Great prospects at Great Portland

Whether it was good luck or good judgment that caused Great Portland Estates to reduce its debt and scale back development projects before the property market crashed does not matter. The fact is it did and today the central London-focused real estate investment trust has few dents in its balance sheet, while many property companies grapple with .

Great Portland's gearing (net debt as a percentage of net assets) is among the lowest in the real estate sector at just 41 per cent. It does not have to refinance any debt until 2012, and committed capital expenditure on developments is just £5m.

Indeed, its chief executive, Toby Courtald, was confident enough to unveil the minutiae of Great Portland's banking covenants at its half-year results in November, showing that commercial property values would have to fall a further 44 per cent before the group's loan-to-value covenants were in danger of being breached.

Of course, Great Portland is not immune to falling property values. The company reported a 20 per cent drop in net asset value to 392p in the three months to 31 December 2008. Previously, the fall in net asset value was driven by the falling values of properties, but this time it was exacerbated by the so-called "" effect of falling rental rates. These dropped by nearly 10 per cent in the final quarter of 2008.

The figure to watch is the estimated rental value, or ERV, which fell from £45.00 to £40.10 per square foot in that quarter. Although this doesn't reduce the amount of rent tenants pay, it does erode the future uplift from rent reviews.

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That said, Great Portland's investment portfolio has a resilient edge. The majority of its offices, which account for two-thirds of the portfolio, are in the West End's fringes north of Oxford Street, where rents are more affordable than the hedge fund heartland of Mayfair and St James's.

Leasing lots of small office suites at affordable rents means Great Portland has a greater diversity of tenants, although it is possible to argue that small businesses are more vulnerable to the ravages of recession. The average rent of leased properties is low at £35.80 per square foot, and still below shrinking ERV expectations.

The remaining one-third of Great Portland's portfolio is retail - and one third of its holdings are on Oxford Street, Regent Street and Bond Street, where 43 per cent of spending comes from overseas tourists.

All property companies are concerned about tenant failure, so there was worry when Great Portland announced its void rate had doubled to 7.5 per cent. However, this was the result of major leases expiring in buildings that it planned to redevelop. Four tenants went into administration in the last quarter, but this was equivalent to just 0.1 per cent of its rent roll.

Encouragingly, there is still good demand for lettings. New leases worth an additional £2.6m in rental income were signed in the last quarter, and deals worth a further £4.4m are under offer.

Great Portland is preparing in earnest for the next property cycle, and has undrawn credit facilities of £327m. Its Great Capital Partnership joint venture with Liberty International has just got planning permission for a major office scheme on the City's fringe. And a mass of ownerships in Hanover Square are being masterplanned for the new Crossrail station at Bond Street.