Final Results

23rd May 2007 07:02

Great Portland Estates PLC23 May 2007 23 May 2007 Preliminary Results The Directors of Great Portland Estates plc announce the results for the Groupfor the year ended 31 March 2007. Highlights: • Adjusted net assets per share(1) up 35.9% to 594p (or 40% pre cost of REIT conversion to 610p) • Portfolio value(2) of £1,535.6 million, up 24.8% on a like-for-like basis • Total property return(2) of 33.2%, outperforming the IPD Central London Index of 24.9% • Profit before taxation up 73.4% to £326.0 million • Adjusted profit before tax up 5.5% to £17.4 million • Total dividend per share up 2.7% to 11.3p • Significant recycling of capital - £240.5 million of acquisitions(2) and £203.1 million of sales(2) • 4 developments(3) completed generating 94% average profit on cost • 2.7 million sq ft total development programme - up 23% versus May 2006 • 1.1 million sq ft near-term programme with end value estimated at £660 million • Planning permission received for new space totalling 1.1 million sq ft • Two new joint ventures established (one post year end) adding £467 million to assets under management (1) EPRA adjustments on a diluted basis - see note 7 (2) Includes Group's share of joint ventures (3) Includes joint ventures Toby Courtauld, Chief Executive, said: "The Group has had an excellent year, delivering strong progress across thebusiness and a very good performance compared to its key benchmarks. With London's economy continuing to expand, steady occupational demand andlimited new supply of high quality buildings, particularly in the West End, theconditions are in place for healthy returns. The Group's extensive and growingdevelopment programme, with its West End focus, is well positioned to benefitfrom this market environment. Our recent acquisitions and new joint ventureshave created a platform for improved rental income and enhanced portfoliogrowth. The conversion to a REIT has gone smoothly and will improve post-taxperformance. We are confident that we will continue to generate attractive returns for ourshareholders." Enquiries etc: Great Portland Estates plc 020 7647 3000Toby Courtauld, Chief ExecutiveTimon Drakesmith, Finance Director Finsbury Group 020 7251 3801James Murgatroyd / Gordon Simpson The results presentation will be broadcast live at 9.30am today on http://www.gpe.co.uk/investors/presentations. Also an interview with Toby Courtauld, Chief Executive and Timon Drakesmith,Finance Director, is available in video, audio and text on http://www.gpe.co.uk/investors/presentations and http://www.cantos.com Chairman's statement The year under review proved to be another exceptional one for your Company,helped by the central London property market, in which we set out our strategicstall at the beginning of the decade, continuing to flourish. I feel that I cando no better than let the statistics speak for themselves; adjusted profitbefore tax of £17.4 million was up 5.5% and net asset value per share, evenafter taking into account the one-off charge of £28.3 million when we convertedinto a Real Estate Investment Trust in January 2007, was up by over 35% at 594pence. Total property returns were 33.2% and a stunning total shareholder returnof over 60% was delivered. So, despite my caveat 12 months ago, the unrepeatablewas, in fact, repeated...and, in the event, bettered! It has been an active year in every aspect of our business. With the investmentmarket remaining strong, sensible rationalisation has continued at excellentprices, and at the same time we found some attractive purchases. Probably thehighlight for me was the acquisition, in five separate transactions, of 160,000sq ft in Hanover Square, W1 extending our ownership in that area to 1.3 acresand providing enticing development potential. The West End, comprising 82%, isthe most significant element of our portfolio but we have also continued tounearth interesting opportunities in sub-markets such as Blackfriars andBermondsey, where we believe that our entrepreneurial skills will be able tocreate added value. Following the existing successful joint ventures which we had already set upwith Liverpool Victoria, we entered into two more during the year, the firstwith Scottish Widows in July, the second with Liberty International subsidiary,Capital & Counties, which completed in April 2007. Such joint ventures haveproved to be a productive avenue for access to properties which might nototherwise have been available in the market and provide a new source of revenuethrough management and ancillary fees. Whilst this is an expansionary route weshall be continuing to explore, currently it is our development activity whichwill be the key to our performance in the near to medium term. So, I am happy toreport that, as anticipated, our programme is firing on all cylinders with whatappears to be appropriate timing. Active asset management of the portfoliocontinued and has, inter alia, ensured that voids have been kept to a low level. Occasionally, there is a deal which is not consummated and shareholders willrecall that in early October last year, it was announced that we were inpreliminary talks with London Merchant Securities regarding a potential mergerof our two companies. This looked like an interesting opportunity on the rightterms; after conducting significant due diligence, we formed a clear opinion asto the maximum price we would have been prepared to pay. When it became clearthat we would not be able to agree a transaction on acceptable terms, wewithdrew from discussions. Property and the financing thereof are inextricably intertwined and we have beenequally active on the latter front. It has been a busy period of capitalstructure management, in which the 2027 7.25% Debenture was redeemed and theremaining 2008 5.25% Convertible Bonds were converted into equity. Sensiblemedium- and long-term arrangements have been put in place, with the result thatwe have reduced the average cost of debt compared to the prior year andstrengthened the platform to fund our future business plans. During the year Neil Thompson was appointed to the Board as DevelopmentDirector, reflecting the importance of our development business to the Groupand, on 2 April 2007, Jonathan Short, whose skills and experience are well knownin the property industry, accepted an invitation to become a Non-ExecutiveDirector. John Edgcumbe, who has been on the Board for eight years and was avalued adviser for many years before that, will be retiring at the AnnualGeneral Meeting in July, and I would like to take this opportunity of thankinghim, both corporately and personally, for the professionalism and wisdom he hasbrought to us over a long period. In conclusion, I hope not to offend the football aficionados amongstshareholders when I, a life long Arsenal supporter, compliment our talentedmanagement team on their Chelsea-like achievement in delivering a totalshareholder return that puts them in one of the top two positions over a one,two and three year perspective against their peer group. Our goal is to continuethis run of success and, with the general consensus being that benign economicconditions will persist and with London playing an even more important role onthe world financial stage, there is every reason to believe that your Companyshould provide above average total property returns in the coming year. Our market Our market is accompanied by graphics (see Appendix 1).To view the accompanying graphics please copy and paste the below link intoyour web browser: http://www.rns-pdf.londonstockexchange.com/rns/0719x_-2007-5-22.pdf London London is our market and for good reason. It fulfils a unique role as Europe'sonly true global city and financial centre. London's GDP is estimated to havegrown by 3.6% in 2006 and is forecast to grow at a faster rate than the rest ofthe UK due in large part to its appeal to international businesses and thegrowth of the finance and business services sector (F&BS) with around 100,000 F&BS jobs forecast to be created over the next five years. We analyse the central London markets along two principal dimensions: •Occupational demand versus supply of new and second hand space; and •investment activity in commercial real estate. Research from a variety of sources and information from the Group's operationsis used to evaluate the direction of these trends in the West End, City,Southwark and other sub-markets. Leading indicators such as forecasts forchanges in business head count, new space requirements and expected developmentcompletions are constantly tracked. We use this detailed market insight toinform our portfolio management, development and financing decisions. One such indicator is market balance, or the amount of space to let givencurrent rates of take-up expressed in terms of months. Typically, when officesupply falls to less than 20 months, rents start to rise. Occupational markets West End In the West End, where 82% of our portfolio by value is located (including ourshare of joint venture properties) we have seen robust interest from existingand potential tenants across a wide spectrum of industries, reducing availablesupply to less than ten months. Across the West End take up for the year to March 2007 was 5.8 million sq ft(2006: 5.5 million sq ft) and vacancy rates have fallen to 4.3% (2006: 6.7%) or3.9 million sq ft, equivalent to just eight months supply. This restrictedsupply, due largely to the challenging planning environment, combined withhealthy levels of demand, has led to increases in prime West End rental valuesof around 15% in the year to March 2007. There has been a modest increase indevelopment starts although we estimate there are only 6.0 million sq ft due tobe completed by December 2010. Although strong rental growth has led to a handful of lettings at more than £100per sq ft, the average quoting rent in the West End is still relativelyundemanding. Indeed, only 6.3% of lettings in the core West End are over £90 persq ft, as illustrated on the central London rent profile in Appendix 1. The West End market comprises a series of sub-markets, and there is significant variation in spot rents for "grade A" quality office space between, and within, various villages.All sub-markets have seen rental value growth during the year but the north ofOxford Street market, in which a high proportion of the Group's near-termdevelopment schemes are located, continues to offer good value for tenantslooking for an attractive office environment close to the West End's transportand shopping hubs. The Group's valuers estimate the rental value of our West End office portfolioat an average of £44 per sq ft, from which we see good opportunity for growth. The West End retail market (comprising 26% of our West End portfolio) has alsoperformed well in the year to March 2007. Footfall in the three main retailthoroughfares of Oxford Street, Regent Street and Bond Street was up and retailsales, in central London in March, were up 10.8% compared to the same month lastyear. Demand from international retailers remains strong. They seek large, wellformatted stores, particularly in Oxford Street and Regent Street where themajority of our retail property is located. City and Southwark The growth of the F&BS sector has driven appetite for new offices in the Cityand its neighbouring markets. With this increase in demand has come the spectreof new supply in the shape of potential development schemes on a large scale ina less restrictive planning framework than that of the West End. Some of theseschemes have been pre-let, whilst others are relying on major occupationalrequirements over the next five years. Take up in the City and Southwark markets for the year to March 2007 was 8.7million sq ft (2006: 5.9 million sq ft) and vacancy rates have fallen to 7.5%(2006: 10.5%). We estimate prime office rental values increased by 22% over thesame period and, in the short term, will grow further. Continued performancewill depend on the amount of speculative space produced in these markets, and weremain cautious about the effects of new development supply on rental levels inthe medium term in the City market. Investment markets in central London Transaction values and inward investment into central London real estate haveremained at historically high levels with £15.8 billion traded in the year toMarch 2007 (2006: £14.5 billion). International buyers of direct real estatehave remained particularly active being responsible for over 35% oftransactions. High quality real estate in good locations has maintained its appeal to a broadgroup of potential investors and investment yields have continued to fallalthough at a reducing rate as the year progressed. As the extraordinary run ofyield compression comes to an end, we expect outperformance to be generated bythose buildings with the best rental growth prospects rather than further marketyield shift. With 13% of our portfolio in the course of development and goodoccupational demand across London, we remain well positioned. Our business Our business is accompanied by graphics (see Appendix 2).To view the accompanying graphics please copy and paste the below link intoyour web browser: http://www.rns-pdf.londonstockexchange.com/rns/0719x_-2007-5-22.pdf Valuation The valuation of the Group's properties as at 31 March 2007, includingacquisitions made during the year and our share of gross assets in jointventures, was £1,535.6 million. The valuation of the portfolio held throughoutthe year was £1,233.1 million, an increase of 24.8% on a like-for-like basis netof capital expenditure. Acquisitions during the year were valued at 31 March2007 at £302.5 million and grew in value by 23.6% over an average ownershipperiod of under six months. The principal factors which have combined to drive this strong performance are: • Growth in rental values - First half growth of 6.3% increased to 10.8% in the second half, combining to produce 17.1% for the year across the portfolio. The best performance came from our office properties in the Rest of the West End which grew by 21.4%. In the West End, rental values grew by 17.2%. In City and Southwark, rental values grew by 18.1%. • Development activity - The strongest valuation performance came from our development properties, which increased in value by 44.9% over the year. This does not include 21 Sackville Street or Bond Street House, both in W1, which were transferred to the investment portfolio during the year following the completion of major refurbishment works and which increased in value by more than 47.5% net of capital expenditure. • Investment management - A significant contribution was made this year by our acquisitions which increased in value by £57.8 million or 23.6% during the weighted average period of ownership of 5.6 months to 31 March 2007. Of particular note is the assembly of our 1.3 acre holding to the west of Hanover Square, W1, where five separate purchases, combined with two existing Group properties, have already produced a 23.4% valuation uplift of £34.6 million, largely as a result of the merging of the various interests to create a major development opportunity. • Yield shift - Equivalent yields continued to contribute to performance, falling by 55 basis points over the 12 month period (2006: 100 basis points) from 5.41% to 4.86% on a like-for-like basis. By comparison, the IPD central London equivalent yield fell by less (46 basis points to 4.98%) as many of our properties were positively re-rated during the year following asset management or development activity. The rest of the West End portfolio was the best performing sub-market with 26.6%valuation growth on a like-for-like basis. The like-for-like valuation growthwas 26.1% for the wholly-owned portfolio compared to 14.8% for the jointventures. This greater return for the wholly-owned portfolio reflected theheavier weighting towards office space which delivered greater returns over theyear. The Group delivered a total property return for the year of 33.2%, significantlyoutperforming the central London IPD benchmark of 24.9% for the fourth yearrunning. As the bar chart in Appendix 2 illustrates, measured over both a oneand three year period, our outperformance has come from active management. Theheld portfolio, or those assets in the pipeline for future capital expenditure,performed in-line with the benchmark. By contrast, our sales, acquisitions anddevelopment activity all contributed strongly to relative performance. Development Improving the appeal of a property through innovative design, high qualityconstruction processes and creative marketing, is a core competence of the Groupand the development business has continued its run of excellent returns. Thegeographic focus of our schemes is in the West End where planning restrictionsprovide a major barrier to entry to developers. Overall, the Group wasresponsible for around 9% of new office development in the West End of London inthe first quarter of 2007, compared to office ownership market share ofapproximately 2%. Although office development carries a greater risk thanvanilla investment activity, the Board believes that the potential rewards toshareholders are correspondingly higher. The Group's development business has had another very encouraging year with manyindividual successes. The development pipeline of 24 projects represents apotential total area of 2.7 million sq ft, an 84.0% increase over the currentarea of the existing buildings. The 12 schemes in the near-term programme alonehave an estimated completed value of £660.0 million, equivalent to 43.0% of theexisting portfolio. We divide the total development pipeline into three segments depending on thestart dates. The near-term group of 12 schemes will all be on site by March2009, the medium-term projects will commence between April 2009 and March 2011and the longer-term group represent prospects beyond 2011. Across all threesegments of the programme there have been major project achievements during thelast year. We took practical completion and leased space at Sackville Street, Bond StreetHouse, 180 Great Portland Street and 208/222 Regent Street all in W1. TheSackville Street and Bond Street House developments delivered an exceptionalcombined surplus of £30.0 million or 103.7% on their total cost, partly becausethe floors were leased at levels significantly higher than that expected by theGroup's valuers. We launched 180 Great Portland Street to the occupationalmarket in February and have already let one floor at £55 per sq ft, over 10%higher than the target rents. At Margaret Street, W1, works were completed justprior to the year end and this has now been delivered to our forward fundingpartner, Arlington Securities. We are on site at schemes on Mortimer Street (117,000 sq ft), 60 Great PortlandStreet (88,000 sq ft), Foley Street (20,000 sq ft), all in W1 and at TooleyStreet, SE1 (200,000 sq ft). The Titchmor scheme has been rebranded as Wells &More and the Group's old headquarters at Knighton House as 60 Great PortlandStreet, in both cases, in order to appeal to a wider group of potentialoccupiers. The Tooley Street project was sold in July and is now being builtunder a development management agreement on behalf of the purchaser. Resolution to grant planning permission was obtained during March at BermondseyStreet and Blackfriars Road, both in SE1, for a total of 237,000 sq ft ofcommercial space, up from the existing area of 64,000 sq ft. In April 2007, wereceived resolution to grant planning permission from City of London for ourproposals at 100 Bishopsgate, EC3. Designed by leading British architects Alliesand Morrison, the proposed scheme is a comprehensive masterplanning of the siteto provide three new buildings totalling 815,000 sq ft net, which will include a40 storey office tower, a public library, retail and a new Livery Hall for TheLeathersellers' Company. The existing buildings on the site comprise 310,000 sqft with the majority let until 2011. Further design and asset management work has been completed on several otherschemes in advance of submitting planning applications. At Wigmore Street, W1 weanticipate making a planning application later this year for an office scheme of132,000 sq ft representing an increase over the existing area of 24%. At theHanover Square Estate site, we are currently masterplanning a major mixed usescheme and will be consulting with key stakeholders during this year. A specialfeature of this project is the relationship with the proposed Crossrailtransport initiative where there is the potential to site a new rail stationbeneath the Group's scheme, providing exceptional communication links. The economic success of any development programme is partly dependent onappropriate acquisition costs and controlled building costs. Carefully executedsite assembly has proved to be a valuable mechanism for minimising the overallland acquisition cost for major schemes like Tooley Street. The same techniqueswere repeated in the composition of the Hanover Square Estate site and aredescribed in the valuation section. On building costs, we are seeing increasingcost inflation across the construction market within central London as aconsequence of many competing major transport, commercial and leisure projects.We have adopted a variety of procurement techniques to control costs across theprogramme, including arranging guaranteed maximum price contracts on all schemescurrently on site. We will continue to monitor market conditions closely during2007. Investment management Buying real estate with interesting opportunities for future growth at sensibleprices has continued to be a real challenge. Despite this, we have unearthedmany good opportunities for value creation. In the 12 months to March 2007 wespent £240.5 million in 12 separate transactions across the West End andSouthwark. Since March, we have invested a further £233.6 million to create anew joint venture with Capital & Counties called the Great Capital Partnership,which owns a portfolio of 18 holdings across the capital. Many of these acquisitions will feed the Group's development pipeline with newraw material. Apart from the Hanover Square Estate site assembly describedwithin the Development section above, three further examples of acquisitionsaugmenting the pipeline are: • 46/58 Bermondsey Street, SE1 - a 0.6 acre site comprising 35,000 sq ft of studio and warehouse space. Since acquisition in May 2006 we have obtained planning consent for a 48,350 sq ft office and retail development and demolition work and site preparation are now underway. • 13/15 Carteret Street, SW1 - this 12,200 sq ft office holding was acquired in May 2006 within the Great Victoria Partnership. It adjoins an existing partnership holding at 40 Broadway and 5/11 Carteret Street, SW1 and provides us with a significantly enhanced future redevelopment canvas. • 12/14 New Fetter Lane, EC4 - acquired since March as part of the Great Capital Partnership, this is a well located office building forming part of a potentially larger development site in due course. We have continued to recycle capital, either selling properties where we haveexecuted our strategy, using properties to seed joint ventures or swappingproperties for those which offer the Group better opportunity for valuecreation. At the interim stage, we reported sales of Gillingham House, SW1, 79New Cavendish Street, W1, Tooley Street, SE1, and 180 Great Portland Street, W1.During the second half, we sold 95 New Cavendish Street, W1 and 14 HanoverSquare, W1 in separate swap transactions with institutional counterparties aspart of our Hanover Square site assembly. We also sold Verulam Gardens, 70Gray's Inn Road, WC1 for £12.1 million (our share) generating a surplus of £3.7million or 44.7% to the March 2006 valuation following refurbishment andletting. In all, the Group sold £203.1 million of property (including our share of jointventure properties) during the year generating a premium to the 31 March 2006book value of £22.4 million or 12.4%. Since the year end, four furtherproperties have been sold for £161.6 million, in line with their 31 March 2007valuation, comprising the Group's property contribution to the Great CapitalPartnership. Asset management Another busy year has seen 64 lease events executed by our asset management teamand the success of this activity is a major contributor to our outperformance. A total of 181,400 sq ft was let during the year at an aggregate rent roll of£8.4 million (our share), an increase of 12.1% over its rental value at 31 March2006. The void level remains low at 5.0% at 31 March 2007. Following rent review negotiations completed during the year, new rents wereagreed at 23.1% ahead of their March 2006 value on aggregate. Much of theletting activity was at space within the investment portfolio which has beenrefurbished and re-branded. For example, Kent House, Market Place and ElsleyHouse, Great Titchfield Street, both in W1, were repositioned within their localmarket, with over 43.0% of the office space within them refurbished and let atrents 38.0%, on aggregate, ahead of the March 2006 rental values. Joint ventures Joint ventures have proved to be an excellent route for the Group to build theportfolio at a relatively low entry cost. All the JVs are structured as 50:50Limited Partnerships with the Group managing all the assets for an appropriatefee. Our JV partners are well known, long-term, major owners of UK real estatewho have selected Great Portland Estates because of our strong track record ofvalue creation as a central London specialist. The JVs are now significant in Group terms, and with the Great CapitalPartnership (GCP) which completed in April 2007, now make up 43% of our grossproperty assets, up from 24% at the year end. Further details are set out inAppendix 2. Our first JVs, those with Liverpool Victoria (GVP), have performedextremely well, with equity returns of 34.5% for the year to March 2007.Overall, our joint venture business has generated annualised equity returns of45.2%. In the summer of 2006, we established a new JV with Scottish Widows InvestmentPartnership (GWP) to own a 50% share of 180 Great Portland Street, W1 and an islandsite south of Wigmore Street, W1 which has an exciting variety of developmentopportunities. The GCP JV has extended the Group's portfolio across the West End and introducedsub-markets at Kensington High Street in the West and Wapping in the East.Overall, the portfolio offers substantial possibilities for value-enhancingrefurbishment and lease management. This JV has starting assets of £460 million(based on December 2006 values) with Capital & Counties contributing 14 holdingswith a starting value of £298 million, the majority of which are in the WestEnd, while GPE has put in four properties worth £162 million and paid abalancing sum of £68 million in cash. Around 92% of the GCP joint venture assetsare in the West End and their rent roll was £22 million as at December 2006. Excellent progress has been made across the joint ventures during the year. At208/222 Regent Street, W1, acquired last financial year, we pre-let all threenewly refurbished retail units ahead of schedule. The first two units have beendelivered to tenants and the third is due to be handed over next month. At 180Great Portland Street, W1, launched in February, the first letting was achievedin March and we have strong interest in the four remaining floors. Our financial position Our financial position is accompanied by graphics (see Appendix 3).To view the accompanying graphics please copy and paste the below link intoyour web browser: http://www.rns-pdf.londonstockexchange.com/rns/0719x_-2007-5-22.pdf Financial results The Group's financial results for the year were very encouraging withparticularly strong valuation and NAV per share performances. The year under review included the effects of conversion to a REIT in January2007 and the continuing influence of the substantial development programme onvaluation growth, the level of rental income and profitability. Net asset value growth Adjusted NAV per share, the Group's key balance sheet figure, grew 35.9% in theyear to 594 pence, exceeding the equivalent growth rate for the 12 months to 31March 2006 of 29.7%. At 31 March 2007, the Group's net assets were £1,076.0million up from £654.7 million at 31 March 2006. The Group's excellent NAV pershare growth has been boosted by a robust market for central London offices, thestrategy to allocate significant resources and capital to the Group'sdevelopment programme and successful portfolio management activities. The main positive drivers behind the 157 pence per share year-on-year increasein adjusted NAV per share to 31 March 2007 were: • significant valuation rises of 25 pence per share from properties under development and 124 pence from the investment portfolio; • increases in valuation in the Liverpool Victoria and Scottish Widows joint ventures of 21 pence; • profits on sale of properties including Tooley Street of 9 pence; The following items reduced NAV per share: • the payment of dividends of 11.1 pence in excess of adjusted earnings for the period of 10.2 pence to give a net 0.9 pence; • redemption costs of the remaining segment of the 7.25% debenture issue were 5 pence; and • the provision for the REIT conversion charge impacted NAV per share by 16 pence. These items are illustrated in Appendix 3. The valuation of the near-term development schemes within the NAV per share at31 March 2007 includes around one-third of the expected surplus on the schemeswhen complete. Triple net asset value per share (NNNAV) grew to 593 pence per share up 54.4%from 31 March 2006, due to the movements set out above and the positive effectsof REIT conversion and financing activities. At 31 March 2007 the differencebetween adjusted NAV per share and NNNAV was the modest mark to market of debtof 1 pence. At 31 March 2006, before REIT conversion, NNNAV was lower thanadjusted NAV by 53 pence, reflecting the provision for deferred tax onrevaluation gains, capital allowances of 46 pence and a higher mark to market ofdebt of 7 pence. The provision for deferred tax was reversed when the Groupgained REIT status and, with the reorganisation of the debt capital structure,the Group has aligned its interest cost closer to the prevailing market. Income statement and earnings per share Gross rental income for the period was £44.9 million, a rise of £2.7 million or6.4% compared to last year. The main drivers of this change as illustrated inAppendix 3, were: • letting of recent development projects at Sackville Street and Bond Street House and the effect of a full year of leasing revenue at the Met Building which increased rental income in the year to 31 March 2007; and • surrenders and expiries creating voids at two of the main developments currently on site - 60 Great Portland Street and Wells & More - which were vacant for all of the year to 31 March 2007 but leased for part of the prior year, created a downward pressure on reported rental income for 2007. In total, rent reviews, lease renewals and new lettings added £7.4 million torental income during the period. The estimated rental value of the portfoliogrew by some 17.1% in the year, benefiting from positive market factors and theenhancement of many of the Group's assets. Reported profit before tax of £326.0 million was 73.4% higher than the previousyear. The main driver of the rise was substantial revaluation gains and profiton sale of assets, partly off-set by higher interest charges. Basic EPS for theyear was 235.7 pence, up 157.0% on the previous year. Adjusted profit before tax at £17.4 million was £0.9 million, 5.5% higher thanlast year; the key factors behind this rise are set out in Appendix 3. Thisincome statement based measure illustrates the underlying profit of the Groupbefore capital items and revaluation changes. Higher adjusted profit levels werecaused by the rise in rental income, described above, and significant profitsfrom development management operations. Profits were lifted by £5.3 million year on year due to development managementincome from the Tooley Street, SE1 and Margaret Street, W1 schemes. At 31 March2007, the Tooley Street scheme was around one-third complete so 30% ofanticipated profit was recognised in the year and further profits are expectedin the year to 31 March 2008. Administration costs increased by £2.0 millionprimarily due to bonuses and accounting for LTIPs. Professional fees and costsassociated with REIT conversion increased administration expenses year on yearby £0.3 million. These items are one-off in nature and have been excluded fromadjusted profit before tax and earnings per share. A variety of cost controlprojects were implemented which contributed to a reduction in non-headcountexpenses of £0.4 million in the year. Finance costs increased by £4.2 million asthe result of higher net debt, due to investment in our development schemes andacquisitions made during the year. Underlying profits from joint ventures of £3.1 million, down 11.4% on theprevious year, were reduced in part by voids at 208/222 Regent Street prior tothe leases to H&M, Desigual and GAP becoming effective in Spring 2007. Adjusted earnings per share were 10.2 pence, the same as last year. The higherAdjusted PBT described in Appendix 3 had a positive impact of 0.5 pence pershare, although this was offset by a higher underlying tax charge. Details ofthe calculation of Adjusted PBT are set out in Appendix 3. Financial effects of near-term development schemes The near-term development and refurbishment schemes have evolved substantiallyduring the year. The sale of Tooley Street, the creation of the GWP jointventure and the construction phases of the 60 Great Portland Street and Wells &More developments have had a significant effect on the financial results of thenear-term programme. The valuation of the Group's development portfolio hasincreased due to growth in estimated rental value, enhanced net new areas andtightening of yields. The returns from the development schemes will berecognised in higher rental income (when let), income from developmentmanagement activities and higher joint venture profits. Around £230.0 million ofproject costs are planned for the near-term schemes in the period to 31 March2011. During the year the Group spent £32.1 million on project costs on thoseassets. By 2011, the near-term schemes are forecast to generate incremental rentalincome for the Group of £26 million. Some of this additional revenue will becaptured through higher profits from joint ventures as several schemes are inthe GVP and GWP portfolios. This increase in rental income, taken with portfolioreversions, letting of voids and net new rents from the Great CapitalPartnership could increase the Group's rental income by £52 million, or 88% asshown in Appendix 3. Results of joint ventures The shape of the Group's balance sheet and income statement has changed as aresult of the growing joint venture business. At the start of the year 18.2% oftotal properties and 11.1% of net assets were in 50:50 joint ventures; by 31March 2007 the comparable figures were 24.3% and 16.4%. Taking into account theGreat Capital Partnership, which formally commenced in April 2007, the pro formajoint venture values at 31 March 2007 were 43.2% of total property assets undermanagement and 37.7% of net assets. The Group's share of joint venture underlying profits (excluding revaluationgains and profit of sales) was £3.1 million, down from £3.5 million as a resultof voids at GVP during refurbishment projects. The Group generated managementfees of £1.6 million up 23% from 2006, due to fees earned on developments andhigh activity levels. We expect a modest increase in headcount to manage the new GWP and GCP jointventures. The recruitment will be in a range of functions including development,asset management and finance. Financial resources and capital management The Group's higher investment in the development projects contributed to theabsorption of cash by operations reaching £63.0 million. Net debt increased to£389.1 million, up from £325.5 million at 31 March 2006, partly due to theacquisition of the Hanover Square Estate. The sales of properties includingTooley Street, SE1, New Cavendish Street, W1, and Gillingham Street, SW1,generated £132.1 million in net proceeds. Gearing fell to 36.2% at 31 March 2007from 44.1% at last year end and interest cover remained appropriate at 1.8times. A year of intensive capital structure management has seen the Group simplify itsdebt portfolio and strengthen the platform to fund future business developmentactivities. A "tap" issue of £50 million nominal of the 5.625% debentures 2029was successfully placed in February and the maturity of the Group's £300 millioncredit facility was extended by one year to 2012. The Group's other creditfacility was increased to £180 million and its maturity extended to September2008. At 31 March 2007 the Group had undrawn credit facilities of £239.0million. Following the notice given to holders of the 5.25% convertible bonds 2008 inFebruary 2007, the Bonds have been converted to new ordinary shares. As at 31March 2007 the outstanding issued number of shares in the Company was 181.0 million. The remaining £31.6 million of 7.25% debentures 2027 were redeemed by the end of 31 March 2007. The Group's weighted average interest rate for the year was 5.55%, a reductionof 36 basis points compared to the prior year. This was achieved despite anincrease in swap rates which caused the year end average interest rate to riseto 5.79%. Managing the Group's cost of borrowing is a key management priority. Over thelast year the level of swap rates and benchmark yields on UK Governmentsecurities have risen and there are signs that further increases in the cost ofdebt will occur in response to inflationary pressures. The new issue of 2029debentures at a premium locked in long-term funding at an effective rate of lessthan 5.4%. Our Treasury policy of keeping floating rate debt at less than 40% oftotal has partially insulated the Group from increasing market rates and inApril 2007 we executed £80 million of five year interest rate swaps to furtherprotect the Group. Taxation and REIT conversion The corporation tax in the income statement for 2007 is a charge of £0.2 milliondue to a variety of available reliefs. The Group's underlying effective tax ratefor 2007 was around 10% and was influenced by the final quarter of the yearbeing subject to HMRC's new REIT framework. The Group converted to a REIT on 1 January 2007 and is now benefiting from anexemption from UK tax on both rental profits and chargeable gains relating tothe property investment business. Deferred tax of £135.4 million on contingentchargeable gains, capital allowances and capitalised interest has been writtenback to the income statement as a result of new legislation. As a consequence ofconversion the Group will pay a charge of £28.3 million to HMRC in July 2007,being 2% of the value of the properties within its property investment businessas at 31 December 2006. The table in Appendix 3 shows the results of certain key REIT tests as appliedto the Group on a pro forma basis in respect of the year ended 31 March 2007.The table indicates that the Group would comfortably comply with all of thesetests for the year, with 99.9% of assets and 82.2% of profits within the taxexempt business. We believe that as a REIT, the Group will have a very low tax charge over thecoming years. Dividend The Board has declared a final dividend of 7.55 pence which will be paid on 11July 2007. This brings the total for the year to 11.3 pence per share, anincrease of 2.7% over 2006. Following the Group's conversion to a REIT, all future dividend payments must besplit between Property Income Dividends or "PIDs" (dividends from profits of ourtax-exempt property rental business) and "non-PIDs" (dividends from profits ofour taxable residual business). The Group is now subject to a minimum distribution test. To meet this test, itmust pay a PID of at least 90% of the profits (excluding gains) of thetax-exempt business (calculated by tax rules rather than accounting rules)within 12 months of the end of each accounting period. As the minimum PID payable to meet the REIT distribution test for the threemonth period ended 31 March 2007 is small, none of the final dividend will beallocated to meeting the test for this period. Instead, the final dividend willbe a non-PID in its entirety and will therefore be treated in the same way as anormal company dividend. It is anticipated that the REIT distribution test willbe met by an interim dividend payable in January 2008. Looking forward, the PID will vary according to the level of profits andallowances in the Group's tax-exempt business. Outlook The Group has had an excellent year, delivering strong progress across thebusiness and a very good performance compared to its key benchmarks. With London's economy continuing to expand, steady occupational demand andlimited new supply of high quality buildings, particularly in the West End, theconditions are in place for healthy returns. The Group's extensive and growingdevelopment programme, with its West End focus, is well positioned to benefitfrom this market environment. Our recent acquisitions and new joint ventureshave created a platform for improved rental income and enhanced portfoliogrowth. The conversion to a REIT has gone smoothly and will improve post-taxperformance. We are confident that we will continue to generate attractive returns for ourshareholders. Group Income StatementFor the year ended 31 March 2007 2007 2006 Notes £m £m-----------------------------------------------------------------------------Rental income 2 46.9 44.5 |----------------|Service charge income | 6.2 5.0 |Service charge expenses | (7.9) (6.3)| |----------------| (1.7) (1.3)Other property expenses (2.3) (2.2)------------------------------------------------------------------------------Net rental and related income 42.9 41.0Administration expenses 3 (12.6) (10.6) |----------------|Development management revenue | 20.4 - |Development management costs |(15.1) - | |----------------| 5.3 -------------------------------------------------------------------------------Operating profit before gains on investment 35.6 30.4property and results of joint venturesGains from investment property 8 278.1 186.1Share of results of joint ventures 10 45.2 16.4------------------------------------------------------------------------------Operating profit before financing costs 358.9 232.9Finance income 4 0.3 0.8Finance costs 5 (22.0) (18.2)Premium on redemption of interest-bearing loans and (11.2) (27.5)borrowings------------------------------------------------------------------------------Profit before tax 326.0 188.0Tax 6 85.1 (39.7)REIT conversion charge (28.3) -------------------------------------------------------------------------------Profit for the year 18 382.8 148.3------------------------------------------------------------------------------Basic earnings per share 7 235.7p 91.7p------------------------------------------------------------------------------Diluted earnings per share 7 214.3p 84.1p------------------------------------------------------------------------------Adjusted earnings per share 7 10.2p 10.2p------------------------------------------------------------------------------All results are derived from continuing operations. Total operating profit before gains on investment property 2007 2006 £m £m------------------------------------------------------------------------------Operating profit before gains on investment 35.6 30.4property and results of joint venturesShare of profit of joint ventures 10 3.1 3.5------------------------------------------------------------------------------Total operating profit before gains on investment 38.7 33.9property------------------------------------------------------------------------------ Group Balance SheetAt 31 March 2007 2007 2006 Notes £m £m-------------------------------------------------------------------------------Non-current assetsInvestment property 8 1,314.3 965.1Development property, plant and equipment 9 20.9 61.0Investment in joint ventures 10 176.0 72.4------------------------------------------------------------------------------- 1,511.2 1,098.5-------------------------------------------------------------------------------Current assetsTrade and other receivables 11 22.2 4.5Deferred tax 15 0.8 -Cash and cash equivalents 4.2 10.3------------------------------------------------------------------------------- 27.2 14.8-------------------------------------------------------------------------------Total assets 1,538.4 1,113.3-------------------------------------------------------------------------------Current liabilitiesTrade and other payables 12 30.7 29.6Income tax payable 28.2 0.4Interest-bearing loans and borrowings 13 2.9 110.0------------------------------------------------------------------------------- 61.8 140.0-------------------------------------------------------------------------------Non-current liabilitiesInterest-bearing loans and borrowings 13 390.4 225.7Obligations under finance leases 14 10.0 8.5Deferred tax 15 - 83.7Pension liability 22 0.2 0.7------------------------------------------------------------------------------- 400.6 318.6-------------------------------------------------------------------------------Total liabilities 462.4 458.6-------------------------------------------------------------------------------Net assets 1,076.0 654.7-------------------------------------------------------------------------------EquityShare capital 16 22.6 20.4Share premium account 17 68.2 15.1Equity reserve 18 - 9.2Hedging reserve 18 0.5 -Capital redemption reserve 18 16.4 16.4Revaluation reserve 18 1.5 8.1Retained earnings 18 967.7 587.3Investment in own shares 19 (1.0) (1.8)-------------------------------------------------------------------------------Equity shareholders' funds 1,075.9 654.7-------------------------------------------------------------------------------Minority interest 0.1 --------------------------------------------------------------------------------Total equity 1,076.0 654.7-------------------------------------------------------------------------------Net assets per share 7 594p 401p-------------------------------------------------------------------------------Adjusted net assets per share 7 594p 437p------------------------------------------------------------------------------- Group Statement of Cash FlowsFor the year ended 31 March 2007 2007 2006 Notes £m £m------------------------------------------------------------------------------Operating activitiesOperating profit before financing costs 358.9 232.9Adjustments for non-cash items 20 (319.4) (202.5)Increase in receivables (16.8) (0.2)Increase in payables 5.6 3.2Purchase and development of property (216.3) (131.4)Purchase of fixed assets (0.2) (1.8)Sale of properties 132.1 121.2Purchase of interests in joint ventures (6.9) (15.6)------------------------------------------------------------------------------Cash (utilised)/generated from operations (63.0) 5.8Interest received 0.3 0.8Interest paid (23.9) (21.1)Tax paid (0.7) (1.5)------------------------------------------------------------------------------Cash flows utilised in operating activities (87.3) (16.0)------------------------------------------------------------------------------Financing activitiesRedemption of loans (43.1) (89.1)Borrowings drawn 90.0 156.0Purchase of derivatives (0.3) -Issue of debenture 52.5 -Borrowings repaid - (55.0)Issue of minority interest 0.1 -Equity dividends paid (18.0) (17.5)------------------------------------------------------------------------------Cash flows generated/(utilised) from financing 81.2 (5.6)activities------------------------------------------------------------------------------Net decrease in cash and cash equivalents (6.1) (21.6)Cash and cash equivalents at 1 April 10.3 31.9------------------------------------------------------------------------------Cash and cash equivalents at balance sheet date 4.2 10.3------------------------------------------------------------------------------ Group Statement of Recognised Income and ExpenseFor the year ended 31 March 2007 2007 2006 £m £m-------------------------------------------------------------------------------Revaluation of development properties 1.5 7.0Deferred tax on development properties released/ 0.1 (2.1)(recognised) directly in equityFair value movement on derivatives 0.5 -Actuarial gains on defined benefit scheme net of - 0.8deferred tax-------------------------------------------------------------------------------Net gain recognised directly in equity 2.1 5.7Profit for the year 382.8 148.3-------------------------------------------------------------------------------Total recognised income and expense for the year 384.9 154.0------------------------------------------------------------------------------- Group Reconciliation of Other Movements in EquityFor the year ended 31 March 2007 2007 2006 £m £m--------------------------------------------------------------------------------Opening equity shareholders' funds 654.7 516.0Total recognised income and expense for the year 384.9 154.0Conversion of convertible bond 53.7 2.1Minority interest 0.1 -Deferred tax on convertible bonds (0.6) (0.3)Employee Long-Term Incentive Plan 1.2 0.4Dividends (18.0) (17.5)--------------------------------------------------------------------------------Closing equity shareholders' funds 1,076.0 654.7-------------------------------------------------------------------------------- Notes forming part of the Group Financial Statements 1 Accounting Policies Basis of Preparation While the financial information included in this preliminary announcement hasbeen computed in accordance with International Financial Reporting Standards(IFRSs), this announcement does not itself contain sufficient information tocomply with IFRSs. The Company expects to publish full financial statements,that comply with IFRS in June 2007. The financial information set out above does not constitute the company'sstatutory accounts for the years ended 31 March 2007 or 2006, but is derivedfrom those accounts. Statutory accounts for 2006 have been delivered to theRegistrar of Companies and those for 2007 will be delivered following thecompany's annual general meeting. The auditors have reported on those accounts;their reports were unqualified and did not contain statements under s. 237.2 or(3) Companies Act 1985. The financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRSs). The financial statements have also beenprepared in accordance with IFRSs adopted by the European Union and thereforethe Group financial statements comply with Article 4 of the EU IAS Regulation. The financial statements have been prepared on the historical cost basis, exceptfor the revaluation of properties, financial instruments and pensionliabilities. In the process of applying the Group's accounting policies,management is required to make judgements, estimates and assumptions that mayaffect the financial statements. Management believes that the judgements made inthe preparation of the financial statements are reasonable. However, actualoutcomes may differ from those anticipated. Critical accounting judgementsinclude the classification of leases between financing and operating and thedetermination of profit taking on development management contracts. Theprincipal accounting policies adopted are set out below. Basis of Consolidation The Group financial statements consolidate the financial statements of theCompany and all its subsidiary undertakings for the year ended 31 March 2007. Rent Receivable This comprises rental income and premiums on lease surrenders on investmentproperties for the year, exclusive of service charges receivable. Lease Incentives Lease incentives including rent-free periods and payments to tenants, areallocated to the income statement over the lease term. The value of resultingaccrued rental income is included within the respective property. Other Property Expenses Irrecoverable running costs directly attributable to specific properties withinthe Group's portfolio are charged to the income statement as other propertyexpenses. Costs incurred in the improvement of the portfolio which, in theopinion of the directors, are not of a capital nature are written off to theincome statement as incurred. Administration Expenses Costs not directly attributable to individual properties are treated asadministration expenses. Share-based Payment The cost of granting share-based payments to employees and directors isrecognised within administration expenses in the income statement. The Group hasused the Stochastic model to value the grants which is dependent upon factorsincluding the share price, expected volatility and vesting period and theresulting fair value is amortised through the income statement over the vestingperiod. The charge is reversed if it is likely that any non-market basedcriteria will not be met. Investment Properties Investment properties, including those under development, are professionallyvalued each year, on a market value basis, and any surpluses or deficits arisingare taken to the income statement. Disposals of properties are recognised wherecontracts have been unconditionally exchanged during the accounting period andthe significant risks and rewards of ownership of the property have beentransferred to the purchaser. Depreciation In accordance with IAS 40 "Investment Property", no depreciation is provided inrespect of freehold investment properties and leasehold investment propertieswith over 20 years to run. Depreciation is provided on plant and equipment, at rates calculated to writeoff the cost, less estimated residual value based on prices prevailing at thedate of acquisition of each asset evenly over its expected useful life, asfollows: Fixtures and fittings - over five years.Leasehold improvements - over the term of the lease. Development Properties Development properties are carried in property, plant and equipment and areprofessionally valued each year, on a market value basis, and any surplusesarising are taken to the revaluation reserve with any deficits below cost takento the income statement. A development property is one purchased for thepurposes of development, redevelopment or substantial refurbishment withrelatively little, or short-term, income whether planning permission exists oris still to be granted. All directly attributable costs of bringing a propertyto a condition suitable for letting are capitalised into the cost of theproperty. Once development is concluded, the property is transferred toinvestment property. Any cumulative revaluation reserve in respect of thatproperty is transferred to retained earnings. Joint Ventures Joint ventures are accounted for under the equity method: the Group balancesheet contains the Group's share of the net assets of its joint ventures.Long-term loans owed to the Group by joint ventures are included withininvestments. The Group's share of joint ventures' profit is included in theGroup income statement in a single line. Deferred Tax Deferred tax is provided in full on temporary differences between the tax baseof an asset or liability and its carrying amount in the balance sheet. Deferredtax is determined using tax rates that have been enacted or substantiallyenacted by the balance sheet date. Deferred tax assets are recognised when it isprobable that taxable profits will be available against which the deferred taxasset can be utilised. Pension Benefits The Group contributes to a defined benefit pension plan which is funded withassets held separately from those of the Group. The full value of the net assetsor liabilities of the pension fund is brought on to the balance sheet at eachbalance sheet date. Actuarial gains and losses are taken to the Group statementof recognised income and expense, all other movements are taken to the incomestatement. Capitalisation of Interest Interest associated with direct expenditure on investment properties underdevelopment and development properties is capitalised. Direct expenditureincludes the purchase cost of a site or property for development properties, butdoes not include the original book cost of investment property underdevelopment. Interest is capitalised from the start of the development workuntil the date of practical completion. The rate used is the Group's pre-taxweighted average cost of borrowings or, if appropriate, the rate on specificassociated borrowings. Financial Instruments The Group's derivatives are measured at fair value in the balance sheet. To theextent that a derivative provides an effective cash flow hedge against theGroup's underlying exposure the movements in the fair value of the hedge aretaken to equity. To the extent that the derivative does not effectively hedgethe underlying exposure the movement in the fair value of the hedge is taken tothe income statement. Convertible Bonds Convertible bonds are partly carried as debt, based on the net present value offuture cash flows and prevailing interest rates at the time of issue, and thebalance carried as equity within an equity reserve. Over the term of the loan,the debt is increased to its nominal value by charges to the income statement. Head Leases The present value of future ground rents is added to the carrying value of aleasehold investment property and to long-term liabilities. On payment of aground rent virtually all of the cost is charged to the income statement,principally as interest payable, and the balance reduces the liability; an equalreduction to the asset's valuation is charged to the income statement. Tenant Leases Management have considered the potential transfer of risks and rewards ofownership in accordance with IAS 17 "Leases" for all properties leased totenants and in their judgement have determined that all such leases areoperating leases. Segmental Analysis The Group has only one reportable segment on the basis that all of its revenueis generated from investment properties located in central London; accordinglyno segmental analysis is presented. Development Management Agreements Where the outcome of a development management agreement can be estimatedreliably, revenue and costs are recognised by reference to the stage ofcompletion of the contract at the balance sheet date. This is normally measuredas the proportion that contract costs incurred for work performed bear to theestimated total contract costs. Variations in work, claims and incentivepayments are included to the extent that they have been agreed with the client. Where the outcome of a development management agreement cannot be estimatedreliably, contract revenue is recognised to the extent of costs incurred that itis probable will be recoverable. Costs are recognised as expenses in the periodin which they are incurred. When it is probable that total costs will exceedtotal revenue, the expected loss is recognised as an expense immediately. 2007 20062 Rental Income £m £m------------------------------------------------------------------------------- Gross rental income 44.9 42.2 Amortisation of capitalised lease incentives 2.1 2.6 Ground rents payable (0.1) (0.3)------------------------------------------------------------------------------- 46.9 44.5------------------------------------------------------------------------------- 2007 20063 Administration Expenses £m £m------------------------------------------------------------------------------- Administration expenses Employee costs 11.2 8.6 Other 1.1 2.0 Non-recurring items Cost of REIT conversion 0.3 -------------------------------------------------------------------------------- 12.6 10.6------------------------------------------------------------------------------- Included within administration expenses are fees charged by the auditorscomprising audit fees of £0.1 million (2006: £0.1 million) and non-audit fees,which largely related to transactions, of £0.1 million (2006: £0.1 million) anddepreciation of £0.4 million (2006: £0.1 million). Included within employee costs is an accounting charge for the LTIP and SMPschemes of £1.2 million (2006: £0.4 million). Employee Information-------------------------------------------------------------------------------The average number of employees of the Group, including directors, was: 2007 2006 Number Number-------------------------------------------------------------------------------Head office and administration 68 65 Included within administration expenses are staff costs, including those ofdirectors, comprising: 2007 2006 £m £m-------------------------------------------------------------------------------Wages and salaries 8.9 7.0Social security costs 1.8 0.8Other pension costs 0.8 1.0------------------------------------------------------------------------------- 11.5 8.8Less: recovered through service charge (0.3) (0.2)------------------------------------------------------------------------------- 11.2 8.6------------------------------------------------------------------------------- The directors received fees of £330,000 (2006: £323,000) and other emoluments of£2,764,000 (2006: £2,067,000), pension contributions have been made fordirectors of £218,000 (2006: £228,000). 2007 20064 Finance Income £m £m------------------------------------------------------------------------------- Interest on short-term deposits 0.2 0.5 Other 0.1 0.3------------------------------------------------------------------------------- 0.3 0.8------------------------------------------------------------------------------- 2007 20065 Finance Costs £m £m------------------------------------------------------------------------------- Interest on bank overdrafts and loans 11.5 3.1 Interest on debentures 7.4 11.8 Interest on convertible bonds 3.6 4.1 Interest on loan notes 0.1 0.2 Interest on obligations under finance leases 0.6 0.7 Other interest 0.2 0.7------------------------------------------------------------------------------- Gross finance costs 23.4 20.6------------------------------------------------------------------------------- Less: capitalised interest (1.5) (2.4)------------------------------------------------------------------------------- 21.9 18.2 Fair value movement on derivatives 0.1 -------------------------------------------------------------------------------- 22.0 18.2------------------------------------------------------------------------------- 2007 20066 Tax £m £m-------------------------------------------------------------------------------- Current tax UK corporation tax 0.3 - Tax (over)/under provided in previous years (0.1) 0.3-------------------------------------------------------------------------------- Total current tax 0.2 0.3 Deferred tax (85.3) 39.4-------------------------------------------------------------------------------- Tax (credit)/charge for the year (85.1) 39.7-------------------------------------------------------------------------------- The difference between the standard rate of tax and the effective rate of taxarises from the items set out below: 2007 2006 £m £m------------------------------------------------------------------------------Profit before tax 326.0 188.0------------------------------------------------------------------------------Tax on profit at standard rate of 30% 97.8 56.4Deferred tax released on conversion to REIT status (135.4) -Property revaluations (41.5) (20.4)Sale of investment properties (5.2) 1.5Ring-fenced rental income (0.9) -Accelerated capital allowances (0.8) 2.5Receipts taxable as chargeable gains or taxed in prior year (0.4) (0.9)Other (0.5) (0.3)Accounting profits arising in the year not taxable (0.3) (0.1)Previous years' corporation tax (0.1) 0.3Expenses not deductible for tax purposes 0.3 0.7Accounting losses arising in the year not relievable 1.9 -against current tax------------------------------------------------------------------------------Tax (credit)/charge for the year (85.1) 39.7------------------------------------------------------------------------------ During the year £0.1 million (2006: £2.4 million) of tax was charged directly toequity. This charge related to deferred tax in respect of revaluations ofproperty, plant and equipment, derivatives and pension liabilities. A deferred tax asset of £1.9 million relating to tax losses carried forward at31 March 2007 was not recognised because it is uncertain whether future taxableprofits against which these losses can be offset will arise. The Group converted to a REIT on 1 January 2007. From that date, the Group hasbeen exempt from corporation tax in respect of the following: • rental profits arising from its property investment business; and • chargeable gains arising on the sale of properties from its property investment business, provided that the relevant property is not both: - The subject of a development which costs more than 30% of the property's fair value at the later of 1 January 2007 and the date that it was purchased by the Group; and - sold within three years of the completion of the development. The Group is otherwise subject to corporation tax. The Group estimates that asthe majority of its future profits will no longer be subject to corporation tax,it will have a very low tax charge over the coming years. As a REIT, Great Portland Estates plc is required to pay property incomedividends equal to at least 90% of the profits (excluding gains) of the Group'sproperty investment business (calculated by tax rules rather than accountingrules). In July 2007, the Group will pay a REIT conversion charge of £28.3 million,being 2% of the value of the properties within its property investment businessas at 31 December 2006. The financial statements for the year ended 31 March2007 provide for this conversion charge in current tax and show a write back ofdeferred tax of £135.4 million (calculated as at 31 December 2006) relating tocontingent chargeable gains, capital allowances and capitalised interest. In order to ensure that the Group is able to both retain its status as a REITand to avoid financial charges being imposed, a number of tests must be met byboth Great Portland Estates plc and by the Group as a whole on an ongoing basis.These conditions are detailed in the Finance Act 2006. 7 Earnings and Net Assets per Share Earnings and net assets per share are calculated in accordance with the guidanceissued in January 2006 by the European Public Real Estate Association (EPRA). Weighted average number of ordinary shares------------------------------------------------------------------------------------- 2007 2006 Number Number of shares of shares-------------------------------------------------------------------------------------Issued ordinary share capital at 1 April 163,181,906 162,474,812Conversion of convertible bonds 346,843 256,245Investment in own shares (1,115,628) (1,115,628)-------------------------------------------------------------------------------------Weighted average number of ordinary shares 162,413,121 161,615,429-------------------------------------------------------------------------------------Effect of conversion of convertible bonds 17,534,658 18,453,432-------------------------------------------------------------------------------------Diluted weighted average number of ordinary shares 179,947,779 180,068,861------------------------------------------------------------------------------------- Basic, diluted and adjusted earnings per share------------------------------------------------------------------------------------- 2007 2007 2006 2006 Profit Earnings Profit Earnings after tax per share after tax per share £m pence £m pence-------------------------------------------------------------------------------------Basic 382.8 235.7 148.3 91.7Effect of convertible bonds 2.8 (21.4) 3.3 (7.6)-------------------------------------------------------------------------------------Diluted 385.6 214.3 151.6 84.1-------------------------------------------------------------------------------------Deferred tax on accelerated capital allowances (7.7) (4.3) 4.4 2.5Premium on redemption of loans 9.0 5.1 19.3 10.7REIT conversion charge and associated costs 28.5 15.8 - -Movement in fair value of derivatives 0.1 - - -Reversal of deferred tax on REIT conversion (76.1) (42.3) - -Gains from investment property (278.9) (155.0) (146.8) (81.5)Gains from joint venture investment property (42.1) (23.4) (10.0) (5.6)-------------------------------------------------------------------------------------Adjusted (diluted) 18.4 10.2 18.5 10.2------------------------------------------------------------------------------------- Net assets per share 2007 2007 2007 2006 2006 2006 Net Net Net Number assets Net Number assets assets of shares per share assets of shares per share £m million pence £m million pence------------------------------------------------------------------------------------------Basic 1,076.0 181.0 594 654.7 163.2 401Convertible bonds - - - 53.4 18.0 (10)------------------------------------------------------------------------------------------Diluted 1,076.0 181.0 594 708.1 181.2 391Fair value of financial (1.7) (1) (13.0) (7)liabilities net of tax------------------------------------------------------------------------------------------Diluted triple net assets 1,074.3 593 695.1 384Fair value of financial 1.7 1 13.0 7liabilities net of taxDeferred tax on capital - - 7.7 4allowancesDeferred tax on - - 75.2 42revaluation gains------------------------------------------------------------------------------------------Adjusted net assets 1,076.0 594 791.0 437------------------------------------------------------------------------------------------ The fair value of liabilities for the year ended 31 March 2006 reflects adiluted number of shares and the high likelihood of the convertible bondsconverting to equity. Therefore, the financial liabilities in the calculationabove for the year ended 31 March 2006 include the Group's debenture stock butexclude the convertible bonds. 8 Investment Property---------------------------------------------------------------------------------------- Investment property Freehold Leasehold Total £m £m £m---------------------------------------------------------------------------------------- Book value at 1 April 2005 517.4 148.9 666.3 Acquisitions 83.8 - 83.8 Costs capitalised 20.1 0.9 21.0 Purchase of freehold 17.2 (17.8) (0.6) Disposals (88.9) (9.8) (98.7) Transfer from development property 52.7 - 52.7 Transfer to investment property - development (19.4) - (19.4) Net valuation gain on investment property 115.0 24.6 139.6---------------------------------------------------------------------------------------- Book value at 31 March 2006 697.9 146.8 844.7---------------------------------------------------------------------------------------- Acquisitions 123.3 42.7 166.0 Costs capitalised 11.3 5.7 17.0 Disposals (71.4) (24.5) (95.9) Transfer from development property 22.5 - 22.5 Transfer from investment property - development - 48.8 48.8 Transfer to investment property - development (44.4) - (44.4) Net valuation gain on investment property 167.7 56.1 223.8---------------------------------------------------------------------------------------- Book value at 31 March 2007 906.9 275.6 1,182.5---------------------------------------------------------------------------------------- Investment property - development---------------------------------------------------------------------------------------- Freehold Leasehold Total £m £m £m----------------------------------------------------------------------------------------Book value at 1 April 2005 15.5 38.4 53.9Costs capitalised 14.5 1.5 16.0Interest capitalised 0.3 - 0.3Transfer from investment property 19.4 - 19.4Net valuation gain on investment property - development 22.9 7.9 30.8----------------------------------------------------------------------------------------Book value at 31 March 2006 72.6 47.8 120.4----------------------------------------------------------------------------------------Costs capitalised 20.9 1.0 21.9Interest capitalised 0.6 - 0.6Disposals (49.7) - (49.7)Transfer from investment property 44.4 - 44.4Transfer to investment property - (48.8) (48.8)Net valuation gain on investment property - development 43.0 - 43.0----------------------------------------------------------------------------------------Book value at 31 March 2007 131.8 - 131.8----------------------------------------------------------------------------------------Total investment property 1,038.7 275.6 1,314.3---------------------------------------------------------------------------------------- 2007 2006 £m £m----------------------------------------------------------------------------------------Net valuation gain on investment property 266.8 171.3Profit on sale of investment properties 11.3 14.8----------------------------------------------------------------------------------------Gains from investment property 278.1 186.1---------------------------------------------------------------------------------------- The investment and development properties (note 9) were valued on the basis ofmarket value by CB Richard Ellis, independent valuers, as at 31 March 2007 inaccordance with the RICS Appraisal and Valuation Standards of the RoyalInstitution of Chartered Surveyors. The book value of investment propertiesincludes £10.0 million (2006: £8.5 million) in respect of the present value offuture ground rents. At 31 March 2007, properties with carrying value of £260.2 million (2006: £452.2million) were secured under first mortgage debenture stock (see note 13). 9 Development property, Plant and Equipment------------------------------------------------------------------------------------- Leasehold Fixtures Development improvements and fittings property Total £m £m £m £m------------------------------------------------------------------------------------- Cost or valuation At 1 April 2005 - - 93.3 93.3 Acquisitions - - 7.5 7.5 Costs capitalised 1.9 0.6 8.6 11.1 Interest capitalised - - 1.7 1.7 Disposals - - (7.7) (7.7) Transfers to investment property - - (52.7) (52.7) Net valuation gain taken to equity - - 7.0 7.0 Reversal of net valuation deficits - - 0.9 0.9 taken to income statement------------------------------------------------------------------------------------- At 31 March 2006 1.9 0.6 58.6 61.1------------------------------------------------------------------------------------- Acquisitions 0.1 0.1 8.5 8.7 Costs capitalised - - 1.0 1.0 Interest capitalised - - 0.8 0.8 Disposals - - (29.2) (29.2) Transfers to investment property - - (22.5) (22.5) Net valuation gain taken to equity - - 1.5 1.5------------------------------------------------------------------------------------- At 31 March 2007 2.0 0.7 18.7 21.4------------------------------------------------------------------------------------- Depreciation At 1 April 2006 0.1 - - 0.1 Charge for the year 0.2 0.2 - 0.4------------------------------------------------------------------------------------- At 31 March 2007 0.3 0.2 - 0.5------------------------------------------------------------------------------------- Carrying amount at 31 March 2006 1.8 0.6 58.6 61.0------------------------------------------------------------------------------------- Carrying amount at 31 March 2007 1.7 0.5 18.7 20.9------------------------------------------------------------------------------------- The historical cost of development property at 31 March 2007 was £17.1 million(2006: £46.9 million). The cumulative interest capitalised in developmentproperty was £0.5 million (2006: £2.2 million). 10 Investment in Joint Ventures------------------------------------------------------------------------------------- The Group has the following investments in joint ventures: Equity Loans Total £m £m £m------------------------------------------------------------------------------------At 1 April 2006 62.9 9.5 72.4Acquisitions 60.9 - 60.9Share of profits of joint ventures 3.1 - 3.1 |---------| |--------| |---------|Share of profit on disposal of joint | 3.7 | | - | | 3.7 |venture properties | | | | | |Share of revaluation uplift of joint ventures | 38.4 | | - | | 38.4 | |---------| |--------| |---------|Gains from joint venture investment property 42.1 - 42.1Distributions (2.5) - (2.5)------------------------------------------------------------------------------------At 31 March 2007 166.5 9.5 176.0------------------------------------------------------------------------------------ On 25 July 2006 Great Portland Estates plc and Scottish Widows plc formed ajoint venture, called the Great Wigmore Partnership, to invest in central Londonreal estate. The Group owns a 50% share in the partnership through awholly-owned subsidiary. The Group contributed £60.9 million of partnershipequity. The investments in joint ventures comprise the following: Country 2007 2006---------------------------------------------------------------------------The Great Victoria Partnership United Kingdom 50% 50%The Great Victoria Partnership (No. 2) United Kingdom 50% 50%The Great Wigmore Partnership United Kingdom 50% ---------------------------------------------------------------------------- Included in the financial statements are the following items that represent theGroup's share in the assets and liabilities, revenues and expenses for the jointventures: Great Great Wigmore Victoria 2007 2006 Partnership Partnerships Total Total £m £m £m £m--------------------------------------------------------------------------------Investment properties 84.6 128.0 212.6 113.1Current assets 0.1 14.2 14.3 15.6Bank loans - (46.0) (46.0) (12.4)Current liabilities (0.4) (14.0) (14.4) (53.4)---------------------------------------------------------------------------------Net assets 84.3 82.2 166.5 62.9--------------------------------------------------------------------------------- |------| |------| |------| |------|Net rental income | 1.0 | | 4.6 | | 5.6 | | 6.6 |Expenses | (0.1)| | (2.4)| | (2.5)| | (3.1)| |------| |------| |------| |------|Share of profit from joint 0.9 2.2 3.1 3.5venturesRevaluation uplift 22.5 15.9 38.4 12.9Profit on sale of investment - 3.7 3.7 -property---------------------------------------------------------------------------------Net profit 23.4 21.8 45.2 16.4--------------------------------------------------------------------------------- During the year the Group received a management fee of £1.6 million (2006: £1.3million) from the joint ventures which has been recognised in administrationexpenses. On 25 April 2007 the Group entered into a new joint venture with LibertyInternational subsidiary, Capital and Counties Limited, to be managed on asimilar basis to the existing joint ventures. Capital and Counties Limitedcontributed 14 holdings with a value of £298 million, while the Groupcontributed 4 properties worth £162 million and a balancing sum of £68 millionin cash. 2007 200611 Trade and Other Receivables £m £m------------------------------------------------------------------------------------- Trade receivables 3.9 0.8 Prepayments and accrued income 1.1 1.2 Amounts receivable under development management contracts 11.4 0.3 Other trade receivables 4.9 2.2 Derivatives 0.9 -------------------------------------------------------------------------------------- 22.2 4.5------------------------------------------------------------------------------------- 2007 200612 Trade and Other Payables £m £m------------------------------------------------------------------------------------- Trade payables 12.7 11.6 Non-trade payables and accrued expenses 18.0 18.0------------------------------------------------------------------------------------- 30.7 29.6------------------------------------------------------------------------------------- 2007 200613 Interest-bearing Loans and Borrowings £m £m------------------------------------------------------------------------------------- Non-current liabilities Secured £32.1 million 7 1/4% debenture stock 2027 - 31.4 £142.9 million 5 5/8% debenture stock 2029 144.4 91.9 Unsecured 5 1/4% convertible bonds 2008 - 53.4 Bank loans 246.0 46.0 Loan notes 2007 - 3.0------------------------------------------------------------------------------------- 390.4 225.7------------------------------------------------------------------------------------- Current liabilities Loan notes 2007 2.9 - Bank loans - 110.0------------------------------------------------------------------------------------- 393.3 335.7------------------------------------------------------------------------------------- At 31 March 2007 the nominal value outstanding of the 5 5/8% Debenture Stock 2029was £142.9 million. During the year a further £50 million of 5 5/8% debenturestock was issued and the 7 1/4% Debenture Stock 2027 was redeemed in full. During the year the Company exercised its option to redeem the convertible bondsoutstanding in full at their principal amount. The bondholders exercised theirright to convert the bonds they held into ordinary share capital of the Company,the resulting increase in share capital is disclosed in note 16. The Group has two floating rate bank facilities, a £300 million revolving creditfacility and a £180 million short-term facility. The revolving credit facilityis unsecured, attracts a floating rate of 0.525% above LIBOR and expires in2012. The short-term facility is unsecured, attracts a floating rate of 0.70%above LIBOR and expires in 2008. The floating rate bank facilities are hedged using interest rate swaps and caps.During the year the Group entered into an interest rate swap of £40 millionnotional principal at 5.115% and interest rate caps of £40 million notionalprincipal at 6.0%. These arrangements mature in 2011. The derivatives arecarried at fair value and are included in other receivables, see Note 11. The unsecured loan notes, which together with an associated guarantee attract afloating rate of interest of 0.275% in aggregate above LIBOR, are redeemable atthe option of the noteholder until April 2007, and by the Company in April 2007. All interest-bearing loans and borrowings are in Sterling. At 31 March 2007 theGroup had available £239 million (2006: £257 million) of undrawn committed bankfacilities. Maturity of financial liabilities The maturity profile of the financial liabilities of the Group at 31 March 2007was as follows: 2007 2006 £m £m----------------------------------------------------------------------------------In one year or less, or on demand 2.9 110.0In more than one year but not more than two years - 56.4In more than four years but not more than five years 246.0 46.0In more than five years 144.4 123.3---------------------------------------------------------------------------------- 393.3 335.7---------------------------------------------------------------------------------- Fair value of financial instruments 2007 2007 2006 2006 Book value Fair value Book value Fair value £m £m £m £m---------------------------------------------------------------------------------Current liabilities 2.9 2.9 110.0 110.0Non-current liabilities 390.4 392.1 225.7 278.5Derivatives (0.9) (0.9) - ---------------------------------------------------------------------------------- 392.4 394.1 335.7 388.5--------------------------------------------------------------------------------- The fair values of the Group's cash and short-term deposits are not materiallydifferent from those at which they are carried in the financial statements.Market values have been used to determine the fair value of listed long-termborrowings, and derivatives have been valued by reference to market rates ofinterest. The market values of all other items have been calculated bydiscounting the expected future cash flows at prevailing interest rates. 14 Finance Leases---------------------------------------------------------------------------------- Finance lease obligations in respect of the Group's leasehold properties arepayable as follows: 2007 2007 2007 2006 2006 2006 Minimum Minimum Lease lease payments Interest Principal payments Interest Principal £m £m £m £m £m £m----------------------------------------------------------------------------------Less than one year 0.7 (0.7) - 0.6 (0.6) -Between one andfive years 2.7 (2.7) - 2.3 (2.3) -More than five years 76.8 (66.8) 10.0 68.8 (60.3) 8.5---------------------------------------------------------------------------------- 80.2 (70.2) 10.0 71.7 (63.2) 8.5---------------------------------------------------------------------------------- 15 Deferred Tax-------------------------------------------------------------------------------------------- Recognised 1 April Recognised directly in Released Released 31 March 2006 in income equity in income* in equity* 2007 £m £m £m £m £m £m-------------------------------------------------------------------------------------------- Deferred tax liabilities Property revaluations 75.2 50.1 (0.1) (125.2) - - Capitalised interest 1.4 (0.5) - (0.9) - - Accelerated capital 7.7 1.6 - (9.3) - - allowances Derivatives - - 0.2 - - 0.2 Deferred tax assets Long-Term Incentive (0.4) (0.5) - - - (0.9) Plan and Share Matching Plan Pension liabilities (0.2) 0.1 - - - (0.1)-------------------------------------------------------------------------------------------- 83.7 50.8 0.1 (135.4) - (0.8)-------------------------------------------------------------------------------------------- * on conversion to REIT status. The Group recognises deferred tax assets based on forecast taxable profits. TheCompany recognises a deferred tax asset on fair value movement of derivativesand a liability in respect of the Long-Term Incentive Plans and Share MatchingPlan. 2007 2007 2006 200616 Share Capital Number £m Number £m----------------------------------------------------------------------------------------- Ordinary shares of 12 1/2 pence each Authorised 550,100,752 68.8 550,100,752 68.8----------------------------------------------------------------------------------------- Allotted, called up and fully paid At 1 April 163,181,906 20.4 162,474,812 20.3 Conversion of convertible bonds 17,837,903 2.2 707,094 0.1----------------------------------------------------------------------------------------- At 31 March 181,019,809 22.6 163,181,906 20.4----------------------------------------------------------------------------------------- 2007 200617 Share Premium £m £m--------------------------------------------------------------------------------------- At 1 April 15.1 13.0 Conversion of convertible bonds 53.1 2.1--------------------------------------------------------------------------------------- At 31 March 68.2 15.1--------------------------------------------------------------------------------------- Capital Equity Hedging Redemption Revaluation Retained reserve reserve reserve reserve earnings18 Reserves £m £m £m £m £m-------------------------------------------------------------------------------------- At 1 April 2006 9.2 - 16.4 8.1 587.3 Profit for the year - - - - 382.8 Net valuation gain taken to - - - 1.5 - equity Deferred tax reversal on - - - 0.1 - property revaluations taken to equity Transfer on completion of - - - (5.9) 5.9 development property Realised on disposal of - - - (2.3) 2.3 development property Fair value movement on - 0.7 - - - derivatives Deferred tax on fair value - (0.2) - - - movements on derivatives Conversion of convertible (8.6) - - - 7.0 bonds Deferred tax on convertible (0.6) - - - - bonds Dividends to shareholders - - - - (18.0) Transfer from investment in - - - - 0.4 own shares-------------------------------------------------------------------------------------- At 31 March 2007 - 0.5 16.4 1.5 967.7-------------------------------------------------------------------------------------- 2007 200619 Investment in Own Shares £m £m------------------------------------------------------------------------------------ At 1 April 1.8 2.2 Employee Long-Term Incentive Plan charge (1.2) (0.4) Transfer to retained earnings 0.4 ------------------------------------------------------------------------------------- At 31 March 1.0 1.8------------------------------------------------------------------------------------ The investment in the Company's own shares is held at cost and comprises1,115,628 shares held by the Great Portland Estates plc LTIP Employee ShareTrust which will vest in certain senior employees of the Group if performanceconditions are met. 2007 200620 Adjustment for non-cash movements in the Cash Flow Statement £m £m--------------------------------------------------------------------------------------- Gains from investment property (278.1) (186.1) Employee Long-Term Incentive Plan charge 1.2 0.4 Amortisation and sale of capitalised lease incentives 0.2 (2.6) Share of profit on joint ventures (42.7) (14.2)--------------------------------------------------------------------------------------- Adjustment for non-cash items (319.4) (202.5)--------------------------------------------------------------------------------------- 2007 200621 Dividends £m £m----------------------------------------------------------------------------------------------- Ordinary dividends paid Interim dividend for the year ended 31 March 2007 of 3.75 pence per share 6.1 - Final dividend for the year ended 31 March 2006 of 7.33 pence per share 11.9 - Interim dividend for the year ended 31 March 2006 of 3.67 pence per share - 5.9 Final dividend for the year ended 31 March 2005 of 7.17 pence per share - 11.6----------------------------------------------------------------------------------------------- 18.0 17.5----------------------------------------------------------------------------------------------- The proposed final dividend of 7.55 pence per share (2006: 7.33 pence per share)was approved by the Board on 23 May 2007 and is payable on 11 July 2007 toshareholders on the register on 1 June 2007. The dividend is not recognised as aliability at 31 March 2007. The 2006 final dividend and the 2007 interimdividend were paid in the year and are included within the Group Reconciliationof Other Movements in Equity. 22 Employee Benefits---------------------------------------------------------------------------------- The Group contributes to a defined benefit pension plan (the "Plan"), the assetsof which are held by trustees separately from the assets of the Group. The Planhas been closed to new entrants since April 2002. The most recent actuarialvaluation of the Plan was conducted at 1 April 2006 by a qualified independentactuary using the projected unit method. The Plan was valued using the followingmain assumptions: 2007 2006 % %----------------------------------------------------------------------------------Discount rate 5.25 5.00Expected return on Plan assets 5.13 6.28Expected rate of salary increases 4.00 3.75Future pension increases 3.00 2.75---------------------------------------------------------------------------------- The amount recognised in the balance sheet in respect of the Plan is as follows: 2007 2006 £m £m----------------------------------------------------------------------------------Present value of unfunded obligations 16.0 15.6Fair value of Plan assets (15.8) (14.9)----------------------------------------------------------------------------------Pension liability 0.2 0.7---------------------------------------------------------------------------------- Amounts recognised as administration expenses in the income statement are as follows: 2007 2006 £m £m----------------------------------------------------------------------------------Current service cost 0.2 0.2Interest on obligation 0.8 0.8Expected return on Plan assets (0.8) (0.7)Past service cost - 0.1---------------------------------------------------------------------------------- 0.2 0.4----------------------------------------------------------------------------------Actuarial gain recognised immediately in the Group statement of - 1.1recognised income and expense---------------------------------------------------------------------------------- Changes in the present value of the pension obligation are as follows: 2007 2006 £m £m-------------------------------------------------------------------------------Defined benefit obligation at 1 April 15.6 14.0Service cost 0.2 0.2Interest cost 0.8 0.8Past service cost - 0.1Actuarial (loss)/gain (0.2) 0.9Benefits paid (0.4) (0.4)-------------------------------------------------------------------------------Defined benefit obligation at 31 March 16.0 15.6-------------------------------------------------------------------------------Changes to the fair value of the Plan assets are as follows:Fair value of plan assets at 1 April 14.9 11.9Expected return 0.8 0.7Actuarial (loss)/gain (0.2) 2.0Contributions 0.7 0.7Benefits paid (0.4) (0.4)-------------------------------------------------------------------------------Fair value of Plan assets at 31 March 15.8 14.9-------------------------------------------------------------------------------Net liability 0.2 0.7------------------------------------------------------------------------------- The fair value of the Plan assets at the balance sheet date is analysed asfollows: 2007 2006 £m £m-------------------------------------------------------------------------------Equities 6.3 6.0Bonds 9.5 8.9------------------------------------------------------------------------------- 15.8 14.9------------------------------------------------------------------------------- The history of the Plan for the current and prior year is as follows: 2007 2006--------------------------------------------------------------------------------------Difference between expected and actual return on the scheme assets:Amount £m (0.2) 2.0Percentage of scheme assets (1%) 13%Experience gains and losses on scheme liabilities:Amount £m - 0.5Percentage of scheme assets - 3%Total gains and losses:Amount £m - 1.1Percentage of scheme assets - 7%-------------------------------------------------------------------------------------- The Group expects to contribute approximately 20.4% of members' pensionablesalaries plus £0.4 million to the Plan in 2008. Glossary-------------------------------------------------------------------------------- Adjusted earnings per share Earnings per share adjusted to exclude non-recurring items, profits or losses onsales of investment properties, property revaluations and deferred tax oncapital allowances and property revaluations on a diluted basis. Adjusted net assets per share NAV adjusted to exclude deferred tax on capital allowances and propertyrevaluations on a diluted basis. Diluted figures Reported amounts adjusted to include the effects of potential shares issuableunder the convertible bond. Earnings per share (EPS) Profit after tax divided by the weighted average number of ordinary shares inissue. EPRA adjustments Standard calculation methods for adjusted EPS and adjusted NAV as set out by theEuropean Public Real Estate Association (EPRA) in their January 2006 BestPractice and Policy Recommendations. Estimated rental value (ERV) The market rental value of lettable space as estimated by the Company's valuersat each balance sheet date. F&BS Finance and business services sector. IPD The Investment Property Databank Limited (IPD) is a company that produces anindependent benchmark of property returns. IPD central London An index, compiled by IPD, of the central and inner London properties in theirmonthly and quarterly valued universes. Like-for-like portfolio Properties that have been held for the whole of the period of account. Market value The amount as estimated by the Company's valuers for which a property shouldexchange on the date of valuation between a willing buyer and a willing sellerin an arm's length transaction after proper marketing wherein the parties hadeach acted knowledgeably, prudently and without compulsion. In line with marketpractice, values are stated net of purchasers' costs. Net assets per share or net asset value (NAV) Equity shareholders' funds divided by the number of ordinary shares at thebalance sheet date. Net gearing Total borrowings less short-term deposits and cash as a percentage of adjustedequity shareholders' funds. Net initial yield Annual net rents on investment properties as a percentage of the investmentproperty valuation having added notional purchasers costs. Portfolio internal rate of return (IRR) The rate of return that if used as a discount rate and applied to the projectedcash 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 plusrevaluation surplus on development property divided by the opening grosscapital. Return on shareholders' equity The growth in the adjusted diluted net assets per share plus dividends per sharefor the period expressed as a percentage of the adjusted net assets per share atthe beginning of the period. Reversionary or under-rented The percentage by which ERV exceeds rents passing, together with the estimatedrental value of vacant space. Reversionary yield The anticipated yield, which the initial yield will rise to once the rentreaches the ERV. Total property return (TPR) Capital growth in the portfolio plus net rental income derived from holdingthese properties plus profit on sale of disposals expressed as a percentagereturn on the period's opening value. Total shareholder return (TSR) The growth in the ordinary share price as quoted on the London Stock Exchangeplus dividends per share received for the period expressed as a percentage ofthe 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 adiluted basis. True equivalent yield The constant capitalisation rate which, if applied to all cash flows from aninvestment property, including current rent, reversions to current market rentand such items as voids and expenditures, equates to the market value havingtaken into account notional purchasers costs. Assumes rent is received quarterlyin advance. Voids The element of a property which is unoccupied but available for letting, usuallyexpressed as the ERV of the void space divided by the existing rent roll plusthe ERV of the void space. Weighted Average Cost of Capital (WACC) The weighted average pre-tax cost of the Group's debt and the notional cost ofthe 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. This information is provided by RNS The company news service from the London Stock Exchange

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