TIDMDLN
RNS Number : 1086S
Derwent London PLC
02 November 2023
2 November 2023
Derwent London plc ("Derwent London" / "the Group")
THIRD QUARTER BUSINESS UPDATE
FURTHER STRONG OCCUPATIONAL ACTIVITY
Paul Williams, Chief Executive of Derwent London, said:
"London's diverse occupier base continues to prioritise quality,
amenity and location. Our distinctive portfolio has benefitted from
these trends with ongoing strong letting activity in H2, averaging
10% ahead of December ERV. The opening of our second customer
lounge is well-timed to further reinforce our appeal. The
investment market remains subdued, but our strong balance sheet
positions us well for the opportunities ahead."
Summary
Portfolio activity
-- Letting activity in H2 to date totals GBP8.5m, on average
10.0% above December 2022 ERV. Key transactions were:
o The Featherstone Building EC1 - 25,300 sq ft lettings to Tide
and Avalere Health
o 25 Baker Street W1 - 49,200 sq ft pre-let to Moelis
-- YTD lettings in 2023 total GBP27.8m, 8.1% above December 2022 ERV
-- EPRA vacancy rate reduced to 3.7% at 30 September 2023 (30 June 2023: 4.5%)
-- GBP12.5m of asset management transactions in H2 to date, including:
o Brunel Building W2 - Paymentsense has increased its space by
150% to 82,600 sq ft and the term on its leases has been extended
to 2036, increasing the WAULT on these five floors by 5.8 years to
12.7 years
-- Sales exchanged on four private residential units at 25 Baker
Street W1 for GBP21.5m with a further two under offer
Financial
-- EPRA LTV 25.2%(1) (30 June 2023: 25.0%) and ICR 4.2x (H1 2023: 4.1x)
-- Average interest rate paid at 30 September 2023 3.19%, unchanged from 30 June 2023
-- Cash and undrawn facilities of GBP543m (30 June 2023: GBP562m)
-- Irrecoverable property expenditure reduced substantially in
Q3 and is expected to be lower in H2 than H1
(1) LTV based on 30 June 2023 property values and includes the
Group's share of joint ventures
For further information, please contact:
Derwent London Paul Williams, Chief Executive
Tel: +44 (0)20 3478 4217 (Robert Damian Wisniewski, Chief Financial
Duncan) Officer
Robert Duncan, Head of Investor
Relations
Brunswick Group Nina Coad
Tel: +44 (0)20 7404 5959 Sophia Lazarus
Webcast and conference call
There will be a webcast and conference call for investors and
analysts at 09.00 GMT today. To participate in the call, please
register here .
Operational update (Appendices 1 & 2)
We have seen good demand for space across our villages. New
leases totalling GBP8.5m on 103,500 sq ft have been signed since
the start of H2 2023, on average 10.0% above December 2022 ERV, and
with a weighted average lease term of 7.8 years. This activity
takes 2023 YTD lettings to GBP27.8m, on average 8.1% ahead of ERV,
with a 10.0 year weighted average lease term.
Key H2 transactions include:
-- The Featherstone Building EC1 : 14,400 sq ft to Tide and
10,900 sq ft to Avalere Health at a combined annual rent of GBP1.9m
and in line with ERV.
-- 25 Baker Street W1 : 49,200 sq ft pre-let to Moelis at an
annual rent of GBP4.9m, substantially above ERV.
In addition, GBP0.5m of retail leases have been signed in H2,
taking year to date to GBP3.5m, benefitting from the positive
impact of the Elizabeth line on London's retail market.
We have also completed GBP12.5m of asset management transactions
in H2 to date. The key transactions were:
-- Brunel Building W2 : Paymentsense has taken an additional
49,600 sq ft, through a lease assignment from Splunk, increasing
its occupancy by 150% to 82,600 sq ft. Simultaneously we have
removed the lease break on its existing space and extended the term
across all five floors to 2036, with a minimum rental uplift at
review. This has extended the WAULT on these five floors to 12.7
years from 6.9 years.
-- Tea Building E1 : Monkey Kingdom has renewed its lease on
7,500 sq ft at GBP0.5m, a level 9.1% above the previous rent and
4.3% above December 2022 ERV.
-- White Collar Factory EC1 : rent review on 28,400 sq ft to
AKTII settled 15% ahead of their previous rent, and in line with
December 2022 ERV.
These activities have helped reduce our EPRA vacancy rate to
3.7% at 30 September 2023, from 4.5% at 30 June 2023.
At 25 Baker Street W1, pre-sales on four of the 41 residential
units under construction have exchanged totalling GBP21.5m, an
average of GBP3,215 psf. A further two apartments are under offer.
Overall, sale prices are ahead of our appraisal levels.
