Final Results

RNS Number : 6150M

London & Stamford Property Ltd

27 May 2010

 



LONDON & STAMFORD PROPERTY LIMITED

Registration No. 47816

Registered Office:

2ND FLOOR, REGENCY COURT, GLATEGNY ESPLANADE, ST. PETER PORT,

GUERNSEY, GY1 3NQ.

___________________________

TELEPHONE:  + 44 1481 720321

FACSIMILE:  + 44 1481 716117

EMAIL:  [e-mail]

27 May 2010

LONDON & STAMFORD PROPERTY LIMITED

FINAL RESULTS FOR THE YEAR ENDED 31 MARCH 2010

London & Stamford Property Limited ("London & Stamford") (AIM: LSP), an investment company based in Guernsey, today announces audited results for the year ended 31March 2010.

Financial highlights

	2010	2009
Net income	£16.1m	£3.1m
Revaluation surplus/(deficit) (including share of associates)	£101.9m	(£2.6m)
Profit for the year	£106.1m	£24.0m
Investment properties	£357.7m	£127.1m
Share of net asset value of associates	£89.3m	£62.8m
Cash deposits	£276.6m	£169.9m
Bank debt	£121.6m	£69.6m
Net asset value	£600.6m	£291.7m
NAV per share	120.1p	102.3p
Earnings per share	24.8p	8.4p
Adjusted earnings per share	1.5p	1.2p
Dividend per share	4.4p	4.0p

·      342% increase in profit to £106.1 million (2009: £24.0 million)

·      Increase in NAV of 17.4% to 120.1p (2009: 102.3p)

·      Our results highlight the very attractively priced acquisitions we made early in 2009, which have benefited through careful asset management and yield movement to produce a valuation uplift of £72.1 million. Our share of the profit derived from our joint venture at Meadowhall is £29.8 million. The total valuation increase for the year is £101.9 million

·      Two further acquisitions in the period (The Stadium, Highbury and Focus National Distribution Centre) bringing the total assets acquired in the year to £199.1m.

·      In February 2010, completed first sale with No1 Whitehall Riverside for £51.3m (purchased in May 2009 for £37.6m)

·      Post year end acquisition of the Radial portfolio of 16 distribution warehouses for £208.5 in May 2010

·      Raised £219.5 million (net of expenses) through a placing and open offer in July 2009

·      Substantial financial headroom for further acquisitions.  The cash balance at the end of the year amounted to £276.6 million (2009: £169.9 million)  Following the Radial portfolio acquisition, the uncommitted cash balance is c.£200m

·      Move to the Main Market of the Stock Exchange and REIT conversion expected September 2010

Raymond Mould, the Non-Executive Chairman of London & Stamford Property Limited, said:

"I am very pleased to report our further acquisitions in the year and that we have continued to be able to add prime quality assets with secure income and long unexpired lease lengths to our portfolio. We have however become increasingly cautious over further investment as prime yields tightened to potentially unsustainable levels in what we considered a most demanding tenant environment. I still consider such caution to be well placed and it will continue to underpin our strategy in the future.

Nevertheless, I am delighted that we have been able to continue to acquire prime assets with attractive returns and am particularly pleased to have worked alongside the Bank of Scotland to secure the Radial portfolio. We are continuing to explore exciting opportunities which tend to be for larger lot sizes, including more complex portfolio opportunities where our available equity and the asset management skills provided by our property advisor present the potential to generate further value to our shareholders.

I am also very pleased to confirm that we are now in a position to implement our previously advised strategy to move to the main market of the London Stock Exchange and to convert into a UK Real Estate Investment Trust."

Enquiries:
Kreab Gavin Anderson Richard Constant / James Benjamin / Anthony Hughes	Tel: [phone]
London & Stamford Property Limited Rochelle Thompson Butterfield Fulcrum Group (Guernsey) Limited, Company Secretary	Tel: [phone]
KBC Peel Hunt Capel Irwin / David Anderson / Nicholas Marren	Tel: [phone]

Notes to Editors

London & Stamford Property, an investment company based in Guernsey, is advised by LSI Management LLP ("LSIM") which has a highly experienced management team. The principal partners of LSIM include Raymond Mould, Patrick Vaughan, Martin McGann, Jeremy Bishop and Stewart Little. Raymond Mould, Patrick Vaughan and Martin McGann are also non-executive directors of London & Stamford Property.

The Company was established on 1 October 2007 in order to exploit opportunities that it anticipated in the UK property cycles to invest principally in commercial property.

The Company raised £247.5 million (gross proceeds) through a placing in November 2007 when it was admitted to trading on AIM (LSP.L).

In October 2007, the Group entered into a five year revolving credit facility with Bank of Scotland for £150 million.  The facility is extendable by the Group for a further two years and carries a margin of 80 basis points over LIBOR.

The Group made no acquisitions during 2008, considering that market conditions did not offer sufficient value.  It made six new investments in 2009 using £190 million of equity.  In July 2009, the Company raised a further £219.5 million (net of expenses) through a placing and open offer and so far in 2010 the Group has made two new investments using £100m of equity.

Additionally in 2010, the Group made its first disposal of its investment at Whitehall Riverside, Leeds.

Further information on London & Stamford Property is available from the Company's website www.londonandstamford.com

Chairman's statement

I am very pleased to present our annual report for the year ended 31 March 2010 - the first full year of our ownership of One Fleet Place and our interest in the Meadowhall Shopping Centre.

