Central London real estate market underperforms other UK property sectors leading to poor relative financial results

Research into the economy and the investment and occupational markets is evaluated as part of the Group's annual strategy process covering the key areas of investment, development and asset management and updated regularly throughout the year.

Economic recovery falters resulting in worse than expected performance of the business given decline in economic output

Regular economic updates received and scenario planning for different economic cycles.

35% of income from committed developments secured.

Not sufficiently capitalising on market investment opportunities through difficulty in sourcing investment opportunities at attractive prices, poor investment decisions and mistimed recycling of capital

The Group has dedicated resources whose remit is to constantly research each of the sub-markets within central London seeking the right balance of investment and development opportunities suitable for current and anticipated market conditions.

Detailed due diligence is undertaken on all acquisitions prior to purchase to ensure appropriate returns.

Business plans are produced on an individual asset basis to ensure the appropriate choice of those buildings with limited relative potential performance.

Regular review of the prospective performance of individual units and their business plans with Joint Venture partners.

Failure to maximise income from investment properties through poor management of voids, mispricing, low tenant retention, sub-optimal
rent reviews, tenant failures and inappropriate refurbishments

The Group’s in-house asset management and leasing teams proactively manage tenants to ensure changing needs are met with a focus on retaining income in light of vacant possession requirements for refurbishments and developments.

Poor development returns relating to:

• incorrect reading of the property cycle;
• inappropriate location;
• failure to gain viable planning consents;
• level of development undertaken as a percentage of the portfolio;
• level of speculative development;
• contractor availability and insolvency risk;
• quality of the completed buildings; and
• poor development management

See market risk above.

Prior to committing to a development the Group conducts a detailed Financial and Operational appraisal process which evaluates the expected returns from a development in light of likely risks. During the course of a development, the actual costs and estimated returns are regularly monitored to signpost prompt decisions on project management, leasing and ownership.

35% of income from committed developments secured.

Due diligence is undertaken of the financial stability of demolition and main contractors prior to awarding of contracts.

Working with agents, potential occupiers’ needs and aspirations are identified during the planning application and design stages.

All our major developments are subject to BREEAM ratings with a target to achieve a rating of “Very Good” on major refurbishments and “Excellent” on new build properties.

Regular review of the prospective performance of individual units and their business plans with Joint Venture partners.

Limited availability of further capital constrains the growth of the business

Cash flow and funding needs are regularly monitored to ensure sufficient undrawn facilities are in place.

Funding maturities are managed across the short, medium and long term.

The Group’s funding measures are diversified across a range of bank and bond markets. Strict counterparty limits are operated on deposits.

Adverse interest rate movements reduce profitability

Formal policy to manage interest rate exposure by having a high proportion of debt with fixed or capped interest rates through derivatives.

Inappropriate capital structure results in suboptimal NAV per share growth

Regular review of current and forecast debt and gearing levels.

Correct level, mix and retention of people to execute our Business Plan. Strategic priorities not achieved because of inability to attract, develop, motivate and retain talented employees

Regular review is undertaken of the Group’s resource requirements.

The Company has a remuneration system that is strongly linked to performance and a formal appraisal system to provide regular assessment of individual performance and identification of training needs.

Adverse regulatory risk including tax, planning, environmental legislation and EU directives increases cost base and reduces flexibility

Senior Group representatives spend considerable time, using experienced advisers as appropriate, to ensure compliance with current and potential future regulations.

Lobbying property industry matters is undertaken by active participation of the Executive Directors through relevant industry bodies.

Health and safety incidents

Loss of or injury to employees, contractors or tenants and resultant reputational damage

The Company has dedicated Health & Safety personnel to oversee the Group’s management systems which include regular risk assessments and annual audits to proactively address key Health & Safety areas including employee, contractor and tenant safety.

On developments, the Group operates a pre-qualification process to ensure selection of competent consultants and contractors.