Final Results

20th Jun 2006 07:01

Warner Estate Holdings PLC20 June 2006 PART 1 Warner Estate Holdings PLC A YEAR OF EXCELLENT PERFORMANCE AND STRATEGIC PROGRESS Warner Estate Holdings PLC ("Warner Estate" or "Group"), the property investmentcompany has today announced its preliminary results for the year ended 31 March2006. Financial Highlights • Total adjusted return 30.7% (2005: 19.6%)(i) - £85.3million (2005: £47.0 million) • Adjusted net asset value per share up 25% to 741p(ii) • Net asset value per share up 22% to 660p • Triple net asset value per share up 21% to 669p (iii) • Recurring earnings per share 22.9p (2005: 22.3p restated)(iv) • Earnings per share 140.2p (2005: 89.2p) • 35th successive year of dividend growth(v) • Average dividend growth over the last five years of 6.8% per annum(v) • Dividend raised by 6.8% to 19.5p Business Highlights • Property owned and under management up 131% to £2.5billion • Commercial rent roll owned and under management £152million • Successful acquisition and integration of Ashtenne Holdings PLC • Acquisition goodwill on Ashtenne £11.2million, substantially less than £28.9million anticipated(v) • Launch of £256million Apia Regional Office Fund with Morley Fund Management • Substantial expansion of Apia via the purchase of £120million of property • Establishment of the £312million Agora Max Shopping Centre Fund (i) See table 5 for explanation (ii) Adjusted for deferred tax on fair value gains and other items per table 16 (iii) Adjusted as in (ii) and for deferred tax and the fair value of debt per table 16 (iv) Adjusted for net gains on investment properties and other items per table 6 (v) Dividend paid and proposed out of profit for the year (vi) This is less than anticipated due to higher than expected fair values on assets offset by deferred tax on the fair value Philip Warner, Chairman of Warner Estate commented "This has been another year of considerable achievement with the Group achievinga total adjusted return of 30.7% on its shareholders' triple net asset fundsagainst an IPD return of 20.7%. and, following the successful integration ofAshtenne, assets under management rising from £1.1 billion to £2.5billion. Wehave made the move from 50:50 joint ventures to multi-investor funds.. The Group continues actively to seek opportunities and since the year end wehave made a further acquisition for our Radial Distribution Fund and our firstsignificant Central London office purchase for a number of years. We have a skilled and experienced team in place to ensure that progresscontinues. Date: 20 June 2006 For further information contact: Warner Estate Holdings PLC City ProfilePhilip Warner, Chairman Simon CourtenayPeter Collins, Finance Director Tel: 020-7448-3244Michael Stevens, Property DirectorTel: 020-7907-5100Web: www.warnerestate.co.ukWe can be contacted through City Profile until 1pm,and from 2pm at our offices CHAIRMAN'S STATEMENT I am pleased to report another year of considerable success for Warner Estate,in terms of both performance and strategic progress. An excellent performancegenerated a rise of 21% in triple net asset value and a total adjusted return of31%. The Group's asset management business made the strategic move from 50:50joint ventures to multi-investor funds through the successful acquisition andintegration of Ashtenne Holdings PLC and the establishment and expansion of theApia Regional Office Fund with Morley Fund Management. Property undermanagement, including that wholly owned, rose from £1.1billion last March to£2.5billion at the year end and that managed throughout the year increased invalue by 13%. Results Overview This is the first year we have reported results prepared under InternationalFinancial Reporting Standards (IFRS). As I advised in my statement in theinterim accounts to 30 September 2005, these results are very different in theirappearance, but this is purely presentational and has no impact on the substanceof the business. Nevertheless, the last year has been one of substantial changewhich, coupled with the implementation of IFRS, makes it more difficult tounderstand the present position of the business. The changes have largely arisen in the asset management business of the Group asa result of which properties under management, excluding those wholly owned,have risen in value from £0.74billion to £2.13billion at the year end, employeeshave increased from 71 to 187 and the Group now has six regional offices. Thevalue of properties wholly owned by the Group has remained relatively constantat £0.35billion (2005: £0.33billion). Although the accounts show theperformance of the Group for the year, the full benefits of the year's activityare expected to be more apparent during the current financial year particularlyin terms of the asset management business. Pro forma unaudited information forthe Apia Regional Office Fund and the Ashtenne Industrial Fund (AIF) assetmanagement businesses showing the level of profitability of these businesses asif they had been wholly owned and operational for the year compared to theactual results incorporated in these accounts, together with information on theterms on which the management fees are earned, will be found in the FinanceReview. In the year to 31 March 2006 adjusted net asset value per share increased by 25%from 592p to 741p, net asset value by 22% from 540p to 660p and triple net assetvalue (TNAV), on which the Group assesses its total return, by 21% from 551p to669p. At the time of the Ashtenne acquisition we estimated goodwill at£22.8million before taking into account an additional £6.1million of goodwill inrespect of deferred tax required under IFRS, bringing the total estimatedgoodwill to £28.9million, which we considered a fair reflection of the value ofthe asset management business. However, subsequent disposals of property assetshave produced a surplus of £17.7million, equivalent to 33p a share, whichreduced the goodwill to £11.2million, although the real worth of the assetmanagement business has been maintained, if not increased. The total adjustedreturn of 31% takes that surplus into account and comfortably exceeds the IPDAll Fund Universe (March 2006) return of 20.7%. Pre-tax profits have increased by £36million to £91million. A significantproportion of this increase is due to a £35million increase in the fair valuegains (including our share of joint ventures) to £73million. The Group alsomade substantial realised profits of £11million on the disposal of propertiesand investments, an increase of £3million on last year. Recurring pre-taxprofits, which are a measure of the Group's core maintainable income, were up 9%to £15.9million (2005:£14.6million). Recurring earnings per share were 22.86p (2005: 22.28p) and basic earnings pershare, which include the fair value gains, were 140.17p (2005: 89.20p). Thegrowth in earnings was depressed by the placing of 5% of the Company's shares inearly April 2005, to help fund the acquisition of Ashtenne Holdings PLC in lateMay 2005, the full benefits of which did not start to flow until 100% ownershipwas achieved on 1 December 2005. Adjusted shareholders' funds were £393million (2005: £298million) which, afterdeducting for the £13.6million of equity raised in April 2005 to help fund thepurchase of Ashtenne Holdings PLC, represents an increase of 27% afterdividends. Shareholders' funds were £351million (2005: £272million). Adjusted gearing decreased slightly to 48% (2005: 51%) and currently stands at51% following the recently announced London office purchase, still comfortablybelow the Group's internal policy ceiling of 100%. The Group's share of debtwithin the funds and joint ventures was £348million (2005: £323million), all ofwhich is non-recourse. Interest was covered 1.9 times (2005: 1.6 times) byrecurring profit before interest and tax. A more detailed analysis of the year will be found in the Reviews from theProperty Director and the Finance Director that follow this statement. The Board recommends a 6.8% rise in dividends per share from 18.25p to 19.5p,the Company's 35th successive annual increase. Over the last five years thedividend has been raised by 6.8% per annum compound, well above the rate ofinflation. The dividend is covered 1.2 times by recurring revenue earnings and,if approved at the Annual General Meeting, the final dividend per share of 10.0pwill be paid on 15 September 2006 to shareholders on the register at close ofbusiness on 18 August 2006. It remains the Board's policy to pay a progressiveand above inflation increase in dividend. Strategy Five years ago the Group embarked upon the still current and successful strategyof building an asset management business with an emphasis on the quality andquantity of income. Last year's transactions illustrate particularly well theprogress which has been made from the wholly owned £290million portfolio inMarch 2001 to the £2.5billion of property under management at this year end,with the ownership structure moving from wholly owned to include 50:50 jointventures and multi investor funds as the Group established its reputation. During the year we acquired Ashtenne for its asset management of the AIF whichhad assets under management of £690million and six regional offices. Followingsuccessful integration, AIF achieved a 25.7% return in its year to December 2005and at the year end had £986million of assets under management. Ashtenne alsoowned a number of other assets including European assets, most of which havebeen sold, but a move by the Group into Europe in due course has not been ruledout. In June 2005, the Apia Regional Office Fund was established with the merger ofassets held in the Skipper Jersey Property Unit Trust (JPUT) with a £63millionJPUT owned by Morley Fund Management. This created a £256million fund which wassubsequently increased by £120million through a purchase of further propertiesin November 2005 from the Co-operative Insurance Society. The Fund had£417million of assets under management at the year end and now has fiveinvestors. In October 2005, the Group created the Agora Max JPUT, a sub-regional shoppingcentre fund valued at £312 million and owned 50:50 by ourselves and Bank ofScotland, as is the Radial Distribution joint venture, which now has £198millionof assets under management following an £18million purchase after the year end. It remains our intention to continue this expansion through both the existingfunds, where the Group has asset management contracts, and the formation oracquisition of further funds as dictated by research and opportunity. An important part of our asset management process is development, particularlyin the Agora and Agora Max shopping centres where there is a pipeline of morethan 500,000sq.ft. Outside the funds, our 200,000sq.ft. shopping centredevelopment at Folkestone with Bride Hall Group, the specialist developmentcompany in which we have a 25% interest, is making good progress and we expectthe Bride Hall connection to lead to further such projects. In particular, inAylesbury, where the Group owns the Hale Leys shopping centre, a CollaborationAgreement has been signed with Aylesbury Vale District Council for thedevelopment with Bride Hall of 265,000sq.ft. of new retail space. We arebuilding our own in-house team to manage the increase in the Group's developmentopportunities. The year has also seen the promise of a welcome change to the regulatoryenvironment in the proposed legislation to permit the formation of Real EstateInvestment Trusts (REITs) with effect from 1 January 2007. As presently drafted,it is probable that the Group will take advantage of this change. However, weshall review the legislation when the Finance Bill is enacted and theregulations published and consider at that time whether conversion to REITstatus is in shareholders' interests. Shareholders As referred to above, 5% of additional stock was issued in April, raising a net£13.6million. In February 2006, 14% of the Company's equity, which was held byTrefick Ltd, was placed with a group of institutional shareholders, reducingTrefick Ltd's stake to 13.75%. These transactions have given the Group a muchbroader shareholder base and encouraged an increased turnover in the Company'sshares. Prospects The Group is well placed, with £2.5billion of property under management, tobenefit from the sustained strong performance of the commercial property market.Despite rises in gilt yields and swap rates, demand for property continues,driving prices still higher. The advent of REITs is expected to reinforcedemand, although the concerns leading to falls in equity markets worldwide mayprove a sobering influence. Rising prices will make