Final Results Part 1

Quintain Estates & Development PLC 31 May 2006 31 May 2006 QUINTAIN ESTATES AND DEVELOPMENT PLC ('Quintain' / 'Group') PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2006 Highlights • Strong progress made across all areas of the Group's business; total return of 21% • Top decile performance in IPD's March Universe; Quintain has been the top performing fund since inception • Net asset value per share increased by 19% to 526p (2005: 443p); diluted net asset value per share rose by 18% to 516p (2005: 436p) • Profit before tax up 86% to £65.0m (2005: £34.9m) primarily due to sales in the core investment portfolio and substantial valuation uplifts • Earnings per share up 49% to 46.1p before discontinued activities (2005: 31.0p) • Final dividend of 7.25p giving a total dividend for the year of 10.5p (2005: 9.5p) representing an increase of 11% • Asset disposals totalling £135.0m during the period, generating profits of £14.2m; purchases totalled £41.4m • Valuation of Wembley and Greenwich Peninsula assets reveal approximate values of £384m (up 25%) at Wembley and £144m (up 6%) at Greenwich • Since the year end, Wembley has been shortlisted as one of the potential sites for a regional casino • Significant progress within Quintain Fund Management: - Quercus, the Group's specialist healthcare fund, grew funds under management by 63% and delivered a fund level return of 49.7% - £50m of assets acquired post year end in preparation for the launch of a student accommodation fund and heads of terms agreed on a further £106m of assets - Quantum Property Partnership formed with existing partner Morley Fund Management to invest in, develop and operate science parks. Post the year end, Quantum selected as preferred development partner by South West Regional Development Agency to create a new science and technology park in Bristol • Quintain's position as one of the UK's leading urban regeneration companies affirmed through its involvement in over 27m sq ft of mixed-use development of which 22m sq ft has planning consent. Nigel Ellis, Chairman of Quintain, commented: 'The year to 31 March 2006 has been another successful year for the Group, delivering a total return of 21%. Based on this, our core measure, and subject to market conditions, we believe the Group is well positioned to deliver considerable growth in its activities over the next few years and, as such, we look forward with enthusiasm.' For further information, please contact: Quintain Estates and Development Rebecca Worthington 020 7495 8968 Financial Dynamics Stephanie Highett / Dido Laurimore 020 7831 3113 FINANCIAL HIGHLIGHTS FOR THE YEAR TO 31 MARCH 2006 INCOME STATEMENT 31 March 31 March Change 2006 2005 % Profit before tax and discontinued operations (£m) 65.0 34.9 86.0 Basic earnings per share before discontinued operations (pence) 46.1 31.0 48.7 Diluted earnings per share before discontinued operations (pence) 45.2 30.4 48.7 Profit before tax after discontinued operations (£m) 60.9 37.3 63.3 Basic earnings per share after discontinued operations (pence) 43.9 32.3 35.9 Diluted earnings per share after discontinued operations (pence) 43.0 31.7 35.6 Total dividend per share (pence) 10.50 9.50 10.5 Final dividend per share (pence) 7.25 6.75 7.4 Balance Sheet 31 March 31 March Change 2006 2005 % Net asset value per share (pence) 526 443 18.7 Total return per share (%) 21.0 23.1 - Net asset value per share - EPRA 612 497 23.1 (pence) Total return per share - EPRA (%) 25.2 21.9 - Gearing (%) 36 29 - The attached preliminary announcement is extracted from the Group's Annual Report which is audited and has been given an unqualified audit opinion. Chairman's Statement I am pleased to report that Quintain has had yet another successful year in which strong progress was made across our business. During the year we achieved a total return, as measured by the increase in net assets per share adding back the dividend paid, of 21.0% or 18.60% net of inflation. The total return as measured on an EPRA basis and defined in the Operating and Financial Review, was 25.2% for the year. This is well ahead of our internal target of a 10% total return net of RPI inflation, a target which we have exceeded every year since flotation in 1996. We have also significantly outperformed the property market, as measured by the Investment Property Databank (IPD) the industry benchmark. Our total ungeared return for the year to 31 March 2006 was 26.5%, compared with IPD's March Universe of 20.9%. During the year the net asset value per share rose by 19% from 443p to 526p and, on a diluted basis, by 18% to 516p from 436p. As in past years, the main driver of the uplift was the surplus on property revaluation, with the most significant contribution again arising from our investment in Wembley. Details of all these projects and a full review of our operations follow in the Operating and Financial Review. Profit before tax rose by 86% from £35m to £65m and earnings from continuing operations increased by 49% to 46p per share, primarily due to the sales in the core investment portfolio and substantial valuation uplifts both in the investment portfolio and in the Quercus healthcare fund - our joint venture with Morley Fund Management. Underlying profits decreased, however, largely due to an increase in administrative expenses as we continued to invest in our management team and widen our in-house expertise and skills to position the Group for its next exciting phase of growth. As indicated in previous reports to shareholders, the Company's earnings will inevitably vary over time, particularly in light of the major special projects. In the longer term, however, earnings volatility will be suppressed as additional income streams commence, most notably from our major regeneration projects in Greenwich and Wembley. Borrowings net of cash have increased from £164m to £243m with gearing increased from 29% to 36%. This is still lower than our normal target and is due to our decision to recycle the profits from our sales programme to support our development. Further details are provided in the Financial Statements within the Operating and Financial Review. Share Price During the year, the share price continued to perform well rising by 28% over the 12 months to 31 March 2006, giving a closing price of 680p. Over this period in total return terms we outperformed the FTSE 350 index by 2% and underperformed the FTSE Real Estate Index by 18%. Over five years, Quintain has delivered a total shareholder return, based on the increase in share price adding back the dividend paid, of 328% compared with 31% for the FTSE 350 and 141% for the FTSE Real Estate Index. Dividend As a result of the year's strong performance, the board is recommending an increase in the final dividend of 0.5p giving a total dividend for the year of 10.50p (2005: 9.50p), representing an increase of 11%. It is intended that the final dividend of 7.25p per share will be paid on 8 September 2006 to shareholders on the register as at 4 August 2006. The Company's intention is to maintain a progressive dividend and this policy will continue subject to cash requirements. Corporate Governance We very much believe in the importance of good corporate governance and are actively working towards full compliance with the Combined Code. A detailed review is contained in the Corporate Governance section within the Annual Reports. People Since the year end, James Hamilton Stubber has left the company to set up his own business and we very much wish him well for the future. Also following the year end, we were pleased to announce that Nick Shattock has accepted the appointment of Deputy Chief Executive. We would like to take this opportunity to thank him in particular for his achievements over the last few years in driving the growth of our Special Projects. Outlook The year to 31 March 2006 has been another successful year for the Group, delivering a total return of 21%. Based on this, our core measure, and subject to market conditions, we believe the Group is well