The UK residential business (UKR) primarily consists of properties subject to a regulated tenancy, the whole portfolio producing a gross rental yield of 4.1%. These are valued at 75% of vacant possession value in London and at 72.5% of vacant possession value in other locations. The portfolio is geographically widespread but with a strong concentration in London and the South East, where 72% by value and 59% by volume of these properties are situated.

Net rental income in the year increased significantly to £38.4m from last year's figure of £28.5m, assisted by the strategic portfolio acquisitions during the year of the HI Tricomm and Grainger GenInvest LLPs. (Prior to the date of acquisition of the remaining 50% of Grainger GenInvest our share of its results are reported in Fund Management and Residential Investments business below). The division also generated £0.5m of other income.

During the year we generated normal sales of £88.5m from this portfolio (2010: £81.0m) producing a profit of £37.8m (2010: £37.4m). The margins that we achieved on normal sales were 42.8% (2009: 46.2%). This year we conducted a regional review of our portfolios in view of future expected returns. This resulted in a growth of 'investment sales' (those with a tenant in place) which gave £56.6m of sales with a profit of £14.6m (2010: sales £7.5m and profit £2.0m). We also made other miscellaneous sales of £7.3m with a profit of £2.6m. Last year, including a larger amount of agricultural sales, the miscellaneous sales figure was £32.4m with profit of £8.2m.

Year end valuations were up 3.8% from the previous September compared to decreases in the Nationwide and Halifax Housing Indices of 0.3% and 2.3% respectively. This clearly illustrates the specialised nature of our property assets and the value we add to them through expert asset and property management. The carrying values were also again supported by the fact that completed normal sales were at values, on average, 4.6% above September 2010 valuations. Refurbishment works prior to sale can improve returns and when these are taken into account we have sold at 8.6% above September 2010 valuations. The liquidity of the properties was also demonstrated by the time taken for sale, measured from the date of vacancy to receipt of cash, being maintained at 99 days.

Other than the two specific strategic portfolios referred to above we were cautious buyers in the UK residential business in 2011 acquiring 44 units for £7.5m (2010: 308 units for £55.7m).

Given current economic conditions our key criteria for purchases continue to be:

• Good prospects for long term capital appreciation. This is reflected by the geographic spread of our purchases this year, with some 72% by value being in London and the South East.
• Good levels of discounts and/ or high yields.
• Opportunities for redevelopment or refurbishment potential.

Sales proceeds in 2011; including CHARM, amounted to £27.6m, generating a profit of £10.0m (2010: Sales £29.1m; profit £10.2m). Certain assets in the portfolio also produce a net rental income and this amounted to £3.8m in the year (2010: £4.1m). Other income of £0.5m comprises management fees from the Sovereign Reversions joint venture.

The assets in this portfolio are more geographically widespread than the UK residential portfolios and do not benefit from the bias they have towards London and the South East. This is reflected in the valuation results for the year, which showed a small increase of 0.1% at investment value level.

We bought £14.0m of home reversion assets in the year. We also, early in the year and as noted in last year's report and accounts, sold 50% of our equity in Sovereign to MREF II Equity Release Limited, a wholly owned subsidiary of Moorfield Real Estate Fund II ('Moorfield'), and entered into a 50:50 joint venture agreement under which Moorfield paid 50% of the acquisition and certain integration costs and Grainger receives management fees.

Profit from our Fund Management and Residential Investments business amounted to £3.6m (2010: profit £2.7m) arising from gross fee income of £6.3m from asset and property management fees from G:res 1 ('G:res'), G:RAMP and Grainger Invest, less allocated overheads. At the year end, and following our acquisition in the year of the remaining equity in the two Grainger GenInvest LLP's, the remaining equity investment in this division is our 21.96% stake in G:res which is a market rented fund of 2,031 units.

G:res is subject to a full external valuation in December and June of each year and showed an increase in market values of 5.2% for the twelve months ended 30 June 2011, producing an increase in net asset value in the fund of 13.6%.

Operational results at G:res provide a continuing insight into the current UK residential rental market. Rental increases on renewals amounted to 5.2% for the quarter ended September 2011 and increases on new lets for the same period were 11.4%. Both results indicate a continued strengthening of the rental market. The investors in this fund voted to extend its duration by two years to 2013 and its controlled liquidation is under way as planned.

Sales in this division at £22.1m were similar to last year's of £18.7m. The profits derived from this year's sales were significantly increased at £15.1m (2010: £2.1m). The profits primarily derive from two transactions in central London which both yielded profits of c.£7m, one of which was an overage receipt which had no associated cost.

During the year the business was appointed as development partner for the Aldershot Urban Extension. This will lead to further fee generation from 2012.

The German business delivered net rents of €25.3m (2010: €24.7m) at an annual net yield of 4.6% (gross yield of 7.03%) in a largely stable price environment. Property assets were written down at year end by €1.9m (0.4%). Our portfolio comprises 6,397 residential units and 321 commercial units located predominantly in the South and South-West of the country.

We have undertaken a programme of capital recycling to improve the overall quality of the asset base and enhance cash flow. As part of this on-going process we sold investment assets for €24.3m generating a profit on sale of €1.1m in 2011 and have identified further assets to be sold in 2012.