Questor share tip: Great Portland Estates builds on West End buys

Great Portland Estates

350.8p -5.5p

Questor says Buy

Commercial property and debt markets are too closely linked for brick-peddlers to be anything other than under pressure at the moment. Ongoing problems in the banking sector, compounded by national debt crises, have been weighing heavily on commercial property companies in recent months. Share prices of many of the larger companies in the sector are not far off the dark days of 2008.

The problem for the companies is two-fold. With debt-funding hard to come by it is not easy to see how capital values can rise appreciably in the near to mid term. Secondly, the knock-on effect banking issues have on the wider economy means the occupational market, companies renting space, is none too perky.

However, there are one or two areas of light in the gloom. Commercial property that is in the right area, with established management and a good development programme remains attractive to tenants and to lending banks. London, and particularly the West End, where the majority of Great Portland Estates property is held, remains attractive. The company added to its development portfolio on Monday, announcing the acquisition of a 2.3-acre site in the West End for £120m. It has also finalised a £132.7m joint venture to buy two office buildings on Gray's Inn Road on the edge of the City.

Under chief executive Toby Courtauld the company has built up a reputation for astute deals, Monday's news proving there are opportunities in the current market.

The company trades on a dividend yield of around 2.3pc. Its share price is at an appreciable discount to the company's last reported net asset value per share, 375p. However, investors looking for that gap to close could be left waiting. Commercial property companies rarely trade at anything other than a discount.

The investment in Great Portland is in management, location and experience. The company ticks all three boxes.

It may be weighed down by macro-issues but this should be offset by its own performance and sector.

Buy.