Urban&Civic : Preliminary results

Urban&Civic plc

("Urban&Civic", the "Company" or the "Group")

OPENING RESULTS OF THE ENLARGED GROUP FOR THE PERIOD TO 30 SEPTEMBER 2014

Urban&Civic plc (LSE: UANC) announces its unaudited results for the period to 30 September 2014.  This marks the first set of results for the enlarged Group since the completion of the integration of the Terrace Hill Group plc and Urban&Civic Holdings S.à.r.l. on 22 May 2014 and associated capital raise.  The opening numbers reported today for the enlarged Group comprise the results for Urban&Civic for the nine months to 30 September 2014 and the results for Terrace Hill from the date of acquisition on 22 May 2014 through to 30 September 2014. 

Highlights

·     Strong start by Urban&Civic, marking the successful return of Nigel Hugill and Robin Butler to the public arena after the £170 million capital raise in May.  Intended profile of the business fully clear: a capacity to lock in balance sheet optionality through early stage project identification, combined with consistent subsequent cash realisations.

·     September 2014 EPRA Net Asset Value of £350.8 million, or the equivalent of 250p per share, representing a wholly ungeared 8.3 per cent increase over adjusted May 2014 pro forma of £323.8 million, (231p per share).

·     The valuation of the Group's largest single asset, the consented urban extension at Alconbury in Cambridgeshire, has now increased 58 per cent over the past 12 months.  Appraised value still only £15,400 per unserviced plot, which stands highly favourable comparison with East of England averages.

·     Substantial new optionality secured since May from an intended 6,500 new homes in Waterbeach, on the outskirts of Cambridge, and the announcement today of the acquisition of 800,000 sq. ft. of consented space on two sites requiring reconfiguration in Manchester's prime core bounded by the inner ring road. 

·     Manchester sites being acquired from Morgan Stanley Real Estate Funds for a total of £22.45 million constitute 3 acres for development with estimated current outturn value of £300 million. Preliminary designs are for phased construction between 2017-2021 of residential, student and new hotels in 8 separate buildings. Operating income to Group from existing Marriott until November 2017. 

·     Cambridge and Manchester are arguably the strongest two provincial UK markets: projects afford phased and progressive exposure at a combined total entry cost of approximately £23 million.

·     South East market buoyancy enabled higher and faster Terrace Hill sales than anticipated on May listing.  Accordingly, cash balances of £163 million held at the period end, afford continuing financial capacity to execute business plan.  Large foodstore starts in 2014 at Middlesbrough and scheduled early 2015 for Herne Bay, along with first plot realisations at Alconbury, look set to underwrite strong operating cash flow in the forthcoming financial year.

·     Working relations already fully integrated across two experienced management teams.  Ministerial clearance last week for 133,000 sq. ft. foodstore and industrial start up in Herne Bay, Kent (previously dogged by planning delays), and recent £5 million Building Foundations for Growth Funding grant to accelerate commercial construction at Alconbury, provide early testament to the combined strength of abilities in the enlarged group.

Immediate Commencement of Dividend Payments

Given all round progress and incremental project receipts, the Board recommends immediate commencement of dividend payments.  Final proposed dividend of 1.5p for 2014 (and what would have been 2.5p for the full year) satisfies the longstanding promise made by Terrace Hill to return to the dividend list and is 12 months ahead and above indications made in May.

Commenting on the results, Nigel Hugill, the Executive Chairman of Urban&Civic, said:

"I could not be happier with the start made by Urban&Civic since coming to market in May.  The figures are operationally strong and the profile of the balance sheet provides clear demonstration of what we were looking to achieve in establishing the business almost precisely five years ago.  Above 8.3 per cent wholly unleveraged growth in Group NAV since listing and a 58 per cent increase over the past 12 months in the valuation of what is currently our largest single asset at Alconbury recognises the extent of existing optionality.  Even after accounting for this uplift, the appraised value at Alconbury equates to £15,400 per unserviced plot, which stands highly favourable comparison with East of England averages.

"The combination with Terrace Hill has proved seamless and has helped accelerate progress across all fronts. Industry experience in working through cycles teaches the importance of delivery and balance, as well as recognising one's limitations: teaming up with Philip Leech and colleagues has helped address all three.  Continued market buoyancy in the South East has enabled faster sales at better prices on Terrace Hill commercial assets than we had anticipated when coming to market. Partly as consequence, cash balances of £163 million at the period end amounted to approaching half of Group NAV, which only serves to underline the extent of underlying asset potential.

"We are investing those funds into strategic infrastructure at Alconbury and Rugby, whilst judiciously building further optionality into all areas of the business.  Cambridge and Manchester are on the wish lists of most fund managers at the moment and our judgement is that there is still some way to go in both local economies.  We have been able to add an intended 6,500 new homes at Waterbeach, which is only a ten minute cycle ride from Cambridge Science Park, and 800,000 sq. ft. of residential, hotel and student accommodation for reworking in the very centre of Manchester.  The combined entry cost for that level of initial exposure will be of the order of £23 million.  Meanwhile, the recent positive decision at Herne Bay was clear testament to the skills and proven track record of our expert staff: subsequent monetisation will give further sturdy support to next year's cash flow.  All in all, it represents a really strong start.  The Board wants to recognise that start in recommending the commencement of dividend payments 12 months earlier and from a higher base than anticipated on listing."

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CHAIRMAN'S STATEMENT AND OPERATING REVIEW

Introduction

It is with genuine pleasure and no little pride that I am able to introduce the first results of Urban&Civic as a listed company, following incorporation of the Terrace Hill Group, which was completed in May 2014.  The combination has enabled a focus on strategic residential holdings in well connected locations in South East England and in identified food, leisure and student opportunities across the country.

The enlarged Group has adopted 30 September as its financial year end.  The opening numbers that we are reporting today comprise the results for the original Urban&Civic operations for the nine months to 30 September 2014 and the results of Terrace Hill from the date of acquisition on 22 May 2014 through to 30 September 2014.

Integration

Urban&Civic was founded as a private company almost precisely five years ago in anticipation of what appeared to us a clear likelihood that building sufficient homes in structurally pressurised local markets would require new urban extensions to be incorporated and supported.  Equally, three decades in the industry has taught us the importance of delivery and balance.  As such, we had two clear objectives in teaming up with Philip Leech and his colleagues to form the enlarged business.  First, the introduction of well-honed and industry respected construction capability that has stood the test across a remarkable project range.  From major West End offices to small football grounds, there is little that Terrace Hill has not built - and always to a budget.  Second, was to utilise Terrace Hill's established regional network to take advantage of improving UK provincial economies.  

The integration of the two companies could not be working better.  We are already seeing the benefits of the combined expertise, as we leverage our nationwide presence and established relationships in winning new mandates, progressing existing sites, and delivering dividend, not just for shareholders, but also for the local communities in which we work.  Listing proceeds and early realisations provide the financial capacity to act upon our instincts based upon first-hand experience of previous development cycles in recovering provincial economies. The announcement today of the acquisition of two sites aggregating almost 3 acres within the prime core formed by the inner ring road in Manchester shows how the model is being extended to take advantage of the capabilities of the enlarged Group.  

Recent selection by the Ministry of Defence to bring forward development on the former Barracks for the Royal Engineers at Waterbeach, also represented a big win, secured as it was against an impressive group of contenders.  Waterbeach was one of four identified key brownfield sites released collectively by the Military.  Urban&Civic was conspicuously the smallest of the shortlisted candidates (several of whom sought also to broaden their skill base by bidding in joint venture) across all four sites, yet the first to be selected.  The opportunity constitutes the Cambridge equivalent of having the chance to develop a material proportion of Hampstead, 3 miles from Tech City on the Old Street EC2 Silicon Roundabout.  The outcome is further demonstration of a proven ability to punch hard from a middleweight frame. 

Similarly, at Herne Bay in Kent, where the planning journey for a new 100,000 sq. ft. foodstore pre-let to Sainsbury's and 33,000 sq. ft. of starter and small business units had proved protracted and rather punctuated by false dawns.  Redoubled efforts from a joint team secured what will prove a highly positive outcome for the Group.  The final hurdle was cleared, only last week, when formal confirmation to proceed was received from the Department of Communities and Local Government.  Throughout all the delays, the singular feature has been the sustained support for the proposals from town councillors and the local community.  Even to the point of holding a public meeting ahead of the planning committee meeting as a show of unity.

