LXB.L Regulatory News (LXB)

For immediate release 26 February 2019

LXB Retail Properties Plc

RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2018

LXB Retail Properties Plc, a Jersey resident closed-ended real estate investment company focused on edge of town and out of town retail assets, today announces results for the year ended 30 September 2018.

Highlights

· November 2017: following the satisfaction of the remaining criteria, £8.6m was received from the Crown Estate under the funding agreement in respect of phases 2 and 3 at Rushden Lakes

· December 2017: exchanged contracts for the sale of the Riverside scheme at Stafford for net cash proceeds of £35.9m, which completed in January 2018

· March 2018: a Jersey Scheme of Arrangement, enabling the transfer of certain longer term assets and liabilities to a third party, and therefore allowing a more expedient winding up of the Group's remaining affairs, was sanctioned by the Royal Court of Jersey and became effective on 31 March (see note 22)

· May 2018: completed the disposal of the final phase of Neats Court Retail Park, Sheppey to Lightstone Neatscourt LLP generating net initial cash proceeds of £2.45m

· July 2018: completed the letting of the final unit at Sheppey generating a further receipt of £0.42m

· August 2018: the Group returned £12.6m cash to Shareholders

· August 2018: completed the sale of the Group's remaining land interests at Rushden for just over £7.5m

· September 2018: the Group returned a further £6.7m cash to Shareholders

· September 2018: completed the sale of the Group's leisure investment at Stafford for net proceeds of £8.0m

Post year end:

· December 2018: received the final amounts due under the Biggleswade forward funding agreement generating further receipts of £3.2m

· December 2018: settlement of both the final balancing payments for phases 1 and 3 at Rushden- generating a net receipt of £2.9m

· December 2018: the Group announced plans to return £10.1m cash to Shareholders

· December 2018: completion of the sale of the Ground Floor retail units at Sutton for net proceeds of £5.3m

· January 2019: completion of the sale of Higher Newham Farm, Truro, the last remaining investment property asset of the Group, for net proceeds of £1.3m

· February 2019: announced plans to return a further £5.1m cash to Shareholders

LXB3 Partners LLP Tel: 020 7432 7900

Tim Walton, CEO

J.P. Morgan Cazenove (NOMAD) Tel: 020 7742 4000

Bronson Albery/Paul Hewlett

Buchanan Tel: 020 7466 5000

Charles Ryland/Henry Wilson

Forward looking statements

This document includes forward looking statements which are subject to risks and uncertainties. You are cautioned that forward looking statements are not guarantees of future performance and that if risks and uncertainties materialise, or if assumptions underlying any of these statements prove incorrect, the actual results of operations and financial condition of the Group may materially differ from those made in, or suggested by, forward looking statements. Other than in accordance with its legal or regulatory obligations, the Company undertakes no obligation to review, update or confirm expectations or estimates or to release publicly any revisions to any forward looking statements to reflect events that occur or circumstances that arise after the date of this document.

Chairman's Statement

Dear Shareholder,

I am pleased to present the Annual Report and Financial Statements of LXB Retail Properties Plc (the 'Company') for the year ended 30 September 2018.

The Group has only a few weeks left until the anticipated de-listing and dissolution of the Company, assuming of course that Shareholders approve the necessary resolutions at an Extraordinary General meeting (EGM) expected to be convened for late March, and that the Jersey Court subsequently sanctions the dissolution of the Company.

The business of the EGM will be described fully in a circular expected to be released shortly which will convene the EGM and the Company's 2019 Annual General Meeting and which will set out the proposed transfer of the remaining subsidiaries of the Group that have liabilities or obligations that cannot be satisfied in the remaining weeks of this business, to entities controlled by current and prior members of the Investment Adviser team.

All of the land investments of the Group have now been disposed of and the remaining business of the Group consists of its interest in Phase 2 of Rushden Lakes. This reached practical completion at the end of January and the anchor tenant Cine UK and a number of other key tenants have taken occupation. Two of the restaurants took access and opened prior to the end of 2018. At present, four units including one previously let to Gourmet Burger Kitchen, remain unlet. Two of these unlet units have been split to increase their marketability resulting in the Group currently being in final legal discussions with Greggs and Blue Mountain Yard, subject to planning consents. We expect to recognise the value attributable to these lettings prior to the dissolution of the Group. We have not been able to make progress on the other units, a situation reflecting the state of the occupier market, compounded by the uncertainty surrounding the Patisserie Valerie unit.

