The Brixton Had a Good Income of £2.2M

2008 s unt Acco and t r o Rep nual An

Brixton plc Annual Report and Accounts 2008 (FSC). ding accor . paper ISO14001, Council Silk Ltd, certified ® 50:50 ess Pr dship Stewar Revive Plc. on independently Sun 4500 est For CarbonNeutral esterham W BX 99 been 8 the .plc.uk eet Str and printed Black Ives 73 of is on has St ley by W1J 20 e at n 0) fice Of ( rules erk certified eport r paper d 4 do B n the ea :+4 H 50 Lo t .brixt www Designed This This to Printed FSC BX004_Cover_v1_AW7.qxp:Layout 1 22/4/09 15:46 Page 1 Page 15:46 22/4/09 1 BX004_Cover_v1_AW7.qxp:Layout Contents

Financial Highlights 2 Chairman’s Statement 4 Chief Executive’s Review 6

Business Review 8 Strategy 8 Portfolio 10 Income security 14 Customers 18 Performance 20 Income Growth 21 Key 2008 Lettings 21 Rental Value Growth 22 Development 22 Vacancies 23 Valuation 24

Financial Review 26 Risk Management 30 Board of Directors 31 Management 32 Directors’ Report 33 Report on Directors’ Remuneration 37 Directors’ Responsibilities 44 Financial Statements 45 Independent Auditors’ Report to the Members of Brixton plc 45 Group Income Statement 46 Group Balance Sheet 47 Group Cash Flow Statement 48 Group Statement of Recognised Income and Expense 49 Notes to the Accounts 50 Independent Auditors’ Report to the Members of Brixton plc 71 Company Balance Sheet 72 Notes to the Company Accounts 73

Ten Year Record 77 Principal Subsidiary Undertakings 78 Shareholder Information 79 Glossary of Terms Advisers 80 An explanation of many of the common terms used in Glossary of Terms this report can be found on the inside back cover.

Annual Report and Accounts 2008 1 Financial Highlights Despite the turmoil in the ﬁnancial and capital markets, Brixton had a good operational performance in 2008.

Net rental income +6.8% to £77.4m Like-for-like and excluding empty rates +2.3% Adjusted NAV per share -46.8% to 290p 08 £7 7.4m 08 290p 07 £72.5m 07 545p

Investment proﬁt -8.8% to £42.5m Excluding empty rates -0.5% to £46.3m IFRS (loss)/proﬁt before tax (£768.8m) 08 £42.5m 08 (£768.8m) 07 £46.6m 07 £58.2m

Adjusted or underlying earnings per share IFRS (loss)/earnings per share (283.0p) -8.7% to 15.7p (Includes revaluation deﬁcit of £673.4m) Excluding empty rates -1.2% to 17.0p 08 (283.0p) 08 15.7p 07 22 .1p 07 17.2p

2 www.brixton.plc.uk Valuation (deﬁcit)/surplus -27.2% -26.4% on IPD basis (cf IPD -26.0%) 1 Total dividend -64.0% to 4.9p Portfolio value £1,799m. Equivalent yield +160bp to 7.0% 08 4.9p 08 -2 7.2% 07 13.6p 07 +0 .7%

Overall valuers’ rental growth -0.2% Transactional rental growth +3.2% (cf IPD 0.0%) 1 (cf IPD 0.0%) 1 08 -0.2% 08 +3.2% 07 +5.0% 07 +5 .1%

1 IPD UK Annual Industrial Index

Annual Report and Accounts 2008 3 Chairman’s Statement While market conditions remain extremely difﬁcult, we are conﬁdent in the resilience of the business and the long term strength of the underlying portfolio.

Introduction We hold prime industrial of empty rates of £3.8m. The extreme turmoil in and warehouse property Adjusted earnings per share global financial markets, in strategic locations fell 8.7% to 15.7p, or 1.2% the subsequent reduction in We continue to believe to 17.0p excluding the the availability of credit, and that our portfolio is impact of empty rates. the worsening economic fundamentally attractive, outlook in the UK led to focused on prime strategic The imposition of empty widespread declines in UK locations, able to perform rates in England and Wales commercial property values resiliently in the current could not have happened in 2008. These declines environment and well placed at a worse time for the accelerated in the fourth to benefit from the inevitable business community as quarter at a much greater future recovery in economic operating cash flows are rate than many, including conditions. reduced when cash ourselves, had anticipated. preservation for working It is widely expected that Brixton owns nearly capital is a priority for many there will be further falls 19 million square feet of companies. Empty rates in 2009. industrial and warehouse affects businesses when property in the UK. they are downsizing their Since 2006, the Board has Approximately 72% of the operations as they will not taken various measures portfolio (by value) is located be able to obtain relief for to strengthen the Group’s in the strategic markets of space that they no longer financial position, including Heathrow and Park Royal, occupy under their lease selling non-core secondary where land supply is commitments. At a time properties, restricting constrained and tenants when demand for space new acquisitions to are typically locationally has slowed empty rates prime strategic assets, sensitive. We believe that is an additional burden and curtailing new this market specialisation which is further exacerbated development activity. and geographic focus best when insolvencies occur positions the Group to as the loss of rental income However, the deliver attractive returns from a tenant is then unprecedented speed and to shareholders over the compounded by the extent of recent valuation long term. liability for empty rates. declines presents Brixton with a number of challenges Brixton’s operating Our income continues to regarding the current capital performance was good be well spread. Brixton’s structure, as has been in 2008 top 20 tenants represent reflected in the recent share Brixton demonstrated the 31% of the rent roll and no price performance. The resilience of its underlying single non-government Board is acutely focused on operating business in 2008 tenant accounts for more addressing these challenges generating a net annualised than 2.3% of rental income. and continues to explore its increase in income for the Because of the worsening options to strengthen the year from lettings, lease economic environment, balance sheet and provide renewals and rent reviews of the annualised loss of rent the Group with additional £3.6m, approximately three in 2008 was £4.2m or 4.0% financial flexibility. We will times the net new income of the rent roll, of which half make an announcement generated in 2007 (£1.2m). related to Entertainment as soon as appropriate. Investment or underlying UK Ltd (a subsidiary profit fell £4.1m to £42.5m, of Woolworths). reflecting mainly the impact

4 www.brixton.plc.uk Our vacancy rate (by the formation of new joint Peter replaces Tim Wheeler income) was 17.3% at ventures, renegotiations of who will be leaving Brixton December 2008, or 10.6% if our borrowing agreements, after 24 years, the last nine developments are excluded. as well as a potential of which were as Chief Managing our vacancy rate equity raising. Executive. On behalf of the is a key priority for the Board Board I am delighted to as we focus on maximising In the context of welcome Peter in his new income growth. strengthening the Group’s role and would like to thank balance sheet, and also Tim for his contribution Balance sheet in light of the lack of reform to Brixton. In line with prevailing market to empty rates legislation, conditions, Brixton’s the Board has decided that Outlook and priorities portfolio recorded a it would be prudent to for the next year valuation deficit of 27.2% restrict the 2008 dividend While market conditions in 2008 and 19.2% in the to the 4.9p per share remain extremely difficult, second half of the year. The already paid at the Half Year. we are confident in the wholly owned portfolio is The Board intends to keep resilience of the business now valued at £1,605m, its dividend policy for future and the long term strength while the total portfolio years under review. of the underlying portfolio. (including our share of joint We are focused on meeting ventures) is valued at We have a cohesive team the immediate challenge £1,799m. This means that in place to take Brixton to protect against further our portfolio has now fallen forward valuation falls and 33.4% since the market On 2 March 2009, the strengthen our balance peak in June 2007. As a Board appointed Peter sheet. We also intend result, our adjusted NAV per Dawson as Chief Executive. to drive income growth share fell 46.8% to 290p. Formerly Brixton’s through the effective Investment Director, Peter management of our The Group remains has been with the Group vacancy level. compliant with all covenants since 1997 and served on under its borrowing the Board since 2007. He Finally, I would like to thank agreements. However, given has a detailed knowledge of all our staff for their hard widespread expectations the business and is the right work and commitment of further property value person to lead the Group to the Company. falls, our balance sheet through these challenging covenants of asset cover market conditions and into ratio and gearing are likely the next phase of its to come under pressure. development. He will be supported by a very high Focus on strengthening quality and experienced the balance sheet and executive team including maximising our financial Steven Owen, Deputy Chief Louise Patten flexibility Executive and Steve Lee, Chairman As a consequence, Operations Director. the Board is currently exploring a range of options to address this issue. These options include asset disposals,

Annual Report and Accounts 2008 5 Chief Executive’s Review Our focus going forward is to maximise income growth, reduce our indebtedness and improve our ﬁnancial ﬂexibility to maximise shareholder value.

Having only been appointed As a consequence of market on site during the first half as Chief Executive on conditions, the volume of of 2008. If developments 2 March 2009, I am lettings decreased to around are excluded the underlying pleased to have this early 750,000 sq ft (from void rate was 10.6%. If the opportunity to report to you 1.15m sq ft in 2007) but it headline void of 17.3% on Brixton’s performance produced the same amount is adjusted to take into during 2008 and also to of annualised income – account those insolvencies outline our future strategy. £7.1m – as the previous where the space involved Despite the turmoil in the year and reflected a net had not yet been returned financial and capital markets increase in annualised by the end of 2008, the Brixton had a good income of £2.2m. Most of headline void would be operational 2008. However, the activity was focused on 19.9% by income and we are acutely aware of the our completed development the underlying void rate challenges that we face. programme, whilst the of 10.6% would be 13.5%. leasing of second hand This adjustment for In 2008 we created £3.6m space slowed. insolvencies includes that worth of net new income, of our third largest tenant, on an annualised basis, The importance of Entertainment UK, although from new lettings, rent continuing to improve and the rent is currently being reviews and lease renewals strengthen our relationships paid by the administrators. which compares with £1.2m with our customers was for 2007 and is the highest again demonstrated in 2008 One of the key objectives figure we have achieved and we completed several for 2009 is to increase our in any of the last five years. significant lettings to key income and occupancy existing customers including levels by letting vacant We have exceeded the the Metropolitan Police, property which had a valuers’ ERVs (Estimated The Royal Mail and rental value of £22m at Rental Values) on the rents Jack Wills. the end of 2008. achieved on our lettings, rent reviews and lease Our headline void at Due to the global market renewals by 3.2% (3.7% December 2008 fell to turmoil, the reduction in from lettings alone). This 17.3% from 18.7% at the supply of finance and compares with an average June 2008. This was up weakening economic enhancement over valuers’ from 15.4% at the end of conditions there have been estimates of 3.7% pa from 2007 due to the completion widespread declines in UK our portfolio over the last of our three remaining commercial property values five years. developments that were in 2008. This accelerated in

6 www.brixton.plc.uk the fourth quarter of 2008 As we face the reality Our focus going forward and it is widely expected of a significantly weaker is to maximise income that there will be further property market, our growth, reduce our reductions in commercial immediate priority is to indebtedness and improve property values in the UK continue to actively pursue our financial flexibility to during 2009. This has a range of options to maximise shareholder value. already been evidenced improve our financial With a combination of our through declines in capital flexibility and we will report quality portfolio in prime values and the IPD Monthly further details as soon as strategic locations, our All Property Index of -3.0% is appropriate. proactive asset in January. The valuation management capability process continues to be We are seeking to dispose and our customer focus conducted against a of assets where we believe we believe we are ready background of limited management initiatives have and able to meet the transactional evidence been substantially continuing challenges particularly in the prime completed or where they of the economy in 2009 London industrial markets. no longer meet our strategic and beyond. objectives. We are also It is anticipated that more considering creating new investments will be traded joint ventures to release this year: particularly capital to enable us between distressed, rather to strengthen our than willing, sellers and balance sheet. opportunist well funded Peter Dawson purchasers which will In our Interim Management Chief Executive provide more evidence of Statement in November realisable prices. However, 2008 we outlined our these transactions are likely covenants relating to to be below current balance our borrowings. As at 31 sheet valuations. The December 2008 we were transactional transparency in full compliance with these should be welcomed and covenants further details may help improve liquidity of which are contained in the sector. in the Financial Review.

Annual Report and Accounts 2008 7 Business Review Strategy Our strategy is to concentrate our portfolio in industrial and warehousing property in prime strategic UK locations with an emphasis on West London. We aim to meet our customers’ needs for industrial and warehousing property whilst maximising returns for our shareholders.

Market Prime industrial Customer service & Joint ventures specialisation property portfolio asset management Joint ventures enable Brixton Brixton is a single sector We own nearly 90 estates B-Serv is Brixton’s wholly to leverage its skills, increase focused UK real estate with over 1,300 units and owned subsidiary responsible its occupational market share investment trust (REIT) and approximately 860 customers for asset management and and use capital more effectively. is the largest operator in the (direct tenants). Units range in customer service and was West London industrial and size from approximately 1,000 established in 2001. Brixton operates two distinct warehouse market. sq ft to over 450,000 sq ft. joint venture vehicles, Equiton 78% of our portfolio is in The management of the lease and Heathrow Big Box. We concentrate on strategic Greater London with Heathrow expiry and break profile is a key locations where land supply comprising 37% and Park part of our asset management Equiton was set up in 1999 is constrained, where demand Royal representing 35% of strategy. Through providing and we are discussing with is likely to be the strongest and the total portfolio. The tables the combination of the right our partners the options for where returns are expected on pages 12 and 13 show properties, a flexible approach this vehicle which invests in to be in excess of our target the analysis of the portfolio to leasing and excellent smaller lot size, multi-let for an acceptable level of risk. by our key regions. customer service we can industrial and warehousing work with our customers to estates in the South East. Property is a long term Due to the simplicity of persuade them to remain in It presently comprises 42 investment and we believe our industrial buildings there is our properties and mitigate industrial and warehouse strategic aims should create generally less obsolescence the effect of vacancies. Our estates totalling 2.8m sq ft a durable business model with in the type of industrial parks service culture fosters closer with 227 tenants and produces attractive long term economics. that Brixton owns in Greater relationships with our customers rental income of £19.8m London than in the other and provides opportunities per annum. We believe it is through commercial property sectors to enhance value in all specialisation in a certain and we have a preference market conditions. Heathrow Big Box is a 50:50 sector and well selected to upgrade buildings through joint venture set up in 2004 markets that superior capital refurbishment and only Customer satisfaction has with the Prudential. It allocation decisions can be redevelop where buildings improved from around 50% comprises two prime made and outperformance become functionally obsolete before B-Serv was launched industrial warehousing estates, generated over the longer term. and returns are expected to levels consistently in Heathrow Corporate Park and The markets that have been to be greater. excess of 80%. Axis Park, totalling 1.2m sq ft selected are part of or adjacent with 13 tenants and currently to areas of significant economic Our top 100 tenants make up In December 2008 Brixton produces rental income of generation being London, 64% of our total income and launched a new dedicated £14.5m per annum. Heathrow or Manchester. our top 20 tenants, with many leasing centre operated by Our occupiers are typically of whom we have long term B-Serv whereby potential locationally sensitive because relationships, include The Royal occupiers have the choice of their need to service their Mail, Delifrance, BSkyB, Heinz, of dealing with our appointed customers within those areas. Morgan Stanley, B&Q and agents or contacting us directly. British Airways. Whichever option is chosen we Within our chosen markets offer lease flexibility and a range we seek to provide for our Income growth of options. customers: Our strategy is to drive income growth through • The best choice of proactive asset management quality properties. and attentive customer service. • The flexibility to have their We will focus on increasing our lease on terms that suit occupancy levels and letting their business needs. space on current market terms. • A high level of Given the decline in the customer service. economy this may result in future lettings being less than the previous valuation’s ERV in certain markets. 8 www.brixton.plc.uk The Brixton ‘Value Generator’

th M w ar ro ke G t e S p m e

o c

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a n Prime

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Industrial s

Portfolio t

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Joint Ventures C u sto mer Service

Annual Report and Accounts 2008 9 Business Review continued Portfolio Brixton owns and/or manages approximately 19 million sq ft in over 1,300 units (Brixton share at the end of 2008 worth £1.8 billion) in nearly 90 estates. Greater London makes up 78%, by value, of the whole portfolio. The location and concentration of these estates is shown below.

Manchester

Wholly owned portfolio Heathrow Big Box Equiton Greater London

10 www.brixton.plc.uk Portfolio value by type Investment portfolio Top 20 investments in descending order by value. These properties represent 70% by value of the total portfolio*

Size Total Total Date of Total Total 000 sq ft Income ERV acquisition Size income ERV Date of £m p.a £m p.a 000 sq ft £m pa £m pa acquisition

London NW10, Park Royal, Premier Park 845 8.3 9.4 1999

Greenford, Greenford Park 971 8.1 10.5 1999

Manchester, Trafford Park 2,771 8.7 11.9 2004

Slough, Axis Park 675 7.8 8.0 2000

Southall, Great Western Industrial Park 771 7.2 8.4 1999

Heathrow, Heathrow Corporate Park 548 6.7 7.0 2000

Brentford, West Cross Industrial Park 503 5.7 6.4 1998

Greenford, Metropolitan Park 768 5.5 7.5 2000

Basingstoke, Kingsland Business Park 796 4.7 6.1 1997

Heathrow, Heathrow Gateway 354 3.8 3.7 2007

Wembley, Northﬁelds Industrial Estate 356 1.8 1.7 2004

Radlett, Ventura Park 593 3.7 4.4 1998 Equiton Heathrow, The Heathrow Estate 309 1.9 3.5 2002 5% Heathrow, Polar Park 280 1.6 3.3 2001

Heathrow, Poyle 14 308 2.4 3.4 2006

Heathrow London W3, Acton Park Estate 243 2.3 2.9 1963 Big Box 6% Heathrow, X2 234 – 2.9 2002 London W3, Acton, Westway Estate 352 2.6 3.1 1938

Wholly owned London W3, Victoria Industrial Estate 214 2.1 2.6 1999

po rtfolio Greenford, Rockware Avenue 489 1.5 1.9 2007 89% * Including joint ventures at 100%

Annual Report and Accounts 2008 11 Business Review continued Portfolio

Portfolio analysis

Value Value No. of £m % estates

Heathrow 674 37 23

Park Royal 629 35 12

Rest of Greater London 104 6 16

Total Greater London 1,407 78 51

Rest of South East 252 14 33

Total South East 1,659 92 84

Manchester* 140 82 2

Overall total 1,799 100 86

* Trafford Park is shown as one estate but encompasses 23 distinct holdings ** Includes area of developments where planning consent obtained *** By income

12 www.brixton.plc.uk Headline Underlying Passing No. of Total size void rate*** void rate*** rent ERV tenants m sq ft** %%£m £m

130 5.3 20.6 10.5 37.1 49.5

170 5.0 13.3 6.9 33.8 41.7

100 1.2 17.0 17.0 6.7 8.6

400 11.5 17.2 9.6 77.6 99.8

230 4.3 13.6 12.2 18.0 22.6

630 15.8 16.6 10.1 95.6 122.4

230 3.0 24.0 15.9 9.3 12.5

860 18.8 17.3 10.6 104.9 134.9

Annual Report and Accounts 2008 13 Business Review continued Income security The diversity, security and resilience of the income proﬁle is demonstrated by the following.

Diversity: Rent roll analysis

13 14 1 12 11 10 9

8 2

By tenant 7 By sector concentration

3 5

1 Transport & Distributors 20% Top 10 2 Support Services 15% tenants 3 Food & Beverages 14% 21% 4 General Retailers 12% 5 Government Bodies 7% 6 Engineering & Electronic 6% 21-100 7 Media 5% tenants 8 Automotive 4% 33% 9 IT Hardware & Software 3% 10 Construction & Building Materials 3% Remainder 11 Health, Personal & Pharmaceutical 3% 36% 12 Telecommunications Services 3% 11 -20 13 Banks 2% tenants 14 Other 3% 10% Total 100%

14 www.brixton.plc.uk Security of income Expiry & break profile Average unexpired lease term: 7.1 years (2007: 7.3 years) Maximum amount of rent (ignoring insolvencies) that could Income secured for next five and 10 years be lost over the next five years. Using % of passing rents: worst case scenario*

50 15

49%

£13.9m

13.3%

£11.3m £10.9m 10.8% 10 10.4% £9.7m

30 9.3%

£7.4m

7.1% 22% 20

0 0 % 5 years* 10 years* % 2009 2010 2011 2012 2013

Assuming worst case scenario i.e. that tenants leave at earliest break or lease expiry opportunity * Assumes all tenants leave at earliest break or lease expiry opportunity * 2007: 54% and 22%

Annual Report and Accounts 2008 15 Business Review continued Income security

Track record of managing expiry & break proﬁle

Managing expiry and break profile 30 Our track record in managing the lease expiry and break profile is set out in the chart left, which shows that the 25 actual void rates for the years 2003 to 2008 inclusive were significantly less than the potential void rates for those 20 years. Further detail is set out in the table below left.

Tenant retention 15 One of the beneﬁts of the B-Serv customer service model is in retaining tenants on lease breaks or lease 10 expiry as shown in the table to the right.

Resilience The annualised loss of rent 5 relates to tenants in any form of insolvency after allowing for any re-letting of such space. At December 2008 the 0 annualised loss of rent of % 2003 2004 2005 2006 2007 2008 £4.2m was 4.0% of the rent roll. Included in this ﬁgure is Theoretical maximum underlying void. Actual underlying void at start of year plus worst case assumed on all expiries and breaks during the year £2.1m which relates to Entertainment UK Ltd, a Actual underlying void at year end by income subsidiary of Woolworths plc and our third largest tenant, who went into administration in November 2008 although 2003 2004 2005 2006 2007 2008 the rent is currently being %%%% %% paid by the administrators. Actual underlying void rate at start of year (by income) 9.8 11.0 11.7 11.5 11.7 9.7 Worst case expiries and breaks in the year 9.8 10.7 9.7 17.6 11.8 11.9 Potential underlying void rate at the year end 19.6 21.7 21.4 29.1 23.5 21.6 Actual underlying void rate at the year end 11.0 11.7 11.5 11.7 9.7 10.6

16 www.brixton.plc.uk Tenant retention* Resilience Using passing rents

100 30 5

94%

25 26

80 4 80% 24

73% 22

20 67%

60 63% 3

55% 15

40 2

20 1

0 0 0 % 2007 2008 No. Dec 2006 Dec 2007 Dec 2008 £m

Breaks = % not exercised (i.e. retained) Insolvencies (No.) Expiries = % renewed (i.e. retained) Annualised loss of rent (£m – right hand scale) Average = Weighted average % of breaks not exercised and leases renewed Bad debt provision (£m – right hand scale)

* Analysis excludes insolvencies, surrenders, units returned at development sites and as a consequence of insured risks and leases less than one year. Tenants that move to another Brixton owned or managed property counted as not exercised or renewed. Annual Report and Accounts 2008 17 Business Review continued Customers Our diverse customer base is the focus of the asset management, customer service and leasing provided by B-Serv.

Our customers Top 20 tenant customers Our main tenant customers are shown below

Sq ft % of total occupied rent roll 000’s Number 1,300 (JVs at share) (JVs at 100%) of units units Royal Mail Group Limited 5.5% 764 6

Delifrance (UK) Limited 2.3% 254 5

Entertainment UK Limited (in administration) 2.0% 233 1

Kerry Group plc 1.9% 230 5

BSkyB Limited 1.7% 111 3 860 HJ Heinz Company Limited 1.6% 171 1 customers Wincanton plc 1.5% 489 1

Morgan Stanley UK Group 1.5% 246 1 1,000 CEVA Freight (UK) Limited 1.4% 130 1 Panavision Europe Limited 1.3% 141 5 occupational agreements Kuehne + Nagel Drinkﬂow Logistics Limited 1.2% 133 1

AK Worthington Limited 1.2% 366 4

Brake Bros Limited 1.1% 110 1

B&Q plc 1.0% 159 1

Expeditors International (UK) Limited 1.0% 97 1

Exel UK Limited 1.0% 135 2

H&M Hennes & Mauritz UK Limited 0.9% 86 1

British Airways plc 0.9% 165 1 In total we have approximately Our top 20 occupiers (by rent) 860 customers and around are listed to the right and overall 1,000 occupational agreements the portfolio is characterised Tetley GB Limited 0.9% 49 2 in over 1,300 units. by its diversity which has given us a good degree of security Jack Wills Limited 0.8% 78 2 and resilience.

18 www.brixton.plc.uk B-Serv B-Serv is Brixton’s wholly day-to-day issues relating essential to the success of leases aimed at streamlining owned subsidiary responsible to the leases in place at our the B-Serv business model. the leasing process and for Asset Management and properties and assignments, Customer satisfaction levels fast-tracking the enquiry-to- Customer Service. sublettings and alterations. have been maintained at more occupation timescales. than 80% over the last five Additionally, we offer bespoke B-Serv was established in 2001 Tenant retention is further years which compares to leasing solutions to any with the aim of further underpinned by the control of approximately 50% in 2001 occupier requiring these. differentiating Brixton from its service charges. Service charge immediately prior to the However, while some customers competitors by delivering not funds are made to work harder creation of B-Serv. wish to price in features such only a first class property by a dedicated contract as shorter lease terms and product but also by creating management function which Customer Help Desk break options, many of the and building positive long term strives to achieve maximum At the heart of the B-Serv leases we grant are of a more relationships with our customers. value from the services that are operation is the 24 hour, conventional nature and run for sourced to maintain our estates. seven-days-a-week, terms in excess of 10 years. Our focus on delivering high 365-days-a-year, Customer levels of customer satisfaction, The close interaction between Service Help Desk which Workplace Support a range of complementary the B-Serv Asset Management operates a freephone service B-Serv operates a Workplace business support services team and the customer base enabling B-Serv’s customers to Support service which is and quality properties should is a key aspect of increasing make easy and direct contact. available only to occupiers continue to give us a customer satisfaction and The Help Desk dealt with of Brixton owned or managed competitive edge. enhancing income. 7,700 calls in 2008. properties. The service is about creating and maintaining We have developed a Customer Service Leasing working environments service culture throughout the B-Serv is committed to helping Providing customers with the and offering discrete services business and believe, in these our occupier customers by right properties on the right and comprises planned and economically challenging times, providing efficient working terms helps to attract and reactive maintenance, reactive this should aid our twin environments at the properties retain occupiers. ‘call-out’ support for objectives of increasing income we manage. Each of our emergencies and construction from new lettings and reducing occupier customers is Our team of leasing surveyors refurbishment and fit-out the level of lost income from supported by a dedicated works with prospective projects. In 2008 Workplace occupiers leaving the portfolio Customer Service Manager customers from the initial Support served 185 distinct through lease ends, break (‘CSM’) whose responsibility enquiry stage through to customers on nearly opportunities and insolvencies. it is to help them with any agreeing and signing leases. 1,000 occasions. issues relating to property The key elements of the B-Serv leases, building maintenance In addition, and to give strategy are detailed below. and the management of prospective customers easier facilities support services. direct access to us we Asset Management launched a new dedicated By combining proactive asset Our CSMs have access to the Leasing Centre to handle management with service professional service skills within leasing enquiries. The centre, charge control and high levels B-Serv and can utilise these operated by B-Serv, works of customer service, B-Serv to ensure our customers get alongside Brixton’s retained drives income growth, the best from the space they agents. Its aim is to make it customer satisfaction and lease from us. The CSMs are easier for occupiers to lease tenant retention. supported in their work by the space from Brixton and gives Contract Managers who look them direct access to our B-Serv’s asset managers are after the physical environment unique package of choice, responsible for managing and on our estates. lease flexibility and unrivalled negotiating the rent reviews customer service. and lease renewals which Customer Satisfaction capture and increase income. Maintaining a high level of We have also developed They also manage all the other customer satisfaction is a series of simple standard

Annual Report and Accounts 2008 19 Business Review continued Performance Our strategy is to drive income growth through proactive asset management and attentive customer service. We will focus on increasing our occupancy levels and letting space on current market terms.

New net income (£m pa)

Dec Dec 2008 2007 Lettings 7.1 7.1 Space returned (4.9) (7.1) Net lettings 2.2 0.0 Rent reviews 1.1 0.8 Lease renewals 0.3 0.4 Total 3.6 1.2

Total new net income increase

£3.6m

£2.8m

£1.8m

£1.4m

1 £1.2m

0 £m 2004 2005 2006 2007 2008

20 www.brixton.plc.uk Income Growth Key 2008 Lettings During 2008 we created a net Lease Rent free annualised increase of income Size Rent length Break period from new lettings of £2.2m. Location Tenant (‘000 sq ft) (£ psf) (years) (years) (months) This comprised £7.1m of Basingstoke, Kingsland, Horizon** annualised rent from new lettings, offset by a decrease Unit 3 RFI Global Services 11 9.00 15 57 from space returned of Gatwick, Old Brighton Road £4.9m annualised. Unit B1 Spacers International Packers 16 8.25 10 55

The net increase in rent Greenford, Greenford Park** generated from rent reviews and lease renewals was £1.4m Unit 1 H&M Hennes & Mauritz 86 11.43 10 3.5/7 6 annualised providing a total Unit 4 Jack Wills 57 11.50 10 3.5/7 6 increase in income for the year from lettings, lease renewals Unit 15 & 16 / Unit 14 Media Control (Europe) 7/5 12.90/12.55 9.75/10 5 8/6 and rent reviews of £3.6m. Heathrow, Heathrow International This was a sound performance during a testing year and Units 8 & 9 Williams and Hill Forwarding 23 11.25 5–7 compares favourably with Heathrow, Polar Park** our ﬁve year average increase in new net income of Unit 3 Metropolitan Police 60 13.25 20 – 12 £2.2m annualised. London, Haringey, Crusader

Combining all our portfolio Units 4 & 5b Wasabi Co. 11 8.40 533 income activities the total Park Royal, Oakwood increase each year is Units 1 / 1a FDS Informal Foods 16 10.75 10 –6 demonstrated in the graph on the previous page. Park Royal, Premier Park** Unit 1 A. Fulton Company 28 11.75 15 5/10 6 A summary of our key lettings during 2008 is shown here. Unit 4 IT Pharma 14 12.00 15 –9 Approximately 70% by income Unit 9 InHealth Sterile Services 19 11.75 17 –9 of these lettings are from our development programme. Units 10 & 11 Next Group 29 11.70 15 10 6 The second hand leasing Unit 12 HR Owen 21 11.75 15 10 7 market has continued to slow, but the demand for our Unit 13 Pentagon Glass 7 12.80 10 56 new prime units in Park Royal Units 20-23 Royal Mail 57 11.75-12.00*** 20 15 10 proved resilient with good rental levels being achieved. Demand Radlett, Ventura Park has also slowed in Heathrow Unit C Malibu Health Products 21 8.25 10 53 and there is more competition from other developers’ Uxbridge, Riverside Way* completed schemes. Riverside House ET Enterprises 25 8.75 15 10 15

Weybridge, Brooklands*

Unit A303 Pyramid Visuals 11 9.75 10 –6

* Equiton fund ** New developments *** Tenant requested non-disclosure of specific rent

Annual Report and Accounts 2008 21 Business Review continued Performance

Rental Value Growth Development During 2008 we achieved rents during the year of 2.4% is 2.6% compared to IPD’s UK During the first half of 2008 we on our lettings, rent reviews whereas at Heathrow we Annual Industrial Index of 1.0% completed our three remaining and lease renewals that were saw ERVs decrease by 3.2%. over the last five years. developments that were on 3.2% in excess of our valuers’ The decline at Heathrow was site, being Greenford Park, applicable ERVs for the units mainly focused on the larger Our track record on recent X2 at Heathrow and Premier concerned. This compares units within our portfolio. The lettings means that in the Park at Trafford Park. with an average enhancement transactional rental growth at absence of a prolonged of 3.7% per annum over the Park Royal and Heathrow was downturn we should be well Currently we have no last five years. In 2008 lettings 3.6% and 1.3% respectively. positioned to achieve income developments under alone outperformed the growth from our rent review construction on site and applicable ERVs by 3.7%. To put our rental growth and lease renewal activities. do not plan to commence performance into context, construction of any new During 2008 our valuers IPD’s UK Annual Industrial The table opposite shows speculative developments marginally reduced our ERVs Index for 2008 shows rental our rent review profile over until market conditions by -0.2%. However, in Park falls of 0.0%. Our average ERV the next five years based become more favourable. Royal there was an increase growth over the last five years on current passing rent. We continue to closely monitor local market prospects to determine when this may be. In the meantime we are 6 pursuing negotiations for planning on our longer term schemes, such consents still remaining one of the main 5 barriers to entry to any competitor in the West London industrial market. However, 4 we do have flexibility in our development programme and we have a number of sites – totalling some 86 acres – where 3 we have existing planning or expect favourable resolution for development and where 2 we are actively seeking prelets.

Since 2005, we have 1 completed 1.7 million sq ft of developments of which approximately 50% are let producing income of £9.1m. 0 The ERV of the unlet developments is £9.5m of which £6.8m relates to the -1 schemes completed between October 2007 and April 2008. % 2004 2005 2006 2007 2008

Total % over valuers’ Brixton ERVs Our focus for 2009 will be % ERV growth: Brixton valuers’ ERVs to generate additional % ERV growth: IPD UK Greater London Annual Industrial Index new income from our % ERV growth: IPD UK Annual Industrial Index completed developments % ERV growth: IPD UK South East Annual Industrial Index and to secure prelets on our undeveloped sites. 22 www.brixton.plc.uk Rent review profile Vacancies Using passing rents Brixton references vacancies Our objective is to increase our or voids to income, as well occupancy levels but the future as area, as we believe that direction of this depends on the the former is a more accurate depth of the recession and how 20 £18.9m reflection of the underlying this impacts the level of tenant economic position. The demand and the number of 18.6% following table shows our void tenant insolvencies. The sales 15 rates since December 2006. programme may also impact £13.0m our void level. £11.5m 12.8% If the headline figure as at December 2008 of 17.3% is We continue to proactively 10 11.3% £8.4m £7.3m adjusted to take into account promote our quality portfolio 8.3% those insolvencies (including and take a balanced approach 5 7.2% that of our third largest tenant, to the creation of new income Entertainment UK) where the and value from all our leasing, space involved had not yet rent reviews and lease 0 been returned by the end of renewal activities. % 2009 2010 2011 2012 2013 2008, then the headline void would be 19.9% by income Includes joint ventures at share and the underlying void of 10.6% would be 13.5%.

Adjusted Adjusted 10 March 10 March Dec Dec June Dec Dec 2009 2009 2008 2008 2008 2007 2006

Voids by income

Headline 20.3% 17.3% 19.9% 17.3% 18.7% 15.4% 14.6%

Underlying (excluding developments) 14.2% 10.8% 13.5% 10.6% 10.5% 9.7% 11.7%

Voids by area

Headline 19.3% 16.6% 19.0% 16.3% 16.0% 13.3% 13.6%

Underlying (excluding developments) 14.6% 11.7% 14.1% 11.2% 10.1% 9.5% 11.8%

Annual Report and Accounts 2008 23 Business Review continued Performance

Valuation The valuation of the Group’s The table below shows the deals and that in the prime core transparency should be properties by CB Richard Ellis performance produced by the Heathrow industrial market welcomed and may indeed and King Sturge as at 31 portfolio in 2008 analysed by there were three completed, improve liquidity in this sector. December 2008 was £1,799m our key markets. These figures keenly priced acquisitions with (including £194m for Brixton’s include the effect of any equivalent yields as low as The valuation performance share of joint venture transactions and developments 5.1% (worth c. £78m) against in 2008 can be looked at in properties) compared with in the period whereas the IPD the backdrop of a more difficult context with the performance £2,449m (including £264m for published data does not (the investment and occupational of the portfolio over the last Brixton’s share of joint venture standing investment returns). market. In 2007 there were five years and the ‘Valuation & properties) for the portfolio at £560m of comparable rental growth performance’ the end of 2007. After adjusting The valuation deficits produced investment transactions in table opposite demonstrates for capital expenditure the by our joint ventures for the Greater London – nearly 80% this together with the ERV valuation deficit was £673.4m, year were 26.0% for Heathrow in Park Royal and Heathrow. and transactional rental a decrease of 27.2%, the same Big Box and 27.6% for Equiton. growth achieved. as on a like-for-like basis and It is anticipated that more stock -26.4% on IPD’s standing The comment we made will be sold this year as a result The ‘Portfolio yields’ graph on investment basis which regarding the paucity of of the matching of generally the opposite page shows the compares with the 26.0% comparable industrial distressed, rather than willing yield profile of the portfolio from deficit shown by the IPD UK investment transactions in the sellers, and opportunist well the initial yield through to the Annual Industrial Index. Since 2008 Half Year Report is also funded purchasers. Realisable reversionary yield at the end the highpoint of values at June relevant for the full year. In Park prices on this basis are likely to of 2008. It demonstrates the 2007 the total deficit on the Royal we believe that there be less than balance sheet potential increase in yield of portfolio is 33.4%. were no significant investment valuations but transactional 1.2% from letting up voids together with the reversion of 0.3% from the let portfolio. The combined income from voids and reversions amounts to Valuation deficits in Brixton’s markets £29.2m, which represents a total reversion of 27%. Brixton’s transactional rental The ‘Net yield movements’ Overall H2 Valuers’ ERV growth in excess 2008 2008 2008 growth of ERV 2008 table opposite shows the basis points (‘bp’) movement in net Heathrow -27.6% -20.8% -3.2% 1.3% yields during the year.

Park Royal -24.5% -15.7% 2.4% 3.6% In the 18 months since the high point of values in mid 2007 our Rest of Greater London -26.5% -18.7% 2.2% 13.4% net equivalent yield has moved out by 200bp to 7.0%. Total Greater London -26.1% -18.4% -0.5% 3.2% The reversionary potential Rest of South East -30.9% -21.5% 0.8% 3.4% of the let portfolio equates to £7.3m of income (the 7.0% Total South East -26.9% -18.9% -0.3% 3.2% shown in the ‘Reversionary potential & average rents’ table Manchester -30.9% -22.7% 0.3% 1.8% opposite) and equivalent to the 0.3% reversion from the Overall -27.2% -19.2% -0.2% 3.2% let portfolio shown in the ‘Portfolio yields’ graph opposite.

24 www.brixton.plc.uk Valuation & rental growth Net yield movements performance

Brixton’s Dec Dec transactional 2008 2007 Change Valuation Valuers’ ERV rental growth in surplus/(deficit) growth excess of ERV Whole portfolio* 2008 -27.2% -0.2% 3.2% Initial 5.2% 3.9% +130bp 2007 0.7% 5.0% 5.1% Equivalent 7.0%*** 5.4% +160bp 2006 12.3% 3.8% 4.6% Reversionary 7.1% 5.4% +170bp 2005 14.1% 4.0% 4.2% Let/income producing portfolio** 2004 7.5% 0.4% 1.5% Initial 6.8% 5.0% +180bp Equivalent 7.0%*** 5.4% +160bp Reversionary potential Reversionary 7.2% 5.5% +170bp * The net initial yield includes the value of undeveloped sites, unlet developments and portfolio & average rents* vacancies. No income for these elements is applied in this calculation or allowed if there are rent free periods. Income is also excluded where the valuers assume tenant insolvencies will shortly lead to a void. Normal purchasers’ costs are also allowed for. Dec June Dec ** The net initial yield excludes vacant units, units in rent free periods and development sites. 2008 2008 2007 Income is also excluded where the valuers assume tenant insolvencies will shortly lead to a void. Normal purchasers’ costs are also allowed for. % reversionary 7.0% 9.6% 9.9% *** 7.3% on the IPD quarterly in advance basis. Average ERVs (£psf) 8.84 8.88 8.79 Average passing rents (£psf) 8.26 8.10 8.00

* Applicable to let portfolio owned at end of respective period

Portfolio yields* The reversionary yield of 7.1% equates to an ERV of £134.9m

1.2% 7.1%

0.2% 5.6% 0.3% 5.2% 0.2% 5

0 % Initial Rent Income Adjusted Reversions from Voids Reversionary yield frees at risk** initial yield let portfolio yield

* Yields shown are after allowing normal purchasers’ costs ** Tenants insolvent but rent still being paid

Annual Report and Accounts 2008 25 Financial Review

The results for 2008 have The increase in like-for-like net The calculation of investment £3.0m in the annualised loss been impacted by the very rental income, excluding empty profit is shown in the table on of rent from tenant insolvencies challenging financial market rates, compared with 2007 page 27. the Board has concluded conditions particularly during was £1.6m or 2.3%. that it is in shareholders’ best the last quarter of the year. This Adjusted earnings per share interests to restrict the dividend is shown in the loss before tax Administration expenses were 15.7p compared with for 2008 to the 4.9p per share which, under IFRS, includes the reduced by £1.1m or 13.3% 17.2p for 2007 reflecting the interim dividend already paid. significant decrease in property to £7.2m reflecting lower staff fall in investment profit. The This decision was a difficult values arising in the year. costs whilst the Group’s share deficit of £673.4m on the one for the Board as it brings Investment profit or underlying of joint venture investment revaluation of the property to an end 40 years of unbroken profit before tax was £42.5m, profits fell by £0.7m due portfolio and the deficit of dividend increases. The decision a reduction of £4.1m over the principally to a performance £138.3m on the valuation of not to recommend a final previous year. Excluding the fee paid to Brixton for 2007. derivative financial instruments dividend for 2008 should be charge of £3.8m for empty were the principal drivers seen in the context of the rates in 2008, investment profit Net interest payable increased behind the loss before tax of process of exploring all options was £46.3m and adjusted by £9.4m to £31.8m over the £768.8m. Basic earnings per to provide additional financial earnings per share were 17.0p. previous year’s figure, reflecting share showed a loss of 283.0p flexibility and strengthen the the effect of the acquisitions compared with a positive result balance sheet. Net rental income in 2008 in 2007. Interest capitalised of 22.1p for 2007. was £77.4m, an increase of on developments decreased With regard to 2009, the Board £4.9m or 6.8% over the 2007 from £10.1m to £9.3m due Dividend & dividend policy intends to maintain, subject figure. An analysis of this to the completion of several Given the current economic to available resources, the increase is shown in the table development schemes. Income and financial markets outlook, dividend at 4.9p per share or on page 27. or interest cover for 2008 was the lack of reform to the empty the minimum PID requirement 1.9 times compared with rates legislation and the increase under the REIT regime if greater. 2.2 times for 2007. in the second half of 2008 of This decision, together with the dividend policy for future years, Results summary will be kept under review. Cash flow % Net cash flows from operating 2008 2007 change activities showed an inflow Net rental income £77.4m £72.5m +6.8% of £12.3m including the final Investment profit £42.5m £46.6m -8.8% payment of £21.2m for the (Loss)/profit before tax (£768.8m) £58.2m n/a REIT entry charge. Ignoring Adjusted earnings per share 15.7p 17.2p -8.7% this amount the cash inflow was £33.5m which compares Basic (loss)/earnings per share (283.0p) 22.1p n/a with a cash inflow in 2007 Dividend per share 4.9p 13.6p -64.0% of £36.1m.

