Interim Results

RNS Number : 1487M

LXB Retail Properties Plc

19 May 2010

 

For immediate release 19 May 2010

 

LXB Retail Properties Plc

("LXB Retail", the "Company")

 

LXB Retail Properties Plc, a closed-ended real estate investment company focused on edge of town and out of town retail assets, today announces unaudited interim results for the six months ended 31 March 2010.

 

Key points

 

§ £109.6m (net) raised from October 2009 listing on AIM and CISX.

 

§ NAV per share* 94.37p.

 

§ Loss per share 1.55p.

 

§ Loss per share pre fair value adjustment on derivative financial instruments 0.37p.

 

§ Cash deposits and liquid investments at 31 March of £78.3m.

 

§ Acquired 2 retail units and development land in Greenwich, for £19.19m (including direct costs) in February.

 

§ Acquired Bugsby's Way Retail Park in Greenwich, for £10.84m (including direct costs) in March.

 

§ In total, 103,500 sq ft of unrestricted retail planning consent and 27,500 sq ft of 'Bulky Goods' consent acquired.

 

Post period end:

 

§ Complex £41.9m site assembly programme in Biggleswade announced today, providing opportunity to create a 250,000 sq ft major retail destination.

 

§ 66% of net IPO funds invested by date of interim announcement.

 

 

 

 

Phil Wrigley, Chairman of LXB Retail Properties Plc commented:

 

"During our first six months on AIM, we have demonstrated our ability to acquire attractive assets, with the potential for substantial value creation. Despite the expectation of a challenging market ahead, I am confident that our strategy of buying strategic secondary property and sites with planning potential and creating prime investment grade assets, allows us to look to the future with confidence and enthusiasm."

 

*NAV is measured on a basis consistent with guidance given by the European Public Real Estate Association ("EPRA").

 

For further information please contact:

 

LXB Manager LLP Tel: 020 7432 7900

Tim Walton, CEO

Brendan O'Grady, FD

 

Buchanan Communications Tel: 020 7466 5000

Charles Ryland / Nicola Cronk / George Prassas

 

 

Chairman's statement

 

Dear Shareholder,

 

I am pleased to be making my first interim report to shareholders. The business has made an excellent start with the purchase of a number of properties offering the potential for significant value growth by creating modern investment grade assets in high quality locations.

 

The successful launch on AIM and CISX on 23 October 2009, raised net proceeds of £109.6m, a large proportion of which have already been put to work in pursuit of the investment policies we described in our Admission Document.

 

We said we would acquire assets with the potential for value to be enhanced by active management. By 31 March 2010 we had deployed some £30m of equity on 2 purchases at Greenwich. These assets, situated in close proximity on Bugsby's Way, provide the Group with strong asset management opportunities as well as the potential for a wider development scheme in the area. We have announced today that the Group has invested a further £41.9m of equity in purchasing a number of sites at Biggleswade, following a complex site assembly programme, which provides the opportunity to create a 250,000 sq ft major retail destination. I am therefore pleased to report that at the date of my writing to you, the Group has already invested approximately 66% of funds raised, and the Investment Manager's team is working on a pipeline of exciting opportunities.

 

The Board and the Investment Manager's team have established an excellent working relationship and effective governance. We believe we are well placed to identify and complete further attractive investment opportunities.

 

Market review

 

Since the IPO, yields for prime commercial property in the UK have tightened significantly and some prime property purchases have been made at levels more consistent with the pre credit crunch market. The CBRE UK Retail Investment Update 2010 reports that between March 2009 and March 2010 the equivalent yield for an Open A1 Prime Park moved from 6.75% to 5.25%. Despite this, yields for less prime assets and prices for sites have remained at more realistic and sustainable levels. It is these kinds of locations that the Investment Manager's team is continuing to concentrate on. Asset management of this kind of stock can create significant value for shareholders.

 

The outlook for the retail sector improved over the last 12 months. However, it remains to be seen what effect the policies of a new Government will have on UK retailing in general. Whilst in the wider market retailers have the upper hand in letting negotiations at present as a result of the quantity of vacant stock, for the right unit in the right location we find that attractive deals are achievable.