A Business Defined by our Projects

The defining characteristics of Urban&Civic are squarely project based.  The spread of operations already spans from neighbourhood town to nationally significant, each identified with the clear intention of locking in balance sheet optionality, combined with the ability for consistent realisations.  We look to harness project capability to grow retained rental income and to realise cash profits on developments where the achieved yields best enable reinvestment back into the business and distributions to shareholders.

Significant further strides have been taken since coming to the market in May.  Early realisations from the Terrace Hill portfolio, and at good prices, have added to the financial capacity of the Group, assisting the judicious building of further optionality into all areas of the business.  Urban&Civic now owns or has under contract major development sites at Alconbury, Rugby and Waterbeach near Cambridge, which promise to be three of the most substantial additions to the national housing stock over the next 15 years.  The reasonable expectation is for 20,000 new homes from these locations alone but with peak capital servicing requirements that remain well within the Group's existing capabilities.  The extant consents on the sites being acquired in Manchester aggregate 800,000 sq. ft. but our initial redesign comprises 8 separate buildings and across residential, student and hotel uses.  The existing Marriott hotel on Deansgate is subject to an operating lease until November 2017, producing approximately £1.0 million per annum.  Construction can be fully phased and we are aiming for 2017 to 2021 delivery. Assuming lease regearing, the estimated entry cost is around £35 per buildable square foot with a current end value of around £300 million.   Delivery to the quality that we intend will bring environment improvement in the very heart of the city. 

Cambridge and Manchester are on the wish lists of most fund managers at the moment and our judgement is that there is still some way to go in both local economies.  Waterbeach is only a ten minute cycle ride from Cambridge Science Park and the Deansgate and Princess Street projects offer opportunities for reworking in the very centre of Manchester.  The combined entry cost for an initial exposure of real scale will be of the order of £23 million, which represents a fraction of eventual build out values.  There is no lack of prospective institutional funding partners. 

Strategic Sites

I am quite certain that the particular combination of defensiveness and optionality afforded by consented strategic sites, where peak capital requirements can be managed effectively will help differentiate Urban&Civic and drive our ability to generate sustained growth in shareholder value. 

Strategic land is most often regarded as a long term investment; once consented and servicing has begun, I much prefer the connotations that attach to being described as long dated.  Alconbury provides simple illustration of the particular amalgamation of durability and leveraged potential.  The largest brownfield site in Southern England is fast becoming integral to the future of a resilient Huntingdonshire district, where the current registered benefit claimant count of 0.8 per cent is well below half the national average.  Official statistics show that 2010/11 was the lowest level of new homes built in England since recovery from the Second World War.  In contrast, Huntingdonshire managed almost three times the pro rata equivalent level of housing completions.  With 5,000 new homes already consented, we are now working with Huntingdonshire District Council to increase ultimate housing provision.   Incremental numbers will be incorporated into the emerging Local District Plan, scheduled for adoption in 2016.  Estimating the range of that increment as between 1,500 and 2,000 additional new homes, Alconbury will then be in a position to contribute approximately one half of the 15 year housing  supply in one of the fastest growing districts in the country.  All this, within the established parameters of a fully compliant and adopted Local Plan with no presumption for competing consents thereafter.  It is hard to think of similarly safeguarded positions within the spectrum of conventional commercial property holdings.

Alongside a determination to create unusually defensive asset holdings, capturing the discount between wholesale land valuations and the retail sales of fully serviced plots is a fundamental element of the Urban&Civic business model.  The carrying value at Alconbury is up 58 per cent, like for like, over the 2013 pre consent figure and yet still equates to only £15,400 per unserviced plot.  The appraised figure at Rugby is lower again at £11,500 per plot.  That leaves plenty to go for.  Importantly, the interest already being expressed by the major housebuilders, gives confidence that realised plot sales will be at levels considerably above those September 2014 valuations. 

Strategic sites are held on investment account by the Group on acquisition.  The policy is then to apportion the value of holdings to trading account close to the point of first serviced land sales.  Alconbury is already treated in that manner and the 50 per cent holding in Rugby is expected to be similarly apportioned in the September 2015 accounts.  As a consequence, the income statement going forward will reflect realisations on disposals and movements in investment values on a growing commercial portfolio and strategic land where first serviced land sales are judged to be beyond one year.  Notwithstanding, the Board remain conscious of the difficulties in accurately quantifying latent optionality in an audited balance sheet.  EPRA adjustments will go some way towards better recognition and corroboration for such adjustments will be provided through reported external valuations.  Providing shareholders with readily accessible means of evaluating Group progress by articulating clear project milestones will also remain a priority. 

Early Earnings Contribution from Terrace Hill

Nor does unrealised potential pay household bills, or cover annual dividends.  Hence the requirement for balance.  Despite the short accounting period, the significant contribution of Terrace Hill to cash generation and realised proceeds in current and future periods is apparent.  Historic goodwill was expunged in the acquisition balance sheet and subsequent realisations continue to better contemporary expectations.  The July disposal of a leveraged priority interest in an office complex in Maidenhead, Berkshire, netted back £3.5 million after debt repayment, the holding having been fair valued at £2.0 million in the Terrace Hill acquisition accounts.  Construction commenced on the 125,000 sq. ft. Gateway store let to Sainsbury's in Middlesbrough, which was forward funded on an equivalent yield of 4.75 per cent.  Completion is scheduled for August 2015; £3.0 million of uplift over cost was recognised in the current accounting period with a further £2.0 million anticipated to be included next year.  The University of Southampton student accommodation was handed over for the start of the autumn term and all outstanding payments have been received under the funding arrangements with Legal & General. 

Leases on the last remaining floors at Howick Place Victoria, SW1 were only signed in October.  The 172,000 sq. ft. landmark building now has a tenant profile that the exceptional quality merits.  Marketing is currently underway incorporating 23 adjoining private residential apartments totalling approximately 20,000 sq. ft.  The extent of prevailing purchaser enquiries is most encouraging, no doubt reflecting the lack of prime West London investment opportunities.  There is every reason to believe the 30 September minority interest fair value of £5.3 million will be considerably exceeded. 

The patience of former Terrace Hill shareholders can also expect reward at Herne Bay.  The May 2014 acquisition balance sheet carried the project at £3.5 million (the land is optioned), which was a compromise that weighed the extent of local support against the dead hand of repeated delays.  Works are now scheduled to begin early next year within a build programme of slightly more than 12 months. An EPRA uplift of £7.4 million as detailed in the finance review has been booked in the current period.  In the event of a forward funding, the Group would be required to account for the bulk of expected profit in the financial year to September 2015.

Meanwhile, construction has started on a comprehensive leisure scheme in the centre of Darlington, in North East England, anchored by a Vue Cinemas multiplex and a Premier Inn.  The blended strength of the covenants is good and the projected yield on cost is around 7.5 per cent.  There are empirical grounds for believing that rents will prove reversionary.  Accordingly, the intention is to retain the scheme as an investment, at least until first review.  

Operational Review

Terrace Hill

Commentary

The commercial property development side of the Group continues to evolve into new markets as demand for additional out of town foodstores is seen to diminish.  As anticipated, the two committed Sainsbury's foodstores at Middlesbrough and Herne Bay may be the last large scale stores developed by the Group for some time.  A new equilibrium is being established on smaller food units and at lower rents.  Negotiations are continuing on a number of units but alternative use values have become a challenge. 

The Terrace Hill team has demonstrated a consistent ability for reinvention.  The Group is correspondingly well placed to take advantage of new opportunities and has already established platforms of demonstrable quality from which to build.  By way of example, occupier demand for town centre leisure schemes in areas bereft of a comprehensive offer is most certainly increasing. The development in Darlington is typical of this renaissance in leisure.  Utilising the Terrace Hill brand, Urban&Civic are developing a cinema led leisure complex in the heart of the town centre served for many years by nothing more than an old two screen cinema and ad hoc food and beverage outlets. The site was owned and promoted by the Local Authority on land previously zoned for retail development but where that demand is now weak. 

It is clear that there are a number of similar situations in towns and cities across the country where Local Authorities see the opportunity to promote leisure schemes on previously failed retail sites and where the benefits of a more diversified town centre attraction can add to the vitality of the local economy.   A similar scheme is planned for a site in the centre of Burnley and the Group is actively looking at a number of other sites with potential around the country, possibly also incorporating new student accommodation.

