Broadgate REIT Ltd

Broadgate REIT Limited

(the “Company”)

Please find attached the Company’s Annual Report and Financial Statements for the year ended 31 March 2022.

The Company also provides the following information by way of a trading update at this time:

Overview

Market Backdrop

Macro-economic context

The UK economy responded well to the lifting of Covid-19 restrictions, expanding by 7.4% in the calendar year and by March was 1.2% above pre-Covid levels .  However, the combination of Covid, Brexit and rising energy prices has reduced capacity in the economy putting pressure on prices towards the end of the year.  Inflation has risen faster than expected, up 7% in March 2022 compared to up 6.2% the previous month and in response, interest rates have been increased. Consumer confidence has weakened since the summer with concerns around rising prices and the prospect of a real income squeeze weighing on sentiment but unemployment has quickly recovered to pre pandemic levels at under 4%.  Most forecasters are still expecting growth for the 2022 calendar year but with risks to the downside if the economic impact of the war in Ukraine worsens.  Given this broader macro context and with investors concerned about the impact of rising inflation and interest rates, they are rotating out of bonds and increasing their allocation to direct real estate, focused on subsectors with pricing power and affordable rents. 

 London Office Market

The investment market has returned to strong volumes with confidence strengthening as the economy recovers from the pandemic and employees returned to the office.   The period under review saw more than £17bn of investment activity across the City and the West End with pricing strong reflecting pent up investor demand and a lack of available stock.  Prime yields currently average 3.5% for the West End, stable over the year and 3.75% for the City, an inwards shift 25bps. 

In the central London occupational market, take up remains below its long term average, but is recovering well following very low levels last year.  Take up for the period was 9.5m sq ft for Central London, more than double the 12 months to March 2021.  Technology,  Banking & Finance and Professional Services (most notably legal) were the largest sources of take up.  Demand is clearly gravitating towards the very best space, with an emphasis on sustainability, wellness, shared and flexible space and excellent transport connections.  This part of the market is achieving premium prices and vacancy is estimated at under 4% compared to c.8% for the whole market.  In the context of a more uncertain macro environment with elevated input prices, it is becoming apparent that more projects are being delayed and as a result, the supply pipeline is tight, with developments committed and under construction (to 2026) representing 1.8 years average take up.  Reflecting the strong preference for new and high quality refurbished space, 32% of development under construction is currently pre-let. 

Operational review

Total leasing activity covered 751,000 sq ft in the half year, of which 680,000 sq ft were long term deals.  We successfully let (or placed under option) all the office space at 1 Broadgate four years ahead of completion, with Allen & Overy and JLL taking a minimum of 254,000 sq ft and 134,000 sq ft respectively.  The strong sustainability credentials of this building were a key attraction and in their press release, A&O commented that the building “will contribute to an 80% reduction” in their annual London office carbon emissions.  We also completed the office letting at 100 Liverpool Street, with Hudson River Trading taking 20,300 sq ft on level ten.  Newly refurbished space is letting well with Braze, a customer engagement platform, taking 49,000 sq ft at Exchange House and Maven Securities, a proprietary trading firm taking 38,000 sq ft at 155 Bishopsgate.  Other lettings include legal firm Jenner & Block at 10 Exchange Square (13,000 sq ft) and financial services platform Symphony at 135 Bishopsgate (7,200 sq ft). 

We have made excellent progress on the food & beverage offer, with the launch of Revolve at 100 Liverpool Street, an innovative concept with guest chefs and Shiro, a sushi restaurant , building Broadgate’s reputation as a top culinary destination. We have also let space at 155 Bishopsgate to Neat Burger (a plant based burger restaurant backed by Lewis Hamilton), Nest (a bar and restaurant run by Urban Pubs and Bars), Black Sheep coffee and Hawaiian poké restaurant Honi Poké.

We continue to invest in our buildings to modernise our space and are on site with asset management initiatives including the refurbishment of 155 Bishopsgate, Exchange House and 10 Exchange Square, where the first phase is now.  We take the opportunity provided by lease events to re-invest in existing buildings, to deliver energy efficient interventions which raise the EPC rating and refurbish the space, ensuring that they are well positioned to benefit as demand polarises towards the best, most sustainable space.  We also completed public realm improvements at Exchange Square, delivering 1.5 acres of green space, including amphitheatre style seating and outside events space with a range of tree and plant life to support biodiversity.  

We refreshed our biodiversity framework for Broadgate, establishing our guiding principles and identifying the key species and habitats of relevance to the area.  As well as the public spaces, we have living roofs at seven locations with 12,800 sq ft of terraces to come at 1 Broadgate. 

The Campus saw a valuation gain of 5.1% reflecting 16bps of inward yield shift and flat ERVs.  100 Liverpool Street, which benefited from inward yield shift and the expiry of rent free periods, and 1 Broadgate, reflecting significant letting activity, were the key drivers of value.  Broadgate occupancy is 96.7% up from 92.0% 12 months ago.

Flexible workspace

Flexible workspace (which is provided by Storey, British Land’s flexible workspace offer) is an important part of our Campus proposition, providing occupiers with the flexibility to expand at short notice or to take ad hoc meeting or events space. 

100 Liverpool Street is fully let with online signature service Docusign taking 6,500 sq ft and the Levin Group, a health tech recruitment business going under offer on the final unit post year end.  Levin also have 7,000 sq ft at 1 Finsbury Avenue and have pre-let of all the Storey space at 155 Bishopsgate comprising 23,000 sq ft, again post period end.