the task of expanding ourfunds more challenging. However, we have bought well and, with efficientmanagement of existing assets and a substantial development pipeline, theGroup's performance is not dependent on further purchasing. I am confident ofcontinuing progress and thank our skilled and experienced team for making thispossible. Philip WarnerChairman PROPERTY REVIEW This year we have more than doubled our assets under management, from£1.1billion (March 2005) to £2.5billion (March 2006). It is rewarding that thishas been achieved through a number of factors: organic growth from enhancing thevalues of existing stock; the acquisition of new assets by existing businesseswhen competition for stock has been fierce; and corporate activity in purchasingAshtenne Holdings PLC. Through acquiring Ashtenne, we took over the asset management remit for the£690million Ashtenne Industrial Fund (AIF), a mature, multi-investor fund,co-managed by Morley Fund Management. This was an important step, being ourfirst multi-investor fund, rapidly increasing our exposure to multi-letindustrial investments, for which we had earlier set up our £27million Barewayjoint venture with Barclays. The Bareway properties along with £51million fromour wholly owned portfolio were subsequently sold to the Ashtenne IndustrialFund. In November 2005 we sold the t3 Trade Park Fund, co-managed by Ashtennewith AXA REIM for £96million, triggering a performance fee of £4.4million whichwas taken as a reduction in the purchase cost of Ashtenne. We have sold the majority of the properties wholly owned by Ashtenne which weresurplus to our requirements, including development land at Falkirk and Hull,three small properties in Germany and Belgium and a portfolio of nine assets,some with residential potential. Disposals were achieved ahead of the valuesanticipated at the time of purchase of Ashtenne, which again reduced the cost ofthis purchase. In June 2005 we launched the Apia Regional Office Fund, also co-managed withMorley. The assets from our Skipper Regional Office Jersey Property Unit Trust(JPUT) with Royal Bank of Scotland were merged with £63million of complementarystock from Morley, creating a fully fledged £256million unitised fund. InNovember 2005 a further £120million of regional office investments were acquiredand the Fund now stands at over £400million with a target size of £750million bythe end of 2008. In March and May 2006 two new investors joined the Fund,increasing its profile as a multi-investor vehicle. In October we launched the Agora Max Shopping Centre Fund, with the £152millionpurchase of The Pallasades Shopping Centre, Birmingham in a JPUT. This createda second shopping centre joint venture with Bank of Scotland, building on thesuccess and experience of the Agora Shopping Centre Fund. A second asset, thecombined shopping centres of The Grange and Pyramids at Birkenhead, waspurchased from the Agora Shopping Centre Fund in March 2006 and the Agora MaxShopping Centre Fund now has over £300million under management. It will ownsub-regional shopping centres of £100million to £200million in value, withstrong medium term development potential. The Agora Shopping Centre Fund sold The Square at Sale, Greater Manchester inNovember for £40million after a successful £7million extension andrefurbishment. Zone A rents were driven from around £30 per sq.ft. to over £50per sq.ft., well ahead of expectation and with the first wave of activemanagement initiatives completed it was logical to sell, earning our secondperformance fee from Agora. We continue to make good progress with ourpreparations to redevelop and extend The Market Place at Bolton and Fishergate,Preston, both of which we expect to start this year. The 45,000 sq.ft. (4,180sq.m.) first phase extension to the Middleton Shopping Centre completes in Junethis year with 73% pre-let to Peacocks, Quality Save and Streetwise Sports. Our Radial Distribution Fund joint venture with Bank of Scotland acquiredImmanis, a warehouse let to Panasonic at Brackmills, Northampton for £8millionand since the year end has purchased the 218,872 sq.ft. (20,333 sq.m.) AccidentExchange Group warehouse at Hams Hall, Birmingham for £18million. Radial soldthe former Sainsbury's distribution unit at Yate, Avon in September 2005 for£18.6million after a successful lease re-gearing with Morrisons supermarketgroup. Our policy of co-investment in each fund aligns our interests with our partnersand allows us to leverage our resources. We concentrate on asset management andmaking the property assets perform; our fund management partners deal withinvestor relations, fund marketing and FSA compliance issues. As indicated last year, the wholly owned properties are no longer treated as afund. Their performance is part of the benchmarking of the whole Group whichallows for more entrepreneurial activity and less adherence to sector weighting.The Royals Shopping Centre, Southend was purchased for £48million in November2005 from Co-operative Insurance Society along with a leasehold liabilityportfolio of 105 former CIS offices, which will be sublet, surrendered orassigned; we have to date already disposed of 18 with a further 9 in solicitors'hands. Construction started on the 200,000 sq.ft. (18,581 sq.m.) Bouverie PlaceShopping Centre at Folkestone which we are developing in partnership with BrideHall Group, the specialist development company in which we have a 25% interestand we signed a Collaboration Agreement with Aylesbury Vale District Council inMarch 2006 as preferred developer for the 265,000 sq.ft. (24,620 sq.m.)extension to Hale Leys Shopping Centre, Aylesbury. We have grown each area of our business throughout the year. The teams whichrun each fund are specialists in their fields. Their concentration onspecialisation increases focus which is the key to out-performance, inparticular knowledge of our markets and our tenants and anticipating tenantbusiness needs for mutual benefit. Each team is now led by a managing directorof the business unit, increasing the sense of ownership and responsibility. Thespecialist business units have been established with REITs in mind - investorscan judge the risk/return characteristics of each property sector/sub-sector andmake their choices accordingly. Our challenge for next year is to grow our asset management business byincreasing the size of those funds already established and ensuring theirrelative out-performance, by establishing new funds and by generating new andbetter quality income streams. Sector specific derivatives and increased levelsof secondary trading of property fund units will bring greater sophisticationand liquidity to the market. However, owning tangible assets with the potentialto add value remains the key attraction of the property sector. Whilst amultitude of investment vehicles have brought investors into property, thechallenge for management is to deliver returns in line with expectations in aclimate of more limited yield compression. In such an environment we areconfident that our asset management abilities will come to the fore allowing usto continue to deliver out-performance. Valuation/Performance During the year, properties under management increased from £1.077billion to£2.487billion due to activities described above. Our standing investments,those held throughout the twelve months (excluding trading), increased overallby 13.4% from £935million to £1,060million, a £125million uplift over the year. The IPD All Fund Universe Index over the 12 months to March 2006 recorded totalreturns for all property at an average of 20.7%, driven substantially by strongcapital returns as its all property average net initial yield fell from 6.6% to4.9%. There was around £51billion of investment activity in the 2005 calendaryear beating the previous record set in 2004 by £11billion. Our preliminary results for individual funds are as follow:- Table 1 Performance Sub-Sector Benchmark (Total Return)Apia* 33.7% 19.5%AIF 31.3 19.2%Agora Max n/a 17.6%Agora 42.2 17.6%Radial 54.2% 18.3%*From inception in June 2005 These returns do take account of transactions during the year. Development Activity We are undertaking development projects in both the wholly owned portfolio andall of our funds. These initiatives are planned to generate additional newincome, development profit and improved investment performance. Projects willbe undertaken either in house under John Peacock, our newly appointed Directorof Development, or in conjunction with Bride Hall. A summary of our development activity: Table 2 Scheme Business Size (sq.ft.) Status Area AIF - Development Land AIF 190 acres Various schemes under considerationAIF - Chippenham AIF 50 acre existing Outline planning application submitted in industrial site March 2006 with ASDA for potential retail and residential uses.The Grange and Pyramids Shopping Agora Max 6 new units - 1,000 Works on site. Practical completionCentre each programmed for July 2006.Birkenhead - Phase 1, NewFoodcourtThe Grange and Pyramids Shopping Agora Max 30,000 Proposed new retail unit at entrance toCentre shopping centre. Planning permission granted May 2006.Birkenhead - Phase 2, New retailunitThe Grange and Pyramids Shopping Agora Max c. 100,000+ A master plan being discussed with theCentre local authority.Birkenhead - Master planningPallasades, Birmingham Agora Max c. 100,000+ Discussions ongoing with Network Rail and local authority over plans to upgrade station and retail area above.Preston, Fishergate Agora 190,000 Planning permission granted in September 2004. Scheme will be phased.Bolton Market Place Agora 100,000 Planning permission and Listed Building Consent granted in March 2005.Middleton - Phase 1 Agora 45,000 Works on site. Practical completion programmed for June 2006.Middleton - Phase 2 Agora 17,500 Planning permission granted in April 2005.Bardon, Leicester Radial 51,500 Planning consent granted for warehouse extension in April 2006.Severnside, Bristol Radial 30,000 Planning permission for warehouse extension granted in February 2006.Folkestone Wholly owned 200,000 Forward funding, works on site; programmed to complete in June 2007.Aylesbury, Hale Leys Shopping Wholly owned 265,000 Preferred developer appointed by localCentre - Phase 2 authority in March 2006.Southend, The Royals Shopping Wholly owned 38,000 (incl. Extension of existing TK Maxx Store.Centre - Phase 1 existing)Long Eaton Wholly owned 45,600 Viability and feasibility assessments underway.Total 1,218,600 + 240 Of which 670,000 sq.ft. (55%) has acres planning consent and / or has started The scale of development and refurbishment activity varies considerably in size,but all projects are carefully managed to control risk through pre-lettingbefore construction starts and securing maximum price or fixed price contractsfrom builders. In Bolton for example, we have agreed on behalf of Agora termsproviding the Fund with an option to secure vacant possession when it is readyto proceed with the Market Hall development. This is expected to be in 2007.In Bardon, we have secured planning approval for Radial for an extension to itsdistribution warehouse investment and discussions are now progressing with anoccupier. For AIF, we continue to identify development initiatives across itsportfolio. KEY STATISTICS Table 3 Total under management Wholly owned* 31 March 2006 31 March 2005 31 March 2006 31 March 2005Capital Value £2,487million £1,077million £344million £327millionAnnualised rent roll £151.5million £72.8million £20.7million £23.7millionInitial Yield 5.8% 6.5% 5.7% 6.9%Average Unexpired Lease 4.25 yrs 9.4 yrs 12.2 yrs 10.6 yrsTermVoid Rate 9.5% 3.0% 4.0% 4.0%Number of Properties 499 104 75 72Average Lot Size £4.99million £10.36million £4.59million £4.54million * Investment properties and properties under the course of development, wherethe capital value is before the accounting adjustment for ground lease interestfor leasehold properties of £1.1m (2005: £1.1m). The breakdown by sector at 31 March 2006 was as follows: Table 4 No. of Capital Annual ERV Net Weighting Properties Value Rent Roll initial £million £million £million yieldRetailRetail Warehouses 6 26.6 6.4High Street 11 117.2 1.7Retail sub total 17 143.8 8.1 9.6 5.30% 42% Offices sub total 26 118.0 8.1 8.8 6.48% 34% Distribution 3 16.4 0.9Industrial 14 53.3 3.6Distribution & Industrial sub total 17 69.7 4.5 5.4 6.07% 20% Land 5 0.5 - - - -Development 1 12.3 - - - 4%Total 66 344.3 20.7 23.8 5.63% 100% Trading (Inventories) 10 10.9 0.5 0.7 6.36% Total wholly owned 76 355.2 21.2 24.5 5.68% No. of Capital Annual ERV Net Properties Value Rent Roll initial £million £million £million yieldAggregate of all