Great Portland Estates Half Year Results 2016

Toby Courtauld, Chief Executive, said:

"We are pleased to report resilient first half results, despite the more uncertain economic environment following the EU referendum, built around a strong operational performance, our unprecedented financial strength and the enduring appeal of well-designed and managed central London real estate. We have maintained our leasing momentum across our West End focused portfolio and continued to recycle capital profitably, selling properties where we have created significant value.

The referendum result has had a negative effect on business confidence in London which will likely result in lower economic growth. As a consequence, we can expect London's commercial property markets to weaken during this period of uncertainty. However, the broad spread and depth of its economic activity and a growing population will, we believe, help to ensure that London maintains its position as a truly global city and Europe's business capital.

Within this more challenging environment, GPE is well positioned: Our investment portfolio is almost fully occupied, off low average rents and with significant reversionary potential; our committed development programme is largely de-risked, being 72% pre-let or pre-sold and leasing interest in the balance remains robust; our income-producing development pipeline is full of enticing prospects with 1.7 million sq ft of flexible future growth potential; following more than three years of net property sales crystallising material surpluses, our balance sheet has never been stronger and gearing never lower, giving us significant financial capacity to exploit any market weakness, just as we did in 2009; and, we have a first class team ready to capitalise on this period of uncertainty."

A conference call facility will be available to listen to the presentation at 9.00am today on the following numbers:

UK: 0808 109 0700 (freephone)

International: +44 (0) 20 3003 2666

Disclaimer

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

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

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

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Half Year Results

We have delivered a resilient financial performance in the first half, despite the more uncertain economic backdrop, and our activities over the last few years mean that GPE is well positioned to take advantage of opportunities as they emerge; our leasing successes have delivered almost full occupancy in our investment portfolio, which is let off low average rents of only £46.20 per sq ft with significant reversionary potential; and our five committed development schemes are largely de-risked, being 72% pre-let or pre-sold, with robust leasing interest in the balance. Looking ahead, our flexible and income-producing development pipeline of 16 schemes totals 1.7 million sq ft, offering significant future growth potential, and our balance sheet has never been stronger with LTV at record low levels, following more than three years of profitable net property sales. With our clear strategy, opportunity-rich portfolio, significant financial capacity and a first class team, we are ready to exploit any market weakness and capitalise on this period of uncertainty.

Our market

Introduction

Central London's economy and commercial property markets have to date proven broadly resilient to the heightened uncertainty created by the EU referendum result. Business and consumer surveys have rebounded from immediate post-referendum lows and whilst activity levels in the occupational and investment markets have declined, both remain open for business for better quality assets. However, the most immediate impact has been a small increase in office property yields, resulting in valuation declines.

Looking ahead, we remain in the early stages of a likely protracted process both to negotiate our exit from the EU and reshape our trading arrangements with the rest of the world, set against both a property market backdrop where we were already experiencing slowing rental and capital value growth and a broad range of global political and economic uncertainties, including the recent US election result. As a result, we expect London's commercial property markets to weaken further during this period of heightened uncertainty and likely subdued market activity, with the benefits of lower bond yields and weaker Sterling offset by reduced rental growth prospects in a potentially more inflationary environment.  However, while the long-term ramifications will likely be unclear for some time, London remains a major global city with a track record of adapting to changing market conditions and offering significant attractions for a diverse range of businesses and investors.

Overview

With the pace of UK economic growth already slowing prior to the EU referendum, most economic forecasters have understandably re-evaluated downwards the prospects for the UK economy in the short to medium term, reining in forecast growth for 2017 in particular. According to Oxford Economics, annual forecast GDP growth over the next three years has reduced from 2.2% to 1.4% as heightened economic and political uncertainty is expected to weigh on business confidence and investment decisions. Moreover, the most recent Deloitte UK CFO survey undertaken in September showed that only 18% of CFOs think now is a good time to take risk onto balance sheets, with cost reduction and building up cash balances ranking as their two top priorities. However, Oxford Economics forecasts that London should continue to outperform the wider UK economy with annual GDP growth of 1.9% expected over the next three years. In addition, the Capital's population is forecast to grow further and employment rates are at record levels, as yet largely unaffected by the referendum result. 

