O TWELVE ESTATES LIMITED

('O Twelve' / the 'Company')    

RESULTS FOR THE YEAR ENDED 31 MARCH 2009

O Twelve Estates Limited today announces results for the year ended 31 March 2009. The Company's objective is to generate an attractive return for Shareholders through the assembly of a portfolio of investment properties in its Target Area, which comprises the Thames Gateway and the adjacent areas of east London, Essex, south Hertfordshire and north Kent.

Key points

• Property valuation of £173.6 million (2008: £249.8 million), in line with the average decline in UK commercial properties generally

• Rental values decreased 1.4% on like-for-like basis, compared to -4.8% for IPD's All Property Monthly Index

• Consolidated net liabilities of £7.4 million, 6.03 pence per share (2008: assets of £84.9 million, 69.32p)

• Revised borrowing arrangements agreed in principle

• 32 units vacant and available for letting, providing potential additional income of £2.2 million per annum

  • £1.1 million of vacant space by value is under offer, representing just over half the entire void space

• 56% of income is derived from leases with more than 5 years to expiry

• Weighted average unexpired lease term 6.7 years

Commenting on the results, Phillip Rhodes, Chairman of O Twelve, said:

'Whilst it is widely believed that the financial downturn has started to slow and the UK economy may start to recover before the end of 2009 I am not optimistic that the Group's property values will show any significant improvement during the course of the next financial year. However, with the assistance of the Property Advisers, your Board will continue its focus on cash and portfolio management to ensure the long-term survival of the Group and ultimately increase shareholder value.'

David Tye of Rugby Asset Management added:

'With interest rates at their current low levels, which are anticipated to stay low for some time, and other traditional investment areas yielding low or uncertain returns, property as an investment asset class is beginning to look an interesting play on a medium-term view. At some point in late 2009 or early 2010 we expect to see values stabilise and some market activity taking place as more lenders re-enter the market with relatively high yields and low interest rates creating wider margins for both banks and investors.'

For further information please contact:

David Tye / Andrew Wilson

Rugby Asset Management Limited

Tel: +44 (0)20 7016 0050

Jeremy Porter / Laura Littley

Fairfax I.S. PLC

Tel: +44 (0)20 7598 5368

Stephanie Highett / Rachel Drysdale

Financial Dynamics

Tel: +44 (0)20 7831 3113

CHAIRMAN'S STATEMENT

I am pleased to present the results of O Twelve Estates Limited (the 'Company') together with its subsidiaries (the 'Group') for the year ended 31 March 2009.

The continuing global financial crisis has had a significant impact on property values. According to IPD, capital values were down some 30% for the year ended 31 March 2009, 41% between June 2007 and March 2009, and further declines have been reported for April and May. This is a quite unprecedented correction in both speed and quantum. This has been driven by yield expansion and lack of finance required to create a market. The consequence has been significant write-downs in valuations during the financial year for many companies in the sector and your company was no exception. At 31 March 2009 the Group's property investment portfolio was valued by CB Richard Ellis ('CBRE') at £173.6 million (31 March 2008: £249.8 million). After taking into account capital expenditure, the fall of 30.9% in the year was in line with UK commercial properties generally. The rental values of the portfolio have, nevertheless, proved resilient decreasing by 1.4% on a like for like basis which compares favourably with IPD's All Property Monthly Index which decreased by 4.8% over the same period.

Results

The Group reported a net loss for the year ended 31 March 2009 of £92.3 million (31 March 2008: loss of £34.1 million), representing a loss per Ordinary Share of 75.34p (31 March 2008: loss of 27.83p). The major contributors to this result were the unrealised loss of £77.7 million on revaluation of investment properties and an adverse movement in the fair value of fixed interest rate borrowings of £14.0 million. Neither represents any outflow of cash. The consolidated net liability at 31 March 2009 was £7.4 million (31 March 2008: net assets of £84.9 million), being a net liability per Ordinary Share of 6.03p (31 March 2008: net asset value per Ordinary Share of 69.32p).  

