Interim Results

Great Portland Estates PLC 23 November 2004 23 November 2004 INTERIM RESULTS The Directors of Great Portland Estates plc announce the results for the six months ended 30 September 2004. Highlights: Since 30 September 2004 • £129.9 million of properties sold • Joint venture created with £104 million of new assets under management • Key City site enlarged through acquisition • Resulting pro forma cash and undrawn bank facilities £230 million • Resulting pro forma gearing 51% • Portfolio entirely focused on central London • Void rate reduced to 1.5% Six months ended 30 September 2004 • Earnings per share 2.8p (2003: 6.3p) • Adjusted* earnings per share up 7.5% to 5.7p (2003: 5.3p) • Interim dividend up 2.3% to 3.58p (2003: 3.5p) • Diluted adjusted+ net assets per share up 8.9% to 305p • Property valuation up 4.0% • £63.7 million of central London properties acquired • £101.5 million return of cash to shareholders • £24 million 11 3/16 % Debenture 2009/14 redeemed • Weighted average cost of debt reduced from 6.7% to 6.2% • Net gearing increased from 30% to 67% *excluding exceptional items, profits or losses on sales of investment properties and deferred tax on accelerated capital allowances +excluding deferred tax on accelerated capital allowances Toby Courtauld, Chief Executive, said: 'The Group's development programme has been strengthened through new planning permissions, the portfolio's growth prospects have been enhanced through acquisitions and opportunistic sales and, following the £101.5 million return of cash in August, we have a balance sheet structure more appropriate for this point in the property cycle. 'The West End continues to exhibit healthy signs of recovery, and with occupational take-up rising and the expectation of more robust rental growth returning to the West End in 2005, the prospects for the Company are most encouraging.' Enquiries etc: Great Portland Estates plc 020 7580 3040 Toby Courtauld, Chief Executive John Whiteley, Finance Director Finsbury Group 020 7251 3801 Edward Orlebar KEY STATISTICS At 30 September 2004 • Investment property portfolio £851.8 million • Rent roll £57 million • Average length of lease 6.6 years • Void rate 2.6% • Diluted adjusted+ net assets per share 305p • FRS 13 adjustment per share (net of tax) 5p • Contingent CGT per share 13p • Interest cover 2.8 times • Cash and undrawn bank facilities £158 million +excluding deferred tax on capital allowances (see note 8) Chairman's Statement Since I last reported to shareholders in June, the cautious optimism which I have been expressing for some time about the prospects for the London property market and, in particular, the West End, where the majority of our portfolio lies, has been more than justified by the results for the half year ended 30 September 2004. Diluted adjusted net assets per share have increased by 8.9% to 305p, based on an underlying positive valuation movement of 4.0% on the investment properties and aided by the return of cash in early August which was specifically designed to enhance shareholder returns. Adjusted earnings per share amounted to 5.7p, and your directors have declared an interim dividend of 3.58p, an increase of 2.3% over last year. The Company has been extremely active during the past few months with opportunistic sales but, more importantly, some major acquisitions, which Toby Courtauld will deal with in greater detail. They include Ellerman House, Camomile Street, EC2, a key addition to our immediate holdings in the area, St. Lawrence House, Broadwick Street, W1, an income-producing office building with medium-term development potential, and the careful assembly of a development site in Tooley Street, SE1. In addition, we have formed, with Liverpool Victoria Friendly Society, a limited partnership which has bought the retail element of the Mount Royal block in Oxford Street, W1. Meanwhile, the development programme is stepping up a gear with completion of Metropolis House, Tottenham Court Road, W1, anticipated for spring 2005, and works have commenced at 190 Great Portland Street, W1, and Bond Street House, New Bond Street, W1; discussions continue with the planning authorities on several other schemes. With the portfolio largely rationalised, the new management team has been patient in its quest to deliver value-enhancing opportunities and we are optimistic that this strategy will prove to be well-timed. Indeed, the central London market has begun to show signs of real improvement and, following the hard work of the past few years, it is with increased confidence that I view the future prospects of the Company, with its well situated properties, its appropriate capital structure and its current and future development programme. Chief Executive's Review We have continued to build on the progress I outlined in June. The Group's development programme has been strengthened through new planning permissions, the portfolio's growth prospects have been enhanced through acquisitions and opportunistic sales and, following the £101.5 million return of cash in August, the Group has a balance sheet structure more appropriate for this point in the property cycle. Our markets have continued their recent theme of slow but steady improvement, although more so in the West End than in the City. In the former, the relatively tight development pipeline is beginning to limit the amount of quality space available and vacancy rates are falling; in the latter, where space to let is more plentiful, rents remain virtually static. A combination of rental growth following active asset management, progress made on our development programme and slight yield compression has pushed our portfolio valuation 4.0% higher for the six months to 30 September. As a result, diluted net assets per share (adjusted to exclude deferred tax on accelerated capital allowances) rose by 8.9% to 305p. Adjusted earnings per share were 7.5% higher at 5.7p (2003: 5.3p) due in large part to our lower financing costs following the continued restructuring of the Group's debt portfolio. Interim Valuation The portfolio was valued, by CB Richard Ellis, save for one property which was valued by Knight Frank LLP, at £851.8 million as at 30 September, an increase of £32.7 million or 4.0% since March 2004 and £50.6 million or 6.3% since September 2003. Stripping out acquisitions, the properties which were held throughout the six months grew in value by 4.3%. Since the half year, we have sold £129.9 million of properties (including our remaining property outside London) at an average uplift of 3.7% over their September values, resulting in a portfolio 77% located in the West End and 23% in the City. Our positive valuation performance was driven by both an improvement in rental values of 2.5% and a marginal fall in the portfolio capitalisation rate to 6.4% overall. The return to rental value growth was due in large part to our asset management activity and a strong performance from our development at Metropolis House, which alone accounted for £0.6 million of the £1.5 million total. The West End portfolio rose in value by £30.1 million, or 5.0%, to £640.1 million with healthy increases across our holdings in Mayfair. The North of Oxford Street portfolio, where five of our eight major development holdings are situated, grew in value by £17.4 million, or 4.7%. In the City, valuation increases were more subdued at £3.1 million or 1.5% due mainly to a slower rate of rental growth at 0.2%. Here, the market remains characterised by a significant surfeit of office space to let and, as we have been forecasting for some time, we do not expect to see more material rental growth until 2006. It is for this reason that we have sought to reduce our exposure to this volatile sub-market, retaining only our significant future development prospect on Bishopsgate let until 2011 and our well-let holdings in Holborn. The valuation of £851.8 million reflected a net initial yield of 5.9% and a reversionary yield of 6.4%. The total reversionary potential of the portfolio has improved slightly from an over-rented position of £3.8 million at March 2004 to one of £3.3 million at the interim stage. Acquisitions & Disposals The strong demand from private and institutional capital for London investment and development properties has continued to push yields lower, despite the relatively benign short-term outlook for rental growth, particularly in the City market. This time last year, I highlighted that our attention had shifted from strategic sales to the acquisition of new investment and development opportunities. Three months ago we returned cash to shareholders due to the scarcity of available acquisitions that we felt would be value-enhancing. The market remains just as competitive, but we have unearthed interesting situations in which to invest and, since September 2003, we have bought properties, including our share of those bought by the Great Victoria Limited Partnership (see below), for £156.3 million (£144.6 million since 31 March 2004) and sold £166.1 million (£135.5 million since 31 March 2004). A number are worth mentioning. At 26/28 and 30/34 Broadwick Street, W1 in the heart of Soho, we paid £37.7 million for a 70,000 sq ft freehold corner site let, on average, for a further 4.6 years and producing a running yield of 6.4%. Due to the under-developed nature of the site, we believe the value of the land alone is, unusually, approximately equal to the price we paid for the income-producing investment. At Tooley Street, SE1, we spent £24.8 million assembling a complete island block, presenting us with the opportunity for a major development opposite Tower Bridge, the Greater London Authority's new offices and the More London development, whilst producing short-term income. Our proposals are dealt with in Developments below. Earlier this month, we joined forces with the Liverpool Victoria Friendly Society to create the Great Victoria Limited Partnership, a 50/50 central London joint venture, to own, manage and extract value from four properties with a starting value of £122.7 million. The largest, the retail element of the Mount Royal block at the western end of Oxford Street, W1, which the partnership acquired for £80 million, represents a good opportunity to become involved in the resurgence of this end of one of the country's leading shopping destinations. Of the remaining three, two were contributed by Liverpool Victoria (40/48 Broadway and 1/11 Carteret Street in Victoria, SW1, primarily occupied by Liberty International as its headquarters, and Verulam Gardens, 70 Gray's Inn Road, WC1) and one by the Group (81/82 Dean Street, W1). The partnership is financed by properties and cash totalling £33.6 million from each partner and a non-recourse loan from Barclays Bank. By creating the joint venture, we achieved two strategic objectives; first, we have opened up a new source of revenue for the Group in the form of third party management fees; and secondly, we have gained access, with minimal equity, to a significant portfolio of properties with good prospects, a number of which might never have come to the open market. In the City, where we remain more cautious primarily due to the quantity of vacant office space, we have once again been net disinvestors. Since 30 September 2004 we have swapped two properties (Barnard's Inn, 86 Fetter Lane, EC4 and 38 Finsbury Square, EC2) for Ellerman House, 12/22 Camomile Street, EC1 and cash. Ellerman House, acquired for £19.5 million adjoins our holding at 1/11 Camomile Street and completes the assembly of a major holding on the junction with Bishopsgate. The sale of Barnard's Inn for £37.6 million crystallises our successful asset management of a property which has produced a total return over the past year of 50%. Following the disposal of properties in Maidenhead during the half year and Hounslow since 30 September we have become focused entirely on central London. We also continue to demonstrate our willingness to sell opportunistically with the disposal of Clarendon House, 17/18 New Bond Street, W1 in October. Having created new retail rental evidence at £500 per sq ft at our holding opposite, we sold our leasehold interest at a net initial yield to the purchaser of 4.6% thereby recording a 36% total return performance for the property since September 2003. Asset Management Our asset management philosophy remains simple: manage impending lease expiries aggressively in order to keep voids in the investment portfolio to a minimum, thereby maximising cash flow whilst working to deliver vacant possession of our potential development sites in time for the next cycle. At 2.6% (March 2004: 2.6%) the Group's void position remains both stable and significantly below the London market rate of approximately 12.5%. Following transactions since September, the pro forma void rate is 1.5%. Of the 16 tenancies with expiries or break clauses operable during the six months to September, we retained 12 or 86% by rent. The net effect of our expiries and relettings during the period was a reduction in the rent roll of only £0.2 million. Developments We continue to make satisfactory progress in bringing forward our development programme. To the six refurbishment or redevelopment projects I referred to in June as forming the backbone of our programme, we have added our recent acquisition at Tooley Street, SE1. In five separate transactions during the summer, for a purchase price of £24.8 million, we put together an island site comprising two investment properties, two empty office buildings and a one acre plot to the rear. We have begun the process of masterplanning the one acre site with a view to developing new grade A offices of approximately 160,000 sq ft to add to the existing buildings of 40,000 sq ft. Discussions continue with the local planning authority, Southwark Borough Council. Since March, we have obtained a number of enhanced planning permissions. At 190 Great Portland Street, we expect to begin work early in 2005 with completion of the 101,000 sq ft major office refurbishment during 2006. At Metropolis House, our basement, ground and first floor reconfiguration proposals received consent and work is on time and budget to complete the 113,000 sq ft major refurbishment during Spring 2005. Following our lease restructuring at Barnard's Inn, EC4, refurbishment of the entrance hall and top three floors (one of which has been prelet), was completed on time in October prior to sale. At Bond Street House, 15/16 New Bond Street, W1, we negotiated a number of office lease surrenders following the regear of the basement, ground and first floor retail space to Mappin & Webb earlier in the year, enabling us to bring forward our refurbishment of the 20,000 sq ft office premises from 2006 to the beginning of 2005. We anticipate completion towards the end of 2005. At September, we had 151,000 sq ft under refurbishment or redevelopment, the majority of which was at Metropolis House and at Barnard's Inn, 86 Fetter Lane, EC4. Outlook Although the rate of improvement in our markets slowed a little during the summer, the West End in particular continues to exhibit healthy signs of recovery. Occupational take-up is rising and we expect to see more robust rental growth returning to the West End during 2005 with the City following during 2006. With a restructured balance sheet, a growing development programme timed for delivery into an improving market and an investment portfolio with plenty of opportunities to exploit, the prospects for the Company are most encouraging. Financial Review In the six months to 30 September 2004 we have continued to refine the funding of the Group to suit the market conditions in which we operate, reducing our capital by £101.5 million through a return of cash to shareholders, redeeming a high-coupon debenture, refinancing the main bank debt and increasing our overall bank facilities. Since the end of the period we have entered into a 50/50 joint venture to hold assets of £122.7 million, financed by £33.6 million of equity from each party and by non-recourse bank debt. With lower financing costs, and fewer shares in issue, adjusted earnings per share for the six months ended 30 September 2004 were 7.5% higher at 5.7p (2003: 5.3p per share). Throughout this financial review, where references are made to adjusted figures, their calculations can be found in note 8. The introduction of UITF Abstract 38 Accounting for ESOP Trusts has had the effect of reducing diluted adjusted net assets per share by 2p both at 30 September 2004 and at 31 March 2004. No other new financial reporting standards required application for the first time in the period under review. Rent receivable for the six months to 30 September 2004 of £26.4 million was £1.8 million less than in the corresponding period last year for two reasons: first, the effect of lease expiries, particularly at Barnard's Inn, 86 Fetter Lane, EC4, exceeded that of new lettings by £1.1 million in aggregate; and, secondly, rent lost from disposals exceeded that gained from acquisitions by £0.7 million. Administration costs of £4.9 million were £1.5 million higher than last year largely due to exceptional costs incurred in returning cash to shareholders; these costs were less than 1% of the value of the cash returned. Net interest payable for the six months ended 30 September 2004 was £7.0 million, after capitalising £0.7 million (2003: £0.2 million) into the cost of developments, and, through the redemption of a high-coupon debenture, were £0.7 million lower than the corresponding period last year. Redeeming the £24 million 11.1875% First Mortgage Debenture Stock 2009/2014 released 8.7% of the portfolio from being charged as security, and followed our policy of financing the business with more flexible borrowings. It was repaid at a premium to its book value of £6.2 million, which, after tax relief, reduced diluted adjusted net assets per share by less than 2p. Operating profit covered net interest by a comfortable 2.8 times (2003: 3.0 times). The tax charge for the six months to 30 September 2004 comprised three elements: a charge of £2.7 million on adjusted profit before tax of £13.5 million; tax relief of £2.8 million arising from the debenture redemption; and a deferred tax charge of £1.2 million. The charge of £2.7 million on adjusted profit reflected a tax rate on the underlying core business of 20%. The charge for deferred tax is required by FRS 19 to cover the remote possibility that the tax relief on accelerated capital allowances could reverse on the disposal of the properties; the deferred tax provision on accelerated capital allowances at 30 September 2004 stood at £4.5 million, and has been added back to arrive at adjusted net assets as defined in these financial statements. An interim dividend of 3.58p per share (2003: 3.5p per share) will be paid on 6 January 2005 to shareholders on the register at 3 December 2004. Diluted adjusted net assets per share rose by 8.9% in the six months to 30 September 2004, from 280p (as adjusted) to 305p. The increase of 25p comprised a surplus on revaluation of properties of 18p, and the effect of the return of cash of 7p. The return of cash enhanced net assets per share because the share consolidation mechanism, designed to maintain a directly comparable share price before and after the return of cash, was effected at a time when the share price was at a discount to the underlying net assets per share of the Group. A unique characteristic of the scheme used to return the cash was the way in which shareholders were given the choice of receiving the cash as income or capital for the purposes of their personal tax planning. For the purpose of shareholders' personal tax calculations, at close of business on 30 July 2004, the first day of trading in the new shares after the capital restructuring, the share price stood at 282p. Net gearing at 30 September 2004 was 67%, the weighted average cost of borrowing was 6.2%, down from 6.7% at March, and cash and undrawn committed bank facilities comprised £158 million. Taking account of property disposals since the beginning of October, this rises to a pro forma £230 million, and net gearing falls to 51%. Marking debt to market at 30 September would have reduced diluted adjusted net assets per share by 5p after tax, and there was a contingent liability to taxation on chargeable gains of 13p per share. Accordingly, diluted adjusted triple net asset value at 30 September 2004 was 287p, up 8% from 266p (as restated) in March. Portfolio Statistics Rental Income At 30 September 2004 -------------------------------------------------------------------------------------------------------- Reversionary Five Year Five Year Potential Total Rent Reversionary Rental Beyond Five Rental Roll Potential Values Years Values £m £m £m £m £m -------------------------------------------------------------------------------------------------------- London North of Oxford Street Office 21.8 (1.0) 20.8 0.2 21.0 Retail 3.7 0.1 3.8 - 3.8 Other 0.2 - 0.2 - 0.2 Rest of West End Office 10.6 0.1 10.7 (0.8) 9.9 Retail 5.9 0.4 6.3 (0.1) 6.2 -------------------------------------------------------------------------------------------------------- Total West End and Covent Garden 42.2 (0.4) 41.8 (0.7) 41.1 City and Holburn Office 14.4 - 14.4 (2.6) 11.8 Retail 0.4 - 0.4 0.5 0.9 -------------------------------------------------------------------------------------------------------- Total London 57.0 (0.4) 56.6 (2.8) 53.8 Outside London - - - - - -------------------------------------------------------------------------------------------------------- Total Let Portfolio 57.0 (0.4) 56.6 (2.8) 53.8 ----------------------------------------------------------------- Voids 1.7 - 1.7 Premises under refurbishment 5.4 - 5.4 -------------------------------------------------------------------------------------------------------- Total Portfolio 63.7 (2.8) 60.9 -------------------------------------------------------------------------------------------------------- Rent Roll Weighted Secure Average For Over Five Lease Years Length Voids % Years % -------------------------------------------------------------------------------------------------------- London North of Oxford Street Office 31.7 4.4 2.0 Retail 44.9 6.6 3.3 Other 60.4 1.0 4.6 Rest of West End Office 70.6 6.6 0.1 Retail 79.0 11.6 - Total West End and Covent Garden 49.4 6.1 1.6 City and Holborn Office 81.1 7.8 2.0 Retail 58.4 11.3 - Total London 57.5 6.6 1.7 Outside London - - 100.0 Total Let Portfolio 57.5 6.6 2.6 -------------------------------------------------------------------------------------------------------- Let Portfolio Total portfolio* ------------------ -------------------- Average Average Initial Equivalent Rent ERV Yield Yield £psf £psf % % -------------------------------------------------------------------------------------------------------- London North of Oxford Street Office 30 28 6.4 6.5 Retail 21 22 6.6 6.3 Other 20 12 7.5 7.9 Rest of West End Office 35 33 6.0 6.3 Retail 80 84 5.1 5.2 Total West End and Covent Garden 33 31 6.1 6.2 City and Holborn Office 33 27 5.4 6.9 Retail 9 22 5.2 7.5 Total London 32 30 5.9 6.4 Outside London - - - 7.4 Total 32 30 5.9 6.4 -------------------------------------------------------------------------------------------------------- *excluding properties under development Property Portfolio Valuation Proportion Movement of Portfolio £m % % -------------------------------------------------------------------------------------------------------- London North of Oxford Street Office 233.9 27.5 5.7 Retail 32.6 3.8 (4.7) Other 1.8 0.2 (2.1) Rest of West End Office 144.4 16.9 4.8 Retail 96.8 11.4 7.5 -------------------------------------------------------------------------------------------------------- Total West End and Covent Garden 509.5 59.8 5.0 City and Holborn Office 173.1 20.3 0.6 Retail 11.6 1.4 13.3 -------------------------------------------------------------------------------------------------------- Total London 694.2 81.5 4.0 Outside London 6.0 0.7 (7.7) -------------------------------------------------------------------------------------------------------- Total investment portfolio 700.2 82.2 3.9 Properties approaching development 109.9 12.9 (1.0) Properties under development 41.7 4.9 25.0 -------------------------------------------------------------------------------------------------------- Total property portfolio 851.8 100.0 4.0 -------------------------------------------------------------------------------------------------------- Five Year Rental Values Lease Expiries £m % Rent roll, rent reviews and lease renewals 56.6 Less than 5 years 42.5 Under refurbishment 5.4 5 to 10 years 40.8 Voids 1.7 10 to 15 years 12.8 Over 15 years 3.9 ------ ------ 63.7 100.0 ------ ------ Occupier % Retailers 26.2 Professional 23.4 Media & Marketing 23.5 Banking and Finance 14.0 Corporates 6.8 IT & Telecoms 3.2 Government 2.9 ------ 100.0 ------ Unaudited Group Profit and Loss Account For the six months ended 30 September 2004 Year to Six months to Six months to 31 March 30 September 30 September 2004 2004 2003 £m Notes £m £m -------- ----------------------------------------------------------------------------------- 63.8 Rent receivable 2 26.4 28.2 (1.4) Ground rents (0.6) (0.7) -------- ----------------------------------------------------------------------------------- 62.4 Net rental income 25.8 27.5 (2.4) Property and refurbishment costs (1.2) (0.9) (7.2) Administration expenses (4.1) (3.4) - Exceptional administration expenses 3 (0.8) - -------- ----------------------------------------------------------------------------------- 52.8 Operating profit 19.7 23.2 (2.8) (Loss)/profit on sale of investment properties (0.1) 0.2 -------- ----------------------------------------------------------------------------------- 50.0 Profit on ordinary activities before interest 19.6 23.4 5.0 Interest receivable 4 1.9 2.0 (19.4) Interest payable 5 (8.9) (9.8) - Exceptional finance costs 6 (6.2) - -------- ----------------------------------------------------------------------------------- 35.6 Profit on ordinary activities before taxation 6.4 15.6 (4.9) Tax on profit on ordinary activities 7 (1.1) (2.7) -------- ----------------------------------------------------------------------------------- 30.7 Profit on ordinary activities after taxation 5.3 12.9 (21.1) Dividends (5.8) (7.0) -------- ----------------------------------------------------------------------------------- 9.6 Retained (loss)/profit for the period 19 (0.5) 5.9 -------- ----------------------------------------------------------------------------------- 15.1p Earnings per share - basic 8 2.8p 6.3p 14.7p Earnings per share - diluted 8 3.0p 6.2p 12.8p Earnings per share - adjusted 8 5.7p 5.3p 10.5p Dividend per share 3.58p 3.5p Unaudited Group Balance Sheet At 30 September 2004 31 March 30 September 30 September 2004 2004 2003 as restated as restated £m Notes £m £m ----------- -------------------------------------------------------------------------------- Tangible fixed assets 740.2 Investment properties 9 845.9 738.4 ----------- -------------------------------------------------------------------------------- Current assets 36.5 Debtors 10 16.1 24.9 138.8 Cash at bank and short-term deposits 13.4 125.1 ----------- -------------------------------------------------------------------------------- 175.3 29.5 150.0 (67.3) Creditors: amounts falling due within 11 (33.1) (34.4) one year ----------- -------------------------------------------------------------------------------- 108.0 Net current (liabilities)/assets (3.6) 115.6 ----------- -------------------------------------------------------------------------------- 848.2 Total assets less current liabilities 842.3 854.0 Creditors: amounts falling due after more than one year (221.0) Debenture loans 12 (194.3) (221.1) (57.2) Convertible loans 13 (57.3) (57.2) (4.4) Bank and other loans 14 (94.0) (24.4) (4.4) Provisions for liabilities and charges 16 (5.5) (10.4) ----------- -------------------------------------------------------------------------------- 561.2 491.2 540.9 ----------- -------------------------------------------------------------------------------- Capital and reserves 101.5 Called up share capital 17 20.3 101.5 24.8 Share premium account 18 13.0 24.8 237.6 Revaluation reserve 19 287.6 213.1 25.0 Other reserves 19 25.0 25.0 175.7 Profit and loss account 19 147.9 179.9 (3.4) Investment in own shares 20 (2.6) (3.4) ----------- -------------------------------------------------------------------------------- 561.2 Equity shareholders' funds 491.2 540.9 ----------- -------------------------------------------------------------------------------- The Group Balance Sheets at 30 September 2003 and at 31 March 2004 have been restated for the adoption of UITF 38 (see note 20). The Interim Report was approved by the Board of Directors on 23 November 2004. Unaudited Group Statement of Cash Flows For the six months ended 30 September 2004 Year to Six months to Six months to 31 March 30 September 30 September 2004 2004 2003 £m Notes £m £m -------- ----------------------------------------------------------------------------------- 49.3 Net cash inow from operating activities 22 15.3 19.6 (18.0) Returns on investments and servicing of 23 (8.9) (9.0) finance 1.8 Taxation 23 - - 4.0 Net cash (outflow)/inflow from capital 23 (11.0) 9.3 expenditure - Acquisitions and disposals 23 (38.1) - (20.9) Equity dividends paid (14.1) (13.9) -------- ----------------------------------------------------------------------------------- 16.2 Net cash (outflow)/inflow before (56.8) 6.0 management of liquid resources and financing (36.3) Management of liquid resources 23 127.2 (23.5) 19.1 Net cash (outflow)/inflow from financing 23 (68.6) 15.6 -------- ----------------------------------------------------------------------------------- (1.0) Increase/(decrease) in cash 25 1.8 (1.9) -------- ----------------------------------------------------------------------------------- Unaudited Group Statement of Total Recognised Gains and Losses For the six months ended 30 September 2004 Year to Six months to Six months to 31 March 30 September 30 September 2004 2004 2003 £m £m £m -------- ----------------------------------------------------------------------------------- 30.7 Profit for the period 5.3 12.9 (13.5) Unrealised surplus/(deficit) on revaluation of fixed assets 31.2 (30.1) -------- ----------------------------------------------------------------------------------- 17.2 Total recognised gains and losses for the period 36.5 (17.2) -------- ----------------------------------------------------------------------------------- Unaudited Note of Historical Cost Profits and Losses For the six months ended 30 September 2004 Year to Six months to Six months to 31 March 30 September 30 September 2004 2004 2003 £m £m £m -------- ----------------------------------------------------------------------------------- 35.6 Reported profit on ordinary activities before taxation 6.4 15.6 4.3 Realisation of revaluation surpluses of previous years 1.7 12.2 -------- ----------------------------------------------------------------------------------- 39.9 Historical cost profit on ordinary activities before taxation 8.1 27.8 -------- ----------------------------------------------------------------------------------- 13.9 Historical cost profit for the period retained after 1.2 18.1 taxation and dividends -------- ----------------------------------------------------------------------------------- Notes forming part of the Interim Statement 1 Basis of Preparation of Interim Financial Information The interim financial information has been prepared on the basis of the accounting policies set out in the Group's 2004 statutory accounts as amended by the introduction of UITF 38, which relates to accounting for shares held by a company in itself through an ESOP trust. Comparative interim financial information has been restated, the effect of which is set out in note 20. The financial information contained in this report does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. The abridged financial statements for the year ended 31 March 2004, which are an extract from the financial statements for that year which, together with an unqualified audit report, have been delivered to the Registrar of Companies, have also been restated to reflect UITF 38. 2 Turnover and Segmental Analysis Rent receivable by location: Year to Six months to Six months to 31 March 30 September 30 September 2004 2004 2003 £m £m £m -------- ------------------------------------------------------------------------------- 21.3 West End - Offices North of Oxford Street 10.8 10.5 7.3 - Other Offices 4.0 3.6 9.1 - Retail 4.6 4.5 0.2 - Other 0.1 0.1 13.8 City and Holborn - Offices 6.0 7.3 0.4 - Retail 0.2 0.2 3.5 Outside London 0.7 2.0 -------- ------------------------------------------------------------------------------- 55.6 26.4 28.2 8.2 Premium on lease surrender - - -------- ------------------------------------------------------------------------------- 63.8 26.4 28.2 -------- ------------------------------------------------------------------------------- Rent receivable is stated exclusive of value added tax, and arose wholly from continuing operations in the United Kingdom. No operations were discontinued during the period. 3 Exceptional Administration Expenses Year to Six months to Six months to 31 March 30 September 30 September 2004 2004 2003 £m £m £m -------- ------------------------------------------------------------------------------- - Costs of capital reduction 0.8 - -------- ------------------------------------------------------------------------------- 4 Interest Receivable Year to Six months to Six months to 31 March 30 September 30 September 2004 2004 2003 £m £m £m -------- ------------------------------------------------------------------------------- 4.6 Short-term deposits 1.9 2.0 0.4 Other - - -------- ------------------------------------------------------------------------------- 5.0 1.9 2.0 -------- ------------------------------------------------------------------------------- 5 Interest Payable Year to Six months to Six months to 31 March 30 September 30 September 2004 2004 2003 £m £m £m -------- ------------------------------------------------------------------------------- 1.0 Bank loans and overdrafts 1.2 0.1 18.9 Other 8.4 9.9 -------- ------------------------------------------------------------------------------- 19.9 9.6 10.0 (0.5) Less: interest capitalised on developments (0.7) (0.2) -------- ------------------------------------------------------------------------------- 19.4 8.9 9.8 -------- ------------------------------------------------------------------------------- 6 Exceptional Finance Costs Year to Six months to Six months to 31 March 30 September 30 September 2004 2004 2003 £m £m £m -------- ------------------------------------------------------------------------------- - Premium on redemption of debenture 6.2 - -------- ------------------------------------------------------------------------------- 7 Tax on Profit on Ordinary Activities Year to Six months to Six months to 31 March 30 September 30 September 2004 2004 2003 £m £m £m -------- ------------------------------------------------------------------------------- Current tax - UK corporation tax (0.4) - 2.8 Tax underprovided in previous year - - -------- ------------------------------------------------------------------------------- 2.8 Total current tax (0.4) - 2.1 Deferred tax 1.5 2.7 -------- ------------------------------------------------------------------------------- 4.9 Tax on profit on ordinary activities 1.1 2.7 -------- ------------------------------------------------------------------------------- Taxation has been calculated using the estimated effective tax rate for the full year. The difference between the standard rate of tax and the effective rate arises from the items set out below: Year to Six months to Six months to 31 March 30 September 30 September 2004 2004 2003 £m £m £m -------- ------------------------------------------------------------------------------- 35.6 Profit on ordinary activities before tax 6.4 15.6 -------- ------------------------------------------------------------------------------- 10.7 Tax on profit on ordinary activities at standard 1.9 4.7 rate of 30% 0.3 Expenses not deductible for tax purposes 0.4 0.1 - Accelerated capital allowances (1.5) - - Excess of tax deductions over accounting losses (1.0) - (2.5) Receipts taxable as chargeable gains covered by (0.1) - capital losses 0.8 Sale of investment properties covered by capital losses - 0.4 (0.1) Pension contributions in excess of pensions charge - (0.1) (9.2) Accounting losses arising in previous years relievable - (5.1) against current tax (0.1) Income not taxable - - 2.8 Tax underprovided in previous years - - 0.1 Other (0.1) - -------- ------------------------------------------------------------------------------- 2.8 UK corporation tax (credit)/charge for the period (0.4) - -------- ------------------------------------------------------------------------------- 8 Earnings per Share and Net Assets per Share Earnings per share for the six months are based on the profit attributable to ordinary shareholders of £5.3 million (2003: £12.9 million) and on the weighted average of 189,110,027 shares in issue (2003: 203,093,515 shares). Diluted earnings per share are based on profits of £6.3 million (2003: £13.9 million) and on 207,819,705 shares (2003: 221,803,192 shares). The difference between basic and diluted earnings per share is the effect of the conversion of the convertible bonds. The directors believe that earnings per share before deferred tax arising on capital allowances exceeding depreciation, exceptional items and profits or losses on sales of investment properties provide a more meaningful measure of the Group's performance. Accordingly, earnings per share on that adjusted basis have been disclosed on the face of the profit and loss account, and calculated as follows: Year to Six months to Six months to Six months to Six months to 31 March 30 September 30 September 30 September 30 September 2004 2004 2004 2003 2003 Earnings Profit Earnings Profit Earnings per share after tax per share after tax per share pence £m pence £m pence --------- ---------------------------------------------------------------------------------- 15.1 Basic 5.3 2.8 12.9 6.3 (3.7) Deferred tax 1.2 0.7 (2.4) (1.1) - Exceptional items 4.2 2.2 - - 1.4 Loss on sale of 0.1 - 0.2 0.1 investment properties --------- ---------------------------------------------------------------------------------- 12.8 Adjusted 10.8 5.7 10.7 5.3 --------- ---------------------------------------------------------------------------------- Basic, adjusted and diluted adjusted net assets per share are calculated as follows: 30 September 30 September 30 September 2004 2004 2004 Net No. of Net Assets Assets Shares per Share £m million pence ---------------------------------------------------------------------------------------------- Basic 491.2 162.5 302 Deferred tax on capital allowances 4.5 162.5 3 ---------------------------------------------------------------------------------------------- Adjusted 495.7 162.5 305 Convertible bonds 57.3 18.7 - ---------------------------------------------------------------------------------------------- Diluted adjusted 553.0 181.2 305 ---------------------------------------------------------------------------------------------- 31 March 31 March 31 March 2004 2004 2004 Net No. of Net Assets Assets Shares per Share as restated as restated £m million pence ---------------------------------------------------------------------------------------------- Basic 561.2 203.1 276 Deferred tax on capital allowances 2.7 203.1 1 ---------------------------------------------------------------------------------------------- Adjusted 563.9 203.1 277 Convertible bonds 57.2 18.7 3 ---------------------------------------------------------------------------------------------- Diluted adjusted 621.1 221.8 280 ---------------------------------------------------------------------------------------------- 30 September 30 September 30 September 2003 2003 2003 Net No. of Net Assets Assets Shares per Share as restated as restated £m million pence ---------------------------------------------------------------------------------------------- Basic 540.9 203.1 266 Deferred tax on capital allowances 7.8 203.1 4 ---------------------------------------------------------------------------------------------- Adjusted 548.7 203.1 270 Convertible bonds 57.2 18.7 3 ---------------------------------------------------------------------------------------------- Diluted adjusted 605.9 221.8 273 ---------------------------------------------------------------------------------------------- Net assets and net assets per share at 30 September 2003 and at 31 March 2004 have been restated for the adoption of UITF 38 (see note 20). 9 Investment Properties Freehold Leasehold Total £m £m £m ------------------------------------------------------------------------------------------ Book value at 1 April 2004 497.4 242.8 740.2 Add: Included in prepayments and accrued income 3.9 0.5 4.4 ------------------------------------------------------------------------------------------ Market value at 1 April 2004 501.3 243.3 744.6 Additions at cost 77.8 2.3 80.1 Disposals - (5.6) (5.6) ------------------------------------------------------------------------------------------ 579.1 240.0 819.1 Surplus on revaluation 20.3 12.4 32.7 ------------------------------------------------------------------------------------------ Market value at 30 September 2004 599.4 252.4 851.8 Less: Included in prepayments and accrued income (4.8) (1.1) (5.9) ------------------------------------------------------------------------------------------ Book value at 30 September 2004 594.6 251.3 845.9 ------------------------------------------------------------------------------------------ Movement in revaluation reserve Surplus on revaluation 32.7 Add: Included within prepayments and accrued income at 1 April 2004 4.4 Less: Included within prepayments and accrued income at 30 September 2004 (5.9) ------------------------------------------------------------------------------------------ Movement in revaluation reserve (note 19) 31.2 ------------------------------------------------------------------------------------------ The freehold and leasehold investment properties were valued on the basis of Market Value by CB Richard Ellis, save for one property, which was valued by Knight Frank LLP, as at 30 September 2004 in accordance with the RICS Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors. At 30 September 2004, the cumulative interest capitalised in investment properties under development was £1.2 million (2003: £0.2million). Taxation on capital gains of approximately £23.9 million would have arisen if the Group's investment properties had been sold for their book value at the balance sheet date. 10 Debtors 31 March 30 September 30 September 2004 2004 2003 £m £m £m --------- ------------------------------------------------------------- 2.2 Rental debtors 3.5 5.6 - Corporation tax - 2.8 26.1 Other debtors 2.5 7.3 8.2 Prepayments 10.1 5.0 - Deferred tax - 4.2 --------- ------------------------------------------------------------- 36.5 16.1 24.9 --------- ------------------------------------------------------------- Included within prepayments is £2.8million (2003: £2.8million) in respect of pension contribution payments made in advance of their recognition in the profit and loss account, all of which falls due after more than one year. 11 Creditors: Amounts Falling Due Within One Year 31 March 30 September 30 September 2004 2004 2003 £m £m £m --------- ------------------------------------------------------------- 25.0 Bank loan - - - Unsecured loan notes 2007 0.4 1.5 1.8 Corporation tax 1.4 - 1.7 Other taxes and social security costs - 1.7 4.3 Other creditors 5.0 3.2 20.4 Accruals and rents in advance 20.5 21.0 14.1 Proposed dividend 5.8 7.0 --------- ------------------------------------------------------------- 67.3 33.1 34.4 --------- ------------------------------------------------------------- 12 Debenture Loans 31 March 30 September 30 September 2004 2004 2003 £m £m £m --------- ------------------------------------------------------------- First mortgage debenture stock 26.8 £24 million 11 3/16 per cent. - 26.9 debenture stock 2009/14 95.2 £97.5 million 7 1/4 per cent. 95.3 95.2 debenture stock 2027 99.0 £100 million 5 5/8 per cent. 99.0 99.0 debenture stock 2029 --------- ------------------------------------------------------------- 221.0 194.3 221.1 --------- ------------------------------------------------------------- Certain of the freehold and leasehold properties are charged to secure the first mortgage debenture stock. 13 Convertible Loans 31 March 30 September 30 September 2004 2004 2003 £m £m £m --------- ------------------------------------------------------------- 58.0 5 1/4 per cent. convertible 58.0 58.0 bonds 2008 (0.8) Costs of issue (0.7) (0.8) --------- ------------------------------------------------------------- 57.2 57.3 57.2 --------- ------------------------------------------------------------- The bonds, which are unsecured, are convertible by the bondholder at a price of £3.10 per share, and redeemable by the Company at par, at any time until 2008. 14 Bank and Other Loans 31 March 30 September 30 September 2004 2004 2003 £m £m £m --------- ------------------------------------------------------------- - Bank loans 90.0 20.0 4.4 Unsecured loan notes 2007 4.4 5.9 --------- ------------------------------------------------------------- 4.4 94.4 25.9 - Falling due within one year (0.4) (1.5) --------- ------------------------------------------------------------- 4.4 Falling due after one year 94.0 24.4 --------- ------------------------------------------------------------- Bank loans are unsecured and expire in 2009. The Company has entered into swap arrangements to fix the rate of interest on the bank loans, which has resulted in a weighted average rate of 7.0 per cent. The unsecured loan notes, which together with an associated guarantee attract a floating rate of interest of 0.275 per cent. in aggregate above LIBOR, are redeemable at the option of the noteholder until 2007, and by the Company in 2007. 15 Borrowings Maturity of financial liabilities The maturity profile of the financial liabilities of the Group at 30 September 2004 was as follows: 31 March 30 September 30 September 2004 2004 2003 £m £m £m ----- --------------------------------------------------------------------------- 25.0 In one year or less, or on demand 0.4 1.5 - In more than one year but not more than two years - 20.0 61.6 In more than two years but not more than five years 151.3 61.6 221.0 In more than five years 194.3 221.1 ----- --------------------------------------------------------------------------- 307.6 346.0 304.2 ----- --------------------------------------------------------------------------- Borrowing facilities Undrawn committed borrowing facilities available to the Group at 30 September 2004 were as follows: 31 March 30 September 30 September 2004 2004 2003 £m £m £m ----- --------------------------------------------------------------------------- 165.0 Expiring in one year or less 15.0 15.0 20.0 Expiring in between one and two years 20.0 155.0 - Expiring in more than two years 110.0 20.0 ----- --------------------------------------------------------------------------- 185.0 145.0 190.0 ----- --------------------------------------------------------------------------- Fair values of financial assets and financial liabilities 31 March 31 March 30 September 30 September 30 September 30 September 2004 2004 2004 2004 2003 2003 Book Fair Book Fair Book Fair Value Value Value Value Value Value £m £m £m £m £m £m ----------------- ------------------------------------------------------------------------------ 25.0 25.0 Short-term borrowings 0.4 0.4 1.5 1.5 282.6 299.8 Long-term borrowings 345.6 358.4 302.7 320.3 1.0 1.5 Interest rate swaps - 0.4 2.2 3.1 ----------------- ------------------------------------------------------------------------------ 308.6 326.3 346.0 359.2 306.4 324.9 ----------------- ------------------------------------------------------------------------------ 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. 16 Provisions for Liabilities and Charges Provision for Deferred tax swap costs Total £m £m £m --------------------------------------------------------------------------- At 1 April 2004 3.4 1.0 4.4 Arising/(released) during the period 2.1 (1.0) 1.1 --------------------------------------------------------------------------- At 30 September 2004 5.5 - 5.5 --------------------------------------------------------------------------- The provision for deferred tax comprises £4.5 million in respect of capital allowances exceeding depreciation, and £1.0 million of other timing differences. 17 Share Capital Year to Year to Six months to Six months to Six months to Six months to 31 March 31 March 30 September 30 September 30 September 30 September 2004 2004 2004 2004 2003 2003 Number £m Number £m Number £m --------------------------------------------------------------------------------------------------------------------- Ordinary shares of 121/2 p each Allotted, called up and fully paid 203,093,515 101.5 At the beginning of the period 203,093,515 101.5 203,093,515 101.5 - - Capital reduction (40,618,703) (81.2) - - --------------------------------------------------------------------------------------------------------------------- 203,093,515 101.5 At the end of the period 162,474,812 20.3 203,093,515 101.5 --------------------------------------------------------------------------------------------------------------------- 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 50p to 121/2 p per share. 18 Share Premium Year to Six months to Six months to 31 March 30 September 30 September 2004 2004 2003 £m £m £m -------- ------------------------------------------------------------- 24.8 At the beginning of the period 24.8 24.8 - Capital reduction (11.8) - -------- ------------------------------------------------------------- 24.8 At the end of the period 13.0 24.8 -------- ------------------------------------------------------------- 19 Reserves Other Reserves --------------------------------- Capital Profit and Redemption Acquisition Revaluation Loss Reserve Reserve Total Reserve Account £m £m £m £m £m ------------------------------------------------------------------------------------------- At 1 April 2004 16.4 8.6 25.0 237.6 175.7 Realised on disposal of properties - - - (1.7) 1.7 Permanent diminution in value - - - 20.5 (20.5) Capital reduction - - - - (8.5) Surplus on revaluation - - - 31.2 - Retained loss for the period - - - - (0.5) ------------------------------------------------------------------------------------------- At 30 September 2004 16.4 8.6 25.0 287.6 147.9 ------------------------------------------------------------------------------------------- 20 Investment in Own Shares 31 March 30 September 30 September 2004 2004 2003 as restated as restated £m £m £m -------------------------------------------------------------------------------------------- 3.4 Investment in shares of Great Portland Estates plc 2.6 3.4 -------------------------------------------------------------------------------------------- The reduction of £0.8 million in the carrying value of the investment in own shares since 31 March 2004 represents the receipt of cash arising from the capital reduction in respect of those shares. At 30 September 2004, the cash had not been reinvested and is included within cash at bank of the Group. The adoption of UITF Abstract 38 Accounting for ESOP Trusts ('UITF 38') has required that the investment in the Company's own shares held through an LTIP trust be shown as a deduction from shareholders' funds rather than as a fixed asset. The effect of the adoption of UITF 38 on shareholders' funds has been as follows: At 31 March At 30 September At 31 March 2003 2003 2004 £m £m £m ------------------------------------------------------------------------------ Shareholders' funds As previously stated 568.5 544.3 564.6 Adjustment (1.7) (3.4) (3.4) ------------------------------------------------------------------------------ As restated 566.8 540.9 561.2 ------------------------------------------------------------------------------ 21 Reconciliation of Movements in Shareholders' Funds Year to Six months to Six months to 31 March 30 September 30 September 2004 2004 2003 as restated as restated £m £m £m -------- --------------------------------------------------------- 30.7 Profit for the period 5.3 12.9 (21.1) Dividends (5.8) (7.0) -------- --------------------------------------------------------- 9.6 (0.5) 5.9 - Capital reduction (101.5) - - Receipt from capital 0.8 - reduction of own shares (1.7) Investment in own shares - (1.7) (13.5) Other recognised gains and 31.2 (30.1) losses relating to the period -------- --------------------------------------------------------- (5.6) Net decrease in shareholders' funds (70.0) (25.9) 566.8 Opening shareholders' funds 561.2 566.8 -------- --------------------------------------------------------- 561.2 Closing shareholders' funds 491.2 540.9 -------- --------------------------------------------------------- Shareholders' funds at 31 March 2003, 30 September 2003 and 31 March 2004 have been restated for the adoption of UITF 38 (see note 20). 22 Reconciliation of Operating Profit to Net Cash Inflow from Operating Activities Year to Six months to Six months to 31 March 30 September 30 September 2004 2004 2003 £m £m £m -------- ---------------------------------------------------------------- 52.8 Operating profit 19.7 23.2 (1.4) Increase in debtors (2.8) (1.8) (2.1) Decrease in creditors (1.6) (1.8) -------- ---------------------------------------------------------------- 49.3 Net cash inflow from operating activities 15.3 19.6 -------- ---------------------------------------------------------------- 23 Analysis of Cash Flows Year to Six months to Six months to 31 March 30 September 30 September 2004 2004 2003 £m £m £m -------- --------------------------------------------------------------------- Returns on investments and servicing of finance 4.5 Interest received 2.6 2.1 (22.5) Interest paid (11.5) (11.1) -------- --------------------------------------------------------------------- (18.0) (8.9) (9.0) -------- --------------------------------------------------------------------- Taxation 1.8 Corporation tax refunded - - -------- --------------------------------------------------------------------- 1.8 - - -------- --------------------------------------------------------------------- Net cash (outflow)/inflow from capital expenditure (36.6) Payments to acquire investment properties (39.5) (20.1) 40.6 Receipts from sale of investment properties 28.5 29.4 -------- --------------------------------------------------------------------- 4.0 (11.0) 9.3 -------- --------------------------------------------------------------------- Acquisitions and disposals - Purchase of subsidiary undertakings (38.1) - -------- --------------------------------------------------------------------- - (38.1) - -------- --------------------------------------------------------------------- Management of liquid resources (36.3) Cash withdrawn from/(placed on) short-term deposit 127.2 (23.5) -------- --------------------------------------------------------------------- (36.3) 127.2 (23.5) -------- --------------------------------------------------------------------- Net cash (outflow)/inflow from financing - Capital reduction (101.5) - - Receipts from capital reduction of own shares 0.8 - (1.7) Payments to acquire own shares - (1.7) (4.0) Redemption of loans - book value (26.7) (2.5) (0.2) - premium on redemption (6.2) (0.2) 25.0 Drawdown of bank loans 90.0 20.0 - Repayment of bank loan (25.0) - -------- --------------------------------------------------------------------- 19.1 (68.6) 15.6 -------- --------------------------------------------------------------------- 24 Reconciliation of Net Cash Flow to Movement in Net Debt Year to Six months to Six months to 31 March 30 September 30 September 2004 2004 2003 £m £m £m -------- ---------------------------------------------------------------------------- (1.0) Increase/(decrease) in cash in the period 1.8 (1.9) 36.3 Cash (withdrawn from)/placed on short-term deposit (127.2) 23.5 4.0 Cash outflow from redemption of loans 51.8 2.5 (25.0) Cash inflow from increase in loans (90.0) (20.0) -------- ---------------------------------------------------------------------------- 14.3 Change in net debt arising from cash flows (163.6) 4.1 0.1 Other non-cash movements (0.2) - -------- ---------------------------------------------------------------------------- 14.4 Movement in net debt in the period (163.8) 4.1 (183.2) Net debt at the beginning of the period (168.8) (183.2) -------- ---------------------------------------------------------------------------- (168.8) Net debt at the end of the period (332.6) (179.1) -------- ---------------------------------------------------------------------------- 25 Analysis of Net Debt At At 1 April Cash Flow Non-cash 30 September 2004 Changes 2004 £m £m £m £m ------------------------------------------------------------------------------ Cash 0.8 1.8 - 2.6 Short-term deposits 138.0 (127.2) - 10.8 Debt due within one year (25.0) 25.0 (0.4) (0.4) Debt due after one year (282.6) (63.2) 0.2 (345.6) ------------------------------------------------------------------------------ (168.8) (163.6) (0.2) (332.6) ------------------------------------------------------------------------------ This information is provided by RNS The company news service from the London Stock Exchange

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