Last checked at 12 Nov 2015 07:00
12 November 2015
Derwent London plc ("Derwent London"/ "the Group")
THIRD QUARTER BUSINESS UPDATELETTINGS MOMENTUM AND PORTFOLIO ACTIVITY MAINTAINED
Highlights
· In the year to date we have let 501,500 sq ft securing £26.2m pa of rental income
· On average overall lettings have been 10.8% ahead of December 2014 ERV
· Q3 lettings total 171,900 sq ft securing £9.5m pa, 12.5% ahead of June 2015 ERV
· 398,000 sq ft under construction, and a further 620,000 sq ft due to start by June 2016
· White Collar Factory - 293,000 sq ft under construction - now 29% pre-let
· Contracted to purchase Aldgate Union E1 in Q4 taking current year acquisitions to c.£250m
· Agreed c.£102m of disposals in Q4, taking investment property sales YTD to c.£215m
· At 30 September, the LTV ratio was 19.6% with cash and undrawn facilities of £254m
John Burns, Chief Executive Officer, commented:
"The current year is our best ever for lettings. We have also successfully recycled some more mature assets into several major opportunities and the Group's development activity demonstrates confidence that the high level of occupier demand for our product is set to continue."
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.
To participate in the call, please dial the following number: +44 (0)20 3059 8125
Please say "Derwent London Q3 Business Update" when asked for the participant code.
A recording of the conference call will also be made available following the conclusion of the call on www.derwentlondon.com.
For further information, please contact:
Derwent London Tel: +44 (0)20 7659 3000
| John Burns, Chief Executive Officer Damian Wisniewski, Finance Director Quentin Freeman, Head of Investor Relations |
Brunswick Group Tel: +44 (0)20 7404 5959 | Simon Sporborg Nina Coad |
Our best year for lettings (see Appendix 1 for details)
We have let 501,500 sq ft securing £26.2m pa in rent. This is an increase of £0.7m pa from our previous announcement at the investor day on 14 October. We continue to see good demand, and we have been able to achieve increased rental levels in both the West End and Tech Belt. Our EPRA vacancy rate remains very low at 1.2%.
Letting activity 2015 year to date
Area | Income | Performance against Dec 14 ERV | ||
sq ft | £m pa | Open market | Overall | |
H1 | 322,600 | 16.4 | 9.3% | 4.3% |
H2 to date | 178,900 | 9.8 | 22.4% | 23.6% |
YTD | 501,500 | 26.2 | 14.5% | 10.8% |
Development programme continues to advance (see Appendix 2 for details)
The Group has completed the four projects due this year, which are 92% let, sold or under offer. Another two major projects remain under construction. White Collar Factory EC1 is now 29% pre-let with completion due in just under a year and the site for The Copyright Building W1 has been cleared with construction due to complete in 2017. In June 2015 the net ERV (estimated rental value) of these two projects was £22.6m pa, of which 21% has been pre-let with capital expenditure of £133m to complete.
We are commencing two major projects within the next eight months. First is our largest scheme to date at 80 Charlotte Street W1 and second is the Brunel Building, Paddington W2. The June 2015 ERV of these two developments was £38.7m pa, an uplift of £29.6m pa on the existing ERV, with additional estimated capital expenditure to complete of £338m.
Contracted to acquire a major Whitechapel opportunity (see Appendix 3 for details)
As previously announced we are contracted to acquire Aldgate Union E1 in December 2015, where we have improved our interest by agreeing to buy-in the leasehold of the lower ground floor. We have also purchased a number of small properties including 50 Oxford Street W1, near Tottenham Court Road, adding to our significant Fitzrovia Estate. These transactions will take current year acquisitions to c.£250m.
Disposals of c.£102m in Q4 demonstrating strength of investment demand (see Appendix 4)
The Davidson Building, Covent Garden WC2 has been sold, and we have exchanged on the sale of Portobello Dock W10. In aggregate these properties comprise 95,700 sq ft and the consideration before costs is £101.6m, comfortably above June 2015 values. These transactions will take our current year-to-date sales of investment properties to c.£215m.