Development progress (Appendix 3)
At 25 Baker Street W1, the office and residential structures are
nearing completion, and the façade installation is progressing
well. Including the office pre-lets to PIMCO and Moelis in Q1 and
Q3, respectively, the commercial element of this project is 76%
pre-let or sold. In Q3 we signed a fixed price contract for the
private residential fit-out element.
At Network W1, construction is on programme with ground and
basement works complete and the core and upper floor slabs
underway. The fixed price construction contract, with Kier, was
signed in Q2.
As a result, the construction costs at 25 Baker Street and
Network are now 100% fixed.
Finance
Net debt increased marginally to GBP1,293m at 30 September 2023
from GBP1,274m at 30 June 2023 due principally to project
expenditure in the period of GBP52.0m.
As a result, EPRA LTV, including the Group's share of joint
ventures, increased slightly through Q3 to 25.2% based on 30 June
2023 valuations, from 25.0% at 30 June 2023. Interest cover for the
nine months to Q3 2023 was 4.2 times (H1 2023: 4.1 times) and cash
and undrawn facilities totalled GBP543m at the quarter end. 98% of
Group debt is at fixed or hedged rates, with a weighted average
interest rate of 3.19% on a cash basis, unchanged from 30 June
2023.
Our next refinancing is in October 2024, an GBP83m secured
facility with a coupon of 3.99%. We have already had positive
engagement with the existing lender as well as a number of other
parties.
The level of irrecoverable service charge was more than usual in
both H2 2022 and H1 2023 due mainly to higher average vacancy rates
and the spike in global energy prices which also triggered a few
service charge caps. As utilities prices have reduced and average
vacancy has come down, we have seen a reversal of some of these
charges in Q3 as well as a reduction in irrecoverable costs. We
expect this to continue in Q4 but the overall level of
irrecoverable property expenditure is likely to be marginally
higher in FY2023 than FY2022.
The interim dividend of 24.5p per share was paid on 13 October
2023.
Appendix 1: Leasing activity in 2023 to date
Let Performance against
Dec 22 ERV (%)
Area Income
sq ft GBPm pa Open market Overall(1)
-------- --------- ------------ -----------
Q1 2023 190,600 17.1 8.3 6.6
-------- --------- ------------ -----------
Q2 2023 37,400 2.2 13.7 12.8
-------- --------- ------------ -----------
H1 2023 228,000 19.3 8.9 7.3
-------- --------- ------------ -----------
H2 2023 to
date 103,500 8.5 10.0 10.0
-------- --------- ------------ -----------
YTD 331,500 27.8 9.2 8.1
-------- --------- ------------ -----------
(1) Includes short-term lettings at properties earmarked for
redevelopment
Appendix 2: Principal lettings in 2023 to date
Total
annual Lease Lease Rent free
Property Tenant Area Rent rent term break equivalent
sq GBP
ft psf GBPm Years Year Months
--------------- -------- ------- -------- ------ ------- ------------
H1
25 Baker Street
W1 PIMCO 106,100 103.40 11.0 15 - 37
24, plus
The Featherstone 12 if no
Building EC1 Buro Happold 31,100 74.40 2.3 15 10(1) break
One Oxford Street Conf Conf
W1 Uniqlo 22,200 (2) (2) 10 5 12
12, plus
Jones Knowles 12 if no
Tea Building E1 Ritchie 8,100 60.00 0.5 10 5 break
6, plus
The White Chapel 1 if no
Building E1 Comic Relief 5,000 61.90 0.3 5 3 break
Zhonging
Middlesex House Holding
W1 Group 4,200 81.00 0.3 3 1.5 -
--------------- -------- ------- -------- ------ ------- ------------
H2 to date
24, plus
25 Baker Street 9 if no
W1 Moelis 49,200 100.00 4.9 15 10 break
15, plus
The Featherstone 11 if no
Building EC1 Tide 14,400 71.00 1.0 10 5 break
5, plus
The Featherstone Avalere 5 if no
Building EC1 Health 10,900 81.00 0.9 10 5 break
Tea Building E1 Gemba 7,100 63.80 0.5 5 - 8
Tottenham Court Sostrene
Walk W1 Greene 6,400 54.90 0.4 10 6 12
--------------- -------- ------- -------- ------ ------- ------------
(1) There is an additional break at year 5 on level eight
subject to a 12-month rent penalty payable by the tenant
(2) Uniqlo will pay a base rent (subject to annual indexation)
plus turnover top-up
Appendix 3: Major on-site development pipeline
Project Total 25 Baker Street W1 Network W1
Completion H1 2025 H2 2025
Office (sq ft) 350,000 218,000 132,000
Residential (sq ft) 52,000 52,000 -
Retail (sq ft) 33,000 28,000 5,000
Total area (sq ft) 435,000 298,000 137,000
Est. future capex(1) (GBPm) 289 191 98
Total cost(2) (GBPm) 729 483 246
ERV (c.GBP psf) - 95 90
ERV (GBPm pa) 32.4 20.0(3) 12.4
Pre-let/sold area (sq ft) 193,000 193,000(4) -
Pre-let income (GBPm pa, net) 15.5 15.5 -
---------------------------------------------- ------------------- ----------------
Embodied carbon intensity (kgCO(2) e/sqm)(5) c.600 c.530
Target BREEAM rating Outstanding Outstanding
Target NABERS rating 4 Star or above 4 Star or above
Green Finance Elected Elected
---------------------------------------------- ------------------- ----------------
(1) As at 30 June 2023. (2) Comprising book value at
commencement, capex, fees and notional interest on land, voids and
other costs. 25 Baker Street W1 includes a profit share to
freeholder, The Portman Estate. (3) Long leasehold, net of 2.5%
ground rent.
