Chief Executive, Great Portland Estates
Great Portland Estates CEO: government must commit to labour mobility in Budget
Toby Courtauld, the chief executive of Great Portland Estates, most of whose £2.7billion property portfolio is in London's West End, tells Sky News he hopes the Chancellor will make commitments to infrastructure, Crossrail 2, and encourage labour mobility in next week's Budget.
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About Toby Courtauld
In a June 2014 interview, Toby Courtauld, Chief Executive of Great Portland Estates, stated that the business had performed "very well" over the previous year, with the portfolio valuation up nearly 19% and net asset value (NAV) up almost 28%. He attributed this to exceptional results in the development business, which rose 31%, and rental growth of 8.2%, which he said outpaced the market average of around 6%. Courtauld claimed the company beat all of its main comparative benchmarks for the year. Courtauld also discussed the company's strategy, noting that with yields at relatively low levels, the firm aimed for high operational gearing and low financial gearing. He highlighted that loan-to-value was around 25%, interest cover was above four times, and the weighted average interest rate was 3.5%. He expressed confidence in future performance, citing low average rents in core London office and retail locations, and predicted continued rental growth, particularly in retail on streets like Oxford Street and Bond Street, where he said demand was high and new supply limited.
Transcript (16 segments)
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Interviewer0:00
So what do you make of this research suggesting that GDP ahead in the UK would be 11% lower were it not for London?
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Toby Courtauld0:06
Well, I think it's first of all a very interesting number. Second of all, it demonstrates straight away how important London as an economy is to the UK overall. And by the way, I've seen numbers that are far higher than 11%. I couldn't tell you why there are differences as there are, but I have seen numbers that go as high as 20 to 25% of GDP as London's contribution. And whether it's 11%, 15% or 25%, the fact remains this is a crucial part of the overall UK economy. And it's one that we should treat with great respect, and we should treasure, and we should seek to grow.
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Interviewer0:41
How do we do that?
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Toby Courtauld0:43
Many ways, I think. I think we know a lot of the challenges we face as Londoners. They relate to housing clearly, they relate to infrastructure. We are huge fans at Great Portland of the Crossrail new infrastructure coming on stream later next year. We would urge the government to consider the investment in Crossrail 2, for example. We think we need a solution, whether it's Heathrow or Gatwick in a sense doesn't matter, maybe it should be both, but we need a solution to the air transport infrastructure issues. And we need to keep investing in infrastructure at the local level, whether it's tube upgrades, whether it's pedestrianization of streets like Oxford Street. We need to continue that investment.
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Interviewer1:27
Now turning to your results today, it's very striking you're not predicting the downturn in rents that you were six months ago.
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Toby Courtauld1:36
That's right. We took a view six months ago that this year would be somewhere between flat to down 7.5% in the rental values that we report. Halfway through the year, we traveled well. We've been leasing extremely strongly. The developments that we brought on stream have been very successful. And halfway through the year, in fact, rents have been up 0.7%. So we're ahead of our original forecasts. And as a result, we've upgraded our estimates for the balance of the year so that we're reflecting the better trading environment in the first half that we've seen.
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Interviewer2:10
And yet you are currently a net seller of assets. So what's happening here?
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Toby Courtauld2:15
This is really playing to the model of our business. We look to buy in raw material assets that we know we can improve. And then once we have done so, they will often appeal to the sort of overseas investor that we've seen in London over the last few years because of the longevity of the income. And they typically come from Asia. And we have been selling some of those sorts of assets to the Asian investors. And then we're looking to re-employ that capital into new opportunities, but those opportunities aren't yet available in the same degree as the sales are. So we are selling more than we're buying. But that doesn't matter in a sense. There's always a bit of a disconnect. And one of the great things about our business, 40% of it is in development stock that we know we can invest in over the next few years. So while we wait for the acquisitions, we've got a lot of work to do to get our developments going.
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Interviewer3:04
I guess it's quite encouraging though that there is still such demand from overseas investors for London property given the sort of background noise about Brexit.
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Toby Courtauld3:15
Yes, it's really interesting. And I agree, there is a great deal of interest. I think it's a little bit more discerning than perhaps it was a couple of years ago. No doubt that some investors look upon Brexit with a bit of a concern. But it is the case that we're still seeing large amounts of equity capital looking to buy in London. And the reasons, I think, are fairly evident. It is either number one or number two globally as an economic powerhouse city. I think long term we believe that that will stay the case. And these investors are typically long-term investors. They're looking through the uncertainties of the next few years. Rule of law, absolute English, sitting between the dumbbells of the US economy and the Chinese economy, perfectly positioned from a geopolitical standpoint. And I think it's a very attractive place for these investors to place investments over the long term.
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Interviewer4:08
And what about the attitude of tenants and would-be tenants right now? Are you seeing much postponement of letting decisions due to the economic uncertainty right now?
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Toby Courtauld4:19
It's difficult to put a number on. I think there is some evidence that businesses are deferring decisions where they don't have to be made. There was a London First survey out a few weeks back that looked at exactly this question. And I think they identified that circa 40% of those asked had decided not to make employment decisions because of the uncertainties, not just around Brexit but the consequences of all the macro economic uncertainty. And so therefore, there are people who are deferring decisions. We are seeing some making active decisions to address Brexit by putting some people into Europe. And I expect we'll see more of that as the next six to 12 months unfolds and we get more of an idea as to how our relationship will look.
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Interviewer5:08
A lot of people in the commercial property world put a great deal of stock by bond yields and the bond market when they're making investment decisions and pricing. We've just seen the Bank of England raise interest rates a tad for the first time in a decade. Is that going to really move the needle much in your opinion in our markets?
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Toby Courtauld5:26
Not really. The credit markets are pretty open. We are seeing good quality income streams and good quality sponsors able to attract good levels of cost in their debt books. And that isn't really affected by the overnight rates. We typically borrow between five and ten years out. And at those sorts of durations, the market's already priced in the short end of the curve, so we're not seeing it. It might have some degree of impact in the confidence in the housing markets and the overnight mortgage markets. But again, I think in the main, people are borrowing longer than overnight, so I suspect the impacts are fairly small.
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Interviewer6:05
And we have a budget next week. What would be top of your wish list?
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Toby Courtauld6:09
Top of the wish list is going to be anything that the chancellor can do to encourage confidence in the UK and, crucially, as a London business, confidence in London. So we're looking for commitments to infrastructure. We're looking for commitments particularly to, for example, Crossrail 2. We're going to be very interested to see how he deals with, if at all, the very important question of labor mobility. So whether it's Europeans in London and the ability for them to remain here, or indeed for businesses within London to have their staff moving around the continent and doing what they do. And I think it's crucial that we maintain a relatively open door to allow for businesses to operate in ways that they have become used to doing so. Because if we don't, businesses are footloose and we risk losing them from London.