Final Results
Great Portland Estates PLC
24 May 2005
PRELIMINARY RESULTS 24 May 2005
The Directors of Great Portland Estates plc announce the results of the Group
for the year ended 31 March 2005.
Highlights:
* Net assets per share up 19% to 333p (2004: 280p) on an adjusted+, diluted
basis
* Earnings per share 14.3p (2004:15.1p)
* Adjusted* earnings per share 11.3p (2004: 12.8p)
* Dividend up 2.4% to 10.75p per share (2004: 10.5p)
* Portfolio valuation up by 9.8% on a like-for-like basis to £804 million
* Total property return 16.7% (2004: 6.1%)
* Two joint ventures set up with Liverpool Victoria Friendly Society (one
since 31 March 2005), containing £230 million of property assets
* £135 million of disposals achieved at 9.4% above March 2004 values
* £116 million of acquisitions and development expenditure in the year on
balance sheet, and £134 million by joint venture
* Void rate at 31 March 2005 2.6%; following completion of Met Building 6.4%
* Met Building completed on time and on budget, and 43% let
* Six new planning permissions gained; 680,000 sq ft near-term development
programme
* £101.5 million of cash returned to shareholders
* High-coupon debt redeemed, lowering cost of debt to 6.3% (2004: 6.7%)
* Net gearing 49% (52% including joint venture); interest cover 2.4 times
+excluding deferred tax on capital allowances (see note 10)
*excluding exceptional items, profits or losses on sales of investment
properties and excluding deferred tax on capital allowances (see note 10)
Toby Courtauld, Chief Executive, said:
'The amount of space being leased by businesses in London today is broadly in
line with the long-term average and we expect this to increase during the year.
Vacancy rates are falling across the market due primarily to the lack of supply
coming on stream and we remain cautiously optimistic about the prospects for
rental growth.
'We have had a busy and productive year and Great Portland Estates is in good
shape; our development pipeline is growing and is geared to deliver quality
space at good value, into an undersupplied West End market; our disposal and
acquisition programmes are transforming the prospects of the Group's portfolio
and producing healthy profits; our focused asset management continues to
maintain a virtually fully let portfolio; our restructured balance sheet is
helping to drive returns to shareholders, whilst preserving the financial
flexibility we need to execute our development and acquisition programmes; and
our teams are working well together to unearth further opportunities for value
enhancement. We face the future with confidence.'
Enquiries etc:
Great Portland Estates plc 020 7580 3040
Toby Courtauld, Chief Executive
John Whiteley, Finance Director
Finsbury Group 020 7251 3801
Edward Orlebar
CHAIRMAN'S STATEMENT
Overview
I am happy to report on another year of substantial activity, strong progress
and one in which we have achieved most of our immediate strategic goals. The
Group's portfolio is now 100% concentrated in central London, voids remain at
under 3%, the average cost of debt has been further reduced, gearing, following
the return of cash last August, is at a more appropriate level for this point in
the cycle, asset enhancing acquisitions have been made and the development
programme continues to expand. For the period under review total property
returns and total shareholder returns were 17% and 24% respectively.
Results and Dividend
Twelve months ago I said that the markets in which we operate had turned the
corner and, whilst around any corner there may be a speed bump or two, the
cautious optimism we have been expressing for some time has proved to be well
founded, particularly in our favoured area of the West End. Based on an
underlying positive valuation movement of 10% on the investment properties and
aided by the return of cash, adjusted diluted net assets per share have
increased by 19% to 333p; even though there was further yield compression, it is
testimony to our timing that one-third of the uplift was attributable to Met
Building and the most recent acquisitions. With adjusted earnings at 11.3p, your
directors are recommending a final dividend of 7.17p per share, making a total
for the year of 10.75p, up 2.4%.
Property Review
The substantial activity to which I refer in my opening sentence will be dealt
with in detail in the Chief Executive's Review. We continued to take advantage
of the strong appetite for investment property from private and institutional
investors and, including transactions since 31 March, we have completed over
£150 million of sales, notably, Clarendon House, 17/18 New Bond Street, W1 for
£50 million. On the same timescale, acquisitions, if the assets in our joint
ventures with Liverpool Victoria Friendly Society are grossed up, amounted to
£295 million. The major purchases included Ellerman House, 12/20 Camomile
Street, EC3 (a key addition to our immediate holdings in the area), the subtle
assembly of a large development site in Tooley Street, SE1, St. Lawrence House,
26/30 Broadwick Street, W1, the retail element of the Mount Royal block in
Oxford Street, W1 and the Liberty Island site, Regent Street, W1. The creation
with Liverpool Victoria of the joint ventures, which purchased the latter two,
has not only provided us with additional management income but could also be the
forerunner of similar opportunities with other partners.
Another important objective which has been achieved in the past year is the
expansion of the development programme. Practical completion on our first
scheme, Met Building, 22 Percy Street, W1, was effected this month and 43% is
already let at rental levels well above our original forecasts. Building works
have commenced at 190 Great Portland Street, W1, and on two Mayfair properties,
whilst planning permissions have recently been granted on three significant
sites north of Oxford Street.
Several other projects are at an advanced design stage and we anticipate that
some £185 million will be spent in the next few years on 680,000 sq ft. This
element, which currently comprises less than one-fifth of the Group by value, is
set to increase to over one-third on completion and we also anticipate that it
will provide a substantial component of future growth in rental income.
Finance
In conjunction with the property initiatives, we have continued to manage the
capital structure of the Group. During the year, the balance sheet was, as
anticipated, substantially restructured via the £101 million return of cash to
shareholders, and the average cost of debt was further reduced to 6.3% through
the unwinding of swaps and the redemptions of principally high-coupon debenture
stock.
Board
John Whiteley and Tony Graham will be retiring from the Board on 31 July and at
the Annual General Meeting respectively. John has been Finance Director for ten
years and, in the last five in particular, has played a vital role in the
capital restructuring of the Group, whilst Tony has provided wisdom and sound
property advice during his seven years on the Board. I thank them both for the
significant part they have played in the evolution of the Company and wish them
all the best for the future. Phillip Rose, whose skills and experience in the
property industry are well known, became a non-executive director on 11 April.
General
This is the first year of operation for the new Combined Code on Corporate
Governance, and I am pleased to report that, apart from one or two de minimis
administrative exceptions, we complied with the Code throughout the year.
Twelve months ago I raised two important issues which rested with the
Government. In principle, they have decided that there should be no intervention
in the current leasing system and, for the time being, they will not be
legislating against 'upward only' rent reviews. Market forces should be allowed
to prevail and we believe that a sensible conclusion has been reached.
Additionally, the precise regime for the establishment of a UK real estate
investment trust ('REIT') has been further delayed, and we shall have to wait
and look at the small print before we decide whether such a vehicle would bring
material benefits to your Company.
This is the last time that shareholders will be able to read the accounts in a
'traditional' form. From hereon, including the next interims, a European
directive requires companies to adopt International Financial Reporting
Standards; this will involve a radical reshaping of the way in which the Group's
activities are reported, even though the fundamentals of our business will not
have changed. I fear that, initially, cold towels will be the order of the day
but we will be providing a reconciliation statement in order to facilitate an
understanding of the changes.
Outlook
In the last five years Great Portland Estates has undergone a radical
transformation. Today, we are a focused central London property company, and the
young management team under Toby Courtauld is brimming with enthusiasm and ideas
to drive the business forward. I am confident that our pipeline of developments,
coupled with the continued active management of the portfolio, will create
further value and provide attractive returns for shareholders.
CHIEF EXECUTIVE'S REVIEW
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We have made good progress against all of our management objectives over the
past twelve months: net assets per share have grown strongly; the prospects for
the Group's portfolio have been strengthened through sales totalling £135
million and acquisitions of £223 million, of which £134 million was acquired in
our joint venture; our development programme has continued to expand with the
addition of new projects; our focused asset management is keeping voids well
below market levels; and the return of £101 million to shareholders combined
with further rationalisation of our debenture portfolio have both lowered our
cost of debt and established a more appropriate level of balance sheet gearing
for this point in the property cycle.
Following the sales of our remaining provincial properties, the portfolio is now
totally concentrated in central London enabling us to devote all our specialist
skills to creating value in one of the world's most dynamic and exciting
property markets. London alone accounts for almost 20% of UK Gross Domestic
Product and has consistently outgrown the rest of the country over the last ten
years; this is a trend which looks set to continue.
