THIS ANNOUNCEMENT (AND THE
INFORMATION CONTAINED HEREIN) IS NOT FOR RELEASE, PUBLICATION,
DISTRIBUTION OR FORWARDING IN WHOLE OR IN PART, DIRECTLY OR
INDIRECTLY, IN OR INTO, THE UNITED STATES, CANADA, JAPAN, SOUTH
AFRICA OR ANY OTHER JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A
VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH
JURISDICTION.
THIS ANNOUNCEMENT IS NOT A
PROSPECTUS BUT AN ADVERTISEMENT AND DOES NOT CONSTITUTE A
PROSPECTUS EQUIVALENT DOCUMENT. IT IS NOT AN OFFER OF SECURITIES
FOR SALE TO U.S. PERSONS OR IN ANY JURISDICTION, INCLUDING THE
UNITED STATES, CANADA, JAPAN, SOUTH AFRICA OR ANY OTHER
JURISDICTION IN WHICH IT WOULD BE UNLAWFUL TO DO SO. INVESTORS
SHOULD NOT SUBSCRIBE FOR THE SECURITIES REFERRED TO IN THIS
ANNOUNCEMENT EXCEPT ON THE BASIS OF THE INFORMATION CONTAINED IN
THE PROSPECTUS EXPECTED TO BE PUBLISHED IN DUE
COURSE.
THIS ANNOUNCEMENT CONTAINS
INSIDE INFORMATION.
PLEASE SEE THE IMPORTANT
NOTICE AT THE END OF THIS ANNOUNCEMENT.
23 May 2024
GPE Rights
Issue
Fully underwritten 3 for 5
Rights Issue, to raise gross proceeds of £350 million, to
capitalise on the compelling new investment opportunities in
central London
Great Portland Estates plc
("GPE", the "Group" or the "Company") today announces the launch of
a fully underwritten 3 for 5 Rights Issue to raise gross proceeds
of approximately £350 million (£336 million net of expenses)
through the issue of 152 million New Shares at a price of 230 pence
each (the "Rights
Issue").
Alongside this announcement, GPE has
released its audited results for the year ended 31 March 2024 and
announced the acquisition of The Courtyard for £28.6
million.
Background and Rationale
· The
Rights Issue will allow GPE to take advantage of the attractive new
acquisition and development opportunities emerging in central
London commercial real estate and deliver attractive and accretive
shareholder returns.
· Higher
interest rates have disrupted the commercial property investment
market, creating significant near-to medium-term acquisition
opportunities in central London with values approaching their
trough and assets trading broadly in line with 2009 real capital
value levels.
· Operational market dynamics remain strong for GPE, across both
its HQ and differentiated Flex offering, as demonstrated in the
Group's results for the financial year ended 31 March 2024, with
leasing 9.1% ahead of ERV and the Group's vacancy rate very low at
1.3%.
· With
prime office demand remaining robust, and current levels of vacancy
remaining low, the Group expects market conditions to remain
favourable and, looking forward, anticipates new office supply
within London to tighten further alongside a growing
sustainability-led bifurcation, underpinning future rental
growth.
· GPE is
well placed to take advantage of the market opportunity given its
strong track record of disciplined capital management and accretive
acquisitions, combined with its specialist development and
refurbishment expertise, in-demand Flex offering and continued
sustainability and customer focus.
· The
Rights Issue is expected to result in a loan to value ratio
("LTV") of 18.2% post
receipt of the net proceeds of the Rights Issue and an illustrative
increase in available investment capacity of approximately £450
million.
Accelerating Acquisition and
Development Opportunities
· GPE
continuously evaluates investment opportunities and has near-term
acquisition targets of £1.4 billion within central London, which
are split into a 'Tier A' and 'Tier B' list based on the Group's
assessment of the probability of a potential purchase. Beyond this
the Group has an additional watchlist of £1.4 billion of
assets.
· From
the higher probability Tier A acquisition targets, the Group has
recently exchanged on The Courtyard and has a further two near-term
potential off-market Flex acquisitions under review which are
adjacent to or opposite existing Flex properties of the
Group.
· Given
an increasing shortage of high quality office space, potential
returns from the Group's existing development pipeline, across both
Flex and HQ, are also becoming increasingly attractive.
· GPE
intends to use £168 million of the proceeds from the Rights Issue
to commit to capex (for the Soho Square Estate and The Courtyard).
This will take total capex on committed GPE schemes from £498
million to £666 million.
· GPE
will seek to deploy the remainder of the proceeds in new
acquisitions over the next 12-18 months, subject to market
conditions.
· The
Group also has approximately £660 million worth of assets earmarked
for sale over the near-to-medium term as business plans complete.
However, in line with the Group's track record of recycling assets
in tune with the cycle, the Group expects to time the sale of these
assets opportunistically when investment market conditions are more
favourable.
Delivering Long Term Value and Income Growth
· The
Board expects that the acquisitions and developments which it
intends to fund with proceeds of the Rights Issue will, in
aggregate, enhance shareholder returns and be accretive to both
EPRA earnings and NTA per share over time, and support the Group's
ambition to deliver a Total Accounting Return in excess of its cost
of capital.
· GPE is
targeting to deliver a Total Accounting Return of 10% plus over the
near-to medium-term (before yield
compression), with additional upside available should property
yields contract in a falling interest rate and improving rental
growth environment.
· GPE
has updated its target rental value growth range for the financial
year to 31 March 2025 to between 3.0% and 6.0% across the portfolio
with prime offices expected to continue to outperform with a target
rental value growth range of between 5.0% and 10.0%.
· GPE
remains committed to maintaining its through the cycle LTV within
the range of 10 to 35% and continued capital recycling
discipline.
· GPE
expects an inflection in EPRA earnings over
the next 12 months given extensive onsite development and
refurbishment activity, and the subsequent uplift from increased
rental income and Flex net operating income, lower interest costs
and ongoing cost discipline.
· The
Board intends that the total dividend payout for the year to 31
March 2025 will be at least equal to the total payout for the year
to 31 March 2024. Given the compelling pipeline of Flex and HQ
opportunities that will underpin the Group's expected significant
earnings growth in future years, in line with its progressive
dividend policy, the total payout going forward may be increased
depending on the timing of, and returns generated from, the
deployment of the proceeds of the Rights Issue, as well as future
asset disposals.
Directors' Intentions
· Directors of the GPE Board holding GPE shares intend to
participate in the Rights Issue and intend to take up their
respective entitlements in full, or in part, with a total
investment of £2 million1,
further aligning themselves with GPE shareholders.
Toby Courtauld, CEO of GPE said:
"The fully underwritten Rights Issue will allow GPE to seize
the significant opportunity we see emerging in the central London
commercial real estate space. We have seen a correction in
asset values over the last 18 months with central London commercial
real estate now trading in line with levels last seen in 2009 in
real terms. We are currently tracking approximately £1.4 billion
of acquisition opportunities which we believe are capable of
being purchased at or below replacement cost, with GPE well placed
to take advantage of these opportunities given our best in class
offering, sustainability credentials and differentiated flex
offering. Beyond this, there is a further £1.4 billion of
opportunities on our watchlist. GPE have a strong track
record and a disciplined approach to allocating capital, ensuring
we operate in tune with London's cyclical property markets with the
objective of delivering attractive stakeholder
returns."
Rights Issue and Annual Results presentation
GPE will be holding a presentation
for analysts and investors today at 9.00 a.m. at the offices of
Deutsche Numis. Registration for this call can be found at
https://www.gpe.co.uk/investors/latest-results.
(1)
Including Toby Courtauld c.£1.5m and Nick Sanderson
c.£0.4m
Details of the Rights Issue
The Rights Issue is underwritten by
BofA Securities, Deutsche Numis and J.P. Morgan Cazenove as
Joint Global Coordinators and Joint Bookrunners, and Santander as Co-lead Manager (together
with the Joint Global Coordinators and Joint Bookrunners,
the "Underwriters").
Lazard is acting as Financial Advisor to GPE. BofA Securities is
acting as Sole Sponsor to GPE.
The Issue Price of 230 pence per New
Share represents:
· a
44.5% discount to the closing price of 414.6 pence per Ordinary
Share on 22 May 2024 (being the latest practicable date prior to
the publication of this announcement), adjusted for the recommended
final dividend for the year ended 31 March 2024, which will not be
paid on the New Shares
· a
33.4% discount to the theoretical ex-rights price based on that
closing price (also adjusted for the payment of such recommended
final dividend)
The New
Shares will, when issued and fully paid, rank pari passu with the
Existing Shares, including the right to receive all dividends or
distributions declared, made or paid after the date of allotment
and issue of New Shares except that they will not be eligible for
the final dividend for the year ended 31 March 2024 of 7.9 pence
per share recommended by the Board of GPE and announced on 23 May
2024.
