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Year In Review

Year In Review

CEO Statement
23 May 2019

Gerald Kaye Chief Executive

I am pleased to present the Company’s 2019 Annual Results.

The results for the year to 31 March 2019 reflect significant progress for Helical, now an office-led investment and development company focused purely on London and Manchester. We have completed three of our four on-site office development schemes, have let 304,073 sq ft at rents 4.3% above ERVs and have sold £167m of investment assets at a 12.0% premium to book value.

We now have a collection of newly redeveloped or refurbished assets of premium quality which are attractive to occupiers and situated in desirable locations. We were delighted to announce earlier this week the acquisition, in a 50:50 joint venture, of a major site for c.192,000 sq ft of offices in Farringdon, London EC1. This scheme supplements our existing assets located in the Tech Belt in EC1 and E1.

The London investment portfolio, following the completion of recent office developments and the sale of The Shepherds Building, was 83.8% let (31 March 2018: 91.7%), with contracted rent of £27.5m (2018: £28.4m), and with good interest in the remaining available space. In March we launched our redeveloped office building in Manchester, Trinity, to the market and contracted rents on the Manchester portfolio have grown from £4.7m (87.2% let) to £5.7m (80.2% let).

Our schemes at The Tower, London EC1 and One Bartholomew, London EC1 have both received BREEAM “Excellent” ratings from this world-leading sustainability assessment methodology, along with our other schemes at The Warehouse and The Studio, London EC1, 25 Charterhouse Square, London EC1 and One Creechurch Place, London EC3.

Results for the Year

Profit before tax for the year to 31 March 2019 increased by 41.2% from £30.8m to £43.5m. Total Property Return increased to £81.4m (2018: £68.8m) and included net rents of £25.2m (2018: £36.1m), offset by development losses, largely a result of the impact of the collapse of Carillion plc at Barts Square, London EC1, of £4.4m (2018: £8.0m). The gain on sale and revaluation of the investment portfolio contributed £60.6m (2018: £40.7m).

Net finance costs of £18.4m were substantially lower than in 2018 (£35.2m) as a result of the reduction in borrowings achieved in the last two years. However, the Income Statement was adversely affected by the reduction in medium and long-term interest rates over the year which led to a £3.3m charge (2018: credit of £4.0m) arising from the valuation of the Company’s derivative financial instruments. The valuation of the Company’s Convertible Bond provided a credit of £0.9m (2018: charge of £1.6m). Recurring administration costs were marginally lower at £10.9m (2018: £11.0m) whilst performance related awards increased to £5.2m (2018: £1.7m) with National Insurance on these awards of £0.7m (2018: £0.1m).

The Board is confident of the letting prospects of the remaining vacant space in the investment portfolio and, with net rental income increasing over the next few years, the Board expects the Group’s EPRA earnings to improve significantly in the near future. This expectation has led the Board to recommend to Shareholders an increase in the final dividend of 7.1% to 7.50p (2018: 7.00p) which, together with the interim dividend of 2.60p paid in December 2018, takes the total dividend for the year to 10.10p (2018: 9.50p), an overall increase of 6.3%.

Performance

We measure our performance at both portfolio and Company level, seeking to outperform the relevant sector indices and our peer group in the medium and long-term.

IFRS basic earnings per share increased to 35.8p (2018: 22.3p) with EPRA loss per share of 8.4p (2018: 7.0p), reflecting a reduction in net rental income as the direct result of the sales of income producing investment properties in the last 18 months. On a like-for-like basis, the investment portfolio increased in value by 6.8% (7.4% including purchases and gains on sales). However, with the sales in the year of £167m, 12% above book value, the see-through portfolio value adjusted to £876m (31 March 2018: £910m).

The unleveraged return of our property portfolio, as measured by MSCI, was 10.1% (2018: 11.1%). We now compare our portfolio performance to two MSCI benchmarks. The March MSCI Annual All Properties Index produced a return of 3.6% (2018: 9.3%) with an upper quartile return of 7.0% (2018: 12.0%). The MSCI Central London Offices Total Return Index produced a return of 4.8% (2018: 7.5%) with an upper quartile return of 6.2% (2018: 9.0%).

Total Accounting Return, being the growth in the net asset value of the Company plus dividends paid in the year, was 8.4% (2018: 5.3%). EPRA net asset value per share was up 3.0% to 482p (31 March 2018: 468p), with EPRA triple net asset value per share up 3.8% to 465p (31 March 2018: 448p).

Finance

The Company uses gearing on a tactical basis, dependant on market fluctuations, being raised to accentuate performance when property returns are judged to materially outperform the cost of debt and lowered when seeking to reduce exposure to the property market.

During the year to 31 March 2019, the Group generated gross proceeds of £167m from the sale of investment properties and £45m from the sale of development stock. These proceeds, net of investment in the portfolio of £124m, were used to reduce net borrowings by £94m, significantly reducing future finance costs.

The see-through loan to value ratio (“LTV”) reduced to 30.6% at the year end (31 March 2018: 39.9%) and our see-though net gearing, the ratio of net borrowings to the net asset value of the Group, has fallen to 47.3% (31 March 2018: 68.0%) over the same period.