26 www.brixton.plc.uk Analysis of net rental income Balance sheet

2008 2008 2007 £m £m £m Acquisitions (net of sales) 6.6 Basic net asset value per Lettings – investments 3.6 balance sheet 608.1 1,432.6 – developments 3.1 Adjustments: Rent reviews and renewals 1.7 Deferred tax on revaluation surpluses 4.6 5.7 Voids – expiries/breaks (4.2) Fair value of derivative financial – insolvencies (1.4) instruments 174.4 35.9 Reduction in surrender premiums (1.6) Adjusted net asset value 787.1 1,474.2 Empty rates (3.7) Basic NAV per share from IFRS Other outgoings 0.8 balance sheet 224p 529p Increase in net rental income 4.9 Adjusted NAV per share 290p 545p -46.8% Net debt/property 54% 37% Net debt/equity 110% 55%

Note: Adjusted net asset value (‘NAV’) per share is a UK property industry measure which excludes Investment profit deferred tax relating to the revaluation of investment properties and the fair value of derivative financial instruments 2008 2007 £m £m Net rental income 77.4 72.5 and the final instalment of the Administration expenses (7.2) (8.3) REIT conversion charge. Net debt/equity was 110% at the Net interest payable (31.8) (22.4) end of last year (2007: 55%), Share of joint ventures’ investment profit 4.1 4.8 based on adjusted net assets Investment profit 42.5 46.6 and the ratio of net debt/property was 54% (2007: 37%). Net debt/equity based Sales of properties and year end amounted to £58.7m, on IFRS net assets was 142% subsidiary undertakings raised but only £2.8m of this was at the end of 2008 (2007: 56%). £0.1m compared with £9.2m contracted. in 2007 whereas spend on The main financial risks for the property acquisitions and Adjusted NAV per share at the Group are liquidity risk, interest developments totalled £20.0m, year end was 290p, compared rate risk and covenant risk. compared with £306.7m with 545p at 31 December for 2007. 2007, a decrease of 46.8% due The Group maintains a mixture mainly to the deficit of 248p per of short term funding through, Balance sheet share arising from the revaluation typically, five year unsecured As at 31 December 2008, of the Group’s portfolio. bank facilities and longer term the value of the Group’s funding through the unsecured portfolio, including its share Finance bond market. All of the Group’s of joint ventures, was £1,799m. Net debt at the year end on-balance sheet debt is During 2008 capital expenditure excluding interest rate derivatives unsecured and all of its wholly on wholly owned properties was £862.2m compared with owned properties are amounted to £23.1m of which £804.1m in 2007, an increase unencumbered. £18.7m was on developments. of £58.1m reflecting capital Capital commitments at the expenditure on developments

Annual Report and Accounts 2008 27 Financial Review continued

Debt and facili ty maturi ty profile end 73% of the Group’s debt was at fixed or capped rates 2009 2010 2011 2012 2015 2019 compared with 63% at the end £m £m £m £m £m £m of 2007. Undrawn facilities 60 103 5––– Bank debt drawn – 102 30 115 ––The Company raises finance Bonds – 275 ––145 210 at both fixed and floating rates of interest. It uses interest rate Total Company 60 480 35 115 145 210 derivatives on a non-speculative basis to manage its exposure to floating rate debt in order to protect it against adverse At the end of 2008 the Group discussions are being held interest rate movements and had £415m of committed, with regard to the renewal also to reduce the level of fixed bilateral bank facilities available of these facilities. rate debt when it considers that of which £168m were undrawn. it can benefit from falls in short Bank facilities continue to be an We set out in detail in the term interest rates. It does not important source of short term Interim Management Statement operate with any pre-determined finance for the Group providing of November 2008 the principal ratios of fixed to floating rate it with flexibility on competitive covenants in relation to our debt but management terms to fund its current and bank facilities and bonds. constantly review the interest future business requirements. At 31 December 2008 the rate profile against existing and The weighted average maturity Company complied with all forecast market conditions. of all borrowings at the end of of its covenants under these 2008 was 5.1 years with 40% agreements. The key covenants The hedging strategies used of gross debt repayable after are set out in the table on in the joint ventures are subject more than five years and 43% page 29. to the agreement of the joint repayable in one to two years. venture partners and the banks It is the Group’s policy to If property values keep falling who provide the finance. extend and spread maturities we are at risk of breaching our whenever possible as part of bank and bond covenants. For The market value of our net the process of managing its example, a 10% fall in property debt as at the end of 2008 funding risk. values from December 2008 was £730.0m compared with would result in a breach of the a book value of £862.2m. This The Company’s debt and asset cover ratio covenant. reduction of £132.2m compares facility maturity profile as at However, we are taking steps with £13.5m at the end of 2007 the end of 2008 can be seen to mitigate this risk and improve and is equivalent to 49p per in the table above. our financial flexibility. share. This amount is not recognised in the balance sheet The two joint ventures in The average cost of Group debt unlike the fair value provision of which the Company has at the end of 2008 was 4.5% derivative financial instruments invested have non-recourse or 4.7% including share of joint which increased by £138.3m bank loans maturing in 2009. ventures’ debt compared with to £173.2m at the end of 2008, The Company’s share of 5.3% and 5.5% respectively equivalent to 64p per share. these loans is £105m and at the end of 2007. At the year Of this increase, £123.2m

28 www.brixton.plc.uk Key covenants

Actual Covenant Bank facilities Interest cover 1.9 times Min 1.20 times Asset cover ratio 1.86 times Min 1.67 times Bonds Net debt/equity 2010 bonds 142% Max 175% 2015 and 2019 bonds 110% Max 175% arose in the second half of matters that give rise to a 2008 and this was due to the material uncertainty: significant reduction in short and long term interest rates in • the potential breaches of November and December. various financing covenants if there are continued reductions Since the beginning of 2009 in property valuations long term rates have increased • the successful completion from the low point of December of one or more of the options 2008 and as at the end of being explored to provide February 2009 the fair value additional financial flexibility provision of derivative financial including potential disposals, instruments had reduced by debt renegotiations and an £78.3m to £94.9m. On a pro equity raising. forma basis this reduces the net debt/equity ratio based Having taken into account the on IFRS net assets to 123% above matters the Directors from 142% at the end of 2008. have concluded, based on the Increases in short and long term cash flow forecasts, that it is rates from current levels will appropriate to prepare the further reduce the fair value results on a going concern of these instruments. basis. Further details on the above uncertainty and the Going concern options being pursued are The Group’s cash flow included in the Chairman’s forecasts show that it has Statement on pages 4 and 5, adequate resources available the Chief Executive’s Review to continue in operational on pages 6 and 7 and in existence for the foreseeable the Financial Review on future. In preparing these pages 26 to 29. forecasts the Directors have taken into account the following

Annual Report and Accounts 2008 29 Risk Management

The Board is responsible for setting the Company’s risk strategy by assessing, evaluating and managing the risks to its business. The table below summarises the main risks and the steps taken to mitigate these.

Risk Mitigation Strategic

Investment acquisitions and development projects underperform Focused, specialist operator undertaking detailed investment ﬁnancial objectives appraisals, including due diligence reviews. Exposure to development is monitored and project phasing reviewed.

Failure to spot business opportunities and to innovate Detailed knowledge of core markets maintained and coverage and scope of business model reviewed on an ongoing basis.

Mar ket

Property markets are cyclical. Performance depends on general The economy and the investment and occupational markets economic conditions, a combination of supply and demand for are evaluated as part of the Company’s strategy process covering ﬂoor space as well as overall return aspirations of investors the key areas of investment, development, leasing and asset management and updated regularly throughout the year. Constrained credit markets have served to put downward pressure on property valuations as have slower occupational demand with the potential for increased void levels and tenant defaults

Financial

Inability to raise ﬁnance to implement strategy Spread of sources and maturities of facilities. Sufficient facilities maintained for spending commitments.

Adverse interest rate movements Appropriate balance of fixed rate debt maintained based on existing and forecast market conditions. Financial ratios are monitored and reported regularly to the Board.

Failure to comply with covenants in ﬁnancing agreements Financial ratios are monitored and reported regularly to the Board. Explore all options to provide additional financial flexibility.

Operational

Failure to let at expected rental levels or within time projections Specialist market knowledge. Detailed analysis on each project. Focused marketing campaigns. Dedicated Leasing Centre. Unique B-Serv customer care programme.

Failure of major tenant Largest non-government tenant only 2.3% of rent roll. Regular monitoring of tenant lease payments.

Loss of key staff Remuneration structure reviewed and benchmarked. Succession planning for key executive positions.

Environmental liabilities Environmental policy and procedures in place and environmental audits performed on new acquisitions.

Health and safety system failure Regular risk assessments, annual audit and performance reviews.

30 www.brixton.plc.uk Board of Directors

Louise A V C Patten MA #^ Mark Moran MA ACA* #^ Chairman and Non-executive Director and Chairman of the Non-executive Director and Chairman of the Audit Committee. Nomination Committee. Age 55. Appointed to the Board as a Age 48. Appointed March 2008. He is Group Finance Director Non-executive Director in June 2001 and became Chairman in of SSL International plc. May 2003. She is a Director of Marks & Spencer plc and Bradford & Bingley plc and is also Senior Adviser to Bain and Company. Steven J Owen LLB FCA MCT Deputy Chief Executive. Age 51. Joined the Company in 1985 Peter A Dawson BSc MRICS and was appointed Finance Director in April 1992 and Deputy Chief Executive. Age 37. Appointed Investment Director in Chief Executive in April 2000. December 2007 and Chief Executive on 2 March 2009. Joined Brixton from JLL in 1997 and was appointed Managing Director David Scotland *#^ of Brixton Investments in 2004. Senior Independent Non-executive Director and Chairman of the Remuneration Committee. Age 61. Appointed to the Board Nicholas R L Fry MA FCA* #^ in January 2003. He is a Director of Inchcape plc. Non-executive Director. Age 61. Appointed to the Board in March 2003. He is a Director of Blackrock British Smaller Companies Timothy C Wheeler BSc FRICS (resigned 2 March 2009) Trust plc, Absolute Return Trust Limited, Pochin’s PLC and Chief Executive until 2 March 2009. Age 49. Joined the Company Cliniserve Holdings Limited. in 1985 and was appointed Property Director in June 1997 and Chief Executive in April 2000. Stephen C Harris MA MBA C. Eng.* #^ Non-executive Director. Age 50. Appointed to the Board in September 2006. He is Chief Executive of Bodycote Plc.

Steven D Lee BSc FRICS Operations Director. Age 52. Appointed December 2007. Joined * Member of the Audit Committee the Company in 2001 as Managing Director of B-Serv from Citex # Member of the Nomination Committee having been previously Managing Director of Bucknall Group. ^Member of the Remuneration Committee

Annual Report and Accounts 2008 31 Management

Operations Board Registered and Head Office Peter Dawson Brixton plc 50 Berkeley Street Tim Wheeler (resigned 2 March 2009) London W1J 8BX Steven Owen Telephone 020 7399 4500 Registered in England as a public limited company number 202342 Steve Lee www.brixton.plc.uk Michael Andrews BSc MRICS Senior Operations Director, Leasing & Joint Ventures Manchester Office Stephen Armitage FRICS B-Serv Limited Senior Operations Director, Asset Management and Elevator Road Customer Service Trafford Park Manchester M17 1BR Graham Brown FCIOB, MBIFM Senior Operations Director, Workplace Support Adrian Bayliss BA MRICS Operations Director, Investment Paul Bridson BSc MRICS Operations Director, Asset Management Richard Howell BA ACA Financial Controller and Company Secretary Anthony Hynes BSc MRICS Operations Director, Project Management (Refurbishment) John Pocock MRICS Operations Director, Leasing David Proctor BSc MRICS Operations Director, Investment Vince Shiels MRICS Operations Director, Customer Service

32 www.brixton.plc.uk Directors’ Report

The Directors present their report and the audited accounts for Percentage of the year ended 31 December 2008. Number of issued Ordinary Name Brixton shares share capital Business of the Group Government of Singapore Investment The principal business of the Group, being the Company and its Corporation Private Ltd 27,040,135 9.95% subsidiary undertakings, within the meaning given by the Companies UBS Global Asset Management 18,804,402 6.92% Act 1985, is property investment and development, together with the management of its properties. A list of the Company’s principal Stichting Pensioenfonds ABP 13,747,623 5.06% subsidiary undertakings as at 31 December 2008 is given on Legal & General Group Plc 11,122,369 4.09% page 78. Tameside MBC re Greater Manchester Pension Fund 9,252,234 3.41% Business Review Goldman, Sachs & Co. 8,692,500 3.20% A comprehensive review of the development and performance of Barclays plc 8,675,073 3.19% the Company’s business including its key performance indicators for the year to 31 December 2008 and a description of the principal risks and uncertainties facing the Company are included in the Annual General Meeting various reviews which precede this report. Disclosures relating The Notice of the Annual General Meeting, including date, time to Social, Employee and Environmental issues are contained and location and the ordinary and special business to be conducted under separate headings later in this report. will be sent to shareholders in due course.

Dividends Purchase of own shares An interim dividend of 4.9p per share has been paid on the Ordinary At the Annual General Meeting held on 24 April 2008, the Company shares and the Directors are not recommending the payment of was authorised to purchase 27,066,963 Ordinary Shares. At a final dividend on the issued Ordinary share capital. This makes a 23 April 2009 no shares had been purchased under this authority, total dividend of 4.9p per share and represents a decrease of 64.0% which will expire at the forthcoming Annual General Meeting. over the total dividend per Ordinary share paid in respect of 2007. Corporate governance Directors The Company is committed to high standards of corporate The present membership of the Board is shown on page 31. governance. The Board is accountable to the Company’s Mark Moran was appointed as a Director on 7 March 2008 and shareholders for good corporate governance. The Statement below re-elected at the Annual General Meeting (‘AGM’) held on 24 April describes how the principles of corporate governance are applied 2008. All of the other Directors listed were in office throughout the to the Company and reviews the Company’s compliance with the year. Tim Wheeler, who served on the Board from June 1997 and Combined Code. The Board has adopted a formal corporate as Chief Executive from April 2000, resigned on 2 March 2009. At governance manual which is updated on an ongoing basis. the AGM, Nicholas Fry and David Scotland will retire by rotation and, being eligible, offer themselves for re-election. After due consideration Statement by the Directors on compliance with the provisions of the results of the performance evaluation, the Chairman and of the Combined Code the Board confirm that they are content that the performance of The Board has reviewed the Company’s compliance with the revised the Directors seeking re-election continues to be effective Combined Code (‘the Code’) on Corporate Governance issued in and demonstrates commitment to the role. June 2006. Neither Nicholas Fry nor David Scotland have service contracts The Company has, throughout the year, been in full compliance with the Company. with the principles and provisions set out in Section 1 of the Code, with the exception of the point noted in the second paragraph of Details of Directors’ interests in the Company’s shares are shown ‘The workings of the Board and its Committees’ below. on page 43. The workings of the Board and its Committees Properties An external professional valuation of the Group’s properties on The Board an open market basis was carried out as at 31 December 2008. The Non-executive Directors comprise the majority of the Board and The result of the valuation was a deficit of £673.4m after allowing are kept fully informed of all areas of the Company’s activities so that for disposals and capital expenditure on properties and the valuation they are able to participate fully in all aspects of the Company’s has been included in the balance sheet. Details of the valuation and strategy and control. movements in the Group’s properties during the year are set out in Louise Patten is Chairman of the Board and Peter Dawson is the note 12 on page 55. Chief Executive of the Company, having replaced Tim Wheeler on 2 March 2009. The roles of Chairman and Chief Executive are Substantial shareholdings separate and clearly defined. David Scotland is the Senior At 23 April 2009 the following interests in voting rights had Independent Non-executive Director. The current Non-executive been notified to the Company in accordance with the provisions Directors, being Louise Patten, Nicholas Fry, Stephen Harris, Mark of the Disclosure and Transparency Rules of the Financial Moran and David Scotland, are considered by the Board to be Services Authority: independent. Non-executive Directors are not appointed for specified Issued Ordinary share capital 271,669,337. terms, as recommended by the Code, but are subject to election and re-election by shareholders at the first Annual General Meeting following their appointment by the Board and at least every three years thereafter. The Non-executive Directors understand that the Board will not automatically recommend their re-election by shareholders. Annual Report and Accounts 2008 33 Directors’ Report continued

The biographies of the members of the Board appear on page 31. Remuneration Committee These demonstrate a range of experience of sufficient calibre to The Remuneration Committee is chaired by David Scotland and bring independent judgement on the issues of strategy, performance, its current membership is set out on page 31. The Report on resources and standards of conduct that is vital to the success of Directors’ Remuneration is set out on pages 37 to 43. the Company. The Board is responsible to shareholders for the proper management of the Company. A statement of Directors’ Relations with shareholders responsibilities in respect of the financial statements is set out on Communications with shareholders are given high priority. page 44 and a statement on going concern is set out on page 35. The various reviews on pages 4 to 30 include a detailed review of the business and future developments. There is regular dialogue The Board meets regularly reviewing financial performance, ensuring with, and presentations are made to, existing and prospective adequate funding, setting and monitoring strategy, examining major institutional shareholders. acquisitions and disposal possibilities and reporting to shareholders. The Non-executive Directors have a particular responsibility to ensure The Board uses the Annual General Meeting to communicate with that the strategies proposed by the Executive Directors are fully private and institutional investors and welcomes their participation. considered. To enable the Board to discharge its duties, all Directors The Chairmen of each of the Audit, Nomination and Remuneration receive appropriate and timely information. Briefing papers are Committees are normally available at the Annual General Meeting distributed by the Company Secretary to all Directors in advance to answer questions. Details of the resolutions to be proposed at of Board meetings. The Directors may take independent professional the Annual General Meeting will be detailed in the Notice of the advice in appropriate circumstances at the Company’s expense. Annual General Meeting which will be sent to shareholders in due course. The Board indicates the level of proxies lodged on each During the year there were six Board meetings, three meetings resolution and the balance for and against the resolution after it of the Audit Committee, two meetings of both the Remuneration has been dealt with on a show of hands. Committee and the Nomination Committee, all of which had full attendance. Internal control A Board self assessment evaluation was carried out during the year The Board recognises that it is responsible for the Company’s which covered structure and content of Board meetings and all system of internal control and for reviewing its effectiveness. Such Board processes and communication channels. The results of a system can only provide reasonable assurance and not absolute the evaluation were considered at a meeting of the Board. assurance against material misstatement or loss, as it is designed to manage rather than eliminate the risk of failure to achieve Separate meetings were also held between the Chairman and business objectives. the Non-executive Directors to evaluate the Executive Directors’ performance and between the Non-executive Directors only It is a requirement of the Code that the effectiveness of the system to evaluate the Chairman’s performance. of internal control, including financial, operational and compliance controls and risk management, is reviewed by the Board. Evaluations were also carried out during the year of the Audit, Nomination and Remuneration Committees. The Board carries out a review of significant business risks and formally considers the scope and effectiveness of the Company’s The following Committees deal with the specific aspects of the system of internal control annually. This review covers all controls, Company’s affairs. The Board has approved terms of reference including financial, operational and compliance controls and risk for these Committees and the Company has published these management. The risks are identified by the Executive Directors terms on its website. using their detailed knowledge of the Company’s activities and of Audit Committee those areas of the property and financial markets which impact on The Audit Committee is currently chaired by Mark Moran and its its objectives. The Board considers risk management and internal current membership is set out on page 31. Mark Moran replaced control on a regular basis during the year. There is an ongoing Nicholas Fry as Chairman of this Committee at the Annual General process for identifying, evaluating and managing the significant risks Meeting on 24 April 2008. The Committee meets not less than faced by the Company. No significant weaknesses have been twice a year and meetings are also attended, by invitation, by the identified during the year under review. Executive Directors. As the Company has a relatively small number of employees there is The Audit Committee is responsible for reviewing a wide range a high level of senior executive involvement in the majority of business of matters including the half year and annual financial statements transactions. The Company currently has three Executive Directors, before their submission to the Board and monitoring the controls following the resignation of Tim Wheeler on 2 March 2009, who also which are in force to ensure the integrity of the information reported sit on the 13 person Operations Board who manage the day to day to shareholders. The Audit Committee advises the Board on the activities of the business. appointment of external auditors and on their remuneration and The Group’s internal control process accords with the Turnbull discusses the nature, scope and results of the audit with the guidance. external auditors. The Audit Committee may also meet with the Company’s valuers. The Board has considered the need for an internal audit function, but has decided that because of the scale and focus of the Nomination Committee Company it is not justified. However, it is a matter that is kept The Nomination Committee is chaired by Louise Patten and under regular review. its current membership is set out on page 31. The Committee is responsible for reviewing the size, structure and composition required of the Board, making recommendations on changes to and considering succession planning for Directors and other senior executives. In appropriate cases, recruitment consultants are used to assist the process.

34 www.brixton.plc.uk

Going concern During 2008, a major review was carried out into how new The Group’s cash flow forecasts show that it has adequate developments could be made more sustainable (as part of an overall resources available to continue in operational existence for the review of the development process). A new sustainability checklist foreseeable future. In preparing these forecasts the Directors have for developments has been introduced which is split into three taken into account the following material risks and uncertainties: categories: ‘easy wins’, ‘stretch targets’ and ‘super stretch targets’. Additional sustainability criteria have been incorporated into the • the potential breaches of various financing covenants if there design guide and standard base specification for developments. are continued reductions in property valuations Further work will be carried out in 2009 to act on the • the outcome of the review of all the options to provide additional recommendations. An environmental checklist is also used financial flexibility including disposals of assets, debt for refurbishment projects. renegotiations and an equity raising. Brixton has continued to work with The Carbon Neutral Company Having taken into account these risks and uncertainties the to offset CO2 emissions from its own office energy use, business Directors have concluded, based on the cash flow forecasts, travel and company publications. A total of 255 tonnes of CO2 was that it is appropriate to prepare the financial statements on a offset in 2008. Brixton is switching to a ‘greener’ electricity tariff going concern basis. (sourced from ‘good quality’ Combined Heat and Power plants) for the electricity purchased for the common parts of its property Payment of suppliers portfolio. By 31 December 2008, 70% of the estates with a The Board maintains a policy of paying suppliers promptly in landlord’s electricity supply had switched to the new tariff. The accordance with the terms and conditions agreed with them. remaining estates will be switched during 2009 once the current At the year end its trade creditors represented 22 days’ contracts expire. Brixton has responsibility for the waste contracts (2007: 18 days’) purchase. at five multi-occupier estates and 27% of the total waste on these sites was recycled in 2008. On multi-occupier estates where Corporate responsibility occupiers are responsible for organising their own waste collections, Brixton is committed to being a socially responsible company. Brixton is encouraging them to recycle by putting in place recycling It seeks to enhance relationships with stakeholders and manage facilities at these estates as well. By the end of 2008, recycling key Corporate Responsibility (‘CR’) issues such as climate change, facilities had been introduced at 31 of the 86 estates – with a total of health and safety and land contamination. 430 tonnes recycled during the year. Further recycling facilities will be rolled out during 2009. All the information published on CR is assured by WSP Environmental and their assurance statement can be found under A key environmental risk for Brixton is land contamination due to past the CR section of our website. The statement confirms that:- industrial activities or fuel spillages. Environment audits are carried out prior to the acquisition of new properties to identify any potential “Brixton’s 2008 Corporate Responsibility reporting provides a contamination. During 2008 Brixton spent approximately £500,000 detailed and accurate representation of the progress that Brixton on costs associated with the investigation, monitoring and has made during the period 1 January 2008 to 31 December 2008. remediation of contaminated land. It is evident sustainability is included in core business activities and is embedded into all operations with significant progress being Customers achieved across the whole organisation.” Brixton’s goal is to be the landlord of first choice in its chosen markets. Customer service is therefore a key priority for the business. How we manage corporate responsibility Brixton has a CR Policy Statement plus a range of more detailed Customer Service Managers visit all customers regularly (on average policies to guide employees on specific aspects of CR. every six weeks) and a 24-hour help desk is available. We have established Customer Advisory Boards (‘CAB’) within our core Steve Lee, Operations Director, is the Board member with overall markets of Heathrow, Park Royal and Trafford Park, Manchester. responsibility for CR. He oversees Brixton’s CR programme and We also carry out a Customer Satisfaction survey every two years provides an annual report to the Board on performance. Brixton’s and in our latest survey, we added some new questions on CR Committee coordinates implementation of the Company’s environmental and sustainability issues. To raise awareness of CR programme and meets on a quarterly basis. It is made up of sustainability issues among our customers, we have produced managers with responsibility for the key CR issues and is chaired an Occupiers Guide to Climate Change and Sustainability which is by Steve Lee. The Company sets annual targets to drive available on our website and we include regular energy saving tips forward improvement and progress is reviewed at the CR in our B-Serv newsletter and postcard campaign. During 2009, we Committee meetings. plan to use our customer briefings in our key markets (Heathrow, Every employee at Brixton can play an important role in CR. As part Park Royal and Trafford Park, Manchester) to engage further with of their annual performance appraisal, employees are asked to our customers on sustainability issues. consider how they can contribute to the Company’s CR values. Employees Brixton is included in the FTSE4Good Index and the Carbon Brixton has an equal opportunities policy and monitors the diversity Disclosure Leadership Index which recognises the highest scoring profile of employees. Women accounted for 38% of staff and 21% companies in the Carbon Disclosure Project (‘CDP’). of managers as at 31 December 2008. Environment All employees receive an annual performance appraisal and training is Brixton recognises that a key sustainability challenge for the business provided to help employees develop their skills and reach their is climate change, since the construction and running of buildings potential. Brixton’s Code of Conduct sets out the standards expected has a significant carbon footprint. It has therefore produced a guide from employees and forms part of the employment contract. to climate change and sustainability for its employees and a similar Local communities guide for occupiers of Brixton owned and managed properties. Brixton supports community organisations local to its property portfolio as well as various charities.

Annual Report and Accounts 2008 35 Directors’ Report continued

The Company’s main community partner in 2008 was the charity is an important consideration in their selection. Construction activities Wooden Spoon which makes donations to support specific projects. A are managed in accordance with the requirements of the donation of £30,000 was made to a Wooden Spoon project for children Construction (Design and Management) Regulations 2007. with special needs – helping to provide physical training equipment All employees share responsibility for maintaining a safe workplace (for strength and conditioning) at a special needs school in Hounslow. and health and safety training is part of the induction programme for In 2008, a major sponsorship deal was agreed with the Henley all new employees. Additional health and safety training is provided Business School at the University of Reading. Working with the for any Brixton employees working on or visiting construction sites. Reading Real Estate Foundation (RREF), a registered charity which The Company is pleased to report that there were no work-related lost provides financial support for real estate education at the University, time accidents for employees in 2008 (2007: nil). Brixton has committed to provide £300,000 over the next three years (with the first instalment to be paid in early 2009). This will help fund Charitable donations the new business school building which will include a dedicated During the year the Group made contributions of £157,000 centre for the Department of Real Estate & Planning. Within this new (2007: £79,000) to UK charitable organisations. building, Brixton will be the sponsor of both the main lecture theatre Political donations and the MSc Seminar Room which will be known respectively as The Group’s policy is not to make any political donations and none the Brixton Lecture Theatre and the MSc Seminar Room. were made during the year. Brixton allows employees to take one day off work per year for volunteering. Employees gave 24 work days in support of community Disclosure of information to the auditors projects during 2008. The Company also matches money raised by So far as each person who was a Director at the date of approving employees for charity (up to an agreed maximum). A payroll giving this report is aware, there is no relevant audit information, being scheme was established in 2006. information needed by the auditor in connection with preparing its report, of which the auditor is unaware. Having made enquiries of Brixton takes great care to be considerate towards neighbours and fellow Directors and the Group’s auditor, each Director has taken works hard to keep sites and estates tidy. All contractors on new all the steps that he/she is obliged to take as a Director in order to development/major refurbishments are required to sign up to the have made himself/herself aware of any relevant audit information Considerate Constructors Scheme. and to establish that the auditor is aware of that information. Business partners Brixton seeks to build long term relationships with a small number Directors’ indemnities of best in class business partners. An annual Supply Chain Award The Company has the power to indemnify Directors in accordance is given to Brixton’s partner of the year. with the provisions of its articles of association. Accordingly the Directors have the benefit of appropriate qualifying third party Brixton’s pre-qualification questionnaire for new business partners indemnity provisions, consistent with the applicable statutory includes an assessment of their approach to CR. In order to provisions, in respect of costs incurred in defending and mitigating encourage continuous improvement, business partners are also civil, criminal and regulatory proceedings arising out of and in sent an annual CR questionnaire and the findings are discussed with connection with their position as Directors. Appropriate Directors’ business partners in review meetings. Within Brixton’s estate services and Officers’ liability insurance is also in place for all Directors. supply chain, a specific question on CR has been incorporated into the monthly performance assessment questionnaire. During 2009, Auditors a CR question will also be added to the quarterly performance Ernst & Young LLP have expressed their willingness to continue in assessment of refurbishment and construction business partners. office as auditors. A resolution to re-appoint Ernst & Young LLP as Further information is available in the Corporate Responsibility auditors to the Company and authorising the Directors to determine section on our website www.brixton.plc.uk. their remuneration will be submitted at the Annual General Meeting. Health and safety Responsibility Statement The Board is committed to continuously improving the management The Directors confirm that to the best of their knowledge: of health and safety. An independent, external consultancy carries out an annual audit of health and safety at Brixton. Their findings • the financial statements give a true and fair view of assets, and recommendations are reported to the Board as part of its liabilities, financial position and profit/loss; and annual review of health and safety. An action plan is developed • the management report includes a fair review of the development and implemented to deal with any issues identified during the audit. and performance of the business and a description of the The Company has an established Health & Safety Management principal risks and uncertainties it faces. System which sets out the Group’s detailed policies and procedures. By order of the Board Steve Lee, Operations Director, is responsible for implementation of the health and safety policy. A Health and Safety Committee, chaired Richard Howell Company Secretary by Steve Lee and made up of managers from different areas of the 23 April 2009 business, meets four times a year to review health and safety policy and practice and to suggest improvements. Regular risk assessments are carried out at all properties managed by B-Serv. This includes vacant units and common areas of multi-let properties. Appropriate action is taken to address any risks identified during these assessments. Development, refurbishment and maintenance work at Brixton properties is carried out by independent contractors on our behalf. We work closely with contractors on health and safety issues and a contractor’s health and safety record

36 www.brixton.plc.uk Report on Directors’ Remuneration

The Remuneration Committee Basic salaries The Remuneration Committee (the ‘Committee’) is responsible for Basic salaries are reviewed annually by the Committee, taking into recommending to the Board the remuneration and other benefits, account both market levels in comparable positions in other similar including the grant of share based incentives, of the Executive companies and the market generally, as well as the performance of Directors. The current members of the Committee are the the individual Executive Director concerned. independent Non-executive Directors and the Chairman of the Following the promotion of Peter Dawson to Chief Executive together Company. The Executive Directors attend meetings of the with new and enhanced responsibilities given to Steven Owen and Committee by invitation other than when matters concerning their Steve Lee as a result of the resignation of Tim Wheeler the current remuneration are under consideration. salaries for the Executive Directors were reviewed and are as set The Committee is advised by Hewitt New Bridge Street (‘HNBS’), out in the table below, together with the previous year’s salaries. a firm of independent external advisers, who were appointed by the Current/date Previous Committee and which advised it on various matters relating to resigned* year’s executive remuneration during the year. HNBS have provided other Name salary salary remuneration-related services to the Company during the year, including advice to the Executive Directors separately on Non- Peter Dawson £450,000 £275,000 executive Directors’ remuneration, advice relating to the Steven Owen £405,000 £390,000 implementation and ongoing operation of the Company’s share Steve Lee £300,000 £240,000 based incentive arrangements and advice in connection with the Tim Wheeler* £565,000 £565,000 preparation of this report. The terms of reference of the independent consultants are available on request from the Company Secretary. Annual bonus scheme The Executive Directors’ bonus scheme is based on a number of Remuneration policy for Executive Directors performance measures in relation to which the Committee will use The aim of the Committee is to provide an overall remuneration its discretion. These performance measures include total shareholder package which will attract, motivate and retain Executive Directors return (‘TSR’) (net asset value (‘NAV’) growth plus dividend) as who are expected to reach a high level of performance and which is compared to a comparator group of real estate companies, total competitive in relation to other major property companies and FTSE property returns (capital growth and net income as a percentage 250 companies. In order to align the interests of Executive Directors of capital employed with income reinvested) measured against and shareholders, a significant proportion of the Executive Directors’ weighted average cost of capital and comparators, the increase remuneration is performance-related through an annual bonus in net rental income and earnings per share, the level of investment scheme and share based long term incentive schemes which profit and profit before tax, the performance of rental growth are described more fully below. compared to the valuers’ forecasts, lettings and tenant retention The remuneration packages for the Executive Directors comprise levels, the performance of the Company’s joint venture interests the following main elements: and the overall quality of investment decisions. The maximum bonus is normally capped at 100% of salary. • Basic salary As a result of the Company’s performance in 2008, the Committee Annual bonus • resolved that no bonuses should be paid to the Executive Directors. • Long term incentives • Pension • Other benefits The Committee reviews and monitors the level and structure of remuneration for senior management immediately below the level of the Board. The Committee’s Terms of Reference are available on the Company website. The Committee monitors market practice in order to remain competitive and to ensure that reward policy supports Company strategy and is aligned with the interests of shareholders.

Annual Report and Accounts 2008 37 Report on Directors’ Remuneration continued

Long term incentives The long term incentive arrangements provided during the year comprised the 2006 Share Matching Plan (the ‘SMP’) and the revised 2002 Long Term Incentive Plan (the ‘LTIP’). Grants are no longer made under the 2002 Executive Share Option Scheme (‘ESOS’).

The SMP Under the rules of the SMP an individual may purchase shares in the Company (‘Investment’ shares) up to an amount equal to a maximum of 50% of their net base salary per annum for the financial year just ended. At present the qualifying group for the SMP is the Operations Board. Following the purchase of Investment shares, the Company will grant conditional awards of shares (‘Matching’ shares) on a gross of tax ratio of two Matching shares for every Investment share purchased by the individual (i.e. a maximum grant of Matching shares of 100% of salary p.a.). The vesting of Matching shares will be subject to continued employment and the satisfaction of performance conditions set out below. Matching shares are normally granted in two tranches during the course of the Company’s financial year and participants are free to take part in both tranches up to the maximum annual limits detailed above. Investment shares will remain registered in the name of the holder with full voting and dividend rights but if Investment shares are disposed of then the conditional Matching share awards will lapse on a proportionate basis. Dividends accrue on Matching shares. Matching shares will vest if the following three year demanding performance targets are met: One third One third One third TSR (share price plus dividends) TSR (NAV plus dividends) against a comparator TPR (Total Property Return) v the group of real estate companies Weighted Average Cost of Capital (‘WACC’) 0% of awards vest for TSR equal to 8% p.a. 30% of awards vest for a median ranking TSR 25% of awards vest for TPR equal to increasing on a straight line to 100% of increasing on a straight line to 100% of awards WACC, increasing on a straight line to awards vesting for TSR equal to or greater vesting for an upper quartile ranking or above 100% of awards vesting for TPR equal than 16% p.a. to or greater than WACC + 3%

The companies in the TSR (NAV plus dividends) comparator group are Land Securities, British Land, Liberty International, Hammerson and SEGRO. Details of the awards made to the Executive Directors under the SMP are set out below. Interests Matching Market value Matching Interests Vesting dates as at shares granted of shares shares lapsed as at of outstanding 1 January during the when award during the 31 December Matching 2008 year granted year 2008 shares Peter Dawson 37,328 – 476.8p – 37,328 16/06/2009 19,318 – 496.3p – 19,318 23/04/2010 16,949 – 390.3p – 16,949 03/09/2010 – 83,118 207.0p – 83,118 29/09/2011 Steve Lee 34,128 – 476.8p – 34,128 16/06/2009 16,949 – 496.3p – 16,949 23/04/2010 16,379 – 390.3p – 16,379 03/09/2010 – 36,271 308.5p – 36,271 21/04/2011 – 36,267 207.0p – 36,267 29/09/2011 Steven Owen 79,661 – 476.8p – 79,661 16/06/2009 25,927 – 538.0p – 25,927 05/10/2009 35,291 – 496.3p – 35,291 23/04/2010 35,288 – 390.3p – 35,288 03/09/2010 – 57,427 308.5p – 57,427 21/04/2011 – 57,427 207.0p – 57,427 29/09/2011 Tim Wheeler 101,694 – 476.8p – 101,694 16/06/2009 50,288 – 538.0p – 50,288 05/10/2009 50,972 – 496.3p – 50,972 23/04/2010 50,972 – 390.3p – 50,972 03/09/2010 – 83,118 308.5p – 83,118 21/04/2011 – 83,118 207.0p – 83,118 29/09/2011

Note: Awards will vest following the third anniversary of grant subject to the Remuneration Committee determining the extent to which the performance conditions have been satisfied.

38 www.brixton.plc.uk

The LTIP Executive Directors and senior managers (a wider group than the Operations Board) have the opportunity to participate in the LTIP. The maximum award level under the LTIP is 200% of base salary per annum. Awards are made in two equal tranches during the course of the Company’s financial year. For LTIP awards made in 2006 and beyond, as indicated by (b) in the table below, the performance conditions are the same as those for the SMP as detailed on page 38. Details of the awards made to the Executive Directors under the 2002 Long Term Incentive Plan are set out below: Interests Awards Market value Awards Awards Interests as at granted of shares vested lapsed as at Vesting dates 1 January during the when award during the during the 31 December of outstanding 2008 year granted year year 2008 awards Peter Dawson (a) 104,728 – 319.3p (104,728) – – – (b) 28,721 – 482.5p – – 28,721 05/06/2009 28,720 – 524.0p – – 28,720 21/09/2009 39,108 – 515.5p – – 39,108 04/04/2010 39,108 – 396.5p – – 39,108 22/08/2010 – 83,119 328.0p – – 83,119 04/04/2011 – 83,119 218.8p – – 83,119 17/09/2011 Steve Lee (a) 95,751 – 319.3p (95,751) – – – (b) 26,392 – 482.5p – – 26,392 05/06/2009 26,392 – 524.0p – – 26,392 21/09/2009 25,665 – 515.5p – – 25,665 04/04/2010 25,664 – 396.5p – – 25,664 22/08/2010 – 72,540 328.0p – – 72,540 04/04/2011 – 72,540 218.8p – – 72,540 17/09/2011 Steven Owen (a) 197,487 – 319.3p (197,487) – – – (b) 55,889 – 482.5p – – 55,889 05/06/2009 55,889 – 524.0p – – 55,889 21/09/2009 74,306 – 515.5p – – 74,306 04/04/2010 74,305 – 396.5p – – 74,305 22/08/2010 – 117,878 328.0p – – 117,878 04/04/2011 – 117,878 218.8p – – 117,878 17/09/2011 Tim Wheeler (a) 284,261 – 319.3p (284,261) – – – (b) 80,729 – 482.5p – – 80,729 05/06/2009 80,728 – 524.0p – – 80,728 21/09/2009 107,548 – 515.5p – – 107,548 04/04/2010 107,547 – 396.5p – – 107,547 22/08/2010 – 170,772 328.0p – – 170,772 04/04/2011 – 170,772 218.8p – – 170,772 17/09/2011

Note: For administrative reasons, awards are granted as rights to acquire shares for no cost. Awards will vest following the third anniversary of grant subject to the Remuneration Committee determining the extent to which the performance conditions have been satisfied. Awards lapse six months after they become vested. (a) For LTIP awards made prior to 2006, the performance condition required the Company’s Total Property Return (‘TPR’) to outperform the Investment Property Databank (‘IPD’) All Fund UK Industrial Benchmark over a fixed three-year period following grant. TPR is the sum of capital growth and net income in a single period, expressed as a percentage of capital employed (with income reinvested). The Company’s TPR was compared to the IPD All Fund UK Industrial Benchmark, which is the TPR of industrial properties held within the IPD All Fund Annual Universe which includes transactions, developments, held properties (standing investments) and actively managed held properties. For awards made over shares worth up to 150% of basic salary, awards vested on a sliding scale ranging between 33.33% of the award if the aggregate percentage outperformance was 2% and 100% of the award if the aggregate outperformance was 7.5% over the relevant period. For awards made over shares worth more than 150% of basic salary, awards vested on a sliding scale ranging between 0% of the award if the aggregate percentage outperformance was 7.5% and 100% of the award if the aggregate outperformance was 10% over the relevant period. (b) For LTIP awards made in 2006 and beyond, the performance conditions are the same as those for the SMP as detailed on page 38. The share price on 18 April 2008 (date of vesting of awards) was 316.3p.

Annual Report and Accounts 2008 39 Report on Directors’ Remuneration continued

The 2007 deferred share bonus plan At At Date of 1 January Awarded Lapsed 31 December initial award 2008 during year during year 2008 Vesting date Steven Owen 16/05/2007 17,531 – – 17,531 13/04/2010 Tim Wheeler 16/05/2007 50,645 – – 50,645 13/04/2010

Note: In 2007 the Committee determined that additional bonuses, in respect of the year ended 31 December 2006, of 50% of salary for Tim Wheeler and 25% of salary for Steven Owen would be awarded in shares, deferred for three years. These shares, which will vest on 13 April 2010 providing the Director is still employed by the Company at that date, were awarded for nil consideration when the market value of the shares was 489.5p and were purchased at an average share price of 504.5p.

The ESOS The interests of the Executive Directors in options granted under the now superseded ESOS and other option schemes to acquire Ordinary shares in the Company are as follows: Number Number Number Number Number of shares of shares of shares of shares of shares Grant 1 January granted lapsed exercised 31 December Exercise Exercisable Exercisable date 2008 in year in year in year 2008 price from to Peter Dawson (a) 09/04/03 71,551 – (71,551) – – – – – 18/04/05 52,114 –(52,114) – – – – – (b) 10/05/062,337 –(2,337) – – – – – Steve Lee (a) 21/03/01 50,000 – – – 50,000 231.8p 20/03/04 20/03/11 21/05/02 21,340 –– – 21,340 265.0p 21/05/05 20/05/12 09/04/03 72,852 –(72,852) – – – – – 18/04/05 47,647 –(47,647) – – – – – (b) 01/06/03 10,637 – – (10,637) – 154.4p – – 08/05/08 – 6,635– – 6,635 245.3p 01/06/13 30/11/13 Steven Owen (a) 09/04/03 148,306 – (148,306) – – – – – 18/04/05 98,273 – (98,273) – – – – – (b) 13/05/04 7,168 – – – 7,168 228.1p 01/06/09 30/11/09 Tim Wheeler (a) 09/04/03 223,760 – (223,760) – – – – – 18/04/05 141,453 – (141,453) – – – – – (b) 13/05/045,735 –– – 5,735 228.1p 01/06/09 30/11/09 12/05/05 1,219 –– – 1,219 271.0p 01/06/10 30/11/10

(a) Options granted under 2002 Executive Share Option Scheme. All outstanding options granted under the 2002 Executive Share Option Scheme were not exercisable unless the TSR of the Company over any three-year period from the date of grant was at least equal to the 50th percentile (median) of TSR for companies in a comparator group consisting of the FTSE 350 Actuaries Real Estate sector. If the return was equal to the median then the option was exercisable at any time over 50% of the shares in respect of which it was granted. If the return was at least equal to the 25th percentile (upper quartile) of TSR of the comparator group, the option was exercisable over all the shares in respect of which it was granted. If the return was between the median and upper quartile then the option was exercisable over 50%-100% of the shares on a sliding scale. If the options did not become exercisable in full at the end of the initial three-year period, performance was re-tested on two further occasions, on the fourth and fifth anniversaries of grant. Re-testing did not apply for options granted in 2004 and beyond. (b) Options granted under SAYE Share Option Scheme. The share price on 1 June 2008 (date of vesting of Steve Lee’s award) was 261.0p. All TSR calculations were performed independently of the Company by HNBS and were confirmed by the Committee, which the Committee considered an appropriate way to obtain third party verification of the extent to which the performance condition was met. The middle market price of an Ordinary share at the close of business on 31 December 2008 was 132.6p mid value. The low and high middle prices of an Ordinary share during the year were 111.9p and 350.9p respectively. The Register of Directors’ Interests in Shares, which is open to inspection at the Company’s registered office, contains full details of the Directors’ shareholdings and options to acquire shares.

Shareholding guidelines The Company introduced shareholding guidelines in 2006 under which Executive Directors agree to build a holding of shares in the Company equal in value to 200% of salary within five years (or if later, five years from the Executive Director’s appointment).

40 www.brixton.plc.uk

Pension – Defined benefit The pension provisions for Tim Wheeler and Steven Owen were reviewed in the light of the changes to the taxation of pensions introduced from April 2006. Following this review, they agreed to cease to accrue future service benefits under the Company’s Pension Plan and now receive a cash supplement of 35% of base salary which is appropriate in relation to benefits foregone and market practice. They became deferred members of the Plan with effect from 5 April 2006.

Pension – Defined contribution Peter Dawson and Steve Lee are members of the Brixton Group Personal Pension Plan and the Company contributes the equivalent of 15% of their salary to this Plan.

Other benefits Executive Directors are provided with a car allowance and are entitled to private medical health cover. They are also entitled to participate in the Company’s Share Incentive Plan and SAYE Share Option Scheme on the same basis as other employees.

Service agreements Service agreements for the Executive Directors are on a one-year rolling basis and, therefore, may normally be terminated by either party on giving one year’s notice. The Company applies the principle of mitigation to any payment of compensation on termination as a result of unsatisfactory performance. Current service agreements for the Executive Directors were executed on 7 March 2008.

Appointments outside the Group In appropriate circumstances, the Committee will allow the Executive Directors to accept an outside appointment.

Non-executive Directors’ fees The fees of the Non-executive Directors are determined by the Board as a whole, which takes into account the level of fees paid by similar companies and also the involvement of the Non-executive Directors in the various Board Committees. Non-executive Directors do not participate in the Company’s Pension Plan, bonus scheme or long term incentive plans and are not entitled to compensation upon termination of their involvement with the Company. Non-executive Directors’ fees are reviewed annually, in accordance with the advice of HNBS. The current fees were reviewed, but not increased, in March 2009 and are currently an annual base fee of £38,000 with additional annual fees of £5,000 for the role of Senior Independent Director and £8,000 for the role of Chairman of the Audit or Remuneration Committees. The Chairman’s annual fee is now £144,000. Nicholas Fry also receives an additional annual fee of £10,000 for the role of Chairman of the Trustees for the Brixton plc Pension Scheme. Non-executive Directors are not appointed for specified terms but are subject to election or re-election by shareholders at least every three years. The initial appointment dates and next date of re-election for the current Non-executive Directors are as follows: Date next subject to Appointment date re-election Nicholas Fry1 18 March 2003 2009 Stephen Harris2 1 September 2006 2010 Mark Moran3 7 March 2008 2011 Louise Patten4 1 June 2001 2010 David Scotland5 1 January 2003 2009

Current fee levels: 1. £48,000, 2. £38,000, 3. £46,000, 4. £144,000, 5. £51,000.

Annual Report and Accounts 2008 41 Report on Directors’ Remuneration continued

Directors’ remuneration Pension Taxable Basic allowance/ benefits Total Total salary/fees contributions (note 1) 2008 2007 £000 £000 £000 £000 £000 Executive Tim Wheeler 563 197 33 793 1,182 Steven Owen 388 136 28 552 822 Peter Dawson 275 41 19 335 44 Steve Lee 240 36 20 296 35 Non-executive Nicholas Fry 40 – – 40 44 Stephen Harris 38 – – 38 37 Mark Moran 36 – – 36 – Louise Patten 143 – – 143 138 David Scotland 51 – – 51 49 Total 1,774 410 100 2,284 2,351

Note 1: The benefits comprise the provision of a car allowance, dividend equivalent on Deferred Share Bonus scheme, medical insurance and participation in the Company’s Share Incentive Plan.

Directors’ pension benefits for scheme year ended 31 December 2008 Details of the accrued benefits and transfer values for the Directors’ pensions are as follows: Accrued Increase Accrued Transfer Transfer Movement in benefit at in year benefit at value at value at transfer value beginning of (net of end of beginning of end of during the year indexation) year year year year £ £ £ £ £ £ Tim Wheeler 269,123 – 284,802 4,000,081 4,392,260 392,179 Steven Owen 189,084 – 200,034 3,022,372 3,252,959 230,587

The accrued pension entitlements shown are those which would be paid annually on normal retirement date. The transfer values disclosed above do not represent a sum paid or payable to the individual Director. Instead they represent a potential liability of the Company’s Pension Plan. The transfer value has been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11. The disclosure of two different transfer value figures in the table relating to increases in the year is to ensure compliance with both Companies Act and Listing Rules disclosure requirements. The increase in the transfer values at the end of the year reflect the changes made to Executive Directors’ pension entitlements as described in the note on pensions above, the adoption of revised assumptions for the calculation of transfer values (that account for a lower risk investment strategy and increased life expectancy) and also the increase in members’ benefits accrued during the year.

42 www.brixton.plc.uk

Directors’ interests in share and debenture capital The beneficial interests of the Directors in office at 31 December 2008 in the Ordinary shares of the Company, both at the beginning (or date of appointment if later) and the end of the year, are set out below. 1 January 31 December 2008/date of Ordinary shares of 25p each 2008 appointment* Peter Dawson 96,205 21,711 Nicholas Fry 25,000 20,000 Stephen Harris 4,000 4,000 Steve Lee 217,998 65,837 Mark Moran* 3,500 – Steven Owen 377,535 260,034 Louise Patten 10,055 10,055 David Scotland 6,408 6,408 Tim Wheeler 501,314 348,899

At 31 December 2008 Tim Wheeler had a beneficial interest in £25,000 (1 January 2008: £nil) nominal value of the Company’s £275 million 6% Bond 2010. Between the end of the year and 2 March 2009 the beneficial interest of Tim Wheeler in the Ordinary shares of the Company increased to 501,361.

Performance graph As the Company is a constituent of the FTSE 350 Real Estate Index, that index is considered the most appropriate form of ‘broad equity market index’ against which the Company’s share price performance should be measured. Performance, as required by the legislation, is measured by Total Shareholder Return (share price growth plus dividends reinvested).

Total Shareholder Return (value £m)

300

250

200

150

100

0 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 2003 2004 2005 2006 2007 2008

Brixton FTSE 350 Real Estate Index

This graph looks at the value, by the end of 2008, of £100 invested in Brixton on 31 December 2003 compared with the value of £100 invested in the FTSE 350 Real Estate Index. The other points are the values at intervening ﬁnancial year-ends.

Source: Thompson Financial

Note: The following sections of the above report have been audited: the sections headed ‘The SMP’, ‘The LTIP’, ‘The ESOS’, ‘Directors’ remuneration’ and ‘Directors’ pension benefits’. By order of the Board David Scotland Chairman of the Remuneration Committee 23 April 2009

Annual Report and Accounts 2008 43 Directors’ Responsibilities

The following statement, which should be read in conjunction with the Independent Auditors’ Reports set out on pages 45 and 71, is made with a view to distinguishing for shareholders the respective responsibilities of the Directors and the auditors in relation to the financial statements. The Directors are required by company law to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the Group as at the end of the financial year and of the profit or loss of the Group for the year. In preparing the financial statements the Directors have used appropriate accounting policies, consistently applied and supported by reasonable and prudent judgements and estimates, and have followed all applicable accounting standards. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy the financial position of the Company and of the Group and which enable them to ensure that the financial statements comply with the Companies Act 1985 and Article 4 of the IAS Regulations. The Directors are also responsible for safeguarding the assets of the Group and for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for preparing the Report on Directors’ Remuneration, and to ensure it complies with the relevant requirements of Section 234B of the Companies Act 1985 and the regulations made there under. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

44 www.brixton.plc.uk Independent Auditors’ Report to the Members of Brixton plc

We have audited the Group financial statements of Brixton plc for Basis of audit opinion the year ended 31 December 2008 which comprise the Group We conducted our audit in accordance with International Standards Income Statement, the Group Balance Sheet, the Group Cash Flow on Auditing (UK and Ireland) issued by the Auditing Practices Board. Statement, and the Group Statement of Recognised Income and An audit includes examination, on a test basis, of evidence relevant Expense and the related notes 1 to 35. These Group financial to the amounts and disclosures in the Group financial statements. statements have been prepared under the accounting policies It also includes an assessment of the significant estimates and set out therein. judgments made by the Directors in the preparation of the Group financial statements, and of whether the accounting policies are We have reported separately on the parent Company financial appropriate to the Group’s circumstances, consistently applied statements of Brixton plc for the year ended 31 December 2008 and adequately disclosed. and on the information in the Report on Directors’ Remuneration that is described as having been audited. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary This report is made solely to the Company’s members, as a body, in order to provide us with sufficient evidence to give reasonable in accordance with Section 235 of the Companies Act 1985. Our assurance that the Group financial statements are free from material audit work has been undertaken so that we might state to the misstatement, whether caused by fraud or other irregularity or error. Company’s members those matters we are required to state to In forming our opinion we also evaluated the overall adequacy of them in an auditor’s report and for no other purpose. To the fullest the presentation of information in the Group financial statements. extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members Opinion as a body, for our audit work, for this report, or for the opinions we In our opinion: have formed. • the Group financial statements give a true and fair view, in Respective responsibilities of Directors and auditors accordance with IFRSs as adopted by the European Union, of The Directors’ responsibilities for preparing the Annual Report and the state of the Group’s affairs as at 31 December 2008 and of the Group financial statements in accordance with applicable United its loss for the year then ended; Kingdom law and International Financial Reporting Standards (IFRSs) • the Group financial statements have been properly prepared in as adopted by the European Union are set out in the statement of accordance with the Companies Act 1985 and Article 4 of the Directors’ Responsibilities. IAS Regulation; and Our responsibility is to audit the Group financial statements in • the information given in the Directors’ Report is consistent with accordance with relevant legal and regulatory requirements and the Group financial statements. International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the Group financial Emphasis of matter – going concern statements give a true and fair view and whether the Group financial In forming our opinion on the financial statements, which is not statements have been properly prepared in accordance with the qualified, we have considered the adequacy of the disclosures Companies Act 1985 and Article 4 of the IAS Regulation. We also made in note 1 to the financial statements concerning the Group’s report to you whether in our opinion the information given in the ability to continue as a going concern. These disclosures, regarding Directors’ Report is consistent with the financial statements. The the possible impact of further investment property valuation deficits information given in the Directors’ Report includes that specific on the Group’s compliance with its borrowing covenants, and the information presented in the Business Review and the Financial options being considered to reduce the Group’s indebtedness, Review that is cross referred from the Business Review section of indicate the existence of a material uncertainty which may cast the Directors’ Report. significant doubt about the Group’s ability to continue as a going concern. The financial statements do not include the adjustments In addition we report to you if, in our opinion, we have not received that would result if the Group was unable to continue as a all the information and explanations we require for our audit, or if going concern. information specified by law regarding directors’ remuneration and other transactions is not disclosed. Ernst & Young LLP Registered auditor London We review whether the Corporate Governance Statement reflects the Company’s compliance with the nine provisions of the 2006 23 April 2009 Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We Notes: are not required to consider whether the Board’s statements on 1. The maintenance and integrity of the Brixton plc website is the responsibility of the internal control cover all risks and controls, or form an opinion on Directors; the work carried out by the auditors does not involve consideration of these the effectiveness of the Group’s corporate governance procedures matters and, accordingly, the auditors accept no responsibility for any changes that may or its risk and control procedures. have occurred to the financial statements since they were initially presented on the website. 2. Legislation in the United Kingdom governing the preparation and dissemination We read other information contained in the Annual Report and of financial statements may differ from legislation in other jurisdictions. consider whether it is consistent with the audited Group financial statements. The other information comprises only the Chairman’s Statement, the Chief Executive’s Review, the Business Review, the Financial Review and the Directors’ Report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the Group financial statements. Our responsibilities do not extend to any other information.

Annual Report and Accounts 2008 45 Group Income Statement Year ended 31 December

2008 2007 Notes £m £m Gross rental income 89.8 82.0 Property outgoings (12.4) (9.5) Net rental income 2 77.4 72.5 Administration expenses (7.2) (8.3) Operating profit before net (loss)/profit on investment properties 70.2 64.2 Gain/(loss) arising on sale of properties and subsidiary undertakings 3 0.1 (0.3) Net (deficit)/gain on valuation of investment and investment properties in the course of construction (602.8) 26.6 Net (loss)/profit on investment properties and investment properties in the course of construction (602.7) 26.3 Operating (loss)/profit 4 (532.5) 90.5 Interest receivable and other finance income 6 0.6 3.6 Exceptional interest income 6 0.5 – Interest payable and other finance costs 7 (32.4) (26.0) Change in fair value of derivative financial instruments 7 (138.3) (11.1) Share of (losses)/profits of joint ventures 14 (66.7) 1.2 (Loss)/profit before tax (768.8) 58.2 Deferred tax 8 1.1 1.6 (Loss)/profit for the financial year attributable to equity shareholders (767.7) 59.8 (Loss)/earnings per share – basic and diluted 10 (283.0)p 22.1p Adjusted earnings per share 10 15.7p 17.2p

46 www.brixton.plc.uk Group Balance Sheet Year ended 31 December

2008 2007 Notes £m £m Non-current assets Goodwill 11 1.5 1.5 Investment properties and investment properties in the course of construction 12 1,604.9 2,184.7 Plant and equipment 13 1.0 1.2 Investments in joint ventures 14 74.6 145.2 1,682.0 2,332.6 Current assets Trade and other receivables 15 29.1 26.5 Cash and short term deposits 16 13.8 6.3 42.9 32.8 Total assets 1,724.9 2,365.4 Current liabilities Trade and other payables 17 (43.1) (48.1) Corporation tax liabilities (12.5) (33.7) (55.6) (81.8) Non-current liabilities Borrowings 18 (876.0) (810.4) Derivative financial instruments 19 (173.2) (34.9) Deferred tax provision 21 (4.6) (5.7) Net retirement benefit obligation 31 (7.4) – (1,061.2) (851.0) Total liabilities (1,116.8) (932.8) Net assets 608.1 1,432.6 Equity Called-up share capital 22 67.9 67.7 Share premium account 23 93.4 153.9 Capital redemption reserve 24 0.1 0.1 Revaluation reserve 25 – – Retained earnings 26 446.7 1,210.9 Total equity 608.1 1,432.6 Net asset value per share 28 224p 529p Adjusted net asset value per share 28 290p 545p

Approved by the Board of Directors and authorised for issue on 23 April 2009 and signed on its behalf by: S J Owen Deputy Chief Executive

Annual Report and Accounts 2008 47 Group Cash Flow Statement Year ended 31 December

2008 2007 Notes £m £m Cash flows from operating activities Operating (loss)/profit (532.5) 90.5 Dividends received from joint ventures 4.4 5.2 Adjustments for non-cash items: Revaluation deficit/(gain) on investment properties and investment properties in the course of construction 602.8 (26.6) (Gain)/loss on sale of investment properties and subsidiary undertakings (0.1) 0.3 Depreciation, amortisation and other non-cash movements 2.5 1.4 Other movements arising from operations: (Increase)/decrease in trade and other receivables (1.5) 2.4 Increase in trade and other payables 1.4 2.6 Net cash generated from operations 77.0 75.8 Interest received from third parties 0.3 2.8 Interest paid to third parties (43.8) (38.7) Corporation tax paid on REIT entry charge (21.2) (21.2) Other corporation tax paid – (3.8) Net cash flows from operating activities 12.3 14.9 Cash flows from investing activities Acquisition and property development (20.0) (306.7) Sale of group undertakings (0.2) (0.4) Sales of properties 0.3 9.6 Capital expenditure on plant and equipment (0.4) (0.4) Proceeds from disposals of plant and equipment 0.1 0.1 Loans advanced to joint ventures (0.5) (0.8) Net cash flows from investing activities (20.7) (298.6) Cash flows from financing activities Net proceeds from the issue of share capital 0.3 0.5 Repayments of borrowings (95.2) (31.0) New bank loans raised 161.0 208.0 Equity dividends paid (50.2) (33.0) Net cash flows from financing activities 15.9 144.5 Net increase/(decrease) in cash and short term deposits 7.5 (139.2) Opening cash and short term deposits 29 6.3 145.5 Closing cash and short term deposits 29 13.8 6.3

48 www.brixton.plc.uk Group Statement of Recognised Income and Expense Year ended 31 December

2008 2007 £m £m Income and expenses recognised directly in equity Actuarial (losses)/gains on defined benefit pension schemes (8.4) 0.8 Revaluation deficit on investment properties in the course of construction – (6.0) Net loss recognised directly in equity (8.4) (5.2) (Loss)/profit for the financial year (767.7) 59.8 Total recognised income and expense for the year attributable to equity shareholders (776.1) 54.6 A reconciliation of changes in Group equity is shown in note 27.

Annual Report and Accounts 2008 49 Notes to the Accounts

1 Statement of significant accounting policies a Statement of compliance The Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations adopted by the European Union and as applied in accordance with the provisions of the Companies Act 1985. b Basis of preparation of financial statements The Group financial statements have been prepared on a going concern basis which assumes the Group will be able to meet its liabilities as they fall due. The Group’s cash flow forecasts show that it has adequate resources available to continue in operational existence for the foreseeable future. In preparing these forecasts the Directors have taken into account the following matters that give rise to a material uncertainty: • the potential breaches of various financing covenants if there are continued reductions in property valuations • the successful completion of one or more of the options being pursued to provide additional financial flexibility including disposals of assets, debt renegotiations and an equity raising. Having taken into account the above matters, the Directors have concluded, based on the cash flow forecasts, that it is appropriate to prepare the financial statements on a going concern basis. Further details on the above uncertainty and the options being pursued are included in the Chairman’s Statement on pages 4 and 5, the Chief Executive’s Review on pages 6 and 7 and the Financial Review on pages 26 to 29. The financial statements are presented in sterling and amounts are disclosed rounded to the nearest £100,000, unless otherwise indicated. The accounting policies set out below have been consistently applied to all periods presented in these financial statements, except as stated below. The Group has adopted the amendments to IAS 40 Investment Property. Development properties previously accounted for under IAS 16 Property, Plant and Equipment, are now classified as investment properties in the course of construction under IAS 40. This has no impact on the equity or results for the current and previous year. The preparation of financial statements requires management to make estimates and assumptions concerning the future that may affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Management believes that the estimates and assumptions used in the preparation of these financial statements are reasonable. However, actual outcomes may differ from those anticipated. c Basis of consolidation The Group financial statements incorporate the results of the Company and entities controlled by the Company (its subsidiary undertakings) made up to 31 December each year. Control is assumed where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Results of subsidiaries acquired or disposed during the year are included in the Group income statement from the effective date of acquisition or up to the effective date of disposal as appropriate. All intercompany balances and transactions are eliminated. d Investment in joint ventures Joint ventures are those entities over which the Group exerts joint control, established by contractual agreement. The Group accounts for its investments in its jointly controlled entities using the equity method of accounting. Under this method the investment is initially recorded at cost and is subsequently adjusted to reflect the Group’s share of the net profit or loss of the joint venture. The Group’s share of joint venture results is included in a single line item in the income statement. e Goodwill On acquisition, the assets and liabilities of a subsidiary are measured at their fair value at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Goodwill is carried in the balance sheet at cost less any accumulated impairment losses. The balance is reviewed for impairment at least annually with impairment being recognised immediately in the income statement. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. On disposal of a subsidiary or a property disposal, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. f Investment properties and investment properties in the course of construction Investment properties are properties owned or leased under finance leases by the Group which are held either for long term rental income or for capital appreciation or both. Investment property is initially recognised at cost (including related transaction costs) and revalued at the balance sheet date to fair value as determined by professionally qualified external valuers. The basis of valuation of properties is described in note 12. In accordance with IAS 40 Investment Property, investment property held under a finance lease is stated gross of the recognised finance lease liability. Gains or losses arising from changes in the fair value of investment property are included in the income statement of the period in which they arise. In accordance with IAS 40, as the Group uses the fair value model, no depreciation is provided in respect of investment properties including integral plant. Additions to investment properties consist of costs of a capital nature and, in the case of investment properties in the course of construction, capitalised interest, certain internal staff and associated costs directly attributable to the management of the investment properties under construction.

50 www.brixton.plc.uk

1 Statement of significant accounting policies continued When the Group redevelops an existing investment property for continued future use as an investment property, the property remains an investment property measured at fair value through the income statement. Borrowing costs associated with direct expenditure on investment properties in the course of construction and investment properties under development or undergoing major refurbishment are capitalised using the Group’s weighted average cost of the relevant borrowings. Interest is capitalised from the commencement of the development work until the date when the property is physically complete and becomes available for occupation. The capitalisation of finance costs is suspended if there are prolonged periods when development activity is interrupted. All costs directly associated with the purchase and construction of an investment property in the course of construction are capitalised. When investment properties in the course of construction are completed, they are reclassified as investment properties. g Plant and equipment Plant and equipment comprise computers, motor vehicles, furniture, fixtures and fittings and improvements to Group offices. These assets are stated at cost less accumulated depreciation and accumulated impairment and are depreciated on a straight-line basis over their estimated useful lives. Estimated useful lives are computers – three years; motor vehicles – four years; furniture – 10 years; fixtures and fittings – 10 years and improvements to Group offices – 10 years. h Impairment of assets The Group assesses at each balance sheet date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. Where the carrying value of an asset exceeds its recoverable amount the asset is considered impaired and written down accordingly. i Leases Leases are classified according to the substance of the transaction. A lease that transfers substantially all the risks and rewards of ownership to the lessee is classified as a finance lease. All other leases are classified as operating leases. The Group as a lessee In accordance with IAS 40, leases of investment property are assessed on a property by property basis. The Group’s investment properties are accounted for as finance leases and are recognised as an asset and an obligation to pay future minimum lease payments. The investment property asset is included in the balance sheet at fair value, gross of the recognised finance lease liability. Lease payments, where material, are allocated between the liability and finance charges so as to achieve a constant financing rate. Other leases are classified as operating leases and rentals payable are charged to the income statement on a straight-line basis over the term of the relevant lease. Benefits received as an incentive to enter into an operating lease are spread on a straight-line basis over the lease term. Group as lessor Assets leased out under finance leases are recognised as receivables at the amount of the net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant rate of return on net investment. A description of the Group, as a lessor, with respect to leasing arrangements is included in the Business Review on pages 8 to 25. Assets leased out under operating leases are included in investment property, with rental income recognised on a straight-line basis over the lease term. Benefits granted as an incentive to enter into an operating lease are spread on a straight-line basis over the lease term. j Financial instruments Trade and other receivables Trade and other receivables are recognised at invoiced value, if that is not materially different from fair value, less provisions for impairment. A provision for impairment of trade receivables is established where there is objective evidence that the Group will not be able to collect all amounts due according to the agreed terms of the receivables concerned. Cash and short term deposits Cash and short term deposits comprise cash on hand, deposits with banks, other short term, highly liquid investments with original maturities of three months or less, net of bank overdrafts. Interest bearing borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost with any difference between the amount initially recognised and the redemption value being recognised in the income statement over the period of the borrowings using the effective interest rate method. Trade and other payables Trade and other payables are non-interest bearing and are recognised at invoiced amount. Derivative financial instruments The Group enters into derivative transactions such as interest rate swaps in order to manage the risks arising from its activities as described in more detail in the Risk Management section on page 30, the Financial Review on pages 26 to 29 and in note 19. Derivatives are initially recorded at fair value and are remeasured to fair value as calculated by the counterparties based on market prices at subsequent balance sheet dates. The Group does not apply hedge accounting to its derivative financial instruments and hence any change in the fair value of such derivatives is recognised immediately in the income statement as a finance cost. k Pension costs The obligations of defined benefit pension schemes, representing benefits accruing to employees, are measured at discounted present value while scheme assets are measured at their fair value. The discount rate used is the yield on AA credit rated corporate bonds that have maturity dates approximating to the terms of the Group’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method. The operating and financing costs of such plans are recognised separately in the income statement; service costs are spread systematically over the working lives of the employees concerned and financing costs are recognised in the periods in which they arise. Actuarial gains and losses arising from either experience differing from previous actuarial assumptions or changes to those assumptions are recognised in full in the year in which they occur immediately in the statement of recognised income and expense. Contributions to defined contribution schemes are expensed as incurred. Annual Report and Accounts 2008 51 Notes to the Accounts continued

1 Statement of significant accounting policies continued l Revenue recognition Revenue comprises rental income of the Group’s investment properties. Service charges and other recoveries from tenants are netted off against property outgoings. Rental income from investment property leased out under an operating lease is recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the net consideration for the use of the property and are therefore also recognised on the same, straight-line basis. Surrender premiums received in the period from tenants vacating the property before the end of the lease are included in rental income. A property is regarded as sold when the significant risks and returns have been transferred to the buyer, which is normally on unconditional exchange of contracts. For conditional exchanges, sales are recognised when the conditions are satisfied. m Share and share based remuneration The cost of equity settled transactions with employees and Directors is measured by reference to the fair value at the date at which they are granted and is recognised in the income statement as an expense over the vesting period, which ends on the date on which the individuals concerned become fully entitled to the award. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied. The charge is reversed if it appears likely that the performance criteria will not be met. The fair value of share options awarded has been calculated, based on advice from Hewitt New Bridge Street, using a stochastic option valuation model. n Income tax The charge for current UK corporation tax is based on the results for the year as adjusted for items that are non-assessable or disallowed. It is calculated using rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is provided using the balance sheet liability method in respect of temporary differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in computation of taxable profit. Deferred tax is provided on all temporary differences, except in respect of investments in subsidiaries and joint ventures where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is determined using tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. It is recognised in the income statement except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. o Exceptional items Non-recurring expenses and gains recognised outside the normal course of business are classified as exceptional and are identified separately in the financial statements. p New standards and interpretations not applied The IASB and International Financial Reporting Interpretations Committee (‘IFRIC’) have issued the following standards and interpretations which may be relevant to the Group with an effective date after the date of these financial statements: International Accounting Standards (IAS/IFRS) IFRS 2 Amendment to IFRS 2 – Vesting Conditions and Cancellations 1 January 2009 IFRS 3 (revised) Business Combinations 1 July 2009 IFRS 8 Operating Segments 1 January 2009 IAS 1 (revised) Presentation of Financial Statements 1 January 2009 IAS 27 (revised) Consolidated and Separate Financial Statements 1 July 2009 IAS 32 & IAS 1 Amendment – Puttable Financial Instruments and Obligations Arising on Liquidation 1 January 2009 Improvements to International Financial Reporting Standards 1 January 2009 IFRIC IFRIC 15 Agreements for the Construction of Real Estate 1 January 2009 IFRIC 17 Distributions of Non-cash Assets to Owners 1 July 2009

These pronouncements, when applied, will either result in changes to presentation and disclosure, or are not expected to have a material impact on the financial statements.

52 www.brixton.plc.uk

2 Net rental income The Group engages in only one class of business activity, being industrial property investment. All operations are continuing and are located in the UK. All properties are industrial in nature. Net rental income 2008 2007 £m £m Gross rental income 89.8 82.0 Service charge and other income 9.8 7.0 Gross property income 99.6 89.0 Property outgoings (22.2) (16.5) Net rental income 77.4 72.5

Property outgoings includes £0.3m (2007: £0.1m) in respect of investment properties that did not generate rental income during the year.

3 Gain/(loss) arising on sale of properties and subsidiary undertakings The gain/(loss) arising on sale of properties and subsidiary undertakings is calculated by reference to book value at the date of sale. In 2008 the gain arising on sale included an exceptional goodwill impairment charge of £nil for goodwill attached to properties disposed (2007: £0.3m).

4 Operating (loss)/profit Operating (loss)/profit is stated after charging/(crediting) the following: 2008 2007 £m £m Staff costs (see note 5) 10.2 10.7 Less own work capitalised (2.6) (2.7) 7.6 8.0 Depreciation 0.5 0.6 Goodwill impairment – 0.3 Operating lease payments 0.8 0.8 Auditors’ remuneration for audit services – Group 0.2 0.2 – Subsidiaries 0.2 0.2

Amounts payable to Ernst & Young LLP during the year in respect of non-audit services totalled £67,000 (2007: £38,000), which related to other advice. The non-audit fees are considered to be immaterial and do not impair the auditors’ independence.

5 Staff costs The average number of persons employed by the Group (including Executive Directors) during the year was as follows: 2008 2007 Property management 45 45 Property development 13 12 Administration 30 31 88 88

The aggregate payroll costs of these persons were as follows:

2008 2007 £m £m Wages and salaries 7.1 7.8 Social security costs 1.2 1.1 Defined contribution pension costs 0.4 0.3 Defined benefit pension costs – 0.1 Charge for share based payments (see note 30) 1.5 1.4 10.2 10.7

Of the total aggregate payroll costs, staff costs of £2.6m (2007: £2.7m) were capitalised into the cost of qualifying investment properties currently being redeveloped and investment properties in the course of construction with the remaining £7.6m (2007: £8.0m) expensed directly in the income statement. Directors’ emoluments included in the above tables totalled £2.6m (2007: £2.6m). Details of total Directors’ emoluments, share options and pension entitlements are included on pages 37 to 43 in the Report on Directors’ Remuneration.

Annual Report and Accounts 2008 53 Notes to the Accounts continued

6 Interest receivable and other finance income 2008 2007 £m £m Interest receivable 0.2 3.1 Net financing income arising from retirement benefit schemes 0.4 0.5 Interest receivable and other finance income 0.6 3.6 Exceptional interest income (see below) 0.5 –

The exceptional interest income in 2008 of £0.5m (2007: £nil) relates to the profit arising on the repurchase of £5m nominal of the 5.25% 2015 bond.

7 Interest payable and other finance costs 2008 2007 £m £m Interest on bank loans and overdrafts 10.6 2.5 Interest on bonds 31.1 33.6 Interest payable 41.7 36.1 Less: interest capitalised (9.3) (10.1) Interest payable and other finance costs 32.4 26.0 Change in fair value of derivative financial instruments: Fair value losses on interest rate swaps 138.3 11.1 Total interest payable and other finance costs 170.7 37.1

Interest was capitalised using the Group’s average cost of debt of 4.9% (2007: 5.4%).

8 Tax 2008 2007 £m £m Amounts credited to the income statement: Deferred tax on revaluation of investment properties (1.1) (1.5) Release of deferred tax in respect of properties sold in the year – (0.1) Total tax credit for the year (1.1) (1.6)

Factors affecting the tax credit for the year were as follows: 2008 2007 £m £m Tax (credit)/charge on (loss)/profit before tax at UK corporation tax rate of 28%/30% (2007: 30%) (219.1) 17.5 Effect of: Effect of REIT tax exemption 219.1 (17.5) Differences arising from taxation of chargeable gains (1.1) (1.5) Release of deferred tax in respect of properties sold in the year – (0.1) Total tax credit for the year (1.1) (1.6)

The rate of corporation tax changed from 30% to 28% at 1 April 2008. The effective rate of corporation tax on investment profit in the year was nil% (2007: nil%) for the Group.

9 Dividends Amounts recognised as distributions to equity shareholders in the year are as follows: 2008 2007 £m £m Ordinary dividends 2006 interim dividend declared of 4.30p per share – 11.6 2006 final dividend declared of 7.90p per share – 21.4 2007 interim dividend declared of 4.80p per share 13.0 – 2007 final dividend declared of 8.80p per share 23.9 – 2008 interim dividend declared of 4.90p per share 13.3 – 50.2 33.0 Proposed final dividend of nil per share for 2008 (2007: 8.80p per share) – 23.8

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10 (Loss)/earnings per share (Loss)/earnings per share and adjusted earnings per share have been calculated, using the weighted average number of shares in issue during the year of 271.3m (2007: 270.4m), as follows: 2008 2008 2007 2007 (Loss)/profit (Loss)/earnings Profit Earnings after tax per share after tax per share £m pence £m pence Basic and diluted (767.7) (283.0)p 59.8 22.1p Deficit/(gain) on revaluation of investment properties and investment properties in the course of construction 602.8 222.2p (26.6) (9.8)p Deficit on revaluation of joint venture properties 70.6 26.0p 3.8 1.4p Loss on fair value of derivative financial instruments including share of joint ventures 138.5 51.1p 10.9 4.0p (Gain)/loss arising on sale of properties and subsidiary undertakings (0.1) – 0.3 0.1p Deferred tax on investment properties (1.1) (0.4)p (1.6) (0.6)p Exceptional interest income (0.5) (0.2)p –– Adjusted 42.5 15.7p 46.6 17.2p

Diluted (loss)/earnings per share are the same as basic (loss)/earnings per share.

11 Goodwill 2008 2007 £m £m Cost Opening and closing balance 22.1 22.1 Accumulated impairment losses Opening balance (20.6) (20.3) Impairment losses for the year – (0.3) Closing balance (20.6) (20.6) Net carrying amount At end of year 1.5 1.5 At start of year 1.5 1.8

The impairment loss for 2007 comprised £0.3m arising on the disposal of investment properties and subsidiary undertakings.

12 Investment properties and investment properties in the course of construction 2008 2008 2008 2007 2007 2007 Investment Investment properties in properties in Investment the course of Investment the course of properties construction Total properties construction Total £m £m £m £m £m £m Opening balance 2,051.6 133.1 2,184.7 1,816.3 37.0 1,853.3 Acquisition of properties –––137.4 106.6 244.0 Development and refurbishment expenditure 17.1 6.0 23.1 69.5 7.4 76.9 Total additions 17.1 6.0 23.1 206.9 114.0 320.9 Reclassification 41.1 (41.1) – – – – Disposals (0.1) – (0.1) (10.1) – (10.1) (Deficit)/surplus on valuation (577.8) (25.0) (602.8) 38.5 (17.9) 20.6 Closing balance 1,531.9 73.0 1,604.9 2,051.6 133.1 2,184.7

Investment properties and investment properties in the course of construction were externally valued as at 31 December 2008 by CB Richard Ellis and King Sturge in accordance with the Appraisal and Valuation Standards of RICS on the basis of market value. Market value represents the figure that would appear in a hypothetical contract of sale between a willing buyer and a willing seller. Market value is estimated without regard to costs of sale. CB Richard Ellis and King Sturge are both accredited independent valuers and are industry specialists in valuing these types of investment properties. Long leasehold properties which are treated as finance leases and included in investment properties above, amounted to £166.2m (2007: £224.0m). Investment properties currently being redeveloped at 31 December 2008, included in investment properties above, amounted to £50.6m (2007: £105.9m). The factors affecting the valuation of the investment properties and investment properties in the course of construction are included in the Business Review on pages 8 to 25.

Annual Report and Accounts 2008 55 Notes to the Accounts continued

13 Plant and equipment 2008 2007 £m £m Cost Opening balance 3.4 3.3 Additions 0.4 0.4 Disposals (0.5) (0.3) Closing balance 3.3 3.4 Accumulated depreciation Opening balance (2.2) (1.8) Charge for the year (0.5) (0.6) Disposals 0.4 0.2 Closing balance (2.3) (2.2) Net carrying amount At end of year 1.0 1.2 At start of year 1.2 1.5

Plant and equipment comprise computers, motor vehicles, furniture, fixtures and fittings and improvements to Group offices.

14 Investments in joint ventures 2008 2007 £m £m Opening balance 145.2 148.4 Net investment in joint ventures 0.5 0.8 Share of (losses)/profits (66.7) 1.2 Dividends received (4.4) (5.2) Closing balance 74.6 145.2 At 31 December 2008 and 2007 the Group’s investments in joint ventures comprised: Joint venture % holding a) The Heathrow Big Box Industrial and Distribution Fund (a UK property investment partnership with The Prudential Assurance Company Limited) 50% b) Equiton Industrial Partnership (a UK property investment partnership with SE Ind Unit Trust, and Edger Investments Limited, a wholly owned subsidiary of The Prudential Assurance Company Limited) 30%

The properties owned by the joint ventures were externally valued as at 31 December 2008 by CB Richard Ellis and King Sturge. The Group’s share of income, expenses, assets and liabilities included in the Group results are as follows: Income statement 2008 2007 £m £m Net rental income 11.5 12.2 Administration expenses (0.2) (0.2) Net deficit on valuation of investment properties (70.6) (3.8) Operating (loss)/profit (59.3) 8.2 Net interest payable (7.2) (7.2) Change in fair value of derivative financial instruments (0.2) 0.2 (Loss)/profit before and after tax (66.7) 1.2

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14 Investments in joint ventures continued Balance sheet 2008 2007 £m £m Investment properties 183.3 253.4 Current assets 4.9 5.5 Total assets 188.2 258.9 Current liabilities (112.0) (6.0) Non-current liabilities (1.6) (107.7) Total liabilities (113.6) (113.7) Group share of joint venture net assets 74.6 145.2

The Group’s share of total assets as shown in the table above includes a reduction of £12.4m (2007: £12.4m), being the Group’s share of unrealised profits arising in prior years on the sale of properties into The Heathrow Big Box Industrial and Distribution Fund and the Equiton Industrial Partnership. Included within current liabilities for the two limited partnerships are external, non-recourse loans repayable in 2009. The Group’s share of these loans at 31 December 2008 is £105.2m (2007: £105.1m included in non-current liabilities).

15 Trade and other receivables 2008 2007 £m £m Current assets Rent and sundry receivables 8.7 10.7 Prepayments and accrued income 20.4 15.8 29.1 26.5

The Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables, estimated by the Group’s management, based on prior experience and their assessment of the current economic environment. 2008 2007 £m £m Analysis of rent and sundry receivables Trade receivables 9.2 11.0 Provision for doubtful trade receivables (0.5) (0.3) 8.7 10.7 Analysis of movement in provisions for doubtful rent and sundry receivables Opening balance (0.3) (0.6) Net amounts (provided)/released during the year (0.5) 0.1 Provisions utilised 0.3 0.2 Closing balance (0.5) (0.3)

Net amounts (provided)/released during the year are included in net rental income. 2008 2007 £m £m Rent and sundry receivables overdue but not written down are as follows: Up to 30 days 7.8 9.5 31 to 60 days 0.2 0.2 61 to 90 days – 0.2 Over 90 days 0.7 0.2 Total overdue 8.7 10.1 Amounts not yet due – 0.6 Closing balance 8.7 10.7

Annual Report and Accounts 2008 57 Notes to the Accounts continued

16 Cash and short term deposits 2008 2007 £m £m Cash at bank 0.5 2.3 Short term deposits 13.3 4.0 13.8 6.3 As at 31 December 2008 £13.0m (2007: £nil) was held in a deposit account as collateral under the terms of certain derivative contracts. Interest is received on this account at overnight deposit rates.

17 Trade and other payables 2008 2007 £m £m Current liabilities Accruals and rent in advance 31.8 38.0 Other payables 5.8 8.5 Other taxes 5.5 1.6 43.1 48.1

18 Borrowings 2008 2007 £m £m Unsecured 6% Bonds 2010 (nominal £275m) 274.6 274.4 5.25% Bonds 2015 (nominal £145m) 144.4 149.3 6% Bonds 2019 (nominal £210m) 209.7 209.7 Sterling bank loans and overdrafts 247.3 177.0 Total unsecured 876.0 810.4 Total borrowings: Falling due after more than one year 876.0 810.4

2008 2007 £m £m Repayment analysis One to two years 376.9 – Two to three years 30.0 411.4 Three to four years 115.0 – Four to five years – 40.0 Five to ten years 144.4 149.3 Ten to fifteen years 209.7 209.7 876.0 810.4

2008 2007 £m £m Interest rate profile (all sterling) 2 Fixed/capped 638.7 508.4 Floating 237.3 302.0 876.0 810.4

The weighted average interest rate on Group borrowings as at 31 December 2008 was as follows: 2008 2007 % % Fixed/capped rate borrowings 5.0 4.8 On all borrowings 4.5 5.3

As at 31 December 2008, the weighted average period for which fixed/capped rate borrowings were fixed/capped was 11 years (2007: 11 years).

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18 Borrowings continued The interest rate for variable rate borrowings is set by reference to LIBOR. Capital disclosures The Group’s Capital Structure is defined as total equity (comprising called-up share capital, share premium, capital redemption reserve, revaluation reserve and retained earnings) and net borrowings. The Group’s strategy in respect to the use of Capital is detailed in the Risk Management section on page 30 and in the Financial Review on pages 26 to 29. Maturity of undrawn committed borrowing facilities 2008 2007 £m £m Expiring: Within one year 60.0 – One to two years 102.7 60.0 More than two years 5.0 178.0 167.7 238.0

19 Derivative financial instruments The Group’s strategy in respect of the use of financial instruments to manage risk is detailed in the Risk Management section on page 30 and in the Financial Review on pages 26 to 29. At 31 December 2008 the notional amount outstanding under fixed interest rate receivable swaps was £635m (2007: £635m) used to swap the Group’s Eurosterling Bonds into floating rate. The notional amount outstanding under fixed interest rate payable swaps at 31 December 2008 was £570m (2007: £330m). The notional amount outstanding under capped interest rate payable swaps at 31 December 2008 was £75m (2007: £180m). The effect of these swaps is included in the interest rate analysis in note 18. The fair value of swaps entered into is set out in note 20. These amounts are based on market value at the balance sheet dates. Market rate sensitivity analysis Financial instruments affected by market risk include borrowings, deposits and derivative financial instruments. The analysis below shows the sensitivity of the income statement and net assets to a 0.5% change in floating interest rates on the Company’s financial instruments. The sensitivity analysis is based on the following assumptions: i) the balance sheet sensitivity to interest rates relates only to derivative financial instruments as debt and deposits are carried at amortised cost and so their carrying value does not change as interest rates move; ii) the sensitivity of accrued interest to movements in interest rates is calculated on net floating rate exposures on debt, deposits and derivative instruments; 0.5% 0.5% decrease in increase in interest rates interest rates £m £m At 31 December 2008 (Decrease)/increase in fair value of financial instruments (54.6) 42.3 Impact on net interest payable – gain/(loss) 0.5 (0.6) Total impact on net income and net assets (54.1) 41.7

At 31 December 2007 (Decrease)/increase in fair value of financial instruments (7.0) 4.8 Impact on net interest payable – gain/(loss) 1.5 (1.5) Total impact on net income and net assets (5.5) 3.3

Annual Report and Accounts 2008 59 Notes to the Accounts continued

20 Fair value of financial assets and liabilities as at 31 December 2008 2008 2008 2007 2007 2007 Book Fair Fair value Book Fair Fair value value value adjustment value value adjustment £m £m £m £m £m £m Financial assets Cash and short term deposits 13.8 13.8 – 6.3 6.3 – Trade and other receivables 29.1 29.1 – 26.5 26.5 – Total financial assets 42.9 42.9 – 32.8 32.8 – Financial liabilities 6% Bonds 2010 (274.6) (256.9) 17.7 (274.4) (277.8) (3.4) 5.25% Bonds 2015 (144.4) (103.6) 40.8 (149.3) (140.8) 8.5 6% Bonds 2019 (209.7) (136.0) 73.7 (209.7) (201.3) 8.4 Sterling bank loans and overdrafts (247.3) (247.3) – (177.0) (177.0) – (876.0) (743.8) 132.2 (810.4) (796.9) 13.5 Interest rate derivatives (173.2) (173.2) – (34.9) (34.9) – Trade and other payables (43.1) (43.1) – (48.1) (48.1) – Total financial liabilities (1,092.3) (960.1) 132.2 (893.4) (879.9) 13.5 Total net financial liabilities (1,049.4) (917.2) 132.2 (860.6) (847.1) 13.5 Fair value on a post tax basis 132.2 13.5 Fair values have been calculated by using market values at the balance sheet date. The market values of derivatives and borrowings have been calculated by discounting the expected future cash flows at prevailing interest rates. The fair value of short term deposits is assumed to approximate to their book values. The Group’s only obligation is to pay interest and repay its bonds and loans at par value on the maturity dates. Sterling loans of £92.8m (2007: £92.3m) have been made by Group companies to joint ventures. These loans are not interest bearing and the return is dependent on the overall return from the partnerships. The fair value of these loans is assumed to be their book values. Contractual maturity analysis of financial liabilities An analysis of contracted undiscounted payments in relation to financial liabilities outstanding at the year end is as follows: 2008 2008 2008 2008 2008 Trade and Eurosterling Interest rate other Bank loans Bonds derivatives payables Total £m £m £m £m £m Undiscounted amounts payable in Under one year (6.5) (36.8) 4.9 (43.1) (81.5) One to two years (108.1) (311.6) 2.0 – (417.7) Two to five years (149.2) (60.6) (5.1) – (214.9) Five to ten years – (221.7) 4.2 – (217.5) Ten to fifteen years – (219.4) (19.4) – (238.8) After fifteen years – – (20.0) – (20.0) (263.8) (850.1) (33.4) (43.1) (1,190.4)

2007 2007 2007 2007 2007 Trade and Eurosterling Interest rate other Bank loans Bonds derivatives payables Total £m £m £m £m £m Undiscounted amounts payable in Under one year (11.7) (37.0) 4.4 (48.1) (92.4) One to two years (11.7) (37.0) (0.6) – (49.3) Two to five years (189.7) (352.9) 2.4 – (540.2) Five to ten years – (236.6) 6.7 – (229.9) Ten to fifteen years – (235.2) 4.2 – (231.0) (213.1) (898.7) 17.1 (48.1) (1,142.8)

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21 Deferred tax provision 2008 2007 £m £m Deferred tax Opening balance 5.7 7.3 Net credit per income statement (see note 8) (1.1) (1.6) Closing balance 4.6 5.7

The deferred tax balance at the end of 2007 and 2008 comprises capital gains net of capital losses. The Group has an unrecognised deferred tax asset of £4.1m (2007: £nil) relating to uncrystallised capital losses, which has not been recognised as there is insufficient certainty that the losses can be relieved against future capital gains.

22 Share capital 2008 2007 £m £m Authorised 319.6m Ordinary shares of 25p each 79.9 79.9 Allotted and fully paid Ordinary shares of 25p each 67.9 67.7

2008 2008 2007 2007 Number Number of shares of shares £m m £m m Ordinary shares in issue: At 1 January 67.7 270.7 67.6 270.2 Allotted under share option schemes 0.2 1.0 0.1 0.5 At 31 December 67.9 271.7 67.7 270.7

23 Share premium account 2008 2007 £m £m At 1 January 153.9 153.5 Premium on allotment of shares 0.4 0.4 Transfer to retained earnings (see note 26) (60.9) – At 31 December 93.4 153.9

24 Capital redemption reserve 2008 2007 £m £m At 1 January and 31 December 0.1 0.1

25 Revaluation reserve 2008 2007 £m £m At 1 January – 6.0 Deficit on revaluation of investment properties in the course of construction – (6.0) At 31 December – –

Annual Report and Accounts 2008 61 Notes to the Accounts continued

26 Retained earnings 2008 2007 £m £m At 1 January 1,210.9 1,182.0 Dividends paid (50.2) (33.0) Employee share based remuneration 1.2 1.3 Transfer from share premium account 60.9 – Total recognised income and expense for the year (776.1) 54.6 Deficit on revaluation of investment properties in the course of construction (see note 25) – 6.0 At 31 December 446.7 1,210.9

The transfer of £60.9m (2007: £nil) to retained earnings represents merger relief, net of costs, on the 2004 vendor placing of shares which gave rise to a distributable reserve.

27 Reconciliation of changes in equity 2008 2007 £m £m Opening equity 1,432.6 1,409.2 New share capital subscribed 0.6 0.5 Employee share based remuneration 1.2 1.3 1,434.4 1,411.0 Total recognised income and expense (776.1) 54.6 658.3 1,465.6 Dividends paid (50.2) (33.0) Closing equity 608.1 1,432.6

28 Net asset value per share Group 2008 2007 pence pence Net asset value per share 224 529 Fair value of derivative financial instruments (including share of joint ventures) 64 14 Adjustment to net assets relating to deferred tax on investment properties and the fair value of derivatives 2 2 Adjusted net asset value per share 290 545

Net asset value per share has been calculated on 271.7m shares in issue at 31 December 2008 (2007: 270.7m) and based on net assets attributable to shareholders of £608.1m (2007: £1,432.6m). Adjusted net asset value per share has been calculated on the same number of shares in issue but excluding the recognised fair value of Group and joint venture derivatives of £174.4m (2007: £35.9m) and the deferred tax provision on investment properties and the fair value of derivatives of £4.6m (2007: £5.7m).

