SMP.L Regulatory News (SMP)

Date of issue: 7th February 2017

LEI: 213800WMV4WVES8TQH05

Classification: Inside information

This announcement contains inside information 

ST. MODWEN PROPERTIES PLC

("St. Modwen" or "the Company")

Annual Results for the Year Ended 30th November 2016

ST. MODWEN DELIVERS STRONG RESULTS UNDERPINNED BY RESILIENT REGIONAL COMMERCIAL AND HOUSEBUILDING OPERATIONS

Financial highlights

Reconciliations between all the statutory and non-statutory measures and the explanations as to why the non-statutory measures give valuable further insight into the Group's performance are given in Note 2 to the Group Financial Statements. In particular, profit before all tax is used because it reflects the way the Group is run on a proportionally consolidated basis, and because it also removes the taxation effects on equity accounted entities from the statutory profit before tax figure.

· EPRA NAV per share up 3.2% to 460.5 pence (2015: 446.4 pence) and NAV per share up 4.2% to 431.0 pence from 413.5 pence.

· Total accounting return of 4.5% (2015: 31.9%).

· Trading profit of £56.1m (2015: £63.3m), demonstrating strength of underlying business.

· Profit before all tax of £60.8m (2015: £258.4m).

· Earnings per share of 24.1 pence (2015: 97.9 pence).

· Total dividend for the year increased by 4.3% to 6.00 pence per share (2015: 5.75 pence per share).

Operational highlights

· Balanced and diversified portfolio is well positioned for growth across residential and commercial markets:

o resilient regional commercial portfolio delivered approximately 800,000 sq ft of commercial space in 2016 and near term development pipeline now stands at 1.6m sq ft, with further potential for long-term value creation; and

o strong performance from the residential business with operating profits of £27.1m (2015: £26.7m), supported by excellent progress from St. Modwen Homes achieving 49% growth in profits.

· Good progress with major projects:

o Nine Elms Square, New Covent Garden Market, London - Whilst there is no guarantee of any transaction completing, now in exclusive negotiations with prospective purchaser at a level firmly supportive of book value.

o Bay Campus, Swansea University - Currently assessing our options with respect to our student accommodation assets, comprising over 2,000 student rooms.

o Longbridge, Birmingham - Latest phase of the town centre now complete and let and St. Modwen Homes now progressing works to new phase of housing. Continuous stream of other activity advancing on site, including the 180 bedroom facility for staff at the Royal Centre for Defence Medicine.

Strategy and portfolio review

· Large, diverse land bank, unrivalled track record and expertise, and robust balance sheet underpin long-term opportunity.

· Following the appointment of Mark Allan as Chief Executive, review of portfolio and business strategy now underway.

· Outcomes to be communicated early summer 2017.

Mark Allan, Chief Executive of St. Modwen, commented:

"Active commercial property development and asset management, coupled with a strongly performing and growing residential arm, contributed to another good year for St. Modwen. This is despite the turbulent market backdrop during 2016.

"Following my recent arrival as Chief Executive, we have commenced a review of what I already believe is a fundamentally strong business and portfolio to determine our strategy moving forward. We unquestionably have an opportunity to build on our existing strengths while ensuring that our activities are focused in the optimum way and I am excited about the prospects ahead."

Enquiries:

St. Modwen Properties PLC

Mark Allan, Chief Executive Tel: 0121 222 9400

Rob Hudson, Group Finance Director www.stmodwen.co.uk 

Charlotte McCarthy, Head of PR and Communications

FTI Consulting

Dido Laurimore Tel: 020 3727 1000

Tom Gough stmodwen@fticonsulting.com

Ellie Sweeney

A presentation for analysts and investors will be held at 9.00am today at FTI Consulting, 200 Aldersgate, Aldersgate Street, London, EC1A 4HD.

If you would like to attend please contact Ellie Sweeney at FTI on +44 (0)20 3727 1622 or stmodwen@fticonsulting.com. A live webcast of the presentation will be available at www.stmodwen.co.uk and presentation slides will also be available to download.

Alternatively, details for the live dial-in facility are as follows:

While the financial information included in this announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs by the end of February 2017.

This announcement contains certain forward looking statements which, by their nature, involve risk and uncertainty because they relate to future events and circumstances. Actual outcomes and results may differ materially from any outcomes or results expressed or implied by such forward looking statements. Any forward looking statements made by or on behalf of the Company are made in good faith based on the information available at the time the statement is made; no representation or warranty is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared. The Company does not undertake to update forward looking statements to reflect any changes in its expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. Nothing in this announcement should be construed as a profit forecast.

CHAIRMAN'S STATEMENT

The year to November 2016 saw St. Modwen deliver a solid performance in an uncertain market environment. NAV per share increased 4.2% to 431.0 pence (2015: 413.5 pence) and EPRA NAV per share increased 3.2% to 460.5 pence (2015: 446.4 pence) delivering, together with dividends paid in the year, a total accounting return per share of 4.5% (2015: 31.9%).

The Group reported a profit before all tax of £60.8m (2015: £258.4m) and earnings per share of 24.1 pence (2015: 97.9 pence) for the year. The results are therefore below those reported for last year and this is due largely to a combination of external market factors and significant valuation gains booked in 2015.

Importantly, the business continued to generate healthy cash flows and net debt and gearing levels remain carefully controlled. Cash generated (before new investment, tax and dividends) was £306.4m (2015: £298.1m) and new investment was managed prudently such that net borrowings, including our share of JVs, increased only marginally to £517.0m from £489.3m at the start of the year.

Regeneration remains at the heart of our business and our expertise in this area allows us to continue to generate value from our substantial land bank of over 6,000 developable acres. Projects are well balanced between residential and commercial opportunities, with residential activities accounting for 47% of development profits for the year and commercial activities 53%, and the Company is well diversified both geographically and from a sector perspective. This leaves us well placed to continue creating value for the longer term.

Continued progress at three of our major projects also showcases the impact we can have in supporting and regenerating communities over the long term:

· New Covent Garden Market, London - We are well progressed in the planned redevelopment of the existing flower and fruit and vegetable markets, having recently completed the interim flower market facility which will release 20 acres of land for the development of approximately 3,000 new homes in the centre of London in the medium term. We started working with the Covent Garden Market Authority in 2010 and will continue our partnership with them well into the next decade.

· Bay Campus, Swansea University - We are advancing with the latest development phase of the Bay Campus which will bring the number of student rooms to over 2,000 by the start of the 2017/18 academic year. The Bay Campus now provides teaching and learning facilities for around 5,000 students across 35 acres, with further opportunities in the future to expand across the remainder of the 65 acre site. Our Swansea regeneration activities started in 2011 and are likely to continue into the early 2020s.

