Office workers at Canary Wharf were not the only ones feeling a chill wind last year, as Songbird Estates, the company which owns the giant wind tunnel in the East End of London, saw its profits plummet.
A statutory profit before tax of £463.8m in 2010 turned to a loss of £212.8m in 2011, largely because of a negative adjustment to the tune of £288.7m in respect of movements on derivative financial instruments held by the company, and interest payable on preference shares issued by Songbird. In 2010, these charges had been lower, but still chunky at £127.1m.
Underlying pre-tax profit (PTP) fell from £28.8m to £4.6m, well below market expectations of £20m. The reduction in underlying profit was partly attributable to a slide in rental income, following the sale of two properties in the previous year, and partly as a result of a decline in income from lease surrenders.
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Rental income was down from £287.5m in 2010 to £251.3m, and fell below market expectations of £262m.
Earnings per share dropped from 41.3p to a loss of 9p per share.
Net asset value per share rose to 190p at the end of 2011 from 187p a year earlier, but was down from 194p at the half-way point of the year.
The group said the retail portfolio, now facing competition from the recently opened Westfield centre in Stratford, has been doing well with the portfolio valuation up 8.1% and turnover up 2.2% year-on-year. Footfall increased by 1.52% to 739,760 shoppers per week and all retail units are occupied.
Year on year, the market value of the investment portfolio increased by £62.0m or 1.3%, primarily reflecting an improvement in rental values, and net of a fall of 0.6% in the second half of the year.
The occupancy level improved to 96.5% at the end of the year from 96.1% a year earlier.
In a statement the firm said: "Although demand for high grade office space across London has reduced largely due to broader economic uncertainties, supply has remained relatively constrained. Overseas real estate investors and businesses are also still being attracted to the relative stability, transparency and traditional strengths of London as a pre-eminent global business centre."
The group said the Crossrail project, currently making central London looking like the world's largest building site, will be a welcome addition to London's transport infrastructure when completed in 2018, and will also facilitate further expansion on land at and adjacent to the Canary Wharf Estate, such as the Wood Wharf site.
On a much shorter-term view, this summer's Olympic games is set to make London's East End busier than Piccadilly Circus and, in the group's words, "emphasise the eastward shift of London's centre of gravity."
"With the benefit of an enviable development pipeline and proven development and construction skills, the group can adapt to fluctuating market conditions and tenant demand and will be able to take advantage of the improved market climate once the economic cycle turns," the group said.
Cash at the end of the year dropped from £1,108.2m to £996.1m.
Despite the profits slide the stock got a boost from Peel Hunt which reiterated its buy rating, saying the solid 16.2-year income stream, long-dated debt (13.9 years to maturity) and large development pipeline (9.3m square feet with planning permission) makes Songbird an attractive long-term purchase.
The share price gained 3.44% to 112.75p.
NR/JH
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