BREI.L Regulatory News (BREI)

To: RNS

Date: 5 September 2012

From: IRP Property Investments Limited

·; Portfolio ungeared total return of 5.3 per cent for the year

·; Net asset value per share total return of 0.8 per cent for the year

·; Net asset value per share total return since launch of 37.6 per cent

·; Dividend yield of 10.9 per cent based on year-end share price

·; Dividend of 7.2 pence per share for the year

·; Share price total return of -19.0 per cent for the year

Chairman's Statement

The Chairman, Quentin Spicer, stated:

The past year has seen continued economic uncertainty, both in the UK and abroad. The UK commercial property market as a whole has seen a downward trend in quarterly returns resulting in an annual total return of 4.6 per cent, as measured by the Investment Property Databank ('IPD') All Quarterly and Monthly Funds Index.

The Group's portfolio recorded a total return of 5.3 per cent for the year, with income returns offsetting negative capital returns of 1.3 per cent. The net asset value ('NAV') total return for the year was 0.8 per cent with a NAV as at 30 June 2012 of 76.2 pence per share. The movement in the interest rate swap valuation had a negative impact on the NAV, with the liability increasing by £2.5 million during the year, decreasing the NAV per share by 2.3 pence. The swap valuation is significant and reduces the NAV by 10.4 pence per share at the year end; however future movements will reflect positively over time as the liability reduces to nil by the conclusion of the contract in January 2017.

Despite the positive NAV total return, the share price has weakened over the year and was trading at a discount to net asset value of 13.4 per cent at the year end, with the price at 66.0 pence per share. The share price total return for the year was -19.0 per cent reflecting the shift in sentiment for UK commercial property from the previous year end when the shares were trading at a premium of 8.7 per cent.

Property Market

Performance in the UK commercial property market slowed as the year progressed, affected by wider economic and financial market concerns. The market was supported by an income return of 5.8 per cent in the year to June but capital values moved lower, declining by 1.4 per cent in the year.

Prime property has generally out-performed secondary stock and the yield gap has widened. While IPD average initial yields were unchanged between June 2011 and June 2012, this masks considerable variation within the market. The banks are starting to release more stock as they unwind their property loans but this process has some way to go. Banks are becoming less willing to lend on commercial property and some have withdrawn from new lending while others have tightened their lending conditions.

Investment activity totalled £30.9 billion in the year to June 2012 compared with £37.6 billion in the previous year, according to Property Data. However, overseas investment rose to claim a 46 per cent share of all UK commercial property transactions. These purchases were often London focused and/or for large lot sizes.

The year to June 2012 has been characterised by high levels of risk aversion with investors favouring prime property, core locations and particularly properties with a long and secure income stream.

Portfolio

At 30 June, the Group's portfolio was valued at £162.8 million. With prices for commercial property trending downwards, effective asset management has been the key to maintaining or enhancing value. At 7-8 High Street, Winchester the value increased by £1.1 million to £6.6 million by granting a renewal lease to the tenant, C & H Fabrics Ltd for a term of 10 years at £225,000 per annum, combined with a new letting of the ground floor restaurant to Jamie Bianco Ltd at £175,000 per annum, on a 25 year lease. At 51/53 High Street, Guildford the value of the property increased by £500,000, to £5.2 million as a result of granting a new ten year lease, subject to a break option at the fifth year. The lease of Unit 5 Newcombe Drive, Swindon was extended until 2024 giving an increase in value over the year of 6.6 per cent.

Principal new lettings included the leasing of Unit 6, Lakeside Industrial Estate, Colnbrook which was let at a rent of £121,920 per annum on a five and a half year lease.

Trading difficulties remain for retailers and other companies and there have been tenant failures, most materially at Southampton and Hemel Hempstead. As a result of this, the void rate on the portfolio has increased to 5.3 per cent, which is still well below the IPD average of 8.9 per cent. The average weighted unexpired lease term remains unchanged at 8.1 years, helped by new lettings and negotiating longer leases with occupational tenants.

