Business & Trading Update
1 April 2020
HELICAL PLC
("Helical" or the "Group")
Business & Trading Update for the Period Since 1 October 2019
Helical today provides a business and trading update for the period 1 October 2019 to 31 March 2020 ("the Period") .In view of the uncertaintycaused by the COVID-19 outbreak, we also provide an assessment of our current finances, details of the measures we are taking to assist our tenants and a note on our development sites.
Introduction
In this period of unprecedented disruption, our priority is the health and wellbeing of our colleagues, tenants and wider stakeholders. At the same time, as a result of measures taken by t he Group in recent years and the underlying strength of the markets that it operates in, we believe we are well positioned and remain confident in the long-term outlook for the business.
Robust Financial Position
Over the last few years, we have undertaken a disposal programme of all non-core assets and focused exclusively on offices in London and Manchester . This strategic decisio n underpins our current robust financial position as we face a period of a dversity .We have significantly reduced leverage to 35% at 30 September 2019, giving the Group substantial headroom on both our ICR and LTV covenants.
A more detailed analysis of our cash and loan balances is provided below under Financing, but in summary:
· We have £64m of cash deposits available to deploy without restrictions with a further £65m of cash available by drawing down on our £400m RCF; and
· We have two investment loan facilities, with current total drawdowns of £311m. These loans have no maturities for at least 21 months and an average maturity of 4.4 years, which increases to 5.9 years on exercise of options to extend the £400m RCF.
March Quarter Day Rent Collection
In the lead up to the March quarter rent day, we have been engaging positively with some of our tenants seeking solutions to their specific short-term cash flow concerns. For those in financial difficulty, we have agreed to a rent concession with the March quarter rent being paid monthly rather than quarterly. For the F&B (Food & Beverage) occupiers (1.4% of total passing rents), we have agreed to defer payment of rent to the next quarter day.
The passing rent on our investment portfolio for the March quarter was £6.7m. This compares to the quarterly finance cost payments on the investment facilities of £2.6m. As at 31 March 2020, we have collected 84% of the March quarter rents, with a further 9% agreed to be paid in instalments during the next three months. In addition, we have collected 90% of the quarterly service charge from tenants.
Development Sites
We had three sites at various stages of the development process during the Period, all in London, EC1, of which two are now complete. At Kaleidoscope, practical completion was achieved in December 2019 with 88,500 sq ft now available to let. At Barts Square, practical completion of the last residential block was achieved on 20 March 2020.
At 33 Charterhouse Street, demolition of the existing ground and basement structures has been ongoing during the Period, but has recently been halted, in line with Government guidelines. The situation is under constant review with the aim of getting back to work and progressing with the scheme as soon as it is possible to do so safely.
Dividend & Outlook
We continue to closely monitor our forecast cash flow requirements, and once our Annual Results to 31 March 2020 are available, we will consider whether a final dividend for the year to 31 March 2020 is appropriate, and if so, at what level.
At this stage we expect our earnings for the year to be relatively unaffected by the current crisis. However, we note that the RICS has issued guidance to valuers to include a Material Uncertainty clause in their independent valuations and we would expect it to apply to our year end investment property valuations.
Helical will continue to monitor the COVID-19 situation and its potential impact on both the wider economy and the Group's business. Further updates will be provided if and when new material information comes to light, otherwise we will provide a fuller update alongside our Annual Results expected to be published in May 2020.
Commenting, Gerald Kaye, Chief Executive, said:
"The New Year started with a strong sense of confidence, which was disappointingly short-lived as we now face the impact of COVID-19 which transcends the UK real estate sector. At this time, we are focused on protecting the long-term value of our business, whilst prioritising the welfare of everyone that we work with and alongside.
"If this crisis is short-lived, then we can hope that the measures the Government and the Bank of England have put in place will ensure a strong bounce back as investor confidence returns. In the meantime, we must prepare for a potentially prolonged period of lockdown as the Government seeks to contain and ultimately defeat the COVID-19 pandemic.
"Helical has a portfolio of high quality, prime offices in London and Manchester which are 83% let to a diverse range of tenants. Our main focus during the coming months is to ensure that our staff remain safe, our liquidity and finances remain strong, our assets are secured and well maintained, and we protect the future of the business."
Operational Performance
Sales
Power Road Studios, London W4, a multi-let office campus, was sold to a private UK Investment Manager for £41.58m in December 2019. The sale price marginally exceeded the 31 March 2019 book value and reflected a net initial yield of 4.8%.
