TIDMDLN
RNS Number : 1331J
Derwent London PLC
08 April 2020
Derwent London plc ("Derwent London" / "the Group")
FIRST QUARTER BUSINESS, AGM AND COVID-19 UPDATE
SUMMARY
Q1 business update
-- Statement brought forward from 7 May 2020
-- New lettings of GBP2.1m on 52,700 sq ft in Q1 2020, 4.6% above December 2019 ERV
-- Completed the sale of 40 Chancery Lane WC2 for GBP121.3m
-- Completed the acquisition of Blue Star House, Brixton SW9 for GBP38.1m
-- EPRA vacancy rate of 1.0%
-- Robust finances:
o LTV of 16.2%(1) with cash and undrawn facilities of
GBP554m
o Rents and values could fall 70% and 71% respectively without
breaching covenants(1)
o Final dividend of 51.45p per share will be paid in cash on 5
June 2020
AGM
-- AGM on 15 May 2020:
o Venue changed to 25 Savile Row W1 and to be held as a closed
meeting
COVID-19 update
-- At the moment, the health and wellbeing of our employees,
occupiers and other stakeholders is our top priority
-- All employees below the Board are on full salaries and
benefits and none have been furloughed
-- Increased support for our occupiers most in need and our communities
-- 73% of March Quarter Day rents received, plus 6% now paying
on a monthly basis and another 12% on agreed payment plans
-- Developments:
o Construction temporarily paused at our three major sites
o Optionality over timing of future pipeline
-- ERV(2) , property yield and EPRA earnings guidance withdrawn
until greater visibility returns
(1) Based on December 2019 property values
(2) Estimated Rental Value
Paul Williams, Chief Executive of Derwent London, said:
"Derwent London has always focused on outstanding quality, a
long-term view and close relationships with occupiers, business
partners and communities. At challenging times like this, they are
as important as ever. Derwent London is well placed to meet its
commitments to invest in its longer-term objectives and to balance
its stakeholder responsibilities. After careful consideration, we
believe it is appropriate we pay the final dividend. I am
particularly grateful to the Derwent London team for their hard
work and the way they are collaborating, both together and with
others."
For further information, please contact:
Derwent London Paul Williams, Chief Executive
Tel: +44 (0)20 7659 3000 Damian Wisniewski, Chief Financial
Officer
Quentin Freeman, Head of Investor
Relations
Brunswick Group Nina Coad
Tel: +44 (0)20 7404 5959 Emily Trapnell
BACKGROUND
With unprecedented global disruption being caused by COVID-19,
Derwent London is bringing forward its Q1 business update,
originally due for release on 7 May 2020, to 8 April 2020 and
providing further information in relation to its responses to the
pandemic and the impact on the business. Also provided below is an
update on the forthcoming AGM.
Following a positive start to the year, more recently the
Group's main focus has been on responding to the outbreak and
lockdown, particularly the health and wellbeing of our staff,
occupiers, supply chain, local communities and other stakeholders.
As explained in Paul Williams' message published on our website on
20 March 2020, we have also been ensuring that our employees have
the right technology and resources to work as effectively as
possible from home, and that our communications with all
stakeholders are as transparent and informative as they can be.
Our high quality portfolio is focused on central London offices,
which make up 90% of our income, with 10% from retail, restaurants
and leisure. While the latter sectors have suffered most, other
businesses have also seen significant impacts. The Group has always
been customer focused and we have been working together with our
occupiers on a case by case basis to understand their position and
to provide support where it is needed most.
WHAT WE HAVE DONE SO FAR
Most of our employees have been working from home since 18 March
2020. We are missing our office environment but the success of
homeworking so far is evidence of the resilience and adaptability
of our people, backed up by our IT team. All of our employees below
the Board continue to receive their full salaries and benefits and
none have been furloughed.
We continue to manage our office buildings to provide access
where required, as well as additional cleaning and security
together with essential plant maintenance. However, as physical
occupation rates are low, we have been scaling down services where
we can to minimise running costs.
The Group is focussed on ensuring we have strong liquidity
whilst working alongside our tenants, particularly those most in
need.
We have a flexible development pipeline and, where appropriate,
we have deferred expenditure and decisions on future projects while
keeping very close to our contractors, professional consultants and
the project teams on site.
In order to provide additional assistance where the need is
greatest, we have increased our 2019 commitment to charitable
donations and sponsorships by 81% to GBP696,000. This includes
GBP186,000 to be paid for by waivers of 20% of base salaries or
fees from each of Derwent London plc's Directors for a three month
period, effective from 1 April 2020. Of this sum, we have initially
allocated GBP20,000 to fund the purchase of commercial fridges to
store food for NHS workers at University College Hospital and a
further GBP166,000 will be distributed shortly. In addition, we
have been working with the relevant agencies to provide carparking
and accommodation to NHS staff in central London.