In the early part of the year, we continued to invest in high yielding prime assets, with long unexpired terms leased to good quality tenants. However, as the year progressed, we became increasingly cautious over further investment as prime yields tightened to potentially unsustainable levels in what we considered a most demanding tenant environment.

Consequently, between late September 2009 and the end of the year we acquired only two further assets at Highbury Square
in London and the Focus distribution unit at Tamworth. Since the year end, I am delighted to confirm the completion on 17 May 2010 of our acquisition of the Radial portfolio of 16 distribution warehouses for £208.5 million, equating to a net initial yield of 8.75%, fully let. The Radial acquisition represents exceptional value, combining prime quality assets in prime locations with secure income. We have employed our existing £150 million bank facility with Bank of Scotland to part fund the acquisition.
Its attractive pricing at 80bps over LIBOR will yield a cash return of 18.5% when the unlet units are taken up.

Results

The Group generated a profit for the year of £106.1 million (2009: £24.0 million). Adjusted profit (excluding the revaluation of investment properties, deferred taxation, the fair value of derivatives and negative goodwill) is £6.3 million (2009: £3.5 million).

Comprising as follows:

	2010 £m	2009 £m
Profit for the Year	106.1	24.0
Revaluation of Investment Properties	(72.1)	5.7
Revaluation of Meadowhall	(29.8)	(3.1)
Deferred Taxation	(1.9)	(3.9)
Fair Value of Derivatives	4.4	1.3
Negative Goodwill	(0.4)	(20.5)
	6.3	3.5

Net assets at 31 March 2010 were £600.6 million (2009: £291.7 million), equivalent to 120.1p per share (2009: 102.3p).

The interim dividends of 2.2p paid on 21 December 2009 and 2.2p paid on 1 April 2010 produce a total dividend for the year of 4.4p per share (year ended 31 March 2009: 4.0p) and the Board will not recommend a further dividend for the year ended 31 March 2010.

The results for the year highlight the very attractively priced acquisitions we made early in 2009. These assets have benefited through careful asset management and yield movement to produce a valuation uplift of £72.1 million, most particularly through One Fleet Place, Aintree and Highbury.

Our share of the profit derived from our joint venture at Meadowhall is £29.8 million. The total valuation increase for the year is £101.9 million.

Portfolio

Having commenced investing our equity in the last quarter of the financial year ended 31 March 2009, the process continued into the first quarter of the year ended 31 March 2010. Investments at One Fleet Place, EC4 and the Meadowhall Shopping Centre, Sheffield were followed quickly by investments at No 1 Whitehall Riverside, Leeds, the Racecourse Retail Park, Aintree, and the Somerfield Distribution Unit at Wellingborough, all of which were reported in my Statements last year and in this year's Interim Announcement.

However, there was a change in market sentiment into the second and third quarters of the year, evidenced by yield strengthening which, in our opinion, was unlikely to be sustainable and we became increasingly cautious when looking at potential investment opportunities.

The acquisition of the apartment block of 146 units in the North Stand, Highbury was a departure from our normal area of
activity, but in our view represents very good value. I am delighted to report that all available apartments at Highbury acquired
for £41.4 million, have now been let, considerably ahead of the letting programme we set at the time of purchase.

The 591,597 sq.ft. Focus distribution unit at Tamworth was acquired with an unexpired lease term of 14 years at an initial yield
of 9.5% and we are pleased to report a close and effective working relationship with the Focus management. This is their sole distribution centre and therefore strategically a key hub to their business.

In acknowledgment of yield tightening generally and particularly in respect of the acquisitions we made in the first half of the calendar year 2009, we decided to accept an offer made for No 1 Whitehall Riverside, Leeds, for £51.3 million (5.9% yield)
and completed the disposal, capturing a £10.5 million profit on disposal and reflecting an 85% total return on our original equity investment.

We have been active in the year in securing new and improved occupiers for our portfolio and in exploring opportunities to enhance planning consents. These processes will continue into the current year as we consider the prospects for the newly acquired Radial portfolio where we already have firm interest in the two unlet units.

Placing and Open Offer

Following the successful acquisitions at Leeds, Aintree and Wellingborough in the first quarter of the financial year under review, our available equity was reduced to approximately £90 million. As a consequence, and believing that positive deal flow would continue, and acknowledging that best value deals in the future might lie in large lot sizes, we raised a further £219.5 million (net of expenses) through a placing and open offer for 215 million new shares at 105p per share. There was an 88.7% take up of the open offer and overall the fund raising was oversubscribed.

Cash Management

Since the successful placing and open offer and in the light of reduced investment activity in the second half of the year, we
have retained significant cash balances and their careful management has remained a priority. Although we have significantly outperformed the performance benchmark (London Interbank Deposit Rate), the average return for the cash during the year
was only 0.66%.

The cash balance at the end of the year amounted to £276.6 million (2009: £169.9 million). Following completion of the Radial portfolio acquisition, the uncommitted cash balance is c.£200 million.

As previously reported, the security of cash and its accessibility, as much as return, are key priorities to allow for rapid execution of transactions as required.

Borrowings

At the year end, borrowings amounted to £121.6 million (2009: £69.6 million). The borrowings are in respect of our assets at Aintree and One Fleet Place, which are financed separately with Deutsche Postbank and Santander respectively and in respect of our assets at Crawley, Nottingham and Wellingborough which are, together, security for a third facility with Helaba.

