REG - Derwent London PLC - Q3 2019 Business Update

Derwent LondonAnnouncement

07/11/2019 07:00

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RNS Number : 5451S
Derwent London PLC
07 November 2019
 
Derwent London plc ("Derwent London" / "the Group")
THIRD QUARTER BUSINESS UPDATE
FURTHER STRONG LETTING PROGRESS AND REFINANCING
 
Highlights
·      Lettings year to date total £33.5m on 486,600 sq ft, on average
7.0% above December 2018 ERV
o  Includes 83,100 sq ft pre-let to Apollo Management International at 1 Soho
Place W1
o  EPRA vacancy rate down to 0.6% from 1.8% in December 2018
·      790,000 sq ft under construction with 70% of commercial space
pre-let, of which:
o  80 Charlotte Street W1 - 92% pre-let, completion H1 2020
o  Soho Place W1 - 76% pre-let, completion H1 2022
o  The Featherstone Building EC1 - completion H1 2022
·      Capital expenditure on projects of £155.7m in the nine months to
30 September 2019
·      Property disposals of £181.7m (Group's share) in the year to
date, 6.2% above December 2018 values
·      LTV ratio at 30 September 2019 was 16.4%(1) with £560m of
undrawn facilities and cash
·      Signed a new five-year £450m revolving credit facility including
a £300m 'green' tranche
·      The Group joined the Better Buildings Partnership and signed
their Climate Change Commitment
 
Paul Williams, Chief Executive of Derwent London, said:
"Our strong pre-letting activity continues, demonstrating the consistent
demand for our product and for London office space.  In addition we have
extended our main revolving credit facility, which includes an innovative
green tranche linking the financing of our developments to their environmental
impact."
 
(1) LTV based on June 2019 property values
 
Webcast and conference call
 
There will be a live webcast together with a conference call for investors and
analysts at 09:00 GMT today.  The audio webcast can be accessed via
www.derwentlondon.com. (http://www.derwentlondon.com/)
 
To participate in the call, please register at www.derwentlondon.com
(http://www.derwentlondon.com)
 
 
 
 
For further information, please contact:
 
 Derwent London             Paul Williams, Chief Executive
 Tel: +44 (0)20 7659 3000   Damian Wisniewski, Chief Financial Officer
                            Quentin Freeman, Head of Investor Relations
 Brunswick Group            Nina Coad
 Tel: +44 (0)20 7404 5959   Emily Trapnell
 
LETTING ACTIVITY (see Appendix 1)
 
In the second half to date Derwent London has achieved £15.4m of new
lettings, 6.5% ahead of December 2018 ERV and 7.3% ahead of June 2019 ERV.
 This takes our lettings in the year to date to £33.5m, 7.0% above December
2018 ERV, which compares to £26.8m achieved for the whole of 2018.  The
Group's largest single letting was the 83,100 sq ft pre-let to Apollo at 1
Soho Place announced earlier this week which was above December 2018 ERV.  We
reported on the second half lettings at 80 Charlotte Street W1 and Johnson
Building EC1 in August.  Since then we have achieved a £65 per sq ft rental
level at Tea Building E1 and let the lower ground floor space at White Collar
Factory EC1.  The rest of the portfolio continues to perform well. This is
demonstrated by our EPRA vacancy rate, which is now only 0.6%, down from 1.6%
in June 2019 and 1.8% in December 2018.
 
 
DEVELOPMENT PROGRESS (see Appendix 2)
 
Following the completion of Brunel Building W2 in the first half of 2019, 80
Charlotte Street W1 is on schedule for delivery in the first half of 2020.
 Construction work is progressing well at Soho Place W1 and The Featherstone
Building EC1 with completion expected in 2022. We have started design,
pre-construction and procurement work on our 19-35 Baker Street W1 project
which is likely to start in 2021.
 
 
DISPOSALS (see Appendix 3)
 
So far this year we have disposed of £181.7m of investment properties
(Group's share) at an average premium of 6.2% above December 2018 book
values.  These were properties where we thought we could add limited further
value with the proceeds being recycled into the development programme.
 
 
FINANCE
 
Net debt fell from £1,003.5m in June 2019 to £937.0m at 30 September 2019,
the decrease due mainly to the sale proceeds from The Buckley Building EC1.
Capital expenditure spent on projects during Q3 was £54.4m taking capex for
the year to date to £155.7m plus a further £21.0m incurred on property
acquisitions.
 
The loan-to-value ratio has fallen slightly to 16.4% at 30 September 2019 with
NAV gearing at 21.4%.  Interest cover for the first nine months of the year
was 4.6 times and undrawn facilities and cash increased to £560m at the
quarter end.  The weighted average interest rate on our debt at 30 September
2019 was 3.71% on an IFRS basis or 3.56% based on the cash coupon payable on
the 2025 convertible bonds issued in June 2019.
 
