G r e a t P o r t l a n d E s t a t e s A n n u a l R e p o r t 2 0 0 8 Unlock ing pote ntial Great Portland Estates plc Gre at Portland Estates Ann ual R eport 2008 33 Cavendish Square London W1G 0PW Tel: 020 7647 3000 Fax: 020 7016 5500 www.gpe.co.uk Annual review Governance Financials 01 Business overview 40 Directors 56 Group income statement 02 Our strategy and operational progress 42 Report of the directors 57 Group balance sheet 03 Group key performance indicators 46 Corporate governance 58 Group statement of cash flows 04 Financial highlights 49 Directors’ remuneration report 59 Group statement of recognised income and expense 05 Chairman’s statement 55 Directors’ responsibilities 59 Group reconciliation of other 06 Operational case studies movements in equity 16 Our market 60 Notes forming part of the Group 18 Our business financial statements 26 Our financial position 76 Independent auditors’ report for the Group 30 Our people 78 Company balance sheet – 31 Risk management UK GAAP 32 Corporate responsibility 79 Notes forming part of the 37 Portfolio statistics Company financial statements 38 Major properties 81 Independent auditors’ report for the Company 82 Analysis of ordinary shareholdings 83 Glossary 84 Notice of meeting 86 Five year record 87 Financial calendar and shareholders’ information www.gpe.co.uk Front cover image: New reception at the redeveloped 60 Great Portland Street, W1 Designed and produced by The document is printed on Era Silk, which FSC – Forest Stewardship Council. 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CarbonNeutral® publication Great Portland Estates Annual Report 20 08 01 Great Portland Estates is a central London property investment and development company owning over £1.6 billion of real estate. We aim to deliver superior returns to shareholders through active asset management, the application of our development skills to create value and the maximising of equity returns through efficient structuring and flexible financing. Our locations1 Our business mix1 Our tenants1 6% 5% 12% 25% 11% 2% 29% 14% 82% 75% 16% 23% Retailers and leisure West End – £1,339.0m Media and marketing Professional Southwark – £99.0m Office – £1,226.0m Corporates Government City – £197.9m Retail – £409.9m Banking and finance IT and telecoms Notes 1. Includes Group ’s share of joint ventures. 2. Adjusted, diluted on EPRA basis – see note 7 on pages 64 to 65. Portfolio value1 Net assets per share2 Earnings per share2 £ million Pence Pence 1,800 600 14.0 4 9 5 2 8 8 5 . 6 6 . 2 3 2 1,600 1 6 1 , 550 12.0 6 1 6 . 3 1 5 , 1 1,400 1 2 2 . 500 10.0 . 0 0 1 1 1,200 8 450 8.0 2 1 , 7 1 3 1,000 4 3 400 6.0 8 800 8 5 4 7 350 4.0 600 7 3 3 300 2.0 400 0 8 2 200 2004 2005 2006 2007 2008 250 2004 2005 2006 2007 2008 0 2004 2005 2006 2007 2008 UK GAAP IFRS UK GAAP IFRS 02 Great Portland Estates Annual Report 20 08 Our strategy and operational progress We have a clear and straightforward strategy. It is set and regularly reviewed in the context of mediu m to long-term trends in the property market and helps us define our strategic priorities for the year ahead. It has been a year of strong operational results. Strategic priori ties Operational initiatives Operating performanc e and activ ities measures Develo p – Lease new space from developments – 340,000 sq ft of offic e letting s took – Development leasing was 14 % above above target ERV. place at 180 and 60 Great Portland March 2007 estimated rents . – Manage development risks to generate Street , W1 and 160 Tooley Street , SE1 . – Two schemes completed. maximum returns. –JV created for Blackfriars Road, SE1 – Profit on cost for completed – Deliver near-term programme on time scheme to mitigate risk. developments 80.2 % (2007: 103.7 %). and budget. – Practical completion reached at – Further 475,000 sq ft of development – Add to medium and long-term pipeline . 60 and 79/83 Great Portland Street, W1 prospects acquired through new Joint in January 2008 . Venture. – 160 Tooley Street, SE1 completion expected June 2008 . – Planning consent gained for Wigmore Street, W1. See Development on pages 20 to 21. Case studies o n pages 6 to 7 and pages 10 to 11. Recycle capital Buy properti es – GCP joint venture formed with – GCP properties have rental reversionary – With low relative rents. £655 million of properties at year end. potential of 33.2% at 31 March 200 8. – With angles to exploit. –Acquisitions of £42.4 million made – Three new development prospects adjacent to existing holdings. identified from new investments . – To grow mediu m and longe r term development programme. – Met Building sold for £107 million – Met Building sale crystalised return post redevelopment and letting . of 156% . Sell properties – Other sales made in the year totalled – Total asset sales of £336 million (2007: – With historically high capital values. £229 million. £203 million) enhancing Group liquidity. – With limited further angles . – Where capturing rental growth will See Capital recycling on pages 24 to 25. be difficult. Case studies on pages 10 to 11, pages 12 to 13 and pages 14 to 15. Asset manage – Drive rental values and rental income – 85 n ew leases completed (2007: 47). – Portfolio rental value growth of 12.4 % higher . –£25.0 milli on of rent roll generated (2007: 17.1 %) . – Execu te individual property strategies . by new leases (our share £19.8 million) . – New leases were at rents 5.9 % above – Create value through asset repositioning. – GCP/The Crown Estate lease restructuring March 2007 ERV. and swap involving £358 million of property . – Total portfolio reversion ary potential – Total space covered by lettings, reviews is 34.1% (2007: 26.8%) . and renewals 648,500 sq ft, 21% of – Void rate 3% (2007: 5%). the portfolio. – Fees from joint ventures £5.8 million See Asset management on page 25. (2007: £1.6 million). Case studies on pages 6 to 7 and pages 8 to 9. Great Portland Estates Annual Report 20 08 03 Group k ey performance indicators Over the medium-term we aim to consistently beat our benchmarks. Difficulties in the global financial markets and in parts of the real estate sector have impacted valuation levels in both the direct investment and equity markets. These pressures have affected our performance for the year although, relative to our TPR benchmark the Group has, again, outperformed. Total Shareholder Return (TSR)* Adjusted net assets per share growth* % –40–20 0 204060 80 100 % –100 10 20 30 40 50 –30.4 –2.0 2008 2008 Benchmark –32.2 Benchmark 7. 8 61.8 35.9 2007 2007 Benchmark 22.9 Benchmark 7.6 The measur e and benchmark Commentar y The mea sure and benchmark Commentary TSR is the most direct way of measuring The TSR of Group outperformed the Adjusted net assets per share growth is Net assets per share declined by 2% the increase in shareh older value during FTSE 350 Real Estate index by 1.8 the traditional industry measure of the over the year as adverse market the year . percentage points although in absolute success in creating value at a balance movements reduced the portfolio terms it was –30.4%. Turbulence in the sheet level because it captures changes valuation in the second half. Our RPI TSR of the Group is benchmarked credit markets impacted our sector in the valuation of the portfolio and benchmark stayed at broadly the same against the TSR of the FTSE 350 Real more than others so the Group TSR the effect of the capital structure level of last year causing a 9.8 percentage Estate Index as this is the most relevant underperformed the wider FTSE 250 of the Group. point relative underperformance for the group of comparable companies over by 18.2 percentage points . year. For the five years to March 2008 the year . We compare the growth in net assets the Group’s net assets per share has For the year to 31 March 2007 the per share with the increase in the retail grown by a compound 20.1 % pa Group’s TSR outperformed the price index (RPI) plus a hurdle of up to compared the benchmark of 7.6 % pa . benchmark by 38.9 percentage 12% over a three year period. points and over the five years to 31 March 2008 shareholders by 30.7 percentage points. Portfolio Total Property Return (TPR)* Return on Capital Employed (ROCE)* %0–1010 20 30 40 % 05010 20 30 40 2.6 1.8 2008 2008 Benchmark –4.5 Benchmark 7.6 33.2 33.9 2007 2007 Benchmark 24.9 Benchmark 6.8 The mea sure and benchmark Commentary The mea sure and benchmark Commentary TPR is calculated from capital g rowth The Group generated a portfolio TPR ROCE is measured as reported profit ROCE for the year was 1.8%, which in the portfolio pl us net rental income of 2.6.% in the year wher eas the before financing costs plus revaluation is below the Group’s WACC.