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Great performance from Great Portland

RESULTS: The London office developer is taking clever advantage of a strong market
November 14, 2012

It’s hard to fault Great Portland’s (GPOR) first-half performance. All the numbers moved in the right direction, many of them with surprising force. The London landlord’s strategy of focusing on the West End rather than the City and on regeneration rather than rent collection seems to generate consistent outperformance within an already robust market. The share placing announced alongside these results, to raise around £140m and boost its fire-power for acquisitions, is likely to be popular in a sector otherwise short on growth.

IC TIP: Hold at 461p

Great Portland’s portfolio was marked up 4 per cent in the first half. Add in rent and the total property return (TPR) was 5.9 per cent - compared with 4.3 per cent for the central London index. The valuation gain is crucial because it drives the company’s net asset value (NAV), to which the share price - in the long run at least - is tied. Boosted by debt, adjusted NAV rose 5.2 per cent to 424p over the six-month period.

Encouragingly, the revaluations were underpinned by a robust rental market as well as the ongoing capital flight into the London property market, which enjoys a global reputation as a safe haven. Surveyors’ estimates of rents rose 2 per cent over the period, with shops up 2.6 per cent and offices up 1.9 per cent. The evidence of lettings is very supportive - the 23 long-term leases Great Portland signed over the period were 6.8 per cent above March estimates of rental value, on average.

Developments, marked up 6.7 per cent, were also a major contributor of outperformance. The company completed one office refurbishment during the first half, at 160 Great Portland St; pre-let to special-effects company Double Negative, it generated a profit on cost of 42 per cent. Five development projects remain underway, with similar levels of profit expected.

Further ahead, Great Portland has three sites with huge potential: an old Royal Mail depot on Rathbone Place, near the Tottenham Court Road Crossrail station; a number of ageing offices on Jermyn Street in St James’s, which the company pieced together with £159m of purchases during the period, and a whole corner of Hanover Square.

Broker Investec Securities expects year-end adjusted NAV of 444p.

GREAT PORTLAND ESTATES (GPOR)

ORD PRICE:461pMARKET VALUE:£1.44bn
TOUCH:460.6-461.3p12-MONTH HIGH:482pLOW: 305p
DIVIDEND YIELD:1.8%TRADING PROP:nil
PREMIUM TO NAV:10%
INVESTMENT PROP:£2.06bn*NET DEBT:53%

Half-year to 30 SepNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201137979.125.63.2
201242176.724.83.3
% change+11-3-3+3

Ex-div: 21 Nov

Payment: 2 Jan

*Including £480m within joint ventures