In the Period, across both residential phases at Barts Square, London EC1, we sold 12 units and completed on a further 22 units where contracts had previously exchanged. Legal completions of an additional 22 exchanged units are expected over the coming weeks.
Lettings
· During the Period we have completed 14 new lettings in London, totalling 107,220 sq ft, delivering contracted rent of £8.6m (Helical's share £3.3m at 4.0% above 31 March 2019 ERV), including:
- 30,949 sq ft across three floors of The Tower, EC1, completing the letting of the whole Bower complex of three office buildings;
- At One Bartholomew, EC1 we let the final three floors of this 214,434 sq ft office building, previously sold to AshbyCapital; and
- At 90 Bartholomew Close, EC1, we let 11,807 sq ft, with this 24,103 sq ft office building now fully let.
· In Manchester, we have completed four new lettings, totalling 9,869 sq ft, generating contracted rents of £0.3m (at 1.2% above 31 March 2019 ERV).
London Portfolio
33 Charterhouse Street, EC1
Following the acquisition of this major development site in May 2019, the enabling and demolition works commenced during the Period.
Planning consent has been obtained in the Period to enhance the ground floor configuration and to add an additional floor of 13,175 sq ft, such that the property will now provide c.200,000 sq ft of office accommodation over ground plus ten floors. The demolition and construction of the offices will continue as soon as the current restrictions are lifted by the Government and it is safe to do so.
The Bower, EC1
The Bower is a landmark estate immediately adjacent to the Old Street roundabout and features 312,575 sq ft of innovative, high quality office space along with 21,509 sq ft of restaurant and retail space. The Warehouse comprises 122,858 sq ft of offices and The Studio 18,283 sq ft of offices, with 10,298 sq ft of retail space across the two buildings, all of which is currently let.
The Tower, completed in August 2018, offers 171,434 sq ft of office space with a contemporary façade and innovatively designed interconnecting floors, along with 10,761 sq ft of retail space across two units. In the Period, we have let the 12th and 15th floors to Infosys, an existing tenant, and the 13th floor to Openpayd, a financial services business. The lettings on the 12th and 13th floor were on a "plug and play" basis. Following these lettings, The Tower is now fully let.
Barts Square, EC1
In a joint venture with The Baupost Group LLC, Helical owns the freehold interest of Barts Square, a 3.2 acre site between St Paul's and Smithfield Market, consisting of 236 residential apartments, three office buildings of 214,434 sq ft, 24,013 sq ft and 10,976 sq ft together with 21,144 sq ft of retail/A3 at ground floor as well as major public realm improvements.
· In the Period we have completed on the sales of two residential units in Phase One and have exchanged contracts for the sale of a further two residential units, leaving just four apartments to sell.
· During the Period, practical completion has been achieved across the majority of the residential units in Phase Three of the development, with the final five units achieving PC in the near future. As such we have now completed the sales of 32 residential units in the Period. Legal completions of a further 20 exchanged units are ongoing over the coming weeks. There are 39 units left to sell and one additional unit to be released at a later date. The seven retail units within Phase Three have also been completed and are being marketed at present.
· At 90 Bartholomew Close, an office refurbishment of 24,013 sq ft, the building is now fully let following the completion of three lettings during the Period. The fitted second floor was let to Peakon, an existing tenant within the Helical portfolio, the third floor was let to Constantine Cannon and the sixth floor was let to Eric Salmon.
· One Bartholomew, a new 214,434 sq ft office building within Phase Two of Barts Square sold to clients of AshbyCapital, is now fully let following the letting of the third and fourth floors to BDB Pitmans and the fifth floor to finnCap Group.
· The refurbishment of 55 Bartholomew Close has been completed providing 10,976 sq ft of office accommodation. We have let the 1,040 sq ft fifth floor to Shadowfall Capital & Research, at a headline rent of £80 psf.
Kaleidoscope, EC1
Practical completion of this new office development above the Farringdon East Elizabeth Line station was achieved in December 2019. We are now actively marketing the 86,064 sq ft of office space, spread over five floors, alongside a ground floor restaurant and kiosk units.
The Loom, E1
At this 108,594 sq ft former Victorian wool warehouse, we have let three units in the Period at £55.00 psf which represents a c.4.6% premium to 31 March 2019 ERVs. The building is 96% let with four units currently vacant, of which one is under offer. We are currently assessing further asset management opportunities to reconfigure units to offer larger floorplates to complement the existing mix.
The Manchester Portfolio
The Tootal Buildings, Manchester
This 245,384 sq ft multi-let office is now fully let following the completion of the recent active asset management programme.
Trinity, Manchester
Following completion of the full redevelopment in January 2019, the repositioned building comprises 54,651 sq ft of office space and 4,300 sq ft of retail/restaurant space. During the Period, three office floors and one retail unit have gone under offer.
Fourways House, Manchester
We continue to apply our asset management skills to reconfigure existing units to create a greater range of units within this 58,895 sq ft Grade II listed former packing warehouse. In the Period, we have let a further four units representing 9,869 sq ft taking the building to 81% let. Works are ongoing on the refurbishment of the atrium and common parts and these are due to be completed shortly.
35 Dale Street, Manchester
35 Dale Street is a 55,609 sq ft office building situated in the Northern Quarter of Manchester which underwent a comprehensive refurbishment that was completed in June 2018. The property is fully let apart from one unit which has been refurbished during the Period and is currently under offer.
Financing
We have taken action to boost our cash reserves by drawing down an additional £30m under the terms of our RCF, with further amounts available should they be needed. We are reviewing our capital expenditure and overheads to minimize cash outlays and to identify where cost savings can be made.
At 31 March 2020, the Group held £64m of cash in short term deposits available to deploy without restrictions and a further £12m of rent and sales receipts collected in bank accounts available to service payments under its loan agreements.
At 31 March 2020, the Group's loan facilities comprised:
·A £400m RCF with Barclays Bank plc, HSBC UK Bank plc, National Westminster Bank Plc and Wells Fargo Bank, London Branch (together the Lending Banks), of which £230m is currently drawn down. This facility has an initial repayment date in July 2024, which can be extended to July 2026 through the exercise of two one-year extension options. The facility has a maximum LTV of 65% with a maximum draw LTV of 60%. At the current book value of its portfolio (based on September valuations plus capex since then but before any valuation movement at 31 March 2020) the LTV in the loan facility was c.44% and the Group can draw down a further £65m before reaching any of its loan covenants. The remaining £105m of the facility is available to draw down against additional assets charged to the Lending Banks.
·An £81m investment facility with Aviva Commercial Finance Ltd, fully drawn down and repayable in December 2024. The facility has a maximum LTV of 70% with a maximum draw LTV of 50%. At the current book value of its portfolio (based on September valuations plus capex since then but before any valuation movement at 31 March 2020) the LTV in the loan facility is c.49%. During the Period, we repaid £12m of the facility on the transfer of 25 Charterhouse Square, London EC1, into the RCF.
These borrowings have an average maturity of 4.4 years, which increases to 5.9 years on exercise of options to extend the £400m RCF, and a weighted average interest cost of 3.4%. The two facilities both have a minimum ICR on actual rents received of 200% each with forward looking ICRs of 150% (RCF) and 200% (Aviva).
The properties in the facilities can fall in value by 30% before the maximum LTVs are reached. Should the Group use its cash reserves to reduce the net borrowing, the properties could fall in value by 45%+ before the maximum LTVs are reached. Looking at the income covenants, the net rental income receivable has to fall by 27% before the minimum ICRs are reached. Should the Group use its cash reserves to reduce the net borrowing, the net rental income receivable can fall by 40%+ before the minimum ICRs are reached.
In addition, we have two development facilities:
·A £50m development facility with Wells Fargo Bank, London Branch, of which £38m is drawn down. The loan is repayable in July 2023 and currently has an interest rate of 3.3%. The facility has a maximum Loan to Value covenant of 60% and at current book value is c.38%. The facility does not have an ICR covenant until December 2021.
· A share of a bank facility in joint ventures of £43m of which £34m was drawn down. This facility has a maturity date of 31 December 2021 and a weighted average cost of 4.2%. The facility has a maximum Loan to Gross Development Value covenant of 55% and at the current book value is c.44%. The facility does not have an ICR covenant.
For further information, please contact:
Helical plc |
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Gerald Kaye (CEO) | Address: 5 Hanover Square, London W1S 1HQ |
Tim Murphy (Finance Director) | Website: www.helical.co.uk Tel: 020 7629 0113 |
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FTI Consulting |
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Dido Laurimore/Richard Gotla | Tel: 020 3727 1000 / schelical@fticonsulting.com
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