Great Portland Estates Plc · LSE:GPE
Great Portland Estates — H1 2002 Earnings Presentation
41 slides from Great Portland Estates's earnings presentation, Nov 19, 2002
Slide 1: Great Portland Estates Interim Results Presentation 2002
GREAT PORTLAND ESTATES P.L.C. INTERIM RESULTS PRESENTATION 2002 Annotated text from presentation to analysts, 19th November 2002 1
Slide 2: Agenda
Agenda Toby Courtauld Introduction Business Highlights John Whiteley Financial Results Toby Courtauld Valuation Strategic Themes Actions Taken Portfolio Analysis Robert Noel Asset Management The Market Toby Courtauld Acquisition Strategy Outlook Toby Courtauld, Chief Executive There are three import
Slide 3: Business Highlights
Business Highlights • Adjusted EPS up 6.5% to 6.6p per share (2001: 6.2p) • Dividend up 2.7% to 3.42p per share (2001: 3.33p) • Expensive debenture purchased • Diluted Net Asset Value per share down 12% to 307p • New team in place • Strategic Review completed • Disposals of £122m non-core properties
Slide 4: Agenda
Agenda Toby Courtauld Introduction Business Highlights John Whiteley Financial Results Toby Courtauld Valuation Strategic Themes Actions Taken Portfolio Analysis Robert Noel Asset Management The Market Toby Courtauld Acquisition Strategy Outlook John Whiteley, Finance Director To put the results int
Slide 5: Cash Flow
Cash Flow 6 months ended 30th September 2002 2001 £m £m Operating activities 31.4’ 33.7’ Interest (13.1) (28.2) Tax -’ (3.1) Dividends (13.5) (13.9) 4.8’ (11.5) Disposal proceeds 12.5’ 90.4’ Capital expenditure (4.6) (16.7) Purchase/redemption of debentures (196.6) (128.6) Withdrawn from short- term
Slide 6: Profit & Loss Account
Profit & Loss Account 6 months ended 30th September 2002 2001 £m Underlying Exceptional Capital Total Underlying Rent receivable 37.7’ 37.7’ 45.1’ Ground rents (1.0) (1.0) (0.9) Net rental income 36.7’ -’ -’ 36.7’ 44.2’ Property and admin (4.3) (0.3) (4.6) (3.7) Trading profits (0.2) (0.2) 0.4’ Net
Slide 7: Rent Receivable
Rent Receivable £m Six months ended 30th September 2001 45.1’ Disposals (10.5) Rent reviews 2.1’ Lettings and renewals 1.5’ Expiries (0.5) Six months ended 30th September 2002 37.7’ By far the biggest proportion of the fall related to disposals, especially the shopping centres which were sold in Nov
Slide 8: Rental Income
Rental Income At 30th September 2002 After Disposals 5 year 5 year Rent roll reversion Rent roll reversion £m £m £m £m West End & Covent Garden N. of Oxford St Offices 18.4 3.2’ 18.4 3.2’ Other Offices 13.0 0.8’ 9.8 0.8’ Retail 12.8 0.9’ 12.8 0.9’ City & Holborn Offices 16.2 2.6’ 15.6 2.6’ South Eas
Slide 9: Balance Sheet
Balance Sheet At 30th At 31st Sept 2002 March 2002 £m £m Investment Properties 992.8’ 1,076.1’ Net Debt (387.9) (334.0) Other Assets 4.7’ (40.3) Net Assets 609.6’ 701.8’ Add back Deferred Tax 14.9’ 14.9’ (Capital Allowances) Adjusted Net Assets 624.5’ 716.7’ Adjusted diluted net assets per share 307
Slide 10: Movement in Adjusted Diluted Net Assets per Share
Movement in Adjusted Diluted Net Assets per Share Pence per share NAV FRS13 CGT NNNAV At 31st March 2002 349 (22) (13) 314 Purchase of debenture (21) 20 (1) Pro forma as reported in June 328 (2) (13) 313 Revaluation of assets (23) 7 (16) Revaluation of debt (6) (6) Losses on disposals (1) (1) Retain
Slide 11: Agenda
Agenda Toby Courtauld Introduction Business Highlights John Whiteley Financial Results Toby Courtauld Valuation Strategic Themes Actions Taken Portfolio Analysis Robert Noel Asset Management The Market Toby Courtauld Acquisition Strategy Outlook Toby Courtauld 11
Slide 12: The Valuation
The Valuation As at 30th Value Change Effect on NAV September 2002 £m % pence North of Oxford St Offices 309.3 (7.1) (10.7) Rest of West End Offices 189.9 (4.4) (3.9) West End Retail 164.9 (3.7) (2.8) West End Total 664.1 (5.5) (17.4) City & Holborn 218.4 (2.7) (2.7) Central London 882.5 (4.8) (20.1
Slide 13: Portfolio Analysis: Yield Profile
Portfolio Analysis Yield Profile As at 30th September 2002 Initial Yield Equivalent Yield Basis point Basis point % % +/- +/- North of Oxford St Offices 6.0 +73 7.2 -6 Rest of West End Offices 6.3 -3 6.8 -39 West End Retail 6.3 +40 6.5 -8 West End 6.2 +45 7.0 -2 City & Holborn 7.0 +17 7.8 +36 Centra
Slide 14: Strategic Themes
Strategic Themes • Central London • Focus and scale • Asset churn • Higher refurbishment & development risk • Aggressive asset management • Strengthen existing team The strategic themes that we said in June would define Great Portland • We believe strongly that the London market will throw us plenty
Slide 15: Action Taken: People
Action Taken People • Robert Noel – Property Director • Ben Chambers – Investment • Matthew Pinsent – Investment • Neil Thompson – Development • Martin Leighton – Corporate Finance Combined with some reorganisation of the existing team, we have brought in some first rate people to plug some of the o
Slide 16: Action Taken: Strategic Review
Action Taken Strategic Review • Completed detailed review of every asset • Detailed action plan for each • Identified core assets • Identified non-core assets for immediate sale We have scrutinised every single property - lease by lease – we’ve benchmarked their returns against various hurdle rates
Slide 17: Action Taken: Disposal of Non-core Properties
Action Taken Disposal of Sale March 02 Surplus Non- core Properties Price NIY Valuation After Costs £m % £m % By Sept 2002 11 Maddox St, W1 1.4 6.4 1.4 (2.0) 17-19 Bedford St, WC2 7.7 7.1 8.0 (4.3) 42-43 Drury Lane, WC2 3.7 5.4 3.9 (6.4) 13-15 Moorgate, EC2 24.0 8.2 24.5 (3.1) 36.9 7.6 37.8 (3.6) Po
Slide 18: Portfolio Analysis: By Value
Portfolio Analysis By Value As at Pro Forma 30th September 2002 Value Value £m % £m % North of Oxford St Offices 309.3 31 309.3 34 Rest of West End Offices 189.9 19 147.4 16 West End Retail 164.9 16 164.9 18 West End 664.1 66 621.6 68 City & Holborn 218.4 22 211.1 23 Central London 882.5 88 832.7 91
Slide 19: Movement in Reversions
Movement in Reversions £m 6 months to 2 months to 8 months to Sept 02 Nov 02 Nov 02 At beginning of period 13.2’ 13.2’ Asset Management (2.9) (1.2) (4.1) Disposals (0.1) - (0.1) ERV decline (2.9) - (2.9) At end of period 7.3’ (1.2) 6.1’ The key message here is that our sales programme has had virtua
Slide 20: Portfolio Analysis: Weighted Average Lease Length
Portfolio Analysis Weighted Average Lease Length (by rent) Mar-02 10 Sep-02 9 Proforma 8 7 6 5 4 3 2 1 0 North of Oxford St Rest of West End West End Retail City & Holborn South East Total Portfolio Offices Offices Offices Excluding Northampton (WALL 24.9 years at Sept) except Total Portfolio At Sep
Slide 21: Agenda
Agenda Toby Courtauld Introduction Business Highlights John Whiteley Financial Results Toby Courtauld Valuation Strategic Themes Actions Taken Portfolio Analysis Robert Noel Asset Management The Market Toby Courtauld Acquisition Strategy Outlook Robert Noel, Property Director 21
Slide 22: Asset Management
Asset Management • Management of Income and Value • Management of Development Sites Asset management is a strong theme in the new culture of the company and can be broadly split under two headings. On the one hand we are constantly looking at ways of improving income and value and on the other hand
Slide 23: Asset Management: Management of Income and Value
Asset Management Management of Income and Value • Rent Reviews • Lease Renewals • Lease Re-gearings • Lettings & Voids In terms of income and value we are concentrating on four pretty clear avenues: • a proactive and pragmatic approach to rent reviews & lease renewals; • a co-ordinated effort to pro
Slide 24: Management of Income and Value: Rent Reviews
Management of Income and Value Rent Reviews • £3.8m of reversion crystallised since March • Post March review dates secured within 16 weeks • March 2002 rental values achieved Example: 160 Great Portland Street • June 2002 rent review settled within 14 weeks • £46.50 headline rent achieved in line w
Slide 25: Management of Income and Value: Lease Renewals
Management of Income and Value Lease Renewals • Approaching tenants early • Flexibility Example: 55 Drury Lane • 13,000 Sq Ft • March 2003 renewal agreed early • 11 year term, with rent free period • Short- term earnings impact • Medium- term NAV and earnings protection With our lease renewals we ar
Slide 26: Management of Income and Value: Lease Re-gearings
Management of Income and Value Lease Re-gearings • Mutual benefits with tenants • Earnings / NAV impact • Lease term / price arbitrage Example: Bloomsbury Street • 74,000 sq ft let to Government • 11 years lease re - geared to 20 years • Simultaneously sold to Annuity Fund • Sold at 6% net initial y
Slide 27: Management of Income and Value: Voids
Management of Income and Value Voids March 02 Sept 02 Pro Forma (000 Sq Ft) (000 Sq Ft) (000 Sq Ft) (Rent %) Under Refurbishment 68 74 68 2.1 Void 75 74 50 1.5 Under Offer 21 The aggressive management of our voids continues and we are constantly doing deals. Despite a number of lease expiries the vo
Slide 28: Management of Income and Value: Current Void Profile
Management of Income and Value Current Void Profile (by rental value) Under Void Total Current Refurbishment % % % North of Oxford St Offices 2.2 1.5 3.7 Rest of West End Offices 2.1 4.9 7.0 West End Retail 1.3 0.0 1.3 West End 1.9 1.9 3.8 City & Holborn 0.0 0.0 0.0 Central London 1.4 1.4 2.8 South
Slide 29: Asset Management
Asset Management • Management of Income and Value – Rent Reviews – Lease Renewals – Lease Re-gearings – Lettings & Voids • Management of Development Sites – Prudent Lease Management – Purchasing Other Interests Moving on from income and value the second string to our asset management theme is the nu
Slide 30: Management of Development Sites: Titchmor
Management of Development Sites Prudent Lease Management Example: Titchmor • At review inserting breaks in Titchmor • Loss in rent vs saving future costs Using our Titchmor block as an example we have had successes using rent review negotiations to insert breaks into longer running leases. On the on
Slide 31: Management of Development Sites: Bond Street House
Management of Development Sites Prudent Lease Management Example: Bond Street House • First floor surrender taken • Potential new large retail store • Increase in retail vs office area • Rent increase, yield compression We have also taken advantage of the difficult letting market to take surrenders
Slide 32: Management of Development Sites
Management of Development Sites • Prudent Lease Management • Purchasing Other Interests In addition to lease management we are constantly on the look out for purchasing interests which may help our principle future development sites. On the right hand side of this slide you can see the plan we showe
Slide 33: Agenda
Agenda Toby Courtauld Introduction Business Highlights John Whiteley Financial Results Toby Courtauld Valuation Strategic Themes Actions Taken Portfolio Analysis Robert Noel Asset Management The Market Toby Courtauld Acquisition Strategy Outlook All this has been going on under the backdrop of an in
Slide 34: Central London Office Market
Central London Office Market Central London Availability and Take-Up Source: Knight Frank Source: Various 20 % Availability 18 Take-up 16 14 12 10 8 6 4 2 0 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 Since quarter two 2001 most market commentators and sections of the Investing community
Slide 35: Central London Office Market: Headline Rents
Central London Office Market Headline Rents £ sq ft Q3 2002 Core Core City Midtown Noho West End Soho Q3 2001 £ 62.50 £ 53.50 £ 60.00 £ 82.50 £ 55.00 Average Q3 2002 £ 55.00 £ 43.28 £ 50.93 £ 70.20 £ 48.75 Average Change in (12%) (19%) (15%) (15%) (11%) year Assumes 10,000 square ft Grade A unit Q3
Slide 36: Central London Office Market: Headline Rents
Central London Office Market Headline Rents £ sq ft Q3 2002 Core Core City Midtown Noho West End Soho Q3 2001 £ 62.50 £ 53.50 £ 60.00 £ 82.50 £ 55.00 Average Q3 2002 £ 55.00 £ 43.28 £ 50.93 £ 70.20 £ 48.75 Average Change in (12%) (19%) (15%) (15%) (11%) year Current £ 50.00 £ 40.00 £ 45.00 £ 65.00 £
Slide 37: Central London Office Market
Central London Office Market • Pressure on Residual Values • Debt market tightening • Institutional allocations down? There is particular pressure on residual values as would be expected in a falling rental market and we are seeing real examples of this which will soon show good opportunities for us
Slide 38: Agenda
Agenda Toby Courtauld Introduction Business Highlights John Whiteley Financial Results Toby Courtauld Valuation Strategic Themes Actions Taken Portfolio Analysis Robert Noel Asset Management The Market Toby Courtauld Acquisition Strategy Outlook Toby Courtauld We have already started to make real he
Slide 39: Acquisition Strategy
Acquisition Strategy What • Improvement opportunities • Multi-let, 0 – 10 year expiry profiles • Capital value per sq ft – not relative yield Where • London – 25% of UK Office market, 20% of UK GDP • Core areas – first to recover • In and around existing clusters • Areas of under-pricing When? So wh
Slide 40: Outlook
Outlook Continued rationalisation NAV protection Work the voids Earnings protection Focus on development NAV growth and earnings Acquisitions NAV and earnings growth So what can you expect from us in the immediate future and how do I see the outlook for GPE? • First, we will continue to rationalise
Slide 41: Outlook
Outlook Team ' Strategy ' Balance Sheet ' The markets are, as we’ve explained, undeniably challenging at present. But as we’ve also highlighted, these markets are beginning to show signs of delivering up some interesting opportunities. In the light of everything we’ve said this morning, I can only b
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