REG - Derwent London PLC - THIRD QUARTER BUSINESS UPDATE

Derwent LondonAnnouncement

07/11/2024 07:00

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RNS Number : 2419L  Derwent London PLC  07 November 2024

 

7 November 2024

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

ONGOING LEASING MOMENTUM

Paul Williams, Chief Executive of Derwent London, said:

"Since the start of H2 2024, we have signed £4.5m of new rent, 9.8% ahead of
ERV, taking our letting activity for the year to date to £13.3m, 8.5% above
ERV. In addition, there is a further £5.7m under offer. With strong occupier
demand for high quality buildings in the right locations, we are seeing rental
growth across our London villages which supports our upgraded ERV guidance
announced in August.

We continue to see an attractive, supply-constrained market for our innovative
and design-led space. Our on-site projects at 25 Baker Street W1 and Network
W1 are progressing well. Capital expenditure in the first three quarters of
2024 was £145m, which includes our next phase of West End schemes, totalling
0.5m sq ft, at Holden House W1, 50 Baker Street W1 and Greencoat & Gordon
House SW1. At 50 Baker Street, we were pleased to obtain resolution to grant
planning consent in August, which will double the existing floor area.

There is increased interest across the investment market and volumes are
expected to pick up into 2025. We continue to recycle capital and recently
exchanged contracts for the sale of 4 & 10 Pentonville Road N1. We are
looking at an increasing number of acquisition opportunities, and are well
placed with a strong balance sheet."

 Operational highlights

 ·      £4.5m of new leases in H2 to date, 9.8% ahead of December 2023
 ERV, with a 6.4 year WAULT

 ·      £13.3m of leasing activity YTD, 8.5% above December 2023 ERV

 ·      £5.7m of rent under offer

 ·      EPRA vacancy rate down 20bp to 3.0% at Q3

 Developments

 ·      £145m of project expenditure in the first three quarters of the
 year

 ·      Two on-site West End projects totalling 0.4m sq ft; 53% pre-let
 or pre-sold

 ·      Next phase of West End schemes expected to commence from
 mid-2025, totalling 0.5m sq ft

 ·      Longer-term pipeline extends to 1.1m sq ft from 2027

 ·      Further programme of rolling refurbishments to deliver attractive
 uplift in rental values

 Financials

 ·      EPRA LTV 28.9% (30 June 2024: 29.0%)

 ·      Interest cover 4.0 times (30 June 2024: 4.0 times)

 ·      Cash and undrawn facilities of £547m (30 June 2024: £566m)

 ·      Post-Q3, £83m secured debt facility repaid, releasing c.£240m
 of charged properties

 

 

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 here
(https://webcasts.derwentlondon.com/derwent077/vip_connect) .

 

Operational update (Appendix 1)

Leasing activity in 2024 YTD

                Let                             Performance against

ERV (%)
                Area         Income   WAULT(1)  Open market (vs Jun 24)  Open market   Overall(2)

'000 sq ft
£m pa
Years

                                                                         (vs Dec 23)   (vs Dec 23)
 H1             138.9        8.8      7.3       -                        10.3          7.8
 H2 to date     78.0         4.5      6.4       10.2                     10.5          9.8
 Total to date  216.9        13.3     6.9       -                        10.4          8.5

(1) Weighted average unexpired lease term (to break).

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

Key leasing transactions in H2 include:

·      1-2 Stephen Street W1 - As an example of our proactive asset
management, we have relocated Envy Post Production from Holden House W1 ahead
of its redevelopment; they have pre-let 19,200 sq ft on a 15-year term (break
at year 10) at a rent of £1.2m, 13% above June 2024 ERV;

·      One Oxford Street W1 - The retail units are now fully leased,
with Kiko and Aldo taking the remaining two units (totalling 5,600 sq ft) on
10-year leases (break at year 6) for a combined rent of £1.0m, 11.8% above
ERV; and

·      The Featherstone Building EC1 - Wiz Cloud has leased 5,800 sq ft,
on a 'Furnished + Flexible' basis, for three years (break at year 2), at a
rent of £0.5m, 5.2% ahead of ERV.

The Group's EPRA vacancy rate at Q3 was 3.0% (June 2024: 3.2%; December 2023:
4.0%).

In addition, there is £5.7m of rent under offer. This includes an agreement
for lease on 76,900 sq ft of pavilion and lower floors at The White Chapel
Building E1, completion of which would increase occupancy at the building to
over 90% by ERV. The letting is conditional on receipt of planning permission,
which is expected shortly.

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

Developments (Appendix 2)

Our extensive pipeline will provide best in class, amenity-rich space in core
West End sub-markets with limited competing supply and good occupier demand.
Our longer-term pipeline extends to an additional 1.1m sq ft. Additionally, we
have a number of rolling refurbishments which we expect will deliver an
attractive uplift in rental values, while ensuring we remain compliant with
evolving EPC legislation. 70% of our London commercial portfolio, including
on-site projects, is EPC 'A' or 'B', rising to 87% for buildings rated EPC 'C'
and above.

