TIDMGPOR
RNS Number : 8385C
Great Portland Estates PLC
13 February 2020
Press Release
13 February 2020
Great Portland Estates Trading Update
Great Portland Estates plc ("GPE") today publishes its trading
update for the quarter to 31 December 2019.
Toby Courtauld, Chief Executive, said:
"I am pleased to report on another productive quarter, combining
healthy leasing ahead of ERV, good progress at our six committed
and near-term developments and continued capital discipline,
profitably recycling out of mature assets and returning surplus
equity to shareholders as we completed our share buyback programme.
The final quarter has started well; we have issued an innovative
ESG-linked revolving credit facility and demand for our brand of
high quality, sustainable space remains robust with GBP9.2 million
of lettings currently under offer at a 6.9% premium to March 2019
ERVs.
The clear outcome of the General Election is encouraging
increased transaction activity in our investment markets and,
whilst further political and macro-economic turbulence is possible,
GPE is in great shape: We are innovating across our portfolio,
including the continued rollout of our flexible space offering; our
exceptional development pipeline provides us with nearly 1.4
million sq ft of value creating opportunities; and with a talented
team, supported by our collaborative culture, deep market knowledge
and financial strength, we are well positioned to maximise the
opportunity we have to generate long-term value across our
business".
Continued leasing successes ahead of March 2019 ERV
-- Twelve new lettings (48,900 sq ft) generating annual rent of
GBP3.7 million (our share: GBP3.5 million); market lettings 1.4%
ahead of March 2019 ERV
-- Flexible space now c.11% of office portfolio at 35% >
ERV(1) and appraising further c.149,000 sq ft
-- Seven lettings under offer totalling GBP9.2 million p.a. of
rent (our share: GBP9.2 million), market lettings 6.9% ahead of
March 2019 ERV
-- Vacancy rate remains low at 2.4%; average office rent only
GBP55.10; reversionary potential 9.2% (GBP9.5 million)
-- 99.3% of rent collected within seven working days; only two
occupier delinquencies (0.2% of rent roll)
Committed schemes 50% pre-let or under offer; total programme
covers 54%(2) of existing portfolio
-- Three committed schemes (414,900 sq ft), with two completing
in 2020; 50% pre-let or under offer; all located near to Crossrail
stations, 18.7% forecast profit on cost, capital expenditure to
come of GBP76.0 million
-- Three near-term uncommitted schemes (818,900 sq ft), expected
capital expenditure of c.GBP600 million and expected ERV of c.GBP55
million
-- Total pipeline of 10 schemes (1.4 million sq ft), all income
producing, 2.8 years average lease length, 13.6%
reversionary(3)
GBP64.5 million sale, 6.2% above book value; new PropTech VC
investment
-- 24/25 Britton Street, EC1 sold in January for GBP64.5
million, 6.2% above September 2019 book value reflecting net
initial yield of 4.07% and capital value of GBP1,255 per sq ft,
crystallising 15.7% p.a. IRR since refurbishment in 2011
-- Commitment of up to GBP5 million to invest in Pi Labs
European PropTech venture capital ('VC') fund
Strong financial position; new GBP450 million ESG-linked RCF
aligned to ambitious sustainability targets
-- LTV(2) of 15.8% (or 13.7% pro forma for 24/25 Britton Street,
EC1 sale), weighted average interest rate of 2.5%; cash and undrawn
committed facilities of GBP368 million
-- GBP200 million share buyback completed, 27.8 million shares
purchased at average price of GBP7.20
-- New innovative GBP450 million ESG-linked revolving credit
facility ('RCF'), headline margin of 90 bp
1.Rental value of space prior to conversion, now open and
trading as flexible space
2.Based on property values at 30 September 2019
3.Existing use of development pipeline at 31 December 2019
Contacts:
Great Portland Estates plc +44 (0) 20 7647 3000
Toby Courtauld, Chief Executive
Nick Sanderson, Finance and Operations Director
Stephen Burrows, Director of Financial Reporting
and Investor Relations
Finsbury Group +44 (0) 20 7251 3801
James Murgatroyd
Gordon Simpson
Forward Looking Statements
This document may contain certain 'forward-looking statements'.
By their nature, forward-looking statements involve risk and
uncertainty because they relate to future events and circumstances.
Actual outcomes and results may differ materially from any outcomes
of results expressed or implied by such forward-looking
statements.
Any forward-looking statements made by or on behalf of GPE speak
only as of the date they are made and no representation or warranty
is given in relation to them, including as to their completeness or
accuracy or the basis on which they were prepared. GPE does not
undertake to update forward-looking statements to reflect any
changes in GPE's expectations with regard thereto or any changes in
events, conditions or circumstances on which any such statement is
based.
Information contained in this document relating to GPE or its
share price, or the yield on its shares, should not be relied upon
as an indicator of future performance.
Portfolio management
Occupier interest across our limited available space remained
robust as we delivered another healthy quarter of leasing
performance, including:
-- twelve new leases and renewals signed generating annual rent
of GBP3.7 million (our share: GBP3.5 million), with market lettings
1.4% ahead of March 2019 ERV;
-- one rent review was settled securing GBP0.1 million of annual
rent (our share: GBP0.1 million), 3.0% ahead of ERV;
-- total space covered by new lettings, reviews and renewals was 50,100 sq ft; and
-- our leasing successes have helped maintained a low vacancy
rate of 2.4% at 31 December 2019 (2.3% at 30 September 2019).
Leasing Transactions Three months ended
-------------------------------------------------
31 Dec 2019 30 Sep 2019 31 Dec 2018
New leases and renewals completed
Number 12 17 16
GPE share of rent p.a. GBP3.5 million GBP6.0 million GBP4.1 million
Area (sq ft) 48,900 178,400 51,400
Rent per sq ft GBP53 GBP78 GBP75
Rent reviews settled
Number 1 16 5
GPE share of rent p.a. GBP0.1 million GBP8.7 million GBP2.0 million
Area (sq ft) 1,200 107,600 123,800
Rent per sq ft GBP94 GBP87 GBP28
------------------------- --------------- --------------- ---------------
Note: Includes joint ventures at our share
Notable portfolio management transactions during the quarter
included:
-- at City Place House, EC1, together with our partner Knotel,
we completed lettings totalling GBP1.5 million, bringing our short
term lettings at the building to GBP1.9 million in the quarter,
securing income ahead of the proposed redevelopment of the building
in 2022;
-- at City Tower, EC1 we completed a further 2,400 sq ft flex
space letting for GBP0.2 million, 5.7% ahead of ERV; and
-- at 50 Finsbury Square, EC2 we agreed a surrender with our
largest occupier Bloomberg L.P. ahead of their forthcoming lease
expiry in June 2020. Bloomberg L.P. paid GBP11.2 million, including
dilapidations and a surrender premium. We are to obtain full vacant
possession later this year to allow for a major refurbishment of
the building.
Since 31 December 2019, our leasing momentum has continued:
-- we have completed three new leases generating GBP0.7 million
(our share: GBP0.7 million) of annual rent (10,300 sq ft), with
market lettings 19.5% above March 2019 ERVs; and
-- a further 108,600 sq ft of space is currently under offer
which would deliver approximately GBP9.2 million p.a. in rent (our
share: GBP9.2 million), with market lettings 6.9% above March 2019
ERVs and 4.4% above September 2019 ERVs.
Our quarterly cash collection performance has continued to be
very strong, with 99.3% of rent secured within seven working days
of the December quarter day. Two of our smaller occupiers went into
administration during the quarter (September 2019: one),
representing only 0.2% of our rent roll; however, we remain
vigilant and regularly monitor the financial position of all our
occupiers.
Investment management
Given the continued strength of the investment market,
attractive opportunities to buy were limited and we made no
property acquisitions in the quarter. We did however take advantage
of these supportive market conditions to make one sale.
