TIDMDLN
RNS Number : 9083M
Derwent London PLC
24 August 2011
24 August 2011
Interim results for the six months ended 30 June 2011
STRONG PERFORMANCE FROM DERWENT LONDON
Highlights
Excellent lettings performance
-- Income of GBP8.5m pa from lettings in the six months ended 30
June 2011 exceeded the whole of 2010
-- Open market transactions in the first half were 9.6% above
year end estimated rental values
-- Further lettings with total income of GBP4.1m pa since 30
June 2011 and Angel Building EC1 now 95% let
-- Vacancy rate falls to 1.1% taking into account space let or
under offer since 30 June 2011
Valuation
-- Property portfolio valued at GBP2.6bn at 30 June 2011, an
underlying valuation increase of 5.1% in six months, outperforming
the IPD Capital Growth Index of 4.6% for central London offices and
1.4% for all UK property
-- Robust rental growth with estimated rental values increasing
by 4.0% in the first half
-- EPRA adjusted NAV per share increased in the half year by
10.0% to 1,621p at 30 June 2011
Progress on projects
-- Total projects on site or due to commence in 2011 amount to
450,000 sq ft (41,800m(2))
-- Two planning consents received and four more decisions due
shortly including 80 Charlotte Street W1 where the outcome will now
be determined by the Mayor of London
-- Planning applications to be submitted in the second half
including Riverwalk House SW1 and 1 Oxford Street W1
Acquisitions and disposals
-- Acquisitions of 1 Page Street SW1 and the Network Building W1
totalling GBP76m
-- Active capital recycling programme amounting to GBP127m at
37% above book value
Finance
-- EPRA profit before tax of GBP26.6m (30 June 2010:
GBP26.3m)
-- Loan to value ratio of 34.2% at 30 June 2011 (31 December
2010: 35.7%)
-- Successful launch in May 2011 of a GBP175m convertible bond
due July 2016 with a 2.75% coupon and an initial conversion price
of GBP22.22
-- Interim dividend increased by 8.0% to 9.45p per share
Awards
-- Angel Building EC1 shortlisted for the prestigious RIBA
Stirling Prize 2011
John Burns, Chief Executive, commented:
'We are pleased to report a strong half year performance. We
continue to see good demand for our space and have further
strengthened our financial base through disposals and the GBP175m
convertible bond issue. Although the economic outlook has become
more uncertain in recent weeks, the Group is well positioned with
its substantial reversionary income stream and flexible pipeline of
future schemes.'
For further information, please contact:
Derwent London Tel: 020 7659 3000
John Burns, Chief Executive Officer
Damian Wisniewski, Finance Director
Bridget Walker, Corporate Communications
Brunswick Group LLP Tel: 020 7404 5959
Kate Holgate / Alison Dykes / Elizabeth Adams
There will be a webcast of the results at 9:30am today which can
be accessed at www.derwentlondon.com
Chairman's statement
Review
Derwent London's core operating areas in London's West End
continued to demonstrate their resilience during the first half of
2011 in contrast to the rest of the United Kingdom where the
effects of economic uncertainty prevailed. During this period, the
Group's EPRA adjusted net asset value per share increased 10.0% to
1,621p from 1,474p at the year end, driven by rental growth,
development surpluses and another excellent letting performance.
The underlying valuation increase in the Group's portfolio over the
period was 5.1% which compares to a return of 4.6% from the IPD
Capital Growth Index for central London offices and 1.4% for all UK
property.
In central London, both the investment and occupational markets
showed strength through the period. The investment market continued
to benefit from London being a preferred location for international
investors whilst tenant demand in central London has led to higher
rents in an environment of limited available space.
During the first half, there was sustained appetite for the
Group's distinctive brand of mid-priced, well designed office
space. Fifty-one transactions were completed totalling 264,800 sq
ft (24,600m(2)) with a combined annual rental income of GBP8.5m.
This exceeds the income generated from lettings made in the whole
of 2010. Since the half year, a further 107,400 sq ft (10,000m(2))
has been let with a total rental income of GBP4.1m per annum
including 81,300 sq ft (7,600m(2)) to Expedia at the Angel
Building. This flagship building, which has won three architectural
awards and recently been nominated for the prestigious RIBA
Stirling Prize, is now 95% let and our success here demonstrates
the Group's ability to attract tenants to improving London
villages.
Lettings completed in the year to date together with space put
under offer have reduced the level of immediately available space
to only 1.1% and, overall, the open market lettings made in the
same period achieved rents 10.1% above the December 2010 estimated
rental values.
Since the year end we have taken the opportunity to recycle
GBP127m of capital through disposals which realised a surplus of
37% above the December 2010 valuation, after adjusting for capital
expenditure. The disposals are as follows: five properties in
Covent Garden for GBP68m; 79-89 Pentonville Road N1 for GBP11m;
Victory House W1 for GBP37m; and a site at Leonard Street EC2 for
GBP11m where we had obtained planning permission for a mainly
residential scheme. The last two of these sales have been completed
since the half year.
Encouraged by these achievements we have pushed ahead with work
at our regeneration and redevelopment sites and advanced our plans
for a number of projects in the development pipeline so
establishing a solid platform for the delivery of key schemes over
the next few years.
The refurbishment of Victory House was completed in July and we
are currently on site at four major projects which, when complete,
will have a total area of 307,000 sq ft (28,500m(2)). Total capital
expenditure to complete these four projects is approximately
GBP47m. Two further schemes are planned to commence in the second
half of the year.
We expect to hear the outcome of the Mayor of London's review of
our planning application for the redevelopment of 80 Charlotte
Street W1 on 19 September 2011. The Mayor, who has ultimate
authority in planning matters in the capital, has called in our
application following its refusal by the local authority despite
being recommended for approval by its planning officers.
At 132-142 Hampstead Road NW1, we await the results of the
public consultation into HS2, the controversial new high speed rail
link, which may impact upon our property. While this process is
being completed we continue to develop two alternative schemes for
the site and work to capitalise on the pre-let interest shown by
potential tenants. This should enable us to make a decision as to
the optimum strategy for the building by the end of the year.
Vacant possession has been achieved at Riverwalk House SW1 and
we will shortly be submitting a planning application for a 148,000
sq ft (13,700m(2)) high-grade residential scheme. We are in
negotiations to sell the site whilst retaining a share in the
project's profit over a minimum level. In addition we continue to
make progress in our negotiations with the freeholder of our
Grosvenor Place properties and look forward to providing a more
detailed update later in the year.
Whilst progressing major schemes from our pipeline, we also
considered a number of possible additions to the portfolio and were
pleased to make two off-market, central London acquisitions in the
first half for GBP76m before costs. We acquired 1 Page Street SW1
for GBP45m and the headlease of the Network Building, 95-100
Tottenham Court Road W1, where we already held the freehold, for
GBP31m. We continue to look for further acquisitions that will
contribute to the strategic aims of the Group.
In June the Group took advantage of favourable financial market
conditions to diversify its sources of finance by issuing a GBP175m
convertible bond on attractive terms including a coupon rate of
2.75% and an initial conversion price of GBP22.22 per share. This
represented a 30% premium to the share price on the day of issue
and was approximately 50% above the Group's net asset value per
share at 31 December 2010. The Group also added two years to the
term of a GBP100m revolving bank facility that had been due to
expire in 2013.
Results
EPRA profit before tax for the six month period increased to
GBP26.6m from GBP26.3m for the comparable period in 2010 whilst
statutory profit before tax, which includes valuation movements,
was GBP173.3m compared to GBP214.1m in the first half of 2010. The
year-on-year reduction was primarily caused by the reduced
revaluation surplus. Interest cover for the first half, which
reflects the Group's new accounting policy regarding the
capitalisation of interest, was 312%, only slightly lower than the
320% reported for the first half of 2010.
As at 30 June 2011, the Group's net debt increased to GBP904.5m
from GBP887.8m at the year end. However, with the increase in
property values over the period, the Group's loan to value ratio
declined from 35.7% at 31 December 2010 to 34.2% at the half
year.
Boosted by the funds raised from the convertible bond, undrawn
available bank facilities increased from GBP245m at the year end to
GBP402m at 30 June 2011. Over the same period, the level of
uncharged property increased from GBP484m to GBP541m.
Dividend
In line with the board's progressive dividend policy and
supported by the Group's strong financial position, the interim
dividend has been increased by 8.0% to 9.45p per share from last
year's level of 8.75p per share. The dividend remains well covered
and will be paid as a property income distribution on 4 November
2011 to shareholders on the register at the close of business on 30
September 2011. A scrip alternative is being offered for this
dividend.
Outlook
Throughout the first half, conditions in the central London
market were favourable, supported by investment and tenant demand.
However, recent concerns over the weakness of the global economic
recovery, the levels of sovereign debt in Europe and the US budget
deficit have made the outlook for the second half more uncertain.
We are mindful of the risks that this presents but have no
significant exposure to the City core which is likely to be
affected most by these influences. In addition, with our strong
balance sheet, adaptable development pipeline, low capital values
and affordable rents, we are well positioned to respond to events
appropriately.
We are therefore continuing to assess potential acquisitions and
to move ahead with the Group's development programme to capitalise
on its value enhancing opportunities. We believe that our flexible
and proven business model, with an emphasis on creative asset
management, will continue to deliver above average long-term
returns to shareholders.
R.A. Rayne
24 August 2011
Business review
Our market
Central London's economy and property market both continued to
perform well during the first half as demand from tenants coincided
with low development completions. The vacancy rate in the central
London office market fell to 4.9%, its lowest level since the third
quarter of 2008 and the supply-demand imbalance led to growth in
rental and capital values. The strongest performance in central
London was in the West End, where the vacancy rate fell to 3.8%
from 5.2% at the beginning of the year; it is likely to fall
further in the second half given the limited amount of space due
for delivery. In the City, the vacancy rate in the first half fell
to 6.6% from 6.8%.
On the investment side, the central London market remained
attractive to both domestic and overseas investors partly due to
continued weakness in sterling and low interest rates. In the first
half, transactions totalled GBP4.5bn which was GBP0.6bn higher than
the same period last year and in line with the long-term
average.
Our portfolio
Valuation
At 30 June 2011, the Group's total property portfolio was valued
at GBP2.6bn. The valuation surplus over the first half of 2011 was
GBP123.1m before lease incentive adjustments of GBP4.6m, giving a
total surplus of GBP118.5m. Although the valuation benefitted from
a slight yield shift, rental growth and project surpluses were the
dominant factors in delivering this performance.
The first half of the year saw an underlying valuation increase
of 5.1%, similar to the 5.0% growth in the second half of 2010.
This would have been 80 basis points higher at 5.9% if the sales
completed in the first half, which achieved very attractive levels,
had been retained and valued at the disposal price. Both valuation
returns were above the IPD Capital Growth Index of 4.6% for central
London offices and of 1.4% for all UK property.
Our central London assets, which represent 96% of the portfolio,
increased in value by 5.3%, with the balance of the portfolio, our
Scottish holdings, increasing by 1.1%. Within central London, the
West End had the best performance with growth of 5.4%, whilst the
City border properties increased by 4.9%. Our development
properties, which form part of our investment portfolio, were
valued at GBP132.3m and there was a strong underlying valuation
gain of 18.8%. The main contributor was the GBP9.5m (37%) uplift at
Victory House, Fitzrovia which was pre-sold and the sale completed
after the half year for GBP37.2m.
There was robust rental growth across the portfolio which
reflected the continued strength of the central London office
market and the buoyant demand for our particular brand of
contemporary, mid-market space. The portfolio's underlying
estimated rental value increased by 4.0% over the first half,
giving an 18-month improving trend. The increase was 2.8% in the
second half of 2010 and 2.6% in the first half of 2010. Looking at
our current letting enquiries and activity, this rental value
progression appears sustainable over the near term. In addition,
with our low average office rents at GBP25.82 per sq ft (GBP278 per
m(2)) in central London and GBP27.16 per sq ft (GBP292 per m(2)) in
the West End properties, these levels offer good prospects for
growth in the supply-constrained occupier market.
The portfolio's EPRA net initial yield was 4.3% at 30 June 2011
which would rise to 5.2% on an EPRA 'topped up' basis, following
the expiry of rent-free periods and contracted rental uplifts. The
reversionary yield is 5.8%. This compares to the 2010 year end
yield profile of 4.7%, 5.3% and 5.9%, respectively.
The portfolio's true equivalent yield was 5.7% at the half year,
a slight tightening on the 5.8% at the year end. Looking at the
Group's total property return this was 7.9% for the first half
against our benchmark IPD Central London Office Index of 7.2% and
the All UK Property Index of 4.4%.
Lettings
There has been sustained demand for our space; total annual
rental income from new lettings in the first half amounted to
GBP8.5m which compares to GBP3.5m for the first six months of 2010
and GBP8.0m for the whole of 2010. Open market lettings, which
accounted for three quarters of the total by floorspace, were 9.6%
ahead of estimated rental values at 31 December 2010. At the end of
June, the portfolio's vacancy rate for immediately available space
had fallen from 5.9% to 4.0% by estimated rental value and from
4.9% to 3.5% by floor area since the year end.
Overall, in the first half, there were 51 lettings for
floorspace of 264,800 sq ft (24,600m(2)) which compares to 47
transactions for 125,700 sq ft (11,700m(2)) in the first half of
2010. Including short-term transactions at properties held for
future development, lettings were 5.9% above estimated rental
values at 31 December 2010. Altogether, 76% of lettings were to
tenants who wanted more space, 20% who kept it unchanged and 4% who
reduced the amount of space they occupied.
Momentum has continued since the end of June with further
transactions amounting to 107,400 sq ft (10,000m(2)) at an income
of GBP4.1m pa. This takes total lettings year to date to 372,200 sq
ft (34,600m(2)) at GBP12.6m pa, of which open market lettings were
10.1% above year end estimated rental values. Including all
transactions and space placed under offer, the Group's vacancy rate
would fall to 1.1% by estimated rental value. We are particularly
pleased with progress at the Angel Building EC1 which is now 95%
let less than a year since completion. We concluded four
transactions at this property in the first half amounting to 41,600
sq ft (3,900m(2)) and GBP1.6m annual rental income; Sage Pay and NG
Bailey took office space on the third floor, while the two main
retail units were let to restaurant operators Jamie's Italian and
Busaba Eathai. In July, Expedia took the two upper floors totalling
81,300 sq ft (7,600m(2)) at an annual rental income of GBP3.3m and
the last remaining retail unit went under offer. This leaves just
over 12,000 sq ft (1,100m(2)) of office space available in the
263,000 sq ft (24,400m(2)) building.
At the Tea Building E1, rents reached GBP32.50 per sq ft (GBP350
per m(2)), in a letting to Method, a media consultancy. This
represents a substantial increase on initial rents of GBP10 per sq
ft (GBP110 per m(2)) nearly ten years ago. This building, which has
become a hub for creative and technology companies, has a waiting
list of occupiers and goes from strength to strength.
Other office leasing transactions in the first half included two
previously reported pre-lets at 88 Rosebery Avenue EC1 and 33
George Street W1. The recently completed Fitzroy+Maple office
refurbishment in Fitzrovia was also fully let during the second
quarter in two transactions; one to a financial firm at 1 Maple
Place and the other to a media agency at 12 Fitzroy Street,
achieving rents of GBP41 per sq ft (GBP440 per m(2)) and GBP40 per
sq ft (GBP430 per m(2)), respectively, 28% and 21% above year end
estimated rental values.
Asset management
As reported earlier in the year, two important asset management
initiatives were completed in the first half, allowing potential
for significant value uplift through refurbishment. Whilst the
previous tenant continues to pay rent of GBP2.45m pa until March
2015, we have obtained vacant possession and are on site at
Woodbridge House EC1, which is being refurbished and the space
enlarged by 13% to 85,000 sq ft (7,900m(2)). At Morelands Buildings
EC1 the headlease has been regeared and, following some minor works
in the first half, a 33,000 sq ft (3,100m(2)) refurbishment of
approximately 40% of the building will commence later this
year.
We continue to add value to the portfolio through active asset
management with 14 rent reviews and 17 lease renewals concluded in
the first half of the year, at a combined rent of GBP4.7m pa. This
reflects an uplift of GBP0.6m pa or 13.9% on the previous
income.
Tenant retention remains high. During the first half of the
year, lease expiries and breaks in the portfolio amounted to a
total rental income of GBP10.8m pa. After excluding space taken
back for identified projects, which represented GBP4.8m pa, 77% of
this income was retained, 17% re-let during the half year and a
further 2% subsequently re-let or placed under offer, in line with
last year's performance. Rent collection was also prompt in the
opening two quarters of the year with 96% and 97% of rent collected
within 14 days of the due date in the first and second quarters,
respectively.
Projects update
During the first half, we commenced work on four schemes and
received two planning consents, at Woodbridge House EC1 and 2-14
Pentonville Road N1. In the second half we intend to begin upgrades
at Central Cross W1 and Morelands Buildings EC1. We also await the
outcome of four planning applications which are due shortly, at
Central Cross W1, 80 Charlotte Street W1, Turnmill EC1 and City
Road Estate EC1 and will submit a number of further applications
including major schemes at Riverwalk House SW1 and 1 Oxford Street
W1.
On site
Total projects on site or due to commence in 2011 amount to
450,000 sq ft (41,800m(2)) with an estimated capital expenditure of
GBP71m.
At 30 June 2011, there were five principal projects on site
totalling 355,000 sq ft (33,000m(2)) including:
-- 1 Page Street SW1 - an extensive refurbishment of this
118,000 sq ft (11,000m(2)) building to provide high quality,
contemporary office space for either single or multiple occupation
with delivery next year and estimated rents of c.GBP47.50 per sq ft
(GBP510 per m(2)).
-- Woodbridge House, 30 Aylesbury Street EC1 - this building is
being refurbished and extended to 85,000 sq ft (7,900m(2)). The
works are due to complete in the final quarter of 2012 and we
anticipate achieving rents of c.GBP40 per sq ft (GBP430 per
m(2)).
-- 2-14 Pentonville Road N1 - an office refurbishment and
extension is underway, increasing the floor area by over 20% to
55,000 sq ft (5,100m(2)). This scheme, which is located opposite
the Angel Building, is expected to complete in the third quarter of
2012 with rents of c.GBP35 per sq ft (GBP380 per m(2)).
-- 88 Rosebery Avenue EC1 - a 49,000 sq ft (4,500m(2))
refurbishment of nearly half the building which has been pre-let to
City University at GBP1.2m pa.
-- Victory House, 170 Tottenham Court Road W1 - this 48,000 sq
ft (4,500m(2)) office, residential and retail refurbishment
completed in July and was subsequently sold for GBP37.2m.
In the first half of the year we also completed six projects
amounting to 91,400 sq ft (8,500m(2)) with an estimated rental
value of GBP2.9m pa at 30 June 2011; over 85% has already been
pre-let or let.
We expect to commence work on two further schemes in the second
half of the year:
-- Central Cross W1 - planning permission is expected shortly
for phase one of our upgrade which includes reconfiguration of the
office entrance and the creation of 21,000 sq ft (2,000m(2)) of
ground floor offices. We also plan to refurbish office space within
the building of up to 41,000 sq ft (3,800m(2)) in phases over the
next year, subject to lease expiries. Construction work should take
approximately one year with total capital expenditure of
GBP13m.
-- Morelands Buildings EC1 - a 33,000 sq ft (3,100m(2))
refurbishment and extension of this Clerkenwell property.
Development pipeline
Proposed projects totalling 435,000 sq ft (40,400m(2)) are due
to commence in 2012 and additional projects amounting to some 1.7
million sq ft (157,900m(2)) are earmarked for 2013 onwards.
Projects due to commence in 2012:
-- 132-142 Hampstead Road NW1 - we have continued to review our
redevelopment options for this site which is potentially impacted
by the proposed route for HS2, the high speed rail link. We have
planning consent for a 265,000 sq ft (24,600m(2)) scheme, but have
also looked at an alternative, smaller 'Tea West' scheme that would
reconfigure the existing building and be based on our successful
Tea Building in Shoreditch. There has been encouraging pre-let
interest for both options and negotiations are on-going. The
preliminary consultation period for HS2 concluded in July and a
recommendation is due by the end of the year. We aim to make a
decision as to the optimal strategy for this site once the outcome
of the consultation has been published.
-- 40 Chancery Lane WC2 - we are working closely with our
freeholder on this major Midtown redevelopment, where we have
planning permission for a six-storey 100,000 sq ft (9,300m(2))
new-build office. This GBP41m project is anticipated to start on
site in mid-2012 with delivery in 2014.
-- Turnmill EC1 - there has been a series of planning delays but
we hope to receive a decision shortly for this 70,000 sq ft
(6,500m(2)) new-build office scheme with total capex of GBP27m.
Projects due to commence from 2013 onwards:
-- 80 Charlotte Street W1 - in May, despite planning officer
recommendation, the London Borough of Camden refused permission for
this 367,000 sq ft (34,100m(2)) mixed-use scheme in Fitzrovia.
However, the Mayor of London has the ability to take over planning
applications considered to be of wider strategic importance to the
capital. In June, the Mayor exercised this power and 'called in'
the application, citing the contribution this redevelopment would
make to the competitiveness of London's wider economy. The plans
will now be scrutinised by him before a final decision is made in
September. The scheme includes 336,000 sq ft (31,200m(2)) of
office, residential and retail space at 80 Charlotte Street and
31,000 sq ft (2,900m(2)) of residential at nearby 65 Whitfield
Street and 1-8 Whitfield Place. The occupational lease on this
property runs to 2013.
-- 1-5 Grosvenor Place SW1 - discussions continue with the
freeholder, the Grosvenor Estate, on the future of this prime
Belgravia holding that occupies 1.5 acres at Hyde Park Corner where
we are considering a mixed-use scheme. The existing buildings total
168,000 sq ft (15,600m(2)) and there is potential to increase the
floor area by more than 50%. The occupational leases allow for a
redevelopment that could commence in 2014.
-- Riverwalk House, 157-166 Millbank SW1 - we have now completed
design studies for a major high-grade residential scheme at this
unique riverside location in Victoria. A planning application will
be submitted shortly for a 121 unit 148,000 sq ft (13,700m(2))
building. Vacant possession has recently been obtained and we are
in advanced negotiations to sell the site, subject to obtaining
planning permission and participating in the scheme by way of a
profit overage.
-- 1 Oxford Street W1 - we expect to submit a planning
application shortly, in collaboration with Crossrail Limited, for a
mixed-use scheme totalling some 277,000 sq ft (25,700m(2)). This
project will be located above the Tottenham Court Road station and
we have an option to acquire the site after completion of the
Crossrail and London Underground works. This is estimated to be
around 2017.
-- City Road Estate EC1 - a planning decision for this 285,000
sq ft (26,500m(2)) development is due shortly. This is an
office-led regeneration that includes a new 16-storey office
building incorporating our White Collar Factory concept and
represents an uplift of 161,000 sq ft (15,000m(2)) over the
existing buildings.
Acquisitions
We continue to appraise buying opportunities across central
London. As previously announced, we concluded two off-market
acquisitions totalling GBP76.0m before costs in the first half of
the year:
-- 1 Page Street SW1 - located close to our successful
Horseferry House project in Victoria and acquired for GBP45.0m
before costs in the first quarter with vacant possession. We have
subsequently commenced a major refurbishment.
-- Network Building, 95-100 Tottenham Court Road W1 - we
purchased the headlease for GBP31.0m before costs in the second
quarter. The Group already owned the freehold of this 64,000 sq ft
(5,900m(2)) multi-let office and retail building in Fitzrovia and
the acquisition will add GBP2.1m to the portfolio's annual
rent.
Additionally, in June we purchased an 18,300 sq ft (1,700m(2))
office building at 423-425 Caledonian Road N7 for GBP5.6m before
costs at a net initial yield of 5.9%. It adjoins an existing
holding, Balmoral Grove Buildings, where we are formulating a
residential planning permission. As discussed in the asset
management section, we also regeared the headlease of the Morelands
Buildings EC1 for GBP5.8m before costs.
Disposals
We look to recycle capital through the selective disposal of
mature or smaller assets. Since the year end we have completed
several disposals which are detailed below. These sales amounted to
GBP127.2m before costs and gave rise to an overall surplus of
approximately GBP33.5m, which was 37% above the December 2010
valuation.
Completed in the first half:
-- Covent Garden Estate WC2 - as announced in May, five freehold
properties located in King Street, Floral Street and Rose Street,
were sold for GBP68.0m before costs reflecting a purchaser's net
initial yield of 3.5%. The estate comprised 71,900 sq ft
(6,700m(2)) of office, retail and residential accommodation with 10
tenants producing income of GBP2.5m pa.
-- 79-89 Pentonville Road N1 - this low-income 35,600 sq ft
(3,300m(2)) property, currently used for self-storage units, was
sold in June for GBP11.0m before costs.
Completed in the second half:
-- Victory House, 170 Tottenham Court Road W1 - as announced in
May, we agreed to sell this 48,000 sq ft (4,500m(2)) mixed-used
property for GBP37.2m. Completion took place in July following an
extensive refurbishment.
-- 18-30 Leonard Street EC2 - in July, we sold a long leasehold
interest of this cleared site for GBP11.0m. Located just off the
Old Street roundabout, to the rear of our Oliver's Yard property,
the site has planning permission for 47 residential units totalling
35,000 sq ft (3,200m(2)) and 20,000 sq ft (1,900m(2)) of
offices.
Awards
We are delighted that the Angel Building has been shortlisted
for the prestigious RIBA Stirling Prize 2011, having won a RIBA
London Award 2011. This is truly an accolade, especially as this
appears to be the first time a development initiated by a property
company has been shortlisted. Furthermore, this reflects increasing
recognition of the importance in the workplace of innovative
refurbishment which has always been a key element of our projects.
The Angel Building has also been awarded the BCO London and South
East Refurbished/Recycled Workplace Award 2011 and was a joint
winner of the Working category at the 2011 New London Architecture
awards.
We are also pleased that our Fitzroy+Maple development won a
RIBA London Award 2011 and won its category at the 2011 New London
Architecture awards.
Results
Fuelled principally by rental and ERV growth, a strong letting
performance and some profitable disposals, the Group's EPRA
adjusted net asset value per share increased during the first half
of 2011 by 10.0% to 1,621p on a diluted basis. This represents a
19.5% increase over the last 12 months and a 64.2% recovery in net
asset value over the two years since June 2009.
The disposals, which comprised low-yielding properties in Covent
Garden and Pentonville Road, gave rise to a profit of GBP21.5m or
38% over December 2010 book values. In addition, Victory House and
a site in Leonard Street were sold in July 2011 resulting in a
profit of approximately GBP12.0m which will be recognised in the
second half of the year. At the half year, these properties were
revalued and transferred to 'assets held for sale' as required by
IFRS 5. Acquisitions in the first half totalled GBP91.6m made up
mainly of GBP47.1m at 1 Page Street, GBP32.3m at the Network
Building, a property at Caledonian Road, and a new headlease at the
Morelands Buildings. The revaluation surplus for the half year to
30 June 2011 has added GBP118.5m and brings the fair value of the
property portfolio to GBP2.6bn. It should be noted that the portion
of 25 Savile Row that is occupied as our head office has been
reclassified as 'property, plant and equipment' and the
comparatives have been restated accordingly. Revaluation movements
on the owner-occupied part of the building are now being taken
through the statement of comprehensive income and not on the face
of the income statement.
The Group's leasing successes and property acquisitions since
June 2010 have driven gross property income to GBP62.5m from
GBP57.4m a year earlier. Of this increase, GBP4.9m arises from
acquisitions and GBP5.2m from lettings and rent reviews. The
balance relates mainly to lease breaks or expiries, the latter
including properties that are now being refurbished or developed.
Due to surrender premiums paid of GBP2.0m and the effect of higher
voids in the period while we let the Angel Building, net property
income increased by a lower proportion but, at GBP57.8m, was 5.3%
up from GBP54.9m a year earlier. The like-for-like increase in
gross rental income was 2.4% compared to the first half of 2010 and
2.2% compared to the second half.
Administrative expenses and net finance costs both increased
compared to the first half of 2010 but the former were almost
identical to the equivalent figure in the second half of last year.
Finance costs reflect higher net borrowings during the period
offset by slightly lower average borrowing costs and a modest
amount of interest capitalised as our accounting policy changed
from the beginning of this year. In the first half of 2011, GBP0.8m
of interest was capitalised and it is expected that this amount
will increase as project expenditure rises.
EPRA profit before taxation, which excludes the impact of the
GBP21.5m profit on disposal of investment properties but which has
continued to benefit from GBP1.4m of rates credits during the
period, increased to GBP26.6m from GBP26.3m in the first half of
2010. The profit before tax, which includes asset and derivative
revaluation movements as well as the profit on disposals, was
GBP173.3m for the first six months of 2011 compared to GBP214.1m in
the equivalent period in 2010. This is principally because
investment property revaluation gains in the first half of 2010
were GBP80.2m higher than in the six months ended 30 June 2011,
offset to some extent by a reversal of GBP18.7m in the movement in
interest rate hedging fair values.
Issue of convertible bond
In May 2011, Derwent London became the first UK REIT to launch a
convertible bond. The issue was well received, closed in June 2011
and raised GBP175m before costs. This unsecured instrument pays a
coupon of 2.75% until July 2016 and the initial conversion price
was set at GBP22.22 per share. This was equivalent to a 30% premium
to the share price on the date of issue and was almost exactly 50%
above the Group net asset value as at 31 December 2010. We were
attracted to this form of finance due to the flexibility offered by
its unsecured nature and its relative pricing.
IFRS requires that the equity and debt components of the bond
are accounted for separately and, as a result, GBP161.0m net of
costs has been recognised as a liability in the balance sheet at 30
June 2011 and GBP9.4m has been credited to reserves. The liability
is discounted and the discount amortises through the income
statement from the date of issue. Bond issue costs of GBP4.8m have
been allocated between equity and debt and costs in relation to the
debt component are also being amortised over the life of the
bond.
Borrowings and cash flow
Though net debt at 30 June 2011 increased slightly to GBP904.5m
from GBP887.8m six months earlier, the proceeds from the
convertible bond issue have provided the Group with additional
headroom to fund acquisitions and developments. The Group's undrawn
available bank facilities increased to GBP402m at 30 June 2011 from
GBP245m at 31 December 2010 and the level of uncharged property
increased to GBP541m from GBP484m at the year end. Following
completion of the property disposals in July referred to above, the
Group's undrawn available facilities increased to over GBP450m.
The net proceeds of the convertible bond were initially used to
repay floating rate borrowings and, as a result of this and a new
interest rate hedge entered into in January 2011, the Group's
proportion of fixed rate or hedged debt increased to 94% by 30 June
2011 from 70% at the year end. Though the coupon on the bond is
low, the rate payable on floating rate facilities is lower still
and so there has been a small increase in the weighted average cost
of debt to a spot rate of 4.66% at 30 June 2011 from 4.34% at 31
December 2010. The equivalent weighted average cost at 30 June 2010
was 4.92%. The figure quoted at 30 June 2011 takes no account of
the IFRS accounting adjustments that effectively increase the
coupon payable on the bond above the cash level and, if that
adjustment is taken into account, the weighted average cost of debt
increases to 4.90%.
After a few months of relative calm, the global financial
markets have recently become very unsettled by renewed sovereign
debt concerns, the debate over the US budget and concern that the
weak global economic recovery is losing momentum. A flight to
safety has pushed gilt and lower-risk bond yields down and has also
encouraged UK interest rate swap rates close to all-time lows since
the end of June. That weakness was not yet apparent in the first
six months of 2011 during which the Group experienced a
mark-to-market gain of GBP7.8m in relation to its derivative
financial instruments. However, the gain has more than reversed so
far in the second half.
In June 2011, we signed an extension to one of the Group's
bilateral revolving credit facilities taking its term out to April
2015. There was no reduction in the facility amount of GBP100m but
there is an immediate margin increase of 50bp and the margin steps
up again to 175bp in April 2012. An unsecured GBP32.5m facility
falling due in June 2012 that was arranged as part of the
acquisition arrangements for the London Merchant Securities
transaction in 2007 will not be renewed as we consider the Group
has sufficient alternative facilities. In relation to the two
facilities totalling GBP475m that fall due for repayment in 2013,
discussions are underway with a number of banks and other potential
lenders and are progressing well. There is strong interest both
from existing lending relationships and prospective new
lenders.
Net cash from operating activities increased to GBP21.5m for the
first half of 2011 from GBP19.5m a year earlier. Cash invested in
acquisitions and capital expenditure increased to GBP107.0m for the
period from GBP30.9m for the corresponding period in 2010. However,
this was partially offset by property disposal proceeds of GBP79.0m
so the net cash used in investing activities for the half year was
relatively low at GBP28.9m against GBP31.7m in 2010. With the
modest increase in net debt and the increase in property values
outlined earlier, gearing levels have fallen during the period. The
Group's loan to value ratio was 34.2% at 30 June 2011, down from
35.7% at December 2010 and only slightly higher than the 33.8% in
June 2010. Interest cover has remained strong at 312% compared to
320% in the first half of 2010. If capitalised interest is ignored,
interest cover for the first half of 2011 reduces slightly but
remains substantial at 302%.
Derwent London's financial position remains strong and we have
therefore increased the interim dividend by 8% to 9.45p per share
from 8.75p per share last year. At this level the dividend remains
well covered.
Responsibility statement
The Directors confirm to the best of their knowledge:
-- the unaudited condensed set of financial statements has been
prepared in accordance with IAS 34 "Interim Financial Reporting" as
adopted by the EU; and
-- the interim management report includes a fair review of the
information required by DTR 4.2.7R and DTR 4.2.8R of the Disclosure
and Transparency Rules of the UK Financial Services Authority.
The business review refers to important events which have taken
place in the period.
The principal risks and uncertainties facing the business are
discussed in note 22.
A list of the current Directors is maintained on the Derwent
London plc website: www.derwentlondon.com.
On behalf of the board
J.D. Burns D.M.A. Wisniewski
Chief Executive Officer Finance Director
24 August 2011
GROUP CONDENSED INCOME STATEMENT (UNAUDITED)
Half year Half year Year to
to 30.06.2011 to 30.06.2010 31.12.2010
Restated Restated
Note GBPm GBPm GBPm
----------------- -------------- -------------- -------------
Gross property
income 4 62.5 57.4 119.4
Other income 1.0 1.1 1.7
------------------ -------------- -------------- -------------
Total income 63.5 58.5 121.1
Property outgoings (5.7) (3.6) (8.1)
Net property
income 57.8 54.9 113.0
Administrative
expenses (11.0) (10.0) (21.0)
Movement in
valuation of
cash-settled
share
options (0.2) 0.5 0.1
----------------- -------------- -------------- -------------
Total
administrative
expenses (11.2) (9.5) (20.9)
Revaluation
surplus 117.3 197.5 298.1
Profit on disposal
of investment
properties 5 21.5 - 0.9
Profit from
operations 185.4 242.9 391.1
Finance income 0.5 0.6 1.9
Foreign exchange
gain 0.2 - -
------------------ -------------- -------------- -------------
Total finance
income 6 0.7 0.6 1.9
Finance costs (21.5) (19.4) (39.6)
Foreign exchange
loss - (0.4) (0.2)
------------------- -------------- -------------- -------------
Total finance
costs 6 (21.5) (19.8) (39.8)
Movement in fair
value of
derivative
financial
instruments 7.8 (10.9) (2.4)
Share of results
of joint
ventures 7 0.9 1.3 2.0
Profit before tax 173.3 214.1 352.8
Tax
credit/(charge) 8 0.5 (0.9) -
Profit for the
period 173.8 213.2 352.8
Attributable to:
- Equity
shareholders 169.3 208.3 343.6
- Minority
interest 4.5 4.9 9.2
173.8 213.2 352.8
Earnings per share 9 167.26p 206.00p 339.68p
Diluted earnings 9 164.68p 204.65p 337.47p
per share
GROUP CONDENSED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
Half year Half year Year to
to 30.06.2011 to 30.06.2010 31.12.2010
Restated Restated
Note GBPm GBPm GBPm
---------------- -------- ------- -------------- ----------------
Profit for the
period 173.8 213.2 352.8
Actuarial losses on defined
benefit pension scheme (0.6) (1.4) (0.4)
Revaluation
surplus of
owner-occupied
property 1.2 2.3 3.6
Deferred tax on
revaluation
surplus 8 (0.2) (0.7) (1.0)
Foreign currency
translation (0.2) 0.4 0.2
----------------- ------- ------- -------------- ----------------
Other comprehensive income 0.2 0.6 2.4
Total comprehensive income
relating to the period 174.0 213.8 355.2
Attributable to:
- Equity
shareholders 169.5 208.9 346.0
- Minority
interest 4.5 4.9 9.2
174.0 213.8 355.2
GROUP CONDENSED BALANCE SHEET (UNAUDITED)
30.06.2011 30.06.2010 31.12.2010
Restated Restated
Note GBPm GBPm GBPm
--------------------------- ---- ---------- ---------- ----------
Non-current assets
1,
Investment property 10 2,496.5 2,105.0 2,373.3
Property, plant and 1,
equipment 11 17.9 15.4 16.7
Investments 9.2 7.7 8.4
Pension scheme surplus 0.2 - 0.7
Other receivables 12 50.2 40.1 45.8
---------------------------- ---- ---------- ---------- ----------
2,574.0 2,168.2 2,444.9
Current assets
Trading properties - 1.0 -
Trade and other receivables 13 45.6 33.4 37.7
Cash and cash equivalents 7.3 3.4 7.2
---------------------------- ---- ---------- ---------- ----------
52.9 37.8 44.9
Non-current assets held for
sale 10 45.4 - -
98.3 37.8 44.9
Total assets 2,672.3 2,206.0 2,489.8
---------------------------- ---- ---------- ---------- ----------
Current liabilities
Bank overdraft 15 7.5 2.7 5.6
Borrowings 15 32.5 - -
Trade and other payables 14 70.4 46.4 63.4
Corporation tax liability 2.7 3.4 3.3
Derivative financial
instruments 15 - 0.6 -
Provisions 2.3 0.3 0.3
---------------------------- ---- ---------- ---------- ----------
115.4 53.4 72.6
Non-current liabilities
Borrowings 15 871.8 749.9 889.4
Derivative financial
instruments 15 17.6 33.3 25.4
Provisions 0.5 1.3 1.8
Pension scheme deficit - 0.4 -
Deferred tax liability 16 5.6 7.0 5.9
---------------------------- ---- ---------- ---------- ----------
895.5 791.9 922.5
Total liabilities 1,010.9 845.3 995.1
---------------------------- ---- ---------- ---------- ----------
Total net assets 1,661.4 1,360.7 1,494.7
Equity
Share capital 5.0 5.0 5.0
Share premium 158.2 158.0 158.2
Other reserves 933.6 922.1 924.0
Retained earnings 514.3 234.0 361.6
---------------------------- ---- ---------- ---------- ----------
Equity shareholders' funds 1,611.1 1,319.1 1,448.8
Minority interest 50.3 41.6 45.9
Total equity 1,661.4 1,360.7 1,494.7
GROUP CONDENSED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
Attributable to equity shareholders
----------------------------------------------
Share Share Other Retained Minority Total
capital premium reserves earnings Total interest equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- ------- -------- -------- -------- -------- -------
At 1 January 2011 5.0 158.2 924.0 361.6 1,448.8 45.9 1,494.7
Total
comprehensive
income
for the period - - 0.8 168.7 169.5 4.5 174.0
Share-based
payments
expense
transferred to
reserves - - 1.5 - 1.5 - 1.5
Transfer between
reserves in
respect of
share-based
payments - - (2.1) 2.1 - - -
Issue of
convertible
bonds - - 9.4 - 9.4 - 9.4
Premium on issue
of shares - 2.4 - - 2.4 - 2.4
Dividends paid - - - (20.5) (20.5) (0.1) (20.6)
Scrip element of
dividends - (2.4) - 2.4 - - -
At 30 June 2011 5.0 158.2 933.6 514.3 1,611.1 50.3 1,661.4
Attributable to equity shareholders
----------------------------------------------
Share Share Other Retained Minority Total
capital premium reserves earnings Total interest equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- ------- -------- -------- -------- -------- -------
At 1 January
2010 * 5.0 156.9 920.1 45.2 1,127.2 36.7 1,163.9
Total
comprehensive
income
for the period
* - - 2.0 206.9 208.9 4.9 213.8
Share-based
payments
expense
transferred to
reserves - - 1.0 - 1.0 - 1.0
Transfer between
reserves in
respect of
share-based
payments - - (1.0) 1.0 - - -
Premium on issue
of shares - 1.1 - - 1.1 - 1.1
Dividends paid - - - (19.1) (19.1) - (19.1)
At 30 June 2010 5.0 158.0 922.1 234.0 1,319.1 41.6 1,360.7
Attributable to equity shareholders
----------------------------------------------
Share Share Other Retained Minority Total
capital premium reserves earnings Total interest equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- ------- -------- -------- -------- -------- -------
At 1 January
2010 * 5.0 156.9 920.1 45.2 1,127.2 36.7 1,163.9
Total
comprehensive
income
for the year * - - 2.8 343.2 346.0 9.2 355.2
Share-based
payments
expense
transferred
to reserves - - 2.2 - 2.2 - 2.2
Transfer between
reserves in
respect of
share-based
payments - - (1.1) 1.1 - - -
Premium on issue
of shares - 1.3 - - 1.3 - 1.3
Dividends paid - - - (27.9) (27.9) - (27.9)
At 31 December
2010 5.0 158.2 924.0 361.6 1,448.8 45.9 1,494.7
* Other reserves and retained earnings at 1 January 2010 and
total comprehensive income for the half year to 30 June 2010 and
the year to 31 December 2010 have been restated for the accounting
policy changes set out in note 1.
GROUP CONDENSED CASH FLOW STATEMENT (UNAUDITED)
Half year Half year Year to
to 30.06.2011 to 30.06.2010 31.12.2010
Note GBPm GBPm GBPm
--------------- ---- -------------- -------------- --------------
Operating
activities
Cash received
from tenants 61.2 59.0 117.1
Direct property
expenses (5.7) (5.3) (9.8)
Cash paid to and
on behalf of
employees (10.5) (7.3) (13.7)
Other
administrative
expenses (3.0) (4.1) (5.7)
Interest
received - 0.1 0.1
Interest paid (19.8) (20.7) (38.8)
Other finance
costs (0.8) - (1.8)
Other income 0.8 0.6 2.1
Tax paid in
respect of
operating
activities (0.7) (2.8) (3.0)
Net cash from
operating
activities 21.5 19.5 46.5
Investing
activities
Acquisition of
investment
properties (91.3) (1.3) (148.0)
Capital
expenditure on
investment
properties (15.7) (29.6) (49.5)
Disposal of
investment
properties 79.0 0.3 8.5
Purchase of
property, plant
and equipment (0.1) (0.1) (0.4)
Disposal of
property, plant
and equipment - - 0.1
Advances to
minority
interest
holder (0.8) (1.0) (1.0)
Net cash used in
investing
activities (28.9) (31.7) (190.3)
Financing
activities
Net proceeds
from
convertible
bond issue 170.6 - -
Repayment of
revolving bank
loan - - (94.2)
Drawdown of new
revolving bank
loan - - 60.0
Net movement in
other revolving
bank loans (216.0) 16.0 193.0
Drawdown of
non-revolving
bank loans 67.3 - 0.3
Net proceeds of
share issues - 1.1 1.3
Repayment of
loan notes - - (0.3)
Dividends paid 17 (16.3) (17.3) (27.8)
Net cash
from/(used in)
financing
activities 5.6 (0.2) 132.3
Decrease in cash
and cash
equivalents in
the period (1.8) (12.4) (11.5)
Cash and cash
equivalents at the
beginning of the
period 1.6 13.1 13.1
Cash and cash
equivalents at
the end of the
period 20 (0.2) 0.7 1.6
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of preparation
The financial information for the half years ended 30 June 2011
and 30 June 2010 have neither been subject to an audit nor a review
in accordance with the International Standard on Review Engagements
2410, "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Auditing Practices
Board. The comparative financial information presented herein for
the year ended 31 December 2010 does not constitute full statutory
accounts within the meaning of Section 434 of the Companies Act
2006. The Group's annual report and accounts for the year ended 31
December 2010 have been delivered to the Registrar of Companies.
The Group's independent auditor's report on those accounts was
unqualified, did not include references to any matters to which the
auditors drew attention by way of emphasis without qualifying their
report and did not contain a statement under section 498(2) or
498(3) of the Companies Act 2006.
The financial information in these condensed financial
statements is that of the holding company and all of its
subsidiaries (the "Group") together with the Group's share of its
joint ventures. It has been prepared in accordance with IAS 34,
Interim Financial Reporting and should be read in conjunction with
the annual report and accounts for the year ended 31 December 2010
which have been prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The accounting policies
applied by the Group in these condensed financial statements are
the same as those applied by the Group in its financial statements
for the year ended 31 December 2010 with the exception of the new
standards adopted during 2011 and the accounting policy changes
outlined below which will form the basis of the 2011 financial
statements.
The following standards and guidelines relevant to the Group
were in issue at the date of approval of the condensed consolidated
financial statements but were not yet effective for the current
accounting period and have not been adopted early:
IFRS 1 First-time Adoption of International Financial Reporting
Standards (amendment)
IFRS 7 Financial Instruments: Disclosures (amendment)
IAS 12 Income Taxes (amendment)
IAS 1 Presentation of Financial Statements (amendment)
IFRS 9 Financial Instruments
IFRS 10 Consolidated Financial Statements
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interests in Other Entities
IFRS 13 Fair Value Measurement
IAS 27 Separate Financial Statements
IAS 28 Investments in Associates and Joint Ventures
IAS 19 Employee Benefits
During the half year to 30 June 2011, the following accounting
standards and guidance were adopted by the Group:
IAS 24 Related Party Disclosures (revised)
IAS 32 Financial Instruments: Presentation (amendment)
IFRIC 14 Prepayments of a Minimum Funding Requirement
(amendment)
IFRIC 19 Extinguishing Financial Liabilities with Equity
Instruments
Amendments arising from the 2010 annual improvements project
These pronouncements either had no impact on the condensed
consolidated financial statements or resulted in changes to
presentation and disclosure only.
As a result of the issue of GBP175m convertible bonds in June
2011, the following accounting policy has been adopted by the
Group:
-- The fair value of the liability component of a convertible
bond is determined using the market interest rate for an equivalent
non-convertible bond. This amount is recorded as a liability on an
amortised cost basis until extinguished on conversion or maturity
of the bonds. The remainder of the proceeds is allocated to the
conversion option. This is recognised and included in shareholders'
equity, net of income tax effects and is not subsequently
re-measured. Issue costs are apportioned between the liability and
the equity components of the convertible loan notes based on their
carrying amounts at the date of issue. The portion relating to the
equity component is charged directly against equity. Issue costs
apportioned to the liability are amortised over the life of the
bond.
In addition, with effect from 1 January 2011, the Group has made
the following changes to its accounting policies:
-- In accordance with IAS 23, Borrowing Costs, interest has been
capitalised on projects. The Group capitalises interest on
development expenditure at the average cost of borrowings during
the period. In the half year to 30 June 2011 the Group capitalised
GBP0.8m. Had the Group adopted this policy from 1 January 2010,
GBP0.1m would have been capitalised during the half year to 30 June
2010 and GBP0.2m in the year to 31 December 2010. Due to the
immaterial amounts involved, the comparative figures have not been
restated for this accounting policy change.
-- The Group occupies a portion of one of its properties. Due to
increased occupation and an uplift in the valuation, the Directors
now consider the owner-occupied portion to be significant. It has,
therefore, been transferred to property, plant and equipment from
investment property in accordance with IAS 40, Investment Property,
and IAS 16, Property Plant and Equipment. This part of the building
has now been depreciated, in a similar way to other tangible fixed
assets, over its remaining useful life and the depreciation been
included in administrative expenses. The respective revaluation
movement and associated deferred tax is now recognised in other
comprehensive income as opposed to the income statement and
included within a revaluation reserve in equity rather than in
retained earnings.
As a result of this second accounting policy change, the
following adjustments have been made to the comparative income
statements, statements of comprehensive income, statements of
changes in equity and the balance sheets:
As previously
Restated position reported Impact
------------------------------------- ---------------------- ----------------------
30.06.2010 31.12.2010 30.06.2010 31.12.2010 30.06.2010 31.12.2010
GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------- ---------- ---------- ---------- ---------- ----------
Income statement
Administrative
expenses * (10.0) (21.0) (10.0) (20.9) - (0.1)
Revaluation surplus 197.5 298.1 199.8 301.6 (2.3) (3.5)
Tax credit/(charge) (0.9) - (1.6) (1.0) 0.7 1.0
---------- ----------
Profit for the
period 213.2 352.8 214.8 355.4 (1.6) (2.6)
Total comprehensive
income in the
period ** 0.6 2.4 (1.0) (0.2) 1.6 2.6
Overall impact on
total
---------- ----------
comprehensive
income - -
========== ==========
Basic earnings per
share (p) 206.00 339.68 207.58 342.25 (1.58) (2.57)
Diluted earnings
per share (p) 204.65 337.47 206.22 340.03 (1.57) (2.56)
Balance Sheet
Investment property 2,105.0 2,373.3 2,119.0 2,388.5 (14.0) (15.2)
Property, plant and
equipment 15.4 16.7 1.4 1.5 14.0 15.2
------- ---------- ---------- ---------- ---------- ----------
2,120.4 2,390.0 2,120.4 2,390.0 - -
========== ==========
Other reserves at
01.01.2010 *** 920.1 920.1 916.8 916.8 3.3 3.3
Retained earnings
at 01.01.2010 *** 45.2 45.2 48.5 48.5 (3.3) (3.3)
---------- ----------
- -
========== ==========
* Restatement due to the depreciation charge on the
owner-occupied portion of the investment property.
** Represents the revaluation surplus, net of deferred tax, for
the owner-occupied portion of the investment property, previously
reported in the income statement.
*** The difference represents the transfer from retained
earnings to the accumulated revaluation reserve, net of deferred
tax, of the owner-occupied portion of the investment property.
2. Significant judgments, key assumptions and estimates
Some of the significant accounting policies require management
to make difficult, subjective or complex judgments or estimates.
The following is a summary of those policies which management
consider critical because of the level of complexity, judgment or
estimation involved in their application and their impact on the
financial statements. These are the same policies identified at the
previous year end and a full discussion of these policies is
included in the 2010 financial statements.
-- Trade receivables
-- Exceptional items
-- Investment property valuation
-- Outstanding rent reviews
-- Compliance with the real estate investment trust (REIT)
taxation regime
3. Segmental reporting
IFRS 8, Operating Segments, requires operating segments to be
identified on the basis of internal financial reports about
components of the Group that are regularly reviewed by the chief
operating decision maker (which in the Group's case is its
executive Board comprising the six executive Directors) in order to
allocate resources to the segments and to assess their
performance.
The internal financial reports received by the Group's executive
Board contain financial information at a Group level as a whole and
there are no reconciling items between the results contained in
these reports and the amounts reported in the financial statements.
These internal financial reports include the IFRS figures but also
report the non-IFRS figures for the adjusted earnings per share,
net asset value and profit figures. Reconciliations of each of
these figures to their statutory equivalents are detailed in note
9. Additionally, information is provided to the executive Board
showing gross property income and investment property valuation by
individual property. Therefore, for the purposes of IFRS 8, each
individual property is considered to be a separate operating
segment in that its performance is monitored individually.
The Group's property portfolio includes investment property,
owner occupied property and assets held for sale and comprises 92%
office buildings* by value (30 June 2010: 91%; 31 December 2010:
90%). The Directors consider that these properties have similar
types of tenants, they demonstrate similar long-term financial
performance and have similar economic characteristics. Therefore,
these individual properties have been aggregated into a single
operating segment. The remaining 8% (30 June 2010: 9%; 31 December
2010: 10%) represents a mixture of retail, hotel, residential and
light industrial properties, as well as land, each of which is de
minimis in its own right. Accordingly, the Directors are of the
view that it is appropriate to disclose two reportable segments,
'office buildings' and 'other', by reference to gross property
income and property value.
* Note: some office buildings have an ancillary element such as
retail or residential.
Property portfolio (see note 10)
Carrying value
----------------------------------
30.06.2011 30.06.2010 31.12.2010
GBPm GBPm GBPm
----------------- ---------- ---------- ----------
Office buildings 2,347.1 1,924.0 2,173.8
Other 211.2 195.0 214.7
2,558.3 2,119.0 2,388.5
Fair value
----------------------------------
30.06.2011 30.06.2010 31.12.2010
GBPm GBPm GBPm
----------------- ---------- ---------- ----------
Office buildings 2,384.5 1,952.8 2,205.8
Other 215.7 197.4 220.3
2,600.2 2,150.2 2,426.1
Gross property income
Half year Half year Year to
to 30.06.2011 to 30.06.2010 31.12.2010
GBPm GBPm GBPm
----------------- -------------- -------------- -----------------
Office buildings 57.0 52.6 109.2
Other 5.5 4.8 10.2
62.5 57.4 119.4
All of the Group's properties are based in the UK. The Group
also has a joint venture in Prague which represents 0.2% of the
Group's assets (30 June 2010: 0.2%; 31 December 2010: 0.2%). No
geographical grouping is contained in any of the internal financial
reports provided to the Group's executive Board. Therefore, no
geographical segmental analysis is required by IFRS 8. However, the
following analysis is included to provide users with additional
information regarding the geographical areas contained in the
business review.
Property portfolio
Carrying value
----------------------------------
30.06.2011 30.06.2010 31.12.2010
GBPm GBPm GBPm
----------------- ---------- ---------- ----------
West End central 1,775.1 1,446.6 1,662.6
West End borders 198.3 153.1 174.5
City borders 475.5 419.9 443.3
Provincial 109.4 99.4 108.1
2,558.3 2,119.0 2,388.5
Fair value
----------------------------------
30.06.2011 30.06.2010 31.12.2010
GBPm GBPm GBPm
----------------- ---------- ---------- ----------
West End central 1,793.9 1,462.3 1,679.7
West End borders 205.3 153.6 178.2
City borders 487.3 432.8 456.1
Provincial 113.7 101.5 112.1
2,600.2 2,150.2 2,426.1
Gross property income
Half year Half year Year to
to 30.06.2011 to 30.06.2010 31.12.2010
GBPm GBPm GBPm
----------------- -------------- -------------- -----------------
West End central 42.0 37.3 82.6
West End borders 4.0 3.1 7.3
City borders 13.4 14.4 23.9
Provincial 3.1 2.6 5.6
62.5 57.4 119.4
4. Gross property income
Half year Half year Year to
to 30.06.2011 to 30.06.2010 31.12.2010
GBPm GBPm GBPm
----------------- -------------- -------------- -----------------
Rental income 62.1 57.1 118.7
Surrender premiums 0.4 0.3 0.7
Gross property
income 62.5 57.4 119.4
Included within rental income is GBP0.6m (30 June 2010: GBP1.0m;
31 December 2010: GBP1.0m) of income which was derived from a lease
of one of its buildings where the Group entered into an arrangement
to restructure the lease arrangements such that the Group could
obtain possession of the building whilst maintaining rental income.
The Group has included the income from this building within gross
property income as, although similar to a lease surrender
arrangement, the Group's entitlement to this rental income is
linked to its continued ownership of the property rather than being
an unconditional amount receivable (whether as an upfront payment
or through a series of instalments).
5. Profit on disposal of investment properties
Half year Half year Year to
to 30.06.2011 to 30.06.2010 31.12.2010
GBPm GBPm GBPm
----------------- -------------- -------------- -----------------
Net disposal
proceeds 78.5 0.2 1.1
Carrying value (56.7) (0.2) (0.2)
Adjustment for
rents recognised
in advance (0.3) - -
21.5 - 0.9
6. Finance income and costs
Half year Half year Year to
to 30.06.2011 to 30.06.2010 31.12.2010
GBPm GBPm GBPm
----------------- -------------- -------------- -----------------
Finance income
Return on pension
plan assets 0.4 0.4 0.8
Other 0.1 0.2 1.1
0.5 0.6 1.9
Foreign exchange
gain 0.2 - -
Total finance
income 0.7 0.6 1.9
Finance costs
Bank loans and
overdraft 14.3 12.2 25.4
Non-utilisation
fees 0.7 0.9 1.4
Secured bonds 5.7 5.7 11.4
Unsecured
convertible
bonds 0.5 - -
Amortisation of
issue and
arrangement
costs 0.8 0.5 1.0
Amortisation of
the fair value of
the secured
bonds (0.4) (0.4) (0.8)
Finance lease
costs 0.2 0.2 0.5
Pension interest
costs 0.3 0.3 0.6
Other 0.2 - 0.1
Gross interest
costs 22.3 19.4 39.6
Less: interest
capitalised * (0.8) - -
21.5 19.4 39.6
Foreign exchange
loss - 0.4 0.2
Total finance
costs 21.5 19.8 39.8
* Refer to the accounting policy changes outlined in note 1.
7. Share of results of joint ventures
Half year Half year Year to
to 30.06.2011 to 30.06.2010 31.12.2010
GBPm GBPm GBPm
----------------- -------------- -------------- -----------------
Revaluation
surplus 0.3 0.7 0.9
Other profit from
operations after
tax 0.6 0.6 1.1
0.9 1.3 2.0
8. Tax credit/(charge)
Half year Half year Year to
to 30.06.2011 to 30.06.2010 31.12.2010
GBPm GBPm GBPm
---------------- -------------- -------------- ---------------
Corporation tax
charge
UK corporation tax
and income tax on
profit for the
period (0.3) (0.5) (1.2)
Other 0.3 - 0.2
- (0.5) (1.0)
Deferred tax
credit/(charge)
Origination and
reversal of
temporary
differences - (0.4) 1.2
Adjustment for
changes in
estimates 0.5 - (0.2)
0.5 (0.4) 1.0
Total tax
credit/(charge)
in the income
statement 0.5 (0.9) -
Total tax on items
taken directly to
other
comprehensive
income (0.2) (0.7) (1.0)
Total tax
credit/(charge)
in the period 0.3 (1.6) (1.0)
The tax charge is lower (half year to 30 June 2010: lower; year
to 31 December 2010: lower) than the standard rate of corporation
tax in the UK. The differences are explained below:
Half year
Half year to to Year to
30.06.2011 30.06.2010 31.12.2010
GBPm GBPm GBPm
----------------------- ------------- ----------- -----------
Profit before tax 173.3 214.1 352.8
------------------------- ----------- ----------- -----------
Expected tax charge based
on the standard rate of
corporation tax in the
UK of 26.5% (2010:
28%) (45.9) (59.9) (98.8)
Difference between tax and
accounting profit on
disposals 5.7 - 1.6
REIT exempt income 4.1 4.2 8.5
Expenses and fair value
adjustments not
deductible/(allowable)
for tax purposes 3.9 (1.5) 1.4
Revaluation surplus
attributable to REIT
properties 30.1 54.7 83.3
Capital allowances 1.8 1.6 3.4
Other 0.3 (0.7) (0.6)
Tax credit/(charge) on
current period's profit - (1.6) (1.2)
Adjustments in respect of
prior years' tax 0.3 - 0.2
0.3 (1.6) (1.0)
9. Profit before tax, earnings and net asset value per share
On 2 June 2011, the Group issued GBP175m of unsecured
convertible bonds. The initial conversion price of the bonds was
set at GBP22.22 and the share price at 30 June 2011 was GBP18.26.
Although it is not expected that the bonds would be converted at
this share price, the dilutive effect of these shares is required
to be recognised in accordance with IAS 33. For the period to 30
June 2011, these shares are dilutive for basic earnings per share.
However, they are anti-dilutive for both EPRA and underlying
earnings per share and all net asset per share measures, and have
therefore been excluded from those calculations.
Earnings per share Net asset value per
measures share measures
------------------ ---------------------------- ----------------------------
Weighted average for
the
period ended At period ended
---------------------------- ----------------------------
30.06.11 30.06.10 31.12.10 30.06.11 30.06.10 31.12.10
'000 '000 '000 '000 '000 '000
------------------ -------- -------- -------- -------- -------- --------
Number of shares
For use in basic
measures 101,218 101,118 101,155 101,480 101,181 101,200
Dilutive effect of
convertible
bonds 1,225 - -
Dilutive effect of
share-based
payments 669 666 661 682 658 669
------------------ -------- -------- --------
For use in diluted
earnings per
share 103,112 101,784 101,816
Less dilutive
effect of
convertible
bonds (1,225) - -
------------------ -------- -------- -------- -------- -------- --------
For use in other
diluted measures 101,887 101,784 101,816 102,162 101,839 101,869
Profit Earnings Diluted
before per earnings
tax Earnings share per share
GBPm GBPm p p
--------------------------- ------- -------- -------- ---------
Diluted earnings for half year
ended 30 June 2011 169.8 164.68
Interest effect of dilutive
convertible bond (0.5)
-------- -------- ---------
Undiluted profit/earnings 173.3 169.3 167.26
Adjustment for:
Disposal of properties (21.5) (21.5)
Group revaluation surplus (117.3) (117.2)
Joint venture revaluation
surplus (0.3) (0.3)
Fair value movement in
derivative financial
instruments (7.8) (7.8)
Movement in valuation of
cash-settled share options 0.2 0.2
Minority interests in respect
of the above - 3.4
----------------------------- ------- -------- -------- ---------
EPRA 26.6 26.1 25.79 25.62
Foreign exchange gain (0.2) (0.2)
Rates credits (1.4) (1.4)
----------------------------- ------- -------- -------- ---------
Underlying 25.0 24.5 24.2 24.0
Half year ended 30 June 2010 214.1 208.3 206.00 204.65
Adjustment for:
Group revaluation surplus (197.5) (197.0)
Joint venture revaluation
surplus (0.7) (0.7)
Fair value movement in
derivative financial
instruments 10.9 10.9
Movement in valuation of
cash-settled share options (0.5) (0.5)
Minority interests in respect
of the above - 4.0
----------------------------- ------- -------- -------- ---------
EPRA 26.3 25.0 24.72 24.56
Foreign exchange loss 0.4 0.4
Rates credits (1.1) (1.1)
----------------------------- ------- -------- -------- ---------
Underlying 25.6 24.3 24.0 23.9
Year ended 31 December 2010 352.8 343.6 339.68 337.47
Adjustment for:
Disposal of properties (0.9) (0.9)
Group revaluation surplus (298.1) (298.3)
Joint venture revaluation
surplus (0.9) (0.9)
Fair value movement in
derivative financial
instruments 2.4 2.4
Movement in valuation of
cash-settled share options (0.1) 0.1
Minority interests in respect
of the above - 7.5
----------------------------- ------- -------- -------- ---------
EPRA 55.2 53.5 52.89 52.55
Foreign exchange loss 0.2 0.2
Rates credits (1.7) (1.7)
----------------------------- ------- -------- -------- ---------
Underlying 53.7 52.0 51.4 51.1
Basic Diluted
GBPm p p
----------------------------------------------- ------- ----- -------
At 30 June 2011
Net assets 1,661.4
Minority interest (50.3)
------------------------------------------------- ------- ----- -------
Net assets attributable to equity shareholders 1,611.1 1,588 1,577
Adjustment for:
Deferred tax on revaluation surplus 8.8
Fair value of derivative financial instruments 17.4
Fair value adjustment to secured bonds 19.0
------------------------------------------------ ------- ----- -------
EPRA adjusted net asset value 1,656.3 1,632 1,621
Adjustment for:
Deferred tax on revaluation surplus (8.8)
Fair value of derivative financial instruments (17.4)
Mark-to-market of unsecured bonds (7.6)
Mark-to-market of secured bonds (12.3)
------------------------------------------------ ------- ----- -------
EPRA triple net asset value 1,610.2 1,587 1,576
At 30 June 2010
Net assets 1,360.7
Minority interest (41.6)
------------------------------------------------- ------- ----- -------
Net assets attributable to equity shareholders 1,319.1 1,304 1,295
Adjustment for:
Deferred tax on revaluation surplus 8.8
Fair value of derivative financial instruments 33.4
Fair value adjustment to secured bonds 19.8
------------------------------------------------ ------- ----- -------
EPRA adjusted net asset value 1,381.1 1,365 1,356
Adjustment for:
Deferred tax on revaluation surplus (8.8)
Fair value of derivative financial instruments (33.4)
Mark-to-market of secured bonds (12.0)
------------------------------------------------ ------- ----- -------
EPRA triple net asset value 1,326.9 1,311 1,303
At 31 December 2010
Net assets 1,494.7
Minority interest (45.9)
------------------------------------------------- ------- ----- -------
Net assets attributable to equity shareholders 1,448.8 1,432 1,422
Adjustment for:
Deferred tax on revaluation surplus 8.6
Fair value of derivative financial instruments 25.0
Fair value adjustment to secured bonds 19.4
------------------------------------------------ ------- ----- -------
EPRA adjusted net asset value 1,501.8 1,484 1,474
Adjustment for:
Deferred tax on revaluation surplus (8.6)
Fair value of derivative financial instruments (25.0)
Mark-to-market of secured bonds (16.7)
------------------------------------------------ ------- ----- -------
EPRA triple net asset value 1,451.5 1,434 1,425
Following further guidance from EPRA in October 2010, the June
2010 EPRA net asset value per share measure has been restated to
exclude the fair value adjustment to secured bonds. In addition,
the June 2010 EPRA profit before tax and EPRA earnings per share
have been restated to exclude the movement in valuation of
cash-settled share options.
10. Investment property
Total Owner- Assets Total
held
investment occupied for property
Freehold Leasehold property property sale portfolio
GBPm GBPm GBPm GBPm GBPm GBPm
--------------- -------- --------- ---------- -------- ------ ---------
Carrying value
At 1 January
2011 1,965.7 407.6 2,373.3 15.2 - 2,388.5
-------- --------- ---------- -------- ------ ---------
Acquisitions 53.1 38.5 91.6 - - 91.6
Capital
expenditure 8.9 3.1 12.0 - 3.6 15.6
---------------- -------- --------- ---------- -------- ------ ---------
Additions 62.0 41.6 103.6 - 3.6 107.2
Interest
capitalisation 0.7 0.1 0.8 - - 0.8
Disposals (56.7) - (56.7) - - (56.7)
Transfers (29.8) - (29.8) - 29.8 -
Revaluation 91.1 14.2 105.3 1.2 12.0 118.5
At 30 June 2011 2,033.0 463.5 2,496.5 16.4 45.4 2,558.3
At 1 January
2010 1,526.1 350.8 1,876.9 11.7 - 1,888.6
-------- --------- ---------- -------- ------ ---------
Acquisitions 1.2 - 1.2 - - 1.2
Capital
expenditure 26.2 3.4 29.6 - - 29.6
---------------- -------- --------- ---------- -------- ------ ---------
Additions 27.4 3.4 30.8 - - 30.8
Disposals - (0.2) (0.2) - - (0.2)
Revaluation 160.1 37.4 197.5 2.3 - 199.8
At 30 June 2010 1,713.6 391.4 2,105.0 14.0 - 2,119.0
At 1 January
2010 1,526.1 350.8 1,876.9 11.7 - 1,888.6
-------- --------- ---------- -------- ------ ---------
Acquisitions 148.0 - 148.0 - - 148.0
Capital
expenditure 42.1 7.4 49.5 - - 49.5
---------------- -------- --------- ---------- -------- ------ ---------
Additions 190.1 7.4 197.5 - - 197.5
Transfer from
trading
property 1.0 - 1.0 - - 1.0
Disposals - (0.2) (0.2) - - (0.2)
Depreciation - - - (0.1) - (0.1)
Revaluation 248.5 49.6 298.1 3.6 - 301.7
At 31 December
2010 1,965.7 407.6 2,373.3 15.2 - 2,388.5
Adjustments from fair value
to carrying value
At 30 June 2011
Fair value 2,078.1 460.3 2,538.4 16.4 45.4 2,600.2
Rents recognised in
advance (45.1) (4.2) (49.3) - - (49.3)
Grossing up of headlease
liabilities - 7.4 7.4 - - 7.4
Carrying value 2,033.0 463.5 2,496.5 16.4 45.4 2,558.3
At 30 June 2010
Fair value 1,749.8 386.4 2,136.2 14.0 - 2,150.2
Rents recognised in
advance (36.2) (2.4) (38.6) - - (38.6)
Grossing up of headlease
liabilities - 7.4 7.4 - - 7.4
Carrying value 1,713.6 391.4 2,105.0 14.0 - 2,119.0
At 31 December 2010
Fair value 2,007.9 403.0 2,410.9 15.2 - 2,426.1
Rents recognised in
advance (42.2) (2.8) (45.0) - - (45.0)
Grossing up of headlease
liabilities - 7.4 7.4 - - 7.4
Carrying value 1,965.7 407.6 2,373.3 15.2 - 2,388.5
The property portfolio was revalued at 30 June 2011 by external
valuers on the basis of market value as defined by the Valuation
Standards published by The Royal Institution of Chartered
Surveyors. CB Richard Ellis Limited valued the properties at
GBP2,569.2m (30 June 2010: GBP2,121.3m; 31 December 2010:
GBP2,396.2m) and other valuers at GBP31.0m (30 June 2010: GBP28.9m;
31 December 2010: GBP29.9m). Of the properties revalued by CBRE,
GBP16.4m (31 December 2010: GBP14.0m; 30 June 2010: GBP15.2m)
relating to owner-occupied property is included within property,
plant and equipment and GBP45.4m (30 June 2010: GBPnil; 31 December
2010: GBPnil) was included within non-current assets held for
sale.
At 30 June 2011, the historical cost of the property portfolio
owned by the Group was GBP2,144.4m (30 June 2010: GBP1,925.4m; 31
December 2010: GBP2,093.1m).
The figures for 30 June 2010 and 31 December 2010 have been
restated for the change in accounting policy in respect of
owner-occupied property as outlined in note 1. Also see note 1 for
the accounting policy in relation to interest capitalisation.
The revaluation surplus in the income statement of GBP117.3m for
the half year to 30 June 2011 (half year to 30 June 2010:
GBP197.5m; year to 31 December 2010: GBP298.1m) included the
revaluation of non-current assets held for sale of GBP12.0m (half
year to 30 June 2010: GBPnil; year to 31 December 2010: GBPnil).
The revaluation surplus for the owner-occupied property of GBP1.2m
(half year to 30 June 2010: GBP2.3m; year to 31 December 2010:
GBP3.5m) was included within reserves.
11. Property, plant and equipment
Owner-
Plant
occupied and
property equipment Total
GBPm GBPm GBPm
------------------------- -------- --------- -----
At 1 January 2011 15.2 1.5 16.7
Additions - 0.1 0.1
Depreciation - (0.1) (0.1)
Revaluation 1.2 - 1.2
At 30 June 2011 16.4 1.5 17.9
At 1 January 2010 11.7 1.4 13.1
Additions - 0.1 0.1
Depreciation - (0.1) (0.1)
Revaluation 2.3 - 2.3
At 30 June 2010 14.0 1.4 15.4
At 1 January 2010 11.7 1.4 13.1
Additions - 0.4 0.4
Disposals - (0.1) (0.1)
Depreciation (0.1) (0.2) (0.3)
Revaluation 3.6 - 3.6
At 31 December 2010 15.2 1.5 16.7
Net book value
Cost or valuation 16.4 3.7 20.1
Accumulated depreciation - (2.2) (2.2)
At 30 June 2011 16.4 1.5 17.9
Net book value
Cost or valuation 14.0 3.4 17.4
Accumulated depreciation - (2.0) (2.0)
At 30 June 2010 14.0 1.4 15.4
Net book value
Cost or valuation 15.2 3.6 18.8
Accumulated depreciation - (2.1) (2.1)
At 31 December 2010 15.2 1.5 16.7
12. Other receivables
30.06.2011 30.06.2010 31.12.2010
GBPm GBPm GBPm
--------------- ---------- ---------- ----------
Accrued income 45.3 35.8 41.3
Other 4.9 4.3 4.5
50.2 40.1 45.8
Accrued income relates to rents recognised in advance as a
result of spreading the effect of rent free periods, reduced rent
periods and capital contributions in lieu of rent free periods over
the term of their respective leases. At 30 June 2011, the total
rents recognised in advance were GBP49.3m (30 June 2010: GBP38.6m;
31 December 2010: GBP45.0m), with GBP4.0m of this amount (30 June
2010: GBP2.8m; 31 December 2010: GBP3.7m) included within trade and
other receivables.
13. Trade and other receivables
30.06.2011 30.06.2010 31.12.2010
GBPm GBPm GBPm
------------------ ---------- ---------- ----------
Trade receivables 7.3 6.3 7.5
Other receivables 13.5 5.8 10.6
Prepayments 20.3 13.1 14.8
Accrued income 4.5 8.2 4.8
45.6 33.4 37.7
14. Trade and other payables
30.06.2011 30.06.2010 31.12.2010
GBPm GBPm GBPm
---------------- ---------- ---------- ----------
Trade payables 4.5 3.0 1.9
Other payables 13.2 0.4 10.6
Accruals 16.7 10.4 16.2
Deferred income 36.0 32.6 34.7
70.4 46.4 63.4
15. Borrowings and derivative financial instruments
30.06.2011 30.06.2010 31.12.2010
GBPm GBPm GBPm
-------------------------------- ---------- ---------- ----------
Current liabilities
Bank overdraft 7.5 2.7 5.6
Unsecured loans 31.4 - -
Loan notes 1.1 - -
40.0 2.7 5.6
Non-current liabilities
2.75% unsecured convertible bonds
2016 161.0 - -
6.5% secured bonds 2026 192.6 193.2 192.9
Bank loans 515.0 519.0 661.0
Unsecured loans - 31.1 31.4
Loan notes - 1.4 1.1
Leasehold liabilities 7.4 7.4 7.4
Unamortised loan arrangement costs (4.2) (2.2) (4.4)
871.8 749.9 889.4
Derivative financial instruments -
expiring in less than one year - 0.6 -
Derivative financial instruments -
expiring in greater than one
year 17.6 33.3 25.4
17.6 33.9 25.4
Total 929.4 786.5 920.4
Reconciliation to net debt:
Total borrowings and derivative
financial instruments 929.4 786.5 920.4
Less:
Derivative financial instruments (17.6) (33.9) (25.4)
Cash and cash equivalents (7.3) (3.4) (7.2)
Net debt 904.5 749.2 887.8
16. Deferred tax
Revaluation
surplus Other Total
GBPm GBPm GBPm
--------------------------------------------- ----------- ----- -----
At 1 January 2011 8.9 (3.0) 5.9
Provided during the period in other
comprehensive income 0.2 - 0.2
Provided/(released) during the period
in the income statement 0.8 (0.8) -
Changes in tax rates (0.7) 0.2 (0.5)
At 30 June 2011 9.2 (3.6) 5.6
At 1 January 2010 8.1 (2.2) 5.9
Provided during the period in other
comprehensive income 0.7 - 0.7
Provided/(released) during the period
in the income statement 0.5 (0.1) 0.4
At 30 June 2010 9.3 (2.3) 7.0
At 1 January 2010 8.1 (2.2) 5.9
Provided during the year in other comprehensive
income 1.0 - 1.0
Provided/(released) during the period
in the income statement 0.1 (0.9) (0.8)
Changes in tax rates (0.3) 0.1 (0.2)
At 31 December 2010 8.9 (3.0) 5.9
Deferred tax on the revaluation surplus is calculated on the
basis of the chargeable gains that would crystallise on the sale of
the investment property portfolio as at each balance sheet date.
The calculation takes account of indexation on the historic cost of
the properties and any available capital losses. Due to the Group's
REIT status, deferred tax is only provided at each balance sheet
date on properties outside of the REIT regime.
17. Dividend
Dividend Half year Half year
per to to Year to
share 30.06.2011 30.06.2010 31.12.2010
Payment
date p GBPm GBPm GBPm
------------- ---------- -------- ---------- ---------- ----------
Current period
2011 interim 4 November
dividend 2011 9.45 - - -
--------
Distribution of
current period
profit 9.45
--------
Prior period
2010 interim 5 November
dividend 2010 8.75 - - 8.8
-------- ---------- ---------- ----------
Distribution of
current period
profit 8.75 - - 8.8
---------- ---------- ----------
Prior year
2010 final 16 June
dividend 2011 20.25 20.5 - -
-------- ---------- ---------- ----------
Distribution of
prior year
profit 29.00 20.5 - -
-------- ---------- ---------- ----------
2009 final 17 June
dividend 2010 18.85 - 19.1 19.1
Dividends as
reported in the
statement of
changes in
equity 20.5 19.1 27.9
---------------- --------- -------- ---------- ---------- ----------
2010 final
dividend - 16 June
scrip element 2011 (2.4) - -
2010 final
dividend
withholding 14 July
tax 2011 (3.2) - -
2010 interim
dividend
withholding 14 January
tax 2011 1.4 - (1.4)
2009 final
dividend
withholding 14 July
tax 2010 - (3.1) -
2009 interim
dividend
withholding 14 January
tax 2010 - 1.3 1.3
Dividends paid as reported
in the
cash flow
statement 16.3 17.3 27.8
--------------- --------- -------- ---------- ---------- ----------
18. Gearing ratios
Balance sheet gearing
30.06.2011 30.06.2010 31.12.2010
GBPm GBPm GBPm
---------------------- ---------- ---------- ----------
Net debt 904.5 749.2 887.8
----------------------- ---------- ---------- ----------
Net assets 1,661.4 1,360.7 1,494.7
----------------------- ---------- ---------- ----------
Balance sheet gearing 54.4% 55.1% 59.4%
Loan to value ratio
30.06.2011 30.06.2010 31.12.2010
GBPm GBPm GBPm
----------------------------- ---------- ---------- ----------
Net debt 904.5 749.2 887.8
Unamortised issue costs and
fair value adjustment
of secured bonds (19.0) (19.8) (19.4)
Unamortised issue and
arrangement costs 10.1 3.8 5.9
Leasehold liabilities (7.4) (7.4) (7.4)
Drawn facilities 888.2 725.8 866.9
Fair value of property
portfolio 2,600.2 2,150.2 2,426.1
Loan to value ratio 34.2% 33.8% 35.7%
Interest cover ratio
Half year Half year Year to
to 30.06.2011 to 30.06.2010 31.12.2010
GBPm GBPm GBPm
----------------- -------------- -------------- -----------------
Gross property
income 62.5 57.4 119.4
Surrender premiums (0.4) (0.3) (0.7)
Ground rent (0.4) (0.4) (0.8)
Gross rental
income net of
ground rent 61.7 56.7 117.9
Net finance costs 20.8 19.2 37.9
Foreign exchange
gain/(loss) 0.2 (0.4) (0.2)
Net pension return 0.1 0.1 0.3
Finance lease
costs (0.2) (0.2) (0.5)
Amortisation of
fair value
adjustment to
secured bonds 0.4 0.4 0.8
Amortisation of
issue and
arrangement
costs (0.8) (0.5) (1.0)
Non-utilisation
fees (0.7) (0.9) (1.4)
Net interest
payable 19.8 17.7 35.9
Interest cover
ratio 312% 320% 328%
19. Total return
30.06.2011 30.06.2010 31.12.2010
% % %
------------- ---------- ---------- ----------
Total return 11.2 18.4 29.3
20. Cash and cash equivalents
30.06.2011 30.06.2010 31.12.2010
GBPm GBPm GBPm
-------------------- ---------- ---------- ----------
Bank overdraft (7.5) (2.7) (5.6)
Short-term deposits 7.3 3.4 7.2
(0.2) 0.7 1.6
21. Post balance sheet events
Since 30 June 2011, the Group has exchanged contracts for the
disposal of two freehold properties for GBP37.2m and GBP11.0m
respectively before costs. These transactions are estimated to
result in a profit before tax of approximately GBP12.0m based on
December 2010 carrying values.
22. Risk management and internal control
The Board recognises that risk is an inherent part of running a
business and that, whilst it aims to maximise returns, the
associated risks must be understood and managed. Overall
responsibility for this process rests with the Board whilst
executive management is responsible for designing, implementing and
maintaining the necessary systems of control.
The Group operates principally from one central London office
with a relatively flat management structure. This enables the
executive Directors to be closely involved in day-to-day matters
and therefore able to quickly identify and respond to risks.
A key element in the systems of control is the Group's risk
register which is reviewed formally once a year. The register is
initially prepared by the executive Board which, having identified
the risks, collectively assesses the severity of each risk, the
likelihood of it occurring and the strength of the controls over
the risk. This approach allows the effect of any mitigating
procedures to be considered recognising that risk cannot be totally
eliminated at an acceptable cost and that there are some risks that
the Board will choose, based on its experience, to accept.
The register is then reviewed and commented upon by the Audit
Committee before being considered and adopted by the full Board.
The register was reviewed in December 2010 and the principal risks
and uncertainties that the Group faces in 2011, together with the
controls and mitigating factors, are set out below.
Strategic risks
That the Group's strategy doesn't create the anticipated
shareholder value or fails to meet investors' expectations.
Risk Mitigation Action
--------------------- --------------------- -------------------------- ----
-- The Group's -- Each year the -- The Board carried
strategy is Group carries out a out its latest annual
inconsistent five-year strategic five-year strategic
with the market review and in review in June 2011
environment. -- addition it prepares and considered the
The Group's regular rolling sensitivity of five
development forecasts covering key measures to
programme is the next two years. changes in eight
not consistent In the course of underlying
with the both exercises the assumptions including
economic Board considers the interest rates,
cycle. effect on key ratios property yields,
of changing the main rental growth,
underlying capital recycling and
assumptions. These letting success. --
can then be set so The three rolling
as to best realise forecasts prepared
the Group's during the year since
long-term strategic June 2010 focused on
goals given the the same key measures
prevailing economic but considered the
and market effect of varying
conditions. This different assumptions
flexibility arises to reflect changing
from the policy of economic and market
maintaining income conditions. -- The
from properties timing of the Group's
until development development programme
commences. and the strategies
for individual
properties reflect
the outcome of these
considerations.
Financial risks
That the Group becomes unable to meet its financial obligations
or finance the business appropriately.
Risk Mitigation Action
------------------------- ------------------------- ------------------------
-- A substantial -- The Group's -- The Group
decline in property secured borrowings tested its
values or a contain financial compliance
material loss of covenants based on regularly and
rental income specific security operated
results in a breach and not corporate comfortably within
of the Group's ratios such as its financial
financial balance sheet covenants
covenants. This may gearing. Treasury throughout the
accelerate the control schedules period. -- At 30
repayment of the are updated weekly June 2011 the
Group's borrowings whilst the rolling Group owned
or result in their forecast enables GBP541m of
cancellation. any potential uncharged
problems to be properties.
identified at an
early stage and
corrective action
to be taken. The
Group has a
considerable amount
of uncharged
property that could
be used in such
circumstances.
-- The Group's cost -- The Group's -- The Group's
of borrowing is five-year strategic financing comes
increased due to an review and rolling from a number of
inability to raise forecasts enables different
finance from its any financing providers and has
preferred sources. requirement to be a varied maturity
identified at an profile. -- In
early stage. This June 2011 the
allows sources of Group issued a
finance to be GBP175m
identified and convertible bond
evaluated and, to a on attractive
degree, the finance terms available in
to be raised when the market at that
market conditions time. -- During
are favourable. 2011 the
opportunity was
taken to add two
years to the term
of a loan which
had been due to
expire in 2013. --
The weighted
average duration
of the Group's
debt is 4.9 years.
-- At the period
end the Group had
GBP402m of
unutilised
available
committed bank
facilities.
-- Financing costs -- The Group uses -- 94% of
are higher due to interest rate borrowings are now
increases in derivatives to "top fixed or hedged.
interest rates. up" the amount of -- The weighted
fixed rate debt to average cost of
a level drawn debt at the
commensurate with period end was
the perceived risk 4.66% compared to
to the Group. 4.34% at
year-end.
Operational risks
The Group suffers either a loss or adverse consequences due to
processes being inadequate or not operating correctly.
Risk Mitigation Action
------------------------- ------------------------ -------------------------
-- The -- The size of the -- The acquisition
implementation of Central London of Page Street and
the Group's market in which the Network
strategy is the Group Building
inhibited by an operates, means demonstrates the
inability to that such a Group's ability to
acquire assets at situation is identify and
an attractive unlikely to acquire properties
price. persist for very with opportunities
long. During this to add value. --
time, the Group is Over 50% of the
able to develop Group's portfolio
opportunities from has been identified
within its as having future
existing redevelopment
portfolio. potential.
-- The Group's -- Standardised -- The Group is
development appraisals advised by top
projects do not including planning
produce the contingencies are consultants and has
anticipated prepared for all considerable
financial return investments and in-house planning
due to delays in sensitivity expertise. -- The
the planning analysis is Group is
process, increased undertaken to represented by
construction costs ensure that an employees on a
or adverse letting adequate return is number of local
conditions. made in all bodies which
circumstances ensures that it
considered likely remains aware of
to occur. -- The local issues. --
scale of the The procurement
Group's process used by the
development Group is designed
programme is to minimise
managed to reflect uncertainty
anticipated market regarding costs. --
conditions. The Group's style
of accommodation
remains in demand
as evidenced by the
51 lettings
achieved in the
period and the 12
already made since
30 June 2011.
-- The Group -- Prospective -- The Group has a
suffers a loss of tenants are diversified tenant
rental income and considered by the base. -- The credit
increased vacant Group's credit committee meets
property costs due committee and each week. -- In
to tenants vacating security is taken total the Group
or becoming where appropriate. holds rental
bankrupt. The Group's deposits amounting
property managers to GBP10.8m.
maintain regular
contact with
tenants and work
closely with any
that are facing
financial
difficulties.
-- The Group is -- The -- The Group
unable to remuneration recruited three new
successfully packages of all members of staff
implement its employees are during the period.
strategy due to a benchmarked -- Staff turnover
failure to recruit regularly. in the six months
and retain key Six-monthly to June 2011 was
staff with appraisals 2.8%.
appropriate identify training
skills. requirements which
are fulfilled over
the next year.
23. List of definitions
Net assets per share or net asset value (NAV)
Equity shareholders' funds divided by the number of ordinary
shares in issue at the balance sheet date.
Earnings/earnings per share (EPS)
Earnings represent the profit or loss for the year attributable
to equity shareholders and are divided by the weighted average
number of ordinary shares in issue during the period to arrive at
earnings per share.
Diluted earnings per share
Earnings per share adjusted to include the dilutive effects of
potential shares issuable under the Group's share option schemes
and the convertible bond.
European Public Real Estate Association (EPRA)
A not-for-profit association with a membership of Europe's
leading property companies, investors and consultants who strive to
establish best practices in accounting, reporting and corporate
governance and to provide high-quality information to investors.
The EPRA guidelines include guidance for the calculations of the
following performance measures:
- Adjusted net asset value per share;
- Adjusted earnings per share;
- Net initial yield;
- "Topped up" net initial yield; and
- Vacancy rate.
Derwent London has adopted the EPRA methodology for all of these
measures. In addition, in accordance with EPRA guidelines, we have
made Company specific adjustments to adjusted profit and adjusted
earnings per share to arrive at the underlying positions (see
below).
Underlying earnings per share
EPRA earnings per share adjusted for items which are excluded to
show the underlying trend. Currently these adjustments are for
rates credits and the foreign exchange movement (see note 9).
Property income distribution (PID)
Dividends from profits of the Group's tax-exempt property rental
business under the REIT regulations.
Non PID
Dividends from profits of the Group's taxable residual
business.
Net debt
Borrowings plus bank overdraft less cash and cash
equivalents.
Balance sheet gearing
Net debt divided by net assets.
Interest cover ratio
Gross property income, excluding surrender premiums, less ground
rent divided by interest payable on borrowings less interest
receivable and capitalised interest.
Loan-to-value ratio (LTV)
The nominal value of borrowed funds divided by the fair value of
investment property.
Ground rent
The rent payable by the Group for its leasehold properties.
Under IFRS, these leases are treated as finance leases and the cost
allocated between interest payable and property outgoings.
Building Research Establishment Environmental Assessment Method
(BREEAM)
The BREEAM rating assesses the operational and the embodied
environmental impacts of individual buildings. The ratings are
Pass, Good, Very Good, Excellent and Outstanding.
Reporting of Injuries, Diseases and Dangerous Occurrences
Regulations (RIDDOR)
The regulations place a legal duty on employers to report
work-related deaths, major Injuries or over-three-day injuries,
work related diseases and dangerous occurrences (near miss
accidents) to the Health and Safety executive.
IPD Central London Offices Index
An index, compiled by Investment Property Databank Limited, of
the central and inner London offices in their quarterly valued
universe.
Capital return
The annual valuation movement arising on the Group's portfolio
expressed as a percentage return on the valuation at the beginning
of the year adjusted for acquisitions and capital expenditure.
Total return
The movement in adjusted net asset value per share between the
beginning and the end of each financial period plus the dividend
per share paid during the period expressed as a percentage of the
adjusted net asset value per share at the beginning of the
year.
Total property return
The annual capital appreciation, net of capital expenditure,
plus the net annual rental income received, expressed as a
percentage of capital employed (property value at the beginning of
the year plus capital expenditure).
Total shareholder return
The growth in the ordinary share price as quoted on the London
Stock Exchange plus dividends per share received for the period,
expressed as a percentage of the share price at the beginning of
the year.
Rent roll
The annualised contracted rental income, net of ground
rents.
True equivalent yield
The constant capitalisation rate which, if applied to all cash
flows from the portfolio, including current rent, reversions to
valuers' estimate rental value and such items as voids and
expenditures, equates to the valuation having taken into account
notional purchasers' costs. Assumes rent is received quarterly in
advance.
Reversion
The reversion is the amount by which the rental value as
estimated by the Group's external valuers is higher than the rent
roll of a property or portfolio and. The reversion is derived from
contractual rental increases, rent reviews, lease renewals and the
letting of vacant space.
Underlying portfolio
Properties that have been held for the whole of the financial
period.
24. Copies of this announcement will be available on the
company's website, www.derwentlondon.com, from the date of this
statement. Copies will also be available from the Company
Secretary, Derwent London plc, 25 Savile Row, London, W1S 2ER.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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