In January, the Group completed the purchase of a prime unit shop at 25/27 Bridlesmithgate, Nottingham for £3.2 million equating to a net initial yield of 6.1 per cent. The property is let to Hobbs Ltd on a lease that will expire on 11 October 2019 at a rent of £205,000 per annum.

Dividends

Three interim dividends of 1.80 pence per share were paid during the year and a fourth interim dividend of 1.80 pence per share will be paid on 28 September 2012. This gives a total dividend for the year ended 30 June 2012 of 7.20 pence per share, consistent with the amount proposed in last year's annual report; reflecting a yield of 10.9 per cent on the year end share price.

Borrowings

The net gearing level as at 30 June 2012 was 40.4 per cent, which compares with 37.0 per cent as at 30 June 2011 and 40.0 per cent at launch on 1 June 2004. £65 million of a £75 million facility has been drawn down with £5 million drawn down during the year to finance a purchase at Nottingham. Consistent with its conservative policy on gearing, the Board expect this £5 million to be paid back at some point in the future following the completion of targeted sales.

The Group has £1.4 million of cash available and is therefore effectively fully invested. The Group does, however, have an undrawn loan facility of £10 million should there be a requirement for short-term financing.

Outlook

The current year is expected to see further pressure on rents and capital values but property remains attractive to investors in an era of ultra-low gilt yields. The uncertain market outlook and financial constraints have led to a dearth of development projects and once demand starts to revive, areas of tight supply could see a swift turnaround.

The Group aims to keep levels of borrowing at a prudent level during this period of volatility and uncertainty, but will continue to seek new purchases where these will enhance the quality of the portfolio, as well as selling properties which no longer present income and growth opportunities. Asset management initiatives to add and preserve value will be the key to performance and the Manager will continue to engage with its occupiers to seek out opportunities within the existing portfolio.

All enquiries to:

Ian McBryde

Scott Macrae

F&C Investment Business Limited

Tel: 0207 628 8000

The Company Secretary

Northern Trust International Fund Administration Services (Guernsey) Limited

Trafalgar Court

Les Banques

St Peter Port

Guernsey GY1 3QL

Tel: 01481 745001

IRP Property Investments Limited

Consolidated Statement of Comprehensive Income

All items in the above statement derive from continuing operations.

All of the profit for the year is attributable to the owners of the Company.

IRP Property Investments Limited

Consolidated Balance Sheet

IRP Property Investments Limited

Consolidated Statement of Changes in Equity

For the year ended 30 June 2012

For the year ended 30 June 2011

IRP Property Investments Limited

Consolidated Cash Flow Statement

IRP Property Investments Limited

Principal Risks and Risk Uncertainties

The Group's assets consist of direct investments in UK commercial property. Its principal risks are therefore related to the commercial property market in general, but also the particular circumstances of the properties in which it is invested and their tenants. More detailed explanations of these risks and the way in which they are managed are contained under the headings of Credit Risk, Liquidity Risk and Interest Rate Exposure and Market Price Risk. The Manager also seeks to mitigate these risks through active asset management initiatives and carrying out due diligence work on potential tenants before entering into any new lease agreements. All of the properties in the portfolio are insured.

Other risks faced by the Group include the following:

·; Economic - inflation or deflation, economic recessions and movements in interest rates could affect property valuations.

·; Strategic - incorrect strategy, including sector and property allocation and use of gearing, could all lead to poor returns for shareholders.

·; Regulatory - breach of regulatory rules could lead to suspension of the Group's Stock Exchange listing, financial penalties or a qualified audit report.

·; Management and control - changes that cause the management and control of the Group to be exercised in the United Kingdom could lead to the Group becoming liable to United Kingdom taxation on income and capital gains.

·; Financial - inadequate controls by the Manager or third party service providers could lead to misappropriation of assets. Inappropriate accounting policies or failure to comply with accounting standards could lead to misreporting or breaches of regulations.

·; Operational - failure of the Manager's accounting systems or disruption to the Manager's business, or that of third party service providers, could lead to an inability to provide accurate reporting and monitoring, leading to a loss of shareholders' confidence.

