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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Great Portland Estates Plc | LSE:GPOR | London | Ordinary Share | GB00BF5H9P87 | ORD 15 5/19P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 735.50 | 739.50 | 740.50 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
TIDMGPOR
RNS Number : 5097W
Great Portland Estates PLC
15 November 2017
Press Release
15 November 2017
Strong operational performance in H1
The Directors of Great Portland Estates plc announce the results for the Group for the six months ended 30 September 2017. Highlights(1) for the six months:
Valuation up; upgraded rental value growth guidance
-- Portfolio valuation up 1.0%(2) (developments: up 1.6%(2) ) -- Rental value growth of 0.7%(2) (0.5% offices, 1.7% retail); yield contraction of 4 bps
-- Total property return of 2.4%, with capital return of 1.0% v IPD Central London (quarterly index) of 2.9%
-- Upgraded rental value growth guidance for financial year: range now +1.5% to minus 2.5%
Robust financial performance; increased EPRA NAV, earnings and interim dividend
-- EPRA(3) NAV per share of 813 pence, up 1.8% over six months
-- Net assets of GBP2,634.8 million (31 March 2017: GBP2,738.4 million); reduction primarily due to payment of GBP110 million special dividend in period
-- EPRA(3) earnings of GBP31.6 million, up 11.7% on H1 2016. EPRA(3) EPS of 9.6 pence, up 15.7%
-- After revaluation surplus, reported profit after tax of GBP25.3 million (2016: loss of GBP62.8 million)
-- Total accounting return of 2.6% over six months; interim dividend per share of 4.0 pence, up 8.1%
Leasing ahead of ERV and capturing reversion, driving rent roll to new record
-- 37 new lettings (annual rent of GBP11.3 million, 170,100 sq ft), market lettings 2.4% above March 2017 ERV
-- 21 rent reviews securing GBP8.7 million, 42.9% ahead of passing rent, 8.7% ahead of ERV at the review date
-- GBP3.1 million reversion captured since March 2017; further reversionary potential of 17.0% (GBP20.2 million)
-- Rent roll up 8.8%/18.7% over 6/12 months to GBP119.2 million; total potential future rent roll growth of 50%
-- Vacancy rate reduced to 5.4%, average office rent GBP52.80 per sq ft, 5.5 years average lease length
-- Further GBP3.2 million of lettings completed since 1 October, market lettings 6.0% above March 2017 ERV; GBP6.9 million of lettings currently under offer, in-line with March and Sept 2017 ERV
Profitable development completion; 3 near-term schemes, all to benefit from Crossrail; increased flexible medium-term pipeline
-- One scheme completed (37,300 sq ft), profit on cost of 15.8%, 10.5% pre-let with good leasing interest
-- Two committed schemes (313,400 sq ft), profit on cost of 1.8% (13.8% excluding Rathbone residential), 75.2% pre-let/pre-sold (increasing to 87.5% including space under offer)
-- Good progress across three near-term schemes (414,000 sq ft), including recently acquired Cityside House, E1 and new-build planning application submitted at Oxford House, W1; all with potential starts in 2018
-- Potential capital expenditure to come across committed and near-term schemes of GBP248 million
-- Flexible medium-term development pipeline increased to 13 schemes, expected 35% area increase on existing 1.0 million sq ft, current 4.6% net initial yield, 3.8 years average lease length, 18.7% reversionary(1)
One acquisition in H1; likely net seller in H2
-- Purchase of freehold of Cityside and Challenger House, E1 for GBP49.6 million, or GBP320 per sq ft
-- GBP196 million of pre-sale proceeds to come on handover of residential at Rathbone Square, W1 in early 2018
-- Further c.GBP400 million in the market to sell
Strong financial position; low LTV and significant liquidity
-- Pro forma(4) loan-to-value of 15.4% (31 March 2017: 18.3%), weighted average interest rate of 2.7%, weighted average debt maturity of 5.7 years, pro forma(4) liquidity of GBP497 million
(1) All values include share of joint ventures unless otherwise stated (2) On a like-for-like basis (3) In accordance with EPRA guidance (4) See our Financial Results EPRA and adjusted metrics: we prepare our financial statements using IFRS, however we also use a number of adjusted measures in assessing and managing the performance of the business. These include measures defined by EPRA, which are designed to enhance transparency and comparability across the European real estate sector, see note 8 to the financial statements. For a definition of pro forma debt metrics see Appendix 3.
Toby Courtauld, Chief Executive, said:
"We are pleased to report a good set of results with all our key financial performance measures moving in the right direction and our balance sheet as strong as ever. Another successful leasing performance has driven voids lower and rent roll to a new record whilst a busy period of portfolio activity has delivered increases in both rental and capital values. As a result, we have raised the interim dividend by 8.1% and increased our rental guidance for the financial year.
Today, in spite of the macro-economic and political uncertainties, tenant interest remains healthy across our portfolio with GBP6.9 million of lettings currently under offer. Moreover, activity and pricing in central London's commercial property market remains robust for prime assets, offering potential opportunities for us to crystallise further surpluses through sales in the near term. Although we can expect some weakness in market rents and secondary yields during this period of uncertainty, demographic growth and the broad spread and depth of the capital's economic activity will help to cement its position as one of only a handful of truly global cities and Europe's business capital, generating demand for our brand of well designed, centrally located, high quality space. Additionally, we can look forward to Crossrail, Europe's largest infrastructure project, near to which 86% of our portfolio sits, opening in late 2018.
With a clear and focussed strategy, we look to our future with confidence; after more than four years of net sales, we have the financial strength to exploit any future market weakness; our investment portfolio is let off low average rents with plenty of near-term reversion to capture; our future development opportunities, covering 40% of our portfolio, are stronger than ever, including three potential starts in 2018; and, our first class, strengthened team is ready to capitalise on this period of uncertainty."
Contacts: Great Portland Estates plc +44 (0) 20 7647 3000 Toby Courtauld, Chief Executive Nick Sanderson, Finance Director Finsbury Group +44 (0) 20 7251 3801 James Murgatroyd Gordon Simpson The results presentation will be broadcast live at 9.00am today on: www.gpe.co.uk/investors/latest-results
A conference call facility will be available to listen to the presentation at 9.00am today on the following numbers:
UK: 0808 109 0700 (freephone)
International: +44 (0) 20 3003 2666
Disclaimer
This announcement contains 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 expressed or implied by such forward-looking statements.
Any forward-looking statements made by or on behalf of Great Portland Estates plc ("GPE") speak only as of the date they are made and no representation or warranty is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared. GPE does not undertake to update forward-looking statements to reflect any changes in GPE's expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.
Information contained in this announcement relating to the Company or its share price, or the yield on its shares, should not be relied upon as an indicator of future performance.
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Half Year Results
Our market
Introduction
Central London's commercial property markets have to date proven resilient in spite of the uncertain political and economic background. Business confidence surveys have recovered from immediate post-EU referendum lows and have stabilised in positive territory, although they remain subdued. Forecast levels of GDP continue to show modest levels of growth. However, there are clear signs of slowing consumer confidence, in part due to increased inflationary pressures and the recent increase in UK base interest rates. Furthermore, levels of political risk continue to be heightened following the summer's snap general election and we can expect confidence to remain low whilst the shape of our future trading arrangements with the EU remain unclear.
Against this unsettled backdrop, activity in London's commercial property markets was maintained over the last six months with healthy transaction levels in both the occupational and investment markets, supporting property valuations. In the near term, we expect the uncertain economic and political environment to weigh on rental levels and yields for secondary properties. However, we remain positive on the long-term prospects for London as a truly global city offering significant attractions for a diverse range of businesses and investors.
Lower but stable economic growth
UK GDP forecasts have decreased very marginally over the period with Oxford Economics forecasting annual GDP growth over the next three years of 1.5%, down from 1.6% in March. However, London is expected to continue to outperform the wider UK economy with annual GDP growth of 1.8% forecast over the next three years. Moreover, the most recent Deloitte UK CFO survey undertaken in September showed a small bounce in business confidence following the post-election drop over the summer, although the proportion of CFOs who think now is a good time to take risk onto their balance sheet still remains well below the long-term average.
Despite the lower economic growth outlook, London's population is forecast to continue growing and Oxford Economics forecast the creation of 115,000 new office-based jobs in inner London over the next five years (down from 129,000 at May 2017). Together, we expect lower levels of growth, combined with some businesses deferring investment decisions in the more uncertain environment, to have an adverse impact on our occupational markets, although relatively low vacancy rates and the limited supply of new space should provide some near-term mitigation.
The attractions of investing in central London real estate, particularly to the overseas buyer, remain intact with transaction volumes of GBP4.8 billion in the quarter to 30 September 2017, the second highest quarterly level for two years. Investor demand has largely been focussed at the prime end of the market, with strong liquidity particularly in large lot size City office properties. With the level of equity capital looking to invest in London remaining near record highs, prime office yields were unchanged over the period.
Occupational markets resilient
Over the six months to 30 September 2017, central London office take-up was 6.6 million sq ft, an increase of 4.7% on the preceding six months and 8.7% above the ten-year average of 6.1 million sq ft. Central London availability marginally reduced over the six months to 14.3 million sq ft at 30 September, down 0.4 million sq ft and below the ten-year average of 14.7 million sq ft. This has helped broadly maintain rental values and pre-letting activity across our markets. However, tenant incentives (including rent frees) have continued to rise, increasing by around one to two months over the period, and larger leasing transactions are typically taking longer to close.
In the central London office market as a whole, development completions in the six months to 30 September 2017 were 2.2 million sq ft, with an overall vacancy rate of 4.6%. However, in the core of the West End, the focus of our development activities, completions totalled only 42,000 sq ft in the six month period. This supply shortage has meant that occupiers have sought to secure space well in advance, with 45% of the 12.9 million sq ft of space under construction already pre-let or under offer. Looking ahead, the speculative development pipeline continues to moderate. In central London, we estimate that 10.6 million sq ft of new speculative space could be delivered over the five years to December 2021 of which only 1.7 million sq ft is in the West End core, equating to only 0.3 million sq ft per annum.
West End occupational market
Over the six months to 30 September 2017, West End office take-up was 2.7 million sq ft, up 30.0% on the preceding six months with current availability of 4.1 million sq ft, 0.8 million sq ft below the ten-year average. Vacancy rates remain low at 3.7% at September 2017, with grade A vacancy estimated by CBRE to be only 2.8%. Despite the relatively robust leasing market, CBRE reported that prime office rental values reduced by GBP5 per sq ft to GBP105 per sq ft over the last six months with rent frees increasing on average by around one month to 22-24 months on a ten year lease.
Whilst UK retail sales have come under pressure given the squeeze on consumer income, the West End retail market (where 30.5% of our West End portfolio by value is located) has continued to demonstrate relative strength. Over the six months, demand for well-configured units on London's prime retail streets remained healthy, with flagship stores an important part of an omni-channel offer. As a result, vacancy on Oxford Street, Regent Street and Bond Street remains low at c.4% with prime Zone A rents on Oxford Street and Bond Street stable at GBP1,000 per sq ft and GBP2,225 per sq ft respectively.
City, Midtown and Southbank occupational markets
Over the six months to 30 September 2017, the City leasing market has been trending in line with the ten-year average, with City office take-up at 2.5 million sq ft and availability increasing to 6.3 million sq ft. At 30 September, the amount of space under offer was 1.4 million sq ft, 21% above the 10-year average, suggesting a strong final leasing quarter for 2018. However, the City vacancy rate increased to 5.9% with grade A vacancy estimated by CBRE to be 4.1%, up from 3.9% at March. CBRE also reported that City prime rental values reduced marginally over the period to GBP69.50 per sq ft, from GBP70 per sq ft in March, whilst the rent free period on a ten-year lease increased by six weeks to 24 months.
