Great Portland Estates confident in ongoing growth despite market uncertainty

Josh White WebFG News | 15 Nov, 2017 08:22 | | |

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17:20 22/11/17

Great Portland Estates reported a 1% improvement in its portfolio valuation in its first half results on Wednesday, with the value of its developments rising 1.6% over the half-year.

The FTSE 250 firm said rental value grew 0.7% year-on-year for the six month period to 30 September, with office rental rising 0.5% and retail rental ahead 1.7%, while its yield contracted four basis points.

Total property return stood at 2.4%, with a capital return of 1.0% compared to the IPD Central London quarterly index figure of 2.9%.

The board upgraded its rental value growth guidance for the financial year, with the range now between 1.5% and -2.5%.

“We are pleased to report a good set of results with all our key financial performance measures moving in the right direction and our balance sheet as strong as ever,” said chief executive Toby Courtauld.

“Another successful leasing performance has driven voids lower and rent roll to a new record whilst a busy period of portfolio activity has delivered increases in both rental and capital values.

“As a result, we have raised the interim dividend by 8.1% and increased our rental guidance for the financial year.”

Looking at the books, the company reported a “robust” financial performance, with an increased EPRA net asset value, earnings and interim dividend.

Its EPRA net asset value per share was 813p, up 1.8% over six months, while net assets fell to £2.64bn from £2.74bn, with the reduction primarily due to the payment of a £110m special dividend in the period.

EPRA earnings were £31.6m, up 11.7% on the first half of 2016, with EPRA earnings per share of 9.6p, up 15.7%.

After a revaluation surplus, Great Portland reported a profit after tax of £25.3m, swinging from a loss of £62.8m a year ago.

The board claimed a total accounting return of 2.6% over six months, and confirmed an interim dividend per share of 4p, up 8.1%.

Leasing activity was said to be ahead of estimated recovery value and capturing reversion, driving Great Portland’s rent roll to new record.

It reported 37 new lettings in the period, for an annual rent of £11.3m across 170,100 square feet, with market lettings 2.4% above the March estimated recovery value.

The company also completed 21 rent reviews, securing £8.7m - 42.9% ahead of passing rent, and 8.7% ahead of estimated recovery value at the review date.

A total of £3.1m reversion had been captured since March, the board said, with further reversionary potential of 17.0% or £20.2m.

Great Portland’s rent roll was up 8.8% over the six month period, and 18.7% over 12 months, to £119.2m, with the board claiming total potential future rent roll growth of 50%.

The company’s vacancy rate reduced to 5.4%, with average office rent standing at £52.80 per square foot on an average lease length of 5.5 years.

A further £3.2m of lettings had been completed since 1 October, with market lettings 6.0% above March’s estimated recovery value and £6.9m of lettings currently under offer, in line with March and September estimated recovery value.

“Today, in spite of the macro-economic and political uncertainties, tenant interest remains healthy across our portfolio with £6.9m of lettings currently under offer,” Toby Courtauld added.

“Moreover, activity and pricing in central London's commercial property market remains robust for prime assets, offering potential opportunities for us to crystallise further surpluses through sales in the near term.”

Courtauld said that, although the company could expect “some weakness” in market rents and secondary yields during the period of uncertainty, demographic growth and the broad spread and depth of the capital's economic activity would help to cement its position as one of “only a handful” of global cities and Europe's business capital, generating demand for Great Portland’s brand of “well designed, centrally located, high quality” space.

“Additionally, we can look forward to Crossrail, Europe's largest infrastructure project, near to which 86% of our portfolio sits, opening in late 2018,” he added.

The company was continuing to progress its “profitable development” programme, with three near-term schemes all to benefit from Crossrail, and an increased flexible medium-term pipeline.

One 37,300 square foot scheme had been completed, with Great Portland reporting a profit on cost of 15.8%, adding that it was 10.5% pre-let with “good” leasing interest.

It also reported two committed schemes totalling 313,400 square feet, with a profit on cost of 1.8% - or 13.8% excluding Rathbone residential - with the schemes 75.2% pre-let or pre-sold, increasing to 87.5% when including space under offer.

The firm also claimed good progress across three near-term schemes totalling 414,000 square feet, including the recently-acquired Cityside House in E1, and a new-build planning application submitted at Oxford House in W1, all with potential starts in 2018.

Potential capital expenditure to come across committed and near-term schemes stood at £248m, the board reported.

It said its flexible medium-term development pipeline increased to 13 schemes, with an expected 35% area increase on the existing 1m square feet, a current 4.6% net initial yield, 3.8 years average lease length, and 18.7% reversionary.

The company made one acquisition in the first half - the purchase of the freehold of Cityside and Challenger House in E1 for £49.6m, or £320 per square feet - and had a likely net seller in the second half, with £196m of pre-sale proceeds to come on the handover of residential at Rathbone Square in W1 in early 2018.

Great Portland said it had a further £400m in the market to sell.

It claimed a “strong” financial position looking ahead, with a low loan-to-value ratio and “significant” liquidity.

Proforma loan-to-value stood at 15.4%, compared to 18.3% at the end of March, with a weighted average interest rate of 2.7%, weighted average debt maturity of 5.7 years, and proforma liquidity of £497m.

“With a clear and focussed strategy, we look to our future with confidence; after more than four years of net sales, we have the financial strength to exploit any future market weakness; our investment portfolio is let off low average rents with plenty of near-term reversion to capture; our future development opportunities, covering 40% of our portfolio, are stronger than ever, including three potential starts in 2018; and, our first class, strengthened team is ready to capitalise on this period of uncertainty,” Toby Courtauld concluded.

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