propertiesApia Regional Offices 20 417.3 26.0 28.9 5.85%Ashtenne Industrial 387 986.0 63.0 76.9 6.03%Agora Max Shopping Centres* 2 311.9 16.9 22.9 5.10%Agora Shopping Centres* 4 236.7 12.9 15.4 5.03%Radial Distribution* 10 180.0 11.5 11.6 6.03%Wholly owned* 76 355.2 21.2 24.5 5.68%Total under management 499 2,487.1 151.5 182.2 5.75% * Capital value is before accounting adjustments for ground lease interest forleasehold properties, and certain properties treated as finance lease assets. APIA REGIONAL OFFICE FUND - Value £417million - Rental Income £26million pa The Apia Regional Office Fund was established in June 2005 and has an existingportfolio of 20 properties with a combined value of £417million representingover 1.7million sq.ft. (159,140 sq.m.) under management. The Fund focuses onoffice investments with asset management potential in the principal regionalcities in the UK. Apia is asset managed by Warner Estate; the Fund Manager isMorley Fund Management. There were four investors in the fund at 31 March. Afifth joined in May 2006. Offices have become the favoured sector over the last year with investors takingadvantage of the potential growth in the financial services sector boostingrental growth in the short to medium term, not only in central London, but alsoin prime locations within the stronger regional economic centres where totalreturns have historically been less volatile than London and underpinned by ahigher proportion of income and less speculative development. ABERDEEN, NEW TELECOM HOUSESize - 84,764 sq.ft. (7,874 sq.m.) An eleven storey, 1970's office investment close to Aberdeen railway stationwith 47 car parking spaces. The building is let to British Telecommunications. EDINBURGH, APEX 123, HAYMARKET TERRACESize - 94, 522 sq.ft. (8,781 sq.m.) A four storey modern air conditioned building located close to HaymarketStation, one mile west of the city centre with 135 car spaces. Tenants includeScottish Enterprise, Secretary of State for the Environment, Edinburgh FundManagers and Abbey National Bank PLC. A refurbishment of 17, 836 sq.ft. (1,657sq.m.) has just completed and the upgraded space will be let to generateevidence of rental growth. GLASGOW, 225 BATH STREETSize - 87,578 sq.ft. (8,136 sq.m.) A seven storey office building, built in 1978 and substantially refurbished in1997, located in Glasgow's CBD (central business district) with 33 surface carspaces, let to two principal tenants, National Australia Group and Teletech Ltd.Teletech's lease on 65,439 sq.ft. (6,079 sq.m.) expires in July 2006. We havebeen working with them to secure new tenants and have pre-let a floor (13,383sq.ft./1,244 sq.m.) to Faber Maunsell. A refurbishment programme will beinitiated in the summer this year to upgrade the vacant space and createimproved rental income. GLASGOW, LOMOND HOUSESize - 64,331 sq.ft. (5,976 sq.m.) An eleven storey 1990's office investment within Glasgow's CBD with 23 basementcar parking spaces. The building is let to Intel and Deloitte & Touche. NEWCASTLE, ST ANN'S WHARFSize - 57,897 sq.ft. (5,378 sq.m.) A five storey 1990's multi-let Grade A office investment on Newcastle's Quaysidewith 197 car parking spaces. Principally let to Dickenson Dee Solicitors withwhom agreement has been reached for a lease variation which will increase rentalincome. NEWCASTLE, HAMPSHIRE COURTSize - 118,246 sq.ft. (10,985 sq.m.) Three office buildings on Newcastle Business Park, 1.5 miles from Newcastle Citycentre with 387 car parking spaces let to Lombard North Central, WSP, Fujitsu,Norwich Union and SoS for the Environment. Discussions are underway with anumber of tenants to extend their leases. LEEDS, YORKSHIRE HOUSE, GREEK STREETSize - 81,293 sq.ft. (7,552 sq.m.) A seven storey office building with ground floor retail and A3 units and 45basement car parking spaces in Leeds CBD. The office tenants include LuptonFawcett and AIG with the retail units let to Lloyds TSB, Target PIL and RegentInn. A refurbishment programme is being discussed with the principal tenant,Lupton Fawcett, to upgrade their specification and re-gear their leases. PRESTON, PRESTON OFFICE CENTRESize - 144,417 sq.ft. (13,417 sq.m.) A ten storey, 1970's office investment within Preston city centre with 97 carparking spaces. Let principally to Trillium (Prime) Property and occupied byGovernment departments. MANCHESTER, NORFOLK HOUSESize - 54,614 sq.ft. (5,073 sq.m.) A five storey modern air conditioned office building built in 1996 withinManchester's prime office core, providing 47 car parking spaces. Occupiersinclude Halliwells LLP, Secretary of State, Zurich and Watson Wyatt LLP. Thecommon parts are being upgraded and refurbished to enhance the buildingappearance. MANCHESTER, 81 FOUNTAIN STREETSize - 39,900 sq.ft. (3,707 sq.m.) A nine storey office building constructed in 1987 and located in Manchester'soffice core, with 19 car parking spaces. The building is let to BUPA. Sub-letspace which has become vacant will be upgraded and refurbished which shouldimprove the rental tone in the building, when re-let. MANCHESTER, SUNLIGHT HOUSESize - 197,289 sq.ft. (18,329sq.m.) A fifteen storey, 1930's landmark office investment within Manchester's CentralBusiness District with 212 car parking spaces. Let to SoS for the Environment,SoS for Transport, Building Design Partnership, Capita and others. NOTTINGHAM, YORK HOUSESize 79,020 sq.ft. (7,341 sq.m.) An eight storey, 1960's office investment within Nottingham city centre with 73car parking spaces. Let principally to Nottingham Trent University until 2008. BIRMINGHAM, 120 EDMUND STREETSize - 138,200 sq.ft. (12,839 sq.m.) A nine storey Grade A office building in Birmingham's prime office district with104 basement car parking spaces. The building is let to tenants including HSBCBank and Donaldsons. A vacant part floor of 6,992 sq.ft. (650 sq.m.) is beingmarketed. SOLIHULL, SAPPHIRE COURT, STREETSBROOK ROADSize - 87,563 sq.ft. (8,134 sq.m.) A three storey multi-let office building close to Solihull Railway Station,constructed in 1986 including 266 surface car parking spaces. 45% of the incomeis received from the Government with the remainder let to investment gradecovenants or subsidiaries. Sub-let space which has become vacant will beupgraded and re-let to improve the rental tone in the building. MILTON KEYNES, ASHTON / NORFOLK HOUSESize - 120,019 sq.ft. (11,150 sq.m.) A three storey, two building 1970's multi-let office investment within MiltonKeynes CBD. The building is let to tenants including Deloitte & Touche, AbbeyNational and Barclays Bank. CARDIFF, OAKLEIGH HOUSESize - 41,038 sq.ft. (3,813 sq.m.) A three storey 1990's single let office investment within Cardiff's CBD with 23car parking spaces. The building is let to Cunningham Lindsey. WIMBLEDON, ST GEORGE'S EASTSize - 59,604 sq.ft. (5,537 sq. m) A six storey, 1980's mixed use office and retail investment within Wimbledontown centre with 35 car parking spaces. The office building is let and occupiedby the BIS Group Company and the retail units are let to Lloyds TSB, Starbucksand Dixons. KINGSTON, SURREY & LEVER HOUSESize - 164,851 sq.ft. (15,315 sq.m.) A prominent island site at the southern tip of Kingston town centre, with twoprincipal office buildings (Surrey House and Lever House) providing officeaccommodation including ancillary retail units at ground floor level, anightclub and a three storey car park. Tenants include Lever Faberge, HMV andMultiyork. We expect the multi storey car park may shortly be re-let by tenderon a conventional lease of 10-15 years. BRISTOL, WESTGATESize - 90,924 sq.ft. (8,446 sq.m.) A six storey landmark Grade A building in Bristol city centre, comprehensivelyrefurbished in 1992 with 63 basement car parking spaces. Royal & Sun Allianceoccupy the entire building. BRIGHTON, SUSSEX HOUSESize - 36,996 sq.ft. (3,437 sq.m.) A six storey, 1980's office investment within Brighton town centre with sixbasement car parking spaces. The building is let to Lloyds TSB. ASHTENNE INDUSTRIAL FUND - Value £986million - Rental Income £63.0million pa The Ashtenne Industrial Fund was established in July 2001. The Fund invests inmulti-let industrial properties throughout the UK. The focus of the Fund isintensive asset management, with a view to generating both a high income returnand consistent capital returns. AIF is asset managed by Warner Estate from sixoffices around the country and fund managed by Morley Fund Management. The Market has been strong throughout the last 12 months for industrialproperty, particularly multi-let estates which offer asset management potential.However, investors have become more selective and demand has concentrated onwell located, recently built estates with rental growth potential. As at 31st March 2006, the Fund had a gross asset value of £986million,comprising 387 assets totalling 19.4million sq.ft. (1,803,984 sq.m.). The Fundis open to professional investors with over £1million to invest. A sample ofthe main properties is set out below:- CREWE, CHESHIRE, RADWAY 16Size - 273,900 sq.ft. (25,500 sq.m.) The well established Business Centre has been redeveloped and refurbished toprovide a variety of business space designed to meet the demands of today's 24hour / 365 day business occupiers. The Business Centre is set within securelandscaped grounds, with excellent circulation and parking facilities. CHIPPENHAM, LANGLEY PARK Langley Park comprises a large prominent industrial estate lying adjacent toChippenham railway station and Hathaway Retail Park on the north eastern side ofthe town. The Park extends to 48 acres and comprises 815,000 sq.ft. (75,716 sq.m.) ofindustrial accommodation. Langley Park is a landmark site which has been identified in the Local Plan forfuture mixed use redevelopment. An outline planning application was submittedin March 2006 for the redevelopment of 33 acres. CRAYFORD, KENT, OPTIMA PARK The site extends to 11.93 acres which is being developed in two phases. Phase 1comprised 140,000 sq.ft. (13,006 sq.m.) of B1(c), B2 and B8 uses and wascompleted in November 2005. The units range in size from 2,000 to 25,000sq.ft., with the terrace fronting onto Thames Road, being ideal for tradecounter operators. Nine industrial units have been sold totalling 70,300 sq.ft.equating to circa £7.1million of sales. The remaining 4.95 acres (Phase 2) offers design and build opportunities foroccupiers' requirements from circa 20,000 sq.ft. to 80,000 sq.ft. PORTSMOUTH, MOUNTBATTEN BUSINESS PARK Mountbatten Business Park is prominently located at Jackson Close, to the northof Portsmouth town centre. The development comprises two phases of industrialaccommodation extending to 151,612 sq.ft. (14,084 sq.m.) in total. Planningconsent includes uses within B1, Bs and B8. A recent letting of one of theTrade Units has just been completed at £10.00 per sq.ft. AGORA MAX SHOPPING CENTRE FUND - Value £312million - Rental Income £16.9million pa Agora Max Shopping Centre Fund, which is a Jersey Property Unit Trust, wascreated in October 2005 with the aim of producing consistent high investmentreturns from the ownership and active management of a portfolio of sub-regionalshopping centres across the UK. It is owned 50/50 with Bank of Scotland andinvests in shopping centres of between £100million and £200million with strongmedium term development potential. The Fund acquired the Pallasades Shopping Centre in Birmingham in October 2005.The Grange and Pyramids shopping centres in Birkenhead were purchased from theAgora Shopping Centre Fund in March 2006. We have 0.9million sq.ft. (83,864sq.m.) under management. The retail sector has suffered from challenging trading conditions on the HighStreet with retailers squeezing suppliers to maintain their margins. Asinvestment yields have continued to fall, the best prospects lie with assetmanagers who can improve the shopping experience and retail offer to attractmore discerning consumers into their schemes, whether in shopping centres orout-of-town retail parks. BIRKENHEAD, THE GRANGE & PYRAMIDS SHOPPING CENTRESize - 613,000 sq.ft. (56,949 sq.m.) The scheme comprises the major retailing element of the town centre, anchored bya number of major national retailers including Marks & Spencer, Argos, Dixons,WH Smith, Next and TJ Hughes, providing circa 160 retail units and 1,225 carparking spaces. Phase I of our redevelopment, a major reconfiguration of thefood court providing 6 new units, 4 of which are pre-let to Burger King, SayPotato, Subway and BB's Cake & Muffins, is due to complete in June 2006. Ourplanning application for Phase II, a 30,000 sq.ft. (2,787 sq.m.) reconfigurationof the St John's Pavement site was submitted in March 2006 and approved in