Great Portland Estates upbeat after quarter of lettings

Great Portland Estates published its trading update for the quarter to 31 December on Thursday, with 16 new lettings totalling 86,600 sq ft signed during the quarter, generating annual rent of £7.2m p.a. - £6.4m of which is the company’s share - 2% above March 2016 estimated recovery value.

The FTSE 250 firm confirmed two office lettings totalling 25,200 sq ft at its recently completed development at 30 Broadwick Street, W1, for a combined rent of £2.4m p.a., 3.3% above March 2016 ERV.

It said a further £4.5m of lettings were under offer, which were 7.8% ahead of March 2016 ERV.

The company said 11 rent reviews were settled during the quarter, securing £5.5m in total with a company share of £3.6m.

That was 40% above previous passing rent and 2.0% ahead of ERV, with further reversionary potential now 24.8%.

GPE’s vacancy rate increased as expected to 7.3% due to development and refurbishment completions, with the average office rent reported at £48.80 per sq ft.

Its rent roll of £107.7m was up 7.3% over the three months, with a “diverse tenant base”.

Rent collection remained strong, with 99.3% collected within seven working days.

GPE said its de-risked development programme was an “extensive and flexible pipeline of opportunity”, with one completed scheme of 92,300 sq ft during the period, for a profit on cost of 33.1%.

At that scheme, 55% was let with a further 6% under offer.

It had another five committed schemes totalling 659,100 sq ft, 76% of which were in the West End.

GPE said 73% of those schemes were pre-let or pre-sold, with an expected profit on cost of 16.8%, and all expected to complete in next 13 months with total capex of £97.7m to come.

There were two near-term uncommitted consented schemes totalling 311,800 sq ft, both adjacent to West End Crossrail stations, with potential starts over next 18 months.

It described an “exceptional development opportunity” from its long-term flexible pipeline, with 14 uncommitted schemes totalling 1.4 million sq ft, at an income-producing 3.9-year average lease length.

GPE also confirmed the forward sale of 73/89 Oxford Street, W1 for £276.5m, for a whole life surplus of 75% or £118.5million.

The company remained in a strong financial position, with a pro forma loan-to-value ratio of 16.9% and a weighted average interest rate of 3.7%.

Its drawn debt was 97% fixed or capped.

Cash and undrawn committed facilities totalled £445m, with a low marginal cost of debt of 1.4%.

“I am pleased to report another quarter of strong activity delivering continued leasing successes ahead of ERV and crystallising surpluses through profitable capital recycling,” said chief executive Toby Courtauld.

“Despite the continuing uncertain economic environment and our expectation that London's commercial property markets will weaken in the near-term, tenant interest remains healthy for the limited available space across our West End focused portfolio and our profitable forward sale of 73/89 Oxford Street demonstrates that investment pricing for prime assets remains relatively robust.”

Courtauld described GPE as in “great shape”, explaining that following more than three years of net property sales, its financial strength gives it significant capacity to exploit any market weakness.

“Our investment portfolio is well let, off low average rents and with significant reversionary potential; our committed development programme is materially de-risked, being 73% pre-let or pre-sold; our exceptional income-producing development pipeline offers more than 1.7 million sq ft of flexible future growth potential; and, we have a first class team ready to capitalise on this period of uncertainty.”