It has not yet been possible to conclude a final settlement with Highways England covering the road works completed in June 2017 and neither do we currently have an agreed final contract sum for the works required following the recent road safety audit. The delay is compounded by the public difficulties of the contractor, Interserve. As a consequence, the highways performance bond will need to be cash collateralised beyond the anticipated life of the Group, in accordance with the scheme of arrangement approved by Shareholders in February 2018.

As recently announced, the Board has agreed a further return of cash of 3p per share and this is expected to be the last cash distribution prior to any final distribution as part of the dissolution.

The total cash returned to Shareholders during the life of the group will, following the 3p return referred to above, be 121.5p per share and we estimate that the final return of capital will now be approximately 2p per share.

All that remains is for me to express my gratitude to my fellow board members, the remaining members of the Investment Adviser and our external advisers for the hard work, skill and diligence during this difficult final period. It has been an extremely challenging task to fulfil our mandate to sell the assets of the Group given the difficult investment and occupational markets for retail assets, however subject to Shareholders ratifying the final arrangements, that task is now complete.

And finally, I would like to thank you, our Shareholders, for your continued patience and support during this time as we have sought to deliver an efficient and orderly return of capital from a diverse portfolio of assets to maximise the value of your investment.

Phil Wrigley

Chairman

26 February 2019

Report of the Investment Manager, LXBᵌ Partners LLP

LXBᵌ Partners LLP advises LXB Retail Properties Plc ("LXB" or "the Group") and is pleased to report on the operations of the Group during the year ended 30 September 2018 and up to the date of this final report.

As detailed in the March 2018 Interim Report, the Company's scheme of arrangement (sanction of which by the Royal Court of Jersey was announced on 16 March 2018) was implemented as planned on 31 March 2018 with the relevant transfers to the IW Topco Limited group of companies. The Group incurred costs of £1.692m in connection with the scheme of arrangement, of which £766k was provision for future running costs of the IW Group and the balance related to legal and professional costs.

Since the year end, the Group has disposed of the last of its investment property assets and there now remains a small number of subsidiary companies with certain relatively low value assets, liabilities and obligations that cannot be satisfied in the remaining life of this business. The intention is that these entities will pass to one of the two run-off vehicles which will be explained in the circular expected to be released shortly which will convene an Extraordinary General Meeting and the Company's 2019 Annual General Meeting and are discussed below.

Banbury

There remains one subsidiary connected with this investment which cannot be wound up during the remaining life of the Group.

Biggleswade

During the year, the Group arranged for the subdivision of the remaining unlet unit and concluded the letting of the two resulting units during the year. This entitled the Group to the final payment due under the forward funding agreement and this was received in December 2018. A further subsidiary company will be struck off as a result but one subsidiary must remain in existence beyond the life of this business.

Greenwich

The Group concluded its responsibilities in respect of the Sainsbury's/M&S led Gallions Road development and agreed the balancing settlement under the forward funding agreement. One subsidiary company connected with this development will remain in existence beyond the conclusion of the Plc.

The defects period in respect of Brocklebank Retail Park expired satisfactorily in January 2019 and the final accounting and other administrative aspects have been concluded allowing both subsidiaries connected to this development to be prepared for striking off.

Rushden

Three of the Group's subsidiaries have been involved with the Rushden Lakes investment during the year and there has been significant progress in the period covered by this report and subsequently.

Phase 1

As noted in the Interim Report, the last two units at Phase 1 were let and the £15m performance bond was released which enabled a return of cash to Shareholders to be made in the summer of last year. Additionally, the final balancing payment in respect of Phase 1 was agreed after the year end and this cash was received in December.

The Group has an additional performance bond in favour of Highways England relating to the highways works being carried out around the Rushden Lakes development. Originally this bond was for £5m but it has been reduced to £1.029m during the year and does not expire until after the expected conclusion of the Group.

Highways England have not yet fully quantified the cost of the highways works, which are anticipated to complete at the end of this month. The Group has provided for the estimated final value of the works and also a provision making good the outstanding bond noted above.

Phase 2

Practical completion of Phase 2 was achieved in January 2019, although the scheme had been completed in sections and so two tenants had already taken access and commenced trading. Most of the remaining tenants have now taken access and begun fitting out their units.

Phase 2 is 92% let with a further 4% being in solicitors' hands. Seven of the agreements for lease have completed, representing 31% of the available space and it is expected that more will complete in the coming weeks.

Phase 3

Phase 3 achieved practical completion in July 2018 and was fully let in the year with all leases completed. The £2.7m final balancing payment due under the development funding agreement was received in January 2019.

As noted in the Interim Report, because there was insufficient time remaining in the life of this business to meet the terms of the agreement with The Crown Estate concerning the Phase 4 'Garden Square' scheme, the Group agreed a variation in its contract with the Crown Estate to sell its remaining land interests at Rushden and to be freed from its obligations in relation to the build-out and letting of that phase. A cash receipt of £7.5m was received in August 2018.