The key focus of your Board and its advisers has been to deal with these unprecedented conditions. Foreseeing the impact these would have on debt covenants we have been renegotiating the Group's borrowing terms with its lenders and these negotiations are now nearing conclusion. We have also renegotiated a substantial reduction of 40% in the fees payable to the Group's Property Adviser. This is effective from 1 April 2009 and will be applied next year on the lower property values. As part of this cost reduction programme we also continue to work to reduce our administrative cost base. Our Property Adviser has also continued to aggressively manage the portfolio, maintaining rental income and completing £1 million per annum of new leases and rent reviews during the year. Tenant demand is proving resilient and, if space currently under offer completes, the void rate will be more than halved to 6.1% (2008: 14%). Despite the gloom it is heartening to see that, where we can influence and control matters, your Company's efforts are bearing fruit.

Financing

The Group's borrowings comprise a £170 million loan facility with Nationwide Building Society ('Nationwide'). Nationwide has syndicated part of the loan to two other financial institutions (collectively, the 'Lenders').  The loan carries interest at a margin of 0.65% per annum over LIBOR. Of the total amount drawn, £138 million (81%) is fixed until December 2014 at an average rate, including margin, of 6.1%. The balance bears interest at a floating rate. Taking three month LIBOR as at 3 July 2009 of 1.14%, the blended average rate payable on borrowings as at that date was 5.29% per annum. The covenants under the loan facility include a loan to value ('LTV') ratio of 75% and an income cover ratio ('ICR') of 120%. At 31 March 2009 the LTV ratio on properties charged as security was 98% and the ICR was 126%.  The fall in property values reported above led to the Group breaching its LTV covenant at the year end.  

This breach became increasingly predictable as property values continued to decline throughout the year and your Board, through its advisers, has been negotiating a restructuring of the loan facility with the Lenders for several months. I am pleased to report that heads of terms have now been agreed with the Lenders in principle and we expect to be able to make a further announcement on this shortly. Given the significance of this matter we have provided a full disclosure of these revised terms and their implications for the Group at the end of this statement. 

As a consequence of the breach, in accordance with International Financial Reporting Standards ('IFRS') the borrowings have been designated as a current liability. However, assuming the financial restructuring is completed as expected, this will only be a temporary measure to maintain compliance with IFRS, and the borrowings will be re-designated as a non-current liability in the next financial statements.

Going Concern

Provided the financial restructuring is substantially completed on the proposed terms as set out below, and on the basis of the Group's current expectations and projected cash flows, your Board believes the Group will be able to satisfy its working capital requirements for at least the next twelve months, and will not be required by its lenders to make early settlement of its outstanding loans. Your Board has therefore concluded that it is appropriate to continue to adopt the going concern basis in preparing the financial statements.

Property Adviser Agreement

In line with the Board's aim of reducing costs and in light of the current economic environment, a number of changes have been made to the terms of the Property Adviser Agreement ('PAA') with Rugby Asset Management Limited, which took effect from 1 April 2009.  A combination of these revised terms and the lower property valuations on which the fee is calculated, is expected to reduce management fees by some £1.4 million, from £2.4 million to £1.0 million, in the year to 31 March 2010 compared to this reporting year.

Dividend

Given the ongoing economic uncertainty and in view of the Group's financial position, the Board is not recommending the payment of a dividend (31 March 2008: £1.23 million paid during year). 

Outlook

Whilst it is widely believed that the financial downturn has started to slow and the UK economy may start to recover before the end of 2009 I am not optimistic that the Group's property values will show any significant improvement during the course of the next financial year. However, with the assistance of the Property Advisers, your Board will continue its focus on cash and portfolio management to ensure the long-term survival of the Group and ultimately increase shareholder value. The successful conclusion of the renegotiations with our Lenders will be a significant step in that direction.

P B Rhodes

Chairman

14 July 2009

Financial Restructuring

As described in the Chairman's Statement and the Property Adviser's Report, the continuing adverse financial and economic conditions have led to an unprecedented reduction in property values throughout the UK. During the year, the Group's property portfolio fell in value by 30.9% to £173.6 million. Due to this and to the adverse movement in the market value of the Group's fixed rate borrowings, as at 31 March 2009 the Group had net liabilities of £7.4 million.

