Great Portland Estates plc · LSE:GPE
Great Portland Estates — FY2006 Earnings Presentation
70 slides from Great Portland Estates's earnings presentation, June 2006
Slide 1: Unlocking potential: Preliminary Results Presentation 2006
Unlocking potential PRELIMINARY RESULTS PRESENTATION 2006 Good morning everyone and a very warm welcome to Great Portland!s annual results presentation. Before we kick off, you!ll notice that we are joined on the front bench by Neil Thompson who I!m delighted to announce will be joining the Board in
Slide 2: Agenda
Agenda Toby Courtauld Introduction Highlights Timon Drakesmith Financial Results Robert Noel Market Valuation & Portfolio Analyses Asset Management Sales Toby Courtauld Acquisitions Development Update Outlook Back to our agenda and we have our usual full presentation for you today. • highlights from
Slide 3: Strategy Reminder
Strategy Reminder • Build out near-term programme Develop • Grow and bring forward medium-term programme • Focus on value locations in London • Off low rents - affordability theme Buy • With angles for value enhancement • For medium term development programme • Maintain full occupancy in investment
Slide 4: Highlights
Highlights Creating real value • 2 schemes finished Develop • 4 schemes on-site; 4 to start by October 2006 • Good progress on 1.2m sq ft medium-term programme Buy • £132m spent • Full occupancy Manage • Strong rental growth • Numerous restructuring successes • £145m; £18m surplus Sell • £47m since
Slide 5: Strong Results
Strong Results Year to March 2006 • Property Valuation (like-for-like) +24.7% • Total Property Return 29.7% • NAV +29.7% • Total Shareholder Return 53.9% We!ve generated: • a like-for-like valuation uplift of 24.7%; • a total property return of 29.7%; • NAV growth of 29.7%; and • a total shareholder
Slide 6: Strong Results: Relative to IPD Central London
Strong Results Relative to IPD Central London TPR (% pa), Years to March Particularly pleasing is our strengthening relative return. This graph compares our total property return to that of the IPD Central London Index and shows that we have built on our recent run of out-performance. 2005 was a ver
Slide 7: Agenda
Agenda Toby Courtauld Introduction Highlights Timon Drakesmith Financial Results Robert Noel Market Valuation & Portfolio Analyses Asset Management Sales Toby Courtauld Acquisitions Development Update Outlook Timon Drakesmith, Finance Director Good morning everybody, I am pleased to present the fina
Slide 8: Financial Highlights
Financial Highlights Valuation Measures March 06 March 05 Change NAV per share* 437p 337p 29.7% Portfolio value £1,015m £804m 24.7%** Portfolio value (inc JV share) £1,128m £883m 23.3%** Return on Shareholder Equity 32.9% 22.5% +10.4%pts (NAV Growth plus dividends) Earnings and Dividend March 06 Mar
Slide 9: Adjusted NAV per share
Adjusted NAV per share Movement since 31 March 2005 Pence +32.9% +29.7% This chart describes the main factors behind the substantial rise in Adjusted NAV per share from the position at 31 March 2005. Let me walk you through the key items starting from the left: • valuation gains in our development p
Slide 10: Adjusted EPS
Adjusted EPS 2006 vs 2005 Pence Let!s move on to Adjusted Earnings per share. During the year, EPS has been impacted by two negative items:- • a reduction in rental income equivalent to 4.5p per share – more on this on the next slide; and • an increase in the underlying finance charge equivalent to
Slide 11: Gross Rental Income
Gross Rental Income Year to 31 March £m As I said earlier, EPS has been impacted by lower rental income. I would like to explain the reasons for the 15% reduction in gross rental income this year compared to £49.9 million last year. These trends were in line with our own expectations because we have
Slide 12: Development Programme: Potential Rental Income
Development Programme Potential Rental Income (Build up vs March 06) £m +49% You have already seen our rental income decrease during the year, I want to remind you of the potential for rental increases embedded in the Group!s portfolio. This chart illustrates the opportunity to increase rent roll as
Slide 13: Incremental rental income from near-term development schemes
Incremental rental income from near-term development schemes (Current market rents) £m £21m £20m Titchmor +£19m Tooley St Knighton House 180 GPS £2m Sackville St Other Let!s look at that additional £19 million of forecast rental income in more detail. This chart illustrates the potential for increas
