Good morning, everyone, and welcome to Helical's half-year results presentation to the 30th of September, 2024, my first as CEO. Thank you for coming, and thank you also to those joining online. We very much appreciate it. I would like to start this morning by providing an overview of what we see as a really interesting market opportunity and how Helical is well placed to take advantage of this opportunity, as well as give some commentary on what we are seeing in the Central London office market. Tim will run through the details of the financial results, and James will cover the sales and progress made on the investment portfolio. I will then talk through our exciting development pipeline before providing a concluding summary and taking any questions at the end.
Following the outward yield movement experienced since March 2022, we now seem to be at an end with the first two cuts in the Bank of England base rates enacted and further reductions expected, albeit seemingly more slowly since the recent budget. Our steady valuations support this with no change to the reported NTA figure, but given the market dynamics that we are seeing on the ground, it feels like we're at an inflection point, and we see a significant opportunity to create shareholder value. We have recycled some GBP 245 million of equity, principally through the sale of our share in the JJ Mack Building, bringing in a joint venture partner at 100 New Bridge Street, and through the sale of 25 Charterhouse Square.
In aggregate, these transactions have been done at a £10 million profit over March 2024 book values, the result of which has meant that we now have a see-through loan to value of 15.9% and, importantly, sufficient equity to fund our share of the development pipeline. Tim will provide some further color on this later. Now is the time to build. It is widely recognized that there'll be a shortage of supply of the much in-demand, best-in-class office space from 2026, and if you haven't already started building, you will not be delivering into 2026. We have 460,000 sq ft in joint venture being delivered in 2026 across three schemes in strong sub-markets, and we are very encouraged by the interest being shown and the rent levels being actively discussed and agreed on pre-lettings in the marketplace.
We expect to see average pre-let rents of £100 plus being achieved on new schemes very soon. We have a strategic joint venture in place with TfL's property company, Places for London, which is going very well, and we have started on the first of those schemes at 10 King William Street, above the new entrance to Bank Station. We see this partnership as a key pathway to future schemes as the joint venture provides for a first option over their commercial sites. We will continue to focus on the Central London office market, but as demonstrated by our plans for student scheme at Southwark, we will not limit ourselves to offices. We also intend to supplement our development program with further equity-light structures such as the Brettenham House transaction and through restructuring transactions such as Southwark to make our equity work harder.
As a business, we see ourselves as Central London development specialists. We have a highly experienced team with a proven track record in delivering profitable schemes, and we intend to work with partners to produce the best value uses on any given opportunity, given our broad skill set. We have worked with over 46 joint venture partners to date, delivering over 10 million sq ft, and we will continue to work with great partners to create best-in-class projects delivering in a period of very low supply, as we see this as a significant opportunity to create value. Touching on the current office market dynamics, we are now expecting Central London take-up to be back to the 10-year average, with 3.5 million sq ft currently under offer.
61% of this under-offer space is pre-let, newly built, or refurbished, and 44% of the space under construction is pre-let, underpinning the flight to quality. Active demand at 12.7 million sq ft is up 35% from the 10-year average, and JLL are predicting 3.8% annualized rental growth going forward and more for what is being termed Super Prime, which is, in essence, the space that we seek to deliver. From a thematic viewpoint, we are seeing occupiers take more space more often than less as they seek to provide an environment that is better suited to new ways of working where spaces are provided for different types of working activities. While fit-outs are costing more, the stay-put and extend option is not always possible at lease expiry.
The supply of new office space is constrained as scheme viability is affecting many projects due to high build costs and the availability and cost of debt finance, and many buildings reaching lease end are being lost to alternative uses. The time taken to obtain planning permission remains a severe obstacle as policy supports a retrofit-first reuse of existing structures, and hence new build schemes take a long time to justify. JLL report that there is just under 10 million sq ft of space currently under construction and available to be delivered in the period to 2028, and the annual take-up of pre-let, newly built, or refurbished space is just over 6 million sq ft, hence a significant undersupply. I will now hand over to Tim to clarify on the numbers.
