REG - Great Portland Ests. - Great Portland Estates Full Year Results 2017 <Origin Href="QuoteRef">GPOR.L</Origin> - Part 3
24/05/2017 07:06
- Part 3: For the preceding part double click ID:nRSX0379Gb
notes 127.4 286.7
£150.0 million 1.00% convertible bonds 2018 (at nominal value) 150.0 150.0
Less: cash balances (25.5) (12.7)
Net debt excluding joint ventures 502.8 568.0
Joint venture bank loans (at share) 84.6 84.5
Less: joint venture cash balances (at share) (10.6) (8.4)
Net debt including joint ventures 576.8 644.1
10 Investment property
Investment property
Freehold Leasehold Total
£m £m £m
Book value at 1 April 2015 1,027.3 908.7 1,936.0
Acquisitions 124.9 213.7 338.6
Costs capitalised 4.0 22.4 26.4
Disposals (102.8) (192.1) (294.9)
Transfer to investment property under development (30.4) - (30.4)
Transfer from investment property under development 7.5 - 7.5
Net valuation surplus on investment property 103.0 94.2 197.2
Book value at 31 March 2016 1,133.5 1,046.9 2,180.4
Acquisitions - 32.5 32.5
Costs capitalised 6.0 14.9 20.9
Disposals (31.1) - (31.1)
Transfer from investment property under development 176.1 - 176.1
Net valuation deficit on investment property (61.6) (53.2) (114.8)
Book value at 31 March 2017 1,222.9 1,041.1 2,264.0
Investment property under development
Freehold Leasehold Total
£m £m £m
Book value at 1 April 2015 276.5 135.7 412.2
Costs capitalised 96.2 12.9 109.1
Interest capitalised 7.9 0.8 8.7
Transfer from investment property 30.4 - 30.4
Transfer to investment property (7.5) - (7.5)
Net revaluation surplus on investment property under development 133.1 65.7 198.8
Book value at 31 March 2016 536.6 215.1 751.7
Costs capitalised 107.1 48.1 155.2
Interest capitalised 9.1 0.9 10.0
Transfer to investment property (176.1) - (176.1)
Disposals (392.2) (264.1) (656.3)
Net revaluation surplus on investment property under development 3.4 - 3.4
Book value at 31 March 2017 87.9 - 87.9
Total investment property 1,310.8 1,041.1 2,351.9
The book value of investment property includes £35.9 million (2016: £50.5
million) in respect of the present value of future ground rents, the market
value of the portfolio (excluding these amounts) is £2,316.0 million. The
market value of the Group's total property portfolio, including trading
properties, was £2,580.0 million (2016: £3,076.2 million). The total portfolio
value including joint venture properties of £565.5 million (see note 12) was
£3,145.5 million.
At 31 March 2017, property with a carrying value of £380.9 million (2016:
£403.4 million) was secured under the first mortgage debenture stock (see note
16).
The cumulative interest capitalised in investment property was £20.1 million
(2016: £26.1 million).
(Deficit)/surplus from investment property
2017 2016
£m £m
Net valuation (deficit)/surplus on investment property (111.4) 396.0
(Loss)/profit on sale of investment properties (25.5) 26.2
(136.9) 422.2
The Group's investment properties, including those held in joint ventures
(note 12), were valued on the basis of Fair Value by CBRE Limited (CBRE),
external valuers, as at 31 March 2017. The valuations have been prepared in
accordance with the RICS Valuation - Professional Standards Global January
2014 including the International Valuation Standards and the RICS Valuation -
Professional Standards UK January 2014 (revised April 2015) ("the Red Book")
and have been primarily derived using comparable recent market transactions on
arm's length terms.
The total fees, including the fee for this assignment, earned by CBRE (or
other companies forming part of the same group of companies within the UK)
from the Group are less than 5.0% of total UK revenues.
The principal signatories of the CBRE valuation reports have continuously been
the signatories of valuations for the same addressee and valuation purpose as
this report since 2012. CBRE has continuously been carrying out valuation
instructions for the Group for in excess of 20 years. CBRE has carried out
valuation, agency and professional services on behalf of the Group for in
excess of 20 years.
Real estate valuations are complex and derived using comparable market
transactions which are not publicly available and involve an element of
judgement. Therefore, in line with EPRA guidance, we have classified the
valuation of the property portfolio as Level 3 as defined by IFRS 13. There
were no transfers between levels during the year. Inputs to the valuation,
including capitalisation yields (typically the true equivalent yield) and
rental values, are defined as 'unobservable' as defined by IFRS 13.