· Longbridge, Birmingham - We commenced delivery of this 468 acre flagship scheme in 2004 and expect regeneration activity to continue for at least another 10 years as we progress through the remaining 185 acres of developable land. We have now completed and let the latest phase of the town centre, overseen the delivery of a total of 400 out of 2,000 planned new homes and are nearing completion of the construction of a new accommodation facility comprising 180 bedrooms for medical staff based at the Royal Centre for Defence Medicine. In addition, 2017 will see the opening of 260 ExtraCare retirement apartments.

Dividend

In line with our stated policy of increasing dividends in line with NAV growth, the Board is pleased to recommend an increase in total dividend for the year of 4.3% to 6.00 pence per share (2015: 5.75 pence per share). Taking into account the interim dividend already declared and paid this results in a proposed final dividend of 4.06 pence per share (2015: 3.85 pence per share).

The final dividend will be paid on 4th April 2017 to shareholders on the register as at Friday 10th March 2017.

Board changes

On 30th November 2016 Bill Oliver retired as Chief Executive, a role he had held since 2006. In his 10 years as Chief Executive, and six years prior to that as Managing Director and Finance Director, Bill played a pivotal role in building St. Modwen into the business it is today. On behalf of the Board and everyone at St. Modwen, I would like to thank him for his service and wish him well in his future endeavours.

Bill's successor as Chief Executive is Mark Allan, who joined us on 1st November 2016 from The Unite Group plc, the FTSE 250 student accommodation business, where he was Chief Executive for 10 years. We are pleased to have been able to appoint such an experienced successor to Bill and I look forward to working with him as he continues to settle into the business.

Prospects

St. Modwen is a long-term business but we operate in cyclical markets and must plan and manage our business accordingly. The past 12 months have been unsettled in this respect and the outlook for 2017 and 2018 looks to be similarly uncertain, as a range of macro-economic factors play out both globally and more locally to the UK.

With this outlook, it is important that we continue to manage our balance sheet prudently while also seeking out appropriate new value creation opportunities and converting existing ones. This will require an innovative and agile approach but our track record suggests we remain well placed to succeed.

Bill Shannon

Chairman

6th February 2017 

CHIEF EXECUTIVE'S REVIEW

St. Modwen is a business that is centred on value creation. Since its formation 30 years ago, its business model has been focused on acquiring assets with limited initial intrinsic worth and applying its considerable development and asset management expertise to create and capture sustainable value over the long term. This has resulted in a business today with a diverse £1.75bn property portfolio of approximately £800m of income generating assets and a 6,000 acre developable land bank, itself comprising approximately 15m sq ft of consented commercial development and over 25,000 consented residential units. This diverse portfolio and focus on value creation formed the basis of St. Modwen's solid performance during 2016, despite the broader uncertain market environment. The key performance metrics of the business for the year are set out below:

*Reconciliations between all the statutory and non-statutory measures and the explanations as to why the non-statutory measures give valuable further insight into the Group's performance are given in Note 2 to the Group Financial Statements. In particular, profit before all tax is used because it reflects the way the Group is run on a proportionally consolidated basis, and because it also removes the taxation effects on equity accounted entities from the statutory profit before tax figure.

While levels of performance are below that reported for 2015, this is largely due to:

· the absence of the significant valuation gains booked for New Covent Garden Market (NCGM) in 2015 (£127.4m), coupled with a subsequent £24.3m reduction in the value of our NCGM investment in 2016;

· a noticeably weaker investment market delivered £12.6m of market valuation gains versus £35.7m in 2015; and

· the impact on valuations of changes to Stamp Duty Land Tax rates on commercial property in the year (£12.5m).

The underlying business performed well, as evidenced by trading profits, and importantly gearing levels were carefully controlled.

Value creation

The key areas of value creation during the year were as follows:

· commercial development profits of £30.4m (2015: £38.3m);

· profits from housebuilding activities of £27.1m (2015: £26.7m);

· internally generated increases in the value of our portfolio of £28.3m (2015: £38.6m); and

· market movements in the value of our portfolio of £12.6m (2015: £35.7m).

Profits from residential and housebuilding activities continue to grow and we expect this trend to continue in 2017 such that development profits are likely to be evenly split between residential and commercial activities.

Taking account of our planned programme of activities and the outlook for the sectors in which we are invested, we anticipate overall returns for 2017 to be in line or slightly ahead of those achieved for 2016.

Income generating portfolio

Our income generating portfolio is valued at £786.7m, including our share of investment property held in JVs, and represents 45% of see-through gross asset value. This is split between £309.7m of high yielding assets which exhibit further value creation opportunities (the high yielding portfolio) and £477.0m of assets where further internal value creation potential is more limited (the investment portfolio).

The high yielding portfolio is split between industrial and logistics assets (£201.5m, or 65%), retail (£100.9m or 33%, predominantly town centres) and offices/other (£7.3m or 2%) and has an average equivalent yield of 8.9% (2015: 8.9%). The outlook for high yielding industrial/logistics assets remains substantially positive, based on robust demand for good value, secure, flexible space and longer term re-planning potential. The outlook for town centre retail is more asset specific and needs to be considered in light of the broader environment of low or negative real wage inflation impacting on consumer spending and reduced investment demand following the outcome of the EU Referendum. We expect both of these factors to contribute to a modest level of yield expansion in our retail portfolio during 2017 while rental values are likely to remain broadly flat.

The investment portfolio principally comprises £241.3m of retail assets (51%), £115.8m of Private Rented Sector/student accommodation assets (24%), £82.0m of industrial/logistics (17%) and £37.9m of office/other (8%). The average equivalent yield of the investment portfolio is 6.3% (2015: 6.4%).

We are currently assessing our options with respect to our student accommodation assets at the Bay Campus in Swansea, comprising over 2,000 rooms, and this will form an important part of our strategy and portfolio review.

We consider the outlook for the remainder of the investment portfolio to be broadly neutral and we will be reviewing our strategy in respect of all income generating assets over the next few months to ensure that its longer term size and shape is appropriate.

Commercial development activity

We invested £99.5m into commercial development activity in the year to 30th November 2016, booking profits of £30.4m (2015: £38.3m) and delivering approximately 800,000 sq ft of new space.

As at 30th November, the anticipated value on completion of our committed development pipeline was £237.1m and weighted towards sectors with healthy long-term structural growth prospects (41% industrial/logistics, 18% student accommodation, 23% retail and 18% office/other). Our anticipated yield on cost for the full committed development pipeline is 8.0% with an expected valuation yield on completion of 6.7% and a profit on cost of approximately 20%.

We continue to undertake a proportion of development activity speculatively, particularly for industrial and logistics assets where we believe immediacy of availability is an important factor for prospective occupiers. In response to this anticipated demand, of our 1m sq ft of committed industrial/ logistics pipeline 80% is being developed speculatively, representing 50% of the entire development pipeline.

There is significant further value creation potential in our medium/longer term commercial development pipeline. This medium term pipeline includes major opportunities at Chippenham Gateway (over 900,000 sq ft of potential industrial/ logistics space) and Stanton Cross (1.5m sq ft of industrial accommodation), as well as town centre regeneration projects at Kirkby and Great Homer Street, Liverpool. Bringing these opportunities forward in a timely manner will be an important focus for 2017.

