CHAIRMAN'S STATEMENT
It gives me great pleasure to report our results for the six months ended 30 June 2018 which show a profit of £11,193,000 before tax which is our record interim high compared to £6,731,000 for the equivalent six-month period to 30 June 2017 (which was our previous record). The figures for this period were only slightly influenced by a small reduction of £1,259,000 in our swap liability which now also includes a new liability for an additional swap on £25,000,000 from 2021 at a much reduced rate to that which we are currently paying, which expires in 2021.
Thus, most of our profits are derived from our basic property investment and disposals where the Group realised a number of prices far in excess of the previous independently valued figures.
Our rents receivable during this period amounted to £7,069,000 compared to £6,377,000 in the comparative period ended 30 June 2017. This was mainly due to our acquisition of shopping centres in Hinckley, Leicestershire and Springburn, a suburb of Glasgow. These properties have higher than usual running costs which our team are addressing and which we anticipate in due course will produce improved net returns.
Disposals
There has been an unusual amount of activity with regard to sales in this period. With some of the larger sales we have kept shareholders abreast with appropriate Stock Exchange announcements, mentioned in more detail later.
Margate
In January 2018 we sold 34 Marine Terrace, Margate for £450,000, which had only just been revalued at £250,000, to a special purchaser for a loss of rental income of only £16,000 p.a.
In February 2018, the following three properties, detailed below, were sold at auction. Stonehouse, Gloucester, 19 Queen Street, Ramsgate and High Street, Dudley.
Stonehouse – Gloucester
MRG, a former subsidiary, occupied our freehold office at The Mill at Stonehouse, Gloucester. This former mill of 15,000 sq ft had been let to MRG Systems at £93,000 p.a. The letting assisted them in being independent before the employee and management buyout last year. We received £900,000 which shows a very good profit on original cost.
Ramsgate
19 Queen Street, Ramsgate a small freehold shop investment producing rental income of £12,000 p.a. sold for £147,000 resulting in a small profit on book value.
Dudley
High Street, Dudley a large freehold vacant shop in very poor condition held for development realised £276,000 which was considerably in excess of its previously revalued book value.
Stockport
In March 2018 we completed the sale of Grove House, Stockport, a vacant freehold shop and office building which we had held for many years during most of which time it had produced a good rental return for us. Despite the building being in good condition, a developer purchased it to convert to residential units. We received £900,000 which was well above the previously revalued book figure.
Croydon
In March 2018 we finally completed the sale of the vacant upper parts of 49/61 High Street, Croydon for £800,000, just above its book value, which leaves us with the ground floor let to Sainsbury's PLC and Princess Alice Hospice and produces circa £108,000 p.a.
Material Disposals
Post this period accounting date we have concluded three substantial sales, two of which were contracted for sale before 30 June 2018 and therefore profit is included, and their disposal recognised in this period.
The larger sales were of our sites in (1) Holloway Head, Birmingham, (2) St Nicholas House, a freehold shop and office investment in Sutton, Surrey, sold jointly with our major tenant, the Crown Agents, and (3) the former Wimbledon Studios, a large freehold industrial/studio building in South Wimbledon/Merton.
I give a brief synopsis below.
Holloway Head, Birmingham
The completion of the sale of the Group's development site in Holloway Head, Birmingham was finally completed on 31 August 2018.
A payment of £850,000 was received last year but due to the uncertain nature of the transaction we did not accrue full proceeds. £400,000 additional deposit was received in May 2018, a third deposit of £500,000 was received after the period end and finally we received £9,520,000 on 31 August 2018 giving us a total received for the site of £11,270,000.
As it has now completed, profit on this transaction has been brought into the Interim 2018 accounts as the sale was unconditionally contracted before 30 June 2018.
Sale of St Nicholas House, Sutton
In April 2018 we exchanged contracts to sell the joint freehold/long leasehold interest in St Nicholas House which, after a few delays, was completed on 7 September 2018. Surrey Motors Limited, acquired in 1987, is a wholly owned subsidiary of Panther Securities PLC. Its sole asset was the freehold of St Nicholas House, Sutton, which is a building of approximately 140,000 sq ft gross accommodation. The basement and ground floor are used for retail/ancillary storage and parking. The nine upper floors are offices.
The building was originally constructed in the early 1960s with the offices purpose built for the Crown Agents, (the main tenants in occupation when we purchased Surrey Motors Ltd) a quasi-government organisation, which originally took a 99-year lease at a ground rent which had proportionate rental reviews every 21 years. This lease had an option to extend for 25 years (on the same terms), but ignoring the option, had approximately 44 years to run at a low ground rent and thus our tenants lease had a significant value.
Early last year, the Crown Agents approached the Company indicating that it wanted to dispose of its interest in the building and it was agreed that the Company and the Crown Agents should offer for sale their joint interests which would enable the freehold of the site to be offered with vacant possession at an early date, giving it development possibilities and increased joint “marriage” value.
After a marketing campaign by the joint agents, Carter Jonas, a number of offers were received, and the Company exchanged contracts to sell the joint freehold/long leasehold interest to Saint Nicholas House Ltd, a newly formed company, with a completion due three months after exchange. There is a possible small overage, but this is not currently anticipated to be material. The total consideration receivable by both the Group and the Crown Agents for the joint freehold/long leasehold interest in St. Nicholas House is £12,750,000. The Group's share of the gross sale price proceeds amounts to approximately £7,837,500, compared to a December 2017 revalued book figure of £5,540,000.
Following completion, the Company no longer receives the £320,000 p.a. rental income on this investment property.
The sales of Holloway Head, Birmingham and St Nicholas House, Sutton has resulted in a significant increase in our trade and other receivables balance to £21,817,000 compared to £3,677,000 at 30 June 2017.
Wimbledon Studios
In July 2018 we simultaneously exchanged and completed on the sale of our freehold investment in Wimbledon Studios for £18,800,000. This was sold to a nominee of the Scottish Widows Property Authorised Contractual Scheme.
The studios were built in 1970 and provide internal accommodation of circa 140,000 square foot over circa 4.5 acres. It has a long history as studios and many household name productions took place there, including 'The Bill' for over 30 years, 'The Iron Lady', 'I'm a celebrity…get me out of here', and several popular music videos. This property had a book value of £13,550,000 as at 31 December 2017 and was originally purchased vacant, including stock, equipment and fixed assets for circa £4,750,000 (plus stamp duty) in September 2010.
Being an entrepreneurial and opportunistic organisation, after buying the vacant property the Group initially attempted to run its own film studio in this property but unfortunately this was not a successful venture.
The tenants, Marjan Television Network Ltd, took occupation in November 2014 and pay rent of £1,050,000 p.a. They had spent a significant amount on internal works bringing it up to a state of the art, modern functioning television and film studio.
This was a very interesting and ultimately rewarding set of transactions. These half year accounts recognise a large valuation increase on this property, but not the full proceeds achieved in July.
The final year's accounts will include a further £2,900,000 realised profit on this sale.
Dividends
An interim dividend of 6p per share will be paid to shareholders on 29 November 2018 (ex-dividend on 8 November 2018 to shareholders on the register on 10 November 2018). In the light of the exceptional sales in the period and subsequently, the Board will assess the opportunities, but expects to pay no less than 12p per share for the year.
Prospects
With all the disposals we are in a strong position to weather uncertain economic conditions and able to take advantage of investment opportunities for the long-term benefit of our shareholders.
Andrew S Perloff
Chairman
26 September 2018