Final Results

RNS Number : 6160H

NewRiver Retail Limited

01 June 2011

 



NewRiver Retail Limited

("NewRiver" or "the Company")

Final results for the 12 months ended 31 March 2011

NewRiver Retail Limited (AIM: NRR), the UK REIT specialising in value-creating retail property investment and asset management, is pleased to announce annual results for its first full accounting year ended 31 March 2011.

Financial Highlights

•    Profit before tax of £4.9m driven by increased recurring profits and upward valuations (2010: £2.1m)

•    Recurring EPRA profits of £0.9m, the majority earned in the final quarter as key acquisitions completed in the second half (2010:loss of £0.8m)

•    Strong performance at property level resulting in revaluation gains of £4.0m (2010: £2.9m) leading to EPRA and basic NAV per share of 273p (2010:261p)

•    EPRA NAV per share growth of 22% (2010:18%) excluding purchase and exceptional costs, and 5% (2010:8%) including these costs - one of the best performances in the sector

•    Additional capital of £35.0m raised during the year from equity and convertible loan stock issues all of which was fully invested within one month of being raised

•    £55.0m of new senior debt originated for acquisitions

•    Maiden interim dividend paid of 1.0p per share and final proposed dividend of 4.5p. Total dividend for the year of 5.5p (2010:Nil)

Operational Highlights

•    Strong platform for growth created

•    Acquisitions in the year of £89.0m at an average initial yield of 8.5% 

•    Asset disposals of £11.0m at IRRs of 70% and 320%, demonstrating ability to realise value and recycle equity

•    Asset management strategy already delivered 53 positive letting events

•    Significant risk-controlled development and refurbishment programme extended to approx 500,000 sq ft across eight shopping centres within the existing portfolio

•    Appointed development manager by Scottish Widows for a major shopping centre development in Abingdon

David Lockhart, Chief Executive of NewRiver Retail Limited, commented:

"Our first full financial year has been a highly active period for the Company during which we completed four major acquisitions totalling £89.0m, converted to UK-REIT status, restructured our corporate make-up, created a new banking relationship with HSBC and raised £35.0m of additional capital through issues of equity and convertible unsecured loan stock.

Whilst sentiment remains cautious within the retail sector we believe there continues to be highly attractive opportunities for properly capitalised, specialist and proven investors like NewRiver. In the 19 month period since our IPO in September 2009 we have achieved our key objective of establishing a profitable platform with a strong management team that is capable of delivering sustainable growth.

We are in a strong position to extend the success of the last year and enhance our position as one of the UK's leading retail real estate investors."

For further information contact:
NewRiver Retail Limited	Tel: [phone]
David Lockhart, Chief Executive
Pelham Bell Pottinger	Tel: [phone]
David Rydell/Rosanne Perry/Guy Scarborough
Cenkos Securities	Tel: [phone]
Ian Soanes/Max Hartley

Chairman's Statement

I am pleased to report NewRiver Retail's first full year results for the 12 month period to 31 March 2011. The Company has continued to build on the strong start since incorporation 19 months ago and has quickly established both a profitable business platform and become a recognised leader in its specialist sector.

The profit before tax of £4.9m is a significant achievement in our first full year of trading. The revaluation surplus is particularly pleasing as it evidences the Company's ability both to acquire assets off-market at attractive prices and create value through asset management initiatives.

Following the maiden interim dividend of 1.0p per share paid in January 2011, I am delighted to announce that the Board has approved a final dividend of 4.5p per share, resulting in a total dividend for the year of 5.5p per share. The conversion to UK REIT status reflects the Company's commitment to paying regular dividends as a minimum of 90% of the Company's recurring rental profits are required to be paid out as dividends.

The Company has developed a strong platform to further develop the business and is now almost fully invested. The Company has access to significant funds through its joint venture with Morgan Stanley Real Estate Investing and through its banking relationships, however the Board will continue to monitor the capital markets and will seek to take advantage of conditions to raise further expansion capital at the appropriate time. We continue to build on our group of banking relationships and would like to thank HSBC and Santander for their support in the period under review.

I am pleased to welcome new shareholders from our fundraising and particularly Forum Europe Realty Income III ("Forum") and Spearpoint as investors in the Company's Convertible Unsecured Loan Stock ("CULS") issue in November 2010. The capital raised was fully deployed within one month of being raised, including acquiring the £53.0m CPI Retail Asset Management ("CReAM") portfolio, which is already generating excellent returns.

The Company now has c1.3m sq ft of space under management as well as a development pipeline of nearly 500,000 sq ft. We are in active discussions with major retailers to deliver new space in and alongside our shopping centres. We are simultaneously working with local authorities to obtain planning consents.

As a specialist REIT, our strategy is focused on identifying winners and losers in the retail sector and acquiring assets with a focus on food and value retailing, let at affordable rents in solid, defensible locations. Our top 10 tenants include the major food retailers such as Tesco and Sainsbury's and value retailers such as Wilkinson, Superdrug and Peacocks. It is estimated that the food retailers alone are seeking 19 million sq ft of new space in the next five years and NewRiver is well placed to work with them to deliver this supply.

NewRiver's growth plan is on target. We have recruited the core team and acquired a high quality portfolio with strong prospects. With an average purchase yield of 8.5% and our own research suggesting we have been one of the most active quoted retail property investors in 2010, NewRiver is well placed to deliver strong earnings and capital growth. The Board looks forward to the future with confidence.

Paul Roy

Chairman

1 June 2011

Chief Executive's Review

Our first full financial year has been a highly active period for the Company during which we completed four major acquisitions totalling £89.0m, converted to UK-REIT status, restructured our corporate make-up, created a new banking relationship with HSBC and raised £35.0m of additional capital through issues of equity and CULS. Towards the end of the year, the first disposals were made where we felt the short term upside we had created was best redeployed into new projects with enhanced returns.

We are particularly pleased that this high level of activity is reflected in the strong financial performance of the Company notably, a 133% up-lift in pre tax profits to £4.9m (2010: £2.1m), an increase in net asset value from 261p to 273p per share at 31st March 2011 and payment of our maiden interim dividend. Excluding the full conversion charge and exceptional costs net asset value at the year end increased by 22%.

In the 19 month period since our IPO in September 2009 we have achieved our key objective of establishing a profitable platform with a strong management team that is capable of delivering sustainable growth.

Our asset acquisitions are moulding into an exciting portfolio. We now own or manage income producing assets with a value in excess of £166.0m comprising c1.3m sq ft of predominantly retail space with c350 tenants providing strength and depth. Our active asset management strategy has already achieved 53 positive leasing events resulting in an impressive weighted average lease length of 7.6 years, a low void rate of 4.4% and strong covenants, all of which compare favourably with the best in the industry, especially given our high yield profile.

