RNS Number : 9291U
Great Portland Estates PLC
21 May 2008

21 May 2008

Preliminary Announcement of Results

The Directors of Great Portland Estates plc, announce the results for the Group for the year ended 31 March 2008.



·          Adjusted net assets per share2 down 2.0% to 582p
·          Total property return of 2.6%, significantly outperforming the IPD central London benchmark by 7.4%
·          Portfolio value1 of £1,635.9 million, down 0.2% or £2.7 million on a like-for-like basis
·          Total rental1 and joint venture fee income up 33.1% to £72.0 million
·          Adjusted profit before tax2 up 36.8% to £23.8 million
·          After revaluation deficit, reported loss before tax of £3.0 million (2007: £326.0 million profit)
·          Adjusted earnings per share2 up 23.5% to 12.6p
·          Total dividend per share up 5.3% to 11.9p
·          Continued capital recycling with £354.6 million of acquisitions and £336.0 million of sales
·          Two new joint ventures established with £675 million of assets providing a pipeline of opportunity and derisking the development portfolio
·          £350 million property swap with The Crown Estate unlocking both immediate value and future repositioning potential
·          £25 million of new leases signed (Group share £19.8 million) including the pre-letting of the office space at the Group’s 90,000 sq.ft. development at 60 Great Portland Street, W1
·          Significant liquidity with over £280 million of cash and committed undrawn facilities

    1     Includes share of joint ventures

    2     EPRA adjustments - see note 7

Toby Courtauld, Chief Executive, said:

"With capital market turbulence continuing, property valuations are expected to come under continued pressure during 2008. Although there exists a considerable quantity of equity available to acquire real estate, limited debt capital and a lack of confidence may restrict its deployment.

Against this backdrop of investment market uncertainty, the dynamics of our principal occupational market, the West End, present a more favourably balanced picture with the supply of new office stock remaining restricted. So long as the UK economy avoids a significant contraction, the key variable, the demand for space, although expected to slow from its recent high levels, should remain around the long-term average.

We are in an enviably strong position to withstand short-term market challenges:


·          more than 80% of our properties are in the undersupplied core of the West End;
·          our current rents are substantially lower than market levels providing opportunities for growth;
·          the current development programme has been derisked whilst the pipeline of opportunities is both long and strong. The next phase has flexible start dates and an income return in the interim; and
·          Group financial leverage is low and liquidity high allowing us to respond quickly to emerging investment opportunities.

We remain confident, therefore, that our focused operating approach and sector specialism will underpin the long-term prospects of the Group."


Great Portland Estates plc                                                                               44 (0) 20 7647 3000

Toby Courtauld, Chief Executive

Timon Drakesmith, Finance Director

Finsbury Group                                                                                                  44 (0) 20 7251 3801

James Murgatroyd

Gordon Simpson

The results presentation will be broadcast live at 9.30am today on http://www.gpe.co.uk/investors/presentations.

Also an interview with Toby Courtauld, Chief Executive and Timon Drakesmith, Finance Director, is available in video, audio and text on http://www.gpe.co.uk/investors/presentations and http://www.cantos.com.

To view the accompanying Appendices, please click on the link  



Chairman's statement

The year under review has proved to be a particularly testing one, with most property companies and funds experiencing a sharp fall in capital values. Whilst we could not expect to be immune from the impact of rising interest rates and the credit crunch, it is with a degree of satisfaction that I report briefly on our own figures. Both adjusted earnings per share at 12.6 pence and the proposed final dividend of 8.0 pence show healthy advances, whilst the triple net asset value per share of 590 pence is only fractionally down, bearing testimony to the success of our strategy (implemented at, and honed since, the beginning of the decade) of concentrating on central London; we have now outperformed our peer group and the relevant indices for five consecutive years.

Activity has remained at a high level - opportune sales and important lettings have been effected, several subtle transactions have been completed, particularly in respect of our growing joint ventures, whereby our West End holdings have been cemented and enhanced with a simultaneous reduction in the exposure to our major Southwark development. In addition, notwithstanding the current difficulties, new credit facilities have been put in place, providing further firepower for the future. 

Looking ahead, I cannot get away from the conclusion that it has rarely been more difficult to read the runes. On the one hand, for the time being our core West End market appears to be holding up, on the other there is no question that a deep seated sense of fragility and uncertainty pervades and this is not going to disappear overnight. Some seasoned operators suspect that the current malaise is partly due to an all or nothing, almost a lemming-like it's now or never, attitude which has been taken for a couple of years by a few highly leveraged, possibly less experienced, investors. Not unnaturally, each generation believes that the previous one is out of time and that it has discovered the new paradigm. How often have we heard the cyclical comment - "it really is different this time"? It may be true once in a blue moon, but it is always vital to get back to fundamental principles and one can never overstress the importance of taking a long-term view of commercial property. Equally, from our own focused portfolio stance, I firmly believe that the Capital, a real tower of strength for the British economy, will not surrender its pre-eminent status as the European financial centre.

