REG - Great Portland Ests. - First quarter valuation and business update <Origin Href="QuoteRef">GPOR.L</Origin>

Great Portland EstatesAnnouncement

06/09/2014 20:41

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RNS Number : 4177N
Great Portland Estates PLC
28 July 2014 
 
28 July 2014 
 
Great Portland generating organic growth with portfolio value up 3.8% in Q1 
 
In today's Interim Management Statement, the Directors of Great Portland
Estates plc ("GPE" or "Group") announce an update on trading, as well as the
quarterly valuation of the Group's properties as at 30 June 2014.  Details of
the Group's recent valuation and rental value trends are set out in the
Appendices. 
 
To view the accompanying appendices please click on the accompanying link: 
 
http://www.rns-pdf.londonstockexchange.com/rns/4177N_-2014-7-25.pdf 
 
Continued growth in rental values and capital values driving NAV per share
uplift 
 
·       Portfolio valuation1 up 3.8%, 9.0% and 18.3% over 3, 6 and 12 months
respectively 
 
·       Continued strong valuation performance from our development properties
up 6.2%, 13.8% and 24.9% over 3, 6 and 12 months respectively 
 
·       Rental value growth1 of 1.9% (1.5% West End offices, 1.3% West End
retail) over 3 months 
 
·       Rent roll growth of 6.7% over 3 months 
 
·       EPRA NAV2 per share of 593 pence at 30 June 2014 up 4.2%, 12.5% and
27.8% over 3, 6 and 12 months respectively 
 
Strong leasing activity ahead of ERVs 
 
·      22 new lettings (117,000 sq ft) signed generating annual rent of £6.1
million (our share: £4.5 million); market lettings 1.4% ahead of March 2014
rental values (£17.3 million over 12 months, 4.1% ahead of June 2013 rental
values) 
 
·      £1.0 million of new lettings since the quarter end and a further £4.2
million currently under offer, 6.1% premium to March 2014 ERV 
 
·      Vacancy rate lower at 2.5% (31 March 2014: 3.7%), low average office
rent passing of £43.70 per sq ft, reversionary potential of 19.4% 
 
Committed development programme expanded and extensive pipeline of
opportunity 
 
·     Five committed schemes (724,500 sq ft), expected profit on cost of
20.7%, including: 
 
o  411,200 sq ft mixed use scheme at Rathbone Square, W1 
 
o  91,900 sq ft new build development at St Lawrence House, 26/34 Broadwick
Street, W1 
 
·     Good progress across further six near-term schemes (305,600 sq ft),
including 73/89 Oxford Street, W1 and 148 Old Street, EC1. All with potential
starts in next 12 months 
 
·     Major development opportunity from additional 14 uncommitted pipeline
schemes (1.3 million sq ft) 
 
·     Total development programme of 2.3 million sq ft covering 54% of the
existing portfolio, 75% in West End, 53% with planning permission 
 
Attractive bolt-on acquisition and disciplined capital recycling 
 
·   Medium-term development opportunity, Elm House, 13/16 Elm Street, WC1
purchased in July for £26.0 million (our share: £13.0 million), on a 0.5 acre
site adjoining 200 Gray's Inn Road 
 
·     Successful launch of sales programme for 142 private residential units
at Rathbone Square, W1 
 
·     Sale of Tudor House, 35 Gresse Street, W1 for £8.4 million 
 
Excellent financial position 
 
·     Gearing conservative at 29.9%, loan-to-property-value of 25.1% 
 
·     Financial firepower of £492.8 million, weighted average interest rate
only 3.7% 
 
Toby Courtauld, Chief Executive, said: 
 
"We are pleased to report a strong start to this financial year, with our
attention focused on capturing the material organic growth potential from our
100% central London portfolio: we have made good progress across our 2.3
million sq ft development programme, winning new planning permissions and
starting our largest ever development at our 411,200 sq ft Rathbone Square
scheme at the east end of Oxford Street; we continue to lease well, attracting
numerous businesses to our well designed, centrally located properties at
rates ahead of ERVs; and our disciplined capital recycling has crystallised
strong surpluses. 
 
With a growing London economy and healthy demand for our limited quantity of
available space, we can expect further rental and valuation growth which bodes
well for our significant development programme". 
 
Investor/analyst conference call 
 
GPE will host a conference call at 10.30am today, 28 July 2014. The details
for the conference call are as follows: 
 
Telephone number: +44 (0) 20 3003 2666 
 
Password: Great Portland Estates 
 
Contacts: 
 
Great Portland Estates 
 
Toby Courtauld               Chief Executive                                  
                                                020 7647 3042 
 
Nick Sanderson              Finance Director                                  
                                                   020 7647 3034 
 
Finsbury 
 
James Murgatroyd                                                              
                                                                      020 7251
3801 
 
Gordon Simpson                                                                
                                                     020 7251 3801 
 
Forward Looking Statements 
 
This document may contain certain 'forward-looking statements'. By their
nature, forward-looking statements involve risk and uncertainty because they
relate to future events and circumstances. Actual outcomes and results may
differ materially from any outcomes of results expressed or implied by such
forward-looking statements. 
 