Key inputs to the valuation
ERV True equivalent yield
Average Range Average Range
£ per sq ft £ per sq ft % %
North of Oxford Street Office 68 47 - 84 4.5 4.1 - 6.4
Retail 66 34 - 181 3.7 2.9 - 5.9
Rest of West End Office 81 64 - 96 4.5 3.7 - 6.0
Retail 103 15 - 257 4.2 3.5 - 5.5
City, Midtown & Southwark Office 54 45 - 60 5.2 4.8 - 5.9
Retail 71 32 - 116 5.0 4.6 - 6.5
Capital value
Average Range
£ per sq ft £ per sq ft
Residential 1,926 1,575 - 2,700 n/a n/a
Everything else being equal, there is a positive relationship between rental
values and the property valuation, such that an increase in rental values will
increase the valuation of a property and a decrease in rental values will
reduce the valuation of a property. However, the relationship between
capitalisation yields and the property valuation is negative; therefore an
increase in capitalisation yields will reduce the valuation of a property and
a reduction will increase its valuation. There are interrelationships between
these inputs as they are determined by market conditions, and the valuation
movement in any one period depends on the balance between them. If these
inputs move in opposite directions (i.e. rental values increase and yields
decrease) valuation movements can be amplified, whereas if they move in the
same direction they may offset, reducing the overall net valuation movement.
At 31 March 2017, the Group had capital commitments of £27.1 million (2016:
£241.5 million).
EPRA capital expenditure
2017 2016
£m £m
Group
Acquisitions 32.5 338.6
Developments (including trading properties) 221.2 161.0
Investment property 20.9 26.4
Interest capitalised (including trading properties) 18.3 13.3
Joint ventures (at share)
Developments 11.9 5.0
Investment property 16.9 13.3
Interest capitalised 1.2 0.7
322.9 558.3
11 Trading property
Total
£m
At 1 April 2016 172.4
Costs capitalised 66.0
Interest capitalised 8.3
At 31 March 2017 246.7
The Group is developing a large mixed-use scheme at Rathbone Square, W1. Part
of the approved scheme consists of residential units which the Group holds for
sale. As a result, the residential element of the scheme is classified as
trading property. The fair value of the trading property was £264.0 million
(2016: £194.6 million), representing a level 3 valuation as defined by IFRS 13
(see note 10), and cumulative valuation uplift of £17.3 million (2016: £22.2
million).
12 Investment in joint ventures
The Group has the following investments in joint ventures:
Equity Balances 2017 2016
£m with Total Total
partners £m £m
£m
At 1 April 355.8 187.6 543.4 636.7
Movement on joint venture balances - 42.6 42.6 44.6
Additions 8.2 - 8.2 4.4
Share of profit of joint ventures 2.4 - 2.4 2.8
Share of revaluation (deficit)/surplus of joint ventures (55.6) - (55.6) 50.0
Share of (loss)/profit on disposal of joint venture properties (4.0) - (4.0) 14.0
Share of results of joint ventures (57.2) - (57.2) 66.8
Transfer to subsidiaries - Great Star Partnership - - - (98.8)
Distributions (56.2) - (56.2) (110.3)
At 31 March 250.6 230.2 480.8 543.4
The investments in joint ventures comprise the following:
Country of registration 2017 2016
ownership ownership
The GHS Limited Partnership Jersey 50% 50%
The Great Capital Partnership (dormant) United Kingdom 50% 50%
The Great Ropemaker Partnership United Kingdom 50% 50%
The Great Victoria Partnerships United Kingdom 50% 50%
The Great Wigmore Partnership United Kingdom 50% 50%
All of the Group's joint ventures operate solely in the United Kingdom.
The Group's share in the assets and liabilities, revenues and expenses for the
joint ventures is set out below:
The GHS The Great The Great The GreatVictoriaPartnerships£m The Great 2017 2017At share£m 2016
Limited Capital Ropemaker Wigmore Total At share£m
Partnership Partnership Partnership Partnership £m
£m £m £m £m
Balance sheets
Investment property 223.2 - 687.9 228.6 1.7 1,141.4 570.7 632.9
Current assets 0.3 - 0.4 0.1 0.9 1.7 0.9 0.7
Cash 1.3 0.1 14.6 4.6 0.6 21.2 10.6 8.4
Balances (from)/to partners (86.8) - (384.4) 10.9 - (460.3) (230.2) (187.6)
Bank loans - - (89.5) (79.6) - (169.1) (84.6) (84.5)
Derivatives - - (2.6) - - (2.6) (1.3) (1.2)
Current liabilities (3.8) - (11.9) (4.9) (0.1) (20.7) (10.3) (7.7)
Finance leases - - (10.3) - - (10.3) (5.2) (5.2)
Net assets 134.2 0.1 204.2 159.7 3.1 501.3 250.6 355.8
Income statements
Net rental income - - 21.6 13.1 0.1 34.8 17.4 17.0
Property and administration costs (1.6) - (5.8) (0.5) (0.2) (8.1) (4.1) (2.2)
Net finance costs (4.1) - (14.4) (3.1) - (21.6) (10.8) (11.0)
Movement in fair value of derivatives - - (0.2) - - (0.2) (0.1) (1.0)
(Loss)/profit from joint ventures (5.7) - 1.2 9.5 (0.1) 4.9 2.4 2.8
Revaluation of investment property (65.8) - (26.1) (13.2) (0.1) (105.2) (55.6) 50.0
(Loss)/profit on sale of investment property - - - (8.9) 0.9 (8.0) (4.0) 14.0
Share of results of joint ventures (71.5) - (24.9) (12.6) 0.7 (108.3) (57.2) 66.8
The non-recourse debt facilities of the joint ventures at 31 March 2017 are
set out below:
Joint venture debt facilities Nominal value Maturity Fixed/floating Interest rate
(100%)
£m
The Great Ropemaker Partnership 90.0 December 2020 Floating LIBOR +1.25%
The Great Victoria Partnership 80.0 July 2022 Fixed 3.74%
Total 170.0
The Great Ropemaker Partnership has two interest rate swaps with a fixed rate
of 1.42%, which expire coterminously with the bank loan in 2020, with a
notional principal amount of £90.0 million. Together with the swaps the loan
has an all-in hedged coupon of 2.67% for its duration. At 31 March 2017, the
Great Victoria Partnership loan had a fair value of £84.2 million (2016: £83.2
million). All interest-bearing loans are in sterling. At 31 March 2017, the
joint ventures had £nil undrawn facilities (2016: £nil).
Transactions during the year between the Group and its joint ventures, which
are related parties, are disclosed below:
2017 2016
£m £m
Movement on joint venture balances during the year (42.6) (20.8)
Balances receivable at the year end from joint ventures (230.2) (187.6)
Distributions 56.2 110.3
Management fee income 4.1 4.1
The joint venture balances are repayable on demand and bear interest as
follows: the GHS Limited Partnership at 5.3% on balances at inception and 4.0%
on any subsequent balances, the Great Ropemaker Partnership at 4.0% and the
Great Wigmore Partnership at 4.0%.
The investment properties include £5.2 million (2016: £5.2 million) in respect
of the present value of future ground rents, net of these amounts the market
value of our share of the total joint venture properties is £565.5 million.
The Group earns fee income from its joint ventures for the provision of
management services. All of the above transactions are made on terms
equivalent to those that prevail in arm's length transactions.
At 31 March 2017, the Group had £nil contingent liabilities arising in its
joint ventures (2016: £nil). At 31 March 2017, the Group had capital
commitments in respect of its joint ventures of £48.1 million (2016: £117.9
million).
13 Plant and equipment
Leasehold Fixtures and Total
improvements fittings/other £m
£m £m
Cost
At 1 April 2015 2.1 1.6 3.7
Costs capitalised 1.0 0.1 1.1
Disposals (2.0) - (2.0)
At 31 March 2016 1.1 1.7 2.8
Costs capitalised in respect of head office refurbishment 4.1 0.8 4.9
Disposals - (1.5) (1.5)
At 31 March 2017 5.2 1.0 6.2
Depreciation
At 1 April 2016 0.1 1.6 1.7
Charge for the year 0.6 0.3 0.9
Disposals - (1.5) (1.5)
At 31 March 2017 0.7 0.4 1.1
Carrying amount at 31 March 2016 1.0 0.1 1.1
Carrying amount at 31 March 2017 4.5 0.6 5.1
14 Trade and other receivables
2017 2016
£m £m
Trade receivables 4.0 3.9
Allowance for doubtful debts (0.1) (0.2)
3.9 3.7
Prepayments and accrued income 0.7 1.2
Work in progress on development management contracts 14.7 2.4
Other trade receivables 3.2 5.4
Deferred consideration on property sales 300.8 -
Derivatives 28.5 24.3
351.8 37.0
Trade receivables consist of rent and service charge monies, which are due on
the quarter day with no credit period. Interest is charged on trade
receivables in accordance with the terms of the tenant's lease. Trade
receivables are provided for based on estimated irrecoverable amounts
determined by past default experience and knowledge of the individual tenant's
circumstance. Debtors past due but not impaired were £2.8 million (2016: £3.0
million) of which £2.0 million (2016: £1.8 million) is over 30 days.
