Grosvenor has reported a total return of 2.7% in 2017, down from 8% the year before, as revenue profits rocketed by 81%.
The group said that the drop in total return reflected weak valuation movements in the UK and Europe, as well as sterling’s appreciation.
The property company’s significant profit growth came on the back of a doubling in profit in both the Britain & Ireland and Americas divisions.
Grosvenor Britain & Ireland’s profits rose to £48.4m, up from £23.9m in 2016 with the result mainly attributable to the trading profit from its Campden Hill development in Kensington, W8. Developed in joint venture with Native Land, the scheme comprises 72 private flats and 97 homes of mixed-tenure affordable housing.
The division’s total return was 1.3%, up from 0.3%, reflecting” slightly negative valuation movements but higher revenue profit”.
Chief executive, Mark Preston, said: “Our financial performance in 2017 proved much more resilient than expected, leading to the achievement of our second highest revenue profit on record.
“The lack of correlation in the performance of our regional operating companies yet again demonstrated the benefits of operating as an internationally diversified property company, thanks, in particular, to Grosvenor Americas more than doubling 2016’s revenue profit and strong results in our Indirect Investment business.
“We are resolutely committed to international diversification. Our plan is to deepen our activity in those cities in which we have developed a presence, which we believe will outperform financially, and which offer opportunities to improve properties and places to provide a positive impact on communities, neighbourhoods and cities.”
Almost half (49%) of Grosvenor’s property assets are now held outside of the UK.
Grosvenor said its “strong financial capacity” of £1.4bn, down from £1.7bn in 2016 would enable the group to take advantage of investment and development opportunities “even if markets turn and others are unable to readily access finance. Grosvenor said it remains committed to its £5.2bn development pipeline, despite an expectation that global real estate markets are likely to face a “challenging” 2018.
Preston added: “The global economy is expected to enjoy a strong co-ordinated recovery in 2018, with all regions forecast to record solid growth. Yet, we remain mindful that the cycle is at a fairly mature stage and investors will have to adjust to the prospect of a rising global cost of capital. While we continue to see positive rental growth prospects in a number of our main markets, there is now limited potential for further fall in yields. Indeed, the majority of prime yields in the 25 global cities that we track are now in ‘over-valued’ territory – with low yields and low spreads.
“Despite Brexit, the UK remained fairly resilient in 2017. However, it feels like a uniquely uncertain time – and it is this, more than Brexit per se, which is likely to constrain growth in the economy in 2018 and 2019.
“In this environment, we expect our returns in 2018 not to be substantially different from those in 2017.”
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