Regional city centre residential markets have shown a marked improvement in values and take up over the past year.  The decision has been made to start the development a 59 apartment scheme overlooking the Floating Harbour in Bristol city centre.  Again under the Terrace Hill name, the Group continues to looking at other sites suitable for residential and mixed use development in strengthening regional centres.  Most will not match the scale of Manchester but the preference will always be to acquire such sites where value can be added through the planning process.

Competition in Central London remains such that it feels more comfortable to be selling than buying.  The office and residential scheme at Howick Place in Victoria SW1 is now fully let; current marketing is anticipating an early New Year sale.  Premium office rents are also expected following February 2015 completion of the 30,000 sq. ft. development at the corner of Savile Row and Conduit Street, W1 for which Terrace Hill has a management contract.

Foodstores

Middlesbrough: Construction has commenced on the 125,000 sq. ft. Gateway store let to Sainsbury's.  Consent was obtained in February 2014 and funding discussions had been initiated by May.  The remainder of the site is being developed as a drive through KFC, as well as selling land to Marston's for a family public house and a Costa Coffee outlet.  The Sainsbury's and KFC units have been forward sold to clients of Osprey Equity Partners who are also providing development finance. The gross development value of £52 million reflects an equivalent yield of 4.75 percent to the purchaser for a 25 year lease with RPI linked rent reviews. 

Herne Bay:  the recently cleared 100,000 sq. ft. foodstore and an adjoining petrol filling station have been pre-let to Sainsbury's.  The proposals also involve investment to improve amenities and employment in the town via the draft s106 agreement and 33,000 sq. ft. of starter and small business units.

Consistent with the change in the grocery market and the retailers' demands, the Group is currently pursuing a number of smaller foodstore opportunities.

Leisure

Darlington Feethams:  Works have started on a 100,000 sq. ft. town centre leisure scheme comprising a nine screen multiplex let to Vue Cinemas and a 80 bedroom Premier Inn which anchor nine surrounding restaurants including Greene King (trading as Hungry Horse), Prezzos, Purple Pig, Chinese Buffet, Nandos  and Bella Italia, with adjoining car parking.  Development costs are expected to be approximately £17.9 million, which are being funded out of the Group's own resources.  The project is programmed to open in time for the Easter holidays in 2016.  The blended strength of the covenants is good and the yield on cost will be around 7.5 per cent. 

Burnley: The proposed 43,000 sq. ft. development is similar in concept to the Feethams scheme in Darlington and will again include a multi-screen cinema and a selection of food and beverage outlets. The site is secured with the local authority owner.  The tenant line-up is being assembled and a planning application prepared.

As previously described, the Group is actively in the market for further additions to its leisure portfolio.

Student Accommodation

The 1,104 bed student accommodation scheme in Southampton was handed over for the start of the autumn term and all outstanding payments have been received under the lease arrangements with Legal & General.  National demand is high for bespoke designed, good quality student housing.  The success of Mayflower Halls for the University of Southampton creates a clear platform on which the enlarged business can build.  The Group hope to announce the details of at least one further scheme in the next reporting period.

City Centre Residential Development

Bridge Quay, Bristol: Planning consent was received earlier in the year for the conversion of the vacant office building, previously known as Bristol Bridge House, into 59 one and two bedroom apartments overlooking the Floating Harbour in Bristol City centre. The remarkable riverside views and close proximity to Bristol's main amenities, coupled with the high quality of the development's finishes justify an expectation for premium sale values.  The site is in the balance sheet at £3.5 million and the cost of conversion is approximately £8.1 million. Total sales area equates to 48,000 sq. ft.  Construction starts on the project in January 2015 with completion programmed for spring 2016.  Current estimates are for average sales values of around £340 per sq. ft..

Central London Development

Howick Place: Following strong recent letting activity, this prestigious 172,000 sq. ft. development in Victoria, London, SW1 now has a tenant profile that the exceptional quality merits, comprising: Giorgio Armani, Dong Energy, Informa and Edelman, with rents averaging £61 per square foot across the building. Marketing is now taking place, to include 23 adjoining private residential apartments totalling approximately 20,000 sq. ft..  The extent of prevailing purchaser enquiries from home and overseas buyers is most encouraging.  

Conduit Street/Savile Row, W1: Terrace Hill is development manager on a prime corner retail and office development, due for completion in early spring 2015.  Strong interest is anticipated from office occupiers seeking space in a supply constrained market. The basement, ground floor and first floor retail space has already been pre-let in its entirety to Italian fashion house, DSQUARED2.

Strategic Land

Alconbury

Urban&Civic's land holding at Alconbury extends to approximately 1,450 acres of freehold land near to Huntingdon town centre.  A resolution to grant outline planning consent for approximately 11 million sq. ft. of mixed development, including 5,000 new homes alongside 3.1 million sq. ft. of commercial space within a designated Enterprise Zone, was secured in December 2013.  The scale was such that the application was referred automatically to the Secretary of State, who announced a decision that he would not call it in for further deliberation within six working days over the last Christmas period.  Proposals estimated at between 1,500 and 2,000 further new homes are being developed with the local authority to be incorporated within the emerging Local District Plan.

Initial housing construction is scheduled for spring 2015; the current intention is to build upwards of 50 units in joint venture to establish price and quality before selling serviced land parcels up to an initial maximum of 100 units to individual housebuilders.  A planning application for the first primary school is in the process of being submitted.

As with Stockley Park, where Robin Butler cut his teeth thirty years ago, the first new building at Alconbury was an Incubator unit, completed earlier in 2014 and designed to encourage new business entrants.  Unlike at Stockley, where things typically took somewhat longer, detailed planning consent for the 15,000 sq. ft. unit was granted at Alconbury ahead of the main application and only 36 days from receipt of papers.  The facility is now fully let.  Work will commence early in the New Year on a companion to include a gym, restaurant and nursery, as well as small business meeting rooms and a hall to accommodate up to 100 visitors.

The CBRE valuation of Alconbury increased from £101 million as at 31 December 2013 to £119 million at 30 September 2014, which included expenditure of £5.1 million.  The net increase of £12.9 million splits approximately one third investment, with the remaining £6.9 million an appraised increase in the trading value of consented housing land to be reflected as an EPRA adjustment. 

Recognising the extent of progress, £5 million of Building Foundations for Growth grant funding was awarded by Central Government in June 2014 and is being drawn down to accelerate enabling works, all of which had been costed in the CBRE appraisals at the time of the Company's listing.  In parallel, designs are being drawn up for two centres of technical excellence coming to Alconbury, backed by Lord Heseltine's Growth Fund.  The combined value of that inward investment, including from European Community sources, is expected to be of the order of £30 million.  Just as significant will be the momentum for an emerging technical cluster, for which a growing number of private sector enquiries are being progressed.

Rugby

The Rugby Radio Station site is a former radio transmission facility located in Rugby, Warwickshire. The site extends to approximately 1,674 acres and comprises two principal elements, the 1,170 acre predominantly residential Sustainable Urban Expansion ("SUE") site and a logistics site known as the Daventry International Rail Freight Terminal III site.  Following a competitive process, Urban&Civic was confirmed as the development partner with an option to acquire an interest in the SUE site.  In April 2014, Urban&Civic entered into an agreement with BT Plc to purchase a 50 per cent interest in the SUE site and so become equal owner with Aviva plc.  The SUE site has outline planning permission for 6,200 houses and approximately 1.3 million sq. ft. of commercial space over 460 acres of developable area, along with 49 acres of community and heritage areas and 393 acres of open spaces, with a built out value estimated by Urban&Civic to be in excess of £1.7 billion (at current prices). 

The initial delivery phase is currently expected to extend to a maximum of approximately 600 homes, approximately 270,000 sq. ft. of commercial space, a two-form entry primary school and associated infrastructure and landscaping. The design for this initial delivery phase of the outline consent for Rugby has been approved together with reserved matters in respect of the roads and green spaces.  Housing delivery is expected to commence by the third quarter 2015.  As with Alconbury, Urban&Civic will seek to build out an initial proportion of the residential dwellings at Rugby either independently, or with Aviva as joint venture partner.

CBRE valued Urban&Civic's 50 per cent share of the SUE site at £27.5 million as at 31 December 2013, on the basis of a resolution to grant outline planning consent (implied value of entire SUE site: £55.0 million). As at 30 September 2014, these figures had increased to £30.0 million and £60.0 million respectively, representing an appraised figure of £11,500 per plot. 

