UAI.L Regulatory News (UAI)

U and I Group PLC

("U+I" or "the Company" or "the Group")

Results for the year ended 28 February 2018

Record financial performance; significant supplemental dividend; positive outlook

Record year of profits and progress

· £68.3 million of development and trading gains (2017: £35.0 million) delivered at top end of FY18 guidance

· 12.2% post tax total return driven by increase in basic net asset value ("NAV") to 303 pence per share (2017: 278 pence per share)

· Significant progress on repositioning investment portfolio; total return of 10.1% achieved: £53.2 million of assets sold at or above book value; £6.5 million of value created through asset management initiatives

· £2.1 million in net management fees earned

106% increase in dividend as a result of strong cash flows

· Total dividends of 17.9 pence per share (2017: 8.7 pence per share)

· Includes interim dividend of 2.4 pence per share (2017: 2.4 pence per share), final dividend of 3.5 pence per share (2017: 3.5 pence per share) and supplemental dividend of 12.0 pence per share (2017: 2.8 pence per share)

Positive outlook for future growth and shareholder returns

· Clear and focused strategy aligned with political and social trends in regions with strong growth potential - London City Region*, Manchester and Dublin

· Continue to target 12% post tax total return per annum, including £125-150 million of development and trading gains to end of FY21, through existing pipeline; £15.0 million of added value from investment activity and enhanced operational efficiency

· £7 billion+ gross development value pipeline and visibility on delivery of gains for next ten years

· Targeting 10% per annum total return in investment portfolio, driven from asset management initiatives and reinvestment, including the retention of certain of our own development assets

* Within one hour's commute from London

Matthew Weiner, Chief Executive, said:

"These results are an endorsement of the ambition that we set ourselves when we established U+I: to create a strong business with a clear focus on regeneration and a commitment to delivering sustainable value for shareholders and the communities in which we operate. Financially, this is expressed in our ambition to consistently deliver total returns of 12% post tax and we are pleased to have met this target this financial year. This strong performance has enabled us to declare a supplemental dividend of 12.0 pence per share, taking our total dividend to 17.9 pence per share, a 106% increase on the prior year.

Stepping back to look at our market, our strategy is such that we will continue to benefit from the long-term socio-political trends driving the need for mixed-use regeneration. The longstanding relationships we have nurtured have made us a public sector partner of choice, often giving us unique access to major Public Private Partnership opportunities. We are currently shortlisted for two major projects with a gross development value of more than £1.5 billion and expect the number of opportunities to increase as both the public and private sectors face pressures to release value from their real estate assets. The trust we have built has enabled us to create a treasury of activity through the property cycle, where our existing pipeline alone provides our three-year £125-150 million development and trading gains target. We have further visibility for the next ten years with a pipeline of existing projects with a gross development value in excess of £7 billion and we continue to identify new opportunities to build this pipeline further."

Financial summary:

*Before exceptional items of £2.1 million relating to impairment of serviced office business

Conference call for analysts and investors

The management team will present to equity analysts and investors today at 9.30am at U+I's offices at 7A Howick Place, London, SW1P 1DZ. The live audio webcast and presentation materials can be accessed via the following link: http://www.investis-live.com/uandi/5aa7b37c80a67515002a61ab/bmnb with conference call details as below. A recording of the conference call and archive version will be made available later today.

Conference Call details:

Forthcoming announcement dates

The Company intends to hold its Annual General Meeting on 5 July 2018. The Company will change its year end from 28 February to 31 March to align with its market peers. It will report the next set of results for the six months ending 31 August 2018 in October 2018 and its full year results for the thirteen months to 31 March 2019 in May 2019.

For further information, please contact:

This announcement contains inside information as defined in Article 7 of the Market Abuse Regulation No. 596/2014 and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations.

LEI Number: 213800HTEQQEIOGR5A58

Chief Executive Officer's Statement

Delivering on our strategy

We set out a clear financial objective when U+I was formed in 2015: to deliver, as consistently as possible, 12% post tax total returns per annum. We estimated that we would first achieve this objective by February 2018. So, it is particularly pleasing to report that this is the year in which we have produced record results - £68.3 million of development and trading gains, compared with £35.0 million in 2017. Our profit before tax is £48.2 million (2017: £0.4 million before exceptional items) and, most importantly, we have increased basic net asset value (NAV) by 9.1% to 303 pence per share (2017: 278 pence per share). We are also pleased with the progress being made to realign our investment portfolio. This delivered a 10.1% total return for the year, with £6.5 million of value added through asset management initiatives. This included the disposal of over £50 million of non-core assets, in line with our target.

Our focus on delivering fewer but larger profit-making projects is supporting our financial performance as just under £60 million of our gains came from seven projects, each delivering £5.0 million or more of gains.

These results endorse the ambition that we set ourselves from the start: to create a strong business with a unique culture, a clear focus on regeneration and - above all - a commitment to delivering consistent long-term value for shareholders and the communities in which we operate. These results provide us with strong foundations for growth as we continue this momentum into FY19.

Notable development gains

Among our notable successes during the financial year, we achieved planning consent for a £130 million mixed-use regeneration project at the Equipment Works, Blackhorse Road in Walthamstow, London. This site was subsequently sold to a housebuilder in December 2017 crystallising a significant gain, with the entire project taking two and a half years from inception to exit.

At 12 Hammersmith Grove in West London, we leased up the entire building over the course of the year and, in December 2017, we passed the 90% letting profit trigger. The building was subsequently sold by our funding partner Aberdeen Standard Investments in January 2018 for £170 million.

We made significant progress and gains at Preston Barracks, Brighton in the year by securing planning for this major £200 million gross development value project. This consent set in motion one of the city's biggest ever mixed-use regeneration schemes and we subsequently completed the sale of the student accommodation element in February 2018 allowing the scheme to commence onsite.

These three projects alone delivered more than £33.0 million in profit for U+I.

We were pleased to have delivered £68.3 million of development and trading gains for the year, notwithstanding the setting aside of a full £7.5 million provision in respect of our St Mark's Square project in Bromley. This provision recognises the delays caused by the size and complexity of the basement and façade works and the inevitable extension to the construction programme.

The full breakdown of projects which underpin this year's gains is provided within the Portfolio Review and demonstrates the range and depth of skills within the business and the optionality that we have in monetising projects as they progress.

We also continued to focus on our business efficiency and balance sheet management during the year, achieving £2.1 million of net management fee income as well as reducing complexity within our business.

Further progress across our investment portfolio and specialist platforms

The alignment of our investment portfolio with our focus on regeneration, is moving apace. We made £53.2 million of disposals during the year, exceeding our target of £50 million non-core asset sales. These sales were ahead of valuation and are part of our progress as we achieved our target 10% per annum total return from the portfolio. Within this total return, we generated £6.5 million from asset management initiatives, including; change of use, sub-division of units, lettings and exploiting the arbitrage between long and short lease values.

For the first time, our investment in Harwell, held in joint venture, delivered a capital gain (£4.1 million) this year and has become a core element of our portfolio as capital invested has increased.

