REG - Great Portland Ests. - Trading Statement

Great Portland EstatesAnnouncement

13/02/2020 07:00

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RNS Number : 8385C  Great Portland Estates PLC  13 February 2020

 

Press Release

 

13 February 2020

 

Great Portland Estates Trading Update

Great Portland Estates plc ("GPE") today publishes its trading update for the
quarter to 31 December 2019.

 

Toby Courtauld, Chief Executive, said:

 

"I am pleased to report on another productive quarter, combining healthy
leasing ahead of ERV, good progress at our six committed and near-term
developments and continued capital discipline, profitably recycling out of
mature assets and returning surplus equity to shareholders as we completed our
share buyback programme. The final quarter has started well; we have issued an
innovative ESG-linked revolving credit facility and demand for our brand of
high quality, sustainable space remains robust with £9.2 million of lettings
currently under offer at a 6.9% premium to March 2019 ERVs.

 

The clear outcome of the General Election is encouraging increased transaction
activity in our investment markets and, whilst further political and
macro-economic turbulence is possible, GPE is in great shape: We are
innovating across our portfolio, including the continued rollout of our
flexible space offering; our exceptional development pipeline provides us with
nearly 1.4 million sq ft of value creating opportunities; and with a talented
team, supported by our collaborative culture, deep market knowledge and
financial strength, we are well positioned to maximise the opportunity we have
to generate long-term value across our business".

 

 

Continued leasing successes ahead of March 2019 ERV

·   Twelve new lettings (48,900 sq ft) generating annual rent of £3.7
million (our share: £3.5 million); market lettings 1.4% ahead of March 2019
ERV

·   Flexible space now c.11% of office portfolio at 35% > ERV(1) and
appraising further c.149,000 sq ft

·   Seven lettings under offer totalling £9.2 million p.a. of rent
(our share: £9.2 million), market lettings 6.9% ahead of March 2019 ERV

·   Vacancy rate remains low at 2.4%; average office rent only £55.10;
reversionary potential 9.2% (£9.5 million)

·   99.3% of rent collected within seven working days; only two occupier
delinquencies (0.2% of rent roll)

 

Committed schemes 50% pre-let or under offer; total programme covers 54%(2) of
existing portfolio

·   Three committed schemes (414,900 sq ft), with two completing in 2020;
50% pre-let or under offer; all located near to Crossrail stations, 18.7%
forecast profit on cost, capital expenditure to come of £76.0 million

·   Three near-term uncommitted schemes (818,900 sq ft), expected capital
expenditure of c.£600 million and expected ERV of c.£55 million

·   Total pipeline of 10 schemes (1.4 million sq ft), all income producing,
2.8 years average lease length, 13.6% reversionary(3)

 

£64.5 million sale, 6.2% above book value; new PropTech VC investment

·   24/25 Britton Street, EC1 sold in January for £64.5 million, 6.2%
above September 2019 book value reflecting net initial yield of 4.07% and
capital value of £1,255 per sq ft, crystallising 15.7% p.a. IRR since
refurbishment in 2011

·   Commitment of up to £5 million to invest in Pi Labs European PropTech
venture capital ('VC') fund

 

Strong financial position; new £450 million ESG-linked RCF aligned to
ambitious sustainability targets

·   LTV(2) of 15.8% (or 13.7% pro forma for 24/25 Britton Street, EC1
sale), weighted average interest rate of 2.5%; cash and undrawn committed
facilities of £368 million

·   £200 million share buyback completed, 27.8 million shares purchased at
average price of £7.20

·   New innovative £450 million ESG-linked revolving credit facility
('RCF'), headline margin of 90 bp

 

1.Rental value of space prior to conversion, now open and trading as flexible
space

2.Based on property values at 30 September 2019

3.Existing use of development pipeline at 31 December 2019

 

 Contacts:
 Great Portland Estates plc  +44                       (0)                           20  7647        3000
 Toby Courtauld, Chief Executive
 Nick Sanderson, Finance and Operations Director
 Stephen Burrows, Director of Financial Reporting and Investor Relations

 Finsbury Group              +44                       (0)                           20  7251        3801
 James Murgatroyd
 Gordon Simpson

 

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 management

Occupier interest across our limited available space remained robust as we
delivered another healthy quarter of leasing performance, including:

·      twelve new leases and renewals signed generating annual rent of
£3.7 million (our share: £3.5 million), with market lettings 1.4% ahead of
March 2019 ERV;

·      one rent review was settled securing £0.1 million of annual rent
(our share: £0.1 million), 3.0% ahead of ERV;

·      total space covered by new lettings, reviews and renewals was
50,100 sq ft; and

·    our leasing successes have helped maintained a low vacancy rate of
2.4% at 31 December 2019 (2.3% at 30 September 2019).

