Half-yearly Financial Report

Transcription

1 Wichford P.L.C. 1 Half-yearly Financial Report For the six months ended 31 March 2011

2 Contents 2010/2011 Review Highlights 1 At a Glance 2 Chairman s Statement 3 Organisation 4 Business Review 5 Financial Review 11 Ten Largest Investments 14 Wichford P.L.C. is a property investment company, operated from the Isle of Man, with a portfolio of 83 properties occupied principally by Central and State Government bodies in both the UK and Continental Europe. Our portfolio totals over 355,000 sq m (3.8 million sq ft) and is independently valued at million. Governance Statement of Directors Responsibilities 15 Consolidated financials Independent Auditors Review Report 16 Condensed Consolidated Statement of Comprehensive Income 17 Condensed Consolidated Statement of Financial Position 18 Condensed Consolidated Statement of Changes in Equity 19 Condensed Consolidated Cash Flow Statement 20 Notes to the Financial Statements 21 Investors Glossary of Terms 43 The Observatory, Chatham cover 21,451 sqft on three floors mainly let to Secretary of State for Transport, Local Government and the Regions

3 1 Highlights Trading Operations Profit after tax 5.9m March 2010: 4.3m Total Portfolio at Market Values 565.7m September 2010: 573.5m Total loss after tax 12.3m March 2010: profit of 18.0m Net Assets 54.9m September 2010: 59.0m Trading Operations earnings per share 0.56p March 2010: 0.40p Net asset value per share 5.17p September 2010: 5.56p Total earnings per share a loss of 1.16p March 2010: profit of 1.69p EPRA net assets per share 7.26p September 2010: 8.67p Declared interim dividend per share 0.32p March 2010: 0.32p Other Highlights Portfolio s Weighted Average Unexpired Lease Term 8.7 years (September 2010: 9.1 years) Indexation of rent roll 63% (September 2010: 63%) Portfolio s occupancy rate 96% (September 2010: 96%) Ongoing VBG2 facility negotiations

4 Wichford P.L.C. 2 At a Glance Wichford owns 83 properties with a wide geographical spread across the UK and other major European countries. During the six months under review, the Company acquired two properties. Core Portfolio Active Portfolio Continental Europe The Company s occupiers are principally Government and Central State bodies Occupancy rate of 96% Annualised rental income of 45.5 million 63% of rent subject to indexation or fixed increases Weighted average unexpired lease term ( WAULT ) of 8.7 years

5 3 Chairman s Statement It has been a challenging but productive period during which a strategic review was completed and the terms of a potential merger (the Merger ) with the Company s largest shareholder, Redefine International plc ( Redefine ) were announced on 23 March Further details related to the Merger are contained below and in the Business Review. Your Company has seen continued solid trading performance in the first half of the year, albeit the current UK Government fiscal policy and budgetary constraints pose challenges to occupier and investor demand in regional office markets going forward. Financial & Operating Highlights Trading Operations earnings per share of 0.56 pence reflect a 40.0% increase on the same period last year. Occupancy remained broadly unchanged although increased vacancy is anticipated in the second half of this financial year. Rental income was supported by the acquisitions made in 2010 which offset the impact of the loss of income at Lyon House, Harrow where redevelopment and planning proposals have been progressed. EPRA net asset value per share decreased 16.3% to 7.26 pence (September pence), principally due to lower property values. Headline net assets continue to reflect the significant negative fair value of interest rate swaps and the consolidation of the VBG negative net asset value position, further details of which are provided in the Financial Review. Capital values declined 2.3% reflecting limited demand for regional offices, particularly those with shorter lease lengths and concerns over re-letting. The current government regime requiring centralised approval for all new lease commitments has slowed decision making and is also anticipated to result in a general decline of average lease lengths in the portfolio in the near term. The impact of the Government s Comprehensive Spending Review ( CSR ) cannot yet be fully determined as cuts to departmental budgets and public sector jobs are still to be fully implemented. The occupational market remains challenging and competition amongst landlords with vacant space is placing pressure on terms for new leases. The Company does not have a significant exposure to lease breaks in the short term, though some increase in the overall vacancy level is anticipated as departments consolidate. We have however completed a number of lease renewals and extensions and remain confident that the Group s ability to provide cost effective accommodation will secure future occupancy in a number of cases. Strategic Review & Potential Merger Recognising the refinancing requirements that the Group has over the short-term, the Board has completed a thorough strategic review of the options available to the Company. These included, inter alia: an equity issuance to assist with the refinancing of the Delta and Gamma facilities which mature in October 2012; a CMBS restructuring facilitated through the servicer of the Windermere CMBS conduits; a liquidation strategy; de-leveraging through asset sales; a fundamental change in the management and structural arrangements of Wichford, and a merger with Redefine International plc coupled with a future capital raising. Although each of these strategies individually may have merit, and some could be pursued post merger, the Board of Wichford considers that the Merger would provide the strongest basis for progression with a supportive and well-capitalised major shareholder to facilitate the capital raising that may be required. It is anticipated that, subject to the satisfaction or waiver of all pre-conditions and obtaining all required regulatory and shareholder approvals or acceptances, the Merger could be announced under Rule 2.5 of the Takeover Code during the second quarter of 2011 and, if approved, completed during the third quarter of The Company remains in a takeover period as defined by the Takeover Code and this report contains additional disclosure requirements of the Takeover Panel. Further details of the Merger are contained within the Business Review. Dividend The Directors have resolved to pay an interim dividend of 0.32 pence per share. This dividend is covered 1.75 times by current Trading Operations earnings. The dividend is in line with the terms of the Merger which provide for an interim dividend of no less than 0.32 pence per share for the six month period ended 31 March 2011 to all Wichford shareholders on the shareholder register on the record date in advance of the Merger completing. Outlook The Board believes firmly that the Merger is in the best interests of the Company and therefore its shareholders and places the Company in a stronger position to secure new capital and a sustainable financing structure. This has been the key strategic priority for 2010/2011 and the Company will be focussed on satisfying the necessary conditions and obtaining approvals. It is anticipated that the circular calling for an extraordinary general meeting to approve the terms of the Merger will be circulated to shareholders during the second quarter of At the same time, we remain focussed on protecting occupancy and rental income in a challenging occupier market and look to reposition assets with better alternative uses. I look forward to reporting on further progress. Philippe de Nicolay Chairman 20 May 2011