We will continue to progress with the disposal of non-core assets from the investment portfolio, targeting an initial tranche of £25.0 million in the coming financial year, optimising the value of the assets we are retaining and targeting reinvestment in new assets that maximise our regeneration expertise. We estimate that we are approximately a third of the way through the transformation of our investment portfolio.

Where we are involved in transformative regeneration projects, we are increasingly choosing to retain elements to transfer into our investment portfolio where we see further value in the longer-term. Following on from our success with Deptford Market Yard, we transferred Caxton Works in Canning Town (£2.1 million) into the portfolio during the year and agreed that the commercial elements of the residential projects at the Machine Store and Boiler House at The Old Vinyl Factory in Hayes will be returned to us by the housebuilders on completion. We also transferred Airport House in Croydon (£13.0 million) from trading assets to our investment portfolio, releasing a trading gain of £0.9 million. When we acquired Airport House for £7.8 million in 2010, it was at 54% occupancy. We have undertaken a comprehensive refurbishment over the last three years and occupancy was close to 95% at transfer. The asset produces an income return of 7.5% and targets the growing SME occupier base in Croydon.

In the same vein, we were particularly pleased that our joint venture with McArthurGlen at Mill Green, Cannock, near Birmingham, has now gone unconditional and that we have secured the option to retain a 12.5% stake in the development on completion, which we expect to become one of the top six outlet shopping sites in the UK. This structure is one that we will consider for other assets going forward as our unique access to high quality projects should allow us to drive further value through retaining a stake in our investment portfolio.

We are also making further progress across the specialist platforms we established last year with majority capital partners, Colony NorthStar and Proprium Capital Partners. These platforms now comprise six assets, as we made a further purchase of Carrisbrook House in Dublin through the joint venture with Colony NorthStar during the year. Our appointment of a director of joint ventures in February 2018 will enable us to accelerate the growth of our specialist platforms, allowing us to do more with our balance sheet capital and leveraging our intellectual capital.

Most notably, we have seen the first material results from our specialist platforms with the gain in the year of £7.5 million at Charlton Riverside, resulting from an operational gain and valuation uplift following the adoption of the Charlton Riverside Masterplan, which allocated the area as suitable for residential-led development. Post year-end we have exchanged contracts to sell the site to a Housing Association for £58 million, at the top end of FY19 guidance for the asset.

Increased supplemental dividend

Our dividend policy comprises an ordinary dividend, including an interim and final dividend of 2.4 pence and 3.5 pence per share respectively, and a supplemental dividend related to the net free level of cash flow generated during the financial year. In line with this policy, the Company has already paid an interim dividend of 2.4 pence per share and is recommending a final dividend payment of 3.5 pence per share, bringing the ordinary dividend for the financial year to 5.9 pence per share. In addition, having delivered on our commitments and given the strength of our net cash position, we are pleased to recommend a significantly increased supplemental dividend of 12.0 pence per share (2017: 2.8 pence per share). This will be the fourth successive supplemental dividend paid to shareholders and underlines our confidence in our continued ability to generate strong surplus cash flows from our development and trading activities and our commitment to aligning shareholders with the success of the business.

We continue to review the method by which capital is returned to shareholders and, after consultation with our top twelve shareholders, the Board has concluded that a supplemental dividend currently remains the preferred option of return. This will be reviewed again by the Board over the course of the coming year.

Balanced business model to deliver across the property cycle

The majority of our value creation comes from management-led initiatives. We acquire opportunities in unloved and overlooked areas, where prices fail to represent underlying potential. We add value through planning, development and asset management. We then realise that value through sale, development or, on occasion, by transferring a developed asset into our investment portfolio, allowing us to capture further value as the asset matures.

We mainly operate in the dynamic markets of the London City Region (within one hour's commute from London), Manchester and Dublin. These places share certain characteristics. Demand is strong and growing; there is an urgent, unmet need for new homes and mixed-use spaces that will stimulate local economies; and supply is constrained by political impasse or a lack of expertise. We also feel these areas will be less impacted by the ultimate conclusion of the Brexit process.

These fast-moving times require agility, a hallmark of U+I. We benefit from optionality, both in the varied routes that we pursue to create value and in the schemes that we deliver. As mixed-use, regeneration specialists, we create assets where communities can live, work, play and study. This breadth allows us to flex the mix of our projects, in line with socio-economic trends.

Growing pipeline and market opportunity to deliver sustainable returns

Over the past three years, we have put the foundations in place to deliver against a set of demanding financial targets - aiming for consistent, annual total returns of 12.0% post tax. Over the three-year period to the end of FY21, we aim to achieve this through targeting £125-150 million of development and trading gains from existing projects, £15.0 million of added value from investment activity and enhanced operational efficiency.

We have a rich treasury of activity to draw on and take forward: a pipeline of over thirty projects for the next ten years, with a gross development value of in excess of £7 billion that can generate returns in good times and in bad. We negotiate transaction structures that enable us to respond flexibly to market conditions: in the various routes that we pursue to create value, in the mix of uses that we deliver and in the timing of exit, through direct development or trading consented land. We will also extract further value from repositioning our investment portfolio, as we move towards our target to achieve a consistent 10% annual return (2018: 10.1%).

We believe the strong partnership network we have built with key public-sector partners over many years will create a barrier to entry to others and open up further Public Private Partnership opportunities. We are recognised for our success in providing quality mixed-use environments, incorporating new homes helping to solve the UK's housing crisis and new workspaces to meet the changing needs of corporate occupiers. This was the case at Landmark Court, where we were selected from TfL's Property Partnership Framework to bring forward what will be a major £200 million+ gross development value mixed-use scheme within walking distance of Borough Market.

Critically, our strategy is aligned with major political and social trends as both central and local government recognise the importance of regeneration. Against this background, the number of opportunities available to us continues to grow. Looking ahead, we are on two shortlists for major partnership projects with a gross development value of more than £1.5 billion.

People have always been at the heart of what we do: the communities, partners and stakeholders with whom we work, and of course our employees. In recognition of this we have formalised 'people first' as one of the five key strategic drivers of our business. We are committed to nurturing our talent so we can retain the best people. I want to thank everyone at U+I for their hard work and commitment over the last year, without which our record performance would not have been possible.

We have had a fantastic year and we are determined to keep on delivering, demonstrating that our business model, our brand and our superb team can continue to generate excellent returns for our shareholders and deliver positive, sustainable change in the areas in which we operate. Our commitment to purpose, which combines shareholder returns with the creation of long-term, sustainable, socio-economic benefit, inspires trust among our public-sector stakeholders, ultimately allowing us to nurture close, longstanding partnerships that give us our licence to operate. Our culture, our track record and our passion for change mean we are well positioned for the future.

Matthew Weiner

Chief Executive Officer

26 April 2018

Risk review

Risk management structure

The Group's risk profile is maintained under continual review by its Audit and Risk Committee and by the Board. In addition, the Group has a Risk Management Committee, which oversees the Group's risk register and risk control processes on behalf of the Audit and Risk Committee. The Risk Management Committee is comprised of senior employees from across the Group, covering all areas of the Group's operations.

