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Mapeley
Run to run property
Annual Report 2007
Mapeley Annual Report 2007
www.mapeley.com
Run to run property
Printed on material
The size and diversity of our property manufactured from 50%
recovered fibre and 50%
virgin fibre product with
FSC certification. The
portfolio enables us to develop Forest Stewardship Council
(FSC) is an international
network which promotes
responsible management
significant property management of the world’s forests.
Forest certification is
combined with a system
of product labelling that
expertise, first-hand knowledge of allows consumers to
readily identify timber-
based products from
certified forests.
regional markets, relationships and Designed and produced
by Carnegie Orr
+44(0)20 7610 6140
contacts with local owners, brokers www.carnegieorr.co.uk
and occupiers and an understanding
of the needs and behaviours of
public and private sector tenants.
Contents
01 Financial and operational highlights
02 What we do
03 How we do it
10 Chairman’s and Chief Executive Officer’s statement
14 Finding value and adding quality
16 Business review
26 Corporate Responsibility
30 Financial Highlights
31 Financial Review
37 Board of Directors
38 Directors’ Report
42 Directors’ Responsibility Statement
43 Corporate Governance
47 Remuneration Report
51 Independent Auditors’ Report
52 Consolidated income statement
53 Consolidated statement of changes in equity
54 Consolidated balance sheet
55 Consolidated cash flow statement
56 Notes to the audited consolidated
financial statements
94 Additional Information
96 Company details
Financial and operational highlights FFO (£m) FFO growth 2007 56.4 2006 45.7 2005 25.5 23.4% 0 Dividend (p) Dividend growth 2007 188 2006 168 2005 130 11.9% EBITDA (£m) EBITDA growth 2007 115.4 2006 93.5 2005 64.8 23.4% Revenue (£m) Revenue growth 2007 417.4 2006 385.0 2005 339.4 8.4% _ Total asset value of £2.3 billion _ Total portfolio value of £2.1billion _ £223.3 million of acquisitions _ Loss before tax of £129.0 million Mapeley Limited Annual Report 2007 01
What we do
1.
Own and manage a diverse
portfolio of properties
3.
Lifecycle works – investing
2.
Facilities management
in and protecting the value
of our estate
services – running
buildings smoothly
4.
Projects – changing the
working environment of
our clients
1. Own and manage 2. Facilities management 3. Lifecycle works – 4. Projects – changing the 5. Customer services – 6. Acquire new assets –
a diverse portfolio services – running investing in and protecting working environment of meeting customers’ needs growing Mapeley’s platform
of properties buildings smoothly the value of our estate our clients We operate a 24 hour client Be it through winning new
We own freehold assets We provide a full range Lifecycle refers to the fabric From refurbishment works help desk for our outsourcing outsourcing contracts or
and we also manage of accommodation-related of the building and lifecycle to modernise space, to clients and receive over acquiring assets on a direct
leaseholds occupied services to tenants in our works range from boiler feasibility studies to increase 9,000 calls per month in basis in the investment
by our tenants. portfolio ranging from replacements to roofing space capacity and provide relation to the provision market, we aim to increase
catering and cleaning and cladding works. sustainable property of facilities management our scale and coverage.
Freehold properties exist to childcare and security solutions, we adapt and and projects services.
in both our Outsourcing services. Lifecycle works are carried fit-out our tenant’s space Our regional operating
and Direct Property out to maintain and where in response to their changing Our clients benefit from platform which gives us
Investment Portfolios. We do not self-deliver these possible to enhance the value occupational needs. a quality assured service a presence in every major
With our leasehold assets, services, they are provided of our assets by ensuring answered by specialist call town and city in the UK is
our clients occupy the by our facilities management they are fit for their Most of the project works handlers who are accustomed easily leveraged to support
assets as tenant but we partners. Servicing our purposes. We are required we perform are as a result to dealing with our diverse growth by acquisition
carry out all interaction outsourcing clients’ estates to carry out planned of our obligations to HMRC estate and familiar with of new assets – freehold
with third-party landlords gives us valuable insight maintenance, reactive under the outsourcing our clients’ building-related or leasehold, to generate
on their behalf and also into their occupational maintenance and lifecycle contract, however we also issues. Through excellent shareholder value.
carry principal risk on strategies and enables us replacement to the provide project services to customer service we aim
the financial impacts of to mitigate vacancy risk. HMRC estate under our new tenants taking space to build and maintain strong
the lease. outsourcing contract. in our estate and to our relationships with our clients
existing tenants in the to secure their long-term
DPI Portfolio. occupation of our assets.
Mapeley Limited Annual Report 2007 02
How we do it
Freehold assets Leasehold assets Construction and fit-out
We acquire freehold assets either We operate leasehold assets occupied We use a framework of contractors
as part of bundled outsourcing by our clients on a principal basis. and suppliers to carry out the
contracts or directly in the Rents payable to third-party construction and fit-out services
investment market. We are focused landlords represent a cost to Mapeley hence benefiting from further
on acquiring good quality assets which we strive to keep as low economies of scale. These services
let to strong credit tenants. We have as possible. Our specialist team are provided for a small margin
a proprietary database of over carried out 258 rent reviews and to our outsourcing tenants. We
5.
Customer services –
10,000 assets, with approximately
4,500 potential targets, which enables
lease renewals in 2007 on the
leasehold estate. We aim to keep
also leverage our capabilities and
in-house expertise in this area
meeting customers’ needs us to make direct approaches our rental payments lower than by providing services to tenants
to landlords to acquire these assets. the contractual annually indexing in our DPI Portfolio and new
Our reputation as being one of income we receive from our clients third-party tenants at market prices.
only a few providers of real estate to generate profits.
outsourcing solutions, enables us
to gain insight into new outsourcing Facilities management services
deals ahead of our competitors. We currently use one facilities
management provider to deliver
facilities management services
to our outsourcing clients, HMRC
and IPS. By using one provider
we benefit from pricing advantages
through scale. We aim to keep
these costs as low as possible to
generate a profitable spread between
the income we receive from our
clients and what we pay to the
6.
Acquire new assets –
facilities management partner.
growing Mapeley’s platform
Portfolio Freehold Leasehold FM Service Construction and
Property Property Fit-out
HMRC
Abbey
Identity and
Passport Service
Direct Property
Investment
Mapeley Limited Annual Report 2007 03
It’s about know-how . . . Mapeley Limited Annual Report 2007 04
&
Market capability
We are present in every major town and
city in the UK and own or operate a diverse
estate of some 1,689 assets. We carried
out 339 rent reviews and lease renewals
in 2007 as both landlord and tenant.
The operational aspects of our business
provide us with unrivalled, in-depth
specialist local market knowledge which
enables us to drive superior returns
through our regional operating platform.
From finding creative solutions to a
client’s catering requirements, to using
rent review information to make an
off-market acquisition approach to a
third-party landlord, our diversely skilled Run to run property
Our diversely skilled team
team work tirelessly to leverage our work tirelessly to find
operating capability to find solutions for solutions for our clients.
our clients, mitigate risks and drive
returns. We are run to run property.
Customer relationships
Understanding our clients’ needs is at
the core of what we do. Our acquisition
strategy of ‘occupier inertia’ – our belief
that chosen clients will remain in
occupation of their buildings – requires
strong day to day relationships.
93% of our income is generated from
UK Government and investment grade
. . . it’s about relationships
corporate clients. We focus on these
high quality clients as we perceive them
to have significant and complex real
estate requirements which we can service,
creating value for both parties. We employ
a partnership approach to secure and
build strong and trusting relationships
with our clients.
Mapeley Limited Annual Report 2007 05
It’s about balance . . .
&
Asset management Balanced business
Owning and operating a diverse estate We are different to a lot of property
of some 1,689 assets creates numerous companies. As well as acting as landlord,
opportunities for generating value. We we also act as tenant through our leasehold
refer to this as ‘optionality’. From disposing portfolio. This gives us a competitive
of assets which become vacant to securing advantage as we see both sides of the
upfront cash payments for extending leases property market. Our target markets are
with third-party landlords, we deploy the UK regions which tend to be more
pro-active asset management strategies stable compared to London. Our portfolio
to generate recurring revenue streams, often is balanced and defensive. We generate
working with our clients and sharing in 93% of our income from UK government
the profits created. We have a controlled and investment grade tenants, we have
pipeline of asset management opportunities a 10 year average lease length and one
– an excellent source of organic growth. of the lowest vacancy rates in the sector
at 3.5%.
Mapeley Limited Annual Report 2007 06
. . . it’s about performance
Working with our clients
We deploy pro-active asset
management strategies to
generate recurring revenue
streams.
Mapeley Limited Annual Report 2007 07
Because of our truly portfolio, unique kno of our markets, strong with tenants and our platform and capabil well placed to deliver shareholder returns. Mapeley Limited Annual Report 2007 08
nationwide wledge relationships operating ity, we are sustainable Mapeley Limited Annual Report 2007 09
Chairman’s and Chief Executive
Officer’s statement
Overview
Mapeley had solid 2007 operating results.
Our underlying business performed well.
Funds from operations (FFO), our key
measure of underlying performance, grew
by 23%.
Milestones
_ FFO growth of 23% from £45.7 million
to £56.4 million
_ Dividend growth of 12% from 168 pence
per share to 188 pence per share
_ Investment property acquisitions of
£223.3 million
_ Occupier inertia strategy proving
successful with lease extensions and
roll-overs
_ Refinancing of our £257 million
revolving credit facility due April 2008
During the first half of the year we acquired
Jamie Hopkins £180 million of high quality assets let to
Chief Executive Officer strong credit tenants all located throughout
the UK. The second half of the year saw
us take a more cautious approach to
acquisitions, given the changes in the
capital markets and the knock-on effects
to UK real estate.
Creating a sustainable business We benefited from asset management
opportunities arising from the scale and
to provide our shareholders diversity of our estate of some 1,689 assets
covering 2.4 million square metres. We
with a secure income stream were able to enhance returns through
rigorous management of our leasehold
and long-term value is at portfolio and through our asset management
strategies by either disposing of vacant
the core of everything we do. assets or securing new third party income.
Mapeley Limited Annual Report 2007 10Our financial performance was reinforced We continue to exploit the competitive Revenue from Government and
by the resilience of our income stream advantage we have built by acting as investment grade tenants
which was maintained throughout 2007. both landlord and tenant in every major
93% of our income continued to be
derived from government and investment
grade corporates such as Microsoft and
town and city in the UK. We manage the
leasehold assets, occupied by our clients,
on a principal basis with the aim of ensuring
93%
British Telecom with 70% of our income the rents we are responsible to pay to
being subject to fixed contractual uplifts. third party landlords do not grow faster
We also have a 10 year average lease than the indexed contractual income our Average lease length
length across the portfolio and our vacancy clients pay us. In addition this insight
rate, one of the lowest in the sector,
continues to remain stable at just 3.5%.
provides us with real data points to best
position our property interests in each
10 years
of these towns whether as landlord or
Our strategy tenant and also provides us with further
Our aim is to be the leading owner and acquisition opportunities.
operator of regional UK real estate let to Occupancy
strong credit quality tenants such as the Performance review
UK Government. We enter into property
outsourcing contracts with high quality
counterparties, which usually involve
We have a presence in every major town
and city in the UK, and, for the most
part, operate outside London. We have a
96.5%
the acquisition of freehold assets, the profitable operating business which runs
management of their leasehold interests in tandem with an integrated real estate
and often the provision of property-related investment business.
services, such as facilities management Assets under management
(cleaning, security, maintenance). We also Given our geographic diversification,
acquire property on a direct basis from
the investment market.
we are less impacted by the changes in
occupier property demand seen in Central
1,689
London. Rents in the UK regions tend to
Our investment strategy is not predicated be more stable with only modest rental
on strong rental growth but on owning growth. The stable nature of these markets
assets let to tenants who we believe will works to our advantage in operating our Office rental value growth (annual %)
remain in our buildings, which we refer leaseholds as where we are negotiating 20 — Central London
to as ‘occupier inertia’. This applies to both with third party landlords our goal is to — South East
our outsourcing contracts as well as our hold rents down in order to minimise our 15 — Rest of UK
direct property acquisitions. Our objective costs. Our aim is to produce a profitable
10
is to secure high quality income and income over cost spread between the
maintain it. amounts our clients pay us for occupation 5
of a property, versus what we pay out
Our occupier inertia strategy was further to the landlords. For the period since we 0
proven during 2007. By fully understanding started operating the HMRC and Abbey
our tenants’ occupational strategy and contracts to 31 December 2007 on a like -5
delivering focused and pro-active asset for like, mark to market portfolio basis,
-10 Forecast
management we are able to keep tenants we have managed to maintain an average
in our buildings. For example, over the increase in rental costs of only 2% while -15
year, 32 leases in our DPI portfolio were receiving a corresponding increase in 95 97 99 01 03 05 07 09 11
subject to a break clause or a lease expiry. income of 3.2% per annum.
