TIDMREO

RNS Number : 8321Q

Real Estate Opportunities PLC

26 October 2011

26 October 2011

REAL ESTATE OPPORTUNITIES PLC

("REO" or the "Group")

Interim results for the period ended 31 August 2011

Planning permission granted for Battersea Power Station:

- Section 106 agreement completed and planning permission was issued on 23 August 2011, with backing from the Mayor of London and the Secretary of State for Communities and Local Government subsequent to the previous resolution to grant planning permission by the London Borough of Wandsworth

- Negotiations continue with a number of potential global investors expressing strong interest in committing to the project

- Battersea Power Station Shareholder Vehicle Limited ("BPSSV") continues to work closely with its lenders: Lloyds Banking Group, the National Asset Management Agency ("NAMA") and the holder of the Series A and Series B loan notes (the "OLNs")

Successful completion of balance sheet restructuring:

- Formal agreement effected on 12 May 2011 with holders of the 7.5% Convertible Unsecured Loan Stock ("CULS") and the Zero Dividend Preference Shares ("ZDPs") whereby liabilities of approximately GBP246 million were converted into equity and warrants in BPSSV and equity in REO

- Draft NAMA term sheet received in respect of the Group's wholly owned Irish property assets on which NAMA is the sole lender, with both parties working towards its finalisation and in turn completion of binding facility agreements

Market conditions remain challenging:

- Total portfolio valuation at GBP991 million, down marginally by 1.3% since February 2011. Irish property values continue to be impacted by uncertainty surrounding the potential abolition of upward only rent reviews, with the Irish property portfolio declining by 6.6% in the period, excluding foreign exchange gains

- Battersea Power Station valuation increased from GBP498 million at 28 February 2011 to GBP500 million, due to the purchase of an adjoining site

- Property income of GBP17 million in the six months to 31 August 2011, consistent with the prior year comparative period

- Loss from operating activities of GBP72 million in the period compared to a loss of GBP2 million in the six months to 31 August 2010, due principally to increased valuation losses in the current period and because the prior year comparative period included a one time gain arising from the disposal of REO's interest in China Real Estate Opportunities plc

- Profit after tax of GBP121 million in the period, compared to loss after tax of GBP45 million for the prior year comparative period, due principally to an accounting profit of GBP227 million on equitisation of liabilities due to CULS and ZDPs as part of the balance sheet restructuring.

- Profit per share of 36.3 pence, compared to loss per share of 13.6 pence for the prior year comparative period

- Cash balances at GBP18 million (includes cash equivalents and restricted cash), from GBP31 million at 28 February 2011, reduction due principally to a loan repayment from restricted cash and professional fees associated with the balance sheet restructuring

Operational performance remains strong:

- Prime properties generating stable rental income secured by high-quality occupiers on long leases supports strong operational performance in challenging market:

-- Stable annualised rent roll of EUR40 million on Irish investment portfolio (28 February 2011: EUR40.1 million)

-- Occupancy levels unchanged from 28 February 2011 at 95%, arrears at only 3% (reduced from 4% at 28 February 2011)

   --      Rent weighted average lease length of 12 years 

- Continued market uncertainty surrounds potential Irish Government amendments to legislation in respect of upward only rent reviews

Ray Horney, Chairman, said: "The receipt of planning permission for Battersea Power Station and the successful completion of the balance sheet restructuring represent progressive steps towards securing the Group's future. The Group's primary focus is now on introducing a long-term investor into the Battersea Power Station project, with negotiations continuing with a shortlist of potential global investors. While the finalisation of binding legal terms with NAMA will secure the Group's short term funding requirements, the current trading environment remains challenging and the Group will need to realise and/or refinance assets in order to discharge liabilities owed to various creditors. The Group remains committed to achieving these outcomes over the coming years."

Contacts:

   Real Estate Opportunities                                Tel: +44(0) 20 7501 0688 

Rob Tincknell, Director

   Treasury Holdings (Investment Adviser)       Tel: +353 1 618 9300 

John Bruder, Managing Director (Ireland)

Niall O'Buachalla, Group Finance Director

   Finsbury Group                                                   Tel: +44 (0) 20 7251 3801 

Gordon Simpson

Arif Shah

   Matrix Corporate Capital                                  Tel +44 (0)20 3206 7000 

Paul Fincham

Jonathan Becher

   Murray Consultants                                           Tel: + 353 1 498 0300 

Ed Micheau

CHAIRMAN'S STATEMENT

In the period from 1st March 2011, the Group has secured planning permission for Battersea Power Station and successfully implemented the balance sheet restructuring. In addition, negotiations are ongoing with a number of global investors regarding a potential investment in the Battersea Power Station project.

Battersea Power Station

Following previous announcements on the various stages of planning permission approval, final grant of planning permission as represented by the completion of the Section 106 agreement between the Group, London Borough of Wandsworth and Transport for London was secured on 23 August 2011.

The process of identifying and introducing a long-term investor is progressing with a number of potential global investors. It is anticipated that the subsequent capital injection resulting from the successful completion of this process will facilitate the repayment and/or refinancing of certain liabilities associated with the project, together with the procurement of development finance.

Phase 1 of the development's construction is targeted to commence in 2012 with completion in 2016. The remaining phases and Central London's first ever privately funded extension to the tube network are scheduled for completion thereafter.

Restructuring

As signalled in June's annual report, the Group's balance sheet restructuring, whereby liabilities of approximately GBP246 million due to the holders of both the Group's 7.5% Convertible Unsecured Loan Stock ("CULS") and the Zero Dividend Preference Shares ("ZDPs") would be converted into equity and warrants in Battersea Power Station Shareholder Vehicle Limited ("BPSSV") and equity in Real Estate Opportunities plc ("REO"), became effective on 12 May 2011.

As a result of the above, the listings of the CULS and ZDPs on the Official List (standard category in London) were cancelled on the above date and approximately 111 million additional Ordinary Shares in REO were admitted to the Official List (standard category in London).

NAMA

As previously indicated, the initial evaluation of the Group's business plan by the National Asset Management Agency ("NAMA") resulted in the signing of a non-binding Memorandum of Understanding ("MOU") in December 2010. The Group has recently received a draft term sheet from NAMA, which contains conditions, including the consolidation and renewal of loan facilities and the provision of working capital, which are consistent with the MOU. Both parties are now working towards the finalisation of the term sheet and in turn of binding facility agreements in the near future.

Property Portfolio & Business Activity

The Group's property portfolio was valued at GBP991 million as at 31 August 2011, a reported decrease of 1.3% from the valuation of GBP1,004 million at 28 February 2011. This reported decrease in the portfolio valuation is due to a revaluation adjustment of GBP83 million across the portfolio since 28 February 2011, after capitalised costs and acquisitions of GBP50 million, which has been somewhat offset by the fact that the Euro strengthened against Sterling in the period.

The Group's Irish portfolio declined on average by 6.6% in the period, primarily due to a negative revaluation adjustment, whilst the UK portfolio, which is primarily comprised of Battersea Power Station, increased by 0.3%.

Despite a challenging occupational market, the strong operational performance of the Group's investment portfolio continues to be underpinned by high occupancy rates (95%) and long leases (weighted average lease length of 12 years), with no material defaults to date.

REO continues to focus its attention on attracting high quality occupiers committed to long-term leases by ensuring that our investment portfolio comprises modern, flexible buildings that meet evolving occupier needs in locations and formats with strong appeal. This combination of prime office/retail locations and pro-active portfolio management has resulted in high quality, diversified tenants including Vodafone, Merrill Lynch, KPMG, Marks & Spencer, Bank of Ireland and Tullow Oil plc.

The Group continues to adopt a prudent approach towards its development pipeline timetable, with construction completed on only one development project during the period, being the partial fit-out of Number One Central Park as a result of letting space in the building to Tullow Oil plc. As previously reported, the Group completed the sale of Montevetro, Dublin's tallest commercial office building, to Google on 8 April 2011 for GBP85.2 million.

However, where appropriate, the Group continues to seek planning permissions within the current development portfolio as part of its long-term development strategy, as evidenced by the recent successful planning decision for a private hospital and rehabilitation facility in Sligo.

Listings

As previously announced, the Company cancelled its listings of Ordinary Shares and CULS on the Official Lists of both the Irish Stock Exchange and the Channel Islands Stock Exchange on 16 March 2011. Following the successful completion of the balance sheet restructuring on 12 May 2011, the listings of the CULS and ZDPs on the Official List (standard category in London) were cancelled on that date and approximately 111 million additional Ordinary Shares in REO were admitted to the Official List (standard category in London).

Outlook

Significant milestones have been achieved during the period such as the receipt of planning permission on the Battersea Power Station development and the successful completion of the balance sheet restructuring of the Group's debt. The Group's emphasis is now focussed on the introduction of a long-term investor into the Battersea Power Station project.

However, external factors such as continued concerns about the global and domestic Irish economies and uncertainty surrounding the Irish government's potential introduction of legislation in respect of upward only rent provisions in existing leases continue to adversely impact upon the Group's portfolio and performance.

Whilst acknowledging the significant progress made since 1 March 2011 in respect of the Battersea Power Station planning and the completion of the balance sheet restructuring, the Group still needs to repay and/or refinance significant financial liabilities to various creditors in the next few years and remains committed to achieving these outcomes.

INVESTMENT ADVISER'S REPORT

INVESTMENT PORTFOLIO

The Group continues to maintain high occupancy levels (95%) across its investment portfolio, with a strong emphasis on rental income flows secured by high-quality occupiers with long leases on prime properties, resulting in an annualised rent roll of EUR40 million on the Irish investment portfolio and only 3% of rent roll in arrears. Rent weighted average lease length is approximately 12 years, with no material defaults to date. Property income in the six month period ended 31 August 2011 was approximately GBP17 million, which is consistent with the prior year comparative period.

REO's portfolio is well located and has consistently managed to attract and retain high quality occupiers such as Vodafone, Tullow Oil plc, Merrill Lynch, KPMG, Bank of Ireland and Marks & Spencer. Pro-active asset management, combined with a strong lease structure, has contributed to stable levels of income during continuing deflation in rental value.

DEVELOPMENT PORTFOLIO

Battersea Power Station

As outlined in the Chairman's Statement, Section 106 agreement has now been completed between the Group, London Borough of Wandsworth and Transport for London thereby facilitating the commencement of construction of Phase 1 of the development in 2012, with completion in 2016.

This transformational scheme, which will be the largest ever undertaken in Central London, will act as a catalyst for the regeneration of the Nine Elms Opportunity Area and is expected to create approximately 15,000 new jobs and training opportunities for the area, whilst also including a new underground station as part of the proposed Northern Line extension from Kennington to Nine Elms and Battersea.

Irish Development Portfolio

Progress within the Irish development portfolio in the period includes:

Central Park

As noted in the annual report, Tullow Oil plc, the FTSE 100 index listed, international oil and gas exploration company, has doubled its existing rental space in the above development to a total of 48,000 sqft in Number One Central Park in Leopardstown, Dublin, which is REO's prime suburban development, and home to a range of other blue chip clients including Vodafone, Ulster Bank (Royal Bank of Scotland), Volkswagen Bank, Lease Plan and Merrill Lynch.

Interior fit-out works as a result of the letting to Tullow Oil plc identified above commenced in March 2011 and completed in August 2011.

Montevetro

As previously noted, REO completed the sale of Montevetro, Dublin's tallest commercial office building, to Google, for a price of GBP85.2 million, which was satisfied in cash, in April 2011.

Ongoing constraints on development finance and current market demands have seen the Group continue to follow a prudent approach towards its development pipeline timetable, only pursuing appropriate planning permissions which correlate with its long-term development strategy, as evidenced by the recent successful planning decision for a private hospital and rehabilitation facility in Sligo.

Sustainability

Through its role as investment adviser and portfolio manager for REO, Treasury Holdings, which has been a carbon neutral company since 2007, promotes environmental protection and sustainability across all aspects of REO's property portfolio via the implementation and use of environmentally friendly materials and renewable energy initiatives.

Many REO developments, such as Montevetro and Central Park, have set high environmental standards and the provision of sustainable buildings, such as these, offer competitive advantages to corporate tenants through lower operating costs and better indoor environmental quality, thereby allowing tenants to demonstrate progress towards corporate environmental objectives.

The Battersea Power Station development will lead the way in delivering a highly sustainable development, through the creation of a mixed use community, new public transport provided by the Northern Line Extension and ground breaking environmental measures. The project includes a CCHP energy centre generating 30MW of electricity which, together with other efficiency measures, will enable the Power Station to become zero carbon and the rest of the development to be low carbon, saving approximately 65% of CO2 emissions across the entire site.

VALUATIONS

The value of the portfolio as at 31 August 2011 amounted to GBP991 million, a reported decrease of 1.3% from the 28 February 2011 valuation of GBP1,004 million.

Valuation Methodology

Investment properties and investment properties under development are stated at fair value in accordance with GAAP at 31 August 2011. As previously indicated in the Group's October 2010 Interim Management Report, the Group has commissioned Treasury Holdings, in its capacity as Group Investment Adviser, to undertake these valuations for the interim period only. The primary source of evidence for property valuations should be recent, comparable market transactions on arm's length terms. However, the valuation of the Group's property portfolio is inherently subjective in the present market environment due to the continuing low level of comparable transactions.

 
 
                                           Valuation    Valuation 
                                             Feb '11      Aug '11         % 
                                                '000         '000    Change 
------------------------------  -------  -----------  -----------  -------- 
 
  Irish Investment Properties     Euro       446,080      423,154     -5.1% 
------------------------------  -------  -----------  -----------  -------- 
 
  Irish Properties under 
  development                     Euro       139,587      123,557    -11.4% 
------------------------------  -------  -----------  -----------  -------- 
 
  Irish Properties                Euro       585,667      546,711     -6.6% 
------------------------------  -------  -----------  -----------  -------- 
 
 UK Properties                   GBP         504,625      506,625      0.3% 
------------------------------  -------  -----------  -----------  -------- 
 

Irish Investment Properties: The value of Irish investment properties has declined on average by 5.1% in the six months to 31 August 2011, as capital values continue to be adversely impacted by uncertainty surrounding the potential introduction of legislation in respect of upward only rent reviews and the wider Irish economy.

Irish Development Properties: The value of Irish properties under development, which are classified as sites in the course of development, has decreased on average by 11.4% in the six months to 31 August 2011. The ongoing financial crisis combined with the absence of debt finance continues to weigh negatively on market sentiment within the development sector.

UK Properties: The value of the UK property portfolio has increased by 0.3% in the six months to 31 August 2011, due to the purchase of the Esso site adjacent to Battersea Power Station.

Pending the introduction of a long-term investor, construction of Phase 1 of the development is scheduled to commence in 2012, with completion in 2016.

FINANCIAL REVIEW

Valuations & Net Asset Value ("NAV")

As noted above, the value of the portfolio as at 31 August 2011 amounted to GBP991 million, a reported decrease of 1.3% since 28 February 2011.

The deficit on the consolidated shareholders' funds at 31 August 2011 has reduced to GBP684 million (28 February 2011: GBP801 million deficit), primarily as a result of the successful completion of the balance sheet restructuring in May 2011.

The consolidated net deficit of the Group under the EPRA guidelines was GBP617 million at 31 August 2011 (28 February 2011 EPRA net deficit: GBP718 million).

Diluted EPRA deficit per share was -138.5p as at 31 August 2011, representing a reduction in the deficit from -215.1p at 28 February 2011.

Profit & Loss

Property income for the six months to 31 August 2011 remained stable at approximately GBP17 million, which is consistent with the prior year comparative period. After valuation losses and operating expenses, the reported operating loss was GBP72 million (six months ended 31 August 2010: GBP2 million loss). The increased operating loss in the period arose principally from an increase in valuation losses in the period of GBP43 million, including approximately GBP20 million of debt restructuring costs which were capitalised and written off in the period, and a one time gain of GBP26 million relating to the disposal of REO's investment in China Real Estate Opportunities plc in the prior year comparative period.

Net financial expenses were GBP36 million in the period (six months ended 31 August 2010: GBP46 million). REO also reported an accounting profit of GBP227 million on the equitisation of liabilities due to the CULS and ZDPs as part of the balance sheet restructuring.

This has resulted in a REO profit after taxation for the period of GBP121 million (six months ended 31 August 2011: GBP45 million loss).

Cash

As at 31 August 2011, the Group had cash, cash equivalents and restricted cash of GBP18 million (28 February 2011: GBP31 million), the reduction due principally to a loan repayment from restricted cash and professional fees associated with the balance sheet restructuring.

Debt & Gearing

As a result of the successful completion of the balance sheet restructuring in May 2011, overall debt level, which includes amounts due to the holder of the Series A and Series B loan notes ( the "OLNs"), has reduced to GBP1,501 million at 31 August 2011 (GBP1,733 million at 28 February 2011). Bank loans amounting to GBP1,017 million have matured or will mature during the next twelve months.

The Group continues to work closely with other lenders, which exist outside NAMA's remit, to renew debt facilities where required.

Going Concern

The Group's future operating performance will be affected by general economic, financial and business conditions, many of which remain beyond the Group's control.

At 31 August 2011, the Group's borrowings totalled GBP1.5 billion and in addition there were interest and finance accruals of GBP96.9 million. At that date, the Group had an investment and development portfolio which it valued at GBP991 million, together with cash and cash equivalents of GBP3.1 million, and restricted cash of GBP14.9 million. The deficit on shareholders' funds was GBP684 million. At 31 August 2011, the Group had aggregate bank loans of GBP1,017 million classified as current liabilities.

On 12 May 2011, the Group successfully completed a financial restructuring of liabilities due to the holders of its CULS, ZDPs and the OLNs, which saw the equitisation of approximately GBP246 million of liabilities due to the CULS and ZDPs into equity and warrants in BPSSV and equity in REO, together with the deferral of all principal and interest payments due on the OLNs until 31 August 2011 or such later date as might be subsequently agreed with the Battersea senior lenders (Lloyds Banking Group and NAMA) in respect of the expiry of their loan facilities, and the novation of those liabilities into BPSSV from REO.

The loan facilities relating to Battersea Power Station with both Lloyds Banking Group and NAMA, which were extended to 31 August 2011, can currently be called on demand. Regular discussions are ongoing with the senior lenders.

At 31 August 2011, the principal and interest due to the OLNs was GBP174.2 million. Discussions are ongoing with the OLNs.

Following the signing of the MOU with NAMA in December 2010, the Group recently received a draft term sheet from NAMA in respect of its wholly owned Irish property assets on which NAMA is the sole lender, the terms of which are consistent with those contained in the MOU. Both parties are working towards the finalisation of the term sheet in the near future.

The key assumptions made in preparing the Group's projected cashflow for the twelve months from approval of the financial statements include:

-- The completion of binding facility agreements with NAMA based on the term sheet in the near future to address:

   (a)   the deferral of interest payments 

(b) the renewal by NAMA of bank facilities on wholly owned Irish property assets, on which NAMA is the sole lender, in the amount of GBP475 million

   (c)   the provision by NAMA of working capital facilities 
   (d)   the provision by NAMA of financial support to cover certain operating cash requirements. 

-- The renewal by NAMA of facilities on partially owned Irish property assets in the amount of GBP133 million, and of a facility, on which NAMA is the junior lender, in the amount of GBP76 million, on broadly similar terms to those contained in the MOU for these facilities.

-- The renewal by non-NAMA banks of facilities on Irish property assets in the amount of GBP54 million on broadly similar terms.

-- The continued support of the lenders on the Battersea Power Station development for the current investor process aimed at introducing a long-term investor on this project.

-- Agreeing terms with a long-term investor on the Battersea Power Station development to provide project financing and to repay certain liabilities.

Based on the Group's current projected cashflows and the key assumptions noted above, the Board believes that the Group will have sufficient cash and cash equivalents to meet its liquidity requirements for at least twelve months from the date of approval of this report.

The Directors of the Company have concluded that the above factors represent material uncertainties. Failure to achieve the above assumptions and objectives could cast significant doubt on the Group's ability to continue as a going concern and it may therefore be unable to realise its assets and discharge its liabilities in the normal course of business.

However, having discussed the assumptions and basis of preparation supporting the Group's cashflow projections, together with the advanced status of negotiations with the Group's key lenders, along with securing planning permission on Battersea Power Station, the financial restructuring of the Group's balance sheet, the receipt of a draft term sheet from NAMA and the progress made towards introducing a long-term investor on the Battersea Power Station development, the Directors of the Company have a reasonable expectation that the Group will be able to meet its liabilities as they fall due for the foreseeable future.

On this basis, the Directors consider it appropriate to prepare the financial statements on a going concern basis. No adjustment which would result from a change in the going concern basis of preparation has been included in the financial statements.

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks and uncertainties that face the business include the following:

Economy

Renewed turbulence in the global financial markets, together with the austerity measures that require implementation by the Irish government in order to comply with the assistance programme contained within the December 2010 EU/IMF Agreement, continue to have an adverse impact upon the Irish economy. Despite narrowing yields on Irish sovereign debt, the spending cuts and tax increases which require introduction as part of the above agreement may impact upon future economic growth in Ireland, the outlook for which remains subdued.

The Group's property portfolio is concentrated in Ireland thereby exposing the Group to the ongoing weakness of the Irish economy and its subsequent impact upon Ireland's property market. Factors such as weakened occupier demand, oversupply, and potential vacancies due to financial market rationalisation and uncertainty continue to pose a material risk to the Group's business, operational results and financial health.

Liquidity

The Group's reliance upon the ongoing support of NAMA and other lenders will continue until one or more of the following key initiatives have been concluded:

   --      execution of legally binding documentation with NAMA; 

-- further asset disposals from the Irish property portfolio, the timing of which will be subject to conditions in the Irish property market;

   --      introduction of a long-term investor into the Battersea Power Station development; and 
   --      further financial restructuring initiatives. 

The failure to successfully implement such initiatives and/or renew bank facilities expiring in the next twelve months would have material adverse consequences for the Group, thereby casting doubt on its ability to continue as a going concern.

Financial sector - Lenders & NAMA

Development finance remains largely absent from the market due to the ongoing economic and banking concerns outlined above. Despite narrowing yields on sovereign debt, the ability of both the Irish government and the Irish banking system to borrow funds in the international money markets remains constrained.

Recent renewed turbulence in the global financial markets could significantly increase the cost of available funding or lead to serious difficulties in refinancing the Group's current debt levels. The Group could also be forced to sell further assets, which may not be under the best conditions, in order to meet payment obligations.

Property Valuations & NAV

The severe recession in the Irish economy has been accompanied by significant falls in the value of properties across the Irish market. Continuing inactivity in the Irish property market, the potential enactment of retrospective abolition of upward only rent reviews on existing leases and the ongoing absence of new financing facilities, has also led to difficulty in conducting realistic property valuations.

Ongoing volatility in the global financial system has created a significant degree of turbulence in commercial real estate markets on a worldwide basis. Furthermore, the absence of liquidity in the financial markets means that it may be very difficult for the Group to achieve further property sales in the short-term.

Despite the successful completion of the balance sheet restructuring, further potential declines in the value of the Group's portfolio may result in a further reduction to shareholders' funds, which currently show a deficit of GBP684 million (28 February 2011: deficit of GBP801 million).

The consolidated net deficit of the Group under the EPRA guidelines is GBP617 million at 31 August 2011 (28 February 2011: net deficit of GBP718 million).

Interest Rates

The Group uses interest rate swaps in order to manage its exposure to fixed and floating rates. Financing remains scarce and the renewed volatility in the global financial markets may result in lenders seeking increased margins, thereby increasing interest costs as an expense to the Group. Failure to meet margin calls under such interest swaps may preclude the Group from using this mechanism to manage its exposure to fluctuating interest rates.

Statement of the directors 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 1 to 17 have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

   (b)   the interim management report 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; and

(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 that period; and any changes in the related party transactions described in the last annual report that could do so.

By order of the Board

Ray Horney Chairman 25 October 2011

Independent Review Report to Real Estate Opportunities plc

INTRODUCTION

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 August 2011 which comprises the condensed consolidated statement of financial position, condensed consolidated statement of comprehensive income, condensed consolidated statement of changes in equity, condensed consolidated statement of cashflows 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 the terms of our engagement to assist the company in meeting the requirements of the Transparency (Directive 2004/109/EC) Regulations 2007 ("the TD Regulations") and the Disclosure and Transparency Rules 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 TD Regulations and the Disclosure and Transparency Rules of the UK 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 International Standard 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 August 2011 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU, the TD Regulations and the Disclosure and Transparency Rules of the UK FSA.

Emphasis Of Matter - Going Concern

In forming our opinion on these financial statements, which is not qualified, we have considered the adequacy of the disclosures made in Note 1(b) to the financial statements concerning the Group's ability to continue as a going concern.

As set out in that note there are a number of material uncertainties which could, were the underlying assumptions not to be achieved, cast significant doubt on the ability of the Group to continue as a going concern. These matters include the completion of the binding facility agreements with NAMA, addressing interest payments, renewal by NAMA of bank facilities, and the provision by NAMA of working capital facilities and financial support to cover certain operating cash requirements; renewal by non-NAMA banks of existing borrowings; the continued forbearance of the lenders on the Battersea Power Station development; and the introduction of an equity partner for the Battersea development.

While the ultimate outcome of these matters cannot be assessed with certainty at this time, the Directors are of the opinion that, based on the current stage of discussions with the various involved parties, it is appropriate to prepare the financial statements on the going concern basis.

The financial statements do not include any adjustments that would result if the Group was unable to continue as a going concern.

The group's principal assets comprise investment properties and investment properties under development, located in Ireland and the UK, which are being carried in the financial statements at market value. Given the materiality of these amounts and the inherent subjectivity in such valuations, we draw your attention to note 2 to the condensed financial statements, which highlights that these valuations have been carried out solely by the Directors using assumptions, and exercising certain judgements, based on market conditions as at 31 August 2011.

Sean O'Keefe

Senior Statutory Auditor

For and on behalf of KPMG

Chartered Accountants

Registered Auditor

Dublin, Ireland

25 October 2011

Condensed consolidated statement of financial position

As at 31 August 2011

 
In thousands of pounds sterling                              31 August          28 February 
                                                       Note       2011                 2011 
                                                             unaudited              audited 
 
Assets 
Investment properties                                   2      395,863              401,469 
Investment properties under development                 2      594,929              602,613 
Trade and other receivables                                      5,535                5,460 
Deferred tax assets                                    4b        1,118                  764 
Restricted cash                                                  5,728                4,925 
Total non-current assets                                     1,003,173            1,015,231 
                                                             =========  =================== 
 
Trade and other receivables                             6        9,701               68,565 
Cash and cash equivalents                                        3,133                5,690 
Restricted cash                                                  9,131               20,874 
                                                             =========  =================== 
Total current assets                                            21,965               95,129 
                                                             =========  =================== 
Total assets                                                 1,025,138            1,110,360 
                                                             =========  =================== 
 
Liabilities 
Interest-bearing loans and borrowings                   5      336,583              324,253 
Trade and other payables                                           904                 889 
Derivative financial instruments                       5b       65,181             65,214 
Deferred tax liabilities                               4b       12,186               12,923 
                                                             =========  =================== 
Total non-current liabilities                                  414,854              403,279 
                                                             =========  =================== 
 
Interest-bearing loans and borrowings                   5    1,164,320            1,409,105 
Trade and other payables                                7      125,839               93,841 
Derivative financial instruments                       5b        1,899                4,834 
                                                             =========  =================== 
Total current liabilities                                    1,292,058            1,507,780 
                                                             =========  =================== 
Total liabilities                                            1,706,912            1,911,059 
                                                             =========  =================== 
Net liabilities                                              (681,774)            (800,699) 
                                                             =========  =================== 
 
 Equity 
Issued share capital                                   8a        4,453                3,340 
Share premium                                          8b        1,441                  216 
Other reserves                                                   1,480                1,480 
Currency reserve                                                77,699              101,167 
Retained losses                                              (768,660)            (906,902) 
                                                             =========  =================== 
Total deficit attributable to owners of the Company          (683,587)            (800,699) 
 
Non controlling interest                               8c        1,813                    - 
                                                                        =================== 
Total deficit                                                (681,774)            (800,699) 
 
 
Net deficit per ordinary share 
Basic (pence)                                           9      (153.5)              (239.7) 
Diluted (pence)                                         9      (153.5)              (239.7) 
Diluted EPRA (pence)                                    9      (138.5)              (215.1) 
                                                             =========  =================== 
 

Condensed consolidated statement of comprehensive income

For the six months ended 31 August 2011

 
                                                     Note  31 August     31 August 
                                                                2011          2010 
In thousands of pounds sterling                            unaudited     unaudited 
 Continuing operations 
Property income                                       10      16,912        17,359 
 
Other income                                                     396           620 
Valuation losses on investment properties and 
 on investment properties under development            2    (82,535)      (39,427) 
Profit on disposal of investment property                          -           244 
 Profit on disposal of investment in CREO             3            -        26,233 
 Management fee                                                (912)       (1,102) 
Administrative expenses                               11     (5,690)       (5,522) 
                                                           --------- 
Results from operating activities                           (71,829)       (1,595) 
 
 Gain on equitisation of CULS and ZDPs                14     226,958             - 
Finance income                                                 8,986            83 
Finance expenses                                            (45,178)      (45,903) 
                                                           ---------  ============ 
Net finance costs                                     12    (36,192)      (45,820) 
 
Profit /(loss) before income tax                             118,937      (47,415) 
 
Income tax credit                                     4        1,752         2,083 
                                                           ---------  ============ 
Profit / (loss) for the period                               120,689      (45,332) 
                                                           =========  ============ 
 
Other comprehensive income 
Foreign currency translation differences                    (23,468)        37,769 
 
Other comprehensive (loss) / income, net of income 
 tax                                                        (23,468)        37,769 
                                                           ---------  ============ 
Total comprehensive income / (loss) for the period            97,221       (7,563) 
                                                           =========  ============ 
 
Profit / (loss) attributable to: 
Owners of the company                                        138,242      (45,332) 
Non-controlling interest                              8c    (17,553)             - 
                                                           ---------  ============ 
Profit / (loss) for the period                               120,689      (45,332) 
                                                           ---------  ============ 
 
Total comprehensive profit / (loss) attributable 
 to: 
Owners of the company                                        114,774       (7,563) 
Non-controlling interest                              8c    (17,553)             - 
                                                           ---------  ============ 
Total comprehensive profit / (loss) for the period            97,221       (7,563) 
                                                           =========  ============ 
 
Earnings/ (loss) per ordinary share 
Basic (pence)                                         13        36.3        (13.6) 
Diluted (pence)                                       13        36.3        (13.6) 
 
 

Condensed consolidated statement of changes in equity

For the six months period ended 31 August 2011; unaudited (in thousand of pounds sterling)

 
 Group            Share      Share      Other       Currency   Retained     Total equity   Non-controlling   Total 
                   capital    premium    reserves    reserve   (losses)     / (deficit)     interest 
                                                               / earnings   reserves 
                                                                            attributable 
                                                                            to owners 
                                                                            of the 
                                                                            company 
---------------  ---------  ---------  ----------  ---------  -----------  -------------  ----------------  ---------- 
 Balance at 1 
  March 
  2011             3,340       216        1,480     101,167    (906,902)     (800,699)            -          (800,699) 
---------------  ---------  ---------  ----------  ---------  -----------  -------------  ----------------  ---------- 
 Total 
 comprehensive 
 income 
---------------  ---------  ---------  ----------  ---------  -----------  -------------  ----------------  ---------- 
 Non 
  controlling 
  interest 
  arising in 
  period (note 
  8(c))                                                                                        19,366         19,366 
---------------  ---------  ---------  ----------  ---------  -----------  -------------  ----------------  ---------- 
 
 Profit / 
  (loss) for 
  the period         -          -           -          -        138,242       138,242         (17,553)        120,689 
---------------  ---------  ---------  ----------  ---------  -----------  -------------  ----------------  ---------- 
 
 Other 
 comprehensive 
 income 
---------------  ---------  ---------  ----------  ---------  -----------  -------------  ----------------  ---------- 
 Foreign 
  currency 
  translation 
  differences        -          -           -       (23,468)       -          (23,468)            -          (23,468) 
---------------  ---------  ---------  ----------  ---------  -----------  -------------  ----------------  ---------- 
 Total other 
  comprehensive 
  income             -          -           -       (23,468)       -          (23,468)            -          (23,468) 
---------------  ---------  ---------  ----------  ---------  -----------  -------------  ----------------  ---------- 
 Total 
  comprehensive 
  income             -          -           -       (23,468)    138,242       114,774      (17,553)           97,221 
---------------  ---------  ---------  ----------  ---------  -----------  -------------  ----------------  ---------- 
 
 Transactions 
 with owners 
 recorded 
 directly in 
 equity 
---------------  ---------  ---------  ----------  ---------  -----------  -------------  ----------------  ---------- 
 Contribution 
 by and 
 distribution 
 to owners 
---------------  ---------  ---------  ----------  ---------  -----------  -------------  ----------------  ---------- 
 Issue of 
  ordinary 
  shares 
  (note 8)         1,113      1,225         -          -           -           2,338              -            2,338 
---------------  ---------  ---------  ----------  ---------  -----------  -------------  ----------------  ---------- 
 Total 
  transactions 
  with owners      1,113      1,225         -          -           -           2,338              -            2,338 
---------------  ---------  ---------  ----------  ---------  -----------  -------------  ----------------  ---------- 
 Balance at 31 
  August 
  2011             4,453      1,441       1,480      77,699    (768,660)     (683,587)          1,813        (681,774) 
---------------  ---------  ---------  ----------  ---------  -----------  -------------  ----------------  ---------- 
 

For the year ended 28 February 2011; audited (in thousand of pounds sterling)

 
 Group               Share     Share      Other      Currency   Retained    Total equity   Non-controlling   Total 
                     capital    premium   reserves    reserve   (losses)    / (deficit)     interest 
                                                                /           reserves 
                                                                earnings    attributable 
                                                                            to owners 
                                                                            of the 
                                                                            company 
------------------  --------  ---------  ---------  ---------  ----------  -------------  ----------------  ---------- 
 Balance at 1 
  March 
  2010                3,338       12       1,480      77,075    (803,528)    (721,623)            -          (721,623) 
------------------  --------  ---------  ---------  ---------  ----------  -------------  ----------------  ---------- 
 Reclassification       -         -        14,157     26,233    (40,390)         -                -              - 
------------------  --------  ---------  ---------  ---------  ----------  -------------  ----------------  ---------- 
 Restated Balance     3,338       12       15,637    103,308    (843,918)    (721,623)            -          (721,623) 
------------------  --------  ---------  ---------  ---------  ----------  -------------  ----------------  ---------- 
 Total 
 comprehensive 
 income 
------------------  --------  ---------  ---------  ---------  ----------  -------------  ----------------  ---------- 
 Profit or loss         -         -          -          -       (45,332)      (45,332)            -          (45,332) 
------------------  --------  ---------  ---------  ---------  ----------  -------------  ----------------  ---------- 
 Other 
 comprehensive 
 income 
------------------  --------  ---------  ---------  ---------  ----------  -------------  ----------------  ---------- 
 Foreign currency 
  translation 
  differences           -         -          -        37,769        -          37,769             -           37,769 
------------------  --------  ---------  ---------  ---------  ----------  -------------  ----------------  ---------- 
 Share of reserve       -         -          -          -           -            -                -              - 
 movement 
 - associate 
------------------  --------  ---------  ---------  ---------  ----------  -------------  ----------------  ---------- 
 Total other 
  comprehensive 
  income                                     -        37,769        -          37,769             -           37,769 
------------------  --------  ---------  ---------  ---------  ----------  -------------  ----------------  ---------- 
 Total 
  comprehensive 
  income for the 
  period                -         -          -        37,769    (45,332)      (7,563)             -           (7,563) 
------------------  --------  ---------  ---------  ---------  ----------  -------------  ----------------  ---------- 
 Reclassified to 
  profit                                  (14,157)   (26,233)    14,157       (26,233)            -          (26,233) 
------------------  --------  ---------  ---------  ---------  ----------  -------------  ----------------  ---------- 
 
 Transactions with 
 owners 
 recorded directly 
 in 
 equity 
------------------  --------  ---------  ---------  ---------  ----------  -------------  ----------------  ---------- 
 Contribution by 
 and 
 distribution to 
 owners 
------------------  --------  ---------  ---------  ---------  ----------  -------------  ----------------  ---------- 
 Conversion of 
  loan 
  stock                 2        204         -          -           -           206               -             206 
------------------  --------  ---------  ---------  ---------  ----------  -------------  ----------------  ---------- 
 Total 
  transactions 
  with owners           2        204         -          -           -           206               -             206 
------------------  --------  ---------  ---------  ---------  ----------  -------------  ----------------  ---------- 
 Balance at 31 
  August 
  2010                3,340      216       1,480     114,844    (875,093)    (755,213)            -          (755,213) 
------------------  --------  ---------  ---------  ---------  ----------  -------------  ----------------  ---------- 
 
 
 Balance at 1 September 
  2010                           3,340   216   1,480   114,844    (875,093)   (755,213)   -    (755,213) 
------------------------------  ------  ----  ------  ---------  ----------  ----------  ---  ---------- 
 Total comprehensive 
  income 
------------------------------  ------  ----  ------  ---------  ----------  ----------  ---  ---------- 
 Profit or loss                    -      -      -        -       (31,809)    (31,809)    -    (31,809) 
------------------------------  ------  ----  ------  ---------  ----------  ----------  ---  ---------- 
 Other comprehensive 
  income 
------------------------------  ------  ----  ------  ---------  ----------  ----------  ---  ---------- 
 Foreign currency translation 
  differences                      -      -      -     (13,677)       -       (13,677)    -    (13,677) 
------------------------------  ------  ----  ------  ---------  ----------  ----------  ---  ---------- 
 Realisation on transfer 
  of associate to assets             -     -       -          -       -               -    -           - 
  available for sale 
------------------------------  ------  ----  ------  ---------  ----------  ----------  ---  ---------- 
 Total other comprehensive 
  income                                         -     (13,677)       -       (13,677)    -    (13,677) 
------------------------------  ------  ----  ------  ---------  ----------  ----------  ---  ---------- 
 Total comprehensive 
  income                             -    -      -     (13,677)   (31,809)    (45,486)    -    (45,486) 
------------------------------  ------  ----  ------  ---------  ----------  ----------  ---  ---------- 
 
 Transactions with owners 
  recorded directly in 
  equity 
------------------------------  ------  ----  ------  ---------  ----------  ----------  ---  ---------- 
 Contribution by and 
  distribution to owners 
------------------------------  ------  ----  ------  ---------  ----------  ----------  ---  ---------- 
 Total transactions                  -    -      -        -           -           -       -        - 
  with owners 
------------------------------  ------  ----  ------  ---------  ----------  ----------  ---  ---------- 
 Balance at 28 February 
  2011                           3,340   216   1,480   101,167    (906,902)   (800,699)   -    (800,699) 
------------------------------  ------  ----  ------  ---------  ----------  ----------  ---  ---------- 
 

Condensed consolidated statement of cash flows

For the six months ended 31 August 2011

 
In thousands of pounds sterling                               31 August          31 August 
                                                                   2011               2010 
                                                              unaudited          unaudited 
 
Operating activities 
Profit / (loss) for the period                                  120,689           (45,332) 
Net financial expense                                            36,192             45,820 
Profit on disposal of investment of CREO                              -           (26,233) 
Profit on disposal of investment properties under 
 development                                                          -              (244) 
Change in fair value of investment properties and 
 investment properties 
 under development                                               82,535             39,427 
Gain on equitisation of CULS and ZDPs                         (226,958)                  - 
Income tax credit                                               (1,752)            (2,083) 
                                                              ---------  ----------------- 
Operating profit before changes in working capital               10,706             11,355 
 
 
(Increase) / decrease in trade and other receivables            (3,207)              1,165 
Decrease in trade and other payables                            (1,239)            (2,225) 
                                                              --------- 
Changes in working capital                                      (4,446)            (1,060) 
 
Income tax (payment) /refund                                      (120)                145 
 
Net cash from operating activities                                6,140             10,440 
 
Investing activities 
Addition to investment properties and investment properties 
 under development                                              (6,708)           (28,531) 
Proceeds from sale of listed investment                               -             27,680 
Proceeds from sale of investment properties under 
 development (note 6)                                            64,878              3,113 
Interest received                                                    54                110 
Movement in restricted cash                                      10,940            (2,391) 
                                                              --------- 
Cash flows from investing activities                             69,164               (19) 
                                                              ---------  ----------------- 
 
Financing activities 
Repayment of bank borrowings (note 6)                          (68,959)            (4,565) 
Proceeds from bank borrowings                                    14,134             15,294 
Payments on derivative financial instruments                   (14,666)           (16,396) 
Interest paid                                                   (9,581)            (3,840) 
                                                              ---------  ----------------- 
Cash flows from financing activities                           (79,072)            (9,507) 
                                                              ---------  ----------------- 
 
Net (decrease) / increase in cash and cash equivalents          (3,768)                914 
Cash and cash equivalents at beginning of period                  5,690             21,100 
Effect of exchange rate fluctuations on cash held                 1,211            (1,371) 
                                                              ---------  ----------------- 
Cash and cash equivalents                                         3,133             20,643 
                                                              ---------  ----------------- 
 

Notes to the condensed consolidated interim financial statements

1a. Basis of preparation

Real Estate Opportunities plc (the "Company") is a property company incorporated in Jersey.

The unaudited condensed consolidated interim financial statements of the Company as at and for the 6 months ended 31 August 2011 comprise the Company and its subsidiaries (together referred to as the "Group"). The consolidated statement of comprehensive income, the consolidated statement of cashflows and the consolidated statement of changes in equity have been prepared for the 6 months ended 31 August 2011 and the comparative period is the 6 months ending 31 August 2010. The statement of financial position has been prepared as at 31 August 2011 and the comparative is the audited statement of financial position as at 28 February 2011.

The Group's consolidated financial statements are presented in pounds sterling and rounded to the nearest thousand. They are prepared on the historical cost basis except for the following assets and liabilities which are stated at fair value: derivative financial instruments, investment properties and investment properties under development.

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ materially from these estimates. In preparing these interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the Consolidated Financial Statements as at and for the year ended 28 February 2011.

The financial information included in the interim financial statements is unaudited and does not constitute statutory accounts as defined in Companies (Jersey) Law 1991, (as amended).

Statement of Compliance

These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting, as adopted by the EU. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 28 February 2011.

The condensed consolidated interim financial statements were approved by the Board of Directors on 25 October 2011.

Significant accounting policies

The accounting policies applied by the Group in these condensed interim financial statements are the same as those applied by the Group in its audited financial statements as at and for the year ended 28 February 2011. There are no new accounting policies that are applicable in the period.

Notes to the condensed consolidated interim financial statements (continued)

1b. Going concern

The Group's future operating performance will be affected by general economic, financial and business conditions, many of which remain beyond the Group's control.

At 31 August 2011, the Group's borrowings totalled GBP1.5 billion and in addition there were interest and finance accruals of GBP96.9 million. At that date, the Group had an investment and development portfolio which it valued at GBP991 million, together with cash and cash equivalents of GBP3.1 million, and restricted cash of GBP14.9 million. The deficit on shareholders' funds was GBP684 million. At 31 August 2011, the Group had aggregate bank loans of GBP1,017 million classified as current liabilities.

On 12 May 2011, the Group successfully completed a financial restructuring of liabilities due to the holders of its CULS, ZDPs and the OLNs, which saw the equitisation of approximately GBP246 million of liabilities due to the CULS and ZDPs into equity and warrants in BPSSV and equity in REO, together with the deferral of all principal and interest payments due on the OLNs until 31 August 2011 or such later date as might be subsequently agreed with the Battersea senior lenders (Lloyds Banking Group and NAMA) in respect of the expiry of their loan facilities, and the novation of those liabilities into BPSSV from REO.

The loan facilities relating to Battersea Power Station with both Lloyds Banking Group and NAMA, which were extended to 31 August 2011, can currently be called on demand. Regular discussions are ongoing with the senior lenders.

At 31 August 2011, the principal and interest due to the OLNs was GBP174.2 million. Discussions are ongoing with the OLNs.

Following the signing of the Memorandum of Understanding ("MOU") with NAMA in December 2010, the Group recently received a draft term sheet from NAMA in respect of its wholly owned Irish property assets on which NAMA is the sole lender, the terms of which are consistent with those contained in the MOU. Both parties are working towards the finalisation of the term sheet in the near future.

The key assumptions made in preparing the Group's projected cash flow for the twelve months from approval of the financial statements include:

-- The completion of binding facility agreements with NAMA based on the term sheet in the near future to address:

   (e)   the deferral of interest payments 

(f) the renewal by NAMA of bank facilities on wholly owned Irish property assets, on which NAMA is the sole lender, in the amount of GBP475 million

   (g)   the provision by NAMA of working capital facilities. 
   (h)   the provision by NAMA of financial support to cover certain operating cash requirements 

-- The renewal by NAMA of facilities on partially owned Irish property assets in the amount of GBP133 million, and of a facility, on which NAMA is the junior lender, in the amount of GBP76 million, on broadly similar terms to those contained in the MOU for these facilities.

-- The renewal by non-NAMA banks of facilities on Irish property assets in the amount of GBP54 million on broadly similar terms.

-- The continued support of the lenders on the Battersea Power Station development for the current investor process aimed at introducing a long term investor on this project.

-- Agreeing terms with a long-term investor on the Battersea Power Station development to provide project financing and to repay certain liabilities.

Based on the Group's current projected cashflows and the key assumptions noted above, the Board believes that the Group will have sufficient cash and cash equivalents to meet its liquidity requirements for at least twelve months from the date of approval of this report.

Notes to the condensed consolidated interim financial statements (continued)

1b. Going concern (continued)

The Directors of the Company have concluded that the above factors represent material uncertainties. Failure to achieve the above assumptions and objectives could cast significant doubt on the Group's ability to continue as a going concern and it may therefore be unable to realise its assets and discharge its liabilities in the normal course of business.

However, having discussed the assumptions and basis of preparation supporting the Group's cash flow projections, together with the advanced status of negotiations with the Group's key lenders, along with securing planning permission on Battersea Power Station, the financial restructuring of the Group's balance sheet, the receipt of a term sheet from NAMA and the progress made towards introducing a long-term investor on the Battersea Power Station development, the Directors of the Company have a reasonable expectation that the Group will be able to meet its liabilities as they fall due for the foreseeable future.

On this basis, the Directors consider it appropriate to prepare the financial statements on a going concern basis. No adjustment which would result from a change in the going concern basis of preparation has been included in the financial statements.

1c. Financial Risk Management

The Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as at and for the year ended 28 February 2011.

Notes to the condensed consolidated interim financial statements (continued)

2. Investment properties and investment properties under development

In thousands of pounds sterling

 
                                                  Unaudited 
                                                   Investment 
                                  Investment       properties 
                                   Properties   under development    Total 
Valuation at 1 March 2011             401,469             602,613  1,004,082 
Additions                               1,836              48,500     50,336 
Deficit on revaluation               (21,922)            (60,613)   (82,535) 
Currency translation adjustment        14,480               4,429     18,909 
                                  ===========  ==================  ========= 
Valuation at 31 August 2011           395,863             594,929    990,792 
                                  ===========  ==================  ========= 
 
Properties held in 
 
UK                                     21,125             485,500    506,625 
Ireland                               374,738             109,429    484,167 
                                  ===========  ==================  ========= 
                                      395,863             594,929    990,792 
                                  ===========  ==================  ========= 
 
 
                                                   Audited 
                                                   Investment 
                                  Investment       properties 
                                   Properties   under development    Total 
 
Valuation at 1 March 2010             514,995             582,440  1,097,435 
Additions                               2,137             100,746    102,883 
Disposals                             (3,432)            (40,583)   (44,015) 
Deficit on revaluation               (91,236)            (31,304)  (122,540) 
Currency translation adjustment      (20,995)             (8,686)   (29,681) 
                                  -----------  ------------------  --------- 
Valuation at 28 February 2011         401,469             602,613  1,004,082 
                                  -----------  ------------------  --------- 
 
Properties held in 
UK                                     21,125             483,500    504,625 
Ireland                               380,344             119,113    499,457 
                                  -----------  ------------------  --------- 
                                      401,469             602,613  1,004,082 
                                  -----------  ------------------  --------- 
 

The Group's principal assets comprise investment properties and investment properties under development, located in Ireland and the UK, which are being carried in the financial statements at fair value.

These valuations have been carried out by the Directors, with input from the Investment Adviser, using assumptions, and exercising certain judgements, based on market conditions as at 31 August 2011.

Further details of the assumptions used in the valuations are set out in the Investment Adviser's report, under the heading valuation methodology.

Notes to the condensed consolidated interim financial statements (continued)

3. Profit on disposal of investment in CREO

In thousands of pounds Sterling

Assets classified as held for sale

 
Group                                     31 August  28 February 
                                               2011         2011 
                                          unaudited      audited 
Carrying amount at start of the period            -       27,680 
Disposal                                          -     (27,680) 
                                         ----------  ----------- 
Carrying amount at end of the period              -            - 
                                         ----------  ----------- 
 

During the prior period, the Group disposed of its investment in China Real Estate Opportunities ("CREO") realising cash of GBP27.7 million, and resulted in a gain on sale of:

 
 
Carrying amount of investment sold       27,680 
Proceeds on disposal                   (27,680) 
Foreign currency translation reserve 
 reclassified                            26,233 
                                       ======== 
Gain on disposal                         26,233 
                                       ======== 
 

Notes to the condensed consolidated interim financial statements (continued)

   4.    Taxation 

In thousands of pounds sterling

(a) Recognised in the income statement

For the six months ended

 
                                                 31 August   31 August 
                                                      2011        2010 
                                                 unaudited   unaudited 
Current tax credit / (expense) 
Credit / (charge) for the period                       116        (37) 
                                                ----------  ---------- 
Deferred tax credit 
Fair value movement of financial derivatives           322         300 
Valuation losses on investment properties and 
 on investment properties under development          1,314       1,820 
                                                ----------  ---------- 
                                                     1,636       2,120 
 
Total Income tax credit                              1,752       2,083 
                                                ----------  ---------- 
 

(b) Recognised in the statement of financial position

Deferred tax assets and liabilities are attributable to the following:

At 31 August 2011 and 28 February 2011

 
                                   Assets           Liabilities             Net 
 
                              31 Aug    28 Feb      31 Aug   28 Feb     31 Aug   28 Feb 
                              2011       2011         2011     2011       2011     2011 
                             unaudited  audited  unaudited  audited  unaudited  audited 
Derivative financial 
 instruments                   (1,118)    (764)          -        -    (1,118)    (764) 
Investment properties 
 and investment properties 
 under development                   -        -     12,186   12,923     12,186   12,923 
                             =========  =======  =========  =======  =========  ======= 
 
                               (1,118)    (764)     12,186   12,923     11,068   12,159 
                             =========  =======  =========  =======  =========  ======= 
 

Movement in temporary differences during the period:

 
31 August 2011 - unaudited                     Derivative    Investment        Total 
                                                financial     and development 
                                                instruments   property 
At 1 March 2011                                       (764)            12,923   12,159 
Recognised in the statement of comprehensive 
 income                                               (322)           (1,314)  (1,636) 
Foreign currency movements                             (32)               577      545 
                                               ============  ================  ======= 
At 31 August 2011                                   (1,118)            12,186   11,068 
                                               ============  ================  ======= 
 
 
Notes to the condensed consolidated interim 
 financial statements (continued) 
 
       4.Taxation (continued) 
       In thousands of pounds sterling 
 
       (b) Recognised in the statement of financial 
       position (continued) 
                                                       Derivative    Investment        Total 
                                                       financial     and development 
                                                       instruments   property 
 
       28 February 2011 - audited 
At 1 March 2010                                         (1,451)          26,385        24,934 
Recognised in the statement of comprehensive 
 income                                                   622           (12,283)      (11,661) 
Foreign currency movements                                 65           (1,179)       (1,114) 
                                                      ============  ================  ======== 
At 28 February 2011                                      (764)           12,923        12,159 
                                                      ============  ================  ======== 
 
   (i)            Profits of the company are subject to taxation in Jersey at a rate of 0%. 

(ii) A 5% Goods and Services Tax ("GST") exists in Jersey under the Goods and Services Tax (Jersey) Law 2007. The Company may apply for an exemption under the Goods and Services Tax (International Service Entities) (Jersey) Regulations 2008 on payment of an annual fee of GBP200. The Company has been granted international service entity status for the year ended 28 February 2011 and for the period ended 31 August 2011.

Notes to the condensed consolidated interim financial statements (continued)

   5.    Financing 

(a) Interest Bearing Loans and borrowings

In thousands of pounds sterling

 
                                           31 August   28 February 
                                                2011          2011 
 
 Non - current liabilities                 unaudited       audited 
 
 Senior loan secured on Irish property 
  assets                                     332,100       319,800 
 Bank loans secured on Irish property 
  assets                                       4,483         4,453 
                                         ===========  ============ 
                                             336,583       324,253 
                                         ===========  ============ 
 
 
                                          31 August   28 February 
                                               2011          2011 
 
 Current liabilities                      unaudited       audited 
 
 Bank loans secured on UK property 
  assets                                    277,823       260,003 
 Series A and B Secured Loan notes 
  fixed at 6.324%                           147,786       146,255 
 Bank loans secured on Irish property 
  assets                                    738,711       768,852 
 7.5% Convertible Unsecured loan 
  Stock 2011 (note 14)                            -       100,895 
 Zero Dividend Preference Shares 
  (note 14)                                       -       133,100 
                                        ===========  ============ 
                                          1,164,320     1,409,105 
                                        ===========  ============ 
 

(b) Maturity Analysis

In thousands of pounds sterling

The following tables set out the maturity profile of the Group's financial liabilities.

 
 
 
 
                                 Carrying    Contractual 
                                   amount     cash flows         < 1       1-2              3-4    4-5     > 5 
  31 August 2011 (unaudited)                                      yr       yrs   2-3 yrs    yrs    yrs     yrs 
 
 Series A&B Secured 
  Loan notes fixed 
  at 6.324%                       147,786        174,214     174,214         -         -      -      -       - 
 Variable rate debt 
  fixed with interest 
  rate swaps                    1,097,047      1,139,853     799,556   334,785       150    150    150   5,062 
 Variable rate debt               256,070        269,774     269,774         -         -      -      -       - 
 Provisions                           904            904          38        38        38     38     38     714 
 Trade and other 
  payables                         96,841         96,841      96,841         -         -      -      -       - 
                               ==========  =============  ==========  ========  ========  =====  =====  ====== 
                                1,598,648      1,681,586   1,340,423   334,823       188    188    188   5,776 
                               ==========  =============  ==========  ========  ========  =====  =====  ====== 
 

Notes to the condensed consolidated interim financial statements (continued)

(b) Maturity analysis (Continued)

In thousands of pounds sterling

The following table indicates the periods in which the cash flows associated with derivatives are expected to occur.

 
 
 
 
                             Carrying    Contractual 
                               amount     cash flows          < 1      1-2               3-4    4-5    > 5 
  31 August 2011                                               yr      yrs   2-3 yrs     yrs    yrs    yrs 
 
 Interest rate swap 
  liability                    67,080         67,564       30,131   23,136    11,781   2,516      -      - 
                           ==========  =============  ===========  =======  ========  ======  =====  ===== 
 
 
 
                                                        31 August 
 Disclosed as:                                            2011 
 Included in current 
  liabilities                                               1,899 
 Included in non-current 
  liabilities                                              65,181 
                                                      =========== 
                                                           67,080 
                                                      =========== 
 
 
                            28 February 2011 (audited) 
 
  Non-derivative                Carrying   Contractual 
   financial liabilities          amount    cash flows        2011      2012   2013   2014   2015   > 5 Years 
 
 Zero Dividend Preference 
  shares                         133,100       136,021     136,021         -      -      -      -           - 
 Convertible Loan 
  Stock                          100,895       102,787     102,787         -      -      -      -           - 
 Series A and B Secured 
  Loan notes (fixed 
  interest rate 6.324%)          146,255       171,808     171,808         -      -      -      -           - 
 Variable rate debt              219,895       231,384     231,384         -      -      -      -           - 
 Variable rate debt 
  fixed with interest 
  rate swaps                   1,133,213     1,173,567     844,179   323,986    129    129    129       5,015 
 Provisions                          889           891          37        37     37     37     37         706 
 Trade and other payables         91,408        91,408      91,408         -      -      -      -           - 
 
                               1,825,655     1,907,866   1,577,624   324,023    166    166    166       5,721 
 ==========================  ===========  ============  ==========  ========  =====  =====  =====  ========== 
 

Notes to the condensed consolidated interim financial statements (continued)

(b) Maturity analysis (Continued)

In thousands of pounds sterling

The following table indicates the periods in which the cash flows associated with derivatives are expected to occur.

 
 
 
 
                        Carrying    Contractual 
                          amount     cash flows      < 1      1-2               3-4     4-5    > 5 
  28 February 2011                                    yr      yrs   2-3 yrs     yrs     yrs    yrs 
 
 
 Interest rate swap 
  liability               70,048         98,974   35,591   33,355    20,300   8,655   1,073      - 
                      ----------  -------------  -------  -------  --------  ------  ------  ----- 
 
 
 
 
                                          28 February 
 Disclosed as:                                   2011 
 Included in current liabilities                4,834 
 Included in non-current liabilities           65,214 
                                        ============= 
                                               70,048 
                                        ============= 
 

Notes to the condensed consolidated interim financial statements (continued)

   6.    Trade and other receivables - current 

In thousands of pounds sterling

 
                                   31 August   28 February 
                                        2011          2011 
                                   unaudited       audited 
 Trade receivables                     1,409         1,177 
 Other loans                           2,822         2,719 
 Other debtors and prepayments         5,470        64,669 
                                       9,701        68,565 
                                 ===========  ============ 
 

Included in other debtors and prepayments at 28 February 2011 was an amount of GBP63.2 million, which was due in respect of a property disposal in the year ended 28 February 2011. This was received in the current period and used to pay existing debt.

   7.    Trade and other payables - current 

In thousands of pounds sterling

 
                                   31 August           28 February 
                                        2011                  2011 
                                   unaudited               audited 
 Interest and finance accruals        96,916                67,665 
 Capital accruals                     14,763                12,311 
 Other creditors and accruals         10,064                 9,686 
 Rentals received in advance           2,571                 2,433 
 Current tax payable                   1,525                 1,746 
                                     125,839                93,841 
                                 ===========  ==================== 
 

Included in interest and finance accruals at 28 February 2011 was an amount of GBP7.6m in respect of interest due on CULS which were converted to equity as detailed in note 14.

Notes to the condensed consolidated interim financial statements (continued)

   8.    Share Capital and Reserves 

In thousands of pounds sterling

(a) Share capital

 
                                      31 August   28 February 
                                           2011          2011 
                                      unaudited       audited 
 
 Balance at beginning of period 
  / year                                  3,340         3,338 
 CULs converted into equity in 
  the year                                    -             2 
 Ordinary shares issued as part 
  of restructuring (note 14)              1,113             - 
 Balance at the end of the period 
  / year                                  4,453         3,340 
                                    ===========  ============ 
 

(b) Share premium

 
                                            31 August   28 February 
                                                 2011          2011 
                                            unaudited       audited 
 
 Balance at beginning of period                   216            12 
 Share premium arising on CULS 
  converted in the period                           -           204 
 Share premium arising on restructuring 
  (note 14)                                     1,225             - 
 Balance at the end of the period 
  / year                                        1,441           216 
                                          ===========  ============ 
 

On 12 May 2011, 111,336,528 ordinary shares of GBP0.01 each in REO plc., were issued to the CULS and ZDP holders as part of the Group's restructuring at their market price at that date of GBP0.021 each. This resulted in an increase in issued share capital of GBP1,113k and in share premium of GBP1,225k.

During the prior year, 205,668 CULS were converted into ordinary shares of GBP0.01 each. This resulted in an increase in share capital and share premium of GBP206k.

(c) Non Controlling Interest

 
                                          31 August   28 February 
                                               2011          2011 
                                          unaudited       audited 
 
 Balance at beginning of period                   -             - 
 
  Shares and warrants in BPSSV granted 
  to CULS and ZDP holders (note 
  14)                                        16,104             - 
 Shares in BPSSV granted to Treasury 
  Holdings (note16)                           3,262             - 
 
  Non controlling interest; share 
  of loss in the period                    (17,553)             - 
 
 Balance at the end of the period             1,813             - 
                                        ===========  ============ 
 

At the period end, in total, 46% of BPSSV is held as a non controlling interest outside of the Group and this note reflects the movement in the period.

Notes to the condensed consolidated interim financial statements (continued)

   9.    Net deficit value 

In thousands of pounds sterling

(i) Basic net deficit

 
                                                     31 August  28 February 
                                                          2011         2011 
                                                     unaudited      audited 
 
Net deficit attributable to ordinary shareholders 
 of the company                                      (683,587)    (800,699) 
Number of ordinary shares in issue ('000)              445,300      334,010 
Basic net deficit per share (pence)                    (153.5)      (239.7) 
                                                    ----------  ----------- 
 

At the 31 August 2011, due to the conversion of the CULs in the period there were no instruments currently in issue that could trigger any event which would dilute the number of ordinary shares in issue.

For the year ended 28 February 2011, there was no difference between the basic and diluted loss per share as the effect of any potentially dilutive securities was anti-dilutive.

(ii) EPRA net deficit

 
                                                     31 August  28 February 
                                                          2011         2011 
                                                     unaudited      audited 
 
 
Net deficit                                          (683,587)    (800,699) 
Fair value of derivative financial instruments          67,080       70,048 
Less non controlling share of movement in fair 
 value of derivatives                                 (11,161)            - 
Net deferred tax assets and liabilities                 11,068       12,159 
                                                    ----------  ----------- 
EPRA net deficit                                     (616,600)    (718,492) 
 
Diluted number of ordinary shares in issue ('000)      445,300      334,010 
                                                    ----------  ----------- 
 
Diluted EPRA net deficit per share (pence)             (138.5)      (215.1) 
                                                    ----------  ----------- 
 

The EPRA net deficit per share excludes the fair value of derivative financial instruments and deferred taxation assets and liabilities on revaluations and is calculated on a fully diluted basis.

Notes to the condensed consolidated interim financial statements (continued)

   10.   Segment reporting 

As required by IFRS 8 Operating Segments, the segment analysis below follows the information provided to the Board of Directors, which is the chief operating decision maker ("CODM"). The Group's identified reportable segments are the geographical locations in which it operates, analysed between investment properties and investment properties under development, which are generally managed by separate teams.

The relevant revenue, assets and capital expenditure are set out below. This segmental information is set out on the same basis and using the same comparatives as the statement of financial position and the statement of comprehensive income.

(a) Information about reportable segments

In thousands of pounds sterling

 
                                  Investment       Investment      Investment       Investment 
                                   properties      properties       properties      properties 
                                                under development                under development 
                                                        - 
                                              Ireland                            UK                  Total 
At 31 August 2011 
Revenue*                               16,200                   -          712                   -    16,912 
 
Valuation losses on properties*      (21,149)            (21,590)        (773)            (39,023)  (82,535) 
 
 At 31 August 2011 
Property assets                       374,738             109,429       21,125             485,500   990,792 
 
Capital expenditure*                    1,063              11,806          773              36,694    50,336 
 
 
 
                             Investment       Investment      Investment       Investment        Total 
                              properties      properties       properties      properties 
                                           under development                under development 
                                         Ireland                            UK                   Total 
At 31 August 2010 
Revenue*                          16,585                   -          774                   -     17,359 
 
Valuation (losses) / gains 
 on properties*                 (12,904)            (15,404)          688            (11,807)   (39,427) 
 
 At 28 February 2011 
Property assets                  380,344             119,113       21,125             483,500  1,004,082 
 
Capital expenditure**              1,920              48,368          217              52,378    102,883 
 
 
   *       For the 6 month period ended 31 August 2011 
   **      For the year ended 28 February 2011 

Capital expenditure includes capitalised interest, arrangement fees and development fees of GBP46 million in the

6 months to 31 August 2011   (year to 28 February 2011 - GBP102.8 million). 

Notes to the condensed consolidated interim financial statements (continued)

   10   Segment reporting (continued) 
   (b)   Reconciliation of reportable segment profit or loss 

For the six months ended 31 August

 
In thousands of pounds sterling                    31 August   31 August 
                                                        2011        2010 
                                                   unaudited   unaudited 
 
Revenue 
Total revenue for reported segments                   16,912      17,359 
 
Profit or loss 
Valuation losses on properties                      (82,535)    (39,427) 
 
Total loss per reportable segments                  (65,623)    (22,068) 
                                                 ===========  ========== 
 
Other profit or loss - unallocated amounts 
Other income                                             396         620 
Profit on disposal of investment property                  -         244 
Profit on disposal of investment in CREO                   -      26,233 
Management fee                                         (912)     (1,102) 
Administrative expenses                              (5,690)     (5,522) 
Financial income                                       8,986          83 
Financial expenses                                  (45,178)    (45,903) 
Gain on equitisation of CULS and ZDPs                226,958           - 
Consolidated profit / (loss) before income tax       118,937    (47,415) 
                                                 -----------  ---------- 
 

11. Administration Expenses

In thousands of pounds Sterling

For the six months ended 31 August

 
                      31August    31August 
                          2011        2010 
                     unaudited   unaudited 
General expenses         5,690       5,522 
                   ===========  ========== 
 

Included in general expenses in the period is an amount of GBP0.8 million in respect of a share based payment to Treasury Holdings, this has been detailed further in note 16. Restructuring costs in the 6 months to 31 August 2011 amounted to GBP1.5 million.

Notes to the condensed consolidated interim financial statements (continued)

12. Finance income and expense

In thousands of pounds sterling

a) Recognised in profit or loss

 
                                                       31 August    31 August 
                                                            2011         2010 
 For the six months ended                              unaudited    unaudited 
 
 
 Interest income on bank deposits                             53           83 
 Fair value movement on derivatives                        8,933            - 
                                                     ===========  =========== 
 Finance income                                            8,986           83 
                                                     ===========  =========== 
 
 
 Other interest and finance charges                     (22,965)        (619) 
 Interest expense on bank loans repayable, other 
  than by installments within 5 years                   (27,612)      (7,158) 
 Interest expense on Senior loan repayable, other 
  than by installment, within 5 years                    (7,115)      (6,906) 
 Interest on 7.5% Convertible Unsecured Loan Stock 
  2011                                                   (1,511)      (3,791) 
 Interest on Zero Dividend Preference Shares             (2,312)      (5,527) 
 Interest on 6.324% Series A and B loan notes 
  2011                                                   (7,116)      (4,798) 
 Fair value movement on derivatives                      (3,575)     (14,404) 
 Cash payment due on derivatives                         (8,350)     (21,546) 
 Finance expense                                        (80,556)     (64,749) 
 
 Less: Interest and finance charge capitalised            35,378       18,846 
                                                     ===========  =========== 
                                                        (45,178)     (45,903) 
 
 
 Net finance costs                                      (36,192)     (45,820) 
                                                     ===========  =========== 
 

Included under finance income is a gain of GBP8.7 million on the fair value movement of a swap which was terminated in the period. The associated swap break cost of GBP6.8 million is included in the heading other interest and finance charges. This gives a total net gain on the termination of this swap of GBP1.9 million, which is recognised in the statement of comprehensive income in the period to 31 August 2011.

Also included in other interest and finance charges are various banking, loan and other finance related charges and fees on the Groups' loan portfolio.

The Group uses derivative financial instruments to hedge its exposure to interest rate risks arising from financing and investment activities. The fair value of these interest rate swaps is the estimated amount the group would receive or pay to terminate the swaps at the end of the reporting period. The gain or loss on remeasurement to fair value is recognised immediately in the statement of comprehensive income.

Notes to the condensed consolidated interim financial statements (continued)

13. Profit / (loss) per share

In thousands of pounds sterling

   (i)   Basic profit / (loss) per share for the six months ended 
 
                                                         31 August   31 August 
                                                              2011        2010 
                                                         unaudited   unaudited 
 
Profit / (loss) attributable to ordinary shareholders      138,242    (45,332) 
                                                        ----------  ---------- 
 

Weighted average number of ordinary shares ('000)

 
Issued shares at beginning of period         334,010  333,804 
Effect of shares issued during the period     46,390       34 
                                             -------  ------- 
Weighted average number of ordinary shares   380,400  333,838 
                                             -------  ------- 
 
Basic profit/ (loss) per share (pence)          36.3   (13.6) 
                                             =======  ======= 
 

At the 31 August 2011, due to the conversion of the CULs in the period' there were no instruments currently in issue that could trigger any event which would dilute the number of ordinary shares in issue.

For the period ended 31 August 2010, there was no difference between the basic and diluted loss per share as the effect of any potentially dilutive securities was anti-dilutive.

(ii) Diluted EPRA earnings/ (loss) per share for the six months ended

 
                                                                31          31 
                                                            August      August 
                                                              2011        2010 
 
                                                         unaudited   unaudited 
 
Profit / (loss) attributable to ordinary shareholders 
 diluted                                                   138,242    (45,332) 
Valuation movement on investment properties and 
 on investment properties under development                 82,535      39,427 
Less non controlling interest in respect of property 
 valuation movement                                       (18,306)           - 
Profit on disposal of property                                   -       (244) 
Movement in fair value of financial instruments              5,356      14,404 
Less non controlling interest in respect of fair 
 value of financial instruments                            (1,141)           - 
Deferred tax                                               (1,636)     (2,120) 
                                                           205,050     (6,135) 
                                                        ----------  ---------- 
 
 
Weighted average number of ordinary shares (diluted) 
 at 31 August 2011 ('000)                              380,297  333,838 
                                                       -------  ------- 
 
Diluted EPRA gain/ (loss) per share (pence)               53.9    (1.9) 
                                                       -------  ------- 
 

An EPRA measure has been included to assist comparison between European property companies. The EPRA earnings excludes investment property and investment property under development revaluations, gains on disposals, movements on derivative financial instruments and their related tax consequences.

Notes to the condensed consolidated interim financial statements (continued)

14. Gain on equitisation of CULS and ZDPs

In thousands of pounds sterling

 
 31 August   31 August 
      2011        2010 
 unaudited   unaudited 
 
 
Gain on equitisation of CULS and ZDPs   226,958  - 
                                        ------- 
 

On 11 April 2011, the Group announced the final terms of the restructuring, whereby the liabilities due to the holders of both the Group's 7.5% CULS and the ZDPs were to be converted into equity of the newly formed Battersea Power Station subsidiary; Shareholder Vehicle ("BPSSV") and in Real Estate Opportunities plc ("REO").

The restructuring became effective on 12 May 2011, the main impact of which was:

-- The holders of the CULS and the ZDPs received Ordinary Shares in REO plc and shares and warrants in BPSSV;

   --      The listings of the CULS and ZDPs on the Official List (standard category) were cancelled; 
   --      111 million additional Ordinary Shares in REO were admitted to the Official List; 
   --      The obligations under the Oriental Loan Note (OLNs) were novated to BPSSV and 

-- Certain other liabilities of the BPSSV Group such as loans to other REO Group entities were swapped for equity in BPSSV.

The table below sets out the net gain recognised by the Group in the Statement of Comprehensive Income.

31 August 2011

unaudited

 
 
 
 Interest and principal on CULs equitised         109,988 
 ZDP's equitised                                  135,412 
 
 Share capital and premium arising on REO plc 
  share issue                                     (2,338) 
 Value of BPSSV shares issued to CULs and ZDP 
  holders (i)                                    (16,104) 
                                                  _______ 
                                                  226,958 
 Net gain on restructuring                        _______ 
 

The CULS and ZDP holders were provided with 300 million warrants entitling the holders to convert into ordinary shares of BPSSV on a one for one basis at any time up to 15 years from the date of the restructuring, if the fair value of Battersea Power Station less related debt exceeds a certain specified threshold target. At 12 May 2011, management estimated that the warrants had no material value.

(i) As a result of the restructuring; 46% of BPSSV is now owned outside of the REO Group and is recognised as a non controlling interest. Of this total non controlling interest, 7.7% is held by Treasury Holdings and is accounted for as a share based payment as detailed in note 16.

Notes to the condensed consolidated interim financial statements (continued)

15. Capital Commitments

Future capital expenditure, contracted for and approved by the Directors, but not provided for in these interim financial statements, is as follows:

 
In thousands of pounds sterling 
                                         31  28 February 
                                     August         2011 
                                       2011 
                                  unaudited      audited 
Contracted for                           26        4,571 
Authorised not contracted                70           23 
                                  =========  =========== 
                                         96        4,594 
                                  =========  =========== 
 

16. Related parties

Pursuant to the Investment Adviser Agreements, Treasury Holdings earned investment management fees of GBP0.9m for the 6 months period ended 31 August 2011 (31 August 2010 GBP1.1m) and net project development and management fees of GBP4.9m during the period (31 August 2010 GBP6.4m) in respect of the Irish and Global Property Portfolios. The project development and management fees are capitalised in the period they are incurred. Unpaid fees amounted to GBP7.5 million at 31 August 2011, (31 August 2010: GBP2.5 million).

Fees of GBP360k for the 6 month period ended 31 August 2011 (31 August 2010: GBP332k) in respect of accounting and administrative services, taxation advice, legal advice and investor relations were payable to Treasury Holdings in respect of agreements with the Company. Fees unpaid at 31 August 2011 amounted to GBP253k (31 August 2010: GBP110k).

There was no performance fee payable during the period ended 31 August 2011 (31 August 2010: GBPnil).

During the period, as part of the restructuring of the Group's obligations and the establishment of a separate vehicle for its interest in Battersea Power Station, Treasury Holdings was granted ordinary shares in BPSSV with an estimated value of GBP3.2 million at that date. This is a share based payment. One quarter of this charge, GBP835k, has been recognised in the current period for services rendered by Treasury Holdings as part of the restructuring and the remaining balance will be recognised over 14 years based on the expected development life of the Battersea asset.

17. Subsequent events

Post period end the Group completed the sale to a third party of the UK investment property owned by REO (Stewarts Road) Limited. The property was sold for GBP6.9 million which is slightly in excess of its carrying value at 31 August 2011.

This information is provided by RNS

The company news service from the London Stock Exchange

END

IR BUBDGSUDBGBU

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