TIDMDLN
RNS Number : 9032F
Derwent London PLC
26 February 2015
26 February 2015
Derwent London plc ("Derwent London"/ "the Group")
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
VERY STRONG PERFORMANCE THROUGHOUT 2014 AND A GOOD START TO
2015
Financial highlights
-- EPRA net asset value per share increased by 28.4% to 2,908p
from 2,264p at 31 December 2013, and by 13.1% from 2,572p at 30
June 2014
-- Total return (including dividend) of 30.1% in 2014 compares to 21.9% in 2013
-- Net rental income increased by 5.8% to GBP128.7m from GBP121.7m in 2013
-- EPRA profit before tax was GBP62.3m, an increase of 7.8% from GBP57.8m in December 2013
-- EPRA earnings per share were 57.08p, an increase of 6.0% from 53.87p in December 2013
-- Final dividend per share of 28.00p making 39.65p for the full year, an increase of 8.6%
Operational performance
Strong property performance in 2014
-- Secured GBP9.2m of new lettings
-- Underlying estimated rental values increased by 9.0%, which compares to 5.7% in 2013
-- Overall lettings 11.2%, and open market lettings 18.1%, above December 2013 ERV
-- True equivalent yield tightened by 55 bps to 4.73%
-- Underlying valuation uplift of 20.4%, which compares to 12.6% in 2013
-- Underlying valuation uplift on our seven major projects was 24.2%
Effective capital recycling
-- Principal property investment sales of GBP98.0m at a 40% premium to December 2013 values
-- Principal property investment acquisitions totalling GBP90.9m, including Angel Square EC1
-- Residential sales at Queens W2 produced gross proceeds of GBP15.7m
-- Largest development programme to date is well underway with GBP122m spent in 2014
Balance sheet strength
-- Extended GBP550m of bank facilities in December 2014 at a lower margin
-- Loan-to-value ratio of 24.0% (31 December 2013 28.0%)
-- Cash and undrawn committed facilities of GBP336m (GBP296m in December 2013)
Post year end activity
-- Secured GBP5.9m of rent from new lettings in 2015 to date,
with a further GBP2.1m under offer
-- Acquired 20 Farringdon Road EC1 through a GBP115.3m property swap
-- Completed Turnmill EC1 handing over 58,200 sq ft of offices to Publicis
-- Started the 105,000 sq ft development at The Copyright Building W1
-- Applied for planning permission to develop a 110,000 sq ft hotel and office scheme in SE1
-- GBP175m 2.75% convertible bonds 2016 converted into new shares in January 2015
Robert Rayne, Chairman, commented:
"I am pleased to report another very strong year for Derwent
London in 2014. Our long-term strategy of investing in innovative
design-led projects in London's emerging villages appeals to
occupiers and investors, as the definition of London's core office
locations continues to evolve."
John Burns, Chief Executive Officer, commented:
"Derwent London is well positioned to benefit from the numerous
creative opportunities within the portfolio. Overall we see scant
evidence so far of a commercial property slowdown in London and we
expect to see rental growth at least maintained at 6-8% across the
portfolio, and investment yields to remain firm in 2015. We remain
very confident in our business and our markets, and over the next
few years look forward to delivering a substantial phased
development programme to meet occupier demand."
Webcast and conference call
There will be a live webcast of the results together with a
conference call for investors and analysts at 10.30 GMT today. The
audio webcast can be accessed at www.derwentlondon.com.
To participate in the call, please dial the following number:
+44 (0)20 3059 8125.
Please say "Derwent London" when asked for the participant
code.
A recording of the results presentation will also be made
available later in the day on www.derwentlondon.com.
For further information, please contact:
Derwent London John Burns, Chief Executive Officer
Tel: +44 (0)20 7659 3000 Damian Wisniewski, Finance Director
Quentin Freeman, Head of Investor Relations
Brunswick Group Simon Sporborg
Tel: +44 (0)20 7404 5959 Nina Coad
Christian Seiersen
Notes to editors
Derwent London plc
Derwent London plc owns a portfolio of commercial real estate
predominantly in central London valued at GBP4.2 billion as at 31
December 2014, making it the largest London-focused real estate
investment trust (REIT).
Our experienced team has a long track record of creating value
throughout the property cycle by regenerating our buildings via
development or refurbishment, effective asset management and
capital recycling.
We typically acquire central London properties off-market with
low capital values and modest rents in improving locations, most of
which are either in the West End or the Tech Belt. We capitalise on
the unique qualities of each of our properties -- taking a fresh
approach to the regeneration of every building with a focus on
anticipating tenant requirements and an emphasis on design.
Reflecting and supporting our long-term success, the business
has a strong balance sheet with modest leverage, a robust income
stream and flexible financing.
Landmark schemes in our portfolio of 5.7 million sq ft as at 31
December 2014 include Angel Building EC1, The Buckley Building EC1,
White Collar Factory EC1, 1-2 Stephen Street W1, Horseferry House
SW1 and Tea Building E1.
In December 2014 Derwent London topped the real estate sector
for the fifth year in a row and was placed ninth overall in the
Management Today awards for 'Britain's Most Admired Companies'.
Also in 2014 the Group won the Property Week 'Developer of the
Year' and the RICS London Commercial Award, and was shortlisted for
awards by Architects' Journal, BCO, NLA and OAS. The Group was also
awarded EPRA Gold for corporate and sustainability reporting.
For further information see www.derwentlondon.com or follow us
on Twitter at @derwentlondon.
Chairman's statement
Overview
I am pleased to report another very positive year for Derwent
London in 2014. Aided by the exceptionally strong London property
market the growth in net asset value (NAV) exceeded our
expectations. Our long-term strategy of investing in innovative
design-led projects in London's emerging villages appeals to
occupiers and increasingly to investors, as the definition of
London's core office locations continues to evolve. Our total
return was 30% and, over the last two and five years, we have
achieved total returns of 58% and 164%, respectively.
We strengthened our income in 2014 through the letting of
188,300 sq ft of space securing GBP9.2m of rental income. Overall
lettings achieved rents 11.2% above December 2013 estimated rental
values (ERV) with open market lettings 18.1% above that benchmark.
Derwent London's year end annual net contracted rents have risen to
GBP131.7m (up 4.5% in the year), and our ERV to GBP215.6m (up
9.4%). As a result of completing a number of developments in the
latter part of 2014 our December EPRA vacancy rate rose to 4.1%.
This level is higher than in recent years, but only slightly above
the ten-year average of 3.3%. In current market conditions, this
creates an opportunity to capture higher rents. Lettings since the
year end, including 34,150 sq ft at 1-2 Stephen Street W1, have
seen our vacancy rate fall to 2.1%.
Derwent London's largest development programme to date is well
underway having spent GBP122m on projects in 2014. In October we
finished Queens W2, a residential scheme, where we have sold
approximately half the apartments by value. In 2015 we have already
completed Turnmill EC1 and are soon to deliver 40 Chancery Lane WC2
to Publicis, who pre-let both office buildings. The iconic White
Collar Factory EC1 is on track for completion in the second half of
2016.
We are also progressing new development projects. Work has
commenced on 105,000 sq ft at The Copyright Building, 25-33 Berners
Street W1, which only received planning consent in October 2014,
and where we recently finalised terms for a new headlease with the
freeholder. In January 2015 we submitted a planning application to
redevelop Wedge House, 40 Blackfriars Road SE1 as a 110,000 sq ft
hotel and offices. Later in the year we expect to start our largest
project at 80 Charlotte Street W1 (380,000 sq ft), which will
become a landmark building in the heart of Fitzrovia. During 2015
we will also be securing vacant possession of 55-65 North Wharf
Road W2 prior to commencing development of 240,000 sq ft in 2016.
We estimate we will spend GBP329m on developments in the next two
years alone. Beyond that our portfolio holds numerous additional
opportunities capable of supporting significant development
activity over the next decade.
Derwent London believes in recycling its assets. During the year
we sold five smaller office properties for GBP98.0m at an average
premium of 40% to December 2013 values. Sales were almost matched
by the acquisition of two properties, both close to existing
holdings, for GBP90.9m. The larger acquisition was Angel Square
EC1, a prominent 128,700 sq ft corner building opposite our highly
successful Angel Building, which represents a major opportunity to
further regenerate this part of Islington.
During 2014 we continued to improve our strong financial
platform taking advantage of relatively attractive financial
markets. In January 2014 we drew down GBP100m from our US private
placement in 15 and 20 year notes thereby enhancing our debt
maturity. In December we extended the term of our GBP550m unsecured
bank facility and reduced the margin. We also called our option for
the early redemption of the GBP175m 2.75% convertible bonds 2016.
As expected all the bondholders opted to convert, leading to the
issue of 7.9m new shares in January 2015. Adjusting for the new
equity the proforma year end loan-to-value ratio (LTV) falls from
24.0% to 19.9% and our earliest debt expiry is now in 2017. At the
year end we had cash and undrawn debt facilities of GBP336m.
Financial results
Our property portfolio increased in value to GBP4.2bn. The total
revaluation gain of GBP671.9m was the main component of our 28.4%
growth in fully diluted EPRA NAV per share to 2,908p.
The growth in our annual profits reflects a buoyant letting
programme and the major capital investment we have made over the
last few years. Our reported net rents rose 5.8% to GBP128.7m
resulting in an improvement to our interest cover ratio to a very
comfortable 2.9 times. EPRA profit before tax increased 7.8% to
GBP62.3m, and EPRA earnings per share improved by 6.0% to
57.08p.
Operationally and financially the Group is in a strong position
and, as a result, we have raised the final dividend to 28.0p per
share, an increase of 8.7%. The final dividend will be paid on 12
June 2015 to shareholders on the register on 8 May 2015. Of this,
22.35p will be paid as a PID under the UK REIT regime, and there
will be a scrip alternative. The resultant dividend for the full
year will be 39.65p per share, an increase of 8.6% over 2013.
The Board
Robert Farnes, who has served as a non-executive Director of the
Company since 2003, is due to step down from the Board at the
forthcoming AGM in May 2015. I would like to thank him for his
advice and sound judgement throughout this period. The process of
refreshing the Board is continuing and we anticipate making further
announcements over the next few months.
Our people
These results would not have been possible without the continued
expertise and dedication of the Derwent London team. We have
increased our staff numbers over the last few years to support our
greater development commitment, and it is pleasing to see that the
Derwent London business culture continues. This approach has gained
external recognition again with the Group once more featuring in
the Management Today awards for 'Britain's Most Admired Companies',
where in 2014 we topped the property sector for the fifth
consecutive year, and were placed ninth across all sectors.
Outlook
The London commercial property market is set for continued
growth with low availability, manageable supply and strong occupier
and investor demand. Looking forward London's economy is expected
to grow at around 3% per annum on average over the medium term. As
a result, the outlook remains good and we expect to see rental
growth maintained at 6-8% across the portfolio and investment
yields to remain firm in 2015.
We are very confident in our business and markets, and our
financial position has been strengthened further. We are aware of
rising external risk factors in the last twelve months. For London
property specifically, these include a continuing slowdown in the
top-end residential market and increasing construction costs. Other
more general factors are the moderation of economic growth and
business confidence outside the USA, the uncertainty surrounding
the UK General Election on 7 May, a possible future UK referendum
on EU membership and the heightened levels of terrorist risk.
Whilst some of these risks can make property income flows more
attractive to investors, we believe that long term stable economic
growth is the best background for sustained improvement in our
operating performance.
Overall we see scant evidence so far of a commercial property
slowdown in London and we remain determined to benefit from these
positive conditions. Our view is supported by the substantial
progress the Group has already made in 2015. So far this year we
have:
-- Let 34,150 sq ft to The Office Group at 1-2 Stephen Street W1.
-- Pre-let 57,600 sq ft to Expedia at Angel Square EC1.
-- Completed Turnmill EC1 handing over 58,200 sq ft of offices to Publicis.
-- Started the 105,000 sq ft development at The Copyright Building W1.
-- Applied for planning permission to develop a 110,000 sq ft
hotel and office scheme at 40 Blackfriars Road SE1.
-- Acquired 20 Farringdon Road EC1 adjoining Farringdon
Crossrail station in a property swap transaction.
-- Increased our equity base by GBP175m following early
conversion of our 2016 convertible bonds.
This activity has put the Group in an excellent position to
start our largest development of 380,000 sq ft at 80 Charlotte
Street W1 later in 2015, as well as committing to future projects
such as 55-65 North Wharf Road W2. We expect the current year to be
another positive one for Derwent London and that, once more, the
implementation of our strategy will be supported by a favourable
property market to produce strong returns for our investors.
Robert A. Rayne
26 February 2015
BUSINESS REVIEW
OUR MARKET
See Appendix 1 for supporting graphs
http://www.rns-pdf.londonstockexchange.com/rns/9032F_-2015-2-25.pdf
London is prospering, with a population now of over 8.6 million
people. This growth trend recommenced in 1990 as London once more
established itself as a dominant provider of professional and
financial services, not only for the domestic market but also
internationally. More recently it has become a vibrant centre of
the flourishing new technology and creative industries. London now
receives significant inward migration not just from the UK, but
from around the world. Not only is London bigger; it has also
become more cosmopolitan, and is truly a global city.
These demographic trends are expected to continue with London's
population forecast to grow to 10 million by 2030. London's economy
has also benefited and, although it suffered in the last global
financial crisis, it has made a strong recovery, in part supported
by its attractions to the new industries.
The UK economic recovery has been slower than in recent cycles
and growth is expected to remain below average. This has seen base
rates stay at very low levels and longer term interest rates fall
significantly during the year. The UK General Election in May could
dampen economic activity, as it raises uncertainty about potential
changes to existing policies that might reduce London's relative
appeal. Yet if economic growth quickens it remains possible that
base rates might rise later in the year.
The UK economy is estimated to grow at 2-3% pa in the next two
years, with London expected to lead that growth. Oxford Economics
believes that 275,000 new London office jobs will be created in the
next five years, which in turn, on JLL estimates, translate into
extra demand for 23 million sq ft of office space. This compares to
central London availability of only 11 million sq ft in December
2014.
London's commercial property market remains in good health.
Rents are steadily rising and exceptional investment demand has
seen yields fall further. This cyclical recovery is supported by
two structural changes. First the creative industries have
developed leading to the establishment of new core office markets,
and secondly the ever closer opening of Crossrail, which will
significantly enhance the connectivity of a number of London
locations. London's level of availability and supply remain
conducive to rental growth, which we expect to continue in
2015.
Last year CBRE estimated central London prime office rents rose
11.4%, with 10.7% growth in the West End. This is the fourth year
of growth, which, in line with the economy, has been at a steadier
pace than in other recoveries.
-- During 2014 CBRE estimated 6.0m sq ft of office space was
completed in central London, which was a 72% increase on the
previous year. West End new supply was actually lower at just 0.8m
sq ft, which was 35% below the expected level at the start of the
year as a number of schemes are completing late.
-- CBRE expect central London completions to fall to 3.6m sq ft
in 2015 before picking up to 8.0m sq ft in 2016 and 6.1m sq ft in
2017. The outlook for the West End follows a different pattern with
rising supply of 1.2m sq ft in 2015, and then also peaking at a
potential 2.2m sq ft in 2016. The largest concentrations of new
supply in the West End over the next five years are expected to be
in Victoria (1.4m sq ft), Fitzrovia (1.0m sq ft) and Mayfair (0.9m
sq ft).