May2006. A master planning exercise has been initiated to provide new space forretailers currently unrepresented in the town. BIRMINGHAM, PALLASADES SHOPPING CENTRESize - 290,000 sq.ft. (26,915 sq.m.) Pallasades Shopping Centre occupies a prime location above Birmingham's NewStreet Station and forms part of Network Rail and Birmingham City Council'splans for the redevelopment of the station and its immediate surroundings. Pallasades is anchored by a number of major national retailers including Argos,Boots, HMV and Woolworths and served by a 1,000 space multi-storey car park. Our asset management plan identifies a number of initiatives to attract newretailers to the scheme to help improve the footfall circulation and repositionthe tenant mix. AGORA SHOPPING CENTRE FUND - Value £237million - Rental Income £12.9million pa The Agora Shopping Centre Fund is a 50/50 joint venture with Bank of Scotlandwhich was launched in March 2003. The business owns town and city centreshopping centres in the heart of the Northwest. Each shopping centre is capableof dominating the local retail offer and has strong asset management potential.Agora currently owns four shopping centres totalling 1.07million sq.ft. (99,232sq.m.) following the disposal of The Square, Sale, in November 2005. PRESTON, FISHERGATE SHOPPING CENTRESize - 360,000 sq.ft. (33,445 sq.m.) Fishergate Shopping Centre is situated next to Preston railway station on aneleven acre site and is anchored by Debenhams. Primark are opening a newflagship store over the summer, and we are underway with a scheme to finishrefurbishing the Fishergate entrance, which has seen the introduction ofStarbucks and Lush to the tenant line up. Discussions with potential tenants topre-let our phased 190,000 sq.ft. (17,625 sq.m.) extension are underway. BOLTON, MARKET PLACE SHOPPING CENTRE AND MARKET HALLSize - 333,123 sq.ft. (30,948 sq.m.) Market Place is a prime retail location in Bolton. Planning consent has beenobtained for a redesign and extension of 100,000 sq.ft. (9,290 sq.m.) to theattached Listed Victorian Market Hall. In February 2006, we secured conditionalagreement with all of the Market Hall tenants to achieve vacant possession aheadof the development. Pre-letting discussions are underway with new tenants andthe scheme could be initiated in early 2007. LIVERPOOL, CAVERN WALKS SHOPPING CENTRESize - 30,580 sq.ft. (2,842 sq.m.) of retail and 79,240 sq.ft. (7,362 sq.m.) ofoffice space Cavern Walks Shopping Centre, although the smallest of the Agora shoppingcentres, is the most fashion led in the group offering a wide variety of highprofile designer retailers right in the heart of Liverpool's city centre.Tenants include Cricket Designwear, Versace, Dolce & Gabbana, Arrogant Cat andVivienne Westwood. We are seeking to capitalise on these lettings, and improvedwell times by further improving the tenant mix with complementary leisure andbeauty orientated uses. The office accommodation, now fully let, addssignificantly to the footfall. MANCHESTER, MIDDLETON SHOPPING CENTRESize - 272,300 sq.ft. (25,300 sq.m.) Situated on the main route north of Manchester between Oldham and Rochdale,Middleton Shopping Centre is undergoing an extensive development andrefurbishment, scheduled to complete in June 2006, creating a further 45,000sq.ft. (4,181 sq.m.) of new retail space, pre-let to Streetwise Sports, QualitySave and Peacocks. Wilkinsons are on site fitting out an extended 32,000 sq.ft.(2,973 sq.m.) unit. Improvements to the vertical circulation and theintroduction of a Mall Cafe are also planned for Summer 2006. Planning consentfor a further 17,500 sq.ft. was granted in April 2005. RADIAL DISTRIBUTION FUND - Value £180million - Rental Income £11.5million pa The Radial Distribution Fund was established in 2003 as a joint venture withBank of Scotland, responding to the significant changes occurring in thedistribution and logistics markets. It owns ten sites with over 2.3millionsq.ft. (214,918 sq.m.) under management. The fund specifically targets large distribution properties with activemanagement potential and low site cover close to major transport interchanges,ports, airports and rail freight terminals. There is an occupier trend towards bigger and strategically located high baydistribution units of 200,000 sq.ft. (18,580 sq.m.) or more, driven byefficiency demands in supply chain technology. Higher fuel costs, availabilityof labour and the new European Working Time Directive restricting drivers to atypical 48 hour (rather than 60 hour) week have focused operators onto the bestlocated sites polarising demand for them. Availability continues to berestrained by increasingly restrictive planning policies. Investor appetite hasremained strong with purchasers attracted by relatively high initial yields andsecure lease terms, typically 10 years or more. GLASGOW, KUEHNE & NAGEL LOGISTICS UNIT, CAMBUSLANG INVESTMENT PARKSize - 123,871 sq.ft. (11,508 sq.m.) Cambuslang Investment Park is one of the most popular distribution locations inScotland, located 8 miles south of Glasgow and very close to Junctions 1 & 2 ofthe M74. The unit stands on a site of 3.25 hectares (8.02 acres) and has lowsite coverage of around 35%. The unit is let to Kuehne & Nagel LogisticsLimited, who use the site for a contract with B&Q. MANCHESTER, STAKEHILL DISTRIBUTION PARKSize - 102,526 sq.ft. (9,525 sq.m.) Stakehill Distribution Park lies 8 miles north east of Manchester, just south ofJunction 19 of the M62 and 2 miles from Junction 20 of the M60. The propertyhas a site area of 2.94 hectares (7.25 acres) with site coverage of 32%.Neighbouring occupiers include Booker, Christian Salvesen, Aldi, Cert Logisticsand Tesco. The property is let to Dunlop Tyres until 2020, with a tenant breakoption in 2010. LEICESTER, ANTALIS UNIT, INTERLINK PARK, BARDONSize - 227,763 sq.ft. (21,160 sq.m.) Interlink Park is close to Junction 22 of the M1. The Antalis unit was builtfor the tenant in 1997 and was subsequently extended in 2001. Site coverage onthe 5.05 hectare (12.47 acre) site is still only 42% and there is potential forexpansion by a further 50,000 sq.ft. (4,654 sq.m.) for which planning permissionwas granted in February 2006. The property is let on institutional terms until2017. TAMWORTH, RELAY POINTSize - 85,903 sq.ft. (7,981 sq.m.) Relay Point is a recently built manufacturing and distribution park, adjacent toJunction 10 of the M42 at its intersection with the A5 trunk road inStaffordshire. The site is 2.28 hectares (5.62 acres), providing 35% sitecoverage. Neighbouring occupiers include Britvic, Safeway Distribution, AAHPharmaceuticals and Swish Products. The property is let to NYK Logistics until2018. BIRMINGHAM, COLESHILL, HIGHWAY POINT, GORSEY LANESize - 260,884 sq.ft. (24,236 sq.m.) Highway Point is a purpose built distribution scheme, with excellent motorwayconnections. Junction 9 of the M42 lies just to the north and Junction 4 of theM6 a mile to the south. Both units are let until 2027, to GreenwoodsCommunications and Lucas Aerospace. Both units have expansion land eachproviding an additional 40,000 sq.ft. (3,716 sq.m.) DAVENTRY, UNITS A, B AND C, DIRFTSize - 609,349 sq.ft. (56,609 sq.m.) DIRFT (Daventry International Rail Freight Terminal) is one of the premierdistribution locations in the UK. The park is located at Junction 18 of the M1,where it intersects with the A5 trunk road and the West Coast Mainline. Otheroccupiers on DIRFT include Tesco, Royal Mail, Exel Logistics and Wincanton.Units A and B are both let to Eddie Stobart Ltd until 2025 (with break optionsin 2015). Unit C is let to Ingram Micro until 2010. NORTHAMPTON, BRACKMILLS, PANASONIC DISTRIBUTION UNITSize - 126,411 sq.ft. (11,743 sq.m.) Brackmills is a dedicated distribution park, with dual carriageway access toJunction 15 of the M1. Other occupiers on the park include John Lewis, StanleyTods, MFI, Black & Decker, Office Depot and GE Lighting. The unit is let toPanasonic Logistics until April 2009. BRISTOL, FOCUS DIY, WESTERN APPROACH DISTRIBUTION PARKSize - 244,115 sq.ft. (22,679 sq.m.) Western Approach Distribution Park is one of the South West's premier logisticslocations, lying close to Junction 22 of the M4. The unit is let to Focus DIYuntil March 2022 and is capable of expansion by a further 30,000 sq.ft. (2,787sq.m.) for which planning permission was granted in April 2006. WEYBRIDGE, TESCO DISTRIBUTION UNIT, BROOKLANDS BUSINESS PARKSize - 313,135 sq.ft. (29,091 sq.m.) Brooklands Business Park is close to Junctions 10 and 11 of the M25 and to theA3 artery into London. Occupiers include Waitrose, Daimler Chrysler, Marks &Spencer and Sony. The unit is let to Tesco until 2014. Post 31 March - Year End Purchase BIRMINGHAM, HAMS HALL NATIONAL DISTRIBUTION PARK, ALPHA ONESize - 218,872 sq.ft. (20,333 sq.m.) Hams Hall National Distribution Park covers an area of approximately 430 acres(174 hectares) and has its own international rail freight terminal. It liesapproximately twelve miles (18 km) north east of Birmingham City Centre and onemile (1.6km) from Junction 9 off the M42. Birmingham International Airport iseight miles to the south. The building is let to Accident Exchange until 2021with a tenant break option in 2016. WHOLLY OWNED INVESTMENTS - Value £355million - Rental Income £21.2million pa The wholly owned portfolio, including trading, comprises 76 properties andrepresents a flexible and pro-active area of the Group's activities. Its remitis to create value through entrepreneurial asset management initiatives with theadded possibility of providing property for funds and joint ventures, eithercurrent or future. SOUTHEND-ON-SEA, THE ROYALS SHOPPING CENTRESize - 284,649 sq.ft. (26,454 sq.m.) Acquired in November 2005, this modern centre is anchored by a 122,000 sq.ft.Debenhams department store, 32,000 sq.ft. TK Maxx unit and 25,500 sq.ft. Bootsunit. AYLESBURY, HALE LEYS SHOPPING CENTRESize 89,662 sq.ft. (8,333 sq.m.) Modern town centre shopping centre originally constructed in 1983. The schemeprovides 30 units which are substantially let to major national retailersincluding Boots, Next and River Island. The Group has entered into anexclusivity agreement with Aylesbury Vale District Council to progress thedevelopment of a further 265,000 sq.ft. of retailing adjacent to Hale Leysdesigned around a new 80,000 sq.ft. department store and 50,000 sq.ft. foodstore. FOLKESTONE, BOUVERIE PLACE SHOPPING CENTRESize - 200,000 sq.ft. (18,581 sq.m.) Shopping centre development funded by the Group and being developed by BrideHall. The scheme includes pre-lettings to Asda of 70,000 sq.ft., 21,000 sq.ft.to Bhs, 19,000 sq.ft. to Next plus George, HMV, New Look and Peacocks. Thescheme is programmed for completion in June 2007. REDHILL, ST PAULS HOUSESize - 49,025 sq.ft. (4,554 sq.m.) Headquarters office building let to St Paul Travellers Management Limited toDecember 2016. The property has planning consent for a further 15,000 sq.ft. ofadditional offices. LONDON, LANCASTER HOUSE, 31/37 ISLINGTON HIGH STSize - 24,301 sq.ft. (2,257 sq.m.) Mixed retail and office building let to Boots and Burger King on the groundfloor and basement with a lease to Prudential on the upper offices. LIVERPOOL, FALLOWS WAY, WHISTONSize - 135,885 sq.ft. (12,623 sq.m.) Warehouse let to Littlewoods subsidiary for a term expiring June 2018. Post 31 March 2006 Year End Purchase LONDON, EC3, 24/26 MINORIESSize - 25,169 sq.ft. (2,338 sq.m.) A City of London office building let to Barclays Bank and Groupama until 2009having been comprehensively refurbished in 2000. It was acquired in May 2006. Michael StevensProperty Director FINANCE REVIEW IFRS This is the first set of audited annual results prepared by the Group underInternational Financial Reporting Standards (IFRS), as adopted in the EU, andtheir appearance is very different to those previously reported. This is mainlybecause unrealised fair value gains and losses are now shown as Income Statementitems rather than reserve movements with only a Balance Sheet impact. The othersignificant change is the inclusion in the Balance Sheet of the tax that mayarise on the disposal of all the properties and investments owned by the Group.Of less significance is the treatment of the Group's investment in Bride Hallwhich had previously been reported as an investment, but under IFRS must now betreated as an associate. However, these changes are purely presentational andhave no impact on the cash flow of the Group, or its underlying performance.Details of the effect of these changes are provided in Note 38 to the accounts.The interim report for the six months to September 2005, a copy of which can befound on the Group's