Slide 14: Great Victoria Partnerships (GVPs)
Great Victoria Partnerships (GVPs) An outstanding start Key Measures March 06 March 05 £m £m Group share of 3.5 0.1 GVP net profit Fee income 1.3 0.1 Portfolio value 226.2 200.4* Equity Returns Commencement GPE equity GPE equity Annualised date invested March 2006 returns** £m £m GVP 1 Jan 2005 23.8
Slide 15: Financial Resources
Financial Resources Pro Forma March 2006 March 2005 Net debt (£m) 290 325 266 Net gearing 39.3% 44.1% 48.0% Interest cover 2.0x 2.3x Positive effects from refinancing • Average cost of debt down 30bp • Weighted average cost of debt 5.7 % • Main credit facility termed-out • Facilities increased to fi
Slide 16: Taxation and Disclosure
Taxation and Disclosure • Current year tax eliminated due to refinancing • Underlying ETR around 8% • Positive about REIT prospects • Quarterly valuations from June 2006 Turning to tax, I would like to touch on the Group!s current and prospective position. • there was a zero cash tax charge for 2006
Slide 17: Key Financial Messages
Key Financial Messages • Substantial value created through positioning and execution • Strong rental income growth prospects • Financial resources improved by new credit facilities • Positive about REIT prospects • Overall positive outlook Drawing together the main themes of these financial results:
Slide 18: Agenda
Agenda Toby Courtauld Introduction Highlights Timon Drakesmith Financial Results Robert Noel Market Valuation & Portfolio Analyses Asset Management Sales Toby Courtauld Acquisitions Development Update Outlook Robert Noel, Property Director The central London office market is well commented on. 18
Slide 19: Key Market Messages
Key Market Messages • Positive short term outlook for central London • City Supply vs West End Affordability • GPE well positioned There are 3 Key messages I want to get across today: 1) The short term looks very positive for the whole of central London. • availability has fallen; • demand is runnin
Slide 20: Central London Office Market: Availability
Central London Office Market Availability Source: PMA Starting with availability this slide shows the office vacancy rate split into West End (in blue), and City. Both markets have vacancy rates at below the historic trigger for rental growth. 20
Slide 21: Central London Office Market: Market Balance
Central London Office Market Market Balance Source: PMA It becomes more meaningful when you look at it in the context of demand. And this slide shows the market balance or months supply for the central London office market as a whole. Crucially you can see that we are now well beneath the 20 month s
Slide 22: Central London Office Market: Output Growth
Central London Office market Output Growth In Key Office Sectors Source: PMA Added to this backdrop, business is going well for the key office occupiers as shown by this slide which charts output growth. After the big dip in 2001 and 2002, our customers are firing on all cylinders. So far so good. B
Slide 23: Central London Office Market: Development Starts
Central London Office Market Development Starts (Rolling annual) Source: PMA This chart shows the rolling previous twelve months development starts. • in the West End, again in blue, although developers would like to turn the tap on, they have found it difficult to do so; and • in the City market it
Slide 24: Central London Office Market: Development Completions
Central London Office Market Office Development Completions 1985 -2009 Million sq ft City West End 10m sq ft ‘06 to ‘09 3m sq ft ‘06 to ‘09 Source: CB Richard Ellis These charts from CBRE show that expected completions are about to pick up in the City market. • we expect up to 10 million sq ft not a
Slide 25: Central London Office Market: PMA Availability Forecast
Central London Office Market PMA Availability Forecast Source: PMA Going back now to the vacancy rate and looking at PMA!s forecasts; • in the City, in orange, due to the increased development activity they expect vacancy to pick up above the 10% rental growth or decline trigger during 2009; and • i
Slide 26: Central London Office Market: Prime Headline Rent Forecast
Central London Office Market PMA Prime Headline Rent Forecast Forecast Affordability? Oversupply? Source: PMA This chart shows PMA!s prime headline rent forecast. Prime rents in both markets are forecast to continue their steep rise this year. • in the City, shown in orange, PMA forecast rents to pe
