31st May 2006 07:04
Quintain Estates & Development PLC31 May 2006 31 May 2006 QUINTAIN ESTATES AND DEVELOPMENT PLC ("Quintain" / "Group") PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2006 Highlights • Strong progress made across all areas of the Group's business; total return of 21% • Top decile performance in IPD's March Universe; Quintain has been the top performing fund since inception • Net asset value per share increased by 19% to 526p (2005: 443p); diluted net asset value per share rose by 18% to 516p (2005: 436p) • Profit before tax up 86% to £65.0m (2005: £34.9m) primarily due to sales in the core investment portfolio and substantial valuation uplifts • Earnings per share up 49% to 46.1p before discontinued activities (2005: 31.0p) • Final dividend of 7.25p giving a total dividend for the year of 10.5p (2005: 9.5p) representing an increase of 11% • Asset disposals totalling £135.0m during the period, generating profits of £14.2m; purchases totalled £41.4m • Valuation of Wembley and Greenwich Peninsula assets reveal approximate values of £384m (up 25%) at Wembley and £144m (up 6%) at Greenwich • Since the year end, Wembley has been shortlisted as one of the potential sites for a regional casino • Significant progress within Quintain Fund Management: - Quercus, the Group's specialist healthcare fund, grew funds under management by 63% and delivered a fund level return of 49.7% - £50m of assets acquired post year end in preparation for the launch of a student accommodation fund and heads of terms agreed on a further £106m of assets - Quantum Property Partnership formed with existing partner Morley Fund Management to invest in, develop and operate science parks. Post the year end, Quantum selected as preferred development partner by South West Regional Development Agency to create a new science and technology park in Bristol • Quintain's position as one of the UK's leading urban regeneration companies affirmed through its involvement in over 27m sq ft of mixed-use development of which 22m sq ft has planning consent. Nigel Ellis, Chairman of Quintain, commented: "The year to 31 March 2006 has been another successful year for the Group,delivering a total return of 21%. Based on this, our core measure, and subjectto market conditions, we believe the Group is well positioned to deliverconsiderable growth in its activities over the next few years and, as such, welook forward with enthusiasm." For further information, please contact: Quintain Estates and DevelopmentRebecca Worthington020 7495 8968 Financial DynamicsStephanie Highett / Dido Laurimore020 7831 3113 FINANCIAL HIGHLIGHTS FOR THE YEAR TO 31 MARCH 2006 INCOME STATEMENT 31 March 31 March Change 2006 2005 % Profit before tax and discontinued operations (£m) 65.0 34.9 86.0 Basic earnings per share before discontinued operations (pence) 46.1 31.0 48.7 Diluted earnings per share before discontinued operations (pence) 45.2 30.4 48.7 Profit before tax after discontinued operations (£m) 60.9 37.3 63.3 Basic earnings per share after discontinued operations (pence) 43.9 32.3 35.9 Diluted earnings per share after discontinued operations (pence) 43.0 31.7 35.6 Total dividend per share (pence) 10.50 9.50 10.5 Final dividend per share (pence) 7.25 6.75 7.4 Balance Sheet 31 March 31 March Change 2006 2005 % Net asset value per share (pence) 526 443 18.7 Total return per share (%) 21.0 23.1 - Net asset value per share - EPRA 612 497 23.1(pence) Total return per share - EPRA (%) 25.2 21.9 - Gearing (%) 36 29 - The attached preliminary announcement is extracted from the Group's AnnualReport which is audited and has been given an unqualified audit opinion. Chairman's Statement I am pleased to report that Quintain has had yet another successful year inwhich strong progress was made across our business. During the year we achieved a total return, as measured by the increase in netassets per share adding back the dividend paid, of 21.0% or 18.60% net ofinflation. The total return as measured on an EPRA basis and defined in theOperating and Financial Review, was 25.2% for the year. This is well ahead ofour internal target of a 10% total return net of RPI inflation, a target whichwe have exceeded every year since flotation in 1996. We have also significantly outperformed the property market, as measured by theInvestment Property Databank (IPD) the industry benchmark. Our total ungearedreturn for the year to 31 March 2006 was 26.5%, compared with IPD's MarchUniverse of 20.9%. During the year the net asset value per share rose by 19% from 443p to 526p and,on a diluted basis, by 18% to 516p from 436p. As in past years, the main driverof the uplift was the surplus on property revaluation, with the most significantcontribution again arising from our investment in Wembley. Details of all theseprojects and a full review of our operations follow in the Operating andFinancial Review. Profit before tax rose by 86% from £35m to £65m and earnings from continuingoperations increased by 49% to 46p per share, primarily due to the sales in thecore investment portfolio and substantial valuation uplifts both in theinvestment portfolio and in the Quercus healthcare fund - our joint venture withMorley Fund Management. Underlying profits decreased, however, largely due toan increase in administrative expenses as we continued to invest in ourmanagement team and widen our in-house expertise and skills to position theGroup for its next exciting phase of growth. As indicated in previous reports to shareholders, the Company's earnings willinevitably vary over time, particularly in light of the major special projects.In the longer term, however, earnings volatility will be suppressed asadditional income streams commence, most notably from our major regenerationprojects in Greenwich and Wembley. Borrowings net of cash have increased from £164m to £243m with gearing increasedfrom 29% to 36%. This is still lower than our normal target and is due to ourdecision to recycle the profits from our sales programme to support ourdevelopment. Further details are provided in the Financial Statements within the Operatingand Financial Review. Share Price During the year, the share price continued to perform well rising by 28% overthe 12 months to 31 March 2006, giving a closing price of 680p. Over this periodin total return terms we outperformed the FTSE 350 index by 2% andunderperformed the FTSE Real Estate Index by 18%. Over five years, Quintain hasdelivered a total shareholder return, based on the increase in share priceadding back the dividend paid, of 328% compared with 31% for the FTSE 350 and141% for the FTSE Real Estate Index. Dividend As a result of the year's strong performance, the board is recommending anincrease in the final dividend of 0.5p giving a total dividend for the year of10.50p (2005: 9.50p), representing an increase of 11%. It is intended that thefinal dividend of 7.25p per share will be paid on 8 September 2006 toshareholders on the register as at 4 August 2006. The Company's intention is tomaintain a progressive dividend and this policy will continue subject to cashrequirements. Corporate Governance We very much believe in the importance of good corporate governance and areactively working towards full compliance with the Combined Code. A detailedreview is contained in the Corporate Governance section within the AnnualReports. People Since the year end, James Hamilton Stubber has left the company to set up hisown business and we very much wish him well for the future. Also following theyear end, we were pleased to announce that Nick Shattock has accepted theappointment of Deputy Chief Executive. We would like to take this opportunityto thank him in particular for his achievements over the last few years indriving the growth of our Special Projects. Outlook The year to 31 March 2006 has been another successful year for the Group,delivering a total return of 21%. Based on this, our core measure, and subjectto market conditions, we believe the Group is well positioned to deliverconsiderable growth in its activities over the next few years and, as such, welook forward with enthusiasm. Nigel Ellis Chairman 31 May 2006 Operating and Financial Review During the year Quintain significantly strengthened its balance sheet and madesubstantial progress in both its major projects and the development of its fundmanagement business. The results are excellent and the Group is well positionedto deliver considerable value over the next few years. Objectives and strategy Quintain's core objectives are to deliver upper quartile performance relative tothe IPD benchmark and to make a real total return of at least 10%, measured bythe increase in net asset value per share adding back the dividend. Since formation, our strategy has remained unchanged. We apply a rigorousstock-picking approach, focusing on the financial characteristics of propertiesto identify assets and special situations where we can use our skills to createvalue. Our approach to our core investment portfolio demands that we sell real estatethat no longer offers the potential to enhance value. This resulted in sellingproperties during the period with a book value of £110.4m. Our strategy inrelation to urban regeneration, however, is to retain the freehold and recycleour capital by selling some long leasehold interests at various stages of thedevelopment. This allows us to run strategic developments as businesses,creating diverse income streams including the exploitation of non-rentalcommercial opportunities such as advertising, naming rights, branding,telecommunications and power. We believe that Quintain has become a leader in urban regeneration. This has andshould lead to further opportunities, for example at City Park Gate, Birmingham,where we have secured development manager status with our partners CountrysideProperties plc in joint venture with Birmingham City Council. The scale of the opportunities is impressive and already includes Wembley,Greenwich, City Park Gate, Middlehaven, Emersons Green and Brighton. Ourexisting schemes alone add up to a total of 27m sq ft of mixed-use development,of which 22m sq ft has outline planning consent. While the nature and scale ofthese urban regeneration projects will inevitably have an impact on the absolutelevel of the Group's profits during their roll-out, their potential to transformthe Group's net asset value is considerable and the Group will continue tofollow a cautious approach to financing, focused always on the ongoing creationand enhancement of value for our shareholders. Options already being exploredinclude joint venture partnerships, both to deliver third party skills andcapital, land sales and forward funding both by institutions and into specialistfunds, with the latter including healthcare, residential and studentaccommodation. To ensure the successful delivery of our strategy, we have continued to investin people, recruiting a number of specialists during the year whose skills willgreatly benefit the Group's ability to capture and create value. For example wehave brought in individuals with residential and student accommodationexpertise. The market and the competitive environment The strength of the property market has continued throughout 2005 and into 2006.Demand from both institutional and private investors has led to a proliferationof new funds being formed. Bank lending for the first quarter of 2006 to thecommercial property sector was a seasonally adjusted £7bn, the second highestquarterly flow on record. There is no sign of let-up in yield compression withIPD's quarterly index showing a return of 4.5% to 31 March 2006 of which 3.2%was capital uplift. News of the introduction of REITs from the beginning of 2007 was receivedfavourably in the market, with the conditions attached to them far more flexiblethan anticipated. In particular, interest cover was reduced to 1.25 times andthe conversion charge was set at 2% of gross assets. Whilst this is a positivemove for the industry, Quintain does not anticipate converting into a REIT asthe structure is not suited to the Group's business model. Quintain'sregeneration programme could not be delivered under the restriction thatinvestment assets must constitute at least 75% of gross assets and that 90% ofincome must be distributed. The income from our investment portfolio and fundmanagement is used in part to finance the running of special projects. Quintain has significant exposure to the residential market as our schemes atWembley and Greenwich include consent for approximately 14,500 residentialunits, of which 61% are private. London house prices have been relatively staticover the last few years but are now showing signs of picking up and this, withthe growing population, leads us to believe that demand in London should remainreasonably resilient. As a landowner and potential developer, we have theability to control the nature and timing of phasing. Within the 39% affordablehousing allocation, much of which is discounted for sale, demand substantiallyoutstrips supply. Seasoned observers of commercial property are divided on their outlook for themarket. One view is that the immense demand and consequent yield compressioninduced by lower interest rates, low inflation and competition from debt drivenprivate investors and liability driven funds is sustainable and even at theseprices the real rate of return in prospect is close to historic norms. Thealternate view is that the disconnect between the investment and occupationalmarkets, high levels of indebtedness, prospective increases in interest ratesand an uncertain economic outlook, both domestically and overseas, is conduciveto a stabilisation if not fall in market prices. We tend towards the latteranalysis and have factored this in to our business planning. Business Review The year to 31 March 2006 saw good progress across all areas of the Group'sbusiness. Buoyant market conditions during the year prompted further trading ofthe portfolio, with sales generating proceeds of £135.0m. The Group also madepurchases totalling £41.4m and we recorded a valuation uplift of £124.7m ondirectly owned property and £154.6m on the entire portfolio over the period. The table below shows the activity during the year. £mInvestment and development property at 31 March 2005 754.1 _____Purchases 41.4 _____Capital Expenditure 72.3 _____Capitalised interest 7.8 _____Sales - book value (110.4) _____Valuation uplift 124.7 _____Depreciation and exchange (0.4) _____Investment and development property at 31 March 2006 889.5 The Quintain business model has been designed to capture the growth inherent inour existing and future asset base. For example, investment product createdthrough our regeneration projects could be held within the Investment Portfolioor, if of a specialist nature, in the Fund Management division. • The Investment Portfolio currently comprises secondary investment property with potential to create capital value uplift. The cashflow this generates is intended to support the Group's other activities • The Special Projects division focuses on capital growth, in particular deriving upside from planning gain and development. The largest component is the Urban Regeneration programme typified by Greenwich and Wembley • Our Fund Management division, which we have now re-named Quintain Fund Management ("QFM"), co-invests in specialist sectors such as healthcare, student and residential accommodation and science parks and, through this, benefits from asset management, transaction and performance related fees. The table below sets out the make up of the divisions with capital uplifts forthe year and yields: Investment Special Fund Management Total Portfolio Projects ______ ______ ______ ______Investment £m 219.6 42.1 28.4 290.1Development £m 19.0 575.4 5.0 599.4Funds £m 0.0 0.00 147.8 147.8 ______ ______ ______ ______Total £m 238.6 617.5 181.2 1037.3Portfolio % 23.0% 59.5% 17.5% 100.0% ______ ______ ______ ______Uplift % 7.8% 19.8% 24.0% 17.5%Initial Yield % 5.4% 1.5% 6.2% 3.2%Reversionary Yield % 7.9% 2.4% 6.2% 3.8% Investment Portfolio The sales programme was primarily focused on the investment portfolio andreleased profits over valuation of £14.2m. Highlights included the sale of amixed-use portfolio, which was characterised by short term lease expiries, for£33.2m. On the North Circular Road at Wembley we negotiated a surrender from aloss-making hotel franchisee and simultaneously agreed a new 25 year lease withTravelodge Inn which catalysed a sale with an exit yield of 4.7%. The refurbishment programme continued. We have now achieved practical completionat Royal Exchange, Manchester, a specialist shopping centre of some 41,600 sq ftand the letting programme has commenced. The table below sets out current and proposed refurbishments. Property Scheme Floor area Cost Completion Sq ft £m Dates ______ ______ ______ ______Royal Exchange, Manchester Retail 41,600 4.1 Jun '06St Peter's House and Offices 69,000 3.5 Jun '06Belgrave House, SheffieldSmallbrook Queensway, Offices 13,700 0.3 OngoingBirmingham 2006-2008 ______ ______ ______ ______Total 124,300 7.9 Unintended voids across the group total 8.0% and, whilst we are making someprogress, this is against the background of a challenging letting market.Successes included bringing in four new tenants to achieve full occupancy at TheArcade, Aldershot, including an anchor tenant for a 5,500 sq ft unit, leading toa sale of the centre for £5.6m. At Rushey Green in Catford we re-geared thelease from one to 15 years for a premium of one year's rent and subsequentlysold the freehold interest for an initial yield of 4.8%. Investment property purchases of £39.6m include the £5.8m acquisition of twooffice units at Meadow Court in Sheffield, continuing our strategy to capitaliseon the improvement in this area and consequent demand for good quality officespace. Edisons Courtyard in Corby comprising 64,000 sq ft of starter units waspurchased for £2.8m and an initial yield of 7.3% to provide income. 140Cambridge Science Park was acquired for £5.5m to provide investment income onthe creation of the science park fund as discussed below. The market conditions referred to above make it difficult to find value. Wecontinue to search for opportunities where we can add value, but unlesscircumstances change, we are likely to continue to be net sellers over thecoming year, albeit at a slower rate. Special Projects The main special projects are listed below. Valuations as at 31 March 2006 £m _____Wembley Complex including Palace of Industries 384Greenwich 123Emersons Green, Bristol 26Ramada Hotel, Manchester 23Gracechurch Street, EC3 20Other special projects 41 _____Total direct property 617Greenwich, investment in MDL joint venture 21 Our development programme is shown in the table below: Project Sector Share Area GDV(1) Planning Timing £m _________ _________ _________ _________ _________ _________Wembley Mixed-use 100% 6.17m sq ft 2,000 Outline Now-2015 Complex _________ _________ _________ _________ _________ _________(2)Greenwich Mixed-use 49% 13.2m sq ft 5,000 Outline Now-2023 Peninsula _________ _________ _________ _________ _________ _________(2)Bristol Science Park 50% 829k sq ft 196 Outline 2008-2018 Science Park _________ _________ _________ _________ _________ _________(2)City Park Mixed-use 50% 745k sq ft 176 Revised 2007-2010 Gate, Planning Birmingham _________ _________ _________ _________ _________ _________(2)Middlehaven, Mixed-use 50% 1.0m sq ft 187 Outline 2007-2014Phase 1 _________ _________ _________ _________ _________ _________Arrow Valley, Distribution 100% 295k sq ft 20 Part detailed 2006-2008 Redditch Part outline _________ _________ _________ _________ _________ _________Emersons Mixed-use 65 acres of 1,800 units - Submitted 2007 Green, Bristol 275 acre residential onwards site +50 acres employment _________ _________ _________ _________ _________ _________(2)Brighton Residential 50% 122k sq ft - Submitted 2007-2009 _________ _________ _________ _________ _________ _________Dorset House, Student 100% 82k sq ft - Being 2006-2009 Oxford Accommodation Prepared _________ _________ _________ _________ _________ _________Palace of Mixed-use 100% 13 acres - Zoned for 2008- Industries mixed-use onwards _________ _________ _________ _________ _________ _________Arundel Gate, Mixed-use 100% 300k sq ft - - 2007-2010 Sheffield _________ _________ _________ _________ _________ _________Deansgate, Mixed-use 100% 20,000 sq ft - - 2008-2010 Manchester retail + 155 units residential _________ _________ _________ _________ _________ _________Docklands Mixed-use 66.7% 12.6 acres - - 2008- Depot, Silvertown onwards _________ _________ _________ _________ _________ _________ (1) GDV is Gross Development Value. This is only shown where planning has beenreceived. (2) These properties are subject to a development agreement Quintain will only take on a proportion of the development, generally in jointventure, and this will be combined with land sales. Typically our equitycontribution will be in the form of land. Wembley We continue to make strong progress with our project at Wembley, which willregenerate 70 acres - creating thousands of new homes and a world-class leisureand retail destination. Masterplanned by the Richard Rogers Partnership, thescheme has outline planning consent for 6.2m sq ft of mixed-use development,with the potential to increase this to up to 8.0m sq ft. The first phase of the project comprises mixed-use development on 58 acres andwill feature 4,200 new homes in 3.7m sq ft of residential space; Arena Square, adramatic new square for London; a luxury hotel; an apart-hotel; 910,000 sq ft ofoffice and commercial space; 587,000 sq ft of retail and 487,000 sq ft ofleisure and entertainment, including a 17 screen cinema and Wembley Arena. Following a £36m refurbishment programme and the realignment of its entranceonto Arena Square, the Arena opened to critical acclaim on 2 April 2006.Quintain has signed a 15 year management agreement with Live Nation, one of theworld's premier concert promoters with a market capitalisation of circa $1.4bn.The transaction affords an RPI linked rental stream plus a profit share. The next significant development is the construction of a mixed-use developmentto the west of the Arena. It comprises 286 apartments of which 48% areaffordable and will be delivered in joint venture with Genesis and FamilyHousing Associations. Additional facilities include retail, leisure andcommunity space, totalling 13,000 sq ft. Construction should commence in lateJune, having secured reserved matters consent in January 2006. Pre-marketing toinvestors in Dublin in May 2006 has secured 74 reservations with deposits paidand marketing to UK consumers will begin in September. In late summer it is programmed to demolish Elvin House, a 157,000 sq ft officeblock, and the Conference Centre and Exhibition Halls. These will make way forthe next phase of development, incorporating a luxury hotel, 560 studentaccommodation units and a residential apartment block comprising 230 units withretail units at ground and first floor level. Having agreed Heads of Terms earlier in the year, negotiations are now at anadvanced stage with the Hilton hotel group, who intend to take a 20 yearmanagement agreement on a 400 bedroom 4 star hotel located just to the south ofthe Arena. The deal includes the strategic acquisition of an existing 306 room 3star Hilton Group hotel - The Plaza - which will further consolidate ourlandholding. Over the next six months, we will be progressing our discussions with a numberof potential partners to form a joint venture to deliver the 0.6m sq ft retailelement of the scheme. In addition, negotiations are advanced with a number ofglobal organisations with whom we may form joint venture partnerships to delivertelecommunications, power and infrastructure, sharing the capital risk andrevenue streams. The 13 acre Palace of