May 20, 2010 / 8:59 AM / in 8 years

UPDATE 2-Great Portland buys London offices as NAV rises

* NAV/share up 15.5 percent on year to 283 pence

* Recommends full-year dividend of 8 pence

* Expects office rents to peak again in four years

* Shares up 2 percent

(Adds analyst comment, CEO interview, share reaction)

By Daryl Loo

LONDON, May 20 (Reuters) - British landlord Great Portland GPOR.L said it had two new acquisitions as it sees better rental conditions in its core London office market after beating forecasts with a 15.5 percent annual rise in the value of its assets.

At 0852 GMT, Great Portland’s shares were up 1.2 percent at 302 pence, against the broader British property stocks index .FTELUK which was 0.4 percent higher.

“Great Portland currently ticks the right boxes -- further room for acquisitions, strong development potential and positive outlook for rental growth,” JPMorgan analyst Osmaan Malik, who has an “overweight” rating on the stock, said in a note.

It announced two new London acquisitions, which will provide about 310,000 square feet of office space. One of the purchases is a joint venture with U.S. real estate private equity firm Starwood Capital, worth a total of 129 million pounds ($184 million).

“When we raised capital from the market last year to invest in London to take advantage of price weakness due to the recession, we said we would invest that capital by the end of 2010,” Chief Executive Toby Courtauld told Reuters in an interview.

With the latest two deals, Great Portland has invested around 100 million pounds on top of the 166 million pounds raised in a rights issue last year.

“We’re well ahead of target,” Courtauld said, adding that purchases last year have outperformed its existing portfolio with a 24 percent jump in values.

Great Portland, which owns office and retail property mainly in London’s West End business district, said on Thursday its adjusted net asset value (NAV) per share at the end of March was 283 pence, ahead of the consensus forecast of 274 pence.

Land Securities LAND.L and British Land BLND.L, Britain’s two biggest property companies, both reported strong rises in full-year NAV earlier this week, and unveiled major office development plans in London amid a supply shortage. [ID:nLDE64B16H] [ID:nLDE6430HT]

RENTAL RECOVERY

Great Portland said rental values across its properties fell 6.2 percent over the year to March due to the recession, despite a 3.1 percent rebound in the final quarter led by London offices, but sees strong rental recovery in the coming years.

“We think the next peak for (office) rents is at least four years away, and that peak could well be higher than the last peak (in late 2008),” Courtauld said.

“When you have a serious supply shortage which we are going to have over the next two to three years, and you have economic growth, rents will rise faster that they otherwise do.”

It proposed total dividends of 8 pence per share, or a combined payout of 25 million pounds, in line with guidance.

Great Portland, which had net gearing of 26.5 percent at the end of March, along with cash and undrawn credit facilities of 477 million pounds, said it was on the lookout for more acquisitions and investments in new developments.

The company in March teamed up with Brookfield Properties BPO.TO, one of New York’s biggest landlords, to jointly develop the 100 Bishopsgate building in London while bank financing for new developments remains tight. [ID:nLEE6EV001]

“We have a development pipeline of about 2.8 million square feet, more than half of our existing asset base, so it’s a very substantial potential pipeline,” Courtauld said.

“The low gearing level allows us the financial flexibility without having to go back to our banks to seek finance.” (Reporting by Daryl Loo; editing by Sinead Cruise and Karen Foster) ($1 = 0.7017 pound)

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