REG - Great Portland Ests. - Great Portland Estates Full Year Results 2017 <Origin Href="QuoteRef">GPOR.L</Origin> - Part 2
24/05/2017 07:06
- Part 2: For the preceding part double click ID:nRSX0379Ga
mark to market of the Group's 2029 debenture and remaining
private placement notes combined with the potential tax due on the Group's
sale of the residential element of Rathbone Square, W1 more than offsetting
the positive valuation of the Group's derivatives.
Attractive EPRA earnings per share growth
EPRA earnings were £59.3 million, 24.1% higher than last year predominantly
due to increased rental income, increased capitalised interest from our
development activity and lower provisions for performance related pay
including share-based payments.
Rental income from wholly-owned properties and joint venture fees for the year
were £80.2 million and £4.1 million respectively, generating a combined income
of £84.3 million, up £4.7 million or 5.9% on last year. This increase
predominantly resulted from £3.4 million of like-for-like growth through
capturing reversion on lease renewals and rent reviews, £2.1 million of
development lettings offset by £0.8 million of net income lost by our net
sales activity in the prior year. Adjusting for acquisitions, disposals and
transfers to and from the development programme, like-for-like rental income
(including joint ventures) increased 8.6% on the prior year.
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 £4.0 million in the prior year.
EPRA earnings from joint ventures were £2.5 million, down £1.3 million from
£3.8 million last year, reflecting lower levels of joint venture activity
following the sale, last year, of 95 Wigmore Street, W1 and securing vacant
possession at Hanover Square, W1.
Property expenses were £0.9 million lower at £7.3 million predominantly due to
reduced marketing activities as a result of lower pre-letting activity in the
development programme. Administration costs were £20.1 million, a reduction of
£4.3 million on last year, largely as a result of lower provisions for
performance related pay including payments under share incentive plans.
Gross interest paid on our debt facilities was £25.7 million (in line with the
prior year), although we capitalised interest of £18.3 million (2016: £13.3
million) as we continued to deliver our committed developments including
Rathbone Square, W1, 30 Broadwick Street, W1 and 55 Wells Street, W1. As a
result, the Group had an underlying net finance expense (including interest
receivable on joint venture balances) of £0.2 million (2016: £7.0 million).
The revaluation deficit of the Group's investment properties led to the
Group's reported IFRS loss after tax of £139.4 million (2016: profit of £556.2
million). Basic IFRS EPS for the year was a loss of 40.8 pence, compared to a
profit of 162.6 pence for 2016. Diluted IFRS EPS for the year was a loss of
40.8 pence compared to a profit of 161.9 pence for 2016. Diluted EPRA EPS was
17.3 pence (2016: 13.5 pence), an increase of 28.1% and cash EPS of 10.6 pence
(2016: 8.9 pence).
Results of joint ventures
The Group's net investment in joint ventures was £480.8 million, a decrease
from £543.4 million at 31 March 2016, largely due to the reduction in value of
the property portfolio as well as several non-core asset disposals during the
year. Our share of joint venture net rental income was £17.4 million, an
increase of 2.4% on last year due to increased asset management transactions
capturing reversion. Our share of non-recourse net debt in the joint ventures
was lower at £74.0 million at 31 March 2017 (2016: £76.1 million)
predominantly due to a higher cash balance being held.
Strongest ever financial position
Group consolidated net debt reduced to £502.8 million at 31 March 2017, down
from £568.0 million at 31 March 2016 as proceeds from property disposals more
than offset the Group's acquisitions and capital expenditure against a
backdrop of broadly stable working capital. Group gearing fell to 18.4% at 31
March 2017 from 19.5% at 31 March 2016.
Including non-recourse debt in joint ventures, total net debt was £576.8
million (2016: £644.1 million) equivalent to a low loan-to-property value of
18.3% (2016: 17.4%). The proportion of the Group's total net debt represented
by our share of net debt in joint ventures was 12.8% at 31 March 2017,
compared to 11.8% a year earlier. At 31 March 2017, the Group, including its
joint ventures, had cash and undrawn committed credit facilities of £378
million.
Pro forma for the receipt of remaining deferred consideration on property
sales, the special dividend of £110 million and the refinancing of the Group's
remaining private placement notes in May 2017, the Group's loan-to-property
value was 12.2%.
The Group's weighted average cost of debt for the year, including fees and
joint venture debt, was 4.0%, an increase of 10 basis points compared to the
prior year. The weighted average interest rate (excluding fees) at the year
end decreased to 3.0% (2016: 3.7%) due to the repayment in March 2017 of
£159.7 million of private placement notes which had a blended fixed rate
coupon of 5.3% and were due to mature in 2018 and 2021. The premium paid for
the early repayment of these notes was £16.8 million (or 5 pence per share),
representing the redemption value over book value of £51.5 million offset by
£34.7 million received on the cancellation of the associated cross currency
swaps. These notes were replaced with a new issue of seven-year private
placement notes at a fixed rate coupon of 2.15% in May 2017.
