Half Yearly Report

23rd October 2012

DEVELOPMENT SECURITIES PLC - INTERIM RESULTS

FOR THE SIX MONTHS ENDED 31st August 2012

Trading gains strengthening as further results of strategy are secured

Development Securities PLC ("Development Securities" or the "Company"), the leading property development and investment company, today announces interim results for the six months ended 31st August 2012.

Key financials:

·; Net assets attributable to shareholders of £304.4 million (29th February 2012: £311.3 million), a reduction of £6.9 million (2.2 per cent) after:

o £3.9 million final dividend in respect of the 14-month period to 29th February 2012

o £3.7 million of negative interest rate swap valuations

o £4.4 million of negative valuation movements in investment portfolio including our share of joint venture investment assets

·; £11.9 million of gains from development and trading portfolio increased over prior periods (29th February 2012: £8.6 million, 31st December 2010: £5.0 million) - further profits to be generated in the next twelve months and in the medium-term

·; Progress made to realise cash from legacy assets:

o Planning consent achieved at 19-acre residential land in Broughton

o Planning application submitted for mixed-use scheme anchored by Morrisons foodstore at 399 Edgware Road

·; Realised gains recycled into further selected real estate opportunities. Acquisitions (including those in joint venture) of £161.1 million in the year to date including two bank loan portfolios at £103 million and £40 million

·; Net debt of £147.1 million representing gearing of 48.3 per cent (29th February 2012: £152.9 million and 48.8 per cent)

·; Interim dividend of 2.4 pence per share (30th June 2011: 2.4 pence per share)

Financial summary:

unaudited for the six months ended 31st August 2012

* 14-month period to 29th February 2012

** Refer notes 10 and 17

*** Refer note 17

For further enquiries:

Michael Marx/Graham Prothero/Lucy Grimble

Development Securities PLC: 020 7828 4777

Tom Nutt/Bethan Halls

The Communication Group plc: 020 7630 1411

Chairman's statement

It is pleasing to report that in the six months to 31st August 2012, we have realised gains of £11.9 million within our development and trading portfolio. These profits are an increase over the £8.6 million of gains that we reported in the 14-month period to 29th February 2012 and also the £5.0 million of gains reported in the year to 31st December 2010. We remain confident that we will unlock a series of further gains in the next twelve months and in the medium-term through disposals of selected assets. As anticipated, the results of our strategy are coming towards fruition. Notwithstanding, against the backdrop of weak economic activity and continued downward pressure on capital returns across the majority of the market, your Company reports a pre-tax loss of £0.7 million for the six months to 31st August 2012, reduced from the loss of £1.3 million for the six months to 30th June 2011.

Net assets attributable to Shareholders reduced by £6.9 million to £304.4 million from £311.3 million at 29th February 2012, equivalent to 249 pence per share as compared to 254 pence per share as at 29th February 2012. As well as the approved 2012 final dividend of £3.9 million, the main components to this reduction were negative valuation movements of £4.4 million in our investment portfolio including our share of joint venture investment assets, and £3.7 million negative interest rate swap valuations. The Directors have declared an interim dividend of 2.4 pence per share payable on 30th November 2012 to those shareholders on the register on 2nd November 2012 bringing the total dividends approved since the August 2009 equity raise to £16.7 million or 15.2 pence per share.

Market overview

The UK economy entered double-dip recession earlier this year in the face of continuing uncertainty within the euro-zone and a gradually slowing global economy. This recession, together with the accompanying record low level of interest rates, effectively triggered the valuation adjustments within both our investment portfolio and interest rate hedging strategy and thus hindered our ability to report a growth in net assets in this period. It is our belief that in due course both of these valuation adjustments will unwind in our favour as and when economic growth emerges.

We believe that our strategy is the right one for the current market. In an economy which is not generating GDP growth, let alone a double-dip recession, it would be unrealistic to expect any significant rental growth to emerge on a consistent basis from the property sector. With government policy now holding interest rates at an all-time low, the prospect of any further yield shift to sustain or grow property values is almost non-existent. Accordingly, we will continue to identify those assets where we can apply our real estate expertise to drive capital growth and deliver strong returns. These gains will be secured both by capturing the value uplift created by repositioning redundant or functionally obsolete real estate into sectors where demand is in evidence and by taking advantage of other pricing inefficiencies in the market via trading activity.

Disposals

A number of realisations were achieved during the six months to 31st August 2012 as we recycled cash from those development and trading assets acquired since July 2009. In particular, the sales of the residential and retail components at Westminster Palace Gardens were completed for £21.9 million, realising an additional profit of £1.5 million. At the Wick Site, Littlehampton, we disposed of the property to Morrisons for £12.5 million realising £2.4 million of profit. Sales within the Rock portfolio, which was acquired in 2010 from a bank, continued on plan with the disposal of the 42,000 sq. ft. retail park in Burnley for £6.5 million, realising a profit of £0.9 million. 66 per cent by value of the Rock portfolio has now been sold, generating cumulative revenue and profits of £30.0 million and £6.4 million respectively. In July 2012, at The MVMNT in Greenwich town centre, the £110 million mixed-use scheme in joint venture with Cathedral Group, we sold the residential land element to Willmott Dixon for £16.2 million and disposed of the 358 bed student village component to McLaren for £9.0 million, enabling us to report an initial gain of £1.3 million.

Legacy assets

Good progress has also been achieved at two of our significant 'legacy' assets, at our residential land in Broughton, near Chester and at 399 Edgware Road, North London. In September, we were advised by the Welsh Minister for Environment, Sustainability and Housing that planning consent had been granted in respect of the 19-acre residential development site in Broughton. In the interim, the land had been marketed for sale and is now under offer to a house builder at a price in line with our expectations. At 399 Edgware Road, we have recently submitted a planning application for a mixed-use regeneration scheme following positive feedback from our public consultation. The scheme will be anchored by an 80,000 sq. ft. food store pre-let to Morrisons subject to planning.

Planning and letting activity

Further progress was achieved at Cross Quarter, Abbey Wood in South East London where we signed an agreement with Sainsbury's for a 25-year lease, subject to planning, for a 46,000 sq. ft. net sales area foodstore. A planning application is scheduled for submission in Q1 2013 following a recent positive public consultation process.

At Eastgate Quarter, Llanelli, the 72,000 sq. ft. edge of town leisure scheme, letting interest has been strong and the scheme is now 72 per cent pre-let with a further 12 per cent of space under offer. It is particularly gratifying to note that the quality of this new development was able to secure such a strong line-up of tenants prior to practical completion in November 2012. Accordingly, we anticipate a disposal early in 2013.

At The Old Vinyl Factory in Hayes, West London, we submitted in July 2012 a planning application for a 1.5 million sq. ft. mixed-use scheme following positive public consultation. Determination of the planning application is anticipated later this year.

In April 2012, we entered into a joint venture with Realstar for the acquisition of a vacant East London residential building adjacent to the Olympic Park for £15.7 million. Wick Lane Wharf comprises 112 units over 116,000 sq. ft. and an additional 12,000 sq. ft. of retail/employment space. The residential apartments have been refurbished and mostly let. We have been able to secure rental tones significantly better than our expectation, enabling us to create a successful en bloc rental investment.

Acquisitions

In August 2012, we entered into a joint venture with Pears Group to acquire from NAMA (National Asset Management Agency), a portfolio of loans for £103 million. The loans, which were secured against 39 investment and development assets, comprise a majority in the Central London residential market, with the remainder incorporating a number of neighbourhood retail schemes anchored by Tesco convenience stores. Some disposals of property have already been achieved and the loans repaid to the joint venture. The remaining properties will either be sold or actively repositioned through change of use, refurbishment and other asset management initiatives by the end of 2013.

In September 2012, in partnership with Cathedral Group, the Company announced that it had acquired a 2-acre freehold and 17-acre leasehold interest with 32 years remaining in a regeneration site, Morden Wharf, on the Greenwich Peninsula. The partnership will develop a masterplan to bring forward the development of a residential-led, mixed-use scheme on the site which has 500 metres of Thames frontage and is adjacent to the O2 Arena. Previously a glucose factory developed by Tate and Lyle in the 1960s, the 19-acre site has been cleared and remediated, and is vacant except for an office building and two warehouses totalling circa 128,000 sq. ft.

Earlier this month, we completed the acquisition of a £40 million portfolio of bank loans, secured against 17 investment and development assets. These assets are located in London and the South East of England and comprise 76 per cent commercial and 24 per cent residential assets. The Company expects to realise the repayment of the loans through the sale of all of the assets as rapidly as markets will allow. The Company anticipates that returns generated from the realisation of these loans will approximate to those normally achieved within its current risk adjusted return parameters.

Investment portfolio

During the period, our investment portfolio, including our share of joint venture investment assets, declined by £4.4 million, approximating to a reduction of 1.7 per cent. This compared positively against the 2.4 per cent decline in the 6-month universal IPD index which includes representation of Central London, out of town shopping centres and leisure, sectors which showed a predominant positive capital movement in the period. Void rates in our directly held investment portfolio decreased to 8.3 per cent in the period from 11.4 per cent as at 29th February 2012.

The reduction in the value of our investment portfolio was largely a result of declining yields in the secondary retail sector where capital falls in excess of 5 per cent have been the norm. In addition, the performance was impacted by valuation falls on certain assets as a result of specific property events such as the administration of Clinton Cards which affected our properties in Nailsea, Ringwood and Carmarthen. As our experience of the Peacocks CVA has confirmed earlier this year, it is possible to see values rebound as and when re-lettings are secured post-administration. We remain committed to our principles of stock selection and active asset management across our investment assets and we believe that this will continue to enable us to offset some of the valuation declines affecting areas of our portfolio.

Finance

Our net debt at 31st August 2012 was £147.1 million, representing gearing of 48.3 per cent. Including our share of joint ventures, it was £206.1 million, representing 67.7 per cent against our net asset value as at that date, with the weighted average maturity of our borrowings being a respectable 7.4 years.

During June and July 2012, the Group purchased 123,397 of its own ordinary shares at an average price of 137.4 pence per share, which are now held as Treasury shares. This reduced the balance of shares with voting rights to 122,229,107 shares.

People

On 19th June 2012, we notified the market that Graham Prothero, Finance Director, will be leaving to join the board of Galliford Try plc. We are pleased to announce that a new Group Finance Director has now been appointed, Marcus Shepherd, who will join the board on a date to be advised in due course. Marcus will join Development Securities from Aviva Investors where he has been Finance Director (Global Real Estate) since January 2009.

We were sorry to see both Victoria Mitchell and Michael Soames step down from the Board, both after nearly nine years of truly supportive and committed service to your Company. We much appreciated the level of experience and expertise they brought to our Board deliberations for which we must remain in their debt.

It remains for me also to thank our management team, staff and advisors for their commitment, hard work and professionalism during what has been a particularly productive period in the execution of our strategic objectives.

D S Jenkins

Chairman

Financial review

Total comprehensive income for the six months was a loss of £2.9 million, (30th June 2011: £0.6 million loss, 29th February 2012: £15.4 million loss). After the dividend payment of £3.9 million, net asset value attributable to shareholders fell by £6.9 million to £304.4 million (30th June 2011: £329.6 million, 29th February 2012: £311.3 million).

Profits from development and trading operations were £11.9 million as realisations gained momentum (29thFebruary 2012: £8.6 million, 31st December 2010: £5.0 million). These were generated both from direct real estate holdings, amounting to £9.1 million recognised within gross profit, and from indirect holdings, with £1.5 million arising in joint ventures and £1.3 million captured as increases in fair value of financial instruments (both of the latter supported by underlying realised profits).

Net revaluations of our investment assets including those within our share of joint ventures, was a negative £4.4 million. This comprised of: negative revaluations in our directly held investment portfolio of £7.3 million (30th June 2011: £1.3 million gain, 29th February 2012: £4.8 million loss), resulting in a reduced operating profit of £0.9 million (30th June 2011: £1.9 million, 29th February 2012: £1.0 million); and a revaluation uplift of £2.9 million in respect of our investment assets held in joint venture.

Net finance costs were £5.8 million (30th June 2011: £4.0 million, 29th February 2012: £10.6 million) including £0.9 million of mark-to-market change in respect of currency and interest rate swaps. This was compounded by a mark-to-market charge of £2.8 million in respect of the currency and interest rate swap reported in Other comprehensive income.

Following the completion of the residential and retail sales at Westminster Palace Gardens, the partner's share, carried as a minority interest in the Group balance sheet, was settled, which is reflected within equity as a reduction in non-controlling interests to £0.1 million (30th June 2011: £nil, 29th February 2012: £1.9 million).

During the period we secured new bank finance of £62.4 million from HSBC in respect of the £103 million loan portfolio acquisition (in joint venture with Pears Group), and £11.0 million from Royal Bank of Scotland in respect of the acquisition of Wick Lane Wharf, in joint venture with Realstar. We also arranged development finance of £4.0 million in respect of HDD projects. In October we were pleased to conclude a twelve-month extension to our bank facility of £47.5 million with Lloyds Banking Group in respect of the Manchester Arena Complex, taking maturity to June 2014.

Net debt as at 31st August was £147.1 million, representing gearing of 48.3 per cent (30th June 2011: £128.5 million and 39.0 per cent, 29th February 2012: £152.9 million and 48.8 per cent). In addition our share of net debt in joint ventures increased to £59.0 million, increasing our effective gearing to 67.7 per cent (30th June 2011: 47.3 per cent, 29th February 2012: 58.9 per cent). The weighted average maturity of our debt is 8.8 years, with a weighted average interest rate of 6.0 per cent. The proportion of our portfolio which is subject to fixed interest rates has reduced to 87.6 per cent. If our share of debt in joint ventures is included, weighted average maturity is 7.4 years, the average interest rate is 5.4 per cent, and the proportion of fixed rate debt is 73.4 per cent.

Our Annual Report to 29th February 2012 describes our risk profile and our approach to managing our principal risks. These principal risks remain unchanged as at 31st August 2012. With regard to the second half of the year, the Board remains cautious in its view of macro-economic prospects, as set out in the Chairman's Statement. We maintain a strong focus on potential tenant defaults, and other counterparty risks.

 Portfolio analysis

Tenant profile

Lease profile

Location profile

Analysis by sector

Income generating properties as at 31st August 2012

Investment property - key statistics

Consolidated statement of comprehensive income

unaudited for the six months ended 31st August 2012

Notes 1 to 17 form an integral part of these condensed Consolidated interim financial statements

Consolidated balance sheet

unaudited as at 31st August 2012

Notes 1 to 17 form an integral part of these condensed Consolidated interim financial statements.Consolidated statement of changes in equity

unaudited as at 31st August 2012

Notes 1 to 17 form an integral part of these condensed Consolidated interim financial statements.Consolidated cash flow statement

unaudited for the six months ended 31st August 2012

Notes 1 to 17 form an integral part of these condensed Consolidated interim financial statements.

Notes to the interim financial information

unaudited for the six months ended 31st August 2012

1. BASIS OF PREPARATION AND ACCOUNTING POLICIES

a) General information

These condensed Consolidated interim financial statements for the six months ended 31st August 2012 comprise the results of the Company and its subsidiaries and were authorised by the Board for issue on 22nd October 2012.

The Company is a public limited company which is listed on the London Stock Exchange and is incorporated and domiciled in the UK. The address of its registered office is Portland House, Bressenden Place, London, SW1E 5DS.

The condensed Consolidated interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the 14-month period ended 29th February 2012, which were prepared in accordance with International Financial Reporting Standards ("IFRS"), as endorsed by the European Union, were approved by the board of directors on 1st May 2012 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

These Consolidated interim financial statements have been reviewed, not audited.

b) Basis of preparation of half-year report

These condensed Consolidated interim financial statements for the six months ended 31st August 2012 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. The condensed Consolidated interim financial statements should be read in conjunction with the Group's financial statements for the 14-month period ended 29th February 2012, which have been prepared in accordance with IFRSs as adopted by the European Union.

Going concern basis

The Group has considerable financial resources. Rental income continues to be robust, with the risk of significant default assessed by the Directors as low. Development and trading activities are well diversified across regions and sectors. Debt finance is secured for appropriate periods and the Group is comfortable with its covenant positions. As a result the Directors believe that the Group is well placed to manage its business risks successfully, despite the continuing uncertain economic outlook. The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements.

c) Judgements and key sources of estimation uncertainty

The preparation of financial statements requires management to make judgements, assumptions and estimates that affect the application of accounting policies and reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing the condensed Consolidated interim financial information, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the Consolidated financial statements for the 14-month period ended 29th February 2012.

d) Accounting policies

The accounting policies applied in these condensed Consolidated interim financial statements are consistent with those of the Group's financial statements for the 14-month period ended 29th February 2012, as described in those financial statements.

New and amended standards and interpretations need to be adopted in the first interim financial statements issued after their effective date (or date of early adoption). There are no new IFRSs or IFRICs that are effective for the first time for this interim period that would have a material impact on this Group.

e) Financial risk management

Financial risk factors

The Group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.

The interim condensed Consolidated financial statements do not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's financial statements as at 29th February 2012.

There have been no changes in risk management or in any risk management policies since the period end.

Fair value estimation

The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

·; Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).

·; Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).

·; Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

The following table presents the Group's assets and liabilities that are measured at fair value at 31st August 2012:

The following table presents the Group's assets and liabilities that are measured at fair value at 30th June 2011:

In the period there have been no significant changes in business circumstances that affect the fair value of the Group's financial assets and financial liabilities. Continued uncertainty in the Eurozone has had an adverse effect on the Group's cross-currency interest rate swap.

There have been no reclassifications of financial assets.

2. SEGMENTAL ANALYSIS

For management purposes, the Group is organised into three operating divisions, whose principal activities are as follows:

These divisions are the basis on which the Group reports its primary segmental information. As at 31st August 2012 all operations occur and all assets are located in the United Kingdom. As at 29th February 2012 the Group held assets of £0.1 million located in The Netherlands and as at 30th June 2011 the Group held assets of £0.3 million located in France and The Netherlands. All revenue arises from continuing operations.

2. SEGMENTAL ANALYSIS continued

3. FINANCE INCOME AND COSTS

In addition the Group recorded a loss of £2.8 million (30th June 2011: gain of £0.8 million and 29th February 2012: loss of £4.3 million) in respect of a cross-currency interest rate swap. This amount is reported in Other comprehensive income in the period.

4. INCOME TAX

Income tax expense is recognised based on management's estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate used for the period to 29th February 2013 is 24.17 per cent (the estimated tax rate for the six months ended 30th June 2011 was 27.0 per cent). The decrease is mainly due to the Group not recognising deferred tax assets due to uncertainty over the timing of when this would unwind.