Portfolio Performance

The value of the portfolio was £9.6 billion at 31 March 2011, an increase of 6.9% on the prior year, including an uplift of 2.0% in the fourth quarter. The main contributors to the full year's valuation increase were:

• Continued recovery in rental values for prime City and West End, combined with strong demand from domestic and international investors;
• Improved investor appetite for high quality retail assets where rental values are now showing early signs of improvement;
• Asset management activities, which included 1.5 million sq ft of new lettings and lease renewals at an average of 6.1% ahead of ERV;
• Office developments, where values increased by 21.8% to £306 million, benefiting from the successful achievement of key milestones including obtaining planning permission on a number of buildings, the creation of our joint venture with Oxford Properties to develop The Leadenhall Building and the successful pre-sale of residential units.

Rental values across the portfolio increased 2.7% over the year, including growth of 0.9% in the final quarter. This compared to a 0.1% increase for the IPD benchmark for the 12 months, with the outperformance reflecting our sector and asset selection. Further detail is provided in the individual Retail and Offices Performance sections of the Annual report PDF (8.15MB). The portfolio net equivalent yield at 31 March 2011 was 5.8%, with compression of 29 bps over the year which was lower than the market where yields compressed by 44 bps.

Portfolio yields (excluding developments)

The capital return of our portfolio was 7.3% for the year to 31 March 2011, significantly outperforming the IPD benchmark by 240 basis points of which 110 basis points was in the fourth quarter. This outperformance was driven by the combination of our focus on prime retail and central London offices and our early decision to invest in development in central London.

The EPRA net initial yield for the portfolio at 31 March 2011 was 5.2%. The EPRA 'topped-up' net initial yield of 5.8% includes £60 million of rent contracted from the expiry of rent-free periods and contracted uplifts where not in lieu of growth. The overall 'topped-up' Net Initial Yield of 6.1% includes a further £21 million from guaranteed fixed and minimum rental uplifts. Our reversionary yield of 5.8% includes prospective rental increases from rent reviews and letting of vacant space less income that is deemed to be over-rented based on our external valuers' opinions of current estimated rental value. The table below shows a summary reconciliation of the portfolio yields.

The Group's income profile remained among the strongest in the sector, reflecting the quality and appeal of our properties with occupancy rates and rental values up on the previous year. Overall occupancy across the portfolio rose to 97.8% (2010: 96.6%) driven by continued successful lettings of our recently completed central London office space, where occupancy rose by 5.2 percentage points to 97.8%. Occupancy remained high in our retail portfolio at 98.5% in the UK and 90.5% in Europe, reflecting continued demand for modern, flexible and affordable retail space in the best locations even in difficult trading conditions. Our average lease length at 11.5 years to first break remains above the industry average with only 8.4% of contracted rent subject to break or expiry within the next 3 years.