Arts and Industry site has yet to be the subject of aplanning application. However, it has been allocated within SupplementaryPlanning Guidance for between 1.7m and 2.3m sq ft comprising retail,residential, leisure/entertainment, commercial and civic space. The LondonBorough of Brent has applied to the Casino Advisory Panel for a Regional Casinoas defined under the Gaming Act 2005 and it was confirmed on 25 May that Brent'sapplication had been shortlisted. If successful, the Group will apply inconjunction with its partners Caesars Entertainment Inc (now a subsidiary ofHarrah's Entertainment Inc) for the licence for this site. The Gaming Act 2005specifies that there will only be one Regional Casino, although there isprovision to raise the number to eight by Statutory Instrument. Planningpermission will also be required. The anticipated timeline to 2012 for completions in developing out the scheme isshown in the table below: GDV GDV GDV GDV GDV GDV GDV GDV GDV £m £m £m £m £m £m £m £m £m 2008/9 2009/10 2009/10 Easter Jun Dec 2011/12 2011/12 2011/12 2010 2010 2010 RetailPlot W01 W04 W03 & W07 W05 W06 W08 E01number Resi Resi Resi Leisure Resi Hotel & Resi Resi Resi Core Resi Private 42 21 156 30 28 37 58 156residentialAffordable 21 27 20 20 24 37residentialRetail & 25 178 12LeisureHotel 101Other 4 7 21 5 5 4 67 55 181 199 55 154 61 99 168 Greenwich Peninsula Quintain's 49% stake in the long-term regeneration of the Greenwich Peninsula,the joint venture with Lend Lease (as Meridian Delta Limited), has a grossdevelopment value of £5bn and represents one of the largest and most prominentregeneration opportunities in Europe today. Progress has been slower than originally anticipated and we are activelyconsidering options to redress this situation. Nonetheless, some importantadvances have been made during the year, which we outline below: • On the northwest lands, we are in ongoing negotiations with LendLease to create a 50:50 joint venture to develop 3.2m sq ft of mainlyresidential space. We will jointly appoint a new specialist management team tocrystallise the opportunities in what is the highest value part of the site. • We are close to finalising the sale of a plot of land on thesouthern part of the site to Bellway Homes to build 229 residential units. • Millennium Square is on schedule for the opening of The 02 in Summer2007. On completion, Meridian Delta Dome Ltd will draw down a 999 year lease ofthe structure and surrounding land. • Infrastructure works, including those relating to the off-sitehighways, are underway to prepare for the sale and/or development of the initialplots. The anticipated timeline to 2012 for developing out the scheme is shown in thetable below: Year ending Plot number GEA ('000sq ft) GDV £m March2009 M0102 202 542010 N0203 140 422010 M0103 185 502011 N0205 206 72011 M0101 123 362011 M0301 196 522011 N0204 340 1392011 N0602 401 1502012 M0116 116 322012 M0117 160 412012 M0119 84 142012 M0302 124 342012 M0303 108 292012 N0603 437 158 _____ ____ 2,822 838 ==== ==== Silvertown The Carlsberg Tetley lease on this 12 acre site owned in joint venture with theLondon Development Agency expires in October 2006. This will give us vacantpossession of some 334,000 sq ft of buildings and open storage on this sitestrategically located at the gateway to the Olympic lands. In the interim, there are clear opportunities to re-locate occupiers of propertyon land allocated to the Olympics or to provide logistical and constructionsupport for the Olympic project itself, whilst progressing the planninginitiatives for the regeneration of this area. Emersons Green Quintain owns 65 acres of a 275 acre site at Emersons Green, Bristol designatedas mixed-use by the Local Authority. The planning application for this sitemade in partnership with JJ Gallagher and Heron Land has been revised to addressspecific issues raised by the South Gloucestershire Council and to accord withtheir detailed development brief, including environmental and communityelements. The revised application will be submitted shortly and determination isexpected by the end of the calendar year. The benefits of local knowledge and the clear potential for synergies across ourbusiness has been demonstrated by the selection of Quantum (our 50/50 specialistscience park partnership with Morley Fund Management) by the South West ofEngland Regional Development Agency as the preferred development and fundingpartner to create a new science and technology park at Emersons Green. This isdiscussed in more detail in the Quintain Fund Management section below. BioRegional Our joint venture with BioRegional, an expert in the field of sustainabledevelopment, has made good progress during the year. We are seeing evidence ofthe competitive advantage this association provides when presenting theenvironmental impact of our proposals for future regeneration projects. • As announced at the half-year, the joint venture's first developmentwill be in conjunction with Crest Nicholson to build 168 units and 24,000 sq ftof commercial space in Brighton. A planning application has been submitted tothe local authority and determination is anticipated in August 2006. • During the year, we were selected as preferred developer for a majorproject at Middlehaven, Middlesborough and substantial progress has been madetowards signing the development agreement. The scheme will comprise 500apartments, 200,000 sq ft of offices and 77,000 sq ft of retail. The fundingrequired to make the scheme viable has been approved by the constituent localpublic sector partners and will be submitted to the Treasury in September. • During the second half, we signed a lock-out agreement with SloughEstates to deliver 130 units and 200,000 sq ft of community space at a site inSlough. The scheme is now subject to environmental assessment. We also awaitthe results of two competitions, one of which is also in joint venture withCrest Nicholson. Merton Phase 2 of our joint venture with Countryside Properties plc at Abbey Mills,Merton SW19 has been extremely successful with the sale of 160 of the 164 units.The remaining units have been reserved and exchange is expected within thenext few weeks. The Speciality Market was sold in the reporting period, takingadvantage of strong investor demand. City Park Gate Following the successful development at Abbey Mills and to consolidate furtherour relationship with Countryside Properties plc, we signed an additional jointventure to develop City Park Gate in Birmingham. The scheme has outline consentto build 608 residential units, 115,000 sq ft of offices and 100,000 sq ft ofretail. In conjunction with our architects, Make, we are reviewing density, massand costings to maximise returns and anticipate submitting a reserved mattersapplication by the end of this calendar year. Initial revised designs whichappear acceptable to the local authority's planning department could generate asignificant increase in the quantum of development and see a reduction in theinfrastructure costs. Gracechurch Street After the year end, we exchanged contracts for the sale of 36-41 GracechurchStreet, EC3 for £24.75m. The sale is conditional upon the consent of the Cityof London Corporation to the assignment of the ancillary development agreement. Quintain Fund Management ("QFM") QFM made significant progress during the year to 31 March 2006 both in growingfunds under management and extending the business into other niche sectors wherespecialist asset management can deliver attractive returns and stable long termfee income. Quercus, our healthcare fund, had an excellent year. Funds under managementgrew by 63%, delivering a fund level return for the 12 months of 49.7%. Thestrong performance of the fund reflects a buoyant year for the healthcaresector, where we have seen considerable yield compression, but also the resultsof good stock picking and asset management. Total purchases in the year were£103m at an average initial yield of 8.1%. Notable transactions