As a specialist UK REIT NewRiver focuses entirely on the UK retail property sector which is the largest sector in the UK commercial property market and continues to deliver resilient long term performance. Retailers are fast moving, adaptive businesses that evolve and change format consistently which plays to the skill set of our experienced asset management team.

Notwithstanding challenging conditions in the wider UK retail environment we have continued to identify attractive value creating opportunities through our focus on the in-town food and value sub-sectors of the market which have out-performed during the difficult economic conditions of the past few years.

We believe that the value cycle continues to benefit our strategy of careful stock selection where significant value can be added through our active asset management and development and refurbishment skills. This was supported early in the financial year when the Company successfully raised approximately £10.5m of expansion capital through the issue of new shares which was quickly deployed in the £19.0m purchase of a substantial portfolio of six large retail units from a major international investor at a net initial yield of 7.7% and a £4.8m purchase of a two prime retail units in Newcastle from a receiver at a 9.6% net initial yield. Both acquisitions offered excellent prospects of rental growth and identifiable capital value enhancement opportunities.

 In November 2010, following a review and in recognition of increasing investor interest in UK REITs, the Board sought shareholder approval to convert to UK REIT status which I am delighted to say received your full support. In addition, the Company succeeded in raising £25.0m from the issue of CULS of which £17.0m was purchased by Forum. At the same time, we acquired another substantial portfolio of five large retail units from a UK institution for £14.0m at a net initial yield of 9.0%.

In December 2010, the Company completed its largest acquisition since incorporation, acquiring a major portfolio of five UK shopping centres from the CReAM fund and Barclays Bank for £53.0m at a net initial yield of 8.4%. The acquisition further benefitted NewRiver in creating an important new banking relationship with HSBC which provided the senior debt facility. These acquisitions are a prime example of NewRiver's resilient business strategy and ability to source and acquire attractive, high-yield investments.

The Company successfully deployed all of the capital raised from both fund raisings within a month of raising the money and is now effectively fully invested. The ability to invest proceeds so quickly has helped the Company generate excellent returns for shareholders. Given that the majority of additional funds were raised towards the end of November 2010 and invested in December 2010 the true benefits of the acquisitions will be seen in the current financial year and thereafter.

Following the conversion to UK REIT status, we took the opportunity to streamline the corporate and asset management structure by constituting a single Board of Directors with key members of the London investment and management team, Allan Lockhart, Nick Sewell and Mark Davies being appointed as Executive Directors. They were joined by Andrew Walker as Non-Executive Director in his capacity as a representative of Forum and I welcome them all to the Board.

In these challenging market conditions we believe maximising income is the key to outperformance, which is why we seek to acquire properties that generate a high initial yield as well as providing identifiable value creating asset management opportunities. During the year under review, our acquisitions totalling £89.0m were made at an average initial yield of 8.5 %, which makes a significant contribution towards our minimum total returns.

In March of this year, together with our joint venture partner Morgan Stanley Real Estate Investing, NewRiver began the recycling of certain assets, through the sales of Princess House in Shrewsbury for £9.6m at a net initial yield of 7.2% and a large retail unit in Glasgow for £1.3m . These two sales achieved an impressive equity return of over 70% and 320% respectively and clearly demonstrated the Company's capability to acquire real estate, enhance its value and realise capital through sale in a relatively short period.

The current financial year has lost none of the momentum with a strong pipeline of new opportunities and a wide ranging programme of development and refurbishment underway extending to approx 500,000 sq ft across eight shopping centres within the existing portfolio under management. This growing programme reflects our strategy of identifying shopping centres with an under provision of food and large space value retailing.

Whilst investment sentiment remains cautious within the retail sector we believe there continues to be highly attractive opportunities for properly capitalised, specialist and proven investors like NewRiver. Through our wide network of contacts, strong relationships with retailers, market intelligence and focused business strategy we are in a strong position to extend the success of the last year and enhance our position as one of the UK's leading retail real estate investors. We have expanded our property team and established a significant platform for growth and look forward to the future with great conviction and confidence.

I would like to thank our shareholders who continue to support the Company and its development including the conversion to REIT status and the CULS fund raising. It is a privilege to be part of such a dynamic company with a highly intelligent and experienced management team and I would again like to thank them and our professional advisers for their hard work and professionalism.

David AS Lockhart

Chief Executive
1 June 2011

Consolidated Statement of Comprehensive Income

For the year ended 31 March 2011

	Notes		Year ended 31 March 2011 £'000	Period 4 June 2009 to 31 March 2010 £'000
Group net revenue 1	3		4,425	329
Total operating expenses	4		(3,159)	(1,172)
Income from joint ventures	11		1,817	1,741
Net surplus on revaluation of investment properties	10		3,574	1,269
Operating profit			6,657	2,167
Net finance expense
Finance income	5		29	18
Finance costs	5		(1,774)	(28)
Profit for the year/period before taxation			4,912	2,157
Current taxation	6		(124)	(42)
REIT conversion charge	6		(1,600)	-
Profit for the year/period after taxation			3,188	2,115
Other comprehensive income
Fair value loss on interest rate swaps	16		(204)	(46)
Total comprehensive income for the year/period			2,984	2,069
Earnings per share 2
Basic (Pence)	7		23.07	21.15
Diluted (Pence)	7		23.00	21.11

All activities derive from continuing operations of the Group. The notes form an integral part of these financial statements

1 Group net revenue excludes the share of joint venture income of £1.3m (2010:£0.08m)

2 Includes REIT conversion charge of £1.6m (2010:£nil)

Consolidated Balance Sheet

As at 31 March 2011

	Notes		31 March 2011 £'000	31 March 2010 £'000
Non-current assets
Investment properties	10		105,800	13,315
Investments in joint ventures	11		11,926	11,778
Property, plant & equipment	12		7	7
Total non-current assets			117,733	25,100
Current assets
Trade and other receivables	14		1,413	67
Cash and cash equivalents	15		10,651	8,168
Total current assets			12,064	8,235
Total assets			129,797	33,335
Equity and liabilities
Current liabilities
Trade and other payables	17		4,980	471
Derivative financial instruments	16		116	46
Total current liabilities			5,096	517
Non-current liabilities
Trade and other payables	17		1,201	-
Borrowings	16		60,252	6,693
Debt instruments	16		24,474	-
Total non-current liabilities			85,927	6,693
Net assets			38,774	26,125
Equity
Share capital and share premium	19		-	24,031
Retained earnings	19		318	846
Other reserves	19		33,801	-
Hedging reserve	16		(250)	(46)
Share option reserve	21		62	25
Revaluation reserve	19		4,843	1,269
Total equity			38,774	26,125
Net Asset Value (NAV) per share
Basic (pence)	8		273	261
Diluted (pence)	8		272	261

