REG - Derwent London PLC - Third Quarter Business Update

Derwent LondonAnnouncement

03/11/2022 07:01

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RNS Number : 1298F  Derwent London PLC  03 November 2022

 

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

Paul Williams, Chief Executive of Derwent London, said:

"Despite recent political and economic uncertainty, occupier demand in London
remains good for the right product and the flight to quality continues. We
have a strong balance sheet and with disposal proceeds in the year to date of
£205m, we are reinvesting in two distinctive West End developments where
supply remains constrained."

 

Summary

Portfolio update

·      Lettings in the first nine months of 2022 totalled £9.0m at an
average 12.7% above December 2021 ERV with a further £1.1m of rent under
offer

o  £1.9m of lettings in Q3 at an average 27.6% above December 2021 ERV

o  Francis House SW1 refurbishment (38,300 sq ft) completed and handed over
to Edelman

·      EPRA vacancy rate 6.9% at 30 September 2022 (30 June 2022: 6.5%)

·      Disposals totalling £139.0m after costs in Q3 taking YTD
activity to £204.9m including:

o  Bush House WC2 for £83.9m, 41% above December 2021 book value

o  2 & 4 Soho Place W1 long leasehold interest for £39.7m

West End developments of 435,000 sq ft underway

·      Sub and super structure works progressing well at 25 Baker Street
W1 (298,000 sq ft)

·      Works commenced on-site in June 2022 at Network W1 (137,000 sq
ft)

Financial position

·      EPRA LTV down to 21.7%(1) (30 June 2022: 23.7%) after receipt of
Q3 disposal proceeds

·      Undrawn facilities and cash of £626m as at 30 September 2022

o  100% of debt at fixed rates with average maturity of 6.4 years

o  First debt maturity (£83m at 3.99%) in October 2024

(1) LTV based on 30 June 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 GMT today. To participate in the call, please register at
www.derwentlondon.com (http://www.derwentlondon.com)

 

Portfolio update (Appendices 1 & 2)

New leases totalling £1.9m on 31,700 sq ft were achieved in Q3 2022, on
average 27.6% above December 2021 ERV. This includes two lettings at 43
Whitfield Street W1 which delivered an attractive premium to ERV, partly
driven by proximity to the DL/78 amenity space for Derwent London occupiers.
Lettings in the first nine months of 2022 totalled £9.0m on 141,000 sq ft, on
average 12.7% above ERV. There is a further £1.1m of rent under offer.

 

We have seen a notable increase in viewings since the summer and letting
interest across our portfolio remains encouraging. The Group's Q3 EPRA vacancy
rate was 6.9% (30 June 2022: 6.5%), concentrated in recently completed space
at The Featherstone Building EC1, The White Chapel Building E1, One Oxford
Street W1 (retail element) and Tea Building E1.

 

Refurbishment works have completed at Francis House SW1 (38,300 sq ft) and the
space has been handed over to the tenant Edelman.

 

Rent collection rates at Q3 have improved further compared to the prior
quarter. For the September quarter day, rent collected to date stands at 98%.

 

Capital recycling (Appendices 3 & 4)

Disposals in the year to date total £204.9m which includes three disposals in
Q3 for £139.0m after costs. Bush House WC2 was sold with vacant possession
for £83.9m, a 41% premium to December 2021 book value. The sale of 2 & 4
Soho Place W1 completed for £39.7m following delivery of the new theatre to
Nimax Theatres. The price reflects a capital value of c.£2,200 psf on the
office element. In addition, a net premium of £15.3m was received from the
granting of a geared intermediate leasehold interest at Soho Place.

 

Development progress (Appendix 5)

Good progress is being made at our two on-site net zero carbon developments,
which will provide 435,000 sq ft of new space in the West End, including
350,000 sq ft of offices. Both schemes are scheduled for delivery in 2025.

 

At 25 Baker Street W1, demolition works have completed and the main
contractor, Laing O'Rourke, is well underway with sub and super structure
works. 80% of overall construction costs were fixed at the start of 2022, with
the residential fit-out contract to follow. At Network W1, demolition works
commenced in June 2022 and progress is on programme. Negotiations are advanced
with our preferred contractor regarding the main building contract.

 

Recognition

80 Charlotte Street W1 was the winner of the BCO's Best National Commercial
Workplace award 2022, recognising both the quality of the overall design and
the building's strong sustainability credentials.

 

The Group recently strengthened its GRESB score across all categories in 2022
and has been awarded an A-rating for public disclosure and a 5 Star rating for
development.

 

Board changes

After nine years on the Board, Richard Dakin will retire from his position as
a Non-Executive Director of the Company and Chair of the Risk Committee on 28
February 2023. Helen Gordon, who is currently a member of the Risk Committee,
will become Committee Chair from 1 March 2023. The Board would like to thank
Richard for his significant contribution to the business and to wish him every
success in the future.

 

 

 

 

Finance

Capital expenditure of £25.9m was incurred in Q3 2022 taking the total spend
for the nine month period to £95.1m. In addition, the Group's share of
capital expenditure within joint ventures was £0.5m in Q3. Following the
disposal proceeds noted above, net debt decreased by £156.2m over the quarter
to £1.2bn. This brought the 30 September 2022 LTV ratio down to 21.7% (30
June 2022: 23.7%) on an EPRA basis, based on 30 June 2022 valuations. Interest
cover for the first nine months of 2022 was 4.2 times (H1 2022: 4.2 times) and
cash and undrawn facilities totalled £626m at the quarter end. Neither of the
Group's £550m revolving credit facilities were drawn as at 30 September 2022
and, accordingly, 100% of Group debt was at fixed rates.

 

In September 2022, the second one-year extension option of the £100m
revolving credit facility with Wells Fargo was signed. This moved the
facility's maturity date out to November 2027. The Group's weighted average
unexpired debt term at 30 September 2022 was 6.4 years and the first maturity,
for an £83m fixed rate secured loan, is in October 2024.

 

Appendix 1: 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       Brainlabs                   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
 The Featherstone Building EC1  Marshmallow                 16,220   71.50   1.2                10          6            15, plus 9 if no break
 The Featherstone Building EC1  Dept Agency                 11,450   85.25   1.0                10          5            11.5, plus 11.5 if no break
 White Collar Factory EC1       Adobe                       10,180   70.00   0.7                10          6            12, plus 10 if no break
 230 Blackfriars Road SE1       Wandle Housing Association  7,290    49.50   0.4                7.5         4            7, plus 6 if no break
 Q3
 43 Whitfield Street W1         Pollination                 5,930    85.00   0.5                10          5            5
 43 Whitfield Street W1         Sine Digital                5,090    86.00   0.4                10          5            6, plus 5 if no break
 Gordon House SW1               VCCP                        7,380    52.50   0.4                3           -            7
 Sub-total                                                  103,140  71.75   7.4
 Other                                                      37,860   42.25   1.6
 Total                                                      141,000  63.70   9.0

 

 

 

 

 

Appendix 2: Leasing activity in 2022 YTD

 

          Let               Performance against

                            Dec 21 ERV (%)
          Area     Income   Open market  Overall(1)

sq ft
£m pa
 Q1       55,900   3.5      6.8          6.8
 Q2       53,400   3.6      11.8         11.8
 H1 2022  109,300  7.1      9.3          9.3
 Q3       31,700   1.9      27.6         27.6
 YTD      141,000  9.0      12.7         12.7

 

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

 

Appendix 3: Major acquisitions

 

 Property                  Date  Area    Total after costs  Net     Net rental  Net rental

sq ft
£m
yield
income
income

%
£m pa
£ psf
 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         -

 

Appendix 4: Major disposals

 

 Property                                          Date  Area       Net proceeds  Net     Net rental

sq ft
£m
yield
income

%
£m pa
 H1 2022
 New River Yard EC1                                Q2    70,700     65.9(1)       4.5     3.3
 Total H1 disposals                                      70,700     65.9          4.5     3.3
 H2 2022
 2 & 4 Soho Place W1                               Q3    18,400(2)  39.7          -       -
 Bush House WC2                                    Q3    103,700    83.9          -       -
 Intermediate leasehold interest at Soho Place W1  Q3    -          15.3          -       -
 Total H2 disposals to date                              122,100    138.9         -       -

(1) After deduction of rental top-ups and sale costs

(2) Office space

 

 

Appendix 5: Major developments 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)   346      241(3)              105
 Total cost(2) (£m)          697      463                 234
 ERV (c.£ psf)               -        90                  87.5
 ERV (£m pa)                 30.3     18.4(4)             11.9
 Pre-let/sold area (sq ft)   31,000   31,000(5)           -

(1) As at 30 June 2022

(2) Comprising book value at commencement, capex, fees and notional interest
on land, voids and other costs. Baker Street includes a 3.1% profit share
 

   payaway to freeholder The Portman Estate

(3) Includes potential profit share to The Portman Estate

(4) Long leasehold, net of 2.5% ground rent

(5) 19,000 sq ft courtyard retail and 12,000 sq ft Gloucester Place offices

 

Notes to editors

Derwent London plc

Derwent London plc owns 75 buildings in a commercial real estate portfolio
predominantly in central London valued at £5.9 billion as at 30 June 2022,
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 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 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 2013 the Company launched a voluntary Community Fund
which 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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