London & Associate Properties plc LAS

FOR IMMEDIATE RELEASE

25 August 2023

LONDON & ASSOCIATED PROPERTIES PLC

HALF YEAR RESULTS TO 30 June 2023

London & Associated Properties PLC (“LAP” or the “Group”) is a main market listed property investment group that specialises in industrial and essential retail property in the UK.

It also holds a substantial stake in the main market listed Bisichi PLC which operates coal mines in South Africa and invests in UK property.

HIGHLIGHTS

• Net assets attributable to shareholders –
  • Decreased to £29.3 million (December 2022: £32.5 million)
  • Now 34.32p (December 2022: 38.14p) per share
  • Write down of £2.1m in value of Orchard Square, Sheffield despite strong operational performance
• Property portfolio seeing continued strong operational performance with Group occupancy levels of 98.4% by rental income (June 2022: 97.6%)
• Whilst no properties have been acquired in the period, we are actively seeking to reinvest cash in new assets in targeted sectors. These must be at an appropriate yield and with the potential to add value and income growth through asset management initiatives.

“The results for the six months to 30 June 2023 have been impacted very significantly by interest rate increases.  Not only have the additional costs damaged operating performance, but negative sentiment has meant that the investment market for asset sales is becoming more uncertain ………. We are, though, seeing rental growth in both the industrial properties and the value-orientated retail properties that we continue to hold.”

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Contact:

 London & Associated Properties PLC   Tel: 020 7415 5000

 John Heller, Chairman and Chief Executive 

 Baron Phillips Associates    Tel: 07767 444193

 Baron Phillips

Half year results for the period ended

30 June 2023

Half year review

The results for the six months to 30 June 2023 have been impacted very significantly by interest rate increases.  Not only have the additional costs damaged operating performance, but negative sentiment has meant that the investment market for asset sales is becoming more uncertain. This has materially affected us at Orchard Square in Sheffield where in May we instructed agents to market this property in the run up to the September 2023 expiry of our loan from QSix.  As at the date of this report, we are unable to confirm that any sales proceeds will be sufficient to repay this loan and return a surplus to the Group.  In light of this, we have adopted a prudent approach to the value of Orchard Square and have written it down to the outstanding loan value of £12.65m from £14.75m. 

The loan on the property is non recourse to the LAP Group, is secured exclusively on this asset and the write down in value in the period is the maximum loss the Group can incur.  However, this write-down contributed to losses attributable to shareholders of £3.0 million (2022: profits of £4.3 million) while net assets attributable to shareholders have reduced from £32.5 million to £29.3 million (34.32p a share as compared with 38.14p at December 2022).

Orchard Square is held as inventory as it is readied for sale. Since September 2022, all surplus operating cash was retained within Orchard Square Ltd and not distributed as a dividend to LAP as part of an agreement with the lender to exercise our option to extend the loan by 12 months. During this period we have sought to refinance the loan, but due to prevailing market conditions, this has not been possible without a significant equity contribution which we do not feel would be in shareholders’ interests. In the last few days we have confirmed this decision to the existing lender who has issued a reservation of rights letter.

The company will update shareholders on the progress of this matter in due course.

This is a disappointing outcome for a property that had performed well over our 24 year ownership.  Once again, Orchard Square has, operationally, performed strongly this year. We have recently completed three significant lettings as we continue to reposition the centre with a greater focus on food and beverage operators.  We have also upgraded the public areas with new paving, awnings for the tenants and a weather proofing canopy having been completed with the support of a grant from Sheffield Council. This enables the year-round use of the public areas and has been warmly welcomed by all the tenants. Operating income for Orchard Square remains at c£1.7 million per annum (31 December 2022: £1.7m).

The remainder of our property portfolio is performing satisfactorily. Revenue from property activities decreased slightly to £3.0 million (2022: £3.3 million), reflecting the disposal of our shopping centre in West Bromwich in July 2022, the proceeds of which have not yet been reinvested.

We are, though, seeing rental growth in both our industrial and value-orientated retail properties. While we remain open to selling any properties where we think we can reinvest the proceeds into new assets with stronger growth potential, we remain happy with the cash generating potential of the current portfolio.

Across our entire portfolio, voids remain at a low level of 1.6% by rental income (2022: 2.4%), following the lettings at Orchard Square discussed above.

A 5-year loan with QIB (UK) plc for £13.6 million was executed in August 2022 with an initial LTV of 56%. This loan remains covenant compliant.

We continue to review all opportunities to reduce overheads and improve profitability.

At our development site in West Ealing, we continue to explore options to realise the value from the planning consent for 56 flats we obtained in 2021. For the past year, building cost inflation has been a stumbling block to a land sale, and we have therefore continued to work up detailed design drawings. A recent stabilisation in material prices and a drop in contractors’ workloads have enabled us to achieve initial quotes from contractors that make committing to a build out of this project more attractive. We are weighing up the risks and rewards of both a land sale and building out the site and are optimistic that a decision to realise the best value of this site can be taken shortly.

During the period a short term extension of the Dragon Retail Properties loan with Santander was secured to October 2023. Further negotiations with Santander were put on hold in the period immediately prior to an outstanding break clause in favour of the largest tenant at the property. The break was not exercised and with a current WAULT of 5.0 years we are exploring all options for refinancing this property, including an offer of a new loan from the existing lender. This loan remains covenant compliant, and the property continues to produce strong net cash flow.

For the first six months of the year, gross revenue at Bisichi PLC, which is 42% owned by LAP, was £25.3 million as compared with £44.8 million last year.  This resulted in a profit before interest, tax, depreciation and amortisation (EBITDA) of £1.42 million (2022: £22.25 million) and a net profit of £0.1 million before foreign exchange losses of £0.9 million. The lower earnings for Bisichi, compared to the first six months of 2022, are mainly attributable to lower prices for coal sold by Sisonke Coal Processing, Bisichi’s South African coal processing operation, as well as difficult mining conditions at Black Wattle Colliery.

Bisichi intends to pay an interim dividend on 4 February 2024 of 3p (2022: 10p) per share, £133,000 of which will be receivable by LAP.

Further details of Bisichi’s performance and a forward looking statement can be found in their own half year report available at www.bisichi.com.

LAP has made significant progress during the period although the outlook for interest rates and inflation are limiting our options more than we would wish. The Board of LAP bases its decisions about dividend payments on the results and financial position of the Group’s property activities and accordingly has decided not to declare a dividend for the half year. Once our cash has been reinvested and property income has returned to previous levels, our dividend policy will reflect this.

John Heller

Chairman and Chief Executive

24 August 2023

Consolidated income statement

for the six months ended 30 June 2023

Consolidated statement of comprehensive income

for the six months ended 30 June 2023

Consolidated balance sheet

at 30 June 2023

Consolidated statement of changes in shareholders’ equity

for the six months ended 30 June 2023

Consolidated statement of changes in shareholders’ equity - continued

for the six months ended 30 June 2023

Consolidated cash flow statement

for the six months ended 30 June 2023

Consolidated cash flow statement - continued

for the six months ended 30 June 2023

The cash flows above relate to continuing and discontinued operations.

Cash and cash equivalents

For the purpose of the cash flow statement, cash and cash equivalents comprise the following balance sheet amounts:

Notes to the half year report
for the six months ended 30 June 2023   

Notes to the half year report – continued

5. Properties     

Investment properties are held at fair value at each reporting period.

During the period no properties were acquired or sold.

Orchard Square, Sheffield, held as inventory, is currently being marketed for sale. The property is secured by a loan that expires in September 2023 and we are not currently able to confirm if the proceeds of any sale will be sufficient to repay this loan and return a surplus to the Group. The value of this property has therefore been written down to the outstanding loan value, from £14.75m to £12.65m and is disclosed as an inventory write down within Operating Costs in the Income Statement. The loan on the property is non-recourse to the rest of the LAP Group, is secured exclusively on this asset and the write down in value in the period is the maximum loss the Group can incur. Due to rising interest rates the loan breached its income cover covenant in July 2023, we have recently chosen not to cure this breach with the lender issuing a reservation of rights letter.

Other than as discussed above, the Directors have placed a valuation on the properties which is not materially different to the value as at 31 December 2022. Investment properties are therefore included at a directors’ valuation which is considered to be the fair value as at 30 June 2023. Please refer to page 56 of the 2022 Annual report and Accounts for details on the valuation of investment and inventory properties as at 31 December 2022.

Notes to the half year report - continued

7. Related party transactions    

The related parties and the nature of costs recharged are as disclosed in the group’s annual financial statements for the year ended 31 December 2023.

