Helical Bar Regulatory News (HLCL)

Helical's letting potential and development pipeline to drive future growth

Gerald Kaye, Chief Executive, commented:

"Occupational demands are evolving in the office sector, with tenants using their premises to optimise the work experience for their employees. Amenity, connectivity, service and sustainability are encouraging businesses towards new buildings. At the same time, buildings that provide a poorer working environment are driving occupiers away. This bifurcation of the market between the "best-in-class" and the rest is accelerating with rental growth continuing for the "best" and values falling for the rest. This will provide opportunities to acquire potential developments and major refurbishments at levels that allow for strong capital returns.

"We have experienced a further significant outward yield movement in the Period, and while interest from potential occupiers has been encouraging, lease negotiations are taking longer to conclude. However, having taken the pain of reductions in value, Helical is now well positioned to drive growth through the letting of the vacant space in its investment portfolio.

"At The JJ Mack Building, EC1, a prime example of a "best-in-class" building, recent letting progress has been encouraging and we will be c.60% let once the current space under offer completes in December. Each letting to date has exceeded the applicable ERV and the recent letting of the 9th floor sets a record rent for the sub-market. By concluding these lettings, the existing 25bps yield differential between vacant and let space will unwind providing a significant positive impact on valuations. Similarly, upon re-letting the WeWork space at The Bower, EC1, the capital value will be enhanced as the yield differential is removed and contracted rent increases towards its ERV of c.£24m, which is significantly in excess of our total annualised recurring administration and finance costs.

"Our development pipeline is expected to provide surpluses for the foreseeable future. Scheduled to start in 2024 and be delivered from late 2025 onwards, this pipeline will be supplemented with additional "equity-light" opportunities as building owners seek specialists in office development and refurbishment to partner with them to maximise the value of their assets. In addition, banks and other financial institutions with non-performing assets should provide additional opportunities for Helical to create value.

"The balance sheet is in good shape and maintaining financial discipline remains at the forefront of Helical's approach. Recycling equity and seeking third party financing to fund the pipeline of opportunities will allow the Company to grow the business while containing gearing to appropriate levels.

"There remains a shortage of "best-in-class" newly refurbished or redeveloped office space in central London. With an experienced management team, a substantial development pipeline with optionality over timing and funding, and no legacy assets requiring investment to meet minimum sustainability standards, Helical is well positioned to capitalise on current cyclical opportunities."

Operational Activity During the Period

Steady progress with lettings, despite challenging backdrop

· During the Period we completed five new lettings, comprising 10,381 sq ft, delivering contracted rent of £576,803 in line with 31 March 2023 ERVs.

· Despite this activity, vacancy increased across the portfolio to 18.5% (31 March 2023: 16.1%) at 30 September 2023.

· Since the Period end, we have let the 9th floor (13,408 sq ft) at The JJ Mack Building, EC1 for 10 years to Corio Generation, a subsidiary of Macquarie Group, at a 2.3% premium to 31 March 2023 ERVs, and have a further three floors (68,002 sq ft) under offer to one tenant. On completion, the building will be c.60% let.

· At The Bower, EC1 we have extended the lease to existing tenant Verkada by 10 years and have facilitated their expansion into an additional, adjacent floor. The vacant 14th floor is now under offer at a rent above 31 March 2023 ERV.

· In October 2023, we exercised our right to forfeit the individual leases for the six floors let to WeWork at The Tower, EC1 following non-payment of rent for the September 2023 quarter. Subsequently, we have entered into a short-term licence arrangement with them and received a fee equivalent to the whole of the September quarter's rent and service charge due under the terms of the previous lease arrangements.

· On the expiry of the WeWork licence arrangement, and following the departure of Baker McKenzie from 100 New Bridge Street, EC4 in anticipation of its redevelopment, the vacancy rate across the investment portfolio will rise to c.25%.

Sales

· Subsequent to the Period end, we have sold the long leasehold interest in the retail units at Barts Square for £7.0m (our share £3.5m), bringing an end to the joint venture with Baupost, which built 235 apartments, three office buildings totalling 249,000 sq ft and 21,000 sq ft of retail across 10 units.

Portfolio Valuation

· There was an average outward yield adjustment of 46bps at 30 September 2023 across the portfolio. This compares to the 75bps outward movement of City office prime yields, as reported by Savills for the Period.

100 New Bridge Street, EC4

· At 100 New Bridge Street, EC4, we received planning approval from The City of London for our 194,000 sq ft scheme. The main construction contract and development financing facility are being finalised so that we can be ready to start construction in early 2024.

The Platinum Portfolio - TfL

· On 11 July 2023, contracts were signed confirming Helical as Transport for London's ("TfL") commercial office joint venture partner. This long term partnership will see the delivery of new, high-quality and sustainable office space predominantly above or adjacent to key transport hubs. The first three development opportunities are:

- Bank OSD, EC4 - Located above the recently opened Bank Station entrance on Cannon Street. This eight storey office development will deliver 142,000 sq ft NIA over seven office floors, with typical floorplates of 22,500 sq ft, and 7,653 sq ft of terracing over three floors. A start on site is envisaged in October 2024.

- Southwark OSD, SE1 - Located above Southwark Station. The scheme has consent for a 222,000 sq ft NIA office building over 17 storeys. Feasibility studies are underway, looking at alternative approaches for the site.

- Paddington OSD, W2 - The 235,000 sq ft NIA scheme is to be built over the canal level eastern entrance to Paddington Station, opposite the Brunel Building. We intend to make minor changes to ensure we deliver a "best-in-class" scheme with enhanced amenities.

Financial Highlights

Earnings and Dividends

· IFRS loss of £93.1m (2022: profit of £17.2m), primarily driven by revaluation losses.

· IFRS basic loss per share of 75.8p (2022: earnings of 14.1p).

· EPRA earnings per share1 of 1.1p (2022: 4.8p).