 

Finally, the banking sector remains in a weakened state. Whilst it appears that liquidity and credit are returning, it's a slow process. Many lenders have considerable exposure to commercial property, much of which is secured on distressed assets. Although the base rate remains low, lenders are seeking to achieve demanding margins and terms. In summary, whilst access to funds and loan to value requirements have improved slightly, pricing of debt continues to be unattractive.

 

Financial results and position

 

The results for the Group's first period reflect limited rental income because property acquisitions were made relatively late in the period. As further properties are acquired the rent roll will increase, putting the Group in a better position to cover administrative expenses. During the period, costs have been in line with budget and there have been no material changes from our projected results.

 

The Group has entered into four purchaser swaptions, a derivative that provides a guaranteed maximum cost of funds but allows flexibility should future debt be undrawn or market rates remain low. The instrument also allows the Group to benefit should interest rates increase significantly. Long term swap rates have remained depressed due to general market uncertainty and concerns over the strength of the UK economic recovery. Consequently, the Group's results for the period have been significantly affected by the accounting requirement to mark to market the derivative instruments and reflect the change in their fair value in the income statement.

 

At the period end total cash deposits and liquid investments were £78.3m with no debt. The careful and secure management of these funds continues to be a key priority. These funds were held with or through nine different banks at 31 March 2010 with no single bank holding more than 18.5% of the total.

 

Outlook

 

While we continue to observe reports of a tentative UK economic recovery, the outlook for the commercial property market remains uncertain. It seems likely that retail occupiers will experience further pressure as the new UK Government addresses its economic and fiscal challenges. Property owners will need to manage the cash flow burden of increased voids and the associated impact on property values. We anticipate increases in interest rates and the requirement for the refinancing of existing property loans which may cause further challenges for property owners. However, these circumstances may present further opportunities for LXB Retail Properties Plc due to the strength of its financial position. So, despite the expectation of a challenging market ahead, I am confident that our strategy of buying strategic secondary property and sites with planning potential in order to create prime investment grade assets allows us to look to the future with confidence and enthusiasm. We hope to be able to announce further acquisitions in the near future, as well as discuss in more detail the plans for existing assets.

 

 

 

 

Phil Wrigley

Chairman

 

Date: 19 May 2010

 

 

Auditor's independent review report to LXB Retail Properties Plc

 

Introduction

 

We have been engaged by the Company to review the condensed set of financial statements included within this Interim Report for the period from 27 August 2009 to 31 March 2010 which comprises the Group Income Statement, Group Statement of Changes in Equity, Group Balance Sheet, Group Cash Flow Statement and related notes.

 

We have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

Directors' responsibilities

 

The Interim Report, including the financial information contained therein, is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Interim Report in accordance with the rules of the London Stock Exchange for companies trading on the Alternative Investment Market and the rules for companies trading securities on the Channel Islands Stock Exchange. These rules require that the Interim Report be presented and prepared in a form consistent with that which will be adopted in the Company's annual accounts having regard to the accounting policies applicable to such annual accounts.

 

As disclosed in note 2, the annual financial statements of the Group will be prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed set of financial statements included in this Interim Report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting" as adopted by the European Union.

 

Our responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Interim Report based on our review.

 

Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market and the rules for trading securities on the Channel Islands Stock Exchange and for no other purpose. No person is entitled to rely on this report unless such a person is entitled to rely on this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any such liability.

 

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity", issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Accounting Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Interim Report for the period from 27 August 2009 to 31 March 2010 is not prepared, in all material respects, in accordance with International Accounting Standard 34, as adopted by the European Union, the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market and the rules for companies trading securities on the Channel Islands Stock Exchange.

 

 

 

 

BDO LLP

Chartered Accountants and Registered Auditors

London

 

 

Date: 19 May 2010

 

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

 

 

 

Group income statement

		Unaudited
		27 August 2009
		to 31 March
		2010
	Note	£
Gross rental income		111,985
Property outgoings		(985)
		_________
Net rental income and gross profit		111,000
General administrative expenses		(900,070)
Revaluation surplus		21,862
		_________
Operating loss		(767,208)
Finance income	4	349,866
Change in fair value of derivative financial instruments	4	(1,340,100)
		_________
Loss before tax		(1,757,442)
Taxation charge	5	(5,397)
		_________
Loss for the period		(1,762,839)
		_________
		Pence
		per share
Loss per share
Basic and diluted	6	1.55
		_________

 

All amounts relate to continuing activities.

