The Directors of Great Portland Estates plc announce the results for the Group for the six months ended 30 September 2018.
Highlights1 for the six months:
Valuation up 0.6%, driven by rental value growth; upgrading rental value guidance
- Portfolio valuation up 0.6%2 (developments: up 2.1%2)
- Rental value growth of 0.7%2 (0.4% offices, 1.6% retail); yield compression of 1 bp
- Total property return of 2.2%, with capital return of 0.6% v IPD Central London (quarterly index) of 1.3%
- Upgrading rental value growth guidance for financial year; range now +1.5% to minus 1%
Solid financial performance; interim dividend up 7.5%
- EPRA3 NAV per share of 849 pence, up 0.5% over six months; net assets of £2,381.4 million
- EPRA3 earnings of £25.3 million, down 19.9% on H1 2017 following asset sales. EPRA3 EPS of 9.0 pence, down 6.3%. Cash EPS of 8.3 pence, up 15.3%
- After revaluation surplus, IFRS profit after tax of £33.7 million (2017: £25.3 million)
- Total accounting return of 1.3% over six months; interim dividend per share of 4.3 pence, up 7.5%
Further leasing successes, market lettings 4.8% ahead of March 2018 ERV
- 37 new lettings (annual rent of £8.4 million, 135,400 sq ft), market lettings 4.8% above March 2018 ERV
- £1.6 million let since September 2018 and a further £2.7 million under offer; together 4.8% ahead of March 2018 ERV
- Flex space and co-working commitments of 64,500 sq ft securing rent at a premium of 36%5; appraising further 100,000 sq ft
- 17 rent reviews securing £7.6 million, 20.6% ahead of passing rent, 4.1% ahead of ERV at the review date
- £1.9 million reversion captured since March 2018; further reversionary potential of 9.8% (£9.8 million)
- Vacancy rate of 4.8%, average office rent of £54.10 per sq ft, average lease length of 5.0 years
- Rent roll of £99.3 million (up 2.5%2), with total potential future growth of 52% to £151.2 million
Good progress on committed schemes; extensive pipeline of opportunities (53% of portfolio)
- 160 Old Street, EC1 (161,700 sq ft) completed in April, now 87% let; 19.6% profit of cost
- Good progress across our three committed schemes (412,000 sq ft), including land buyback completed at Hanover Square, W1; all located near to Crossrail stations, 16.7% forecast profit on cost, capital expenditure to come of £206.1 million. 11% pre-let with encouraging levels of occupier interest
- Exceptional and flexible development pipeline of 11 schemes (1.3 million sq ft), currently income producing, with 3.4 years average lease length, 13.5% reversionary (existing use)
Continued recycling; £329 million of sales since 1 April, broadly in line with book value
- 160 Great Portland Street, W1 sold for headline price of £127.3 million, crystallising a surplus since development commitment of 101%
- 55 Wells Street, W1 sold for £64.6 million, net initial yield of 3.99% and capital value of £1,674 per sq ft
- Four smaller sales, all W1, totalling £137.4 million, 2.0% above March 2018 book value
- Likely net seller in H2; approximately £120 million in the market for sale
Unprecedented financial strength; maintaining balance sheet discipline with proposed share buyback of up to £200 million
- Property loan-to-value of 5.8%, weighted average interest rate of 2.7%, weighted average debt maturity of 6.9 years, cash and undrawn facilities of £682 million (incl. amended and extended £450 million RCF)
- £306 million returned to shareholders via B-share scheme in April; further return of surplus equity via share buyback of up to £200 million launched today
"We are pleased to report another strong operational performance, led by leasing successes and development progress, delivering a solid set of financial results for the first half and continued capital discipline through a further return of surplus capital to shareholders. With healthy occupier demand, we maintained our strong leasing momentum across our high quality, sensibly priced office and retail portfolio, capturing reversion and leasing well ahead of ERV. We also continued the roll-out of our flexible space offering, meeting the evolving needs of our occupiers, and we have a further 100,000 sq ft being evaluated for the product. When combined with £2.7 million of investment lettings currently under offer at a 6.9% premium to ERV and good onsite progress across our three committed development schemes which are already 11% pre-let, we have raised the interim dividend by 7.5% and increased our rental guidance for the financial year. Taking advantage of a still competitive investment market, we have also crystallised further surpluses with £329 million of net sales so far this financial year, reducing our LTV to only 5.8%, and we expect further sales in the second half. As a result, we currently intend to return up to £200 million of surplus equity to shareholders through a share buyback programme, which will be kept under regular review by the Board. Whilst we expect, and are planning for, continued political and economic uncertainty, particularly given the ongoing Brexit negotiations, GPE remains exceptionally well positioned: Our well-located portfolio is full of opportunity, with 92% in close proximity to a Crossrail station; our properties are let off low rents with significant further reversionary potential; our exceptional income-producing development pipeline offers nearly 1.3 million sq ft of flexible future growth potential, meaning that we have no need to buy. But if any market weakness should emerge, we retain significant financial capacity to exploit it; meanwhile, our talented team remains focused on maximising the opportunity we have to generate long-term value across our business."
1 All values include share of joint ventures unless otherwise stated
2 On a like-for-like basis
3 In accordance with EPRA guidance
4 See our Financial Results EPRA and adjusted metrics: 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 measures defined by EPRA, which are designed to enhance transparency and comparability across the European real estate sector, see note 8 to the financial statements.
5 Comparison to a combination of outperformance of March 2018 net effective ERV and net effective rent achievable on short term letting ahead of development.