At 31 March 2017, 82% of the Group's total debt (including non-recourse joint
ventures) was at fixed or hedged rates (2016: 100%). The Group, including its
joint ventures, is operating with substantial headroom over its debt
covenants.
Robust tenant base
None of our tenants went into administration around the March 2017 quarter day
(March 2016: none) and we had no tenant delinquencies in the year (2016: two).
However, we are vigilant and continue to monitor the financial position of our
tenants on a regular basis.
Taxation
The tax credit in the income statement for the year is £0.8 million (2016:
£1.1 million) and the underlying effective tax rate is 0% (2016: 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. The Group complied
with all relevant REIT tests for the year to 31 March 2017.
All entities within the Group are UK tax resident; as our business is located
wholly in the UK, we consider this to be appropriate. The Group maintains an
open working relationship with HMRC and seeks pre-clearance in respect of
complex transactions. HMRC regards the Group as 'low risk' and maintaining
this status is a key objective of the Group.
As a REIT, we are exempt from UK corporation tax in respect of our property
rental business, provided we meet a number of conditions including
distributing at least 90% of the rental income profits of this business (known
as Property Income Distributions (PIDs)) on an annual basis. These PIDs are
then typically treated as taxable income in the hands of shareholders. The
Group's REIT exemption does not extend to either profits arising from the sale
of investment properties in respect of which a major redevelopment has
completed within the preceding three years or profits arising from trading
properties (including the sale of the residential units at Rathbone Square,
W1).
Despite being a REIT, we are subject to a number of other taxes and certain
sector specific charges in the same way as non-REIT companies. During the
year, we incurred £8.9 million in respect of stamp taxes, section 106
contributions, community infrastructure levies, empty rates in respect of
vacant space, head office rates, employer's national insurance and
irrecoverable VAT.
Dividend growth
The Group operates a low and progressive ordinary dividend policy. The Board
has declared a final dividend of 6.4 pence per share (2016: 5.6 pence) which
will be paid in July 2017. All of this final dividend will be a REIT PID in
respect of the Group's tax exempt property rental business. Together with the
interim dividend of 3.7 pence, the total dividend for the year is 10.1 pence
per share (2016: 9.2 pence), a 9.8% increase in the 12 months.
In addition, following the sale of the commercial element of Rathbone Square,
W1, we announced a special dividend in April 2017 of £110 million, or 32.15
pence per share, representing approximately the whole life surplus generated
from the development scheme. The special dividend will be paid on 31 May 2017
accompanied by a 19 for 20 share consolidation of the Company's ordinary share
capital to maintain the Group's share price and per share financial metrics.
Group income statement
For the year ended 31 March 2017
Notes 2017 2016
£m £m
Total revenue 2 121.9 128.8
Net rental income 3 80.2 75.5
Joint venture management fee income 12 4.1 4.1
Rental and joint venture fee income 84.3 79.6
Property expenses 4 (7.3) (8.2)
Net rental and related income 77.0 71.4
Administration expenses 5 (20.1) (24.4)
Development management revenue 14 25.2 37.6
Development management costs 14 (25.2) (33.6)
- 4.0
Trading property - cost of sales (0.3) (0.6)
Operating profit before surplus on property and results of joint ventures 56.6 50.4
(Deficit)/surplus from investment property 10 (136.9) 422.2
Share of results of joint ventures 12 (57.2) 66.8
Operating (loss)/profit (137.5) 539.4
Finance income 6 9.0 7.8
Finance costs 7 (9.2) (14.8)
Premium paid on cancellation of private placement notes 16 (51.5) -
Fair value movement on convertible bond 10.1 13.5
Fair value movement on derivatives 38.9 9.2
(Loss)/profit before tax (140.2) 555.1
Tax 8 0.8 1.1
(Loss)/profit for the year (139.4) 556.2
Basic (loss)/earnings per share 9 (40.8)p 162.6p
Diluted (loss)/earnings per share 9 (40.8)p 161.9p
Basic EPRA earnings per share 9 17.3p 14.0p
Diluted EPRA earnings per share 9 17.3p 13.5p
All results are derived from continuing operations in the United Kingdom.