8. Dividends    

There is no interim dividend payable for the period (30 June 2022: Nil).

There is no final dividend payable in respect of 2022.

9. Risks and uncertainties

The group’s principal risks and uncertainties are reported on pages 10 and 11 in the 2022 Annual Report.  They have been reviewed by the Directors and remain unchanged for the current period.

The largest area of estimation and uncertainty in the interim financial statements is in respect of the valuation of investment properties (which are not revalued at the half year).

For Bisichi PLC, the largest area of estimation relates to currency movements and coal mining activities in South Africa, including depreciation, impairment and the provision for rehabilitation (relating to environmental rehabilitation of mining areas).

Property, plant and equipment representing Bisichi’s mining assets in South Africa are reviewed for impairment where there is evidence of a material impairment. The impairment test indicated significant headroom as at 31 December 2022 and no impairment was considered appropriate.

Other areas of estimation and uncertainly are referred to in the Group's annual financial statements. There have been no significant changes to the basis of accounting for key estimates and judgements as disclosed in the annual report as at 31 December 2022.

10. Contingent Liabilities and Subsequent Events

Black Wattle Colliery (Pty) Ltd continues to be involved in a tax dispute in South Africa related to VAT. The dispute arose during the year ended 31 December 2020 and is related to events which occurred prior to the years ended 31 December 2020. The interpretation of laws and regulations in South Africa where the Group operates can be complex and can lead to challenges from or disputes with regulatory authorities. Such situations often take significant time to resolve. Where there is a dispute and where a reliable estimate of the potential liability cannot be made, or where the Group, based on legal advice, considers that it is improbable that there will be an outflow of economic resources, no provision is recognised. Further details of the contingent tax liability can be found on page 107 of Bisichi’s 2022 Annual report and Accounts.

There are no other contingent liabilities as at 30 June 2023.

There are no subsequent events or transactions that require disclosure.

11. Financial information   

The above financial information does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The figures for the year ended 31 December 2022 are based upon the latest statutory accounts, which have been delivered to the Registrar of Companies; the report of the auditor on those accounts was unqualified and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

As required by the Disclosure and Transparency Rules of the UK's Financial Conduct Authority, the interim financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) and in accordance with both IAS 34 'Interim Financial Reporting' and in conformity with the requirements of the Companies Act 2006 applicable to companies reporting under IFRS and the disclosure requirements of the Listing Rules.

The half year results have not been audited or subject to review by the company's auditor.

The annual financial statements of London & Associated Properties PLC are prepared in accordance with IFRS and in conformity with the requirements of the Companies Act 2006 applicable to companies reporting under IFRS. The company has applied UK-adopted IAS and at the date of application, both UK-adopted IAS and EU-adopted IFRS are the same. The same accounting policies are used for the six months ended 30 June 2023 as were used for the year ended 31 December 2022.

As stated in the 2022 Annual Report in the group accounting policies, Bisichi PLC and Dragon Retail Properties Limited are consolidated with LAP, as required by IFRS 10. 

The assessment of new standards, amendments and interpretations issued but not effective, is that these are not anticipated to have a material impact on the financial statements.

The interim financial statements have been prepared on the going concern basis.

12. Board approval

The half year results were approved by the Board of London & Associated Properties PLC on 24 August 2023.

Directors' responsibility statement  

The Directors confirm that to the best of their knowledge:    

(a) the condensed consolidated interim financial statements have been prepared in accordance with UK-adopted International Accounting Standard 34, Interim Financial Reporting.             

(b) the interim management report includes a fair review of the information required by: 

 (1) 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; and

(2) 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 that period; and any changes in the related party transactions described in the last annual report that could do so.                                                                                                 

This report contains forward-looking statements. These statements are based on current estimates and projections of management and currently available information. Future statements are not guarantees of the future developments and results outlined therein. Rather, future developments and results are dependent on a number of factors; they involve various risks and uncertainties and are based upon assumptions that may not prove to be accurate. Risks and uncertainties identified by the Group are set out on pages 10 and 11 of the 2022 Annual Report & Accounts. We do not assume any obligation to update the forward-looking statements contained in this report.

Signed on behalf of the Board on 24 August 2023

John Heller              Jonathan Mintz   

Director                     Director