REG - Derwent London PLC - First Quarter Business Update

Derwent LondonAnnouncement

09/05/2024 07:00

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RNS Number : 6869N  Derwent London PLC  09 May 2024

 

9 May 2024

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

DEMAND DRIVING RENTAL GROWTH

Paul Williams, Chief Executive of Derwent London, said:

"We are seeing further strengthening in occupational demand for our
well-located, design-led buildings. Rental growth has increased as
demonstrated by our leasing performance against ERV. As part of our strategy
of capital recycling, we were pleased to agree the sale of Turnmill above book
value, with proceeds to be re-invested into our higher returning West End
regeneration pipeline."

Summary

Portfolio

·      New leases totalling £5.4m have been signed since the start of
2024, with a further £4.3m under offer

o  Q1: £2.4m of lettings at an average 9.2% above December 2023 ERV, with
activity across the portfolio

o  Q2 to date: £3.0m, including the 17,100 sq ft pre-let to Cushman &
Wakefield at 25 Baker Street W1 on a 15-year lease at a rent of £1.8m
announced today

·      EPRA vacancy rate reduced to 3.7% at 31 March 2024 (31 December
2023: 4.0%)

o  58% of space available to occupy at December 2023 has either been leased
or is under offer, with good ongoing interest in the balance

·      Contracts exchanged in April to sell Turnmill EC1 for £77.4m
(before costs), a small premium to December 2023 book value

Developments

·      Substantial progress made at 25 Baker Street W1 with façade
works nearing completion; the office element is now 84% pre-let. In addition,
with fit-out works well underway, contracts have been exchanged on nine of the
41 private residential units at £54.0m. This is well ahead of the appraisal
value and represents over 30% of the residential floor area (project
completion due H1 2025)

·      Network W1 remains on programme. Works to the lift and stair core
have completed and super-structure works are underway. We are seeing
encouraging pre-letting interest (project completion due H2 2025)

Financial position at 31 March 2024

·      EPRA LTV 28.2%(1) (31 December 2023: 27.9%)

·      Interest cover 4.1 times (2023: 4.1 times)

·      Cash and undrawn facilities of £466m (31 December 2023: £480m)

(1) EPRA LTV based on 31 December 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                   Peter Hesse

 

Webcast and conference call

There will be a webcast and conference call for investors and analysts at
09.00 BST today. To participate in the call, please register here
(https://webcasts.derwentlondon.com/derwent075/vip_connect) .

Operational update (Appendices 1 & 2)

Since the start of 2024, we have signed £5.4m of new leases across 76,000 sq
ft, split £2.4m in Q1 and £3.0m in Q2 to date. In addition, £4.3m is under
offer. On average, new leases in Q1 were agreed at a 9.2% premium to December
2023 ERV and the WAULT to break on open market lettings was 7.4 years.
'Furnished + Flexible' lettings comprised 32% of new rent signed and were
19.8% above December 2023 ERV. Q2 activity includes the pre-let to Cushman
& Wakefield at 25 Baker Street W1, which has been agreed at a substantial
premium to December 2023 ERV.

We are seeing a positive trend of broader interest across all of our London
villages. Split by rent, 58% of year to date lettings were in the West End and
42% were in the City Borders.

Key transactions include:

·      25 Baker Street W1 - Cushman & Wakefield has pre-let 17,100
sq ft on the first floor on a 15-year lease (no break) at a rent of £1.8m
(£107.50 psf);

·      The White Chapel Building E1 - PLP Architecture has taken 22,300
sq ft on a 10-year lease (no break) at a rent of £1.1m (£50 psf);

·      The Featherstone Building EC1 - incident.io has taken 6,900 sq ft
on a 2-year 'Furnished + Flexible' lease at a rent of £0.6m (£86.70 psf);
and

·      One Oxford Street W1 - Starbucks has taken a 4,200 sq ft retail
unit on a 15-year lease, with a break at year 10, at a rent of £0.4m (£98
psf).

EPRA vacancy has reduced by 30bp to 3.7% at 31 March 2024 (31 December 2023:
4.0%). Of the £10.9m of space that was available to lease at December 2023
(our EPRA vacancy), 58% has either been leased (£3.1m) or is under offer
(£3.2m).

Rent and service charge collections remain high at 99% to date for the March
quarter day.

Disposals (Appendix 3)

In April, we announced that contracts had been exchanged for the disposal of
Turnmill EC1 to Titan Investors, a UK investment manager. The sale price
before costs of £77.4m, or £1,100 psf, is 3% above the December 2023 book
value and crystallises a 9.1% unlevered IRR for the Group since acquisition in
2004. The building is let to Publicis Groupe at a passing rent of £4.0m,
reflecting a net initial yield of 4.9% on a lease expiring in 2035, with a
tenant break in 2033.

Developments (Appendix 4)

25 Baker Street W1 remains on programme to be delivered in H1 2025 and façade
works are approaching completion. The main office element is now 84% pre-let
to PIMCO, Moelis and Cushman & Wakefield, at a total rent of £17.8m,
14.6% above the appraisal ERV. This leaves just over one floor remaining.
Contracts have been exchanged for the sale of nine of the 41 private
residential units for a combined £54.0m, substantially ahead of the appraisal
valuation, and comprising over 30% of the residential area. This reflects an
average capital value of £3,920 psf and a further three units are under
offer.

At Network W1, works to the core have completed and the super-structure,
comprising structural steelwork and innovative pre-cast concrete floor planks
which lower the project's embodied carbon footprint, is making good progress.
We are encouraged by the level of potential pre-letting demand, with interest
from multiple occupiers across different sectors.

 

 

 

Finance

Net debt increased marginally to £1,371m at 31 March 2024 from £1,357m at 31
December 2023. The increase is primarily due to project expenditure of £54m
offset by retained cash from operations. Disposal proceeds from the sale of
Turnmill are expected to be received in Q2 and payment of the final dividend,
which remains well covered by EPRA earnings, of 55.0p per share is due on 31
May 2024.

The EPRA LTV ratio was largely unchanged in Q1 at 28.2% (including share of
joint ventures) based on 31 December 2023 valuations compared to 27.9% at 31
December 2023. Interest cover for Q1 was 4.1 times (2023: 4.1 times) and cash
and undrawn facilities totalled £466m at the end of the quarter.

The Group's exposure to interest rate movements remains very low with 98% of
drawn debt either fixed or hedged. The weighted average interest rate at Q1
was 3.14% on a cash basis, a small reduction from 31 December 2023 as a
further £20m forward-start swap at 1.36% has been allocated against drawn
debt. Our next debt maturity is an £83m 3.99% secured loan in October 2024,
where we have made good progress on a replacement facility.

Appendix 1: Leasing activity in 2024 YTD

                Let              Performance against

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

sq ft
£m pa
 Q1             39,200  2.4      10.6         9.2
 Q2 to date     36,800  3.0      15.1         8.3
 Total to date  76,000  5.4      13.0         8.7

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

Appendix 2: Principal lettings in 2024 YTD

 Property                       Tenant                   Area    Rent    Total annual rent  Lease term  Lease break  Rent free equivalent
                                                         sq ft   £ psf   £m                 Years       Year         Months
 25 Baker Street W1             Cushman & Wakefield      17,100  107.50  1.8                15          -            34
 The White Chapel Building E1   PLP Architecture         22,300  50.00   1.1                10          -            24
 The Featherstone Building EC1  incident.io              6,900   86.70   0.6                2           -            1
 One Oxford Street W1           Starbucks                4,200   98.10   0.4                15          10           12

 

Appendix 3: Major disposals in 2024 YTD

 Property      Date  Area    Gross proceeds  Net     Net rental

sq ft
£m
yield
income

%
£m pa
 Turnmill EC1  Q2    70,300  77.4            4.9     4.0

 

Appendix 4: Major on-site development pipeline

 Project              Total    25 Baker Street W1  Network W1
 Completion                    H1 2025             H2 2025
 Office (sq ft)       352,000  218,000             134,000
 Residential (sq ft)  52,000   52,000              -
 Retail (sq ft)       33,000   28,000              5,000
 Total area (sq ft)   437,000  298,000             139,000

Notes to editors

Derwent London plc

Derwent London plc owns 66 buildings in a commercial real estate portfolio
predominantly in central London valued at £4.9 billion as at 31 December
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 160 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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