Bruntwood ‘strong’ despite £199m ‘revaluation losses’

Bruntwood CEO Chris Oglesby

Manchester-based commercial property giant Bruntwood Group Limited said it has reported unrealised revaluation losses of £199m for the year to October 2, 2023, and a “paper” loss for the year of £218.5 million.

Bruntwood Group CEO Chris Oglesby called the group’s results “a snapshot of UK commercial real estate for one of its most difficult years in recent memory.”

The results cover the period pre-dating a major new investment in the Bruntwood SciTech platform called Project Quantum which saw Greater Manchester Pension Fund and Legal and General inject £320 million of new equity. That deal was announced on October 16.

In a stock exchange statement, Bruntwood Group Limited reported group operating profit of £48.9 million (2022: £31.1m) and shareholders’ funds of £453.4 million (2022: £671.5m).

Revaluation losses were £199m (2022: £35.76m gain) and loss for the year was £218.5m (2022: £72.88m profit).

“Underlying performance for the relevant period was strong with operating profit rising from £31.1m in 2022 to £48.9m for 2023,” said the group.

“Bruntwood benefited from high levels of occupancy with rent collection in line with previous years.

“However, our bottom line reflected unrealised losses as a result of the revaluation of our portfolio which, under our accounting policy, requires to take any change in valuation to the profit and loss account.

“Given the economic backdrop and the sharp increase in interest rates, valuation yields have come under unprecedented pressure.

“Our average valuation yield has moved from 6.74 % to 7.92% which, all other factors being equal, would give rise to a 19% reduction in value.

“Our portfolio has, however, seen a 17% decrease, with positive movements driven by our activity in increasing rental levels and reducing vacancy.”

CEO Oglesby said: “These numbers are a snapshot of UK commercial real estate for one of its most difficult years in recent memory.

“Despite us seeing a paper loss created by some sizable valuation shifts, the performance of our portfolio didn’t waver, with our operating profit performance pointing to the continuing appeal of our modern, world-class, specialist workspaces for science, tech and innovation-led companies of all sizes.

“As a long-term, patient capital operator we have never judged the success of our business over a 12 month accounting period, but instead the impact of our investments into the cities we are part of over many years.”

Bruntwood Group Limited added: “As of 31st January 2024, the group has successfully refinanced its principal loan within Bruntwood SciTech, providing an additional £100m of capital to fund its capital commitments.

“The refinancing will enable £26m of deferred consideration on Project Quantum to be paid to Bruntwood Ltd.

“Following completion of Project Quantum, Bruntwood Limited reduced its outstanding debt from £615m to £188m.

“£49m of this debt is entirely secured against Bruntwood’s interests in joint ventures with local authorities.

“Of the remaining debt, £91m relates to the unsecured retail bond due in February 2025 and a £48m three year, bank club loan which is secured against property totalling £260m in value.

“This facility contains an accordion feature which, if exercised, would provide Bruntwood with the ability to refinance the outstanding retail bond at maturity.

“As at 31 January 2024 the group has £11.3m of cash reserves (31 January 2023: £16m), and £2.5m of available undrawn committed facilities (31 January 2023: £40m).

“In addition, the £26m of deferred Project Quantum funds are due to be received imminently.

“The retail bond covenants have been tested and met as at September 2023 …”