On 16 March 2009 Great Portland Estates, all being well, will have been listed on the London Stock Exchange for 50 years. By then I will have been a director of your Company for 40 of them and your Chairman for nearly a quarter of a century; that is why, not wishing to outstay my welcome, a while ago now I made up my mind that this golden anniversary represents the perfect date for me to retire. This is the last time, therefore, that I shall be penning my annual statement to shareholders and, by a happy coincidence and with quite extraordinarily good timing, in the past few months Great Portland has won three prestigious awards in the form of overall winner of The Property Accounts Awards, The Best Accounts in the FTSE 250 and Property Company of the Year. These are tremendous achievements and congratulations are due to all of our talented people. 

The one thing I can say with confidence about the future is that my successor, about whom we anticipate making an announcement later this year, will find Great Portland in excellent shape for whatever conditions emerge, and she or he will inherit a skilled and talented Board, with the young ones in the management team complemented by the greyer hairs of the non-executives. 

After such a lengthy career with one Company, I suppose that it's not unusual for me to be feeling somewhat emotional as I approach the moment when, in the words of the title of a 1960's Number One, it's all over now, so to speak, for me personally. Nevertheless, I shall resist the temptation to wallow in nostalgia and simply confine myself to taking this opportunity of expressing - and I'm sorry if, in the circumstances, it is impossible to name particular individuals - my enormous appreciation of the help, advice, support and fun so many colleagues and advisers have given me over such a long period. I am lucky that my time at Great Portland has produced more highs than lows, more laughter than tears, and it has been a rare and real privilege to have been involved with a great industry and a host of fascinating personalities. Above all, I am proud and honoured to have served you, the shareholders, and retained your trust, for 40 years. 

  Our market

Our market is accompanied by graphics (see Appendix 1)


London is our market. Throughout 2007, the Capital continued to consolidate its position as a global city, dominating the European finance and business services (F&BS) sector. For the eighteenth year in succession, it was voted Europe's number one city for business; it attracted more foreign direct investment than any other European country, providing the headquarters for one-third of the world's largest corporations, and generating around 20% of the UK's economic activity.

In part because of its world financial status, London has not been immune to the dramatic events in global capital markets, particularly since last summer. In the short term, although the extent of the impact on London's economy is difficult to gauge and will be influenced by the duration of the credit crunch and the policy response, we expect the demand for office space, particularly from the F&BS sector to moderate from last year's high levels. Longer term, we remain firm believers in the prospects for London's economy and its real estate markets.

Occupational markets

West End

For much of 2007, strong demand from a broad range of tenants across the West End sub-markets combined with constrained supply of new office space to keep the market balance favouring the landlord at only seven months supply at December (see chart 1, Appendix 1). Since then, take-up has slowed and availability has increased marginally to leave the year end balance slightly higher at nine months.

Tenant take up in the West End for the year to March 2008 was 5.4 million sq ft (2007: 5.8 million sq ft) whilst vacancy rates have risen marginally to 4.5% (2007: 4.3%). Prime rental values rose around 12.8% in the year to March 2008 (2007: 15%) with the rental range between "superprime" small suites in Mayfair and mid-market properties widening dramatically.

Looking forward, with limited new supply of offices coming on stream in the West End (see chart 2, Appendix 1) and the challenging planning environment acting as a drag on future supply, the direction of rents will be principally determined by the level of demand for space. We monitor closely the level of requirements from occupiers and the latest data suggests a reduction in demand from companies actively seeking office space of around 15% since last December's high point. We expect rental values for "superprime" units to be impacted by this slowdown more than the mid-market, where rents remain at more affordable levels.

The Group's valuers estimate the rental value of our West End office portfolio to be an average of £54 per sq ft in its current state, compared to its average passing rent of £38 per sq ft, providing reversionary potential of 42%. The significant discount this rent passing represents to prime West End rental values provides the Group with the opportunity to generate significant increases over time as we invest in our portfolio, repositioning properties from the IPD average rent line up towards the PMA prime rent line (see chart 3, Appendix 1). Interestingly, not only do average rents in the West End remain significantly lower than the small number of top rents paid (see Rental village map in Appendix 2), but they have continuously taken a smaller share of London businesses cost base (see chart 4, Appendix 1) implying a steady improvement in affordability over the past 35 years.