The two members of the Investment Adviser's team who had been closely involved with Rushden Lakes have been retained by the Crown Estate to assist with the Garden Square development following completion of the contract variation. LXB3 Partners LLP has agreed a commensurate reduction to the Investment Adviser's fee to reflect this.

Included within the variation above was the disposal of several small parcels of land adjacent to the Rushden Lakes development that were held in a Group subsidiary. The disposal of this land has enabled this subsidiary to be prepared for striking off but the remaining two subsidiaries connected to this development will exist beyond the life of the Plc.

Sheppey

The Group disposed of its remaining property interests on the Isle of Sheppey during the year achieving a headline price of £2.51 million.

One of the two subsidiary companies connected with this investment has been struck off since the year end and the other is anticipated to be struck off imminently.

Stafford

The interaction of the Group's various investments at Stafford necessitated a complex legal structure and six Stafford related subsidiaries remain in existence.

The Group disposed of its Riverside retail investment to entities managed by Legal & General in January 2018 realising cash proceeds of £35.9m and releasing cash of £10.2m after repayment of the £25.7m of bank borrowings secured on the investment.

Construction of the cinema and adjacent restaurant unit was concluded in the year and the previously announced sale to Legal & General Leisure Fund Trustee Limited and Legal & General Property Partners (Leisure) Limited completed in September 2018. Two of the remaining subsidiaries are expected to be struck off imminently, however four subsidiaries continue to have ongoing obligations that cannot be satisfied in the immediate future.

Sutton

As referred to in the Interim Report, in the absence of a committed purchaser the Board took the decision to sell the ground floor retail investment at Sutton through an auction process. In December 2018, the sale concluded achieving a headline price of £5.4m.

Of the two Sutton related subsidiaries, one has been struck off since the year end and one will remain in existence.

Higher Newham Farm

In January 2019, the Group concluded the sale of this investment generating net cash proceeds of £1.3m.

Returns of Cash

As noted in today's Chairman's Statement, the Board has recently approved a further return of cash of 3 pence per share (equivalent to £5.05m) and estimates a final return of approximately 2 pence per share following the dissolution of the Group.

Revaluation deficit and profit on sale of investment properties

As described in note 10 to the Annual Report, the investment properties held by the Group at 30 September 2018 were valued by the Group's external property valuers, JLL. In their opinion the fair value of these investment properties at that date was £6.5m, resulting in a revaluation deficit for the year of £7.8m. The principal components of this were the write-down of the unlet units at Stafford and the reduction in value of the ground floor retail investment at Sutton to reflect the actual selling price achieved at auction in December.

Accounting treatment of forward funded construction activities

Under the terms of the sale of a number of the Group's investments, the buyer funds the development with the Group overseeing the works. The Group recharges the costs associated with the relevant forward funding agreement plus a 1% fee on the main contractor's costs. As explained previously, following consultation with the Group's auditors, the appropriate accounting treatment for these arrangements is to include the amounts receivable from the buyer (in respect of each reporting period) in gross revenue and to include the costs incurred by the Group (in respect of each reporting period) in direct costs. The relevant amounts for the period are disclosed in note 4 to the Interim Report.

Basis of preparation

The Directors have continued to proceed with the plans for an orderly realisation of the Group's remaining investments and therefore have continued to consider it appropriate not to adopt a going concern basis of preparation in these Group Financial Statements. Readers of the accounts should be aware that, since September 2016, the Group's investment properties are classified in the Group Balance Sheet as current assets "held for sale" rather than non-current assets.

Finance Act 2016

New rules introduced in Finance Act 2016 altered the UK tax position for non-UK entities with interests in UK land and specifically applied where land is acquired or developed with a main purpose of realising a profit on its disposal. The Group has historically been an investor in UK real estate but the position was altered by the shareholder vote on 29 February 2016, which in effect mandated the Board to realise all of the Group's investments. The Finance Act 2016 provisions apply to any relevant disposals made on or after 5 July 2016 and appropriate provisions have been made in the accounts.

Tim Walton

On behalf of LXBᵌ Partners LLP

26 February 2019

Independent Auditors' Report

Opinion

We have audited the financial statements of LXB Retail Properties plc (the 'parent company') and its subsidiaries (the 'group') for the year ended 30 September 2018 which comprise the Group and Company Income Statements, the Group and Company Statements of Changes in Equity, the Group and Company Balance Sheets, the Group and Company Cash Flow Statements and notes to the financial statements, including a summary of significant accounting policies.

