Helical Bar Regulatory News (HLCL)

HELICAL WELL POSITIONED FOR FURTHER GROWTH

Gerald Kaye, Chief Executive, commented:

"The financial year to date has seen Helical make significant progress on three main fronts: development completions, letting activity and balance sheet strength. First, we have achieved practical completion on two of our largest London developments at The Tower, EC1 and the first phase of the residential at Barts Square, EC1. We expect to complete construction works at the office scheme at One Bartholomew, EC1 by early December. This will leave just two major projects under construction, being the second, and final, phase of the residential at Barts Square, EC1 and the office development at Farringdon East, EC1, both due to complete by Q4 2019. Secondly, we have made good progress in letting space at our major projects with 226,090 sq ft of office space let in London since 1 April 2018 and 27,819 sq ft let in Manchester over the same period. Finally, sale proceeds of £155m from the disposal of investment properties have reduced the Group's net borrowings, significantly enhancing our firepower.

"We believe that London will remain the best source of potential capital gains and development profits in the medium and long term, whilst we continue to view Manchester as the most dynamic regional city in the UK, with significant potential. Our transformed and more focused portfolio combined with low gearing provide the Company with capacity for new projects. As a consequence, Helical is well positioned for further growth through driving returns from our current portfolio and by sourcing new projects."

Operational Performance

· In our office development programme:

- Practical completion was achieved at The Tower, EC1 in August 2018 and is due to be achieved at One Bartholomew, EC1 by December 2018.

- Construction commenced at our 88,680 sq ft office development at Farringdon East, EC1 with delivery expected in Q4 2019.

· 179,364 sq ft of new London office lettings during the period delivered contracted rent of £12.1m (Helical share £4.4m at 5.2% above 31 March 2018 ERVs), including:

- Three floors let at The Tower, EC1 to Farfetch, an existing tenant of The Warehouse, EC1, representing 29,671 sq ft.

- 54,482 sq ft of the 214,033 sq ft office building at One Bartholomew, EC1 pre-let to Trade Desk Inc.

- A further 18 office lettings of 95,211 sq ft, representing £5.5m of contracted rents (Helical share £2.3m).

· Post period end, a further 46,726 sq ft of London lettings delivered contracted rent of £3.1m (Helical share £2.1m at 2.3% above 31 March 2018 ERVs), including:

- Two floors at The Tower, EC1 (19,576 sq ft), taking the building to 63% let.

- An additional floor (15,993 sq ft) at One Creechurch Place, EC3 (now 94% let) with only one floor remaining, triggering the first part of the promote payment.

- 11,157 sq ft at The Loom, E1, taking the building to 100% occupancy.

· In Manchester, four office lettings on 12,565 sq ft, with a further 15,254 sq ft let post period end, generated rental income of £0.7m at 7.0% above 31 March 2018 ERVs.

· Investment property sale proceeds of £155m since 31 March 2018 achieved at 10.6% above book value (including the sale of The Shepherds Building).

Financial Highlights

Earnings

· IFRS basic earnings per share of 21.8p (2017: 0.3p).

· IFRS Profit before tax of £29.1m (2017: £1.2m).

· Total Accounting Return of 5.1% (2017: 0.1%).

· See-through Total Property Return1 of £43.2m (2017: £15.4m):

- Group's share of net rental income of £11.7m reflecting the impact of the sale of non-core properties (2017: £17.9m).

- Development losses of £2.1m (2017: £8.2m), after provisions of £6.2m (2017: £11.5m).

- Net gain on sale and revaluation of investment properties of £33.6m (2017: £5.7m).

· EPRA loss per share2 of 4.6p (2017: 5.9p).

· Interim dividend declared of 2.6p per share (2017: 2.5p), up 4.0%.

Balance Sheet

· Net asset value up 3.5% to £552.6m (31 March 2018: £533.9m).

· EPRA net asset value per share5 up 0.6% to 471p (31 March 2018: 468p).

· EPRA triple net asset value per share5 up 2.7% to 460p (31 March 2018: 448p).

Property Valuations

· See-through property portfolio3 of £962.8m (31 March 2018: £909.6m), reduced to £837.6m, following the sale of The Shepherds Building in October 2018.

· Investment property valuation gain, on a like-for-like basis, of 3.3% (4.1% including sales and purchases).

Financing

· See-through loan to value6 of 41.4% (31 March 2018: 39.9%). Pro-forma loan to value4 of 29.6%.

· Average maturity of the Group's share3 of debt of 2.6 years (31 March 2018: 3.0 years), at an average cost of 4.3% (31 March 2018: 4.3%).

· Group's share3 of cash and undrawn bank facilities at 30 September 2018 of £289m (31 March 2018: £277m).

Portfolio Update

London Portfolio (excluding The Shepherds Building)

· 3.5% valuation increase, on a like-for-like basis, of our see-through London investment portfolio, valued at £657m (84.3% of investment portfolio) compared with £700m at 31 March 2018 (84.8% of investment portfolio).

· Contracted rents on our see-through London investment portfolio of £25.4m (31 March 2018: £28.4m), compared to an ERV of £43.7m (31 March 2018: £49.6m).

· WAULT of 8.4 years on the London portfolio (31 March 2018: 5.8 years).

