Valuation

The valuation of the Group´s properties as at 31 March 2009, including our share of gross assets in joint venture, was £1,129.1 million, down 28.0% or £439.1 million on a like-for-like basis net of capital expenditure since 31 March 2008. The valuation of the portfolio at year end was lower by £110 million due to the disposals of 208/222 Regent Street, W1, 180 Great Portland Street, W1, Metropolitan Wharf, E1 and the sale of 15 flats at 79/83 Great Portland Street, W1. Wholly-owned properties were valued at £794.7 million and the Group had four 50:50 joint ventures which owned properties valued in aggregate at £668.8 million at 31 March 2009.

31 March 2009
portfolio valuation of £1,129.1 million
(including our share of JVs)

The second half´s overall like-for-like valuation decline of 20.5% was greater than that experienced in the first half of 9.5% due to the worsening of market conditions since September 2008. The portfolio valuation, provided by our external valuer CB Richard Ellis, is likely to come under further downward pressure during the year to March 2010 until there are signs of recovery in the debt and wider capital markets and property investor sentiment improves.

Portfolio performance
  Wholly-
owned
£m
Share of joint venture
£m
Total
£m
Proportion of portfolio
%
Valuation
movement
%
North of Oxford Street Office 240.7 71.2 311.9 27.6 (29.3)
  Retail 68.1 71.0 139.1 12.3 (13.9)
Rest of West End Office 142.0 96.8 238.8 21.2 (35.4)
  Retail 97.9 69.5 167.4 14.8 (12.1)
Total West End 548.7 308.5 857.2 75.9 (26.3)
City and Southwark Office 148.5 17.6 166.1 14.7 (36.2)
  Retail 8.7 1.7 10.4 0.9 1.7
Total City and Southwark 157.2 19.3 176.5 15.6 (34.8)
Investment property portfolio 705.9 327.8 1,033.7 91.5 (27.9)
Development property 88.8 5.5 94.3 8.4 (28.9)
Total properties held throughout the year 794.7 333.3 1,128.0 99.9 (28.0)
Acquisitions 1.1 1.1 0.1 (44.8)
Total property portfolio 794.7 334.4 1,129.1 100.0 (28.0)
Portfolio characteristics
  At 31 March 2009
  Investment property portfolio £m Properties under development
£m
Total property portfolio £m Office
£m
Retail
£m
Total
£m
Net internal area
sq ft
000´s
North of Oxford Street 452.1 77.0 529.1 384.8 144.3 529.1 1,179.0
Rest of West End 406.2 406.2 238.8 167.4 406.2 891.1
Total West End 858.3 77.0 935.3 623.6 311.7 935.3 2,070.1
City and Southwark 176.5 17.3 193.8 180.7 13.1 193.8 674.6
Total 1,034.8 94.3 1,129.1 804.3 324.8 1,129.1 2,744.7
By use: Office 717.5 86.8 804.3
  Retail 317.3 7.5 324.8
Total 1,034.8 94.3 1,129.1
Net internal area sq ft 000’s 2,555.0 189.7 2,744.7

The key influences on the Group´s valuation movement for the year were:

  • Rental value changes The major factor in valuation reduction since the half year has been a fall in rental values of 16.7%. For the year as a whole, office rental values have declined by 23.3% retail rental values a more modest 1%. The heaviest falls in rental values in the office have been in the Rest of West End segment, down 27.8%, compared to the least impacted sub sector of the City and Southwark which was down 16.0%, in part reflecting the low average rental values of these properties at £27.30 per sq ft;
  • Adverse yield shift Equivalent yields expanded by 114 basis points over the year (2008: 68 basis points increase) from 5.6% to 6.7% on a like-for-like basis. The IPD central London equivalent yield increased by 160 basis points, during the year, which was in excess of the yield shift of the Group's properties;
  • Active asset management During the year, 108 new leases, rent reviews and renewals were completed securing £13.5 million of annual income, partly mitigating outward market yield shift; and
  • Development properties The development properties fell in value by 28.9% over the year, slightly more than the rest of the portfolio. The Group´s building at Wells & More, Mortimer Street, W1 suffered marginally less due to strong leasing following its practical completion in January 2009.
108 new leases, rent reviews and renewals securing £13.5 million annual income

The initial yield of the investment portfolio including rent from leases currently in rent free periods of 6.1%, was 170 basis points higher than the start of the year at 4.4%. The office portfolio adjusted initial yield was 6.5% at 31 March 2009 compared to the retail portfolio of 4.9% at the same date. The near-term reversionary yield of the portfolio, including committed developments, at 31 March 2009 was 7.0% up from 6.5% at 31 March 2008.

Our North of Oxford Street portfolio produced the least negative performance over the year, decreasing by 25.2% on a like-for-like basis. City and Southwark was the worst performer (down 34.8%) as significant yield expansion and rental value falls were factored into the valuation. The joint venture properties fell in value by 27.8% compared to a 28.1% fall for the wholly-owned portfolio over the year.

Total property return relative to IPD central London
6.7% true equivalent yield

The Group delivered a total property return for the year of minus 25.1%, outperforming the IPD Central and Inner London Properties benchmark of minus 27.5%. We have now outperformed our key portfolio benchmark for six consecutive years. In April 2009, the Group won the IPF/IPD award for the specialist fund above £350 million with the highest three year annualised relative return against its benchmark.