-- Last year's central London take-up of 15.0m sq ft exceeded
2013's total by 9%. Of this 22% was pre-let, which was a similar
ratio to 2013. Demand from creative industries and business
services remained high at 26% and 20% of total take-up,
respectively, and demand from financial services recovered to
represent 24% of 2014 take-up.
-- Total West End lettings were 4.4m sq ft, also a rise of 9%.
Business services led here, representing 28% of total demand and
CBRE highlighted the importance of service and managed office
providers. Creatives had a smaller share at 19%.
-- Strong take-up levels saw the central London vacancy rate
fall from 4.7% to 3.7% in 2014. This is the lowest level since
mid-2008, and 26% below the ten-year average. In the West End,
where 60% of our portfolio is located, it is even lower at 2.7%
down from 3.4% in the year. CBRE expects central London take-up to
be lower this year, but availability will still fall.
The conditions are well set to secure continuing rental growth.
CBRE estimates that Fitzrovia will see the highest West End rental
growth in the next five years following the delivery of new
buildings.
The investment market remained very firm in 2014. London
activity was buoyed by a positive outlook and falling gilt and
corporate bond yields. In the year GBP18.4bn was invested in
central London commercial property, which almost matched 2013's
record level of GBP19.9bn.
London assets continue to attract international investors with a
number of headline deals involving new entrants. This sheer
appetite deepens the pool of demand and liquidity, which has seen a
wider definition of core London. Domestic institutional direct
property weightings have risen both tactically to benefit from the
improving markets, and structurally as real estate has raised its
status as an alternative asset class with a relatively high
yield.
The impact has pushed London investment yields to new lows yet
investors seem more comfortable at the start of 2015 than at the
beginning of 2014. The change in sentiment reflects the slowing
economic outlook, which has meant that expectations of the timing
of any interest rate rises have been extended, and bond yields have
fallen. However, as the Bank of England warns, businesses should
assume interest rates will rise in the next two years. We remain of
the view that, providing such changes are modest and rental growth
continues, property yields will stay firm. If, and when, property
yields start to rise in the future, we currently expect neither a
sharp correction nor a spate of forced property sales, given the
higher levels of equity purchases so far this cycle.
VALUATION
See Appendix 2 for supporting graphs and table
http://www.rns-pdf.londonstockexchange.com/rns/9032F_1-2015-2-25.pdf
Robust occupier demand, rising rentals and sustained investor
appetite for central London commercial property, provided a strong
background for the year end valuation. The Group's investment
portfolio was valued at GBP4.168bn at 31 December 2014. The
valuation surplus for the year was GBP683.8m, before accounting
adjustments of GBP11.9m (see note 11), giving a total reported
movement of GBP671.9m. This excellent performance was almost double
the GBP337.5m increase in 2013, which was also a strong year.
The underlying annual valuation uplift was 20.4%, and compared
to the 12.6% in 2013. Our London portfolio, now 98% of our assets,
rose by 20.7%. Drilling down, the City Borders, principally
London's Tech Belt, showed the best growth at 26.3% as these newer
areas flourished, with investors recognising their attractiveness
to office occupiers looking for vibrant locations that offer
competitive rents. The West End was up by 18.6%, where the rental
growth was more modest. The balance of the portfolio, our Scottish
assets, increased by 7.8% over the year.
During the year we were on site with seven major projects and
they increased in value by 24.2%. Five were new developments,
comprising office projects at Turnmill EC1, 40 Chancery Lane WC2
and the White Collar Factory EC1, together with the residential
projects at Queens W2 and 73 Charlotte Street W1. The final two
were the phased refurbishments at 1-2 Stephen Street W1. The
valuation of these seven properties was GBP547.6m and represented
13% of the portfolio at year end. Excluding these, the underlying
valuation movement was 19.8%.
The portfolio's EPRA net initial yield at 31 December 2014 was
3.4%, and this rises to 4.0% on a 'topped-up' basis, following the
expiry of rent free periods and contracted rental uplifts. The true
equivalent yield was 4.73%, a 55 basis points reduction over the
year and follows a 27 basis points tightening in 2013. Since
December 2013 the portfolio's equivalent yield has been in new
territory with the previous cycle low point being 5.35% in
mid-2007. Current property yield levels are supported by a shortage
of good office space in central London, firm rental growth and a
positive economic outlook, all set around a historically low
interest rate environment. On an EPRA basis our rental values rose
9.0% during the year and followed a five year steady trend. During
2014 the City Borders saw rental growth of 11.3% and the West End
8.4%.
The Group's total property return was 25.1%, compared to 18.5%
last year. This measurement is one of our key performance
indicators (KPI) and was above the comparable benchmark, the IPD
Central London Office Index, which returned 23.5%. A further
property KPI benchmark is the average three-year total property
return, which was 18.4%, against the IPD All UK Property Index
benchmark which was 10.4%.
At the year end the portfolio's annualised contracted net rental
income had risen 4.5% to GBP131.7m, and the valuer's ERV had risen
9.4% to GBP215.6m. The significant difference represents a
reversion of GBP83.9m, which is 18% greater than one year ago, and
represents a 64% uplift on passing rents to the estimated December
2014 rental values.
Analysis of the reversion shows that GBP32.0m or 38% is already
contracted through pre-lets, fixed uplifts and expiry of incentive
periods. Examples of properties with incentives include Turnmill
EC1 and 40 Chancery Lane WC2 (pre-let to Publicis) and 1 Page
Street SW1 (let to Burberry). This is a higher level than last
year, when it was GBP30.2m. This uplift is important for the
valuation and the cashflow, but much of it, excluding GBP7.8m of
pre-lets, is already included in our accounting earnings under
IFRS. The second contributor is the potential GBP28.4m receivable
from letting vacant space, of which GBP21.3m is expected to come
from on-site developments and refurbishments and GBP7.1m from
immediately available space.
The final element of the estimated uplift is the lease reversion
of GBP23.5m, which represents 28% of the potential. Some of these
latter potential gains will be lost if we choose to redevelop
properties, although they should be more than compensated for by
the increase in rental values on the subsequent projects.
PORTFOLIO MANAGEMENT
See Appendix 3 for supporting graphs and tables
http://www.rns-pdf.londonstockexchange.com/rns/9032F_2-2015-2-25.pdf
Optimising income
We had a good year for lettings in 2014 securing GBP9.2m of
rental income on 188,300 sq ft of space achieving rents 11.2% above
December 2013 ERV. Included in these numbers, our open market
lettings were 18.1% above December 2013 ERV. The Group secured
GBP5.6m of rental income in the second half, at an average of 12.7%
above December ERV and 5.4% above June 2014 ERV. Details of the
principal transactions are given in the following table. We have
made a good start to the current year securing GBP5.9m of new
rental income.
During the year we carried out 72 rent reviews and lease
renewals on a total of 664,300 sq ft. The average increase was 17%
to provide rents of GBP23.0m pa. During the year GBP17m of rental
income was exposed to lease expiries or breaks, and we were able to
retain or re-let 73%.
Principal lettings in 2014
Min
/fixed
uplift
at
Total first
Area Rent annual review Lease Lease Rent free
sq GBP rent GBP term break equivalent
Property Tenant ft psf GBPm psf Years Year Months
Q1
Middlesex 9
House W1
10.5,
Morelands Make 12,200 37.50* 0.5 42.50 15 10 plus 4.5
EC1 if no
Spark44 8,500 49.50 0.4 54.50 10 5 break
10.5,
plus 4.5
1 Oliver`s if no
Yard EC1 Orms 6,400 50.00 0.3 52.50 10 5 break
Q2 World
Tower House Nuclear
WC2 Association 5,700 66.00 0.4 68.50 10 - 13.5
Q3
18, plus
1-2 Stephen Freud 6 if no
Street W1 Communications 28,350 65.00 1.8 75.00 15 10 break
Morelands Stink
EC1 London
8,700 54.00 0.5 58.00 10 - 12
Middlesex London
House W1 First 4,200 65.00 0.3 70.00 10 8 9
Q4
1-2 Stephen
Street W1 FremantleMedia 6,500 65.00 0.4 - 5 - 7
--------------- ----------------- --------- --------- -------- -------- ------- ------- ------------
* Lower ground floor converted from former car park
The letting to Make at Middlesex House W1 was highly profitable,
as it involved converting a basement car park into office space,
and a number of other transactions in the table set new rental
highs for individual buildings.
Since the year end The Office Group has taken 34,150 sq ft at 2
Stephen Street W1 on a 20- year lease without a break for GBP2.2m
pa or GBP65 per sq ft. The rent incentives are equivalent to a 15
month rent-free period. There are five-yearly reviews with minimum
CPI linked uplifts capped and floored at 4% to 2% pa at the first
and second review with the third review based on open market rent.
We will receive a share of The Office Group's profits on the space
above a threshold level in return for a capital contribution of
GBP1.8m.
The three recent Stephen Street transactions have secured
GBP4.4m of new income and 16,150 sq ft on the top two refurbished
ninth and tenth floors are under offer. In addition we have
recently taken back the 10,900 sq ft eighth floor from
FremantleMedia, which is now being upgraded. Upon completion of the
latter phase we will have refurbished 114,350 sq ft, or over half
of the building's office space since its acquisition in 2010,
during which period the property has remained substantially income
producing.
Throughout the first half of the year the Group's vacancy level
was relatively low, but it has risen as projects completed. By
value, the Group's EPRA vacancy rate started the year at 1.0%, but
following the completion of refurbishments at 1-2 Stephen Street W1
and 23,200 sq ft at the Davidson Building WC2 it rose to 4.1% in
December. Subsequent lettings have seen the vacancy rate fall to
2.1%.
Looking forward, we have secured a number of lettings on space
where leases are due to expire in the first half of 2015. At 9
Prescot Street E1, where the Co-operative Bank's ("Co-op") GBP1.2m
pa lease on the whole building was due to expire, we have granted
the sub-tenant Barts Health NHS Trust a five-year lease on the five
lower floors (60,000 sq ft) at a rent inclusive of the service
charge of GBP1.5m pa. The Co-op will now occupy the three upper
floors (36,600 sq ft) on a lease that will break later in the year.
This property is now held in our recently formed joint venture with
LaSalle Investment Management.
In February we exchanged contracts to let 57,600 sq ft at Angel
Square EC1 to Expedia. Of this, 13,000 sq ft is currently
available, and 44,600 sq ft will become available once existing
leases expire in March. Expedia has taken a short term lease and
will pay a rent of GBP2.1m pa, which represents a rent of GBP36.80
per sq ft.
PROJECTS
See Appendix 4 for supporting graphs and tables
http://www.rns-pdf.londonstockexchange.com/rns/9032F_3-2015-2-25.pdf
Creating well designed space
The Group has increased its development capital expenditure, to
both improve the quality of the portfolio and to take advantage of
current market conditions. During the year we completed the
refurbishment of 107,000 sq ft of office and residential space,
principally at 1-2 Stephen Street W1. In October we completed
Queens W2, our first standalone residential project. It comprises
18,700 sq ft in 16 units and 2,700 sq ft of retail. Since
completion we have sold seven units for GBP15.7m, and let the
retail space.
The completion of the two developments mainly pre-let to
Publicis was delayed into 2015. Turnmill EC1 has now completed, and
40 Chancery Lane WC2 is on track to complete soon. Together these
two properties comprise 172,300 sq ft, and the remaining restaurant
and retail space is under offer.
There are two smaller projects due for completion later this
year.
The first will be the retail scheme at Tottenham Court Walk W1
where we are seeking to introduce a more interesting mix of
retailers as part of regenerating 1-2 Stephen Street, and to bridge
the gap with the higher value space around Tottenham Court Road
station and Oxford Street. In the second half of the year we
altered the scheme to make it more adaptable for a wider range of
uses. However, the changes reduced the net lettable area by 5% to
38,000 sq ft and our valuers are assuming a lower ERV of GBP2.3m
pa. One restaurant has been let securing GBP0.3m pa, and we are in
negotiations on other units.
The second project set to complete is a residential development
at 73 Charlotte Street W1. This will comprise 11,700 sq ft of
private apartments in nine units, as well as 1,900 sq ft of
affordable housing and 1,900 sq ft of offices.
The largest project where we are on-site is the White Collar
Factory EC1. Demolition finished in August 2014 and the development
is due for completion in around 18 months' time. This is a
significant development for two reasons.
First, its scale: it has a total estimated cost, including land,
of c.GBP200m. The commercial element is expected to provide an ERV
of GBP14.7m and there are also nine apartments.
Secondly the development encapsulates our thoughts on what
constitutes the most attractive space for today's creative
businesses. We have seen that a number of our most successful
offices, which have enjoyed resilient demand, are buildings
originally designed for industrial use, such as Tea Building E1,
Greencoat and Gordon House SW1 and most recently The Buckley
Building EC1. The White Collar Factory provides new offices in an
industrial frame which will give occupiers robust and flexible
space, with above average volume and strong sustainability
credentials.
In due course we may be entitled to an overage receipt from the
development of apartments at Riverwalk House SW1. Sales are
progressing satisfactorily with 71 out of 116 apartments sold. The
development is due for completion in December 2015.
Since the year end we have agreed a new 127-year headlease with
the freeholder and started work on The Copyright Building, 25-33
Berners Street W1. The freeholder will receive a 12.5% ground rent
as well as a share of profits above a 20% return. The development
will provide 85,000 sq ft of offices and 20,000 sq ft of retail,
which represents a 22% uplift on the existing area. The total cost
is estimated at GBP117m and the net ERV is GBP6.8m. Completion is
expected in H2 2017.
In the second half of 2015 we plan to start our largest
development to date: 80 Charlotte Street W1 which lies in the heart
of Fitzrovia. The main office building totals 309,000 sq ft of
offices and 14,000 sq ft retail. It makes up the majority of an
island block. The remaining part of which comprises a 14,000 sq ft
private residential building. In addition there is a smaller
building opposite at 53-65 Whitfield Street W1 which will provide
12,000 sq ft of offices and 31,000 sq ft of residential, of which
32% is affordable. We are currently negotiating with contractors,
but we expect the total cost to be around GBP380m. The ERV is
estimated at GBP23m pa.
Last year we reported that we were seeing heightened
construction cost inflation. We expect to see this continue in the
current year, and are assuming construction cost inflation of
c.5-7% in 2015.