Manchester Portfolio

· 1.7% valuation increase, on a like-for-like basis, of our Manchester investment portfolio, valued at £122m at 30 September 2018 (15.7% of investment portfolio) compared to £98m at 31 March 2018 (11.9% of investment portfolio).

· Contracted rents on the Manchester investment portfolio at 30 September 2018 increased to £5.9m (31 March 2018: £4.7m), compared to an ERV of £9.6m (31 March 2018: £8.1m).

· WAULT of 4.0 years on the Manchester portfolio (31 March 2018: 4.2 years).

Financial Summary

Notes

1. Includes Group's share of income and gains of its subsidiaries and joint ventures. See Note 25.

2. Calculated in accordance with IAS 33 and guidance issued by the European Public Real Estate Association ("EPRA"). EPRA loss per share excludes the net gain on sale and revaluation of the investment portfolio of £33.6m (2017: £5.7m) but includes development losses of £2.1m (2017: £8.2m). See Note 11.

3. Includes the Group's share of assets and liabilities of its subsidiaries and joint ventures. See Note 25.

4. Pro-forma reflects the Group's share of assets and liabilities at 30 September 2018, adjusted for £125.2m of sales completed in October 2018 and the receipt of £25.8m of deferred consideration from the sale of the retirement villages, received in November 2018. See Note 29.

5. The EPRA net asset value per share and EPRA triple net asset value per share have been calculated in accordance with guidance issued by the European Public Real Estate Association ("EPRA"). They exclude the surplus of trading and development properties above book value of £1.4m (31 March 2018: £2.3m) and the fair value surplus of derivative financial instruments and the Convertible Bond. See Note 23.

6. See-through loan to value is the ratio of see-through net borrowings to see-through property portfolio. See Note 26.

7. See-through net gearing is the ratio of see-through net borrowings to net assets. See Note 26.

Other terms used are defined in the Glossary of Terms at Appendix 1. 

For further information, please contact:

Half Year Results Presentation

Helical will be holding a presentation for analysts and investors at 11am, Wednesday 21 November 2018 at FTI Consulting, 200 Aldersgate, Aldersgate Street, London, EC1A 4HD. If you would like to attend, please contact Alex King on 020 3727 1000, or email schelical@fticonsulting.com

The presentation will be on the Company's website www.helical.co.uk and a conference call facility will be available. The dial-in details are as follows:

Webcast Link:

http://webcasting.brrmedia.co.uk/broadcast/5bed533355433b0e0cf69b5

Chief Executive's Statement

Overview

The financial year to date has seen Helical make significant progress on three main fronts: development completions, letting activity and balance sheet strength. First, we have achieved practical completion on two of our largest London developments at The Tower, EC1 and the first phase of the residential at Barts Square, EC1. We expect to complete construction works at the office scheme at One Bartholomew, EC1 by early December. This will leave just two major projects under construction, being the second, and final, phase of the residential at Barts Square, EC1 and the office development at Farringdon East, EC1, both due to complete by Q4 2019. Secondly, we have made good progress in letting space at our major projects with 226,090 sq ft of office space let in London since 1 April 2018 and 27,819 sq ft let in Manchester over the same period. Finally, sale proceeds of £155m from the disposal of investment properties have reduced the Group's net borrowings, significantly enhancing our firepower.

Results for the Half Year

The profit before tax for the half year to 30 September 2018 was £29.1m (2017: £1.2m) with a Total Property Return of £43.2m (2017: £15.4m). The reduction in net rents to £11.7m (2017: £17.9m) reflects the sale of £276m of investment assets over the preceding 12 months. Developments contributed profits of £4.1m (2017: £3.3m) before provisions of £6.2m (2017: £11.5m). The gain on sale and revaluation of the investment portfolio contributed £33.6m (2017: £5.7m).

Total see-through finance costs were £8.4m (2017: £14.1m), offset by interest receivable of £1.0m (2017: £1.2m) to give net finance costs of £7.4m (2017: £12.9m). An increase in expected future interest rates led to a credit from the valuation of the Group's derivative financial instruments of £0.3m (2017: £2.9m). The valuation of the Group's Convertible Bond gave rise to a credit of £1.0m (2017: charge of £0.1m). Recurring administration costs were £5.6m (2017: £5.6m) and the provision for performance related remuneration, including associated NIC, was £2.3m (2017: £0.5m).

The sale of The Shepherds Building for £125.2m, which exchanged on 13 September and completed on 5 October, has crystallised the payment of a tax liability which had previously been provided for through deferred tax. As a consequence, a corporation tax charge of £11.2m (2017: £nil) has been recognised in the Half Year Results, offset by a reduction in the Group's deferred tax provision of £8.0m. A net tax charge of £3.2m (2017: £0.8m) has been provided for.

The profit for the period, after recognition of this tax charge, was £25.9m (2017: £0.4m) and this strong performance allows the Board to declare an Interim Dividend of 2.60p (2017: 2.50p), an increase of 4.0%.

Finance

Since the start of the financial year, the Group has sold £155m of investment properties (including the sale of The Shepherds Building) and £35m of development stock. These sales, net of investment in the portfolio of £89m, were used to reduce pro-forma net borrowings to £248m, and our see-through loan to value ratio from 39.9% at 31 March 2018, to a pro-forma 29.6%. Our see-through net gearing, the ratio of net borrowings to the net asset value of the Group, has fallen from 68% to a pro-forma 45%.

