Join our community of smart investors

Income growth to boost Great Portland

Rental income and long leases will be the key drivers for income when the property market starts to level off, and Great Portland is well-placed to achieve both.
September 18, 2014

It might be tempting to call a top on the West End and central London property market. After all, Great Portland Estates (GPOR) delivered an astonishing 27.6 per cent increase in adjusted net asset value (NAV) in the year to March. Yet the portfolio still delivered a further 4.2 per cent gain in the first quarter to June and demand for quality office and retail space continues to outstrip severely constrained supply. So the trend may not be reaching its apogee just yet. And with shares in West End landlord and developer Great Portland trading at an attractive discount to forecast book value, there should be plenty of locked in value to attract investors.

IC TIP: Buy at 630p
Tip style
Value
Risk rating
Low
Timescale
Long Term
Bull points
  • Strong increase in rental income
  • Significant development programme
  • Modest loan-to-value
  • Shares trade at a discount to forecast NAV
Bear points
  • Modest dividend
  • Valuation surpluses set to decline

Demand for West End space is linked to a great extent with the health of the London economy. At the moment, there are plenty of new jobs being created in London and that is underpinning the demand for more offices. That explains why the vacancy rate on Great Portland's portfolio fell from 3.7 per cent at the March year-end to a mere 2.5 per cent in June. And there's plenty of locked up value in the rental stream because the average rate or passing rent is well below the level that new lettings are attracting. This gap or so-called 'reversionary' rate is 19.4 per cent, which is the amount by which rental income would increase if all rents were brought up to current levels.

This is subscriber only content
Start your trial to keep reading
PRINT AND DIGITAL trial

Get 12 weeks for £12
  • Essential access to the website and app
  • Magazine delivered every week
  • Investment ideas, tools and analysis
Have an account? Sign in