In January 2020, we sold 24/25 Britton Street, EC1 to an
overseas investor for a headline sale price of GBP64.50 million,
equating to GBP64.06 million after deduction of vendor top ups. The
headline price reflects a net initial yield of 4.07% and a capital
value of GBP1,255 per sq ft. The premium to the September 2019
valuation was 6.2% and crystallised an ungeared IRR of 15.7% p.a.
since the office element of the building was comprehensively
refurbished by GPE in 2011. This provided 49,900 sq ft of high
quality accommodation arranged over two lower ground, ground and
three upper floors. The office space is let to Kurt Geiger where we
recently re-geared the lease to extend the term to 2035. In
addition, there are two retail units fronting Britton Street (1,500
sq ft). The total contracted rental income is GBP2,806,000 per
annum inclusive of vendor top ups, equating to GBP55 per sq ft
overall (reflecting a minimum uplift at review of GBP65.00 per sq
ft on the best office space). At the date of sale, the current
weighted unexpired lease term was approximately 14.8 years to the
earlier of expiries or breaks.
In January 2020, we made a commitment of up to GBP5 million to
invest in Pi Labs European PropTech venture capital fund. Launched
in 2014, Pi Labs is Europe's longest standing PropTech VC and this
third fund has a primary focus to invest in early stage PropTech
start-ups across Europe and the UK that use technology solutions to
enhance any stage of the real estate value chain. Key areas of
focus for the fund include sustainability, future of work, future
of retail, commercial real estate technologies, construction
technology and smart cities.
Development management
Three committed schemes
At Oxford House, 76 Oxford Street, W1, construction of the new
building is progressing well with the core now complete. The
building will deliver 81,200 sq ft of new offices and 37,900 sq ft
of retail space directly opposite the Dean Street entrance to the
Tottenham Court Road Crossrail station and completion is targeted
for Q2 2021, with an expected profit on cost of 17.0%. Occupier
interest for the office space has been strong, given the quality of
the building and the continued lack of new-build office supply in
the core of the West End. As a result, the entirety of the office
space is under offer with negotiation of detailed terms ongoing. We
will commence shortly the marketing of the retail units and,
despite both the challenging UK retail environment and delays to
the opening of Crossrail, early signs of occupier interest are
encouraging.
At Hanover Square, W1, construction is advancing well and we are
on track to hand over the first retail unit to Canali next month.
The scheme will deliver 221,100 sq ft of new space, comprising
167,100 sq ft of offices, 41,800 sq ft of retail and restaurant
space and 12,200 sq ft of residential apartments. Following the
pre-let of 111,400 sq ft of offices in 18 Hanover Square to KKR and
Glencore, interest in the remaining 55,700 sq ft of office space
across the scheme continues to be strong. We remain positive on the
letting prospects for the remaining six retail units given their
location on one of the world's premier retail streets, their
relative pricing and unit sizing. In total, the scheme is now 53%
let and, when complete in Q3 2020, it is expected to deliver a
profit on cost of 22.0%.
At The Hickman, E1, the building topped out in October 2019 and
we expect to deliver the new 74,700 sq ft Grade A office and retail
building in May 2020. Occupier interest in the building is
encouraging and we are currently under offer with a partner to work
with us to deliver a co-working offer for the basement, ground and
first floors (together 17,300 sq ft). We are anticipating a profit
on cost of 10.1% with average office rents across the building of
around GBP51.55 per sq ft.
At 31 December 2019, the three committed development properties
required GBP76.0 million (our share) of capital expenditure to
complete.
Substantial development pipeline
Beyond our three committed schemes, we have a substantial and
flexible pipeline of ten uncommitted schemes, including three
schemes in our near-term pipeline.
Three near-term schemes
At 50 Finsbury Square, EC2, we have submitted a planning
application for a major refurbishment and have also completed the
surrender agreement with Bloomberg L.P. ahead of vacant possession
in the summer. The 126,400 sq ft major refurbishment will see the
office floor plates extended within the existing frame of the
building, a large reception with a concierge as well as an amenity
offer and the addition of a roof pavilion and terrace.