Secure and flexible finance base maintained
Net debt increased by £50.7m in the three months from 30 June 2015 to £926.6m due mainly to property acquisitions and capital expenditure of £51.8m. This has taken the loan to value ratio to 19.6% based on June 2015 property valuations. The interest cost of our debt, which was 82% fixed or hedged at 30 September 2015, fell by 30bp in the quarter to 3.63% on a cash basis and 3.89% on an IFRS basis. This was partly due to the cancellation of £30m of interest rate swaps on the refinancing of the Wells Fargo facility in July and the paying down of the rate for one of our other swaps at a combined cost of £4m. Undrawn facilities and cash were £254m at the quarter end and have since increased as the property sales noted above come through. In the fourth quarter, we also expect to complete on the £139.3m acquisition of the main Aldgate Union building inclusive of costs.
Property values and outlook
The central London office market has continued to perform well in Q3 with the IPD Central London Office Quarterly Index reporting rental value growth of 2.9% and capital growth of 3.5%. The Derwent London portfolio was not revalued this quarter but our valuers, CBRE, after taking into account the high levels of letting activity in the quarter, have indicated that the valuation performance of the portfolio is likely to have been at least consistent with the IPD index.
Appendix 1: Principal lettings in 2015 year to date
Property | Tenant
|
Areasq ft
| Rent£ psf
| Totalannualrent£m
| Min / fixeduplift atfirst review£ psf
| LeasetermYears
| LeasebreakYear
| Rent free equivalentMonths
|
Q1 | ||||||||
2 Stephen Street W11 | The Office Group | 34,150 | 65.001 | 2.2 | 71.75 | 20 | - | 15 |
Angel Square EC1 | Expedia | 57,600 | 36.80 | 2.1 | 41.60 | 6 | 3 & 5 | 2.5, plus 3 if no break in year 3 |
1 Stephen Street W1 | AnaCap | 16,150 | 81.75 | 1.3 | 84.25 | 10 | - | 15 |
Tea Building E1 | Feed | 7,990 | 47.50 | 0.4 | - | 5 | - | 5 |
Davidson Building WC2 | Astus UK | 4,370 | 80.00 | 0.3 | 82.50 | 10 | 5 | 7, plus 5 if no break |
Q2 | ||||||||
White Collar Factory EC1 | The Office Group | 41,300 | 57.50 | 2.4 | 63.50 | 20 | - | 24 |
Angel Square EC11 | The Office Group | 40,700 | 35.001 | 1.4 | 38.65
| 102 | - | 9 |
Davidson Building WC2 | First Utility | 6,230 | 72.50 | 0.5 | 75.00
| 10 | 5 | 7, plus 7 if no break |
Morelands EC1 | Spark44 | 5,370 | 55.00 | 0.3 | 60.00 | 9 | 5 | 9, plus 3 if no break |
Q3 | ||||||||
White Collar Factory EC1 | AKT II | 28,400 | 57.50 | 1.6 | 63.50 | 20 | 12 & 15 | 24 |
20 Farringdon Road EC1 | Improbable Worlds | 25,700 | 42.50 | 1.1 | 43.50 | 6 | - | 7 |
Charlotte Building W1 | Kingston Smith | 5,960 | 82.50 | 0.4 | 85.00 | 10 | - | 14 |
Angel Square EC1 | DrEd | 4,740 | 55.00 | 0.3 | - | 4.5 | 3 | 3, plus 2 if no break |
Davidson Building WC2 | Elastic search | 6,300 | 72.50 | 0.5 | 76.00 | 10 | 5 | 7, plus 5 if no break |
20 Farringdon Road EC1 | Moo Print | 33,500 | 45.00 | 1.5 | 49.50 | 10 | 6 | 8 |
Tea Building E1 | Transferwise | 23,950 | 57.50 | 1.4 | - | 5 | - | 6 |
White Collar Factory EC1 | BGL | 14,300 | 62.50 | 0.9 | 69.00 | 10 | - | 18 |
Davidson Building WC2 | Alibaba | 6,310 | 72.50 | 0.5 | 74.70 | 10 | 5 | 7, plus 7 if no break |
1 The Group will get a share of The Office Group's profits on this space above a minimum level
2 Landlord's break in year five
Appendix 2: Major projects pipeline
Property | Areasq ft1 | Delivery | Comment |
Projects completed in 2015 | |||
Turnmill, 63 Clerkenwell Road EC1 | 70,500 | Q1 2015 | Offices and retail - 90% let |
Tottenham Court Walk W1 | 38,000 | Q2 2015 | Retail - 70% let |
40 Chancery Lane WC2 | 102,000 | Q3 2015 | Offices and retail - 100% let |
73 Charlotte Street W1 | 15,500 | Q3 2015 | Residential and offices - 28% sold |
226,000 | |||
Projects on site in November 2015 | |||
White Collar Factory, Old Street Yard EC1 | 293,000 | Q3 2016 | Office-led development - 29% pre-let |
The Copyright Building, 30 Berners Street W1 | 105,000 | Q3 2017 | Offices and retail |
398,000 | |||
Projects due to start in the next eight months | |||
80 Charlotte Street W1 | 380,000 | H2 2018 | Offices, residential and retail |
Brunel Building, 55-65 North Wharf Road W2 | 240,000 | H1 2019 | Offices |
620,000 | |||
Other major planning consents | |||
1 Oxford Street W12 | 275,000 | Offices, retail and theatre | |
Wedge House, 40 Blackfriars Road SE1 | 110,000 | Hotel and offices | |
385,000 | |||
Planning applications | |||
Monmouth House EC1 | 125,000 | Planning application submitted | |
Grand Total | 1,754,000 |
1 Proposed areas
2 Under existing option agreement
Appendix 3: Principal acquisitions 2015
Property | Date | Areasq ft | Totalcost£m | Totalcost£ psf | Netyield% | Rent£m pa | Rent£ psf | LeaselengthYears |
20 Farringdon Road EC1 | Q1 | 170,600 | 92.7 | 545 | 3.5 | 3.2 (net) | 271 | 22 |
50 Oxford Street3 W1 | Q3 | 6,050 | 14.5 | 2,395 | 2.6 | 0.4 | 74 | 34 |
Aldgate Union5 E1 | Q4 | 255,000 | 139.3 | 545 | - | - | - | - |
Total | 431,650 | 246.5 | 570 | - | 3.6 (net) | - | - |
1 Excludes 26,200 sq ft ground floor offices let at a peppercorn rent
2 To first break or expiry, as at 31 December 20143 Includes 36-38 and 42-44 Hanway Street W1
4 To first break or expiry, as at 30 September 2015
5 Excludes 30,500 sq ft lower ground floor that will complete in Q1 2016
Appendix 4: Principal disposals 2015
Property | Date | Areasq ft | Netproceeds£m | Netproceeds£ psf | Net yield to purchaser% | Rent£m pa |
22 Kingsway WC2 | Q1 | 91,400 | 64.1 | 700 | 4.4 | 3.0 |
Mark Square House EC2 | Q1 | 61,700 | 31.9 | 515 | 4.4 | 1.5 |
9 and 16 Prescot Street E1 (50%) | Q1 | 53,7001 | 18.71 | 350 | 3.2 | 0.61 |
Davidson Building WC2 | Q4 | 43,100 | 65.42 | 1,520 | 3.9 | 2.7 |
Total | 249,900 | 180.1 | 720 | 4.1 | 7.8 |
1 50% of total due to joint venture
2 Estimated costs. Gross proceeds of £66.2m.
Notes to editors
Derwent London plc
Derwent London plc owns a portfolio of commercial real estate predominantly in central London valued at £4.6 billion as at 30 June 2015, 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.
Landmark schemes in our 5.8 million sq ft portfolio include Angel Building EC1, The Buckley Building EC1, White Collar Factory EC1, 1-2 Stephen Street W1, Horseferry House SW1 and Tea Building E1.
In December 2014 Derwent London topped the real estate sector for the fifth year in a row and was placed ninth overall in the Management Today awards for 'Britain's Most Admired Companies'. Also in 2014 the Group won the Property Week 'Developer of the Year' and the RICS London Commercial Award. In 2015 the Group has won awards from Architects' Journal, British Council for Offices, Civic Trust and RIBA and achieved EPRA Gold for corporate and sustainability reporting.
For further information see 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.