The group’s significant accounting policies are stated in note 2. Not all of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates. The following is intended to provide an understanding of the policies that management consider critical because of the level of complexity, judgment or estimation involved in their application and their impact on the consolidated financial statements. These judgments involve assumptions or estimates in respect of future events. Actual results may differ from these estimates.

Trading properties

Trading properties are carried at the lower of cost and net realisable value. The latter is assessed by the group having regards to suitable external advice and knowledge of recent comparable transactions.

Trade receivables

The group is required to judge when there is sufficient objective evidence to require the impairment of individual trade receivables. It does this on the basis of the age of the relevant receivables, external evidence of the credit status of the debtor entity and the status of any disputed amounts.

Exceptional items

Exceptional items are defined as those items which are sufficiently material by either their size or nature as to require separate disclosure. Deciding which items meet this definition requires the group to exercise its judgment.

Estimated compulsory purchase proceeds

During 2009, compulsory purchase orders issued under the Crosstail Act 2008 were received in relation to three of the group’s investment properties. The proceeds recognised in respect of these properties are the directors’ best estimates of the amounts to be received.

Investment property valuation

The group uses the valuation performed by its independent valuers as the fair value of its investment properties. The valuation is based upon assumptions including future rental income, anticipated maintenance costs, future development costs and the appropriate discount rate. The valuers also make reference to market evidence of transaction prices for similar properties.

Outstanding rent reviews

Where the rent review date has passed, and the revised annual rent has not been agreed, rent is accrued from the date of the rent review based upon an estimated annual rent. The estimate is derived from knowledge of market rents for comparable properties.

Compliance with the real estate investment trust taxation regime

On 1st July 2007 the group converted to a REIT. In order to achieve and retain REIT status, several entrance tests had to be met and certain ongoing criteria must be maintained. The main criteria are as follows:

• at the start of each accounting period, the assets of the tax exempt business must be at least 75% of the total value of the group’s assets;
• at least 75% of the group’s total profits must arise from the tax exempt business; and
• at least 90% of the tax exempt business must be distributed.

The directors intend that the group should continue as a REIT for the foreseeable future, with the result that deferred tax is no longer recognised on temporary differences relating to the property rental business which is within the REIT structure.