Helical H2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 21, 2025

There are 7 speakers on the call.

Operator

Good morning. I'm delighted to welcome everyone to Helical's annual results presentation for the year ending the 03/31/2025. I'm joined by Tim Murphy, our Chief Finance Officer James Moss, who will be taking over from James in July at the AGM and Rob Sims, our Chief Investment Officer. The agenda here sets out what we will try and cover during the course of the presentation. Having taken over as CEO in July of last year, I'm ten months in, but I'm hugely encouraged by the substantial progress that we have made in that short time period.

Operator

Perhaps I can start by reemphasizing what the company is seeking to achieve, what we said at the interims, provide detail on what has been accomplished over the financial year before talking more broadly about current market dynamics. Helical seeks to be a Central London development focused business delivering best in class, typically large scale office projects, but increasingly mixed use, alternative uses and frequently in joint ventures or through equity light structures in well located undersupplied markets in order to provide enhanced shareholder returns. At the half year, we reported on the GBP $245,000,000 of asset sales we had executed despite the muted investment market, and that as a consequence, we had fully funded development pipeline. We highlighted the emerging supply imbalance in specific submarkets and that with rising rents, now was the time to build. With our joint venture in place with TFL's property company, Places for London, we had three initial seed sites, with other sites under consideration.

Operator

We set out that we would seek further equity light structures akin to our deal at Bretnam House and that we felt this strategy meant that we were well placed to deliver substantial profits over the next few years. So how did we fare over the course of the year and what did we get done? As you can see from this time line, we had an extremely busy year overall. We had the asset sales amounting to GBP $245,000,000, which included the sale of Charterhouse Square, the Powerhouse and a 50% share in 100 new Bridge Street site and JJ Mac Building. We signed the development agreement on our equity light scheme at Bretnam House, obtained a completely new planning permission for student use at Southwark and improved the consents in place at 10 King William Street and at Paddington.

Operator

To add to this, we signed a building contract and a financing agreement, allowing us to start construction at 10 King William Street. We also forward sold 100 New Bridge Street halfway through construction to an owner occupier in a market defining transaction. We even found time to move office ourselves, which was one of the key steps to reduce our admin budget by 25%. All in all, a very productive year. So looking now at the market backdrop, how do we see things?

Operator

Well, the office leasing market remains robust for quality, amenity rich space in the low vacancy submarkets. Cushman and Wakefield's analysis of over five thirty office moves in Central London last year is clear that there is net absorption. Companies are taking more space of better quality, not less, but better. Central London active demand is 31% of the long term average and under offers 46% of the long term average. Of the 10,000,000 square foot under construction, 46% is either pre let or under offer.

Operator

And much of the five year speculative pipeline is reported by JLL as having substantial barriers to entry. Increased construction and financing costs, together with contractor and finance availability, impact development viability and deliverability. The difficulties of obtaining planning permission, assets being in the wrong hands and change of use all put a brake on the supply of office space. So the shortage in certain markets is unlikely to be fixed quickly. Tenant demand for the best space remains strong, but increased fit out costs will deter some of the active demand, particularly where regearing remains a possibility.

Operator

Whilst the capital markets remain subdued, according to CBRE, volumes have increased by 49% on the previous quarter. The reduction in the five year swap rate, increased data points and a returning interest from institutional capital against the backdrop of the improving rental growth story should see a gradual return to more normal trading volumes. So given the encouraging market dynamics and our productive year in executing transactions, I will let Tim cover how this has influenced our financial results.

Speaker 1

I want to take you through the results for the year. And later, James will take us through the group financing and the balance sheet. Looking at the results, the business has bounced back strongly after two years of yield expansion. It's profitable, the pipeline is generating realised surpluses and the balance sheet is strong. We generated an EPRA TAR accounting return of 6.3%, with the EPRA NTA per share up 5.1%.

Speaker 1

LTV is 20.9% and net debt £113,000,000 both the lowest on record with plenty of cash and available bank facilities. I will come to the dividend later. But let's look at the earnings. As expected, net rents are down on last year, reflecting asset sales and lease expiries, particularly at the Bauer and 100 New Bridge Street predevelopment. Looking elsewhere, we increased net development profits to £2,200,000 from £400,000 last year.

Speaker 1

However, for the first time, we have offset the staff costs of the development team against development profits. Others in the sector have capitalised such costs, but with a growing stream of DMVs and promotes, we believe this to be the more appropriate treatment for Helical. The resulting net administration costs, including in joint ventures and adding in performance related pay, fell from GBP 11,300,000.0 to GBP 10,900,000.0. You will all know, and Matthew has just mentioned it, that we have moved offices and reduced headcount, focusing directly on our development activities, as well as cutting back on other overheads. And we have previously stated and now reaffirm that our recurring overheads in the current year to March 26 are forecasted to be 25% less than that for the last financial year to March 24.

Speaker 1

Net finance costs were substantially down over the period, reflecting a lower average level of debt compared to last year, with the expense of restructuring our revolving credit facility treated as a non recurring item for EPRA earnings. So on an EPRA basis, we generated net earnings of £2,700,000,000 or 2.2p per share. Moving on to the non EPRA components of the income statement. The gain on sale and revaluation, mainly from 100 New Bridge Street, offset by the loan restructuring costs and the movement in the mark to market value of interest rate swaps, ended in an IFRS profit of GBP 27,900,000.0. The EPRA NTA per share of £331 at the March was increased by the EPRA EPS generated in the period, as mentioned, of 2.2p, and by investment gains of 26p.

Speaker 1

We paid dividends of 3.3p in the year, and the cost of restructuring the previous RCF and other costs reduced this metric. So, at March 25, EPRA NTA per share was 3.48p, an increase of 5.1% over the year. So turning to dividends. You will remember that we substantially reduced the dividends we declared in May and November to reflect the minimum payable under the REIT rules. And in fact, very little additional dividend is now due to be paid as it appeared under these REIT rules for this year.

Speaker 1

But in view of the overall results, the strong balance sheet and the record low level of gearing, the Board are proposing to use some of the capital profits from the sale of the JJ Mac Building to supplement the dividend payment and recommend to shareholders a final dividend of 3.5p, which would boost the total dividend to 5p, a 3.5% increase on last year's total. This final dividend will all be an ordinary dividend with no PID element. In addition, as a consequence of our success both at the JJ Mac Building and 100 New Bridge Street and expected future development gains, we have tweaked our dividend policy to note that we shall continue to anchor the distributions with the annual PID as a minimum, but will seek to distribute a proportion of realized earnings and development profits which are surplus to business requirements. In accordance with this, and as previously announced, we will use some of the net realized gains on the completion of the sale of 100 New Bridge Street next April to fund a payment to shareholders. That currently remains in the range of 50% to 100% of the realized gains, which also currently remains at the indicated level of £27,000,000 And with that, I'll hand you over to Rob.

Speaker 2

The past year has seen significant progress and growing momentum across all five of our development schemes as well as our two income producing assets. Helical's early conviction in committing to an extensive development pipeline has resulted in three exciting schemes being under construction today. Together, these schemes will deliver 460,000 square foot of best in class office space into a supply constrained market during 2026. We are also pleased to have secured important planning permissions for our next two development projects in the year, thereby enabling main works to commence on both schemes within the next twelve months. Are also thanks to the solid foundations established through our recent activities, our existing portfolio is now exceptionally well positioned to deliver strong returns as we achieve the key future milestones outlined on this slide.

Speaker 2

Turning to each asset in more detail. At 100 Newbridge Street, we were pleased to announce the exchange of contracts for the forward sale in early April. The transaction illustrates Matthew's earlier comments on the key market trends. It demonstrates both strong prime rental growth with an average ERV of £100 per square foot adopted by the purchaser and price discovery, with a 5% capitalisation rate applied when calculating the £333,000,000 net sales price. Furthermore, at a capital value of GBP 2,000 per square foot on a topped up basis, the transaction illustrates liquidity returning for best in class large lot sizes.

