DJ Urban Exposure plc: Interim Results for the six months ended 30 June 2019
Urban Exposure plc (UEX)
Urban Exposure plc: Interim Results for the six months ended 30 June 2019
10-Sep-2019 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
10 September 2019
Urban Exposure plc
Interim Results for the six months ended 30 June 2019
Urban Exposure Plc ("the Company") and its subsidiaries (together "the
Group" or "Urban Exposure" or "we"), a specialist residential development
financier and asset manager, today announces its interim results for the six
months ended 30 June 2019 ("the Period").
Business Highlights
· GBP97.5m of new committed loans as at 9 September 2019 (GBP54.3m of new
committed loans as at H1 2019) (H1 2018: GBP0.3m).
· Continued focus on high loan credit quality with WA LTGDV of 66% (FY
2018: 67%).
· Progressed loan pipeline of GBP1,013.1m of which GBP666.3m is in legal due
diligence.
· Current committed loan book has pre-sales, backed by buyer deposits,
which reduces the WA LTGDV to an effective rate of 45%. Zero credit losses
to date.
· Several asset management strategies well advanced including c. GBP500m of
funding in legal due diligence as at 9 September 2019.
· The following performance measures as at H1 2019 were as follows:
New committed loans:
GBP54.3m (H1 2018: GBP0.3m, FY 2018: GBP524.5m)
Projected aggregate income (the Group share, on loan book over life of
loans):
GBP1.0m (H1 2018: GBP0.0m, FY 2018: GBP26.9m)
Weighted Average LTGDV:
66% (H1 2018: n/a, FY 2018: 67%)
WA IRR (unlevered):
11% (H1 2018: n/a, FY 2018: 10%)
WA Money Multiple (annualised and unlevered):
1.14x (H1 2018: n/a, FY 2018: 1.15x)
Financial Highlights
· The Group achieved a small profit before exceptional items for the
Period and the total loss for the Period was GBP0.2m, including exceptional
costs of GBP0.3m and share-based expenses of GBP0.1m:
· revenue of GBP5.3m
· operating costs of GBP(5.3)m, representing 0.82% of total loans and
assets under management
· Interim dividend of 1.67 pence per share approved payable to all
shareholders on the Register of Members on 27 September 2019 will be paid
on 18 October 2019.
Basic loss per share: (0.16)p
Basic profit per share adjusted for exceptional costs: 0.003p
Net tangible asset value1: 135.2m
Net tangible asset value per share: 85p
Cash and cash equivalents per share: 29p
Loans receivable per share: 53p
Calculated as Net Asset Value of GBP147.7m less Intangible Assets of GBP12.5m
Randeesh Sandhu, Chief Executive Officer, commented:
"In line with our strategy, we continue to focus on the 'ramp up' of our AUM
and loan book and have invested significantly in our team to support this
phase.
While current market sentiment remains subdued, the underlying demand for
development finance has continued unabated and we have a strong progressed
loan pipeline of over GBP1 billion. As the business enters into the
traditionally busier second half of its calendar year, we therefore remain
confident of meeting market expectations."
Enquiries:
Urban Exposure Plc Tel: +44 (0) 845 643 2173
Randeesh Sandhu, CEO
Sam Dobbyn, CFO
Tel: +44 (0) 20 3100 2000
Liberum Capital Limited (Nominated
Adviser & Joint Corporate Broker)
Neil Patel
Gillian Martin
Jonathan Wilkes-Green
Louis Davies
Jefferies International Limited (Joint Tel: +44 (0) 20 7029 8000
Corporate Broker)
Ed Matthews
William Brown
MHP Communications (Financial Public Tel: +44 (0) 20 3128 8100
Relations)
Charlie Barker
Patrick Hanrahan
Sophia Samaras
This announcement is released by Urban Exposure Plc and contains information
that qualified or may have qualified as inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) 596/2014 ("MAR"). For the
purposes of MAR and Article 2 of Commission Implementing Regulation (EU)
2016/1055, this announcement is made by Randeesh Sandhu, Chief Executive
Officer of Urban Exposure Plc.
