Release Date: November 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Helical PLC (LSE:HLCL, Financial) has a strong development pipeline with 460,000 square feet of office space under construction, expected to be delivered in 2026.
- The company has successfully recycled GBP245 million of equity, resulting in a see-through loan to value of 15.9%, providing sufficient equity to fund its development pipeline.
- Helical PLC (LSE:HLCL) has a strategic joint venture with TfL's property company, Places for London, which is progressing well and offers first options on commercial sites.
- The company has a proven track record with over 46 joint venture partners, delivering over 10 million square feet of space, and plans to continue leveraging partnerships for future projects.
- Helical PLC (LSE:HLCL) has a strong balance sheet with a pro forma LTV of 15.9% and sufficient cash to fund its equity contribution to its development pipeline.
Negative Points
- Net rents are down compared to last year due to the loss of key tenants and recent sales, with expectations of continued reduction in the second half.
- The time taken to obtain planning permission remains a significant obstacle, affecting the viability of new build schemes.
- The company faces challenges in the current office market dynamics, with a constrained supply of new office space due to high build costs and the availability and cost of debt finance.
- Helical PLC (LSE:HLCL) has reduced its dividend to the minimum payable under REIT rules, reflecting the company's cautious approach to cash flow management.
- The company is experiencing pricing pressure in certain submarkets, such as Whitechapel, due to high vacancy rates in neighboring areas.
Q & A Highlights
Q: Can you discuss the bandwidth for future equity-light opportunities and the potential value creation from ERV growth on your projects?
A: We have plenty of bandwidth for future projects, having managed seven major projects in the past. Currently, we have three underway and two more in the pipeline. We've recruited capable individuals for development management and can recruit more if needed. Regarding ERV growth, at September 30, there was about 5% growth over six months for 100 New Bridge Street. - Matthew Bonning-Snook, CEO and Tim Murphy, CFO
Q: Should we expect equity-light deals to focus on office space, and what is your comfort level with leverage?
A: While our expertise is in office space, we are open to equity-light structures in other sectors, as demonstrated by our student housing project in Southwark. We are comfortable with leverage up to 35%, similar to our larger peers, but would consider recycling equity to manage gearing if necessary. - Matthew Bonning-Snook, CEO and Tim Murphy, CFO
Q: Can you comment on rental growth at Old Street and The Bower, and whether it is plateauing?
A: The Old Street market has experienced oversupply, with about 12% vacancy, which has held back rents. However, The Bower remains a prime asset, and we are optimistic about the market as public realm improvements and tech sector demand increase. - Matthew Bonning-Snook, CEO
Q: How will you manage rising building costs on current projects under development?
A: We are seeing construction costs moderate to about 2-3% per annum. We focus on efficient design and prefabrication to control costs, working closely with contractors and the supply chain to fix costs before entering contracts. - Tim Murphy, CFO
Q: What are your thoughts on the existing portfolio and potential CapEx needs to maintain pricing power?
A: At The Loom, CapEx is low due to its listed status and simple heating and cooling systems. At The Bower, we are addressing higher CapEx needs from WeWork fit-outs, but overall, we are turning the corner with positive developments in occupancy and desk rates. - Matthew Bonning-Snook, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
