresidents and tenants of the buildings on our major schemes. To this end JamesSaunders has been recruited to head up this business. His appointment bringsexecutive-level operational and marketing expertise to Quintain in areas such asnew media, telecommunications and global brands. Fund Management The performance of our specialist healthcare, student accommodation and sciencepark funds has been strong both in absolute terms and relative to the widermarket. Core demographics continue to support valuations and underpin ourconfidence that our Fund Management business model, focused on non-traditionalsectors, will continue to drive growth. During the period funds under management grew from £895m to £972m: • In the quarter to 31 December 2007, our Quercus healthcare fund made acquisitions totalling £45.8m at an average initial yield of 7.1%. The fund continues to deliver exceptional performance compared with the market as a whole, and it is anticipated to deliver a total return for the 12 months to 31 December 2007 in the high teens. • Within our student accommodation fund, iQ, the four schemes currently operational have achieved 97% occupancy rates. We expect to open a further three developments in September 2008, enlarging the operational portfolio to seven schemes and total beds to 2,625. In addition, we gained planning permission during the period for a 634-room scheme in Crowther Place, Leeds. Work has started on site with the demolition phase close to completion. This scheme will come into operation in September 2009. • Quantum, our specialist science park fund, achieved consent for the amendment to the revised masterplan for the Bristol and Bath Science Park. Construction of the first phase of the 800,000 sq ft scheme is scheduled to start in summer 2008. Investment Portfolio Quintain was a net seller of assets in its Investment Portfolio between 2005 and2007. As a result, the Company has a substantially reduced exposure to theuncertainty within the commercial property sector. Concurrently, the businessretains strategic interest in key holdings where we believe value creationopportunities will emerge in the longer term. The swift adjustment in commercial property yields should ensure thatopportunities to acquire assets with the potential to create value will emergewithin this calendar year. The additional debt raised in the period gives us thecapacity to make such acquisitions as they arise. The tenant market remains resilient to date, evidenced by achieving lettings atnew record rents at our properties in Cardiff, Birmingham and Dartford duringthe quarter. Finance Quintain now has total debt facilities of £795m with an average maturity of 3.5years. Following on from the £150m facility raised with Bank of ScotlandCorporate in November 2007, the Company has secured a further £150m of debt onthe same terms with HSBC, Lloyds TSB and Barclays Capital, each contributing£50m. These additional facilities have the potential to be used across the portfolio:in particular we anticipate more opportunities to grow our fund managementbusiness and investment portfolio due to market re-pricing. We have significantflexibility and will utilise these funds as appropriate between competing uses. Net debt at 31 December 2007 was £485m, with gearing standing at 54%. Theincrease from 39% at 30 September 2007 was driven by acquisitions. Marketconditions have brought forward opportunities for strategic land purchasesaround Wembley and, since the half year, Quintain has bought Wembley Retail Parkfor £85m and the site at Second Way, Wembley for £15m. For the quarter to 31December 2007 acquisitions totalled £105m. Capital expenditure was £11m, mainlyrelating to the development at Wembley and including £3.2m of capitalisedinterest. There were no sales in the period. As additional debt has been drawn down we have put in place further hedges inorder to maintain our position of being between 50% and 100% hedged on ourinterest rate exposure. At 31 December 2007 the proportion of our debt hedgedwas slightly below target at 46%. Since then we have taken advantage of improvedmarket pricing and obtained £100m of swaps at an average price of 4.975% and£50m of caps at an average price of 5.625%, both with maturities of 5 years. At 31 December 2007 the market value of our interest rate hedges was £0.9m (30September 2007: £1.6m) and the average cost of our debt 7.4% (30 September 2007:7.2%). Forward Looking Statements This document may contain certain 'forward looking statements. By their natureforward-looking statements involve risk and uncertainty because they relate tofuture events and circumstances. Actual outcomes and results may differmaterially from any outcomes of results expressed or implied by suchforward-looking statements. Any forward looking statements made by or on behalf of Quintain speak only as atthe date they are made and no representation or warranty is given in relation tothem, including as to their completeness or accuracy or the basis on which theywere prepared. Quintain does not undertake to update forward-looking statementsto reflect any changes in Quintain's expectations with regard thereto or anychanges in events, conditions or circumstances on which any such statement isbased. Information contained in this document relating to the Company should not berelied upon as an indicator of future performance. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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