19th Feb 2008 07:00
Terrace Hill Group PLC19 February 2008 19 February 2008 Terrace Hill Group PLC ('Terrace Hill' or 'the group')Preliminary Announcement of Results for the year to 31 October 2007 Terrace Hill Group PLC, the AIM listed property group, announces its results forthe year ended 31 October 2007. Highlights • Triple net asset value (TNAV) increased 13.8% to 83.7p per share (2006: 73.6p per share) - adding back dividend payments, underlying TNAV growth for the year was 16.1% • Adjusted diluted net asset value (ADNAV) increased 7.6% to 96.3p per share (2006: 89.5p per share) • Final dividend of 1.3p per share being recommend bringing the total dividend for the year to 2.1p per share, an increase of 16.7% over last year's figure • £1.3 billion projected end value of commercial development programme • Fall in projected end value of some commercial developments offset by the value added to projects through successful lettings, sales and planning gains • Valuation of residential investment portfolio remained largely unchanged • Value of residential investments sold or under contract for sale totalled £57.9m realising profit on cost of 19.8% • Scottish housebuilding business beginning to gather momentum - new sites purchased and planning consents gained - landbank has capacity for over 1,400 units and projected annualised turnover of 250 units by December 2009 • Strong cash position of over £26 million together with £37.7 million of undrawn debt facilities and excellent relationships with lenders • Proven track record of adding value through managing risk: structuring finance, portfolio diversification, stock selection and managing construction • Well positioned to take advantage of opportunities in the property market by purchasing attractive assets from distressed or forced sellers Chairman's Statement I am delighted to present our results for the year to 31 October 2007, which areparticularly pleasing given the uncertain economic environment. During the period our triple net asset value (TNAV) has increased by anencouraging 13.8% to 83.7 pence per share (2006: 73.6 pence per share). Theadjusted diluted net asset value (ADNAV) has increased by 7.6% to 96.3 pence pershare (2006: 89.5 pence per share). ADNAV is affected by the timing of taxpayable on realised profits whereas TNAV takes full account of all deferred andcontingent tax on the revaluation of investment properties and gains on tradingproperties and is calculated after deducting dividends paid during the year.Adding back these dividend payments, underlying TNAV growth was 16.1% for theyear. Our target remains to grow underlying TNAV, as adjusted for dividendpayments, by at least 20% per annum and we have achieved an average growth since2003 of 30.9% per annum. The board is recommending a final dividend of 1.3 pence per share to be paid on4 April 2008. Taken with the interim dividend of 0.8 pence per share paid inAugust, the total dividend in respect of the year to 31 October 2007 will be 2.1pence per share, an increase of 16.7% over last year's figure. This is in linewith our progressive dividend policy and demonstrates our confidence in thefuture of the business. Our results include the effect of a fall in the projected end value of some ofour commercial developments due to weakening investment yields, but this hasbeen substantially offset by the value added to projects through successfullettings, sales and planning gains. The valuation of our residential investmentportfolio has remained largely unchanged reflecting falls in value in parts ofthe Midlands and north of England, but modest gains in Scotland, London and thesouth east of England. These are the first full year results that the group has prepared underInternational Financial Reporting Standards (IFRS), the most significant impactof which is the requirement to include the movement on the revaluation ofinvestment properties in the income statement. The group's profit before tax forthe year on this basis was £18.1 million (2006: £25.8 million). The profitbefore tax for 2006 includes our share of a net revaluation uplift as a resultof the acquisition of the at.home Nationwide portfolio of £16.7 million, with nocomparable uplift included in the profit for 2007. In May 2007 we raised £24.3 million of capital net of costs through the placingof 24,752,475 new shares at 101 pence per share with a number of institutions,many of whom were new to our shareholder register. We were delighted with thesuccess of this issue which was completed at a premium to the share price at thetime and has increased our available funds to take advantage of goodopportunities in a weakening market. It is pleasing to note that the occupational market for our developments hasremained strong with lettings and owner occupier sales continuing to take placeacross the portfolio. In some areas we are even seeing exceptional levels ofdemand, for example at Kean House in Covent Garden where rents achieved onlettings have risen by 35% in the past 12 months. In the residential sales market there is some price weakness, but I believe thatthe long-term fundamentals underlying the market are strong. Demand exceedingsupply, particularly due to low levels