On-site projects (0.4m sq ft)

·      25 Baker Street W1 (298,000 sq ft) - The office element of this
best-in-class mixed-use project, which is scheduled to complete in H1 2025, is
84% pre-let with a combined rent of £17.4m (net of ground rent) at an average
headline rate of £103.20 psf, 15% above the appraisal ERV. There is good
interest in the remaining space. Retailer engagement is strong following the
launch of the retail element. Contracts have been exchanged on a further two
residential units in H2, taking total sales to date to £74.9m across 15
units.

·     Network W1 (139,000 sq ft) - We are encouraged by occupier demand at
this high quality, amenity-rich and sustainable building in the
supply-constrained Fitzrovia sub-market. Completion is scheduled for H2 2025.

 

Next phase of pipeline (0.5m sq ft)

·      Holden House W1 (c.150,000 sq ft) - Design stage 3 being
finalised; construction scheduled to commence in mid-H2 2025;

·      50 Baker Street W1 (c.240,000 sq ft; 50:50 JV with Lazari) -
Following receipt of resolution to grant planning consent in August, forecast
commencement is H1 2026; and

·   Greencoat & Gordon House SW1 (107,800 sq ft) - Comprehensive
refurbishment of office space expected to commence in H1 2026.

Finance

Net debt increased marginally to £1.39bn at 30 September 2024 from £1.37bn
at 30 June 2024. The increase is primarily due to project expenditure of
£145m offset by retained cash from operations. The interim dividend of 25.0p
per share was paid in October and we also repaid the £83m 3.99% secured loan
which resulted in the release of c.£240m of charged properties. This
increases the value of unsecured properties to £4.4bn, based on June 2024
valuations.

The EPRA LTV ratio was broadly unchanged in Q3 at 28.9% (including share of
joint ventures) based on 30 June 2024 valuations. Interest cover for the nine
months to 30 September was unchanged from June 2024 at 4.0 times and cash and
undrawn facilities totalled £547m at the end of the quarter.

The Group's exposure to interest rate movements remains very low with 95% of
drawn debt either fixed or hedged. The weighted average interest rate at the
end of Q3 was 3.23% on a cash basis.

Disposals (Appendix 3)

In October, contracts were exchanged for the sale of the recently vacated
freehold 4 & 10 Pentonville Road N1 to an owner-occupier. Completion is
expected in January 2025. The disposal price of £26.0m reflects a 3% discount
to the June 2024 book value.

Sustainability

Following planning permission and survey work, we are now on site and
delivering the initial phase of infrastructure at our Lochfaulds solar park.
Completion and delivery of the project is anticipated for H1 2026.

We are pleased to have maintained our GRESB score with a 5-star rating
(97/100) for developments and a 4-star rating (84/100) for standing assets.
This ongoing strong performance recognises our commitment to reducing energy
usage across our managed portfolio and managing down the embodied carbon
footprint of our regeneration projects.

 

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

 

 

Appendix 1: 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
 H1
 25 Baker Street W1                 Cushman & Wakefield      17,100  107.50   1.8                15          -            34
 The White Chapel Building E1       Pay UK                   27,000  52.50    1.4                10          5            22, plus 5 if no break
 The White Chapel Building E1       PLP Architecture         22,300  50.00    1.1                10          -            24
 The White Chapel Building E1       Breast Cancer Now        14,700  51.00    0.8                10          5            20, plus 10 if no break
 The Featherstone Building EC1      incident.io(1)           6,900   86.70    0.6                2           -            1
 Tea Building E1                    Buttermilk(1)            7,300   66.50    0.5                4           3            2, plus 2 if no break
 One Oxford Street W1               Starbucks                4,200   98.10    0.4                15          10           12
 230 Blackfriars Road SE1           Hello! Magazine(1)       7,300   52.50    0.4                5.5         -            14
 H2 to date
 1-2 Stephen Street W1              Envy                     19,200  61.00    1.2                15          10           24, plus 12 if no break
 The Featherstone Building EC1      Wiz Cloud(1)             5,800   89.50    0.5                3           2            -
 One Oxford Street W1               Kiko Milano              2,900   168.50   0.5                10          6            12
 One Oxford Street W1               Aldo                     2,700   169.70   0.5                10          6            14
 Tea Building E1                    Cleo AI                  6,900   65.00    0.5                1           -            -
 230 Blackfriars Road SE1           Instant Offices          7,300   44.00    0.3                5.3         3            14
 Strathkelvin Retail Park, Glasgow  Aldi                     21,600  15.00    0.3                20          -            9

(1) Space leased on a 'Furnished + Flexible' basis

 

Appendix 2: 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

 

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
 4 & 10 Pentonville Road N1      Q4(1)  54,800  26.0            -       -

(1) Exchange of contracts only; completion expected in January 2025

 

Notes to editors

Derwent London plc

Derwent London plc owns 63 buildings in a commercial real estate portfolio
predominantly in central London valued at £4.8 billion as at 30 June 2024,
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 redevelopment 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.

We are frequently recognised in industry awards for the quality, design and
innovation of our projects. Landmark buildings in our 5.3 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.

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. Our science-based
carbon targets validated by the Science Based Targets initiative (SBTi). 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 LinkedIn
(https://www.linkedin.com/company/derwentlondon/?viewAsMember=true)

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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