TIDMDLN
RNS Number : 5051K
Derwent London PLC
22 August 2012
22 August 2012
Derwent London plc ("Derwent London" / "the Group")
Interim results for the six months ended 30 June 2012
GOOD MOMENTUM IN LONDON'S OLYMPIC YEAR
Financial highlights
-- EPRA net asset value per share increased by 4.1% to 1,770p from 1,701p at 31 December 2011
-- EPRA profit before tax was GBP26.5m (H1 2011: GBP26.6m)
-- Interim dividend per share of 9.95p (H1 2011: 9.45p), an increase of 5.3%
-- Balance sheet strengthened further - loan-to-value ratio
reduced to 31.4% (31 December 2011: 32.0%)
-- New GBP83m 12-year facility drawn in August 2012, completing
the refinancing of facilities due to expire in 2013
-- GBP410m undrawn facilities and GBP595m of uncharged properties as at 30 June 2012
Property performance
-- Valuation rose 3.3% in H1 2012 (H2 2011: 2.9%)
-- Rental values rose 2.8% in H1 2012, the fifth successive half year of growth
-- EPRA net initial yield 4.5% (31 December 2011: 4.4%), 'topped
up' yield 5.1% (31 December 2011: 5.2%) and true equivalent yield
5.58% (31 December 2011: 5.61%)
-- Developments and major refurbishments rose 6.1% in value
Portfolio management
-- Strong momentum maintained with GBP8.9m of lettings on
229,100 sq ft (21,280m(2) ) concluded in the first half
-- 1 Page Street SW1 pre-let to Burberry, the largest letting in
the West End in the year to date
-- Vacancy rate remains low at 1.1% (31 December 2011: 1.3%)
reflecting strong demand particularly from the TMT sector
-- New open market lettings achieved 3.0% above December 2011 ERV
-- Excluding Page Street, which was agreed in 2011 but completed
in the first quarter of 2012, open market lettings were 9.4% above
December 2011 ERV
-- GBP51.6m of reversionary income potential, an increase of 9.1% over the period
Projects
-- Two new projects now on site: active programme increased 67%
since the year end to seven projects comprising 0.55 million sq ft
(51,100m(2) ), of which 35% is pre-let or under offer
-- Further 0.4 million sq ft (39,190m(2) ) to start in 2013,
which will increase future development expenditure to over
GBP300m
-- Four major planning consents obtained
o 50% already on site or sold
o Remainder increases reservoir of future consented projects by
nearly 25% to 1.5 million sq ft (138,000m(2) )
-- Grosvenor Place SW1 - joint venture with Grosvenor enables
prime mixed-use development with planning submission due next
year
Acquisitions and disposals
-- Acquired Francis House SW1 for GBP29.1m on a 5.1% net initial yield
-- Sold three properties and a 50% stake in 1-5 Grosvenor Place
SW1 in the year to date for GBP161.5m on a disposal yield of 2.9%,
and 4.5% surplus over 31 December 2011 values
Robert Rayne, Chairman, commented:
"London has a number of characteristics that makes its real
estate market particularly attractive. Investment and tenant demand
remain strong and supply of good quality office space is restricted
by the constraints of planning and the general limited availability
of finance. Furthermore, the events of this year, the Diamond
Jubilee celebrations and the Olympics, have enhanced London's
global status as a premier capital city."
John Burns, Chief Executive Officer, commented:
"Derwent London remains a well-financed business, with
regeneration opportunities both in the short term and over the
years to come. We remain confident that, if current market
conditions persist, the level of rental growth experienced in our
portfolio in the first half will be sustained throughout the rest
of the year. Given the favourable balance of occupier demand and
supply we are pushing forward with the execution of our development
pipeline."
For further information, please contact:
Derwent London Tel: 020 7659 3000
John Burns, Chief Executive Officer
Damian Wisniewski, Finance Director
Louise Rich, Head of Investor Relations
Brunswick Group LLP Tel: 020 7404 5959
Kate Holgate / Elizabeth Adams
There will be a webcast of the results at 9:30am today which can
be accessed at www.derwentlondon.com
Business and finance review
Overview
Since the year end we have been able to deliver on all aspects
of the strategy set out in our 2011 Annual Report:
Investing in our portfolio
The level of major projects where we are on site has increased
by 67% to 0.55 million sq ft (51,100m(2) ), and we are on track to
start a further 0.4 million sq ft (39,190m(2) ) in 2013. This will
increase future capital expenditure to over GBP300m, and includes
the development of 80 Charlotte Street W1, our largest West End
project to date. During the period we established a joint venture
with Grosvenor for 1-5 Grosvenor Place SW1, thereby laying the
foundations of another prime mixed-use central London development.
We also acquired Francis House SW1, adding to our holdings in
Victoria, which include adjacent properties.
Creating exciting new spaces
We have had considerable planning success and have secured 0.6
million sq ft (55,590m(2) ) of new consents on four projects. These
generally contain an increasing residential content, reflecting
current demand.
We welcome the increasing occupier interest in 'Tech City' given
our cluster of properties in the Old Street area. This includes our
City Road Estate EC1 which is a significant potential development
and is the current focus of our White Collar Factory concept. As
part of this initiative, in May a Derwent London team visited San
Francisco and Silicon Valley to see for themselves the occupational
requirements of creative industries and to meet US tenants who may
look to expand into the UK. We were able to create an ongoing
dialogue with potential tenants and confirmed that our concept of
space creation is very similar to those of the properties and
occupiers visited.
Managing our assets
In a market where demand for our properties is strong and our
vacancy rate is currently around 1%, we were able to continue the
high level of lettings achieved in 2011 with a large element of
pre-letting. We have also been successful in re-letting space where
leases have expired, facilitating tenant expansion and extending
leases.
Retaining financial strength and flexibility
Global financial conditions remain tough. Nevertheless, we have
now completed the refinancing of debt facilities that were due to
expire in 2013. As part of this process we have accessed a new
source of funding, with our recent GBP83m 12-year fixed rate loan
from Cornerstone, part of the US insurer Mass Mutual.
Whilst we are increasing our development activity, our financial
performance remains robust. This reflects our focus on holding a
well-balanced portfolio with income levels maintained, comfortable
interest and dividend cover and ample undrawn facilities. We
believe that this places the Group in a sound position from which
to progress its development projects.
Market commentary
At a time when the eyes of the world have been on London, it is
worth reflecting on our market. London has a number of
characteristics that makes its real estate market particularly
attractive. Investment and tenant demand remain strong and supply
of good quality office space is restricted by the constraints of
planning and the general limited availability of finance.
Furthermore, the events of this year, the Diamond Jubilee
celebrations and the Olympics, have enhanced London's global status
as a premier capital city.
London's economy showed considerable resilience in the first
half of the year despite the fragility of the wider economy. The
central London office market take up in the first half was 5%
higher than that of last year according to leading surveyors CBRE
and demand remained firm. The TMT (technology, media and
telecommunications) and other creative sectors which are
particularly active at present, are typically attracted to our
mid-market, design-led space. Supply of office space continued to
be constrained, with the vacancy rate falling from 5.2% to 5.0%
over the period, well below the ten-year average of 6.5%. Although
central London development completions are expected to rise to 2.8
million sq ft (260,000m(2) ) in 2012 from 1.7 million sq ft
(158,000m(2) ) in 2011, this is still 40% below the 10-year
average. The ongoing supply-demand imbalance also led to further
rental growth across the capital, especially in the West End.
With sovereign debt issues in many parts of the Eurozone, the UK
is enjoying 'safe haven' status. London attracted significant
investment activity in the half year with GBP7.2bn of office
transactions. This is the highest six-month period of activity
since the second half of 2007 and is 37% above the 10-year
six-month average. Overseas investors accounted for nearly three
quarters of activity with European and North American buyers
dominating.
This considerable investor demand in an undersupplied market,
coupled with the attractiveness of property returns relative to the
low return on gilts, has supported low property yields. This is
most evident in our central London market where there is also good
occupier demand and positive rental growth. This is illustrated by
the performance in the first half of the year of the IPD Quarterly
Index (IPD Index) for central London offices which recorded capital
growth of 1.8% and a total return of 4.1%. The IPD Index for West
End & Midtown offices was even stronger, with capital growth of
2.4% and a total return of 4.7%. Outside London occupier demand is
weaker, adversely impacting rents and capital values. The IPD Index
for All UK Property saw capital values decline by 1.7% and a total
return of 1.2% in the period.
Property performance
The Group's property portfolio was valued at GBP2.7bn at 30 June
2012. Over the first half, there was a valuation surplus of
GBP82.5m, before deducting lease incentive adjustments of GBP4.9m.
The underlying valuation increase was 3.3%, higher than the 2.9%
achieved in the second half of 2011. This was principally driven by
growth in the estimated rental value (ERV) of 2.8%, leading to an
increase in reversion from GBP47.3m to GBP51.6m. Our valuation
movement outperformed the benchmark, the IPD Index for capital
growth in central London offices, which increased by 1.8%.
Over the half year, underlying rental values in our central
London portfolio increased by 2.9%, reflecting our high level of
letting activity at improved rents. This was above the 2.2%
increase in the preceding six months and marked a fifth successive
half-year increase. The IPD Index for central London offices showed
rental growth of 1.8% in the period.
The EPRA net initial yield was 4.5% at 30 June 2012 and on a
'topped up' basis, following the expiry of contracted rental
uplifts and rent free periods, would increase to 5.1%. The true
equivalent yield tightened slightly by 3 basis points to 5.58% over
the first half of 2012.
The Group's total property return was 5.2% for the first half.
This was above our benchmark IPD Central London Office Index return
of 4.1% and the All UK Property return of 1.2%.
Our central London properties, which comprise 96% of the
portfolio, rose in value by 3.5% over the half year, as rental
values improved and true equivalent yields tightened modestly by 4
basis points. The value of our West End properties increased by
3.2%, and our City Border properties by 4.6%, the latter enhanced
by a number of management initiatives.
Within the investment portfolio our current projects, which are
in various stages of construction, are progressing well. These
included five developments valued at GBP137m, reflecting a
valuation uplift of 9.7% over the period. The Group is also
undertaking two major phased refurbishments. Here, the approach is
to upgrade and extend the buildings through a rolling programme
while preserving an income stream. These buildings increased in
value by 3.6% to GBP188m. Overall, these seven projects,
representing 12% of the investment portfolio, increased in value by
6.1% over the half year (for further details see 'Projects'
below).
The balance of the portfolio, our non-core Scottish holdings
accounting for 4% of value, declined by 1.5% following an outward
movement of valuation yields of 12 basis points, whilst rental
values were unchanged.
Portfolio management
Strong letting activity continued in the first half of 2012,
with 28 transactions producing GBP8.9m pa of rental income
concluded on a floorspace of 229,100 sq ft (21,280m(2) ),
maintaining last year's good momentum. We continue to witness
strong demand for the particular space that Derwent London
provides, principally from the expanding TMT sector. Given the
small amount of space available, the majority of letting activity
in the first half involved pre-lets. Activity in the first six
months of the year brought lettings over the 12 months to 30 June
2012 to 77 transactions, over an area of 460,000 sq ft (42,730m(2)
), at an annual rent of GBP17.1m.
The principal transactions were:
-- 1 Page Street SW1 - the 127,000 sq ft (11,800m(2) ) building
was pre-let to Burberry at a rent of GBP5.3m pa, rising to a
minimum of GBP5.7m pa after five years. This is the largest letting
in the West End in the year to date. The rent equates to GBP50 per
sq ft (GBP540 per m(2) ) on the best space, which compares to GBP38
per sq ft (GBP410 per m(2) ) on similar space that Burberry
currently occupies in our adjacent 162,700 sq ft (15,110m(2) )
Horseferry House.
-- 1 & 2 Stephen Street W1, formerly known as Central Cross
- BrandOpus are tripling their presence in our portfolio and will
relocate from 5,000 sq ft (460m(2) ) at the Charlotte Building W1
to 15,400 sq ft (1,430m(2) ) in Phase 1 of the 1 & 2 Stephen
Street refurbishment in 2013. They will occupy ground and lower
floor offices, paying a rent of GBP0.65m pa representing GBP52.50
per sq ft (GBP565 per m(2) ) on the prime space, making this phase
of the refurbishment two thirds pre-let at 5% above 31 December
2011 ERV.
-- Elephant House, 35 Kentish Town Road NW1 - the refurbishment
of this 13,700 sq ft (1,270m(2) ) building was pre-let to global
media company Viacom at GBP0.4m pa equating to approximately GBP30
per sq ft (GBP320 per m(2) ). This was 20% above December ERV with
completion due in spring 2013.
-- Middlesex House, 34-42 Cleveland Street W1 - The Blair
Partnership took 6,300 sq ft (590m(2) ) at GBP0.3m pa reflecting
GBP47.50 per sq ft (GBP510 per m(2) ). This was 22% above December
ERV.
Our open market lettings in the first half, which excluded
short-term transactions at properties held for future development,
were at rental levels 3.0% ahead of the 31 December 2011 ERV. If
Page Street is excluded, as the transaction was agreed at the end
of last year and therefore the terms were reflected in the December
ERV, open market lettings were 9.4% above ERV. Overall, including
short-term transactions, lettings in the first half of the year
exceeded the December ERV by 2.1%.
At the end of June the portfolio's EPRA vacancy rate, calculated
as the rental value of immediately available space, was 1.1%, down
from 1.3% at the start of the year. By floorspace the rate reduced
from 1.3% to 1.0% with the latter equivalent to just 47,000 sq ft
(4,370m(2) ). Since 30 June, the Group has let or placed under
offer 49,000 sq ft (4,550m(2) ), involving both immediately
available and current project space, at a rent of GBP2.0m pa. This
includes existing media tenant Grey taking an additional 11,100 sq
ft (1,030m(2) ) at Johnson Building EC1 at GBP45 per sq ft (GBP485
per m(2) ) or GBP0.5m pa. It also includes 32,100 sq ft (2,980m(2)
) under offer at our 4 & 10 Pentonville Road N1 scheme. On the
completion of Buckley Building EC1 and 4 & 10 Pentonville Road,
due later in 2012, the EPRA vacancy rate would increase to 4.6%.
Assuming that the space that is under offer at Pentonville Road is
let, this rate becomes 3.9%.
A key characteristic of our tenanted portfolio is its
reversionary income potential and the opportunity to add value
through active lease management. Our central London average passing
office rent is modest at GBP25.01 per sq ft (GBP269 per m(2) )
offering a good platform for growth. Allowing for contracted
increases, the average 'topped up' rent is GBP31.50 per sq ft
(GBP339 per m(2) ). This compares to an ERV as at 30 June 2012 of
GBP34.74 per sq ft (GBP374 per m(2) ).
Examples of value adding initiatives, which build on our close
tenant relationships, include:
-- 1 Oliver's Yard EC2 - four leases to Sage Publications, on
40,300 sq ft (3,740m(2) ), were extended from two to seven years.
Annual stepped rental increases were introduced, taking the rent
from GBP1.0m pa to GBP1.4m pa over the term, equating to GBP25 per
sq ft (GBP270 per m(2) ) and GBP36 per sq ft (GBP390 per m(2) ),
respectively. The December 2011 ERV was GBP28.50 per sq ft (GBP305
per m(2) ). Lease incentives equate to a four month rent-free
period. In August TelecityGroup extended its leases on 68,700 sq ft
(6,380m(2) ) from five to 25 years, with rent increases from
GBP1.8m pa to GBP2.3m pa in 2017, equating to GBP45 per sq ft
(GBP485 per m(2) ) on the best space, with thereafter a 2.5% pa
increase compounded every five years. Had these transactions been
taken into account in the half year valuation, they would have
provided a valuation uplift of 15.6% on this property, equivalent
to 12p per share, whereas only a 5.9% uplift has been recognised in
the first half.
-- Charlotte Building, 17 Gresse Street W1 - following a lease
surrender on 6,800 sq ft (630m(2) ), we immediately re-let the
space to The BIO Agency, an existing tenant. They are relocating
from our nearby 75 Wells Street property and tripling their
floorspace. The new rent of GBP0.4m pa reflects GBP57.50 per sq ft
(GBP620 per m(2) ) which is 32% higher than the previous income on
this space and 15% higher than the December 2011 ERV. As stated
above, we expect to receive back a further 5,000 sq ft (460m(2) )
at this building in 2013. This is currently let at an average rent
of GBP44 per sq ft (GBP475 per m(2) ).
-- 8 Fitzroy Street W1 - in July at this 148,000 sq ft
(13,750m(2) ) building let to Arup until 2033, we replaced
five-yearly upward-only rent reviews to an annual stepped increase
taking the rent from GBP6.2m pa (GBP45 per sq ft/ GBP485 per m(2)
on a typical floor) to GBP8.4m pa (GBP60 per sq ft/ GBP645 per m(2)
) in 2021. There is then an upward-only, open-market rent review
with the income increasing 2.5% pa compounded thereafter, giving a
rent by expiry of at least GBP11.0m pa (GBP80 per sq ft/ GBP860 per
m(2) ). Valued on a proforma basis, this would have provided a
valuation uplift of 5% on this property, equivalent to 6p per
share.
Strong tenant retention was maintained in 2012. In the half
year, GBP7.7m pa of the portfolio's rental income (6.7% of the
total) was subject to lease expiries and breaks. After excluding
space taken back for identified projects, representing GBP1.2m pa,
91% of this income was retained and 4% re-let during the half year.
The Group concluded 26 rent reviews and lease renewals in the first
half at a combined rent of GBP4.1m pa, an uplift of 3.0% on the
previous income.
Rent collection remained prompt with 97% of rent collected
within 14 days of the due date for the opening half of the year
(2011 average: 98%).
Projects
The Group continues to be active on all aspects of its
development programme. Two major new projects have been started in
2012 and, after allowing for the enlarged refurbishment in Phase 2
of the works at 1 & 2 Stephen Street W1, the active programme
has increased 67% to 0.55 million sq ft (51,100m(2) ). Four major
planning consents were obtained in the first half which, excluding
Page Street SW1 (on site) and Riverwalk House SW1 (now sold),
increase the consented schemes by nearly 25%. The future pipeline
now stands at 1.5 million sq ft (138,000m(2) ) of consented schemes
with appraisal studies ongoing on over 0.7 million sq ft
(68,100m(2) ). The Group's on-site and pipeline projects now total
2.8 million sq ft (257,200m(2) ). Of this, over 0.4 million sq ft
(39,190m(2) ) of projects are due to commence in 2013. Although no
major project completions occurred in the half-year, the Group
delivered 67,000 sq ft (6,220m(2) ) of various smaller projects
with an ERV of GBP2.5m. Of these smaller projects, 74% have already
been let.
Current projects
Since the year end we have started two new major projects and
significantly increased one phased refurbishment. We are now on
site at seven projects with a total proposed floorspace of 550,000
sq ft (51,100m(2) ). These involve an estimated capital expenditure
to complete of GBP133m. Overall, the estimated net rental value of
these projects is GBP23.9m pa, compared with current income of
GBP5.2m, with 35% of the floorspace pre-let or under offer.
Five of the projects are schemes where we are redeveloping or
refurbishing the whole of the building in one phase:
-- 1 Page Street SW1 - the entire 127,000 sq ft (11,800m(2) )
office building has been pre-let to Burberry and is due to complete
in mid-2013.
-- Buckley Building, 49 Clerkenwell Green EC1 - this 85,000 sq
ft (7,900m(2) ) office refurbishment and extension is progressing
well and is scheduled to finish in the final quarter of 2012. It is
well located close to the Farringdon Crossrail interchange. Derwent
London currently receives GBP2.5m pa from this property.
-- 4 & 10 Pentonville Road N1 - this 55,000 sq ft (5,110m(2)
) office refurbishment is due to be completed shortly. Over half of
the building, totalling 32,100 sq ft (2,980m(2) ), is under
offer.
-- Turnmill, 63 Clerkenwell Road EC1 - the new-build 70,000 sq
ft (6,500m(2) ) office and retail development commenced in April
with completion due in mid-2014. It is located in the heart of
Clerkenwell next to the Farringdon Crossrail interchange.
-- 40 Chancery Lane WC2 - work has now started on this 100,000
sq ft (9,300m(2) ) new-build development following the regearing of
the headlease in February. This is on a 128-year term at a ground
rent of 18% of rental income, with the opportunity to buy this down
to 10%. Completion is targeted for the end of 2014.
The other two projects involve phased refurbishments:
-- 1 & 2 Stephen Street W1, formerly Central Cross (Phases 1
& 2) - Phase 1 of the refurbishment at this 255,000 sq ft
(23,690m(2) ) mixed-use building involves remodelling the office
entrance and creates 23,000 sq ft (2,140m(2) ) of new ground and
lower floor space. Two thirds of this phase has been pre-let.
Following a lease surrender, Phase 2, the refurbishment of a number
of office floors, has been trebled to 63,000 sq ft (5,850m(2) ).
Both phases will be delivered during 2013.
-- Morelands Buildings, 5-27 Old Street EC1 - a 27,000 sq ft
(2,510m(2) ) office refurbishment and roof extension is the latest
phase of works at this 90,000 sq ft (8,400m(2) ) building. Two
thirds of the space is pre-let and works are due to finish at the
end of this year.
Elsewhere, we continue to invest in the portfolio through
smaller projects. As at 30 June 2012 these totalled approximately
50,000 sq ft (4,600m(2) ), and have an ERV of GBP1.6m pa. In
addition we have commenced a 'light touch' office and warehouse
upgrade on approximately 150,000 sq ft (13,900m(2) ) at 132-142
Hampstead Road NW1. This follows the Group's decision to defer its
major redevelopment due to the potential impact of HS2, the
proposed high speed London to Birmingham rail link. We are
targeting occupiers looking for short term space.
Projects starting in 2013
In 2013 we intend to start a major mixed-use redevelopment at 80
Charlotte Street W1, which will be one of the largest schemes in
the core of the West End. This is located in one of our main
operating areas, Fitzrovia, north of Oxford Street, where 35% of
our assets are located. The main development occupies a 1.4 acre
(0.6 hectare) site that will provide 323,000 sq ft (30,010m(2) ) of
offices and 14,000 sq ft (1,300m(2) ) of private residential units.
Our proposals are now in their final stages of design and, since
receipt of planning permission in September 2011, we have been
improving and refining our plans. This project also includes two
nearby properties which will now deliver 12,000 sq ft (1,110m(2) )
of offices and 36,000 sq ft (3,340m(2) ) of residential space. Of
the latter, 42% will be affordable housing. We are due to start on
site in mid 2013 when the current leases expire with delivery in
2016. Capital expenditure is estimated at GBP150m overall.
Next year, the Group will be further increasing its residential
exposure with the redevelopment of 96-98 Bishop's Bridge Road W2, a
21,400 sq ft (1,990m(2) ) residential and retail development in
Westbourne Grove.
Planning consents
Four planning consents were obtained in the first half,
totalling 600,000 sq ft (55,700m(2) ). Already half of these
projects are either under construction or have been sold. The
remaining projects add nearly 25% to the consented pipeline.
Residential property represented 32% of the total consents received
in the first half as we seek to take advantage of current demand in
this sector.
-- 1 Oxford Street W1 - this 275,000 sq ft (25,500m(2) )
mixed-use scheme on the corner of Oxford Street and Charing Cross
Road, directly above Tottenham Court Road station, was granted
planning permission in April. It is the Group's intention to
exercise its option to acquire the site, which was compulsorily
purchased from Derwent London by Crossrail in 2009. The station
upgrade works are expected to complete in 2017. As this is held as
an option, no revaluation uplift has been recognised in respect of
this consent.
-- 1 Page Street SW1 - a 127,000 sq ft (11,800m(2) ) office
refurbishment and extension, which has been pre-let to Burberry,
was approved in April.
-- Riverwalk House and 232-242 Vauxhall Bridge Road SW1 -
consent was received in March for a 148,000 sq ft (13,700m(2) )
luxury riverside residential development of 121 units at Riverwalk
House and for the conversion of 232-242 Vauxhall Bridge Road to
27,000 sq ft (2,600m(2) ) of affordable housing. The properties
were sold in July - see 'Acquisitions and disposals' section. Work
is expected to start this year for completion in 2015 and we retain
a profit overage.
-- 96-98 Bishop's Bridge Road W2 - our plans for a 21,400 sq ft
(1,990m(2) ) mixed-use scheme were approved in February. This
comprises 16 residential units and 2,700 sq ft (250m(2) ) of retail
space. Construction will start in early 2013.
In addition to the projects where we are on site, the Group's
consented schemes, excluding those which we are starting in 2013,
total around 1.1 million sq ft (100,200m(2) ) providing the
foundations of a strong development pipeline in the years to come.
These include major consents at 55-65 North Wharf Road W2 (313,000
sq ft or 29,100m(2) ) and City Road Estate EC1 (289,000 sq ft or
26,800m(2) ).
Planning applications
Following planning submissions earlier in the year, decisions
are awaited at two Fitzrovia projects:
-- 18-30 Tottenham Court Road W1, formerly Central Cross retail
- this proposal extends the retail units on Tottenham Court Road
from 24,000 sq ft (2,230m(2) ) to 41,000 sq ft (3,810m(2) ). The
new frontage, which is over 400 ft (120m) in length, will transform
this retail destination and make an important contribution to the
area's regeneration. The proposed Crossrail hub at Tottenham Court
Road station will further improve the location and is less than 500
feet (150m) away. Subject to planning, commencement is anticipated
in 2014.
-- 73 Charlotte Street W1 - a mixed-use development of 15,500 sq
ft (1,440m(2) ) comprising 11 residential units, two of which will
be affordable, and 1,900 sq ft (180m(2) ) of offices. Work could
start next year subject to planning.
Appraisal studies
In March, Derwent London and Grosvenor announced a joint venture
to work towards the redevelopment of 1-5 Grosvenor Place SW1.
Having acquired a number of leasehold buildings here over a number
of years, a unique 1.5 acre (0.6 hectare) site has been assembled
and this collaboration has unlocked a major prime development
opportunity. Further details of the structure of the joint venture
are given below in 'Acquisitions and disposals'. The property is
currently fully let on a short-term basis and the joint venture is
finalising a professional team to evaluate the options for a
mixed-use development at this prestigious Belgravia location. We
intend to submit a planning application next year.
In addition there are a number of other properties which are
currently subject to appraisal studies, such as Network Building
W1, Balmoral Grove Buildings N7 and 19-35 Baker Street W1 which is
held in our joint venture with the Portman Estate.
Acquisitions and disposals
In the current environment, our balanced portfolio with a high
proportion of future regeneration opportunities should deliver
strong returns. As a result we can be disciplined about
acquisitions, and buy selectively where we see value.
During the half year, we acquired an ideal 'Derwent building' -
an office let off low average rents that has scope for adding value
through asset management and refurbishment. Francis House, 11
Francis Street SW1 was acquired for GBP29.1m before costs. This
57,000 sq ft (5,300m(2) ) freehold building adjoins our Greencoat
& Gordon House and 6-8 Greencoat Place properties. Together,
these buildings total 218,700 sq ft (20,320m(2) ) and occupy 1.2
acres (0.5 hectares) constituting the majority of an island site.
Francis House is let to Channel Four Television under a lease
expiring in February 2020. The total annual income is GBP1.6m until
February 2015, when there is a fixed rent increase to GBP1.7m pa.
The net initial yield is 5.1%, rising to 5.4%. The 42,600 sq ft
(3,960m(2) ) of offices are let off an average rent of GBP37 per sq
ft (GBP400 per m(2) ) with the balance of the building being
storage. This level offers further reversionary potential as we
have achieved lettings of over GBP50 per sq ft (GBP540 per m(2) )
next door.
We also selectively recycle the portfolio. We completed GBP94.1m
of sales in July 2012, bringing the total for the year to date to
GBP161.5m at an average disposal yield of 2.9%. In the first half,
the leases on 1-5 Grosvenor Place SW1 were regeared into a new
150-year term at a ground rent of 5% of rental income for GBP7.3m
before costs. Simultaneously Derwent London sold 50% of its
ownership to Grosvenor, the freeholder, and received GBP67.3m
before costs.
The post half year sales achieved 7.5% above their December 2011
book value and gave rise to an overall surplus of GBP6.5m. These
comprised:
-- Riverwalk House & 232-242 Vauxhall Bridge Road SW1 -
these two properties in Victoria were sold, following the receipt
of planning permission, to Ronson Capital Partners for GBP77.3m
before costs. The Group maintains an interest in the proposed
development through a profit overage. This disposal represents an
excellent return for the Group with the combined valuation having
increased by 75% over the last three years.
-- Triangle Centre, Bishopbriggs, Scotland - this 75,500 sq ft
(7,010m(2) ) shopping centre, located just to the north of Glasgow,
was sold for GBP16.8m before costs. The centre, a non-core asset,
was let at GBP1.3m pa and was sold at 6.8% above the December 2011
book value.
Financial review
EPRA adjusted net asset value per share increased during the
first half of 2012 to 1,770p from 1,701p at 31 December 2011. This
represents an increase of 4.1% over six months and an increase of
9.2% from 1,621p at 30 June 2011.
The growth in net asset value was largely due to the portfolio
valuation surplus of GBP77.6m or 76.1p per share, driven mainly by
underlying rental growth. This is stated net of lease incentive
adjustments of GBP4.9m. While this is lower than the exceptional
GBP118.5m surplus reported in the first half of 2011 when the
market was recovering sharply, it exceeds the GBP66.0m surplus in
the second half of 2011, highlighting the recent strength of our
particular markets and the impact of our major development
projects.
The value of the Group's property portfolio at fair value
increased to GBP2,728.4m at 30 June compared with GBP2,646.5m at
the start of the year. This takes account of the disposal of half
of the Grosvenor Place property for GBP67.3m, before costs, but
also recognises GBP38.6m of property acquisitions, GBP8.0m of which
relates to the new 150-year Grosvenor Place headlease, inclusive of
GBP0.7m of transaction costs, and the purchase of Francis House. In
addition, the Group incurred GBP27.7m of capital expenditure on
projects in the first half, GBP2.2m of which was capitalised
interest.
The increase in EPRA like-for-like gross rental income, which
shows the underlying performance of the portfolio after stripping
out acquisitions, disposals and developments, was 8.2% compared
with the first half of 2011 and 3.2% compared with the second half.
Reported gross property income was GBP62.3m in the six months to
June 2012, marginally lower than the equivalent figure in 2011 of
GBP62.5m due to the higher proportion of development and
refurbishment activity in the portfolio. Lettings and rent reviews
added GBP6.2m to rental income compared to the first half of 2011
but net property disposals reduced income by GBP2.1m. There were
GBP2.0m of breaks and expiries and GBP1.9m of rent was removed as
new schemes commenced. The balance comprised surrender premiums
which were GBP0.4m lower than in 2011. Net property income for the
period increased marginally to GBP58.1m from GBP57.8m a year
earlier as irrecoverable costs and premiums paid to tenants were
lower, offset to some extent by a reduction in rates credits of
GBP1.3m compared to the first half of 2011.
Administrative expenses increased to GBP12.0m for the first half
of 2012 compared with GBP11.2m for the first half of 2011 and
GBP11.5m for the second half. This increase is largely due to
higher staff costs. Finance costs, stated after capitalised
interest of GBP2.2m in the first half of 2012, have fallen to
GBP21.0m from GBP21.5m in the first half of 2011 and GBP22.8m in
the second half. This reduction came from lower interest costs on
drawn loan amounts offset by higher non-utilisation fees and
amortisation of arrangement fees on facilities signed in the last
year or so.
Though it is not reflected in EPRA profit or recurring earnings,
the previously reported GBP6.3m cost of unwinding GBP130m of swaps
in January 2012 has reduced EPRA net asset value as at 30 June
2012. Those instruments, which were due to expire in March 2013,
were arranged in 2006 when rates were much higher than today. The
mark-to-market movement on other interest rate swaps during the
period was a gain of GBP1.2m.
The income statement shows a profit on disposal of investment of
GBP3.9m relating to the realisation of exchange gains on the
liquidation of our last US subsidiary during the first half of
2012. The company had been inactive for several years and, as an
equal and opposite amount passes through the statement of
comprehensive income, there is no impact on EPRA net asset value or
recurring earnings.
Though the Group has been increasing the proportion of
properties subject to development and refurbishment, our emphasis
on a balanced portfolio has kept recurring income levels at a
similar level to 2011. EPRA profit before taxation for the half
year was almost unchanged at GBP26.5m compared with GBP26.6m in the
first half of 2011. After adjusting for the impact of rates credits
and foreign exchange movements, underlying profit before tax was
GBP26.1m for the period, 4.4% higher than the first half of 2011.
The profit before tax, which includes asset and derivative
revaluation movements as well as the profit on disposals, was
GBP102.4m for the first six months of 2012. This compares with
GBP173.3m in the equivalent period in 2011 when property
revaluation gains were higher, and GBP59.7m in the second half of
2011.
Financing, net debt and cash flow
With the recent announcement of a new GBP83m secured fixed rate
loan from Cornerstone, part of the Mass Mutual Financial Group,
Derwent London completed the refinancing of facilities that were
due to expire in 2013. Most of the refinancing had already been
completed by January 2012 with GBP425m of fully revolving bank
facilities extended or refinanced with relationship banks, the
details of which were set out in the 2011 Report and Accounts.
The new loan, which is the first transaction entered into by
Cornerstone in the UK, is secured on two properties in Fitzrovia
and is fixed at 3.99% until October 2024, equivalent to a margin of
210 basis points over the appropriate gilt yield. The initial
loan-to-value ratio was 48.3%, the covenant is set at 70% and there
is no amortisation throughout the period to expiry. This new loan
facility further diversifies our sources of funding, bringing the
proportion of Derwent London's borrowing provided by banks down to
below 50% of the total. The equivalent proportion at the beginning
of 2011 was 80%. It also has the benefit of lengthening the
weighted average term to debt maturity to 6.8 years. At the point
this loan was drawn on 1 August, the residual GBP150m facility
arranged in 2006 was cancelled. At the same time, a cost of GBP0.6m
was incurred on the termination of a GBP65m interest rate swap
running to March 2013.
As anticipated, the GBP32.5m unsecured 'loan note' facility
which was due to expire in June 2012 was cancelled during the first
half. The Group's overdraft facility was also reduced to GBP2.5m
from GBP10.0m in July 2012; these steps have been taken to reduce
the level of undrawn facilities and non-utilisation fees
payable.
The level of available facilities was GBP410m at 30 June 2012
and, after taking account of property sales at Riverwalk House,
Vauxhall Bridge Road and the Triangle Centre in Scotland, increased
to GBP414m at 1 August 2012 despite the reduction in total
facilities. The equivalent figure at 31 December 2011 was GBP469m.
In addition, the Group had GBP595m of uncharged properties at 30
June 2012 and GBP544m at 1 August 2012, compared with GBP589m at
the last year end. Therefore planned capital expenditure on the
committed development pipeline is well covered by our existing
unused facilities and uncharged assets.
Net debt at 30 June 2012 increased slightly to GBP870.2m from
GBP864.5m at the last year end, but balance sheet gearing fell to
48.5% from 50.4% over the same period. The loan-to-value ratio at
30 June 2012 fell correspondingly to 31.4% from 32.0% at the last
year end and, following the property disposals totalling GBP94.1m
since the half year, is now likely to be close to 30%.
Interest cover remains strong and has increased to 356% on a
gross basis from 312% in the first half of 2011 and 307% for the
whole of 2011.
As a result of the GBP130m reduction in interest rate swaps in
January 2012, the proportion of fixed and hedged debt fell to 90%
at 30 June 2012 from 98% at the year end. This takes account of a
new GBP70m swap to April 2019 that was arranged in January 2012 at
a rate just below 2.0%. Although margins on the new loans were
higher than before, the weighted average cost of debt fell to 4.72%
on an IFRS basis as at the half year and to 4.46% on a cash basis
(ignoring the additional 'non cash' interest charge booked on the
convertible bonds). The impact of the latest refinancing is to
increase the weighted average cost by about 21 basis points. The
equivalent figures at December 2011 were 4.91% and 4.65%,
respectively.
Dividend
As stated earlier, Derwent London's financial position
strengthened again over the last six months. We have moved forward
with our development pipeline but have also been able to maintain
recurring income. We are therefore increasing the interim dividend
by 5.3% from 9.45p to 9.95p per share, at which level the dividend
is comfortably covered. We believe this growth rate is appropriate
given the scale of our committed development programme. The
dividend will be paid as a Property Income Distribution on 1
November 2012 to shareholders on the register at the close of
business on 28 September 2012. A scrip alternative is again being
offered.
Board
The Board set out in the 2011 Report and Accounts that it
intends to seek the appointment of two independent non-executive
directors as part of an orderly process of refreshment. As part of
this process, we are delighted to announce the appointment of Simon
Fraser as a non-executive director with effect from 1 September
2012. Simon was a Managing Director and Co-Head of the Corporate
Broking business at Bank of America Merrill Lynch until his
retirement at the end of 2011 and will bring extensive financial
services experience and knowledge to the Board.
We also stated in the 2011 Report and Accounts that both Simon
Neathercoat and John Ivey would retire by the end of 2013. With the
appointment referred to above, we can announce that Simon
Neathercoat will retire from the Board on 31 December 2012. Simon
has served on the Board since 1999 and throughout this period has
always provided excellent, independent counsel and sound advice to
the Board. We would like to thank him for his wisdom, commitment
and contribution over the last 13 years.
Outlook
Derwent London operates in one of the most dynamic real estate
markets in the world. Supply of good quality office space in London
is constrained and we are seeing strong tenant demand for our brand
of space, particularly from the TMT sector. In these uncertain
times, commercial real estate in central London continues to be
viewed as a 'safe haven' for international investors.
We remain confident that, if current market conditions persist
in central London, the level of rental growth experienced in our
portfolio in the first half will be sustained throughout the rest
of the year. In addition we expect our valuation yields to remain
firm in the months to come.
Derwent London is a well-financed business, with regeneration
opportunities both in the short term and over the years to come.
Given the favourable balance of occupier demand and supply we are
pushing forward with the execution of our development pipeline. At
the same time we are managing our portfolio to retain income for as
long as possible up to the start of development.
The pipeline is focused on mid-market rents, in areas where
there are transformational transport links such as Crossrail and in
the vibrant London villages of the future. Together with the good
design that is so central to the spaces that we provide, we believe
these factors will continue to attract a range of tenants,
including those from the creative industries which are an important
part of the London economy. We consider that these components,
combined with the management team's experience and skill, provide
excellent prospects for future growth.
Robert A. Rayne John D. Burns
Chairman Chief Executive Officer
22 August 2012
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 24.
A list of the current Directors is maintained on the Derwent
London plc website: www.derwentlondon.com.
On behalf of the board
John D. Burns Damian M.A. Wisniewski
Chief Executive Officer Finance Director
22 August 2012
GROUP CONDENSED INCOME STATEMENT (UNAUDITED)
Half year Half year Year to 31.12.2011
to 30.06.2012 to 30.06.2011
Note GBPm GBPm GBPm
--------------------------------------- -------------- -------------- ------------------
Gross property income 62.3 62.5 125.5
Other income 0.9 1.0 2.0
------------------------------------ -------------- -------------- ------------------
Total income 4 63.2 63.5 127.5
Property outgoings (5.1) (5.7) (9.8)
Net property income 58.1 57.8 117.7
Administrative expenses (12.0) (11.2) (22.7)
Revaluation surplus 77.3 117.3 170.1
Profit on disposal of investment
properties 5 0.2 21.5 36.1
Profit on disposal of investment 6 3.9 - -
Profit from operations 127.5 185.4 301.2
Finance income 7 0.6 0.7 1.1
Finance costs 7 (21.0) (21.5) (44.3)
Movement in fair value of derivative
financial instruments 1.2 7.8 (26.5)
Financial derivative termination
costs (6.3) - -
Share of results of joint ventures 8 0.4 0.9 1.5
Profit before tax 102.4 173.3 233.0
Tax credit 9 0.4 0.5 1.3
Profit for the period 102.8 173.8 234.3
Attributable to:
- Equity shareholders 100.8 169.3 228.3
- Minority interest 2.0 4.5 6.0
102.8 173.8 234.3
Earnings per share 10 99.08p 167.26p 225.20p
Diluted earnings per share 10 94.55p 164.68p 217.67p
GROUP CONDENSED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
Half year Half year Year to 31.12.2011
to 30.06.2012 to 30.06.2011
Note GBPm GBPm GBPm
-------------------------------------- ------- -------- -------------- ------------------
Profit for the period 102.8 173.8 234.3
Actuarial losses on defined benefit
pension scheme (1.5) (0.6) (3.5)
Revaluation surplus of owner-occupied
property 0.3 1.2 2.0
Deferred tax on revaluation surplus 9 0.4 (0.2) 0.7
Foreign currency translation (0.3) (0.2) -
Reclassification of exchange
differences to income
statement 6 (3.9) - -
--------------------------------------- ------ -------- -------------- ------------------
Other comprehensive (expense)/income (5.0) 0.2 (0.8)
Total comprehensive income relating
to the period 97.8 174.0 233.5
Attributable to:
- Equity shareholders 95.8 169.5 227.5
- Minority interest 2.0 4.5 6.0
97.8 174.0 233.5
GROUP CONDENSED BALANCE SHEET (UNAUDITED)
30.06.2012 30.06.2011 31.12.2011
Note GBPm GBPm GBPm
---------------------------- ---- ---------- ---------- ----------
Non-current assets
1,
Investment property 11 2,565.9 2,496.5 2,444.9
Property, plant and 1,
equipment 12 19.8 17.9 19.4
Investments 10.0 9.2 9.7
Pension scheme surplus - 0.2 -
Other receivables 13 58.7 50.2 55.4
---------------------------- ---- ---------- ---------- ----------
2,654.4 2,574.0 2,529.4
Current assets
Trade and other receivables 14 47.3 45.6 45.0
Cash and cash equivalents 2.9 7.3 3.5
---------------------------- ---- ---------- ---------- ----------
50.2 52.9 48.5
Non-current assets held
for sale 15 92.6 45.4 137.5
Total assets 2,797.2 2,672.3 2,715.4
---------------------------- ---- ---------- ---------- ----------
Current liabilities
Bank overdraft and loans 17 95.0 40.0 32.5
Derivative financial
instruments 17 0.6 - -
Trade and other payables 16 70.0 70.4 70.9
Corporation tax liability 1.7 2.7 1.3
Provisions 1.2 2.3 1.6
---------------------------- ---- ---------- ---------- ----------
168.5 115.4 106.3
Non-current liabilities
Borrowings 17 778.1 871.8 835.5
Derivative financial
instruments 17 50.2 17.6 51.9
Provisions 0.2 0.5 0.5
Pension scheme deficit 3.0 - 1.5
Deferred tax 18 4.3 5.6 5.2
---------------------------- ---- ---------- ---------- ----------
835.8 895.5 894.6
Total liabilities 1,004.3 1,010.9 1,000.9
---------------------------- ---- ---------- ---------- ----------
Total net assets 1,792.9 1,661.4 1,714.5
Equity
Share capital 5.0 5.0 5.0
Share premium 164.5 160.6 162.9
Other reserves 932.2 933.6 936.6
Retained earnings 637.4 511.9 558.2
---------------------------- ---- ---------- ---------- ----------
Equity shareholders'
funds 1,739.1 1,611.1 1,662.7
Minority interest 53.8 50.3 51.8
Total equity 1,792.9 1,661.4 1,714.5
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 2012 5.0 162.9 936.6 558.2 1,662.7 51.8 1,714.5
Total comprehensive
income
for the period - - (3.5) 99.3 95.8 2.0 97.8
Share-based payments
expense transferred
to
reserves - - 1.4 - 1.4 - 1.4
Transfer between
reserves in
respect of share-based
payments - - (2.2) 2.2 - - -
Deferred bonus award (0.1) (0.1) (0.1)
Premium on issue
of shares - 1.6 - - 1.6 - 1.6
Dividends paid - - - (22.3) (22.3) - (22.3)
At 30 June 2012 5.0 164.5 932.2 637.4 1,739.1 53.8 1,792.9
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)
At 30 June 2011 5.0 160.6 933.6 511.9 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 2011 5.0 158.2 924.0 361.6 1,448.8 45.9 1,494.7
Total comprehensive
income
for the year - - 2.7 224.8 227.5 6.0 233.5
Share-based payments
expense transferred
to reserves - - 2.4 - 2.4 - 2.4
Transfer between
reserves in
respect of performance
share plan - - (1.9) 1.9 - - -
Issue of convertible
bonds - 9.4 - 9.4 - 9.4
Premium on issue
of shares - 4.7 - - 4.7 - 4.7
Dividends paid - - - (30.1) (30.1) (0.1) (30.2)
At 31 December 2011 5.0 162.9 936.6 558.2 1,662.7 51.8 1,714.5
GROUP CONDENSED CASH FLOW STATEMENT (UNAUDITED)
Half year Half year Year to 31.12.2011
to 30.06.2012 to 30.06.2011
Note GBPm GBPm GBPm
--------------------------------------- ---- -------------- -------------- ------------------
Operating activities
Cash received from tenants 59.4 61.2 116.8
Direct property expenses (5.4) (5.7) (13.1)
Cash paid to and on behalf of
employees (10.3) (10.5) (14.4)
Other administrative expenses (2.9) (3.0) (5.2)
Interest received 0.1 - -
Interest paid (17.1) (19.0) (36.5)
Other finance costs (1.8) (0.8) (1.8)
Other income 0.9 0.8 2.1
Tax received/(paid) in respect
of operating activities 0.3 (0.7) (0.7)
Net cash from operating activities 23.2 22.3 47.2
Investing activities
Acquisition of investment properties (37.1) (91.3) (91.6)
Capital expenditure on investment
properties (29.0) (16.5) (42.6)
Disposal of investment properties 66.8 79.0 131.5
Purchase of property, plant and
equipment (0.3) (0.1) (0.2)
Distributions received from joint
ventures 0.2 - 0.3
Advances to minority interest
holder (2.4) (0.8) (0.8)
Tax paid in respect of investing
activities (0.5) - -
Net cash used in investing activities (2.3) (29.7) (3.4)
Financing activities
Net proceeds of bond issue - 170.6 170.2
Repayment of revolving bank loan - - (75.0)
Drawdown of new revolving bank
loan 73.0 - -
Net movement in other revolving
bank loans 89.0 (216.0) (179.1)
Drawdown of non-revolving bank
loans - 67.3 67.5
Repayment of non-revolving bank
loans (156.4) - -
Financial derivative termination
costs (6.3) - -
Repayment of loan notes (1.1) - -
Dividends paid to minority interest
holder - - (0.1)
Dividends paid 19 (19.7) (16.3) (25.4)
Net cash (used in)/from financing
activities (21.5) 5.6 (41.9)
(Decrease)/increase in cash and cash
equivalents in the period (0.6) (1.8) 1.9
Cash and cash equivalents at the beginning
of the period 3.5 1.6 1.6
Cash and cash equivalents at
the end of the period 22 2.9 (0.2) 3.5
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of preparation
The financial information for the half years ended 30 June 2012
and 30 June 2011 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 2011 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 2011 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 2011
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 2011 with the exception of the new
standards adopted during 2012.
New standards adopted during the year
The following amendments are effective for the first time for
the Group's 30 June 2012 period end:
IFRS 7 Financial Instruments Disclosures (amendment);
IAS 12 Income Taxes (amendment).
These had no material impact on the financial statements.
Standards and interpretations in issue but not yet effective
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. The following
standards are deemed not relevant to the Group or to have no
material impact on the financial statements of the Group when the
relevant standards come in:
IFRS 9 Financial Instruments;
IFRS 12 Disclosure of Interests in Other Entities;
IFRS 13 Fair Value Measurement;
IAS 1 Presentation of Financial Statements (amendment);
IAS 19 Employee Benefits (amendment);
IAS 27 Separate Financial Statements;
IAS 28 Investments in Associates and Joint Ventures;
IAS 32 Financial Instruments: Presentation (amendment); and
Annual Improvements to IFRSs (2009-2011 Cycle).
The following standards will affect the accounting for any
future joint arrangements entered into by the Group:
IFRS 10 Consolidated Financial Statements; and
IFRS 11 Joint Arrangements
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 2011 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
10. 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 2011: 92%; 31 December 2011:
92%). The Directors consider that these properties have similar
economic characteristics. Therefore, these individual properties
have been aggregated into a single operating segment. The remaining
8% (30 June 2011: 8%; 31 December 2011: 8%) 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.
No tenant accounted for more than 10% of gross property income
and no individual property accounted for more than 10% of the value
of the property portfolio in either the year ended 31 December
2011, the half year to 30 June 2011, or the half year to 30 June
2012.
* Note: some office buildings have an ancillary element such as
retail or residential.
Property portfolio (see note 11)
Carrying value
----------------------------------
30.06.2012 30.06.2011 31.12.2011
GBPm GBPm GBPm
----------------- ---------- ---------- ----------
Office buildings 2,473.8 2,347.1 2,397.1
Other 202.0 211.2 202.4
2,675.8 2,558.3 2,599.5
Fair value
----------------------------------
30.06.2012 30.06.2011 31.12.2011
GBPm GBPm GBPm
----------------- ---------- ---------- ----------
Office buildings 2,521.7 2,384.5 2,439.3
Other 206.7 215.7 207.2
2,728.4 2,600.2 2,646.5
Gross property income
Half year Half year
to 30.06.2012 to 30.06.2011 Year to 31.12.2011
GBPm GBPm GBPm
----------------- -------------- -------------- ------------------
Office buildings 58.0 57.0 115.5
Other 4.3 5.5 10.0
62.3 62.5 125.5
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. 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
----------------------------------
30.06.2012 30.06.2011 31.12.2011
GBPm GBPm GBPm
----------------- ---------- ---------- ----------
West End central 1,818.3 1,775.1 1,786.3
West End borders 233.5 198.3 220.3
City borders 515.6 475.5 482.9
Provincial 108.4 109.4 110.0
2,675.8 2,558.3 2,599.5
Fair value
----------------------------------
30.06.2012 30.06.2011 31.12.2011
GBPm GBPm GBPm
----------------- ---------- ---------- ----------
West End central 1,841.2 1,793.9 1,806.7
West End borders 247.5 205.3 231.4
City borders 526.7 487.3 493.7
Provincial 113.0 113.7 114.7
2,728.4 2,600.2 2,646.5
Gross property income
Half year Half year
to 30.06.2012 to 30.06.2011 Year to 31.12.2011
GBPm GBPm GBPm
----------------- -------------- -------------- ------------------
West End central 39.9 42.0 82.5
West End borders 5.8 4.0 9.2
City borders 13.5 13.4 27.5
Provincial 3.1 3.1 6.3
62.3 62.5 125.5
4. Total income
Half year Half year Year to 31.12.2011
to 30.06.2012 to 30.06.2011
GBPm GBPm GBPm
----------------------------------------- -------------- -------------- ------------------
Rental income 62.3 62.1 124.1
-------------- -------------- ------------------
Surrender premiums 0.1 0.4 2.4
Write-off of associated rents previously
recognised in advance (0.1) - (1.0)
------------------------------------------- -------------- -------------- ------------------
- 0.4 1.4
Gross property income 62.3 62.5 125.5
Other income 0.9 1.0 2.0
63.2 63.5 127.5
Included within rental income is GBP1.2m (30 June 2011: GBP0.6m;
31 December 2011: GBP1.8m) 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 31.12.2011
to 30.06.2012 to 30.06.2011
GBPm GBPm GBPm
------------------------------------- -------------- -------------- ------------------
Gross disposal proceeds 67.4 79.0 132.5
Costs of disposal (0.3) (0.5) (1.2)
-------------------------------------- -------------- -------------- ------------------
Net disposal proceeds 67.1 78.5 131.3
Carrying value (67.2) (56.7) (95.0)
Adjustment for rents recognised
in advance (0.8) (0.3) (0.2)
Movement in grossing up of headlease
liability 1.1 - -
0.2 21.5 36.1
6. Profit on disposal of investment
In March 2012 the Group liquidated a non-trading US subsidiary.
In previous years, the retranslation of the US-dollar denominated
loan from this subsidiary has resulted in foreign exchange
movements being reflected in the income statement. The net asset
impact in each year has been effectively nil as there is an equal
and opposite movement taken to other comprehensive income on
translation of the subsidiary's net asset balance. In accordance
with IAS 21, The Effects of Changes in Foreign Exchange Rates, on
disposal of this foreign subsidiary the cumulative amount of
GBP3.9m of the exchange differences previously recognised in other
comprehensive income and accumulated in the foreign currency
translation reserve has been reclassified to the income
statement.
7. Finance income and costs
Half year Half year Year to
to 30.06.2012 to 30.06.2011 31.12.2011
GBPm GBPm GBPm
--------------------------------------- --------------- --------------- ------------
Finance income
Return on pension plan assets 0.3 0.4 0.8
Foreign exchange gain 0.3 0.2 -
Other - 0.1 0.3
0.6 0.7 1.1
Half year Half year Year to
to 30.06.2012 to 30.06.2011 31.12.2011
GBPm GBPm GBPm
--------------------------------------- --------------- --------------- ------------
Finance costs
Bank loans and overdraft 10.5 14.3 27.0
Non-utilisation fees 1.8 0.7 1.9
Secured bonds 5.7 5.7 11.4
Unsecured convertible bonds 3.3 0.5 3.8
Amortisation of issue and arrangement
costs 1.7 0.8 2.0
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 0.1 0.2 0.1
Gross interest costs 23.2 22.3 46.5
Less: interest capitalised (2.2) (0.8) (2.2)
21.0 21.5 44.3
Interest of GBP2.2m (30 June 2011: GBP0.8m; 31 December 2011:
GBP2.2m) has been capitalised on development projects, in
accordance with IAS 23, Borrowing Costs, using the Group's average
cost of borrowing during each quarter. Total interest paid to 30
June 2012 was GBP19.3m (30 June 2011: GBP19.8m; 31 December 2011:
GBP38.5m) of which GBP2.2m (30 June 2011: GBP0.8m; 31 December
2011: GBP2.0m) was included in capital expenditure on investment
properties in the Group cash flow statement under investing
activities.
The foreign exchange gain in 2012 of GBP0.3m (30 June 2011:
GBP0.2m; 31 December 2011: GBPnil) resulted from the translation of
an intercompany loan from a non-trading US subsidiary. The impact
on net asset value from this exchange movement was minimal as there
is an offsetting entry in equity (see Group statement of
comprehensive income). The US subsidiary was liquidated in March
2012 (see note 6).
8. Share of results of joint ventures
Half year Half year Year to 31.12.2011
to 30.06.2012 to 30.06.2011
GBPm GBPm GBPm
----------------------------- -------------- -------------- ------------------
Revaluation surplus - 0.3 0.9
Other profit from operations
after tax 0.4 0.6 0.6
0.4 0.9 1.5
9. Tax credit
Half year Half year Year to 31.12.2011
to 30.06.2012 to 30.06.2011
GBPm GBPm GBPm
----------------------------------------- -------------- -------------- ------------------
Corporation tax charge
UK corporation tax and income tax
on profit for the period (0.2) (0.3) (0.5)
Other adjustments in respect of
prior years' tax 0.1 0.3 1.8
(0.1) - 1.3
Deferred tax credit
Origination and reversal of temporary
differences 0.2 - (0.4)
Adjustment for changes in estimates 0.3 0.5 0.4
0.5 0.5 -
Total tax credit in the income statement 0.4 0.5 1.3
In addition, GBP0.4m of deferred tax income (half year to 30
June 2011: GBP0.2m charge; year to 31 December 2011: GBP0.7m
income) was recognised in the Group statement of comprehensive
income relating to revaluation of the owner-occupied investment
property.
The effective rate of tax for 2012 is lower (half year to 30
June 2011: lower; year to 31 December 2011: lower) than the
standard rate of corporation tax in the UK. The differences are
explained below:
Half year Half year Year to 31.12.2011
to 30.06.2012 to 30.06.2011
GBPm GBPm GBPm
---------------------------------------- ---------------- -------------- ------------------
Profit before tax 102.4 173.3 233.0
------------------------------------------ -------------- -------------- ------------------
Expected tax charge based on the
standard rate of
corporation tax in the UK of
24.5% (2011: 26.5%) (25.1) (45.9) (61.7)
Difference between tax and accounting
profit on disposals 1.0 5.7 9.6
REIT exempt income 2.7 4.1 7.6
Expenses and fair value adjustments
not
deductible/(allowable) for tax
purposes 1.9 3.9 (3.2)
Revaluation surplus attributable
to REIT properties 19.0 30.1 44.5
Capital allowances 1.5 1.8 3.8
Other (0.7) 0.5 (1.1)
Tax credit/(charge) on current period's
profit 0.3 0.2 (0.5)
Adjustments in respect of prior
years' tax 0.1 0.3 1.8
0.4 0.5 1.3
10. Profit before tax, earnings and net asset value per
share
Earnings per share Net asset value per
measures share measures
------------------------------- ---------------------------- ----------------------------
Weighted average for
the
period ended At period ended
---------------------------- ----------------------------
30.06.12 30.06.11 31.12.11 30.06.12 30.06.11 31.12.11
'000 '000 '000 '000 '000 '000
------------------------------- -------- -------- -------- -------- -------- --------
Number of shares
For use in basic measures 101,736 101,218 101,375 101,962 101,480 101,641
Dilutive effect of convertible
bonds 7,876 1,225 4,587 - - -
Dilutive effect of share-based
payments 493 669 667 508 682 656
------------------------------- -------- -------- -------- -------- -------- --------
For use in diluted earnings
per share 110,105 103,112 106,629 102,470 102,162 102,297
Less dilutive effect of
convertible bonds (7,876) (1,225) (4,587) - - -
------------------------------- -------- -------- -------- -------- -------- --------
For use in other diluted
measures 102,229 101,887 102,042 102,470 102,162 102,297
On 2 June 2011, the Group issued GBP175m of unsecured
convertible bonds. The current conversion price of the bonds is
GBP22.22 and the share price at 30 June 2012 was GBP18.53. 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
2012, 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.
Profit Earnings Diluted
before per earnings
tax Earnings share per share
GBPm GBPm p p
---------------------------------------- -------- -------- -------- ---------
Diluted earnings for half year
ended 30 June 2012 104.1 94.55
Interest effect of dilutive convertible
bonds (3.3)
-------- -------- ---------
Undiluted profit/earnings 102.4 100.8 99.08
Adjustment for:
Disposal of properties (0.2) (0.2)
Disposal of investment (3.9) (3.9)
Group revaluation surplus (77.3) (77.9)
Fair value movement in derivative
financial instruments (1.2) (1.2)
Financial derivative termination
costs 6.3 6.3
Movement in valuation of cash-settled
share options 0.4 0.4
Minority interests in respect
of the above - 1.2
------------------------------------------ -------- -------- -------- ---------
EPRA 26.5 25.5 25.06 24.94
Foreign exchange gain (0.3) (0.3)
Rates credits (0.1) (0.1)
------------------------------------------ -------- -------- -------- ---------
Underlying 26.1 25.1 24.67 24.55
Diluted earnings for half year
ended 30 June 2011 169.8 164.68
Interest effect of dilutive convertible
bonds (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 24.21 24.05
Diluted earnings for year ended
31 December 2011 232.1 217.67
Interest effect of dilutive convertible
bonds (3.8)
-------- -------- ---------
Undiluted profit/earnings 233.0 228.3 225.20
Adjustment for:
Disposal of properties (36.1) (36.1)
Group revaluation surplus (170.1) (169.5)
Joint venture revaluation surplus (0.9) (0.9)
Fair value movement in derivative
financial instruments 26.5 26.5
Movement in valuation of cash-settled
share options (0.1) (0.1)
Minority interests in respect
of the above - 4.1
------------------------------------------ -------- -------- -------- ---------
EPRA 52.3 52.3 51.59 51.25
Rates credits (1.6) (1.6)
------------------------------------------ -------- -------- -------- ---------
Underlying 50.7 50.7 50.01 49.69
Basic Diluted
GBPm p p
----------------------------------------------- -------- ------ -------
At 30 June 2012
Net assets 1,792.9
Minority interest (53.8)
------------------------------------------------- -------- ------ -------
Net assets attributable to equity shareholders 1,739.1 1,706 1,697
Adjustment for:
Deferred tax on revaluation surplus 7.8
Fair value of derivative financial instruments 50.8
Fair value adjustment to secured bonds 18.2
Minority interest in respect of the above (2.4)
------------------------------------------------ -------- ------ -------
EPRA adjusted net asset value 1,813.5 1,779 1,770
Adjustment for:
Deferred tax on revaluation surplus (7.8)
Fair value of derivative financial instruments (50.8)
Mark-to-market of unsecured bonds (11.7)
Mark-to-market of secured bonds (42.9)
Minority interest in respect of the above 2.4
------------------------------------------------ -------- ------ -------
EPRA triple net asset value 1,702.7 1,670 1,662
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 9.2
Fair value of derivative financial instruments 17.6
Fair value adjustment to secured bonds 19.0
Minority interest in respect of the above (0.6)
------------------------------------------------ -------- ------ -------
EPRA adjusted net asset value 1,656.3 1,632 1,621
Adjustment for:
Deferred tax on revaluation surplus (9.2)
Fair value of derivative financial instruments (17.6)
Mark-to-market of unsecured bonds (7.6)
Mark-to-market of secured bonds (12.3)
Minority interest in respect of the above 0.6
------------------------------------------------ -------- ------ -------
EPRA triple net asset value 1,610.2 1,587 1,576
At 31 December 2011
Net assets 1,714.5
Minority interest (51.8)
------------------------------------------------- -------- ------ -------
Net assets attributable to equity shareholders 1,662.7 1,636 1,625
Adjustment for:
Deferred tax on revaluation surplus 8.8
Fair value of derivative financial instruments 51.9
Fair value adjustment to secured bonds 18.6
Minority interest in respect of the above (2.2)
------------------------------------------------ -------- ------ -------
EPRA adjusted net asset value 1,739.8 1,712 1,701
Adjustment for:
Deferred tax on revaluation surplus (8.8)
Fair value of derivative financial instruments (51.9)
Mark-to-market of unsecured bonds 2.4
Mark-to-market of secured bonds (39.4)
Minority interest in respect of the above 2.2
------------------------------------------------ -------- ------ -------
EPRA triple net asset value 1,644.3 1,618 1,607
11. Investment property
Total Owner- Assets Total
investment occupied held for property
Freehold Leasehold property property sale portfolio
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ -------- --------- ---------- -------- -------- ---------
Carrying value
At 1 January 2012 2,068.9 376.0 2,444.9 17.1 137.5 2,599.5
-------- --------- ---------- -------- -------- ---------
Acquisitions 30.6 8.0 38.6 - - 38.6
Capital expenditure 21.3 3.7 25.0 - 0.5 25.5
Interest capitalisation 1.9 0.3 2.2 - - 2.2
------------------------- -------- --------- ---------- -------- -------- ---------
Additions 53.8 12.0 65.8 - 0.5 66.3
Disposals - - - - (67.2) (67.2)
Depreciation - - - (0.1) - (0.1)
Transfers (16.4) - (16.4) - 16.4 -
Revaluation 57.8 14.1 71.9 0.3 5.4 77.6
Movement in grossing
up of
headlease liabilities - (0.3) (0.3) - - (0.3)
At 30 June 2012 2,164.1 401.8 2,565.9 17.3 92.6 2,675.8
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
Interest capitalisation 0.7 0.1 0.8 - - 0.8
------------------------- -------- --------- ---------- -------- -------- ---------
Additions 62.7 41.7 104.4 - 3.6 108.0
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 2011 1,965.7 407.6 2,373.3 15.2 - 2,388.5
-------- --------- ---------- -------- -------- ---------
Acquisitions 85.5 6.1 91.6 - - 91.6
Capital expenditure 32.5 6.5 39.0 - 2.0 41.0
Interest capitalisation 1.9 0.3 2.2 - - 2.2
------------------------- -------- --------- ---------- -------- -------- ---------
Additions 119.9 12.9 132.8 - 2.0 134.8
Disposals (95.0) - (95.0) - - (95.0)
Depreciation - - - (0.1) - (0.1)
Transfers (58.0) (66.3) (124.3) - 123.5 (0.8)
Revaluation 136.3 21.8 158.1 2.0 12.0 172.1
At 31 December 2011 2,068.9 376.0 2,444.9 17.1 137.5 2,599.5
Adjustments from fair value
to carrying value
At 30 June 2012
Fair value 2,218.6 399.9 2,618.5 17.3 92.6 2,728.4
Rents recognised in
advance (54.5) (4.1) (58.6) - - (58.6)
Grossing up of headlease
liabilities - 6.0 6.0 - - 6.0
Carrying value 2,164.1 401.8 2,565.9 17.3 92.6 2,675.8
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 31 December 2011
Fair value 2,118.4 373.8 2,492.2 17.1 137.2 2,646.5
Rents recognised in
advance (49.5) (4.1) (53.6) - (0.8) (54.4)
Grossing up of headlease
liabilities - 6.3 6.3 - 1.1 7.4
Carrying value 2,068.9 376.0 2,444.9 17.1 137.5 2,599.5
The property portfolio was revalued at 30 June 2012 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 majority of the
properties at GBP2,697.6m (30 June 2011: GBP2,569.2m; 31 December
2011: GBP2,615.2m) and other valuers valued the remaining
properties at GBP30.8m (30 June 2011: GBP31.0m; 31 December 2011:
GBP31.3m). Of the properties revalued by CBRE, GBP17.3m (30 June
2011: GBP16.4m; 31 December 2011: GBP17.1m) relating to
owner-occupied property is included within property, plant and
equipment and GBP92.6m (30 June 2011: GBP45.4m; 31 December 2011:
GBP137.2m) was included within non-current assets held for
sale.
At 30 June 2012, the historic cost of the property portfolio
owned by the Group was GBP2,173.6m (30 June 2011: GBP2,144.4m; 31
December 2011: GBP2,132.0m).
The revaluation surplus in the income statement of GBP77.3m for
the half year to 30 June 2012 (half year to 30 June 2011:
GBP117.3m; year to 31 December 2011: GBP170.1m) included the
revaluation of non-current assets held for sale of GBP5.4m (half
year to 30 June 2011: GBP12.0m; year to 31 December 2011:
GBP12.0m). The revaluation surplus for the owner-occupied property
of GBP0.3m (half year to 30 June 2011: GBP1.2m; year to 31 December
2011: GBP2.0m) was included within reserves.
12. Property, plant and equipment
Owner-
Plant
occupied and
property Artwork equipment Total
GBPm GBPm GBPm GBPm
------------------------- -------- ------- --------- ------
At 1 January 2012 17.1 1.5 0.8 19.4
Additions - - 0.4 0.4
Depreciation (0.1) - (0.2) (0.3)
Revaluation 0.3 - - 0.3
At 30 June 2012 17.3 1.5 0.9 19.8
At 1 January 2011 15.2 0.7 0.8 16.7
Additions - - 0.1 0.1
Depreciation - - (0.1) (0.1)
Revaluation 1.2 - - 1.2
At 30 June 2011 16.4 0.7 0.8 17.9
At 1 January 2011 15.2 0.7 0.8 16.7
Additions - - 0.3 0.3
Transfers - 0.8 - 0.8
Depreciation (0.1) - (0.3) (0.4)
Revaluation 2.0 - - 2.0
At 31 December 2011 17.1 1.5 0.8 19.4
Net book value
Cost or valuation 17.4 1.5 2.2 21.1
Accumulated depreciation (0.1) - (1.2) (1.3)
At 30 June 2012 17.3 1.5 1.0 19.8
Net book value
Cost or valuation 16.4 0.7 3.0 20.1
Accumulated depreciation - - (2.2) (2.2)
At 30 June 2011 16.4 0.7 0.8 17.9
Net book value
Cost or valuation 17.1 1.5 1.8 20.4
Accumulated depreciation - - (1.0) (1.0)
At 31 December 2011 17.1 1.5 0.8 19.4
The artwork is periodically valued by Bonhams on the basis of
open market value and the Directors consider whether any valuation
movements have taken place prior to each period end. The latest
valuation was carried out in March 2011.
The historic cost of the artwork in the Group at 30 June 2012
was GBP1.5m (30 June 2011: GBP0.7m; 31 December 2011: GBP1.5m).
13. Other receivables (non-current)
30.06.2012 30.06.2011 31.12.2011
GBPm GBPm GBPm
--------------- ---------- ---------- ----------
Accrued income 53.3 45.3 50.1
Other 5.4 4.9 5.3
58.7 50.2 55.4
Accrued income relates to rents recognised in advance as a
result of spreading the effect of rent free periods, reduced rent
periods, capital contributions in lieu of rent free periods and
contracted rent uplifts over the expected terms of their respective
leases. At 30 June 2012, the total rents recognised in advance were
GBP58.6m (30 June 2011: GBP49.3m; 31 December 2011: GBP54.4m), with
GBP5.3m of this amount (30 June 2011: GBP4.0m; 31 December 2011:
GBP4.3m) included within trade and other receivables.
14. Trade and other receivables
30.06.2012 30.06.2011 31.12.2011
GBPm GBPm GBPm
------------------ ---------- ---------- ----------
Trade receivables 5.2 7.3 9.0
Other receivables 16.2 13.5 15.2
Prepayments 18.6 20.3 16.5
Accrued income 7.3 4.5 4.3
47.3 45.6 45.0
15. Non-current assets held for sale
30.06.2012 30.06.2011 31.12.2011
GBPm GBPm GBPm
------------------------------------ ---------- ---------- ----------
Investment properties (see note 11) 92.6 45.4 137.5
In 2011 the Group exchanged contracts to sell two properties
with completion conditional on a suitable planning permission. This
permission was received and the sales were completed in July 2012.
Prior to 30 June 2012 the Group exchanged contracts to sell two
properties in its Scottish portfolio, with completion occurring in
July 2012. Therefore, at 30 June 2012, all four of these properties
have been recognised as non-current assets held for sale in
accordance with IFRS 5, Non-current Assets Held for Sale.
16. Trade and other payables
30.06.2012 30.06.2011 31.12.2011
GBPm GBPm GBPm
---------------- ---------- ---------- ----------
Trade payables 5.9 4.5 7.1
Other payables 11.7 13.2 10.9
Accruals 16.1 16.7 17.1
Deferred income 36.3 36.0 35.8
70.0 70.4 70.9
17. Borrowings and derivative financial instruments
30.06.2012 30.06.2011 31.12.2011
GBPm GBPm GBPm
-------------------------------------------- ---------- ---------- ----------
Current liabilities
Bank overdraft - 7.5 -
Unsecured loans - 31.4 31.4
Bank loans 95.0 - -
Loan notes - 1.1 1.1
95.0 40.0 32.5
Non-current liabilities
2.75% unsecured convertible bonds 2016 163.7 161.0 162.4
6.5% secured bonds 2026 191.8 192.6 192.2
Bank loans 416.6 510.8 473.5
Leasehold liabilities 6.0 7.4 7.4
778.1 871.8 835.5
Derivative financial instruments - expiring
in less than one year 0.6 - -
Derivative financial instruments - expiring
in greater than one year 50.2 17.6 51.9
50.8 17.6 51.9
Total 923.9 929.4 919.9
Reconciliation to net debt:
Total borrowings and derivative financial
instruments 923.9 929.4 919.9
Less:
Derivative financial instruments (50.8) (17.6) (51.9)
Cash and cash equivalents (2.9) (7.3) (3.5)
Net debt 870.2 904.5 864.5
In June 2011 the Group issued a convertible bond. The unsecured
instrument pays a coupon of 2.75% until July 2016. In accordance
with IFRS the equity and debt components of the bond were accounted
for separately and the fair value of the debt component was
determined using the market interest rate for an equivalent
non-convertible bond. As a result, GBP165.4m was recognised as a
liability in the balance sheet on issue and the remainder of the
proceeds, GBP9.6m, which represents the equity component, was
credited to reserves. The difference between the fair value of the
liability and the principal value is amortised through the income
statement from the date of issue. Issue costs of GBP4.8m were
allocated between equity and debt and the element relating to the
debt component is amortised over the life of the bond. The issue
costs apportioned to equity of GBP0.2m are not amortised.
The fair value for the unsecured bonds shown in note 10 was
determined by the ask-price of GBP108 per GBP100 as at 30 June 2012
(30 June 2011: GBP104; 31 December 2011: GBP99). The fair value of
the secured bonds shown in note 10 was determined by the ask-price
of GBP125 per GBP100 as at 30 June 2012 (30 June 2011: GBP107; 31
December 2011: GBP122).
18. Deferred tax
Revaluation
surplus Other Total
GBPm GBPm GBPm
------------------------------------------------ ----------- ------ ------
At 1 January 2012 8.8 (3.6) 5.2
Released during the period in other
comprehensive income (0.3) - (0.3)
Changes in tax rates in other comprehensive
income (0.1) - (0.1)
Released during the period in the income
statement - (0.2) (0.2)
Changes in tax rates in the income
statement (0.6) 0.3 (0.3)
At 30 June 2012 7.8 (3.5) 4.3
At 1 January 2011 8.9 (3.0) 5.9
Provided during the period in other
comprehensive income 0.3 - 0.3
Changes in tax rates in other comprehensive
income (0.1) - (0.1)
Provided/(released) during the period
in the income statement 0.8 (0.8) -
Changes in tax rates in the income
statement (0.7) 0.2 (0.5)
At 30 June 2011 9.2 (3.6) 5.6
At 1 January 2011 8.9 (3.0) 5.9
Released during the year in other comprehensive
income (0.6) - (0.6)
Changes in tax rates in other comprehensive
income (0.1) - (0.1)
Provided/(released) during the year
in the income statement 1.2 (0.8) 0.4
Changes in tax rates in the income
statement (0.6) 0.2 (0.4)
At 31 December 2011 8.8 (3.6) 5.2
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.
19. Dividend
Dividend Half year Half year Year to
per share to 30.06.2012 to 30.06.2011 31.12.2011
p GBPm GBPm GBPm
---------------------------- ------------- ---------- -------------- -------------- -----------
Current period
1 November
2012 interim dividend 2012 9.95 - - -
----------
Distribution of current
period profit 9.95
----------
Prior period
4 November
2011 interim dividend 2011 9.45 - - 9.6
---------- -------------- -------------- -----------
Distribution of prior
period profit 9.45 - - 9.6
-------------- -------------- -----------
Prior year
2011 final dividend 15 June 2012 21.90 22.3 - -
---------- -------------- -------------- -----------
Distribution of prior
year profit 31.35 22.3 - -
---------- -------------- -------------- -----------
2010 final dividend 16 June 2011 20.25 - 20.5 20.5
Dividends as reported in the
statement of changes in equity 22.3 20.5 30.1
------------------------------ ------------- ---------- -------------- -------------- -----------
2011 final dividend - 15 June 2012 (1.3) - -
scrip element
2011 final dividend 13 July 2012 (2.7) - -
withholding
tax
2011 interim dividend 27 January
withholding tax 2012 1.4 - (1.4)
4 November
2011 interim scrip dividend 2011 - - (2.3)
2010 final dividend -
scrip element 16 June 2011 - (2.4) (2.4)
2010 final dividend 14 July 2011 - (3.2) -
withholding
tax
2010 interim dividend 14 January
withholding tax 2011 - 1.4 1.4
Dividends paid as reported in the
cash flow statement 19.7 16.3 25.4
------------------------------ ------------- ---------- -------------- -------------- -----------
20. Gearing ratios
Balance sheet gearing
30.06.2012 30.06.2011 31.12.2011
GBPm GBPm GBPm
---------------------- ---------- ---------- ----------
Net debt 870.2 904.5 864.5
----------------------- ---------- ---------- ----------
Net assets 1,792.9 1,661.4 1,714.5
----------------------- ---------- ---------- ----------
Balance sheet gearing 48.5% 54.4% 50.4%
Loan to value ratio
30.06.2012 30.06.2011 31.12.2011
GBPm GBPm GBPm
---------------------------------------- ---------- ---------- ----------
Net debt 870.2 904.5 864.5
Fair value adjustment of secured bonds (18.2) (19.0) (18.6)
Unamortised issue and arrangement costs 11.4 10.1 7.9
Leasehold liabilities (6.0) (7.4) (7.4)
Drawn facilities 857.4 888.2 846.4
Fair value of property portfolio 2,728.4 2,600.2 2,646.5
Loan to value ratio 31.4% 34.2% 32.0%
Interest cover ratio
Half year Half year
to 30.06.2012 to 30.06.2011 Year to 31.12.2011
GBPm GBPm GBPm
--------------------------------------- -------------- -------------- ------------------
Gross property income 62.3 62.5 125.5
Surrender premiums (0.1) (0.4) (2.4)
Ground rent (0.3) (0.4) (0.8)
Gross rental income net of ground rent 61.9 61.7 122.3
Net finance costs 20.4 20.8 43.2
Foreign exchange gain 0.3 0.2 -
Net pension return - 0.1 0.2
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 (1.7) (0.8) (2.0)
Non-utilisation fees (1.8) (0.7) (1.9)
Net interest payable 17.4 19.8 39.8
Interest cover ratio 356% 312% 307%
21. Total return
Half year Half year Year to 31.12.2011
to 30.06.2012 to 30.06.2011
% % %
------------- -------------- -------------- ------------------
Total return 5.3 11.2 17.4
22. Cash and cash equivalents
30.06.2012 30.06.2011 31.12.2011
GBPm GBPm GBPm
-------------------- ---------- ---------- ----------
Bank overdraft - (7.5) -
Short-term deposits 2.9 7.3 3.5
2.9 (0.2) 3.5
23. Post balance sheet events
Since 30 June 2012, the Group has completed the disposal of four
freehold properties, two of which were sold for a combined total of
GBP77.3m before costs, whilst two further properties included in
the Group's Scottish portfolio were sold for a combined total of
GBP16.8m before costs. These transactions will result in a profit
before tax of approximately GBP1.5m based on 30 June 2012 carrying
values. In addition the Group has simultaneously exchanged and
completed the purchase of a property in Fitzrovia for GBP1.5m
before costs.
Following the half year end, the Group prepaid and cancelled a
GBP150m bank loan facility. At 30 June 2012 this facility was
GBP95m drawn. Additionally, the Group signed a new 121/4 year fixed
rate facility at 3.99%.
24. Risk management and internal control
Risk is an inherent part of running a business and, whilst the
Board 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.
During 2011, the Board recognised the raised profile being given
to risk management in the UK Corporate Governance Code and decided
to establish a Risk Committee to increase the focus of the Group's
work in this area. The committee first met in November 2011 and
consists of June de Moller, John Burns and Damian Wisniewski under
the chairmanship of Stephen Young.
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 in
place. This approach allows the effect of any mitigating procedures
to be considered and recognises that risk cannot be totally
eliminated at an acceptable cost. There are also some risks that,
with its experience and after due consideration, the Board will
choose to accept.
The register, its method of preparation and the operation of the
key controls in the Group's system of internal control, is then
reviewed and commented upon by the Risk Committee before being
considered and adopted by the full Board. The register was reviewed
between December 2011 and February 2012 and the principal risks and
uncertainties that the Group faces in 2012, together with the
controls and mitigating factors, are set out below:
Strategic risks
That the Group's strategy does not create the anticipated shareholder
value or fails to meet investors' expectations.
Risk and effect Controls and mitigation Action
* The Group's strategy is inconsistent with the state * Each year the Group carries out a five-year strategic * The Board carried out its last annual strategic
of the market in which it operates. The Group review, prepares an annual budget and also prepares review in June 2012 and considered the sensitivity of
benefits from a strong central London market. This three rolling forecasts covering the next two years. six key measures to changes in underlying assumptions
could be adversely affected by, amongst other facto In the course of these exercises the Board considers including interest rates, timing of projects, level
rs the effect on key ratios of changing the main of capital expenditure and capital recycling.
ongoing crisis in the Eurozone, the introduction of underlying assumptions.
a
"Tobin" tax or the loss of London's current "safe
haven" status. * The three rolling forecasts prepared during the year
* The Group's plans can then be set so as to best focus on the same key measures but consider the
realise its long-term strategic goals given the effect of varying different assumptions to reflect
likely prevailing economic and market conditions. changing economic and market conditions.
* The Group's development programme is not consistent This flexibility arises from the policy of
with the economic cycle. maintaining income from properties as far as possible
until development starts.
* The timing of the Group's development programme and
the strategies for individual properties reflect the
outcome of these considerations.
* Over 50% of the Group's portfolio has been identified
for future redevelopment. This enables the Board to
delay marginal projects until market conditions are
favourable.
* The risk remains significant and therefore in setting
its plans the Board pays particular attention to
maintaining sufficient headroom in all the Group's
key ratios, financial covenants and interest cover.
Financial risks
That the Group becomes unable to meet its financial obligations
or finance the business appropriately.
Risk and effect Controls and mitigation Action
* A substantial decline in property values or a * The Group's secured borrowings contain financial * The Group tested its compliance with its financial
material loss of rental income could result in a covenants based on specific security and not covenants regularly and operated comfortably within
breach of the Group's financial covenants. This may corporate ratios such as overall balance sheet these limits in the first half of 2012. Property
accelerate the repayment of the Group's borrowings or gearing. Treasury control schedules are updated values could decline by around 50% at the balance
result in their cancellation. weekly whilst the rolling forecasts enable any sheet date before there would be a breach of
potential problems to be identified at an early stage financial covenants.
and corrective action to be taken. The Group has
considerable headroom under its financial covenants,
operates at a modest level of gearing and has a
substantial amount of uncharged property that could * At 30 June 2012 the Group owned GBP595m of uncharged
be used in such circumstances. properties.
* The Group's cost of borrowing is increased due to an * The Group's five-year strategic review and rolling * The Group's financing comes increasingly from a
inability to raise finance from its preferred forecasts enables any financing requirement to be number of different sources/providers and has a
sources. identified at an early stage. This allows the varied maturity profile. The proportion of the
preferred source of finance to be identified and Group's borrowings provided by bank loans decreased
evaluated and, to a degree, raised when market from 59% at the start of the year to below 50% after
conditions are favourable. the refinancing described below.
* The refinancing of the facilities maturing in 2013
that was started in 2011 was completed in August
2012. The focus in 2011 was to renew or refinance
revolving bank facilities. Then in August 2012, the
remaining GBP150m bank loan expiring in 2013 was
prepaid and cancelled and a new GBP83m loan was
signed with Cornerstone/Mass Mutual for a term of
121/4 years at a fixed rate of 3.99%.
--
* As at 30 June 2012, the weighted average duration of
the Group's debt was 4.9 years.
* At the period end the Group had GBP410m of unutilised
available committed bank facilities.
* Financing costs are higher due to increases in * The Group uses interest rate derivatives to "top up" * The Group has terminated two interest rate swaps
interest rates. the amount of fixed rate debt to a level commensurate which were at historic rates and initiated new
with the perceived risk to the Group. instruments which have enabled the Group to lock in
the lower rates that are currently available.
* 90% of borrowings were fixed or hedged at the period
end.
Operational risks
The Group suffers either a loss or adverse consequences due
to processes being inadequate or not operating correctly.
Risk and effects Controls and mitigation Action
* The Group's development projects do not produce the * Standardised appraisals including contingencies are * The Group is advised by top planning consultants and
anticipated financial return due to delays in the prepared for all investments and sensitivity analysis has considerable in-house planning expertise.
planning process, increased construction costs or is undertaken to ensure that an adequate return is
adverse letting conditions. made in all circumstances considered likely to occur.
* Executive directors represent the Group on a number
* The scale of the Group's development programme is of local bodies which ensures that it remains aware
managed to reflect anticipated market conditions. of local issues.
* Regular cost reports are produced which monitor
progress of actual expenditure against budget. This * The procurement process used by the Group includes
allows potential adverse variances to be identified the use of highly regarded firms of quantity
and addressed at an early stage. surveyors and is designed to minimise uncertainty
regarding costs.
* Post completion reviews are carried out for all
developments to ensure that improvements to the
Group's procedures are identified and implemented. * Development costs are benchmarked to ensure that the
Group obtains competitive pricing.
* The Group's style of accommodation remains in demand
as evidenced by the 100 lettings achieved in 2011 and
28 lettings achieved in the half year to 30 June
2012.
* The Group has secured significant pre-lets of the
space in its current development programme which
significantly "de-risks" these projects.
* The Group suffers a loss of rental income and * All prospective tenants are considered by the Group's * The Group has a diversified tenant base.
increased vacant property costs due to tenants credit committee and security is taken where
vacating or becoming bankrupt. In particular, in the appropriate either in the form of parent company
current adverse economic conditions, there is guarantees or rent deposits.
increased stress on consumer spending which could * The credit committee meets each week and considered
lead to higher business failures. 55 potential tenants during the first half of the
* The Group's property managers maintain regular year. The committee also monitors the content of a
contact with tenants and work closely with any that schedule of the tenants that the property managers
are facing financial difficulties. are monitoring and the actions being taken.
* In total the Group holds rental deposits amounting to
GBP11.7 m.
* On average, the Group has collected 97% of the rents
due within 14 days of the due date.
* The Group is unable to successfully implement its * The remuneration packages of all employees are * The Group recruited eight new members of staff during
strategy due to a failure to recruit and retain key benchmarked regularly. 2011 including key appointments in IT and corporate
staff with appropriate skills. communications. Six new members of staff have been
recruited in the first half of 2012.
* Six-monthly appraisals identify training requirements
which are fulfilled over the next year.
* Staff turnover during the first half of 2012 was low
at 5%.
* The Group's cost base is increased or its reputation * The new Risk Committee will report to the Board * A Health and Safety report is presented at all
damaged through a breach of any of the legislation concerning the Group's regulatory risk. executive and main Board meetings.
that forms the regulatory framework within which the
Group operates.
* The Group employs a Health and Safety Manager.
* The Group pays considerable attention to
sustainability issues and produces a sustainability
* A sustainability committee chaired by Paul Williams report annually.
and advised by external consultants addresses risk in
this area.
Financial instruments - risk management
The Group is exposed through its operations to the following
financial risks:
-- credit risk;
-- fair value or cash flow interest rate risk; and
-- liquidity risk.
In common with all other businesses, the Group is exposed to
risks that arise from its use of financial instruments. The
following describes the Group's objectives, policies and processes
for managing those risks and the methods used to measure them.
Further quantitative information in respect of these risks is
presented throughout these condensed financial statements. There
have been no substantive changes in the Group's exposure to
financial instrument risks, its objectives, policies and processes
for managing those risks or the methods used to measure them from
previous periods.
Principal financial instruments
The principal financial instruments used by the Group, from
which financial instrument risk arises, are trade receivables, cash
at bank, bank overdraft, trade and other payables, floating rate
bank loans, secured and unsecured bonds and interest rate
swaps.
General objectives, policies and processes
The Board has overall responsibility for the determination of
the Group's risk management objectives and policies and, whilst
retaining ultimate responsibility for them, it has delegated the
authority for designing and operating processes that ensure the
effective implementation of the objectives and policies to
executive management.
The overall objective of the Board is to set policies that seek
to reduce risk as far as possible without unduly affecting the
Group's flexibility and its ability to maximise returns. Further
details regarding these policies are set out below:
Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations. The Group is mainly exposed to credit
risk from its lease contracts. It is Group policy to assess the
credit risk of new tenants before entering into contracts. The
Board has established a credit committee which assesses each new
tenant before a new lease is signed. The review includes the latest
sets of financial statements, external ratings, when available,
and, in some cases forecast information and bank and trade
references. The covenant strength of each tenant is determined
based on this review and, if appropriate, a deposit or a guarantee
is obtained.
As the Group operates predominantly in central London, it is
subject to some geographical concentration risk. However, this is
mitigated by the wide range of tenants from a broad spectrum of
business sectors.
Credit risk also arises from cash and cash equivalents and
deposits with banks and financial institutions. For banks and
financial institutions, only independently rated parties with
minimum rating of investment grade are accepted. This risk is also
reduced by the short periods that money is on deposit at any one
time.
The carrying amount of financial assets recorded in the
financial statements represents the Group's maximum exposure to
credit risk without taking account of the value of any collateral
obtained.
Market risk
Market risk arises from the Group's use of interest bearing
instruments. It is the risk that the fair value or future cash
flows of a financial instrument will fluctuate because of changes
in interest rates (interest rate risk).
Fair value and cash flow interest rate risk
The Group is exposed to cash flow interest rate risk from
borrowings at variable rates. It is currently Group policy that
between 60% and 85% of external Group borrowings (excluding finance
lease payables) are at fixed rates. Where the Group wishes to vary
the amount of external fixed rate debt it holds (subject to it
generally being at least 60% and no more than 85% of expected Group
borrowings, as noted above), the Group makes use of interest rate
derivatives to achieve the desired interest rate profile. Although
the Board accepts that this policy neither protects the Group
entirely from the risk of paying rates in excess of current market
rates nor eliminates fully cash flow risk associated with
variability in interest payments, it considers that it achieves an
appropriate balance of exposure to these risks. At 30 June 2012,
the portion of fixed debt held by the Group was above this range at
90%, but this proportion will decrease as the Group carries out its
capital expenditure programme. During both 2012 and 2011, the
Group's borrowings at variable rate were denominated in sterling.
The Group monitors the interest rate exposure on a regular basis.
The Group manages its cash flow interest rate risk by using
floating-to-fixed interest rate swaps.
Liquidity risk
Liquidity risk arises from the Group's management of working
capital and the finance charges and principal repayments on its
debt instruments. It is the risk that the Group will encounter
difficulty in meeting its financial obligations as they fall
due.
The Group's policy is to ensure that it will always have
sufficient headroom in its loan facilities to allow it to meet its
liabilities when they become due. To achieve this aim, it seeks to
maintain committed facilities to meet the expected requirements.
The Group also looks to reduce liquidity risk by fixing interest
rates (and hence cash flows) on a portion of its long-term
borrowings. This is further explained in the 'fair value and cash
flow interest rate risk' section above.
The executive management receives a weekly short-term cash flow
projection and three-year projections of loan balances on a regular
basis as part of the Group's forecasting processes. At the balance
sheet date, these projections indicated that the Group expected to
have sufficient liquid resources to meet its obligations under all
reasonably expected circumstances.
The Group's loan facilities are spread across a range of banks
so as to minimise any potential concentration of risk. The
liquidity risk of the Group is managed centrally by the finance
department.
Capital disclosures
The Group's capital comprises all components of equity (share
capital, share premium, other reserves, retained earnings and
minority interest).
The Group's objectives when maintaining capital are:
-- to safeguard the entity's ability to continue as a going
concern so that it can continue to provide returns for
shareholders; and
-- to provide an above average annualised total return to shareholders.
The Group sets the amount of capital it requires in proportion
to risk. The Group manages its capital structure and makes
adjustments to it in light of changes in economic conditions and
the risk characteristics of the underlying assets. In order to
maintain or adjust the capital structure, the Group may adjust the
amount of dividends paid to shareholders, return capital to
shareholders, issue new shares, or sell assets to reduce debt.
Consistent with others in its industry, the Group monitors capital
on the basis of balance sheet gearing and the loan to value ratio.
During 2012, the Group's strategy, which was unchanged from 2011,
was to maintain the balance sheet gearing below 80% in normal
circumstances. These two gearing ratios as well as the interest
cover ratio are defined at the end of this announcement and are
derived in note 20.
25. 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. 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.
26. 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
IR BKDDQOBKDQFB
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