Great Portland warns property slump not over

Great Portland warns property slump not over
By Sinead Cruise Reuters - Wednesday, May 21 11:31 am

LONDON (Reuters) - Central London property firm Great Portland Estates said on Wednesday it was too early to talk of a recovery in Britain's shellshocked property market while the country remained close to economic peril.

Whispers of a late 2008 upswing in the commercial property sector have followed better-than-expected full-year results from bellwethers Land Securities and British Land but Great Portland Chief Executive Toby Courtauld cautioned against premature calls of a turning point.

"I don't think it's helpful to talk of a turnaround yet -- not because there's more pain to come -- but because visibility is still not great," Courtauld told Reuters in an interview.

Financial market turbulence slammed the brakes on Britain's debt driven property market last summer, ending a five-year bull run which regularly pushed prime property yields below the five-year cost of borrowing.

"I think we'll see more upward yield movement on secondary or less well located property and increased pressure on rents at the top end," Courtauld said, without giving details.

Great Portland shares were trading 0.2 percent up at 443.5 pence by 0947 GMT (10:47 a.m. British time) versus a 0.9 percent rise in the FTSE 350 Real Estate Index.

CHALLENGES

Courtauld cautioned that further challenges lay ahead for the UK property market but analysts welcomed Great Portland's full-year results on Wednesday as in line with forecasts.

The company, whose 1.64 billion pound property portfolio is dominated by assets in London's West End shopping and business districts, said the value of its real estate slipped just 0.2 percent on a like-for-like basis, defying a fierce correction which has knocked 17 percent off average prices since June.

Reflecting consistent demand for space at its properties, it reported a 36.8 percent rise in adjusted pretax profits to 23.8 million pounds to the end of March.

Adjusted earnings per share climbed 23.5 percent to 12.6 pence and adjusted net asset value per share -- a key performance indicator for property firms -- fell 2 percent to 582 pence.

Courtauld said the performance, which helped the firm beat industry benchmarks by a company record 7.4 percent, was driven by group rental growth of 12.5 percent, which boosted rental and joint venture income by 33.1 percent to 72 million pounds.

"This is because of what we own and where we own it," Courtauld said. "We have had a very strong income run and we're seeing near record low supply levels for the West End which really supports our story," he said.

Although concerned that pressurised money markets and a lack of confidence might extend the UK property correction, Great Portland said its focus on the undersupplied West End market would underpin its long-term prospects.

Great Portland said its average West End office rent was 38 pounds per square foot, compared with independent estimated rental values of 54 pounds per square foot.

But as economic prospects darken, Courtauld said the company was very unlikely to repeat the same rental growth performance next year. He pointed out that rents as a proportion of operating costs were now up to six times smaller than they were 30 years ago.

"We're not really thinking about the next 6 months, we're thinking about the next 60 months, because that's what we need to do to ensure this company keeps running faster than the competition," he said.