On 31 October 2019 we announced the extension of our main £450m revolving
bank facility to October 2024, increasing the weighted average maturity of
facilities by 11 months.  The facility incorporates a 'green' tranche of
£300m to be drawn in accordance with our newly published Green Finance
Framework.  The latter is available on our website and has been independently
verified as being in accordance with the Loan Market Association ("LMA") Green
Loan Principles drawn up in December 2018, making this the first revolving
credit facility arranged by a UK REIT that meets these principles.
 
 
BETTER BUILDINGS PARTNERSHIP
 
In October 2019 the Group joined the Better Buildings Partnership and signed
their Climate Change Commitment.  One of the key principles of the latter is
that the Group will publish its net zero carbon pathway by the end of 2020.
 
 
PROPERTY VALUES
 
MSCI IPD's central London office Quarterly Index in Q3 showed a small
improvement with capital values up 0.1% and rents up 0.3%.  For the nine
months to 30 September 2019, the equivalent figures were 0.2% and 0.9%,
respectively.
 
 
 
Appendix 1: Principal lettings in 2019 to date
 
 Property                  Tenant               Area     Office        Total         Lease   Lease   Rent free equivalent
sq ft
annual
term
break
Months
        rent
rent
Years
Year
£ psf
£m
 H1
 1 Soho Place W1           G-Research           102,600  94.70         9.7           15      -       32
 Brunel Building W2        Splunk               49,600   75.00         3.7           12      -       20
 Brunel Building W2        Paymentsense         33,000   77.50         2.6           15      10      20, plus 6 if no break
 H2
 1 Soho Place W1           Apollo               83,100   Confidential  Confidential  15      -       Confidential
 80 Charlotte Street W1    BCG                  40,650   82.50         3.4           15      12      Confidential
 Johnson Building EC1      Oktra                18,300   47.50         0.9           10      5       10, plus 8 if no break
 Johnson Building EC1      Access Intelligence  17,800   45.00         0.8           10      5       15, plus 12 if no break
 Tea Building E1           LoopUp               6,925    65.00         0.5           10      5       10.5, plus 10.5 if no break
 White Collar Factory EC1  AHMM                 10,600   40.00(1)      0.4           8.5     4.5     14, plus 6 if no break
                                                362,575  78.70(2)      22.0(2)
(1) Lower ground floor space    (2) Excludes Apollo letting
 
Appendix 2: Major developments pipeline
 
 Property                              Area        Capex to complete  Comment
sq ft
                                                   £m(1)
 Completed projects in H1 2019
 Brunel Building, 2 Canalside Walk W2  243,200     -                  Offices and retail - 100% let
 On-site projects
 80 Charlotte Street W1                380,000     69                 321,000 sq ft offices, 45,000 sq ft residential and 14,000 sq ft retail - 85%
                                                                      pre-let / pre-sold overall
 Soho Place W1                         285,000     262(3)             209,000 sq ft offices, 36,000 sq ft retail and 40,000 sq ft theatre - 76%
                                                                      commercial space pre-let(4)
 The Featherstone Building EC1         125,000     70                 110,000 sq ft offices, 13,000 sq ft workspaces and 2,000 sq ft retail
                                       790,000     401
 Major planning consents
 19-35 Baker Street W1                 293,000(2)                     206,000 sq ft offices, 52,000 sq ft residential and 35,000 sq ft retail
 Holden House W1                       150,000                        Retail flagship or retail and office scheme
                                       443,000
 Total (excluding completions)         1,233,000
 
(1) As at 30 Jun 2019    (2) Total area - Derwent London currently has a
55% share of the joint venture
(3) Includes remaining site acquisition cost and profit share to Crossrail
   (4) In addition the 40,000 sq ft theatre is pre-let
 
Appendix 3: Major disposals in 2019 to date
 Property                             Date  Area       Gross      Gross      Net yield to purchaser  Rent
sq ft(1)
proceeds
proceeds
%
£m(1)
£m(1)
£ psf
 Premier House SW1                    Q1    60,700     50.0       820        -                       -
 9 Prescot Street E1 (50% interest)   Q2    48,500     26.9       560        4.5                     1.3
 16 Prescot Street E1 (50% interest)  Q3    4,400      1.8        400        2.6                     0.05
 The Buckley Building EC1             Q3    85,100     103.0      1,210      4.4                     4.9
 Total                                      198,700    181.7      910        -                       6.25
(
)(1) Derwent London share
 
 
Notes to editors
 
Derwent London plc
Derwent London plc owns 84 buildings in a commercial real estate portfolio
predominantly in central London valued at £5.4 billion (including joint
ventures) as at 30 June 2019, 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,
in October 2019, Derwent London became the first UK REIT to sign a Green
Revolving Credit Facility.  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 schemes in our 5.7 million sq ft portfolio include Brunel Building
W2, White Collar Factory EC1, Angel Building EC1, 1-2 Stephen Street W1,
Horseferry House SW1 and Tea Building E1.
 
In 2019 to date, the Group has 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 89 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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