of new housebuilding and relatively lowunemployment coupled with falling short-term interest rates, means that we areexpecting the market will strengthen in the medium term returning to sustainablelevels of good growth. We are positive about the prospects for our portfolio dueto the low average value per unit (£154,000) which helps mitigate the issue ofaffordability relative to incomes and the portfolio's geographic predominance inLondon and the South East, where the supply and demand imbalance is most acute,and in Scotland where the ratio of household incomes relative to house pricesremains high. Clansman Homes, our Scottish housebuilding business, is beginning to gathersignificant momentum with the purchase of a number of new sites and success ingaining new planning consents. We have a landbank with capacity for over 1,400units and projected annualised turnover of 250 units by December 2009. We expectthe business to continue its excellent growth, both through the existinglandbank and new acquisitions, adding substantial value for shareholders.Currently, the poor market for new listings means that we will delay the planneddemerger of Clansman until such time as we believe the value to our shareholderswill be maximised. We have a strong cash position of over £26 million together with £37.7 millionof undrawn debt facilities and excellent relationships with lenders. This willallow us to take advantage of the weakening in the property market by purchasingattractive assets from distressed or forced sellers. Once again, the directors and staff have performed exceptionally and aredemonstrating their determination and ability to succeed in difficult times asmuch as in good. Since the year end we have seen some further weakening in investment yields andforesee a modest slowdown in occupier demand but I am confident about the longterm outlook and in our ability to deliver enhanced returns to our shareholders.We have the skills and ambition for significant profitable expansion and Ilook forward to the opportunities presented by the current market withenthusiasm. Robert FM AdairChairman19 February 2008 Review of Operations Despite more difficult markets we have continued to let completed commercialdevelopments well and add significant value through planning gains, siteassembly and development. We have made good progress within the Scottishhousebuilding division, now known as Clansman Homes, acquiring new sites andachieving planning consents on our landbank allowing us to increase units underconstruction. The valuation of the residential investment portfolio has remainedresilient with improving rental levels and reduced voids. We have seen that ourvery experienced development skills drive results in changing times and that welead our peers by creating desirable space and understanding occupier needs. A core strength of our business lies in our ability to manage risk effectively.This competence lies at the heart of our operations and is centred around thestructuring of our finances, portfolio diversity, stock selection and managingconstruction. These skills are never more important than in the challengingeconomic climate and markets in which we now find ourselves. Our results duringthe period and progress since is testament to the fact we can perform well indifficult times and continue to deliver above average risk weighted returns forour shareholders. Commercial development Once again geographic and sector diversification have proved important, allowingus to spread our risk and utilise our specialist knowledge of specific locationsand occupier markets. Our total current and pending commercial development programme has grown to £1.3billion by projected end value, of which 84.2% is in the office sector, 9.4%retail and 6.4% industrial. Our philosophy is always to mitigate letting riskwhere appropriate and of the schemes currently on site 39% have been pre-let orpre-sold. The majority of our schemes at the development stage are carried out infinancial joint ventures where we commit a minority equity stake in return for asubstantial carried interest above benchmark returns. We also earn substantialdevelopment management fees from the joint ventures (£2.3 million in theperiod). Two significant joint venture developments have been established during theyear. • Two Orchards, Bracknell - a prominent 7.9 acre office development site on the edge of Bracknell with planning consent for three buildings totalling 270,000 sq ft. The phased development is being carried out in joint venture with Hypo Real Estate Bank International A.G. and will have an end value of around £125 million. The first phase will be completed in 2009 when we predict that there will be a shortage of supply of good quality office space in the Thames Valley market. • Howick Place, Victoria, London - we have acquired House of Fraser's office headquarters in joint venture with a view to redeveloping the site into a mixed use scheme of office and high quality residential with an end value of around £180 million. House of Fraser took a lease back of the property until July 2008 around which time we expect to receive detailed planning consent for our proposals. Other significant achievements