Positioned strongly for return of the cycle
The Directors of Great Portland Estates plc announce the results for the Group for the six months ended 30 September 20231, with highlights including:
- Strong leasing as customers demand best, sustainable spaces; record 13.4% ahead of ERV2
- Upgrading rental value growth guidance to +2.5% to +5.0%, +3.0% to +8.0% for Prime office
- Central London busy and workers have returned; 75% portfolio in West End, 93% near Elizabeth Line
- £123m of acquisitions; two Flex & one HQ opportunity, with more expected in 2024
- Flex space increased to 434,000 sq ft; £5.4 million of Fully Managed lettings 13.6% ahead of Flex ERV
- Delivering more than 1 million sq ft of Grade A, sustainable spaces into supply drought; commitment to French Railways House, SW1 development
- Yield driven valuation decline of 10.3% (ERVs up 1.8%); IFRS & EPRA NTA per share of 650 pence
- Stable EPRA EPS and ordinary dividend 4.7 pence, in-line with guidance
- More than £500 million liquidity with new term loan signed; LTV 28.9%; £0.3 billion sales under discussion
- Cycle returning; GPE strong track record & positioning to capitalise on emerging market opportunities
Whilst macro-economic concerns and rising interest rates impacted our property valuation, the fundamentals in our leasing markets remain healthy. With customers increasingly demanding the very best, sustainable spaces, and discounting the rest, they are competing in a market increasingly starved of new, Grade A supply, putting further upward pressure on prime rents and we have upgraded our rental growth forecasts for the second half.
With further selective yield expansion a possibility, our investment markets remain relatively quiet, although we are exploiting these conditions to our advantage. We bought three buildings in the period, all off market and adding to both our Flex and development programmes. Looking forward, we expect further acquisition opportunities to emerge, and with our trademark disciplined capital management, we will continue to recycle capital, selling properties to crystallise value on completion of our business plans.
In this context, GPE’s positioning is strong; 75% of our portfolio is in the heart of the West End; our substantial capex programme will deliver the prime spaces the market demands; our Flex office offer is growing, is well suited to evolving customer needs, as evidenced by our market-leading NPS score, and is delivering our highest rental growth; and our strong balance sheet and plentiful liquidity combined with our long track record of creating opportunities in cyclical markets means that we are well positioned to capitalise. With GPE in great shape, and London set to outperform, we look to our future with confidence.
Strong leasing, record 13.4% ahead of ERV2; Flex currently 434,000 sq ft, targeting one million sq ft
- 37 new leases and renewals generating annual rent of £11.2 million p.a. across 113,500 sq ft, market lettings 13.4% above March 2023 ERV including:
- three Fitted and nine Fully Managed leases, achieving on average £220 per sq ft on the Fully Managed space, 13.6% ahead of March 2023 ERV; and
- 18 new retail leases securing £4.1 million of rent, with market lettings 18.1% ahead of March 2023 ERV
- Our committed Flex offer now 434,000 sq ft, targeting growth to one million sq ft
- Rent roll up 4.2%; vacancy 3.5% (Mar 2023: 2.5%); reversion up to 13.5%
- Further £7.3 million of lettings under offer,7% above March 2023 ERV
- Senior operational team changes to further enhance market-leading customer experience and satisfaction
ERVs up 1.8%3, with valuation down 10.3%3 driven by yield expansion; EPRA4 NTA per share of 650 pence
- Portfolio valuation of £2.3 billion, down 10.3%3; -9.6% offices (inc. Flex -7.1%) and -12.4% retail
- Rental values up by 1.8%3 (+1.9% offices (inc. Flex +1.7%) and +1.2% retail); yield expansion of 43 bp
- Portfolio rental value growth guidance upgraded to 2.5% to 5.0% for financial year, prime offices 3% to 8%
- IFRS NAV and EPRA4 NTA per share of 650 pence, down 14.1% since March 2023
- EPRA4 earnings of £11.8 million, up 3.5% on 2022. EPRA4 EPS of 4.7 pence, up 4.4%
- IFRS loss after tax of £253.4 million; loss per share of 100.1 pence; interim dividend maintained at 4.7 pence
Two Flex acquisitions and acquisition of HQ development opportunity in Soho Square, W1
- Three acquisitions (£123 million) including:
- Two Flex (£53 million) inc. 141 Wardour Street, W1 in core Soho for £39 million (£1,156 per sq ft) and Bramah House, 65/71 Bermondsey Street, SE1 for £14 million (£892 per sq ft)
- HQ development opportunity on Soho Square, W1 for £70 million (£772 per sq ft on consented NIA)
- More opportunities to come, one building under offer further £0.7 billion under review
Committed capex of £392 million, including French Railways House, SW1; Soho Square added to pipeline
- Good progress at our pre-let net-zero carbon 2 Aldermanbury Square, EC2; existing building deconstructed; anticipated completion Q1 2026
- Commitment to major office-led redevelopment at French Railways House, SW1, to provide 67,600 sq ft (up from 54,700 sq ft) of new Grade A space; reusing steel from City Place House, EC2
- Planning permission obtained for the redevelopment of Minerva House, SE1 and work underway to prepare the site for a potential start early next year
- Reviewing the Planning Inspector’s report and Secretary of State’s planning refusal at New City Court, SE1
- Significant refurbishment programme to enhance our Fully Managed offer inc. 6/10 St Andrew Street, EC4
- With construction cost inflation moderating, programme well timed to deliver into supply constrained market
Significant liquidity; new £250 million Term Loan; £508 million5 of cash & undrawn facilities; EPRA LTV 28.9%
- EPRA LTV of 28.9%, weighted average interest rate of 3.8%, cash and undrawn facilities of £508 million5 ; weighted average debt maturity of 5.1 years
- New £250 million unsecured Term Loan drawn in October
1 All values include share of joint ventures unless otherwise stated 2 Leasing in period to 30 September 2023 3 On a like-for-like basis 4 In accordance with EPRA guidance. We prepare our financial statements using IFRS, however we also use a number of adjusted measures in assessing and managing the performance of the business. These include like-for-like figures to aid in the comparability of the underlying business and proportionately consolidated measures, which represent the Group’s gross share of joint ventures rather than the net equity accounted presentation included in the IFRS financial statements. These metrics have been disclosed as management review and monitor performance of the business on this basis. We have also included a number of measures defined by EPRA, which are designed to enhance transparency and comparability across the European Real Estate sector, see note 7 to the financial statements. Our primary NAV metric is EPRA NTA which we consider to be the most relevant investor measure for the Group. 5 Pro forma for new Term Loan
