Net asset value per share

As reported in both the chairman’s statement and the property review, following a steep decline in central London property values in the first half of 2009, there was a substantial recovery during the second half of the year. As a result, the group’s adjusted net asset value per share attributable to ordinary shareholders as at 31st December 2009 of 1,168p was only 4.7% lower than the prior year; the comparative figure as at 31st December 2008 was 1,226p which, by 30th June 2009, had fallen to 993p. The equivalent adjusted net asset value at 31st December 2009 was £1,179m against £1,236m in December 2008 and £1,001m at the 2009 half year. A full analysis of the trends within the property portfolio can be found in the property review but the overall revaluation deficit on investment properties was relatively modest at £81.1m after a decline of £258.9m in the first half of 2009 and compares with the sizeable decrease of £602.1m for the whole of 2008.

Group income statement

Putting property valuation movements to one side, 2009 was a very strong year for group recurring profit both before and after tax due principally to robust underlying net property income, low net finance costs and the utilisation of previously unrecognised tax losses.

Gross property income increased to £123.8m for the year ended 31st December 2009 as compared to £119.0m for the previous year. The strong letting performances during 2008 and 2009 were partially offset by lower recurring rental income following significant investment property sales towards the end of the year. The impact of these sales will be reflected more in the recurring earnings for 2010; properties sold in 2009 produced annualised gross rental income of £14.2m.

Net property income, after allowing for irrecoverable expenditure and ground rents, increased strongly to £114.8m in 2009 from £95.5m in 2008; the latter was adversely affected by a reverse surrender premium of £8.3m and a provision of £2.0m against the carrying value of trading properties. Net property income in 2009 benefited from a reduction in letting and legal costs of £1.3m compared to the previous year which also included the cost of the Horseferry House lease. In addition, following a thorough review of commercial rates payable across the portfolio, a one-off rates credit of £2.8m has been recognised in 2009.

Group administrative costs increased from £18.3m in 2008 to £20.0m in 2009 mostly due to increased staff costs resulting from a 13% higher headcount. This reflects the full internalisation of the property management function during the year which was previously mostly outsourced. In addition, the 2009 income statement includes a charge of £1.6m for the increase in fair value of cash-settled share options against a credit in 2008 of £1.6m; these movements are outside our direct control as they are linked to share price performance.

The net finance cost within the income statement reflects the troubled nature of debt markets over much of the last two years though our interest rate hedging policy has naturally mitigated the impact of interest rate movements. LIBOR was high through the first nine months of 2008 but has fallen to historically low levels since and floating interest rates remained very low throughout 2009. Due mainly to the reduction in the average cost of our debt as well as the lower net debt position resulting from our property sales programme, net finance costs excluding foreign exchange gains and losses reduced significantly during the year to £37.0m from £47.2m in 2008. The foreign exchange movements arose on the retranslation of a US dollar-denominated loan from a non-trading US subsidiary. In 2009, as sterling recovered some of its 2008 losses, the income statement reflected a foreign exchange gain of £3.6m against a loss of £8.3m in 2008; in both years, the net asset impact is effectively nil as there is an equal and opposite movement taken to reserves.

The result of the above is that the recurring profit before taxation for 2009 was £60.2m, a figure enhanced to some extent by certain items which are unlikely to be repeated in 2010. The comparative figure for 2008 was £23.3m. Adjusting both years to remove the impact of the items discussed above gives an adjusted recurring profit before taxation of £55.4m for 2009 against £38.3m in the previous year, which equates to a year on year improvement of almost 45%. These adjustments have been made to provide a clearer indication of the trend in underlying recurring profits.

The group loss before taxation is a function of recurring profit before taxation as well as the property revaluation movement, adjustment to the fair value of derivatives, and profits or losses on the sales of investment properties. In 2009, the revaluation deficit was £81.1m for the group’s property portfolio and £1.3m for the group’s share of joint ventures against comparative figures of £602.1m and £1.3m, respectively. The theoretical mark-to-market cost of unwinding the group’s interest rate hedging instruments decreased by £3.9m in 2009 as interest rate expectations in the medium-term picked up. The prior year had seen a significant deterioration in sentiment such that the fair value adjustment taken to the income statement in 2008 was a cost of £28.1m. The net proceeds of £201.8m on the sale of investment properties during 2009 were predominantly contracted in a falling market and, hence, showed a loss against 2008 book value amounting to £16.6m or about 7.7%. More than half of the loss on disposal recognised in 2009 results from our best estimate of the losses on three properties in Charing Cross Road subject to compulsory purchase orders in connection with the Crossrail project. The final reckoning of the proceeds payable by Crossrail remains under negotiation. The total profit on investment property disposals in 2008 was £1.2m on net proceeds of £72.6m.

The resulting effect of all these factors was a reported loss before taxation for the year of £34.9m in 2009 as compared with a loss of £606.5m in 2008.

Taxation

The net tax credit arising in 2009 was £9.4m compared to £9.3m in 2008. Both years benefited from the reversal of tax provisions as prior year losses were utilised following agreement with HMRC. The tax credit recognised in 2009 was £11.1m and in 2008 was £7.1m. Current year tax charges on the non-REIT part of the UK business were £3.0m, an increase from £1.4m in 2008. The prior year also showed a higher deferred tax credit due to the larger revaluation deficit in that year.

European Public Real Estate Association (EPRA) data

As a member of EPRA, we support their aim to provide industry-standard measures of adjusted net asset value and earnings. The table below shows the relevant figures for 2009 and the prior year: