London & Associated Properties Regulatory News (LAS)

28 Apr 2006 07:00

27 APRIL 2006CHAIRMAN'S STATEMENTI am delighted to once again report on a year of considerable progress forLondon & Associated Properties during which the Group's fully diluted netassets per share have grown by 18.1% to 115.9p. This growth was principallydriven by the value of our overall property portfolio which, including jointventures and associated companies, rose to ‚£272.5m, an increase of 9%.The 12 months to 31 December 2005 have been an extremely exciting period forLAP. We have embarked on a major development programme that will substantiallyenhance the value of properties in both our directly owned portfolio and in ourjoint venture with the Bank of Scotland. This is the largest developmentprogramme undertaken by the Group; however, it is one we believe to be of lowrisk as we pursue our policy of pre-letting the majority of space in thedevelopment before commencing on-site. These developments have a short-termimpact on our rental stream, but this will be more than covered by the overalluplift in income and values we expect to achieve over the medium term.As shareholders are aware, our largest development is at King Edward Court, Windsor, which we own in joint venture with the Bank of Scotland throughAnalytical Properties. This development will create over 100,000 sq ft ofmodern retail space, taking the overall total to more than 215,000 sq ft, aswell as a 113-bed Travelodge hotel. Once fully let, this new development alonewill produce ‚£2.4m of annual rents compared to the ‚£1.1m previously producedfrom those buildings we are replacing. To-date, 90% by rental value has beenpre-let. However, there have been some unavoidable delays in the constructionand we now expect the construction to be completed by the middle of 2007. Further details are set out in the Chief Executive's Review.Elsewhere the portfolio has performed well over the year. This is as a resultof our continued successful asset management programme that aims to constantlyimprove the tenant mix and rental values at our centres. This in turn enablesus to grow capital values as well as income thus laying the foundations forfuture profitability and NAV enhancement.Turning to our results for the year, shareholders will see that we are nowreporting under IFRS, which became obligatory after 1 January 2005, rather thanUK GAAP, the previous accounting standard for companies with a full listing onthe London Stock Exchange. The new standard impacts on our results in twoprincipal areas: our net assets now reflect in the balance sheet any deferredtax which may or may not be crystallised at an unspecified time in the future,as well as our listed investments which are now reported at market value; andour Consolidated Income Statement (formerly Profit & Loss Statement) nowreflects the increase in value of our investment properties, our joint ventureproperties and those owned through associated companies.Under IFRS our net assets are now ‚£88.3m, a 9.6% increase over the re-statedfigures for the year to 31 December 2004 of ‚£80.6m. Under UK GAAP, our netassets would have shown a near 15% rise from ‚£90.2m to ‚£103.5m, a landmark asthey exceeded the ‚£100m mark for the first time. The impact on LAP's net asset value per share is as follows: under IFRS,diluted net assets per share rose by 18.1% to 115.9p against 98.1p, while underUK GAAP the increase would have been a rise of 22.3% to 135.8p from 111.0p pershare.Our consolidated income statement shows pre-tax profits broadly unchanged at ‚£17.9m against ‚£18.6m while under UK GAAP pre-tax profits would have risen some13.3% to ‚£3.4m from ‚£3.0m last time. Diluted earnings per share were 18.8pagainst 20.2p under IFRS, which incorporates the revaluation of our investmentportfolio. UK GAAP would have shown a 35% increase to 3.8p per share. Grossrental income of our directly owned portfolio increased by 1.4% to ‚£7.9m.The Board is recommending a final dividend of 1.175p per share, making a totalfor the year of 1.725p per share which, if agreed by shareholders, will be paidon 7 July 2006 to those shareholders on the register as at 16 June 2006. Thisis an increase of some 5% over the previous year. During the year we completed the sale of Brierley Hill, West Midlands, for ‚£4.85m and our shops in Petergate, Bradford were compulsorily purchased by thelocal council on an initial valuation of ‚£1.4m.Over the same period we acquired the Stonehouse pub for ‚£2.5m. This property isstrategically located adjacent to our Orchard Square shopping centre inSheffield and will provide further exciting development opportunities for usthere. In June 2005 we returned ‚£6.2m to shareholders through a tender offer forshares. This increased our fully diluted NAV per share by 0.6p. The 5.9mshares that were acquired are held in Treasury and can be reissued should asuitable opportunity arise.In January this year Clive Parritt joined the Board as a non-executiveDirector. Clive has extensive business experience as a practicing accountantand holds a number of other directorships. I look forward to working with himand I am confident that LAP will benefit from his wise counsel.At this year's AGM John Brown will be retiring as a non-executive directorafter more than 20 years on our Board. John has contributed greatly to ourprogress and has, for many years, chaired our Audit Committee. We wish him along and happy retirement.I would like to take this opportunity to thank my Board colleagues, LAP staffand advisors for all their hard work over the period under review. On apersonal note I would like to express my personal satisfaction