Take up in Midtown and Southbank was strong, up 45.1% on the preceding six months at 1.3 million sq ft. CBRE reported that this strength, combined with a lack of new space, resulted in prime office rental values increasing to GBP80 and GBP65 per sq ft respectively. Rent frees remained largely unchanged at 22-24 months on average on a ten-year lease.
Investment market activity robust driven by overseas purchasers
The pickup in the investment market activity witnessed in the first quarter of 2017 has been maintained. The six months to September 2017 saw GBP7.9 billion of transactions, including a number of high profile, large scale purchases in the City. Interest from overseas investors continues to dominate, accounting for 83% of transactions over the last six months (and 94% over the last three months), as the low value of Sterling and London's safe haven status continued to attract international buyers, particularly from Asia and the Middle East.
We reported in May 2017 that we estimated GBP39.5 billion of equity capital was seeking to invest in commercial property across central London compared to only GBP5.3 billion of stock on the market available to buy. Today we estimate that there is currently GBP11.1 billion of stock on the market available to buy, whilst the weight of money seeking to invest remains high at GBP39.0 billion. With levels of equity demand at elevated levels and debt availability still good for prime quality assets and sponsors, investment yields for office properties remain unchanged. At 30 September 2017, prime yields were 3.75% and 4.00% in the West End and City respectively, according to CBRE.
Poor visibility on market outlook
Given the cyclical nature of our markets, we actively monitor numerous lead indicators to help identify key trends in our marketplace. Over the last six months, our property capital value indicators are largely unchanged and continue to provide limited market visibility. Investment activity in the central London commercial property market is healthy and the real yield spread over gilt yields remains supportive, however, we expect yields to increase for higher risk, more secondary properties. Furthermore, given lower forecast rates of economic growth and tempered business confidence, we do not expect significant rental value movements in the very near-term and we have upgraded our rental value growth range for the financial year to 31 March 2018 to +1.5% to minus 2.5% (see Asset Management below).
Our business
Our business is accompanied by graphics (see Appendix 1)
Development management
Since the start of the financial year, we have successfully completed one scheme and our two on-site committed schemes at Rathbone Square, W1 and 160 Old Street, EC1 (together 313,400 sq ft) are significantly de-risked (75.2% pre-sold or pre-let, increasing to 87.5% including space under offer) and on track for completion by the end of April 2018.
Looking forward, the Group's pipeline of future developments remains substantial, representing 40% of the Group's existing portfolio and providing development opportunities stretching into the 2020s. With the acquisition of Cityside House, E1, we have added to the near-term pipeline and now have three schemes that could start in the next nine months (totalling 414,000 sq ft), all of which are set to benefit from the opening of Crossrail in December 2018.
One development profitably completed
In November, we successfully completed 55 Wells Street, W1, delivering 37,300 sq ft of well-specified office and restaurant space in an attractive Fitzrovia location. We pre-let the 4,500 sq ft restaurant unit to Ottolenghi in June and early interest is encouraging in the 32,800 sq ft of Grade A office space which we expect to let on a floor-by-floor basis. The ERV of the office space was GBP2.6 million at 30 September 2017 and the scheme profit on cost was 15.8%.
Two committed schemes, substantially de-risked
At Rathbone Square, W1, having profitably forward sold the commercial element in February 2017, we settled the overage due to the Royal Mail Group over the summer and more recently handed over the completed garden square to Deka. Looking forward, we expect to achieve practical completion of the 142 private residential units by the end of November and we will commence handing over the 140 pre-sold apartments to the buyers early in the New Year, with the remaining 75% of the sale proceeds (approximately GBP196 million) expected to be collected by the end of the financial year. Whilst the entire Rathbone Square scheme in total delivered a whole life profit on cost in excess of 20%, the residential element is expected to deliver a small loss on cost of 1%.
At 160 Old Street, EC1, owned in our 50:50 joint venture with the BP Pension Fund, the construction works are progressing well and we are targeting completion of the 161,700 sq ft of high quality office, retail and restaurant space in April 2018. We have 57% of the building under offer (all office) and leasing interest in the remaining office space and retail units is strong. The scheme is expected to deliver a profit on cost of 14%.
At 30 September 2017, the three committed development schemes at that date (including 55 Wells Street, W1) were valued at GBP381.6 million (our share), with capital expenditure to come of GBP15.0 million on the two remaining committed schemes.
Three near-term schemes, all to benefit from Crossrail and with potential starts over next nine months
During the period, we have added to our near-term development pipeline which now comprises three schemes (414,000 sq ft), all with potential project starts over the next nine months.
Cityside House, E1 was acquired in June 2017 with an existing planning consent to add a further three floors to the building, increasing the net internal area by 22,200 sq ft to 76,500 sq ft. In addition, the site encompasses freehold land to the rear, part of which has a planning consent for 19,000 sq ft of development, comprising hotel and residential uses. Since acquisition, strip out and demolition works have commenced and we are actively seeking to improve both planning consents to enhance the quality of the space we can deliver on the site, with the expectation of commencing the redevelopment of the currently vacant Cityside House early in 2018. We will be targeting average office rents across the building of around GBP49 per sq ft, with delivery expected in 2019 following the opening of Whitechapel Crossrail station.
At Oxford House, 76 Oxford Street, W1, we have now submitted a planning application for a new build scheme to improve upon both the scale and quality of the building that could be delivered under our existing consent for a refurbishment. Our proposed new build scheme of around 116,500 sq ft comprises 78,100 sq ft of offices and 38,400 sq ft of retail, with the large modern retail units targeted to meet the strong occupier demand at the eastern end of Oxford Street given the opening of Crossrail in 2018. Subject to planning and neighbourly matters, we could commence on site in the first half of 2018 on exercise of our lease break options with the existing occupiers.
At Hanover Square, W1, we signed a phased access agreement with Crossrail in June to allow us to access the site to undertake further enabling works. The agreement also gives us the ability, should the market be supportive, to accelerate the construction programme such that we could commence the New Bond Street building in the first half of 2018, with the larger over station development following later in the year. Although we have not commenced marketing, we are encouraged by the occupier enquiries that we are already receiving for the office space (totalling 167,200 sq ft), the earliest possible delivery date for which is 2020. The development is owned by the GHS Partnership.
At 30 September 2017, the three near-term development properties were valued at GBP277.7 million (our share) and would require GBP233.3 million of capital expenditure to complete.
Substantial medium-term development pipeline
Beyond our near-term schemes, GPE's well-stocked development pipeline for the next cycle includes a further 13 uncommitted projects (1.3 million sq ft). These schemes include a number of exciting projects, including New City Court, SE1, in the London Bridge Quarter, where we hope to materially increase the size of the existing 97,800 sq ft building, and Mount Royal, W1, located at the western end of Oxford Street, where we are drawing up early plans to redevelop this two-acre site into a retail-led development scheme. All but one are income producing today, with an average lease length of 3.8 years, and they will provide the bedrock of our development activities for the next cycle.
Asset management
During the period, we have maintained our high level of leasing activity, both capturing significant reversion across the portfolio and leasing up our limited available space, together driving the Group's rent roll to record levels. Key highlights include:
-- 37 new leases were signed during the first half (2016: 21 leases), generating annual rent of GBP11.3 million (our share: GBP9.8 million; 2016: GBP9.4 million), with market lettings 2.4% above March 2017 ERVs;
-- 21 rent reviews securing GBP8.7 million (our share: GBP7.9 million; 2016: GBP3.3 million) of rent were settled during the half year, representing an annualised increase of GBP2.6 million per annum, or 42.9% above the previous passing rent and 8.7% above the ERV at the review date;
-- total space covered by new lettings, reviews and renewals during the first half was 310,200 sq ft (2016: 207,300 sq ft);
-- GBP3.1 million reversion captured (our share) in the six months to 30 September 2017, with a further reversionary potential of GBP20.2 million (17.0%) of which 67% is available in the next 18 months;
-- 91% (by area) of the 48 leases with breaks or expiries in the twelve months to 30 September 2017 were retained, re-let, under offer or under refurbishment, leaving only 9% still to transact; and
-- Group rent roll has increased by 8.8% since 31 March 2017 and 18.7% over the last twelve months to GBP119.2 million (2016: GBP100.4 million).
Key leasing transactions
The increased rent roll over the period was driven by a number of notable transactions, including:
-- at our completed development, 84/86 Great Portland Street, W1, we let the entirety of the 18,000 sq ft self-contained office space to a not-for-profit organisation at an annual rent of GBP1.2 million on a ten-year term (no breaks), 5.5% ahead of the March 2017 ERV;
-- at 200 Gray's Inn Road, WC1, where our refurbishment works on the ground and first floor continue, we let part of the 5th floor and 7th floor (23,400 sq ft) to Carlton Communications for a combined annual rent of GBP1.4 million (our share GBP0.7 million), in line with March 2017 ERV;
-- at 24/25 Britton Street, WC1, we settled a rent review with Kurt Geiger, capturing significant reversion, increasing the annual rent by GBP1.0 million to GBP2.5 million, an increase of 64% on the previous rent and 2.4% above ERV;
-- at New City Court, SE1, we settled a rent review with Sinclair Knight Merz (Europe) Limited on the 3rd and 4th floors, increasing the combined annual rent by GBP0.5 million to GBP1.6 million, an increase of 59% on the previous passing rent and 8.6% above ERV at the review date; and
-- at 30 Broadwick Street, W1, we let the first floor (14,600 sq ft) to BCG Digital Ventures (part of the Boston Consulting Group) who expanded their presence having secured the second floor in November 2016. The building is now 85% let with only one office floor remaining.
Lower vacancy rate
Overall, these asset management successes have helped reduce the Group's vacancy rate to 5.4% at 30 September 2017 (31 March 2017: 6.8%). At 30 September 2017, the average rent across our office portfolio was GBP52.80 per sq ft, up from GBP46.20 per sq ft at 30 September 2016.
The table below summarises our leasing transactions in the period:
Leasing Transactions Three months Six months Six months ended 30 ended 30 ended 30 September September September 2017 2017 2016 --------------------------- ------------- ----------- ----------- New leases and renewals completed Number 17 37 21 GPE share of rent GBP4.6 GBP9.8 GBP9.4 p.a. million million million Area (sq ft) 75,500 170,100 147,100 Rent per sq ft (including GBP71 GBP67 GBP67 retail) Rent reviews settled Number 11 21 10 GPE share of rent GBP4.1 GBP7.9 GBP3.3 p.a. million million million Area (sq ft) 72,100 140,100 60,200 Rent per sq ft (including GBP67 GBP62 GBP86 retail) ---------------------------- ------------- ----------- -----------
Note: Includes joint ventures at share
Good start to the second half of the year
Since 30 September 2017, our leasing momentum has been maintained:
-- We have completed 10 new leases generating GBP3.2 million (our share: GBP2.8 million) of annual rent (76,500 sq ft), with market lettings 6.0% ahead of March 2017 ERV; and
-- a further 130,650 sq ft of space is currently under offer which would deliver approximately GBP6.9 million p.a. in rent (our share: GBP4.4 million), market lettings in line with September 2017 ERVs.
Upgraded rental value guidance
Given our leasing successes over the period, and the resilience of the Group's ERVs, we now estimate that rental values across our office and retail portfolio will grow between +1.5% to minus 2.5% for the year ending 31 March 2018 (previously 0% to minus 7.5%).
Investment management
The weight of international capital looking to invest in London has remained at elevated levels during the first half of the financial year, supporting asset values across the capital. Moreover, we are yet to see many vendors become more realistic on pricing, particularly for riskier assets. As a result, attractive acquisition opportunities have been limited with one purchase by the Group during the period.