29 Note to the Group cash flow statement Analysis of net debt At 1 Jan Cash Non-cash At 31 Dec 2008 flow movements 2008 £m £m £m £m Cash and short term deposits 6.3 7.5 – 13.8 Borrowings (810.4) (65.8) 0.2 (876.0) Total (804.1) (58.3) 0.2 (862.2)

At 1 Jan Cash Non-cash At 31 Dec 2007 flow movements 2007 £m £m £m £m Cash and short term deposits 145.5 (139.2) – 6.3 Borrowings (633.1) (177.0) (0.3) (810.4) Total (487.6) (316.2) (0.3) (804.1)

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30 Share based payments Equity settled share option schemes The 2006 Share Matching Plan (‘SMP’) The Company may make awards to participating employees (see Report on Directors’ Remuneration on pages 37 to 43). The SMP has the following features: • An individual may purchase shares in the Company (‘Investment’ shares) up to an amount equal to a maximum of 50% of their pre-tax base salary per annum for the financial year just ended. At present the qualifying group for the SMP is the Operations Board. • Following the purchase of Investment shares, the Company will grant conditional awards of shares (‘Matching’ shares) on a gross of tax ratio of two Matching shares for every Investment share purchased by the individual (i.e. a maximum grant of Matching shares of 100% of salary per annum). The vesting of Matching shares will be subject to continued employment and the satisfaction of performance conditions (see below). • Investment shares will remain registered in the name of the holder with full voting and dividend rights but if Investment shares are disposed of then the conditional Matching share awards will lapse on a proportionate basis. • Dividends will accrue on Matching shares. • Matching shares will vest if the following demanding performance targets are met: One third One third One third TSR (Total Shareholder Return – TSR (Total Shareholder Return – TPR (Total Property Return) v the Weighted share price plus dividends) NAV plus dividends) against a comparator Average Cost of Capital (‘WACC’) group of real estate companies 0% of awards vest for TSR equal to 8% per 30% of awards vest for a median ranking 25% of awards vest for TPR equal to WACC, annum increasing on a straight line to 100% TSR increasing on a straight line to 100% increasing on a straight line to 100% of awards of awards vesting for TSR equal to or greater of awards vesting for an upper quartile vesting for TPR equal to or greater than than 16% per annum ranking or above WACC + 3%

• The companies in the TSR (NAV plus dividends) comparator group are Land Securities, British Land, Liberty International, Hammerson and SEGRO. Details of the awards outstanding under the SMP are set out below: 2008 2008 2007 2007 Weighted Weighted average average Number share price at Number share price at of share grant date of share grant date awards pence awards pence Outstanding at 1 January 802,765 471.15 434,456 493.96 Granted during the year 598,482 330.85 371,698 444.69 Forfeited/lapsed during the year –– (3,389) 493.96 Outstanding at 31 December 1,401,247 411.23 802,765 471.15 Exercisable at 31 December –– ––

Long Term Incentive Plan (‘LTIP’) The Company may make annual awards to participating employees over shares worth up to a maximum of 200% of base salary. The performance conditions for determining the vesting of the LTIP awards are the same as the SMP (see above). Details of the awards outstanding under the LTIP scheme are as follows: 2008 2008 2007 2007 Weighted Weighted average average Number share price at Number share price at of share grant date of share grant date awards pence awards pence Outstanding at 1 January 1,420,577 477.31 688,035 503.25 Granted during the year 1,460,082 330.85 814,141 456.18 Forfeited/lapsed during the year (171,680) 456.85 (81,599) 472.79 Outstanding at 31 December 2,708,979 410.88 1,420,577 477.31 Exercisable at 31 December –– ––

Annual Report and Accounts 2008 63 Notes to the Accounts continued

30 Share based payments continued The Executive Share Option Schemes (‘ESOS’) Under the ESOS, superseded by the LTIP, the Company made annual option grants to participating employees over shares worth up to 100% of base salary. These options will only become exercisable if a demanding performance condition, based on a comparison of the Company’s Total Shareholder Return (‘TSR’) to those of other companies in the FTSE 350 index, is subsequently satisfied over a period of at least three years following the date of grant (see the Report on Directors’ Remuneration on pages 37 to 43). If the options remain unexercised after a period of 10 years from the date of grant, the options expire. Details of the share options outstanding under the ESOS are as follows: 2008 2008 2007 2007 Weighted Weighted average average Number exercise Number exercise of share price of share price options pence options pence Outstanding at 1 January 1,518,171 252.65 2,348,146 262.41 Exercised during the year (102,940) 196.99 (144,136) 255.04 Forfeited/lapsed during the year (1,312,834) 257.64 (685,839) 285.58 Outstanding at 31 December 102,397 244.59 1,518,171 252.65 Exercisable at 31 December 102,397 244.59 919,753 198.55 The weighted average share price at the date of exercise for share options exercised during the year was 229.61p (2007: 384.92p). The options outstanding at the end of the year have a weighted average remaining contractual life of 2.7 years (2007: 6.0 years). Save As You Earn Schemes (‘SAYE’) The Company operates Inland Revenue approved SAYE schemes in which all eligible employees may participate. Each participant may save up to £250 a month to buy shares under option at the end of the option period. Savings contracts can be for a three or a five year period. Details of the share options outstanding under SAYE schemes are as follows: 2008 2008 2007 2007 Weighted Weighted average average Number exercise Number exercise of share price of share price options pence options pence Outstanding at 1 January 164,050 285.88 175,401 252.73 Granted during the year 107,184 245.26 34,185 413.00 Exercised during the year (55,661) 159.00 (22,928) 206.81 Forfeited/lapsed during the year (111,056) 347.10 (22,608) 301.11 Outstanding at 31 December 104,517 246.86 164,050 285.88 Exercisable at 31 December –– ––

The weighted average share price at the date of exercise for share options exercised during the year was 248.59p (2007: 389.70p). The options outstanding at the end of the year have a weighted average remaining contractual life of 2.8 years (2007: 2.0 years). The LTIP (pre 2006 awards) Executive Directors and other qualifying members were granted conditional awards over shares worth up to 200% of base salary per annum. These awards will only vest if the Company’s Total Property Return (‘TPR’) outperforms the Investment Property Databank (‘IPD’) All Fund UK Industrial Benchmark over a fixed three-year period following grant (see the Report on Directors’ Remuneration on pages 37 to 43). 2008 2008 2007 2007 Weighted Weighted average average Number share price at Number share price at of share grant date of share grant date awards pence awards pence Outstanding at 1 January 797,128 319.25 1,634,435 302.22 Exercised during the year (797,128) 319.25 (249,663) 286.00 Forfeited/lapsed during the year –– (587,644) 286.00 Outstanding at 31 December –– 797,128 319.25 Exercisable at 31 December –– –– During the year 797,128 pre 2006 awards vested (2007: 249,663). The weighted average share price at the date of exercise for awards vesting during the year was 291.87p (2007: 474.83p).

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30 Share based payments continued Share Incentive Plan (‘SIP’) The Company’s SIP enables all employees to acquire ‘Partnership’ shares in the Company in a tax efficient manner. If Partnership shares are offered, eligible employees are entitled to save up to £125 per month for a 12-month accumulation period, and then to purchase shares in the Company at the lower of the price at the beginning and the end of the accumulation period. In addition, under the SIP scheme, ‘Free’ shares may be awarded up to a maximum value of £3,000 per employee per annum. The cost to the Company of these awards is charged directly to the income statement in the period in which they are awarded. Fair value of share based payments In 2008 and 2007, share based payments were awarded under the above schemes, and fair values calculated as follows: 2008 2008 2007 2007 Fair value Fair value of award of award Grant date pence Grant date pence LTIP 4 April 2008 240.21 4 April 2007 359.65 LTIP 17 September 2008 142.86 22 August 2007 273.32 SMP 21 April 2008 252.25 23 April 2007 366.40 SMP 29 September 2008 160.60 3 September 2007 293.86 SAYE – 3 Year 8 May 2008 73.48 10 May 2007 130.63 SAYE – 5 Year 8 May 2008 74.41 10 May 2007 151.15 SIP Partnership shares 19 May 2008 284.26 16 May 2007 59.23

The estimated fair values of share based payments granted during the year have been calculated using the Stochastic model. Inputs to the model are summarised in the tables below: 2008 2008 2008 2008 2008 3 year 5 year LTIP SMP SAYE SAYE SIP Weighted average share price at grant (pence) 273.84 246.12 308.75 308.75 n/a Weighted average exercise price (pence) n/a n/a 245.26 245.26 n/a Expected volatility 29% 31% 26% 24% 33% Average expected life (years) 3.00 3.00 3.25 5.25 1.00 Risk free rate 4.12% 4.17% 4.31% 4.35% 4.76% Expected dividend yield 5.20% n/a 4.40% 4.40% 4.78%

2007 2007 2007 2007 2007 3 year 5 year LTIP SMP SAYE SAYE SIP Weighted average share price at grant (pence) 456.18 444.69 500.50 500.50 n/a Weighted average exercise price (pence) n/a n/a 413.00 413.00 n/a Expected volatility 21% 21% 20% 21% 23% Average expected life (years) 3.00 3.00 3.25 5.25 1.00 Risk free rate 5.34% 5.37% 5.49% 5.41% 5.54% Expected dividend yield 2.78% n/a 2.44% 2.44%2.49%

Expected volatility was determined on the basis of historic share price movements prior to the date of grant over a period of time commensurate with the expected life for each award. The Group and Company recognised total expenses of £1.5m (2007: £1.4m) in relation to equity settled share based payment transactions during the year, which included a charge of £0.1m (2007: £0.1m) in relation to SIP ‘Free’ shares issued.

Annual Report and Accounts 2008 65 Notes to the Accounts continued

31 Pension costs Defined contribution schemes The Group operates one defined contribution pension scheme for employees through which it pays contributions to personal pensions established with a specific provider. Assets of the pension scheme are held separately from those of Group companies, being invested with insurance companies. Contributions payable to this scheme by the Group, at rates specified in the rules of the scheme, totalled £0.4m (2007: £0.3m). Defined benefit schemes The Group operates two funded defined benefit pension schemes. The main scheme, the ‘Brixton Scheme’, is non-contributory for members and provides benefits based on final pensionable salary. Contributions, payable by the Company, were invested in funds managed by Legal & General Investment Management Limited. The scheme was effectively closed to new entrants on 1 January 1998. The most recent full actuarial valuation of scheme assets and of the present value of the defined benefit obligation for the Brixton Scheme was carried out as at 1 January 2006 by a qualified actuary. The present value of the defined benefit obligation, the related current service cost and past service cost were measured using the attained age method. The Group also operates a defined benefit pension scheme, the ‘Industrious Scheme’, in respect of employees who transferred with the Industrious Group in 2005. This scheme provides benefits based on final pensionable salary and was closed to new entrants on 2 July 1999. Contributions are invested in funds managed by Legal & General Investment Management Limited. The most recent full actuarial valuation of scheme assets and of the present value of the defined benefit obligation for the Industrious Scheme was carried out as at 1 July 2007 by a qualified actuary. The present value of the defined benefit obligation, the related current service cost and past service cost were measured using the projected unit credit method. The valuations for both schemes have been updated using the projected unit credit method to 31 December 2008 by a qualified independent actuary. The principal assumptions employed are included in the table below: Brixton Industrious Brixton Industrious Scheme Scheme Scheme Scheme 2008 2008 2007 2007 % % % % Key assumptions: Price inflation 3.30 3.30 3.40 3.40 General salary and wage inflation* n/a n/a 4.90 4.90 Pension increase rate 3.50 3.20 3.55 3.30 Discount rate 6.10 6.10 5.90 5.90

*There are now no members actively contributing to either scheme. The mortality basis used was PCA00 with medium cohort adjustments subject to a minimum level of improvement of 1% p.a. Life expectancies at 65, based on a year of birth of 1943, are 22.1 years for males and 24.5 years for females.

66 www.brixton.plc.uk

31 Pension costs continued Defined benefit schemes continued The assets in the schemes and the expected rates of return were: Brixton Industrious Scheme Scheme Long term Brixton Long term Industrious Total rate of Scheme rate of Scheme Group return Value return Value Value expected at at expected at at at 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 2008 2008 2008 2008 2008 % £m % £m £m Assets Equities 7.4 11.6 7.4 3.3 14.9 Gilts 3.9 3.4 3.9 – 3.4 Bonds 6.1 7.5 6.1 5.5 13.0 Cash and other assets 2.0 0.1 2.0 – 0.1 Insured pensions 6.1 1.3 6.1 0.6 1.9 Total market value of assets 23.9 9.4 33.3 Present value of scheme liabilities (29.6) (11.1) (40.7) Funded status (5.7) (1.7) (7.4) Effect of asset ceiling – –– Net retirement benefit obligation (5.7) (1.7) (7.4) The expected rate of return is determined by weighting the expected returns disclosed for each asset category by the proportion of assets held in each category. The 6.4% expected return on assets for 2009 assumes equities will return 7.4%, corporate bonds 6.1%, gilts 3.9%, cash 2.0% and insured pensions 6.1%. The expected return is calculated from the assets and cash flows using this rate. Brixton Industrious Scheme Scheme Long term Brixton Long term Industrious Total rate of Scheme rate of Scheme Group return Value return Value Value expected at at expected at at at 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 2007 2007 2007 2007 2007 % £m % £m £m Assets Equities 7.5 16.9 7.5 4.621.5 Gilts 4.5 4.3 4.5 – 4.3 Bonds 5.9 7.0 5.9 5.812.8 Cash and other assets 5.0 0.1 5.0 0.1 0.2 Insured pensions 5.9 1.5 5.9 0.7 2.2 Total market value of assets 29.8 11.2 41.0 Present value of scheme liabilities (29.7) (10.9)(40.6) Funded status 0.1 0.3 0.4 Effect of asset ceiling (0.1) (0.3) (0.4) Net retirement benefit obligation – – –

The amounts recognised in income are as follows: Brixton Industrious Scheme Scheme Total 2008 2008 2008 £m £m £m Amounts charged to operating (loss)/profit: Current service cost – – – Past service cost – – – Charge to operating (loss)/profit – – – Amounts charged/(credited) to other finance income Expected return on pension scheme assets (2.0) (0.7) (2.7) Interest on pension scheme liabilities 1.7 0.6 2.3 Credit to other finance income (0.3) (0.1) (0.4) Net credit for the period (0.3) (0.1) (0.4)

Annual Report and Accounts 2008 67 Notes to the Accounts continued

31 Pension costs continued Defined benefit schemes continued Brixton Industrious Scheme Scheme Total 2007 2007 2007 £m £m £m Amounts charged to operating profit: Current service cost – – – Past service cost – – – Charge to operating profit – – – Amounts charged/(credited) to other finance income Expected return on pension scheme assets (1.9) (0.7) (2.6) Interest on pension scheme liabilities 1.5 0.6 2.1 Credit to other finance income (0.4) (0.1) (0.5) Net credit for the period (0.4) (0.1) (0.5)

The Group has adopted the amendment to IAS 19 published in December 2004 permitting the immediate recognition of actuarial gains and losses directly in equity. Amounts recognised directly in equity are as follows: Brixton Industrious Scheme Scheme Total 2008 2008 2008 £m £m £m Amounts charged directly to equity Loss on pension scheme assets 7.6 2.3 9.9 Gain on change of assumptions underlying net scheme liabilities (0.9) (0.2) (1.1) Gain arising due to limit on asset ceiling (0.1) (0.3) (0.4) Charge to equity 6.6 1.8 8.4

Brixton Industrious Scheme Scheme Total 2007 2007 2007 £m £m £m Amounts charged directly to equity Loss on pension scheme assets 0.1 0.3 0.4 Gain on change of assumptions underlying net scheme liabilities (1.0) (0.6) (1.6) Loss arising due to limit on asset ceiling 0.1 0.3 0.4 Credit to equity (0.8) – (0.8)

The cumulative balance of amounts charged directly to equity is £8.6m (2007: £0.2m). Changes in the fair value of scheme assets are as follows: Brixton Industrious Scheme Scheme Total 2008 2008 2008 £m £m £m Fair value of scheme assets at 1 January 28.3 10.5 38.8 Allowance for insured pensions 1.5 0.7 2.2 Fair value of scheme assets at 1 January as previously reported 29.8 11.2 41.0 Expected return 2.0 0.7 2.7 Actuarial loss (7.6) (2.3) (9.9) Contributions by employer 0.6 – 0.6 Benefits paid (0.9) (0.2) (1.1) At 31 December 23.9 9.4 33.3

68 www.brixton.plc.uk

31 Pension costs continued Defined benefit schemes continued Brixton Industrious Scheme Scheme Total 2007 2007 2007 £m £m £m Fair value of scheme assets at 1 January 28.5 10.4 38.9 Allowance for insured pensions – 0.7 0.7 Expected return 1.8 0.7 2.5 Actuarial loss (0.1) (0.3) (0.4) Contributions by employer 0.5 – 0.5 Benefits paid (0.9) (0.3) (1.2) At 31 December 29.8 11.2 41.0

Changes in the present value of the defined benefit obligation are as follows: Brixton Industrious Scheme Scheme Total 2008 2008 2008 £m £m £m Present value of defined benefit pension obligation at 1 January (28.2) (10.2) (38.4) Allowance for insured pensions (1.5) (0.7) (2.2) (29.7) (10.9) (40.6) Interest on pension scheme liabilities (1.7) (0.6) (2.3) Benefits paid 0.9 0.2 1.1 Actuarial gain 0.9 0.2 1.1 At 31 December (29.6) (11.1) (40.7)

Brixton Industrious Scheme Scheme Total 2007 2007 2007 £m £m £m Present value of defined benefit pension obligation at 1 January (30.1) (10.5) (40.6) Allowance for insured pensions – (0.7) (0.7) Interest on pension scheme liabilities (1.5) (0.6) (2.1) Benefits paid 0.9 0.3 1.2 Actuarial gain 1.0 0.6 1.6 At 31 December (29.7) (10.9) (40.6)

Amounts for the current and previous four periods are as follows: 2008 2007 2006 2005 2004 £m £m £m £m £m Total fair value of assets 33.3 41.0 38.9 35.5 21.6 Present value of scheme liabilities (40.7) (40.6) (40.6) (37.0) (23.3) Asset ceiling adjustment – (0.4) – – – Net retirement benefit obligation (7.4) – (1.7) (1.5) (1.7) Experience adjustments on scheme assets: Actuarial (loss)/gain (£m) (9.9) (0.4) 1.0 3.8 0.3 As a percentage of scheme assets (%) 29.7% 1.0% 2.6% 10.7% 1.4% Experience adjustments on scheme liabilities: Actuarial loss (£m) – (0.2) (1.8) (3.6) (0.7) Percentage of scheme liabilities (%) – 0.4% 4.4% 9.7% 3.0%

The estimated amount of contributions expected to be paid in 2009 totals £0.6m.

Annual Report and Accounts 2008 69 Notes to the Accounts continued

31 Pension costs continued Reconciliation of the net retirement benefits obligation: Brixton Industrious Scheme Scheme Total 2008 2008 2008 £m £m £m Net retirement benefit obligation at 1 January – – – Pension income 0.3 0.1 0.4 Contributions by employer 0.6 – 0.6 Actuarial loss recognised in SORIE (6.6) (1.8) (8.4) At 31 December (5.7) (1.7) (7.4)

Brixton Industrious Scheme Scheme Total 2007 2007 2007 £m £m £m Net retirement benefit obligation at 1 January (1.7) (0.1) (1.8) Pension income 0.4 0.1 0.5 Contributions by employer 0.5 – 0.5 Actuarial gain recognised in SORIE 0.8 – 0.8 At 31 December – – –

32 Future capital expenditure 2008 2007 £m £m The Directors have authorised future capital expenditure, including the Group’s share of its joint ventures’ capital expenditure, which amounts to: Contracted for 2.8 8.9 Not contracted for 55.9 61.2 58.7 70.1 Of the £2.8m (2007: £8.9m) contracted capital expenditure £1.4m (2007: £8.3m) relates to obligations to develop investment property and £1.4m (2007: £0.6m) relates to enhancements.

33 Operating lease arrangements The Group as lessee At 31 December 2008 the future minimum lease payments payable under non-cancellable operating leases of land and buildings totalled £9.4m (2007: £10.1m) of which £0.8m (2007: £0.8m) is payable in less than one year, £3.0m (2007: £3.0m) is payable in the second to fifth years inclusive, and £5.6m (2007: £6.3m) is payable in more than five years. The Group as lessor A description of the Group, as a lessor, with respect to leasing arrangements is included in the Business Review on pages 8 to 25. Gross property rental income earned during the year totalled £89.8m (2007: £82.0m), (see note 2). At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments: 2008 2007 £m £m Amounts due: Within one year 104.9 101.8 In the second to fifth years inclusive 300.3 300.2 In more than five years 303.5 317.8 708.7 719.8

34 Related party transactions The Group considers its key management personnel to be the Board of Directors. Details of transactions with the Board of Directors can be found in the Report on Directors’ Remuneration on pages 37 to 43.

35 Significant accounting judgements and key sources of estimation uncertainty The significant accounting judgements and key sources of estimation uncertainty are described in the section of the financial statements to which such judgements have been applied. The main judgements and sources of estimation uncertainty are the material uncertainty regarding going concern described in note 1 to the financial statements, and the valuation of investment properties described in the Chief Executive’s Review on pages 6 and 7 and the Business Review on pages 8 to 25.