demonstratingour strategy of expanding the fund into new areas of the healthcare marketincluded the sale and leaseback of three private hospitals as part of the buyoutof BUPA's Classic Hospitals Group by Legal and General Ventures and theacquisition of four properties in Lancashire providing accommodation andspecialist support for disturbed teenagers. We also have a development agreementin place and are working up a planning application for 68 assisted livingapartments in Westbury. The fund now has 194 properties let to 34 tenantsoperating nursing homes, learning disability and specialist care facilities andprivate hospitals. At the year end we held a 28.3% interest in the fund. Netasset management fees received during the year totalled £1.8m. We anticipate committing further equity to Quercus in the next few months, as webelieve the RPI linkage and ability to source off-market deals means this sectorstill offers significant attraction. We have also made strong progress with our student accommodation fund where ourstrategy is to build a pipeline of assets on our own balance sheet beforelaunching a fund. We have exchanged contracts on schemes in Birmingham,Sheffield and Nottingham with a combined value of £50m, payable on completion ofthe buildings. In addition, we have agreed terms on a further pipeline of £106m.Two schemes are scheduled for completion for the academic year commencingSeptember 2006 with the balance completing over the next three years. We expectto submit a planning application in the next few weeks for a 281 room scheme onour site in Oxford. In addition there are a number of other opportunities inthe market which give us confidence in our ability to build a significantportfolio in the sector over the next few years. Discussions have commencedwith several parties who have expressed interest in participating in thecreation of the fund. In pursuit of attractive returns and following our success with Quercus, weformed a specialist Science Park fund - the Quantum Property Partnership - withMorley Fund Management. Quantum will seek to become the UK's first trulyspecialist long term investor, developer and operator of Science Parks. Ourbelief in the sector reflects the increasing focus on the part of bothGovernment and industry of the need to invest in R&D to drive forward economicgrowth. We believe that we can deliver attractive investment returns bybringing strong development and asset management skills and an understanding ofthe property needs of R&D companies to a sector that has hitherto been largelyneglected by the property industry. After the year end, the strength of our offering was confirmed by Quantum'sselection by the South West Regional Development Agency as its preferred partnerto create a new science and technology park, "SPark", on 54 acres of landadjacent to our holding at Emersons Green in Bristol. On completion of the partnership agreement, Quantum's role will be to fund andprocure primary infrastructure and associated servicing for the first phase ofthe park. This will include building a 35,000 sq ft innovation centre which willact as the hub building on the park and an initial 'grow on' centre which willprovide additional space for companies as they expand. Further development willbe marketed over the ten year duration of the agreement, with Quantum retainingand managing a critical mass of accommodation on the park on a long term basis.The first phase of the park has outline planning consent for 830,000 sq ft ofdevelopment which, when fully built out, is estimated to have a grossdevelopment value of approximately £200m. Subject to planning, construction isexpected to start on site in Spring 2007 with the first buildings available foroccupation in Spring 2008. Several other opportunities are being pursued in this sector. Other activities As part of our commitment to sustainable development we are investigatingproducts that are more environmentally friendly than traditional alternatives.Examples include using combined heat and power at Wembley and Envac, anunderground waste disposal system with inherent recycling capacity. Included inour balance sheet is £2.5m relating to an investment in Serrastone SA, a companythat owns the exploitation licence of a technology to produce low carbon, zerotoxic building blocks with the potential to recycle rubble from demolishedbuildings and quarry waste. During the year, we took the decision to gain a better understanding of theproperty derivative market and to explore the potential of derivativeinstruments to hedge the positioning of the Group's directly held propertyportfolio. We have acquired a swap to the value of £15m linked to the IPD AllProperty index for three years to 31 December 2008 and sold LIBOR plus a margin.Shortly after the initial contract was taken out, given our concerns about theproperty market in the medium term and the lack of liquidity in these products,we carried out a forward sale of the last two years of the contract. To datethis contract has shown a profit of £1.6m. We will continue to evaluate the operational potential of these instruments withinterest. Outlook We have made excellent progress in the year to 31 March 2006 and continue to seethe clear benefits of our strategy to create and enhance shareholder valuethrough our diverse business activities. Against this background, the Boardrecognises that the long-term nature of some of our Special Projects and thegrowth of QFM, alongside a sales programme which has led to lower rental income,will impact in the short to medium-term on underlying earnings. However, weremain confident that our stringent financial and risk management processes, oursubstantial capital resources and our skilled and committed management team willcreate further substantial shareholder value. Financial Review International Financial Reporting Standards This is the first year the Group has reported its results under InternationalFinancial Reporting Standards ("IFRS") which were adopted on 1 April 2005.Comparative figures for 2005 have been restated in accordance with IFRS. Areconciliation of the profit and equity reported under UK GAAP for the prioryear to IFRS is disclosed in notes 2 and 3 to the accounts. Headline results The basic net asset value per share at 31 March 2006 was 526p, an uplift of18.7% from the 443p for the prior year. On a diluted basis, the net asset valueper share rose 18.3% from 436p to 516p. Adjusted diluted net asset value pershare, the measure recommended by EPRA, rose by 23.1% to 612p per share (2005:497p). 31 March 06 31 March 05 % increase NAV per share - basic 526p 443p 18.7%NAV per share - EPRA (1) 612p 497p 23.1%Dividend per share 10.5p 9.5p 10.5%Total return per share (2) 21.0% 23. 1%Total return per share - EPRA (3) 25.2% 21.9% ______ ______ ______ (1) The EPRA NAV per share excludes the fair value adjustments for debt andrelated derivatives and deferred taxation on revaluations and is calculated on afully diluted basis as set out in the table below (2) The total return is calculated by the increase in net assets per shareadding back the dividend (3) This uses the net assets per EPRA as shown in the table below. The table below reconciles net assets per the consolidated accounts to thedefinition of net assets set out by EPRA. 31 March 06 31 March 05 £m £m _____ _____ Balance sheet net assets 676.7 571.1 _____ _____Deferred tax arising on revaluation movements,capital allowances and derivativesGroup 108.0 75.3 _____ _____Joint ventures 5.7 5.1 _____ _____Associates 0.6 0.5 _____ _____Fair value adjustment on interest rate swaps _____ _____Group 12.9 _____ _____Joint ventures 0.2 _____ _____ 804.1 652.0 _____ _____Dilutive effect of options 9.8 9.3 _____ _____Dilutive effect of convertible 2.9 3.0 _____ _____EPRA net assets 816.8 664.3 _____ _____ Profit before tax, which excludes discontinued items, rose by 86.0% to £65.0m(2005: £34.9m). Adjusted profit before tax, our measure of current earnings,which excludes discontinued items, revaluation surpluses or deficits and changesto the fair value of interest rate swaps, increased by 14.5% to £15.9m (2005:£13.9m). Earnings per share on continuing operations increased to 46.1p pershare, an uplift of 48.7% compared with 31.0p in 2005. The European Public RealEstate Association ("EPRA") measure of earnings which excludes gains on propertydisposals, the movement in value of financial instruments and investmentrevaluations and their related taxation was 0.6p per share (2005: 6.1p). Operating performance Gross rental income for the year fell by 20% to £29.1m (2005: £36.4m). This wasa result of sales, with proceeds of £135.0m which were only partially offset byacquisitions of £41.4m. The lost income from sales was £10.3m against whichpurchases contributed £3.3m. Rents passing at 31 March 2006 for the directlyowned portfolio totalled £23.7m, with an estimated rental value (ERV) of £35.4m.Buildings being demolished over the next year will reduce the ("ERV") by £1.6m. Voids have increased to 8.0% of ERV (2005: 5.7%). This includes £433,000 inrelation to The Forum, Exeter and £238,000 for Imperial Court and House,Leamington Spa, where refurbishments have been completed. Quintain also holds a number of development properties where leases havepurposely been taken back from tenants. As at March 2006, planned voids inrelation to these were 15.4% (2005: 6.1%), the largest contribution being£925,000 for 37-41 Gracechurch Street, where contracts for sale have beenexchanged. The void of £851,000 in relation to The Palace of Industry haseffectively been removed post year end with the demolition of the building andconversion into a temporary car park. At the Royal Exchange, Manchester,practical completion was achieved last week and a major letting programmecommenced in relation to the £790,000 ERV. The average unexpired lease term across the portfolio was 14 years (2005: 13years). The increase is due to the larger weighting of nursing home properties,in turn reflecting our increased equity in the Quercus fund. These propertiesare typically on 35 year leases. The table below sets outs the lease expiries by passing rent including our shareof joint ventures across the Group: £mLess than 1 year 5.41 to 2 years 3.92 to 5 years 6.35 to 15 years 4.2Greater than 15 years 13.7 _____ 33.5 Quintain aims to create a diverse tenant base in order to manage risk. Ourtenant covenant strength has been measured by Investment Property Databank ("IPD") (using Dun and Bradstreet) and shows 49.9% of our rent roll is deliveredfrom negligible, low and low/medium risk covenants. With the signing of amanagement agreement at the Arena, Live Nation is now our largest tenant makingup 10.7% of passing rent. The largest ten tenants in terms of our exposure makeup 32.8% of our passing rent. Profits on the sale of trading properties were £0.4m (2005: £1.2m) on saleproceeds of £4.1m. Historically trading profits have varied. This year's resultcame from disposals of the remaining units at Valley Point, in Croydon. Tradingprofits on joint ventures is included within share of profit from joint venturesunder International Financial Reporting Standards ("IFRS"). Income from leisure operations relates to the ongoing Wembley businesses, whichdelivered a profit of £0.9m for the year (2005: £1.1m), mainly from the SundayMarket. The Pavilion, Conference Centre and Exhibition Halls are included withindiscontinued operations, which are disclosed post-tax towards the end of theincome statement. They gave rise to a £2.8m loss for the year (2005: £1.6mprofit). The loss arose from the provision of a temporary Pavilion in order toprotect the business whilst the Arena was being refurbished. The ConferenceCentre and Exhibition Halls will be demolished during the year to allow theredevelopment to progress. The 15 year management contract with Live Nation tooperate the Arena took effect from 1 April 2006, thereby removing ouroperational risk. Live Nation pay a base rent and 50% of surplus profits after amanagement fee, which will be accounted for within rental income. Profit from other revenue rose to £4.0m from £2.2m. This included, for the firsttime, the results of a property derivative contract which gave rise to a £1.6mprofit. The contract is a £15m swap to 31 December 2006 between the All PropertyIPD index and LIBOR plus a margin. Fees on the Quercus fund after costs of £1.8m(2005: £0.7m) included a performance fee of £0.5m. Administration expenses increased by 37.5% to £22.7m (2005: £16.5m). £5.7mrelated to additional staff costs, arising mainly from recruitment andperformance related bonuses. Whilst staff costs are charged to the profit andloss account, the Special Projects division employs a substantial proportion ofthe staff who are working on our developments and creating value reflected inthe balance sheet. We have an active recruitment programme ensuring that we havethe skills base to deliver future performance and our remuneration packagesreflect the skills required to deliver the ambitions of the Group. Furtherinformation is given in note 6 to the accounts. Administration expenses include£0.3m of audit fees paid to KPMG and £0.07m for non-audit work, the latterreflecting our policy of not using auditors for other work in line with bestpractice of maintaining auditor independence. Further information is given innote 6i to the accounts. Sale of non-current assets The profit over valuation on the disposal of properties not held as currentassets was £14.2m (2005: £5.1m), the largest contributor being £4.3m on the saleof the Group's head office at 16 Grosvenor Street. This property had beenpurchased in the previous year and has been sold with a 15 year lease back toQuintain with a break at 10 years. Proceeds on sales were £135.0m, with a profiton historic cost of £38.1m. Revaluation surpluses and deficits The net revaluation surplus arising from directly held investment properties was£22.1m (2005: £20.8m). The crediting of this directly to the income statement isone of the material changes to accounting for property companies under IFRS. Therevaluation surplus on development properties is still credited to equity as wasthe case under UK GAAP. The exception to this is where deficits arise below costwhich was seen in 2005 with a charge of £1.2m, and a net write back in 2006 of£1.8m. Finance expenses Net finances expenses have fallen by 33.5% to £10.5m (2005: £15.8m) owing to thesales programme. The constituents of this balance are set out below. The changein fair value of ineffective interest rate swaps of £3.0m is the movement invalue of our forward start swaps. The charge to the income statement reflectsthe introduction of a new standard and hence there is no prior year comparison.Of the interest capitalised in the year £5.3m relates to the Wembley developmentand £1.8m to Greenwich. 