Before reviewing our activity over the past year, I would first like to set the
scene by looking at current market conditions. Twelve months ago, we were
cautiously optimistic about the prospects for commercial property in London; we
remain so. Although the amount of space being leased by businesses in London
today is broadly in line with the long-term average, vacancy rates are now
falling across the market, due primarily to the lack of new supply coming on
stream. This is particularly the case in the West End where 77% of our portfolio
is located. Here, we estimate that only 3.6 million sq ft will be delivered by
the development industry over the next 3 years. Even without an increase in
take-up, we think vacancy rates are set to fall further during this year putting
upward pressure on rents as occupiers seeking new premises outnumber the supply
of new, quality office space. In fact, we expect the rate of take-up across
central London to increase during the year, helping to reduce overall vacancy
rates from 11% today to approximately 9% by this time next year (and 8% in the
West End, down from 9%).
For the short term, at least, we maintain our more cautious stance on the City
market as, despite encouraging levels of tenant demand, there remains a surfeit
of space to let. However, we expect the vacancy rate to fall during the year
from its current level of 13%, and with rental growth likely to return during
2006, this is a market which we will be studying closely for acquisition
opportunities.
In the central London investment markets, turnover levels have continued their
record breaking run, fuelled by the plentiful supply of relatively cheap money
and the attractiveness of commercial property yields compared to other asset
classes. This yield gap helps explain the estimated £10 billion of transactions
over the past year. Competition for well let investments remains fierce,
resulting in market capitalisation rates falling by as much as 100 basis points
over the period. We have consistently taken the opportunity to dispose of assets
where we feel pricing to be out of line with their real worth.
Valuation
For the year to 31 March 2005, our portfolio of properties held throughout the
year increased in value by £63.4 million or 9.8%, driven by three main factors.
First, portfolio capitalisation rates fell with the equivalent yield reducing by
some 53 basis points; second, rental values increased throughout the portfolio;
and third, significant progress was made within our development portfolio.
Although the let portfolio remains marginally over-rented to the tune of 5.3%
(down from 6.9% as at March 2004), rental values increased, on a like-for-like
basis, by 9.4% (or £4.4 million). Reflecting the points made above on the gentle
recovery in market leasing conditions, most of the increase was in the second
half (5.9% versus 3.5% in the first six months) and in the West End office
portfolio (up 12.8%), the latter dominated by a strong performance at Met
Building, 22 Percy Street, W1 (formerly Metropolis House) of 18.7%.
The four properties in the course of development increased in value by £14.9
million or 15.8%, net of capital expenditure. Met Building showed the strongest
gain at 29.8% whilst 190 Great Portland Street, W1, where work recently started,
increased by 21.2% over the second six months.
As at 31 March 2005, the 100% owned portfolio was valued at £804.4 million by CB
Richard Ellis with a further £156.7 million held in our 50:50 joint venture with
Liverpool Victoria, the Great Victoria Partnership, (valued by Atisreal). During
the year, we sold our remaining properties outside London and at the year end
77% was in the West End with the remaining 23% in the City. A detailed breakdown
of the sector splits and their individual performances can be found in the
Portfolio Statistics.
Management of Income and Voids
A central theme of our property strategy is the constant focus on ways to
improve the income profile of our properties. The past year has been no
different with a total of 134 lease events executed by our Asset Management
group, all within the context of each property's detailed business plan.
As we bring a number of properties forward for development, a key ambition of
the team has been the delivery of vacant possession to allow work to begin.
During the year, 21 surrenders were negotiated to meet this need and of the 31
units where tenants vacated at lease expiry or on the exercise of a break clause
(out of a possible 57), 21 were deliberately left vacant. Nevertheless, 30
lettings allowed us to maintain the Group's void rate at 2.6%, showing no change
from March or September last year and comparing well to the central London rate
of approximately 11%. As developments are completed, the Group void rate will
rise from these low levels: following practical completion at Met Building it
rose to 6.4%.
Development Update
Turning to our development programme, as I have been reporting over the past two
years, we have again made good progress in our ambition to upgrade materially
the quality of our portfolio and its growth prospects through development and
significant refurbishment.
We have four schemes on site (representing a total of 250,000 sq ft) and a
further three major projects where planning permission has been granted. These
seven projects plus schemes at Tooley Street, SE1 (planning application recently
submitted) and 60/62 Margaret Street, W1 (recently acquired with vacant
possession) represent our near-term programme. They will deliver almost 680,000
sq ft of new, high quality office and retail space (an increase of almost
300,000 sq ft, or 74%), cost a total of approximately £185 million to build
(excluding the existing land value), should generate net new rents of almost £19
million (up from £5.1 million today) and are expected to deliver an average
overall profit on cost of some 20%.
At Met Building, 22 Percy Street, W1 practical completion was achieved on 6 May
bringing to a close the successful reconstruction of this 112,000 sq ft office
and retail scheme both on time and on budget: the property is already 43% let by
rental value. Improvements in the building's design during the construction
process, healthy increases in rental values and keener capitalisation yields
have combined to produce an estimated surplus on cost for this project in excess
of £22 million, or 50%.
Our major refurbishment to deliver 100,000 sq ft of office and retail space at
190 Great Portland Street, W1 commenced in January this year and we anticipate
completing the project early in 2007.
Planning permissions have recently been obtained for the redevelopment of
Knighton House, 56 Mortimer Street, W1, our Titchmor scheme at the junction of
Mortimer Street and Wells Street, W1 and at 79/83 Great Portland Street, W1.
These three schemes were the subject of a complicated series of linked planning
discussions with Westminster City Council designed to address stringent
requirements on the provision of residential space, including affordable
housing, in all new developments in Westminster. Obtaining these valuable
consents whilst providing the Council with their requirements, is a testament
both to the skill of our in-house development team and the benefits of a close
working relationship between developer and planning authority. We expect to
begin demolition work at Knighton House during early 2006 with Titchmor and 79/
83 Great Portland Street commencing shortly thereafter.
Following a carefully planned site assembly, we recently completed the design
process at Tooley Street, SE1 submitting a detailed planning application to
Southwark Borough Council in March. Our proposals for an office and retail
development of 220,000 sq ft continue the regeneration of this area of Southwark
and include the refurbishment of three existing period buildings fronting a new
180,000 sq ft courtyard office scheme directly opposite the new 3 million sq ft
More London development.
Including Tooley Street, we expect to go on site at a further five locations
during this financial year, four of which are in the West End, developing new
lettable space of approximately 430,000 sq ft to add to the 250,000 sq ft
currently under development.
Looking further ahead, preliminary discussions are under way with adjoining
owners in relation to the redevelopment of one of our largest holdings at the
corner of Bishopsgate and Camomile Street, EC3. Following the acquisition of
Ellerman House, 12/22 Camomile Street, completing our site assembly earlier in
the year, a full professional team is engaged in designing a scheme.
Disposals and Acquisitions
Two years ago, I commented that we would focus our attention on sourcing new
opportunities for growth, having completed the bulk of our strategic sales
programme. Since then, investment markets have often proved prohibitively
expensive and we have continued to capitalise on these conditions by satisfying
investors' exceptional demand through sales of properties where, in our view,
further opportunities for value creation were limited.
During the year we disposed of seven properties generating sales proceeds of
£135.5 million, some £11.6 million or 9.4% ahead of their March 2004 valuations.
At Clarendon House, 17/18 New Bond Street, W1, we sold our 125 year leasehold
interest for £50 million (representing a yield of 4.5%) following a successful
asset management programme on the adjacent property, Bond Street House, the
positive effect of which we were able to capture in the Clarendon House price.
The sale generated a profit of £6.5 million, or 14.9% over the March 2004 book
value. We also crystallised the value of our lease restructuring activity at
Barnard's Inn, 86 Fetter Lane, EC4, through a sale to an institution for £37.6
million along with 38 Finsbury Square, EC2, for £18.5 million (realising net
uplifts on March 2004 values of £2.6 million or 7.4% and £1.9 million or 11.8%
respectively).
Following our disposals of interests in Maidenhead and Hounslow, our last
remaining properties outside London, all of our activities are now focused
entirely in the capital.
Since the year end, we have sold 55 Drury Lane, WC2 to an institution for £16.75
million. This 28,000 sq ft office building was built by the Company in 1992 and
had a weighted unexpired lease term of 6.4 years. The price paid reflects a
yield to the purchaser of 5.4%, and a premium to its March 2004 book value of
32%.
Despite the competitive investment environment, we continue to unearth
interesting opportunities to buy. In my report at the Interim stage, I mentioned
acquisitions in Broadwick Street, Soho, Tooley Street, SE1, Camomile Street, EC3
and in January we acquired a 22,000 sq ft redevelopment opportunity at 60/62
Margaret Street, W1 for £5.75 million, which sits directly behind our holdings
in Market Place, and which brings the total value of acquisitions on the balance
sheet to March 2005 to £89 million.
Also at the Interim stage I announced the creation of the Great Victoria
Partnership ('GVP'), seeded by four properties, two of which were new to the
Group, and which had acquired a leasehold interest in Mount Royal, 508/540
Oxford Street, W1 for £80 million. In January, GVP acquired the Prudential's
intermediate interest in Mount Royal for £10.9 million, adding £1.9 million to
the property's rent roll. Since the year end a new joint venture with Liverpool
Victoria, the Great Victoria Partnership (No.2) ('GVP2'), has been created and
has acquired 208/222, Regent Street, W1 with the adjacent Lasenby House, W1 for
a total of £66.5 million, bringing the total amount of acquisitions on balance
sheet and in joint venture to £295 million since March 2004.
Let to retailers Liberty and Gap and with Barclays and MWB Business Exchange
above, 208/222 Regent Street represents a good example of the sort of
acquisition we favour. The property was held on a 46 year lease from the Crown
Estate and offers a number of opportunities for improving the retailing
configuration. Since the purchase, we have restructured our leasehold interest,
buying a longer 125 year lease from the Crown at a lower ground rent for £6
million. Including the headlease regear, GVP2's total purchase price was £72.5
million compared to its valuation (carried out by Atisreal) of £78 million
immediately following our asset management activity. We have subsequently sold
Lasenby House to Shaftesbury PLC, a neighbouring owner, for a small surplus.
In total, the properties acquired during the year, including those in GVP,
increased in value by £21.9 million or 9.4% after all costs.
Outlook
Occupational markets in central London continue to recover, albeit slowly. The
West End remains our favoured location due to its healthier balance of supply
and demand when compared to the City. Within it, there are some encouraging
signs - occupiers looking for quality office space of a staple size (between
5,000 and 10,000 sq ft) are hard pressed to find a variety of options,
particularly at the value end of the rental spectrum. The development pipeline,
although increasing, remains limited which will only serve to accentuate this
market dynamic.
Great Portland Estates is in good shape; our development pipeline is growing and
is geared to deliver quality space, at good value, into an undersupplied West
End market; our disposal and acquisition programmes are transforming the
prospects of the Group's portfolio and producing healthy profits; our focused
asset management continues to maintain a virtually fully let portfolio; our
restructured balance sheet is helping to drive returns to shareholders, whilst
preserving the financial flexibility we need to execute our development and
acquisition programmes; and our teams are working well together to unearth
further opportunities for value enhancement. I look forward with confidence to
building on the real progress we have made this year.
FINANCIAL REVIEW
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The results for the year ended 31 March 2005 and the movement in net asset value
during the period have been significantly affected by a number of factors:
• the balance sheet has been reshaped, with £101.5 million of cash returned to
shareholders in August 2004, the redemption of a high-coupon debenture and the
trimming of the two debentures which remain;
• the sale of seven properties for an aggregate price of £135.5 million;
• capital expenditure of £116.0 million, comprising £53.3 million of direct
property acquisitions, £38.9 million through a corporate acquisition and £23.8
million of development expenditure;
• the injection of £23.8 million of equity into a 50% joint venture which
acquired £133.6 million of central London properties; and
• the tightening of property investment yields and the growth in rental values
within central London, which drove the uplift in the portfolio valuation.
The effect of these events has been to reduce adjusted earnings per share to
11.3p (2004: 12.8p) but to increase diluted adjusted net assets per share to
333p (2004: 280p). Throughout this financial review, where references are made
to adjusted figures, their calculation can be found in note 10.
The financial statements have been drawn up on the basis of the accounting
policies applied for the year ended 31 March 2004, save for the introduction of
UITF 38 Accounting for ESOP Trusts, the effect of which has been to reduce
shareholders' funds at 31 March 2005 and 2004 by £3.4 million or 2p per share,
as explained in note 23 to the financial statements.
Profit and Loss Account
Group rental income fell by £12.0 million from £63.8 million in 2004 to £51.8
million in 2005. This was largely because rental income in 2004 included an
exceptional premium of £8.2 million received on a lease surrender, which added
4.0p to earnings per share in 2004. Excluding this, rental income fell by £3.8
million compared to last year primarily through property disposals exceeding the
effect of acquisitions.
Administration expenses of £10.1 million (2004: £7.2 million) included £0.8
million of exceptional costs associated with the return of cash to shareholders,
whilst the remaining £2.1 million increase primarily comprised increased staff
costs resulting from expanding the team to accommodate our burgeoning
development programme and from the introduction of a new performance-based staff
bonus scheme.
The sale of seven investment properties for £135.5 million generated a profit on
sale of £10.1 million, or 8.1% over March 2004 values, after costs. Two of the
seven properties were sold into a new joint venture, the Great Victoria
Partnership, in which the Group has a 50% interest, and, therefore, only half of
the profit made on the disposal of those two properties was included within the
£10.1 million shown on the face of the profit and loss account. The Great
Victoria Partnership began to trade in mid-January, and, therefore, our share of
its operating profit in 2005 of £0.5 million represented less than one quarter's
trading.
Interest receivable of £2.2 million (2004: £5.0 million) was less than that of
the previous year because the bulk of the cash held on deposit last year was
returned to shareholders in August. Interest payable of £25.0 million (2004:
£19.4 million) included exceptional finance costs of £6.9 million (2004: £nil);
these exceptional costs related to the redemption of debentures, primarily our
£24 million 113/16% debenture 2009/14. As the development of Met Building, 22
Percy Street, W1 approached its practical completion, and the strip-out began at
190 Great Portland Street, W1, interest capitalised on developments in the year
rose to £2.0 million (2004: £0.5 million).
The effective rate of tax shown on the face of the profit and loss account in
2005 was 2.7% (2004: 13.8%); this was low because the chargeable gain on
property disposals was fully covered by capital losses, and tax relief on the
exceptional cost of redeeming the debenture exceeded 30% of the book loss; the
use of capital allowances on plant and machinery within our investment portfolio
lowered the tax charge still further. It is these capital allowances which
reduced the effective rate of tax on the underlying business to 15.9% in
arriving at adjusted earnings per share.
A final dividend for the year ended 31 March 2005 of 7.17p per share will,
subject to shareholder approval, be paid on 12 July 2005 to shareholders on the
register on 3 June, and will make a total dividend for the year of 10.75p per
share (2004: 10.5p), an increase on last year of 2.4%. Adjusted earnings of
11.3p provided dividend cover of 1.05 times.
Balance Sheet
Diluted adjusted net assets per share rose from 280p to 333p at 31 March 2005,
an increase of 18.9%. The main driver of the increase was the revaluation of the
investment property portfolio which added 37p; the revaluation of the share in
the Great Victoria Partnership added 5p, retained earnings 4p and the effect of
the return of cash to shareholders and associated share consolidation added 7p.
The return of cash to shareholders of £101.5 million reduced share capital by
£81.2 million, share premium by £11.8 million, and distributable reserves by
only £8.5 million; at 31 March 2005 the holding company had distributable
reserves of £176.6 million. At 31 March 2005 the effect of marking debt to
market would have been to reduce diluted adjusted NAV by 9p (2004: 6p) and, had
the Group's investment properties been sold for their book value at the balance
sheet date, the contingent liability to taxation on chargeable gains would have
been approximately £38 million or 21p (2004: 8p) per share. Accordingly, diluted
adjusted triple net asset value was 303p, an increase of 13.9% over 266p a year
earlier.
Since 31 March 2005, the Group has entered into a second joint venture, the
Great Victoria Partnership (No. 2), with an investment of £15.6 million, and has
sold 55 Drury Lane, WC2 for £16.8 million or £1.0 million above its March 2005
valuation.
Financing
Over the past five years the Group has actively managed its balance sheet,
repaying high-coupon or inflexible debt and returning excess capital to
shareholders. The return of cash to shareholders in August 2004 was effected to
provide a more efficient balance sheet gearing level, thereby helping to enhance
prospective shareholder returns without unduly impairing the Group's financial
headroom or investment capacity. The return of cash to shareholders was
structured so as to give shareholders a choice between receiving their return of
cash in the form of a capital payment or in the form of dividend income.
As part of the Court-approved scheme, the share capital was consolidated on the
basis of four new shares for every five previously held in order to allow a
direct comparison between the share price before and after the return of cash to
shareholders. 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.
The efficiency of the Group's financing was further enhanced in May 2004 with
the redemption of our £24 million 113/16% First Mortgage Debenture Stock 2009/
14. This high-coupon debenture had a disproportionately high value of properties
charged to it as security; its redemption released £72.5 million of properties
from charge in addition to reducing the Group's cost of borrowing. Also during
the year we took the opportunity to acquire £10.1 million of our listed
debentures in the market, thereby further reducing the proportion of our
investment property portfolio required to be charged as security. In May we
refinanced our main bank facility, replacing a £175 million syndicated loan
facility with a five year, £150 million bank club with our three main banks. At
31 March 2005, 81% of the Group's borrowings were at fixed rates of interest and
the weighted average debt maturity was 16 years. The weighted average cost of
our drawn facilities was 6.1%, and of our total financing, including commitment
fees on undrawn facilities, 6.3%. Ten years ago the Group's weighted average
cost of debt was 9.5%, all of it was at fixed rates and had a weighted average
maturity of 15 years. At 31 March 2005 net gearing (based on shareholders' funds
as adjusted for deferred tax on accelerated capital allowances) was 49%,
interest cover was 2.4 times and the Group had cash and undrawn bank facilities
of £212 million, which, if spent in full, would increase pro forma net gearing
to 88%.
Financial Instruments
The Group raises finance through equity and borrowings, and places surplus cash
on short-term deposit. The primary sources of borrowing are debenture loans,
convertible loans and bank and other loans. The Group also enters into interest
rate swaps, collars and caps, but solely as a way of managing the interest rate
risks arising from some of the Group's sources of finance, primarily bank loans.
The main risks arising from the Group's financial instruments are interest rate
risk, liquidity risk and credit risk. The policies for managing these are
reviewed by the Board, and have been in place throughout the year ended 31 March
2005.
• Interest rate risk
Borrowings are made either at fixed rates of interest, or at floating rates
which can be fixed simultaneously, and co-terminously, by means of interest rate
swaps. The Group's policy has been to ensure that most of its borrowings were at
fixed rates; at 31 March 2005, 81% of borrowings were at fixed rates.
• Liquidity risk
The Group operates a long-term business, and its policy is to finance it
principally with equity and medium-term and long-term borrowings. Accordingly,
at the year end 62% of the Group's borrowings were due to mature in over 15
years. Short-term flexibility is achieved by cash balances and overdraft
facilities.
• Credit risk
At 31 March 2005, the Group had £31.2 million on short-term deposit with
financial institutions. It is the Board's policy that deposit and derivative
contracts are placed only with counter-parties with a credit rating of F1 or
higher.
International Financial Reporting Standards
International Financial Reporting Standards ('IFRS') are mandatory for all
listed companies within the European Union for accounting periods beginning on
or after 1 January 2005, and, therefore, we will prepare our consolidated
financial statements in accordance with IFRS for the first time next year. This
will not affect the performance or cash flows of the business, but will
significantly change the way in which the performance of the business is
reported. The key changes for Great Portland Estates can be split between those
which will increase net assets, those which will reduce them and those which
will do neither. Net assets will be increased by the following:
• proposed dividends will no longer be accrued; and
• part of our convertible bond will be shown as equity instead of debt.
Net assets will be reduced as follows:
• contingent tax on chargeable gains will be brought onto the balance sheet as a
long-term liability; and
• the net liabilities of the Group's pension scheme will be brought onto the
group balance sheet.
Other changes which will have no effect on net assets will be:
• surpluses or deficits on the revaluation of investment properties will be
shown through the face of income statement, which may materially affect earnings
per share;
• development properties will be disclosed in the balance sheet separately from
other investment properties; and
• properties held under long leasehold interests will have their value increased
by the net present value of future ground rents payable, and a corresponding
long-term liability will be set up in the balance sheet.
The preparatory work to convert our Group reporting from UK GAAP to IFRS as at
31 March 2004 and 31 March 2005 and for the year ended 31 March 2005 is largely
complete. In July 2005 we shall issue a press release explaining in full the
effect of changing those numbers from UK GAAP to IFRS with appropriate
reconciliations and narrative.
Portfolio Statistics
Rental income
At 31 March 2005
Five Year Reversionary
Five Year 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 18.8 (0.4) 18.4 0.4 18.8
Retail 4.2 0.2 4.4 - 4.4
Rest of West End Office 7.7 0.1 7.8 (0.4) 7.4
Retail 4.2 0.3 4.5 - 4.5
Total West End 34.9 0.2 35.1 - 35.1
City Office 13.7 (1.0) 12.7 (2.4) 10.3
Retail 0.4 0.1 0.5 0.5 1.0
Total Let Portfolio 49.0 (0.7) 48.3 (1.9) 46.4
Voids 1.6 - 1.6
Premises under 9.7 - 9.7
refurbishment
Total Portfolio 59.6 (1.9) 57.7
Joint Venture rental income
Let Portfolio Office 3.3 (0.2) 3.1 0.2 3.3
Retail 5.7 0.5 6.2 0.9 7.1
Total Portfolio 9.0 0.3 9.3 1.1 10.4
GPE's share 4.5 0.1 4.6 0.6 5.2
Rent roll security, lease lengths and
voids
Rent Roll Weighted Voids
Secure for Average %
Five Years Lease
% Length
Years
London North of Oxford Office 30.3 4.1 4.7
Street
Retail 50.7 8.0 2.2
Rest of West End Office 51.1 6.2 -
Retail 59.4 10.6 -
Total West End 41.2 5.8 3.1
City Office 69.1 5.8 1.1
Retail 38.5 8.5 -
Total Let Portfolio 49.0 5.8 2.6
Joint Venture 84.2 11.9 -
Rental values and yields
Initial True
Average Average Yield Equivalent
Rent ERV Yield
£psf £psf % %
London North of Oxford Office 29 31 5.5 6.2
Street
Retail 24 24 6.3 6.2
Rest of West End Office 33 34 5.6 5.8
Retail 73 79 6.0 5.8
Total West End 32 32 5.7 6.1
City Office 34 25 6.0 7.3
Retail 11 24 4.9 6.9
Total Let Portfolio 32 31 5.8 6.4
Joint Venture 41 48 5.4 5.5
At 31 March 2005
Property
Portfolio
Investment Properties Properties Total Office Retail Total
Property Approaching Under Property
Portfolio Development Development Portfolio
£m £m £m £m £m £m £m
North of Oxford 298.8 56.6 65.5 420.9 356.5 64.4 420.9
Street
Rest of West End 157.6 - 44.2 201.8 132.1 69.7 201.8
Total West End 456.4 56.6 109.7 622.7 488.6 134.1 622.7
City 157.6 24.1 - 181.7 172.8 8.9 181.7
Total 614.0 80.7 109.7 804.4 661.4 143.0 804.4
Office 527.3 67.4 66.7 661.4
Retail 86.7 13.3 43.0 143.0
Total 614.0 80.7 109.7 804.4
Joint Venture At 31 March 2005
Portfolio
Rest of West End 144.2 - - 144.2 34.2 110.0 144.2
City 12.5 - - 12.5 12.5 - 12.5
Total 156.7 - - 156.7 46.7 110.0 156.7
GPE's share 78.4 - - 78.4 23.4 55.0 78.4
Portfolio Performance
12 month
Proportion of Valuation Total
Valuation Portfolio Movement Return
£m % % %
London North of Oxford Street Office 261.6 32.5 10.7 17.5
Retail 37.2 4.6 (2.8) 4.4
Rest of West End Office 77.9 9.7 27.6 33.7
Retail 38.9 4.9 - 5.6
Total West End 415.6 51.7 10.9 17.6
City Office 123.3 15.3 5.9 13.6
Retail 8.9 1.1 (6.3) -
Total City 132.2 16.4 5.0 12.5
Investment property portfolio 547.8 68.1 9.4 16.3
Properties approaching 49.6 6.2 2.5 9.0
development
Properties under development 109.7 13.6 15.8 19.6
Total properties held throughout 707.1 87.9 9.8 16.2
the year
Acquisitions 97.3 12.1
Total property portfolio 804.4 100.0
Analysis of Five Year Rental Values Lease Expiries
£m %
Rent roll, rent reviews Less than 5 years 51.0
& lease renewals 48.3 5 to 10 years 34.7
Under refurbishment 9.7 10 to 15 years 8.8
Voids 1.6 Over 15 years 5.5
59.6 100.0
Occupier
%
Media & Marketing 24.5
Retailers 21.1
Professional 20.7
Banking & Finance 14.3
Corporates 12.5
IT & Telecoms 3.8
Government 3.1
100.0
GROUP PROFIT AND LOSS ACCOUNT
For the year ended 31 March 2005
Notes 2005 2004
£m £m
Rent receivable 52.7 63.8
Less: share of joint venture's (0.9) -
rent receivable
Group rent receivable 2 51.8 63.8
Ground rents (1.1) (1.4)
Net rental income 50.7 62.4
Property and refurbishment costs (2.5) (2.4)
Administration expenses 3 (10.1) (7.2)
Operating profit 38.1 52.8
Profit/(loss) on sale of 10.1 (2.8)
investment properties
Share of operating profit of 0.5 -
joint ventures
Profit on ordinary activities 48.7 50.0
before interest
Interest receivable 5 2.2 5.0
Interest payable 6 (18.1) (19.4)
Exceptional finance costs 7 (6.9) -
Profit on ordinary activities 25.9 35.6
before taxation
Tax on profit on ordinary 8 (0.7) (4.9)
activities
Profit on ordinary activities 25.2 30.7
after taxation
Dividends 9 (17.3) (21.1)
Retained profit for the year 7.9 9.6
Earnings per share - basic 10 14.3p 15.1p
Earnings per share - diluted 10 14.3p 14.7p
Earnings per share - adjusted 10 11.3p 12.8p
A statement of the movement on reserves is given in note 22.
GROUP BALANCE SHEET
At 31 March 2005
Notes 2005 2004
as
restated
£m £m
Fixed assets
Investment properties 11 797.9 740.2
Investment in joint venture: 12
Share of gross assets 80.0 -
Share of gross liabilities (37.4) -
42.6 -
840.5 740.2
Current assets
Debtors 13 14.8 36.5
Cash at bank and short-term deposits 31.9 138.8
46.7 175.3
(38.5) (67.3)
Creditors: amounts falling due within one 14 (38.5) (67.3)
year
Net current assets 8.2 108.0
Total assets less current liabilities 848.7 848.2
Creditors: amounts falling due after more
than one year
Debenture loans 15 (184.3) (221.0)
Convertible loans 16 (57.4) 57.2)
Bank and other loans 17 (59.0) (4.4)
Provisions for liabilities and charges 19 (4.7) (4.4)
543.3 561.2
Capital and reserves
Called up share capital 20 20.3 101.5
Share premium account 21 13.0 24.8
Revaluation reserve 22 307.6 237.6
Other reserves 22 25.0 25.0
Profit and loss account 22 180.0 175.7
Investment in own shares 23 (2.6) (3.4)
Equity shareholders' funds 543.3 561.2
The group balance sheet at 31 March 2004 has been restated for the adoption of
UITF 38 (see note 23).
GROUP STATEMENT OF CASH FLOWS
For the year ended 31 March 2005
2005 2004
£m £m
Notes
Net cash inflow from operating activities 25 36.1 49.3
Returns on investments and servicing of
finance 26 (18.7) (18.0)
Taxation 26 (0.2) 1.8
Net cash inflow from capital expenditure 26 64.2 4.0
Acquisitions and disposals 26 (44.0) -
Equity dividends paid (19.9) (20.9)
Net cash inflow before use of liquid 17.5 16.2
resources and financing
Management of liquid resources 26 106.8 (36.3)
Net cash (outflow)/inflow from financing 26 (124.4) 19.1
Decrease in cash (0.1) (1.0)
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the year ended 31 March 2005
2005 2004
£m £m
Profit for the year 25.2 30.7
Unrealised surplus/(deficit) on revaluation 65.7 (13.5)
of investment properties
Unrealised surplus on revaluation of joint 9.2 -
venture
Total recognised gains and losses for the 100.1 17.2
year
NOTE OF HISTORICAL COST PROFITS AND LOSSES
For the year ended 31 March 2005
2005 2004
£m £m
Reported profit on ordinary activities before 25.9 35.6
taxation
Realisation of fixed asset revaluation surpluses of 4.9 4.3
previous years
Historical cost profit on ordinary activities 30.8 39.9
before taxation
Historical cost profit for the year retained after 12.8 13.9
taxation and dividends
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
1 Accounting Policies
The financial information set out in the announcement does not constitute
statutory accounts for the years ended 31 March 2005 or 2004, but is derived
from those accounts. Statutory accounts for 2004 have been delivered to the
Registrar of Companies and those for 2005 will be delivered following the
Company's Annual General Meeting. The auditors have reported on those accounts;
their reports were unqualified and did not contain statements under S237 (2) or
(3) Companies Act 1985. The Directors approved the Financial Statements on 23
May 2005.
Accounting Convention
The financial statements are prepared under the historical cost convention as
modified by the revaluation of investment properties and investments in
subsidiary undertakings, and on the basis of the accounting policies set out in
the Group's audited financial statements for the year ended 31 March 2004, as
amended by the introduction of UITF 38 Accounting for ESOP Trusts, the effect of
which is set out in note 23. As the financial statements are prepared in
accordance with applicable United Kingdom accounting standards, the true and
fair override provisions of the Companies Act 1985 have been invoked, as
explained in Depreciation below.
Basis of Consolidation
The group financial statements consolidate the financial statements of the
Company and all its subsidiary undertakings for the year ended 31 March.
Rent Receivable
This comprises rental income and premiums on lease surrenders on investment
properties for the year, exclusive of service charges receivable. Service
charges are credited against relevant expenditure.
Lease Incentives
Lease incentives, including rent-free periods and payments to tenants, are
allocated to the profit and loss account from the start of the lease to the date
on which it is expected the prevailing market rental will be payable, typically
the first rent review. The value at which resulting accrued rental income is
stated within debtors is deducted from the carrying value of the appropriate
investment property.
Property and Refurbishment Costs
Irrecoverable running costs directly attributable to specific properties within
the Group's portfolio are charged to the profit and loss account as property
expenses. Costs incurred in the improvement of the portfolio which, in the
opinion of the directors, are not of a capital nature are written off to the
profit and loss account as incurred.
Administration Expenses
Costs not directly attributable to individual properties are treated as
administration expenses.
Properties
Investment properties, including those in the course of development, are
professionally valued each year, on a Market Value basis, and any surpluses or
deficits arising are taken to revaluation reserve. Disposals of properties are
recognised where contracts have been exchanged during the accounting period and
completion has taken place before or shortly after the year end.
Depreciation
In accordance with SSAP 19 Accounting for Investment Properties, no depreciation
is provided in respect of freehold investment properties and leasehold
investment properties with over 20 years to run. Although the Companies Act 1985
would normally require the systematic annual depreciation of fixed assets, the
directors believe that this policy of not providing depreciation is necessary in
order for the financial statements to give a true and fair view, since the
current value of investment properties, and changes in that current value, are
of prime importance rather than a calculation of systematic annual depreciation.
Depreciation is only one of the many factors reflected in the annual valuation,
and the amount which might otherwise have been shown cannot be separately
identified or quantified.
Deferred Taxation
Deferred tax is provided in full on timing differences which result in an
obligation at the balance sheet date to pay more tax, or a right to pay less
tax, at a future date, at rates expected to apply when they crystallise based on
current tax rates and law. Timing differences arise from the inclusion of items
of income and expenditure in taxation computations in periods different from
those in which they are included in the financial statements. Deferred tax is
not provided on timing differences arising from the revaluation of tangible
fixed assets where there is no commitment to sell the asset. Deferred tax assets
are recognised to the extent that it is regarded as more likely than not that
they will be recovered. Deferred tax assets and liabilities are not discounted.
Subsidiary Undertakings
Shares in subsidiary undertakings are valued at amounts equal to their original
cost and any subsequent movement in the revaluation reserve of those
subsidiaries, thus reflecting in the Company's balance sheet the surplus arising
from the revaluation and the sale of investments and investment properties of
those subsidiaries.
Joint Ventures
Joint ventures are accounted for under the gross equity method: the group
balance sheet contains the Group's share of the gross assets and gross
liabilities of its joint ventures. Long-term loans owed to the group by joint
ventures are included within investments. The Group's share of joint ventures'
operating profit, interest and taxation are recorded in the appropriate lines of
the group profit and loss account.
Pensions
The Group contributes to a defined benefit pension plan which is funded with
assets held separately from those of the Group. Contributions are charged to the
profit and loss account so as to spread the cost of pensions over the employees'
working lives with the Group. The regular cost is attributed to individual years
using the projected unit method. Variations in pension cost, which are
identified as a result of actuarial valuations, are amortised over the average
expected remaining working lives of employees in proportion to their expected
payroll costs. Differences between the amounts funded and the amounts charged to
the profit and loss account are treated as either provisions or prepayments in
the balance sheet.
Capitalisation of Interest
Interest associated with direct expenditure on properties under development
(including major refurbishments) is capitalised. Direct expenditure includes the
purchase cost of a site or property if it was acquired specifically for
development, but does not include the acquisition cost or valuation of
properties held as investments. Interest is capitalised from the start of the
development work until the date of practical completion. The rate used is the
Group's pre-tax weighted average cost of borrowings or, if appropriate, the rate
on specific associated borrowings.
Financial Instruments
An interest rate swap is accounted for as a hedge when it alters the risk
profile of an existing underlying exposure, typically a floating rate bank loan.
2 Turnover and Segmental Analysis
Rent receivable by
location:
2005 2004
£m £m
West End - Offices North of Oxford 21.3 21.3
Street
- Other offices 8.8 7.5
- Retail 8.7 9.1
City - Offices 12.0 13.8
- Retail 0.4 0.4
Outside London 0.6 3.5
51.8 55.6
Premium on lease - 8.2
surrender
51.8 63.8
Rent receivable is stated exclusive of value added tax, and arose wholly from
continuing operations in the United Kingdom. No operations were discontinued
during the year.
3 Administration Expenses 2005 2004
£m £m
Administration expenses
Other 9.3 7.2
Exceptional items
Costs of capital reduction 0.8 -
10.1 7.2
Included within administration expenses are fees charged by the auditors
comprising audit fees of £0.1 million (2004: £0.1 million), fees of £0.1 million
(2004: £nil) relating to the capital reduction and fees of £0.1 million (2004:
£nil) for other services, principally relating to a corporate acquisition and
taxation advice.
4 Employee Information
The average number of employees of the Group,
including directors, was:
2005 2004
Number Number
Head office and administration 56 49
On-site property management - 1
56 50
Included within administration expenses are staff costs, including
those of directors, comprising:
2005 2004
£m £m
Wages and salaries 5.9 4.1
Social security costs 0.7 0.5
Other pension costs 0.7 0.6
7.3 5.2
Less: recovered through service charges (0.1) (0.1)
7.2 5.1
The directors received fees of £324,000 (2004: £295,000) and other emoluments of
£1,726,000 (2004: £1,167,000), and pension contributions have been made for
directors of £173,000 (2004: £163,000).
2005 2004
£m £m
5 Interest Receivable
Short-term deposits 1.9 4.6
Other 0.3 0.4
2.2 5.0
6 Interest Payable 2005 2004
£m £m
Bank loans and overdrafts 3.5 1.0
Share of interest of joint 0.4 -
venture
Other 16.2 18.9
20.1 19.9
Less: interest capitalised on (2.0) (0.5)
developments
18.1 19.4
Interest has been capitalised on developments at the rate on specific associated
borrowings.
Exceptional Finance Costs
7 2005 2004
£m £m
Premium on redemption of 6.9 -
debenture
8 Tax on Profit on Ordinary 2005 2004
Activities £m £m
Current tax
UK corporation tax - -
Tax underprovided in previous - 2.8
years
Total current tax - 2.8
Deferred tax 0.7 2.1
Tax on profit on ordinary 0.7 4.9
activities
The difference between the standard rate of tax and the effective rate arises
from the items set out below:
2005 2004
£m £m
Profit on ordinary activities before tax 25.9 35.6
Tax on profit on ordinary activities at standard rate 7.8 10.7
of 30%
Accounting profits arising in the year not taxable (0.8) -
Accounting losses arising in the previous year - (9.2)
relievable against current tax
Receipts taxable as chargeable gains covered by (0.3) (2.5)
capital losses
Expenses not deductible for tax purposes 0.6 0.3
Accelerated capital allowances (3.5) -
Capitalised interest (0.6) -
Income not taxable (0.1) (0.1)
Pension contributions in excess of pensions charge (0.1) (0.1)
Sale of investment properties covered by capital (3.0) 0.8
losses
Tax underprovided in previous years - 2.8
Other - 0.1
- 2.8
Taxation on capital gains of approximately £38 million would have arisen if the
Group's investment properties had been sold for their book value at 31 March
2005 (2004: £19 million).
2005 2004
£m £m
9 Dividends
Interim at 3.58p on 161,291,183 shares
(2004: 3.50p on 201,613,978 shares) 5.8 7.0
Proposed final at 7.17p on 161,291,183 shares
(2004: 7.00p on 201,613,978 shares) 11.5 14.1
17.3 21.1
The final dividend will be payable on 12 July 2005 to shareholders on the
register at 3 June 2005. Dividends are not payable on shares held by the Great
Portland Estates P.L.C. LTIP Employee Share Trust.
10 Earnings per Share and Net Assets per Share
Earnings per share are based on the profit attributable to ordinary shareholders
of £25.2 million (2004: £30.7 million) and on the weighted average of
175,828,906 shares in issue (2004: 203,093,515 shares). Diluted earnings per
share are based on profits of £27.5 million (2004: £32.7 million) and on
192,026,873 shares (2004: 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:
2005 2005 2004 2004
Profit Earnings Profit Earnings
After per After per
Tax Share Tax Share
£m pence £m pence
Basic 25.2 14.3 30.7 15.1
Deferred tax on capital - - (7.5) (3.7)
allowances
Exceptional items 4.7 2.7 - -
(Profit)/Loss on sale of (10.1) (5.7) 2.8 1.4
investment properties
Adjusted 19.8 11.3 26.0 12.8
Deferred tax on capital allowances comprised £3.5 million (2004: £nil) in
respect of capital allowances claimed in the year, less £3.5 million (2004: £7.5
million) of deferred tax relating to capital allowances on properties disposed
of in the year.
Exceptional items comprised £0.8 million (2004: £nil) of administration expenses
and £6.9 million (2004: £nil) of premium on redemption of debentures, less tax
relief of £3.0 million (2004: £nil).
The profit on sale of investment properties of £10.1 million (2004: loss of £2.8
million) was fully covered by capital losses and, therefore, attracted no tax
charge (2004: £nil).
Basic, adjusted and diluted adjusted net assets per share are calculated as
follows:
2005 2005 2005 2004 2004 2004
Net No. of Net Net No. of Net
Assets Shares Assets Assets Shares Assets
per as per Share
Share restated as restated
£m million pence £m million pence
Basic 543.3 162.5 334 561.2 203.1 276
Deferred tax on capital 3.3 162.5 2 2.7 203.1 1
allowances
Adjusted 546.6 162.5 336 563.9 203.1 277
Convertible bonds 57.4 18.7 (3) 57.2 18.7 3
Diluted adjusted 604.0 181.2 333 621.1 221.8 280
Net assets and net assets per share at 31 March 2004 have been restated for the
adoption of UITF 38 (see note 23).
11 Investment Properties
Long
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 106.0 10.0 116.0
Disposals (40.3) (83.7) (124.0)
567.0 169.6 736.6
Surplus on revaluation 52.2 15.6 67.8
Market value at 31 March 2005 619.2 185.2 804.4
Less: Included in prepayments and accrued income (5.9) (0.6) (6.5)
Book value at 31 March 2005 613.3 184.6 797.9
£m
Movement in revaluation reserve:
Surplus on revaluation 67.8
Add: Included within prepayments and accrued income at 1 4.4
April 2004
Less: Included within prepayments and accrued income at 31 (6.5)
March 2005
Movement in revaluation reserve (note 22) 65.7
The freehold and leasehold investment properties were valued on the basis of
Market Value by CB Richard Ellis as at 31 March 2005 in accordance with the RICS
Appraisal and Valuation Standards of The Royal Institution of Chartered
Surveyors. The historical cost of investment properties at 31 March 2005 was
£500.9 million (2004: £502.6 million). At 31 March 2005, the cumulative interest
capitalised in investment properties under development was £2.5 million (2004:
£0.5 million).
12 Investments
Joint Venture Equity Loans Total
£m £m £m
At 1 April 2004 - - -
Acquisitions 23.8 - 23.8
Loan to joint venture - 9.5 9.5
Share of revaluation of investment 9.2 - 9.2
properties
Share of profit retained by joint 0.1 - 0.1
venture
At 31 March 2005 33.1 9.5 42.6
On 3 November 2004, Great Portland Estates plc and Liverpool Victoria Friendly
Society formed a joint venture, called the Great Victoria Partnership to own
investment properties in central London. Great Portland Estates owns a 50% share
in the partnership through a wholly-owned subsidiary. On 19 January 2005, the
Group contributed to the partnership equity of £23.8 million, comprising cash of
£5.9 million and properties. A subsidiary of the Group managed the property
portfolio of the partnership, for which it received management fees of £0.1
million during the year.
13 Debtors 2005 2004
£m £m
Rental debtors 1.7 2.2
Other debtors 2.7 26.1
Prepayments and accrued income 10.4 8.2
14.8 36.5
Included within prepayments and accrued income is £3.0 million (2004: £2.8
million) in respect of pension contribution payments made in advance of their
recognition in the profit and loss account, all of which falls due after more
than one year.
14 Creditors: Amounts Falling Due Within
One Year
2005 2004
£m £m
Bank loan - 25.0
Corporation tax 1.6 1.8
Other taxes and social security costs 1.7 1.7
Other creditors 4.0 4.3
Accruals and rents in advance 19.7 20.4
Proposed dividend 11.5 14.1
38.5 67.3
15 Debenture Loans
2005 2004
£m £m
First mortgage debenture stock
£24 million 113/16 per cent. debenture - 26.8
stock 2009/14
£94.5 million 71/4 per cent. debenture 92.4 95.2
stock 2027
£92.9 million 55/8 per cent. debenture 91.9 99.0
stock 2029
184.3 221.0
On 7 May 2004, the £24 million 113/16 per cent. debenture stock 2009/14 was
redeemed at a cost of £32.9 million. At 31 March 2004, the nominal value
outstanding of the 71/4 per cent. debenture stock 2027 was £97.5 million; during
the year ended 31 March 2005, £3.0 million of the stock was redeemed. At 31
March 2004, the nominal value outstanding of the 55/8 per cent. debenture stock
2029 was £100 million; during the year ended 31 March 2005, £7.1 million of the
stock was redeemed. Certain of the freehold and leasehold properties are charged
to secure the first mortgage debenture stock.
16 Convertible Loans
2005 2004
£m £m
51/4 per cent. convertible bonds 2008 58.0 58.0
Cost of issue (0.6) (0.8)
57.4 57.2
The bonds, which are unsecured, are convertible by the bondholder at any time
until 2008 at a price of £3.10 per share, and redeemable by the Company in 2008
at par.
17 Bank and Other Loans
2005 2004
£m £m
Bank loans 55.0 -
Unsecured loan notes 2007 4.0 4.4
59.0 4.4
The bank loans are unsecured, attract a floating rate of interest of 0.7 per
cent. above LIBOR and expire in 2009. The unsecured loan notes, which together
with an associated guarantee attract a floating rate of interest of 0.275 per
cent. in aggregate above LIBOR, are redeemable at the option of the noteholder
until 2007, and by the Company in 2007.
18 Derivatives and Other Financial
Instruments
An explanation of the Group's objectives, policies and strategies for the role
of derivatives and other financial instruments in creating and changing the
risks of the Group in its activities can be found in the Financial Review. The
disclosures below exclude short-term debtors and creditors.
Interest rate profile of financial liabilities
The interest rate profile of the financial liabilities of the Group as at 31
March 2005 was as follows:
2005 2004
£m £m
Fixed rate financial liabilities 241.7 278.2
Floating rate financial liabilities 59.0 29.4
300.7 307.6
All financial liabilities were in sterling. The fixed rate financial liabilities
carried a weighted average interest rate of 6.2 per cent. (2004: 6.5 per cent.),
and the weighted average period for which the rate was fixed was 18.4 years
(2004: 18.6 years). The floating rate financial liabilities comprised bank loans
and unsecured loan notes, details of which are given in note 17.
Interest rate profile of financial assets
The Group held the following financial assets as at 31 March 2005:
2005 2004
£m £m
Sterling cash and short-term deposits 31.9 138.8
The sterling cash and short-term deposits were all held as part of the financing
arrangements of the Group, and comprised cash, and deposits placed on money
markets for up to three months at fixed rates. The weighted average interest
rate on the deposits was 4.7 per cent. (2004: 4.0 per cent.).
Maturity of financial liabilities
The maturity profile of the Group's financial liabilities at 31 March 2005 was
as follows:
2005 2004
£m £m
In less than one year - 25.0
In more than two years but not more than 116.4 61.6
five years
In more than five years 184.3 221.0
300.7 307.6
Borrowing facilities
Undrawn committed borrowing facilities available to the Group at 31 March 2005
were as follows:
2005 2004
£m £m
Expiring in one year or less 35.0 165.0
Expiring between one and two - 20.0
years
Expiring in more than two 145.0 -
years
180.0 185.0
Fair values of financial assets and financial liabilities
2005 2005 2004 2004
Book Fair Book Fair
Value Value Value Value
£m £m £m £m
Short-term borrowings - - 25.0 25.0
Long-term borrowings 300.7 325.2 282.6 299.8
Interest rate swaps - - 1.0 1.5
The fair values of the Group's fixed asset investments and cash and short-term
deposits are not materially different from those at which they are carried in
the financial statements. Market values have been used to determine the fair
value of listed long-term borrowings, and interest rate swaps were valued by
reference to market rates of interest. The fair values of all other items have
been calculated by discounting the expected future cash flows at prevailing
interest rates.
The cumulative aggregate losses on financial instruments for which hedge
accounting has been used that are unrecognised at the balance sheet date are
£nil (2004: £0.5 million). Changes in the fair value of hedging instruments are
not recognised in the financial statements until the hedged position matures.
The movement in these unrecognised gains and losses is as follows:
Net losses
£m
Unrecognised losses on hedging instruments 0.5
at 1 April 2004
Losses recognised in the year (0.5)
Unrecognised losses on hedging instruments -
at 31 March 2005
19 Provisions for Liabilities Deferred Provision
and Charges tax for swap
costs Total
£m £m £m
At 1 April 2004 3.4 1.0 4.4
Acquired on the purchase of 0.6 - 0.6
subsidiary
Charged/(released) in the 0.7 (1.0) (0.3)
year
At 31 March 2005 4.7 - 4.7
The provision for deferred tax comprises £3.3 million (2004: £2.7 million) in
respect of capital allowances exceeding depreciation, and £1.4 million (2004:
£0.7 million) of other timing differences.
20 Share Capital 2005 2005 2004 2004
Number £m Number £m
Ordinary shares of 121/2p
each
Authorised 550,100,752 68.8 300,000,000 150.0
Allotted, called up and
fully paid
At 1 April 2004 203,093,515 101.5 203,093,515 101.5
Capital reduction (40,618,703) (81.2) - -
At 31 March 2005 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 121/2p
per share.
21 Share Premium Account
£m
At 1 April 2004 24.8
Capital reduction (11.8)
At 31 March 2005 13.0
Other Reserves
22 Reserves Capital Acquisition Total Revaluation Profit
Redemption Reserve £m Reserve and
Reserve £m £m Loss
£m Account
£m
At 1 April 2004 16.4 8.6 25.0 237.6 175.7
Realised on disposal of - - - (4.9) 4.9
properties
Capital reduction - - - - (8.5)
Surplus on revaluation of - - - 65.7 -
properties
Surplus on revaluation of - - - 9.2 -
joint venture
Retained profit for the - - - - 7.9
year
At 31 March 2005 16.4 8.6 25.0 307.6 180.0
23 Investment in Own Shares 2005 2004 as
£m restated
£m
Investment in shares of Great 2.6 3.4
Portland Estates plc
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 31 March 2005, 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:
Shareholders' funds Shareholders' funds
At 31 March At 31 March
2004 2003
£m £m
As previously stated 564.6 568.5
Adjustment (3.4) (1.7)
As restated 561.2 566.8
24 Reconciliation of Movements in Shareholders'
Funds 2004
as
2005 restated
£m £m
Profit for the financial year 25.2 30.7
Dividends (17.3) (21.1)
7.9 9.6
Capital reduction (101.5) -
Receipt from capital reduction of own shares 0.8 -
Investment in own shares - (1.7)
Other recognised gains and losses relating to 74.9 (13.5)
the year (net)
Net decrease in equity shareholders' funds (17.9) (5.6)
Opening equity shareholders' funds 561.2 566.8
Closing equity shareholders' funds 543.3 561.2
Shareholders' funds at 31 March 2004 and at 31 March 2003 have been restated for
the adoption of UITF 38 (see note 23).
2005 2004
£m £m
25 Reconciliation of Operating Profit to Net Cash Inflow from
Operating Activities
Operating profit 38.1 52.8
Increase in debtors (2.0) (1.4)
Decrease in creditors - (2.1)
Net cash inflow from operating activities 36.1 49.3
26 Analysis of Cash Flows 2005 2004
£m £m
Returns on investments and servicing of finance
Interest received 2.9 4.5
Interest paid (21.6) (22.5)
(18.7) (18.0)
Taxation
Corporation tax paid (0.2) -
Corporation tax refunded - 1.8
(0.2) 1.8
Net cash inflow from capital expenditure
Payments to acquire investment properties (55.6) (36.6)
Receipts from sales of investment properties 119.8 40.6
64.2 4.0
Acquisitions and disposals
Purchase of subsidiary undertaking (38.7) -
Cash acquired with subsidiary undertaking 0.6 -
Investment in joint venture (5.9) -
(44.0) -
Management of liquid resources
Cash withdrawn from/(placed on) short-term deposit 106.8 (36.3)
106.8 (36.3)
Net cash (outflow)/inflow from financing
Capital reduction (101.5) -
Receipts from capital reduction of own shares 0.8 -
Payments to acquire own shares - (1.7)
Redemption of - nominal value (37.3) (4.0)
loans
- premium on redemption (6.9) (0.2)
Loan to joint venture (9.5) -
Drawdown of bank loans 55.0 25.0
Repayment of bank loan (25.0) -
(124.4) 19.1
27 Reconciliation of Net Cash Flow to Movement in Net Debt 2005 2004
£m £m
Decrease in cash in the year (0.1) (1.0)
Cash (withdrawn from)/placed on short-term deposit (106.8) 36.3
Cash inflow from increase in debt (55.0) (25.0)
Cash outflow from redemption of loans 62.3 4.0
Change in net debt arising from cash flows (99.6) 14.3
Other non-cash movements (0.4) 0.1
Movement in net debt in the year (100.0) 14.4
Net debt at 1 April 2004 (168.8) (183.2)
Net debt at 31 March 2005 (268.8) (168.8)
28 Analysis of Net Debt At 1 April Non-Cash At 31 March
2004 Cash Flow Changes 2005
£m
£m £m £m
Cash 0.8 (0.1) - 0.7
Short-term deposits 138.0 (106.8) - 31.2
Debt due within one year (25.0) 25.0 - -
Debt due after one year (282.6) (17.7) (0.4) (300.7)
(168.8) (99.6) (0.4) (268.8)
29 Capital Commitments
At 31 March 2005 there were outstanding contracts of Group undertakings for
capital expenditure amounting to £2.5 million (2004: £12.5 million).
31 Pension Commitments
The Group contributes to a defined benefit pension plan (the 'Plan'), the assets
of which are held by trustees separately from the assets of the Group. The
contributions relating to the Plan are determined with the advice of an
independent qualified actuary on the basis of triennial valuations using the
Attained Age funding method. The most recent actuarial valuation of the Plan was
conducted as at 1 April 2002, using the following main assumptions:
• rate of salary increases: 5 per cent. per annum;
• rate of increase in deferred pensions: 2.75 per cent. per annum;
• rate of increase in pensions in payment, subject to indexation at the lower
of RPI and 5 per cent. per annum: 2.75 per cent. per annum;
• discount rate pre-retirement: 7 per cent. per annum;
• discount rate post-retirement: 5.5 per cent. per annum;
• Inflation: 2.75 per cent. per annum; and
• asset valuation: market value.
The valuation showed that the market value of the Plan's assets at 1 April 2002
amounted to £9.1 million and the actuarial value of the accumulated fund was
sufficient to cover 90 per cent. of the benefits which had accrued to the
members of the Plan at that date, allowing for expected future increases in
earnings. Following the valuation, the Group's contributions have been paid at a
rate of 5.5 per cent. of pensionable salaries plus pensions in payment (in
aggregate equating to 38.8 per cent. of pensionable salaries at the valuation
date).
The total normal cost for the Group of £0.7 million (2004: £0.6 million),
including amounts payable to personal pensions, is included in administration
expenses. A prepayment of £3.0 million (2004: £2.8 million), representing the
excess of employer contributions over accumulated pension costs, is included
within current assets.
The valuation used for FRS 17 disclosures has been based on the most recent
actuarial valuation at 1 April 2002 and updated by a qualified independent
actuary to take account of the requirements of FRS 17 in order to assess the
liabilities of the Plan at 31 March 2005. The service cost has been calculated
using the Projected Unit Method. Plan assets are stated at their market value at
31 March 2005.
At 31 At 31 At 31
March March March
2005 2004 2003
% % %
Main assumptions:
Rate of increase in salaries 5.00 5.25 4.75
Rate of increase of pensions in 2.75 3.00 2.50
deferment
Discount rate 5.50 5.50 5.50
Inflation assumption (Limited 2.75 3.00 2.50
Price Indexation)
Following the full actuarial valuation as at 1 April 2002, the 2003 mortality
assumptions were updated to reflect increased life expectancy.
The assets and liabilities of the Plan and the expected rates of return were:
Long-term At 31 Long-term At 31 Long-term At 31
rate of March rate of March rate of March
return 2005 return 2004 return 2003
% p.a. £m % p.a. £m % p.a. £m
Equities 7.00 8.1 7.00 7.3 7.00 6.4
Bonds 4.75 3.8 4.75 3.4 4.50 2.5
Total market 11.9 10.7 8.9
value of
assets
Present value (13.9) (14.0) (12.2)
of Plan
liabilities
Shortfall in (2.0) (3.3) (3.3)
the Plan
Related 0.6 1.0 1.0
deferred tax
asset
Net pension (1.4) (2.3) (2.3)
liability
If these net pension liabilities were to be recognised in the Group financial
statements, the effect on net assets and profit and loss reserve would be as
follows:
At 31 At 31 At 31
March March March
2005 2004 2003
as as
restated restated
£m £m £m
Net Assets
As currently stated 543.3 561.2 566.8
Net pension liability (1.4) (2.3) (2.3)
Net reversal of prepaid (2.4) (2.3) (2.4)
pension contribution
539.5 556.6 562.1
Profit and Loss Reserve
As currently stated 180.0 175.7 161.8
Net pension liability (1.4) (2.3) (2.3)
Net reversal of prepaid (2.4) (2.3) (2.4)
pension contribution
176.2 171.1 157.1
Net assets at 31 March 2004 and at 31 March 2003 have been restated for the
adoption of UITF 38 (see note 23).
The net return on the Plan for the year comprised:
2005 2004
£m £m
Expected return on Plan 0.7 0.6
assets
Interest on Plan liabilities (0.8) (0.7)
Net return (0.1) (0.1)
The movement in the deficit in the Plan in the year comprised:
2005 2004
£m £m
Deficit in Plan at beginning (3.3) (3.3)
of year
Current service cost (0.3) (0.3)
Contributions 0.3 0.2
Net return on assets (0.1) (0.1)
Actuarial gain 1.4 0.2
Deficit in Plan at end of (2.0) (3.3)
year
The amount which would have been charged to operating profit in 2005 and 2004
comprised entirely current service costs. The Plan is closed to new entrants and
the service cost is, therefore, expected to increase as a percentage of salaries
as the membership approaches retirement.
The amount recognised in the Statement of Total Recognised Gains and Losses
('STRGL') would have been:
2005 2004
£m £m
Actual return less expected 0.8 1.3
return on assets
Changes in assumptions 0.6 (1.1)
Actuarial gain 1.4 0.2
In 2005, the £0.8 million by which the actual return exceeded the expected
return represented 6% of Plan assets; in 2004, the £1.3 million by which the
expected return was exceeded represented 12% of Plan assets. In 2005, the £1.4
million actuarial gains which would have been recognised in the STRGL was 10% of
the size of Plan liabilities; in 2004, the £0.2 million actuarial gain was 2% of
the size of Plan liabilities.
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