70 www.brixton.plc.uk Independent Auditors’ Report to the Members of Brixton plc

We have audited the parent Company financial statements of Basis of audit opinion Brixton plc for the year ended 31 December 2008 which comprise We conducted our audit in accordance with International Standards the Balance Sheet and the related notes A to O. These parent on Auditing (UK and Ireland) issued by the Auditing Practices Board. Company financial statements have been prepared under the An audit includes examination, on a test basis, of evidence relevant accounting policies set out therein. We have also audited the to the amounts and disclosures in the parent Company financial information in the Report on Directors’ Remuneration that is statements and the part of the Report on Directors’ Remuneration described as having been audited. to be audited. It also includes an assessment of the significant estimates and judgments made by the Directors in the preparation We have reported separately on the Group financial statements of of the parent Company financial statements, and of whether the Brixton plc for the year ended 31 December 2008. accounting policies are appropriate to the Company’s This report is made solely to the Company’s members, as a body, circumstances, consistently applied and adequately disclosed. in accordance with Section 235 of the Companies Act 1985. Our We planned and performed our audit so as to obtain all the audit work has been undertaken so that we might state to the information and explanations which we considered necessary Company’s members those matters we are required to state to in order to provide us with sufficient evidence to give reasonable them in an auditors’ report and for no other purpose. To the fullest assurance that the parent Company financial statements and the extent permitted by law, we do not accept or assume responsibility part of the Report on Directors’ Remuneration to be audited are to anyone other than the Company and the Company’s members free from material misstatement, whether caused by fraud or other as a body, for our audit work, for this report, or for the opinions we irregularity or error. In forming our opinion we also evaluated the have formed. overall adequacy of the presentation of information in the parent Company financial statements and the part of the Report on Respective responsibilities of Directors and auditors Directors’ Remuneration to be audited. The Directors’ responsibilities for preparing the Annual Report, the Report on Directors’ Remuneration and the parent Company Opinion financial statements in accordance with applicable United Kingdom In our opinion: law and Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the statement • the parent Company financial statements give a true and fair view, of Directors’ Responsibilities. in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the Company’s affairs as Our responsibility is to audit the parent Company financial statements at 31 December 2008; and the part of the Report on Directors’ Remuneration to be audited in accordance with relevant legal and regulatory requirements and • the parent Company financial statements and the part of the International Standards on Auditing (UK and Ireland). Report on Directors’ Remuneration to be audited have been properly prepared in accordance with the Companies Act 1985; We report to you our opinion as to whether the parent Company and financial statements give a true and fair view and whether the parent Company financial statements and the part of the Report on • the information given in the Directors’ Report is consistent with Directors’ Remuneration to be audited have been properly prepared the parent Company financial statements. in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Directors’ Report Emphasis of matter – going concern is consistent with the financial statements. The information given in In forming our opinion on the financial statements, which is the Directors’ Report includes that specific information presented in not qualified, we have considered the adequacy of the disclosures the Business Review and the Financial Review that is cross referred made in note A (i) to the financial statements concerning from the Business Review section of the Directors’ Report. the Company’s ability to continue as a going concern. These disclosures, regarding the possible impact of further investment In addition we report to you if, in our opinion, the Company has property valuation deficits on the Company’s compliance with its not kept proper accounting records, if we have not received all borrowing covenants, and the options being considered to the information and explanations we require for our audit, or if reduce the Company’s indebtedness, indicate the existence of information specified by law regarding directors’ remuneration a material uncertainty which may cast significant doubt about the and other transactions is not disclosed. Company’s ability to continue as a going concern. The financial We read other information contained in the Annual Report and statements do not include the adjustments that would result if consider whether it is consistent with the audited parent Company the Company was unable to continue as a going concern. financial statements. The other information comprises only the Ernst & Young LLP Registered auditor Chairman’s Statement, the Chief Executive’s Review, the Business London Review, the Financial Review, the Directors’ Report, and the unaudited part of the Report on Directors’ Remuneration. We 23 April 2009 consider the implications for our report if we become aware of any Notes: apparent misstatements or material inconsistencies with the parent Company financial statements. Our responsibilities do not extend 1. The maintenance and integrity of the Brixton plc website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these to any other information. matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. 2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Annual Report and Accounts 2008 71 Company Balance Sheet Year ended 31 December

2008 2007 Notes £m £m Non-current assets Investment properties D 42.8 61.7 Plant and equipment E 1.0 1.2 Investments in subsidiary undertakings F 1,520.8 1,674.2 1,564.6 1,737.1 Current assets Trade and other receivables G 6.5 5.0 Corporation tax receivable 4.1 – Cash and short term deposits 13.6 4.8 24.2 9.8 Total assets 1,588.8 1,746.9 Current liabilities Trade and other payables H (16.0) (16.9) Corporation tax liabilities – (17.1) (16.0) (34.0) Non-current liabilities Borrowings I (876.0) (810.4) Derivative financial instruments J (173.2) (34.9) Net retirement benefit obligation O (7.4) – (1,056.6) (845.3) Total liabilities (1,072.6) (879.3) Net assets 516.2 867.6 Capital and reserves Called-up share capital L 67.9 67.7 Share premium account L 93.4 153.9 Capital redemption reserve M 0.1 0.1 Revaluation reserve M 3.8 22.7 Realised capital reserve M 525.9 525.9 Retained (loss)/earnings M (174.9) 97.3 Shareholders’ funds 516.2 867.6

Approved by the Board of Directors and authorised for issue on 23 April 2009 and signed on its behalf by: S J Owen Deputy Chief Executive

72 www.brixton.plc.uk Notes to the Company Accounts

A Accounting policies (i) Accounting convention The Company accounts have been prepared on a going concern basis which assumes the Company will be able to meet its liabilities as they fall due. The Company’s cash flow forecasts show that it has adequate resources available to continue in operational existence for the foreseeable future. In preparing these forecasts the Directors have taken into account the following matters that give rise to a material uncertainty: • the potential breaches of various financing covenants if there are continued reductions in property valuations • the successful completion of one or more of the options being pursued to provide additional financial flexibility including disposals of assets, debt renegotiations and an equity raising. Having taken into account the above matters, the Directors have concluded, based on the cash flow forecasts, that it is appropriate to prepare the accounts on a going concern basis. Further details on the above uncertainty and the options being pursued are included in the Chairman’s Statement on pages 4 and 5, the Chief Executive’s Review on pages 6 and 7 and the Financial Review on pages 26 to 29. (ii) Investments in subsidiary undertakings Interests in subsidiary undertakings are carried in the Company’s balance sheet at cost less provision for impairment. (iii) Investment properties Properties are valued at the balance sheet date by the Company’s external valuers. The basis of valuation of properties is described in note D. Any surplus or deficit arising from revaluation is transferred to the revaluation reserve unless a deficit on an individual property is expected to become permanent in which case it is recognised in the profit and loss account for the year. Interest and outgoings less rental income are capitalised on investment properties in the course of construction during the course of development. A property ceases to be treated as being in the course of development at the earliest of the date when the property is physically complete and becomes available for occupation or the date when the development becomes fully let and income producing. Leasehold properties where the lease has more than 150 years to expiry are classified as freehold. (iv) Depreciation In accordance with SSAP 19 Accounting for Investment Properties, no depreciation or amortisation is provided in respect of freehold properties or leasehold properties with more than 20 years to run as the properties are held for investment and not for consumption. (v) Deferred tax In accordance with FRS 19, deferred tax is provided in respect of all timing differences that have originated, but not reversed at the balance sheet date that may give rise to an obligation to pay more or less tax in the future. As all of the Company’s investment properties are held as long term investments, deferred tax is not provided on timing differences arising from the revaluation of those assets. Following the sale of a property any deferred tax provision not required will be released to the profit and loss account. Deferred tax is measured on a non- discounted basis. Deferred tax is determined using tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or deferred tax liability is settled. (vi) Financial instruments Trade and other receivables Trade and other receivables are recognised at invoiced value, if that is not materially different from fair value, less provisions for impairment. A provision for impairment of trade receivables is established where there is objective evidence that the Company will not be able to collect all amounts due according to the agreed terms of the receivables concerned. Cash and short term deposits Cash and short term deposits comprise cash on hand, deposits with banks, other short term, highly liquid investments with original maturities of three months or less, net of bank overdrafts. Interest bearing borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost with any difference between the amount initially recognised and the redemption value being recognised in the income statement over the period of the borrowings using the effective interest rate method. Trade and other payables Trade and other payables are non-interest bearing and are recognised at invoiced amount. Derivative financial instruments The Company enters into derivative transactions such as interest rate swaps in order to manage the risks arising from its activities as described in more detail in the Risk Management section on page 30, the Financial Review on pages 26 to 29 and in note 19 of the Group accounts. Derivatives are initially recorded at fair value and are remeasured to fair value as calculated by the counterparties based on market prices at subsequent balance sheet dates. The Company does not apply hedge accounting to its derivative financial instruments and hence any change in the fair value of such derivatives is recognised immediately in the income statement as a finance cost. (vii) Pensions The obligations of defined benefit pension schemes, representing benefits accruing to employees, are measured at discounted present value while scheme assets are measured at their fair value. The discount rate used is the yield on AA credit rated corporate bonds that have maturity dates approximating to the terms of the Company’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method.

Annual Report and Accounts 2008 73 Notes to the Company Accounts continued

A Accounting policies continued The operating and financing costs of such plans are recognised separately in the profit and loss account; service costs are spread systematically over the working lives of the employees concerned and financing costs are recognised in the periods in which they arise. Actuarial gains and losses arising from either experience differing from previous actuarial assumptions or changes to those assumptions are recognised immediately in equity. Contributions to defined contribution schemes are expensed as incurred. (viii) Share and share based remuneration The cost of equity settled transactions with employees and Directors is measured by reference to the fair value at the date at which they are granted and is recognised in the profit and loss account as an expense over the vesting period, which ends on the date on which the individuals concerned become fully entitled to the award. The charge is reversed if it appears likely that the performance criteria will not be met. The Company has used a stochastic option valuation model in calculating the fair value of share options awarded. (ix) Plant and equipment Plant and equipment comprise computers, motor vehicles, furniture, fixtures and fittings and improvements to Company offices. These assets are stated at cost less accumulated depreciation and accumulated impairment and are depreciated on a straight-line basis over their estimated useful lives. Estimated useful lives are computers – three years; motor vehicles – four years; furniture – 10 years; fixtures and fittings – 10 years and improvements to Company offices – 10 years.

B Profit and loss The Company has not presented its own profit and loss account as permitted by Section 230 of the Companies Act 1985. The loss for the year attributable to shareholders dealt with in the accounts of the Company was £275.7m (2007: profit of £48.5m).

C Cash flow The Company has taken advantage of the exemption available to it and has not prepared a statement of cash flows.

D Investment properties 2008 2007 £m £m Opening balance 61.7 61.6 (Deficit)/surplus on valuation (18.9) 0.1 Closing balance 42.8 61.7 The investment property was externally valued as at 31 December 2008 by King Sturge in accordance with the Appraisal and Valuation Standards of RICS on the basis of market value. Market value represents the figure that would appear in a hypothetical contract of sale between a willing buyer and a willing seller. Market value is estimated without regard to costs of sale. King Sturge is an accredited independent valuer and an industry specialist in valuing this type of investment property. The historical cost of the property at 31 December 2008 was £39.0m (2007: £39.0m). Long leasehold properties where the lease has more than 150 years to expiry included in the above analysis, amounted to £42.8m (2007: £61.7m). Investment property currently being redeveloped at 31 December 2008, included above, amounted to £nil (2007: £nil).

E Plant and equipment Other fixed assets comprise computers, motor vehicles, furniture, fixtures and fittings and improvements to Company offices. Movements to cost and depreciated book value are set out in note 13 of the Group accounts.

F Investments in subsidiary undertakings Shares Loans Total £m £m £m Cost Opening balance 1,325.8 348.4 1,674.2 Additions 67.0 – 67.0 Loans repaid in the year – (99.7) (99.7) Closing balance 1,392.8 248.7 1,641.5 Accumulated impairment losses Opening balance – – – Impairment losses for the year (82.2) (38.5) (120.7) Closing balance (82.2) (38.5) (120.7) Net carrying amount At end of year 1,310.6 210.2 1,520.8 At start of year 1,325.8 348.4 1,674.2

The names and details of the Company’s principal subsidiary undertakings are set out on page 78.

74 www.brixton.plc.uk

G Trade and other receivables 2008 2007 £m £m Current assets Rent and sundry receivables 0.3 0.2 Prepayments and accrued income 6.2 4.8 Total trade and other receivables 6.5 5.0

H Trade and other payables 2008 2007 £m £m Current liabilities Accruals and rent in advance 8.1 10.2 Other payables 3.0 5.2 Other taxes 4.9 1.5 16.0 16.9

I Borrowings Details of the Company’s borrowings are as given for the consolidated Group in note 18 to the Group accounts.

J Derivative financial instruments Details of the Company’s derivatives are as given for the consolidated Group in note 19 to the Group accounts.

K Fair value of financial assets and liabilities as at 31 December 2008 2008 2008 2007 2007 2007 Fair value Fair value Book value Fair value adjustment Book value Fair value adjustment £m £m £m £m £m £m Financial assets Cash and short term deposits 13.6 13.6 – 4.8 4.8 – Trade and other receivables 6.5 6.5 – 5.0 5.0 – Total financial assets 20.1 20.1 – 9.8 9.8 – Financial liabilities 6% Bond 2010 (274.6) (256.9) 17.7 (274.4) (277.8) (3.4) 5.25% Bond 2015 (144.4) (103.6) 40.8 (149.3) (140.8) 8.5 6% Bond 2019 (209.7) (136.0) 73.7 (209.7) (201.3) 8.4 Sterling bank loans and overdrafts (247.3) (247.3) – (177.0) (177.0) – (876.0) (743.8) 132.2 (810.4) (796.9) 13.5 Interest rate derivatives (173.2) (173.2) – (34.9) (34.9) – Trade and other payables (16.0) (16.0) – (16.9) (16.9) – Total financial liabilities (1,065.2) (933.0) 132.2 (862.2) (848.7) 13.5 Total net financial liabilities (1,045.1) (912.9) 132.2 (852.4) (838.9) 13.5

Fair values have been calculated by using market values at the balance sheet date. The Company’s only obligation is to pay interest and repay its bonds and loans at par value on the maturity dates.

L Share capital and share premium account Details of the Company’s authorised and issued share capital and share premium account are laid out in notes 22 and 23 to the Group accounts.

Annual Report and Accounts 2008 75 Notes to the Company Accounts continued

M Retained earnings and other reserves Capital Realised redemption Revaluation capital Retained reserve reserve reserve (loss)/earnings Total £m £m £m £m £m Balance at 1 January 2008 0.1 22.7 525.9 97.3 646.0 Loss for the year attributable to equity shareholders – – – (275.7) (275.7) Dividends paid – – – (50.2) (50.2) Transfer from share premium account – – – 60.9 60.9 Deficit on revaluation of properties – (18.9) – – (18.9) Employee share based remuneration ––– 1.21.2 Actuarial loss on defined benefit pension scheme – – – (8.4) (8.4) Balance at 31 December 2008 0.1 3.8 525.9 (174.9) 354.9

N Share based payments Details of the Company’s share based payments granted to Directors and employees are as laid out in note 30 to the Group accounts.

O Net retirement benefit obligation Details of the Company’s net retirement benefit obligation are as disclosed in note 31 to the Group accounts. On 1 January 2007 the ‘Industrious Scheme’ was transferred from a subsidiary of the Company to Brixton plc.

76 www.brixton.plc.uk Ten Year Record

UK GAAP IFRS 1999 2000 2001 2002 2003 2004 2004 2005 2006 2007 2008 £m £m £m £m £m £m £m £m £m £m £m Group balance sheet Investment properties and investment properties in the course of construction 1,142 1,447 1,456 1,469 1,469 1,552 1,556 2,018 1,853 2,185 1,605 Investment partnerships 79 87 61 58 47 86 86 120 148 145 75 Ordinary shareholders’ funds 683 803 765744 755 960 936 1,133 1,409 1,433 608 Adjusted shareholders’ funds# – – 810791 802 1,010 1,045 1,304 1,442 1,474 787

Group revenue account Net rental income 71.5 78.7 86.3 86.0 87.0 84.2 84.7 98.1 79.0 72.5 77.4 Investment profit 40.5 40.8 41.1 42.7 42.6 40.2 41.1 43.8 47.6 46.6 42.5 Gain/(loss) arising on sale of properties and subsidiary undertakings – 3.9 (2.4) (0.3) 2.8 14.8 14.8 12.7 (6.3) (0.3) 0.1 Revaluation gain/(deficit) including share of joint ventures – – – – – – 120.9 278.5 231.4 16.8 (673.4) Change in fair value of derivative financial instruments including share of joint ventures – – – – – – – (4.4) (10.4) (10.9) (138.5) Exceptional items – – – (4.4) (0.7) (1.5) (1.5) (41.7) (51.2) – 0.5 Profit/(loss) before taxation 40.5 44.7 38.7 38.0 44.7 53.5 175.3 288.9 205.1 58.2 (768.8) Ordinary dividends 24.3 25.0 25.8 26.6 27.3 32.7 29.1 30.9 31.8 33.0 50.2 Earnings/(loss) per share 14.8p 16.0p 11.5p 12.9p 16.0p 18.3p 56.1p 86.8p 110.8p 22.1p (283.0)p Adjusted earnings per share* 15.0p 14.6p 14.9p 15.3p 15.0p 14.5p 14.7p 15.8p 15.1p 17.2p 15.7p Dividends per share 10.0p 10.3p 10.6p 10.9p 11.2p 11.5p 11.5p 11.8p 12.2p 13.6p 4.9p Net asset value per share 282p 330p 315p 305p 310p 357p 348p 421p 522p 529p 224p Adjusted net asset value per share# – – 333p325p 329p 376p 388p 484p 534p 545p 290p

*Adjusted earnings per share exclude net (loss)/profit on investment properties and investment properties in the course of construction, the change in fair value of derivative financial instruments, exceptional items, all net of attributable taxation and deferred tax. #Adjusted ordinary shareholders’ funds and adjusted net asset value per share exclude the recognised fair value of Group and joint venture derivatives and the deferred tax provision on investment properties and investment properties in the course of construction.

Annual Report and Accounts 2008 77 Principal Subsidiary Undertakings

All principal subsidiary and joint venture undertakings are engaged in property investment, development or investment holding. Unless otherwise stated, the undertakings are 100% owned subsidiaries of the Group and Company. As permitted by Section 231 of the Companies Act 1985, a complete listing of all the Group’s undertakings has not been provided. A complete list of the Group’s undertakings will be filed with the Annual Return. Group undertakings are incorporated/registered and operating in the following countries:

England B-Serv Ltd * Brixton (Acton Industrial Park) 1 Ltd * Brixton (Enfield, Great Cambridge Industrial Estate) 1 Ltd * Brixton (Feltham Corporate Centre) 1 Ltd * Brixton (Gatwick Distribution Centre) 1 Ltd * Brixton (Great Western, Southall) 1 Ltd * Brixton Greenford Park Ltd * Brixton (Hatton Cross) 1 Ltd * Brixton (Heathrow Estate) Ltd * Brixton (Heathrow Gateway, Feltham) Ltd * Brixton (Heathrow International Trading Estate) Ltd * Brixton Investments Ltd * Brixton Investments (Hemel Hempstead) Ltd * Brixton (Metropolitan Park) 1 Ltd * Brixton Northfields (Wembley 1) Ltd Brixton (Origin) Ltd * Brixton (Poyle 14) Ltd * Brixton Premier Park Ltd * Brixton (Radlett) Ltd * Brixton (Rockware Avenue, Greenford) Ltd * Brixton (Space Waye) 1 Ltd * Brixton (Victoria Industrial Estate) 1 Ltd * Brixton (West Cross) Ltd * Brixton (Westway Estate) 1 Ltd *

Jersey Brixton (Jersey) Ltd * *Undertakings held directly by the Company

78 www.brixton.plc.uk Shareholder Information

Analysis of Ordinary shareholders Holdings % Shares % Bank or Nominees 860 33.73 259,537,39095.53 Individuals 1,548 60.70 8,001,160 2.95 Other Company 111 4.35 3,517,972 1.30 Investment Trust 14 0.55 77,514 0.03 Other Corporate Body 11 0.43 499,538 0.18 Insurance Company 4 0.16 25,762 0.01 Pension Trust 2 0.08 10,001 0.00 Total 2,550 100.00 271,669,337 100.00

No. of No. of Range Shareholders % Shares % 1-1000 830 32.55 419,781 0.15 1001-10000 1,220 47.84 4,202,6811.55 10001-100000 309 12.12 9,971,6953.67 100001-1000000 153 6.00 51,258,94318.87 1000001 + 38 1.49 205,816,237 75.76 Total 2,550 100.00 271,669,337 100.00

Registrars and shareholder administration Enquiries relating to shareholdings in the Company and notification of change of name or address should be sent to the Company’s registrars, Computershare Investor Services PLC, PO Box 82, The Pavilions, Bridgwater Road, Bristol BS99 7NH (tel: 0870 889 3256). Copies of this report will be sent to shareholders and will also be available on the Company’s website (www.brixton.plc.uk) or from the registered office of the Company, 50 Berkeley Street, London W1J 8BX (tel: 020 7399 4500). Shareholders who receive more than one copy of this Report may have more than one account in their name on the Company’s register of members. Any shareholder wishing to amalgamate their holdings should write to the Company’s registrars giving details of the accounts concerned and instructions on how they should be amalgamated.

Payment of dividends to mandated accounts Shareholders who do not currently have their dividends paid direct to a bank or building society account and who wish to do so should complete a mandate instruction available from the Company’s registrars. Under this arrangement, tax vouchers are sent to the shareholder’s registered address unless the shareholder requests otherwise.

Low-cost sharedealing service The Company has arranged for Computershare Investor Services PLC to provide investors with a simple low-cost method of buying and selling its shares. Full details are available from Computershare Investor Services PLC (tel: 0870 703 0084) or by visiting their website (www.computershare.com/dealing/uk). Computershare Investor Services PLC is authorised and regulated by the Financial Services Authority.

Annual Report and Accounts 2008 79 Advisers

Auditors Solicitors Ernst & Young LLP Allen & Overy LLP Registered Auditor One Bishops Square 1 More London Place London E1 6AO London SE1 2AF Clifford Chance LLP 10 Upper Bank Street Bankers Canary Wharf HSBC Bank PLC London E14 5JJ 31 Holborn London EC1N 2HR Edwards Duthie 9/15 York Road National Westminster Bank PLC Ilford 1 Hatton Garden Essex IG1 3AD London EC1P 1DU Isadore Goldman Financial advisers 12 Bridewell Place Citigroup London EC4V 6AP 33 Canada Square Olswang Canary Wharf 90 High Holborn London E14 5LB London WC1V 6XX Nomura International plc S J Berwin LLP 25 Bank Street 10 Queen Street Place Canary Wharf London EC4R 1BE London E14 5LS Stockbrokers Registrars Citigroup Computershare Investor Services PLC 33 Canada Square PO Box 82 Canary Wharf The Pavilions London E14 5LB Bridgwater Road Bristol BS99 7NH Nomura International plc 25 Bank Street

Canary Wharf London E14 5LS

Valuers CB Richard Ellis St Martins Court 10 Paternoster Row London EC4M 7HP King Sturge 30 Warwick Street London W1B 5NH

80 www.brixton.plc.uk Glossary of Terms

Adjusted earnings per share (‘EPS’) Earnings per share based on investment profit. Adjusted net asset value (‘NAV’) Net asset value per share adjusted to add back deferred tax on investment properties per share and the fair value of derivative financial instruments. Dividend cover Adjusted EPS divided by dividend per share. Earnings per share Profit after taxation divided by the average number of shares in issue during the year. Enterprise value The sum of the market capitalisation of a company and the market value of its debt. Equivalent yield The weighted average yield based on the initial yield and the reversionary yield. Estimated Rental Value (‘ERV’) The estimated market rental value of space ascribed by the external valuers. Gearing Net debt expressed as a percentage of shareholders’ funds. Initial yield/running yield The initial return derived from a property calculated by dividing the current rent by the capital value. The net initial yield includes the value of undeveloped sites, unlet developments and portfolio vacancies. No income for these elements is applied in this calculation or allowed if there are rent free periods. Normal purchasers’ costs are also allowed for. Interest cover Net rental income divided by net interest expense before capitalised interest. (income cover) Interest rate swap An agreement with another party to exchange an interest rate obligation for a predetermined period of time. Investment profit/underlying profit Profit before tax excluding net profit on investment properties, changes in fair value of before tax derivative financial instruments and exceptional items. It is the recurring measure of profitability for a UK REIT and is based on our rental income activities. IPD Investment Property Databank. A global information business supplying independent market indices and portfolio benchmarks to the property industry. Net asset value per share Shareholders’ funds divided by the number of shares in issue at the year end. Over-rented Space that is let at a rent above its ERV. Passing rent The annual contracted rental income receivable which may be more or less than the ERV (see over-rented and reversionary). Pre-let A lease signed with a tenant prior to commencement of construction of a development. Real Estate Investment Trust (‘REIT’) A quoted company that owns income producing commercial or residential property and which has elected for REIT status under UK tax legislation. Profits and capital gains from its qualifying property rental business are exempt from tax if certain conditions are satisfied e.g. at least 75% of profits are derived from the qualifying property rental business and 90% of those profits, after deductions, are distributed to shareholders. Return on equity Share price movement between the ends of the current and previous years plus the dividend per share declared for the current year divided by the share price at the end of the previous year. Reversionary or under-rented Space where passing rent is below the ERV. Reversionary yield The anticipated yield once the passing rent reaches the ERV, calculated by dividing the ERV by the capital value. ROEV Return on Enterprise Value: operating profit (including share of joint ventures’ operating profit) divided by the Enterprise Value. Total return on property Net rental income and capital growth expressed as a percentage of opening book value adjusted for capital expenditure during the year. Total shareholder return Adjusted NAV per share movement between the ends of the current and previous years plus the dividend per share declared for the current year divided by the adjusted NAV per share at the end of the previous year. WACC Weighted Average Cost of Capital: the weighted average of the costs of equity and debt capital that finance a company.

2008 s unt Acco and t r o Rep nual An

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