While our primary objective is to deliver returns consistently ahead of our cost of capital, we also seek to minimise the cost of our capital through the appropriate mix of equity and debt finance, and to ensure that we have access to sufficient financial resources to implement our business plans. Optimising and flexing the allocation of capital across our portfolio, including between our investment and development activities, is key to our business and ensuring that we maximise returns on a risk-adjusted basis through the property cycle. Accordingly, we operate with four key ‘givens’: – conservative leverage to enhance, not drive, returns; – sustainable ordinary dividends; – disciplined capital allocation; and – balance sheet efficiency – track record of accretively raising and returning capital. Our preference for low financial leverage helps to provide downside protection when operating in the cyclical central London property market and to maintain the financial flexibility to allow us to act quickly on new investment opportunities as they arise.
Key Metrics
|
|
March 2024 |
September 2024 |
|
Net debt excluding JVs (£m) |
738.0 |
547.7 |
|
Net gearing |
46.8% |
28.5% |
|
Total net debt including 50% JV non-recourse debt (£m) |
713.5 |
526.2 |
|
EPRA LTV |
32.6% |
23.3% |
|
Interest cover |
3.7x |
3.5x |
|
Weighted average interest rate |
4.3% |
4.5% |
|
Weighted average cost of debt |
4.1% |
5.3% |
|
% of debt fixed/hedged |
87% |
100% |
|
Cash and undrawn facilities (£m) |
633.4 |
695.0 |
Sustainable Finance Framework (“SFF”)
The Group first published its SFF in July 2021 and updated it in September 2024. The SFF is aligned to principles issued by the International Capital Markets Association and Loan Markets Association, and allows us to integrate sustainability across our debt capital structure.
The SFF covers Sustainable Debt Instruments (“SDIs”) which can include public bonds, US private placements and bank loans, to finance Eligible Projects i.e. projects that have a positive environmental and/or social impact while supporting our business strategy.
A copy of the SFF can be found here.
The Group will release an Allocation Report on an annual basis which will report on the allocation of SDI proceeds against Eligible Projects.
Credit Rating
The Group has a Long Term Baa2 Issuer Credit Rating with a Stable Outlook from Moody’s, dated September 2024.
£600 million ESG-linked Revolving Credit Facilities (“RCFs”)
The Group has two ESG-linked RCFs:
- £450 million with a headline margin of 90 basis points over SONIA
- Issued January 2020 with an initial five year term, now extended to January 2027
- The first ESG-linked RCF issued by a UK-REIT
- £150 million also with a headline margin of 90 basis points over SONIA
- Issued October 2024 with an initial three year term which may be extended to a maximum of five years, subject to bank consent
Both RCFs incorporate the following three ESG-linked KPIs which align with our ambitious sustainability strategy:
- Reducing our portfolio energy intensity
- Reducing the embodied carbon of our new build developments and major refurbishments
- Increasing the biodiversity net gain across our portfolio
We measure performance against each KPI annually. A margin decrease or increase of up to 2.5 basis points is applied to the headline margin on the basis of this performance.
Both RCFs are fully available for general corporate purposes and include our standard unsecured debt financial covenants (see below):
- The ratio of Consolidated Net Borrowings to Consolidated Shareholders’ Funds must not exceed 1.25:1
- The ratio of Unencumbered Asset Value to Consolidated Unsecured Borrowings must not be less than 1.66:1
- The ratio of Consolidated Profits Before Interest and Tax to Consolidated Net Interest must not be less than 1.35:1
£250 million Unsecured Sustainable Public Bond (“the Bond”)
In September 2024, the Group issued the Bond, its inaugural unsecured sustainable public bond. The Bond matures in September 2031 and has a fixed rate coupon of 5.38%.
The Bond is rated Baa2 by Moody’s and is the first SDI issued under our SFF (see above). The Bond has identical financial covenants to the RCFs (see above) other than the ratio of Consolidated Net Borrowings to Consolidated Shareholders’ Funds must not exceed 1.75:1 (1.25:1 in respect of the RCFs).
Trustee
BNY Mellon Corporate Trustee Services Limited
160 Queen Victoria Street
London EC4V 4LA
Paying Agent
The Bank of New York Mellon, London Branch
160 Queen Victoria Street
London EC4V 4LA
£250 million US Private Placement Notes (“PPNs”)
The Group currently has the following PPNs:
- £150 million issued in August 2020 maturing in November 2032 (£25 million) and November 2035 (£125 million) with a weighted average fixed rate coupon of c.2.77%
- £100 million issued in March 2018 maturing in June 2028 (£40 million), June 2030 (£40 million) and June 2033 (£30 million) with a weighted average fixed rate coupon of c.2.80%
In May 2024, the Group repaid a further £175 million of PPNs at maturity.
The PPNs are fully available for general corporate purposes and have identical ESG-linked KPIs and financial covenants to the RCFs (see above).
£75 million ESG-linked Term Loan
The Group issued a £250 million ESG-linked term loan in September 2023, £175 million of which was prepaid and cancelled in November 2024.
The term loan is fully available for general corporate purposes and has identical ESG-linked KPIs and financial covenants to the RCFs (see above).
The headline margin of the term loan is 175bp over SONIA.
£21.9 million Debenture
The Group has a small legacy £21.9 million 5.63% debenture with a January 2029 maturity date.
The following property was included within the debenture security pool as at September 2024:
- Elsley House, 20/30 Great Titchfield Street, London W1
Trustee
Royal Exchange Trust Company Limited
c/o Apex Corporate Trustees (UK) Limited
125 London Wall
London
EC2Y 5AS
Registrar
Equiniti Limited
Aspect House
Spencer Road
Lancing
BN99 6DA
Joint venture debt
The Group’s joint ventures have no third party debt.
Interest rate management
As the effect of changes in interest rates can have a considerable impact on the Group’s reported profits, it is appropriate to ensure that the Group’s net exposure to such changes is managed within acceptable limits.
The Group seeks to achieve this by having a target of 70% - 100% of total debt being fixed rate or hedged.
The Group typically makes use of vanilla (rather than exotic) interest rate derivatives such as swaps, caps and swaptions.
At 30 September 2024, 100% of the Group’s total drawn debt was fixed rate or hedged.