 

All income is attributable to the equity holders of the parent company.

 

There were no items of other comprehensive income or expense and therefore the loss for the period also reflects the Group's total comprehensive loss.

 

 

 

Group statement of changes in equity

		Unaudited
	Stated	Retained
	capital	loss	Total
	£	£	£
At incorporation	-	-	-
Loss for the period	-	(1,762,839)	(1,762,839)
Issue of ordinary shares of no par value	114,215,000	-	114,215,000
Share issue costs	(4,664,014)	-	(4,664,014)
	_________	_________	_________
At 31 March 2010	109,550,986	(1,762,839)	107,788,147
	_________	_________	_________

 

 

 

Group balance sheet

			Unaudited as at 31 March 2010 £
		Note
Non-current assets
Investment properties		7	30,050,000
Derivative financial assets		8	207,900
			__________
			30,257,900
			__________
Current assets
Business and other receivables		9	236,052
Money Market Fund investments		10	7,500,000
Cash deposits with maturities of more than three months		10	20,000,000
Cash and cash equivalents		10	50,821,264
			__________
			78,557,316
			__________
Total assets			108,815,216
Current liabilities
Business and other payables		11	(1,027,069)
			__________
Total liabilities			(1,027,069)
			__________
Net assets			107,788,147
			__________
Equity
Stated capital		12	109,550,986
Retained loss			(1,762,839)
			__________
Total equity			107,788,147
			__________
			Pence
			per share
Net asset value per share (pence)			94.37
			__________

 

 

 

 

Group cash flow statement

		Unaudited 27 August 2009
		to 31 March
		2010
		£
Cash flows from operating activities
Loss before tax		(1,757,442)
Net finance costs		990,234
Revaluation surplus		(21,862)
		__________
Cash flows from operations before changes in working capital		(789,070)
Change in business and other receivables		(101,334)
Change in business and other payables		804,948
		__________
Cash flows from operations		(85,456)
		__________
Investing activities:
Cash placed on deposit with maturities of more than three months		(20,000,000)
Interest received		215,148
Purchase of investment properties		(29,811,414)
Money Market Fund investments made		(7,500,000)
		__________
Cash flows from investing activities		(57,096,266)
		__________
Financing activities:
Net proceeds from share issue		109,550,986
Purchase of derivative instruments		(1,548,000)
		__________
Cash flows from financing activities		108,002,986
		__________
Net increase in cash and cash equivalents		50,821,264
Cash and cash equivalents at incorporation		-
		__________
Cash and cash equivalents at end of period		50,821,264
		__________

 

 

Notes to the interim report

 

1 General information about the Group

 

LXB Retail Properties Plc was listed on the AIM and CISX markets on 23 October 2009. It is a closed ended real estate investment company that was incorporated in Jersey on 27 August 2009.

 

This interim financial report includes the results and net assets of the Company and its subsidiaries, together referred to as the Group.

 

The unaudited financial information set out in this report covers the period from the date of incorporation to 31 March 2010 and does not constitute statutory accounts for the purposes of the Companies (Jersey) Law 1991 (as amended). The Company has not previously published or filed any financial statements.

 

Further general information about the Company can be found on its website, www.lxbretailproperties.com.

 

 

2 Basis of preparation

 

The financial information contained in this report has been prepared in accordance with IAS 34, "Interim Financial Reporting", as adopted by the European Union and on a going concern basis.

 

The accounting policies adopted in this report are consistent with those included on pages 41 to 45 of the Admission Document issued by the Company on 23 October 2009, and are also consistent with those that are expected to be applied in the Group's first annual report and financial statements for the period ending 30 September 2010, which will be prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The Admission Document is available from the "Investor relations" page of the Company's website, www.lxbretailproperties.com, or by writing to the Company Secretary at Ogier Fund Administration (Jersey) Limited, Whiteley Chambers, Don Street, St Helier, Jersey, JE4 9WG.