25 of the 32 leases, representing 95% Source: IPD, CB Richard Ellis
of rent roll, were extended by tenants.
Mapeley Limited Annual Report 2007 11Chairman’s and Chief Executive Officer’s statement continued
Re-letting of Elphinstone IPD’s analysis of our performance in respect We have a large degree of visibility into
House, Glasgow, to new
government tenant of 2006 rent reviews on our leasehold our clients’ occupational requirements
_ A six storey modern office estate once again demonstrates that we given our day to day relationships and
with 15 car parking have beaten the market by experiencing the assistance and advice we contribute
spaces, a leasehold asset
in the Abbey portfolio only 1.4% rental growth on our leasehold to their estate management strategies.
_ Lease due for expiry portfolio versus the IPD benchmark of To this extent we have a two to three year
in 2015 with annual rent
of £615,000
2.1%. This continued out-performance pipeline of potential opportunities for
_ Abbey exercised its right creates organic growth for Mapeley and is capital receipt generation. These capital
to vacate this asset early generated by our specialist and dedicated receipts are visible and predictable and
by serving the requisite
12 months notice, to take in-house property team. Our tenacity and provide a solid and recurring source of
effect from August 2007 focus on chasing down and minimising organic growth. From the commencement
_ Mapeley promptly let
every penny of cost continues to drive of our outsourcing contracts in 2001 to
the 3,133 sq m of office
space to the Government returns across our business. 31 December 2007, we have generated
of Scotland upholding £190.2 million (2006: £164.1 million) from
the strong tenant credit
of the asset
During 2007 we generated capital receipts capital receipts. The benefit of the inherent
_ Financial effect of the of £20.6 million which comprised of flexibility in our outsourcing contracts
deal was enhanced income £9.1 million of asset management receipts enables us to create and manage flows of
over the term of the lease
totalling £1,298,212 and £11.5 million of disposal proceeds, returns in this way.
in line with our budgeted expectations.
Abbey Outsourcing Asset management receipts are generated Since our last valuation at 30 September
contract
_ Outsourcing contract from our leasehold portfolio where we 2007 we have experienced a decline
closed in 2000 typically receive upfront cash premia in values of 4.3% across our portfolios
_ Transaction included
freehold and long leasehold
from third party landlords in exchange with the largest fall coming from the
properties as well as for extending leases. Disposals are made DPI Portfolio which fell by 7.7% and
rack-rented leasehold when freehold properties become vacant, experienced an adverse yield shift of
properties
_ Portfolio spread across either due to our clients occupational 56 basis points in line with IPD’s price index.
520 towns and cities strategies or through an asset management
throughout the UK initiative by Mapeley. Typically, under In 2007 we acquired 23 assets totalling
_ Purchase and leaseback
agreement of 20 years the contractual arrangements of the £223.3 million at an average net initial yield
_ 595,000 sq m of outsourcing transaction, when a notice of 6.4%. This brings the total Direct Property
accommodation including
bank branches, offices
to vacate an asset is served we receive Investment Portfolio to £996.5 million
and call centres 12 months notice. This allows sufficient with an average net initial yield of 6.9%.
time to implement our strategy. A significant purchase during the year was
the £62 million acquisition of Elinia House
in Cardiff, one of three key data centres
occupied by BT. This lease contains fixed
annual uplifts in rent and runs until 2020.
Mapeley Limited Annual Report 2007 12Results and dividend Current trading and outlook
During 2007 we achieved growth in In March 2008 we completed the refinancing
funds from operations of 23.4% enabling of our £257 million Revolving Delta
an increase in our dividend of 11.9%. acquisition facility. This has been replaced
For the fourth quarter, we announced a with a new £152 million seven-year term
dividend of 47 pence per share. facility and a separate £60 million facility
maturing in April 2009. The balance
Our loss before tax of £129.0 million was of the repayment was made with cash
directly affected by non-cash revaluation from within the business. Following this
losses of £148.6 million. However refinancing the average total cost of
revaluation losses taken to the income borrowing across the Group is 5.7%.
statement do not impact our cash flows.
We expect the strong credit worthiness of
People our tenants to support our cashflows and
We would like to thank all the staff at expect our vacancy rate to remain stable.
Livingston, Scotland, Mapeley for their continued hard work We also expect to continue to enhance
Acquisition
_ DPI Portfolio acquisition and focus during 2007. It is a tremendous the performance of our portfolio by asset
for £23.5 million achievement that we were able to produce management initiatives and through
_ Net internal area of
9,504 sq m
these results given the challenging macro a continuation of high success rates for
_ Net initial yield of 6.9% environment. We put this down to the achieving lease roll-overs and re-gears.
_ Let to Scottish Water with combined efforts and creativity of our people.
lease expiry in 2015
_ Annual rent of With regard to new acquisitions we are
£1,620,000 continually reappraising new opportunities
and sources of capital to drive growth.
We will also continue to build our database
of assets and have a strong pipeline of
acquisition opportunities to exploit, when
we feel the opportunity is right.
We look forward to 2008.
