Our business

Investment management

Our analysis of the central London property investment market led us to focus on acquisition opportunities using the Group's financial resources which were bolstered by last summer's Rights Issue. Around £161 million or 97% of the capital raised in our Rights Issue has been committed in five transactions and these assets have all shown healthy increases in value since acquisition. Whilst our investment pipeline is good, we expect it to improve further in the second half of 2010 as the industry wide deleveraging process gathers pace. Although London's investment markets are very competitive, we believe the combination of our local knowledge, deep relationships and structuring skills will help us to originate and execute further attractive acquisitions. Making acquisitions via joint ventures has been highly successful for us over many years and the balance of our holdings is illustrated below.

Wholly-owned and JV property assets graph

In August 2009, we commenced selective investment into our core markets when the Great Capital Partnership ("GCP") acquired new 125 year leasehold interests from The Crown Estate at Foxglove House, 166/168 Piccadilly; Dudley House, 169 Piccadilly; Egyptian House, 170/173 Piccadilly; Empire House, 174/175 Piccadilly; Piccadilly Arcade and 52/53 Jermyn Street; and 54/56 Jermyn Street, all in London W1, in exchange for its existing leases and £12.0 million (our share £6.0 million) in cash. The previous leases were for an average term of 69 years and GCP paid an average annual ground rent of 15% of rental value to The Crown Estate. Under the new leases the annual ground rent payable is reduced to 10%. Together, the five buildings form a single block fronting Piccadilly and Jermyn Street and currently comprise 132,400 sq ft. Importantly, the new headleases provide the ability for GCP to carry out a comprehensive redevelopment in due course.

In late September we exchanged contracts to purchase 90 Queen Street, EC4 for £45.8 million. This prime office and retail building was built in 1996 and comprises 68,400 sq ft of lettable space. The office accommodation is the UK headquarters of Intesa Sanpaulo SPA and is occupied under a lease until 2017 with a tenant option to break in 2013. The retail units are occupied by Lloyds Banking Group, Pret A Manger and Hugo Boss. The rental income of £3.9 million per annum will add approximately one pence per share to Group earnings and equates to a net initial yield, having taken into account all acquisition costs, of 8.2%. At a capital value per sq ft for the office component of £565, we believe we acquired land and a high quality building at beneath replacement cost, without the development risk, giving us an attractive income return and a variety of asset management opportunities.

In November, we announced the acquisition of two West End development properties and the formation of a profit share and debt structuring arrangement acquiring Marcol House, 289/295 Regent Street and 23/24 Newman Street, W1 from Istithmar World PJSC for £10.0 million. Marcol House is a Grade II listed, office and retail development site with planning consent for 102,500 sq ft, located on the corner of Regent Street and Margaret Street, W1,150 yards to the north of Oxford Circus. Newman Street is an existing office building of 25,200 sq ft with planning consent to provide the residential requirements for the Marcol House site.

Simultaneously with the acquisition, GPE agreed with the debt provider to the assets, Eurohypo, a restructuring of the previous debt facility on Marcol House in exchange for a profit share arrangement in the developments. Under this arrangement, GPE will develop the two properties, which on acquisition was estimated to cost a total of £78.1 million.