Valuation

The valuation of the Group's properties as at 31 March 2010, including our share of gross assets in joint venture, was £1,247.7 million, up 15.0% or £164.5 million on a like-for-like basis net of capital expenditure since 31 March 2009. Acquisitions increased the year end portfolio value by £164.6 million. Wholly-owned properties were valued at £772.9 million and the Group had six joint ventures which owned properties valued at £474.8 million (our share) at 31 March 2010.

The second half saw a like-for-like valuation increase of 16.3%, with growth of 6.7% being seen in the final quarter. This valuation rise was mainly due to the contraction of investment yields across all markets since the early summer and compares to a 4.4% valuation fall in the first quarter. Although rental values continued to decline during 2009, they have grown since the start of 2010 and the favourable movement in yields has further boosted this valuation impact.

Portfolio performance

Wholly-
owned
£m
Share of
joint venture
£m
Total
£m
Proportion
of portfolio
%
Valuation
movement
%
North of Oxford Street Office 390.1 80.8 470.9 37.8% 21.3%
Retail 80.3 83.7 164.0 13.2% 17.4%
Rest of West End Office 83.2 104.4 187.6 15.0% 4.9%
Retail 73.1 71.0 144.1 11.5% 13.5%
Total West End 626.7 339.9 966.6 77.5% 16.0%
City and Southwark Office 68.8 17.3 86.1 6.9% 3.7%
Retail 4.6 1.8 6.4 0.5% 4.6%
Total City and Southwark 73.4 19.1 92.5 7.4% 3.8%
Investment property portfolio 700.1 359.0 1,059.1 84.9% 14.8%
Development property 17.2 6.8 24.0 1.9% 24.4%
Total properties held throughout the year 717.3 365.8 1,083.1 86.8% 15.0%
Acquisitions 55.6 109.0 164.6 13.2% 16.6%
Total property portfolio 772.9 474.8 1,247.7 100.0% 15.2%

 

Portfolio characteristics

Investment
properties
£m
Development
properties
£m
Total
property
portfolio
£m
Office
£m
Retail
£m
Total
£m
Net
internal
area sq ft
000’s
North of Oxford Street 634.9 45.7 680.6 514.0 166.6 680.6 1,303.2
Rest of West End 352.0 352.0 188.5 163.5 352.0 838.7
Total West End 986.9 45.7 1,032.6 702.5 330.1 1,032.6 2,141.9
City and Southwark 191.1 24.0 215.1 194.5 20.6 215.1 742.4
Total 1,178.0 69.7 1,247.7 897.0 350.7 1,247.7 2,884.3
By use: Office 833.4 63.6 897.0
Retail 344.6 6.1 350.7
Total 1,178.0 69.7 1,247.7
Net internal area sq ft 000’s 2,709.9 174.4 2,884.3


The key drivers of the Group's valuation movement for the year were:

  • Favourable yield shift – Equivalent yields contracted by 126 basis points over the year (2009: 114 basis points expansion) from 6.7% to 5.4% on a like-for-like basis. In the second half the equivalent yield fell by 88 basis points as the improvement in investor sentiment accelerated;
  • Rental value changes – Since the start of the financial year rental values have fallen by 6.2%. Office rental values have declined by 7.9%, however, retail rental values fell by only 0.3%. The final quarter saw an uplift in Group rental values of 3.1%, particularly driven by the office portfolio; and
  • Intensive asset management – During the year, 154 new leases, rent reviews and renewals were completed securing £12.8 million (our share) of annual income and reducing voids. This activity helped support valuation momentum over the year.

Including rent from pre-lets and leases currently in rent free periods, the initial yield of the investment portfolio at 31 March 2010 was 5.3%, 80 basis points lower than a year earlier. The near-term reversionary yield of the portfolio at 31 March 2010 was 5.7% down from 7.0% at 31 March 2009.

Our North of Oxford Street portfolio produced a strong performance over the year, increasing in value by 20.3% on a like-for-like basis. City and Southwark assets saw a 3.8% uplift in values and the Rest of West End properties grew by 8.5%. Development properties grew by 24.4% over the year to £24.0 million, but much of our pipeline is still income producing and, therefore, is included in the investment portfolio. Our joint venture properties rose in value by 11.2% compared to a 16.9% rise for the wholly-owned portfolio over the year.

Pleasingly, acquisitions made during the year (excluding the sale of the 100 Bishopsgate site and the effective repurchase of a 50% share) increased in value by 23.9% in the five months' average hold period, handsomely outperforming the remainder of the portfolio.

The Group delivered a Total Property Return ("TPR") for the year of 18.4%, compared to the central London IPD benchmark of 19.4%. The performance was significantly impacted by the CPO of 18/19 Hanover Square, W1 in November 2009 at a value well beneath our and CBRE's view of a fair market price. This transaction reduced the Group's TPR by 2.2%.

Total property return (% p.a.) relative to IPD central London index

£1,247.7m portfolio valuation (including our share of JVs) at 31 March 20103.1% rental growth in Q4