Wes Edens
Chairman
Jamie Hopkins
Chief Executive Officer
Mapeley Limited Annual Report 2007 13Finding value and adding quality
01 Aberdeen, 04 Peterlee, acquisition 07 London,
refurbishment project Occupier inertia is a key chiller replacement
The third floor of this strategy for Mapeley. EDS Mapeley is responsible for
asset in the HMRC Portfolio occupy a building within replacing and maintaining
had become vacant and the DPI Portfolio located the plant and services
Mapeley had successfully in Peterlee. The property installations within Euston
let the vacant space was purchased with a lease Tower, a 35 storey tower
to a third-party tenant. expiring in 2019, with a in Central London. This
Mapeley was completing a tenant break option in leasehold asset is part
refurbishment of the space 2009. EDS has a good of the HMRC Portfolio.
and the tenant requested relationship with Mapeley Although only two chiller
that Mapeley undertake and occupy several buildings units are required to provide
the fit-out of the office on our estate. In 2007 EDS a suitable level of cooling
for them for an additional did not exercise their break in the office areas it is
revenue of £30,000. option effective in 2009 important to provide
This saved the tenant both resulting in the lease additional units to meet
time and money and rolling-over and continuing peak seasonal demands and
demonstrates the added until 2019. The result of system resilliance. Mapeley
value that Mapeley is able this roll-over was both an replaced one of the existing
to offer tenants and the increase in term certain chiller units and extensively
additional income which income and value. refurbished a second.
can be leveraged from
ordinary course activities. 05 Liverpool acquisition 08 Southampton,
The Triad, Bootle was project services
02 Glasgow, advertising purchased as an addition Grenville House,
hoarding to Mapeley’s DPI Portfolio. Southampton is a freehold
Portcullis House, Glasgow The tenant is the Secretary property within Mapeley’s
is a leasehold property of State, a UK government DPI Portfolio. Mapeley
within the HMRC Portfolio. client. The lease is due converted the ground floor
The building adjacent to for expiry in 2027 giving redundant pub to two new
Portcullis House had been Mapeley an annual rent retail units and refurbished
demolished exposing a of £1,700,000 for the and extended the upper
party wall gable that faces
the M8 motorway. Mapeley
secured a contract to display
an advertising banner whilst
next 20 years. The cost
of the property which
covers 19,536 sq m was
£24,460,000 with a net
office floors. The building
extension increased the
net lettable area by 12.7%
increasing the total building
6.9%
Initial yield
the gable is exposed in initial yield of 6.9%. size by 161 sq m. Two
this highly visible location. pre-let opportunities were
06 Notting Hill, London, in place prior to works
03 Galashiels acquisition disposal commencing; one for Costa
The Maxwell, Galashiels is This disposal involved a Coffee in one of the ground
a 846 sq m office building partial sale of a freehold floor retail units and
occupied by Scottish asset in Mapeley’s Abbey one to BPP Holdings Plc
Enterprise, a Government Portfolio located in Notting (a professional education
tenant, until 2012. The Hill in London. The asset company) on the ground
property was added to our consisted of both residential and first floor.
DPI Portfolio at a purchase and retail parts. Mapeley kept
price of £1,470,000. the Abbey retail unit but 09 Jersey acquisition
Rental income is £100,000 disposed of the remaining 22 Colomberie, Jersey was
per year equating to a net retail and residential parts acquired in 2007. PwC are
initial yield of 6.8%. to a developer, creating tenants and this is their only
a net cash profit of office in Jersey. The lease
£1.1 million. This disposal runs until 2019 with a break
was in Mapeley’s pipeline option in 2013. Rental
of potential disposal income for the 1,560 sq m
opportunities for two years. area is £350,000 per annum.
The purchase price was
£4,880,000 with a net initial
yield of 7%.
Mapeley Limited Annual Report 2007 1401
02
03
846
sq m of office space
04
05
06 07
08
09
Mapeley Limited Annual Report 2007 15Business review
With 1,689 assets Milestones 2007
_ Continued to outperform IPD on the
Mapeley’s portfolio is split between its
Outsourcing and Direct Property Investment
spread over 2.4 million _ leasehold estate, driving organic growth
£8.6 million of disposal profits generated
Portfolios (‘DPI’). Mapeley acquires
freehold assets either as part of bundled
sq m of UK real estate _ from the sale of vacant assets
266 rent reviews carried out on estate
outsourcing contracts or directly in the
investment market, and is focused on
our options for creating _ £41.9 million spent on estate enhancement acquiring good quality assets let to strong
credit tenants.
value are many and Overview
Mapeley Limited (Mapeley, the Company With leasehold assets, Mapeley’s clients
varied. Through or the Group) is a Guernsey-based property commit to and pay for the benefit of
rigorous management investment and outsourcing company which
owns, manages and operates a portfolio
occupation of these buildings and Mapeley
has the corresponding financial exposure
of our estate, asset of properties located throughout the entire
UK, covering some 2.4 million square metres
to the underlying landlord through the
lease. Mapeley negotiates rent reviews
management strategies, and with a presence in every major town
and city. Mapeley Estates Limited, a wholly
and lease renewals as principal with third
party landlords in order to manage costs.
re-lettings, extensions owned subsidiary of Mapeley, provides a Mapeley has created a spread of income
and renewals of leases, complete range of management services
to Mapeley’s portfolio and its asset-owning
received from clients over costs paid to
landlords through the management of
Mapeley drives long- subsidiaries. these leasehold assets. The unique insight
into the markets the business operates in,
term returns. Mapeley drives returns through managing
property risks and owns £2.1 billion of
gained by acting as both landlord and
tenant, enables the maximisation of returns.
real estate. In addition to owning real estate
Mapeley also has an operating business. Mapeley provides a full range of facilities
As part of its outsourcing contracts it management services, ranging from catering
manages leasehold assets occupied by its and cleaning to childcare and security
clients, provides facilities management services, to the HMRC and IPS estates as
services and project construction services. part of the bundled outsourcing contracts.
One facilities management provider delivers
these services on behalf of Mapeley. By
consolidating the provision of the services
to one partner Mapeley benefits from
pricing benefits through scale. Servicing
the outsourcing clients’ estates gives
valuable insight into their occupational
strategies and enables the mitigation of
Total portfolio value
vacancy risk.
£2.1bn
Funds From Operations
£56.4m
Q4 2007 14.3
Q3 2007 14.5
Q2 2007 13.8
Q1 2007 13.8
Mapeley Limited Annual Report 2007 16The Group’s aim is to become the leading
owner and operator of UK regional
commercial real estate let to Government
The geographic spread of the
and investment grade tenants. The credit
quality of tenants is of fundamental
portfolio as at 31 December 2007
importance. A list of top 10 tenants and as per IPD regions is as follows:
their contribution to total revenue is set
out below. Save for the UK Government
and Abbey, Mapeley does not have any
significant exposure to any one client or
sector. These clients are targeted as their
occupational requirements are often
complex and Mapeley estimates that they
will remain in occupation of their assets
for the long-term. 93% of the portfolio
income is from government or investment
grade tenants and the portfolio vacancy
rate of only 3.5% is low and stable.
In total, the estate covers 2.4 million square
metres and 1,689 assets. Through the
flexibility inherent in the outsourcing
contracts, a portfolio of this size creates
many opportunities for creating value
through asset management, disposals, re-
lettings and contract and lease extensions.
Percentage of By value By value By value
Tenant total group revenue of office of retail of other
HMRC 50.1% Number of By area assets assets assets Total
Abbey 20.8% Location properties sq m £m £m £m £m
Other government and local authorities 5.9% City of London 12 25,493 41,354,545 – – 41,354,545
Identity and Passport service (Government) 5.6% East Midlands 68 132,507 113,717,273 13,429,200 – 127,146,473
British Telecommunications plc 2.0% Eastern 165 191,829 105,151,727 19,676,300 736,364 125,564,391
Microsoft Ltd 1.7% Inner London 112 182,158 30,475,000 38,552,700 999,091 70,026,791
Diligenta Ltd* 1.0% London-Mid Town 6 28,182 – – – –
Zurich Assurance Ltd 1.0% London West-End 14 27,364 26,000,000 6,241,000 – 32,241,000
WS Atkins 0.9% North East 86 130,553 102,762,364 5,844,100 – 108,606,464
KPMG LLP 0.6% North West and
Merseyside 169 235,401 143,488,182 28,863,600 – 172,351,782
* Subsidiary of Tata Consulting. Northern Ireland 53 42,359 16,956,364 3,634,700 – 20,591,064
Outer London 151 137,913 99,099,091 37,714,400 – 136,813,491
Scotland 149 227,801 242,195,000 22,482,400 109,091 264,786,491
South East 255 379,770 434,813,182 41,265,000 – 476,078,182
South West 132 165,248 134,472,091 21,354,000 100,000 155,926,091
Wales 88 117,133 108,778,818 13,058,200 781,818 122,618,836
West Midlands 110 185,212 129,795,273 21,957,100 – 151,752,373
Yorkshire and
Humberside 119 170,340 96,224,818 13,999,400 – 110,224,218
Total 1,689 2,379,263 1,825,283,728 288,072,100 2,726,364 2,116,082,192
Mapeley Limited Annual Report 2007 17Business review continued
HMRC Portfolio Portfolio review Entering into a real estate outsourcing
The Group’s real estate portfolio is split into contract with Mapeley provides occupiers
£563.4m two distinct segments, namely Outsourcing with real estate platform solutions which
Contracts and Direct Property Investments enable:
(‘DPI’), however the characteristics of the 1 Transfer of all risks relating to real
assets in both portfolios are very similar. estate, leaving the occupier better placed
to focus on its core business
As at 31 December 2007, Mapeley owned 2 Price certainty at pre-agreed costs
and managed 1,689 properties with a 3 Release of capital where asset transfer
property portfolio value* of £2.1 billion. occurs
This valuation covers only the 595 freehold 4 Occupational flexibility through pre-paid
and valuable long leasehold properties vacation rights
which Mapeley owns. Of these £1.8 billion, 5 Improved customer service.
by value, and 237, by number, are office
assets and £0.3 billion (358) are retail and There is a degree of additional activity in
other. The remaining 1,094 are rack-rented the Outsourcing Contracts versus the DPI
Portfolio acquired in 2001 as part of a bundled 20-year
occupational leasehold interests where Portfolio, given the existence of leasehold
outsourcing contract containing freeholds, leaseholds Mapeley acts as tenant on behalf of its assets, facilities management and project
and the provision of facilities management and project clients through its outsourcing contracts construction services. In the case of HMRC
fit-out services.
_ 136 freehold or long leasehold properties (see ‘Outsourcing Contracts’ below for and Abbey, these are 20 year agreements
_ 371 leasehold properties further detail on these portfolios). These with cost certainty and limited pre-paid
_ Portfolio occupancy: 98.1%
rack-rented leaseholds do not carry any rights to vacate, allowing the clients
value in Mapeley’s financial statements, flexibility in their occupational requirements
Abbey Portfolio they are short leases where the rent reserved over the term of the contracts.
£556.2m under the lease is close to the market
rent for the property and are typically Mapeley benefits from any difference
subject to regular, five-yearly, upward- between the income it receives from its
only rent reviews. outsourcing clients and its outgoing costs
to third parties, such as rent and payment
The geographic spread of the portfolio by for facilities management and project
value and by area as at 31 December 2007 construction services. Rental payment
as per IPD regions is given on page 17. obligations, which reflect the open market
rent it pays to its landlords, are by far the
a) Outsourcing Contracts most significant of these costs. Mapeley’s
Real estate outsourcing involves the income rebases upwards each year
transfer of an organisation’s property whereas the outgoing rental costs which
and the risks associated with occupying, Mapeley pays out to third party landlords
managing and servicing that property. are reviewed typically on a five-yearly
basis. Mapeley generates returns to the
extent it minimises rental uplifts on rents
Portfolio acquired in 2000 as part of a 20-year outsourcing
contract comprising freehold and leasehold assets. payable to a lower level than contracted
_ 367 freehold or long leasehold properties rental income growth of either 3% or
_ 656 leasehold properties
_ Portfolio occupancy: 89.7%
RPI (in the case of Abbey and HMRC
respectively). In 2007, on a like for like
and mark to market basis, the annual
growth in outgoing rental liabilities paid
by Mapeley since acquiring these leases
was 2.0% compared with average income
increases of 3.2% per annum.
* property portfolio value is defined as the Group’s
property assets as valued by one of the Group’s valuers,
CBRE or Knight Frank, or one of the Directors
Mapeley Limited Annual Report 2007 18IPS Portfolio IPD has analysed the Group’s performance
on the leasehold portfolio for 2005 and
68 sites 2006 rent reviews relative to its benchmark
of performance. For 2005 and 2006 rent
reviews Mapeley continued to outperform
the IPD benchmarks of 2.9% and 2.1%
respectively by incurring only 0.9%
and 1.4% annual rental growth on the
leasehold portfolio. As 2008 progresses the
performance of further 2006 rent reviews
will be reported whilst a meaningful
number of 2007 rent reviews settle.
