Workspace Regulatory News (WKP)

PRELIMINARY ANNOUNCEMENT

6 June 2011

WORKSPACE GROUP PLC

FINAL RESULTS

DELIVERING A STRONG PERFORMANCE AND WELL POSITIONED FOR GROWTH

Workspace Group PLC ("Workspace"), London's leading provider of space to small and medium-sized enterprises (SMEs), announces its results for the 12 months ended 31 March 2011.

Highlights

Financial Results

·; Trading profit after interest up 31% to £14.1m

·; Profit before tax £53m, up from £26m last year

·; Total dividend up 10% to 0.825p per share, 1.5 times covered by underlying earnings

·; EPRA Net asset value per share 29.5p, up 10% from 26.7p at March 2010

Trading

·; Net cash from operations up 45% to £16.1m

·; Overall occupancy 84.1%, up 2.2% in the year

·; Good levels of enquiries (averaging 960 per month) and lettings (averaging 88 per month) through the year

·; Like-for-like occupancy 86.2%, up from 83.6% at March 2010

·; Like-for-like cash rent roll up 3.9% in the year to £40.1m

Property Portfolio

·; Underlying property valuation up 4.7% (£32m) in the year

·; Like-for-like income yield 7.8% (7.9% at March 2010)

·; £44m of property disposals completed and a further £13m of conditional disposals contracted for at an overall exit income yield of 5.9%

Regeneration

·; Partnership agreed for redevelopment of Wandsworth Business Village

·; Mixed use planning consent achieved at Bow Enterprise Park

·; Re-designation of 7 acres at Tower Bridge Business Complex for residential use

Financing

·; New £125m RBS debt facility signed

·; Average maturity of debt now 4 years, with no debt falling due in next 3 years

·; Loan to value 50%, down from 53% at March 2010

·; Average cost of debt reduced to 5.3% (2010: 6.7%)

BlackRock Joint Venture

·; £100m property acquisition fund established with BlackRock UK Property Fund, seeded with £35m of Workspace property

Commenting, Harry Platt, Chief Executive of Workspace said:

"Our results for the year demonstrate our ability to drive occupancy, rental income and regeneration opportunities. Looking to the future, we have a solid platform from which to create further value. London is recovering well and our customers, SMEs across London are contributing to this.

As we improve occupancy we are seeing evidence of being able to increase rents. Regeneration is also an important part of our business model but has been a tough market from which to deliver value in recent years. I am, therefore, delighted to report that during the last year we have made significant progress on a number of schemes.

I believe that Workspace is strongly positioned in a dynamic and growing market, with excellent customer relationships, attractive assets with redevelopment potential, a sound balance sheet and a valuable brand. We look forward to the future with confidence" .

Date: 6th June 2011

For further information contact

Workspace Group PLC City Profile

Harry Platt, Chief Executive Jonathan Gillen

Graham Clemett, Finance Director Simon Courtenay

020 7247 7614 020 7448 3244

Chairman's Statement

This was a year of good progress for Workspace Group across a number of fronts. We delivered a strong operational performance, added value to the estate through active asset management, built on our brand strength, refinanced much of our debt and created a new joint venture with Blackrock to add further growth potential. This success was reflected in the reported growth in profit and net asset value per share and lower gearing.

Workspace has great assets, comprehensive systems, outstanding customer relationships and a valuable brand. We have also shown that our business model positions us well, benefiting us during upturns in the London market and proving resilient operationally when market conditions are difficult. Operational cash flow has been remarkably consistent, ensuring dividends have been maintained throughout the recent downturn.

I will be retiring as Chairman at the next annual general meeting, after more than eight years in the role. Strong governance is a guiding principle at Workspace and the recruitment of my successor was conducted by Bernard Cragg, our Senior Independent Director. I am delighted to be handing over a Group in robust shape to my very capable and experienced successor, Daniel Kitchen. Danny has had extensive experience in the property industry and is currently non-executive Chairman of Irish Nationwide Building Society and a non-executive director of Minerva PLC, LXB Retail Properties PLC and Kingspan Group PLC. During the year the Board also welcomed Jamie Hopkins, who joined on 7 June 2010 as a non-executive director, replacing Rupert Dickinson who retired at the conclusion of the last AGM.