positioned to deliver considerable growth in its activities over the next few years and, as such, we look forward with enthusiasm. Nigel Ellis Chairman 31 May 2006 Operating and Financial Review During the year Quintain significantly strengthened its balance sheet and made substantial progress in both its major projects and the development of its fund management business. The results are excellent and the Group is well positioned to deliver considerable value over the next few years. Objectives and strategy Quintain's core objectives are to deliver upper quartile performance relative to the IPD benchmark and to make a real total return of at least 10%, measured by the increase in net asset value per share adding back the dividend. Since formation, our strategy has remained unchanged. We apply a rigorous stock-picking approach, focusing on the financial characteristics of properties to identify assets and special situations where we can use our skills to create value. Our approach to our core investment portfolio demands that we sell real estate that no longer offers the potential to enhance value. This resulted in selling properties during the period with a book value of £110.4m. Our strategy in relation to urban regeneration, however, is to retain the freehold and recycle our capital by selling some long leasehold interests at various stages of the development. This allows us to run strategic developments as businesses, creating diverse income streams including the exploitation of non-rental commercial opportunities such as advertising, naming rights, branding, telecommunications and power. We believe that Quintain has become a leader in urban regeneration. This has and should lead to further opportunities, for example at City Park Gate, Birmingham, where we have secured development manager status with our partners Countryside Properties plc in joint venture with Birmingham City Council. The scale of the opportunities is impressive and already includes Wembley, Greenwich, City Park Gate, Middlehaven, Emersons Green and Brighton. Our existing schemes alone add up to a total of 27m sq ft of mixed-use development, of which 22m sq ft has outline planning consent. While the nature and scale of these urban regeneration projects will inevitably have an impact on the absolute level of the Group's profits during their roll-out, their potential to transform the Group's net asset value is considerable and the Group will continue to follow a cautious approach to financing, focused always on the ongoing creation and enhancement of value for our shareholders. Options already being explored include joint venture partnerships, both to deliver third party skills and capital, land sales and forward funding both by institutions and into specialist funds, with the latter including healthcare, residential and student accommodation. To ensure the successful delivery of our strategy, we have continued to invest in people, recruiting a number of specialists during the year whose skills will greatly benefit the Group's ability to capture and create value. For example we have brought in individuals with residential and student accommodation expertise. The market and the competitive environment The strength of the property market has continued throughout 2005 and into 2006. Demand from both institutional and private investors has led to a proliferation of new funds being formed. Bank lending for the first quarter of 2006 to the commercial property sector was a seasonally adjusted £7bn, the second highest quarterly flow on record. There is no sign of let-up in yield compression with IPD's quarterly index showing a return of 4.5% to 31 March 2006 of which 3.2% was capital uplift. News of the introduction of REITs from the beginning of 2007 was received favourably in the market, with the conditions attached to them far more flexible than anticipated. In particular, interest cover was reduced to 1.25 times and the conversion charge was set at 2% of gross assets. Whilst this is a positive move for the industry, Quintain does not anticipate converting into a REIT as the structure is not suited to the Group's business model. Quintain's regeneration programme could not be delivered under the restriction that investment assets must constitute at least 75% of gross assets and that 90% of income must be distributed. The income from our investment portfolio and fund management is used in part to finance the running of special projects. Quintain has significant exposure to the residential market as our schemes at Wembley and Greenwich include consent for approximately 14,500 residential units, of which 61% are private. London house prices have been relatively static over the last few years but are now showing signs of picking up and this, with the growing population, leads us to believe that demand in London should remain reasonably resilient. As a landowner and potential developer, we have the ability to control the nature and timing of phasing. Within the 39% affordable housing allocation, much of which is discounted for sale, demand substantially outstrips supply. Seasoned observers of commercial property are divided on their outlook for the market. One view is that the immense demand and consequent yield compression induced by lower interest rates, low inflation and competition from debt driven private investors and liability driven funds is sustainable and even at these prices the real rate of return in prospect is close to historic norms. The alternate view is that the disconnect between the investment and occupational markets, high levels of indebtedness, prospective increases in interest rates and an uncertain economic outlook, both domestically and overseas, is conducive to a stabilisation if not fall in market prices. We tend towards the latter analysis and have factored this in to our business planning. Business Review The year to 31 March 2006 saw good progress across all areas of the Group's business. Buoyant market conditions during the year prompted further trading of the portfolio, with sales generating proceeds of £135.0m. The Group also made purchases totalling £41.4m and we recorded a valuation uplift of £124.7m on directly owned property and £154.6m on the entire portfolio over the period. The table below shows the activity during the year. £m Investment and development property at 31 March 2005 754.1 _____ Purchases 41.4 _____ Capital Expenditure 72.3 _____ Capitalised interest 7.8 _____ Sales - book value (110.4) _____ Valuation uplift 124.7 _____ Depreciation and exchange (0.4) _____ Investment and development property at 31 March 2006 889.5 The Quintain business model has been designed to capture the growth inherent in our existing and future asset base. For example, investment product created through our regeneration projects could be held within the Investment Portfolio or, if of a specialist nature, in the Fund Management division. • The Investment Portfolio currently comprises secondary investment property with potential to create capital value uplift. The cashflow this generates is intended to support the Group's other activities • The Special Projects division focuses on capital growth, in particular deriving upside from planning gain and development. The largest component is the Urban Regeneration programme typified by Greenwich and Wembley • Our Fund Management division, which we have now re-named Quintain Fund Management ('QFM'), co-invests in specialist sectors such as healthcare, student and residential accommodation and science parks and, through this, benefits from asset management, transaction and performance related fees. The table below sets out the make up of the divisions with capital uplifts for the year and yields: Investment Special Fund Management Total Portfolio Projects ______ ______ ______ ______ Investment £m 219.6 42.1 28.4 290.1 Development £m 19.0 575.4 5.0 599.4 Funds £m 0.0 0.00 147.8 147.8 ______ ______ ______ ______ Total £m 238.6 617.5 181.2 1037.3 Portfolio % 23.0% 59.5% 17.5% 100.0% ______ ______ ______ ______ Uplift % 7.8% 19.8% 