16 November 2023

Positioned strongly for return of the cycle

The Directors of Great Portland Estates plc announce the results for the Group for the six months ended 30 September 2023¹, with highlights including:

·     Strong leasing as customers demand best, sustainable spaces; record 13.4% ahead of ERV²

·     Upgrading rental value growth guidance to +2.5% to +5.0%, +3.0% to +8.0% for Prime office

·     Central London busy and workers have returned; 75% portfolio in West End, 93% near Elizabeth Line

·     £123m of acquisitions; two Flex & one HQ opportunity, with more expected in 2024

·     Flex space increased to 434,000 sq ft; £5.4 million of Fully Managed lettings 13.6% ahead of Flex ERV

·     Delivering more than 1 million sq ft of Grade A, sustainable spaces into supply drought; commitment to French Railways House, SW1 development

·     Yield driven valuation decline of 10.3% (ERVs up 1.8%); IFRS & EPRA NTA per share of 650 pence

·     Stable EPRA EPS and ordinary dividend 4.7 pence, in-line with guidance

·     More than £500 million liquidity with new term loan signed; LTV 28.9%; £0.3 billion sales under discussion

·     Cycle returning; GPE strong track record & positioning to capitalise on emerging market opportunities

Toby Courtauld, Chief Executive, said: "Whilst macro-economic concerns and rising interest rates impacted our property valuation, the fundamentals in our leasing markets remain healthy. With customers increasingly demanding the very best, sustainable spaces, and discounting the rest, they are competing in a market increasingly starved of new, Grade A supply, putting further upward pressure on prime rents and we have upgraded our rental growth forecasts for the second half.

With further selective yield expansion a possibility, our investment markets remain relatively quiet, although we are exploiting these conditions to our advantage. We bought three buildings in the period, all off market and adding to both our Flex and development programmes. Looking forward, we expect further acquisition opportunities to emerge, and with our trademark disciplined capital management, we will continue to recycle capital, selling properties to crystallise value on completion of our business plans.

In this context, GPE's positioning is strong; 75% of our portfolio is in the heart of the West End; our substantial capex programme will deliver the prime spaces the market demands; our Flex office offer is growing, is well suited to evolving customer needs, as evidenced by our market-leading NPS score, and is delivering our highest rental growth; and our strong balance sheet and plentiful liquidity combined with our long track record of creating opportunities in cyclical markets means that we are well positioned to capitalise. With GPE in great shape, and London set to outperform, we look to our future with confidence."

Strong leasing, record 13.4% ahead of ERV²; Flex currently 434,000 sq ft, targeting one million sq ft

·     37 new leases and renewals generating annual rent of £11.2 million p.a. across 113,500 sq ft, market lettings 13.4% above March 2023 ERV including:

o  three Fitted and nine Fully Managed leases, achieving on average £220 per sq ft on the Fully Managed space, 13.6% ahead of March 2023 ERV; and

o  18 new retail leases securing £4.1 million of rent, with market lettings 18.1% ahead of March 2023 ERV

·     Our committed Flex offer now 434,000 sq ft, targeting growth to one million sq ft

·     Rent roll up 4.2%; vacancy 3.5% (Mar 2023: 2.5%); reversion up to 13.5%

·     Further £7.3 million of lettings under offer, 5.7% above March 2023 ERV

·     Senior operational team changes to further enhance market-leading customer experience and satisfaction

ERVs up 1.8%³, with valuation down 10.3%³ driven by yield expansion; EPRA⁴ NTA per share of 650 pence

·     Portfolio valuation of £2.3 billion, down 10.3%³; -9.6% offices (inc. Flex -7.1%) and -12.4% retail

·     Rental values up by 1.8%³ (+1.9% offices (inc. Flex +1.7%) and +1.2% retail); yield expansion of 43 bp

·     Portfolio rental value growth guidance upgraded to 2.5% to 5.0% for financial year, prime offices 3% to 8%

·     IFRS NAV and EPRA⁴ NTA per share of 650 pence, down 14.1% since March 2023

·     EPRA⁴ earnings of £11.8 million, up 3.5% on 2022. EPRA⁴ EPS of 4.7 pence, up 4.4%

·     IFRS loss after tax of £253.4 million; loss per share of 100.1 pence; interim dividend maintained at 4.7 pence

Two Flex acquisitions and acquisition of HQ development opportunity in Soho Square, W1

