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Annual Results – strong operational performance

The Directors of Great Portland Estates plc announce the results for the Group for the year to 31 March 2018.

Highlights for the year:

Valuation growth of 2.9% – driven by strong development performance

  • Portfolio valuation up 2.9%1 in year (developments: up 7.0%1) and up 1.9%1 in H2
  • Yield contraction of 10 bp and rental values up 0.3%1 (H1: +0.7%1, H2: -0.4%; -0.6% offices, +3.0% retail)
  • 12 month capital return of 2.5% v 4.7% for IPD Central London (10 year annualised capital return: 6.1% v 5.1%)
  • Rental value growth guidance for new financial year: range of +1.0% to –2.5%

Good financial performance – increased EPRA NAV, earnings and dividends

  • EPRA2 NAV per share of 845 pence, up 5.8% in year and 3.9% in H2; total accounting return of 7.1%
  • Net assets of £2,366.9 million (March 2017: £2,738.4 million), post return of £416 million to shareholders
  • EPRA2 earnings of £66.5 million, up 12.1%. EPRA2 EPS of 20.4 pence, up 17.9%. Cash EPS of 17.0 pence, up 68.3%
  • After revaluation surplus, reported IFRS profit before tax of £76.7 million (March 2017: loss of £140.2 million)
  • Total dividends per share of 11.3 pence (2017: 10.1 pence), up 11.9%, with final dividend of 7.3 pence, up 14.1%

Excellent leasing, ahead of ERV and capturing reversion – 53% rent roll growth potential

  • 68 new lettings (469,700 sq ft) securing annual income of £31.1 million, market lettings 2.6% ahead of March 17 ERV
    • Record investment lettings of £19.2 million, 3.4% ahead of March 2017 ERV
    • Two major pre-lets to Turner Broadcasting and KKR securing £11.4 million (both on 15 year terms)
  • 34 rent reviews settled securing £18.3 million; 29.6% above previous passing rent, 3.2% ahead of ERV
  • Successfully trialled flex space offering across 12,000 sq ft, securing rent at 35% premium to net effective rental value. Appraising further c.100,000 sq ft across existing portfolio
  • Vacancy rate of 4.9%, average office rent only £54.60 sq ft, reversionary potential of 12.1% (£13.0 million)
  • Rent roll of £107.3 million (up 7.0%1), with total potential future growth of 53% to £164.1 million5

Three new development commitments – extensive flexible pipeline of opportunities (48% of portfolio)

  • Three schemes completed (350,700 sq ft, profit on cost of 6.5%) since March 2017; 90% let or sold, with 139 of 142 Rathbone private residential units now handed over to buyers
  • Commenced three new schemes (412,000 sq ft), including Hanover Square, W1; expected average profit on cost of 15.9%, capex to come of £239.6 million, all in close proximity to Crossrail stations
  • Flexible development pipeline; 13 uncommitted schemes (1.3 million sq ft), 3.7 years average lease length, income producing off low average office rents (£53.20 sq ft)

Crystallising development surpluses – sales of £329.0 million, 5.4% ahead of book value

  • 240 Blackfriars Road, SE1 sold from GRP JV for £266.0 million (GPE share: £133.0 million), GPE whole life surplus of £68.2 million (97% on capital employed)
  • 30 Broadwick Street, W1 sold for £185.9 million, GPE whole life surplus of £76.94 million (71% on capital employed)
  • Since year end, Great Portland Street buildings sold for £49.6 million, net initial yield 3.9%
  • Purchase of freehold of Cityside and Challenger House, E1 for £49.6 million, or £320 per sq ft

Exceptional financial position and maintaining balance sheet discipline – £416 million returned to shareholders

  • £416 million returned to shareholders via £110 million special dividend and £306 million B share scheme
  • Pro forma3 LTV of 11.6%, weighted average interest rate lower at only 2.3%, debt maturity extended to 5.9 years, debt 100% fixed/hedged. Pro forma3 cash & undrawn facilities of £666 million

¹ On a like for like basis, including share of Joint Ventures

2 In accordance with EPRA guidance

3 See our Financial Results

4 Pre tax

5 Including letting of voids, our committed developments plus reversion captured

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 9 to the financial statements. For a definition of pro forma debt metrics see Appendix 4.

We are pleased to report good results for the year, driven by the successful execution of our clear strategy: we have let more space across our high quality investment portfolio than ever before and delivered significant pre-lettings at our developments, beating rental value estimates; we have taken advantage of heightened demand for prime assets, crystallising profits through selective selling, often at new benchmark prices; we have maintained balance sheet discipline, returning surplus equity totalling £416 million to shareholders, whilst preserving gearing at only 12%; we have committed to three new development schemes, all near Crossrail and already 11% pre-let; and we have delivered healthy earnings per share and NAV per share growth of 17.9% and 5.8% respectively. As a result, we have raised the final dividend by 14.1%. Whilst we expect, and are planning for, continued economic uncertainty, we look to our future with confidence: although we can expect a softening in market rents and some secondary asset yields, occupier demand remains healthy across our retail and office portfolio. With London’s investment markets remaining competitive, we have no need to buy, preferring the relative returns on offer from investing in our portfolio. It is full of opportunity, including 1.7 million sq ft of development potential, 0.4 million sq ft of which is now on site. In addition, our low average rents provide us with plenty of reversion to capture and our talented team is ready to capitalise on our many opportunities for organic growth as we continue to broaden our offering to meet evolving occupier needs. Either way, after five years of net sales, we have the financial strength to exploit any market weakness where we unearth it.

Toby Courtauld Chief Executive

Interview with Toby Courtauld and Nick Sanderson

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