One acquisition in first half of the year, adding to the near-term development pipeline
In June 2017, we acquired the freehold of land and buildings including Cityside House and Challenger House, 40/42 Adler Street and 2/8 Whitechapel Road, London E1 from Hermes Investment Management for GBP49.6 million, or GBP320 per sq ft on the consented space. The 1.1 acre site sits between Aldgate East underground station to the west and Whitechapel station to the east and consists of:
-- Challenger House - a freehold interest in a five-storey hotel, leased to Qbic Hotels for a further 21 years at a rent of GBP1.4 million p.a., with CPI linked five yearly reviews, capped and collared at 2% - 4% p.a.. The hotel trades from 171 bedrooms with a public restaurant;
-- Cityside House - a freehold interest in a five-storey, 54,300 sq ft office building. The property is currently unoccupied and has planning consent for an additional three floors; and
-- Development sites - freehold land to the rear of Cityside House, part of which has a planning consent for 19,000 sq ft of development, comprising hotel and residential uses.
This acquisition represents an exciting opportunity to augment our near-term development programme with a well-designed, cost effective and prominent office building in the heart of Whitechapel, supported by a long-term income stream from Qbic Hotels, and further development sites. In addition, Whitechapel is set to benefit from significant further regeneration, including its new Crossrail station opening in late 2018.
In the period, we also enhanced our ownership at City Tower, 40 Basinghall Street, EC2 by extending our leasehold interest to 125 years.
GBP10.1 million of disposals, 6% premium to book value
During the period, we continued to take advantage of supportive market conditions with a number of smaller asset sales. In June 2017, we sold 48 Broadwick Street, W1, a small residential building in Soho for GBP4.3 million, equating to GBP1,463 per sq ft and in September 2017 we sold 42/44 Mortimer Street, W1 for GBP4.8 million, reflecting a net initial yield to the buyer of 3.85%.
We also disposed of the final residual buildings in the Great Wigmore Partnership, our joint venture with Aberdeen Asset Management, for a combined price of GBP2.0 million (our share: GBP1.0 million), bringing a successful conclusion to the Partnership's activities.
Likely net seller in second half of the year
With investment pricing remaining strong and prime yields trending flat, we will continue to explore opportunities to crystallise further surpluses from the 19% of the portfolio that comprises long-let, well-located prime assets which continue to see demand from international capital. As a result, we currently have around GBP400 million of property in the market to sell and expect to be a net seller over the remainder of the financial year, particularly when also factoring in the expected completion of the residential sales at Rathbone Square, W1, where 140 of the private units are already pre-sold.
Valuation
Valuation is accompanied by graphics (see Appendix 2)
The valuation of the Group's properties was GBP3,277.8 million as at 30 September 2017, reflecting a valuation increase of 1.0% on a like-for-like basis since 31 March 2017. At 30 September 2017, the wholly-owned portfolio was valued at GBP2,682.9 million and the Group had three active joint ventures which owned properties valued at GBP594.9 million (our share) by CBRE.
The key drivers behind the Group's valuation movement for the six-month period were:
-- yield contraction - equivalent yields reduced by 4 basis points over the period. At 30 September 2017, the portfolio true equivalent yield was 4.5%;
-- rental value increase - since the start of the financial year, rental values have increased by 0.7%, with office and retail rental values rising by 0.5% and 1.7% respectively. At 30 September 2017, the portfolio was 17.0% reversionary;
-- intensive asset management - during the period, 58 new leases, rent reviews and renewals were completed, securing GBP17.7 million (our share) of annual income which helped to support the valuation over the period; and
-- development and trading properties - the valuation of current development and trading properties increased by 1.6% to GBP381.6 million.
Including rent from pre-lets and leases currently in rent free periods, the adjusted initial yield of the investment portfolio at 30 September 2017 was 3.8%, 30 basis points higher than at the start of the financial year.
Our West End investment portfolio produced the most robust performance by geographic sector over the period, increasing in value by 1.0% on a like-for-like basis, in part driven by our leasing activity as set out above. Our City, Midtown and Southbank properties increased by 0.9%. Our joint venture properties increased in value by 1.7% over the period while the wholly-owned portfolio increased by 0.9% on a like-for-like basis.
The Group delivered a total property return (TPR) for the six months to 30 September 2017 of 2.4% (2016: -2.2%), compared to the Central London IPD quarterly benchmark of 4.5%, and a capital return of 1.0% (versus 2.9% for IPD).
Our financial results
Our financial results are accompanied by graphics, see Appendix 3, and details on our approach to risk are set out in Appendix 1
We calculate adjusted net assets and earnings per share in accordance with the Best Practice Recommendations issued by the European Public Real Estate Association (EPRA). The recommendations are designed to make the financial statements of public real estate companies clearer and more comparable across Europe enhancing the transparency and coherence of the sector. We consider these standard metrics to be the most appropriate method of reporting the value and performance of the business and a reconciliation to the IFRS numbers is included in note 8 to the accounts.
EPRA NAV growth of 1.8%
EPRA net assets per share (NAV) at 30 September 2017 was 813 pence per share, an increase of 1.8% over the last six months, largely due to the 1.0% like-for-like increase in value of the property portfolio. The main drivers of the 14 pence per share increase in NAV from 31 March 2017 were:
-- the increase of 8 pence per share arising from the revaluation of the property portfolio. Of this amount, development and trading properties increased NAV by around 2 pence;
-- EPRA earnings for the period of 10 pence per share enhanced NAV; -- the prepayment of US private placement notes reduced NAV by 4 pence per share; -- the final dividend of 6 pence per share reduced NAV;
-- the special dividend of 32.15 pence per share and the associated 19 for 20 share consolidation increased NAV by 8 pence per share; and
-- other movements reduced NAV by 2 pence per share.
EPRA NAV growth of 1.8%, combined with the payment of last year's final dividend of 6.4 pence per share, delivered a total accounting return for the six months to 30 September 2017 of 2.6%.
At 30 September 2017, the Group's net assets were GBP2,634.8 million, down from GBP2,738.4 million at 31 March 2017, with the reduction largely attributable to the special dividend (totalling GBP110 million) paid during the period. EPRA triple net assets per share (NNNAV) was 804 pence at 30 September 2017 compared to 782 pence at 31 March 2017 (up 2.8%). At the period end, the difference between NAV and NNNAV was the net impact of the mark to market of debt of 9 pence per share, mainly arising from the Group's 2029 debenture (coupon of 5.63%). There was a GBP2.5 million increase in deferred tax assets during the period.
EPRA earnings growth of 11.7%
EPRA earnings were GBP31.6 million, 11.7% higher than for the same period last year, predominantly due to our leasing activities driving rental income growth.
Rental income from wholly-owned properties was GBP44.7 million, up GBP6.4 million or 16.7% on last year, principally as a result of new lettings at recently completed developments, including 30 Broadwick Street, W1, and the successful settlement of a large number of rent reviews capturing significant reversionary potential. Joint venture fees were GBP1.1 million, down GBP0.5 million on last year due to lower levels of transaction activity in the joint ventures. Taken together, rental income from wholly-owned properties and joint venture fees totalled GBP45.8 million, up 14.8% on the prior period. Adjusting for acquisitions, disposals and transfers to and from the development programme, like-for-like rental income (including from joint venture properties) increased 5.7% on the prior period.
Property expenses increased by GBP0.5 million to GBP3.7 million, principally due to increased costs associated with our leasing initiatives and higher service charge costs. Administration costs were GBP11.9 million, an increase of GBP1.4 million, primarily as a result of higher provisions for performance related pay (including share incentive plans) and lower capitalised employee costs reflecting the reduced number of committed developments.
EPRA pro ts from joint ventures (excluding fair value movements) were GBP1.0 million, down from GBP1.2 million last year predominantly due to reduced sales activity in the joint ventures.
Gross interest paid on our debt facilities was GBP4.8 million lower than the prior period. The reduction in interest paid was predominantly due to the redemption of GBP287.5 million of US private placement notes paying a blended coupon of 5.0%, offset by the new issue in May 2017 of GBP175 million seven-year US private placement notes with a fixed rate coupon of only 2.15%.
We capitalised interest of GBP4.5 million (2016: GBP10.4 million) during the period, a GBP5.9 million reduction on the prior year reflecting our reduced development exposure as we have completed or forward sold major development schemes. As a result, the Group had underlying net nance income (including interest receivable on joint ventures balances) of GBP0.7 million (2016: GBP0.9 million income).
Revaluation gains together with increased underlying earnings resulted in an accounting profit after tax of GBP25.3 million (2016: loss of GBP62.8 million). The basic earnings per share for the period was 7.7 pence, compared to an 18.4 pence loss for 2016. The diluted earnings per share for the period was 5.7 pence compared to 19.9 pence per share loss for 2016. Diluted EPRA earnings per share was 9.6 pence (2016: 8.3 pence), an increase of 15.7%, and cash earnings per share was 7.2 pence (2016: 4.6 pence)
Results of joint ventures
The Group's net investment in joint ventures was GBP508.0 million, an increase from GBP480.8 million at 31 March 2017, largely due to the increase in value of the property portfolio and an increase in partner loan contributions to fund development expenditure. Our share of joint venture net rental income was GBP8.6 million, down GBP0.3 million on last year as a result of property sales offset by positive asset management activity. The underlying joint venture pro ts are stated after charging GBP1.1 million of GPE management fees (2016: GBP1.6 million).
Overall, our three active joint ventures represent an important proportion of the Group's business. At 30 September 2017, joint ventures made up 18.2% of the portfolio valuation, 19.3% of net assets and 16.5% of rent roll (31 March 2017: 18.0%, 17.5% and 16.8% respectively).
Strong financial position
Group consolidated net debt was GBP514.6 million at 30 September 2017, up from GBP502.8 million at 31 March 2017 (30 September 2016: GBP738.5 million). The increase was due to the payment of the special dividend, development capital expenditure and the acquisition of Cityside House and Challenger House more than offsetting receipts (including deferred receipts) from property sales. Group gearing increased to 19.5% at 30 September 2017 (31 March 2017: 18.4%) due to higher levels of on-balance sheet debt more than offsetting the increase in the portfolio value. Including the non-recourse debt in the joint ventures, total net debt was GBP587.0 million (31 March 2017: GBP576.8 million) equivalent to a loan to property value of 17.9% (31 March 2017: 18.3%). The proportion of the Group's total net debt represented by our share of joint venture net debt was 12.3% at 30 September 2017. At 30 September 2017, the Group, including our share of joint ventures, had cash and undrawn committed credit facilities of GBP415 million.
Pro forma for the receipt of remaining deferred consideration (GBP82.3 million) on property sales (including the commercial element of Rathbone Square, W1 and 73/89 Oxford Street, both W1), the Group's loan to property value is 15.4%, with cash and undrawn facilities rising to GBP497 million.
The Group's weighted average cost of debt, including fees and joint venture debt, for the period was 3.3%, 70 basis points lower than at 31 March 2017 due to the repayment and new issue of private placement notes at a lower coupon rate as mentioned above. The weighted average interest rate (excluding fees) at the period end was 2.7% (31 March 2017: 3.0%). At 30 September 2017, 59% of the Group's total drawn debt (including non-recourse joint venture debt) was provided on an unsecured basis (31 March 2017: 63%) and 92% was from non-bank sources (31 March 2017: 75%).
At 30 September 2017, 90% of the Group's total drawn debt (including non-recourse joint ventures) was at fixed or hedged rates (31 March 2017: 82%). Due to the treatment of capitalised interest under our Group covenants, there is no net interest charge in the period applicable for the purposes of calculating our net interest cover ratio (31 March 2017: n/a). Without the benefit of interest capitalised, net interest cover over the last twelve months would be very healthy at more than five times. Our weighted average drawn debt maturity was 5.7 years at 30 September 2017 (31 March 2017: 5.1 years).
100% rent collection and robust tenant base
The quarterly cash collection performance has continued to be very strong throughout 2017. We secured a record 100.0% of rent due within seven working days following the September quarter day, improving on the March (99.4%) and June (99.8%) quarters earlier this year. Tenants on monthly payment terms represent around 3.1% of our rent roll (30 September 2016: 3.6%). We had two small tenant delinquencies in the first half of the six month period (0.1% of rent roll); and we remain vigilant regularly monitoring the financial position of our tenants. In addition, we have further protection from any tenant defaults with GBP34.2 million of rent deposits and bank guarantees, representing around 29% of rent roll.