·     Three acquisitions (£123 million) including:

o  Two Flex (£53 million) inc. 141 Wardour Street, W1 in core Soho for £39 million (£1,156 per sq ft) and Bramah House, 65/71 Bermondsey Street, SE1 for £14 million (£892 per sq ft)

o  HQ development opportunity on Soho Square, W1 for £70 million (£772 per sq ft on consented NIA)

·     More opportunities to come, one building under offer further £0.7 billion under review

Committed capex of £392 million, including French Railways House, SW1; Soho Square added to pipeline

·     Good progress at our pre-let net-zero carbon 2 Aldermanbury Square, EC2; existing building deconstructed; anticipated completion Q1 2026

·     Commitment to major office-led redevelopment at French Railways House, SW1, to provide 67,600 sq ft (up from 54,700 sq ft) of new Grade A space; reusing steel from City Place House, EC2

·     Planning permission obtained for the redevelopment of Minerva House, SE1 and work underway to prepare the site for a potential start early next year

·     Reviewing the Planning Inspector's report and Secretary of State's planning refusal at New City Court, SE1

·     Significant refurbishment programme to enhance our Fully Managed offer inc. 6/10 St Andrew Street, EC4

·     With construction cost inflation moderating, programme well timed to deliver into supply constrained market

Significant liquidity; new £250 million Term Loan; £508 million⁵ of cash & undrawn facilities; EPRA LTV 28.9%

·     EPRA LTV of 28.9%, weighted average interest rate of 3.8%, cash and undrawn facilities of £508 million⁵ ; weighted average debt maturity of 5.1 years

·     New £250 million unsecured Term Loan drawn in October

¹ All values include share of joint ventures unless otherwise stated    ² Leasing in period to 30 September 2023  ³  On a like-for-like basis     ⁴ In accordance with EPRA guidance. 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 like-for-like figures to aid in the comparability of the underlying business and proportionately consolidated measures, which represent the Group's gross share of joint ventures rather than the net equity accounted presentation included in the IFRS financial statements. These metrics have been disclosed as management review and monitor performance of the business on this basis. We have also included a number of measures defined by EPRA, which are designed to enhance transparency and comparability across the European Real Estate sector, see note 7 to the financial statements. Our primary NAV metric is EPRA NTA which we consider to be the most relevant investor measure for the Group. ⁵ Pro forma for new Term Loan

The results presentation will be broadcast live at 8.30am today with the link available at:

www.gpe.co.uk/investors/latest-results

A conference call facility will also be available to listen to the presentation at 10.00am today on the following numbers:

UK: 0808 109 0701 (freephone) International: +44 (0) 33 0551 0202
Conference PIN: 0863454#

A video interview with Toby Courtauld and Nick Sanderson is available, along with accompanying presentation materials and appendices, at:

www.gpe.co.uk/investors/latest-results

For further information see www.gpe.co.uk or follow us on Twitter at @GPE_London

LEI Number: 213800JMEDD2Q4N1MC42

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 business

Our business is accompanied by graphics (see Appendix 1 and 3)

Our leasing activities

During the six months to 30 September 2023, demand in our occupational markets remained robust despite the challenging macro environment and we continued to secure new lettings materially ahead of the valuer's estimates. Key highlights include:

·           37 new leases were signed during the first half (2022: 63 leases), generating annual rent of £11.2 million (our share: £10.5 million; 2022: £15.1 million), with market lettings 13.4% above March 2023 ERVs (offices; 11.1%; retail 18.1%), including:

o    three Fitted and nine Fully Managed leases, achieving on average £220 per sq ft on the Fully Managed space, 13.6% ahead of March 2023 ERV; and

o    18 new retail leases securing £4.1 million of rent with market lettings 18.1% ahead of March 2023 ERV.

·           three rent reviews securing £5.7 million p.a. (our share: £3.2 million; 2022: £5.2 million) of rent were settled during the half year, 3.0% ahead of previous passing rent and 20.4% ahead of ERV;

·           total space covered by new lettings, reviews and renewals during the first half was 182,900 sq ft (2022: 358,000 sq ft);

·           92% (by area) of the 90 leases with breaks or expiries in the twelve months to 30 September 2023 were retained, re-let, or are under offer, leaving only 35,300 sq ft still to transact; and

·           following the successful leasing period, the Group's rent roll has increased by 4.2% to £110.9 million whilst the Group's vacancy has increased to 3.5% (31 March 2023: 2.5%).