Slide 27: Central London Office Market: West End demand by tenant type
Central London Office Market West End demand by tenant type over 10,000 sq ft Active Demand Q4 2005 Active Demand Q2 2006 Source: Knight Frank Remember we put this slide up in November. It shows that roughly 50% of active demand in the West End was from professional services and media & marketing co
Slide 28: Summary
Summary Development Availability Rental growth pipeline Short term Central London Medium term City West End Development Value occupier Rental growth off programme demand low base Outlook for GPE • In the short term things look pretty rosy in the central London market. New supply is restricted, the v
Slide 29: Agenda
Agenda Toby Courtauld Introduction Highlights Timon Drakesmith Financial Results Robert Noel Market Valuation & Portfolio Analyses Asset Management Sales Toby Courtauld Acquisitions Development Update Outlook 29
Slide 30: The Valuation
The Valuation Value Movement Movement 12 months 6 months to to March 2006 £m £m Change Sept 2005 March 2006 North of Oxford St 409.9 87.6 27.2% 7.2% 18.6% Rest of West End 173.1 37.7 27.9% 5.1% 21.7% West End Total 583.0 125.3 27.4% 6.6% 19.5% City 143.1 18.4 14.7% 9.8% 5.1% Investment Portfolio 726
Slide 31: The Valuation: Yield Profile
The Valuation Yield Profile* 31 March 2006 Initial Yield True Equivalent Yield Basis point +/- Basis point +/- % % 12 months like-for-like 12 months like-for-like North of Oxford St Offices 3.9 (89)’ 5.3 (92) Retail 4.6 (46)’ 5.3 (85) Rest of West End Offices 4.5 (112) 4.9 (93) Retail 5.2 (46) 5.2 (
Slide 32: Valuation: Rental values
Valuation Rental values 12 months to 31 March 2006 Movement in ERV Like-for-like Average Office ERV % £m £ per sq ft North of Oxford St Offices 16.2% 4.1 34.60 Retail 4.3% 0.2 Rest of West End Offices 15.2% 1.2 38.60 Retail 6.0% 0.3 Total West End 13.7% 5.8 City & Southwark Offices 10.0% 0.8 25.70 R
Slide 33: Agenda
Agenda Toby Courtauld Introduction Highlights Timon Drakesmith Financial Results Robert Noel Market Valuation & Portfolio Analyses Asset Management Sales Toby Courtauld Acquisitions Development Update Outlook On to Asset Management and a very busy year for the team with lots of activity, keeping our
Slide 34: Asset Management: Voids Summary
Asset Management Voids Summary % of Rent Sq Ft Mar 05 Mar 06 Pro forma Mar 05 Mar 06 Pro forma Void 2.6 1.9 3.5 63,700 45,800 59,400 Refurb & Dev’t 16.0 20.7 19.6’ 258,100 329,300 312,200 Total 18.6 22.6 23.1’ 321,800 375,100 371,600 Total including Joint Ventures 24.7’ Sq Ft City offices 26,000 Nor
Slide 35: Asset Management: 208/222 Regent Street
Asset Management Great Victoria Partnership 208/222 Regent Street, W1 April 2005 Acquired with Lasenby House May 2005 Crown headlease regeared June 2005 Lasenby House sale completed Sept 2005 Liberty exit date agreed Nov 2005 Barclays lease surrendered Mar 2006 Liberty exit brought forward May 2006
Slide 36: Asset Management: 208/222 Regent Street Economics
Asset Management Great Victoria Partnership 208/222 Regent Street, W1 Anticipated net retail rental £2.5m income Office income £1.6m Total net income £4.1m End value at (say 4.25%) £91.2m Purchase costs and estimated capex £67.5m (including regear) £23.7m Capital surplus 35% And the numbers look goo
Slide 37: Agenda
Agenda Toby Courtauld Introduction Highlights Timon Drakesmith Financial Results Robert Noel Market Valuation & Portfolio Analyses Asset Management Sales Toby Courtauld Acquisitions Development Update Outlook 37
Slide 38: Sales
Sales Book Value 31 Mar 05 Sale Price NIY adjusted for subsequent CapEx £m % £m 6 m onths to 30 Sept 2005 80.7 5.9 75.1 6 m onths to 31 March 2006 12 Dyers Buildings, EC1 2.1 - 1.3 27 Albermarle St, W1 13.5 4.2 9.7 142-144 New Cavendish St, W1 5.8 2.8 4.8 60-62 Margaret St, W1* 12.7 - 10.3 22-28 Eas
Slide 39: Sales: Three examples
Sales Three examples Property 27 Albemarle St, W1 22-28 Eastcastle St, W1 Gillingham Street. SW1 Sq Ft 16,000 33,000 43,000 Price £13.5m £14.6m £21.4m Price per sq ft £850 £440 £500 WAULT years 2.7 1.5 9.4 Initial yield 4.20% 2.10% 4.70% Premium to March 05 39% 23% 53% valuation • No longer needed f
Slide 40: Agenda
Agenda Toby Courtauld Introduction Highlights Timon Drakesmith Financial Results Robert Noel Market Valuation & Portfolio Analyses Asset Management Sales Toby Courtauld Acquisitions Development Update Outlook 40
Slide 41: Acquisitions
