TIDMDLN
RNS Number : 9304C
Derwent London PLC
09 May 2012
9 May 2012
Derwent London plc ("Derwent London" / "the Group")
INTERIM MANAGEMENT STATEMENT FOR THE THREE MONTHS ENDED 31 MARCH
2012
ROBUST LETTINGS AND PLANNING PROGRESS CONTINUE
Highlights
-- Lettings:
-- 23 lettings in the year to date of GBP8.0m pa over 210,300 sq ft (19,540m(2)) of floorspace
-- 1 Page Street SW1 pre-let to Burberry at GBP5.3m pa, the year end estimated rental value
-- Open market lettings in the year to date, excluding Page
Street which was agreed in 2011 but completed in the first quarter,
were 6.7% above estimated rental values at 31 December 2011
-- Projects:
-- Planning consents achieved year to date have been very
significant and total 571,400 sq ft (52,990m(2))
o 1 Oxford Street W1 - 275,000 sq ft (25,500m(2)) major
mixed-use scheme
o 1 Page Street SW1 - 127,000 sq ft (11,800m(2)) office
refurbishment
o Riverwalk House SW1 - 121 residential units totalling 148,000
sq ft (13,700m(2))
o 96-98 Bishop's Bridge Road W2 - 16 residential units totalling
21,400 sq ft (1,990m(2))
-- Current projects total 455,300 sq ft (42,300m(2)), including
Turnmill at 63 Clerkenwell Road EC1 which commenced in April
-- Planning consents now held for 1.8m sq ft (163,600m(2)) of future projects
-- Joint venture signed with Grosvenor with intention to redevelop 1-5 Grosvenor Place SW1
-- Finance:
-- Loan to value ratio reduced from 32.0% to 30.6% as at 31 March 2012
-- Weighted average cost of debt reduced to 4.71% at 31 March
2012 on an IFRS basis and 4.44% on a cash basis
John Burns, Chief Executive Officer of Derwent London,
commented:
"Robust lettings progress continued into the first quarter of
2012 with GBP6.8m of transactions, including the pre-letting of 1
Page Street to Burberry. The rental levels achieved endorse our
positive rental growth expectations for 2012. A sizeable proportion
of our tenant enquiries and completed lettings continues to come
from the growing TMT and other creative sectors. We have moved
forward with our pipeline of current and future schemes and won
further major planning consents. We are now on-site at Turnmill and
on schedule to commence 40 Chancery Lane in the second half of the
year."
Conference call
There will be a conference call for investors and analysts at
09:00 BST today. To participate in the call, please dial the
following numbers:
From the UK: 020 3059 8125
From outside the UK: +44 20 3059 8125
Please say "IMS" when asked for the participant code.
A recording of the conference call will be made available
following the conclusion of the call 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
Louise Rich, Head of Investor Relations
Brunswick Group Kate Holgate
Tel: +44 (0)20 7404 5959 Elizabeth Adams
Market overview
The central London office market continued to outperform the UK
property market in the first quarter of 2012 with much of the
positive performance due to the strength of the West End where over
three quarters of our portfolio is located. Surveyors CBRE reported
that take-up in the West End was in line with the quarterly average
and the vacancy rate remained below trend. Their prime West End
rent index increased by 1.2% over the quarter. Investment demand
was strong, especially from overseas buyers at the top-end of the
market, and office yields remained broadly unchanged. Investment
transactions in central London totalled GBP3.7bn, the highest
quarterly figure since the fourth quarter of 2010.
In the first quarter of the year, the Investment Property
Databank (IPD) Index for central London offices showed a capital
growth of 0.8% as a result of rental growth of 0.4% and slight
equivalent yield compression. This outperformed the IPD All
Property Index which had a capital value decline of 0.7%. The
Group's portfolio is valued in December and June and was therefore
not valued during this period. Our valuers, CBRE, have however
commented that the Group's letting and asset management activity
means that it is likely to have outperformed the IPD central London
office index over the quarter.
Portfolio management
The Group started 2012 with a very low level of available space
and has continued to make further progress by capturing significant
pre-lets and securing lettings at rental levels above year end
estimated rental values.
During the first quarter, the largest letting transaction was
the pre-let of the entire 127,000 sq ft (11,800m(2)) at 1 Page
Street SW1 to Burberry at a rent of GBP5.3m pa, rising to a minimum
of GBP5.7m pa after five years. The Group concluded a further 14
lettings in the quarter at a rent of GBP1.5m pa and over floorspace
of 49,000 sq ft (4,550m(2) ).
This activity included BrandOpus pre-letting 15,400 sq ft
(1,430m(2)) at Central Cross, 1 Stephen Street W1 for GBP0.65m pa
and Krow Communications taking 7,300 sq ft (680m(2)) at Morelands
Buildings EC1 for GBP0.27m pa. The Stephen Street pre-let
represents approximately two thirds of the first phase of our
refurbishment of this property. This includes a completely
remodelled office entrance which will help rebrand the building and
involves conversion to offices of the ground and lower ground space
that was previously used as studios or storage. BrandOpus will pay
GBP52.50 per sq ft (GBP565 per m(2)) on the ground floor.