Harry Platt, our Chief Executive, will be 60 in September and has indicated that he would like to retire in 2012. Harry has been an excellent leader of Workspace for 15 years and will continue to be so until he hands over to his successor. I have personally enjoyed and admired his strong personal values and commitment to building Workspace. The Board will now manage an orderly transition of Chief Executive. Harry leads an executive team which has been strengthened over the last 4 years, giving the Board considerable confidence in its ability to drive forward the future strategy. Our management team has both breadth and depth not just at Board and Executive Committee level but deep into operations and functions, and has the skills and collective spirit and enthusiasm to lead the Group forward to create further value for shareholders.

Workspace is a sustainable business, in the broadest sense of the word. We help new businesses succeed, creating employment and regenerating communities. The UK depends for its future on the small business sector to promote economic growth and we at Workspace have an important part to play in promoting that growth, while delivering good returns to our shareholders. London is undoubtedly one of the world's great cities and its economic prospects remain stronger than for most of the UK and indeed Europe. This is our market and our focus on London has been and will continue to be a distinguishing feature of your Group.

Given the Group's performance and prospects the Board is recommending a dividend of 0.825p per share, an increase of 10% on the prior year. This resumes the progressive dividend policy that the Group previously delivered.

I want to take this opportunity to thank everyone at Workspace for their contribution to a successful year and to wish them, our customers and shareholders every success in the future.

Chief Executive's Statement

It has been a year of significant progress on a number of fronts. We are now well positioned to take the Group forward to its next stage of growth.

Results

Workspace delivered a strong performance in 2010/11. We achieved good growth through the year, with a continuing high level of enquiries, a resilient customer base of new and growing businesses and positive momentum in both occupancy and rental income. This, together with progress on our regeneration schemes, supported the growth in the valuation of our properties during the year, without the benefit of any significant shift in yield. We also have a strengthened balance sheet following the refinancing of our debt facilities.

In last year's report, we set out four priorities. These were to:

·; increase occupancy and rental income;

·; continue to drive value from our existing property portfolio;

·; continue to work and churn the asset base to realise its full potential; and

·; utilise and exploit our brand more fully.

We have made good progress against each of these priorities in the last year. Details of our performance are set out in the business review.

People and culture

Workspace employs enthusiastic, committed and well-trained people, whose diversity reflects that of London itself. Our management team, and our people as a group, have real strength and depth.

Our culture is centred on customer service and entrepreneurialism. Everyone who works for us is rewarded partly on trading performance and partly on the service quality we deliver. The majority of our people participate in the Save as You Earn Scheme. These factors align them to the needs of both customers and shareholders.

Vision

Our vision is to be the leading provider of flexible space and services that enable growing businesses to succeed.

Becoming the leading provider is not about the absolute size of our business. It is based on:

·; the quality of our customer service

·; the value and recognition of our brand

·; the ability to create communities, both within a property and across our brand, and

·; having the scale to offer flexibility to our customers and to be efficient.

Our aim is to create value by increasing earnings, dividends and asset values. With 4,000 customers, over 100 estates on 150 acres of freehold land in London and a clear brand and management strength, we have a solid platform for doing so.

The Government recognises the value of SMEs and sees them as vital to creating employment and driving further economic recovery. We also expect more business creation, for example as people leave the public sector.

Other trends are also beneficial. Planning policies towards brownfield sites in London support intensification and change of use. Our properties contribute to work-led regeneration, which fits the Government's localism agenda. And our sites are often in areas of change, which will benefit from investment in London's infrastructure such as the East London line, Crossrail and the Olympics.

In addition, the UK economy is seeing structural changes as digital and creative businesses increase in importance. Our properties are highly attractive to these sectors and they are well-represented among our customers.

Workspace is therefore strongly positioned in the right part of the market - growing businesses in London. We will continue to enhance our performance by driving underlying occupancy to reach our 90% target and promoting the regeneration of our properties.

