Great Portland Estates results for the year to 31 March 2017 have been released and, while NAV fell, earnings were up. The chief executive acknowledges the short-term challenges facing the capital but says that, in the long-term, London is one of only a handful of truly global cities.
Valuation lower – driven by yield expansion in H1
- Portfolio valuation down 4.9% in year (of which, developments: down 1.2%) and down 0.4% in second half
- Yield expansion of 15 basis points (H1: +16 bp; H2: -1 bp)
- Rental value decline of 1.3% (H1: -0.5%; H2: -0.8%); -1.8% offices, +0.5% retail
- 12 month capital return of -5.1% v 0.4% for IPD Central London Index (10 year capital return: 75.4% v 45.6%)
Resilient financial performance – strong uplift in EPRA earnings and dividend
- EPRA NAV per share of 799 pence, down 5.7% in year and 1.7% in H2
- Net assets of GBP2,738.4 million (March 2016: GBP2,912.2 million)
- EPRA earnings of GBP59.3 million, up 24.1% on 2016. EPRA EPS of 17.3 pence, up 28.1%
- After revaluation deficit, reported loss before tax of GBP140.2 million (March 2016: profit of GBP555.1 million)
- Total dividends per share of 10.1 pence (2016: 9.2 pence), up 9.8%
Record year of capital recycling, crystallising development profits – net sales of GBP656 million
- Disposals of GBP727 million at a 3.1% discount to March 2016 book value, including forward sales of two long-let commercial development schemes (73/89 Oxford Street and Rathbone Square, W1) for GBP651 million crystallising a combined whole life profit of in excess of GBP227 million
- GBP71 million of bolt-on acquisitions, all in West End
Continued successful leasing activity ahead of ERV and capturing reversion – rent roll growth potential
- 52 new lettings (282,700 sq ft) securing annual income of GBP20.5 million, including nine development lettings (GBP8.3 million, all on at least 10 year terms); market lettings 0.6% ahead of March 2016 ERV
- 32 rent reviews settled securing GBP12.9 million; 45.3% above previous passing rent, 2.6% ahead of ERV
- Vacancy rate at 6.8%, average office rent only GBP50.10 sq ft, reversionary potential of 21.2% (GBP23.3 million)
- Since year end, lettings of GBP5.1 million at 2.1% premium to March 2017 ERV; further GBP6.9 million under offer, 2.4% above March 2017 ERV
- Rent roll growth of 13.2% to GBP109.6 million; total potential future rent roll growth of 54.5% to GBP169.3 million
De-risked development programme – exceptional flexible pipeline of opportunity (40% of existing portfolio)
- Four schemes completed and two forward sold (500,800 sq ft, profit on cost of 28%) since March 2016; 17 schemes now completed since 2009, delivering 1.5 million sq ft of high quality space at an average profit on cost of 38%
- Three committed schemes (350,000 sq ft), 65% pre-sold, expected profit on cost of 2%, capex to come of GBP44.5 million, all due to complete in next nine months
- Good progress across two near-term uncommitted consented schemes (309,300 sq ft), both adjacent to West End Crossrail stations with potential starts over next 12 months
- Exceptional development opportunity from medium-term flexible pipeline; 12 uncommitted schemes (1.3 million sq ft), 4.0 years average lease length, income producing off low average office rents (GBP48.20 sq ft)
Strongest ever financial position – ongoing commitment to balance sheet discipline
- Pro forma LTV of 12.2%, weighted average interest rate lower at only 2.7%, debt maturity extended to 6.4 years
- Pro forma cash & undrawn facilities of GBP618 million post payment of 32.15p special dividend per share
London one of only a handful of truly global cities
Toby Courtauld, Chief Executive, said: “We are pleased to report resilient financial results for the year driven by a strong operational performance. With multiple leasing successes and record levels of capital recycling, we have taken advantage of elevated prices to crystallise development surpluses. As a result, our balance sheet has never been stronger and, in addition to our recently declared special dividend, we have raised the final dividend by 14.3%.
Today, tenant interest is healthy for our brand of high quality, well located, sensibly priced space with GBP6.9 million of lettings currently under offer at a 2.4% premium to March 2017 ERVs. Whilst the weight of international capital looking to invest in London remains high, we expect the uncertain political and economic environment to weigh on rental levels across London’s commercial property markets in the near term. Looking longer-term, we are optimistic that the capital will retain its status as one of only a handful of truly global cities.
In this context, Great Portland Estates is exceptionally well positioned: Four years of net property sales combined with our recent refinancing successes gives us unprecedented financial capacity to exploit any market weakness with accretive acquisitions; our investment portfolio is well let, off low average rents and with significant reversionary potential; our remaining committed development projects are already 65% pre-sold with strong interest in much of the balance; our exceptional, income-producing, development pipeline is rich with opportunity, offering more than 1.6 million sq ft of flexible future growth potential, covering 40% of our existing portfolio; and, our first class, refreshed team is ready to capitalise on this period of uncertainty.”
GPOR : Great Portland Estates – London one of only a handful of truly global cities