REG - Derwent London PLC - Derwent London plc Third Quarter Business Update

Derwent LondonAnnouncement

02/11/2023 07:00

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RNS Number : 1086S  Derwent London PLC  02 November 2023

2 November 2023

Derwent London plc ("Derwent London" / "the Group")
THIRD QUARTER BUSINESS UPDATE

FURTHER STRONG OCCUPATIONAL ACTIVITY

Paul Williams, Chief Executive of Derwent London, said:

"London's diverse occupier base continues to prioritise quality, amenity and
location. Our distinctive portfolio has benefitted from these trends with
ongoing strong letting activity in H2, averaging 10% ahead of December ERV.
The opening of our second customer lounge is well-timed to further reinforce
our appeal. The investment market remains subdued, but our strong balance
sheet positions us well for the opportunities ahead."

 

Summary

Portfolio activity

·      Letting activity in H2 to date totals £8.5m, on average 10.0%
above December 2022 ERV. Key transactions were:

o  The Featherstone Building EC1 - 25,300 sq ft lettings to Tide and Avalere
Health

o  25 Baker Street W1 - 49,200 sq ft pre-let to Moelis

·      YTD lettings in 2023 total £27.8m, 8.1% above December 2022 ERV

·      EPRA vacancy rate reduced to 3.7% at 30 September 2023 (30 June
2023: 4.5%)

·      £12.5m of asset management transactions in H2 to date,
including:

o  Brunel Building W2 - Paymentsense has increased its space by 150% to
82,600 sq ft and the term on its leases has been extended to 2036, increasing
the WAULT on these five floors by 5.8 years to 12.7 years

·      Sales exchanged on four private residential units at 25 Baker
Street W1 for £21.5m with a further two under offer

Financial

·      EPRA LTV 25.2%(1) (30 June 2023: 25.0%) and ICR 4.2x (H1 2023:
4.1x)

·      Average interest rate paid at 30 September 2023 3.19%, unchanged
from 30 June 2023

·      Cash and undrawn facilities of £543m (30 June 2023: £562m)

·      Irrecoverable property expenditure reduced substantially in Q3
and is expected to be lower in H2 than H1

(1) LTV based on 30 June 2023 property values and includes the Group's share
of joint ventures

 

 

For further information, please contact:

 

 Derwent London                             Paul Williams, Chief Executive

 Tel: +44 (0)20 3478 4217 (Robert Duncan)   Damian Wisniewski, Chief Financial Officer

                                            Robert Duncan, Head of Investor Relations

 Brunswick Group                            Nina Coad

 Tel: +44 (0)20 7404 5959                   Sophia Lazarus

 

 

Webcast and conference call

 

There will be a webcast and conference call for investors and analysts at
09.00 GMT today. To participate in the call, please register here
(https://webcasts.derwentlondon.com/derwent072) .

Operational update (Appendices 1 & 2)

We have seen good demand for space across our villages. New leases totalling
£8.5m on 103,500 sq ft have been signed since the start of H2 2023, on
average 10.0% above December 2022 ERV, and with a weighted average lease term
of 7.8 years. This activity takes 2023 YTD lettings to £27.8m, on average
8.1% ahead of ERV, with a 10.0 year weighted average lease term.

Key H2 transactions include:

·      The Featherstone Building EC1: 14,400 sq ft to Tide and 10,900 sq
ft to Avalere Health at a combined annual rent of £1.9m and in line with ERV.

·      25 Baker Street W1: 49,200 sq ft pre-let to Moelis at an annual
rent of £4.9m, substantially above ERV.

In addition, £0.5m of retail leases have been signed in H2, taking year to
date to £3.5m, benefitting from the positive impact of the Elizabeth line on
London's retail market.

We have also completed £12.5m of asset management transactions in H2 to date.
The key transactions were:

·      Brunel Building W2: Paymentsense has taken an additional 49,600
sq ft, through a lease assignment from Splunk, increasing its occupancy by
150% to 82,600 sq ft. Simultaneously we have removed the lease break on its
existing space and extended the term across all five floors to 2036, with a
minimum rental uplift at review. This has extended the WAULT on these five
floors to 12.7 years from 6.9 years.

·      Tea Building E1: Monkey Kingdom has renewed its lease on 7,500 sq
ft at £0.5m, a level 9.1% above the previous rent and 4.3% above December
2022 ERV.

·      White Collar Factory EC1: rent review on 28,400 sq ft to AKTII
settled 15% ahead of their previous rent, and in line with December 2022 ERV.

These activities have helped reduce our EPRA vacancy rate to 3.7% at 30
September 2023, from 4.5% at 30 June 2023.

At 25 Baker Street W1, pre-sales on four of the 41 residential units under
construction have exchanged totalling £21.5m, an average of £3,215 psf. A
further two apartments are under offer. Overall, sale prices are ahead of our
appraisal levels.

Development progress (Appendix 3)

At 25 Baker Street W1, the office and residential structures are nearing
completion, and the façade installation is progressing well. Including the
office pre-lets to PIMCO and Moelis in Q1 and Q3, respectively, the commercial
element of this project is 76% pre-let or sold. In Q3 we signed a fixed price
contract for the private residential fit-out element.

At Network W1, construction is on programme with ground and basement works
complete and the core and upper floor slabs underway. The fixed price
construction contract, with Kier, was signed in Q2.

As a result, the construction costs at 25 Baker Street and Network are now
100% fixed.

Finance

Net debt increased marginally to £1,293m at 30 September 2023 from £1,274m
at 30 June 2023 due principally to project expenditure in the period of
£52.0m.

As a result, EPRA LTV, including the Group's share of joint ventures,
increased slightly through Q3 to 25.2% based on 30 June 2023 valuations, from
25.0% at 30 June 2023. Interest cover for the nine months to Q3 2023 was 4.2
times (H1 2023: 4.1 times) and cash and undrawn facilities totalled £543m at
the quarter end. 98% of Group debt is at fixed or hedged rates, with a
weighted average interest rate of 3.19% on a cash basis, unchanged from 30
June 2023.

Our next refinancing is in October 2024, an £83m secured facility with a
coupon of 3.99%. We have already had positive engagement with the existing
lender as well as a number of other parties.

The level of irrecoverable service charge was more than usual in both H2 2022
and H1 2023 due mainly to higher average vacancy rates and the spike in global
energy prices which also triggered a few service charge caps. As utilities
prices have reduced and average vacancy has come down, we have seen a reversal
of some of these charges in Q3 as well as a reduction in irrecoverable
costs.  We expect this to continue in Q4 but the overall level of
irrecoverable property expenditure is likely to be marginally higher in FY2023
than FY2022.

The interim dividend of 24.5p per share was paid on 13 October 2023.

Appendix 1: Leasing activity in 2023 to date

                  Let               Performance against

Dec 22 ERV (%)
                  Area     Income   Open market  Overall(1)

sq ft
£m pa
 Q1 2023          190,600  17.1     8.3          6.6
 Q2 2023          37,400   2.2      13.7         12.8
 H1 2023          228,000  19.3     8.9          7.3
 H2 2023 to date  103,500  8.5      10.0         10.0
 YTD              331,500  27.8     9.2          8.1

(1) Includes short-term lettings at properties earmarked for redevelopment

 

Appendix 2: Principal lettings in 2023 to date

 Property                       Tenant                  Area     Rent      Total annual rent  Lease term  Lease break  Rent free equivalent
                                                        sq ft    £ psf     £m                 Years       Year         Months
 H1
 25 Baker Street W1             PIMCO                   106,100  103.40    11.0               15          -            37
 The Featherstone Building EC1  Buro Happold            31,100   74.40     2.3                15          10(1)        24, plus 12 if no break
 One Oxford Street W1           Uniqlo                  22,200   Conf (2)  Conf (2)           10          5            12
 Tea Building E1                Jones Knowles Ritchie   8,100    60.00     0.5                10          5            12, plus 12 if no break
 The White Chapel Building E1   Comic Relief            5,000    61.90     0.3                5           3            6, plus 1 if no break
 Middlesex House W1             Zhonging Holding Group  4,200    81.00     0.3                3           1.5          -
 H2 to date
 25 Baker Street W1             Moelis                  49,200   100.00    4.9                15          10           24, plus 9 if no break
 The Featherstone Building EC1  Tide                    14,400   71.00     1.0                10          5            15, plus 11 if no break
 The Featherstone Building EC1  Avalere Health          10,900   81.00     0.9                10          5            5, plus 5 if no break
 Tea Building E1                Gemba                   7,100    63.80     0.5                5           -            8
 Tottenham Court Walk W1        Sostrene Greene         6,400    54.90     0.4                10          6            12

(1) There is an additional break at year 5 on level eight subject to a
12-month rent penalty payable by the tenant

(2) Uniqlo will pay a base rent (subject to annual indexation) plus turnover
top-up

 

 