During the year, the average debt maturity on secured loans, on a see-through basis, was 3.4 years (31 March 2018: 3.5 years), increasing to 4.2 years on exercise of options to extend the Group’s £150m RCF. No secured loan is repayable before July 2021. The average cost of debt at 31 March 2019 was 4.0% (31 March 2018: 4.3%). The Group’s remaining unsecured debt instrument, the £100m Convertible Bond, will be repaid in June 2019, reducing the Group’s annual interest payments by £4.0m. The Group has a significant level of liquidity with see-through cash and unutilised bank facilities of £382m (31 March 2018: £277m) to fund the repayment of the Convertible Bond, capital works on its portfolio and future acquisitions.

Board matters

At this year’s Annual General Meeting (“AGM”) our Chairman and former Chief Executive, Mike Slade OBE, will step down from the Board after 35 years’ service. Mike has been an inspiration to everyone at Helical and to many in the property industry during this time and, on behalf of the rest of the Board, I thank him for his considerable contribution to the success of Helical and wish him well for his retirement. He recently received an OBE for services to charity, for his work with LandAid, the sector’s main charity, an award thoroughly deserved.

At the AGM, Michael O’Donnell will also step down after eight years serving as a Non-Executive Director. On behalf of the Board, I would like to thank him for his service to the Company.

In September 2018, we welcomed Joe Lister, CFO at Unite Group, as a Non-Executive Director. Joe will assume the role of Chairman of the Audit & Risk Committee (“Committee”) on appointment to the Board at the close of the forthcoming AGM. Joe will replace Richard Grant as Chairman of the Committee, with Richard replacing Mike Slade as Chairman of the Board.

The Future

Helical is primarily a capital growth stock, albeit one with an increasingly important income stream as our redeveloped and refurbished investment assets become let. We have a tremendous track record in London, built up over the last 25 years, and we believe this experience and our longstanding sector relationships will enable us to add new opportunities to our pipeline. Our increased financial capacity, following the transformation of the portfolio over the last two years, allied to our current operational capacity, enables us to look forward with confidence in our ability to deliver capital profits and increased earnings.

2019 Performance Highlights

EPRA NET ASSET VALUE PER SHARE

The Group’s main objective is to maximise growth in net asset value per share, which we seek to achieve through increases in investment portfolio values and from retained earnings from other property related activity. EPRA net asset value per share is the property industry’s preferred measure of the proportion of net assets attributable to each share as it includes the fair value of net assets on an ongoing long-term basis. The adjustments to net asset value to arrive at this figure are shown in Note 22 to the financial statements.

The EPRA net asset value per share at 31 March 2019 increased by 3.0% to 482p (31 March 2018: 468p). EPRA triple net asset value per share at 31 March 2019 increased by 3.8% to 465p (31 March 2018: 448p).

EPRA NET ASSET VALUE PER SHARE (P)

MSCI (FORMERLY IPD)

MSCI produces a number of independent benchmarks of property returns that are regarded as the main industry indices.

MSCI has compared the ungeared performance of Helical’s total property portfolio against that of portfolios within MSCI for the last 20 years. The Group’s annual performance target is to exceed the top quartile of the MSCI Annual March All Properties Universe, which it has consistently achieved. Helical’s ungeared performance for the year to 31 March 2019 was 10.1% (2018: 11.1%). This compares to the MSCI Annual March All Properties Universe of 3.6% (2018: 9.3%) with an upper quartile return of 7.0% (2018: 12.0%).

In addition, the Annual Bonus Scheme 2018 performance criteria include the comparison of the Group’s performance with the MSCI Central London Offices Total Return Index, with target performance to match the index and outperformance exceeding it by 3.25%. In the year to 31 March 2019, this index showed a return of 4.8% (2018: 7.5%) with an upper quartile return of 6.2% (2018: 9.0%).

Helical’s unleveraged portfolio returns to 31 March 2019 were as follows:

Helical
MSCI Annual March All Properties Universe
Helical’s Percentile Rank
MSCI Central London Offices Total Return Index

Source: MSCI

TOTAL SHAREHOLDER RETURN

Total Shareholder Return is a measure of the return on investment for Shareholders. It combines share price appreciation and dividends paid to show the total return to the Shareholder expressed as an annualised percentage.

The Total Shareholder Return in the year to 31 March 2019 was 5.2% (2018: 6.1%).

Helical Bar Plc
UK Equity Market
Listed real estate sector index
Direct property - monthly data

1. Growth over all periods to 31/03/19.
2. Growth in FTSE All-Share Return Index over all periods to 31/03/19.
3. Growth in FTSE 350 Real Estate Super Sector Return Index over all periods to 31/03/19. For data prior to 30 September 1999 FTSE All Share Real Estate Sector Index has been used.
4. Growth in Total Return of MSCI UK Monthly Index (All Property) over all years to 31/03/19.

TOTAL ACCOUNTING RETURN

Total Accounting Return is the growth in the net asset value of the Group plus dividends
paid in the reporting year, expressed as a percentage of the net asset value at the beginning
of the period. The metric measures the growth in Shareholders’ Funds each year and is
expressed as an absolute measure.

The Total Accounting Return in the year to 31 March 2019 was 8.4% (2018: 5.3%).

TOTAL ACCOUNTING RETURN (%)

AVERAGE LENGTH OF EMPLOYEE SERVICE (YEARS) AND AVERAGE STAFF TURNOVER

A high level of staff retention remains a key feature of Helical’s business. The Group retains a highly skilled and experienced team. We assess our success based on two key metrics: the average length of service of the Group’s head office employees and average staff turnover.

The average length of service of the Group’s head office employees at 31 March 2019 was 8.7 years and the average staff turnover during the year to 31 March 2019 was 6.3%.

AVERAGE LENGTH OF EMPLOYEE SERVICE (YEARS)
Staff turnover during the year

2019 Operational Highlights

Operational Performance

  • In our office development/refurbishment programme:
  • Practical completion was achieved at The Tower, London EC1 in August 2018, at One Bartholomew, London EC1 in December 2018 and at Trinity, Manchester in January 2019, delivering a total of 455,127 sq ft of new space.
  • Construction continues at our 88,680 sq ft office development at Farringdon East, renamed Kaleidoscope, London EC1, with completion expected in December 2019.
  • 268,782 sq ft of new London office lettings during the year delivered contracted rent of £18.7m (Helical share £6.7m at 3.2% above 31 March 2018 ERVs).
  • Post year end, 62,854 sq ft has been let at One Bartholomew at premium rents.
  • In Manchester, five office lettings of 15,191 sq ft, with a further 8,208 sq ft let post year end, generated rental income of £538,000 at 15.9% above 31 March 2018 ERVs.
  • We have completed six lettings of 20,100 sq ft to restaurants or retailers, including Albion & East (trading as Serata Hall) at The Tower, London EC1 and Stem + Glory at Barts Square, London EC1 for contracted rents of £871,000 (Helical share £686,000) at 9.0% above 31 March 2018 ERVs.
  • Investment property sale proceeds of £167m since 31 March 2018 achieved at 12.0% above book value.

Financial Highlights

Property Valuation

  • IFRS property portfolio value of £778.8m (31 March 2018: £791.9m).
  • See-through property portfolio1 of £876.4m (31 March 2018: £909.6m).
  • Total property portfolio performance, as measured by MSCI, of 10.1% compared to the MSCI Central London Offices Total Return Index of 4.8%.
  • See-through investment property valuation gain, on a like-for-like basis, of 6.8% (7.4% including purchases and gains on sales).

Earnings

  • IFRS basic earnings per share of 35.8p (2018: 22.3p).
  • IFRS Profit before tax of £43.5m (2018: £30.8m).
  • Total Accounting Return of 8.4% (2018: 5.3%).
  • See-through Total Property Return of £81.4m (2018: £68.8m):
    • Group’s share of net rental income of £25.2m (2018: £36.1m).
    • Development losses of £4.4m (2018: £8.0m), after provisions of £13.7m (2018: £4.1m).
    • Net gain on sale and revaluation of investment properties of £60.6m (2018: £40.7m).
  • EPRA loss per share of 8.4p (2018: 7.0p).
  • Final dividend proposed of 7.50p per share (2018: 7.00p), up 7.1%.
  • Total dividend for the year of 10.10p (2018: 9.50p), up 6.3%.

Balance Sheet

  • Net asset value up 6.3% to £567.4m (31 March 2018: £533.9m).
  • EPRA net asset value per share up 3.0% to 482p (31 March 2018: 468p).
  • EPRA triple net asset value per share up 3.8% to 465p (31 March 2018: 448p).

Financing

  • See-through loan to value reduced to 30.6% (31 March 2018: 39.9%).
  • See-through net borrowings of £268.6m (2018: £362.9m).
  • Average maturity of the Group’s share of secured debt of 3.4 years (31 March 2018: 3.5 years), increasing to 4.2 years, on exercise of options to extend current facilities.
  • See-through average cost of secured facilities of 4.1% (31 March 2018: 4.4%).
  • £100m 4.0% Convertible Bond to be repaid in June 2019 from existing cash resources.
  • Group’s share of cash and undrawn bank facilities of £382m (31 March 2018: £277m).

Portfolio Update

London Portfolio

  • 6% valuation increase, on a like-for-like basis, of our see-through London investment portfolio, valued at £693.8m at 31 March 2019 (85.0% of investment portfolio) compared to £699.9m at 31 March 2018 (84.8% of investment portfolio).
  • Contracted rents on our see-through London investment portfolio of £27.5m (2018: £28.4m) compared to an ERV of £42.4m (2018: £49.6m).
  • WAULT of 8.0 years on the London portfolio (31 March 2018: 5.8 years).

Manchester Portfolio

  • 8% valuation increase, on a like-for-like basis, of our Manchester investment portfolio, valued at £122.7m at 31 March 2019 (15.0% of investment portfolio) compared to £98.0m at 31 March 2018 (11.9% of investment portfolio).

Half Year to 2020 Highlights

£13.1m
Profit before tax
486p
EPRA Net asset value
£28.6m
Total property return
Half Year Review

2019 annual report & Accounts

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