at the way LAPhas grown. This year marks my 35th year as a Director of the Company duringwhich time the Group's gross assets have increased from ‚£400,000 to over ‚£270m.2005 was another year of considerable progress and I am pleased to report thatyour Company is in a very strong financial position with a number of excitingvalue enhancing projects underway. As a result, I look forward to the futurewith great confidence.Michael HellerChairman27 April 2006.CHIEF EXECUTIVE'S REVIEW 2005The year under review was, once again, one of growth for the Company. At the endof the period our directly owned portfolio, comprising town centre shoppingcentres, was externally valued at ‚£117 m compared to ‚£ 108m , a rise of 8%. This increase was achieved after sales of ‚£6.3m. The properties sold had anaggregate book value of ‚£4.9m.Analytical Properties, our joint venture with Bank of Scotland, also made goodprogress. Its two properties, King Edward Court in Windsor and Church Squarein St Helens were valued at ‚£135.5m, an uplift of 9.3%. LAP manages theseproperties on behalf of Analytical.During 2005 we progressed two substantial developments. The largest is atWindsor, and we are also making significant improvements to Orchard Square,ourwholly owned shopping centre in Sheffield. We contracted ‚£369,000 of incremental like-for-like annualised rental incomethrough the portfolio as a whole, and our annualised rent roll now stands at ‚£17.9mdespite disposals accounting for ‚£504,000 a year. Once we include unitsthat we vacated for redevelopment, we will have absorbed a temporary loss ofrental income of some ‚£1.0m a year.We have grown rental levels at all of our major centres. This has been achievedthrough low void levels and continuing our programme of creating improved spacefor retailers who wish to trade from our centres. We have undertaken a numberof amalgamations and extensions to shops within our centres during the year,enablingus to attract top level retailers prepared to pay record rents for eachrespective centre.I will now report in greater detail on some of our principal shopping centres. Orchard Square, SheffieldFollowing our acquisition of the Dixons unit immediately adjacent to OrchardSquare in April 2004, we have now finalised plans to amalgamate this unit withthe former Index unit to create a flagship store in one of Sheffield's mostprominent locations. During 2005 we negotiated surrenders with both Dixons andIndex, and these units are now vacant. As expected, there was strong interest in this new unit both from retailers whoare not currently represented in Sheffield as well as those looking to relocatefrom other units on Fargate. We are now entering the final stages of a lengthynegotiation with our preferred tenant, an international fashion retailer, andexpect to sign the agreement for lease shortly. As a result of this development work, we have vacated units with a total rentalincome of ‚£532,250 per annum. However, the new unit will produce around ‚£800,000 per annum in total including a separate lock-up shop and additionalupper parts. Construction costs, including fees, are not expected to exceed ‚£2m.In August 2005 we acquired the freehold of the Stonehouse pub at the rear ofOrchard Square for ‚£2.5m. Although it is a listed building, we believe we willbe able to incorporate it within the main shopping centre and create 42,000 sqft of redeveloped space. We are still at an early stage, but have alreadyreceived positive interest from a number of retailers for differentcombinations of space, including the possibility of a single letting to ananchor retailer. I will report further on progress during the course of theyear.Elsewhere Orchard Square remains effectively fully let which bodes well for thenext round of major rent reviews later this year and in 2007.Kings Square, West BromwichKings Square had a good year with gross income increasing to ‚£1.4m compared to‚£1.2 m in 2004. This growth was achieved by successfully reconfiguring units toattract better retailers, and then using the subsequent high errents paid persquare foot as evidence to achieve good rental growth from existing retailersat rent review.During the course of the year, we let new units to Vodafone, Benjy's SandwichBar and Passion for Perfume at a combined rent of ‚£103,000 per annum reflectingZone A rents of between ‚£71 and ‚£81 per sq ft, a record for this centre. Thiswas achieved by successfully dividing a poorly configured unit formerlyproducing ‚£68,000 a year, and the rents have enabled us to achieve significantuplifts at each of the nine units where rent reviews were concluded during theyear. Total costs for these works, including fees, were under ‚£100,000.We have also maximised value from the common areas, and let the central squarefor use as a cafƒ© to BB's Coffee & Muffins Limited at ‚£40,000 per annum.Finally, we have benefited from the redevelopment of the former cinema to therear of Kings Square intotwo large retail units which have been let to Peacocksand 99p Stores. Although we did not carry out the redevelopment, footfall atthat part of the centre has increased by 20% over the last 12 months,significantly enhancing future rental values of our adjacent shops.The Mall, DagenhamWe let a large unit to 99p Stores, the variety retailer, in 2005 and demand atThe Mall has remained satisfactory through out the remainder of the year andinto 2006. We have completed a number of lettings and rents have increased atthis centre by ‚£45,000 a year. Currently, we are negotiating new leases with acombined annual rental income of over ‚£100,000. These lettings are expected tocomplete shortly.We continue to explore with the local authority a number of options for thePost Office adjacent to the Mall which we acquired in 2005. These includeincorporating it into a major redevelopment of part of the town's High Streetthat will substantially benefit our own shopping centre.Saxon Square, ChristchurchDuring the year, we increased gross rents at this centre by over ‚£75,000 perannum. We have also, since the year end, let some upper parts for the firsttime during our ownership of this centre. Demand for shop units in the centrehas been consistently high,and we now have a strong offer from anational retailer on the retail element of the space we are hoping to develop tothe rear of the centre. This development is still being negotiated with thelocal authority, although some progress has been made during the year. King Edward Court, WindsorConstruction work is now underway for our partial re development of King EdwardCourt and the demolition work has been completed. We have started to build thenew Waitrose supermarket and Travelodge hotel, as well as shops pre-let totenants including Zara, Hennes and New Look . There have been some complications in the piling and foundation work, causedprincipally by unforeseeable difficulties in re-routing electricity andtelephone infrastructure. This has led to additional costs which have beenquantified and agreed with the contractor. The total contract has increased to‚£ 18.2 m compared to the ‚£16.5 m originally envisaged. It is not unusual toexperience such difficulties during underground works. However, these worksare now completed and we are building the more straightforward above-groundelement of the project. Approximately 90% of the work involved in this contract has been placed oragreed, and we are confident that we will not encounter such complicationsduring the remainder of the contract. The project remains profitable in its own right and the new units, which arelet at Zone A rates of ‚£125 per sq ft, will also have a positive impact onrental and capital values in the rest of the centre .Elsewhere in King Edward Court, we have completed a number of excellentlettings. Johnsons Shoes, a multiple retailer already trading from thecentre, has signed a new 15 year lease on both its existing unit and anadjacent unit at ‚£157,500 per annum. This compares to the previous rent onboth these units of ‚£135,500 and equates to a record ‚£ 105 Zone A. We havealso let a former Dixons unit to Vision Express at ‚£77,500 per annum comparedto ‚£70,000 previously, again at a record ‚£105 Zone A, and we have let a unitto Toni and Guy hairdressers at ‚£45,000 per annum. This unit had neverpreviously been let. The letting was achieved by bringing forward the shopfront which had been overshadowed by those of the adjacent shops.Demand for space at King Edward Court remains strong and all tenants with leaseexpiries during 2005/6 have renewed. In addition, Mothercare was able toassign its lease to Lakeland, the kitchenware company, for a significant premium, further demonstrating the desirability to tenants of King Edward Court.Church Square, St HelensChurch Square remained effectively fully let during 2005, although we haveactively sought to vacate a number of units to meet outstanding retailerdemand and thereby grow the rents.The most significant of these initiatives was to negotiate a surrender withNext enabling us to create a double unit following the collapse of Allsports,which was trading in the adjacent unit. This double shop is now under offer toa major fashion retailer at a rent that will show ‚£103 Zone A compared to ‚£90previously achieved in that part of the centre.A further prime unit has become vacant following the relocation of New Look tolarger premises within the town. Initial interest is strong and we areconfident that we will be able to prove further that the level of rent in StHelens has some way to go.The local authority is investing heavily in St Helen's towncentre with newpaving, street furniture and landscaping. This will significantly benefit ourshopping centre which is, by some margin, the largest single landholding withincentral St Helens.Elsewhere, during 2005 we sold the Moor Centre, Brierley Hill for ‚£4.85 m in cashcompared to a book value of ‚£4.3m. Bradford Council has also compulsorilypurchased from us a small block of property in Bradford city centre. Althoughthe value has not yet beenfinalised, we have been offered ‚£1.4 m by theCouncil. We do not believe this fully reflects the level that we shouldachieve. However, the property was held in our balance sheet at ‚£600,000 andthe amount so far offered will show a significant surplus.We did not acquire any significant new properties in the period under reviewalthough we did bid unsuccessfully on a number of shopping centres. In theabsence of acceptable opportunities to invest in retail property, we havesought other ways to achieve value for shareholders . In July, we returned some‚£6.2 m to shareholders via a tender offer for shares at 104p. The positiveeffect of this will be more fully described in the Finance Director's Report.There can be no doubt that the widely-reported mixed conditions for retailersarehaving an impact on retail property in general. However, we feel wellpositioned to meet any downturn. We specialise in towns with Zone A levelstypically around ‚£100 per sq ft, and retailers who focus on the value orientedcustomer. It is a commonly accepted view that th is type of centrewill be lesssusceptible to a dramatic swing in value if retail conditions become moreadverse. In addition, we have pursued a policy of diversifying our portfolioof properties by location,with