2012 Results

For immediate release 17 January 2013

LXB Retail Properties Plc

RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2012

LXB Retail Properties Plc, a Jersey resident closed-ended real estate investment company focused on edge of town and out of town retail assets, today announces results for the year ended 30 September 2012.

Highlights

30 September 30 September

2012 2011

·; Cash deposits and liquid investments: £70.1m £112.7m

·; NAV per share: 110.74p 107.97p

·; EPRA* NAV per share: 111.98p 108.19p

·; Earnings per share: 3.71p 10.31p

·; £38.7m deployed on new and existing investments in the year

·; £100m 1.6675% swap facility agreed with Royal Bank of Scotland Plc in the year

·; 21,500 sq ft retail warehouse completed and let to Wickes in the year

·; £12.2m of investment property value created in the year

·; Pre-lets now agreed on 700,000 sq ft of retail space

·; New planning consents to date (including resolutions to grant planning) on 1.66m sq ft

·; New planning consents to date under review by the Secretary of State on 494,000 sq ft

·; 2 foodstores now under construction

·; Development finance of £13.08m with Royal Bank of Scotland for Sheppey foodstore now agreed

·; Development finance of £18.45m with Royal Bank of Scotland for Gloucester foodstore in final discussions

·; Offers accepted on 2 foodstores

* excluding fair values of financial instruments and deferred tax.

Tim Walton, CEO of LXB Manager LLP, the Investment Manager to the Group, commented:

"The Group's portfolio of investment properties is taking shape with planning consents (or resolutions to grant planning consent subject to signing S.106 agreements) secured on the majority of sites."

17 January 2013

For further information please contact:

LXB Manager LLP Tel: 020 7432 7900

Tim Walton, CEO

Brendan O'Grady, FD

Buchanan Tel: 020 7466 5000

Charles Ryland /Sophie McNulty/Helen Greenwood

Forward looking statements

This document includes forward looking statements which are subject to risks and uncertainties. You are cautioned that forward looking statements are not guarantees of future performance and that if risks and uncertainties materialise, or if assumptions underlying any of these statements prove incorrect, the actual results of operations and financial condition of the Group may materially differ from those made in, or suggested by, forward looking statements. Other than in accordance with its legal or regulatory obligations, the Company undertakes no obligation to review, update or confirm expectations or estimates or to release publicly any revisions to any forward looking statements to reflect events that occur or circumstances that arise after the date of this document.

Chairman's statement

Dear Shareholder,

I am pleased to present the Annual Report and Financial Statements for the year ended 30 September 2012.

Since our last Annual Report we have made substantial progress with our business strategy which, at its simplest, is to "Identify, Acquire and Improve" assets with the ultimate aim of assembling a high quality investment portfolio. In broad terms we are through the Identify and Acquire stages - we now have ten core sites and have deployed £213.5m on acquisitions and capital expenditure. Our remaining cash is mainly allocated to these existing projects. The focus for 2013 is to continue to "Improve" these assets by attaining new planning consents and signing agreements for lease.

Planning consents (or resolutions to grant planning consent subject to signing a S.106 agreement) have now been secured on the majority of our sites. During the financial year Banbury, Biggleswade, Gloucester, Sheppey, Stafford and our hotel scheme at Greenwich received planning consent. Since the year end we have secured two more planning consents at Rushden and Greenwich. In October 2012, East Northamptonshire Council resolved unanimously to grant planning permission on our Rushden Lakes site and on 9 January 2013 we received a resolution to grant planning permission from the Royal Borough of Greenwich for the Sainsbury's/M&S scheme. We expect these projects to have a substantial positive impact on the Group's NAV in due course.

Obtaining planning consent is not a foregone conclusion and, even when consent is granted, the planning environment is such that other factors can cause delays. In December 2012 we heard that the Secretary of State has 'called in' the Rushden Lakes consent for a Planning Inquiry. We intend to present the case in support of our scheme with some vigour but this review will inevitably delay both the time when we can start on site and the bringing of much needed investment to the East Northamptonshire area. In our Interim Report I commented on the delays caused by the judicial review challenge at Sheppey; this has now been withdrawn but it delayed our start on site by some months, again in an area where there was significant local support because of the jobs which our investment will bring. On 8 January 2013 we received notice of an intention to challenge our consent at Banbury via a judicial review process which we will also defend robustly over the coming months. In the context of delays of this kind, we welcome the recent announcement of Government plans to improve the position for developers once planners have granted consents locally.

To date, the Group has obtained total planning consents amounting to 1.66m sq ft of floor space, with Rushden Lakes representing a further 494,000 sq ft.

Even when we have secured the site and have obtained planning permission, the Group does not develop speculatively so we will not start building until a scheme is substantially pre-let. Having recently signed an agreement for lease with Asda at Truro, we have now pre-let six of our seven foodstore led developments and we are in advanced discussions on an agreement for lease on the foodstore at Ayr. We also have anchors on three of our fashion schemes and have recently signed agreements with Next to take units at Banbury and Biggleswade. The Group expects to sign tenants for a substantial amount of the remaining space within the portfolio over the coming year.