Major projects pipeline
Property Area Delivery Comment
sq
ft*
------------------------------ ------------- ---------- -----------------------
Projects completed
in 2014
1-2 Stephen Street 85,150 Q3 2014 Offices - 81%
W1 let
Queens, 96-98 Bishop's 21,400 Q4 2014 Residential and
Bridge Road W2 retail
------------------------------ ------------- ---------- -----------------------
106,550
------------------------------ ------------- ---------- -----------------------
Projects on site pre-let
to Publicis
Turnmill, 63 Clerkenwell 70,500 Q1 2015 Offices and retail
Road EC1 - 83% let
40 Chancery Lane WC2 101,800 Q2 2015 Offices and retail
- 96% pre-let
------------------------------ ------------- ---------- -----------------------
172,300
------------------------------ ------------- ---------- -----------------------
Other projects on site
Developments
White Collar Factory, 293,000 Q3 2016 Office-led development
Old Street Yard EC1
73 Charlotte Street 15,500 Q3 2015 Residential and
W1 offices
Refurbishments
Tottenham Court Walk 38,000 Q2 2015 Retail, Part
W1 1-2 Stephen Street
------------------------------ ------------- ---------- -----------------------
346,500
------------------------------ ------------- ---------- -----------------------
Major planning consents
due to start in 2015
80 Charlotte Street 380,000 H1 2018 Offices, residential
W1 and retail
The Copyright Building, 105,000 H2 2017 Offices and retail
25-33 Berners Street
W1
------------------------------ ------------- ---------- -----------------------
485,000
------------------------------ ------------- ---------- -----------------------
Other major planning
consents
1 Oxford Street W1** 275,000 Offices, retail
and theatre
55-65 North Wharf Road 240,000 Offices
W2
25 Savile Row W1 58,000 Residential and
retail
------------------------------ ------------- ---------- -----------------------
573,000
------------------------------ ------------- ---------- -----------------------
Active planning applications
Wedge House, 40 Blackfriars 110,000 Hotel and offices
Road SE1
------------------------------ ------------- ---------- -----------------------
Grand Total 1,793,350
------------------------------ ------------- ---------- -----------------------
* Proposed areas
** Crossrail site under option
Our business model aims to ensure that there are plenty of
future value enhancing opportunities in the portfolio. Last year we
were successful with our planning applications at The Copyright
Building W1 and also 25 Savile Row W1. At the latter we now have
permission to redevelop our head office building into 52,400 sq ft
of residential accommodation in 29 apartments and 5,600 sq ft of
retail space. However, rising office rents and the relatively
higher costs in developing luxury apartments mean that we are still
considering our best options for the building. We already had
planning permission for major schemes at 55-65 North Wharf Road W2
(240,000 sq ft) and 1 Oxford Street W1 (275,000 sq ft offices,
retail and theatre). With our new permissions we now have over one
million sq ft of consented space still to start.
Approximately 9% of our portfolio by area is under active
appraisal. At one end of the process, we have recently submitted
revised plans for 110,000 sq ft of hotel and office space at 40
Blackfriars Road SE1 (which already had consent for an 80,000 sq ft
office building). At the other end we are at the initial stages of
appraisal at 19-35 Baker Street W1, where we are working up plans
for a c.250,000 sq ft project with our partners, the Portman
Estate. Elsewhere the Network Building W1 has the potential for
c.100,000 sq ft adjoining our Qube W1 property. In total this
element of the portfolio represents 0.5m sq ft with the potential
to provide 0.9m sq ft. In addition another 26% of the portfolio is
earmarked for future appraisal and holds numerous additional
development opportunities.
INVESTMENT ACTIVITY
Acquiring properties and unlocking their value
During the year we acquired two properties which reinforce
existing Derwent London clusters in the Tech Belt. They are both
let off low rents with low capital values, have scope for near term
asset management and, in the longer term, offer significant
redevelopment opportunities.
We acquired the largest of the two properties, Angel Square EC1,
in November 2014. This is a prominent corner property comprising
three multi-let connected buildings around a central courtyard. It
is located above Angel underground station and opposite our
successful Angel Building. Rents range from GBP10 to GBP30 per sq
ft with an average rent of GBP21.68 per sq ft on let space. The
majority of leases expire in March 2015. Our initial plan is to
capture the rental reversion through medium term lets on this space
such as the recent letting to Expedia. Longer term we are
considering plans for a larger building on the site.
The other acquisition has helped unlock a larger site. 19-23
Featherstone Street EC1 is located next to our White Collar Factory
development, and adjacent to our Monmouth House EC1 (41,500 sq ft
of offices). The vendor has leased the building back at an initial
rent of GBP10 per sq ft with a break after 12 months. The property
is already highly reversionary, but we have commissioned some early
studies on a potential new development on a larger site combining
Monmouth House. This work has suggested the site could hold a
c.125,000 sq ft development, which would represent an 80% increase
on the existing space and a major regeneration opportunity.
Principal acquisitions 2014
Total Total Net Lease
Property Date Area cost cost yield Rent Rent length*
sq GBPm GBP % GBPm GBP Years
ft psf pa psf
---------------------- ------- ---------- -------- -------- -------- ------- ------- ----------
19-23 Featherstone
Street EC1
Q1 27,500 12.3 450 2.2 0.3 10 0.2
Angel Square
EC1 Q4 128,700 78.6 620 3.0 2.4 19 0.3
---------------------- ------- ---------- -------- -------- -------- ------- ------- ----------
Total 156,200 90.9 580 2.9 2.7 17 0.3
------------------------------- ---------- -------- -------- -------- ------- ------- ----------
* To first break or expiry, as at 31 December 2014
Since the year end we have announced the acquisition of 20
Farringdon Road EC1 as part of a property swap. We discuss the
related disposals under recycling capital below. This prominent
170,600 sq ft property is currently one of the largest in
Clerkenwell next to Farringdon Crossrail station, and opposite 19
Charterhouse Street EC1 which we acquired in 2013. The
consideration was GBP88.0m before costs, which we met through a
property swap, for a minimum 175-year lease with the vendor
retaining a 10% ground rent. The net rent is GBP3.2m, and our net
initial yield is 3.4% (GBP545 per sq ft). The property comprises
141,400 sq ft offices, 5,700 sq ft of ancillary space, 1,200 sq ft
retail and a 22,300 sq ft gym. One office floor is let at a
peppercorn rent until December 2015 with the remaining office
floors let at an average rent of GBP27 per sq ft. Like Angel Square
EC1 we believe the purchase offers short term management and
repositioning potential, with longer term redevelopment angles.
Each purchase has enhanced our position next to important transport
hubs.
Recycling capital
During the year we sold five smaller London office properties
for a total consideration of GBP98.0m. Jaeger House W1 was our
largest disposal. This represented a redevelopment opportunity with
leases close to expiry but we chose instead to sell to a special
purchaser taking most of our expected future development gain. The
other properties were four smaller assets, three of which were
geographically near the outer limits of our London portfolio. We
were able to crystalise substantial gains, which were on average
40% above December 2013 values.
Principal commercial disposals 2014
Net Net
Net Net Net surplus surplus
yield
to purchaser
Property Date Area proceeds proceeds % Rent Dec Jun
2013 2014
sq GBPm GBP GBPm % %
ft psf pa
------------- ------ ---------- ----------- ----------- --------------- ---------- ---------- ----------
Jaeger
House W1
186 City
Road EC1
35 & 37
Kentish Q2 24,900 30.3 1,215 2.7 0.9 32 -
Town Road
NW1 Q3 38,300 22.8 595 4.1 1.0 54 1
Suncourt Q3 24,500 13.9 570 3.8 0.6 40 3
House N1
136-142 Q4 26,500 17.1 645 3.9 0.7 35 24
Bramley
Road W10 Q4 30,900 13.9 450 4.4 0.7 49 26
------------- ------ ---------- ----------- ----------- --------------- ---------- ---------- ----------
Total 145,100 98.0 675 3.6 3.9 40 12
--------------------- ---------- ----------- ----------- --------------- ---------- ---------- ----------
We also sold our 25% interest in the Prague Fashion Arena in the
Czech Republic. This non-core legacy asset raised GBP6.8m net of
costs, which after tax reflected a 21% premium to its 2013 book
value. In addition GBP15.7m was raised from the sales of apartments
at Queens W2 realising a GBP3.9m profit before tax.
As consideration for the purchase of 20 Farringdon Road EC1 we
disposed of GBP115.3m of assets comprising two properties, 22
Kingsway WC2 and Mark Square House EC2, and a 50% interest in 9 and
16 Prescot Street E1. We will receive the balance of GBP27.3m
before costs in cash. The proceeds are in line with our December
2014 values.
FINANCE REVIEW
See Appendix 5 for supporting graphs and tables
http://www.rns-pdf.londonstockexchange.com/rns/9032F_4-2015-2-25.pdf
Derwent London had its strongest year of net asset growth to
date in 2014. The increase in net asset value (NAV) was GBP705.2m
for the year, up by 29.7% from the end of 2013, with a total return
for the year of 30.1%. This growth was largely driven by a
combination of favourable letting conditions, demand being well in
excess of available good-quality office space thereby causing
market rental values to rise, and particularly strong investment
demand.
The extent of yield movement during 2014, influenced as it is by
many external factors, exceeded our expectations. This fall looks
likely to continue into 2015 but our view is that equivalent yields
must now be approaching cyclical lows. Our predictions for London
office ERV's in 2014 proved to be more accurate and we continue to
anticipate further growth to come. In 2014, the Group's ERV grew by
9.4%, which has further increased our rental reversion. With
lettings from our recent developments, we therefore saw rental
income grow in 2014 while keeping firm control of our operating
costs, with a corresponding positive impact upon recurring profit,
EPS and interest cover. As a result, we increased the final
dividend by 8.7% giving a total of 39.65p per share for the year.
This represents the seventh successive year of dividend growth
since 2007, the year of the merger of Derwent Valley and London
Merchant Securities, the average annual growth rate since then
being 8.4%.
Levels of apparent liquidity chasing the London property sector
have seemed the highest for many years with available cash now
seeking debt as well as equity returns. We have taken advantage of
these market conditions by completing GBP100m of 15 and 20 year US
private placement funding in January 2014 and extending our GBP550m
revolving unsecured bank facility in December 2014 to a January
2020 maturity. The latter included a worthwhile reduction in the
margin payable. As explained later, our 2016 convertible bonds also
completed their conversion to new ordinary shares in January 2015
which further strengthens the balance sheet and improves interest
cover.
See Appendix 5 for chart of portfolio value, net assets and
gearing
http://www.rns-pdf.londonstockexchange.com/rns/9032F_4-2015-2-25.pdf
Net asset value growth
The yield shift referred to above, together with development
profits from our projects and strong underlying rental value growth
across the portfolio, produced a 28.4% increase in EPRA net asset
value per share during 2014 to 2,908p per share from 2,264p a year
earlier. The revaluation surplus and profits from property sales
together accounted for 687p compared to 378p in 2013.
The overall improvement in EPRA NAV per share can be summarised
as follows:
2014 2013
p p
-------------------------------------- ----- -----
Revaluation surplus 654 326
Profit on disposals 33 52
EPRA profit after tax 57 54
Dividends paid (net of scrip) (35) (30)
Equity portion relating to issue
of convertible bonds 2019 - 12
Interest rate swap termination costs (2) (13)
Dilutive effect of convertible bonds
2016 (46) (10)
Minority interest (10) (7)
Other (7) (6)
-------------------------------------- ----- -----
644 378
-------------------------------------- ----- -----
See Appendix 5 for NAV 'bridge' chart
http://www.rns-pdf.londonstockexchange.com/rns/9032F_4-2015-2-25.pdf
A detailed reconciliation of the EPRA NAV to the IFRS NAV is
shown in note 22 to the financial statements.
The rapid growth in NAV per share above the 2,222p conversion
price for the convertible bonds originally due to mature in 2016
gave rise to a further 46p per share of NAV dilution in 2014 after
10p per share in 2013. As the EPRA NAV per share is a fully diluted
measure, there will be no additional impact as a direct result of
the conversion of the bonds in 2015, though the unamortised issue
costs of GBP1.4m will effectively be written off at the point of
conversion. As they were redeemed in January 2015, the bonds were
reclassified as current liabilities at the 2014 year end.
With financial markets across much of the global system chasing
yield and the fear of deflation or continued sluggish growth in
many European markets, there has been a quite extraordinary
movement in the UK 10 year gilt rate over the last year or so. At
the end of 2013, the 10 year gilt rate was around 3.0% and expected
to rise further but, by the end of 2014, it had fallen to about
1.8%. As noted above, this trend has been very positive for our
property valuations but the fair value adjustments to our debt
instruments have naturally moved in the opposite direction.
Accordingly, we saw a GBP9.3m or 9p per share increase in the
mark-to-market cost of unwinding interest rate swaps taking the
balance sheet exposure to GBP25.2m or 24p per share at the end of
2014 compared to 15p per share a year earlier. As the swap curve
has fallen across its entire time range, the impact upon the fair
value of our long term fixed rate debt liabilities was more marked
and increased from GBP15.2m in 2013 to GBP78.8m or 76p per share in
December 2014. These adjustments took the Group's EPRA triple NAV
per share to 2,800p at 31 December 2014, which represents an
increase of 26.0% over the year.
Income statement
As in 2013, we have continued to see a useful improvement in
recurring earnings despite higher levels of regeneration activity
across our portfolio. EPRA profit before tax, which excludes
GBP3.9m of trading profits on sales of our residential units at
Queens, was up to GBP62.3m, an increase of 7.8% from the GBP57.8m
comparative figure in 2013. EPRA earnings per share were also
increased, rising to 57.08p from 53.87p a year earlier. The overall
IFRS profit before tax, which includes fair value movements on
property and interest rate swap values plus profits from our
disposals, was GBP753.7m, by far the highest annual figure that the
Group has yet seen. The revaluation surplus of GBP667.1m generated
much of this 2014 IFRS profit. A table providing a reconciliation
of the IFRS to EPRA profit before tax and earnings per share is
included in note 22.
With the sales of apartments at Queens contributing GBP15.7m,
gross property and other income reached GBP180.5m in 2014, up from
GBP160.5m in 2013. Gross property income for the year, almost all
of which is rental income, increased by 5.2% to GBP138.4m from
GBP131.6m in 2013. Additional income generated from lettings and
rent reviews in 2013 and 2014 totalled GBP11.8m, more than
offsetting the GBP5.7m of rent lost from lease breaks, expiries and
voids and GBP2.7m of void costs on new schemes. An additional
GBP5.3m came from properties acquired with GBP2.9m lost on
properties sold and GBP1.6m received from 'rights of light'
settlements. After taking account of irrecoverable property costs,
net property and other income rose by 9.5% from GBP124.3m in 2013
to GBP136.1m. Of this, GBP128.7m was net rental income, 5.8% higher
than in 2013.
See Appendix 5 for gross property income chart
http://www.rns-pdf.londonstockexchange.com/rns/9032F_4-2015-2-25.pdf
EPRA like-for-like gross rental income, which removes the impact
of development activity, acquisitions and disposals, increased by
2.9% during the year with net property income on a similar basis up
by 5.6%. The underlying trend is stronger than these figures
indicate as the prior year benefited from GBP1.4m of back-rent
arising from a single review. If this is also excluded, the
underlying like-for-like growth rises to 4.3% for gross rents and
to 7.2% for net property income. A full analysis is shown in the
table below.
See Appendix 5 for EPRA like-for-like rental income table
http://www.rns-pdf.londonstockexchange.com/rns/9032F_4-2015-2-25.pdf
We have seen a 6.4% increase in the Group administrative charge
for the year to GBP28.1m; this is largely due to increased staff
numbers and higher salary, bonus and incentive payments to our
staff and senior management team, the levels of which rose by
GBP1.3m in 2014.
See Appendix 5 for EPRA profit before tax chart
http://www.rns-pdf.londonstockexchange.com/rns/9032F_4-2015-2-25.pdf
We have again included the EPRA cost ratios this year, the main
ratio having reduced to 24.2% from 25.1% in 2013; excluding direct
vacancy costs, it rose slightly to 22.9% in 2014. The ratio of
irrecoverable and administrative costs to the property portfolio
fair value also fell in 2014, to 0.8% from 1.0% in 2013. As in
prior years, our income statement does not take account of any
capitalisation of overheads, all of which are expensed in the
year.
At GBP42.4m, finance costs were only marginally higher in 2014
than in 2013 in spite of average borrowings being about GBP95m
higher. The total charge takes account of interest capitalised on
projects of GBP5.3m compared with GBP4.8m in 2013. The reduction in
our overall interest rates is largely due to the refinancing
activities that we undertook during 2013.