· Interim dividend maintained at 3.05p per share (2022: 3.05p).

Balance Sheet

· Net asset value down 17.5% to £502.3m (31 March 2023: £608.7m).

· Total Accounting Return1 on IFRS net assets of -15.9% (2022: 2.3%).

· Total Accounting Return1 on EPRA net tangible assets of -16.6% (2022: -2.5%).

· EPRA net tangible asset value per share1 down 17.0% to 409p (31 March 2023: 493p).

· EPRA net disposal value per share1 down 16.5% to 409p (31 March 2023: 490p).

Financing

· See-through loan to value1 of 33.5% (31 March 2023: 27.5%).

· See-through net borrowings1 of £249.6m (31 March 2023: £231.4m).

· Average maturity of the Group's share1 of secured debt of 2.4 years (31 March 2023: 2.9 years).

· 100% of drawn debt protected by interest rate hedging to expiry of facilities.

· Gain in valuation of derivative financial instruments of £2.1m (2022: £26.6m).

· See-through average cost of secured facilities1 of 3.3% (31 March 2023: 3.4%).

· Group's share1 of cash and undrawn bank facilities of £226.7m (31 March 2023: £244.2m).

Portfolio Update

· IFRS investment property portfolio value of £595.1m (31 March 2023: £681.7m).

· Our see-through investment portfolio1, valued at £745.6m (31 March 2023: £839.5m), declined 11.8% with yield expansion of 46bps offset by 1.8% ERV1 growth.

· See-through portfolio WAULT1 of 4.6 years (31 March 2023: 5.0 years).

Sustainability Highlights

· Good progress against targets set out in sustainability strategy "Built for the Future" and our aim to be a net zero carbon business by 2030.

· Ranked 1st against our peers in the UK Office Listed sector for standing investments, as measured by GRESB, scoring 87% and receiving a 4 Star rating. Our developments received a score of 92% and also received a 4 Star rating.

· Retention of EPRA Sustainability BPR Gold rating.

Interim Dividend Timetable

A Dividend Reinvestment Plan ("DRIP") is provided by Equiniti Financial Services Limited. The DRIP enables the Company's Shareholders to elect to have their cash dividend payments used to purchase the Company's shares. More information can be found at www.shareview.co.uk/info/drip.

For further information, please contact:

Results Presentation

Helical will be holding a presentation for analysts and investors starting at 10:00am on Wednesday 22 November 2023 at the offices of FTI Consulting, 200 Aldersgate, Aldersgate Street, London, EC1A 4HD. If you would like to attend, please contact FTI Consulting on 020 3727 1000, or email schelical@fticonsulting.com

The presentation will be on the Company's website www.helical.co.uk and a live webcast and Q&A will also be available.

Webcast Link:

https://stream.brrmedia.co.uk/broadcast/64e620a4d584ef1a8fc186ab

Half Year Results Statement

At Helical, sustainability is at the heart of everything we do and forms one of the key pillars of our strategy. With this in mind, we have taken the decision to cease mailing hard copies of our half year results reports to our Shareholders and other stakeholders unless specifically requested. Should you wish to receive a hard copy of our Results for the Half Year to 30 September 2023 by post, please email your request to companysecretary@helical.co.uk. An electronic version of our Results for the Half Year to 30 September 2023 is available on our website (https://www.helical.co.uk/investors/results-and-presentations/).

1. See Glossary for definition of terms. These interim condensed consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the UK and the Disclosure Guidance and Transparency Rules sourcebook of the UK's Financial Conduct Authority. In common with usual and best practice in our sector, alternative performance measures have also been provided to supplement IFRS, some of which are based on the recommendations of the European Public Real Estate Association ("EPRA"), with others designed to give additional information about the Group's share of assets and liabilities, income and expenses in subsidiaries and joint ventures.

Chief Executive's Statement

Overview

During the six months to 30 September 2023, there has been a painful readjustment in the investment market as valuation yields have increased to reflect movements in ten year gilts and five year swap rates, the pricing of which is correlated to real estate property yields.

There are signs, however, with inflation falling and predictions that CPI will be in low single figures by the end of 2024, that base rates have peaked and may start to fall sooner than the "higher for longer" commentators suggest, allowing yields to stabilise.

At Helical, the portfolio has seen an outward yield adjustment of 46bps since 31 March 2023, offset by 1.8% ERV growth, with both valuations and earnings impacted by increased vacancy in the portfolio, particularly as the result of our forfeiture of the leases to WeWork at The Bower, EC1. This proactive step has allowed us to regain control of the space, shortly before the tenant went into Chapter 11 in the US, and it enables us to determine the best future leasing strategy for this high quality space.

At the same time, we continue to let space at our most recently completed new development, The JJ Mack Building, EC1. Despite an increase in the time taken to negotiate commercial terms and complete the legal processes, we have made good progress in letting the space and at record rents for the Farringdon area, significantly in excess of the initial appraisal rental levels and above March 2023 ERVs.

The Half Year at Helical has also seen significant progress made across the development pipeline, including signing the joint venture with TfL's property company, "Places for London", and reviewing and refining plans for each of our projects. The selection of Helical as the joint venture partner for Places for London was a significant milestone, boosting our development pipeline by almost 600,000 sq ft, with the potential for additional schemes to be added to the joint venture in the future. This collaboration with TfL, one of London's largest landowners, is an endorsement of the Helical brand and recognises our track record of producing "best-in-class" successful developments across central London over many years.

Results for the Half Year

The loss after tax for the half year to 30 September 2023 was £93.1m (2022: profit £17.2m).

The see-through Total Property Return of -£84.8m (2022: +£4.0m), incorporating the Group's share of results of its joint ventures, includes see-through net rental income of £12.4m (2022: £18.2m), while developments generated see-through losses of £0.5m (2022: profit of £0.9m). The see-through net loss on sale and revaluation of the investment portfolio was £96.7m (2022: £15.1m).