The West End retail market (comprising 24.8% of our West End portfolio by rent roll) has also performed solidly in the year with retail sales in central London up 7.2% in the year to March 2008 (2007: 11.8%). Footfall in the three main retail thoroughfares of Oxford StreetRegent Street and Bond Street, where over 65% of our retail portfolio is located, was up during the year. Demand from international retailers for these key shopping streets remains strong.

City and Southwark

The first quarter of the financial year saw continued growth of the financial services sector with significant tenant requirements for new offices in the City and its neighbouring markets. Major dislocations in the world's capital markets since July 2007 have affected employment and expansion plans of many businesses throughout the City. This dampening effect, combined with new potential supply from speculative development schemes, has started to shift market balance away from the landlord.

Take up in the City market for the year to March 2008 was 8.3 million sq ft (2007: 8.8 million sq ft) and vacancy rates have risen to 7.9% (2007: 7.5%). Prime office rental values increased by 4.4% over the same period although they reduced by 5.5% in the three months to March and are forecast to soften further this year. We remain concerned about the effects of reduced tenant requirements and new development supply on rental levels in the City market.

Investment markets in central London 

Central London real estate transaction volumes declined in the second half of the year due to the lower availability of debt capital and uncertainty over rental growth prospects leading to a lack of confidence by many market participants.

During the course of the year we predicted that rising yields in the wider global investment markets would have a negative impact on property valuations. This has proved to be the case as investors reappraised risk and sentiment deteriorated, particularly in the last six months of the financial year, putting upward pressure on investment yields.

Looking forward, investment market turbulence is forecast to continue, particularly for poorly located, secondary properties and where rental growth opportunities are limited.

In this environment the Group's portfolio of well located assets with low rents is well positioned.

Our business

Our business is accompanied by graphics (see Appendix 2)


The valuation of the Group's properties as at 31 March 2008, including both acquisitions made during the year and our share of gross assets in joint ventures, was £1,635.9 million. The valuation of the portfolio held throughout the year was £1,276.3 million, a decrease of £2.7 million or 0.2% on a like-for-like basis, net of capital expenditure. Positive valuation trends in the first half of the year reversed sharply in the third quarter as turmoil in the credit markets affected the real estate industry. The portfolio's first half growth of 8.0% contrasts with a second half decline of 7.5%. Acquisitions made during the year were valued at March 2008 at £359.6 million and fell in value by 1.7% net of capital expenditure and acquisition costs.

There were three main influences on the Group's valuation movement for the year:

The initial yield of the investment portfolio was 3.5% at March 2008 (2007: 3.4%) which rises to 4.4% when contracted pre-lets and leases currently in rent free arrangements are added back. The near-term reversionary yield of the portfolio including committed developments at March 2008 was 6.1% (2007: 5.2%). See chart in Appendix 2.

The North of Oxford Street portfolio was the best performing investment segment over the year increasing by 2.3% on like-for-like basis. City and Southwark was the worst performer as the valuers expressed concerns over the prospects for rental growth in the City. The joint venture properties fell in value by 2.0% compared to a 0.2% rise for the wholly owned portfolio over the year but outperformed the wholly owned portfolio during the second half partly due to the value created by The Crown Estate transaction in the Great Capital Partnership.

The Group delivered a total property return for the year of 2.6%, significantly outperforming the IPD central London benchmark of minus 4.5% for the fifth year running. Measured over a one, three and five year period, a key driver of our outperformance has been the active management of the "held" portfolio, where our repositioning in driving rental value improvements has helped unlock value and driven healthy rental growth.


The improvements we bring to our assets through innovative development and refurbishment is one of our core skills and has again helped generate higher levels of rental growth than the market. Throughout the period, our development business made good progress across all of its main activities:

Some examples of our achievements in these categories are set out below.

Today, the development pipeline encompasses 23 projects with a potential total area of 2.79 million sq ft representing a 79% increase over the current area and includes projects currently on site to prospects with possible start dates after 2015. The near-term programme alone has an estimated completed value of £604.9 million, equivalent to 56% of the existing portfolio. This value is lower than the March 2007 equivalent due to the transfer of a number of successfully completed and let projects to the investment portfolio.

The Group currently has minimal exposure to speculative development - with only three schemes on site costing an estimated £25.9 million to complete, or less than 2% of our existing portfolio. The remaining schemes within the near-term programme will be analysed carefully in the context of current market conditions before commencement to ensure that appropriate, risk weighted returns are available. Further details are set out in the table in Appendix 2.