In order to further minimise risk, the Group signs fixed price building contracts with reputable construction companies and procures a wide variety of development-related insurances, including cover during the construction phase, and for defects, public liability and loss of rent. This ability to manage risks, along with the high level of pre-lets achieved and the quality of tenants that are signed, allows the Group access to keenly priced bank finance from a wide range of lenders. Indeed, we have recently signed a facility agreement with Royal Bank of Scotland to provide £13.08m to finance the Sheppey foodstore development and are putting the finishing touches to a similar facility agreement, also with Royal Bank of Scotland, to provide £18.45m to finance the Gloucester foodstore development. We expect to draw on both these facilities before the end of January 2013.

The culmination of this vital groundwork is to convert the planning permission and pre-lets into reality by building out and creating a solid portfolio of investment properties. Shortly before the balance sheet date our contractor at Gloucester started enabling works on the foodstore development. Practical completion of this scheme is scheduled to occur in July 2013 when Morrisons are due to take occupation. In October 2012, following the withdrawal of the judicial review challenge, the contractor started on site at Sheppey and the initial building phases have commenced, with practical completion of the foodstore and KFC expected to be in May 2013. I should add that we also anticipate further valuation creation at Sheppey and Gloucester as we progress with Phase 2 at both these locations.

Following the granting of planning permission at Greenwich, the Sainsbury's/M&S scheme now has the necessary planning permissions and is fully pre-let. The contractors have substantially advanced the demolition of existing structures and the enabling works have started. I am confident that we will secure funding for the development of this site shortly and we anticipate starting the full building works in the middle of 2013 upon expiry of the judicial review and call in periods.

Although the Group's stated policy is to hold investment properties for long term income and capital growth, your Board will always consider approaches to divest assets if this can be expected to enhance shareholder value. With that in mind we are pleased to report today that offers to acquire two of the Group's foodstore investments have been accepted. Both transactions will close at practical completion and raise gross aggregate proceeds of £46m which represents a combined yield of 4.83% and a total of £13m of shareholder value realisation over the course of the projects. These outstanding yields reflect the market's continuing desire for high quality, investment grade assets of the type that make up the bulk of our portfolio.

The combined result of the aforementioned sales and agreeing development funding will be to make available £18m of Group cash which was not envisaged in the Group's funding model. The Board intends to carry out a review of cash requirements and any surplus may be used to buy back LXB Retail Properties Plc shares where, in the view of the Board, it is accretive to NAV and in the best interests of remaining shareholders so to do. The appropriate resolution to enable such a course of action will be put to the next Annual General Meeting.

Results and financial position

For the year to 30 September 2012, we report EPRA NAV per share of 111.98p, up 3.50% since 30 September 2011.

The valuation of the Group's properties has a huge bearing on the Group's NAV and the Investment Manager provides more detail on how this is calculated in its report. I know shareholders are interested in the timing of when all of the Group's efforts will be reflected in NAV so let me comment further on that. The majority of our investments follow a similar cycle, as follows: site acquired, planning obtained, agreements for lease signed, building contract negotiated, bank funding secured, build commences and then rental income starts flowing. Although some of these milestones may be achieved at an early stage, it is important to recognise that until the final stages of this process the Group's external valuers cannot attribute much of the value creation. So, although significant milestones may have been achieved, the Board believes it would be imprudent to recognise substantial value uplifts whilst key risks have yet to be fully mitigated. Although a lot of effort goes into all of these activities, shareholders should generally only expect to see a material impact on NAV when the investment properties are ready to be built.

The Board is mindful of the commitment as set out in the Company's Articles of Association that a continuation vote will be held at the Annual General Meeting following the end of the financial year to 30 September 2014. We are confident that we remain on track to be able to recognise value creation on all of the Group's investment properties by that time.

At the balance sheet date the Group had £70.1m of cash and other liquid resources and this is all allocated to existing projects or pipeline opportunities. The Group maintains regular dialogue with a range of banks and as mentioned above has negotiated funding for the Sheppey and Gloucester foodstore developments. The Group is confident that it will be able to secure further development and investment financing as and when required to supplement the cash on hand and facilitate delivery of the portfolio.  

Investment policy

We have learned from our experience with some of the Group's investments that shareholder value can often be maximised by including an element of residential and other non-retail development as well as pure retail space. We are also discovering further opportunities of this nature in the course of working very closely with some forward-thinking local authorities. Accordingly, we see merit in clarifying the Group's Investment Policy so that a limited amount of capital can be deployed to residential and other non-retail investment opportunities. It is proposed that the Investment Policy be updated to allow for investment in residential and other non-retail development up to £30m (being approximately 10% of the market capitalisation of the Group as at the date prior to the reporting date) and the appropriate resolution to approve this amendment to the Investment Policy will be put to the next Annual General Meeting.

