Great Portland Estates' value slumps further

London offices continue to haemorrhage value due to high interest rates and questions around their role in the post-Covid-19 world. This is bad news for Great Portland Estates (GPE) and its share price dropped 5 per cent on the day. The real estate investment trust (Reit) posted a deepening of pre-tax losses for the six months to 30 September due to a swingeing £220mn valuation drop. It comes after the company posted an £80.6mn fall in last year's interims.

The effect on shareholder value has been profound. From 31 March 2022 to 30 September this year, GPE's EPRA net tangible assets (NTA) per share plummeted 22.2 per cent from 835p to 650p. It's a poor performance, but it's comparable to Land Secutities (LAND) and British Land (BLND) whose EPRA NTA fell 16 per cent and 22.3 per cent over the same period. Landsec and British Land's September 2022 interims captured the bulk of that value drop, meaning better news this year. For GPE, the reverse was true.

The bigger question for investors is whether GPE's price has factored in this performance. On the one hand, GPE's discount to net asset value (NAV) would suggest it has. On the other hand, it has a lower dividend yield than the larger duo, and consensus forecasts predict a drop in dividends in 2025 and 2026, suggesting the shares may not yet trade at fair value.

Not that GPE's chief executive is keen on a comparison between his company and the LAND and BLND duo. He told Investors' Chronicle that GPE is smaller, nimbler, and more focused on central London, particularly the West End. That may be true. But considering Savills is recording a 7.1 per cent vacancy rate and leasing activity 37 per cent below the 10-year average for the West End office market, that does not sound like a good thing, either. Sell.

Last IC view: Hold, 502p, 24 May 2023