Mapping our risks

The Group categorises risks according to the likelihood of occurrence and the potential impact on the Group. The Directors consider the following to be the principal risks and uncertainties facing the Group.

These risks have been grouped as either:

· External risks - whose occurrence is beyond the control of the Group; or

· Business risks - which the Directors choose to manage as part of the Group's operations.

External risks

Portfolio review

A year of achievement

We are on a journey that has taken us from merger, to integration, to delivery of the financial performance that we promised our shareholders.

Today's results demonstrate the first fruits of that endeavour. Now we want to continue in the same vein - and we are confident that we will.

Matthew and I are intensely focused on building a great company for the long-term. That means a Company with purpose; a Company aware of its wider socio-economic responsibilities; and a Company that inspires confidence among its people and its stakeholders internally and externally. That is what gets me out of bed with a spring in my step every morning.

Trusted partnerships driving delivery

Experience and track record provide the strongest of foundations for our future because they have enabled us to build close partnerships with Government, local authorities, landowners and the industry in which we operate. We have deep-rooted personal and corporate relationships everywhere we work.

Such partnerships are not born overnight. They are unique, they are developed over time and they rely on trust - a trust that is earned through the quality of our projects where we deliver positive change and long-term legacies for the communities we work with.

We are intelligent, we are imaginative and we can be audacious, when we need to be. These are our core values. They inform our approach and are ingrained within U+I's culture. We want to be the best at what we do and we know that we can be. Our people are bound together in a shared purpose - to deliver great regeneration projects that generate excellent financial returns for our shareholders and strong societal benefits.

We are determined to keep improving, with consistency at our core - consistent 12% post tax total returns per annum, consistent delivery and consistent quality.

Operating in a growing market

The opportunity is huge. More than 300,000 new homes are needed each year to repair the housing market's gaping supply/demand deficit. Local authorities are under intense pressure to drive productivity from their land assets and U+I is starting to stand out in the industry as best in class. Bricks and mortar are not enough. The built environment needs to support and nurture communities and meet the rapidly evolving lifestyles of today's world.

The need is particularly acute in urban areas, such as London City Region, Manchester and Dublin, our three core regions of focus. The developable land is there, as are the unused buildings, steeped in history and tradition. But we need to unlock their potential through exciting, inspirational mixed-use spaces, created in partnerships and secured through trust, hard work, creativity and passion.

Preston Barracks in Brighton exemplifies the power of this approach. Originally owned by the Ministry of Defence, it lay dormant for over twenty years before we approached Brighton & Hove City Council with an idea. Inspired by another of our projects - The Old Vinyl Factory in Hayes - we suggested the creation of an extensive live, work, play, and study environment, enhanced by a focus on entrepreneurs and start-ups.

After five years of negotiation, consultation and partnership, this incredible regeneration project started on site in March 2018 and will deliver hundreds of new homes, student accommodation and an innovation hub for young businesses. The architecture, public realm and landscaping will be astonishing. The project has and will deliver significant profits for the Group. The City Council wins; the community wins, as the site will drive huge socio-economic growth; and shareholders win, as U+I delivers its forecast gains. Everyone wins. That is our model; it is different and it works.

The team, passion, drive and pipeline to keep delivering

Our industry is too often associated with minimising social gain and maximising financial returns. That is not U+I's approach. Our strategy has been forged in the belief that we need to deliver positive outcomes for everyone we touch, if we are to achieve our ambition - to be the best property regeneration developer and investor in the UK. We have an excellent and committed team and a network of great partners to help us achieve this.

Having secured some of the most exciting regeneration projects in our chosen areas, we have a strong pipeline ahead of us. The opportunities for our Company have never been better and I look forward to continuing to deliver them with the help of all our stakeholders.

Richard Upton

Deputy Chief Executive Officer

26 April 2018

Our portfolio - everything is connected

The U+I portfolio is strategically balanced between longer-term development projects, shorter-term trading opportunities and our investment portfolio. This three-pillar approach is one of U+I's core strengths, providing multiple routes to creating value and a more diverse earnings stream, helping us to mitigate risk through the property cycle.

Our aim is simple but ambitious. We intend to be the best property regeneration developer and investor in the UK, delivering real socio-economic benefit to the communities in which we work and consistent returns for our shareholders.

Each part of the business reflects our core focus on regeneration.

Development and trading

· Development: Long-term, large-scale mixed-use regeneration projects that are significant drivers of profit. Often structured as Public Private Partnerships (PPP), these comprise 19% of gross assets, delivering multi-year profit flows.

· Trading: Short-term trading opportunities where we buy land and add value through enhanced planning consents and/or asset management. These comprise 49% of gross assets, delivering one to three-year profit flows.

Investment: Provides recurring income to anchor our development and trading activities and added value potential. This comprises 32% of gross assets.

Value creation is at the core of everything we do

Importantly, the whole is greater than the sum of the parts. We harness our ability to buy land well and secure opportunities in areas with a regeneration need. We add value through obtaining planning consents, aligned with active asset management. We then realise value through land disposals and development, mainly for sale but, increasingly, with an element retained within our investment portfolio. This interlinked approach is designed to maximise risk-adjusted returns and deliver consistent, sustainable returns.

We adopt a creative attitude to regeneration, underpinned by our core values of intelligence, imagination and audacity. We concentrate on building a pipeline of fewer, larger projects, where our skills can have the most impact, and we focus on three core regions, where we see the greatest potential: London City Region (places within one hour's commute of London), Manchester and Dublin. The demand is there, the undervalued sites are there and we have the vision, expertise and appetite to transform them into vibrant mixed-use places that will help local communities to thrive.

Development and trading portfolio - delivering a record year

We made significant progress across our development and trading portfolio, achieving record gains of £68.3 million in 2018. This is towards the top end of our guidance of £65-70 million, underlining the year as a period of delivery and growth.

Within our development portfolio our efforts are yielding tangible results, as we realise value from some of our pipeline and advance more recent PPP project wins.

In Brighton, we are making a real contribution to the urban environment. In December 2017, we secured planning consent and in February 2018 completed the purchase of the Preston Barracks site, a crucial step for a project that will allow us to deliver one of the largest mixed-use regeneration schemes in the city. With £200 million of gross development value, our project will create 369 homes, 534 student beds and a 50,000 sq. ft. innovation hub for start-up businesses. The scheme will create over 1,500 new jobs and bring more than £280 million into Brighton & Hove's economy over the next ten years. The sale of the student element of the scheme in February 2018 allowed the project to come forward and site preparation works are now well underway.

We have also begun construction at Circus Street in Brighton, having secured funding for this £130 million regeneration project, which will turn a derelict former market into an exciting new destination in the heart of the city. With 142 new homes, 450 student bedrooms, 30,000 sq. ft. of new office space and workshops for creative new businesses, the scheme will inject £200 million into the local economy over the next decade.

At 12 Hammersmith Grove, London, we delivered gains of £11.3 million, having successfully let 100% of this modern, flexible, 170,000 sq. ft. Grade A office space. Highlighting the appeal of this development, the building was sold by our partners, Aberdeen Standard Investments, in January 2018.

