3601 Accounts (Landscape) V2
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ANNUAL REPORT AND ACCOUNTS 2004 Grainger Trust is the UK’s largest quoted residential property investor owning over 12,000 units. This core business is supplemented by our development and trading division, which is active in the delivery of residential and mixed use developments. In addition to our traditional long-term businesses we are making progress in growth markets such as life tenancies and mainland Europe. 01 2004 Highlights 27 Remuneration Committee Report 02 At a Glance 31 Independent Auditors’ Report 04 Chairman’s Statement 32 Financial Statements 2004 06 Chief Executive’s Statement 47 Notice of the Annual 10 Operating and Financial Review General Meeting 16 Corporate Social 48 Five Year Record Responsibility Report 49 Shareholders’ Information 21 Board Members 50 Advisers 22 Corporate Governance Report 51 Glossary of Terms 25 Directors’ Report 52 Corporate Addresses 2004 Highlights 01 Profit before tax and exceptional Bromley joint venture results interest rises 23% to £59.6m consolidated for the first time Earnings per share before exceptional Commercial investment portfolio interest up by 25% to 149.7p rationalised Dividends up to 23.24p for full year, Successful refinancing of debt increase of 42% portfolio Net asset value per share advances Gearing down to 103% from by 25% 125% Annual report and accounts 2004 Annual report plc Grainger Trust Share split and new dividend policy Market value of all properties announced £1.4 billion PROFIT BEFORE TAX* EARNINGS PER SHARE* NET ASSET VALUE† DIVIDENDS PER SHARE (£ MILLIONS) 59.6 (PENCE) 149.7 PER SHARE (£) 27.34 (PENCE) 23.24 48.5 119.8 21.94 44.9 16.31 96.4 17.24 14.18 12.33 13.56 21.1 52.9 20012002 2003 2004 20012002 2003 2004 20012002 2003 2004 20012002 2003 2004 *excluding exceptional interest †after adjusting for the market value of trading properties and investments At a Glance 02 Grainger Trust plc Group structure Total market value of property assets Grainger Trust plc £1.4bn Total operating contribution* Tenanted residential division £107.2m Development and trading division Group operations are defined by the following: The facts Performance criteria Bulk of income comes from trading activities and realisation of reversionary surpluses, so alternatives to yield based valuation measures also presented. Over the last five years our gross assets have increased from £0.4bn to £1.5bn Focus is therefore on profit before tax, earnings per share and net asset value. Over the last five years our share price has grown Use of NAV, diluted NAV and Grainger NAV which takes account of long-term by 362%, the FTSE 250 by 10% reversionary surplus in our core portfolios. The vacant possession value of our most expensive At individual project level, performance criteria such as cash generation, Grainger Trust plc Grainger Trust and accounts 2004 Annual report residential property is £1.5m; the cheapest £15,000 internal rate of return, profitability and strategic positioning used. We own a total of 12,041 residential units with Risk review Major risk relates to state of housing market, linked to interest rates and vacant possession value of £1.9bn; these units general economic environment. have cost us £0.9bn Risk minimised by: Two-thirds of our portfolio is valued between • Portfolio is geographically widespread, reduces cluster risk £100,000 and £250,000 • Portfolio spread across property types and values, reducing exposure to highly fluctuating top-end properties • Relatively low average value where demand is consistent and strong • Regulated properties are unmodernised on vacancy so demand tends to be high Long-term view taken and financial stability enables short-term price fluctuations to be withstood. Managing our portfolio Business review All activities characterised by cash generation, high trading margins and willingness to take long-term view. Our residential portfolio is managed Regulated tenancy market diminishing, but we maintain position by by a network of six offices supported active purchasing. by managing agents in remote areas, 6 giving us a nationwide presence: Review new and expanding business opportunities – life tenancies, European 1. Altrincham 1 investment, development and trading, asset and property management. 2. Epsom 3 5 3. Harborne 4 At plc level, key criteria is total shareholder return. 