Commercial landlord Helical (HLCL) has been severely punished by the market over fears of a spike in tenants defaulting on their rent and an increase in vacancy levels. The shares are trading at a sizeable discount, not only to historic and forecast net asset value (NAV) – 39 per cent and 44 per cent, respectively – but also to peers. The extent to which the shares have been marked down seems unjustified, given the prime location of the group’s London and Manchester portfolio, the strength of the balance sheet and its lower level of development commitments.
Shares trade at steep discount to NAV
Reduced committed capex
Low retail and leisure exposure
Ample liquidity
Shortfall in rental collection
Slower lettings progress
Like most office landlords, Helical has suffered a shortfall in rent collections in respect of the second and third quarters following the financial strain of lockdown on tenants. However, by early June it had received 92 per cent of rent due at the March payment date and agreed repayment plans for a further 2 per cent. As at 23 July, it had collected 77 per cent of third quarter rent, with plans for a further 14 per cent to be paid in instalments by September.
The latter collection rate is superior to rivals Great Portland Estates (GPOR) and Derwent London (DLN), which could be due to Helical’s lower exposure to retail and leisure tenants. Food and beverage accounts for just 3 per cent of annual contracted rent, while online fashion retailing makes up 13 per cent.
In June, management said that letting remaining space at the recently completed Kaleidoscope in London and Manchester’s Trinity scheme – which together account for 15 per cent of the estimated rental value of the portfolio at the end of March – was taking longer than expected due to lockdown, which will impact earnings this year. There has been some progress on letting the latter, with three out of seven office floors and a retail unit under offer.
However, while the group is tasked with letting remaining completed space, it also has lower capital expenditure commitments, with just 33 Charterhouse Street – which was acquired under a 50:50 joint venture – under development, equivalent to 13 per cent of the portfolio by square footage. That scheme is expected to cost a further £62m to complete by 2022, which together with costs such as a deferred consideration attached to Kaleidoscope, means forecast committed capital expenditure stands at £83m over the next three years.
The group has ample liquidity to fund those commitments, with £315m in cash and undrawn investment and development debt facilities. What’s more, the loan-to-value ratio stands at around its lowest level in 10 years at just 31.4 per cent and the next significant debt maturity date is July 2024.
| HELICAL (HLCL) | ||||
| ORD PRICE: | 310p | MARKET VALUE: | £376m | |
| TOUCH: | 304-310p | 12-MONTH HIGH: | 540p | LOW: 200p |
| FORWARD DIVIDEND YIELD: | 2.9% | DEVELOPMENT PROPERTIES: | £0.9m | |
| FORWARD DISCOUNT TO NAV: | 44% | NET DEBT: | 48% | |
| INVESTMENT PROPERTIES: | £900m* | |||
| Year to 31 Mar | Net asset value (p) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2018 | 468 | 29.5 | -5.1 | 9.5 |
| 2019 | 482 | 44.9 | -10.2 | 10.1 |
| 2020 | 511 | 42.0 | 7.6 | 8.7 |
| 2021** | 524 | 27.7 | 5.1 | 8.7 |
| 2022** | 550 | 46.5 | 10.2 | 9.1 |
| % change | +5 | +68 | +101 | +5 |
| Beta: | 1.26 | |||
| *includes investments in joint ventures | ||||
| **Panmure Gordon forecasts, adjusted PTP and EPS figures | ||||
