Final Results

Warner Estate Holdings PLC

PROTECTING INCOME AND CONTROLLING COSTS

Warner Estate Holdings PLC ("Warner Estate" or "Group"), the property investment and management company has today announced its final results for the year ended 31 March 2011.

Financial Summary

·; Revenue £30.5million (2010: £32.8million)

·; Recurring operating profit before net movements on investments £12.7million (2010: £11.3million)(i)

·; Loss before income tax £7.1million (2010: £9.7million loss)

·; Net liabilities per share 20p (2010: 7p net liabilities)

·; Loss per share 12.9p (2010: 16.1p loss)

(i) Adjusted for non-recurring management fee income of £1.1million and net property expenses of £0.4million (2010: adjusted for non-recurring property expenses of £4.5million and non-recurring performance fee income of 1.1million)

Key Business Events

·; Sovereign Gate, Richmond and 24-26 The Minories, London were sold in April 2010 and June 2010 respectively, for a combined amount of £10.7million which was in line with valuation.

·; Disposal of 50% equity interest in Radial Distribution Limited for £0.5million and receipt of transaction based fees and foregone management fees of £4.1million.(i)

·; Substantial reduction in voids across the Wholly Owned portfolio to 10.1% (2010: 19.4%)

·; Group's flagship City of London office refurbishment, 60 New Broad Street fully let.

(i) £1.1million one-off fees and £3.0million on termination of asset management contract

Philip Warner, Chairman of Warner Estate commented

"The Group has performed well at an operational level but it is the outcome of discussions with our Lenders that will determine our future.

Meantime, in a climate of uncertainty created by indecision in Europe and austerity measures in the UK, our asset managers and their support teams will continue to protect income and control costs. It is these skills which have maintained the Group through this difficult era."

Date: 29 July 2011

For further information contact:

Chairman's Statement

Following the refinancing of the Group's wholly owned portfolio, which was achieved at the end of March 2010, further discussions have been conducted over the course of this year with the Group's three Lenders to explore options to strengthen the Group's balance sheet. These continue and more detail is given below.

On the ground, progress has been made, with an improvement in operating profit and a substantial reduction in the void rate. Net asset value per share has decreased during the year from negative 7p to negative 20p. This is largely due to the impairment of goodwill, explained further below, which reduced net assets per share by 15p more than offsetting the 4.2% increase in the value of our portfolio and the gain from the sale in May 2010 of our Radial Distribution joint venture.

Refinancing discussions

The Group has debt facilities with each of Royal Bank of Scotland, Barclays and Lloyds Banking Group (together the "Lenders") that are secured on its wholly owned assets, details of which are set out in Notes 20 and 22 of the Accounts. The Group is currently in compliance with the terms of its facilities. However, in anticipation of the maturity of two of the facilities on 27 April 2012 and the likely inability of the Company to meet repayment obligations at that date, the Group commenced discussions in the second half of 2010 with its Lenders to consider potential solutions. Discussions with the Lenders remain ongoing and there can be no certainty as to the terms of any agreement, whether any agreement will be reached or the viability of any equity raise or other potential solution. The Board believes that in the absence of a very significant rise in the value of the Group's properties in the near term, it is likely that any solution would deliver very little, if any value to existing shareholders, other than the opportunity to participate in an equity raise were that solution to be pursued. With these discussions continuing, the two facilities originally maturing in April 2012 have been extended to 31 December 2012 in line with the third facility. In addition, there has been a relaxation of certain financial covenants including, in relation to one facility, the loan to value ("LTV") covenant remaining at 117.5% and not stepping down in March 2012. As a condition of these extensions and covenant relaxations the Group has agreed to market certain properties thereby continuing its current strategy of realising value in order to reduce total outstanding debt. Details of the Group's recent disposals are set out in the Property Review below.

Results Overview

Operating profit before net movements on investments for the year has increased to £13.4million (2010: £7.9million). Recurring operating profit before net movements on investments for the year was £12.7million compared to £11.3million last year due to further reductions in operating costs. Recurring operating profit excludes one-off fees received on the disposal of Radial Distribution of £1.1million offset by the movement in other accruals of £0.4million (2010: excludes non-recurring property expenses of £4.5million and non-recurring performance fee income of £1.1million). Overall the Group made a post tax loss of £7.2million (2010: £8.9million loss). The carrying value of goodwill, relating to the asset management business originally acquired by Industrial Funds Limited as part of the acquisition of Ashtenne Holdings, has been reduced to £2.8million. This impairment of goodwill of £8.4million arises from the Group reassessing a number of factors including the maturity of the contract in 2016 and the potential impact on management fees of uncertain capital values given that the fees generated by this business are based on the gross asset values ("GAV") within the funds under management.