The effective management of the leasehold
portfolio and a consistent focus on limiting,
and where possible, reducing costs such as Catering service tender for
HMRC estate
rent, service charge, other property-related _ Mapeley is responsible for
Portfolio acquired in 2006. Contract includes the acquisition, expenditure and facilities management leading and implementing
fit-out and servicing of properties throughout the UK. services costs (in the case of HMRC only) tenders in relation to the
_ Portfolio includes only leasehold assets procurement of services
are key drivers of FFO growth for the across HMRC’s estate
Outsourcing Contracts. _ Procurement of national
catering contractor for
the HMRC Portfolio to
Real estate outsourcing deals are difficult incorporate standardisation
DPI Portfolio to predict due to the scale and complex across the estate including
core products, branding
£996.5 m nature of outsourcing transactions, Mapeley
is one of very few operators currently
signage, menus and tariffs
_ Procurement of a
in the UK with the capacity, specialist contractor who could
comply with the Public
knowledge and ability to undertake such Sector Food Procurement
large deals. So far in the UK the majority Initiative and demonstrate
their commitment to
of outsourcing deals have been transacted the environment, healthy
with either public sector or major corporates. eating, local suppliers and
The likelihood of corporate outsourcing waste reduction
_ No capital investment
transactions could potentially increase required by Mapeley
in times of economic difficulty when or HMRC
_ Subsidy payments
corporates seek to become more efficient envisaged to be completely
and shed non-core risk, such as property. eliminated within the first
year of the contract saving
the client approximately
£300,000 per year
Portfolio consists of assets acquired directly in the
investment market.
_ 92 freehold or long leasehold properties
_ Portfolio occupancy: 98.5%
Mapeley Limited Annual Report 2007 19Business review continued
Within the Outsourcing Contracts segment, HMRC pays the Group a unitary service
the Group holds three portfolios, as charge on a quarterly basis which covers
described below: not only the charge for the accommodation,
but also all services that are provided.
i. Her Majesty’s Revenue & Customs The Group has retained responsibility for,
(HMRC) Portfolio but sub-contracted, the performance of
Assets in the HMRC Portfolio are held in the majority of its obligations to provide
the financial statements as Property, Plant services (other than property management
and Equipment given the existence of services) on terms that reflect and are
the outsourcing contract which comprises consistent with the Group's underlying
these assets. The HMRC Portfolio was obligations to HMRC. Mapeley has
acquired in 2001. The transaction involved maintained the property risk in the
the acquisition of freehold and long outsourcing contracts but passed on
leasehold properties and rack-rented risks relating to the provision of facilities
leasehold properties under a purchase management services, such as wage inflation.
and leaseback agreement for a 20-year
duration. This portfolio totalled 1.5 million ii. The Abbey Portfolio
square metres, representing the majority The Abbey Portfolio was acquired in 2000.
of HMRC's UK property, including offices, The transaction involved the acquisition
customer contact centres and other of freehold, long leasehold and rack-rented
facilities located in 279 towns and cities leasehold properties under a purchase
across the UK. In addition, the Group and leaseback arrangement for a 20-year
provides comprehensive property and duration. At the time of acquisition,
facilities management services to HMRC. the portfolio totalled 595,000 square metres
These services include maintenance, of accommodation, representing substantially
life-cycle replacement, cleaning, help desk, all of Abbey's UK occupational portfolio.
security, catering, childcare, health and The properties included bank branches,
safety, utilities, equipment management, offices (including Abbey's headquarters)
management of removals (churn), vending and call centres located in 520 towns and
and landscaping. cities across the UK.
Sustainable drinking solution HMRC Outsourcing contract
to provision of water to _ Outsourcing contract won
HMRC estate in 2001 iii. The Identity and Passport Service
_ European tender and _ Transaction included (IPS) Portfolio
subsequent installation freehold and long
of mains fed water units leasehold properties
In March 2006, Mapeley won the Identity
across the HMRC estate as well as rack-rented and Passport Service Authentication by
_ Problems associated with leasehold properties Interview outsourcing contract. The Identity
bottled water eradicated and the provision of
e.g. storage, lifting large facilities management and Passport Service is an Executive Agency
bottles, environmental and construction fit-out of the UK Government’s Home Office.
waste services to the estate This contract includes the acquisition,
_ Financial savings made _ Purchase and leaseback
due to reducing numerous agreement of 20 years fit-out and delivery of serviced office
suppliers to one provider _ 1.5 million sq m accommodation for 68 interview offices
_ Reduction in fuel representing offices,
and emissions due to customer contact centres
throughout the UK. The contract is for
eliminating bottled and other facilities an initial term of up to five years. Work
water deliveries _ Portfolio spread across commenced on this contract in early 2006.
279 towns and cities
throughout the UK As at 31 December 2007, 67 of the 68 assets
were operational with the remaining office
mobilised during 2008.
Mapeley Limited Annual Report 2007 20b) Direct Property Investments Portfolio
(DPI Portfolio)
Mapeley also acquires single property
assets and portfolios into its Direct Property
Investments Portfolio (DPI Portfolio).
These assets are similar to the individual
freehold assets Mapeley has acquired
under its outsourcing contracts; they are
good quality, regional office buildings
located throughout the UK. The key
acquisition criteria for these assets is the
quality of the building, the type of tenant,
the strength of the tenant’s covenant,
the acquisition yield and Mapeley’s
assessment of whether the tenant is likely
to remain in occupation of the building.
Acquisitions during 2007 ranged in cost
from £1.0 million to £62.0 million. During
2007, the Group acquired 23 freehold
or long leasehold properties at a cost of
£223.3 million, and at an average net initial
yield of 6.4%. Re-letting of London asset Given our day to day relationship with
One of the benefits of entering into an HMRC we were aware of their intention
As at 31 December 2007 the total DPI outsourcing contract with Mapeley is to vacate. We targeted a tenant, a quasi-
Portfolio was valued at £996.5 million and the occupational flexibility purchased government organisation, who were
the current yield on the portfolio is 7.7%. by clients in respect of their ongoing interested in taking up the lease but who
accommodation requirements and required occupation of the asset three
Approximately 40% of the acquisitions estate strategy. months before HMRC were due to vacate.
made in 2007 were sourced from either As a result of our excellent relationship
Mapeley’s proprietary acquisition database This example involved the letting of an with HMRC we were able to relocate HMRC
or by direct approaches to existing owners. asset in our HMRC Portfolio where we out of New Kings Beam House three
supplemented HMRC income with income months early to facilitate the new letting.