The notes form an integral part of these financial statements

The financial statements were approved by the Board of Directors on 1 June 2011 and were signed on its behalf by:

David Lockhart	Mark Davies
Chief Executive	Finance Director

Consolidated Cash Flow Statement

As at 31 March 2011

	Notes		31 March 2011 £'000	31 March 2010 £'000
Net Cash inflow/(outflow) from operating activities	18		2,796	(496)
Investing Activities:
Purchase of investment properties	10		(88,911)	(12,046)
Purchase of plant & equipment			-	(8)
Cash acquired on acquisition of subsidiary			-	13
Cash inflow/(outflow) from joint ventures	11		1,535	(10,037)
Net cash from investing activities			(87,376)	(22,078)
Financing Activities:
Net finance costs			(740)	18
Issue of new shares	19		9,770	24,031
Increase in bank loans	16		53,559	6,693
Net proceeds from issue of Convertible Unsecured Loan Stock	16		24,474	-
Net cash from financing activities			87,063	30,742
Cash and cash equivalents at the beginning of the year/period	15		8,168	-
Movement during the year/period			2,483	8,168
Cash and cash equivalents at the end of the year/period			10,651	8,168
Cash and cash equivalents comprise:
Cash at bank and in hand	15		10,651	8,168
Cash and cash equivalents at the end of the year/period			10,651	8,168

The notes form an integral part of these financial statements

Consolidated Statement of Changes in Equity

As at 31 March 2011

	Notes		Retained Earnings £'000	Other Reserves £'000	Share Capital £'000	Share Premium £'000	Revaluation Reserve £'000	Share based Payments £'000	Hedging Reserve £'000	Total £'000
As at 4 June 2009			-	-	-	-	-	-	-	-
Net proceeds from issue of new shares	19		-	-	-	24,031	-	-	-	24,031
Total comprehensive income for the period	19		2,115	-	-	-	-	-	(46)	2,069
Share based payments			-	-	-	-	-	25	-	25
Revaluation surplus for the period	10		(1,269)	-	-	-	1,269	-	-	-
As at 31 March 2010			846	-	-	24,031	1,269	25	(46)	26,125
Transfer of share premium	19		-	24,031	-	(24,031)	-	-	-	-
Net proceeds from issue of new shares	19		-	9,770	-	-	-	-	-	9,770
Total comprehensive income for the year	19		3,188	-	-	-	-	-	(204)	2,984
Share based payments			-	-	-	-	-	37	-	37
Dividend payments	9		(142)	-	-	-	-	-	-	(142)
Revaluation surplus for the year	10		(3,574)	-	-	-	3,574	-	-	-
As at 31 March 2011			318	33,801	-	-	4,843	62	(250)	38,774

The notes form an integral part of these financial statements

Notes to the Accounts

1  Accounting policies

General information

NewRiver Retail Limited (the "Company") and its subsidiaries (together the "Group") is a property investment group specialising in commercial real estate in the United Kingdom. NewRiver Retail was incorporated on 4 June 2009 in Guernsey as a registered closed-ended investment company. The Company was incorporated in Guernsey under the provisions of The Companies (Guernsey) Law, 2008. On 22 November 2010, the Company converted to a REIT and repatriated effective management and control to the United Kingdom. The Company's registered office is Isabelle Chambers, Route Isabelle, St Peter Port, Guernsey GY1 3TX and the business address is Level 2 Greybrook House, 28 Brook Street London, W1K 5DH. The Company has taken advantage of the exemption conferred by the Companies (Guernsey) Law, 2008, section 244, not to prepare company only financial statements.

These audited financial statements of the Group are for the year from 1 April 2010 to 31 March 2011, the comparative period being 4 June 2009 to 31 March 2010.

Going concern

The Directors of NewRiver Retail Limited have reviewed the current and projected financial position of the Group making reasonable assumptions about future trading and performance. The key areas reviewed were:

•     Value of investment property

•     Timing of property transactions

•     Capital expenditure and tenant incentive commitments

•     Forecast rental income

•     Loan covenants

The Group has substantial cash and short term deposits, as well as profitable rental income streams and as a consequence the Directors believe the Group is well placed to manage its business risks. Whilst the Group has borrowing facilities in place, it is currently well within prescribed financial covenants.

After making enquiries and examining major areas which could give rise to significant financial exposure the Board has a reasonable expectation that the Company and the Group have adequate resources to continue its operations for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparation of these financial statements.

Statement of compliance

These financial statements have been prepared on a going concern basis and in accordance with International Financial Reporting Standards, as adopted by the European Union ("IFRS"). These financial statements have been prepared under the historical cost convention, as modified by the revaluation of investment properties, joint venture interests and derivatives which are fair valued.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company, its subsidiaries and the SPV's controlled by the Company, made up to 31 March each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

The Group financial statements consolidate the financial statements of the Company and its subsidiaries. Intra group transactions are eliminated in full.

Certain new interpretations and amendments or revisions to existing standards, which may be relevant to the Group, have been published that are mandatory for later accounting periods and which have not been adopted early. These are:

IFRS 9 Financial Instruments effective 1 January 2013

IAS 24 (Amended) Related Party Disclosures (Effective for periods on or after 1 January 2011)

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments effective 1 July 2010

Improvements to IFRSs issued April 2009

These changes are not expected to have a material impact on the Group's financial statements.

Use of estimates and key sources of estimation uncertainty

The preparation of the Group's financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingencies at the date of the Group's financial statements, and revenue and expenses during the reporting period. Actual results could differ from estimated. Significant estimates in the Group's financial statements include the assumptions relating to the valuation of options and investment properties. By their nature these estimates and assumptions are subject to measurement uncertainty.

Critical judgements in applying the Group's accounting policies

In the process of applying the Group's accounting policies, management is of the opinion that any instances of application of judgements did not have a significant effect on the amounts recognised in the financial statements.

Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

(i) Investment properties

The preparation of financial statements requires management to make estimates affecting the reported amounts of assets and liabilities, of revenues and expenses, and of gains and losses. As described below, the Group's investment properties are stated at estimated market value, as accounted for by management based on an independent external appraisal. The estimated market value may differ from the price at which the Group's assets could be sold at a particular time, since actual selling prices are negotiated between willing buyers and sellers. Also, certain estimates require an assessment of factors not within management's control, such as overall market conditions. As a result, actual results of operations and realisation of net assets could differ from the estimates set forth in these financial statements, and the difference could be significant.