The net finance expense for the period has increased to £19.3million (2010: £10.4million) as a result of the March 2010 refinancing which included an increase in margin, interest rate hedging as required by the Lenders, exit fees and the amortisation of related costs. The Group has hedged 52% of its gross debt as at 31 March 2011. The headline cost of debt (before exit fees) is 6.19% of which the cash cost is 3.09%. Group net debt has been reduced to £244.9million as at 31 March 2011 from £253.3million as at 31 March 2010 as a result of the completion of the disposal of three substantially non-income producing assets. The net cash inflow for the year was £2.7million mainly due to the proceeds from the sale of the Radial Distribution joint venture and the fee on termination of the associated asset management contract as property disposal proceeds were used to repay debt. Two of the Group's three facilities have LTV covenants, of which one has been tested and is compliant and the other is due to be tested in September 2011. The Board has discussed with its advisers, at some length, the likely future headroom under these LTV covenants and concluded that, based on best current estimates, the Group will, for the foreseeable future, have adequate headroom. The Group's positive income and cash generation provide adequate headroom for other financial covenants, in particular income cover ratios and debt service cover ratios.

As previously reported, the exit fees payable when these facilities mature would not be covered on current cash flow projections without a considerable rise in property values. The Board continues to address this issue as part of its current discussions with its Lenders. £2.7million has been accrued in respect of exit fees as at 31 March 2011.

Although the Group has net liabilities, mainly due to unrealised valuation movements, the Board is satisfied that, following a review of appropriately stress tested cash flow projections, the Group will continue to meet its liabilities as and when they fall due for the foreseeable future.

The fortunes of the Group's joint ventures, all of which are non-recourse and carried at nil value on the balance sheet, have varied. The refinancing of Agora Shopping Centres is nearing completion and the two shopping centres, which are the only assets of the Agora Max joint venture, are being marketed for sale. The Group continues as asset manager to these joint ventures and the Directors will provide further updates as and when appropriate. As announced in May 2011, fixed charge receivers have been appointed to the two subsidiaries of the Greater London Offices joint venture ("GLO") which is expected to result in a relatively minimal loss of recurring asset management fee income. The Group is disappointed at the action taken, having maintained the assets at full occupancy and overseen a substantial increase in value since September 2009.

The Board regrets very much that it cannot recommend payment of a dividend for this financial year.

Property Review

Intensive asset management of the Group's wholly owned portfolio, which is predominantly located in London and the South East (88% by value), led to a gain in value of 4.2%, on a like for like basis, over the last 12 months compared with the IPD Monthly Index benchmark increase of 3.5%. One of the Group's flagship assets, 60 New Broad Street, London EC2, is now close to becoming fully income producing (74% of total contracted income of £2.0million by December 2011) following expiry of rent free incentives. Wholly owned income longevity and voids also moved favourably during the second half of the financial year, the former enhanced by a number of lease extensions.

The wholly owned portfolio void rate has improved to 10.1% by estimated rental value as at 31 March 2011 (March 2010: 19.4%). During the year, the Group repaid debt of £10.8million through the sale of three substantially vacant assets. Post year end, two vacant former Focus DIY stores in Luton and Sheffield have been sold with net proceeds of £3.9million part repaying debt. A further property is currently under offer (31 March 2011valuation: £19.3million).

On a like for like basis, core asset management fees (based on GAV) generated by the Group's Ashtenne asset management business have, as a consequence of stable asset valuations, held broadly constant.

Recent activity within the Apia Regional Office Fund (Apia) and GLO will impact total assets under management, see table below, which had remained broadly constant over the period at £1.4billion. The sale by Apia of four regional office buildings and the expected loss of GLO, referred to above, will, on a like for like basis, see total assets under management decline by £143.6million.

(1) post year end the Greater London Offices JV was subject to the appointment of a LPA receiver

(2) post year end Apia has disposed of 4 assets at a combined value (March 2011) of £69.1million

Outlook

The Group has performed well at an operational level but it is the outcome of discussions with our Lenders that will determine our future.

Meantime, in a climate of uncertainty created by indecision in Europe and austerity measures in the UK, our asset managers and their support teams will continue to protect income and control costs. It is these skills which have maintained the Group through this difficult era.

Philip Warner

Chairman

Consolidated Income Statement

For the year ended 31 March 2011

Consolidated Statement of Comprehensive Income

For the year ended 31 March 2011

Statement of Financial Position

Statement of Changes in Equity

For the year ended 31 March 2011

Cash Flow Statements

For the year ended 31 March 2011

 (1)  Finance fees paid in 2010 include derivative break costs.

Notes to the financial statements

1. Accounting Policies

Basis of preparation

The Financial Statements comprise the consolidated financial statements of Warner Estate Holdings PLC ("the Group") for the year ended 31 March 2011 and have been prepared in accordance with International Financial Reporting Standards ("IFRS") and International Financial Reporting Interpretation Committee ("IFRIC") interpretations endorsed by the European Union ("EU") and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The basis of accounting and format of presentation is subject to change following any further interpretative guidance that may be issued by the International Accounting Standards Board ("IASB") and IFRIC from time to time.

The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain assets and liabilities, which are carried at fair value, and in accordance with those IFRS standards and IFRIC interpretations issued and effective or issued and early adopted as at the time of preparing these accounts.

The parent company's financial statements have also been prepared in accordance with IFRS, as applied in accordance with the provisions of the Companies Act 2006. The Directors' have taken advantage of the exemption offered by Section 408 of the Companies Act not to present a separate statement of comprehensive income for the parent company.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the Group's accounting policies. Although these estimates are based on management's best knowledge of the amount, events or actions, actual results ultimately may differ from those estimates.

These financial statements have been prepared on a going concern basis, which assumes the Group will continue to be able to meet its liabilities when they fall due, for the foreseeable future.

Although the Group has net liabilities, this is due to non-cash unrealised losses on investment property and investments in joint ventures and funds.

The current economic conditions continue to give rise to a number of uncertainties with regards to future income and market valuation movements. However, the Directors believe the Group is well placed to manage its business risks satisfactorily. The Directors' continue to monitor working capital levels on a regular basis.

Accordingly, after making enquiries, the Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. Therefore the Directors continue to adopt the going concern basis in preparing the annual report and accounts.

Standards, interpretations and amendments to published standards that became effective during the year

There are no new accounting standards or interpretations that are effective for the financial year ended 31 March 2011 that have a material impact on the Group's financial statements.

The following accounting standards or interpretations were effective for the financial year beginning 1 April 2010 but have not had a material impact on the Group:

·; IFRS 1 (revised) 'First time adoption'

·; IFRS 1 (amendment) 'First time adoption'

·; IFRS 2 (amendment) 'Share-based Payment - Group cash-settled share-based payment transactions'

·; IFRS 3 (revised) 'Business combinations'

·; IAS 27 (revised) 'Consolidated and separate financial statements'

·; IAS 32 (amendment) 'Financial instruments: Presentation'

·; IAS 39 (amendment) 'Financial instruments: Recognition and measurement'

·; IFRIC 17 'Distributions of non-cash assets to owners'

·; IFRIC 18 'Transfer of assets from customers'

Standards, interpretations and amendments to published standards that are not yet effective

The accounting policies are consistent with those applied in the year ended 31 March 2010, as amended to reflect the adoption of the new Standards, Amendments to Standards and Interpretations which are mandatory for the year ended 31 March 2011. In most cases, these new requirements are not relevant for the Group.

The following accounting standards or interpretations are not yet effective and are not expected to have a material impact on the Group. None of these accounting standards or interpretations has been early adopted by the Group.

IAS 24 (revised) 'Related party disclosures'

IFRIC 14 (amendment) 'Prepayments of a Minimum Funding Requirement'

IFRIC 19 'Extinguishing Financial Liabilities with Equity Instruments'

In addition, there are a number of changes to standards as a result of the IASB's 2009 and 2010 Annual Improvements programme. None of these are expected to have a material impact on the Group.

Consolidation

(a) Subsidiary undertakings

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights.

The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date control ceases. All inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated upon consolidation. Uniform accounting policies have been adopted across the Group.

(b) Interests in joint ventures

Interests in jointly controlled entities are accounted for using the equity method. Unrealised gains and losses on transactions between the Group and its joint ventures are eliminated to the extent of the Group's interest in the joint ventures. The Group's share of profit of joint ventures represents the Group's share of the joint venture's profit after tax. Joint ventures with net liabilities are carried at nil value in the statement of financial position where there is no commitment to fund the deficit and any distributions are included in the consolidated statement of income for the year.

Segment reporting

Segmental information is disclosed in the notes to the financial statements reflecting management reporting of financial performance and position as used in operational decision making.

Plant and equipment

Plant and equipment is initially measured at cost. After initial recognition, it is carried at cost less subsequent depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that the future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the consolidated statement of income during the financial period in which they are incurred.

Plant and equipment is depreciated by equal annual instalments over their estimated useful lives and are carried at historic cost less accumulated depreciation. The Group estimates a useful life of 3 years for computer equipment and 8 years for other fixtures and fittings.

Where the carrying amount of an item of plant and equipment is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Recoverable amount is the higher of fair value less costs to sell and value in use and is determined for an individual asset. After initial recognition, the item is carried at its cost less any accumulated depreciation and any accumulated impairment losses.

Goodwill

Business combinations are accounted for by applying the purchase method. The excess of the cost of the business combination over the acquirer's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities, recognised in accordance with IFRS 3, Business Combinations, constitutes goodwill, and is recognised as an asset. After initial recognition, goodwill is measured at cost less any accumulated impairment losses, until disposal or termination of the previously acquired business (including planned disposal or termination where there are indications that the value of the goodwill has been permanently impaired), when the profit or loss on disposal or termination will be calculated after charging the book amount of any such goodwill through the consolidated income statement.

Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. To the extent that the carrying amount exceeds the recoverable amount, which is the higher of net realisable value and value in use, the asset is written down to its recoverable amount. Any impairment is recognisedin the consolidated income statement and is not subsequently reversed. Net realisable value is the estimated amount at which an asset can be disposed of, less any direct selling costs.

Value in use is the estimate of the discounted future cash flows generated from the asset's continued use, including those resulting from its ultimate disposal. For the purposes of assessing value in use, assets are grouped into cash generating units which represent the lowest levels for which there are separately identifiable cash flows.

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each statement of financial position date.

Investment property

(a) Initial recognition

Property that is held for long-term rental yields or for capital appreciation or both, and that is not occupied by the Group, is classified as investment property.

Investment property comprises freehold land, freehold buildings, land held under operating leases and buildings held under finance leases. When the Group begins to redevelop an existing investment property for continued future use as an investment property, the property remains an investment property and is accounted for as such.

Property that is being constructed or developed for future use as investment property, but which has not previously been classified as such, is classified as property under the course of development. This is recognised at fair value. Interest is capitalised (before tax relief) on the basis of the average rate of interest paid on the relevant debt outstanding until the date of practical completion. On completion the property is transferred to investment property.

Land held under operating leases is classified and accounted for as investment property when the rest of the definition of investment property is met. In such cases, the operating lease is accounted for as if it were a finance lease.

Investment property is measured initially at its cost, including related transaction costs.

(b) Fair value

After initial recognition, investment property is carried at fair value. Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specified asset. The Group uses external valuers to determine the fair values of investment properties. These valuations are performed in accordance with the guidance issued by the Royal Institution of Chartered Surveyors. These valuations are reviewed at each financial reporting period end by independent external valuers who hold recognised and relevant professional qualifications and have recent experience in the location and category of the investment property being valued. Investment property that is being redeveloped for continuing use as investment property, or for which the market has become less active, continues to be measured at fair value.

The fair value of investment property reflects, among other things, rental income from current leases and assumptions about rental income from future leases in the light of current market conditions.

The fair value also reflects, on a similar basis, any cash outflows that could be expected in respect of the property.

Some of those outflows are recognised as a liability, including finance lease liabilities in respect of land classified as investment property; others, including contingent rent payments, are not recognised in the financial statements, unless they qualify as a provision.

 (c) Subsequent expenditure

Subsequent expenditure is charged to the asset's carrying amount only when it is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the cost of the item can be measured reliably. All repairs and maintenance costs are charged to the consolidated income statement during the financial period in which they are incurred. Gross borrowing costs associated with direct expenditure on properties under development or undergoing major refurbishment are capitalised. With specific developments, the amount capitalised is the gross interest incurred on those borrowings less any investment income arising on their temporary investment. Interest is capitalised as from the commencement of the development work until the date of practical completion. The capitalisation of finance costs is suspended if there are prolonged periods when development activity is interrupted. Interest is also capitalised on the purchase cost of a site or property acquired specifically for redevelopment in the short term but only where activities necessary to prepare the asset for redevelopment are in progress.

(d) Changes in fair value and transfers

Changes in fair values are recorded in the consolidated income statement for investment properties.

If an investment property becomes owner-occupied, it is reclassified as property, plant and equipment, and its fair value at the date of reclassification becomes its cost for accounting purposes. Property that is being constructed or developed for future use as investment property is classified as properties under the course of development and stated at fair value until construction or development is complete, at which time it is reclassified and subsequently accounted for as investment property.

Cash and cash equivalents

Cash and cash equivalents comprises cash balances, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. Cash and cash equivalents are categorised as loans and receivables. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. Bank overdrafts are disclosed in current and non-current liabilities.

Employee benefits

The Group accounts for pensions under IAS 19 'Employee Benefits'. In respect of the defined benefit pension scheme, obligations are measured at discounted present value while scheme assets are measured at their fair value.

The operating and financing costs of this plan are recognised separately in the consolidated statement of comprehensive income. Service costs are spread systematically over the working lives of the employees concerned with the charge for the period included in operating costs in the consolidated statement of comprehensive income.

Financing costs are recognised in the periods in which they arise and are included in interest expense. Actuarial gains and losses arising from either experience differing from previous actuarial assumptions or changes to those assumptions are recognised immediately in the consolidated statement of comprehensive income.

Contributions to defined contribution schemes are expensed as incurred.

Income taxes

The investment property segment of the Group's business converted to a REIT as stated below and is therefore exempt from tax. The asset management segment of the business continues to be subject to tax.

The charge for current taxation is based on the results for the year as adjusted for items which are non-assessable or disallowed. It is calculated using rates that have been enacted or substantively enacted by the statement of financial position date. Tax payable upon realisation of fair value gains recognised in prior periods is recorded as a current tax charge with a release of the associated deferred tax.