Appendix 3: Major on-site development pipeline

 Project                                      Total    25 Baker Street W1  Network W1
 Completion                                            H1 2025             H2 2025
 Office (sq ft)                               350,000  218,000             132,000
 Residential (sq ft)                          52,000   52,000              -
 Retail (sq ft)                               33,000   28,000              5,000
 Total area (sq ft)                           435,000  298,000             137,000
 Est. future capex(1) (£m)                    289      191                 98
 Total cost(2) (£m)                           729      483                 246
 ERV (c.£ psf)                                -        95                  90
 ERV (£m pa)                                  32.4     20.0(3)             12.4
 Pre-let/sold area (sq ft)                    193,000  193,000(4)          -
 Pre-let income (£m pa, net)                  15.5     15.5                -
 Embodied carbon intensity (kgCO(2)e/sqm)(5)           c.600               c.530
 Target BREEAM rating                                  Outstanding         Outstanding
 Target NABERS rating                                  4 Star or above     4 Star or above
 Green Finance                                         Elected             Elected

(1) As at 30 June 2023. (2) Comprising book value at commencement, capex, fees
and notional interest on land, voids and other costs. 25 Baker Street W1
includes a profit share to freeholder, The Portman Estate. (3) Long leasehold,
net of 2.5% ground rent.

(4) Includes PIMCO and Moelis pre-lets, four private residential units plus
19,000 sq ft courtyard retail and 12,000 sq ft Gloucester Place offices
pre-sale to The Portman Estate. (5) Embodied carbon intensity estimate as at
stage 4 or 5.

 

 

Notes to editors

Derwent London plc

Derwent London plc owns 66 buildings in a commercial real estate portfolio
predominantly in central London valued at £5.2 billion as at 30 June 2023,
making it the largest London office-focused real estate investment trust
(REIT).

Our experienced team has a long track record of creating value throughout the
property cycle by regenerating our buildings via development or refurbishment,
effective asset management and capital recycling.

We typically acquire central London properties off-market with low capital
values and modest rents in improving locations, most of which are either in
the West End or the Tech Belt. We capitalise on the unique qualities of each
of our properties - taking a fresh approach to the regeneration of every
building with a focus on anticipating tenant requirements and an emphasis on
design.

Reflecting and supporting our long-term success, the business has a strong
balance sheet with modest leverage, a robust income stream and flexible
financing.

As part of our commitment to lead the industry in mitigating climate change,
Derwent London has committed to becoming a net zero carbon business by 2030,
publishing its pathway to achieving this goal in July 2020. In 2019 the Group
became the first UK REIT to sign a Revolving Credit Facility with a 'green'
tranche. At the same time, we also launched our Green Finance Framework and
signed the Better Buildings Partnership's climate change commitment. The Group
is a member of the 'RE100' which recognises Derwent London as an influential
company, committed to 100% renewable power by purchasing renewable energy, a
key step in becoming a net zero carbon business. Derwent London is one of the
property companies worldwide to have science-based carbon targets validated by
the Science Based Targets initiative (SBTi).

Landmark buildings in our 5.4 million sq ft portfolio include 1 Soho Place W1,
80 Charlotte Street W1, Brunel Building W2, White Collar Factory EC1, Angel
Building EC1, 1-2 Stephen Street W1, Horseferry House SW1 and Tea Building E1.

In January 2022 we were proud to announce that we had achieved the National
Equality Standard - the UK's highest benchmark for equality, diversity and
inclusion. In May 2023 we were recognised on the Sunday Times Best Places to
Work List 2023 within the medium-sized organisation category and in the
following month we won two OAS awards - West End New Build for Soho Place W1
and Developer of the Year whilst we were also highly commended for The
Featherstone Building in the City New Build category. In October 2023, White
Collar Factory EC1 won the BCO's Test of Time 2023 award, Soho Place W1 won
the British Construction Industry Awards' Best Commercial Property Project of
the Year and Derwent London was awarded the EG Employer Award. In March 2023
we placed in the top three of the Property Sector in Management Today's
Britain's Most Admired Companies awards 2022. In October 2022, 80 Charlotte
Street won the BCO's Best National Commercial Workplace award 2022.  In 2013
the Company launched a voluntary Community Fund which has to date supported
over 150 community projects in the West End and the Tech Belt. The Company is
a public limited company, which is listed on the London Stock Exchange and
incorporated and domiciled in the UK. The address of its registered office is
25 Savile Row, London, W1S 2ER.

For further information see www.derwentlondon.com
(http://www.derwentlondon.com) or follow us on X (Twitter) at @derwentlondon

 

Forward-looking statements

This document contains certain forward-looking statements about the future
outlook of Derwent London. By their nature, any statements about future
outlook involve risk and uncertainty because they relate to events and depend
on circumstances that may or may not occur in the future. Actual results,
performance or outcomes may differ materially from any results, performance or
outcomes expressed or implied by such forward-looking statements.

No representation or warranty is given in relation to any forward-looking
statements made by Derwent London, including as to their completeness or
accuracy. Derwent London does not undertake to update any forward-looking
statements whether as a result of new information, future events or otherwise.
Nothing in this announcement should be construed as a profit forecast.

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