In Manchester, we are making encouraging progress with our plans at Mayfield, transforming this former rail depot into a new urban neighbourhood in the city, through an ambitious and extensive mixed-use regeneration scheme. The public consultation undertaken for the proposed amendments to the existing Strategic Regeneration Framework has demonstrated wide support for our plans and the scope of the project has increased, such that its gross development value has risen from £850 million at the outset to £1.1 billion now.

At Harwell, we realised £6.3 million of gains, as we delivered and let 160,000 sq. ft. of space on this internationally renowned science campus. Harwell exemplifies the benefits that can be gained when the public and private sectors work in true partnership. Spread over more than 700 acres, the site is a commercial and research cluster, grounded by more than £2 billion of world-leading scientific infrastructure.

Working with two Government-backed agencies, U+I is driving the next stage of development at Harwell, through the creation of new office space, laboratories and other state-of-the-art facilities. We also benefited from an investment gain of £4.1 million, as earlier phases of development were revalued to reflect the increased critical mass of the scheme. We expect Harwell to be a continued driver of gains as the next phases of development are brought forward.

Our industry is dynamic and timings can change, depending on a wide range of factors and the actions of key stakeholders. In recognition of this, our business model is to remain agile and flexible so that we can maximise opportunities as and when they arise. In 2018, for example, we realised a material gain from the sale of our investment in a regional, strategic land business, Barwood Development Securities Limited. Whilst the business could have produced a steady flow of gains over several years, we felt that an immediate sale of our holding, generating a £5.0 million gain, more than offset the potential gains over the longer term.

At St Mark's Square in Bromley we set aside a full £7.5 million provision in the year due to delays resulting from the size and complexity of the basement and façade works, all of which inevitably extended the construction programme. Once completed later this year, St Mark's Square will regenerate and transform a major part of Bromley town centre.

We remain committed to building our PPP pipeline, with a clear focus on substantial, high quality, value-enhancing projects. There is no shortage of opportunities. Both public and private-sector landowners are looking for ways to realise value by making their, often urban, real estate work harder. The resultant trend towards higher density mixed-use living plays to our core regeneration strengths.

We are currently pursuing a number of exciting prospects in Dublin and London City Region and are on two shortlists, with a combined gross development value of more than £1.5 billion.

This PPP approach has significant attractions. It is equity efficient as our partners typically seed projects with land, while we apply our planning and development expertise. This allows us to spread our risk across projects at various stages of the development, committing a maximum of £20 million to any one project. In a further evolution of our business, we are increasingly able to charge management fees on larger regeneration projects such as Mayfield. This helps to cover our overhead commitment to a project ahead of development activity taking place.

Trading pipeline provides shorter-term gains

To balance our major regeneration opportunities, we maintain a shorter-term trading pipeline. This gives us a more tactical focus as we buy land well and add value through planning and/or asset management. In the year, we generated gains of more than £45 million in this area.

At Blackhorse Road in Walthamstow, London, we made a significant disposal, after securing planning permission, delivering £10.3 million in gains, using just £2.1 million of equity in two and a half years.

In Ashford, we have secured planning for a significant mixed-use development on a brownfield site. This will inject renewed life and vigour into this strategically located town and realise gains of £2.8 million on disposal of the site to a housebuilder.

As part of our focus and commitment to Ashford, in January 2018 we purchased the Kent Wool Growers site, and we will now seek planning for 250 homes, to further cement our reputation in this vibrant commuter location. This transaction underlines our ability to buy well in locations adjacent to our existing developments, capitalising on the trust and reputation earned in an area.

At The Old Vinyl Factory in Hayes, the sale of the residential plot at The Machine Store and the Group's retained interest in The Cabinet Building realised a combined gain of £3.4 million.

In terms of other trading projects, our joint venture project at Kensington Church Street in the Royal Borough of Kensington and Chelsea did not obtain planning consent at a Planning Committee meeting in January 2018. This was notwithstanding an officer's recommendation for approval and strong support from the GLA through a Stage 1 sign-off. The recent call-in of the scheme by the GLA underlines the quality of the project and the sizeable regeneration benefits it would bring. We look forward to the Mayor of London's assessment of the scheme later this year.

Our exit from Bryn Blaen Wind Farm has progressed. We made a strategic decision not to sell the project during the year, in the strong belief that we could realise more value by extending our timeline, having built out the site during the year and submitted the requisite paperwork to secure valuable subsidies. We also expect to realise profits from this and our two other wind farms, Rhoscrowther and Hendy, in the coming financial year. Although wind farms are not core to our future strategy, they leverage our planning and development experience and will enable us to make a significant margin on an equity efficient basis.

A summary of our realised gains and losses in 2018 can be found below:

* Held in joint venture

The major projects for FY19 supporting our targeted £45-50 million development and trading gains include those listed below. We have the agility in our portfolio to flex this mix of projects where appropriate.

* Held in joint venture

Investment portfolio - continuing to deliver transformation

Regeneration is at the core of our business and, as we have previously stated, we are realigning our investment portfolio in accordance with that focus. At the beginning of the year, therefore, we set a target of £50 million from the disposal of non-core assets, which do not have a regeneration focus. We exceeded that target, achieving sales of £53.2 million and an average premium above book value of 6.3%. Our disposals were largely made up of legacy or mature assets, as we moved to create a more dynamic portfolio. At the year end, the investment portfolio was valued at £139.5 million (2017: £179.2m). We are targeting an initial further £25.0 million of non-core disposals in FY19.

During the year, we disposed of our holding in Kingsland Shopping Centre in Thatcham through two transactions: selling the Waitrose anchor store to long-term capital and the remaining retail units to a specialist retail asset manager. By splitting the asset, it allowed us to realise greater value, securing a combined sale price above book value at a blended yield of 5.9%.

We also sold the Waitrose anchor store at Ringwood but retained the associated units at this popular, convenience-led shopping centre. This will allow us to realise further value through future asset management potential, while continuing to benefit from the footfall from the Waitrose store.

As part of our core strategy, the proceeds from these disposals will be reinvested into assets with a regeneration focus, supporting our wider development and trading portfolio and maximising value creation.

Closer portfolio alignment - capturing further value from regeneration

We are driving through the transition of our investment portfolio from a more passive, sector investment, which historically delivered 5-8% returns, towards alignment with our regeneration expertise and total returns targeted at 10% plus per annum. This has started with our investments at Caxton Works, Canning Town; Airport House, Croydon; as well as the option to retain a stake in the completed development at Mill Green, Cannock.

Mill Green in Cannock highlights the advantages of forging closer connections across our business. Our planning and regeneration expertise, combined with our collaboration with the local community, helped us to secure planning consent to develop a 35-acre greenfield site and deliver a 26,500 sq. m. designer outlet village. During the year, we entered into a joint venture funding agreement to partner this project with retail outlet expert, McArthurGlen.

The scheme is expected to be a top six UK asset in its class. Located in an underserved catchment close to Birmingham, it is expected to prove extremely popular as a local and destination attraction. As part of the transaction, we secured the option to retain a 12.5% stake in the development on completion within our investment portfolio - a unique opportunity, with material value-generation potential.

We have pursued a similar longer-term, value-enhancing model at Caxton Works in Canning Town, where we expect to see further gains as the scheme leases up over the course of the next twelve months. During the year, we also transferred our co-working office building at Airport House in Croydon into our investment portfolio. We acquired this asset for £7.8 million in 2010 as a trading deal. Through refurbishment and further asset management initiatives, we have increased the occupancy from 54% at the time of acquisition to 95%, as well as driving up rents. The building was valued at £13.0 million on 28 February 2018. We have chosen to retain Airport House in our investment portfolio as we expect to see further value from this well-located asset, alongside a high running income yield (7.5%). These two assets equate to £15.1 million of value and Cannock would represent a further circa £6-8 million of investment which will be held at cost until practical completion.

Acquisitions and disposals - at the right time

We continue to monitor suitable acquisition opportunities with a focus on regeneration, where we can add value through proactive asset management, refurbishment and development. This is an integral part of our investment strategy and is subject to disciplined investment criteria. In the current environment, we believe it is in shareholders' interests to remain true to our underwriting criteria and delay further open market investment acquisitions until pricing becomes more favourable. We are targeting £50.0 million of new assets in FY19, including retained assets from our development portfolio.

Our disposals and larger gains from asset management initiatives in FY18 are outlined below:

Specialist platforms

Our specialist platforms are currently focused on two areas of the market, where we believe that we can add substantial value: office refurbishments in partnership with Colony NorthStar and strategic land in partnership with Proprium Capital Partners. There are six projects in total across the platforms: The Record Store (The Old Vinyl Factory, Hayes), Ballymoss House (Dublin), Carrisbrook House (Dublin) and Donnybrook House (Dublin) with Colony NorthStar; and Charlton Riverside (Greenwich) and the Mecca Bingo unit in Wood Green with Proprium Capital Partners.

At Charlton Riverside, the value of our assets increased by £6.9 million following the adoption of the Charlton Riverside Masterplan, thereby allocating the area as suitable for residential-led development. Since the year end we have crystallised further gains at the top end of guidance through the sale of the site to a Housing Association.

We acquired Carrisbrook House in Ballsbridge, Dublin, in August 2017. Well located in the heart of Dublin 4, the property has been neglected in recent years and has significant upside potential. A planning application has been submitted and we intend to realise value through transformation of the building.

At Ballymoss House and Donnybrook House, work is underway to refurbish the buildings. We aim to complete Donnybrook House in June 2018, with Ballymoss House following in 2019. Combined, these three buildings will give us c.150,000 sq. ft. of refurbished office space coming to market over the next 12-18 months. Dublin remains an undersupplied market benefiting from both US and UK demand as well as its indigenous market.

Our appointment of Eoin Condren to lead our joint venture offering underlines our determination to realise value in this area. Having spent a decade in the real estate investment industry, Eoin will drive our joint venture partnerships, as we seek to source and execute acquisitions in our core geographies. He will look to expand our capital partner relationships, assessing where we might aggregate elements of our existing pipeline to further capitalise on our operational leverage and maximise funding efficiency.

Top five occupiers as at 28 February 2018

Income-generating properties - Like-for-like rental income received

Core investment portfolio - 28 February 2018

Gross rental income - tenant profile

1. PLC/nationals - 56.8%

2. Local traders - 28.7%

3. Regional multiples - 6.7%

4. FTSE 100 - 5.6%

5. Government - 2.2%

Gross rental income - lease term profile

1. 0 -

2. 5 -

3. 10 -

4. 15 -

5. 20 years+ - 2.1%

Capital value - location profile

1. South East - 28.4%

2. South West - 25.3%

3. North - 20.9%

4. London - 9.1%

5. Wales - 6.3%

6. Northern Ireland - 6.4%

7. Midlands - 3.6%

Financial review

Results for the year

During the year the Group focused on its aim of delivering a record level of development and trading gains whilst at the same time continuing to rationalise the number of smaller, inefficient projects it is involved in and restructuring its investment portfolio.

As can be seen below we have successfully achieved what we promised.

* After exceptional loss of £2.1million

The profit before tax for the year to February 2018 was £48.2 million (2017: £1.7 million loss), after generating a record level of gains of £68.3 million, in line with our guidance.

In addition, we also achieved our target capital return on our investment portfolio of £5.0 million, as well as disposing of £53.2 million of non-core assets. We are now actively seeking opportunities to reinvest in assets which are focused on our expertise in regeneration and planning.

Development and trading gains

During the year, we realised a total of £68.3 million of net development and trading gains. The key components of these gains are:

· £11.5 million - Preston Barracks: disposal of student accommodation scheme.

· £11.3 million - 12 Hammersmith Grove: profit share on letting of office building.

· £10.3 million - Blackhorse Road: sale of consented residential scheme.

· £7.5 million* - Charlton Riverside: operational gain and uplift in value reflecting designation of the site as a strategic regeneration area and agreement to dispose of the site in April 2018.

· £7.4 million - Cannock: sale of consented designer outlet village.

· £6.3 million* - Harwell: operational gain and uplift in values following the completion and letting of three buildings.

· £5.0 million - Barwood: profit on disposal of interest in regional land promotion business.

· £3.4 million - The Old Vinyl Factory: disposal of The Machine Store consented residential scheme and interest in the Cabinet Building.

· £2.8 million - Ashford: disposal of consented residential scheme.

· £2.2 million - Avid Building: disposal of consented residential scheme in Dublin.

· £1.9 million - Telegraph Works: disposal of ten townhouses.

· £1.8 million - Southwark: disposal of vacant office building and five flats.

* These gains represent U+I's share of gains on assets held in joint venture arrangements with significant capital partners

In addition to the above, approximately £4.4 million of gains were realised from a number of smaller projects as we continued our policy of rationalising the number of projects we have.

In total the Group has delivered project gains of approximately £75.8 million during the year before provisions.

In respect of our project at Bromley, we set aside a full £7.5 million provision in the year due to delays resulting from the size and complexity of the basement and facade works all of which inevitably extended the construction programme. The provision comprises of the following components:

· £3.1 million+ - allocated fair value uplift of the scheme as part of the acquisition of the Cathedral Group in 2014.

· £4.4 million - anticipated irrecoverable costs.

Once completed later this year, St Mark's Square will regenerate and transform a major part of Bromley.

+ The total fair value adjustment on acquisition of the Cathedral Group was allocated across all of the acquired schemes in 2014 based upon the anticipated profitability and risk of each scheme at that point in time. Other schemes acquired, such as Telegraph Works and Preston Barracks, have generated profits significantly in excess of those projected at the time of acquisition

Development and trading gains can be analysed as follows:

Overheads

During 2018 we succeeded in our aim of realising savings of £2.0 million in our net recurring overheads from a combination of cost efficiencies and the generation of management fees from specialist platforms.

During the year, fees from our specialist platforms with Colony NorthStar and Proprium Capital Partners were the major contributors to delivering the fee target and we continue to look at ways to drive efficiencies across the business, focusing particularly on simplifying our corporate structure, reducing the number of corporate entities and leveraging our intellectual capital.