6 4 Organisation Wichford P.L.C. is an Isle of Man registered property investment company. The principal activity of the Company and its subsidiaries is the generation of rental income and capital growth through investment in properties across the UK and Continental Europe which are occupied mainly by Central and State Government bodies. The Ordinary Shares of the Company were admitted to trading on AIM in August 2004 and subsequently moved to the Main Market of the London Stock Exchange in December The Company s investment policy is approved by shareholders and appears on the Company s website The following Shareholders have notified the Company that they are interested in 3% or more of the Company s issued share capital: Number of Percentage Number of Shareholders shares held held Redefine International plc 230,772, % Entities in association with the 139,505, % REAL Corporation Jersey and Southwood Holdings Ltd Rathbone Brothers Plc 58,974, % AXA S.A. and its group of companies 58,033, % Schroders Plc 48,863, % Legal and General Investment 43,213, % Management Ltd The Board currently consists of the Chairman and five non-executive directors all of whom are independent from the management team of the Company s Investment Adviser, Wichford Property Management Limited ( WPML ). The Group has no employees and the Directors manage the Group through the use of external service providers. WPML acts under an Investor Advisor s Agreement and manages the Group on a day-to-day basis. It coordinates the other external service providers. The administration of the Isle of Man companies in the Group is provided under a service contract with Simcocks Trust Limited. Included in this contract is the provision of the Company Secretary and associated services and advice. The UK portfolio of properties is managed by WPML and the Continental European properties are managed by local, professional service providers. The majority of the UK properties are owned through Isle of Man registered companies. The remaining UK properties are owned through companies registered in the BVI, Gibraltar, Jersey and the UK; all of these companies were purchased in order to acquire the underlying property owned by each. The Halle property in Germany is owned by a German limited partnership with the Group s ownership being held by Isle of Man registered companies. The VBG portfolio of properties in Germany is owned by German limited partnerships which are owned by German and Luxembourg companies. The Hague property in the Netherlands is owned by a company registered in the Netherlands.