have been • At George Street, Croydon we won a planning consent for a 204,000 sq ft office development. Since then we have decided to submit an application to increase the size of the building to 240,000 sq ft in order to more closely match a number of occupier requirements in the Croydon office market and to enhance value further. • The acquisition of a prominent 1.7 acre site in Southampton city centre for £7.4 million. The proposed mixed use development will comprise around 180 residential units, a 150 bedroom hotel and 110,000 sq ft of offices. The residential element has been sold, conditional on planning, to Crest Nicholson and the completed development is expected to have an end value of around £61 million. • Lettings at Kean House, our 25,200 sq ft office refurbishment in Covent Garden, London, have exceeded expectations where four floors were pre-let to Adecco at a headline rent of £42.50 psf. Since completion in August a further five floors have been let at rents up to £57.50 psf and the remaining retail unit fronting Kingsway has been let to Costa Coffee. • Redd 42, our 232,680 sq ft distribution warehouse developed within the Terrace Hill Development Partnership (THDP) was let to iForce Ltd at an initial rent of £5.75 psf. iForce use the unit as the national e-fulfilment centre for John Lewis Direct. • The forward sale of a new 19,400 sq ft office development at Baltic Business Quarter, Gateshead to the Open University for £5.25 million. At the same scheme the 180,000 sq ft development for Gateshead College has been completed and handed over on schedule. • Bristol Bridge House has been acquired for £9.2 million. An office refurbishment opportunity overlooking the floating harbour in one of the city's most central and attractive locations. We expect to make a planning application in Spring 2008. • The sale of a 4.5 acre industrial site at Edmonton, north London, to an owner occupier for £7.7 million, realising a profit of £3.2 million. • Our appointment by Middlesbrough Borough Council as preferred developer of Central Gardens East, a town centre urban regeneration scheme, which will include up to 130,000 sq ft of offices and a 100 bed hotel. • In Ashington town centre in Northumberland we have, conditional on planning, contracted to acquire a 3.3 acre retail warehouse development site for a development of around 30,000 sq ft of open A1 non food retail warehouses. The site has the potential to be extended to accommodate up to 100,000 sq ft of additional retail space through an agreement with adjoining landowners. • In December, following the year end, we entered into unconditional contracts to sell our riverside site at Queens Wharf in Hammersmith for £30.75 million. We completed the acquisition of the property in November from a private investor for £17.0 million having held an option on the site for the preceding 12 months. We identified Queens Wharf as a site with great potential for redevelopment for a variety of uses and worked with the local authority to maximise value through different planning options as a result of which we decided to sell the site to a specialist high quality residential developer. Residential investment We have continued to manage our residential investment assets aggressively.Since the purchase of the at.home Nationwide portfolio in July 2006, where wehold a 49% interest, we have continued to drive performance through increasedrental levels, improved occupancy rates and reduced management costs. We areexperiencing good demand from tenants and fully expect to maintain and improveupon these results. Further, we have continued to rationalise the portfoliothrough the sale of selected properties, aiming to maintain a balanced portfoliofor future growth. By the year end we had properties sold or under contract forsale totalling £57.9 million, realising profit on cost of 19.8%. The overall value of our residential investments has remained static since thehalf year. Some weakness has been seen in properties in the north of England andMidlands with London, the South East and Scotland proving most resilient. We believe that, whilst not immune from a downturn in the housing market, ourproperties are well located to withstand these pressures, being predominantly inLondon and Scotland, and with a low average value of £154,000 which will remainaffordable. Furthermore, we continue to see strong rental demand across theportfolio. Clansman Homes Clansman Homes, our Scottish housebuilding division, has made good progressduring the period. We have acquired new sites for development at Fenwick, southof Glasgow and Carnwath, near Lanark, a prime commuting area for both Edinburghand Glasgow. As a result, our landbank now has capacity for over 1,400 units andwe are currently on site in four different locations. Significantly, we obtaineddetailed planning consent for 168 units at Shotts in north Lanarkshire where thefirst homes will be delivered to the market in Spring 2008. Demand for our homes remains strong with the Scottish housing market appearingto hold up well compared to other parts of the UK. We believe that our focus onaffordable, suburban homes with no exposure to high cost city centre dwellings,will help