In terms of the non-recurring elements of the income statement,
profits on disposal of investment properties totalled GBP28.2m in
2014 with a further GBP2.0m from the sale of our 25% interest in
the shopping centre in Prague. The strong investment market for
these smaller and very liquid lot sizes meant that prices achieved
were particularly good. Finally, the adverse movement in derivative
fair values referred to earlier was GBP9.4m in 2014 and there was a
GBP2.0m cost incurred deferring two forward-start interest rate
swaps.
Taxation
The tax charge for the year increased to GBP3.9m in 2014 from
GBP2.4m in the previous year, most of this increase being due to a
higher deferred tax charge on the revaluation of the unelected
share in our 55% subsidiary held jointly with the Portman Estate
which is outside the REIT regime. As in 2013, the main part of the
current tax charge of GBP0.8m was also due to our joint investment
with the Portman Estate.
In addition, GBP4.4m of tax was withheld during the year from
shareholders on property income distributions and paid to HMRC.
Maintaining strong and flexible financing
After a significant year of refinancing in 2013, we continued to
strengthen our platform in 2014 and all our financing ratios
improved compared to the prior year as indicated in the table
below. The recent conversion of the 2016 convertible bonds into new
shares in January 2015 also provides significant additional
firepower to finance the pipeline in the next few years and its
impact is shown as a proforma column in the table.
In January 2014, GBP100m of 15 and 20 year US private placement
notes provided by New York Life were drawn thereby increasing
headroom on our revolving bank facility. Full details were set out
in last year's annual report. The Group has a strategy of arranging
a sufficient amount of long-term fixed rate debt when we believe
that conditions are favourable and this financing enabled us to
extend the weighted average maturity of our debt without a
significant increase in the average cost of our funds. The
financial covenants also matched those of our unsecured bank
facility.
Ensuring that the cost of our debt is competitive is another of
our financing priorities. It became apparent in the second half of
2014 that conditions in the bank lending market for credits like
ours had improved markedly due to increasing competition among
lenders. As a result, margins being offered and up-front fees were
gradually reducing. Accordingly, we engaged with the four banks
providing our GBP550m facility and agreed an extension from
September 2018 to January 2020. The margin was reduced by 35bp
effective from the date of signing on 19 December 2014. In
addition, we agreed to reduce the maximum net asset gearing
covenant from 160% to 145%. As our gearing had already fallen
substantially from the original time that the loan was established
in September 2013, there remains very significant headroom under
this covenant.
These actions increased the weighted average length of our drawn
debt to 6.6 years at the end of 2014, rising further to 7.9 years
after conversion of the GBP175m convertible bonds 2016. They also
increased the proportion of debt provided by non-banks to 66% from
60% at December 31, 2013. The long dated US private placement notes
increased our cost of debt slightly but, by the end of the year,
the spot interest rate was only slightly higher than a year earlier
at 3.78% on a cash basis against 3.64% in December 2013. The IFRS
rate increased to 4.22% at 31 December 2014 from 4.10% a year
earlier. It is worth noting that the proforma cash and IFRS
interest rates, after conversion of the 2016 bonds, rise to 3.99%
and 4.27%, respectively.
See Appendix 5 for table of debt facilities
http://www.rns-pdf.londonstockexchange.com/rns/9032F_4-2015-2-25.pdf
Net debt and cash flow
Net debt increased again during the year to GBP1,013.3m from
GBP949.2m, the main reason being GBP113.2m of cash outflows on
projects. This includes capitalised interest of GBP5.3m, up from
GBP4.8m the year before. We have continued to refresh the portfolio
with new acquisitions totalling GBP92.2m in 2014, mainly relating
to 19-23 Featherstone Street and Angel Square. We have also raised
GBP99.0m during the year from selling six investment properties,
and gross proceeds from the sale of the apartments at Queens W2
generated a further GBP15.7m. We will receive a further GBP27.3m
before costs on the recently announced property swap.
Our operating cash flow in 2014 showed strong gains. Cash
receipts from recent lettings, including the burning off of
rent-free and half-rent periods, combined with low irrecoverable
property costs and reduced interest payments to improve our net
operating cash inflow by 14.1% to GBP65.6m in 2014.
The Group's loan-to-value ("LTV") ratio fell to 24.0% at the
year end from 28.0% in 2013. Net asset value gearing fell
correspondingly to 32.9% from 40.0%. After conversion of the 2016
bonds in January 2015, the proforma LTV ratio fell further to 19.9%
and the NAV gearing to 26.0%. As a result, the amount of debt
within the Group could increase by a further GBP225m to get back to
the level of NAV gearing at 31 December 2014 which indicates how
much additional project headroom the latest issue of new ordinary
shares has generated. Interest cover has shown similar
improvements; in 2014, overall net interest cover increased to 286%
from 279% in 2013 and will improve further without the GBP7m pa of
interest (IFRS basis) on the 2016 convertible bonds.
As at 31 December 2014, the undrawn amount of financing
facilities and cash totalled GBP336m, sufficient to cover about two
years' capital expenditure and an increase over the GBP296m
comparative figure as at 31 December 2013. With our low gearing
level, uncharged properties of GBP2.7bn, reputation and
well-established credit rating, the Group has access to additional
debt sources.
See Appendix 5 for reconciliation of net debt, gearing and
interest cover ratios, debt summary and maturity profiles of loan
facilities and fixed and hedged debt
Dividend
Growing the dividend at a meaningful but sustainable rate
remains an important goal for Derwent London. With recurring
earnings continuing to grow, the Board has recommended an 8.7%
increase in the proposed final dividend to 28.00p per share for
payment to shareholders on 12 June 2015. 22.35p will be paid as a
PID and the balance of 5.65p as a conventional dividend. The total
dividend for the year is 39.65p per share, an increase of 3.15p or
8.6% over 2013. The scrip dividend alternative remains popular and
so, as in recent years, it will again be offered.
Our financial outlook
After an outstanding year of net asset value growth and the
conversion of GBP175m of bonds into new shares in January 2015, we
believe the Group is in a very good financial position to deliver
its substantial pipeline of regeneration projects.
Your Board remains alert to the risks that development activity
brings. In addition, our experience of several previous property
cycles is a constant factor when assessing the amount of risk we
take on and the disciplined way in which we manage the business.
The London office market feels to have some way to run with solid
tenant demand, robust rental growth and a relatively constrained
supply of new space in our principal locations but conditions can
change.
Our programme of investment in the portfolio currently
anticipates GBP163m of capital expenditure during 2015 with a
further GBP166m in 2016. Out of this total of GBP329m, GBP134m is
contracted and GBP252m is associated with committed schemes.
Therefore, there remains some flexibility in the delivery of this
pipeline from 2017 onwards but, even allowing for this full amount
of expenditure and in the absence of any further property disposals
or a significant movement in property values, the Group's LTV
gearing is likely to remain below 30%.
Our business model requires us to plan and deliver value-added
projects to bolster our returns. In order to achieve this over the
longer term, we will continue to refresh the pipeline and recycle
capital to ensure a healthy balance of income and value creation.
With low gearing and our focus on income generation, we believe we
are well placed to fund the delivery of this pipeline while
continuing to grow earnings, interest cover and the dividend that
we pay our shareholders.
Directors' responsibilities
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company, for safeguarding the assets of
the Company, for taking reasonable steps for the prevention and
detection of fraud and other irregularities and for the preparation
of a Directors' report and the report of the Remuneration Committee
which comply with the requirements of the Companies Act 2006.
The Directors are responsible for preparing the annual report
and the financial statements in accordance with the Companies Act
2006. The Directors are also required to prepare financial
statements for the Group in accordance with International Financial
Reporting Standards, as adopted by the European Union (IFRS) and
Article 4 of the IAS Regulation. The Directors have chosen to
prepare financial statements for the Company in accordance with
IFRSs.
Group financial statements
International Accounting Standard 1 requires that financial
statements present fairly for each financial year the Group's and
Company's financial position, financial performance and cash flows.
This requires the faithful representation of the effects of
transactions, other events and conditions in accordance with the
definitions and recognition criteria for assets, liabilities,
income and expenses set out in the International Accounting
Standards Board's "Framework for the preparation and presentation
of financial statements". In virtually all circumstances, a fair
presentation will be achieved by compliance with all applicable
IFRSs. A fair presentation also requires the Directors to:
-- consistently select and apply appropriate accounting policies;
-- make judgements and accounting estimates that are reasonable and prudent;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information; and
-- provide additional disclosures when compliance with the
specific requirements in IFRSs is insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance.
The Directors confirm to the best of their knowledge:
-- they have complied with the above requirements in preparing
the financial statements which give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Company and the undertakings included in the consolidation taken as
a whole;
-- the adoption of a going concern basis for the preparation of
the financial statements continues to be appropriate based on the
foregoing and having reviewed the forecast financial position of
the Group; and
-- the strategic report includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
whole, together with a description of the principal risks and
uncertainties that they face.
The Directors consider that the annual report and accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group's
performance, business model and strategy.
Financial statements are published on the Group's website in
accordance with legislation in the United Kingdom governing the
preparation and dissemination of financial statements, which may
vary from legislation in other jurisdictions. The maintenance and
integrity of the Group's website is the responsibility of the
Directors. The Directors' responsibility also extends to the
ongoing integrity of the financial statements contained
therein.
On behalf of the board
John D. Burns Damian M.A. Wisniewski
Chief Executive Officer Finance Director
26 February 2015
GROUP INCOME STATEMENT
2014 2013
Note GBPm GBPm
Gross property and other income 5 180.5 160.5
-------------------------------------- ---- ------- -------
Net property and other income 5 136.1 124.3
-------------------------------------- ---- ------- -------
Administrative expenses (28.1) (26.4)
Movement in valuation of cash-settled
share options (0.3) (0.3)
-------------------------------------- ---- ------- -------
Total administrative expenses (28.4) (26.7)
Revaluation surplus 11 667.1 335.6
Profit on disposal of investment
property 6 28.2 53.5
Profit on disposal of investment
in joint venture 6 2.0 -
Profit from operations 805.0 486.7
Finance income 7 - 0.2
-------------------------------------- ---- ------- -------
Finance costs (42.4) (41.4)
Loan arrangement costs written
off - (3.2)
-------------------------------------- ---- ------- -------
Total finance costs 7 (42.4) (44.6)
Movement in fair value of
derivative financial instruments (9.4) 38.5
Financial derivative termination
costs 8 (2.0) (13.7)
Share of results of joint
ventures 9 2.5 0.8
Profit before tax 753.7 467.9
Tax charge 10 (3.9) (2.4)
Profit for the year 749.8 465.5
Attributable to:
- Equity shareholders 737.7 456.6
- Non-controlling interest 12.1 8.9
749.8 465.5
Earnings per share 22 718.60p 446.40p
Diluted earnings per share 22 647.78p 412.72p
GROUP STATEMENT OF COMPREHENSIVE INCOME
2014 2013
Note GBPm GBPm
Profit for the year 749.8 465.5
Actuarial losses on defined
benefit pension scheme (1.6) -
Revaluation surplus of owner-occupied
property 11 4.8 1.9
Deferred tax on revaluation
surplus 18 (0.9) (0.1)
------------------------------------------ ---- ------ ------
Other comprehensive income that
will not be reclassified to profit
or loss 2.3 1.8
Total comprehensive income
relating to the year 752.1 467.3
Attributable to:
- Equity shareholders 740.0 458.4
- Non-controlling interest 12.1 8.9
752.1 467.3
GROUP BALANCE SHEET
2014 2013
Note GBPm GBPm
Non-current assets
Investment property 11 4,041.0 3,242.9
Property, plant and equipment 12 27.2 22.2
Investments 7.4 5.1
Pension scheme surplus - 0.8
Other receivables 13 78.9 72.1
4,154.5 3,343.1
Current assets
Trading property 11 24.0 22.6
Trade and other receivables 14 32.0 53.5
Corporation tax asset 0.2 -
Cash and cash equivalents 20 14.8 12.5
71.0 88.6
Non-current assets held
for sale 15 - 4.8
Total assets 4,225.5 3,436.5
Current liabilities
Borrowings 17 170.5 -
Trade and other payables 16 89.8 83.6
Corporation tax liability - 1.4
Provisions 0.8 1.7
261.1 86.7
Non-current liabilities
Borrowings 17 857.6 961.7
Derivative financial
instruments 17 25.2 15.9
Provisions 0.7 0.7
Pension scheme deficit 0.2 -
Deferred tax 18 5.0 1.0
888.7 979.3
Total liabilities 1,149.8 1,066.0
Total net assets 3,075.7 2,370.5
Equity
Share capital 5.1 5.0
Share premium 174.0 170.4
Other reserves 952.5 948.6
Retained earnings 1,880.6 1,180.0
Equity shareholders'
funds 3,012.2 2,304.0
Non-controlling interest 63.5 66.5
Total equity 3,075.7 2,370.5
GROUP STATEMENT OF CHANGES IN EQUITY
Attributable to equity shareholders
----------------------------------------------
Non-
Share Share Other Retained controlling Total
capital premium reserves earnings Total interest equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January
2014 5.0 170.4 948.6 1,180.0 2,304.0 66.5 2,370.5
Profit for the
year - - - 737.7 737.7 12.1 749.8
Other comprehensive
income - - 3.9 (1.6) 2.3 - 2.3
Share-based
payments 0.1 1.5 - 2.9 4.5 - 4.5
Dividends paid - - - (36.3) (36.3) (15.1) (51.4)
Scrip dividends - 2.1 - (2.1) - - -
At 31 December
2014 5.1 174.0 952.5 1,880.6 3,012.2 63.5 3,075.7
Attributable to equity shareholders
----------------------------------------------
Non-
Share Share Other Retained controlling Total
capital premium reserves earnings Total interest equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January
2013 5.0 165.3 934.0 756.1 1,860.4 57.6 1,918.0
Profit for the
year - - - 456.6 456.6 8.9 465.5
Other comprehensive
income - - 1.8 - 1.8 - 1.8
Share-based
payments - 0.4 0.5 2.5 3.4 - 3.4
Issue of convertible
bonds - - 12.3 - 12.3 - 12.3
Dividends paid - - - (30.5) (30.5) - (30.5)
Scrip dividends - 4.7 - (4.7) - - -
At 31 December
2013 5.0 170.4 948.6 1,180.0 2,304.0 66.5 2,370.5
GROUP CASH FLOW STATEMENT
2014 2013
Note GBPm GBPm
Operating activities
Property income 135.2 123.3
Property expenses (8.1) (9.1)
Cash paid to and on behalf of
employees (21.7) (19.0)
Other administrative expenses (5.3) (4.9)
Interest received - 0.2
Interest paid 7 (31.0) (32.3)
Other finance costs (3.0) (3.4)
Other income 1.7 2.8
Distributions received from
joint ventures 0.1 1.2
Tax paid in respect of operating
activities (2.3) (1.3)
Net cash from operating activities 65.6 57.5
Investing activities
Acquisition of investment properties (92.4) (130.1)
Capital expenditure on the property
portfolio 7 (113.2) (108.4)
Disposal of investment and trading
properties 114.4 149.7
Disposal of investment in joint
venture 4.9 -
Repayment of loan by joint venture
on disposal 1.9 -
Purchase of property, plant
and equipment (0.3) (0.4)
Advances to non-controlling
interest holder (2.0) (2.5)
REIT conversion charge - (0.6)
Net cash used in investing activities (86.7) (92.3)
Financing activities
Net proceeds of bond issue - 146.2
Repayment of revolving bank
loan - (274.5)
Drawdown of new revolving bank
loan - 280.6
Net movement in revolving bank
loan (38.9) -
Repayment of non-revolving bank
loans - (65.0)
Drawdown of private placement
notes 99.0 -
Financial derivative termination
costs (2.0) (13.7)
Net proceeds of share issues 1.5 0.4
Dividends paid 19 (36.2) (31.1)
Net cash from financing activities 23.4 42.9
Increase in cash and cash equivalents
in the year 2.3 8.1
Cash and cash equivalents at
the beginning of the year 12.5 4.4
Cash and cash equivalents at
the end of the year 20 14.8 12.5
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of preparation
The financial information does not constitute the Group's
statutory accounts for either the year ended 31 December 2014 or
the year ended 31 December 2013, but is derived from those
accounts. The Group's statutory accounts for 2013 have been
delivered to the Registrar of Companies and those for 2014 will be
delivered following the Company's Annual General Meeting. The
Auditor's reports on both the 2013 and 2014 accounts were
unqualified, did not draw attention to any matters by way of an
emphasis and did not contain any statement under Section 498 of the
Companies Act 2006.