Directors' remuneration

The current remuneration levels for the Directors were fixed at the time of the Company's flotation (September 2009) with reference to relevant benchmarks and an annual review was proposed in the Admission Document. After three years a further review of the same benchmarks has been completed and more detail on this review can be found in the Corporate Governance section of the Annual Report.

Outlook

In previous statements I have commented on our interaction with local authorities, saying that we like to work with forward-looking local authorities who have a desire to work proactively with us to deliver significant and positive change for their communities. I have also previously highlighted how our close relationship with the key retailers allows us to maintain our best possible understanding of their location strategies. I would also now like to draw your attention to our experiences with another key stakeholder - the local communities whose immediate area we believe we are changing for the better. These local communities are an integral part of our investment projects.

Our experiences at Gloucester, Sheppey and Rushden in particular highlight how our developments are positively perceived by local residents who place particular emphasis on the jobs created. They also recognise that our investment leads to improvements in infrastructure as well as an improved retail offer and competition. We hope that the recently announced Government initiatives to speed up the planning process will minimise any planning related delays so that we can get the Group's capital working for the benefit of all stakeholders as quickly as possible.

The letting market is tough and I do not anticipate short term improvements. There is excess capacity, both in town and edge of town, as a result of the failure of some high profile retailers and, of course, the huge growth in online shopping is also impacting retailers' space requirements. It is vital that we continue to maintain strong relationships with the major retail occupiers and understand how their preferred formats are evolving so that we can continue to ensure that the Group's portfolio offers the space they need.

Despite a difficult economic backdrop and a demanding planning process, your Company has made great progress since the last Annual Report. The shape of the Group's portfolio is clear and our major focus in 2013 is to complete the planning process with new or additional applications which could add another 688,000 sq ft of space at Ayr, Biggleswade, Greenwich, Sheppey, Stafford, Sutton and Truro as well as protecting our position at Rushden and Banbury, and to continue to sign up tenants so that we are able to commission the construction of our investments.

The Board is encouraged with the progress that has been made and we look forward to announcing the achievement of further planning consents, pre-lets and the commencement of building works on more developments in the near future.

Phil Wrigley

Chairman

17 January 2013

Report of the Investment Manager, LXB Manager LLP

LXB Manager LLP advises LXB Retail Properties Plc ("LXB" or "the Group") and is pleased to report on the Group's Financial Statements for the year ended 30 September 2012.

LXB has now established a portfolio of ten core investments which are at various stages of development. Achieving each of these individual development milestones impacts on the amount of additional value that can be recognised on each asset and therefore the uplift on the Group's NAV reported at the end of each financial period.

Investment portfolio

Planning consents

The Group's portfolio of investment properties is taking shape with planning consents (or resolutions to grant planning consent subject to signing S.106 agreements) secured on the majority of sites. The table that follows shows that the Group has obtained total planning consents amounting to 1.66m sq ft of floor spaceup to the date of this report, and that an additional 494,000 sq ft has received planning consent but is subject to a Planning Inquiry.

New planning consents (including resolutions to grant planning) achieved:

* Subject to judicial review challenge

New planning consents subject to review by the Secretary of State:

In addition to the above, the Group intends to apply for planning consents on its remaining sites and to add to existing consented space due to tenant demand. The table that follows shows the additional consents that are envisaged.

Further planning applications anticipated:

Agreements for lease

Obtaining the correct planning consent is only part of the story. The retail space on the Group's schemes needs to be let to tenants and therefore agreements for lease need to be signed. Many of the Group's developments have mezzanine space and, although this space is included in the planning consent, it is (for retail space) generally not rentalised and therefore any reference made to pre-let space in the table below is to rentalised space only. The following table shows that there is 700,000 sq ft of space already pre-let on the Group's developments.

Agreements for lease signed (by sq ft) up to the date of this report:

The agreements for lease signed correspond to total rental income of £15.6m.

As Investment Manager we continue to negotiate with potential tenants, on behalf of the Group, to take space at your schemes. Whilst we are finding that tenants are cautious in their approach to agreements for lease which is understandable given the economic uncertainty that surrounds the retail industry and the wider economy as a whole, we anticipate informing shareholders of further progress on lettings in due course. Securing planning consents is an instrumental part of the process in persuading prospective tenants of the deliverability of a scheme and the progress made to date will assist in giving tenants the confidence to enter into pre-let agreements.

Property details

The Group's most significant investments are discussed in greater detail below.

Ayr foodstore

We are in advanced discussions with a major retailer to take a 101,000 sq ft foodstore at this location.

Discussions with the local council on the masterplan for the district centre and first phase continue to be positive. It is hoped that work will start on the foodstore in 2014.