us to withstand the challenges of any housing downturn. It continuesto be our intention to demerge Clansman Homes from the Group when markets areappropriate. Philip LeechChief Executive19 February 2007 Finance Review Basis of accounting The key figures for the year ended 31 October 2007 are summarised in thehighlights. These are the first full year results that the group has preparedunder International Financial Reporting Standards (IFRS) and this has requiredthe results of prior periods to be restated using IFRS. The application of thesenew reporting standards does not affect the economic value of the business butit has led to differences in the level of profits and net assets reported. Triple net asset value (TNAV) and adjusted diluted net asset value (ADNAV) In line with many publicly quoted property companies we highlight both TNAV andADNAV as the principal measures of the group's performance. The followingadjustments are made to the audited net asset value in arriving at our ADNAV: 1. Property revaluation: properties and rights to properties held as current assets are revalued from cost (or realisable value if less) to market value. The valuation has been performed by relevant directors qualified as chartered surveyors based on valuation advice from CB Richard Ellis and takes account of costs to complete and whether or not the property has been let and/or pre-sold. 2. Share dilution: the nominal value of shares to be issued under the employee long-term incentive plan is added to net assets. 3. Taxation: the amount of deferred tax provided in respect of investment properties is added to net assets. The ADNAV per share at 31 October 2007 was 96.3 pence (2006: 89.5 pence) an increase of 7.6%. The following adjustments are made to ADNAV in calculating our TNAV: 4. Taxation: the amount of taxation estimated to be payable were all of the group's properties to be sold at the value used for the TNAV calculation has been deducted. This includes the deferred tax provided on investment properties and the taxation estimated to be payable on realisation of the uplift of trading properties to market value. 5. Goodwill: positive goodwill is excluded. The TNAV per share at 31 October 2007 was 83.7 pence (2006: 73.6 pence) anincrease of 13.8%. This TNAV is calculated after the deduction of dividends paidto shareholders during the period. Adding back these dividend payments,underlying TNAV growth was 16.1% for the year. Income statement The most significant impact of the change from reporting under UK GAAP to IFRShas been the effect on the income statement of including movements in therevaluation of investment properties and the consequent tax thereon in thedisclosed profit for the year. The majority of the group's property interestsare held for trading purposes and are not revalued in the group's balance sheet.However, our residential investments, largely comprising our interest in theat.home Nationwide portfolio, held in an associated undertaking, are included inthe balance sheet at their revalued amount. The income statement for 2006prepared under IFRS includes a revaluation uplift net of tax amounting to £16.7million as a result of the acquisition of the at.home Nationwide portfolio withno comparable uplift included in the profit for 2007. The revaluation of theat.home Nationwide portfolio is based on advice received from CRGP Robertson forthe Scottish properties and Savills for the remainder of the portfolio. Gross profit for the period was £20.7 million (2006: £14.6 million) an increaseof 42% despite a reduction in turnover during the period of 13% to £69.8 millionfor 2007 (2006: £80.5 million). Operating profit for the period was £18.6million (2006: £12.6 million) an increase of 47.6%. The major contributors toprofit for the period comprise £7.5 million from the sale of a site atWokingham, £6.1 million received from an associate in respect of additionalconsideration following receipt of planning consent at our site in Maidenheadand £3.5 million from the pre-sale of the group's interest in Time Central,Newcastle. Group overheads for the year are £9.6 million (2006: £6.7 million) an increaseof 43.2%. This increase is due to including charges for the cost of the sharebased payment scheme of £1.5 million (2006: £0.3 million); additionalremuneration costs by way of bonuses, costs of our new housebuilding divisionand additional costs relating to the continued expansion of our team andoperations. Our investment in joint ventures and associated undertakings generated a profitof £0.5 million (2006: £15.7 million). The most significant being Terrace HillResidential PLC, the company that owns the at.home Nationwide residentialportfolio, of which our share is 49%. The group's share of the results ofTerrace Hill Residential PLC comprised a revaluation gain net of tax of £5.9million (2006: £16.7 million) and a trading loss in the period of £5.3 million(2006: £0.8 million). The trading loss includes £1.3 million being our share ofexceptional redundancy and management costs associated with the acquisition ofthe portfolio. Calculation of ADNAV and TNAV (unaudited)__________________________________________________________________________________________________________________ 31 October 2007 31 October 2006 ________________________________ ______________________________ Number Number of shares Pence per of shares Pence per Notes £'000 000s share £'000 000s share__________________________________________________________________________________________________________________ Audited net asset value 136,879 211,971 64.6 100,278 187,219 53.6 Revaluation of property held as current assets 1 68,560 62,401 Shares to be issued under the LTIP 2 140 6,965 57 2,836 Deferred taxation in respect of investment properties 3 5,301 7,281 Adjusted diluted net asset value 210,880 218,936 96.3 170,017 190,055 89.5 % increase 7.6% Estimated taxation on revaluation of current assets, unrealised gains andavailability of tax losses 4 (23,953) (25,983) Goodwill 5 (3,589) (4,149) Triple net asset value 183,338 218,936 83.7 139,885 190,055 73.6 % increase 13.8%__________________________________________________________________________________________________________________ Balance sheet Total group assets at 31 October 2007 were £274.3 million (2006: £211.7 million)an increase of 29.5 % and net assets after deducting minority interests were£136.9 million (2006: £100.3 million) an increase of 36.5%. The placing of24,752,475 new ordinary shares of 2 pence at £1.01 per share during the period,raising £24.3 million net of expenses, contributed to this growth in groupassets. Gearing Bank debt at the year end was £65.5 million (2006: £70.4 million) net of cash of£26.9 million (2006: £8.6 million) and gearing was 47.8% of equity (2006: 70%).The group had undrawn facilities at the end of the period of £37.7 million(2006: £28 million). During the year we arranged two revolving credit facilities totalling £35million of which £15.7 million remains undrawn. These facilities allow us theflexibility to drawdown debt quickly to finance new site acquisitions. The loan to value gearing, net of cash, in relation to the group's propertyportfolio held on balance sheet was 38%. Loan to value gearing including thegroup's share of joint ventures and associated undertakings was 50%. Interest rate risk is hedged for 79% of net debt, including that in jointventures and associated undertakings. In setting our hedging strategy we alwaysseek a balance between retaining the flexibility to achieve an early disposaland ensuring adverse interest rate movements will not compromise the viabilityof a development. Dividends Dividends paid in the year amounted to 1.9p per share (2006: 1.4 pence) andcomprised the final dividend in respect of the period to 31 October 2006 of 1.1pence (2005: 0.7 pence) and the interim dividend for 2007 of 0.8 pence (2006:0.7 pence). In accordance with accounting standards these have been accountedfor through a movement in reserves rather than in the income statement. Theboard is recommending to shareholders at the Annual General Meeting on 3 April2007 a final dividend of 1.3 pence per share making a total dividend for theyear ended 31 October 2007 of 2.1 pence (2006: 1.8 pence) an increase of 16.7%.The final dividend will be paid on 4 April 2008 to all shareholders on theregister of the company at 25 March 2008. Total shareholder return (TSR) This measures the return to shareholders from share price movements and dividendincome and is used to compare returns between companies listed on the StockExchange. For the first time since the company was listed on AIM the year on year shareprice has fallen from 80.0p at 31 October 2006 to 71.75p at 31 October 2007,this 10.3% fall compares favourably to the reduction in the FTSE 350 Real EstateIndex of 20.8% but results in a negative TSR for the period. On an annualisedbasis the TSR since October 2002 was 42.2% per annum with an aggregate TSR sincethat date of 458.3%. thus providing shareholders with excellent returns overthis five year period. Tom WalshGroup Finance Director19 February 2008 Consolidated Income Statementfor the year ended 31 October 2007 Year ended Year ended 31 October 31 October 2007 2006 £'000 £'000__________________________________________________________________________________________________________________ Revenue 69,849 80,493Direct costs (49,142) (65,941)__________________________________________________________________________________________________________________ Gross profit 20,707 14,552 Administrative expenses (9,587) (6,708) Profit on disposal of investment properties 404 457 Gain on revaluation of investment properties 7,062 4,343__________________________________________________________________________________________________________________ Operating profit 18,586 12,644 Finance income 1,447 1,031 Finance costs (2,400) (3,555) Share of joint venture and associated undertakings post tax profit 505 15,712__________________________________________________________________________________________________________________ Profit before tax 18,138 25,832 Tax expenses (3,577) (1,551)__________________________________________________________________________________________________________________ Profit from continuing operations 14,561 24,281__________________________________________________________________________________________________________________ Attributable to Equity holders of the parent 14,527 24,283 Minority interest 34 (2)__________________________________________________________________________________________________________________ 14,561 24,281__________________________________________________________________________________________________________________ Basic earnings per share 7.33p 12.97p Diluted earnings per share 7.09p 12.78p__________________________________________________________________________________________________________________ Consolidated Balance Sheetat 31 October 2007 31 October 31 October 2007 2006 £'000 £'000__________________________________________________________________________________________________________________ Non-current assets Investment properties 53,887 56,967 Property plant and equipment 594 36 Investments in equity - accounted associates and joint ventures 18,619 18,088 Other investments 147 1,338 Intangible assets 3,589 4,149 Deferred tax assets 661 128__________________________________________________________________________________________________________________ 77,497 80,706__________________________________________________________________________________________________________________ Current assets Property inventories 126,950 75,693 Trade and other receivables 42,888 46,700 Cash and cash equivalents 26,958 8,591__________________________________________________________________________________________________________________ 196,796 130,984__________________________________________________________________________________________________________________ Total assets 274,293 211,690__________________________________________________________________________________________________________________ Non-current liabilities Bank loans (64,339) (52,997) Other payables (7,480) (7,000) Deferred tax liabilities (1,863) (1,342)__________________________________________________________________________________________________________________ (73,682) (61,339)__________________________________________________________________________________________________________________ Current liabilities Trade and other payables (34,094) (22,915) Current tax liabilities (1,190) (875) Bank overdrafts and loans (28,142) (25,969)__________________________________________________________________________________________________________________ (63,426) (49,759)__________________________________________________________________________________________________________________ Total liabilities (137,108) (111,098)__________________________________________________________________________________________________________________ Net assets 137,185 100,592__________________________________________________________________________________________________________________ Equity Called up share capital 4,240 3,744 Share premium account 43,208 19,369 Capital redemption reserve 849 849 Merger reserve 8,386 8,386 Retained earnings 80,196 67,930__________________________________________________________________________________________________________________ Equity attributable to equity holders of the parent 136,879 100,278__________________________________________________________________________________________________________________ Minority interests 306 314__________________________________________________________________________________________________________________ Total equity 137,185 100,592__________________________________________________________________________________________________________________ Approved by the board and authorised for issue on 19 February 2008. P A J Leech T G WalshDirector Director Notes 1. The financial information set out in this announcement does not constitute the group's statutory financial statements for the years ended 31 October 2007 and 31 October 2006. 2. The financial information is extracted from the audited financial statements of the group for the year ended 31 October 2007 which were approved by the board of directors on 19 February 2008. 3. Earnings per ordinary share The calculation of basic earnings per ordinary share is based on a profit of £14,527,222 (2006: £24,283,312) and on 198,069,224 (2006: 187,218,824) ordinary shares, being the weighted average number of shares in issue during the period. The calculation of diluted earnings per ordinary share is based on a profit of £14,527,222 (2006 profit: £24,283,312) and on 204,787,224 (2006: 190,055,289) ordinary shares, being the weighted average number of shares in issue during the period adjusted to allow for the issue of shares in relation to all performance related share awards. 4. Copies of this announcement are available, free of charge, for a period of one month from Oriel Securities Limited, 125 Wood Street, London EC2V 7AN. Copies of the full financial statements will be posted to shareholders as soon as possible. For further information please visit www.terracehill.co.uk or contact: Philip Leech, Chief Executive Tel: 020 7631 1666Luke Webster, Oriel Securities Tel: 020 7710 7600Isabel Crossley, St Brides Media & Finance Ltd Tel: 020 7236 1177 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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