Helical : Report (6.66Mb PDF)

Helical plc

Annual Report and Accounts 2022

We create sustainable and inspiring workplaces which are technologically smart, rich in amenities and promote employee wellbeing.

Applying this philosophy we seek to maximise Shareholder returns through delivering income growth from creative asset management and capital gains from our development activity.

Strategic Report	Governance	Financial Statements	Additional Information
2	86	135	178

2	Highlights 2022	86	Chairman's review	135	Independent Auditor's	178	Appendix 1 -	Find out more online
4	Chief Executive's statement	88	Board of the Directors		Report to the Members		See-through analysis	Please see our newly
8	Our market	93	Corporate governance		of Helical plc	181	Appendix 2 -	launched website for more
14	Our investment case		report	141	Consolidated Income		Total Accounting Return	information on how we
16	Strategy	99	- Nominations Committee		Statement		and Total Property Return	bring our strategy to life.
20	Business model	106	- Audit and Risk Committee	141	Consolidated Statement	182	Appendix 3 -
22	Key performance indicators	110	- Directors' remuneration		of Comprehensive Income		Five year review	helical.co.uk
26	Our portfolio		report	142	Consolidated Balance	183	Appendix 4 -
37	The property portfolio	132	Report of the Directors		Sheet		Property portfolio
	in numbers	134	Directors' responsibilities	143	Company Balance Sheet	184	Appendix 5 -
40	Financial review		statement	144	Consolidated Cash Flow		EPRA performance
46	Risk management				Statement		measures
56	Sustainability at Helical			145	Consolidated and Company	186	Glossary
74	Our stakeholders -				Statements of Changes	188	Shareholder information
	Section 172(1) Statement				In Equity	189	Financial calendar
				146	Notes to the Financial		and advisors
					Statements

Highlights

These results were driven by growing rental income and strong valuation surpluses from both our completed development schemes, now held for long-term income growth and future asset management opportunities, and our schemes under development."

Highlights 2022

Report Strategic

Financial highlights

IFRS Profit after tax

£2021: £17.9m88.9m

EPRA net tangible asset value per share1 up 7.3%

572p31 March 2021: 533p

15.0%	Total Accounting Return1
on IFRS net assets of 15.0%
(2021: 3.3%).
10.7%	compared to the MSCI Central
	Total Property Return1, as
	measured by MSCI, of 10.7%
	London Offices Total Return
	Index of 7.9%.
36.4%	See-through loan to value1
increased to 36.4% (31 March
2021: 22.6%).
£938.8m	IFRS investment property
portfolio value of £938.8m
(31 March 2021: £740.2m).

Operational highlights

c.185,000 New acquisition

Major boost to the development pipeline with the acquisition of

square feet100 New Bridge Street, EC4. Delivery of a c.185,000 sq ft

office scheme planned for early 2025.

£34.55m Manchester sale

Trinity, our last remaining asset in Manchester, sold for £34.55m, at a net premium of c.£2.0m

to our 31 March 2022 book value and representing a net initial yield of 5.0%.

95.8% Rent collection

95.8% of all rent contracted and payable for the financial year collected with 2.2% to be collected following the end of the Government's general moratorium and 2.0% having

Sustainability highlights

Net Zero Carbon Pathway Helical's "Net Zero Carbon Pathway" published 24 May 2022 setting out our commitment to becoming a net zero carbon business by 2030.

Climate Commitment Better Building Partnership's Climate Commitment adopted, providing an accountable and transparent framework for delivering net zero carbon for a property portfolio.

4*	Sustainability rating
Improvements across
sustainability measures and
ratings with a 4* Green GRESB
	rating (85/100), MSCI ESG of
	AAA and an EPRA Sustainability

Earnings and dividends

• See-through Total Property

Return1 of £89.5m

(2021: £48.6m).

Balance sheet

• Net asset value up 13% to

£687.0m (31 March 2021:

£608.2m).