 

 

3 Segmental information

 

During the period, the Group operated in and was managed as one business segment, being property investment, with all properties located in the United Kingdom.

 

 

4 Finance income and costs

 

		Unaudited
		27 August 2009
		to 31 March
		2010
		£
Finance income:
Interest on cash deposits		349,866
		__________
Finance costs:
Change in fair value of derivative financial instruments		(1,340,100)
		__________
Net finance costs		(990,234)
		__________

 

 

5 Taxation

 

		Unaudited
		27 August 2009
		to 31 March
		2010
		£
The tax charge for the period comprises:
Current tax:
Tax on results for the period		5,397
		__________

 

The tax assessed for the period varies from the standard rate of income tax in the United Kingdom of 20%. The differences are explained below:

		Unaudited
		27 August 2009
		to 31 March
		2010
		£
Loss before tax		(1,757,442)
		__________
Loss before tax at the standard rate of income tax in the UK of 20%		(351,488)
Effects of:
Expenses not deductible for tax		178,116
Tax adjustment in respect of fair value adjustment to derivative instruments		268,020
Revaluation surplus not subject to tax		(4,373)
Income not subject to tax		(69,973)
Other tax deductible financing costs		(14,905)
		__________
Current tax charge for the period		5,397
		__________

 

 

6 Loss per share

 

The loss per share is calculated on a weighted average of 113,393,208 ordinary shares of no par value in issue for the period from the Company's listing on 23 October 2009 to 31 March 2010 and is based on a loss attributable to ordinary shareholders for the period of £1,762,839.

 

There are no share options or other equity instruments in issue and therefore no adjustments need to be made for dilutive or potentially dilutive equity arrangements.

 

International Financial Reporting Standards require that the effects of unrealised revaluation gains and losses on the Group's investment properties are reported through the group income statement. Adjusting the loss for the period to strip out any unrealised property valuation movements, the loss per share for the Group would be 1.57p for the period.

 

Adjusting the loss per share to eliminate the effects of the fair value adjustment on derivative financial instruments would result in an attributable loss of £422,739 or 0.37p per share.

 

7 Investment properties

		Unaudited
		Long
	Freehold	leasehold	Total
	£	£	£
At incorporation	-	-	-
Acquisitions	10,838,048	19,190,090	30,028,138
Revaluation surplus	11,952	9,910	21,862
	_________	_________	_________
Carrying value at 31 March 2010 (unaudited)	10,850,000	19,200,000	30,050,000
	_________	_________	_________

 

 

At 31 March 2010, the long leasehold investment properties, which were acquired on 17 February 2010, were valued at £19,200,000 by King Sturge LLP, Chartered Surveyors in their capacity as external valuers. The valuation was undertaken in accordance with the Royal Institution of Chartered Surveyors' Appraisal and Valuation Standards on the basis of market value. Market value represents the estimated amount for which a property would be expected to exchange at the date of valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgably, prudently and without compulsion. A deduction is made to reflect an estimate of the purchasers' acquisition costs.

 

At 31 March 2010, the freehold investment properties which were acquired on 30 March 2010 were valued by the Directors at £10,850,000.

 

The historical cost of the Group's investment properties as at 31 March 2010 was £30,028,138.

 

 

8 Derivative financial assets

 

On 8 January 2010, the Group entered into four purchaser swaptions in order to protect the Group against future interest rate rises. The following table provides a summary of the purchaser swaptions and their mid-market values at 31 March 2010:

 

 

	Option exercise		Swap	Premium
	date and swap	Swap	strike rate	paid	Valuation
Notional amount	start date	end date	%	£	£
£25m	1 July 2010	1 July 2014	3.38	298,000	4,747
£25m	1 October 2010	1 July 2014	3.38	421,000	38,517
£25m	1 January 2011	1 July 2014	3.71	382,000	56,538
£25m	1 April 2011	1 July 2014	3.71	447,000	108,098
				_________	_________
				1,548,000	207,900
				_________	_________

 

The purchaser swaptions have been fair valued at the close of business on 31 March 2010 by J.C. Rathbone Associates Limited.

