TIDMDLN
RNS Number : 2416S
Derwent London PLC
17 November 2011
17 November 2011
Derwent London plc ("Derwent London" / "the Group")
INTERIM MANAGEMENT STATEMENT FOR THE NINE MONTHS ENDED 30
SEPTEMBER 2011
Continued strong letting progress and further rental growth
during the quarter with additional material planning consents
obtained adding further flexibility to our future development
pipeline.
Highlights
-- Lettings:
-- 27 transactions in the third quarter with a rental income of
GBP4.8m pa on floorspace of 137,300 sq ft (12,760m(2)).
-- Open market lettings in the quarter were 8.8% above estimated
rental values at 31 December 2010.
-- 90 lettings in the year to date at GBP16.1m pa on 475,700 sq ft (44,200m(2)).
-- The Angel Building is now fully let following a further letting to Expedia in November.
-- The Group's vacancy rate is 0.8%, compared with 5.9% at the
start of the year and 4.0% at June 2011.
-- Projects:
-- Three key planning consents totalling 460,000 sq ft
(42,700m(2)) obtained in the third quarter including 80 Charlotte
Street W1, Turnmill EC1 and Central Cross W1 (Phase 1) with a
further consent at City Road Estate EC1 for 289,000 sq ft
(26,800m(2)) obtained in October.
-- On site at four schemes totalling 307,000 sq ft (28,600m(2))
comprising 1 Page Street SW1, the Buckley Building EC1 (formerly
Woodbridge House), 4 & 10 Pentonville Road N1 and 88 Rosebery
Avenue EC1.
-- Financial:
-- Net debt decreased to GBP864.0m at 30 September 2011,
reflecting an overall loan to value ratio of 32.8%.
-- The Group remains well placed with undrawn committed bank
facilities of GBP449m plus GBP530m of uncharged properties.
Commenting on the third quarter, John Burns, Chief Executive
Officer of Derwent London, said:
"Although the national and global economies remain fragile, the
central London office market has continued to perform well and this
is demonstrated by our excellent letting achievements and our low
vacancy rate. We are very pleased to have obtained a number of
important planning consents that enable us to progress our central
London development pipeline. These diverse and exciting schemes,
mostly located close to new Crossrail hubs, enhance our future
development options."
Conference call
There will be a conference call for investors and analysts at
8.00 GMT today. To participate in the call, please dial the
following numbers:
From the UK: 020 3059 5845
From outside the UK: +44 20 3059 5845
Please say "IMS" when asked for the participant code.
A recording of the conference call will be made available
shortly afterwards on
www.derwentlondon.com.
For further information, please contact:
Derwent London John Burns, Chief Executive Officer
Tel: +44 (0)20 7659 3000 Damian Wisniewski, Finance Director
Brunswick Group Kate Holgate
Tel: +44 (0)20 7404 5959 Elizabeth Adams
Market overview
The central London office market, the focus of our operations,
has proved resilient despite the weak economic conditions and
increasing concerns about the health of the Eurozone. In terms of
supply, the amount of vacant office space in the third quarter
remained below the long-term average although the central London
office vacancy rate saw its first increase for two years. Grade A
space in the West End remains in short supply and we believe the
current uncertainty in financial markets could hold back the rate
of new supply to the central London market. On the demand side,
central London take-up in the third quarter was the strongest in
the year to date but remains just below the long-term average.
Although investment activity in the third quarter was lower than
the previous quarter, the GBP6.8bn of investment turnover in the
first nine months of the year was more than GBP1bn higher than the
same period last year, and we believe that high quality London
investments remain in demand from a wide range of domestic and
overseas investors.
Asset values
Throughout the first three quarters of the year, the central
London office market performed strongly with the IPD Index showing
a total return of 10.1% with rental growth of 6.1% and equivalent
yield compression of 15 basis points leading to capital growth of
6.2%. This compared favourably to the IPD All Property Index's
total return of 6.3% and capital growth of 1.7%. Although the
Group's portfolio was not formally valued in the period under
review, we expect the overall performance of our central London
office focussed assets to have closely tracked that of the IPD
Central London Office Index. CB Richard Ellis, our external
valuers, share this opinion.