At the year end, the Group's borrowings were £170 million. These are under a facility with Nationwide Building Society, which has syndicated part of the loan to two other financial institutions (collectively, the 'Lenders'). In the interim results announcement on 12 December 2008 it was reported that the Group at that time was not in default under its loan facilities but was, and continues to be, in a 'cash lock up' situation. Accordingly, the Group does not have access to surplus operating cashflow and must rely on its cash reserves to pay overheads and other expenses. At 31 March 2009, the Group's property portfolio was valued at £173.6 million and the Group is therefore now in default of its loan to value ratio ('LTV') covenant of 75%. Given the current market conditions, the Board does not consider that selling properties to generate cash to reduce the outstanding loan is currently a viable option. Accordingly, acting on behalf of the Board, Rugby Asset Management Limited ('RAM') has been in discussion with the Lenders and heads of terms have now been agreed in principle on which the loan can be restructured. Whilst no binding commitments to vary the existing loan arrangements have yet been entered into, these terms have been approved in principle by the Board and by the Lenders and documentation is now in solicitors' hands. A further announcement will be made in due course. The key terms agreed in principle (the 'Financial Restructuring') are as follows:

• The term of the facility until December 2014 is unchanged;

• The facility will reduce to £140 million on 31 March 2011;

• The interest margin over Libor will increase from 0.65% per annum to 1.25% per annum;

• An arrangement fee of £850,000 will be payable on signing;

• A back-end fee of 3.5% of amounts repaid will be payable at the time of each loan repayment; 

• LTV will not be tested until the Lenders receive the portfolio valuation as at 31 March 2011, at which time LTV must not exceed 85%, reducing to 80% from 31 March 2012 and 75% from 31 March 2013;

• The minimum interest cover ratio will be 115%, provided that if rent free periods were treated as rent passing the ratio would be at least 120%, until 31 March 2011, increasing to 120% thereafter;

• Cash lock up will continue until LTV is 70% or less. However, after deducting finance costs, direct property outgoings and RAM's fees, the Lenders will allow the Group to receive up to £400,000 per quarter to cover overheads, tax and other property expenses.

Due to the above breach, in accordance with IAS 1: Presentation of Financial Statements, the borrowings have been designated as a current liability. However, should the Financial Restructuring be completed as expected the Lenders will not demand early settlement of the liability, except for the reduction of the facility to £140 million on 31 March 2011. Therefore, the borrowings will be re-designated as a non-current liability in the next financial statements.

The Board announced on 17 February 2009 that it had reviewed RAM's appointment as Property Adviser and had agreed with RAM that, inter alia, RAM's fee would be reduced from 1.0% per annum to 0.6% per annum of gross property asset value with effect from 1 April 2009. In order to facilitate the Financial Restructuring, RAM has agreed in principle that, following completion of the Financial Restructuring, it will defer payment of its management fee in excess of £200,000 per quarter (plus VAT and disbursements) until the loan facility has been repaid in full, or otherwise with the agreement of the Lenders.

Since the year end, £1.5 million of cash received by the Lenders under the cash lock up has been applied in reducing the outstanding loan principal to £168.5 million. Approximately £1.0 million of further cash arising under the cash lock up is expected to be applied in partial repayment of the loan on or before completion of the Financial Restructuring. The Board expects the Financial Restructuring to be completed by the end of August 2009.

Taking into account the existing fixed rate debt of £138 million, and assuming three month Libor at 1.26% per annum, the blended cost of debt after completion of the Financial Restructuring, including amortisation of the arrangement fee and the back end fee, would be approximately 6.8% per annum.

At 31 March 2009, cash balances available to the Group were £4.9 million. Allowing for settling current liabilities, property outgoings and improvement expenditure, overheads and restructuring costs, it is expected that on completion of the Financial Restructuring available cash will be approximately £1.5 million. This, together with the maximum £400,000 per quarter from the net rental income will be a relatively small financial cushion on which to run a group and portfolio of the size and complexity of O Twelve in these difficult times. In particular, the Group's scope for refurbishments and cash incentives to make vacant properties more attractive to potential tenants is relatively limited. On the basis of the Group's current expectations, and provided the Financial Restructuring is completed substantially on the terms outlined above, the Board has determined that the Group will have sufficient working capital for at least the next 12 months and has therefore concluded that it is appropriate to continue to adopt the going concern basis in preparing the financial statements.

Future prospects

While the portfolio has so far proved to be relatively resilient, major tenant defaults or other adverse circumstances could destabilise either the loan facilities or the ability of the Board to continue to run the Group effectively. Since 31 March 2009, property capital values generally have continued to fall, although at a slower pace than in the months leading up to that date, and it is not possible to forecast with any degree of accuracy where the bottom of the market will be, nor the time scale and extent of any recovery. To achieve 85% LTV by 31 March 2011 will require either fresh equity, which the Board has under constant review, a significant recovery in property capital values or a combination of both. Subject to completing the Financial Restructuring and these factors, the directors remain cautiously optimistic that the long-term objective of the Group will be achieved.

PROPERTY ADVISER'S REPORT

Rugby Assset Management

Rugby Asset Management Limited ('RAM'), a member of the Rugby Estates Plc group, was appointed Property Adviser to O Twelve Estates Limited on its admission to AIM on 27 March 2006. Our role is to identify transactions for recommendation to and consideration by the Board of the Company and to negotiate on its behalf. We undertake, on a day to day basis, under delegated authority from the Board, all aspects of assembling, managing and financing the Group's property portfolio. Rugby Estates Plc group holds a 5.5% interest in O Twelve Estates Limited.

Market Comment

From the peak of the market in June 2007 to March 2009, a period of just 21 months, the IPD All Property monthly Index has recorded a fall of 41%, the majority of which was in the year under review. The speed of this correction is unprecedented. In the last property downturn of any significance, October 1989 to June 1993, the fall in values was 27% over a period of 44 months. The property market is experiencing a once in a lifetime correction, deeper and more far reaching than any other property downturn. Valuation decline has to date been driven by yield expansion and although yields now show signs of stabilising, there remain concerns that capital values may decline further as a result of weakening occupational demand. To date, we have not experienced significant levels of tenant default and, whilst rental values are starting to come under pressure, we are agreeing lease renewals and new lettings of vacant space, albeit with higher levels of tenant incentives.  The Group currently has over £1 million of space by rental value under offer, just over half of the entire void space in the portfolio.

With interest rates at their current low levels, which are anticipated to stay low for some time, and other traditional investment areas yielding low or uncertain returns, property as an investment asset class is beginning to look an interesting play on a medium-term view. At some point in late 2009 or early 2010 we expect to see values stabilise and some market activity taking place as more lenders re-enter the market with relatively high yields and low interest rates creating wider margins for both banks and investors. 

Notwithstanding current uncertainties in the real estate market and in the wider economy, we believe that occupational demand in O Twelve's Target Area over the next few years will continue to be sustained by the regeneration initiatives and investment, both public and private, planned and under way, particularly for the area around Stratford in East London and for the Thames Gateway generally. The Olympic Games in 2012 is a major catalyst for these improvements.  Since its inception O Twelve has always emphasised the long-term prospects of the Target Area. This has not changed fundamentally and it was realistic to expect that at some point a cyclical downturn would be experienced. Although the current downturn is far more severe than anyone had anticipated we remain of the belief that over the long-term the regeneration initiatives and investment will have a favourable effect on rental and capital values in the Target Area.

Portfolio Review as at 31 March 2009

• Valuation £173.6 million

• 22 properties 

• Average lot size is £7.9 million 

• Contracted annual rental income is £14.0 million

• The estimated rental value ('ERV') is £17.5 million per annum, thus additional potential rental income from reversions and letting vacant units is £3.5 million per annum

• 205 separately lettable units* 

• 173 units are let to 147 tenants*

• 32 units are vacant and available for letting with an ERV of £2.2 million per annum

  • £1.1 million of vacant space by value is under offer, representing just over half the entire void space

• 56% of income is derived from leases with more than 5 years to expiry 

• Weighted average unexpired lease term 6.7 years

* Excluding long leasehold ground rents and assured shorthold tenancies

Valuation

The external valuation of the Group's properties as at 31 March 2009 was £173.6 million. On a like for like basis after taking into account capital expenditure the value of the portfolio fell by 30.9% during the period.  This is in line with the IPD All Property Capital Value Index, which showed a fall of 30.3% over the same period. The rate of decline in value was greater in the second half of the year with a valuation decrease of 25.6% as the effects of the 'credit crunch' and the wider economic downturn took effect. 

Yield expansion has been the key driver of valuation decline. The equivalent yield for the portfolio has increased by 260 basis points over the period from 6.4% to 9.0%, almost exactly in line with the IPD All Property Equivalent Yield Index. Yield expansion in the second half of the period was just over three times that experienced in the first half of the year as the impact of the banking crisis became more apparent and the economy entered into recession.

Rental value levels within the portfolio have proved resilient. During the period the rental value of the portfolio decreased by 1.4% on a like for like basis. Over the same period the IPD All Property Monthly Index showed a decrease of 4.8%. The best performing sector within the portfolio was retail where rental value movement remained positive with growth at 2.4%, which compares favourably with the IPD index where retail rental values actually fell by 2.6%.

Sector Analysis

Sector split by capital value

Industrial

40%

Retail

36%

Offices

20%

Residential

4%

Capital Value Movement compared to IPD Monthly Index

O Twelve

IPD

All Property

-30.9%

-30.3%

Retail

-35.0%

-31.6%

Office

-25.2%

-30.6%

Industrial

-31.0%

-26.9%

Rental Value Movement compared to IPD Monthly Index

O Twelve

IPD

All Property

-1.4%

-4.8%

Retail

2.4%

-2.6%

Office

-4.5%

-9.9%

Industrial

-3.5%

-2.0%

Activity

There have been no acquisitions or sales during the year. Our focus has been on asset management and maintaining and improving cashflow in what has been a very challenging time for investors and occupiers alike. During the year a total of fourteen new leases or reviews were completed, accounting for a total rent of just over £1.0 million.  Despite the difficult occupational market good progress continues to be made with lettings.

• At the Interchange, Swanley, Unit 8 has been let during the year and a further three units at the scheme totalling 73,000 sq ft are currently under offer with completion imminent.  

• At Barratt Industrial Estate, Bow, we exercised our landlord break option on all but one of the units in September and following a refurbishment of the estate new leases have now completed on three of the nine units.  

• During the year we also completed a new lease on a unit of 31,000 sq ft at Larkfield Mill, Aylesford following refurbishment.

• In The Mall, Dagenham, we completed the surrender of Unit 8 simultaneously with a new lease to Brighthouse on a new larger unit created by combining Units 8 and 9.  
  

• During the year, seven rent reviews were completed. Rents achieved were just 0.4% below March 2008 rental values. 

Rental Value Analysis - 31 March 2009

£m

Current annualised income

13.8

Rent free periods

0.2

Available for letting

2.2

Reversions

1.3

Rental value

17.5

Reversion by Sector

ERV £m

Rent £m

Retail

6.5

5.7

Office

3.4

2.8

Industrial

7.2

5.1

Residential

0.4

0.4

Void Analysis

At 31 March 2009 the void rate in the portfolio stood at 12.5% by rental value.  The rental value of vacant space is £2.2 million, of which approximately £1.1 million of this is under offer.  Assuming these potential lettings complete the void rate will fall to 6.1%. During the coming year our focus will be on reducing the void rate further and minimising associated void costs.

Income Security

Given the current uncertainty in the economy and in the wider banking and financial markets, investors are increasingly focusing on security of income and tenant covenant strength.  Some 56% of current rental income is contracted for more than five years. Where leases have less than five years to run, opportunities exist to refurbish or consider changes of use in order to maximise value. In our view the portfolio offers a good balance between income security and opportunities to add value.

Income Expiry Profile - 31 March 2009

<5 years

44%

5-10 years

32%

>10 years

24%

Out of the portfolio's 147 tenants, 20 account for 46% of the contracted rental income with the top 10 accounting for 33%. Tenants of, in our view, undoubted or of a 'national' standard account for 76% of the contracted rent, while smaller regional and local businesses account for 24% of the contracted rent. 

Tenant Covenant Strength by Contracted Rent

Grade A (undoubted)

35%

Grade B (national)

41%

Grade C (regional)

10%

Grade D (local)

14%

Rent Collection

Despite the difficult trading conditions we have only seen a very marginal slowdown in the rate of collection. At the start of the year 98% of rental income was successfully collected during the quarter. By the end of the year this figure has fallen slightly to 96%, which we believe is a strong result given the difficult trading conditions. Maintaining a high level of rent collection remains one of our key objectives.

Percentage rent collected during each quarter

March 2008

98%

June 2008

97%

September 2008

97%

December 2008

96%

Tenants in the portfolio include:

Bank of New York Mellon

Halfords

Sainsbury

Supermarkets Ltd

Target Express Parcels Ltd

Chelmsford Star Co - Operative Society Ltd

Hitachi Kokusai Electric UK Ltd

Secretary of State

Telford Homes plc

Chubb Electronic Security Ltd

London Eastern Railways Ltd

Smyths Toys Ltd

Toyota Tsusho Automobile London Holdings Ltd

Coutts Retail Communications Ltd

Moss Bros Group Plc

Somerfield Stores Ltd

WH Smith Plc

GE Transportation 

Systems Ltd

O2 (UK) Ltd

Staples

Wilkinson Hardware Stores Ltd

Portfolio at 31 March 2009

Property

Type

Valuation band at

31 March 2009

£ million

Gascoigne Road, Barking

Distribution warehousing

5 - 10

QED, Thurrock

Distribution warehousing

5 - 10

Western Avenue, Thurrock

Distribution warehousing

5 - 10

Bakers Court, Basildon

Industrial

0 - 5

Barratt Industrial Estate, Bow

Industrial

0 - 5

Larkfield Mill, Aylesford

Industrial

10 - 15

Mill River Trading Estate, Enfield

Industrial

5 - 10

The Interchange, Swanley

Industrial

15 - 20

Baytree Shopping Centre, Brentwood

Shopping centre

20 - 25

George Yard, Braintree

Shopping centre

20 - 25

The Mall, Dagenham

Shopping centre

15 - 20

214/216 Heathway, Dagenham

Retail

0 - 5

38-42 High Street, Brentwood

Retail

0 - 5

75 High Street, Brentwood

Retail

0 - 5

Grove Farm, Chadwell Heath

Retail park

5 - 10

Inspira House, Welwyn Garden City

Office

0 - 5

Mellon House, Brentwood

Office

5 - 10

Queensgate, Waltham Cross

Office

5 - 10

Redwing Court, Romford

Office

0 - 5

Solar House, Stratford

Office

10 - 15

34 St Thomas Road, Brentwood

Residential

0 - 5

Salway Place, Stratford

Residential

5 - 10

Going Forward

The Group is now well established as a major investor within its Target Area, holding a diversified, well located real estate portfolio.

The forthcoming year will be difficult and our principal focus in the short-term will continue to be active management of the portfolio to minimise voids and associated property outgoings. Although there will be further downward pressure on rental values in the short-term we do anticipate capital values to start to recover around the end of 2009 slightly in advance of any recovery in the occupational markets.

Our role as Property Adviser includes the financing of the portfolio. We have spent many months, on the instructions of the Board, conducting the detailed negotiations with the Lenders. Heads of terms have now been agreed in principle and we look forward to completing the new arrangements in the near future.

We continue to believe that the Group's Target Area will benefit from the infrastructure and urban regeneration now in progress in East London and the Thames Gateway and that the benefit will increase as the Olympic Games draw closer.  Once the immediate economic turmoil is behind us, and the Financial Restructuring has been completed, we believe the portfolio has strong potential for rental growth and capital value enhancement over the next few years.

David Tye

Andrew Wilson

Rugby Asset Management Limited

14 July 2009

INVESTMENT OBJECTIVE

The objective of O Twelve Estates Limited (the 'Company') and its subsidiaries (the 'Group') is to generate an attractive return for Shareholders through the assembly of a portfolio of investment properties in its Target Area which comprises the Thames Gateway and the adjacent areas of east London, Essex, south Hertfordshire and north Kent. The Board believes capital and rental values will react favourably to the major regeneration initiatives and infrastructure improvements taking place in these areas. The Olympic and Paralympic Games to be held in and around Stratford, east London, in 2012 are a major catalyst for these improvements which the Board believes will result in a significant structural, economic and cultural repositioning of the Target Area.

INVESTMENT POLICY

The investment policy of the Group is to establish a property portfolio that is diverse by sector (whether industrial, retail, office, leisure or residential), by tenant and by size. The Group's key criterion for property acquisitions is the potential for rental and capital value growth through active property management and/or through a re-characterisation of the acquired real estate. Re-characterisation may arise purely as a result of the so called 'Olympic effect' on the location, or it may need to be actively encouraged. Bringing about such re-characterisation may range from a simple image improvement programme for a previously neglected industrial estate to attract better quality tenants, to a full redevelopment scheme following the grant of planning consent for a change of use (for example from commercial to a residential or mixed-use project). 

Whilst the majority of properties acquired are income-producing, the creation of value through development or refurbishment is actively pursued. Development may be undertaken selectively across the sectors either by the acquisition of sites, with or without the benefit of planning consent, or through the management of income-producing properties into development opportunities. In certain locations a site assembly programme may be pursued with a view to obtaining planning consent for a comprehensive re-development. Joint ventures may also be entered into in circumstances where the continuing involvement of existing landowners, local authorities or central government agencies is necessary, or for large projects where a sharing of financial risk is appropriate. The Group may also pursue other indirect investments through property investment partnerships or unit trusts or investments in the equities of other property investment or property holding companies.

The structure used for each acquisition of property is reviewed in the context of each particular acquisition, and the Company makes such acquisitions by means of any structure considered to be appropriate in the circumstances of the proposed acquisition. Accordingly, the Company may, without limit, incorporate further subsidiaries to hold property or may acquire the share capital of companies, units in unit trusts, or partnership interests in partnerships which own one or more properties.

Investment Restrictions

No property acquisition or new letting will be made if, immediately after the proposed acquisition or letting:

• less than 75 per cent. of Gross Property Asset Value will be situated within the Target Area; or

• any single tenant, other than any government or governmental (central or local), quasi-governmental, supranational statutory or regulatory body will account for more than 20 per cent. of contracted rental income.

Provided that these restrictions will not apply if Gross Property Asset Value is less than £100 million.

Life span of the Company

There are no specific provisions for the life span of the Company although the Directors estimate it to be up to 12 years.

In accordance with the Articles of Incorporation, a resolution will be proposed at the annual general meeting of the Company to be held in 2014 and at each annual general meeting held every two years thereafter giving Shareholders the opportunity to vote on whether the Company should continue as an investment company or to call for a winding up of the Company and a return of its distributable assets to Shareholders.

Dividend Policy

The initial focus of the Company is the delivery of capital growth for Shareholders and therefore the Company only considers the payment of dividends as and when it is appropriate to do so. To the extent that any dividends are paid they will be paid in accordance with any applicable laws and the regulations to which the Company is subject.

Borrowings

Borrowings will not normally exceed 65 per cent. of the value of the Group's property portfolio at the time new borrowings are drawn down. Interest rate hedging is considered in the light of prevailing conditions at that time.

CONSOLIDATED INCOME STATEMENT

for the year ended 31 March 2009

Year ended

31 March 2009

Year ended

31 March 2008

£'000

£'000

Income

Rent receivable

14,289

15,363

Bank interest

324

379

Service charges receivable

3,609

2,435

---------------

---------------

Total income

18,222

18,177

---------------

---------------

Expenses

Administration fees

(234)

(279)

Service charges payable

(3,609)

(2,435)

Management fees

(2,441)

(2,446)

Other operating expenses

(2,021)

(1,982)

---------------

---------------

Total expenses

(8,305)

(7,142)

---------------

---------------

Movement in unrealised loss on revaluation of investment properties

(77,653)

(31,432)

Realised gain from sale of investment properties

-

599

---------------

---------------

(77,653)

(30,833)

---------------

---------------

Net loss from operating activities

(67,736)

(19,798)

Movement in fair value of interest rate swap

(13,989)

(4,152)

Interest payable and similar charges

(10,397)

(9,973)

-----------

-----------

Finance expenses

(24,386)

(14,125)

-----------

-----------

Loss before taxation 

(92,122)

(33,923)

Taxation

(175)

(166)

-----------

-----------

Loss for the year attributable to Equity Holders

(92,297)

(34,089)

-----------

-----------

Loss per share - basic 

(75.34)p

(27.83)p

Loss per share - diluted

(75.34)p

(27.83)p

All items in the above statement are derived from continuing operations.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 March 2009

Share capital

Other reserves

Total

£'000

£'000

£'000

Balance at 1 April 2008

1,225

83,690

84,915

Loss for the year

-

(92,297)

(92,297)

Dividends paid

-

-

-

----------

----------

----------

Balance at 31 March 2009

1,225

(8,607)

(7,382)

----------

----------

----------

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 March 2008

Share capital

Share premium

Other reserves

Total

£'000

£'000

£'000

£'000

Balance at 1 April 2007

1,225

115,925

3,079

120,229

Reclassification of share premium

-

(115,925)

115,925

-

Loss for the year

-

-

(34,089)

(34,089)

Dividends paid

-

-

(1,225)

(1,225)

----------

----------

----------

----------

Balance at 31 March 2008

1,225

-

83,690

84,915

----------

----------

----------

----------

CONSOLIDATED BALANCE SHEET

as at 31 March 2009

31 March 2009

31 March 2008

£'000

£'000

Non-current assets

Investment property

173,634

249,765

Restricted cash and cash equivalents

3,059

-

---------------

---------------

176,693

249,765

---------------

---------------

Current assets

Receivables and prepayments

5,381

12,027

Cash and cash equivalents

4,928

4,826

---------------

---------------

10,309

16,853

---------------

---------------

Total assets

187,002

266,618

---------------

---------------

Current liabilities

Payables and accruals

(6,454)

(7,817)

Bank loan

(169,684)

-

Fair value of interest rate swap

(18,246)

-

---------------

---------------

(194,384)

(7,817)

---------------

---------------

Non-current liabilities

Bank loan

-

(169,629)

Fair value of interest rate swap

-

(4,257)

---------------

---------------

-

(173,886)

---------------

---------------

Total liabilities

(194,384)

(181,703)

---------------

---------------

Net (liabilities)/assets

(7,382)

84,915

---------------

---------------

Capital and reserves

Called-up share capital

1,225

1,225

Other reserves

(8,607)

83,690

---------------

---------------

Total Equity Holders' funds

(7,382)

84,915

---------------

---------------

Net (Liability)/Asset Value per Ordinary Share - basic

(6.03)p

69.32p

Net (Liability)/Asset Value per Ordinary Share -diluted

(6.03)p

69.32p

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 March 2009

Year ended

 31 March 2009

Year ended

 31 March 2008

£'000

£'000

Operating activities

Rent and related income received

13,701

14,961

Purchase of/additions to investment property

(1,448)

(94,630)

Sale of investment property

5,225

275

Bank interest received

326

568

Service charges received

3,609

2,435

Management fee paid

(2,608)

(1,972)

Administration fee paid

(248)

(245)

Other expenses paid

(5,588)

(3,520)

VAT receipts

1,056

1,153

-------------

-------------

Net cash inflow/(outflow) from operating activities

14,025

(80,975)

Financing activities

Loan interest and similar charges paid

(10,589)

(8,707)

Dividend paid on ordinary shares

-

(1,225)

Loan proceeds

-

94,000

Loan arrangement fees paid

-

(235)

-------------

-------------

Net cash (outflow)/inflow from financing activities

(10,589)

83,833

Taxation paid

(275)

(3,462)

-------------

-------------

Increase/(decrease) in cash and cash equivalents

3,161

(604)

-------------

-------------

Cash and cash equivalents at beginning of year

4,826

5,430

Increase/(decrease) in cash and cash equivalents

3,161

(604)

-------------

-------------

Cash and cash equivalents at end of year

7,987

4,826

-------------

-------------

Cash and cash equivalents at the end of the year comprise:

Non-current cash and cash equivalents

3,059

-

Cash and cash equivalents

4,928

4,826

-------------

-------------

7,987

4,826

-------------

-------------