Thank you, Matthew. Before I start, it seems the previous occupants of the room have left a bit of their detritus behind. Mr. McGann left that against my name over there, so if anybody wants to collect it and return it to him, feel free. Well, as winter approaches, weather-wise at least, the question is whether winter has ended in the London office market. Market commentary seems to think so for the best-in-class offices, and we've certainly had a good six months progressing the strategy agreed by our board earlier this year. Now, Matthew has outlined the improved conditions for our chosen markets, particularly with regard to leasing, but how has this impacted on Helical?
Looking at slide seven, we can see a return to profitability leading to increased earnings and steady valuations, contributing to an unchanged EPRA NTA, with a much-strengthened balance sheet and net debt, as Matthew has already said, on a post-half-year end pro forma basis down to GBP 77 million and an LTV of just 15.9%. We'll look at many of these metrics on this slide in the rest of the presentation. Turning to slide eight and the EPRA and IFRS profit for the period. As expected, net rents are down on last year, reflecting the loss of WeWork this time last year, the ending of the lease to Baker McKenzie at 100 New Bridge Street prior to its redevelopment, and the sale of 25 Charterhouse Square, offset in part by the impact of letting progress at the JJ Mack Building.
Now, this reduction in net rents is expected to continue in the second half with the recent sales of the JJ Mack and the Powerhouse. Looking elsewhere, we turned a development loss into a small development profit, reflecting the start of development management fees at 100 New Bridge Street. These fees will be supplemented by additional fees from the Brettenham House and 10 King William Street developments in the second half and going forward into future years with the other TfL schemes. Recurring administration costs, including in joint ventures, plus a provision for performance-related pay, fell from GBP 5.8 million to GBP 5.4 million, and we remain on course to reduce the recurring overheads by 25% by the end of this financial year.
Net finance costs were substantially down over the period, reflecting a lower average level of debt compared to last year, with costs 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 GBP 2.8 million, or GBP 0.0225 per share, compared to GBP 1.4 million, or GBP 0.0115 last half year. Moving on to the non-EPRA components of the income statement, the gain on sale of 100 New Bridge Street, offset by the loan cancellation costs and the movement in the mark-to-market value of interest rate swaps, ended in an IFRS profit of GBP 4.7 million. With regard to the level of dividend on these results, you will recall that we substantially reduced our final dividend in May to reflect the minimum payable under the REIT rules.
The interim for this year reflects the same policy, and at GBP 0.015 is the minimum payable under the REIT rules based on the first half performance. This dividend is fully covered by earnings in the period. Turning to slide nine, the EPRA net tangible assets per share of GBP 3.307 at the end of March were increased by the EPRA earnings per share generated of GBP 0.0225 and by investment gains of GBP 0.075. Dividends paid in the half year of GBP 0.0178, the costs of cancelling the previous RCF, and other costs reduced the EPRA NTA per share. So, at 30th of September, it sits at GBP 3.309, essentially unchanged. Looking at our LTV and gearing on slide 10, we again see a history of these ratios over the last decade or so.
Since the year-end, the sales referred to earlier have reduced net debt to the lowest level in the company's history, and as we say, an LTV of 15.9%. You can see the impact of recent sales on our gearing levels with LTV at 31st of March of 39.5%, down to 31.5% at the end of September, and now 16%, just under. Of course, with a substantial new development pipeline underway, there will be upwards pressure on these metrics, and we will look at the impact of the planned expenditure over the next 18 months shortly. Over the medium term, we will look to contain our group LTV to a broad range of 15%- 35%, depending on the timings of expenditure and any future sales.
Turning to slide 11, we again reduced our total debt facilities during the half year as it became clear we would not use all of the available revolving credit facility at the time. Reflecting this reduction, the average cost of debt at 30th of September increased marginally to 3%, and subsequent to the transaction since the 30th of September, the average rate has increased to 3.2%. However, the new GBP 210 million RCF has increased the average maturity date of all the facilities to 3.1 years, and this is extendable by exercising at our option two one-year extensions of the new RCF, which, if exercised, would take the maturity of that facility out to 2029, five years from now.
Turning to slide 12, all of our current borrowings are protected by interest rate swaps, and this interest rate protection covers our main investment debt for the next four years and for the four years of the facility financing the development of 100 New Bridge Street. Slide 13 notes the committed and planned CapEx at 100 New Bridge Street and Brettenham House and under the joint venture with Places for London. We've indicated on the schedule where we expect to use our own funds and where bank finance is expected to finance the development expenditure. For example, at 100 New Bridge Street, we don't have any further equity requirements with future CapEx all funded by the development facility we signed in May.
At 10 King William Street, we've already paid GBP 32 million of the GBP 42 million shown here when the site was acquired in early October, but have a further GBP 10 million of equity to invest before the bank debt starts to be drawn down. And at Southwark, Matthew is seeking an alternative use for the site, which could obviate the need for any funding at all from Helical.
So, with the sale of the JJ Mack Building, we now have the funds in place to provide our equity contribution to all the schemes in the current pipeline. Looking at our capital commitments and our group LTV on page 14, we can see the impact of the committed expenditure on the group's LTV for the 18 months to the 31st of March 2026, which reflects the site acquisitions of 10 King William Street, which we've already done, Southwark, and Paddington.
This forecast proforma LTV is just over 26% at March 2026, but of course, it's before any further recycling of equity through any future sales of existing assets or any valuation movements. So, in summary, on page 15, we've got a balance sheet that's in very good shape with a proforma LTV of 15.9% and sufficient cash to fund our equity contribution to our development pipeline. We have a deep pipeline of development opportunities, but are looking to supplement these with additional equity-light schemes. The debt on our investment portfolio is all fixed to an average cost of 3% to October 2028. And looking forward, we've taken action to reduce our overheads by 25% by next year, and we'll continue to maintain discipline, recycling equity, and using third-party financing to fund our activities. And with that, I'll hand you over to James.
Thank you, Tim, and good morning, everyone. Across the investment portfolio, we have let 71,000 sq ft, 1.4% above March ERVs. In line with our strategy of disposing of stabilized investment assets to recycle the equity into new development opportunities, once the sale of Powerhouse completes, we will have sold four assets totaling GBP 245 million. The most recent of these was the sale of the JJ Mack Building and our 50% to partner Ashby Capital. This sale completed after the period ended on the 31st of October. At this time, the building was 90% let, with a contracted rent of GBP 17.4 million, of which our share was GBP 8.7 million.
Having let 46,000 sq ft of space in the period, the average office rent was GBP 95 per sq ft, almost 20% above the original appraisal when the building was acquired in 2019, with the highest rent being achieved on the top floor at GBP 115 per sq ft, a record for the area. The sale price was GBP 278 million, of which our share was GBP 139 million, and following the extinguishment of the debt, it returned GBP 71 million of equity to the business. This sales price represented a valuation yield of 5.35%, discounted by 50 basis points to 5.85% to reflect disposal of a half share rather than the whole. Whilst the returns were adversely impacted by COVID and the significant outward yield shift last year, the development still achieved a total profit of GBP 23 million.
The building has been awarded a final BREEAM certification of Outstanding with a score of 96.4%. It is the highest office building in the U.K. and sets the benchmark for our three office schemes currently under development. As previously reported, in May, we sold 50% interest in 100 New Bridge Street to Orion Capital Managers for GBP 55 million. At the same time, we entered into a GBP 155 million development facility with NatWest and an institutional fund. This will fully finance the capital expenditure and finance costs for this development. Alongside this, we signed a fixed price contract with Mace, and construction is progressing well. Matthew will talk more about this exciting development later. In April, we completed the sale of 25 Charterhouse Square to Ares for GBP 43.5 million, with the proceeds from the disposal used to pay down the RCF.
We originally acquired this building in 2016, and within two years, we had completed a refurbishment and fully let it with a blended rent of GBP 75 per sq ft. When compared to the GBP 95 achieved at JJ up the road, this shows the level of rental growth in the submarket. Our final sale, that of the Powerhouse in Chiswick, has exchanged for a price of GBP 7 million , with completion expected shortly. Turning to The Tower at The Bower, following the decisive steps taken last year to full-fit the WeWork leases on the first six floors, we appointed Infinit Space under the brand name beyond The Bower to manage our service office provision on the first and second floors. They were able to attain 87 WeWork members and have made good progress since then, and we are now 62% let.