During the period under review, the average debt maturity reduced to 2.6 years (31 March 2018: 3.0 years) as two of our largest bank facilities, financing The Bower and Barts Square, approach their repayment dates in Q4 2019. Since the period end, the banks have agreed to extend these facilities by 20 months and 24 months respectively. Our £100m Convertible Bond is due for repayment in June 2019 and the Group has allocated funds to facilitate this repayment. The Group has a significant level of liquidity and, in addition to the £100m for the Convertible Bond, has £309m of cash and unutilised bank facilities (on a pro-forma basis), following the sale of The Shepherds Building and the receipt of the deferred consideration from the sale of the retirement village portfolio last year. The cash and bank facilities are available to fund capital works on the portfolio and future acquisitions.

Company Culture

Helical has a small team of 30 employees and our culture is vitally important to us to ensure that we can attract, retain and motivate staff to achieve their personal and business goals. I am delighted that half the office, 15 people, successfully took on the challenge of climbing Mount Toubkal in Morocco, North Africa's highest peak at 4,187 metres, at the end of September, raising over £146,000 to be divided equally between two charities, LandAid and The Lord Mayor's Appeal.

Board Appointment

During the period we appointed Joe Lister as an independent Non-Executive Director of the Board and a member of the Audit and Risk, Nominations and Remuneration Committees. Joe is the Chief Financial Officer and an Executive Director of Unite Group plc and I welcome him to the Board.

Outlook

In reporting on our half year results to 30 September 2018, we are doing so at a time of heightened uncertainty surrounding the terms of the UK's exit from the European Union and in the face of numerous potential headwinds in Europe and further afield. We believe that this uncertainty may provide opportunities for those with operational and financial capacity, as well as proven experience. Furthermore, and notwithstanding these potential headwinds, we believe that London will remain the best source of potential capital gains and development profits in the medium and long term, whilst we continue to view Manchester as the most dynamic regional city in the UK, with significant potential. Our transformed and more focused portfolio combined with low gearing provide the Company with capacity for new projects. As a consequence, Helical is well positioned for further growth through driving returns from our current portfolio and by sourcing new projects.

Gerald Kaye

Chief Executive

21 November 2018 

Our Market

Overview

Helical's core business is developing and owning dynamic, well located office space in London and Manchester. With intelligent stock selection, we aim to maximise returns by development and refurbishment as well as through significant asset management initiatives.

London

In our judgement, the London commercial property market continues to provide the best source of capital profits and we expect this to remain the case for the foreseeable future, notwithstanding the risks associated with the UK's exit from the European Union or other potential risks.

In order for Helical to generate capital profits, the Company needs to identify those areas where it believes tenant demand is, or will become, strong and to source opportunities in those areas at an appropriate entry price. Equally important, we need to provide a working environment suited to the needs of our customers, the tenants. Using the skills, knowledge and expertise gained over many years, the Helical team aims to deliver attractive and exciting office space in our identified locations. In a low growth environment, stock selection needs to reflect the granular characteristics that will attract our target market.

Helical has based its investment decisions in London on three continuing major developments in the office market. First, the growth of the London population; second, the continuing and rapid expansion of the creative industries (predominantly in technology and media); and third, the migration of occupiers across Central London to the City and East London. A fast-growing market in flexible leasing should be added to this.

London's population reached 8.8 million in 2017 and is forecast to continue growing towards 10 million by 2030. Whilst this growth will present challenges to London, particularly in terms of its infrastructure, the opening of the Elizabeth Line at the end of 2019 will assist in alleviating these problems. Our properties in the City and Tech Belt are all in locations that will benefit from this new rail link.

The UK is a global leader in the creative industries and we have targeted these industries with our portfolio. In London, companies involved in media, advertising and marketing, technology and other creative industries comprised 59% of our new lettings in the period (31 March 2018: 59%).

The third factor influencing our choice of location for our portfolio is the migration of occupiers across Central London to the City and East London. The desire to be part of creative hubs, surrounded by like-minded individuals, located a short travelling distance from home are common themes in discussing requirements with tenants. Most obviously, those hubs are in the Tech Belt from King's Cross to Whitechapel.

Finally, the growth of flexible leasing is having a profound effect on the commercial office letting market in London and is beginning to spread to regional cities. At Helical we seek early and continued engagement with tenants and look to develop long standing relationships with them. By offering flexible leases on our multi-let assets, which allow them to occupy space commensurate with their requirements, we target long-term retention of our customers.

In London, Helical has been building up a portfolio of multi-tenanted office buildings in the Tech Belt locations of Farringdon, the Old Street roundabout and Whitechapel, and also in West London. By owning these "clusters" or "villages" of office buildings the Company now has a portfolio of assets with multiple lease events leading to ongoing asset management opportunities with the potential to lock in rental growth.

The Company is also seeking to expand its portfolio by taking on additional schemes in Central London either on its own balance sheet, or in the case of larger projects, by co-investment or by forward selling/funding them, to allow for the generation of profit shares but with reduced balance sheet exposure.

Manchester

We believe Manchester presents an attractive opportunity for us outside of London given its strong economic and employment growth record and future forecasts. High graduate retention rates demonstrate its appeal to Generation Y and it is rapidly becoming known as the second tech city behind London with more take-up from the TMT sector than any other.