Work in progress on development management contracts is an amount due to the
Group in relation to development properties sold prior to its completion where
the Group has a contract with the buyer to construct the remainder of the
building on their behalf. During the year, the Group received payments on
account of £12.9 million (2016: £41.2 million). At 31 March 2017, the
aggregate cumulative cost incurred was £67.7 million (2016: £42.5 million) and
the cumulative profits less losses recognised were £5.7 million (2016: £5.7
million). There are no material project retentions.
Deferred consideration on property sales relates to the amounts outstanding on
the disposal of both Rathbone Square, W1 and 73/89 Oxford Street, W1. At 31
March 2017, £28.0 million of the derivatives were due in excess of one year
(see note 17).
2017 2016
£m £m
Movements in allowance of doubtful debts
Balance at the beginning of the year (0.2) (0.1)
Amounts provided for during the year (0.2) (0.1)
Amounts written-off as uncollectable 0.3 -
(0.1) (0.2)
15 Trade and other payables
2017 2016
£m £m
Rents received in advance 22.8 21.1
Deposits received on forward sale of residential units 66.0 57.2
Non-trade payables and accrued expenses 58.2 56.7
147.0 135.0
Non-trade payables and accrued expenses includes capital accruals such as
amounts in respect of overage arrangements.
16 Interest-bearing loans and borrowings
2017 2016
£m £m
Non-current liabilities at amortised cost
Secured
£142.9 million 55⁄8% debenture stock 2029 143.9 144.0
Unsecured
£450 million revolving credit facility 107.0 -
£30.0 million 5.09% private placement notes 2018 - 29.9
$130.0 million 4.81% private placement notes 2018 - 80.9
$78.0 million 5.37% private placement notes 2021 - 48.5
$160.0 million 4.20% private placement notes 2019 101.9 101.9
$40.0 million 4.82% private placement notes 2022 25.5 25.5
Non-current liabilities at fair value
Unsecured
£150.0 million 1.00% convertible bonds 2018 159.4 169.5
537.7 600.2
The Group's £450.0 million revolving credit facility is unsecured, attracts a
floating rate based on a ratchet of between 105-165 basis points above LIBOR,
based on gearing, and expires in 2021.
In March 2017, the Group repaid its 2018 and 2021 private placement notes for
a total redemption premium of £16.8 million representing £51.5 million premium
(including early redemption premium and currency movements since issue) on the
private placement notes net of £34.7 million receipt on cancellation of the
associated cross currency swaps.
In May 2017, the Group repaid its 2019 and 2022 private placement notes for a
total redemption premium of £13.2 million representing £36.8 million premium
(including early redemption premium and currency movements since issue) on the
private placement notes net of £23.6 million receipt on cancellation of the
associated cross currency swaps.
In May 2017, the Group closed the issue of £175 million of new seven year US
private placement notes. The Sterling denominated unsecured debt has a fixed
rate coupon of 2.15% (representing a margin of 125 basis points over the
relevant Gilt).
At 31 March 2017, the Group had £342.0 million (2016: £451 million) of undrawn
credit facilities.
17 Financial instruments
Categories of financial instrument Carrying Amounts recognised Gain/(loss) Carrying Amounts recognised Gain/(loss)
amount in income statement to equity amount in income statement to equity
2017 2017 2017 2016 2016 2016
£m £m £m £m £m £m
Convertible bond (159.4) 8.6 - (169.5) 12.0 -
Non-current liabilities at fair value (159.4) 8.6 - (169.5) 12.0 -
Interest rate floor 0.5 0.7 - 2.0 0.9 -
Cross currency swaps 28.0 40.2 - 22.3 10.1 -
Non-current assets held at fair value 28.5 40.9 - 24.3 11.0 -
Trade receivables 324.3 (0.1) - 12.1 (0.1) -
Cash and cash equivalents 25.5 - - 12.7 - -
Loans and receivables 349.8 (0.1) - 24.8 (0.1) -
Trade and other payables (69.1) - - (62.9) - -
Interest-bearing loans and borrowings (378.3) (7.9) - (430.7) (12.8) -
Obligations under finance leases (35.9) (1.8) - (50.5) (2.3) -
Liabilities at amortised cost (483.3) (9.7) - (544.1) (15.1) -
Total financial instruments (264.4) 39.7 - (664.5) 7.8 -
Financial risk management objectives
Credit risk
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in financial loss to the Group.
The Group has a policy of only dealing with creditworthy tenants and obtaining
sufficient rental cash deposits or third party guarantees as a means of
mitigating financial loss from defaults.
The concentration of credit risk is limited due to the large and diverse
tenant base. Accordingly, the directors believe that there is no further
credit provision required in excess of the allowance for doubtful debts. The
carrying amount of financial assets recorded in the financial statements,
which is net of impairment losses, represents the Group's maximum exposure to
credit risk without taking account of the value of rent deposits obtained.
