The profit before tax for the period was £134.5 million (2013: £76.5 million) after accounting for the net valuation gain on investment properties of £107.9 million (2013: £47.7 million) and fair value losses on financial instruments of £0.6 million (2013: £8.5 million gains). There was an increase of £10.6 million (21.6%) in gross rental income and the underlying net profit before tax, i.e. excluding net valuation movements, was £27.3 million (2013: £20.4 million). Gross rental income and underlying profit before tax both benefited from the one-off impact of the settlement of a significant contested rent review, referred to below.
The property portfolio has been valued by the Directors based on the recommendations of the Group's external advisors. The overall net valuation gain of £107.9 million (2013: £47.7 million) reflects net gains in both the UK and USA portfolios. In the UK, there has been further strong growth in Central London and Home Counties residential property; growth in residential values in the rest of the UK is also now well established. Central London commercial property continues to strengthen, but demand and values in the provincial markets remain difficult. In the USA, the rate of increase in values observed during the initial recovery from the financial crisis has slowed, but values in Boston have benefited from continued strong demand.
As previously announced, the settlement of the contested rent review on the Strand Palace Hotel gave rise to a one-off benefit to rental income in the period of £7.9 million. This has also given rise to a significant uplift in the value of the Group's interest in the hotel.
Also as previously announced, the Group secured a tenant for the whole of the refurbished Africa House in Kingsway, London WC2 in July 2014. As anticipated at the time of the Annual Report & Accounts, this has contributed to a further substantial increase in the value of the property.
The half year results have benefited materially from the confluence of the timing of the new letting of Africa House and the resolution of the rent review at the Strand Palace Hotel. The rental benefit of these positive events will continue to accrue in future years but future increases in the capital values of these properties are likely to be more modest, in line with the market as a whole.
In the USA the economy continues to grow. The general UK outlook continues to show improvement but this has largely been confined to the London area. Uncertainty created by the upcoming General Election and issues such as the UK's future relationship with the EU combine to make the immediate future particularly hard to predict with any certainty. Nevertheless, we believe that our tried and tested strategy, based on the prudent long term pursuit of growth in asset values, will enable us to make continued progress in challenging times.
The principal risk factors affecting the remainder of the financial year continue to be exposure to movements in the valuation of the Group's investment properties and financial instruments and the incidence of voids or bad debts.
In November 2013 we made a periodic adjustment to the level of the interim dividend to reflect the effect of increases in the aggregate annual dividend in recent years on the proportion of total dividend paid at the interim stage. In line with this, an interim dividend of 35p per share will be paid on 6 March 2015 to shareholders on the register on 6 February 2015.
Mr Aaron "Mendy" Bude was appointed to the Board on 25 November 2014 as a non-executive director. Mr Bude is a founding partner of Bude Nathan Iwanier, a firm of solicitors specialising in property matters.