The Board seeks to mitigate and manage these risks through continual review, policy-setting and enforcement of contractual obligations. It also regularly monitors the investment environment and the management of the Group's property portfolio, and applies the principles detailed in the internal control guidance issued by the Financial Reporting Council.

The Board and the Manager recognise the importance of the share price relative to net asset value in maintaining shareholder value. The Manager meets with current and potential new shareholders, and with stockbroking analysts who cover the investment trust sector, on a regular basis. In addition, communication of quarterly portfolio information is provided through the Group's website.

Financial Instruments and Investment Property

The Group's investment objective is to provide ordinary shareholders with an attractive level of income together with the potential for income and capital growth from investing in a diversified UK commercial property portfolio.

Consistent with that objective, the Group holds UK commercial property investments. In addition, the Group's financial instruments comprise cash, receivables, a bank loan, an interest rate swap and payables.

The Group is exposed to various types of risk that are associated with financial instruments. The most important types are credit risk, liquidity risk and market risk (those relating to interest rate changes and pricing movements).

There was no foreign currency risk as at 30 June 2012 or 30 June 2011 as assets and liabilities are maintained in Sterling.

The nature and extent of the financial instruments outstanding at the balance sheet date and the risk management policies employed by the Group are detailed below.

Credit risk

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group.

In the event of default by an occupational tenant, the Group will suffer a rental shortfall and incur additional costs, including legal expenses, in maintaining, insuring and re-letting the property until it is re-let. The Board receives regular reports on concentrations of risk and any tenants in arrears. The Manager monitors such reports in order to anticipate, and minimise the impact of, defaults by occupational tenants.

The Group has a diversified tenant portfolio. The maximum credit risk from the rent receivables of the Group at 30 June 2012 is £457,000 (2011: £983,000). Rental deposits from tenants at 30 June 2012 were £159,000 (2011: £251,000). As at 30 June 2012, £342,000 of rent receivable was greater than three months overdue. It is the practice of the Group to provide for rental debtors greater than three months overdue unless there is certainty of recovery. As at 30 June 2012 the provision was £205,000 (2011: £95,000). Of this amount £nil was subsequently written off and £nil has been recovered.

All of the cash is placed with financial institutions with a credit rating of A or above. Bankruptcy or insolvency may cause the Group's ability to access cash placed on deposit to be delayed or limited. Should the credit quality or the financial position of the banks currently employed significantly deteriorate, the Manager would move the cash holdings to another financial institution.

The Group can also spread counterparty risk by placing cash balances with more than one financial institution.

Liquidity risk

Liquidity risk is the risk that the Group will encounter in realising assets or otherwise raising funds to meet financial commitments. The Group's investments comprise UK commercial property.

Property in which the Group invests is not traded in an organised public market and may be illiquid. As a result, the Group may not be able to liquidate quickly its investments in these properties at an amount close to their fair value in order to meet its liquidity requirements.

The Group's liquidity risk is managed on an ongoing basis by the Manager and monitored on a quarterly basis by the Board.

In certain circumstances, the terms of the Group's bank loan entitles the lender to require early repayment, and in such circumstances the Group's ability to maintain dividend levels and the net asset value attributable to the ordinary shares could be adversely affected. As at 30 June 2012 the cash balance was £1,396,000 (2011: £1,931,000).

Interest rate exposure

Some of the Group's financial instruments are interest-bearing. These are a mix of both fixed and variable rate instruments with differing maturities. As a consequence, the Group is exposed to interest rate risk due to fluctuations in the prevailing market rate.

Interest is receivable on cash at a variable rate. At the year-end, rates receivable ranged from 0.375 per cent on current account balances to 0.53 per cent for deposit account balances. Interest is payable on the bank loan at a variable rate of LIBOR plus a margin of 0.45 per cent. The effect of the interest rate swap is to fix interest payable at 5.60 per cent per annum for the first three years and 5.55 per cent per annum thereafter. The effective rate of interest on the loan is 0.98 per cent. Interest on financial instruments classified as floating rate is repriced at intervals of less than one year.

Exposure varies throughout the year as a consequence of changes in the composition of the net assets of the Group arising out of the investment and risk management policies.

In addition, tenant deposits are held in interest-bearing bank accounts. These accounts earn interest at base rate less 0.75 per cent and receive no interest at this time as the base rate is too low. Interest accrued on these accounts is paid to the tenant.

The Group's exposure to interest rate risk relates primarily to the Group's long-term debt obligations. The Group's policy is to manage its interest rate risk using an interest rate swap, in which the Group has agreed to exchange the difference between fixed and variable interest amounts, calculated by reference to an agreed upon notional principal amount. The swap is designed to fix the interest payable on the loan. The interest rate swap covers the exact amount of the loan and has the same duration. Interest fixing periods are identical and on this basis the swap contract complies with IAS 39's criteria for hedge accounting.

Market price risk

As at 30 June 2012, all of the Group's financial instruments were included in the balance sheet at fair value, which in the opinion of the Directors is not materially different from their book value.

Fair values of financial assets and liabilities

The assets and liabilities of the Group are, in the opinion of the Directors, reflected in the Balance Sheet at fair value. Borrowings under loan facilities do not have a value materially different from their capital repayment amount. The fair value of the interest rate swap is based on the marked to market value. In the Directors' opinion, the fair value of the Group's assets and liabilities are not materially different from their book value.

The Directors and Manager regularly review the principles applied by the property valuers to ensure that they comply with the Group's accounting policies and with fair value principles.

Fair value hierarchy

The interest rate swap, valued at a liability of £11,438,000 (2011: £8,923,000) is considered to be Level 2 in the hierarchy.

Explanation of fair value hierarchy:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.

Level 2 - The use of a model with inputs (other than quoted prices included in Level 1) that are directly or indirectly observable market data.

Level 3 - The use of a model with inputs that are not based on observable market data.

 Directors' Responsibility Statement in Respect of the Annual Financial Report

In accordance with Chapter 4 of the Disclosure and Transparency Rules, we confirm that to the best of our knowledge:

·; The financial statements contained within the Annual Report for the year ended 30 June 2012, of which this statement of results is an extract, have been prepared in accordance with applicable International Financial Reporting Standards, on a going concern basis, and give a true and fair view of the assets, liabilities, financial position and return of the Group;

·; The Chairman's Statement includes a fair review of the important events that have occurred during the financial year and their impact on the financial statements;

·; 'Principal Risks and Risk Management' includes a description of the Group's principal risks and uncertainties; and

·; The Chairman's Statement includes details of related party transactions that have taken place during the financial year.

On behalf of the Board

Q Spicer

Director

4 September 2012

IRP Property Investments Limited

Notes to the Consolidated Financial Statements

for the year ended 30 June 2012

1. The audited results of the Group which were approved by the Board on 4 September 2012 have been prepared on the basis of International Financial Reporting Standards and the accounting policies set out in the statutory accounts of the Group for the year ended 30 June 2012.

2. The fourth interim dividend of 1.80p was declared on 23 August 2012 and will be paid on 28 September 2012 to shareholders on the register on 7 September 2012. The ex-dividend date is 5 September 2012.

3. There were 110,500,000 Ordinary Shares in issue at 30 June 2012. The earnings per Ordinary Share are based on the net profit for the year of £3,171,000 and on 110,500,000 Ordinary Shares, being the weighted average number of shares in issue during the year.

4. One property was purchased during the year for £3.5 million.

5. The Group results consolidate those of IRP Holdings Limited, a wholly owned subsidiary which invests in properties.

6. These are not full statutory accounts. The full audited accounts for the year ended 30 June 2012 will be sent to shareholders in September 2012, and will be available for inspection at Trafalgar Court, Les Banques, St Peter Port, Guernsey, the registered office of the Company. The full annual report and accounts will be available on the Company's website: www.irppropertyinvestments.com

7. The Annual General Meeting will be held on 14 November 2012.