Wichford P.L.C. Wichford Annual Report for the year ended 30 September 2010 September 30 ended year the for Report Annual Registered Office Top Floor Incorporated and registered www.wichford.com 14 Athol Street in Isle of Man Douglas No. 111198C Annual Report Isle of Man IM1 1JA For the year ended 30 September 2010 Contents 2010 Review 2010 2010 Review Wichford P.L.C. is a property investment company, operated from the Isle of Man, with a Highlights 1 At a Glance 2 portfolio of 81 properties occupied principally by Chairman’s Statement 3 Business Review 4 Central and State Government bodies in both the Financial Review 16 UK and Continental Europe. Our portfolio totals Ten Largest Investments 19 over 350,000 sq m (3.8 million sqft) and is independently valued at £573.5 million Governance Governance Directors 20 Corporate Governance Statement 22 Corporate Social Responsibility Statement 25 Directors’ Remuneration Report 27 Report of the Directors 28 Statement of Directors’ Responsibilities 31 Consolidated financials Consolidated Consolidated financials Independent Auditors’ Report 32 Consolidated Statement of 33 Comprehensive Income Consolidated Statement of 34 Financial Position Consolidated Statement of 35 Changes in Equity Consolidated Statement of 36 Cash Flows Notes to the Financial Statements 37 Company financials Company Company financials Independent Auditors’ Report 60 Company Balance Sheet 61 Notes to the Company Accounts 62 Investors The Observatory, Chatham cover & Investors 21,451 sqft on three floors mainly let to Secretary of State for Transport, List of Properties 70 Local Government and the Regions Five-year Review 73 Company Information 74 Printed by an EMAS certified This document is printed on a paper Glossary of Terms 75 CarbonNeutral® Company whose bleached using a chlorine free process and Notice of Meeting for the 76 Environmental Management System contains fibre from well managed FSC Annual General Meeting is certified to ISO14001. certified forests. The outer cover is sealed – Notice of AGM 76 with a matt laminate which uses cellulose – Explanatory notes 79 100% of the inks used are vegetable oil acetate biodegradable film made of wood based, 95% of press chemicals are pulp from sustainable managed forests. recycled for further use and on average 99% of any waste associated with this production will be recycled. www.envisdesign.com Wichford P.L.C. Annual Report 2010 1 Highlights 2010 Review 2010 Trading Operations Profit after tax Total recommended dividend for the year £9.6m 0.65p 2009: £9.1m 2009: 0.61p Total profit after tax Total Portfolio at Market Values £17.0m £573.5m 2009: (£75.4m) loss 2009: £526.9m Trading Operations earnings per share Net Assets 0.90p £59.0m 2009: 0.86p** 2009: £47.4m Total earnings per share Net asset value per share 1.60p 5.56p 2009: (7.10)p loss** 2009: 4.49p*** Recommended final dividend per share EPRA net assets per share 0.33p 8.67p 2009: 0.31p 2009: 7.66p**** Other Highlights All three UK debt facilities totalling Indexation 63% (2009: 61%) £360.3m extended during the period Occupancy rate 96% (2009: 99%) VBG1 debt restructuring successfully concluded Comparative notes have been adjusted to reflect the rights issue of Weighted Average Unexpired Lease shares in September 2009. ** See note 9 for details of the calculation of earnings per share Term 9.1 years (2009: 8.4 years) *** See note 10 for details of the calculation of net asset value per share **** See note 23 for the calculation of EPRA net asset value per share Wichford P.L.C. Annual Report 2010 2 At a Glance Wichford owns 81 properties with a wide geographical spread across the UK and other major European countries. During the year under review, the Company disposed of three and acquired nine properties. Core Portfolio Active Portfolio Continental Europe The Company’s occupiers are 63% of rent subject to indexation or principally Government and Central fixed increases State bodies Weighted average unexpired lease Occupancy rate of 96% term (“WAULT”) of 9.1 years Annualised rental income of £45.1 million Wichford P.L.C. Annual Report 2010 3 Chairman’s Statement I am pleased to report that your Company has met the The Company will keep shareholders advised of progress 2010 Review challenging targets set out at the time of the Rights Issue with regard to the strategic review and in connection with in September 2009. The extension of our principal UK debt the interest expressed by Redefine. The next scheduled facilities has been secured, the VBG1 facility has been reporting event will be the Company’s AGM in January 2011. extended, a covenant waiver has been agreed on VBG2 and overhead costs have been reduced. This has all been Board & Management achieved in a relatively short space of time and places the Mark Sheardown joined the Board in January bringing with Company in a stronger position to meet the challenges him over 30 years of experience in property development and facing the property market and public sector. investment. Mark has enhanced the Board’s direct property expertise and has already made a significant contribution The financial results reflect a pleasing return to profitability to the Company’s investment strategy. Mark replaced Hugh supported by strong earnings from Trading Operations and Ward who resigned at the Company’s AGM in January 2010 revaluation gains. Trading Operations earnings per share of after giving years of valued service to Wichford. 