LAND SECURITIES GROUP PLC ( Land Securities / Group )

Transcription

1 PRESS RELEASE 27 September 2004 Embargoed until 07.00am Page 1 of 8 LAND SECURITIES GROUP PLC ( Land Securities / Group ) LAND SECURITIES REFINANCES DEBT Land Securities Group PLC today announces its intention to refinance the Group s mortgage debentures and unsecured bonds (together the Notes ), which have a nominal value of approximately 1.8bn, through the establishment of a new funding structure. At the same time it will refinance all of its unsecured bank debt with a new facility within this structure. The key benefits of the proposal are: Business flexibility through a structure which will allow for the active management of the Group s operations including the buying, selling and redevelopment of assets; Financial flexibility with access to a range of debt instruments in a new secured structure, while retaining the ability to arrange bespoke funding outside this structure; Efficient use of the inherent credit strength of the Group s investment portfolio, with improved credit ratings and reduced future funding costs; A stable long term debt financing structure with a uniform set of operational and financial covenants; Secured financing for all holders of Notes (the Current Noteholders ) under a single security package, with improved and potentially less volatile credit ratings. Under the proposals, Land Securities will invite Current Noteholders to exchange their existing debt for up to circa 2.4bn of new bonds to be issued by Land Securities Capital Markets PLC. This exchange offer does not trigger the early redemption payment provisions which exist under the terms of some of the existing Notes.

2 Page 2 of 8 The new bonds will be secured against an asset pool which, at the time of the proposed exchange, is expected to include approximately 6.2bn of the Group s total investment portfolio. All of the Group s unsecured bank debt will be refinanced at the same time and Land Securities has entered into an agreement with Barclays, Citigroup and Lloyds Bank to underwrite a secured five-year 1.5bn bank facility as part of the new structure. The new bonds to be issued will have a higher total nominal value but a lower interest rate than the Notes they replace, reflecting current market pricing. As a result, the Group s annual interest charge will reduce by approximately 25m. The Group will incur an exceptional accounting charge against pre-tax profits in the year to 31 March 2005, primarily reflecting the increase in the nominal value of the Group s debt. If the transaction had concluded on 22 September 2004 this charge would have been circa 659m and the Group s weighted average cost of debt would have reduced to 5.6% from 7.6%. The actual charge and the actual average cost of debt will be determined by interest rates near transaction closure. Some 3.0bn of Land Securities properties will remain outside the new funding structure. These assets mainly comprise the balance of Land Securities investment properties, its joint venture investments and Land Securities Trillium properties. A Special Committee of the Association of British Insurers ( ABI ), representing approximately 37% by nominal value of outstanding Notes, has considered the proposals. The members of the Special Committee have informed Land Securities that they find the proposals acceptable, that they intend to support the proposals in respect of their own holdings and that they will be advising other ABI members to consider a similar course of action. The proposals will be voted on by Current Noteholders at meetings to be convened during October. Francis Salway, Group Chief Executive commented: These proposals are designed to improve the way in which we finance our business. Through this structure, which takes full advantage of the security afforded by our high-quality investment portfolio, we will refinance our historical higher coupon debt in an efficient manner, lower our future borrowing costs and, most importantly, provide improved flexibility in our financing which should benefit all aspects of the business. This will be achieved while simultaneously providing debt investors with higher-rated secured paper.

3 Page 3 of 8 Summary of structure Land Securities Group PLC today announces its intention to refinance the Group s mortgage debentures and unsecured bonds (together the Notes ), which have a nominal value of approximately 1.8bn, through the establishment of a new funding structure. At the same time it will refinance all of its unsecured bank debt with new facilities within this structure. The structure includes the establishment of a security group which will own approximately 6.2bn of the Group s property assets. Land Securities intends to refinance the Notes and its existing unsecured bank debt with new secured bonds and a new five year 1.5bn committed bank facility. The new bonds and bank debt will be secured over the assets in the security group. Around 3.0bn of assets, including other investment properties, joint venture investments and Land Securities Trillium properties will stay outside the security group. The existing secured loan to Land Securities Trillium of circa 278m will remain outside the security group and will not be refinanced. The Group has held extensive discussions with Standard and Poor s and Fitch which have indicated preliminary ratings of AA for the new bonds. Operational impact on Land Securities The structure is designed to impose no material restrictions on the way the business is currently managed, provided that the Group does not fall outside certain limits set under a tiered covenant structure. These limits include the security group loan to value ( LTV ) remaining at or below 65% and interest cover remaining at or above 1.45 times. If the security group LTV was to rise above 65% or interest cover was to fall below 1.45 times, additional restrictions would come into effect. Properties and companies may be sold subject to certain conditions and limits and the structure is not expected to form an impediment to the conversion to a Real Estate Investment Trust, if appropriate. Funding of assets outside the structure, including Land Securities Trillium and joint ventures, will be unaffected. The ability of Land Securities to choose whether to fund assets inside or outside the structure will give it additional financing flexibility.

4 Page 4 of 8 Financial Impact The proposals to holders of Notes ( Current Noteholders ), if accepted, will result in the Group incurring an exceptional charge before tax, primarily as a result of the increase in the nominal amount of its debt. The implementation of the structure will not trigger early redemption payments under the terms of the Notes. Set out below is a table illustrating the effect of this transaction on the Group, showing separately non-recurring items which will affect the profit and loss account for the year to 31 March 2005 only and recurring items which will affect the current and future financial years. The profit and loss account for the year to 31 March 2004 is set out for comparison only. These figures are illustrative based on the following assumptions: the proposal closed on Wednesday 22 September 2004; all Noteholders qualify for the early submission payment; all Noteholders accept the offer and convert into the new structure; and IBOXX prices being used to estimate the value of the repurchase premium. The actual numbers will be subject to the transaction concluding, changes in pricing of swaps and reference gilts, the amount of early submission payments and of cash paid to non-eligible holders. Effect of proposed structure m Year to Full year Non 31/03/04 Recurring(1)(2) recurring Profit before interest, tax & exceptional costs (1) - Exceptional costs - - (14) Profit before interest and tax (1) (14) Net interest (256.6) 25 - Exceptional interest - - (645) Pre-tax profit (659) Taxation (84.8) (7) 198 Profit after tax (461) Dividends (173.2) - - Retained profit (461) Revenue profit Adjusted earnings per share (based on revenue profit after tax) 47.86p up to 3.65p(2)(3) -

5 Page 5 of 8 (1) Assumes full year impact of new structure (2) The transaction will reduce the Group s average cost of debt and the amount of interest capitalised on development expenditure will therefore fall. This effect is not included in the figures above (3) Based on shares in issue as at 31 March 2004 The impact of non-recurring costs is to reduce NAV by 99p and to reduce NNNAV by 7p. Common Terms Agreement ( CTA ) A CTA provides a security structure available to all secured financial creditors of the security group, which will apply to future debt funding as well as to the existing creditors of the security group. The agreement includes a tiered operational covenant structure enabling greater business flexibility when leverage of the security group is below 65% LTV and interest cover is above 1.45 times, but provides increasing creditor protection as leverage increases: Covenants Tier 1 Tier 2 Tier 3 Tighter disposal constraints progressive liquidity requirement introduced Business operations substantially unaffected Substantial operating and financial restrictions Leverage spectrum Low Medium High Target LTV(1) <=55% <=65% >65% Target ICR >=1.85x >=1.45x <1.45x Testing Semi-annually Semi-annually Quarterly (1) Tier 1 threshold is reduced from 55% to 50% and Tier 2 threshold is reduced from 65% to 60% in the event of a change of control unless the ratings test is satisfied Proposals to Bondholders Land Securities proposes to redeem or repurchase all existing Notes for the applicable repurchase price and, if relevant, an early submission payment in cash. All Current Noteholders who satisfy certain eligibility requirements will receive new bonds issued under the new structure with a principal amount equal to the applicable repurchase price for the redemption / repurchase of the Notes.

6 Page 6 of 8 Land Securities may pay up to an aggregate of 150m to redeem or repurchase Notes held by non-eligible Noteholders and to meet the early submission payments and certain other cash payments under the proposals. Details of the proposals are set out in the Prospectus, Offer and Consent Solicitation Document to be published today. The terms of the proposals are summarised in the table below: Illustrative Illustrative proforma proforma Early Repur- New new new Security Security Pricing submis- chase issue debt(2) debt(2) Nominal Coupon reference sion %(1) spread spread nominal coupon Existing Unsecured bonds New Secured Bonds 200m 9.5% s of % +51 bps +50 bps 219m 5.239% 400m 5.875% s of % +76 bps +60 bps 406m 5.426% 200m 9.0% s of % +103 bps +75 bps 265m 5.517% 200m 6.375% s of % +105 bps +77 bps 212m 5.466% Existing Secured bonds 400m 10.0% s of % +84 bps +77 bps 617m 5.466% 200m 10.0% s of % +86 bps +79 bps 316m 5.438% 200m 10.0% s of % +88 bps +81 bps 322m 5.458% 1.80bn 8.51%(3) 2.36bn 5.44%(3) (1) Early submission percentage calculated by reference to nominal value of existing securities (2) As at 22 September 2004 (3) Average cost of debt weighted by nominal only Agreement has also been reached to redeem 37.7m nominal of private debentures.