Notes to Editors
Urban Exposure Plc (Aim: UEX) is a specialist real estate financier and
asset manager. The Group services highly experienced borrowers building real
estate assets across the UK, whilst managing funds on behalf of
institutional investors looking for exposure to this sector. For additional
information, please visit Urban Exposure PLC's website at
www.urbanexposureplc.com and on twitter @UrbanExposureuk, LinkedIn:
www.linkedin.com/company/urban-exposure/ and Facebook:
www.facebook.com/UrbanExposureUK/ [1]
Chief Executive's Review
Since the Group listed on AIM I have focussed on ensuring that the business
has the right platform in place to achieve its potential and deliver good
returns for our shareholders. The most important aspect of delivering long
term shareholder value is to ensure that we have the best quality loan book
and funding structures, which together provide the Group with the best risk
adjusted returns in the market. I am pleased with the performance of both
these aspects to date as well as the opportunities for growth going forward.
Key performance
indicators
GBPm 30 June 30 June 31
2019 2018 Decembe
r 2018
New committed 54.3 0.3 524.5
loans
Projected aggregate 1.0 0.0 26.9
income (PAI)
Minimum income 0.6 n/a 15.0
(MI)
Weighted average loan to gross 66% n/a 67%
development value (WALTGDV)
Operational costs as a percentage of 0.82% n/a 0.81%
total committed loan book
Basic loss per (0.16)p (1.33)p (1.18)p
share (EPS)
Adjusted earnings/(loss) per share 0.003p (0.75)p (0.58)p
adjusted for exceptional costs
Financial Review
Overall revenue of GBP5.3m is predominantly derived from fair value gains on
loans deployed on balance sheet. Our goal is to use our balance sheet as
efficiently as possible while also providing us with capacity to execute
loans quickly, before these are subsequently transferred into our asset
management business. To date asset management income has been modest but as
we grow our AUM, and more loans are deployed, this higher quality stream of
earnings should generate a greater proportion of our revenue.
Total operating costs, excluding exceptional items, of GBP5.3m in H1 2019 (H1
2018: GBP1.0m) reflect the increased investment in the business that we
detailed in our 2018 preliminary announcement. There will be an increase in
run rate costs in the second half of the year as we make the necessary
investment needed to capitalise on the opportunities presented to us. We
remain comfortable with our full year cost guidance of GBP12.5m.
The Group achieved a small profit before exceptional items at H1 2019 (H1
2018: loss of GBP1.0m). Exceptional items of GBP(0.3)m were in relation to the
costs of a proposed retail bond that was due to be issued at the start of
August. The retail bond was one part of our asset management strategy to
raise discretionary capital. Due to adverse market conditions at the time of
the issue we decided not to go ahead with the bond. Although we have
incurred costs associated with this, we now have FCA approval and a
published prospectus that would allow us to re-enter the market very quickly
when conditions are more favourable.
New Committed Loans and Pipeline
The nature of our business, the size of the loans we manage, and our
unrelenting focus on credit quality inevitably means that there will be some
variability in the amount of new committed loans we complete during the
year. The real estate development finance industry is also seasonal with a
greater weighting to deals being completed in the last quarter of the year
(in the last two months of 2018, we executed GBP291.1m of loans).
As a result of these factors the Group completed GBP54.3m of new committed
loans at H1 2019 (H1 2018: GBP0.3m) and further loans of GBP43.2m as at 9
September 2019. This GBP54.3m of new committed loans will translate into GBP4.4m
of projected aggregate income (of which the share for the Group is GBP1.0m)
which will eventually be recognised in earnings over the life of the loans.
In total, funding of GBP564.9 million has been committed (GBP648.0 million
including legacy loans) over 17 loans since our IPO in May 2018, as at the
end of H1 2019.
The Group set a target of GBP700-GBP900m of loans this year and despite the slow
start I expect the business to be within this range by the end of the year.
The business has a very strong pipeline of GBP1,013.1m of loans, of which
GBP666.3m are currently in the advanced stages of legal due diligence where
heads of terms have been signed and the Group has exclusivity (the remaining
pipeline balance represents deals where heads of terms have been issued) .
