Helical Bar Regulatory News (HLCL)

A YEAR OF STRONG PROGRESS

Gerald Kaye, Chief Executive, commented:

"The results for the year to 31 March 2019 reflect significant progress for Helical, now an office-led investment and development company focused purely on London and Manchester. We have completed three of our four on-site office development schemes, have let 304,073 sq ft at rents 4.3% above ERVs and have sold £167m of investment assets at a 12.0% premium to book value.

"We now have a collection of newly redeveloped or refurbished assets of premium quality which are attractive to occupiers and situated in desirable locations. We were delighted to announce earlier this week the acquisition, in a 50:50 joint venture, of a major site for the development of c.192,000 sq ft of offices in Farringdon, London EC1. This scheme supplements our existing assets located in the Tech Belt in EC1 and E1.

"We have a tremendous track record in London, built up over the last 25 years, and we believe this experience and our longstanding sector relationships will enable us to continue to add new opportunities to our pipeline. Our increased financial capacity, following the transformation of the portfolio over the last two years, allied to our current operational capacity, enables us to look forward with confidence in our ability to deliver capital profits and increased earnings."

Operational Performance

· In our office development/refurbishment programme:

- Practical completion was achieved at The Tower, London EC1 in August 2018, at One Bartholomew, London EC1 in December 2018 and at Trinity, Manchester in January 2019, delivering a total of 455,127 sq ft of new space.

- Construction continues at our 88,680 sq ft office development at Farringdon East, renamed Kaleidoscope, London EC1, with completion expected in December 2019.

· 268,782 sq ft of new London office lettings during the year delivered contracted rent of £18.7m (Helical share £6.7m at 3.2% above 31 March 2018 ERVs).

· Post year end, 62,854 sq ft has been let at One Bartholomew at premium rents.

· In Manchester, five office lettings of 15,191 sq ft, with a further 8,208 sq ft let post year end, generated rental income of £538,000 at 15.9% above 31 March 2018 ERVs.

· We have completed six lettings of 20,100 sq ft to restaurants or retailers, including Albion & East (trading as Serata Hall) at The Tower, London EC1 and Stem + Glory at Barts Square, London EC1 for contracted rents of £871,000 (Helical share £686,000) at 9.0% above 31 March 2018 ERVs.

· Investment property sale proceeds of £167m since 31 March 2018 achieved at 12.0% above book value.

Financial Highlights

Earnings

· IFRS basic earnings per share of 35.8p (2018: 22.3p).

· IFRS Profit before tax of £43.5m (2018: £30.8m).

· Total Accounting Return1 of 8.4% (2018: 5.3%).

· See-through Total Property Return1 of £81.4m (2018: £68.8m):

- Group's share1 of net rental income of £25.2m (2018: £36.1m).

- Development losses of £4.4m (2018: £8.0m), after provisions of £13.7m (2018: £4.1m).

- Net gain on sale and revaluation of investment properties of £60.6m (2018: £40.7m).

· EPRA loss per share1 of 8.4p (2018: 7.0p).

· Final dividend proposed of 7.50p per share (2018: 7.00p), up 7.1%.

· Total dividend for the year of 10.10p (2018: 9.50p), up 6.3%.

Balance Sheet

· Net asset value up 6.3% to £567.4m (31 March 2018: £533.9m).

· EPRA net asset value per share1 up 3.0% to 482p (31 March 2018: 468p).

· EPRA triple net asset value per share1 up 3.8% to 465p (31 March 2018: 448p).

Property Valuations

· IFRS property portfolio value of £778.8m (31 March 2018: £791.9m).

· See-through property portfolio1 of £876.4m (31 March 2018: £909.6m).

· Total property portfolio performance, as measured by MSCI, of 10.1% compared to the MSCI Central London Offices Total Return Index of 4.8%.

· See-through investment property valuation gain, on a like-for-like basis, of 6.8% (7.4% including purchases and gains on sales).

Financing

· See-through loan to value1 reduced to 30.6% (31 March 2018: 39.9%).

· See-through net borrowings1 of £268.6m (2018: £362.9m).

· Average maturity of the Group's share1 of secured debt of 3.4 years (31 March 2018: 3.5 years), increasing to 4.2 years, on exercise of options to extend current facilities.

· See-through average cost of secured facilities1 of 4.1% (31 March 2018: 4.4%).

· £100m 4.0% Convertible Bond to be repaid in June 2019 from existing cash resources.

· Group's share1 of cash and undrawn bank facilities of £382m (31 March 2018: £277m).

Portfolio Update

London Portfolio

· 6.6% valuation increase, on a like-for-like basis, of our see-through London investment portfolio, valued at £693.8m at 31 March 2019 (85.0% of investment portfolio) compared to £699.9m at 31 March 2018 (84.8% of investment portfolio).

· Contracted rents on our see-through London investment portfolio of £27.5m (2018: £28.4m) compared to an ERV of £42.4m (2018: £49.6m).

· WAULT of 8.0 years on the London portfolio (31 March 2018: 5.8 years).

Manchester Portfolio

· 7.8% valuation increase, on a like-for-like basis, of our Manchester investment portfolio, valued at £122.7m at 31 March 2019 (15.0% of investment portfolio) compared to £98.0m at 31 March 2018 (11.9% of investment portfolio).

· Contracted rents on the Manchester portfolio at 31 March 2019 increased to £5.7m (2018: £4.7m) compared to an ERV of £9.0m (2018: £8.1m).

· WAULT of 3.9 years on the Manchester portfolio (31 March 2018: 4.2 years).

For further information, please contact:

Results Presentation

Helical will be holding a presentation for analysts and investors starting at 9am on Thursday 23 May 2019 at the offices of FTI Consulting, 200 Aldersgate, Aldersgate Street, London, EC1A 4HD. If you would like to attend, please contact FTI Consulting on 020 3727 1000, or email schelical@fticonsulting.com.

The presentation will be on the Company's website www.helical.co.uk and a conference call facility will be available. The dial-in details are as follows:

Webcast Link:

https://webcasting.brrmedia.co.uk/broadcast/5cadfaadeb566331974d5fc4

1 See Glossary for definition of terms. The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). In common with usual and best practice in our sector, alternative performance measures have also been provided to supplement IFRS, some of which are based on the recommendations of the European Public Real Estate Association ("EPRA"), with others designed to give more relevant information about the Group's share of assets and liabilities, income and expenses in subsidiaries and joint ventures.

Chief Executive's Statement

I am pleased to present the Company's 2019 Annual Results.

A Year of Progress

The results for the year to 31 March 2019 reflect significant progress for Helical, now an office-led investment and development company focused purely on London and Manchester. We have completed three of our four on-site office development schemes, have let 304,073 sq ft at rents 4.3% above ERVs and have sold £167m of investment assets at a 12.0% premium to book value.

We now have a collection of newly redeveloped or refurbished assets of premium quality which are attractive to occupiers and situated in desirable locations. We were delighted to announce earlier this week the acquisition, in a 50:50 joint venture, of a major site for c.192,000 sq ft of offices in Farringdon, London EC1. This scheme supplements our existing assets located in the Tech Belt in EC1 and E1.

The London investment portfolio, following the completion of recent office developments and the sale of The Shepherds Building, was 83.8% let (31 March 2018: 91.7%), with contracted rent of £27.5m (2018: £28.4m), and with good interest in the remaining available space. In March we launched our redeveloped office building in Manchester, Trinity, to the market and contracted rents on the Manchester portfolio have grown from £4.7m (87.2% let) to £5.7m (80.2% let).

Our schemes at The Tower, London EC1 and One Bartholomew, London EC1 have both received BREEAM "Excellent" ratings from this world-leading sustainability assessment methodology, along with our other schemes at The Warehouse and The Studio, London EC1, 25 Charterhouse Square, London EC1 and One Creechurch Place, London EC3.

Results for the Year

Profit before tax for the year to 31 March 2019 increased by 41.2% from £30.8m to £43.5m. Total Property Return increased to £81.4m (2018: £68.8m) and included net rents of £25.2m (2018: £36.1m), offset by development losses, largely a result of the impact of the collapse of Carillion plc at Barts Square, London EC1, of £4.4m (2018: £8.0m). The gain on sale and revaluation of the investment portfolio contributed £60.6m (2018: £40.7m).

Net finance costs of £18.4m were substantially lower than in 2018 (£35.2m) as a result of the reduction in borrowings achieved in the last two years. However, the Income Statement was adversely affected by the reduction in medium and long-term interest rates over the year which led to a £3.3m charge (2018: credit of £4.0m) arising from the valuation of the Company's derivative financial instruments. The valuation of the Company's Convertible Bond provided a credit of £0.9m (2018: charge of £1.6m). Recurring administration costs were marginally lower at £10.9m (2018: £11.0m) whilst performance related awards increased to £5.2m (2018: £1.7m) with National Insurance on these awards of £0.7m (2018: £0.1m).

The Board is confident of the letting prospects of the remaining vacant space in the investment portfolio and, with net rental income increasing over the next few years, the Board expects the Group's EPRA earnings to improve significantly in the near future. This expectation has led the Board to recommend to Shareholders an increase in the final dividend of 7.1% to 7.50p (2018: 7.00p) which, together with the interim dividend of 2.60p paid in December 2018, takes the total dividend for the year to 10.10p (2018: 9.50p), an overall increase of 6.3%.

Performance

We measure our performance at both portfolio and Company level, seeking to outperform the relevant sector indices and our peer group in the medium and long-term.

IFRS basic earnings per share increased to 35.8p (2018: 22.3p) with EPRA loss per share of 8.4p (2018: 7.0p), reflecting a reduction in net rental income as the direct result of the sales of income producing investment properties in the last 18 months. On a like-for-like basis, the investment portfolio increased in value by 6.8% (7.4% including purchases and gains on sales). However, with the sales in the year of £167m, 12% above book value, the see-through portfolio value adjusted to £876m (31 March 2018: £910m).

The unleveraged return of our property portfolio, as measured by MSCI, was 10.1% (2018: 11.1%). We now compare our portfolio performance to two MSCI benchmarks. The March MSCI Annual All Properties Index produced a return of 3.6% (2018: 9.3%) with an upper quartile return of 7.0% (2018: 12.0%). The MSCI Central London Offices Total Return Index produced a return of 4.8% (2018: 7.5%) with an upper quartile return of 6.2% (2018: 9.0%).

Total Accounting Return, being the growth in the net asset value of the Company plus dividends paid in the year, was 8.4% (2018: 5.3%). EPRA net asset value per share was up 3.0% to 482p (31 March 2018: 468p), with EPRA triple net asset value per share up 3.8% to 465p (31 March 2018: 448p).

Finance

The Company uses gearing on a tactical basis, dependant on market fluctuations, being raised to accentuate performance when property returns are judged to materially outperform the cost of debt and lowered when seeking to reduce exposure to the property market.

During the year to 31 March 2019, the Group generated gross proceeds of £167m from the sale of investment properties and £45m from the sale of development stock. These proceeds, net of investment in the portfolio of £124m, were used to reduce net borrowings by £94m, significantly reducing future finance costs.

The see-through loan to value ratio ("LTV") reduced to 30.6% at the year end (31 March 2018: 39.9%) and our see-though net gearing, the ratio of net borrowings to the net asset value of the Group, has fallen to 47.3% (31 March 2018: 68.0%) over the same period.

During the year, the average debt maturity on secured loans, on a see-through basis, was 3.4 years (31 March 2018: 3.5 years), increasing to 4.2 years on exercise of options to extend the Group's £150m RCF. No secured loan is repayable before July 2021. The average cost of debt at 31 March 2019 was 4.0% (31 March 2018: 4.3%). The Group's remaining unsecured debt instrument, the £100m Convertible Bond, will be repaid in June 2019, reducing the Group's annual interest payments by £4.0m. The Group has a significant level of liquidity with see-through cash and unutilised bank facilities of £382m (31 March 2018: £277m) to fund the repayment of the Convertible Bond, capital works on its portfolio and future acquisitions.

Board Matters

At this year's Annual General Meeting ("AGM") our Chairman and former Chief Executive, Mike Slade OBE, will step down from the Board after 35 years' service. Mike has been an inspiration to everyone at Helical and to many in the property industry during this time and, on behalf of the rest of the Board, I thank him for his considerable contribution to the success of Helical and wish him well for his retirement. He recently received an OBE for services to charity, for his work with LandAid, the sector's main charity, an award thoroughly deserved.

At the AGM, Michael O'Donnell will also step down after eight years serving as a Non-Executive Director. On behalf of the Board, I would like to thank him for his service to the Company.

In September 2018, we welcomed Joe Lister, CFO at Unite Group, as a Non-Executive Director. Joe will assume the role of Chairman of the Audit & Risk Committee ("Committee") on appointment to the Board at the close of the forthcoming AGM. Joe will replace Richard Grant as Chairman of the Committee, with Richard replacing Mike Slade as Chairman of the Board.