Banbury Gateway

The Group obtained a resolution to grant planning permission for a 285,000 sq ft shopping park development in March 2012 and confirmation has been received that the Secretary of State does not wish to call in the scheme for further review. The S.106 agreement was signed in December 2012 at which point the formal planning permission was issued. In January 2013 the local authority received notice of a challenge to the granting of consent by way of a judicial review by the owners of competing retail schemes in the Banbury area. The Group intends to defend this challenge robustly.

We have previously reported that a 100,000 sq ft anchor store on two floors has been pre-let to M&S on a 20 year lease. The Group has now agreed a pre-let with Next to take a 40,000 sq ft store on two floors on a 15 year lease. There are a number of ongoing dialogues with other interested retailers seeking representation at this location.

Biggleswade

Planning permission was formally granted in July 2012 for the 320,000 sq ft fashion led shopping park on the main 14.6 acre site and for 15,000 sq ft of retail space on the "Plot S" site. The judicial review period has now expired and negotiations are underway to relocate the existing tenants prior to the implementation of Phase 1. We have previously reported the pre-let of a 60,000 sq ft anchor unit on two floors to M&S on a 25 year lease (with a tenant's break option after 15 years). The Group has now agreed a pre-let with Next to take a 20,000 sq ft store on two floors on a 15 year lease. Terms have also been agreed with one of the existing tenants which, once signed, will enable development to commence.

Gloucester

Detailed planning permission was issued in August 2012 for a 71,300 sq ft foodstore, which has been pre-let to Morrisons, as well as outline consent for 164,000 sq ft of employment space, 11,000 sq ft of car showroom and 8,000 sq ft of restaurants use. Construction of Phase 1 (the Morrisons foodstore) is underway and the enabling works were completed in November 2012. The main building work for the foodstore has commenced following the expiry of the judicial review period and practical completion is expected by July 2013. 

We are in advanced negotiations with Royal Bank of Scotland to provide development finance for the foodstore.

Negotiations are underway with a number of potential occupiers for the remaining floor space within the scheme which will not be built out until pre-lets have been secured. Various occupiers have expressed interest in the commercial space for a variety of uses and it is hoped that the opening of the access to the site will crystallise some of that into firm commitments for which detailed planning consent will be required.

Greenwich

The Group's investments at Greenwich are spread over several locations.

On Bugsby's Way the new Wickes warehouse was completed in May 2012 allowing Wickes to relocate from its store on Gallions Road, granting vacant possession on a key part of the Sainsbury's/M&S site. The demolition and enabling works are well underway on that site in preparation for ground works and the construction phase. A resolution to grant planning permission for the Sainsbury's/M&S was achieved on 9 January 2013 and once a S.106 agreement is in place we would anticipate a start on site in the middle of 2013.

Planning consent has also been secured for the redevelopment of the existing Matalan store, heads of terms have been agreed with the first anchor tenant and solicitors have been instructed. Although the planning will need to be adjusted to accommodate the precise requirements of the tenant the Group hopes to start on site late in 2013. 

At Stone Lake Retail Park, we continue to engage with retailers to let the final vacant unit on behalf of the Group. The increased rent and capital value, which will follow the letting of the vacant unit, will further strengthen the Group's bank covenants.

Rushden

On 11 October 2012 East Northamptonshire Council voted unanimously to grant planning permission for the Rushden Lakes scheme comprising 494,000 sq ft of mixed use retail and leisure space. In December 2012 the Secretary of State decided to call in the development and a Planning Inquiry will be held in due course. We remain confident that the Local Planning Authority's decision to grant planning permission will be upheld.

Rushden Lakes is a £50m building project anticipated to create in excess of 1,500 new jobs which will have significant benefits for the local economy.

A good level of retailer interest has been received and ongoing discussions continue with many of the leading fashion brands.

Sheppey

The last Interim Report included details relating to a legal challenge received by Swale Borough Council in connection with the planning permission obtained at the Neatscourt site on the Isle of Sheppey. In August 2012, these judicial review proceedings were withdrawn allowing LXB to proceed with the development of the site. Work commenced on the Morrisons foodstore and KFC in November 2012 with a target practical completion date in May 2013.

Development finance for the Sheppey foodstore and KFC restaurant will be provided by Royal Bank of Scotland.

The Group intends to submit a revised planning application for Phase 2 of the development in early 2013, which will increase the amount of non-food space from 40,000 sq ft to 67,500 sq ft. Discussions with a number of national retailers are ongoing for this element of the scheme.

Stafford

Good progress has been made at Stafford Riverside with the expiry of the judicial review period and the discharge of the vast majority of the pre-commencement planning conditions. There are now only a handful of conditions outstanding and we anticipate these being satisfied in the near future. 

Progress has also been made on potential lettings with discussions ongoing with five major retailers to take space and a number of potential transactions in solicitors' hands. The conclusion of a number of these would allow site works to start by summer 2013 with an anticipated completion date in mid-2014.

At Stafford Kingsmead, whilst commencement of this scheme remains about 18 months away, progress has been made towards completing the site assembly with an agreement due to be exchanged imminently to acquire an additional part of the site. Like the Riverside scheme, planning permission for this site was achieved in 2012 and the judicial review period has now expired.

The foodstore anchor unit is pre-let to Morrisons and initial discussions have been undertaken with potential tenants for the remaining retail accommodation and expressions of interest have been received. However, these have not been concluded to date owing to the extended timeframe before delivery.

Sutton

The Development Brief for the scheme was adopted by the London Borough of Sutton in September 2012. This provides a planning framework for a foodstore led mixed-use development of the site. Public consultation events have been concluded and pre-application discussions with the local authority are ongoing with a likely date for the submission of a planning application in early 2013. Terms have been agreed to acquire the remainder of the site and for the decommissioning of the gas holders on part of the site. These elements are contingent on the receipt of satisfactory planning permission. 

The foodstore part of the development has already been pre-let to Sainsbury's and the hotel is under offer.

Truro

The Group acquired 100 acres of agricultural land including three dwellings at Higher Newham, to the South of Truro, together with options on 70 acres of land at Willow Green, to the west of Truro, in August 2012. 

The Willow Green land forms part of a wider area of land identified by Cornwall Council in the Threemilestone Development Brief as a major strategic development site for the recognised housing need in Truro, together with a district centre, incorporating a foodstore. A planning application is being prepared in conjunction with the adjoining developer, Walker Group, for approximately 1,200 houses and a foodstore forming part of the proposed larger district centre including 139,000 sq ft of retail space, part of which is pre-let to Asda (78,000 sq ft). 

The project also incorporates the development of the relief road which will help alleviate congestion on the existing network. Land just to the west of LXB's scheme, called Langarth, has already had a planning committee resolution for the provision of approximately 1,500 houses together with ancillary uses, including a Park and Ride extension, the western section of the relief road and a new community stadium.

Investment property valuations

Until the developments are completed and rents are receivable, the change in the valuation of investment properties is the biggest single item affecting the NAV of the Group. This valuation is undertaken by Jones Lang LaSalle Limited, the Group's external valuers, in accordance with the Royal Institution of Chartered Surveyors' Valuation Standards Eighth Edition (the "Red Book") on the basis of market value as required by International Financial Reporting Standards for investment properties that are valued using the fair value model set out within those standards. More detail on the method of valuation can be found at note 9 to the Group Financial Statements but in summary, although the Group's strategy is to build its investment properties for long term income and capital gain, the Red Book states that market value represents the estimated sale price of a property at the date of valuation.

Where a development is considered sufficiently advanced, the valuation at market value reflects the net developed value less the costs to complete with an adjustment for risk. This adjustment for risk varies between projects, for example, the risk adjustment applied to the valuation of a project that has planning permission and 100% of space pre-let to tenants will be lower than the adjustment applied to a project that only has planning permission. This reflects the fact that a less advanced project would mean more of the eventual uplift in value would have to be given away to a purchaser as compensation for risk.

Where actual construction of a property has started or could feasibly start the market valuation of that property reflects the net developed value less the costs to complete but with any contingency for risk likely to be minimal. The amount of valuation uplift attributable to a scheme accelerates when the project is at this stage. Reaching this stage generally also ties in with the ability to both obtain bank finance and sign a building contract. As the Group moves into the building phase of its developments, shareholders can therefore expect to see further increases in NAV.

Revaluation surplus

As described in note 9 to the Group Financial Statements the investment properties held by the Group at 30 September 2012 were valued by external property valuers, Jones Lang LaSalle Limited. In their opinion the open market value of these investment properties at that date was £245.2m resulting in a revaluation surplus for the year of £12.2m. 

Cash position and future expenditure

During the year to 30 September 2012, £38.7m of cash has been deployed in the purchase of and capital expenditure on investment properties. 

At the balance sheet date the Group had £70.1m of cash and other liquid resources and this is all allocated to existing projects or pipeline opportunities. The Group maintains regular dialogue with a range of banks and since the balance sheet date has negotiated funding for the Sheppey and Gloucester foodstore developments. The Group is confident that it will be able to secure further development and investment financing as and when required to supplement the cash on hand and facilitate delivery of the portfolio. 

Tim Walton

On behalf of LXB Manager LLP

17 January 2013

Group Income Statement

for the year ended 30 September 2012

All amounts relate to continuing activities.

Group Statement of Comprehensive Income

for the year ended 30 September 2012

Group Statement of Changes in Equity

for the year ended 30 September 2012

Group Balance Sheet

at 30 September 2012

Group Cash Flow Statement

for the year ended 30 September 2012

1. General information about the Group

LXB Retail Properties Plc was listed on the AIM and CISX markets on 23 October 2009. It is a closed-ended real estate investment company that was incorporated in Jersey on 27 August 2009.

The financial information set out in this report covers the year to 30 September 2012 with comparative amounts relating to the year to 30 September 2011.

The Group Financial Statements include the results and net assets of the Company and its subsidiaries, together referred to as the Group, on a consolidated basis.