Acquisitions Price NIY Area Price £m % sq ft £ per sq ft Year to 31 March 2005 GVP 2* (50% share / post regear) 36.2 6.3 88,500 751 Doran and Dorville House, Foley Street, W1 6.8 0.0 21,000 323 Six months to 30 Sept 2005 43.0 109,500 393 Oxford House, 184/190 Oxford Street, W1 23.0 5.5 25,900 888 22
Slide 42: Acquisitions: Freehold to Bishopsgate & Mail Coach Pub
Acquisitions Freehold to 80 Bishopsgate & Mail Coach Pub, EC2 Looking at Bishopsgate first you!ll remember that we own four adjoining buildings totalling roughly 260,000 sq ft on the corner of Bishopsgate and Camomile Street. With these two acquisitions, we!ve cleared up our ownership: • first, at n
Slide 43: Acquisitions: New City Court, St Thomas Street
Acquisitions New City Court, 2 St Thomas Street, SE1 • £43.15m (£438 per sq ft) • 98,500 sq ft freehold - 4 upper floors • By London Bridge mainline rail station At New City Court, we!ve added to our Southbank portfolio with the third major acquisition in this location in 18 months. We paid £43 mill
Slide 44: Acquisitions: New City Court Returns
Acquisitions New City Court, 2 St Thomas Street, SE1 • 6.1% running yield • Well let for further 6 years (average) • Under-rented off low rents - £28 per sq ft overall • Good floor plates Base Case • Refurb @ £75 per sq ft on lease expiry • Current refurbished ERV £32.50 per sq ft • 7 year unlevered
Slide 45: Central London Investment Market: Turnover
Central London Investment Market Turnover Source: CB Richard Ellis This slide says it all. Central London!s investment markets are red hot at present - the amount turned over in 2005 set a new record. The two main players in the market today are overseas buyers, as you can see here, and UK instituti
Slide 46: City & West End Prime Yields vs Swap Rates
Central London Office Market City & West End Prime Yields vs Swap Rates Source: CB Richard Ellis The debt based buyers, however, are much less relevant today than a few years ago, and you can see why from this chart. The combination of continued yield compression – shown by the yellow line in the Ci
Slide 47: Our Investment Strategy
Our Investment Strategy Where Next? Value Growth Driver Yield Shift Rental Growth / Development Sell Buy • Rental growth unlikely • Low rents • Limited angles • Improving locations • Off historically high £psf • Development angles Common sense tells us that the often indiscriminate rising asset valu
Slide 48: Agenda
Agenda Toby Courtauld Introduction Highlights Timon Drakesmith Financial Results Robert Noel Market Valuation & Portfolio Analyses Asset Management Sales Toby Courtauld Acquisitions Development Update Outlook Turning now to our development programme. 48
Slide 49: Development Update: Overview
Development Update Overview Near Term Mid Term Long Term Schemes 9 10 5 Start dates 2004 - 2006 2008 - 2011 2011 & beyond Lettable area on completion 575,000 1,200,000 400,000 Increase over existing area 70% 130% 25% Site value £119m Total Programme Project cost (excluding site) £186m 24 projects Sp
Slide 50: Development Update: Near-term programme
Development Update Near-term programme Start Finish New build area Increase Project cost Practical com pletion Sackville Street July 05 May 06 21,200 - 5.2 On-site Bond Street House May 05 July 06 17,600 (2,000) 4.8 180 Great Portland Street May 05 Dec 06 98,800 12,500 30.7 Margaret Street Jan 06 De
Slide 51: Development Update: Met Building, Percy Street
Development Update Met Building, Percy Street, W1 • Practical completion May 2005 • 96% let • Office tenants predominately marketing & media / professional services • Rents convergence achieved Image to come • ERV up 9.6% since Sept to £4.8m • 4.9% true EY (5.6% in Sept) • Final development profit £
Slide 52: Development Update: 180 Great Portland Street
Development Update 180 Great Portland Street, W1 • +50% through construction contract • Riskiest phase nearing completion • Project on time to finish Dec 2006 • Office ERV £43.50 per sq ft • Office Cap rate 5.25% • Projected profitability 49% • Marketing to begin in September At 180 Great Portland S
Slide 53: Development Update: Knighton House
Development Update Knighton House, Great Portland St, W1 • VP delivered Jan 2006 • Strip out completed April 2006 • Demolition commenced May 2006 • Completion Q4 2007 • Average Office ERV £43.75 per sq ft • Office Cap rate 5.5% • Projected profitability 22% At our old Headquarters building Knighton
Slide 54: Development Update: Titchmor, Mortimer St