GPE has agreed to a 180-day lock-up,
subject to customary exceptions and waiver by the Joint Global
Coordinators.
Further details of the Rights Issue
are set out in the Prospectus which is expected to be published on
24 May 2024 and will also be made available on GPE's website
www.gpe.co.uk.
The Rights Issue is conditional
upon, amongst other things, the Underwriting Agreement becoming
unconditional in all respects (save for the condition related to
Admission of the New Shares) and the Underwriting Agreement not
being terminated in accordance with its terms prior to
admission.
Expected summary timetable
|
2024
|
Record Date for entitlements under the Rights
Issue
|
6.00 p.m.
on 22 May
|
Date
of publication of FY24 results and announcement of Rights
Issue
|
23
May
|
Date
of publication of Prospectus
|
24
May
|
Ex-entitlement date for the Rights Issue
|
8.00 a.m.
on 28 May
|
Admission and commencement of dealings in New Ordinary Shares,
nil paid, on the London Stock Exchange
|
8.00 a.m.
on 28 May
|
Ex
dividend date for FY24 Dividend
|
30
May
|
Record date for FY24 Dividend
|
31
May
|
Latest time and date for acceptance and payment in full and
registration of renounced Provisional Allotment
Letters
|
11.00 a.m.
on 11 June
|
Dealings in New Ordinary Shares, fully paid,
commence on the London Stock Exchange
|
8.00 a.m.
on 12 June
|
References to times in this
announcement are to London time.
Enquiries
Great Portland Estates plc
|
+44(0) 207
647 3000
|
Toby Courtauld, Chief
Executive
|
|
Nick Sanderson, Chief Financial &
Operating Officer
|
|
Stephen Burrows, Director of Investor
Relations and Joint Director of Finance
|
|
|
BofA
Securities (Joint Global Coordinator, Joint Bookrunner, Joint
Broker and Sole Sponsor)
|
+44 20
7628 1000
|
Edward Peel
|
|
David Lloyd
|
|
Lucrezia Lazzari
Stephen Little
|
|
|
|
Deutsche Numis (Joint Global Coordinator, Joint Bookrunner and
Joint Broker)
|
+44 (0)20
3727 1000
|
Ben Stoop
|
|
Hannah Boros
|
|
Jamie Loughborough
|
|
Jonny Abbott
|
|
|
|
J.P.
Morgan Cazenove (Joint Global Coordinator,
Joint Bookrunner and Joint Broker)
|
+44 (0) 20
7742 4000
|
Matt Smith
|
|
Paul Pulze
|
|
Jessica Murray
|
|
Saul Leisegang
|
|
|
|
Santander (Co-Lead Manager)
|
+34 91 289
00 00
|
Javier Mata
|
|
Pablo Mateo
|
|
Andre Stairmand
|
|
Mikel Palacios
|
|
|
|
Lazard (Financial Advisor)
|
+44 (0) 20
7187 2000
|
Cyrus Kapadia
Patrick Long
Simon Chambers
Caitlin Martin
|
|
|
|
FGS
Global
|
+44 (0) 20
7251 3801
|
James Murgatroyd
|
|
Gordon Simpson
|
|
A&O Shearman is acting for the
Company and Herbert Smith Freehills is acting for the Underwriters
in connection with the Rights Issue.
The person responsible for arranging
the release of this announcement on behalf of GPE is Darren
Lennark.
LEI Number:
213800JMEDD2Q4N1MC42
IMPORTANT
NOTICES
This announcement has been issued by and is the sole
responsibility of the Company. This announcement is not a
prospectus but an advertisement and investors should not acquire
any Nil-Paid Rights, Fully Paid Rights or New Ordinary Shares
referred to in this announcement except on the basis of the
information contained in the prospectus expected to be approved by
the Financial Conduct Authority in the UK and published by the
Company in connection with the Rights Issue in due course. The
information contained in this announcement is for background
purposes only and does not purport to be full or complete. Copies
of the Prospectus, when published, will be available on the
Company's website, provided that the Prospectus will not, subject
to certain exceptions, be available to certain shareholders in
certain restricted or excluded territories. The Prospectus will
give further details of the Rights Issue.
Any decision to participate in the Rights Issue must be made
solely on the basis of the Prospectus to be published by the
Company in due course. The information contained in this
announcement is for background purposes only and no reliance may or
should be placed by any person for any purpose whatsoever on the
information contained in this announcement or on its completeness,
accuracy or fairness. Recipients of this announcement should
conduct their own investigation, evaluation and analysis of the
business, data and property described in this announcement. This
announcement does not constitute a recommendation concerning any
investor's decision or options with respect to the Rights Issue.
The information in this announcement is subject to
change.
This announcement is for information purposes only and shall
not constitute or form part of any offer to issue or sell, or the
solicitation of any offer to purchase, subscribe for or otherwise
acquire, any securities of the Company in the United States
(including its territories and possessions, any state of the United
States and the District of Columbia) (the "United States" or "US"), Canada, Japan, South Africa or
any other jurisdiction where such offer or sale would be unlawful.
The securities referred to herein (the "Securities") have not been and will not
be registered under the US Securities Act of 1933, as amended (the
"US Securities Act") or
with any securities regulatory authority of any state or other
jurisdiction of the United States or under applicable securities
laws of Canada, Japan, South Africa, and may not be offered, sold,
taken up, exercised, resold, pledged, renounced, transferred,
distributed or delivered, directly or indirectly, into or within
the United States, except to qualified institutional buyers
("QIBs") as defined in, and
in reliance on, Rule 144A under the US Securities Act, or pursuant
to an applicable exemption from, or in a transaction not subject
to, the registration requirements of the US Securities Act and in
compliance with any applicable securities laws of any relevant
state or other jurisdiction of the United States. Subject to
certain exceptions the Securities referred to herein may not be
offered or sold in Canada, Japan, South Africa or to, or for the
account or benefit of, any national, resident or citizen of Canada,
Japan or South Africa. There will be no public offering of the
Securities in the United States.
Neither this announcement or any other document connected with
the Rights Issue has been or will be approved or disapproved by the
United States Securities and Exchange Commission, any state
securities commission in the United States or any other US
regulatory authority, nor have any of the foregoing authorities
passed upon or endorsed the merits of the offering of the
Securities or the accuracy or adequacy of this announcement or any
other document connected with the Rights Issue. Any representation
to the contrary is a criminal offence in the United
States.
Each of Merrill Lynch International
("BofA
Securities") and J.P. Morgan
Securities plc (which conducts its UK investment banking business
as J.P. Morgan Cazenove) ("J.P. Morgan Cazenove") is authorised in the
United Kingdom by the Prudential Regulation Authority (the
"PRA") and regulated in the
United Kingdom by the PRA and the FCA. Numis Securities Limited
(trading as Deutsche Numis) ("Deutsche Numis") is authorised and
regulated in the United Kingdom by the FCA. Banco Santander S.A. is
authorised by the Bank of Spain and subject to supervision by the
Bank of Spain and by the European Central Bank and to limited
regulation by the Financial Conduct Authority and Prudential
Regulation Authority ("Santander", and together with BofA
Securities, J.P. Morgan Cazenove and Deutsche Numis, the
"Underwriters").Each of the
Underwriters is acting exclusively for the Company and no one else
in connection with the Rights Issue, and will not regard any other
person (whether or not a recipient of this document) as their
respective clients in relation to the Rights Issue and will not be
responsible to anyone other than the Company for providing the
protections afforded to their respective clients, nor for providing
advice, in relation to the Rights Issue, the contents of this
announcement or any other transaction, arrangement or matter
referred to in this announcement.
Lazard & Co., Limited ("Lazard"), which is authorised and
regulated in the United Kingdom by the FCA, is acting exclusively
as financial adviser to the Company and no one else in connection
with the Rights Issue and will not be responsible to anyone other
than the Company for providing the protections afforded to clients
of Lazard nor for providing advice in relation to the Rights Issue
or any other matters referred to in this announcement. Neither
Lazard nor any of its affiliates owes or accepts any duty,
liability or responsibility whatsoever (whether direct or indirect,
whether in contract, in tort, under statute or otherwise) to any
person who is not a client of Lazard in connection with this
document, any statement contained herein or
otherwise.
The distribution of this announcement and any proposed
offering and/or issue of securities referred to herein in certain
jurisdictions may be restricted by law. No action has been taken by
the Company or any of the Underwriters that would permit an offer
of securities or possession or distribution of this announcement or
publicity material relating to securities in any jurisdiction where
action for that purpose is required, other than in the United
Kingdom. Persons into whose possession this announcement comes are
required by the Company and the Underwriters to inform themselves
about and to observe any such restrictions. Any failure to comply
with any such restrictions may constitute a violation of the
securities laws of such jurisdiction.
The Underwriters, in accordance with applicable legal and
regulatory provisions, may engage in transactions in relation to
the Securities and/or related instruments for their own account for
the purpose of hedging their underwriting exposure or otherwise. In
connection with the Rights Issue, the Underwriters and any of their
respective affiliates, acting as investors for their own accounts
may acquire New Ordinary Shares as a principal position and in that
capacity may retain, acquire, subscribe for, purchase, sell, offer
to sell or otherwise deal for their own accounts in such New
Ordinary Shares and other securities of the Company or related
investments in connection with the Rights Issue or otherwise.
Accordingly, references in this document to the New Ordinary Shares
being issued, offered, subscribed, acquired, placed or otherwise
dealt in should be read as including any issue, offer,
subscription, acquisition, placing or dealing by each of the
Underwriters and any of their respective affiliates acting as
investors for their own accounts. In addition, certain of the
Underwriters or their respective affiliates may enter into
financing arrangements (including swaps, warrants or contracts for
difference) with investors in connection with which such
Underwriters (or their respective affiliates) may from time to time
acquire, hold or dispose of New Ordinary Shares. Except as required
by applicable law or regulation, the Underwriters and their
respective affiliates do not propose to make any public disclosure
in relation to such transactions.
In
the event that the Underwriters acquire New Ordinary Shares which
are not taken up by Qualifying Shareholders (as defined in the
Prospectus), the Underwriters may co-ordinate disposals of such
shares in accordance with applicable law and regulation. Except as
required by applicable law or regulation, the Underwriters and
their respective affiliates do not propose to make any public
disclosure in relation to such transactions.
Neither the contents of the Company's website nor any website
accessible by hyperlinks on the Company's website is incorporated
in, or forms part of, this announcement.
This announcement does not constitute a recommendation
concerning any investor's options with respect to the Rights Issue.
The price of shares and any income expected from them may go down
as well as up and investors may not get back the full amount
invested upon disposal of the shares. Past performance is no guide
to future performance. The contents of this announcement are not to
be construed as legal, business, financial or tax advice. Each
investor or prospective investor should consult his, her or its own
legal adviser, business adviser, financial adviser or tax adviser
for legal, financial, business or tax advice.
None of the Underwriters nor any of their respective
affiliates, directors, officers, employees, advisers or agents
accepts any responsibility or liability whatsoever for or makes any
representation or warranty, express or implied, as to this
announcement, including the truth, accuracy, fairness, sufficiency
or completeness of the information (or whether any information has
been omitted from the announcement) or the opinions or beliefs
contained in this announcement (or any part hereof). None of the
information in this announcement has been independently verified or
approved by the Underwriters or any of their respective affiliates.
Save in the case of fraud, no liability is accepted by the
Underwriters or any of their respective affiliates for any errors,
omissions or inaccuracies in such information or opinions or for
any loss, cost or damage suffered or incurred howsoever arising,
directly or indirectly, from any use of this announcement or its
contents or otherwise in connection with this
announcement.
No
person has been authorised to give any information or to make any
representations other than those contained in this announcement
and, if given or made, such announcements must not be relied on as
having been authorised by the Company, the Underwriters or any of
their respective affiliates. Subject to the Listing Rules, the
Prospectus Regulation Rules, the Disclosure Guidance and
Transparency Rules and MAR (each as defined in the Prospectus), the
issue of this announcement and any subsequent announcement shall
not, in any circumstances, create any implication that there has
been no change in the affairs of the Company since the date of this
announcement or that the information contained in it is correct as
at any subsequent date.
This announcement contains "forward-looking statements" which
includes all statements other than statements of historical fact,
including, without limitation, those regarding the Company's
financial position, business strategy, plans and objectives of
management for future operations, or any statements preceded
by, followed by or that include the words "targets",
"believes", "expects", "aims", "intends", "will", "may",
"anticipates", "would", "could" or similar expressions or negatives
thereof. Such forward-looking statements involve known and unknown
risks, uncertainties and other important factors beyond the
Company's control that could cause the actual results, performance
or achievements of the Company to be materially different from
future results, performance or achievements expressed or implied by
such forward-looking statements. Such forward-looking statements
are based on numerous assumptions regarding the Company's present
and future business strategies and the environment in which the
Company will operate in the future. These forward-looking
statements speak only as at the date of this announcement. None of
the Company, the Underwriters or their respective affiliates
undertakes or is under any duty to update, review or revise any forward-looking statement contained in
this announcement or to correct any inaccuracies in any such
information which may become apparent or to provide you with any
additional information as a result of new
information, future developments or otherwise, other than any
requirements that the Company may have under applicable law or the
Listing Rules, the Prospectus Regulation Rules, the Disclosure
Guidance and Transparency Rules or MAR. To the fullest extent
permissible by law, such persons disclaim all and any
responsibility or liability, whether arising in tort, contract or
otherwise, which they might otherwise have in respect of this
announcement. The information in this announcement is subject to
change without notice.
Information to
Distributors
Solely for the purposes of the product governance requirements
of Chapter 3 of the FCA Handbook Product Intervention and Product
Governance Sourcebook (the "UK
MiFIR Product Governance Requirements"), and disclaiming all
and any liability, whether arising in tort, contract or otherwise,
which any "manufacturer" (for the purposes of the UK MiFIR Product
Governance Requirements) may otherwise have with respect thereto,
the New Ordinary Shares have been subject to a product approval
process, which has determined that such securities are: (i)
compatible with an end target market of retail investors and
investors who meet the criteria of professional clients and
eligible counterparties, as respectively defined in paragraphs 3.5
and 3.6 of the FCA Handbook Conduct of Business Sourcebook; and
(ii) eligible for distribution through all permitted distribution
channels (the "Target Market
Assessment").
Notwithstanding the Target Market Assessment, distributors
(such term to have the same meaning as in the UK MiFIR Product
Governance Requirements) should note that: the price of the New
Ordinary Shares may decline and investors could lose all or part of
their investment and the New Ordinary Shares offer no guaranteed
income and no capital protection; and an investment in the New
Ordinary Shares is compatible only with investors who do not need a
guaranteed income or capital protection, who (either alone or in
conjunction with an appropriate financial or other adviser) are
capable of evaluating the merits and risks of such an investment
and who have sufficient resources to be able to bear any losses
that may result therefrom. The Target Market Assessment is without
prejudice to the requirements of any contractual, legal or
regulatory selling restrictions in relation to the sale of the New
Ordinary Shares. Furthermore, it is noted that, notwithstanding the
Target Market Assessment, the Underwriters will only procure
investors (in connection with the Rights Issue) who meet the
criteria of professional clients and eligible
counterparties.
For the avoidance of doubt, the Target Market Assessment does
not constitute: (a) an assessment of suitability or appropriateness
for the purposes of Chapters 9A or 10A respectively of the FCA
Handbook Conduct of Business Sourcebook; or (b) a recommendation to
any investor or group of investors to invest in, or purchase, or
take any other action whatsoever with respect to the New Ordinary
Shares.
Each distributor is responsible for undertaking its own Target
Market Assessment in respect of the New Ordinary Shares and
determining appropriate distribution channels.
Background to and reasons for the
Rights Issue
The Group's strategy is to deliver
superior returns by applying its specialist skills to acquire,
reposition, redevelop and manage properties to produce
high-quality, highly sought-after sustainable spaces, with the high
levels of service that modern central London customers demand. The
Group's disciplined approach to allocating capital shapes its
activities, ensuring it operates in line with London's cyclical
property markets with the objective of maximising stakeholder
returns. The Directors believe that compelling new investment
opportunities are starting to emerge in the central London
commercial property market and, given an increasing shortage of
high-quality space, potential returns from the Group's existing
development pipeline are increasingly attractive. The Directors
believe that timing is right to capture the opportunity given their
view that valuations are at or around trough levels and central
London offices are trading close to 2009 real capital values (with
current real capital values down 58% from their 2015 peak,
according to CBRE (Central London Office Quarterly Slidebank)). The
Group has already been capitalising on the current market
conditions and over the course of the last 18 months has become a
net buyer of central London real estate for the first time since
2013. The Group purchased £122.9 million of investment property
assets off market in the year ended 31 March 2024, at more than a
25% discount to the Group's view of replacement cost, and also
recently exchanged on the acquisition of The Courtyard, WC1, at 69%
discount to the Group's view of replacement cost. Accordingly, the
Group is seeking to further capitalise on this opportunity through
the Rights Issue, whilst maintaining its disciplined approach to
capital management and balance sheet strength.