The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

In our opinion:

• the financial statements give a true and fair view of the state of the Group's and of the Parent Company's affairs as at 30 September 2018 and of the Group's and Parent Company's profit or loss for the year then ended;

• the Group and Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and

• the financial statements have been prepared in accordance with the requirements of the Companies (Jersey) Law 1991.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of matter - Financial Statements prepared on a basis other than going concern

We draw attention to note 2 to the Group Financial Statements concerning the basis on which the financial statements are prepared. It is the Directors' intention to bring the Group's and Parent Company's activities to a close, realise the remainder of investments, and return the surplus cash to members. Accordingly, these financial statements have not been prepared on a going concern basis. Our opinion is not modified in respect of this matter.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Our application of materiality

We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. For planning, we consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.

The materiality for the Group financial statements as a whole was set at £560,000 (2017: £1,280,000). This was determined with reference to a benchmark of total assets and represents 3% of net assets (2017: 1.35% of total assets). This was considered to be the most appropriate measurement given the investment nature of the business and its remit of realising its assets and returning cash to investors. International Standards on Auditing (UK) also allow the auditor to set a lower materiality for particular classes of transactions, balances or disclosures for which misstatements of lesser amounts than materiality for the financial statements as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. In this context, we set a lower level of materiality of £395,000 (2017: £465,000) to apply to those classes of transactions and balances which impact on the Group's earnings before tax, excluding revaluation movements. The materiality for the Parent Company was set at £365,000 (2017: £55,000) which was calculated at 3% of net assets (2017: 5% of the loss before tax). This was considered the most appropriate measure given that the nature of the entity is as a holding company and its remit of realising its assets and returning cash to investors. Performance materiality was set at 75% (2017: 75%) of materiality taking into account various factors including the expected total value of known and likely misstatements, brought forward misstatements, management's attitude towards adjustments, the number of material estimates, how homogeneous processes are within the Group, and the expected use of sample testing. We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £25,000. We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.

An overview of the scope of our audit

Our audit of the Group and Parent entity financial statements was scoped by obtaining an understanding of the Group and its environment, including the Group's system of internal control, and assessing the risks of material misstatement at the Group level. Audit work to respond to the assessed risks was performed directly by the Group audit engagement team who performed full scope audit procedures on the Group's subsidiary undertakings. Our audit work on each of these components was executed at levels of materiality applicable to the Group.

Other information

The Directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies (Jersey) Law 1991 requires us to report to you if, in our opinion:

· proper accounting records have not been kept by the Parent Company, or proper returns adequate for our audit have not been received from branches not visited by us; or

· we have not received all the information and explanations we require for our audit; or

· the Parent Company financial statements are not in agreement with the accounting records and returns.

Responsibilities of directors

As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the group's and the parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

Use of our report

This report is made solely to the Parent Company's members, as a body, in accordance with Article 113A of the Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state to the parent company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the parent company and the parent company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Anna Draper

For and on behalf of BDO LLP

Chartered Accountants

London

United Kingdom

26 February 2019

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

Group Income Statement

for the year ended 30 September 2018

As described in note 2, the Group is in the process of performing an orderly realisation of its investments.

There were no items of other comprehensive income or expense in the current or prior year and therefore the loss for the year also reflects the Group's total comprehensive loss for the year.

Group Statement of Changes in Equity

for the year ended 30 September 2018

Group Balance Sheet

at 30 September 2018

The Group Financial Statements were approved and authorised for issue by the Board of Directors on 26 February 2019 and were signed on its behalf by:

Group Cash Flow Statement

for the year ended 30 September 2018

Notes to the Preliminary Announcement

The financial information set out in this preliminary announcement, which has been approved by the Board, does not constitute the Group's statutory financial statements for the year ended 30 September 2018 ("the 2018 accounts") or for the year ended 30 September 2017 ("the 2017 accounts"), but is derived from those audited statutory financial statements.

The 2018 accounts, included within the Company's Annual Report for the year ended 30 September 2018, have been prepared in accordance with International Financial Reporting Standards adopted for use in the European Union. The auditors have reported on the 2018 accounts and although their report was unqualified it drew attention to the Directors' decision not to apply the going concern basis of preparation. The 2018 accounts will be available from the Company's website today.

The 2017 accounts, which also included an unqualified audit report, have been filed with the Registrar of Companies in Jersey.

1. General information about the Group

LXB Retail Properties Plc was listed on the AIM and CISE markets on 23 October 2009. It is a closed-ended real estate investment company that was incorporated in Jersey on 27 August 2009.

The financial information set out in this report covers the year to 30 September 2018 with comparative amounts relating to the year to 30 September 2017.