Over the coming months, as with our income generating portfolio, we will be reviewing our strategy in respect of our development pipeline, both committed and longer term. The principal objective of this review will be to determine the appropriate level of activity as well as the balance between onward sales to realise development profits and assets that could be retained for the longer term.

Residential activity

Our residential business continues to have two principal streams of activity: sales of 'oven ready' development sites to housebuilders and our own housebuilding activity, pursued both through St. Modwen Homes and our JV with Persimmon. Additionally, we see some potential to develop assets for the emerging Private Rented Sector (PRS) and we will assess the scale of this opportunity during 2017.

Housebuilding contributed £27.1m (2015: £26.7m) to profit before all tax (before indirect overheads of £5.2m), comprising £15.3m from St. Modwen Homes (2015: £10.3m) based on 485 (2015: 315) units sold and £11.8m (2015: £16.4m) from our Persimmon JV based on a 50% share of 402 (2015: 652) units sold. Over the course of the year, the average selling price of a St. Modwen Homes unit has increased by 4.6% to £206,000 (2015: £197,000), demonstrating the strength of demand for quality housing in the regions.

As previously indicated, activity in the Persimmon JV will reduce in line with plan over the next two years as it reaches its conclusion, with expected unit volumes reducing by 35% in 2017. Conversely, we expect St. Modwen Homes to increase unit volumes meaningfully and this should at least offset the reduced returns from the JV. The broader market remains supportive of regional housebuilding and we see significant potential for growth in our St. Modwen Homes business in the years ahead.

Residential land sales completed or agreed during the year, including our share of JVs, totalled £47.6m for the year and although there was some mid-year Brexit-related disruption, demand generally remained steady. The outlook for land sales remains firm for the year ahead and we expect activity to remain at a similar level provided there are no major shocks to the housing market.

As at 30th November 2016 our residential land and work in progress, including our share of JVs, was held at a total value of £742.0m (2015: £757.7m), of which approximately 45% was represented by holdings at NCGM and in South Wales. In total, our land bank comprises over 25,000 consented residential units (approximately 14,500 units excluding NCGM and South Wales) and represents a significant source of potential future value.

New Covent Garden Market (NCGM)

Our largest residential land holding by value is our 50% share of consented land at NCGM in London. Our share of the land, less our obligation to procure the new market and the associated tax, is now £97.7m, representing approximately 10% of our NAV. 

As previously disclosed, we commenced marketing of a substantial proportion of this site (10 acres at Nine Elms Square) in conjunction with our JV partner, VINCI PLC, in late summer 2016. While there can be no guarantee of any transaction completing, we are now in exclusive negotiations with a prospective purchaser at a level which is firmly supportive of book value. We will update the market on further progress as appropriate.

Financing

Group net borrowings, including our share of JVs, increased marginally to £517.0m at 30th November 2016 (2015: £489.3m). Taking into account growth in the valuation of the Group's portfolio, loan-to-value remained broadly consistent with the prior year at 30.5% (2015: 29.9%) and we are likely to seek to reduce this further over time.

People

St. Modwen's pedigree as a creator of value is built on the experience, expertise, commitment and teamwork of its employees. In my first few months I have been extremely impressed with the calibre of people in the business and I am very much looking forward to working with them in the years ahead. On behalf of the Board I would like to thank all of my new colleagues for their efforts and congratulate them on their achievements.

Outlook

The broader economic environment is likely to remain unsettled throughout 2017 as a range of macro factors, such as Brexit, continue to play out. We cannot seek to predict the outcomes of these various external events but with such an uncertain backdrop we can and will manage the business in a prudent and agile manner. However, uncertainty can also lead to opportunity and we remain confident in our ability to seek out and create value from such opportunities that may arise.

Of course, any change in leadership provides an opportunity for the Board to step back and review strategy and following my arrival as the Company's new Chief Executive, we intend to do this during 2017. Given that the business is fundamentally strong, this review is likely to focus on how we can build on our existing strengths and focus our activities in the optimum manner. I am excited about the prospects ahead.

OPERATING AND PORTFOLIO REVIEW

St. Modwen benefits from a portfolio which is diverse in terms of geography, sector and occupiers. It comprises over £1.75bn of assets, in three areas:

· income generating properties;

· commercial land and development; and

· residential land and development.

We have experienced an active 12 months, during which we were able to protect, enhance and create value across this broad portfolio:

*Stated on a proportionally consolidated basis, including our share of joint ventures and associates. See Note 2 to the Group Financial Statements

*Additions/ other movements include purchases, capital expenditure and reclassifications

INCOME GENERATING PORTFOLIO

Representing £786.7m of value (45% of the portfolio), our income generating properties provide a robust and diverse see-through net rental income stream of £45.9m (2015: £38.7m) from over 1,700 tenants. Managed by our skilled teams of asset managers, the portfolio covers a broad range of sectors, such as industrial/ logistics, retail and student accommodation and can be separated into two distinct categories of assets:

· High yielding - Comprising £309.7m of high yielding assets that provide opportunity for further development and value creation in the longer term; and

· Investment portfolio - Comprising £477.0m of assets where our development and asset management activities are substantially complete.

As at 30th November 2016 our income generating portfolio was made up as follows:

Valuation and yield

Portfolio movements

Industrial and logistics

Our industrial and logistics income generating portfolio represents a total £283.5m of value and is concentrated predominantly in the Midlands and the South West. Over the last 12 months, occupier demand has been robust and we have been well positioned to meet this demand.

Throughout the year, equivalent yields have remained broadly in line with the prior year at 8.4% (2015: 8.5%) and net rental income has grown as a result of acquisitions, new lettings and rent reviews.

Across the industrial and logistics portfolio, during the year we achieved £1.6m of new lettings. Highlights include:

· Meon Vale Business Park, Long Marston - The commercial part of this new community comprises 800,000 sq ft of retained industrial space. This is now 100% let after Ford Retail expanded its presence by taking 75,000 sq ft space on a 10 year lease. The total rental income of the fully occupied business park now stands at £2.1m per annum and a yield of 8.5%.

· Celtic Business Park, South Wales - A 48,000 sq ft warehousing unit leased to Amazon for 10 years, for an annual rent of £0.3m per annum at this 100 acre business park development in Newport.

Acquisitions

Throughout the year, we have more than offset any income lost through the disposal of mature assets by acquiring new opportunities with good added value potential. Transactional highlights include:

· Barming, Kent - Acquisition of this 10.5 acre logistics depot for £6.2m, reflecting a net initial yield of 7.5%. The depot is leased to DHL Supply Chain Ltd at a rent of £0.5m per annum.

· Warth, Bury - Acquisition of this 257,000 sq ft industrial estate situated on a 14.3 acre site for £9.3m, reflecting a net initial yield of 9.6%. The asset is leased to a range of tenants and provides an annualised net rental income of £0.9m.