At the year-end, properties in the DPI from a quasi-governmental client. The letting matches our liability to the
Portfolio were 98.5% let and income third party landlord extinguishing the
producing on fully repairing and insuring New Kings Beam House is a leasehold potential risk created by HMRC’s vacation.
leases to central and local Government asset in the HMRC Portfolio located
and major corporate tenants. The average in central London on the South Bank.
unexpired lease length across the DPI HMRC exercised their right to vacate part
Portfolio was 8.2 years. of this asset serving the contractually
required 12 months notice effective for
departure on 31 March 2008. Under the
terms of the lease Mapeley is responsible
to the third party landlord for rental
payments until expiry at the end of 2011.
Mapeley Limited Annual Report 2007 21Business review continued
Rent Reviews c) Portfolio valuations i) HMRC Portfolio: The value increased
Mapeley’s portfolio is valued on a quarterly by 0.6% to £563.4 million (2006:
339 basis by independent valuers and 100%
of each portfolio is valued at each valuation
by either CB Richard Ellis Limited (‘CBRE’),
£560.1 million).
During 2007 Mapeley retendered for
valuers for this portfolio. As a result Savills,
Knight Frank LLP (‘Knight Frank’) or the who had historically valued the portfolio
Company’s Directors (see notes 10 and 11 were replaced by CBRE. As at 31 December
to the financial statements for classification 2007, the HMRC Portfolio had a value
Lettings of these assets). As at 31 December 2007, of £563.4 million (31 December 2006:
the Group's total Property Portfolio had £560.1 million). The current yield on this
41 a value of £2,123.5 million (2006:
£2,046.2 million) generating total revenue
portfolio at 31 December 2007 was 8.2%
(2006: 8.4%).
of £417.4 million during the year (2006:
£385.0 million). Of this, £324.6 million of As at 31 December 2007 the HMRC Portfolio
rental income was generated from the comprised 136 freehold or long leasehold
FM services provided Group's portfolio of 1,689 properties properties, (31 December 2006: 138)
(2006: £296.4 million from 1,683 properties). and 371 rack-rented leasehold properties
£47.6m Over 93% of the Group’s income was
generated from Government and investment
grade tenants.
(31 December 2006: 380). Portfolio occupancy
(based on area) was 98.1% at 31 December
2007 (31 December 2006: 98.9%).
On a like for like basis the value of the ii) Abbey Portfolio: The value fell by 3.4%
total portfolio fell from £2,031.3 million to £556.2 million (2006: £575.7 million).
to £1,920.6 million between 31 December As at 31 December 2007, the Abbey Portfolio
2006 and 31 December 2007. As between (see note 11) had a value of £556.2 million
30 September 2007 and 31 December 2007, (31 December 2006: £575.7 million). The
on a like for like basis the value of the Abbey Portfolio fell in value by £20.1million,
total portfolio fell by £94.7 million from 3.5% compared to 30 September 2007. The
£2,210.8 million to £2,116.1 million, reason for the fall in value was an adverse
representing an adverse yield shift of yield shift of 21 basis points applied to
42 basis points applied to the portfolio the portfolio by the Group’s valuers, in
by the Group’s valuers. line with market expectations. The current
yield on this portfolio at 31 December 2007
was 6.6% (2006: 6.3%).
As at 31 December 2007 the Abbey Portfolio
comprised 367 freehold or long leasehold
properties (31 December 2006: 367) and
Portfolio occupancy rate (%)
656 rack-rented leasehold properties
2007 96.5
(31 December 2006: 698). Portfolio occupancy
2006 96.9
(based on area) was 89.7% at 31 December
2005 96.8
2007 (31 December 2006: 90.3%).
0
Mapeley Limited Annual Report 2007 22iii) Direct Property Investments Portfolio: Property management
The value increased by 10.3% to The Group regularly reviews national and
£996.5 million (2006: 903.7 million). regional estate strategies in order to take
The increase of £92.8 million arose largely advantage of opportunities to match its
from the acquisition of 23 properties into property interests to the accommodation
the DPI Portfolio during the year in line requirements of its tenants.
with the Group’s investment strategy.
During 2007:
On a like for like portfolio basis, the 69 _ Mapeley settled 207 rent reviews on
properties which Mapeley owned at rack-rented properties in the portfolio as
31 December 2006 and 31 December 2007, tenant (2006: 187) with an annual rent
fell in value by £102 million, a fall of roll of £54.5 million (2006: £30.4 million).
11.4%, reflecting an adverse yield shift The average increase was 1.6% per annum
of 82 basis points applied to the portfolio _ Mapeley completed lease renewals for
by CBRE, the Group’s valuers. As between 51 properties as tenant (2006: 39) with
Queens House, St Albans, 30 September 2007 and 31 December 2007 an annual rent roll of £3.2 million
Hertfordshire re-gear of
existing lease on a like for like portfolio basis the value (2006: £3.5 million). The average annual
_ Freehold asset in the of this portfolio fell by £82.6 million, from increase in rent payable in 2007 was 1%
DPI Portfolio occupied £1,079.1 million to £996.5 or 7.7% reflecting _ Mapeley settled 82 rent reviews as tenant
by the Government
_ Original lease due for an adverse yield shift of 56 basis points. with nil increases (2006: 82)
expiry September 2009 _ Mapeley settled 59 rent reviews as
_ Worked with the tenant
to secure the simultaneous
The current yield on this portfolio as at landlord (2006: 45) with an annual rent
surrender of the original 31 December 2007 was 7.7% (2006: 6.9%). roll of £20.5 million (2006: £1.6 million).