Details of the Group's receivables are summarised in note 15 of the financial
statements.
The Group's cash deposits are placed with a diversified range of banks and
strict counterparty limits ensure the Group's exposure to bank failure is
minimised.
Capital risk
The Group manages its capital to ensure that entities in the Group will be
able to continue as going concerns and as such it aims to maintain an
appropriate mix of debt and equity financing. The current capital structure of
the Group consists of a mix of equity and debt. Equity comprises issued share
capital, reserves and retained earnings as disclosed in the Group statement of
changes in equity. Debt comprises long-term debenture stock, private placement
notes, convertible bonds and drawings against committed revolving credit
facilities from banks.
The Group operates solely in the United Kingdom, and its operating profits and
net assets are sterling denominated. As a result, the Group's policy is to
have no unhedged assets or liabilities denominated in foreign currencies. The
currency risk on overseas transactions is fully hedged through foreign
currency derivatives to create a synthetic sterling exposure.
Liquidity risk
The Group operates a framework for the management of its short-, medium- and
long-term funding requirements. Cash flow and funding needs are regularly
monitored to ensure sufficient undrawn facilities are in place. The Group's
funding sources are diversified across a range of bank and bond markets and
strict counterparty limits are operated on deposits.
The Group meets its day-to-day working capital requirements through the
utilisation of its revolving credit facility. The availability of this
facility depends on the Group complying with a number of key financial
covenants; these covenants and the Group's compliance with them are set out in
the table below:
Key covenants Covenant March 2017 actuals
Group
Net debt/net equity <1.25x 0.18x
Inner borrowing (unencumbered asset value/unsecured borrowings) >1.66x 5.36x
Interest cover >1.35x n/a
Due to the treatment of capitalised interest under our Group covenants, there
is no net interest charge in the year applicable for the purposes of
calculating the interest cover ratio. The Group has undrawn credit facilities
of £342.0 million and has substantial headroom above all of its key covenants.
As a result, the directors consider the Group to have adequate liquidity to be
able to fund the ongoing operations of the business.
The following tables detail the Group's remaining contractual maturity on its
financial instruments and have been drawn up based on the undiscounted cash
flows of financial liabilities based on the earliest date on which the Group
is required to pay and conditions existing at the balance sheet date:
At 31 March 2017 Carrying Contractual Less than One to Two to More than
amount cash flows one year two years five years five years
£m £m £m £m £m £m
Non-derivative financial liabilities
£142.9 million 55⁄8% debenture stock 2029 143.9 237.9 8.0 8.0 24.1 197.8
£450.0 million revolving credit facility 107.0 113.1 1.6 1.6 109.9 -
Private placement notes 127.4 142.6 5.2 5.3 106.4 25.7
£150.0 million 1.00% convertible bonds 2018 159.4 152.1 1.5 150.6 - -
Derivative financial instruments
Cross currency swaps (note 14) (28.0) 0.7 0.3 0.2 0.2 -
Interest rate floor (note 14) (0.5) (1.0) (1.0) - - -
509.2 645.4 15.6 165.7 240.6 223.5
At 31 March 2016 Carrying Contractual Less than One to Two to More than
amount cash flows one year two years five years five years
£m £m £m £m £m £m
Non-derivative financial liabilities
£142.9 million 55⁄8% debenture stock 2029 144.0 245.9 8.0 8.0 24.1 205.8
£450.0 million revolving credit facility - - - - - -
Private placement notes 286.7 332.8 13.0 13.1 230.5 76.2
£150.0 million 1.00% convertible bonds 2018 169.5 153.6 1.5 1.5 150.6 -
Derivative financial instruments
Cross currency swaps (note 14) (22.3) 1.7 0.5 0.5 0.6 0.1
Interest rate floor (note 14) (2.0) (2.1) (1.3) (0.8) - -
575.9 731.9 21.7 22.3 405.8 282.1
Market risk
Interest rate risk arises from the Group's use of interest-bearing financial
instruments. It is the risk that future cash flows arising from a financial
instrument will fluctuate due to changes in interest rates. It is the Group's
policy to reduce interest rate risk in respect of the cash flows arising from
its debt finance either through the use of fixed rate debt or through the use
of interest rate derivatives such as swaps, caps and floors. It is the Group's
usual policy to maintain the proportion of floating interest rate exposure to
between 20% - 40% of forecast total debt. However, this target is flexible,
and may not be adhered to at all times depending on, for example, the Group's
view of future interest rate movements.
Interest rate swaps
Interest rate swaps in the joint ventures enable the Group to exchange its
floating rate interest payments on its bank debt for fixed rate payments on a
notional value. Such contracts allow the Group to mitigate the risk of
changing interest rates on the cash flow exposures on its variable rate bank
loans by locking in a fixed rate on a proportion of its debt.
Interest rate floors
Under the terms of an interest rate floor, one party (the 'seller') makes a
payment to the other party (the 'buyer') if an underlying interest rate is
below a specified rate. The Group has bought an interest rate floor, which,
when combined with fixed debt, gives rise to the same economic effect as
purchasing an interest rate cap in respect of floating rate debt.
Cross currency swaps
Cross currency swaps enable the Group to exchange receipts or payments
denominated in currencies other than sterling for receipts or payments
denominated in sterling. Such contracts allow the Group to eliminate foreign
exchange risk arising from fluctuating exchange rates between sterling and
other currencies.
The following table details the notional principal amounts and remaining terms
of interest rate derivatives outstanding at 31 March:
Average contractedfixed interest rate Notional principalamount Fair value (asset)/liability
2017 2016 2017 2016 2017 2016
% % £m £m £m £m
Interest rate floor
Less than one year 1.80 - 159.7 - (0.5) -
Between one and two years - 1.80 - 159.7 - (2.0)
1.80 1.80 159.7 159.7 (0.5) (2.0)
The following table details the notional principal amounts and remaining terms
of exchange rate derivatives outstanding at 31 March:
Average exchange rate Foreign currency Notional principal Fair value
amount (asset)/liability
2017 2016 2017 2016US$m 2017 2016 2017 2016
rate rate US$m £m £m £m £m
Cross currency swaps
Between two and five years 1.566 1.583 160.0 290.0 102.2 183.2 (23.3) (16.4)
In excess of five years 1.566 1.591 40.0 118.0 25.5 74.2 (4.7) (5.9)
1.566 1.585 200.0 408.0 127.7 257.4 (28.0) (22.3)
Interest rate sensitivity
The sensitivity analysis below has been determined based on the exposure to
interest rates for both non-derivative and derivative financial instruments at
the balance sheet date and represents management's assessment of possible
changes in interest rates based on historical trends. For the floating rate
liabilities the analysis is prepared assuming the amount of the liability at
31 March 2017 was outstanding for the whole year:
Impact on profit Impact on equity
2017 2016 2017 2016
£m £m £m £m
Increase of 100 basis points 2.9 10.0 2.9 10.0
Increase of 50 basis points 1.5 5.0 1.5 5.0
Decrease of 25 basis points (0.7) (2.5) (0.7) (2.5)
Foreign exchange sensitivity
The sensitivity analysis below has been determined based on the exposure to
foreign exchange rates for derivative financial instruments at the balance
sheet date and represents management's assessment of changes to the fair value
of the Group's cross currency swaps as a result of possible changes in foreign
exchange rates based on historical trends:
Impact on profit Impact on equity
2017 2016 2017 2016
£m £m £m £m
Increase of 20% in the exchange spot rate (28.9) (53.6) (28.9) (53.6)
Increase of 10% in the exchange spot rate (15.8) (29.2) (15.8) (29.2)
Decrease of 10% in the exchange spot rate 19.3 35.7 19.3 35.7
Decrease of 20% in the exchange spot rate 43.4 80.4 43.4 80.4
Fair value of interest-bearing loans and borrowings
Book value Fair value Book value Fair value
2017 2017 2016 2016
£m £m £m £m
Level 1
£150.0 million 1.00% convertible bonds 2018 159.4 159.4 169.5 169.5
Level 2
Cross currency swaps (28.0) (28.0) (22.3) (22.3)
Interest rate floor (0.5) (0.5) (2.0) (2.0)
Other items not carried at fair value
£142.9 million 55⁄8% debenture stock 2029 143.9 177.9 144.0 172.3
Private placement notes 127.4 164.4 286.7 333.9
£450 million revolving credit facility 107.0 107.0 - -
509.2 580.2 575.9 651.4
The fair value of the Group's listed convertible bonds has been estimated on
the basis of quoted market prices, representing Level 1 fair value
measurements as defined by IFRS 13 Fair Value Measurement. The fair value of
the Group's outstanding interest rate floor has been estimated by calculating
the present value of future cash flows, using appropriate market discount
rates, representing Level 2 fair value measurements as defined by IFRS 13. The
fair value of the Group's cross currency swaps has been estimated on the basis
of the prevailing rates at the year end, representing Level 2 fair value
measurements as defined by IFRS 13. None of the Group's financial derivatives
are designated as financial hedges. The fair values of the Group's private
placement notes were determined by comparing the discounted future cash flows
using the contracted yields with those of the reference gilts plus the implied
margins.