Manchester has seen rapid growth and change over the past 20 years and this is forecast to continue. From 2002 to 2015, Manchester city centre experienced a population growth of 149%, the largest increase of any regional city. As the population has increased so has the growth of jobs, giving companies access to a deep and highly skilled talent pool in a cost-effective location for both the employer and the employee.

Annual office take-up is consistently in excess of 1m sq ft, with high profile new occupiers coming to the city on a frequent basis, and Manchester is now the leading UK creative location outside London by some margin. This has resulted in the city offering high quality office buildings and a diverse occupier base, leading to significant international and institutional investment over the past few years. In Manchester we now have five assets, following the acquisition of Fourways House during the period. Our buildings, located across the city centre, have proven to be attractive to Manchester occupiers. Each building is specific in its offering, location, size and rental tone, with the opportunity for Helical to apply the skills, knowledge and property expertise gained over many years in London. Once complete, the portfolio of multi-tenanted office buildings will provide Helical with a resilient income stream outside of London.

Looking Forward

Our ambition is to have a balanced portfolio that generates sufficient net rental income to exceed all of our recurring costs and provide a surplus significantly greater than our annual dividend to Shareholders. We have an ERV on the portfolio, following the sale of The Shepherds Building, of £53.4m and expect to generate this surplus once all of our current development and asset management activities are complete. We are also seeking a pipeline of opportunities to grow the balance sheet through the creation of development profits and capital surpluses.

Financial Review

Total Accounting Return

The Total Accounting Return is the growth in the net asset value of the company plus dividends paid in the period, expressed as a percentage of the net asset value at the beginning of the period. The metric measures the growth in Shareholders' Funds each period and is expressed as an absolute measure.

Total Property Return

We calculate our see-through Total Property Return to enable us to assess the aggregate of income and capital profits made each period from our property activities. Our business is primarily aimed at producing surpluses in the value of our assets through asset management and development, with the income side of the business seeking to cover our annual administration and finance costs.

Earnings Per Share

The IFRS earnings per share is based on the after tax earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the period. For the six months to 30 September 2018 IFRS earnings per share was 21.8p (2017: 0.3p). On the EPRA basis, which excludes gains on the sale and revaluation of properties, the loss per share was 4.6p (2017: 5.9p).

Net Asset Value Per Share

IFRS diluted net asset value per share is a measure of Shareholders' Funds divided by the number of shares in issue at the period end, adjusted to allow for the effect of all dilutive share awards. At 30 September 2018 it was 459p (31 March 2018: 445p). On an EPRA basis, which adds back the fair value of financial instruments and the Convertible Bond, the property related deferred tax creditor, and reflects the fair value of trading and development properties, the net asset value per share increased by 0.6% to 471p (31 March 2018: 468p). EPRA triple net asset value per share increased by 2.7% to 460p (31 March 2018: 448p).

Income Statement

Rental Income and Property Overheads

Gross rental income receivable by the Group in respect of wholly owned properties reduced by 33.2% to £13.5m (2017: £20.2m), reflecting the sale of £276m of investment assets, with contracted rents of £17.9m since 30 September 2017, offset by the partial capture of the portfolio's reversionary potential. In the joint ventures, gross rents increased from £nil to £0.4m. Property overheads decreased from £2.3m to £2.2m leaving the see-through net rents reduced by 34.6% to £11.7m (2017: £17.9m).

Development Profits/Losses

Development profits in the half year include a £0.7m development management fee at Barts Square, London EC1, and a net promote fee of £3.3m from One Creechurch Place, London EC3, offset by provisions of £1.9m made against our retail development programme, contributing to a net development profit of £1.7m (2017: loss of £9.5m).

Share of Results of Joint Ventures

In our joint ventures, we recognised a profit on the sale of the site at Hammersmith Town Hall of £2.2m and an investment valuation uplift of £1.1m. However, an assessment of the book value of our developments and future costs at Barts Square, London EC1 resulted in provisions of £4.3m and an accrual for future costs of £1.2m. Offsetting these losses against the profits, the joint ventures contributed a net loss of £3.9m (2017: profit of £3.4m).

Gain on Sale and Revaluation of Investment Properties

During the six months we sold three non-core assets for a combined £28.5m. Net of costs, these sales contributed a profit of £1.1m (2017: £1.2m). Subsequent to the half year end we have sold our investment asset, The Shepherds Building, for £125.2m, a 12.3% premium to its 31 March 2018 book value. The revaluation surplus for the period, including the uplift on The Shepherds Building and related sales costs, net of leasing incentives was £31.4m (2017: £2.1m), with £31.0m from London offices and £0.4m from Manchester offices.

Administration Costs

Administration costs, before performance-related awards, remained at £5.6m (2017: £5.6m). Including share awards and associated NIC of £2.3m (2017: £0.5m), total administration costs increased to £7.9m (2017: £6.1m).

Finance Costs, Finance Income and Derivative Financial Instruments

Interest payable on secured bank loans on a see-though basis, but before capitalised interest was £8.7m (2017: £13.1m). Interest payable in respect of the unsecured bonds was £2.0m (2017: £4.4m). Capitalised interest reduced to £2.3m (2017: £3.4m). Total see-through finance costs were £8.4m (2017: £14.1m). Finance income earned was £1.0m (2017: £1.2m), reducing see-through net finance costs by 43% to £7.4m (2017: £12.9m). The movement in medium-term and long-term interest rate projections during the period contributed to a credit on the mark-to-market value of the Group's derivative financial instruments of £0.3m (2017: £2.9m).

Taxation

Helical pays corporation tax on its net rental income, trading and development profits and realised chargeable gains, after offsetting administration, finance costs and any available tax losses.

As an unconditional contract for the sale of The Shepherds Building, London W14 was exchanged on 13 September 2018, the deemed disposal date for corporation tax purposes was in the half year to September 2018. As a consequence, the full corporation tax liability in respect of the chargeable gain arising on the sale has been recognised in the period. The deferred tax liability previously recognised in respect of unrealised gains on The Shepherds Building has been reversed in the period.

The deferred tax credit for the half year is principally derived from the unwinding of previously recognised revaluation surpluses on sold properties offset by the utilisation of previously recognised tax losses.

Dividends

The Board has approved the payment of an interim dividend of 2.60p per share (2017: 2.50p), an increase of 4.0%. This interim dividend will be paid on 31 December 2018 to Shareholders on the share register on 30 November 2018.

Balance Sheet

Shareholders' Funds

Shareholders' Funds at 1 April 2018 were £533.9m. The Group's results for the six months added £25.9m, net of tax, representing the total comprehensive income for the period. Movements in reserves arising from the Group's share schemes increased funds by £1.1m. The Company paid dividends to Shareholders amounting to £8.3m leaving a net increase in Shareholders' Funds from the Group's activities during the half year of £18.7m to £552.6m.

Investment Portfolio

* Sale fees accrued in connection with the sale of The Shepherds Building.

Debt and Financial Risk

See-through debt at 30 September 2018 of £484.3m (31 March 2018: £470.7m) had a weighted average maturity of 2.6 years (31 March 2018: 3.0 years) and a weighted average interest cost of 4.3% (31 March 2018: 4.3%).

Debt Profile at 30 September 2018 - Excluding the Effect of Arrangement Fees

Note 1: This includes commitment fees on undrawn facilities. Excluding these would reduce the effective rate to 4.2%.

Secured Debt

The Group arranges its secured investment and development facilities to suit its business needs as follows:

- Investment Facilities

We have £150m of revolving credit facilities which enable the Group to acquire, refurbish, reposition and hold significant parts of our investment portfolio. Our London investment assets are primarily secured in £324m of loan facilities. Of the total of £474m of investment facilities, we have £149m available to fund the remaining capital expenditure at The Tower, London EC1 and finance any new acquisitions. The average maturity of the Group's investment facilities at 30 September 2018 was 3.3 years with a weighted average interest rate of 4.2%.

- Development Facilities

This facility finances the over-station development at the Farringdon East Elizabeth Line station. The maturity of the Group's development facility at 30 September 2018 was 4.9 years with a weighted average interest rate of 8.8%. Excluding the impact of commitment fees, the weighted average interest rate of this facility is 4.2%.

- Joint Venture Facilities

We hold a number of investment and development properties in joint venture with third parties and include in our reported figures our share, in proportion to our economic interest, of the debt associated with each asset. The average maturity of the Group's share of bank facilities in joint ventures at 30 September 2018 was 1.2 years with a weighted average interest rate of 3.9%. Subsequent to the period end, the bank has agreed to extend the repayment date by 24 months, increasing the average maturity of the facilities from 1.2 years to 3.3 years.

 Unsecured Debt

The Group's unsecured debt, now just reflecting the Convertible Bond at its mark-to-market valuation, is £100.4m (31 March 2018: £101.3m) as follows:

- Convertible Bond

In June 2014, the Group raised £100m from the issue of a listed unsecured Convertible Bond with a 4.0% coupon, repayable in June 2019, or, subject to certain conditions, convertible at the option of the bond holders into ordinary shares, unless a cash settlement option is exercised by the Company. The initial conversion price has been set at £4.9694 per share, representing a 35% premium above the price on the day of the issue and a premium of 59% above the Company's EPRA net asset value per share at 31 March 2014. The value of the Bond at 30 September 2018, as determined by the listed market price, was £100.4m and this has been disclosed as a current liability.

- Short-term Working Capital Facilities

These facilities provide access to additional working capital for the Group.

Cash and Cash Flow

At 30 September 2018, the Group had £289m (31 March 2018: £277m) of cash and agreed, undrawn, committed bank facilities including its share in joint ventures, as well as £49m (31 March 2018: £105m) of uncharged property on which it could borrow funds.

Net Borrowings and Gearing

See-through gross borrowings of the Group have increased from £470.7m to £484.3m during the six months to 30 September 2018. After deducting cash balances of £80.7m and unamortised refinancing costs of £5.0m, net borrowings were £398.6m (31 March 2018: £362.9m). The see-through gearing of the Group was 72% (31 March 2018: 68%). Following the completion of the sale of The Shepherds Building for £125.2m, on 5 October 2018, and the receipt, on 13 November 2018, of the £25.8m of deferred consideration from the sale of the retirement village portfolio in November 2017, the pro-forma see-through net borrowings were £247.6m and the see-through net gearing was 45%.