The Group Financial Statements include the results and net assets of the Company and its subsidiaries, together referred to as the Group, on a consolidated basis.

Further general information about the Group can be found on its website: www.lxbretailproperties.com.

2. Accounting policies

Statement of compliance

The Group Financial Statements have been prepared in accordance with the International Financial Reporting Standards ('IFRS') adopted for use in the European Union and the requirements of the Companies (Jersey) Law 1991.

Basis of preparation

As described more fully in the Chairman's Statement and following the Shareholders' approval on 29 February 2016, the Directors are in the final stages of an orderly realisation of the Group's remaining investments, with the remaining value to be returned to Shareholders in cash on or around 31 March 2019. As a result, and in line with the prior year financial statements, the Directors have concluded that it is not appropriate to adopt a going concern basis of preparation in these financial statements. Other than the reclassification of investment properties from non-current assets to held for sale, no material adjustments arose as a result of ceasing to apply the going concern basis.

The financial statements have been prepared on the historical cost basis except that investment properties (defined below) are stated at fair value.

The accounting policies have been applied consistently to the results, other gains and losses, assets, liabilities and cash flows of entities included in the consolidated financial statements.

Any revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period. If the revision affects both current and future periods, the change is recognised over these periods.

The preparation of financial statements often requires the Directors to make judgements, estimates and assumptions that may affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The most significant balances at the balance sheet date requiring the Directors to make such judgements and estimates are those concerning the receivables in relation to investment properties sold under forward-funded arrangements and held within property sales receivables (note 13). The ultimate value of these receivables is affected to varying degrees by a number of factors, including the details of the lease packages to be agreed with prospective tenants and the time taken for the relevant property to reach practical completion. Otherwise, there has been a limited requirement for the Directors to make such judgements or estimates in the period since the Company's listing to date. For example, "Investment Properties - held for sale" (comprising completed investment properties and development properties) have been supported by external valuations. Details of the overall approach to the valuation of these assets are set out in note 12.

The Group's accounting policies for these matters together with other policies material to the Group, are set out below.

Adoption of new standards, interpretations and amendments

There were no new standards or interpretations effective for the first time for periods beginning on or after 1 October 2017.

Standards and interpretations in issue not yet adopted

The directors consider that, in view of the expected dissolution of the company on or shortly after 31 March 2019, there are no new standards or interpretations in issue that will be adopted in future periods.

Basis of consolidation

Subsidiaries

Subsidiaries are those entities controlled by the Group. Control by the Group over an investee is assumed when all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect these variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Property portfolio

Investment properties

Investment properties are properties owned or held leasehold by the Group. Prior to the approval of the plans for an orderly realisation of the Group's assets in February 2016 these were held for capital appreciation, rental income or both, but are now classified as held for sale on the balance sheet. Investment properties include property that is being constructed, developed or redeveloped for future use as an investment property. Investment properties are initially recorded at cost, including related transaction costs. They are subsequently carried at each published balance sheet date at fair value as determined by professionally qualified independent external valuers.

Investment properties are reclassified to assets held for sale when they meet the relevant criteria set out in IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations' which requires that they are available for immediate sale and that the sale is expected to complete within one year of being reclassified. They continue to be measured at fair value.

The determination of the fair value of each property requires, to the extent applicable, the use of estimates and assumptions in relation to factors such as future rental income, current market rental yields, future development costs and the appropriate discount rate. In addition, to the extent possible, the valuers make reference to market evidence of transaction prices for similar properties and the value achieved by properties sold since the balance sheet date.

Gains or losses arising from changes in the fair value of investment properties are recognised in the income statement in the period in which they arise.

In accordance with IAS 40 "Investment Property", no depreciation is provided in respect of investment properties.

An Investment property is recognised as an asset when:

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

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

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

All costs directly associated with the purchase of an investment property are capitalised. Capital expenditure that is directly attributable to the redevelopment or refurbishment of investment property, up to the point of it being completed for its intended use, is capitalised in the carrying value of the property.

Acquisitions and disposals of investment properties are usually recognised when unconditional exchange of legally binding and irrevocable contracts occurs and where it is reasonable to assume at the balance sheet date that completion of the acquisition or disposal will occur.

Occupational leases

The Board considers the potential transfer of the risks and rewards of ownership in accordance with IAS 17 "Leases", for all investment properties that are leased to tenants by the Group and determines whether such leases are operating leases or finance leases. Where the Group substantially retains all the risks and rewards of ownership the lease is classified as an operating lease. In the event that substantially all of the risks and rewards of ownership are transferred to the lessee under the terms of a lease then such a lease would be classified as a finance lease. All tenant leases that have been entered into by the Group to date have met the criteria for classification as operating leases.