Financing

• Average maturity of the

Group's share1 of secured debt

of 3.0 years (31 March 2021:

Portfolio update

• 7.0% valuation increase, on

a like-for-like basis1 (5.6%

including sales and purchases),

been written off or agreed concessions.

BPR rating of Gold.

• IFRS basic earnings per share

of 72.8p (2021: 14.8p).

• EPRA earnings per share1

of 5.2p (2021: loss of 1.8p).

• Total dividend for the year

of 11.15p (2021: 10.10p),

an increase of 10.4%.

• Final dividend proposed of

8.25p per share (2021: 7.40p),

an increase of 11.5%.

• Total Accounting Return1

on EPRA net tangible assets

of 10.2% (2021: 4.5%).

• EPRA Total Accounting Return

on CAGR1 for three years

ending 31 March 2022 of

7.8% (2021: 7.2%)

• EPRA net disposal value

per share1 up 13.6% to 551p

(31 March 2021: 485p).

• Helical elected to become

a REIT, effective 1 April 2022,

and will be exempt from UK

corporation tax on the relevant

future property activities.

3.2 years), increasing to 3.7

years on exercise of options

to extend current facilities

and on a fully utilised basis.

• See-through average cost

of secured facilities1 of 3.2%

(31 March 2021: 3.5%).

• Group's share1 of cash and

undrawn bank facilities of

£132m (31 March 2021: £423m).

• Change in fair value of

derivative financial instruments

credit of £18.0m (2021: £2.9m).

• See-through net borrowings1

of £402.9m (31 March 2021:

£193.9m).

of our see-through investment

portfolio, valued at £1,097.3m,

compared to £839.4m at

31 March 2021.

• Contracted rents of £46.4m

(31 March 2021: £37.8m)

compared to an ERV1 of £67.1m

(31 March 2021: £52.1m).

• See-through portfolio WAULT1

of 5.6 years (31 March 2021:

6.9 years).

• Vacancy rate reduced from

10.5% to 6.7%.

• Practical completion of
  33 Charterhouse Street, EC1, a 205,369 sq ft BREEAM "Outstanding" office development, on track
  for September 2022.
• 14 residential units at Barts Square sold in this 236 unit residential scheme, leaving
  14 apartments available at the year end of which one has since been sold and two are under offer.

• 55 Bartholomew, EC1, sold for £16.5m (our share £7.6m), at a 3% premium to 31 March 2022 book value, reflecting a net initial yield of 4.5%.
• 12 new lettings completed across the portfolio, totalling 54,118 sq ft, delivering contracted rent of £3.3m (Helical's share £3.0m) at 1.8% above the 31 March 2021 ERV (excluding managed lettings).

96%	Developed or refurbished
96% of the space in our
buildings has been recently
developed or refurbished

(excluding 100 New Bridge Street, EC4) with 99% of our investment portfolio, by value, having an A or B EPC rating.

1 See Glossary for definition of terms. The financial statements have been prepared in accordance with International Accounting Standards (IAS) in conformity with the Companies Act 2006. In common with usual and best practice in our sector, alternative performance measures have also been provided to supplement IFRS, some of which are based on the recommendations of the European Public Real Estate Association ("EPRA"), with others designed to give additional information about the Group's share of assets and liabilities, income and expenses in subsidiaries and joint ventures.

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Chief Executive's statement

99% of our portfolio, by value, is within a

12 minute walk of a nearby Elizabeth Line station

Gerald Kaye

Chief Executive

Report Strategic

Helical, delivering a sustainable future

Overview

Today marks the opening to the public of the Elizabeth Line, one of the largest transport infrastructure projects in the UK, increasing Central London's rail capacity by 10% and bringing an additional 1.5 million people within 45 minutes of Central London. Our £1bn portfolio of sustainable, amenity rich London offices, of which 99% by value are situated within a 12 minute walk of a nearby Elizabeth Line station, will continue to benefit from their proximity to this new arterial route through Central London. It is this connection, together with the improving strength of the prime London office market, that has underpinned a strong set of results after emerging from the Covid-19 pandemic following two difficult years.

