Half Yearly Report

RNS Number : 7405R

Great Portland Estates PLC

09 November 2011

 



Press Release 

9 November 2011                                                                                                                                                      

Half year results

The Directors of Great Portland Estates plc announce the results for the Group for the six months ended 30 September 2011.

Highlights:

·      Portfolio valuation up 3.9%¹ since March 2011

·      12 month total property return of 17.3% outperforming IPD's Central London index of 16.1%

·      Rental value growth of 2.5%¹ (2.7% West End offices, 4.3% West End retail)

·      EPRA² net assets per share up 5.0% to 378 pence

·      Net assets of £1,167.9 million up 5.0% from March 2011

·      EPRA² profit before tax of £10.4 million down 30.7% on 2010, as anticipated given our development and refurbishment activities

·      EPRA² earnings per share of 3.4 pence down 24.4% on 2010

·      After revaluation surplus, reported profit before tax of £79.1 million (2010: £115.8 million)

·      Interim dividend per share of 3.2 pence (2010: 3.1 pence)

·      Gearing remains low at 40.5%. Significant cash and undrawn facilities totalling £250 million at 30 September

·      New £73 million (our share: £36.5 million) seven year, non-recourse bank financing (in the Great Ropemaker Partnership) announced today

·      Three schemes currently on site (305,500 sq ft, 9.7% of our portfolio), 34.9% pre-let. Completions from Autumn 2012

·      Pipeline enhanced through acquisition of major West End site at Rathbone Place, W1

·      Total committed capital expenditure of £84.1 million

·      Total development programme of 3.3 million sq ft, flexible start dates

·      New property acquisitions³ totalling £195.8 million completed since March 2011

·      Disposals of £65.0 million (our share) during the half year at a 6.2% profit to book value. A further £41.6 million sold since 30 September

·      35 new leases signed securing annual income of £8.6 million (our share: £8.0 million) covering 186,800 sq ft, with market lettings at 5.3% ahead of valuers' rental values

·      £6.7 million of lettings under offer (our share: £3.7 million) at 0.3% above rental values

·      Void levels¹ stable at 3.2% and delinquencies low at less than 0.1% of rent roll

            ¹      On a like for like basis and including share of joint ventures

            ²      In accordance with EPRA guidance (see note 7)

            ³      Includes share of joint ventures and purchase of 200 & 214 Gray's Inn (completed on 18 October)

Toby Courtauld, Chief Executive, said:

"Economic conditions and business sentiment have worsened since the summer with sovereign debt crises dominating the economic landscape.  Within this more challenging environment, London's commercial property markets continue to out-perform the rest of the UK, benefiting from an excess of demand for assets over supply, and a vacancy rate of around 1% for West End Grade A office space.  Despite this, we expect secondary and over-priced assets to see a price correction as buyers become more discerning.

In our occupational markets, unsurprisingly, demand for space has reduced over the last quarter.  So too has the level of expected new supply as development finance remains scarce.  As a result, once sustainable economic growth returns, an impending supply crunch will strongly favour London's landlords.

Within this context, GPE is well placed; we have a low level of on-site development risk, but a pipeline of opportunity few can match and all of it in central London; our investment portfolio is almost fully occupied, let off low average rents and rich with opportunities for growth; and our low gearing and financial flexibility will enable us to exploit further investment opportunities as we find them.

We remain confident that our disciplined, nimble approach and our prudent capital structure will underpin the long term prospects of the Group."

Contacts:

Great Portland Estates plc                                                                                           44 (0) 20 7647 3000

Toby Courtauld, Chief Executive

Nick Sanderson, Finance Director

Finsbury Group                                                                                                              44 (0) 20 7251 3801

James Murgatroyd

Gordon Simpson

The results presentation will be broadcast live at 9.30am today on:

http://www.gpe.co.uk/investors/presentations.

A conference call facility will be available to listen to the presentation at 9.30am today on the following number: [phone]; conference ID 906377.

https://eventreg1.conferencing.com/webportal3/reg.html?Acc=568669&Conf=1754388   

Disclaimer

This announcement contains certain forward-looking statements.  By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances.  Actual outcomes and results may differ materially from any outcomes or results expressed or implied by such forward-thinking statements.

Any forward-looking statements made by or on behalf of Great Portland Estates plc ("GPE") speak only as of the date they are made and no representation or warranty is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared. GPE does not undertake to update forward-looking statements to reflect any changes in GPE's expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.

Information contained in this presentation relating to the Company or its share price, or the yield on its shares, should not be relied upon as an indicator of future performance.

Half Year Results

Our Market

 

Introduction

Since we published our final results in May 2011 much has changed: sovereign debt crises across the Eurozone and in the United States have dominated the economic landscape, whilst stock markets have fallen in anticipation of lower GDP growth than previously forecast.  Business sentiment has deteriorated reflecting the greater uncertainty to the economic outlook.

Within this weaker market context, London's economy continues to offer a more compelling economic story than the UK as a whole, in large part due to its status as a global city.  Indeed, it continues to benefit from its relative safe-haven status following events such as the Arab uprisings earlier this year.  Similarly, investor concerns surrounding the Eurozone, London's diversified economy and its deep and highly skilled pool of labour all serve to enhance further its relative attraction.

However, we are by no means complacent about the challenges ahead.  One of the enduring strengths of the GPE business model is our ability to remain fleet of foot in positioning both our portfolio and our capital structure to meet the market conditions of the day.  Throughout this report you will find examples of this nimble approach, continuing our strategy that has enabled us to outperform throughout this crisis.

Occupational Markets

Whilst most commentary on the central London leasing markets continues to paint a broadly positive picture, we expect most rental growth forecasts to be pared back as prospective tenants take a more cautionary outlook in their expansion plans.  However, for the reasons explained below, we expect the West End to perform more strongly than the City over the next few years for the first time since the rental recovery that began during the second half of 2010.

West End

Despite broader economic uncertainties, office leasing activity in the West End was higher in the three months to September than during the previous quarter and some 2.3% higher than the same period last year.  With limited new supply coming on stream, the volume of office space in the market to let was some 26% lower at the end of September 2011 than twelve months earlier and, with the office vacancy rate at only 5.9%, current supply levels are now 25% below the long term average, according to Knight Frank.

Whilst the aggregate demand for office space is reported to be up compared to this time last year, we do not anticipate an increase in the actual take up of space whilst the current level of economic uncertainties prevail.  Butwith a low vacancy rate and limited new supply coming on stream over the next few years, we expect office rents to remain stable in the near term and, absent a further significant deterioration in economic conditions, the medium term outlook remains positive, particularly for well located properties.

The West End retail market (comprising 22.6% of our West End portfolio by value) has continued its strong performance.  Retail sales in central London have consistently out-performed the UK as a whole, posting year-on-year growth through much of 2011.  The West End is now the world leader in the number of flagship stores, according to the New West End Company, and demand for good sized units from retailers remains strong.  The most recently available data shows that for the month of September, year-on-year retail sales in the West End were 3.4% higher versus a 0.3% increase for the rest of the UK. A slowdown in sales is possible if the Eurozone crisis curbs tourist retail spend.

City and Southwark

Office leasing levels in the City were higher in the three months to September than the previous three months, although we expect the full year to be down on the very high levels of 2010.  In addition, given the current heightened concerns in financial markets, we expect a reduction in the overall level of tenant demand in the near term.  Although higher than in the West End, the City office vacancy rate, at 7.7% in September, remains low compared to the long run average.  This, combined with our expectation that a significant number of proposed developments will be deferred or cancelled, in part due to the lack of speculative development finance or pre-lets, will provide some support to rents particularly for good quality buildings in central locations.

CB Richard Ellis' City prime index show rents growing over the first half and we expect this trend to moderate in the near term.

Investment Markets

Central London real estate continues to attract a diverse group of investors including UK institutions, private investors, international organisations, property companies, private equity funds and sovereign wealth funds.  Across London, there remains a material surfeit of buyers to sellers (estimated at £16.8 billion of buyers versus £5.0 billion of assets on the market to sell), with a marked contrast between the City and West End.  Much of the supply is in the City (£3.8 billion) whilst the depth of demand for well located West End properties remains extremely strong.

