REG - Derwent London PLC - Q1 2022 Business Update

Derwent LondonAnnouncement

05/05/2022 07:00

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RNS Number : 3576K  Derwent London PLC  05 May 2022

 

5 May 2022

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

Well positioned in continuing flight to quality

Summary

Portfolio update - letting space above ERV

·      £3.9m of new leases achieved YTD, 8.2% above December 2021 ERV

·      In addition, £3.3m of space is under offer, at rents above ERV,
including 28,000 sq ft at The Featherstone Building EC1 (125,000 sq ft) which
reached practical completion in April

·      3.1% EPRA vacancy rate at Q1 2022 (FY2021: 1.6%), with current
vacancy at 6.4%, in line with our expectations and principally reflecting
Featherstone completion

Investment activity - adding c.1.0m sq ft to the development pipeline

·      Conditional exchange of contracts for the £239m acquisition of
City Road Island EC1 (the site of the Moorfields Eye Hospital) in the Tech
Belt adding a potential 750,000+ sq ft regeneration super-site - see separate
announcement for further details

·      Completed the purchase of 230 Blackfriars Road SE1, a future
super-site, for £58.3m currently yielding £2.1m pa

Major developments on track - delivering net zero carbon schemes

·      1 Soho Place W1 achieved practical completion in February.
Occupier fit-out of the fully pre-let offices has commenced. The adjacent 2
& 4 Soho Place W1 is expected to complete in Q2 2022

·      Commitment to Network Building W1 (137,000 sq ft of offices).
Start on site June 2022

Financial position - strong balance sheet

·      LTV 23.2%(1) at Q1 2022

·      Cash and undrawn facilities of £441m at Q1 2022

(1 )LTV based on 31 December 2021 property values and includes the Group's
share of joint ventures

 

Paul Williams, Chief Executive of Derwent London, said:

"London is busy again and maintains its global appeal in an uncertain macro
environment. The flight to quality continues, our portfolio is well positioned
and we are seeing a high level of enquiries and viewings. As a result, we have
committed to our next major office development at Network Building."

 

For further information, please contact:

 

 Derwent London             Paul Williams, Chief Executive

 Tel: +44 (0)20 7659 3000   Damian Wisniewski, Chief Financial Officer

                            Robert Duncan, Head of Investor Relations

 Brunswick Group            Nina Coad

 Tel: +44 (0)20 7404 5959   Emily Trapnell

 

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 at
www.derwentlondon.com (http://www.derwentlondon.com)

 

 

 

Portfolio update (Appendices 1 & 2)

New leases totalling £3.9m of rent on 64,700 sq ft have been achieved in the
year to date at an average 8.2% above December 2021 Estimated Rental Values
(ERV). A further £3.3m is under offer. With the shortage of Grade A space
becoming more apparent, many occupiers are prepared to pay premium rents for
space that meets their requirements.

 

Our EPRA vacancy rate at 31 March 2022 was 3.1%, up from 1.6% at 31 December
2021. One-third of the year-end vacancy has already been let or is under
offer. Following completion of The Featherstone Building EC1 in April, the
current EPRA vacancy rate is 6.4%, in line with our expectations, and we have
45,000 sq ft under offer. This includes 28,000 sq ft at Featherstone at rents
ahead of ERV with further negotiations underway.

 

Overall rent collection so far for the March 2022 quarter has reached 98%, in
line with pre-pandemic levels, with 99% of office rents collected.

 

Capital recycling (Appendix 3)

We have exchanged conditional contracts for the acquisition of City Road
Island EC1 for a base price of £239m before costs. This 2.5 acre freehold
site is located in the heart of the Tech Belt, an area where we have
substantial holdings and have undertaken several regeneration schemes over
many years. Our early appraisals show the site has potential to deliver a
major 750,000+ sq ft campus with generous public realm and strong
environmental credentials. The existing buildings total c.400,000 sq ft. See
separate announcement for further details.

 

In January, we completed the acquisition of 230 Blackfriars Road SE1 for
£58.3m including costs. This 60,300 sq ft building, with an income of £2.1m
pa, has potential for a 200,000+ sq ft scheme. This super-site adds to our
long-term development pipeline. Completion of the disposal of New River Yard
EC1 for £65.9m (after rental top-ups) is scheduled for this month. The sale
of 2 & 4 Soho Place W1 is due to complete later in Q2 for £40.5m before
costs.

 

Development progress (Appendix 4)

Good progress has been made this year on our near-term developments, including
The Featherstone Building as noted above. In February, 1 Soho Place W1 reached
practical completion and a new headlease from TfL was subsequently granted for
£71.9m. Leases on the offices, which were 100% pre-let to Apollo and
G-Research, have now completed and the 36,000 sq ft of retail was launched
last week. We are confident in the prospects for this space which we expect to
benefit from the forthcoming opening of the Elizabeth line. 2 & 4 Soho
Place W1 is due to reach practical completion imminently.

 

At Network Building W1, our latest net zero carbon development, we have
committed to develop the office-led scheme (137,000 sq ft, 96% uplift on
existing area). Work is due to commence in June 2022.

 

19-35 Baker Street W1 (298,000 sq ft, an uplift of 108%) commenced in October
2021 with demolition works due to complete shortly. As previously reported, we
have signed the building contract and 97% of capex on the office element (80%
of the overall scheme) is fixed and in line with budget, thereby reducing our
exposure to further build cost inflation. Completion is scheduled for H1 2025.

 

Finance

After capex of £38.6m and acquisitions of the Soho Place headlease and 230
Blackfriars Road, net debt increased to £1,368.5m at 31 March 2022 from
£1,251.5m at 31 December 2021.

 

As at 31 March 2022, the LTV ratio was 23.2% based on 31 December 2021
valuations, including the Group's share of joint ventures, up from 20.8% at 31
December 2021. Interest cover for the first three months of 2022 was 4.1 times
(FY 2021: 4.6 times) and cash and undrawn facilities totalled £441m at the
quarter end.

 

 

Appendix 1: Leasing activity 2022 YTD

               Let              Performance against

                                Dec 21 ERV (%)
               Area    Income   Open market  Overall

sq ft
£m pa
 Q1            55,500  3.5      6.8          6.8
 Q2 (to date)  9,200   0.4      20.0         20.0
 H1 2022       64,700  3.9      8.2          8.2

(to date)

 

 

 

Appendix 2: Principal lettings in 2022 YTD

 Property                  Tenant                      Area    Rent    Total annual rent  Lease term  Lease break  Rent free equivalent
                                                       sq ft   £ psf   £m                 Years       Year         Months
 Q1
 90 Whitfield Street W1    Michael Kors                18,850  72.50   1.4                10          -            24
 White Collar Factory EC1  Brain Labs Digital          11,540  71.70   0.8                6           -            10.4
 80 Charlotte Street W1    NewRiver REIT               4,090   70.00   0.3                5           -            11
 Holden House W1           Talon Outdoor               5,120   49.50   0.3                5           3.5          6
 Q2 (to date)
 230 Blackfriars Road SE1  Wandle Housing Association  7,290   49.50   0.4                7.5         4            7, plus 6 if

no break
 Sub-total                                             46,890  68.30   3.2                -           -            -
 Other                                                 17,810  39.30   0.7                -           -            -
 Total                                                 64,700  60.30   3.9                -           -            -

 

Appendix 3: Major acquisitions and disposals in 2022 YTD

 Property                        Date  Area    Total after costs  Net     Net      Net

sq ft
£m
yield
rental
rental

%
income
income

£m pa
£ psf
 Acquisition
 230 Blackfriars Road SE1        Q1    60,300  58.3               3.5     2.1      41.00
 Soho Place W1 headlease         Q1    -       71.9               -       -        -
 Total acquisitions                    60,300  130.2              -       2.1      -
 Disposals
 New River Yard EC1 (exchanged)  Q1    70,700  65.9(1)            4.5     3.3

(1) After deduction of rental top-ups

 

 

 

 

Appendix 4: Major developments pipeline

 Property                       Proposed area  Capex to complete  Comment
                                sq ft          £m(1)
 H1 2022 completion
 The Featherstone Building EC1  125,000        10                 110,000 sq ft offices, 13,000 sq ft workspaces, 2,000 sq ft retail - 22% under
                                                                  offer.
 On-site projects
 Soho Place W1                  285,000        79(2)              209,000 sq ft offices, 36,000 sq ft retail and 40,000 sq ft theatre - 87%
                                                                  pre-let / pre-sold.

                                                                  Completes H1 2022.
 Francis House SW1              38,000         10                 38,000 sq ft offices - 100% pre-let.

                                                                  Completes H1 2022.
 19-35 Baker Street W1          298,000        266(3)             218,000 sq ft offices, 28,000 sq ft retail, 45,000 sq ft private residential
                                                                  and 7,000 sq ft affordable residential. Demolition about to complete, piling
                                                                  underway.

                                                                  Completes H1 2025.
                                621,000        355
 2022 project starts
 Network Building W1            137,000        c.100              Committed to 137,000 sq ft office-led scheme. 96% uplift on existing floor
                                                                  area.
 Bush House WC2                 130,000        c.100              Refurbishment and extension project, totalling c.130,000 sq ft. Potential 25%
                                                                  uplift to existing floor area.
                                267,000        c.200
 Total                          1,013,000      565

(1) As at 31 December 2021
(2) Includes remaining site acquisition cost and potential profit share to
Crossrail

(3) Includes potential profit share to The Portman Estate

 

 

Notes to editors

 

Derwent London plc

 

Derwent London plc owns 77 buildings in a commercial real estate portfolio
predominantly in central London valued at £5.7 billion as at 31 December
2021, making it the largest London-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 only
a few property companies worldwide to have science-based carbon targets
validated by the Science Based Targets initiative (SBTi).

 

Landmark buildings in our 5.6 million sq ft portfolio include 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 April 2022, Derwent London won the BCO Best Commercial Workplace
award for 80 Charlotte Street. In October 2021, the Group won EG's UK Company
of the Year award and in January 2022 came top of the Property Sector and 38th
position overall in Management Today's Britain's Most Admired Companies awards
2021. In 2020 the Group won several awards for Brunel Building with the most
prominent being the BCO Best Commercial Workplace award. In 2019 the Group won
EG Offices Company of the Year, the CoStar West End Deal of the Year for
Brunel Building and Westminster Business Council's Best Achievement in
Sustainability award. In 2013 the Company launched a voluntary Community Fund
and has to date supported well over 100 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 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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