Our Total Accounting Return ("TAR") for the year, a key performance indicator for Helical, was 15.0% on our net assets measured under IFRS and 10.2% based on our EPRA net tangible assets. Over the three years to 31 March 2022, the compound annual growth rate of our EPRA TAR was 7.8% pa, an indication of the strength and consistency of the financial performance of the Group, despite the challenges of the period. These results were driven by growing rental income and strong valuation surpluses from both our completed development schemes, now held for long-term income growth and future asset management opportunities, and our schemes under development.

Sustainability

On 24 May 2022 we published our Net Zero Carbon Pathway to becoming a net zero carbon business by 2030, as our contribution, as a responsible business, to the decarbonising of the UK economy by 2050. In continuing this journey, we have identified meaningful ways of reducing both our embodied and operational carbon emissions. As part of this process, we have signed up to the Better Buildings Partnership Climate Commitment, which provides an accountable and transparent framework for delivering net zero carbon for a property portfolio.

With our commitment to sustainability reporting, we measure our performance against industry-wide benchmarks, and I am pleased again to be able to report significant progress against these measures during the year.

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Chief Executive's statement

continued

We have improved our GRESB score from a 3* to a 4* Green rating, increasing our score from 76 to 85, and have maintained our MSCI ESG rating at AAA, the top rating. Further, we have been awarded a Gold rating under the EPRA Sustainability BPR, up from Silver.

At a portfolio level, 99% by value of our completed portfolio has an EPC rating of A or B (the remaining 1% has a C rating) and each of our refurbished or redeveloped office buildings has a BREEAM rating of "Excellent", with BREEAM "Outstanding" targeted for

33 Charterhouse Street, EC1 and 100 New Bridge Street, EC4.

Overall, the Group has continued to respond decisively to the climate change challenge, achieving its sustainability targets and, importantly, has a clear path to continue this journey.

Results for the year

The profit after tax for the year to 31 March 2022 was £88.9m (2021: £17.9m) with a see-through Total Property Return of £89.5m (2021: £48.6m). Following the letting of Kaleidoscope, EC1 in March 2021 and the recent purchase of 100 New Bridge Street, EC4, see-through net rental income increased by 24.8% to £31.2m (2021: £25.0m) while developments generated see-through profits of £6.6m (2021: loss of £0.3m). The see-through net gain on sale and revaluation of the investment portfolio was £51.7m (2021: £23.9m).

Total see-through net finance costs increased to £19.7m (2021: £14.8m), including £5.9m loan cancellation costs. An increase in expected future interest rates led to an £18.0m credit (2021: £2.9m) from the valuation of the Group's derivative financial instruments. Recurring see-through administration costs were 2% higher at £9.9m (2021: £9.7m), with performance related awards increasing to £6.0m (2021: £4.3m) and National Insurance on these awards of £1.2m (2021: £0.8m).

A corporation tax credit of £1.1m has been recognised in the annual results and following the election to become a REIT, with effect from

1 April 2022, a deferred tax credit of £14.9m has also been recognised.

There was an IFRS basic earnings per share of 72.8p (2021: 14.8p)

and an EPRA earnings per share of 5.2p (2021: loss of 1.8p).

On a like-for-like basis, the investment portfolio increased in value by 7.0% (5.6% including purchases and gains on sales). The see-through total portfolio value increased to £1,097.3m (31 March 2021: £839.4m), following the acquisition of 100 New Bridge Street, EC4 during the year.

The unleveraged return of our property portfolio, as measured by MSCI, was 10.7% (2021: 7.0%), showing strong outperformance of its benchmark. We compare our portfolio performance to the MSCI UK Central London Offices Total Return Index which produced a return of 7.9% (2021: -1.7%) with an upper quartile return of 9.9% (2021: 1.6%).

The portfolio was 93.3% let at 31 March 2022, generating contracted rents of £46.4m (2021: £37.8m), at an average of £60 psf, growing to £49.3m on the letting of currently vacant space and moving towards capturing its ERV of £67.1m (2021: £52.1m). The Group's contracted rent has a Weighted Average Unexpired Lease Term ("WAULT") of 5.6 years.

The Total Accounting Return ("TAR"), being the growth in the IFRS net asset value of the Group, plus dividends paid in the year, was 15.0% (2021: 3.3%). Based on EPRA net tangible assets, the TAR was 10.2%

(2021: 4.5%). EPRA net tangible assets per share were up 7.3% to

572p (31 March 2021: 533p), with EPRA net disposal value per share

up 13.6% to 551p (31 March 2021: 485p).

Balance sheet strength and liquidity

The Group has a significant level of liquidity with see-through cash and unutilised bank facilities of £132m (31 March 2021: £423m) to fund capital works on its portfolio and future acquisitions.

At 31 March 2022, the Group had £14.2m of cash deposits available to deploy without restrictions and a further £19.1m of rent in bank

accounts available to service payments under loan agreements, cash held at managing agents and cash held in joint ventures. Furthermore, the Group had £99.0m of loan facilities available to draw on plus £31.0m of uncharged property.

The see-through loan to value ratio ("LTV") increased to 36.4% at the balance sheet date (31 March 2021: 22.6%) and our see-through net gearing, the ratio of net borrowings to the net asset value of the Group, increased to 58.6% (31 March 2021: 31.9%) over the same period.

At the year end, the average debt maturity on secured loans, on a see-through basis, was 3.0 years (31 March 2021: 3.2 years), increasing to 3.7 years on exercise of options to extend the Group's facilities and on a fully utilised basis. The average cost of debt at 31 March 2022 was 3.2% (31 March 2021: 3.5%).

Helical as a Real Estate Investment Trust ("REIT")

Helical's business has evolved in recent years, from a developer/ trader model, selling its development schemes to third party investors, to become a developer of, and investor in, new or refurbished Grade A buildings that are retained for their capital growth and long-term income potential.

Today, Helical has a portfolio with a superior sustainability rating. Together, this portfolio and the Company's long-term investment model have facilitated the conversion of the Company's operations to a REIT, with the notice to become a REIT submitted in March 2022 and effective from 1 April 2022.

It is the intention of the Board that there will be no material changes to the Group's investment policy or strategy on becoming a REIT.

Helical intends to employ the same dividend policy as followed prior to its conversion to a REIT. Within the REIT regime, distributions from the Company may comprise Property Income Distributions (PIDs), ordinary dividends or a combination of the two. The Company will be required to distribute at least 90% of the tax exempt income profits of its property rental business and will be able to distribute additional amounts over and above the minimum PID requirement, to enable it to continue its current dividend policy.

Dividends

Helical is a capital growth stock, seeking to maximise value by successfully letting repositioned, refurbished and redeveloped property. Once stabilised, these assets are either retained for their long-term income and reversionary potential or sold to recycle equity into new schemes.

This recycling leads to fluctuations in our EPRA earnings per share, as the calculation of these earnings excludes capital profits generated from the sale and revaluation of assets. As such, both EPRA earnings and realised capital profits are considered when determining the payment of dividends.

In the year to 31 March 2022, prior to Helical becoming a REIT, the Company retained all its investment assets, investing its available cash resources to grow the development pipeline with the acquisition of

100 New Bridge Street, EC4. The additional income from this purchase and the growing net rental income from the completed investment assets increased net rental income by 24.8% and EPRA earnings per share from a loss of 1.8p in 2021 to earnings of 5.2p in 2022.

In the light of the increased earnings and the strong results for the year, the Board will be recommending to Shareholders a final dividend of 8.25p per share, an increase of 11.5% on last year (7.40p). If approved by Shareholders at the 2022 AGM, the total dividend for the year will be 11.15p, up 10.4% on 2021.

This final dividend, if approved, will be paid out of distributable reserves generated from the Group's activities prior to its conversion into a REIT.

Sustainability and

Net Zero Carbon

We have made good progress against the targets we set out in our sustainability strategy "Built for the Future" and continue to drive forward our ESG ambitions. In support of this, Helical has released its "Net Zero Carbon Pathway".

In the UK, the built environment is responsible for 40% of the country's total greenhouse gas emissions. If the UK is going to achieve its commitment of becoming net zero by 2050, there needs to be rapid transformational change within the sector. As a contributor to these emissions, we recognise the need to be a part of this transformational change while still delivering long-term sustainable growth to our Shareholders. In consideration of this, we are committing to becoming a net zero carbon business by 2030.

In publishing our Net Zero Carbon Pathway, Helical has also become a signatory to the Building Better Partnership's ("BBP") Climate Commitment, which provides a clear, accountable and transparent mechanism for real estate companies in the UK to drive towards net zero carbon. As we build on our ambitions, we continue to recognise the importance of transparency and independently assured reporting. Going forward we will be reporting on our progress against our net zero carbon targets to make certain we are on track for 2030.

Our portfolio is well placed in terms of energy efficiency, with 99% of our assets (by value) already compliant with the proposed legislative requirement that all rented commercial buildings achieve a minimum EPC of a B rating by 2030. Market research suggests only 23% of commercial assets are currently compliant, with significant capital outlay likely to be required to take non-compliant buildings up to the minimum standard.

For our development assets, we have undertaken significant initiatives to minimise embodied carbon and maximise operational efficiency. At 33 Charterhouse Street, EC1, through the careful design and selection of materials, we have reduced the embodied carbon to 40% below the RIBA benchmark. Going forward we are focusing on delivering "carbon friendly new build" schemes, such as 100 New Bridge Street, EC4, where we will re-use or recycle large portions of the existing building and look to incorporate the existing structural frame to minimise the carbon impact.

During the year, we have also further developed our reporting against the recommendations of the Task Force on Climate- related Financial Disclosures. We have performed an in-depth review of the risks and opportunities that could arise from certain climate-related scenarios and evaluated the potential impact to our business.

• See page 56

We are a specialist developer and investor in prime Central London real estate, creating inspiring and sustainable, best-in-class office buildings."

Board matters

At this year's Annual General Meeting ("AGM") our Chairman, Richard Grant, will step down from the Board after ten years' service. On behalf of the rest of the Board, I thank him for his contribution to the success of Helical over that period and wish him well.

Richard will be replaced as Chairman by Richard Cotton, our current Senior Independent Director ("SID"), with Sue Clayton, who has been on the Board for six years, replacing Richard Cotton as SID.

Outlook

The geopolitical and economic backdrop has deteriorated since we reported on our half year results in November 2021. The human tragedy of what is unfolding in Ukraine is heart rending and shocking to Western democracies and it is difficult to comprehend the motivation and methods of the aggressors. With these events

in Eastern Europe ongoing and growing inflationary pressures accompanying a slowing economy leading to fears of "stagflation", it is right to be concerned for the performance of UK businesses over the next year. Despite these concerns, the fundamentals of our business remain strong, and we believe our experience and reputation will enable us to secure new opportunities as they arise.

We are a specialist developer and investor in prime Central London real estate, creating inspiring and sustainable, best-in-class office buildings. London is a leading world city, a safe haven, attracting a mix of established and growing businesses seeking a base for their operations and well capitalised investors looking to invest their funds.

We will continue to see bifurcation between the best-in-class new sustainable buildings and the older less sustainable buildings. This will be reflected in strong rental growth for the former and rental decline for the latter. Helical is well positioned to capitalise upon a period of opportunity within the sector over the next 10-20 years, changing the older "brown" buildings into "green" sustainable buildings.

In the last year, we have deployed capital to acquire 100 New Bridge Street, EC4, with this exciting redevelopment due to start by the end of 2023, following the expiry of the current tenancies. Along with

33 Charterhouse Street, EC1, due for completion in September 2022, and continuing asset management opportunities in the remaining, completed investment portfolio, we are optimistic that our successful track record of outperforming the market and delivering strong financial returns will continue.

Gerald Kaye

Chief Executive

24 May 2022 

Report Strategic

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