7 Page 7 of 8 The early submission payment will be paid to bondholders and debenture holders who accept the Group s proposals within 14 and 21 days respectively. The estimated value of the offer to Noteholders and the Group is illustrated below based on market prices at the close of business on 22 September These figures are illustrative only as the actual numbers will be subject to the transaction concluding, changes in bond pricing and level of early submission payments Bond and debenture holders(1) m Repurchase price premium over IBOXX 4 Value of early submission payment, if all accept Group (all figures post tax(2)) Cost of early submission payment, if all accept (20) Net present value of initial fees and future running costs (37) Net present value benefit of changed timing of financing costs (and related tax relief)(3) (1) Listed bonds and debentures, assuming no tax payable by holders (2) Assuming current tax rates over life of bonds (3) Discount rate post-tax weighted average cost of capital of 5.3% (7.5% pre-tax) There are a number of benefits for Current Noteholders who accept the offer including: Security over current mark to market; More highly rated paper Security over broad asset pool; Improved and stabilised rating; Expected improved liquidity; Improved covenants; Inter-creditor stability; and Non-restricted Group funding will not impact secured group.

8 Page 8 of 8 The benefits for Land Securities are: Enhanced financial and operational flexibility; Credit strength of high quality investment portfolio optimised; Lower future funding costs; Improved and stabilised rating; Common covenants package; and Non restricted Group funding will not impact secured group. A Special Committee of the ABI representing approximately 37% in nominal value of outstanding Notes has considered the proposals. The members of the Special Committee have informed Land Securities that they find the proposals acceptable, that they intend to vote in favour of the Extraordinary Resolutions in respect of their own holdings and that they will be advising other ABI members to consider a similar course of action. The Special Committee has advised Land Securities that this recommendation relates only to the current proposals and not to further offers which Land Securities may make and that the overall scope of the proposals indicates the need for each Existing Noteholder to undertake its own detailed assessment of the new arrangements. Each of the proposals is inter-conditional on all of the other series of Notes approving the proposals which apply to them. However, this inter-conditionality is waivable at Land Securities discretion. The early submission payment date is 12 October 2004 for holders of bearer bonds and 19 October 2004 for holders of debenture stock. The first closing date for acceptances under the exchange offer is 28 October 2004, although any adjournment of Current Noteholder meetings may extend the process. Assuming the proposals are approved, exchange of Notes and creation of the new structure is expected to occur during early November. ENDS

9 Contacts Land Securities Financial Dynamics Francis Salway Group Chief Executive Stephanie Highett/ Jonathon Brill Andrew Macfarlane Group Finance Director Emma Denne Director of Corporate Communication Bondholder Contact: Sole Dealer Manager Citigroup Global Markets Limited James Brent Liability Management Desk Greg Makoff Important Notice A Prospectus, Offer and Consent Solicitation Document, which comprises a prospectus for the purposes of the Public Offers of Securities Regulations 1995, will be published today and is obtainable from Citigroup Global Markets Limited ( Citigroup ) at Canada Square, Canary Wharf, London E14 5LB. No offer or invitation to acquire or exchange any securities or proposals to noteholders is being made pursuant to this press release. Any such offer, invitation or proposals are only being made in the Prospectus, Offer and Consent Solicitation Document and any such acquisition or exchange or acceptance of such proposals should be made solely on the basis of information contained in that document.

10 For the purpose of Section 21 of the Financial Services and Markets Act 2000 ( FSMA ), any invitation or inducement to engage in any investment activity included within this press release is being made only to and is directed only at (i) persons who are investment professionals within the meaning of Article 19 (5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (as amended) (the Financial Promotion Order ); (ii) persons who fall within Articles 49 (2) (a) to (d) ( high net worth companies, unincorporated associations etc. ) of the Financial Promotion Order; (iii) persons who fall within Articles 42 and 43 of the Financial Promotion Order; and (iv) any other persons to whom this presentation for the purposes of Section 21 of FSMA can otherwise lawfully be communicated (all such persons together being referred to as relevant persons ). It must not be acted on or relied upon by persons other than relevant persons. Any invitation or inducement to engage in any investment activity included within this press release is available only to relevant persons and will be engaged in only with relevant persons. Citigroup is acting exclusively for Land Securities and for no one else in connection with the transactions described in this press release and will not be responsible to anyone other than Land Securities for providing the protections afforded to its customers or for giving advice in relation to the transactions. This press release is not an offer of securities for sale in the United States. The new bonds to be issued under the new structure have not been and will not be registered under the United States Securities Act of 1933, as amended (the Securities Act ) and may not be offered or sold within the United States or to or for the account or benefit of U.S. Persons (as defined in Regulation S under the Securities Act ( Regulation S )), except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Accordingly, the new bonds will be offered and sold only (A) to Qualified Institutional Buyers in reliance on the exemption from the registration requirements of the Securities Act provided by Rule 144A under the Securities Act and (B) outside the United States to non-us Persons in compliance with Regulation S. Notes to Editors The sole dealer manager for the offer is Citigroup Global Markets Limited.