The fair values of the Group's cash and cash equivalents and trade payables
and receivables are not materially different from those at which they are
carried in the financial statements.
18 Obligations under finance leases
Finance lease obligations in respect of the Group's leasehold properties are
payable as follows:
Minimum Interest Present value of minimum lease payments Minimum Interest Present value of minimum lease payments
lease 2017 2017 lease 2016 2016
payments £m £m payments £m £m
2017 2016
£m £m
Less than one year 1.8 (1.8) - 2.4 (2.4) -
Between two and five years 7.1 (7.0) 0.1 9.6 (9.5) 0.1
More than five years 178.6 (142.8) 35.8 329.1 (278.7) 50.4
187.5 (151.6) 35.9 341.1 (290.6) 50.5
The Group's finance lease obligations decreased to £35.9 million at 31 March
2017 due to the sale of 73/89 Oxford Street, W1.
19 Share capital
2017 2017 2016 2016
Number £m Number £m
Allotted, called up and fully paid ordinary shares of 12.5 pence
At 1 April and 31 March 343,926,149 43.0 343,926,149 43.0
At 31 March 2017, the Company's authorised share capital was 600,000,000
shares. On 18 May 2017, in conjunction with a special dividend (see note 22),
the Company carried out a 19 for 20 share consolidation of the Company's
ordinary share capital. After the consolidation the Company had 326,729,852
ordinary shares with a nominal value of 133⁄19 pence each.
20 Investment in own shares
2017 2016
£m £m
At 1 April 9.1 11.7
Employee Long-Term Incentive Plan and Share Matching Plan charge (1.0) (4.2)
Purchase of shares - 8.1
Transfer to retained earnings (4.3) (6.5)
At 31 March 3.8 9.1
The investment in the Company's own shares is held at cost and comprises
1,804,412 shares (2016: 2,569,477 shares) held by the Great Portland Estates
plc LTIP Employee Share Trust which will vest for certain senior employees of
the Group if performance conditions are met. During the year, 765,065 shares
(2016: 1,435,074 shares) were awarded to directors and senior employees in
respect of the 2013 LTIP and SMP award and no additional shares were acquired
by the Trust (2016: 1,150,000 shares). The fair value of shares awarded and
outstanding at 31 March 2017 was £2.1 million (2016: £13.2 million).
21 Adjustment for non-cash movements in the Group statement of cash flows
2017 2016
£m £m
Deficit/(surplus) from investment property 136.9 (422.2)
Employee Long-Term Incentive Plan and Share Matching Plan charge 1.0 4.2
Spreading of tenant lease incentives (3.1) (3.0)
Profit on development management contracts - (4.0)
Share of results of joint ventures 57.2 (66.8)
Other non-cash items 0.4 -
Adjustments for non-cash items 192.4 (491.8)
22 Dividends
2017 2016
£m £m
Ordinary dividends paid
Interim dividend for the year ended 31 March 2017 of 3.7 pence per share 19.1 -
Final dividend for the year ended 31 March 2016 of 5.6 pence per share 12.7 -
Interim dividend for the year ended 31 March 2016 of 3.6 pence per share - 12.3
Final dividend for the year ended 31 March 2015 of 5.5 pence per share - 18.8
31.8 31.1
A final dividend of 6.4 pence per share was approved by the Board on 24 May
2017 and will be paid on 10 July 2017 to shareholders on the register on 2
June 2017. The dividend is not recognised as a liability at 31 March 2017. The
2016 final dividend and the 2017 interim dividend were paid in the year and
are included within the Group statement of changes in equity.
In May 2017, the Company paid a special dividend of £110.0 million equating to
32.15 pence per share. The dividend was approved by the Board on 11 April 2017
and will be paid on 31 May 2017 to shareholders on the register on 18 May
2017.
23 Operating leases
Future aggregate minimum rentals receivable under non-cancellable operating
leases are:
2017 2016
£m £m
The Group as a lessor
Less than one year 76.7 70.2
Between two and five years 224.3 189.8
More than five years 169.2 149.9
470.2 409.9
The Group leases its investment properties under operating leases. The
weighted average length of lease at 31 March 2017 was 5.2 years (2016: 5.0
years). All investment properties, except those under development, generated
rental income and no contingent rents were recognised in the year (2016:
£nil).
2017 2016
£m £m
The Group as a lessee
Less than one year 1.0 0.8
Between two and five years 4.1 4.1
More than five years 3.2 4.3
8.3 9.2
24 Reserves
The following describes the nature and purpose of each reserve within equity:
Share capital
The nominal value of the Company's issued share capital, comprising 12.5 pence
ordinary shares.
Share premium
Amount subscribed for share capital in excess of nominal value less directly
attributable issue costs.
Capital redemption reserve
Amount equivalent to the nominal value of the Company's own shares acquired as
a result of share buy-back programmes.
Retained earnings
Cumulative net gains and losses recognised in the Group income statement
together with other items such as dividends.
Investment in own shares
Amount paid to acquire the Company's own shares for its Employee Long-Term
Incentive Plan and Share Matching Plan less accounting charges.
25 Employee benefits
The Group operates a UK funded approved defined contribution plan. The Group's
contribution for the year was £0.6 million (2016: £0.6 million). The Group
also contributes to a defined benefit final salary pension plan ('the Plan'),
the assets of which are held and managed by trustees separately from the
assets of the Group. The Plan has been closed to new entrants since April
2002. The most recent actuarial valuation of the Plan was conducted at 1 April
2015 by a qualified independent actuary using the projected unit method. The
Plan was valued using the following main assumptions:
2017 2016
% %
Discount rate 2.60 3.60
Expected rate of salary increases 4.20 4.00
RPI inflation 3.20 3.00
Rate of future pension increases 5.00 5.00
Life expectancy assumptions at age 65:
2017 2016
Years Years
Retiring today age 65 24 24
Retiring in 25 years (age 40 today) 27 27
The amount recognised in the balance sheet in respect of the Plan is as
follows:
2017 2016
£m £m
Present value of unfunded obligations (39.9) (31.3)
Fair value of the Plan assets 34.1 28.6
Pension liability (5.8) (2.7)
Amounts recognised as administration expenses in the income statement are as
follows:
2017 2016
£m £m
Current service cost (0.3) (0.4)
Net interest cost (0.1) (0.1)
(0.4) (0.5)
Changes in the present value of the pension obligation are as follows:
2017 2016
£m £m
Defined benefit obligation at 1 April 31.3 31.7
Service cost 0.3 0.4
Interest cost 1.1 1.1
Effect of changes in financial assumptions 7.8 (1.3)
Benefits paid (0.6) (0.6)
Present value of defined benefit obligation at 31 March 39.9 31.3
Changes to the fair value of the Plan assets are as follows:
2017 2016
£m £m
Fair value of the Plan assets at 1 April 28.6 28.5
Interest income 1.0 1.0
Actuarial gain/(loss) 4.2 (1.2)
Employer contributions 0.9 0.9
Benefits paid (0.6) (0.6)
Fair value of the Plan assets at 31 March 34.1 28.6
Net liability (5.8) (2.7)
The amount recognised immediately in the Group statement of comprehensive
income was a loss of £3.6 million (2016: gain of £0.1 million).
Virtually all equity and debt instruments have quoted prices in active
markets. The fair value of the Plan assets at the balance sheet date is
analysed as follows:
2017 2016
£m £m
Cash 0.1 -
Equities 14.1 11.2
Bonds 19.9 17.4
34.1 28.6
Other than market and demographic risks, which are common to all retirement
benefit schemes, there are no specific risks in the relevant benefit schemes
which the Group considers to be significant or unusual. Detail on two of the
more specific risks is detailed below:
Changes in bond yields
Falling bond yields tend to increase the funding and accounting liabilities.
However, the investment in corporate and government bonds offers a degree of
matching, i.e. the movement in assets arising from changes in bond yields
partially matches the movement in the funding or accounting liabilities. In
this way, the exposure to movements in bond yields is reduced.
Life expectancy
The majority of the obligations are to provide a pension for the life of the
member on retirement, so increases in life expectancy will result in an
increase in the liabilities. The inflation-linked nature of the majority of
benefit payments increases the sensitivity of the liabilities to changes in
life expectancy.
The effect on the defined benefit obligation of changing the key assumptions,
calculated using approximate methods based on historical trends, is set out
below:
2017 2016
£m £m
Discount rate -0.25% 42.0 32.9
Discount rate +0.25% 37.9 29.8
RPI inflation -0.25% 38.9 30.6
RPI inflation +0.25% 40.9 32.0
Post-retirement mortality assumption -1 year 41.5 32.4
The Group expects to contribute £0.9 million to the Plan in the year ending 31
March 2018. The expected total benefit payments for the year ending 31 March
2018 is £0.6 million, with £4.3 million expected to be paid over the next five
years.
Responsibility statement
The statement of Directors' responsibilities below has been prepared in
connection with the Company's full Annual Report for the year ended 31 March
2017. Certain parts of the Annual Report have not been included in the
announcement. We confirm that to the best of our knowledge:
· the financial statements, prepared in accordance with the relevant financial
reporting framework, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole;
· the strategic report includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together
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