Group statement of comprehensive income
For the year ended 31 March 2017
Notes 2017 2016
£m £m
(Loss)/profit for the year (139.4) 556.2
Items that will not be reclassified subsequently to profit and loss
Actuarial (deficit)/gain on defined benefit scheme 25 (3.6) 0.1
Total comprehensive expense and income for the year (143.0) 556.3
Group balance sheet
At 31 March 2017
Notes 2017 2016
£m £m
Non-current assets
Investment property 10 2,351.9 2,932.1
Investment in joint ventures 12 480.8 543.4
Plant and equipment 13 5.1 1.1
Deferred tax 8 2.0 1.3
2,839.8 3,477.9
Current assets
Trading property 11 246.7 172.4
Trade and other receivables 14 351.8 37.0
Corporation tax 8 1.0 0.6
Cash and cash equivalents 25.5 12.7
625.0 222.7
Total assets 3,464.8 3,700.6
Current liabilities
Trade and other payables 15 (147.0) (135.0)
(147.0) (135.0)
Non-current liabilities
Interest-bearing loans and borrowings 16 (537.7) (600.2)
Obligations under finance leases 18 (35.9) (50.5)
Pension liability 25 (5.8) (2.7)
(579.4) (653.4)
Total liabilities (726.4) (788.4)
Net assets 2,738.4 2,912.2
Equity
Share capital 19 43.0 43.0
Share premium account 352.0 352.0
Capital redemption reserve 16.4 16.4
Retained earnings 2,330.8 2,509.9
Investment in own shares 20 (3.8) (9.1)
Total equity 2,738.4 2,912.2
Net assets per share 9 796p 847p
EPRA NAV 9 799p 847p
Approved by the Board on 24 May 2017 and signed on its behalf by:
Toby Courtauld Nick Sanderson
Chief Executive Finance Director
Group statement of cash flows
For the year ended 31 March 2017
Notes 2017 2016
£m £m
Operating activities
Operating (loss)/profit (137.5) 539.4
Adjustments for non-cash items 21 192.4 (491.8)
Deposits received on forward sale of residential units 8.8 34.9
Development of trading property (75.0) (45.2)
(Increase)/decrease in receivables (12.7) 6.8
Decrease in payables (5.4) (1.5)
Cash (absorbed)/generated from operations (29.4) 42.6
Interest paid (29.0) (27.4)
Tax repaid 0.1 -
Cash flows from operating activities (58.3) 15.2
Investing activities
Distributions from joint ventures 56.2 110.3
Purchase and development of property (187.3) (365.8)
Purchase of plant and equipment (4.9) (1.1)
Sale of properties 346.5 321.0
Investment in joint ventures (6.7) (4.4)
Cash flows from investing activities 203.8 60.0
Financing activities
Revolving credit facility drawn/(repaid) 109.0 (28.0)
Redemption of private placement notes (159.7) -
Premium paid on redemption of private placement notes 16 (51.5) -
Termination of cross currency swaps 16 34.7 -
Funds to joint ventures (33.6) (0.1)
Purchase of own shares - (8.1)
Equity dividends paid (31.6) (30.6)
Cash flows from financing activities (132.7) (66.8)
Net increase in cash and cash equivalents 12.8 8.4
Cash and cash equivalents at 1 April 12.7 4.3
Cash and cash equivalents at 31 March 25.5 12.7
Group statement of changes in equity
For the year ended 31 March 2017
Notes Share Share Capital Retained Investment Total
capital premium account redemption earnings in own equity
£m £m reserve £m shares £m
£m £m
Total equity at 1 April 2016 43.0 352.0 16.4 2,509.9 (9.1) 2,912.2
Loss for the year - - - (139.4) - (139.4)
Actuarial deficit on defined benefit scheme - - - (3.6) - (3.6)
Total comprehensive expense for the year - - - (143.0) - (143.0)
Employee Long-Term Incentive Plan and Share Matching Plan charge 20 - - - - 1.0 1.0
Dividends to shareholders 22 - - - (31.8) - (31.8)
Transfer to retained earnings 20 - - - (4.3) 4.3 -
Total equity at 31 March 2017 43.0 352.0 16.4 2,330.8 (3.8) 2,738.4
Group statement of changes in equity
For the year ended 31 March 2016
Notes Share Share Capital Retained Investment Total
capital premium account redemption earnings in own equity
£m £m reserve £m shares £m
£m £m
Total equity at 1 April 2015 43.0 352.0 16.4 1,991.2 (11.7) 2,390.9
Profit for the year - - - 556.2 - 556.2
Actuarial gain on defined benefit scheme - - - 0.1 - 0.1
Total comprehensive income for the year - - - 556.3 - 556.3
Employee Long-Term Incentive Plan and 20 - - - - 4.2 4.2
Share Matching Plan charge
Purchase of own shares 20 - - - - (8.1) (8.1)
Dividends to shareholders 22 - - - (31.1) - (31.1)
Transfer to retained earnings 20 - - - (6.5) 6.5 -
Total equity at 31 March 2016 43.0 352.0 16.4 2,509.9 (9.1) 2,912.2
Notes forming part of the Group financial statements
1 Accounting policies
Basis of preparation
The financial information contained in this announcement has been prepared on
the basis of the accounting policies set out in the financial statements for
the year ended 31 March 2017. Whilst the financial information included in
this announcement has been prepared in accordance with International Financial
Reporting Standards (IFRS), as adopted by the European Union, this
announcement does not itself contain sufficient information to comply with
IFRS. The financial information does not constitute the Company's financial
statements for the years ended 31 March 2017 or 2016, but is derived from
those financial statements.
Financial statements for 2016 have been delivered to the Registrar of
Companies and those for 2017 will be delivered following the Company's Annual
General Meeting. The auditor's reports on both the 2017 and 2016 financial
statements were unqualified; did not draw attention to any matters by way of
emphasis; and did not contain statements under s498(2) or (3) of the Companies
Act 2006.
The financial statements are prepared on the going concern basis and have been
prepared on the historical cost basis, except for the revaluation of
properties and financial instruments.
Significant judgements and sources of estimation uncertainty
In the process of preparing the financial statements, the directors are
required to make certain judgements, assumptions and estimates. Not all of the
Group's accounting policies require the directors to make difficult,
subjective or complex judgements or estimates. Any estimates and judgements
made are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be
reasonable under the circumstances. Although these estimates are based on the
director's best knowledge of the amount, event or actions, actual results may
differ from those estimates.
The following is intended to provide an understanding of the policies that
management consider critical because of the level of complexity, judgement or
estimation involved in their application and their impact on the financial
statements.
Significant judgements: recognition of sales and purchases of property
The Group recognises sales and purchases of property when the risks and
rewards of ownership transfer to the new owner. Whilst in most instances this
assessment is straightforward, arrangements such as forward sales, significant
levels of deferred consideration or transactions with other complex
arrangements require the directors to exercise judgement in recognising the
transaction.
Key source of estimation uncertainty: property portfolio valuation
The valuation to assess the fair value of the Group's investment properties is
prepared by its external valuer. The valuation is based upon a number of
assumptions including future rental income, anticipated maintenance costs,
future development costs and an appropriate discount rate. The valuers also
make reference to market evidence of transaction prices for similar
properties. For the current year and prior year the directors adopted the
valuation without adjustment, further information is provided in the
accounting policy for investment property and note 10.
New accounting standards
During the year ended 31 March 2017, the following accounting standards and
guidance were adopted by the Group:
· Amendments to IFRS (Annual improvements 2012-2014 cycle)
· Amendments to IFRS 11
· Amendments to IAS 16 and IAS 38
· Amendments to IAS 27
· Amendments to IAS 1
· Amendments to IAS 10, IFRS 12 and IAS 28
The adoption of the Standards and Interpretations has not significantly
impacted these financial statements.
At the date of approval of these financial statements, the following Standards
and Interpretations were in issue but not yet effective (and in some cases had
not yet been adopted by the EU) and have not been applied in these financial
statements:
· Amendments to IAS 7 Statement of cash flows; disclosure initiative
· Amendments to IAS 12 Income taxes; recognition of deferred tax assets for
unrealised losses
· Amendments to IFRS 2 Share-based payments; clarifying how to account for
certain types of share-based payment transactions
· IFRS 9 Financial instruments
· IFRS 15 Revenue from contracts with customers
· IFRS 16 Leases
· Amendments to IFRS 4 Insurance contracts; regarding the implementation of
IFRS 9 Financial instruments
· Amendment to IAS 40 Investment property; relating to transfers of investment
property
· Annual improvements (2014-2016 cycle)
· IFRIC 22 Foreign currency transactions and advance consideration
None of these are expected to have a significant effect on the financial
statements of the Group. Certain Standards which may have an impact are
discussed below.
· IFRS 9 Financial instruments
IFRS 9 replaces the classification and measurement models for financial
instruments in IAS 39 (Financial Instruments: recognition and measurement)
with three classification categories: amortised cost, fair value through
profit or loss and fair value through other comprehensive income. Due to the
Group's limited use of complex financial instruments, IFRS 9 is not expected
to have a material impact on its reported results.
· IFRS 15 Revenue from contracts with customers
IFRS 15 establishes a single, principles-based revenue recognition model to be
applied to all contracts with customers. Revenue is recognised when a customer
obtains control of a good or service and thus has the ability to direct the
use and obtain the benefits from the good or service. IFRS 15 replaces IAS 18
Revenue and IAS 11 Construction Contracts and related interpretations. New
disclosure requirements are also introduced. The majority of the Group's
revenue is derived from rental income which is within the scope of IFRS 15. As
a result, it is not anticipated that the new standard will have a material
impact on the Group's reported results.
· IFRS 16 Leases
IFRS 16 replaces IAS 17 Leases and requires all operating leases in excess of
one year, where the Group is the lessee, to be included on the Group's balance
sheet, and recognise a right-of-use asset and a related lease liability
representing the obligation to make lease payments. The right-of-use asset
will be assessed for impairment annually (incorporating any onerous lease
assessments) and amortised on a straight-line basis, with the lease liability
being amortised using the effective interest method. Lessor accounting is
unchanged from previous guidance. As the Group is primarily a lessor, it is
not anticipated that the new standard will have a material impact on the
Group's reported results.
Basis of consolidation
The Group financial statements consolidate the financial statements of the
Company and all its subsidiary undertakings for the year ended 31 March 2017.
Subsidiary undertakings are those entities controlled by the Group. Control is
assumed when the Group directs the financial and operating policies of an
entity to benefit from its activities.
Rental income
This comprises rental income and premiums on lease surrenders on investment
properties for the year, exclusive of service charges receivable.
Tenant leases
The directors have considered the potential transfer of risks and rewards of
ownership in accordance with IAS 17 - Leases for all properties leased to
tenants and in their judgement have determined that all such leases are
operating leases.
Lease incentives
Lease incentives, including rent-free periods and payments to tenants, are
allocated to the income statement on a straight-line basis over the lease term
or on another systematic basis, if applicable. The value of resulting accrued
rental income is included within the respective property.
Other property expenses
Irrecoverable running costs directly attributable to specific properties within
the Group's portfolio are charged to the income statement as other property
expenses. Costs incurred in the improvement of the portfolio which, in the
opinion of the directors, are not of a capital nature are written-off to the
income statement as incurred.
Administration expenses
Costs not directly attributable to individual properties are treated as
administration expenses.
Share-based payment
The cost of granting share-based payments to employees and directors is
recognised within administration expenses in the income statement. The Group
has used the Stochastic model to value the grants, which is dependent upon
factors including the share price, expected volatility and vesting period, and
the resulting fair value is amortised through the income statement over the
vesting period. The charge is reversed if it is likely that any
non-market-based criteria will not be met.
Segmental analysis
The directors are required to present the Group's financial information by
business segment or geographical area. This requires a review of the Group's
organisational structure and internal reporting system to identify reportable
segments and an assessment of where the Group's assets or customers are
located.
All of the Group's revenue is generated from investment properties located in
central London. The properties are managed as a single portfolio by an asset
management team whose responsibilities are not segregated by location or type,
but are managed on an asset-by-asset basis. The majority of the Group's assets
are mixed-use, therefore the office, retail and any residential space is
managed together. Within the property portfolio, the Group has a number of
properties under development. The directors view the Group's development
activities as an integral part of the life cycle of each of its assets rather
than a separate business or division. The nature of developing property means
that whilst a property is under development it generates no revenue and has no
operating results. Once a development has completed, it returns to the
investment property portfolio, or if it is a trading property, it is sold. The
directors have considered the nature of the business, how the business is
managed and how they review performance and, in their judgement, the Group has
only one reportable segment. The components of the valuation, as provided by
the external valuer, are set out in note 10.
Investment property
Investment properties and investment properties under development are
professionally valued on a fair value basis by qualified external valuers and
the directors must ensure that they are satisfied that the valuation of the
Group's properties is appropriate for inclusion in the accounts without
adjustment.
The valuations have been prepared in accordance with the RICS Valuation -
Professional Standards Global January 2014 including the International
Valuation Standards and the RICS Valuation - Professional Standards UK January
2014 (revised April 2015) ("the Red Book") and have been primarily derived
using comparable recent market transactions on arm's length terms.
For investment property, this approach involves applying market-derived
capitalisation yields to current and market-derived future income streams with
appropriate adjustments for income voids arising from vacancies or rent-free
periods.
These capitalisation yields and future income streams are derived from
comparable property and leasing transactions and are considered to be the key
inputs in the valuation. Other factors that are taken into account in the
valuations include the tenure of the property, tenancy details, planning,
building and environmental factors that might affect the property.
In the case of investment property under development, the approach applied is
the 'residual method' of valuation, which is the investment method of
valuation as described above with a deduction for the costs necessary to
complete the development, together with an allowance for the remaining risk.
Sales and purchases of investment properties are recognised when the risks and
rewards of ownership transfer, based on the terms and conditions of each
transaction.
Trading property
Trading property is being developed for sale or being held for sale after
development is complete, and is carried at the lower of cost and net
realisable value. Cost includes direct expenditure and capitalised interest.
Cost of sales, including costs associated with off-plan residential sales, are
expensed to the income statement as incurred.
Depreciation
No depreciation is provided in respect of freehold investment properties and
leasehold investment properties. Plant and equipment is held at cost less
accumulated depreciation. Depreciation is provided on plant and equipment, at
rates calculated to write off the cost, less residual value prevailing at the
balance sheet date of each asset evenly over its expected useful life, as
follows:
Fixtures and fittings - over three to five years.
Leasehold improvements - over the term of the lease.
Joint ventures
Joint ventures are accounted for under the equity method where, in the
directors' judgement, the Group has joint control of the entity. The Group's
level of control in its joint ventures is driven both by the individual
agreements which set out how control is shared by the partners and how that
control is exercised in practice. The Group balance sheet contains the Group's
share of the net assets of its joint ventures. Balances with partners owed to
or from the Group by joint ventures are included within investments. The
Group's share of joint venture profits and losses are included in the Group
income statement in a single line. All of the Group's joint ventures adopt the
accounting policies of the Group for inclusion in the Group financial
statements.
Income tax
Current tax is the amount payable on the taxable income for the year and any
adjustment in respect of previous years. Deferred tax is provided in full on
temporary differences between the tax base of an asset or liability and its
carrying amount in the balance sheet. Deferred tax is determined using tax
rates that have been enacted or substantively enacted by the balance sheet
date and are expected to apply when the asset is realised or the liability is
settled. Deferred tax assets are recognised when it is probable that taxable
profits will be available against which the deferred tax assets can be
utilised. No provision is made for temporary differences arising on the
initial recognition of assets or liabilities that affect neither accounting
nor taxable profit. Tax is included in the income statement except when it
relates to items recognised directly in other comprehensive income or equity,
in which case the related tax is also recognised directly in other
comprehensive income or equity.
Pension benefits
The Group contributes to a defined benefit pension plan which is funded with
assets held separately from those of the Group. The full value of the net
assets or liabilities of the pension fund is brought on to the balance sheet
at each balance sheet date. Actuarial gains and losses are taken to other
comprehensive income; all other movements are taken to the income statement.
Capitalisation of interest
Interest associated with direct expenditure on investment and trading
properties under development is capitalised. Direct expenditure includes the
purchase cost of a site if it has been purchased with the specific intention
to redevelop, but does not include the original book cost of a site where no
intention existed. Interest is capitalised from the start of the development
work until the date of practical completion. The rate used is the Group's
weighted average cost of borrowings or, if appropriate, the rate on specific
associated borrowings.
Financial instruments
i Derivatives The Group uses derivative financial instruments to hedge its
exposure to foreign currency fluctuations and interest rate risks. The Group's
derivatives are measured at fair value in the balance sheet. Derivatives are
initially recognised at fair value at the date a derivative contract is
entered into.
ii Borrowings The Group's borrowings in the form of its debentures, private
placement notes and bank loans are recognised initially at fair value, after
taking account of any discount or premium on issue and attributable
transaction costs. Subsequently, borrowings are held at amortised cost, with
any discounts, premiums and attributable costs charged to the income statement
using the effective interest rate method.
iii Convertible bond The Group's convertible bond can be settled in shares,
cash or a combination of both at the Group's discretion. The bonds have been
designated at fair value through profit and loss upon initial recognition,
with any gains or losses arising subsequently due to re-measurement being
recognised in the income statement.
iv Cash and cash equivalents Cash and cash equivalents comprise cash in hand,
demand deposits and other short-term highly liquid investments that are
readily convertible into a known amount of cash and are subject to
insignificant risk of changes in value.
v Trade receivables and payables Trade receivables and payables are initially
measured at fair value, and are subsequently measured at amortised cost using
the effective interest rate method.
Head leases
The present value of future ground rents is added to the carrying value of a
leasehold investment property and to long-term liabilities. On payment of a
ground rent, virtually all of the cost is charged to the income statement,
principally as interest payable, and the balance reduces the liability; an
equal reduction to the asset's valuation is charged to the income statement.
Development management agreements
Should the Group sell a development property prior to completion, it will
often have a development management agreement with the buyer to construct the
remainder of the building on their behalf. Where the outcome of this
development management agreement can be estimated reliably, revenue and costs
are recognised by reference to the stage of completion of the contract at the
balance sheet date. This is normally measured as the proportion that contract
costs incurred for work performed bear to the estimated total contract costs.
Variations in work, claims and incentive payments are included to the extent
that they have been agreed with the counterparty.
Where the outcome of the development management agreement cannot be estimated
reliably, contract revenue is recognised to the extent of costs incurred where
it is probable they will be recoverable. Costs are recognised as expenses in
the period in which they are incurred. When it is probable that total costs
will exceed total revenue, the expected loss is recognised as an expense
immediately.
2 Total revenue
2017 2016
£m £m
Gross rental income 77.7 72.8
Spreading of tenant lease incentives 3.1 3.0
Service charge income 11.8 11.3
Joint venture fee income 4.1 4.1
Development management revenue 25.2 37.6
121.9 128.8
3 Net rental income
2017 2016
£m £m
Gross rental income 77.7 72.8
Spreading of tenant lease incentives 3.1 3.0
Ground rents (0.6) (0.3)
80.2 75.5
4 Property expenses
2017 2016
£m £m
Service charge income (11.8) (11.3)
Service charge expenses 13.9 12.3
Other property expenses 5.2 7.2
7.3 8.2
5 Administration expenses
2017 2016
£m £m
Employee costs 13.9 20.1
Depreciation 0.9 0.2
Other head office costs 5.3 4.1
20.1 24.4
Included within employee costs is an accounting charge for the LTIP and SMP
schemes of £1.0 million (2016: £4.2 million). Employee costs, including those
of directors, comprise the following:
2017 2016
£m £m
Wages and salaries 13.8 19.2
Social security costs 1.5 2.5
Other pension costs 1.6 1.5
16.9 23.2
Less: recovered through service charges (1.0) (1.0)
Less: capitalised into development projects (2.0) (2.1)
13.9 20.1
The emoluments and pension benefits of the directors are set out in detail
within the Directors' remuneration report on pages 104 to 130. The Executive
Directors are considered to be key management for the purposes of IAS 24
'Related Party Transactions'. The Group's key management, its pension plan and
joint ventures are the Group's only related parties.
Employee information
The average number of employees of the Group, including directors, was:
2017 2016
Number Number
Head office and property management 102 96
Auditor's remuneration
2017 2016
£000's £000's
Audit of the Company's annual accounts 106 114
Audit of subsidiaries 98 96
204 210
Audit-related assurance services, including the interim review 62 61
Total audit and audit-related services 266 271
Services related to taxation (advisory) 21 11
287 282
6 Finance income
2017 2016
£m £m
Interest on balances with joint ventures 9.0 7.8
7 Finance costs
2017 2016
£m £m
Interest on revolving credit facilities 3.3 3.4
Interest on private placement notes 12.9 12.9
Interest on debenture stock 8.0 8.0
Interest on convertible bond 1.5 1.5
Interest on obligations under finance leases 1.8 2.3
Gross finance costs 27.5 28.1
Less: capitalised interest at an average rate of 4.1% (2016: 3.9%) (18.3) (13.3)
9.2 14.8
8 Tax
2017 2016
£m £m
Current tax
UK corporation tax - -
Tax over provided in previous years (0.1) (0.6)
Total current tax (0.1) (0.6)
Deferred tax (0.7) (0.5)
Tax credit for the year (0.8) (1.1)
The difference between the standard rate of tax and the effective rate of tax
arises from the items set out below:
2017 2016
£m £m
(Loss)/profit before tax (140.2) 555.1
Tax (credit)/charge on (loss)/profit at standard rate of 20% (2016: 20%) (28.0) 111.0
REIT tax-exempt rental profits and gains (4.0) (18.4)
Changes in fair value of properties not subject to tax 32.8 (89.3)
Changes in fair value of financial instruments not subject to tax (2.9) (4.5)
Prior periods' corporation tax (0.1) (0.6)
Other 1.4 0.7
Tax credit for the year (0.8) (1.1)
During the year, £nil (2016: £nil) of deferred tax was credited directly to
equity. The Group's net deferred tax asset at 31 March 2017 was £2.0 million
(2016: £1.3 million), based on a 19% tax rate. This consists of a deferred tax
liability of £2.8 million (2016: £nil) and a deferred tax asset of £4.8
million (2016: £1.3 million).
Movement in deferred tax
At 1 April Recognised in the income statement At 31 March 2017
2016 £m £m
£m
Deferred tax liability in respect of £150 million 1.00% convertible bonds 2018 - (2.8) (2.8)
Deferred tax asset in respect of revenue losses 1.3 2.7 4.0
Deferred tax asset in respect of other temporary differences - 0.8 0.8
Net deferred tax asset 1.3 0.7 2.0
A deferred tax asset of £3.4 million (2016: £3.8 million), mainly relating to
revenue losses, contingent share awards and the pension liability was not
recognised because it is uncertain whether future taxable profits will arise
against which this asset can be utilised.
As a REIT, the Group is largely exempt from corporation tax in respect of its
rental profits and chargeable gains relating to its property rental business.
The Group is otherwise subject to corporation tax. In particular, the Group's
REIT exemption does not extend to either profits arising from the sale of
investment properties in respect of which a major development has completed
within the preceding three years or profits arising from trading properties
(including the sale of the residential units at Rathbone Square, W1).
In order to ensure that the Group is able to both retain its status as a REIT
and to avoid financial charges being imposed, a number of tests (including a
minimum distribution test) must be met by both Great Portland Estates plc and
by the Group as a whole on an ongoing basis. These conditions are detailed in
the Corporation Tax Act 2010.
9 Performance measures and EPRA metrics
Adjusted earnings and net assets per share are calculated in accordance with
the Best Practice Recommendations issued by the European Public Real Estate
Association (EPRA). The recommendations are designed to make the financial
statements of public real estate companies clearer and more comparable across
Europe enhancing the transparency and coherence of the sector. The directors
consider these standard metrics to be the most appropriate method of reporting
the value and performance of the business.
Weighted average number of ordinary shares
2017 2016
Number of Number of
shares shares
Issued ordinary share capital at 1 April 343,926,149 343,926,149
Investment in own shares (1,933,616) (1,811,076)
Weighted average number of ordinary shares - Basic 341,992,533 342,115,073
Basic and diluted (loss)/earnings per share
Loss Number Loss Profit Number Earnings
after tax of shares per share after tax of shares per share
2017 2017 2017 2016 2016 2016
£m million pence £m million pence
Basic (139.4) 342.0 (40.8) 556.2 342.1 162.6
Dilutive effect of LTIP shares - - - - 1.4 (0.7)
Diluted (139.4) 342.0 (40.8) 556.2 343.5 161.9
Basic and diluted EPRA (loss)/earnings per share
(Loss)/profit Number (Loss)/ Profit Number Earnings
after tax of shares earnings after tax of shares per share
2017 2017 per share 2016 2016 2016
£m million 2017 £m million pence
pence
Basic (139.4) 342.0 (40.8) 556.2 342.1 162.6
Deficit/(surplus) from investment property (note 10) 136.9 - 40.1 (422.2) - (123.4)
Deficit/(surplus) from joint venture investment property (note 12) 59.6 - 17.4 (64.6) - (18.9)
Movement in fair value of derivatives (38.9) - (11.4) (9.2) - (2.7)
Movement in fair value of convertible bond (10.1) - (3.0) (13.5) - (4.0)
Movement in fair value of derivatives in joint ventures (note 12) 0.1 - - 1.0 - 0.3
Trading property - cost of sales 0.3 - 0.1 0.6 - 0.2
Premium paid on cancellation of private placement notes (note 16) 51.5 - 15.1 - - -
Deferred tax (note 8) (0.7) - (0.2) (0.5) - (0.1)
Basic EPRA earnings 59.3 342.0 17.3 47.8 342.1 14.0
Dilutive effect of LTIP shares - 0.3 - - 1.4 (0.1)
Dilutive effect of convertible bond - - - 1.5 21.0 (0.4)
Diluted EPRA earnings 59.3 342.3 17.3 49.3 364.5 13.5
EPRA net assets per share
Net assets Number Net assets Net assets Number Net assets
2017 of shares per share 2017 2016 of shares per share
£m 2017 pence £m 2016 2016
million million pence
Basic net assets 2,738.4 343.9 796 2,912.2 343.9 847
Investment in own shares - (1.8) 4 - (2.6) 6
Dilutive effect of convertible bond - - - 150.0 21.0 (8)
Dilutive effect of LTIP shares - 0.3 (1) - 1.4 (3)
Diluted net assets 2,738.4 342.4 799 3,062.2 363.7 842
Surplus on revaluation of trading property (note 11) 17.3 - 5 22.2 - 6
Fair value of convertible bond (note 17) 9.4 - 3 19.5 - 5
Fair value of derivatives (note 17) (28.5) - (8) (24.3) - (6)
Fair value of derivatives in joint ventures (note 12) 1.3 - - 1.2 - -
Deferred tax (note 8) (2.0) - - (1.3) - -
EPRA NAV 2,735.9 342.4 799 3,079.5 363.7 847
Fair value of financial liabilities (note 17) (71.0) - (21) (75.5) - (21)
Fair value of financial liabilities in joint ventures (note 12) (2.1) - (1) (1.6) - -
Fair value of convertible bond (note 17) (9.4) - (3) - - -
Fair value of derivatives (note 17) 28.5 - 8 24.3 - 6
Fair value of derivatives in joint ventures (note 12) (1.3) - - (1.2) - -
Tax arising on sale of trading properties (3.3) - (1) (4.2) - (1)
Deferred tax (note 8) 2.0 - 1 1.3 - -
EPRA NNNAV 2,679.3 342.4 782 3,022.6 363.7 831
The Group has £150.0 million of convertible bonds in issue with an initial
conversion price of £7.15 per share. The dilutive effect of the contingently
issuable shares within the convertible bond is required to be recognised in
accordance with IAS 33 - Earnings per Share. For the current and prior year
the convertible bond had no dilutive impact on IFRS EPS. In accordance with
the EPRA Best Practice Recommendations, we have presented EPRA earnings per
share on a basic and diluted basis.
EPRA cost ratio (including share of joint ventures)
2017 2016
£m £m
Administration expenses 20.1 24.4
Property expenses 7.3 8.2
Joint venture management fee income (4.1) (4.1)
Joint venture property and administration costs 4.1 2.2
EPRA costs (including direct vacancy costs) (A) 27.4 30.7
Direct vacancy costs (3.2) (2.3)
Joint venture direct vacancy costs (1.8) (1.1)
EPRA costs (excluding direct vacancy costs) (B) 22.4 27.3
Net rental income 80.2 75.5
Joint venture net rental income 17.4 17.0
Gross rental income (C) 97.6 92.5
Portfolio at fair value including joint ventures (D) 3,145.5 3,703.9
Cost ratio (including direct vacancy costs) (A/C) 28.1% 33.2%
Cost ratio (excluding direct vacancy costs) (B/C) 23.0% 29.5%
Cost ratio (by portfolio value) (A/D) 0.9% 0.8%
EPRA capital expenditure is included in note 10.
Net debt
2017 2016
£m £m
£142.9 million 55⁄8% debenture stock 2029 143.9 144.0
£450.0 million revolving credit facility 107.0 -
Private placement
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