Join our community of smart investors

Great Portland eyes value opportunities in London market

The commercial landlord suffered a fall in rental income and asset values during the first half but is still looking to boost its development pipeline
November 11, 2020
  • Asset and rental values decline, primarily due to retail portfolio
  • Management sees potential acquisition opportunities in London
IC TIP: Hold at 710p

Great Portland Estates (GPOR) has warned that London asset and rental values are set to fall further as unemployment rises. A decline in the value of the retail portfolio of almost a fifth drove the commercial landlord into a pre-tax loss during the first half. 

Yet despite the uncertain outlook for offices and retail in the capital, management remains committed to pressing on with developments, with two schemes completed during the period, another on-site and a further seven in the medium-term pipeline. Historically the business has always been willing to start building “when others are running from risk”, said chief executive, Toby Courtauld.  

Given developments are not due for completion for at least four years, longer-term demand drivers are more important, said Mr Courtauld. They include London’s attraction as a global financial city and higher investment yields than other European cities, which should attract overseas capital, he added. That influx of capital is one reason the group is likely to be a net buyer of assets this year, in a reversal of the past seven years. “The sorts of things we are looking to buy are buildings we can improve, which they’re not looking to buy, so we think we will find opportunities,” he said.   

Peel Hunt has downgraded its forecast for adjusted net asset value at the end of March 2021 to 775p a share, from 810p, and expects this to rise to 851p the same time the following year. 

A higher exposure to retail than peers means the group is more at the mercy of declining rental values, while a larger development pipeline adds another layer of risk. The discount attached to the shares seems justified. Hold.

GREAT PORTLAND ESTATES (GPOR)   
ORD PRICE:710pMARKET VALUE:£ 1.8bn
TOUCH:709.6-710.4p12-MONTH HIGH:972pLOW: 519p
DIVIDEND YIELD:1.8%TRADING PROPERTIES:nil
DISCOUNT TO NAV:11%NET DEBT:22%
INVESTMENT PROPERTIES:£2.5bn*  
Half-year to 30 SepNet asset value (p)**Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201986844.416.74.7
2020800-155-61.24.7
% change-8-- 
Ex-div: 19 Nov   
Payment: 05 Jan   
*Includes investments in joint ventures **Diluted NAV

Last IC View: Hold, 628p, 20 May 2020