Final Results

Great Portland Estates PLC 26 May 2004 PRELIMINARY RESULTS 26 May 2004 The Directors of Great Portland Estates plc announce the results of the Group for the year ended 31 March 2004. Highlights: Since 31 March 2004 â€¢ Proposal to return 50p per share (Â£101.5 million) to shareholders â€¢ Â£24 million 11.1875% Debenture 2009/14 redeemed â€¢ Resultant pro forma net gearing 60% â€¢ Cash and committed facilities Â£187 million Year ended 31 March 2004 â€¢ Earnings per share 15.1p (2003: 10.1p loss) â€¢ Adjusted* earnings per share 12.8p (2003: 13.3p) â€¢ Dividend up 2.4% to 10.5p per share (2003: 10.25p) â€¢ Portfolio valuation up 2.5% during second half, down 1.4% for the year â€¢ Diluted adjusted+ NAV up 2.6% during second half, down 1.7% for the year to 282p per share â€¢ Â£27.7 million of property acquisitions during the year â€¢ Â£61.7 million of property sales during the year; Â£279 million sold since April 2002 â€¢ Void rate 2.6%; 1.6% in central London *excluding exceptional items, profits or losses on sales of investment properties and excluding deferred tax on capital allowances (see note 10) +excluding deferred tax on capital allowances (see note 10) Toby Courtauld, Chief Executive, said: 'We believe the markets in which we operate have turned the corner, as illustrated by the positive second half valuation movement. Business sentiment has improved markedly since the New Year and we are already seeing selective rental growth in the West End office market, where 75% of our portfolio is located. Whilst rents are no longer falling in the City, supply still exceeds demand, and we do not expect to see a return to growth there until 2006. 'During the year we have repositioned the Group's portfolio for growth, sold more than Â£60 million of non-core properties, added significant value through our reinvigorated asset management, and started a development programme for delivery into an improving market. Whilst we continue to search for acquisitions, appropriately priced opportunities remain rare and, in these circumstances, we have decided that it is appropriate to return 50p per share to shareholders. This will result in a more efficient balance sheet gearing level, whilst preserving our ability to make acquisitions and deliver our development programme. Great Portland Estates is in good shape and we face the future with confidence.' Enquiries etc: Great Portland Estates plc 020 7580 3040 Toby Courtauld, Chief Executive John Whiteley, Finance Director Finsbury Group 020 7251 3801 Edward Orlebar Key Statistics At 31 March 2004 â€¢ Investment property portfolio Â£744.6 million â€¢ Rent roll Â£54.4 million â€¢ Average length of lease 6.6 years â€¢ 50% of existing rent roll restructured since April 2002 â€¢ FRS 13 adjustment per share (net of tax) 6p â€¢ Contingent CGT per share 8p â€¢ Triple NAV adjustments 5% of adjusted+ NAV â€¢ Interest cover 3.5 times â€¢ Net gearing 30% â€¢ Average length of debt 17 years â€¢ Average cost of debt 6.7% â€¢ Â£324 million of cash and undrawn bank facilities +excluding deferred tax on capital allowances (see note 10) CHAIRMAN'S STATEMENT Overview and Capital Restructuring Five years ago, I announced the first of a series of initiatives designed to transform Great Portland Estates into a focused, central London investment and development business, with an appropriate debt and gearing structure. A good deal of progress had been made by 2002 when Toby Courtauld and Robert Noel were brought in as Chief Executive and Property Director respectively. Under their leadership, the property strategy has been further refined towards a business model involving the sale of mature, non-core properties, a greater emphasis on active management and the redevelopment of selected assets. We currently have projects in hand, with an estimated cost of Â£110 million, of which one is on site and a further five are in various stages of planning. With the reduction in income following sales, and as developments come on stream, short-term earnings will be foregone in order to achieve improved shareholder returns over the longer term. In my Statement in the Interim Report last November I highlighted two matters in particular. First, we were cautiously optimistic about the prospects for central London, especially the West End, and, secondly, we would review the most appropriate capital structure in the circumstances which then prevailed. We believe that the markets have stabilised, with rental growth likely to re-emerge during 2004. However, the number of appropriately priced acquisition opportunities remains limited and we have concluded that the Group is unlikely to need all its current cash resources in the short-term. We, therefore, propose to return cash of 50p per share (representing approximately 18% of net assets). The proposed return of cash, which is subject to shareholder approval and the confirmation of the Court, is structured to give shareholders a choice between receiving a capital repayment or a special dividend. Such a return would result in a more efficient balance sheet gearing level, thereby helping to enhance prospective shareholder returns without unduly impairing the Group's financial headroom or investment capacity. Results and Dividend I now turn to the results for the year to 31 March 2004, which will be covered in depth by the Chief Executive and the Finance Director later in the Report. Adjusted diluted net assets per share over the year have declined by 1.7% to 282p but, significantly, have improved by 2.5% from the figure reported as at September 2003. This emphasises our belief that the central London market has turned the corner and that growth prospects are close at hand. Adjusted earnings per share were 12.8p and your directors are recommending a final dividend of 7.0p per share, making a total for the year of 10.5p, up 2.4%. We remain of the belief that the dividend forms an important component of total return and I am conscious that many of our shareholders are of the same view. As I explained earlier, we are likely to see a fall in short-term earnings, with an uncovered dividend being a potential consequence. However, I would emphasis that our current property strategy will not be affected, because the Company has ample capacity to service the dividend, with distributable reserves of over Â£170 million. Board and Corporate Governance After six years as a non-executive director and four years as Deputy Chairman, David Godwin will be retiring at the Annual General Meeting, and I would like to take this opportunity of thanking him for the invaluable contribution he has made to the restructuring of the Company; I am also extremely grateful to him for the time, counsel and wisdom he has given me personally. Kathleen O'Donovan will take his place as Deputy Chairman and Senior Independent Director. Charles Irby, who has a wealth of experience and knowledge of the City, joined the Board on 1 April. On Corporate Governance matters generally, I am pleased to say that the Financial Reporting Council paid heed to some of the criticisms of the proposals contained in the Higgs Report concerning the role, and the effectiveness, of non-executive directors. We are fully compliant with the 1998 Combined Code on Corporate Governance, and next year will be reporting on our compliance with the new Code, which was issued in July 2003. We are well on the way to meeting its requirements. Prospects Shareholders will probably be aware that the Government has recently mooted the introduction of a Property Investment Fund and, whilst a tax transparent property vehicle could have certain attractions, it is impossible at this juncture to judge whether such a change would bring material benefits to this Company. The devil will be in the detail of the proposals which, in any event, are unlikely to be issued until 2005 at the earliest. Meanwhile, the Government is also questioning the continuing need for the 'upward only' rent review, which for so long has been an essential ingredient of investing in property in the United Kingdom. It would, indeed, be a paradox if, simultaneously with attempting to make real estate more attractive to a wider range of investors, Parliament should legislate on unnecessary lease reform. Market forces should be allowed to prevail. We have arrived at another seminal moment in the development of the Group and, once the return of cash has been effected, I am confident that, with sentiment towards central London improving, the Company, with its well regarded management team, has put itself in excellent shape to face the challenges of the future. CHIEF EXECUTIVE'S REVIEW Over the last two years, we have continued to reposition the Group's portfolio for growth, sold Â£279 million of non-core properties, added significant value through our reinvigorated asset management, started a development programme for delivery into an improving market, restructured our debt book and significantly strengthened our teams. The markets in which we operate have, we believe, now turned the corner. For the best quality space, both rental and capital values have stopped falling and we are now seeing selective growth in rents in the West End market. Although difficult leasing conditions continued throughout last year, business sentiment has improved markedly since the New Year. Almost all recent surveys suggest that companies in the Capital are increasing their workforce after several years of retrenchment, particularly in the Financial and Business Services sector. We estimate that active requirements from occupiers for new office space in central London are almost 50% higher than they were twelve months ago. This turnaround is clearly illustrated by the improvement in our valuation performance during the second half. In the first half, capital values and rents declined by 3.8% and 4.5% respectively, as the supply of space continued to outweigh the demand for it. By contrast, since September 2003 our capital values have appreciated by 2.5% whilst rental values have remained static. For the year as a whole, the valuation was down by 1.4%. However, two important factors are worth highlighting here. First, a number of our properties, shortly to transfer from the investment portfolio into development, continue to depress the valuation result as we allow income to erode enabling us to gain vacant possession. Once redeveloped, these properties' enhanced growth prospects will more than compensate for their recent under performance. Excluding these properties, the portfolio increased in value by 4% in the second half and by 0.3% for the full year. Second, our asset management activity during the year has delivered real value for shareholders. Our London void rate has been maintained at under 2%, comparing favourably to that in the Capital as a whole at approximately 13%. In addition, through lease restructurings carried out at four of our major holdings during the year, property cash flows were materially strengthened, enhancing both these properties' valuations and their prospects. Although the sales programme was largely completed during the previous year, this year we took the opportunity to dispose selectively of assets which were non-core, or where value had been added. Sales during the year totalled Â£61.7 million against their March 2003 book value of Â£63.7 million. As at 31 March 2004, 98% of the portfolio was in London, with only two properties outside. We have continued the process of restructuring our debt book. Since the year end, we repurchased the Â£24 million, 11.1875% Debenture 2009/2014 at a cost of Â£32.9 million. In so doing, we released Â£64.7 million of properties from charge, including a number which we wish to redevelop, whilst lowering our weighted average cost of debt from 6.7% to 6.5%. I commented this time last year that much of our attention would be focused on new business as we sought to replenish the portfolio with opportunities for real value creation. During the year, we appraised a significant number of transactions and spent Â£27.7 million. I highlighted in November, and it remains the case today, that vendors have been unwilling to sell short leased properties, to which we could apply our asset management and development skills, at realistic prices. The vast majority of last year's high investment turnover was of assets with long, dry income streams sold to institutional or private buyers, often taking a relative yield view. This is not our game and we have resolutely avoided playing it. Where we have identified value, we have bought, and we are optimistic about the prospects at both Metropolis House, Tottenham Court Road, W1 (acquired in June 2003) where we are on site developing, and at 16/21 Sackville Street, W1 (acquired in March 2004) where we will carry out a comprehensive refurbishment next year. Financial Restructuring In June 2003 I emphasised that we continually review our capital requirements. Whilst we will continue to search for acquisition opportunities, we do so into an improving market, with low balance sheet gearing (30% at the year end) and, some Â£320 million of balance sheet firepower. The Board has concluded that some of this capital is surplus to our current requirements and that, given the state of the market and the low level of our gearing, shareholders' interests would be best served through a return of 50p per share. In giving back approximately Â£100 million, we believe we have struck the right balance between, on the one hand, preserving our ability to transact new opportunities and deliver our development programme and, on the other, raising gearing (60% pro forma) in order to drive prospective NAV performance and hence returns to shareholders. Portfolio Review Over the past five years, Great Portland Estates has been transformed from a geographically diverse property investment group into a specialist central London investor and developer. Central to our property strategy are three themes; first, the active management of our income and voids, creating value through, for example, lease restructuring; second, the upgrading of our assets through high quality refurbishment and redevelopment; and third, the recycling of our capital from assets where value has been added to ones which provide the opportunity for improvement. Management of Income and Voids We continue to manage our lease expiries and voids proactively, retaining more than 50% of our tenants at lease expiry, up from one third the previous year. During the year, we carried out 40 new lettings, adding Â£4.5 million in rent, whilst 34 rent reviews delivered an increase of Â£1.0 million (representing an uplift of 27%). Â£1.3 million of rent was lost at lease expiry and we took back 20 leases during the year, accounting for Â£4.2 million. Therefore, the total movement in rent across the portfolio, not accounted for by sales or purchases, was close to zero. We have worked hard through two years of difficult leasing conditions to emerge with our void level substantially unchanged, and significantly beneath that of the London market as a whole of 13%. As at 31 March 2004, 2.6% of the portfolio was void against 3.0% at the same time last year. Our void rate in central London stands at 1.6% (1.9% at March 2003). A further 7.6% of the portfolio by rental value is under refurbishment, with the majority being at Metropolis House, Tottenham Court Road, W1, and Barnard's Inn, Fetter Lane, EC4. Of the 23 lettings achieved in the West End during the year, two stand out. First, at Bond Street House, New Bond Street, W1, we gained planning permission to convert the basement, ground and first floor space into a 10,900 sq ft flagship store, with a scheduled start in 2006. Through negotiations with the existing tenant Mappin & Webb, we entered into a new 25 year lease over an enlarged area at our targeted, post-redevelopment, rent but without incurring any capital expenditure, and some three years earlier than under the redevelopment proposal. Second, at 95 New Cavendish Street, W1, our tenant exercised an option to break its lease on 29 September 2003. Within eight weeks of the tenant vacating, we achieved a letting of the entire 21,000 sq ft building to the construction consultant, Gleeds, on a 15 year lease with a tenant's option to break at the tenth year. In the City, lease restructurings were achieved in three transactions at Buchanan House, Holborn, EC4 and at Barnard's Inn, Fetter Lane, EC4, in both cases materially strengthening the properties' cash flow and, hence, valuation. At Buchanan House, six leases to two tenants, expiring between December 2003 and 2006, were simultaneously regeared to expire in 2008, thereby aligning all leases in the building and allowing us to redevelop in 2008. At Barnard's Inn, our principal occupier, Interoute Finance Plc, had ceased paying rent due to financial difficulties. We negotiated a surrender of its lease over 85,000 sq ft, receiving more than 80% of the rent due until its break option in 2010. Simultaneously, we let 55,000 sq ft to Marriott, the international hotel group, on a new 15 year lease with a tenant's option to determine at year 10 (subject to a penalty of two and a half year's rent). The remaining 30,000 sq ft is being refurbished and is due to be completed in September this year. Progression of Development Proposals The West End, in particular, is a market characterised by a lack of good sized, clear, floorplates. This is particularly the case in our 1 million sq ft North of Oxford Street portfolio, where we have a clear ambition to introduce new, high quality space timed to coincide with a recovery in tenant demand over the next few years. Across the West End we have six refurbishment or redevelopment projects at varying stages of development with a completed value approaching Â£225 million and delivering an increase in area from 340,000 sq ft to 480,000 sq ft. We completed the acquisition of our major redevelopment opportunity at Metropolis House, Tottenham Court Road in June 2003, concluded the strip-out contract in August and obtained an improved planning permission in October. The main contract, which commenced in November, is on budget and completion of the 110,000 sq ft refurbishment is scheduled for the first half of 2005. Since the year end, we have acquired a long leasehold interest from the Spirit Group, who operated a public house on the north western corner of the site. This purchase will enable us to extend and improve the basement and ground floor retail offer as well as the first floor office layout, and a further planning application has been submitted. During the year planning applications were submitted for three further major redevelopments. At 190 Great Portland Street, W1, we intend to commence our 100,000 sq ft office, retail and showroom scheme in early 2005, and demolition is scheduled to start on our headquarters building at Knighton House, Mortimer Street, W1 at the end of 2005. In both cases, planning discussions are at an advanced stage. At our Titchmor site on the junction of Mortimer Street and Great Titchfield Street, W1, our proposals were recently submitted to Westminster City Council for a high quality 135,000 sq ft redevelopment close to Oxford Circus. Refurbishment proposals are in the design stage at our recent acquisition in Sackville Street and for the upper office floors at Bond Street House. Disposals and Acquisitions The strength of investor demand that we reported in June 2003 has been maintained throughout the year, and we have capitalised on this situation to sell mature assets in Mayfair, Covent Garden and Holborn. In the West End, Â£26.8 million of sales were executed during the period including 26a/b/c Albemarle Street, W1 and Drury House, 34/43 Russell Street, WC1. The two office buildings were 17% overrented, had weighted average unexpired lease terms of 8 years and were sold for an aggregate net initial yield to the purchaser of 7.1%, in line with our March 2003 book value. In the City, we sold 1/6 Dyers Buildings, EC1, for a price of Â£7.2 million, reflecting a net initial yield to the purchaser of 5.3% and slightly ahead of our March 2003 valuation. Outside London, we sold Costain House, an office building in Maidenhead, and our leisure development, Sol Central, in Northampton, for an aggregate price of Â£27.6 million, some 7% beneath their March 2003 valuations. We continue to see for sale few appropriately priced properties which require refurbishment or redevelopment. As a result, our acquisition activity during the year has been limited as we chose to preserve our firepower rather than invest at what we perceived to be unjustifiable levels. In addition to Metropolis House, we made one further significant purchase during the year, buying a freehold refurbishment opportunity at 16/21 Sackville Street, W1, from the owner /occupier, Austin Reed Plc, for Â£10.7 million. Austin Reed has leased back the ground floor retail unit for 25 years and the four office floors of 16,800 sq ft, until February 2005. We intend to carry out a high quality refurbishment to the offices with completion anticipated during 2007. Also during the year we acquired a long leasehold interest at 88 Great Portland Street, W1 for Â£1 million, completing our site assembly for a major future redevelopment of 78/92 Great Portland Street. Valuation This time last year we predicted that office rental values in the West End had broadly corrected, whilst we could expect further downward pressure in the City and Holborn. Across the Group, our rental values declined by 5% during the year, although the valuation impact of this reduction was limited, due in large part to the value enhancing asset management transactions we concluded during the year. The external valuation, carried out by CB Richard Ellis, registered a like-for-like decline of Â£10.4 million or 1.4% over the 12 months but an increase during the second half of Â£17.8 million or 2.5%. At 31 March 2004, the portfolio's value of Â£744.6 million reflected a net initial yield of 6.2%, some 6 basis points lower than at the same time last year, due to a slight hardening of the equivalent yield and the granting of rent-free periods under new leasing arrangements. Overall, the Group's investment portfolio was overrented to the tune of Â£3.7 million (6.9%), up from Â£1.0 million this time last year. The increase was principally due to declining ERVs (Â£2.3 million) and the crystallisation of reversions through the settlement of rent reviews (generating an uplift of Â£1.0 million) during the year. West End and Covent Garden At March 2004, total availability in the West End office market stood at approximately 10 million sq ft or 11% of the stock, and almost exactly in line with the figure in March last year. Take up in 2003 was less than in 2002, at 3.9 million sq ft, and in line with a long-term average of just under 4 million sq ft. However, active demand from occupiers for space in the West End was at a similar level in March to that a year earlier. We expect take up to increase this year and, with availability therefore likely to fall, we believe that there should be a return to rental growth for the first time in three years. Our West End portfolio at 31 March 2004 was valued at Â£535.2 million, comprising Â£456.4 million of the investment portfolio and Â£78.8 million of properties approaching development, and representing 72% of the total portfolio. On a like-for-like basis it declined in value by 1.0% over the year, but it increased in value by 2.7% during the second half. Â£335.7 million was located north of Oxford Street, which declined by 4.6% (almost all of which was during the first half), due largely to valuation reductions at 190 Great Portland Street, Knighton House and Titchmor, where we are allowing leases to run off to enable redevelopment. The rest of the West End portfolio was valued at Â£199.5 million, registering a like-for-like increase in value over the year of 6.0% (8.0% in the second half, due in large part to our asset management activity at Bond Street House). Average rents in our office portfolio north of Oxford Street were Â£30 per sq ft, up from Â£29 per sq ft last year, whilst rental values declined from Â£29 to Â£28 per sq ft. In the rest of the West End portfolio, office rents declined from Â£38 to Â£36 per sq ft, whilst rental values remained constant at Â£33 per sq ft. Retail rental values in the West End remained stable for the second year running, with the exception of New Bond Street, which registered an increase of 11.4%. Average rents passing for our West End retail properties, excluding those north of Oxford Street, rose from Â£76 to Â£78 per sq ft, with rental values rising from Â£77 to Â£82 per sq ft, whilst those north of Oxford Street remained constant at Â£21 per sq ft. City and Holborn As predicted last year, the City market has continued to see an increase in the amount of space available to let with a corresponding downward pressure on rents. We believe that the vacancy rate has now peaked at around 15% of total stock. Half of this is Grade A office accommodation but, with the limited development pipeline over the next three years, and an expected increase in take up, we believe rents will stabilise during 2004. Our City and Holborn portfolio was valued at Â£174.3 million in March 2004 registering a like-for-like fall in value over the year of 3.2%. During the second half, the valuation increased by 1.5%, due mainly to the positive effect of lease restructuring activity at Barnard's Inn (9% growth since September 2003) and at Buchanan House (10% growth since September 2003). Average rents in our City office portfolio were Â£35 per sq ft in March 2004 as against Â£32 per sq ft at the same time last year, whilst average rental values were down from Â£30 last time to Â£28 per sq ft. Outlook Great Portland Estates has been completely restructured; the liability side of the balance sheet is clean and transparent; our property assets are well positioned for a recovery in the central London market; our asset and development management activities are beginning to bear fruit across the portfolio; and our rebuilt teams are working well together. The Company has a clear, well communicated strategy and, following the return of cash, will have a more appropriate structure for this point in the property cycle. With occupational markets in central London showing real signs of recovery, I look forward to building on this progress further. FINANCIAL REVIEW Having sold Â£217 million of properties in the year ended 31 March 2003, we began the year to March 2004 with Â£104 million of cash, and following a further Â£62 million of property disposals, and Â£38 million of investment, we ended it with cash of Â£139 million. The difference between the yield generated by the sold properties and the income from placing their proceeds on deposit, is the main reason why adjusted earnings have fallen to 12.8p in 2004 (2003: 13.3p). The fall would have been considerably greater, had it not been for an asset management deal which generated 4.0p per share in earnings. Throughout this financial review, where references are made to adjusted figures, their calculations can be found in note 10. Results Headline earnings of 15.1p per share bear no resemblance to the loss of 10.1p per share in 2003. In 2003, a large, exceptional premium was paid to repurchase a high coupon debenture and provide the Group with a more flexible financing structure. This year's earnings, as last year, were distorted by a deferred tax adjustment for accelerated capital allowances required by FRS 19, and losses on the sale of investment properties. Underlying rent receivable in 2004 was Â£55.6 million, a fall of some Â£17.0 million on 2003, of which Â£15.3 million was due to property disposals. The lease surrender at Barnard's Inn, described in detail in the Chief Executive's Review, generated a premium of Â£8.2 million after the tenant's contribution to dilapidations, and is included in headline rent receivable of Â£63.8 million. Using disposal proceeds to redeem debt, and placing the balance on deposit resulted in net interest payable falling by Â£8.8 million, or 38%, to Â£14.4 million (2003: Â£23.2 million). Excluding losses on the sale of investment properties, adjusted profits before tax of Â£38.4 million were broadly in line with Â£38.7 million last year, largely because the fall in rental income occasioned by disposals was met by the Â£8.2 million surrender premium and the fall in net interest. For tax purposes, the surrender premium was a part disposal of the property and attracted no tax payable. By selling properties in the year in respect of which capital allowances will not reverse, Â£7.5 million of the deferred tax liability on accelerated capital allowances has been released through the tax charge in 2004, and, excluding this and a provision in respect of previous years, the tax rate on the underlying core business was around 31% (2003: 30%). Notwithstanding the tax charge, by crystallising a loss on the debenture purchased last year, no tax will be payable in respect of the year ended 31 March 2004. The final dividend of 7.0p per share will be paid, subject to shareholders' approval, on 13 July 2004 to shareholders on the register at 4 June; a total dividend for the year of 10.5p per share (2003: 10.25p) reflected a 2.4% increase on last year, and was covered 1.2 times by adjusted earnings (2003: 1.3 times). Net Assets At 31 March 2004, shareholders' funds were Â£564.6 million (2003: Â£568.5 million), or Â£567.3 million (2003: Â£578.7 million) excluding the capital allowances effect of FRS 19. The fall in adjusted net assets of Â£11.4 million largely reflected the revaluation deficit on the investment property portfolio of Â£13.5 million. Excluding the effect of FRS 19, net assets per share fell from 285p to 279p, and diluted net assets per share from 287p to 282p. Had the Group's investment properties been sold for their book value at the balance sheet date, the contingent liability to taxation on chargeable gains would have been approximately Â£19 million or 8p per share (2003: 7p), and the effect of marking the Group's financial instruments to market would have been a reduction of a further 6p per share. Accordingly, diluted adjusted triple net asset value fell by 2.9% from 276p to 268p. At 31 March 2004 net gearing, adjusted to exclude the capital allowances element of the deferred tax provision, was 30% (2003: 32%), net of cash balances of Â£138.8 million, and the Group had in place undrawn bank facilities of Â£185 million. The weighted average cost of debt remained at 6.7%. Financing Over the past few years Great Portland Estates has sought to restructure its balance sheet to suit its changing business model and the markets in which it operates, through returning capital and redeeming high coupon or onerous debt. Further to this policy, in May 2004 we redeemed our Â£24 million 11.1875% First Mortgage Debenture Stock 2009/14 at a cost of Â£32.9 million; this followed the redemption of other debenture stock in 2001 and 2002. This reduced our overall cost of borrowing from 6.7% to 6.5%, and the effect of marking debt to market by Â£4.0 million, but, importantly, it released 8.7% of the portfolio from being encumbered as security against borrowings: around 54% of the portfolio is now unencumbered. Since the year end we have refinanced our main bank facilities, replacing a syndicated loan of Â£175 million, which was due to expire in January 2005, with a five year Â£150 million committed revolving credit facility with our three main banks. The proposed return of cash of Â£101.5 million will reduce share capital by Â£81.2 million and a combination of share premium and reserves by the balance; it will also reduce the number of shares in issue, through a share consolidation, by some 20% to 162.5 million. The combined effects of the debt refinancing and the proposed return of capital will be to produce pro forma net assets of Â£459.6 million, which, with the reduced number of shares in issue, will result in pro forma net assets per share of 285p (adjusted for FRS 19) and diluted adjusted net asset value of 287p per share. Pro forma net gearing will be 60%, and the Group will have cash balances of Â£27 million and undrawn bank facilities of Â£160 million. Under FRS 13, the market value at which the Group's financial instruments would exceed the amount at which they will be shown in a pro forma balance sheet will be Â£8.4 million. Financial Instruments The Group raises finance through equity and borrowings, and places surplus cash on short-term deposit. The primary sources of borrowing are debenture loans, convertible loans and bank and other loans. The Group also enters into interest rate swaps, collars and caps, but solely as a way of managing the interest rate risks arising from some of the Group's sources of finance, primarily bank loans. The main risks arising from the Group's financial instruments are interest rate risk, liquidity risk and credit risk. The policies for managing these are reviewed by the Board, and have been in place throughout the year ended 31 March 2004. Interest Rate Borrowings are made either at fixed rates of interest, or at floating rates, which can be fixed simultaneously, and co-terminously, by means of interest rate swaps. The Group's policy has been to ensure that most of its borrowings were at fixed rates; at 31 March 2004, 99% of borrowings were at fixed rates. Liquidity The Group operates a long-term business, and its policy is to finance it principally with equity, and medium-term and long-term borrowings. Accordingly, at the year end 64% of the Group's borrowings were due to mature in more than 15 years. Short-term flexibility is achieved by cash balances and overdraft facilities. Credit At 31 March 2004, the Group had Â£138.0 million on short-term deposit with financial institutions. It is the Board's policy that deposits and derivative contracts are placed only with counter-parties with a credit rating of F1 or higher. International Financial Reporting Standards International Financial Reporting Standards ('IFRS') are due to become mandatory for all listed companies within the European Union for accounting periods beginning on or after 1 January 2005, and, therefore, we will prepare our consolidated financial statements in accordance with IFRS for the first time in the year ending 31 March 2006. The likely impact of IFRS on the financial results of Great Portland Estates is significant. The primary areas of difference from current UK reporting will be the recording of revaluation surpluses or deficits within the income statement, and the recognition on the balance sheet of contingent tax on chargeable gains (or an international approximation thereof) and the marking to market of some, but not all, financial instruments. There remain areas of uncertainty, such as the tax treatment of IFRS by the Inland Revenue, the principle of distributable reserves and the layout of the income statement (the term 'profit and loss account' will probably be superseded). Preparatory work to accommodate the change to IFRS will continue over the coming year and we shall monitor developments closely. Portfolio Statistics Rental income At 31 March 2004 --------------------------------------------------------------------------------------------- Reversionary Five Year Five Year Potential Total Rent Reversionary Rental Over Five Rental Roll Potential Values Years Values Â£m Â£m Â£m Â£m Â£m --------------------------------------------------------------------------------------------- London North of Oxford Street Office 21.7 (1.1) 20.6 0.1 20.7 Retail 3.8 0.2 4.0 - 4.0 Other 0.2 - 0.2 - 0.2 Rest of West End Office 8.5 0.3 8.8 (1.0) 7.8 Retail 5.7 0.3 6.0 (0.1) 5.9 --------------------------------------------------------------------------------------------- Total West End and Covent Garden 39.9 (0.3) 39.6 (1.0) 38.6 City and Holborn Office 13.5 (0.2) 13.3 (2.6) 10.7 Retail 0.4 - 0.4 0.5 0.9 --------------------------------------------------------------------------------------------- Total London 53.8 (0.5) 53.3 (3.1) 50.2 Outside London 0.6 (0.1) 0.5 - 0.5 --------------------------------------------------------------------------------------------- Total Let Portfolio 54.4 (0.6) 53.8 (3.1) 50.7 ------------------------------------------------------ Voids 1.6 - 1.6 Premises under 4.3 - 4.3 refurbishment --------------------------------------------------------------------------------------------- Total Portfolio 59.7 (3.1) 56.6 --------------------------------------------------------------------------------------------- Rent Roll Weighted Secure for Average Five Years Lease Length Voids % Years % --------------------------------------------------------------------------------------------- London North of Oxford Street Office 30.2 4.3 1.7 Retail 41.6 5.9 0.8 Other 62.6 1.0 4.4 Rest of West End Office 68.0 7.0 3.2 Retail 80.3 12.1 - Total West End and Covent Garden 46.6 6.1 1.7 City and Holborn Office 83.0 8.0 1.5 Retail 41.4 9.9 - Total London 55.7 6.6 1.6 Outside London 16.5 3.3 50.5 Total Let Portfolio 55.3 6.6 2.6 --------------------------------------------------------------------------------------------- Rental income At 31 March 2004 --------------------------------------------------------------------------------------------- Initial Equivalent Average Rent Average ERV Yield Yield Â£psf Â£psf % % --------------------------------------------------------------------------------------------- London North of Oxford Street Office 30 28 7.1 6.9 Retail 20 21 6.1 6.7 Other 21 13 7.3 8.1 Rest of West End Office 36 33 6.4 6.9 Retail 78 82 5.2 5.6 Total West End and Covent Garden 32 31 6.5 6.7 City and Holborn Office 35 28 5.3 6.9 Retail 9 22 4.4 6.8 Total London 33 30 6.2 6.7 Outside London 21 15 4.6 7.0 Total Let Portfolio 32 30 6.2 6.7 --------------------------------------------------------------------------------------------- Property Portfolio At 31 March 2004 --------------------------------------------------------------------------------------------- Office Retail Other Total Â£m Â£m Â£m Â£m --------------------------------------------------------------------------------------------- London North of Oxford Street 220.4 34.4 2.1 256.9 Rest of West End 110.0 89.3 0.2 199.5 --------------------------------------------------------------------------------------------- Total West End and Covent Garden 330.4 123.7 2.3 456.4 City and Holborn 166.2 8.1 - 174.3 --------------------------------------------------------------------------------------------- Total London 496.6 131.8 2.3 630.7 Outside London 11.9 - 0.2 12.1 --------------------------------------------------------------------------------------------- Investment property portfolio 508.5 131.8 2.5 642.8 Properties approaching development 57.3 19.8 1.7 78.8 Development properties 21.2 1.8 - 23.0 --------------------------------------------------------------------------------------------- Total property portfolio 587.0 153.4 4.2 744.6 --------------------------------------------------------------------------------------------- Portfolio Performance --------------------------------------------------------------------------------------------- 12 Month Proportion of Valuation Total Valuation Portfolio Movement Return Â£m % % % --------------------------------------------------------------------------------------------- London North of Oxford Street Office 220.4 29.6 (1.5) 5.9 Retail 34.4 4.6 1.9 4.4 Other 2.1 0.3 14.6 22.1 Rest of West End Office 110.0 14.8 3.3 7.1 Retail 89.5 12.0 9.6 13.8 --------------------------------------------------------------------------------------------- Total West End and Covent Garden 456.4 61.3 2.0 7.5 --------------------------------------------------------------------------------------------- City and Holborn Office 166.2 22.3 (3.2) 7.5 Retail 8.1 1.1 (2.1) 7.8 --------------------------------------------------------------------------------------------- Total City and Holborn 174.3 23.4 (3.2) 7.5 --------------------------------------------------------------------------------------------- Total London 630.7 84.7 0.5 7.5 Outside London 12.1 1.6 (8.7) (3.4) --------------------------------------------------------------------------------------------- Investment property portfolio 642.8 86.3 0.3 6.9 Properties approaching development 78.8 10.6 (14.9) (5.4) Development properties 23.0 3.1 6.5 6.4 --------------------------------------------------------------------------------------------- Total property 744.6 100.0 (1.4) 5.3 portfolio --------------------------------------------------------------------------------------------- By Use --------------------------------------------------------------------------------------------- 12 Month Proportion of Valuation Total Valuation Portfolio Movement Return Â£m % % % --------------------------------------------------------------------------------------------- Office 587.0 78.8 (3.0) 4.8 Retail 153.4 20.6 5.1 8.4 Other 4.2 0.6 13.3 (2.8) --------------------------------------------------------------------------------------------- Total 744.6 100.0 (1.4) 5.3 --------------------------------------------------------------------------------------------- Analysis of Five Year Rental Values Lease Expiries Â£m % Rent roll, rent Less than 5 years 44.7 reviews & lease renewals 53.8 5 to 10 years 38.9 Under refurbishment 4.3 10 to 15 years 12.5 Voids 1.6 Over 15 years 3.9 ------ ------ 59.7 100.0 ------ ------ GROUP PROFIT AND LOSS ACCOUNT For the year ended 31 March 2004 ----------------------------------------------------------------------------- Notes 2004 2003 Â£m Â£m ----------------------------------------------------------------------------- Rent receivable 2 63.8 72.6 Ground rents (1.4) (1.9) ----------------------------------------------------------------------------- Net rental income 62.4 70.7 Property and refurbishment costs (2.4) (1.9) Administration expenses 3 (7.2) (6.7) ----------------------------------------------------------------------------- 52.8 62.1 Trading losses - (0.5) ----------------------------------------------------------------------------- Operating profit 52.8 61.6 Loss on sale of investment properties (2.8) (2.4) ----------------------------------------------------------------------------- Profit on ordinary activities before interest 50.0 59.2 Interest receivable 5 5.0 1.7 Interest payable 6 (19.4) (24.9) Exceptional finance costs 7 - (70.2) ----------------------------------------------------------------------------- Profit/(loss) on ordinary activities before taxation 35.6 (34.2) Tax on profit/(loss) on ordinary activities 8 (4.9) 13.7 ----------------------------------------------------------------------------- Profit/(loss) on ordinary activities after taxation 30.7 (20.5) Dividends 9 (21.1) (20.8) ----------------------------------------------------------------------------- Retained profit/(loss) for the year 9.6 (41.3) ----------------------------------------------------------------------------- Earnings/(loss) per share - basic 10 15.1p (10.1)p ----------------------------------------------------------------------------- Earnings/(loss) per share - diluted 10 14.7p (8.2)p ----------------------------------------------------------------------------- Earnings per share - adjusted 10 12.8p 13.3p ----------------------------------------------------------------------------- A statement of the movement on reserves is given in note 22. GROUP BALANCE SHEET At 31 March 2004 Notes 2004 2003 Â£m Â£m ----------------------------------------------------------------------------- Tangible fixed assets Investment properties 11 740.2 779.4 Investments 12 3.4 1.7 ----------------------------------------------------------------------------- 743.6 781.1 ----------------------------------------------------------------------------- Current assets Debtors 13 36.5 26.4 Cash at bank and short-term deposits 138.8 103.5 ----------------------------------------------------------------------------- 175.3 129.9 Creditors: amounts falling due within one year 14 (67.3) (41.6) ----------------------------------------------------------------------------- Net current assets 108.0 88.3 ----------------------------------------------------------------------------- Total assets less current liabilities 851.6 869.4 Creditors: amounts falling due after more than one year Debenture loans 15 (221.0) (223.7) Convertible loans 16 (57.2) (57.1) Bank and other loans 17 (4.4) (5.9) Provisions for liabilities and charges 19 (4.4) (14.2) ----------------------------------------------------------------------------- 564.6 568.5 ----------------------------------------------------------------------------- Capital and reserves Called up share capital 20 101.5 101.5 Share premium account 21 24.8 24.8 Revaluation reserve 22 237.6 255.4 Other reserves 22 25.0 25.0 Profit and loss account 22 175.7 161.8 ----------------------------------------------------------------------------- Equity shareholders' funds 564.6 568.5 ----------------------------------------------------------------------------- GROUP STATEMENT OF CASH FLOWS For the year ended 31 March 2004 ----------------------------------------------------------------------------- 2004 2003 Notes Â£m Â£m ----------------------------------------------------------------------------- Net cash inflow from operating activities 24 49.3 59.2 Returns on investments and servicing of finance 25 (18.0) (23.0) Taxation 25 1.8 3.7 Net cash inflow from capital expenditure 25 2.3 198.0 Equity dividends paid (20.9) (20.4) ----------------------------------------------------------------------------- Net cash inflow before use of liquid 14.5 217.5 resources and financing Management of liquid resources 25 (36.3) (18.3) Net cash inflow/(outflow) from financing 25 20.8 (197.4) ----------------------------------------------------------------------------- (Decrease)/increase in cash (1.0) 1.8 ----------------------------------------------------------------------------- GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 31 March 2004 2004 2003 Â£m Â£m ----------------------------------------------------------------------------- Profit/(loss) for the year 30.7 (20.5) Unrealised deficit on revaluation of fixed assets (13.5) (92.0) ----------------------------------------------------------------------------- Total recognised gains and losses for the year 17.2 (112.5) ----------------------------------------------------------------------------- NOTE OF HISTORICAL COST PROFITS AND LOSSES For the year ended 31 March 2004 2004 2003 Â£m Â£m ----------------------------------------------------------------------------- Reported profit /(loss) on ordinary 35.6 (34.2) activities before taxation Realisation of fixed asset revaluation 4.3 98.5 surpluses of previous years ----------------------------------------------------------------------------- Historical cost profit on ordinary 39.9 64.3 activities before taxation ----------------------------------------------------------------------------- Historical cost profit for the year 13.9 57.2 retained after taxationand dividends ----------------------------------------------------------------------------- NOTES FORMING PART OF THE FINANCIAL STATEMENTS 1 Accounting Policies The financial information set out in the announcement does not constitute statutory accounts for the years ended 31 March 2004 or 2003, but is derived from those accounts. Statutory accounts for 2003 have been delivered to the Registrar of Companies and those for 2004 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under s237 (2) or (3) Companies Act 1985. Accounting Convention The financial statements are prepared under the historical cost convention as modified by the revaluation of tangible fixed assets and investments in subsidiary undertakings, and are prepared in accordance with applicable United Kingdom accounting standards. The true and fair override provisions of the Companies Act 1985 have been invoked, as explained in Depreciation below. Basis of Consolidation The group financial statements consolidate the financial statements of the Company and all its subsidiary undertakings for the year ended 31 March. Rent Receivable This comprises rental income and premiums on lease surrenders on investment properties for the year, exclusive of service charges receivable. Service charges are credited against relevant expenditure. Lease Incentives Lease incentives, including rent-free periods and payments to tenants, are allocated to the profit and loss account from the start of the lease to the date on which it is expected the prevailing market rental will be payable, typically the first rent review. The value at which resulting accrued rental income is stated within debtors is deducted from the carrying value of the appropriate investment property. Property and Refurbishment Costs Irrecoverable running costs directly attributable to specific properties within the Group's portfolio are charged to the profit and loss account as property expenses. Costs incurred in the improvement of the portfolio which, in the opinion of the directors, are not of a capital nature are written off to the profit and loss account as incurred. Administration Expenses Costs not directly attributable to individual properties are treated as administration expenses. Properties Investment properties, including those in the course of development, are professionally valued each year, on a market value basis, and any surpluses or deficits arising are taken to revaluation reserve. Disposals of investment and trading properties are recognised where contracts have been exchanged during the accounting period and completion has taken place before or shortly after the year end. Depreciation In accordance with Statement of Standard Accounting Practice No. 19, no depreciation is provided in respect of freehold investment properties and leasehold investment properties with over 20 years to run. Although the Companies Act 1985 would normally require the systematic annual depreciation of fixed assets, the directors believe that this policy of not providing depreciation is necessary in order for the financial statements to give a true and fair view, since the current value of investment properties, and changes in that current value, are of prime importance rather than a calculation of systematic annual depreciation. Depreciation is only one of the many factors reflected in the annual valuation, and the amount which might otherwise have been shown cannot be separately identified or quantified. Deferred Taxation Deferred tax is provided in full on timing differences which result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the financial statements. Deferred tax is not provided on timing differences arising from the revaluation of tangible fixed assets where there is no commitment to sell the asset. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted. Subsidiary Undertakings Shares in subsidiary undertakings are valued at amounts equal to their original cost and any subsequent movement in the revaluation reserve of those subsidiaries, thus reflecting in the Company's balance sheet the surplus arising from the revaluation and the sale of investments and investment properties of those subsidiaries. Pensions The Group contributes to a defined benefit pension plan which is funded with assets held separately from those of the Group. Contributions are charged to the profit and loss account so as to spread the cost of pensions over the employees' working lives with the Group. The regular cost is attributed to individual years using the projected unit method. Variations in pension cost, which are identified as a result of actuarial valuations, are amortised over the average expected remaining working lives of employees in proportion to their expected payroll costs. Differences between the amounts funded and the amounts charged to the profit and loss account are treated as either provisions or prepayments in the balance sheet. Capitalisation of Interest Interest associated with direct expenditure on properties under development (including major refurbishments) is capitalised. Direct expenditure includes the purchase cost of a site or property if it was acquired specifically for development, but does not include the acquisition cost or valuation of properties held as investments. Interest is capitalised from the start of the development work until the date of practical completion. The rate used is the Group's pre-tax weighted average cost of borrowings or, if appropriate, the rate on specific associated borrowings. Financial Instruments An interest rate swap is accounted for as a hedge when it alters the risk profile of an existing underlying exposure, typically a floating rate bank loan. 2 Turnover and Segmental Analysis ----------------------------------------------------------------------------- Rent receivable by location: 2004 2003 Â£m Â£m ----------------------------------------------------------------------------- West End - Offices North of Oxford Street 21.3 20.2 - Other offices 7.3 12.5 - Retail 9.1 12.0 - Other 0.2 0.5 City and Holborn - Offices 13.8 16.7 - Retail 0.4 0.8 Outside London 3.5 9.9 ----------------------------------------------------------------------------- 55.6 72.6 Premium on lease surrender 8.2 - ----------------------------------------------------------------------------- 63.8 72.6 ----------------------------------------------------------------------------- Rent receivable is stated exclusive of value added tax, and arose wholly from continuing operations in the United Kingdom. No operations were discontinued during the year. 3 Administration Expenses 2004 2003 Â£m Â£m ----------------------------------------------------------------------------- Administration expenses Other 7.2 6.4 Exceptional items Costs of early repayment of debenture - 0.3 ----------------------------------------------------------------------------- 7.2 6.7 ----------------------------------------------------------------------------- Included within administration expenses are fees charged by the auditors comprising audit fees payable to Deloitte & Touche LLP of Â£0.1 million (2003: Â£nil) and to Ernst & Young LLP of Â£nil (2003: Â£0.1 million), and taxation fees to Ernst & Young LLP of Â£0.1 million (2003: Â£0.3 million). 4 Employee Information ----------------------------------------------------------------------------- The average number of employees of the Group,including directors, was: 2004 2003 Number Number ----------------------------------------------------------------------------- Head office and administration 49 45 On-site property management 1 - ----------------------------------------------------------------------------- 50 45 ----------------------------------------------------------------------------- Included within administration expenses are staff costs, including those of directors, comprising: 2004 2003 Â£m Â£m ----------------------------------------------------------------------------- Wages and salaries 4.1 3.6 Social security costs 0.5 0.4 Other pension costs 0.6 0.4 ----------------------------------------------------------------------------- 5.2 4.4 Less: recovered through service charges (0.1) - ----------------------------------------------------------------------------- 5.1 4.4 ----------------------------------------------------------------------------- The directors received fees of Â£295,000 (2003: Â£264,000) and other emoluments of Â£1,167,000 (2003: Â£1,104,000), and pension contributions have been made for directors of Â£163,000 (2003: Â£134,000). 5 Interest Receivable 2004 2003 Â£m Â£m ----------------------------------------------------------------------------- Short-term deposits 4.6 0.9 Other 0.4 0.8 ----------------------------------------------------------------------------- 5.0 1.7 ----------------------------------------------------------------------------- 6 Interest Payable 2004 2003 Â£m Â£m ----------------------------------------------------------------------------- Bank loans and overdrafts 1.0 5.6 Other 18.9 19.3 ----------------------------------------------------------------------------- 19.9 24.9 Less: interest capitalised on developments (0.5) - ----------------------------------------------------------------------------- 19.4 24.9 7 Exceptional Finance Costs 2004 2003 Â£m Â£m ----------------------------------------------------------------------------- Premium on redemption of debenture - 66.6 Provision for swap costs - 3.6 ----------------------------------------------------------------------------- - 70.2 ----------------------------------------------------------------------------- 8 Tax on Profit/(Loss) on Ordinary Activities 2004 2003 Â£m Â£m ----------------------------------------------------------------------------- Current tax UK corporation tax - - Tax underprovided in previous years 2.8 0.2 ----------------------------------------------------------------------------- Total current tax 2.8 0.2 Deferred tax 2.1 (13.9) ----------------------------------------------------------------------------- Tax on profit/(loss) on ordinary activities 4.9 (13.7) ----------------------------------------------------------------------------- The difference between the standard rate of tax and the effective rate arises from the items set out below: 2004 2003 Â£m Â£m ----------------------------------------------------------------------------- Profit/(loss) on ordinary activities before tax 35.6 (34.2) ----------------------------------------------------------------------------- Tax on profit/(loss) on ordinary activities at standard rate of 30% 10.7 (10.3) Accounting losses arising in the year not relievable against current tax - 9.7 Accounting losses arising in the previous year relievable against current tax (9.2) - Receipts taxable as chargeable gains covered by capital losses (2.5) - Expenses not deductible for tax purposes 0.3 0.2 Income not taxable (0.1) (0.1) Pension contributions in excess of pensions charge (0.1) (0.2) Sale of investment properties covered by capital losses 0.8 0.7 Tax underprovided in previous years 2.8 0.2 Other 0.1 - ----------------------------------------------------------------------------- 2.8 0.2 ----------------------------------------------------------------------------- Taxation on capital gains of approximately Â£19 million would have arisen if the Group's investment properties had been sold for their book value at 31 March 2004. 9 Dividends 2004 2003 Â£ Â£m ----------------------------------------------------------------------------- Interim at 3.50p on 201,613,978 shares (2003: 3.42p on 203,093,515 shares) 7.0 6.9 Proposed final at 7.00p on 201,613,978 shares (2003: 6.83p on 202,345,750 shares) 14.1 13.9 ----------------------------------------------------------------------------- 21.1 20.8 ----------------------------------------------------------------------------- The final dividend will be payable on 13 July 2004 to shareholders on the register at 4 June 2004. Dividends are not payable on shares held by the Great Portland Estates P.L.C. LTIP Employee Share Trust. 10 Earnings per Share and Net Assets per Share ----------------------------------------------------------------------------- Earnings per share are based on the profit attributable to ordinary shareholders of Â£30.7 million (2003: loss of Â£20.5 million) and on the weighted average of 203,093,515 shares in issue (2003: 203,092,527 shares). Diluted earnings per share are based on profits of Â£32.7 million (2003: loss of Â£18.4 million) and on 221,803,192 shares (2003: 221,802,204 shares). The difference between basic and diluted earnings per share is the effect of the conversion of the convertible bonds. The directors believe that earnings per share before deferred tax arising on capital allowances exceeding depreciation, exceptional items and profits or losses on sales of investment properties provide a more meaningful measure of the Group's performance. Accordingly, earnings per share on that adjusted basis have been disclosed on the face of the profit and loss account and calculated as follows: 2004 2004 2003 2003 Profit/(Loss) Earnings (Loss)/profit Earnings After Tax Per Share After Tax Per Share Â£m pence Â£m pence ---------------------------------------------------------------------------------------- Basic 30.7 15.1 (20.5) (10.1) Deferred tax on capital allowances (7.5) (3.7) (4.7) (2.3) Exceptional items - - 49.8 24.5 Loss on sale of investment properties 2.8 1.4 2.4 1.2 ---------------------------------------------------------------------------------------- Adjusted 26.0 12.8 27.0 13.3 ---------------------------------------------------------------------------------------- Basic, adjusted and diluted adjusted net assets per share are calculated as follows: 2004 2004 2004 2003 2003 2003 Net No. of Net Assets Net No. of Net Assets Assets Shares per Share Assets Shares per Share Â£m million pence Â£m million pence ------------------------------------------------------------------------------------------- Basic 564.6 203.1 278 568.5 203.1 280 Deferred tax on capital 2.7 203.1 1 10.2 203.1 5 allowances ------------------------------------------------------------------------------------------- Adjusted 567.3 203.1 279 578.7 203.1 285 Convertible bonds 57.2 18.7 3 57.1 18.7 2 ------------------------------------------------------------------------------------------- Diluted adjusted 624.5 221.8 282 635.8 221.8 287 ------------------------------------------------------------------------------------------- 11 Investment Properties Long Freehold Leasehold Total Â£m Â£m Â£m ----------------------------------------------------------------------------- Book value at 1 April 2003 534.7 244.7 779.4 Add: Included in prepayments 0.3 0.3 0.6 and accrued income ----------------------------------------------------------------------------- Market value at 1 April 2003 535.0 245.0 780.0 Additions at cost 37.3 0.7 38.0 Disposals (52.3) (11.4) (63.7) ----------------------------------------------------------------------------- 520.0 234.3 754.3 (Deficit)/surplus on revaluation (18.7) 9.0 (9.7) ----------------------------------------------------------------------------- Market value at 31 March 2004 501.3 243.3 744.6 Less: Included in prepayments and accrued (3.9) (0.5) (4.4) income ----------------------------------------------------------------------------- Book value at 31 March 2004 497.4 242.8 740.2 ----------------------------------------------------------------------------- Â£m ----------------------------------------------------------------------------- Movement in revaluation reserve: Deficit on revaluation (9.7) Add: Included within prepayments and accrued income 0.6 at 1 April 2003 Less: Included within prepayments and accrued income (4.4) at 31 March 2004 ----------------------------------------------------------------------------- Movement in revaluation reserve (note 22) (13.5) ----------------------------------------------------------------------------- The freehold and leasehold investment properties were valued on the basis of Market Value by CB Richard Ellis as at 31 March 2004 in accordance with the RICS Appraisal and Valuation Standards of The Royal Institution of Chartered Surveyors. The historical cost of investment properties at 31 March 2004 was Â£502.6 million (2003: Â£539.0 million). At 31 March 2004, the cumulative interest capitalised in investment properties under development was Â£0.5 million (Â£2003: Â£nil). 12 Investments Investment in own shares Â£m ----------------------------------------------------------------------------- At 1 April 2003 1.7 Additions 1.7 ----------------------------------------------------------------------------- At 31 March 2004 3.4 ----------------------------------------------------------------------------- The investment in the Company's own shares at 31 March 2004 had a market value of Â£3.8 million and comprised 1,479,537 shares with a nominal value of 50p each, acquired at a cost of Â£2.25 each, and representing 0.7% of the shares in issue. The shares, which are held by the Great Portland Estates P.L.C. LTIP Employee Share Trust, will vest in certain senior employees of the Group if performance conditions are met. 13 Debtors 2004 2003 Â£m Â£m ----------------------------------------------------------------------------- Rental debtors 2.2 5.0 Corporation tax - 2.8 Other Debtors 26.1 5.3 Prepayments and accrued income 8.2 4.0 Deferred taxation - 9.3 ----------------------------------------------------------------------------- 36.5 26.4 ----------------------------------------------------------------------------- Included within prepayments and accrued income is Â£2.8 million (2003: Â£2.8 million) in respect of pension contribution payments made in advance of their recognition in the profit and loss account, all of which falls due after more than one year. The deferred taxation asset arose from the accounting loss in the year ended 31 March 2003 and was recognised on the basis of future estimated taxable profits against which it would be offset. 14 2004 2003 Â£m Â£m ----------------------------------------------------------------------------- Bank loan 25.0 - Corporation tax 1.8 - Other taxes and social security 1.7 1.6 costs Other creditors 4.3 3.5 Accruals and rents in advance 20.4 22.6 Proposed dividend 14.1 13.9 ----------------------------------------------------------------------------- 67.3 41.6 ----------------------------------------------------------------------------- 15 Debenture Loans 2004 2003 Â£m Â£m ----------------------------------------------------------------------------- First mortgage debenture stock Â£24 million 113/16 per cent. debenture stock 2009/14 26.8 27.1 Â£97.5 million 71/4 per cent. debenture stock 2027* 95.2 97.7 Â£100 million 55/8 per cent. debenture stock 2029 99.0 98.9 ----------------------------------------------------------------------------- 221.0 223.7 ----------------------------------------------------------------------------- *At 31 March 2003, the nominal value outstanding of this debenture was Â£100 million. During the year ended 31 March 2004, Â£2.5 million was redeemed. On 7 May 2004, the Â£24 million 113/16 per cent. Debenture stock 2009/14 was redeemed at cost of Â£32.9 million. Certain of the freehold and leasehold properties are charged to secure the first mortgage debenture stock. 16 Convertible Loans 2004 2003 Â£m Â£m ----------------------------------------------------------------------------- 51/4 per cent. convertible bonds 2008 58.0 58.0 Costs of issue (0.8) (0.9) ----------------------------------------------------------------------------- 57.2 57.1 ----------------------------------------------------------------------------- The bonds, which are unsecured, are convertible by the bondholder at any time until 2008 at a price of Â£3.10 per share, and redeemable by the Company in 2008 at par. 17 Bank and Other Loans 2004 2003 Â£m Â£m ----------------------------------------------------------------------------- Unsecured loan notes 2007 4.4 5.9 ----------------------------------------------------------------------------- The unsecured loan notes, which together with an associated guarantee attract a floating rate of interest of 0.275 per cent. in aggregate above LIBOR, are redeemable at the option of the noteholder until 2007, and by the Company in 2007. 18 Derivatives and Other Financial Instruments ----------------------------------------------------------------------------- An explanation of the Group's objectives, policies and strategies for the role of derivatives and other financial instruments in creating and changing the risks of the Group in its activities can be found in the Financial Review. The disclosures below exclude short-term debtors and creditors. Interest rate profile of financial liabilities The interest rate profile of the financial liabilities of the Group as at 31 March 2004 was as follows: 2004 2003 Â£m Â£m ----------------------------------------------------------------------------- Fixed rate financial liabilities 278.2 280.8 Floating rate financial liabilities 29.4 5.9 ----------------------------------------------------------------------------- 307.6 286.7 ----------------------------------------------------------------------------- All financial liabilities were in sterling. The fixed rate financial liabilities carried a weighted average interest rate of 6.5 per cent. (2003: 6.8 per cent.), and the weighted average period for which the rate was fixed was 18.6 years (2003: 19.7 years). The floating rate financial liabilities comprised unsecured loan notes, details of which are given in note 17. Interest rate profile of financial assets The Group held the following financial assets as at 31 March 2004: 2004 2003 Â£m Â£m ----------------------------------------------------------------------------- Sterling cash and short-term deposits 138.8 103.5 ----------------------------------------------------------------------------- The sterling cash and short-term deposits were all held as part of the financing arrangements of the Group, and comprised cash, and deposits placed on money markets for up to three months at fixed rates. The weighted average interest rate on the deposits was 4.0 per cent. (2003: 3.6 per cent.). Maturity of financial liabilities The maturity profile of the Group's financial liabilities at 31 March 2004 was as follows: 2004 2003 Â£m Â£m ----------------------------------------------------------------------------- 25.0 - 61.6 63.0 221.0 223.7 ----------------------------------------------------------------------------- 307.6 286.7 ----------------------------------------------------------------------------- Borrowing facilities Undrawn committed borrowing facilities available to the Group at 31 March 2004 were as follows: 2004 2003 Â£m Â£m ----------------------------------------------------------------------------- Expiring in one year or less 165.0 15.0 Expiring between one and two years 20.0 175.0 Expiring in more than two years - 20.0 ----------------------------------------------------------------------------- 185.0 210.0 ----------------------------------------------------------------------------- Fair values of financial assets and financial liabilities 2004 2004 2003 2003 Book Fair Book Fair Value Value Value Value Â£m Â£m Â£m Â£m ----------------------------------------------------------------------------- Short-term borrowings 25.0 25.0 - - Long-term borrowings 282.6 299.8 286.7 298.3 Interest rate swaps 1.0 1.5 3.6 5.1 ----------------------------------------------------------------------------- The fair values of the Group's fixed asset investments and cash and short-term deposits are not materially different from those at which they are carried in the financial statements. Market values have been used to determine the fair value of listed long-term borrowings, and interest rate swaps have been valued by reference to market rates of interest. The fair values of all other items have been calculated by discounting the expected future cash flows at prevailing interest rates. The cumulative aggregate losses on financial instruments for which hedge accounting has been used that are unrecognised at the balance sheet date are Â£0.5 million (2003: losses of Â£1.5 million). Changes in the fair value of hedging instruments are not recognised in the financial statements until the hedged position matures. The movement in these unrecognised gains and losses is as follows: Net (gains)/losses Â£m ----------------------------------------------------------------------------- Unrecognised losses on hedging instruments at 1 April 2003 1.5 Losses recognised in the year 0.1 Gains arising that were not recognised in the year (1.1) ----------------------------------------------------------------------------- Unrecognised losses on hedging instruments at 31 March 2004 0.5 ----------------------------------------------------------------------------- Of which: Losses expected to be recognised in the year to 31 March 2005 0.5 ----------------------------------------------------------------------------- 19 Provisions for Liabilities and Charges Deferred Provision for tax swap costs Total Â£m Â£m Â£m ----------------------------------------------------------------------------- At 1 April 2003 10.6 3.6 14.2 Released during the year (7.2) (2.6) (9.8) ----------------------------------------------------------------------------- At 31 March 2004 3.4 1.0 4.4 ----------------------------------------------------------------------------- The provision for deferred tax comprises Â£2.7million (2003: Â£10.2 million) in respect of capital allowances exceeding depreciation, and Â£0.7 million (2003: Â£0.4 million) of other timing differences. The provision for swap costs will be released in the year ending 31 March 2005. 20 Share Capital 2004 2004 2003 2003 Number Â£m Number Â£m ----------------------------------------------------------------------------- Ordinary shares of 50p each Authorised 300,000,000 150.0 300,000,000 150.0 ----------------------------------------------------------------------------- Allotted, called up and fully paid At 1 April 2003 203,093,515 101.5 203,041,984 101.5 Exercise of share options - - 51,531 - ----------------------------------------------------------------------------- At 31 March 2004 203,093,515 101.5 203,093,515 101.5 ----------------------------------------------------------------------------- At 31 March 2004, there were no remaining options to subscribe for shares in the Company under the 1988 Executive Share Option Scheme. At 1 April 2002, there were 51,531 existing options, all of which were originally granted on 23 June 1995, were exercisable at a price of 164.95p, and were exercised in the year ended 31 March 2003. 21 Share Premium Account Â£m ----------------------------------------------------------------------------- At 31 March 2004 and at 1 April 2003 24.8 ----------------------------------------------------------------------------- 22 Reserves Other Reserves -------------------------------- Capital Profit and Redemption Acquisition Revaluation Loss Reserve Reserve Total Reserve Account Â£m Â£m Â£m Â£m Â£m ------------------------------------------------------------------------------- At 1 April 2003 16.4 8.6 25.0 255.4 161.8 Realised on - - - (4.3) 4.3 disposal of properties Deficit on revaluation - - - (13.5) - Retained profit for - - - - 9.6 the year ------------------------------------------------------------------------------- At 31 March 2004 16.4 8.6 25.0 237.6 175.7 ------------------------------------------------------------------------------- 23 Reconciliation of Movements in Shareholders' Funds 2004 2003 Â£m Â£m ------------------------------------------------------------------------------- Profit/(loss) for the financial year 30.7 (20.5) Dividends (21.1) (20.8) ------------------------------------------------------------------------------- 9.6 (41.3) Other recognised gains and losses relating to the year (net) (13.5) (92.0) ------------------------------------------------------------------------------- Net decrease in shareholders' funds (3.9) (133.3) Opening shareholders' funds 568.5 701.8 ------------------------------------------------------------------------------- Closing shareholders' funds 564.6 568.5 ------------------------------------------------------------------------------- 24 Reconciliation of Operating Profit to Net Cash Inflow from Operating Activities 2004 2003 Â£m Â£m ------------------------------------------------------------------------------- Operating profit 52.8 61.6 Decrease in stock of trading properties - 1.9 Increase in debtors (1.4) (0.4) Decrease in creditors (2.1) (3.9) ------------------------------------------------------------------------------- Net cash inflow from operating activities 49.3 59.2 ------------------------------------------------------------------------------- 25 Analysis of Cash Flows 2004 2003 Â£m Â£m ------------------------------------------------------------------------------- Returns on investments and servicing of finance Interest received 4.5 1.6 Interest paid (22.5) (24.6) ------------------------------------------------------------------------------- (18.0) (23.0) ------------------------------------------------------------------------------- Taxation Corporation tax paid - (0.1) Corporation tax refunded 1.8 3.8 ------------------------------------------------------------------------------- 1.8 3.7 ------------------------------------------------------------------------------- Net cash inflow from capital expenditure Payments to acquire investment properties (36.6) (10.8) Receipts from sales of investment properties 40.6 210.5 Payments to acquire investments (1.7) (1.7) ------------------------------------------------------------------------------- 2.3 198.0 ------------------------------------------------------------------------------- Management of liquid resources Cash placed on short-term deposit (36.3) (18.3) ------------------------------------------------------------------------------- (36.3) (18.3) ------------------------------------------------------------------------------- Net cash inflow/(outflow) from financing Redemption of - nominal value loans (4.0) (130.8) - premium on redemption (0.2) (66.6) Drawdown of bank loans 25.0 - ------------------------------------------------------------------------------- 20.8 (197.4) ------------------------------------------------------------------------------- 26 Reconciliation of Net Cash Flow to Movement in Net Debt 2004 2003 Â£m Â£m ------------------------------------------------------------------------------- (Decrease)/increase in cash in the year (1.0) 1.8 Cash placed on short-term deposit 36.3 18.3 Cash inflow from increase in debt (25.0) - Cash outflow from redemption of loans 4.0 130.8 ------------------------------------------------------------------------------- Change in net debt arising from cash flows 14.3 150.9 Other non-cash movements 0.1 (0.1) ------------------------------------------------------------------------------- Movement in net debt in the year 14.4 150.8 Net debt at 1 April 2003 (183.2) (334.0) ------------------------------------------------------------------------------- Net debt at 31 March 2004 (168.8) (183.2) ------------------------------------------------------------------------------- 27 Analysis of Net Debt At 1 April Non-Cash At 31 March 2003 Cash Flow Changes 2004 Â£m Â£m Â£m Â£m ------------------------------------------------------------------------------- Cash 1.8 (1.0) - 0.8 Short-term deposits 101.7 36.3 - 138.0 Debt due within one year - (25.0) - (25.0) Debt due after one year (286.7) 4.0 0.1 (282.6) ------------------------------------------------------------------------------- (183.2) 14.3 0.1 (168.8) ------------------------------------------------------------------------------- 28 Capital Commitments ------------------------------------------------------------------------------- At 31 March 2004 there were outstanding contracts of Group undertakings for capital expenditure amounting to Â£12.5 million (2003: Â£16.0 million). 29 Pension Commitments ------------------------------------------------------------------------------- The Group contributes to a defined benefit pension plan (the 'Plan'), the assets of which are held by trustees separately from the assets of the Group. The contributions relating to the Plan are determined with the advice of an independent qualified actuary on the basis of triennial valuations using the Attained Age funding method. The most recent actuarial valuation of the Plan was conducted as at 1 April 2002, using the following main assumptions: â€¢ rate of salary increases - 5 per cent. per annum; â€¢ rate of increase in deferred pensions - 2.75 per cent. per annum; â€¢ rate of increase in pensions in payment, subject to indexation at the lower of RPI and 5 per cent. per annum -2.75 per cent. per annum; â€¢ discount rate pre-retirement - 7 per cent. per annum; â€¢ discount rate post-retirement - 5.5 per cent. per annum; â€¢ inflation - 2.75 per cent. per annum; and â€¢ asset valuation - market value. The valuation showed that the market value of the Plan's assets at 1 April 2002 amounted to Â£9.1 million and the actuarial value of the accumulated fund was sufficient to cover 90 per cent. of the benefits which had accrued to the members of the Plan at that date, allowing for expected future increases in earnings. Following the valuation, the Group's contributions have been paid at a rate of 5.5 per cent. of pensionable salaries plus pensions in payment (in aggregate equating to 28.6 per cent. of pensionable salaries at the valuation date). In addition, a special lump sum was paid in 2003 of Â£1.2 million to accelerate the improvement in the Plan's funding level. The total normal cost for the Group of Â£0.6 million (2003: Â£0.4 million), including amounts payable to personal pensions, is included in administration expenses. A prepayment of Â£2.8 million (2003: Â£2.8 million), representing the excess of employer contributions over accumulated pension costs, is included within current assets. The valuation used for FRS 17 disclosures has been based on the most recent actuarial valuation at 1 April 2002 and updated by a qualified independent actuary to take account of the requirements of FRS 17 in order to assess the liabilities of the Plan at 31 March 2004. Plan assets are stated at their market value at 31 March 2004. At 31 March At 31 March At 31 March 2004 2003 2002 Â£m Â£m Â£m ------------------------------------------------------------------------------- Main assumptions: Rate of increase in salaries 5.25 4.75 5.00 Rate of increase of pensions in 5.00 5.00 5.00 payment Rate of increase of pensions in 3.00 2.50 2.75 deferment Discount rate 5.50 5.50 6.00 Inflation assumption (Limited 3.00 2.50 2.75 Price Indexation) ------------------------------------------------------------------------------- Following the full actuarial valuation as at 1 April 2002, the 2003 mortality assumptions were updated to reflect increased life expectancy. The assets and liabilities of the Plan and the expected rates of return were: --------------------------------------------------------------------------------------------------------- Long-term At 31 March Long-term At 31 March Long-term At 31 March rate of return 2004 rate of return 2003 rate of return 2002 % p.a. Â£m % p.a. Â£m % p.a. Â£m --------------------------------------------------------------------------------------------------------- Equities 7.00 7.3 7.00 6.4 7.00 6.8 Bonds 4.75 3.4 4.50 2.5 5.25 2.3 --------------------------------------------------------------------------------------------------------- Total market 10.7 8.9 9.1 value of assets Present value (14.0) (12.2) (10.2) of Plan liabilities --------------------------------------------------------------------------------------------------------- Shortfall in the Plan (3.3) (3.3) (1.1) Related deferred 1.0 1.0 0.3 tax asset --------------------------------------------------------------------------------------------------------- Net pension liability (2.3) (2.3) (0.8) --------------------------------------------------------------------------------------------------------- If these net pension liabilities were to be recognised in the Group financial statements, the effect on net assets and profit and loss reserve would be as follows: At 31 March At 31 March At 31 March 2004 2003 2002 Â£m Â£m Â£m ------------------------------------------------------------------------------ Net Assets As currently stated 564.6 568.5 701.8 Net pension liability (2.3) (2.3) (0.8) Net reversal of prepaid pension (2.3) (2.4) (0.9) contribution ------------------------------------------------------------------------------ As restated 560.0 563.8 700.1 ------------------------------------------------------------------------------ Profit and Loss Reserve As currently stated 175.7 161.8 104.6 Net pension liability (2.3) (2.3) (0.8) Net reversal of prepaid pension (2.3) (2.4) (0.9) contribution ------------------------------------------------------------------------------ As restated 171.1 157.1 102.9 ------------------------------------------------------------------------------ The net return on the Plan for the year comprised: 2004 2003 Â£m Â£m ------------------------------------------------------------------------------ Expected return on Plan assets 0.6 0.6 Interest on Plan liabilities (0.7) (0.6) ------------------------------------------------------------------------------ Net return (0.1) - ------------------------------------------------------------------------------ The movement in the deficit in the Plan in the year comprised: 2004 2003 Â£m Â£m ------------------------------------------------------------------------------ Deficit in Plan at beginning of year (3.3) (1.1) Current service cost (0.3) (0.3) Contributions 0.2 1.7 Net return on assets (0.1) - Actuarial gain/(loss) 0.2 (3.6) ------------------------------------------------------------------------------ Deficit in Plan at end of year (3.3) (3.3) ------------------------------------------------------------------------------ The amount which would have been charged to operating profit in 2004 and 2003 comprised entirely current service costs. The Plan is closed to new entrants and the service cost is, therefore, expected to increase as a percentage of salaries as the membership approaches retirement. The amount recognised in the Statement of Total Recognised Gains and Losses (STRGL) would have been: 2004 2003 Â£m Â£m ------------------------------------------------------------------------------ Actual return less expected return on assets 1.3 (2.2) Experience gains and losses on liabilities - 0.2 Changes in assumptions (1.1) (1.6) ------------------------------------------------------------------------------ Actuarial gain/(loss) 0.2 (3.6) ------------------------------------------------------------------------------ In 2004, the Â£1.3 million by which the actual return exceeded the expected return represented 12% of Plan assets; in 2003, the Â£2.2 million by which it fell short represented 24% of Plan assets. The Â£0.2 million of experience gains and losses in 2003 represented 2% of Plan liabilities. In 2004, the Â£0.2 million actuarial gains which would have been recognised in the STRGL was 2% of the size of Plan liabilities; in 2003, the Â£3.6 million actuarial loss was 30% of the size of Plan liabilities. This information is provided by RNS The company news service from the London Stock Exchange

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