Great Portland’s EPRA NAV has slipped by 4% over the six months ended 30 September 2016 to 813p. Total net assets at the end of the period were £2,827m. EPRA profit before tax of GBP28.3 million, was up 16.5% on H1 2015. this translated into a 20.3% increase in EPRA earnings per share to 8.3p. The interim dividend is up 2.8% to 3.7p.
Toby Courtauld, Chief Executive, said: “We are pleased to report resilient first half results, despite the more uncertain economic environment following the EU referendum, built around a strong operational performance, our unprecedented financial strength and the enduring appeal of well-designed and managed central London real estate. We have maintained our leasing momentum across our West End focused portfolio and continued to recycle capital profitably, selling properties where we have created significant value.
The referendum result has had a negative effect on business confidence in London which will likely result in lower economic growth. As a consequence, we can expect London’s commercial property markets to weaken during this period of uncertainty. However, the broad spread and depth of its economic activity and a growing population will, we believe, help to ensure that London maintains its position as a truly global city and Europe’s business capital.
Within this more challenging environment, GPE is well positioned: Our investment portfolio is almost fully occupied, off low average rents and with significant reversionary potential; our committed development programme is largely de-risked, being 72% pre-let or pre-sold and leasing interest in the balance remains robust; our income-producing development pipeline is full of enticing prospects with 1.7 million sq ft of flexible future growth potential; following more than three years of net property sales crystallising material surpluses, our balance sheet has never been stronger and gearing never lower, giving us significant financial capacity to exploit any market weakness, just as we did in 2009; and, we have a first class team ready to capitalise on this period of uncertainty.”
Asset management
21 new leases were signed during the first half (2015: 29 leases), generating annual rent of GBP9.8 million. Of 40 leases with breaks or expiries in the twelve months to 30 September 2016, 99% by area were retained, re-let, under offer or under refurbishment leaving only 1% to transact. 10 rent reviews of GBP5.2 million (their share: GBP3.3 million; 2015: GBP1.9 million) were settled during the half year, representing an annualised increase of GBP1.8 million per annum, or 53.2% above the previous passing rent.
Total space covered by new lettings, reviews and renewals during the first half was 207,300 sq ft (2015: 323,100 sq ft). Since the period end, they have completed five new leases generating GBP2.3 million (their share: GBP1.5 million) of annual rent (15,400 sq ft), 4.5% ahead of March 2016 ERV; and a further 93,000 sq ft of space is currently under offer which would deliver approximately GBP5.9 million p.a. in rent (their share: GBP5.9 million), in total 4.2% ahead of March 2016 ERV’s, including 35,700 sq ft at our development properties.
Notable lettings include the ground and basement floor (14,800 sq ft) lease renewal at Kent House, W1, let to Reiss Limited at GBP54.20 per sq ft, which captured a reversion of 78%, and two lease renewals at Piccadilly Buildings, W1 with Case London Ltd at GBP101.90 per sq ft and Benson & Clegg Ltd at GBP130.50 per sq ft, capturing a reversion of 54% and 95% respectively.
Overall, these asset management successes have helped maintain the Group’s low vacancy rate of 3.1% at 30 September 2016 (31 March 2016: 3.1%). At 30 September 2016, the average rent across our office portfolio was GBP46.20 per sq ft and our total annualised rent roll (including share of JVs) was GBP100.4 million, a 3.7% increase over the six month period. This has the potential to grow by 92% to GBP192.8 million (based on today’s ERVs) when factoring in our committed and near-term development programme, reversionary potential and vacant/refurbishment space.
Development
The Group’s development programme comprises five committed schemes on site (659,100 sq ft, representing 20% of the Group’s total existing portfolio by area), all but one in the West End and all due for completion in the next 15 months. These schemes are expected to deliver a profit on cost of 16.8% and are largely de-risked with 72% of the gross development value already pre-let or pre-sold. In addition, two uncommitted schemes could start in the next 18 months, both in the West End and adjacent to Crossrail stations.
Taken together, capital expenditure to come at committed schemes totals GBP129.1 million, which could rise to GBP275.4 million if the near-term uncommitted schemes were started. At 30 September 2016, the committed developments were valued at GBP1,116.6 million, including 30 Broadwick Street, W1, which has subsequently completed, and 73/89 Oxford Street, W1, which has subsequently been forward sold, and the near-term development properties at GBP262.7 million (our share).
Two completed schemes
At 30 Broadwick Street, W1, a 92,300 sq ft new-build, office and retail scheme, construction work completed in November delivering the only new build office completion in the Soho market in 2016. Letting interest in the building has been strong and in June they pre-let the 7,950 sq ft restaurant unit to The Ivy Soho Brasserie on a 20 year term (no breaks) paying an annual rent of GBP658,000. In September, the third floor (14,600 sq ft) was pre-let to EQT, the European private equity business, on a 15 year term (break at ten) paying annual rent of GBP1.3 million. The building is 25% pre-let and today they have a further two office floors and all the remaining retail space under offer (34,500 sq ft) with good interest in the remainder (35,550 sq ft).
During the period, they also completed 90/92 Great Portland Street, W1, a small development (8,600 sq ft) containing the residential requirement for Hanover Square, W1, their near-term development scheme.
One forward sold scheme
At 73/89 Oxford Street, W1, which will deliver 90,200 sq ft of new-build retail and office space directly opposite the Dean Street entrance to the Tottenham Court Road Crossrail station, the construction of the building is progressing well with completion forecast for mid 2017. In October, they pre-let 33,100 sq ft of offices (known as “1 Dean Street”) to Moneysupermarket.com Group plc (“MSM”), the FTSE 250 web based price comparison business. MSM will occupy the third, fourth and fifth floors on a 15 year term (break at ten) paying annual rent of GBP2.7 million. MSM also has a right of first offer, exercisable in December 2016, to pre-let the remaining 9,500 sq ft sixth floor. With the two retail units already pre-let to New Look and Benetton, the building is 91% pre-let. As detailed below, since the period end, they have subsequently forward sold the development scheme to Norges.
Five committed schemes
Construction is progressing well at their 419,700 sq ft mixed-use Rathbone Square development scheme, with the majority of the building now clad, the tower cranes removed and the fit out of the residential element of the building well underway. With the 242,800 sq ft of office space pre-let to Facebook, they have launched the marketing campaign for the 25,200 sq ft of retail and restaurant space and tenant interest has been positive.
At 160 Old Street, EC1 (formerly 148 Old Street), the construction works are underway to transform the existing 97,800 sq ft building into around 160,600 sq ft of high quality office and retail space. they are targeting completion of the fully consented scheme in early 2018 and, with their marketing suite now open, early leasing interest is encouraging with an average ERV of only GBP53.35 per sq ft across the office space.
At 65 Wells Street, W1 (formerly Tasman House), the demolition of the existing 1950’s building is complete and the main construction contract has commenced. The new building will deliver 37,300 sq ft of new office and retail space into an area that is benefiting from significant local investment, including their activities at Rathbone Square.
They are currently on-site at two schemes on Great Portland Street, W1, where they are delivering 41,500 sq ft of mixed-use space, including the off-site residential requirements for 30 Broadwick Street and 65 Wells Street, both W1. The schemes are progressing well, with completions early in the new year, and they will shortly be embarking on the pre-letting campaign for the office element.
Near-term schemes
Their near-term development programme comprises two schemes (311,800 sq ft), both with potential project starts over the next 18 months.
At Oxford House, 76 Oxford Street, W1, they achieved planning approval in June for their 88,200 sq ft major mixed-use refurbishment. their plans include a significant increase in the retail space to take advantage of the strong demand for good retail units at the eastern end of Oxford Street. As part of the letting at Rathbone Square, Facebook has a right of first offer (exercisable in January 2017) to pre-let all the anticipated 55,700 sq ft of office space.
At Hanover Square, W1, they are currently demolishing the buildings facing New Bond Street on the western side of the site. These limited works will give us the option, should the market be supportive, to accelerate the construction programme for the wider scheme ahead of delivery of the station structure by Crossrail in 2018. The development is owned in the GHS Partnership, their 50:50 joint venture with the Hong Kong Monetary Authority.
Development pipeline
Beyond their near-term schemes, GPE’s well stocked development pipeline for the next cycle includes a further 14 uncommitted projects (1.4 million sq ft). These properties are income producing today with an average lease length of 3.9 years.
GPOR : Great Portland NAV slips 4%