Speaker 2

On-site, good progress continues towards the April 26 practical completion date, with a key milestone of the structure having topped out last month. The exchange of contracts has enabled a significant portion of the profit targeted upon formation of the joint venture with Orion to be taken within the year. We anticipate further profit to be realized once the final development milestones are reached. Bretnam House is easily located by anyone walking along the Thames today, as the 1930s building is currently encased in scaffolding whilst work progresses at pace underneath. This extensive refurbishment project, when delivered in Q2 twenty twenty six, will highlight Helical's capability to sympathetically upgrade a historic building to deliver an amenity rich, modern workplace.

Speaker 2

By carefully stitching together two adjacent buildings, the newly provided 128,000 square foot office will feature five levels of external terrace, making the most of the previously underutilized sweeping views along the Thames. Initial tenant engagement has been encouraging, and the state of the general occupational market gives us confidence that the future returns on our 12,500,000.0 equity light investment will be substantial. At 10 King William Street, it has been pleasing to commence the construction on the first of the three initial schemes to be developed in partnership with Places for London. The site was formally acquired in October and the main contract and development debt facility was signed in February. On-site, the basement box and core are now formed and the main structural works will commence in June.

Speaker 2

Once completed in December 2026, we believe this scheme will push the boundaries of Helical's renowned amenity offer. This exemplary 140,000 square foot office will provide tenants with a wellness suite, business lounge and rooftop pavilion, alongside spa quality changing facilities and a revitalised shared space on Abchurch Lane. Having executed significant steps to mitigate the development risk, a number of potential occupiers have sought presentations on the scheme with a view to pre letting the whole. These occupiers are increasingly aware that core city space is extremely limited and therefore accelerating searches, demonstrating a willingness to pay premium rents to secure scarce, prime space. At Southwark, the joint venture received a resolution to grant planning permission in March.

Speaker 2

The design scheme will provide four twenty nine student rooms, all of which will be studios, in a building to be constructed above the tube station entrance. 44 affordable housing units are also to be delivered in an adjacent building. Unanimous approval was received just over a year after the joint venture decided to shift from an office led scheme to an alternative use on the site to deliver the best value. This prominent, extremely well connected site will provide exceptional student accommodation with a number of leading academic institutions easily accessed by the Jubilee line below. The site will also provide residents of both buildings with a vibrant cultural offering immediately on their doorstep.

Speaker 2

It is anticipated that the main works will start on-site in Q1 twenty twenty six, subject to obtaining the requisite gateway approvals. Discussions are progressing in relation to a potential equity light forward funding arrangement for this scheme. In light of this, the joint venture has agreed in principle with TFL to defer the site down drawdown until later in the year. This enables the partner's capital to be used more efficiently in the interim period. At Paddington, the focus remains on enhancing the existing planning consent to ensure the completed scheme satisfies the exacting requirements of modern occupiers.

Speaker 2

Consent has been obtained during the year to add external terracing to each of the 15 office floors, all of which benefit from superb views south across London. Ahead of the site acquisition in January 2026, tenders have been received from prospective main contractors and an enabling works package has been instructed to expedite the delivery programme. At the Bauer, the third to sixth floors have been significantly refurbished in the period. The fourth floor was subsequently let on a five year lease at £72.505 ahead of the original WeWork rent. The remaining floors are currently being marketed and provide a range of different types of fitted space.

Speaker 2

These floors are generating good levels of interest with a broad mix of potential occupiers interested. The flexible offering at Beyond the Bauer on the First And Second Floors has also seen encouraging uptake during the period, with all desks being utilized shortly after the year end. These floors provide valuable expansion space for existing tenants as well as enabling growth businesses to access the campus. Elsewhere in the building, Fresher have taken assignment of three floors from Farfetch, following their consolidation into the warehouse. This further diversifies the overall tenant mix.

Speaker 2

During the year, two floors did become available in the tower. Sten entered an unforeseen administration, whilst another floor saw a lease expiry. These floors now provide a mix of fitted and traditional cate space. There is just one floor in the warehouse currently vacant, which has been fully refurbished and viewings are now ongoing. All retail units continue to be occupied, adding vibrancy and footfall to the estate.

Speaker 2

Following all these movements, the vacancy rate across the campus currently stands at 19%. Going forward, the focus will be on early engagement with existing tenants to ensure the walt is extended. Encouragingly, one early lease renewal completed in the period, with open paid extending their occupation for a further five years at a rent in line with current ERVs. We continue to invest to enhance the campus with a current focus on providing greater amenity to all tenants. In particular, we're currently assessing the potential for refreshed hub area and a communal terrace.