See-through recurring administration costs, excluding performance related awards and NIC, were down 16.1% to £4.8m (2022: £5.8m). Including the charge for share based payments and NIC, total see-through administration costs were down 4.6%, to £5.8m (2022: £6.0m). Total see-through net finance costs reduced by 22% to £5.6m (2022: £7.2m) while an increase in expected future interest rates, as assessed at 30 September 2023, led to a £2.1m gain (2022: £26.6m) in the valuation of the Group's derivative financial instruments.

There was an IFRS basic loss per share of 75.8p (2022: earnings of 14.1p) and an EPRA earnings per share of 1.1p (2022: 4.8p).

On a like-for-like basis, the see-through investment portfolio fell in value by 11.8%, reflecting yield expansion of 46bps offset by 1.8% ERV growth.

EPRA net tangible assets ("NTA") per share were down 17.0% to 409p (31 March 2023: 493p), with EPRA net disposal value ("NDV") per share down 16.5% to 409p (31 March 2023: 490p). The Total Accounting Return ("TAR") for the Period, being the growth in the IFRS net asset value of the Group, plus dividends paid in the Period, was -15.9% (2022: 2.3%). Based on EPRA NTA per share, the TAR was-16.6% (2022: -2.5%).

Balance Sheet Strength and Liquidity

At 30 September 2023, the Group had £226.7m (31 March 2023: £244.2m) of cash and agreed, undrawn, committed bank facilities, including its share in joint ventures, available to fund capital works on its portfolio and future acquisitions.

The see-through loan to value ratio ("LTV") increased to 33.5% at the balance sheet date (31 March 2023: 27.5%) and our see-through net gearing, the ratio of net borrowings to the net asset value of the Group, increased to 49.7% (31 March 2023: 38.0%) over the same period.

At the Period end, the average debt maturity on secured loans, on a see-through basis, was 2.4 years (31 March 2023: 2.9 years). The average cost of debt, on a see-through basis, at 30 September 2023 was 3.3% (31 March 2023: 3.4%).

Dividends

Helical seeks to maximise value by successfully letting redeveloped or comprehensively refurbished property. Once stabilised, these assets are either retained for their long-term income and reversionary potential or sold to recycle equity into new schemes.

This recycling leads to fluctuations in our EPRA earnings per share, as the calculation of these earnings excludes capital profits or losses generated from the sale and revaluation of assets. As such both EPRA earnings and accumulated realised capital profits are considered when determining the payment of any dividend in excess of the Property Income Distribution requirement.

In the Period to 30 September 2023, EPRA earnings per share fell to 1.1p (2022: 4.8p), mainly reflecting the impact of the forfeiture of the leases to WeWork at The Bower, EC1 and the sale of Kaleidoscope, EC1 in September 2022. No investment assets were sold during the Period.

In the light of the reduced earnings, the Board has approved an Interim Dividend of 3.05p per share, the same level as in 2022. This dividend is to be paid out of EPRA earnings and accumulated realised capital profits. The Property Income Distribution ("PID") for the six months to 30 September 2023 will be 0.50p, with the balance of the Interim Dividend of 2.55p representing an additional ordinary dividend.

The Opportunity

Occupational demands are evolving in the office sector, with tenants using their premises to optimise the work experience for their employees. Amenity, connectivity, service and sustainability are encouraging businesses towards new buildings. At the same time, buildings that provide a poorer working environment are driving occupiers away. This bifurcation of the market between the "best-in-class" and the rest is accelerating with rental growth continuing for the "best" and values falling for the rest. This will provide opportunities to acquire potential developments and major refurbishments at levels that allow for strong capital returns.

We have experienced a further significant outward yield movement in the Period, and while interest from potential occupiers has been encouraging, lease negotiations are taking longer to conclude. However, having taken the pain of reductions in value, Helical is now well positioned to drive growth through the letting of the vacant space in its investment portfolio.

At The JJ Mack Building, EC1, a prime example of a "best-in-class" building, recent letting progress has been encouraging and we will be c.60% let once the current space under offer completes in December. Each letting to date has exceeded the applicable ERV and the recent letting of the 9th floor sets a record rent for the sub-market. By concluding these lettings, the existing 25bps yield differential between vacant and let space will unwind providing a significant positive impact on valuations. Similarly, upon re-letting the WeWork space at The Bower, EC1, the capital value will be enhanced as the yield differential is removed and contracted rent increases towards its ERV of c.£24m, which is significantly in excess of our total annualised recurring administration and finance costs.

Our development pipeline is expected to provide surpluses for the foreseeable future. Scheduled to start in 2024 and be delivered from late 2025 onwards, this pipeline will be supplemented with additional "equity-light" opportunities as building owners seek specialists in office development and refurbishment to partner with them to maximise the value of their assets. In addition, banks and other financial institutions with non-performing assets should provide additional opportunities for Helical to create value.

The balance sheet is in good shape and maintaining financial discipline remains at the forefront of Helical's approach. Recycling equity and seeking third party financing to fund the pipeline of opportunities will allow the Company to grow the business while containing gearing to appropriate levels.

There remains a shortage of "best-in-class" newly refurbished or redeveloped office space in central London. With an experienced management team, a substantial development pipeline with optionality over timing and funding, and no legacy assets requiring investment to meet minimum sustainability standards, Helical is well positioned to capitalise on current cyclical opportunities.

Gerald Kaye

Chief Executive

22 November 2023

Our Market

General overview

During the Period, the central London office market experienced significant headwinds as geopolitical and economic events continued to weigh on sentiment towards the sector.

While the economic environment for real estate remains challenging, the fundamentals of the central London office occupier market remain robust with Q3 2023 experiencing the highest levels of take-up so far this year and active requirements surpassing 10 million sq ft as occupiers continue to seek "best-in-class" space for their employees.

Investment Market

The investment market continues to be impacted by higher interest rates and general economic uncertainty. Investment volumes in the three quarters to 30 September 2023 have been subdued, totalling £3.8bn in central London. This is 74% below the 10 year average as reported by CBRE. This lack of activity has led to further uncertainty over appropriate asset valuations as comparable evidence remains scarce.

Savills prime equivalent yields show that, over the last six months, the City office yield has moved out 75bps to 5.25%. The MSCI London City Equivalent Yield, which includes both prime and non-prime office buildings, has moved out 90bps over the last six months, while our portfolio yield expanded by 46bps, highlighting that "best-in-class" yields have been less impacted.

The consensus opinion that interest rates will remain at higher levels for an extended period has added significant costs to project appraisals, suppressing investor appetite for new acquisitions and undertaking capital expenditure projects of scale. However, debt markets remain open, with an increasingly diverse lender pool seeking the opportunity to deploy capital, albeit lenders are being increasingly discerning about their choice of counterparty.

Occupational Market

Despite a challenging economic backdrop, the occupational market has remained relatively robust and the latest figures show, as at 30 September 2023, there is 10.6 million sq ft of active requirements for space across central London, up 42% compared to a year earlier. The trend towards "best-in-class" office space continues and is evidenced by CBRE's Q3 2023 figures, showing a decline in availability of newly completed space to 4.0 million sq ft, while second-hand space availability stood much higher, at 17.3 million sq ft, well above the long-term average of 11.1 million sq ft.

Banking, finance and professional services remain the most active sectors, making up 73% of active requirements in the market as at the end of Q3 2023.

Businesses continue to encourage workers to return to the office, with an increasing number of firms revising their working from home policies. Occupiers remain focused upon providing their employees with the optimal workplace environment and continue to seek buildings with the highest levels of amenity, connectivity, service and sustainability, which align to the characteristics of our existing portfolio and is a trend we can continue to capitalise on through our development pipeline.

New build vacancy rates continue to remain at low levels at 1.6%, comparing favourably to an overall vacancy rate of 9.6% (4.0% above the 10 year average). This shortage is translating into tenants' willingness to pay increasing rents for "best-in-class" accommodation. JLL has seen 49% of all H1 2023 letting deals completed at or above the prime rent, against a long term average of 30% and CBRE forecast annualised rental growth of 4-5% for central London over the next five years.

Development Pipeline

CBRE reports 3.9 million sq ft of developments and major refurbishments completed in the first nine months of the year, marginally higher than the comparable periods over the last two years. In addition, there is around 13.7m sq ft of space under construction across central London, with 39% of this space already let or under offer, further illustrating the strength of demand for new space.

Recent sustained construction cost inflation, driven by strong demand, supply chain disruption, tight labour markets and volatile energy costs seem to be moderating, but when coupled with interest rate rises, the viability of development remains challenging.

We continue to expect a clear medium term demand/supply imbalance for "best-in-class" space of which we will look to take advantage. For many, however, the market conditions mean new starts will be paused until it is evident there is sufficient rental growth to support viable returns.

The challenging planning environment also continues to elongate development timelines and limit the future pipeline of new development stock. Occupiers continue to require newly developed or refurbished offices that are well located and have good amenities; this will exacerbate the scarcity. The opportunity to work with TfL to develop a portfolio of new consented schemes adjacent to key transport infrastructure provides the opportunity to seize upon these trends by delivering new "best-in-class" space into supply constrained sub-markets.

Sustainability requirements will also continue to drive redevelopment with around 75% of central London space currently below an EPC B rating, meaning there will be significant works required to upgrade the existing unsustainable buildings. Many assets with upcoming lease events face obsolescence and owners will be required to invest considerable capital to bring these assets back to the market to the appropriate standard.

Conclusion

Our portfolio focuses on "best-in-class", sustainable buildings and our extensive development pipeline ensures that we are well placed to outperform the market in the current environment. Furthermore, Helical has the necessary expertise and established track record to take advantage of the opportunities that we expect to emerge in the future, partnering with land owners to minimise equity and maximise returns.

Sustainability and Net Zero Carbon

We continue to make good progress against the targets we set out in our sustainability strategy "Built for the Future" and our aim to become a net zero carbon business by 2030. With a pipeline of new developments and major refurbishments, we are continuing to challenge carbon emissions across these projects with the aspiration of meeting our embodied carbon target of 600kgco2e/m2 and energy intensity target of 90kWh/m2.

For GRESB, we have again been ranked the number one company in the UK Office Listed sector, scoring 87% and receiving a 4 Star rating in the annual sustainability performance index for our standing investment properties. Alongside this, we received a score of 92% for our development activities resulting in a 4 Star rating. This downgrade from the prior year reflects the application of more onerous criteria and we have identified where improvements can be made for the future.

For our sustainability reporting, we received a Gold Award for the third consecutive year from EPRA's Sustainability Best Practice Recommendations (sBPR). The EPRA sBPR is intended to raise the standards and consistency of sustainability reporting for listed real estate companies across Europe.

Our portfolio is well placed in terms of energy efficiency, with 99% of our assets (by value) already compliant with the proposed legislative requirement that all rented commercial buildings achieve a minimum EPC rating of B by 2030. Research has highlighted that c.75% of current office stock in London has an EPC C or below, with significant capital outlay likely to be required to take non-compliant buildings up to the minimum standard. In addition to strong EPC ratings, 99% of our assets (by value) hold a BREEAM certification, with 88% being "Outstanding" or "Excellent" (excluding 100 New Bridge Street, EC4, which is to be refurbished).

Furthermore, in partnership with Places for London, TfL's commercial property company, we will deliver market leading buildings with exemplary ESG credentials, including BREEAM, NABERS and WELL certifications. It is intended that all sites will be developed on a net zero carbon basis and promote circular economy principles, operating to the highest efficiency with the aid of all-electric solutions and on-site renewables, as well as promoting health and wellbeing.

Helical's Property Portfolio - 30 September 2023

Property Overview

Helical's "best-in-class" portfolio comprises income-producing multi-let offices, refurbishments and developments across central London. We have a development pipeline of 790,000 sq ft of consented schemes following the establishment of our strategic joint venture with TfL's commercial property company, Places for London. Our portfolio is focused on areas of central London where we see strong tenant demand and growth potential for our amenity rich, technologically advanced and highly sustainable office schemes.

The Platinum Portfolio

On 11 July 2023, contracts were signed confirming Helical as Places for London's commercial office joint venture partner. This long term partnership will see the delivery of new high-quality and sustainable office space above key transport hubs. At inception, the joint venture consists of three new commercial office development opportunities, namely:

Bank OSD, EC4

Located above the recently opened Bank Station entrance on Cannon Street, this eight storey office development will deliver 142,000 sq ft NIA over seven office floors, with typical floorplates of 22,500 sq ft and 7,653 sq ft of terracing over three floors. We are looking to make minor changes to the existing permission to enhance the arrival facilities and amenity and incorporate a shared space on Abchurch Lane. A start on site is envisaged in October 2024.

Southwark OSD, SE1

Located above Southwark Station, the scheme has consent for a 222,000 sq ft NIA office building over 17 storeys. Feasibility studies are underway, looking at alternative approaches for the site's development. It is to be drawn down in July 2025 and it is expected that any revision to the planning permission will be obtained by then.

Paddington OSD, W2

The 235,000 sq ft NIA scheme is to be built over the canal level eastern entrance to Paddington Station, opposite the Brunel Building. Planning permission was granted in 2015 for the 19 storey building with 15 floors of office accommodation and we are looking at making minor changes to this consent in order to provide a visually striking, "best-in-class" scheme with enhanced amenities and terracing. The site drawdown is scheduled for January 2026.

The JJ Mack Building, EC1

Our most recently completed office development, The JJ Mack Building, is one of London's smartest and most sustainable new office buildings. The 206,050 sq ft office building was developed in a joint venture with AshbyCapital.

The sixth and seventh floors, comprising 37,880 sq ft, are let to Partners Group, a leading global private markets firm, for their new London office and they are progressing their fit-out works with the aim of taking occupation in Q1 2024.

Subsequent to the Period end, we completed a letting of the ninth floor, comprising 13,408 sq ft, to Corio Generation, a subsidiary of Macquarie Group. In addition, the first, second and third floors are under offer and due to formally sign in early December.

The building is situated just 150m from Farringdon Station and the Elizabeth Line, providing occupiers with unparalleled connectivity. Its construction has utilised design, technology and operational practices that have created a market leading sustainable property. This commitment to sustainability has been recognised by a BREEAM 2018 New Construction "Outstanding" rating at design stage which is currently being certified, an EPC A rating and an anticipated NABERS 5 Star rating. It also provides a technologically pioneering environment for occupiers with smart building systems and a fully integrated building management app for tenants.

100 New Bridge Street, EC4

We received planning approval from The City of London in June 2023 for our next "best-in-class" office development, located adjacent to City Thameslink and a short walk from Farringdon and Blackfriars stations. Two new floors will be added to the building, increasing the net internal area from 167,026 sq ft to 194,000 sq ft. The main construction contract and development financing facility are being finalised so that we can be ready to start construction in early 2024.

The major refurbishment will achieve the highest standards of sustainability through the retention of the existing structure and the reuse of materials where possible. Three facades will be reclad to significantly increase the thermal performance of the building and the building systems will be replaced with the latest technology to provide the best operational energy efficiency. The new building will provide high-quality tenant amenities, including extensive cycle parking, changing facilities and extensive outside space to create a new "best-in-class" office building.

The Bower, EC1

The Bower comprises 312,573 sq ft of innovative, high quality office space along with 21,059 sq ft of restaurant and retail space. The estate is located adjacent to the Old Street roundabout which has been undergoing significant works that are due to complete in early 2024, providing extensive additional public realm to occupiers.

The Warehouse and The Studio

The Warehouse and The Studio comprise 141,141 sq ft of fully-let office space. In addition, there is 10,298 sq ft of retail space across the buildings with these units also being fully let following two lettings in the Period to a restaurant operator and a hair and beauty studio.

The Tower

The Tower offers 171,432 sq ft of office space with a contemporary façade and innovatively designed interconnecting floors, along with 10,761 sq ft of retail space across two units, let to food and beverage operators Serata Hall and Wagamama.

In the Period, we have extended the lease on the 17th floor with Verkada by 10 years and facilitated their expansion into the 16th floor. The 14th floor is now under offer to Incubeta who are relocating from the 16th floor. These asset management initiatives extend the WAULT across 32,201 sq ft and achieve rents at a premium to the March 2023 ERVs.

On 27 October 2023, following non-payment of rent for the September quarter, we exercised our right to forfeit the individual leases for six floors let to WeWork. Subsequently, we entered into a short-term licence arrangement with them, to re-occupy the space, following Helical's receipt of a fee equivalent to the whole of the September quarter's rent and service charge due under the terms of the previous contractual arrangements.

Barts Square, EC1

In the Period, we completed the sale of the last residential unit thereby ending our involvement in the residential elements of the scheme.

The retail component has nine units, with a variety of occupiers including Michelin-Starred Restaurant St Barts, Lap Bikes, MyLuthier and Athletic Fitness. One unit has become available in the Period, with an additional unit under offer to Italian Taste as at 30 September 2023. Since the Period end, we have sold the long leasehold interest in the retail units for their book value of £7m. This was our last remaining interest in Barts Square.

This enables us to conclude our joint venture with Baupost which started in 2011. This joint venture built 235 apartments, three office buildings totalling 249,000 sq ft and 21,000 sq ft of retail across 10 units. Through outperformance, we increased our share of profit from our 33% equity participation to 44% and made a total profit of £41m with a 26% IRR.

The Loom, E1

This former Victorian wool warehouse offers 108,555 sq ft of office space and we continue with our active management approach to this asset, with vacancy currently at 37%. Whilst 16,009 sq ft became vacant during the Period, we have completed three new lettings, totalling 7,443 sq ft, in line with March 2023 ERVs.

25 Charterhouse Square, EC1

25 Charterhouse Square comprises 42,921 sq ft of offices adjacent to the newly operational Farringdon East Elizabeth Line station, overlooking the historic Charterhouse Square. The building is 85% let with the fourth floor available following a comprehensive refurbishment.

The Power House, W4

The Power House is a listed building, providing 21,268 sq ft of office and recording studio space, on Chiswick High Road and is fully let on a long lease to Metropolis Music Group.

Portfolio Analytics

See-through Total Portfolio by Fair Value

See-through Land and Development Portfolio

Capital Expenditure

We have a committed and 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.

1 Following the forfeiture of the leases to WeWork at The Bower, EC1 post Period end, the contracted rent reduced to £26.9m.

2 In accordance with the business plan to redevelop 100 New Bridge Street, EC4 the Baker McKenzie lease will terminate on 31 December 2023, reducing the contracted rent by £7.1m.

1 Following the forfeiture of the leases to WeWork at The Bower, EC1 post Period end, the contracted rent reduced by a further £4.0m.

Investment Portfolio

Valuation Movements

Portfolio Yields

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

1 Vacancy rate increases to 26.0% following the forfeiture of the WeWork leases.

2 Total WAULT falls to 3.2 years following the forfeiture of the WeWork leases.

See-through Lease Expiries or Tenant Break Options

Includes impact of the forfeiture of the WeWork leases and the expiry of the lease to Baker McKenzie on 31 December 2023.

Top 15 Tenants

At 30 September 2023, the top 15 tenants account for 81.6% of the total rent roll.

* Leases expire on or before 31 December 2023.

Letting Activity - New Leases Completed During the Period

Financial Review

Overview

Against a challenging backdrop, the results for the half year reflect the outward yield shift experienced across the office sector through investment property valuation losses, coupled with the effect on net rental income of the forfeiture of the WeWork leases. This impact was partially offset by reductions in administrative costs (excluding performance related awards) and finance costs. The rise in interest rates during the Period has resulted in a small gain on the fair value of derivatives, which continue to protect the Company against the current high level of interest rates.

Results for the Period

The IFRS loss for the Period of £93.1m (2022: profit of £17.2m) includes revenue from rental income, service charges and development management fees of £19.2m, offset by direct costs of £7.8m to give a net property income of £11.4m (2022: £18.8m). Other income of £0.9m (2022: £nil), from the sub-letting of part of the Company's head office, was recognised in the Period. There was a net loss on sale and revaluation of investment properties of £93.4m (2022: £30.4m) and the loss from joint venture activities was £4.5m (2022: gain of £15.1m). Administration expenses of £5.6m (2022: £5.6m) and net finance costs of £4.0m (2022: £7.3m), were offset by a gain in the fair value of derivatives of £2.1m (2022: £26.6m).

The Group holds a significant proportion of its property assets in joint ventures. As the risk and rewards of ownership of these underlying properties are the same as those it wholly owns, Helical supplements its IFRS disclosure with a "see-through" analysis of alternative performance measures, which looks through the structure to show the Group's share of the underlying business.

The see-through results for the Period to 30 September 2023 include net rental income of £12.4m, a net loss on sale and revaluation of the investment portfolio of £96.7m and development losses of £0.5m, leading to a Total Property Return of -£84.8m (2022: £4.0m). Other income of £0.9m less total see-through administration costs of £5.8m (2022: £6.0m) and see-through net finance costs of £5.6m (2022: £7.2m) plus see-through gains from the mark-to-market valuation of derivative financial instruments of £2.1m (2022: £26.6m) contributed to an IFRS loss of £93.1m (2022: profit of £17.2m).

The interim dividend, payable on 12 January 2024, will be 3.05p per share (2022: 3.05p), unchanged from last year.

The EPRA net tangible asset value per share decreased by 17% to 409p (31 March 2023: 493p).

The Group's investment portfolio, including its share of assets held in joint ventures, decreased to £745.6m (31 March 2023: £839.5m) primarily due to the net loss on revaluation of the investment portfolio of £96.7m after lease incentives of £3.5m, offset by capital expenditure on the investment portfolio of £6.3m.

The Group's see-through loan to value at 30 September 2023 was 33.5% (31 March 2023: 27.5%). The Group's weighted average cost of debt at 30 September 2023 was 3.3% (31 March 2023: 3.4%) and the weighted average debt maturity was 2.4 years (31 March 2023: 2.9 years).

At 30 September 2023, the Group had unutilised bank facilities of £187.5m and cash of £39.2m on a see-through basis. These are primarily available to fund future property acquisitions and capital expenditure.

Total Property Return

We calculate our 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. 

Total Accounting Return

Total Accounting Return is the growth in the net asset value of the Group 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 in each period and is expressed as an absolute percentage.

Total Accounting Return on EPRA net tangible assets is the growth in the EPRA net tangible asset value of the Group plus dividends paid in the period, expressed as a percentage of the EPRA net tangible asset value at the beginning of the period.

Earnings/(Loss) Per Share

The IFRS earnings/(loss) per share decreased from earnings of 14.1p to a loss of 75.8p and is based on the after tax (loss)/earnings attributable to ordinary Shareholders divided by the weighted average number of shares in issue during the Period.

On an EPRA basis, the earnings per share is 1.1p compared to 4.8p in 2022, reflecting a decrease in the Group's share of net rental income to £12.4m (2022: £18.2m) plus development losses of £0.5m (2022: profit of £0.9m), but excluding losses on sale and revaluation of Investment properties of £96.7m (2022: £15.1m).

Net Asset Value

IFRS diluted net asset value per share decreased to 409p per share (31 March 2023: 489p) and 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. 

EPRA net tangible asset value per share decreased to 409p per share (31 March 2023: 493p). Thismovement arose principally from a total comprehensive expense (retained losses) of £93.1m (2023:£64.5m), less £9.5m of dividends (2023: £13.8m).

EPRA net disposal value per share decreased by 16.5% to 409p per share (31 March 2023: 490p).

Income Statement

Rental Income and Property Overheads

Gross rental income for the Group in respect of wholly owned properties decreased to £12.8m (2022: £19.2m), with gross rents in joint ventures increasing to £0.9m (2022: £0.3m). Property overheads in respect of wholly owned assets and in respect of those assets in joint ventures remained at £1.3m (2022: £1.3m). Overall, see-through net rents decreased to £12.4m (2022: £18.2m).

Included within gross rental income is a reduction of £4.3m (30 September 2022: addition of £2.5m, 31 March 2023: addition of £1.7m) of accrued income for rent free periods including an adjustment of £2.9m relating to the forfeited leases to WeWork.

The table below demonstrates the movement of the see-through accrued income balance for rent free periods granted and the respective rental income adjustment over the period to 31 March 2027, based on the tenant leases as at 30 September 2023. The actual adjustment will vary depending on lease events such as new lettings and early terminations and future acquisitions or disposals.

Rent Collection

At 22 November 2023, the Group had collected 98.8% of all rent contracted and payable for the March, June and September 2023 quarters.

Development Profits

During the Period, a profit of £0.6m on a legacy retail scheme at East Ham and a close out payment for the site at Kingswinford of £0.1m were recognised. These were offset by a write back of the expected development management fee at The JJ Mack Building, EC1 of £1.2m, recognised in previous periods, which led to a net development loss of £0.5m (2022: profit of £0.9m).

Share of Results of Joint Ventures

The revaluation of our Investment properties held in joint ventures generated a deficit of £3.3m (2022: surplus of £15.3m). A profit of £0.1m (2022: profit of £0.2m) was recognised in respect of the final apartment sale at our Barts Square, EC1 residential development. Net rental income of £0.5m (2022: £0.1m) was recognised.

Finance, administration and other sundry costs totalling £1.8m (2022: £0.3m) were incurred and after a tax charge of £nil (2022: £0.1m), there was a net loss from our joint ventures of £4.5m (2022: profit of £15.1m).

Loss on Sale and Revaluation of Investment Properties

The loss on valuation of our investment portfolio on a see-through basis resulted in an overall loss on sale and revaluation, including in joint ventures, of £96.7m (2022: £15.1m).

Administrative Expenses

Administration costs in the Group, before performance related awards, decreased by 12.5% from £5.3m to £4.7m.

Performance related share awards and bonus payments, before National Insurance costs, increased to £0.8m (2022: £0.2m). Of this amount, £0.7m (2022: £0.1m), being the charge for share awards under the Performance Share Plan, which, currently are not expected to vest, is expensed through the Income Statement but added back to Shareholders' Funds through the Statement of Changes in Equity.

Finance Costs, Finance Income and Change in Fair Value of Derivative Financial Instruments

Net finance costs excluding changes in the fair value of derivative financial instruments, including in joint ventures, reduced to £5.6m (2022: £7.2m).

The movement upwards in medium and long-term interest rate projections during the Period contributed to a gain of £2.1m (2022: £26.6m) on the mark-to-market valuation of the derivative financial instruments.  

Taxation

The Group elected to become a REIT, effective from 1 April 2022, and is now exempt from UK corporation tax on the profits/(losses) of its property activities that fall within the REIT regime. Helical will continue to pay corporation tax on its profits/(losses) that are not within this regime.

As a consequence, the tax charge for the Period was £nil (2022: £nil).

Dividends

The Board has declared an interim dividend for the Period of 3.05p per share, the same level as in 2022. This dividend is to be paid out of EPRA earnings and accumulated realised capital profits. The Property Income Distribution ("PID") for the Period will be 0.5p, with the balance of 2.55p representing an additional ordinary dividend.

Balance Sheet

Shareholders' Funds

Shareholders' Funds at 31 March 2023 were £608.7m. The Group's loss for the Period, representing the total comprehensive expense for the Period, reduced funds by £93.1m (2022: increased by profit of £17.2m). Movements in reserves arising from the Group's share schemes decreased funds by £3.8m. The Company paid dividends to Shareholders during the Period of £9.5m. The net decrease in Shareholders' Funds from Group activities during the Period was £106.4m to £502.3m.

Investment Portfolio

The Group expended £6.8m on capital works across the investment portfolio, at 100 New Bridge Street, EC4 (£5.1m), The Bower, EC1 (£0.6m), The Loom, E1 (£0.6m), and The Power House, W4 (£0.5m). These costs were partially offset by a reversal of costs at The JJ Mack Building, EC1 of £0.5m.

Revaluation losses resulted in a £100.2m decrease in the see-through fair value of the portfolio, before lease incentives, to £745.6m (31 March 2023: £839.5m). The accounting for head leases and lease incentives resulted in a book value of the see-through investment portfolio of £741.3m (31 March 2023: £831.8m).

Debt and Financial Risk

In total, the see-through outstanding debt at 30 September 2023 of £292.4m (31 March 2023: £290.4m) had a weighted average interest cost of 3.3% (31 March 2023: 3.4%) and a weighted average debt maturity of 2.4 years (31 March 2023: 2.9 years).

Debt Profile at 30 September 2023 - Including Commitment Fees but Excluding the Amortisation of Arrangement Fees

Secured Debt

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

- £400m Revolving Credit Facility

The Group has a £400m Revolving Credit Facility in which all of its wholly owned investment assets are secured. The value of the Group's properties secured in this facility at 30 September 2023 was £603m (31 March 2023: £693m) with a corresponding loan to value of 38.2% (31 March 2023: 33.2%). The average maturity of the facility at 30 September 2023 was 2.8 years (31 March 2023: 3.3 years) with a weighted average interest rate of 3.0% (31 March 2023: 3.1%).

- Joint Venture Facilities

Where the Group holds investment and development properties in joint venture with third parties it includes its share, in proportion to its 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 2023 was 0.8 years (31 March 2023: 1.3 years) with a weighted average interest rate of 4.2% (31 March 2023: 4.2%). The average interest rate will fall as The JJ Mack Building, EC1 development facility is drawn down and would be 4.00% on a fully utilised basis, reducing to 2.25% once the building is let. There is a one-year extension option in this facility.

Unsecured Debt

The Group's unsecured debt is £nil (31 March 2023: £nil).

Cash and Cash Flow

At 30 September 2023, the Group had £17.5m (31 March 2023: £28.2m) of cash deposits available to deploy without restrictions, £7.7m (31 March 2023: £9.1m) of rent deposits from tenants and a further £14.0m (31 March 2023: £17.4m) of rent in bank accounts available to service payments under loan agreements, cash held at managing agents and cash held in joint ventures. Furthermore, the Group had £187.5m (31 March 2023: £189.5m) of loan facilities available to fund future acquisitions.

Net Borrowings and Gearing

Total gross borrowings of the Group, including in joint ventures, have slightly increased from £290.4m to £292.4m during the Period to 30 September 2023. After deducting cash balances of £39.2m (31 March 2023: £54.7m) and unamortised refinancing costs of £3.6m (31 March 2023: £4.3m), net borrowings increased from £231.4m to £249.6m. The see-through net gearing of the Group, including in joint ventures, increased from 38.0% to 49.7%.

Hedging

At 30 September 2023, the Group had £230.0m (31 March 2023: £230.0m) of borrowings protected by interest rate swaps, with an average effective interest rate of 2.5% (31 March 2023: 2.6%) and average maturity of 2.8 years. The Group had no floating rate debt (31 March 2023: £nil). In our joint ventures, the Group's share of fixed rate debt was £62.4m (31 March 2023: £60.4m) at 0.5% plus margin with an effective rate at 31 March 2023 of 4.2% and no floating rate debt (31 March 2023: none).

1  This includes commitment fees on undrawn facilities.2 This includes commitment fees on undrawn facilities. Excluding these would reduce the effective rate to 4.00% (31 March 2023: 4.00%).

Tim Murphy

Chief Financial Officer

22 November 2023

Statement of Directors' Responsibilities

We confirm that to the best of our knowledge:

a) The condensed unaudited consolidated financial statements have 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).

On behalf of the Board

Tim Murphy

Chief Financial Officer

22 November 2023

Independent Review Report to Helical Plc

Conclusion

We have been engaged by Helical plc ('the Company') to review the condensed set of financial statements of the Company and its subsidiaries (the 'Group') in the half year financial report for the six months ended 30 September 2023 which comprises the unaudited consolidated income statement, unaudited consolidated balance sheet, unaudited consolidated cash flow statement, unaudited consolidated statement of changes in equity and notes to the half year results. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent material misstatements of fact or material inconsistencies with the information in the condensed set of financial statements.

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 2023 is not prepared, in all material respects, in accordance with International Accounting Standard 34, "Interim Financial Reporting" as contained in UK-adopted International Accounting Standards, and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Basis for Conclusion

We conducted our review in accordance with International Standard on Review Engagements (UK) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" ('ISRE (UK) 2410') issued for use in the United Kingdom. A review of interim financial information consists of making enquiries, 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.

As disclosed in Note 1, the annual financial statements of the Group are prepared in accordance with UK-adopted International Accounting Standards. 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 contained in UK-adopted International Accounting Standards.

Conclusions Relating to Going Concern

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for Conclusion section of this report, nothing has come to our attention to suggest that management have inappropriately adopted the going concern basis of accounting or that management have identified material uncertainties relating to going concern that are not appropriately disclosed.

This conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410, however future events or conditions may cause the Group and the Company to cease to continue as a going concern.

Responsibilities of Directors

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 International Accounting Standard 34, "Interim Financial Reporting" as contained in UK-adopted International Accounting Standards and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

In preparing the half-yearly financial report, the directors are responsible for assessing the Group's and the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.

Auditor's Responsibilities for the Review of the Financial Information

In reviewing the half-yearly financial report, we are responsible for expressing to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report. Our conclusion, including our Conclusions Relating to Going Concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.

Use of our Report

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK) 2410 "Review of Interim Financial Information performed by the Independent Auditor of the Entity". Our review work has been undertaken so that we might state to the Company those matters we are required to state to them 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.

RSM UK Audit LLP

Chartered Accountants

25 Farringdon Street

London

EC4A 4AB

22 November 2023

Unaudited Consolidated Income Statement

For the Half Year to 30 September 2023

There were no items of comprehensive income in the current or prior periods other than the (loss)/profit for the Period and, accordingly, no Statement of Comprehensive Income is presented.

Unaudited Consolidated Balance Sheet

At 30 September 2023

1 Trade and other receivables and cash and cash equivalents have been restated as at 30 September 2022 following the IFRIC agenda decision in respect of demand deposits with restrictions on use arising from a contract with a third party (see Note 29).

Unaudited Consolidated Cash Flow Statement

For the Half Year to 30 September 2023

1 Trade and other receivables and cash and cash equivalents have been restated as at 30 September 2022 following the IFRIC agenda decision in respect of demand deposits with restrictions on use arising from a contract with a third party (see Note 29).

Unaudited Consolidated Statement of Changes in Equity

At 30 September 2023