Development Update Titchmor, Mortimer St, W1 • Contractor appointment imminent • Commence strip out Sept 2006 • Estimated completion Q4 2008 • Office ERV £47.50 to £50 per sq ft • Office Cap rate 5.5% • Projected profitability 23% At Titchmor, we are close to appointing a contractor for a start on s
Slide 55: Development Update: Tooley Street
Development Update Tooley Street, SE1 • S.106 signed March 2006 • 198,300 sq ft up from 154,500 sq ft assumed on purchase • Various revisions applied for • Start on site Q3 2006 • Site value up >50% since acquisition • Office ERV £35 per sq ft • Office cap rate 5.75% • Estimated profitability 15% At
Slide 56: Development Update: Near-term programme
Development Update Near-term programme Avg Office New build Project ERVs* Cap Start Finish area Increase cost (£ per sq ft) rate Practical Com pletion Sackville Street July 05 May 06 21,200 - 5.2 66.50 5.00 On-site Bond Street House May 05 July 06 17,600 (2,000) 4.8 55.00 5.75 180 Great Portland Str
Slide 57: Development Update: Medium-term programme
Development Update Medium-term programme Average Estim ated rent VP date Existing Area Potential area Increase £ per sq ft Totfield St / Whitfield St, W1 June 08 25,700 35,000 9,300 28.88 Oxford House, Oxford St, W1 June 08 16,800 22,000 5,200 19.26 Blackfriars Road, SE1 Dec 08 29,400 131,000 101,60
Slide 58: Agenda
Agenda Toby Courtauld Introduction Highlights Timon Drakesmith Financial Results Robert Noel Market Valuation & Portfolio Analyses Asset Management Sales Toby Courtauld Acquisitions Development Update Outlook Turning to our outlook … 58
Slide 59: Outlook: Our markets
Outlook Our markets • Fundamentals strengthening – West End supply crunch – Rental values responding – West End developer response muted – But, City response significant • Investment markets to moderate The fundamentals in our markets, particularly in the West End, are strengthening. • the West End
Slide 60: Outlook: Our response
Outlook Our markets • Fundamentals strengthening – West End supply crunch – Rental values responding – West End developer response muted – But, City response significant • Investment markets to moderate Our response • Deliver our near-term developments • Work to bring our medium-term programme forwa
Slide 61: Unlocking potential
Unlocking potential NAV up 29.7% 24.7% like-for-like valuation uplift 29.7% Total Property Return Met Building finished: 96% let Remaining near term projects to site during 2006 1.2m sq ft medium term programme Strong joint venture results Positive market outlook 61
Slide 62: Profit & Loss Account
Profit & Loss Account 2006 2005 Deferred tax on Underlying Revaluation capital Exceptional Underlying revenue as Total Capital profits surplus allowances items revenue restated Year ended 31 March 2006 Net rental and related income 41.0 41.0 49.1 Capital profits 14.8 14.8 - - Valuation gain 171.3 17
Slide 63: Balance sheet
Balance sheet At 31 March 2006 2006 2005 as restated Property assets 1,023.7 813.5 Joint venture 72.4 42.6 Net debt (325.0) (265.7) Other liabilities (116.4) (74.4) Net assets 654.7 516.0 Add back: Deferred tax on capital allowances and reval. 82.9 41.6 Dilutive convertible bonds 53.4 54.3 Adjusted
Slide 64: Cash flow
Cash flow 2006 2005 as restated Cash flow from operating activities before property transactions 33.4 36.9 Purchase and development of property (131.4) (93.7) Other fixed asset additions (1.8) - Sale of properties 121.2 119.8 Investment in joint venture (15.6) (5.9) Net interest (20.3) (19.5) Tax pa
Slide 65: Capex and projected rent
Capex and projected rent from near term development programme 65
Slide 66: Portfolio Asset Churn
Portfolio Asset Churn Inc 50% share of JV Source: IPD 66
Slide 67: West End Rent Profile
West End Rent Profile 10,000 sq ft average Grade A deal price £50.00 £70.00 £60.00 £90.00 £85.00 67
Slide 68: Asset Management: Lettings, Lease Renewals and Rent Reviews
Asset Management Lettings, Lease Renewals and Rent Reviews Premium to Events Sq ft Total Rent target New lettings 47 189,800 £5.7m 4% Lease renewals 16 73,500 £2.3m 9% Rent Reviews settled 21 109,600 £3.5m 5% Total 84 372,900 £11.5m 5% 68
Slide 69: Development Update: Sackville Street, W1
Development Update 21 Sackville Street, W1 • Practical completion May 2006 • Marketing started • Good interest • Average ERV £66.50 per sq ft • Cap rate 5.0% • Forecast surplus 40% 69
Slide 70: Disclaimer notice
Disclaimer notice This presentation 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 or results express
Great Portland Estates — FY2006 Earnings Presentation on 6ix