The successful leasing of space has been one of the highlights of the year, with new tenants being secured for all the office space of over 340,000 sq ft of space at 180 Great Portland Street, 60 Great Portland Street, both W1 and 160 Tooley Street, SE1. 

The two Great Portland Street developments delivered an exceptional combined surplus of £67.1 million, or 80.2% on their total cost, partly because the lettings were at levels significantly higher than that expected by the Group's valuers. In September, we announced the pre-let of the entire office element at 60 Great Portland Street, W1 totalling 60,000 sq ft over the basement, ground and fifth floors on a 20 year lease, generating an initial rent of £3.5 million per annum after a 17 month rent free period. We are in discussions with potential retail tenants about the remaining showroom unit. The Tooley Street scheme, pre-sold last year, was entirely pre-let to London Borough of Southwark at an average rent of £38.50 per sq ft, crystallising an additional payment due to the Group on practical completion.



The construction programmes at schemes on Mortimer Street, W1 (125,000 sq ft), Foley Street, W1 (20,000 sq ft) and at Bermondsey Street, SE1 (47,000 sq ft) are proceeding according to plan. We achieved practical completion at 60 and 79/83 Great Portland Street, W1 in January, Met Wharf, E1 in April 2008 and we expect the Tooley Street site to complete by June 2008. Demolition is also complete at Blackfriars Road, SE1.

We have continued to employ procurement and project management techniques to control construction cost inflation and ensure project milestones are achieved.

Planning consents

We gained planning permission for the 136,000 sq ft redevelopment of our Wigmore Street, W1 holdings in February 2008. The City of London is currently reviewing our refurbishment proposals for Buchanan House, Holborn, EC1 which were submitted in March 2008. We anticipate submitting a planning application for the Fetter Lane, EC4 (140,000 sq ft) and Broadway, SW1 (85,000 sq ft) projects before the end of 2008.

Design and feasibility studies 

At the Hanover Square Estate, W1, we are working on a major mixed use scheme with Westminster City Council and Crossrail to facilitate a potential redevelopment which would lead to the creation of enhanced public amenities in the heart of the West End. The proposed Crossrail transport initiative gained Government support in the autumn and is moving through its legislative and funding phases. We are also advancing feasibility studies for possible schemes at various prime locations including Jermyn Street, SW1, Oxford Street, W1, Regent Street, W1, Portland Place, W1 and Great Portland Street, W1.

In designing and procuring our developments we aim to deliver buildings which will meet rapidly changing environmental legislation and resulting occupational market requirements.

Site acquisition and assembly

The year under review has seen numerous examples of acquisitions to augment existing holdings, enhancing our development prospects. These acquisitions will enhance our medium-term programme, providing first class growth opportunities from 2009 onwards. In addition, a recent swap transaction with The Crown Estate has improved the likelihood of several major refurbishment schemes coming forward by improving the flexibility of these buildings' headleases.

Joint ventures

Joint ventures in the context of the Group

It has been a year of significant expansion and major transactions for the JV business.

The JVs have facilitated good relative portfolio performance at Group level for the second half and brought in assets with repositioning, refurbishment and redevelopment potential. All the JVs are structured as 50:50 partnerships with the Group managing the property for an appropriate fee. Our JV partners are well regarded, long term, major owners of UK real estate who rely on our specialism in the central London markets.

Our JVs are increasingly material to the Group, making up 50% of property assets, 37% of net assets and 36% of rent roll at March 2008 (at March 2007: 24%, 16% and 13% respectively).

We believe that the JVs will continue to provide a competitive advantage to the Group as their portfolios are rich with rental growth opportunity and our partners are supportive in terms of capital, reputation and relationships.

Good performance 

On an overall basis, the JVs combined rental income grew by 289% to £21.8 million and adjusted profit before tax increased by 419% to £16.1 million due mainly to the investment in the Great Capital Partnership ("GCP"). On an underlying, like-for-like basis, rental income grew by 36% primarily due to leasing at 180 Great Portland Street, W1

Management fees payable to the Group by the joint ventures were up substantially to £5.8 million (2007: £1.6 million).

The portfolio movement for the joint ventures produced a reduction of 2.0%, as rental value growth and lease restructuring gains were outweighed by rising investment yields and up front acquisition costs.

Further information on JV financing and commitments are set out in "Our financial position".


Composition and activities of our JV business

The major change during the year was the formation of GCP in April 2007 which subsequently saw further investments in August and December. In early 2008, GCP announced a major property swap and lease restructuring with The Crown Estate and arranged a new £225 million non-recourse debt facility. Further details on these events are set out both in "Great Capital Partnership investments" and in "Our financial position" below.  

At Great Wigmore Partnership ("GWP") we have seen excellent results in leasing at the completed 180 Great Portland Street, W1 development, where the last office lease was signed at £67.50 per sq ft in January, some 38% ahead of the rental value of the building at the start of the letting campaign a year earlier. At the Wigmore Street Island site there has been good progress in working up a potential redevelopment of the offices through securing planning consent and aligning occupational leases to gain vacant possession. 

The two Great Victoria joint ventures, ("GVP1") and ("GVP2"), produced solid performance with encouraging lettings at the Mount Royal retail block in Oxford Street and the completion of the redevelopment at the former Liberty department store at 208/222 Regent Street, W1 where the retailer GAP, the last of the new lettings at the building, opened for trading in August.

Just before the year end, we set up The Great Ropemaker Partnership ("GRP"), a new 50:50 JV with BP Pension Fund, to own and potentially develop 240 Blackfriars Road, SE1. GRP acquired the site from the Group for an initial consideration of £20.5 million. In addition, £2.0 million is payable in enhanced fees if the site is redeveloped and a further £5.0 million in priority payments become due if various performance hurdles are met.

Capital recycling - investment management

This year has seen exceptional levels of investment activity across the Group with the equivalent of 45% of our starting portfolio either bought or sold. We have crystallised attractive returns and improved the Group's liquidity by selling £336.0 million of properties and bought £354.6 million of new assets with multiple opportunities to generate significant rental value growth. 

Great Capital Partnership investments 

In April 2007, we invested £233.4 million to create GCP, a new joint venture with Liberty International subsidiary Capital & Counties which started with a portfolio of 17 holdings across central London.

In August, GCP acquired a further five properties in four transactions at a cost of £159.6 million (£79.8 million our share) in Jermyn Street, SW1, Fetter Lane, EC4 and Regent Street, W1 all adjacent or near to existing holdings providing enhanced opportunities for asset repositioning. In December, GCP purchased a 29,500 sq ft holding fronting Broadwick Street, W1 for £18.2 million (£9.1 million our share) bringing the Group's total property investment in GCP to £322.3 million for the year.

In February, GCP completed a swap transaction with The Crown Estate involving 580,000 sq ft of property valued at £358 million across the West End. GCP swapped three of its properties worth £61 million in exchange for three new leasehold properties, one freehold and more favourable terms on a number of its other leaseholds generating an immediate value uplift of £81 million. In addition to unlocking value instantly, GCP now has a number of future repositioning opportunities through the improved head lease terms negotiated. There are three elements to the deal: 

Other acquisitions

In our wholly owned portfolio, we made three acquisitions at a cost of £21.8 million during the year, all adjacent to existing holdings. 18 Dering Street, W1 was purchased to augment our holding on the western side of Hanover Square; Bramah House, 65/71 Bermondsey Street together with 1 Black Swan Yard, both in Southwark were acquired to extend our holdings in this part of the Southbank; and 9 Holyrood Street, SE1 was acquired in March to enhance the expansion potential of our adjacent buildings in Shand Street opposite our successful Tooley Street, SE1 development.



We have continued to recycle capital, either selling properties where we have executed our strategy, using properties to seed joint ventures or swapping properties for those which offer the Group better opportunity for value creation. At the beginning of the period, our initial GCP assets were sold into the new joint venture. In September, we sold Met Building22 Percy Street, W1, the Group's successful development completed in 2005, for £107.0 million, off a net initial yield of 4.1%, and crystallised a return on total capital employed of 156% since purchase in June 2003.

In December, two buildings located in Whitfield Street, W1 were sold for £16.1 million, generating a profit of £2.1 million or 15% above their March 2007 valuation, net of transaction costs. 

Asset management 

The asset management team has continued to deliver across the portfolio:

The Group (including our share of JVs) took lease surrenders worth £10.4 million per annum associated with 294,000 sq ft in the year to March 2008 (2007: 64,000 sq ft). In many cases these transactions enabled rental levels to be enhanced from the previous passing rent or to allow a refurbishment scheme to be implemented. In addition to the 53,000 sq ft vacated by tenants at lease expiry or break, of the total, 30,400 sq ft has been re-let with the remainder taken into the rolling refurbishment programme for subsequent re-letting at higher levels.

At 160 Great Portland Street, W1 we regeared the occupational leases to Virgin Media, which were due to expire in June 2008, to new eleven year leases at slightly higher than the valuers' estimate of rental value at March 2007.

Other operational achievements during the half year included lettings at Kent House, Market Place, W1 and Elsley House, Great Titchfield Street, W1 following completion of comprehensive refurbishments at both properties. New retail and office rental evidence has been set in Regent Street, W1 and Oxford Street, W1 following judicious lease surrenders; successful refurbishment projects were also completed at Pollen House, Cork Street, W1, 67/75 Kingsway, WC2, and Carrington House, Regent Street, W1.

  Our financial position

Our financial position is accompanied by graphics (see Appendix 3)

Financial results

The Group delivered a resilient financial performance in the face of difficult market conditions particularly during the second half of the year.

Portfolio valuation reductions from September 2007 have impacted year end net assets per share. In contrast, income statement measures show significant growth from 2007, primarily due to successful leasing and enhanced joint venture revenue.

Net asset value

Adjusted net assets per share fell slightly by 2.0% in the year to 582 pence, reflecting the expansion in market yields in the latter part of the financial year. In the second half adjusted net assets per share fell 11.8% from 660 pence as at September 2007. At March 2008, the Group's net assets were £1,049.4 million, down from £1,076.0 million at March 2007. The value of the Group has been supported by growth from the development programme and well executed portfolio management activities. Compared to other UK real estate companies for the same period, net assets per share has declined by a fairly modest amount.

The main drivers behind the 12 pence per share year on year change in adjusted net assets per share to March 2008 were: 

These items are illustrated iAppendix 3.

The valuation of the near term development schemes included in the net assets per share at 31 March 2008 includes around one quarter of the expected surplus on the schemes when complete. Triple net assets per share (NNNAV) was 590 pence per share at March 2008 compared to 593 pence per share at March 2007. At March 2008 the difference between adjusted net assets per share and NNNAV was the positive mark to market of debt of 8 pence illustrating the Group's low cost of debt. Deferred tax adjustments were negligible.

Income statement and earnings per share

Rental income and joint venture fees for the year were £44.4 million and £5.8 million respectively, together these rose by £1.7 million or 3.5% compared to last year. The level of rental income has benefited from strong underlying growth but has been impacted by transfers of buildings to the joint ventures, which reduced "top line" rental income but increased the share of joint venture profits. Including the share of JV income of £21.8 million, the Group's total income rose by 33% year on year to £72.0 million, as illustrated in Appendix 3.

Rent reviews, lease renewals and new lettings added £6.3 million to rental income during the year. The estimated rental value of the portfolio grew by some 12.4% in the year, due to positive occupational market factors and the upgrading of many of the Group's assets. The Group's joint ventures generated management fees of £5.8 million, up 263% from last year, as a result of investment and development activity at GWP, GVP2 and GCP.


Adjusted profit before tax at £23.8 million was £6.4 million or 36.8% higher than last year; the key drivers behind this rise are set out in the chart in Appendix 3. Adjusted profit levels were boosted by the rise in rental and fee income, as shown in Appendix 3, and higher profits from development management operations and joint ventures, partly offset by increased interest and administration charges.

Development management income from the Tooley Street, SE1 and Margaret Street, W1 schemes lifted profits by £1.8 million year on year. At March 2008, the Tooley Street scheme was around 90% complete as a result of which £6.9 million of the total anticipated profit and bonus payments were recognised in the year. The remaining income will fall in the year to 31 March 2009. Adjusted profits from joint ventures (excluding valuation movements and gain/loss on property sales) were £16.1 million, up £13.0 million on last year, mainly due to the creation of GCP in April 2007, which has significantly increased the size of this part of our business. Further details are set out below. Administration costs slightly increased by £0.3 million year on year at £14.2 million as employee costs were held broadly constant. Underlying finance costs increased by £8.1 million as the result of higher net debt due to investment in our development schemes and acquisitions made during the year and higher rates on the floating segment of the Group's credit facilities. 

Adjusted earnings per share were 12.6 pence, 23.5% higher than last year. The higher adjusted PBT, described above, had a positive impact which was further enhanced by a lower underlying tax charge due to REIT status.

Revaluation falls and loss on sale of assets caused the Group to report a loss after tax of £4.1 million (2007: profit of £382.8 million). Basic EPS for the year showed a loss of 2.2 pence, compared to a positive result of 235.7 pence for 2007.

Financial effects of near-term development schemes

The near-term development and refurbishment schemes have progressed according to plan during the year, with £50.7 million (2007: £32.1 million) spent on schemes, including 60 Great Portland Street, W1, Wells & More, W1 and Bermondsey Street, SE1. The valuation of the Group's development portfolio has increased by 5.6%, due to growth in estimated rental value in the period and the elimination of some of the construction and leasing risks.

The committed near-term developments are forecast to require £25.9 million in capital expenditure in order to reach practical completion. The construction of the uncommitted near-term schemes would cost an additional £150 million if we decide to proceed with them.

By 2013, all near-term schemes are forecast to generate incremental rental income for the Group of £25.9 million. Some of this additional revenue will be captured through higher profits from joint ventures as several schemes are in the GRP, GWP and GCP ownerships. This increase in rental income from the near-term schemes is the equivalent of 37% of the Group's current rent roll.

Results of joint ventures 

The joint venture business has increased materially compared to last year following the creation and expansion of the Great Capital Partnership. At 31 March 2007 13.2% of Group rent roll and 16.4% of net assets were in 50:50 joint ventures; by 31 March 2008 the comparable figures were 36.3% and 37.2% respectively. Non-recourse net debt in the joint ventures has increased from £34.5 million at March 2007 to £145.8 million at year end due to the new credit facility in GCP described below.


Our share of joint venture net rental income increased to £21.8 million compared to £5.6 million for last year primarily due to the inclusion of the GCP assets. On a "same building", like-for-like basis the joint ventures reported an increase in rental income of 36% as a result of the leasing activities at 180 Great Portland Street, W1, Mount Royal, Oxford Street, W1 and 208/222 Regent Street, W1. The Group's share of joint venture adjusted profits (excluding revaluation gains and profit on sales) grew to £16.1 million mainly due to the addition of GCP assets. These profits are after charging £5.8 million of management fees (2007: £1.6 million) to the individual joint ventures.

To illustrate the scale of the joint ventures in comparison with the wholly owned operations, pro forma "proportional consolidation" statements have been prepared as shown in Appendix 3.

The Group has limited exposure to its JVs as the debt facilities are of a non-recourse nature and as of 31 March 2008 none of the major development schemes in JV are committed.

Financial resources and capital management

The Group's higher rental income and joint venture revenues contributed to the cash generated from operations improving to £38.3 million, up 35.3% compared to last year. Group consolidated net debt increased to £424.6 million, up from £389.1 million at 31 March 2007 mainly due to the investments in GCP. The sales of properties including the Met BuildingW1, Blackfriars Road, SE1, and Whitfield Street, W1 generated £132 million in net proceeds. Group consolidated gearing increased to 40.5% at 31 March 2008 from 36.2% at last year end and interest cover remained at a conservative 1.8 times.

Including the non-recourse debt in the joint ventures, total net debt was £570.4 million (2007: £423.6 million) equivalent to a loan to value ratio of 34.9% (2007: 27.6%)

We have taken further steps to increase liquidity and manage the cost of debt during the year to ensure financing is in place for future business development activities. With the debt capital markets becoming more challenging we turned to our relationship banks for funding to allow us to execute our real estate strategies over the medium term. We arranged over £362 million in new committed credit facilities during the year. The key debt transactions were:

The average margin for these new facilities is 60 basis points over LIBOR, broadly in line with our previous credit agreements. At 31 March 2008, the Group including its joint ventures had cash and undrawn committed credit facilities of £282 million, which is in excess of the capital expenditure required to complete all near-term development schemes. The projected phasing of our financial resources is set out in Appendix 3.

The Group's weighted average interest rate for the year was 6.01%, an increase of 46 basis points compared to the prior year. This was due to higher short-term floating rates which have stepped up since the summer of 2007.

Over the last year the level of short-term market rates and borrowing terms have risen and there are signs that further increases in the cost of debt could occur in response to liquidity and inflationary concerns. Our Treasury policy of keeping floating rate debt at less than 40% of total has partially insulated the Group from increasing market rates and in September 2007 we executed £90 million of five year interest rate swaps and collars to further protect the Group. At year end 76% of the Group's total debt (including non recourse joint ventures) was at fixed or capped rates (2007: 62%).

As at 31 March 2008 the Group had significant headroom over the levels required by the financial covenants in its credit agreements and debenture documentation.


The Board has recommended a final dividend of 8.0 pence per share up 6.0% on last year's final dividend, which will be paid on 8 July 2008. This brings the total for the year to 11.9 pence per share an increase of 5.3% over 2007. The increase in dividends results from the enhanced level of Group earnings and the good prospects for future income growth. Half of the final dividend is a REIT Property Income Distribution ("PID").