Speaker 2

We remain confident that both buildings provide a variety of highly desirable spaces within a submarket which remains attractive to tenants. Furthermore, the quality and fitted nature of the available spaces mean we should be able to convert interest quickly. At The Loom, the team's intensive work to retain existing occupiers, accommodate internal growth and attract new tenants in a challenging market has begun to be rewarded with a vacancy rate reducing by 6% during the year. At 29%, the rate remains elevated and work continues to ensure that each of the over 40 units are best placed to meet the requirements of a diverse occupier mix. Encouragingly, there has been an increase in the number of viewings, and we remain confident that the quality of the loom will enable these to be converted more regularly in the year ahead.

Speaker 2

So in summary, positive momentum is building across each asset, ensuring the portfolio is well positioned to deliver further strong property returns. In addition, the actions taken to accelerate the delivery of the existing pipeline and the compelling market dynamics mean we are now also evaluating new opportunities. With a significant amount of activity to be undertaken in the year ahead across this exciting pipeline, I will now let James explain how it has been funded.

Speaker 3

Indeed, it has been a busy year, and we are delighted to end with the balance sheet in such great shape. The GBP $245,000,000 of sales in the year have fully funded the equity for the pipeline. In addition, we have arranged almost 500,000,000 of debt, pounds $280,000,000 of which is to fund the development of 100 New Bridge Street and 10 King William Street. Looking forward, we've started discussions with lenders to fund our development of Paddington, and we're really pleased with the level of interest we've seen so far. Our aim is to have this lined up for the beginning of next year when we draw down the site.

Speaker 3

The recent forward sale of 100 Newbridge Street should return around £90,000,000 of equity once complete. This provides us with the confidence to find and commit to future opportunities and pay meaningful returns to shareholders. Turning to the sales and year. As previously reported, the journey started in April with the sale of 25 Charterhouse Square for 44,000,000 followed closely by 50% of 100 Newbridge Street in May for 55,000,000. We then, in October, sold 50% interest of JJ Mac building to our joint venture partner, Ashby Capital, for 139,000,000, returning 71,000,000 of equity.

Speaker 3

Prior to the sale, we had let 46,000 square foot in the year, with a record rent of 115 per square foot being achieved on the Top Floor, and taking the building to 90% let at an average rent of £95 per square foot. And last, and in this case least, we sold the Powerhouse in December for £7,000,000 As you can see in the chart, the results of these sales has been to reduce our LTV and net debt to record lows. This leaves us in a great position to build out our pipeline. As previously stated, our aim is to contain LTV to 35%. Our committed CapEx would take our forecast LTV at March to just below 35%, excluding the impact of any valuation movements.

Speaker 3

But this falls materially to 16% on the completion of the sale of 100 Newbridge Street. It's not only on the property side of the business that we have been very busy. We have arranged three new debt facilities, 155,000,000 development facility was agreed with NatWest and an institutional lender to fund 100 Newbridge Street and a CHF125 million facility with HSBC to fund 10 Coongam Street. It is really pleasing to see high street lenders coming into the spec office development market in such a strong way. Both facilities have four year terms with extension options.

Speaker 3

Additionally, with both loans, there is margin step downs based on construction letting progress, with the forward sale of 100 Newbridge Street triggering a 100 basis point reduction for that facility. Finally, we have financed our GBP 300,000,000 revolving credit facility, rightsizing it to GBP $210,000,000 and resetting its maturity to three years with the ability to extend to five years. Our debt is fully hedged with a maturity of four years on a fully drawn and extended basis. We have £245,000,000 of cash in undrawn facilities, and the cost of our investment debt is low at 3.8%. So in summary, our exciting pipeline is funded, and we have a strong balance sheet with an historic low LTV.

Speaker 3

Our increasing development management fees and promotes will help cover the overheads, which are reduced by 25%. Finally, on completion of the sale of 100 Newbridge Street, we have the effect fee available for new opportunities and to return funds to shareholders. I will hand back to Matthew to explain what you can expect from Helical going forward.

Operator

So in terms of the profit potential from our development pipeline, we have recognized CHF24 million this year, but anticipate a further CHF95 million, assuming base case assumptions, but rising to CHF135 million if rents rise by just a further 5%. So there's a lot to go for. The Places for London joint venture was seeded with three initial sites, but the agreement was always designed to add further opportunities. And I'm pleased to say that we have four further sites under active discussion. This includes three mixed use sites in West London and an office scheme in Farringham.

Operator

The image on the slide shows a gap in the street frontage on Charterhouse Street, just above the market, which adjoins a vacant Places for London owned building and surplus railway land to the rear. And a detailed viability assessment is currently underway. We also continue to look for other Central London equity like transactions and have several currently under review. So looking ahead, what are we seeking to achieve? Well, we want to reduce the vacancy across the existing portfolio.

Operator

We want to see some pre leasing of the schemes under construction. We wish to forward fund Southwark, obtain debt financing for Paddington and announce further projects to the existing pipeline. In summary, we have had a busy year of deal execution, ensuring that we have the required equity for our development pipeline, which is now starting to deliver substantial profits, vindicating our early decision to build into undersupplied markets. As a trusted and transparent partner, we have access to opportunities through our excellent joint venture with Places for London and through our strong market relationships. We have expertise in structuring bespoke transactions.

Operator

We work with great partners and debt providers. And we have a reputation for delivering innovative and market leading product, which achieves premium pricing. So with an exceptional team capable of managing complex development projects across a variety of uses, we are excited about the future. We look forward to delivering on our ambitions and sharing surplus capital as our development profits come through. Thank you for attending today, and we will be happy to answer any questions that you might have.

Speaker 4

Thank you. Good morning. It's Matt Saphir from Peel Hunt. And two questions, if I may. Matthew, you obviously set out, I think in previous slide, just how sensitive your upside is to rental growth.

Speaker 4

Thinking about the comments you made about sort of pre letting interest at Tenking William Street, I mean how do you sort of manage the upside on profit versus the security of a pre let sort of somewhere ahead of practical completion on, well, I guess, that scheme and the other ones in the pipeline?

Operator

That's a very good question. I think the I think we're tanking William Street. It's an eminently pre lettable building, and it would be great to let it as one. And indeed, we have been talking to a number of single occupiers, a number of active law firms, particular at the moment, and we have RFPs, so we are in discussions. I think most of those businesses are looking sufficiently far ahead now, '28, '20 '9, etcetera.

Operator

They realize they've got twelve, eighteen months of fitting out. So those businesses that are there should be out there looking, and they are. So I think they appreciate they have to pay tomorrow's rent in order to get today's deal. So I think in that particular instance, a pre let would pay off and we'd be open to pre letting. I think with Brettonham House is probably a slightly different proposition because the building is scaffolded and sheeted.

Operator

And the views of the Thames are amazing, but not behind the scaffolding sheet. So and it's a it will be an amazing art deco building and probably best seen when finished. And the way that deal is structured, it probably makes sense to ride the rental for a bit longer, but perhaps less so on taking William Street. So it's horses for courses.

Speaker 4

Perfect. And one quick one, if I may. You talked about the four schemes that you're negotiating with, places for London with the three. How far west and how much mixed use may they be?

Operator

They're not particularly far west. I mean they're all, what I would call, Central London, just about. But I think what's interesting, when you go into these different use classes, it brings more optionality for us, particularly in terms of equity like structuring. So when you, for example, build PBSA, there is a forward sale market. And therefore, if we're putting money into planning and we're able to forward sell and we're to make decent development on profits and a relatively low amount of equity invested, those transactions are always interesting to us.

Operator

So expect more of that type of thing.

Speaker 5

It's Max Dimmo at Deutsche Numis. Maybe just on the dividend point. It's obviously great to have a positive surprise on that this morning. So thank you for that. Going forward, should we think of it as being potentially a little bit lumpy and kind of dependent on when development profits come in, I.

Speaker 5

E, it can go up and can go down? Or are you trying to kind of broadly smooth it with the profits that come through?

Speaker 1

I think inevitably, it will be lumpy. What we've tried to indicate is that we need to realize these capital profits before we're willing to use them to return surplus capital to shareholders. Very much surplus capital, surplus to business requirements, so there will be a debate internally as and when these profits are realized. But we're trying to indicate that we've got a greater focus perhaps on total shareholder return than we had in the past. We're committed to paying out the minimum PID, which we're required to anyway.

Speaker 1

There will be an additional element of earnings on top of the pit that we will use to consider where the normal dividend, if that's the way to phrase it, would be. And then there will be lumpy cash returns, again, depending on the requirements of the business. Okay, great.

Speaker 5

Got it. Thank you. And then secondly, just on Paddington, on the financing. Can you give us a rough indication, should we think of that in terms of the costings similar to where debt's been costing on some of the other projects in terms of development financing?

Speaker 3

Yes. I think that's right. It clearly is a different lot size, and we will be going to we would expect it to be from a different lender. Where our opportunity there lies probably is in rather putting an equity first, we're probably going to put the equity in Paris Passu as we go through. So I think that will help the IRR.

Speaker 3

And so yes, similar levels. Great. Thank you.

Operator

I think we have one question from that's been sent in. Could I ask about M and A plans? Thanks. We don't have any M and A plans currently. But I'm not sure there's much more we can add to that at the current moment.

Operator

But I hope that answers the question.

Speaker 1

Yes, that's the only question.

Operator

I think that's the only question. Oh, and Ben.

Speaker 6

So I'm sure everyone in the room will join me in thanking Tim for all his interactions with him over the years. I know, like me, it's been huge fun, and we wish him the best of luck for the next stage of his career and whether that behold or his retirement as it's been bad. So,

Operator

I can see what Matthew was going to say. Yeah. No. We we will miss him hugely. I mean, I've worked alongside Tim for thirty of the thirty one years he's been here.

Operator

But it's very rare you end up with a CFO who is not only highly numerate as you would wish and hope for, but he is also a very gifted wordsmith and he has been part of the team for so many years and we will all miss him.

Speaker 1

Thank you.

Operator

But I am sure we will have plenty of time. He is here until July, so we have plenty of time to raise a glass before.

Speaker 1

As I keep saying, we have just set the budgets for next year and I am determined to use all the entertaining budget in

Speaker 3

the next two months. But

Speaker 1

I feel very fortunate to have worked, a, in this industry, b, for this company and c, and probably most importantly, of course, with the most wonderful team at Helical. They are the best. They will continue to be the best. And I want to thank you all for your support in my journey, that horrible word, through the real estate sector over the last thirty one years. It's right that our gearing and LTV is at the lowest in living memory because I have the spreadsheets to prove it going back thirty odd years.

Speaker 3

It's too hard to hand over to me.

Speaker 1

So thank you very much. I know I leave the company in fantastic shape and also with an amazing team. So it's safe in their hands. Thank you.

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Key Takeaways

  • Helical reiterates its strategy to focus on Central London development of large-scale office and mixed-use projects, often delivered via joint ventures and equity-light structures in undersupplied submarkets to drive enhanced shareholder returns.
  • During the year the company executed £245 million of asset sales—including Charterhouse Square, Powerhouse, a 50 % share in 100 New Bridge Street and JJ Mac Building—which fully funded its development pipeline and supported a 25 % reduction in admin costs.
  • Financially, Helical delivered an EPRA TAR return of 6.3 %, saw its EPRA NTA per share rise 5.1 % to £3.31, and reached record‐low gearing (LTV 20.9 %, net debt £113 million), culminating in an IFRS profit of £27.9 million and proposed a total dividend of 5 pence (+3.5 %).
  • The development pipeline gained momentum with three schemes now under construction set to deliver 460,000 sq ft by 2026, highlighted by the forward sale of 100 New Bridge Street at a £333 million net price (5 % cap rate) and planning or construction progress at Bretnam House, 10 King William Street, Southwark and Paddington.
  • Helical points to robust tenant demand for high-quality, amenity-rich space amid constrained new supply, and with £245 million of cash and undrawn facilities plus nearly £500 million of new debt arranged, it remains well-funded for future opportunities and shareholder returns.
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Earnings Conference Call
Helical H2 2025
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