1. Accounting Policies (continued)

maturing private placement loan notes of £11.6m in August 2023, annual payments in March of £4m on a long-term loan and the receipt of £50m in September 2024 from the delayed drawdown of private placements undertaken in 2022.

The severe but plausible downside scenario modelled demonstrates that over the period to 31 December 2024 the group has significant liquidity to fund its ongoing operations and is operating with ample headroom above its debt financing covenants without the need to rely on raising new financing. Asset values would have to fall by 38% from 2022 closing values when the covenant is measured as at 31 December 2023 and by 33% from closing 2022 values over two years as at 31 December 2024 to breach the gearing covenant. To breach the interest cover covenant, operating profit before capital items would have to fall by 50% compared to budget in 2023 and by 50% compared to the forecast for 2024.

Based on these considerations, our experience of the past impact of economic downturns on the business and the directors’ knowledge of Cadogan’s property portfolio and the market in which we operate, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and financial statements.

Basis of consolidation

The Group financial statements consolidate the financial statements of Cadogan Group Limited and all its subsidiary undertakings drawn up to 31 December each year. No income statement is presented for Cadogan Group Limited as permitted by section 408 of the Companies Act 2006.

Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control and continue to be consolidated until the date that such control ceases. Control comprises the power to govern the financial and operating policies of the investee to obtain benefits from its activities.

(C) JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenues and expenses during the year. However, the nature of estimation means that actual outcomes could differ from those estimates. The following judgement (apart from those involving estimates) has had the most significant effect on amounts recognised in the financial statements:

Operating lease commitments

The Group has entered into commercial property leases as a lessor on its investment property portfolio. The classification of such leases as operating or finance lease requires the Group to determine, based on an evaluation of the terms and conditions of the arrangements, whether it retains the significant risks and rewards of ownership of these assets and accordingly whether the lease requires an asset and liability to be recognised in the statement of financial position.

(D) ESTIMATES AND ASSUMPTIONS

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below.

The Group based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

Revaluation of investment properties

The Group carries its investment property at fair value, with changes in fair value being recognised in the income statement. The Group engaged independent valuation specialists to determine fair value at 31 December 2022. The valuers used market value, in accordance with the Appraisal of Valuation Manual of the Royal Institution of Chartered Surveyors. The determined fair value of the investment property is most sensitive to the estimated yield and estimated rental values. Investment properties under construction are measured based on estimates prepared by independent real estate valuation experts. The key assumptions used to determine the fair value of investment property are further explained in note 11.

Estimation of net realisable value for properties under development

Development property is stated at the lower of cost and net realisable value (“NRV”).

NRV for completed development property is assessed by reference to market conditions and prices existing at the reporting date and is determined by the Group, based on comparable transactions identified by the Group for properties in the same geographical market serving the same real estate segment.

NRV in respect of development property under construction is assessed with reference to market prices at the reporting date for similar completed property, less estimated costs to complete construction and an