GPE asset values fall despite solid leasing activity

Great Portland Estates reported robust leasing activity in its first half on Thursday, surpassing estimated rental values (ERV) by 13.4%, although its portfolio value fell by more than 10%.

The FTSE 250 company raised its guidance for rental value growth, anticipating a range of 2.5% to 5.0%, with an even more optimistic forecast of 3.0% to 8.0% for prime office properties.

In terms of expansion, the company completed acquisitions worth £123m during the period.

The acquisitions included two ‘Flex’ space opportunities and one headquarters opportunity, with further expansion anticipated in 2024.

Great Portland Estates reported significant strides in its Flex space offerings, increasing capacity to 434,000 square feet.

It achieved £5.4m in fully managed lettings, outperforming Flex estimated rental values by 13.6%.

Addressing supply challenges in the commercial real estate market, Great Portland Estates said it was committed to delivering over one million square feet of Grade A, sustainable office spaces.

The company reported a 10.3% decline in valuation, primarily driven by yield, but countered that with an increase of 1.8% in estimated rental values (ERVs).

Its IFRS and EPRA net tangible assets per share stood at 650p.

Great Portland Estates said EPRA earnings per share were stable, declaring an ordinary dividend of 4.7p per share, aligning with guidance.

The company said it had more than £500m in liquidity, supported by a new term loan agreement.

Its loan-to-value ratio stood at 28.9%, while discussions were underway for sales totalling £0.3bn.

“Whilst macro-economic concerns and rising interest rates impacted our property valuation, the fundamentals in our leasing markets remain healthy,” said chief executive officer Toby Courtauld.

“With customers increasingly demanding the very best, sustainable spaces, and discounting the rest, they are competing in a market increasingly starved of new, Grade A supply, putting further upward pressure on prime rents, and we have upgraded our rental growth forecasts for the second half.

“With further selective yield expansion a possibility, our investment markets remain relatively quiet, although we are exploiting these conditions to our advantage.”

Courtauld said the company bought three buildings in the period, all off-market and adding to its ‘Flex’ and development programmes.

“Looking forward, we expect further acquisition opportunities to emerge, and with our trademark disciplined capital management, we will continue to recycle capital, selling properties to crystallise value on completion of our business plans.

“In this context, GPE’s positioning is strong; 75% of our portfolio is in the heart of the West End; our substantial capex programme will deliver the prime spaces the market demands; our Flex office offer is growing, is well suited to evolving customer needs, as evidenced by our market-leading NPS score, and is delivering our highest rental growth; and our strong balance sheet and plentiful liquidity combined with our long track record of creating opportunities in cyclical markets mean that we are well positioned to capitalise.

“With GPE in great shape, and London set to outperform, we look to our future with confidence.”

At 0949 GMT, shares in Great Portland Estates were down 3.86% at 428p.

Reporting by Josh White for Sharecast.com.