 

The Group had no borrowings and no other derivative financial instruments in place at 31 March 2010.

 

9 Business and other receivables

		Unaudited
		as at
		31 March
		2010
		£
Prepayments and accrued income		17,136
Interest receivable		134,718
Other receivables		84,198
		__________
		236,052
		__________

 

All amounts above are due within one year.

 

 

10 Money Market Fund investments and cash and cash equivalents

 

Total cash deposits held at 31 March 2010 amounted to £70,821,264 of which £20,000,000 are separately disclosed in the balance sheet as their original maturity period was more than three months.

 

At 31 March 2010 a further £7,500,000 is invested in shares in a Money Market Liquidity Fund with instant access. This is disclosed in the balance sheet as a current asset investment.

 

 

11 Business and other payables

 

		Unaudited
		as at
		31 March
		2010
		£
Business payables		488,014
Rent received in advance		332,675
Other accruals		200,983
Income tax payable		5,397
		__________
		1,027,069
		__________

 

 

12 Stated capital

 

Since incorporation the Company has issued a total of 114,215,000 ordinary shares of no par value for a total of £114,215,000. In arriving at the stated capital of the Company of £109,550,986, as disclosed in the balance sheet at 31 March 2010, total share issue costs of £4,664,014 have been deducted from this amount.

 

Analysis of share capital:

		Unaudited
	Unaudited	31 March
	31 March	2010
	2010	Amount paid
	Number	£
Authorised
Ordinary shares of no par value	Unlimited	n/a
	__________	__________
Issued and fully paid
Ordinary shares of no par value	114,215,000	114,215,000
	__________	__________

 

 

On incorporation two ordinary shares of no par value were issued for cash at a subscription price of £1 per share. On 23 October 2009, a further 109,999,998 ordinary shares of no par value were issued pursuant to the Placing for cash at the placing price of £1 per share. On 23 November 2009, a further 4,215,000 ordinary shares of no par value were issued for cash under the Over-allotment Arrangement referred to in the Admission Document at the placing price of £1 per share.

 

 

13 Related party transactions and balances

 

Interests in shares

 

The interests of the Directors and their families in the share capital of the Company are as follows:

 

	Ordinary shares
	of no par value
	held at
	31 March 2010
Philip Oliver Wrigley	100,000
Stephen John Webb	50,000
Daniel John Kitchen	250,000
John Alastair Irvine	2,500,000

 

 

The interests disclosed above include both direct and indirect interests in shares.

 

The group headed by LXB3 Partners LLP, which includes LXB Manager LLP and its wholly owned subsidiary, LXBRP GP Limited, is a related party of the Company. LXBRP GP Limited acts as the sole corporate general partner of LXB Retail Properties Fund LP, a significant subsidiary of the Company and LXB Manager LLP is the Investment Manager to the Group. At 31 March 2010, LXB3 Partners LLP and its members held an aggregate total of 12,820,865 ordinary shares of no par value in the Company.

 

There have been no changes to any of the above shareholdings between 1 April 2010 and the date of this report.

  

Fees

 

Directors' fees of £130,388 were payable for the period ended 31 March 2010. As at 31 March 2010, £61,250 of fees payable remained outstanding and are included within other accruals (note 11).

 

Management fees of £479,706 were payable to the group headed by LXB3 Partners LLP by the Group in respect of the period ended 31 March 2010, of which £269,828 was payable as at the balance sheet date and is included within business payables.

 

Other transactions

 

Transactions between the Company and its subsidiaries which are related parties have been eliminated on consolidation.

 

 

14 Post balance sheet events

 

On 6 May 2010, the Group completed the acquisition of four properties in Biggleswade for £17m, including costs of acquisition.

 

On 18 May 2010, the Group completed the acquisition of a property in Biggleswade for £0.9m, including costs of acquisition and exchanged contracts on the acquisition of a further two properties in Biggleswade for an estimated cost of £24m, including costs of acquisition.

 

 

 

 

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