When preparing the Group financial statements, management are
required to make judgements, assumptions and estimates concerning
the future. These judgements and assumptions are made at the time
the financial statements are prepared and adopted based on the best
information available. Actual outcomes may be different from
initial estimates and are reflected in the financial statements as
soon as they become apparent.
Judgements other than estimates
1.1 Classification of directly owned property assets
The Group earns revenue from property development, trading and
investment, and from operating serviced offices.
Property development includes the entire development process
from identification of an opportunity through to construction,
letting and sale of a completed scheme. This activity is undertaken
both on the Group's own Balance Sheet and in partnership with
institutional investors, usually via a pre-sale of the completed
development.
Property trading refers to participation in the development
process, where the Group acquires an interest in land and enhances
the potential development, for instance by procuring or changing
planning permission, before selling on to a third party to complete
the development.
Property investment represents the acquisition of
income-generating real estate which is held for the purposes of
income and capital gain, through active asset management.
In most cases the property interest is held directly by the
Group and is classified either as investment property (refer note
6) or as inventory for development and trading properties (refer
note 8).
The varied nature of the Group's properties is such that a
number exhibit characteristics consistent with more than one
classification; also, the Directors' strategy for an asset may
change during its ownership. The Directors determine the status of
each asset according to their intention on acquisition. A change in
classification is made only in exceptional circumstances, where the
strategy has demonstrably changed for a period of over one year.
One asset has been reclassified from trading to development assets
during the year following the commencement of the development
works.
1.2 Classification of projects in partnership
In addition to its directly owned and managed activities, the
Group participates in similar activities in partnership with
others, typically to access expertise in different locations or
market sectors. The Group's financial participation may be by way
of equity investment or loan. In each case a judgement is required
as to the status of the Group's interest, as an associate, a joint
venture, joint operation or a financial asset, typically focusing
on the extent of control exercised by the Group.
The Group's share of control is governed and achieved by a
mixture of rights set out in agreements and participation in the
management of each business. The exercise of control in practice
does not always follow the legal structure. The Directors have
considered the position in respect of each venture, taking account
of the operation in practice, and have determined the status of
each accordingly.
These investments are reported under the relevant balance sheet
headings, with a summary in note 15.
1.3 Acquisition of subsidiaries
The Group sometimes acquires properties through the purchase of
entities which own real estate. At the time of acquisition the
Group considers whether the transaction represents the acquisition
of a business. In cases where the entity is capable of being
operated as a business, or an integrated set of activities is
acquired in addition to the property, the Group accounts for the
acquisition as a business combination. When the acquisition does
not represent a business, it is accounted for as the purchase of a
group of assets and liabilities. In making this distinction, the
Group considers the number of items of land and buildings owned by
the entity, the extent of ancillary services provided by the
entity, and whether the entity has its own staff to manage the
property (over and above the maintenance and security of the
premises).
On 19th May 2014, the Group acquired Cathedral Group (Holdings)
Limited and certain other group entities (Cathedral Group), a
property development group specialising in mixed-use regeneration
schemes in the South East. This acquisition has been accounted for
as a business combination (refer note 14).
1.4 Accounting for pre-sold development assets
Where development is undertaken on the Group's Balance Sheet
under a contract for a pre-sale, a judgement is required as to
whether this represents a sale of property or a contract for
construction. As at 28th February 2015, the Group does not have any
construction contracts (under IAS 11).
Estimates
1.5 Valuation of property assets
The key source of estimation uncertainty rests in the values of
property assets, which affects several categories of asset in the
Balance Sheet.
The investment property portfolio (and the operating property)
are stated at fair value, which requires a number of judgements and
estimates in assessing the qualities of the Group's assets relative
to market transactions.
The same uncertainties affect the determination of fair value of
certain available-for-sale financial instruments, with the further
complexity that the value of these assets requires estimates of
future construction costs, tenant demand and market yields.
The Group's development and trading properties are carried at
the lower of cost and net realisable value. The determination of
net realisable value relies upon similar estimates, with the added
challenge, in some cases, of judgements about uncertain planning
outcomes. These amounts are disclosed in note 8.
1.6 Impairment reviews
The Group's Curzon Park Limited joint venture owns a development
site in Birmingham known as Curzon Street. The current proposal for
the High Speed Train Link between London and Birmingham (HS2)
indicates that the planned route of HS2 passes through the site,
including provision for part of the prospective station. In view of
this, the ultimate value of the site is uncertain. The early
indications are that the impact of HS2 may restrict future
development on the 10.5-acre site by approximately two thirds of
its original potential. The Group has (jointly) guaranteed the
liabilities of the joint venture to the bank, and hence should the
value of the site (together with any compensation received) be
insufficient to repay the amortising bank loan, the Group may incur
further charges in respect of its obligations to the joint venture
and the bank. The loan is expected to be repaid in full in May
2015. The Directors believe that the site will recover at least its
carrying value in the books of the joint venture, although the
interim and ultimate uses of the site and timing of its development
remain unclear. The site is discussed in notes 11(a) and 13.
In view of operating losses at Executive Communication Centres
(ECC), the Group's serviced office subsidiary, the Group has
conducted an impairment review of its investment in the business.
The review required significant judgements and estimates concerning
future customer demand and competitor behaviour, as well as
discount rates. The review determined that no further impairment
arose during the year.
1.7 Derivative instruments
The Group is party to a number of interest rate swap and foreign
currency agreements which are accounted for as derivatives and
measured at fair value. The estimation of this figure is based upon
market assumptions about future movements in interest and exchange
rates. The estimated fair values and the movements in the year are
set out in note 11(c).
2 Segmental analysis
The segmental information presented consistently follows the
information provided to the Chief Operating Decision-Maker (CODM)
and reflects the three sectors in which the Group operates. The
CODM, which is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the
Board. The three operating divisions are:
-- Investment - management of the Group's investment property
portfolio, generating rental income and valuation surpluses from
property management;
-- Development and trading - managing the Group's development
and trading projects. Revenue is received from project management
fees, development profits and the disposal of inventory; and
-- Operating - serviced office operations. Revenue is
principally received from short-term licence fee income.
Unallocated assets and liabilities comprise amounts that cannot
be specifically allocated to operating segments; an analysis is
provided below.
These divisions are the basis on which the Group reports its
primary segmental information. All operations occur and all assets
are located in the United Kingdom, except assets of GBP44,049,000
(2014: GBP3,238,000) which are located in the Republic of Ireland.
All revenue arises from continuing operations.
2015
============================================================ ========== ============ ========= =========
Development
Investment and trading Operating Total
GBP'000 GBP'000 GBP'000 GBP'000
============================================================ ========== ============ ========= =========
Segment revenue 12,891 186,523 4,326 203,740
Direct costs (2,721) (142,762) (5,286) (150,769)
============================================================ ========== ============ ========= =========
Segment result 10,170 43,761 (960) 52,971
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