Business Review

We have four clear priorities:

Priority 1: To increase occupancy and rental income

There continues to be strong demand from small and growing businesses across London to lease space on flexible terms; enquires averaged 960 per month and lettings 87 per month over the last year. Good levels of enquiries and lettings have continued during the first two months of the current financial year.

Portfolio performance

The overall occupancy across the portfolio at 31 March 2011 was 84.1% (March 2010: 81.9%) and cash rent roll was £52.0m (March 2010: £50.7m). The contracted rent roll was £2.3m higher than the cash rent roll, at £54.3m (March 2010: £53.9m).

The difference between the cash and contracted rent rolls relates to stepped rental increases (£1.7m), rent free periods (£0.5m) and rent discounts (£0.1m). £1.2m of contracted rent roll is due to be converted to cash rent roll in the six months ending September 2011.

For consistency in reporting these lead indicators, the overall rent roll and occupancy statistics at March 2011 include the properties which were sold to the BlackRock Workspace Joint Venture in February 2011. Excluding these properties, total occupancy at March 2011 was 83.6% and cash rent roll was £48.9m.

A more detailed analysis of performance by property category is set out in the following sections.

Like-for-like Portfolio (80 properties valued at £543m)

This category contains the majority of the property portfolio. It excludes properties purchased in the last 12 months and any properties that have been subject to major refurbishment in the last 24 months (the time it would normally take to reach our target occupancy level of 90%). The comparatives have been restated to exclude the properties we sold into the BlackRock joint venture in February 2011.

Like-for-like occupancy improved through the year and was up 2.6% in total, to 86.2%. We have seen reduced levels of rent free incentives and discounts on new lettings and increased pricing at some of our more central locations. The combined effect of these improvements was a 3.9% (£1.5m) increase in the cash rent roll in the year.

Our target for like-for-like occupancy is 90%, a level that gives us greater opportunity to increase pricing. We are 3.8% away from this in overall terms, although 39 of the 80 properties at March 2011 were already at or exceeded this 90% occupancy target.

Refurbishment Portfolio (5 properties valued at £106m)

These are 5 properties which we have either refurbished in the last 24 months, are currently refurbishing or have acquired in the last year. We target occupancy of 90% within two years of reopening a refurbished building.

Included in this category are the refurbishment projects at Kennington Park, Great Guildford Street and Canalot Studios. The other properties in this category comprise Q West, acquired in October 2009, and Barley Mow where the refurbishment was completed in November 2009.

Kennington Park is the highest value property in our portfolio (£57m at March 2011). This 7-acre site, close to Oval underground station, is being repositioned on a phased basis from a closed industrial site used mainly for storage to a thriving open location for a wide range of small and growing businesses This long term regeneration project is progressing well.

There are 11 separate buildings on the Kennington site and the first redevelopment was of the Canterbury Court building (102,000 sq. ft), which we completed in January 2008. We have now almost completed the refurbishment of the adjacent Chichester and Chester House buildings (24,000 sq ft), at a total cost of £3.7m, which will provide a broad range of studio-style units over 2 floors. Our head office will also relocate to Chester House in July 2011 which will enable completion of the sale of our existing head office building, Magenta House, for a student housing development.

In addition to the 5 properties in this category we have planning consent for additional commercial space and refurbishment at a further 7 of our properties that are currently in the like-for-like category. In due course as we proceed with these schemes they will be moved to the refurbishment category.

Other (9 properties valued at £70m)

These are properties where occupancy has been affected by our redevelopment plans on the site (such as where landlord breaks are in place to achieve vacant possession) or where we are running down occupancy ahead of disposal.

Included in this category are 3 properties valued at £41.3m at March 2011 where we are progressing with mixed use redevelopment schemes. In each case, we will receive a new purpose-built business centre as part of the proceeds of the sale of the residential component of the scheme. At Grand Union we have outline planning consent and at Bow Enterprise Park we recently received detailed planning consent. At Wandsworth Business Village, we received planning consent in 2010 and have started on the redevelopment in partnership with a residential developer, Mount Anvil, with completion targeted for mid 2014.

Also included in this category is the northern part of the Tower Bridge Business Complex valued at £14.7m at March 2011 where we have achieved a re-designation for residential use.

Priority 2: To continue to drive value from our existing property portfolio

The valuation of our property portfolio increased by 4.7% over the last year, excluding the impact of capital expenditure and disposals. A summary of the movements in valuation through the year is set out below:

A more detailed breakdown of the valuation at March 2011 by property category is set out below. Properties have added redevelopment value when we have obtained, or are well advanced with obtaining, planning approval for an intensification of existing use or for alternative use.

\* The existing use valuation excludes added redevelopment value and the existing use yield is the cash rent roll return on the existing use valuation.

The movement in like-for-like income yield and estimated rental value (ERV) over the year are set out below:

There has been little movement in the like-for-like income yield on our portfolio through the year and only a marginal decline in rental values. In recent months we have seen evidence of new lettings being achieved at rental levels ahead of the March 2011 ERVs.

The total net initial yield on our whole portfolio, as calculated by our valuers CBRE, is 6.8% (March 2010: 7.1%) and the equivalent yield is 8.4% (March 2010: 8.8%). The reduction in net initial yield is a result of the increase in added redevelopment value with only a marginal reduction in the existing use income yield.

The capital value per sq. ft is £137 (March 2010: £126), lower than the replacement value for the buildings alone (excluding the value of the land) with rents averaging £11.47 per sq. ft (March 2010: £11.22).

A summary of the movements in added redevelopment value through the year is set out below:

The redevelopment value added on new schemes in the year relates to the planning consents received for new commercial space at Kennington Park (£4.5m) and Exmouth House (£1.0m) and the re-designation of Tower Bridge to mixed use (£6.6m).

The increase in the added value of existing schemes is a result of the planning consent now received at Bow Enterprise Park (£4.4m), the conditional sale of the car park at Ewer Street for student housing (£2.7m), which completed in April 2011, and commencement of the mixed use redevelopment at Wandsworth Business Village (£5.3m).

Priority 3: To continue to work and churn the asset base to realise its full potential

During the year we completed £44m of disposals and contracted for a further £13m of conditional disposals, which should complete in 2011/12. The overall exit income yield on this £57m of disposals would be 5.9%. This compares to £55m of disposals made in the previous year at an exit yield of 6.3%. Disposals during the last year comprised £35m of properties sold into our joint venture with BlackRock and £9m of other disposals.

BlackRock Joint Venture

In February 2011, we established a joint venture with the BlackRock UK Property Fund. Workspace holds a 20.1% equity interest in the joint venture, which is called the BlackRock Workspace Property Trust (BWPT).

BWPT's objective is to invest up to £100m in high-yielding, multi-let office and industrial properties in and around London, where there is potential for rental growth and added value from active asset management. Workspace is responsible for sourcing and recommending investment opportunities and will be the property manager for BWPT's assets. We will receive asset management and investment fees, together with a performance fee based on BWPT's relative performance against a comparator IPD index. The Trust was seeded with 8 properties from Workspace, sold at the December 2010 valuation of £35.1m. We are currently reviewing a range of potential acquisitions.

Other Disposals

We continually focus on opportunities to extract added value from our property portfolio. Particularly attractive is the disposal of low or non-income generating tracts of land, allowing us to reinvest the proceeds in our core business. A summary of completed and contracted disposals is set out below:

In addition, we are working on a wide range of work-led regeneration opportunities with local authorities across London:

§ At Baldwin Gardens EC1, we received planning consent in August 2010 for a new 62,000 sq. ft commercial building, replacing the existing 43,000 sq. ft building.

§ At Exmouth House EC1, we received planning consent in September 2010 for an additional 8,000 sq. ft of commercial space on a new floor.

§ At Bow Enterprise Park E3, an industrial estate of 77,000 sq. ft, we received planning consent in February 2011 for 550 flats and 60,000 sq. ft of commercial space.

§ At Poplar E14, an industrial estate of 75,000 sq. ft, we submitted a planning application for 345 flats and 62,000 sq. ft of commercial space, with a determination expected shortly.

§ At Wandsworth Business Village SW18, where we have planning consent for 209 flats and 80,000 sq. ft of commercial space, we have entered into an agreement with Mount Anvil for the redevelopment of the estate. Site clearance has commenced and the scheme is expected to be completed in mid 2014. Workspace will receive a new 60,000 sq. ft, business centre, retain the freehold of the site and receive 50% of any proceeds from the sale of the privately sold flats in excess of £50m; in consideration for granting a 999-year lease to Mount Anvil on the scheme's residential component. We would envisage a similar partnership model for the redevelopment schemes at Aberdeen Studios, Bow Enterprise Park and Grand Union.

§ At Great Guildford Street SE1, a 93,000 sq. ft business centre, we received planning consent in October 2010 for a new entrance hall configuration. This will enable us to upgrade the space at this business centre, to take advantage of the Bankside area's regeneration. We have now submitted a further planning application for 40,000 sq. ft of new commercial space on an additional floor that we will look to build alongside the repositioning of the entrance hall.

§ At Kennington Park SW9, we have received planning consent for 50,000 sq. ft of retail and gym use in the basement of Canterbury Court and an additional 12,000 sq. ft floor on Chichester/Chester House.

§ At Tower Bridge SE16, following extensive consultation and discussions with the local authority over the last two years, the London Borough of Southwark has re-designated the 7-acre north part of the estate from preferred industrial use to residential use, for up to 1,070 units. We are preparing a planning application and will submit it later this year.

Priority 4: To utilise and exploit our brand more fully

Our brand strength across London's small business community is underpinned by a high satisfaction rating from our customers. In our recently completed annual customer survey, 88% of our customers said they would recommend Workspace to other businesses. Our 4,000 customers employ some 30,000 people and each business has relationships with up to 10 others, so our reputation and brand are critical assets.

We are working hard to strengthen and extend the reach of our brand. Recent activity includes:

§ Rolling-out community web interest sites at our business centres, which contain a rich variety of text and video content. These sites help our customers to network day-to-day and give peer-to-peer business advice. There are now 11 micro sites up and running.

§ Using our marketing expertise more widely, we launched anyspacedirect.co.uk in 2010. This website markets small business space for a number of property owners direct to SMEs across the UK. It now hosts around 1,000 properties and receives over 26,000 hits a month.

§ Opened our first two Club Workspace business lounges, at Clerkenwell Workshops and the Leathermarket in May 2011. These provide a gym-type monthly membership for those entrepreneurs and small businesses that do not yet require permanent business space. Members can utilise the business lounge facilities for a fixed monthly fee. We plan to launch further business lounges across our portfolio over the next 2 years.

§ All of the properties in the BlackRock joint venture are managed and branded by Workspace. As we acquire new properties around London this will further extend the reach of our brand.

Financial Performance

Trading

Profit before tax has increased significantly to £52.8m from £26.0m last year. The largest element of this improvement is the increase in the property valuation.

Trading profit after interest is up 31% (£3.3m) in the year to £14.1m. The main components of this increase were:

§ Net rental income is up 3.3% (£1.5m) with the full year benefit from the Glebe portfolio acquired in December 2009 offset by disposals. Empty rates reduced from £1.7m to £1.0m as occupancy levels improved.

§ Staff and other costs are up 7.5% (£0.6m). This comprised inflationary cost increases, excluding staff salaries which were flat, and an increase in bonus costs reflecting the improved trading performance.

§ Interest costs fell by £2.4m during the year, with the average interest cost running at 5.3% compared to 6.7% last year. We have 74% of our borrowings fixed at an average rate of 3.8%, with the remainder of our debt at 1 or 3 months' LIBOR, which are currently at historic lows. Our interest rate hedging has been structured with the intention of being able to maintain a stable interest rate over the medium term at 5.5% to 6.0% even as short-term LIBOR rates recover to their longer term levels.

Other items include the increase in the mark to market value of our hedging instruments (£5.3m) and the profit on the property disposals made in the year.

Cash Flow

The Group continues to generate a strong operating cash flow in line with trading profits. Bad debts continue to be maintained at very low levels and amounted to £0.2m in the year (2010: £0.3m).