The current tax provision in the income statement for 2008 is only £0.1 million (2007: £0.2 million) due to a variety of REIT reliefs. The Group's underlying effective tax rate for 2008 was low at around 5% (2007: 10%) as a result of REIT status. The Group complied with all relevant REIT tests for the year to March 2008.

The Group's focus on corporate responsibility issues is reflected within its tax strategy including the objective to pay a fair contribution to the UK tax authorities as an accountable corporate citizen. We seek to fully comply at all times with tax legislation and best practice and endeavour to maintain an open and constructive working relationship with HM Revenue & Customs. 

During the year, the Group paid corporation tax in respect of its conversion to REIT status of £28.3 million, based on 2% of property assets at 1 January 2007. The Group paid further corporation tax and stamp duty land tax of £6.6 million (2007: £4.4 million).


With capital market turbulence continuing, property valuations are expected to come under continued pressure during 2008. Although there exists a considerable quantity of equity available to acquire real estate, limited debt capital and a lack of confidence may restrict its deployment.

Against this backdrop of investment market uncertainty, the dynamics of our principal occupational market, the West End, present a more favourably balanced picture. The supply of new office stock remains restricted and, so long as the UK economy avoids a significant contraction, the key variable, the demand for space, although expected to slow from its recent high levels, should remain around the long-term average.

We are in an enviably strong position to withstand short-term market challenges:

We remain confident, therefore, that our focused operating approach and sector specialism will underpin the long-term prospects of the Group.

Group Income Statement

For the year ended 31 March 2008







Rental income




Joint venture fee income 




Rental and joint venture fee income 



Service charge income



Service charge expenses 





Other property expenses 



Net rental and related income



Administration expenses 




Development management revenue 



Development management costs 





Operating profit before (deficit)/gains on investment property and results of joint ventures



(Deficit)/gain from investment property




Share of results of joint ventures




Operating profit before financing costs 



Finance income




Finance costs




Premium on redemption of interest-bearing loans and borrowings



(Loss)/profit before tax







(Loss)/profit for the year




Basic (loss)/earnings per share




Diluted (loss)/earnings per share 




Adjusted earnings per share




All results are derived from continuing operations.

Total operating profit before (deficit)/gain on investment property

Operating profit before gain on investment property and results of joint ventures
Share of results of joint ventures
Total operating profit before (deficit)/gains on investment property


Group Balance Sheet

At 31 March 2008








Non-current assets

Investment property  




Development property, plant and equipment  




Investment in joint ventures  




Deferred tax




Pension asset 







Current assets

Trade and other receivables 




Income tax receivable  



Cash and cash equivalents  






Total assets  



Current liabilities

Trade and other payables  




Income tax payable  



Interest-bearing loans and borrowings







Non-current liabilities

Interest-bearing loans and borrowings




Obligations under finance leases  




Pension liability  







Total liabilities  



Net assets  




Share capital  




Share premium account  




Hedging reserve




Capital redemption reserve  




Revaluation reserve  




Retained earnings  




Investment in own shares  




Shareholders' funds  



Minority interest 



Total equity 



Net assets per share




Adjusted net assets per share





Group Statement of Cash Flows

For the year ended 31 March 2008







Operating activities

Operating profit before financing costs 



Adjustments for non-cash items




Increase in receivables



Increase in payables



Cash generated from operations



Interest received



Interest paid



Tax paid 



Cash flows from operating activities



Investing activities 

Purchase of interests in joint ventures 



Purchase and development of property 



Purchase of fixed assets 



Purchase of own shares 



Sale of properties 



Cash flow from investing activities 



Financing activities

Redemption of loans



Borrowings drawn



Loans from joint venture 



Purchase of derivatives 



Issue of debenture 



Issue of minority interest 



Equity dividends paid



Cash flows generated from financing activities



Net decrease in cash and cash equivalents



Cash and cash equivalents at 1 April



Cash and cash equivalents at balance sheet date




Group Statement of Recognised Income and Expense

For the year ended 31 March 2008





Revaluation of development properties



Deferred tax on development properties released directly in equity



Fair value movement on derivatives 



Deferred tax on fair value movements on derivatives 



Actuarial gains on defined benefit scheme



Net (loss)/gain recognised directly in equity



(Loss)/profit for the year



Total recognised income and expense for the year



Group Reconciliation of Other Movements in Equity

For the year ended 31 March 2008






Opening total equity 



Total recognised income and expense for the year



Conversion of convertible bond



Minority interest



Deferred tax on convertible bonds



Employee Long-Term Incentive and Share Matching Plan charge



Purchase of shares in LTIP Employee Share Trust 






Closing total equity 





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