Portfolio management
Following lettings with rental income of GBP8.5m pa in the first
half of the year, 27 transactions were concluded in the third
quarter at a rent of GBP4.8m pa and a floorspace of 137,300 sq ft
(12,760m(2)). Open market lettings in the quarter were 8.8% above
estimated rental values at 31 December 2010 and 1.2% above 30 June
2011 values. These growth figures were 7.9% and 0.7% respectively
if short-term lettings at our future development properties were
also included. The largest letting of the quarter was to Expedia
who took 81,300 sq ft (7,550m(2)) of office space at the Angel
Building at a rent of GBP3.3m pa on a 10-year lease with no
breaks.
Since 30 September 2011, a further 73,600 sq ft (6,840m(2)) of
lettings have been concluded at a rent of GBP2.8m pa. This includes
the letting of the remaining space at the Angel Building where
Expedia took a further 12,100 sq ft (1,120m(2)) at GBP0.5m pa. The
two largest transactions in this period were at the Johnson
Building EC1 where, having taken a surrender from the previous
tenant, we let 22,300 sq ft (2,070m(2)) of offices to
Lastminute.com at GBP42.50 psf (GBP455 per m(2)), producing
GBP0.95m pa, and at Morelands Buildings EC1 where 17,800 sq ft
(1,650m(2)) of offices were pre-let to architects AHMM at an
average rent of GBP36 psf (GBP390 per m(2) ), generating GBP0.64m
pa. The latter comprises the existing fourth floor that will be
completely refurbished and a new fifth floor rooftop extension.
Both lettings achieved in excess of the December 2010 estimated
rental values. This activity took the number of lettings in the
year to date to 90 with a rental income of GBP16.1m pa and a
floorspace of 475,700 sq ft (44,200m(2)).
These transactions reduced the Group's space available to let to
0.8% by estimated rental value, down from 5.9% at the start of the
year. By floorspace, the proportion of space available for letting
has fallen from 4.9% to 0.9%. In addition, the Group currently has
15,700 sq ft (1,460m(2)) of space under offer.
Rent collection was particularly prompt in the quarter with
99.4% received within 14 days of the due date, taking the average
of this performance measure for the year to 97.5%.
In the first nine months of the year, 42 lease renewals and rent
reviews were concluded at a total rent of GBP6.7m pa on floorspace
of 238,300 sq ft (22,140m(2)). The new rent was 14.0% greater than
the income from this space at the start of the year and 10.2% above
December 2010 estimated rental values.
Projects
In the quarter we achieved three important planning consents for
the future development of properties that are currently income
producing:
-- 80 Charlotte Street W1 - this planning application was
'called-in' by the Mayor of London, who subsequently granted
permission for this major 367,000 sq ft (34,100m(2)) office,
residential and retail development in Fitzrovia. The scheme
includes 320,000 sq ft (29,700m(2)) of offices, has anticipated
capital expenditure of circa GBP125m and forms a major part of the
wider regeneration of the area. Construction is expected to
commence in 2013 following the expiry of the existing leases and
will be delivered towards the end of 2015.
-- Turnmill, 63 Clerkenwell Road EC1 - this 70,000 sq ft
(6,500m(2)) new-build office scheme was granted permission in
September. The proposed building will occupy a major corner site
close to Farringdon station, an important new Crossrail
interchange. This scheme, with an estimated capital expenditure of
GBP27m, is due to start on site in the first half of 2012 with
completion due in 2014.
-- Central Cross, 1-2 Stephen Street W1 - the property was
acquired in August 2010 and planning consent has been granted for
Phase 1 of our regeneration plans. This initial phase will create
23,000 sq ft (2,140m(2)) of additional ground floor offices through
the complete remodelling of the ground floor entrance. Strip out
work is due to commence around the turn of the year with the main,
12-month, construction contract due to start in mid-2012. Capital
expenditure is expected to be GBP10m.