However, against a more uncertain outlook, Oxford Economics' forecast office-based employment growth in inner London has reduced by 36% to 106,000 net new jobs being created between now and 2020.  We expect lower forecast GDP and employment growth, combined with some businesses deferring investment decisions, to have an adverse impact on our occupational markets, although current low vacancy rates should provide some near-term mitigation. Consequently, we now estimate annual rental value growth across our portfolio of between -5% and 0% for this financial year.

London's investment market has softened since the spring as office yields moved out to reflect increased levels of uncertainty and reduced rental growth prospects. Whilst the level of equity capital looking to invest in London remains near record highs, transaction volumes have reduced markedly. In the first quarter following the referendum, CBRE reported that there were only £1.3 billion of office transactions in central London, considerably below the 10-year quarterly average of £3.3 billion. CBRE estimate that City and West End office capital values decreased by 6% and 7% respectively in the quarter to September, with prime office yields increasing by 25 basis points across both markets. We expect yields to soften further over the next six months, with prime assets likely to be more resilient than secondary properties as international capital searches for high quality income returns in a global low yield environment.

Occupational markets supported by tight supply

Over the six months to 30 September 2016, central London office take-up was 5.3 million sq ft, a decrease of 24.5% on the preceding six months and 17.2% below the 10 year average of 6.4 million sq ft. However, take-up continues to originate from a broad range of industries, including creative businesses (33%), banking & finance (23%) and business services (19%). The central London availability rate rose for the sixth consecutive quarter to 6.1%, although it remained below the ten year average of 6.7%. Despite this, the supply of high quality, well located space remains tight with only six units of 100,000 sq ft or more available for occupation across central London at 30 September 2016. This has helped support rental values and pre-letting activity across our markets, as demonstrated by our most recent letting successes at 30 Broadwick Street and 73/89 Oxford Street, both W1. However, there has been some small increase in tenant incentives (including rent frees) and we are aware that some landlords are offering increased lease flexibility, including shorter lease terms.

In the central London office market as a whole, development completions in the six months to 30 September 2016 were 1.8 million sq ft. However, in the core of the West End, the focus of our development activities, completions totalled only 0.6m sq ft in the six month period. This supply shortage has meant that pre-lets continue to represent more than 25% of central London office take-up.  Looking ahead, the speculative development pipeline is now lower than the position we reported at 31 March 2016.  In central London, 23.9 million sq ft of new space is expected to be delivered over the next five years to December 2020, of which 2.3 million sq ft is in the West End core, which equates to only 0.8% per annum.

West End occupational market

Over the six months to 30 September 2016, West End office take-up was 1.7 million sq ft, down 14.3% on the preceding six months, while availability is 4.9 million sq ft. Vacancy rates remain low at 2.9%, with grade A space vacancy estimated by CBRE to be only 2.5%. Across the West End, CBRE reported that whilst prime office rental values were static at £120 per sq ft over the last six months, rent frees increased on average by three months to 15-18 months on a ten year lease.

The West End retail market (where 32.1% of our West End portfolio by value is located) has continued to be strong. Over the six months, robust demand for retail space, particularly from international retailers for prime locations, has maintained a near zero vacancy, with leasing activity increasing CBRE's central London prime retail rent index by 12%. Appetite has been supported by increased spending from tourist visitors benefiting from weaker Sterling, although the forthcoming business rate increases are likely to have some offsetting impact going forward.

City, Midtown and Southbank occupational markets

Over the six months to 30 September 2016, City office take-up was 1.9 million sq ft, while availability increased to 5.5 million sq ft. Although higher than in the West End, vacancy rates remain low at 4.4% with grade A vacancy estimated by CBRE to be only 2.9%. CBRE also reported that City prime rental values were stable over the period at £70 per sq ft, whilst the rent free period on a ten-year lease increased by three months to 21-25 months.

