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Great Portland Estates confident in London appeal after earnings slip

By Josh White

Date: Wednesday 22 May 2019

Great Portland Estates confident in London appeal after earnings slip

(Sharecast News) - Great Portland Estates reported "robust" financial performance in its final results on Wednesday, with ordinary dividend growth of 8.0% and a 1% improvement in its EPRA net asset value per share to 853p.
The FTSE 250 property development and investment company said its net assets stood at £2.32bn at year-end.

EPRA earnings were £53.7m, down 19.2% on 2018 following £348.9m of asset sales, with EPRA earnings per share falling 2.9% to 19.4p.

Cash earnings per share were ahead 0.6% to 17.1p.

After a revaluation surplus, Great Portland said its IFRS profit after tax was £56.1m, compared to £76.7m a year earlier.

The board said the total dividend per share was 12.2p, up 8.0% on 2018, including a final dividend of 7.9p, which was ahead 8.2%.

Its total accounting return stood at 2.3%, compared to 7.2% 12 months earlier.

On the valuation front the company said it was "stable", with committed developments performing well and rental value growth at 1.2%.

The firm's portfolio valuation was up 0.2% with developments up 4.1%, though the portfolio valuation fell 0.4% in the second half.

Rental value growth stood at 1.2%, consisting of 1.9% growth in offices and a fall of 0.6% in retail, with its yield expansion reported at one basis point.

Total property return was 3.5%, with capital return at 0.3% compared to an IPD Central London figure of 1.1%.

Rental value growth guidance for the new financial year was in the range of 1.5% positive growth to 2.0% negative growth, the board said.

Looking at its leasing performance, Great Portland Estates described the year as "excellent", at 6.9% ahead of estimated recovery value, adding that it was embracing its opportunity with a flex space offering.

The company's rent roll was ahead 6.2% at £100.4m, with total potential future growth of 51% to £152.0m.

A total of 78 new lettings with an annual rent of £24.5m and 326,000 square feet were completed, with market lettings 6.9% above March 2018 estimated recovery value, and second half lettings 8.4% ahead of that.

It made its second major pre-let at Hanover Square, W1 to Glencore UK, totalling 53,900 square feet on a 20-year term, with no break.

The company said 87,600 square feet of flex and co-working space was delivered, with rent at a 30% premium, adding that it was appraising a further 124,300 square feet.

It completed 27 rent reviews during the year, securing £13.3m, which was 19.2% ahead of passing rent, and 3.3% ahead of estimated recovery value at the review date.

Great Portland's vacancy rate was 4.8%, with an average office rent of £55.20 per square foot, and reversionary potential reported to be 8.3% or £8.3m.

The board said it made "good progress" on committed schemes, with an "extensive" pipeline of opportunities during the year, consisting of 54% of its portfolio.

It completed 160 Old Street, EC1, totalling 161,700 square feet, in April 2018, which was now 94% let, with profit of cost said to be 26.8%.

Three committed schemes totalling 414,900 square feet were said to progressing well, with all located near Crossrail stations, targeting a BREEAM rating of 'Excellent' with a forecast profit on cost of 19.1%.

At those schemes, 21% was now pre-let with the board reporting "encouraging" occupier interest.

Its flexible development pipeline consisted of 10 schemes and 1.4 million square feet, all said to be income producing, with a 3.4 year average lease length.

A planning application had been submitted for 373,100 square feet scheme at New City Court, SE1, the company confirmed.

On the sales front, Great Portland Estates reported a total of £348.9m in sales, which was "broadly" in line with book value, with a "balanced" outlook for sales and acquisitions.

Its property at 160 Great Portland Street, W1 sold for a headline price of £127.3m, crystallising the surplus since its development commitment of 101%.

At 55 Wells Street, W1, the firm completed a sale for £64.6m, with a net initial yield of 3.99% and a capital value of £1,674 per square foot.

Four smaller commercial sales and 10 residential sales, all in W1, totalled £157m.

Great Portland spoke of its "exceptional" financial strength and discipline, with its loan-to-value ratio standing at 8.7%, its weighted average interest rate at 2.7%, the weighted average debt maturity being 6.4 years, and cash and undrawn facilities totalling £608m.

The company returned £380m of surplus equity to shareholders during the year, with a flexible share buyback programme of up to £200m continuing.

Finally, Great Portland Estates reported a "strong" culture on the environmental, social and governance front, claiming that sustainability was "integral" to its success, with its GRESB score standing at five stars, and new "ambitious" carbon targets set.

It also said it was innovating and future-proofing its portfolio, with a dedicated occupier services team and a new, "market-leading" app.

"The GPE team is operating well," said chief executive officer Toby Courtauld.

"Against a backdrop of elevated political and economic uncertainty, we are pleased to have delivered many successes over the past year; with another strong leasing performance, we've beaten rental value estimates and pre-let more of our committed developments, ahead of schedule, to global businesses; we're innovating across our operations, introducing new technology, and evolving our product to suit the changing patterns of occupier demand; we've successfully progressed our pipeline, the quality and size of which means we have ample raw material for years to come; and through our disciplined approach to capital management, we've crystallised surpluses through asset sales, returned surplus equity to shareholders and maintained our exceptional balance sheet strength with our loan to value ratio at only 8.7%."

Courtauld said that, while the company could expect political and possibly economic turbulence over the year ahead, it remained convinced of the long-term, enduring appeal of London and its property markets to businesses and investors alike.

"With our clear strategy, exciting portfolio and talented team, supported by our collaborative culture, deep market knowledge and financial strength, we have the capacity to choose our path to maximise returns for shareholders and we look to our future with confidence."

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