31 March 31 March 2006 2005 £m £m _____ _____Interest payable 16.4 20.3Amortisation of finance expenses- current facility 0.5 0.5Finance costs written off against old facility - 1.9Profit on termination of swap arrangements - (0.7)Interest capitalised (7.8) (4.7)Interest receivable (1.6) (1.5)Change in fair value of ineffective interest rate swaps 3.0 - _____ _____Total net interest payable 10.5 15.8 Profit from joint ventures The profit from joint ventures in the year was £32.9m (2005: £7.4m). Of this£32.3m came from our 28.3% ownership of Quercus. The increase in operatingprofit to £6.8m (2005: £4.6m) reflected the growth in the fund. The revaluationsurplus of £29.4m is explained in more detail in the business review. A detailedbreakdown of the profit by joint venture is set out in note 14i to the accounts. Taxation Quintain had an effective tax charge of 8.4%, or £5.5m for 2006, compared with acredit of £5.2m for 2005. The tax rate was below the standard rate of 30%because of the availability of capital allowances and indexation relief. It isanticipated that under IFRS the tax charge will be closer to the standard ratewith the provision for deferred tax on revaluation surpluses subject to the useof brought forward losses and capital allowances. The prior year tax creditarose mainly through the use of £10.3m of prior year tax losses and the deferredtax credit of £7.1m on investment properties. Balance Sheet At 31 March 2006, the investment portfolio was valued at £290.1m including a netrevaluation surplus of £22.1m. The development portfolio surplus was £102.5mgiving a valuation of £599.5m. A table analysing activity is included within thebusiness review. Of the development surplus £77.8m related to Wembley and wasdriven by a better understanding of site-wide incomes and the inclusion of thePalace of Industry in the discounted cash flow, as well as the passing of timewith the project remaining on track. Capital commitments of £38.4m included £12.7m for the Wembley redevelopmentrelating to land payments and infrastructure costs. In building the pipeline ofstudent accommodation we committed to £9.8m in the year for the acquisition of256 beds in Sheffield. This will increase significantly over the next six monthsuntil a fund is created, which we have targeted to occur by the end of calendaryear 2006, to take on these liabilities. Within the joint venture at Greenwichare commitments are £6.7m relating to the building of Millennium Square andinfrastructure costs. During the year, The Quintain Group Employee Benefit Trust purchased 200,000shares at an average price of 528p to cover allocations under the ExecutiveDirectors' Performance Share Plan. Quintain also purchased 159,596 shares at anaverage price of 558p to cover obligations under the Deferred Bonus Plan. Joint ventures At 31 March 2006, Quintain had net investment in joint ventures totalling£120.1m, of which our 28.3% share of Quercus, the healthcare fund, represented£89.7m. Whilst our holding on the Greenwich Peninsula is included withininvestment properties, Meridian Delta Limited - the company charged withoverseeing the redevelopment of the Peninsula which is owned 49% by Quintain and51% by Lend Lease, is treated as a joint venture. Our current investment in thisis £20.9m. Other joint ventures include our development at Abbey Mills in Mertonwith Countryside Properties plc and our investment in Timberlaine which holdscirca 20% of Redhill Aerodrome. A further analysis is shown in note 14i to theaccounts. Financing strategy and capital structure Our financial strategy is to maintain a level of debt that balances the risks tothe business with the higher returns on equity achieved by lower funding cost.Historically we have used a long run gearing target of 100%, but, as we focus onthe divisions with their own risk profile, so their size relative to the wholeportfolio should give rise to differing gearing levels over time. As one of ourmethods of monitoring this we have a liquidity schedule that reviews the incomeprofile and liquidity of each asset within the portfolio to create an overallgearing target. This currently stands at 79%. The Company is positioned wellbelow this at 36% (2005: 29%), partly to ensure substantial financial resourcefor the next phase of delivery of the major urban regeneration projects andpartly reflecting current market conditions. In May 2006 we exercised the one year extension right on our £475m corporateloan giving it a maturity of five years. We have also amended some of the terms,increasing the maximum percentage of net worth that can be invested inseparately financed joint ventures from 30% to 50%, in order to allow for thegrowth of fund management and the joint venture structures we intend toimplement within the urban regeneration projects. The subsidiary companiesrequiring charges for security to the bank was reduced from 95% of assets andprofit to 75%. This was done for administrative purposes given the number of newcorporate vehicles we are creating as the business grows. The other mainfinancial covenants are a maximum gearing of 130% of net assets excluding jointventures and interest cover must be 1.25 times covered by earnings beforeinterest and tax, plus surpluses or deficits over cost on the disposal ofproperties. This facility provides us with liquidity and operational flexibility, enablingus to move quickly when bidding for investment opportunities, and allowing forboth on and off balance sheet financing of our urban regeneration projects. As at 31 March 2006, Quintain's interest rate risk was 70% hedged with swaps(2005: 97%). Company policy is to be between two thirds and fully hedged as,given the nature of its income, it seeks to match the revenue profile withcertainty in relation to finance costs. Where there is less certainty ofrevenue, for example in the case of properties under development, we will hedgeusing a combination of swaps and caps. The weighted average rate of interest of the Group's debt at the year end was6.6% (2005: 6.7%). The decrease from the prior year is the impact of reducedabsolute commitment fees as debt has been drawn down. We still have £254m ofundrawn but committed facilities. These resources are essential for our specialprojects and the expansion of QFM. Financial Statistics 31 March 31 March 2006 2005 £m £m _____ _____Borrowings net of cash £243.1m £163.9m _____ _____Gearing 36% 29% _____ _____Gearing including share of joint ventures' debt 43% 35% _____ _____Weighted average debt maturity 5 years 5 years _____ _____% of net debt hedged 70% 97% _____ _____Interest cover 1.2 1.7 _____ _____Interest cover - banking covenants 2.7 4.6 _____ _____Undrawn committed facilities £254.0m £330.0m _____ _____ Interest cover is defined as profit before tax, net finance expenses andrevaluation surpluses divided by net interest payable. The fair value deficit on interest rate hedging instruments was £12.9m (2005:£8.3m). Of this £3.0m was charged to the income statement in relation to theineffective swaps. Interest cover for the year ended 31 March 2006 was 1.2 times(2005: 1.7 times). After adding back realised revaluation reserves to calculatethe banking covenant definition, interest cover was 2.7 times (2005: 4.6 times).Last year the realised revaluation reserve was particularly high with therealisation of £36m from the disposal of Mount Royal, Oxford Street, W1. Cashflow Net cashflow from operating activities was an inflow of £0.2m (2005: inflow£0.3m), the movement arising from lower rental income, higher administrationexpenses and a £2.4m charge for discontinued items. Purchases and capital expenditure on properties of £112.1m exceeded the cashreceived from sales in the period of £88.4m. This arose because of a timingdifference with proceeds from exchanges of £54.6m being received after the yearend. Cash inflows from financing activities of £60.6m reflected the net drawdown of loans. Pensions The Group contributes towards personal pension schemes and as such has nopension deficit or prospect of any liabilities arising under any defined benefitpension scheme. Key risks and uncertainties In delivering high long-run returns to shareholders, the identification andmonitoring of risk is crucial. In addition to the detailed internal controls setout in the Audit Committee Report, the Board has appointed a Risk Committee to,at a high level, identify and assess risk to the business. In considering themajor risks to the business, some relate to economic and politicaluncertainties, whilst others are specific to Quintain. The key risks for thebusiness are set out below: • Development exposure offers the prospect of good returns but brings with it certain risks both market related and internally controlled such as time and cost overruns. The latter are managed by a strong in-house project management team. Funding structure plays an important part in risk transference. • Succession planning in a relatively small business with a few key individuals can give rise to instability. Also loss of key personnel represents a risk to the business. Our ongoing recruitment programme seeks to