Taxation
The tax credit in the income statement for the half year was GBP2.5 million (2016: GBP0.1 million charge) and comprises solely deferred tax (principally in respect of revenue losses). The underlying effective tax rate was 0% (2016: 0%) as a result of the tax free nature of much of the Group's income, and other allowances being available to set against non-REIT profits.
In general, as a REIT, the Group is broadly exempt from corporation tax in respect of its rental profits and chargeable gains relating to its property rental business but is otherwise subject to corporation tax. In particular, the Group is subject to corporation tax in respect of (i) any profits arising on the sale of trading properties and (ii) any gains arising on the sale of development properties which are sold within three years of completion of the development.
Dividend growth and share consolidation
Following receipt of the majority of the sales proceeds from the disposal of Rathbone Square, W1, the whole life surplus from the development of approximately GBP110.0 million was returned to shareholders by way of a special dividend on 30 May 2017. The special dividend was accompanied by a 19 for 20 share consolidation of the Company's ordinary share capital. This special dividend along with the final dividend from the year ended 31 March 2017, together totalling GBP130.8 million, are included within the Group Statement of Changes in Equity for the period.
The Board has declared an interim ordinary dividend of 4.0 pence per share (2016: 3.7 pence) which will be paid on 2 January 2018. All of this dividend will be a REIT Property Income Distribution (PID) in respect of the Group's tax-exempt property rental business.
Condensed group income statement
For the six months ended 30 September 2017
Six Six Year months months to to to 31 30 30 March September September 2017 2017 2016 Audited Unaudited Unaudited GBPm Notes GBPm GBPm ------------ ----------------------------------------- ----- ---------- ---------- 121.9 Total revenue 2 65.4 57.4 ------------ ----------------------------------------- ----- ---------- ---------- 80.2 Net rental income 3 44.7 38.3 4.1 Joint venture fee income 11 1.1 1.6 ------------ ----------------------------------------- ----- ---------- ---------- Rental and joint venture fee 84.3 income 45.8 39.9 (7.3) Property expenses 4 (3.7) (3.2) 77.0 Net rental and related income 42.1 36.7 (20.1) Administrative expenses (11.9) (10.5) ------------ ---------- ---------- 25.2 Development management revenue 12.6 10.5 (25.2) Development management costs (12.9) (10.5) ------------ ---------- ---------- - (0.3) - Trading property - cost of (0.3) sales (0.1) (0.3) ------------ ---------- ---------- Operating profit before surplus/(deficit) on investment property and 56.6 results of joint ventures 29.8 25.9 Surplus/(deficit) from investment (136.9) property 9 16.9 (90.3) (57.2) Share of results of joint ventures 11 11.2 (37.9) (137.5) Operating profit/(loss) 57.9 (102.3) 9.0 Finance income 5 5.2 4.3 (9.2) Finance costs 6 (4.5) (3.4) Premium paid on cancellation (51.5) of private placement notes 15 (36.6) - Fair value movement on convertible 10.1 bond 6.2 10.3 38.9 Fair value movement on derivatives (5.4) 28.4 (140.2) Profit/(loss) before tax 22.8 (62.7) 0.8 Tax 7 2.5 (0.1) ------------ ----------------------------------------- ----- ---------- ---------- (139.4) Profit/(loss) for the period 25.3 (62.8) ------------ ----------------------------------------- ----- ---------- ---------- All results are derived from continuing operations in the United Kingdom. (40.8)p Basic earnings/(loss) per share 8 7.7p (18.4)p
------------ ----------------------------------------- ----- ---------- ---------- Diluted earnings/(loss) per (40.8)p share 8 5.7p (19.9)p ------------ ----------------------------------------- ----- ---------- ---------- 17.3p EPRA EPS 8 9.6p 8.3p ------------ ----------------------------------------- ----- ---------- ---------- 17.3p Diluted EPRA EPS 8 9.6p 8.3p ------------ ----------------------------------------- ----- ---------- ----------
Condensed group statement of comprehensive income
For the six months ended 30 September 2017
Six Year months ended to Six months 31 30 to March September 30 September 2017 2017 2016 Audited Unaudited Unaudited GBPm GBPm GBPm -------- ------------------------------------ ---------- ------------- (139.4) Profit/(loss) for the period 25.3 (62.8) Items that will not be reclassified subsequently to profit and loss: Actuarial gain/(deficit) on defined (3.6) benefit scheme 1.1 (4.8) Total comprehensive income/(expense) (143.0) for the period 26.4 (67.6) -------- ------------------------------------ ---------- -------------
Condensed group balance sheet
At 30 September 2017
As at As at As at 30 31 March 30 September September 2017 2017 2016 Audited Unaudited Unaudited GBPm Notes GBPm GBPm --------- ------------------------------------- ----- ------------- ---------- Non-current assets 2,351.9 Investment property 9 2,448.6 2,957.3 480.8 Investment in joint ventures 11 508.0 510.6 5.1 Plant and equipment 12 4.9 3.8 2.0 Deferred tax 7 4.5 1.2 --------- ------------------------------------- ----- ------------- ---------- 2,839.8 2,966.0 3,472.9 --------- ------------------------------------- ----- ------------- ---------- Current assets 246.7 Trading property 10 262.2 232.1 351.8 Trade and other receivables 13 91.0 61.8 1.0 Corporation tax 0.6 0.9 25.5 Cash and cash equivalents 13.8 9.0 --------- ------------------------------------- ----- ------------- ---------- 625.0 367.6 303.8 --------- ------------------------------------- ----- ------------- ---------- 3,464.8 Total assets 3,333.6 3,776.7 --------- ------------------------------------- ----- ------------- ---------- Current liabilities (147.0) Trade and other payables 14 (121.7) (150.1) - Interest-bearing loans and borrowings 15 (153.2) - --------- ------------------------------------- ----- ------------- ---------- (147.0) (274.9) (150.1) --------- ------------------------------------- ----- ------------- ---------- Non-current liabilities (537.7) Interest-bearing loans and borrowings 15 (378.4) (756.7) (35.9) Obligations under finance leases (40.7) (35.9) (5.8) Pension liability (4.8) (7.2) --------- ------------------------------------- ----- ------------- ---------- (579.4) (423.9) (799.8) --------- ------------------------------------- ----- ------------- ---------- (726.4) Total liabilities (698.8) (949.9) --------- ------------------------------------- ----- ------------- ---------- 2,738.4 Net assets 2,634.8 2,826.8 --------- ------------------------------------- ----- ------------- ---------- Equity 43.0 Share capital 16 43.0 43.0 352.0 Share premium account 352.0 352.0 16.4 Capital redemption reserve 16.4 16.4 2,330.8 Retained earnings 2,227.0 2,418.9 (3.8) Investment in own shares 17 (3.6) (3.5) --------- ------------------------------------- ----- ------------- ---------- 2,738.4 Total equity 2,634.8 2,826.8 --------- ------------------------------------- ----- ------------- ---------- 796p Net assets per share 8 806p 822p --------- ------------------------------------- ----- ------------- ---------- 799p EPRA NAV 8 813p 813p --------- ------------------------------------- ----- ------------- ----------
Condensed group statement of cash flows
For the six months ended 30 September 2017
Year Six months Six months to to to 31 March 30 September 30 September 2017 2017 2016 Audited Unaudited Unaudited GBPm Notes GBPm GBPm --------- ---------------------------------------- ----- ------------- ------------- Operating activities (137.5) Operating profit/(loss) 57.9 (102.3) 192.4 Adjustments for non-cash items 18 (29.6) 128.5 Deposits received on forward 8.8 sale of residential units 0.5 5.9 (75.0) Development of trading property (12.5) (49.7) (12.7) (Increase)/decrease in receivables (5.8) 0.8 (5.4) Increase/(decrease) in payables 5.3 (4.1) --------- ---------------------------------------- ----- ------------- ------------- Cash generated/(absorbed) by (29.4) operations 15.8 (20.9) (29.0) Interest paid (8.4) (13.7) 0.1 Tax received 0.4 - Cash inflow/(outflow) from operating (58.3) activities 7.8 (34.6) --------- ---------------------------------------- ----- ------------- ------------- Investing activities 56.2 Distributions from joint ventures 8.4 23.6 (187.3) Purchase and development of property (107.7) (145.1) (4.9) Purchase of plant and equipment (0.2) (3.0) 346.5 Sale of properties 243.0 26.7 (6.7) Investment in joint ventures (4.1) (4.0) Cash inflow/(outflow) from investing 203.8 activities 139.4 (101.8) --------- ---------------------------------------- ----- ------------- ------------- Financing activities 109.0 Revolving credit facility (repaid)/drawn (47.0) 169.0 - Issue of private placement notes 174.1 - Redemption of private placement (159.7) notes (127.7) - Premium paid on redemption of (51.5) private placement notes (36.6) - Termination of cross currency 34.7 swaps 23.1 - (33.6) Funds to joint ventures (15.1) (18.1) (31.6) Equity dividends paid (129.7) (18.2) --------- ---------------------------------------- ----- ------------- -------------
Cash (outflow)/inflow from financing (132.7) activities (158.9) 132.7 --------- ---------------------------------------- ----- ------------- ------------- Net (decrease)/increase in cash 12.8 and cash equivalents (11.7) (3.7) Cash and cash equivalents at 12.7 1 April 25.5 12.7 --------- ---------------------------------------- ----- ------------- ------------- Cash and cash equivalents at 25.5 balance sheet date 13.8 9.0 --------- ---------------------------------------- ----- ------------- -------------
Condensed group statement of changes in equity
For the six months ended 30 September 2017 (unaudited)
Share Capital Investment Share premium redemption Retained in own Total capital account reserve earnings shares equity GBPm GBPm GBPm GBPm GBPm GBPm ------------------------------------------ --------- --------- ----------- --------- ------------ ------- Total equity at 1 April 2017 43.0 352.0 16.4 2,330.8 (3.8) 2,738.4 Profit for the period - - - 25.3 - 25.3 Actuarial gain on defined benefit scheme - - - 1.1 - 1.1 ------------------------------------------- --------- --------- ----------- --------- ------------ ------- Total comprehensive income for the period - - - 26.4 - 26.4 ------------------------------------------- --------- --------- ----------- --------- ------------ ------- Employee Long-Term Incentive Plan and Share Matching Plan charge - - - - 0.8 0.8 Transfer to retained earnings - - - 0.6 (0.6) - Dividends to shareholders - - - (130.8) - (130.8) ------------------------------------------- --------- --------- ----------- --------- ------------ ------- Total equity at 30 September 2017 43.0 352.0 16.4 2,227.0 (3.6) 2,634.8 ------------------------------------------- --------- --------- ----------- --------- ------------ -------
Condensed group statement of changes in equity
For the six months ended 30 September 2016 (unaudited)
Share Capital Investment Share premium redemption Retained in own Total capital account reserve earnings shares equity GBPm GBPm GBPm GBPm GBPm GBPm -------------------------------------- --------- --------- ----------- --------- ------------ ------- Total equity at 1 April 2016 43.0 352.0 16.4 2,509.9 (9.1) 2,912.2 Loss for the period - - - (62.8) - (62.8) Actuarial deficit on defined benefit scheme - - - (4.8) - (4.8) --------------------------------------- --------- --------- ----------- --------- ------------ ------- Total comprehensive expense for the period - - - (67.6) - (67.6) --------------------------------------- --------- --------- ----------- --------- ------------ ------- Employee Long-Term Incentive Plan and Share Matching Plan charge - - - - 1.3 1.3 Transfer to retained earnings - - - (4.3) 4.3 - Dividends to shareholders - - - (19.1) - (19.1) --------------------------------------- --------- --------- ----------- --------- ------------ ------- Total equity at 30 September 2016 43.0 352.0 16.4 2,418.9 (3.5) 2,826.8 --------------------------------------- --------- --------- ----------- --------- ------------ -------
Condensed group statement of changes in equity
For the year ended 31 March 2017 (audited)
Share Capital Investment Share premium redemption Retained in own Total capital account reserve earnings shares equity GBPm GBPm GBPm GBPm GBPm GBPm -------------------------------------------- --------- --------- ----------- --------- ---------- ------- Total equity at 1 April 2016 43.0 352.0 16.4 2,509.9 (9.1) 2,912.2 Loss for the year - - - (139.4) - (139.4) Actuarial deficit on defined benefit scheme - - - (3.6) - (3.6) -------------------------------------------- --------- --------- ----------- --------- ---------- ------- Total comprehensive expense for the year - - - (143.0) - (143.0) -------------------------------------------- --------- --------- ----------- --------- ---------- ------- Employee Long-Term Incentive Plan and Share Matching Plan charge - - - - 1.0 1.0 Transfer to retained earnings - - - (4.3) 4.3 - Dividends to shareholders - - - (31.8) - (31.8) Total equity at 31 March 2017 43.0 352.0 16.4 2,330.8 (3.8) 2,738.4 -------------------------------------------- --------- --------- ----------- --------- ---------- -------
Condensed notes forming part of the half year results
1 Basis of preparation
The information for the year ended 31 March 2017 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.
The annual financial statements of Great Portland Estates plc are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting, as adopted by the European Union. The same accounting policies, presentation and methods of computation are followed and there have been no changes in the nature of the Significant Judgements and Key Sources of Estimation Uncertainty in the condensed set of financial statements to those applied in the Group's latest annual audited financial statements. The Group's performance is not subject to seasonal fluctuations.
The directors do not expect that the adoption of the new and revised IFRSs that have been issued but are not yet effective will have a material impact on the financial statements of the Group in future periods, except that IFRS 9 will impact both the measurement and disclosures of financial instruments, IFRS 16 will require the Group to include its limited lease liabilities and associated right of use assets onto its balance sheet and IFRS 15 may have an impact on revenue recognition and related disclosures. Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these new standards until a detailed review is complete.
Going concern
Details of the market in which the Group operates, together with factors likely to affect its future development and performance, are set out in the "Our market" and "Our business" sections of this report. The financial position of the Group, its liquidity position and borrowing facilities are described in "Our financial results" and in the notes of the half year results.
The Directors have reviewed the current and projected financial position of the Group, making reasonable assumptions about future trading performance. After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half year results.
2 Total revenue
Six Year months Six months to to 30 to 31 March September 30 September 2017 2017 2016 GBPm GBPm GBPm --------- ------------------------------ ---------- ------------- 77.7 Gross rental income 42.1 37.6 3.1 Spreading of lease incentives 3.1 1.0 11.8 Service charge income 6.5 6.7 4.1 Joint venture fee income 1.1 1.6 25.2 Development management revenue 12.6 10.5 121.9 65.4 57.4 --------- ------------------------------ ---------- -------------
3 Net rental income
Six Six months months Year to to to 30 30 31 March September September 2017 2017 2016 GBPm GBPm GBPm --------- ----------------------------- ---------- ---------- 77.7 Gross rental income 42.1 37.6 3.1 Spreading of lease incentives 3.1 1.0 (0.6) Ground rent (0.5) (0.3) 80.2 44.7 38.3 --------- ----------------------------- ---------- ----------
4 Property expenses
Six months Year Six months to to to 30 31 March 30 September September 2017 2017 2016 GBPm GBPm GBPm --------- ----------------------- ------------- ---------- (11.8) Service charge income (6.5) (6.7) 13.9 Service charge expenses 7.9 7.6 5.2 Other property expenses 2.3 2.3 --------- ----------------------- ------------- ---------- 7.3 3.7 3.2 --------- ----------------------- ------------- ----------
5 Finance income
Six months Year Six months to to to 30 31 March 30 September September 2017 2017 2016 GBPm GBPm GBPm --------- ----------------------------------------- ------------- ---------- 9.0 Interest income on joint venture balances 5.2 4.3 9.0 5.2 4.3 --------- ----------------------------------------- ------------- ----------
6 Finance costs
Six months Year Six months to to to 30 31 March 30 September September 2017 2017 2016 GBPm GBPm GBPm --------- ---------------------------------------- ------------- ---------- 3.3 Interest on revolving credit facilities 1.4 1.6 12.9 Interest on private placement notes 1.9 6.4 8.0 Interest on debenture stock 4.0 4.0 1.5 Interest on convertible bond 0.8 0.8 Interest on obligations under finance 1.8 leases 0.9 1.0 27.5 Gross finance costs 9.0 13.8 Less: capitalised interest at an average (18.3) interest cost of 3.3% (2016: 3.9%) (4.5) (10.4) --------- ---------------------------------------- ------------- ---------- Finance costs before finance income 9.2 and fair value movements 4.5 3.4 --------- ---------------------------------------- ------------- ----------
7 Tax
Six months Year Six months to to to 30 31 March 30 September September 2017 2017 2016 GBPm GBPm GBPm --------- ----------------------------------- ------------- ---------- Current tax - UK corporation tax - current period - - (0.1) UK corporation tax - prior periods - - --------- ----------------------------------- ------------- ---------- (0.1) Total current tax - - (0.7) Deferred tax (2.5) 0.1 (0.8) Tax (credit)/charge for the period (2.5) 0.1 --------- ----------------------------------- ------------- ----------
The difference between the standard rate of tax and the effective rate of tax arises from the items set out below:
Six months Year Six months to to to 30 31 March 30 September September 2017 2017 2016 GBPm GBPm GBPm --------- ---------------------------------------- ------------- ---------- (140.2) Profit/(loss) before tax 22.8 (62.7) --------- ---------------------------------------- ------------- ---------- Tax charge/(credit) on profit/(loss) (28.0) at standard rate of 19% (2016: 20%) 4.3 (12.5) Changes in the fair value of properties, 32.8 not subject to tax (5.7) 25.3 Changes in the fair value of financial (2.9) instruments, not subject to tax 4.2 (7.7) REIT tax-exempt rental income and (4.0) gains (5.2) (5.6) (0.1) Prior periods' corporation tax - - 1.4 Other (0.1) 0.6 (0.8) Tax (credit)/charge for the period (2.5) 0.1 --------- ---------------------------------------- ------------- ----------
The Group's deferred tax assets and liabilities have been calculated using tax rates that have been enacted or substantively enacted at the balance sheet date and are expected to apply when the liability is settled or the asset is realised.
During the period GBPnil (2016: GBPnil) of deferred tax was credited directly to equity. The Group's net deferred tax at 30 September 2017 was an asset of GBP4.5 million (2016: GBP1.2 million). This consists of a deferred tax liability of GBP2.8 million (2016: GBPnil) and deferred tax assets of GBP7.3 million (2016: GBP1.2 million).
Movement in deferred tax:
Recognised At in the 1 April income At 30September 2017 statement 2017 GBPm GBPm GBPm ----------------------------------------- -------- ---------- -------------- Deferred tax liability in respect of GBP150 million 1.00% convertible bonds 2018 (2.8) - (2.8) Deferred tax asset in respect of revenue losses 4.0 2.6 6.6 Deferred tax asset in respect of other temporary differences 0.8 (0.1) 0.7 Net deferred tax asset 2.0 2.5 4.5 ----------------------------------------- -------- ---------- --------------
A further deferred tax asset of GBP2.8 million, mainly relating to revenue losses, the pension liability and contingent share awards was not recognised because it is uncertain whether future taxable profits will arise against which this asset can be utilised.
As a REIT, the Group is largely exempt from corporation tax in respect of its rental profits and chargeable gains relating to its property rental business. The Group is otherwise subject to corporation tax. In particular, the Group's REIT exemption does not extend to either profits arising from the sale of investment properties in respect of which a major redevelopment has completed within the preceding three years or profits arising from trading properties (including the sale of the residential units at Rathbone Square, W1).
In order to ensure that the Group is able to both retain its status as a REIT and to avoid financial charges being imposed, a number of tests (including a minimum distribution test) must be met by both Great Portland Estates plc and by the Group as a whole on an ongoing basis. These conditions are detailed in the Corporation Tax Act 2010.
8 Performance measures and EPRA metrics
Adjusted earnings and net assets per share are calculated in accordance with the Best Practice Recommendations issued by the European Public Real Estate Association (EPRA). The recommendations are designed to make the financial statements of public real estate companies clearer and more comparable across Europe enhancing the transparency and coherence of the sector. The directors consider these standard metrics to be the most appropriate method of reporting the value and performance of the business.
Weighted average number of ordinary shares
Year Six months Six months to to to 31 March 30 September 30 September 2017 2017 2016 No. No. of No. of shares shares of shares ----------- ----------------------------------- ------------- ------------- Issued ordinary share capital 343,926,149 at 1 April 343,926,149 343,926,149 - Share consolidation (12,755,495) - (1,933,616) Investment in own shares (1,538,561) (2,073,445) ----------- ----------------------------------- ------------- ------------- Weighted average number of ordinary 341,992,533 shares - basic 329,632,093 341,852,704 ----------- ----------------------------------- ------------- -------------
Basic and diluted earnings per share
Six Six Six Six Six Six Year months months months months months months to to 30 to 30 to 30 to 30 to 30 to 30 31 March September September September September September September 2017 2017 2017 2017 2016 2016 2016 Loss Profit No. Earnings Loss No. Loss per after of per after of per share tax shares share tax shares share pence GBPm million pence GBPm million pence --------- ------------------ ---------- ---------- ---------- ---------- ---------- ---------- (40.8) Basic 25.3 329.6 7.7 (62.8) 341.9 (18.4) Dilutive effect of - LTIP shares - - - - 0.6 - Dilutive effect of - convertible bond (5.4) 20.7 (2.0) (9.5) 21.0 (1.5) --------- ------------------ ---------- ---------- ---------- ---------- ---------- ---------- (40.8) Diluted 19.9 350.3 5.7 (72.3) 363.5 (19.9) --------- ------------------ ---------- ---------- ---------- ---------- ---------- ----------
EPRA Earnings per share
Six Six Six Six Six Six Year months months months months months months to to 30 to 30 to 30 to 30 to 30 to 30 31 March September September September September September September 2017 2017 2017 2017 2016 2016 2016 (Loss)/earnings Profit/(loss) No. Earnings/(loss) (Loss)/profit No. (Loss)/earnings per after of per after of per share tax shares share tax shares share pence GBPm million pence GBPm million pence --------------- ----------------- ------------- --------- --------------- ------------- --------- --------------- (40.8) Basic 25.3 329.6 7.7 (62.8) 341.9 (18.4) (Surplus)/deficit from investment 40.1 property (16.9) - (5.1) 90.3 - 26.4 (Surplus)/deficit from joint venture investment 17.4 property (9.7) - (2.9) 38.3 - 11.2 Premium paid on cancellation of private placement 15.1 notes 36.6 - 11.1 - - - Movement in fair value of (11.4) derivatives 5.4 - 1.6 (28.4) - (8.3) Movement in fair value of convertible (3.0) bond (6.2) - (1.9) (10.3) - (3.0) Movement in fair value of derivatives - in joint ventures (0.5) - (0.1) 0.8 - 0.3 Trading property 0.1 - costs of sale 0.1 - - 0.3 - 0.1 (0.2) Deferred taxation (2.5) - (0.8) 0.1 - - Basic EPRA 17.3 earnings 31.6 329.6 9.6 28.3 341.9 8.3 --------------- ----------------- ------------- --------- --------------- ------------- --------- --------------- Dilutive effect of - LTIP shares - - - - 0.6 - - Dilutive effect - - - - - - of convertible bond --------------- ----------------- ------------- --------- --------------- ------------- --------- --------------- Diluted EPRA 17.3 earnings 31.6 329.6 9.6 28.3 342.5 8.3 --------------- ----------------- ------------- --------- --------------- ------------- --------- ---------------
8 Performance measures and EPRA metrics (continued)
EPRA Net assets per share
31 March 30 September 30 September 2017 30 September 2017 30 September 2016 Net 30 September 2017 Net 30 September 2016 Net assets 2017 No. assets 2016 No. assets per Net of per Net of per share assets shares share assets shares share pence GBPm million pence GBPm million pence -------- ---------------------- ------------ ------------ ------------ ------------ ------------ ------------ 796 Basic 2,634.8 326.7 806 2,826.8 343.9 822 Investment in own 4 shares - (1.4) 4 - (1.8) 4
- Dilutive effect of - - - - - - convertible bond Dilutive effect of (1) LTIP shares - 0.2 (1) - 0.7 (1) -------- ---------------------- ------------ ------------ ------------ ------------ ------------ ------------ 799 Diluted net assets 2,634.8 325.5 809 2,826.8 342.8 825 Surplus on revaluation 5 of trading property 12.8 - 4 2.0 - - Fair value of convertible 3 bond 3.2 - 1 9.2 - 3 Fair value of (8) derivatives - - - (52.7) - (16) Fair value of derivatives - in joint ventures 0.8 - - 2.1 - 1 - Deferred tax (4.5) - (1) (1.2) - - 799 EPRA NAV 2,647.1 325.5 813 2,786.2 342.8 813 Fair value of financial (21) liabilities (27.5) - (8) (111.8) - (32) Fair value of convertible (3) bond (3.2) - (1) (9.2) - (3) Fair value of financial liabilities in joint (1) ventures (1.4) - - (2.9) - (1) Fair value of 8 derivatives - - - 52.7 - 16 Fair value of derivatives - in joint ventures (0.8) - - (2.1) - (1) Tax arising on sale (1) of trading properties (2.4) - (1) (0.4) - - 1 Deferred tax 4.5 - 1 1.2 - - 782 EPRA NNNAV 2,616.3 325.5 804 2,713.7 342.8 792 -------- ---------------------- ------------ ------------ ------------ ------------ ------------ ------------
The Group has GBP150.0 million of convertible bonds in issue with an initial conversion price of GBP7.27 per share. The dilutive effect of the contingently issuable shares within the convertible bond is required to be recognised in accordance with IAS 33 - Earnings per Share. In accordance with the EPRA Best Practice Recommendations, we have presented EPRA earnings per share on a basic and diluted basis.
Total Accounting return
31 March 30 September 30 September 2017 2017 2016 per per per share share share pence pence pence -------- -------------------------------- ------------ ------------ 847.0 Opening EPRA NAV (A) 799.0 847.0 799.0 Closing EPRA NAV 813.0 813.0 -------- -------------------------------- ------------ ------------ (48.0) Increase/(decrease) in EPRA NAV 14.0 (34.0) -------- -------------------------------- ------------ ------------ 9.3 Ordinary dividend paid in period 6.4 5.6 -------- -------------------------------- ------------ ------------ (38.7) Total return (B) 20.4 (28.4) -------- -------------------------------- ------------ ------------ (4.6)% Total return % (B/A) 2.6% (3.3)% -------- -------------------------------- ------------ ------------
8 Performance measures and EPRA metrics (continued)
Loan-to-property value
31 March 30 September 30 September 2017 2017 2016 GBPm GBPm GBPm -------- ---------------------------------------- ------------ ------------ GBP142.9 million 5.625% debenture 143.9 stock 2029 143.9 143.9 107.0 GBP450 million revolving credit facility 60.4 166.8 127.4 Private placement notes 174.1 286.8 GBP150.0 million 1.00% convertible 150.0 bonds 2018 (at nominal value) 150.0 150.0 (25.5) Less: cash and cash equivalents (13.8) (9.0) -------- ---------------------------------------- ------------ ------------ 502.8 Net debt excluding joint ventures 514.6 738.5 -------- ---------------------------------------- ------------ ------------ Joint venture interest bearing loans 84.6 and borrowings (at share) 84.6 84.5 Joint venture cash and cash equivalents (10.6) (at share) (12.2) (10.4) Net debt including joint ventures 576.8 (A) 587.0 812.6 -------- ---------------------------------------- ------------ ------------ 2,580.0 Group properties at market value 2,682.9 3,155.5 Joint venture properties at market 565.5 value 594.9 595.0 Property portfolio at market value 3,145.5 including joint ventures (B) 3,277.8 3,750.5 -------- ---------------------------------------- ------------ ------------ 18.3% Loan-to-property value (A/B) 17.9% 21.7% -------- ---------------------------------------- ------------ ------------
9 Investment property
Investment property
Freehold Leasehold Total GBPm GBPm GBPm -------------------------------- -------- --------- ------- Book value at 1 April 2017 1,222.9 1,041.1 2,264.0 Acquisitions 53.7 - 53.7 Costs capitalised 9.3 13.5 22.8 Disposals (8.7) - (8.7) Net valuation (deficit)/surplus (2.0) 13.3 11.3 -------------------------------- -------- --------- ------- Book value at 30 September 2017 1,275.2 1,067.9 2,343.1 -------------------------------- -------- --------- -------
Investment property under development
Freehold Leasehold Total GBPm GBPm GBPm ---------------------------------------- -------- --------- ------- Book value at 1 April 2017 87.9 - 87.9 Costs capitalised 7.9 - 7.9 Interest capitalised 0.6 - 0.6 Net valuation surplus 9.1 - 9.1 ---------------------------------------- -------- --------- ------- Book value at 30 September 2017 105.5 - 105.5 ---------------------------------------- -------- --------- ------- Book value of total investment property at 30 September 2017 1,380.7 1,067.9 2,448.6 ---------------------------------------- -------- --------- -------
Surplus/(deficit) from investment property
Six Year Six months months to to 30 to 30 31 March September September 2017 2017 2016 GBPm GBPm GBPm --------- ----------------------------------- ---------- ---------- Net valuation surplus/(deficit) on (111.4) investment property 20.4 (91.2) (Loss)/profit on sale of investment (25.5) properties (3.5) 0.9 --------- ----------------------------------- ---------- ---------- Surplus/(deficit) from investment (136.9) property 16.9 (90.3) --------- ----------------------------------- ---------- ----------
9 Investment property (continued)
The Group's investment properties, including those held in joint ventures (note 11), were valued on the basis of Fair Value by CBRE Limited (CBRE), external valuers, as at 30 September 2017. The valuations have been prepared in accordance with the RICS Valuation - Global Standards 2017 which incorporate the International Valuation Standards and the RICS Valuation - Professional Standards UK January 2014 (revised April 2015) ("the Red Book") and have been primarily derived using comparable recent market transactions on arm's length terms. CBRE have advised us that the total fees paid to CBRE by the Group represent less than five per cent of their total revenue in any year.
Real estate valuations are complex and derived using comparable market transactions, which are not publicly available and involve an element of judgement. Therefore, in line with EPRA guidance, we have classified the valuation of the property portfolio as Level 3 as defined by IFRS 13. There were no transfers between levels during the period. Inputs to the valuation, including capitalisation yields (typically the true equivalent yield) and rental values, are defined as 'unobservable' as defined by IFRS 13.
Key inputs to the valuation (by building)
ERV True equivalent yield Average Range Average Range GBP per sq ft GBP per sq ft % % ---------------------------- ------- -------------- -------------- ----------- ------------- North of Oxford Street Office 70 47 - 86 4.5 3.9 - 6.2 Retail 68 34 - 181 3.7 2.9 - 5.9 Rest of West End Office 80 61 - 93 4.5 3.7 - 6.0 Retail 108 15 - 295 4.0 2.8 - 5.7 City, Midtown and Southwark Office 50 45 - 60 5.1 4.6 - 5.5 Retail 81 28 - 122 4.6 4.6 - 4.7 Capital value ------------------------------ Average Range GBP per sq ft GBP per sq ft ---------------------------- ------- -------------- -------------- ----------- ------------- Residential 1,926 1,575 - 2,700 n/a n/a ------------------------------------- -------------- -------------- ----------- -------------
Everything else being equal, there is a positive relationship between rental values and the property valuation, such that an increase in rental values will increase the valuation of a property and a decrease in rental values will reduce the valuation of a property. However, the relationship between capitalisation yields and the property valuation is negative; therefore, an increase in capitalisation yields will reduce the valuation of a property and a reduction will increase its valuation. There are interrelationships between these inputs as they are determined by market conditions and the valuation movement in any one period depends on the balance between them. If these inputs move in opposite directions (i.e. rental values increase and yields decrease) valuation movements can be amplified whereas if they move in the same direction they may offset reducing the overall net valuation movement.
The book value of investment properties includes GBP40.7 million (2016: GBP35.9 million) in respect of the present value of future ground rents. Net of these amounts, the market value of the investment properties together with the market value of the trading properties was GBP2,682.9 million. During the period, the Group capitalised GBP0.4 million (2016: GBP1.1 million) of employee costs in respect of its development team into trading properties and investment properties under development. At 30 September 2017, the Group had capital commitments of GBP9.9 million (2016: GBP136.1 million).
10 Trading property
31 March 30 September 30 September 2017 2017 2016 GBPm GBPm GBPm -------- -------------------------- ------------ ------------ 172.4 At beginning of the period 246.7 172.4 66.0 Costs capitalised 11.6 54.1 8.3 Interest capitalised 3.9 5.6 -------- -------------------------- ------------ ------------ 246.7 At the end of the period 262.2 232.1 -------- -------------------------- ------------ ------------
The Group is developing a large mixed-use scheme at Rathbone Square, W1. Part of the approved scheme consists of residential units, which the Group holds for sale. As a result, the residential element of the scheme is held as trading property. The fair value of the trading property was GBP275.0 million at 30 September 2017, representing a revaluation above cost of GBP12.8 million.
At 30 September 2017, the Group had exchanged contracts to sell GBP262.1 million of the residential units and received initial cash deposits of GBP66.5 million from the purchasers (see note 14).
11 Investment in joint ventures
Balances with Equity partners Total GBPm GBPm GBPm -------------------------------------- ------ --------- ----- At 1 April 2017 250.6 230.2 480.8 Movement on joint venture balances - 20.3 20.3 Additions 4.1 - 4.1 ------ --------- ----- Share of profit of joint ventures 1.5 - 1.5 Share of revaluation surplus of joint ventures 9.6 - 9.6 Profit on sale of investment property 0.1 - 0.1 ------ --------- ----- Share of results of joint ventures 11.2 - 11.2 Distributions (8.4) - (8.4) -------------------------------------- ------ --------- ----- At 30 September 2017 257.5 250.5 508.0 -------------------------------------- ------ --------- -----
The investments in joint ventures comprise the following:
Ownership Country of Ownership Ownership 31 March Incorporation/registration 30 September 30 September 2017 2017 2016 --------- ------------------------------- --------------------------- ------------- ------------- 50% The GHS Limited Partnership Jersey 50% 50% The Great Capital Partnership 50% (dormant) United Kingdom 50% 50% 50% The Great Ropemaker Partnership United Kingdom 50% 50% 50% The Great Victoria Partnerships United Kingdom 50% 50% 50% The Great Wigmore Partnership United Kingdom 50% 50% --------- ------------------------------- --------------------------- ------------- -------------
11 Investment in joint ventures (continued)
Summarised balance sheets
31 March 30 30 30 2017 The GHS The Great The Great The Great The Great September September September At Limited Capital Ropemaker Victoria Wigmore 2017 2017 2016 share Partnership Partnership Partnership Partnerships Partnership Total At share At share GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm ------- -------------- ----------- ----------- ----------- ------------ ----------- --------- --------- --------- Investment 570.7 property 238.1 - 730.7 231.3 - 1,200.1 600.1 600.1 0.9 Current assets 0.1 - 0.6 0.5 - 1.2 0.6 0.8 Cash and cash 10.6 equivalents 3.1 0.1 17.4 3.5 0.2 24.3 12.2 10.4 Balances (from)/to (230.2) partners (94.8) - (417.1) 10.9 - (501.0) (250.5) (210.0) Interest bearing loans (84.6) and borrowings - - (89.6) (79.6) - (169.2) (84.6) (84.5) (1.3) Derivatives - - (1.5) - - (1.5) (0.8) (2.1) Current (10.3) liabilities (7.8) - (16.0) (4.5) (0.2) (28.5) (14.3) (9.0) (5.2) Finance leases - - (10.3) - - (10.3) (5.2) (5.1)
------- -------------- ----------- ----------- ----------- ------------ ----------- --------- --------- --------- 250.6 Net assets 138.7 0.1 214.2 162.1 - 515.1 257.5 300.6 ------- -------------- ----------- ----------- ----------- ------------ ----------- --------- --------- --------- Summarised income statements ------------------------- ----------- ----------- ----------- ------------ ----------- --------- --------- --------- 31 March 30 30 30 2017 The GHS The Great The Great The Great The Great September September September At Limited Capital Ropemaker Victoria Wigmore 2017 2017 2016 share Partnership Partnership Partnership Partnerships Partnership Total At share At share GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm ------- -------------- ----------- ----------- ----------- ------------ ----------- --------- --------- --------- Net rental 17.4 income - - 11.5 5.7 - 17.2 8.6 8.9 Property and administration (4.1) costs (0.7) - (2.4) (0.4) (0.1) (3.6) (1.8) (2.5) Net finance (10.8) costs (2.3) - (7.8) (1.5) - (11.6) (5.8) (5.2) Movement in fair value (0.1) of derivatives - - 1.0 - - 1.0 0.5 (0.8) Share of profit of joint 2.4 ventures (3.0) - 2.3 3.8 (0.1) 3.0 1.5 0.4 Revaluation of investment (55.6) property (0.9) - 17.4 2.8 - 19.3 9.6 (38.4) Profit/(loss) on sale of investment (4.0) property - - - - 0.2 0.2 0.1 0.1 ------- -------------- ----------- ----------- ----------- ------------ ----------- --------- --------- --------- Share of results of joint (57.2) ventures (3.9) - 19.7 6.6 0.1 22.5 11.2 (37.9) ------- -------------- ----------- ----------- ----------- ------------ ----------- --------- --------- ---------
11 Investment in joint ventures (continued)
The non-recourse loans of the joint ventures at 30 September 2017 are set out below:
Nominal value Joint venture debt facilities GBPm Maturity Fixed/Floating Interest rate ------------------------------- ------- --------- -------------- ------------- The Great Ropemaker 90.0 December Floating LIBOR +1.25% Partnership 2020 The Great Victoria Partnership 80.0 July 2022 Fixed 3.74% Total 170.0 ------------------------------- ------- --------- -------------- -------------
The Great Ropemaker Partnership has entered into two interest rate swaps with a fixed rate of 1.42%, which expire conterminously with the bank loan in 2020, with a notional principal amount of GBP90.0 million. The loan has an all-in hedged coupon of 2.67%.
At 30 September 2017, the Great Victoria Partnership loan had a fair value of GBP83.3 million (2016: GBP85.7 million). All interest-bearing loans are in sterling. At 30 September 2017, the joint ventures had GBPnil undrawn facilities (2016: GBPnil).
The investment properties include GBP5.2 million (2016: GBP5.1 million) in respect of the present value of future ground rents, net of these amounts the market value of our share of the total joint venture properties is GBP594.9 million. At 30 September 2017, the Group's share of joint venture capital commitments was GBP37.4 million (2016: GBP62.3 million).
Transactions during the period between the Group and its joint ventures, who are related parties, are set out below:
31 March 30 September 30 September 2017 2017 2016 GBPm GBPm GBPm -------- --------------------------------- ------------ ------------ Movement on joint venture (42.6) balances during the period (20.3) (22.4) Balances receivable at the period (230.2) end from joint ventures (250.5) (210.0) 56.2 Distributions 8.4 23.6 4.1 Fee income 1.1 1.6 -------- --------------------------------- ------------ ------------
The joint venture balances bear interest as follows: the GHS Limited Partnership at 5.3% on balances at inception and 4.0% on any subsequent balances, the Great Ropemaker Partnership at 4.0% and the Great Wigmore Partnership at 4.0%.
The Group earns fee income from its joint ventures for the provision of management services. All of the above transactions are made on terms equivalent to those that prevail in arm's length transactions.
12 Plant and equipment
Fixtures Leasehold and improvements fittings Total GBPm GBPm GBPm ------------------------------------- ------------- --------- ----- Cost or valuation At 1 April 2017 5.2 1.0 6.2 Additions 0.1 0.1 0.2 ------------------------------------- At 30 September 2017 5.3 1.1 6.4 ------------------------------------- ------------- --------- ----- Depreciation At 1 April 2017 0.7 0.4 1.1 Charge for the period 0.3 0.1 0.4 ------------------------------------- ------------- At 30 September 2017 1.0 0.5 1.5 ------------------------------------- ------------- --------- ----- Carrying amount at 30 September 2017 4.3 0.6 4.9 ------------------------------------- ------------- --------- -----
13 Trade and other receivables
31 March 30 September 30 September 2017 2017 2016 GBPm GBPm GBPm -------- ------------------------------------------ ------------ ------------ 4.0 Trade receivables 3.9 3.9 (0.1) Allowance for doubtful debts (0.2) (0.4) -------- ------------------------------------------ ------------ ------------ 3.9 3.7 3.5 0.7 Prepayments and accrued income 1.0 1.4 Work in progress on development management 14.7 contracts 20.9 1.0 3.2 Other trade receivables 3.7 3.2 Deferred consideration on property 300.8 sales 61.7 - 28.5 Derivatives - 52.7 351.8 91.0 61.8 -------- ------------------------------------------ ------------ ------------
Work in progress on development management contracts is an amount due to the Group in relation to a development property sold prior to its completion where the Group has a contract with the buyer to construct the remainder of the building on their behalf. During the period, the Group received payments on account of GBP6.1 million (2016: GBP11.9 million). At 30 September 2017, the aggregate cumulative cost incurred was GBP12.6 million (2016: GBP53.0 million) and the cumulative profits less losses recognised was a loss of GBP0.3 million (2016: profit of GBP5.7 million). There are no material project retentions.
14 Trade and other payables
31 March 30 September 30 September 2017 2017 2016 GBPm GBPm GBPm -------- --------------------------------------- ------------ ------------ 22.8 Rents received in advance 24.5 21.6 Deposits received on forward sale 66.0 of residential units 66.5 63.1 58.2 Non-trade payables and accrued expenses 30.7 65.4 147.0 121.7 150.1 -------- --------------------------------------- ------------ ------------
15 Interest-bearing loans and borrowings
31 March 30 September 30 September 2017 2017 2016 GBPm GBPm GBPm -------- ---------------------------------------- ------------ ------------ Non-current liabilities at amortised cost Secured GBP142.9 million 5.625% debenture 143.9 stock 2029 143.9 143.9 Unsecured 107.0 GBP450 million revolving credit facility 60.4 166.8 GBP175 million 2.15% private placement - notes 2024 174.1 - GBP30.0 million 5.09% private placement - notes 2018 - 30.0 $130.0 million 4.81% private placement - notes 2018 - 80.9 $78.0 million 5.37% private placement - notes 2021 - 48.5 $160.0 million 4.20% private placement 101.9 notes 2019 - 101.9 $40.0 million 4.82% private placement 25.5 notes 2022 - 25.5 Current liabilities at fair value Unsecured GBP150.0 million 1.00% convertible 159.4 bonds 2018 153.2 159.2 537.7 531.6 756.7 -------- ---------------------------------------- ------------ ------------
The Group has a floating rate GBP450.0 million revolving credit facility. The facility is unsecured, attracts a floating rate based on a ratchet of between 105-165 basis points above LIBOR, based on gearing, and expires in 2021. At 30 September 2017, the Group had GBP389 million (2016: GBP282.0 million) of undrawn committed credit facilities.
15 Interest-bearing loans and borrowings (continued)
In May 2017, the Group repaid its 2019 and 2022 private placement notes for a total redemption premium of GBP13.5 million, representing GBP36.6 million premium (including early redemption premium, unamortised costs and currency movements since issue) on the private placement notes net of GBP23.1 million receipt on cancellation of the associated cross currency swaps. Also in May, the Group raised GBP175 million through the issue of new seven-year US private placement notes. The new notes are sterling denominated, unsecured and have a fixed rate coupon of 2.15%.
The Group's convertible bonds have a fixed coupon of 1.0% per annum and an initial conversion price of GBP7.27 per share. In accordance with IAS 39, the Convertible Bonds have been designated at fair value through profit and loss upon initial recognition, with any gains or losses arising on subsequent re-measurement recognised in the income statement.
At 30 September 2017, properties with a carrying value of GBP384.5 million (2016: GBP386.6 million) were secured under the Group's debenture stock.
The following table details the notional principal amounts and remaining terms of interest rate derivatives:
Average contracted fixed interest Notional principal Fair value rate amount asset/(liability) -------------------------- -------------------------- -------------------------- 30 September 30 September 30 September 30 September 30 September 30 September 2017 2016 2017 2016 2017 2016 Cash flow hedges % % GBPm GBPm GBPm GBPm -------------------- ------------ ------------ ------------ ------------ ------------ ------------ Interest rate floor Within one year - 1.80 - 159.7 - 1.5 - 1.80 - 159.7 - 1.5 -------------------- ------------ ------------ ------------ ------------ ------------ ------------
The following table details the notional principal amounts and remaining terms of exchange rate derivatives:
Average Notional exchange Foreign principal Fair value rate currency amount asset/(liability) ---------- ------------------------ ------------------------ ------------------------ ---------------------------------- Cash flow 30 30 September 30 30 September 30 30 September 30 September 30 September hedge September 2016 September 2016 September 2016 2017 2016 - cross 2017 rate 2017 US$m 2017 GBPm GBPm GBPm currency rate US$m GBPm swaps ---------- ---------- ------------ ---------- ------------ ---------- ------------ ------------- ------------------- Between two and five years - 1.587 - 368.0 - 231.9 - 47.1 In excess of five years - 1.566 - 40.0 - 25.5 - 4.1 ---------- ---------- ------------ ---------- ------------ ---------- ------------ ------------- ------------------- - 1.585 - 408.0 - 257.4 - 51.2 ---------- ---------- ------------ ---------- ------------ ---------- ------------ ------------- -------------------
The Group operates solely in the United Kingdom, and all of its operating profits and net assets are sterling denominated.
15 Interest-bearing loans and borrowings (continued)
Fair value of financial liabilities/(assets)
31 March 31 March 30 September 30 September 30 September 30 September 2017 2017 2017 2017 2016 2016 Book Fair Book Fair Book Fair value value value value value value GBPm GBPm Fair value hierarchy GBPm GBPm GBPm GBPm -------- -------- ------------------------- ------------ ------------ ------------ ------------ Level 1 GBP150.0 million 1.00% convertible 159.4 159.4 bond 2018 153.2 153.2 159.2 159.2 Level 2 (28.0) (28.0) Cross currency swaps - - (51.2) (51.2) (0.5) (0.5) Interest rate floor - - (1.5) (1.5) Other items not carried at fair value GBP142.9 million 5.625% debenture 143.9 177.9 stock 2029 143.9 173.8 143.9 182.0 Private placement 127.4 164.4 notes 174.1 171.7 286.8 360.5 107.0 107.0 Bank loans and overdrafts 60.4 60.4 166.8 166.8 509.2 580.2 531.6 559.1 704.0 815.8 -------- -------- ------------------------- ------------ ------------ ------------ ------------
The fair values of the Group's listed convertible bonds have been estimated on the basis of quoted market prices, representing Level 1 fair value measurements as defined by IFRS 13 Fair Value Measurement. The fair value of the Group's interest rate floor was estimated by calculating the present value of future cash flows, using appropriate market discount rates, representing Level 2 fair value measurements as defined by IFRS 13. The fair value of the Group's cross currency swaps was estimated on the basis of the prevailing rates at the period end, representing Level 2 fair value measurements as defined by IFRS 13. None of the Group's financial derivatives are designated as financial hedges. The fair values of the Group's cash and cash equivalents and trade payables and receivables are not materially different from those at which they are carried in the financial statements. The fair values of the Group's private placement notes were determined by comparing the discounted future cash flows using the contracted yields with those of the reference gilts plus the implied margins.
