Projects

We completed two major projects during the year:

Arup Phase III, 8 Fitzroy Street, Fitzrovia
This 7,900m² office building, designed by Sheppard Robson around a full-height open atrium and located in the heart of our Fitzrovia village, was completed in December. It is the final phase of our Arup pre-let. Phases II and III now form a single seven-storey buildinfg of 13,700m² that is let on a 25-year lease, with no breaks, at a rent of £6.2m pa, representing £450 per m² (£42 per sq ft).

Charlotte Building, 17 Gresse Street, Noho
This elegant 4,400m² office building was completed in October and is now 84% let.

Following these completions, we are now concentrating on the delivery of the 24,400m² Angel Building development, our largest project to date. This six-storey office and retail scheme is due to be completed in the summer of 2010 and we are confident that this will benefit our portfolio. Cancer Research UK, one of the country’s leading charities, has already chosen the Angel Building as its new headquarters. They have pre-let 53% of the space at a rent of £5.6m pa.

Capital expenditure on the above projects totalled £63.3m during the year. A further £32.3m is budgeted to complete the Angel Building.

In addition, we continued to be active throughout the portfolio on a number of smaller schemes. Over 10,000m² was completed during the year and at the year end we were on-site with five such projects totalling 4,200m² with a potential annual rental value of £1.3m. Just over half of this floorspace has been pre-let at an income of £0.8m pa. These projects include a 26-bedroom boutique hotel at the Tea Building, pre-let to Soho House and 600m² of offices at 43 Whitfield Street, pre-let to Feilden Clegg Bradley, architects. The total cost of these projects is £9.3m, with £3.7m yet to be incurred.

To take full advantage of the improved tenant demand, we are commencing more than 18,000m² of refurbishments during 2010. These will have a total capital expenditure of approximately £37m. The rental value on completion is estimated at £6.5m pa, significantly more than the year end income from these properties of £3.5m. In particular, we are about to begin the 3,900m² refurbishment of Victory House in Fitzrovia.

As part of our development programme, we aim to commence a 7,100m² office building at 63 Clerkenwell Road early next year. The start of this project is subject to the satisfactory outcome of a planning appeal decision in May as our initial application was refused, despite having recommendation for approval from the borough’s planning officer. It would involve £28m of capital expenditure and deliver a striking, high-quality building in Clerkenwell.

We hold five significant planning consents, which ultimately could deliver 74,400m² of new space – an uplift of 171% from the current floorspace. Our City Road Estate is at the forefront of these plans. Here, we are in the process of redesigning the scheme to offer 27,400m² of predominantly office space. We anticipate submitting a revised planning application later this year. While we continue to advance plans on all our consented schemes, we are ensuring that the existing properties, which produce £3.7m pa, remain income producing.

In addition, we are continuing to work on a number of exciting appraisal studies that have the potential to achieve major floorspace gains. Our most advanced work is at 132-142 Hampstead Road, Euston, where we have innovative proposals for a new concept of office space. This approach is centred around the design of low energy, user friendly offices that use the building’s volume and structure to aid the efficient control of the working environment. It will also provide the occupier greater flexibility to tailor the space to their specific requirements. We have coined this concept the ‘White Collar Factory’ (see: Looking forward) and at Hampstead Road we are finalising a planning application to provide 26,000m² of such space. Subject to planning approval, we are looking to commence this major refurbishment and extension in the second half of 2011, when the existing tenancies expire.

We are also progressing the next major regeneration project on our Fitzrovia Estate. At 80 Charlotte Street, we obtain vacant possession on the 18,600m² buildings in 2013. One option is a 27,900m² office scheme that would regenerate and extend the existing buildings.

Finally, we continue to advance our long-term development plans at 1 Oxford Street at the junction of Charing Cross Road. This important West End site, at the eastern end of Oxford Street, is the location of a major transport interchange. Our interests were compulsorily purchased during the year; however, we have an option to buy back the site upon completion of the London Underground and Crossrail station works. These are anticipated to complete in or around 2016. We are working closely with both organisations on a planning application for a mixed-use development of approximately 19,000m², which is likely to be submitted this summer.

Investment activity

It was inevitable that the first half of 2009 would see limited investment turnover, due to market nervousness and ongoing constraints in the debt market – a key source of finance for the commercial property market. During this period, we made £39.1m of disposals after costs. However, we took advantage of improving investor sentiment in the second half of the year with £169.2m of disposals.

During the year, 50 properties, with a floor area of 47,200m² and which consisted of mature or non-core smaller properties as well as three compulsorily purchased properties at Charing Cross Road, were sold for £208.3m. The properties had an annual income of £14.2m and reflected a disposal yield of 6.8%. Excluding the compulsorily purchased properties where the final sale price is subject to a formal valuation process, disposals were 4.4% below the December 2008 valuation. Including these properties, the figure was 7.4%. The two largest transactions were:

• Arup Phase I, 13 Fitzroy Street, Fitzrovia
  In July, we sold this 8,400m² eight-storey office building to Arup, the tenant, for £59.4m after costs, reflecting a net initial yield of 7.0%. This was a mature property that had been refurbished and let on a lease expiring in 2023 at a rent of £4.5m pa; and
• The Rotunda, Kingston-upon-Thames
  This 15,700m² leisure complex was sold in November for £41.4m after costs, reflecting a net initial yield of 7.4%.

Although we made no significant acquisitions during the year, we did acquire certain small buildings that will facilitate a number of future redevelopment opportunities.

While the supply of potential acquisitions has been limited over the last few months, we are now seeing more properties appear on the market. The group has £425m of committed unutilised debt facilities so we are strongly positioned to take advantage of any acquisition opportunities that may arise in the future.