Floors four, five, and six have been refurbished on a fully fitted basis, and the fourth floor was pre-let. The fifth and sixth have just come to the market, and the space presents very well. The third floor, occupied by Stripe, is undergoing a lighter refurbishment, but also on a fully fitted basis. On the 13th floor, we are pleased to retain OpenPayd, whose lease was due to end in February next year. This despite strong competition from the other schemes in the area. We agreed a new five-year lease with a three-year break at March ERV. Finally, we are pleased to welcome Fresha to the building. The global online booking platform has taken the assignment of floors seven, eight, and nine from Farfetch. At The Warehouse, Farfetch have consolidated into their three remaining floors following a well-publicized corporate acquisition and recapitalization by Coupang.
We have commenced the fit-out of the seventh floor that was previously let to Stripe, and we expect this to complete mid-December. The Studio remains fully let. At The Loom, our 108,000 sq ft Whitechapel building, we continue to work hard to reduce the vacancy created by COVID and the related tenant failures. We have made good progress in the period to date, with eight new lettings totaling over 16,000 sq ft and five lease renewals. However, the short-term nature of the leases in this building means there is constant asset management activity required, and this will remain a key area of focus for us. But the building presents well, and we are encouraged by the current level of lettings. Looking at the investment portfolio as a whole and following the disposals, the ERV is now GBP 29 million, with a contracted rent of GBP 22 million.
This income provides a valuable cash flow to the business, and we are working hard to advance this through letting the vacancy and capturing the reversion. I now hand back to Matthew, who will talk you through the current and future development pipeline.
Thank you, James. As I mentioned, we have 460,000 sq ft of great space with lots of amenity under construction for delivery in 2026. At 100 New Bridge Street, this will meet the highest sustainability credentials with a retained frame and hence a much reduced embodied carbon footprint. The views of St. Paul's, which you've seen from the opening slide from the shared terrace, will never be interrupted due to the strict St. Paul's viewing corridor policy. It is situated on an island site between Farringdon and Blackfriars Station and adjoining Thameslink, with typical floor plates of 25,000 sq ft. Our intention is to pre-let the building prior to practical completion, and we are seeking to achieve a level IRR of 15%, a profit on cost of 21%, and a yield on cost of 7.6%.
Given the preferred equity structure of the deal, the profit could sit very much either side of these numbers, depending upon the letting and sale outcome, but we are very confident of its prospects. We have now signed our development agreement with respect to Brettenham House, a 1930s heritage asset, and construction is underway. We are reinstating some of its beautiful Art Deco features and creating characterful space at this iconic building opposite Somerset House on Waterloo Bridge.
It sits south of Covent Garden with amazing river views stretching in both directions, visible from the ample terracing and the office space. We will invest GBP 12.5 million during the course of the project, and we receive a GBP 2.5 million development management fee as well as a profit share based upon the rental performance. We are aiming to achieve a two-times multiple on our equity following the successful letting of the space.
This is a good example of the type of equity-light deal structure that we seek to do more of, as it suits many owners that their development partner has skin in the game. At 10 King William Street, we are now on-site, having significantly improved the original planning permission, creating better terracing, end-of-trip and arrival experiences, together with a shared space on Abchurch Lane. Another island site with light on all four sides, with typical floor plates of 22,500 sq ft, it is a very pre-lettable product. We're in the process of finalizing the main contractor appointment and our financing agreement, which we hope will be complete by January, and Keltbray continue on-site through to March next year on the basement and core construction. We are seeking to achieve a level IRR of 13.4%, a level profit on cost of 21%, and a yield on cost of 6.7%.
The site at Southwark Tube Station, within the Places for London joint venture, benefited from a planning permission for 220,000 sq ft of offices in a 17-story scheme. We have subsequently worked with our partners in Southwark Borough Council promoting the scheme and in September submitted an application for an all-studio, 429 purpose-built student unit scheme of 14 stories with 44 affordable housing units and a community facility. We're hoping to receive a resolution to grant planning permission in Q1 of next year in advance of the site purchase. Our intention is to forward fund this project, delivering it for an investor, demonstrating another equity-light model approach. We are aiming to deliver a return to Helical of GBP 21 million, which would be an equity multiple of about 4.5 times.
At Paddington, we have gained consent to greatly improve the scheme, introducing individual terraces at every office level and extending the end-of-trip facilities. We are looking to carry out enabling works next year in order to reduce the overall build program. The site benefits from being superbly located above Paddington Station, next to the canal at the link between Paddington Central and Paddington Basin. The amenity in the area has significantly improved over time, and the supply and demand dynamics are such that the submarket is seeing substantial rental growth.
The site is to be purchased in January 2026, and we expect completion in January 2029, with a project delivering an estimated profit of GBP 28 million and a target yield on cost of GBP 6.6 million. Our base case scenarios anticipate profits of over GBP 100 million, plus development management fees of circa GBP 10 million from the current pipeline. With 5% growth added to the ERV, the profits increase to GBP 148 million, and with 10% growth, GBP 180 million. These are actual growth percentages, not annualized growth. So as we near the halfway point of my first year as CEO, I'm really encouraged by the progress we have made, recycling equity, and reducing our gearing to the lowest it has ever been.
We have an exciting funded development pipeline set to deliver over GBP 100 million of profits with significant upside potential. We have vacancy within the existing portfolio, which once let should add a further seven million to our income. We have a great strategic partner in Places for London, providing options on future opportunities and a highly experienced team capable of delivering a wide variety of projects. We're going to continue to work with third-party capital in joint ventures and look at further equity-light transactions to enhance shareholder returns.
We are focused on what we need to achieve, and we are all extremely excited by the opportunity that we see in front of us, and now we'll take questions. I think we have one online, but should we open to the room first? Matt.
Morning, it's Matt Saperia from Peel Hunt. Can I ask two questions? The first one is about the bandwidth for the future equity-light opportunities. How much scope do you think you've got to add projects to your roster? And the second question is on the penultimate slide where you sort of talk about the potential value creation upside from ERV growth. On the projects that you've now started, how much ERV growth have you seen on the external valuation over the last six months? Just to put those numbers into context, please.
Okay, in terms of general bandwidth, I think we had a particularly busy period in sort of 2012, 2013, doing about seven major projects. We've got three underway at the moment. We've got two further coming down the line. So I think we've got plenty of bandwidth. We've recently recruited on the development management front with two very capable individuals. We can easily recruit more, but I think we've got plenty of bandwidth generally.
Yeah, I think in terms of ERV growth to date, as at 30th of September, there was really only 100 New Bridge Street on the books, and so in the case of that particular scheme, there was about 5% ERV growth over the six months.
Hi, yeah, Max Nimmo at Deutsche Numis. Maybe just a quick to follow up a little bit on that point about firepower and things as well in terms of equity-light deals. A couple of questions. Firstly, should we expect that these kind of deals will be predominantly focused on the office space where you have obviously most of your expertise, obviously noting the fact that you've got PBSA potential forward funding at Southwark? And secondly, I guess just to put a kind of number on it, where would you be comfortable taking the leverage to in terms of that firepower, given where we are in the cycle now, sort of trough valuations and things like that? I know you've given a guide that you'll be at 26% LTV by FY 2026. How high would you be comfortable taking it? Thanks.
Okay, just answering the first question. I think, I mean, Brettenham is an example of an office equity-light deal, but equally, we've turned an office scheme under the portfolio of the Places for London joint venture into a PBSA equity-light scheme. The way that's structured is clearly that that particular sector suited to a forward funding model, so if we can replicate that again, it would be something that we'd be very keen to do. So I think wherever we can, whatever use it might be, we will look at further equity-light structures, not just purely in the office market. Clearly, our background and more recent experiences is Central London offices, having built 6 million sq ft in Central London in 34 different projects, but we have built 10 million sq ft over the 30-year period that a number of us have been there.
We've built everything from retirement villages to industrial to retail to high-end residential at Barts. It's a great opportunity to use the talents of the team to make sure that we can be in different areas because it won't always be the right time to build office buildings.
And in terms of gearing levels, I think we've indicated that we'd go up to 35% today in terms of where we're comfortable going to. That probably is where a lot of our larger peers are currently at anyway. But of course, the risk profile of a mainly development company is greater, perhaps, than one with a very large investment portfolio with development. I think we'll stick to that at the moment in terms of where we would take it to. But that doesn't mean that if an opportunity came through the door that we want to take and we need to invest in it, that we would turn it away. We'd look to do it and then maybe recycle equity out of something else to bring the gearing level back down.
Miranda Cockburn from Berenberg. Could you just talk a little bit about rental growth up at Old Street and the Tower, the Bower, what you've seen over the last six months, how you see that moving forward? Because obviously, you had a lot of rental growth a while back. Is it plateauing, I suppose, is the question?
I think it's that that submarket has experienced a bit of oversupply. We're sort of about 12% vacancy up in that market at the moment. So that has probably held back rents recently. However, there are very few really good assets in the area. I mean, I would say The Bower is probably the best. We probably would say that, but there's White Collar Factory, Featherstone. Those are the key buildings. I think that you'll continue to see vacancy in a number of other assets up there, which are just not as well located. I think you have to, you know, The Bower has been through a period with WeWork and with Farfetch and Stripe leaving, but it's also been undergoing a huge amount of change from the public realm perspective. So the experience of arrival at Old Street Station has been pretty dire.
Now the experience is hugely different coming out with very extensive public realm because the roundabout's been peninsulized and you come out of the station and looking directly at The Bower. So I think everything is pointing to things getting a lot better. We're fitting out those WeWork floors and Fran has pre-let one of them already and we've just launched the other two last week and we've got the third floor coming back. So we're positive about that market. The tech market does seem to have got a lot busier again. The other benefit is that with those tech operators, it tends to be when they have a requirement, they want to move quite quickly. So it's often, you know, it's a three-month transaction to do a deal rather than others, which can take quite a bit longer. So we're a lot more optimistic.
Hi, Tim Leckie from Panmure Liberum. Just on the existing portfolio, the bullish story on the new build and the supply-demand dynamic, if we just set that aside and take that as holding true, I was wondering if you could perhaps make some comments on the existing assets and how that prime rental growth might translate through, and particularly if there's any one building where you see or are concerned about future CapEx to maintain its pricing power as we see the gap between prime and secondary rents potentially increase further, if that makes sense.
Starting, I mean, at The Loom, the Whitechapel market has got a relatively low vacancy rate, but it sits next to Aldgate, which has got quite a high submarket. So that's been under sort of pricing pressure. But we've responded to that with dropping the rents to the right level. From a CapEx perspective, it's very low. It's a listed building. It's got a fairly domesticated form of heating and cooling. So it's not CapEx heavy. And so we can cope with that churn. I think on The Bower, most of those floors were let when the building was complete. And some of those that WeWork fit out in particular was not of the quality that we had hoped. So the CapEx has been higher on those floors in order to reposition them and put them back onto the market.
What we are finding is when there are floors that have been taken by occupiers and done their own fit-out and they have come back, in this case, Stripe, for example, on the seventh floor of The Warehouse, the fit-out was very good. And we agreed the right dilapidations outcome. And so there's been relatively little CapEx because we've used their furniture. We've repositioned it as a fitted solution. So that's worked out much better. So I think we're working through the WeWork issue. We're getting there. We've got obviously beyond The Bower in the first and second floor, we've got 62% occupancy there. And that's rising and desk rates are rising, which is positive. So I think we're in a good place. Having been in quite a difficult place, I think we're very much turning the corner now.
Thank you.
I think there's one question online from a John Gilbert. Can you talk about how you will manage rising building costs on the current projects under development?
Yeah, I think with construction costs, we have seen them moderate, sort of more along the lines of about 2%-3% per annum. What we spend a lot of our time doing is working with the supply chain in how we design things and how we make builds more efficient. Matt was up in Coventry recently looking at hugely prefabricated M&E solutions. So that's another way one can actually contain costs because if you've got product being made in a factory by fewer people in nice clean conditions, actually costs can be much more tightly controlled than if you've got lots of labor from different services on site trying to fit a solution, and that's much more complicated.
It's about a good relationship with our contracting partners, looking through to the supply chain, bringing them in early in terms of design to make sure that we can keep a check on costs. And obviously, we're working with our contractors to make sure that before we're into contract, we are actually fixing costs to as high a percentage as possible. Good. Well, I think thank you all for coming. I think we'll bring it to a close. Thank you.