The financial statements have been prepared in accordance with
International Financial Reporting Standards, as adopted by the
European Union (IFRS), IFRIC interpretations and with those parts
of the Companies Act 2006 applicable to companies reporting under
IFRS. The financial statements have been prepared under the
historical cost convention as modified by the revaluation of
investment properties, property, plant and equipment, available for
sale investments, and financial assets and liabilities held for
trading.
Going concern
Under Provision C.1.3 of the UK Corporate Governance Code, the
Board needs to report whether the business is a going concern. In
considering this requirement, the Directors have taken into account
the following:
-- The Group's latest rolling forecast for the next two years,
in particular the cash flows, borrowings and undrawn facilities.
Sensitivity analysis is included within these forecasts.
-- The headroom under the Group's financial covenants.
-- The risks included on the Group's risk register that could
impact on the Group's liquidity and solvency over the next 12
months.
-- The risks on the Group's risk register that could be a threat
to the Group's business model and capital adequacy.
In particular the Directors have considered the relatively
long-term and stable nature of the cash flows receivable under the
tenant leases, the Group's loan-to-value ratio of 24%, the interest
cover ratio of 286% and the GBP336m total of undrawn facilities and
cash at 31 December 2014. They have also considered the fact that
after conversion of the 2016 bonds in January 2015 the proforma
average maturity of borrowings was extended to 7.9 years.
The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are described in the Finance
Review. In addition, note 25 includes the Group's risks and risk
management processes.
Having due regard to these matters and after making appropriate
enquiries, the Directors have reasonable expectation that the Group
has adequate resources to continue in operational existence for the
foreseeable future. Therefore, the Board continues to adopt the
going concern basis in preparing these consolidated financial
statements.
2. Changes in accounting policies
The accounting policies used by the Group in these condensed
financial statements are consistent with those applied in its
financial statements for the year to 31 December 2013, as amended
to reflect the adoption of new standards, amendments and
interpretations which became effective in the year as shown
below.
New standards adopted during the year
The following standards, amendments and interpretations endorsed
by the EU were effective for the first time for the Group's 31
December 2014 year end and had no material impact on the financial
statements:
IFRS 10 Consolidated Financial Statements;
IFRS 11 Joint Arrangements;
IFRS 12 Disclosure of Interests in Other Entities;
IAS 27 (revised) - Separate Financial Statements;
IAS 28 (revised) - Investments in Associates and Joint
Ventures;
IAS 32 (amended) - Financial Instruments: Presentation on
Offsetting Financial Assets and Financial Liabilities;
IAS 36 (amended) - Impairment of Assets on Recoverable Amounts
Disclosures for Non-Financial Assets;
IAS 39 (amended) - Financial Instruments: Recognition and
Measurement on Novation of Derivatives and Continuation of Hedge
Accounting; and
IFRIC 21 'Levies'.
Standards and interpretations in issue but not yet effective
The following standards, amendments and interpretations were in
issue at the date of approval of these financial statements but
were not yet effective for the current accounting year and have not
been adopted early. Based on the Group's current circumstances the
Directors do not anticipate that their adoption in future periods
will have a material impact on the financial statements of the
Group.
IFRS 9 Financial Instruments;
IFRS 10 (amended) - Consolidated Financial Statements;
IFRS 11 (amended) - Joint Arrangements;
IFRS 14 Regulatory Deferral Accounts;
IFRS 15 Revenue from Contracts with Customers;
IAS 16 (amended) - Property Plant and Equipment;
IAS 19 (amended) - Employee Benefits;
IAS 27 (amended) - Separate Financial Statements;
IAS 28 (amended) - Investments in Associates and Joint
Ventures;
IAS 38 (amended) - Intangible Assets;
IAS 41 (amended) - Agriculture;
Annual Improvements to IFRSs (2010 - 2012 Cycle);
Annual Improvements to IFRSs (2011 - 2013 Cycle); and
Annual Improvements to IFRSs (2014).
3. 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.
- Property portfolio valuation
- Compliance with the real estate investment trust (REIT)
taxation regime
- Outstanding rent reviews
- Contingent consideration
A full explanation of these policies and their application will
be included in the 2014 financial statements.
4. Segmental information
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 Committee comprising the six executive Directors and four
senior managers) in order to allocate resources to the segments and
to assess their performance.
The internal financial reports received by the Group's Executive
Committee 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 EPRA earnings per share, net
asset value and profit figures. Reconciliations of each of these
figures to their statutory equivalents are detailed in note 22.
Additionally, information is provided to the Executive Committee
showing gross property income and 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 trading property and comprised 93%
office buildings* by value (2013: 93%). The Directors consider that
these properties have similar economic characteristics. Therefore,
these individual properties have been aggregated into a single
operating segment. The remaining 7% (2013: 7%) represented a
mixture of retail, hotel, residential and light industrial
properties, as well as land, each of which is de minimis in its own
right and below the quantitative threshold in aggregate. Therefore,
in the view of the Directors, there is one reportable segment under
the provisions of IFRS 8.
All of the Group's properties are based in the UK. At 31
December 2013, the Group also had a joint venture investment in
Prague which represented 0.1% of the Group's assets and is excluded
from this analysis. This investment was sold in April 2014. No
geographical grouping is contained in any of the internal financial
reports provided to the Group's Executive Committee and, therefore,
no geographical segmental analysis is required by IFRS 8. However,
geographical analysis is included in the tables below to provide
users with additional information regarding the areas contained in
the strategic report. The majority of the Group's properties are
located in London (West End central, West End borders and City
borders), with the remainder in Scotland (Provincial).
*Some office buildings have an ancillary element such as retail
or residential.
Gross property
income
2014 2013
------------------------ ------------------------
Office Office
buildings Other Total buildings Other Total
GBPm GBPm GBPm GBPm GBPm GBPm
West End central 80.5 3.7 84.2 77.0 4.4 81.4
West End borders 13.4 0.3 13.7 13.5 0.2 13.7
City borders 35.6 0.2 35.8 31.4 0.2 31.6
Provincial - 4.7 4.7 - 4.9 4.9
129.5 8.9 138.4 121.9 9.7 131.6
A reconciliation of gross property income to gross
property and other income is given in note 5.
Property portfolio
2014 2013
--------------------------- ---------------------------
Office Office
buildings Other Total buildings Other Total
GBPm GBPm GBPm GBPm GBPm GBPm
Carrying value
West End central 2,289.4 153.2 2,442.6 1,923.9 120.7 2,044.6
West End borders 364.4 15.6 380.0 270.3 13.1 283.4
City borders 1,164.0 5.4 1,169.4 863.4 4.6 868.0
Provincial - 97.8 97.8 - 89.2 89.2
3,817.8 272.0 4,089.8 3,057.6 227.6 3,285.2
Fair value
West End central 2,322.3 159.7 2,482.0 1,953.0 123.5 2,076.5
West End borders 385.2 15.5 400.7 289.9 13.1 303.0
City borders 1,178.0 5.4 1,183.4 875.3 4.6 879.9
Provincial - 102.0 102.0 - 93.7 93.7
3,885.5 282.6 4,168.1 3,118.2 234.9 3,353.1
A reconciliation between the fair value
and carrying value of the portfolio is set
out in note 11.
5. Property and other income
2014 2013
GBPm GBPm
Gross rental income 136.7 130.9
------- -------
Surrender premiums received 0.1 1.6
Write-off of associated rents
previously recognised in advance - (0.9)
------------------------------------ ------- -------
0.1 0.7
Other property income 1.6 -
Gross property income 138.4 131.6
Trading property sales proceeds 15.7 -
Service charge income 24.4 26.9
Other income 2.0 2.0
Gross property and other income 180.5 160.5
Gross rental income 136.7 130.9
Ground rent (0.4) (0.4)
------------------------------------ ------- -------
Service charge income 24.4 26.9
Service charge expenses (25.6) (28.8)
------------------------------------ ------- -------
(1.2) (1.9)
Other property costs (6.4) (6.9)
Net rental income 128.7 121.7
------------------------------------ ------- -------
Trading property sales proceeds 15.7 -
Trading property cost of sales (11.8) -
---------------------------------- ------- -------
Profit on trading property
disposals 3.9 -
Other property income 1.6 -
Other income 2.0 2.0
Net surrender premiums received 0.1 0.7
Reverse surrender premiums (0.4) (0.2)
Dilapidation receipts 0.2 0.1
Net property and other income 136.1 124.3
Included within rental income is GBP1.5m (2013: GBP2.3m) of
income which was derived from a lease at one of the Group's
buildings where an agreement was entered into 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). Additionally, rental income includes GBP7.0m (2013:
GBP5.6m) relating to rents recognised in advance of the cash
receipts.
Other property income relates to rights of light settlements
received during the year, while other income relates to fees and
commissions earned in relation to the management of the Group's
properties and is recognised in the Group income statement in
accordance with the delivery of services.
6. Profit on disposal
2014 2013
GBPm GBPm
Investment property
Gross disposal proceeds 100.6 151.3
Costs of disposal (1.6) (1.5)
Net disposal proceeds 99.0 149.8
Carrying value (70.3) (96.4)
Adjustment for rents recognised
in advance (0.5) (0.7)
Movement in grossing up of headlease
liability - 0.8
Profit on disposal of investment
property 28.2 53.5
Investment in joint venture
Gross disposal proceeds 5.4 -
Costs of disposal (0.5) -
Net disposal proceeds 4.9 -
Carrying value (2.9) -
Profit on disposal of investment
in joint venture 2.0 -
Total profit on disposal 30.2 53.5
In April 2014, the Group disposed of its 25% interest in the
joint venture Euro Mall Sterboholy a.s. in Prague for GBP5.4m
before costs of GBP0.5m. Included within the tax charge is GBP0.9m
relating to this disposal, resulting in a profit on disposal net of
tax of GBP1.1m. At the same time, a loan of GBP1.9m to the joint
venture was repaid. The investment was held within non-current
assets held for sale at 31 December 2013.
Included in the 2013 profit on disposal figure was GBP53.0m
relating to the Group's sale of its 50% interest in 1-5 Grosvenor
Place SW1 in July 2013. The property had a carrying value of
GBP78.4m and was sold for GBP132.5m before costs of GBP1.1m. The
price achieved reflected the special nature of the purchaser
combined with the unique location of this development site.
7. Finance income and costs
2014 2013
GBPm GBPm
Finance income
Other - 0.2
Total finance income - 0.2
Finance costs
Bank loans and overdraft 12.7 17.4
Non-utilisation fees 2.3 2.8
Unsecured convertible bonds 10.4 8.2
Secured bonds 11.4 11.4
Unsecured private placement notes 4.5 -
Secured loan 3.3 3.3
Amortisation of issue and arrangement
costs 3.3 3.2
Amortisation of the fair value
of the secured bonds (0.9) (0.9)
Finance leases 0.5 0.5
Other 0.2 0.3
Gross interest costs 47.7 46.2
Less: finance costs capitalised (5.3) (4.8)
Finance costs 42.4 41.4
Loan arrangement costs written
off - 3.2
Total finance costs 42.4 44.6
Finance costs of GBP5.3m (2013: GBP4.8m) have been capitalised
on development projects, in accordance with IAS 23 Borrowing Costs,
using the Group's average cost of borrowings during each quarter.
Total finance costs paid during 2014 were GBP36.3m (2013: GBP37.1m)
of which GBP5.3m (2013: GBP4.8m) was included in capital
expenditure on the property portfolio in the Group cash flow
statement under investing activities.
As a result of the refinancing of the Group's bank facilities in
September 2013, GBP3.2m of unamortised arrangement costs associated
with the previous facilities repaid were written off to the Group
income statement in 2013. In accordance with EPRA guidance, these
costs have been excluded from EPRA profit and earnings (see note
22).
8. Financial derivative termination costs
The Group incurred costs of GBP2.0m in 2014 deferring the start
dates of two 'forward-start' interest rate swaps with an aggregate
principal amount of GBP135m.
In 2013, the Group terminated, deferred and re-couponed interest
rate swaps with a principal amount of GBP190m at a cost of
GBP12.9m, and incurred costs of GBP0.8m deferring the start date of
an interest rate swap to April 2014 with a principal amount of
GBP65m.
9. Share of results of joint ventures
2014 2013
GBPm GBPm
Revaluation surplus/(deficit) 1.9 (0.3)
Other profit from operations of
joint ventures 0.6 1.1
2.5 0.8
10. Tax charge
2014 2013
GBPm GBPm
Corporation tax
UK corporation tax and income tax
in respect of profit for the year 0.8 0.8
Other adjustments in respect of
prior years' tax - 0.2
Corporation tax charge 0.8 1.0
Deferred tax
Origination and reversal of temporary
differences 3.2 1.3
Adjustment for changes in estimates (0.1) 0.1
Deferred tax charge 3.1 1.4
Tax charge 3.9 2.4
In addition to the tax charge of GBP3.9m (2013: GBP2.4m) that
passed through the Group income statement, a deferred tax charge of
GBP0.9m (2013: GBP0.1m) was recognised in the Group statement of
comprehensive income relating to revaluation of the owner-occupied
property at 25 Savile Row W1.
The effective rate of tax for 2014 is lower (2013: lower) than
the standard rate of corporation tax in the UK. The differences are
explained below:
2014 2013
GBPm GBPm
Profit before tax 753.7 467.9
-------- -------
Expected tax charge based
on the standard rate of
corporation tax in the
UK of 21.50% (2013: 23.25%)* 162.0 108.8
Difference between tax and
accounting profit on disposals (5.1) (15.0)
REIT exempt income (9.8) (11.0)
Revaluation surplus attributable
to REIT properties (143.4) (78.0)
Expenses and fair value adjustments
not allowable for tax purposes 0.9 (1.8)
Capital allowances (3.6) (3.9)
Origination and reversal
of temporary differences 3.2 1.3
Other differences (0.3) 1.8
Tax charge in respect of
profit for the year 3.9 2.2
Adjustments in respect
of prior years' tax - 0.2
3.9 2.4
*The expected tax rate for 2014 has been changed in line with
the 2014 Finance Act.