lease and grant of a The average increase was 0.9% per annum
new 15-year lease with
five year rent reviews d) 2008 portfolio events _ Mapeley completed lease renewals for
(no breaks) at existing During 2008, Mapeley anticipates the 22 properties as landlord (2006: 10)
rent levels following portfolio events: with an annual rent roll of £2.6 million
_ Capital contribution of
£275,000 made towards _ 6 lease breaks exerciseable on the DPI (2006: £0.2 million). The average annual
tenant capital works Portfolio on a rent roll of £0.8 million increase in rent payable in 2007 was 1.7%
which enhance the value _ 11 lease renewals on the DPI Portfolio _ Mapeley let 41 vacant properties during
of the asset
_ £750,000 valuation on a rent roll of £1.8 million the year (2006: 44), generating £4.3million
increase as a result of the _ 118 rent reviews as tenant in properties (2006: £1.6 million) of additional income
new, longer lease
in the Group’s Outsourcing Portfolio on and maintained a low vacancy rate
a rent roll of £22.6 million of 3.5% across the whole portfolio
_ 21 rent reviews as landlord in properties _ Mapeley spent £41.9 million on repair,
in the Group’s total Property Portfolio refurbishment and construction projects
on a rent roll of £0.5 million (2006: £36.8 million), to enhance the
_ 68 lease renewals as tenant in properties quality of its estate in an efficient and
in the Group’s Outsourcing Portfolio on cost effective manner.
a rent roll of £4.0 million
_ 35 lease renewals as landlord in properties
in the Group’s total Property Portfolio
on a rent roll of £1.2 million.
Mapeley Limited Annual Report 2007 23Business review continued
Capital investment on estate The agreements with Abbey and HMRC The service provision is coordinated through
both provide for annual indexation, Mapeley’s 24-hour help desk. In 2007,
£41.9m with a 3% per annum increase in amounts
payable by Abbey and an RPI-linked
increase on payments by HMRC. As a result,
the help desk received 108,093 calls
(2006: 107,609). Mapeley’s ability to offer
such services provides it with two important
70% (2006: 76%) of the income Mapeley advantages: the ability to pursue other
receives is subject to annual uplifts, with similar transactions where such a service
virtually all of the balance of the income requirement might exist and real time
Help desk calls being subject to five-yearly upward-only access to and insight into its tenants'
rent reviews. To 31 December 2007, on a changing occupational needs. This means
108,093 like for like and mark to market basis,
the annual growth in rental liabilities paid
that the Group is well positioned to provide
its tenants with appropriate solutions
by Mapeley since acquiring these leases and to manage the estate better through
has been 2.0% per annum as compared being able to anticipate and predict their
with an increase in income of 3.2%. occupational requirements.
Employees
Services In the year ended 31 December 2007,
132 a. Property services
Mapeley provides a wide range of facilities
management (‘FM’) services through its
Mapeley provided services with a value
of £47.6 million (2006: £45.2 million).
wholly-owned subsidiary Mapeley Estates b. Construction and fit-out projects
Limited, to approximately 100,000 of services
its tenants' employees in 759 buildings. Mapeley has an extensive in-house projects
Examples of these services include team who are responsible for carrying
maintenance and life cycle replacement, out requested capital works projects
security and cleaning, catering and childcare. to the HMRC and IPS estates such as
Mapeley provides FM services to HMRC refurbishments, fit-out, space planning
and IPS under its outsourcing contracts. and life cycle works. When providing these
services Mapeley earns a margin in addition
During 2007 Mapeley’s procurement team to the unitary charge receivable from
won two awards in respect of services HMRC and IPS for its professional services.
procured in respect of the procurement
of water point of use and childcare In addition, Mapeley manages the delivery
services on behalf of HMRC for its estate. of refurbishment projects for Mapeley
funded projects and for third-party clients.
Its proven project management capabilities
enables Mapeley to influence and add value
to the way its clients use and refurbish
their space.
In the year ended 31 December 2007,
Mapeley carried out repair, refurbishment
and construction projects with a value
of approximately £41.9 million (2006:
£36.8 million).
Mapeley Limited Annual Report 2007 24Our people
Mapeley continues to recruit and retain
the highest calibre of employees. Mapeley
is dedicated to building, rewarding and
retaining a diverse, highly skilled and
motivated workforce. As at 31 December
2007, Mapeley had 132 employees
(2006: 131).
Mapeley is committed to providing
effective and appropriate learning and
development opportunities for all employees.
This year, Mapeley successfully rolled out
a management development programme
which is predominantly aimed at senior
managers in the organisation. This is a
bespoke programme which focuses on
developing leadership and management
skills such as coaching, managing
performance and personal effectiveness.
In recognising that a good induction for
new staff is of fundamental importance Regear of London asset Situated close to Westminster and
to the success of the organisation, A key characteristic of our acquisition representing economical central London
Mapeley has developed a new induction strategy is ‘occupier inertia’ – our office accommodation we believed the
programme which provides employees estimation of the probability that our potential ‘occupier inertia’ to be high. The
with role specific training at an early stage target tenants will remain in occupation downside risk was underpinned by excellent
in their career at Mapeley. In addition, the of a particular asset. An excellent redevelopment potential for residential use.
company supports a number of staff to example of this is a re-gear of a lease This investment opportunity satisfied our
gain professional qualifications through within our DPI Portfolio. other underwriting and financial criteria.
further education.
A year before the lease was due to expire Through our regular contact and the
Mapeley continues to review and develop and following extensive negotiations excellent relationship we had built with
a reward and recognition management we were able to agree and complete the tenant we agreed a new 25 year lease
strategy. Remuneration and reward packages a new 25 year lease with the tenant. with a tenant break in 2013 and mutual
are externally benchmarked against breaks every five years thereafter. The
companies of a similar size and industry. We acquired this asset in 2004. The new lease was secured at no cost to
property provides good quality office Mapeley and at the same initial rent of
accommodation, located in London and £1.8 million per year rising to £2 million
is occupied under a lease due to expire per year from September 2008. This
in September 2008. reflected a net initial yield of 7.3% rising
to 8% and an increase in valuation of
Prior to acquisition, we undertook £4.5 million from the last valuation date.
comprehensive underwriting including
a detailed assessment of the risk around
the shorter income stream and the
likelihood that the tenant would wish
to remain in the building.
Mapeley Limited Annual Report 2007 25You can also read