16 Share capital
Six months Year Year Six months Six months Six months to to to to to to 30 31 March 31 March 30 September 30 September 30 September September 2017 2017 2017 2017 2016 2016 Number GBPm Number GBPm Number GBPm ----------- --------- ------------------- ------------- ------------- ------------- ---------- Allotted, called up and fully paid At the beginning 343,926,149 43.0 of the period 343,926,149 43.0 343,926,149 43.0 - - Share consolidation (17,196,297) - - - At the end of the 343,926,149 43.0 period 326,729,852 43.0 343,926,149 43.0 ----------- --------- ------------------- ------------- ------------- ------------- ----------
On 18 May 2017, in conjunction with a special dividend (see note 19), the Company carried out a 19 for 20 share consolidation of the Company's ordinary share capital. After the consolidation, the Company had 326,729,852 ordinary shares with a nominal value of 13 (3) (19) pence each.
17 Investment in own shares
Six months Year Six months to to to 30 31 March 30 September September 2017 2017 2016 GBPm GBPm GBPm --------- --------------------------------- ------------- ---------- 9.1 At the beginning of the period 3.8 9.1 Employee Long-Term Incentive Plan (1.0) and Share Matching Plan charge (0.8) (1.3) - Purchase of shares - - (4.3) Transfer to retained earnings 0.6 (4.3) 3.8 At the end of the period 3.6 3.5 --------- --------------------------------- ------------- ----------
The investment in the Company's own shares is held at cost and comprises 1,366,628 shares (31 March 2017: 1,804,412 shares) held by the Great Portland Estates plc LTIP Employee Share Trust which will vest for certain senior employees of the Group if performance conditions are met.
During the period 347,572 shares (2016: 765,065 shares) were awarded to directors and senior employees in respect of the 2014 LTIP award. The fair value of shares awarded and outstanding at 30 September 2017 was GBP4.3 million (2016: GBP6.3 million).
18 Adjustment for non-cash movements in the cash flow statement
Six months Year Six months to to to 30 31 March 30 September September 2017 2017 2016 GBPm GBPm GBPm --------- ---------------------------------------- ------------- ---------- (Surplus)/deficit from investment 136.9 property (16.9) 90.3 Employee Long-Term Incentive and Share 1.0 Matching Plan charge 0.8 1.3 (3.1) Spreading of tenant lease incentives (3.1) (1.0) - Loss on development management contracts 0.3 - 57.2 Share of results from joint ventures (11.2) 37.9 0.4 Other items 0.5 - --------- ---------------------------------------- ------------- ---------- 192.4 Adjustments for non-cash items (29.6) 128.5 --------- ---------------------------------------- ------------- ----------
19 Dividends
On 31 May 2017, the Company paid an interim special dividend of 32.15 pence per share equating to GBP110.0 million. On 10 July 2017, the Company paid the final dividend from the year ended 31 March 2017 of 6.4 pence per share equating to GBP20.8 million. Both the interim special dividend for the year ending 31 March 2018 and final dividend from the year ended 31 March 2017, together totalling GBP130.8 million, are included within the Group Statement of Changes in Equity.
The declared interim dividend of 4.0 pence per share (2016: 3.7 pence per share) was approved by the Board on 15 November 2017 and is payable on 2 January 2018 to shareholders on the register on 24 November 2017. The dividend is not recognised as a liability in the Half Year Results.
20 Operating leases
Future aggregate minimum rentals receivable under non-cancellable operating leases are:
31 March 30 September 30 September 2017 2017 2016 GBPm GBPm GBPm -------- -------------------------- ------------ ------------ The Group as a lessor 76.7 Less than one year 81.8 74.3 224.3 Between one and five years 247.5 195.9 169.2 More than five years 194.7 142.3 -------- -------------------------- ------------ ------------ 470.2 524.0 412.5 -------- -------------------------- ------------ ------------
The Group leases its investment properties under operating leases. The weighted average length of lease at 30 September 2017 was 5.5 years (2016: 4.9 years). All investment properties, except those under development or being prepared for development, generated rental income and no contingent rents were recognised in the period (2016: GBPnil).
Future aggregate minimum rentals payable under non-cancellable operating leases are:
31 March 30 September 30 September 2017 2017 2016 GBPm GBPm GBPm -------- -------------------------- ------------ ------------ The Group as a lessee 1.0 Less than one year 1.0 1.0 4.1 Between one and five years 4.1 4.1 3.0 More than five years 2.5 3.5 -------- -------------------------- ------------ ------------ 8.1 7.6 8.6 -------- -------------------------- ------------ ------------
21 Reserves
The following describes the nature and purpose of each reserve within equity:
Share capital
The nominal value of the Company's issued share capital, comprising 13(3) (19) pence ordinary shares.
Share premium
Amount subscribed for share capital in excess of nominal value less directly attributable issue costs.
Capital redemption reserve
Amount equivalent to the nominal value of the Company's own shares acquired as a result of share buy-back programmes.
Retained earnings
Cumulative net gains and losses recognised in the Group income statement together with other items such as dividends.
Investment in own shares
Amount paid to acquire the Company's own shares for its Employee Long-Term Incentive Plan and Share Matching Plan less accounting charges.
Directors' responsibility statement
We confirm that to the best of our knowledge:
(a) the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';
(b) the half-yearly report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and
(c) the half-yearly report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).
By the order of the Board
Toby Courtauld Nick Sanderson Chief Executive Finance Director 15 November 2017 15 November 2017
Independent review report to Great Portland Estates plc
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2017 which comprises the income statement, the balance sheet, the statement of changes in equity, the cash flow statement and related notes 1 to 21. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, UK
15 November 2017
Directors and shareholders' information
Directors
Martin Scicluna Wendy Becker Chairman, Non-Executive Non-Executive Director Toby Courtauld Nick Hampton Chief Executive Non-Executive Director Nick Sanderson Richard Mully Finance Director Non-Executive Director Charles Philips Non-Executive Director Jonathan Short Non-Executive Director
Shareholders' information
Financial calendar 2017 Ex-dividend date for interim dividend 23 November Registration qualifying date for interim dividend 24 November 2018 Interim dividend payable 2 January Announcement of full year results 23 May* Circulation of Annual Report and Accounts 2018 2 June* Annual General Meeting 5 July* Final dividend payable 9 July* *Provisional. Shareholder enquiries Dividend payments All enquiries relating to holdings of shares, As a REIT, dividend payments bonds or debentures in Great Portland Estates, must be split between PIDs including notification of change of address, and queries regarding dividend/interest payments non-PIDs. Information in or the loss of a certificate, should be respect of the tax consequences addressed to the Company's Registrars: for shareholders of receiving Capita Registrars dividends can be found on 34 Beckenham Road the Company's website at Beckenham www.gpe.co.uk/investors/shareholder-information/reits Kent BR3 4TU Share dealing service Tel: 0871 664 0300 An online and telephone E-mail: ssd@capitaregistrars.com dealing service is available (Calls cost 12 pence per minute plus network for UK shareholders through extras; lines are open 9.00am - 5.30pm Monday Capita Deal. For further to Friday.) information on this service, If you are calling from overseas, please or to buy and sell shares, dial +44 371 664 0300. please contact: Online dealing - www.capitadeal.com Website: www.gpe.co.uk Telephone dealing - 0371 The Company's corporate website holds, 664 0445 amongst other information, a copy of our (Calls are charged at the latest annual report and accounts, a list standard geographical rate of properties held by the Group and press and will vary by provider; announcements released over the last twelve lines are open 8.00am - months. 4.30pm Monday to Friday). Company Secretary Desna Martin Registered office: 33 Cavendish Square London W1G 0PW Tel: 020 7647 3000 Fax: 020 7016 5500 Registered Number: 596137
Glossary
Core West End
Areas of London with W1 and SW1 postcodes.
Earnings Per Share (EPS)
Profit after tax divided by the weighted average number of ordinary shares in issue.
EPRA adjustments
Standard calculation methods for adjusted EPS and NAV as set out by the European Public Real Estate Association (EPRA) in their Best Practice and Policy Recommendations.
Estimated Rental Value (ERV)
The market rental value of lettable space as estimated by the Company's valuers at each balance sheet date.
Fair value - investment property
The amount as estimated by the Company's valuers for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. In line with market practice, values are stated net of purchasers' costs.
IPD
The Investment Property Databank Limited (IPD) is a company that produces an independent benchmark of property returns.
IPD central London
An index, compiled by IPD, of the central and inner London properties in their monthly and quarterly valued universes.
Like-for-like portfolio
Properties that have been held for the whole of the period of account.
Loan to Value (LTV)
Total bank loans, private placement notes, convertible bonds at nominal value and debenture stock, net of cash (including our share of joint ventures balances), expressed as a percentage of the market value of the property portfolio (including our share of joint ventures).
Net assets per share or Net Asset Value (NAV)
Equity shareholders' funds divided by the number of ordinary shares at the balance sheet date.
Net debt
The book value of the Group's bank and loan facilities, private placement notes and debenture loans plus the nominal value of the convertible bond less cash and cash equivalents.
Net gearing
Total Group borrowings (including the convertible bonds at nominal value) less short-term deposits and cash as a percentage of equity shareholders' funds, calculated in accordance with our bank covenants.
Net initial yield
Annual net rents on investment properties as a percentage of the investment property valuation having added notional purchaser's costs.
Non-PIDs
Dividends from profits of the Group's taxable residual business.
PMI
Purchasing Managers Index
Portfolio Internal Rate of Return (IRR)
The rate of return that if used as a discount rate and applied to the projected cash flows from the portfolio would result in a net present value of zero.
Property Income Distributions (PIDs)
Dividends from profits of the Group's tax-exempt property rental business.
REIT
UK Real Estate Investment Trust.
Rent roll
The annual contracted rental income.
Return on shareholders' equity
The growth in the EPRA diluted net assets per share plus dividends per share for the period expressed as a percentage of the EPRA net assets per share at the beginning of the period.
Glossary (continued)
Reversionary or under-rented
The percentage by which ERV exceeds rent roll on let space.
Reversionary yield
The anticipated yield, which the initial yield will rise to once the rent reaches the ERV.
Total Accounting Return (TAR)
The growth in EPRA NAV per share plus ordinary dividends paid, and this can be expressed as a percentage of EPRA NAV per share at the beginning of the period.
Total Property Return (TPR)
Capital growth in the portfolio plus net rental income derived from holding these properties plus profit on sale of disposals expressed as a percentage return on the period's opening value as calculated by IPD.
TMT
Technology, Media and Telecoms sector.
Total Shareholder Return (TSR)
The growth in the ordinary share price as quoted on the London Stock Exchange plus dividends per share received for the period expressed as a percentage of the share price at the beginning of the period.
Triple net asset value (NNNAV)
NAV adjusted to include the fair value of the Group's financial liabilities and deferred tax on a diluted basis.
True equivalent yield
The constant capitalisation rate which, if applied to all cash flows from an investment property, including current rent, reversions to current market rent and such items as voids and expenditures, equates to the market value having taken into account notional purchaser's costs. Assumes rent is received quarterly in advance.
Vacancy rate
The element of a property which is unoccupied but available for letting, expressed as the ERV of the vacant space divided by the ERV of the total portfolio.
Weighted Average Unexpired Lease Term (WAULT)
The Weighted Average Unexpired Lease Term expressed in years.
This information is provided by RNS
The company news service from the London Stock Exchange
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November 15, 2017 02:00 ET (07:00 GMT)
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