Final Results

Great Portland Estates PLC 24 May 2006 PRELIMINARY RESULTS 24 May 2006 The Directors of Great Portland Estates plc announce the results of the Group for the year ended 31 March 2006. Highlights: â€¢Adjusted net assets per share* up 29.7% to 437p â€¢Valuation of wholly-owned properties up 24.7% on a like-for-like basis to Â£1,015 million â€¢Total Property Return of 29.7%, 4.9% ahead of IPD Central London (24.8%) â€¢Profit before taxation up 127.6% to Â£188.0m â€¢Basic earnings per share up 133.3% to 91.7p â€¢Adjusted earnings per share* of 10.2p (2005: 11.6p) â€¢Return on capital employed 28.9% (2005:17.5%) â€¢Dividends per share up 2.3% to 11.0p â€¢575,000 sq ft near-term development programme â€¢Met Building completed on time and on budget and 96% let, generating a Â£45.0 million surplus â€¢All near-term development projects on site or starting imminently â€¢Good progress on 1.2 million sq ft medium-term development programme Notes * EPRA adjustments on a diluted basis - see note 7 Toby Courtauld, Chief Executive, said: '2006 was a strong year for the Group. With London's economy expanding at both a healthy and steady rate and occupational markets, particularly in the West End, positioned for a growth phase, the conditions are in place for further healthy returns. Great Portland Estates is well set to take advantage of this set of circumstances: â€¢we have a near-term development programme that is already producing significant returns; â€¢we have a growing medium and longer-term development programme, augmented by recent acquisitions; â€¢our focused asset management continues to maintain a virtually fully let portfolio as well as create real value through asset restructuring; â€¢our finances are both low cost and flexible following our most recent round of restructuring; and â€¢our teams are working well together to unearth further opportunities for value enhancement. We are, therefore, confident that we will continue to generate attractive returns for our shareholders.' Enquiries etc: Great Portland Estates plc 020 7647 3000 Toby Courtauld, Chief Executive Timon Drakesmith, Finance Director Finsbury Group 020 7251 3801 James Murgatroyd Gordon Simpson The results presentation will be broadcast live at 9.30am today on www.gpe.co.uk. Also an interview with Toby Courtauld, the Chief Executive, is available in video, audio and text on http://www.gpe.co.uk and http://www.cantos.com CHAIRMAN'S STATEMENT Knighton House, for nearly 45 years the headquarters of your Company, is currently the subject of an extensive refurbishment and so, as I write my twenty-first Statement, it is the first from our new offices in Cavendish Square - and, by coincidence, this is the first Annual Report prepared in accordance with the new format and revised presentation required under International Financial Reporting Standards. In the context of this environment and the plethora of financial detail and corporate governance information contained in the following pages, I am beginning to feel that the traditional Chairman's Statement is becoming something of an anachronism and I shall, therefore, confine myself to a few very brief introductory remarks. It has been a high octane year, fuelled by an increasingly frothy investment market, and one in which our Chief Executive, Toby Courtauld, and his well regarded team have produced another strong performance, based on our focus in central London and by applying our asset management and development expertise to create added value in our chosen areas. Indeed, the development programme is now swinging into full gear at what appears to be an advantageous moment in the property cycle. We have also been active on the financial front where our recently appointed Finance Director, Timon Drakesmith, has implemented more financial restructuring, thereby further reducing the average cost of debt. At 31 March net assets per share, despite a one-off hit on the repurchasing of a Debenture, stood at 437 pence, a rise of 29.7% and a total shareholder return of 53.9% was delivered for the year under review. Looking ahead, we are giving detailed thought as to whether it is in the Company's best interests to convert into a Real Estate Investment Trust, where the Chancellor's proposals in March were friendlier than the industry might have anticipated. We have achieved exceptional returns recently and, whilst it is unlikely that we will be able to repeat them in the immediate future (although I remember writing something similar in the late 80s only to be proved wrong!), I believe that we should be able to provide a satisfactory performance in the coming years. In conclusion, I would like to thank my fellow Board members and all associated with the Group for their support and hard work in helping to achieve these excellent results. Strategy and objectives 1. Develop 2. Recycle capital 3. Asset Manage ---------------------------------------------------------------------------------------------------- â€¢ near-term programme Buy â€¢ execute individual property strategies â€¢ into undersupplied market â€¢ off low rents â€¢ create value through asset repositioning â€¢ bring forward medium-term projects â€¢ with angles to exploit â€¢ to grow medium-term development programme Sell â€¢ off historically high capital values â€¢ with limited further angles â€¢ where capturing rental growth will be difficult (poor floor plates, etc). Great Portland Estates has a clear and straightforward strategy; we aim to deliver superior returns to shareholders with a focus on applying our asset management and development skills to properties with value angles to exploit in central London. Throughout this report you will find examples of the team delivering on our strategic aims: â€¢ Developing - we completed the 112,000 sq ft Met Building, Percy Street, W1, during the year, the first major project in our near-term programme. The remaining nine schemes are well advanced and are scheduled to deliver 575,000 sq ft between now and 2008, with an end value estimated at Â£375 million, or 37% of the Group's current portfolio. We have expanded our future development pipeline through both working up schemes on existing assets and new acquisitions. Conservatively, our future prospects total some 1.6 million sq ft of new space, up from those assets' existing area of 0.8 million sq ft. â€¢ Recycling capital - we have sold Â£139.7 million of properties, at historically high capital values, where we have executed asset strategies and where we see less attractive prospects. We have bought Â£134.0 million of properties where the current rents are low and where we see future redevelopment or other value creating opportunities. â€¢ Asset manage - we have continued the successful execution of asset strategies across the portfolio including letting 189,800 sq ft of space, generating Â£5.7 million of new rent roll, some 4.3% ahead of March 2005 rental values. The result of this activity has been a strong increase in our NAV per share of 100 pence or 30% to 437 pence and a total shareholder return for the year of 53.9%. We use numerous benchmarks to define our operational objectives and to measure the success of our strategy in creating long-term value for shareholders, including: â€¢ Portfolio Internal Rate of Return (IRR) - each of our properties has a business plan with an IRR projection which, when amalgamated, produce the Portfolio IRR. We aim to achieve this target; â€¢ Portfolio Capital Growth - we aim to generate capital growth, net of capital expenditure, in the portfolio greater than that of the IPD central London Capital Growth Index; â€¢ Return on Capital Employed (ROCE) - we measure the Group's ROCE against its weighted average cost of capital; â€¢ NAV per Share Growth - we aim to produce growth in adjusted NAV per share of greater than RPI plus 3% over a three year period; and â€¢ Total Shareholder Return (TSR) - we aim to produce a TSR ahead of both the median of our comparator peer group and relevant market indices. The remuneration of the Executive Directors and every member of staff is linked to our performance against these measures. MARKET AND INVESTMENT ENVIRONMENT Market and Investment Environment is accompanied by graphics (see Appendix 1). Copy and paste the link below to view the graphics. http://www.rns-pdf.londonstockexchange.com/rns/4791d_-2006-5-24.pdf Our Market Vacancy rates in the 220 million sq ft central London office market have fallen significantly over the year, heralding the return of real rental growth across the capital. Although take-up in the 12 months to 31 March 2006, estimated at 12 million sq ft, has been only slightly ahead of the long-term average, the withdrawal from the market of tenants' surplus space and the reduced supply of newly developed office property over the last few years has combined to restrict the amount of choice for businesses on the move. In the West End, where 80% of our portfolio by value (including our share of joint venture properties) is located, vacancy rates have fallen to 7%. Due primarily to planning restrictions, this market is limited in its ability to respond rapidly to changes in occupier sentiment. The development pipeline remains constrained and we estimate that no more than 4 million sq ft is due to be delivered speculatively by the end of 2009, equivalent to 5% of total stock, much of it outside the traditional 'core' areas. Both active and potential demand continue to be weighted towards the business services and marketing and media sectors, traditionally users of larger uniform floor plates which remain the most difficult to provide in the West End. Vacancy rates have also fallen sharply in the City and Southwark market, comprising 20% of our portfolio by value, to 10% today. Unlike the West End, however, the ability to increase supply in the City is relatively less challenging. With a less restrictive planning regime we expect development activity to pick up markedly over the next few years, with an estimated 10 million sq ft to be completed speculatively by the end of 2009. Furthermore, we believe planning consents exist for around 12 million sq ft in these markets with 3 million sq ft of consent having been granted in the first quarter of 2006 alone. As a result, we are maintaining our more cautious medium-term outlook for the City as compared to the West End. In the meantime, due to the sharp fall in vacancy rates and the inevitable delay until supply picks up, rental growth in the central London office market as a whole during 2006 looks set to be ahead of consensus forecasts. Turning to the retail markets, despite the generally challenging environment, the principal shopping thoroughfares are performing well, helped by the unprecedented interest from international retailers seeking representation in strong locations in London. We have significant exposure to the prime retail streets of Oxford Street, Bond Street and Regent Street where demand remains healthy for well configured retail stores. In the investment markets, central London remained high on investors' shopping lists throughout the year. Volumes have again been at record levels with over Â£13 billion traded. Due to the positive outlook for rental levels we expect fierce competition for investment property to continue imposing further downward pressure on equivalent yields, at least in the short-term. However, on the assumption that yields cannot fall forever (not least because the recent rise in swap rates has eliminated the positive gap between property yields and funding costs), out-performance will come from those buildings that, through management action, will be best able to benefit from rental growth. Our portfolio, with 20% in the process of being upgraded and a growing medium-term pipeline, is ideally placed to thrive in this set of market circumstances. BUSINESS ACTIVITIES AND RESOURCES Business Activities and Resources is accompanied by graphics (see Appendix 2). Copy and paste the link below to view the graphics. http://www.rns-pdf.londonstockexchange.com/rns/4791d_-2006-5-24.pdf Valuation The valuation of the Group's properties as at 31 March 2006, including acquisitions made during the year and our share of the gross assets in joint ventures, was Â£1,128.3 million (up 23.3% on a like-for-like basis). The valuation of the portfolio held throughout the year, excluding joint ventures, was Â£923.5 million which, net of capital expenditure totalling Â£41.7 million increased in value by 24.7%, or Â£183.2 million, of which 17.6% was during the second half. Three main factors have come together to drive this strong performance: â€¢ Growth in rental values - first half growth of 3.9% accelerated during the second half to produce 12.9% for the year across the portfolio. Within this, the strongest performance came from rental growth within the properties currently under development at 21.9% as we improved the quality of the space on offer. The lowest growth in rental values (5.9%) came from those properties approaching development where we are shortly to invest capital in order to create the conditions necessary to attract future rental growth. In the City, rental values grew by 9.1%, almost all of which was in the second half as the falling vacancy rate in this market began to have an effect. In the West End, rents grew by 14.5% in our North of Oxford Street portfolio and by 11.7% in the Rest of the West End properties, again reflecting the improvements in occupational market balance. â€¢ Yield shift - equivalent yields compressed across the portfolio, falling by 100 basis points over the 12 months to March from 6.3% to 5.3% on a like-for-like basis. We estimate that roughly 60% of the portfolio capital value movement was attributed to yield compression, which in turn was the result of strong investment demand driving prices higher and the improvements we made to our assets rendering them more attractive to investors. In line with central London market trends, the rate of yield compression accelerated during the second half with 83 basis points of the total 100 basis points across the portfolio taking place during this period. â€¢ Development - the strongest valuation performance came from those properties currently under development, which increased in value by 39.8% over the 12 month period. This does not include the Met Building, Percy Street, W1, which was transferred to the investment portfolio during the second half and increased in value over the year by more than 70% net of capital expenditure. Development We continued to make encouraging progress across our development business over the past 12 months. We began the year with a near-term programme totalling nine schemes delivering almost 700,000 sq ft, an increase of 78%, over their existing area, of which seven were on site. Since then, we have completed the first of these schemes at the 112,000 sq ft Met Building, 22 Percy Street, W1, obtained planning permission for six projects and commenced construction work at two sites. By the autumn of this year, we will have started on site at the remaining four schemes in the near-term programme. At Met Building, construction was completed on time in May 2005 and to budget and the project is now 96% leased or under offer. We achieved rents approximately 38% ahead of our initial expectations, totalling an annual equivalent of Â£4.8 million and, combined with inward yield shift, the scheme has produced a truly exceptional surplus of Â£45.0 million or 96% on our total cost. During the year, work progressed at 21 Sackville Street, Bond Street House, Bond Street, 180 (formerly 190) Great Portland Street, Margaret Street (recently forward sold) and Knighton House, Mortimer Street, all in the West End. At 180 Great Portland Street, we recently passed the halfway stage in the construction programme and completion is scheduled at the end of 2006. During the summer, work is due to start at our two major new-build office projects at Tooley Street, SE1 and Titchmor on Mortimer Street, W1, as well as at the last two schemes in the near-term programme being 79/83 Great Portland Street and Dorville House, Foley Street, W1. We anticipate completing the work at Titchmor, the last of the near-term programme to finish, during the fourth quarter of 2008. With the near-term programme now well advanced, our attention has shifted towards growing our medium and longer-term development pipeline in order to generate a consistent flow of future development rents and valuation gains. During the year we identified and progressed medium-term projects both from within the portfolio and through acquisitions (for example at Blackfriars Road, SE1 and New City Court, St Thomas Street, SE1 both mentioned in more detail under Investment Management below). Currently, our medium and longer-term programme incorporates some 15 different projects, totalling approximately 1.6 million sq ft of potential space (up from their existing 0.8 million sq ft). By the nature of such a programme, some schemes will have a greater degree of certainty than others - for example we expect to submit a planning application at Blackfriars Road later this year and anticipate a start on site early in 2009, whereas at Bishopsgate we may not be able to commence a redevelopment until existing leases expire in 2011. Investment management Despite the intense competition in the central London investment market, we have continued to unearth interesting opportunities for value creation. Since March 2005, we have spent Â£134.0 million in eight separate transactions, buying properties on Regent Street, Foley Street, Kingly Street (subsequently sold) and Oxford Street, all in W1; on Bishopsgate in EC2 and on Shand Street, Blackfriars Road and St Thomas Street, all in Southwark, SE1. With our near-term development programme having reached an appropriate scale, we have turned our buying attention to populating our medium and longer-term pipeline. Three examples of such acquisitions are: â€¢ 184/190 Oxford Street, W1, where we augmented our holdings around Market Place, a popular retail and restaurant location, with the acquisition of Oxford House, a 25,900 sq ft retail and office property, for Â£23 million. The current rent roll of Â£1.3 million is off low rents per square foot and, through a combination of refurbishment and an improving retail offer in the immediate vicinity, we are optimistic about the prospects for rental growth. â€¢ 231 and 235/241 Blackfriars Road, mentioned at the interim stage, where we bought a 0.4 acre site for Â£11 million. The majority of the site is let until December 2008, providing the Group with a decent income return, and thereafter, the potential for a major office development of some 130,000 sq ft, up from the existing 29,400 sq ft. Design work is progressing well and we anticipate submitting a planning application during the next six months. â€¢ Most recently, we acquired the 98,500 sq ft New City Court on St Thomas Street, SE1, for Â£43.2 million. This modern office building generates a healthy running yield, off low average rents, and provides us with an interesting medium-term development opportunity in the improving area around London Bridge Station, a key central London rail terminus. We continued to take advantage of investors' voracious appetite for central London real estate during the year, recycling capital out of properties where we had either executed asset strategies and where they were no longer needed for planning gain or where we felt the prospects for rental growth were limited. Group sales totalled Â£122.5 million for the year to 31 March 2006, generating a premium to the 31 March 2005 book value of Â£16.1 million or 15.1%. The aggregate initial yield to the purchasers was 4.7%. In addition, we sold two assets from our joint venture with Liverpool Victoria for a total of Â£34.4 million, of which our share was Â£17.2 million, 2% ahead of their book value. Lasenby House on Kingly Street, W1, was acquired as part of the Liberty acquisition during the first half and, being surplus to requirements, was sold on immediately to a neighbouring owner. Total sales including our share of joint ventures were Â£139.7 million for 2006. Two further sales have been completed since the year end at Gillingham Street, SW1 and New Cavendish Street, W1 at an aggregate price of Â£47.0 million, a 49.2% premium to the 31 March 2005 valuation and 2.5% to that of March 2006. Asset management We continue to work all assets hard, exploring opportunities to enhance both income and capital returns and some examples are described below. The past year has been particularly active with 191 lease events executed by our asset management team. During the year we took lease surrenders of 46,000 sq ft, producing Â£1.3 million in rent roll, in addition to the 205,000 sq ft vacated by tenants at lease expiry or break. Of the total of 251,000 sq ft vacated, 70,000 sq ft has been relet with the remainder in the process of being redeveloped or refurbished for letting into the recovering occupational markets. A total of 189,800 sq ft was let during the year at an aggregate rent roll of Â£5.7 million, an increase of 4.3% on the rental value of the space at 31 March 2005. As a result, the void level within the investment portfolio, which now includes Met Building, W1, was 1.9% at 31 March 2006 compared to 2.6% at the beginning of the year. Our investment portfolio became reversionary during the year for the first time since 2002. At lease renewal and rent review, new rents were agreed at 6.2% ahead of their March 2005 rental value. In addition to successful letting activity at Met Building, W1 and 12/20 Camomile Street, EC2, and the delivery of vacant possession at Knighton House, W1, the asset management team created value from regearing existing leases in a number of locations. For example, at 14 Hanover Square, W1, in return for the removal of a tenant break clause and marking the rent to market, we completed a rolling refurbishment for the existing office tenant whilst maintaining income through the process. Good progress has been made at our joint venture properties. At Mount Royal in Oxford Street, W1, we took a surrender of one of the larger retail units during the year for a payment from the tenant of two years rent. Since the year end, we have leased the unit to Mothercare at a rent ahead of the previous rental tone for the block, thereby creating a rental value uplift which we expect to feed through to the valuation this coming financial year. At 208/222 Regent Street, W1, acquired during the year, we regeared the headlease with The Crown Estate, secured early possession from the principal retail tenant, Liberty, and are due to start work on reconfiguring the retail store shortly. Early interest from quality retailers is encouraging and we are in advanced negotiations to let the space well ahead of schedule. FINANCIAL REVIEW The Financial Review is accompanied by graphics (see Appendix 3). Copy and paste the link below to view the graphics. http://www.rns-pdf.londonstockexchange.com/rns/4791d_-2006-5-24.pdf Financial reporting The Group's annual results have been prepared, for the first time, using International Financial Reporting Standards (IFRS). The change of accounting basis has no effect on the underlying business performance or strategy. This section describes the Group's strong financial performance during 2006. Valuation growth Adjusted net assets per share grew 29.7% from 31 March 2005 to 437 pence. Underlying growth in adjusted net assets per share was higher at 32.9%, excluding the 11 pence per share effect of the exceptional refinancing activities described below. The main drivers of the 100 pence per share year on year increase in reported adjusted net assets per share were: â€¢substantial valuation rises of 21 pence per share from properties under development and 77 pence from the investment portfolio; â€¢increases in valuation in the Liverpool Victoria joint ventures and profits on sale of non-core properties of a further 11 pence; â€¢adjusted earnings for the period of 10 pence with the payment of dividends of 11 pence together reducing adjusted net assets per share by a net 1 pence; and â€¢redemption of the majority of the 7.25% debenture issue along with related refinancing costs reduced adjusted net assets per share by 11 pence. These factors are illustrated in the chart in Appendix 3. In the second half of the financial year growth in adjusted net assets per share accelerated to 22.0% from 7.7% in the first half because of significant portfolio valuation increases and profitable property sales. Triple net asset value (NNNAV) grew by 19.7% to 365 pence per share at 31 March 2006, principally due to the factors set out above. The biggest difference between NNNAV per share and adjusted net assets per share was the provision for deferred tax on revaluation gains of 42 pence per share at 31 March 2006. This provision is considerably higher than the equivalent figure of 21 pence per share at 31 March 2005 reflecting significant revaluation gains in the Group's portfolio. Shareholder return KPIs In addition to the traditional net assets per share measure, the Group uses various other key performance indicators (KPIs). Total shareholder return was 53.9% for the year to 31 March 2006, an increase of 25.7 percentage points over 2005. The Group's total shareholder return for the year also exceeded that of the FTSE 350 real estate sector index and the FTSE 250 index. Return on shareholders' equity was 32.9% versus 22.5% in 2005. This significant improvement was driven by the valuation improvements and asset sales. Prospective individual project returns and the Group's overall return on capital employed (ROCE) are benchmarked against the weighted average cost of capital (currently estimated at around 6.5%). During 2006 the Group's ROCE was 28.9%, significantly greater than the cost of capital and higher than the value of 17.5% for 2005. Income statement and earnings per share Gross rental income for the year was Â£42.2 million, a fall of Â£7.7 million or 15.4% compared to 2005. This reduction was caused by the impact of disposals including 55 Drury Lane WC2, 90 Fetter Lane EC4, 50/52 Paul Street EC2 and 22/28 Eastcastle Street W1 and early termination of leases to gain vacant possession for the Group's development schemes. However, the Group benefited from rent reviews, lease renewals and new lettings which added Â£4.7 million to rental income during the period. Major new lettings were secured at the Met Building, W1, and 12/20 Camomile Street, EC3. Overall the estimated rental value of the portfolio grew by nearly 13% illustrating a combination of positive market factors and improving attraction of individual buildings. Reported profit before tax of Â£188.0 million was 127.6% higher than last year. The Group benefited from greater revaluation gains and profit on sale of assets partly off-set by higher finance costs including exceptional expenses from the debt refinancing. Basic earnings per share for the year was 91.7 pence, up 133.3% on 2005. Adjusted earnings per share was 10.2 pence, a 12.1% reduction compared to last year, the key factors behind this fall are set out in the chart in appendix 3. The lower rental income described above had the biggest single negative impact of 4.5 pence per share, this was partly mitigated by income generated from the Liverpool Victoria joint ventures (GVPs) of 2.7 pence per share and a lower underlying tax charge of 0.8 pence per share. The underlying finance charge was higher than last year, due to the increase in net debt following the return of capital in 2004. Underlying administration costs increased due to increased head count and higher performance related bonuses. The financial performance of the GVPs in their first full year of operation was very encouraging. Management fees of Â£1.3 million (2005: Â£0.1 million) were received and the Group's share of GVP's net profit was Â£3.5 million (2005 : Â£0.1 million). Financial effects of near-term development programme The Group's near-term development and refurbishment schemes will receive very significant investment over the next five years. In market conditions of rental growth and stable to declining investment yields, these schemes are forecast to generate attractive returns for shareholders. Around Â£153 million of project costs are planned for schemes such as 180 Great Portland Street, 56 Mortimer Street, Titchmor, all in W1 and Tooley Street, SE1 in the period to March 2010. During the year the Group spent Â£25.4 million on project costs on the near-term schemes. By 2010, the Group's near-term schemes are forecast to generate incremental rental income of Â£19 million. This growth in rental income from the near-term schemes taken with potential rental increases from voids and reversions is the equivalent of 49% of the Group's current rent roll. The effect of the major schemes on rental growth is shown in the chart in Appendix 3. The Group's development programme and the disposal of selected properties where attractive prices are available from a buoyant market will continue to impact the Group's adjusted earnings per share. A portion of near-term earnings is being invested to allow shareholders to benefit from the potential of a higher portfolio valuation in future years. Financial resources and dividend Cash generated from operations was Â£5.8 million, down on last year largely due to the Group investing in the second GVP and in the near-term development schemes. Net debt increased to Â£325 million, up from Â£266 million at 31 March 2005 partly due to the timing of the acquisition of New City Court on 31 March 2006. Gearing fell to around 44% at 31 March 2006 from 48% at last year end and interest cover remained comfortable at 2.0 times. In March 2006, the Group successfully executed a refinancing programme. The Group's bank facilities have more than doubled in value, the margin over LIBOR has reduced by a quarter and the maturity of the main facilities has extended until at least 2011. The majority of the Group's 7.25% debenture 2027 issue was repurchased to create significant financing and flexibility benefits. The Group's existing bank facilities have been replaced with a new five year Â£300 million committed facility, which can be extended with the banks' agreement, after the first and second anniversaries to 2012 and 2013 respectively. The facility has been provided at an interest cost of 52.5bp over LIBOR which is significantly below the two previous facilities. Great Portland Estates has also signed a new Â£110 million one year committed facility which can be extended for a further year at the Group's option without the need for further bank consent. We have purchased Â£62 million nominal or 66% of the Group's outstanding issue of its 7.25% debenture stock 2027 at a total cost (before accrued interest) of Â£88 million. Â£32 million nominal now remains outstanding, out of an original issue size of Â£100 million. The cost of the redemption premium on the buy back of the debentures and the write off of the issue and other costs was the equivalent of Â£27 million or 11 pence per share after tax (of which 10 pence per share relates to the debenture premium). Since the beginning of 2006, swap rates have materially increased and there is a risk that UK interest rates will rise so the Group executed a combination of interest rate swaps and caps to mitigate against interest rate risk. The Group's Treasury Policy includes a target to maintain floating rate interest exposure at 20-40% of the expected total and to spread the maturity profile of its financing. The Board has declared a final dividend of 7.33 pence making a total dividend of 11 pence per share for the year, a rise of 2.3% compared to the same time last year. The final dividend will be paid on 11 July 2006. Taxation and possible REIT conversion No corporation tax is payable for the current year due to the tax relief gained from the debenture buy back. The Group's underlying effective tax rate for 2006 was around 8% but the Group's future tax paying position will be subject to potential conversion into a REIT. The UK government has announced a favourable REIT framework for UK listed real estate companies. The Board believes Great Portland Estates could convert to a REIT without restricting its development business and is reviewing how this change could benefit investors. A definitive statement on conversion will be made in the second half of 2006. Outlook 2006 was a strong year for the Group - our Total Property Return of 29.7% beat the IPD Central London return of 24.8% and the Total Shareholder Return was 53.9%, outperforming the FTSE 250 Index by a margin of 12.4 percentage points. With London's economy expanding at both a healthy and steady rate and occupational markets, particularly in the West End, positioned for a growth phase, the conditions are in place for further healthy returns. Great Portland Estates is well set to take advantage of this set of circumstances: â€¢we have a near-term development programme that is already producing significant returns; â€¢we have a growing medium and longer-term development programme, augmented by recent acquisitions; â€¢our focused asset management continues to maintain a virtually fully let portfolio as well as create real value through asset restructuring; â€¢our finances are both low cost and flexible following our most recent round of restructuring; and â€¢our teams are working well together to unearth further opportunities for value enhancement. We are, therefore, confident that we will continue to generate attractive returns for our shareholders. Portfolio statistics Rental income At 31 March 2006 ------------------------------------------------------------------------------------- Five Reversionary Five year year potential Total Rent reversionary rental beyond five rental roll potential values years values Â£m Â£m Â£m Â£m Â£m ------------------------------------------------------------------------------------- London North of Oxford Office 18.4 1.8 20.2 - 20.2 Street Retail 3.6 0.3 3.9 - 3.9 Rest of West End Office 6.9 0.6 7.5 (0.1) 7.4 Retail 5.4 0.4 5.8 - 5.8 ------------------------------------------------------------------------------------- Total West End 34.3 3.1 37.4 (0.1) 37.3 City and Office 12.1 0.1 12.2 (0.5) 11.7 Southwark Retail 0.3 - 0.3 0.6 0.9 ------------------------------------------------------------------------------------- Total let portfolio 46.7 3.2 49.9 - 49.9 ------------------------------------------------------------------------------ Voids 1.1 Premises under refurbishment 12.5 ------------------------------------------------------------------------------------- Total portfolio 63.5 ------------------------------------------------------------------------------------- Joint venture rental income ----------------------------------------------------------------------------------- Let portfolio Office 3.5 0.1 3.6 (0.1) 3.5 Retail 6.1 0.7 6.8 0.9 7.7 ----------------------------------------------------------------------------------- Total portfolio 9.6 0.8 10.4 0.8 11.2 ----------------------------------------------------------------------------------- GPE's share 4.8 0.4 5.2 0.4 5.6 ----------------------------------------------------------------------------------- Rent roll security, lease lengths and voids At 31 March 2006 ------------------------------------------------------------------------------------- Rent roll Weighted secure average for five lease years length Voids % years % ------------------------------------------------------------------------------------- London North of Oxford Street Office 26.2 4.0 2.6 Retail 65.6 9.8 - Rest of West End Office 43.3 6.0 - Retail 73.3 11.6 - Total West End 41.6 6.2 1.6 City and Southwark Office 27.7 4.9 3.1 Retail 25.9 9.8 - Total let portfolio 37.9 5.9 1.9 Joint venture 69.5 10.5 17.9 ------------------------------------------------------------------------------------- Rental values and yields At 31 March 2006 ---------------------------------------------------------------------------------- True Average Average Initial Equivalent rent ERV yield yield Â£psf Â£psf % % ---------------------------------------------------------------------------------- London North of Oxford Office 30 35 3.9 5.3 Street Retail 25 26 4.6 5.3 Rest of West End Office 33 39 4.5 4.9 Retail 85 91 5.2 5.2 Total West End 33 37 4.2 5.2 City and Southwark Office 28 26 5.2 5.6 Retail 9 26 3.4 6.8 Total let portfolio 31 34 4.5 5.3 Joint venture 42 50 3.6 4.9 ---------------------------------------------------------------------------------- Analysis of total rental values Lease expiries Â£m % Rent roll, rent reviews and lease renewals 49.9 Less than 5 years 62 Under refurbishment 12.5 5 to 10 years 27 Voids 1.1 10 to 15 years 4 ---- 63.5 Over 15 years 7 ---- --- 100 --- Group Income Statement For the year ended 31 March 2006 2006 2005* Notes Â£m Â£m --------------------------------------------------------------------------------- Rental income 2 44.5 51.6 Service charge income 5.0 5.8 Service charge expenses (6.3) (6.7) (1.3) (0.9) Other property expenses (2.2) (1.6) --------------------------------------------------------------------------------- Net rental and related income 41.0 49.1 Profit on disposal of investment property 14.8 10.1 Net valuation gain on property portfolio 8 171.3 48.4 Share of profit on joint ventures 10 16.4 9.3 Administration expenses 3 (10.6) (10.7) --------------------------------------------------------------------------------- Operating profit before financing costs 232.9 106.2 Finance income 4 0.8 2.2 Finance costs 5 (18.2) (18.9) Premium on redemption of interest-bearing loans and borrowings (27.5) (6.9) --------------------------------------------------------------------------------- Profit before tax 188.0 82.6 Tax 6 (39.7) (14.0) --------------------------------------------------------------------------------- Profit for the year 18 148.3 68.6 --------------------------------------------------------------------------------- Basic earnings per share 7 91.7p 39.3p --------------------------------------------------------------------------------- Diluted earnings per share 7 84.1p 37.7p ---------------------------------------------------------------------------------- All results are derived from continuing operations. *Restated under IFRS (see note 23). Group Balance Sheet At 31 March 2006 2006 2005* Notes Â£m Â£m --------------------------------------------------------------------------------- Non-current assets Investment property 8 965.1 720.2 Property, plant and equipment 9 61.0 93.3 Investment in joint ventures 10 72.4 42.6 1,098.5 856.1 --------------------------------------------------------------------------------- Current assets Trade and other receivables 11 4.5 5.3 Cash and cash equivalents 10.3 31.9 --------------------------------------------------------------------------------- 14.8 37.2 --------------------------------------------------------------------------------- Total assets 1,113.3 893.3 --------------------------------------------------------------------------------- Current liabilities Trade and other payables 12 29.6 25.3 Income tax payable 0.4 1.6 Interest-bearing loans and borrowings 13 110.0 - --------------------------------------------------------------------------------- 140.0 26.9 --------------------------------------------------------------------------------- Non-current liabilities Interest-bearing loans and borrowings 13 225.7 297.6 Obligations under finance leases 14 8.5 9.1 Deferred tax 15 83.7 41.6 Pension liability 22 0.7 2.1 --------------------------------------------------------------------------------- 318.6 350.4 --------------------------------------------------------------------------------- Total liabilities 458.6 377.3 --------------------------------------------------------------------------------- Net assets 654.7 516.0 --------------------------------------------------------------------------------- Equity Share capital 16 20.4 20.3 Share premium account 17 15.1 13.0 Equity reserve 18 9.2 9.6 Capital redemption reserve 18 16.4 16.4 Revaluation reserve 18 8.1 12.6 Retained earnings 18 587.3 446.3 Investment in own shares 19 (1.8) (2.2) ---------------------------------------------------------------------------------- Equity shareholders' funds 654.7 516.0 ---------------------------------------------------------------------------------- *Restated under IFRS (see note 23). Group Statement of Cash Flows For the year ended 31 March 2006 2006 2005* Notes Â£m Â£m -------------------------------------------------------------------------------- Operating activities Net operating profit before financing costs 232.9 106.2 Adjustments for non-cash items 20 (202.5) (69.7) (Increase)/decrease in receivables (0.2) 0.1 Increase in payables 3.2 0.3 Purchase and development of property (131.4) (93.7) Purchase of fixed assets (1.8) - Sale of properties 121.2 119.8 Purchase of interests in joint ventures (15.6) (5.9) -------------------------------------------------------------------------------- Cash generated from operations 5.8 57.1 Interest received 0.8 2.9 Interest paid (21.1) (22.4) Tax paid in respect of prior years (1.5) (0.2) -------------------------------------------------------------------------------- Cash flows from operating activities (16.0) 37.4 -------------------------------------------------------------------------------- Financing activities Capital reduction - (101.5) Receipts from capital reduction of own shares - 0.8 Redemption of loans (89.1) (44.2) Borrowings drawn 156.0 55.0 Borrowings repaid (55.0) (25.0) Loan to joint venture - (9.5) Equity dividends paid (17.5) (19.9) -------------------------------------------------------------------------------- Cash flows from financing activities (5.6) (144.3) -------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (21.6) (106.9) Cash and cash equivalents at 1 April 31.9 138.8 -------------------------------------------------------------------------------- Cash and cash equivalents at balance sheet date 10.3 31.9 -------------------------------------------------------------------------------- *Restated under IFRS (see note 23). Group Statement of Recognised Income and Expense For the year ended 31 March 2006 2006 2005* Â£m Â£m -------------------------------------------------------------------------------- Revaluation of development properties 7.0 17.2 Deferred tax on development properties recognised (2.1) (6.0) directly in equity Actuarial gains on defined benefit scheme net of deferred tax 0.8 1.4 -------------------------------------------------------------------------------- Net gain recognised directly in equity 5.7 12.6 Profit for the year 148.3 68.6 -------------------------------------------------------------------------------- Total recognised income and expense for the year 154.0 81.2 -------------------------------------------------------------------------------- Group Reconciliation of Other Movements in Equity For the year ended 31 March 2006 2006 2005* Â£m Â£m -------------------------------------------------------------------------------- Opening equity shareholders' funds: As previously reported 516.0 561.2 Effect of adopting IFRS (see note 23) - (5.8) -------------------------------------------------------------------------------- Opening equity shareholders' funds restated 516.0 555.4 Total recognised income and expense for the year 154.0 81.2 Capital reduction - (101.5) Conversion of convertible bond 2.1 - Receipt from capital reduction in own shares - 0.8 Deferred tax on convertible bonds (0.3) (0.3) Employee long-term incentive plan 0.4 0.3 Dividends (17.5) (19.9) -------------------------------------------------------------------------------- Closing equity shareholders' funds 654.7 516.0 -------------------------------------------------------------------------------- *Restated under IFRS (see note 23). Notes forming part of the Group Financial Statements 1 Accounting Policies Basis of Preparation While the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements, that comply with IFRS in June 2006. The financial information set out above does not constitute the company's statutory accounts for the years ended 31 March 2006 or 2005, but is derived from those accounts. Statutory accounts for 2005 have been delivered to the Registrar of Companies and those for 2006 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 s. 237.2 or (3) Companies Act 1985. The statutory financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) for the first time. The disclosures required by IFRS 1 concerning the transition from UK GAAP to IFRSs are given in note 23. The statutory financial statements have also been prepared in accordance with IFRSs and interpretations adopted for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation. The statutory financial statements have been prepared on the historical cost basis, except for the revaluation of properties and pension liabilities. In the process of applying the Group's accounting policies, management is required to make judgements, estimates and assumptions that may affect the financial statements. Management believes that the judgments made in the preparation of the financial statements are reasonable. However, actual outcomes may differ from those anticipated. The principal accounting policies adopted are set out 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 2006. Rent Receivable This comprises rental income and premiums on lease surrenders on investment properties for the year, exclusive of service charges receivable. Lease Incentives Lease incentives including rent-free periods and payments to tenants, are allocated to the income statement over the lease term. The value of resulting accrued rental income is included within the respective property. Other Property Expenses Irrecoverable running costs directly attributable to specifc properties within the Group's portfolio are charged to the income statement as other 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 income statement as incurred. Administration Expenses Costs not directly attributable to individual properties are treated as administration expenses. Share-based Payment The cost of granting share-based payments to employees and directors is recognised within administration expenses in the income statement. The Group has used the Stochastic model to value the grants which is dependent on factors including the share price, expected volatility and vesting period and the resulting fair value is amortised through the income statement over the vesting period. The charge is reversed if it is likely that any non-market based criteria will not be met. Investment Properties Investment properties, including those under development, are professionally valued each year, on a Market Value basis, and any surpluses or defcits arising are taken to the income statement. Disposals of properties are recognised where contracts have been unconditionally exchanged during the accounting period and the significant risks and rewards of ownership of the property have been transferred to the purchaser. Depreciation In accordance with IAS 40 'Investment Property', no depreciation is provided in respect of freehold investment properties and leasehold investment properties with over 20 years to run. Depreciation is provided on plant and equipment, at rates calculated to write off the cost, less estimated residual value based on prices prevailing at the date of acquisition of each asset evenly over its expected useful life, as follows: Fixtures and fittings - over five years Leasehold improvements - over the term of the lease. Development Properties Development properties are carried in property, plant and equipment and are professionally valued each year, on a Market Value basis, and any surpluses arising are taken to the revaluation reserve with any deficits below cost taken to the income statement. A development property is one purchased for the purposes of development, redevelopment or substantial refurbishment with relatively little, or short-term, income whether planning permission exists or is still to be granted. All directly attributable costs of bringing a property to a condition suitable for letting are capitalised into the cost of the property. Once development is concluded, the property is transferred to investment property. Any cumulative revaluation reserve in respect of that property is transferred to retained earnings. Joint Ventures Joint ventures are accounted for under the equity method: the Group balance sheet contains the Group's share of the net assets of its joint ventures. Long-term loans owed to the Group by joint ventures are included within investments. The Group's share of joint ventures' profit is included in a single line in the Group income statement. Deferred Taxation Deferred tax is provided in full on temporary differences between the tax base of an asset or liability and its carrying amount in the balance sheet. The Group recognises deferred tax in respect of property revaluations on the basis that their book value is realised through the sale of individual properties giving rise to capital gains. Such capital gains are mitigated by the availability of indexation and it has been assumed that capital allowances claimed by the Group to date will be retained on sale. The directors consider this to be the most appropriate basis for the calculation. Deferred tax assets are recognised when it is probable that taxable profits will be available against which the deferred tax asset can be utilised. Pension Benefits The Group contributes to a defined benefit pension plan which is funded with assets held separately from those of the Group. The full value of the net assets or liabilities of the pension fund is brought on to the balance sheet at each balance sheet date. Actuarial gains and losses are taken to the Statement of Recognised Income and Expense, all other movements are taken to the income statement. Capitalisation of Interest Interest associated with direct expenditure on investment properties under development and development properties is capitalised. Direct expenditure includes the purchase cost of a site or property for development properties, but does not include the original book cost of investment property under development. 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 The Group's derivatives are measured at fair value in the balance sheet. To the extent that a derivative provides an effective cash flow hedge against the Group's underlying exposure the movements in the fair value of the hedge are taken to equity. To the extent that the derivative does not effectively hedge the underlying exposure the movement in the fair value of the hedge is taken to the income statement. Convertible Bonds Convertible Bonds are partly carried as debt, based on the net present value of future cash flows and prevailing interest rates at the time of issue, and the balance carried as equity within an equity reserve. Over the term of the loan, the debt is increased to its nominal value by charges to the income statement. Head Leases The present value of future ground rents is added to the carrying value of a leasehold investment property and to long-term liabilities. On payment of a ground rent virtually all of the cost is charged to the income statement, principally as interest payable, and the balance reduces the liability; an equal reduction to the asset's valuation is charged to the income statement. Tenant Leases Management have considered the potential transfer of risks and rewards of ownership in accordance with IAS 17 'Leases' for all properties leased to tenants and in their judgement have determined that all such leases are operating leases. Segmental Analysis The Group has only one reportable segment on the basis that all of its revenue is generated from investment properties located in central London; accordingly no segmental analysis is presented. Construction Contracts Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract at the balance sheet date. This is normally measured as the proportion that contract costs incurred for work performed bear to the estimated total contract costs. Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with the client. Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. 2006 2005 2 Rental Income Â£m Â£m ----------------------------------------------------------------------------------- Gross rental income 42.2 49.9 Amortisation of capitalised lease incentives 2.6 2.0 Ground rents payable (0.3) (0.3) ----------------------------------------------------------------------------------- 44.5 51.6 ----------------------------------------------------------------------------------- 2006 2005 3 Administration Expenses Â£m Â£m ----------------------------------------------------------------------------------- Administration expenses Employee costs 8.2 7.2 Other 2.4 2.7 Non-recurring items Cost of capital reduction - 0.8 ----------------------------------------------------------------------------------- 10.6 10.7 ----------------------------------------------------------------------------------- Included within administration expenses are fees charged by the auditors comprising audit fees of Â£0.1 million (2005: Â£0.1 million) and non-audit fees of Â£0.1 million (2005: Â£0.2 million) and depreciation of Â£0.1 million (Â£2005: Â£nil). Employee Information The average number of employees of the Group, including directors, was: 2006 2005 Number Number -------------------------------------------------------------------------------------- Head office and administration 65 56 Included within administration expenses are staff costs, including those of directors, comprising: 2006 2005 Â£m Â£m ------------------------------------------------------------------------------------ Wages and salaries 6.6 5.9 Social security costs 0.8 0.7 Other pension costs 1.0 0.7 ------------------------------------------------------------------------------------ 8.4 7.3 Less: recovered through service charge (0.2) (0.1) ------------------------------------------------------------------------------------- 8.2 7.2 ------------------------------------------------------------------------------------ The directors received fees of Â£323,000 (2005: Â£324,000) and other emoluments of Â£2,067,000 (2005: Â£1,824,000), pension contributions have been made for directors of Â£228,000 (2005: Â£173,000). 2006 2005 4 Finance Income Â£m Â£m ----------------------------------------------------------------------------------- Interest on short-term deposits 0.5 1.9 Other 0.3 0.3 ----------------------------------------------------------------------------------- 0.8 2.2 ----------------------------------------------------------------------------------- 2006 2005 5 Finance Costs Â£m Â£m ----------------------------------------------------------------------------------- Interest on bank overdrafts and loans 3.1 4.4 Interest on debentures 11.8 12.8 Interest on convertible bonds 4.1 4.2 Interest on loan notes 0.2 0.2 Interest on obligations under finance leases 0.7 0.8 Other interest 0.7 - ----------------------------------------------------------------------------------- Gross finance costs 20.6 22.4 ----------------------------------------------------------------------------------- Less: capitalised interest (2.4) (2.0) ------------------------------------------------------------------------------------ 18.2 20.4 Fair value gain on interest rate swaps - (1.5) ----------------------------------------------------------------------------------- 18.2 18.9 ----------------------------------------------------------------------------------- 2006 2005 6 Tax Â£m Â£m Current tax UK corporation tax - - Tax under provided in previous years 0.3 - ----------------------------------------------------------------------------------- Total current tax 0.3 - Deferred tax 39.4 14.0 ----------------------------------------------------------------------------------- Tax charge for the year 39.7 14.0 ----------------------------------------------------------------------------------- The difference between the standard rate of tax and the effective rate of tax arises from the items set out below: 2006 2005 Â£m Â£m ----------------------------------------------------------------------------------- Profit before tax 188.0 82.6 ----------------------------------------------------------------------------------- Tax on profit at standard rate of 30% 56.4 24.8 Expenses not deductible for tax purposes 0.7 0.6 Accelerated capital allowances 2.5 (3.5) Receipts taxable as chargeable gains covered by capital losses (0.9) (0.3) Sale of investment properties 1.5 (3.0) Previous years' corporation tax 0.3 - Pension liabilities - 0.3 Property revaluations (20.4) (4.0) Accounting profits arising in the year not taxable (0.1) (0.8) Other (0.3) (0.1) ------------------------------------------------------------------------------------ Tax charge for the year 39.7 14.0 ------------------------------------------------------------------------------------ During the year, Â£2.4 million (2005: Â£6.6 million) of tax was charged directly to equity. This charge related to deferred tax in respect of revaluations of property, plant and equipment, and pension liabilities. 7 Earnings per Share and Net Assets per Share In January 2006 the European Real Estate Association (EPRA) issued guidance for the calculation of net asset per share and earnings per share. These calculations have been adopted by the Group and are set out below: Weighted average number of ordinary shares 2006 2005 Number Number of shares of shares ---------------------------------------------------------------------------------------- Issued ordinary share capital at 1 April 162,474,812 203,093,515 Conversion of convertible bonds 256,245 - Effect of capital reduction - (27,264,609) Investment in own shares (1,115,628) (1,115,628) ---------------------------------------------------------------------------------------- Weighted average number of ordinary shares 161,615,429 174,713,278 ---------------------------------------------------------------------------------------- Effect of conversion of convertible bond 18,453,432 16,197,967 ---------------------------------------------------------------------------------------- Diluted weighted average number of ordinary shares 180,068,861 190,911,245 ---------------------------------------------------------------------------------------- Basic, diluted and adjusted earnings per share 2006 2006 2005 2005 Profit Earnings Profit Earnings after tax per share after tax per share Â£m pence Â£m pence ----------------------------------------------------------------------------------------- Basic 148.3 91.7 68.6 39.3 Effect of convertible bonds 3.3 (7.6) 3.3 (1.6) ------------------------------------------------------------------------------------------ Diluted 151.6 84.1 71.9 37.7 ----------------------------------------------------------------------------------------- Deferred tax on accelerated capital allowances 4.4 2.5 - - Non-recurring items 19.3 10.7 4.7 2.5 Profit on sale of investment properties (7.4) (4.1) (10.1) (5.3) Net valuation gain on property portfolio net (139.4) (77.4) (38.0) (20.0) of deferred tax Net valuation gain on joint ventures net of deferred tax (10.0) (5.6) (6.4) (3.3) ------------------------------------------------------------------------------------------ Adjusted 18.5 10.2 22.1 11.6 ----------------------------------------------------------------------------------------- Non-recurring items in the year to 31 March 2006 comprise a Â£27.5 million (2005: Â£7.7 million) premium on the redemption of interest bearing loans and borrowings, less tax relief of Â£8.2 million (2005: Â£3 million). The comparative EPS numbers have been restated from the interim report published in November 2005 to deduct the Group's investment in own shares from the weighted average number of shares and for the tax treatment of the convertible bond as the IFRS tax treatment has been clarified. Net assets per share 2006 2006 2006 2005 2005 2005 Net Number Net assets Net Number Net assets assets of shares per share assets of shares per share Â£m million pence Â£m million pence ------------------------------------------------------------------------------------------------------- Basic 654.7 163.2 401.0 516.0 162.5 317.0 Convertible bonds 53.4 18.0 (10.0) 54.3 18.7 (3.0) -------------------------------------------------------------------------------------------------------- Diluted 708.1 181.2 391.0 570.3 181.2 314.0 Fair value of financial (46.5) (26.0) (17.1) (9.0) -------------------------------------------------------------------------------------------------------- liabilities net of tax Diluted triple net assets per 661.6 365.0 553.2 305.0 share Fair value of financial liablities 46.5 26.0 17.1 9.0 net of tax Deferred tax on capital allowances 7.7 4.0 3.3 2.0 Deferred tax on revaluation gains 75.2 42.0 38.3 21.0 ------------------------------------------------------------------------------------------------------- Adjusted net assets per share 791.0 437.0 611.9 337.0 ------------------------------------------------------------------------------------------------------- 8 Investment Property Investment Property Freehold Leasehold Total Â£m Â£m Â£m --------------------------------------------------------------------------------------------- Book value at 1 April 2004 467.0 256.0 723.0 Cost capitalised 5.4 4.0 9.4 Acquisitions 65.1 - 65.1 Disposals (40.3) (87.3) (127.6) Transfer to investment property under development (14.7) (35.9) (50.6) Net valuation gain on investment property 34.9 12.1 47.0 --------------------------------------------------------------------------------------------- Book value at 31 March 2005 517.4 148.9 666.3 --------------------------------------------------------------------------------------------- Costs capitalised 20.1 0.9 21.0 Acquisitions 83.8 - 83.8 Purchase of freehold 17.2 (17.8) (0.6) Disposals (88.9) (9.8) (98.7) Transfer from development property 52.7 - 52.7 Transfer to investment property under development (19.4) - (19.4) Net valuation gain on investment property 115.0 24.6 139.6 --------------------------------------------------------------------------------------------- Book value at 31 March 2006 697.9 146.8 844.7 --------------------------------------------------------------------------------------------- Investment property under development Freehold Leasehold Total Â£m Â£m Â£m ----------------------------------------------------------------------------------------- Book value at 1 April 2004 - - - Costs capitalised 0.4 - 0.4 Transfer from investment property 14.7 35.9 50.6 Net valuation gain on investment property 0.4 2.5 2.9 ----------------------------------------------------------------------------------------- Book value at 31 March 2005 15.5 38.4 53.9 ----------------------------------------------------------------------------------------- Costs capitalised 14.5 1.5 16.0 Interest capitalised 0.3 - 0.3 Transfer from investment property 19.4 - 19.4 Net valuation gain on investment property 22.9 7.9 30.8 ----------------------------------------------------------------------------------------- Book value at 31 March 2006 72.6 47.8 120.4 ----------------------------------------------------------------------------------------- Total investment property 770.5 194.6 965.1 ----------------------------------------------------------------------------------------- Net valuation gain on investment property 170.4 Add: net valuation gain reversing previous deficits below cost taken to income statement (note 9) 0.9 ----------------------------------------------------------------------------------------- Net valuation gain on property portfolio 171.3 ------------------------------------------------------------------------------------------ The investment and development properties (note 9) were valued on the basis of Market Value by CB Richard Ellis as at 31 March 2006 in accordance with the RICS Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors. The book value of investment properties includes Â£8.5 million (2005: Â£9.1 million) in respect of the present value of future ground rents. At 31 March 2006, properties with carrying value of Â£452.2 million (2005: Â£365.5 million) were secured under first mortgage debenture stock (see note 13). Subsequent to 31 March 2006 the Group has released properties from charge leaving Â£220.4 million secured. 9 Property, Plant and Equipment Leasehold Fixtures Development improvements and fittings property Total Â£m Â£m Â£m Â£m Cost or valuation At 1 April 2004 - - 34.3 34.3 Acquisitions - - 27.4 27.4 Costs capitalised - - 13.9 13.9 Interest capitalised - - 2.0 2.0 Net valuation gain taken to equity - - 17.2 17.2 Net valuation deficits taken to income statement - - (1.5) (1.5) ---------------------------------------------------------------------------------------------- At 31 March 2005 - - 93.3 93.3 --------------------------------------------------------------------------------------------- Acquisitions - - 7.5 7.5 Costs capitalised 1.9 0.6 8.6 11.1 Interest capitalised - - 1.7 1.7 Disposals - - (7.7) (7.7) Transfers to investment property - - (52.7) (52.7) Net valuation gain taken to equity - - 7.0 7.0 Net valuation gain reversing previous deficits below cost taken to income statement (note 8) - - 0.9 0.9 --------------------------------------------------------------------------------------------- At 31 March 2006 1.9 0.6 58.6 61.1 --------------------------------------------------------------------------------------------- Depreciation At 1 April 2005 - - - - Charge for the year 0.1 - - 0.1 --------------------------------------------------------------------------------------------- At 31 March 2006 0.1 - - 0.1 --------------------------------------------------------------------------------------------- Carrying amount at 31 March 2005 - - 93.3 93.3 --------------------------------------------------------------------------------------------- Carrying amount at 31 March 2006 1.8 0.6 58.6 61.0 --------------------------------------------------------------------------------------------- The historical cost of development properties at 31 March 2006 was Â£46.9 million (2005: Â£76.0 million). The cumulative interest capitalised in development properties was Â£2.2 million (2005: Â£2.5 million). 10 Investment in Joint Ventures The Group has the following investments in joint ventures: Equity Loans Total Â£m Â£m Â£m ------------------------------------------------------------------------------------ At 1 April 2005 33.1 9.5 42.6 Acquisitions 15.6 - 15.6 Share of profits of joint ventures 3.5 - 3.5 Share of revaluation uplift of joint ventures 12.9 - 12.9 Distributions (2.2) - (2.2) ------------------------------------------------------------------------------------- At 31 March 2006 62.9 9.5 72.4 ------------------------------------------------------------------------------------ On 19 April 2005 Great Portland Estates plc and Liverpool Victoria Friendly Society formed a second joint venture, called the Great Victoria Partnership (No. 2), to invest in central London real estate. The Group owns a 50% share in the partnership through a wholly-owned subsidiary. On 19 April 2005 the Group contributed Â£15.6 million of partnership equity. The investments in joint ventures comprise the following: Country 2006 2005 --------------------------------------------------------------------------------- The Great Victoria Partnership United Kingdom 50% 50% The Great Victoria Partnership (No. 2) United Kingdom 50% - --------------------------------------------------------------------------------- Included in the financial statements are the following items that represent the Group's share in the assets and liabilities, revenues and expenses for the Great Victoria Partnerships. 2006 2005 Â£m Â£m ----------------------------------------------------------------------------------- Non-current assets 113.1 78.4 Current assets 15.6 1.6 Current liabilities (12.4) (11.2) Non-current liabilities (53.4) (35.7) ------------------------------------------------------------------------------------ Net assets 62.9 33.1 ----------------------------------------------------------------------------------- Income including revaluation uplift 19.5 10.2 Expenses (3.1) (0.9) ------------------------------------------------------------------------------------ Net profit 16.4 9.3 ----------------------------------------------------------------------------------- During the year the Group received a management fee of Â£1.3 million from the joint ventures which has been recognised in administration expenses. 2006 2005 11 Trade and Other Receivables Â£m Â£m ----------------------------------------------------------------------------------- Rent receivables 0.8 1.7 Prepayments and accrued income 1.2 0.9 Work in progress 0.3 - Other trade receivables 2.2 2.7 ----------------------------------------------------------------------------------- 4.5 5.3 ----------------------------------------------------------------------------------- 2006 2005 12 Trade and Other Payables Â£m Â£m ----------------------------------------------------------------------------------- Trade payables 11.6 12.2 Non-trade payables and accrued expenses 18.0 13.1 ----------------------------------------------------------------------------------- 29.6 25.3 ----------------------------------------------------------------------------------- 2006 2005 13 Interest-bearing Loans and Borrowings Â£m Â£m ----------------------------------------------------------------------------------- Non-current liabilities Â£32.1 million 7 1/4% debenture stock 2027 31.4 92.4 Â£92.9 million 55 5/8% debenture stock 2029 91.9 91.9 5 1/4% convertible bonds 2008 53.4 54.3 Bank loan 46.0 55.0 Unsecured loan notes 2007 3.0 4.0 ----------------------------------------------------------------------------------- 225.7 297.6 ----------------------------------------------------------------------------------- Current liabilities Bank loans 110.0 - ----------------------------------------------------------------------------------- 335.7 297.6 ----------------------------------------------------------------------------------- Certain of the freehold and leasehold properties are charged to secure the first mortgage debenture stock (see note 8). At 31 March 2005, the nominal value outstanding of the 71/4% Debenture Stock 2027 was Â£94.5 million; during the year ended 31 March 2006, Â£62.4 million of the stock was redeemed. The bank loan within non-current liabilities is unsecured, attracts a floating rate of 0.525% above LIBOR and expires in 2011. The bank loan within current liabilities is unsecured, attracts a floating rate of 0.45% above LIBOR and expires in 2007. The unsecured loan notes, which together with an associated guarantee attract a floating rate of interest of 0.275% in aggregate above LIBOR, are redeemable at the option of the noteholder until 2007, and by the Company in 2007. The bonds, which are unsecured, are convertible by the bondholder at a price of Â£3.10 per share, and redeemable by the Company at par, at any time until 2008. The amount of the convertible bonds classified as an equity reserve of Â£9.2 million is net of attributable transaction costs of Â£0.2 million. All interest-bearing loans and borrowings are in sterling. At 31 March 2006 the Group had available Â£257 million (2005: Â£180 million) of undrawn committed bank facilities. Maturity of financial liabilities The maturity profile of the financial liabilities of the Group at 31 March 2006 was as follows: 2006 2005 Â£m Â£m ----------------------------------------------------------------------------------- In one year or less, or on demand 110.0 - In more than one year but not more than two years 56.4 - In more than two years but not more than three years - 58.3 In more than three years but not more than four years - - In more than four years but not more than five years 46.0 55.0 In more than five years 123.3 184.3 ----------------------------------------------------------------------------------- 335.7 297.6 ----------------------------------------------------------------------------------- Fair value of financial liabilities 2006 2006 2005 2005 Book value Fair value Book value Fair value Â£m Â£m Â£m Â£m ------------------------------------------------------------------------------------------- Current liabilities 110.0 110.0 - - Non-current liabilities 225.7 278.5 297.6 325.2 ------------------------------------------------------------------------------------------- 335.7 388.5 297.6 325.2 ------------------------------------------------------------------------------------------- The fair values of the Group's 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 market values of all other items have been calculated by discounting the expected future cash flows at prevailing interest rates. 14 Finance Leases Finance lease obligations in respect of the Group's leasehold properties are payable as follows: Minimum Minimum lease lease payments Interest Principal payments Interest Principal 2006 2006 2006 2005 2005 2005 ------------------------------------------------------------------------------------------------- Less than one year 0.6 (0.6) - 0.7 (0.7) - Between one and five years 2.3 (2.3) - 2.7 (2.7) - More than five years 68.8 (60.3) 8.5 77.1 (68.0) 9.1 ------------------------------------------------------------------------------------------------- 71.7 (63.2) 8.5 80.5 (71.4) 9.1 ------------------------------------------------------------------------------------------------- 15 Deferred Tax Recognised 31 March 1 April Recognised directly in 2005 in income equity 2006 Â£m Â£m Â£m Â£m ------------------------------------------------------------------------------------ Deferred tax liabilities Accelerated capital allowances 3.3 4.4 - 7.7 Capitalised interest 0.7 0.7 - 1.4 Property revaluations 38.3 34.8 2.1 75.2 Deferred tax assets Long-term incentive plan (0.1) (0.3) - (0.4) Pension liabilities (0.6) 0.1 0.3 (0.2) ------------------------------------------------------------------------------------- Net deferred tax provision 41.6 39.7 2.4 83.7 ------------------------------------------------------------------------------------ Included within the deferred tax liability on property revaluations of Â£75.2 million is Â£2.9 million (2005: Â£2.8 million) in respect of the Group's deferred tax liability on properties it holds in joint ventures. Deferred taxation associated with development property revaluations in respect of property, plant and equipment is reflected directly in reserves where the underlying property revaluations are also recognised. The Group recognises deferred tax assets based on forecast taxable profits. 2006 2006 2005 2005 16 Share Capital Number Â£m Number Â£m ------------------------------------------------------------------------------------ Ordinary shares of 121/2 pence each Authorised 550,100,752 68.8 550,100,752 68.8 ------------------------------------------------------------------------------------ Allotted, called up and fully paid 162,474,812 20.3 203,093,515 101.5 Conversion of convertible bonds 707,094 0.1 - - Capital reduction - - (40,618,703) (81.2) ------------------------------------------------------------------------------------- At 31 March 163,181,906 20.4 162,474,812 20.3 ------------------------------------------------------------------------------------ On 30 July 2004, as part of a Court-confirmed capital reduction, the ordinary shares of the Company were consolidated on the basis of four new shares for every five existing ones, and their nominal value was reduced from 50 pence to 1212 pence per share. 2006 2005 17 Share Premium Â£m Â£m ----------------------------------------------------------------------------------- At 1 April 13.0 24.8 Conversion of convertible bonds 2.1 - Capital reduction - (11.8) ------------------------------------------------------------------------------------ At 31 March 15.1 13.0 ----------------------------------------------------------------------------------- Capital Equity redemption Revaluation Retained reserve reserve reserve earnings 18 Reserves Â£m Â£m Â£m Â£m ------------------------------------------------------------------------------------------------------ At 1 April 2005 9.6 16.4 12.6 446.3 Profit for the year - - - 148.3 Actuarial gains on defined benefit scheme - - - 1.1 Deferred tax on actuarial gains on defined benefit scheme - - - (0.3) Net valuation gain taken to equity - - 7.0 - Deferred tax on net valuation gain taken to equity - - (2.1) - Transfer on completion of development property - - (8.8) 8.8 Realised on disposal of development property - - (0.6) 0.6 Conversion of convertible bonds (0.1) - - - Deferred tax recognised on convertible bonds (0.3) - - - Dividends to shareholders - - - (17.5) ------------------------------------------------------------------------------------------------------- At 31 March 2006 9.2 16.4 8.1 587.3 ------------------------------------------------------------------------------------------------------ 2006 2005 19 Investment in Own Shares Â£m Â£m ----------------------------------------------------------------------------------- At 1 April 2.2 2.5 Employee long-term incentive plan charge (0.4) (0.3) ------------------------------------------------------------------------------------ At 31 March 1.8 2.2 ----------------------------------------------------------------------------------- The investment in the Company's own shares is held at cost and comprises 1,115,628 shares held by the Great Portland Estates P.L.C. LTIP Employee Share Trust which will vest in certain senior employees of the Group if performance conditions are met. 2006 2005 20 Adjustment for non-cash movements in the Cash Flow Statement Â£m Â£m ------------------------------------------------------------------------------------ Net valuation gain on property portfolio (171.3) (48.4) Profit on disposal of investment properties (14.8) (10.1) Employee long-term incentive plan charge 0.4 0.3 Capitalisation of lease incentives (2.6) (2.2) Share of profit on joint ventures (14.2) (9.3) ------------------------------------------------------------------------------------ Adjustments for non-cash items (202.5) (69.7) ------------------------------------------------------------------------------------ 21 Dividends The proposed final dividend of 7.33 pence per share (2005: 7.17 pence per share) was approved by the Board on 22 May 2006 and is payable on 11 July 2006 to shareholders on the register on 2 June 2006. The dividend is not recognised as a liability at 31 March 2006. This brings the interim and final dividends for the year ended 31 March 2006 to 11 pence per share. The 2005 final dividend of Â£11.6 million and the 2006 interim dividend of Â£5.9 million were paid in the period and are included within the Group Reconciliation of Other Movements in Equity. 22 Employee Benefits 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 Plan has been closed to new entrants since April 2002. The most recent actuarial valuation of the Plan was conducted at 1 April 2005 by a qualified independent actuary using the projected unit method. The Plan was valued using the following main assumptions: 2006 2005 % % ----------------------------------------------------------------------------------- Discount rate 5.00 5.50 Expected return on Plan assets 6.28 6.28 Expected rate of salary increases 3.75 5.00 Future pension increases 2.75 2.75 ----------------------------------------------------------------------------------- The amount recognised in the balance sheet in respect of the Plan is as follows: 2006 2005 Â£m Â£m ----------------------------------------------------------------------------------- Present value of unfunded obligations 15.6 14.0 Fair value of Plan assets (14.9) (11.9) ------------------------------------------------------------------------------------ Pension liability 0.7 2.1 ----------------------------------------------------------------------------------- Amounts recognised as administration expenses in the income statement are as follows: 2006 2005 Â£m Â£m ----------------------------------------------------------------------------------- Current service cost 0.2 0.3 Interest on obligation 0.8 0.8 Expected return on Plan assets (0.7) (0.7) Past service cost 0.1 - ----------------------------------------------------------------------------------- 0.4 0.4 ----------------------------------------------------------------------------------- Actuarial gain recognised immediately in the statement of recognised income and expense 1.1 1.4 Changes in the present value of the pension obligation are as follows: 2006 2005 Â£m Â£m ----------------------------------------------------------------------------------- Defined benefit obligation at 1 April 14.0 14.0 Service cost 0.2 0.3 Interest cost 0.8 0.8 Past service cost 0.1 - Actuarial gain 0.9 (0.6) Benefits paid (0.4) (0.5) ------------------------------------------------------------------------------------ Defined benefit obligation at 31 March 15.6 14.0 ----------------------------------------------------------------------------------- Changes to the fair value of the Plan assets are as follows: Fair value of Plan assets at 1 April 11.9 10.7 Expected return 0.7 0.7 Actuarial gains 2.0 0.6 Contributions 0.7 0.4 Benefits paid (0.4) (0.5) ------------------------------------------------------------------------------------ Fair value of Plan assets at 31 March 14.9 11.9 ----------------------------------------------------------------------------------- Net liability 0.7 2.1 ----------------------------------------------------------------------------------- The fair value of the Plan assets at the balance sheet date is analysed as follows: 2006 2005 Â£m Â£m ----------------------------------------------------------------------------------- Equities 6.0 8.1 Bonds 8.9 3.8 ----------------------------------------------------------------------------------- 14.9 11.9 ----------------------------------------------------------------------------------- The history of the Plan for the current and prior year is as follows: 2006 2005 ---------------------------------------------------------------------------------------- Difference between expected and actual return on the scheme assets assets: Amount Â£m 2.0 0.6 Percentage of scheme assets 13% 5% Experience gains and losses on scheme liabilities: Amount Â£m 0.5 0.6 Percentage of scheme assets 3% 4% Total gains and losses: Amount Â£m 1.1 1.4 Percentage of scheme assets 7% 9% ---------------------------------------------------------------------------------------- The Group expects to contribute approximately 20.4% of members' pensionable salaries plus Â£0.4 million to the Plan in 2007. 23 Explanation of the transition to IFRS This is the first year that the Group has presented its financial statements under IFRS. The last financial statements presented under UK GAAP were for the year ended 31 March 2005. As IFRS comparative figures must be prepared for the year ended 31 March 2005, the date of transition to IFRS was 1 April 2004. Reconciliation of equity at 1 April 2004 and 31 March 2005 and profit for the year ended 31 March 2005 reported under IFRS and UK GAAP were published in the Group's Interim Accounts and are also available on the Group's website, www.gpe.co.uk. IFRS 1 'First-Time Adoption of International Financial Reporting Standards' requires an explanation of major adjustments to cash flows under IFRS. Whilst the format of the cash flow statement is different from UK GAAP, there are no material changes to Group cash flows. Reconciliation of equity reported under UK GAAP to equity under IFRS 2005 2004 Notes Â£m Â£m --------------------------------------------------------------------------------------------- Equity shareholders' funds under UK GAAP 543.3 561.2 IFRS adjustments: Obligations under finance leases a (9.1) (12.7) Leasehold property interests a 9.1 12.7 Exclusion of dividend b 11.6 14.1 Recognition of pension deficit c (3.8) (4.6) Deferred tax on property revaluations d (38.3) (19.1) Convertible bond e 3.2 4.2 Fair value of interest rate swaps - (0.4) ---------------------------------------------------------------------------------------------- Net IFRS adjustments (27.3) (5.8) ---------------------------------------------------------------------------------------------- Equity shareholders' funds under IFRS 516.0 555.4 --------------------------------------------------------------------------------------------- Reconciliation of profit reported under UK GAAP to profit under IFRS 2005 Notes Â£m ------------------------------------------------------------------------------------ Profit for the period under UK GAAP 25.2 IFRS adjustments: Revaluation gains on investment properties g 48.4 Revaluation gains on joint ventures g 9.3 Deferred tax on property revaluations d (13.3) Employee long-term incentive plan charge i (0.2) Spreading of lease incentives h - Convertible bond e (0.7) Change in fair value of interest rate swaps f 0.3 Movement in pension deficit c (0.4) ------------------------------------------------------------------------------------- Net IFRS adjustments 43.4 ------------------------------------------------------------------------------------ Profit for the year under IFRS 68.6 ------------------------------------------------------------------------------------ UK GAAP referred to in the above tables refers to UK GAAP in force at 31 March 2005. a The present value of future ground rents is added to the carrying value of a leasehold investment property and long-term liabilities. On payment of a ground rent virtually all of the cost is charged to the income statement, principally as interest payable, and the balance reduces the liability; an equal reduction to the asset's valuation is charged to the income statement. b A proposed dividend is not accrued, but is accounted for only when approved. Dividends are not shown on the face of the income statement. c The net liabilities of the pension fund and their associated deferred tax are brought onto the Group balance sheet, and any movements therein are shown as a cost or income in the income statement, save for actuarial gains or losses, which are taken directly to retained earnings. d Contingent capital gains tax on investment property, based on the tax which may arise on the sale of the property, is included on the balance sheet as a deferred tax provision, and any movement from year to year is charged to the income statement within the tax charge. e A convertible bond is partly carried as debt, based on the net present value of future cash flows and prevailing interest rates at the time of issue, and the balance carried as equity within an equity reserve. Over the term on the loan, the liability is increased to the nominal value of the debt by charges to the income statement. f The fair value of all derivatives is recorded in the balance sheet. The movement in the fair value is taken to reserves if the hedge is effective, or otherwise to the income statement. g Revaluation surpluses or deficits of investment property and investment property under development are taken to the income statement. Revaluation gains and losses on development properties are taken to the revaluation reserve, unless the valuation falls below cost, in which case they are charged to the income statement; any subsequent reversal of this loss will be credited to the income statement. h Rent free periods are amortised over the lease term. The associated debtor is added to the cost of investment property rather that being carried separately, but as it does not add to the value of the property, it reduces the valuation surplus taken through the income statement. i Under IFRS the estimated fair value of share awards needs to be assessed at grant and charged to the income statement with any associated deferred tax over the performance period, as adjusted by changes in the number of shares expected to vest at the end of the vesting period. Glossary Adjusted earnings per share Earnings per share adjusted to exclude non-recurring items, profits or losses on sales of investment properties and deferred tax on capital allowances and property revaluations on a diluted basis. Adjusted net assets per share NAV adjusted to exclude deferred tax on capital allowances and property revaluations on a diluted basis. Diluted figures Reported amounts adjusted to include the effects of potential shares issuable under the convertible bond. Earnings per share (EPS) Profit after tax divided by the weighted average number of ordinary shares in issue. Triple net asset value (NNNAV) NAV adjusted to include the fair value of the Group's financial liabilities on a diluted basis. EPRA adjustments Standard calculation methods for adjusted EPS and adjusted NAV as set out by the European Public Real Estate Association (EPRA) in their January 2006 Best Practice and Policy Recommendations. Estimated rental value (ERV) The market rental value of lettable space as estimated by the Company's valuers at each balance sheet date. Net initial yield Annual net rents on investment properties as a percentage of the investment property valuation. IPD The Investment Property Databank Limited (IPD) is a company that produces an independent benchmark of property returns. Like-for-like portfolio Properties that have been held for the whole of the period of account. Market value The amount as estimated by the Company's valuers for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. In line with market practice values, are stared net of purchasers costs. Net assets per share or net asset value (NAV) Equity shareholders' funds dividend by the number of ordinary shares at the balance sheet. Net gearing Total borrowings less short-term deposits and cash as a percentage of equity shareholders' funds. Portfolio internal rate of return (IRR) The rate of return that if applied as a discount rate and applied to the projected cash flows from the portfolio would result in a net present value of zero. REIT Real Estate Investment Trust. Rent roll The annual contracted rental income. Return on capital employed (ROCE) Return on capital employed is measured as profit before financing costs, plus revaluation surplus on development property by the opening gross capital. Return on shareholders' equity The growth in the adjusted diluted net assets per share plus dividends per share for the period expressed as a percentage of the adjusted net assets per share at the beginning of the period. Reversionary or under-rented The percentage by which ERV exceeds rents passing, together with the estimated rental value of vacant space. Reversionary yield The anticipated yield, which the initial yield will rise to once the rent reaches the ERV. Total property return (TPR) Capital growth in the like-for-like portfolio plus net rental income derives from holding these properties plus profit on sale of disposables expressed as a percentage return on the period's opening value. Total shareholder return (TSR) The growth in the ordinary share price as quoted on the London Stock Exchange plus dividends per share received for the period expressed as a percentage of the share price at the beginning of the period. True equivalent yield The constant capitalisation rate which, if applied to all cash flows from an investment property, including current rent, reversions to current market rent and such items such as voids and expenditures, equates to the market value. Assumes rent is received quarterly in advance. Weighted average cost of capital (WACC) The weighted average pre-tax cost of the Group's debt and notional cost of the Group's equity used as a benchmark to assess investment returns. Weighted average unexpired lease term (WAULT) The weighted average unexpired lease term expressed in years. Voids The element of a property which is unoccupied but available for letting, usually expressed as the ERV of the void space divided by the existing rent roll plus the ERV of the void space. This information is provided by RNS The company news service from the London Stock Exchange

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