(4) Includes PIMCO and Moelis pre-lets, four private residential
units plus 19,000 sq ft courtyard retail and 12,000 sq ft
Gloucester Place offices pre-sale to The Portman Estate. (5)
Embodied carbon intensity estimate as at stage 4 or 5.
Notes to editors
Derwent London plc
Derwent London plc owns 66 buildings in a commercial real estate
portfolio predominantly in central London valued at GBP5.2 billion
as at 30 June 2023, making it the largest London office-focused
real estate investment trust (REIT).
Our experienced team has a long track record of creating value
throughout the property cycle by regenerating our buildings via
development or refurbishment, effective asset management and
capital recycling.
We typically acquire central London properties off-market with
low capital values and modest rents in improving locations, most of
which are either in the West End or the Tech Belt. We capitalise on
the unique qualities of each of our properties - taking a fresh
approach to the regeneration of every building with a focus on
anticipating tenant requirements and an emphasis on design.
Reflecting and supporting our long-term success, the business
has a strong balance sheet with modest leverage, a robust income
stream and flexible financing.
As part of our commitment to lead the industry in mitigating
climate change, Derwent London has committed to becoming a net zero
carbon business by 2030, publishing its pathway to achieving this
goal in July 2020. In 2019 the Group became the first UK REIT to
sign a Revolving Credit Facility with a 'green' tranche. At the
same time, we also launched our Green Finance Framework and signed
the Better Buildings Partnership's climate change commitment. The
Group is a member of the 'RE100' which recognises Derwent London as
an influential company, committed to 100% renewable power by
purchasing renewable energy, a key step in becoming a net zero
carbon business. Derwent London is one of the property companies
worldwide to have science-based carbon targets validated by the
Science Based Targets initiative (SBTi).
Landmark buildings in our 5.4 million sq ft portfolio include 1
Soho Place W1, 80 Charlotte Street W1, Brunel Building W2, White
Collar Factory EC1, Angel Building EC1, 1-2 Stephen Street W1,
Horseferry House SW1 and Tea Building E1.
In January 2022 we were proud to announce that we had achieved
the National Equality Standard - the UK's highest benchmark for
equality, diversity and inclusion. In May 2023 we were recognised
on the Sunday Times Best Places to Work List 2023 within the
medium-sized organisation category and in the following month we
won two OAS awards - West End New Build for Soho Place W1 and
Developer of the Year whilst we were also highly commended for The
Featherstone Building in the City New Build category. In October
2023, White Collar Factory EC1 won the BCO's Test of Time 2023
award, Soho Place W1 won the British Construction Industry Awards'
Best Commercial Property Project of the Year and Derwent London was
awarded the EG Employer Award. In March 2023 we placed in the top
three of the Property Sector in Management Today's Britain's Most
Admired Companies awards 2022. In October 2022, 80 Charlotte Street
won the BCO's Best National Commercial Workplace award 2022. In
2013 the Company launched a voluntary Community Fund which has to
date supported over 150 community projects in the West End and the
Tech Belt. The Company is a public limited company, which is listed
on the London Stock Exchange and incorporated and domiciled in the
UK. The address of its registered office is 25 Savile Row, London,
W1S 2ER.
For further information see www.derwentlondon.com or follow us
on X (Twitter) at @derwentlondon
Forward-looking statements
This document contains certain forward-looking statements about
the future outlook of Derwent London. By their nature, any
statements about future outlook involve risk and uncertainty
because they relate to events and depend on circumstances that may
or may not occur in the future. Actual results, performance or
outcomes may differ materially from any results, performance or
outcomes expressed or implied by such forward-looking
statements.
No representation or warranty is given in relation to any
forward-looking statements made by Derwent London, including as to
their completeness or accuracy. Derwent London does not undertake
to update any forward-looking statements whether as a result of new
information, future events or otherwise. Nothing in this
announcement should be construed as a profit forecast.
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