 

 Leasing Transactions                  Three months ended
                                       31 Dec 2019          30 Sep 2019          31 Dec 2018

 New leases and renewals completed
 Number                                12                   17                   16
 GPE share of rent p.a.                £3.5 million         £6.0 million         £4.1 million
 Area (sq ft)                          48,900               178,400              51,400
 Rent per sq ft                        £53                  £78                  £75

 Rent reviews settled
 Number                                1                    16                   5
 GPE share of rent p.a.                £0.1 million         £8.7 million         £2.0 million
 Area (sq ft)                          1,200                107,600              123,800
 Rent per sq ft                        £94                  £87                  £28

 

Note: Includes joint ventures at our share

 

Notable portfolio management transactions during the quarter included:

 

·      at City Place House, EC1, together with our partner Knotel, we
completed lettings totalling £1.5 million, bringing our short term lettings
at the building to £1.9 million in the quarter, securing income ahead of the
proposed redevelopment of the building in 2022;

·      at City Tower, EC1 we completed a further 2,400 sq ft flex space
letting for £0.2 million, 5.7% ahead of ERV; and

·      at 50 Finsbury Square, EC2 we agreed a surrender with our largest
occupier Bloomberg L.P. ahead of their forthcoming lease expiry in June 2020.
Bloomberg L.P. paid £11.2 million, including dilapidations and a surrender
premium. We are to obtain full vacant possession later this year to allow for
a major refurbishment of the building.

 

Since 31 December 2019, our leasing momentum has continued:

 

·           we have completed three new leases generating £0.7
million (our share: £0.7 million) of annual rent (10,300 sq ft), with market
lettings 19.5% above March 2019 ERVs; and

·           a further 108,600 sq ft of space is currently under
offer which would deliver approximately £9.2 million p.a. in rent (our share:
£9.2 million), with market lettings 6.9% above March 2019 ERVs and 4.4% above
September 2019 ERVs.

 

Our quarterly cash collection performance has continued to be very strong,
with 99.3% of rent secured within seven working days of the December quarter
day. Two of our smaller occupiers went into administration during the quarter
(September 2019: one), representing only 0.2% of our rent roll; however, we
remain vigilant and regularly monitor the financial position of all our
occupiers.

 

Investment management

Given the continued strength of the investment market, attractive
opportunities to buy were limited and we made no property acquisitions in the
quarter. We did however take advantage of these supportive market conditions
to make one sale.

 

In January 2020, we sold 24/25 Britton Street, EC1 to an overseas investor for
a headline sale price of £64.50 million, equating to £64.06 million after
deduction of vendor top ups. The headline price reflects a net initial yield
of 4.07% and a capital value of £1,255 per sq ft. The premium to the
September 2019 valuation was 6.2% and crystallised an ungeared IRR of 15.7%
p.a. since the office element of the building was comprehensively refurbished
by GPE in 2011. This provided 49,900 sq ft of high quality accommodation
arranged over two lower ground, ground and three upper floors. The office
space is let to Kurt Geiger where we recently re-geared the lease to extend
the term to 2035. In addition, there are two retail units fronting Britton
Street (1,500 sq ft). The total contracted rental income is £2,806,000 per
annum inclusive of vendor top ups, equating to £55 per sq ft overall
(reflecting a minimum uplift at review of £65.00 per sq ft on the best office
space). At the date of sale, the current weighted unexpired lease term was
approximately 14.8 years to the earlier of expiries or breaks.

 

In January 2020, we made a commitment of up to £5 million to invest in Pi
Labs European PropTech venture capital fund. Launched in 2014, Pi Labs is
Europe's longest standing PropTech VC and this third fund has a primary focus
to invest in early stage PropTech start-ups across Europe and the UK that use
technology solutions to enhance any stage of the real estate value chain. Key
areas of focus for the fund include sustainability, future of work, future of
retail, commercial real estate technologies, construction technology and smart
cities.

 

Development management

Three committed schemes

At Oxford House, 76 Oxford Street, W1, construction of the new building is
progressing well with the core now complete. The building will deliver 81,200
sq ft of new offices and 37,900 sq ft of retail space directly opposite the
Dean Street entrance to the Tottenham Court Road Crossrail station and
completion is targeted for Q2 2021, with an expected profit on cost of 17.0%.
Occupier interest for the office space has been strong, given the quality of
the building and the continued lack of new-build office supply in the core of
the West End. As a result, the entirety of the office space is under offer
with negotiation of detailed terms ongoing. We will commence shortly the
marketing of the retail units and, despite both the challenging UK retail
environment and delays to the opening of Crossrail, early signs of occupier
interest are encouraging.

 

At Hanover Square, W1, construction is advancing well and we are on track to
hand over the first retail unit to Canali next month. The scheme will deliver
221,100 sq ft of new space, comprising 167,100 sq ft of offices, 41,800 sq ft
of retail and restaurant space and 12,200 sq ft of residential apartments.
Following the pre-let of 111,400 sq ft of offices in 18 Hanover Square to KKR
and Glencore, interest in the remaining 55,700 sq ft of office space across
the scheme continues to be strong. We remain positive on the letting prospects
for the remaining six retail units given their location on one of the world's
premier retail streets, their relative pricing and unit sizing. In total, the
scheme is now 53% let and, when complete in Q3 2020, it is expected to deliver
a profit on cost of 22.0%.

 

At The Hickman, E1, the building topped out in October 2019 and we expect to
deliver the new 74,700 sq ft Grade A office and retail building in May 2020.
Occupier interest in the building is encouraging and we are currently under
offer with a partner to work with us to deliver a co-working offer for the
basement, ground and first floors (together 17,300 sq ft). We are anticipating
a profit on cost of 10.1% with average office rents across the building of
around £51.55 per sq ft.

 

At 31 December 2019, the three committed development properties required
£76.0 million (our share) of capital expenditure to complete.

 

Substantial development pipeline

Beyond our three committed schemes, we have a substantial and flexible
pipeline of ten uncommitted schemes, including three schemes in our near-term
pipeline.

 

Three near-term schemes

At 50 Finsbury Square, EC2, we have submitted a planning application for a
major refurbishment and have also completed the surrender agreement with
Bloomberg L.P. ahead of vacant possession in the summer. The 126,400 sq ft
major refurbishment will see the office floor plates extended within the
existing frame of the building, a large reception with a concierge as well as
an amenity offer and the addition of a roof pavilion and terrace.

 

Close by at City Place House, EC2, located 200m from the Moorgate Crossrail
station, we are working on plans to maximise the potential of the site by
significantly increasing the size of the building to 320,000 sq ft, up from
176,600 sq ft today. Initial discussions with the City of London have been
encouraging and the project has a proposed start date of 2022.

 

At New City Court, SE1 in the London Bridge Quarter, we have submitted a
planning application to materially increase the size of the existing 98,000 sq
ft building to 372,500 sq ft and we expect a determination later this year.

 

Subject to planning, these three schemes could together deliver 818,900 sq ft
of grade A space, with expected capital expenditure of c.£600 million and an
expected ERV of c.£55 million.

 

Total programme of 1.8 million sq ft

Beyond these three near-term schemes, we have a further seven schemes in the
medium-term pipeline, with our potential development programme totalling 1.3
million sq ft today, with the potential to increase this to more than 1.8
million sq ft post development. These schemes cover 54% of GPE's existing
portfolio and will provide the bedrock of our development for the coming
decade.

 

Share buyback programme completed

In November 2019, we completed our £200 million return of surplus equity to
shareholders through our twelve month on market share buyback programme. In
total, we purchased and cancelled 27.8 million shares at an average price of
£7.20 per share (or £7.25 per share, £201.5 million including costs).

 

Strong financial position, new ESG-linked RCF aligned to ambitious
sustainability targets and extending maturities

In January 2020, we signed a new £450 million ESG-linked revolving credit
facility ('RCF') by way of an amendment and extension of our previous £450
million facility, with a group of five existing relationship banks. The new
facility has an initial five-year term which may be extended to a maximum of
seven years at GPE's request, subject to bank consent. This innovative
structure is the first ESG-linked RCF issued by a UK REIT, and from May 2021
the headline margin of 90 basis points can be adjusted (by up to 2.5 basis
points in either direction) depending on our performance against three ESG
related KPIs. All margin adjustments will be given by GPE to registered
charities focused on environmental initiatives.

 

At 31 December 2019, Group consolidated net debt was £403.1 million, up from
£322.7 million at 30 September 2019. The increase was largely due to £40
million incurred to complete the Group's share buyback as well as on-going
development capital expenditure across the Group. Group gearing increased to
18.2% at 31 December 2019 from 14.7% at 30 September 2019. Including the
non-recourse debt in the joint ventures, total net debt was £418.0 million
(30 September 2019: £351.8 million) equivalent to a loan to property value of
15.8% (30 September 2019: 13.3%), although this falls to 13.7% pro forma for
the sale of 24/25 Britton Street, EC1. At 31 December 2019, the Group,
including our share of joint ventures, had cash and undrawn committed credit
facilities of £368 million.

 

Our weighted average interest rate was 2.5% at the quarter end, down from 2.6%
at 30 September 2019 as we have drawn further on our revolving credit
facility. At 31 December 2019, 75% of the Group's total drawn debt was fixed
or hedged. Our weighted average drawn debt maturity was 5.9 years at 31
December 2019 (30 September 2019: 6.4 years).

 

                               31 December 2019     30 September 2019
 GPE net debt                  £403.1m              £322.7m
 GPE gearing                   18.2%(1)             14.7%
 Total net debt including JVs  £418.0m              £351.8m
 LTV                           15.8%(2) / 13.7%(3)  13.3%

1.     Based on net asset value at 30 September 2019

2.     Based on property values at 30 September 2019

3.     Based on property values at 30 September 2019 adjusted for the sale
of 24/25 Britton Street, EC1

 

 

Investor and analyst event

We will be hosting an event for investors and analysts today at Kent House,
14/17 Market Place, W1. GPE will not be disclosing any new material financial
information at the event and a presentation will go on our website later
today.

 

 

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