annington annual rep 2019-web - Page 12

Strategic report | The business
The business
Property releases (continued)
Property valuation
Historically, Released Units were
refurbished and sold by APL (including
to other members of the Group holding
the Non-MQE Portfolio) at arm’s
length and on market terms, or were
temporarily leased at open market value,
thereby providing an immediate uplift in
value given that such properties would
no longer be subject to the discounted
rent being paid by the MoD prior to
their release.
As the MQE Retained Estate is let on a
long leasehold basis to the MoD, the
valuation of this portfolio is determined
on a discounted cash flow basis. The
current year valuation has increased as a
result of changes to several assumptions.
This includes a revised release profile in
response to the Arbitration Agreement
with the MoD and changes in market
based financing assumptions.
A number of Released Units are also
rented to third parties, principally where
the Released Units are on or near large
retained Sites where they may be held
for open market rent comparisons
in support of the Beacon Unit rent
review process. Where the MoD has
on occasion released large numbers
of Units on a Site, APL has adopted a
mixed disposal strategy of selling and
renting, thereby benefiting from earlier
occupation and increased income. APL
has also rented Units, which have been
designated for future redevelopment
and are capable of generating shortterm rental income.
It is important to note that the property
valuation can go up as well as down.
The MQE property valuation has been
performed on a portfolio basis, using
a discounted cash flow method. This
method forecasts future cash flows which
are then discounted to arrive at a fair
value for the portfolio. The resultant
gains or losses are not crystallised unless
the Group sells the assets, which is not
its strategy. Annington’s strategy is to
secure long term, sustainable rental
To take account of the change in value
of the portfolio’s underlying assets, the
Group uses a Special Assumption of
Vacant Possession Value (“SAVPV”).
Additionally, this measure is used to
help gauge whether the Group has
been achieving reasonable value upon
disposal of units released from the
MQE Retained Estate and to provide
management with a basis upon which
to calculate an estimated value for the
Retained Estate and potential value to
be realised from future sales. SAVPV
is defined by the Group as the value
estimated for a property based on
the hypothetical assumption that such
property is vacant, sold on an individual
basis with no costs on disposal and
introduced to the market in a phased
and orderly manner, such that local
markets do not become over-supplied
and values are not depressed as a result.
SAVPV is calculated by the Group by
indexing the SAVPV estimated at the
time of the Group’s initial acquisition
of the portfolio in 1996 for inflation,
using the average of the regional Halifax
House Price Index (All House Prices) and
the Nationwide House Price Index and
adjusting this by a factor representing
actual sales performance on disposals
from the MQE Retained Estate (99.9% at
both March 2018 and 2019).
At 31 March 2019, the SAVPV of the MQE Retained Estate is:
31 March 2019
31 March 2018
Number of units
SAVPV £’000
Number of units
SAVPV £’000
East Anglia
East Midlands
Greater London
North West
South East
South West
West Midlands
Yorks & Humberside
12 | Annington Limited Annual Report & Accounts 2019
The Non-MQE Portfolio was established
in 1999 for the purpose of creating a
residential investment portfolio, thereby
diversifying and providing increased
stability to the property portfolio of the
Group. This strategy seeks opportunities
to create value through acquisitions of
residential property from third parties
and by transferring Released Units to
the Non-MQE Portfolio property-owning
The Non-MQE Portfolio is owned by
eight property-owning companies,
and consisted of 1,607 (2018: 1,365)
properties owned and 78 (2018: 78)
properties managed as of 31 March
2019. Of these eight companies, two
own properties that help generate
comparison data which the Group uses
in rent negotiations with the MoD during
Rent Reviews, two let properties to
the MoD at market value and four let
properties to third parties on the open
market. Annington Rentals Management
Limited, from time to time, lets certain
unoccupied Units within the Retained
Estate on the open market on behalf of
the MoD.
Additionally, there are 256 units under
development as at 31 March 2019 (2018:
378) of which 135 units are at Brize
As at 31 March 2019, annual passing
rent in respect of the Non-MQE Portfolio
was £16.4 million (2018: £14.6 million).
At the same date, the fair value of the
Non-MQE Portfolio is estimated to be
£410.3 million (2018: £334.7 million).
The increase in valuation was largely
driven by two separate transactions.
During the year, Annington completed
the purchases of 104 homes from Mill
Group’s Oak Portfolio for £23.8 million,
and 73 homes from Taylor Wimpey for
£23.5 million. Both portfolios reflect
Annington’s commitment to provide
affordable family homes in the UK, with
a particular focus on high quality houses
with their own gardens. In line with
Annington’s private rental strategy, all
are located in attractive areas across the
south and south-west of England.
As the year progressed, it became
clearer that political and economic
uncertainty was increasing and that a
number of sellers were yet to reflect
this in their pricing. This led Annington
to institute a temporary moratorium on
PRS acquisitions in December 2018.
Annington will continue to monitor
the market and, when the risks evident
in the current market have subsided,
intends to look for appropriately priced
opportunities in the PRS sector.
The Group has an in-house development
capability, which is able to provide
planning and development support.
Where opportunities arise to create
added value through infill development
or wholesale redevelopment of
landholdings, the Group may carry
out development activities on its own
account or enter into joint venture
arrangements with other landowners
and property developers where the
combination of skills, assets and
resources are expected to yield higher
Further development activities centre
around expanding the Group’s PRS
portfolio. In March 2018, 207 partially
built flats in Uxbridge were purchased.
The construction of these properties
continued during the year, with 120
units completed at 31 March 2019 and a
further 87 completed in May 2019.
Furthermore, during the financial year,
construction commenced on sites at
Little Thetford and Allington, which will
have a total of 34 properties. The sale
of units at Gamlingay progressed during
the year and a new development site
was purchased at South Stoke, which
holds planning permission for five units.
Annington Developments Limited,
through its 50% interest in Countryside
Annington (Mill Hill) Limited, is currently
involved in one active joint venture
arrangement with Countryside Properties
plc, consisting of 395 homes (including
90 affordable homes provided to eligible
households whose needs are not met
by the market). Construction work
started in June 2007 and is now build
complete, with all units sold as at
31 March 2019. Similarly, APL, together
with the London Borough of Barnet and
Vinci St. Modwen, is a partner in The
Inglis Consortium LLP, redeveloping 74
acres of land in Mill Hill, which, when
completed, will provide new homes,
a school, 10,100 square metres of retail
space and 3,470 square metres of
employment space. For the year ended
31 March 2019, the Group’s share
of profits from joint ventures was
£1.1 million (2018: £14.7 million).
Annington Limited Annual Report & Accounts 2019 | 13


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