Preliminary Results

Development Securities PLC

("Development Securities" or "the Company" or "the Group")

PRELIMINARY RESULTS FOR THE YEAR ENDED 28th FEBRUARY 2014

Development Securities PLC, today reports a strong increase in year profit before tax and net asset value, principally driven by continued development and trading gains and an increase in the value of the Group's investment portfolio. The Group's board is recommending an increase of 33.3 per cent in the final dividend.

Development Securities is well positioned to deliver enhanced returns over the coming years, with a diversified portfolio of projects now established and good visibility on a pipeline of further investment and development opportunities.

Financial and operating highlights

· £18.7 million increase in profit before tax to £19.5 million (2013: £0.8 million)

· £10.7 million increase in EPRA Net Asset Value (NAV) to £328.3 million, equivalent to 269 pence per share, a 5.2 per cent increase before paying £5.9 million of dividends (2013: £317.6 million)

· Final dividend of 3.2 pence per share recommended (2013: 2.4 pence per share) taking the total dividend for the year to 5.6 pence per share (2013: 4.8 pence per share)

· £27.0 million of development and trading gains delivered, continuing the scale and momentum of previous years (2013: £28.1 million)

· £4.8 million increase (1.6 per cent) in value of investment portfolio including share of joint ventures (2013: £12.8 million decline). Income stable across portfolio and void rates reduced by a third to 6.3 per cent

· Significant progress made across all aspects of portfolio since 1st March 2013 including joint venture projects:

· €47 million medium-term unsecured loan notes restructured in March 2014, reducing finance costs and releasing cash collateral

Commenting on the results, Michael Marx, Chief Executive, said:

"The strong improvement in our performance during the year was driven by continued significant gains from within our development and trading portfolio and an increase in the value of our regional investment portfolio. We have an extensive portfolio of projects that is set to deliver strong gains in the coming years. With the UK economy continuing to strengthen and some enhanced liquidity returning to real estate markets outside London, we have accelerated our program of asset disposals within our investment portfolio. This will allow us to recycle capital into further investment opportunities that offer enhanced growth prospects. We are well positioned to capitalise on further opportunities in those sectors of the market that we have selected for value creation, and to deliver enhanced shareholder returns."

For further information, contact:

Development Securities, 0207 828 4777

Michael Marx, Chief Executive

Marcus Shepherd, Finance Director

Lucy Grimble, Communications Manager

Tulchan Communications, 0207 353 4200

Peter Hewer/Martha Walsh

A video interview with the Executive Directors and a results presentation will be available to download from 7am today at http://www.developmentsecurities.co.uk/devsecplc/en/ir/financial-reports

Year at a glance

Good progress made across our portfolio to realise value and deliver strong returns

c.£260m*

of asset disposals realised

16*

planning successes across our portfolio

£189m*

of funding secured on existing schemes

c.£70m*

of new assets acquired

Six

sites under construction

*Including joint ventures and all activity to date since 1st March 2013.

Q1 FY2014

March - May 2013

Q2 FY2014

June - August 2013

Q3 FY2014

September - November 2013

Q4 FY2014

December - February 2014

Q1 FY2015

March - April 2014

Chairman's Statement

On track to achieve our strategic objectives

I am pleased to report a strong set of results for your Company, with a profit before tax of £19.5 million for the year ended 28th February 2014, a significant improvement from the profit before tax of £0.8 million for the previous financial year.

Performance

After the payment of £5.9 million by way of dividends, shareholders' funds increased by £13.6 million to £320.3 million from £306.7 million as at 28th February 2013. Net assets per share ended the year at 262 pence per share compared to 251 pence per share at 28th February 2013.

Our level of net debt, excluding our share of debt within joint ventures, remained low at 48.0 per cent compared with 47.9 per cent at 28th February 2013. Given the strength and stability of our Balance Sheet and our prudent business model, the Board has recommended the payment of a final dividend for the year of 3.2 pence per share, payable on 22nd August 2014 to shareholders on the register on 25th July 2014. This payment will bring the total dividend for the year to 5.6 pence per share, an increase of 16.7 per cent on the previous year.

The year was characterised by a high level of activity across our business as we continued to progress our strategy of creating value through regeneration. Within our development and trading portfolio, we generated further strong gains, with profits of £27.0 million realised in the year ended 28th February 2014 (28th February 2013: £28.1 million). It was also pleasing to note that our investment portfolio including our share of joint ventures increased in value by £4.8 million as compared to the fall of £12.8 million in the previous year, and we expect this performance to improve further. In addition, we have made good progress within our major developments programme, with notable activity on the edge of Central London. 12 Hammersmith Grove, Algarve House in Southwark and a further site in Central London on which we have exchanged conditional contracts, all present significant opportunities that build on our track record in delivering high quality commercial-led, mixed-use developments.

Outlook

If the present track of the UK economy proves to be sustainable, we would expect to see an increased level of development activity in the market place as vacancy rates fall further and business confidence grows to ensure that real estate retains its attraction to available UK and global liquidity. The future delivery from our project pipeline is playing into the momentum of a recovery in the UK economy. Against this backdrop, your Company will continue to search out regeneration opportunities in markets where we see both current and emerging demand and where we have development expertise and a position of strength. In addition, we will continue to search out further opportunities from within the financial sector, as banks further reduce their exposure to real estate.

Property development and investment is a complex process that requires high levels of professionalism and expertise. My colleagues, the management team and staff at Development Securities have continued to work hard and I would like to thank them for their efforts, especially as our level of activity intensifies. As ever, we will continue to manage our activities with the appropriate level of caution and risk management. We are well‑positioned to capitalise on further opportunities as the cycle continues to turn in our favour.

David Jenkins

Chairman

30th April 2014

Chief Executive's Statement

Creating value through real estate regeneration

Well poised to capitalise on our Balance Sheet strength and development expertise

Our market

A year can be a long time in the fortunes of the UK economy. Twelve months ago, the outlook was uncertain as the economy struggled to generate any meaningful growth. Then, catching most people by surprise, the UK economy began to show signs of life in the second half of 2013, building investor and occupier confidence and reinforcing the upwards shift in market dynamics. This firmer growth trend, allied with a restricted supply of new development product, creates a positive outlook for the successful delivery of our existing pipeline of projects, and improves our prospects for new opportunities to be secured. It still remains to be seen how firmly and rapidly the regional investment and occupational markets continue to recover.

Our focus

We have now established a pipeline of some 40 development projects where our strategy is to create value through regeneration. The diversity and breadth of our portfolio assists us in restricting our exposure in any one project to levels proportionate to our Balance Sheet and also provides good visibility on a steady flow of future gains. Our work is presently concentrated in London and the South East, with an emphasis on residential and foodstore-led mixed-use projects where planning change of use is the key driver to value growth.

For the past few years, office development activity outside Central London has been limited. However, as upward rental pressure obliges some occupiers to seek more cost effective solutions to their requirements, office-led development activity on the edges of Central London is becoming increasingly relevant to us.

Progress in the year

The main drivers for the growth of £13.6 million in shareholders' funds were the excellent performance from our development and trading portfolio which generated gains of £27.0 million during the year (28th February 2013: £28.1 million), as well as a £4.8 million increase in the value of our investment portfolio including our share of joint venture assets. We anticipate that this performance will continue and indeed strengthen over the coming years.

Legacy assets

Like most other real estate businesses, we had some legacy assets that were caught off-balance in the downturn of 2008. Our strategy to resolve them was to seek new or improved planning consents suitable to a more subdued economic environment and changing nature of demand. During the year, we made further good progress on two of our three significant, non-income earning legacy assets. At Broughton, planning consent was received in July 2013 for 232 residential units on 19 acres of land which was subsequently sold at book value for £11.4 million. At 399 Edgware Road, we obtained a revised planning consent for a foodstore-led mixed-use scheme. We are now under offer with a funding partner to finance the development of the 80,000 sq. ft. food store, pre-let to Morrisons, which will unlock £12.5 million of positive cash flow. The other components of this scheme, with a similar end development value, will also be resolved in the near-term. The third significant legacy asset is at Curzon Street in the centre of Birmingham where our ten-acre site is directly impacted by the proposed HS2 rail project and it will be some considerable time before we will be able to monetise this asset.

Development and trading portfolio

Our current development and trading portfolio has seen a high level of activity and this part of the business continues to perform at or above expectations, with a strong pipeline of further disposals established. In April 2014, we completed the disposal of assets within the Rock portfolio and additionally have now realised all of the underlying assets within the Chrome portfolio. Both of these portfolios were acquired from financial institutions and we continue to seek further such loan portfolio acquisitions.

We were also pleased to secure institutional funding on several of our projects since the year end, allowing us to implement their delivery and monetise our position. We secured £14.8 million of funding to finance the development of The Square in Hale Barns near Manchester, £38.1 million of funding for the development of the Sainsbury's food store at Cross Quarter, Abbey Wood and £44.1 million for the first phase of development at Shepherd's Bush Market. These projects were acquired by us in a state of obsolescence or dereliction and benefitted from subsequent planning permission to facilitate the delivery of these mixed-use regeneration schemes.

The planning process remains the key enabler to successfully repositioning projects in order to realise value. It is pleasing to note that we have secured 16 planning wins in the period since 1st March 2013.

We also made a number of acquisitions during the year with a continued focus on regeneration projects. Three of these acquisitions were in or close to Greater London: a £5.5 million office building in Sevenoaks; a £17.5 million portfolio of five office buildings in North London; and an £8.3 million town centre mixed-use development opportunity in Romford. The residential element of these mixed-use projects is increasingly significant to us and, where appropriate, we are seeking planning change of use to create more residential development opportunities within our portfolio. In October 2013, we acquired our first project in Dublin, a market which we perceive to offer further opportunity for development and investment. In April 2014, we contributed £8.5 million to the restructuring of Deeley Freed, a Bristol-based property developer with an excellent reputation for high quality projects, who required assistance in reshaping its liability portfolio.

Investment portfolio

As anticipated, our regionally-biased property investment portfolio has now begun to show some positive value growth. Yields have started to compress as investor appetite for quality assets outside London has increased. This improved sentiment has resulted in a valuation uplift of £3.1 million in our directly held investment portfolio as at 28th February 2014 (28th February 2013: £16.4 million decline). Including the investment properties held within our various joint ventures, this upward revaluation increases to £4.8 million. We are hopeful that these market conditions will further strengthen through the coming year. It is pleasing to note that vacancy rates have reduced to 6.3 per cent as at 28th February 2014 (28th February 2013: 9.7 per cent). Our investment portfolio generated £15.0 million in rental income which contributes significantly to the stable cash flows of our business.

With increased liquidity and competition within the markets in which we operate, we have commenced our programme of disposals of those assets where our business plan is now complete. In October 2013, we sold The Phones 4u Arena in Manchester for £82.1 million. The value that we added to this arena during our period of ownership with our joint venture partner was considerable, with returns far exceeding our original expectations. Additionally, we sold our Waitrose-anchored scheme in Winchester for £23.3 million in March 2014, £1.3 million in excess of book value as at 28th February 2013. In April 2014, we sold £21.0 million of assets from within our investment portfolio at book value. We intend to recycle the equity released from these disposals back into the investment market in the near-term.

Major developments

In July 2013, we completed 10 Hammersmith Grove, our first large-scale office project of the current cycle, and in February this year completed the first letting of two floors to UKTV. Work has now commenced on the second and final phase of this development, 12 Hammersmith Grove, a 167,000 sq. ft. prime office building. In October 2013, we secured an option to acquire Algarve House, a vacant, derelict office building in Southwark, another strengthening market on the fringe of the Central London core. Here we are progressing the masterplan for a mixed-use regeneration scheme of some 200,000 sq. ft. In April 2014, in joint venture with a financial partner, we exchanged conditional contracts to acquire an income-generating office building for more than £75.0 million in a Central London location.

In August 2013, we received a compensation payment of £7.1 million for releasing our interest in the remaining two phases at PaddingtonCentral, the 1.2 million sq. ft. office-led mixed-use regeneration project in which we had been engaged for some 15 years.

Outside London, in March 2014 in a joint venture with Prorsus, we were appointed as the private sector partner at Harwell Oxford. Here, we will manage and further develop this internationally renowned science Campus on a 700-acre site in partnership with the Science and Technology Facilities Council and the UK Atomic Energy Authority, two Government-backed agencies.

Outlook

We remain positive about the outlook for all aspects of our business. We are well poised to capitalise on our Balance Sheet strength and development expertise, which are traditionally much in demand at this point in the cycle.

Michael Marx

Chief Executive

30th April 2014

Risks

The Group's business model is defined by the nature and extent of the risks which the Directors consider are material to the Group's strategy, size and capabilities

The Group's risk profile is maintained under continual review by its Risk Committee, which meets quarterly, and also by the Board.

The Group categorises risks according to the likelihood of occurrence and the potential impact on the Group. The Directors consider the following to be the principal risks and uncertainties facing the Group.

These risks have been grouped as either:

External Risks

Business Risks

Key

Change from last year

é Risk exposure increased

ê Risk exposure reduced

è No significant change in risk exposure

Operating Review

Development and trading portfolio overview

This has been a year of intense activity across all aspects of our development and trading portfolio

Our markets

We have continued to progress the business plans for those assets acquired by us over the past three to four years, whilst also growing our pipeline of projects. During the year, we generated gains of £27.0 million from further asset realisations within our portfolio and with a diversified pipeline of projects now established, we expect to maintain this level of activity over the coming years. We continue to focus on structural over cyclical growth, delivering performance by the implementation of specific asset activity.

Our development and trading activity falls broadly into two categories. First, regeneration projects whereby we are able to acquire assets or land in a state of obsolescence or distress and, through redevelopment, create institutional quality assets for which demand is strong. With the yield gap between secondary and prime markets still at historically high levels, albeit starting to narrow, we see continued opportunity to generate value through this process. Our second area of focus is the acquisition of assets or portfolios from financial institutions or banks. We have now completed more than ten such transactions and we expect further activity as banks continue to seek to reduce their exposure to real estate. In both of these areas of activity, it is our ability to apply our development and asset management expertise that drives significant value, with planning change being a key catalyst for positive growth.

The last twelve months have seen a vast improvement in the prospects for the UK economy, with a positive impact on a number of the markets in which we operate. Investor appetite for residential land and developments has continued to increase as demand continues to outstrip supply. London dominates in this positive value growth but the ripple effect is starting to spread beyond central areas. We have a good pipeline of residential land and development projects and, where appropriate, we are targeting further residential-led real estate opportunities in order to increase our presence within this market.

A number of retail sub-sectors saw a decline during the year, mainly in peripheral UK locations. Outside London, retail remains a patchy sector that is trailing the recovery. The challenges that face the sector increasingly appear to be structural and less responsive to cyclical improvements in the wider economy. Within the foodstore sector, the 'race for space' amongst the biggest UK supermarket brands has halted as consumer shopping habits have continued to evolve and the big discount brands have increased their market share. All supermarkets are still looking to expand their stores in aggregate, however, the bias is now towards convenience retailing rather than large-format superstores. We are adjusting our focus accordingly and seeking further opportunities in the convenience retail sector.

During the year, we acquired our first property in Dublin, a market where transactional activity is increasing and in which we see further opportunities for investment and development.

Acquisitions

We made five acquisitions during the year within our development and trading portfolio, the full details of which are provided in the property matrix. Four of these acquisitions offer residential-led development opportunities: Romford in East London; Tubs Hill House in Sevenoaks; a portfolio of five properties in zones one and two of North London, and Percy Place in Dublin. In April 2014, we partnered with Deeley Freed, a Bristol-based property company, providing it with £8.5 million to restructure its facilities and assist in the delivery of seven of its existing projects. The company has a solid track record for delivery and an established regional presence. The majority of its projects are in provincial cities in the South West with a mix of commercial, mixed-use and foodstore-led development opportunities which will be delivered over the next three years.

Disposals

Our strategy was further validated during the year as we secured our exit from a number of projects. At The MVMNT, Greenwich, a 350,000 sq. ft. mixed-use project, Willmott Dixon and McLaren are both on site with the residential and student accommodation elements of the scheme. We also secured funding for the 106-bed hotel, pre-let to Travelodge, which is also now under construction. In late 2014, we will take delivery of the retail and leisure space on the ground floor of the residential blocks to complete the final phase of this regeneration project and early marketing has commenced.

At Rembrandt House, Watford, we completed the £5.6 million sale of part of the site to a local housebuilder with planning consent having been achieved for a 107-unit residential scheme. A 40,000 sq. ft. office building remains on the residual part of the site for which we are exploring development options.

In July 2013, we sold a site at The Old Vinyl Factory to Willmott Dixon for the development of a 132-unit residential development. In April 2014, we entered the final sign-off stage for £7.7 million of loan funding from the GLA's Growing Places Fund for the development of the 'Central Research Laboratory', an innovation hub for start-ups and SMEs which will help to further establish this significant regeneration scheme. In April 2014, we also disposed of the final assets within the Rock portfolio and concluded the sales of underlying assets within the Chrome portfolio. Both of these portfolios were acquired from banks and we have overseen their profitable disposal.

We were also pleased to secure institutional funding on three projects within our development and trading portfolio during the year, at Cross Quarter in Abbey Wood, Shepherd's Bush Market and at The Square, Hale Barns.

Planning success

Securing new or improved planning consents for the projects within our portfolio remains the key driver to growth and positive change. In this regard, we continued to make good progress, securing 16 new planning consents, a 100 per cent success rate. These include outline planning for a significant urban extension project at a 207-acre site north of Norwich, comprising 3,500 homes within a new mixed-use community. At Shepherd's Bush, we secured detailed planning consent for our regeneration project which will include 211 homes, 14,000 sq. ft. of retail space and a revitalised market at the heart of the development. Planning consents were also achieved at projects in Launceston, Barnstaple, Cross Quarter in Abbey Wood, 399 Edgware Road, Marsh Mills in Plymouth and at Atlantic Park in Devon.

Operating Review

Development and trading property portfolio

Property status key

Strategic partnerships

Operating Review

Major developments portfolio

Positioned well for the next phase

The modest size of our Balance Sheet and our risk averse approach to specific development exposures has largely precluded us from involvement in major projects in the Central London core. Instead, we have focused on locations on the edge of Central London where supply of high quality offices has been constrained, demand is credible and location fundamentals are strong. In these markets, where aggregate demand may indeed be reducing and where occupiers are more price sensitive, we are required to be discerning with regard to the product that we deliver and the specific sites we select. We are pleased to report that the delivery of premium quality office developments in these markets has proven to be a valid proposition.

In summer 2013, we completed 10 Hammersmith Grove, a 110,000 sq. ft. Grade A office building, on time and within budget. The two restaurants are let to Byron Burger and Bill's Produce and our first office letting to UKTV, who will take two floors of the building, was signed in February 2014. Our discussions with other tenants are advancing well and 80 per cent of the office space is now let or in solicitor's hands with just a floor and a half available. Average rents agreed are 15 per cent above the pro forma rent of £40 per sq. ft. In March 2014, we agreed terms with SWIP Property Trust, the institutional funder of 10 Hammersmith Grove, to forward-fund the next and final phase of this development for £92.0 million. 12 Hammersmith Grove will provide 167,000 sq. ft. of prime office space with new restaurant space and additional public realm. Construction will start imminently with completion anticipated in Q1 2016. The supply of competing office space of this quality in Hammersmith remains very limited.

Since 1st March 2013, we have secured two other major development opportunities in London. In October 2013, we secured an agreement to acquire Algarve House, a derelict office building adjacent to Southwark underground station. Our masterplan for the redevelopment of the site is advanced and we anticipate starting the public consultation process in summer 2014. In April 2014, in conjunction with a financial partner, we exchanged conditional contracts to acquire an income-producing office building at a cost in excess of £75.0 million in Central London, with potential for redevelopment on site.

In April 2014, we were selected, alongside our operating partner Prorsus, by two Government agencies, the United Kingdom Atomic Energy Authority and the Science and Technology Facilities Council as their private sector partner at Harwell Oxford. The site comprises 700 acres in total, of which approximately 30 per cent is already developed as a science Campus of international standing. Our role is to bring forward future phases of development for commercial science and research companies for whom the proximity of the Government's various large-scale facilities confer competitive advantage.

At Cambourne Business Park, we are confident that the activity levels of Cambridge city centre will now ripple towards this location. There is a case for speculative development, and we shall be embarking on a number of discussions with partners this year.

At Cambridge Science Park, we are Trinity Hall's development managers for three office and laboratory buildings totalling 133,000 sq. ft. We were delighted to start on the first laboratory and office building in January 2014, which is pre-let to the UK subsidiary of a leading Japanese pharmaceutical company.

Harwell Oxford, Cambourne and Cambridge Science Park are all located in important knowledge clusters, where the strength of occupier demand is driven by proximity to a highly educated and specialist workforce. These 'innovation' clusters are one of the success stories in office real estate markets outside London.

Slough has been slightly slower to recover as a significant office location than we had hoped, but the tide is undoubtedly on the turn and our scheme at Brunel Place of 350,000 sq. ft. of offices is looking increasingly good value when compared with Central and West London.

It was of course with some sadness that we gave up our role as developers of PaddingtonCentral as Aviva, our partner of some 15 years, exercised their right to sell the estate which we had jointly created, to British Land. Having delivered a regeneration project of some 1.2 million sq. ft. of commercial-led mixed-use regeneration, we were compensated by a payment of £7.1 million.

Operating Review

Investment portfolio

Values increase as regional investment market rebounds

Overview and performance

During the year, the value of our investment portfolio including our share of joint venture assets increased by £4.8 million as the regional investment market recovered from the decline of the previous few years. As anticipated, we are seeing a marked increase in investor appetite for the types of regional retail assets that our portfolio comprises and, as such, liquidity and competitive tension is returning to these markets. The resultant yield compression has largely accounted for the positive change in our portfolio. In addition, we continued to drive value across our portfolio through proactive asset management and enhancement, with resultant vacancy rates falling to 6.3 per cent from 9.7 per cent as at 28th February 2013. We completed £0.4 million of new lettings during the year.

With investor demand increasing, we have accelerated the disposal of a number of assets where our business plan is now complete. In October, we sold the Phones 4u Arena in joint venture with Patron Capital for £82.1 million. We also secured the sale of our office and retail scheme in Chorlton-cum-Hardy near Manchester for £10.1 million, generating gains of £1.2 million. In March 2014, we sold Weeke Shopping Centre in Winchester to an institutional fund for £23.3 million. In April 2014, we sold at book value a portfolio of investment assets comprising retail assets in Bexleyheath, Carmarthen, Crewe and Port Talbot for £21.0 million.

In February 2014, we acquired the Royal York Buildings, a former hotel in Brighton, for £4.5 million which we simultaneously let to the Youth Hostel Association on a 100 year lease, who will convert the property into a 180-bed youth hostel. The property offers further asset enhancement potential and currently generates an income return of 7.3 per cent. In April 2014, we exchanged contracts to acquire a foodstore-anchored retail centre in Armagh, Northern Ireland, for £7.4 million, a 9.1 per cent initial yield. The shopping centre offers opportunities for asset management and enhancement, with some scope for redevelopment on site.

Outlook

We continue to focus on foodstore-anchored retail investment assets in strong provincial markets, where we can add value through asset management and enhancement. With the UK economy strengthening and consumer confidence building, we anticipate further growth in our portfolio in the near-term. Where appropriate, we will seek to dispose of non-core assets in order to rationalise our portfolio and recycle our equity into further investment assets which offer stable, long-term income prospects and opportunities for value growth through asset enhancement.

Top five occupiers as at 28th February 2014

Operating Review

Investment property key statistics

Investment property - key statistics

*Based on the core investment property assets only.

Income generating properties - Like-for-like rental income received

Completed investment portfolio - 28th February 2014

Operating Review

Investment property portfolio

Property status key

Financial Review

Review of the Year

The last year has seen an improvement in the UK economy, both in terms of GDP growth and also business sentiment as the recovery from the downturn continues. At the same time, we have seen a continued trend of overseas capital focusing on UK markets for investment and the flow of capital into the regions and more secondary assets has started to increase.

Conditions have continued to ease in the debt markets for real estate, with pressure beginning to reduce margins as banks compete for new business and also contemplate longer duration loans than has been possible for the last three years, albeit there is still a focus on higher quality sponsors and projects. To that end, it is pleasing to report that we have continued to source funding from our existing long-term banking partners for the acquisition of the Romford property in July 2013 and also the North London office portfolio of five office buildings in February 2014. We have also utilised debt from one of the newer debt fund entrants into the market with the £44.1 million facility for our joint venture at Shepherd's Bush, which has already been partially utilised to acquire the Shepherd's Bush Market in February 2014.

We have been able to acquire these exciting new opportunities to add value, whilst at the same time realising a number of projects where we have either completed our business plan or believe that we cannot achieve further significant added value going forward.

Notable disposals during the year have included the Phones 4u Arena in Manchester where, in conjunction with our joint venture partner Patron Capital, we were able to achieve a sale at £82.1 million for an asset originally acquired for £62.2 million in June 2010. This year also saw the conclusion of our 15-year involvement in the redevelopment of PaddingtonCentral, where we received a final compensation payment of £7.1 million when our partners disposed of their holding. We have also now successfully completed the disposal programme of the Chrome portfolio where all of the underlying assets have now been realised.

We have continued our process of improving the efficiency of our Balance Sheet by seeking to monetise legacy, non-income earning positions. The most significant element of this was the disposal of 19 acres of land at Broughton for £11.4 million. Good progress has also been made at 399 Edgware Road where detailed planning consent for the Morrisons food store was achieved. We have also managed to renegotiate the structure of our long dated €47 million loan notes and associated hedging arrangements, which was concluded in March 2014. The effect of this has been to release £9.7 million of non-income generating cash collateral back to the Group for investment whilst also reducing the annual finance cost to the Group going forward by £0.8 million through to the revised seven year maturity.

As at 28th February 2014, our weighted average debt maturity was 6.8 years (6.4 years including share of joint ventures), compared with 8.3 years as at 28th February 2013 (7.1 years including share of joint ventures).

As at 28th February 2014, net debt, including share of joint ventures, stood at £181.9 million, a decrease from £196.1 million at 28th February 2013. This represents gearing of 56.8 per cent, comfortably within our normal target level of 50-60 per cent, which is as expected given the number of realisations during the year. As at 30th April 2014, net debt had fallen to £193.2 million, representing gearing of 39.3 per cent.

If joint ventures are excluded, the Group's gearing was 48.0 per cent as at 28th February 2014, compared with 47.9 per cent a year earlier. The Group's overall loan-to-value ratio, calculated as net debt divided by total property assets, was 44.7 per cent (28th February 2013: 38.0 per cent).

Capital structure and liquidity management

The Group's strategy for capital structure and liquidity management is to maintain a conservative balance between equity and debt appropriate to the nature and profile of our asset portfolio, achieving both certainty and flexibility. This takes into consideration our operational strategy and our intention for each asset, together with our expectations for the availability and cost of alternative sources of finance.

In particular we operate within a structure which limits the level of our equity exposure to any particular asset and also the level of external debt which can be applied.

Our cash resources and overall liquidity are managed at Group level, with each asset or project monitored according to its own specific risk profile.

All development and trading assets have business plans which include timetables for realisation. The Group always retains a cash buffer to ensure that delays in planned asset realisations do not impact upon the normal operation of the business.

Where we enter into debt facilities, secured against assets, we do so in a way that matches debt profile against asset profile.

We have long-term fixed rate debt facilities which are used to fund long-term investment assets. In respect of shorter-term trading assets, we fund these with asset specific debt which is structured to support the individual asset business plan.

Within our debt portfolio we maintain a mix of fixed and variable interest rates, with a preference for fixing of both larger and longer-term borrowings so as to significantly mitigate our interest rate risk. For shorter maturity facilities our preference is to cap our interest rates exposure rather than to fix it.

The Group does not usually take development risk on large scale major development projects. This risk is mitigated in several ways, including the completed forward sale of the land and project assets through to the contracted sale of the completed development with appropriate guarantees of completion. Where direct development is undertaken on more modest schemes, this is funded by way of Group equity and medium-term bank facilities, providing the necessary flexibility of funding for both site assembly and construction.

Investments in joint ventures and associates are funded directly with equity. Any gearing is deployed within the ventures themselves.

Responsibility for the management of cash and liquidity risk rests with the Board. The executive team has systems in place for the monitoring and management of this key area of our business. Daily review of this area is delegated to the Finance Director. The executive team consider this on a weekly basis and the Board formally reviews the position at its meetings, which occur at least eight times per year.

The principal tools utilised for the management of cash and liquidity are:

Short-term liquidity requirements are fairly predictable and are managed out of existing cash resources. Cash requirements are monitored on a weekly and monthly basis. Cash buffers are retained to ease cash flow management.

Medium-term liquidity is provided through a mix of the Group's equity and its debt facilities. The Group has strong long-term relationships with a diversified range of major lenders and as such has not been restricted in its ability to raise new debt for investment, trading or development projects.

Longer-term liquidity and the Group's capital structure are reviewed on a regular basis by the Directors, taking account of relevant factors including the real estate cycle, changes in the nature and liquidity of the Group's asset portfolio, forthcoming risks and opportunities and the markets for debt and equity finance. This is formally considered at least twice a year by the Group's Risk Committee, which reports to the Board, as a part of the annual strategy review and also as appropriate at each Board meeting.

As at 28th February 2014, restricted cash balances were £27.3 million (28th February 2013: £11.5 million). The increase is as a result of investment property disposals. Since the year end £9.7 million collateral has been released following the renegotiation of the €47 million loan notes and £7.8 million on substitution of an asset into a charged facility.

Cash management

Group cash resources are managed in accordance with our policy, which prioritises security, liquidity and counterparty risk ahead of absolute returns, with limits set by the Board in respect of minimum credit ratings for and maximum exposures to individual counterparties.

Cash may be invested across a range of instruments including instant access and term deposits, money market funds and commercial paper. As at 28th February 2014, the Group had £67.3 million of cash held with ten different counterparties.

Current bank facilities and borrowings

The Group's bank facilities are set out in the following table. As at 28th February 2014, the Group had borrowings of £221.1 million (28th February 2013: £206.0 million). Cash balances were £67.3 million (28th February 2013: £59.2 million), including amounts of £27.3 million held as restricted deposits, giving net debt of £153.8 million and gearing of 48.0 per cent (28th February 2013: £146.8 million and gearing of 47.9 per cent).

The Group's share of net debt in joint ventures was £28.1 million (28th February 2013: £49.3 million); if this is aggregated with Group balances then net debt rises to £181.9 million and gearing to 56.8 per cent (28th February 2013: £196.1 million and 63.9 per cent).

During the year, the Group, together with its joint ventures, has drawn new borrowings of £50.0 million. Included within this have been new facilities as follows:

The Group has also repaid £78.2 million of borrowings as individual assets have been disposed of, including:

Group's bank facilities

Gross committed facilities as at 30th April 2014 total £193.2 million with a weighted average term of 6.4 years, the earliest maturity arises in June 2014. Unutilised facilities are £2.1 million.

Since 28th February 2014, the Group has successfully renegotiated the terms of its €47 million Loan Notes. The duration of the notes has been reduced, margins and hedging have been renegotiated and collateral has been released.

The Directors keep bank covenants (typically loan to value and interest cover ratios) under review, and are content with the current position. The aim is to agree loan to value covenants at comfortably tolerable levels with sufficient headroom for foreseeable changes in either the general market or specific assets. We also incorporate cure mechanisms into facility agreements such that we have an appropriate opportunity to restore covenant compliance by making cash deposits or repayment as required.

Interest rate risk and hedging

As at 28th February 2014, the summary of the Group's interest rate exposure was as follows:

The weighted average interest rate payable was 5.8 per cent, 5.7 per cent including joint ventures (28th February 2013: 5.9 per cent and 5.5 per cent respectively).

Facilities with variable rates of interest, in particular longer-term facilities, expose the Group to the risk of interest rate fluctuations. This risk is constantly reviewed by the Directors who regularly consider the possibility and likely cost of extending interest rate hedging.

Currently a mix of fixed and variable rates is maintained in order to provide a degree of certainty, whilst at the same time benefiting from historically low absolute levels of rates. Longer-term facilities tend to be structured with fixed rates.

A key element in all hedging arrangements is counterparty risk, i.e. the potential failure of the counterparty to the transaction. The Group mitigates this risk by only transacting with major banks and institutions. There is currently no indication that any of the Group's hedge counterparties may be unable to settle its obligations.

Interest rate derivatives are marked to market in the Balance Sheet, giving rise to the risk of fair value movements in the instrument and a consequent impact on net asset value. At 28th February 2014, the Group held a cross-currency interest rate swap, which was designated as a cash flow hedge. Movements in the foreign currency leg of this swap provided a hedge against movements in the retranslation of the €47 million loan notes. Movements in the interest rate leg have been taken to reserves. The effects of these fair value adjustments in the year ended 28th February 2014 are set out in note 11c. In March 2014, the terms of the €47 million loan notes have been substantially renegotiated and as a consequence the cross-currency interest rate swap has been terminated and alternative hedging arrangements put in place.

Development and trading portfolio

The principal financial instrument risks in these assets are the credit risk of transaction counterparties. Given the nature of these assets the amounts owed to the Group can be significant. These arrangements are monitored very closely both before contracts are exchanged as part of our due diligence procedures and throughout the execution period.

As at 28th February 2014 the Group had no material, unsecured debtors in respect of the sales of development and trading assets.

In respect of certain transactions, the Group contracts to provide funding for the development of either individual phases or whole schemes. The Directors are satisfied that the combination of the Group's risk averse approach to development funding, its rigorous selection of development partners and its focused and active management of each project provide appropriate comfort over the risks of these financial exposures.

Investment portfolio

The principal financial instrument risk in the investment portfolio is the credit risk implicit in potential tenant failure which, in light of economic conditions, is heightened in all sectors, and most notably amongst retail tenants. The Group maintains the portfolio under continual review. The portfolio is managed by local agents, with active involvement by the Group's investment team. The Board receives at each of its meetings, analyses of tenant profile (including the concentration of credit risk, both by sector and by entity), existing and anticipated voids, overdue rents, and future and outstanding rent reviews, as well as a formal commentary by the investment team. The current profile of the portfolio and comments on performance in the year are set out in the Operating Review.

Projects in partnership

The Group conducts a number of projects in partnership with others, where the Group brings both development expertise and funding. These interests are carried in a number of balance sheet categories, and are summarised in note 14.

The financial instrument risks in respect of projects in partnership are the credit risk implicit in the financial strength and integrity of the operating partner, the contractual risk in the partnership arrangements and the operating success of the venture. The Group manages these risks by securing appropriate rights in each case over the use of the Group's invested capital and by active participation in the joint strategic and operating control of the ventures.

Contingent liabilities

Contingent liabilities are described in note 13. The Directors ensure that these risks are appropriately documented and monitored, and that the risk of actual liabilities arising is restricted so far as is possible.

Foreign currency risk

The Group's operations are conducted predominantly in the UK. The Group's principal exposure to foreign currency movements is in the €47 million Euro-denominated loan notes and the corresponding €6.9 million security deposit. The loan notes are fully hedged to provide an effective Sterling liability. In March 2014, the Group renegotiated the €47 million loan notes and terminated the cross-currency interest rate swap. Alternative hedging arrangements have since been put in place.

Outside of the UK, the Group has now commenced business in Dublin and as such is exposed to foreign currency risk on its Euro-denominated property investments. At 28th February 2014, the Group had Euro- denominated investments of £3.2 million. The Directors actively monitor the overall Group exposure to Euro- denominated assets and liabilities and the associated currency risk.

Maximum credit risk exposure

The Directors consider that the maximum credit risk exposure in each class of financial asset is represented by the carrying value as at 28th February 2014.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set in the Chief Executive's Statement and in the Operating Review. The financial position of the Group, its cash flows, liquidity position, borrowing facilities and financial instrument risks are described in the Financial Review, which also covers the Group's objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging activities, and its exposures to credit risk and liquidity risk. Note 11c gives further information about the Group's financial instruments and hedging activities.

The Group has considerable financial resources. The Directors maintain a risk-averse capital structure, with gearing typically in the range of 50-60 per cent and long average debt maturities, with borrowings spread across a number of lenders. The Group continues to enjoy access to bank finance, as demonstrated by loans arranged during the year. Banking covenants are regularly monitored and appropriate cure mechanisms are incorporated in facility documents.

The Directors are alert to potential liquidity risk in the Group's cash flow forecasts. The Directors keep both short- and medium-term cash flows under continual review, and moderate outflows according to the level of this uncertainty. The model preserves a cash liquidity buffer at all times, to protect against delays in asset realisations.

The Group's rental income is also subject to risk of delay or non-payment. This risk is mitigated by proactive asset management, which includes close monitoring of tenant resilience, and a strong focus on actual and potential voids.

As a consequence of the above, the Directors believe that the Group is well-placed to manage its business risks successfully. In addition, by closely monitoring the Group's forecasts and projections, 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 in preparing the financial information.

Result for the year and movement in net asset value

Total comprehensive income for the year ended 28th February 2014 was a profit of £19.5 million (28th February 2013: £2.2 million). After dividend payments of £5.9 million, net asset value increased by £13.6 million to £320.3 million (28th February 2013: £306.7 million), representing an increase of eleven pence per share to 262 pence per share (28th February 2013: 251 pence per share).

The movement in net asset value may be analysed as follows, excluding revaluation movements, profit before interest and taxation for the year ended 28th February 2014 was £25.7 million (year ended 28th February 2013: £23.8 million. Net interest costs (excluding interest rate swap movements) for the year were £11.9 million (year ended 28th February 2013: £9.3 million) aggregating to a realised profit for the year of £13.8 million contrasting with the realised profit for the year to 28th February 2013 of £14.5 million.

Investment property valuation gains for the year, including our share of joint ventures, totalled £4.8 million (year ended 28th February 2013: £12.8 million write down). This has been a reflection of the gradual improvement in secondary yields as detailed below and discussed in more detail in the Operating Review.

Net rental income

Gross rental income from the investment portfolio for the year ended 28th February 2014 was £15.0 million. After direct costs of £2.6 million, the net rental income for the year was £12.4 million, which is a 2.5 per cent increase when compared to the £12.1 million for the previous year on a like for like basis.

The Group also earned net rental income of £2.8 million from the development and trading portfolio, an increase from the £1.7 million earned in the year ended 28th February 2013.

Development and trading profits

During the year under review, across its direct and joint venture holdings, the Group made development and trading profits of £27.0 million (28th February 2013: £28.1 million) including the £2.9 million performance fee from the successful realisation of the Phone 4u Arena, which is shown within our investment segment.

Development and trading profits can be analysed as follows:

Further details of development and trading activities can be found in the Operating Review.

Operating costs

Operating costs of £14.0 million for the year were seven per cent ahead of the equivalent figure of £13.0 million for the previous year.

Net finance costs

Finance costs for the year were £13.5 million, slightly higher compared to the £12.2 million for the previous year. This reflects a lower amount of interest being capitalised during the last year on development and trading properties.

Investment portfolio

During the course of the year, the investment property portfolio has decreased to £202.1 million from £220.1 million at 28th February 2013, mainly due to asset disposals.

At 28th February 2014, the valuation of the investment property portfolio increased by £4.8 million (28th February 2013: write down of £12.8 million), including our investment properties held under joint venture.

Further details of acquisitions, disposals and valuation movements are set out in note 6 to the financial information, and further analyses of the performance and management of the portfolio are given in the Operating Review.

Inventory - development and trading properties

After allowing for continued investment in and development of the portfolio of £69.3 million, the portfolio stood at £192.5 million at 28th February 2014 (28th February 2013: £153.4 million). Further details are contained within the Operating Review.

Associates and joint ventures

Reflecting our strategy of working with partners and other equity sources, investments in associates and joint ventures has continued during the year. The Group's interests in projects in partnerships are structured in a number of different accounting categorisations. Note 14 to the financial information summarises the position.

The current carrying values of associates and joint ventures are analysed in note 14. Notable additions to our joint venture portfolio are the acquisition of a 50 per cent share in the Shepherd's Bush Market regeneration project and Harwell Oxford.

Derivative financial instruments

The Group's Euro-denominated loan notes and the related cross-currency hedge are carried as separate instruments in the Balance Sheet. During the year, Sterling strengthened against the Euro, decreasing the Sterling liability of the loan by £1.7 million to £38.7 million.

Other financial assets

Other financial assets include loans to a number of joint operations and associate companies which reflects the way in which the Group invests in these activities.

The largest loan is to Northpoint Developments Limited (formerly CTP Securities Limited) which, together with accrued interest at 28th February 2014, totals £17.0 million (28th February 2013: £15.9 million). A further £1.1 million was funded in respect of Morden Wharf, Greenwich, our joint operation with Cathedral Group.

Cash and borrowings

The gross debt figure includes the €47 million 2027 Unsecured Subordinated Loan Note facility, stated in Sterling at the current value of £38.7 million (28th February 2013: £40.5 million) and ignoring the hedging instrument. If these long-term loan notes are removed from borrowings, gearing falls to 39.2 per cent. This is calculated by deducting from net debt the current retranslated value of £38.7 million (28th February 2013: £40.5 million) and adding back relevant restricted cash balances of £9.7 million (28th February 2013: £10.0 million) and transaction costs of £0.9 million (28th February 2013: £0.9 million).

Loan to value gearing

Net debt expressed as a proportion of total property assets (including shares of properties and net debt in all projects in partnerships) was 44.7 per cent (28th February 2013: 38.0 per cent).

Taxation

The net current tax charge in the Statement of Comprehensive Income was £1.1 million, principally in respect of tax on trading profits in excess of group relief. The Group has significant potential deferred tax asset balances and the Directors previously restricted recognition to the amount of corresponding deferred tax liabilities, as uncertain market conditions did not offer sufficient probability of profits in the foreseeable future. This year however, the Group has recognised an additional deferred tax charge of £0.2 million on certain profits projected in future accounting periods which can be forecast with a high enough degree of certainty. The Group's deferred tax treatment falls within the criteria of IAS 12.

In conjunction with our overall business strategy, the Group pursues a tax strategy that is principled, transparent and sustainable in the long-term. The Group has established ethics regarding its tax policy which have been ratified by the Board; these include the following key points:

A commitment to ensure full compliance with all statutory obligations including full disclosure to all relevant tax authorities

Any tax planning strategy entered into is done after full consideration of the risks and those findings are recorded in any relevant structuring document

The maintenance of good relationships with tax authorities and the interaction between tax planning and the Group's wider corporate reputation

Management of tax affairs in a manner that seeks to maximise shareholder value whilst operating within the parameters of existing tax legislation.

The Group has certain operations in jurisdictions that have been dictated to us by our majority joint venture partners and under most circumstances the Group does not enjoy any fiscal advantage of being in these jurisdictions. The Group has also recently undertaken a Transfer Pricing review to ensure that all cross border services provided are conducted at the appropriate arm's length market rate.

The suitability of our tax strategy is kept under constant review to ensure compliance with the fiscal needs of the Group and constant evolution of tax legislation.

Dividends

The Board will recommend to shareholders at the Annual General Meeting on 16th July 2014 a final dividend of 3.2 pence per share (28th February 2013: 2.4 pence per share) to be paid on 22nd August 2014 to shareholders on the register on 25th July 2014. This final dividend, amounting to £3.9million, has not been included as a liability at 28th February 2014, in accordance with IFRS. The total dividend for the year will be 5.6 pence per share (28th February 2013: 4.8 pence per share).

Earnings per share

Basic and diluted earnings per share for the year represented earnings of 14.9 pence (28th February 2013: 2.0 pence). After removing the unrealised revaluation of the investment portfolio, the gain on the disposal of trading properties and impairment of development and trading properties, the EPRA adjusted earnings per share was 7.8 pence (28th February 2013: 10.5 pence).

Performance measures

Key performance indicators are set out below:

Five year summary

Consolidated Statement of Comprehensive Income

For the year ended 28th February 2014

*Adjusted earnings per share from continuing activities is given in note 5.

All amounts in the Consolidated Statement of Comprehensive Income relate to continuing operations.

Consolidated Balance Sheet

As at 28th February 2014

Approved and authorised for issue by the Board of Directors on 30th April 2014 and signed on its behalf by

M H Marx

Director

Consolidated Statement of Changes in Equity

For the year ended 28th February 2014

Consolidated Cash Flow Statement

For the year ended 28th February 2014

Notes to the Consolidated Financial Information

For the year ended 28th February 2014

The financial information included in the preliminary announcement does not constitute statutory financial statements of the Group for the year ended 28th February 2014 and 28th February 2013 but is derived from those financial statements. Statutory financial statements for 2013 have been delivered to the registrar of companies and those for 2014 will be delivered in due course. The auditors have reported on those financial statements; their reports were (i) unmodified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without modifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

a)

The Consolidated financial information of the Group for the year ended 28th February 2014 comprise the results of the Company and its subsidiaries and were authorised by the Board for issue on 30th April 2014.

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 Group adopts the going concern basis in preparing its Consolidated financial information as discussed in the Financial Review.

The Group's financial information has been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRIC interpretations as adopted by the European Union as they apply to the financial information of the Group for the year ended 28th February 2014 and applied in accordance with the Companies Act 2006 as applicable to companies reporting under IFRS. The accounting policies which follow set out those policies which were applied consistently in preparing the financial information for the year ended 28th February 2014 and 28th February 2013.

The Consolidated financial information has been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of investment property, operating property, available-for-sale financial assets and derivative instruments at fair value through profit and loss.

The preparation of financial information in conformity with IFRS requires management to make judgements, assumptions and estimates that affect the application of accounting policies and amounts reported in the Statement of Comprehensive Income and the Balance Sheet. Such decisions are made at the time the financial information is prepared and adopted based on the best information available. Actual outcomes may be different from initial estimates and are reflected in the financial information as soon as they become apparent.

Judgements other than estimates

1.1 Classification of directly owned property assets

The Group earns revenue from property development, trading and investment, and from operating serviced offices.

Property development includes the entire development process from identification of an opportunity through to construction, letting and sale of a completed scheme. This activity is undertaken both on the Group's own Balance Sheet and in partnership with institutional investors, usually via a pre-sale of the completed development.

Property trading refers to participation in the development process, where the Group acquires an interest in land and enhances the potential development, for instance by procuring or changing planning permission, before selling on to a third party to complete the development.

Property investment represents the acquisition of income-generating real estate which is held for the purposes of income and capital gain, through active asset management.

In most cases the property interest is held directly by the Group and is classified either as investment property (see note 6) or as inventory for development and trading properties (see note 8).

The varied nature of the Group's properties is such that a number exhibit characteristics consistent with more than one classification; also, the Directors' strategy for an asset may change during its ownership. The Directors determine the status of each asset according to their intention on acquisition. A change in classification is made only in exceptional circumstances, where the strategy has demonstrably changed for a period of over one year. One asset has been reclassified from development to trading assets during the year following the completion of the development works.

1.2 Classification of projects in partnership

In addition to its directly owned and managed activities, the Group participates in similar activities in partnership with others, typically to access expertise in different locations or market sectors. The Group's financial participation may be by way of equity investment or loan. In each case a judgement is required as to the status of the Group's interest, as an associate, a joint venture, joint operation or a financial asset, typically focusing on the extent of control exercised by the Group.

The Group's share of control is governed and achieved by a mixture of rights set out in agreements and participation in the management of each business. The exercise of control in practice does not always follow the legal structure. The Directors have considered the position in respect of each venture, taking account of the operation in practice, and have determined the status of each accordingly.

These investments are reported under the relevant balance sheet headings, with a summary in note 14.

The IASB has issued IFRS 10 'Consolidated Financial Statements' and IFRS 11 'Joint Arrangements', which will amend and clarify the guidance in this area, and is likely to result in some changes to the current classification. The Directors are conducting a detailed review of the new standards and their application to the Group's arrangements. Any changes in accounting policies or classifications will be adopted in accordance with the standard in the year commencing 1st March 2014.

1.3 Acquisition of subsidiaries

The Group sometimes acquires properties through the purchase of entities which own real estate. At the time of acquisition the Group considers whether the transaction represents the acquisition of a business. In cases where the entity is capable of being operated as a business, or an integrated set of activities is acquired in addition to the property, the Group accounts for the acquisition as a business combination. When the acquisition does not represent a business, it is accounted for as the purchase of a group of assets and liabilities. In making this distinction, the Group considers the number of items of land and buildings owned by the entity, the extent of ancillary services provided by the entity, and whether the entity has its own staff to manage the property (over and above the maintenance and security of the premises).

1.4 Accounting for pre-sold development assets

Where development is undertaken on the Group's Balance Sheet under a contract for a pre-sale, a judgement is required as to whether this represents a sale of property or a contract for construction. The development at Lawley has been classified as a construction contract (under IAS 11), whereby revenue is reported in line with construction progress.

Estimates

1.5 Valuation of property assets

The key source of estimation uncertainty rests in the values of property assets, which affects several categories of asset in the Balance Sheet.

The investment property portfolio (and the operating property) are stated at fair value, which requires a number of judgements and estimates in assessing the qualities of the Group's assets relative to market transactions. The approach to this valuation and the amounts affected are set out in note 6. In determining fair value, the capitalisation of net income method and the discounted cash flow method have been used, which are based upon assumptions including future rental income, anticipated maintenance costs and appropriate discount rate, and make reference to market evidence of transaction prices for similar properties.

The same uncertainties affect the determination of fair value of certain available-for-sale financial instruments, with the further complexity that the value of these assets requires estimates of future construction costs, tenant demand and market yields.

The Group's development and trading properties are carried at the lower of cost and net realisable value. The determination of net realisable value relies upon similar estimates, with the added challenge, in some cases, of judgements about uncertain planning outcomes. These amounts are disclosed in note 8.

1.6 Impairment reviews

The Group's Curzon Park Limited joint venture owns a development site in Birmingham known as Curzon Street. The current proposal for the High Speed Train Link between London and Birmingham (HS2) indicates that the planned route of HS2 passes through the site, including provision for part of the prospective station. In view of this, the ultimate value of the site is uncertain. The early indications are that the impact of HS2 may restrict future development on the 10.5-acre site by approximately two thirds of its original potential. The Group has (jointly) guaranteed the liabilities of the joint venture to the bank, and hence should the value of the site (together with any compensation received) be insufficient to repay the amortising bank loan, the Group may incur further charges in respect of its obligations to the joint venture and the bank. The Directors believe that the site will recover at least its carrying value in the books of the joint venture, although the interim and ultimate uses of the site and timing of its development remain unclear.

In view of operating losses at Executive Communication Centres (ECC), the Group's serviced office subsidiary, the Group has conducted an impairment review of its investment in the business. The review required significant judgements and estimates concerning future customer demand and competitor behaviour, as well as discount rates. The review determined that no further impairment arose during the year.

The Group, through its subsidiaries and a joint venture, has participated in the acquisition of loan portfolios which are secured against underlying property investment or development assets. The loan portfolios are initially recognised at fair value and subsequently carried at the lower of amortised cost using the effective interest rate method and are reviewed for impairment at each reporting date. In assessing the effective interest rate applied and the recoverable amount the Group applies significant judgements in considering the realisable value of the underlying assets which secure those loans and timing of the loan repayment. This review determined that no provision for impairment is required.

1.7 Derivative instruments

The Group is party to a number of interest rate swap and foreign currency agreements which are accounted for as derivatives and measured at fair value. The estimation of this figure is based upon market assumptions about future movements in interest and exchange rates.

The segmental information presented consistently follows the information provided to the Chief Operating Decision-Maker (CODM) and reflects the three sectors in which the Group operates. The CODM, which is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board. The three operating divisions are:

Unallocated assets and liabilities comprise amounts that cannot be specifically allocated to operating segments; an analysis is provided below.

These divisions are the basis on which the Group reports its primary segmental information. All operations occur and all assets are located in the United Kingdom, except assets of £3.2 million which are located in the Republic of Ireland. All revenue arises from continuing operations.