Derwent London PLC Q1 2019 Business Update (4233Y)

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RNS Number : 4233Y

Derwent London PLC

09 May 2019

Derwent London plc ("Derwent London" / "the Group")

FIRST QUARTER BUSINESS UPDATE

STRONG OCCUPIER DEMAND ADDS GBP17M TO RENTAL INCOME

Highlights

-- Lettings year to date total GBP17.2m on 217,600 sq ft, on average 6.2% above December 2018 ERV

   --      Over one million sq ft under construction with 64% pre-let: 

o Brunel Building W2 - 98% pre-let, completion H1 2019

o 80 Charlotte Street W1 - 80% of commercial space pre-let, completion H1 2020

o Soho Place W1 - 42% of commercial space pre-let, completion H1 2022

o The Featherstone Building EC1 - demolition under way, completion H1 2022

   --      EPRA vacancy rate 1.7%, down from 1.8% in December 2018 

-- Sale contracts exchanged on Premier House SW1 and 9 Prescot Street E1 for a previously announced Group share of GBP76.9m

   --      LTV ratio at 31 March 2019 was 17.5%* with undrawn facilities and cash of GBP500m 

John Burns, Chief Executive of Derwent London, said:

"Demand for Derwent London's space remains strong. We have now pre-let over 600,000 sq ft of our one million sq ft development programme. These lettings combined with our financial strength put the Group in a very good position to pursue new opportunities."

*LTV based on December 2018 property values

Webcast and conference call

There will be a live webcast together with a conference call for investors and analysts at 09:00 BST today. The audio webcast can be accessed via www.derwentlondon.com.

To participate in the call, please register at www.derwentlondon.com

For further information, please contact:

 
 Derwent London               John Burns, Chief Executive 
  Tel: [phone]     Paul Williams, Director 
                               Damian Wisniewski, Finance Director 
                               Quentin Freeman, Head of Investor 
                               Relations 
 
   Brunswick Group              Nina Coad 
   Tel: [phone]     Emily Trapnell 
 
 
 

LETTING ACTIVITY (see Appendix 1)

During the quarter we completed the letting of the remaining office space at Brunel Building W2 with two transactions totalling 82,600 sq ft. The offices, comprising 98% of the 243,200 sq ft building, were pre-let in under a year. More recently we achieved our first office pre-let at Soho Place W1 with G-Research taking a 15-year lease on 102,600 sq ft at GBP9.7m pa. This transaction, achieved at such an early stage of construction, reflects the demand for well-designed buildings in good locations. In addition, the EPRA vacancy rate has reduced to 1.7% from 1.8% in December 2018.

DEVELOPMENT PROGRESS (see Appendix 2)

Brunel Building is expected to complete in the first half of 2019 and 80 Charlotte Street remains on track to complete in the first half of 2020. In the first quarter we have added Soho Place and The Featherstone Building to our on-site developments taking our space under construction to over one million sq ft, of which 64% is pre-let. In February 2019 we signed the main building contract on Soho Place with Laing O'Rourke for GBP195m. The two new projects are due for completion in the first half of 2022.

DISPOSALS (see Appendix 3)

In the year to date we have exchanged contracts to sell Premier House SW1 and 9 Prescot Street E1. The latter was held in a 50:50 joint venture. Both transactions have been previously announced and the Group's share of the gross proceeds was GBP76.9m which, after deducting costs, is on average 6.9% above December 2018 book values.

FINANCE

Net debt increased in the quarter ended 31 March 2019 by GBP23.8m to GBP980.7m after capital expenditure incurred of GBP48.1m. This marginally increased the loan-to-value ratio to 17.5%, based on 31 December 2018 property values, from 17.2% at the year end. Interest cover for the quarter was 460%.

Following the drawdown on 31 January 2019 of GBP250m of new senior unsecured US private placement notes, undrawn facilities and cash increased to GBP500m at 31 March and the weighted average maturity of borrowings was extended to 7.5 years. The Group's weighted average interest rate also increased slightly to 3.54% on a cash basis and 3.78% on an IFRS basis.

Subject to shareholder approval, the 2018 final dividend of 46.75p per share will be paid to shareholders on 7 June 2019, the shares having become ex-dividend on 2 May. These dividends have given rise to an adjustment in the conversion price of the Group's GBP150m 1.125% convertible bonds due 24 July 2019 from GBP31.78 per share to GBP31.43.

PROPERTY VALUES

In Q1 2019 MSCI IPD's central London office index reported virtually flat capital and rental growth, both up 0.2%.

Appendix 1: Principal lettings in 2019 to date

 
                                              Office     Total                     Rent 
                                       Area     rent    annual    Lease    Lease    free 
                                         sq      GBP      rent     term    break    equivalent 
 Property           Tenant               ft      psf      GBPm    Years     Year    Months 
 1 Soho Place 
  W1                G-Research      102,600    94.70       9.7       15        -   32 
 Brunel Building 
  W2                Splunk           49,600    75.00       3.7       12        -   20 
                                                                                   20, plus 
 Brunel Building                                                                    6 if 
  W2                Paymentsense     33,000    77.50       2.6       15       10    no break 
                                    185,200    86.40      16.0        -        -   - 
 

Appendix 2: Major developments pipeline

 
 Property                                      Area   Capex to complete   Comment 
                                              sq ft             GBPm(1) 
 On-site projects 
 Brunel Building, 2 Canalside Walk W2       243,200                  16   Offices and retail - 98% pre-let 
 80 Charlotte Street W1                     380,000                 117   321,000 sq ft offices, 45,000 sq ft 
                                                                          residential and 14,000 sq ft retail - 74% 
                                                                          pre-let / pre-sold 
                                                                          overall 
 Soho Place W1                              285,000              283(4)   209,000 sq ft offices, 36,000 sq ft retail 
                                                                          and 40,000 sq ft theatre - 42% commercial 
                                                                          space 
                                                                          pre-let(5) 
 The Featherstone Building EC1              125,000                  76   110,000 sq ft offices, 13,000 sq ft 
                                                                          workspaces and 2,000 sq ft retail 
                                        -----------  ------------------  --------------------------------------------- 
                                          1,033,200                 492 
                                        -----------  ------------------  --------------------------------------------- 
 Other major planning consents 
 19-35 Baker Street W1(2)                293,000(3)                       206,000 sq ft offices, 52,000 sq ft 
                                                                          residential and 35,000 sq ft retail 
 Holden House W1                            150,000                       Retail flagship or retail and office scheme 
                                        -----------  ------------------  --------------------------------------------- 
                                            443,000 
                                        -----------  ------------------  --------------------------------------------- 
 Total                                    1,476,200 
                                        -----------  ------------------  --------------------------------------------- 
 

(1) As at 31 Dec 2018 (2 ') Resolution to grant' planning permission (3) Total area - Derwent London has a 55% share of the joint venture

(4) Includes remaining site acquisition cost and profit share to Crossrail (5) In addition 40,000 sq ft theatre is pre-let

Appendix 3: Major disposals exchanged in 2019 to date

 
                                               Gross       Gross       Net yield 
  Property               Date       Area    proceeds    proceeds    to purchaser    Rent 
                                   sq ft        GBPm     GBP psf               %    GBPm 
                                                                                      pa 
 Premier House SW1        Q1      60,700        50.0         820               -       - 
 9 Prescot Street E1 
  (50%)                   Q1      48,500        26.9         560             4.5     1.3 
                       -------  --------  ----------  ----------  --------------  ------ 
 Total                           109,200        76.9         705               -     1.3 
                                --------  ----------  ----------  --------------  ------ 
 

Notes to editors

Derwent London plc

Derwent London plc owns 86 buildings in a commercial real estate portfolio predominantly in central London valued at GBP5.2 billion (including joint ventures) as at 31 December 2018, making it the largest London-focused real estate investment trust (REIT).

Our experienced team has a long track record of creating value throughout the property cycle by regenerating our buildings via development or refurbishment, effective asset management and capital recycling.

We typically acquire central London properties off-market with low capital values and modest rents in improving locations, most of which are either in the West End or the Tech Belt. We capitalise on the unique qualities of each of our properties - taking a fresh approach to the regeneration of every building with a focus on anticipating tenant requirements and an emphasis on design.

Reflecting and supporting our long-term success, the business has a strong balance sheet with modest leverage, a robust income stream and flexible financing.

Landmark schemes in our 5.4 million sq ft portfolio include White Collar Factory EC1, Angel Building EC1, The Buckley Building EC1, 1-2 Stephen Street W1, Horseferry House SW1 and Tea Building E1.

In 2019 to date, the Group has won the CoStar West End Deal of the Year for Brunel Building. In 2018, we won EG Offices Company of the Year, whilst White Collar Factory scooped RIBA National and London awards, RICS National and London awards, two BCO awards for Commercial Workplace and Innovation, an EG Creative Places award and an NLA Wellbeing award. 25 Savile Row also won RIBA National and London awards and SKA Gold for the fit-out. In 2013 Derwent London launched a voluntary Community Fund and has to date supported 76 community projects in Fitzrovia 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 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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