As announced at the year end, we remain committed to our plans
to be net zero carbon by 2030 and are finalising our 2019
Responsibility Report, due to be published in April 2020.
OPERATIONS
Earlier in the year, Derwent London's business was proceeding to
plan with renewed expectation of rental growth in a central London
office market characterised by low vacancy rates and strong
customer demand. Letting enquiries were good and, with little space
immediately available, in Q1 2020 we achieved another GBP2.1m of
rent on new lettings totalling 52,700 sq ft at 4.6% above December
2019 ERV. At 31 March 2020 our EPRA vacancy rate was 1.0%.
During the period we completed the sale of 40 Chancery Lane WC2
for a headline price of GBP121.3m and the acquisition of Blue Star
House, Brixton SW9 for GBP38.1m, before costs. Both transactions
had been announced previously.
As with other landlords, we have seen the first economic impacts
of the lockdown on our tenants in the March Quarter Day collection
rates. We have been dealing with this on a case by case basis,
supporting them as appropriate through converting some quarterly
payments in advance to monthly ones and, in some cases, rents due
will be collected over longer periods. We have also agreed
rent-free periods of three months for some retail, restaurant and
leisure occupiers.
In total, we have so far received 73% of rents due on the
Quarter Day with another 6% now being received on a monthly basis
in May and June. Therefore, at least 79% of total rents are
expected within the quarter. In addition, we have agreed payment
plans on another 12% of rents payable with the balance either
outstanding or subject to rent-free periods. Details are given in
the table below.
March 2020 Quarter Day rent
Current position Office Retail / Hospitality Total March 2019
Received 78% 20% 73% 98%
Monthly payments 6% 2% 6% -
Payment plans 11% 23% 12% -
Outstanding 5% 12% 5% 2%
Rent free granted - 43% 4% -
Total 100% 100% 100% 100%
GBP39.5m GBP3.8m GBP43.3m GBP37.4m
--------- --------------------- --------- -----------
We have three major developments under construction totalling
790,000 sq ft which are 72% pre-let (see Appendix).
The current situation has meant that the contractors have
temporarily halted work on site; 80 Charlotte Street was closed on
24 March, just a few days before it was due to reach practical
completion. Depending on how long the site remains inactive, this
will delay the rent start date. The loss of rent will be partially
offset by capitalised interest. We are in daily contact with our
contractor, Multiplex, and remain close to our two main pre-let
tenants.
The other two schemes are not due for completion until 2022 with
some off-site fabrication and design work continuing at Soho Place.
Again, we have frequent updates with both contractors and our
future tenants.
At the time of our annual results announcement on 25 February
2020, we commented that we were appraising a number of schemes
which, in aggregate, could see us commence another c.600,000 sq ft
of development in 2021. We still have the potential to do this in
whole or in part, but we have considerable flexibility in relation
to each scheme and could run on much of the income instead. This
optionality is a strength of our business model and the Group does
not have to commit to these schemes until much later in the year
once we have better clarity on the outlook.
FINANCIAL POSITION
Our financial position remains very strong with a particular
focus on lender relationships, another cornerstone of our business
model, and liquidity. Having refinanced GBP875m of debt in 2019,
our weighted average unexpired term was 7.2 years at 31 March 2020
and we have no debt maturities until 2022.
Net debt fell from GBP981.6m in December 2019 to GBP939.4m at 31
March 2020. The decrease was due mainly to the net proceeds
received in February 2020 of GBP120.1m from the sale of 40 Chancery
Lane WC2. Capital expenditure spent on projects during Q1 was
GBP43.4m and we also acquired Blue Star House SW9 for GBP38.1m.
As a result, our loan-to-value ratio has fallen slightly to
16.2% at 31 March 2020 based off year end property valuations and
we estimate that our net asset value ("NAV") gearing was 20.8%.
Interest cover was 4.8 times for the three month period to 31 March
2020 and we had cash and undrawn facilities of GBP554m at the
quarter end. Our main debt covenants are NAV gearing of 145% and
interest cover of 1.45 times and, based off our December 2019
valuation, we estimate values could fall up to 71% and income fall
by 70% before we would breach our covenants. The weighted average
interest rate on our debt at 31 March 2020 was 3.43% on an IFRS
basis or 3.30% based on the cash coupon payable on the 2025
convertible bonds.
GUIDANCE
In our 2020 outlook issued in February, we stated that we
thought the central London office market was well-positioned and
expected our portfolio to see ERV growth of between +1% to +4% with
property yields to tighten. This was backed up by activity earlier
in the year. In the light of recent events, we are withdrawing this
guidance until we have greater clarity on the economic outlook,
vacancy rates, the financial health of our tenants and the
condition of the wider property market. Given the ongoing
uncertainty and the lack of clarity over the duration of this
pandemic, it is also too early to give meaningful guidance in
relation to the impact on 2020 EPRA earnings or cash receipts.
Future dividends will remain under review.
AGM
In response to the COVID-19 outbreak, and in line with the
related public health guidance and legislation issued by the UK
Government, the Board has determined that it is no longer practical
to hold the AGM at the original venue disclosed in the 2019 Annual
Report.
The AGM will now be held at our registered of ce, 25 Savile Row,
London W1S 2ER, on Friday 15 May 2020 starting at 10.30am.
At the time of this announcement, the UK Government has
prohibited public gatherings of more than two people and
non-essential travel, save in certain limited circumstances. In
light of these measures, the AGM this year will be run as a closed
meeting.
Shareholders will not be able to attend in person. Shareholders
should vote in advance either online or by using the Form of Proxy
that will be enclosed with the Notice of AGM.
We will aim to provide conference call facilities to enable
shareholders to follow the proceedings and to ask questions of the
Board remotely. As the situation is constantly evolving, the UK
Government may change current restrictions or implement further
measures relating to the holding of general meetings during the
affected period. Any changes to the AGM will be communicated to
shareholders in advance of the AGM on the Investors section of our
website at www.derwentlondon.com and, where appropriate, by RNS
announcement.
Notwithstanding these alterations to our usual AGM format, we
remain committed to engaging with our shareholders. We hope to hold
further shareholder events later in the year when it is safe to do
so.
2019 FINAL DIVID
In the light of the COVID-19 outbreak, the Board has given
careful consideration to our obligations to all our stakeholders.
With our strong liquidity and financial position and the further
cash received this year on the sale of 40 Chancery Lane, we believe
it is appropriate to pay the 2019 final dividend of 51.45p per
share which will be paid on 5 June 2020 to shareholders on the
register of members at 1 May 2020, subject to shareholder approval
at the AGM. Payment of the final dividend will cost GBP57.6m.
For ease of reference, key information on the 2019 final
dividend is provided below:
-- Ex-dividend date: 30 April 2020
-- Record date: 1 May 2020
-- Payment date: 5 June 2020
-- 34.45p will be paid as a Property Income Distribution (PID)
and the balance of 17.00p as a conventional dividend.
In our preliminary announcement released on 25 February 2020,
the Board's intention was to offer a scrip dividend alternative for
the 2019 final dividend. Since 25 February 2020, the Company's
share price has been volatile and, more recently, has been trading
below Net Asset Value. The Board of Directors has determined that
it is no longer in our shareholders' best interests to offer a
scrip dividend alternative for the 2019 final dividend and the
dividend will continue to be paid in cash.
APPIX: MAJOR DEVELOPMENTS PIPELINE
Property Area Capex to complete Comment
sq ft GBPm(1)
On-site projects
80 Charlotte Street W1 380,000 40 321,000 sq ft offices, 45,000 sq ft residential and
14,000 sq ft retail - 90% pre-let / pre-sold
overall
Soho Place W1 285,000 233(3) 209,000 sq ft offices, 36,000 sq ft retail and
40,000 sq ft theatre - 76% commercial space
pre-let(4)
The Featherstone Building EC1 125,000 61 110,000 sq ft offices, 13,000 sq ft workspaces and
2,000 sq ft retail
----------- ------------------ ----------------------------------------------------
790,000 334
----------- ------------------ ----------------------------------------------------
Major planning consents
19-35 Baker Street W1 293,000(2) 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 1,233,000
----------- ------------------ ----------------------------------------------------
(1) As at 31 December 2019 (2) Total area - Derwent London
currently has a 55% share of the joint venture
(3) Includes remaining site acquisition cost and profit share to
Crossrail (4) In addition the 40,000 sq ft theatre is pre-let
Notes to editors
Derwent London plc
Derwent London plc owns 82 buildings in a commercial real estate
portfolio predominantly in central London valued at GBP5.5 billion
(including joint ventures) as at 31 December 2019, 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.
As part of our commitment to lead the industry in mitigating
climate change, in October 2019, Derwent London became the first UK
REIT to sign a Green Revolving Credit Facility. 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 only a few property
companies worldwide to have science-based carbon targets validated
by the Science Based Targets initiative (SBTi).
Landmark schemes in our 5.6 million sq ft portfolio include
Brunel Building W2, White Collar Factory EC1, Angel Building EC1,
1-2 Stephen Street W1, Horseferry House SW1 and Tea Building
E1.
In 2019, the Group won several awards including EG Offices
Company of the Year, the CoStar West End Deal of the Year for
Brunel Building, Westminster Business Council's Best Achievement in
Sustainability award and topped the real estate sector and was
placed ninth overall in the Management Today 2019 awards for
'Britain's Most Admired Companies'. In 2013 the Company launched a
voluntary Community Fund and has to date supported 95 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 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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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