Net rental income

Rental income from investment properties leased out under operating leases is recognised in the income statement on a straight-line basis over the lease term.

Contingent rents, such as turnover rents, rent reviews, and indexation, are recorded as income in the periods in which they are earned. Rent reviews are recognised when such reviews have been agreed with tenants.

Rent free periods, other lease incentives and any costs associated with entering into tenant leases are amortised evenly over the period from lease commencement to the first break option or, if the probability that the break option will be exercised is considered sufficiently low, over the full lease term.

Rental income from fixed and minimum guaranteed rent reviews is recognised on a straight-line basis over the shorter of the entire lease term or the period to the first tenant break option.

Where such income or costs are recognised ahead of the related cash flow, an adjustment is made to ensure the carrying value of the related investment property including the accrued rent does not exceed the external valuation.

Property operating expenses are expensed as incurred and any property operating expenditure not recovered from tenants through service charges is charged to the income statement.

Income derived from Institutional Funding Agreements

Where the Group remains responsible for overseeing the development of incomplete investment properties that have been sold to third parties who have contracted to fund the construction works, the income which arises from such arrangements is recognised in the income statement over the course of the development work through to the time of practical completion.

Revenue from these arrangements is recognised in the income statement so as to match to the proportion of the relevant development works performed up to the balance sheet date and associated costs incurred to that date.

Other property related transactions

Other property related transactions in the year comprise income related to the cancellation of certain contractual arrangements, and the impairment effect of such cancellations on the investment properties or other assets to which they relate. These transactions are recognised at the point that the cancellation becomes contractually binding.

Profits on sale of investment properties

Profits on sale of investment properties are calculated by reference to the carrying value at the previous published balance sheet date, adjusted for subsequent capital expenditure.

Financial instruments

Financial assets and liabilities are recognised in the balance sheet when a member of the Group becomes a party to the contractual terms of the relevant instrument. Unless otherwise indicated, the carrying values of the Group's financial assets and liabilities are a reasonable estimate of their fair values.

Business receivables and payables

Business receivables and payables are initially measured at fair value, subsequently measured at amortised cost and, where material, discounted to reflect the time value of money. If there is objective evidence that the recoverability of an asset is at risk, appropriate allowances for any estimated irrecoverable amounts are recognised in the income statement.

Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, deposits held at call with banks and financial institutions and other highly liquid investments with original maturities of three months or less.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Finance income

Finance income includes interest receivable on funds invested.

Borrowings and finance charges

Borrowings are initially recognised at their fair value, net of any transaction costs directly attributable to their issue. Subsequently, loans are carried at their amortised value using the 'effective interest method', which spreads the interest expense over the period to maturity at a constant rate on the balance of the liability carried in the balance sheet for the relevant period.

Finance charges are accounted for on an accruals basis using the effective interest method and are added to or offset against the carrying amount of the loan instrument to the extent that they are not settled in the period in which they arise.

Distributions

Distributions on equity shares are recognised when they become legally payable.

Management fees

Management fees are recognised in the income statement in the period to which they relate.

Tax

Tax is included in the income statement except to the extent that it relates to items recognised directly in equity, in which case the related tax is recognised in other comprehensive income.

Current tax is the expected tax payable on taxable income for the reporting period, using tax rates enacted or substantively enacted at the balance sheet date, together with any adjustment in respect of previous periods.

Deferred tax is provided for using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. If applicable to any financial period, the tax effect of the following differences will not be provided for:

• the initial recognition of goodwill;

• the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and

• investments in subsidiaries, associates and jointly controlled entities where the Group is expected to be able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

3. Segmental information

During the current year and prior year, the Group operated in and was managed as one operating segment, being property investment, with all investment properties located in the United Kingdom.

The Board, which is considered to be the chief operating decision maker of the Group for IFRS 8 purposes, receives quarterly management accounts that are prepared on an IFRS (EU) basis and which aggregate the performance of all the Group's investment properties and focus on total returns on Shareholders' equity.

For the year ended 30 September 2018, one tenant provided 16%, a second tenant provided 14% and a third tenant provided 13% of the Group's gross rental income (year ended 30 September 2017: one tenant provided 31%, a second tenant provided 18% and a third tenant provided 13% of the Group's gross rental income).

4. Gross revenue and direct costs

Revenue and costs in connection with Institutional Funding Agreements relate to incomplete investment properties disposed of under forward-funded agreements.