Viewings are back to pre pandemic levels and bookings at Storey Club, which provides ad hoc meeting and events space at 100 Liverpool Street increased over the year. Rent collection was 100% reflecting the strength of Storey’s customer base, with the majority of occupiers being UK / European headquarters, scale up businesses or large multinationals.

Looking forward, Storey will cease operations across 27,000 sq ft at 3 Finsbury Avenue as we prepare that site for redevelopment.  However, we are actively considering further opportunities on the campus for Storey.

Developments

We are on site at 1 Broadgate (544,000 sq ft) and are fully pre-let or under option on the office space to JLL and Allen & Overy.

Our near term pipeline includes 2 Finsbury Avenue, where we have planning for a 718,000 sq ft office scheme.  Embodied carbon in this building is projected to be market leading for a high rise tower below 750kg CO2 per sqm benefiting from the use of existing and other recycled materials.  We expect to start on site later this year. 

Financing

In June 2021 we completed the refinance of 100 Liverpool Street raising a new £420m 5 year ‘Green Loan’ secured by the property at an initial LTV of c.50%.  As part of the refinance, this BREEAM Outstanding and net zero carbon development was released from the Broadgate securitisation alongside the redemption of £107m of bonds. The new financing was voted Financing Deal of the Year: UK by Real Estate Capital Europe for 2021.

Sustainability

100 Liverpool Street, our first net zero carbon development, has continued to pick up industry accolades for its sustainability credentials including Green Building Project of the year in the BusinessGreen Leaders awards, Project of the Year at the Building Awards and most recently a Civic Trust Award.

1 Broadgate is expected to be in line with our 2030 office targets for operational efficiency of 95kWhe per sqm on a whole building basis and is on track for a NABERS 5 star rating.   Embodied carbon on this building is above our 2030 target at 901 kg CO2 per sqm, but we continue to make improvements throughout the design and delivery process.

Our Place Based approach means understanding the most important issues and opportunities in the communities around the campus and focusing our efforts collaboratively to deliver the biggest impact.  We therefore launched an occupier led and funded Community Fund, where we will work together with our occupiers to identify and address key local issues. 

One of our key initiatives this year was the launch of the one year project, the New Diorama Theatre at Broadgate, helping to bring people together post Covid and supporting the revival of this part of the City.  NDT Broadgate is one of the biggest rehearsal and development complexes in London, the 20,000 sq ft space is provided completely free of charge for independent and freelance artists to use and is one of the highest profile artist support projects in recent years.  We also announced a partnership with The National Theatre to bring creative events and experiences to our Campus.  This involves monthly workshops led by creative experts focusing on theatrical skills and exploring how these can be applied to enhance the working day.

SUPPLEMENTARY TABLES

Committed Developments

1. From 31 March 2022. Cost to come excludes notional interest as interest is capitalised individually on each development at our capitalisation rate
2. Estimated headline rental value net of rent payable under head leases (excluding tenant incentives)

Forward-looking statements

Note to Announcement

This announcement contains certain ‘forward-looking’ statements. Such statements reflect current views on, among other things, our markets, activities, projections, objectives and prospects. Such ‘forward-looking’ statements can sometimes, but not always, be identified by their reference to a date or point in the future or the use of ‘forward-looking’ terminology, including terms such as ‘believes’, ‘estimates’, ‘anticipates’, ‘expects’, ‘forecasts’, ‘intends’, ‘due’, ‘plans’, ‘projects’, ‘goal’, ‘outlook’, ‘schedule’ ‘target’, ‘aim’, ‘may’, ‘likely to’, ‘will’, ‘would’, ‘could’, ‘should’ or similar expressions or in each case their negative or other variations or comparable terminology. By their nature, forward-looking statements involve inherent risks, assumptions and uncertainties because they relate to future events and depend on circumstances which may or may not occur and may be beyond our ability to control or predict. Forward-looking statements should be regarded with caution as actual results may differ materially from those expressed in or implied by such statements. Important factors that could cause actual results, performance or achievements of the Company to differ materially from any outcomes or results expressed or implied by such forward-looking statements include, among other things: (a) demand for office space by the financial services industries or in London may decrease tenant demand for lettings in the properties, (b) a default by, or the insolvency of, a major tenant could result in a significant loss of letting income, void costs, a reduction in asset value and increased bad debts, (c) material loss may arise in excess of any insurance proceeds or from uninsured events, and (d) political, economic and other factors may adversely affect the Company’s business and results of operations. The Company’s principal risks are described in greater detail in the Listing Document. Forward-looking statements in this announcement, or made subsequently, which are attributable to the Company or persons acting on its behalf should therefore be construed in light of all such factors. Information contained in this announcement relating to the Company is no guarantee of, and should not be relied upon as an indicator of, future performance. Any forward-looking statements made by or on behalf of the Company speak only as of the date they are made. Such forward-looking statements are expressly qualified and no representation, assurance, guarantee or warranty is given in relation to them (whether by the Company or any of its associates, directors, officers, employees or advisers), including as to their completeness, accuracy or the basis on which they were prepared.

All enquiries in relation to this announcement should be addressed to:

CAREY OLSEN CORPORATE FINANCE LIMITED

Listing Agent

Tel: +44 (0)1534 888 900

END OF ANNOUNCEMENT