11. Property portfolio
Total Owner- Assets Total
held
investment occupied for Trading property
Freehold Leasehold property property sale property portfolio
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Carrying value
At 1 January 2014 2,773.2 469.7 3,242.9 19.7 - 22.6 3,285.2
-------------------------- -------- --------- ---------- -------- ------- -------- ---------
Acquisitions 92.2 - 92.2 - - - 92.2
Capital expenditure 80.0 24.1 104.1 0.3 - 12.3 116.7
Interest capitalisation 3.6 1.3 4.9 - - 0.4 5.3
-------------------------- -------- --------- ---------- -------- ------- -------- ---------
Additions 175.8 25.4 201.2 0.3 - 12.7 214.2
Disposals (70.1) (0.2) (70.3) - - (11.3) (81.6)
Revaluation 585.4 81.7 667.1 4.8 - - 671.9
Movement in grossing
up of
headlease liabilities - 0.1 0.1 - - - 0.1
At 31 December
2014 3,464.3 576.7 4,041.0 24.8 - 24.0 4,089.8
At 1 January 2013 2,296.6 476.0 2,772.6 17.9 16.5 - 2,807.0
-------------------------- -------- --------- ---------- -------- ------- -------- ---------
Acquisitions 129.8 (0.5) 129.3 - - - 129.3
Capital expenditure 81.0 18.0 99.0 - - 4.0 103.0
Interest capitalisation 3.8 0.9 4.7 - - 0.1 4.8
-------------------------- -------- --------- ---------- -------- ------- -------- ---------
Additions 214.6 18.4 233.0 - - 4.1 237.1
Disposals (0.6) (79.3) (79.9) - (16.5) - (96.4)
Depreciation - - - (0.1) - - (0.1)
Transfers (18.5) - (18.5) - - 18.5 -
Revaluation 281.1 54.5 335.6 1.9 - - 337.5
Movement in grossing
up of
headlease liabilities - 0.1 0.1 - - - 0.1
At 31 December
2013 2,773.2 469.7 3,242.9 19.7 - 22.6 3,285.2
Adjustments from fair value
to carrying value
At 31 December
2014
Fair value 3,541.6 572.6 4,114.2 24.8 - 29.1 4,168.1
Revaluation of
trading property - - - - - (5.1) (5.1)
Lease incentives
and costs
included in receivables (77.3) (4.2) (81.5) - - - (81.5)
Grossing up of
headlease liabilities - 8.3 8.3 - - - 8.3
Carrying value 3,464.3 576.7 4,041.0 24.8 - 24.0 4,089.8
At 31 December
2013
Fair value 2,843.1 465.6 3,308.7 19.7 - 24.7 3,353.1
Revaluation of
trading property - - - - - (2.1) (2.1)
Lease incentives
and costs
included in receivables (69.9) (4.1) (74.0) - - - (74.0)
Grossing up of
headlease liabilities - 8.2 8.2 - - - 8.2
Carrying value 2,773.2 469.7 3,242.9 19.7 - 22.6 3,285.2
The property portfolio is subject to semi-annual external
valuations and was revalued at 31 December 2014 by external valuers
on the basis of fair value in accordance with the RICS Valuation -
Professional Standards January 2014, which takes account of the
properties' highest and best use. When considering the highest and
best use of a property, the external valuers will consider its
existing and potential uses which are physically, legally and
financially viable. Where the highest and best use differs from the
existing use, the external valuers will consider the costs and the
likelihood of achieving and implementing this change in arriving at
the property valuation.
CBRE Limited valued properties at GBP4,135.2m (2013:
GBP3,322.8m) and other valuers at GBP32.9m (2013: GBP30.3m). Of the
properties revalued by CBRE, GBP24.8m (2013: GBP19.7m) relating to
owner-occupied property was included within property, plant and
equipment and GBP29.1m (2013: GBP24.7m) was in relation to trading
property.
The total fees, including the fee for this assignment, earned by
CBRE (or other companies forming part of the same group of
companies within the UK) from the Group is less than 5.0% of their
total UK revenues.
During the year ended 31 December 2013, the Group transferred,
at market value, properties previously held for investment to
trading property as it became the Group's intention to redevelop
and sell these properties. Subsequent revaluation surpluses
relating to trading property are recognised as an adjustment to
EPRA net asset value, but, in accordance with IAS 2 Inventories,
are not recognised in the carrying value of the property.
Reconciliation of revaluation surplus
2014 2013
GBPm GBPm
Total revaluation surplus 683.8 352.5
Lease incentives and costs (8.0) (13.0)
Trading property revaluation surplus (3.9) (2.1)
Owner-occupied property depreciation - 0.1
IFRS revaluation surplus 671.9 337.5
Reported in the:
Group income statement 667.1 335.6
Group statement of comprehensive
income 4.8 1.9
671.9 337.5
Historic cost
2014 2013
GBPm GBPm
Investment property 2,534.4 2,385.3
Owner-occupied property 7.6 7.3
Trading property 23.4 22.0
Total property portfolio 2,565.4 2,414.6
12. Property, plant and equipment
Owner-
occupied
property Artwork Other Total
GBPm GBPm GBPm GBPm
At 1 January 2014 19.7 1.5 1.0 22.2
Additions 0.3 - 0.2 0.5
Depreciation - - (0.3) (0.3)
Revaluation 4.8 - - 4.8
At 31 December
2014 24.8 1.5 0.9 27.2
At 1 January 2013 17.9 1.5 0.9 20.3
Additions - - 0.5 0.5
Disposals - - (0.1) (0.1)
Depreciation (0.1) - (0.3) (0.4)
Revaluation 1.9 - - 1.9
At 31 December
2013 19.7 1.5 1.0 22.2
Net book value
Cost or valuation 24.8 1.5 2.6 28.9
Accumulated depreciation - - (1.7) (1.7)
At 31 December
2014 24.8 1.5 0.9 27.2
Net book value
Cost or valuation 19.7 1.5 2.5 23.7
Accumulated depreciation - - (1.5) (1.5)
At 31 December
2013 19.7 1.5 1.0 22.2
The artwork is periodically valued by Bonhams on the basis of
fair value using their extensive market knowledge. The latest
valuation was carried out in December 2014. In accordance with IFRS
13 Fair Value Measurement, the artwork is deemed to be classified
as Level 3.
The historic cost of the artwork in the Group at 31 December
2014 was GBP1.5m (2013: GBP1.5m). See note 11 for the historic cost
of owner-occupied property and IFRS 13 Fair Value Measurement
disclosures.
13. Other receivables (non-current)
2014 2013
GBPm GBPm
Accrued income 73.2 66.4
Other 5.7 5.7
78.9 72.1
Accrued income relates to rents recognised in advance as a
result of spreading the effect of rent free and reduced rent
periods, capital contributions in lieu of rent free periods and
contracted rent uplifts, as well as the initial direct costs of the
letting, over the expected terms of their respective leases.
Together with GBP8.3m (2013: GBP7.6m), which was included as
current assets within trade and other receivables, these amounts
totalled GBP81.5m at 31 December 2014 (2013: GBP74.0m).
14. Trade and other receivables
2014 2013
GBPm GBPm
Trade receivables 4.5 11.2
Other receivables 2.4 15.4
Prepayments 15.7 15.2
Sales and social security
taxes - 3.3
Accrued income 9.4 8.4
32.0 53.5
15. Non-current assets held for sale
2014 2013
GBPm GBPm
Investments - 4.8
- 4.8
In February 2014, the Group conditionally exchanged contracts to
sell its 25% interest in the Euro Mall Sterboholy a.s. joint
venture in Prague for GBP5.4m before costs. In addition, as part of
the transaction, a further GBP1.9m was received as repayment of a
shareholder loan.
As a result, this investment was recognised as non-current
assets held for sale at 31 December 2013, in accordance with IFRS 5
Non-current Assets Held for Sale.
16. Trade and other payables
2014 2013
GBPm GBPm
Trade payables 2.2 8.9
Other payables 12.8 10.5
Sales and social security
taxes 4.2 -
Accruals 37.4 28.1
Deferred income 33.2 36.1
89.8 83.6
17. Borrowings and derivative financial instruments
2014 2013
------------------ -----------------
Book Fair Book Fair
value value value value
GBPm GBPm GBPm GBPm
Current liabilities
2.75% unsecured convertible
bonds 2016 170.5 234.4 - -
170.5 234.4 - -
Non-current liabilities
2.75% unsecured convertible
bonds 2016 - - 167.7 204.5
1.125% unsecured convertible
bonds 2019 137.5 154.5 135.0 138.1
6.5% secured bonds 2026 189.8 227.4 190.6 199.0
4.41% unsecured private
placement notes 2029 24.7 27.6 - -
4.68% unsecured private
placement notes 2034 74.2 83.5 - -
3.99% secured loan 2024 81.9 84.1 81.8 74.3
Unsecured bank loan 243.7 249.0 281.1 287.0
Secured bank loans 97.5 98.0 97.3 98.0
Leasehold liabilities 8.3 8.3 8.2 8.2
857.6 932.4 961.7 1,009.1
Borrowings 1,028.1 1,166.8 961.7 1,009.1
Derivative financial instruments
expiring in
greater than one year 25.2 25.2 15.9 15.9
Borrowings and derivative
financial instruments 1,053.3 1,192.0 977.6 1,025.0
Reconciliation to net debt:
Borrowings and derivative
financial instruments 1,053.3 977.6
Less:
Derivative financial
instruments (25.2) (15.9)
Cash and cash equivalents (14.8) (12.5)
Net debt 1,013.3 949.2
In December 2014, the Group issued a notice for the early
redemption of the 2.75% unsecured convertible bonds 2016 prior to
30 January 2015. All the bonds converted after the year end into
new ordinary shares of 5p each and were subsequently cancelled. The
bonds have therefore been included in current liabilities at 31
December 2014. See note 21 for further details.
The fair values of the Group's bonds have been estimated on the
basis of quoted market prices, representing Level 1 fair value
measurement as defined by IFRS 13 Fair Value Measurement.
The fair values of the 3.99% secured loan and the unsecured
private placement notes were determined by comparing the discounted
future cash flows using the contracted yield with those of the
reference gilts plus the implied margins, and represent Level 2
fair value measurement.
The fair values of the Group's outstanding interest rate swaps
have been estimated by using the mid-point of the yield curves
prevailing on the reporting date and represent the net present
value of the differences between the contracted rate and the
valuation rate when applied to the projected balances for the
period from the reporting date to the contracted expiry dates.
These represent Level 2 fair value measurement.
The fair values of the Group's bank loans are approximately the
same as their carrying amount, after adjusting for the unamortised
arrangement fees, and also represent Level 2 fair value
measurement.
The fair values of the following financial assets and
liabilities are the same as their carrying amounts:
-- Cash and cash equivalents;
-- Trade receivables, other receivables and accrued income
included within trade and other receivables;
-- Trade payables, other payables and accruals included within trade and other payables; and
-- Leasehold liabilities.
There have been no transfers between Level 1 and Level 2 or
Level 2 and Level 3 in either 2014 or 2013.
18. Deferred tax
Revaluation
surplus Other Total
GBPm GBPm GBPm
At 1 January 2014 5.5 (4.5) 1.0
Charged to the income statement 1.0 2.2 3.2
Change in tax rates in
the income statement (0.2) 0.1 (0.1)
Charged to other comprehensive
income 0.9 - 0.9
At 31 December 2014 7.2 (2.2) 5.0
At 1 January 2013 4.1 (4.6) (0.5)
Charged/(credited) to the income
statement 1.6 (0.3) 1.3
Change in tax rates in the
income statement (0.3) 0.4 0.1
Charged to other comprehensive
income 0.2 - 0.2
Change in tax rates in other
comprehensive income (0.1) - (0.1)
At 31 December 2013 5.5 (4.5) 1.0
Deferred tax on the revaluation surplus is calculated on the
basis of the chargeable gains that would crystallise on the sale of
the property portfolio at each balance sheet date. The calculation
takes account of any available indexation on the historic cost of
the properties. Due to the Group's REIT status, deferred tax is
only provided at each balance sheet date on properties outside the
REIT regime.
Deferred tax assets have been recognised in respect of all tax
losses and other temporary differences where the Directors believe
it is probable that these assets will be recovered.
19. Dividends
Dividend per
share
-----------------------
Payment PID Non-PID Total 2014 2013
date p p p GBPm GBPm
Current year
12 June
2014 final dividend 2015 22.35 5.65 28.00 - -
23 October
2014 interim dividend 2014 7.30 4.35 11.65 12.0 -
------ ------- ------
Distribution of
current year profit 29.65 10.00 39.65
Prior year
13 June
2013 final dividend 2014 23.50 2.25 25.75 26.4 -
24 October
2013 interim dividend 2013 6.00 4.75 10.75 - 10.9
------ ------- ------
Distribution of
prior year profit 29.50 7.00 36.50
14 June
2012 final dividend 2013 18.75 5.00 23.75 - 24.3
------ ------- ------ ------ ------
Dividends as reported
in the
Group statement
of changes in equity 38.4 35.2
------ ------
2014 interim dividend 14 January (1.0) -
withholding tax 2015
2014 interim scrip 23 October (1.0) -
dividend 2014
2013 final scrip 13 June (1.1) -
dividend 2014
2013 interim dividend 14 January
withholding tax 2014 0.9 (0.9)
2013 interim scrip 24 October
dividend 2013 - (1.2)
2012 final scrip 14 June
dividend 2013 - (3.5)
2012 interim dividend 14 January
withholding tax 2013 - 1.5
------ ------
Dividends paid
as reported in
the
Group cash flow
statement 36.2 31.1
------ ------
20. Cash and cash equivalents
2014 2013
GBPm GBPm
Cash at bank 14.8 12.5
21. Post balance sheet events
In February 2015, the Group unconditionally exchanged a contract
to acquire a minimum 175-year long leasehold of 20 Farringdon Road
EC1. In return the Group has disposed of two properties, 22
Kingsway WC2 for GBP64.5m and Mark Square House EC2 for GBP32.1m,
plus a 50% interest in a newly formed joint venture at 9 and 16
Prescot Street E1. The price of the acquisition was GBP88.0m before
costs and the combined disposal proceeds were GBP115.3m. The
properties disposed of by the Group have not been included in
non-current assets held for sale as management was not committed to
a plan to sell them at 31 December 2014.
Further to the announcement made in December 2014 for early
redemption of the 2.75% unsecured convertible bonds 2016, the Group
received notices from 100% of the bondholders in January 2015
confirming that they would be taking up their options to convert in
full. This subsequently led to the cancellation of the bonds and
the issue of 7,875,776 new 5p ordinary shares.
22. EPRA performance measures
Number of shares
Earnings per Net asset
share value per
share
Weighted average At 31 December
------------------- ------------------
2014 2013 2014 2013
'000 '000 '000 '000
For use in basic measures 102,658 102,284 102,785 102,478
Dilutive effect of
convertible bonds 12,373 9,848 7,876 7,876
Dilutive effect of
share-based payments 456 486 477 500
For use in measures for
which bond conversion is
dilutive 115,487 112,618 111,138 110,854
Less dilutive effect of
convertible bonds (12,373) (9,848) (7,876) (7,876)
For use in other diluted
measures 103,114 102,770 103,262 102,978
The GBP175m unsecured convertible bonds 2016 ('2016 bonds') and
GBP150m unsecured convertible bonds 2019 ('2019 bonds') have
initial conversion prices set at GBP22.22 and GBP33.35,
respectively. In accordance with IAS 33 Earnings per Share, the
effect of the conversion of the bonds is required to be recognised
if they are dilutive, and not recognised if they are
anti-dilutive.
For 2014 and 2013, the shares attributable to the conversion of
the 2016 bonds were dilutive for net asset value (NAV) and EPRA NAV
per share and unadjusted earnings per share but anti-dilutive for
EPRA earnings per share.
For 2014 and 2013, the shares attributable to the conversion of
the 2019 bonds were dilutive for unadjusted earnings per share but
anti-dilutive for EPRA earnings per share and all NAV per share
measures.
For consistency purposes, the Group has adopted the same
approach for dilution due to convertible bonds for the calculation
of EPRA triple NAV per share as EPRA NAV per share.
The following tables set out reconciliations between the IFRS
and EPRA figures for profit before tax, profit for the year and
earnings per share. The adjustments made between the figures are as
follows:
A - Disposal of investment property and investment in joint
venture and associated tax and non-controlling interest
B - Revaluation surplus/(deficit) on investment property and in
joint ventures and associated deferred tax and non-controlling
interest
C - Fair value movement and termination costs relating to
derivative financial instruments and associated non-controlling
interest
D - Loan arrangement costs written off, movement in the
valuation of cash-settled options and the dilutive effect of
convertible bonds
Profit before tax and
earnings per share
Adjustments
-----------------------------------
IFRS A B C D EPRA
GBPm GBPm GBPm GBPm GBPm GBPm
Year ended 31 December
2014
Net property and other
income 136.1 (3.9) - - - 132.2
Total administrative
expenses (28.4) - - - 0.3 (28.1)
Revaluation surplus 667.1 - (667.1) - - -
Profit on disposal of
investment property 28.2 (28.2) - - - -
Profit on disposal of
investment 2.0 (2.0) - - - -
Net finance costs (42.4) - - - - (42.4)
Movement in fair value
of derivative
financial instruments (9.4) - - 9.4 - -
Financial derivative
termination costs (2.0) - - 2.0 - -
Share of results of
joint ventures 2.5 - (1.9) - - 0.6
Profit before tax 753.7 (34.1) (669.0) 11.4 0.3 62.3
Tax charge (3.9) 1.0 1.2 - - (1.7)
Profit for the year 749.8 (33.1) (667.8) 11.4 0.3 60.6
Non-controlling interest (12.1) - 10.4 (0.3) - (2.0)
Profit for the year
attributable to
equity shareholders 737.7 (33.1) (657.4) 11.1 0.3 58.6
Interest effect of dilutive
convertible bonds 10.4 - - - (10.4) -
Diluted earnings 748.1 (33.1) (657.4) 11.1 (10.1) 58.6
Earnings per share 718.60p 57.08p
Diluted earnings per
share 647.78p 56.83p
Adjustments
-----------------------------------
IFRS A B C D EPRA
GBPm GBPm GBPm GBPm GBPm GBPm
Year ended 31 December
2013
Net property and other
income 124.3 - - - - 124.3
Total administrative
expenses (26.7) - - - 0.3 (26.4)
Revaluation surplus 335.6 - (335.6) - - -
Profit on disposal of
investment property 53.5 (53.5) - - - -
Net finance costs (44.4) - - - 3.2 (41.2)
Movement in fair value
of derivative
financial instruments 38.5 - - (38.5) - -
Financial derivative
termination costs (13.7) - - 13.7 - -
Share of results of
joint ventures 0.8 - 0.3 - - 1.1
Profit before tax 467.9 (53.5) (335.3) (24.8) 3.5 57.8
Tax charge (2.4) - 1.3 - - (1.1)
Profit for the year 465.5 (53.5) (334.0) (24.8) 3.5 56.7
Non-controlling interest (8.9) 0.1 6.2 1.0 - (1.6)
Profit for the year
attributable to
equity shareholders 456.6 (53.4) (327.8) (23.8) 3.5 55.1
Interest effect of dilutive
convertible bonds 8.2 - - - (8.2) -
Diluted earnings 464.8 (53.4) (327.8) (23.8) (4.7) 55.1
Earnings per share 446.40p 53.87p
Diluted earnings per
share 412.72p 53.61p
Net asset value and net asset value
per share
Undiluted Diluted
GBPm p p
At 31 December 2014
Net assets attributable to equity
shareholders - diluted 3,182.7 2,864
Remove conversion of 2.75% unsecured
convertible bonds 2016 (170.5)
Net assets attributable to equity
shareholders - undiluted 3,012.2 2,931
Adjustment for:
Revaluation of trading properties
net of tax 4.1
Deferred tax on revaluation surplus 7.2
Fair value of derivative financial
instruments 25.2
Fair value adjustment to secured
bonds 16.0
Non-controlling interest in respect
of the above (3.2)
EPRA net asset value - undiluted 3,061.5 2,979
Adjustment for:
Potential conversion of 2.75%
unsecured convertible bonds 2016 170.5
EPRA net asset value - diluted 3,232.0 2,908
Adjustment for:
Deferred tax on revaluation surplus (7.2)
Fair value of derivative financial
instruments (25.2)
Mark-to-market of 1.125% unsecured
convertible bonds 2019 (14.2)
Mark-to-market of secured bonds (52.4)
Mark-to-market of fixed rate secured
loan (1.1)
Mark-to-market of fixed rate unsecured
private placement notes (11.1)
Unamortised issue and arrangement
costs (11.9)
Non-controlling interest in respect
of the above 3.2
EPRA triple net asset value - diluted 3,112.1 2,800
Adjustment for 2.75% unsecured
convertible bonds 2016:
Remove conversion of bonds (170.5)
Unamortised issue and arrangement
costs (1.4)
Mark-to-market of bonds (62.5)
EPRA triple net asset value - undiluted 2,877.7 2,800
At 31 December 2013
Net assets attributable to equity
shareholders - diluted 2,471.7 2,230
Remove conversion of 2.75% unsecured
convertible bonds 2016 (167.7)
Net assets attributable to equity
shareholders - undiluted 2,304.0 2,248
Adjustment for:
Revaluation of trading properties
net of tax 2.1
Deferred tax on revaluation surplus 5.5
Fair value of derivative financial
instruments 15.9
Fair value adjustment to secured
bonds 16.9
Non-controlling interest in respect
of the above (2.2)
EPRA net asset value - undiluted 2,342.2 2,286
Adjustment for:
Potential conversion of 2.75%
unsecured convertible bonds 2016 167.7
EPRA net asset value - diluted 2,509.9 2,264
Adjustment for:
Deferred tax on revaluation surplus (5.5)
Fair value of derivative financial
instruments (15.9)
Mark-to-market of 1.125% unsecured
convertible bonds 2019 0.1
Mark-to-market of secured bonds (24.0)
Mark-to-market of fixed rate secured
loan 8.7
Unamortised issue and arrangement
costs (12.3)
Non-controlling interest in respect
of the above 2.2
EPRA triple net asset value - diluted 2,463.2 2,222
Adjustment for 2.75% unsecured
convertible bonds 2016:
Remove conversion of bonds (167.7)
Unamortised issue and arrangement
costs (2.3)
Mark-to-market of bonds (34.5)
EPRA triple net asset value - undiluted 2,258.7 2,204
Cost ratios
2014 2013
GBPm GBPm
Administrative expenses 28.1 26.4
Other property costs 6.4 6.9
Dilapidation receipts (0.2) (0.1)
Net service charge costs 1.2 1.9
Service charge costs recovered
through rents but not separately
invoiced (0.5) (0.3)
Management fees received less estimated
profit element (2.0) (2.0)
Share of joint ventures' expenses 0.1 0.4
EPRA costs (including direct vacancy
costs) (A) 33.1 33.2
Direct vacancy costs (1.8) (3.4)
EPRA costs (excluding direct vacancy
costs) (B) 31.3 29.8
Gross rental income 136.7 130.9
Ground rent (0.4) (0.4)
Service charge components of rental
income (0.5) (0.3)
Share of joint ventures' rental
income less ground rent 0.8 1.9
Adjusted gross rental income (C) 136.6 132.1
EPRA cost ratio (including direct
vacancy costs) (A/C) 24.2% 25.1%
EPRA cost ratio (excluding direct
vacancy costs) (B/C) 22.9% 22.6%
In addition to the two EPRA cost ratios, the Group
has calculated an additional cost ratio based
on its property portfolio fair value to recognise
the 'total return' nature of the Group's activities.
Property portfolio at fair value
(D) 4,168.1 3,353.1
Portfolio cost ratio (A/D) 0.8% 1.0%
The Group has not capitalised any overhead or operating expenses
in either 2014 or 2013.
23. Gearing and interest cover
NAV gearing
2014 2013
GBPm GBPm
Net debt 1,013.3 949.2
Net assets 3,075.7 2,370.5
NAV gearing 32.9% 40.0%
Loan-to-value ratio
2014 2013
GBPm GBPm
Net debt 1,013.3 949.2
Fair value adjustment of secured
bonds (16.0) (16.9)
Unamortised issue and arrangement
costs 13.3 14.6
Leasehold liabilities (8.3) (8.2)
Drawn debt net of cash 1,002.3 938.7
Fair value of property portfolio 4,168.1 3,353.1
Loan-to-value ratio 24.0% 28.0%
Net interest cover ratio
2014 2013
GBPm GBPm
Net property and other income 136.1 124.3
Adjustments for:
Other income (2.0) (2.0)
Other property income (1.6) -
Net surrender premiums
received (0.1) (0.7)
Profit on disposal of
trading properties (3.9) -
Reverse surrender premiums 0.4 0.2
Adjusted net property income 128.9 121.8
Finance income - (0.2)
Finance costs 42.4 41.4
42.4 41.2
Adjustments for:
Finance income - 0.2
Other finance costs (0.2) (0.3)
Amortisation of fair value
adjustment to secured bonds 0.9 0.9
Amortisation of issue and
arrangement costs (3.3) (3.2)
Finance costs capitalised 5.3 4.8
45.1 43.6
Net interest cover ratio 286% 279%
24. Total return
2014 2013
p p
EPRA net asset value
on a diluted basis
At end of year 2,908.00 2,264.00
At start of year (2,264.00) (1,886.00)
Increase 644.00 378.00
Dividend per share 37.40 34.50
Increase including dividend 681.40 412.50
Total return 30.1% 21.9%
25. Risk management and internal control
Derwent London aims to deliver above average long term returns
to shareholders whilst operating within an acceptable risk
envelope. The Board recognises that there are inherent risks in
running any business and that to ensure that the Group's risk
appetite is not exceeded, a system of risk management is required
that ensures these risks are identified, understood and
managed.
Overall responsibility for risk management rests with the Board
which has delegated responsibility for assurance concerning the
process to the Audit Committee and the Risk Committee. Executive
management is responsible for designing, implementing, maintaining
and evaluating the necessary systems of internal control.
The Group operates principally from one central London office
with relatively short management reporting lines. Consequently,
members of the Executive Committee are closely involved in
day-to-day matters and able to identify areas of increasing risk
quickly and respond accordingly.
The third party review of the Group's risk management process
undertaken at the end of 2013 resulted in a phased programme of
improvements. Those that were applicable to the preparation and
reporting of the Group's risk register were introduced during the
2013 review of the register and were further refined during the
2014 review which was undertaken during September, October and
November 2014.
The review also made further recommendations concerning the
documentation of the Group's risk management process and,
accordingly, during the year a Group Risk Appetite Statement, a
Risk Management Policy document and a Risk Management Process
document have been prepared by the Executive Committee and approved
by the Risk Committee.
The Group's risk register continues to be the core element of
the risk management process. The register is prepared by the
Executive Committee which initially identifies the risks facing the
Group and then collectively assesses the likelihood of each risk,
the impact on the Group over different aspects of the business and
the strength of the controls operating over the risk. This approach
allows the effect of any mitigating procedures to be reflected in
the final assessment. It also recognises that risk cannot be
totally eliminated at an acceptable cost and that there are some
risks which, with its experience, the Board will, after due
consideration, choose to accept. The register, its method of
preparation and the operation of the key controls in the Group's
system of internal control have been reviewed by the Risk
Committee. In order to gain a more comprehensive understanding of
the risk management process and how it applies to particular parts
of the Group's business, the Risk Committee periodically receives
presentations from senior managers.
In response to the 2014 update to the UK Corporate Governance
Code, the Group has revised its procedures to ensure that the
necessary monitoring of risks and controls will be carried out
throughout 2015.
The current risk register includes 46 risks spread between
strategic risks, operational risks and financial risks.
The principal risks and uncertainties faced by the Group in
2015, together with the potential effects, controls and mitigating
factors, are set out on the following pages.
Strategic risks
That the Group's strategy does not create the
anticipated shareholder value or fails to meet
investors' expectations.
Risk, effect and Controls and mitigation Action
progression
* Inconsistent strategy
* The Group carries out a five-year strategic review * The last annual strategic review was carried out by
each year and also prepares an annual budget and the Board in June 2014. This considered the
The Group's strategy three rolling forecasts which cover the next two sensitivity of six key measures to changes in
is inconsistent years. In the course of preparing these documents the underlying assumptions including interest rates and
with the state Board considers the effect on the Group's KPIs and borrowing margins, timing of projects, level of
of the market key ratios of changes to the main underlying capital expenditure and the extent of capital
in which it operates. assumptions reflecting different economic scenarios. recycling.
* Inconsistent development programme
* The Group's plans can then be set so as to best * The three rolling forecasts prepared during the year
realise its long-term strategic goals given the focus on the same key measures but may consider the
expected economic and market conditions. This effect of varying different assumptions to reflect
The Group's development flexibility is largely due to the Group's policy of changing economic and market conditions.
programme is not maintaining income from properties for as long as
consistent with possible until development starts.
the economic cycle.
* The timing of the Group's development programme and
The Group continues the strategies for individual properties reflect the
to benefit from * The level of future redevelopment opportunities outcome of these considerations.
a strong central identified in the Group's portfolio enables the Board
London market. to delay marginal projects until market conditions
However, this are favourable.
could be adversely * Over 50% of the Group's portfolio has been identified
affected by a for future redevelopment.
number of high * The Board pays particular attention, when setting its
level economic plans, to maintaining sufficient headroom in all the
factors which Group's key ratios, financial covenants and interest
would reduce the cover. * During the year the Group's loan-to-value ratio
value of the Group's remained below 28%, its net interest cover ratio was
portfolio with above 275% and the REIT ratios were comfortably met.
a consequent effect
on two of its
KPIs - Total Return
and Total Property
Return.
The Board sees
the level of these
risks as slightly
higher than last
year.
* Shortage of future developments A lack of suitable
development opportunities leads to the Group paying a
price that results in lower future returns. This * The development opportunities within the Group's * Over 50% of the Group's portfolio has been identified
would affect the Group's Total Return and Total portfolio enable the Board to defer acquisitions for future redevelopment.
Property Return KPIs. until more properties become available at an
appropriate price level.
* The Group made principal acquisitions of GBP90.9m
which enhance its holdings in two "villages". It has
The level of risk also acquired a major new property through a property
has increased * The scale of the central London property market means 'swap', in 2015.
from last year. that suitable properties should always be available.