website, www.warnerestate.co.uk, was also prepared underIFRS. The Group has made a decision in presenting these results not to reconcile backto UK GAAP numbers because the results which management formerly concentrated onwere those where adjustments had been made to the UK GAAP figures. Theseadjusted numbers more accurately reflect management's view of the Group'sperformance. Return on Capital As previously reported, the Group measures its performance by the total returnit achieves on shareholders' triple net asset funds, which has increased to30.7% (2005 19.6%). Whilst a total return calculated under IFRS on the currentresults would be similar to the total return calculated below, we shall continueto use our method of calculation. The reason for this is that there arefundamental differences between the two calculations in the computation ofdeferred tax, treatment of finance lease assets and dividends payable.Specifically, the calculation of deferred tax under IFRS on fair value gainsdoes not allow for any mitigation of that liability through tax planning oninvestment properties and similar non-current assets. Under IFRS, we have totreat an element of our property portfolio as finance leases. This reduces thenet asset value of those assets below their latest independent valuation. Inthe case of dividends, because these are now only charged when declared, thefinal dividend liability is no longer accrued within the accounts, so that theimpact of the Group's continued increase in the dividend payable is not takeninto account. In addition, the return this year has been adjusted to add back the net profitsof £17.7million of fair value gains arising on assets from Ashtenne Holdings PLCdeemed surplus to the Group's requirements but which reduced the goodwillarising on the purchase from £28.9million previously indicated last year to£11.2million. Table 5 31 March 31 March 2006 2005 £million £millionProfit for the year 74.4 45.0Add back effect of treating investment properties as finance leases 0.3 0.8Add back deferred tax on fair value gains (including joint ventures) 9.2 9.3Add back fair value adjustments on derivative financial instruments 1.4 0.8Add back goodwill reduction on Ashtenne asset management business 17.7 - 103.0 55.9Deferred tax arising from unrealised gains (17.2) (9.5)Change in fair value of debt, net of tax (0.5) 0.6Total adjusted return for the year 85.3 47.0 Shareholders' triple net asset funds at start of period 277.7 239.7 Return on shareholders' triple net asset funds 30.7% 19.6%Of whichPost tax profit 10.8% 7.5%Net gain from fair value adjustment on properties 15.1% 11.5%Net gain from fair value adjustment on investments 5.0% 0.3%Change in fair value of debt (0.2)% 0.3% Results Table 6 illustrates the different constituents that make up the results for theyear. As can be seen, recurring profits are £15.9million (2005: £14.6million).These results are further analysed to show the respective contribution fromasset management and wholly owned activities in tables 7 and 8 below. Table 6Income Statement 31 March 31 March 2006 2005 £million £millionRecurring profit 15.9 14.6Property disposals and other non-recurring profit 12.2 7.3Profit before fair value gains 28.1 21.9Net fair value gains 71.0 36.7Profit including joint ventures and associates before tax 99.1 58.6Current tax(a) (15.7) (4.5)Deferred tax(a) (8.9) (9.1)Profit for the year 74.5 45.0 (a) This includes £2.9million (2005: £0.4million) of current tax and£5.2million (2005: £3.0million) of deferred tax in joint ventures andassociates. Table 7Profit Analysis - Year to 31st March Property2006 Joint Investment Ventures and Head (our 50% Office Other share) Costs Income Asset Sub Total Total Management Under Management Wholly OwnedAsset value £'000 £'000 £'000 £'000 £'000 £'000100% of Properties Managed / Owned 1,403,000 729,000 2,132,000 355,000 - 2,487,000IncomeRental and similar income - 22,168 22,168 24,003 - 46,171Asset management fees receivable 6,065 3,187 9,252 - - 9,252Asset management fees payable - (3,005) (3,005) - - (3,005)Performance fees receivable 3,271 - 3,271 - - 3,271Performance fees payable - (1,947) (1,947) - - (1,947)Expenses (3,512) (3,002) (6,514) (8,003) - (14,517)Operating profit 5,824 17,401 23,225 16,000 - 39,225Investment income 3,363 491 3,854 - 1,247 5,101Interest receivable/(payable) 3,540 (19,521) (15,981) (12,461) - (28,442)Recurring profit 12,727 (1,629) 11,098 3,539 1,247 15,884 Net gain from fair value adjustments - 28,915 28,915 27,101 - 56,016on investment propertiesNet gain from fair value adjustments 14,968 1,063 16,031 - 1,082 17,113on investmentsProfit on sale of investment - 4,700 4,700 3,102 - 7,802propertiesProfit on sale of investments 98 77 175 - 2,926 3,101Profit on sale of trading properties - 420 420 6,583 - 7,003Non-recurring expenses (578) (1,992) (2,570) (2,573) - (5,143)Investment properties treated as - (237) (237) - - (237)finance lease assetsChange in fair value of derivative - (2,016) (2,016) (72) - (2,088)financial instrumentsCost of employee share option - - - (375) - (375)schemesProfits before tax including joint 27,215 29,301 56,516 37,305 5,255 99,076ventures and associatesTaxation - current - (2,772) (2,772) - (110) (2,882)Taxation - deferred - (5,238) (5,238) - - (5,238)Profit before income tax 27,215 21,291 48,506 37,305 5,145 90,956 Percentage of operating profit 14.8% 44.4% 59.2% 40.8% n/a 100.0% Note: the interest costs within the Group have not been reapportioned to reflect the cost of the Group's equityinvestments in the funds and joint ventures. Table 8Profit Analysis - Year to 31st March Property2005 Joint Investment Ventures and Head Asset our 50% Office Other Management share Costs Income Sub Total Total Under Management Wholly OwnedAsset value £'000 £'000 £'000 £'000 £'000 £'000100% of Properties Managed / Owned - 742,000 742,000 335,000 - 1,077,000IncomeRental and similar income - 23,528 23,528 26,521 - 50,049Asset management fees receivable 2,265 - 2,265 - 2,265Asset management fees payable - (2,265) (2,265) - - (2,265)Performance fees receivable 1,650 - 1,650 - - 1,650Performance fees payable - (1,650) (1,650) - - (1,650)Expenses (1,437) (278) (1,715) (5,596) - (7,311)Operating profit 2,478 19,335 21,813 20,925 - 42,738Investment income - - - - 533 533Interest receivable / (payable) 5,842 (20,114) (14,272) (14,383) - (28,655)Recurring profit 8,320 (779) 7,541 6,542 533 14,616 Net gain from fair value adjustments - 13,530 13,530 21,871 - 35,401on investment propertiesNet gain from fair value adjustments - - - - 2,397 2,397on investmentsProfit on sale of investment - 5,415 5,415 2,260 - 7,675propertiesProfit on sale of trading properties - - - 1,658 - 1,658Non recurring expenses - (294) (294) (1,362) - (1,656)Investment properties treated as - (274) (274) - - (274)finance lease assetsChange in fair value of derivative - (1,403) (1,403) 315 - (1,088)financial instrumentsCost of employee share option - - - (95) - (95)schemesProfits before income tax including 8,320 16,195 24,515 31,189 2,930 58,634joint ventures and associatesTaxation - current - (429) (429) - - (429)Taxation - deferred - (3,042) (3,042) - - (3,042)Profit before income tax excluding 8,320 12,724 21,044 31,189 2,930 55,163minority interests Percentage of operating profit 5.8% 45.2% 51.0% 49.0% n/a 100.0% Note: the interest costs within the Group have not been reapportioned to reflect the cost of the Group's equityinvestments in the funds and joint ventures. Asset Management Business The asset management business employs 128 people, of which 36 are servicechargeable (i.e. recovered through the service charge). It has six regionaloffices throughout the UK and the business manages some £2.1billion of propertythrough management contracts. There are two funds and three joint venturescontracts for which range in length from two to fifteen years; the business alsoreceives income from its equity and loan investments in these funds and jointventures. Table 9Asset Management Personnel of which service chargeable Total Apia Regional Office Fund 5 -Ashtenne Industrial Fund 67 20Agora Max Shopping Centre Fund* 9 6Agora Shopping Centre Joint Venture 16 10Radial Distribution Joint Venture 1 -Finance & Administration 30 - 128 36\* Treated as a joint venture The Profit Analysis tables above show the results for this business for theyears ending March 2005 and 2006. The results for 2006 have been materiallyaffected by the following key events:- 1. The Purchase of Ashtenne Holdings PLC in May 2005 The Ashtenne asset management business was acquired as part of the purchase ofAshtenne Holdings PLC by Industrial Funds Ltd (IFL) a joint venture owned 50:50with Anglo Irish Bank. The Group purchased the other 50% in IFL from ourpartner on 1st December 2005 and this is now a wholly owned business. The business manages the property assets of the Ashtenne Industrial Fund (AIF)which, at 31st March, had a value of £986million funded as to 44% by debt and56% by equity. Our equity stake was worth £39million, representing a 7% stake inthe Fund's equity. The Group, in addition to the investment income it earnsfrom its equity interest in the Fund, earns management fees plus fees forlettings, rent reviews, acquisitions and disposals as well as a performance fee.The table below shows the results of this business as if it had been whollyowned for the twelve months to 31st March 2006 compared to the actual resultsincluded in the Group's accounts using a notional tax rate of 30%. The reasonfor this is to provide a better understanding of the profitability of thisbusiness because the accounts for the year to 31st March 2006 only include thisbusiness on a 100% basis from the 1st December 2005 when IFL became a whollyowned subsidiary. Prior to that IFL was a joint venture from 31st May 2005 to1st December 2005 and accounted for as such. Table 10Ashtenne Asset Management Unaudited UnauditedBusiness Pro Forma Amount included in the Financial Statements Actual Our share Wholly Total of the IFL owned 12 months joint venture 01/04/2005 01/06/2005 01/12/2005 01/06/2005 to 30/11/ to 31/03/ to 2005 2006 to 31/03/2006 31/03/2006 £'000 £'000 £'000 £'000 Asset management fees 4,440 1,087 1,591 2,678Letting and other fees 2,296 800 435 1,235Total fees 6,736 1,887 2,026 3,913Costs (4,565) (1,139) (1,660) (2,799)Profit before performance fees 2,171 748 366 1,114Performance fees 1,324 - 1,324 1,324Recurring profit 3,495 748 1,690 2,438Notional tax charge @ 30% (1,049) (224) (507) (731) 2,447 524 1,183 1,707 Goodwill in financial statements 11,205P/E ratio based on that used for 12.7Ashtenne on acquisitionAssessed value of Ashtenne asset 31,000management business on thisbasis Investment in AIFDistributions from fund 3,058 1,959Value of units at 31st March 38,572 38,5722006% share of fund 7.09% 7.09%Yield on 12 month holding 7.93% n/a 2. The Establishment of the Apia Regional Office Fund In June 2005 the £256million Apia Regional Office Fund was formed from the£175million Skipper Regional Office Jersey Property Unit Trust ("JPUT"), inwhich the Group had a 50% stake an £18million property from the Group's whollyowned portfolio held in a JPUT and a £63million JPUT from Morley Fund Managementas their equity contribution to the Fund. The Fund subsequently expanded inNovember 2005 with the acquisition of a £120million portfolio from theCo-operative Insurance Society. Following the year end revaluation of the Fund,property assets were £417million at 31st March 2006. The Fund is financed as to47% by debt and 53% by equity. The Group's share of the equity investment at31st March 2006 was 29%. In order to provide a better understanding of theimpact of 10 months ownership, table 11 shows the results for Apia for the tenmonth period since inception and those results on an annualised basis togetherwith a notional tax rate of 30%. Table 11Apia Asset Management Business Unaudited Unaudited Pro Forma Amount included in the Financial Statements Annualised results for (10 months)(a) 12 months (based on 10 months Accounts) £'000 £'000 Asset management fees 1,241 1,034Performance fees - -Total fees 1,241 1,034Costs (640) (533)Recurring profit 601 501Notional tax charge @ 30% (180) (150) 421 351 Goodwill in financial statements -P/E ratio based on that used for Ashtenne on acquisition 12.7Assessed value of Apia Asset Management Business on this 5,300basis using annualised figures Investment in FundDistributions from fund 2,263 1,886Value of units at 31st March 2006 64,374 64,374% share of fund 28.78% 28.78%Yield on 12 month holding on a pro-rata basis(b) 3.52% n/a (a) Since inception on 7 June 2005 (b) The yield is depressed by the write off of set up costs in the period. The yield inthe quarter to March 2006 was 6.42% The value of the asset management business applicable to AIF and Apia on a priceearnings ratio of 12.7 is approximately £36million, of which only £11.2millionis included in the accounts as goodwill. The value of this business isequivalent to a further 58p per share. 