Chief Executive's Review

St. Modwen Properties Chief Executive| Bill Oliver

We have had a very successful year in which the application of the experience, skills and expertise in our business has resulted in almost all areas of the business performing well, despite the challenges posed by the market conditions.

Through our intensive and active asset management we have improved rental income streams, added value to existing assets by undertaking enhancement works and, through management of the planning process, we have continued to be active in development. This has included creating a strong pipeline of opportunities for future years, and successfully continuing to recycle our assets.

As a result of these efforts, profits before tax are up 34%, we have strong visibility on a pipeline of healthy opportunities for future years and we are strongly placed to take advantage of those prospects.

Strategy Overview

As a business we have always sought to add significant value to the assets that we hold. We have a long and successful track record which demonstrates our ability to achieve this and we are very pleased that 2011 has been another year in which we have generated significant value for our shareholders.

We acquire assets where we can see future development opportunities. Consequently, we are constantly working to add value to these assets through remediation, development, asset management or through our careful management of the planning process. Our regionally based teams assess each asset and evolve the strategy to suit local market conditions; so, even in difficult markets, we are able to drive good performance from our assets.

Our portfolio of income producing assets (each of which also has development potential) substantially covers our business funding and running costs, while we additionally invest in commercial and residential assets that can deliver significant long-term returns.

As a result of this strategy, we hold a portfolio from which we are confident we can create future value and, while we are not able to accurately predict the effects of the current Eurozone crisis on future property values, our track record has shown that we can continue to do this even in difficult markets.

Market Overview

The wider economic environment remains challenging. The Eurozone macroeconomic issues in the second half of 2011 have restricted confidence in the UK economy and reduced the funding appetite of UK banks. Consequently the transaction levels for most property asset types remain limited.

Despite these negatives, good opportunities do exist. The strength of our business, our regional organisation, our land bank and our funding structure means that we are very much open for business with both the capacity and the will to develop. Many of our previous competitors have dropped away over recent years and so we are able to secure an increased share of a reduced market. Furthermore, the challenging market conditions also affect our suppliers and contractors, meaning that we can pass on cost savings to our customers while maintaining our own profitability.

The UK planning environment continues to evolve with the localism agenda counteracting the need for simplification of the planning system. While some unnecessary complexities look set to be removed, it remains likely that new complications will emerge. One of the Company's key strengths is its ability to guide schemes effectively through the planning process, managing the many stakeholders and their interests as well as overcoming any legal complications.

These skills, and the resources necessary to deploy them, remain scarce, particularly away from London and we are confident that this ensures we have a sustainable market advantage in progressing development across the UK.

The UK house building market is much reduced from its peak levels, but remains active. Well located and ready-to-use land remains in demand and realises sensible values. While mortgage availability is reduced, the combined factors of the long-term housing shortage in the UK, the more vibrant South East of England economy and Government initiatives to support the housing market mean that there remains a good market for new homes.

Through our agreements with Persimmon and our own St. Modwen Homes developments we are able to capitalise on this demand, with all of our sites generating house sales at rates and prices exceeding our previous expectations.

BILL OLIVER
Chief Executive

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