Half year results for the six months to 30 September 2023

Helical’s letting potential and development pipeline to drive future growth

Gerald Kaye, Chief Executive, commented:

“Occupational demands are evolving in the office sector, with tenants using their premises to optimise the work experience for their employees. Amenity, connectivity, service and sustainability are encouraging businesses towards new buildings. At the same time, buildings that provide a poorer working environment are driving occupiers away. This bifurcation of the market between the “best-in-class” and the rest is accelerating with rental growth continuing for the “best” and values falling for the rest. This will provide opportunities to acquire potential developments and major refurbishments at levels that allow for strong capital returns.

“We have experienced a further significant outward yield movement in the Period, and while interest from potential occupiers has been encouraging, lease negotiations are taking longer to conclude. However, having taken the pain of reductions in value, Helical is now well positioned to drive growth through the letting of the vacant space in its investment portfolio. 

“At The JJ Mack Building, EC1, a prime example of a “best-in-class” building, recent letting progress has been encouraging and we will be c.60% let once the current space under offer completes in December. Each letting to date has exceeded the applicable ERV and the recent letting of the 9th floor sets a record rent for the sub-market. By concluding these lettings, the existing 25bps yield differential between vacant and let space will unwind providing a significant positive impact on valuations. Similarly, upon re-letting the WeWork space at The Bower, EC1, the capital value will be enhanced as the yield differential is removed and contracted rent increases towards its ERV of c.£24m, which is significantly in excess of our total annualised recurring administration and finance costs.

“The balance sheet is in good shape and maintaining financial discipline remains at the forefront of Helical’s approach. Recycling equity and seeking third party financing to fund the pipeline of opportunities will allow the Company to grow the business while containing gearing to appropriate levels. 

“There remains a shortage of “best-in-class” newly refurbished or redeveloped office space in central London. With an experienced management team, a substantial development pipeline with optionality over timing and funding, and no legacy assets requiring investment to meet minimum sustainability standards, Helical is well positioned to capitalise on current cyclical opportunities.”

Operational Activity During the Period

Steady progress with lettings, despite challenging backdrop
•    During the Period we completed five new lettings, comprising 10,381 sq ft, delivering contracted rent of £576,803 in line with 31 March 2023 ERVs. 
•    Despite this activity, vacancy increased across the portfolio to 18.5% (31 March 2023: 16.1%) at 30 September 2023.
•    Since the Period end, we have let the 9th floor (13,408 sq ft) at The JJ Mack Building, EC1 for 10 years to Corio Generation, a subsidiary of Macquarie Group, at a 2.3% premium to 31 March 2023 ERVs, and have a further three floors (68,002 sq ft) under offer to one tenant. On completion, the building will be c.60% let. 
•    At The Bower, EC1 we have extended the lease to existing tenant Verkada by 10 years and have facilitated their expansion into an additional, adjacent floor. The vacant 14th floor is now under offer at a rent above 31 March 2023 ERV.
•    In October 2023, we exercised our right to forfeit the individual leases for the six floors let to WeWork at The Tower, EC1 following non-payment of rent for the September 2023 quarter. Subsequently, we have entered into a short-term licence arrangement with them and received a fee equivalent to the whole of the September quarter’s rent and service charge due under the terms of the previous lease arrangements.
•    On the expiry of the WeWork licence arrangement, and following the departure of Baker McKenzie from 100 New Bridge Street, EC4 in anticipation of its redevelopment, the vacancy rate across the investment portfolio will rise to c.25%.

Sales
•    Subsequent to the Period end, we have sold the long leasehold interest in the retail units at Barts Square for £7.0m (our share £3.5m), bringing an end to the joint venture with Baupost, which built 235 apartments, three office buildings totalling 249,000 sq ft and 21,000 sq ft of retail across 10 units. 

Portfolio Valuation
•    There was an average outward yield adjustment of 46bps at 30 September 2023 across the portfolio. This compares to the 75bps outward movement of City office prime yields, as reported by Savills for the Period.

100 New Bridge Street, EC4
•    At 100 New Bridge Street, EC4, we received planning approval from The City of London for our 194,000 sq ft scheme. The main construction contract and development financing facility are being finalised so that we can be ready to start construction in early 2024. 

The Platinum Portfolio - TfL
•    On 11 July 2023, contracts were signed confirming Helical as Transport for London’s (“TfL”) commercial office joint venture partner. This long term partnership will see the delivery of new, high-quality and sustainable office space predominantly above or adjacent to key transport hubs. The first three development opportunities are:
-    Bank OSD, EC4 - Located above the recently opened Bank Station entrance on Cannon Street. This eight storey office development will deliver 142,000 sq ft NIA over seven office floors, with typical floorplates of 22,500 sq ft, and 7,653 sq ft of terracing over three floors. A start on site is envisaged in October 2024.
-    Southwark OSD, SE1 - Located above Southwark Station. The scheme has consent for a 222,000 sq ft NIA office building over 17 storeys. Feasibility studies are underway, looking at alternative approaches for the site.
-    Paddington OSD, W2 - The 235,000 sq ft NIA scheme is to be built over the canal level eastern entrance to Paddington Station, opposite the Brunel Building. We intend to make minor changes to ensure we deliver a “best-in-class” scheme with enhanced amenities.

Financial Highlights

Earnings and Dividends
•    IFRS loss of £93.1m (2022: profit of £17.2m), primarily driven by revaluation losses.
•    IFRS basic loss per share of 75.8p (2022: earnings of 14.1p).
•    EPRA earnings per share1 of 1.1p (2022: 4.8p).
•    Interim dividend maintained at 3.05p per share (2022: 3.05p).

Balance Sheet
•    Net asset value down 17.5% to £502.3m (31 March 2023: £608.7m).
•    Total Accounting Return1 on IFRS net assets of -15.9% (2022: 2.3%).
•    Total Accounting Return1 on EPRA net tangible assets of -16.6% (2022: -2.5%).
•    EPRA net tangible asset value per share1 down 17.0% to 409p (31 March 2023: 493p).
•    EPRA net disposal value per share1 down 16.5% to 409p (31 March 2023: 490p).

Financing
•    See-through loan to value1 of 33.5% (31 March 2023: 27.5%). 
•    See-through net borrowings1 of £249.6m (31 March 2023: £231.4m).
•    Average maturity of the Group’s share1 of secured debt of 2.4 years (31 March 2023: 2.9 years).
•    100% of drawn debt protected by interest rate hedging to expiry of facilities. 
•    Gain in valuation of derivative financial instruments of £2.1m (2022: £26.6m).
•    See-through average cost of secured facilities1 of 3.3% (31 March 2023: 3.4%).
•    Group’s share1 of cash and undrawn bank facilities of £226.7m (31 March 2023: £244.2m). 

Portfolio Update

•    IFRS investment property portfolio value of £595.1m (31 March 2023: £681.7m).
•    Our see-through investment portfolio1, valued at £745.6m (31 March 2023: £839.5m), declined 11.8% with yield expansion of 46bps offset by 1.8% ERV1 growth.
•    See-through portfolio WAULT1 of 4.6 years (31 March 2023: 5.0 years).

Sustainability Highlights

•    Good progress against targets set out in sustainability strategy “Built for the Future” and our aim to be a net zero carbon business by 2030.
•    Ranked 1st against our peers in the UK Office Listed sector for standing investments, as measured by GRESB, scoring 87% and receiving a 4 Star rating. Our developments received a score of 92% and also received a 4 Star rating.
•    Retention of EPRA Sustainability BPR Gold rating.