24.0% 17.5% Initial Yield % 5.4% 1.5% 6.2% 3.2% Reversionary Yield % 7.9% 2.4% 6.2% 3.8% Investment Portfolio The sales programme was primarily focused on the investment portfolio and released profits over valuation of £14.2m. Highlights included the sale of a mixed-use portfolio, which was characterised by short term lease expiries, for £33.2m. On the North Circular Road at Wembley we negotiated a surrender from a loss-making hotel franchisee and simultaneously agreed a new 25 year lease with Travelodge Inn which catalysed a sale with an exit yield of 4.7%. The refurbishment programme continued. We have now achieved practical completion at Royal Exchange, Manchester, a specialist shopping centre of some 41,600 sq ft and the letting programme has commenced. The table below sets out current and proposed refurbishments. Property Scheme Floor area Cost Completion Sq ft £m Dates ______ ______ ______ ______ Royal Exchange, Manchester Retail 41,600 4.1 Jun '06 St Peter's House and Offices 69,000 3.5 Jun '06 Belgrave House, Sheffield Smallbrook Queensway, Offices 13,700 0.3 Ongoing Birmingham 2006-2008 ______ ______ ______ ______ Total 124,300 7.9 Unintended voids across the group total 8.0% and, whilst we are making some progress, this is against the background of a challenging letting market. Successes included bringing in four new tenants to achieve full occupancy at The Arcade, Aldershot, including an anchor tenant for a 5,500 sq ft unit, leading to a sale of the centre for £5.6m. At Rushey Green in Catford we re-geared the lease from one to 15 years for a premium of one year's rent and subsequently sold the freehold interest for an initial yield of 4.8%. Investment property purchases of £39.6m include the £5.8m acquisition of two office units at Meadow Court in Sheffield, continuing our strategy to capitalise on the improvement in this area and consequent demand for good quality office space. Edisons Courtyard in Corby comprising 64,000 sq ft of starter units was purchased for £2.8m and an initial yield of 7.3% to provide income. 140 Cambridge Science Park was acquired for £5.5m to provide investment income on the creation of the science park fund as discussed below. The market conditions referred to above make it difficult to find value. We continue to search for opportunities where we can add value, but unless circumstances change, we are likely to continue to be net sellers over the coming year, albeit at a slower rate. Special Projects The main special projects are listed below. Valuations as at 31 March 2006 £m _____ Wembley Complex including Palace of Industries 384 Greenwich 123 Emersons Green, Bristol 26 Ramada Hotel, Manchester 23 Gracechurch Street, EC3 20 Other special projects 41 _____ Total direct property 617 Greenwich, investment in MDL joint venture 21 Our development programme is shown in the table below: Project Sector Share Area GDV(1) Planning Timing £m _________ _________ _________ _________ _________ _________ Wembley Mixed-use 100% 6.17m sq ft 2,000 Outline Now-2015 Complex _________ _________ _________ _________ _________ _________ (2)Greenwich Mixed-use 49% 13.2m sq ft 5,000 Outline Now-2023 Peninsula _________ _________ _________ _________ _________ _________ (2)Bristol Science Park 50% 829k sq ft 196 Outline 2008-2018 Science Park _________ _________ _________ _________ _________ _________ (2)City Park Mixed-use 50% 745k sq ft 176 Revised 2007-2010 Gate, Planning Birmingham _________ _________ _________ _________ _________ _________ (2)Middlehaven, Mixed-use 50% 1.0m sq ft 187 Outline 2007-2014 Phase 1 _________ _________ _________ _________ _________ _________ Arrow Valley, Distribution 100% 295k sq ft 20 Part detailed 2006-2008 Redditch Part outline _________ _________ _________ _________ _________ _________ Emersons Mixed-use 65 acres of 1,800 units - Submitted 2007 Green, Bristol 275 acre residential onwards site +50 acres employment _________ _________ _________ _________ _________ _________ (2)Brighton Residential 50% 122k sq ft - Submitted 2007-2009 _________ _________ _________ _________ _________ _________ Dorset House, Student 100% 82k sq ft - Being 2006-2009 Oxford Accommodation Prepared _________ _________ _________ _________ _________ _________ Palace of Mixed-use 100% 13 acres - Zoned for 2008- Industries mixed-use onwards _________ _________ _________ _________ _________ _________ Arundel Gate, Mixed-use 100% 300k sq ft - - 2007-2010 Sheffield _________ _________ _________ _________ _________ _________ Deansgate, Mixed-use 100% 20,000 sq ft - - 2008-2010 Manchester retail + 155 units residential _________ _________ _________ _________ _________ _________ Docklands Mixed-use 66.7% 12.6 acres - - 2008- Depot, Silvertown onwards _________ _________ _________ _________ _________ _________ (1) GDV is Gross Development Value. This is only shown where planning has been received. (2) These properties are subject to a development agreement Quintain will only take on a proportion of the development, generally in joint venture, and this will be combined with land sales. Typically our equity contribution will be in the form of land. Wembley We continue to make strong progress with our project at Wembley, which will regenerate 70 acres - creating thousands of new homes and a world-class leisure and retail destination. Masterplanned by the Richard Rogers Partnership, the scheme has outline planning consent for 6.2m sq ft of mixed-use development, with the potential to increase this to up to 8.0m sq ft. The first phase of the project comprises mixed-use development on 58 acres and will feature 4,200 new homes in 3.7m sq ft of residential space; Arena Square, a dramatic new square for London; a luxury hotel; an apart-hotel; 910,000 sq ft of office and commercial space; 587,000 sq ft of retail and 487,000 sq ft of leisure and entertainment, including a 17 screen cinema and Wembley Arena. Following a £36m refurbishment programme and the realignment of its entrance onto Arena Square, the Arena opened to critical acclaim on 2 April 2006. Quintain has signed a 15 year management agreement with Live Nation, one of the world's premier concert promoters with a market capitalisation of circa $1.4bn. The transaction affords an RPI linked rental stream plus a profit share. The next significant development is the construction of a mixed-use development to the west of the Arena. It comprises 286 apartments of which 48% are affordable and will be delivered in joint venture with Genesis and Family Housing Associations. Additional facilities include retail, leisure and community space, totalling 13,000 sq ft. Construction should commence in late June, having secured reserved matters consent in January 2006. Pre-marketing to investors in Dublin in May 2006 has secured 74 reservations with deposits paid and marketing to UK consumers will begin in September. In late summer it is programmed to demolish Elvin House, a 157,000 sq ft office block, and the Conference Centre and Exhibition Halls. These will make way for the next phase of development, incorporating a luxury hotel, 560 student accommodation units and a residential apartment block comprising 230 units with retail units at ground and first floor level. Having agreed Heads of Terms earlier in the year, negotiations are now at an advanced stage with the Hilton hotel group, who intend to take a 20 year management agreement on a 400 bedroom 4 star hotel located just to the south of the Arena. The deal includes the strategic acquisition of an existing 306 room 3 star Hilton Group hotel - The Plaza - which will further consolidate our landholding. Over the next six months, we will be progressing our discussions with a number of potential partners to form a joint venture to deliver the 0.6m sq ft retail element of the scheme. In addition, negotiations are advanced with a number of global organisations with whom we may form joint venture partnerships to deliver telecommunications, power and infrastructure, sharing the capital risk and revenue streams. The 13 acre Palace of Arts and Industry site has yet to be the subject of a planning application. However, it has been allocated within Supplementary Planning Guidance for between 1.7m and 2.3m sq ft comprising retail, residential, leisure/entertainment, commercial and civic space. The London Borough of Brent has applied to the Casino Advisory Panel for a Regional Casino as defined under the Gaming Act 2005 and it was confirmed on 25 May that Brent's application had been shortlisted. If successful, the Group will apply in conjunction with its partners Caesars Entertainment Inc (now a subsidiary of Harrah's Entertainment Inc) for the licence for this site. The Gaming Act 2005 specifies that there will only be one Regional Casino, although there is provision to raise the number to eight by Statutory Instrument. Planning permission will also be required. The anticipated timeline to 2012 for completions in developing out the scheme is shown in the table below: GDV GDV GDV GDV GDV GDV GDV GDV GDV £m £m £m £m £m £m £m £m £m 2008/9 2009/10 2009/10 Easter Jun Dec 2011/12 2011/12 2011/12 2010 2010 2010 Retail Plot W01 W04 W03 & W07 W05 W06 W08 E01 number Resi Resi Resi Leisure Resi Hotel & Resi Resi Resi Core Resi Private 42 21 156 30 28 37 58 156 residential Affordable 21 27 20 20 24 37 residential Retail & 25 178 12 Leisure Hotel 101 Other 4 7 21 5 5 4 67 55 181 199 55 154 61 99 168 Greenwich Peninsula Quintain's 49% stake in the long-term regeneration of the Greenwich Peninsula, the joint venture with Lend Lease (as Meridian Delta Limited), has a gross development value of £5bn and represents one of the largest and most prominent regeneration opportunities in Europe today. Progress has been slower than originally anticipated and we are actively considering options to redress this situation. Nonetheless, some important advances have been made during the year, which we outline below: • On the northwest lands, we are in ongoing negotiations with Lend Lease to create a 50:50 joint venture to develop 3.2m sq ft of mainly residential space. We will jointly appoint a new specialist management team to crystallise the opportunities in what is the highest value part of the site. • We are close to finalising the sale of a plot of land on the southern part of the site to Bellway Homes to build 229 residential units. • Millennium Square is on schedule for the opening of The 02 in Summer 2007. On completion, Meridian Delta Dome Ltd will draw down a 999 year lease of the structure and surrounding land. • Infrastructure works, including those relating to the off-site highways, are underway to prepare for the sale and/or development of the initial plots. The anticipated timeline to 2012 for developing out the scheme is shown in the table below: Year ending Plot number GEA ('000sq ft) GDV £m March 2009 M0102 202 54 2010 N0203 140 42 2010 M0103 185 50 2011 N0205 206 7 2011 M0101 123 36 2011 M0301 196 52 2011 N0204 340 139 2011 N0602 401 150 2012 M0116 116 32 2012 M0117 160 41 2012 M0119 84 14 2012 M0302 124 34 2012 M0303 108 29 2012 N0603 437 158 _____ ____ 2,822 838 ==== ==== Silvertown The Carlsberg Tetley lease on this 12 acre site owned in joint venture with the London Development Agency expires in October 2006. This will give us vacant possession of some 334,000 sq ft of buildings and open storage on this site strategically located at the gateway to the Olympic lands. In the interim, there are clear opportunities to re-locate occupiers of property on land allocated to the Olympics or to provide logistical and construction support for the Olympic project itself, whilst progressing the planning initiatives for the regeneration of this area. Emersons Green Quintain owns 65 acres of a 275 acre site at Emersons Green, Bristol designated as mixed-use by the Local Authority. The planning application for this site made in partnership with JJ Gallagher and Heron Land has been revised to address specific issues raised by the South Gloucestershire Council and to accord with their detailed development brief, including environmental and community elements. The revised application will be submitted shortly and determination is expected by the end of the calendar year. The benefits of local knowledge and the clear potential for synergies across our business has been demonstrated by the selection of Quantum (our 50/50 specialist science park partnership with Morley Fund Management) by the South West of England Regional Development Agency as the preferred development and funding partner to create a new science and technology park at Emersons Green. This is discussed in more detail in the Quintain Fund Management section below. BioRegional Our joint venture with BioRegional, an expert in the field of sustainable development, has made good progress during the year. We are seeing evidence of the competitive advantage this association provides when presenting the environmental impact of our proposals for future regeneration projects. • As announced at the half-year, the joint venture's first development will be in conjunction with Crest Nicholson to build 168 units and 24,000 sq ft of commercial space in Brighton. A planning application has been submitted to the local authority and determination is anticipated in August 2006. • During the year, we were selected as preferred developer for a major project at Middlehaven, Middlesborough and substantial progress has been made towards signing the development agreement. The scheme will comprise 500 apartments, 200,000 sq ft of offices and 77,000 sq ft of retail. The funding required to make the scheme viable has been approved by the constituent local public sector partners and will be submitted to the Treasury in September. • During the second half, we signed a lock-out agreement with Slough Estates to deliver 130 units and 200,000 sq ft of community space at a site in Slough. The scheme is now subject to environmental assessment. We also await the results of two competitions, one of which is also in joint venture with Crest Nicholson. Merton Phase 2 of our joint venture with Countryside Properties plc at Abbey Mills, Merton SW19 has been extremely successful with the sale of 160 of the 164 units. The remaining units have been reserved and exchange is expected within the next few weeks. The Speciality Market was sold in the reporting period, taking advantage of strong investor demand. City Park Gate Following the successful development at Abbey Mills and to consolidate further our relationship with Countryside Properties plc, we signed an additional joint venture to develop City Park Gate in Birmingham. The scheme has outline consent to build 608 residential units, 115,000 sq ft of offices and 100,000 sq ft of retail. In conjunction with our architects, Make, we are reviewing density, mass and costings to maximise returns and anticipate submitting a reserved matters application by the end of this calendar year. Initial revised designs which appear acceptable to the local authority's planning department could generate a significant increase in the quantum of development and see a reduction in the infrastructure costs. Gracechurch Street After the year end, we exchanged contracts for the sale of 36-41 Gracechurch Street, EC3 for £24.75m. The sale is conditional upon the consent of the City of London Corporation to the assignment of the ancillary development agreement. Quintain Fund Management ('QFM') QFM made significant progress during the year to 31 March 2006 both in growing funds under management and extending the business into other niche sectors where specialist asset management can deliver attractive returns and stable long term fee income. Quercus, our healthcare fund, had an excellent year. Funds under management grew by 63%, delivering a fund level return for the 12 months of 49.7%. The strong performance of the fund reflects a buoyant year for the healthcare sector, where we have seen considerable yield compression, but also the results of good stock picking and asset management. Total purchases in the year were £103m at an average initial yield of 8.1%. Notable transactions