Disposals

Realising value from the portfolio is an important element of our business model and during the year we completed or agreed a number of notable sales:

· Centurion Park, Tamworth, Staffordshire - Disposal of a 53,000 sq ft warehouse for £5.1m, reflecting a net initial yield of 5.75%. The unit is let to national brand DFS at a rent of £0.3m per annum.

· Heartlands Park, Birmingham - Disposal of this long-standing asset, held in joint venture with KPI, to the Secretary of State for Transport for the HS2 project for £24.5m. Acquired as part of the Alstom portfolio in 2002, this 50 acre business and industrial park comprises 880,000 sq ft of industrial accommodation which will be transformed into the proposed HS2 Rolling Stock Maintenance Depot.

Asset Management

During the year, we have continued to add value to the portfolio through our own actions, with highlights including:

· Eastleigh Works, Hampshire - Following a £2.5m investment into its industrial premises, the long leasehold interest has been re-geared to provide an improved new lease to 2035 for tenant Arlington Fleet.

· Parkside, Doncaster - Re-geared a lease to National Grid at this 80,000 sq ft industrial estate resulting in a 60% rental increase to £224,500.

· Trident Business Park, Warrington - As a result of active asset management across this 223,000 sq ft office and industrial park, the rent has increased by 13% to £690,000.

Outlook

Our ability to add value through our own actions, combined with concentration of our portfolio in the historically strong Midlands and South West regions, positions us well to capitalise on the strength of this resilient sector.

Retail

Our retail assets represent £342.2m of value of which the majority, reflecting £241.3m of value, are held in our investment portfolio. The remaining assets, reflecting £100.9m of value, are categorised as high yielding properties.

Our retail properties are mainly town centres where, over the last 12 months, performance has been more asset specific and where intensive asset management is often required. During the second half of the year, equivalent yields have moved out by approximately 10 bps to 7.5% (May 2016: 7.4%, Nov 2015: 7.5%), although we were able to offset this impact through our own management actions.

Investment portfolio - highlights:

· Longbridge Town Centre, Birmingham - Phase 2 of the town centre is now complete and over 95% let, having leased space this year to national brands including Smyths Toys, Specsavers, Holland & Barrett and a number of local retailers. Longbridge now provides £4m of annual net rental income and with the third phase likely to commence development in 2017, there is further opportunity to grow the income.

· Edmonton Green, Enfield - Since acquisition in 1999, over £100m has been invested in the regeneration of the centre. Totalling 450,000 sq ft and benefitting from an average annual footfall of 12 million, the centre is now almost 100% occupied. The annual net rental income is £4.3m and the long leasehold interest has been re-geared with the London Borough of Enfield to provide an improved new 150 year lease.

· The Trentham Estate, Stoke-on-Trent - Visitor numbers to the Gardens at this 725 acre tourist and leisure destination grew by 17% in the period and annual net rental income from the Shopping Village increased on a like-for-like basis over the same period to £2.8m, whilst the total visitor income increased by 17.6% to £2.4m. Works are now well progressed to extend the Shopping Village by 21,000 sq ft which will lead to further growth in the rent roll in 2017 and into 2018.

High yielding properties - highlights:

· Kirkby, Liverpool - This town centre scheme comprising 400,000 sq ft of retail and leisure space, across 80 tenants, was acquired in 2015. In the period, we have completed a range of lease renewals and new lettings, securing a number of local and national retailers. The town centre currently generates an annual net rental income of over £2.5m and provides future potential for income and value creation through our ongoing asset management and planned redevelopment activities which will be a focus for 2017.

· Queensmead Shopping Centre, Farnborough - We disposed of this Shopping Centre, part of our town centre regeneration scheme in Farnborough and held in our KPI joint venture, for £16.8m, reflecting a net initial yield of 7.8%.

Outlook

We continue to see some value-add opportunities across our retail portfolio, both through intensive asset management activity and development opportunities. However, we expect these upsides to be offset by modest yield expansion during 2017 as inflation puts pressure on consumer spending. Our retail portfolio will require careful management to ensure we are appropriately selective when pursuing value-add opportunities.

Student accommodation and PRS

The remaining income generating assets include the Bay Campus student accommodation facilities that we are developing and managing in partnership with Swansea University and our Private Rented Sector assets. Highlights during the year include:

Bay Campus, Swansea University 

Now entering the second academic year at the Bay Campus, we have achieved £5.5m net rental income (before associated finance lease charges of £2.0m) from the first two phases of the student accommodation, totalling 1,462 student rooms. We are progressing works to the third phase of accommodation which is due to open in September 2017 and will bring total student rooms to over 2,000.

We are already achieving 100% occupancy at the new Bay Campus and demand is set to remain strong as the University vacates its older accommodation at Hendrefoilan Campus, which is already being redeveloped in phases by St. Modwen Homes into a scheme of 300 high quality new homes. We expect this to support further growth and development opportunities across the remaining 30 acres of the 65 acre Bay Campus site in the coming years.

We are currently assessing our options for our student accommodation assets at the Bay Campus, which will form an important element of our wider strategy and portfolio review.

Private Rented Sector (PRS)

We have started to realise some PRS opportunities from our existing portfolio on a small scale at Wembley Central, London and Edison Place, Rugby. Amounting to a total of 64 apartments, both schemes are now fully occupied and generating a total annualised income of £0.7m. During 2017 we will continue to work on our strategy in this area and assess the land bank for PRS opportunities in terms of location and scale.

In the right situation, PRS projects offer potential to accelerate residential development and gain exposure to a market with good structural growth prospects.

COMMERCIAL LAND AND DEVELOPMENT

It has been an active year for our commercial land and development portfolio which now represents £223.6m of value. Overall, our committed programme of commercial development now stands at 1.6m sq ft, having added a steady stream of new opportunities to replace the approximate 800,000 sq ft of space completed over the last 12 months. The following table summarises our committed development pipeline as at 30th November 2016:

Commercial development pipeline

*As at 31st January 2017

Our investment of £99.5m into commercial development activity during the year was reflected in a strong performance in commercial development profits, particularly during the first half of the year. Following the outcome of the EU Referendum in June 2016, we slowed down new development commitments to allow time to assess any changes in market conditions. Although we subsequently resumed development activity at similar levels, this pause resulted in reduced commercial development profits in the second half of the year. Profits from commercial development for the full year to 30th November 2016 were £30.4m (2015: £38.3m).

Our immediate commercial pipeline is largely focused on sectors with good long-term prospects for growth, namely industrial and logistics and student accommodation. Currently, it comprises approximately 700,000 sq ft of committed/ pre-let accommodation with the remaining approximate 900,000 sq ft made up of a programme of speculative development which is predominantly responding to healthy demand in the industrial and logistics sector, particularly in the Midlands and the South West.

In the period, we have continued to be successful in securing commercial planning applications for delivery in the near term, with highlights including:

· Tamworth East, Tamworth, Staffordshire - Planning consent secured for 700,000 sq ft of industrial and logistics space. We anticipate commencing works on the first phase of units during 2017.

· Burton Gateway, Burton-upon-Trent - Planning approval granted for two industrial and logistics units totalling 328,000 sq ft in the next phase of this 64 acre business park which has outline consent for up to 1m sq ft of industrial space. Works on the next phase are anticipated to commence in 2017.

· Thurleigh Airfield Business Park - Planning consent has been secured for the development of a new 40,000 sq ft workshop and office facility for SMH Fleet Solutions, an existing tenant at the business park. Works started on the new facilities in January 2017 and will complete later in the year.

These new opportunities are replacing the approximate 800,000 sq ft of completed commercial space, from which we have realised £75.5m of value through asset sales, with highlights including:

· Travis Perkins, Whitley Business Park, Coventry - Delivery of a 215,000 sq ft design and build unit for Travis Perkins for £23.4m. This transaction signified the completion of this 93 acre business park which, in addition to over 50,000 sq ft of office space, houses the main UK Head Office and engineering works of Jaguar Land Rover.

· Kent Foods, Access 18, Avonmouth - Delivery of a 37,000 sq ft speculative unit that was sold to owner occupier Kent Foods Ltd for £3.7m.

Over the course of 2017 we will continue to review our regional land bank and target development in those areas where we can capitalise on positive demand prospects for commercial accommodation. We expect both development capital expenditure and returns for 2017 to be broadly in line with the prior year.

In the medium to longer-term, our development pipeline comprises over 13m sq ft of commercial space that already benefits from planning permission. At present, this is made up of 84% industrial and logistics space, 3% retail and the remainder comprising mainly offices and student accommodation. In addition, we have approximately a further 7m sq ft of space for which planning permissions are currently being pursued.

Adding to our medium to longer-term commercial development pipeline, during the period we have invested £38.5m in acquisitions, being a combination of Development Agreements and acquiring land with significant potential for commercial development. Highlights include:

· Stanton Cross, Wellingborough - Signed an agreement with Bovis Homes to be the housebuilder's commercial development partner for the delivery of 1.5m sq ft of industrial accommodation as part of this £900m major regeneration project.

· Chippenham Gateway, Wiltshire - Development of this 79 acre site for 900,000 sq ft of industrial accommodation.

Outlook

The efficient creation and realisation of value from our land bank through development will continue to form an important part of our future strategy. Over the coming months we will be undertaking a full review of the land bank to determine the most appropriate and effective prioritisation of activities for the years ahead. This will inform decisions regarding the allocation of resources and capital.

RESIDENTIAL LAND AND DEVELOPMENT

Representing £742.0m of value and 42% of our portfolio, our residential business has completed another active year as a result of our strong presence in the regions, coupled with the ongoing success of St. Modwen Homes which is now active on 18 sites across the UK. We have also experienced continued appetite from third party housebuilders for 'oven ready' land for development.

We realise residential value through two principal routes to market:

· Residential land sales - The sale of land benefitting from residential planning permission to third party housebuilders.

· Housebuilding - The sale and development of new homes through both St. Modwen Homes and the Persimmon joint venture.

We are also assessing the potential for PRS to become a third route to market, helping to accelerate development on larger sites and improving returns. However, the scale of opportunity will depend on the suitability of our land bank, which is not yet clear.

Residential land sales

During the period we have pursued a series of planning applications across our land bank which we have either taken forward ourselves through St. Modwen Homes or sold on to third party housebuilders at or above book value. This year, including our share of joint ventures, we sold or agreed for sale 42.7 acres of land for proceeds of £47.6m (2015: 70.1 acres, £58.1m) with highlights including:

· Millbrook Park, Mill Hill - The sale of 5.75 acres in two transactions to Wilmott Dixon and Laidlaw Estates for a total of £47m, of which the St. Modwen share is £20.3m.

· Glan Llyn, Newport, South Wales - The sale of 13 acres to Bellway for £6.4m.

· Longbridge, Birmingham - The sale of six acres to Taylor Wimpey for £7.6m.

The level of disposals achieved during the period reflects the ongoing appetite for regional land amongst third party housebuilders and we expect a similar level of sales to be achieved during 2017. Whilst we experienced a brief slow-down in demand following the results of the EU Referendum, this proved short-lived and demand soon returned to prior levels. It is this demand that supports our view for 2017.

Housebuilding

In response to continued strong regional demand for quality new homes, we have experienced another year of growth in our housebuilding activities, translating into an overall residential profit of £27.1m (2015: £26.7m). Of this, St. Modwen Homes has contributed £15.3m (2015: £10.3m), an increase of 49% year on year, and the Persimmon joint venture £11.8m (2015: £16.4m). We expect the joint venture to remain live for a further two years as Persimmon trades out of its remaining sites, with volumes declining by approximately 35% in 2017.

House completions over the past 12 months have totalled 887 units (2015: 967), at a sales rate of 0.8 private units per outlet per week and comprise:

· 485 for St. Modwen Homes (2015: 315) at an average selling price of £206,000, an increase of 4.6% from £197,000 in 2015; and

· 402 for Persimmon (2015: 652) at an average selling price of £242,000 (including St. Andrew's Park, Uxbridge).

For the coming year, we have already secured a healthy level of forward sales, achieving 42% of the target set for St. Modwen Homes and 58% of the Persimmon JV target, with the latter reflecting the relative maturity of the JV sites.

St. Modwen Homes

St. Modwen Homes was launched in 2010 and in six years has grown to 129 employees (2015: 84 employees), operating currently from 15 sales outlets. Over the course of 2017, we expect to operate from an average of 16 sales outlets (2016: average of 11 outlets), growing to 18 by the year end and we expect to achieve unit volume growth of approximately 40%, at least offsetting the reducing profits from the Persimmon joint venture as it continues to wind down.

Highlights include:

· St. Andrew's Park, Uxbridge - Progressing with St. Modwen Homes' first phase of 85 family homes as part of this 110 acre former RAF site, held in joint venture with VINCI PLC. Once complete, this new community will comprise 1,340 new homes, 200,000 sq ft of commercial space, a theatre and other key community facilities, including a new 40 acre park for Greater London.

· Meon Vale, Warwickshire - Progressing with St. Modwen Homes' first phase of 258 homes as part of this 479 acre leisure-led, mixed-use community of 1,050 homes, 800,000 sq ft of commercial accommodation, primary school, a community centre, gym and leisure hub.

· Branston Leas, Burton upon Trent - Progressing with St. Modwen Homes' second phase of 205 homes as part of this new community which, when complete, will comprise 660 homes, 1m sq ft of employment space, an 8,000 sq ft retail centre and 82 acres of new woodland.

Subject to planning, the eight new sites where we anticipate commencing works in 2017 include:

· Littlecombe, Dursley, Gloucestershire - The third phase of approximately 200 homes at this long-term regeneration project which is the site of the former Lister Petter factory. When complete it will comprise 200,000 sq ft of commercial space and 600 homes.

· Egstow Park, Derbyshire - The first phase of approximately 160 homes at this new community in Derbyshire which, when complete, will provide approximately 820 new homes and 80,000 sq ft of commercial space, with a local centre and public house.

· Glan Llyn, Newport, South Wales - The fourth phase of approximately 160 homes at this major regeneration scheme in South Wales which is transforming the former Llanwern Steelworks site. When complete it will provide 4,000 homes, two primary schools, a retail centre and a 500,000 sq ft business park.

Residential land

Our medium to long-term residential pipeline represents a significant source of potential value creation and we expect to sustain the current levels of annual planning gain across our portfolio for at least the next few years.

Over the last 12 months, we have secured planning permissions for 1,670 new plots and we are targeting a further 1,235 in 2017. Now 25,230 plots or 84% of our portfolio (or approximately 14,500 plots excluding NCGM and South Wales) benefit from some form of planning recognition. Our total potential residential portfolio comprises 30,215 plots (2015: 32,516).

Highlights - planning consents achieved:

· Bramshall Meadows, Uttoxeter - Outline planning permission secured for 700 homes and 25 acres of employment space. Detailed permission obtained for an initial 58 homes for which St. Modwen Homes has already commenced works.

· Leegate, London - For a £125m residential-led, mixed-use scheme in Lewisham, London comprising 229 apartments and over 100,000 sq ft of retail, leisure and education facilities.

· Wolverton Works, Wolverton - For the £100m regeneration of Wolverton Works, providing 325 homes, a rail-related business premises, Lidl foodstore and a heritage centre.

Highlights - applications submitted:

· Land West of Locking Parklands, Weston-super-Mare - For 300 new homes at the adjacent Locking Parklands site which forms part of a £400m mixed-use project which will sit alongside 1,450 homes and be delivered over 20 years.

· The Fairway, Stafford - For 280 homes, alongside a local retail centre and public open space.

· Kenn, Clevedon - For 120 homes and three acres of employment space.

Outlook

Looking forward, we expect the housing shortage in the UK to persist and for Government policy to continue to stimulate growth, both in terms of facilitating demand but also increasingly through addressing supply. St. Modwen is well placed in this regard being a housebuilder that is able to cater for strong regional demand for housing and possessing a wider land bank that can benefit from supply side initiatives. Our residential portfolio and business will be a key part of our growth plans for the long term.

FINANCIAL REVIEW

Overview

During the year, we have delivered a solid performance against the backdrop of an uncertain market environment. NAV per share increased 4.2% to 431.0 pence (2015: 413.5 pence) and EPRA NAV per share increased 3.2% to 460.5 pence (2015: 446.4 pence) delivering, together with dividends, a total accounting return per share of 4.5% (2015: 31.9%). The Group reported a profit before all tax of £60.8m (2015: £258.4m) and earnings per share of 24.1 pence (2015: 97.9 pence).

 As previously highlighted in the Chief Executive's Review, there are a series of key factors that explain why these results are below those reported for the prior year.

The underlying business performed well, as evidenced by trading profits of £56.1m (2015: £63.3m), with added value gains driven by our actions remaining strong at £28.3m (2015: £38.6m) following a particularly active year to 30th November 2015 and despite a noticeably weaker investment market.

Group net borrowing, including our share of JVs, increased marginally to £517.0m at 30th November 2016 (2015: £489.3m). Taking into account growth in the valuation of the Group's portfolio, see-through loan-to-value remained broadly in line with the prior period at 30.5% (2015: 29.9%). Excluding residential land value, the Group's loan-to value ratio was 54.3% (2015: 55.6%) and we are likely to seek to reduce this over time.

Presentation of financial information

As we use a number of joint venture arrangements, the statutory financial statement disclosures do not always provide a straightforward way of understanding our business. Reconciliations between all the statutory and non-statutory measures and the explanations as to why the non-statutory measures give valuable further insight into the Group's performance are given in Note 2 to the Group Financial Statements. In particular, profit before all tax is used because it reflects the way the Group is run on a proportionally consolidated basis, and because it also removes the taxation effects on equity accounted entities from the statutory profit before tax figure. 

The Group has four material joint ventures, three of which are in partnership with VINCI and one in partnership with Salhia. The VINCI joint ventures comprise the NCGM operation and joint ventures at Uxbridge and Mill Hill (the latter through the Inglis Consortium), both of which are engaged in the remediation and subsequent sale of land. The Salhia joint venture, Key Property Investments (KPI), owns a broad portfolio of principally income-producing industrial assets acquired between 1998 and 2002.

INCOME STATEMENT

1. Residential property profits include direct residential overheads of £4.5m (2015: £2.4m)

2. Valuation - market includes a £12.5m impact from the changes to SDLT for the year ended 30th November 2016

3. Cost coverage - the ratio of recurring rental and other income to operating costs comprising interest and overheads, excluding the direct overheads relating to the residential business.

Net rental and other income

We aim to cover our recurring overheads and interest costs with revenue from our income generating portfolio. The Group's share of net rental and other income has increased in the year to £50.1m (2015: £42.9m). This is largely driven by acquisitions and asset management activity, along with strong income streams from major assets completed towards the end of 2015 including Longbridge Town Centre and the Bay Campus, Swansea University. As a result of these actions, we continue to largely cover the running costs of the business from recurring rental and other income.

As a result of proactive asset management, our occupancy levels have increased to 90% (2015: 89%) and excluding the Bay Campus student accommodation at Swansea University, the average lease length has been maintained at five years. A degree of void in our portfolio will be structural as we secure vacant possession of units to prepare our high yielding income generating properties for redevelopment.

Overheads

Administrative expenses for the year increased to £29.3m (2015: £24.1m). This increase included £3m of one-off costs relating to corporate restructuring of legal entities which is now complete. For 2017 we expect £1.5m of costs associated with executive share buy-out arrangements and the underlying cost base to increase broadly in line with inflation.

Finance costs and income

Finance costs have increased during the year in line with the marginal increases in the average levels of see-through net debt as a result of increased investment activity. See-through net interest charges increased to £22.2m (2015: £20.5m) while our weighted average cost of borrowing reduced further in the year to 3.8% (2015: 3.9%) as a result of increased borrowing at the lower marginal rates on our banking facilities. Assuming LIBOR remains relatively stable, we would expect an increase to our finance costs of approximately £0.7m for the next financial year as the convertible bond reverts to a fixed rate in March 2017, although we will seek to offset this through our intention to reduce borrowings over time.

PROPERTY VALUATION

All of our investment properties are independently valued every six months by our external valuers Cushman and Wakefield and Jones Lang LaSalle (the latter for NCGM only). Our valuers base their valuations upon an open market transaction between a willing buyer and a willing seller at the Balance Sheet date. Therefore, no value is taken for any future expected increases but discounts are applied to reflect any future uncertainties.

In accordance with accounting standards, valuation movements are reflected as gains or losses in the Income Statement. Where appropriate, we will also independently assess our work in progress for any impairment issues. Valuations in all our asset classes have been validated wherever possible by open market transactions during the course of the year.

The total valuation gain in the year was £4.1m, compared to £201.7m in 2015, for the reasons previously outlined.

PROFIT BEFORE ALL TAX

Profit before all tax for the year was £60.8m (2015: £258.4m), and is stated before tax on joint venture income and after movements in the market value of our interest rate swaps and our convertible bond. The derivative valuations are based on the financial market's forward predictions for interest rates. In contrast to the previous year, the convertible bond was trading below par at the end of the financial reporting period and together with other non-cash financial items, this resulted in a credit of £0.6m (2015: £6.6m charge).

TAXATION AND PROFITS AFTER TAX

As a result of the reduction in profit before all tax noted above, our total tax charge (including joint venture tax and deferred tax included in negative goodwill) for the year reduced to £7.2m (2015: £41.1m) resulting in profit after tax on a proportionally consolidated basis of £53.6m (2015: £217.3m). Basic earnings per share were 24.1 pence (2015: 97.9 pence).

As a property group, tax and its treatment is often an integral part of transactions. The outcome of tax treatments, including tax planning, is recognised by the Group to the extent that the outcome is reasonably certain. The effective rate of tax for the year fell to 11.8% (2015: 15.9%), as a result of a higher proportion of our 2016 profits being taxed at the Group rate of tax of 14.0% (2015: 13.9%) as opposed to the JV rate of tax 17.8% (2015: 17.8%) in comparison to 2015.

The Group rate benefits from land remediation relief, certain investment gains not being taxable as a result of indexation, and the property ownership structure within the Group. As a result of proposed changes in the Group structure, from 2017 the effective tax rate is expected to move towards, but remain below, the standard rate of tax of 19%.

BALANCE SHEET

At the year end the shareholders' equity value of net assets was £955.2m (2015: £914.7m) or 431.0 pence per share which represents a 4.2% increase over the year (2015: 413.5 pence per share). This growth is after the increased dividend payments (2016 interim and 2015 final) of £12.8m (5.79 pence per share) in 2016 (2015: £11.1m or 5.04 pence per share). Our total dividend payable for 2016 is 6.00 pence (2015: 5.75 pence), an increase of 4.3%, in line with NAV growth. Our EPRA net asset value rose 3.2% to 460.5 pence per share from 446.4 pence per share.

This table is presented on a proportionally consolidated basis, including the Group's share of assets and liabilities of Joint Ventures and Associates in the Balance Sheet categories to which they relate, rather than on a statutory basis as one line representing the share of net assets of those joint ventures and associates.

Financing

Following a year of net investment to grow our income generating asset base in 2015, we have continued to generate strong cash inflows and have carefully managed our net borrowing position. Cash generated (before new investment, tax and dividends) was £306.4m (2015: £298.1m) and new investment was managed tightly such that net borrowings, including our share of JVs, increased only marginally to £517.0m, from £489.3m at the start of the year. 

Taking into account growth in the valuation of the Group's portfolio, see-through loan-to-value of 30.5% and adjusted gearing of 48.9% (at amortised cost and excluding finance leases) remained broadly in line with the prior year. Excluding residential land value, the Group's see-through loan-to-value ratio fell to 54.3% (2015: 55.6%) and, whilst the Company's capital structure remains strong, we are likely to seek to reduce this over time.

Group adjusted gearing, see-through loan-to-value and see-through loan-to-value excluding residential land value are reconciled in Note 2i to the Group Financial Statements.

CORPORATE FACILITIES

Our refinancing programme has continued with the increase of facilities with Barclays and HSBC to £163m and £150m, respectively, with both facilities now extending to 2021. These actions increased our weighted average facility life to 3.7 years (2015: 3.6 years) and going forward, we have no facility maturities until 2019. We have further reduced our weighted average cost of debt to 3.8% (2015: 3.9%) and, with £724m of see-through committed facilities against see-through net borrowings of £517m, we have ample funding to transact.

Hedging and cost of debt

We aim to have predictable costs attached to our borrowing and therefore hedge a significant portion of our interest rate risk. At the year end, 50% of our borrowings were fixed or hedged (2015: 47%). This will increase further as the convertible bond reverts to fixed rate in March 2017, adding approximately 20% to the proportion of our debt that is fixed. As any new financing is put in place we will ensure that our hedging positions are appropriate for our future development expectations.

Our actions and mix of debt have continued to benefit our weighted average interest rate, which reduced in the year to 3.8% from 3.9%. At current LIBOR levels, we expect our weighted average interest rate will increase partly through a 20 bps increase upon expiry of the convertible swap, and a further potential increase of 30 to 80 bps over time as we execute our likely strategy to de-gear, which will require us to pay down cheaper debt, impacting on mix.

Corporate funding covenants

Covenant compliance continues at all levels and across all metrics and we continue to operate with considerable headroom against all measures.

Mark Allan Rob Hudson

Chief Executive Group Finance Director

6th February 2017

PRINCIPAL RISKS AND UNCERTAINTIES

Construction and development

Economic environment and market

Regulatory and compliance

Organisational

Financial

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The responsibility statement below has been prepared in connection with the Company's Annual Report and Financial Statements for the year ended 30th November 2016; certain parts of this report are not included within this announcement.

Each of the directors in office as at the date of the Annual Report, whose names and functions are set out within the Annual Report, confirm that to the best of their knowledge:

· the Financial Statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

· the management report (which comprises the Strategic Report and the Directors' Report) includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

· the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

Approved by the Board and signed on its behalf by

Tanya Stote

Company Secretary

6th February 2017

Group Income Statement

for the year ended 30th November 2016

Group Statement of Comprehensive Income

for the year ended 30th November 2016

Group Balance Sheet

as at 30th November 2016

These Financial Statements were approved by the Board and authorised for issue on 6th February 2017.

Mark Allan Rob HudsonChief Executive Group Finance Director

Company Number: 00349201

Group Statement of Changes in Equity

for the year ended 30th November 2016

Own shares represent the cost of 269,334 (2015: 690,274) shares held by The St. Modwen Properties PLC Employee Share Trust. The open market value of the shares held at 30th November 2016 was £754,135 (2015: £2,985,435).

The other reserves comprise a capital redemption reserve of £0.3m (2015: £0.3m) and the balance of net proceeds in excess of the nominal value of shares arising from an equity placing in 2013 of £45.9m (2015: £45.9m).

Group Cash Flow Statement

for the year ended 30th November 2016

Group Accounting Policies

for the year ended 30th November 2016

Basis of preparation

The Group's Financial Statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs") as issued by the International Accounting Standards Board ("IASB") and as adopted by the EU as they apply to the Group for the year ended 30th November 2016, applied in accordance with the provisions of the Companies Act 2006.

The Financial Statements have been prepared on the historical cost basis except for the revaluation of certain properties, derivative financial instruments, convertible bonds and the defined benefit section of the Group's pension scheme.

The financial information contained within this announcement has been prepared on the basis of the accounting policies applied in the Group's Financial Statements for the year ended 30th November 2016, which are not reproduced in this announcement. The financial information contained within this announcement does not constitute the Group's statutory accounts for the years ended 30th November 2015 or 30th November 2016 but is derived from those accounts.

Statutory accounts for 2015 have been delivered to the Registrar of Companies and those for 2016 will be delivered following the Company's annual general meeting. The auditor has reported on these accounts: its report was unqualified, did not draw attention to any matters by way of emphasis without qualifying its report, and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

Notes to the Group Financial Statements

for the year ended 30th November 2016

1. Segmental information

a. Reportable segments

IFRS 8 Operating Segments requires the identification of the Group's operating segments, defined as being discrete components of the Group's operations whose results are regularly reviewed by the Chief Operating Decision Maker (being the Chief Executive) to allocate resources to those segments and to assess their performance. The Group divides its business into the following segments:

· residential development, being housebuilding activity through St. Modwen Homes and the Persimmon joint venture; and

· the balance of the Group's portfolio of properties which the Group manages internally, and reports, as a single business segment.

b. Segment revenues and results

All revenues in the table above are derived from continuing operations exclusively in the UK. The Group's total revenue for 2016 was £302.5m (2015: £300.8m) and in addition to the amounts above included service charge income of £9.4m (2015: £9.4m), for which there was an equivalent expense and interest income of £5.4m (2015: £3.9m).

(1) In the Strategic Report, housebuilding profit of £27.1m (2015: £26.7m) is stated before the allocation of administrative expenses and finance costs of £5.2m (2015: £4.8m).

(2) Stated before mark-to-market of derivatives, amortisation of loan arrangement fees, other non-cash items and tax of £9.8m (2015: £18.8m). These amounts are reclassified to other losses of joint ventures and associates.

(3) Stated before mark-to-market of derivatives, amortisation of loan arrangement fees and other non-cash items of £3.8m (2015: £8.1m). These amounts are reclassified to other finance costs.

(4) Stated before mark-to-market of derivatives and other non-cash items of £9.5m (2015: £1.5m). These amounts are reclassified to other finance income.

Other net income of £4.2m (2015: £4.2m) comprises revenue of £6.8m (2015: £7.4m) less associated costs of £2.6m (2015: £3.2m).

Cost of sales in respect of rental income comprise direct operating expenses (including repairs and maintenance) related to the investment property portfolio and total £12.6m (2015: £8.4m), of which £0.3m (2015: £0.6m) is in respect of properties that did not generate any rental income.

During the year the following amounts were recognised (as part of development revenue and cost of sales) in respect of construction contracts:

Amounts recoverable on contracts as disclosed in note 9 comprise £12.1m (2015: £23.5m) of contract revenue recognised and £3.2m (2015: £7.8m) of retentions.

Contracts in progress at 30th November 2016 include the aggregate amount of costs incurred £17.2m (2015: £134.3m), recognised profits less recognised losses to date £8.6m (2015: £35.5m) and advances received £25.6m (2015: £27.4m).

c. Segment assets and liabilities

2. Non-statutory information

The purpose of this note is to explain, analyse and reconcile a number of non-statutory financial performance and financial position metrics, which are used extensively by the Group to monitor its performance. These metrics reflect the way in which the Group is run and in particular that the Group reviews and reports performance of its joint ventures and associates in the same way as it would if they were subsidiaries, meaning that proportionally consolidated (see-through) measures are particularly relevant whilst also having the benefit of removing the taxation effects on equity accounted entities from the statutory profit before tax figure. A number of these measures are explained below:

Profit before all tax (note 2a): This proportionally consolidated measure adjusts profit before tax to remove taxation on joint venture and associate profits from the profit before tax figure and as such, Group profit before tax of £66.9m (2015: £235.2m) can be reconciled to profit before all tax of £60.8m (2015: £258.4m) by adjusting profit before tax for the tax credit relating to joint ventures and associates of £6.1m (2015: charge of £23.2m).

Trading profit (note 2a): Trading profit is derived similarly to profit before all tax, but is stated before the principal non-cash income statement items included in this measure, being revaluation gains and non-cash financing charges. For a property company with a low depreciation charge and no amortisation, this therefore represents a more useful measure than the EBITDA alternative performance measure used by many other companies.

Property profits (note 2a): This measure represents proportionally consolidated development profits plus proportionally consolidated gains on disposals of investment properties and therefore, like profit before all tax, ostensibly represents the proportionally consolidated amounts in respect of these two income statement lines, after a (historically de minimis) adjustment for net realisable value provisions.

EPRA NAV per share (note 2g): Whilst it is a non-GAAP measure, EPRA NAV is a standard real estate measure. Its objective is to highlight the fair value of net assets on an ongoing, long-term basis. Assets and liabilities that are not expected to crystallise in normal circumstances such as the fair value of derivative financial instruments and deferred taxes on property valuation surpluses are therefore excluded, which facilitates a more objective comparison with peer companies.

Total accounting return (note 2g): Our shareholders measure their returns in terms of both the Group's growth and the dividend return. Total accounting return combines these two items by adding EPRA NAV per share (defined above) to the annual dividend paid per share and measuring this against opening EPRA NAV per share. Whilst this is often measured by Total Shareholder Return which combines share price growth and dividend return, in the real estate sector, it is also insightful to consider net asset growth, which therefore directly reflects the most recent valuation of assets.

a. Trading profit and profit before all tax

(1) Stated before the deduction of net realisable valuation provisions within the Group of £0.3m (2015: £1.4m) and for joint ventures and associates of £nil (2015: £nil). These items are reclassified to investment property revaluation gains.

(2) Stated before mark-to-market of derivatives, amortisation of loan arrangement fees and other non-cash items within the Group of £3.8m (2015: £8.1m) and for joint ventures and associates of £5.8m (2015: £0.6m). These items are reclassified to other finance costs.

(3) Stated before mark-to-market of derivatives and other non-cash items within the Group of £9.5m (2015: £1.5m) and for joint ventures and associates of £0.7m (2015: £0.6m). These items are reclassified to other finance income.

b. Property valuations

Property valuations, including the Group's share of joint ventures and associates, have been calculated as set out below:

The split of property valuation gains between added value and market movements is based on an analysis of total property valuation movements provided by the Group's external valuers.

c. Balance sheet

The balance sheet, including the Group's share of joint ventures and associates, is derived from the Group Balance Sheet as follows:

d. Property portfolio

The property portfolio, including the Group's share of joint ventures and associates, is derived from the Group Balance Sheet as follows:

As at 30th November 2016 the Group had assets of £328.3m (2015: £633.2m) included within the Group property portfolio (excluding joint ventures and associates) which were wholly owned, unencumbered and able to be pledged as security for the Group's debt facilities. The Group's property portfolio, including share of joint ventures can be split by category as detailed below:

e. Movement in net debt

The movement in net debt is set out below:

f. Trading cash flow

Trading cash flows are derived from the Group cash flow statement as set out below: