An improved position

Pre-tax profit’s were up 64%, but underlying investment profits up
only 6.6%. Can you put these numbers in context for me?

The key reason for the differential in the profits is IFRS accounting. Under
IFRS, unrealised valuation gains and losses on the portfolio are now going into
the profit-and-loss account, whereas previously under UK GAAP, they went into
the balance sheet. The valuation surplus last year was £278m, and that
contributed the bulk of the £288m increase in pre-tax profit.

So what we and others in the UK property industry have done is to eliminate
from the pre-tax profits the underlying profit, which is the investment profit
based on our recurring rental income activities.

Are you happy with the shape of your balance sheet? Could you afford
another big acquisition?

Yes, I am quite happy with the shape of the balance sheet. We undertook more
restructuring and refinancing during the year. When we acquired Industrious, it
had all secured debt. We repaid that on acquisition and then redeemed its
debenture. We then redeemed one of our own debentures at the end of last year.
So the ratio of secured to total debt that we now have is 9%, compared with 30%
in 2004. It is the lowest level that Brixton has had. What that means is that it
gives us an unencumbered portfolio of £1.9bn, compared with £1.2bn at the end of

UK Real Estate Investment Trusts (REITs) are going to turn out better
than anticipated. What, for you, are the big issues?

Firstly, we’re very pleased with the announcement inthe Budget. It’s a much
improved position compared with the draft legislation that was published in
December. In terms of the key issues ­ the first one is income cover. The 2.5
times originally proposed ratio was unworkable, in my view. The 1.25 times would
seem to suit most of the quoted prop-erty sector.

Secondly, the conversion charge has been announced and at 2% of gross market
value of assets that would seem to be acceptable to most in the market.

 Thirdly, the 10% rule, which is that the maximum shareholding can’t be
higher than 10%. It’s no longer a condition of REIT entry and they will
introduce legislation measures to counteract if a shareholder goes over 10%, but
if a REIT itself has taken reasonable steps to avoid paying a dividend to those
shareholders that own more than 10%, then it won’t be subject to a tax charge.

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