demonstrating our strategy of expanding the fund into new areas of the healthcare market included the sale and leaseback of three private hospitals as part of the buyout of BUPA's Classic Hospitals Group by Legal and General Ventures and the acquisition of four properties in Lancashire providing accommodation and specialist support for disturbed teenagers. We also have a development agreement in place and are working up a planning application for 68 assisted living apartments in Westbury. The fund now has 194 properties let to 34 tenants operating nursing homes, learning disability and specialist care facilities and private hospitals. At the year end we held a 28.3% interest in the fund. Net asset management fees received during the year totalled £1.8m. We anticipate committing further equity to Quercus in the next few months, as we believe the RPI linkage and ability to source off-market deals means this sector still offers significant attraction. We have also made strong progress with our student accommodation fund where our strategy is to build a pipeline of assets on our own balance sheet before launching a fund. We have exchanged contracts on schemes in Birmingham, Sheffield and Nottingham with a combined value of £50m, payable on completion of the buildings. In addition, we have agreed terms on a further pipeline of £106m. Two schemes are scheduled for completion for the academic year commencing September 2006 with the balance completing over the next three years. We expect to submit a planning application in the next few weeks for a 281 room scheme on our site in Oxford. In addition there are a number of other opportunities in the market which give us confidence in our ability to build a significant portfolio in the sector over the next few years. Discussions have commenced with several parties who have expressed interest in participating in the creation of the fund. In pursuit of attractive returns and following our success with Quercus, we formed a specialist Science Park fund - the Quantum Property Partnership - with Morley Fund Management. Quantum will seek to become the UK's first truly specialist long term investor, developer and operator of Science Parks. Our belief in the sector reflects the increasing focus on the part of both Government and industry of the need to invest in R&D to drive forward economic growth. We believe that we can deliver attractive investment returns by bringing strong development and asset management skills and an understanding of the property needs of R&D companies to a sector that has hitherto been largely neglected by the property industry. After the year end, the strength of our offering was confirmed by Quantum's selection by the South West Regional Development Agency as its preferred partner to create a new science and technology park, 'SPark', on 54 acres of land adjacent to our holding at Emersons Green in Bristol. On completion of the partnership agreement, Quantum's role will be to fund and procure primary infrastructure and associated servicing for the first phase of the park. This will include building a 35,000 sq ft innovation centre which will act as the hub building on the park and an initial 'grow on' centre which will provide additional space for companies as they expand. Further development will be marketed over the ten year duration of the agreement, with Quantum retaining and managing a critical mass of accommodation on the park on a long term basis. The first phase of the park has outline planning consent for 830,000 sq ft of development which, when fully built out, is estimated to have a gross development value of approximately £200m. Subject to planning, construction is expected to start on site in Spring 2007 with the first buildings available for occupation in Spring 2008. Several other opportunities are being pursued in this sector. Other activities As part of our commitment to sustainable development we are investigating products that are more environmentally friendly than traditional alternatives. Examples include using combined heat and power at Wembley and Envac, an underground waste disposal system with inherent recycling capacity. Included in our balance sheet is £2.5m relating to an investment in Serrastone SA, a company that owns the exploitation licence of a technology to produce low carbon, zero toxic building blocks with the potential to recycle rubble from demolished buildings and quarry waste. During the year, we took the decision to gain a better understanding of the property derivative market and to explore the potential of derivative instruments to hedge the positioning of the Group's directly held property portfolio. We have acquired a swap to the value of £15m linked to the IPD All Property index for three years to 31 December 2008 and sold LIBOR plus a margin. Shortly after the initial contract was taken out, given our concerns about the property market in the medium term and the lack of liquidity in these products, we carried out a forward sale of the last two years of the contract. To date this contract has shown a profit of £1.6m. We will continue to evaluate the operational potential of these instruments with interest. Outlook We have made excellent progress in the year to 31 March 2006 and continue to see the clear benefits of our strategy to create and enhance shareholder value through our diverse business activities. Against this background, the Board recognises that the long-term nature of some of our Special Projects and the growth of QFM, alongside a sales programme which has led to lower rental income, will impact in the short to medium-term on underlying earnings. However, we remain confident that our stringent financial and risk management processes, our substantial capital resources and our skilled and committed management team will create further substantial shareholder value. Financial Review International Financial Reporting Standards This is the first year the Group has reported its results under International Financial Reporting Standards ('IFRS') which were adopted on 1 April 2005. Comparative figures for 2005 have been restated in accordance with IFRS. A reconciliation of the profit and equity reported under UK GAAP for the prior year to IFRS is disclosed in notes 2 and 3 to the accounts. Headline results The basic net asset value per share at 31 March 2006 was 526p, an uplift of 18.7% from the 443p for the prior year. On a diluted basis, the net asset value per share rose 18.3% from 436p to 516p. Adjusted diluted net asset value per share, the measure recommended by EPRA, rose by 23.1% to 612p per share (2005: 497p). 31 March 06 31 March 05 % increase NAV per share - basic 526p 443p 18.7% NAV per share - EPRA (1) 612p 497p 23.1% Dividend per share 10.5p 9.5p 10.5% Total return per share (2) 21.0% 23. 1% Total return per share - EPRA (3) 25.2% 21.9% ______ ______ ______ (1) The EPRA NAV per share excludes the fair value adjustments for debt and related derivatives and deferred taxation on revaluations and is calculated on a fully diluted basis as set out in the table below (2) The total return is calculated by the increase in net assets per share adding back the dividend (3) This uses the net assets per EPRA as shown in the table below. The table below reconciles net assets per the consolidated accounts to the definition of net assets set out by EPRA. 31 March 06 31 March 05 £m £m _____ _____ Balance sheet net assets 676.7 571.1 _____ _____ Deferred tax arising on revaluation movements, capital allowances and derivatives Group 108.0 75.3 _____ _____ Joint ventures 5.7 5.1 _____ _____ Associates 0.6 0.5 _____ _____ Fair value adjustment on interest rate swaps _____ _____ Group 12.9 _____ _____ Joint ventures 0.2 _____ _____ 804.1 652.0 _____ _____ Dilutive effect of options 9.8 9.3 _____ _____ Dilutive effect of convertible 2.9 3.0 _____ _____ EPRA net assets 816.8 664.3 _____ _____ Profit before tax, which excludes discontinued items, rose by 86.0% to £65.0m (2005: £34.9m). Adjusted profit before tax, our measure of current earnings, which