3. The Establishment of the Agora Max Shopping Centre Fund In October 2005, the Agora Max Shopping Centre Fund was established andpurchased the Pallasades Shopping Centre via a JPUT for £152million. Theshopping centres in Birkenhead, which had previously been limited company jointventures with Bank of Scotland, were converted into JPUTs in early December 2005and were subsequently purchased by the Agora Max Shopping Centre Fund in March2006. This Fund had a value of £312million at 31st March 2006 with theownership of the units being held as to 50% by the Group and 50% by the Bank ofScotland and as such is treated as a joint venture in the Group's results. The Group earns management fees from this Fund as detailed below. Management Fees The following is a brief summary of the terms on which the business receives itsmanagement fee income from each of the funds and joint ventures. Table 12 Management Management Property Rent Roll Valuation 31 March Year Fee % Fee % Performance Fees 31 March 2006 2006 Name End Property Rent Other Fees Funds Apia 31/12 0.4%(b) N/A N/A Based on outperforming the IPD £417million £26million (a) regional office index (excluding business parks) on a 3-year rolling basisAIF 31/12 0.5% N/A Lettings, Based on outperforming the IPD all £986million £63million (a) rent industrial index on a 3-year rolling reviews, basis disposals, additions etc Joint VenturesAgora Max 31/03 N/A 5% N/A Based on exceeding an IRR of 20% over £312million £17million the life of the funds or on disposal Agora 31/03 N/A 5% Based on exceeding an IRR of 20% over £237million £13million the life of the funds or on disposal (c) Radial 31/03 N/A 5% N/A Profit share at end of joint venture £180million £12million (a): The performance fees in these Funds will always be receivable in the second half of the Group'sfinancial year to 31 March because the fees are calculated on the results of the Funds for the year to 31December. In the case of Apia, as the Fund was only established in June 2005, no performance fee is currentlyreceivable.(b): The Apia management fee reduces to 0.35% on the property assets managed between £0.5billion and£1.0billion and to 0.3% on the property assets managed over £1.0billion.(c): During the year ended 31 March 2006, £1.9million in performance fees was achieved on the disposal ofSale Shopping Centre (2005: £1.6million on the disposal of Ellesmere Port Shopping Centre). The Group's Wholly Owned Properties Rental income from the Group property portfolio is some £2.5million lower thanlast year at £24million. This is due to the disposal of higher yieldingindustrial properties and their replacement with lower yielding retailproperties as well as the increased investment in the development programmewhich is currently non-yielding. Other Income The other income receivable in the year was £1.25million (2005: £0.53million).This was dividend income from our quoted investments and our share of profitsfrom Bride Hall Group Ltd which is treated as an associate. The dividend incomeincludes £0.31million from East Surrey Holdings plc, an investment which wasdisposed of in November 2005. The investment in Bride Hall took place inSeptember 2004 and the March 2005 results do not include any share of profitsfrom that investment. Taxation The Group has a clearly defined tax strategy; namely the aim is to activelymanage our tax planning without compromising the Group's ability to carry outits business. We do this by maximising the availability and use of capital andindustrial buildings allowances as well as setting up tax efficient corporatestructures both on and off-shore. The tax charge for the year in the Group, excluding tax in joint ventures of£8.0million (2005: £3.6million), is £16.5million (2005: £10.2million) of which£12.8million (2005: £4.1million) is current tax and £3.7million (2005:£6.1million) is deferred tax. Material factors affecting the tax charge were: i. A credit of £1.8million of deferred tax released on disposal of properties. ii. The disposing of all properties within individual subsidiaries, thereby allowing the balance of capital allowances to be utilised during the year. iii. The use of losses available reducing the tax charge by £2.4million. iv. Under IFRS, the whole proportion of capital gains tax on disposals is charged to the current year tax compared to UK GAAP, where only the portion applicable to the profit on the disposal is charged to income, with the balance being a reserve movement. During the current year, the accounting profit on disposal of the shares in East Surrey Holdings plc was £2.8million, compared to the overall gain over the period of ownership of £14.2million which generated a capital gains tax of £4.2million. Tax provided on the previous year's fair value gains has been released from deferred tax. The table below shows the tax reconciliation for the last two years: Reconciliation of tax charge Table 13 2006 2005 £million £millionProfit on ordinary activities before taxation 91.0 55.2 Tax @ 30% 27.3 16.5Share of joint venture and associate post tax profits (6.6) (3.8)Net tax on assets sold during the year (0.4) (0.6)Net capital allowances on asset disposal (4.3) (0.5)Share Scheme timing differences 0.7 -Other 0.1 0.1Net tax movement on fair value gains of assets 0.6 (1.6)(Over) / under provision in respect of prior years (0.9) 0.1Total tax charge in the accounts 16.5 10.2Of which: Current tax 12.8 4.1 Deferred tax 3.7 6.1 Earnings Per Share Earnings per share were 140.2p (2005: 89.2p) and recurring earnings per sharewere 22.9p (2005: 22.3p restated). Earnings per share include the fair valuegains of 103.8p (2005: 56.2p) and one-off profits of 13.5p (2005: 10.7p) whichare excluded from recurring earnings. The growth in earnings was depressed bythe placing of 5% of the Company's shares in early April 2005 to help fund theacquisition of Ashtenne Holdings PLC in late May 2005 the full benefits of whichdid not start to flow until 100% ownership was achieved on 1 December 2005. Cash Flow Table 14 March 2006 March 2005 £million £million £million £millionCash generated from operations 25 34Net interest (8) (8)Tax (11) (3)Cash flows from operating activities 6 23Acquisitions (160) (62)Disposals 152 69Dividends received 9 1Cash flows from investing activities 1 8Issue of shares 14 -Net repayment of bank loans (92) (3)Dividends (10) (9)Other cash flows 1 -Cash flows from financing activities (87) (12)Net cash (outflow) / inflow (80) 19 The cash flow statement is the one area under IFRS which is not materiallydifferent, except presentationally, to that previously reported. During theyear cash generated from operations was £25 million (March 2005 £34 million).The reduction in the cash generated is largely due to the acquisition of theremaining 50% of Industrial Funds Limited and also Skipper Offices Limited onselling its property portfolio to Apia. Between them, they contained £22 millionin cash which was offset by movements in debtors and creditors. There has beenan increase in receipts from the disposal of trading properties which is duemainly to the disposal of properties acquired through Industrial Funds Limited.If this effect is adjusted, the Group generates a net inflow from operationsduring the year of £22 million (March 2005 £25 million). This is cash generatedexcluding any property additions and disposals, to pay interest, tax anddividends. The main flows resulting in the net outflow of £80 million arose throughpurchases of investment properties less leasehold liabilities of £46 million,investments made in Apia and the Ashtenne Industrial Fund of £67 million,investments in joint ventures and associates of £67 million. This is offset bysales of investment properties of £95 million, sales of investments of £15million, loans repaid and dividends received from joint ventures, associates andinvestments of £49 million and cash acquired through purchase of subsidiaries of£22 million. The tax paid is significantly higher than last year due to the profits made bythe Group on disposals of properties and the investment in East Surrey Holdings. In addition the placing of shares during the year raised £14 million andrestructuring of the Group's debt resulted in an outflow of £92 million. Balance Sheet As at 31 March 2006, Equity Shareholders' funds were £350.6million (2005:£272.1million), an increase of 24% excluding the impact of the additional equityof £13.6million which was raised through a placing in April 2005. The underlyingelements of the growth in Shareholders' funds is analysed in the table below,but it is not expected that the deferred taxation provided would become payablein full if the properties and investments were sold. Table 15 Pence per £million share Shareholders funds under IFRS at 31st March 2005 272.1 539.9Change in weighted average number of shares (27.5) 512.4Movement in the Year to March 2006Profit before fair value gains 28.6 53.9Net fair value gains 71.0 133.7Effect of the treatment of investment properties as finance leases (0.2) (0.4)Cost of employee share option schemes (0.4) (0.8)Taxation - current (15.7) (29.5)Taxation - deferred (8.9) (16.8)Profit for the year 74.4 140.1 Other equity movementsShares issued 13.6 25.6Dividends paid (10.1) (19.0)Actuarial losses on retirement benefit obligations (0.1) (0.1)Investment in own shares 0.7 1.3Shareholders' funds under IFRS at 31st March 2006 350.6 660.3 Adjusted Shareholders' funds, as shown in the table 16 below, rose by 32%(excluding the impact of the £13.6million of equity raised in the year thiswould be 27%) to £393.5million (2005: £298.3million). This uplift is afterdeducting paid and proposed dividends of £10.3million (19.5p per share) which,if included, gives an overall uplift of 31%. In IFRS terms, the Group's NAV pershare was 660p (March 2005: 540p), whilst adjusted NAV per share was 741p (March2005: 592p) and TNAV 669p (March 2005: 551p). Table 16 31 March 2006 31 March 2005 Increase Pence Pence Including Excluding new new per per equity % equity % £million share £million share Shareholders' funds under IFRS 350.6 660.3 272.1 539.9 29 24Add back deferred tax on fair value gains (including 42.9 80.8 27.6 54.7joint ventures)Add back effects of treating investment properties as 3.9 7.3 3.6 7.1finance leasesLess proposed dividend (5.3) (10.0) (4.8) (9.5)Add back/(less) fair value adjustments on derivative 0.4 0.8 (1.0) (2.0)financial instrumentsAdd other IFRS adjustments 1.0 1.9 0.8 1.6Adjusted Shareholders' funds 393.5 741.1 298.3 591.8 32 27Less potential deferred tax (32.9) (62.0) (15.7) (31.1)Less fair value adjustment net of tax on debt (5.4) (10.2) (4.9) (9.8)Shareholders' triple net asset funds 355.2 668.9 277.7 550.9 28 23 Investment in Asset Management Business As referred to earlier, the Group purchased Ashtenne Holdings PLC for£120million through IFL, a joint venture owned 50:50 with Anglo Irish Bank. Thepurpose of this acquisition was to acquire the asset management businessrepresented by the AIF and t3 Funds which, when the other assets of Ashtennewere sold, would result in IFL owning a business that cost circa £56million(restated). This was represented by £27million of units owned in the Fundsunder management and £28.9million of goodwill which was the value attributed tothe asset management business. Subsequently, in early December 2005 wepurchased Anglo Irish's 50% stake in IFL for £0.35million. Since the purchase,the majority of the assets and the t3 Fund have been disposed of at a profit of£17.7million which has been used to reduce the goodwill paid for the assetmanagement business to £11.2million. The result is that we have acquired for£11.2million a business which last year generated £3.5million before tax,compared to the value we had expected to pay for this business of £28.9million.This £17.7million of additional value created by the Group is not recognisedwithin the Group Balance Sheet even though in practice the AIF asset managementbusiness is probably worth more today than the value it was originally purchasedfor, let alone the written down value in these accounts. However the£17.7million has been added back to get to the total adjusted return. The table below shows the anticipated purchase cost at the end of May 2005 andthe actual purchase cost. The profit figures are the pro forma profit figuresused in May 2005 