Lead indicators

 

We monitor numerous lead indicators to help identify key trends in our market place:

Selected Lead Indicators	Trends in period March - September 2011
Property Capital Values
·               Equity prices	Down
·               Bond prices	Up
·      Changes in new lending by major UK and      European banks	Down
·      Transaction volumes in Central London      direct real estate investment  markets	Down
·      Direction of pricing on IPD based      derivative contracts ·	Down
Rental Values
·               UK GDP growth	Up
·               West End London retail sales	Up
·      Business confidence levels in the Central      London economy	Down
·      UK output from the financial and business      services sector	Down
·      UK finance and business services      employment statistics	Down

Since the spring of 2011, the majority of the property capital indicators have turned negative given the global financial market volatility resulting from the Eurozone sovereign debt crisis and weakening outlook for economic growth. We expect that this market uncertainty will prevail for some while yet, although the central London property investment market is anticipated to continue to benefit from its perceived safe haven status and ongoing sterling weakness. However, the rental value indicators are more balanced and we sense that rental values for sensibly priced, well located buildings will remain steady in the near term.                                                     

  

 

 

 

 

 

To view the accompanying graphics, please paste the below link into your web browser

http://www.rns-pdf.londonstockexchange.com/rns/7405R_-2011-11-8.pdf 

Our business

Our business is accompanied by graphics (see Appendix 1)

Investment management

During the course of the first half, we committed more than £265.8 million (our share: £195.8 million, £186.4 million net of costs) to new acquisitions, continuing our strategy of acquiring assets with the potential for strong absolute and relative performance through the medium term. In September, we purchased the Royal Mail Group's ("RMG") site at Rathbone Place, W1 and in October, the Great Ropemaker Partnership ("GRP"), our joint venture with BP Pension Fund, bought 200 & 214 Gray's Inn Road, WC1.  As described below, these two purchases have different but compelling investment cases, and both are set to benefit from the opening of Crossrail (expected in 2018). We have also continued to recycle capital out of maturing or non-core properties, taking advantage of strong investor demand to dispose of four properties for a total of £65.0 million (our share), at a blended net initial yield of 4.3% and 6.2% ahead of March 2011 book values.

Whilst we expect our recycling activity to increase in the months ahead, we continue to unearth interesting opportunities for new investment.  With the heightened level of stress in the capital and banking markets since the summer, we expect to see an increase in accretive acquisition opportunities over the next twelve months as financial institutions continue to work through their distressed real estate positions and real estate investors revisit their investment strategies.

In September, we completed the acquisition of a major 2.3 acre freehold West End site from RMG. The site is in the core of London's West End between Rathbone Place, W1 and Newman Street, W1, 50 metres north of Oxford Street. Vacant possession will be delivered in June 2013 whereupon we expect to commence a major mixed-use redevelopment.  We have now withdrawn the previous planning application submitted by RMG in May 2011 and are currently working on a new proposal for the site, expecting to submit a new application during 2012.

We paid RMG £120 million in cash for their freehold interest and have leased back the entire site to RMG until June 2013, with GPE receiving total net rent of £4.6 million over the 20 month leaseback period. The price paid, net of the leaseback rent, equates to a capital value of only £300 per sq ft (using the net lettable area assumed by the RMG planning application). RMG will share in the potential future profits should we redevelop the site via an overage arrangement after we have received a priority profit equating to a compounding 12% return on all capital expended.  If available, the next 1.5% (or £10 million if higher) of return will be paid to RMG, with any surplus thereafter split 80:20 in our favour.

In September, GRP announced that it had exchanged contracts to acquire 200 & 214 Gray's Inn Road, WC1 for £132.8 million, reflecting a capital value of £455 per sq ft and a net initial yield of 6.4%. 200 Gray's Inn Road is a 246,500 sq ft, Grade A office building arranged over 10 floors that offers highly specified and efficient office space.  It is held virtual freehold and is leased to four tenants including Carlton Communications Ltd and ITN at £8.4 million per annum. 214 Gray's Inn Road comprises 45,500 sq ft of predominantly car parking and back up accommodation for 200 Gray's Inn Road and is mainly let to ITN until 2023 at a rent of £0.5 million per annum.  It is held on a long lease expiring in June 2174 at a peppercorn rent. GRP completed the purchases on 18 October and has subsequently negotiated a non-recourse debt financing of £73 million (our share: £36.5 million) to part fund this investment.  Our £33.3 million equity investment in the Gray's Inn Road properties is expected to generate an initial annualised cash on cash yield of around 8.4% for the Group.

Prior to the summer, our Great Capital Partnership joint venture ("GCP") sold three properties in accordance with its strategy to focus on its core West End holdings, raising total proceeds of £91.9 million (our share: £45.9 million). In April, it sold 201/207 Kensington High Street, W8 for £12.8 million, in line with its March 2011 book value. In July, 26/40 Kensington High Street, W8 was sold for £62.5 million (10.5% ahead of the March 2011 book value and reflecting a net initial yield of circa 4.5%) and 67/75 Kingsway, WC2 was sold to for £16.6 million (9.0% ahead of the March 2011 book value and representing a net initial yield of 3.6%). Other non-core GCP assets may be sold in the medium-term.

These sales followed the disposal by GPE of 192/194 Oxford Street, W1 for £19.1 million in April, subsequent to the restructuring of the retail leases.  Since September, we have sold a further £41.6 million of properties and have over £180 million worth of stock in the market.

Our joint ventures

Our seven joint ventures continue to perform well during an active period of development and refurbishment activity across a number of properties, combined with the sales and acquisitions detailed above.  We categorise the joint ventures into three types:

·      access to new properties (24.1% of GPE's net property value).  The relevant joint ventures here are The Great Capital Partnership with Capital and Counties Properties, The Great Victoria Partnership with Liverpool Victoria Friendly Society, The Great Star Partnership with Starwood Capital and The Great Wigmore Partnership with Scottish Widows plc;

·      risk sharing on development projects and/or large lot size properties (4.8% of GPE's net property value). The key joint ventures here are the 100 Bishopsgate Partnership with Brookfield and the Great Ropemaker Partnership with BP Pension Fund; and

·      bank work out arrangements (5.9% of GPE's net property value) with Eurohypo in relation to our Marcol House and Newman Street developments.

Overall our joint ventures represent a significant proportion of the Group's business. Excluding the recent purchase by GRP on Gray's Inn Road, they made up 34.8% of the portfolio valuation, 39.6% of net assets and 33.4% of rent roll at 30 September 2011 (at 31 March 2011; 38.3%, 40.4% and 36.5% respectively).

Asset management

Our asset management team has continued to deliver strong results, despite the more challenging market environment:

·      35 new leases were agreed during the first half (2010: 49 leases), generating annual rent of £8.6 million (our share: £8.0 million; 2010: £4.0 million), including the agreement for lease to Double Negative for the pre-let of our major refurbishment at 160 Great Portland Street, W1;

·      74.9% of all tenancies by area, with lease breaks or expiries in the six months to 30 September 2011, were retained or re-let;

·      currently a further 24 lettings are under offer accounting for £6.7 million per annum in rent (our share: £3.7 million);

·      eight rent reviews of £1.4 million (our share: £0.8 million; 2010: £0.8 million) were settled during the half year, some 4% ahead of ERV at the rent review date; and

·      total space covered by new lettings, reviews and renewals during the first half was 217,500 sq ft (2010: 204,000 sq ft).

These asset management successes maintained a low EPRA vacancy rate of 3.2% at 30 September 2011, consistent with the level at 31 March 2011.  Leasing activity was encouraging with 14 market lettings in the first half at rents 5.3% ahead of the valuer's March 2011 estimates.  The further 21 smaller lettings, 21.7% of total lettings by value, were below the March 2011 ERV because they were short term leases to allow the Group the flexibility for future redevelopment.

In the six months to 30 September 2011, 66 leases covering around 182,000 sq ft of space with a rental value of £5.9 million were subject to lease expiry or tenant break. After stripping out the 18.0% where we are refurbishing the space or need vacant possession to enable development, tenants were retained for 35.7% of this space by area and by the end of September we had leased or put under offer a further 39.2%.

 

 

Development

 

Projects on site

We had five schemes on site as at 30 September 2011:  Marcol House, 289/295 Regent Street, W1 where we have a target completion date for October 2012; 160 Great Portland Street, W1 pre-let to Double Negative Limited which is scheduled to be handed over to the tenant in shell condition in March 2012; 24/25 Britton Street, EC1 pre-let in full to Kurt Geiger on a 15 year lease at £1,500,000 per annum; 23/24 Newman Street, W1 where 14 of the 16 private flats have been sold since September in line with March valuation and the lease for the affordable housing has completed; and Wigmore Street, W1 where demolition is complete and practical completion is set for June 2013.

Completed projects

One project was completed during the first half of the financial year at 184/190 Oxford Street, W1, achieving a profit on cost of 24.7% (at 30 September). The space has now been handed over to Aldo, who will pay £920,000 per annum on a ten year term.

Leasing

The principal leasing deal during the first half of the financial year was the pre-letting of 160 Great Portland Street, W1 to Double Negative Limited.  On completion of the project in March 2012, the tenant will take a 20 year term certain lease at an initial rent of £4,785,000 per annum after an initial rent free of 29.7 months and receive a capital contribution from GPE of £1,015,000.  There is a minimum uplift at the first rent review (at year 5) to £4,985,000 per annum.  In addition, GPE will accept a surrender of Double Negative's 21,800 sq ft lease at 45 Mortimer Street, W1 where they currently pay £861,800 per annum, equivalent to £39.50 per sq ft. CBRE estimate this space has a current annual rental value of £1,298,200 or £59.50 per sq ft.

Project preparation 

Good progress has been made in preparing projects for potential starts. 

At 100 Bishopsgate, EC2, the 100 Bishopsgate Partnership (our 50:50 joint venture with Brookfield Properties) has achieved resolution to grant planning consent for revisions to the scheme which could allow an increase in net lettable area from 815,000 sq ft to 945, 000 sq ft. In addition, demolition and site enabling works are underway to prepare the site for a potential pre-letting, which will be required before construction commences.

At Hanover Square, W1, we achieved planning consent from Westminster City Council for our 205,400 sq ft new build, mixed use development.  Site preparation works undertaken by GPE now mean that the development agreement with Crossrail for this site is unconditional and we will acquire part of the site from them on completion of their works, scheduled for 2015.

Pipeline

We continue with preparation of a number of our pipeline projects, including Fetter Lane, EC4 and City Tower, EC2 for potential starts over the next 18 months, market conditions permitting. 

Our current pipeline consists of 23 projects, where our development team continues to make progress on site assembly, planning permissions, vacant possession and third party matters.

 

 

 

 

  

 

Valuation

Valuation is accompanied by graphics (see Appendix 2)

The valuation of the Group's properties as at 30 September 2011, including our share of gross assets in joint venture, was £1,824.6 million, up 3.9% or £63.5 million on a like-for-like basis, net of capital expenditure, since 31 March 2011. The acquisition of the RMG site at Rathbone Place, W1 increased the half year end portfolio value by £126.0 million. Wholly-owned properties were valued at £1,189.3 million and the Group had seven joint ventures which owned properties valued at £635.3 million (our share) at 30 September 2011.

The second quarter saw a like-for-like valuation increase of 0.5%, lower than the 3.6% recorded in the first quarter. The overall valuation rise was due to an improvement in rental values, particularly in the first quarter with largely static investment yields.

The key drivers behind the Group's valuation movement for the six month period were:

·      Rental value growth - Since the start of the financial year, rental values have grown 2.5%. Office rental values have increased by 2.2%, with retail rental values rising by 3.9%. Growth in rental values was stronger in the first quarter at 2.1% compared to 0.5% growth in the second quarter;

·      Asset management - During the period, 43 new leases, rent reviews and renewals were completed securing £8.8 million (our share) of annual income and reducing voids which supported valuation growth over the period; and

·      Development properties - Growth of 5.3% increased their valuation to £298.7 million.

Including rent from pre-lets and leases currently in rent free periods, the adjusted initial yield of the investment portfolio at 30 September 2011 was 4.0%, 40 basis points lower than at the start of the financial year. The "topped up" initial yield of the core investment portfolio, excluding developments and land held for redevelopment, is 4.9%.

Our Rest of West End portfolio produced the strongest performance by geographic sector over the first half, increasing in value by 8.6% on a like-for-like basis. City and Southwark assets saw a 2.3% uplift in values and the North of Oxford Street properties grew by 0.9%. Our joint venture properties rose in value by 2.1% compared to a 4.5% rise for the wholly-owned portfolio over the half year.

The Group delivered a total property return ("TPR") for the 12 months of 17.3%, compared to the central London IPD benchmark of 16.1%. 

 

 

  

 Our financial position

         

Our financial position is accompanied by graphics (see Appendix 3)

Financial results

Overall, the financial results are in line with our expectations as valuation uplifts have increased net assets and, as we highlighted in our March 2011 results, the preparation of our portfolio for increased development and refurbishment activity has resulted in a reduced level of earnings. Recent acquisitions, combined with development and asset recycling activity, have increased the Group's net debt over the last six months. However, leverage ratios remain at conservative levels and our financing position is strong.

Net asset value

EPRA net assets per share ("NAV") at 30 September 2011 was 378 pence per share, an increase of 5.0% in the last six months, largely because of the rise in value of the property portfolio. At 30 September 2011, the Group's net assets were £1,167.9 million, up from £1,112.7 million at 31 March 2011.

The main factors behind the 18 pence per share increase in NAV from the 31 March 2011 value were:

·      the rise of 21 pence per share arising from the revaluation of the property portfolio. Of this amount, the revaluation of our holdings in Hanover Square (following the signing of the masterplan development agreement and the grant of planning permission) boosted NAV by around 6 pence and development properties by a further 5 pence;

·      EPRA earnings for the half year of 3 pence per share enhanced NAV;

·      the final dividend of 5 pence paid in July 2011 reduced NAV; and

·      other items including LTIP share purchases and pension provisions reduced NAV by 1 pence.

Triple net assets per share ("NNNAV") was 375 pence per share at 30 September 2011 compared to 362 pence per share at 31 March 2011 (up 3.6%). The difference between EPRA net assets per share and NNNAV was the negative mark to market of financial liabilities of 3 pence, mainly arising from the valuation of interest rate hedging derivatives in our joint ventures. There was no net movement in deferred tax provisions during the period.

Income statement and earnings per share

EPRA profit before tax at £10.4 million was 30.7% lower than the same period last year. The key reasons behind this fall were reduced joint venture profits and higher property costs, both largely driven by our increase in development and refurbishment activity.

Leasing activity remains healthy and rental income from wholly owned properties and joint venture fees for the period were £24.7 million and £2.1 million respectively, generating a combined income of £26.8 million, up 14.0% on last year. This increase resulted from solid asset management activity, including £0.3 million from the lettings at 184/190 Oxford Street and the receipt of the remainder of Telewest UK Limited lease surrender of £4.7 million in April, and increased joint venture transaction fees from property sales by GCP.

Property expenses in the period were £3.8 million (2010: £1.6 million). This increase is due to void costs on properties being held vacant ahead of development or refurbishment and third party costs related to our management of joint ventures.

Administration costs were £10.0 million, an increase of £1.4 million on last year, predominantly due to costs associated with an aborted property purchase.  

EPRA profit from joint ventures was £3.7 million, down £3.0 million on last year. Of this amount, £2.2 million and £0.3 million relate to the loss of rents at 100 Bishopsgate and Wigmore Street respectively as vacant possession was achieved last year ahead of the commencement of development works.

Underlying net finance costs were 26.0% higher at £6.3 million (2010: £5.0 million) due to the increased Group net debt position and an increase in the Group's weighted average cost of debt following the drawdown of the £159.7 million private placement notes on 30 June 2011.

Revaluation gains and EPRA profits enabled the Group to report an accounting profit after tax of £79.1 million (2010: £115.8 million). Basic EPS for the six months was 25.6 pence, compared to 37.3 pence for 2010.

EPRA earnings per share were 3.4 pence (2010: 4.5 pence), 24.4% lower than last year and in line with our expectations.

Results of joint ventures

The Group's net investment in joint ventures was £462.9 million, up from £449.8 million at 31 March 2011, largely due to valuation increases of £17.0 million and capital expenditure on Marcol House, Wigmore Street and 100 Bishopsgate, offset by the £31.0 million of distributions, primarily from GCP following property sales.

Our share of joint venture net rental income was £11.8 million, down from £13.6 million for the same period last year, as a result of loss of rents as vacant possession was achieved as described above. The underlying joint venture profits are stated after charging £2.1 million of GPE management fees (2010: £1.6 million).

Our share of non-recourse net debt in the joint ventures fell to £157.3 million at 30 September 2011 from £164.9 million at 31 March 2011 due to an increase in cash balances and scheduled amortisation of the GSP bank loan.

Financial resources and capital management

Cash flows from operating activities were £3.3 million, compared to £26.5 million last year. This reduction was predominantly due to one off movements in working capital in 2010. Group consolidated net debt was £473.2 million at 30 September 2011, up from £349.1 million at 31 March 2011 as a consequence of the Rathbone Place site acquisition and capital expenditure on developments, partly mitigated by disposals and operational cash flow. Group net gearing rose to 40.5% at 30 September 2011 from 31.4% at 31 March 2011 as higher debt levels prevailed over the portfolio valuation rise. Interest cover was 2.9x at 30 September 2011 (31 March 2011: 4.0x).

Including the non-recourse debt in the joint ventures, total net debt was £630.5 million (31 March 2011: £514.0 million) equivalent to a loan to value ratio of 34.6% at 30 September 2011 (31 March 2011: 31.1%).

In early November, our GRP joint venture successfully completed a £73 million (our share: £36.5 million) non-recourse, seven year debt financing to part fund the purchase of 200 & 214 Gray's Inn Road. The loan was provided by RBS and Deka, the latter being a new lender to the Group.  Pro forma for this purchase (and associated debt financing) and our sales since 30 September 2011, our net gearing and see through loan to property value ratios are 39.4% and 35.3% respectively.

Our debt financing strategy remains focused on the following key objectives:

·      combining conservative financial leverage with operational flexibility;

·      accessing diversified funding sources with an appropriate spread of maturities; and

·      achieving low interest costs and maintaining strong liquidity.

The use of both unsecured and secured debt instruments to achieve these objectives remains an important part our debt financing strategy.

In March, we agreed to issue £159.7 million of sterling and US dollar unsecured private placement notes. In June, we drew down on these notes and the funds were immediately used to reduce amounts drawn on the Group's £200 million revolving credit facility which matures in July 2012.  We subsequently cancelled £150 million of this facility in July 2011. Having swapped our obligations under the US dollar notes to sterling, the private placement notes have a weighted average fixed interest rate of 5.32%. However, we have hedged these fixed coupons into a capped arrangement and are currently bearing interest on these notes at 3.9%. 

The Group, including its joint ventures, is operating with substantial headroom over its bank, private placement note and debenture covenants. The financial covenants on the unsecured private placement notes are identical to those over our £350 million unsecured revolving credit facility which matures in November 2015.

At 30 September 2011, the Group, including its joint ventures, had cash and undrawn committed credit facilities of £250.2 million. The Group's weighted average interest rate, including joint venture debt, for the period was 4.5%, an increase of 20 basis points compared to the year to 31 March 2011. This was mainly due to the impact of drawing down on our private placement notes in June 2011. At 30 September 2011, 70% of the Group's total debt (including non-recourse joint venture debt) was at fixed or hedged rates (31 March 2011: 57%).

Cash collection and tenant delinquencies

The quarterly cash collection profile has been healthy throughout 2011. We secured over 98% of rent after seven working days following the September quarter day, compared with the March and June quarters earlier this year at 92% and 95% respectively. Tenants on monthly payment terms represent around 5.8% of our rent roll. Only one of our tenants, an engineering consultancy in a property in Southwark, went into administration in the period, accounting for 0.09% of total rent roll.

Taxation

The tax charge in the income statement for the half year is £nil (2010: £1.0 million) as a result of the tax free nature of much of the Group's income and other allowances being available to set against non-REIT profits. The charge in 2010 resulted from the REIT conversion charge on the purchase of 35 Portman Square, W1.  The low level of underlying taxable profits for the half year meant the Group's underlying effective tax rate was 0% (2010: 0%). The Group complied with all relevant REIT tests for the half year to 30 September 2011.

Dividend

The Board has declared an interim dividend of 3.2 pence per share (2010: 3.1 pence) which will be paid in January 2012. 1.8 pence per share of this interim dividend will be a REIT Property Income Distribution (PID) in respect of the Group's tax exempt property rental business. Further information on the tax treatment of dividends can be found on the Group's website at www.gpe.co.uk/investors/reits/

Outlook

Economic conditions and business sentiment have worsened since the summer with sovereign debt crises dominating the economic landscape.  Within this more challenging environment, London's commercial property markets continue to out-perform the rest of the UK, benefiting from an excess of demand for assets over supply, and a vacancy rate of around 1% for West End Grade A office space.  Despite this, we expect secondary and over-priced assets to see a price correction as buyers become more discerning.

In our occupational markets, unsurprisingly, demand for space has reduced over the last quarter.  So too has the level of expected new supply as development finance remains scarce.  As a result, once sustainable economic growth returns, an impending supply crunch will strongly favour London's landlords.

Within this context, GPE is well placed; we have a low level of on-site development risk, but a pipeline of opportunity few can match and all of it in central London; our investment portfolio is almost fully occupied, let off low average rents and rich with opportunities for growth; and our low gearing and financial flexibility will enable us to exploit further investment opportunities as we find them.

We remain confident that our disciplined, nimble approach and our prudent capital structure will underpin the long term prospects of the Group.

  Group income statement

      For the six months ended 30 September 2011

Year to 31 March 2011 Audited £m			Notes		Six months to 30 September 2011 Unaudited £m		Six months to 30 September 2010 Unaudited £m
73.6		Total revenue	2		29.9		26.4
63.7		Net rental income	3		24.7		21.9
4.1		Joint venture fee income	10		2.1		1.6
67.8		Rental and joint venture fee income			26.8		23.5
(4.0)		Property expenses	4		(3.8)		(1.6)
63.8		Net rental and related income			23.0		21.9
(17.3)		Administrative expenses			(10.0)		(8.6)
46.5		Operating profit before surplus on investment property and results of joint ventures			13.0		13.3
131.3		Surplus from investment property	8		44.8		70.0
97.9		Share of results of joint ventures	10		22.7		41.3
275.7		Operating profit before financing costs			80.5		124.6
(11.6)		Net finance costs	5		(0.6)		(6.2)
(3.1)		Loss on cancellation of derivatives			(0.8)		(1.6)
261.0		Profit before tax			79.1		116.8
(0.9)		Tax	6		-		(1.0)
260.1		Profit for the period			79.1		115.8
83.8p		Basic and diluted earnings per share	7		25.6p		37.3p
16.0p		EPRA earnings per share	7		3.4p		4.5p

               All results are derived from continuing operations in the United Kingdom.

         Group statement of comprehensive income

                    For the six months ended 30 September 2011

Year ended 31 March 2011 Audited £m			Six months to 30 September 2011 Unaudited £m	Six months to 30 September 2010 Unaudited £m
2.0		Fair value movement on derivatives in joint ventures in effective hedging relationships	0.5	(0.2)
3.1		Loss on cancellation of derivatives	0.8	1.6
(0.2)		Actuarial deficit on defined benefit scheme	(0.3)	(1.7)
4.9		Net gain/(loss) recognised directly in equity	1.0	(0.3)
260.1		Profit for the period	79.1	115.8
265.0		Total comprehensive income for the period	80.1	115.5

   Group balance sheet

      At 30 September 2011

Year to 31 March 2011 Audited £m			Notes	30 September 2011 Unaudited £m	30 September 2010 Unaudited £m
		Non-current assets
1,049.5		Investment property	8	1,217.8	868.9
1.2		Plant and equipment	9	1.1	1.3
449.8		Investment in joint ventures	10	462.9	402.6
1,500.5				1,681.8	1,272.8
		Current assets
21.7		Trade and other receivables	11	20.4	13.3
3.0		Cash and cash equivalents		5.1	7.8
24.7				25.5	21.1
1,525.2		Total assets		1,707.3	1,293.9
		Current liabilities
31.5		Trade and other payables	12	31.7	24.5
0.1		Corporation tax payable		-	0.2
31.6				31.7	24.7
		Non-current liabilities
352.1		Interest-bearing loans and borrowings	13	478.6	293.1
28.5		Obligations under finance leases		28.5	2.0
0.3		Pension liability		0.6	1.9
380.9				507.7	297.0
412.5		Total liabilities		539.4	321.7
1,112.7		Net assets		1,167.9	972.2
		Equity
39.1		Share capital	14	39.1	39.1
218.1		Share premium		218.1	218.1
16.4		Capital redemption reserve		16.4	16.4
(1.5)		Hedging reserve		(0.7)	(3.0)
844.6		Retained earnings		907.7	706.2
(4.0)		Investment in own shares	15	(12.7)	(4.6)
1,112.7		Total equity		1,167.9	972.2
359p		Net assets per share	7	379p	313p
360p		EPRA net assets per share	7	378p	316p

Group statement of cash flows

      For the six months ended 30 September 2011

Year to 31 March 2011 Audited £m			Notes	Six months to 30 September 2011 Unaudited £m	Six months to 30 September 2010 Unaudited £m
		Operating activities
275.7		Operating profit before financing costs		80.5	124.6
(223.7)		Adjustments for non-cash items	16	(66.0)	(111.0)
18.6		(Increase)/decrease in receivables		(1.7)	23.2
2.7		(Decrease)/increase in payables		(2.6)	(4.6)
73.3		Cash generated by operations		10.2	32.2
-		Tax paid		(0.1)	-
(11.7)		Interest paid		(6.8)	(5.7)
61.6		Cash flows from operating activities		3.3	26.5
		Investing activities
-		Purchase of interests in joint ventures		-	(14.8)
28.8		Distributions from joint ventures		31.0	-
(259.2)		Purchase and development of property		(138.9)	(35.3)
-		Purchase of fixed assets		(0.1)	-
114.1		Sale of properties		27.8	28.4
(116.3)		Cash flows from investing activities		(80.2)	(21.7)
		Financing activities
73.1		Borrowings (repaid)/drawn		(33.0)	(7.0)
-		Issue of Sterling and US Dollar private placement notes		158.9	-
-		Purchase of derivatives		(2.7)	-
(29.3)		Funds to joint ventures		(18.8)	(13.6)
(5.7)		Purchase of shares for employee share plans		(10.9)	(5.6)
(26.1)		Equity dividends paid		(14.5)	(16.5)
12.0		Cash flows generated/(utilised) in financing activities		79.0	(42.7)
(42.7)		Net increase/(decrease) in cash and cash equivalents		2.1	(37.9)
45.7		Cash and cash equivalents at 1 April		3.0	45.7
3.0		Cash and cash equivalents at balance sheet date		5.1	7.8

Group statement of changes in equity

For the six months ended 30 September 2011 (unaudited)

		Share Capital £m	Share Premium £m	Hedging reserve £m	Capital redemption reserve £m	Retained  Earnings £m	Investment in own shares £m	Total  equity £m
Total equity at 1 April 2011		39.1	218.1	(1.5)	16.4	844.6	(4.0)	1,112.7
Profit for the period		-	-	-	-	79.1	-	79.1
Fair value movement on derivatives in joint ventures in effective hedging relationships		-	-	-	-	0.5	-	0.5
Loss on cancellation of derivatives		-	-	0.8	-	-	-	0.8
Actuarial deficit on defined benefit scheme		-	-	-	-	(0.3)	-	(0.3)
Employee Long-Term Incentive Plan and Share Matching Plan charge		-	-	-	-	-	1.8	1.8
Purchase of shares for employee share plans		-	-	-	-	-	(10.9)	(10.9)
Transfer to retained earnings		-	-	-	-	(0.4)	0.4	-
Dividends		-	-	-	-	(15.8)	-	(15.8)
Total equity at 30 September 2011		39.1	218.1	(0.7)	16.4	907.7	(12.7)	1,167.9

Group statement of changes in equity

For the period ended 30 September 2010 (audited)      

		Share Capital £m	Share Premium £m	Hedging reserve £m	Capital redemption reserve £m	Retained  Earnings £m	Investment in own shares £m	Total  equity £m
Total equity at 1 April 2010		39.1	218.1	(4.6)	16.4	608.0	(0.3)	876.7
Profit for the period		-	-	-	-	115.8	-	115.8
Fair value movement on derivatives in joint ventures in effective hedging relationships		-	-	-	-	(0.2)	-	(0.2)
Loss on cancellation of derivatives		-	-	1.6	-	-	-	1.6
Actuarial deficit on defined benefit scheme		-	-	-	-	(1.7)	-	(1.7)
Employee Long-Term Incentive Plan and Share Matching Plan charge		-	-	-	-	-	1.2	1.2
Purchase of shares for employee share plans		-	-	-	-	-	(5.6)	(5.6)
Transfer to retained earnings		-	-	-	-	(0.1)	0.1	-
Dividends		-	-	-	-	(15.6)	-	(15.6)
Total equity at 30 September 2010		39.1	218.1	(3.0)	16.4	706.2	(4.6)	972.2

Group statement of changes in equity

For the year ended 31 March 2011 (audited)

	Share capital £m	Share premium £m	Hedging reserve £m	Capital redemption reserve £m	Retained  earnings £m	Investment in own shares £m	Total  equity £m
Total equity at 1 April 2010	39.1	218.1	(4.6)	16.4	608.0	(0.3)	876.7
Profit for the year	-	-	-	-	260.1	-	260.1
Loss on termination of derivatives	-	-	3.1	-	-	-	3.1
Actuarial deficit on defined benefit scheme	-	-	-	-	(0.2)	-	(0.2)
Fair value movement on derivatives in joint ventures in effective hedging relationships	-	-	-	-	2.0	-	2.0
Purchase of shares for employee share plans	-	-	-	-	-	(5.7)	(5.7)
Employee Long-Term Incentive Plan and Share Matching Plan charge	-	-	-	-	-	1.9	1.9
Dividends to shareholders	-	-	-	-	(25.2)	-	(25.2)
Transfer to retained earnings	-	-	-	-	(0.1)	0.1	-
Total equity at 31 March 2011	39.1	218.1	(1.5)	16.4	844.6	(4.0)	1,112.7

Notes forming part of the half year results

1 Basis of preparation

The financial information contained in this report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The full financial statements for the year ended 31 March 2011 were prepared under IFRS and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006, and, together with an unqualified audit report in accordance with section 495 of the Companies Act 2006 which did not draw attention to any matters by way of emphasis, have been delivered to the Registrar of Companies.

The annual financial statements of Great Portland Estates plc are prepared in accordance with IFRSs as adopted by the European Union.  The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union. The Group has only one reportable operating segment as disclosed in the Groups latest annual audited financial statements. The same accounting policies, presentations and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements.

The Group's performance is not subject to seasonal fluctuations.

Going concern

Details of the market in which the Group operates, together with factors likely to affect its future development and performance are set out in the 'Our market' and 'Our business' sections of this report. The financial position of the Group, its liquidity position and borrowing facilities are described in 'Our financial position' and in the notes of the half year results.

The Directors have reviewed the current and projected financial position of the Group, making reasonable assumptions about future trading performance.  After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half year results.

2 Total revenue

Year to 31 March 2011 £m			Six months to 30 September 2011 £m	Six months to 30 September 2010 £m
42.7		Gross rental income	19.5	21.2
(0.4)		Amortisation of capitalised lease incentives	0.6	0.9
21.5		Surrender premium net of capitalised lease incentives	4.7	-
5.7		Service charge income	3.0	2.7
4.1		Joint venture fee income	2.1	1.6
73.6			29.9	26.4

3 Net rental income

Year to 31 March 2011 £m			Six months to 30 September 2011 £m	Six months to 30 September 2010 £m
42.7		Gross rental income	19.5	21.2
(0.4)		Amortisation of capitalised lease incentives	0.6	0.9
(0.1)		Ground rents payable	(0.1)	(0.2)
42.2		Rental income before surrender premium	20.0	21.9
21.5		Surrender premium net of capitalised lease incentives	4.7	-
63.7			24.7	21.9

4 Property expenses

Year to 31 March 2011 £m			Six months to 30 September 2011 £m	Six months to 30 September 2010 £m
(5.7)		Service charge income	(3.0)	(2.7)
6.9		Service charge expenses	4.0	3.7
2.8		Other property expenses	2.8	0.6
4.0			3.8	1.6

 5 Net finance costs

Year to 31 March 2011 £m			Six months to 30 September 2011 £m	Six months to 30 September 2010 £m
4.4		Interest on bank overdrafts and loans	2.3	1.5
-		Interest on private placement notes	1.6	-
8.0		Interest on debentures	4.1	4.1
0.4		Interest on obligations under finance leases	0.6	0.1
12.8		Gross finance costs	8.6	5.7
(0.1)		Less: capitalised interest at an average interest rate of 3.6%	(0.6)	-
12.7			8.0	5.7
(2.2)		Interest income on joint venture balances	(1.7)	(0.7)
1.1		Fair value movement on derivatives	(5.7)	1.2
11.6			0.6	6.2

6 Tax

Year to 31 March 2011 £m			Six months to 30 September 2011 £m	Six months to 30 September 2010 £m
		Current tax
1.1		UK corporation tax	-	1.1
(0.2)		Tax overprovided in previous years	-	(0.1)
0.9		Tax charge for the period	-	1.0

The difference between the standard rate of tax and the effective rate of tax arises from the items set out below:

Year to 31 March 2011 £m			Six months to 30 September 2011 £m	Six months to 30 September 2010 £m
261.0		Profit before tax	79.1	116.8
73.1		Tax charge on profit at standard rate of 26% (2010: 28%)	20.6	32.7
(53.3)		Non-taxable revaluation surplus	(16.1)	(25.2)
(21.7)		REIT tax-exempt rental income and gains	(4.8)	(8.1)
1.1		REIT conversion charge in respect of corporate acquisition	-	1.1
(0.2)		Previous years' corporation tax	-	(0.1)
1.9		Other	0.3	0.6
0.9		Tax charge for the period	-	1.0

During the period £nil (2010: £nil) of deferred tax was credited directly to equity in respect of the Group's pension fund.  The Group's deferred tax at 30 September 2011 is £nil (2010: £nil).

A deferred tax asset of £8.4 million (2010: £8.6 million), mainly relating to tax losses carried forward at 30 September 2011 and contingent share awards, was not recognised because it is uncertain whether future taxable profits against which these losses can be offset will arise. As a REIT, the Group is broadly exempt from corporation tax in respect of its rental profits and chargeable gains relating to its property rental business.  The Group is otherwise subject to corporation tax.

7 Earnings and net assets per share

Adjusted earnings and net assets per share are calculated in accordance with the guidance issued by the European Public Real Estate Association (EPRA).

Weighted average number of ordinary shares

Year to 31 March 2011 No. of shares			Six months to 30 September 2011 No. of shares		Six months to 30 September 2010 No. of shares
312,676,149		Issued ordinary share capital at 1 April	312,676,149		312,676,149
(2,381,988)		Investment in own shares	(3,318,349)		(2,281,896)
310,294,161		Basic and diluted weighted average number of ordinary shares	309,357,800		310,394,253

Basic, diluted and adjusted earnings per share

Year to 31 March 2011 Earnings per share pence			Six months to 30 September 2011 Profit after tax £m	Six months to 30 September 2011 Earnings per share pence	Six months to 30 September 2010 Profit after tax £m	Six months to 30 September 2010 Earnings per share pence
83.8		Basic and diluted	79.1	25.6	115.8	37.3
(42.3)		Surplus from investment property	(44.8)	(14.5)	(70.0)	(22.6)
(26.8)		Surplus from joint venture property	(20.0)	(6.4)	(35.3)	(11.3)
0.4		Movement in fair value of derivatives	(5.7)	(1.8)	1.2	0.4
(0.1)		Movement in fair value of derivatives in joint ventures	1.0	0.3	0.7	0.2
1.0		Loss on cancellation of derivatives	0.8	0.2	1.6	0.5
16.0		EPRA earnings	10.4	3.4	14.0	4.5

Net assets per share

31 March 2011 Net assets per share pence			30 September 2011 Net assets £m	30 September 2011 No. of shares million	30 September 2011 Net assets per share pence	30 September 2010 Net assets £m	30 September 2010 No. of shares million	30 September 2010 Net assets per share pence
359		Basic and diluted	1,167.9	308.3	379	972.2	310.2	313
3		Fair value of financial liabilities	(11.9)	-	(4)	16.1	-	5
362		Diluted triple net assets	1,156.0	308.3	375	988.3	310.2	318
(3)		Fair value of financial liabilities	11.9	-	4	(16.1)	-	(5)
(1)		Fair value of derivatives	(8.4)	-	(3)	0.2	-	-
2		Fair value of derivatives in joint ventures	6.3	-	2	9.0	-	3
360		EPRA net assets	1,165.8	308.3	378	981.4	310.2	316

8 Investment property

Investment property

	Freehold £m	Leasehold £m	Total £m
Book value at 1 April 2011	625.3	320.9	946.2
Acquisitions	125.9	-	125.9
Costs capitalised	5.7	3.4	9.1
Disposals	-	(19.0)	(19.0)
Transfer from investment property under development	-	34.6	34.6
Net valuation surplus	24.2	11.7	35.9
Book value at 30 September 2011	781.1	351.6	1,132.7

Investment property under development

	Freehold £m	Leasehold £m	Total £m
Book value at 1 April 2011	68.7	34.6	103.3
Costs capitalised	7.4	-	7.4
Transfer to investment property	-	(34.6)	(34.6)
Net valuation surplus	9.0	-	9.0
Book value at 30 September 2011	85.1	-	85.1
Book value of total investment property at 30 September 2011	866.2	351.6	1,217.8

	30 September 2011 £m	30 September 2010 £m
Net valuation surplus on investment property	44.9	54.9
(Loss)/profit on sale of investment properties	(0.1)	15.1
Surplus from investment property	44.8	70.0

The investment and properties were valued on the basis of Market Value by CB Richard Ellis, external valuers, as at 30 September 2011 in accordance with the seventh edition of the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors. The valuation has been primarily derived using comparable recent market transactions on arm's length terms.  CBRE have advised us that the total fees paid by the Group represent less than five per cent of their total revenue in any year. The book value of investment properties includes £28.5 million (2010: £2.0 million) in respect of the present value of future ground rents net of these amounts the market value of the investment properties is £1,189.3 million.  At 30 September 2011 the Group had capital commitments of £15.2 million (2010: £nil million).  

9 Plant and equipment

	Leasehold improvements £m	Fixtures and fittings £m	Total £m
Cost or valuation
At 1 April 2011	2.0	1.3	3.3
Costs capitalised	-	0.1	0.1
At 30 September 2011	2.0	1.4	3.4
Depreciation
At 1 April 2011	1.1	1.0	2.1
Charge for the period	0.1	0.1	0.2
At 30 September 2011	1.2	1.1	2.3
Carrying amount at 31 March 2011	0.9	0.3	1.2
Carrying amount at 30 September 2011	0.8	0.3	1.1

10 Investment in joint ventures

	Equity £m		Balances with partners           £m		Total £m
At 1 April 2011	433.9		15.9		449.8
Investment in joint ventures	0.3		-		0.3
Movement on joint venture balances	-		20.6		20.6
Share of profit of joint ventures	2.7		-		2.7
Share of profit on disposal of joint venture properties	3.0		-		3.0
Share of revaluation surplus of joint ventures	13.6		3.4		17.0
Share of results of joint ventures	19.3		3.4		22.7
Fair value movements on derivatives taken to equity	0.5		-		0.5
Distributions	(31.0)		-		(31.0)
At 30 September 2011	423.0		39.9		462.9

The investments in joint ventures are all resident in the United Kingdom and comprise the following:

Ownership 31 March 2011				Ownership 30 September 2011	Ownership 30 September 2010
50%		The 100 Bishopsgate Partnership		50%	50%
100%		G.P.E. (Marcol House) Limited*		100%	100%
50%		The Great Capital Partnership		50%	50%
50%		The Great Ropemaker Partnership		50%	50%
50%		The Great Star Partnership		50%	50%
50%		The Great Victoria Partnership		50%	50%
50%		The Great Wigmore Partnership		50%	50%

* G.P.E. (Marcol House) Limited is a joint venture with Eurohypo. Eurohypo has a profit share agreement dependent on the success of the two development schemes held by G.P.E. (Marcol House) Limited. Eurohypo is able to exert influence over the development strategy for the buildings and because these are the only assets held by the entity this influence extends over the whole of the entity's operations. As a result of this arrangement GPE and Eurohypo are considered to have joint control over the business of the entity although GPE has a 100% equity interest. Therefore in accordance with IAS31 G.P.E. (Marcol House) Limited has been treated as a joint venture.

Transactions during the period between the Group and its joint ventures, who are related parties, are set out below:

31 March 2011 £m				30 September 2011 £m	30 September 2010 £m
31.5		Movement on joint venture balances during the period		24.0	18.1
(15.9)		Balances (receivable)/outstanding at the period end from joint ventures		(39.9)	5.3
28.8		Distributions		31.0	-
4.1		Fee income		2.1	1.6

The joint ventures have bank loans with a total nominal value of £360.4 million. The Great Capital Partnership has a £225 million facility which is secured, attracts a floating rate of between 0.75% and 1.15% above LIBOR and expires in 2013. The Great Victoria Partnership has a £56.8 million facility which is secured, attracts a fixed rate of 5.495% and expires in 2012. The Great Star Partnership has an £78.6 million secured credit facility, which attracts a floating rate of 1.90% above LIBOR and expires in 2015.  All interest bearing loans are in sterling. At 30 September 2011 the joint ventures had £nil undrawn facilities (2010: £nil).

The Great Capital Partnership has four interest rate swaps and an interest rate collar with notional principal amounts of £143.8 million and £25.0 million respectively. The interest rate swaps and collar expire coterminously with the bank loan in 2013. The weighted average contracted fixed interest rate for the interest rate swaps was 5.27%, and the collar has a floor of 4.845% and a cap of 6.5%. The Great Star Partnership has an interest rate swap with a fixed interest rate of 2.715% and a notional principal amount £39.3 million and an interest rate cap at 4.0% with a notional principal amount £39.3 million. The interest rate swap and cap expire coterminously with the bank loan in 2015.  At 30 September 2011 the negative fair value of these derivatives was £12.5 million (our share: £6.3 million), (2010: our share £9.0 million).

The investment properties include £28.4 million (2010: £25.5 million) in respect of the present value of future ground rents, net of these amounts the market value of our share of the total joint venture properties is £635.3 million. At 30 September 2011 the Group's share of joint venture capital commitments was £68.9 million (2010: £2.9 million).  At 30 September 2011 the Group had no contingent liabilities in respect of its joint ventures (2010: £nil million). 

10 Investment in joint ventures (continued)

 Summarised balance sheets

31 March 2011 Total £m				The 100 Bishopsgate Partnership £m	G.P.E. (Marcol House) Limited  £m	Great Capital Partnership             £m	Great Ropemaker Partnership £m	Great Star Partnership             £m	Great Victoria Partnerships £m	Great Wigmore Partnership £m	30 September 2011 Total £m	30 September 2010 Total £m
665.1		Investment property		62.1	107.2	241.5	35.3	82.1	87.9	47.6	663.7	614.1
20.0		Current assets		2.5	1.1	16.1	5.9	4.5	1.8	0.7	32.6	19.0
(15.9)		Balances to/(from) partners		(21.3)	(65.7)	96.6	(23.9)	(15.6)	(5.5)	(4.5)	(39.9)	5.3
(179.6)		Bank loans		-	-	(112.3)	-	(38.9)	(28.3)	-	(179.5)	(179.7)
(5.8)		Derivatives		-	-	(5.3)	-	(1.0)	-	-	(6.3)	(9.0)
(18.3)		Current liabilities		(2.7)	(5.3)	(5.7)	(0.4)	(2.8)	(2.0)	(0.3)	(19.2)	(16.3)
(31.6)		Finance leases		(4.2)	-	(8.0)	(5.2)	(11.0)	-	-	(28.4)	(25.5)
433.9		Net assets		36.4	37.3	222.9	11.7	17.3	53.9	43.5	423.0	407.9
Summarised income statements
29.6		Net rental income		0.1	0.2	6.2	0.6	2.5	2.1	0.1	11.8	13.6
(3.7)		Property and administration costs		(0.5)	(0.2)	(0.4)	-	(0.5)	(0.2)	(0.1)	(1.9)	(1.7)
(11.5)		Net finance costs		-	(0.1)	(3.0)	(0.8)	(1.5)	(0.8)	-	(6.2)	(5.2)
0.4		Movement in fair value of derivatives		-	-	0.1	-	(1.1)	-	-	(1.0)	(0.7)
14.8		Share of profit of joint ventures		(0.4)	(0.1)	2.9	(0.2)	(0.6)	1.1	-	2.7	6.0
75.3		Revaluation of investment property		(11.2)	7.9	7.2	2.2	(0.3)	2.0	5.8	13.6	31.5
-		Profit on sale of investment property		-	-	3.0	-	-	-	-	3.0	-
90.1		Share of results of joint ventures		(11.6)	7.8	13.1	2.0	(0.9)	3.1	5.8	19.3	37.5

11 Trade and other receivables

31 March 2011 £m			30 September 2011 £m	30 September 2010 £m
6.9		Trade receivables	6.7	5.9
(0.3)		Allowance for doubtful debts	(0.1)	(0.4)
6.6			6.6	5.5
0.8		Prepayments and accrued income	2.3	0.8
11.6		Other trade receivables	2.8	7.0
2.7		Derivatives - due in more than one year	8.7	-
21.7			20.4	13.3

12 Trade and other payables

31 March 2011 £m			30 September 2011 £m	30 September 2010 £m
11.6		Trade payables	11.8	10.7
19.9		Non-trade payables and accrued expenses	19.9	13.8
31.5			31.7	24.5

13 Interest-bearing loans and borrowings

31 March 2011 £m			30 September 2011 £m	30 September 2010 £m
		Non-current liabilities
		Secured
144.2		£142.9 million 5 5/8% debenture stock 2029	144.2	144.2
		Unsecured
207.9		Bank loans	175.2	148.7
-		£30.0 million 5.09% private placement notes 2018	29.8	-
		$130.0 million 4.81% private placement notes 2018	80.7	-
-		$78.0 million 5.37% private placement notes 2021	48.4	-
		Non-current liabilities at fair value
-		Derivatives	0.3	0.2
352.1			478.6	293.1

The Group has two floating rate revolving credit facilities of £350 million and £50 million. The £350 million facility is unsecured, attracts a floating rate of interest based on a ratchet of between 1.55%-2.30% above LIBOR based on gearing and expires in 2015. The £50 million facility was reduced from a £200 million facility in July 2011 and is unsecured, attracts a floating rate of 0.50% above LIBOR and expires in July 2012.  At 30 September 2011 the Group had £223 million (2010: £424 million) of undrawn credit facilities.

The Group issued a mix of sterling and US dollar notes totalling £159.7 million through private placement in June 2011. £111.1 million of the notes mature in 2018 and £48.6 million in 2021. The notes are unsecured and the financial covenants on the notes are consistent with those of the Group's bank facilities. At 30 September 2011, properties with a carrying value of £299.2 million (2010: £322.4 million) were secured under first mortgage debenture stock.

The following table details the notional principal amounts and remaining terms of interest rate derivatives outstanding at 30 September:

	Average contracted fixed interest rate			Notional principal amount			Fair value
Cash flow hedges	2011 %	2010 %		2011 £m	2010 £m		2011 £m	2010 £m
Interest rate swaptions
In excess of five years	-	4.0%		-	100.0		-	-
Interest rate swaps
Between two and five years	1.9%	1.9%		11.0	11.0		0.3	0.2
Interest rate floor
Between two and five years	2.5%	-		159.7	-		(6.1)	-
	2.5%	3.8%		170.7	111.0		(5.8)	0.2

13 Interest-bearing loans and borrowings (continued)

The following table details the notional principal amounts and remaining terms of exchange rate derivatives outstanding at 30 September:

	Average exchange rate		Foreign currency		Notional principal amount		Fair value
Cash flow hedge - cross currency swap	2011 rate	2010 rate	2011 US$m	2010 US$m	2011 £m	2010 £m	2011 £m	2010 £m
In excess of five years	1.604	-	208.0	-	129.7	-	(2.6)	-
	1.604	-	208.0	-	129.7	-	(2.6)	-

The Group operates solely in the United Kingdom, and all of its operating profits and net assets are sterling denominated.  It entered into a cross currency swap in order to ensure the US dollar liability stream generated from the US dollar private placement notes was fully hedged into sterling for the life of the transaction. Through entering into the cross currency swap the Group has created a synthetic sterling fixed rate liability exposure for seven and ten years totalling £159.7 million.

Fair value of financial liabilities

31 March 2011 Book value £m	31 March 2011 Fair value £m			30 September 2011 Book value £m	30 September 2011 Fair value £m	30 September 2010 Book value £m	30 September 2010 Fair value £m
352.1	341.1		Non-current liabilities at amortised cost	478.3	490.2	292.9	276.8
(2.7)	(2.7)		Non-current assets held at fair value	(8.7)	(8.7)	-	-
-	-		Non-current liabilities held at fair value	0.3	0.3	0.2	0.2
349.4	338.4			469.9	481.8	293.1	277.0

The fair values of the Group's listed long-term borrowings have been estimated on the basis of quoted market prices, representing Level 1 fair value measurements as defined by IFRS 7 Financial Instruments: Disclosures. The fair values of the Group's outstanding notes, interest rate swaps and interest rate floors have been estimated by calculating the present value of future cash flows, using appropriate market discount rates, representing Level 2 fair value measurements as defined by IFRS 7. The fair value of the Group's currency swaps has been estimated on the basis of the prevailing rates at the year end, representing Level 2 fair value measurements as defined by
IFRS 7.

The fair values of the Group's cash and cash equivalents and trade payables and receivables are not materially different from those at which they are carried in the financial statements.

14 Share capital

Year to 31 March 2011 Number	Year to 31 March 2011 £m			Six months to 30 September 2011 Number	Six months to 30 September 2011 £m	Six months to 30 September 2010 Number	Six months to 30 September 2010 £m
			Allotted, called up and fully paid
312,676,149	39.1		At the beginning and end of the period	312,676,149	39.1	312,676,149	39.1

15 Investment in own shares

Year to 31 March 2011 £m			Six months to 30 September 2011 £m	Six months to 30 September 2010 £m
0.3		At the beginning of the period	4.0	0.3
(1.9)		Employee Long-Term Incentive Plan and Share Matching Plan charge	(1.8)	(1.2)
5.7		Purchase of shares for employee share plans	10.9	5.6
(0.1)		Transfer to retained earnings	(0.4)	(0.1)
4.0		At the end of the period	12.7	4.6

The investment in the Company's own shares is held at cost and comprises 4,420,922 shares (2010: 2,482,630 shares) held by the Great Portland Estates plc LTIP Employee Share Trust which will vest for certain senior employees of the Group if performance conditions are met.

During the period 554,198 shares (2010: 324,768 shares) were awarded to directors and senior employees in respect of the 2008 LTIP award. The fair value of shares awarded and outstanding at 30 September 2011 was £11.0million (2010: £10.4 million).

16 Adjustment for non-cash movements in the cash flow statement

Year to 31 March 2011 £m			Six months to 30 September 2011 £m	Six months to 30 September 2010 £m
(131.3)		Surplus from investment property	(44.8)	(70.0)
1.9		Employee Long-Term Incentive and Share Matching Plan charge	1.8	1.2
3.3		Amortisation of capitalised lease incentives	(0.6)	(0.9)
(97.9)		Share of results from joint ventures	(22.7)	(41.3)
0.3		Other items	0.3	-
(223.7)		Adjustments for non-cash items	(66.0)	(111.0)

17 Dividends

The proposed interim dividend of 3.2 pence per share (2010: 3.1 pence per share) was approved by the Board on 9 November 2011 and is payable on 4 January 2012 to shareholders on the register on 18 November 2011. The dividend is not recognised as a liability in the half year report.  The final dividend of £15.8 million was paid on 12 July 2011 and is included within the Group Statement of Changes in Equity.

18 Operating leases

Future aggregate minimum rentals receivable under non-cancellable operating leases are:

31 March 2011 £m			30 September 2011 £m	30 September 2010 £m
		The Group as a lessor
37.9		Less than one year	41.4	39.8
104.8		Between one and five years	106.6	109.4
85.5		More than five years	90.5	83.1
228.2			238.5	232.3

The Group leases its investment properties under operating leases.  The weighted average length of lease at 30 September 2011 was 5.4 years (2010: 5.3 years).  All investment properties except those under development generated rental income and no contingent rents were recognised in the period (2010: £nil).

Directors' responsibility statement

We confirm that to the best of our knowledge:

(a)  the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

(b) the half-yearly report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c)  the half -yearly report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

By the order of the Board

Toby Courtauld Chief Executive 9 November 2011

Nick Sanderson Finance Director 9 November 2011

Independent review report to Great Portland Estates plc

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2011 which comprises the group income statement, the group statement of comprehensive income, the group balance sheet, the group statement of cash flows, the group statement of comprehensive income, the group statement of changes in equity and related notes 1 to 18.  We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board.  Our work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union.  The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom.  A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2011 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditor

London, UK

9 November 2011

Directors and shareholders' information

Directors

Martin Scicluna Chairman, Non-Executive	Charles Irby Senior Independent Director
Toby Courtauld Chief Executive	Jonathan Nicholls Non-Executive Director
Nick Sanderson Finance Director	Phillip Rose Non-Executive Director
Neil Thompson Portfolio Director	Jonathan Short Non-Executive Director

Shareholders' information

Financial calendar Ex-dividend date for interim dividend	2011 16 November
Registration qualifying date for interim dividend	18 November
	2012
Interim dividend payable	4 January
Announcement of full year results	23 May*
Circulation of Annual Report and Accounts 2012	2 June*
Annual General Meeting	5 July*
Final dividend payable	10 July*
	*Provisional.

Shareholder enquiries All enquiries relating to holdings of shares, bonds or debentures in Great Portland Estates, including notification of change of address, queries regarding dividend/interest payments or the loss of a certificate, should be addressed to the Company's Registrars: Capita Registrars 34 Beckenham Road Beckenham Kent BR3 4TU Tel: [phone] (from within the UK calls cost 10p per minute plus network extras, lines are open 8.30 am - 5.30 pm Monday to Friday).  If you are calling from overseas please dial [phone]. Website The Company has a corporate website which holds, amongst other information, a copy of our latest annual report and accounts, a list of properties held by the Group and press announcements released over the last 12 months.  The site can be found on www.gpe.co.uk Company Secretary Desna Martin Registered office 33 Cavendish Square London W1G 0PW Tel: [phone] Fax: [phone] Registered Number 596137

Dividend payments As a REIT, dividend payments must be split between PIDs and non-PIDs.  Information in respect of the tax consequences for shareholders of receiving dividends can be found on the Company's website at www.gpe.co.uk/investors/reits Share dealing service An online and telephone dealing service is available for UK shareholders through Capita Deal.  For further information on this service, or to buy and sell shares, please contact: Online dealing - www.capitadeal.com Telephone dealing - 0871 664 0364 (calls cost 10p per minute plus network extras).

Glossary

Earnings per share (EPS)

Profit after tax divided by the weighted average number of ordinary shares in issue.

EPRA adjustments

Standard calculation methods for adjusted EPS and NAV as set out by the European Public Real Estate Association (EPRA) in their Best Practice and Policy Recommendations.

EPRA vacancy rate

The element of a property which is unoccupied but available for letting, usually expressed as the ERV of the vacant space divided by the ERV of the total portfolio.

Estimated rental value (ERV)

The market rental value of lettable space as estimated by the Company's valuers at each balance sheet date.

F&BS

Finance and business services sector.

IPD

The Investment Property Databank Limited (IPD) is a company that produces an independent benchmark of property returns.

IPD central London

An index, compiled by IPD, of the central and inner London properties in their monthly and quarterly valued universes.

Like-for-like portfolio

Properties that have been held for the whole of the period of account.

Loan to value (LTV)

Total third party debt (including our share of joint ventures) expressed as a percentage of the market value of the property portfolio (including our share of joint ventures).

Market value

The amount as estimated by the Company's valuers for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.  In line with market practice, values are stated net of purchaser's costs.

Net assets per share or net asset value (NAV)

Equity shareholders' funds divided by the number of ordinary shares at the balance sheet date.

Net gearing

Total borrowings less short-term deposits and cash as a percentage of adjusted equity shareholders' funds.

Net initial yield

Annual net rents on investment properties as a percentage of the investment property valuation having added notional purchaser's costs.

Non-PIDs

Dividends from profits of the Group's taxable residual business.

 Property Income Distributions (PIDs)

Dividends from profits of the Group's tax-exempt property rental business.

Portfolio internal rate of return (IRR)

The rate of return that if used as a discount rate and applied to the projected cash flows from the portfolio would result in a net present value of zero.

REIT

UK Real Estate Investment Trust.

Rent roll

The annual contracted rental income.

Return on capital employed (ROCE)

Return on capital employed is measured as profit before financing costs plus revaluation surplus on development property divided by the opening gross capital.

Return on shareholders' equity

The growth in the adjusted diluted net assets per share plus dividends per share for the period expressed as a percentage of the adjusted net assets per share at the beginning of the period.

Reversionary or under-rented

The percentage by which ERV exceeds rents passing, together with the estimated rental value of vacant space.

Reversionary yield

The anticipated yield, which the initial yield will rise to once the rent reaches the ERV.

Total property return (TPR)

Capital growth in the portfolio plus net rental income derived from holding these properties plus profit on sale of disposals expressed as a percentage return on the period's opening value.

Total shareholder return (TSR)

The growth in the ordinary share price as quoted on the London Stock Exchange plus dividends per share received for the period expressed as a percentage of the share price at the beginning of the period.

Triple net asset value (NNNAV)

NAV adjusted to include the fair value of the Group's financial liabilities on a diluted basis.

True equivalent yield

The constant capitalisation rate which, if applied to all cash flows from an investment property, including current rent, reversions to current market rent and such items as voids and expenditures, equates to the market value having taken into account notional purchaser's costs.  Assumes rent is received quarterly in advance.

Weighted average cost of capital (WACC)

The weighted average pre-tax cost of the Group's debt and the notional cost of the Group's equity used as a benchmark to assess investment returns.

Weighted average unexpired lease term (WAULT)

The weighted average unexpired lease term expressed in years.

 

END

 

 

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