The Future

Helical is primarily a capital growth stock, albeit one with an increasingly important income stream as our redeveloped and refurbished investment assets become let. We have a tremendous track record in London, built up over the last 25 years, and we believe this experience and our longstanding sector relationships will enable us to add new opportunities to our pipeline. Our increased financial capacity, following the transformation of the portfolio over the last two years, allied to our current operational capacity, enables us to look forward with confidence in our ability to deliver capital profits and increased earnings.

Gerald Kaye

Chief Executive

23 May 2019

Our Market

Overview

Helical's core business is developing and owning dynamic, well located office space in London and Manchester. With intelligent stock selection, we aim to maximise returns by development and refurbishment as well as through significant asset management initiatives.

London

In our judgement, the London commercial property market continues to provide the best source of capital profits and we expect this to remain the case for the foreseeable future, notwithstanding the current political chaos over Brexit.

In order for Helical to generate capital profits, the Group needs to identify those areas where it believes tenant demand is, or will become, strong and to source opportunities in those areas at an appropriate entry price. Equally important, we need to provide inspiring working environments suited to the needs of our customers, the tenants. Using the skills, knowledge and expertise gained over many years, the Helical team aims to deliver attractive and exciting office space in our identified locations. In a low growth environment, stock selection needs to reflect the granular characteristics that will attract our target market of occupiers.

Helical has based its investment decisions in London on four continuing major developments in the office market. First, the growth of the London population; second, the continuing and rapid expansion of the creative industries (predominantly in technology and media); third, the migration of occupiers across Central London to the City and East London; and fourth, a fast-growing market in flexible leasing.

London's population is forecast to grow to 9.5m by 2026, a 9% increase since mid-2016. This will present challenges, particularly in terms of infrastructure, but will also provide opportunities, particularly in the demand for new and refurbished offices. Whilst the Elizabeth Line has again been delayed, its eventual opening will be a boost to travelling in London.

The UK is a global leader in the creative industries, an area we have targeted with our portfolio. Companies involved in media, advertising and marketing, technology and other creative industries comprised 57% of our new lettings in the year (31 March 2018: 59%).

The third factor influencing our choice of location for our portfolio is the migration of occupiers from West to East across Central London to the City and East London. The desire to be part of creative hubs, surrounded by like-minded individuals, located a short travelling distance from home are common themes in discussing requirements with tenants. Most obviously, those hubs are in the Tech Belt from King's Cross to Whitechapel.

Finally, the growth of flexible leasing is having a continuing effect on the commercial office letting market in London and has spread to regional cities. At Helical we seek early and continued engagement with customers and look to develop long-standing relationships with them. By offering flexible leases on our multi-let assets, which allow them to occupy space commensurate with their requirements, we target long-term retention of our customers.

In London, Helical has been building up a portfolio of multi-tenanted office buildings in the Tech Belt locations of Farringdon, the Old Street roundabout and Whitechapel. We also own two assets in Chiswick, West London. By owning these "clusters" or "villages" of office buildings, the Company now has a portfolio of assets with multiple lease events leading to ongoing asset management opportunities with the potential to lock in future rental growth.

The Company is also seeking to expand its portfolio by taking on additional schemes in Central London either on its own balance sheet, or in the case of larger projects, by co-investment or by forward selling/funding them, to create the opportunity for significant profit shares but with reduced balance sheet exposure.

Manchester

We continue to believe that Manchester presents an attractive opportunity for us outside of London. The Manchester office market continues to outperform all other regional markets and demonstrates rich and diverse opportunities. 2018 saw a record year of take up with 1.75m sq ft of lettings across 314 transactions. Manchester has also seen the greatest volume of inward investment deals compared to the five other major UK regional cities and the office market demonstrates resilience and growth despite the background of political uncertainty.

Manchester benefits from the highest graduate retention rate outside of London and population growth within the city centre continue to rise. Research indicates the city will have 10,000 more office workers by 2021 than it did in 2018, whilst continued strong economic and employment growth forecasts reaffirm our belief that outside of London, Manchester is the best regional city in which to invest.

In Manchester we now have four assets, following the disposal of 31 Booth Street in December 2018. Our buildings, located across the city centre, have proven to be attractive to occupiers. Each building is specific in its offering, location, size and rental tone, with the opportunity for Helical to apply the skills, knowledge and property expertise gained over many years in London. The Manchester portfolio, of multi-tenanted office buildings, provides Helical with a resilient income stream outside of London.

Looking Forward

Our ambition is to have a balanced portfolio that generates sufficient net rental income to firstly, exceed all of our recurring costs and second, provide a surplus significantly greater than our annual dividend to Shareholders. We have an ERV on the portfolio of £51.5m and expect to generate this surplus once all of our current development and asset management activities are complete. We are also seeking a pipeline of opportunities to grow the balance sheet through the creation of development profits and capital surpluses.

Performance

We measure our performance using a number of financial and non-financial key performance indicators ("KPIs").

We incentivise management to outperform the Group's peers by setting challenging targets and using these performance indicators to measure success. We design our remuneration packages to align management's interests with Shareholders' aspirations.

MSCI (formerly IPD)

MSCI produces a number of independent benchmarks of property returns that are regarded as the main industry indices.

MSCI has compared the ungeared performance of Helical's total property portfolio against that of portfolios within MSCI for the last 20 years. The Group's annual performance target is to exceed the top quartile of the MSCI Annual March All Properties Universe, which it has consistently achieved. Helical's ungeared performance for the year to 31 March 2019 was 10.1% (2018: 11.1%). This compares to the MSCI Annual March All Properties Universe of 3.6% (2018: 9.3%) with an upper quartile return of 7.0% (2018: 12.0%).

In addition, the Annual Bonus Scheme 2018 performance criteria include the comparison of the Group's performance with the MSCI Central London Offices Total Return Index, with target performance to match the index and outperformance exceeding it by 3.25%. In the year to 31 March 2019, this index showed a return of 4.8% (2018: 7.5%) with an upper quartile return of 6.2% (2018: 9.0%).

Helical's unleveraged portfolio returns to 31 March 2019 were as follows:

Source: MSCI

Helical's share of the trading and development portfolio (6.8% of gross property assets) is included in its performance, as measured by MSCI, at the lower of book cost or fair value and uplifts are only included on the sale of an asset.

EPRA Net Asset Value Per Share

The Group's main objective is to maximise growth in net asset value per share, which we seek to achieve through increases in investment portfolio values and from retained earnings from other property related activity. EPRA net asset value per share is the property industry's preferred measure of the proportion of net assets attributable to each share as it includes the fair value of net assets on an ongoing long-term basis. The adjustments to net asset value to arrive at this figure are shown in Note 22 to the financial statements.

