Broadgate REIT Ltd

Broadgate REIT Limited

(the “Group”)

Please find attached the Interim Financial Statements for the Group period ended 30 September 2022.

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

Overview

Market Backdrop

Macro-economic context

Macroeconomic uncertainty escalated in the period and it now looks increasingly likely that the UK will enter a recession. GDP fell 0.6% in September 2022 and forecasts are generally being revised downwards while inflation has risen much faster than expected, leading to four successive Bank of England interest rate rises since May. Rising energy prices and mortgage rates will put consumers under pressure over the winter and consumer confidence is low. However, the labour market remains robust; unemployment stands at 3.5%, the lowest since 1974 and both household savings and corporate balance sheets are generally strong. These fundamentals will be supportive over the coming months, but the depth and duration of any recession is hard to predict, particularly given geopolitical tensions including the war in Ukraine. Against this backdrop, investors will prefer sectors with proven pricing power and which can demonstrate resilience in a downturn.

London Office Market

Central London occupational markets have remained robust. Banking & Finance, Professional Services and Creative Industries were the largest sources of take up with consolidation in some sectors (notably legal) an important driver. Demand is clearly gravitating towards the very best, with an emphasis on sustainability, wellness, shared and flexible space and excellent transport connections. New and newly refurbished space leases faster and achieves premium prices and vacancy is low. In the context of a more uncertain macro environment elevated input prices means projects are being delayed and as a result, the supply pipeline has tightened.

After a strong start to 2022, investment markets were more subdued in the half with investors pausing to assess the impact of rising interest rates and inflation.  The spread between bid and ask prices has increased and as a result, volumes were lighter than the previous six months.  Pricing has been impacted, with prime yields moving out c.50bps in the City to 4.25% in the six months to 30 September. However, the highest quality buildings with best in class sustainability credentials command tighter yields.  Certain investors are actively looking to allocate capital to physical real estate but will postpone making a decision until there is more clarity on the outlook.

Operational review

Leasing activity covered 155,000 sq ft in the half year (excluding Storey), of which all were long term deals, completed on average 11.1% ahead of ERV.  The most significant was a regear to Credit Agricole at Broadwalk House, covering 116,550 sq ft and extending their lease by five years to 2030.  In this case, we have worked closely with the occupier to deliver energy efficient interventions which generate efficiencies for Credit Agricole, particularly in the context of higher energy prices.  These interventions include localised cooling to more efficiently serve their space without powering the whole building out of hours; a new air source heat pump and LED lighting.  We are underway with significant asset management initiatives at Exchange House, 10 Exchange Square and 155 Bishopsgate, totalling £104m where we have taken the opportunity to simultaneously invest in energy efficient interventions at little incremental cost since they are part of the wider refurbishment.

We have made some exciting additions to our food and beverage offer with Los Mochis, a pan-Pacific concept opening a flagship restaurant on the rooftop of 100 Liverpool Street covering 14,000 sq ft.  New additions such as this encourages footfall to our campus which is benefitting from the opening of the Elizabeth line.

The Campus saw a valuation decline of 4.1% driven by outward yield shift of 17bps, offsetting ERV growth of 0.6%.  Values for larger City assets which are typically more reliant upon debt funding have been disproportionately impacted by rising rates. Broadgate occupancy is 97.7% up from 96.7% six 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. The quality of the space and access to Campus amenities means it is also highly attractive to scale up businesses and we have seen demand strengthen as people return to the office.

Levin Group have grown with Storey, adding 7,000 sq ft of space at 100 Liverpool Street to their original take at 1 Finsbury Avenue, as well as pre-letting all 22,500 sq ft of Storey space at 155 Bishopsgate to allow consolidation of their offices. 

Storey has now ceased operations at 3 Finsbury Avenue as we prepare this building for development.

Developments

1 Broadgate (544,000 sq ft) will be our most operationally efficient building yet.  It is on track to be both BREEAM Outstanding and NABERS 5* and reflecting these strong environmental credentials, the building is fully pre-let or under option on all the office space to JLL and Allen & Overy.  

The largest scheme in the near term pipeline is 2 Finsbury Avenue, where we have planning for a 727,000 sq ft office scheme.  We have commenced deconstruction and our focus is on upcycling demolition materials for reuse in the new building.

Sustainability

We are on site targeting the highest sustainability credentials including BREEAM Outstanding on offices at 1 Broadgate. Last year we received an innovation credit from BRE, the Building Research Establishment, for the UK’s first large-scale use of a materials passport at our 1 Broadgate development.  We are taking the same approach at 2 Finsbury Avenue where we have commenced deconstruction and our focus is on upcycling demolition materials to create bespoke finishes and products for the new buildings, examples include upcycling aluminium to create wall finishes and locker doors.

We are already fully compliant with 2023 MEES (Minimum Energy Efficiency Standard) legislation which stipulates a minimum EPC rating of E.

Notable successes in the six months include Exchange House, where our improvements delivered a B rating from an E at a total cost of £2.5m (prior to service charge and occupier contributions) representing 0.5% of the building’s value.  

Smart dashboard using Internet of Things sensors around the building are operating successfully at 100 Liverpool Street and have enabled us to reduce energy consumption on heating and cooling by 15%. This is being rolled out to future developments, starting with 1 Broadgate.

Our social sustainability initiatives continue to focus on forging connections between our occupiers and local communities and we were pleased that 16 volunteers from SMBC at 100 Liverpool Street participated in New City College’s Employability week reaching over 100 students.  Also, the Broadgate Connect programme supported 27 local job seekers with 17 placed into work and in connection with the Young Readers Programme, 290 students participated in activities across the Campus.

SUPPLEMENTARY TABLES

Committed Developments

1. From 30 September 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)
3. Pre-let & under offer excludes office space under option

Near Term Development Pipeline

1. From 30 September 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)

Medium Term Development Pipeline

END OF ANNOUNCEMENT

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

CAREY OLSEN CORPORATE FINANCE LIMITED

Listing Agent

Tel: +44 (0)1534 888 900