Close by at City Place House, EC2, located 200m from the
Moorgate Crossrail station, we are working on plans to maximise the
potential of the site by significantly increasing the size of the
building to 320,000 sq ft, up from 176,600 sq ft today. Initial
discussions with the City of London have been encouraging and the
project has a proposed start date of 2022.
At New City Court, SE1 in the London Bridge Quarter, we have
submitted a planning application to materially increase the size of
the existing 98,000 sq ft building to 372,500 sq ft and we expect a
determination later this year.
Subject to planning, these three schemes could together deliver
818,900 sq ft of grade A space, with expected capital expenditure
of c.GBP600 million and an expected ERV of c.GBP55 million.
Total programme of 1.8 million sq ft
Beyond these three near-term schemes, we have a further seven
schemes in the medium-term pipeline, with our potential development
programme totalling 1.3 million sq ft today, with the potential to
increase this to more than 1.8 million sq ft post development.
These schemes cover 54% of GPE's existing portfolio and will
provide the bedrock of our development for the coming decade.
Share buyback programme completed
In November 2019, we completed our GBP200 million return of
surplus equity to shareholders through our twelve month on market
share buyback programme. In total, we purchased and cancelled 27.8
million shares at an average price of GBP7.20 per share (or GBP7.25
per share, GBP201.5 million including costs).
Strong financial position, new ESG-linked RCF aligned to
ambitious sustainability targets and extending maturities
In January 2020, we signed a new GBP450 million ESG-linked
revolving credit facility ('RCF') by way of an amendment and
extension of our previous GBP450 million facility, with a group of
five existing relationship banks. The new facility has an initial
five-year term which may be extended to a maximum of seven years at
GPE's request, subject to bank consent. This innovative structure
is the first ESG-linked RCF issued by a UK REIT, and from May 2021
the headline margin of 90 basis points can be adjusted (by up to
2.5 basis points in either direction) depending on our performance
against three ESG related KPIs. All margin adjustments will be
given by GPE to registered charities focused on environmental
initiatives.
At 31 December 2019, Group consolidated net debt was GBP403.1
million, up from GBP322.7 million at 30 September 2019. The
increase was largely due to GBP40 million incurred to complete the
Group's share buyback as well as on-going development capital
expenditure across the Group. Group gearing increased to 18.2% at
31 December 2019 from 14.7% at 30 September 2019. Including the
non-recourse debt in the joint ventures, total net debt was
GBP418.0 million (30 September 2019: GBP351.8 million) equivalent
to a loan to property value of 15.8% (30 September 2019: 13.3%),
although this falls to 13.7% pro forma for the sale of 24/25
Britton Street, EC1. At 31 December 2019, the Group, including our
share of joint ventures, had cash and undrawn committed credit
facilities of GBP368 million.
Our weighted average interest rate was 2.5% at the quarter end,
down from 2.6% at 30 September 2019 as we have drawn further on our
revolving credit facility. At 31 December 2019, 75% of the Group's
total drawn debt was fixed or hedged. Our weighted average drawn
debt maturity was 5.9 years at 31 December 2019 (30 September 2019:
6.4 years).
31 December 30 September
2019 2019
============ =============
GPE net debt GBP403.1m GBP322.7m
============================== ============ =============
GPE gearing 18.2%(1) 14.7%
============================== ============ =============
Total net debt including JVs GBP418.0m GBP351.8m
============================== ============ =============
15.8%(2) /
LTV 13.7%(3) 13.3%
------------------------------ ------------ -------------
1. Based on net asset value at 30 September 2019
2. Based on property values at 30 September 2019
3. Based on property values at 30 September 2019 adjusted for
the sale of 24/25 Britton Street, EC1
Investor and analyst event
We will be hosting an event for investors and analysts today at
Kent House, 14/17 Market Place, W1. GPE will not be disclosing any
new material financial information at the event and a presentation
will go on our website later today.
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END
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