(ii) Valuation of options

Management have relied on the services of external experts to determine the fair value of options at their grant date, in order to expense that value over their estimated vesting period. This requires significant estimates of a number of inputs which are used to model that fair value.

(iii) Valuation of Convertible Unsecured Loan Stock

Management was required to make estimates with the assistance of external experts to conclude on the valuation of the convertible unsecured loan stock at the date of issue. The issuance of the compound instrument was between two knowledgeable parties at arms length and at a market rate of 5.85% pa for 5 years. Management have concluded that the value of the convertible option was negligible and the value resided in the debt portion of the instrument at the date of issue.

(iv) Impairment in investment in subsidiaries and associates

Determining whether investments in subsidiaries and associates are impaired requires an estimation of the fair values less cost to sell and value in use of those investments. The process requires the Group to estimate the future cash flows expected from the cash-generating units and an appropriate discount rate in order to calculate the present value of the future cash flows. Management has evaluated the recoverability of those investments based on such estimates.

Investment property and property in the course of construction

Property held to earn rentals and for capital appreciation is classified as investment property. Investment property comprises both freehold and leasehold land and buildings.

Investment property is recognised as an asset when:

•     It is probable that the future economic benefits that are associated with the investment property will flow to the Company;

•     There are no material conditions precedent which could prevent completion; and

•     The cost of the investment property can be measured reliably.

Investment property is measured initially at its cost, including related transaction costs. After initial recognition, investment property is carried at fair value. The Group has appointed Colliers International and CB Richard Ellis as property valuers to prepare valuations on a semi-annual basis. Valuations are undertaken in accordance with the appropriate sections of the current Practice Statements contained in the Royal Institution of Chartered Surveyors Appraisal and Valuation Standards, 6th Edition (the "Red Book"). This is an internationally accepted basis of valuation. Gains or losses arising from changes in the fair value of investment property are included in the income statement in the period in which they arise and transferred to the revaluation reserve.

In completing these valuations the valuer considers the following:

(i) current prices in an active market for properties of a different nature, condition or location (or subject to different lease or other contracts), adjusted to reflect those differences;

(ii) recent prices of similar properties in less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and

(iii) discounted cash flow projections based on reliable estimates of future cash flows, derived from the terms of any existing lease and other contracts and (where possible) from external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows.

The cost of properties in the course of development includes attributable interest and other associated outgoings. Interest is calculated on the development expenditure by reference to specific borrowings where relevant and otherwise on the average rate applicable to the term loans. A property ceases to be treated as a development property on practical completion.

When the Group begins to redevelop an existing investment property with a view to sell, the property is transferred to trading properties and held as a current asset. The property is re-measured to fair value as at the date of the transfer.

Value added tax

Revenues, expenses and assets are recognised net of the amount of value added tax except:

(i) Where the value added tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the value added tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

(ii) Receivables and payables that are stated with the amount of value added tax included. The net amount of value added tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.

Revenue recognition

(i) Rental income

Rental income from operating leases is recognised in income on a straight-line basis over the lease term. Rent is billed in advance and then allocated to the appropriate period. Therefore, deferred revenue generally represents the proportion of rentals invoiced in advance as at the reporting date and any advance payments from tenants. Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to the Group and the amount of revenue can be measured reliably.

(ii) Interest Income

Interest income and expenses is recognised in the income statement under the effective interest method as they accrue. Interest income is recognised on a gross basis, including withholding tax, if any.

(iii) Asset management fees

Management fees are recognised in the income statement on an accruals basis. Interest income is recognised on a gross basis, including withholding tax, if any.

(iv) Promote payments

Under the terms of the Limited Partnership Agreement of NewRiver Retail Investments LP, the Group is contractually entitled to receive a promote payment should the returns from the joint venture to the joint venture partner exceed a certain internal rate of return. This payment is only receivable by the Group on disposal of underlying properties held by the joint venture. Any entitlements under these arrangements are only accrued for in the financial statements once the Group believes that crystallisation of the fee is virtually certain.

Business combinations

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the income statement. Goodwill is reviewed for impairments annually. The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of completion, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquired. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition.

Whilst a corporate acquisition would normally be accounted for under IFRS 3, there are situations where these transfers may not qualify as business combinations. This is considered on a case by case basis by management in light of the substance of the acquisition.

Acquisitions

The consideration payable in respect of each acquisition may be dependant upon certain future events. In calculating the cost of each acquisition the Group has assessed the most probable outcome as at the balance sheet date. These amounts are reconsidered annually at each year end and changes to consideration are taken to the income statement.

Joint ventures

The Group's investment properties are typically held in property specific special purpose vehicles ("SPVs"), which may be legally structured as a joint venture.

In assessing whether a particular SPV is accounted for as a subsidiary or joint venture, the Group considers all of the contractual terms of the arrangement, including the extent to which the responsibilities and parameters of the venture are determined in advance of the joint venture agreement being agreed between the two parties. The Group will then consider whether it has the power to govern the financial and operating policies of the SPV, so as to obtain benefits from its activities, and the existence of any legal disputes or challenges to this control in order to conclude on the classification of the SPV as a joint venture or subsidiary undertaking. The Group considers this position with the evidence available at the time.

The consolidated financial statements account for interests in joint ventures using the equity method of accounting. Any premium paid for an interest in a jointly controlled entity above fair value of identifiable assets, liabilities and contingent liabilities is accounted for in accordance with the goodwill accounting policy.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Convertible debt

Convertible debt consist of both a liability and equity element. On issue of convertible debt, management assess the fair value of the liability by reference to the cash flow to redemption associated with the instrument, discounted at a market rate of interest. The difference between the issue proceeds and the fair value of the liability is allocated to the equity element of the instrument.

Trade and other payables

Trade and other payables are initially recognised at fair value, and subsequently where necessary re-measured at amortised cost using the effective interest method.

Trade and other receivables

Trade and other receivables are initially recognised at fair value. A provision for impairment of trade receivables is established when there is objective evidence the Group will not be able to collect all amounts due according to the original terms of the receivables.

Share based payments

Share options have been granted to key management as set out in note 21. The cost of equity settled transactions is measured with reference to the fair value at the date at which they were granted. The Group accounts for the fair value of these options at grant date over the vesting period in the income statement, with a corresponding increase to the share based payment reserve. The fair value was calculated based on the Black Scholes Model using the following inputs:

Share price	£2.50
Exercise price	£2.44 - £2.71
Expected volatility	23%* - 10%*
Risk free rate	2.48% - 2.60%
Expected dividends*	4% - 3%

*based on quoted property sector average

Treasury Shares

Own equity instruments which are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in the income statement on the purchased, sale, issue or cancellation of the Group's own equity instruments. Any difference between the carrying amount and the consideration is recognised in the reserves.

