Great Portland Estates hit by fall in values

This time last year, Great Portland Estates (GPE) chief executive Toby Courtauld was in bullish mode, highlighting the continued recovery of London’s economy and its property market after the pandemic.

Sadly, this revival seems to have been short-lived. A “challenging macroeconomic and geopolitical environment” has put property values under pressure, Courtauld said.

He put a brave face on things, arguing that demand for “best-in-class” space remains strong and that companies often use downturns to reassess their property needs, creating opportunities for a landlord such as GPE with Grade A space to offer in a London market that generally has a shortage.

The numbers told their own story, though. Net asset value per share, although relatively flat over the 12-month period, has dropped by almost 5 per cent over the past six months. An £81mn, or 3.4 per cent, decline in the valuation of its estate drove its statutory pre-tax loss. Office values fell faster (down 3.9 per cent) than retail (0.5 per cent), although the former drove the limited (0.7 per cent) level of rental value growth.

The company had given guidance of rental growth of between zero and 5 per cent back in May but now expects this to be at the lower end (0 to 2.5 per cent) of estimates.

Economic uncertainty, and the higher interest rates that make financing property purchases more expensive, continue to weigh on pricing, which creates opportunities as well as challenges. GPE is currently reviewing potential acquisitions worth around £900mn, according to Courtauld – targeting both development and “repositioning” opportunities.

The shares slid by 3 per cent, bringing the year-to-date decline to 27 per cent. They trade at a 33 per cent discount to net asset value. Although three near-term development schemes offer scope for growth, the short-term outlook for both valuations and rental growth don’t look promising. Hold.

Last IC View: Hold, 747p, 19 Nov 2021