The £350.3 million Rights Issue is
expected to result in an increase in available investment capacity
of approximately £450 million (including existing credit lines and assuming GPE
remains in its through-cycle LTV range of 10-35%) and to allow the
Group to be prepared to seize upon near term acquisition pipeline
opportunities in central London, as well as committing to
development capital expenditure at newly purchased properties. In
the short term, the proceeds will be used to repay the
£47.0 million drawn on the
RCF (representing £46.1 million on the Group's consolidated balance
sheet at 31 March 2024), with the balance placed on short-term
deposit.
The Group has the benefit of an
experienced management team, with a depth of specialist skills,
local knowledge and stakeholder relationships (including navigating
the current planning environment), allowing the team to
forensically track its target markets for potentially attractive
acquisition opportunities, with the vision and capabilities to
identify and seek to execute return-enhancing repositioning and
redevelopment. Leveraging this market access, management are
currently tracking approximately £1.4 billion of near-term
acquisition targets and have a further watchlist of an additional
£1.4 billion acquisition opportunities that have potential for
repositioning and redevelopment into HQ and Flex schemes. The Group
will also use at least £168 million of the proceeds from the Rights
Issue to unlock and accelerate the significant potential within the
existing Group development pipeline, including through funding the
development of the recently exchanged office and retail property
The Courtyard and the Soho Square Estate, acquired last summer,
with the intention of developing and delivering these assets into
what is expected to be an undersupplied central London office
market.
The Directors expect that the
acquisitions and developments which the Group intends to fund with
proceeds of the Rights Issue will, in aggregate, enhance
shareholder returns and be accretive to both EPRA earnings and NTA
per share over time, and support the Group's ambition to deliver
Total Accounting Returns in excess of its cost of capital. GPE is
targeting a Total Accounting Return of 10% or more over the near to
medium term (before yield compression), with additional upside
available should property yields contract in a falling interest
rate and improving rental growth environment.
Higher interest rates have disrupted the commercial property
investment market, creating significant near to medium term
acquisition opportunities in central London
The Directors believe that in an
elevated interest rate environment, attractive investment
opportunities have started to emerge in the central London
commercial property market. Since the peak of the recent market
cycle in March 2022, central London office values have experienced
a rapid correction, bringing them in line in real terms with
capital values last seen during the financial crisis in 2009.
Central London yields have corrected aggressively since 2022, with
prime net initial yields up by 200 basis points (a 44% increase) in
the City and up 75 basis points (a 19% increase) in the West End
(according to CBRE (Central London Office Quarterly Slidebank)). As
a consequence, the Directors are starting to identify central
London real estate acquisition opportunities at or below the
Group's view of replacement cost and have already started to
capitalise on the opportunity through the purchase of £122.9
million in investment property assets off market during the year
ended 31 March 2024, becoming a net buyer of central London
commercial property for the first time since 2013. Given the market
dynamics, the Group has sought to limit its asset recycling, with
its last substantial sale being 50 Finsbury Square in October 2022
for £190.0 million. As a result of these evolving market dynamics,
the Directors believe that central London property values are
approaching trough valuations and therefore the timing is right to
capture this opportunity.
The heightened interest rate
environment has significantly disrupted the commercial property
investment market in central London. Turnover in central London's
real estate investment market was £4.6 billion during year ended 31
March 2024, 59% below the ten-year average of £11.3 billion, and
lower than levels seen in 2009, according to CBRE (Central London
Office Quarterly Slidebank). The Group's specialist management team
continuously assesses the commercial property stock traded across
its markets and has observed that vendors are starting to be more
realistic, presenting opportunities to acquire commercial property
closer to the Group's view of fair value. Of the 12 potential
purchases that the Group had under detailed review and subsequently
transacted with a third party during the year ended 31 March 2023,
only 6% were within the Group's assessment of fair value and 71%
were in excess of 10% above the Group's assessment of fair value.
For the year ended 31 March 2024, the proportion within the Group's
assessment of fair value increased to 31% (with the Group acquiring
four properties out of five that were deemed to be of fair value,
at a total price of £152 million and a 42% discount to the Group's
view of replacement cost), with only 43% being overpriced by more
than 10%.
With market pricing becoming more
realistic, the Group is identifying a greater number of compelling
new investment opportunities. The Group's senior management is
tracking approximately £1.4 billion of near-term A list targets and
B list targets based on an assessment of the probability of a
potential purchase and an additional watchlist of £1.4 billion that
meet the Group's investment criteria. The opportunities are split
between HQ development and Flex targets, with the largest component
in the West End. Of the near-term A list targets, one building, The
Courtyard, WC1 recently exchanged in an off-market
acquisition.
Structurally undersupplied central London office market and
strong operational markets underpin future rental
growth
The Directors believe that London's
occupational markets for prime office space remain healthy, as
demonstrated in the Group's results for the year ended 31 March
2024 which highlight strong leasing against ERV and very low
vacancy at 1.3% as at 31 March 2024. Recent leasing data indicates
that active demand for West End and City offices remains at a near
record high. Leasing activity remains healthy at 10.5 million sq ft
over the 12 months to 31 March 2024, and space currently under
offer totals 4.1 million sq ft across central London (3.2 million
sq ft in the West End and City), compared to the ten-year average
of 3.4 million sq ft, in each case according to CBRE (Central
London Office Quarterly Slidebank).
The Directors believe that the
nature of demand for office space in London is undergoing a
significant transformation, with occupiers increasingly focused on
prime office spaces and discounting the rest. Whilst London's
overall vacancy rate, according to CBRE (Q1 2024 Slidebank), is
currently 8.8%, the vacancy rates for prime offices are
substantially lower at 1.1% in the West End, where the Group's
properties are predominantly located, and 2.2% in the City. As at
31 March 2024 the Group had a vacancy rate of 1.3% across the
portfolio and only 1.5% in its Flex portfolio. Further detail on
the London office market dynamics is contained within Part
XI:
"Market
Overview" of the
Prospectus.
Furthermore, the Directors believe
that new office working patterns have now been established in
central London following the pandemic with customers increasingly
focused on high quality, central locations, with high amenity
provision, close proximity to good transport links and London's
broader cultural offer.
With prime office demand remaining
robust, and current levels of vacancy remaining low, the Group
expects market conditions to remain favourable, and looking
forward, anticipates new office supply within London to tighten
further. The Directors believe that in part this is because the
already high barriers to entry to developing new space in central
London are rising further. The evolving UK planning regime and the
growing requirement for sustainable and climate friendly buildings
means that established developers such as the Group with extensive
resources, experience and a track record of navigating these
challenges, are ideally placed to deliver the prime spaces which
customers are demanding.
The Group's internal analysis of the
forward-looking supply of new space indicates that only 3.0 million
sq ft of prime speculative space is expected to complete annually
between May 2024 and December 2027, compared to a ten-year average
take up of 4.9 million sq ft annually. This constitutes a potential
shortfall of approximately 1.9 million sq ft a year over the next 4
years, with an additional 63% supply required each year.
The Directors believe that the
forecast imbalance between robust demand, low vacancy rates and
lack of anticipated supply of high-quality new space is a positive
driver for rental growth. As a result, the Group has upgraded its
forecast range for rental growth across the office portfolio to
between 4.0% and 6.0% for the year ended 31 March 2025, with rental
growth across the Group's prime office portfolio upgraded to
between 5.0% and 10.0%.
The
Group has a track record of operating in tune with the London
property cycle and delivering developments
profitably
The Group has three Executive
Directors with a combined 92 years of central London real estate
experience. In addition, the Group's experienced senior management
team has a track record of repositioning properties and adhering to
a disciplined capital management approach of matching risk to the
timing of the central London commercial property cycle. For
example, the Group raised £304 million from new equity in 2009 and
2012 to purchase £1.1 billion of assets between 31 March 2009 and
31 March 2015 at compelling valuations given the impact of the
financial crisis on London commercial real estate. Many of these
buildings were acquired for development, with the Group
subsequently delivering 2.4 million sq ft of new office, retail and
residential space between 2009 and 2023, resulting in a total
profit to completion of approximately £533 million and a profit on
cost of 22%. Given the quality of the spaces created, and
supportive central London leasing markets, the majority of these
developments were let before the buildings completed. In line with
its then-stated strategy, the Group sold £2.5 billion of
repositioned real estate into improved property markets between 31
March 2015 and 31 March 2024, with most sales in the earlier part
of this period as markets peaked. More recently the Group has
continued to sell properties, with £231.2 million of sales
completed within the two years ended 31 March 2024. As a result,
the Group returned a total of £616 million to shareholders between
2017 and 2020 through capital returns by way of share buybacks, a
B-share scheme and a special dividend, demonstrating an approach to
returning the Group's equity to shareholders which is equivalent to
the discipline shown in allocating capital at an asset level. In
the period from 2009 to 2016, the Group delivered Total Accounting
Return of 271%. In light of recent market data, the Directors
believe the timing is now opportune to accelerate capital
deployment in the Group's acquisition and development
pipeline.
Whilst the Group is a long-term
investor, it also remains focused on crystallising the returns on
its activities through asset sales over time. The Group typically
seeks to sell assets once the Group's business plans have been
delivered, often when buildings have been redeveloped, let on
long-leases and have limited opportunities to add further value. At
31 March 2024, the Directors believe there was approximately £660
million worth of assets within the Group's portfolio which were
earmarked for sale over the near to medium term as business plans
are complete.
The
Group is well placed to capitalise on the growing
sustainability-led bifurcation opportunity in the London office
market
The Directors believe that there is
growing bifurcation within the central London office market between
the most sustainable assets versus the wider market. Not only are
customers demanding and willing to pay a premium for sustainable
properties, regulation is at the same time accelerating, both
through the existing UK planning regime and from forthcoming
legislation to tighten EPC and other sustainability regulations.
Sustainability is also having an impact on property values. The
latest CBRE Sustainability Index demonstrates the continued
relationship between energy efficiency and investment performance.
CBRE's analysis of over 1,000 properties showed that efficient
assets reported stronger total returns than inefficient assets
across all sectors, as observed in the results to the fourth
quarter of 2023.
Therefore, creating sustainable
spaces is at the heart of the Group's purpose. The Directors
believe that increasingly buildings can no longer be considered to
be prime if they are not sustainable, and sustainability is
becoming a key differentiator between prime spaces and the rest,
with the demand for highly sustainable space growing rapidly. The
Directors believe that minimising carbon emissions during
development, along with the design of climate resilient buildings,
serves to maximise customer appeal, enhance long-term property
value and reduce obsolescence of the Group's redeveloped assets.
The Group has a strong track record of developing sustainable
spaces: its development of 50 Finsbury Square, for example, had
sustainability and wellbeing at the heart of the refurbishment. 50
Finsbury Square was the first of the Group's developments to
achieve net carbon as defined by the UK Green Building Council
(UKGBC) and contributed to a successful sale in October 2022 for
£190 million, broadly in line with the March 2022 book value and
reflecting a topped-up net initial yield of 3.85%. The Directors
believe the sustainability profile of the development was a key
contributor in pre-letting the property to Inmarsat Global Limited
and in determining the ultimate sale price.
Delivering the Group's differentiated Flex offering into
growing market demand, enhancing rental growth and potential
returns
The Group places customer needs at
the heart of its strategy, providing customers with a variety of
office solutions and choices to create the space the way they want
it and on flexible terms that suit them. These spaces are designed
to meet and exceed customer expectations and are delivered with a
personalised service where the Group works closely with customers
to understand their changing needs to seek to deliver and maintain
the highest standard. Having a strong and enduring relationship
with the customer positions the Group to enhance satisfaction in
the customer's existing space, but to also retain or relocate them
when their occupation requirements change. This is reflected in the
Group attaining a strong office Net Promoter Score of +30.2 versus
an industry standard of +6.9 as measured by RealService.
The Directors believe that the
provision of Flex space is increasingly a prerequisite for
maximising returns from smaller, sub 5,000 sq ft, central London
spaces. Since 2018, the Group has been expanding its Flex office
space offering, capturing a first mover advantage in providing
space both on a Fitted and Fully Managed basis. The Group provides
Fitted space to offer dedicated, fully furnished space on flexible
terms, allowing customers to move in and out of the space with
ease. Where customers want a higher level of service provision it
has a Fully Managed offer, which extends its proposition to provide
additional services and amenity. These offerings cater to the
varying demands of a broad range of modern customers from SMEs to
larger corporates seeking flexibility and convenience in prime
central London locations. The Group's Flex spaces are an integral
part of its office offering and as at 31 March 2024 accounted for a
total of 503,000 sq ft (with average unit size of 3,250 sq ft for
Fitted and Fully Managed offerings), or 23.5% of its office
portfolio, with 102,353 sq ft added in the year ended 31 March
2024. There is further detail on the Group's Fitted and Fully
Managed office offering within Part XII:
"Information on Great Portland
Estates Group" of the
Prospectus.
The Directors believe that evolving
patterns of work are changing what many customers want from their
office space, with a growing demand for spaces that are convenient,
flexible in lease term and provide a high level of service.
Increasingly, flexible space is becoming the default choice for
customers seeking sub 5,000 sq ft office space. The Directors
anticipate this trend to continue, with the wider flexible office
market expected to constitute 50 million sq ft by 2025 across the
UK (according to Instant Offices, an office rental agency, in
2023). The Directors believe the Group's portfolio is well suited
to deliver further Flex growth given the size and nature of its
portfolio.
The Group's Flex spaces have a
diverse customer base which is broader than just SMEs and includes
a number of large institutions, such as Morgan Stanley, Reventus
Power and Aggreko, seeking elements of flexibility within a broader
office portfolio. The Group had 61 Flex customers with an average
lease term of 3.6 years as at 31 March 2024 with 98.5% occupancy
(including space under offer). The Group's Flex customers tend to
be sticky with a customer retention rate of 63% in the year ended
31 March 2024.
Furthermore, the Group is generating
significant returns from its Fully Managed initiatives and expects
this to continue. Flex customers are increasingly willing to pay a
rental premium for the Group's high quality convenient spaces, as
demonstrated by its +117% Net Effective Rent beat (calculated as
the difference between Fully Managed Net Effective Rent less
operating expenditures divided by Ready to Fit Net Effective Rent)
for the year ended 31 March 2024 and its anticipated 82% cash flow
premium over a ten year period (calculated as the 10-year net
cashflow derived from Flex assets divided by the 10-year net
cashflow derived from Ready to Fit assets).
The Group remains committed to
growing Flex both organically and through acquisition. The Group
intends to grow Flex to more than 605,000 sq ft organically by
2028, with a one million sq ft target to be achieved over the
medium term from acquisitions funded from future asset recycling
and proceeds from the Rights Issue. The Directors believe that one
million sq ft of Flex office space constitutes expected net
operating income of approximately £76 million per annum, with
approximately 75% expected to be Fully Managed (constituting a more
than seven-fold growth in net operating income from May 2024). This
Fully Managed Flex office space is expected to generate an
additional £13 million in services profit compared to that
generated by Fitted Flex office space. The majority of the organic
Flex growth is expected to be delivered through the completion of
the refurbishment of 6 St Andrew Street, EC4 and 31/34 Alfred
Place, WC1 in 2024 and 141 Wardour Street, W1, Egyptian &
Dudley, W1, which are anticipated to complete in 2025. A portion of
the proceeds from the Rights Issue is expected to allow the Group
to expand its Flex offers further through the acquisition of
buildings, such as The Courtyard, that lend themselves to the
Group's flexible space offer. The remaining one million sq ft
target is currently expected to be achieved through further
acquisitions funded through additional financing
sources.
Use
of Proceeds
The £350.3 million Rights Issue is
expected to result in an increase in available investment capacity
of approximately £450 million (including existing credit lines) and to allow the
Group to be prepared to seize upon near term acquisition pipeline
opportunities in central London, as well as committing to
development capital expenditure at newly purchased properties. In
the short term, the proceeds will be used to repay the
£47.0 million drawn on the
RCF (representing £46.1 million on the Group's consolidated balance sheet at 31
March 2024), with the balance placed on short-term deposit. As
described above, the Group will also use at least £168 million of
the proceeds from the Rights Issue to unlock and accelerate the
significant potential within the existing Group development
pipeline, including through funding the development of the recently
exchanged office and retail property The Courtyard and the Soho
Square Estate, acquired last summer, with the intention of
developing and delivering these assets into what is expected to be
an undersupplied central London office market.