a well-spread and quality tenant profile ,and weenjoy a solid income base that does not rely on performance fees. The new year to date had started well. I remain confident that for thereasons outlined in the preceding paragraph, we are in an excellent position togrow our properties by both income and value in the coming year.John HellerChief Executive27 April 2006FINANCIAL DIRECTOR'S REPORTInternational Financial Reporting Standards (IFRS)2005 is the first year that LAP has reported under IFRS, the new InternationalFinancial Reporting Standards. The Group's half year results were publishedin October 2005 in this format and at the same time a 'Transition Statement'was also published showing the movements between the figures reported under UKGAAP and IFRS. The main effects of the changes are:Income Statement - (previously the Profit and Loss Account)The fundamental change in this statement is that certain items that werepreviously taken direct to reserves now have to be taken through the IncomeStatement. The largest item to affect our figures is the revaluation surplusof our investment properties. As I stated last year this will lead todistortions in the profit declared on a year on year basis making it difficultto directly compare the overall trading performance of the Group.Balance SheetThe largest change to the balance sheet is the inclusion of a full provisionfor deferred taxation on all our investment properties whether or not it isintended to sell them in the foreseeable future.It is only the Group figures that are prepared under IFRS. The Companyfigures are still prepared under UK GAAP. The Company Balance Sheet andfigures will be therefore shown separately in this year's accounts. It should be reiterated that the Group's overall cash position remainsunchanged by the adoption of IFRS. Treasury SharesIn June we offered by way of tender to acquire up to ‚£10m of our own shares. We received acceptances for 5,928,273 shares at 104p per share (a total of ‚£6.37m) and we now hold 6,188,121 shares in T reasury. This tender increasedour fully diluted net asset per share by 0.6p as at 31 December 2005. Theseshares can be reissued in the market without the normal cost of issuing sharesat the prevailing share price on the day of reissue.Cash FlowWe are currently talking to some of our lenders about substantially increasingthe size and improving the terms of our revolving credit facilities. I willupdate shareholders in due course. During the year cash reduced by ‚£7.6 m, mainly as a result of spending ‚£6.7m onthe purchase of our shares for Treasury. Income statementThe Group generated a profit before tax of ‚£17.9m (2004: ‚£18.6m). However,under UK GAAP the profit before tax was ‚£3.4m (2004: ‚£3.0m), an increase of13.3%. This maintains our 26 year record of unbroken annual profit growth. This was despite a drop in gross rental income of ‚£0.6m to ‚£12.4m (2004: ‚£13.0m) and the lost interest earned on the ‚£6.4m used in the year for thepurchase of our own shares.The average cost of debt has fallen to 7.25% (2004: 7.5%). I nterest payableincreased during the year to ‚£4.4 m (2004: ‚£4.1 m). This figure is net of theground rents payable on certain properties which, under IFRS, must now be shownas a financing charge. The rise in interest costs is due to the increasedborrowings for the purchase of the Stonehouse pub in Sheffield and a higheraverage overdraft during the year.TaxationThe effective tax rate for the year is 1 7.0% (2004: 10.8%). This can be splitbetween the current year's tax charge of ‚£0.5m (2004: ‚£0.5m) and the deferredtax charge of ‚£2.5 m (2004: ‚£1.5m). The rate of tax payable has remained lowdue largely to capital allowances that have been successfully claimed.Balance SheetThe property portfolio, which includes those properties owned by Analytical,Bisichi and Dragon Retail, grew by 9.0%. Under UK GAAP, the net assets of theGroup grew by 15% to ‚£103.5m. Had we not purchased our own shares in June thenet assets would have been ‚£110m, an increase of 22% under UK GAAP.Fully diluted net assets per share rose 18.1% to 115.9p per share (2004:98.1p). Under UK GAAP this increase would have been 22.2%.Gearing as at 31 December 2005 was slightly higher at 50.1% (2004: 45.7%) duemainly to using cash to purchase our own shares.Under IFRS our long term debenture debt is not shown at fair value. Anadjustment to fair value of the debenture debt would be 5.6p per share (2004:4.4p). It remains our policy not to repay this long term debt early. Bankingdebt and derivatives associated with it are shown at fair value in the balancesheet.DividendsAs stated last year we are no longer paying a scrip dividend. This year,however, we introduced a n interim dividend, which was 0.55p per share, paid toshareholders on 25 January 2006. We are proposing a final dividend of 1.175pper share which will be paid to shareholders on 7 July 2006. The dividend iscovered 2.3 times, if the revaluation surpluses shown in the income statementare excluded.Analytical Properties, our joint venture with the Bank of Scotland had anotherstrong year with net assets rising 28.2% to ‚£40.6m (as reported under UKGAAP). The redevelopment of King Edward Court in Windsor is progressing and isbeing entirely financed by a development facility from the Bank of Scotland. This facility is for ‚£19.0 m and was signed in 2005. As at 31 December 2005 ‚£1.7m was drawn.Our associated company, Bisichi Mining, in which we hold a 42% stake, producedprofits before tax under IFRS of ‚£4.2m (2004: ‚£4.1m), an increase of 2.4%,while s hareholders' funds grew by 26.7%. Dragon Retail Properties, ourjoint venture with Bisichi, also had a good year with net assets rising by35.5% to ‚£4.3m (as reported under UK GAAP).With potentially available cash and facilities of ‚£27.0 m, LAP is in a strongposition to take advantage at short notice of any opportunities that arise. Itis also cushioned against any downturn that may occur in the retail market. Itremains our policy to manage the finances of the Group on a prudent basis, andI feel confident as we enter into 2006.ROBERT CORRYFinance Director27 April 2006Consolidated income statement for the year ended 31 December 2005 Restated* 2005 2004 Notes ‚£'000 ‚£'000 Gross rental income Group and share of joint ventures 12,392 12,964 Less: joint ventures - share of rental income (4,525) (5,205) 7,867 7,759 Less: property overheads: Direct property expenses (1,918) (1,924) Attributable overheads (2,829) (2,162) (4,747) (4,086) Less: joint ventures - share of overheads 1,337 1,456 Property overheads (3,410) (2,630) Net rental income 4,457 5,129 Listed investments 169 345 Operating profit before adjustments 4,626 5,474 Lease surrender (173) - Profit on sale of investment properties 1,230 142 Net gain on revaluation of investment properties 10,078 9,088 Net increase in value of investments held for trading 831 - Operating profit after adjustments 16,592 14,704 Share of profit of joint ventures 3,659 6,067 Share of profit of associate 1,232 1,205 21,483 21,976 Interest receivable 1 820 721 Interest payable 1 (4,408) (4,078) Profit before taxation 17,895 18,619 Income tax 2 (3,046) (2,003) Profit for the year 14,849 16,616 Basic earnings per share 3 18.83p 20.34p Diluted earnings per share 3 18.79p 20.23p *Restated under IFRS (see note 7) Consolidated balance sheet at 31 December 2005 Restated* 2005 2004 Notes ‚£'000 ‚£'000 Non-current assets Value of properties attributable to group 116,978 108,331 Present value of head leases 8,582 8,618 Property 6 125,560 116,949 Plant and equipment 968 520 Investments in joint ventures 18,033 14,560 Investments in associated company 6,495 5,294 Held to maturity investments 3,784 3,784 154,840 141,107 Current assets Trade and other receivables 4,608 1,923 Financial assets-investments held for trading 4,586 2,681 Cash and cash equivalents 6,212 12,253 15,406 16,857 Total assets 170,246 157,964 Current liabilities Financial liabilities-borrowings (2,446) (907) Trade and other payables (6,724) (8,938) Current tax liabilities (177) (422) (9,347) (10,267) Non current liabilities Financial liabilities-borrowings (52,494) (49,830) Present value of head leases on properties (8,582) (8,618) Deferred tax (11,482) (8,649) (72,558) (67,097) Total liabilities (81,905) (77,364) Net assets 88,341 80,600 Equity Share capital 8,232 8,232 Share premium account 5,228 5,226 Capital redemption reserve 47 47 Other reserves 429 429 Retained earnings 81,037 67,247 Treasury shares (6,632) (581) Total shareholders' equity 88,341 80,600 Net assets per share 4 116.04p 98.82p Diluted net assets per share 4 115.88p 98.14p *Restated under IFRS (see note 7) Consolidated statement of changes in shareholders' equity Consolidated cash flow statement for the year ended 31 December 2005 Restated* 2005 2004 ‚£'000 ‚£'000 ‚£'000 ‚£'000 Operating activities Operating profit after adjustments 16,592 14,704 Depreciation 125 108 Gain on disposal of non-current assets (1) (10) Profit on sale of investment properties (1,230) (142) Net gain on revaluation of investment properties (10,078) (9,088) Net increase in value of investments held for trading (831) - Increase in net current assets (695) (2,976) Cash generated from operations 3,882 2,596 Interest paid (4,360) (4,224) Interest received 535 868 Income tax paid (843) (1,011) Cash flows after interest and tax (786) (1,771) Investing activities Property acquisitions and improvements (3,455) (9,555) Sale of properties 4,726 4,360 Purchase of office equipment and motor cars (578) (206) Sale of office equipment and motor cars 6 46 Dividends received 87 178 Cash flows from investing activities 786 (5,177) Financing activities Shares issued for cash - 107 Issue expenses (1) - Purchase of Treasury shares (6,721) (581) Sale of Treasury shares 367 - Equity dividends paid (1,355) (867) Cash attributable as agents (2,520) - Drawdown (Repayment) of short term bank loan - 643 Drawdown (Repayment) of medium term bank loan 2,650 8,525 Cash flows from financing activities (7,580) 7,827 Net increase/(decrease) in cash and cash equivalents (7,580) 879 Cash and cash equivalents at beginning of period 11,346 10,467 Cash and cash equivalents at end of period 3,766 11,346 Cash and cash equivalents For the purpose of the cash flow statement, cash and cash equivalents comprisethe following balance sheet amounts: 2005 2004 ‚£'000 ‚£'000 Cash and cash equivalents 6,212 12,253 Bank overdraft (2,446) (907) Cash and cash equivalents at end of period 3,766 11,346 *Restated under IFRS (see note 7) Consolidated statement of recognised income and expensefor the year ended 31 December 2005 Restated* 2005 2004 ‚£'000 ‚£'000 Profit for the year 14849 16616 Loss on disposal of own shares (306) - Currency translation (35) 116 Transitional adjustment on adoption of IAS 39 948 - Deferred tax thereon (311) - Total recognised income and expense for the year 15,145 16,732 *Restated under IFRS (see note 7) Consolidated statement of changes in shareholders' equity for the year ended 31December 2005 Share Share Other Treasury Retained Total capital premium reserves shares earnings equity ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 Balance at 1 January 2004 8,140 4,837 476 - 51,756 65,209 Issue of shares 92 389 481 Acquisition of own shares (581) (581) Currency translation 116 116 Dividend (1,241) (1,241) Retained profit for year 16,616 16,616 Balance at 31 December 2004-Restated* 8,232 5,226 476 (581) 67,247 80,600 Adoption of IAS 39 Value financial assets less deferred tax 732 732 Associate share of financial assets 91 91 Joint venture share of financial liabilities (186) (186) Balance at 1 January 2005-Restated* 8,232 5,226 476 (581) 67,884 81,237 Issue expenses of own shares (1) (1) Acquisition of own shares (6,721) (6,721) Disposal of own shares 670 670 Gain/(loss) on disposal of own shares 3 - (306) (303) Currency translation (35) (35) Dividend (1,355) (1,355) Retained profit for year 14,849 14,849 Balance at 31 December 2005 8,232 5,228 476 (6,632) 81,037 88,341 *Restated under IFRS (see note 7) At 31 December 2005 ‚£48,990,000 (2004:‚£39,943,000) of retained earningsrepresent unrealised revaluation gains and do not constitute distributablereserves.Notes to the preliminary announcement for the year ended 31 December 2005 1. Net finance costs 2005 2004 ‚£'000 ‚£'000 Interest receivable 820 721 Interest payable - Interest on bank loans and overdrafts (1,923) (1,557) Other loans (2,106) (2,107) Interest on obligations under finance leases (442) (414) Interest capitalised 63 0 (4,408) (4,078) (3,588) (3,357) 2. Income tax 2005 2004 ‚£'000 ‚£'000 Current tax (524) (549) Deferred tax (2,522) (1,454) (3,046) (2,003) 3. Earnings per share 2005 2004 ‚£'000 ‚£'000 Group profit after tax 14,849 16,616 Weighted average number of shares in issue for the period ('000) 78,839 81,663 Basic earnings per share 18.83p 20.34p Diluted number of shares in issue re. outstanding share options('000) 79,021 82,154 Fully diluted earnings per share 18.79p 20.23p EARNING PER SHARE - UK GAAP 4.Net assets per share 2005 2004 ‚£'000 ‚£'000 Shares in issue ('000) 76,129 81,567 Net assets per balance sheet 88,341 80,600 Basic net assets per share 116.04p 98.82p Shares in issue diluted by outstanding share options ('000) 76,279 82,358 Net assets after issue of share options 88,393 80,823 Fully diluted net assets per share 115.88p 98.14p 5.Dividend 2005 2004 Per share ‚£'000 Per share ‚£'000 Dividends paid during the year relating to the prior year 1.65p 1,355 1.525p 1,241 An interim dividend for 2005 of 0.55p amounting to ‚£419,000 was paid on 25January 2006 (2004: No interim dividend). The directors recommend the paymentof a final dividend for 2005 of 1.175p per ordinary share (2004: 1.65p)amounting to ‚£895,000 (2004: ‚£1,355,000), making the total dividend for 20051.725p amounting to ‚£1,314,000 (2004:1.65p amounting to ‚£1,355,000). The finaldividend will be payable on 7th July 2006 to shareholders registered at theclose of business on 16 June 2006.Dividends are now accounted for only in the financial year in which they arepaid, in accordance with revised accounting standards.6. Revaluation of investment properties99.9% of freehold and long leasehold properties were valued as at 31 December2005 by external professional firms of chartered surveyors, the balance beingvalued by the directors. The valuations were made at open market value on thebasis of existing use.7. The figures for the year ended 31 December 2004 are based on the auditedaccounts for that year, which have been delivered to the Registrar ofCompanies and on which the Auditors gave an unqualified report and did notcontain a statement under Section 237(2) and (3) of the Companies Act 1985.The preliminary announcement has been prepared on the basis of the accountingpolicies set out above and the IFRS effects are set out in the documententitled ' London & Associated Properties PLC announces the effect ofInternational Reporting Standards' dated 20 October 2005 which is available onthe Company's website (www.lap.co.uk/Press). The Group has applied thesepolicies for the year ended 31 December 2005 in the financial statements inaccordance with IFRS for the first time and with those parts of the CompaniesAct 1985 applicable to companies reporting under IFRS. The figures for the yearended 31 December 2004 have been restated accordingly.The financial information set out in this preliminary announcement, which wasapproved by the Board of London & Associated Properties PLC on 27 April 2006,is unaudited and does not constitute the Company's statutory accounts for theyear ended 31 December 2005, but is derived from those accounts.Accounting policiesThe following are the principal accounting policies:Basis of accountingThe group financial statements have been prepared in accordance withInternational Financial Reporting Standards(IFRS), as adopted by the EuropeanUnion for the first time and with those parts of the Companies Act 1985applicable to companies reporting under IFRS. The company has elected toprepare the parent company's financial statements in accordance with UK GAAP,as applied in accordance with the provisions of the Companies Act 1985.The financial statements have been prepared under the historical costconvention, except for the revaluation of freehold and leasehold properties andfinancial assets held fortrading. The preparation of the financial statements requires management to makeassumptions and estimates that may affect the reported amounts of assets andliabilities and the reported income and expenses. Although management believesthat the assumptions and estimates used are reasonable, the actual results maydiffer from thoseestimates. Change in accounting policiesPrior to the adoption of IFRS the financial statements had been prepared inaccordance with United Kingdom accounting standards(UK GAAP). The accountingpolicies set out below have been applied consistently to all