Property group Capital & Regional - still poring over the potential sale of its stake in the 400,000 sq ft Mall Pallasades shopping centre above Birmingham's New Street Station - has lifted its interim dividend payment by 40 per cent after posting a rise in underlying first half profits.

Pretax profits before an exceptional charge of £ 46 . 9 million rose to £ 20 million from £17.4 million.

The group, which also owns the Star City leisure site in Birmingham, increased its interim dividend payment to 7 pence from 5 pence a share.

Capital & Regional said its net asset value - a key measure for property companies - rose 12.5 per cent to 799 pence a share at the end of June from 710 pence in December.

The specialised real estate asset manager, which focuses on shopping centres, retail parks and leisure complexes, added that the value of its property portfolio rose to £4.6 billion from £4 billion over the course of the six month period.

The possible sale of the Mall Pallasades was flagged up a few months ago, when The Mall - the Capital & Regional subsidiary which operates the centre - confirmed it did not want to become involved in the £350 million revamp of New Street Station.

At the time Ken Ford, chief executive of The Mall, said the company had received a number of unsolicited approaches from parties interested in the centre. Those approaches had prompted The Mall to "explore" the possibility of selling its share in the Pallasades, he added.

The Mall recently spent £1.5 million on a bridge link between the Pallasades and the Bullring and has about 250,000 shoppers every week.

Meanwhile, Martin Barber, chief executive of Capital & Regional, told shareholders: "Our profit before tax and exceptional items is

£20 million, before an exceptional charge of £47 million.

"This is because we have been buying back our Convertible Unsecured Loan Stock at a higher price than the original issue price, and writing off the premium.

"The transaction is beneficial to shareholders because the number of CULS which can be converted into ordinary shares falls, and the premium paid is tax deductible."

Turning to the outlook, he added: "There is no doubt that some parts of the retail sector have been finding the last six months tough.

"Our management approach is to provide very strong marketing and promotional support at the property level, which increases footfall and dwell time and takes an increased proportion of the spend within the catchment.

"Our shopping centres have fared well as a result of this and we have found that vacancies created by tenant failures have generally been quickly taken up, often at higher rental levels.

"We have not experienced any significant problems in our leisure properties and overall are seeing increased rental values across our portfolio.

"When one adds to this the regeneration efforts of our teams in reconfiguring our properties to accommodate current market needs, our outlook is positive.

"The investment market remains strong and I am confident that 2005 will prove to be another very good year."