Hedging

At 30 September 2018, the Group had £342.9m (31 March 2018: £366.6m) of fixed rate debt with an average effective rate of 4.0% (31 March 2018: 4.1%) and £94.4m (31 March 2018: £54.2m) of floating rate debt with an average effective rate, excluding commitment fees, of 3.9% (31 March 2018: 3.9%). In addition, the Group had £130m of interest rate caps at 1.75% and a further £15m at 0.75% (31 March 2018: £15m at 0.75%). In our joint ventures, the Group's share of fixed rate debt was £nil (31 March 2018: £nil) and £47.0m (31 March 2018: £49.9m) of floating rate debt with an effective rate of 3.9% (31 March 2018: 3.6%) with interest rate caps set at 1.5% plus margin on £11.2m and 0.5% plus margin on £2.2m.

Note 1: This includes commitment fees on undrawn facilities. Excluding these would reduce the effective rate to 3.9% (31 March 2018: 3.9%).

Tim MurphyFinance Director

21 November 2018 

Helical's Property Portfolio - 30 September 2018

Property Overview

Helical divides its property activities into two core markets: London and Manchester offices. Following the sale of the last three non-core investment assets and the acquisition of a new office building in Manchester, London represents 85% and Manchester 15% of the total property portfolio. Whilst there are structural differences in these markets, Helical has found that its business model can be applied successfully to each, driving capital growth, development profits and rental income.

The London Portfolio

Our strategy is to continue to increase our London holdings, focusing on areas where we see strong tenant demand and growth potential, such as the "Tech Belt" that runs from King's Cross through Old Street and Shoreditch to Whitechapel. Our London portfolio comprises income-producing multi-let offices, office refurbishments and developments and a mixed use commercial/residential scheme.

The Bower, Old Street EC1

The Bower is a landmark quarter immediately adjacent to the Old Street roundabout and features 312,575 sq ft of innovative, high quality office space along with 20,606 sq ft of restaurant and retail space.

The Warehouse and The Studio

The Warehouse comprises 122,858 sq ft of offices and The Studio 18,283 sq ft of offices with 10,298 sq ft of retail space at the two buildings. Works on The Warehouse entailed a complete refurbishment of the building whilst retaining its original 1960s characteristics. The Studio was a ground up development on the former car park site.

The works were completed in March 2015 and the offices were fully pre-let to CBS, Farfetch, Pivotal, Allegis and Stripe (The Warehouse) and John Brown Media (The Studio). The retail operators are Bone Daddies, Draft House, Enoteca da Luca, Honest Burger, Franze & Evans and Good To Go.

The Tower

The Tower, which completed in August 2018, offers 171,434 sq ft of office space with a contemporary façade and innovatively designed interconnecting floors, along with 10,308 sq ft of retail space across two units.

With 59,035 sq ft (34%) pre-let to WeWork before work started, we pre-let an additional three floors of 29,671 sq ft to an existing tenant, Farfetch, in the half year to 30 September 2018, and since the period end two floors comprising 19,576 sq ft have been let to Infosys. This takes the building to 63% let and there is good interest in the remaining space. In addition, 5,395 sq ft has been let to Albion & East for an urban bar.

Barts Square EC1

In a joint venture with The Baupost Group LLC, Helical owns the freehold interest of Barts Square, a 3.2 acre site between St Paul's and Smithfield Market, situated a short walk from Farringdon East Crossrail station.

Barts Square will ultimately provide an entirely new quarter in the City consisting of 236 residential apartments, three office buildings of 214,033 sq ft, 24,013 sq ft and c.11,200 sq ft together with 21,824 sq ft of retail/A3 at ground floor as well as major public realm improvements.

Phase One

Residential/Retail

Phase One of Barts Square comprises 144 residential units, 3,193 sq ft of retail space and extensive public realm improvements. The residential units are being handed over to purchasers as buildings are completed, with 120 unit sales (value £153.5m) completed as at September 2018. A further 14 unit sales (value £18.4m) are due to be completed and handed over before the end of November 2018. In total, contracts have been exchanged for the sale of 134 residential units for a total value of £172m at an average price of £1,558 psf, leaving just 10 apartments to sell. The retail space has been let to Stem & Glory since the period end.

90 Bartholomew Close - Office/Restaurant

The 24,013 sq ft office building, with 6,414 sq ft of restaurant space, completed in March 2018. The ground and lower ground restaurant, Lino, is expected to open in November 2018.

Phase Two

One Bartholomew - Offices

One Bartholomew was sold to clients of Ashby Capital LLP ("Ashby") for £102.4m in August 2015. The demolition of the existing building and the construction of a new 12 storey Grade A office block of 214,033 sq ft commenced in January 2016 and is due to be completed in December 2018. Ashby's clients finance the development costs and, when the building is completed and successfully let, the joint venture will be entitled to receive a profit share payment. Helical is the development manager for delivery of the project. Following the letting of three floors to Trade Desk Inc. during the period (54,482 sq ft), the building is 25% pre-let.

Phase Three

Residential/Retail

Construction works on Phase Three of Barts Square are well underway. This phase will comprise 92 apartments and 12,217 sq ft of retail space. Marketing of the units commenced in March 2018 and, during the period, contracts were exchanged on 14 units, taking the total number of units exchanged to 28, at a value of £45.2m and an average price of £1,819 psf.

54/58 Bartholomew Close

The refurbishment of 54/58 Bartholomew Close will provide c.11,200 sq ft of offices. Enabling works have commenced and completion is expected in Q3 2019.