0.90 pence reflects a 4.7% increase on last year. On-going administration costs have been tightly controlled and interest Wolf Cesman announced his retirement from the Board in expense has been reduced through the successful extension November. On behalf of the Board, I would like to take the and restructuring of facilities at prevailing low interest opportunity of thanking Wolf for his significant contribution rates. EPRA net asset value per share increased 13.2% to the Company. to 8.67 pence. Headline net assets continue to reflect the significant negative fair value of interest rate swaps and the Dividend consolidation of the VBG negative net asset value position, The directors have resolved to recommend the payment further details of which are provided in the Financial Review. of a final dividend of 0.33 pence per share. This reflects an increase of 3.1% on the interim dividend of 0.32 pence paid At a property level, capital values in the UK Portfolio benefited in June 2010. The total dividend proposed for the year of from renewed investor demand for secure income yielding 0.65 pence per share reflects an increase of 6.6% on last assets, particularly in the first half of the year. However, the year’s figure and is covered 1.4 times by current earnings per investment market for Government occupied assets has become share from Trading Operations. increasingly two-tiered with the dual impact of a lack of funding for short-term leases and more recently the UK Government’s Outlook Comprehensive Spending Review (“CSR”) impacting the market This year has seen a recovery in capital values as risk appetite for properties subject to shorter lease terms. and capital returned to the property sector. A large part of the recovery has however focussed on Central London where The reduction in Government departmental budgets forecast supply and demand imbalances are expected to presents both challenges and opportunities for the property drive rental growth, particularly for prime property. sector, the impact of which will only be fully known in the medium term. We are responding to a changing market The regional city office market continues to see excess by revisiting our Investment Policy to provide for greater supply. However, the absence of new development and the flexibility in the way we invest and manage existing assets. potential for renewed take-up from the private sector should Further details are contained in the Business Review. in time improve the strength of regionally dominant centres as the impact of a sustained economic recovery filters into Strategic Review regional cities. As noted above, the Company has made substantial progress in 2010, securing its immediate funding position. We will continue to review the contribution of the Continental The Board has commenced a review of Wichford’s strategic European Portfolio to the business, focussing on prospects options post the year end. This includes addressing the for future returns from each of the assets and the likely capital longer term financing position of the Company and, in requirements to meet future refinancing requirements. particular, the October 2012 maturities of the Delta and Gamma facilities which represent a significant proportion of In order to meet the challenges facing certain regional office the Company’s existing funding arrangements. markets, and in particular the public sector estate, we have set ourselves the following priorities for the coming year: Rothschild have been appointed to assist in this review, • Secure a long term sustainable financing structure; which includes assessing interest expressed by Redefine • Protect occupancy and rental income; International plc (“Redefine”) in relation to a potential combination of Wichford and Redefine. As announced in • Dispose of underperforming assets while investing for growth; November 2010, conversations are at an early stage and • Reposition assets with better alternative uses; and there can be no certainty that any transaction between • Seek opportunities to further rationalise the Group’s Wichford and Redefine will be forthcoming. Redefine is holdings in Continental Europe. Wichford’s largest shareholder, holding 21.73% of its shares. I look forward to reporting on progress against these This expression of interest by Redefine has placed the priorities during the coming year. Company in a takeover period, as defined by the Takeover Code.