Midtown and Southbank continued to be supported by good leasing activity, driven primarily by the large office letting at Battersea Power Station (467,300 sq ft) over the summer. Despite this, take up in Midtown and Southbank was down 13.5% on the preceding six months at 1.4 million sq ft. CBRE reported that whilst prime office rental values were static at £80 and £62.50 per sq ft respectively over the last six months, rent frees increased on average by three months to 18-21 months on a ten-year lease.

Slowing investment market activity

Following an active six months to March 2016 with £7.9 billion of central London investment transactions, activity has slowed with £4.3 billion of deals in the first half of the financial year. Activity started to decelerate ahead of the EU referendum with £3.0 billion in the three months to June 2016 but slowed markedly post referendum to £1.3 billion of transactions in the following quarter, with a notable reduction in large lot size office transactions. Within this total, central London retail investment volumes have remained robust with £800 million of transactions in the quarter to September 2016. Interest from overseas investors continued to dominate the office and retail markets, accounting for 73% of transactions over the last six months, as Sterling's depreciation provided value for international buyers, particularly from Asia, Middle East and North America.

We reported in May 2016 that we estimated £33.8 billion of equity capital was seeking to invest in commercial property across central London compared to only £4.9 billion of stock on the market available to buy. Today we estimate that there is currently £4.5 billion of stock on the market available to buy, whilst the weight of money seeking to invest has increased to £38.5 billion, with a notable increase from private investors. Although levels of equity demand remain close to record highs and debt availability remains good for prime quality assets and sponsors, investment yields for office properties have softened. In the quarter to 30 September 2016, prime yields increased by 25 basis points in both the West End and City to 3.75% and 4.25% respectively, according to CBRE.

Lead indicators reflect market uncertainty

Given the cyclical nature of our markets, we actively monitor numerous lead indicators to help identify key trends in our marketplace.

1.         West End property yields over ten year gilt yields adjusted for inflation

2.         Amount of space available to let given current rates of take-up expressed in terms of months, with a reduction being supportive to rental values

Although investment activity in the central London commercial property market has declined over the period, overall our property capital value indicators have improved as the weakening of Sterling and significant further loosening of UK monetary policy have outweighed the anticipated impact of reduced forecast economic activity. Conversely, our rental value indicators have weakened as both the GDP outlook and forecast growth rate in employment levels in central London have declined. Moreover, slowing take-up rates have resulted in the market balance rising to levels approaching the 20 months' supply of space at which historically rents have started to fall. Accordingly, we expect that rental and capital values will decline further over the next six months, barring an unexpectedly swift and positive resolution to the current political and economic uncertainty.

Our business

Our business is accompanied by graphics (see Appendix 1)

Development management

Since 2009 we have completed 14 schemes, including two completions and one forward sale since the start of this financial year, delivering 1.2 million sq ft of high quality space with an average profit on cost of 43%. Today, the Group's development programme comprises five committed schemes on site (659,100 sq ft, representing 20% of the Group's total existing portfolio by area), all but one in the West End and all due for completion in the next 15 months. These schemes are expected to deliver a profit on cost of 16.8% and are largely de-risked with 72% of the gross development value already pre-let or pre-sold. In addition, we have two uncommitted schemes that could start in the next 18 months, both in the West End and adjacent to Crossrail stations.

Taken together, capital expenditure to come at our committed schemes totals £129.1 million (our share), which could rise to £275.4 million (our share) if the near-term uncommitted schemes were started. At 30 September 2016, the committed developments were valued at £1,116.6 million (our share), including 30 Broadwick Street, W1, which has subsequently completed, and 73/89 Oxford Street, W1, which has subsequently been forward sold, and the near-term development properties at £262.7 million (our share).

Two completed schemes

At 30 Broadwick Street, W1, our 92,300 sq ft new-build, office and retail scheme, construction work completed in November delivering the only new build office completion in the Soho market in 2016. Letting interest in the building has been strong and in June we pre-let the 7,950 sq ft restaurant unit to The Ivy Soho Brasserie on a 20 year term (no breaks) paying an annual rent of £658,000. In September, the third floor (14,600 sq ft) was pre-let to EQT, the European private equity business, on a 15 year term (break at ten) paying annual rent of £1.3 million. The building is 25% pre-let and today we have a further two office floors and all the remaining retail space under offer (34,500 sq ft) with good interest in the remainder (35,550 sq ft).

During the period, we also completed 90/92 Great Portland Street, W1, a small development (8,600 sq ft) containing the residential requirement for Hanover Square, W1, our near-term development scheme.

One forward sold scheme

At 73/89 Oxford Street, W1, which will deliver 90,200 sq ft of new-build retail and office space directly opposite the Dean Street entrance to the Tottenham Court Road Crossrail station, the construction of the building is progressing well with completion forecast for mid 2017.  In October, we pre-let 33,100 sq ft of offices (known as "1 Dean Street") to Moneysupermarket.com Group plc ("MSM"), the FTSE 250 web based price comparison business. MSM will occupy the third, fourth and fifth floors on a 15 year term (break at ten) paying annual rent of £2.7 million. MSM also has a right of first offer, exercisable in December 2016, to pre-let the remaining 9,500 sq ft sixth floor.  With the two retail units already pre-let to New Look and Benetton, the building is 91% pre-let. As detailed below, since the period end, we have subsequently forward sold the development scheme to Norges.

Five committed schemes      

Construction is progressing well at our 419,700 sq ft mixed-use Rathbone Square development scheme, with the majority of the building now clad, the tower cranes removed and the fit out of the residential element of the building well underway. With the 242,800 sq ft of office space pre-let to Facebook, we have launched the marketing campaign for the 25,200 sq ft of retail and restaurant space and tenant interest has been positive.  

At 160 Old Street, EC1 (formerly 148 Old Street), the construction works are underway to transform the existing 97,800 sq ft building into around 160,600 sq ft of high quality office and retail space. We are targeting completion of the fully consented scheme in early 2018 and, with our marketing suite now open, early leasing interest is encouraging with an average ERV of only £53.35 per sq ft across the office space.

At 65 Wells Street, W1 (formerly Tasman House), the demolition of the existing 1950's building is complete and the main construction contract has commenced. The new building will deliver 37,300 sq ft of new office and retail space into an area that is benefiting from significant local investment, including our activities at Rathbone Square.

We are currently on-site at two schemes on Great Portland Street, W1, where we are delivering 41,500 sq ft of mixed-use space, including the off-site residential requirements for 30 Broadwick Street and 65 Wells Street, both W1. The schemes are progressing well, with completions early in the new year, and we will shortly be embarking on the pre-letting campaign for the office element.

Near-term schemes

Our near-term development programme comprises two schemes (311,800 sq ft), both with potential project starts over the next 18 months.

At Oxford House, 76 Oxford Street, W1, we achieved planning approval in June for our 88,200 sq ft major mixed-use refurbishment. Our plans include a significant increase in the retail space to take advantage of the strong demand for good retail units at the eastern end of Oxford Street. As part of the letting at Rathbone Square, Facebook has a right of first offer (exercisable in January 2017) to pre-let all the anticipated 55,700 sq ft of office space.

At Hanover Square, W1, we are currently demolishing the buildings facing New Bond Street on the western side of the site. These limited works will give us the option, should the market be supportive, to accelerate the construction programme for the wider scheme ahead of delivery of the station structure by Crossrail in 2018. The development is owned in the GHS Partnership, our 50:50 joint venture with the Hong Kong Monetary Authority.

Development pipeline

Beyond our near-term schemes, GPE's well stocked development pipeline for the next cycle includes a further 14 uncommitted projects (1.4 million sq ft). These properties are income producing today with an average lease length of 3.9 years.

Asset management

After a record leasing year in 2015/2016, we have continued to deliver strong leasing results, with highlights since 31 March 2016 including:

·      21 new leases were signed during the first half (2015: 29 leases), generating annual rent of £9.8 million (our share: £9.4 million; 2015: £20.8 million), including three pre-lettings of £4.7 million;

·      market lettings in the first half were 1.0% below March 2016 rental values;

·      40 leases with breaks or expiries in the twelve months to 30 September 2016, 99% by area were retained, re-let, under offer or under refurbishment leaving only 1% to transact;

·      10 rent reviews of £5.2 million (our share: £3.3 million; 2015: £1.9 million) were settled during the half year, representing an annualised increase of £1.8 million per annum, or 53.2% above the previous passing rent;

·      total space covered by new lettings, reviews and renewals during the first half was 207,300 sq ft (2015: 323,100 sq ft);

·      since the period end, we have completed five new leases generating £2.3 million (our share: £1.5 million) of annual rent (15,400 sq ft), 4.5% ahead of March 2016 ERV; and

·      a further 93,000 sq ft of space is currently under offer which would deliver approximately £5.9 million p.a. in rent (our share: £5.9 million), in total 4.2% ahead of March 2016 ERV's, including 35,700 sq ft at our development properties.

As detailed above, leasing activity across our committed development portfolio has continued to be strong and we also continued to capture the significant reversionary upside across our investment portfolio. Notable lettings include the ground and basement floor (14,800 sq ft) lease renewal at Kent House, W1, let to Reiss Limited at £54.20 per sq ft, which captured a reversion of 78%, and two lease renewals at our Piccadilly Buildings, W1 with Case London Ltd at £101.90 per sq ft and Benson & Clegg Ltd at £130.50 per sq ft, capturing a reversion of 54% and 95% respectively.

Overall, these asset management successes have helped maintain the Group's low vacancy rate of 3.1% at 30 September 2016 (31 March 2016: 3.1%). At 30 September 2016, the average rent across our office portfolio was £46.20 per sq ft and our total annualised rent roll (including share of JVs) was £100.4 million, a 3.7% increase over the six month period. This has the potential to grow by 92% to £192.8 million (based on today's ERVs) when factoring in our committed and near-term development programme, reversionary potential and vacant/refurbishment space.

The table below summarises our leasing transactions in the period:

Note: Includes joint ventures at share

Since 30 September 2016, our leasing activity has continued to be good with the most significant letting at Mount Royal, 508/540 Oxford Street, W1, where we agreed a back-to back surrender and re-letting to replace an existing retailer with Holland & Barrett at our prime retail site at the western end of Oxford Street. Holland & Barrett will occupy the 10,200 sq ft store on a 10 year lease paying annual rent of £1.6 million (£608 per sq ft Zone A), 26% ahead of the previous passing rent.

Our pro forma vacancy rate, after taking account of recent lettings, the development completions at 30 Broadwick Street, W1 and 90/92 Great Portland Street, W1, and the forward sale of 73/89 Oxford Street, W1 has risen to 8.3%, which will reduce to 6.0% should we convert all the space currently under offer.

Investment management

Following our forward sale of 73/89 Oxford Street, W1, we have been a net seller so far this financial year (consistent with the three previous financial years), with sales of £292.5 million and acquisitions of £71.0 million.

In May, we acquired for £71.0 million the entire issued share capital of 73/77 Oxford Street Ltd, a debt free company, owning three properties in London's West End, as follows:

·      73/89 Oxford Street, W1 - The freehold interest in GPE's existing prime development at the east end of Oxford Street. Before acquisition, GPE had a 250-year head lease from February 2011, geared to 10% of rents received following practical completion of the scheme; the head rent prior to practical completion is £620,000 per annum. As a result of the purchase, we created a 100% prime asset, adjacent to a Crossrail station, in one of the London's most exciting locations;

·      95 New Bond Street, W1 - The virtual freehold interest in a retail and office property of 4,800 sq ft, situated at the corner of New Bond Street and Blenheim Street.  The property comprises retail on basement to second floor with self-contained offices on third and fourth floors; and

·      96 New Bond Street, W1 - A head leasehold interest which expires in 2045 (29.6 years unexpired) at a fixed ground rent of £2,250 per annum.  The property extends to 4,800 sq ft of retail accommodation. 95 & 96 New Bond Street are let together on a single lease to Victorinox for a total rent of £880,000 per annum which reflects around £400 Zone A, significantly below CBRE's current estimate of £600 Zone A.   

Together the New Bond Street properties will further extend our longer-term pipeline of development opportunities and are in close proximity to the GHS Partnership's Hanover Square estate, which itself has a substantial retail component on New Bond Street. Whilst already reversionary, we expect the location to show further rental growth in the coming years as Crossrail nears completion and our Hanover Square development is completed.

In April, we sold Mortimer House, 37/41 Mortimer Street, W1 for £27.0 million. The 23,800 sq ft office property was vacant and we had the necessary planning consents to undertake a comprehensive refurbishment.  However, as a consequence of the strong demand at the time for vacant refurbishment opportunities, it made financial sense to sell the property and secure our profit.

Following the disposal of 95 Wigmore Street, W1 in April 2015, we have continued to dispose of the residual buildings that comprise the Wigmore Island Site within the Great Wigmore Partnership, our joint venture with Aberdeen Asset Management. In June, we sold the majority of the remaining properties for £28.2 million (our share: £14.1 million). One small building remains which we expect to dispose of in due course.

In November, we forward sold 73/89 Oxford Street, W1 to Norges Bank Real Estate Management ("NBREM") for £276.5 million, reflecting a net initial yield to the buyer of 3.2%. The pre-let office and retail development is under construction with practical completion ("PC") expected in Q2 2017.  The sale, in line with both the March and September book value, crystallises a whole life capital return, from purchase, through development to disposal, of 75% and an annualised ungeared IRR of 28.4%.

NBREM paid £205.2 million, with the balance of the purchase price payable on completion of the leases following PC.  The price allows for a deduction in lieu of interest until PC on NBREM's initial capital outlay at a rate of 3.2% per annum and an allowance for tenant rent free periods.  Based on the current cost and programme, GPE will receive two further payments on completion of the leases in July 2017 of £46.2 million in deferred consideration and £25.1 million for reimbursement of the development costs to complete the scheme.

 Valuation

Valuation is accompanied by graphics (see Appendix 2)

The valuation of the Group's properties was £3,750.5 million as at 30 September 2016, reflecting a valuation decline of 3.7% on a like-for-like basis since 31 March 2016. At 30 September 2016, the wholly-owned portfolio was valued at £3,155.5 million and the Group had four active joint ventures which owned properties valued at £595.0 million (our share) by CBRE.

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

·      yield expansion - equivalent yields increased by 17 basis points over the period due to the impact of the EU referendum result softening demand for properties in our market. At 30 September 2016, the portfolio equivalent yield was 4.5%;

·      rental value decline - since the start of the financial year, rental values have fallen by 0.5%, predominantly driven by a 0.7% decline for offices with retail rental values rising 0.1%. At 30 September 2016, the portfolio was 29.1% reversionary;

·      intensive asset management - during the period, 31 new leases, rent reviews and renewals were completed, securing £12.7 million (our share) of annual income which helped to support the valuation over the period; and

·      development and trading properties - the valuation of current development and trading properties decreased by 1.5% to £1,116.6 million.

Including rent from pre-lets and leases currently in rent free periods, the adjusted initial yield of the investment portfolio at 30 September 2016 was 3.5%, 30 basis points higher than at the start of the financial year.

Our West End investment portfolio produced the most resilient performance by geographic sector over the period, reducing in value by 4.4% on a like-for-like basis, in part driven by an outward movement in yields of 16 basis points. Our City, Midtown and Southbank properties reduced by 5.1%. Our joint venture properties reduced in value by 5.4% over the period while the wholly-owned portfolio reduced by 3.4% on a like-for-like basis.

The Group delivered a total property return (TPR) for the six months to 30 September 2016 of -2.2% (2015: +13.6%), compared to the Central London IPD quarterly benchmark of +0.3%, and a capital return of -3.2% (versus -1.3% for IPD). Over the last five years, the Group has delivered a cumulative capital return of 81.7%, outperforming IPD Central London by 10.4%.

Our financial results

Our financial results is accompanied by graphics, see Appendix 3, and details on our approach to risk are set out in Appendix 1

Net asset value

EPRA net assets per share (NAV) at 30 September 2016 was 813 pence per share, a decrease of 4.0% over the last six months, largely due to the like-for-like reduction in value of the property portfolio. At 30 September 2016, the Group's net assets were £2,826.8 million, down from £2,912.2 million at 31 March 2016.

The main drivers of the 34 pence per share decrease in NAV from 31 March 2016 were:

·      the decline of 43 pence per share arising from the revaluation of the property portfolio. Of this amount, development and trading properties reduced NAV by around 6 pence;

·      EPRA earnings for the period of 8 pence per share enhanced NAV;

·      the final dividend of 6 pence per share reduced NAV;

·      the removal of the potential dilution arising from the convertible bond, in accordance with EPRA guidelines, increased NAV by 8 pence per share; and

·      other movements reduced NAV by 1 pence per share.

Triple net assets per share (NNNAV) was 792 pence at 30 September 2016 compared to 831 pence at 31 March 2016 (down 4.7%). At the period end, the difference between NAV and NNNAV was the net impact of the mark to market of debt and derivatives of 21 pence per share, mainly arising from the Group's 2029 debenture, convertible bond and private placement notes. There was a £0.1 million reduction in deferred tax assets during the period.

Income statement and earnings per share

EPRA profit before tax was £28.3 million, 16.5% higher than for the same period last year, predominantly due to increased capitalised interest from our development activity and lower provisions for performance related pay including share based payments.

Rental income from wholly-owned properties was £38.3 million, down £0.9 million or 2.3% on last year, principally as a result of net divestment by the Group with income foregone through property disposals more than outweighing the income gained on purchases. Joint venture fees were £1.6 million, down £1.2 million on last year due to lower levels of transaction activity in the joint ventures. Taken together, rental income from wholly-owned properties and joint venture fees totalled £39.9 million, down 5.0% on the prior period. Adjusting for acquisitions, disposals and transfers to and from the development programme, like-for-like rental income (including from joint venture properties) increased 3.9% on the prior period.

Property expenses reduced by £1.3 million to £3.2 million, principally due to reduced marketing costs associated with our leasing initiatives for the development portfolio and lower third party costs associated with our management of joint ventures. Administration costs were £10.5 million, a decrease of £2.6 million, primarily as a result of reduced provisions for performance related pay (including share incentive plans). Following the completion in November 2015 of our forward sold development at 12/14 New Fetter Lane, EC4, development management profits reduced to nil from £2.3 million in the prior period.

EPRA profits from joint ventures (excluding fair value movements) were £1.2 million, down from £2.0 million last year, predominantly due to the GHS Partnership gaining vacant possession at our near-term development site at Hanover Square, W1, the cessation of the Great Star Partnership and the sale of 95 Wigmore Street, W1 by the Great Wigmore Partnership in the prior period.

Gross interest paid on our debt facilities was £0.1 million lower than the prior period, although we capitalised interest of £10.4 million (2015: £5.7 million) as we continued to deliver our committed developments including Rathbone Square, W1 and 30 Broadwick Street, W1. As a result, the Group had underlying net finance income (including interest receivable on joint ventures balances) of £0.9 million (2015: £4.4 million expense).

Revaluation losses more than offset increased underlying earnings resulting in an accounting loss after tax of £62.8 million (2015: profit of £371.0 million). The basic loss per share for the period was 18.4 pence, compared to 108.5 pence profit for 2015. The diluted loss per share for the period was 19.9 pence compared to 108.1 pence per share profit for 2015.

Diluted EPRA earnings per share were 8.3 pence (2015: 6.9 pence), an increase of 20.3%.

Results of joint ventures

The Group's net investment in joint ventures was £510.6 million, a reduction from £543.4 million at 31 March 2016, largely due to the reduction in value of the property portfolio. Our share of joint venture net rental income was £8.9 million, up £0.3 million on last year as a result of positive asset management activity.

The underlying joint venture profits are stated after charging £1.6 million of GPE management fees (2015: £2.8 million).

Overall, our four active joint ventures represent an important proportion of the Group's business, although this proportion has reduced over recent years. At 30 September 2016, joint ventures made up 15.9% of the portfolio valuation, 18.1% of net assets and 18.3% of rent roll (31 March 2016: 16.9%, 18.7% and 18.7% respectively).

Financial resources and capital management

Group consolidated net debt was £738.5 million at 30 September 2016, up from £568.0 million at 31 March 2016 (30 September 2015: £666 million) predominantly as a consequence of our development and refurbishment capital expenditure of £158.7 million in the period and the Group's purchase of 73/77 Oxford Street Limited more than offsetting receipts from property sales. Group gearing increased to 26.1% at 30 September 2016 (31 March 2016: 19.5%) as the increase in net debt combined with the reduction in the portfolio valuation. Including the non-recourse debt in the joint ventures, total net debt was £812.6 million (31 March 2016: £644.1 million) equivalent to a loan to value of 21.7% (31 March 2016: 17.4%). The proportion of the Group's total net debt represented by our share of joint venture net debt was 9.1% at 30 September 2016.

At 30 September 2016, the Group, including our share of joint ventures, had cash and undrawn committed credit facilities of £301.4 million. The Group's weighted average cost of debt, including fees and joint venture debt, for the period was 3.9%, in line with the twelve months to 31 March 2016. The weighted average interest rate (excluding fees) at the period end was 3.3% (31 March 2016: 3.7%). At 30 September 2016, 73% of the Group's total drawn debt (including non-recourse joint venture debt) was provided on an unsecured basis (31 March 2016: 66%) and 74% was from non-bank sources (31 March 2016: 93%).

At 30 September 2016, 80% of the Group's total drawn debt (including non-recourse joint ventures) was at fixed or hedged rates (31 March 2016: 100%). However, a significant proportion of hedged debt is subject to capped arrangements and as a result, we are benefiting from low floating rates on around 39% of our total debt. Due to the treatment of capitalised interest under our Group covenants, there is no net interest charge in the period applicable for the purposes of calculating our interest cover ratio (31 March 2016: 12.5x). Without the benefit of interest capitalised, interest cover over the period would be very healthy at more than three times.  

Our weighted average drawn debt maturity was 4.8 years at 30 September 2016 (31 March 2016: 5.5 years). Since the period end, this has increased to 5.0 years as we have extended the maturity of our £450 million revolving credit facility by twelve months to October 2021.

Our debt metrics have further strengthened since the period end following the forward sale of 73/89 Oxford Street, W1. As a result, on a pro forma basis, group consolidated net debt has fallen to £487.1 million, loan to value has reduced to 16.0% and our cash and undrawn credit facilities have increased to £553 million.

Strong cash collection and tenant base

The quarterly cash collection profile has continued to be very strong throughout 2016. We secured 99.9% of rent within seven working days following the September quarter day, marginally ahead of the March and June quarters earlier this year. Tenants on monthly payment terms represent around 3.6% of our rent roll (30 September 2015: 4.1%). We had no tenant delinquencies in the six month period; however, we remain vigilant and continue to monitor the financial position of our tenants. In addition, we have further protection from any tenant defaults with £32.8 million of rent deposits and bank guarantees representing around 33% of rent roll.

Taxation

The tax charge in the income statement for the half year was £0.1 million (2015: credit of £0.2 million) and the underlying effective tax rate was 0% (2015: 0%) as a result of the tax free nature of much of the Group's income, and other allowances being available to set against non-REIT profits.

In general, as a REIT, the Group is broadly exempt from corporation tax in respect of its rental profits and chargeable gains relating to its property rental business but is otherwise subject to corporation tax. In particular, the Group is subject to corporation tax in respect of (i) any profits arising on the sale of trading properties and (ii) any gains arising on the sale of development properties which are sold within three years of completion of the development.

Dividend

The Board has declared an interim dividend of 3.7 pence per share (2015: 3.6 pence) which will be paid on 3 January 2017. All of this dividend will be a REIT Property Income Distribution (PID) in respect of the Group's tax exempt property rental business.

Condensed group income statement

For the six months ended 30 September 2016

Condensed group statement of comprehensive income

         For the six months ended 30 September 2016

Condensed group balance sheet

At 30 September 2016

Condensed group statement of cash flows

For the six months ended 30 September 2016