Urban&Civic are yet to complete the contracted purchase of the joint interest in the Rugby Radio Station site from BT Plc, although all aspects are wholly unconditional on the partnership side.    The delay relates to various ownership de-coupling requirements which remain as conditions precedent.  These are close to being executed and the acquisition will complete not later than March 2015.  Interest is not payable on the outstanding £16.7 million under the terms of the contract and there is no prospect of a failure to complete.

Waterbeach

The Waterbeach site comprises 716 acres of land designated as previously used, which had been in continuous military occupation for over 70 years. The location and nature are uniquely strong: rich lakeside settings, steeped in history, three miles from the world renowned science and technology parks and within easy cycling of the new North Cambridge and existing Waterbeach railway stations.

Waterbeach Barracks lies within the administrative area of the South Cambridgeshire District Council, which is in the process of preparing a new Local Plan to cover the period up to 2031. The Proposed Local Plan allocates the Barracks, together with adjoining farmland to the north and east, as a new settlement. Initial masterplanning by Fletcher Priest (the same team that worked on the Olympic Village), accommodates a new sustainable community across the wider site of between 9,000-12,000 dwellings, which provides approximately 6,500 additional homes on MOD holdings in support of a growing Cambridge economy.

The development management agreement signed with Defence Infrastructure Organisation on behalf of the Ministry of Defence enables Urban&Civic to fund and construct necessary post planning infrastructure; manage the disposal of market housing plots to house builders whilst earning a percentage retention on realised land uplifts after full cost recovery; and build 35 per cent of new units on its own account.  Importantly, the overarching objective under the terms of the agreement is to secure early delivery, consistent with securing taxpayer value. Urban&Civic were selected on the basis of early level drawdown to include a substantial proportion of good quality PRS residential accommodation to meet an identified need within Cambridge.  The current expectation is for an outline planning application, in similar form to those secured at Alconbury and Rugby, to be submitted within 24 months.

Manchester

Urban&Civic yesterday exchanged contracts with Morgan Stanley Real Estate Funds for the purchase of two prime sites (one freehold and one long leasehold) aggregating almost 3 acres in the centre of Manchester, for a total purchase consideration of £22.45 million.  The contract contains no overage provisions, nor residual participations. 

The Deansgate site is 1.9 acres bounded by Deansgate, the River Irwell and Harvey Nichols department store. It is occupied currently by a 203 bed Marriott Renaissance hotel subject to a management contract expiring November 2017 with current net operating income estimated at approximately £1 million per annum, vacant offices and a 399 space car park sublet to Manchester City Council at nil rent. The Group is purchasing a leasehold interest with 90 years unexpired from the City Council at a fixed rent of £800 per annum. The Council has expressed a previous willingness to extend the lease at a premium to enable suitable redevelopment of the site. Preliminary designs provide for up to 600 new apartments in 4 separate blocks, a new 200 bedroom hotel, 300 basement car parking with associated retail and food offers to provide animated street level frontages. The estimated total development value at current prices is of the order of £225 million. Construction is likely to take place over a 3 year period to commence from 2018: all designs will provide for phased development.

The Princess Street site comprises 1 acre on the corner of Princess Street and Whitworth Street, equidistant between Manchester Piccadilly and Oxford Road railway stations in a predominantly residential environment and close to the principal university facilities. The site is freehold and vacant with a previously constructed but unused 300 space basement car park. Preliminary designs provide for retention of the existing car park and the construction of some combination of 240 new apartments or 270 student units and a 165 bedroom hotel in 3 separate blocks. Total development value is estimated in the order of £75 million. Again development can be fully phased, most likely over a 3 year period commencing 2016/17.

OUTLOOK

The process of integration is proving pretty much seamless, reflecting the complementary attributes of the two teams and their natural preparedness to shoulder new responsibilities.  The genuine sense of our all being in this together has not abated.  Mutually reinforcing individual contributions are recognised and respected across what is now one company.  We will soon be occupying a single floor in an open plan office that is approximately equidistant from the respective old addresses in London.

That collective effort, along with propitious markets, has enabled the enlarged business to more than deliver on the immediate targets and expectations articulated ahead of the May 2014 Listing.  Herne Bay, Waterbeach and, most recently, Manchester can all make significant contributions to enhancing shareholder value, whilst maintaining a conservative chronology of capital spend.  We aim to submit planning applications at Waterbeach in approximately two years' time, at which point Herne Bay ought to be open and trading.  Development in Manchester is likely to be phased between 2017 and 2021 and may well involve institutional partners. Maintaining a balance between creating optionality and realising deliveries will be what defines the future success of Urban&Civic.

IMMEDIATE DIVIDEND COMMENCEMENT

This is no time for complacency but we should also be prepared to recognise milestone successes along the way.  It is only the start but absolutely a sound start and we can rightly acknowledge it as such.  The assumption had been at the time of Listing that dividends would begin with respect to the 2015 financial year.  Having regard for the progress to date and the strength of foreseeable receipts, the Board feels able to recommend the immediate commencement of dividend payments.  I am especially pleased that, in the process, we are thereby able to satisfy the longstanding promise made by Terrace Hill to return to the dividend list.

The proposed dividend of 1.5p per share effectively represents a final dividend for the six months to 30 September 2014.  The equivalent for a full year would have been 2.5p, which is intended to establish a base for the 12 months to 30 September 2015.  The intention is for a policy of progressive increase thereafter, commensurate with progress to be made in building rental income within the business and the extent of realised sales proceeds. 

My sincere personal thanks to Board and staff members alike; we all share the single aim of building from here.

Nigel Hugill

Executive Chairman

FINANCE REVIEW

Introduction

Highlights

This is my first report since the Listing in May 2014 when Urban&Civic reversed into Terrace Hill, raised £170 million through an institutional placing and was admitted to the standard listing segment of the Official List and to trading on the London Stock Exchange.  The Listing has transformed the enlarged Urban&Civic Group, with IFRS NAV increasing from £20.7 million to £335.1 million. At 30 September 2014 the Group has £162.8 million of cash at bank and no bank borrowings.

KPIs

The Group considers the following to be its key performance indicators:

EPRA NAV - the Group considers EPRA NAV per ordinary share and changes in such value to be the most important indicator of the Group's performance. The EPRA NAV includes the fair value of all the Group's assets and liabilities. Under IFRS, the Group cannot reflect in its financial statements the fair value of its trading properties, which are carried in the financial statements at the lower of cost and net realisable value. Most analysts and shareholders compare the performance of property companies using EPRA NAV and this indicator is therefore of considerable importance to us.

The EPRA NAV at 30 September 2014 and 31 December 2013 was £350.8 million (249.7p per share) and £20.7 million (227.9p per share) respectively.

Total Shareholder Return - whilst the movement of the Company's share price is not something that is directly under its control, the return to our shareholders is of great importance to them and so it is to us as well.  The share price at 30 September 2014 was 233.5p, reflecting a 3.8 per cent increase over the placing price.

Listing and fund raising

On 28 April 2014, the Company announced the reverse and placing whereby it would acquire Urban&Civic Holdings S.à.r.l. for new shares, change its name to Urban&Civic plc, consolidate its shares on the basis of one for 10, raise £170 million, be admitted to the Official List and start trading on the London Stock Exchange. The consideration for the acquisition of Urban&Civic Holdings S.à.r.l. was satisfied by the issue of 43,084,456 new ordinary shares which valued the Urban&Civic group at approximately £95.7 million.  As the shareholders of Urban&Civic Holdings S.à.r.l. held more ordinary shares in the enlarged Group than the existing Terrace Hill shareholders, the transaction has been accounted for as a reverse acquisition, in accordance with IFRS 3 'Business Combinations' (revised) with the Terrace Hill group treated as the acquiree. The fair value of the consideration for reverse acquisition accounting purposes amounts to £57.1 million and is based on the 212 million (pre-consolidation) shares in issue valued at 26.75p per share, which was the closing share price on the 21 May 2014, together with the fair value of outstanding share options and less the fair value of own shares held at that date.

The assets and liabilities of the Company and its subsidiaries at acquisition have been fair valued, in accordance with IFRS 3 'Business Combinations' (revised). A note explaining the determination of the fair values is included in note 2 of this preliminary announcement.

The goodwill arising on the acquisition has been calculated as follows:

The Directors have considered the incidental amount of resultant goodwill arising on acquisition and have concluded that it should be immediately written off in the consolidated statement of comprehensive income in the period. 

