Chief Executive’s statement

Introduction

The last 18 months have exposed the fragility of our system of healthcare provision. Reduced trust in the safety of public transportation, together with continued social distancing, threatens our greatest cities and the national economy. In the context of the national and worldwide suffering of the last 18 months, our annual report is trivial. However, the downturn in our own financial performance is a reflection of the difficulties felt by residents and owners of businesses across our Estate. The impact has been profound for retail and hospitality, forced to close, then to re-open with restrictions and fewer customers. More than ever, we appreciate that buildings and places are vastly more appealing when combined with human interaction and community activity.

COVID-19 impact and response

The effects of the pandemic were ever-present throughout the financial year and heavily influenced the operation of the business. We targeted our financial support to customers who suffered most due to government restrictions. Retail was hit particularly hard and, whilst we achieved a reasonable level of rent collection, this was combined with concessions, including deferral and rent discounts. We also assisted Hospitality, with the introduction of some turnover-based rents. Our approach was engagement on a case-by-case basis and we favoured those customers who were willing to share some of the financial burden and their financial information with us. Despite a small number of office occupiers choosing to break leases, our rent collection was robust. Our healthcare income remained strong, emphasising its countercyclical quality. The exodus from city centres created a much higher level of voids in our Residential portfolio and, combined with an over-supplied market, forced a pragmatic approach to agreeing short tenancies at reduced rents. Due to the ongoing uncertainty as the market recovers, we have made a much higher level of provision against outstanding rent and service charges than in the previous year.

Our financial support for the community and charities increased and we decided to front-load our contributions towards the beginning of our financial year. We always try to connect with our communities and offer support through volunteering, or linking our donations with ways which can assist us improve diversity in real estate and within our business. Due to social distancing, it was extremely difficult to provide physical support this year. Information on the communities and organisations we have been able to help are detailed on pages 38 and 39. Our colleagues provided a constant physical presence throughout, varying from essential support, rotas and voluntary office attendance that has largely applied since September 2020. I am immensely proud of what they have achieved. The resilience in our operational performance and the financial outcome achieved in extreme adversity is down to their collective efforts. They have embraced the need to return to the office, faced difficult negotiations and have driven performance with agility and skill. It has been a challenging period for everyone and because of this we have prioritised wellbeing initiatives and increased communication. We will continue to look for ways to help our colleagues achieve a higher level of performance.

Financial performance

After the largest economic contraction in the UK for 300 years, our rental income and revenue profit were considerably lower than they were 12 months earlier. However, the impact was less severe than we had anticipated at the onset of the crisis. This was helped by our diversified portfolio, particularly resilient healthcare income, which partially offset rental decline in residential, office and retail. Rental income decreased by 8.7% to £131.8 million with revenue profit before tax falling 18.0% to £63.6 million. The fall in rental income had a greater impact on profit performance as our operating costs were largely the same as the preceding year. Non-essential expenditure was reduced, but the Group’s largest items of expenditure are property and payroll costs, with the former increasing and the latter largely unchanged. Despite the pressure on income, it was important to make sure that the quality of our buildings and operating performance were maintained.

Property valuation overall declined by 2.8%, but with significant variability across the sectors. Retail and leisure fell 27.3% whilst healthcare increased by 10.4%. Movements in office, down 8.2%, and residential, down 3.3%, were generally in line with changes experienced in these asset classes in central London. On a like-for-like basis, property valuations fell by 4.9%.

A summary of financial performance is provided on pages 24 and 25.

Outlook

Whilst infection rates have spiked over the summer months because of the Delta variant of COVID-19, it is becoming clear that the UK’s expeditious programme of vaccination is breaking the link between infection, serious illness, and death. This evidence has allowed the Government to recently withdraw the remaining restrictions, including the default option to work from home where possible. For economic recovery to succeed we need strong cities with safe public transportation.

Howard de Walden is committed to reinvigorating Marylebone Village and will continue to take safe steps to increase footfall, which includes seeking a permanent pedestrianisation of Marylebone Lane. We remain committed in the long term to retailers intent on providing