The Group will continue seeking to
match risk to the market cycle through the potential pre-letting of
future developments and forward sales of existing assets within the
Group's portfolio. Typically, the Group has sold stabilised
refurbishments and developments where the Group's business plans
are complete and the buildings are let on long-term leases.
However, the Directors do not believe that the current market
conditions provide an optimal selling environment for the Group's
prime HQ assets. Currently, the Group has approximately £660
million worth of assets earmarked for sale over the near-to medium
term as business plans are complete. The Group will continue to
monitor the central London investment market as it evolves and will
seek to bring these assets to market at the right time to maximise
returns.
Proceeds from any nearer term asset
recycling, in addition to the Rights Issue proceeds, will be used
to capitalise on the Group's extensive watchlist of acquisition
opportunities, with the intention of further enhancing shareholder
returns.
Seizing the near-term acquisition pipeline
opportunity
The Group's near-term acquisition
targets of £1.4 billion within central London are split into an A
list and B list based on the Group's assessment of the probability
of a potential purchase. In addition to these targets, the Group
has an additional watchlist of 15 sites totalling approximately
£1.4 billion. It is anticipated that the Group will
opportunistically deploy the proceeds earmarked for acquisitions
from the Rights Issue over the next 12 to 18 months, subject to
market conditions.
The Group's A list acquisition
targets consist of eight higher probability opportunities with a
potential acquisition price of approximately £244 million (which
are expected to have an additional £491 million of associated
capital expenditure, for a total cost of £735 million; £350 million
once adjusted to account for the Group's view of the likelihood of
conversion). From the A list acquisition targets, the Group has
recently exchanged on The Courtyard and has a further two near term
potential Flex off-market acquisitions under review which are
adjacent to existing Flex properties of the Group. The estimated
total acquisition cost for The Courtyard and the two further near
term opportunities is approximately £250 million. The Group has
identified a further 19 lower probability B list acquisition
targets with a potential acquisition price of approximately £1.2
billion (£0.3 billion once adjusted to account for the Group's view
of the likelihood of conversion).
The acquisition opportunities
currently being tracked by the Group are based in attractive
central London locations supported by established infrastructure
and good levels of local investment, with 63%, 11%, 16% and 10% of
the A and B list acquisition targets by value (excluding the
capital expenditure cost) in the West End, Midtown, City and
Southwark, respectively. Of the 49% and 51% of these A and B list
acquisition targets are intended for HQ and Flex, respectively,
with the predominant majority of the A and B list acquisition
targets in the West End Flex opportunities and the predominant
majority of those in the remaining locations HQ opportunities. The
Group typically targets acquisitions that are off-market, with the
majority of its A list and B list targets (by value) currently
being tracked falling into the off-market category. The Group seeks
to maintain a disciplined approach to capital management and will
target acquisition opportunities where it believes the potential
for strong returns is high on the basis of the investment criteria
set out below:
The Group's criteria for HQ
repositioning:
· Tired
inefficient properties often with poor sustainability credentials
and low EPC ratings;
· Low
existing rents and low capital values per square foot;
· Accretive assets capable of potentially delivering a 10%-15%
unlevered IRR over the two to three year development period, a
150bp-200bp return above the capitalisation rate and a 12.5%-20.0%
profit on cost (depending on planning and whether the asset is a
new build or retrofit);
· Ability to add floor area; and
· Discount to the Group's view of replacement cost.
The
Group's criteria for its Flex portfolio:
· Amenity rich locations with excellent transportation
links;
· Clustering around existing GPE holdings desirable; targeting
Soho, Mayfair/St James's, Fitzrovia, Southwark, Farringdon/Midtown
plus potential future clusters around Liverpool Street, Waterloo
and Kings Cross stations;
· 30,000
- 60,000 sq ft with divisible floorplates, unit size of 2,000 -
6,000 sq ft;
· Ability to create internal and external amenity space,
including end-of-trip facilities (i.e. "journey end" facilities in
a building that are most commonly used by active
commuters);
· High
quality ground floor experience;
· Product or market appropriate refurbishment capital
expenditure;
· Opportunity to deliver a stabilised yield on cost of 6%, along
with attractive profit on refurbishment; and
· For
Fully Managed space, the capability to deliver a cashflow premium
in excess of 35% and a Net Effective Rent in excess of 50% relative
to Ready to Fit and a service margin of greater than
20%.
The Group has already started to
capitalise on the current market conditions and in the year ended
31 March 2024 has become a net buyer of central London real estate
for the first time since 2013, purchasing £122.9 million of
investment property assets at or below the Group's view of
replacement cost. More recently, the Group has exchanged on The
Courtyard, WC1, which will be purchased off market, significantly
below the Group's view of replacement cost, for net proceeds of
£10.4 million (£462 psf on existing area) and through a property
exchange of the Group's prime space at 95/96 New Bond Street for
£18.2 million (£2,039 psf), thus securing a 155-year City headlease
at peppercorn. The Courtyard comprises 62,000 sq ft of vacant
office and partially let retail space, which the Group expects to
substantially refurbish to deliver its Fully Managed offer,
including the delivery of high quality workspaces with attractive
customer amenities, a large roof terrace and re-configured modern
retail space.
Unlocking potential in the existing Group pipeline through
committing development capital expenditure
From the proceeds of the Rights
Issue, the Directors intend to develop properties in its existing
pipeline, including through the re-development of two recently
purchased assets, The Courtyard, WC1 and the Soho Square Estate,
W1. The Directors expect to be committing £168 million in capital
expenditure to these two developments, increasing the Group's total
committed capital expenditure across developments from
approximately £498 million as at 31 March 2024 to approximately
£666 million by the second quarter of 2027. This is expected to
bring the total prime HQ and Flex office space that GPE will be
developing into an under-supplied market to 840,600 sq ft over the
coming years. The Directors believe that together The Courtyard,
Soho Square Estate and other Flex acquisitions acquired from the
proceeds of the Rights Issue are expected to generate a further
future rent roll of £38.8 million once fully let.
The Group exchanged on the
off-market acquisition of The Courtyard in April 2024. The
character-rich building is located in a vibrant West End sub-market
located opposite existing Group Flex holdings on Alfred Place, WC1.
The Directors believe it is well-suited to being repositioned into
the Group's Fully Managed office offering and will add to a growing
Flex cluster in the area. The Directors expect that with an assumed
refurbishment capital expenditure spend until the second quarter of
2027 of £62 million on The Courtyard, the building can potentially
deliver average Fully-Managed ERV of £216 psf, potential net
operating income of £4.9 million, annual rent roll of £9.0 million,
potential profit on cost of 12.4%, a development yield of 6.6% and
a target ungeared IRR of 11.4%. It is anticipated that
refurbishment will commence in the third quarter of 2025 and
complete in the second quarter of 2027.
The Group announced the off market
acquisition of the Soho Square Estate in August 2023 for £70
million, with vacant possession over the 57,456 sq ft of existing
mixed-use buildings expected by November 2024. The site benefits
from planning consent to demolish the existing buildings and
deliver approximately 100,300 sq ft of new prime office and prime
retail space, representing an increase in the existing floor space.
The buildings are located in the heart of the West End at the
eastern end of Oxford Street and back onto Soho Square, just 100
metres from the new Tottenham Court Road Elizabeth line underground
station. The Group intends to re-work the designs to improve the
quality of office and retail space, further increasing its
attractiveness to prospective customers in a materially
undersupplied market. The redevelopment is expected to provide a
high-quality sustainable HQ office building on Soho Square with
flagship retail fronting Oxford Street, arranged over basement,
lower ground, ground and eight upper floors, with multiple private
terraces and a communal roof terrace. The Directors expect that
with an assumed development capital expenditure spend of £106.0
million on Soho Square Estate, the Group's repositioning can
potentially deliver office ERV of £109 psf, future rent roll of
£12.3 million and a potential profit on cost of 20.7%, development
yield of 5.8% and a target ungeared IRR of 10.4%. It is anticipated
that development will commence in early 2025 and vacant possession
is expected from November 2024.
Until such time as the net proceeds
of the Rights Issue are required to execute the acquisition and
development opportunities noted above, the Group intends to use the
net proceeds of the Rights Issue to pay down existing RCF debt in
the short term and with the balance placed on short-term deposit.
The RCF will be re-drawn, as required, to execute the Group's
strategy. The Group intends to continue to use financial leverage
to enhance, rather than drive, the Group's returns; once the
proceeds of the Rights Issue are fully deployed, the Group will
seek to continue to maintain LTV through the cycle within its
target range of 10 - 35% as previously communicated by the Board,
with a nearer-term LTV expectation within the 20 - 30%
range.
Financial Impact of the Rights Issue
The Group's pro forma EPRA LTV as at
31 March 2024, adjusted for the Rights Issue, was 18.2% and is more
fully described in Part XV: "Operating and Financial Review of the
Group- Group Debt" of the Prospectus.
As a result of the Rights Issue, the Group anticipates a 60%
increase in the number of Ordinary Shares. As a result of the
Rights Issue total available liquidity is expected to be
£594.2 million (comprising
cash and undrawn committed credit facilities).
The Board expects that the
acquisitions and developments which it intends to fund with
proceeds of the Rights Issue will, in aggregate, enhance
shareholder returns and be accretive to both EPRA earnings and NTA
per share over time, and support the Group's ambition to deliver
Total Accounting Returns in excess of its cost of capital. GPE
targets a Total Accounting Return of 10% or more over the near-to
medium-term (before yield compression), with additional upside
available should property yields contract in a falling interest
rate and rental growth environment. The Total Accounting Return is
expected to be predominantly from development surplus and rental
growth, alongside a modest contribution from earnings
growth.
The Directors believe the Rights
Issue is expected to deliver long-term value and income growth with
Group committed capital expenditure spend increasing from
approximately £498 million to approximately £666 million as a
result of the deployment of £168 million into the development of
the Soho Square Estate and The Courtyard. The Directors believe
this could deliver a further future development surplus of £55
million bringing the total near-term potential development surplus
to £175 million, including the anticipated £120 million development
surplus from the Group's existing committed schemes. These
buildings once completed could deliver an additional 840,600 sq ft
into the central London supply constrained market.
The use of proceeds will also
accelerate delivery of GPE's Flex ambitions and in particular its
Fully Managed portfolio, driving income growth towards the Group's
medium term ambition of £76 million net operating income (expected
to be generated by ERV growth of £152.2 million) together with the
potential to add additional value of £150 million from the expected
services profit.
GPE has significant rent roll growth
opportunity, with expected growth of 132% to come through organic
growth and the use of proceeds. GPE's current rent roll, £107.5
million as at 31 March 2024, is expected to grow to £210.5 million
over the medium term as a result of its existing onsite HQ
developments and Flex refurbishments, with approximately one third
of the remaining growth expected to come from other items
(including current small office space vacancies, wider
refurbishments and reversionary potential). The use of proceeds
being deployed into capital expenditures for Soho Square Estate and
The Courtyard, together with other Flex acquisitions, is expected
to generate a further £38.8 million of future rent roll taking
total rent roll to £249.3 million over the medium term. With
further upside potential from acquisitions funded by the Rights
Issue. Future asset recycling of the long-dated portfolio is
expected to provide additional future acquisition capacity
(approximately £660 million by value, with an estimated rent roll
of £31 million) as business plans are delivered and investment
markets stabilise.
Outlook
The Directors are increasingly
confident that central London commercial property values are
approaching trough valuations with persistent inflation in the UK
starting to subside. In the occupational commercial property
market, given the scarcity of high quality spaces in central
London, the Directors continue to expect that leasing and rental
performance of the Group's existing portfolio will remain strong
into the financial year to 31 March 2025. Accordingly, the
Directors have updated their target rental value growth range for
the financial year to 31 March 2025 to between 3.0% and 6.0% across
the portfolio with prime office expected to continue to outperform,
with a target rental value growth range of between 5.0% and 10.0%.
Furthermore, the Directors believe that property yields will remain
stable, with possible yield compression on the best
assets.
The Directors expect an inflection
in EPRA earnings over the next twelve months with potential growth
thereafter as the nearer term extensive pipeline of onsite
development and refurbishment is delivered and Flex income growth
continues.
The Directors believe strongly in
the enduring appeal of high quality London offices and the
robustness of the Group's business model.
Dividend Policy
The Board is recommending a final
dividend for the financial year to 31 March 2024 of 7.9 pence per
share. The New Ordinary Shares issued pursuant to the Rights Issue
will not receive the final dividend. The final dividend is subject
to approval by Shareholders at the Annual General Meeting of the
Company to be held on 4 July 2024 and, if approved, will be paid to
Shareholders on the register as 31 May 2024. If approved, this will
provide a total dividend of 12.6 pence per share for the year to 31
March 2024 (£31.9 million in aggregate).
The Board intends that the total
payout for the year to 31 March 2025 will be at least equal to the
total payout for the year to 31 March 2024. Given the compelling
pipeline of Flex and HQ opportunities that will underpin the
Group's expected significant earnings growth in future years, in
line with its progressive dividend policy, the total payout going
forward may be increased depending on the timing of, and returns
generated from, the deployment of the proceeds of the Rights Issue,
as well as future asset disposals.
Summary of the principal terms of the Rights Issue and
underwriting commitments
The Company is proposing to raise
gross proceeds of £350.3 million (approximately £336 million after deductions of
estimated commissions, fees and expenses) by way of the Rights
Issue.
Subject to the fulfilment of, among
other things, the conditions set out below, the Company will offer
152,320,747 New Ordinary Shares to Qualifying Shareholders at
a Rights Issue Price of 230 pence per New Ordinary Share, payable
in full on acceptance. The Rights Issue will be offered on the
basis of:
3 New Ordinary Shares for every 5
Existing Ordinary Shares
held by Qualifying Shareholders on
the Record Date, and so in proportion to any other number of
Existing Ordinary Shares then held and otherwise on the terms and
conditions set out in Part IX: "Terms and
Conditions of the Rights Issue" of the
Prospectus.
The Rights Issue is being fully
underwritten by the Underwriters, subject to certain customary
conditions, on the basis set out in the Underwriting Agreement. The
principal terms of the Underwriting Agreement are summarised in
Part XX:
"Additional Information" of the Prospectus. The Rights Issue Price of 230 pence per
New Ordinary Share, which is payable in full on acceptance by no
later than 11.00 a.m. on 11 June 2024, represents a 44.5% discount
to the closing middle-market price of the Company of 414.6 pence
per Existing Ordinary Share on 22 May 2024, the last trading day
prior to the announcement of the Rights Issue adjusted for the
recommended final dividend for the year ended 31 March 2024, which
will not be paid on the New Shares. Additionally, it represents a
discount of approximately 33.4% to the theoretical ex-rights price
of 345 pence per New Ordinary Share, calculated by reference to the
closing middle-market price on the same basis and adjusted for the
recommended final dividend for the year ended 31 March 2024, which
will not be paid on the New Shares. If a Qualifying Shareholder
does not take up any of his or her entitlement to New Ordinary
Shares, his or her proportionate shareholding will be diluted by
37.5%. However, if a Qualifying Shareholder takes up his or her New
Ordinary Shares in full, he or she will, after the Rights Issue has
been completed, and subject to the rounding down of any fractions,
as nearly as practicable have the same proportionate voting rights
and distribution rights as he or she had on the Record
Date.
If a Qualifying Shareholder does not
subscribe for the New Ordinary Shares to which he or she is
entitled, such Shareholder can instead sell his or her rights to
those New Ordinary Shares and receive the net proceeds in cash.
This is referred to as dealing in the rights "nil paid" and,
subject to the fulfilment of certain conditions, dealings on the
London Stock Exchange in the Nil Paid Rights are expected to
commence at 8.00 a.m. on 28 May 2024.
Qualifying Non-CREST Shareholders
with registered addresses in the United States, Canada or in any of
the other Excluded Territories will not be sent Provisional
Allotment Letters and Qualifying CREST Shareholders in such
territories will not have their CREST stock accounts credited with
Nil Paid Rights, except where the Company and the Joint Global
Coordinators (on behalf of the Underwriters) are satisfied that
such action would not result in the contravention of any
registration or other legal or regulatory requirement in such
jurisdiction.
Holdings of Existing Ordinary Shares
in certificated and uncertificated form will be treated as separate
holdings for the purpose of calculating entitlements under the
Rights Issue. Fractions of New Ordinary Shares will not be allotted
to any Qualifying Non-CREST Shareholders or Qualifying CREST
Shareholders. The Joint Global Coordinators (on behalf of the
Underwriters) will use their reasonable endeavours to place the
aggregate of such New Ordinary Shares in the market for the benefit
of the Company.
The New Ordinary Shares will, when
issued and fully paid, rank pari passu in
all respects with the Existing Ordinary Shares, including the right
to receive in full all dividends and other distributions declared,
made or paid by reference to a record date after the date of their
issue, save in respect of any dividend or distribution with a
record date falling before the date of the issue of the New
Ordinary Shares.
The Rights Issue is conditional
upon, among other things:
•
Admission of the New Ordinary Shares (nil paid)
becoming effective by not later than 8.00 a.m. on 28 May 2024 (or
such later time and/or date as the Company and the Joint Global
Coordinators may agree);
•
the delivery of certain documents to the
Underwriters by the times and dates specified in the Underwriting
Agreement;
•
the Company having complied with its obligations
under the Underwriting Agreement and under the terms of the Rights
Issue, save to the extent that, in the opinion of the Joint Global
Coordinators acting in good faith, would not be material in the
context of the Rights Issue, the underwriting of the New Ordinary
Shares or Admission;
•
the warranties on the part of the Company under
the Underwriting Agreement being true, accurate and not misleading
on the date of the Underwriting Agreement, the date of the
Prospectus and immediately before Admission;
•
no event requiring a supplement to the Prospectus
having arisen between the time of publication of the Prospectus and
Admission and no such supplementary prospectus being published by
or on behalf of the Company before Admission, which the Joint
Global Coordinators (acting in good faith) consider to be material
in the context of the Rights Issue; and
•
in the opinion of the Joint Global Coordinators
(acting in good faith), no material adverse change having occurred
in respect of the Group at any time prior to Admission (whether or
not foreseeable at the date of the Underwriting
Agreement).
The results of the Rights Issue,
including the aggregate amount raised, is expected to be announced
by the Company to a Regulatory Information Service by 8.00 a.m. on
12 June 2024.
Applications have been made to the
FCA for the New Ordinary Shares to be admitted to the premium
listing segment of the Official List and to the London Stock
Exchange for the New Ordinary Shares to be admitted to trading on
its main market for listed securities. It is expected that
Admission of the Nil Paid Rights will become effective, and that
dealings in the New Ordinary Shares, will commence, nil paid, at
8.00 a.m. on 28 May 2024 and that dealings in the New Ordinary
Shares, fully paid, will commence at 8.00 a.m. on 12 June
2024.
The Existing Ordinary Shares are
already admitted to the premium listing segment of the Official
List and to trading on the London Stock Exchange's main market for
listed securities and to CREST. It is expected that all of the New
Ordinary Shares, when issued and fully paid, will be capable of
being held and transferred by means of CREST. The New Ordinary
Shares will trade under ISIN GB00BF5H9P87. The ISIN number for the
Nil Paid Rights is GB00BQXP7G81 and the ISIN for the Fully Paid
Rights is GB00BQXP7H98.
Intention of Directors
The Board considers that the Rights
Issue is in the best interests of the Shareholders of the Group
taken as a whole. Each Director who is able to participate in the
Rights Issue has confirmed their intention to take up their
entitlement in full, or in part, to subscribe for New Ordinary
Shares under the Rights Issue in respect of their respective
holding of existing Ordinary Shares, which represent approximately
0.7% of the total voting rights in the Company as at the Latest
Practicable Date.
In addition, certain of the
Directors have indicated their intention, subject to compliance
with applicable laws and regulations, and the Company's Share
Dealing Code, to purchase Nil Paid Rights, Fully Paid Rights or New
Ordinary Shares following Admission, and disclosures of any such
dealings will be made as required by applicable law and
regulations.
Definitions
The following definitions apply
throughout this announcement unless the context requires
otherwise:
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admission
of the New Ordinary Shares, nil paid or fully paid as the case may
be, to the Official List and to trading on the main market for
listed securities of the London Stock Exchange becoming effective
in accordance with paragraph 3.2.7G of the Listing Rules and paragraph 2.1 of the Admission and Disclosure
Standards published by the London Stock Exchange
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the board
of directors of the Company from time to time
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|
Merrill
Lynch International
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|
the closing
middle-market price of a relevant share as derived
from the London Stock Exchange's Daily Official List on any
particular day
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Great
Portland Estates plc
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|
the
electronic transfer and settlement system for the paperless
settlement of trades in listed securities operated by
Euroclear
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Numis
Securities Limited (trading as Deutsche Numis)
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the
Executive Directors, Independent Non-Executive
Directors and Chairman of Great Portland Estates
plc
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Disclosure Guidance and Transparency
Rules
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the
disclosure guidance and transparency rules made by the FCA under
Part VI of the FSMA
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Energy
Performance Certificate
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European
Public Real Estate Association
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Estimated
Rental Value
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The United
States, Canada, South Africa, Japan and any other jurisdiction
where the extension and/or availability of the Rights Issue (and
any other transactions contemplated in relation to
it) would breach any applicable laws or regulations if not
conducted in accordance with the legal restrictions and
requirements of that jurisdiction, and Excluded Territory shall
mean any of them
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|
Toby
Courtauld, Nick Sanderson and Dan Nicholson
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|
the
ordinary shares of 15 5/19 pence each in the capital of the Company
at the Record Date
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the UK
Financial Conduct Authority
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the UK
Financial Services and Markets Act 2000, as
amended
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rights to
subscribe for New Ordinary Shares, fully paid
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Great
Portland Estates plc together with its
subsidiaries
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Joint Global Coordinators
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BofA
Securities, Deutsche Numis and J.P. Morgan Cazenove
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J.P. Morgan
Securities plc (which conducts its UK investment banking business
as J.P. Morgan Cazenove)
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22 May 2024
(being the latest practicable date prior to publication of the
Prospectus)
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the listing
rules of the FCA made under section 74(4) of the FSMA
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London
Stock Exchange plc
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Net
Tangible Assets
|
|
the
152,320,747 new Ordinary Shares
to be issued pursuant to the Rights Issue
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rights to
subscribe for New Ordinary Shares, nil paid
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the
Official List maintained by the FCA
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ordinary
shares of 15 5⁄19 pence each in the capital of the
Company
|
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the lawful
currency of the United Kingdom of Great Britain and Northern
Ireland
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UK
Prudential Regulation Authority
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Prospectus Regulation
Rules
|
the
prospectus regulation rules of the FCA made under Section 73A of
the FSMA
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Provisional Allotment
Letter
|
the
provisional allotment letter to be issued to Qualifying Non-CREST
Shareholders (other than certain Overseas Shareholders)
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"qualified
institutional buyer" as defined under Rule 144A
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Qualifying CREST
Shareholders
|
Qualifying
Shareholders holding Ordinary Shares in
uncertificated form on the Record Date
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Qualifying Non-CREST
Shareholders
|
Qualifying
Shareholders holding Ordinary Shares in certificated form on the
Record Date
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holders of
Ordinary Shares on the register of members of the Company at the
Record Date
|
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the Group's
£450,000,000 syndicated revolving credit facility
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6.00 p.m.
on 22 May 2024
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the
Company's register of members
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regulation,
legislation and other mandatory requirements issued by authorities
within the United Kingdom, the European Union and other relevant
jurisdictions to which the Group's operations are
subject
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Regulatory Information
Service
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one of the
regulatory information services authorised by the
Financial Conduct Authority to receive, process and disseminate
regulatory information from listed companies
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the offer
by way of a rights issue to Qualifying Shareholders to subscribe
for New Ordinary Shares on the terms and
conditions set out in the Prospectus and, in the case of Qualifying
Non-CREST Shareholders, the Provisional Allotment
Letter
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230
pence per New Ordinary Share
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Rule 144A
under the U.S. Securities Act
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Banco
Santander, S.A.
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the New
Ordinary Shares, the Nil Paid Rights, the Fully Paid Rights and the
Provisional Allotment Letters
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holders of
Ordinary Shares
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UK MiFIR Product Governance
Requirements
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the product
governance requirements of Chapter 3 of the FCA Handbook Product
Intervention and Product Governance Sourcebook
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BofA
Securities, Deutsche Numis, J.P.
Morgan Cazenove and
Santander
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the
underwriting agreement entered into between the
Company and the Underwriters relating to the Rights Issue and as
further described in paragraph 9 of
Part XX: "Additional
Information" of the Prospectus
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