The process of legal due diligence is important as at this point the
borrower is committing legal expenses to ensure the loan is eligible for
completion. Historically we have converted a high proportion of these loans.
Loan Credit Quality
The credit quality of the loans we underwrite is fundamental to our business
model and our reputation as a leading real estate development finance
provider. We employ robust credit guidelines, rigorous deal appraisal and
stringent policies and procedures to mitigate market risk in our lending and
operations. Our overall approach to risk management ensures that we are well
diversified across projects and geographical locations so that we mitigate
concentration risk.
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This approach is reflected in one of our main KPIs, the weighted average
loan to gross development value (WA LTGDV), which was 66% at H1 2019 (FY
2018: 67%). This is conservative and below our stated guidelines of a
maximum WALTGDV of 75%. However, this KPI does not fully reflect the
underlying level of security against the Group's loans, due to the stringent
pre-sale requirements the Group negotiates as part of any loan agreement.
These requirements state that typically a borrower must have at least 20% of
the development units pre-sold (with a 10% exchange deposit) before the
borrower can draw down the loan. As the development progresses, we will set
sales targets so that pre-sales, which are backed by deposits, add extra
security to the loan.
Of the GBP564.9m of committed loans underwritten to date our borrowers have
managed to achieve pre-sales of GBP181.0m. These pre-sales effectively de-risk
a significant portion of our loan book, which, in practice, effectively
reduces the WA LTGDV. Taking these pre-sales into account therefore provides
an effective WA LTGDV of 45%, which is a more accurate reflection of the
quality of the loan book.
It is within this context the Group's WA IRR of 11% (FY 2018: 10%) and WA
Money Multiple of 1.14x (FY 2018: 1.15x) should be viewed together,
demonstrating the extremely attractive risk adjusted returns we can provide
to our shareholders and investors. This is due to the stringent quality of
our credit processes and our selective approach to new committed loans.
Capital
We are currently in advanced discussions with capital providers as well as
extending existing facilities and joint venture partnerships. As at 9
September 2019 we have c. GBP500m of capital in legal due diligence which we
expect to complete by the end of the year.
The key for the Group, as always, is not just the quantum of capital raised,
but the quality. Due to structural and technical factors, not all capital is
suited to development finance; hence why we place so much emphasis on the
form of the capital we raise as well as the terms.
UK Housing Market
Our view remains that despite the uncertainties associated with the UK's
exit from the European Union the medium-term outlook for the UK property
industry remains positive. There continues to be a fundamental supply and
demand gap within the residential property market, and real earnings growth
coupled with mortgage affordability and availability both underpin future
demand.
Outlook
In line with our strategy, we continue to focus on the 'ramp up' of our AUM
and loan book and have invested significantly in our team to support this
phase.
While current market sentiment remains subdued, the underlying demand for
development finance has continued unabated and we have a strong progressed
loan pipeline of over GBP1 billion. As the business enters into the
traditionally busier second half of its calendar year, we therefore remain
confident of meeting market expectations.
Financial Review
The nature of development finance means that there will be a delay in the
recognition of earnings as it takes time for development loans to be drawn
down to meet the needs of the borrower. As a result, it will take two to
three years before the Income Statement hits 'run rate'. Despite this the
business reported a small profit before exceptional items at the half year.
The headline financial results for the six-month period ended 30 June 2019
and the comparatives for the period from incorporation on 10 April 2018 to
30 June 2018 are presented below:
Income
GBP'm Six-month Period
period to from
incorpo
ration
to
30 June
2019
30 June
2018
Income 5.3 0.0
Operating costs (5.3) (1.0)
Operating profit / (loss) before 0.0 (1.0)
exceptional items
Exceptional items (0.3) (0.6)
Finance costs (0.0) 0.0
Loss before (0.3) (1.6)
taxation
Taxation 0.1 0.2
Loss after (0.2) (1.4)
taxation
Basic EPS (0.16p) (1.33p)
Diluted EPS (0.16p) (1.33p)
Dividend per 1.67p 0.00p
share
Capital
GBP'm 30 June 30 June
2019 2018
Committed loan 564.9 0.3
capital
Funds raised 371.0 0.0
Cash and cash equivalents 46.4 142.9
Tangible net 135.2 144.2
assets
Tangible NAV per share - 85p 87p
pence
Number of shares in issue 165.0 165.0
(millions)
Number of shares in issue (excluding 158.5 165.0
treasury shares) (millions)
Revenue
Revenue was GBP5.3m at H1 2019 with GBP5.0m relating to fair value income from
loan receivables on balance sheet. The remaining income of GBP0.3m is split
between revenue earned from asset management GBP0.2m and revenue earned on
legacy contract assets of GBP0.1m. As loans draw down, particularly within the
KKR partnership, the revenue from asset management should become a greater
proportion of income in future years.
At our 2018 preliminary results we set out the recognition profile of PAI
for 2018 of GBP26.9m. We initially expected that PAI would be recognised in
the income statement on the following basis: 2018: 12%, 2019: 25%, 2020:
25%, 2021: 25%, 2022: 13%. The recognition profile for the 2018 PAI is now
expected to be as follows: 2018: 12%, 2019: 35%, 2020: 25%, 2021: 20%, 2022:
8%. There has been an acceleration in the recognition profile of 2018 PAI as
loans have drawn down quicker than expected. The expected recognition
profile for 2019 remains in line with our initial guidance, which is: 2019:
5%, 2020: 20%, 2021: 30%, 2022: 20%, 2023: 25%.
Operating expenses
In line with the Group's strategy the business has invested significantly in
its operations so that it has the capabilities to meet the growing demand
for real estate development finance over the medium term. At H1 2019 total
operating costs excluding exceptional items were GBP5.3m (H1 2018: GBP1.0m) of
which GBP3.6m represented staff costs and share based payments. As a
percentage of the total committed loan book (including contract assets) this
is 0.82%, which is below our stated target of 1% (FY 2019: 0.81%). At 2018
full year results the Group provided guidance of GBP12.5m of operating costs,
which remains the expectation.
Exceptional items
Exceptional items of GBP(0.3)m relate to costs incurred in relation to the
postponed retail bond.
Earnings per share
The adjusted basic profit per share for the period is 0.003p. The basic loss
per share (after exceptional items) is (0.16)p and the diluted loss per
share is (0.16)p, based on a weighted average number of shares of
158,494,130.
Dividends
In accordance with our dividend policy:
· the Board approved an interim dividend for the Period ended 30 June 2019
of 1.67p per ordinary share payable to all shareholders on the Register of
Members on 27 September 2019 and will be paid on 18 October 2019.
· the stated policy is to pay 5.0p per Ordinary Share as a dividend for
2019
Balance sheet
GBP'm 30 June 2019 30 June 2018
Non-current asset 21.2 12.8
Fair value of loans 83.6 0.3
Contract assets 3.0 2.5
Cash and cash 46.4 142.9
equivalents
Other assets and (6.5) (1.5)
liabilities
Net assets 147.7 157.0
Cash flow
GBP'm Six-month period to Period from
incorporation to
30 June 2019
30 June 2018
Operating cash flows (4.8) (1.5)
before movement in
working capital
Change in working 8.6 1.1
capital
Net cash inflow/ 3.8 (0.4)
(outflow) from operating
activities
Capital Expenditure (0.1) 0.0
Net cash outflow from (0.1) 0.0
investing activities
Proceeds from issue of 0.0 150.0
share capital
Share issue expenses 0.0 (6.7)
Lease liabilities (0.1) 0.0
Dividends paid (4.0) 0.0
Net cash (outflow) / (4.1) 143.3
inflow from financing
activities
Net (decrease) / (0.4) 142.9
increase in cash and
cash equivalents
Investments
During the Period our investment in the partnership with Kohlberg Kravis
Roberts increased to GBP4.4m from GBP1.9m at FY 2018. This represents Urban
Exposure's 9.1% share of GBP48.4m total invested by the partners to fund loan
drawdowns.
Loans receivable
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