The EPRA net asset value per share at 31 March 2019 increased by 3.0% to 482p (31 March 2018: 468p). EPRA triple net asset value per share at 31 March 2019 increased by 3.8% to 465p (31 March 2018: 448p).

Total Shareholder Return

Total Shareholder Return is a measure of the return on investment for Shareholders. It combines share price appreciation and dividends paid to show the total return to the Shareholder expressed as an annualised percentage.

The Total Shareholder Return in the year to 31 March 2019 was 5.2% (2018: 6.1%).

1. Growth over all years to 31/03/19.

2. Growth in FTSE All-Share Return Index over all years to 31/03/19.

3. Growth in FTSE 350 Real Estate Super Sector Return Index over all years to 31/03/19. For data prior to 30 September 1999, the FTSE All Share Real Estate Sector Index has been used.

4. Growth in Total Return of MSCI UK Monthly Index (All Property) over all years to 31/03/19.

Total Accounting Return

Total Accounting Return is the growth in the net asset value of the Group plus dividends paid in the reporting year, expressed as a percentage of the net asset value at the beginning of the period. The metric measures the growth in Shareholders' Funds each year and is expressed as an absolute measure.

The Total Accounting Return in the year to 31 March 2019 was 8.4% (2018: 5.3%).

Average Length of Employee Service and Average Staff Turnover

A high level of staff retention remains a key feature of Helical's business. The Group retains a highly skilled and experienced team. We assess our success based on two key metrics: the average length of service of the Group's head office employees and average staff turnover.

The average length of service of the Group's head office employees at 31 March 2019 was 8.7 years and the average staff turnover during the year to 31 March 2019 was 6.3%.

Financial Review

Overview

Our development and asset management programme has driven the results for the year, principally through revaluation gains at The Tower, London EC1 and Kaleidoscope, London EC1, and from the sale of The Shepherds Building, London W14, at a significant premium to 31 March 2018 book value.

With the sale of the final three non-core assets in the year, the Group has completed its transformation to a London and Manchester investment and development company. Whilst the sales of £477m of investment assets over the last two years have reduced the Group's net rental income, the cash generated has been used to fund its development programme and repay debt, substantially reducing its LTV and finance costs. Going forward, we expect this income stream to grow as we work to capture the portfolio's ERV of £51.5m.

Results for the Year

The year to 31 March 2019 includes net rental income of £25.2m and a net gain on sale and revaluation of the investment portfolio of £60.6m, offset by development losses of £4.4m, leading to a Total Property Return of £81.4m (2018: £68.8m). Total administration costs of £17.2m (2018: £13.2m) and significantly reduced net finance costs of £18.4m (2018: £35.5m) contributed to a pre-tax profit of £43.5m (2018: £30.8m). EPRA net asset value per share increased by 3.0% to 482p (31 March 2018: 468p).

The proposed final dividend of 7.50p takes the total dividend for the year to 10.10p, a 6.3% increase on the previous year. With growing rents from our London and Manchester portfolios, the Company aims to continue to increase its annual dividend going forward.

The Group's real estate portfolio, including its share of assets held in joint ventures, reduced to £876.4m (31 March 2018: £909.6m) as gains from its annual revaluation and capital expenditure on the investment portfolio and development programme were offset by the sale of assets with a book value of £194m. One asset was purchased during the year, Fourways House, Manchester for £16.5m.

The cash generated from the sale of property assets during the year allowed the repayment of debt and reduced the Group's see-through loan to value to 30.6% (31 March 2018: 39.9%). The Group's weighted average cost of debt reduced to 4.0% (31 March 2018: 4.3%) and a weighted average debt maturity, excluding the Convertible Bond, of 3.4 years (2018: 3.5 years). The average maturity of the facilities would increase to 4.2 years following the two one-year extensions of the revolving credit facility. The £100m unsecured Convertible Bond is to be repaid in June 2019.

At 31 March 2019, the Group had unutilised bank facilities of £176m and £205m of cash on a see-through basis. The bank facilities are primarily available to fund the development of Kaleidoscope, London EC1, the construction of the last phase of residential at Barts Square, London EC1, future property acquisitions and to repay the £100m Convertible Bond in June 2019.

Total Property Return

We calculate our Total Property Return to enable us to assess the aggregate of income and capital profits made each year from our property activities. Our business is primarily aimed at producing surpluses in the value of our assets through asset management and development, with the income side of the business seeking to cover our annual administration and finance costs. 

Earnings Per Share

The IFRS earnings per share increased from 22.3p to 35.8p and are based on the after tax earnings attributable to ordinary Shareholders divided by the weighted average number of shares in issue during the year. 

On an EPRA basis, losses per share were 8.4p (2018: loss 7.0p), reflecting the Group's share of net rental income of £25.2m (2018: £36.1m) and development losses of £4.4m (2018: £8.0m), but excluding gains on sale and revaluation of investment properties of £60.6m (2018: £40.7m).

Net Asset Value

IFRS diluted net asset value per share increased from 445p to 469p and is a measure of Shareholders' Funds divided by the number of shares in issue at the year end, adjusted to allow for the effect of all dilutive share awards. 

EPRA net asset value per share increased by 3.0% to 482p per share (31 March 2018: 468p). This movement arose principally from a total comprehensive income (retained profits) of £42.6m (2018: £26.3m), less £11.4m of dividends (31 March 2018: £10.2m) and the crystallisation of a £13.5m tax charge on the capital gain from the sale of The Shepherds Building, London W14.

EPRA triple net asset value per share increased by 3.8% to 465p (31 March 2018: 448p).

Income Statement

Rental Income and Property Overheads

Gross rental income receivable by the Group in respect of wholly owned properties reduced by 29.9% to £28.2m (2018: £40.2m), reflecting the partial capture of the investment portfolio's reversionary potential offset by sales of assets during the current and prior years. In the joint ventures, gross rents rose from £0.2m to £1.0m. Property overheads in respect of wholly owned assets and in respect of those assets in joint ventures remained steady at £4.1m (2018: £4.1m). After taking account of net rents receivable from our profit share partners of £0.1m (2018: payable of £0.1m), see-through net rents reduced by 30.2% to £25.2m (2018: £36.1m).

Development Profits

In the year under review the Group let the remaining space at One Creechurch Place, London EC3 which, under its role as development manager, allowed it to recognise £4.1m of profit. A further profit of £0.8m was recognised for carrying out a similar role at Barts Square, London EC1.

Provisions of £6.5m against our legacy retail development programme, non-core residential land and to satisfy cost indemnities given on the sale of our Retirement Villages in the prior year, combined with other costs of £0.2m, contributed to a net development loss of £1.8m (2018: £4.2m).