periods presentedin these consolidated statements and in preparing an opening IFRS balance sheetat 1 January 2004, for the purposes of the transition to Adopted IFRS. Basis of consolidation The group accounts incorporate the accounts of London & Associated PropertiesPLC and all of its subsidiary undertakings, together with the group's share ofthe results of its joint ventures and associates. Subsidiaries Subsidiaries are those entities controlled by the group. Control is assumedwhen the group has the power to govern the financial and operating policies ofan entity or business and to benefit from its activities. Subsidiariesacquired during the year are consolidated using the acquisition method. Theirresults are incorporated from the date that control passes. Joint ventures Investments in joint ventures, being those entities over whose activities thegroup has joint control, as established by contractual agreement, include theappropriate share of the results and net assets of those undertakings. Associates Undertakings in which the group has a participating interest of not less that20% in the voting capital and over which it has the power to exert significantinfluence are defined as associated undertakings. The financial statements include the appropriate share of the results and reserves of those undertakings.RevenueRental incomeRental income arises from operating leases granted to tenants . An operatinglease is a lease other than a financial lease. A finance lease is one wherebysubstantially all the risks and rewards of ownership are passed to lessee.Rental income is recognised in the group income statement on a straight-linebasis over the term of the lease. This includes the effect of lease incentivesto tenants, which are normally in the form of rent free periods or capital contributions in lieu of rent free periods.For income from property leased out under a finance lease, a lease receivableasset is recognised in the balance sheet at an amount equal to the netinvestment in the lease, as defined in IAS17. Minimum lease paymentsreceivable, again as defined in IAS 17, are apportioned between finance incomeand the reduction of the outstanding lease receivable so as to produce aconstant periodic rate of return on the remaining net investment in the lease. Contingent rents, being the difference between the rent currently receivableand the minimum lease payments when the net investment in the lease wasoriginally calculated, are recognised in property income in the periods inwhich they are receivable. Reverse surrender premiums Payments received from tenants to surrender their lease obligations arerecognised immediately in the income statement.DilapidationsDilapidations monies received from tenants in respect of their leaseobligations are recognised immediately in the income statement.Other revenue Revenue in respect of listed investments held for trading represents investmentdividends received and profit or loss recognised on realisation. Dividends arerecognised in the income statement when the dividend is received.Property operating expenses Property operating expenses are expenses as incurred and any property operatingexpenditure not recovered from tenants through service charges is charges tothe income statement. Employee benefits Share based remunerationThe company operates a long- term incentive plan and share option scheme. Thefair value of the conditional awards on shares granted under the long- termincentive plan and the options granted under the share option scheme aredetermined at the date of grant. This fair value is then expensed on astraight- line basis over the vesting period, based on an estimate of thenumber of shares that will eventually vest. At each reporting date, the fairvalue of the non- market based performance criteria of the long- term incentiveplan is recalculated and the expense is revised. In respect of the share optionscheme, the fair value of options granted is calculated using binomial a model.PensionsThe company operates a defined contribution pension scheme. The contributionspayable to the scheme are expensed in the period to which they relate.Financial instrumentsInvestments Held to maturity investments are stated at cost less impairment losses.Investments held for trading are included in current assets and are revalued atfair value. For listed investments, fair value is the bid market listed valueat the balance sheet date. Realised and unrealised gains or losses arising fromchanges in fair value are included in the income statement of the period inwhich they arise. Trade and other receivablesTrade and other receivables are recognised initially at fair value. A provisionfor impairment of trade receivables is made when there is evidence that thegroup will not be able to collect all amounts due.Trade and other payablesTrade and other payables are stated at cost.Bank loans and overdrafts Bank loans and overdrafts are included as financial liabilities on the groupbalance sheet at the amounts drawn on the particular facilities. Interestpayable on those facilities is expensed as a finance cost in the period towhich it relates.Debenture loanThe debenture loan is included as a financial liability on the balance sheetnet of the unamortised discount and costs on issue. The difference between thiscarrying value and the redemption value is recognised in the group incomestatement over the life of the debenture on an effective interest basis.Interest payable to debenture holders is expensed in the period to which itrelates.Finance lease liabilitiesFinance lease liabilities arise for those investment properties held under aleasehold interest and accounted for as investment property. The liability isinitially calculated as the present value of the minimum lease payments at inception, reducing in subsequent reporting periods by the apportionment of payments to the lessor.Lease payments are allocated between the liability and finance charges so as toachieve a constant financing rate. Contingent rents payable, such as rentreviews or those related to rental income, are charged as an expense in theperiod in which they are incurred.Interest rate derivatives The group uses derivative financial instruments to hedge the interest rate riskassociated with the financing of the group's business. No trading in suchfinancial instruments is undertaken. At each reporting date, these interestrate derivatives are recognised at fair value, being the estimated amount thatthe group would receive or pay to terminate the agreement at the balance sheetdate, taking into account current interest rates and the current credit ratingof the counterparties. The attaching hedged instrument is also recognised atfair value. The gain or loss at each fair value remeasurement is recognisedimmediately in the group income statement. The group has applied IAS32 'Financial instruments: Disclosure andpresentation' and IAS39 'Financial instruments: Recognition and measurement'with effect from 1 January 2005.Treasury shares When the group's own equity instruments are repurchased, consideration paid isdeducted from equity as treasury shares until they are cancelled. When suchshares are subsequently sold or reissued, any consideration received isincluded in equity.Investment propertiesValuationInvestment properties are those that are held either to earn rental income orfor capital appreciation or both, including those that are undergoingredevelopment. They are reported on the group balance sheet at fair value,being the amount for which an investment property could be exchanged betweenknowledgeable and willing parties in an arm's length transaction, and adjustedto include the carrying value of leasehold interests and lease incentivedebtors. The valuation is undertaken by independent valuers who hold recognisedand relevant professional qualifications and have recent experience in thelocations and categories of properties being valued. Surpluses or deficits resulting from changes in the fair value of investmentproperty are reported in the group income statement in the period in which theyarise.Capital expenditureCapital expenditure, being costs directly attributable to the redevelopment orrefurbishment of an investment property, up to the point of it being completedfor its intended use, are capitalised in the carrying value of that property. The redevelopment on an existing investment property will remain an investmentproperty measured at fair value and is not reclassified.Capitalised interest is calculated with reference to the actual rate payable onborrowings for development purposes, or for that part of the development costsfinanced out of borrowings the capitalised interest is calculated on the basisof the average rate of interest paid on the relevant debt outstanding.DisposalThe disposal of investment properties is accounted for on completion ofcontract. On disposal, any gain or loss is calculated as the difference betweenthe net disposal proceeds and the valuation at the last year end plussubsequent capitalised expenditure in the period. Depreciation and amortisationIn applying the fair value model to the measurement of investment properties,depreciation and amortisation are not provided in respect of investmentproperties.Property, plant and equipmentOther non- current assets, comprising property, plant and equipment, aredepreciated at a rate of between 10% and 25% per annum which is calculated towrite off the cost, less estimated residual value of the assets, over theirexpected useful lives. GoodwillGoodwill arising on acquisition is recognised as an intangible asset andinitially measured at cost, being the excess of the cost of the acquired entityover the group's interest in the fair value of the assets, liabilitiesacquired. Goodwill is carried at cost less accumulated impairment losses.Income taxesThe charge for current taxation is based on the results for the year asadjusted for disallowed or non-assessable items.Tax payable upon realisation of revaluation gains recognised in prior periodsis recorded as a current tax charge with a release of the associated deferredtax.Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the tax computations, and isaccounted for using the balance sheet liability method. Deferred taxliabilities are generally recognised for all taxable temporary differences anddeferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporarydifferences can be utilised. In respect of the deferred tax on the revaluationsurplus, this is calculated on the basis of the chargeable gains that wouldcrystallise on the sale of the investment portfolio as at the reporting date.The calculation takes account of indexation on the historic cost of propertiesand any available capital losses.Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited in the group income statement , except when it relates toitems charged or credited directly to equity, in which case it is also dealtwith in equity.Cash and cash equivalentsCash comprises cash in hand and on-demands deposits, net of bank overdrafts.Cash equivalents comprises short- term, highly liquid investments that arereadily convertible to known amounts of cash and which are subject to aninsignificant risk of changes in value and original maturities of three monthsor less.ENDLONDON AND ASSOCIATED PROPERTIES PLC