Great Portland Estates, the central London landlord, has reported strong results for the FY ended 31st March 2013, with pre-tax profits up from £155 million last year to £180 million and a total property return of 11.7%.
Much of this has been generated by the development programme, which covers 55% of the existing portfolio, but strong tenant demand has also fuelled 6.6% above ERV rental increases, and with only 2.3% vacancies in the portfolio, everything is earning.
The valuation of the Group's properties rose to £2,328.7 million during the year, of which £1,859 million is wholly owned, delivering an underlying capital return of 8.0% on a like-for-like basis.
Within this it was the West End and north of Oxford Street markets which performed best, with the City, Midtown and Southwark showing only a 2.3% uplift in values.
GPE is currently on site at four schemes (549,200 sq ft of space), two in the West End, one in the City and one in Southwark, with a further 100% pre-let scheme (142,500 sq ft) in Midtown due to commence in September 2013. Taken together, 63% of the income is already secured on these five schemes with an expected profit on cost of 34%.
The supply of new space, particularly in the West End market, will not meet demand, for the forseeable future, which underpins the strong yields. The key to outperforming in this market is development backed up by a strong pipleline of candidate properties, which GPE has in it's reversionary portfolio, 53% of which has been acquired at attractive pricing during the recession.
Toby Cortauld, CEO said:
" the pick-up in tenant demand we identified in November is translating into lettings whilst the supply of new space to let is set to remain muted for some time, noticeably so in the core of the West End. Absent an economic set back, given the continued scarcity of finance for speculative development, we can look forward to healthy rates of rental growth in selected London sub-markets.
In our investment markets, yields remain well supported by the excess of demand over supply, measured at a ratio of almost 9:1. As a result, for well let liquid lot sizes, prime yields could reduce in the next few months."
GPE has Net Assets of £1,537.7 million (March 2012: £1,238.3m) with an EPRA NAV per share of 446 pence. It's loan to property value is 32.7%, and the weighted average interest rate of 3.7% is low. With cash and undrawn facilities of £282 million, and a weighted average drawn debt maturity of 6.9 years, the firm is in rude health.
Shares in GPE closed last night at 598p, valuing the firm at £2.057 billion, after a strong rise with the market in recent weeks.