7 5 Business Review 2010/2011 Priorities Objectives Progress Sustainable financing structure Strategic Review Protect future occupancy and rental income Reposition assets with better alternative uses Sale of underperforming assets Develop refinancing strategy ahead of key October 2012 debt maturities Analyse key options and select optional approach Detailed review of individual properties against the UK Government s long term occupational objectives and regional office markets Provide flexible rental agreements where necessary Reduce vacancy rates and irrecoverable costs Identify assets for conversion or redevelopment Progress Harrow planning application Sell assets with limited re-letting or redevelopment potential Seek opportunities for an orderly exit from Continental Europe Sale of smaller non-core assets Proposed Merger terms include a commitment from the Company s largest shareholder to support a capital raising on a fully pre-emptive basis to reduce the gearing ratio of the Enlarged Company Strategic review completed potential Merger with Redefine announced on 23 March 2011 New lease completed at Newington Causeway following a commitment to substantially enhance the Job Centre s existing office accommodation through refurbishment of existing services On-going extension and renewal of existing leases at Bristol, Crescent Centre Acquisition of Harrow, Equitable House to support the planning application of the existing Lyon Road site Continued progress in securing a social housing landlord for the affordable element of the Harrow scheme On-going detailed review of portfolio Surrender of Telford lease post 31 March 2011 for 5.0 million Marketing and exit strategy being developed The Company has had a busy period with the completion of the strategic review, negotiation of the terms of the Merger with Redefine as well as a continued focus on managing near term lease events and occupancy through re-letting, refurbishment and redevelopment initiatives. Earnings from Trading Operations continue to reflect sound income and cash generation. This was supported by investments completed in 2010, the management of operating costs and revenue growth from indexed-linked lease reviews over the past year. Results for the half year also contain a number of non-cash finance charges as a result of movements in interest rate derivatives and accruals for costs associated with the strategic review. Further details are contained within the Financial Review. EPRA net asset value per share declined to 7.26 pence (September 2010: 8.67 pence) as a result of a decline in valuation on a like for like basis of the property portfolio of 2.3%. Lower capital values reflect uncertainty over occupier and investor demand and a near-term trend of declining lease lengths. The Company continues to hold substantial cash reserves of 40.7 million as at 31 March Strategic Priorities for 2010/2011 A number of priorities were set out at the time of the last Annual Report. The table above shows the progress made in the first six months of the financial year on these priorities. Potential Merger of Wichford and Redefine As previously announced the boards of Wichford and Redefine have reached an in principle understanding regarding a potential combination of the two companies. An overview of the proposed terms and rationale for the Merger are described below. Shareholders are directed to the rule 2.4 announcement available on the Wichford website ( for further details.

8 6 Business Review continued Strategic Rationale The Merger would create an enlarged, income-focused property company (the Enlarged Company ) with a large, well diversified investment property portfolio, listed on the main market of the London Stock Exchange. The Enlarged Company would have an improved capital structure, benefiting from Redefine s attractive long term debt facilities, as well as a commitment from the Enlarged Company s largest shareholder Redefine Properties International Limited ( Redefine Properties International), which is listed on the Johannesburg Stock Exchange ( JSE ), and its parent Redefine Properties Limited ( Redefine Properties ) to support a fully pre-emptive capital raising in the future. In particular, the Board of Wichford believes that the Merger represents a clear and strong complementary fit, creating a company in the mid-tier of the UK listed property sector with: good growth prospects, an improved capital structure and better access to capital; complementary income focused portfolios, diversified by geography, asset and tenant type; an enlarged shareholder base which may enhance trading liquidity for shares in the Enlarged Company; and potential for reduced combined expenses as a result of the elimination of certain public company costs. Financial Terms & Ownership Wichford is expected to make an all share offer for the entire issued and to be issued share capital of Redefine at an exchange ratio of 7.2 Wichford shares for every Redefine share. On completion of the Merger and based on the existing number of Redefine shares in issue at the time of the announcement, existing Redefine shareholders would hold approximately 79 per cent. of the issued shares of the Enlarged Company. Existing Wichford shareholders (other than Redefine as a shareholder in Wichford) would hold approximately 21 per cent. of the issued shares of the Enlarged Company. Redefine Properties International Limited would become the majority shareholder in the Enlarged Company with a shareholding of approximately 65 per cent. Redefine Properties International is approximately 57 per cent. owned by Redefine Properties, which is also listed on the JSE and currently has a market capitalisation of R19.6 billion (approximately 1.7 billion). Further information about Redefine is available on Redefine s website at Capital Commitment It is expected that the Enlarged Company would, in due course, seek to raise equity capital on a fully pre-emptive basis to reduce the gearing ratio of the Enlarged Company and to assist, inter alia, with the refinancing of Wichford s existing debt maturities in October It is currently expected that the preferred route for a Capital Raising would involve issuing new equity at a tight discount, on a fully pre-emptive basis. As part of the Merger it is expected that Redefine Properties International, with the support of its parent company, Redefine Properties, will agree that it would subscribe to at least its pro rata share of any Capital Raising (as may be agreed by the Board of the Enlarged Company and undertaken prior to 31 October 2012) of up to 100 million of gross proceeds. Based on the undiluted issued share capital on 22 March 2011, Redefine Properties International s pro forma shareholding in the Enlarged Company would be approximately 64 per cent. Corporate Structure, Management Team and Board of Directors The Enlarged Company would continue to be managed by Wichford Property Management Limited. It is expected that, following the completion of the Merger, the Board of the Enlarged Company would conduct a review of the management and tax structure of the Enlarged Company. It is proposed that, immediately following the Merger, the Board of the Enlarged Company will consist of nine directors including: four former Wichford non-executive directors, one of whom will be the Chairman of the Enlarged Company; two former Redefine independent non-executive directors; one new non-executive director; one non-executive director appointed by Redefine Properties International; and one executive director of Wichford Property Management Limited, which is 76 per cent. owned by Redefine Properties. Our Business Wichford s predominantly Central and State Government tenants provide the Company with a secure rental income stream and a historically low vacancy rate. Many of the Company s UK tenants provide core government functions with associated public interfaces such as Job Centres, Courts and HMRC functions, many of which have local occupation obligations. The Group s strategy to incorporate inflation related rental increases into leases has resulted in 63% of rental income being linked to either CPI, RPI or in a small number of cases fixed increases. Economic Overview Private sector employment growth continues to offset public sector job cuts so that general measures of unemployment have been broadly flat. Further announcements on public sector cuts are likely to place increasing pressure on local economies that are highly dependent on public sector employment. Inflation remains high although both headline and core rates dropped back in March helping to maintain the current low interest rate environment. Longer term interest rates remain attractive and securing or extending existing facilities in the current interest rate environment remains a priority.