The Group has issued a number of shares to an Employee Benefit Trust (EBT) as detailed in note 20. As this EBT is controlled by the Group, it is consolidated in these financial statements and unallocated shares held by the EBT are shown as treasury shares.

Dividends

Dividends to the Company's shareholders are recognised when they become legally payable. In the case of interim dividends, this is when they are declared by the Directors. In the case of final dividends, this is when approved by the Board.

Hedge accounting

Hedges of interest rate risk on firm commitments are accounted for as cash flow hedges.

At the inception of the hedge relationship, the entity documents the relationship between the hedging instruments and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item.

Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in the 'other gains and losses' line item.

Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item is recognised in profit or loss, in the same line of the income statement as the recognised hedged item. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously accumulated in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability.

Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Any gain or loss recognised in other comprehensive income at that time is accumulated in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognised immediately in profit or loss.

Leasing (as lessors)

Leases where the Group does not transfer substantially all the risks and benefits incidental to the ownership of the assets are classified as operating leases. All of the Group's properties are leased under operating leases and included in investment property in the balance sheet.

2  Segmental reporting

During the year the Group operated in one business segment, being property investment in the United Kingdom and as such no further information is provided.

3  Revenue

	2011 £'000	2010 £'000
Rental and related income	4,378	257
Asset management fees	342	72
Surrender premiums and commissions	58	-
Direct property costs	(353)	-
Net rental income	4,425	329

4  Operating expenses

	2011 £'000	2010 £'000
Group staff costs	1,991	405
Depreciation	1	1
Administration and other operating expenditure	1,167	766
	3,159	1,172

During the year £0.2m (2010:£nil) of exceptional costs were incurred as part of the company's REIT conversion.

	2011 £'000	2010 £'000
Auditors remuneration
Fees payable to the Company's auditor for the audit	88	48
Fees payable to the Company's auditor relating to the Admission to AIM	-	125
Fees payable to the Company's auditor for the interim review	18	10
	106	183

£0.05m (2010: £0.02m) of tax compliance fees paid to the Company's auditor are included in other operating expenses.

5  Finance income and expense

	2011 £'000	2010 £'000
a) Finance income
Income from cash and short term deposits	29	18
Total finance income	29	18
b) Finance costs
Interest on bank loans	1,228	28
Interest on debt instruments	546	-
Total finance costs	1,774	28
Net finance cost	1,745	10

Interest on debt instruments relates to the Convertible Unsecured Loan Stock.

More details on the Group's borrowings are provided in note 16.

6  Taxation

The tax expense for the period comprises:

	2011 £'000	2010 £'000
Tax (income) charge
Current tax
Tax rate in Guernsey at 0%	-	-
UK Corporation Tax	124	42
Tax charge	124	42
REIT conversion charge	1,600	-
Tax charge	1,724	42

The Company entered the REIT regime on 22 November 2010 and is not exposed to tax on gains arising from the disposal of exempt property assets, for this reason deferred tax has not been provided for on revaluation surpluses. At the time of the Company's conversion a provision of £1.6m (representing a 2% charge on the assets taken into the regime) was made for the REIT conversion charge which the Company has chosen to pay over the next 4 years (which carries as 0.19% charge). The instalments are payable annually between June 2011 and June 2014.

7  Earnings per share

The European Public Real Estate Association (EPRA) issued Best Practices Policy Recommendations in October 2010, which gives guidelines for performance measures. The EPRA earnings measure excludes investment property revaluations and gains on disposals, intangible asset movements and their related taxation and the REIT conversion charge.

The calculation of basic and diluted earnings per share is based on the following data

	2011 £'000	2010 £'000
Earnings
Earnings for the purposes of basic and diluted EPS being profit after taxation	3,188	2,115
Adjustments to arrive at EPRA profit
Exceptional items: REIT conversion charge	1,600	-
Prior year tax provision	36	-
Other exceptional items	165	-
Unrealised surplus on revaluation of investment properties	(3,574)	(1,269)
Unrealised surplus on revaluation of joint venture investment properties	(545)	(1,663)
EPRA profit/(loss)	870	(817)

Number of shares

	No. 000's	No. 000's
Weighted average number of ordinary shares for the purposes of basic EPS and basic EPRA EPS	13,822	10,000
Effect of dilutive potential ordinary shares:
Options	21	12
Warrants	22	6
CULS	-	-
Weighted average number of ordinary shares for the purposes of basic diluted EPS and basic diluted EPRA EPS	13,865	10,018
EPRA EPS basic (pence)	6.29	(8.17)
EPRA diluted EPS (pence)	6.27	(8.16)
EPS basic (pence)	23.07	21.15
Diluted EPS (pence)	23.00	21.11

8  Net asset value per share

	2011 £'000	2010 £'000
Net asset value	38,774	26,125
Number of ordinary shares	14,212	10,000
Number of ordinary shares EPRA*	24,467	-
EPRA Net asset value per share (pence)	273	261
Basic Net asset value per share (pence)	273	261
Diluted Net asset value per share (pence)	272	261

*The number of shares in issue is adjusted under the EPRA calculation to assume the conversion of the warrants, options and Convertible Unsecured Loan Stock to equity.

Net asset value per share is based on Group net assets at 31 March 2011 of £38.7m (2010:£26.1m) and the 14.2m (2010:10m) ordinary shares in issue.

Under the terms of the Limited Partnership agreement relating to NewRiver Retail Investments LP dated 28 February 2010, MSREI has been granted the right to convert its interest in the JV or part thereof on an NAV for NAV basis into shares of NewRiver Retail Limited, up to 10 per cent of the share capital of NewRiver Retail Limited during the joint venture period. This conversion would currently have an anti-dilutive effect on the Group's EPS calculation.

9  Dividends

On 21 January 2011, the Company paid its maiden dividend of £0.14m at 1p per share.

On the 23 May 2011 the Board of Directors approved a final dividend of 4.5p per share which will result in a distribution of £0.6m.

The dividend will be paid entirely as a PID (Property Income Distribution). PID dividends are paid, as required by REIT legislation, after deduction of withholding tax at the basic rate of income tax (currently 20%). However, certain classes of shareholder may be able to claim exemption from deduction of withholding tax.

10  Investment properties

	2011 £'000	2010 £'000
Balance at 31 March 2010	13,315	-
Acquisitions in the year/period	88,911	12,046
	102,226	12,046
Fair value surplus on property revaluations	3,574	1,269
Balance at 31 March 2011	105,800	13,315

The Group's investment properties have been valued at 31 March 2011 by independent valuers on the basis of open market value in accordance with the Appraisal and Valuation Standards of the Royal Institute of Chartered Surveyors Sixth Edition (the "Red Book").

It is the Group's policy to carry investment property at fair value in accordance with IAS 40 "Investment Property". The fair value of the Group's investment property at 31 March 2011 has been determined by the directors on the basis of open market valuations carried out by Colliers International and CB Richard Ellis who are the external valuers to the group.

The basis for the valuations included in the report is based on current market rental yields, expected rental income and comparable market transactions.

11  Investments in joint ventures

	2011 £'000	2010 £'000
Balance at 31 March 2010	11,778	-
Additional joint venture interests during the year (1)	1,440	10,037
Income from joint ventures	1,817	1,741
Distributions and dividends (1)	(2,032)	-
Return of capital (1)	(943)	-
Hedging movements	(134)	-
Net book value at 31 March 2011	11,926	11,778

Name	Country of incorporation	% Holding 2011
New River Retail Investments LP	Guernsey	50%
NewRiver Retail Investments (GP) Ltd*	Guernsey	50%

(1)   The net cash inflow during the year was £1,5m (2010: cash outflow of £10.0m).

NewRiver Retail Investments LP (the "JV") is an established jointly controlled limited partnership set up by NewRiver Retail Limited and Morgan Stanley Real Estate Investing ("MSREI") to invest in UK Retail property. The JV has an acquisition capacity in excess of £250m including appropriate leverage with future respective equity commitments being decided on a transaction by transaction basis. Interests in further property acquisitions made by the joint venture may vary from the current 50/50 split of existing projects.

The JV is owned equally by NewRiver Retail Limited and MSREI. NewRiver Retail (UK) Limited is the appointed asset manager on behalf of the JV and receives asset management fees as well as performance-related return promote payment.

No promote payment has been recognised during the period and the Group is entitled to receive promote payments only after achieving the agreed hurdles.

Under the terms of the Limited Partnership agreement relating to NewRiver Retail Investments LP dated 28 February 2010, MSREI has been granted the right to convert its interest in the JV or part thereof on an NAV for NAV basis into shares of NewRiver Retail Limited, up to 10 per cent of the share capital of NewRiver Retail Limited during the joint venture period. This conversion would currently have an anti-dilutive effect on the Group's EPS calculation.

In line with the existing NewRiver investment strategy, the JV will target UK retail property assets with the objective of delivering added value and above average returns through NewRiver's proven skills in active and entrepreneurial asset management and risk controlled development and refurbishment.

*NewRiver Retail Investments (GP) Ltd has a number of 100% owned subsidiaries which are NewRiver Retail (Finco No 1) Limited and NewRiver Retail (GP1) Limited, acting in its capacity as General Partner for NewRiver Retail (Holding No 1) LP and NewRiver Retail (Portfolio No 1) LP. These entities have been set up to facilitate the investment in retail properties in the UK by the joint venture.

The Group has a 31 December year end and applied equity accounting for its interest in the JV. The aggregate amounts recognised in the consolidated balance sheet and income statement eliminate inter company transactions and       are as follows:

	2011 NewRiver Retail Investments (GP) Ltd Total £'000	2011 Group's Share 50% £'000		2010 NewRiver Retail Investments (GP) Ltd Total £'000	2010 Group's Share 50% £'000
Non-current assets	46,365	23,183		55,835	27,918
Current assets	2,105	1,052		644	322
Current liabilities	(1,714)	(857)		(10,223)	(5,112)
Non-current liabilities	(22,904)	(11,452)		(22,700)	(11,350)
Net assets	23,852	11,926		23,556	11,778
Income	4,661	2,331		228	114
Administration expenses	(1,062)	(532)		(14)	(7)
Finance costs	(1,055)	(527)		(58)	(29)
Profit after tax	2,544	1,272		156	78
Fair value surplus on property revaluations	1,090	545		3,325	1,663
Income from joint ventures	3,634	1,817		3,481	1,741

The Group's share of the contingent liabilities to the JV is £Nil.

12  Property, plant and equipment

	Fixtures & equipment 2011 £'000	Total 2011  £'000
Cost brought forward and carried forward	8	8
Accumulated depreciation brought forward	(1)	(1)
Charge for the year/period	(1)	(1)
Net book value at 31 March 2011	7	7
Net book value at 31 March 2010	7	7

13  Investment in subsidiary undertakings

Below is a list of the Group's principal subsidiaries:

Name	Country of incorporation	Activity	Proportion of ownership interest 2011
NewRiver Retail (Wrexham No. 1) Limited	Guernsey	Real estate investments	100%
NewRiver Retail (Market Deeping No. 1) Limited	Guernsey	Real estate investments	100%
NewRiver Retail (Newcastle No. 1) Limited	Guernsey	Real estate investments	100%
NewRiver Retail (Portfolio No. 1) Limited	Guernsey	Real estate investments	100%
NewRiver Retail (Portfolio No. 2) Limited	Guernsey	Real estate investments	100%
NewRiver Retail (UK) Limited	United Kingdom	Operating Co and asset management	100%
NewRiver Retail (Portfolio No. 3) Limited	United Kingdom	Real estate investments	100%
NewRiver Retail CUL No. 1 Limited	United Kingdom	Finance Company	100%

The Group's investment properties are held by its subsidiary undertakings.

14  Trade and other receivables

	2011 £'000	2010 £'000
Trade receivables	1,213	41
Prepayments and accrued income	200	18
Other receivables	-	8
	1,413	67

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

A provision of £0.1m was made for trade receivables as at 31 March 2011.

15  Cash and cash equivalents

	2011 £'000	2010 £'000
Cash at bank	10,651	503
Short term deposits	-	7,665
	10,651	8,168

16  Borrowings

	2011 £'000	2010 £'000
Secured bank loans	60,252	6,693
Convertible Unsecured Loan Stock	24,474	-
	84,726	6,693
Maturity of borrowings:
Less than one year	-	-
Between one and two years	-	-
Between two and five years	84,726	6,693
Over five years	-	-

Secured bank loans

Bank loans are secured by way of legal charges on properties held by the Group and a hedging policy is adopted which is aligned with the property strategy on each of its assets.

Facility type	Lender	Maturity date	2011 Total facility	2011 Drawn	Hedging Fixed Rate		Hedging Capped Rate***		Floating Capped Rate		Weighted Avg Borrowing Cost
			£'000	£'000	£'000	%	£'000	%	£'000	%	%
Balance Sheet
Bilateral term loan	Santander	19-Feb-15	9,303	9,303	6,783	5.18%	-	-	2,520	3.02%	4.59%
Bilateral term loan	Santander	04-Jun-13	21,460	16,856	14,999	3.74%	-	-	1,857	2.87%	3.65%
Bilateral term loan*	HSBC	30-Nov-15	34,580	34,580	-	-	34,580	3.54%	-	-	3.54%
			65,343	60,739	21,782		34,580		4,377		3.80%
Joint Ventures
Bilateral term loan 50% share**	Santander	28-Feb-15	11,539	11,539	-	-	11,539	3.30%	-	-	3.30%
			11,539	11,539	-		11,539		-		3.30%
Total			76,882	72,278	21,782		46,119		4,377		3.60%
Convertible Instruments
Convertible Unsecured Loan Stock		31-Dec-15	25,000	25,000	25,000	5.85%	-	-	-	-	5.85%
			25,000	25,000	25,000		-		-		5.85%

*This facility is capped at 6.5% (4% cap, 2.5% bank margin)

**This facility is capped at 6.25% (4% cap, 2.25% bank margin)             

***Current floating rate

Facility and arrangement fees

	2011					2010
	Facility £'000	Fees £'000	Amortised £'000	Balance £'000		Facility £'000	Fees £'000	Amortised £'000	Balance £'000
Santander	26,159	219	(55)	25,995		6,783	93	(3)	6,693
HSBC	34,580	346	(23)	34,257		-	-	-	-
	60,739	565	(78)	60,252		6,783	93	(3)	6,693
Convertibles	25,000	566	(40)	24,474		-	-	-	-
	85,739	1,131	(118)	84,726		6,783	93	(3)	6,693

The weighted average debt maturity of borrowings was 4.10 years (3.86 years excluding the convertible instruments).

The Group recognised a mark to market fair value loss of £0.3m (2010:£0.05m) on its interest rate swaps as at 31 March 2011. The fair value loss recognised for on Balance Sheet hedging (excluding joint ventures) was £0.1m.

All borrowings are due after more than one year.

Convertible Unsecured Loan Stock ("CULS")

On 22 November 2011 the Group issued £25m of CULS where the stock holder may convert all or any of the stock into ordinary shares at the rate of 1 ordinary share for every £2.80 nominal value of CULs held (adjusted for special dividends). Under the terms of the convertible, interest will accrue at 5.85% on the outstanding loan stock until 31 December 2015 when it will either be converted or repaid. The interest payable on the CULS is due biannually on the 30 June and 31 December.

Management was required to make estimates with the assistance of external experts to conclude on the valuation of the CULS at the date of issue. The issuance of the compound instrument was between two knowledgeable parties at arms length and at a market rate of 5.85% pa for 5 years. Management have concluded that the value of the convertible option was negligible and the value resided in the debt portion of the instrument at the date of issue.

17 Trade and other payables

	2011 £'000	2010 £'000
Trade payables	429	294
Rent received in advance	3,712	135
Taxation - current	839	42
Current trade and other payables	4,980	471
Taxation - non current	1,201	-
Non-current trade and other payables	1,201	-

18  Cashflow note

	2011 £'000	2010 £'000
Profit before tax	4,912	2,167
Adjustments for:
Income from joint ventures not received	-	(79)
Net gain on revaluation of investment properties	(3,574)	(1,269)
Net gain on revaluation of joint venture investment properties	(545)	(1,663)
Depreciation of property, plant and equipment and goodwill	(1)	12
Share based payments expense	37	25
Operating cashflows before movements in working capital	829	(807)
Increase in receivables	(1,412)	(88)
Increase in payables	3,379	399
Cash inflows/(outflows) from operations	2,796	(496)

19  Share capital and reserves

	2011 Retained Earnings £'000	2011 Other Reserves £'000	2011 Share Premium £'000	2011 Revaluation Reserve £'000		2010 Retained Earnings £'000	2010 Share Premium £'000	2010 Revaluation Reserve £'000
Brought forward	846	-	24,031	1,269		-	-	-
Surplus on revaluation	(3,574)	-	-	3,574		(1,269)	-	1,269
Total comprehensive income for the period	3,188	-	-	-		2,115	-	-
Dividend paid	(142)	-	-	-		-	-	-
Shares issued in year/period	-	-	10,531	-		-	25,000	-
Warrants exercised in the year/period	-	-	-	-		-	-	-
Issue costs	-	-	(761)	-		-	(969)	-
Treasury shares	-	-	-	-		-	-	-
Transfer to distributable reserve	-	33,801	(33,801)	-		-	-	-
Balance carried forward	318	33,801	-	4,843		846	24,031	1,269

In May 2010, 4.2m (2010:10.0m) nil par value ordinary shares were issued for cash consideration at a price of £2.50 (2010: £2.50) resulting in an increase of the total share capital to £33.8m (2010: £24.0m). Costs of £0.8m (2010: £1.0m) directly attributable to the issue of these shares have been set against the share premium account.

As at 31 March 2011, the total number of shares outstanding was  14,214,308 (2010: 10,000,000). No treasury shares were issued during the year (2010:0.6m) (see note 20).

During the year the Group approved a transfer of the share premium account of £33.8m to other reserves which may be distributed in the future.

Shareholders who subscribed for Placing Shares in the initial Placing received warrants, in aggregate, to subscribe for 3 per cent of the Fully Diluted Share Capital exercisable at the subscription price per Ordinary Share of £2.50 and all such warrants shall be fully vested and exercisable upon issuance. The subscription price was adjusted to £2.44 following the share issue in May 2010. During the year 2,308 warrants were exercised.

20  Treasury shares

The Company has established an Employee Benefit Trust (EBT) which is registered in Jersey.

The EBT at its discretion may transfer shares held by it to Directors and employees of the Company and its subsidiaries. The maximum number of ordinary shares that may be held by the Trustee of the EBT may not exceed 10% of the Company's issued share capital at that time. It is intended that the Trustee of the EBT will not hold more ordinary shares than are required in order to satisfy awards/options granted under share incentive plans.

During the year no shares were issued to the EBT (2010: 624,000 nil par value shares for nil consideration). As the EBT is consolidated, these shares are treated as Treasury Shares.

No shares have been allocated by the EBT to directors or employees during the year.

	2011 000s	2010 000s
Brought forward	624	-
Issued during the year/period	-	624
Carried forward	624	624

21  Share based payments

The Group provides share based payments to employees in the form of share options, all share based payment arrangements granted since the admission on 1 September 2009 have been recognised in the financial statements. The Group uses the Black Scholes Model and the resulting value is amortised through the income statement over the vesting period of the share based payments with a corresponding credit to the share based payments reserve.

(a) Terms

	2011 No of options	2010 No of options
Awards brought forward at 1 April 2010	660,200	660,200
Awards made during the year/period	226,749	-
Exercisable options at the end of the year/period	886,949	660,200

The awards granted during the period are based on a percentage of the total number of shares in issue, as a result of the new share issue the number of awards have increased.

(b) Share based payment charge

	2011 £'000	2010 £'000
Share based payment expense brought forward	25	-
Share based payment expense in the year/period	37	25
Cumulative share based payment	62	25

22  Financial commitments and operating lease arrangements

	2011 £'000	2010 £'000
Group share of the financial commitments to joint ventures	-	1,400
	-	1,400
Operating lease arrangements:
Where the group is lessee	55	55

Operating lease payments represent rentals payable by the Group for occupation of its office properties.

The current lease is an annual commitment with 1 year until expiry.

23  Post balance sheet events

On May 23 2011, the Board of Directors approved a final dividend of 4.5p per share which will result in a distribution of £0.6m.

The dividend will be paid entirely as a PID (Property Income Distribution). PID dividends are paid, as required by REIT legislation, after deduction of withholding tax at the basic rate of income tax (currently 20%). However, certain classes of shareholder may be able to claim exemption from deduction of withholding tax.

24  Financial instruments - risk management

The Group's activities expose it to a variety of financial risks in relation to the financial instruments it uses: market risk (including currency risk, price risk and cash flow interest rate risk), credit risk and liquidity risk. The financial risks relate to the following financial instruments: trade receivables, cash and cash equivalents, trade and other payables, borrowings and derivative financial instruments.

Risk management parameters are established by the Board on a project by project basis. Reports are provided to the Board formally on a quarterly basis and also when authorised changes are required.

a) Market risk

Currency risk

As all material transactions are in GBP the group is not subject to any foreign currency risk.

Cash flow and fair value interest rate risk

The Group has significant interest-bearing cash resources, the majority of which are held in business accounts with its principal bankers. The Group's interest rate risk arises from long-term borrowings (note 16), Borrowings issued at variable rates expose the Group to cash flow interest rate risk, whilst borrowings issued at a fixed rate expose the Group to fair value risk. The Group's cash flow and fair value risk is reviewed quarterly by the Board.

The cash flow and fair value risk is approved quarterly by the Board. The Group analyses its interest rate exposure on a dynamic basis. It takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest costs may increase as a result of such changes. They may reduce or create losses in the event that unexpected movements arise. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios the Group calculates the impact on profit and loss of a defined interest rate shift. The simulation is run on an on-going basis to verify that the maximum potential impact is within the parameters expected by management. Formal reporting to the Board on cash flows is made on a monthly basis. To date the Group has sought to fix its exposure to interest rate risk on borrowings through the use of a variety of interest rate derivatives. This gives certainty over future cash flow but exposure to fair value movements, which amounted to an unrealised loss of £0.25m at 31 March 2011 (2010:£0.05m). The Group has interest rate hedges in place to mitigate interest rate risk.

b) Credit risk

The Group's principal financial assets are cash and short term deposits, trade and other receivables.

The credit risk on the Group's trade and other receivables is considered low due to the Group having policies in place to ensure that rental contracts are made with tenants meeting appropriate balance sheet covenants, supplemented by rental deposits or bank guarantees from international banks. The 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 all amounts due according to the terms of the receivables concerned.

The Group has VAT payable of £0.4m (2010: £0.01m receivable). The timing of payment of these balances is subject to future revenue receipts and application to HMRC. The Group forecasts the payment of these balances based upon the timing of future revenue receipts and its experience of successful application to the HMRC. No balances are considered passed due or impaired at 31 March 2011 based upon this assessment of the timing of future cash receipts. The Group believes its only exposure is in relation to the timing of payment.

The credit risk on the Group's cash and short term deposits and derivative financial instruments is limited to the Group's policy of monitoring counterparty exposures.

(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Board and its advisers seek to have appropriate credit facilities in place on a project by project basis, either from available cash resources or from bank facilities.

Management monitor the Group's liquidity position on a weekly basis. Formal liquidity reports are issued on a weekly basis and are reviewed quarterly by the Board, along with cash flow forecasts. A summary table with maturity of financial liabilities is presented below.

	2011				2010
	Current	Year 2	Years 3 to 5		Current	Year 2	Years 3 to 5
	£'000	£'000	£'000		£'000	£'000	£'000
Interest bearing loans and borrowings	-	-	60,252		-	-	6,693
CULS	-	-	24,474		-	-	-
Trade and other payables	4,980	-	-		471	-	-
Derivative financial instruments	-	-	250		-	-	46
	4,980	-	84,976		471	-	6,739

The Group monitors its risk to a shortage of funds by forecasting cash flow requirements for future years, including consideration of existing facilities and covenant requirements. The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts and other short term borrowing facilities, bank loans and equity fund raisings.

(d) Capital risk management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern to provide returns to shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

To maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Consistent with others in the industry, the Group monitors capital on the basis of its gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including borrowings and trade and other payables as shown in the balance sheet) but excluding preference shares, which for capital risk management is considered to be capital rather than debt, less cash and short term deposits. Total capital is calculated as equity, as shown in the balance sheet, plus preference shares and net debt. Where the Group has a net position, the gearing ratio will be zero. The Group is not subject to any external capital requirements.

25  Related party transactions

Group

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

Directors shareholdings can be found in the Directors report.

Total emoluments of Executive Directors during the period (excluding share-based payments) was £1.2m (2010:£0.3m).

Serena Tremlett is the Managing Director of Morgan Sharpe Administration Limited which receives fees for providing secretarial services in respect of the Company. During the year £0.2m was paid to Morgan Sharpe Administration in respect of these services. The services were carried out on an arm's length basis.

Share based payments of £0.04m (2010:£0.03m) accrued during the year.

26  Operating lease arrangements

The Group earns rental income by leasing its investment properties to tenants under non-cancellable operating leases.

At the balance sheet date the Group had contracted with tenants for the following future minimum lease payments on its leasehold properties:

	2011 £'000	2010 £'000
Within one year	2,406	946
In the second year	2,406	946
In the third to fifth year (inclusive)	7,219	2,838
After five years	174,678	7,859
	186,709	12,589

 

END

 

 

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