5. Other property related transactions

During the prior year, the Group accepted settlement payments in return for the cancellation of contractual arrangements relating to certain of its assets held for investment. The cancellation of these contractual arrangements had a direct and immediate detrimental effect on the value of the assets to which the contracts related, and as a result, an impairment charge was applied to those assets. As those transactions were considered to be relevant to an understanding of the performance of the Group, and as the resulting impairment did not necessarily relate to investment property assets, the income and the resulting impairment was shown separately to other fair value movements of investment properties described in note 12.

6. Operating loss

The Group has no employees.

Fees payable to the Directors in the year were as follows:

7. Operating leases

The Group enters into operating leases with tenants on its investment properties.

Future minimum rents receivable under non-cancellable operating leases as at 30 September 2018 are set out in the table below. The rents receivable shown in the table are calculated on the assumption that any tenant with a break option chooses to exercise that option.

New leases are generally entered into for fixed terms of between 5 and 20 years and include periodic rent reviews and may include tenant and/or landlord break options.

There was no contingent rental income recognised in the year (2017: £nil).

8. Finance income and costs

Net finance costs recognised in the income statement, analysed by the categories of financial assets and liabilities shown in note 17a (where applicable), are as follows:

Sensitivity to changes in interest rates:

Movements in LIBOR impact the Group's cost of borrowings and the returns on its cash deposits. A 1% increase or decrease in LIBOR would have the following effects on the Group's results:

The average interest rate incurred by the Group on its bank borrowings for the year ended 30 September 2018, including the effects of the lender's margin but excluding amortisation of capitalised finance costs is 2.88% (30 September 2017: 2.7%).

9. Taxation

The tax assessed for the year varies from the standard rate of income tax in the UK of 20%. The differences are explained below:

Tax status of the Company and its subsidiaries

All group undertakings are either tax resident in Jersey or are tax transparent entities owned by Jersey resident entities. Jersey has a corporate tax rate of zero, so, except where certain investment properties were disposed of after 5 July 2016 when the provisions of Finance Act 2016 became effective, the Company and its subsidiaries have no liability to taxation on their income or gains in Jersey. The Company is not subject to UK Corporation tax on any dividend or interest income it receives.

The Group's investment properties are located in the United Kingdom and therefore the net rental income earned less deductible items is subject to UK income tax, currently at a rate applicable to the relevant group undertakings of 20%.

10. Loss per share

Loss per share is calculated on 168,350,374 (30 September 2017: 168,350,374) ordinary shares in issue for the year and is based on the loss attributable to Shareholders for the year of £11,589,176 (30 September 2017: £15,458,199). No losses or earnings were attributable to the "B" shares issued and redeemed in the current or prior year.

There are no share options or other equity instruments in issue and therefore no adjustments need to be made for dilutive or potentially dilutive equity arrangements.

11. Dividends

Current year:

An interim dividend of 7.5p per ordinary share was declared on 3 July 2018 and paid on 8 August 2018. The dividend was payable on each of the 56,465,968 shares in issue for which a corresponding "B" share was not issued (see note 18).

The holders of the remaining 111,884,406 ordinary shares in issue received 7.5p per share (a total of £8,391,330) on the redemption of these "B" shares in August 2018 (see note 18).

An interim dividend of 4p per ordinary share was declared on 17 August 2018 and paid on 24 September 2018. The dividend was payable on each of the 68,194,991 shares in issue for which a corresponding "B" share was not issued (see note 18).

The holders of the remaining 100,155,383 ordinary shares in issue received 4p per share (a total of £4,006,215) on the redemption of these "B" shares in September 2018 (see note 18).

Prior year:

An interim dividend of 18p per ordinary share was declared on 22 September 2016 and paid on 3 November 2016. The dividend was payable on each of the 57,988,322 shares in issue for which a corresponding "B" share was not issued (see note 18).

The holders of the remaining 110,362,052 ordinary shares in issue received 18p per share (a total of £19,865,169) on the redemption of these "B" shares in November 2016 (see note 18).

12. Investment properties - held for sale

A reconciliation of the carrying value of investment properties to their fair values at the current and prior year balance sheet date is provided below:

At 30 September 2018, the Group's investment properties were valued by JLL, Chartered Surveyors, on a fixed fee basis, in their capacity as independent external valuers. The aggregate fair value of these properties at 30 September 2018 is £6,500,000 (30 September 2017: £54,738,000). The carrying value of these properties includes £nil (2017: £292,110) of accrued costs that were not treated as part of the historical cost of the relevant properties in determining the external valuation. The fair value includes £156,941 (2017: £845,855) of rents recognised in advance that are included in business and other receivables at the balance sheet date.

The external valuers' valuation was undertaken in accordance with the Royal Institution of Chartered Surveyors' Valuation Standards Professional Standards (January 2014) on the basis of fair value. Fair value is defined in IFRS 13 as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.