As previously highlighted, we have increased the level of refurbishment activity during the year with £2.8m of capital expenditure at Kennington Park on the refurbishment of the Chichester and Chester House buildings. The level of expenditure will increase further during the next year as we progress on the refurbishment projects at Canalot and Great Guildford Street.

Corporation Tax of £2.1m paid in the year was the REIT entry charge for the former Glebe joint venture properties that we purchased in December 2009.

A number of interest rate hedging contracts were amended or cancelled during the year, as a result of the reduction in the level of debt and the Bayern Club refinancing. The Bayern Club refinancing also has an adverse working capital impact due to a rolling 3 month delay on the release of surplus rental income until the interest payment has been made each quarter. The Bayern Club facility is provided by Bayern LB, Deutsche Pfandbriefbank, Santander and Nationwide.

Balance Sheet and Financing

We have three banking facilities, details of which are set out below:

* A new RBS facility to June 2015 was signed in June 2011.

We test the covenants on each of our facilities every quarter. We continue to have in excess of 20% headroom on all our valuation and interest related covenants.

Dividend

Reflecting improved trading performance during the year, the Board proposes a final dividend of 0.55p per share. Combined with the interim dividend, this would take the total dividend for the year to 0.825p per share, an increase of 10% on prior year. The final dividend will be paid as a Property Income Distribution (PID) to all shareholders on the shareholder register as at 15 July 2011

Share Consolidation

We are proposing at the forthcoming AGM a resolution for a 1 for 10 share consolidation. This would reduce the number of shares in issue from 1.15 billion to 115 million. If approved the new shares would be issued to shareholders in early August 2011.

KEY STATISTICS

† Excludes storage space

* Based on ERV divided by valuation

Consolidated Income Statement

For the year ended 31 March

Consolidated Statement of Comprehensive Income

For the year ended 31 March

Consolidated Balance Sheet

As at 31 March

Consolidated Statement of Changes in Equity

For the year ended 31 March

Consolidated Statement of Cash Flows

For the year ended 31 March

Notes to the Financial Statements

For the year ended 31 March

Basis of Preparation

The financial information in this report has been prepared under International Financial Reporting Standards (IFRS) but is abridged and does not constitute the Group's full Financial Statements for the years ended 31 March 2011 and 31 March 2010.

Full Financial Statements for the year ended 31 March 2010 were prepared under IFRS, received an unqualified auditors' report and did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006 and have been filed with the Registrar of Companies.

Financial Statements for the year ended 31 March 2011 will be presented to the members at the forthcoming Annual General Meeting; the auditors' report on these Financial Statements is unqualified and does not contain a statement under section 498(2) or 498(3) of Companies Act 2006.

1. Analysis of net rental income and segmental information

Discrete financial information is provided to the Executive Committee on a property by property basis, including rental income and direct costs and valuation gains or losses. All of the properties within the portfolio are geographically close to each other and have similar economic features and risks and all information provided to the Executive Committee is aggregated and reviewed in total as one portfolio. As a result management have determined that the Group operates a single operating segment providing business accommodation for rent in London, which is continuing.

As noted above, the Executive Committee assesses the performance of the operating segment using measures of rental income and direct costs and valuation gains or losses. All financial information provided to the Executive Committee is prepared on a basis consistent with these financial statements and, as the Group has only one operating segment, the measures used in assessing the business have been reconciled to profit before tax in the Consolidated Income Statement and net assets in the Consolidated Balance Sheet.

2(a). Other income and expenses

2(b). Profit on disposal of investment properties

3. Operating profit

(1) Services provided by the Group's Auditors - PricewaterhouseCoopers LLP:-

Total administrative expenses can be analysed as:-

5. Employees and Directors

6. Taxation

*A potential REIT penalty charge was waived in 2010 in light of changes introduced by the Finance Act 2009.

The tax on the Group's profit for the period differs from the standard applicable corporation tax rate in the UK (28%). The differences are explained below:

The Group is a Real Estate Investment Trust (REIT). The Group's UK property rental business (both income and capital gains) is exempt from tax. A REIT conversion charge of £1.9m was provided for in 2010 on the values of the former Workspace Glebe joint venture properties brought into the REIT in December 2009. This was paid in the current year. The Group's 'residual' business (subject to tax) is small and consists mainly of ancillary services and commissions.

The Group currently has £6.0m (2010: £5.9m) of revenue tax losses carried forward calculated at a corporation tax rate of 26% (2010: 28%) which is the rate substantively enacted at the Balance Sheet date following the March 2011 UK Budget Statement. These have not been recognised as an asset as they are unlikely to be utilised in the foreseeable future. Further reductions in the main rate of corporation tax to 23% by 1 April 2014 are expected to be enacted. If this rate was applied to tax losses at the Balance Sheet date it would have reduced losses by £0.7m.

7. Dividends

Ordinary dividends paid

In addition the directors are proposing a final dividend in respect of the financial year ended 31 March 2011 of 0.55p per Ordinary Share which will absorb an estimated £6.3m of revenue reserves. If approved by the shareholders at the AGM, it will be paid on 5 August 2011 to shareholders who are on the register of members on 15 July 2011. The dividend will be paid as a PID.

8.  Earnings per share

The calculation of earnings per share is based on the weighted average number of shares in issue during the year excluding shares held in the Company's Employee Share Ownership Trust.

Diluted earnings per share is calculated by adjusting the weighted average number of shares to assume conversion from share option schemes.

Earnings have been adjusted and calculated on a diluted basis to derive an earnings per share measure as defined by the European Real Estate Association (EPRA).

Underlying earnings consists of the EPRA earnings measure, with additional Company adjustments for non-recurring items and taxation.

Prior year EPRA adjusted earnings have been restated to exclude impact of negative goodwill and gain from share in joint venture.

9. Net assets per share

The calculation of net assets per share is based on the number of shares in issue at the year end excluding shares held in the Company's Employee Share Ownership Trust.

Diluted net assets per share is calculated by adjusting the number of shares to assume conversion from share option schemes.

Net assets have been adjusted and calculated on a diluted basis to derive a net asset per share measure as defined by the European Public Real Estate Association (EPRA).

10. Investment properties

Capitalised interest is included at a rate of capitalisation of 5.5% (2010: 6.7%). The total amount of capitalised interest included in investment properties is £3.2m (2010: £3.0m).

Investment property includes buildings under finance leases of which the carrying amount is £3.5m (2010: £3.5m). Investment property finance lease commitment details are show in note 14(f).

Valuation

The Group's investment properties were revalued at 31 March 2011 by the external valuer CB Richard Ellis, a firm of independent qualified valuers. The valuations were undertaken in accordance with the Royal Institution of Chartered Surveyors Valuation Standards, sixth edition on the basis of market value assuming that the property would be sold subject to any existing leases. Market value is defined as the estimated amount for which a property should exchange on the date of valuation between a willing buyer and willing seller in an arm's length transaction after proper marketing wherein the parties had both acted knowledgably, prudently and without compulsion.

The reconciliation of the valuation report total to the amount shown in the Consolidated Balance Sheet as non-current assets, investment properties, is as follows:

11. Trade and other receivables

The non-current receivable relates to deferred consideration arising on the sale of the Thurston Road site in February 2010. The value of this receivable has been fair valued by CB Richard Ellis on the basis of market value as at 31 March 2011, using appropriate discount rates, and will be revalued on a regular basis.

There is no material difference between the above amounts and their fair values due to the short-term nature of the receivables. Trade receivables are impaired when there is evidence that the amounts may not be collectable under the original terms of the receivable. All the Group's trade and other receivables are denominated in sterling.

12. Cash and cash equivalents

Tenants' deposit deeds represent returnable cash security deposits received from tenants and are ring-fenced under the terms of the individual lease contracts.

Bank overdrafts are included within cash and cash equivalents for the purpose of the cashflow statement (see note 15).

13. Trade and other payables

There is no material difference between the above amounts and their fair values due to the short term nature of the payables.

c) Interest rate and repayment profile