mitigate this by bringing in highly skilled employees. Vital employees are encouraged to remain by long-term incentive and remuneration packages. • Changes in legislation can impact the business, particularly in planning and taxation such as the possible introduction of Planning Gain Supplement. Also at Wembley, in building a leisure destination, our preference for a casino is subject to, planning consent and the deliberations of the newly appointed Casino Advisory Panel as well as the possibility of amendments to legislation allowing for an increase in the number of regional casinos and the backing of Brent Local Authority, who have submitted an application for a casino to the Casino Advisory Panel. If we are unsuccessful in this we will proceed with an application to build up to 2.2m sq ft of mixed-use development on this site. • The amount of financial resource required to deliver the urban regeneration projects could be significant, depending on exit routes, as the two large projects have a combined gross development value of around £7bn. There are effectively no obligations to develop out these sites ourselves, but in seeking to capture potentially significant upside we will take on a proportion of the development with a consequent impact on financial resources. In anticipation of this and the growth in fund management the Group's gearing levels are low. Approval for projects and monitoring of commitments takes place at Board level and also in weekly meetings of the Executive Directors where financial information is provided to understand the implications of these decisions. • The make-up of the portfolio has changed, with special projects being the largest constituent. These assets are capable of delivering significant value but often have little or no income attaching to them in the short term so having a negative impact on the profit and loss account, although this would be offset by any land sales and bringing in third party equity. This is also offset by growing income streams from fund management activities. This means that operating income is likely to be running at lower than historical levels over the next few years. • In terms of planning consents, Quintain has significant exposure to the residential market. Details of issues relating to this are included in the market review. • The property market has seen further yield compression over the last year. Over time we may see yields plateau or alternatively there could be a fall in property values. Whilst in the short term this could lead to a reduction in shareholder value across the market, in the medium term it offers an opportunity for Quintain to reinvest in assets that offer greater upside. To minimise the impact of a market wide fall in values we are targeting our portfolio to assets where there is greater scope to add value through active management. Corporate Social Responsibility ("CSR") We take our social responsibilities seriously and a full CSR report will beincluded in the Annual Report. Areas of focus for the group include itscommitment to environmental and social issues, its health and safety record andthe motivation and retention of its employees. The Group recognises thepotential impact of its activities on the wider community. The Group views its staff as one of its most important resources since a highlymotivated employee base is essential to its continued success. The Group'spolicy is to recruit both directors and staff of the highest quality and toremunerate them accordingly. The aim is to provide competitive remuneration inrelation to other major property companies. A significant proportion ofremuneration is performance related. Further details will be shown in theReport of the Remuneration Committee. The Group considers staff retention to be one of its key performance indicators. Staff turnover during the year for head office was 6.4% with an average lengthof service of five years. The comparatively short average length of service forhead office staff reflects the relative youth of the Company, the continuingexpansion in staff numbers and the implementation of some structural changesduring the year. It was also a year of considerable change for our Wembleyoperation, with a number of staff transferring their employment to Live Nationwhen it took over the management of Wembley Arena. Staff turnover for Wembley(excluding the Live Nation transferees) during the year was 9.9% with an averagelength of service of 10 years and 9 months. As previously explained, it is the Company's policy to recruit staff of thehighest calibre and motivate them appropriately. At the beginning of the year,the Group's head office carried out a staff survey which showed that everymember of staff who responded rated the Company's culture as either "positive"or "extremely positive". Since the year end, a further survey has been carriedout which shows that 92% of those who responded viewed the culture as either "positive" or "extremely positive". The Group's commitment to sustainability and social issues is illustrated by itswork at our major urban regeneration sites at Wembley and Greenwich. Here weare working to meet the needs of future tenants, communities and local andcentral government by creating sustainable mixed-use projects. Further detailsof how we are developing these sustainable communities will be given in our CSRreport. As far as environmental issues are concerned, the Group is very aware of theimportance of maintaining the environment and encourages continuousenvironmental awareness. In general terms, we aim to minimise risk of causingharm through careful consideration of construction techniques and thespecification and use of sustainable materials where appropriate. Once again,further information evidencing our commitment to good environmental practice isshown in the CSR report. The Group is committed to the highest standards of performance in the provisionof a safe and healthy environment for its employees, tenants, contractors andvisitors and considers its performance in this field to be a key performanceindicator. Further details of the Group's health and safety policy andobjectives will be shown in the CSR Report. During the year under review, there were six minor accidents across the Group'spremises which resulted in insurers being notified and no RIDDOR (Reporting ofInjuries, Diseases and Dangerous Occurrences Regulations) reportable incidents(2005: 8 minor accidents reported to insurers, no RIDDOR reportable incidents).The Group monitors the position constantly and reports to the Board at everymeeting. Key Performance Indicators ("KPIs") The Group's KPIs are outlined in various sections of this review and compriseboth specific financial and stakeholder related measures. Whilst there are many financial measures which the Group monitors on a regularbasis details of which are set out elsewhere in this Review, our core financialobjectives are, as previously stated: • To deliver upper quartile performance relative to the IPD benchmark; and • To make a real total return of at least 10% every year, as measured on an EPRA basis. Since listing in 1996 the Group has achieved both these objectives every year. As a listed property company, it is also appropriate to measure our performancein ways other than financial, thus recognising the impact of our activities onour stakeholders. As such, the Group last year identified two key measures whichwe now report against. These are: • Our health and safety record - during the year across all our operational and construction sites we had no RIDDOR accidents • Staff motivation and retention - the staff survey revealed 92% of respondents felt the culture was either "positive" or "extremely positive". Turnover rates at under 10% for all offices is considered within an appropriate range. This information is provided by RNS The company news service from the London Stock ExchangeMORE TO FOLLOWRelated Shares:
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