and the pro forma profit figures for this business for the yearto 31st March 2006. Table 17 Anticipated Disposal Actual purchase purchase cost at surpluses cost at May 2005 May 2005 £million £million £millionFixed AssetsGoodwill 22.8 (17.7) 5.1Adjustment for IFRS 6.1 - 6.1Goodwill (restated) 28.9 (17.7) 11.2Investment in FundsAIF 20.8 - 20.8t3 6.3 (6.3) - 27.1 (6.3) 20.8 IFRS deferred tax (6.1) - (6.1)Net assets 49.9 (24.0) 25.9 Proforma to Proforma to March December 2004 2006 £million £millionFund Fees(i) Management fees 4.4 6.7 Performance fees 2.2 1.3 Costs (4.0) (4.5) Profit before tax 2.6 3.5 Less tax @ 30% (0.8) (1.0) 1.8 2.5 Goodwill(ii) £22.8million £5.1million Multiple paid for asset 12.7 p/e 2.0 p/e management businessNote:(i) The return does not include investment income or investment in the Funds(ii) Goodwill utilised for this purpose is that paid before adjusting for IFRS deferred tax However, the Balance Sheet continues to recognise some value for this businesswhich, as reported above, made £3.5million pre tax profit over the last twelvemonths to March 2006 on a pro forma basis, whereas it contains no value for therest of the asset management business in respect of the fees being generatedfrom the Apia Regional Office Fund, or the Agora Max, Agora and Radial jointventures. At the year end, the value of the investment in AIF was £38.7million, includingthe purchase of £12million additional units in August 2005, and that in Apia£64.4million. Disposal of Industrial Properties to AIF The AIF asset management agreement contains a non-compete clause regarding thepurchase of industrial property. As a result, the Group disposed of £51millionof wholly owned industrial property to AIF together with £27million ofproperties in Bareway, the Group's joint venture with Barclays, in November2005. The Group continues to own some industrial property although this iscurrently under review. Bride Hall Under IFRS, this investment has been accounted for as an associate having beenpreviously treated as an investment under UK GAAP and so, rather than beingshown as a fixed asset investment, it is equity accounted. This results in ourrecording our share of profits receivable in the Income Statement rather than individends received and reporting the value of the investment on the BalanceSheet as our share of the company's net assets plus goodwill. During the year,under the terms of the purchase agreement with the owner of Bride Hall, afurther £10million payment was made in respect of our 25% stake in thatbusiness, bringing our total cost of this investment to £15million. Thispayment was based upon an earn out agreement which was capped at £15million sono further payments will be due. Leasehold Liability Portfolio The balance sheet includes £12million (£13.75million at acquisition) in respectof liabilities acquired with the portfolio of properties purchased in December2005 from the Co-operative Insurance Society. Since purchase, the liability hasbeen reduced by £1.75million which represents the net payments of liabilities toMarch 2006. The overall liability that would arise if no management initiativeswere undertaken is £38million. However, the Group has reassessed the value ofthe liability at March 2006 and remains of the opinion that the value at whichthe liability was acquired, less subsequent payments, remains unchanged and noprofit or loss has been recorded. This assessment has been supported by offersin respect of these liabilities received by the Group. Contingent Assets No provision has been included in these accounts for potential performance feesarising under the Agora Shopping Centre and Radial Distribution joint ventureagreements. The contingent asset which is included as a note to these accountsrepresents the potential profit that could arise over the next two to threeyears of £6million being £5million in respect of Agora and £1million in respectof Radial. Borrowings Debt Total net borrowings for the Group at the year end were £185.6million (2005:£153million). Since the year end, net debt has increased by £11million to fundan acquisition for the wholly owned property portfolio, increasing net debt to£197million and raising net gearing on adjusted shareholders' funds at the yearend from 48% (2005: 50%) to 51% currently. Table 18 On balance Share of joint Share of sheet ventures funds Total £million £million £million £million Net short-term debt (96.4) (11.0) - (107.4)Long term debt 282.0 271.2 87.8 641.0 Total net debt at 31 March 2006 185.6 260.2 87.8 533.6 Of which:Total net recourse debt 137.1 - 137.1Long-term non-recourse debt 48.5 260.2 87.8 396.5 Gearing (on adjusted shareholders' funds) 48% 138%Recourse gearing 35% 35% Total net debt at 31 March 2005 153.0 323.1 - 476.1Gearing (on adjusted shareholders' funds) 51% 160%Recourse gearing 35% 35% The Group's average cost of debt was 6.07% (2005: 6.91%) at the year end. During the year the Group refinanced two long term loans totalling £57millionwhich had been reclassified as short term loans in last year's accounts becausethe decision had been made to repay them prior to 31 March 2005. This wasfunded via a new £26million six year term loan with Canada Life and an increasein the Group's Barclays three-year revolving facility from £25million to£60million with Barclays. In addition the Group also extended its Royal Bank ofScotland three year revolving facility from £60million to £100million so as toprovide the Group with the flexible finance needed to be able to respond quicklyto purchasing opportunities. A dedicated financing line of £25million has been put in place with Anglo IrishBank PLC to fund the development of a new shopping centre at Folkestone. At 31March 2006, £11million of this facility had been drawn down. The Group has repaid a £21million fixed term loan from disposal proceeds arisingfrom the sale of properties to AIF in November 2005. The Group had unutilised facilities of £44million (2005: £53million) at 31 March2006, which are sufficient to meet our working capital requirements. IFL, the joint venture with Anglo Irish Bank which purchased Ashtenne wasfinanced in part by an £80million bank loan. Some £37million of this loan wasrepaid from cash within Ashtenne at acquisition and the proceeds of disposalsprior to the Group acquiring Anglo Irish's shares in IFL in December 2005.Subsequent to the Group acquiring IFL as a subsidiary the outstanding bank debtof £43million was repaid by the end of January 2006. In the joint ventures, the Agora Max Shopping Centre Fund established during theyear had debt of £234million at 31st March 2006. This joint venture is financedas to 66% by debt and 34% equity and rental income covers interest 1.6 times.In the Agora Shopping Centre Fund ("Agora"), the disposal of the Sale ShoppingCentre in the year brought external debt down to £142million at the year end.This joint venture at 31 March 2006 had an external loan to value ratio of 60%and rental income covered external interest 1.4 times. In Radial, theacquisition of the property at Brackmills for £8million and the disposal of theproperty at Yate for £18million resulted in external debt being reduced to£126million by the year end. This joint venture had an external loan to valueratio of 70% and rental income to interest cover of 1.4 times. The Barewayjoint venture disposed of its properties to AIF in November 2005 and used theproceeds to repay an £18million term loan. Both the Agora and Radial jointventures are partially funded by debt as well as equity from the partners. Thishas been excluded from the Group debt information. At 31 March 2006, the Group held investments in the Apia Regional Office Fundand Ashtenne Industrial Fund amounting to 29% and 7% respectively. Apia hasdrawn down debt of £196million and AIF has net debt of £427million. Both Fundshave loan-to-value ratios of less than 50% and more than 2.5 times rental incometo interest cover. There is headroom within the existing facilities of Apia andAIF of £21million and £53million respectively as at 31 March 2006. Hedging The interest rate exposure on the Group's debt is managed to ensure that thereis a balance between flexibility and certainty over the interest cost on ourcurrent level of borrowings. In terms of the Group debt, £74.3million is fixedand the balance is fully covered by derivatives (interest rate swaps and caps).As can be seen from the table below, the Group's hedging strategy hashistorically been to protect the Group from large movements in interest ratesrather than to cap specific exposures on what is, essentially, working capitaldebt. However, the Group has taken advantage of a 10 year cancellable swapeffective from 31 March 2006, whereby the interest charge is fixed at 3.5% forthe first six months to 30 September 2006 and thereafter at 4.19% for theremaining 91/2 years. The Bank has the right to cancel the swap on 30 September2006 or at the end of each quarter thereafter. This cancellable swapeffectively covers the drawn balance of £90million on the two revolving creditfacilities with The Royal Bank of Scotland and Barclays at 31 March 2006. Table 19 Share of Group jointNet Debt as at 31 March 2006 on balance sheet ventures £million £millionFixed rate debt 74.3 -Floating rate debt 111.3 260.2 185.6 260.2Percentage of floating rate loans at 31 March 2006 Covered by swaps 91% 75% Covered by caps 9% 25% 100% 100% Percentage of floating rate loans at 31 March 2005 Covered by swaps 30% 76% Covered by caps 70% 5% 100% 81% In respect of the Group's share of £520.4million of net debt in the jointventures, approximately one quarter is fixed at 4.1% by a swap, another quarteris fixed by a swap at 4.96% and a third quarter is fixed by a swap at 4.5775%.The remainder is covered by two enhanced collars, the first for £124million iscapped at 5.0% and the second for £27million is capped at 5.5%. Both of the Funds, Apia and AIF, were virtually fully hedged through acombination of swaps and caps as at 31 March 2006. Post Balance Sheet Events There have been no material post balance sheet events requiring adjustment. Alist of the material, though non-adjusting events and transactions, are noted inthe Significant Events post 31 March 2006 section. Business Risks The Group reviews regularly business risks with the aim of ensuring that the keycontrollable risks faced by the Group are kept to a minimum. Risks that areoutside our control, particularly legislative, the Group, and industry ingeneral, can do little to mitigate. As advised earlier in this report, this year the Group has gone through a periodof significant expansion both in terms of the assets under management, whichincreased by £1.4billion to £2.1billion, and as a result of the acquisition andintegration of the AIF asset management business which has seen numbers employedincreasing from 71 to 187 people and the incorporation of a substantial regionaloffice network. This has involved a significant logistical exercise to ensurethat the right systems and controls are in place to manage the enlarged Group.Specifically, the management structure of the Group has been overhauled with theappointment of divisional directors who have management responsibility for theirown business units, and the recruitment of directors of Development and HumanResources. The business software has been integrated and an upgrade of thecurrent software is currently being rolled out across the Group. New procedureshave been, and are continuing to be, put in place to ensure that personnel whohave been empowered have the authority as well as the information to be able torun their businesses. In addition, the Group has appointed Grant Thornton as internal auditorsreporting to the Audit Committee. They are carrying out a programme of auditwork set by that committee based around a risk matrix which was prepared for theenlarged Group. The internal audit work that will be performed by GrantThornton should give increasing assurance that the risks from the recentexpansion and planned future expansion are minimised. Another area where the Group faces a key business risk is in its assetmanagement business where there is a need to perform to certain agreed standardsif contracts are to be retained. Equally, above average fund businessperformance secures for the Group potentially significant performance fees aswell as the opportunity to further expand this profitable business. The key financial risks arising in the business are liquidity, interest rate andmarket price risks. Liquidity risk is managed by ensuring that there is alwayssufficient headroom available to meet the working capital requirements of thebusiness. The interest rate and market price risk