IFRS Transition Statement

LONDON & ASSOCIATED PROPERTIES PLC 20 October 2005 London & Associated Properties PLC announces that the effect of International Reporting Standards on the financial reporting are as follows: Introduction On 7 June 2002, the European Parliament approved a Regulation requiring all listed companies in the European Union to prepare consolidated financial statements under International Financial Reporting Standards ('IFRS') for financial periods beginning on or after 1 January 2005. London and Associated Properties plc ('LAP') will report its results under IFRS for the year ending 31 December 2005; its first results to be reported under the new standards will be for the six months ending 30 June 2005. In order to comply with IFRS, LAP will need to provide comparative numbers. The purpose of this paper is to show how balance sheets and income statements previously prepared under UK generally accepted accounting practice ('UK GAAP') will change under IFRS, and to explain the adjustments to reconcile the figures from one basis of accounting to the other. The main reconciling items and their effects on the balance sheet and income statement are set out as follows: Appendix 1 - Balance Sheet at 31 December 2004 Appendix 2 - Income Statement for the year ended 31 December 2004 Appendix 3 - Balance Sheet at 30 June 2004 Appendix 4 - Income Statement for the six months ended 30 June 2004 Basis of Preparation The figures have been restated on the basis of our interpretation of all IFRS currently applicable, and are unaudited. It is possible that conventions which differ from our current interpretation will evolve within the property sector, and IFRS are subject to ongoing amendment; accordingly, the amounts disclosed in this paper may be subject to revision. Key Changes The main differences between UK GAAP and IFRS for the financial statements under review are: * Property revaluations - surpluses or deficits on investment property revaluations are shown on the face of the income statement rather than as a movement in reserves; only a valuation movement above the cost of a development property is still taken direct to the revaluation reserve; and * Head leases - leasehold investment property and long-term liabilities are increased by an estimation of future ground rents payable, and the majority of ground rents payable in the year are disclosed as interest payable; * Events after the balance sheet date - a proposed dividend is no longer considered to be an adjusting post-balance sheet event, but is instead a deduction from reserves in the year in which it is paid; * Financial instruments - the fair value of derivatives are recorded in the balance sheet and the movement in their value is taken to reserves or to the income statement; * Deferred tax - contingent capital gains tax implicit within a property valuation is accrued as a deferred tax liability. Transitional arrangements IFRS 1 'First-time Adoption of International Financial Reporting Standards' sets out the procedures that the Group must follow when it adopts IFRS for the first time as the basis for preparing its consolidated financial statements. In general, the Group is required to determine its IFRS accounting policies and apply these retrospectively to determine its opening balance sheet as at 1 January 2004 (' the transition date') under IFRS. The standard allows a number of exceptions to this general principle to assist groups in the transition to reporting under IFRS. Where LAP has taken advantage of these exemptions they are noted below. * Business Combinations that occurred before the opening IFRS balance sheet date (IFRS 3 'Business Combinations'). LAP has elected not to apply IFRS 3 retrospectively to business combinations that took place before the date of 1 January 2004. As a result, all prior business combination accounting has been frozen at the transition date. * Exchange differences arising on consolidation (IAS 21 'Foreign Currencies') LAP has elected to deem the cumulative amount of exchange differences arising on consolidation of the net investments in associates at 1 January 2004 to be zero. * Financial Instruments: Recognition and Measurement (IAS 39) The comparative periods have not been restated for IAS39, particularly in respect of derivative financial instruments. The fair value of these instruments at the start of 2005 was passed through reserves, and the subsequent movement in the first half of 2005 is reported in the group income statement. The group has not applied the hedge accounting treatment that would allow such movements to be deferred in equity. Presentation of Financial Statements Under IFRS, the profit and loss account is renamed the income statement, but there is no set format or layout of financial statements prepared under IFRS akin to those of Schedule 4 Companies Act 1985; these will develop over time through industry practice. Accordingly, the presentations set out in Appendices 1 to 4 do not necessarily represent how the income statements and balance sheets will look, but have been designed to demonstrate as clearly as possible the specific differences between UK GAAP and IFRS. Performance Reporting The effect of adopting IFRS as at 31 December 2004, and for the year then ended, on our key performance measures are set out below: UK GAAP Change IFRS Net assets* (£'000) 91,214 (10,614) 80,600 Net assets per share (pence) 111.83p (13.01p) 98.82p Diluted net assets per share (pence) 111.02p (12.88p) 98.14p Earnings per share (pence) 2.82p 17.52p 20.34p Diluted earnings per share (pence) 2.80p 17.43p 20.23p * Including current asset investments at market value Cash Flow The introduction of IFRS will not affect the cash flows of the business. The presentation of the cash flow statement for LAP will not differ significantly from that under UK GAAP and, therefore, an analysis of the cash flow statement does not fall within the scope of this paper. Dividend Policy and Distributable Reserves At 30 December 2004 LAP had distributable reserves of £19.1million, after declaring a full year dividend of £1.3million in aggregate. As the individual company financial statements of LAP and each of its subsidiary undertakings will continue to be prepared under UK GAAP, the introduction of IFRS will not affect LAP's distributable reserves. Accordingly, the dividend policy of the Group is not affected by the introduction of IFRS. Taxation As the financial statements of LAP and each of its subsidiary undertakings will continue to be prepared under UK GAAP, the introduction of IFRS will have no impact on the taxation status or tax payments of the Group. Contact: London and Associated Properties plc Robert Corry Finance Director 020 7415 5000 London & Associated Properties Plc Appendix 1 Adoption of IFRS Consolidated balance sheet 31 December IFRS Notes 31 December 2004 2004 Adjustments UK GAAP IFRS £'000 £'000 £'000 Assets Non-current assets Property, plant and 108,851 9,103 3 117,954 equipment Investments in joint 17,451 (2,891) 2,7 14,560 ventures Investment in associated 6,036 (742) 2,5 5,294 company Other investments 3,784 3,784 ______ _____ ______ Total non-current assets 136,122 5,470 141,592 Current assets Trade and other receivables 1,923 1,923 Financial assets - held for 2,681 2,681 trading investments Cash and cash equivalents 12,253 12,253 16,857 16,857 Liabilities Current liabilities Financial liabilities - (907) (907) borrowings Trade and other payables (10,284) 1,346 5 (8,938) Current tax liabilities (422) (422) (11,613) 1,346 (10,267) Non-current liabilities Financial liabilities - (49,830) (49,830) borrowings Provisions - (9,103) 3 (9,103) Deferred tax (1,365) (7,284) 2 (8,649) Net assets 90,171 (9,571) 80,600 Equity Share capital 8,232 8,232 Share premium account 5,226 5,226 Capital redemption reserve 47 47 Revaluation reserve 55,404 (55,404) 1 - Other reserves 429 429 Currency translation reserve - 116 6 116 Retained earnings 21,414 45,717 1,2,4,5,6 67,131 Treasury shares (581) (581) 90,171 (9,571) 80,600 London & Associated Properties Plc Appendix 2 Adoption of IFRS Income statement for the year ended 31 December 2004 Year ended IFRS Notes Year ended 31 December Adjustments 31 December 2004 2004 UK GAAP IFRS £'000 £'000 £'000 Gross rental income Group & share of joint 12,964 12,964 ventures Less: joint ventures - share ( 5,205) ( 5,205) of rental income 7,759 7,759 Less: property overheads - Ground rents (1,677) (1,677) Direct property expenses (1,135) (1,135) Attributable overheads (2,162) (2,162) (4,974) (4,974) Less: joint ventures - share of overheads Property overheads 1,930 1,930 (3,044) (3,044) Net rental income 4,715 4,715 Listed investments - net 345 345 gain Operating profit before 5,060 5,060 adjustments Profit on sale of investment 142 142 properties Associate and joint venture - - profit on sale of investment properties Operating profit after 5,202 5,202 adjustments Share of operating profit of 3,279 3,279 joint ventures Share of operating profit of 820 (237) 6 583 associate 9,301 (237) 9,064 Interest receivable 780 780 Interest payable: - group (3,855) (3,855) - joint venture (3,206) - (3,206) Profit before valuation 3,020 (237) 2,783 gains Increase in value of - 9,088 1 9,088 investment properties - group - joint venture 8,629 1 8,629 Profit before tax 3,020 17,480 20,500 Taxation - group (568) (1,435) 2 (2,003) - associate and joint (151) (1,730) (1,881) members Profit after tax 2,301 14,315 16,616 Dividend (1,346) 1,346 5 - Retained profit for the year 955 15,661 16,616 London & Associated Properties Plc Appendix 3 Adoption of IFRS Consolidated balance sheet 30 June 2004 IFRS Notes 30 June 2004 UK GAAP Adjustments IFRS £'000 £'000 £'000 Assets Non-current assets Property, plant and equipment 98,701 8,689 3 107,390 Investments in joint ventures 9,813 (741) 2,7 9,072 Investment in associated 4,893 (637) 2,5 4,256 company Other investments 3,784 3,784 ______ ______ ______ Total non-current assets 117,191 7,311 124,502 Current assets Trade and other receivables 3,051 3,051 Financial assets - held for 3,039 3,039 trading investments Cash and cash equivalents 12,384 12,384 ______ ______ ______ 18,474 18,474 Liabilities Current liabilities Financial liabilities - (1,043) (1,043) borrowings Trade and other payables (10,866) (10,866) Current tax liabilities ______ ______ ______ (11,909) (11,909) Non-current liabilities Financial liabilities - (49,247) (49,247) borrowings Provisions - (8,689) 3 (8,689) Deferred tax (1,346) ---(6,253) 2 (7,599) ______ ______ ______ Net assets 73,163 (7,631) 65,532 Equity Share capital 8,171 8,171 Share premium account 4,921 4,921 Capital redemption reserve 47 47 Revaluation reserve 37,730 (37,730) 1 - Currency translation reserve - 49 6 49 Other reserves 429 429 Retained earnings 21,865 30,050 1,2,4,5,6 51,915 ______ ______ ______ 73,163 (7,631) 65,532 London & Associated Properties Plc Appendix 4 Adoption of IFRS Income statement for the six months ended 30 June 2004 Six months IFRS Notes Six months ended ended Adjustments 30 June 2004 30 June 2004 UK GAAP IFRS £'000 £'000 £'000 Gross rental income Group & share of joint 6,539 6,539 ventures Less: joint ventures - share ( 2,652) ( 2,652) of rental income 3,887 3,887 Less: property overheads - Ground rents (835) (835) Direct property expenses (670) (670) Attributable overheads (1,074) (1,074) (2,579) (2,579) Less: joint ventures - share 990 990 of overheads (1,589) (1,589) Net rental income 2,298 2,298 Listed investments - net gain 180 180 Operating profit before 2,478 2,478 adjustments Profit on sale of investment 62 62 properties Associate and joint venture - - profit on sale of investment properties Operating profit after 2,540 2,540 adjustments Share of operating profit of 1,665 1,665 joint ventures Share of operating profit of 406 (87) 6 319 associate 4,611 (87) 4,524 Interest receivable 357 357 Interest payable - group (1,829) (1,829) - joint venture (1,541) (1,541) Profit before tax 1,598 (87) 1,511 Tax - group (348) (348) - associate and joint (138) 375 2 237 ventures Profit after tax 1,112 288 1,400 London & Associated Properties Plc Adoption of IFRS Notes * Revaluation surplus reported in the group income statement IAS40, Investment Property, requires that the surplus or deficit on the revaluation of investment properties is reported in the group income statement. This includes the revaluation of the group's investment properties, and, for 2004, the group's share of the revaluation surplus on a property held in an associate. The group balance sheet on appendices 1 and 3 shows the consequent reclassification of the UK GAAP revaluation reserve to the retained profit reserve. This change in accounting will not affect distributable reserves. Previously, revaluation surpluses or deficits, to the extent that any deficit was not permanent, were reported as a movement in the revaluation reserve. * Deferred tax on the revaluation surplus reported as part of the tax charge IAS12, Income Taxes, requires a provision for the tax that would be payable if the investment portfolios and listed investments were sold. This is included within deferred tax and is a reduction in net assets. The movement in this provision in any reporting period is reported as part of the tax charge in the group income statement. Previously under UK GAAP, FRS19, Deferred Tax, specifically prohibited this provision being made in respect of investment properties. * Grossing up of headlease liabilities IAS17, Leases, requires that the liability to make future lease payments on a leasehold investment property is provided for in full, based on the present value of the minimum lease payments. This liability is included within net debt and the investment property is reported gross of the liability. The rent paid on such leases is re-categorised, split between interest payable and repayment of the lease liability. As the unexpired term of these leasehold properties decreases, the balance between interest payable and lease liability repayment will begin to reverse. The rent currently payable that exceeds the minimum payable when the liability was first calculated as a result of, for example, review increases, is referred to as contingent rent and is included within property outgoings in the income statement. Previously, leasehold investment properties were reported net of the leasehold liability and the lease payments were reported as ground rents payable within property outgoings. * Fair value of derivative financial instruments IAS39, Financial Instruments: Recognition and Measurement, requires the interest rate hedging instruments, which the group uses to manage interest rate risk, to be carried at fair value. Movements in fair value are reported in the group income statement. The hedge accounting treatment that would allow such movements to be deferred in equity has not been applied. Previously, the fair value of these financial instruments was only disclosed in the notes to the financial statements. Listed investments which were previously held at cost have been revalued under the requirements of IAS 39 to fair value at the balance sheet date. The group has taken advantage of the provisions of IAS 39 which permit prospective application of this standard from 1 January 2005. * Dividends not declared by the period end IAS10, Events after the Balance Sheet Date, requires that dividends not declared by the end of the accounting period are excluded from the results. Previously, dividends declared after the end of the accounting period were included as a deduction from profit for the period. * Foreign currency translation IAS 21, The effects of changes in foreign exchange rates, requires net exchange differences arising on the translation of foreign entities to be separately tracked within equity and the cumulative amounts disclosed. The group has taken advantage of the exemption allowed by IFRS 1 to deem the cumulative exchange adjustment at 1 January 2004 to be zero. * Joint ventures single line equity accounting This is a presentational change only. The interest in, and share of results of, joint ventures is shown as a single line on the group balance sheet, including the group's share of the revaluation surplus.

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