Any forward-looking statements made by or on behalf of GPE speak only as of
the date they are made and no representation or warranty is given in relation
to them, including as to their completeness or accuracy or the basis on which
they were prepared. GPE does not undertake to update forward-looking
statements to reflect any changes in GPE's expectations with regard thereto or
any changes in events, conditions or circumstances on which any such statement
is based. 
 
Information contained in this document relating to GPE or its share price, or
the yield on its shares, should not be relied upon as an indicator of future
performance. 
 
Portfolio valuation 
 
Our portfolio again delivered positive valuation growth in the quarter to 30
June 2014 driven by our leasing and development successes combined with
continued rental value growth. The valuation of the Group's properties as at
30 June 2014 was £2,796.4 million including our share of joint venture assets,
an increase of £101.4 million since 31 March 2014. The net valuation uplift
for the quarter was 3.8% on a like-for-like basis compared to 5.1% for the
previous quarter. Further details are set out in Appendices 2 and 3. 
 
The main drivers of the quarterly valuation uplift were our Rest of West End
properties, up 4.0% and our development schemes which rose in value (net of
capital expenditure) by 6.2%. Further details on valuation trends are set out
in the Appendices. The wholly-owned portfolio was valued at £2,128.4 million
at 30 June 2014 (like-for-like valuation uplift of 3.9% on the quarter) and
the joint venture properties (100%) at £1,336.1 million (up 3.5% on the
quarter). The net impact of the movement in yields and rental values on the
portfolio valuation is set out in Appendix 4. 
 
The portfolio true equivalent yield reduced by 7 basis points over the quarter
on a like-for-like basis and now stands at 4.6%. The investment portfolio's
adjusted initial yield (including contracted income still in rent free
periods) was 4.0% at 30 June 2014 (31 March 2014: 3.9%). A yield table is set
out in Appendix 5. 
 
Our successful letting activity continues to demonstrate the good demand for
our high quality, well located and appropriately priced space. Our tenant
retention remains strong and our vacancy rate reduced to 2.5% (31 March 2014:
3.7%).  Across our portfolio, office rental values rose by 2.0% in the
quarter, compared to 2.4% in the previous quarter.  West End office rental
values were 1.5% higher whilst City, Midtown and Southwark office rental
values rose by 2.8% over the three month period. Demand from retail tenants
remains robust and rental values in the West End retail portfolio rose by 1.3%
in the quarter. The Group's rent roll was £98.9 million at 30 June 2014, up
6.7% in the quarter (31 March 2014: £92.7 million). 
 
The Group's average office rent passing remains low at £43.70 per sq ft and
the portfolio (including retail) was 19.4% reversionary overall at the quarter
end. Rental value trends are highlighted in Appendix 6. 
 
Estimated NAV per share and financing 
 
The main contributor to the NAV per share increase for the quarter was the
underlying uplift in the portfolio valuation of £101.4 million. Our portfolio
repositioning activities combined with another strong performance from our
committed development programme to drive the valuation increase. NAV per share
also benefited from the sale of Tudor House, 35 Gresse Street, W1 at a net
surplus of £0.4 million over the 31 March 2014 valuation. The final dividend
payment of £18.6 million reduced NAV by 5 pence per share.  Overall, as set
out in the table below, EPRA NAV per share rose by 4.2% in the quarter to 593
pence (31 March 2014: 569 pence). 
 
 Pro Forma Estimated Balance Sheet 1                      
                                                                      
                                      £m       pence      percentage  
 EPRA NAV 2                                    per share  movement    
 At 31 March 2014                     1,961.3  569                    
                                                                      
 Valuation uplift                     101.4    29                     
 Profit on property sale              0.4      -                      
 Final dividend                       (18.6)   (5)                    
                                                                      
 At 30 June 2014                      2,044.5  593        4.2%        
                                                                      
 EPRA NNNAV2                                                          
 M2M of debt & derivatives            (62.4)   (18)                   
                                                                      
 At 30 June 2014                      1,982.1  575        4.5%        
                                                                      
 At 31 March 2014                     1,898.3  550                    
                                                                      
 
 
Note: 
 
1 The pro forma balance sheet is unaudited and does not include retained
earnings for the quarter 
 
2 In accordance with EPRA guidance 
 
The mark to market of debt and derivatives of £62.4 million, or 18 pence per
share, results in EPRA NNNAV per share of 575 pence at 30 June 2014, a rise of
4.5% from 31 March 2014. 
 
Net debt increased over the quarter predominantly due to capital expenditure
at our committed development schemes.  Offset by the impact of the increased
portfolio valuation, our leverage ratios have strengthened further as shown in
the table below, with net gearing of 29.9% and a loan to value ratio of
25.1%. 
 
Summary of Debt Statistics 
 
                           Jun-14   Mar-14   
 GPE net debt              £601.8m  £586.1m  
 GPE gearing               29.9%    30.3%    
 Total debt including JVs  £702.8m  £687.1m  
 LTV                       25.1%    25.7%    
 
 
At 30 June 2014, around 96% of the Group's total debt was fixed or hedged
providing a low weighted average interest rate at the quarter end of 3.7%.
Following expiry in June 2014 of the capped arrangements on the £159.7 million
of private placement notes issued in 2011, we have subsequently replaced them
with similar arrangements through to June 2017. As a result, we are continuing
to benefit from low floating rates on around 28% of our total drawn debt. At
30 June 2014, we had significant financial firepower with undrawn committed
facilities and cash of £492.8 million. 
 
Asset management 
 
Tenant interest in the limited amount of available space across our properties
remained strong leading to 22 new lettings (117,000 sq ft) during the quarter,
generating an annual rent of £6.1 million (our share: £4.5 million).  The
majority of these lettings were market lettings which completed on average
1.4% ahead of the valuer's March 2014 estimates. We also settled ten rent
reviews in the quarter securing £3.9 million of rent (our share: £3.9
million), representing an increase of 29.9% over the previous passing rent. 
 
During the quarter, we continued to capture the significant reversionary
upside across our investment portfolio and our leasing successes included the
letting of the fifth floor (15,700 sq ft) at Wells & More, W1 to Lionsgate at
£75.00 per sq ft (£1.18 million), almost double the previous passing rent, and
24,500 sq ft (£1.16 million) of lettings at 200 Gray's Inn Road, WC1 to Warner
Brothers. Leasing activity at recently completed developments was also strong,
with three floors (31,100 sq ft) at 240 Blackfriars Road, SE1 let to Ramboll
Group at £47.00 per sq ft (£1.46 million) and a further 10,100 sq ft of space
let at City Tower, EC2 at an annual rent of £0.54 million. 
 
Since quarter end, we have secured a further £1.0 million (our share: £0.5
million) of new lettings and we currently have 16 new lettings under offer
accounting for £4.2 million per annum in rent (our share: £2.7 million) with
the market lettings on average 6.1% ahead of the valuer's March 2014 ERV. 
 
 Leasing Transactions                 Three months ended  
                                      30 June 2014          31 March 2014    30 June 2013   
                                                                                            
 New leases and renewals completed                                         
 Number                               22                    17               23             
 GPE share of rent p.a.               £4.5 million          £2.4 million     £13.0 million  
 Area (sq ft)                         117,000               36,720           223,460        
 Rent per sq ft                       £52                   £69              £65            
                                                                                            
 Rent reviews settled                                                                       
 Number                               10                    5                4              
 GPE share of rent p.a.               £3.9 million          £2.9 million     £0.5 million   
 Area (sq ft)                         74,000                60,200           4,750          
 Rent per sq ft                       £53                   £48              £115           
 
 
Note: Includes joint ventures at our share 
 
The letting transactions concluded during the quarter have helped to reduce
the Group's already low vacancy rate to 2.5% at 30 June 2014 (3.7% at 31 March
2014). Further details are set out in Appendix 7. 
 
Development management 
 
We currently have five committed schemes - four in the West End and one in
Midtown. Our committed schemes (724,500 sq ft) are expected to deliver a 20.7%
profit on cost with completions between Summer 2014 and early 2017. In
addition, we have six uncommitted schemes that could start in the next 12
months. Beyond that, our pipeline includes a further 14 uncommitted projects,
giving us a total programme of 2.3 million sq ft, covering 54% of GPE's
existing portfolio. Capital expenditure to come at our committed schemes
totals £313.3 million (our share), which could rise to £415.8 million (our
share) if the six near-term uncommitted schemes were started. 
 
Committed schemes. At Walmar House, W1, our 60,300 sq ft mixed-use
comprehensive refurbishment is progressing well and is due to complete in
August 2014, with good levels of interest from a number of prospective
tenants. 
 
At 12/14 New Fetter Lane, EC4, construction of our 12 storey office scheme
(142,500 sq ft) has commenced and practical completion is scheduled for
September 2015. The agreement to pre-let the entire building to Bird & Bird in
May 2013 included an option for the tenant to hand back up to 25,900 sq ft of
the space up to six months prior to practical completion. Earlier this month,
Bird & Bird agreed to waive this option and GPE will now deliver the reception
to shell condition and give the tenant a capital contribution of £0.8 million
on completion to cover their reception fit-out costs. 
 
At our fully consented 411,200 sq ft mixed-use development scheme at Rathbone
Square, W1, demolition works have commenced ahead of the expected start of the
main construction works in early 2015 with the project due for completion in
early 2017. As detailed below, we have successfully launched the sales
programme of the 142 private residential units and we expect to commence our
pre-letting campaign for the 214,800 sq ft of office space early next year. 
Following increases in the value of the site, based on current market
assumptions, the project would deliver GPE a pre-tax profit on cost of 15.7%.
The eventual profit on cost to GPE will be influenced by a variety of factors,
including the disclosed overage arrangements agreed with the Royal Mail Group
on purchase of the site in September 2011. 
 
At St Lawrence House, 26/34 Broadwick Street, W1, having successfully received
planning consent during the quarter, we expect to commence demolition works in
early autumn 2014. Construction works for our 91,900 sq ft new-build office
and retail scheme will start shortly thereafter with completion expected in
spring 2016. Following strong upward revaluation of the land since the receipt
of planning permission in May, based on current market assumptions, the
project would deliver GPE a profit on cost of 13.9%. 
 
We also expect to commence construction works for our 18,600 sq ft
redevelopment at 78/82 Great Portland Street, W1 in early 2015. This mixed use
scheme will accommodate the offsite residential space associated with our
scheme at St Lawrence House, W1, including the affordable housing units. As a
result, based on current market assumptions, the scheme is expected to be
marginally loss making on a standalone basis. 
 
A summary of our committed projects is set out in Appendix 8. 
 
Project preparation and pipeline. We have also continued to make positive
progress across our near-term development programme. With our development
scheme at 73/89 Oxford Street, W1 fully consented and works expected to
commence in early 2015 on achieving vacant possession, we are preparing our
pre-letting initiatives for the 33,500 sq ft of retail space which sits
directly opposite the Dean Street entrance to the Tottenham Court Road
Crossrail station.  At Tasman House, 59/63 Wells Street, W1, we expect to
submit a planning application shortly to replace a tired 1950's building with
38,100 sq ft of new office and retail space, and construction is expected to
start by the end of the year.  At 148 Old Street, EC1, we continue to work up
plans for the major refurbishment of the existing 97,800 sq ft building to
create around 143,100 sq ft of high quality office space in this rapidly
improving location, subject to planning and vacant possession. 
 
Investment management 
 
Earlier this month, we commenced the pre-sales marketing programme of the 142
private residential units at Rathbone Square, W1 with the opening of our UK
marketing suite followed by a marketing launch in Asia. The scheme has been
well received and, to date, we have exchanged on the sale of 46 units
(totalling £73.1 million) with average sales prices ahead of business plan. A
further 80 units have been reserved and the marketing process continues. 
 
We are also marketing for sale the ten residential units at our 240
Blackfriars Road, SE1 scheme which completed in April. To date, we have
exchanged on the sale of two units with a further two units under offer. 
 
In the quarter, we sold our 7,370 sq ft freehold building at Tudor House, 35
Gresse Street, W1 for £8.4 million, reflecting a net initial yield of 3.1%, a
capital value of £1,140 per sq ft and a 5.0% premium to the March 2014 book
value, crystallising a 65.1% total return over the past 12 months. 
 
Since the quarter end, the Great Ropemaker Partnership ("GRP"), our 50:50
joint venture with BP Pension Fund, completed the purchase of the freehold
interest in Elm House, 13/16 Elm Street, WC1 for £26.0 million (our share:
£13.0 million). Elm House is a prominent, eleven storey office building
totalling approximately 49,700 sq ft and is currently vacant, providing a
near-term refurbishment opportunity in a rapidly improving location with good
rental prospects. The property sits on a 0.5 acre site adjoining GRP's fully
let 200 Gray's Inn Road, WC1 office building and, medium-term, provides
redevelopment potential in an area set to benefit from both Crossrail and the
redevelopment of the adjacent Mount Pleasant site. 
 
Cash collection and tenant delinquencies 
 
The quarterly cash collection performance has continued to be very strong,
with 99.6% of rent secured within seven working days of the quarter day (March
2014: 99.8%). One of our tenants (0.05% of rent roll) went into administration
during the quarter (March 2014: one); however, we remain vigilant and continue
to monitor the financial position of all our tenants. The segmentation of our
tenant base and portfolio is shown in Appendix 9. 
 
This information is provided by RNS
The company news service from the London Stock Exchange