4. London 2 5. Martlesham *profit on ordinary activities before interest and taxation and excluding 6. Newcastle upon Tyne administration expenses Tenanted residential division Development and trading division 03 Divisional key characteristics: long-term business, Divisional key characteristics: opportunistic highly cash generative, high margins. and entrepreneurial. Market value of property assets by division Operating contribution* by division Market value of property assets by division Operating contribution* by division £1.3bn £81.9m £109m £25.3m Proportion of group operating contribution* Number of properties by division Proportion of group operating contribution* 76% 12,041 24% Within this division, contributions Within this division, contributions come from two areas of operation: come from three areas of operation: Trading Regulated (Investment value: £939m) Land and regeneration Key features: Key features: • Translates green and brownfield sites into • Tenant has security of tenure residential or mixed use developments • Rents set by rent officer and increases capped at • Highly profitable but complicated long-term retail price index +5% over two years business. • Purchased at discount to vacant possession value and • Involves negotiations with planners, local sold on vacancy communities and councils • Approximately 8% of the portfolio becomes vacant every year • No new regulated tenancies being created Major sites: Kennel Farm, Basingstoke; West Waterlooville, Characteristics: Low rental yield, high margin on sales. Hampshire; Widdrington/Hadston, Northumberland and accounts 2004 Annual report plc Grainger Trust Life tenancy (Investment value: £167m) Residential development Key features: Key features: • Uses group’s asset base, expertise or equity • Tenant has security of tenure type funding • No rental income • Often in partnerships with housing associations, • Whole or partial ownership purchased at discount to local developers and councils vacant possession • Property sold on vacancy Major sites: • No maintenance obligation South London Hospital, Clapham; Macaulay Road, Clapham; Hornsey Road/Barnsbury, Islington, Characteristics: No rental yield, high sales margin. Smith Docks, North Shields Assured, vacant and others (Investment value: £223m) Grainger Homes Key features: Key features: • Small scale niche house building mostly in • Market rented tenancies (£136m) North East of England • Vacants to be sold (£49m) • Produces consistent levels of cash and • Other (including ground rents and serviced apartments £38m) trading margins Characteristics: Market yield, some margin on sale. Major sites: The Kylins, Morpeth; Grangewood, Widdrington; Rental and management Net rental income Kingsfield, Seahouses; Omega Apartments, Key features: Birmingham • Net rental income derived from regulated and assured tenancies after maintenance and management expenditure Asset and management fees Key features: • Fee based activities remunerated by asset and property management fees Characteristics: Management skills adapted to provide additional fee income with no capital investment. Chairman’s We have continued to focus on our core comparison to our peers. Your board is therefore 04 tenanted residential business and we have recommending a step up increase in the year Statement increased the market value of this portfolio by end dividend to 19.20p per share, to be paid 14% to £1.3 billion. Our total gross assets at on 4 March 2005 to shareholders on the register +14% market value now stand at £1.5 billion. We have at close of business on 11 February 2005. Portfolio market value maintained our leading position as the largest This will produce a full year figure of 23.24p per The value of our core tenanted residential Property expertise: quoted investor in the long-term residential market share, an increase of 42% over last year. It is our portfolio has increased by 14% to £1.3bn. This has been a landmark year for by purchasing 486 regulated and 374 life tenancy intention to continue with a progressive dividend units in the year. We have invested considerable policy, albeit at a more moderate target growth of Grainger Trust. We have achieved management time and energy in positioning 10% per annum. We will also take the opportunity record levels of profits, asset our life tenancy activities and believe that we to restructure the phasing of our dividend and share price growth as well are now well placed to take advantage of this payments and it is our intention that the interim +30% exciting business opportunity. Our rationalisation dividend (to be paid in July of each year) will Grainger net asset value as making significant progress in of the commercial investment portfolio has been comprise approximately one third of the total, Net asset value per share of £24.00, our key strategic objectives. The completed at a significant profit and we now have the balance being paid at the time of the final up from last years figure of £18.40. year under review has also been greater clarity and focus in our development and in March of each year. trading activities. important as it represents the first Share structure 12 month period in which our To help lay the foundations for the