The overheads during 2018 comprised:

Net finance costs

Net finance costs for the year of £9.7 million (2017: £10.8 million) include a foreign exchange deficit of £1.4 million (2017: £3.4 million deficit) in respect of the retranslation of Euro-denominated loans and deposits.

For entities where the reporting currency is in Euros, retranslation differences are charged to reserves. The movement for 2018 was a gain of £0.3 million (2017: £3.0 million gain). The net impact of these movements on NAV during the year was £1.1 million loss (2017: £0.4 million loss).

Debt

We use debt finance to leverage the use of our equity in property transactions. We continue to borrow from a wide range of financial institutions, including UK clearing banks, insurance company-backed lenders, debt funds and financial institutions. The availability of debt finance has not impacted our ability to transact new property deals.

During the year, the major changes to our debt portfolio were as follows:

· Successful restructure of our long-term investment facility with Aviva, delivering a more flexible facility and an annualised saving in finance costs of circa £1.0 million.

· Following disposal of Kingsland Shopping Centre from our investment portfolio we have repaid the £28.0 million Lloyds Bank facility.

· Two Irish bank facilities were repaid following disposals of trading assets.

· To enable the build out of the Bryn Blaen wind farm, we entered into a £24.0 million joint venture loan facility with Close Brothers. 

Details of our debt facilities are shown in the table below:

Group's bank facilities

1. Interest cover ratios are specific to the loan and the relevant property. Minimum net worth refers to the net asset value of the Group per its latest Balance Sheet (28 February or 31 August)

2. These unsecured, variable rate loan notes are denominated in Euros, with a nominal value of €47 million. An interest rate cap is in place to limit the Group's exposure to movements in the EURIBOR rate

3. Loans relating to joint ventures represent the total loan facility and not the Group's share

4. This facility has the provision to allow interest to be rolled into the loan

~ Represents the amount of the Group's liability in Sterling as at the balance sheet date

Debt maturity profile

Our debt policy can be summarised as follows:

· Longer-term fixed rate facilities are used to fund longer-term income-producing assets. Target loan to value (LTV): 60-65%.

· Shorter-term asset-specific debt aligned to the business plan for shorter-term trading assets. Target LTV: 50-55%.

· Medium-term Euro-denominated corporate debt to support our investment into Euro-denominated assets in Dublin. No LTV target as this is corporate-level debt.

· The Group has no specific debt on non-income producing assets or investments into PPP schemes.

· Joint venture arrangements are designed to leverage both our operational expertise and our Balance Sheet. When acting with third party capital we deploy asset-specific debt, which is often at a higher LTV (65-75%), reflecting the risk appetite and cost of capital of our partners.

A summary of the Group's gearing is shown below:

The greatest fluctuation in gearing occurs where we utilise debt to fund the build-out of pre-sold residential developments on our own Balance Sheet. This peaked at 59.2% during FY17.

Our overall gearing targets therefore act as a limit on the amount of development that we can undertake on our own Balance Sheet.

The Group maintains a mix of variable and fixed rate facilities to provide a degree of certainty whilst also benefiting from historically low interest rates. Longer-term facilities tend to be structured with fixed rates. A summary of the Group's interest rate exposure is shown below:

Joint venture arrangements

The Group has a policy of working in joint venture arrangements as a way of:

· Leveraging our equity so we can participate in projects that would otherwise be too large for our Balance Sheet;

· Accessing deals with specialist partners who have secured positions on projects but require further equity and the planning and structuring skills, which are a key part of our business.

During the year, the Group has created considerable value in two of its most important joint ventures:

· At Harwell we are partnered with the STFC and Harwell Oxford Partners on the 700-acre Harwell Campus, an internationally renowned science campus. During the year we have successfully completed the letting and development of three buildings and let over 160,000 sq. ft. of space to, amongst others, the Nuclear Decommissioning Authority and Oxford Space Systems. During the year this has generated both £6.3 million of development and trading gains and an investment valuation uplift of £4.1 million in respect of the Group's holding.

· At Charlton Riverside, we are partnered with Proprium Capital Partners. The designation of the sites as a strategic regeneration area during the year has resulted in a third party, independent valuation at the year-end of £50.0 million, delivering a revaluation gain to the Group of £6.9 million.

Taxation 

Our tax strategy is aligned with our overall business strategy and is principled, transparent and sustainable for the long- term. The key components of this strategy are:

· A commitment to ensure full compliance with all statutory obligations, including full disclosure to all relevant tax authorities;

· Any tax planning strategy entered into is only implemented after full consideration of the risks and if necessary after prior consultation with the relevant tax authority. Those findings are recorded in any relevant structuring document;

· The maintenance of good relationships with tax authorities and a clear interaction between tax planning and the Group's wider corporate reputation and responsibility; and

· Management of tax affairs in a manner that seeks to maximise shareholder value whilst operating within the parameters of existing tax legislation.

For 2018 the underlying tax rate, including deferred taxes, was 16.51%. The Group's tax rate is sensitive to both geographical location of profits and business activity from which the profits are derived. It is anticipated that future years will see an increase in the effective tax rate following legislative changes announced in the 2017 Budget and the possible impact of interest deductions in line with OECD's Base Erosion Profit Shifting (BEPS) Action Point 4.

The Group has made a provision of £1.0 million relating to an open HMRC enquiry in to historic tax losses of the Group. The Group has not made any other provisions relating to prior-year events and will only do so when there is a high degree of certainty of an obligation to settle any liabilities.

The suitability of our tax strategy is kept under constant review to ensure compliance with both the fiscal needs of the Group and the constant evolution of tax legislation.

Dividends

Our dividend policy consists of two elements as follows:

· An Ordinary dividend, comprising interim and final at 2.4 pence and 3.5 pence per share respectively; and

· A supplemental dividend related to the net free level of cash flow generated from the financial year.

A final dividend of 3.5 pence per share will be recommended to shareholders at the Annual General Meeting (AGM) on 5 July 2018, to be paid on 17 August 2018 to shareholders on the register on 20 July 2018 (2017: 3.5 pence per share).

On 25 April 2018, the Board approved the payment of a supplemental dividend of 12.0 pence per share, to be paid on 15 June 2018 to shareholders on the register on 11 May 2018.

Foreign currency movements

The Group's operations are conducted primarily in the UK. However, as one of its three core regions is Dublin, the Group is exposed to movements in foreign exchange rates between Sterling and Euros.

The Group's principal exposure to foreign currency movements is in respect of its €47.0 million Euro-denominated loan notes, Euro-denominated bank loans and property assets.

At 28 February 2018, following the disposal of a number of Irish assets during the year, the Group had net Euro-denominated liabilities of €38.7 million (2017: €16.6 million).

During the year, the value of Sterling against the Euro has fluctuated reflecting economic uncertainty relating to the UK's decision to leave the EU. The impact on our NAV during the period was a reduction of £1.1 million, which is the net result of a loss of £1.4 million recorded in finance costs in the profit and loss account and a gain through reserves of £0.3 million.