Share of Results of Joint Ventures

The revaluation of our investment assets held in joint ventures generated a surplus of £1.3m (2018: £3.3m). Under our development management agreement for One Bartholomew, Barts Square, London EC1, we recognised a net development fee of £3.9m as a result of achieving practical completion and letting progress, but an assessment of the book value of our land holdings at Barts Square development resulted in development provisions of £7.2m. A profit of £2.2m was recognised on the sale of the site at Hammersmith Town Hall.

Finance, administration, taxation and other sundry items added a further £4.8m (2018: £1.5m) of losses. Accounting adjustments to our interest in the One Creechurch Place joint venture generated surpluses of £1.4m, leaving a net loss from our joint ventures of £3.2m (2018: profit of £3.2m). 

Gain on Sale and Revaluation of Investment Properties

During the year, we sold five investment assets for gross proceeds of £167.0m, generating a net overall profit of £15.0m. In London, we sold The Shepherds Building, W14 for £125.2m, a 12.3% premium to its 31 March 2018 book value. 31 Booth Street, Manchester was sold for £11.9m, a 29.6% premium to its 31 March 2018 book value, and we also sold three non-core assets for a combined price of £28.5m at a 6.2% premium to 31 March 2018 book value.

The valuation of our investment portfolio, on a see-through basis, continued to reflect the benefit of our refurbishment activities in London where we generated a valuation surplus of 7.4% overall (including purchases and gains on sales) and 6.6% on a like-for-like basis. In Manchester, the portfolio generated a surplus of 7.8% on a like-for-like basis. In total, the see-through investment portfolio showed a valuation surplus of 7.4% (including purchases and gains on sales), or 6.8% on a like-for-like basis.

The total impact on our results of the gain on sale and revaluation of our investment portfolio, including in joint ventures, was a net gain of £60.6m (2018: £40.7m). 

Administration Costs

Administration costs in the Group, before performance-related awards, reduced slightly from £11.0m to £10.9m.

Performance related share awards and bonus payments, before National Insurance costs, were £5.2m (2018: £1.7m). Of this amount, the £2.3m (2018: £1.4m) charge for share awards under the Performance Share Plan is expensed through the Income Statement but added back to Shareholders' Funds through the Statement of Changes in Equity.

Finance Costs, Finance Income and Derivative Financial Instruments

Interest payable on secured bank loans, including our share of loans on assets held in joint ventures, but before capitalised interest, reduced to £12.9m (2018: £18.5m). Interest payable in respect of the unsecured bonds was £4.0m (2018: £8.4m). Bank charges, commitment fees, sundry interest and the amortisation of refinancing costs decreased to £5.8m (2018: £17.8m) due to the prior year's redemption of the 6% Retail Bond (£8.7m premium) and the repayment of bank debt. Capitalised interest reduced from £5.2m to £3.2m as development schemes progressed and as a result of the sale of the Retirement Village portfolio in the prior year, as well as the completion of The Tower, London EC1 in August 2018. Total finance costs, including joint ventures, decreased to £19.5m (2018: £39.5m).

Finance income earned, including in joint ventures, was £1.1m (2018: £4.3m). The movement in medium and long-term interest rate projections during the year contributed to a charge of £3.3m (2018: credit of £4.0m) on their mark-to-market valuation. The mark-to-market valuation of the Convertible Bond resulted in a credit of £0.9m (2018: charge of £1.6m).

Taxation

Helical pays corporation tax on its UK sourced net rental income, trading and development profits and realised chargeable gains, after offsetting administration and finance costs.

The current tax charge for the year of £9.0m (2018: credit of £0.4m) is primarily a result of the tax charge on the capital gain on the sale of The Shepherds Building, London W14. The majority of this tax liability had been recognised as a deferred tax liability in the prior year and this liability was reversed as a deferred tax credit during the year. This deferred tax credit was offset by an increased liability on the investment property revaluation surpluses recognised in the year.

Dividends

Helical follows a progressive dividend policy of increasing its dividends whilst retaining the majority of funds generated for investment to grow the business. As the Group completes and lets its current development programme, it expects to be able to reflect the growth in earnings in increased dividends paid to Shareholders. The interim dividend paid on 31 December 2018 of 2.60p was an increase of 4% on the previous interim dividend of 2.50p. The Company has proposed a final dividend of 7.50p, an increase of 7.1% on the previous year (2018: 7.00p), for approval by Shareholders at the 2019 AGM. In total, the dividend paid or payable in respect of the results for the year to 31 March 2019 will be 10.10p (2018: 9.50p), an increase of 6.3%. Since 2016, the compound annual growth rate of the Company's dividends has been 7.3%.

Balance Sheet

Shareholders' Funds

Shareholders' Funds at 1 April 2018 were £533.9m. The Group's results for the year added £42.6m (2018: £26.3m), net of tax, representing the total comprehensive income for the year. Movements in reserves arising from the Group's share schemes increased funds by £2.3m. The Company paid dividends to Shareholders amounting to £11.4m leaving a net increase in Shareholders' Funds from Group activities during the year of £33.5m to £567.4m.

Investment Portfolio

In the year to 31 March 2019, the Group acquired Fourways House, Manchester for £16.5m and paid additional consideration of £13.0m for Kaleidoscope, London EC1. The Group spent £62.2m on capital works on the investment portfolio, mainly at Kaleidoscope, London EC1 (£36.0m), The Tower, London EC1 (£10.5m), Barts Square, London EC1 (£1.4m), Trinity, Manchester (£6.9m) and 35 Dale Street, Manchester (£1.6m). The aggregate book value of the five investment assets sold during the year was £149.1m. Revaluation gains added £49.5m (£0.3m loss for our partners) to increase the see-through value of the portfolio, before lease incentives, to £816.6m (2018: £824.8m). The accounting for head leases and lease incentives resulted in a book value of the see-through investment portfolio of £804.0m (31 March 2018: £814.6m).

Debt and Financial Risk

In total, Helical's outstanding debt at 31 March 2019 of £479.2m (31 March 2018: £470.7m) had a weighted interest cost of 4.0% (31 March 2018: 4.3%) and a weighted average debt maturity excluding the Convertible Bond, of 3.4 years (31 March 2018: 3.5 years). The average maturity of the facilities would increase to 4.2 years following exercise of the two one-year extensions of the Group's £150m revolving credit facility. The £100m unsecured Convertible Bond is to be repaid in June 2019.

Debt Profile at 31 March 2019 - Excluding the Effect of Arrangement Fees

* Calculated on a fully utilised basis with the two one-year extensions of the revolving credit facility included.