Further general information about the Group can be found on its website: www.lxbretailproperties.com.

2. Accounting policies

Statement of compliance

The Group Financial Statements have been prepared in accordance with the International Financial Reporting Standards ('IFRS') adopted for use in the European Union.

Basis of preparation

The financial statements have been prepared on a going concern basis and are presented in pounds sterling.

The financial statements have been prepared on the historical cost basis except that investment properties (defined below), investments and derivative financial instruments are stated at fair value.

The accounting policies have been applied consistently to the results, other gains and losses, assets, liabilities and cash flows of entities included in the consolidated financial statements.

Any revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period. If the revision affects both current and future periods, the change is recognised over these periods.

The preparation of financial statements often requires the Directors to make judgements, estimates and assumptions that may affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. However, the nature and scale of the Group's business in the period since listing has meant that there has been a limited requirement for the Directors to make such judgements or estimates to date. For example, the single most significant line item in the financial statements, "Investment Properties" (comprising completed investment properties and development properties held for investment) have been supported by external valuations. Similarly, the values of derivative financial instruments have been independently assessed on the basis of market rates as at the balance sheet date. Details of the current status of the Group's carried interest arrangements are set out in note 18 and show that no judgements or estimates have been required to be made in this area to date.

The Group's accounting policies for these matters together with other policies material to the Group, are set out below.

Adoption of new and revised standards

No new standards or interpretations issued by the International Accounting Standards Board (IASB) or the IFRS Interpretations Committee (IFRIC) have led to any material changes in the Group's accounting policies or disclosures during the year.

Standards and interpretations in issue not yet adopted

The IASB have issued or amended the following standards and interpretations that are mandatory for later accounting periods and which are relevant to the Group and have not been adopted early. These are:

The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group's financial statements in the period of initial application, other than on presentation and disclosure.

The IASB and IFRIC have also issued or revised IFRS 1, IFRS 3, IAS 19, IAS 27, IAS 28, IAS 32, IAS 34 and IFRIC 20 but the changes either have no relevance to the current operations of the Group or are not expected to have a material impact on the Group's financial statements.

Basis of consolidation

Subsidiaries

Subsidiaries are those entities controlled by the Group. Control is assumed when the Group has the power (directly or indirectly) to govern the financial and operating policies of an entity, or business, to benefit from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Property portfolio

Investment properties

Investment properties are properties owned or held leasehold by the Group which are held for capital appreciation, rental income or both. Investment properties include property that is being constructed, developed or redeveloped for future use as an investment property. Investment properties are initially recorded at cost, including related transaction costs. They are subsequently carried at each published balance sheet date at fair value on an open market basis as determined by professionally qualified independent external valuers, adjusted for the carrying value of rents recognised in advance and lease incentives given to tenants.

The determination of the fair value of each property requires, to the extent applicable, the use of estimates and assumptions in relation to factors such as future rental income, current market rental yields, future development costs and the appropriate discount rate. In addition, to the extent possible, the valuers make reference to market evidence of transaction prices for similar properties.

Gains or losses arising from changes in the fair value of investment properties are recognised in the income statement in the period in which they arise.

In accordance with IAS 40 "Investment Property", no depreciation is provided in respect of investment properties.

Investment property is recognised as an asset when:

• it is probable that the future economic benefits that are associated with the investment property will flow to the Group;

• there are no material conditions precedent which could prevent completion; and

• the cost of the investment property can be measured reliably.

All costs directly associated with the purchase of an investment property are capitalised. Capital expenditure that is directly attributable to the redevelopment or refurbishment of investment property, up to the point of it being completed for its intended use, is capitalised in the carrying value of the property.

Acquisitions and disposals of investment properties are recognised on unconditional exchange of contracts where it is reasonable to assume at the balance sheet date that completion of the acquisition or disposal will occur.

Occupational leases

The Board considers the potential transfer of the risks and rewards of ownership in accordance with IAS 17 "Leases", for all investment properties that are leased to tenants by the Group and determines whether such leases are operating leases or finance leases. Where the Group substantially retains all the risks and rewards of ownership the lease is classified as an operating lease. In the event that substantially all of the risks and rewards of ownership are transferred to the lessee under the terms of a lease then such a lease would be classified as a finance lease. All tenant leases that have been entered into by the Group to date have met the criteria for classification as operating leases.

Net rental income

Rental income from investment properties leased out under operating leases is recognised in the income statement on a straight-line basis over the lease term.

Contingent rents, such as turnover rents, rent reviews, and indexation, are recorded as income in the periods in which they are earned. Rent reviews are recognised when such reviews have been agreed with tenants.

Rent free periods, other lease incentives and any costs associated with entering into tenant leases are amortised evenly over the period from lease commencement to the first break option or, if the probability that the break option will be exercised is considered sufficiently low, over the full lease term.

Rental income from fixed and minimum guaranteed rent reviews is recognised on a straight-line basis over the shorter of the entire lease term or the period to the first break option.

Where such income or costs are recognised ahead of the related cash flow, an adjustment is made to ensure the carrying value of the related property including the accrued rent does not exceed the external valuation.

Property operating expenses are expensed as incurred and any property operating expenditure not recovered from tenants through service charges is charged to the income statement.

Profits on sale of investment properties

Profits on the sale of investment properties are calculated by reference to the carrying value at the previous published balance sheet date, adjusted for subsequent capital expenditure.

Financial instruments

Financial assets and liabilities are recognised in the balance sheet when a member of the Group becomes a party to the contractual terms of the relevant instrument. Unless otherwise indicated, the carrying values of the Group's financial assets and liabilities are a reasonable estimate of their fair values.

Business receivables and payables

Business receivables and payables are initially measured at fair value, subsequently measured at amortised cost and, where material, discounted to reflect the time value of money. If there is objective evidence that the recoverability of an asset is at risk, appropriate allowances for any estimated irrecoverable amounts are recognised in the income statement.

Cash and cash equivalents and current asset investments

Cash and cash equivalents comprise cash in hand, deposits held at call with banks and financial institutions and other highly liquid investments with original maturities of ninety-five days or less.

Current asset investments

Current asset investments, which are categorised as 'available-for-sale' assets on initial recognition, comprise Money Market Fund investments and investments in UK Government Gilts. These short-term equity investments are carried at fair value at each balance sheet date with movements in fair value taken to the other reserve and recognised in the statement of other comprehensive income until such time as the assets are disposed (or impaired) at which point the cumulative fair value gain or loss is reclassified to the income statement.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Finance income

Finance income includes interest receivable on funds invested.

Borrowings and finance charges

Borrowings are initially recognised at their fair value, net of any transaction costs directly attributable to their issue. Subsequently, loans are carried at their amortised value using the 'effective interest method', which spreads the interest expense over the period to maturity at a constant rate on the balance of the liability carried in the balance sheet for the relevant period.

Finance charges are accounted for on an accruals basis using the effective interest method and are added to or offset against the carrying amount of the loan instrument to the extent that they are not settled in the period in which they arise.

Derivative financial instruments

Derivative financial instruments are used to minimise the exposure of the Group to cash flow risks arising from interest rate fluctuations. Derivatives are initially recognised at fair value on the date on which the derivative contract is entered into. Derivatives are re-measured to fair value at each published balance sheet date.

Derivatives are classified either as derivatives in effective hedges or held for trading. It is anticipated that, generally, hedges will be 'highly effective' within the meaning of IAS 39 and that the criteria necessary for applying hedge accounting will be met. Hedges are assessed on an ongoing basis to ensure they remain effective.

The gains or losses arising on the re-measurement to fair value of the portion of derivative financial instruments that qualify as effective hedges of cash flow interest rate risk are recognised directly in other comprehensive income. The gains or losses on the re-measurement to fair value of the portion of derivative financial instruments deemed as ineffective are recognised in the income statement.

Provisions

A provision is recognised when a legal or constructive obligation exists as a result of an event that has occurred prior to the balance sheet date and where it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions will be measured at the Board's best estimate of the expenditure required to settle that obligation as at the balance sheet date, and will be discounted to present value if the effect is material.

Distributions

Distributions on equity shares will be recognised when they become legally payable.

Management fees and incentive arrangement payments

Management fees and incentive arrangement payments are recognised in the income statement in the period to which they relate. Amounts that are reasonably likely to become payable in the future will be provided for in the financial statements and balances will be discounted to reflect the deferred nature of the payment.

Tax

Tax is included in the income statement except to the extent that it relates to items recognised directly in equity, in which case the related tax is recognised in equity.

Current tax is the expected tax payable on taxable income for the reporting period, using tax rates enacted or substantially enacted at the balance sheet date, together with any adjustment in respect of previous periods.

Deferred tax is provided for using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. If applicable to any financial period, the tax effect of the following differences will not be provided for:

• the initial recognition of goodwill;

• goodwill for which amortisation is not tax deductible;

• the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and

• investments in subsidiaries, associates and jointly controlled entities where the Group is expected to be able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

3. Segmental information

During the current year and prior year, the Group operated in and was managed as one operating segment, being property investment, with all investment properties located in the United Kingdom.

The Board, which is considered to be the chief operating decision maker of the Group for IFRS8 purposes, receives quarterly management accounts that are prepared on an IFRS (EU) basis and which aggregate the performance of all the Group's properties and focus on total returns on shareholders' equity.

For the year ended 30 September 2012, 18% of the Group's gross rental income was receivable from one tenant (year ended 30 September 2011: 13%).

4. Operating profit

Included in the auditors' remuneration expensed in the income statement for other non-audit services was £4,250 (30 September 2011: £10,000) for reviews of certain internal controls and processes. In addition, £nil (30 September 2011: £25,000) was paid to the auditors in relation to services provided in connection with equity fundraising. The equity fundraising costs were treated as share issue costs and charged directly to the stated capital reserve.