The Board determines the Group's valuation policies and procedures and is responsible for appointing the Group's independent external valuer. The Audit Committee considers the valuation process as part of its overall responsibilities.

The fair value of completed investment properties is determined using the 'investment method' whereby capitalisation yields derived from market transactions involving comparable investment properties are applied to the estimated net current and future cash flows expected to be generated by the investment property, which the valuer calculates using comparable market information, to obtain a market rent. The fair value of an investment property undergoing development is derived using the 'residual method' whereby the costs required to complete the development, including a notional cost of finance and an estimated risk factor or "profit on cost", are deducted from the net development value arrived at under the 'investment method'.

As part of each half-yearly valuation exercise, the valuations performed by the external valuers are reviewed by appropriately qualified members of the Investment Manager's team. This includes discussion of the assumptions used and judgements made by the external valuers as well as detailed consideration of the resulting valuations. Discussion of the valuation process and results then takes place at a meeting between the external valuers and the auditors at which the key assumptions and estimates are reviewed together with consideration of the valuers' reasons for significant valuation movements on individual properties.

The key unobservable inputs used in the valuation of the Group's investment properties at 30 September 2018 are as follows:

The key unobservable inputs used in the valuation of the Group's investment properties at 30 September 2017 are as follows:

*Comprises land assets that are held at their estimated open market value.

All other factors remaining constant, an increase in rental income would increase a valuation whilst increases in nominal equivalent yield and discount rate would result in a fall in value and vice versa. However, there are interrelationships between unobservable inputs as they are determined by market conditions. Corresponding movements in more than one unobservable input may have a complementary effect on a valuation whereas unobservable inputs moving in opposite directions may compensate each other. For example, where market rents and nominal equivalent yields increase simultaneously, the overall impact on a valuation may be minimal.

For investment properties undergoing development, a reduction in the cost and time to complete a scheme will have a positive impact on value, assuming all other factors remain constant. Conversely, if the anticipated cost or time to complete a scheme increased then this would negatively impact value, assuming all other factors remain constant.

All of the Group's investment properties are considered to be 'Level 3' in the fair value hierarchy described by IFRS 13. There have been no transfers of property between hierarchical levels in the year.

The historic cost of the Group's investment properties as at 30 September 2018 was £11,725,118 (30 September 2017: £69,326,834).

Property outgoings (note 4) were split as follows:

13. Business and other receivables

Property sales receivables comprise relevant amounts receivable in respect of investment property sales that had unconditionally exchanged prior to the balance sheet date.

Amounts receivable under Institutional Funding Agreements relate to the income referred to in note 4.

All of the above amounts are either receivable within one year or will be released to the income statement within one year except for £137,042 (2017: £789,988) of rents recognised in advance that are due to be released to the income statement in more than one year.

14. Cash and cash equivalents

Included within the Group's cash and cash equivalents balance as at 30 September 2018 is £nil (30 September 2017: £124,052) in bank accounts held as security by the providers of the Group's secured bank debt facilities.

15. Business and other payables

All of the above amounts are due within one year and none incur interest.

Amounts payable under Institutional Funding Agreements relate to certain of the forward funding arrangements referred to in note 4.

16. Borrowings: amounts repayable within one year

Investment facility in the prior year:

In January 2018, the investment property on which the above loan was secured was sold and the loan was repaid on the same date.

17. Financial instruments and risk management

a) Categories of financial instruments

All financial assets and liabilities are measured at amortised cost and in the opinion of the directors approximate to fair value.

b) Financial risk management

The Group is entering the final stages of its orderly realisation of investments and continues to be exposed to a variety of risks. The Group's financial risk management objectives are to minimise the effect of these risks. The Board provides guidelines on the acceptable levels of interest rate risk, credit risk and liquidity risk.

The principal financial risks that are considered to be potentially material to the Group and the policies that it has in place to manage these risks are summarised below:

i) Liquidity risk

Liquidity risk arises from the Group's management of working capital and previously, the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.

The Board utilises regular budgets and forecasts to make an assessment of the resources that are expected to be available to the Group to meet its liabilities when they fall due.

The Group ensures that surplus cash is managed with the following objectives: (i) to ensure efficient cash and liquidity management; (ii) to deliver appropriate returns on all surplus funds having regard to the Group's policy not to expose cash to significant risk; and (iii) to limit exposures through counterparty diversification.

Generally returns on cash deposits reflect the notice period required to release the deposit back to the Group.

The following table shows the maturity analysis for financial liabilities and their effective interest rates, where applicable. The table has been drawn up based on undiscounted cash flows, including future interest payments, based on the earliest repayment date.

As at 30 September 2018