excludes discontinued items, revaluation surpluses or deficits and changes to the fair value of interest rate swaps, increased by 14.5% to £15.9m (2005: £13.9m). Earnings per share on continuing operations increased to 46.1p per share, an uplift of 48.7% compared with 31.0p in 2005. The European Public Real Estate Association ('EPRA') measure of earnings which excludes gains on property disposals, the movement in value of financial instruments and investment revaluations and their related taxation was 0.6p per share (2005: 6.1p). Operating performance Gross rental income for the year fell by 20% to £29.1m (2005: £36.4m). This was a result of sales, with proceeds of £135.0m which were only partially offset by acquisitions of £41.4m. The lost income from sales was £10.3m against which purchases contributed £3.3m. Rents passing at 31 March 2006 for the directly owned portfolio totalled £23.7m, with an estimated rental value (ERV) of £35.4m. Buildings being demolished over the next year will reduce the ('ERV') by £1.6m. Voids have increased to 8.0% of ERV (2005: 5.7%). This includes £433,000 in relation to The Forum, Exeter and £238,000 for Imperial Court and House, Leamington Spa, where refurbishments have been completed. Quintain also holds a number of development properties where leases have purposely been taken back from tenants. As at March 2006, planned voids in relation to these were 15.4% (2005: 6.1%), the largest contribution being £925,000 for 37-41 Gracechurch Street, where contracts for sale have been exchanged. The void of £851,000 in relation to The Palace of Industry has effectively been removed post year end with the demolition of the building and conversion into a temporary car park. At the Royal Exchange, Manchester, practical completion was achieved last week and a major letting programme commenced in relation to the £790,000 ERV. The average unexpired lease term across the portfolio was 14 years (2005: 13 years). The increase is due to the larger weighting of nursing home properties, in turn reflecting our increased equity in the Quercus fund. These properties are typically on 35 year leases. The table below sets outs the lease expiries by passing rent including our share of joint ventures across the Group: £m Less than 1 year 5.4 1 to 2 years 3.9 2 to 5 years 6.3 5 to 15 years 4.2 Greater than 15 years 13.7 _____ 33.5 Quintain aims to create a diverse tenant base in order to manage risk. Our tenant covenant strength has been measured by Investment Property Databank ('IPD') (using Dun and Bradstreet) and shows 49.9% of our rent roll is delivered from negligible, low and low/medium risk covenants. With the signing of a management agreement at the Arena, Live Nation is now our largest tenant making up 10.7% of passing rent. The largest ten tenants in terms of our exposure make up 32.8% of our passing rent. Profits on the sale of trading properties were £0.4m (2005: £1.2m) on sale proceeds of £4.1m. Historically trading profits have varied. This year's result came from disposals of the remaining units at Valley Point, in Croydon. Trading profits on joint ventures is included within share of profit from joint ventures under International Financial Reporting Standards ('IFRS'). Income from leisure operations relates to the ongoing Wembley businesses, which delivered a profit of £0.9m for the year (2005: £1.1m), mainly from the Sunday Market. The Pavilion, Conference Centre and Exhibition Halls are included within discontinued operations, which are disclosed post-tax towards the end of the income statement. They gave rise to a £2.8m loss for the year (2005: £1.6m profit). The loss arose from the provision of a temporary Pavilion in order to protect the business whilst the Arena was being refurbished. The Conference Centre and Exhibition Halls will be demolished during the year to allow the redevelopment to progress. The 15 year management contract with Live Nation to operate the Arena took effect from 1 April 2006, thereby removing our operational risk. Live Nation pay a base rent and 50% of surplus profits after a management fee, which will be accounted for within rental income. Profit from other revenue rose to £4.0m from £2.2m. This included, for the first time, the results of a property derivative contract which gave rise to a £1.6m profit. The contract is a £15m swap to 31 December 2006 between the All Property IPD index and LIBOR plus a margin. Fees on the Quercus fund after costs of £1.8m (2005: £0.7m) included a performance fee of £0.5m. Administration expenses increased by 37.5% to £22.7m (2005: £16.5m). £5.7m related to additional staff costs, arising mainly from recruitment and performance related bonuses. Whilst staff costs are charged to the profit and loss account, the Special Projects division employs a substantial proportion of the staff who are working on our developments and creating value reflected in the balance sheet. We have an active recruitment programme ensuring that we have the skills base to deliver future performance and our remuneration packages reflect the skills required to deliver the ambitions of the Group. Further information is given in note 6 to the accounts. Administration expenses include £0.3m of audit fees paid to KPMG and £0.07m for non-audit work, the latter reflecting our policy of not using auditors for other work in line with best practice of maintaining auditor independence. Further information is given in note 6i to the accounts. Sale of non-current assets The profit over valuation on the disposal of properties not held as current assets was £14.2m (2005: £5.1m), the largest contributor being £4.3m on the sale of the Group's head office at 16 Grosvenor Street. This property had been purchased in the previous year and has been sold with a 15 year lease back to Quintain with a break at 10 years. Proceeds on sales were £135.0m, with a profit on historic cost of £38.1m. Revaluation surpluses and deficits The net revaluation surplus arising from directly held investment properties was £22.1m (2005: £20.8m). The crediting of this directly to the income statement is one of the material changes to accounting for property companies under IFRS. The revaluation surplus on development properties is still credited to equity as was the case under UK GAAP. The exception to this is where deficits arise below cost which was seen in 2005 with a charge of £1.2m, and a net write back in 2006 of £1.8m. Finance expenses Net finances expenses have fallen by 33.5% to £10.5m (2005: £15.8m) owing to the sales programme. The constituents of this balance are set out below. The change in fair value of ineffective interest rate swaps of £3.0m is the movement in value of our forward start swaps. The charge to the income statement reflects the introduction of a new standard and hence there is no prior year comparison. Of the interest capitalised in the year £5.3m relates to the Wembley development and £1.8m to Greenwich. 31 March 31 March 2006 2005 £m £m _____ _____ Interest payable 16.4 20.3 Amortisation of finance expenses- current facility 0.5 0.5 Finance costs written off against old facility - 1.9 Profit on termination of swap arrangements - (0.7) Interest capitalised (7.8) (4.7) Interest receivable (1.6) (1.5) Change in fair value of ineffective interest rate swaps 3.0 - _____ _____ Total net interest payable 10.5 15.8 Profit from joint ventures The profit from joint ventures in the year was £32.9m (2005: £7.4m). Of this £32.3m came from our 28.3% ownership of Quercus. The increase in operating profit to £6.8m (2005: £4.6m) reflected the growth in the fund. The revaluation surplus of £29.4m is explained in more detail in the business review. A detailed breakdown of the profit by joint venture is set out in note 14i to the accounts. Taxation Quintain had an effective tax charge of 8.4%, or £5.5m for 2006, compared with a credit of £5.2m for 2005. The tax rate was below the standard rate of 30% because of the availability of capital allowances and indexation relief. It is anticipated that under IFRS the tax charge will be closer to the standard rate with the provision for deferred tax on revaluation surpluses subject to the use of brought forward losses and capital allowances. The prior year tax credit arose mainly through the use of £10.3m of prior year tax losses and the deferred tax credit of £7.1m on investment properties. Balance Sheet At 31 March 2006, the investment portfolio was valued at £290.1m including a net revaluation surplus of £22.1m. The development portfolio surplus was £102.5m giving a valuation of £599.5m. A table analysing activity is included within the business review. Of the development surplus £77.8m related to Wembley and was driven by a better understanding of site-wide incomes and the inclusion of the Palace of Industry in the discounted cash flow, as well as the passing of time with the project remaining on track. Capital commitments of £38.4m included £12.7m for the Wembley redevelopment relating to land payments and infrastructure costs. In building the pipeline of student accommodation we committed to £9.8m in the year for the acquisition of 256 beds in Sheffield. This will increase significantly over the next six months until a fund is created, which we have targeted to occur by the end of calendar year 2006, to take on these liabilities. Within the joint venture at Greenwich are commitments are £6.7m relating to the building of Millennium Square and infrastructure costs. During the year, The Quintain Group Employee Benefit Trust purchased 200,000 shares at an average price of 528p to cover allocations under the Executive Directors' Performance Share Plan. Quintain also purchased 159,596 shares at an average price of 558p to cover obligations under the Deferred Bonus Plan. Joint ventures At 31 March 2006, Quintain had net investment in joint ventures totalling £120.1m, of which our 28.3% share of Quercus, the healthcare fund, represented £89.7m. Whilst our holding on the Greenwich Peninsula is included within investment properties, Meridian Delta Limited - the company charged with overseeing the redevelopment of the Peninsula which is owned 49% by Quintain and 51% by Lend Lease, is treated as a joint venture. Our current investment in this is £20.9m. Other joint ventures include our development at Abbey Mills in Merton with Countryside Properties plc and our investment in Timberlaine which holds circa 20% of Redhill Aerodrome. A further analysis is shown in note 14i to the accounts. Financing strategy and capital structure Our financial strategy is to maintain a level of debt that balances the risks to the business with the higher returns on equity achieved by lower funding cost. Historically we have used a long run gearing target of 100%, but, as we focus on the divisions with their own risk profile, so their size relative to the whole portfolio should give rise to differing gearing levels over time. As one of our methods of monitoring this we have a liquidity schedule that reviews the income profile and liquidity of each asset within the portfolio to create an overall gearing target. This currently stands at 79%. The Company is positioned well below this at 36% (2005: 29%), partly to ensure substantial financial resource for the next phase of delivery of the major urban regeneration projects and partly reflecting current market conditions. In May 2006 we exercised the one year extension right on our £475m corporate loan giving it a maturity of five years. We have also amended some of the terms, increasing the maximum percentage of net worth that can be invested in separately financed joint ventures from 30% to 50%, in order to allow for the growth of fund management and the joint venture structures we intend to implement within the urban regeneration projects. The subsidiary companies requiring charges for security to the bank was reduced from 95% of assets and profit to 75%. This was done for administrative purposes given the number of new corporate vehicles we are creating as the business grows. The other main financial covenants are a maximum gearing of 130% of net assets excluding joint ventures and interest cover must be 1.25 times covered by earnings before interest and tax, plus surpluses or deficits over cost on the disposal of properties. This facility provides us with liquidity and operational flexibility, enabling us to move quickly when bidding for investment opportunities, and allowing for both on and off balance sheet financing of our urban regeneration projects. As at 31 March 2006, Quintain's interest rate risk was 70% hedged with swaps (2005: 97%). Company policy is to be between two thirds and fully hedged as, given the nature of its income, it seeks to match the revenue profile with certainty in relation to finance costs. Where there is less certainty of revenue, for example in the case of properties under development, we will hedge using a combination of swaps and caps. The weighted average rate of interest of the Group's debt at the year end was 6.6% (2005: 6.7%). The decrease from the prior year is the impact of reduced absolute commitment fees as debt has been drawn down. We still have £254m of undrawn but committed facilities. These resources are essential for our special projects and the expansion of QFM. Financial Statistics 31 March 31 March 2006 2005 £m £m _____ _____ Borrowings net of cash £243.1m £163.9m _____ _____ Gearing 36% 29% _____ _____ Gearing including share of joint ventures' debt 43% 35% _____ _____ Weighted average debt maturity 5 years 5 years _____ _____ % of net debt hedged 70% 97% _____ _____ Interest cover 1.2 1.7 _____ _____ Interest cover - banking covenants 2.7 4.6 _____ _____ Undrawn committed facilities £254.0m £330.0m _____ _____ Interest cover is defined as profit before tax, net finance expenses and revaluation surpluses divided by net interest payable. The fair value deficit on interest rate hedging instruments was £12.9m (2005: £8.3m). Of this £3.0m was charged to the income statement in relation to the ineffective swaps. Interest cover for the year ended 31 March 2006 was 1.2 times (2005: 1.7 times). After adding back realised revaluation reserves to calculate the banking covenant definition, interest cover was 2.7 times (2005: 4.6 times). Last year the realised revaluation reserve was particularly high with the realisation of £36m from the disposal of Mount Royal, Oxford Street, W1. Cashflow Net cashflow from operating activities was an inflow of £0.2m (2005: inflow £0.3m), the movement arising from lower rental income, higher administration expenses and a £2.4m charge for discontinued items. Purchases and capital expenditure on properties of £112.1m exceeded the cash received from sales in the period of £88.4m. This arose because of a timing difference with proceeds from exchanges of £54.6m being received after the year end. Cash inflows from financing activities of £60.6m reflected the net draw down of loans. Pensions The Group contributes towards personal pension schemes and as such has no pension deficit or prospect of any liabilities arising under any defined benefit pension scheme. Key risks and uncertainties In delivering high long-run returns to shareholders, the identification and monitoring of risk is crucial. In addition to the detailed internal controls set out in the Audit Committee Report, the Board has appointed a Risk Committee to, at a high level, identify and assess risk to the business. In considering the major risks to the business, some relate to economic and political uncertainties, whilst others are specific to Quintain. The key risks for the business are set out below: • Development exposure offers the prospect of good returns but brings with it certain risks both market related and internally controlled such as time and cost overruns. The latter are managed by a strong in-house project management team. Funding structure plays an important part in risk transference. • Succession planning in a relatively small business with a few key individuals can give rise to instability. Also loss of key personnel represents a risk to the business. Our ongoing recruitment programme seeks to mitigate this by bringing in highly skilled employees. Vital employees are encouraged to remain by long-term incentive and remuneration packages. • Changes in legislation can impact the business, particularly in planning and taxation such as the possible introduction of Planning Gain Supplement. Also at Wembley, in building a leisure destination, our preference for a casino is subject to, planning consent and the deliberations of the newly appointed Casino Advisory Panel as well as the possibility of amendments to legislation allowing for an increase in the number of regional casinos and the backing of Brent Local Authority, who have submitted an application for a casino to the Casino Advisory Panel. If we are unsuccessful in this we will proceed with an application to build up to 2.2m sq ft of mixed-use development on this site. • The amount of financial resource required to deliver the urban regeneration projects could be significant, depending on exit routes, as the two large projects have a combined gross development value of around £7bn. There are effectively no obligations to develop out these sites ourselves, but in seeking to capture potentially significant upside we will take on a proportion of the development with a consequent impact on financial resources. In anticipation of this and the growth in fund management the Group's gearing levels are low. Approval for projects and monitoring of commitments takes place at Board level and also in weekly meetings of the Executive Directors where financial information is provided to understand the implications of these decisions. • The make-up of the portfolio has changed, with special projects being the largest constituent. These assets are capable of delivering significant value but often have little or no income attaching to them in the short term so having a negative impact on the profit and loss account, although this would be offset by any land sales and bringing in third party equity. This is also offset by growing income streams from fund management activities. This means that operating income is likely to be running at lower than historical levels over the next few years. • In terms of planning consents, Quintain has significant exposure to the residential market. Details of issues relating to this are included in the market review. • The property market has seen further yield compression over the last year. Over time we may see yields plateau or alternatively there could be a fall in property values. Whilst in the short term this could lead to a reduction in shareholder value across the market, in the medium term it offers an opportunity for Quintain to reinvest in assets that offer greater upside. To minimise the impact of a market wide fall in values we are targeting our portfolio to assets where there is greater scope to add value through active management. Corporate Social Responsibility ('CSR') We take our social responsibilities seriously and a full CSR report will be included in the Annual Report. Areas of focus for the group include its commitment to environmental and social issues, its health and safety record and the motivation and retention of its employees. The Group recognises the potential impact of its activities on the wider community. The Group views its staff as one of its most important resources since a highly motivated employee base is essential to its continued success. The Group's policy is to recruit both directors and staff of the highest quality and to remunerate them accordingly. The aim is to provide competitive remuneration in relation to other major property companies. A significant proportion of remuneration is performance related. Further details will be shown in the Report of the Remuneration Committee. The Group considers staff retention to be one of its key performance indicators. Staff turnover during the year for head office was 6.4% with an average length of service of five years. The comparatively short average length of service for head office staff reflects the relative youth of the Company, the continuing expansion in staff numbers and the implementation of some structural changes during the year. It was also a year of considerable change for our Wembley operation, with a number of staff transferring their employment to Live Nation when it took over the management of Wembley Arena. Staff turnover for Wembley (excluding the Live Nation transferees) during the year was 9.9% with an average length of service of 10 years and 9 months. As previously explained, it is the Company's policy to recruit staff of the highest calibre and motivate them appropriately. At the beginning of the year, the Group's head office carried out a staff survey which showed that every member of staff who responded rated the Company's culture as either 'positive' or 'extremely positive'. Since the year end, a further survey has been carried out which shows that 92% of those who responded viewed the culture as either ' positive' or 'extremely positive'. The Group's commitment to sustainability and social issues is illustrated by its work at our major urban regeneration sites at Wembley and Greenwich. Here we are working to meet the needs of future tenants, communities and local and central government by creating sustainable mixed-use projects. Further details of how we are developing these sustainable communities will be given in our CSR report. As far as environmental issues are concerned, the Group is very aware of the importance of maintaining the environment and encourages continuous environmental awareness. In general terms, we aim to minimise risk of causing harm through careful consideration of construction techniques and the specification and use of sustainable materials where appropriate. Once again, further information evidencing our commitment to good environmental practice is shown in the CSR report. The Group is committed to the highest standards of performance in the provision of a safe and healthy environment for its employees, tenants, contractors and visitors and considers its performance in this field to be a key performance indicator. Further details of the Group's health and safety policy and objectives will be shown in the CSR Report. During the year under review, there were six minor accidents across the Group's premises which resulted in insurers being notified and no RIDDOR (Reporting of Injuries, Diseases and Dangerous Occurrences Regulations) reportable incidents (2005: 8 minor accidents reported to insurers, no RIDDOR reportable incidents). The Group monitors the position constantly and reports to the Board at every meeting. Key Performance Indicators ('KPIs') The Group's KPIs are outlined in various sections of this review and comprise both specific financial and stakeholder related measures. Whilst there are many financial measures which the Group monitors on a regular basis details of which are set out elsewhere in this Review, our core financial objectives are, as previously stated: • To deliver upper quartile performance relative to the IPD benchmark; and • To make a real total return of at least 10% every year, as measured on an EPRA basis. Since listing in 1996 the Group has achieved both these objectives every year. As a listed property company, it is also appropriate to measure our performance in ways other than financial, thus recognising the impact of our activities on our stakeholders. As such, the Group last year identified two key measures which we now report against. These are: • Our health and safety record - during the year across all our operational and construction sites we had no RIDDOR accidents • Staff motivation and retention - the staff survey revealed 92% of respondents felt the culture was either 'positive' or 'extremely positive'. Turnover rates at under 10% for all offices is considered within an appropriate range. This information is provided by RNS The company news service from the London Stock Exchange MORE TO FOLLOW FR GXGDURSXGGLB

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