Secured Debt

The Group arranges its secured investment and development facilities to suit its business needs as follows:

- Investment Facilities

We have £150m of revolving credit facilities that enable the Group to acquire, refurbish, reposition and hold significant parts of our investment portfolio. Our London investment assets are primarily held in £293m of term loan secured facilities. The value of the Group's properties secured in these facilities at 31 March 2019 was £698m (31 March 2018: £706m) with a corresponding loan to value of 44.4% (31 March 2018: 45.3%). The average maturity of the Group's investment facilities at 31 March 2019 was 3.5 years (31 March 2018: 3.8 years), increasing to 4.4 years following the two one-year extensions of the revolving credit facility with a weighted average interest rate of 3.9% (31 March 2018: 4.5%). 

- Development Facilities

This facility finances the over-station development at Kaleidoscope, London EC1. The maturity of the Group's development facility at 31 March 2019 was 4.4 years with a weighted average interest rate of 6.3%. Excluding the impact of commitment fees, the weighted average interest rate of this facility is 4.2%.

- Joint Venture Facilities

We hold a number of investment and development properties in joint venture with third parties and include in our reported figures our share, in proportion to our economic interest, of the debt associated with each asset. The average maturity of the Group's share of bank facilities in joint ventures at 31 March 2019 was 2.8 years (31 March 2018: 1.7 years) with a weighted average interest rate of 4.0% (31 March 2018: 3.6%).

Unsecured Debt

The Group's utilised unsecured debt is £100.5m (31 March 2018: £101.3m), as follows:

- Convertible Bond

In June 2014, the Group raised £100m from the issue of a listed unsecured Convertible Bond with a 4.0% coupon, repayable in June 2019, or, subject to certain conditions, convertible at the option of the Bond holders into ordinary shares, unless a cash settlement option is exercised by the Company. The initial conversion price has been set at £4.9694 per share, representing a 35% premium above the price on the day of the issue and a premium of 59% above the Company's EPRA net asset value per share at 31 March 2014. The value of the Bond at 31 March 2019, as determined by the listed market price, was £100.5m (31 March 2018: £101.3m). The Group expects to repay the £100m Bond in June 2019 from existing cash resources.

- Short-term Working Capital Facilities

These facilities provide access to additional working capital for the Group.

Cash and Cash Flow

At 31 March 2019, the Group had £382m (31 March 2018: £277m) of cash and agreed, undrawn, committed bank facilities including its share in joint ventures, as well as £25m (31 March 2018: £105m) of uncharged property on which it could borrow funds.

Net Borrowings and Gearing

Total gross borrowings of the Group, including in joint ventures, have increased from £470.7m to £479.2m during the year to 31 March 2019. After deducting cash balances of £205.2m (31 March 2018: £103.7m) and unamortised refinancing costs of £5.4m (31 March 2018: £4.1m), net borrowings reduced from £362.9m to £268.6m. The gearing of the Group, including in joint ventures, reduced from 68.0% to 47.3%.

Hedging

At 31 March 2019, the Group had £363.0m (31 March 2018: £366.6m) of fixed rate debt with an average effective interest rate of 3.7% (31 March 2018: 4.1%) and £67.2m (31 March 2018: £54.2m) of floating rate debt with an average effective interest rate, excluding commitment fees, of 3.7% (31 March 2018: 3.9%). In addition, the Group had £240m of interest rate caps at an average of 1.69% (31 March 2018: £15.0m at 0.75%). In our joint ventures, the Group's share of fixed rate debt was £nil (31 March 2018: £nil) and £49.0m (31 March 2018: £49.9m) of floating rate debt with an effective rate of 4.0% (31 March 2018: 3.6%) with interest rate caps set at 0.5% plus margin on £11.0m (31 March 2018: £58.0m).

¹ This includes commitment fees on undrawn facilities. Excluding these would reduce the effective rate to 3.7% (31 March 2018: 3.9%).

Tim Murphy

Finance Director

23 May 2019

Helical's Property Portfolio - 31 March 2019

Property Overview

Helical divides its property activities into two core markets: London and Manchester offices. Following the sale of the last three non-core investment assets and the acquisition of a new office building in Manchester, London represents 86% and Manchester 14% of the total property portfolio. Whilst there are structural differences in these markets, Helical has found that its business model can be applied successfully to each, driving capital growth, development profits and rental income.

The London Portfolio

Our strategy is to continue to increase our London holdings, focusing on areas where we see strong tenant demand and growth potential, such as the "Tech Belt" that runs from King's Cross through Old Street and Shoreditch to Whitechapel. Our London portfolio comprises income-producing multi-let offices, office refurbishments and developments and a mixed use commercial/residential scheme.

Charterhouse Street, EC1

After the year end, we acquired in a 50:50 joint venture with AshbyCapital the long leasehold interest in a major development site in the heart of Farringdon, further enhancing our presence in this vibrant area. The site is situated on the corner of Charterhouse Street and Farringdon Road, just 100m from Farringdon Station and 350m from our development at Farringdon East, now named Kaleidoscope, at the opposite end of the Farringdon Elizabeth Line platform.

The site has an existing planning consent for c.192,000 sq ft of offices and ground floor retail. Demolition has already been undertaken and the site is vacant. Construction will commence later this year with completion anticipated early in 2022.

The Bower, EC1

The Bower is a landmark estate immediately adjacent to the Old Street roundabout and features 312,575 sq ft of innovative, high quality office space along with 20,606 sq ft of restaurant and retail space.

The Warehouse and The Studio

The Warehouse comprises 122,858 sq ft of offices and The Studio 18,283 sq ft of offices with 10,298 sq ft of retail space at the two buildings. Works on The Warehouse entailed a complete refurbishment of the building whilst retaining its original 1960s characteristics. The Studio was a ground up development on the former car park site.

The works were completed in March 2015 and the offices were fully pre-let to CBS, Farfetch, Pivotal, Allegis and Stripe (The Warehouse) and John Brown Media (The Studio). The retail operators are Bone Daddies, Draft House, Enoteca da Luca, Honest Burger, Franze & Evans, Ejder and Good To Go.

The Tower

The Tower offers 171,434 sq ft of office space with a contemporary façade and innovatively designed interconnecting floors, along with 10,308 sq ft of retail space across two units.

With six floors (34%) let to WeWork when construction started, we let, prior to completion of building works, an additional three floors to Farfetch, an existing tenant in The Warehouse. Since the building completed in August 2018, two floors have been let to Brilliant Basics (Infosys) and one floor to Finablr, taking the office space to 70% let, and there is good interest in the remaining space. In addition, the two retail units have been let, one to Albion & East (trading as Serata Hall) for an urban bar and one to restaurant operator Wagamama.