9 7 Key Performance Indicators ( KPIs ) In order to drive cash flow growth and protect income security Wichford uses the following KPIs to monitor performance: KPI Occupancy 96% 99% 96% WAULT 8.7 years 8.0 years 9.1 years Indexation 63% 62% 63% Indexation and occupancy remained broadly unchanged during the period. Above average inflation continues to provide rental growth on tenancies subject to either CPI or RPI escalation clauses (see Asset Management on page 8). The average unexpired lease length in the portfolio decreased due to the passage of time. Measures to extend lease lengths have been delayed recently mainly due to the government s current stance on new or extended lease commitments. Notwithstanding this, asset management initiatives achieved the completion of a new lease to Trillium at Newington Causeway, retaining the existing Job Centre in occupation. The UK Government s Comprehensive Spending Review While it is still too early to gauge the full impact of the UK Government s budgetary cuts there has been a noticeable change in government tenants approach to renewals and key lease events, with central approval of business cases now being necessary. Despite this, the Company continues to achieve new leases and lease extensions, particularly for existing tenants where continued occupation provides attractive rental terms and avoids considerable relocation costs. However, the UK Government s focus on reducing the public deficit together with excess supply of secondary office space in a number of regional office markets presents a challenging operational environment. Adapting to Change The Company has previously identified the need to meet the challenges of the existing market by seeking opportunities to convert certain properties to more profitable alternative uses, and ensuring new investment is directed into assets that reflect the current and future requirements of government and other occupiers. Portfolio The portfolio remained broadly unchanged in the six months to March The acquisition of the DSA test centre in Dundee was completed following practical completion of the development works in November The purchase of Equitable House, Harrow has enabled the Company to take control of the entire site at Lyon Road, Harrow which will support the proposed planning application. The number of properties in the portfolio increased to 83 (September 2010: 81) following these two acquisitions. Continental UK Core UK Active UK European Portfolio Statistics Properties Properties Portfolio Portfolio Total Properties Area (sq ft 000 s) 1,783 1,035 2,818 1,000 3,818 Property values ( m) % of total Net initial yield (%) Annualised rental income ( 000 s) 22,018 12,005 34,023 11,445 45,468 Average rent per sq ft ( ) WAULT (years) Indexed-linked and fixed increases (%) Note: Initial yields and rents for the Continental European portfolio reflect gross rents before deductions for irrecoverable costs.

10 8 Business Review continued Valuation The overall portfolio value decreased 2.3% on a like-for-like basis. The UK Portfolio reduction of 3.5% resulted from two predominant factors; the anticipated impact of the Comprehensive Spending Review on the regional office market and an increased sensitivity to properties with shorter lease lengths. Asset Management Lettings & Lease Extensions Vacancy remained broadly unchanged at 3.8% (September 2010: 3.7%) which includes 99,527 sq ft of space at Lyon House, Harrow which is subject to a proposed planning application and not available to let. Vacancy as at 31 March 2011 excluding Lyon House stood at 1.2% (September 2010: 1.0%). Values in Continental Europe decreased by 0.7% in local currency terms, however a stronger Euro during the period resulted in an increase of 1.4% in Sterling terms. An indexed-linked rent review triggered a 7.3% increase in passing rent at Berlin which, in turn, supported a 2.4% valuation increase. Although yields remained relatively constant, declining unexpired terms continue to negatively impact the overall valuation. Movement Value as at From 31 March Proportion 30 Sept 2011 of Portfolio 2010 Movement Portfolio Valuations m % m % UK Core Properties % (8.5) (2.8)% UK Active Properties % (6.7) (4.9)% UK Portfolio % (15.2) (3.5)% Continental European Portfolio % % Total properties held throughout the period % (13.3) (2.3)% Acquisitions % % Total Portfolio % 12.8 (2.2)% Notes: 1) The like-for-like analysis re-classifies properties in prior periods as Core or Active dependent on their current classification 2) The movement in new acquisitions reflects an increase in value against the purchase price before certain transaction costs from their date of acquisition 3) Like-for-like movements exclude the movement on capitalised items on the consolidated statement of financial position. Measuring Performance The UK and Continental European Portfolio s total return for all benchmarked assets as measured by IPD was 0.1% and 5.5% respectively. By comparison the IPD benchmark (UK monthly and quarterly valued offices) produced a total return of 5.8% over the same six month period to 31 March The stronger benchmark performance was largely attributable to the City and West End office sectors of the benchmark (to which Wichford has no exposure) which produced a total return of 10.5% and 8.3% respectively for the same period. The other sector components of the benchmark, Rest of South East and Rest of UK, produced total returns of 2.4% and 0.8% respectively. A new lease to Trillium was completed in December 2010 following agreement to substantially refurbish the existing services at London, Newington Causeway while maintaining the existing Job Centre in occupation. The new 13 year lease with a break option in 2018 has a commencing rent of 315,000 p.a. Rent Reviews The following rent reviews were settled or are in the process of being agreed: Newcastle fixed uplift in December 2010 from 110,381 p.a. to 113,140 p.a. reflecting an annual fixed 2.5% p.a. increase Grays CPI rent review increase from 145,480 p.a. to 155,842 p.a. representing a 7.1% uplift in passing rent St Asaph stepped rent provision increased passing rent from 457,442 p.a. to 505,238 p.a. reflecting a 10.4% increase Paisley - CPI rent review with anticipated increase from 195,000 p.a. to 210,600 p.a. representing a 8.0% increase in passing rent Aberdeen, Lord Cullen House open market rent review agreed at an uplift of 6.6% from 478,250 p.a. to 510,000 p.a. The Hague annual Dutch CPI uplift from 2,153,050 p.a. to 2,185,234 p.a. agreed representing a 1.5% increase Berlin German CPI uplift from 1,339,131 p.a. to 1,437,531 p.a. reflecting a 7.3% increase Expiry Profile Wichford s near term expiry profile reflects a relatively small exposure to lease break options and expiries over the next three years. No more than 3.3% of the Company s total rent roll has a break or expiry in any one year for the next three years. Five Year Expiry Profile UK m Europe m Note: all expiries are taken to the earlier of any tenant break option or lease expiry

11 9 The Group s UK Portfolio is predominately occupied by Central Government bodies, many of which are core services and/or public facing The UK Portfolio has limited exposure to quangos and none have been identified for closure A significant portion of the UK Portfolio (% by UK rent roll) falls under the Trillium PRIME and Mapeley contracts, neither of which are directly subject to the moratorium on new or extended leases Occupier Profile Rent ( m) Passing rent % Job C + DWP 30% 10.3 HMRC 17% 5.9 DWP 5% 1.7 Home Office 5% 1.7 Ministry of Defence 5% 1.6 Development Opportunities The Company has made further progress on planning and redevelopment proposals for the proposed residential-led mixed-use scheme at Lyon Road, Harrow. The acquisition of Equitable House will enable a comprehensive planning application across both sites. Discussions to secure a Registered Social Landlord ( RSL ) for the affordable housing element of the scheme are progressing in line with management s expectations. A planning application is expected to be submitted within this financial year. Acquisitions Two acquisitions were completed during the period. The DSA driving test centre in Dundee was acquired through a pre-let forwarding funding agreement with the developer. The property is occupied by the DSA and let to the Secretary of State for Communities and Local Government until November 2050 with break dates in November 2025 and every five years thereafter. The acquisition provides long-dated inflation-linked income returns with five yearly rent reviews linked to RPI. Police 4% 1.2 UKPS 3% 1.1 Highways Agency 3% 1.0 Environment Agency 2% 0.8 Child Support Agency 2% 0.8 Summary of 2010/2011 Acquisitions Tenant/ Cost Net Initial Property Occupier m Yield Dundee, DSA DSA % Harrow, Equitable House Vacant possession 3.05 n/a Total Acquisitions 5.16 Capitalised Costs 0.78 Total Capital Expenditure 5.94 Continental European Portfolio The Company has reviewed a number of options in relation to the VBG1 and VBG2 portfolios as well as the overall Continental European Portfolio. It is anticipated that these will be progressed further once the Company is outside of a takeover period. As highlighted in the last Annual Report, the Continental European Portfolio continues to produce positive earnings for the Group despite the negative net asset value position associated with the VBG properties. The options available to the Company will be reviewed in light of the assets current and potential future contribution to Group profits, opportunities to recycle capital back into the UK market and the potential capital requirements associated with refinancing the VBG and other European funding facilities. The non-recourse nature of the Group s Continental European investments provides the Company with a wide range of options. Looking Forward The Company completed its strategic review and subsequently announced on 23 March 2011 the potential merger with Redefine. The strategic review was a key priority for 2010/11 and the Board of Wichford believes the Enlarged Company will create a diversified, income-producing property portfolio that benefits from a significant capital commitment from its largest shareholder. The Enlarged Company will be in a stronger position to support Wichford s strategic priorities and the Merger represents a clear and strong complimentary fit, creating a company in the mid-tier of the UK listed property sector (see Chairman s Statement on page 3 for more detail on the Strategic Review). The recently approved change to the Company s Investment Policy enabled the acquisition of the site adjacent to Lyon House, Harrow. This is expected to enhance the proposed planning application for the Harrow redevelopment and secure potential marriage value between the two sites. The site was acquired with vacant possession, with the Company now controlling the entire site subject to the proposed planning application.

12 10 Business Review continued Risks & Opportunities The Group is subject to a variety of risk factors arising from the overall economic environment, supply and demand within the real estate investment and capital markets, complex regulatory and legislative environments, financial risks as well as the Group s own properties, tenants and suppliers. The principal risks to the Group are managed and controlled in the following way: Key Risks Management Actions in 2010/2011 Market risk Investment risk Financial Risks Interest rate risk Financing requirements Exchange rate risk Tax risk Regulatory risk The Group consistently monitors economic, investment and capital market conditions The Group manages the investment process by thoroughly evaluating each acquisition introduced to it by the Investment Adviser or others Interest rate exposure is managed by having debt with fixed or capped interest rates through the use of interest rate derivatives Bank borrowings are secured by fixed and floating charges over the assets and income streams of the Company and the Group. The principal covenants relating to these borrowings are interest cover ratios. The majority of the Group s facilities do not have on-going loan to value covenants The Group is exposed to foreign exchange rate movements through its investments in Continental Europe Debt funding for all Continental European investments is taken out in local currency to match revenue streams and financing costs and minimise exposure to foreign exchange rate movements Independent and regular tax advice is sought on property transactions as well as the Group s overall structure The Group manages these risks by appointing managers, administrators and advisers, who are familiar with regulatory requirements, to ensure that the activities of the Group are compliant with all applicable regulations The Group is involved in on-going discussions with lending banks and institutions in connection with pending maturities A revised Investment Policy was adopted at the AGM in January 2011 which enabled the acquisition of Harrow, Equitable House As at 31 March 2011 the majority of the Group s loans (except for VBG1) were at effective fixed rates after taking account of interest rate swaps. The VBG1 facility benefits from interest rate caps at 2.50% As of 15 April 2011, the swap associated with the VBG2 facility matured, leaving the facility on a floating rate (currently lower than the previous fixed rate) A standstill agreement is in place for the VBG2 facility while negotiations are progressing with the loan servicer All foreign exchange derivatives were closed in 2010 no further foreign exchange derivatives have been taken out The review of the Group structure is still continuing with KPMG A review of procedures is being undertaken in light of the guidance given on the UK Bribery Act 2010 Further commentary on Financial Risk Management is contained in note 16 on page 36.

13 11 Financial Review The Group s financial results benefited from a stronger investment market in the UK and strong underlying earnings from Trading Operations. Total profits and earnings per share from Trading Operations were up year on year. Income Statement and Earnings Per Share Basic earnings per share from Trading Operations were 0.56 pence (March 2010: 0.40 pence; September 2010: 0.90 pence), up 1.6 million or 37.2% on the March 2010 results, showing resilient underlying earnings strength. A 16.7 million revaluation loss on investment properties (March 2010: a gain of 14.2 million; September 2010: a gain of 10.1 million) led to an overall loss of 12.3 million (March 2010: a profit of 18.0 million). Basic earnings per share for the six months to 31 March 2011 was a loss of 1.16 pence per share. Revenue Revenue for the period was 23.0 million, an increase from the period to March 2010 of 1.1 million. There have been a number of successful rent reviews within the last 12 months; those relating to the current period are detailed in the Asset Management section of the Business Review on page 8. Administrative Expenses Administrative expenses include the cost to the Group of refurbishments required to attract new tenants to vacant space. This has contributed to the slight increase in these costs since March The Group is continuing to benefit from the actions taken in the previous financial year to reduce costs in the areas of audit services and offshore administration. Other costs have increased and these are now being addressed; this includes a provision in regard to the strategic review and other non-recurring items. Administrative expenses included a release of the accrual of 0.4 million (March 2010: nil: September 2010: 0.4 million) for performance fees to the Investment Adviser which was made in the previous financial year. This was deemed to be a share-based payment scheme granted to the Investment Adviser which was recognised as an expense, with the corresponding increase in equity, over the period the Investment Adviser becomes entitled to the awards. It is currently believed that no new shares will be issued under this scheme and as such, these performance fees accruals are no longer required. Net Finance Costs Finance costs under Trading Operations were down 0.8 million from the same period last year resulting from lower interest charges following the extension of the Zeta and VBG1 facilities at lower prevailing interest rates as well as lower borrowing levels following the periodic repayment of part of the Hague and VBG loans. Taxation The tax charge consists of an expense of 0.3 million for current taxation. This is mainly from the Non Resident Landlord scheme operated by HMRC and for which the Group has an agreement to the method to calculate this liability until the maturity of the current UK facilities. There is also a 0.8 million charge to profit and loss for deferred tax resulting from the timing differences in how the Group will recover its original investment in investment properties. However, if the assets had been sold at the end of the reporting period at 31 March 2011 the tax liability would have been 0.1 million. Dividend The Directors have declared an interim dividend of 0.32 pence per share. The dividend cover ratio for the period based on earnings from Trading Operations is 1.75 times. Statement of Financial Position & Net Asset Value The Group net assets were 54.9 million down from 59.0 million at 30 September The key factors behind this were revaluation losses of 16.7 million, dividend payments of 3.5 million which were partly offset by a fall in the derivative financial liabilities of 11.8 million. Net asset value per share was 5.17 pence down from 5.56 pence at 30 September 2010.

14 12 Financial Review continued Cashflow As at 31 March the Group had 40.7 million (March 2010: 60.5 million; September 2010: 41.7 million) of cash and equivalents. Of this only 0.2 million was not available to the Group after the payment of interest and loan repayments made in April The Group generated 9.5 million from its operating activities and acquired two further properties which, together with capitalised costs, totalled 5.9 million. During the six months to 31 March 2011 the Group repaid a total of 1.1 million in loans from the regular quarterly repayments scheduled under the VBG and Hague facilities. The final dividend for the year to September 2010, as approved by shareholders at the Annual General Meeting, of 3.5 million was paid in the period. The overall result was that the Group s cash balances declined by 1.0 million during the six months to 31 March Financing and Capital Securing a sustainable financing structure remains a strategic priority for 2010/2011. The recent strategic review and resulting proposed merger (which benefits from a substantial capital commitment from the largest shareholder) are significant steps forward in this process. The Company has started discussions with a number of lending institutions in advance of its October 2012 maturities. A leading UK bank has been appointed as the Company s agent and will, together with the Company, assess a wide range of options for new funding including longer term fixed rate financing. The current interest rate environment provides an opportunity to secure longer-term rates at attractive levels. Early refinancing options will be considered to provide security over the Company s future interest costs and capital structure. Negotiations around the VBG2 facility continue following the maturity date in April The VBG2 borrowing entities have signed a standstill agreement with the facility servicer in order to continue negotiations around restructuring the facility. Both parties are actively working towards a mutually beneficial solution although there can be no certainty as to the outcome. The Company has noted its intention to provide an orderly exit from Europe and that the non-recourse nature of the Group s Continental European assets, including the VBG portfolio, provides a wide range of options at the Group s disposal. The weighted average cost of debt as at 31 March 2011 (including VBG1 taken at the relevant three month Euribor rate) is 5.02% (September 2010: 5.00%). Interest Interest Cover Cover LTV Debt Ratio Covenant LTV Covenant Facility Lender Maturity m % % % % Delta Windermere XI CMBS October n/a Gamma Windermere VIII CMBS October n/a Hague SNS Property Finance July n/a n/a Halle Windermere XIV CMBS April n/a VBG1 Talisman 3 January n/a 2 VBG2 Talisman 4 April n/a 3 Zeta Lloyds TSB May % Total Notes: 1) ICR equivalent covenant waived following increased funding charges 2) Previous LTV covenant of 85% waived for the extended maturity period 3) Previous LTV covenant of 86% waived.

15 13 Hedging The Group uses interest rate swaps and interest rate caps to limit its exposure to interest rate movements. For facilities to which interest rate swaps are attached the interest rates are fixed for the duration of the facility. This is the case for all the Group s facilities except VBG1. For this facility the Group has interest rate caps which limit the exposure to upward movements while allowing the Group to take advantage of falls in interest rates. These interest rate caps are not designated as cash flow hedges and any changes in their fair value will be taken to profit and loss rather than through other comprehensive income. Management Commentary In December 2010 the International Accounting Standards Board ( IASB ) issued an IFRS Practice Statement entitled Management Commentary to provide a broad framework for a management commentary that relates to financial statements prepared in accordance with IFRSs, as Wichford does. The Practice Statement is not an IFRS and companies applying IFRSs are not required to comply with it. In order to maintain its high standard of reporting the Company has decided to comply with this Practice Statement and the Organisation, Business Review and Financial Review pages form the Company s Management Commentary. The current interest rate swap for the Zeta facility is also not designated a cash flow hedge and any changes in its fair value will be taken to profit and loss rather than through other comprehensive income. For the interest rate swaps cancelled in the previous financial year the fair value previously taken to equity is being transferred to profit and loss over their original remaining life to maturity. Exchange Rates The average Euro to Sterling exchange rate for the six months to 31 March 2011 was (March 2010: ; September 2010: ). The closing Euro to Sterling exchange rate at 31 March 2011 was (March 2010: ; September 2010: ). Going concern After considering the relevant factors, the Directors have a reasonable expectation that the Company has adequate resources to continue in operation for the foreseeable future. They have, therefore, adopted the Going Concern basis in preparing these financial statements. Details of the factors considered can be found in Note 1 Basis of Preparation of the Financial Statements on page 21.

16 14 Ten Largest Investments 1. Justizzentrum, Halle, Germany Valuation: 33.7 million Freehold courts and offices built in 1997 and totalling 34,689 sq m Let to Land Sachsen-Anhalt until June 2020 Current rent 2.9 million p.a. German CPI indexation 6. Castle House, Leeds Valuation: 20.0 million Leasehold 1980s built office of 7,281 sq m Let to Secretary of State for the Environment until 2023 Current rent 1.2 million p.a. UK RPI indexation 2. Weiner Platz, Dresden, Germany Valuation: 31.3 million Freehold 2004 built office of 17,449 sq m Let to VBG Verwaltungs-Berufsgenossenschaft until April 2024 Current rent 2.4 million p.a. German CPI indexation 7. Markgraffenstrasse, Berlin, Germany Valuation: 16.3 million Freehold 2005 built office of 2,025 sq m Let to VBG Verwaltungs-Berufsgenossenschaft until December 2022 Current rent 1.3 million p.a. German CPI indexation 3. Centenary Court, Bradford Valuation: 27.8 million Freehold 1990s built office of 9,743 sq m Occupied by HMRC until April 2027 with a break in 2021 Current rent 2.0 million p.a. UK RPI indexation 8. Woodlands, Bedford Valuation: 15.6 million Freehold 1985 built office of 10,416 sq m Majority occupied by Highways Agency until August 2020 Current rent 1.4 million p.a. Fixed uplift at rent review 4. Martin Luther Strasse, Stuttgart, Germany Valuation: 25.7 million Freehold 2005 built office of 12,455 sq m Let to VBG Verwaltungs-Berufsgenossenschaft until January 2025 Current rent 2.1 million p.a. German CPI indexation 9. Crescent Centre, Bristol Valuation: 13.6 million Freehold 1970s built office of 8,180 sq m Majority occupied by HMRC until 2023 with a break in 2021 Current rent 1.2 million p.a. 5. Haagse Veste1, The Hague, The Netherlands Valuation: 20.3 million Freehold 2008 built office of 12,878 sq m Let to the Royal Dutch Government for use by the International Criminal Court for a term of six years from July 2008 with a tenant s option to extend for a further four years. Initial rent of 1.9 million p.a. Dutch CPI indexation 10. Unicorn House, Bromley Valuation: 13.4 million Freehold 1980s built office of 5,365 sq m Let to the Secretary of State for the Environment until 2010 and then to Trillium PRIME until March 2022 with a break in 2018 Current rent 1.2 million p.a.

17 15 Statement of Directors Responsibilities in respect of the half-yearly financial report Each of the Directors confirms that to the best of each person s knowledge and belief: a) the condensed consolidated interim financial statements comprising the condensed consolidated statement of comprehensive income, the condensed consolidated statement of financial position, the condensed consolidated statement of changes in equity, the condensed consolidated statement of cash flows and related notes have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. b) The interim management commentary includes a fair review of the information required by: i. DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; ii. DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during the period; and any changes in the related party transactions described in the last annual report that could do so. The Board of Directors 20 May 2011

18 16 Independent Auditors Review Report to Wichford P.L.C. We have been engaged to review the condensed set of financial statements in the half-yearly financial report of Wichford P.L.C. for the six months ended 31 March 2011 which comprise the condensed consolidated statement of financial position, the condensed consolidated statement of comprehensive income, the condensed consolidated cash flow statement, the condensed consolidated statement of changes in equity and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. This report is made solely to the Company in accordance with our engagement letter to assist the Company in meeting the requirements of the Disclosure and Transparency Rules ( the DTR ) of the UK s Financial Services Authority ( the FSA ). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached. Directors Responsibilities The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the FSA. As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the EU. The Directors are responsible for ensuring that the condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. Our Responsibility Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. Scope of Review We conducted our review in accordance with the International Standards on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly report for the six months ended 31 March 2011 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FSA. KPMG Chartered Accountants Registered Auditor Dublin, Ireland 20 May 2011