Our borrowings during the year in respect of No 1 Whitehall Riverside were repaid in full on disposal. One Fleet Place was originally financed using our £150 million facility with Bank of Scotland. The asset was refinanced during the year by Santander, thereby replenishing the Bank of Scotland facility for future utilisation which has been successfully deployed on the Radial acquisition.

Outlook

In each of my statements over the last 12 months, I have advised caution in the face of a difficult outlook for the economy and much uncertainty as to the sustainability of any perceived recovery in the property market. I still consider such caution to be well placed and it will continue to underpin our strategy in the future. Nevertheless, I am delighted that we have been able to continue to acquire prime assets with attractive returns and am particularly pleased to have worked alongside the Bank of Scotland to secure the Radial portfolio.

We are continuing to explore exciting opportunities which tend to be for larger lot sizes, including more complex portfolio opportunities where our available equity and the asset management skills provided by our property advisor present the potential to generate further investor returns.

The strategies of the banks in working out their problem portfolios continue to be critical for the real estate sector and we
are hopeful of demonstrating again in future our ability to provide equity and asset management support to those work outs.

I am very pleased to confirm that we are now in a position to implement our previously advised strategy to move to the main market of the London Stock Exchange and to convert into a UK Real Estate Investment Trust.

The work to achieve this, which is not conditional upon any further investment, has commenced and we would expect it to be implemented by the end of September 2010.

H R Mould
Chairman

27 May 2010

Group Income Statement

For the year ended 31 March	Note	2010 £000	2009 £000
Gross rental income	2	17,251	2,654
Other income	2	-	1,000
Property outgoings		(1,111)	(572)
Net income		16,140	3,082
Administrative expenses - general		(11,695)	(5,987)
Administrative expenses - goodwill impairment		-	(2,745)
Profit/(loss) on revaluation of investment properties	8	72,099	(4,938)
Profit on sale of investment properties		10,634	36
Share of profits of associates	9	29,412	23,599
Operating profit	3	116,590	13,047
Finance income	4	1,465	10,613
Finance costs	4	(8,772)	(2,296)
Change in fair value of derivative financial investments	4	(4,451)	(1,270)
Profit before tax		104,832	20,094
Taxation	5	1,234	3,949
Profit for the year and total comprehensive income attributable to equity shareholders		106,066	24,043
Earnings per share
Basic and diluted	7	24.8p	8.4p

All amounts relate to continuing activities.

Group Balance Sheet

As at 31 March	Note	2010 £000	2009 £000
Non-current assets
Investment properties	8	357,695	127,147
Investments in equity accounted associates	9	89,285	62,844
Deferred tax assets	5	7,071	5,172
		454,051	195,163
Current assets
Trade and other receivables	10	7,678	1,386
Cash and cash equivalents	11	276,593	169,856
		284,271	171,242
Total assets		738,322	366,405
Current liabilities
Trade and other payables	12	10,285	3,429
		10,285	3,429
Non-current liabilities
Borrowings	13	121,565	69,634
Derivative financial instruments	13	5,902	1,451
Provisions	14	-	210
		127,467	71,295
Total liabilities		137,752	74,724
Net assets		600,570	291,681
Equity
Called up share capital	15	50,000	28,500
Special reserve		446,620	248,597
Retained earnings		103,950	14,584
Total equity		600,570	291,681
Net asset value per share	19	120.1p	102.3p

The financial statements were approved and authorised for issue by the Board of Directors on 27 May 2010 and were signed on its behalf by:

L R H Grant           M F McGann

Director                  Director

Group Statement of Changes in Equity

	Note	Share capital £000	Special reserve £000	Retained earnings £000	Total £000
At 1 April 2009		28,500	248,597	14,584	291,681
Profit for the period and total comprehensive income		-	-	106,066	106,066
Issue of ordinary share capital	15	21,500	198,023	-	219,523
Dividends paid	6	-	-	(16,700)	(16,700)
At 31 March 2010		50,000	446,620	103,950	600,570

 

	Note	Share capital £000	Special reserve £000	Retained earnings £000	Total £000
At 1 April 2008		28,500	248,597	801	277,898
Profit for the period and total comprehensive income		-	-	24,043	24,043
Dividends paid	6	-	-	(10,260)	(10,260)
At 31 March 2009		28,500	248,597	14,584	291,681

Group Cash Flow Statement

For the year ended 31 March	2010 £000	2009 £000
Cash flows from operating activities
Profit before tax	104,832	20,094
Adjustments for non-cash items:
(Profit)/loss on revaluation of investment properties	(72,099)	5,667
Profit on sale of investment properties	(10,634)	(36)
Share of post-tax profit of associates	(29,412)	(23,599)
Net finance costs/(income)	11,758	(7,047)
Cash flows from operations before changes in working capital	4,445	(4,921)
Change in trade and other receivables	(3,710)	3,473
Change in trade and other payables	5,328	1,954
Change in provisions	(210)	(730)
Cash flows from operations	5,853	(224)
Interest received	1,562	12,740
Interest paid	(5,990)	(1,616)
Taxation paid	(44)	-
Financial arrangement fees and break costs paid	(3,076)	(496)
Cash flows from operating activities	(1,695)	10,404
Investing activities
Purchase of investment properties	(199,030)	(77,531)
Purchase of rent guarantee arrangements	(2,679)	-
Capital expenditure on investment properties	(869)	(4,854)
Sale of investment property	52,224	-
Cash flow from/(to) associates	2,971	(39,245)
Sale of short-term financial deposits	-	61,500
Cash flows from investing activities	(147,383)	(60,130)
Financing activities
Proceeds from share issue	219,523	-
Dividends paid	(16,700)	(10,260)
New borrowings	147,995	47,730
Repayment of borrowings	(95,003)	-
Cash flows from financing activities	255,815	37,470
Net increase/(decrease) in cash and cash equivalents	106,737	(12,256)
Opening cash and cash equivalents	169,856	182,112
Closing cash and cash equivalents	276,593	169,856

Notes forming part of the Financial Statements

For the year to 31 March 2010

1 Accounting policies

The following notes are an extract from the Company's Annual Report and Financial Statements for the year to 31 March 2010 which has been prepared in accordance with International Financial Reporting Standards and upon which an unqualified audit report has been given.

a) General information

London and Stamford Property Limited (the "Company") is a limited liability investment company, incorporated and domiciled in Guernsey. The address of its registered office is Regency Court, Glategny Esplanade, St Peter Port, Guernsey.

b) Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS").

c) Basis of preparation

The functional and presentational currency of the Company and all subsidiaries (the "Group") is sterling. The financial statements are prepared on the historical cost basis except that investment and development properties and derivative financial instruments are stated at fair value.

The accounting policies have been applied consistently in all material respects.

i) Estimates and judgements

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Significant items subject to such assumptions and estimates include the fair value of investment properties, the measurement and recognition of provisions, the recognition of deferred tax assets and liabilities for potential corporation tax and the fair value
of derivative financial instruments. The most critical accounting polices in determining the financial condition and results of the Group are those requiring the greatest degree of subjective or complex judgements. These relate to property valuation, business combinations and goodwill, investment in associates, derivative financial instruments, provisions and taxation and these are discussed in the policies below. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period. If the revision affects both current and future periods, the change is recognised over those periods.

ii) Adoption of new and revised standards

Standards and interpretations effective in the current period

No new standards or interpretations issued by the International Accounting Standards Board (IASB) or the International Financial Reporting Interpretations Committee have led to any changes in the Group's accounting policies.

Standards and interpretations in issue not yet adopted

The IASB and the International Financial Reporting Interpretations Committee have issued the following standards and interpretations that are mandatory for later accounting periods and which have not been adopted early. These are:

		Effective date
IFRS 3	Business combinations (revised)	01/07/2009
IFRIC 19	Extinguishing financial liabilities with equity instruments	01/04/2010
IAS 24	Revised related party disclosures	01/01/2011
IFRS 9	Financial instruments	01/01/2013

The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group's financial statements in the period of initial application, other than on presentation and disclosure.

The IASB has also issued or revised IAS19, IAS27, IAS32, IAS39, IFRIC14, IFRIC17 and IFRIC 18 which are not relevant to the operations of the Group.

d) Basis of consolidation

i) Subsidiaries

The consolidated accounts include the accounts of the Company and the Group using the purchase method. Subsidiaries are those entities controlled by the Group. Control is assumed when the Group has the power to govern the financial and operating policies of an entity to gain benefits from its activities. In the consolidated balance sheet, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair value at the acquisition date. The results of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Where properties are acquired through corporate acquisitions and there are no significant assets or liabilities other than property, the acquisition is treated as an asset acquisition, in other cases the purchase method is used.

ii) Associates

Associates are those entities over whose activities the Group is in a position to exercise significant influence but does not have the power to jointly control.

Associates are accounted for under the equity method, whereby the consolidated balance sheet incorporates the Group's share of the net assets of its associates. The consolidated income statement incorporates the Group's share of associate profits after tax.

Accounting practices of subsidiaries and associates which differ from Group accounting policies are adjusted on consolidation.

iii) Goodwill

Any excess of the purchase price of business combinations over the fair value of the assets, liabilities and contingent liabilities acquired and resulting deferred tax thereon is recognised as goodwill. This is recognised as an asset and is reviewed for impairment at least annually. Any impairment is recognised immediately in profit or loss within administration expenses and is
not subsequently reversed.

Any excess of the fair value of the assets, liabilities and contingent liabilities acquired and resulting deferred tax thereon over
the purchase price of business combinations is recognised immediately in profit or loss.

Goodwill in respect of overseas subsidiaries denominated in a foreign currency is retranslated at each balance sheet date
using the closing rate of exchange. The resulting foreign exchange differences are taken to the translation reserve.

e) Property portfolio

i) Investment properties

Investment properties are properties owned or leased by the Group which are held for long-term rental income and for capital appreciation. Investment property is initially recognised at cost and subsequently revalued at the balance sheet date to fair
value as determined by professionally qualified external valuers on the basis of market value.

Gains or losses arising from changes in the fair value of investment property are recognised in the profit or loss of the period in which they arise. Depreciation is not provided in respect of investment properties including integral plant.

When the Group redevelops an existing investment property for continued future use as an investment property, the property remains an investment property measured at fair value and is not reclassified.

For leasehold properties that are classified as investment properties, the associated leasehold obligations are at peppercorn rents and are not considered to be material.

Any surplus or deficit arising on revaluing investment properties or investment properties being redeveloped is recognised in profit or loss.

ii) Development properties

Properties acquired with the intention of redevelopment are classified as development properties and stated initially at cost and then subsequently remeasured at fair value.

All costs directly associated with the purchase and construction of a development property including interest are capitalised. When development properties are completed, they are reclassified as investment properties and any accumulated revaluation surplus or deficit is transferred to retained earnings.

iii) Tenant leases

Management has exercised judgement in considering the potential transfer of the risks and rewards of ownership in accordance with IAS 17 for all properties leased to tenants and has determined that such leases are operating leases.

iv) Net rental income

Revenue comprises rental income.

Rental income from investment property leased out under an operating lease is recognised in the profit or loss on a straight-line basis over the lease term.

Contingent rents, such as turnover rents, rent reviews and indexation, are recorded as income in the periods in which they are earned. Rent reviews are recognised when such reviews have been agreed with tenants.

Where a rent free period is included in a lease, the rental income foregone is allocated evenly over the period from the date of lease commencement to the lease termination date.

Lease incentives and costs associated with entering into tenant leases are amortised over the lease term.

Revenue from the sale of trading properties is recognised in the period within which there is an unconditional exchange of contracts.

Property operating expenses are expensed as incurred and any property operating expenditure not recovered from tenants through service charges is charged to profit or loss.

v) Surplus on sale of investment and development properties

Surpluses on sales of investment and development properties are calculated by reference to the carrying value at the previous valuation date, adjusted for subsequent capital expenditure.

f) Financial assets and financial liabilities

Financial assets and financial liabilities are recognised on the Group balance sheet when the Group becomes a party to the contractual terms of the instrument. Unless otherwise indicated, the carrying amounts of the Group financial assets and liabilities are a reasonable approximation of their fair values.

i) Loans and receivables

These are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. In the case of the Group, loans and receivables comprise trade and other receivables and cash and cash equivalents. Loans and receivables are initially recognised at fair value, plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

ii) Other financial assets

These comprise deposits held with banks where the original maturity was more than three months.

iii) Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

iv) Other financial liabilities

Other financial liabilities include interest bearing loans, trade payables (including rent deposits and retentions under construction contracts) and other short-term monetary liabilities. Trade payables and other short-term monetary liabilities are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method. Interest bearing loans
are initially recorded at fair value net of direct issue costs, and subsequently carried at amortised cost using the effective interest method. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis to the profit and loss account using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

v) Derivative financial instruments

The Group uses derivative financial instruments to hedge its exposure to interest rate risks.

Derivative financial instruments are recognised initially at fair value, which equates to cost and subsequently remeasured at fair value, with changes in fair value being included in profit or loss.

vi) Provisions

A provision is recognised when a legal or constructive obligation exists as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle that obligation at the balance sheet date, and are discounted to present value if the effect is material.

g) Finance costs

Net finance costs include interest payable on borrowings, net of interest capitalised and finance costs amortised.

h) Finance income

Finance income includes interest receivable on funds invested, measured at the effective rate of interest on the underlying sum invested.

i) Dividends

Dividends on equity shares are recognised when they become legally payable. In the case of interim dividends, this is when paid. In the case of final dividends, this is when approved by the shareholders at the Annual General Meeting.

j) Tax

Tax is included in profit or loss except to the extent that it relates to items recognised directly in equity, in which case the related tax is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, together with any adjustment in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases.

The following differences are not provided for:

- the initial recognition of goodwill;

- goodwill for which amortisation is not tax deductible;

- the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and

- investments in subsidiaries, associates and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

The amount of deferred tax provided is based on the expected manner or realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

Tax status of the Company and its subsidiaries

The Company has obtained exempt company status in Guernsey under the terms of the Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 so that it is exempt from Guernsey taxation on income arising outside Guernsey and on bank interest receivable in Guernsey. The Directors intend to conduct the Company's affairs such that it continues to remain eligible for exemption.

During the period, the Group's properties have been held in various subsidiaries and associates, the majority of which are subject to UK income tax. In each instance, any tax due is computed after deduction of debt financing costs and other allowances as appropriate.

k) Foreign currency transactions

Transactions in foreign currencies are translated into sterling at exchange rates approximating to the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to sterling at the exchange rate ruling at that date and differences arising on translation are recognised in profit or loss.

l) Segmental reporting

An operating segment is a distinguishable component of the Group that engages in business activities, earns revenue and incurs expenses, whose operating results are regularly reviewed by the Group's chief operating decision-makers and for which discrete financial information is available.

During the period, the Group had only one business activity being property investment and development and operated in the United Kingdom.

m) Capital management policy

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance.

In managing its capital, the Group's primary objective is to ensure its continued ability to provide a consistent return for its equity shareholders through a combination of capital growth and distributions. In order to achieve this objective, the Group seeks to maintain a gearing ratio that balances risks and returns at an acceptable level and also maintain a sufficient funding base to enable the Group to meet its working capital and strategic investment needs. In making decisions to adjust its capital structure to achieve these aims, either through altering its dividend policy, new share issues, or the reduction of debt, the Group considers not only its short-term position but also its long-term operational and strategic objectives.

2 Income

For the year to 31 March 2010, as a consequence of only one investment property being held for the entire year, 34% of the Group's gross rental income was receivable from one tenant.

A surrender premium of £1 million was received in the previous year in respect of a lease on Barracks Road, Newcastle-under-Lyme.

3 Profit from operations

For the year to 31 March	2010 £000	2009 £000
This has been arrived at after charging:
Property advisor management fees	6,769	4,754
Property advisor performance fees	4,010	443
Directors' fees	165	165
Auditors' remuneration:
Audit of the Group and Company Financial Statements	134	75
Fees payable to the Company's auditors for other services to the Group:
- Statutory audit of subsidiary accounts	9	20
- Taxation advice	-	36
- Taxation compliance work	40	25

Fees are paid to certain non-executive Directors who are not members of LSI Management LLP, the Property Advisor to the Group. The Company has no employees.

4 Finance income and costs

For the year to 31 March	2010 £000	2009 £000
Finance income
Interest on short-term deposits	1,465	10,613
	1,465	10,613
Finance costs
Interest on bank loans	6,757	1,721
Amortisation of loan issue costs and loan break costs	2,015	575
Fair value loss on derivative financial instruments	4,451	1,270
	13,223	3,566

5 Taxation

For the year to 31 March	2010 £000	2009 £000
The tax credit comprises:
Current tax
UK corporation tax on profit	665	33
Deferred tax
Change in deferred tax	(1,899)	(3,982)
	(1,234)	(3,949)

The tax assessed for the year varies from the standard rate of corporation tax in the UK. The differences are explained below:

For the year to 31 March	2010 £000	2009 £000
Profit before tax	104,832	20,094
Profit at the standard rate of corporation tax in the UK of 28%	29,353	5,626
Effects of:
Expenses not deductible for tax purposes	1,069	1,428
Tax effect of income not subject to tax	(23,151)	(4,519)
Share of post tax profit of associate	(8,270)	(751)
Excess of fair value of net assets acquired over consideration paid	-	(5,733)
Difference in tax rates	(235)	-
Total tax credit	(1,234)	(3,949)

Deferred tax asset

	Revaluation deficit	Other temporary and deductible differences	Losses	Total
At 31 March 2009	2,351	374	2,447	5,172
(Debited)/credited during the year in the income statement	(406)	1,278	1,027	1,899
At 31 March 2010	1,945	1,652	3,474	7,071

Deferred tax on the revaluation deficit is calculated on the basis of the capital losses that would crystallise on the sale of the investment property portfolio as at 31 March 2010.

The Group does not have unprovided deferred tax assets (2009: nil).

6 Dividends

For the year to 31 March	2010 £000	2009 £000
Ordinary dividends
Amounts recognised as distributions to equity holders	16,700	10,260
Proposed final dividend (31 March 2009: 2p per share)	-	5,700

A second interim dividend of 2.2p per share was approved by the Board on 1 April 2010 and was paid immediately to shareholders on the register at the close of business on 5 March 2010 and will be recognised as an appropriation of retained earnings in 2011. No further final dividend is proposed.

7 Earnings per share

Earnings per share of 24.8p (2009: 8.4p) is calculated on a weighted average of 428,333,333 (2009: 285,000,000) ordinary shares of 10p each and is based on profits attributable to ordinary shareholders of £106.1 million (2009: £24.0 million).

There are no potentially dilutive or anti-dilutive share options in the year.

Adjusting earnings for the effects of revaluing investment properties, deferred taxation, fair value of derivatives and negative goodwill results in attributable profits of £6.3 million or 1.5p per share (2009: £3.5 million or 1.2p per share).

8 Investment properties

	2010			2009
As at 31 March	Freehold £000	Long leasehold £000	Total £000	Freehold £000	Long leasehold £000	Total £000
At 31 March valuation	119,306	7,841	127,147	40,940	8,430	49,370
Acquisitions	159,045	40,042	199,087	77,531	-	77,531
Other capital expenditure	472	480	952	4,848	6	4,854
Disposals	(40,748)	(842)	(41,590)	-	1,059	1,059
Revaluation movement	53,752	18,347	72,099	(4,013)	(1,654)	(5,667)
At 31 March valuation	291,827	65,868	357,695	119,306	7,841	127,147

At 31 March 2010, certain of the Group's investment properties were externally valued by CB Richard Ellis Limited, Chartered Surveyors at £293.9 million and by Savills plc, Chartered Surveyors at £60 million (£57.3 million, net of income guarantees).
The valuations were undertaken in accordance with the Royal Institution of Chartered Surveyors' Appraisal and Valuation Standards on the basis of market value. Market value represents the estimated amount for which a property would be expected to exchange at the date of valuation between a willing buyer and willing seller in an arm's length transaction. A deduction is made to reflect purchasers' acquisition costs.

The remaining investment properties were valued by the Directors at £6.5 million (2009: £6.5 million).

The historical cost of all of the Group's investment properties at 31 March 2010 was £296.3 million (2009: £136.4 million).

The loss on revaluation recognised in the profits of the previous period of £4.9 million includes a credit of £0.7 million for the movement in the provision for enhanced management fees payable to third parties on future disposals.

9 Investment in associate

As at 31 March	2010 £000	2009 £000
Opening balance	62,844	-
Additions at cost	442	39,245
Share of profit for the year	29,412	23,599
Profit distributions received	(3,413)	-
At 31 March 2010	89,285	62,844

In the previous year the Group entered into a joint venture arrangement with Green Park Investments, a wholly-owned subsidiary of a major Gulf institution. The Group has a 31.4% interest in this entity, LSP Green Park Property Trust, which is equity accounted for by the Group as an associate. LSP Green Park Property Trust acquired a 50% interest in the Meadowhall Shopping Centre from The British Land Company PLC on 11 February 2009.

The Group's 31.4% share of the profit after tax and net assets of its associate at 31 March 2010 is as follows:

	2010 £000	2009 £000
Summarised income statement
Net rental income	11,972	1,715
Administration expenses	(3,994)	(475)
Movement in fair value of net assets acquired over consideration paid	441	20,476
Surplus on revaluation of investment properties	29,846	3,063
Net finance costs	(8,695)	(1,120)
Tax	(158)	(60)
Profit after tax	29,412	23,599
Summarised balance sheet
Property assets	217,445	187,599
Current assets	4,449	4,540
Current liabilities	(7,638)	(5,730)
Borrowings	(107,196)	(106,557)
Other non-current assets	(17,775)	(17,008)
Net assets	89,285	62,844

The investment properties were valued on an open market value basis by CB Richard Ellis Limited, Chartered Surveyors, as at 31 March 2010 in accordance with the Royal Institution of Chartered Surveyors Appraisal and Valuation Standards.

10 Trade and other receivables

As at 31 March	2010 £000	2009 £000
Current assets
Trade receivables	3,806	61
Amounts receivable from income guarantees	2,679	-
Interest receivable	4	101
Prepayments and accrued income	447	636
Other receivables	742	588
	7,678	1,386

All amounts fall due for payment in less than one year.

At 31 March 2010 there were no amounts which were overdue and no amounts which were impaired. There is no provision for impairment of trade receivables as at 31 March 2010 as the risk of impairment of the amounts outstanding is not considered to be significant.

11 Cash and cash equivalents

Cash and cash equivalents include £1.1 million (2009: £2.5 million) retained in rent and restricted accounts which are not readily available to the Group for day-to-day commercial purposes.

12 Trade and other payables

As at 31 March	2010 £000	2009 £000
Trade payables	457	751
Rent received in advance	3,308	1,394
Accrued interest	1,277	510
Other payables	140	31
Other accruals and deferred income	4,449	710
Corporation tax payable	654	33
	10,285	3,429

The Group has financial risk management policies in place to ensure that all payables are paid within the credit time frame.

13 Financial assets and financial liabilities

a) Non-current financial liabilities

As at 31 March	2010 £000	2009 £000
Secured bank loans	123,542	70,550
Unamortised finance costs	(1,977)	(916)
	121,565	69,634

The bank loans are secured by fixed charges over certain of the Group's investment properties with a carrying value of £246.9 million and are repayable within two to five years of the balance sheet date.

b) Financial risk management

Financial risk factors

The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance. The Group uses derivative financial instruments to hedge certain risk exposures.

The Group's operations and debt financing expose it to a variety of financial risks. The exposure to each risk, how it arises and the policy for managing each risk is summarised below:

i) Credit risk

Credit risk is the risk of financial loss to the Group if a client or counterparty to a financial instrument fails to meet its contractual obligations.

The Group's principal financial assets are cash balances and deposits and trade and other receivables. The Group's credit risk is primarily attributable to its cash deposits and trade receivables.

The trade receivable amounts presented in the balance sheet are net of allowances for doubtful receivables. An allowance for impairment is made where there is objective evidence that the Group will not be able to collect amounts due according to the original terms of the receivables concerned. The balance is low relative to the scale of the balance sheet and therefore the credit risk of trade receivables is considered to be low.

Cash is placed on deposit with a number of different reputable banks with strong credit ratings and for varying periods of time, thereby spreading risk.

The credit risk on liquid funds and derivative financial instruments is limited due to the Group's policy of monitoring counterparty exposures with a maximum exposure equal to the carrying amount of these instruments. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties.

ii) Liquidity risk

Liquidity risk arises from the Group's management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.

The Group actively maintains a mixture of long-term and short-term committed facilities that are designed to ensure that the Group has sufficient available funds for operations and committed investments. The Group's undrawn committed borrowing facilities are monitored against projected cash flows. The Group prepares annual budgets and working capital forecasts to assess future cash requirements.

The Group had available but undrawn bank loan facilities of £150 million at 31 March 2010 (2009: £79.5 million), maturing between two and five years.

iii) Market risk

The Group is exposed to market risk through interest rates and currency fluctuations.

iv) Interest rate risk

The Group is exposed to interest rate risk from long-term borrowings at a variable rate. It is Group policy that a reasonable portion of external borrowings are at a fixed interest rate.

The Group uses interest rate swaps to manage its interest rate exposure and hedge future interest rate risk for the term of the bank loan. Although the Board accepts that this policy neither protects the Group entirely from the risk of paying rates in excess of current market rates nor eliminates fully the cash flow risk associated with interest payments, it considers that it achieves an appropriate balance of exposure to these risks.

At 31 March 2010 the Group had £141 million of hedges in place, and its debt was 100% fixed. Consequently, based on year end debt levels, there would be no impact on the Group's annual profit before tax of a 1% change in interest rates.

The average interest rate payable by the Group on all bank borrowings at 31 March 2010 net of undrawn facility commitment fees was 5.83% (31 March 2009: 4.1%).

v) Foreign exchange risk

Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the Group's functional currency.

The Group has not entered into any foreign currency transactions. Therefore the Group's foreign exchange risk is low.

vi) Capital risk management

The Group defines its equity as share capital, special reserves and retained earnings. The Group's objectives when maintaining capital are to safeguard the entity's ability to continue as a going concern so that it can provide returns to shareholders.
The capital structure of the Group consists of debt, which includes borrowings, cash and cash equivalents and other financial assets, and equity comprising issued capital, reserves and retained earnings. The Group balances its overall capital structure through the payment of dividends, new share issues as well as the issue of new debt or the redemption of existing debt.

c) Financial instruments

i) Categories of financial instruments

Loans and Receivables
As at 31 March	2010 £000	2009 £000
Current assets
Cash and cash equivalents	276,593	169,856
Trade receivables (note 10)	3,806	61
Interest receivable (note 10)	4	101
Other receivables	8	82
	280,411	170,100

	Measured at amortised cost		Measured at fair value
As at 31 March	2010 £000	2009 £000	2010 £000	2009 £000
Non current liabilities
Borrowings (note 13a)	121,565	69,634	-	-
Current liabilities
Trade payables (note 12)	457	751	-	-
Accrued interest (note 12)	1,277	510	-	-
Other accruals (note 12)	4,449	267	-	-
Other payables (note 12)	140	31	-	-
Corporation tax payable (note 12)	654	33	-	-
Derivative financial instruments (see 13c(iii))	-	-	5,902	1,451
	128,542	71,226	5,902	1,451

ii) Fair values

To the extent financial assets and liabilities are not carried at fair value in the consolidated balance sheet, the Directors are of the opinion that book value approximates to fair value at 31 March 2010.

iii) Derivative financial instruments

All derivative financial instruments are carried at fair value following a valuation as at 31 March 2010 by JC Rathbone Associates Limited.

Details of the fair value of the Group's derivative financial instruments that were in place at 31 March 2010 are provided below:

	Protected rate %	Expiry	Market value 31 March 2009 £000	Movement recognised in income statement £000	Market value 31 March 2010 £000
£10 million swap	3.61	October 2012	(386)	(111)	(497)
£38.4 million swap	3.68	June 2014	-	(2,035)	(2,035)
£43 million swap	3.77	October 2014	(1,518)	(849)	(2,367)
£17.5 million cap	4.00	October 2014	453	(37)	416
£12.3 million swap	3.90	October 2014	-	(833)	(833)
£19.8 million swap	3.21	January 2015	-	(586)	(586)
			(1,451)	(4,451)	(5,902)

All derivative financial instruments are non-current and are interest rate derivatives.

The market values of hedging products change with interest rate fluctuations, but the exposure of the Group to movements in interest rates is protected by way of the hedging products listed above. In accordance with accounting standards, fair value is calculated on a replacement basis using mid-market rates. This equates to a level 2 fair value measurement as defined by IFRS 7 Financial Instruments: Disclosures. The valuation therefore does not reflect the cost or gain to the Group of cancelling its interest rate protection at the balance sheet date, which is generally a marginally higher cost (or smaller gain) than a market valuation.

14 Provisions

	Enhanced management fees £000
At 31 March 2009	210
Amounts paid in the year	(210)
At 31 March 2010	-

Under the terms of various management agreements, the Group has an obligation to pay an "enhanced management fee" to third parties, following the disposal of its interests in certain investment properties, or the completion of defined property strategies for other investment properties.

The fees are based on the carrying values of properties held at the balance sheet date and only arise in respect of properties that have been subject to upward revaluation movements above their historic cost. No fees are payable at 31 March 2010.

15 Share capital

	31 March 2010 Number	31 March 2010 £000	31 March 2009 Number	31 March 2009 £000
Authorised
Ordinary shares of 10p each	Unlimited	Unlimited	500,000,000	50,000

	31 March 2010 Number	31 March 2010 £000	31 March 2009 Number	31 March 2009 £000
Issued, called up and fully paid
Ordinary shares of 10p each	500,000,000	50,000	285,000,000	28,500

On 30 July 2009 an additional 215 million ordinary shares of 10p each were issued by way of a Placing and Open Offer, and were admitted to trading on AIM. The share issue raised net proceeds of £219.5 million.

16 Reserves

The following describes the nature and purpose of each reserve within equity:

Share capital	The nominal value of shares issued.
Special reserve	A distributable reserve to be used for all purposes permitted under Guernsey company law, including the buy back of shares and payment of dividends.
Retained earnings	The cumulative profits and losses after the payment of dividends.

 

17 Related party transactions and balances

Mr H R Mould, Mr P L Vaughan and Mr M F McGann are designated members of LSI Management LLP, the property advisor to the Group. The property advisor received £6.8 million (2009: £4.8 million) for the services of property management during the year. At 31 March 2010 and 31 March 2009, none of the fee remained outstanding.

LSI Management LLP is entitled to receive in aggregate £7.0 million (2009: £758,000) in performance fees for the year ended 31 March 2010 from both the LSP Green Park Property Trust, in which the Company has a 31.4% interest and the Company itself. The Company's share of the performance fee charge in its associate was £3.0 million (2009: £315,000) and £4.0 million (2009: £443,000) was charged direct to the Group. At 31 March 2010 and 31 March 2009 all of the fee remained outstanding.

Under the property advisory agreements with LSI Management LLP, the Group is contracted to pay a performance fee which
is dependent on the growth in the net asset value of the Group exceeding a cumulative hurdle return of 10% per annum, over
the period to 2015. The calculation is undertaken annually on a cumulative basis and the agreements provide that 50% of the cumulative return is paid annually. The performance fee charged in the year to 31 March 2010 represents 50% of the outperformance achieved to date, less any amounts previously paid out.

Transactions between the Company and its subsidiaries which are related parties have been eliminated on consolidation.

18 Events after the balance sheet date

On 17 May 2010 the Group completed the corporate acquisition of Radial Distribution Limited for £208.5 million. The portfolio consists of 16 distribution warehouses and will be financed by cash resources and the £150 million loan facility with Bank of Scotland.

19 Net asset value

Net asset value per share is based on Group net assets at 31 March 2010 of £600,570,000 (31 March 2009: £291,681,000)
and the number of ordinary shares in issue at that date of 500 million (2009: 285 million).

 

END

 

 

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