Deferred tax is provided using the statement of financial position liability method in respect of temporary differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in computation of taxable profit with the exception of deferred tax on fair value gains where the tax basis used is the historic cost. Provision is made for temporary differences between the carrying value of assets and liabilities in the consolidated financial statements and the values used for tax purposes. Temporary differences are not provided for when they arise from initial recognition of assets and liabilities that do not affect accounting or taxable profit.

When distributions are controlled by the Group, and it is probable the temporary difference will not reverse in the foreseeable future, deferred tax which would arise on the distribution of profits realised in subsidiaries, associates and joint ventures is provided in the same period as the liability to pay the distribution is recognised in the financial statements.

Deferred tax is determined using tax rates that have been enacted or substantially enacted by the statement of financial position date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. It is recognised in the consolidated income statement except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred tax assets and liabilities are offset only when they relate to taxes levied by the same authority, with a legal right to set off and when the Group intends to settle them on a net basis.

Compliance with the Real Estate Investment Trust ("REIT") taxation regime

On 1 April 2007 the investment property segment of the Group converted to a group REIT. In order to achieve and retain group REIT status, several entrance tests had to be met and certain ongoing criteria must be maintained. The main criteria are as follows:

·; at the start of each accounting period, the assets of the tax exempt business must be at least 75% of the total value of the Group's assets;

·; at least 75% of the Group's total profits must arise from the tax exempt business; and

·; at least 90% of the profit of the property rental business must be distributed.

The Directors intend that the Group should continue as a group REIT for the foreseeable future, with the result that deferred tax is no longer recognised on temporary differences relating to the property rental business.

Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated.

(a) Onerous contracts

Provision is made in respect of costs incurred on vacant leasehold properties or for leasehold properties sublet at a level which renders the properties loss-making over the length of the lease, being the net cash outflow committed to be incurred over the lives of the leases. Any increase or decrease in the provision is taken to the consolidated income statement each financial period. The provision is assessed on a property by property basis taking account of individual cash flows. Cash flows are discounted using the risk free rate.

(b) Share-based payments

The cost of granting share options and other share based remuneration to employees and directors is recognised through the consolidated income statement with reference to the fair value at the date of the grant. The Group has used the Black-Scholes option valuation model and a stochastic model to establish the relevant costs. The resulting values are amortised through the consolidated income statement over the vesting period of the options and other grants. The charge is reversed if it appears probable that applicable performance criteria will not be met.

Own shares held in connection with employee share plans or other share based payment arrangements are treated as treasury shares and deducted from equity. No profit or loss is recognised in the consolidated income statement on their sale, re-issue or cancellation.

(c) Dilapidations

Where the Group, as lessee, is contractually required to restore a leased property to an agreed condition, prior to release by a lessor, provision is made for such dilapidation costs as they are identified.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and is stated net of sales taxes and value added taxes. Revenue includes 'Rental and similar income', 'Service charge and similar income' and 'Turnover from asset management activities'. Revenue is recognised as follows:

 (a) Rental and similar income

Rental income from operating lease income is recognised on a straight-line basis over the lease term.

When the Group provides incentives to its customers, the cost of incentives are recognised over the lease term, on a straight-line basis, as a reduction of rental income.

(b) Service charge and similar income

Service and management charge income is recognised on a gross basis in the accounting period in which the services are rendered. Where the Group is acting as an agent, the commission rather than gross income is recorded as revenue.

(c) Income from asset management activities

Management fees earned are calculated on an accruals basis. Asset management income is recognised in the accounting period in which the services are rendered.

Performance fees are recognised, in line with the asset management contracts, at the end of the performance period to which they relate, based on the outperformance of relevant benchmarks. The performance period is normally three years. Where performance subsequently falls short of these benchmarks, fees are repayable, up to the amount received for the previous two years. Where there is a reasonable likelihood that part of a performance fee will be repaid the estimated repayment will not be recognised until the outcome can be reliably estimated.

Other income

 (a) Income from investments

Dividend income from investments is recognised when the shareholders' rights to receive payment have been established. Distribution income from funds is recognised on an accruals basis.

(b) Income from property disposals

Profits or losses arising from the sale of trading and investment properties are included in the consolidated income statement of the Group where an exchange of contracts has taken place under which any minor outstanding conditions not affecting the transfer of risks and rewards are entirely within the control of the Group. Profits or losses arising from the sale of trading and investment properties are calculated by reference to their carrying value and are included in operating profit.

(c) Other interest income

Other interest income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate.

Leases

(a) A Group company is the lessee

(i) Operating lease - leases in which substantially all risks and rewards of ownership are retained by another party, the lessor, are classified as operating leases. Payments, including prepayments, made under operating leases (net of any incentives received from the lessor) are charged to the consolidated income statement on a straight-line basis over the period of the lease.

(ii) Finance lease - leases of assets where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease commencement date at the lower of the fair value of the leased property and the present value of the minimum lease payments. The investment properties acquired under finance leases are carried at their fair value.