Barts Square, EC1

In a joint venture with The Baupost Group LLC, Helical owns the freehold interest of Barts Square, a 3.2 acre site between St Paul's and Smithfield Market, situated a short walk from Farringdon East Crossrail station.

Barts Square provides a new quarter in the City, consisting of 236 residential apartments, three office buildings of 214,434 sq ft, 24,013 sq ft and 10,286 sq ft together with 21,330 sq ft of retail/A3 at ground floor as well as major public realm improvements.

Phase One

Residential/Retail

Phase One of Barts Square comprises 144 residential units, 3,101 sq ft of retail space and extensive public realm improvements. By the year end, 134 residential units, with a total value of £171.8m have been sold at an average price of £1,558 psf, leaving just 10 apartments to sell, one of which has exchanged since the year end. The retail space was let to Stem + Glory and Halfcup during the year.

90 Bartholomew Close - Office/Restaurant

The 24,013 sq ft office building, with 6,414 sq ft of restaurant space, completed in March 2018. During the year the first floor was let and the fourth and fifth floors are under offer. The ground and lower ground restaurant, let to Lino, opened in November 2018.

Phase Two

One Bartholomew - Offices

One Bartholomew was sold to clients of AshbyCapital for £102.4m in August 2015. The demolition of the existing building and the construction of a new 12 storey Grade A office block of 214,434 sq ft commenced in January 2016 and completed in December 2018. AshbyCapital's clients financed the development costs and, when the building is completed and successfully let, the joint venture will be entitled to receive a profit share payment. Helical is the development manager for delivery of the project. During the year, the top three floors (9th-11th) were let to The Trade Desk, who subsequently took an additional floor (8th). Since the year end the ground, first and second floor have been let to The Chicago Booth School of Business and the seventh floor has been let to Infrared Capital Partners, taking the building to 64% let.

Phase Three

Residential/Retail

Construction works on Phase Three of Barts Square are well underway. This phase will comprise 92 apartments and 11,815 sq ft of retail space. Marketing of the units commenced in March 2018 and, during the year, contracts were exchanged on 23 units, taking the total number of units exchanged to 37, at a value of £63.0m and an average price of £1,810 psf.

Since the year end contracts have been exchanged on a further seven units, leaving 47 units left to sell and one additional unit that will be released at a later date.

54 Bartholomew Close

The refurbishment of 54 Bartholomew Close is ongoing and will provide 10,286 sq ft of offices, with completion expected in Q4 2019.

Kaleidoscope, EC1

The over-station development at the Farringdon East Elizabeth Line station will comprise a six storey 86,183 sq ft office building, with a 2,497 sq ft restaurant unit on the ground floor. The building will sit immediately east of Smithfield Market with views over Charterhouse Square and towards St Paul's Cathedral. Following the grant of a 150-year lease, development commenced in August 2018 and completion is due in December 2019.

One Creechurch Place, EC3

One Creechurch Place is a landmark City office scheme in the heart of the insurance district in London. In May 2014, Helical signed a joint venture agreement with HOOPP (Healthcare of Ontario Pension Plan) to redevelop the site. Under the terms of the joint venture, HOOPP and Helical jointly funded the project on a 90:10 split, with Helical acting as development manager, for which it will now receive the final instalment of the promote payment following the successful completion and letting of the scheme.

The building, comprising 272,505 sq ft of offices and 786 sq ft of retail, achieved practical completion on 7 November 2016 and, following the letting of 86,311 sq ft during the year, the building is now fully let.

Helical will shortly exercise its option to sell its 10% shareholding in the joint venture to HOOPP, with completion of this sale expected in the next few months.

The Loom, E1

This 108,640 sq ft building is one of London's few remaining former Victorian wool warehouses and was acquired in 2013. Works to transform this asset completed in September 2016 and included a new entrance and reception onto Gowers Walk, a café, showers and a bike store. The Loom has won both a RIBA London and National Award as well as an Architects Journal Retrofit Award. Due to careful asset management, the building remained at an average of 78% let throughout the refurbishment. Since 1 April 2018, we have let 37,080 sq ft at 4.5% above 31 March 2018 ERVs, such that the building is now 97% let.

25 Charterhouse Square, EC1

In January 2016, Helical was granted a new 155 year leasehold interest in 25 Charterhouse Square from the Governors of Sutton's Hospital in Charterhouse for £16m. The building is a Grade A office adjacent to the new Farringdon East station on the Elizabeth Line and overlooks the historic Charterhouse Square. Helical carried out a major refurbishment of the existing building, which increased the previous 34,000 sq ft to 38,355 sq ft of offices with the addition of a new sixth floor, and 5,138 sq ft of retail space. The building achieved practical completion in March 2017 and was fully let to Anomaly, Peakon, Hudson Sandler and Senator International by December 2017, less than two years after it was acquired.

Power Road Studios, W4

The site comprises 57,585 sq ft of offices across four studio buildings and is multi-let to a wide range of predominantly media tenants. In October 2017 we completed the refurbishment of Studio 1, a project comprising c.16,000 sq ft of Grade A space, refurbished common parts and added two new lift shafts to accommodate a consented future roof extension of 13,000 sq ft. In the year, we have let 6,072 sq ft at average rents of £39.15 psf, with a further 2,007 sq ft let following the year end. Preliminary works have been completed for a new 30,000 sq ft office building which secured planning consent in August 2017.

The Powerhouse, W4

Helical acquired this 24,288 sq ft office and recording studios by way of sale and leaseback in 2013. The Powerhouse is a listed building on Chiswick High Road and is fully let on a long lease to Metropolis Music Group.

The Shepherds Building, W14

In October 2018, after successfully completing new lettings on 12,375 sq ft, this 150,072 sq ft multi-let office building was sold for £125.2m. This price represented a net initial yield of 4.8% and a 12.3% premium to 31 March 2018 book value. The building had been acquired in 2000 for £12.8m and was fully refurbished with an extra floor added.

King Street, W6

Hammersmith & Fulham Borough Council, who had been opposed to this regeneration project since the Council became Labour controlled, exercised their option to terminate the development agreement. During the year, the sale of the land held by the Group (which is a 50/50 joint venture with Grainger plc) completed, resulting in a profit to Helical of £2.2m.

Drury Lane and Dryden Street, WC2

This is a 0.5 acre office and retail site which sits within the Covent Garden Conservation Area. The Group agreed with Savills Investment Management to act as development manager to obtain a revised office planning consent, which it achieved in February 2019. The Group will receive a fee for this which is dependent on the agreed value of the property with the benefit of the new planning permission.

The Manchester Portfolio

Manchester is a city with a diverse, thriving and growing economy that is widely regarded as England's second city and the centre of the "Northern Powerhouse". Helical has found that the approach it applies to development and asset management in London is equally well received by the tenants in Manchester.

Churchgate & Lee, Manchester

This asset comprises 244,627 sq ft of multi-let offices. The asset was 64% let when acquired in March 2014. Since its purchase, we have refurbished the reception and 73,374 sq ft of office space. Following the letting of 8,208 sq ft since the year end, all available space is now let. We continue to actively manage the building, with planning permission approved for a full refurbishment of Lee reception.

31 Booth Street, Manchester

This 24,902 sq ft office located in the prime city core was acquired in January 2016 for £4.7m. The building has been fully refurbished and was launched to the market in March 2017.

During the year, all of the newly refurbished space was let and the building was sold in December 2018 for £11.9m, a premium of 29.6% to March 2018 book value.

35 Dale Street, Manchester

35 Dale Street is a 54,112 sq ft office building situated in the Northern Quarter of Manchester, acquired in March 2015. The building underwent a comprehensive refurbishment which completed in June 2018. During the year, 10,134 sq ft was let and the building is now fully occupied.

Trinity, Manchester

Trinity, purchased in May 2017 for £12.9m, underwent a full redevelopment which completed in January 2019. The repositioned building comprises 54,651 sq ft of office space and 4,300 sq ft of retail/restaurant space.

Fourways House, Manchester

This 59,067 sq ft brick built Grade 2 listed former packing warehouse was acquired in July 2018 for £16.5m, representing a net initial yield of 5.3%. We have begun to apply our asset management skills and completed three new lettings of 5,057 sq ft at average rents of £24.00 psf, compared to average rents on acquisition of £16.00 psf.

Non-Core

Retail and Regional Office Investments

We sold our three remaining non-core investment assets at Sevenoaks (retail), Reading and Glasgow (both regional offices) during the year, for a total consideration of £28.5m, representing a 6.2% premium to book value and an aggregate net initial yield of 7.6%.

Retail Developments

We continue to progress our retail schemes at Kingswinford and East Ham. We have assigned our land option in Evesham, with a profit share dependent on the success of the scheme, which is due for completion in August 2019. These schemes require no capital input from Helical beyond fees to design, pre-let and pre-sell the consented developments.

Portfolio Analytics

See-through Total Portfolio by Fair Value

See-through Trading and Development Portfolio

Capital Expenditure

We have a planned development and refurbishment programme.

* Includes deferred consideration payment due in April 2020.

** Acquired after 31 March 2019 - see Note 25.

Asset Management

Asset management is a critical component in driving Helical's performance. Through having well considered business plans and maximising the combined skills of our management team, we are able to create value in our assets without relying on market movements.

During the year, total contracted income reduced by £2.3m as a result of the sale of investment properties and losses from breaks and lease expiries, offset by the purchase of one investment property and rent from new lettings and rent reviews.

Investment Portfolio

Portfolio Yields

See-through Capital Values, Vacancy Rates and Unexpired Lease Terms

See-through Valuation Movements

See-through Lease Expiries or Tenant Break Options

We have a strong rental income stream and a diverse tenant base. The top 10 tenants account for 51.6% of the total rent roll and the tenants come from a variety of industries.

Principal lettings

Letting Activity

Consolidated Income Statement

For the year ended 31 March 2019

Consolidated Statement of Comprehensive Income

For the year ended 31 March 2019

The exchange differences on retranslation of net investments in foreign operations will be reclassified to the Income Statement on disposal.

Consolidated Balance Sheet

At 31 March 2019

Consolidated Cash Flow Statement

For the year to 31 March 2019

Consolidated Statement of Changes in Equity

At 31 March 2019

For a breakdown of total comprehensive income see the Consolidated Statement of Comprehensive Income.

The adjustment against retained earnings of £2,274,000 (31 March 2018: £1,185,000) adds back the share based payments charge in accordance with IFRS 2 Share Based Payments.

There were net transactions with owners of £9,038,000 (31 March 2018: £9,273,000) made up of the Performance Share Plan credit of £2,274,000 (31 March 2018: £1,185,000) and related deferred tax credit of £94,000 (31 March 2018: charge of £55,000), dividends paid of £11,406,000 (31 March 2018: £10,195,000), issued share capital of £8,000 (31 March 2018: £4,000) and corresponding share premium of £2,506,000 (31 March 2018: £nil), the sale of own shares of £nil (31 March 2018: £521,000), share settled PSP awards charge of £1,837,000 (31 March 2018: £nil) and the share settled bonus charge of £677,000 (31 March 2018: £733,000).

Notes to the Full Year Results

1. Basis of Preparation

These financial statements have been prepared using the recognition and measurement principles of International Financial Reporting Standards ("IFRS"), including International Financial Reporting Interpretations Committee ("IFRIC") interpretations as adopted by the European Union.

The financial statements have been prepared in Sterling (rounded to the nearest thousand) under the historical cost convention as modified by the revaluation of investment properties, available-for-sale investments, convertible bonds and derivative financial instruments.

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in section 434 of the Companies Act 2006 but has been derived from the Company's audited statutory accounts for the year ended 31 March 2019. These accounts will be delivered to the Registrar of Companies following the Annual General Meeting. The auditor's opinion on the 2019 accounts was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The principal accounting policies of the Group are consistent with those applied in the year to 31 March 2018, as amended to reflect the new standards set out below. The Group Annual Report and Financial Statements for 2018 are available at Companies House.

New standards adopted during the year

IFRS 15 Revenue from Contracts with Customers

IFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of IFRS 15 is that the Group should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. The standard sets out a five-step model:

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations within a contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations within the contract.

Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation.

The standard is applicable to investment property disposals, development property disposals and property development management/advisory services but excludes rental income, which is within the scope of IAS 17 Leases (until the adoption of IFRS 16 for accounting periods beginning on or after 1 January 2019).

Prior year adjustment

An adjustment of £9,623,000 to the revenue reported for the year to 31 March 2018 has been made to reflect the gross up of service charges in rental income and costs, where the net amount had previously been recognised in rental costs. This adjustment is due to the adoption of IFRS 15 Revenue from Contracts with Customers and has no net impact on the profit for the year or on the Group's net asset position.

IFRS 9 Financial Instruments

This standard applies to classification and measurement of financial assets and financial liabilities, impairment provisioning and hedge accounting. The Group's assessment of IFRS 9 determined that the main area of potential impact was impairment provisioning on trade receivables, given the requirement to use a forward-looking expected credit loss model. However, the Group concluded that this has no material impact on its financial statements.

In addition, the following pronouncements had no significant impact on the consolidated financial statements: