REG - Derwent London PLC - Q1 2023 Business Update

Derwent LondonAnnouncement

04/05/2023 07:00

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RNS Number : 3334Y  Derwent London PLC  04 May 2023

 

4 May 2023

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

STRONG OPERATIONAL PROGRESS

Paul Williams, Chief Executive of Derwent London, said:

"London, particularly the West End, is busy and people are back in the office.
Occupier demand continues to favour amenity-rich, well designed and
sustainable space, evidenced by a strong Q1 with £17.1m of new lettings
across our portfolio on average 6.6% above ERV. Our EPRA vacancy rate has
reduced to 4.9% and we have made good progress at our on-site developments."

Summary

Portfolio

·      Letting activity in Q1 totalled £17.1m at an average 6.6% above
December 2022 ERV. Key transactions in the period were:

o  One Oxford Street W1 - 22,200 sq ft flagship retail letting to Uniqlo

o  25 Baker Street W1 - 106,100 sq ft pre-let to PIMCO two years ahead of
completion

o  The Featherstone Building EC1 - 31,100 sq ft letting to Buro Happold

·      EPRA vacancy rate reduced to 4.9% at 31 March 2023 (31 December
2022: 6.4%)

·      Disposal in January of 19 Charterhouse Street EC1 for £53.6m
(after costs), £0.6m above December 2022 book value

Developments

·      Following the pre-let to PIMCO, 25 Baker Street W1 is 56% pre-let
or sold and construction works are now above ground (completion due H1 2025)

·      At Network W1, demolition and piling are now complete and
basement works are underway (completion due H2 2025)

Financial position at 31 March 2023

·      EPRA LTV 23.1%(1) (31 December 2022: 23.9%)

·      Cash and undrawn facilities of £610m (31 December 2022: £577m)

(1) LTV based on 31 December 2022 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 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 here
(https://webcasts.derwentlondon.com/derwent070) .

Operational update (Appendices 1 & 2)

New leases totalling £17.1m on 190,600 sq ft of space were achieved in Q1
2023 on average 6.6% above December 2022 ERV (8.3% above ERV excluding
short-term lettings). The weighted average lease term (to break) of these
lettings is 12.0 years. Key transactions include:

·      One Oxford Street W1 (Soho Place): 22,200 sq ft flagship retail
unit let to Uniqlo, comprising a base rent (subject to annual indexation) plus
turnover top-up, in line with December 2022 ERV.

·      25 Baker Street W1: 106,100 sq ft pre-let to PIMCO at an annual
rent of £11.0m, significantly above December 2022 ERV. The development is
scheduled for completion in H1 2025.

·      The Featherstone Building EC1: 31,100 sq ft to Buro Happold at an
annual rent of £2.3m, in line with December 2022 ERV.

These transactions reflect the evolving nature of London's office market. We
believe our buildings are well placed to capture current and future demand as
the way businesses use their office space changes in this dynamic environment.

Our EPRA vacancy rate reduced from 6.4% at 31 December 2022 to 4.9% at 31
March 2023, with £1.8m of rent either signed in Q2 to date or under offer.

For the March quarter day, office rent collected to date stands at 98%.

Capital recycling (Appendix 3)

In January, we announced the disposal of 19 Charterhouse Street EC1 for net
proceeds of £53.6m to a private investor. The disposal price represents a
4.6% net initial yield out to lease expiry in mid-2025 and was £0.6m ahead of
the December 2022 book value.

Development progress (Appendix 4)

The 25 Baker Street W1 project remains on budget and programme with
construction works now well above ground. Following the pre-let to PIMCO in Q1
2023, the commercial element is now 56% pre-let or pre-sold. We have fixed 97%
of construction costs of the office element (80% of the total) with the
residential fit-out costs still to be finalised.

At Network W1, the on-site works are making good progress with demolition and
piling works complete and basement works underway.

Sustainability

New Minimum Energy Efficiency Standards (MEES) legislation for commercial
buildings came into effect in April 2023, requiring an EPC of E or above. Our
portfolio was already 100% compliant. In addition, we are 85.7% compliant with
2027 MEES legislation (EPC C or above) and 65.3% compliant with expected 2030
legislation (EPC B or above).

Finance

Net debt decreased to £1,225.2m at 31 March 2023 from £1,257.2m at 31
December 2022 with net disposal proceeds of £53.6m offsetting capital
expenditure in the period of £29.1m. Payment of the final dividend of 54.5p
per share is due on 2 June 2023.

The EPRA LTV ratio reduced through Q1 to 23.1% based on 31 December 2022
valuations, including the Group's share of joint ventures, from 23.9% at 31
December 2022. Interest cover for Q1 2023 was 4.2 times (FY 2022: 4.2 times)
and cash and undrawn facilities totalled £610m at the quarter end. Neither of
the Group's revolving credit facilities, which total £550m, were drawn at 31
March 2023. Accordingly, 100% of Group debt remains at fixed rates, with a
weighted average interest rate of 3.13% on a cash basis. Our next refinancing
is in October 2024, an £83m secured facility with a coupon of 3.99%.

Appendix 1: Leasing activity in Q1 2023

          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

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

Appendix 2: Principal lettings in Q1 2023

 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             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
 Tea Building E1                Jones Knowles Ritchie  8,100    60.00         0.5                10          5            12, plus 12 if no break
 1 Soho Place W1                Uniqlo                 22,200   Confidential  Confidential(2)    10          5            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) Rent comprises base rent which is subject to annual indexation, plus a
turnover top-up

 

Appendix 3: Major disposals in Q1 2023

 Property                    Date     Area    Net proceeds  Net     Net rental

sq ft
£m
yield
income

%
£m pa
 19 Charterhouse Street EC1  Q1 2023  63,200  53.6          4.6     2.6

 

Appendix 4: 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)                  324      217(3)              107
 Total cost(2) (£m)                         708      463                 245
 ERV (c.£ psf)                              -        90                  87.5
 ERV (£m pa)                                30.3     18.4(3)             11.9
 Pre-let/sold area (sq ft)                  137,100  137,100(4)          -
 Embodied carbon intensity (kgCO2e/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             To be elected

(1) As at 31 December 2022. (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 pre-let, 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 70 buildings in a commercial real estate portfolio
predominantly in central London valued at £5.4 billion as at 31 December
2022, 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 5.5 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 October 2022, 80 Charlotte Street won the BCO's Best National
Commercial Workplace award 2022. 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 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 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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