The table below summarises our leasing transactions in the period:

Note: Includes joint ventures at share

Notable transactions during the six months included:

·      At the Hickman, E1, the building is now fully let following letting the remaining office space to a digital transformation company, which will occupy 6,757 sq ft on the second floor on a Fitted five-year lease with an option to break at year three;

·      At our Piccadilly Buildings, San Carlo, the award-winning restaurant group, signed a lease for its new flagship Cicchetti, occupying 7,000 sq ft over ground and basement floors, across two units;

·      At 16 Dufour's Place, W1, we renewed the 3rd floor (3,100 sq ft) lease with a marketing firm on a Fully Managed basis. They have taken an additional two year lease, paying a rent of £278 per sq ft, an increase of 53% on their previous terms. Since inception, our retention rate across our Fully Managed spaces has been 85%; and

·      On Regent Street we completed two flagship retail lettings to The North Face and JOSEPH. The North Face has traded successfully at GPE's Walmar House site since 2015 and signed a 10 year lease on an additional 10,000 sq ft ahead of March 23 ERV. Further south on Regent St, British contemporary designer fashion brand, JOSEPH, has also signed a lease for a new store located at Kingsland House, 124 Regent Street, W1, completing the repositioning of the retail offering at the building.

At 30 September 2023, the Group's vacancy rate (including share of joint ventures) was 3.5%, up from 2.5% at 31 March 2023. The average passing rent across our office portfolio was £71.80 per sq ft, down from £72.20 per sq ft at 31 March 2023.

Since 30 September 2023, our leasing activity included:

·    At the Hickman, E1, we completed the letting to New Look on the third and fourth floors (23,242 sq ft) on a Fitted basis on ten-year leases with an option to break at year seven. New Look is an existing GPE customer and will vacate 35,860 sq ft at Wells & More, W1, which will provide GPE with the opportunity to refurbish and re-lease the space in this prime Fitzrovia location; and

·    Currently we have 88,800 sq ft of space under offer which would deliver approximately £7.3 million p.a. in rent (our share: £4.7 million), with market lettings 5.7% above March 2023 ERVs.

On track to create 1,000,000 sq ft of Fitted and Fully Managed office spaces

Evolving patterns of work are changing what many customers want from their office space. Across our smaller office floors, rather than providing Ready to Fit space for our customers to make their own, we are making occupation of our spaces easier by providing these floors on a Fitted basis, or increasingly overlaying service provision on a Fully Managed basis. Today, our committed Flex offerings are an integral part of our office offer and total 434,000 sq ft, comprising 128,000 sq ft of Fitted space, 189,000 sq ft of Fully Managed space (of which 75,000 is let with the remainder under refurbishment) and Flex partnerships of 117,000 sq ft. During the period, our activities included rolling out our Fully Managed offering to a number of floors across the portfolio, including Kent House,W1, Woolyard, SE1 and Alfred Place, WC1.

Looking forward, our portfolio is well suited to further Flex growth. Our average building size is small at around 65,000 sq ft and more than 80% of our floors are sub-10,000 sq ft. Accordingly, we are targeting to grow Flex organically to more than 640,000 sq ft, with the majority of the growth to be offered on a Fully Managed basis. Most of this growth will be delivered as we complete the refurbishment of 6/10 St Andrew Street, EC4 in 2024, and 7/15 Gresse Street, WC1, 141 Wardour Street, W1, and Bramah House, SE1, which are anticipated to complete in 2025 and 2026. Furthermore, we are excited for opportunities to further supplement this growth through acquiring buildings that lend themselves to our flexible space offer. In total, we are now targeting growth, both organically and through acquisition, to one million sq ft.

Team reorganisation to meet evolving market needs

During the period, we made a number of operational team changes to enhance the delivery of our market-leading, Customer First approach, as we continue to innovate, further digitise our activities, grow our Flex workspace offer and deliver both great spaces and experiences for our customers. These included:

·    Rebecca Bradley's role as Director of Customer Experience has been expanded to include leadership of our new Customer Strategy & Insights team. Her responsibilities include the strategic and operational delivery of customer experience across all our spaces, ensuring both strong customer relationship management and retention;

·    Simon Rowley has assumed the newly created role of Director of Flex Workspaces, as we focus on growing our Flex offer to more than one million sq ft;

·    Jordan McLean has joined GPE in the newly created role of Director of IT, Innovation & Digital Transformation. With over 25 years of experience, Jordan has a proven track record in driving business transformation through digital solutions, including spending 10 years in the retail sector with Morrisons and Asda; and

·    Helen Hare's role as Director of Projects has been expanded and now includes responsibility for our Building Surveying and Technical Services teams.

Steven Mew (Customer Experience & Flex Director), David O'Sullivan (Director of Workplace Services) and James Pellatt (Director of Innovation) will be leaving GPE and we would like to thank them for their loyal service and contribution to the organisation and senior leadership team.

Our development activities and capex programme

We have continued to make progress across our development pipeline and we have advanced our plans to further invest in the expansion of our Fully Managed office spaces. Since March 2023, we have committed to the 67,600 sq ft development of French Railways House, SW1 and continued to make good progress at 2 Aldermanbury Square, EC2 which is scheduled to complete in Q1 2026 with the offices 100% pre-let. Whilst we were unsuccessful in our planning applications at New City Court, SE1, during the period we have added to the pipeline with the acquisition of the Soho Square Estate, W1. In total we have committed capital expenditure of £392 million across four development and Flex schemes, with a further £358 million that we could potentially commence over the next five years.

Two committed development schemes, including new commitment at French Railways House, SW1

Following the agreement of a new headlease at French Railways House, SW1 in July 2023, we are now committed to the redevelopment of the site. Our major office-led redevelopment will provide 67,600 sq ft (up from 54,700 sq ft) of new Grade A space. The scheme is expected to complete in mid-2026 and will embrace the principles of the circular economy. We will retain the existing foundations and basement, typically the largest embodied carbon element of a building, and construct a lightweight building above to allow the retention of the substructure. We will also reuse the structural steel from the demolition of 2 Aldermanbury Square, EC2 in its construction. This will almost eliminate the embodied carbon in the steelwork and allow for the delivery of 9,500 sq ft best in class, column-free floorplates.

Good progress ahead of potential start at Minerva House, SE1

During the period, Southwark Council resolved to grant planning permission for the redevelopment of Minerva House, SE1 and good progress has been made to prepare the site for a potential start early next year. Our plans will take the overall commercial space to 143,100 sq ft, an increase of approximately 56% on the existing area.

We plan to reposition the building to take full advantage of its Thames river frontage and, by adding additional storeys, create outdoor terraces and amenity space with commanding views over central London. The refurbishment will also improve the public realm around the building, creating new and improved connections through the site as well as attractive new gardens that will contribute to local greening and biodiversity and provide space for people to enjoy in the setting of Southwark Cathedral. Our proposals will retain and reuse the majority of the existing building's structure, including two primary façades, greatly reducing the carbon impact of the development. Furthermore, we expect to deliver BREEAM Outstanding, NABERS 5*, WELL Core Platinum, WiredScore Platinum, SmartScore Platinum and CyclingScore Platinum accreditations.

Planning applications at New City Court, SE1 refused

We submitted two planning applications to Southwark Council to redevelop New City Court, SE1 on the Southbank, the first in December 2018 for a 372,500 sq ft scheme, and a second in April 2021 for a 389,100 sq ft scheme.

In January 2022, having explored all avenues to have both schemes approved without success, we regretfully appealed for non-determination. This triggered a planning inquiry that closed in August 2022. In September 2023, we received confirmation that the Planning Inspector's report recommended the planning applications were refused and the Secretary of State agreed with its conclusions. We are carefully reviewing the Planning Inspector's report and Secretary of State's decision and will provide a further update in due course. New City Court currently has a rent roll of £2.9 million.

Adding to the pipeline with the acquisition of the Soho Square Estate, W1

Building on our successful track record at the eastern end of Oxford Street, we have added to our near-term programme with the acquisition of 16/19 Soho Square, 29/43 Oxford Street and 7 Falconberg Mews, W1 for £70 million (£772 per sq ft on consented NIA). The 56,150 sq ft mixed-use buildings are currently multi-let at c.£1.5 million p.a. with vacant possession expected by March 2024. The 0.5 acre site benefits from planning consent to demolish the existing buildings and deliver around 91,000 sq ft of new Grade A office and prime retail space.

The buildings are located in the heart of the West End at the eastern end of Oxford Street and back onto Soho Square, just 100 metres from the new Tottenham Court Road Elizabeth Line station. GPE intends to re-work the designs to improve the quality of office and retail space, further increasing its attractiveness to prospective customers in a materially undersupplied market. The redevelopment will provide a best-in-class HQ office building on Soho Square with flagship retail fronting Oxford Street, arranged over basement, lower ground, ground and eight upper floors, with multiple private terraces and a communal roof terrace.

Significant refurbishment programme underway to enhance our Fully Managed office offer

As we grow our flexible office offer, we are currently refurbishing three buildings to provide new dedicated Fully Managed spaces as well as converting a significant number of floors across our portfolio. The buildings being refurbished include 6/10 St Andrew Street, EC4 and Alfred Place, WC1 which together will deliver around 86,000 sq ft of well designed, tech-enabled and sustainable space which will also benefit from high levels of service delivery and amenity provision. Beyond these buildings, we are anticipating commencing Egyptian House, SW1, 141 Wardour Street, W1 and Gresse Street, W1 in 2024.

Together with other flex and refurbishment capex across the portfolio, this programme will total around £170 million and, once delivered, will increase our flexible office offerings to around 642,000 sq ft.

Our investment activities

The investment market has slowed significantly over the period as inflation has remained persistently ahead of projections, resulting in the expectation that interest rates will need to remain higher for longer. This has put upward pressure on property yields reducing values, particularly in the City. Whilst most values have fallen, the declines have not been uniform. Better quality assets have been more resilient, further widening the gap between the best and the rest. In this context, we are well placed. Our business model requires raw material, typically short let, low quality buildings in prime locations, to reposition towards prime. Markets such as these provide opportunities to acquire at cyclically attractive pricing and during the period we made three acquisitions stocking our Fully Managed and HQ development pipelines.

Three acquisitions for £123 million

In May we acquired the freehold interest at 141 Wardour Street W1 for £39 million (£1,156 per sq ft). The 33,717 sq ft building is currently vacant, has been stripped out and benefits from planning consent for a comprehensive refurbishment. The building is located in the heart of Soho, within five minutes walking distance of the new Tottenham Court Road Elizabeth line station. Following our substantial refurbishment, the building will provide outstanding Fully Managed office space designed to meet evolving customer needs and GPE's net zero carbon commitments.

Also in May, we acquired Bramah House, 65/71 Bermondsey Street, SE1 for £14 million, reflecting a 5.9% net initial yield and a capital value of £892 per sq ft. The 15,696 sq ft freehold building is currently multi-let with a WAULT of 3.2 years to expiries. The property is located opposite our existing ownership at Woolyard. Together, both buildings will create a GPE Fully Managed campus on Bermondsey Street, adjacent to London Bridge Station.

As detailed earlier, in August, we also acquired King Sloane Properties Limited, which owns the freehold interests at 16/19 Soho Square, 29/43 Oxford Street and 7 Falconberg Mews, W1.

Further opportunities to come

Looking ahead, we anticipate that market conditions will continue to provide opportunities to buy. We are monitoring the market closely and have around £0.7 billion of potential acquisitions currently under review. Our focus remains on development and repositioning opportunities, buildings that would suit our flex offer and assets that are challenged from a sustainability perspective. We also have around £300 million of sales under discussion where we have completed our business plans, which, once sold, will provide additional firepower to take advantage of current market conditions.

Valuation

Valuation is accompanied by graphics (see Appendix 2)

The valuation of the Group's properties was £2,302.7 million as at 30 September 2023 (31 March 2023: £2,380.0 million), reflecting a valuation decrease of 10.3% on a like-for-like basis since 31 March 2023. At 30 September 2023, the wholly-owned portfolio was valued at £1,819.1 million (31 March 2023: £1,855.5 million) and the Group had three active joint ventures which owned properties valued at £483.6 million (our share) (31 March 2023: £524.5 million) by CBRE. At 30 September 2023, 75% of our portfolio was located in the West End.

Yield driven valuation decline

The key drivers behind the Group's valuation movement for the six-month period were:

·           higher investment yields - given the backdrop of higher interest rates, equivalent yields increased by 43 basis points over the period (office +35 basis points; retail +52 basis points) reducing valuation. City yields increased by 63 basis points. At 30 September 2023, the portfolio true equivalent yield was 5.2 % (West End: 5.1%; Rest of central London: 5.7%) and reversionary yield was 6.2%;

·           rental value growth - the continued demand for our best in class spaces has helped increase our rental values. Since the start of the financial year, rental values increased by 1.8% on a like-for-like basis, with our flex offices increasing by 1.7% and our overall office portfolio up by 1.9%, whilst our retail portfolio increased by 1.2%;

·           developments - the valuation of our committed development properties decreased by 33.0% on a like-for-like basis to £129.5 million during the period, given development returns are more sensitive to movements in investment yields; and

·           portfolio management - a strong six months, 37 new leases, rent reviews and renewals were completed, securing £13.7 million (our share) of annual income, supporting the valuation. At 30 September 2023, the portfolio was 13.5% reversionary.

Including rent from pre-lets and leases currently in rent free periods, the topped-up initial yield of the investment portfolio at 30 September 2023 was 4.2%, 40 basis points higher than the start of the financial year.

Whilst the overall valuation decreased by 10.3% during the six months on a like-for-like basis, (or cumulatively by 16.2% from the 31 March 2022 peak), elements of the portfolio continued to show greater variation:

·           our Flex office space reduced in value by 7.1% outperforming the Group's wider office space which fell by 9.6% in value, after a 49 basis point yield shift in comparison to a 35 basis point movement for the whole office portfolio;

·           retail space underperformed offices falling in value by 12.4% resulting from a greater yield expansion of 52 basis points;

·           including developments, our West End portfolio (-7.1%)  performed better than our rest of London portfolio (-18.5%), given a more aggressive yield expansion in the City (+63 bp) versus +32 bp for the West End;

·           newer, higher quality buildings outperformed older assets, with those assets with a capital value per sq ft in excess of £1,000 per sq ft, reducing in value by 5.0% compared to those with a capital value per sq ft of less than £1,000 per sq ft which reduced by 18.2%; and

·           buildings with better sustainability credentials outperformed. Buildings with an EPC rating of A or B reduced in value by 6.2%, out-performing properties with an EPC of C or D which fell by 16.0% in the six months.

Near-term market outlook

Our markets are cyclical, as a result, we actively monitor numerous lead indicators to help identify key trends in our marketplace. Over the last six months, given the increased economic uncertainty, our property capital value indicators have deteriorated from those we reported in May. Investment market activity has remained subdued, with current levels of interest rates and uncertainty putting some upward pressure on yields. However, we anticipate that once there is confidence that rates have peaked, and inflation is under control, investment activity will return given the weight of money waiting on the sidelines to invest.

In the occupational market, given the scarcity of high quality spaces in central London we expect our leasing and rental performance of the portfolio in the first half of the year to continue. Accordingly, we have upgraded our rental value growth range for the financial year to 31 March 2024 to between 2.5% and 5.0%.

Our financial results

Our financial results are accompanied by graphics (see Appendix 4)

We prepare our financial statements using IFRS. We also use a number of Alternative Performance Measures (APMs) to help explain the performance of the business. These include quoting a number of measures on a proportionately consolidated basis to include joint ventures, as it describes how we manage the portfolio, like-for-like measures and using measures prescribed by the European Public Real Estate Association (EPRA). The measures defined by EPRA are designed to enhance transparency and comparability across the European real estate sector. Reconciliations of APMs are included in note 7 to the accounts.

We calculate net assets and earnings per share in accordance with EPRA's Best Practice Recommendations. 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. EPRA's Best Practice Recommendations include three NAV metrics: EPRA Net Tangible Assets (NTA), Net Reinvestment Value (NRV) and Net Disposal Value (NDV). We consider EPRA NTA to be the most relevant investor metric for the Group and the primary measure of net asset value and relevant reconciliations between IFRS numbers and EPRA metrics are included in note 7 to the accounts.

Valuation fall from yield expansion drives 14.1% decrease in EPRA NTA per share

IFRS NAV per share and EPRA NTA per share at 30 September 2023 were 650 pence per share, a decrease of 14.1% over the last six months, largely due to the 10.3% like-for-like decrease in the value of the property portfolio. The main drivers of the 107 pence per share decrease in NTA from 31 March 2023 were:

·           the decrease of 104 pence per share arising from the revaluation of the property portfolio;

·           EPRA earnings for the period of 5 pence per share increased NTA; and

·           the final dividend of 8 pence per share reduced NTA.

The EPRA NTA decrease of 14.1%, combined with the payment of last year's final dividend of 7.9 pence per share, delivered a total accounting return for the six months to 30 September 2023 of minus 13.1% (2022: -4.0%).

At 30 September 2023, the Group's net assets were £1,647.1 million, down from £1,918.6 million at 31 March 2023, with the decrease largely attributable to the fall in property valuation. EPRA NDV per share reduced marginally to 680 pence at 30 September 2023 compared to 790 pence at 31 March 2023 (down 13.9%), supported by the impact of rising interest rates on the fair values of our fixed rate low coupon debt.

Earnings stable, in line with guidance and our portfolio activities

Revenue from our wholly-owned properties rose from £43.5 million to £47.6 million. Whilst rental income (including the spreading of lease incentives) was largely stable, service charge income rose by £3.8 million as we recovered higher service charge spend across the portfolio and Fully Managed services income rose from £1.4 million to £2.7 million as we continued to roll out and lease up our flexible office offer.

Adjusting for acquisitions, disposals and transfers to and from the development programme, like-for-like rental income (including from joint venture properties) increased 5.8% on the prior period after estimated credit loss provisions.

Cost of sales increased from £14.2 million to £16.3 million for the period to 30 September 2023, with the increase primarily due to higher service charge expenses as a result of increased redecoration and refurbishment works and higher utility costs. This increase was in part offset by lower other property costs due to reduced levels of vacancy and the recovery of business rates paid in prior years.

Administration costs were £20.9 million, an increase of £3.3 million, primarily driven by inflationary pressures on employee costs, including provisioning for share-based payments, along with investment associated with further digitising our business, including the delivery of a new CRM.

EPRA earnings from joint ventures (excluding fair value movements) were £5.9 million, an increase of £3.0 million from the prior year, largely driven by Hanover Square, W1 now being fully let in addition to receiving an insolvency settlement at Mount Royal, W1 from the Arcadia administration, which had previously been written off. In total, our joint ventures delivered a IFRS loss before tax of £39.6 million (2022: £14.8 million).

Gross interest on our debt facilities was £10.4 million, up £2.1 million on the prior period. This increase was primarily due to higher drawn balances, and higher underlying rates, on our £450 million revolving credit facility. We capitalised interest of £4.3 million (2022: £4.6 million). As a result, the Group had net finance costs (including interest receivable) of £4.4 million (2022: £1.9 million).

EPRA earnings were £11.8 million, 3.5% higher than for the same period last year. Revaluation losses together with EPRA earnings resulted in an IFRS loss after tax of £253.4 million (2022: £86.6 million). The basic and diluted loss per share for the period was 100.1 pence, compared to loss of 34.3 pence per share for 2022. Diluted EPRA earnings per share was 4.7 pence (2022: 4.5 pence). Looking forward, we anticipate that the combination of higher interest rates and increased vacancy, as we refurbish our spaces for our Flex offerings and commit to our near-term developments, will reduce the Group's earnings over the forthcoming 18 months.

Results of joint ventures

The Group's net investment in joint ventures was £500.4 million, a decrease from £538.8 million at 31 March 2023, largely due to an 8.2% like-for-like decrease in value of the property portfolio. Our share of joint venture net rental income was £10.0 million, up from £8.4 million last year primarily as a result of the leasing activity at Hanover Square, W1 completing. The underlying joint venture profits are stated after charging £0.6 million of GPE management fees (2022: £1.5 million) with the decrease attributable to a reduction in leasing fees following the completion of leasing at Hanover Square, W1.

Overall, our three active joint ventures represent an important proportion of the Group's business. At 30 September 2023, joint ventures represented 21.0% of the portfolio valuation, 30.4% of net assets and 22.5% of rent roll (31 March 2023: 22.0%, 28.1% and 23.9% respectively).

Strong liquidity; more than £500 million of cash and undrawn facilities; EPRA LTV 28.9%

The Group's consolidated net debt increased to £663.3 million at 30 September 2023, compared to £457.7 million at 31 March 2023. The increase was largely due to three acquisitions in the period totalling some £123.0 million (excluding costs) as well as the on-going development capital expenditure across the Group of £51.4 million in the six months. Group gearing increased to 40.5% at 30 September 2023 (31 March 2023: 24.0%). Including cash balances in the joint ventures, total net debt was £638.0 million (31 March 2023: £440.0 million) equivalent to an EPRA loan to value of 28.9% (31 March 2023: 19.8%).

The Group is operating with substantial headroom over its debt covenants. At 30 September 2023, property values would have to fall by around 38% before covenant breach. Through the cycle, the Group aims to maintain a target LTV range between 10% and 35%, consistent with our low leverage levels over the last 10 years. Our interest cover ratio under our Group covenants was high at 6.2 times (covenant: 1.35 times).

The Group's weighted average cost of debt, including fees, for the period was 3.7% (year to 31 March 2023: 3.0%). The weighted average interest rate (excluding fees) at the period end was 3.8%, up from 2.7% at 31 March 2023, as we increased amounts drawn on the RCF over the period, which had an all-in rate of 6.1% at 30 September 2023.

In September 2023, we agreed a new £250 million unsecured Term Loan at a headline margin of 175 basis points over SONIA with three existing relationship banks. The loan has an initial three-year term which may be extended to a maximum of five years at GPE's request, subject to bank consent. GPE has put in place a £200 million interest rate cap to protect against any further increases in rates whilst preserving the benefit of any reductions. The loan was drawn on 9 October 2023. Following this financing, the Group has cash and undrawn credit facilities in excess of £500 million. This significant liquidity will support the delivery of our strategic priorities, including funding the Group's near-term development programme and the Group's £175 million private placement debt maturity in May 2024.

Today, including the new Term Loan, 93% of the Group's total debt was at fixed or capped rates (31 March 2023: 97%), 97% (31 March 2023: 95%) was unsecured and our weighted average drawn debt maturity was 4.7 years (31 March 2023: 6.4 years).

Taxation

The tax charge in the income statement for the half year was £nil (2022: £0.1 million credit) and the effective tax rate on EPRA earnings was 0% (2022: 0%). The majority of the Group's income is tax-free as a result of its REIT status. Other allowances were available to set against non-REIT profits.

As a REIT, the majority of rental profits and chargeable gains from our property rental business are exempt from UK corporation tax, provided we meet a number of conditions including distributing at least 90% of the rental income profits of this business (known as Property Income Distributions (PIDs)) on an annual basis. These PIDs are then typically treated as taxable income in the hands of shareholders. During the six months ended 30 September 2023, the Group paid a PID of £20.0 million.

The Group's REIT exemption does not extend to either profits arising from the sale of trading properties or gains arising from the sale of investment properties in respect of which a major redevelopment has completed within the preceding three years.

Dividends

The Board has declared an interim ordinary dividend of 4.7 pence per share (2022: 4.7 pence) which will be paid on 4 January 2024. None of this interim dividend will be a REIT Property Income Distribution (PID) in respect of the Group's tax-exempt property rental business.

Principal risks and uncertainties

The Group recognises that the successful management of risk is critical to enable delivery of the Group's strategic priorities. Ultimate responsibility for risk rests with the Board but the effective day-to-day management of risk is integral to the way the Group does business and its culture. The Board undertakes a robust assessment of the principal risks facing the Group on a regular basis.

The principal risks and uncertainties facing the Group for the remaining six months of the financial year remain in line with those detailed on pages 64 to 77 of the 2023 Annual Report with no material changes:

The Board and Executive Committee continue to regularly review the potential risks and impacts presented by the volatile economic backdrop, including in relation to elevated levels of inflation and higher underlying interest rates, as well as the potential impacts of geo-political tensions arising from events both in the Ukraine and, more recently, the Middle East. The Board also continues to monitor both short-term impacts and potential longer-term structural changes in working practices, an evolving planning regime and the level and nature of demand for space in central London.

As a result of heightened economic uncertainty, the Group's forecasts and business plans continue to be prepared under a variety of market scenarios to reflect a number of potential outcomes.

Condensed group income statement

For the six months ended 30 September 2023

All results are derived from continuing operations in the United Kingdom and are attributable to ordinary equity holders.

Condensed group statement of comprehensive income

            For the six months ended 30 September 2023

Condensed group balance sheet

At 30 September 2023

* Cash and cash equivalents and monies held in trade and other payables have been restated as at 30 September 2022 following clarification by IFRIC on classification of funds with externally imposed restrictions, see note 1 for further details.

Condensed group statement of cash flows

For the six months ended 30 September 2023                      

* Cash and cash equivalents and payables in respect of customer deposits have been restated as at 1 April 2022 and 30 September 2022 following clarification by IFRIC on classification of funds with externally imposed restrictions. As a result, the previously reported cash flows from operating activities for the period ended 30 September 2022 decreased from £1.8 million to £1.7 million. There was no impact on the other components of the statement of cash flows for the period ended 30 September 2022. See note 1 for further details.