DJ Urban Exposure plc: Financial results for the year ended 31 December 2019
Urban Exposure plc (UEX)
Urban Exposure plc: Financial results for the year ended 31 December 2019
26-Jun-2020 / 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.
26 June 2020
Urban Exposure Plc
Financial results for the year ended 31 December 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 audited Group financial
results for the year ended 31 December 2019.
The Group's financial year ends on 31 December each year. These results are
being published in accordance with AIM Rule 19.
Business Highlights
· After carrying out a strategic review, and in light of the impact of
changing market conditions as a result of COVID-19, the Board has
concluded that the Group will focus entirely on an orderly wind down of
the loan book and return of capital to shareholders.
· The Company believes that an orderly wind-down of the Company has the
potential to produce net returns for Shareholders in a range of 70p to 83p
per ordinary share on a fully diluted basis. The Group estimates that 80%
of proceeds should be returned to shareholders within 7 to 15 months.
· In light of the revised strategy and requirements of the Group there
have been a number of changes to the Board with Randeesh Sandhu stepping
down as Chief Executive Officer, William McKee retiring as Chairman (to be
replaced by Graham Warner subject to appointment), Ravi Takhar leaving the
business as a result of redundancy.
· Both Andrew Baddeley and Nigel Greenaway remain as Independent
Non-Executive Directors and Sam Dobbyn has taken over as Chief Executive
Officer.
· Current committed loan book has a Weighted Average LTGDV of 68% (2018:
67%).
· New committed loans during the year totaling GBP498m (2018: GBP525m). As a
result of specific borrower performance post 31 December 2019 new
committed loans now stand at GBP191m.
Financial Highlights
GBP11.1m (2018: GBP3.9m)
· Revenue:
GBP10.8m (2018: GBP5.9m)
· Operating costs (including
exceptional costs of GBP0.5m and
share-based expenses of GBP0.3m)
(2018: including exceptional costs of
GBP0.9m and share-based expenses of
GBP0.5m)
GBP0.1m (2018: Loss GBP1.7m)
· Profit after tax for the year:
0.09p (2018: (1.18p))
· Basic profit/(loss) per share:
GBP133.1m (2018: GBP137.8m)
· Net tangible assets (*note 1)
84p (2018: 87p)
· Net tangible asset value per share:
14p (2018: 29p)
· Cash and cash equivalents per
share:
70p (2018:586p)
· Loans receivable and Investments
per share:
*Note 1: Net tangible assets equates to total net assets excluding
intangible assets.
Enquiries:
Urban Exposure plc Tel: +44(0)207 408 0022
William McKee, Chairman
Sam Dobbyn, Chief Executive Officer
Liberum (NOMAD and Corporate Broker) Tel: +44(0)203 100 2000
Neil Patel
Gillian Martin
Jonathan Wilkes-Green
Louis Davies
UrbanExposure@liberum.com
MHP Communications (Financial Public Relations) Tel: +44(0)203 128 8540/
+44(0)203 128 8731
Charlie Barker
Sophia Samaras
UrbanExposure@mhpc.com
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 Sam Dobbyn, Chief Executive Officer
of Urban Exposure Plc.
Chief Executive Officer's Review
Trading and dividend
The Group reported an operating profit before exceptional items of GBP0.8m for
the year (2018: loss of GBP1.1m). Overall, the Group reported a small profit
after tax in its first full year of trading. The Group paid an interim
dividend of 1.67 pence per share for the year ended 31 December 2019. Due to
the impact of COVID-19 and the market uncertainty it has created the Board
will not proceed with payment of the final instalment of the proposed 2019
dividend of 3.33 pence per share.
New Committed Loans and Pipeline
The real estate development finance industry is typically seasonal with a
greater weighting of deals being completed in the last quarter of the year.
This was very much the case in H2 2019, with uncertainty surrounding Brexit
and the UK general election compounding the trend for transactions to close
towards year end.
However, despite the market uncertainty experienced over the course of 2019,
the Group was able to complete GBP498m of new committed loans (2018: GBP525m),
of which GBP400m of new commitments were completed in H2 2019. Due to specific
borrower performance these new committed loans were reduced to GBP191m post
the year end.
The new committed loans, as reduced to GBP191m post year end, are expected to
translate into GBP13.3m of projected aggregate income, which will eventually
be recognised in earnings over the life of the loans.
Loan Credit Quality
The credit quality of underwritten loans is critical to any lender, however
as a specialist real estate development provider we place additional
emphasis on the importance of maintaining excellent underwriting standards.
Our focus on risk and loan portfolio quality, can be measured by the
weighted average loan to gross development value (WA LTGDV), which was 68%
at FY 2019 (2018: 67%). This represents a conservative position and is below
our stated guidelines of a maximum WALTGDV of 75%.
A number of the residential schemes that we are supporting with a
development loan also benefit from unit pre-sales. As these sales are
secured with a deposit paid by the pre-purchaser, they help to reduce the
overall sales-risk of the loans. In total pre-sold units (by value) account
for 28% of the gross development value of residential schemes currently
being funded.
It should also be noted that in addition to the underlying property security
we will often obtain additional recourse, in the form of guarantees or cash
on deposit, which further enhances the risk profile of the loans.
When viewed in conjunction with the Group's WA IRR of 11% (2018: 10%) and WA
Money Multiple of 1.15x (FY 2018: 1.15x), it demonstrates our ability to
generate attractive risk-adjusted returns on our loan portfolio.
Capital
Over the course of 2019 the Group managed to raise further capital for
deployment into property development loans. Our senior secure debt facility
with UBS into the Kohlberg Kravis Roberts ("KKR") partnership was increased
from GBP165m to GBP300m, with the advance rate provided by UBS also increased.
Capital has also been raised from institutional investors to support
individual loans. With co-funding agreements put in place in total raising
GBP9.7m and a further GBP42.4m raised on two new loans early in 2020.
Sale to Honeycomb Holdings Limited ("HHL")
On March 2020 the Group announced the proposed the disposal of Urban
Exposure Lendco Limited ("Lendco") to Honeycomb Holdings Limited ("HHL").
Lendco owns the Group's loan portfolio and its interest in the Group's
partnership with KKR & Co. We believed at the time that this sale was in the
best interest of shareholders given how the share price had performed during
the year. This disposal was subject to shareholder approval which was
obtained at a general meeting of the Group on 30 March 2020.
The Group received a purported notice of termination from HHL of the SPA
between the Group, HHL and Urban Exposure Amco Limited ("Amco") dated 10
March 2020 for the purchase by HHL of the issued share capital of Lendco.
The Group and Amco consider that there was no valid basis for the purported
termination of the SPA by HHL and that HHL has acted in repudiatory breach
of the SPA. The Group and Amco have accepted this repudiatory breach of
contract by HHL and accordingly the Group and Amco consider themselves
discharged from further performance of the SPA. The Group and Amco are
claiming damages against HHL for breach of contract. In addition, the Group
and Amco intend to seek relief from other entities within or connected to
the Pollen Street Capital group, including Honeycomb Investment Trust plc,
Shawbrook Bank Limited, Pollen Street Capital Limited and Pollen Street
Capital Holdings Limited, for procuring or inducing the breach by HHL of the
SPA, as well as reserving their position to take all other measures against
and seek other relief from HHL and its connected entities in respect of
HHL's breach of the SPA.
COVID-19
The welfare of our colleagues, clients and partners has been our priority
since the outbreak of the COVID-19 pandemic. We have been in close
communication with our client base in connection with their response to the
advice of Government and health authorities to help prevent the spread of
the virus, in particular in respect of Health & Safety measures on
construction sites.
The Group continues to operate with its business continuity plan in place.