The corresponding rental obligations, net of finance charges, are included in current and non-current borrowings. The interest element of the finance cost is charged to the consolidated income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

(b) A Group company is the lessor

(i) Operating lease - properties leased out under operating leases are included in investment property in the consolidated statement of financial position.

(ii) Finance lease - when assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable accrues as finance income. Lease income is recognised over the term of the lease using the net investment method before tax, which reflects a constant periodic rate of return.

Financial instruments and hedging activities

Derivatives

The Group uses derivatives to help manage its interest rate risk. In accordance with its treasury policy, the Group does not hold or issue derivatives for trading purposes.

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. None of the derivatives currently held are designated as hedging instruments and accordingly any gain or loss is recognised in the consolidated income statement in the period in which it arises.

Hedge accounting

The Group's derivative financial instruments do not qualify for hedge accounting and changes in the fair value of derivative financial instruments are recognised in the consolidated income statement as they arise.

Financial assets

The Group classifies its financial assets in the following categories: financial assets at fair value through the consolidated income statement, loans and receivables, held-to-maturity investments and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and reviews this designation at each reporting date.

Purchases and sales of investments are recognised on the trade date; the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.

(a) Financial assets at fair value through the consolidated statement of income

This category has two sub-categories: financial assets held for trading, and those designated at fair value through the consolidated income statement at inception. A financial asset is classified in the first category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also classified as held for trading unless they are designated as hedges. Assets in the second category are classified as current assets if they are expected to be realised within 12 months of the statement of financial position date.

Realised and unrealised gains and losses arising from changes in the fair value of the 'financial assets at fair value through the consolidated income statement' category are included in the consolidated income statement in the period in which they arise.

The fair values of listed investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis and option pricing models refined to reflect the issuer's specific circumstances. For unlisted investments in shares, fair value is based on an average spread of price/earnings ratios from comparable companies, discounted for non-marketability. Changing the assumptions to other reasonably possible alternative assumptions would not change the fair value significantly. For investments in funds, fair value is measured as the unit price of the holding at the statement of financial position date.

(b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except for maturities greater than 12 months after the statement of financial position date. These are classified as non-current assets. Loans and receivables are included in trade and other receivables in the statement of financial position.

The Group assesses at each statement of financial position date whether there is objective evidence that a financial asset or a group of financial assets is impaired.

Trade and other receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for impairment. A provision for impairment in trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The changes to the provision are recognised in the consolidated income statement.

Investments in subsidiary undertakings

Investments in subsidiary undertakings are carried in the company's statement of financial position at cost less any provision for impairment.

Impairment

The carrying amounts of the Group's and Company's financial assets (where applicable) and non-financial assets, other than investment properties, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. An impairment loss is recognised in the consolidated income statement whenever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount of an asset is the greater of its fair value less costs to sell and its value in use. The value in use is determined as the net present value of the future cash flows expected to be derived from the asset, discounted using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset

An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversedonly to the extent that the asset's carrying amount after the reversal does not exceed the amount that would have been determined, net of applicable depreciation, if no impairment loss had been recognised.

Borrowings

Borrowings are initially recognised at the fair value of consideration received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the consolidated income statement over the period of the borrowings using the effective interest method.

Transaction costs are capitalised on the statement of financial position and are amortised over the life of the associated borrowing instrument through the effective rate of interest.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the statement of financial position date.

Exit fees are accrued and recognised in the consolidated income statement over the period of borrowing based on the position at the balance sheet date.

Share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options, or for the acquisition of a business, are included in the cost of acquisition as part of the purchase consideration.

Where any Group company purchases the Company's equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs, (net of tax) is deducted from equity attributable to the Company's equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, are included in equity attributable to the Company's equity holders.

Warrants reserve

Warrants issued are classified as non-distributable reserves.

The Group issued warrants to two of its lenders in conjunction with the refinancing entitling them to subscribe for ordinary shares in the Group. These have been accounted for at fair value on the date of issue. As these warrants are related to the refinancing, the have been capitalised as transaction costs and amortised over the life of the associated borrowing as set out in the borrowing accounting policy.

Critical accounting policies and judgements

The preparation of the Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and disclosure of contingencies at the date of the Consolidated Financial Statements. If in the future such estimates and assumptions, which are based on management's best judgement at the date of the Consolidated Financial Statements, deviate from the actual circumstances, the original estimates and assumptions will be modified, as appropriate, in the period in which the circumstances change. The following policies are considered to be of greater complexity and / or particularly subject to the exercise of judgement. These judgements involve assumptions or estimates in respect of future events. Actual results may differ from estimates.

(a) Goodwill

As required by IAS 36, Impairment of Assets, the Group regularly monitors the carrying value of its assets, including goodwill. Impairment reviews compare the carrying values to the present value of future cash flows that are derived from the relevant asset or cash-generating unit. These reviews therefore depend on management estimates and judgements, in particular in relation to the forecasting of future cash flows and the discount rate applied to the cash flows.

(b) Post-employment benefits

Application of IAS 19, Employee Benefits, requires the exercise of judgement in relation to setting the assumptions used by the actuaries in assessing the financial position of each scheme. The Group determines the assumptions to be adopted in discussion with its actuaries, and believe these assumptions to be in line with IAS generally accepted practice.

(c) Provisions

The Group carries statement of financial position provisions in respect of onerous contracts and dilapidations amongst other exposures. Judgement is involved in assessing the exposure in these areas and hence in setting the level of the required provisions.

(d) Estimate of fair value of investment properties

The best evidence of fair value is current prices in an active market for similar lease and other contracts. In the absence of such information, the Group, using third party independent experts, determines the amount within a range of reasonable fair value estimates. In making its judgement, the Group and its third party independent experts consider information from a variety of sources including:

i) current prices in an active market for properties of a different nature, condition or location (or subject to different lease or other contracts), adjusted to reflect those differences;

ii) recent prices of similar properties in less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and

iii) discounted cash flow projections based on reliable estimates of future cash flows, derived from the terms of any existing lease and other contracts, and (where possible) from external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows.

(e) Principal assumptions for management's estimation of fair value of investment properties

If information on current or recent prices of assumptions underlying the discounted cash flow approach investment properties is not available, the fair values of investment properties are determined using discounted cash flow valuation techniques. The Group and its third party independent experts use assumptions that are mainly based on market conditions existing at each balance sheet date.

The principal assumptions underlying management's estimation of fair value are those related to: the receipt of contractual rentals; expected future market rentals; void periods; maintenance requirements; and appropriate discount rates. These valuations are regularly compared to actual market yield data and actual transactions by the company and those reported by the market.

The expected future market rentals are determined on the basis of current market rentals for similar properties in the same location and condition.

The fair value of investment properties is disclosed in note 13.

(f) Investments in unlisted shares

The valuation technique is disclosed in the financial assets accounting policy note. These valuations depend on management estimates and judgements, in particular in relation to the forecasting of future cash flows and the discount rate applied to the cash flows.

(g) Derivative financial assets and liabilities

The IASB published amendments to IFRS 7 in March 2009. The amendment requires enhancing existing disclosures about fair value measurements and liquidity risk. The amendment requires disclosure of fair value measurements by level of a three-level fair value measurement hierarchy. The adoption of the amendment results in additional disclosures but does not have an impact on profit or earnings per share.  

2. Segmental Reporting

Business Segments

Operating segments are determined based on the internal reporting and operational management of the Group. The Group is organised into two operating divisions, Property Investment and Asset Management.

Property investment principally involves engaging in acquiring freehold or leasehold properties, including shopping centres, in the UK. Properties are held for capital appreciation and the revenue relates to rental income and is measured in a manner consistent with that in the consolidated income statement. Asset management involves managing property assets and receiving a contractual fee for the service.

The operating segments derive their revenue primarily from rental income and management fees.

Unallocated and other activity costs which include the Group's holdings in joint ventures and investments in funds are incurred centrally which are neither directly nor reasonably attributable to the individual segments.

All turnover and operating profit has arisen from continuing operations.

(a) Rents receivable includes £1.2million (2010: £0.3million) which represents rent allocated to rent free periods.

(b) Service charge and similar income includes monies received from tenants in respect of service charge costs the tenants bear on their properties. Service charge costs not recovered ("void costs") are included within service charge expense and similar charges of £1.2million (2010: £1.3million).

Reportable segments' profits after tax are reconciled to total loss for the year as follows:

Reportable segments' assets are reconciled to total assets as follows:

Unallocated:

Reportable segments' liabilities are reconciled to total liabilities as follows:

Unallocated:

The Group is domiciled in the United Kingdom where revenue is generated from property assets and management fee income. All revenue derived from external customers is listed above. All of the Group's non-current assets, current assets and all liabilities are domiciled in the United Kingdom.

The parent company is a holding company and does not operate in any segments.

During the year the following amounts were charged to the consolidated statement of income in respect of auditors' remuneration:

In addition £0.1million was charged by the Auditors for audit services to the joint ventures (2010: £0.1million) and nil for tax work (2010: £0.1million).

3. Employees

The amounts above are net of £0.9million (2010: £0.9million) relating to staff costs recharged to certain joint ventures and funds.

The parent company had no employees during the year (2010: Nil).

Retirement Benefit Obligations

The Group operates and contributes to pension schemes for certain Directors and employees and makes some discretionary allowances. The costs charged to the consolidated income statement for the year to 31 March 2011 in respect of these amounted to £0.4million (2010: £0.3million). Pension premiums paid in advance were £nil (2010: £nil).

The Group operates a funded defined benefit scheme in the UK, The Warner Estate Group Retirement Benefits Scheme. The costs charged to the consolidated income statement for the year to 31 March 2011 in respect of these amounted to £nil (2010: £0.3million). A full valuation was carried out at 1 April 2009. The values at 31 March 2011 were updates of the 1 April 2009 valuation carried out by a qualified independent actuary.

It has been agreed with the Trustees that the Group contributes 37.7% of pensionable salary plus £0.2million per annum.

The discount rate used to calculate the funding target is equal to the yield on fixed interest gilts of appropriate term at the valuation date plus 2% per annum for active and deferred members over the period to retirement. The inflation assumption is derived from the difference between the yield on fixed interest gilts and the yield on indexed-linked gilts at the valuation date.

Warner Estate Holdings PLC employs a building block approach in determining the long term rate of return on pension plan assets. Historical markets are studied and assets with higher volatility are assumed to generate higher returns consistent with widely accepted capital market principles. The assumed long-term rate of return on each asset class is set out within this note. The overall expected rate of return on assets is then derived by aggregating the expected return for each asset class over the actual asset allocation for the Scheme at the 31 March 2011.

Actuarial gains and losses are recognisedthrough the Consolidated Statement of Changes in Equity.

The following assumptions were made by the Group:

Mortality assumptions are based on standard mortality tables which allow for future mortality improvements. The assumptions are that a member currently aged 60 will live on average for a further 29 years if they are male and for a further 30 years if they are female. For a member who retires in future at age 60 the assumptions are that they will live on average for a further 31 years after retirement if they are male and for a further 32 years after retirement if they are female.

The market value of the assets of the Scheme together with the expected rates of return at the beginning and end of the year were as follows:

None of the scheme assets are property related.

Reconciliation of Funded Status to Statement of Financial Position

Changes to the Present Value of the Defined Benefit Obligation

*Includes changes to the actuarial assumptions.

Changes to the Fair Value of Scheme Assets

Actual Return on Scheme Assets

Analysis of Consolidated Income Statement Charge

Current service cost is recognised within property management and asset management expenses. Interest cost and expected return on plan assets are recognised in finance income.

Analysis of Amounts Recognised in Consolidated Statement of Comprehensive Income

History of Asset Values, Defined Benefit Obligation, Surplus / (Deficit) in Scheme and Experience Gains and Losses

The estimated amounts of contributions expected to be paid to the Scheme during the year to March 2012 are £0.2million.

4. Directors' Remuneration

A summary of Directors' remuneration, including disclosures required by the Companies Act 2006 and those specified by the Financial Services Authority, is contained in the Directors' Remuneration Report on pages 13 to 18.

5. Profit / (Loss)on Sale of Investment Properties

6. Finance Income

Dividends from listed investments, unlisted investments and distributions from funds represent income from financial assets at fair value through the consolidated income statement.

In 2009 a provision was made against interest receivable on loan notes from Greater London Offices Limited. This provision was reversed in 2010 as the interest was repaid in full.

Other interest represents income from financial assets categorised as loans and receivables.

7. Finance Expense

Interest payable on loans and overdrafts and charges in respect of raising finance represent expenses on financial liabilities at amortised cost.

8. Taxation

9. Loss of Warner Estate Holdings PLC

The Company has taken advantage of the exemption provided by Section 408 of the Companies Act 2006 from presenting its own income statement. Loss attributable to members includes £7.2million (2010: £9.0million loss) which has been dealt with in the accounts of the Company.

10. Dividends

No final dividend is proposed by the Board.

11. Earnings Per Share

Losses per share of 12.93p (2010: 16.09p) are calculated on the losses for the year of £7.2million (2010: £8.9million) and the weighted average of 55,146,172 (2010: 55,332,560) shares in issue throughout the year.

Diluted losses per share of 11.96p (2010: 15.20p) are calculated on the loss for the year as above divided by the weighted average number of shares in issue, being 59,534,067 (2010: 58,534,466) after the dilutive impact of share options granted.

A reconciliation of the weighted average number of shares used to calculate earnings per share and to that used to calculate diluted earnings per share is shown below:

12. Goodwill

Goodwill is not amortised but is subject to an annual impairment test. Goodwill of £2.8million is allocated to the cash generating unit ("CGU") defined as the asset management business owned by Industrial Funds Limited. The recoverable amount of the asset management business has been used to assess whether the goodwill is impaired. The recoverable amount of the CGUs has been calculated based on the value-in-use calculations. These calculations use cash flow projections based on financial projections approved by management covering the period to the termination of the asset management contract. Year 1 is based on the budget as approved by management. This is determined by past experience and management's expectations of the current market conditions. Cash flows beyond year 1 are based on the assumption of nil growth in management fee income and no increase or decrease in associated administrative costs. A discount rate of 3.09% has been used to calculate the recoverable amount. The impairment arises from the Group reassessing a number of factors including the maturity of the contract in 2016 and the potential impact on management fees of uncertain capital values given that the fees of this business are based on gross asset values.

13. Investment Properties