London West End real estate investor Great Portland Estates (GPOR) is selling its Rathbone Square development for £435m. The site encompasses Facebook’s (FB:NDQ) new London HQ. The shares slip 0.2% to 657.5p on the news.
The sale price, on the company’s largest ever development, represents a discount of 4% to its most recent valuation and an exit yield of 4.25% (the return on offer to the bidders German Investment group Deka and real estate investment trust WestInvest Gesellschaft).
SPECIAL DIVIDEND PLANNED
Of the proceeds £110m will be returned to shareholders with the remainder retained to provide ‘flexibility’ during a period of market uncertainty created by the Brexit vote.
Jefferies analyst Mike Prew, who rates Great Portland ‘underperform’, sees the price as ‘disappointing’, particularly given a good chunk of the development is pre-let to Facebook on a 15 year lease at £17.8m per annum. He reckons at peak valuation in the fourth quarter of 2014 the asset would have commanded an exit yield of 3.75%.
BREXIT DEBATE
Prew adds: ‘it doesn't give the bulls the excuse that BREXIT was just a passing storm in a T-bond and everything in the garden is rosy’.
Liberum analysts, who have a ‘hold’ recommendation on the stock with a 650p price target, are more positive on what the deal says about the London property space.
‘We believe GPE's Rathbone Square disposal and 1% NAV accretive capital return signals the resilience of investment demand for London commercial real estate, as well as the group's ability to create significant value through developments.’