Farringdon East, Smithfield EC1

The over-station development at the Farringdon East Elizabeth Line station will comprise a six storey 86,183 sq ft office building, with a 2,497 sq ft retail/restaurant unit on the ground floor. The building will sit immediately east of Smithfield Market with views over Charterhouse Square and towards St Paul's Cathedral. During the period a 150-year lease was granted and the site handed over by Transport for London. Development of the scheme commenced in August 2018 and completion is due in November 2019.

One Creechurch Place, City of London EC3

One Creechurch Place is a landmark City office scheme in the heart of the insurance district in London. In May 2014, Helical signed a joint venture agreement with HOOPP (Healthcare of Ontario Pension Plan) to redevelop the site. Under the terms of the joint venture, HOOPP and Helical jointly funded the project on a 90:10 split, with Helical acting as development manager, for which it will receive a promote payment upon successful completion and letting of the scheme.

The new building, comprising 272,505 sq ft of offices and 786 sq ft of retail, achieved practical completion on 7 November 2016 and was 69% let at March 2018. During the period, 54,316 sq ft has been let to Hyperion (16,009 sq ft), Coverys (15,994 sq ft) and, Softcat (15,994 sq ft) whilst Dell has expanded into the remaining space on the second floor (6,319 sq ft). Since the period end a further floor of 15,993 sq ft has been let to West of England P&I, taking the building to 94% let, with just one floor remaining.

The Loom, Whitechapel E1

This 110,043 sq ft building is one of London's few remaining former Victorian wool warehouses and was acquired in 2013. Works to transform this asset completed in September 2016 and included a new entrance and reception onto Gowers Walk, a café, showers and a bike store. The Loom has won both a RIBA London and National Award as well as an Architects Journal Retrofit Award. Due to careful asset management, the building remained an average of 78% let throughout the refurbishment. Since 1 April 2018, we have let 6,400 sq ft to The Fairtrade Foundation, 3,619 sq ft to Vidsy Media and 15,907 sq ft to Hey Habito, (which expanded into newly refurbished space, increasing its occupancy from 7,504 sq ft). Since the period end, a further 11,157 sq ft has been let and the building is now fully occupied.

25 Charterhouse Square, Smithfield EC1

In January 2016, Helical was granted a new 155 year leasehold interest in 25 Charterhouse Square from the Governors of Sutton's Hospital in Charterhouse for £16m. The building is a Grade A office adjacent to the new Farringdon East station on the Elizabeth Line (Crossrail) and overlooks the historic Charterhouse Square. Helical has carried out a major refurbishment of the existing building, which increased the previous 34,000 sq ft to 38,355 sq ft of offices with the addition of a new sixth floor, and 5,138 sq ft of retail space. The building achieved practical completion on 28 March 2017 and was fully let to Anomaly, Peakon, Hudson Sandler and Senator International by December 2017, less than two years after it was acquired.

The Shepherds Building, Shepherds Bush W14

During the period, after successfully completing new lettings on 12,375 sq ft, contracts were exchanged to sell this 150,072 sq ft multi-let office building to Workspace Group PLC for £125.2m, with completion of the sale on 5 October 2018. This price represented a net initial yield of 4.8% and a 12.3% premium to 31 March 2018 book value. The building had been acquired in 2000 for £12.8m and was fully refurbished with an extra floor added.

Power Road Studios, Chiswick W4

The site comprises 57,289 sq ft of offices across four buildings and is multi-let to a wide range of predominantly media tenants. In October 2017 we completed the refurbishment of Studio 1, a project comprising c.16,000 sq ft of Grade A space, refurbished common parts and added two new lift shafts to accommodate a consented future roof extension of 13,000 sq ft. In the period, we have let a further 2,594 sq ft at average rents of £40 psf. Preliminary works have been completed for a new 30,000 sq ft office building which secured planning consent in August 2017.

The Powerhouse, Chiswick W4

Helical acquired this 24,288 sq ft office and recording studios by way of sale and leaseback in 2013. The Powerhouse is a listed building on Chiswick High Road and is fully let on a long lease to Metropolis Music Group.

King Street, Hammersmith W6

Hammersmith & Fulham Borough Council, who had been opposed to this regeneration project since the Council became Labour controlled, exercised their option to terminate the development agreement. During the period, the sale of the land held by the Company (which is a 50/50 joint venture with Grainger plc) completed, resulting in a profit to Helical of £2.2m.

Drury Lane and Dryden Street WC2

This is a 0.5 acre office and retail site which sits within the Covent Garden Conservation Area. The Group has agreed with Savills Investment Management to act as development manager to obtain a revised office planning consent. The Group will receive a fee for this which is dependent on the value of the property with the new consent.

The Manchester Portfolio

Manchester is a city with a diverse, thriving and growing economy that is widely regarded as England's second city and the centre of the "Northern Powerhouse". Helical has found that the approach it applies to development and asset management in London is equally well received by the tenants in Manchester.

Churchgate and Lee House, Manchester

This asset comprises 243,518 sq ft of multi-let offices. The asset was 64% let when acquired in March 2014. Since its purchase, we have refurbished the reception and 76,382 sq ft of office space and have now completed 13 new lettings and two renewals. Currently, the building is 97% let with the remaining 3% undergoing refurbishment. We continue to actively manage the building with planning permission approved for a full refurbishment of the Lee House reception.

31 Booth Street, Manchester

This 24,902 sq ft office located in the prime city core was acquired in January 2016 for £4.7m. The building has been fully refurbished and was launched to the market in March 2017.

During the period, 9,331 sq ft has been let to Hurley Partners (1,587 sq ft), Buro Four (2,273 sq ft), and The Appointment Group (5,471 sq ft). Since the period end, a further 6,990 sq ft has been let and the remaining space (4,418 sq ft) is under offer.

35 Dale Street, Manchester

35 Dale Street is a 53,212 sq ft office building situated in the Northern Quarter of Manchester, acquired in March 2015. The building underwent a comprehensive refurbishment which completed in June 2018. During the period, 3,234 sq ft was let with a further 6,000 sq ft let since the period end. The building is now fully occupied.

Trinity, Manchester

Trinity, purchased in May 2017 for £12.9m, is currently being redeveloped and is expected to complete in December 2018. The repositioned building will comprise 54,960 sq ft of new and refurbished office space and 4,090 sq ft of retail/restaurant space.

Fourways House, Manchester

This 59,067 sq ft brick built Grade 2 listed former packing warehouse was acquired in the period for £16.5m, representing a net initial yield of 5.3%. The building will undergo a rolling refurbishment programme as space becomes available, as well as updating the common areas. 

Non-Core

Retail and Regional Office Investments

We sold our three remaining non-core investment assets at Sevenoaks (retail), Reading and Glasgow (both regional offices) during the period, for a total consideration of £28.5m, representing a 6.1% premium to book value and an aggregate net initial yield of 7.6%.

Retail Developments

We continue to progress our retail schemes at Truro, Kingswinford and East Ham. We have assigned our land option in Evesham, with a profit share dependent on the success of the scheme, which is due for completion in 2019.

Portfolio Analytics

See-through Total Portfolio by Fair Value

Excludes Investment Property Held for Sale.

See-through Trading and Development Portfolio

Capital Expenditure

We have a planned development and refurbishment programme.

Asset Management

Asset management is a critical component in driving Helical's performance. Through having well considered business plans and maximising the combined skills of our management team, we are able to create value in our assets without relying on market movements.

Excludes Investment Property Held for Sale.

During the period, total contracted income reduced by £4.2m as a result of the sale of investment properties and losses from breaks and lease expiries, offset by the purchase of one investment property and rent from new lettings and rent reviews.

1 Includes the reduction in contracted rent from transfer of asset to Investment Property Held for Sale. 

Investment Portfolio

Portfolio Yields

Excludes Investment Property Held for Sale.

See-through Capital Values, Vacancy Rates and Unexpired Lease Terms

Investment properties excluding assets in the course of redevelopment and Investment Property Held for Sale.

See-through Valuation Movements

Excludes Investment Property Held for Sale.

See-through Lease Expiries or Tenant Break Options

Excludes Investment Property Held for Sale.

We have a strong rental income stream and a diverse tenant base. The top 10 tenants account for 52.6% of the total rent roll and the tenants come from a variety of industries.

Excludes Investment Property Held for Sale.

Statement of Directors' Responsibilities

We confirm that to the best of our knowledge:

a) The condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

b) The interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events and their impact during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

c) The interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

Balances with related parties at 30 September 2018, 30 September 2017 and 31 March 2018 are disclosed in Note 24.

A list of current Directors is maintained at 5 Hanover Square, London W1S 1HQ and at www.helical.co.uk.

The half year statement was approved by the Board on 21 November 2018 and is available from the Company's registered office at 5 Hanover Square, London W1S 1HQ and on the Company's website at www.helical.co.uk.

On behalf of the Board

Tim MurphyFinance Director

21 November 2018

Independent Review Report to the Members of Helical plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2018 which comprises the Unaudited Consolidated Income Statement, Unaudited Consolidated Statement of Comprehensive Income, Unaudited Consolidated Balance Sheet, Unaudited Consolidated Cash Flow Statement, Unaudited Consolidated Statement of Changes in Equity and related Notes 1 to 29. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in Note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLPStatutory Auditor

London, United Kingdom 21 November 2018

Unaudited Consolidated Income Statement

For the Half Year to 30 September 2018

Unaudited Consolidated Statement of Comprehensive Income

For the Half Year to 30 September 2018

The exchange differences on retranslation of net investments in foreign operations will be reclassified to the Income Statement on disposal.

Unaudited Consolidated Balance Sheet

At 30 September 2018

Unaudited Consolidated Cash Flow Statement

For the Half Year to 30 September 2018

Unaudited Consolidated Statement of Changes in Equity

At 30 September 2018

For a breakdown of total comprehensive income see the Unaudited Consolidated Statement of Comprehensive Income.

The adjustment against retained earnings of £898,000 (31 March 2018: £1,185,000) adds back the share based payments charge in accordance with IFRS 2 'Share Based Payments'.

There were net transactions with owners of £7,175,000 (31 March 2018: £9,273,000) made up of the Performance Share Plan credit of £898,000 (31 March 2018: £1,185,000) and related deferred tax credit of £230,000 (31 March 2018: charge of £55,000), dividends paid of £8,303,000 (31 March 2018: £10,195,000), the issue of share capital of £8,000 (31 March 2018: £4,000) and corresponding share premium of £2,506,000 (31 March 2018: £nil), the transaction in own shares credit of £nil (31 March 2018: £521,000), share settled PSP awards charge of £1,837,000 (31 March 2018: £nil) and the share settled bonus awards charge of £677,000 (31 March 2018: £733,000).