is managed by the use offinancial instruments such as swaps and caps to eliminate substantially all theexposure to interest rate and market price fluctuations. This providescertainty over the amount of interest payable both in the short-term and thelong-term, given the current level of borrowings. The Group has had to become much more proactive as a result of the continuingrapid expansion of the business. The broad nature of this expansion has ensuredthat the Group's spread of property activities should provide protection fromshort term changes, in individual property sectors. Furthermore, should therebe a very significant increase in property yields, something the Group does notcurrently anticipate, the financial strength of the Group, the lack of anypressure on borrowing covenants and the financial hedging that the Groupundertakes should ensure that the Group can cope with such an eventuality. On the legislative front, as highlighted in last year's accounts, the reportingpressures continue to mount resulting in more cost to the Group with little orno benefit. The forthcoming REIT legislation, however, could well be a first interms of legislative benefit, although this has yet to be finalised. Another significant problem has been the introduction of IFRS this year whichhas been costly for the Group in terms of its implementation and presented areal problem as to how to explain to our shareholders what is actually going onin our business. Real Estate Investment Trusts ("REITs") The Group has reviewed the proposed draft legislation in respect of REIT's and,if the legislation that is enacted and the regulations arising from this accordwith the draft legislation, then the Group sees considerable potential benefitsto the shareholders from these proposals. Peter CollinsFinance Director SIGNIFICANT EVENTS DURING THE YEAR ENDED 31 MARCH 2006 Date Detail Category April 2005 5% placing of shares in Warner Estate Holdings PLC to part finance the Group acquisition of Ashtenne Holdings PLC April 2005 Purchase of Townsend Farm Industrial Estate, Dunstable by Bareway Joint venture Industrial joint venture for £5.5million May 2005 Offer to acquire Ashtenne Holdings PLC is declared unconditional Joint venture June 2005 £256million Apia Regional Office Fund established in conjunction with Funds Morley Asset Management which combined the Skipper Offices properties and Westgate, Bristol from the Wholly Owned Portfolio with Morley's existing £63million portfolio of offices. June 2005 Sale of 120 Ham Road, Worthing for £8.6million Group Investment Property July 2005 Completion of acquisition of Ashtenne Holdings PLC by Industrial Funds Ltd Joint venture August 2005 Purchase of "Immanis" at Brackmills Distribution Park, Northampton by Joint venture Radial Distribution joint venture for £8million August 2005 Purchase of 7,993,098 units in Ashtenne Industrial Fund for £12million, Group Investment representing 2.69% of the Fund to add to 5.168% owned by Ashtenne September 2005 Sale of Great Western Business Park, Yate by Radial Distribution joint Joint venture venture for £18.55million October 2005 Establishment of Agora Max Shopping Centre Fund and the purchase of The Joint venture Pallasades Shopping Centre via a Jersey Property Unit Trust for £152million October 2005 Sale of land at Pollards Lane, Leeds by Industrial Funds Ltd for Joint venture £7.2million November 2005 Sale of all industrial properties owned by t3, in which Industrial Funds Joint venture Ltd had a 17% stake, for £96million November 2005 Sale of The Square Shopping Centre, Sale by Agora Shopping Centres joint Joint venture venture for £40million November 2005 Consideration of £14million received in settlement of offer by Kellen Group Investment Acquisitions Ltd for shares in East Surrey Holdings plc November 2005 Sale of all industrial properties owned by Bareway Industrial joint Joint venture venture to Ashtenne Industrial Fund for £29million November 2005 Sale of industrial portfolio to Ashtenne Industrial Fund for £51million Group Investment Property November 2005 Purchase of The Royals Shopping Centre in Southend and a lease liability Group Investment portfolio for a net £33million Property SIGNIFICANT EVENTS DURING THE YEAR ENDED 31 MARCH 2006 CONT'D Date Detail Category November 2005 Purchase of a portfolio of seven regional office buildings by Apia Funds Regional Office Fund for £120million December 2005 Sale of three industrial buildings in Europe by Industrial Funds Ltd for Group Investment £12.7million (€18.4million) Property December 2005 Sale of a portfolio of buildings and land by Industrial Funds Ltd for Group Property £9.7million December 2005 Purchase of remaining 50% stake in Industrial Funds Ltd from Anglo Irish Group Investment Bank for £0.35million January 2006 Sale of two ex-Ashtenne properties for £12.7million Group Property February 2006 Secondary Placing of 7,356,223 shares by Trefick Limited reducing its Group shareholding to 13.75% March 2006 Pyramids and The Grange shopping centres in Birkenhead transferred to the Joint venture Agora Max Shopping Centre Fund March 2006 Collaboration Agreement signed with Aylesbury Vale District Council Group Investment appointing the Company as principal developer for the multi million pound Property retail element of the waterside development scheme integrating Hale Leys Shopping Centre SIGNIFICANT EVENTS POST 31 MARCH 2006 April 2006 Purchase of Alpha 1 at Hams Hall National Distribution Park, Joint venture Birmingham by Radial Distribution joint venture for £17.62million May 2006 Purchase of 24-26 Minories, London EC3 for £10.85million Group Investment Property CONSOLIDATED INCOME STATEMENT For the year ended 31 March 2006 Notes 2006 2005 £'000 £'000 Revenue 64,506 45,052Rental and similar income 24,003 26,521Turnover from property trading activities 31,167 12,446Cost of sales of property trading activities (24,584) (10,788)Service charge and similar income 2,972 2,170Service charge expense and similar charges (3,591) (2,773)Net rental and trading income 3 29,967 27,576Turnover from asset management activities 9,336 3,915Asset management expenses (3,512) (1,437)Net income from asset management activities 3 5,824 2,478Administrative expenses (2,390) (1,755)Property management expenses (7,517) (4,453)Operating profit before net gains on investments 3 25,884 23,846Net gain from fair value adjustments on 27,101 21,871investment propertiesNet gain from fair value adjustment on 16,050 2,397investmentsProfit on sale of investment properties 6 3,102 2,260Profit on sale of investments 7 3,024 -Operating profit 75,161 50,374Finance income 8 8,306 6,698Finance expense 9 (14,445) (14,948)Change in fair value of derivative financial (72) 315instrumentsShare of associates' post tax profits 20 715 -Share of joint ventures' post tax profits 17 21,291 12,724Profit before income tax 90,956 55,163Taxation - current 10 (12,842) (4,098)Taxation - deferred 10 (3,659) (6,109)Profit for the year 74,455 44,956Attributable to:Equity holders 74,432 44,954Minority interests 23 2 p pEarnings per share 13 140.17 89.20Fully diluted earnings per share 13 138.79 88.59 BALANCE SHEETS Group Company Notes 2006 2005 2006 2005 £'000 £'000 £'000 £'000ASSETSNon-current assetsGoodwill 14 11,205 - - -Investment properties 15 333,198 327,737 - -Properties under the course of development 15 12,261 - - -Plant and equipment 16 465 347 - -Investments in joint ventures 17 103,372 102,517 - -Investments in funds 18 104,081 - - -Investments in listed and unlisted shares 19 5,115 15,518 113,476 113,476Investments in associates 20 15,518 5,327 15,009 5,327Deferred income tax assets 25 552 450 - -Derivative financial assets 24 - 11 - 11Trade and other receivables 21 363 350 - - 586,130 452,257 128,485 118,814Current assetsInventories 10,939 8,235 - -Trade and other receivables 21 23,096 9,051 249,103 169,338Current income tax assets - - 6,632 2,973Cash and cash equivalents 98,358 109,366 - - 132,393 126,652 255,735 172,311Total assets 718,523 578,909 384,220 291,125LIABILITIESNon-current liabilitiesBorrowings, including finance leases 22 (283,625) (195,638) (75,915) -Derivative financial liabilities 24 (1,361) (1,162) - -Deferred income tax liabilities 25 (29,563) (20,112) - -Retirement benefit obligations 4 (481) (336) - -Provisions for other liabilities and charges 26 (12,503) (128) (503) (128) (327,533) (217,376) (76,418) (128)Current liabilitiesBorrowings, including finance leases 22 (1,893) (68,269) - (48,238)Trade and other payables 27 (29,569) (18,791) (104,157) (51,779)Current income tax liabilities (5,608) (2,118) - - (37,070) (89,178) (104,157) (100,017)Total liabilities (364,603) (306,554) (180,575) (100,145)Net assets 353,920 272,355 203,645 190,980EQUITYCapital and reserves attributable to the Company'sequity holdersShare capital 28 2,675 2,548 2,675 2,548Reserves 29 348,837 271,222 201,896 190,099Investment in own shares 30 (926) (1,667) (926) (1,667)Equity shareholders' funds 350,586 272,103 203,645 190,980Minority interest 37 3,334 252 - -Total equity 353,920 272,355 203,645 190,980 STATEMENT OF RECOGNISED INCOME AND EXPENSE For the year ended 31 March 2006 Group Company Notes 2006 2005 2006 2005 £'000 £'000 £'000 £'000Profit for the year 74,432 44,954 8,438 7,696Actuarial (losses) / profits on retirement 4 (219) 50 - -benefit obligations recognised directly inequityDeferred tax arising on retirement benefit 4 43 (33) - -obligationsTotal recognised income and expense for the year 74,256 44,971 8,438 7,696attributable to equity shareholders Reconciliation of Movements in Shareholders' Funds For the year ended 31 March 2006 Group Company Notes 2006 2005 2006 2005 £'000 £'000 £'000 £'000 Opening equity shareholders' funds 272,103 235,951 190,980 192,103Shares issued 28 127 - 127 -Share premium on shares issued 29 13,493 - 13,493 -Acquisition of investment in own shares 30 (139) (169) (139) (169)Disposal of investment in own shares 30 880 191 880 191 286,464 235,973 205,341 192,125Total recognised income and expense for the year 74,256 44,971 8,438 7,696Dividend paid in year 12 (10,134) (8,841) (10,134) (8,841)Closing equity shareholders' funds 350,586 272,103 203,645 190,980 CASH FLOW STATEMENTS For the year ended 31 March 2006 Group Company Notes 2006 2005 2006 2005 £'000 £'000 £'000 £'000Cash flows from operating activitiesCash generated from operations 32 24,703 34,020 (22,416) 313Interest paid (13,209) (14,097) (3,077) (1,720)Interest received 5,285 6,735 119 239UK Corporation tax paid (10,604) (3,209) (2,452) (339)Net cash inflow / (outflow) from operating activities 6,175 23,449 (27,826) (1,507)Cash flows from investing activitiesPurchase of investment properties and related capital (59,787) (30,963) - -expenditureSale of investment properties 95,063 46,179 - -Purchase of plant and equipment (154) - - -Sale of investments in listed shares 14,411 - - -Purchase of investments in funds (66,910) - - -Sale of investments in funds 1,000 - - -Purchase of investments in associates (5,000) (5,327) (5,000) (5,327)Net cash acquired from purchase of shares in subsidiary 37 22,600 250 - -companyPurchase of shares in joint ventures (16,676) (4,175) - -Sale of shares in joint ventures - 205 - 205Loans to joint ventures (47,544) (22,440) - -Loans repaid by joint ventures 37,559 23,276 - 3,764Loans repaid by associates 4,651 - - -Payment received for leasehold liabilities 13,750 - - -Dividends received from listed investments 422 533 - -Dividends received from funds 1,566 - - -Dividends received from joint ventures 1,000 - - -Dividends received from associates 5,058 995 -Net cash inflow / (outflow) from investing activities 1,009 7,538 (4,005) (1,358)Cash flows from financing activitiesNet proceeds from issue of ordinary share capital 13,620 - 13,620 -Purchase of own shares for AESOP scheme (139) (169) (139) (169)Disposal of own shares for share option scheme 807 175 807 175Dividends paid (10,134) (8,841) (10,134) (8,841)Net proceeds from issue of new bank loan 37,915 - - -Repayment of bank loans (72,232) (2,250) - -Repayment of mortgages and other loans (57,346) (794) - -Net cash (outflow) / inflow from financing activities (87,509) (11,879) 4,154 (8,835)Net (decrease) / increase in cash and cash equivalents* (80,325) 19,108 (27,677) (11,700)Cash and cash equivalents at beginning of year 2,653 (16,455) (48,238) (36,538)Cash and cash equivalents at end of year (77,672) 2,653 (75,915) (48,238) * Includes overdraft facility balances shown in borrowings This information is provided by RNS The company news service from the London Stock Exchange MORE TO FOLLOW

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