Songbird Estates, the majority stakeholder in Canary Wharf Group, has delivered strong 2013 results, posting a 38.1% surge in net asset value to £2.90 a share.
The hike, up from £2.10 at the end of 2012 and £2.23 at the half year, was driven nearly entirely by yield compression and the group’s development pipeline, which during the period expanded to include residential.
Following this major strategic decision to extend from its traditional commercial and retail expertise to residential development, the group said it will now also be establishing a residential portfolio containing homes for both sale and rent.
The group’s property portfolio, including land and adjusted for property acquisitions and other capital expenditure, rose in value by 14.9% over the year to stand at £6.6bn at the end of the period.
This reflected the progress achieved in bringing forward for development key sites such as the proposed 470,000 sq ft Newfoundland residential development and Wood Wharf. The development portfolio also benefited from the demand for sites capable of accommodating residential development.
The market value of the group’s total investment portfolio was up 9.6%,
Looking at its office investment portfolio, valuations went up 8.6% over the 12 months pushing the office benchmark initial yield down by 25bps to 4.75.
The retail investment portfolio also delivered strong growth, rising 14.7%.
Songbird Estates’ development pipeline performed well. At around 11m sq ft, including the Shell Centre site, SE1, the group has one of the largest development pipelines of any London developer.
During the year, Canary Wharf Group received revised approval for a 700,000 sq ft office development on the eastern side of Heron Quays West and has also submitted an application for a building of up to 700,000 sq ft on the western side of Heron Quays West.
In addition, a revised 650,000 sq ft planning application has been submitted for One Park Place on West India Avenue, together with details for the scheme designed by Michael Squires & Partners.
In December 2013, Canary Wharf Group submitted the planning application for the exciting 4.9m sq ft mixed-use district east of the Estate. This 25 building development is expected to appeal to many of our new target tenants, for example in the TMT sector.
It added that interest is already being expressed from retail brands looking to associate with the new mixed-use district, which will complement the existing estate.
The first phase will see the construction of 884 residential units in three buildings designed by Herzog & de Meuron and Stanton Williams and two office buildings designed by Allies and Morrison. If planning permission is granted, construction is expected to start in the fourth quarter of 2014, with the first buildings completed in 2017.
After the year end, approval was obtained for the 470,000 sq ft Newfoundland residential development. Newfoundland will feature striking steel diamond shapes on the façade and will comprise 566 flats with a health club and spa on level 24.
Alongside the development, Canary Wharf Group is providing around 280 associated affordable housing units off site.
Songbird said Canary Wharf Group’s commercial and retail leasing activity gathered momentum over the year. This continued into 2014 when EY signed an agreement for 207,000 sq ft at 25 Churchill Place , E14.
Under this prelet, EY is taking a 25-year lease at a rent of £48.50 per sq ft. In February 2014, EMA also agreed to take a further floor, taking its total occupancy in the building to 280,000 sq ft. The building is now virtually fully let, with the exception of two floors, which are both under option.
During the year, Shell agreed a further lease of 38,225 sq ft across two levels at 40 Bank Street , E14, taking its space in the building to 225,000 sq ft, and at One Canada Square , E14, 81,300 sq ft was let to HSBC. Including other smaller lettings, a total of approximately 132,000 sq ft was leased in the year.
Reflecting strong demand for space across the estate, including the letting to EY, more than 411,000 sq ft has been let during the first quarter of 2014, of which 321,000 sq ft are lettings and sublettings in buildings owned by the group. More than 585,000 sq ft remains under offer on the estate, of which 106,000 sq ft is being negotiated with the group. If all these transactions complete, the overall vacancy rate at Canary Wharf will fall to just over 4.3% and to 2.2% for the group.
At 31 December 2013, the group had unsecured cash deposits of £456.3m and, excluding the preference shares, the weighted average cost of debt was 5.7%. At a corporate level, the group’s look-through LTV ratio was 56.3%, down from 65.5% at the previous year end. The weighted average maturity of Canary Wharf Group’s borrowing facilities was 11.6 years, which compares with a weighted average unexpired lease term of 12.9 years, assuming exercise of all break options. This term has increased since year end by 0.7 years following completion of the lease to EY.
Underlying profit before tax for the year ended 31 December 2013 was £22.4m in comparison with £23.3m for 2012. Including capital and other items, profit after tax for 2013 was £900.8m in comparison with £183.5m in 2012.
Songbird Estates chairman David Pritchard said: “In 2013, the strong underlying operational performance of the main operating company, Canary Wharf Group, and improving market conditions resulted in a sharp rise in the valuation of the investment and development portfolio. As part of the continuing drive to diversify the group’s portfolio and give the business increased flexibility, significant steps were taken to bring major projects in our London pipeline to fruition. The group has taken the strategic step to pursue residential development making it well positioned to take advantage of increasing demand for both prime commercial and residential space.”
bridget.o’connell@estatesgazette.com
