What does £10.9m profit on IFC 1 actually mean?
JDC has publicly stated that the sale of IFC 1 for £43.7m generated a net return (land and profit) of £10.9m. We combined the two elements because the land was conveyed into JDC in 2004 and held as stock as per international accounting standards, at the lower of cost and Net Realisable Value which is significantly below current open market value.
In order to assess the pure profit element it is necessary to recalculate the land value based on current market values, then allowing reductions for the abnormal obligations placed on IFC 1’s site developer that are not relevant to other sites. These additional costs would be deducted from the land price by third party developers taking on the development of IFC 1.
Open market land value for planning approved office sites is currently around £110 per sq. ft. of net lettable area. This equates to £7.5m for the plot of IFC 1 with Planning consent. However, the site’s abnormalities reduces the land price due to:
i) historic land contamination clean-up costs (£1.08m);
ii) the costs of new public realm facilities associated with IFC 1 (£1.28m); and
iii) 50% of the costs of relocating the surface car park (£270k).
In addition, if the site had been sold, the costs of design and planning fees to secure planning consent (£950k) would also be netted off the land receipt.
The above abnormal costs and design fees reduces the net land price to £3.92m. If deducted from the £10.9m net return, the £7m pure profit provides a healthy return on total cost (excluding aforementioned abnormal costs) of 22%.
JDC debt-financed the majority of the total costs giving a return on equity of more than 80%. If divided by five years from planning consent, the return on equity equals 16% per annum.
Executive bonuses are not directly linked to profit and remain at the entire discretion of the independent Non-Executive Directors who form the Remuneration Committee.
No revenue was lost from public parking because JDC was conditionally required to create a temporary public car park on its adjacent site to ensure there was no loss of public parking spaces.
Unlike other developers, JDC has an obligation to deliver public infrastructure as part of its ongoing Waterfront developments. Next year (2020) JDC will work on the designs and costs to deliver a new 520 space underground public car park with construction planned for 2021.
JDC continues to liaise with its Shareholder with regard to its dividend policy.