The Group has no employees.

Fees payable to the Directors in the year were as follows:

During the year the total remuneration of George Baird was increased by £10,000 per annum. The increase relates to his duties as a director of a subsidiary undertaking.

5. Operating leases

The Group enters into operating leases with tenants on its investment properties.

Future minimum rents receivable under non-cancellable operating leases as at 30 September 2012 are set out in the table below. The rents receivable shown in the table are calculated on the assumption that any tenant with a break option chooses to exercise that option.

Leases are generally for fixed terms of between 5 and 15 years and include periodic rent reviews and may include tenant and/or landlord break options.

There was no contingent rental income in the year (2011: £nil).

6. Finance income and costs

Net finance costs recognised in the income statement analysed by the classes of financial assets and liabilities shown in note 14b are as follows:

Sensitivity to changes in interest rates:

Movements in LIBOR impact the valuation of the Group's hedging instruments and the returns on its cash deposits and current asset investments. Increases in LIBOR impact positively on the valuation of hedging instruments and returns on current asset investments in the statement of comprehensive income, and on the interest receivable in the income statement. A 1% increase or decrease in LIBOR would have the following maximum effects on the Group's results:

The average interest rate incurred by the Group on its bank borrowings for the year ended 30 September 2012, including the effects of hedging instruments and the lender's margin but excluding amortisation of capitalised finance costs was 3.8% (30 September 2011: 4.1%).

Further information about the derivative financial instruments, including details of their valuations at each balance sheet date is included in note 14.

7. Taxation

The tax assessed for the year varies from the standard rate of income tax in the UK of 20%. The differences are explained below:

The Group has revenue related losses of £1,113,425 (30 September 2011: £503,710) available to carry forward to utilise against applicable future revenue profits, for which no deferred tax asset is currently recognised.

Tax status of the Company and its subsidiaries

All group undertakings are either tax resident in Jersey or are tax transparent entities owned by Jersey resident entities. Jersey has a corporate tax rate of zero, so the Company and its subsidiaries have no liability to taxation on their income or gains in Jersey. The Company is not subject to UK Corporation tax on any dividend or interest income it receives.

The Group's investment properties are located in the United Kingdom and therefore the net rental income earned less deductible items is subject to UK income tax, currently at a rate applicable to the relevant group undertakings of 20%.

8. Earnings per share

Earnings per share is calculated on 254,099,895 (30 September 2011: weighted average of 184,529,364) ordinary shares in issue for the year and is based on earnings attributable to shareholders for the year of £9,424,960 (30 September 2011: earnings of £19,031,998).

There are no share options or other equity instruments in issue and therefore no adjustments need to be made for dilutive or potentially dilutive equity arrangements.

The European Public Real Estate Association ("EPRA") issues guidelines aimed at providing a measure of earnings per share designed to present underlying earnings from core operating activities only. The adjusted EPRA earnings per share figure is calculated as follows:

9. Investment properties

At 30 September 2012, the majority of the Group's investment properties were valued by Jones Lang LaSalle Limited, Chartered Surveyors, on a fixed fee basis, in their capacity as external valuers. The total external valuation of these properties at 30 September 2012 is £245,225,000 (30 September 2011: £182,800,000). The carrying value of these properties includes a further £nil (30 September 2011: £4,630,174) in respect of mostly accrued land acquisition costs which were not treated as part of the historical cost of the relevant properties in determining the external valuation.

The external valuers' valuation was undertaken in accordance with the Royal Institution of Chartered Surveyors' Valuation Standards Eighth Edition on the basis of market value. Market value represents the estimated amount for which a property would be expected to exchange at the date of valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.

Costs to complete of £nil (30 September 2011: £3,999,632) have been offset against the external valuation.

Properties on which the Group has exchanged contracts at 30 September 2012 and for which there are no material conditions precedent which could prevent completion were carried at the Directors' total valuation of £1,335,000.

Properties that were acquired by the Group on 18 August 2011 at a cost of £882,185 and on 29 September 2011 at a cost of £10,649,802 were carried at the Directors' total valuation of £11,531,987 as at 30 September 2011. These properties were included in the external valuation at 30 September 2012.

The historic cost of the Group's investment properties as at 30 September 2012 was £213,465,846 (30 September 2011: £175,440,387).

Property outgoings were split as follows:

10. Business and other receivables

£1,559,048 (30 September 2011: £172,497) of rents recognised in advance and lease incentives will be released to the income statement in more than one year.

All of the other amounts above are either receivable within one year or will be released to the income statement within one year except for £2,313,000 (30 September 2011: £nil) in other receivables which has been advanced to the provider of the Group's £100m swap facility (see note 14) as collateral due to the current fair value deficit position of the swap at the balance sheet date.

No business receivables were overdue or impaired at the end of either of the above years.

11. Cash and cash equivalents and current asset investments