The Company raised £170 million of new capital in a placing as part of the Listing and a further £1.5 million from an employee offer, which after placing and other transaction expenses amount to net proceeds of £162.5 million. Directors and staff invested £4.3 million. A total of £6.3 million of the costs of the acquisition and Listing have been charged to the share premium account with the balance of £2.8 million expensed in the period in the consolidated statement of comprehensive income.

Consolidated statement of comprehensive income

The consolidated statement of comprehensive income includes the results of the Urban&Civic group for the nine months from 1 January 2014 (the Urban&Civic group previously had a year end of 31 December) and of the Terrace Hill group for the period from the date of acquisition of 22 May 2014 to 30 September 2014.  The consolidated statement of comprehensive income is not therefore representative of what this statement is expected to look like on a 12 month basis. The comparative figures represent the 12 months' results of the Urban&Civic group, excluding the Terrace Hill group, and therefore comparison with the current period results is not considered meaningful. 

A commentary on all significant line items is set out below:

Revenue

Revenue for the period includes £19.0 million in respect of the Sainsbury's foodstore development at Middlesbrough, which was forward sold during the period, and the amount recognised reflects the progress on the project at 30 September 2014. A further £0.7 million was recognised in respect of the Southampton student accommodation scheme which concluded during the period. Rental income for the period includes £1.6 million in relation to the Alconbury site, and £0.6 million in relation to commercial office assets in Teesside and London.  Project management and other fees amounted to £0.7 million, which includes £0.5 million relating to the disposal of the Maidenhead office property.

Direct costs

Direct costs include £15.9 million relating to the Sainsbury's foodstore development mentioned above, £0.2 million relating to the Southampton student accommodation scheme and £1.0 million directly related to the rental income for the period.  £1.1 million of income relating to the Maidenhead office disposal was netted off direct costs as it represented the reversal of an amount previously written off.

Administrative expenses

Administrative costs of £8.0 million were incurred in the period, of which £2.8 million relates directly to the acquisition and Listing and £0.5 million relates to the impairment of goodwill, which arose on the acquisition of the Terrace Hill group, as noted earlier.

Surplus on revaluation of investment properties

The Group has recognised a £5.9 million increase in revaluation of its investment properties, predominately represented by Alconbury.

CBRE's valuation of Alconbury including both the investment and trading element has increased from £101.0 million at 31 December 2013 to £119.0 million at 30 September 2014. The principal reasons for the increase in value of this asset were:

·     Government grant of £5.0 million that will directly reduce our costs by the same amount;

·     Uplift of £1.8 million in relation to Grange Farm expansion land;

·     Additions of £5.1 million (including capitalised interest and overheads);

·     Other market movements of £6.1 million

The Group has recognised £5.9 million of the £12.9 million valuation uplift through the income statement and the remaining £7.0 million is attributable to the element included within trading properties which is an adjustment for EPRA purposes.

Share of post-tax profit of joint venture

The Group has recognised £11.3 million representing its share of the post-tax profits of joint ventures. This represents our share of results of the Rugby joint venture, which increased in value from £55.0 million at 31 December 2013 to £60.0 million at 30 September 2014.  The Group has agreed to purchase its 50 per cent share in this asset for £16.7 million. 

Net finance income

The amount of £2.9 million of net finance income includes £3.2 million relating to the early repayment of certain bank loans at a discount.

Taxation expense

The tax charge for the period of £4.2 million includes a movement in deferred tax in respect of the revaluation on Alconbury of £1.1 million and Rugby of £2.3 million, together with other movements of £0.8 million. The fair value of the deferred tax asset at acquisition has reduced from £11.1 million to a net deferred tax asset position of £7.0 million at 30 September 2014.

Dividend

The enlarged Group plans to pay its maiden dividend during the first quarter of 2015 at the rate of 1.5p per share, representing 0.67 per cent of the placing share price and amounting to a payment of £2.1 million.  This dividend represents a final dividend for the period to 30 September 2014. The equivalent for a full year would have been 2.5p per share, which is intended to establish a base for the 12 months to 30 September 2015. The intention is to establish a progressively increasing dividend payment as the Group grows its income base. The dividend will, subject to shareholder approval at the Annual General Meeting, be paid to shareholders on the register on 6 February 2015 with a payment date of 20 February 2015. 

Consolidated balance sheet

Non-current assets

Investment properties

The Group's principal property assets at 30 September 2014 were its 100 per cent interest in Alconbury and its 50 per cent share in the Rugby site.

The Alconbury site has been valued by CBRE at 30 September 2014 at £119.0 million.  The Group has decided in principle that it intends to hold part of the asset as a long term investment and to develop and sell the remainder. The element that the Group intends to retain as a long term investment comprises commercial land and 25 per cent of the residential land (representing the affordable and potential PRS land). This has been valued by CBRE at £62.9 million and is included in investment properties in the balance sheet.  Also included in this category of the balance sheet is the investment in the leisure scheme at Darlington. 

Investment in equity accounted joint ventures and associates

The Group's investment in its 50 per cent share of the Rugby site has been included in the balance sheet at £13.6 million, which represents its share of the external valuation of the site of £60.0 million less amounts due to complete the transaction to acquire the site.  The Group also includes here its investment in a joint venture that owns a strategic land site in Scotland.

Other investment

The Group's minority equity interest in the entity that owns the office investment at Howick Place, London is included in the balance sheet at a fair value of £5.4 million.

Deferred tax assets

The Group has recognised an asset of £8.3 million in respect of the Group's tax losses which are expected to be capable of utilisation against future profits of the Group.  As noted above, the fair value of the deferred tax asset at the date of acquisition of the Terrace Hill group was £11.1 million, which has reduced due to the utilisation of tax losses to shelter gains that have arisen in the subsequent period.

Current assets

Trading properties

The element of the Alconbury site that the Group intends to develop and sell has been valued by CBRE at £56.1 million, which is £7.0 million above its £49.1 million carrying value in the balance sheet.  The increase in value cannot be reflected in the accounts but is included as a fair value adjustment in arriving at the EPRA NAV. Trading properties also include £15.3 million in respect of the Group's commercial development sites and £12.8 million in respect of other strategic land sites. All trading properties are carried in the balance sheet at the lower of cost (or acquisition date fair value) and net realisable value.

Trading and other receivables

Trading and other receivables are largely represented by £6.5 million recoverable under construction contracts, principally in respect of the Sainsbury's foodstore at Middlesbrough, £2.7 million of other receivables and £2.4 million of prepayments and accrued income.

Cash

Cash balances of £162.8 million were held at the period end, reflecting the net placing and employee offer share proceeds of £162.5 million offset by expenditure in the period and augmented by final amounts due on the Southampton student accommodation development and amounts received on the forward funding of the Sainsbury's foodstore development at Middlesbrough. The Group has chosen security over investment returns for the safe keeping of its cash deposits and carried out a comprehensive review of various banks' creditworthiness before depositing any cash with them.  No single bank has a deposit of greater than £25 million and only banks with a long-term Standard and Poor's credit rating (or equivalent)  of A- or greater have been used.  Varying terms and deposit amounts are used to maximise returns within these constraints and match deposit maturities to expected usage.

Non-current liabilities

Borrowings

The Group has taken advantage of certain banks' willingness to accept discounted payments in return for early settlement of bank loans.  On 22 May 2014 the Group had bank loans totalling £25.4 million from four banks, all of which have been repaid, with two banks accepting discounts amounting to £3.2 million as part of their settlement.  At 31 December 2013, borrowings represented Preferred Equity Certificates (PECs) of the Urban&Civic group which were exchanged for ordinary shares as part of the Listing.

Deferred tax liabilities

The deferred tax liability at 30 September 2014 largely reflects deferred tax on the valuation uplift reflected on the Group's interest in the site at Rugby.

Other liabilities

The balance at 30 September 2014 represents a contingent liability that was acquired as part of the acquisition of the Terrace Hill group.  The contingent liability relates to a potential tax liability.

Current liabilities

Trade and other payables include £3.1 million of trade and sundry creditors, £6.8 million of accruals and £1.3 million of deferred income.

Equity attributable to equity holders of the parent

The movements in equity attributable to equity holders of the parent are set out in detail in the consolidated statement of changes in equity within this preliminary announcement.

EPRA Net Asset Value

The EPRA NAV of the Group has been determined as follows:

Financial resources and capital management

The Group had no external borrowings at 30 September 2014 and, as noted above, £162.8 million of cash balances representing the proceeds from the capital raising during the period, adjusted by trading since 22 May 2014. The Group expects to utilise the cash balances to execute its strategy of continuing to develop its strategic land and commercial development properties over the coming years. The Group expects to obtain external borrowings to augment its cash resources on a conservative basis and maintains strong relationships with a number of banks with whom it will expect to do business in the future. The Group currently has no undrawn bank facilities in place, as it believes that it will be able to put in place suitable facilities when required and that this is a more efficient use of its resources than paying commitment fees. The Group monitors bank lending and interest rate markets closely. The Group maintains a detailed 24 month cash forecast which it uses to predict its usage of its cash balances on a project by project basis.

Principal risks and uncertainties

We believe our ability to identify, measure, manage and proactively take advantage of risk gives us an advantage over our peers.  The Board and Board committees meet on a regular basis to establish whether our risk appetite is consistent with our growth aspirations and the external environment, we have included our current risk register, which provides information on the risks identified and our response to them, as an appendix to this preliminary announcement.

Jon Austen

Group Finance Director

Urban&Civic plc

Consolidated statement of comprehensive income

For the nine month period ended 30 September 2014

The Group had no amounts of other comprehensive income for the current period or prior year and the profit for the respective periods is wholly attributable to equity shareholders.

The accompanying notes form part of this preliminary financial information.

Consolidated balance sheet

As at 30 September 2014

The accompanying notes form part of this preliminary financial information.

Consolidated statement of changes in equity

For the nine month period ended 30 September 2014

Consolidated cash flow statement

For the nine month period ended 30 September 2014

Notes to the consolidated preliminary financial information

For the nine month period ended 30 September 2014

1. Accounting policies

Basis of preparation

The unaudited preliminary financial information has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRS) and the IFRS Interpretation Committee (IFRIC) interpretations as endorsed by the European Union.

The principal accounting policies adopted in the preparation of this preliminary financial information are set out below. The policies have been consistently applied to all the periods presented, unless otherwise stated.

The preliminary financial information has been prepared under the historical cost convention as modified for the revaluation of investment properties, other non-current investments and certain financial instruments.

This unaudited preliminary consolidated financial information does not constitute statutory consolidated financial statements for the period ended 30 September 2014 as defined in section 434 of the Companies Act 2006.

The Annual Report and Group financial statements for the year ended 30 September 2013 were approved by the Board of Directors on 12 December 2013 and have been filed with the Registrar of Companies.

The report of the auditors on those consolidated financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

The Annual Report and Group financial statements for the period ended 30 September 2014 will be filed with the Registrar of Companies in due course.

The comparative information provided in this preliminary financial information is for the financial year ended 31 December 2013 and reflects the consolidated results for Urban&Civic Holdings S.à.r.l. and its subsidiaries.

On 22 May 2014 the Company acquired the entire issued share capital and the issued PECs of Urban&Civic Holdings S.à.r.l. that were outstanding at that date. The Urban&Civic group is focused on the delivery of strategic residential land developments in key growth areas of the UK. The transaction has been accounted for as a reverse acquisition in accordance with IFRS 3 'Business Combinations' (revised), and accordingly the assets and liabilities of the Company and its subsidiaries at the date of transaction, being the acquiree group, have been fair valued. The acquiree group focuses on commercial projects which include Central London office developments and regional commerical developments. Further detail in relation to this business combination is set out in note 2 of this preliminary financial information.

Functional and presentation currency

All financial information is presented in British Pounds Sterling (£), the Group's functional currency, and has been rounded to the nearest thousand (£'000) unless indicated to the contrary.

Going concern

The consolidated preliminary financial information has been prepared on a going concern basis, which assumes that the Group will continue to meet its liabilities as they fall due. At 30 September 2014 the Group has prepared cash flow projections that show that it is expected to have adequate resources to continue in operational existence for the foreseeable future.

Adoption of new and revised standards

During the period ended 30 September 2014 the following new or revised accounting standards were adopted by the Group:

IAS 1 'Presentation of Financial Statements' (amendment)

IAS 19 'Employee Benefits'

IAS 27 'Consolidated and Separate Financial Statements'

IAS 28 'Investments in Associates and Joint Ventures'

IAS 32 'Financial Instruments: Presentation'

IAS 36 'Impairment of Assets' (amendment)

IFRS 7 'Financial Instruments: Disclosures' (amendment)

IFRS 10 'Consolidated Financial Statements'

IFRS 11 'Joint Arrangements'

IFRS 12 'Disclosure of Interests in Other Entities'

The adoption of new and revised standards either had no impact on the preliminary financial information or resulted in changes to presentation and disclosure only.

New standards and interpretations not yet applied

The IASB has issued or amended the following standards that are mandatory for later accounting periods and which are relevant to the Group and have not been adopted early. These are:

IFRS 9 'Financial Instruments' (effective date: 1 January 2018 subject to EU endorsement)

IFRS 15 'Revenue from Contracts with Customers' (effective date: 1 January 2017 subject to EU endorsement)

The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group's financial statements in the period of initial application, other than on presentation and disclosure.

Basis of consolidation

Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

The consolidated preliminary financial information presents the results of the Group as if it formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full.

Business combinations

The consolidated preliminary financial information incorporates the results of business combinations using the purchase method. In the consolidated balance sheet, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained.

Goodwill

Goodwill represents the excess of the cost of a business combination over the Group's interest in the fair value of the identifiable assets, liabilities and contingent liabilities acquired. Cost comprises the fair value of assets given, liabilities assumed and equity instruments issued. Direct costs of acquistion are charged to the consolidated statement of comprehensive income.

Goodwill is capitalised as an intangible asset, with any impairment in carrying value being charged to the consolidated statement of comprehensive income. Goodwill is reviewed for impairment at each reporting date. Where the fair value of identifiable assets, liabilities and contingent liabilities exceeds the fair value of consideration paid, the excess is credited in full to the consolidated statement of comprehensive income.

Joint arrangements

The Group is party to a joint arrangement where there is a contactual arrangement that confers joint control over the relevant activities of the arrangement to the Group and at least one other party. Joint control is assessed under the same principles as control over subsidiaries.

All of the Group's interests in joint arrangements constitute joint ventures, where the Group has rights to only the net assets of the joint arrangement.

In the consolidated preliminary financial information interests in joint ventures are accounted for using the equity method of accounting whereby the consolidated balance sheet incorporates the Group's share of the net assets of the joint ventures. The consolidated statement of comprehensive income incorporates the Group's share of the joint ventures' profits after tax.

Where there is objective evidence that the investment in a joint venture has been impaired, the carrying amount of the investment is tested for impairment in the same way as other non-financial assets.

Associates

Where the Group has significant influence but not control or joint control over the financial and operating policy decisions of another entity, it is classified as an associate. Associates are initially recorded in the consolidated balance sheet at cost. The Group's share of post-acquisition profits and losses is recognised in the consolidated statement of comprehensive income, except that losses in excess of the Group's investment in the associate are not recognised unless there is an obligation to make good those losses.

Where the Group has a legal obligation to a third party in relation to the losses of an associate, the Group fully provides for its share, and the charge is recognised in the consolidated statement of comprehensive income.

Other investments

Other investments are carried at fair value.

Investment properties

Investment properties are properties held for long-term rental income and/or for capital appreciation and are measured initially at cost, including related transaction costs, and subsequently at fair value. Changes in fair value of an investment property at the balance sheet date and its carrying amount prior to remeasurement are recorded in the consolidated statement of comprehensive income.

Investment property is recognised as an asset when:

Additions to investment properties in the course of development or refurbishment include the cost of finance and directly attributable internal and external costs incurred during the period of development until the properties are ready for their intended use.

An investment property undergoing redevelopment or refurbishment for continued use as an investment property will remain as an investment property measured at fair value and is not reclassified. A transfer of a property from investment properties to trading properties will be made where there is a change in use and the land is to be developed with a view to sale.

Trading properties

Trading properties are inventory and are included in the consolidated balance sheet at the lower of cost and net realisable value. Net realisable value is the expected net sales proceeds of the developed property in the ordinary course of business less the estimated costs to completion and associated selling costs. A provision is made to the extent that projected costs exceed projected revenues.

All external and internal costs, including borrowing costs, directly associated with the purchase and construction of a trading property are capitalised up to the date that the property is ready for its intended use. Property acquisitions and disposals are recognised when legally binding contracts that are irrevocable and effectively unconditional are exchanged.

Properties reclassified to trading properties from investment properties are transferred at deemed cost, being the fair value at the date of reclassification.

Leases

Where the Group is the lessor, the Directors have considered the potential transfer of risks and rewards of ownership in accordance with IAS 17 for all properties leased to tenants and in their judgement have determined that all such leases are operating leases. Rental income from operating leases is recognised in the consolidated statement of comprehensive income on a straight line basis over the term of the relevant lease.

Where the Group is the lessee, leases in which substantially all risks and rewards of ownership are retained by another party are classified as operating leases. Rentals paid under operating leases are charged to the consolidated statement of comprehensive income on a straight line basis over the term of the lease.

Lease incentives

Lease incentives, including rent free periods and payments to tenants, are allocated to the consolidated statement of comprehensive income on a straight line basis over the lease term as a deduction from rental income.

Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses. This includes costs directly attributable to making the asset capable of operating as intended.

Depreciation is provided on all plant and equipment at rates calculated to write off the cost less estimated residual value, based on prices prevailing at the reporting date, of each asset over its expected useful life as follows:

Revenue recognition

Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be readily measured. Revenue is measured at the fair value of the consideration receivable, excluding VAT. The following criteria must be met before revenue is recognised:

Sale of property

Revenue from the sale of trading and investment properties is recognised when the significant risks and rewards of ownership of the properties have passed to the buyer, usually when legally binding contracts that are irrevocable and effectively unconditional are exchanged.

Trading revenue

Trading revenue and profits are recognised in accordance with IAS 11 'Construction Contracts' or IAS 18 'Revenue' depending on whether all development risks, apart from the construction risk, have passed to the purchaser under the terms of the development agreement. Where only the construction risk remains, the revenue and profit on the development is recognised under IAS 11, so as to match the proportion of the development work completed on a percentage completion basis. The percentage completion basis is determined by using the total costs incurred at the reporting date as a proportion of the total forecast costs at completion. Profits are only recognised where the outcome can be determined with reasonable certainty. Full provision is made for losses as soon as such losses are foreseen. Where revenue is recognised under IAS 18 disposals are recognised where the risks and rewards of ownership are considered to have been transferred to the purchaser.

Rental income

Rental income arising from property is accounted for on a straight line basis over the term of the lease.

Fees and other income

Fees from development management service arrangements and other agreements are determined by reference to the relevant agreement and recognised as the services are provided.

Taxation

Current tax

The charge for current taxation is based on the results for the period as adjusted for items that are non-taxable or disallowed. It is calculated using rates and laws that have been enacted or substantively enacted by the balance sheet date. Tax payable upon realisation of revaluation gains on investment property disposals that were recognised in prior periods is recorded as a current tax charge with a release of the associated deferred taxation.

Deferred tax

Deferred tax is provided using the balance sheet liability method in respect of temporary differences between the carrying amount of assets and liabilities in the consolidated balance sheet, and the corresponding tax base cost used in computing taxable profit.

Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. It is recognised in the consolidated statement of comprehensive income except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same tax authority.

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

Under IAS 12, deferred tax is recognised for tax potentially payable on the realisation of investment properties at fair values at the balance sheet date to the extent that the differences are not considered permanent.

Share-based payments

The fair value of granting share awards under the Group's performance share plan, and the other share-based remuneration of the Directors and other employees, is recognised through the consolidated statement of comprehensive income. The fair value of shares awarded is calculated by using an option pricing model. The resulting fair value is amortised through the consolidated statement of comprehensive income on a straight line basis over the vesting period. The charge is reversed if it is likely that any non-market based vesting criteria will not be met.

Employee Benefit Trust

The Group is deemed to have control of its Employee Benefit Trust (EBT) and it is therefore treated as a subsidiary and consolidated for the purposes of the consolidated accounts. The EBT's investment in the parent company's shares is deducted from equity in the consolidated balance sheet as if they were treasury shares. Other assets and liabilities of the EBT are recognised as assets and liabilities of the Group. Any shares held by the EBT are excluded for the purposes of calculating earnings per share.

Retirement benefits

Contributions to defined contribution pension schemes are charged to the consolidated statement of comprehensive income in the period to which they relate.

Dividends

Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when the dividends are paid. In the case of final dividends, this is when approved by the shareholders at the AGM.

Impairment of non-financial assets (excluding trading properties, investment properties and deferred tax)

Impairment tests on the Group's goodwill are undertaken at each reporting date to determine whether there is any indication of impairment. If such indication becomes evident, the asset's recoverable amount is estimated and an impairment loss is recognised in the consolidated statement of comprehensive income whenever the carrying amount of the asset exceeds its recoverable amount.

The recoverable amount of an asset is the greater of its fair value less costs to sell and its value in use. The value in use is determined as the net present value of the future cash flows expected to be derived from the asset.

Financial instruments

Financial assets and financial liabilities are recognised in the consolidated balance sheet when the Group becomes a party to the contractual provisions of the instrument.

Cash and cash equivalents

Cash and cash equivalents consist of cash in hand, deposits with banks and other short-term highly liquid investments with original maturities of three months or less from inception. For the purposes of the cash flow statement, cash and cash equivalents comprise cash in hand and deposits with banks net of bank overdrafts.

Trade and other receivables

Trade and other receivables are initially recognised at fair value and subsequently at amortised cost or their recoverable amount. Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable. The amount of such a provision is the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

Trade and other payables

Trade and other payables are initially recorded at fair value and subsequently at amortised cost.

Borrowings

Interest-bearing bank loans are initially recorded at fair value, net of any directly attributable issue costs, and subsequently recognised at amortised cost.

Borrowing costs

Finance and other costs incurred in respect of obtaining borrowings are accounted for on an accruals basis using the effective interest method and amortised to the consolidated statement of comprehensive income over the term of the associated borrowings.

Borrowing costs directly attributable to the acquisition and construction of investment and trading properties are added to the costs of such properties until the properties are ready for their intended use.

All other borrowing costs are recognised in the consolidated statement of comprehensive income in the period in which they are incurred.

2. Business combination during the period

On 22 May 2014 the Company acquired the entire issued share capital and the issued PECs of Urban&Civic Holdings S.à.r.l., the parent company of a group focused on the delivery of strategic residential land developments in key growth areas of the UK. The principal reason for the acquisition was to create the opportunity to grow a new 'best in class' UK real estate business. The acquisition was satisfied by the issue of 43,084,456 new ordinary shares of 20p each in the Company representing 67 per cent of the total shares in issue prior to the placing and employee offer (see note 18). Consequently the business combination has been accounted for as a reverse acquisition in accordance with IFRS 3 'Business Combinations' (revised), and accordingly the assets and liabilities of the Company and its subsidiary undertakings, being the acquiree group, have been fair valued.

Details of the fair value of the identifiable assets and liabilities acquired, the purchase consideration and the goodwill arising are as follows:

The fair value of the consideration given has been calculated by reference to the closing share price of the Company on 21 May 2014.

Fair value adjustments to the net assets acquired predominantly relate to property revaluations, deferred tax thereon and additional deferred tax assets recognised in respect of estimated tax losses that are expected and capable of being utilised as a consequence of the business combination.

The Directors have considered the incidental amount of resultant goodwill arising on acquisition and have concluded that it should be immediately written off in the consolidated statement of comprehensive income in the post-acquisition period. The goodwill is not deductible for tax purposes.

The Group has completed its fair value assessment and therefore the fair values disclosed are considered to be final.

Acquisition costs of £1,860,000 have been recognised in administrative expenses in the consolidated statement of comprehensive income.

Since 22 May 2014 the acquiree group has contributed £21,373,000 to the revenues of the Group and £6,058,000 to the Group's profit for the period before taxation. If the acquisition had occured on 1 January 2014, the revenue of the Group would have been increased by £33,855,000 and the Group's profit before taxation for the period would have been increased by £1,815,000.

3. Revenue and gross profit

4. Operating profit

Operating profit is arrived at after allocating £3,165,000 of administrative expenses to the cost of investment and trading properties (year ended 31 December 2013: £2,133,000).

5. Segmental information

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identified as the Board of Directors. In the year to 31 December 2013 the Group operated in one business segment, being strategic land, and this therefore comprises the results for that year and the balance sheet at 31 December 2013. Following the business combination in May 2014, two distinct business segments are being reported to the chief operating decision-maker. The two principal segments are strategic land and commercial property development. The strategic land segment includes serviced and unserviced land, consented and unconsented land and mixed-use development. The commercial segment includes Central London office developments and commercial regional developments.

Segmental information is reported in the table that follows in respect of the current period in accordance with the requirements of IFRS 8 'Operating Segments'.

Consolidated statement of comprehensive income

For the nine month period ended 30 September 2014

The segmental results that are monitored by the Board include all the separate lines making up the segmental IFRS operating profit. This excludes central overheads and taxation which are not allocated to operating segments.

During the period one commercial customer generated £19,026,000 of revenue representing greater than 80 per cent of the total revenue.

In the year ended 31 December 2013, there were three major customers that generated £309,000, £296,000 and £289,000 of revenue. Each of these represented 10 per cent or more of the total revenue.

Consolidated balance sheet

As at 30 September 2014

6. Finance income and finance costs

Interest is capitalised at the same rate as the Group is charged on respective borrowings. There were no significant interest swaps in the period and the Group had no outstanding bank borrowings at the end of the period.

During the period the Group entered discussions with two banks that were willing to accept discounted payments in full and final settlement of their loans. The total discount obtained from these banks amounted to £3,235,000.

7. Tax on profit on ordinary activities

8. Earnings per ordinary share

Basic earnings per ordinary share

The calculation of basic earnings per ordinary share is based on a profit of £15,006,000 (year ended 31 December 2013: £28,579,000) and on 72,138,247 (year ended 31 December 2013: 9,068,855) ordinary shares, being the weighted average number of shares in issue during the period.

Diluted earnings per ordinary share

Awards under the Group's long-term incentive plan are anti-dilutive and therefore have no dilution effect on the reported basic earnings per share.

The number of ordinary shares in issue during the period ended 30 September 2014 and the year ended 31 December 2013 have been calculated by reference to the capital structure of the Company following the share consolidation during the period.

9. Dividends

No dividends were paid during the current period or prior year.

The Directors are proposing a final dividend of 1.5p (2013: £nil) per ordinary share totalling £2,107,000 (2013: £nil). The dividend has not been accrued in the consolidated balance sheet.

10. Investment properties

The Group's principal investment property, Alconbury Weald, which represents 98 per cent of the period-end carrying value (at 31 December 2013: 100 per cent), is valued on a semi-annual basis by CBRE Limited, an independent firm of chartered surveyors, on the basis of fair value. The valuation at each period end is carried out in accordance with guidance issued by the Royal Institution of Chartered Surveyors. The other investment properties are valued by the Directors on the basis of fair value.

11. Investments

(i) Investments in joint ventures and associates

At 30 September 2014 the Group's interests in its joint ventures were as follows:

At 30 September 2014 the Group's interests in its associates are as follows:

(ii) Other investment

The other investment represents the fair value of the Group's minority share of the net assets attributable to the equity members of Howick Place JV S.à.r.l..

12. Deferred tax

The gross movement on the deferred tax account is as follows:

The deferred tax balances are made up as follows:

At 30 September 2014, the Group has unused tax losses of £45,308,000 (at 31 December 2013: £nil), of which £41,425,000 (at 31 December 2013: £nil) has been recognised as a deferred tax asset. A deferred tax asset in respect of tax losses of £3,883,000 (at 31 December 2013: £nil) has not been recognised as it is not considered sufficiently certain that there will be appropriate taxable profits available in the foreseeable future against which these losses can be utilised.

Under IAS 12 deferred tax is recognised for tax potentially payable on the realisation of investment properties at fair value at the balance sheet date. No deferred tax asset is recognised in respect of losses if there is uncertainty over future recoverability.

13. Trading properties

During the period to 30 September 2014 a trading property with a book value of £1,500,000 was transferred to investment properties following a decision to hold the property for income generation. In the prior period investment properties with a total carrying value of £45,068,000 were transferred to trading properties at fair value, following a decision to develop the properties for sale.

Capitalised interest of £307,000 is included within the carrying value of trading properties as at 30 September 2014 (at 31 December 2013: £204,000).

14. Trade and other receivables

15. Trade and other payables

16. Borrowings

During the period all bank loans were repaid.

On 15 May 2014 PECs with a nominal value of £45,000, together with accrued interest of £37,000, were redeemed at par.

On 22 May 2014 PECs with a nominal value of £49,114,000, together with accrued interest of £27,408,000, were exchanged for 34,009,665 ordinary shares of 20p each in the Company.

17. Other liabilities

Other liabilities relate to a contingent liability that was acquired as part of the business combination in the period. It is carried at its acquisition date fair value and relates to a potential tax liability.

18. Share capital

The number of ordinary shares in issue in the period ended 30 September 2014 has been calculated by reference to the capital structure of the Company following the share consolidation in the period.

19. Net asset value per share

Net asset value per share is calculated as the net assets of the Group attributable to shareholders at each balance sheet date, divided by the number of shares in issue at that date.

The number of ordinary shares in issue at 31 December 2013 have been calculated by reference to the capital structure of the Company following the share consolidation during the period ended 30 September 2014.

20. Contingent liabilities, capital commitments and guarantees

The Group has contingent tax liabilities relating to the pre-acquisition activities of the business acquired in the period which have been estimated at £3,841,000. The Directors assessed the fair value of this contingent liability at the date of the business combination to be £1,922,000 and this amount is included within other liabilities at 30 September 2014 (see note 2 and 17). Therefore the estimated unprovided exposure at 30 September 2014 is £1,919,000.

The Group has given a guarantee of £600,000 (at 31 December 2013: £nil) as part of its development obligations.

Capital commitments relating to the Group's development sites are as follows:

21. Leases

Operating lease commitments where the Group is the lessee

The future aggregate minimum lease rentals payable under non-cancellable operating leases are as follows:

Operating lease commitments where the Group is the lessor

The future aggregate minimum rentals receivable under non-cancellable operating leases are as follows:

22. Post balance sheet events

Since 30 September 2014 the Group has received a resolution to grant planning permission, subject to the completion of section 106 and section 278 agreements, for a 99,659 sq ft foodstore, along with 32,000 sq ft of industrial development at Altira Business Park in Herne Bay, Kent. The impact of this event increases the net realisable value of this property interest. The trading property carrying value of the Herne Bay development at 30 September 2014 was £3,626,000 (at 31 December 2013: £nil).

23. Related party transactions

Key management personnel

For the period to 22 May 2014, the date of transaction, Nigel Hugill and Robin Butler were considered to be the key management personnel of the Group. From 22 May 2014 all the Directors of the Company are considered to be key management personnel. The combined emoluments for the key management personnel are included below:

No pension contributions were made during the period in respect of any key management personnel (year ended 31 December 2013: £nil).

Details of termination payments made to Robert Adair have been disclosed in the compensation payments paragraph below.

Shareholder transactions

GIP U&C S.à.r.l. was the immediate holding and controlling company of Urban&Civic Holdings S.à.r.l. up to 21 May 2014 and received the following payments in respect of monitoring services:

Shareholder interests

The interests of GIP U&C S.à.r.l. and the key management personnel, including immediate family interests, in the share capital and PECs of Urban&Civic Holdings S.à.r.l. up to 21 May 2014 were as follows:

The movement in PECs in the period comprises accrued interest and an additional issue to GIP U&C S.à.r.l. of £4,985,000.

On 22 May 2014 the issued share capital of Urban&Civic Holdings S.à.r.l. and the outstanding PECs, including accrued interest, were exchanged for 43,084,456 ordinary shares of 20p each in the Company.

Under an agreement dated 28 April 2014, GIP U&C S.à.r.l. has undertaken not to dispose of any of its shares in the Company for a period of 12 months from 22 May 2014.

Under an agreement dated 28 April 2014, Robert Adair (for himself and on behalf of his trusts) has undertaken not to dispose of any of his shares in the Company for a period of 12 months from 22 May 2014 unless notice of three business days is received by the broker and all reasonable requirements in relation to the timing and execution of the transaction are adhered to.

Compensation payments

During the period the Group made a £700,000 payment to Robert Adair, the former Chairman of the Company, as compensation for loss of office and in lieu of his entitlement under the pre-existing performance share plan. As part of his settlement agreement the Group has also committed to pay him £200,000 when the Group receives an implementable planning consent for its site in Herne Bay. This amount is included within accruals at 30 September 2014.

Fees, other income and amounts due from joint ventures and associates

The following amounts are due from the Group's joint ventures and associates. These sums are included in receivables apart from amounts due from Achadonn Limited, which represent part of the net investment in that company.

Amounts due from Terrace Hill Residential PLC have been fully provided against at 30 September 2014 and were fair valued at £nil at the date of the business combination.

Glossary of terms

Risk register

The risk register sets out below the most significant risks facing the business: