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TIDMRDI
RNS Number : 2907C
Redefine International PLC
30 April 2012
30 April 2012
REDEFINE INTERNATIONAL P.L.C.
('Redefine International' or the 'Company')
RESULTS FOR THE SIX MONTHS ENDED 29 FEBRUARY 2012
Redefine International, the diversified income focused property company, today announces its half-year results for the six months ended 29 February 2012. These results reflect the first set of half-year results for the enlarged Group following the reverse acquisition of Wichford.
Financial Highlights
-- Earnings available for distribution of GBP12.9 million (February 2011: GBP8.4 million), an increase of 53.6%
-- Interim dividend of 2.10 pence per share (February 2011: 2.03 pence), an increase of 3.5%
-- IFRS loss per share of 10.67 pence (February 2011: 2.32 pence profit), due to non-cash valuation declines
-- Adjusted fully diluted EPRA NAV per share of 46.77 pence
-- Fully diluted NAV per share of 35.08 pence (August 2011: 46.59 pence)
-- Fully diluted EPRA NAV per share of 38.23 pence (August 2011: 50.72 pence)
Operational Highlights
-- Greg Clarke assumes Chairmanship with effect from 1 December 2011
-- Strong performance from Cromwell and the Hotel portfolio, supporting the Company's diversification strategy
-- Secure cashflows delivered from the UK Stable Income and European portfolios despite further valuation declines, principally from the former Wichford portfolio
-- Detailed negotiations on Delta and Gamma refinancing are progressing in line with the Company's strategy and exposure to regional offices is anticipated to reduce significantly
-- Substantial progress with the disposal of legacy Wichford assets (VBG 1, 2 and Halle)
-- Disposal of 7 - 11 High Street, Reigate for an effective price of GBP3.15 million, 5.9% above the carrying value of the property and in line with discussions to consolidate the portfolio and focus on larger better quality assets
-- Additional GBP24.2 million investment in Cromwell securing Redefine International's strategic shareholder position
Greg Clarke, Chairman, said:
"I am pleased to report on my first half-year results which also reflect the first set of interim results for the enlarged Group following the successful reverse acquisition between Redefine International plc and Wichford P.L.C.
Notwithstanding the continuing adverse business conditions in the UK and Europe, the Company has met its earnings targets and continues to be well placed to benefit from any up-turn in economic growth going forward. Despite the valuation decline of the UK Stable Income portfolio, the diversification of the Group's portfolio means that shareholders have benefited from the excellent performance of the Australian and hotel investments, clearly supporting the Company's strategy to invest in these markets at a low point in the economic cycle.
The Company continues to meet its targets and expects to deliver on the earnings forecast and strategic objectives set out in the prospectus at the time of the reverse acquisition of Wichford P.L.C. in the summer of 2011"
Meeting and conference call
A meeting for analysts and institutional investors will take place today at 09.00 (UK local time) at Redefine International, 2(nd) Floor, 30 Charles II Street, London, SW1Y 4AE. The meeting can also be accessed via a conference call dial in facility, starting at 09.15, using the details below. The presentation will be made available on the Company's website http://www.redefineinternational.com/investor-relations/financial-reports
Dial in number: + 44 (0)20 3106 4822 UK Local
+27 11 019 7075 South Africa Local
Confirmation Code: 2854143
For further information, please contact:
Redefine International Property Management FTI Consulting LLP
Limited Stephanie Highett/Dido Laurimore
Michael Watters, Stephen Oakenfull Tel: +44 (0)20 7831 3113
Tel: +44 (0)20 7811 0100
Group Overview
Introduction
Redefine International is an income focused property investment company with exposure to a broad range of properties and geographical areas. The Company is domiciled in the Isle of Man and has investments in the UK, Germany, Switzerland, the Channel Islands, the Netherlands and Australia.
Investment strategy
The Group's strategy is focused on delivering sustainable and growing income returns through investment into income yielding assets let to high quality occupiers on long leases. Development exposure is generally limited to asset management and ancillary development of existing assets in order to enhance and protect capital values. The Group aims to distribute the majority of its earnings available for distribution on a semi-annual basis, providing investors with attractive income returns and exposure to capital growth opportunities.
Investment markets
The Group is focused on real estate investment in large, well developed economies with established and transparent real estate markets. The investment portfolio is geographically diversified across the UK, Europe and Australia providing exposure to the retail, office, industrial and hotel sectors.
Group structure
Redefine International is listed on the main market of the London Stock Exchange (the "LSE") and is part of the Redefine Properties Limited group. The ultimate holding company, Redefine Properties Limited ("Redefine Properties"), is listed on the Johannesburg Stock Exchange (the "JSE") and has a market capitalisation of approximately GBP2 billion.
This announcement makes various references to companies within the Redefine International Group which are summarised below.
Company name Abbreviation Description
----------------------- --------------------------- -------------------------------------
Redefine International Redefine International, The enlarged company following
P.L.C. the Company, and the reverse acquisition between
together with its Wichford and Redefine International
subsidiaries, associates, Holdings Limited
and joint ventures,
the Group
Redefine International RIHL The previously AIM listed
Holdings Limited property investment company
party to the reverse acquisition
(previously named Redefine
International plc)
Redefine Properties RIN The Company's largest shareholder,
International listed on the JSE, whose sole
Limited asset is Redefine International
Redefine Properties Redefine Properties Ultimate parent company of
Limited the Group, listed on the JSE
Wichford P.L.C. Wichford The previously LSE listed
property investment company
party to the reverse acquisition
Redefine International RIPML or Investment Investment Adviser to the
Property Management Adviser Company
Limited
Cromwell Property Cromwell Associate company of Redefine
Group International, listed on the
ASX
Board and Management
The Board is responsible for setting the Group's strategy and providing leadership to the Company. It supports the principles of good corporate governance as set out in the UK Corporate Governance Code published by the Financial Reporting Council in May 2010. Following the listing of RIN on the JSE, the Board has resolved to comply with the provisions of the third King Report on Governance for South Africa 2009.
The Board of the Company is entirely non-executive and comprises nine directors. The Chairman and five other directors are considered to be independent of the Investment Adviser.
The Company is pleased to confirm the appointment of Stewart Shaw Taylor as Chairman of the Audit Committee. Stewart is a Chartered Accountant with extensive financial experience and, having recently stepped down from the Board of Redefine International Fund Managers Limited, is deemed to be an independent non-executive Director. Stewart replaces Gavin Tipper who, as Chairman of Redefine Properties International Limited, is not regarded as independent.
The Group is advised on an exclusive basis by RIPML. The Investment Adviser has a management team with extensive property and finance experience in the listed property sector, which has been active in the UK and Europe for over a decade.
Chairman's statement
The half-year results for the six months ended 29 February 2012 reflect the first set of interim results for the enlarged Group following the successful reverse acquisition between Redefine International plc and Wichford.
The reporting period has continued to be dominated by the Eurozone sovereign debt and EU banking crises. This uncertain and volatile economic environment together with tighter regulatory reforms in the banking sector, continues to impact the performance of the commercial property market in the UK and Western Europe. Although there are limited signs of renewed economic activity, a lack of bank funding and a general liquidity squeeze is continuing to restrict growth and dampen consumer sentiment.
Notwithstanding these tough business conditions, the Company's underlying performance remains sound. The tenant covenant strength of the UK Stable Income portfolio, strong performance of the Hotel and European portfolios and a very solid contribution from Cromwell, the Australian listed property trust in which the Company holds a 23% interest, have more than offset the weaker performance of the UK Retail and Stable Income portfolios, illustrating the benefit of Redefine International's diversified portfolio.
Financial results
It is pleasing to report that the new enlarged Group is on track to meet the Company's distributable earnings forecast for the year ending 31 August 2012 as set out in the reverse acquisition prospectus (dated 13 July 2011) with earnings available for distribution of 2.23 pence per share for the half-year period.
EPRA net asset value decreased to 38.23 pence per share from 50.72 pence at 31 August 2011, largely as a result of valuation declines in the UK regional office (former Wichford) properties. This was partially offset by gains in the Cromwell investment and fair value adjustments to interest rate swap agreements.
The Board has declared an interim dividend of 2.10 pence per share. This reflects an increase of 3.5% from the comparable period in 2011.
Operations
Overall performance of the Group's investment portfolio was supported by sound underlying performance of Cromwell and the Hotel portfolio. Values in the UK Retail and UK Stable Income portfolios suffered from weak tenant and investment demand, however occupancies remained resilient at 96.4% despite tough trading conditions.
The Company strengthened its strategic holding in Cromwell by supporting Cromwell's capital raising in December 2011 and increasing its interest to 23.16% (August 2011: 22.36%). Cromwell continues to deliver on earnings targets and the recent capital raising to support the acquisition of the HQ North office in Brisbane for AUD186 million provides a stronger platform for continued growth.
Although the impact of lower UK GDP growth is starting to feed through, 2012 is still expected to be a record year for London with major attractions such as the Olympics and the Queen's Jubilee. This would in turn be expected to have an impact on the value of the Hotel portfolio.
The UK Retail portfolio maintained a healthy overall occupancy rate of 95%, which has stabilised since February 2012 and compares favourably with recent research suggesting the average void rate in secondary UK towns is 12.7% (source: Colliers CRE October 2011). The redevelopment of 46,000 sq ft of new retail space at the Birchwood Warrington Shopping Centre, to accommodate larger unit requirements of certain key tenants, is on track for practical completion in November 2012.
The European portfolio continues to deliver stable and increasing rental income. The Company's strategic focus on discount retail stores in Germany has proved defensive despite Eurozone sovereign debt issues. The Company has agreed, in respect of two separate transactions, to acquire a 50% interest in two newly developed German retail stores for a total consideration of GBP13.4 million, which is expected to complete post period end. Both assets are newly constructed, fully let retail units anchored by multinational discount retailers.
Prospects/Strategy
The remainder of 2012 will be focused on agreeing a refinancing and/or restructuring of the Delta and Gamma debt facilities and the associated capital raising. Negotiations with the servicer to these debt facilities has progressed materially in the first half of this financial year and it is the Company's intention to approach shareholders once terms on the debt restructuring have been agreed. It is currently anticipated that the previously announced capital raising will take place after the current financial year end.
Real progress has been made with the sale of the VBG and Halle assets, both of which are non-core to the Company's strategy. As a result these assets are held for sale as at 29 February 2012 and it is anticipated that completion of the sales process will take place before the end of the current financial year.
Once completed, the sale of the VBG1, VBG2 and Halle assets is expected to have a significant impact on the Group's overall gearing ratios, removing GBP118.96 million of debt associated with those assets from the statement of financial position which will result in an approximate 2.45 pence increase in NAV. These sales, together with the restructuring of the Delta and Gamma facilities, are significant steps towards securing a stable capital structure and exiting legacy assets.
As previously stated, the Company is closely monitoring changes to existing legislation to assess the possibility of converting to a UK REIT.
The Group's diversified asset base continues to provide exposure to performing markets, offsetting the challenges currently experienced in UK retail and regional office markets. With a defined strategy to strengthen the Company's balance sheet and take advantage of future investment opportunities, Redefine International remains on track to become a significant participant in the UK listed real estate market.
Greg Clarke
Chairman
Business review
Top 15 properties by value
Weighted
Annual- average
Lettable ised Let unexpired
Market Owner-ship area gross by lease
Anchor value interest Portfolio (sq rental area term
Name tenants (GBP'million) (%) type ft) (GBP'million) (%) (years)
--------------- ------------- -------------- ----------- ---------- --------- -------------- ------ ----------
Debenhams,
Wigan, Grand TK Maxx,
Arcade BHS 83.0 50.0 Retail 471,355 7.58 98 13.7
Harrow, St Wilkinsons,
Georges Boots 60.0 100.0 Retail 215,489 4.32 96 6.0
Coventry, West
Orchards Debenhams 41.6 81.3 Retail 210,188 3.91 94 9.4
Halle, Ministry
Justizzentrum of Justice 30.7 93.9 Office 373,389 2.76 100 8.3
Warrington,
Birchwood ASDA 30.0 100.0 Retail 385,144 2.53 90 16.2
Dresden, VBG VBG(2) 29.2 100.0 Office 187,818 2.31 100 12.2
Brentford
Lock,
Holiday Inn RHM(1) 25.1 71.0 Hotels 61,064 1.95 100 13.8
Stuttgart, VBG VBG(2) 23.7 100.0 Office 134,059 1.96 100 12.9
Limehouse,
Holiday
Inn Express RHM(1) 24.1 71.0 Hotels 61,860 1.80 100 13.8
Southwark,
Holiday
Inn Express RHM(1) 23.4 71.0 Hotels 1.69 100 13.8
Royal Docks,
Holiday Inn
Express RHM(1) 22.5 71.0 Hotels 49,094 1.62 100 13.8
Bradford,
Centenary
Court HMRC 21.8 100.0 Office 46,940 0.90 100 9.1
Leeds, Castle
House HMRC 18.1 100.0 Office 78,262 1.25 100 11.8
Royal Dutch
The Hague, ICC Gov. 18.0 100.0 Office 138,618 1.88 100 2.3
Seaham, Byron
Place ASDA 15.7 100.0 Retail 115,377 1.37 100 13.6
--------------- ------------- -------------- ----------- ---------- --------- -------------- ------ ----------
Notes:
(1) Redefine Hotel Management Limited
(2) Assets are classified as held for sale
Overview
The integration of Redefine International plc and Wichford has been completed with limited disruption and operationally the Group is well set for the future.
The period under review was the first full half-year reporting period for the Group as a merged entity.
The challenges brought about by the acquisition of the Wichford legacy assets and the expiring debt facilities are being addressed and prioritised by the management team. It is expected that by the end of the financial year substantial progress will have been made in restructuring the Company's statement of financial position and either refinancing or exiting a number of funding agreements.
Highlights for the period included:
-- Contracts exchanged, in respect of two separate acquisitions for a 50% stake in two German retail properties (located in Kaiserslautern and Waldkraiburg for an aggregate purchase consideration of EUR16.0 million (GBP13.4 million). These acquisitions are being made in a joint venture with a major pension fund and are expected to complete post period end.
-- Significant progress made in debt restructuring discussions with the loan servicer for the Delta and Gamma facilities
-- The AUD 35 million (GBP22.6 million), participation in the Cromwell entitlement offer, increasing the Company's interest to 23.16% from 22.36% as at 31 August 2011
-- The raising of GBP4.7 million of new capital through a share placement with RIN
-- Disposal of 7 - 11 High Street, Reigate for an effective price of GBP3.15 million, 5.9% above the carrying value of the property
-- Substantial progress with the disposal of legacy Wichford assets (VBG 1, 2 and Halle)
Performance
In a difficult economic environment, the Group's investment portfolio has benefited from diversification across both sectors and geographies. While regional office markets and UK retailers have suffered, exposure to discount retail units in Germany, Greater London limited service hotels and the Company's Australian investment, Cromwell has benefited the Company as these segments have performed well. Overall occupancy of 96.4%, a weighted average unexpired lease length of 8.8 years and in excess of 37% of rental income subject to indexation or fixed uplifts, provides for defensive income returns.
Business Segments
UK Stable Income: Predominantly UK offices, but includes petrol filling stations,
Kwik-Fit centres, retail and residential units.
UK Retail: Major UK shopping centres.
Europe: Consists of the Group's properties in Continental Europe,
located in Germany, Switzerland and the Netherlands.
Hotels: Consists of all the Group's hotel properties. The hotels are
let to Redefine Hotel Management Limited on a fixed rental
basis with annual reviews.
Cromwell: Relates to the Group's investment in the Cromwell Property
Group, Australia.
Property portfolio - by business segment at 29 February 2012
Annualised
gross
Market Lettable rental
values Occupancy area income
(GBP'million) (%) (sq ft'000) (GBP'million)
------------------ --------------- ---------- ------------- ---------------
UK Stable Income 454.3 95.0 3,709 40.0
UK Retail(1) 247.4 94.8 1,581(1) 20.6
Hotels 123.4 100.0 268 9.4
Europe 227.6 100.0 1,910 18.6
Cromwell (2) 260.6 99.1 1,391 24.2
------------------ --------------- ---------- ------------- ---------------
Total 1,313.3 96.4 8,859 112.8
------------------ --------------- ---------- ------------- ---------------
Notes:
(1) UK Retail includes the Grand Arcade, Wigan Shopping Centre which is held through a joint venture. Lettable area excludes the Wigan APCOA parking space of 326,315 sq ft.
(2) Figures reflect Redefine International's effective 23.16% share of Cromwell's property assets and net rental income. The investment value is GBP129.8 million (based on a GBP:AUD exchange rate of GBP1.00:AUD1.479).
Figures assume 100% ownership of property assets in subsidiaries and joint ventures.
UK Stable Income
The UK Stable Income portfolio performed ahead of expectations at an operating level. Occupancy levels remained robust at 95%, supporting strong income returns. A number of government leases with break options have been renewed or are at advanced stages of negotiation which is providing encouraging evidence that cost effective space remains an operational requirement to deliver front line government services.
Despite this strong operational performance, investment sentiment together with structural supply/demand imbalances has however resulted in a sharp decline in transactional activity and the values of many regional properties. Overall exposure to regional office markets is anticipated to reduce significantly as part of the refinancing of the Delta and Gamma portfolios, leaving a core portfolio of assets with better long term growth potential. In the near term the focus will remain on maintaining occupancy levels and protecting income.
Rent reviews during the period provided an additional GBP0.63 million of income resulting from rent reviews subject to CPI indexation or fixed increases. Rental income subject to inflation or fixed increases rose slightly to 55.3% (2011: 54.6%).
Lyon House and Equitable House, Harrow
As announced in January 2012, the planning application for a residential-led mixed use scheme for the adjoining Lyon House and Equitable House sites in Harrow was submitted in November 2011. The application is for a new development comprising approximately 316,000 sq ft of residential and commercial space including 223 private residential units and 85 affordable housing units. A conditional development agreement has been concluded with Metropolitan Housing Trust for the affordable element of the scheme.
A post application meeting has been held with the local Council in order to assess the design of certain elements of the scheme and a revised scheme proposal has subsequently been submitted. Subject to a further public consultation period, a hearing date is anticipated in May this year.
UK Retail
The Group's UK Retail portfolio consists of five sub-regional shopping centres which dominate their catchment areas and a town centre redevelopment scheme located in Crewe. The centres have generally performed well and delivered consistent returns against a backdrop of severe stress in the retailing environment caused by low consumer confidence, weak economic conditions, debt-burdened retailers and the growing impact of technology on shopping patterns.
Against this difficult economic backdrop, the retail market is becoming increasingly polarised as the influence of technology gathers pace and those retailers failing to invest are beginning to underperform. Successful retailers are focusing on a seamless shopping experience whether it be through their mobile website, traditional website, call centre or physical shops.
The success of the luxury brands, particularly in London, and volume retailers continues. Exposure to volume brands impacts positively on the UK Retail portfolio as borne out by the healthy footfall figures. Space requirements for retailers are also changing, with a tendency towards fewer but larger format stores for the major high street fashion brands.
The current economic climate has seen a 'flight to prime' for some national and international brands, although it is unclear whether this will become a structural feature of the market or one typified by the poor economic climate.
There were a number of high profile insolvencies during the period, of which Peacocks, Bon Marche, La Senza and Game affected the portfolio (three Peacocks, one Bon Marche, two La Senza and two Game units). However, Redefine International has only lost three out of the eight units let to these tenants, equating to 0.6% of total floor space, reflecting the portfolio's locally dominant status.
Despite the number of retailer administrations, the Company has succeeded in maintaining footfall across its portfolio and an occupancy rate of 95%.
The investment market for shopping centres continued to soften during the period. Although the portfolio declined 4.1% in value, this reflected a relatively positive outcome with the wider market seeing larger negative yield shifts. This reinforces the strength of the portfolio and reflects Redefine International's strategy to acquire assets with a dominant hold over their catchment area.
UK Retail at a glance
29 February 31 August
2012 2011
-------------------------------- ----------------- -----------------
Market value GBP247.4 million GBP257.9 million
-------------------------------- ----------------- -----------------
Occupancy (by lettable area) 94.8% 97.4%
-------------------------------- ----------------- -----------------
Annualised gross rental income GBP20.6 million GBP21.4 million
-------------------------------- ----------------- -----------------
Estimate rental value ("ERV") GBP21.2 million GBP21.5 million
-------------------------------- ----------------- -----------------
Annual footfall(1) 29.5 million 30.1 million
-------------------------------- ----------------- -----------------
Footfall % change(1) 1.6%(2) (0.9%)
-------------------------------- ----------------- -----------------
Net initial yield 7.4% 7.3%
-------------------------------- ----------------- -----------------
Lettable area ('000) 1,580 sq ft 1,580 sq ft
-------------------------------- ----------------- -----------------
Figures assume 100% ownership of property assets in subsidiaries and joint ventures
1 Excludes Crewe
2. Reflects increase in footfall against the comparable 12 month period to February 2011
Hotels
The Group owns six hotel properties branded as Holiday Inn, Holiday Inn Express and Crowne Plaza, five of which are located in Greater London and one in Reading. The focus on branded, limited service hotels in Greater London provides for defensive underlying occupancies in line with the Company's income focus.
Although the Greater London hotel market is beginning to feel the impact of lower UK GDP growth and Eurozone uncertainty as the private and public sector cut back on meetings and accommodation demand, 2012 is still seen as a potential record year due to anticipated strong demand over the third calendar quarter with the Queen's Jubilee, the bi-annual Farnborough Air Show and the Olympics.
The tenant, Redefine Hotel Management Limited, performed in line with its competitors for the period under review.
Key activity during the period included:
Hotels
The Southwark Holiday Inn Express is awaiting planning approval for an additional 50 rooms which, if approved, will see an investment of up to GBP13 million to double the existing capacity of the hotel. The extension is being driven by high occupancy and excess demand and, although there has been significant room capacity growth in Central and East London it is anticipated that with the continual growth in international leisure, particularly from the East, will result in this surplus being absorbed in a short time period.
The initial phase of a modernisation and refurbishment programme for the Southwark and Royal Dock hotels is underway. The Royal Dock public area "new look" has been completed and work on the Southwark and Royal Docks bedrooms and corridors are largely complete.
The Limehouse hotel will have the new public area refurbished before the Olympics whilst the Park Royal hotel lobby upgrade has been completed.
The Brentford hotel will undergo a refurbishment of the food and beverage area in co-operation with the Intercontinental Hotel Group and a new "HUB" food concept, launched recently in the USA, will be put into operation at the hotel.
Europe
Despite a backdrop of continued macro-economic instability and the sovereign debt crisis, the European portfolio has performed strongly at an operating level with occupancy levels close to 100% and consistent cash flows from rental income. The results of a concerted effort over the past 12 months to reduce non-recoverable costs have started to take effect, with significant expense reductions having been achieved.
Several lease extensions with anchor tenants, ranging from five to 13 years, were agreed. Further lease extensions involving anchor tenants within the portfolio are at advanced stages of negotiations.
VBG portfolio
A marketing process has been completed in relation to the sale of the VBG tenanted properties located in Dresden, Berlin, Cologne and Stuttgart (part of the former Wichford portfolio). A number of offers were submitted and negotiations are currently in place with a preferred party to finalise a sale and purchase agreement. It is anticipated that completion of the sales process will take place before the end of the current financial year. Further information is provided within the Financial Review.
Cromwell
On 16 December 2011 the Company announced that it had increased its strategic stake in the ASX-listed Cromwell to 24.32% (22.36% at 31 August 2011) by subscribing for 51,470,588 new Cromwell stapled securities for an amount of AUD35 million (GBP22.6 million), in terms of an underwriting agreement. The subscription formed part of an institutional placement and pro-rata non-renounceable entitlement offer (the "entitlement offer") undertaken by Cromwell to fund the acquisition of 'HQ North' office tower in Fortitude Valley, Brisbane for AUD186 million. AUD9,424,997 (GBP6,098,348) of the subscription was funded through an existing facility with Investec Bank (Australia) Limited and the balance was funded from available cash resources. The Company received a fee of AUD875,000 (GBP566,160) from Cromwell in consideration for providing an AUD35 million underwriting commitment for the entitlement offer.
The new Cromwell stapled securities were admitted to trading on the ASX on 21 December 2011 and entitled holders to receive a pro-rata share of the distributions from Cromwell for the quarter ended 31 December 2011.
The increase of Redefine International's interest in Cromwell is in line with one of the Company's objectives of increasing its presence in the Australian property market and is expected to be earnings enhancing for shareholders in the medium to long term.
The Cromwell distribution, amounting to AUD3.8 million (GBP2.6 million) for the quarter ended 31 December 2011, was received on 16 February 2012.
The total net distributions received for the six months ended 29 February 2012 amounted to AUD 7.5 million (GBP4.9 million).
On 1 February 2012 the Company exercised its option to place new shares with RIN at the sterling equivalent of AUD7.5 million at 37.0 pence per share to cover part of the cost of the underwriting.
Cromwell's performance and outlook
Cromwell produced strong operating and financial results for their half-year ending 31 December 2011. Highlights included:
-- Operating earnings of AUD37.0 million (3.8 cents per security), up 13%
-- Statutory accounting loss of AUD6.8 million (0.7 cents per security) impacted by fair value adjustment on interest rate swaps
-- Earnings from property investments of AUD37.5 million, up 15%
-- Acquisition of HQ North Tower, Brisbane for AUD186 million
-- Agreed terms to re-acquire Bundall Corporate Centre, Gold Coast for AUD63.4 million
-- Successful completion of a two year capital raising programme which places the Group in a position to drive earnings and Net Tangible Asset growth from capital recycling opportunities and funds management activities
-- Commenced AUD49 million equity raising for unlisted Ipswich City Heart Trust
-- Launch of Cromwell Real Estate Partners, targeting wholesale opportunity fund investors
-- Guidance for FY12 operating earnings maintained at 7.3 cents per security and distributions of 7.0 cents per security
Portfolio summary
Portfolio overview by business segment
Business segments - market values
Segmental
Lettable Split
Area Market by Net initial
Properties (sq ft Value Value Yield
(No.) '000) (GBP'million) (%) (%)
UK Stable Income 134 3,709 454.3 34.6 8.3
UK Retail 6 1,581 247.4 18.9 7.4
Hotels 6 268 123.4 9.4 7.2
Europe 37 1,910 227.6 17.3 7.7
Cromwell(1) 23 1,391 260.6 19.8 8.3
---------------------------- ----------- --------- --------------- ---------- ------------
Total investment portfolio 206 8,859 1,313.3 100.0 8.1
---------------------------- ----------- --------- --------------- ---------- ------------
Notes:
1. Figures reflect Redefine International's effective 23.16% share of Cromwell's property assets and net rental income. The investment value is GBP129.8 million.
The Cromwell property portfolio consists of 23 assets with a market value of AUD 1.66 billion as at 31 December 2011
Figures (excluding Cromwell(1) ) assume 100% ownership of property assets held in subsidiaries and joint ventures
Business segments - income
Annualised Weighted
gross average Indexation
Rental Average unexpired Occupancy and fixed
income rent per lease term by area increases
(GBP'million) (sq ft) (years) (%) (%)
---------------------------- --------------- ---------- ------------ ---------- -----------
UK Stable Income 40.0 10.8 8.1 95.0 55.3
UK Retail 20.6 13.0 11.6 94.8 5.3
Hotels 9.4 35.1 13.8 100.0 -
Europe 18.6 9.8 8.1 100.0 93.0
Cromwell 24.2(1) 17.4 6.3 99.1 75.0
---------------------------- --------------- ---------- ------------ ---------- -----------
Total investment portfolio 112.8 12.7 8.8 96.4 37.1
---------------------------- --------------- ---------- ------------ ---------- -----------
Notes:
1. Cromwell rental income reflects 23.16% stake
Figures (excluding Cromwell) assume 100% ownership of property assets held in subsidiaries and joint ventures
Business segments - valuation movement
Valuation movement
six months
Proportion Market value ended
of portfolio 29 February 29 February
by value 2012 2012
(%) (GBP'million) (%)
---------------------------- -------------- --------------- -------------------
UK Stable Income 38.3 454.3 (9.2)
UK Retail 20.9 247.4 (4.1)
Hotels 10.4 123.4 -
Europe 19.2 227.6 (8.4)
Cromwell(1) 9.1 107.4 4.8(3)
---------------------------- -------------- --------------- -------------------
Total like-for-like
portfolio 97.9 1,160.1 (5.9)
---------------------------- -------------- --------------- -------------------
Acquisitions(2) 2.1 25.2 11.4
---------------------------- -------------- --------------- -------------------
Total investment portfolio 100.0 1,185.3 (5.6)
---------------------------- -------------- --------------- -------------------
Notes:
1. Cromwell reflects investment value at a closing share price of 72.5 Australian cents per security as at 29 February 2012
2. Acquisition of 51.47 million Cromwell stapled securities
3. Includes effect of currency changes
Portfolio overview by sector
Property sectors at 29 February 2012
Annualised
Market Occupancy Lettable gross rental
value by area area income
(GBP'million) (%) (sq ft'000) (GBP'million)
------------ --------------- ---------- ------------- ---------------
Retail 338.1 96.5 2,344 26.4
Office 546.9 95.3 3,976 48.3
Industrial 39.4 100.0 807 3.0
Hotels 123.4 100.0 268 9.4
Other 5.0 100.0 73 1.5
------------ --------------- ---------- ------------- ---------------
Total 1,052.8 96.4 7,468 88.6
------------ --------------- ---------- ------------- ---------------
Notes:
Excludes Cromwell and assumes 100% ownership of property assets held in subsidiaries and joint ventures
Financial review
Overview
These results reflect the first set of half-year results for the enlarged Group following the reverse acquisition.
As reverse acquisition accounting was applied on the transaction between RIHL and Wichford with RIHL being identified as the accounting acquirer, the comparative figures shown are those of RIHL.
Consequently, gross rental income is GBP38.6 million, up 233% on the comparable period and total investment property assets (including assets held for sale) have increased from GBP348 million to GBP914 million. Earnings available for distribution are GBP12.9 million, up 54.1% from the six month period ended 28 February 2011.
The Group delivered a loss attributable to equity holders of the parent of GBP60.7 million for the six months ended 29 February 2012.
Key items impacting the results of the Group for the period since 31 August 2011 include:
-- A net decrease in the fair value of the Group's investment property of GBP57.8 million (5.6% decrease) of which GBP44.3 million relates to the historic "Wichford" UK portfolio.
-- GBP17.8 million increase in finance costs due to the amortisation of the fair value adjustment of the VBG, Gamma and Delta facilities as at the date of the reverse acquisition of Wichford. These are non-cash, IFRS adjustments, which may reverse upon sale or re-structuring of the underlying assets on which the loans are secured.
-- The placement of 12,750,000 shares to RIN on 1 February 2012, at a price of 37.0 pence per share to assist with the underwriting commitment in connection with the Cromwell capital raising.
-- A net fair value increase in the interest rate derivatives held by the Group of GBP5.3 million. The gain was principally due to the near-term expiry of the Delta and Gamma interest rate swaps, as indicative five year swap rates moved from 1.97% to 1.58% during the period.
-- AUD7.5 million (GBP4.9 million) of distributions received from Cromwell, including the AUD148,000 (GBP97,000) pro-rata distribution received from the additional 51.47 million shares acquired during the period and a AUD875,000 (GBP566,166) fee received in respect of the underwriting commitment.
The effect of certain of the above items has led to a decrease in the EPRA net asset value per share from 50.72 pence as at 31 August 2011 to 38.23 pence per share as at 29 February 2012.
The net asset value, however, includes items which, in the opinion of the Board need to be adjusted in order to allow shareholders to gain a better understanding of the underlying value of the Group. An "adjusted EPRA net asset value" has therefore been calculated as presented below:
Pence per
Note share
Fully diluted IFRS NAV per share as
at 29 February 2012 35.08
Adjusted for derivatives and deferred
tax 3.15
----------
Fully diluted EPRA NAV per share as
at 29 February 2012 38.23
Reversal of VBG amortisation of the
fair value adjustment 1 2.45
Write back of Gamma and Delta negative
equity 2 6.09
----------
Adjusted fully diluted EPRA NAV per
share 46.77
----------
Notes
1. In accordance with IFRS, the assets and liabilities of Wichford as at 31 August 2011 following the reverse acquisition were acquired at fair value. Consequently, the VBG debt was valued at an amount of GBP83.87 million, which was GBP20.97 million below the outstanding principal value. The interest charge reflected in the accounts includes an amount of GBP14.9 million, relating to the accretion of the fair value of the loan to its principal value over the remaining term of the loan. This amount may however reverse upon disposal of the assets and loan and therefore has been added back in the calculation.
2. The net Delta and Gamma portfolio debt values are in excess of the current investment property values. Should the proposed restructuring take place, it may remove the negative net asset value position, leading to a positive effect on net asset value per share of 6.09 pence.
Earnings available for distribution
The Company's policy is to distribute the majority of its earnings available for distribution in the form of dividends to shareholders. Considering the earnings available for distribution at the period end, the Board has declared an interim dividend of 2.10 pence per share and is on track to achieve the forecast distribution per share for the year ending 31 August 2012 in the reverse acquisition prospectus.
The earnings available for distribution excludes any capital and one-off items and the figure is used by the Board as its measure of underlying earnings performance. The statement of earnings available for distribution is presented as follows:
Not reviewed Not reviewed
6 months 6 months Unaudited
ended ended Year ended
29 February 28 February 31 August
2012 2011 2011
Total Total Total
GBP'000 GBP'000 GBP'000
-------------------------------------- ------------- ------------- ------------
Gross rental income from investment
properties 38,633 11,718 27,335
Property operating expenses (2,437) (1,598) (2,957)
-------------------------------------- ------------- ------------- ------------
Net operating income from investment
properties 36,196 10,120 24,378
-------------------------------------- ------------- ------------- ------------
Investment income - 3,875 3,875
Fee income 566 857 1,010
Other income 633 137 277
-------------------------------------- ------------- ------------- ------------
Total revenue 37,395 14,989 29,540
-------------------------------------- ------------- ------------- ------------
Expenses (5,022) (2,164) (4,245)
-------------------------------------- ------------- ------------- ------------
Administrative expenses (855) (252) (774)
Investment management fees (2,780) (1,170) (2,431)
Professional fees (1,387) (743) (1,040)
-------------------------------------- ------------- ------------- ------------
Net operating profit 32,373 12,825 25,295
-------------------------------------- ------------- ------------- ------------
Share of distributable income
from associates and joint ventures 5,471 1,206 7,183
Gain on financial assets and
liabilities - 913 840
Non-controlling interest (1,160) (232) (569)
-------------------------------------- ------------- ------------- ------------
Adjusted operating profit 36,684 14,712 32,749
-------------------------------------- ------------- ------------- ------------
Net finance charges (22,979) (5,982) (14,978)
Interest paid (23,162) (9,176) (23,112)
Interest received 183 3,194 8,134
------------- ------------- ------------
Foreign exchange loss (161) (142) (329)
Taxation (604) (193) (291)
Profit before earnings adjustments 12,940 8,395 17,151
-------------------------------------- ------------- ------------- ------------
Wichford acquired earnings - - 3,166
Distributable earnings for the
period 12,940 8,395 20,317
-------------------------------------- ------------- ------------- ------------
Interim distribution - - (8,395)
Earnings available for distribution
at period end 12,940 8,395 11,922
-------------------------------------- ------------- ------------- ------------
Earnings available for distribution
per share
Earnings available for distribution 12,940 8,395 11,922
Number of ordinary shares in
issue ('000) 579,455 412,899 567,644
------------- ------------- ------------
Earnings available for distribution
per share (pence) 2.23 2.03 2.10
-------------------------------------- ------------- ------------- ------------
Summary
Distribution per share (pence) 2.10 2.03 4.13
------------- ------------- ------------
Interim 2.10 2.03 2.03
Second interim - - 2.10
------------- ------------- ------------
Financial position
The nominal value of senior debt facilities at 29 February 2012 was GBP855.4 million (GBP898.2 million including the Group's attributable share of debt in subsidiaries and joint ventures). Overall gearing levels have been influenced by a decrease in property values, however, significant progress has been made towards the restructure of the Delta and Gamma facilities.
The key financing statistics are summarised in the table below:
29 February 31 August
2012 2011
Key financing statistics GBP'000 GBP'000
-------------------------------- ----------- ----------
Total investment portfolio 1,038,808 1,076,568
Gross debt 855,380 863,149
Cash and short-term deposits (33,866) (51,368)
----------- ----------
Net debt 821,474 811,781
Weighted average debt maturity 4.13 years 4.15 years
Weighted average interest rate 5.09% 5.01%
% of debt at fixed/capped rates 93.6% 92.9%
Loan-to-value 79.1% 75.4%
-------------------------------- ----------- ----------
UK REIT Update
The revised UK REIT rules, as communicated in the Annual Report, will take effect from the date on which the Finance Act 2012 receives Royal Assent (expected to be in late July or early August 2012). If conversion were to take place prior to the date on which Finance Act 2012 receives Royal Assent, the advantages afforded by the new legislation would not be available.
An initial feasibility study has been performed and once the Finance Act 2012 has been enacted, the Company will make a decision as to whether conversion to REIT status is in the best interests of shareholders.
Principal risks and uncertainties
The principal risk for the upcoming period is liquidity risk linked to the debt maturity profile of the Group's funding. As at 29 February 2012 the Group has current loan liabilities of GBP458.4 million. These liabilities are classified as current due to maturities within the next 12 months and or as a result of on-going covenant breaches.
With respect to the VBG 1 and VBG 2 loan facilities totalling GBP93.37 million the loan servicer is marketing the associated assets for sale and it is expected that they will be disposed of and the loans settled within the next 6-12 months. As a result the associated assets are classified as held for sale as at 29 February 2012. It should be noted that the liabilities are non-recourse to the Group.
Discussions are on-going with the finance providers in respect of the Delta and Gamma which total GBP312.84 million and have a maturity date of October 2012 as well as with the finance provider for the Delamere Place Crewe facility which totals GBP17.15 million and with the funding providers for the other facilities which are due to mature in the next 6 to 12 months.
There can be no certainty that agreement will be reached on restructuring the facility but the Board is of the view that this will not impact the continued operations of the Group. The Board has a reasonable expectation that the Company and Group have adequate resources to continue in operation for the foreseeable future.
Statement of Directors' Responsibilities
Each of the Directors confirms that to the best of each person's knowledge and belief:
a) the condensed consolidated interim financial statements comprising the condensed consolidated statement of comprehensive income, the condensed consolidated statement of financial position, the condensed consolidated statement of changes in equity, the condensed consolidated statement of cash flows and related notes have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.
b) The interim management commentary includes a fair review of the information required by:
i) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year;
ii) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during the period; and any changes in the related party transactions described in the last annual report that could do so.
The Board of Directors
30 April 2012
Independent Auditors' Review Report to Redefine International P.L.C.
We have been engaged to review the condensed consolidated set of financial statements in the half-yearly financial report of Redefine International P.L.C. for the six months ended 29 February 2012 which comprise the condensed consolidated statement of financial position, the condensed consolidated statement of comprehensive income, the condensed consolidated cash flow statement, the condensed consolidated statement of changes in equity and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with our engagement letter to assist the Company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Services Authority ("the FSA"). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the FSA.
As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the EU.
The Directors are responsible for ensuring that the condensed consolidated set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed consolidated set of financial statements in the half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with the International Standards 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. 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 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 consolidated set of financial statements in the half-yearly report for the six months ended 29 February 2012 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FSA.
Darina Barrett
Senior Statutory Auditor
For and on behalf of KPMG
Chartered Accountants
Registered Auditor
Dublin, Ireland
30 April 2012
Financial Statements
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 29 February 2012
Reviewed Reviewed Audited
6 Months 6 Months Year ended
ended ended 31 Aug
29 Feb 2012 28 Feb 2011 2011
Notes GBP'000 GBP'000 GBP'000
-------------------------------- ------ ------------- ------------- ------------
Revenue
Gross rental income 38,537 11,588 26,823
Investment income - 3,875 3,875
Other income 1,199 994 1,592
-------------------------------- ------ ------------- ------------- ------------
Total revenue 39,736 16,457 32,290
-------------------------------- ------ ------------- ------------- ------------
Expenses
Administrative expenses (855) (252) (774)
Investment adviser and
professional fees (4,473) (2,083) (4,664)
Property operating expenses (2,437) (1,595) (2,368)
-------------------------------- ------ ------------- ------------- ------------
Net operating income 31,971 12,527 24,484
-------------------------------- ------ ------------- ------------- ------------
Net gains from financial
assets and liabilities 4 4,748 17,100 13,540
Equity accounted profit/(loss) 1,879 (6,784) (3,088)
Impairment of loans - (15) (444)
Net fair value losses on
investment property 8 (57,824) (6,802) (10,627)
Impairment of intangible
assets - - (591)
-------------------------------- ------ ------------- ------------- ------------
(Loss)/profit from operations (19,226) 16,026 23,274
-------------------------------- ------ ------------- ------------- ------------
Interest income 5 4,911 3,194 8,134
Interest expense 6 (45,805) (9,320) (24,305)
Share based payment 13 (375) (294) (768)
Foreign exchange loss (945) (143) (1,224)
-------------------------------- ------ ------------- ------------- ------------
(Loss)/profit before tax (61,440) 9,463 5,111
-------------------------------- ------ ------------- ------------- ------------
Taxation 7 (1,164) (193) (1,360)
-------------------------------- ------ ------------- ------------- ------------
(Loss)/profit after tax (62,604) 9,270 3,751
-------------------------------- ------ ------------- ------------- ------------
Loss/profit attributable
to:
Equity holders of the parent (60,710) 9,457 5,035
Non-controlling interests (1,894) (187) (1,284)
-------------------------------- ------ ------------- ------------- ------------
(Loss)/profit after tax (62,604) 9,270 3,751
-------------------------------- ------ ------------- ------------- ------------
Other comprehensive income
Foreign currency translation
on foreign operations -
subsidiaries 95 153 1,927
Foreign currency translation
on foreign operations -
joint ventures and associates 3,692 44 4,882
Share of foreign currency
movement recognised in
associate undertaking - 779 1,494
Share of cash flow hedge
reserve movement recognised
in associate undertaking - 2,459 (155)
-------------------------------- ------ ------------- ------------- ------------
Total comprehensive income
for the period/year (58,817) 12,705 11,899
-------------------------------- ------ ------------- ------------- ------------
Total comprehensive income
attributable to:
Equity holders of the parent (56,915) 12,882 13,157
Non-controlling interests (1,902) (177) (1,258)
-------------------------------- ------ ------------- ------------- ------------
Total comprehensive income
for the period/year (58,817) 12,705 11,899
-------------------------------- ------ ------------- ------------- ------------
Basic (loss)/earnings per
share (pence) 17 (10.67) 2.32 1.18
Diluted (loss)/earnings
per share (pence) 17 (10.67) 2.17 1.11
Condensed Consolidated Statement of Financial Position
As at 29 February 2012
Audited
Reviewed Reviewed 31 Aug
29 Feb 2012 28 Feb 2011 2011
Notes GBP'000 GBP'000 GBP'000
------------------------------- ------ ------------- ------------- ------------
Assets
Non-current assets
Investment property 8 805,249 348,183 986,654
Long-term receivables 9 91,881 87,809 104,080
Investments at fair value 529 86,958 1,123
Intangible assets - 575 -
Investments in joint ventures 2,201 2,647 2,607
Investments in associate 10 129,795 16,731 104,680
Total non-current assets 1,029,655 542,903 1,199,144
------------------------------- ------ ------------- ------------- ------------
Current assets
Assets held for sale 19 109,231 - -
Trade and other receivables 23,847 19,288 23,785
Cash at bank 11 33,820 10,763 51,368
Total current assets 166,898 30,051 75,153
------------------------------- ------ ------------- ------------- ------------
Total assets 1,196,553 572,954 1,274,297
------------------------------- ------ ------------- ------------- ------------
Equity and liabilities
Capital and reserves
Share capital 12 41,721 10,621 40,870
Share premium 164,902 161,420 161,420
Reverse acquisition reserve 134,295 94,011 134,295
Retained (loss)/earnings (160,229) (73,865) (87,598)
Capital instrument 13 14,143 13,294 13,768
Currency translation reserve 14,432 3,326 10,637
Other reserves 3,912 3,912 3,912
Cash flow hedge reserve - 2,614 -
Total equity attributable
to equity holders of the
parent 213,176 215,333 277,304
Non-controlling interests 3,818 5,172 5,506
Total equity 216,994 220,505 282,810
------------------------------- ------ ------------- ------------- ------------
Non-current liabilities
Borrowings 14 469,360 307,872 811,415
Derivatives 15 5,487 1,260 6,824
Deferred tax 7 2,637 - 2,239
Total non-current liabilities 477,484 309,132 820,478
------------------------------- ------ ------------- ------------- ------------
Current liabilities
Borrowings 14 458,377 20,267 117,071
Derivatives 15 11,340 55 16,291
Trade and other payables 32,358 22,995 37,647
Total current liabilities 502,075 43,317 171,009
------------------------------- ------ ------------- ------------- ------------
Total liabilities 979,559 352,449 991,487
------------------------------- ------ ------------- ------------- ------------
Total equity and liabilities 1,196,553 572,954 1,274,297
------------------------------- ------ ------------- ------------- ------------
Net asset value per share
(pence) 18 36.79 52.15 48.85
------------------------------- ------ ------------- ------------- ------------
Fully diluted net asset
value per share (pence) 18 35.08 49.00 46.59
------------------------------- ------ ------------- ------------- ------------
Number of ordinary shares
in issue 18 579,454,792 412,898,995 567,643,792
------------------------------- ------ ------------- ------------- ------------
Condensed Consolidated Statement of Changes in Equity
For the period ended 29 February 2012
Cash Total
Reverse Retained Currency Flow attributable
Share Share Treasury acquisition (loss)/ Other translation hedge Capital to equity Total
capital premium shares reserve earnings reserves reserve reserve instrument shareholders NCI equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- -------- ---------- --------- ------------ ---------- --------- ------------ -------- ----------- ------------- -------- ---------
Balance at 1
September 2010 3,047 211,359 - - (78,327) 3,912 2,360 155 - 142,506 2,254 144,760
Total profit for
the period - - - - 9,457 - - - - 9,457 (187) 9,270
Foreign currency
translation
effect - - - - - - 966 - - 966 10 976
Effective
portion of cash
flow hedges - - - - - - - 2,459 - 2,459 - 2,459
-------- ---------- --------- ------------ ---------- --------- ------------ -------- ----------- ------------- -------- ---------
Total
comprehensive
income - - - - 9,457 - 966 2,459 - 12,882 (177) 12,705
Shares issued 1,078 52,961 - - - - - - - 54,039 - 54,039
Share issue
costs - (2,631) - - - - - - - (2,631) - (2,631)
Scrip dividend
paid to equity
stakeholders 4 234 - - (238) - - - - - - -
Dividend paid to
equity
stakeholders - - - - (4,786) - - - - (4,786) - (4,786)
Dividends paid
to
non-controlling
interests - - - - - - - - - - (46) (46)
Group
acquisition of
non-controlling
interest - - - - 29 - - - - 29 (457) (428)
Convertible
shares to be
issued - - - - - - - - 13,000 13,000 - 13,000
Share based
payment - - - - - - - - 294 294 - 294
Contribution of
non-controlling
shareholders - - - - - - - - - - 3,598 3,598
Balance at 28
February 2011 4,129 261,923 - - (73,865) 3,912 3,326 2,614 13,294 215,333 5,172 220,505
----------------- -------- ---------- --------- ------------ ---------- --------- ------------ -------- ----------- ------------- -------- ---------
Adjustment to
present
Wichford
capital
structure 6,492 (100,503) - 94,011 - - - - - - - -
Restated balance
at 28 February
2011 10,621 161,420 - 94,011 (73,865) 3,912 3,326 2,614 13,294 215,333 5,172 220,505
----------------- -------- ---------- --------- ------------ ---------- --------- ------------ -------- ----------- ------------- -------- ---------
Balance at 28
February 2011 4,129 261,923 - - (73,865) 3,912 3,326 2,614 13,294 215,333 5,172 220,505
----------------- -------- ---------- --------- ------------ ---------- --------- ------------ -------- ----------- ------------- -------- ---------
Total loss for
the period - - - - (4,422) - - - - (4,422) (1,097) (5,519)
Foreign currency
translation
effect - - - - - - 7,311 - - 7,311 16 7,327
Effective
portion of cash
flow hedges - - - - - - - (2,614) - (2,614) - (2,614)
Total
comprehensive
income - - - - (4,422) - 7,311 (2,614) - 275 (1,081) (806)
Shares issued 393 20,135 - - - - - - - 20,528 - 20,528
Share issue
costs - (396) - - - - - - - (396) - (396)
Dividend paid to
equity
stakeholders - - - - (9,179) - - - - (9,179) - (9,179)
Dividends paid
to
non-controlling
interests - - - - - - - - - - (35) (35)
Share based
payment - - - - - - - - 474 474 - 474
Decrease in
non-controlling
interest - - - - (132) - - - - (132) 131 (1)
Contribution of
non-controlling
shareholders - - - - - - - - - - 1,319 1,319
Adjustment to
present
Wichford
capital
structure 6,099 (120,242) - 114,143 - - - - - - - -
Shares issued
pursuant to
reverse
acquisition 32,557 - - 19,978 - - - - - 52,535 - 52,535
Cancellation of
shares (2,308) - - 2,308 - - - - - - - -
Share issue
costs - - - (2,134) - - - - - (2,134) - (2,134)
Balance at 31
August 2011 40,870 161,420 - 134,295 (87,598) 3,912 10,637 - 13,768 277,304 5,506 282,810
----------------- -------- ---------- --------- ------------ ---------- --------- ------------ -------- ----------- ------------- -------- ---------
Balance at 1
September 2011 40,870 161,420 - 134,295 (87,598) 3,912 10,637 - 13,768 277,304 5,506 282,810
Total loss for
the period - - - - (60,710) - - - - (60,710) (1,894) (62,604)
Foreign currency
translation
effect - - - - - - 3,795 - - 3,795 (8) 3,787
----------------- --------
Total
comprehensive
income - - - - (60,710) - 3,795 - - (56,915) (1,902) (58,817)
Shares issued 851 3,519 - - - - - - - 4,370 - 4,370
Shares taken
into treasury - (317) (67) - - - - - - (384) - (384)
Treasury share
sold - 280 67 - - - - - - 347 - 347
Dividend paid to
equity
stakeholders - - - - (11,921) - - - - (11,921) - (11,921)
Share based
payment - - - - - - - - 375 375 - 375
Disposal of
non-controlling
interest - - - - - - - - - - 664 664
Decrease in
non-controlling
interest - - - - - - - - - - (450) (450)
Balance at 29
February 2012 41,721 164,902 - 134,295 (160,229) 3,912 14,432 - 14,143 213,176 3,818 216,994
----------------- -------- ---------- --------- ------------ ---------- --------- ------------ -------- ----------- ------------- -------- ---------
Condensed Consolidated Statement of Cash Flows
For the six months ended 29 February 2012
Reviewed Reviewed Audited
6 Months 6 Months Year
Ended Ended Ended
29 Feb 28 Feb 31 Aug
2012 2011 2011
Notes GBP'000 GBP'000 GBP'000
Cash flows from operating activities
(Loss)/profit for the period before
tax (61,440) 9,463 5,111
Adjusted for:
Straight-lining of rental income 177 - 169
Impairment of intangible assets - - 591
Net fair value losses on investment
property 8 57,824 6,802 10,627
Foreign exchange loss 945 143 1,224
Gain from financial assets and
liabilities 4 (4,748) (17,100) (13,540)
Equity accounted (profits)/losses (1,879) 6,784 3,088
Impairment of loans - 15 444
Investment income - (3,875) (3,875)
Interest income 5 (4,911) (3,194) (8,134)
Interest expense 6 45,805 9,320 24,305
Share based payment 13 375 294 768
---------------------------------------------- ------ ---------- ----------- -----------
Cash generated by operations 32,148 8,652 20,778
Changes in working capital (5,251) 1,542 93
---------------------------------------------- ------ ---------- ----------- -----------
Cash generated by operations 26,897 10,194 20,871
Interest income 3,754 822 4,540
Interest paid (26,193) (7,710) (22,867)
Taxation paid (718) (193) (152)
Distribution received - 5,040 3,875
Distributions received from associate
and joint ventures 5,083 - 5,986
Net cash generated from operating
activities 8,823 8,153 12,253
---------------------------------------------- ------ ---------- ----------- -----------
Cash flows from investing activities
Increase in investment properties 8 (1,126) (132,141) (211,083)
Investment in associate and joint
ventures (24,222) (1,916) (18,586)
Cash acquired on reverse acquisition - - 32,340
Acquisition of subsidiaries - (84) (307)
Disposal of subsidiaries 615 (477) (477)
Decrease in long-term receivables 11,057 - -
(Increase)/decrease in loans to
related parties (208) 35 3,990
Purchases of financial assets - - (1,565)
(Increase)/decrease in restricted
cash balances (1,958) 18,117 14,616
Net cash utilised in investing
activities (15,842) (116,466) (181,072)
---------------------------------------------- ------ ---------- ----------- -----------
Cash flows from financing activities
Proceeds from loans and borrowings 18,776 88,847 152,831
Repayment of loans and borrowings (24,369) (37,637) (21,846)
Dividends paid to non-controlling
interests - (46) (81)
Dividends paid to equity shareholders (11,921) (4,786) (13,964)
Acquisition of treasury shares (384) - -
Proceeds from issue of shares
from treasury 347 - -
Proceeds from issue of share capital 4,370 53,115 73,644
Share issue and reverse acquisition
costs - (2,631) (3,993)
Additional contribution from non-controlling
shareholders - 5,200 4,804
Net cash generated (utilised in)/generated
from financing activities (13,181) 102,062 191,395
---------------------------------------------- ------ ---------- ----------- -----------
Net (decrease)/increase in cash (20,200) (6,251) 22,576
Effect of exchange rate fluctuations
on cash held 694 (280) 392
Net cash at the beginning of period 39,937 16,969 16,969
Net cash at the end of the period 11 20,431 10,438 39,937
---------------------------------------------- ------ ---------- ----------- -----------
Notes to the Condensed Consolidated Financial Statements
For the six months ended 29 February 2012
1. General information
Redefine International P.L.C. was incorporated on 28 June 2004 under the laws of the Isle of Man and is listed on the Main Market of the London Stock Exchange. On 23 August 2011 the Company's financial year end was changed to 31 August from 30 September.
With effect from 23 August 2011, Redefine International plc (subsequently renamed Redefine International Holdings Limited ("RIHL")) was legally acquired by Wichford P.L.C. ("Wichford") subsequently renamed Redefine International P.L.C. As a result of the terms of the transaction, reverse acquisition accounting has been applied under IFRS 3 Business Combinations (2008) and RIHL has been identified as the accounting acquirer. Consequently, the comparative figures shown for the condensed consolidated statement of financial position 28 February 2011 and the condensed consolidated statement of comprehensive income are those of RIHL. The condensed consolidated statement of financial position reflects the reserves, assets and liabilities of RIHL and the capital, reserves, assets and liabilities of Redefine International (formerly Wichford), effectively acquired by RIHL at fair value as at 31 August 2011. As Wichford was the legal acquirer, the Wichford capital structure remains that of the Company.
The preparation of the condensed consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ materially from these estimates. The significant judgements made by management in applying the Company's accounting policies and the key sources of estimation uncertainty are discussed further in Note 2.4 Basis of preparation.
These condensed consolidated financial statements have been prepared on a going concern basis as the Directors consider this the most appropriate basis.
2. Basis of preparation
2.1 Statement of compliance
These condensed consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. They do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the period ended 31 August 2011.
Comparative figures for 2011 have been regrouped on a basis consistent with the current year. A reverse acquisition reserve has been created so that the capital structure of the Group reflects that of the Company. Certain balances have also been reclassified in the statement of cashflows to more accurately reflect the activity to which they relate.
Both half-year figures for the six months ended 29 February 2012 and the comparative amounts for the six months ended 28 February 2011 are unaudited and does not constitute statutory accounts as defined in the Isle of Man Companies Act 1931-2004 (as amended). Both sets of interim figures have however been reviewed by the Auditors. The summary financial statements for the year ended 31 August 2011, as presented in the condensed consolidated interim financial statements, represent an abbreviated version of the Group's full accounts for that period, on which independent auditors issued an unqualified audit report.
The consolidated financial statements of the Group as at and for the period ended 31 August 2011 are available upon request from the Company's Registered Office at Top Floor, 14 Athol Street, Douglas, Isle of Man, IM1 1JA or at www.redefineinternational.com.
The condensed consolidated interim financial statements were approved by the Board of Directors on 27 April 2012.
2.2 Basis of measurement and functional currency
The condensed consolidated financial statements of the Company for the 6 months ended 29 February 2012 consolidate the Company and its subsidiaries (together referred to as the "Group"). They are presented in pound sterling which represents the functional currency of the Company and are rounded to the nearest thousand. The report is prepared on the historical cost basis except for investment properties, derivative financial instruments and financial instruments designated at fair value through profit or loss.
2.3 Significant Accounting policies
The accounting policies applied by the Group in these condensed consolidated financial statements are the same as those applied by the Group in its audited financial statements as at and for the year ended 31 August 2011, except for the additional accounting policies noted below:
Disposal groups and non-current assets held for sale
A non-current asset or a disposal group comprising assets and liabilities is classified as held for sale if it is expected that its carrying amount will be recovered principally through sale rather than through continuing use, it is available for immediate sale and the sale is highly probable to occur within one year. For the sale to be highly probable, the appropriate level of management must be committed to a plan to sell the asset or disposal group.
On initial classification as held for sale, generally, non-current assets and disposal groups are measured at the lower of the previous carrying amount and fair value less costs to sell, with any adjustments taken to the income statement. The same applies to gains and losses on subsequent re-measurement. However, certain items such as financial assets within the scope of IAS 39 and investment property in the scope of IAS 40 continue to be measured in accordance with those standards.
Impairment losses subsequent to classification of assets as held for sale are recognised in the income statement. Increases in fair value less costs to sell assets that have been classified as held for sale are recognised in the income statement to the extent that the increase is not in excess of any cumulative impairment loss previously recognised in respect of the asset. Assets classified as held for sale are not depreciated.
Gains and losses on re-measurement and impairment losses subsequent to classification as disposal groups and non-current assets held for sale are shown within continuing operations in the income statement, unless they qualify as discontinued operations.
Disposal groups and non-current assets held for sale are presented separately from other assets and liabilities on the statement of financial position. Prior periods are not reclassified.
New standards and interpretations not yet adopted
The Directors have considered all IFRSs and interpretations that have been issued, but which are not yet effective and are currently assessing whether they will have a significant impact on how the results of operations and financial position of the Group are prepared and presented.
2.4. Critical judgements and estimates
The preparation of the condensed consolidated financial statements in conformity with IFRS requires the use of judgements and estimates that affect the reported amounts of assets and liabilities at the reporting date and the reported amounts of revenues and expenses during the period reported. Although these estimates are based on the Directors' best knowledge of the amount, event or actions, actual results may differ from those estimates.
The principal areas where such judgements and estimates have been made are:
Application of the going concern basis of accounting
These financial statements have been prepared on a going concern basis as the Directors consider this the most appropriate basis.
After considering the relevant factors, the Directors have a reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future.
The principal issues the Board considered in its enquiries included, inter alia, the maturity of the Delta and Gamma facilities which total GBP312.84 million in October 2012, the maturities of the VBG2 and VBG1 facilities totalling GBP93.37 million (both of which have expired but are the subject of a standstill agreement with the facility provider until 14 April 2012), the maturity of the Crewe facility which total GBP17.15 million in March 2012 and the maturity of a number of other facilities totalling GBP35 million over the next 12 months.
Following the conclusion of the reverse acquisition the Group's capital structure improved benefiting from RIHL's attractive long term facilities as well as a commitment from its major shareholder to support a proposed capital raising of their share of up to GBP100 million (i.e. GBP67 million). The Directors are confident that the maturity of the Delta and Gamma facilities will be addressed.
With regard to both the VBG1 and VBG2 facilities the Board is confident that these facilities will not be required to be repaid at maturity. The Board notes that these facilities are ring-fenced to certain investment properties with no recourse to any other assets pledged to other Group facilities.
Discussions are on-going with respect to the sale of the VBG and Halle assets, both non-core to the Company's strategy. As a result, the VBG1 and VBG2 assets are included in assets held for sale as at 29 February 2012.
There can however be no certainty as to the outcome of current negotiations or sales proceedings however the Board remains of the view that there would be no impact on the continued operations of the Group.
Discussions are on-going on the refinancing of the Crewe facility. Aviva credit approval has been obtained to extend the expiration of the Delamere Place Crewe facility until 31 May 2012, from its previous expiry date of 16 March 2012, to allow for further time for the re-financing of the facility. The Board notes that this facility is ring-fenced with no recourse to any other assets pledged to other Group facilities. There can be no certainty that agreement will be reached on restructuring the facility but the Board is of the view that this will not impact the continued operations of the Group.
Discussions are also on-going on the other facilities maturing in the next 12 months. Again, these facilities are recourse only to the properties on which they are secured.
The Board has a reasonable expectation that the Company and Group have adequate resources to continue in operation for the foreseeable future.
Investment Property Valuation
The Group uses the valuation performed by its independent valuers as a fair value of its investment properties. The valuation is based upon assumptions including estimated rental values, future rental income, anticipated maintenance costs, future development costs and appropriate discount rates. The valuers also make reference to market evidence of transaction prices for similar properties.
Classification of Investment Property
The hotel properties are held for capital appreciation and to earn rental income. The properties have been let to Redefine Hotel Management Limited ("RHML") for a fixed rent which is subject to annual review. RHML operates the hotel business on its own account and is exposed to the fluctuations in the underlying trading performance of the hotels. It is responsible for the day to day upkeep of the properties and retains the key decision making responsibility for the business. Aside from the payment of rental income to Redefine International there are limited or no transactions between the two entities. As a result, in line with guidance in IAS 40, Redefine International classifies the hotel properties as investment properties.
Taxation
The Group is exposed to the risk of changes to tax legislation in the various countries in which the Group operates. It is also exposed to different interpretations of tax regulations between the tax authorities and the Group.
Deferred Taxation
The Group considers that the value of the property portfolio is likely to be realised by both the sale and the use over time. The Group bases its deferred taxation provision on the assumption that the residual value of the investment properties is not less than the present value as provided by its external valuers.
The Group makes an initial estimate of the length of time that each property will be held in order to determine the initial recognition exemption for both the in use and on sale elements for each property. Periodically the Group will review the length of time for which each property will continue to be held and this can be significantly different from the residual of the time from the initial estimate.
The resulting provision, being subject to assumptions on the length of the time that each property will be held by the Group which can change over time, can lead to significantly different results for each property from one period to another.
The recoverability of any deferred tax asset is assessed and, where it is thought unlikely that a recovery will be made, is not included in the Group's provision.
3. Segment reporting
The Group's identified reportable segments are set out below. These segments are generally managed by separate management teams. As required by IFRS 8, Operating Segments, the information provided to the Board of directors, who are the Chief Operating Decision Makers, can be classified in the following segments:
UK Stable Income: Consists predominantly of UK offices, but includes
petrol filling stations, Kwik-Fit centres, retail
and residential units.
UK Retail: Consists of the Group's major UK shopping centres.
Europe: Consists of the Group's properties in Continental
Europe, located in Germany, Switzerland and the
Netherlands.
Hotels: Consists of all the Group's hotel properties. The
hotels are let to Redefine Hotel Management Limited
on a fixed rental basis with annual reviews.
Wichford: Consists of the Group's investment in Wichford,
up to the date of the reverse acquisition.
Cromwell: Relates to the Group's investment in the Cromwell
Property Group, Australia.
Relevant revenue, assets and capital expenditure information is set out below:
i. Information about reportable segments
UK
Stable UK
Income Retail Europe Hotels Wichford Cromwell Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ---------- ---------- ---------- ---------- --------- --------- ----------
At 29 February
2012
Rental income 18,258 6,858 8,721 4,700 - - 38,537
Investment income - - - - - - -
Net fair value
loss on investment
property (45,599) (9,250) (2,744) (231) - - (57,824)
Gain/(loss) from
financial assets
and liabilities 6,481 (363) (292) (540) - - 5,286
Equity accounted
(losses)/profits (165) (144) - - 2,188 1,879
Interest income 801 2,397 92 1,554 - 17 4,861
Interest expense
- bank debt (11,779) (4,861) (20,464) (1,841) - (1,012) (39,957)
Property operating
expenses (1,001) (795) (641) - - - (2,437)
Investment property 418,703 167,911 94,860 123,775 - - 805,249
Assets held for
sale - - 109,231 - - - 109,231
Investments designated
at fair value 222 228 79 - - - 529
Investments in
joint ventures 657 - 1,544 - - - 2,201
Investment in
associates - - - - 129,795 129,795
Loans and receivables 17,673 42,821 - 31,387 - - 91,881
Borrowings - bank
loans 411,150 177,525 194,285 119,083 - 25,694 927,737
At 28 February
2011
Rental income 1,924 4,612 3,009 2,043 - - 11,588
Investment income - - - - - 3,875 3,875
Net fair value
gains/(losses)
on investment
property (115) (5,556) 457 (1,588) - - (6,802)
Losses from financial
assets and liabilities 4,642 - 756 1,352 - 10,350 17,100
Equity accounted
profits/(losses) 121 (1,878) 403 - (5,430) - (6,784)
Impairment of
loans to joint
ventures (15) - - - - - (15)
Interest income 849 1,168 - 790 - - 2,807
Interest expense (606) (3,851) (1,085) (1,577) - - (7,119)
Share based payment - (294) - - - - (294)
Property operating
expenses (94) (1,196) (305) - - - (1,595)
Investment property 52,290 108,914 76,379 110,600 - - 348,183
Investments designated
at fair value 478 - - 1,352 - 85,128 86,958
Investments in
joint ventures 809 - 1,838 - - - 2,647
Investment in
associates - - - - 16,731 - 16,731
Loans and receivables 27,974 25,335 - 34,500 - - 87,809
Borrowings - bank
loans (45,152) (116,547) (58,995) (107,445) - - (328,139)
At 31 August 2011
Rental income 3,965 10,656 5,816 6,386 - - 26,823
Investment income - - - - - 3,875 3,875
Net fair value
(losses)/gains
on investment
property (354) (8,485) (2,298) 510 - - (10,627)
Gains/(losses)
from financial
assets and liabilities 4,384 519 816 (2,225) - 10,046 13,540
Equity accounted
profits/(losses) 173 (2,137) 473 - (4,224) 2,627 (3,088)
Impairment of
loans to joint
ventures (444) - - - - - (444)
Interest income 2,316 3,348 - 2,397 - - 8,061
Interest expense
- bank debt (1,204) (8,400) (2,270) (2,460) - (727) (15,061)
Property operating
expenses (102) (1,896) (303) (67) - - (2,368)
-
Investment property 467,426 82,796 312,657 123,775 - - 986,654
Investments designated
at fair value 361 592 170 - - - 1,123
Investments in
joint ventures 823 - 1,784 - - - 2,607
Investment in
associates - - - - - 104,680 104,680
Loans and receivables 29,889 42,804 - 31,387 - - 104,080
Borrowings - bank
loans (378,793) (139,818) (186,511) (75,778) - (17,344) (798,244)
ii. Reconciliation of reportable segment profit or loss
Reviewed Reviewed Audited
29 February 28 February 31 August
2012 2011 2011
GBP'000 GBP'000 GBP'000
------------------------------------- ------------- ------------- -----------
Rental income
Total rental income for reported
segments 38,537 11,588 26,823
Profit or loss
Investment income - 3,875 3,875
Net fair value losses on investment
property (57,824) (6,802) (10,627)
Gains from financial assets
and liabilities 5,286 17,100 13,540
Equity accounted profits/(
losses) 1,879 (6,784) (3,088)
Impairment of loans - (15) (444)
Interest income 4,861 2,807 8,061
Interest expense (39,957) (7,119) (15,061)
Share based payment - (294) -
Property operating expenses (2,437) (1,595) (2,368)
Total (loss)/gain per reportable
segments (49,655) 12,761 20,711
------------------------------------- ------------- ------------- -----------
Other profit or loss - unallocated
amounts
Other income 1,199 994 1,592
Administrative expenses (855) (252) (774)
Investment advisor and professional
fees (4,473) (2,083) (4,664)
Impairment of intangible assets - - (591)
Loss from financial assets
and liabilities (538) - -
Interest income 50 387 73
Interest expense (5,848) (2,201) (9,244)
Share based payment (375) - (768)
Foreign exchange loss (945) (143) (1,224)
Consolidated (loss)/profit
before tax (61,440) 9,463 5,111
------------------------------------- ------------- ------------- -----------
4. Gains from financial assets and liabilities
The following table details the net gains and losses earned by the Group during the period:
Reviewed Reviewed Audited
29 February 28 February 31 August
2012 2011 2011
GBP'000 GBP'000 GBP'000
------------------------------------------------------------------ ------------- ------------- -----------
Fair value through profit or
loss
Equity investments - realised - - -
- unrealised - 10,350 10,350
Derivative financial instruments
- realised - 3,540 3,540
- unrealised 5,286 2,781 (856)
Financial assets carried at
amortised cost
Impairment of loans and receivables (438) - (73)
Other
Loss on sale of subsidiaries
(Note 20) (100) (484) (334)
Financial liabilities carried
at amortised cost
Redemption of loans and borrowings - 913 913
Total net gains from financial
assets and liabilities 4,748 17,100 13,540
------------------------------------------------------------------ ------------- ------------- -----------
5. Interest income
The following table details the interest income earned by the Group during the period:
Reviewed Reviewed Audited
29 February 28 February 31 August
2012 2011 2011
GBP'000 GBP'000 GBP'000
---------------------------------- ------------- ------------- -----------
Interest income on bank deposits 183 101 136
Interest income from mezzanine
financing 4,728 3,093 7,998
Total interest income 4,911 3,194 8,134
---------------------------------- ------------- ------------- -----------
6. Interest expense
The following table details the interest expense at amortised cost incurred by the Group during the period:
Reviewed Reviewed Audited
29 February 28 February 31 August
2012 2011 2011
GBP'000 GBP'000 GBP'000
------------------------------------- ------------- ------------- -----------
Interest expense on secured
bank loans (39,958) (6,330) (15,060)
Finance lease interest (369) - (386)
Interest expense on other financial
liabilities (285) (140) (868)
Interest expense on mezzanine
financing (5,193) (2,850) (7,991)
Total interest expense (45,805) (9,320) (24,305)
------------------------------------- ------------- ------------- -----------
Interest expense on secured bank loans includes GBP17.8 million in finance costs due to the amortisation of the fair value adjustment of the VBG, Gamma and Delta loan facilities arising due to reverse acquisition of Wichford
7. Taxation
Income tax expense
Reviewed Reviewed Audited
29 February 28 February 31 August
2012 2011 2011
GBP'000 GBP'000 GBP'000
------------------------------------ ------------- ------------- -----------
a) Tax recognised in profit
or loss
Current income tax
Income tax in respect of current
period 604 19 563
Withholding tax 162 174 174
Deferred tax
Origination and reversal of
temporary differences 398 - 623
Total income tax expense reported
in the statement of comprehensive
income 1,164 193 1,360
------------------------------------ ------------- ------------- -----------
b) Recognised deferred tax liability and movement during the period
Deferred tax and movement for
the period is attributable
to the following:
Deferred tax liability
Opening balance 2,239 - -
Deferred tax liability acquired - - 1,616
Deferred tax liability recognised 398 - 623
Closing balance 2,637 - 2,239
----------------------------------- ------ ------
c) Factors affecting the tax charge in the period
As the largest portion of the Group's properties are principally in the UK and owned by companies registered in the Isle of Man or in the British Virgin Islands, the Company regards the UK's income tax rate of 20% (2011: 20%), as payable under the UK's Non Resident Landlord Scheme, to be most relevant tax rate for the reconciliation of the theoretical tax charge on accounting profits to the tax charge for the period shown through the profit or loss.
The Group invests in Swiss property and therefore is liable to cantonal and federal taxes in Switzerland. The rates depend largely on the canton in which the property is situated and the property value. The effective rate of tax ranges from 22% to 23.23%.
The Group also invests in German properties held either in corporates or partnerships. The effective rate of tax ranges from 15.825% to 25%.
The Group's investment in the Australian resident, Cromwell is held through an Irish Section 110 company. Unfranked dividends received from Cromwell are subject to an Australian withholding tax of 7.5%. Following the change in the accounting for the Cromwell investment to equity accounting with effect from 1 March 2011, withholding taxes on the distributions received have been disclosed within equity accounted profits (Refer note 10 for details on taxes withheld during the period).
The tax for the period is higher than the 20% payable under the UK's NRL Scheme. The differences are explained below:
Reviewed Reviewed Audited
29-Feb 28-Feb 31-Aug
2012 2011 2011
GBP'000 GBP'000 GBP'000
------------------------------------------------------------------------ --------- --------- --------
(Loss)/profit before tax (61,440) 9,463 5,111
(Loss)/profit before tax multiplied by NRL rate of UK income tax (20%) (12,288) 1,893 1,022
Effect of:
- exempt property revaluations 11,565 1,360 2,125
- income not subject to UK income tax 1,846 (93) (321)
- gain/(loss) in financial assets and liabilities (950) (3,420) (2,708)
- losses carried forward 565 226 415
- expenses not deductible for tax 264 53 653
- withholding tax 162 174 174
------------------------------------------------------------------------ --------- --------- --------
Total tax charge for the period 1,164 193 1,360
------------------------------------------------------------------------ --------- --------- --------
8. Investment property
The cost of properties as at 29 February 2012 was GBP1.19 billion (28 February 2011: GBP371.52 million, 31 August 2011: GBP1.19 billion). The carrying amount of investment property, apart from the investment properties in Delamere Place Crewe, is the fair value of the property as determined by a registered independent appraiser having an appropriate recognised professional qualification and recent experience in the location and category of the property being valued (together referred to as "valuers"). The carrying amount of the investment properties in Crewe as at 29 February 2012 is the fair value as determined by directors' valuation.
The fair value of each of the properties for the year ended 31 August 2011 was assessed by the valuers in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors ("Red Book"). For the six months ended 29 February 2012, the valuers updated the valuations as prepared at 31 August 2011, on a desktop basis.
The valuers have used the following key assumptions:
The market value of investment properties has been primarily derived using comparable market transactions on arm's-length terms and an assessment of market sentiment. The aggregate of the net annual rents receivable from the properties and, where relevant, associated costs, have been valued at an average yield of 8% which reflect the risks inherent in the net cash flows. Valuations reflect, where appropriate, the type of tenants actually in occupation or likely to be in occupation after letting of vacant accommodation and the market's perception of their creditworthiness and the remaining useful life of the property.
The directors have estimated the recoverable value of the property under development in Crewe based on expected/agreed development plans and have made a number of assumptions in deriving this value, including, in their view, various reasonable long-term assumptions relating to likely interest and the ultimate rental potential of the development and likely expected yields in the range of 6%-7%. Based on these calculations, which, given current market conditions and the uncertainties in projecting forward these assumptions, are subjective, the Directors have valued the property under development at a value of GBP17.15 million (2011: GBP17.15 million).
In terms of IAS 40 Investment property: Paragraph 14, judgement is needed to determine whether a property qualifies as an investment property. The Group has developed criteria so that it can exercise its judgement consistently in recognising investment properties. These include inter alia; property held for long-term capital appreciation, property owned (or held under finance leases) and leased out under one or more operating leases; and property that is being constructed or developed for future use as an investment property. The recognition and classification of property as investment property principally assures that the Group does not retain significant exposure to the variation in cash flows arising from the underlying operations of the properties. Investment property comprises a number of commercial and retail properties that are leased to third parties. All investment properties are income generating, as is the investment property under development.
The hotel properties are held for capital appreciation and to earn rental income. The properties have been let to Redefine Hotel Management Limited ("RHML") for a fixed rent which is subject to annual review. RHML operates the hotel business on its own account and is exposed to the fluctuations in the underlying trading performance of the hotels. It is responsible for the day to day upkeep of the properties and retains the key decision making responsibility for the business. Aside from the payment of rental income to Redefine International there are limited or no transactions between the two entities. As a result, in line with guidance in IAS 40, Redefine International classifies the hotel properties as investment properties.
Property operating expenses in the consolidated statement of comprehensive income relate solely to income generating properties.
Reviewed Reviewed Audited
29 February 28 February 31 August
2012 2011 2011
GBP'000 GBP'000 GBP'000
--------------------------------------- ------------- ------------- -----------
Opening balance 986,654 227,675 227,675
Properties acquired during
the period - 132,141 197,424
Capitalised expenditure 1,126 - 13,659
Disposals (3,150) (6,543) (6,543)
Impact of reverse acquisition - - 546,900
Investment property at fair
value - - 543,275
Finance leases - - 3,625
------------- ------------- -----------
Impact of acquisition of subsidiaries - - 2,381
Foreign exchange movements
in foreign operations (12,326) 1,712 6,073
Recognition of finance leases - - 9,712
Net fair value losses on investment
property (57,824) (6,802) (10,627)
Reclassification to assets
held for sale (refer Note 19) (109,231) - -
Closing balance 805,249 348,183 986,654
--------------------------------------- ------------- ------------- -----------
A reconciliation of investment property valuations to the condensed consolidated statement of financial position are shown below:
Reviewed Reviewed Audited
29 February 28 February 31 August
2012 2011 2011
GBP'000 GBP'000 GBP'000
----------------------------------- ------------- ------------- -----------
Investment property at market
value as determined by external
valuers (excluding head leases,
see below) 774,793 331,033 956,167
Freehold 552,801 256,048 714,430
Freehold and long leasehold 15,350 - 17,900
Leasehold 206,642 74,985 223,837
------------- ------------- -----------
Investment property at directors'
valuation 17,150 17,150 17,150
Adjustments for items presented
separately on the consolidated
statement of financial position:
- Add minimum payment under
head leases separately included
under borrowings 13,306 - 13,337
Condensed consolidated statement
of financial position carrying
value of investment property 805,249 348,183 986,654
----------------------------------- ------------- ------------- -----------
9. Long-term receivables
Reviewed Reviewed Audited
29 February 28 February 31 August
2012 2011 2011
GBP'000 GBP'000 GBP'000
---------------------------------- ------------- ------------- -----------
Security deposits with banks 464 464 464
Amounts due from related parties
(refer Note 16) 74 116 116
Amounts due from Mezzanine
Capital Limited 91,343 87,229 103,500
91,881 87,809 104,080
---------------------------------- ------------- ------------- -----------
Security deposits with banks bear interest at a rate of 6.725% with maturity between 1 and 3 years.
The loans from related parties are unsecured, bear interest at rates between 0% and 7% and are repayable on demand, but the expectation is that the term will be greater than 12 months.
The loans from Mezzanine Capital Limited are secured, bear interest at rates between 10% and 12% and are repayable between 1 and 3 years.
Included in amounts due from Mezzanine Capital Limited is rolled up interest in respect of GBP7.1 million (28 February 2011: GBP4.6 million, 31 August 2011: GBP6.0 million).
10. Investments in associates
Reviewed Reviewed Audited
29 February 28 February 31 August
2012 2011 2011
GBP'000 GBP'000 GBP'000
------------------------------------ ------------- ------------- -----------
Opening balance 104,680 18,923 18,923
Investment at cost 24,222 38 16,449
Reclassified from investments
designated at fair value - - 85,128
Change in carrying value due
to foreign currency translation 3,789 - 4,963
Equity accounted profit/(loss) 2,187 (3,335) 4,729
Impairment of investment - (2,133) (6,326)
Share of foreign currency movement
recognised - 779 1,494
Share of cash flow hedge reserve
movement recognised - 2,459 (155)
Distribution received (5,083) - (5,986)
Cancellation of investment at
fair value - - (14,539)
Closing balance 129,795 16,731 104,680
------------------------------------ ------------- ------------- -----------
The Company increased its holding in Cromwell through the AUD 35 million (GBP22.6 million), participation in the Cromwell entitlement offer in December 2011. Additional acquisitions of Cromwell shares over the period totalling GBP1.6 million increased the Company's interest to 23.16% from 22.36% as at 31 August 2011.
The closing price of Cromwell on 29 February 2012 was 72 Australian cents per security and the total fair value of shares held is AUD 194.8 million (GBP131.7 million).
During the six month period ended 29 February 2012, the Group received AUD 7,796,143 (28 February 2011: nil, 31 August 2011: AUD 7,062,222) as a distribution, before withholding tax of AUD 248,249 (28 February 2011: nil, 31 August 2011: AUD 196,730), resulting in a net distribution of AUD 7,547,894 (28 February 2011: nil, 31 August 2011: AUD 6,865,492). The GBP equivalent of the above gross distribution is GBP5.08 million (28 February 2011: nil, 31 August 2011: GBP4.49 million).
There are no restrictions on the ability of Cromwell to transfer funds to its shareholders in the form of cash, distributions and loan repayments.
11. Cash at bank
Reviewed Reviewed Audited
29 February 28 February 31 August
2012 2011 2011
GBP'000 GBP'000 GBP'000
------------------------------ ------------- ------------- -----------
Cash at bank consists of the
following:
Unrestricted cash balances 20,431 10,438 39,937
Bank balances 10,677 3,190 35,742
Call deposits 9,754 7,248 4,195
------------- ------------- -----------
Restricted cash balances 13,389 325 11,431
33,820 10,763 51,368
------------------------------ ------------- ------------- -----------
As at 29 February 2012, there was GBP13.39 million (31 August 2011:GBP11.43 million) of cash at bank, to which the Group did not have instant access. The principal reason for this is that rents received are primarily held in locked bank accounts as interest and other related expenses are paid from these monies on the interest payment dates. Also included in the restricted cash balance is GBP2.57 million held with Aviva with regards to proposed developments in Birchwood Warrington Limited.
12. Capital and reserves
Share capital
In accordance with IFRS 3 Business Combinations, with a reverse acquisition the issued equity instruments information relates to that of the legal acquirer, Wichford. The prior period numbers have therefore been adjusted to reflect the capital structure of Wichford.
Reviewed Reviewed Audited
29 February 28 February 31 August
2012 2011 2011
GBP'000 GBP'000 GBP'000
--------------------------------- -------------- -------------- --------------
Authorised
Ordinary shares of 1 penny
each
- number - 5,000,000,000 -
- GBP'000 - 50,000 -
Ordinary shares of 7.2 pence
each
- number 1,000,000,000 - 1,000,000,000
- GBP'000 72,000 - 72,000
Issued, called and fully paid
Opening: ordinary shares of
1 penny each
- number 567,643,792 1,062,095,584 1,062,095,584
- GBP'000 40,870 10,621 10,621
Allotted: ordinary shares of
1 penny each
- number - - 3,255,711,718
- GBP'000 - - 32,557
Consolidation from 1 pence
to 7.2 pence each
- number - - 599,695,459
- GBP'000 - - 43,178
Cancellation of ordinary shares
of 7.2 pence each
- number - - (32,051,667)
- GBP'000 - - (2,308)
Ordinary shares acquired into
treasury of 7.2 pence each
- number (939,000) - -
- GBP'000 (67) - -
Shares issued during the period
of 7.2 pence each
- number 12,750,000 - -
--------------
- new issue 11,811,000
- out of treasury 939,000
--------------
- GBP'000 918 - -
Closing: ordinary shares of
7.2 pence each
- number 579,454,792 1,062,095,584 567,643,792
- GBP'000 41,721 10,621 40,870
--------------------------------- -------------- -------------- --------------
The Company acquired 939,000 shares into treasury on 18 November 2011.
The Company issued 12,750,000 shares to RIN on 1 February 2012, at a price of 37.0 pence per share. The placement was made to assist with the funding of the Company's underwriting commitment in connection with the Cromwell capital raising. The shares (including an issue of 939,000 shares out of treasury) were admitted to trading on the LSE on 6 February 2012.
Following this placement and as at 29 February 2012, the Company had 579,454,792 shares in issue.
Distributions
In terms of the dividend policy, the Company will seek to distribute the majority of its recurring earnings available for distribution in the form of dividends subject to realisable profits. However, there is no assurance that the Company will pay a dividend, or if a dividend is paid the amount of such dividend.
During the six month period ended 29 February 2012, the interim dividend of 2.10 pence per share, for the financial period ended 31 August 2011, was distributed.
Reverse acquisition reserve
The reverse acquisition reserve comprises the difference between the capital structure of the Company and RIHL.
Other reserves
These are non-distributable reserves arising from the acquisition of subsidiaries.
13. Capital instrument
As part of the Aviva debt restructuring the Company has entered into a GBP13 million facility with Aviva. The loan bears interest at 6% per annum, and all interest is rolled up until payment or conversion. The capital plus rolled up interest is repayable or convertible three years after the date of the agreement or on any earlier date if there is an event of default.
Should the drawings together with interest not be repaid, the Company will be required to issue shares to discharge the outstanding amount due, the number of which is calculated by dividing the outstanding amount by 50 pence per ordinary share.
The capital instrument is an equity instrument under IAS 32 as it is to be settled in either cash or a fixed number of equity shares at the discretion of the Company. The fixed number of shares to be issued changes over time but is fully predetermined based on the time the Company chooses to settle the instrument. The additional shares that arise over time are charged to profit or loss in each period as a share based payment charge and is credited to the equity reserve.
Reviewed Reviewed Audited
29 February 28 February 31 August
2012 2011 2011
GBP'000 GBP'000 GBP'000
--------------------------- ------------- ------------- -----------
Opening balance 13,768 - -
Capital instrument issued - 13,000 13,000
Share based payment 375 294 768
Closing balance 14,143 13,294 13,768
--------------------------- ------------- ------------- -----------
14. Borrowings
Reviewed Reviewed Audited
29 February 28 February 31 August
2012 2011 2011
GBP'000 GBP'000 GBP'000
-------------------------------- ------------- ------------- -----------
Non-current
Bank loans 458,397 307,872 800,518
Less: deferred finance costs (2,343) - (2,440)
Finance leases 13,306 - 13,337
Total 469,360 307,872 811,415
--------------------------------- ------------- ------------- -----------
Current
Bank loans 459,334 20,267 117,822
Less: deferred finance costs (957) - (751)
--------------------------------- ------------- ------------- -----------
Total 458,377 20,267 117,071
Total borrowings 927,737 328,139 928,486
--------------------------------- ------------- ------------- -----------
a) Loans
This note provides information about the contractual terms of the Group's loans and borrowings, which are measured at amortised cost.
The terms and conditions of outstanding loans are as follows:
Reviewed Reviewed Audited
29 28 31
Loan February February August
Interest Cur- Maturity 2012 2011 2011
Facility Amor-tising Lender rate rency date GBP'000 GBP'000 GBP'000
----------------------------------- ------------- ------------ ---------- ------- ------------ --------- --------- --------
Windermere LIBOR October
Gamma No XI CMBS + 0.75% GBP 2012 198,719 - 197,791
Windermere
VIII LIBOR October
Delta No CMBS + 0.75% GBP 2012 114,177 - 113,759
Redefine Hotel LIBOR November
Holdings Limited Yes Aareal + 2.45% GBP 2015 75,295 68,445 75,778
Talisman EURIBOR January
VBG1 Yes 3 + 1.1% EUR 2012 51,620 - 47,420
West Orchards July
Coventry Limited*** Yes Aviva 6.29%* GBP 2027 49,273 49,212 49,227
Lloyds LIBOR
Zeta No TSB + 1.15% GBP May 2013 46,000 - 46,000
Talisman EURIBOR April
VBG2 Yes 4 + 1.1% EUR 2011 41,751 - 36,446
St George's Harrow Landesbank LIBOR April
Limited Yes Berlin + 2.5% GBP 2016 41,400 - 41,630
Windermere EURIBOR April
Halle No XIV CMBS + 0.85% EUR 2014 25,590 - 25,975
Redefine Australian BBSY February
Investments Limited No Investec + 4% AUD 2013 25,693 - 17,344
Delamere Place
Crewe Limited No Aviva 6.49%* GBP May 2012 17,150 17,150 17,150
SNS
Property EURIBOR July
Hague Yes Finance + 2.3% EUR 2014 16,216 - 16,879
Birchwood Warrington September
Limited*** No Aviva 6.1%* GBP 2035 16,738 16,457 16,629
Ciref Berlin EURIBOR September
1 Limited Yes RBS + 1.2% EUR 2014 15,234 15,782 16,242
Byron Place Seaham September
Limited*** Yes Aviva 6.44%* GBP 2031 15,176 15,193 15,182
Kalihora Holdings October
Limited Yes UBS 2.87%* CHF 2018 12,099 11,917 13,522
Princes Street LIBOR September
Investments Limited Yes HSBC + 2.5% GBP 2016 11,710 - -
Gibson Property June
Holdings Limited Yes Aviva 6.37%* GBP 2029 10,978 11,128 11,053
ITB Schwandorf Bayern EURIBOR October
B.V. Yes LB + 1.3% EUR 2017 7,469 7,795 7,971
ITB Herzogenrath Bayern EURIBOR October
B.V. Yes LB + 1.3% EUR 2017 6,178 6,447 6,593
Newington House LIBOR September
Limited Yes AIB + 2.5% GBP 2013 6,409 6,609 6,509
CEL Portfolio
Limited & Co. November
KG Yes Valovis 4.95%* EUR 2014 4,134 4,305 4,427
InkstoneZweiGrundstucksverwaltung August
Limited & Co.KG Yes Barclays 5.91%* EUR 2012 3,374 3,898 3,986
InkstoneGrundstucksverwaltung August
Limited & Co.KG Yes Barclays 5.75%* EUR 2012 3,713 3,506 3,603
Ciref German EURIBOR September
Portfolio Limited Yes RBS + 1.2% EUR 2014 3,237 3,365 3,447
Ciref Reigate LIBOR June
Limited No RBS + 2.5% GBP 2015 - 2,500 2,500
Ciref Kwik-fit LIBOR April
Stafford Limited No KBC + 2.5% GBP 2012 718 - 718
Ciref Kwik-fit LIBOR April
Stockport Limited No KBC + 2.5% GBP 2012 463 - 463
Total bank loans 820,514 243,709 798,244
--------------------------------------------------------------------------------------------------- --------- --------- --------
Mezzanine Capital 7.10%
Limited**** - 10%* GBP 2012 95,915 82,520 107,847
Coronation Group
Investments Limited** 4%* GBP 2011 - 596 10,910
Loans secured
by cash deposits 7.00%* GBP 2011 650 650 650
CEL Portfolio
Limited & Co.
KG 0%* GBP 2029 652 664 689
---------------------------------------------------------------- ---------- ------- ---------- --------- --------- --------
Total secured
loans 917,731 328,139 918,340
--------------------------------------------------------------------------------------------------- --------- --------- --------
All bank loans are secured over investment property (except Redefine Australian Investments Limited which is secured by Cromwell securities), and bear interest at the specified interest rates.
* Fixed rates
** Loan secured over Redefine Australian Investments Limited.
*** These facilities are cross collateralised against each other and against facilities to Redefine Wigan Limited. See Note 23.
**** Loans are extendable at the request of the Company.
There have been a number of covenant breaches within the Group during the period. Material covenants under discussion or subject to waivers are summarised below:
ICR
Original Principal Covenant ICR ratio LTV covenant LTV ratio
Facility Lender Maturity GBP'000 % % % %
------------------------ ------------ ----------- ---------- ---------- ---------- ------------- ----------
VBG 1 Talisman 3 Jan-12 51,620 120 229 N/a N/a
VBG 2 Talisman 4 Apr-11 41,751 115 343 N/a N/a
Delamere Place Crewe Aviva Nov-11 17,150 110 104 N/a N/a
Ciref Berlin 1 Limited RBS Sep-14 15,234 120 171 90 93
------------------------ ------------ ----------- ---------- ---------- ---------- ------------- ----------
VBG 1
The loan has a current LTV of 122%. There was an existing LTV waiver and standstill agreement until 14 April 2012. The loan is non-recourse to the Group. The loan servicer is marketing the associated assets for sale and it is expected that they will be disposed of and loan settled within the next 6-12 months.
VBG 2
The loan has a current LTV of 129%. There was an existing LTV waiver until 14 April 2012. The loan is non-recourse to the Group. The loan servicer is marketing the associated assets for sale and it is expected that they will be disposed of and loan settled within the next 6-12 months.
Delamere Place Crewe
Aviva credit approval has been obtained to extend the expiration of the Delamere Place Crewe facility until 31 May 2012, from its previous expiry date of 16 March 2012, to allow for further time for the re-financing of the facility. The loan is non-recourse to the Group.
RBS (Ciref Berlin 1 Limited)
There is currently an LTV breach. A number of asset management initiatives have been identified, many of which are at an advanced stage of negotiations with the relevant tenants. Once these initiatives have been completed, it is expected that they will provide a sufficient value uplift to cure the temporary LTV breach.
Negotiations are currently in place with RBS to waive the LTV breach in the interim.
Current and non-current borrowings
Reviewed Reviewed Audited
29 February 28 February 31 August
2012 2011 2011
GBP'000 GBP'000 GBP'000
--------------------------------- ------------- ------------- -----------
Non-current liabilities
Secured loans 458,397 307,872 800,518
Total non-current borrowings 458,397 307,872 800,518
--------------------------------- ------------- ------------- -----------
The maturity of non-current
borrowings is as follows:
Between one year and five years 345,570 117,442 685,581
More than five years 112,827 190,430 114,937
458,397 307,872 800,518
--------------------------------- ------------- ------------- -----------
Current liabilities
Secured loans 459,334 20,267 117,822
Total current borrowings 459,334 20,267 117,822
--------------------------------- ------------- ------------- -----------
Total borrowings 917,731 328,139 918,340
--------------------------------- ------------- ------------- -----------
Exposure to credit, interest rate and currency risks arise in the normal course of the Group's business. Derivative financial instruments are used to reduce exposure to fluctuations in interest rates. Refer to Note 15, 21 and 22 for further details.
b) Finance Leases
Obligations under finance leases at the reporting dates are analysed as follows:
Reviewed Reviewed Audited
29 February 28 February 31 August
2012 2011 2011
GBP'000 GBP'000 GBP'000
---------------------------------- ------------- ------------- -----------
Gross finance leases liabilities
repayable:
Not later than 1 year 680 - 680
Later than 1 year not later
than 5 years 2,720 - 2,720
Later than 5 years 48,005 - 48,344
51,405 - 51,744
Less: finance charges allocated
to future periods (38,099) - (38,407)
Present value of minimum lease
payments 13,306 - 13,337
---------------------------------- ------------- ------------- -----------
Present value of finance lease
liabilities repayable:
Not later than 1 year 511 - 511
Later than 1 year not later
than 5 years 1,821 - 1,821
Later than 5 years 10,974 - 11,005
Present value of minimum lease
payments 13,306 - 13,337
---------------------------------- ------------- ------------- -----------
15. Derivatives
The Group enters into interest rate swaps and interest rate cap agreements. The purpose is to manage the interest rate risks arising from the Group's operations and its sources of finance.
The interest rate swaps employed by the Group to convert the Group's borrowings to fixed interest ones fall into two categories, as explained in a) i) and ii) below.
The interest rate caps employed by the Group limit the exposure to upward movements in interest rates. These are detailed in b) below.
It is the Group's policy that no economic trading in derivatives shall be undertaken.
a) Interest rate swap agreements
In accordance with the terms of the borrowing arrangements, the Group has entered into interest swap agreements. The interest rate swaps are used to manage the interest rate profile of financial liabilities. The Group has employed interest rate swaps to eliminate future exposure to interest rate fluctuations as well as being charged fixed rate interest on those facilities described as having lender level swaps.
i) Lender level interest rate swap agreements
Lender level interest rate swaps agreements are those from which the Group benefits but which do not have any Group entity as a counter-party, instead the lender is the counter-party with the commercial banking entity providing the interest rate swap. These arise where the loan agreements call for interest rate swaps to be taken out to allow a fixed interest charge to be made to the borrowing subsidiaries and these borrowers have given indemnities to the lenders in respect to these interest rate swaps.
The interest rate swaps for the Delta, Gamma and Halle facilities, from which the Group benefits by both eliminating any interest rate fluctuations in the market over the course of the facilities and also from any benefit (or cost) of closing these instruments out, are lender level interest rate swaps. The swaps are between the CMBS vehicles (the lenders) and commercial banking counterparties.
The Group recognises these embedded derivatives separately as, while the Group is charged interest at a fixed rate on these facilities, the terms of the facilities mean the Group ultimately receives their benefit or pay their burdens.
As a result of the use of interest rate swaps, the fixed rate profile of the Group's lender level interest rate swaps was:
Reviewed Reviewed Audited
29 February 28 February 31 August
Effective Maturity Swap 2012 2011 2011
Facility date date rate GBP'000 GBP'000 GBP'000
---------- ------------ ------------ ------ ------------- ------------- -----------
Delta 21/07/2006 15/10/2012 4.95% (2,653) - (5,062)
Gamma 23/05/2005 20/10/2012 4.77% (4,404) - (8,426)
Halle 19/02/2007 22/04/2014 4.19% (2,205) - (2,325)
(9,262) - (15,813)
------------------------------------ ------ ------------- ------------- -----------
ii) Borrower level interest rate swap agreements
Borrower level interest rate swap agreements are those that have a Group company as the counter-party to the commercial bank providing the interest rate swap. As a result of the use of interest rate swaps, the fixed rate profile of the Group was:
Reviewed Reviewed Audited
29 February 28 February 31 August
Effective Maturity Swap 2012 2011 2011
Facility date date rate GBP'000 GBP'000 GBP'000
------------------------ ------------ ------------ ------- ------------- ------------- -----------
Subsidiaries
Redefine Hotel
Holdings Limited 30/11/2010 30/11/2015 2.45% (2,428) 1,351 (2,105)
Hague 01/08/2008 01/08/2014 4.89% (1,632) - (1,751)
Zeta 20/07/2010 09/05/2013 2.73% (966) - (1,141)
Ciref Berlin
1 Limited 05/06/2007 15/04/2014 4.61% (678) (634) (735)
Ciref Berlin
1 Limited 31/07/2007 15/04/2014 4.20% (537) (470) (569)
Redefine Hotel
Holdings Limited 30/06/2011 30/11/2015 2.32% (336) - (290)
Ciref German
Portfolio Limited 31/07/2007 15/04/2014 4.20% (241) (211) (256)
Redefine International
Holdings Limited 04/03/2011 04/03/2013 5.45% (227) - (305)
Princes Street
Investments
Limited 30/09/2011 30/09/2016 1.69% (219) - -
Matterhorn Vich
SARL 30/01/2012 08/10/2018 0.73% (169) - -
Matterhorn Brig
SARL 30/01/2012 08/10/2018 0.73% (78) - -
Newington House
Limited 03/09/2010 19/09/2013 1.54% (54) 67 (82)
Ciref Reigate
Limited 23/09/2010 30/06/2015 2.03% - 49 (68)
(7,565) 151 (7,302)
------------- ------ ------------- ------------- -----------
Held in joint
ventures
Ciref Jersey
Limited 31/07/2007 30/07/2027 5.48% (6,534) (3,808) (5,532)
Churchill Court
Limited 10/04/2008 10/04/2018 5.08% (1,585) (1,088) (1,554)
Premium Portfolio
Limited & Co.
KG 31/03/2008 31/12/2014 4.13% (1,463) (1,319) (1,486)
Ciref Jersey
Limited 30/01/2008 30/07/2027 4.80% (503) (196) (371)
Premium Portfolio
Limited & Co.
KG 31/03/2008 31/12/2014 4.23% (146) (379) (435)
(10,231) (6,790) (9,378)
------------- ------ ------------- ------------- -----------
b) Interest rate cap agreements
The Group has entered into interest rate caps in order to take advantage of the low interest rates in the market while at the same time protecting the Group against any significant increases in these interest rates. The current interest rate cap agreements are detailed below:
Reviewed Reviewed Audited
29 February 28 February 31 August
Effective Maturity Swap 2012 2011 2011
Facility date date rate GBP'000 GBP'000 GBP'000
------------------ ------------ ------------ ------- ------------- ------------- -----------
St George's
Harrow
Limited 27/04/2011 27/04/2016 2.85% 228 - 591
ITB Herzogenrath
B.V. 31/05/2011 31/05/2017 4.50% 43 - 93
ITB Schwandorf
B.V. 31/05/2011 31/05/2017 4.50% 36 - 77
307 - 761
------------- ------ ------------- ------------- -----------
c) Summary of fair value of interest rate swaps and interest rate caps
Reviewed Reviewed Audited
29 February 28 February 31 August
2012 2011 2011
GBP'000 GBP'000 GBP'000
-------------------------------------- ------------- ------------- -----------
Fair value of lender level
interest rate swaps (9,262) - (15,813)
Fair value of borrower level
interest rate swaps (7,565) 151 (7,302)
(16,827) 151 (23,115)
Fair value of interest rate
cap agreements* 307 - 761
Fair value of the Group's derivative
instruments (16,520) 151 (22,354)
-------------------------------------- ------------- ------------- -----------
*Interest rate cap and other derivative assets are included in investments at fair value in the statement of financial position.
16. Related party transactions
Investment manager
The investment adviser duties are carried out in accordance with the Investment Adviser's Agreement (as approved on 13 July 2011) between the Company and RIPML. The director Michael Watters is a director of associated companies of the investment adviser.
Reviewed Reviewed Audited
29 February 28 February 31 August
2012 2011 2011
GBP'000 GBP'000 GBP'000
------------------------------------- ------------- ------------- -----------
Trading transactions
Rental income received from
Redefine Hotel Management Limited 4,700 2,043 6,386
Fee income from Redefine Hotel
Management Limited - 700 700
Fee income from the Cromwell
Property Group 566 157 310
Portfolio management fees charged
by Redefine International Property
Management Limited (1,717) - -
Portfolio management fees charged
by Redefine International Fund
Managers Limited (261) (980) (2,028)
Portfolio management fees charged
by Redefine International Fund
Managers Europe Limited (494) (190) (403)
Redefine International Hotels
Limited (309) - -
Administration fees charged
by Redefine International Group
Services Limited - (78) (153)
Loans receivable
Pearl House Swansea Limited 74 116 116
Redefine Hotel Management Limited 3,352 2,043 2,922
Redefine Properties International
Limited - - 70
Cromwell Property Group - - 1,217
Ciref Crawley Investments Limited 140 80 100
Swansea Estates Limited 86 84 84
Ciref Kwik-fit Stafford Limited - 2,188 -
Ciref Kwik-fit Stockport Limited - 1,355 -
Loans Payable
Redefine International Fund
Managers Limited 368 2,676 1,689
Redefine International Fund
Managers Europe Limited 531 169 260
Redefine International Group
Services Limited 43 46 80
Redefine Properties International
Limited 47 100 -
Redefine International Property
Management Limited 1,061 - -
------------------------------------- ------------- ------------- -----------
Loans payable to Redefine International Fund Managers Limited, Redefine International Fund Managers Europe Limited and Redefine International Group Services Limited are not secured, bear no interest and are expected to be repaid in cash within 12 months.
Please also see Note 12 for details of shares issued to RIN during the period.
Directors
Further details of Directors' remuneration will be included within the Annual Report to shareholders.
17. Earnings per share
Earnings per share are calculated on the weighted average number of shares in issue and the profit/(loss) attributable to shareholders.
Reviewed Reviewed Audited
29 February 28 February 31 August
2012 2011 2011
GBP'000 GBP'000 GBP'000
------------------------------------- ------------- ------------- -----------
(Loss)/profit attributable
to shareholders (60,710) 9,457 5,035
Weighted average number of
ordinary shares in issue 569,139 407,121 426,125
Effect of potential share based
payment transactions - performance
fee arrangements
Effect of potential share based
payment transactions - capital
instrument (Refer Note 13) 28,286 28,686 26,480
Diluted weighted average number
of ordinary shares 597,425 435,807 452,605
------------------------------------- ------------- ------------- -----------
Number of ordinary shares
- In issue 579,455 412,899 567,644
- Weighted average 569,139 407,121 426,125
- Diluted weighted average 597,425 435,807 452,605
(Loss)/earnings per share (pence)
- Basic (10.67) 2.32 1.18
- Diluted (10.67)(1) 2.17 1.11
(1) Anti-dilutive given losses incurred during the period
18. Net asset value per share
The net asset value per share amount is calculated by dividing the net assets at 29 February 2012 attributable to equity holders of the parent of GBP213.18 million (28 February 2011: GBP215.33 million, 31 August 2011: GBP277.30 million) by the number of ordinary shares in issue as at 29 February 2012 of 579,454,792 (28 February 2011: 412,898,995, 31 August 2011: 567,643,792).
The diluted net asset value per share is calculated on the following basis:
The potential number of ordinary shares to be issued to Aviva at 50 pence per share under the capital instrument at 29 February 2012 is 28.29 million (28 February 2011: 26.59 million, 31 August 2011: 27.54 million) which is based on the value of the capital instrument on 29 February 2012 is GBP14.14 million (28 February 2011: GBP13.29 million, 31 August 2011: GBP13.77 million).
Reviewed Reviewed Audited
29 February 28 February 31 August
2012 2011 2011
GBP'000 GBP'000 GBP'000
------------------------------------- ------------- ------------- -----------
Net assets attributable to
equity shareholders (GBP'000) 213,176 215,333 277,304
------------- ------------- -----------
Number of Ordinary Shares ('000's) 579,455 412,899 567,644
Effect of potential share based
payment transactions - performance
fee arrangements
Effect of potential share based
payment transactions - capital
instrument 28,286 26,588 27,537
Diluted number of shares ('000's) 607,741 439,487 595,181
Net asset value per share (pence):
- Basic 36.79 52.15 48.85
- Diluted 35.08 49.00 46.59
19. Non-current assets and assets held for sale
Discussions are on-going regarding the sale of VBG 1, 2 and Halle assets with disposals expected to be finalised within the next 12 months. As a result the property assets have been reclassified to held for sale in the period.
Reviewed Reviewed Audited
29 February 28 February 31 August
2012 2011 2011
GBP'000 GBP'000 GBP'000
--------------------- ------------- ------------- -----------
Assets held for sale
VBG 1 44,177 - -
VBG 2 34,354 - -
Halle 30,700 - -
------------- ------------- -----------
Total 109,231 - -
Loan liabilities totalling GBP118.96 million which are recourse only to these properties are included in loans and borrowings. Of the GBP118.96 million, GBP93.37 million are included in current liabilities due to repayment dates within the next 12 months.
20. Disposal of subsidiaries
The Group disposed of the Ciref Reigate Limited in the period ended 29 February 2012 (TYS Holdings Limited and Ciref Streatham Limited during the financial year ended 31 August 2011):
The assets and liabilities arising from those disposals were as follows:
Reviewed Reviewed Audited
29 February 28 February 31 August
2012 2011 2011
GBP'000 GBP'000 GBP'000
-------------------------------------- ------------- ------------- -----------
Assets disposed:
Investment Property 3,150 6,543 6,543
Long-term receivables 405 - -
Trade and other receivables (7) (5,244) (5,244)
Trade and other payables (79) (42) (42)
Derivative liabilities (80) - -
Loans and borrowings (3,160) (1,400) (1,400)
Total 229 (143) (143)
Add : 486
Non-controlling interest shareholder
loans 178 - -
Non-controlling interest share
of net deficit (664) - -
Less: loss on sale of subsidiary (100) (334) (334)
-------------------------------------- ------------- ------------- -----------
Net cash acquired/(disposed) 615 (477) (477)
-------------------------------------- ------------- ------------- -----------
21. Interest rate risk
The Group's exposure to the risk of the changes in market interest rates relates primarily to the Group's long-term debt obligations with floating interest rates. The Group uses interest rate derivatives to fully mitigate its exposure to interest rate fluctuations. At the period end, as a result of the use of interest rate swaps, the majority of the Group's borrowings were at fixed interest rates.
The Group's profit before tax has limited exposure to interest rate fluctuations until the repayment dates of the loans for which the interest rate swaps have been arranged. Refer Note 15 for further details on the Group's interest rate swap agreements.
22. Liquidity risk
The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.
The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient rental income to service its financial obligations when they fall due. The monitoring of liquidity risk is assisted by the monthly review of financial covenants imposed by financial institutions, such as interest and loan-to-value covenant ratios.
Renegotiation of loans takes place in advance of any potential covenant breaches in so far as the factors are within the control of the Board. In periods of increased market uncertainty the Board will ensure sufficient cash resources are available for potential loan repayments/cash deposits as may be required by financial institutions.
As at 29 February 2012 the Group has current loan liabilities of GBP458.3 million. These liabilities are classified as current due to maturities within the next 12 months and or as a result of on-going covenant breaches.
With respect to the VBG 1 and VBG 2 loan facilities totalling GBP93.37 million the loan servicer is marketing the associated assets for sale and it is expected that they will be disposed of and the loans settled within the next 6-12 months. As a result the assets on which these loans are secured are classified as held for sale as at 29 February 2012. It should be noted that the liabilities are recourse only to this specific pool of assets. See Note 19 for details.
Discussions are on-going with the finance providers in respect of the Delta and Gamma which total GBP312.84 million and have a maturity date of October 2012 as well as with the finance provider for the Delamere Place Crewe facility which totals GBP17.15 million and with the funding providers for the other facilities which are due to mature in the next 6 to 12 months.
Further details of these loans and the status of the re-financings are given in note 2.4 and note 14.
23. Contingencies, guarantees and capital commitments
The Group has capital commitments of GBP2.6 million (31 August 2011: GBP3 million) in respect of capital expenditure contracted for at the reporting date, but not yet incurred, for future transactions approved by the Board. The Group has entered into a corporate guarantee agreement with IHG Hotels Limited, the contingent liability of which is not expected to exceed GBP0.3million.
External financing totalling GBP142.6 million to Redefine Wigan Limited, a joint venture of Redefine International which holds Grand Arcade Wigan Limited, has been cross collateralised against properties held directly by the Group. The value of Grand Arcade Wigan Limited as at 29 February 2012 is GBP 83 million (31 August 2011: GBP85 million). However, there is currently no exposure for the Group, as the combined LTV of the cross collateralised properties is greater than 100%.
Contracts have been exchanged to acquire an effective 50% interest in two newly developed retail stores in Germany. The gross purchase price of the properties, located in Kaiserslautern and Waldkraiburg, is EUR6.4 million (GBP5.3 million) and EUR9.7 million (GBP8.1 million) respectively. Terms have been agreed for bank funding at a 70% loan-to-value, the equity committed is therefore EUR.2.4 million (GBP2.0 million).
24. Subsequent events
The Board has resolved to declare an interim dividend of 2.10 pence per share. The last day to trade "cum" dividend in order to participate in the dividend will be 8 May 2012. The shares will commence trading "ex" dividend on 9 May 2012 and the record date will be 11 May 2012. The dividend will be paid to shareholders on 24 May 2012.
GLOSSARY
AUD Australian Dollar made up of 100 cents.
----------------------- -----------------------------------------------
Cromwell Cromwell Property Group is an Australian
Securities Exchange listed stapled security
(ASX:CMW) comprising the Cromwell Corporation
Limited and Cromwell Property Securities
Limited, which acts as the responsible
entity of the Cromwell Diversified Property
Trust. www.cromwell.com.au
----------------------- -----------------------------------------------
Enlarged Group The Redefine International P.L.C. Group
following the reverse acquisition of
Wichford P.L.C. by Redefine International
Holdings Limited.
----------------------- -----------------------------------------------
EPRA European Public Real Estate Association.
----------------------- -----------------------------------------------
Estimated Rental Value The estimated market rental value of
(ERV) lettable space which could reasonably
be expected to be obtained on a new
letting or rent review.
----------------------- -----------------------------------------------
Eurozone The geographic and economic region that
consists of all the European Union countries
that have fully incorporated the Euro
as their national currency.
----------------------- -----------------------------------------------
Euro or EUR The lawful common currency of participating
member states of the European Monetary
Union.
----------------------- -----------------------------------------------
Finance lease A lease that transfers substantially
all the risks and rewards of ownership
from the lessor to the lessee.
----------------------- -----------------------------------------------
FSA The UK Financial Services Authority.
----------------------- -----------------------------------------------
GBP or GBP or Sterling Great British Pound, the legal currency
of the UK
----------------------- -----------------------------------------------
Headlease A lease under which the Group holds
an investment property.
----------------------- -----------------------------------------------
GDP Gross Domestic Product
----------------------- -----------------------------------------------
IFRS International Financial Reporting Standards.
----------------------- -----------------------------------------------
Interest-rate swap A financial instrument where two parties
agree to exchange an interest rate obligation
for a predetermined amount of time.
These are used by the Group to convert
floating-rate debt or investments to
fixed rates.
----------------------- -----------------------------------------------
ICR Interest Cover Ratio
----------------------- -----------------------------------------------
JSE JSE Limited, licensed as an exchange
and a public company incorporated in
terms of the laws of South Africa.
----------------------- -----------------------------------------------
LIBOR The London Interbank Offered Rate, the
interest rate charged by one bank to
another for lending money.
----------------------- -----------------------------------------------
Listing Rules The UK Listing Authority rules for listed
companies.
----------------------- -----------------------------------------------
Loan-to-value (LTV) A ratio of debt divided by the market
value of investment property.
----------------------- -----------------------------------------------
LSE The London Stock Exchange plc
----------------------- -----------------------------------------------
NAV Net Asset Value
----------------------- -----------------------------------------------
REIT Real Estate Investment Trust. A REIT
must be a publicly quoted company with
at least three-quarters of its profits
and assets derived from a qualifying
property rental business. Income and
capital gains from the property rental
business are exempt from tax but the
REIT is required to distribute at least
90% of those profits to shareholders.
Corporation tax is payable on non-qualifying
activities in the normal way.
----------------------- -----------------------------------------------
sq ft Square feet
----------------------- -----------------------------------------------
UK The United Kingdom of Great Britain
and Northern Ireland.
----------------------- -----------------------------------------------
WAULT Weighted average unexpired lease term.
----------------------- -----------------------------------------------
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR UBUNRUWASUAR
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