Since 31 March 2012, the Group has concluded a further eight
lettings over 34,300 sq ft (3,190m(2)) at a rent of GBP1.2m pa.
This includes Viacom pre-letting 13,700 sq ft (1,270m(2)) at 35
Kentish Town Road NW1 for GBP0.4m pa and takes lettings in the year
to date to 23 transactions with a rental income of GBP8.0m pa and a
floorspace of 210,300 sq ft (19,540m(2)).
Open market lettings for the year to date were at rents 1.7%
above estimated rental values at 31 December 2011. Excluding the
letting to Burberry, which was under offer at the year end and
therefore completed at the estimated rental value at that date, the
margin increases to 6.7%.
On an EPRA basis, the Group's space available to let is 0.8% by
estimated rental value, down from 1.3% at the start of the
year.
We also concluded 12 lease renewals and rent reviews in the
quarter at a total rent of GBP1.6m pa on a floorspace of 39,200 sq
ft (3,640m(2)). The new rent is 12.0% higher than the income that
the space was producing at the start of the year.
Projects
Derwent London continues to progress its future schemes and has
received four important planning consents since the beginning of
2012:
-- 1 Oxford Street W1 - in April the 275,000 sq ft (25,500m(2))
mixed-use scheme at Tottenham Court Road station was granted
planning permission. It is the Group's intention to exercise its
option to acquire the site, which was compulsorily purchased by
Crossrail in 2009, following the completion of the upgrade works,
expected to be in 2017.
-- 1 Page Street SW1 - our refurbishment and extension plans were approved in April.
-- Riverwalk House, Millbank SW1 - in March we received planning
permission for a high specification riverside residential
redevelopment of 121 units. The consent also included 232-242
Vauxhall Bridge Road SW1 for affordable housing. The sale of both
properties for GBP77.3m is expected to complete in the third
quarter, with the Group participating in a profit overage
thereafter.
-- 96-98 Bishop's Bridge Road W2 - planning permission was
granted in February for 16 residential units and ground floor
retail space together totalling 21,400 sq ft (1,990m(2)) at this
former cinema. Construction will start in early 2013.
We were on site at five principal projects totalling 338,000 sq
ft (31,400m(2)) at the quarter end. These had a year end estimated
net rental value of GBP13m pa and are 47% pre-let by floor area.
The schemes are:
-- 1 Page Street SW1 - 127,000 sq ft (11,800m(2)) office
building pre-let to Burberry earlier this year and due to be handed
over to the tenant in mid 2013.
-- Buckley Building, 49 Clerkenwell Green EC1 - 85,000 sq ft
(7,900m(2)) office refurbishment and extension due to complete in
the fourth quarter of 2012.
-- 4 & 10 Pentonville Road N1 - 55,000 sq ft (5,110m(2))
office refurbishment, located opposite our highly successful Angel
Building, due to complete in the third quarter of 2012.
-- Central Cross, 1-2 Stephen Street W1 (Phases 1 & 2) -
Phase 1 is a 23,000 sq ft (2,140m(2)) ground and lower ground floor
refurbishment with delivery due in late 2013. Two thirds of this
space has been pre-let. Phase 2 is a 21,000 sq ft (1,950m(2))
refurbishment of the first floor of 1 Stephen Street.
-- Morelands Buildings, 5-27 Old Street EC1 - 27,000 sq ft
(2,510m(2)) office refurbishment and roof extension, the latest
phase of works at this 90,000 sq ft (8,400m(2)) building, due to
complete around December 2012. 17,800 sq ft (1,650m(2)) has been
pre-let.
The Group is also on site at a further 47,300 sq ft (4,390m(2))
of smaller refurbishments.
Since the quarter end, vacant possession has been obtained and
work commenced at Turnmill, 63 Clerkenwell Road EC1. Construction
of a new-build 70,000 sq ft (6,500m(2)) office and retail
development is due to complete in mid 2014.
In February 2012 we exchanged contracts with our freeholder to
restructure and extend our Chancery Lane WC2 interests into a new
128-year lease. We intend to start on site in the second half of
2012. The new 100,000 sq ft (9,300m(2)) six-storey office building
is expected to be completed by the end of 2014.
In addition to the projects where we are on-site, our pipeline
of consented planning permissions totals a further 1.8m sq ft
(163,600m(2)) including 80 Charlotte Street W1, 55-65 North Wharf
Road W2, City Road Estate EC1,1 Oxford Street W1 and Riverwalk
House SW1. This does not include 132-142 Hampstead Road NW1 where
we now propose a light touch refurbishment, due to the likelihood
that the building will be compulsorily purchased to make way for
HS2, the high speed rail link between London and Birmingham. A
summary of our project pipeline is set out in the appendix.
Joint venture at Grosvenor Place
On 1 March 2012 Derwent London and Grosvenor announced that they
had restructured their leases and established a joint venture to
work towards the redevelopment of 1-5 Grosvenor Place SW1. Under
the agreement Derwent London's leases were restructured into a new
150-year term at a ground rent of 5% of rental income. Grosvenor
holds the freehold. Simultaneously Derwent London sold 50% of its
ownership to Grosvenor and received GBP60m. This transaction
protects value through the new headlease and unlocks the
opportunity for the joint venture to undertake a major mixed-use
redevelopment of over 260,000 sq ft (24,200m(2)).
Disposals
In April 2012, the Group exchanged contracts to sell the
Triangle Centre in Scotland for GBP16.8m before costs, a price 6.8%
above the December 2011 book value. This 75,500 sq ft (7,010m(2))
shopping centre, located at Bishopbriggs just north of Glasgow, is
fully let at GBP1.3m pa.
Finance
As a result of the GBP60m receipt from Grosvenor in the first
quarter, net debt decreased to GBP810.6m from GBP864.5m at the 2011
year end. This has reduced the Group's loan to value ratio from
32.0% to 30.6% and increased total secured but undrawn bank
facilities to GBP474.1m at 31 March 2012 with GBP625.0m of
uncharged properties at the same date. Capital expenditure in the
first quarter totalled GBP13.2m.
Following the drawdown of the new loan facilities and changes to
our interest rate swaps in January 2012, all of which were set out
in the 2011 Report and Accounts, the weighted average cost of debt
on an IFRS basis fell from 4.91% at the year end to 4.71% at 31
March 2012. Using the cash coupon of 2.75% for the convertible
bond, the weighted average cost of debt fell from 4.65% to 4.44% at
31 March 2012. We have reduced the level of swaps by GBP60m in the
period but, due to the reduction in net debt, the proportion of
debt that was at fixed rates or hedged fell only slightly from 98%
at the year end to 97%.
Rent collection for the March quarter was prompt with 95.4%
received within 14 days of the due date. We have now completed two
of the four quarters of 2012 with negligible bad debts.
The final dividend for 2011 of 21.90p per share, of which 18.10p
will be a Property Income Distribution, will be paid on 15 June
2012 to shareholders on the register at 18 May 2012. A scrip
alternative has once again been offered to shareholders.
Outlook
The year to date has seen strong performance from within our
London villages with further lettings at improved rents and good
progress on our project pipeline with almost 40% of our projects on
site pre-let. We believe that the arrival of Crossrail is starting
to play an important part in the decision-making process of
prospective tenants and that the Derwent London portfolio is well
placed to capture this demand. We continue to assess potential
additions to the portfolio. Our central London focus and the nature
of the space that we offer provide us with continued resilience in
the face of the economic difficulties being experienced more widely
within the UK.
Appendix - Project pipeline
Property Proposed Proposed
area area
sq ft m(2)
Projects on site
1 Page Street SW1 127,000 11,800
Buckley Building, 49 Clerkenwell
Green EC1 85,000 7,900
Turnmill, 63 Clerkenwell Road
EC1 70,000 6,500
4 & 10 Pentonville Road N1 55,000 5,110
Central Cross, 1-2 Stephen
Street W1 - Phases 1 & 2 44,000 4,090
Morelands Building, 5-27 Old
Street EC1 27,000 2,510
Other 47,300 4,390
---------- ---------
455,300 42,300
---------- ---------
Planning consents*
80 Charlotte Street W1 367,000 34,100
55-65 North Wharf Road W2 313,000 29,100
City Road Estate EC1 289,000 26,800
1 Oxford Street W1 275,000 25,500
Riverwalk House & 232-242
Vauxhall Bridge Road SW1 175,000 16,300
60 Commercial Road E1 122,000 11,300
40 Chancery Lane WC2 100,000 9,300
Wedge House, 30-40 Blackfriars
Road SE1 80,000 7,400
96-98 Bishop's Bridge Road
W2 21,400 1,990
Other 19,000 1,770
1,761,400 163,560
---------- ---------
* Excluding 132-142 Hampstead Road NW1 where
there is planning consent for a 265,000 sq
ft (24,600 m(2)) mixed-use scheme. This site
is expected to be compulsorily purchased as
part of the construction of HS2.
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 is the largest central London focused REIT
with an investment portfolio of GBP2.6bn as at 31 December 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 (501,000m(2)
), as at 31 December 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 fifth overall in the 2011 Management Today
awards for 'Britain's Most Admired Companies' and has also recently
won the Estates Gazette Property Company of the Year - Offices
award. In 2011, Angel Building was shortlisted for the RIBA
Stirling Prize following its RIBA London 2011 award and has also
won numerous accolades from organisations such as the British
Council for Offices, the British Construction Industry and New
London Architecture. The Maple & Fitzroy development in
Fitzrovia W1, which was completed in September 2010, also won a
2011 RIBA London and New London Architecture award.
For further information see www.derwentlondon.com
This information is provided by RNS
The company news service from the London Stock Exchange
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