GPE, the listed London developer, has announced a £350 million rights issue as it pointed to its full-year results as highlighting that the time was right to buy offices in the capital again.
GPE said the fully underwritten rights issue aimed to raise gross proceeds of £350 million through the issue of 152 million new shares at a price of 230 pence each.
It also released its audited results for the year ended 31 March 2024 and announced the acquisition of The Courtyard, 1/3 Alfred Place for £28.6 million, which ensures it is a net buyer for the first time since 2013.
GPE said the rights issue will allow it to take advantage of the attractive new acquisition and development opportunities emerging in central London and deliver attractive and accretive shareholder returns.
Speaking to CoStar News, chief executive Toby Courtauld said of the rights issues: "It is a front-footed move about getting out there and buying opportunities that we have not seen since 2013 when we were last buying with real vigour. In weaker markets we are net buyers, and rights issues have helped us to do that. As that progressed through last time around we became net sellers and 2017 was the biggest year for sales. We were a net seller from 2014 all the way through to '23. We think we are at or around a trough now in value falls. We have been able to put £150 million into the market this year and bang into what we are planning to do. And the average price paid was at a discount to replacement cost of 42%. From here we are looking to build more growth. We have a pipeline of opportunity of £1.4 billion."
It says higher interest rates have disrupted the commercial property investment market, creating significant near- to medium-term acquisition opportunities in central London with values approaching their trough and assets trading broadly in line with 2009 real capital value levels.
In addition, operational market dynamics remain strong for GPE, across both its HQ and Flex offering, as demonstrated in its results for the financial year ended 31 March 2024, it said.
The group posted leasing 9.1% ahead of estimated rental value while its vacancy rate is very low at 1.3%.
Courtauld said the lifting of estimated rental value growth again proves the point that offices still have value.
"The things in our control we have been doing really well all the way through. That outside of our control has been interest rates hitting valuations and it looks like this is coming to and end."
It expects market conditions to remain favourable with new office supply within London set to tighten further alongside a growing "sustainability-led bifurcation", underpinning future rental growth.
It says it is well-placed to take advantage of the market opportunity given its "strong track record of disciplined capital management and accretive acquisitions, combined with its specialist development and refurbishment expertise, in-demand Flex offering and continued sustainability and customer focus".
The rights issue is expected to result in a loan to value ratio of 18.2% post receipt of the net proceeds and an increase in available investment capacity of approximately £450 million.
GPE has two near-term potential off-market Flex acquisitions under review which are adjacent to or opposite existing flex properties. GPE intends to use £168 million of the proceeds from the rights issue to commit to capital expenditure for the Soho Square Estate and The Courtyard. This will take total capex on committed GPE schemes from £498 million to £666 million.
It will seek to deploy the remainder of the proceeds in new acquisitions over the next 12-18 months, subject to market conditions.
Nick Sanderson, the chief executive, said in terms of targets GPE has been evolving its offer: "Opportunities are broadly splitting between our HQ and Flex offer. The majority of what we are looking at is in the West End and Midtown and broadly 50:50 split between HQ and Flex, although when we look at the West End in particular more are Flex. We have been talking about the value we can create though creating these Flex clusters. This is partly about keeping our customers when they want to move and grow."
The group also has approximately £660 million worth of assets earmarked for sale over the near- to medium-term as business plans complete.
GPE said property valuations are at or around trough following yield expansion, with its portfolio down 2.4% in the second half.
Rental values are up 3.8% and it has increased its estimated rental value growth guidance with prime offices up now from 5% to 10% for full year 2025.
In terms of record vacancy levels, Courtauld said: "The more interesting thing on vacancy is if you look at the investment void. it is 1.3%. The growth from here is where we are refurbishing and in the market to lease. We are in that great position of lots of potential leasing to come. That will be where revenue growth comes from. The larger building customers are who they have always been and the trends we have seen in the last 10 years continue. It is lawyers growing, banks coming back into the City or money managers taking new space."
In the smaller buildings and Flex buildings Sanderson says it is often high growth businesses wanting space that is in the capital next to amenity and fun. "We will see more corporates taking part of their footprint into London and GPE's managed offer can deal with the real estate headache for them."
In terms of the general election Courtauld said: "We will remain avowedly apolitical. It does not matter to me who it is so long as they are broadly central, which tends to mean they are broadly business friendly. By and large that is seemingly what we have got. More relevant to us is local government and 66% is broadly Labour in London already so a change to Labour nationally would replicate this. I do not think it will have much of an impact other than sometimes change is as good as renewal."
GPE was a net buyer during the year for the first time since 2013, acquiring £152 million of opportunities since March 2023 at an average 42% discount to replacement cost.
It said £22.5 million of leases signed in the year to 31 March 2024, 9.1% ahead of March 2023 ERV.
Its committed Flex offer is now 503,000 square feet and it is targeting growth to one million square feet. There are a further £4.8 million of lettings under offer, 4% above March 2024 ERV.
The portfolio valuation of £2.3 billion is down 12.1%, split minus 11.8% offices, including flex minus 8.2% of which fully managed minus 4.4%, and minus 13.2% retail. But the impact in the second half was a 2.4% fall.
GPE posted an International Financial Reporting Standards loss after tax of £307.8 million.
It pointed to a strong balance sheet with a new £250 million term loan arranged in October 2023 to fund its near-term development programme. European Public Real Estate Association loan to value is at 32.6% with cash and undrawn facilities at £633 million at 31 March 2024. There are no debt maturities until late 2026.
GPE confirmed a property swap with the City of London Corporation that saw it exchange contracts to acquire the long leasehold interest at The Courtyard, 1/3 Alfred Place, WC1 for £28.6 million, or £462 per square foot and the simultaneous sale of its short leasehold interest in 95/96 New Bond Street, W1 to CLC for £18.23 million, or £2,039 per square feet and in-line with the March ’24 valuation. GPE will make a net cash payment to CLC of £10.4 million on completion in January 2025.
The Courtyard comprises 62,000 sq ft of vacant office and partially let retail space, which GPE will "substantially refurbish to deliver its Fully Managed offer". This is planned to start in the fourth quarter of 2025 with £62 million of investment.
The building is within walking distance of the Elizabeth line station at Tottenham Court Road and is opposite to GPE’s 31/34 Alfred Place, which is under refurbishment to create 41,700 square foot of Grade A fully managed space for delivery in Q4 2024. Together they will form a cluster of fully managed buildings.
James Harrop-Griffiths, investment manager, said in a statement: “This transaction represents a unique opportunity to recycle capital from a low-yielding retail asset into a fantastic office development opportunity for our Fully Managed business plan. We are creating a ‘Flex cluster’ within an already popular area of the West End as we advance towards our ambition to grow our Flex portfolio to more than 1 million square feet.”
(Updated on 23 May to add comment from Courtauld and Sanderson).