European Public Real Estate Association (EPRA)

Unlike a traditional real estate investment business, a significant part of our regeneration business model seeks to optimise the use of our Balance Sheet by entering into either conditional purchase agreements, land option agreements or development management agreements where we incur the design costs and fees associated with obtaining a planning consent, without purchasing the land up front. These types of structures mean that for a significant part (57.1%) of our development portfolio, we are not able to produce a reliable fair value in accordance with EPRA guidelines until such time as planning consent is obtained and land becomes unconditionally owned.

We understand that EPRA NAV is the accepted valuation metric for real estate investment companies. However, U+I's business model and our preference for developing assets using third-party capital rather than our own, mean that EPRA NAV does not deliver a complete picture of the potential value within both our portfolio of assets and various contractual arrangements. We will continue to give guidance as to expected trading and development gains over the next three years as a more complete picture of the potential value within the Group's projects.

Five-year summary

Marcus Shepherd

Chief Financial Officer26 April 2018

Viability statement

Introduction

U+I's business model is to deliver returns through regeneration, realising profits by successfully transforming undervalued land and assets into new places that deliver social and economic value to a wide range of stakeholders.

The key drivers in delivering the model are as follows:

· Ability to source a regular supply of new business opportunities which can deliver profits in future years.

· Sourcing debt finance to leverage new business opportunities and refinance existing facilities where appropriate.

· Access to a wide range of capital partners to co-invest in larger schemes and forward fund larger speculative developments.

· Successfully delivering new planning permissions.

· A high-yielding investment portfolio generating a sustainable cash yield to support business activities and sustain corporate overheads.

· Maintaining a diversified portfolio of projects so as to reduce property specific risk across the overall portfolio.

Assessment period

The Group's business planning process consists of a five-year look forward. The rationale for this is that the main driver of success is the generation of development and trading gains from projects, with the exception of two outliers:

· Short-term pure trading; and 

· Long-term land strategies.

The majority of projects have a duration of between two and five years from acquisition to exit. Therefore, from any starting point, over a five-year period the vast majority of projects will have moved through to exit. To plan for a period longer than five years would lead to the construction of a purely theoretical model in years 5+, rather than one underpinned by specific existing projects in the initial five-year period.

Therefore, for the purposes of this review, the business has been considered and stress tested over a five-year period.

Consideration of principal risks

The nature of the Group's business and the industry in which it operates expose it to a variety of risks. The principal risks and uncertainties facing the Group are detailed on pages [•] to [•]. The Board regularly reviews the principal risks and assesses the appropriate controls and mitigating actions required to manage the operations of the Group within an appropriate risk environment. The Board has further considered their impact within the context of the Group's viability with particular emphasis on construction and planning risk.

Assumptions

In assessing the long-term viability of the Group, the Board has made the following assumptions:

Property investment valuations continue to be broadly stable with no prolonged significant downwards movements.

· The Group continues to be able to deliver cash-backed development and trading gains from its existing portfolio of projects sufficient to meet its operational requirements, principally driven by securing new planning permissions.

· The Group continues to be able to source new business opportunities capable of delivering both short-term trading gains and longer-term development gains to replace existing projects as they are exited.

· The Group continues with its policy of having a mixture of long-term debt associated with its long-term investment portfolio and shorter-term stand-alone debt associated with its development and trading projects.

· The Group continues, as it did throughout the previous recession, to be able to source both replacement and new debt facilities as they are required from both existing and new lenders.

· The Group continues with its policy of maintaining a broad range of counterparties, including financial, contractor and purchaser, so as to mitigate the impact of potential counterparty failure.

· The Group continues its policy of de-risking developments by obtaining forward-funding for larger schemes and only carrying out limited on-balance sheet development.

· Construction contracts are entered into on a guaranteed maximum price basis where possible.

The Group maintains its current conservative gearing strategy.

In addition, the Group's five-year business model was stress-tested to simulate either a deterioration in market conditions or a flexing of these assumptions, as detailed below. In particular, consideration was given to the following:

· Persistent valuation falls of 2.5%, 5.0% and 10.0% per annum for each of the next five years and the resultant impact upon NAV, gearing covenants and cash levels i.e. a fall of 25% in property values.

· Inability to win any new business opportunities over the next five years - hence the only profits that can be generated are from existing schemes.

· Debt facilities were stress-tested to see how much property valuations would need to fall before loan covenants would be breached and how much cash would be required to cure any loan covenant defaults.

Conclusion

As a result of the work performed above, including the consideration of the key assumptions and the subsequent stress testing, the Board believes that the Group's strategy of maintaining a broad portfolio of development and trading projects, a core investment portfolio and a diverse range of financial and operational counterparties provides the Group with a strong platform on which to continue its business.

The Directors therefore have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the five-year period to February 2023.

Consolidated Statement of Comprehensive Income

For the year ended 28 February 2018

* Adjusted earnings per share from continuing activities is given in note 5

All amounts in the Consolidated Statement of Comprehensive Income relate to continuing operations.

Consolidated Balance Sheet

As at 28 February 2018

Approved and authorised for issue by the Board of Directors on 26 April 2018 and signed on its behalf by:

M S Weiner

Director

Consolidated Statement of Changes in Equity

For the year ended 28 February 2018

Consolidated Cash Flow Statement

For the year ended 28 February 2018

An analysis of the movement in net debt is provided in note 12. 

Notes to the Consolidated financial statements

For the year ended 28 February 2018

1 Basis of preparation and accounting policies

a)

(i) General information

The Consolidated financial statements of the Group for the year ended 28 February 2018 comprise the results of U and I Group PLC and its subsidiaries and were authorised by the Board for issue on 25 April 2018.

The Company is a public limited company which is listed on the London Stock Exchange and is incorporated and domiciled in the UK. The address of its registered office is 7A Howick Place, London SW1P 1DZ.

(ii) Going concern

The Group meets its day to day working capital requirements through its cash reserves and bank facilities. The current economic conditions continue to create uncertainty. The Group produces regular forecasts and cash flow projections to confirm that it can continue to operate within the level of its existing banking facilities. The Group considers the risks and uncertainties highlighted in the Viability Statement when reviewing its projections. Following this review, the Directors consider it appropriate to adopt the going concern basis of accounting in preparing its Consolidated financial statements.

b) Basis of preparation

The Group's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and IFRS Interpretations Committee (IFRSIC) interpretation as adopted by the European Union and with the Companies Act 2006 applicable to companies reporting under IFRS. The accounting policies which follow set out those policies which were applied consistently in preparing the financial statements for the years ended 28 February 2018 and 28 February 2017.

The Consolidated financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of investment property, operating property, available-for-sale financial assets, financial assets and liabilities and derivative instruments at fair value through profit and loss.

The financial information included in the preliminary announcement does not constitute statutory Consolidated financial statements of the Group for the years ended 28 February 2018 and 28 February 2017 but is derived from those Consolidated financial statements. Statutory Consolidated financial statements for 2017 have been delivered to the registrar of companies and those for 2018 will be delivered in due course. The auditors have reported on those financial statements; their reports were (i) unmodified, (ii) did not include a reference to any matters which the auditors drew attention by way of emphasis without modifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

c) Critical accounting judgements and estimates

When preparing the Group financial statements, management are required to make judgements, assumptions and estimates concerning the future. These judgements and assumptions are made at the time the financial statements are prepared and adopted based on the best information available. Actual outcomes may be different from initial estimates and are reflected in the financial statements as soon as they become apparent. Management believe that the underlying assumptions are appropriate. Areas requiring judgements or estimates are discussed in the following section.

Judgements other than estimates

1.1 Classification of directly owned property assets

The Group earns revenue from property development, trading and investment, and operating serviced offices.

Property development includes the entire development process from identification of an opportunity through to construction, letting and sale of a completed scheme. This activity is undertaken both on the Group's own Balance Sheet and in partnership with institutional investors, usually via a pre-sale of the completed development.

Property trading refers to participation in the development process, where the Group acquires an interest in land and enhances the potential development, for instance by procuring or changing planning permission, before selling on to a third party to complete the development.

Property investment represents the acquisition of income-generating real estate which is held for the purposes of income and capital gain, through active asset management.

In most cases the property interest is held directly by the Group and is classified either as investment property (refer note 6) or as inventory for development and trading properties (refer note 8).

The varied nature of the Group's properties is such that a number exhibit characteristics consistent with more than one classification; also, the Directors' strategy for an asset may change during its ownership. The Directors determine the status of each asset according to their intention on acquisition. A change in classification is made only in exceptional circumstances, where the strategy and use have demonstrably changed. 

During the year the Group has reclassified two trading and development assets to investment properties. This reclassification is as a result of a change in strategy and use in respect of these assets whereby they are now being held for income and capital appreciation.

1.2 Classification of projects in partnership

In addition to its directly owned and managed activities, the Group participates in similar activities in partnership with others, typically to access expertise in different locations or market sectors. The Group's financial participation may be by way of equity investment or loan. In each case a judgement is required as to the status of the Group's interest, as an associate, a joint venture, a joint operation or a financial asset, typically focusing on the extent of control exercised by the Group.

The Group's share of control is governed and achieved by a mixture of rights set out in agreements and participation in the management of each business. The exercise of control in practice does not always follow the legal structure. The Directors have considered the position in respect of each venture, taking account of the operation in practice, and have determined the status of each accordingly.

These investments are reported under the relevant balance sheet headings, with a summary in note 14.

1.3 Acquisition of subsidiaries

The Group sometimes acquires properties through the purchase of entities which own real estate. At the time of acquisition, the Group considers whether the transaction represents the acquisition of a business. In cases where the entity is capable of being operated as a business, or an integrated set of activities is acquired in addition to the property, the Group accounts for the acquisition as a business combination. When the acquisition does not represent a business, it is accounted for as the purchase of a group of assets and liabilities. In making this distinction, the Group considers the number of items of land and buildings owned by the entity, the extent of ancillary services provided by the entity, and whether the entity has its own staff to manage the property (over and above the maintenance and security of the premises).

Estimates

1.4 Valuation of property assets

The key source of estimation uncertainty rests in the values of property assets, which affects several categories of asset in the Balance Sheet.

The investment portfolio (and the operating property) are stated at fair value, which requires a number of judgements and estimates in assessing the qualities of the Group's assets relative to market transactions.

The same uncertainties affect the determination of fair value of certain available-for-sale financial instruments with the further complexity that the value of these assets requires estimates of future construction costs, tenant demand and market yields.

The Group's development and trading properties are carried at the lower of cost and net realisable value. The determination of net realisable value relies upon similar estimates, with the added challenge, in some cases, of judgements about uncertain planning outcomes.

1.5 Impairment reviews

The Group's Curzon Park Limited joint venture owns a development site in Birmingham known as Curzon Street. The current proposal for the high speed train link between London and Birmingham (HS2) indicates that the planned route of HS2 passes through the site, including provision for part of the prospective station. In view of this, the ultimate value of the site is uncertain. It is not clear what impact HS2 will have on the development of the 10.5-acre site. The Directors believe that the site will recover at least its carrying value in the books of the joint venture, although the interim and ultimate uses of the site and timing of its development remain unclear.

The Group continues to review the operations of its serviced office business as it looks to exit a number of the centres. Three will close during the year and the Group is looking at options of exiting two further centres. A further provision of £628,000 has been made during the year to cover closure costs.

1.6 Derivative financial instruments

The Group is party to a number of interest rate swap agreements which are accounted for as derivatives and measured at fair value. The estimation of this figure is based upon market assumptions about future movements in interest and exchange rates.

1.7 Group Long-Term Incentive Plan (LTIP)

During the year, the Group made awards to staff under the Group's LTIP. The awards vest according to a number of performance criteria, the primary measure being net asset value growth over a three-year period. In calculating the provision to accrue, management are required to estimate net asset growth over the vesting period. The estimate is reassessed at each reporting date.

2 Segmental analysis

a) The segmental information presented consistently follows the information provided to the Chief Operating Decision Maker (CODM) and reflects the three sectors in which the Group operates. The CODM, which is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Executive Committee. The three operating divisions are:

· Investment - management of the Group's investment property portfolio, generating rental income and valuation movements from property management;

· Development and trading - managing the Group's development and trading projects. Revenue is received from project management fees, development profits and the disposal of inventory; and

· Operating - serviced office operations. Revenue is principally received from short-term licence fee income.

Unallocated assets and liabilities comprise amounts that cannot be specifically allocated to operating segments; an analysis is provided below.

These divisions are the basis on which the Group reports its primary segmental information. All operations occur and all assets are located in the United Kingdom, except assets of £30,004,000 (2017: £30,193,000) which are located in the Republic of Ireland. All revenue arises from continuing operations.

A summary of unallocated assets and liabilities is shown below.

In the year ended 28 February 2018, one project with turnover totalling £23,250,000 generated in excess of 10.0% of total revenue and fell within the development and trading segment.

In the year ended 28 February 2017, two projects with turnover totalling £28,765,000 generated in excess of 10.0% of total revenue and fell within the development and trading segment.

3 Finance income and costs

a) Finance income

b) Finance costs

Interest was capitalised at an average rate of 5.84%. No capitalised interest (2017: £1,195,000) was written off in the year. The tax treatment of capitalised interest follows the accounting treatment.

4 Dividends

On 25 April 2018, the Board approved the payment of a supplemental dividend of 12.0 pence per share, which will be paid on 15 June 2018 to Ordinary shareholders on the register at the close of business on 11 May 2018 and will be recognised in the year ending 28 February 2019.

Subject to approval by shareholders, the final dividend of 3.50 pence was approved by the Board on 25 April 2018 and has not been included as a liability or deducted from retained earnings as at 28 February 2018. The final dividend is payable on 17 August 2018 to Ordinary shareholders on the register at the close of business on 20 July 2018 and will be recognised in the year ending 28 February 2019.

5 Earnings per share and net assets per share

The calculation of basic and diluted earnings per share and EPRA profit per share is based on the following data: