Great Portland Estates PLC

Great Portland Estates PLC (GPOR) is a development and property investment company. The group's focus is in the office market in central London. The Company develops and owns office, residential and retail properties. According to the annual report of 2019, the company owns around 47 properties in over 35 sites with a total area of around 2.6 million square feet.

Financial Highlights (FY2019, £ million)

(Source: Annual Report, Company Website)

The company’s reported total revenue decreased to £112.4 million as compared with the financial year 2018 of £386.9 million. Rental income from wholly-owned properties and joint venture fees for the year 2019 were £80.3 million and £3.8 million, respectively. Generating a combined income stood at £84.1 million, a decrease of 13.5 per cent as compared with the last year data. Total operating profit declined from £149.7 million in FY18 to £54.6 million in FY19. Profit before tax reduced to £56.1 million against the previous year data. The company’s reported IFRS profit after tax decreased to £49.5 million as compared with the financial year 2018 data of £70.3 million. Basic IFRS EPS for the year stood at 17.9 pence as compared to 21.5 pence in FY18. Diluted IFRS EPS for the year 2019 was 17.1 pence as compared to 18.2 pence in FY18. Diluted EPRA EPS stood at 19.4 pence, a decrease of 4.9 per cent from the financial year 2018 of 20.4 pence and cash EPS stood at 17.1 pence. Cash and undrawn facilities decreased to £608 million as compared to £814 million in FY18. Loan to value and total net gearing stood at 8.7 per cent and 9.7 per cent respectively. The company’s board has declared a final dividend per share of 7.9 pence. The total dividend per share for the year 2019 stood at 12.2 pence, an increase of 8 per cent as compared with the financial year 2018 data of 11.3 pence.

Share Price Performance

Daily Chart as at July-03-19, before the market closed (Source: Thomson Reuters)

On 3rd July 2019, at the time of writing (before the market close, GMT 12:25 PM), GPOR shares were trading at GBX 696.60 and increased by 1.015% against the previous day closing price. Stock's 52 weeks High and Low is GBX 777.60/GBX 647.40. The company’s stock beta stood at 0.62, reflecting lower volatility of the stock as compared to the benchmark index.

Valuation Methodology


Conclusion
Some market risks are Central London real estate market underperforming than the other UK property sectors, weakening macroeconomic environment for property investment, and heightened political uncertainty and potential negative economic impact of ongoing negotiations to exit from the EU. Some financial risks are Limited availability of further capital, Increased interest rates and/or a fall in capital values, along with adverse exchange rate movements and Inappropriate capital structure.

The combination of low economic growth and heightened levels of political and macroeconomic uncertainty has resulted in London’s commercial real estate markets trending broadly flat over the last 12 months. While growth has been mostly absent, markets remain open for business with activity levels ahead of long-run averages.

The company’s revenue decreased in the FY2019 period and the profitability margins have remained stagnant or declined. Moreover, the company’s stock is trading near its 52-week low, raising doubts at its upside potential at the current price level.

The company expect markets to continue in their current direction until further clarity emerges on the structure of the UK’s future trading relationships with the EU.

On the basis of above valuation, we recommend investors to keep a cautious “WATCH” on the stock at the closing price of GBX 689.60 (as on 2nd July 2019), with support from few catalysts needs to be evaluated at a later stage.

NewRiver Reit PLC

NewRiver REIT plc (NRR) is a leading real estate investment trust company.  It is involved in the real estate business throughout the United Kingdom. The group focuses on managing, buying, developing and recycling convenience-led, leisure assets and community-focused retail. The company’s business is differentiated in two segments, being an investment in pubs and retail property. The company manages or owns a portfolio of around 34 shopping centres and 23 retail parks with retail and mixed-use development prospects and an array of high street retail assets.

Recent News
On 27^th June 2019, the Company announced that the scrip dividend reference price for the fully paid shares in the company to be issued to shareholders who elect to receive the scrip dividend alternative for the first quarterly dividend per ordinary share for the financial year ending 2020 of 182.28 pence.

On 21^st June 2019, the group broadcast that it had signed the stakeholder’s agreement for the development of a new JV (joint venture) with BRAVO (BRAVO Strategies III LLC). Originally, the company will hold a 50 per cent interest in the gross assets of the JV and the company will benefit from 50 per cent of its net rental income.

Financial Highlights (FY2019, £ million)

(Source: Annual Report, Company Website)

On a proportionally consolidated basis, the company’s revenue increased to £127.1 million as compared with the financial year 2018 of £107 million. The fund from operations (FFO) declined from £60.3 million in FY18 to £56.4 million in FY19, due to an additional income generated over net acquisition activity offset by the absence of one-off receipts seen in the previous year (including profits on disposal of investment properties). IFRS loss after tax stood at £36.9 million, a decrease from the profit of £45.7 million in FY18, driven by a non-cash reduction in portfolio valuation of £89.5 million. FFO per share reduced by 2.7 pence to 18.5 pence as compared with the financial year 2018 of 21.2 pence. The full year ordinary dividend per share rose by 3 per cent to 21.6 pence against the 21 pence in FY18. The portfolio valuation increased to £1.3 billion as compared to £1.2 billion in FY18.

Share Price Performance

Daily Chart as at July-03-19, before the market closed (Source: Thomson Reuters)

On 3rd July 2019, at the time of writing (before the market close, GMT 11:26 AM), NRR shares were trading at GBX 178.60 and decreased by 0.667% against the previous day closing price. Stock's 52 weeks High and Low is GBX 287/GBX 175.60. The company’s stock beta stood at 0.38, reflecting lower volatility of the stock as compared to the benchmark index.

Valuation Methodology


Conclusion
The company is watchful of the ongoing Brexit uncertainty, but the business is well positioned and financially stable. The company recognise that the challenges facing the UK retail sector will continue in the near-term, but the group remain confident in the operating platform and excited about the opportunities this presents.

In pubs segment, the company expect those with a wet-led offer to continue to deliver performance,driven by their resilience to changes in consumer behaviour and their position at the centre of everyday life in communities across the UK.

Although the company’s revenue rose in the FY2019 period, the profitability margins have remained stagnant or declined. Moreover, the company’s stock is trading near its 52-week low, raising doubts at its upside potential at the current price level.

The leading company priority for the year ahead is to leverage the in-house expertise to re-establish an adequately covered dividend, by growing the income while maintaining a conservative balance sheet position. To achieve this, the group must capitalise on the prospect created from the accelerated risk in the UK retail real estate market and the need for specialist asset management and changes in the ownership of retail assets.

On the basis of above valuation, we recommend investors to keep a cautious “WATCH” on the stock at the closing price of GBX 179.80 (as on 2nd July 2019), with support from few catalysts needs to be evaluated at a later stage.
 
*All forecasted figures and peers have been taken from Thomson Reuters.

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