Momentum continued into October with planning permission granted
at our City Road Estate EC1 scheme which is located at the Old
Street roundabout, the centre of the area promoted by the
Government as 'Tech City'. This major 289,000 sq ft (26,800m(2))
office-led development will reflect an increase of 130% on the
existing buildings and includes a new 16-storey office building,
retail and residential space. The Group will be looking to secure a
significant pre-let prior to commencing construction. Capital
expenditure is anticipated to be approximately GBP100m.
Since the quarter end, further steps have been taken to progress
our development pipeline with the submission of three planning
applications:
-- 1 Oxford Street W1 - the Group has an option to re-acquire
this site which was compulsory purchased by Crossrail Limited in
2009 and a joint planning application has been submitted with
Crossrail for a 275,000 sq ft (25,500m(2)) mixed-use scheme. This
will include 204,000 sq ft (18,900m(2)) of offices, 37,000 sq ft
(3,400m(2)) of retail space and a 350-seat theatre. These will be
housed in two striking buildings, linked by a new public square,
built above the Tottenham Court Road Crossrail and London
Underground station following the completion of the works around
2017.
-- Riverwalk House, 157-166 Millbank SW1 - this application is
for a 148,000 sq ft (13,700m(2)) high-grade residential
redevelopment scheme. Negotiations to sell the site subject to
planning permission are at an advanced stage and include provisions
for the Group to maintain an interest in the scheme by way of a
profit overage.
-- 96-98 Bishops Bridge Road W2 - a planning application has
been submitted for a 21,000 sq ft (1,950m(2)) residential scheme at
this former 1930's cinema.
In October, the Group signed a Memorandum of Understanding with
the freeholder of 1-5 Grosvenor Place SW1, the Grosvenor Estate, to
form a partnership to study the redevelopment of this prime 1.5
acre (0.6 hectare) island site, which overlooks Hyde Park Corner,
into a substantial mixed-use scheme that is likely to include a
luxury hotel, commercial and residential uses. The Group has long
leasehold interests on the 168,000 sq ft (15,600m(2)) of existing
buildings and, whilst the redevelopment could commence in 2014, the
properties are fully let, generating an income of GBP6.0m pa.
We continue to develop our plans at 132-142 Hampstead Road NW1
where we have secured strong pre-letting interest for a substantial
part of the enlarged property. The Transport Select Committee has
recently published the results of its review into HS2, the proposed
high speed rail link which, if built, could impact on our property
and we are factoring these into our decision making process. The
results of the public consultation into the project are due by the
end of the year and we intend to finalise our plans early in
2012.
At 30 September 2011, we were on site at four projects with a
total office floorspace of 307,000 sq ft (28,600m(2)) and a capital
expenditure to complete of approximately GBP42m. These
comprised:
-- 1 Page Street SW1 - the regeneration of this 118,000 sq ft
(11,000m(2)) office building in Victoria.
-- Buckley Building (formerly Woodbridge House), 49 Clerkenwell
Green EC1 - an 85,000 sq ft (7,900m(2)) refurbishment, due for
completion late next year, that enlarges the floor area by 13%.
-- 4 & 10 Pentonville Road N1 (formerly 2-14) - a 55,000 sq
ft (5,100m(2)) office refurbishment, located opposite the Angel
Building. The proposed scheme, due to complete in the second half
of 2012, will link the two buildings and increase the floor area by
over 20%.
-- 88 Rosebery Avenue EC1 - a 49,000 sq ft (4,600m(2))
refurbishment of just under half of the building. This has been
pre-let with works due to complete in early 2012.
During the third quarter we completed the 48,000 sq ft
(4,500m(2)) office, residential and retail refurbishment at Victory
House, 170 Tottenham Court Road W1. This took space completed in
the year to date to approximately 140,000 sq ft (13,000m(2)).
Disposals and acquisitions
Since the half year, two disposals totalling GBP48.2m have been
concluded - the GBP37.2m sale of Victory House W1, which was sold
following the completion of the refurbishment, and the GBP11.0m
sale of the long leasehold interest of 18-30 Leonard Street EC2. In
the year to date, the Group has sold GBP127.2m of assets accounting
for an overall surplus of GBP35.2m, or 38%, based on the December
2010 valuation. There were no acquisitions in the quarter, but the
company continues to track a number of potential opportunities.
Finance
Net debt was reduced to GBP864.0m at 30 September 2011 from
GBP904.5m three months earlier taking the Group's overall loan to
value ratio down to 32.8%. This was a result of operational cash
flow as well as GBP47.7m proceeds from the sales of Victory House
and Leonard Street which more than offset the capital expenditure
in the quarter of GBP10.8m. For the first nine months of 2011,
capital expenditure and property acquisitions totalled GBP118.0m
while proceeds from property sales were GBP127.2m.
The Group continues to be well placed to finance GBP52.3m of
committed capital expenditure on the project pipeline. As at 30
September 2011, there were GBP449m of undrawn committed bank
facilities plus a further GBP530m of uncharged properties. At the
same date, 98.2% of the Group's debt was either hedged or at fixed
rates; this is a higher proportion than our target range in
anticipation of further property and capital expenditure. As a
result, the Group's weighted average cost of drawn funds increased
to 5.03% at 30 September including the cost of the convertible
bonds on an IFRS basis. Based on the cash coupon of the bonds at
2.75%, the weighted average cost of debt was 4.78%. Were the
facilities drawn by another GBP200m, the weighted average cost of
debt would fall to 4.36% on an IFRS basis and the proportion of the
Group's debt that was hedged would be 79.7%.
We continue to receive very good support from existing
relationship banks and are moving ahead with three separate
refinancing negotiations which should be concluded around the end
of the year. This is in the context of a difficult period for UK
and European banks when their cost of funds has been under renewed
pressure due partly to sovereign debt exposure within the Eurozone.
Following the GBP175m convertible bond issue in June 2011, we
anticipate that a proportion of our future debt requirements will
come from non-bank sources.
The Group's overall interest cover for the first nine months of
the year was a healthy 307% after allowing for almost GBP1.5m of
interest capitalised during that period.
Outlook
In the year to date we have made excellent progress with the
development options within our pipeline. The timing of the schemes,
in most cases, is within our control and the existing buildings
remain income producing. On the investment side, we continue to
assess a variety of potential acquisitions across central London
and to review our assets to identify opportunities to recycle
capital. Within the middle market sector for central London offices
we continue to see good demand for our particular brand of space
and, whilst monitoring the changing economic conditions carefully,
we remain positive on the outlook for the Group.
Disclaimer
This document includes statements that are forward-looking in
nature. Forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of Derwent London plc to be materially
different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Any such
forward-looking statements speak only as of the date of this
document and Derwent London plc does not undertake to update
forward-looking statements to reflect events or circumstances after
that date. Information contained in this document relating to the
Group should not be relied upon as an indicator of future
performance.
Notes to editors
Derwent London plc
Derwent London plc is the largest central London focused REIT
with an investment portfolio of GBP2.6bn as at 30 June 2011. The
Group is one of London's most innovative office specialist property
regenerators and investors and is well known for its design-led
philosophy and creative management approach to development.
Derwent London's core strategy is to acquire and own a portfolio
of central London property that has reversionary rents and
significant opportunities to enhance and extract value through
refurbishment, regeneration and redevelopment. The Group owns and
manages an investment portfolio of 5.4 million sq ft (505,000m(2)
), as at 30 June 2011, of which 96% is located in central London,
with a specific focus on the West End and the areas bordering the
City of London. Landmark schemes by Derwent London include Angel
Building EC1, Arup Phases II & III W1, Qube W1, Horseferry
House SW1, Johnson Building EC1, Davidson Building WC2 and Tea
Building E1.
Derwent London came first in the property sector in the 2010
awards for 'Britain's Most Admired Companies'. This year, Angel
Building was shortlisted for the RIBA Stirling Prize following its
RIBA London 2011 award and has also won accolades from the British
Council for Offices and New London Architecture. The recent Maple
& Fitzroy development in Fitzrovia W1 also won a 2011 RIBA
London and New London Architecture award.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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