Our workforce is now working remotely from home with the same functionality
they would have in the office. Inevitably the business will be impacted by
COVID-19 and the issues that it is causing across the real estate market,
and beyond in the wider economy. Along with many other businesses, the Group
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has taken action to reduce costs and manage its cash flow to ensure the
Group is well prepared for any possible further disruption from the impact
of COVID-19.
The Group has conducted a comprehensive review of all loan facilities,
insurances and contracts, and has conducted a detailed stress test of the
loan portfolio. The Group believes that the loan portfolio is resilient in
the face of the unprecedented market conditions.
Furthermore, our funding facilities and partnership arrangements remain in
place, and our balance sheet has no debt against it. We are working closely
with our funding partners to continue to assess and mitigate any risks that
may arise in the future.
UK Housing Market
Despite the resilience of the sector, it is clear that the uncertainty
created by Brexit and the UK general election cast a shadow on the UK
housing market for much of 2019.
As the uncertainty dissipated, a resurgence in confidence saw the housing
market steadily gather momentum in the opening months of 2020. Activity
levels and price growth were edging up thanks to continued robust labour
market conditions, low borrowing costs and a more stable political backdrop.
The Covid-19 pandemic has however no doubt had an impact on the UK housing
market. In March we saw lenders reduce the availability of mortgages and
would be purchasers/vendors unable to transact due to the social distancing
measures put in place by the UK government. Whilst we have since seen an
improvement in mortgage lending, with some lenders reverting back to
previous upper LTVs, we expect the ability of parties to transact on
property sales to remain limited until social distancing measures are eased.
Whilst the impact of the pandemic on the value of UK residential property is
yet to be fully determined, we do feel that sales rates and prices may face
downward pressure in the near term. Although, to date we have been
encouraged by borrowers reporting the completion of existing sales at
pre-agreed prices and new sales being made with no material discount to
marketed prices. Government measures to further support the housing market
if necessary are also widely being discussed by commentators including the
extension of the Government Help to Buy scheme plus possible Stamp Duty Land
Tax reforms.
Looking forward
Following the strategic review, the Group has decided to focus entirely on
the management of its existing loan portfolio to maturity in order to
maximise the returns from the portfolio and return capital to the
shareholders. To that end we believe that an orderly wind-down of the Group
has the potential to produce net returns to shareholders in a range of 70p
to 83p per ordinary share on a fully diluted basis. The Company estimates
that 80% of proceeds should be returned to shareholders within 7 to 15
months. The Group will update shareholders on this at our half-yearly
results announcement later in 2020.
The Strategic Report includes the Business Model, Market Review, Strategic
Framework, Key Performance Indicators, Chairman's Statement, Chief Executive
Officer's Review, Finance Review, Principal Risks and Uncertainties and
Corporate Social Responsibility and has been reviewed by the Board and
signed on its behalf by:
Sam Dobbyn
Chief Executive Officer
Financial Review
The Group's operating profit before exceptional items was GBP0.8m (2018: loss
of GBP1.1m) and total reported profit after tax was GBP0.1m (2018: loss of
GBP1.7m). This was primarily driven by an increase in income to GBP11.1m (2018:
GBP3.9m) as both lending on balance sheet and the drawdown of loans increased
on the prior Period. A full year's run rate versus the shorter comparative
period also contributed to the increases in both income and operating costs.
The headline financial results for the year ended 31 December 2019 and the
comparatives for the period from incorporation on 10 April 2018 to 31
December 2018 are presented below:
Income
GBP'm Year Period
ended ended
31 31
Decembe December
r 2019 2018
Income 11.1 3.9
Operating costs (10.3) (5.0)
Operating profit/(loss) 0.8 (1.1)
before exceptional items
Exceptional items (0.5) (0.9)
Finance costs (0.1) 0.0
Profit/(loss) before taxation 0.2 (2.0)
Taxation (0.1) 0.3
Profit/(loss) after taxation 0.1 (1.7)
Basic EPS 0.09p (1.18p)
Diluted EPS 0.09p (1.18p)
Dividend per share 1.67p 0.83p
Capital
GBP'm Year Period
ended ended
31 31
Decemb Decemb
er er
2019 2018
Committed loan 918.9 524.5
capital
Funds raised 144.7 371.0
Cash and cash equivalents 22.8 46.8
Tangible net assets 133.1 137.8
Tangible NAV per share - 84p 87p
pence
Number of shares in issue 165.0 165.0
(millions)
Number of shares in issue 158.5 158.5
(excluding treasury shares) (millions)
Income
Income for the year was GBP11.1m (2018: GBP3.9m) including income from legacy
contract receivables for the year of GBP0.1m (2018: GBP0.7m). Income includes
GBP10.2m (2018: GBP3.2m) fair value income from loan receivables in the Group's
balance sheet as result of a greater utilisation of the balance sheet as
loans were deployed during the year.
Income from management fees and other income was GBP0.8m (2018: GBPnil)
principally from fees earned on the Group's partnership with KKR. The
increase in fees resulted from the deployment and draw down of loans
throughout the year. A fair value loss of GBP0.2m was reported for the
co-investment stake in this vehicle, which amounted to GBP6.7m at the year
end. The fair value loss recognises the fact that the partnership incurred
up front set up costs.
PAI for 2019's additional committed loans were GBP21.2m, which has been
subsequently revised down to GBP13.3m post year end due to the cancellation of
loan commitments (2018: GBP26.9m). The decrease in PAI compared to 2018 was as
a result of lower lending as well as a greater proportion of that lending
being completed through an asset management structure, for which the Group
earns management fees. The 2018 PAI of GBP26.9m is now expected to increase to
GBP33.6m as the loans written in 2018 have spent a greater proportion of time
on balance sheet, earning interest and fees, than previously expected.
Operating expenses
The Group adopted a strategy for 2019 to invest significantly in its
operations so that it had the capabilities to meet the growing demand for
real estate development finance over the medium term. At the year end, total
operating costs excluding exceptional items were GBP10.3m (2018: GBP5.0m) of
which GBP4.9m represented staff costs and share based payments (2018: GBP3.6m)
and GBP2.1m related to the fair value reduction of contract assets
(2018:GBPnil). Costs on a like for like basis (adjusted for the impact of the
shorter 2018 comparative period) decreased due to a reduction in variable
compensation. Post the year end, the Group took the decision to reduce the
bonus pool to GBP0.3m in response to the growing COVID-19 pandemic. It was
noted that whilst the metrics set for 2019 had been partially met, given the
current market uncertainties that are being experienced as a result of
COVID-19, it would not be appropriate to make bonus payments at this time.
Exceptional items
Exceptional items of GBP0.5m for the year related to costs incurred in
relation to the postponed retail bond of GBP0.3m and GBP0.4m cost to settle a
legal dispute, offset by a recovery of GBP0.2m exceptional legal and
professional fees in respect of the set-up of the KKR arrangement.
Exceptional costs for 2018 were in relation to the Group 's IPO costs of
GBP0.6m plus one-off professional fees of GBP0.3m.
Earnings per share
The basic profit per share for the year is 0.09p (2018: basic loss per share
1.18p) and the diluted profit per share is 0.09p (2018: diluted loss per
share 1.18p), based on a weighted average number of shares in issue of
158,494,130 (2018: 145,793,865) and weighted average number of diluted
shares in issue of 159,769,744 (2018: 145,793,865).
Dividends
During the year, the final dividend for 2018 of 1.67 pence was approved at
the AGM and paid in May. The Board approved an interim dividend for the
period ended 30 June 2019 of 1.67 pence per ordinary share which was paid
October 2019. The Board is not recommending a final dividend for the year
given the nature of the current COVID-19 pandemic and the market uncertainty
it has created.
Balance sheet
GBP'm At 31 December 2019 At 31 December 2018
Non-current asset 22.8 18.9
Fair value of loans 103.6 89.5
Contract assets 0.3 3.2
Cash and cash 22.8 46.8
equivalents
Other assets and (3.9) (7.9)
liabilities
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