Interim Results - Part 1

Slough Estates PLC 25 August 2005 25th August 2005 For immediate release Slough Estates plc Interim Results 2005 Highlights • Diluted NAV per share up 2.4% to 472p (31 December 2004: 461p). Adjusted diluted NAV per share up 4.1% to 581p (31 December 2004: 558p). • Valuation of the investment portfolio up by 3.6% to £4.2 billion. • Profit before tax of £119.0 million (H1 2004: £173.6 million), reflecting cost of the bond exchange, revaluation surpluses and other exceptional profits/losses. Adjusted profit before tax of £90.6 million* (H1 2004 : £66.2 million) - up 37%. • Basic earnings per share 17.1p per share (H1 2004: 29.3p). Adjusted basic earnings per share up by 7.3% to 14.7p per share*. • Interim dividend of 6.5p, up 5.7%. • 67,480 sq.m. of space leased in UK, a group record for a six month period, but overall occupancy rates held back by space returned. • Sale of non-core assets in USA - Quail West (£32 million) and Tipperary (in July - £124 million). • Significant property purchases in the period in the UK (£28 million) and USA (£191 million) and an initial foothold established in the Netherlands. • In July, the further acquisition of holding entities owning two major UK industrial estates; Woodside in Dunstable and Heywood in Manchester, for £276 million. • Successful £322 million debt refinancing leading to future interest cost savings of £11m per annum. * Excludes exceptional loss on bond exchange, net valuation surpluses, gain on disposal of Quail West and loss on sale of investment properties, but includes the benefit of significant surrender premiums. See page 17 of Financial Review for further detail. Chairman Paul Orchard-Lisle said: 'We have had an extremely active half year and the Board is very pleased at the progress that has been made by Management in re-focusing the business. The Group has disposed of its non-core properties in the US at excellent prices and has purchased additional business space assets in the UK, Continental Europe and the US in line with our strategic plan.' Commenting on the results, Chief Executive Ian Coull, said: 'NAV growth in all areas has been good. We have let an impressive volume of space reflecting the benefits of restructuring the UK business into geographical areas, but overall occupancy remains broadly unchanged as a result of space returned to us. The business is in good shape and there is continuing evidence that occupier demand is improving in the business space markets we are serving. Whilst the consequence of the corporate activity undertaken over the last 12 months has been to reduce core earnings this year, we are confident that our acquisition and development programmes will bring growth from 2006 onwards. We have a strong balance sheet and we believe that there will be further opportunities to increase our exposure to flexible business space in the months ahead.' Financial Highlights Half Year to 30 Change June £ millions Note 2005 2004 % --------------------------- ------- ----------- --------- --------- Net rental income 1 136.9 119.8 14.3 Operating income 290.2 199.8 45.2 Profit before tax 119.0 173.6 (31.5) Adjusted profit before tax 2 90.6 66.2 36.9 Earnings per share 17.1p 29.3p (41.6) Adjusted earnings per share 2,3 14.7p 13.7p 7.3 Dividends per ordinary share 6.5p 6.15p 5.7 30 June 31 Dec Change £ millions Note 2005 2004 % --------------------------- ------- ----------- --------- --------- Net assets per share 501p 486p 3.1 Adjusted net assets per share 623p 595p 4.7 Diluted net assets per share 472p 461p 2.4 Adjusted diluted net assets per share 3 581p 558p 4.1 Combined portfolio valuation 4 4,154.2 3,729.4 11.4 Equity shareholders' funds 2,111.8 2,029.1 4.1 Adjusted equity shareholders' funds 3 2,625.0 2,486.4 5.6 Net borrowings 1,787.4 1,325.3 34.9 Gearing (net) 5 62% 51% (11.0) LTV (net) 6 40% 36% (4.0) Notes 1. Includes a surrender premium of £36.6m (H1 2004 : £7.5m) 2. Excludes exceptional cost of bond exchange, net valuation surpluses, gain on disposal of Quail West and loss on sale of investment properties, but includes the benefit of surrender premiums. See Financial Review for further detail. 3. Adjusted to exclude deferred tax on investment properties and other properties. 4. Includes investment properties, and properties under development and owner-occupied properties within property, plant and equipment. 5. Net debt, excluding debt element of convertible preference shares from debt (£106.4 million), as a percentage of adjusted shareholders' funds. 6. Net debt to combined portfolio valuation. For further information contact: ------------------------------- ---------------------- Slough Estates plc Shared Value Limited Ian Coull, Chief Executive / Andrew Best / Dick Kingston, Finance Director Emily Bruning Tel: 01753 537171 Tel: 020 7321 5022 / 5027 A meeting for analysts will be held at 9.30am on 25th August at The Great Eastern Hotel, Liverpool Street, London EC2 and will be audio streamed on Slough Estates' website: www.sloughestates.com. A conference call for international investors will be held at 16.30 (UK time) on 25th August. The dial-in numbers are: +44 (0)20 7784 1004 / +1 718 354 1152 and participants should quote Slough Estates. A recording of the conference call will be available for 7 days, accessible on +44 (0)207 784 1024 or +1 718 354 1112, passcode 4659358# Overview In the first half of 2005, the Group has made important strides towards its goal of focusing its business on 'edge of town' flexible business space. Since the beginning of the year, we made two important disposals of non-core assets with an exceptional gain of £98 million (to be recorded in the second half of the year) from the sale of Tipperary and a price of £32 million for Quail West which was substantially above the written down book value. These prices were achieved as a result of our decision to delay these disposals until maximum value could be extracted for shareholders. The Group has also been busy with core property transactions. In total, Slough Estates received £18.1 million from investment property disposals and acquired a further £267.8 million of assets in the first half of the year. Since the end of June, the Group has also acquired holding entities owning two industrial estates in the UK for £276 million. We have also taken the opportunity to restructure our debt which has provided us with less expensive long term funding. Finally, we have undertaken a major reorganisation of our UK business to create six market facing, fully accountable business regions, to bring us closer to our customers and to improve underlying performance. We have now virtually completed the reshaping our existing assets and we are now well positioned to take the business forward with a focus on flexible business space in three geographic regions - the UK, Continental Europe and the USA. Financial results Our results for the period are presented in accordance with International Financial Reporting Standards ('IFRS') for the first time and all comparative figures for 2004 have also been restated accordingly. The aggregate market value of our investment portfolio increased during the period from £3.7 billion to £4.2 billion. This increase reflects acquisitions and development expenditure of £267.8 million and a revaluation surplus of £145.1 million. Profit before tax amounted to £119.0 million (2004: £173.6 million) including revaluation gains, the book loss arising on the bond exchange transaction and all other exceptional items. The adjusted profit before tax stated before these items increased by 37% to £90.6 million. This amount was, to some extent, enhanced by an unusually large surrender premium of £36.6 million (2004: £7.5 million), but it was negatively impacted by the short term loss of rental income associated with these surrenders and the sale of the Pfizer campus in the second half of last year. It should also be noted that no income has been recognised in respect of the rental guarantees on vacant properties acquired from Land Securities as these have to be accounted for as a deduction from the cost of acquisition under IFRS. Net debt at 30 June 2005 stood at £1,787 million, compared with £1,325 million as at 31 December 2004 and gearing increased by 11% to 62% as at 30 June 2005. This was a result of the substantial property acquisitions in the period and the reclassification of convertible preference shares as borrowings. Gearing is likely to rise further by the year end due to the further acquisitions completed post 30 June 2005, details of which have already been announced. The adjusted diluted net assets per share have increased since December 2004, from 558p to 581p, a rise of 4.1%, whilst the unadjusted and undiluted net assets per share were 501p (31 December 2004: 486p). We are paying an interim dividend of 6.5p per share, up 5.7%. Dividend growth continues to be at a rate considerably in excess of inflation and, over five years, has grown at a compound growth of 7.3% per annum. The interim ordinary dividend will be paid on 7 October 2005 to shareholders on the register on 9 September 2005. To create greater dynamism in the business we have put in place a new regional structure for the UK business, which now operates in six regional teams reporting to John Heawood, our Group Director responsible for UK Property. This new structure is working well and is providing the customer focus that we need in today's market, so that our property management and development teams work more closely with our customers at a local level and provide a more seamless service for all of their needs. It is a structure that has worked well for our businesses in Europe and North America and, in the UK, it will help us to increase occupancy, both by attracting new customers and, just as importantly, by retaining existing customers through greater responsiveness to their needs. In Continental Europe we created a new management structure last October, headed by Walter Hens who is based in Paris. We have now filled the roles of Country Heads in Belgium and France and we have also acquired, through Mainland BV, an excellent team in the Netherlands. Our Continental European activities have taken a significant step forward in the last few months and, in the coming months, we expect to announce a number of exciting opportunities to grow our business. Major Property purchases and sales The high level of property purchases and sales within the portfolio that was seen in 2004 continued through the first half of 2005. In the US, the Group completed the sale of its non-core assets, achieving returns well in excess of book value and cash was recycled through purchases of new development sites. In the UK, after the property swap with Land Securities in 2004, we have continued to see a high level of activity and since the half year we have completed the purchase of holding entities owning two major industrial estates. Major purchases and sales in the first six months of 2005: • Sale of Quail West for a net £32 million. The leisure and residential complex in Naples, Florida was sold to Ginn-LA for a net £32 million. The first instalment of £9 million has been received and this will be followed by four further annual payments. The sale price of £32 million exceeds the written down net book value of £9.6 million and reflects the improvement in the market for such high end residential developments over the last two years. • Purchases of land in San Diego for £20 million. Slough acquired a 16.5 ha site at Carlsbad which will accommodate approximately 58,000 sq.m. of two-storey office and R&D product, suitable for marketing to health science companies. • Purchases in San Francisco for £171 million. In the San Francisco Bay Area, Slough has acquired the 67,493 sq.m. Shoreline Technology Center with net rental income of £4.8 million per annum and the 57,860 sq.m. Seaport Center with net rental income of £4.2m per annum from Equity Office Properties. These sites are attractive to Slough Estates as they are high specification offices which, unusually, can be converted to health science use and there are significant opportunities to add value to both investments. • Purchase of 3.4 ha LSG Sky Chefs site at Heathrow. This site provides the potential to develop a 9,290 sq.m. warehouse scheme with a completed value of some £20 million. • Purchase of 13 ha Blueprint site in Portsmouth. With potential for up to 49,239 sq.m., Voyager Park is one of the largest industrial sites in the South East and, when fully developed, will have a value in excess of £40 million. • Purchase of 2.1 ha income producing property at Edmonton, north London, for £9 million. The site comprises an existing warehouse complex of 16,836 sq.m., with land for redevelopment. • Sale of Navigator Park, Heston, West London for £9.2 million. The estate extends to 6,290 sq.m. and was sold to a recovery fund. • Sale of Avenue Kleber in Paris. This 3,221 sq.m. central district office building has been sold for £21 million to Fonciere des Regions generating profit of £4.5 million. This building was one of the Group's largest seven vacancies by rental value. • Purchase of Mainland BV. Slough Estates has entered the Dutch market by acquiring a 60% stake in Mainland for £1.7 million. Mainland BV is a developer in the Schiphol area outside Amsterdam and has a strong management and track record. The company owns 130,000 sq.m. of new development sites in the Schiphol Airport area. Since 30 June 2005, we have completed the following major transactions: • Sale of stake in Tipperary Corporation for £124 million. The gross proceeds of £124 million included £13.1 million in debt due to Slough, giving an exceptional profit of some £98 million. The sale was in line with the Group's strategy to exit non-core assets and this oil and gas company had no long term place in Slough Estates' asset portfolio. • Purchase of holding entities owning two major multi-let estates; Woodside Industrial Estate in Dunstable and Heywood Distribution Park in Manchester, for £276 million in cash. Woodside and Heywood are two of the largest industrial parks in the UK. Together the two sites contain 371,000 sq.m. of prime industrial property, providing combined income of approximately £16 million per annum, and over 11.3 ha of further development land. Joint Venture - HelioSlough In April 2004 we established a joint venture with Helios Properties called HelioSlough Ltd. It is a 50/50 joint venture which has £150 million of funding available, focused on developing a network of strategic distribution parks throughout the UK. This is a sector which Slough Estates had not previously exploited in the UK, although we had successfully developed a number of distribution parks around Paris and Brussels. The changes in supply chain management mean that the UK will be an attractive market for distribution facilities in the coming years. The joint venture is progressing well and we now have a number of sites ready to enter the construction phase, at Nimbus near Thorne, Doncaster, at Sheffield International Railfreight Terminal, at Wynard One, Tees Valley and at Cardiff Rail Freight Terminal. At Trax Park, Doncaster, a 11,148 sq.m. speculative unit was completed at the end of May 2005 and a number of viewings have taken place. The joint venture also has a number of strategic holdings at Radlett in Hertfordshire, where we have a development agreement on approximately 121 ha of greenbelt land to promote up to 278,700 sq.m. of rail connected development, and at Rossington and Stainforth on the M18 in Yorkshire. HelioSlough's capital expenditure to date amounts to £14.2 million. Future planned development expenditure amounts to approximately £140 million. The joint venture is expected to break even in 2005 and to make a positive contribution to earnings in 2006, as further schemes are completed. Leasing A key objective for us in the last two years has been to increase occupancy throughout the Group. In the first six months of 2005 we leased 104,559 sq.m. of space, much of which was in our higher value properties. Of the seven largest vacant properties at the end of 2004, we have let one, totalling 11,189 sq.m and sold one, Avenue Kleber, Paris. We took back 124,542 sq.m. over the period, of which 25,291 sq.m., or 20%, was either demolished or redundant space, presenting a substantial opportunity for redevelopment. Of this space taken back from customers, the largest amount, some 31,757 sq.m., was in the Heathrow and West London region. The space returned to us in the first half represented 54% of lease expiries and 21% of break options. Increasing occupancy has been a particular challenge in the UK as a result of the property swap with Land Securities in which we exchanged nearly fully let shopping centres for UK industrial property with lower levels of occupancy. In particular, seven of the estates bought from Land Securities, at Basildon, Croydon, Fareham, Guildford and Oxford, had 45.3% vacancy but with the benefit of an 18 month rental guarantee. However, some 19% of the total Land Securities' December vacancy, 68,276 sq.m, has now been let or sold and another 51.5% is at various stages of negotiation. We believe that we are on track to lease the majority of these properties by the time the rental guarantees come to an end in 2006. It should be noted that the rental guarantees cannot be treated as property income under accounting rules and so have no positive impact on our earnings line. In today's tougher leasing environment, the importance of customer retention increases. This is a key reason why the reorganisation of the UK business is so important to our future as it will enable us to build closer relationships with our customers. The market conditions in Europe and the U.S. are also demanding but we have had considerable success in most areas of our operations and in particular in Germany, where we have prelet three buildings totalling 27,675 sq.m. and this in a market where preletting is rare. In the U.S. we have received a surrender premium of £36.6 million from Pfizer following their take-over of Sugen. All three buildings in the Pointe Grande Estate campus are now fully leased but will not start to generate revenue until the end of this year. Group occupancy at the half year remained broadly unchanged from 31 December 2004, at 87.2% and the overall break down is as follows:- ---------------------- ------------------ ------------------ Occupancy rates 30 June 31 December 2005 2004 % % ---------------------- ------------------ ------------------ Group 89.2 89.6 - treating rental guarantees as vacant 87.5 87.7 UK 91.1 90.6 - treating rental guarantees as vacant 87.5 87.9 U.S. 87.1 86.3 Europe 87.8 87.9 ---------------------- ------------------ ------------------ The overall change in space is as follows:- ------------------- ----------- ---------- ----------- ---------- Leasing of space vs. space Slough Trading Other UK Europe US taken back Estate sq.m. sq.m. sq.m. sq.m. ------------------- ----------- ----------- ----------- ---------- Lettings 32,849 34,631 10,607 26,472 Pre-lets 0 8,727 6,327 0 New space completed and unlet 2,394 20,824 1,800 0 Space taken back 23,972 74,880 9,565 16,125 ------------------- ----------- ----------- ----------- ---------- Major lettings have included: UK • Letting of 11,189 sq.m of IT backup space at Dundee Road on the Slough Trading Estate to a major financial institution at £91.49 per sq.m. • Letting of 2,805 sq.m. office development at 252 Bath Road, Slough to LG Electronics at £217 per sq.m. • Letting of two units totalling 4,013 sq.m. to Manpower at Riverside Estate, Uxbridge at £110 sq.m. • Pre-let of 6,968 sq.m. Phase 300 at Parkbury, Radlett, to Viglen Ltd. The lease is for 15 years at an annual rent of £610,500, making it the largest pre-let deal in South Hertfordshire for over ten years. • Pre-let of 2,950 sq.m. car showroom complex at the Portsmouth Motor Park to Pentagon Ltd Europe • In Germany in the first half there has been one pre-let of 6,327 sq.m. at Dormagen, in addition to the 18,327 sq.m pre-let at Neuss and the 3,021 sq.m. pre-let at Krefeld started in the second half of 2004. USA • On the Pointe Grande Estate (South San Francisco) Slough Estates received a termination premium of £36.6 million. The facility forms part of the 20,624 sq.m. campus formerly occupied by Sugen, a subsidiary of Pfizer. The first two buildings in the campus have been let to Exelixis and we have recently completed the letting of 9,848 sq.m. to Rinat Neuroscience. • Genentech agreed to lease 72,464 sq.m. (780,000 sq.ft.) of office and laboratory space in eight new buildings on Slough's Britannia East Grand site in South San Francisco in late 2004. This is a four year project, with the first phase of 41,805 sq.m currently under construction. Development In the first half of 2005 we have pushed ahead with more development throughout the portfolio in anticipation of improving occupier demand. The level of enquiries increased by around 40% on a year on year basis in the first half of 2005, although the second quarter of the year was somewhat slower than the first. The enquiries are converting into more viewings but there is little competitive pressure on occupiers to proceed quickly and as a result negotiations are taking longer than has historically been the case. The level of increased activity however gives us cause for some optimism and accordingly, we are continuing to develop prudently so that we have sufficient business space to meet the growth in demand. In 2005, we are expecting to spend some £200 million on developments and by the end of June £125 million had been incurred. Also at the end of the half year we had 170,032 sq.m. under construction, of which 48% is pre-leased. We have continued to prepare our development sites, obtaining planning consents and putting in place the key infrastructure so that we are in a position to agree pre-lets and, where appropriate, to start on limited speculative development. -------------------- ------- -------- -------- ---------- ---------- Current sq.m. Spend Committed Estimated Anticipated Developments to date spend development completion date - Major Schemes £m £m cost to come £m -------------------- ------- -------- -------- ---------- ---------- Farnborough 153,000 118 41 257 2013 Cambridge 35,000 35 0 66 2014 Voyager Park, Portsmouth 48,000 8 0.3 40 2008 Pegasus Park, Brussels 170,000 28 0.9 141 2010 East Grand, San Francisco 73,000 55 123.3 108 2008 Poway, San Diego 78,000 37 44.7 67 2011 ------------------- ------- -------- -------- ---------- ---------- Excludes buildings already completed Valuation The half year valuation of all the Group's investment properties was undertaken as at 30th June by external valuers. Revaluation Movements June 2005 % change from £m December 2004 UK Industrial 93.7 4.5 Office 25.0 5.4 Retail 12.8 6.8 UK excluding land 131.5 5.1 Land (8.4) (3.3) Total UK 123.1 4.2 -------- ------ ------ Overseas USA 17.5 2.4 Europe 4.5 1.6 Total Overseas 22.0 2.2 -------- ------ ------ Total 145.1 3.6 -------- ------ ------ Joint ventures / Associate 2.4 2.0 Debt Exchange Offers In June we completed a bond exchange in which we exchanged £322 million of high coupon debt for long dated new debt at lower interest rates. This has led to a one-off cost in this year's accounts of £125.6 million but will reduce our debt cost on an annual basis by around £11 million and has reduced our average cost of debt from 6.5% to 5.8%. Slough Estates now has the lowest coupon and longest dated unsecured public debt issues in the UK property sector and the Group's future earnings will benefit directly as a result. Other activities Since the end of last year we have completed the sale of our non-core activities in the US. Quail West was sold in May for £32 million, a sum substantially above book value, and there was an exceptional gain of £98 million on the sale of Tipperary Oil & Gas in July which illustrates the wisdom in taking time to exit these investments in order to maximise shareholder value. Slough Heat & Power (SH&P) has continued to improve its operating performance over the past six months, recording £0.8 million profit for the first half compared to a loss of £3.0 million for the first half of 2004. We expect SH&P to break even for the year as a whole. Board Matters Following the recent announcement about Sir Nigel Mobbs' illness the board has agreed that Paul Orchard-Lisle will take on responsibility as Chairman. On 23rd May we were pleased to welcome Thom Wernink onto the Board as a non-executive director. Thom, who is a Dutch citizen, is a well known figure in the Continental European property market and his experience will be of great benefit to Slough Estates in growing our European business. He was, until April 2005, Chairman of the European Public Real Estate Association and was a former Chairman of Corio NV. Outlook There is continuing evidence that occupier demand is improving in the business space markets we are serving and in the first half of the year we have managed to lease a large volume of space across the portfolio. In the UK this amounted to some 67,480 sq.m. which shows an encouraging increase in the level of activity and the success of our leasing teams. However, the Group also took back a similar amount of space and so occupancy levels have remained broadly unchanged. The Group has made further progress in focusing its activities on flexible business space and is therefore well positioned for growth. The overall property market is in a robust state. There has been a revival in investment in property as there is a recognition of the attractions of property as a key component in investment portfolios. Though offices in the UK, and in particular in the Thames Valley, still face some shortage in occupier demand and industrial growth continues to be slower than expected, there is today strong investor demand for well-located and well-let property. The investment case is underpinned by low inflation, affordable interest rates and a lack of funding to support speculative development excesses. It seems that the yield compression of the last two years looks set to continue into the second half of 2005. We have seen a structural change in yields which reflects the changing sentiment towards real estate as an asset class, and the low inflationary environment that we are now experiencing makes real estate more attractive. Although we believe that we have seen most of the downward pressure on yields, and expect some stabilisation in the coming months, it is too early to call an end to yield compression. • In the UK, Slough Estates' focus will increasingly be on flexible business space. This focus has been increased by the swap with Land Securities last year and the addition in July of Woodside and Heywood, so that today Slough Estates owns five of the largest industrial estates in the UK, including the Slough Trading Estate, Winnersh and Kings Norton. We will continue to look for opportunities to strengthen this position, both by acquisition and through development including our two major sites at Farnborough and Cambridge. • A key objective is to grow our established position in Continental Europe, where we see good opportunities for expanding our base in the industrial, logistics and suburban office markets. We have recently re-organised the business under Walter Hens who is based in Paris. Yields in Continental Europe continue to be more attractive and we believe there is an opportunity to build a pan-European business. • In North America, we have raised substantial funds from the sale of non-core assets and the disposal of completed developments in the health science property portfolio. We will continue to exploit the opportunities in health science in California by reinvesting the proceeds of these and future disposals in the most exciting development projects. Slough Estates has built up a leading position in the provision of space to the health science community which means that we can expect to see a very positive contribution towards Group earnings from both our completed laboratory space and from our strong development pipeline. Whilst the consequence of the corporate activity undertaken over the last 12 months has been to reduce core earnings this year, we are confident that our acquisition and development programmes will bring growth from 2006 onwards. The Board believes that Slough Estates is well positioned, with a tighter focus on flexible business space, to take advantage of the opportunities in its chosen markets. The strength of the current asset base, the growth opportunities offered by the land bank and the understanding of the dynamics of the marketplace point towards excellent shareholder value as occupier demand improves. Ian Coull Chief Executive Operating Review Slough Trading Estate The Slough Trading Estate is the largest business park in Europe and has been Slough Estates' core property asset since the Group was founded over 80 years ago. Today the Estate is a modern business park in close proximity to London's Heathrow airport, which is the world's busiest international airport, and it has excellent access to the M4 and M40 motorways. • Lettings completed in the first half of 2005 totalled 32,849 sq.m., a 57% increase over the first half of 2004. • We are confident that this increased activity points to an improving business environment but at present the market for offices in Slough continues to be weak, which is reflected by some downward pressure on rental levels for offices. Our occupancy is 91.4%, compared with 87.9% at June 2004. •In early 2005, a letting of 11,189 sq.m. of existing business space to a major financial institution for an IT backup centre, at a rent of £91.49 per sq.m. showing return of demand for large deals. • Letting of 2,805 sq.m. office development at 252 Bath Road, to LG Electronics at £217 per sq.m. The office scheme, designed by the in-house architectural team at Slough Estates has been recognised with an award by the British Council for Offices Value £1.2 billion --------------------------- 649,658 sq.m. (6.9m sq. ft.) business space and 33,737 sq.m. (363,142sq.ft.) retail space --------------------------- 196.61 hectare (485.83 acre) site --------------------------- 394 customers --------------------------- Approximately 20,000 employees based on the Trading Estate --------------------------- Website: www.sloughte.com --------------------------- Customers include: Allied Carpets B&Q Black & Decker Celltech R&D Comet Group Credit Suisse First Boston Equant Ferrari Maserati UK Fiat Auto (UK) Fujitsu Europe Fullers Logistics Furniture Village Honda Motor Europe Ipsen John Menzies L G Electronics UK Lonza Biologics Mars O2 Polycom (UK) Safeway Properties Sun Chemical Unatrac WH Smith Trading Xenova --------------------------- 100% owned --------------------------- Rent passing £71.1 million pa --------------------------- Average passing rent Business space: industrial £100.26 per sq.m office £207.46 per sq.m Retail: £218.82 per sq.m --------------------------- 7,143 sq.m. under construction --------------------------- 91.39% occupancy by area --------------------------- Heathrow and West London This region includes Slough Estates' holdings in West London and those immediately adjacent to London's Heathrow airport, (not including the Slough Trading Estate). The properties have been managed as one estate since 2003 and this has brought great operating efficiencies in West London. The excellent communications to the West of London make this a premier location for business in the UK. • A total of 12,875 sq.m. of space let in the first half of 2005. • Letting of two units, totalling 4,013 sq.m. to Manpower at Riverside Estate, Uxbridge at £110 per sq.m. • Purchase of 3.4 ha LSG Skychefs site at Heathrow, providing the potential to develop a 9,290 sq.m. warehouse scheme with a completed value of some £20 million. Value £504 million --------------------------- 334,446 sq.m. (3.6m sq.ft.) business space and 4,370 sq.m. (47,038 sq.ft.) retail in: Feltham, Hayes, Hounslow, Isleworth, Poyle, West Drayton, Park Royal, Uxbridge, Greenford, Ruislip, Heston --------------------------- 80.65 hectares (196.29 acres) in total --------------------------- 214 customers --------------------------- Website: www.thelhr.com / www.A40.net --------------------------- Customers include: AAH Pharmaceuticals, British Midland Airways, DFS Furniture Company, Federal Express Europe, Fujitsu, LSG Sky Chefs/GCC, Natwest Commercial Services, Scottish & Newcastle, Thorn, UPS (UK), Unigate Properties --------------------------- 100% owned --------------------------- Rent passing £28.4 million pa --------------------------- Average passing rent: £83.76 per sq.m. --------------------------- 11,350 sq.m. under construction --------------------------- 88.5 occupancy by area --------------------------- South London and Southern England The South London and Southern England region covers South London, primarily between the M23 and the M3 motorways down to the South coast. It covers the counties of Surrey, Sussex, Kent and Hampshire which are affluent commuting areas. •Slough Estates' holdings in this region were substantially strengthened in 2004 by the acquisition of an industrial portfolio from Land Securities with assets in Basingstoke, Coulsdon, Croydon, Fareham, Frimley, Guildford, London SW19 and Swanley. •A total of 188 sq.m. let in the first half of 2005. •Pre-let of 2,950 sq.m. car showroom complex at the Portsmouth Motor Park to Pentagon Ltd. •Purchase of 13 ha Blueprint site in Portsmouth, known as Voyager Park, one of the largest industrial sites in the South East. --------------------------- Value £368 million --------------------------- 248,921 sq.m. (2.7m sq.ft.) business space in: Basingstoke, Portsmouth, Camberley, Southampton, Epsom, Leatherhead, Farnborough, Coulsdon, Croydon, Fareham, Frimley, Guildford, SW19, Swanley, Crawley --------------------------- 126.94 hectares (313.68 acres) in total --------------------------- 118 customers --------------------------- Customers include: Agustawestland International, Autodesk, Carlsberg UK, Honeywell Avionics Systems, Oddbins, Pinnacle Entertainment, Snows Motor Group, Thales Properties --------------------------- 100% owned --------------------------- Rent passing £13.9 million pa --------------------------- Average passing rent: £55.65 per sq.m --------------------------- 16,447 sq.m. under construction --------------------------- 81% occupancy by area, excl. rental guarantee. 95% occupancy incl. rental guarantee --------------------------- North London and East of England The North London and East of England region covers an area north of London to the east of the M1 motorway and reaches out as far as Cambridge and along the M11 motorway. The Cambridge area has been identified by the Government as a major growth area for development and is the main home to the UK's biotech industry. •A total of 8,505 sq.m. let in the first half of 2005. • Acquisition of £9 million warehouse complex of approx 16,836 sq.m on a site of 2.15 hectares fronting the North Circular road in Edmonton. •Pre-let of 6,968 sq.m. at Radlett to Viglen Ltd - the largest pre-let deal in South Herts for over 10 years. •Pre-let of 2,908 sq.m. building at Cambridge Research Park to the ODPM to serve as a new regional control centre for the Fire and Rescue Service, in August. •Addition of the 135,326 sq.m. Woodside Industrial Estate in Dunstable in July, with 3 ha of development land. Value £366 million --------------------------- 319,432sq.m. (3.4m sq.ft.) business space in: Elstree, Welwyn Garden City, Chelmsford, Radlett, Luton, Basildon, Hatfield, Thurrock, Barking, Huntingdon, Cambridge, Dunstable --------------------------- 127.48 hectares (315.01 acres) in total --------------------------- 150 customers --------------------------- Customers include: Ford Motor Company, NTL Cambridge, Diomed, Starbucks Coffee Company, Sheffield Insulations, Tibbett & Britten, Tesco Distribution, Vitec Group Communications --------------------------- 100% owned --------------------------- Rent passing £17.7 million pa --------------------------- Average passing rent: £55.42 per sq.m. --------------------------- 6,968 sq.m. under construction at Radlett --------------------------- 82% occupancy incl. rental guarantee 79% occupancy by area, excl. rental guarantee --------------------------- Thames Valley and West of England This region (which excludes Slough and LHR) covers the area adjacent to the M4 motorway between London and Bristol in the West. The M4 Corridor has been the most successful business area in the south east of England in recent years and Slough has leading Business Parks across the region. •A total of 6,146 sq.m. let in the first half of 2005. • A pre-let of 1,579 sq.m. to Bradford & Sons in Weston Super Mare, due for completion in Q4 2005 Value £420 million --------------------------- 289,942 sq.m. (3.1m sq.ft.) business space in: High Wycombe, Yate, Weston Super Mare, Swindon, Bristol, Wokingham, Winnersh, Ascot, Bracknell, Oxford, Haresfield --------------------------- 98.34 hectares (243 acres) in total --------------------------- 170 customers --------------------------- Customers include: Agere Systems, Agilent Technologies UK, Biffa Waste Services, Fujitsu, Intel Corporation, Kerry Foods, Mars, MDS Pharma Services GB, NTL, The Post Office --------------------------- 100% owned --------------------------- Rent passing £25.5 million pa --------------------------- Average passing rent: £87.90 per sq.m. --------------------------- 92% occupancy, incl. rental guarantee 88% occupancy by area, excl. rental guarantee --------------------------- Midlands The Midlands region is centred around Birmingham, the UK's second largest City, and its main industrial centre. The largest asset is the Kings Norton business park to the south of Birmingham. There are also a few properties in the North. • A total of 6,372 sq.m. let in the first half of 2005. • Addition of the 234,269 sq.m. Heywood Distribution Park in Manchester in July with 8.5 ha of development land. Value £191 million --------------------------- 168,371 sq.m. (1.8m sq.ft.) business space and 16,733 sq.m. (180,113 sq. ft.) of retail space in: Birmingham, Huddersfield, Chester, Derby, Northampton, Runcorn, Warrington, Oldbury, Manchester --------------------------- 54.04 hectares (133.54 acres) in total --------------------------- 157 customers --------------------------- Customers include: Aggregate Industries Management, British Midland, DSG, Furniture Village, Lloyds TSB Bank, MFI Properties, Reid Furniture, Saint-Gobain Building Distribution, Tesco Distribution --------------------------- 100% owned --------------------------- Rent passing £11.87 million pa --------------------------- Average passing rent: £64.13 per sq.m. --------------------------- 91% occupancy by area --------------------------- Joint Ventures - HelioSlough This 50/50 JV with Helios Properties, which has £150 million of funding available, aims to develop a network of large scale strategic distribution parks throughout the UK. • Six schemes at different stages of development which will produce approximately 418,064 sq.m. • Substantial strategic landbank of some 271 ha in three sites. • 11,148 sq.m. speculative unit completed at Trax Park, Doncaster in May 2005. Trading book value (100% basis) £14.2 million --------------------------- 11,148 sq.m. (0.12m sq.ft) business space --------------------------- 50/50 JV with Helios Properties --------------------------- --------------------------- Belgium Slough Estates has been operating in Belgium since 1963. Its Pegasus Park development is the largest office park in Brussels and is adjacent to Brussels International Airport. Slough Estates is also a leading provider of distribution space within 'the golden triangle' between Brussels, Ghent and Antwerp. •A total of 2,016 sq.m. let in first half of 2005. • Post half year end, completion of 6,360 sq.m. speculative office building at Pegasus Park --------------------------- Investment property value £183 million Trading book value £11 million --------------------------- 178,005 sq.m. (1.9m sq.ft.) business/office space and 2,797 sq.m. (30,107 sq.ft.) of retail in: Brussels Pegasus Park (81,679 sq.m.), Woluwe, Relegem, Bornem, Nivelles, Zaventem, Horizon, Diegem, Rumst, Zellik, Sirius, Kortenberg --------------------------- 70.25 hectares (173.59 acres) in total --------------------------- 85 customers --------------------------- Customers include: Cisco, Johnson Controls, Regus, DHL, Bornem, UPS, Telenet, Sungard, Emerson, Agilent, Ecolab (Henkel), Synstar --------------------------- Rent passing £13.6 million pa --------------------------- Average passing rent: £75.10 per sq.m. --------------------------- 83% occupancy by area --------------------------- France Slough Estates has been operating in France since 1972. The business is centred on Paris. The main developments have been around Paris' orbital motorway, La Francilienne, where a number of distribution facilities have been developed. More recently there has been greater emphasis on business space at such sites as Le Blanc Mesnil. • A total of 3,709 sq.m. let in the first half of 2005. • Sale of 3,221 sq.m. office scheme in Avenue Kleber, Paris for £21 million. --------------------------- Investment property value £107 million Trading book value £12.5 million --------------------------- 242,284 sq.m. (2.6m sq.ft.) business space and 17,812 sq.m. (191,727 sq.ft.) of retail in: Marly la Ville, Cergy Pontoise, Evry, Bures Orsay, Colombes, Le Blanc Mesnil, Aulnay sous Bois, Nanterre and Paris --------------------------- 56.19 hectares (138.85 acres) in total --------------------------- 21 customers --------------------------- Customers include: Geodis, Daher, Deluxe, Staci, Conforama, Stockalliance, Gefco, Mory Team, Guilbert, UPS Patisfrance --------------------------- Rent passing £10.45 million pa --------------------------- Average passing rent: £40.20 per sq.m. --------------------------- 4,638 sq.m. under construction --------------------------- 96% occupancy by area --------------------------- Germany Slough Estates has been operating in Germany since 1974. The business is centred on the Ruhr which is the industrial heartland of western Germany. The business is focused on developing small industrial parks and then selling these developments to German institutions. • A total of 4,882 sq.m. let in the first half of 2005. • Pre-let of 6,327 sq.m. at Dormagen, in addition to the 18,327 sq.m. pre-let at Neuss and the 3,021 sq.m. pre-let at Krefeld, started in the second half of 2004. Trading book value £74 million --------------------------- 60,224 sq.m. (648,246 sq.ft.) business space in: Neuss, Hamburg, Ratingen, Monchengladbach, Frankfurt, Kapellen, Krefeld --------------------------- 28.50 hectares (70.43 acres) in total --------------------------- 62 customers --------------------------- Customers include: CC Bank, Qits, SATO, Listan, Phonet, Flashpoint, Spacelabs, ADCO, Bernd John, Junkers, Tholstrup, Robin (Europe) --------------------------- x% owned --------------------------- Rent passing £2.6 million pa --------------------------- Average passing rent: £43.59 per sq.m. --------------------------- 68% occupancy by area --------------------------- California Slough Estates has been operating in North America since 1951 but today its operations are centred in the Bay Area of San Francisco and San Diego in California. In terms of product the business is focused on providing buildings to the healthscience industry. • Letting of 9,848 sq.m. building on the Pointe Grande Estate, South San Francisco to Rinat Neuroscience. The facility forms part of the 20,624 sq.m. campus formerly occupied by Sugen, a subsidiary of Pfizer. The two other buildings in the campus have been let to Exelixis. • Acquisition of the 67,493 sq.m. Shoreline Technology Center and the 57,860 sq.m. Seaport Center in the San Francisco Bay Area. • Acquisition of 16.5 ha development site at Bressi Ranch, Carlsbad, San Diego. • 26,472 sq.m. let in first half. Investment property £787 million --------------------------- 480,397 sq.m. (5.1 million sq.ft.) business space in: San Francisco, San Diego --------------------------- 183.21 hectares (452.72 acres) in total --------------------------- 72 customers --------------------------- Customers include: Actel, Amgen, Boston Scientific, Exelixis, Pfizer, Rigel, Robert Half International, FibroGen, Raven, SkyePharma, Aradigm, Millenium Pharmaceuticals, Syrrx, Perlegen Sciences, ProBusiness Services --------------------------- Rent passing £61.9 million pa --------------------------- Average passing rent: £128.97 per sq.m. --------------------------- 62,336 sq.m. under construction --------------------------- 86.7% occupancy by area --------------------------- Financial Review International Financial Reporting Standards The Interim Report 2005 has been prepared in accordance with International Financial Reporting Standards ('IFRS'). The comparative figures for 2004 have been restated accordingly. The notes to the interim financial statements contain reconciliations of these restatements. Income Statement Adjusted profit before tax Reported profit before tax within the Income Statement includes the revaluation surplus on investment properties and a number of exceptional gains and losses. The directors consider that adjusted profit before tax provides a more meaningful measure of the underlying performance of the group's ongoing activities as it eliminates the distorting effects of such items. Adjusted profit before tax is determined as follows. Six Months Ended Year Ended ------------------ ------------ 30 June 2005 30 June 2004 31 December 2004 £m £m £m ---------- ---------- ------------- Profit before tax, as reported 119.0 173.6 388.0 Revaluation gains on investment properties (including associate and joint ventures) (140.0) (101.7) (182.1) Loss/(profit) on sale of non-current assets 3.0 (0.1) (64.7) Profit on sale of Quail West (17.0) - - Loss on bond exchange 125.6 - - Notional adjustment in respect of preference share financing charge - (5.6) (11.2) ---------- ---------- ------------- Adjusted profit before tax(1) 90.6 66.2 130.0 ---------- ---------- ------------- (1) Includes the benefit of Pfizer lease surrender premium of £36.6m. In both the six months ended 30 June 2004 and for the year ended 31 December 2004 a premium of £7.5 million was received in connection with 252 Bath Road, Slough. Under IFRS, revaluation gains on investment properties are included within the Income Statement and the equivalent items in respect of our associate and joint venture companies are included within the group's share of results of such entities. Our presentation of adjusted earnings excludes such valuation gains as they do not relate to the operating performance of the business. Similarly, the gain or loss on the sale of investment properties is excluded from adjusted earnings, as is the gain on disposal of the group's residential leisure development at Quail West, Florida. Whilst the latter property was classified as a trading property, it was not part of the core business and, accordingly, the profit upon disposal of that asset is excluded from our underlying performance measures. On 21st June 2005, the group completed a bond exchange programme whereby approximately £322 million of bonds with interest rates ranging from 10% to 12.375% and maturity profiles of between 2007 and 2019 were effectively exchanged for £300 million of new bonds with interest rates between 5.5% and 5.75% and with maturities ranging from 2018 to 2035, and £146 million of short term borrowings. Our intention is to refinance the short term borrowings in the coming months. The bond exchange exercise gave rise to a one-off charge of £125.6 million, but will reduce ongoing interest costs by approximately £11.0 million per annum. In accordance with IAS 32 and IAS 39, with effect from 1 January 2005, the group's convertible preference shares are classified as borrowings and preference dividends are replaced by a financing charge recorded before 'profit before tax'. In order to aid comparison between 2004 and 2005, the adjusted profit before tax in respect of the six months ended 30 June 2004 and the year ended 31 December 2004 have been reduced by £5.6 million and £11.2 million, respectively, being the dividends payable on the convertible redeemable preference shares. The actual financing charge in respect of convertible preference shares for the six months ended 30 June 2005 is £6.6 million. Income Statement - restated The following table is a summary of the Income Statement after removing the effects of items excluded from adjusted profit before tax. Six Months Ended Year Ended ------------------ ------------ 30 June 2005 30 June 2004 31 December 2004 £m £m £m Net rental income 136.9 119.8 232.5 Net income from trading properties 7.1 3.9 6.8 Net profit (loss) from utilities 0.8 (3.0) (4.1) Net loss from oil & gas (1.8) (1.9) (3.3) Other investment income 3.3 3.2 10.5 Administration expenses (7.7) (6.3) (14.7) ---------- ---------- ------------- Operating income 138.6 115.7 227.7 Net finance costs (50.6) (52.6) (106.4) Share of profit of associate and joint ventures after tax 2.6 3.1 8.7 ---------- ---------- ------------- Adjusted profit before tax 90.6 66.2 130.0 ---------- ---------- ------------- Adjusted profit before tax increased by 37% to £90.6 million, including the benefit of an unusually large lease surrender premium amounting to £36.6 million in respect of a building returned to us by Pfizer early in the year. A similar event in the UK resulted in a premium of £7.5 million in the first half of 2004. Excluding these items, 'underlying' profits before taxation would show a half year-on-half year reduction of £4.7 million which reflects the loss of some £8.4 million of rental income associated with the Pfizer space surrendered and the sale of the Pfizer Center in San Diego in the second half of 2004, partly offset by interest of approximately £4 million earned on the net proceeds. Net rental income for the period was £136.9 million compared with £119.8 million for the equivalent period last year. Adjusting for the above-mentioned factors, net rental income was broadly flat on a like for like basis, with new lettings and rental increases contributing £4.2 million of income against a loss of rental income of £4.5 million attributable to space returned (excluding the returned Pfizer space). Net rental income excludes the cash receivable from Land Securities under rental guarantees agreed as part of last year's asset swap. Under the accounting rules, rental guarantees are treated as a reduction in the cost of the assets rather than as income. The estimated rental value of vacant space at 30 June 2005 was £40 million, of which £25.6 million was in the UK. Net income from trading properties, excluding the £17.0 million gain on sale of the Group's former residential leisure development at Quail West in Florida, increased by £3.2 million to £7.1 million, mainly as a result of the sale of a property at Avenue Kleber, Paris. The net profit from utilities represents the results of Slough Heat & Power ('SHP'). SHP showed a significant improvement in its performance compared with last year as a result of plant operating improvements and increased market prices for electricity and carbon trading. We are optimistic that the trend of improving operational and financial performance seen in the first half will be sustained into the second half of the year, enabling the business to make a positive contribution to full year earnings for the first time in 7 years. Losses from the Group's oil and gas investment in Tipperary were broadly unchanged compared with the first half of 2004. On 1 July the Group announced that it had agreed to sell its interests in Tipperary for a consideration of £124 million which will give rise to a gain on disposal of approximately £98 million in the second half of the year. The transaction was completed on 13 July 2005. Adjusted net financing costs for the period, excluding the loss arising on the bond exchange, reduced by £2.0 million. Interest capitalised amounted to £9.4 million against £7.6 million for the same period last year and reflects the increased level of development activity in progress through 2005. There was no significant interest cost reduction from the bond exchange in the first of the year, but the second half financing costs will benefit by approximately £5 million as a result of the transaction. Taxation The tax charge for the period can be analysed as follows: ------------------------- -------------- -------------- Six months Six months ended 30 June ended 30 June 2005 2004 ------------------------- -------------- -------------- £m % £m % Tax charge on: Adjusted profit before tax 26.9 30 9.6 15 Adjusting items 18.7 66 37.1 35 Reported profit before tax 45.6 38 46.7 27 The effective rate of tax on adjusted profit before tax was 30% (H1 2004 : 15%). 2004 benefited from the utilisation of the tax losses brought forward from earlier years, principally in the USA. Such losses have now been fully utilised and, accordingly, the effective current tax rate on adjusted profit before tax has increased. Earnings and dividend per share Adjusted earnings per share increased by 7.3% from 13.7p to 14.7p. However, basic earnings per share decreased from 29.3p to 17.1p as a result of the factors described above. The interim dividend per ordinary share has increased by 5.7% from 6.15p to 6.5p, reflecting the Board's intention of maintaining a progressive dividend policy underpinned by adjusted earnings per share. Balance Sheet Under IFRS, the Group is required to provide for deferred tax on investment properties and the capital gains tax on revaluation surpluses. In arriving at adjusted net assets and adjusted net assets per share, the Board believes it is appropriate to add back such contingent tax liabilities since the nature of the Group's investment portfolio means the tax is unlikely to crystallise. Adjusted diluted net assets of the Group increased by £109 million during the period, as set out in the following table. £m Per share -------- 31 December 2004 2,622.4 558 -------- Property valuation gains (inc associates) 147.5 31 Adjusted profit after tax 74.2 16 Loss on bond exchange, net of tax (88.0) (19) Exceptional items, net of tax (2.1) - Ordinary dividend paid (41.6) (9) Preference share conversions 7.1 2 Other items 11.9 2 -------- -------- 30 June 2005 2,731.4 581 -------- -------- Cash Flow and Net Debt A summary of the cash flow for the period is as follows: Six months to 30 June Year Ended £millions 2005 2004 31 December 2004 ---------------------- ------- ---- ------- ---- ------------- Cash flow from operations 136.5 112.7 219.5 Working capital changes 17.6 (8.2) (17.1) Interest and dividends (net) (141.3) (87.0) (172.4) Tax paid (net) (49.8) (5.9) (15.3) Funding pension scheme deficit (15.0) - - ---------------------- ------- ------- ------------- (52.0) 11.6 14.7 Capital expenditure (239.1) (45.4) 135.3 Investment in longer term 180.6 - (184.5) deposits Net increase in borrowings 71.2 4.9 88.2 Other (3.6) 6.8 6.6 ---------------------- ------- ------- ------------- Net cash (outflow)/inflow (42.9) (22.1) 60.3 Opening cash and cash 218.1 158.6 158.6 equivalents Exchange rate changes (0.1) (1.4) (0.8) ---------------------- ------- ------- ------------- Closing cash and cash 175.1 135.1 218.1 equivalents ------- ------- ------------- ---------------------- Funds availability At the 30 June the group had £587.8 million of available funds represented by £178.3 million of cash balances held on deposit and £409.5 million of undrawn bank facilities, of which £334.6 million were committed for a duration of over 2 years. This was mainly provided by the £415 million committed revolving credit facility signed in 2002 and which was extended (and the margin renegotiated downwards) during the first half of the year. The maturity date of this facility is now 2011. Maturity and interest rate profile of debt The bond exchange transaction resulted in the issue of two new long dated unsecured sterling debt issues. These are £200 million 5.5% 2018 and £100 million 5.75% 2035. Following closure of this transaction, the weighted average maturity profile of debt in issue is 9.8 years. This compares to the weighted unexpired term of the lease portfolio which is 11.4 years excluding break clauses, or 9.8 years assuming that all break clauses are exercised. The group's policy on interest rate exposure is that at least 70% of the gross debt portfolio should be at a fixed or capped rate. As at 30th June 2005, 75% of the debt portfolio was at fixed rate with an average interest rate of 6.42%, the 25% at variable rate has an average of 4.08%, and the all in weighted average interest rate for borrowings was 5.80% (excludes the 8.25p convertible preference shares classified as debt under IFRS). This includes the effect of all derivative contracts which are listed below: 1. US$150 million of bank debt has been swapped from US$ LIBOR to 2.28% until January 2006. 2. US$121.6 million of bank debt has been fixed with forward rate agreements at 3.95% from December 2005 to July 2006. 3. £150 million of bond debt has been swapped from 6.75% to LIBOR plus 1.0% to 2013. The bank counterparties have the option to cancel this transaction on any 6 month rollover date. The LIBOR exposure is collared in a range of 4.5% - 5.5% until 2006. 4. A £125 million swaption was entered in 2001 giving the counterparty banks the option to make Slough pay 5% for 15 years from 2010. Slough receives an annual premium of 0.52% until 2010 for this option, effectively reducing the running cost of the 7.125% 2010 bond. 5. €26 million of bank debt has been swapped from EURIBOR into 5.68% until 2010. 6. Canadian $25m of private placement debt at 9.27% has been swapped into US$15.9 million at 9.23% fixed to 2010. As some transaction types in the above portfolio do not qualify for hedge accounting treatment under IFRS, the group has decided to account for all derivative instruments at fair value and take the movements in fair value as well as the associated cashflows to the income statement. Financial Ratios The group aims to maintain its key financial ratios at a level that will support a strong long term investment grade credit rating although it will consider movements to outside this range on a temporary short term basis to permit acquisitions to proceed pending realisation of assets. Currently the group is rated A- by Fitch. Gearing as tested by our bank financial covenants stood at 62% as at 30th June. This excludes the convertible redeemable preference shares from debt, reclassifying them back to equity and adds back all deferred tax to the asset base. This gearing level is up from the unusually low level of 51% at December 31st 2004 but is in the middle of the range seen over the last 10 years. A prime key ratio is recurring interest cover ignoring all exceptional and one off items. We aim to maintain this at above a minimum cover level of 1.8 times. Cover for the first half of 2005 was 2.1 times. Portfolio Highlights ----------------- ---------- ----------- ---------- ---------- VALUATION Value Revaluation Change Portfolio BY SECTOR £m Movement £m % % ----------------- ---------- ----------- ---------- ---------- UK Business Space Industrial 2,062 89.8 4.6 48.2 Suburban Offices 483 24.9 5.4 11.3 R&D 82 4.0 5.1 1.9 Retail 278 13.7 5.2 6.5 Land/WIP 247 (8.4) (3.3) 5.8 ----------------- ---------- ----------- ---------- ---------- Total UK 3,152 124.0 4.1 73.7 ----------------- ---------- ----------- ---------- ---------- Overseas USA 831 19.1 2.4 19.4 Europe 293 4.4 1.5 6.9 ----------------- ---------- ----------- ---------- ---------- Total Overseas 1,124 23.5 2.1 26.3 ----------------- ---------- ----------- ---------- ---------- ----------------- ---------- ----------- ---------- ---------- VALUATION Value Revaluation Change Portfolio BY LOCATION £m Movement £m % % ----------------- ---------- ----------- ---------- ---------- UK Slough 1,227 65.8 5.7 28.7 S London & S of England 368 12.3 3.5 8.6 N London & E of England 406 4.9 1.2 9.5 Midlands 227 5.8 2.6 5.3 Heathrow & W London 504 22.5 4.7 11.8 TV & W of England 420 12.7 3.1 9.8 ----------------- ---------- ----------- ---------- ---------- Total UK 3,152 124.0 4.1 73.7 ----------------- ---------- ----------- ---------- ---------- Continental Europe Belgium 186 0.1 0.1 4.4 France 107 4.3 4.2 2.5 ----------------- ---------- ----------- ---------- ---------- Total Europe 293 4.4 1.5 6.9 ----------------- ---------- ----------- ---------- ---------- Worldwide UK 3,152 124.0 4.1 73.7 Europe 293 4.4 1.5 6.9 USA 831 19.1 2.4 19.4 ----------------- ---------- ----------- ---------- ---------- Total Worldwide 4,276 147.5 3.6 100.0 ----------------- ---------- ----------- ---------- ---------- Excludes trading properties in Europe Includes land, buildings under construction and share of joint ventures and associate LONG LEASE PROFILE Weighted average lease term, years to expiry to first break ----------------- ----------------------- ---------------- UK 9.3 7.3 Business Space Industrial 9.2 7.0 Suburban Offices 9.1 6.7 R&D 16.1 12.9 Retail 11.3 11.3 ----------------- ----------------------- ---------------- Overseas USA 21.2 21.2 Europe 6.1 3.5 Group 11.5 9.8 ----------------- ----------------------- ---------------- SECURITY OF INCOME % of income remaining at: Expiry first break ----------------- ----------------------- ---------------- End 2010 89 76 End 2015 54 44 ----------------- ----------------------- --------------- CURRENT YIELDS Initial yield Reversionary yield % % ----------------- ----------------------- --------------- UK Business Space Industrial 5.7 6.7 Suburban Offices 6.0 7.1 R&D 6.3 6.8 Retail 5.3 5.6 Total UK 5.7 6.7 ----------------- ----------------------- --------------- Overseas USA 8.4 8.6 Europe* 7.6 7.8 ----------------- ----------------------- --------------- Initial yield: current rent passing divided by current capital value (including vacant properties) Reversionary yield: current estimated rental value on a fully let basis, divided by current capital value * Excludes trading properties DEVELOPMENT PROGRAMME --------------- ---------- --------- -------- --------- -------- ------------- Location Type Practical Work in Anticipated Potential Completions Progress completion starts H2 H1 2005 date 2005 sq.m. June-05 sq.m. sq.m. --------------- ---------- --------- -------- --------- -------- ------------- UK Slough -------- 61 Whitby Road Industrial 2,584 381 Sykes Road Industrial 2,394 638 Ajax Avenue R&D 5,914 2 Buckingham Avenue Industrial 5,500 24-29 Buckingham Avenue Industrial/ 2,437 Q4 Retail 91-93 Farnham Road Leisure 2,323 303/310 Farnham Road Retail 6,064 115-118 Buckingham Avenue Industrial 4,706 Q4 Oxford Avenue Industrial 3,404 Total Slough 2,394 7,143 25,789 ------- ------- --- -------- Portsmouth ------------ Motorpark Industrial 2,950 Q3 Pre-let to Pentagon Ltd Railway Triangle Industrial 1,924 Q3 Voyager Park Industrial 15,008 Radlett --------- Phase 200 Industrial 9,676 Phase 300 Industrial 6,968 Q4 Pre-let to Viglen West Drayton -------------- Stone Close Phase 1 Car 2,926 Pre-let to HR Showroom Owen Stockley Close Phase 1 Industrial 6,032 Q3 Camberley ----------- Stanhope Road Industrial 2,484 Presold to The Dolphin Head Hounslow ---------- Pulborough Way Industrial 5,318 Q3 Farnborough ------------- 200/250 The Square Offices 7,029 2006 Q134 Offices 4,544 2006 West Thurrock --------------- Phase 4,295 Luton ------- Phase 200 Industrial 6,039 Uxbridge ---------- Phase 300/400 Industrial/ 7,316 Office Weston Super Mare ------------------- Phase 100 Industrial 1,759 Q4 Let to Bradford & Sons HelioSlough ------------- Trax Park, Doncaster Industrial 11,148 UK TOTAL 28,628 43,667 58,447 --------------- ---------- --------- -------- --------- -------- ------------- DEVELOPMENT PROGRAMME Cont. --------------- ---------- --------- -------- --------- -------- ------------- Location Type Practical Work in Anticipated Potential Completions Progress completion starts H2 H1 2005 date 2005 sq.m. June-05 sq.m. sq.m. --------------- ---------- --------- -------- --------- -------- ------------- Belgium --------- Rumst Industrial 13,000 Pegasus Park Office 6,360 Q3 14,000 Kortenberg Industrial 2,300 6,360 29,300 ------- -------- France -------- Le Blanc Mesnil Industrial 5,509 4,638 Q3 5,000 3,709 sq.m. let to Finemetal 5,509 4,638 5,000 ------- ------- ------- Germany --------- Neuss V Industrial 5,802 Q3 Neuss IV Asics Industrial 21,120 Q4 18,327 sq.m. pre-let to ASICS Krefeld Industrial 7,596 Q4 3,021 sq.m. pre-let to Nachi Kapellen, Phase III Logistics 12,186 Q3 Dormagen Industrial 6,327 Q4 6,327 sq.m pre-let to FEAG Monchengladbach Industrial 21,812 53,031 21,812 -------- -------- US ---- Poway Industrial 14,492 Q3 17,837 East Grand R&D 41,805 2006 Pre-let to Genentech Pointe Grand R&D 6,039 Q3 Britannia Oyster Point II R&D 10,498 Britannia Oyster Point E R&D 9,144 Pre-let to Amgen Torrey Pines Science Park 5 R&D 4,181 285 E Grand R&D 6,968 62,336 48,628 -------- -------- OVERSEAS TOTAL 5,509 126,365 104,740 GROUP TOTAL 34,137 170,032 163,187 Let or sold 26.7% 47.7% 5.6% --------------- ---------- --------- -------- --------- -------- ------------- This information is provided by RNS The company news service from the London Stock Exchange

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