This report provides an integrated analysis of the Great Portland Estates in the perspective of investors, and conclusions with the decision to invest in it. Firstly, the company strategy is explained and analyzed in the context of its market environment. Secondly, an evaluation of financial performance is made through the explanation of KPIs performance, accounts analysis and the judgment on the market value and risk. Accounts analysis made in terms of profitability, efficiency and liquidity, while Market value is judged in the terms of share price performance and investor ratios: market capitalization, total shareholder return, dividend yield, and E/P ratios. Beta and gearing based on both book value and market value is used to assess the risk in investment. Thirdly, the composition and competence of the board is judged according to the UK Corporate Governance Code, agency theory, and shareholder theory. Finally, an investment decision is made, integrating all the above analysis together.
2. Company Background
The Great Portland Estates（GPE）is a FTSE 250 Central London commercial property investment and development company. It is classified by FTSE in the real estate investment trust sector of real estate industry. This company focuses on office and retail properties in Central London, and has developed a reputation as an “office specialist on West End” (Financial Times, 2014). By sticking to a market they know inside and out, investing and selling at the right point of property cycle, and reshaping properties to match the changing needs of tenants, Great Portland Estates generated strong and stable shareholder returns since 2009. Currently, the company is working on an office space program at New Fetter Lane which is pre-let and to be completed by late 2015, and four development/refurbishment programs on the East End of Oxford Street including Oxford House and Rathbone Square.
3. Strategy and Aims
3.1 Strategy and KPI
Quoting what Great Portland Estates states in its annual report, its strategy is: “to generate superior portfolio and shareholder returns from investing in and improving central London real estate”. We break this strategy into two parts. Firstly, to generate superior portfolio, the company needs to know what the tenants regard as superior, in other words, to figure out what the tenants demand. Secondly, to generate shareholder returns, the company needs to balance the return and risk in the Central London Market, which is highly cyclical. Therefore, the success of this strategy reliant on two factors: firstly, keeping up with the demand of tenants, and secondly, correctly reading the property cycle of Central London. To do so, the company designed a business model, which integrated four parts: Asset Management, Investment Management, Development Management and Financial Management. The aim of Asset management is to match the property portfolio with the need of tenants, and the aim of Ives Investment Management, Development Management and Financial Management is to buy, deliver, and sell properties at the right point of the market cycle, maximizing shareholder value while controlling risk. We think that the business model of the company is a good one. However, the success of future relies on consistent good governance and a continuous strong demand in the UK. We will examine this later in our report.
The company uses 3 Group uses 3 Group Key Performance Indicators to measure its performance and success: Total Shareholder Return, EPRA Net Assets per Share Growth and Total Property Return. Total shareholder return measures the strategic success of the company in the terms of generating shareholder return EPRA Net Assets per Share Growth measures the ability of the company to create value as a real estate investment and development company. Total Property Return measures the performance of the property portfolio in generating income. The latter two index measures the strategic