* Regulatory non-compliance
The Group's cost * A Health and Safety report is presented at all
base is increased Executive Committee and main Board meetings.
and management * The Group's Risk Committee reports to the Board
time diverted concerning regulatory risk.
through a breach
of any of the * The Executive Committee receives regular reports from
legislation that * The Group employs a Health and Safety Manager who the Sustainability Manager.
forms the regulatory reports to the Board.
framework within
which the Group
operates. * The Group employs a Sustainability Manager who * The Group pays considerable attention to
An increase in reports to the sustainability committee which is sustainability issues and produces an annual
costs would directly chaired by Paul Williams. sustainability report.
impact on the
Group's Total
Return KPI. A * The Company's policies including those on the Bribery * The Group has reviewed and revised its whistleblowing
significant diversion Act, Health and Safety, Equal Opportunities, policy during the year
of management Harassment and Whistleblowing are available to all
time could affect staff on the Company intranet.
a wider range
of key metrics. * The Group employs a Head of Investor and Corporate
* Members of staff attend external briefings in order Communications and retains the services of an
This risk has to remain cognisant of regulatory changes. external PR agency. Both maintain regular contact
increased marginally with external media sources.
due to the increased
scale of the Group's
development activity
and the associated * All new members of staff benefit from an induction * The Company engages with a number of local community
increase in Health programme and are issued with the Group's Staff bodies in areas where it operates as part of its CSR
and Safety risks. Handbook. activity.
* Social media channels are monitored by the Group's
investor relations department.
* Reputational damage * The Group takes advice on technological changes in
the use of media and adapts its approach accordingly.
The Group's reputation * There is an agreed procedure for approving all
is damaged through external statements.
unauthorised and
inaccurate media
coverage.
This risk would
most directly
impact on the
Group's Total
Shareholder Return
- one of its key
metrics. Indirectly
it could impact
on a number of
the formal KPIs.
The Board considers
the risk to be
broadly the same
as last year.
Financial risks
That the Group becomes unable to meet its financial
obligations or finance the business appropriately.
Risk, effect and Controls and mitigation Action
progression
* Increase in property yields
* The impact of such changes on the Group's financial * The Group produces three rolling forecasts each year
covenants and performance are monitored regularly and which contain detailed sensitivity analyses.
Increases in interest are subject to sensitivity analysis to ensure that
rates can lead adequate headroom is preserved.
to higher property * Quarterly management accounts report on the Group's
yields which would performance against covenants.
cause property * The management of the Group's financial covenants has
values to fall. been simplified by changes to its financing profile
over the last two years. * Project appraisals are regularly reviewed and
This would affect updated.
the following
KPI's: * The impact of yield changes is considered when
potential projects are appraised.
o Loan-to-Value
Ratio.
o Total Return.
o Total Property
Return.
Interest rates
have remained
low for an extended
period of time
and yields have
decreased during
the year. Interest
rates are expected
to rise within
the next two years.
Though there is
no direct relationship,
this may cause
property yields
to increase in
due course and
therefore the
Board considers
this risk to have
increased during
the year due to
further recent
reductions in
yields.
Operational risks
The Group suffers either a financial loss or
other adverse consequences due to processes being
inadequate or not operating correctly.
Risk, effect and Controls and Action
progression mitigation
* Reduced development returns * Standardised appraisals which include contingencies * The Group is advised by leading planning consultants
are prepared for all investments and sensitivity and has considerable in-house planning expertise.
analysis is undertaken to ensure that an adequate
return is made in all circumstances considered likely
The Group's development to occur.
projects do not * Executive Directors represent the Group on a number
produce the anticipated of local bodies which ensures that it remains aware
financial return * The scale of the Group's development programme is of local issues.
due to one or managed to reflect anticipated market conditions.
more of the following
factors:
* Regular cost reports are produced for the Executive * The procurement process used by the Group includes
Committee and the Board that monitor progress of the use of highly regarded firms of quantity
o delays in the actual expenditure against budget and timetable. This surveyors and is designed to minimise uncertainty
planning process allows potential adverse variances to be identified regarding costs.
o delays due to and addressed at an early stage.
contractors/ sub-contractors
defaulting
o increased construction * The Group uses contractors/ sub-contractors that it * Development costs are benchmarked to ensure that the
costs has previously worked with successfully whenever Group obtains competitive pricing.
o adverse letting possible.
conditions.
This would have * Post completion reviews are carried out for all major * The Group's style of accommodation remains in demand
an effect on the developments to ensure that improvements to the as evidenced by the 60 lettings achieved in 2014
Group's Total Group's procedures can be identified and implemented. which totalled 188,319 sq ft.
Return and Total
Property Return
KPIs. * Alternative procurement methods are evaluated as a
way of minimising the impact of increased * The Group has often secured significant pre-lets of
The Board considers construction costs. the space in its development programme which
this risk to have significantly "de-risks" those projects.
remained broadly
the same over
the last year.
* The Group's cost committee meets on a weekly basis to
consider new budget requests or amendments.
* Inefficient systems * The Group's IT department has been expanded over the * The IT department consists of three people.
last two years to improve the Group's ability to
develop its systems.
The Group's systems * The IT steering group met 5 times during the year.
and in particular * A steering group has been established from all parts
its IT infrastructure of the business to identify and prioritise
are not developed requirements.
quickly enough * The IT manager attends meetings with representatives
to support the from similar companies in order to share knowledge.
business as it * The proximity of members of the Executive Committee
changes and grows to the day-to-day operations helps identify IT
or new systems requirements.
are not implemented * External consultants are used to assist with the
effectively. implementation of most new systems.
* System improvements are considered as part of the
This would lead five year strategic review.
to increased costs
or reduced returns
which would affect
the Group's Total
Return KPI.
Due to the expansion
of the Group and
increases in the
rate of change
in IT, this risk
is considered
to have risen
over the year.
* Business interruption * The Group's IT systems are protected by anti-virus * Internal and external penetration tests are regularly
software and firewalls which are continually updated. conducted to assess the effectiveness of the
firewalls.
The Group suffers * The offsite back-up IT infrastructure has been
either a successful tested. * A staff awareness programme has been rolled out to
cyber-attack or alert staff to the techniques that may be used to
disaster that gain unauthorised access to the Group's systems.
results in it * A "disaster recovery" suite has been established.
being unable to
use its IT systems.
* The Group's Business Continuity Plan is being
reviewed and updated by external consultants.
This would lead
to an increase
in cost and a
diversion of management
time. Increased
costs would have
an impact on the
Group's Total
Return KPI whilst
a significant
diversion of management
time would have
a wider effect.
Due to the Group's
increased dependence
on IT systems,
this risk is seen
to have increased
over the year.
* Tenant default * The Group has a diversified tenant base.
* All prospective tenants are considered by the Group's
Credit Committee and security is taken where
appropriate either in the form of parent company
The Group suffers guarantees or rent deposits. * The Credit Committee meets each week and considered
a loss of rental 113 potential lettings during the year.
income and increased
vacant property * The Group's property managers maintain regular
costs due to tenants contact with tenants and work closely with any that
vacating or becoming are facing financial difficulties. * In total the Group holds rental deposits amounting to
bankrupt. GBP10.6m.
This risk would
have an immediate * The Group's Credit Committee regularly reviews a list
effect on the of slow payers and considers what actions should be * On average, the Group has collected 99% of the rents
Group's Tenant taken. due within 14 days of the due date.
Receipts and Void
Management KPIs
and, if significant,
on the Total Property * The Board regularly considers the merits of tenant
Return, Total default insurance.
Return and Interest
Cover Ratio.
The Board considers
this risk to have
marginally decreased
over the last
year.
* Shortage of key staff * The Group recruited 11 new members of staff during
* The remuneration packages of all employees are 2014.
bench-marked regularly.
The Group is unable * Staff turnover during 2014 was low at 8%.
to successfully * Six-monthly appraisals identify training requirements
implement its which are fulfilled over the next six months.
strategy due to
a failure to recruit
and retain key * The Nominations Committee consider succession matters
staff with appropriate as a standing agenda item.
skills.
This risk could * Requirements for senior management succession are
impact on any considered as part of the five year strategic review.
or all of the
Group's KPIs.
The risk is seen
to have marginally
increased over
the year.
Financial instruments - risk management
The Group is exposed through its operations to the following
financial risks:
-- credit risk;
-- market 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 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 years.
Principal financial instruments
The principal financial instruments used by the Group, from
which financial instrument risk arises, are trade receivables, cash
at bank, trade and other payables, floating rate bank loans, fixed
rate loans and private placement notes, 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 to executive management for designing and operating
processes that ensure the effective implementation of the
objectives and policies.
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 lease contracts in relation to its property portfolio. It
is Group policy to assess the credit risk of new tenants before
entering into such 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 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 a
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 is the risk that the fair value or future cash flows
of a financial instrument will fluctuate due to changes in market
prices. Market risk arises for the Group from its use of variable
interest bearing instruments (interest rate risk).
The Group monitors its interest rate exposure on a regular
basis. A sensitivity analysis performed to ascertain the impact on
profit or loss and net assets of a 50 basis point shift in interest
rates would result in an increase of GBP0.3m (2013: GBP0.8m) or a
decrease of GBP0.3m (2013: GBP0.8m).
It is currently Group policy that generally 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 being generally
between 60% and 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 31 December 2014, the proportion of fixed debt held
by the Group was above this range at 94%. During both 2014 and
2013, the Group's borrowings at variable rate were denominated in
sterling.
The Group manages its cash flow interest rate risk by using
floating-to-fixed interest rate swaps. The Group generally raises
long-term borrowings at fixed rates.
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 seeks 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 'market risk' section
above.
Executive management receives rolling three-year projections of
cash flow and 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 and other borrowings are spread
across a range of banks and financial institutions 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
non-controlling 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 above average long-term
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 vary the
amount of dividends paid to shareholders subject to the rules
imposed by its REIT status. It may also seek to redeem bonds,
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 NAV gearing and loan-to-value
ratio. During 2014, the Group's strategy, which was unchanged from
2013, was to maintain the NAV 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 23.
26. List of definitions
Average topped up rent
Annualised rents generated by the portfolio plus rent contracted
from expiry of rent-free periods and uplifts agreed at the balance
sheet date.
Capital return
The annual valuation movement arising on the Group's portfolio
expressed as a percentage return of the valuation at the beginning
of the year adjusted for acquisitions and capital expenditure.
Diluted figures
Reported results adjusted to include the effects of potential
dilutive shares issuable under the Group's share option schemes and
the convertible bonds.
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 financial year to
arrive at earnings per share.
Estimated rental value (ERV)
This is the external valuers' opinion as to the open market rent
which, on the date of valuation, could reasonably be expected to be
obtained on a new letting or rent review of a property.
European Public Real Estate Association (EPRA)
A not-for-profit association with a membership of Europe's
leading property companies, investors and consultants which strives
to establish best practices in accounting, reporting and corporate
governance and to provide high-quality information to investors.
This includes guidelines for the calculation of the following
performance measures which the Group has adopted.
- EPRA earnings per share
Recurring earnings from core operational activities.
- EPRA net asset value per share
NAV adjusted to include properties and other investment
interests at fair value and to exclude certain items not expected
to crystallise in a long-term investment property business
model.
- EPRA triple net asset value per share
EPRA NAV adjusted to include the fair values of (i) financial
instruments, (ii) debt and (iii) deferred taxes on revaluations,
where applicable.
- EPRA cost ratio (including direct vacancy costs)
EPRA costs as a percentage of gross rental income less ground
rent (including share of joint venture gross rental income less
ground rent). EPRA costs include administrative expenses, other
property costs, net service charge costs and the share of joint
ventures' overheads and operating expenses (net of any service
charge costs), adjusted for service charge costs recovered through
rents and management fees.
- EPRA cost ratio (excluding direct vacancy costs)
Calculated as above, but with an adjustment to exclude direct
vacancy costs.
- EPRA net initial yield (NIY)
Annualised rental income based on the cash rents passing at the
balance sheet date, less non-recoverable property operating
expenses, divided by the market value of the EPRA property
portfolio, increased by estimated purchasers' costs.
- EPRA "topped up" net initial yield
This measure incorporates an adjustment to the EPRA NIY in
respect of the expiration of rent free periods (or other unexpired
lease incentives such as discounted rent periods and stepped
rents).
- EPRA vacancy rate
Estimated rental value (ERV) of immediately available space
divided by the ERV of the EPRA portfolio.
- EPRA like-for-like rental income growth
The growth in rental income on properties owned throughout the
current and previous year under review. This growth rate includes
revenue recognition and lease accounting adjustments but excludes
properties held for development in either year and properties
acquired or disposed of in either year.
Fair value movement
An accounting adjustment to change the book value of an asset or
liability to its market value.
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.
Headroom
This is the amount left to draw under the Group's loan
facilities, i.e. the total loan facilities less amounts already
drawn.
Interest rate swap
A financial instrument where two parties agree to exchange an
interest rate obligation for a predetermined amount of time. These
are generally used by the Group to convert floating rate debt to
fixed rates.
Investment Property Databank Limited (IPD)
IPD is a company that produces independent benchmarks of
property returns. The Group measures its performance against both
the Central London Offices Index and the All UK Property Index.
Key Performance Indicators (KPIs)
Activities and behaviours, aligned to both business objectives
and individual goals, against which the performance of the Group is
annually assessed.
Lease incentives
Any incentive offered to occupiers to enter into a lease.
Typically the incentive will be an initial rent free or half rent
period, stepped rents, or a cash contribution to fit-out or similar
costs.
Loan-to-value ratio (LTV)
Drawn debt net of cash divided by the fair value of the property
portfolio. Drawn debt is equal to drawn facilities less cash and
the unamortised equity element of the convertible bonds.
Mark-to-market
The difference between the book value of an asset or liability
and its market value.
NAV gearing
Net debt divided by net assets.
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.
Net debt
Borrowings plus bank overdraft less cash and cash
equivalents.
Net interest cover ratio
Net property income, excluding other income, net surrender
premiums receivable and reverse surrender premiums payable divided
by interest payable on borrowings and non-utilisation fees.
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.
Real Estate Investment Trust (REIT)
The Government established REIT status in the UK in 2007 to
remove tax inequalities between different real estate investors and
aimed to improve overall investor access to real estate. REITs are
companies which are exempt from corporate taxation on profits from
property rental income and capital gains on the sale of investment
properties.
REITs must distribute 90% of profits from its rental income
business in the form of property income dividends (PIDs). This
makes the tax implications of investing in REITs equivalent to
investing directly in property. REITs are also required to meet
certain conditions including the proportion of total profits and
assets accounted for by their property rental businesses. They
remain liable to corporation tax on non-property investment
businesses e.g. management fees and interest receivable.
The UK has had a tax exempt real estate regime since 1 January
2007 and Derwent London has been a REIT since 1 July 2007.
Rent reviews
Rent reviews take place at intervals agreed in the lease
(typically every five years) and their purpose is usually to adjust
the rent to the current market level at the review date. For
upwards only rent reviews, the rent will either remain at the same
level or increase (if market rents are higher) at the review
date.
Reversion
The reversion is the amount by which the ERV 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.
Scrip dividend
Derwent London offers its shareholders the opportunity to
receive dividends in the form of shares instead of cash. This is
known as a scrip dividend.
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 return
The movement in EPRA adjusted net asset value per share on a
diluted basis between the beginning and the end of each financial
year plus the dividend per share paid during the year expressed as
a percentage of the EPRA net asset value per share at the beginning
of the year.
Total shareholder return
The growth in the ordinary share price as quoted on the London
Stock Exchange plus dividends per share received for the year,
expressed as a percentage of the share price at the beginning of
the year.
Underlying portfolio
Properties that have been held for the whole of the year, i.e.
excluding any acquisitions or disposals made during the year.
Underlying valuation increase
The valuation increase on the underlying portfolio.
Yields
- Net initial yield
Annualised rental income based on the cash rents passing at the
balance sheet date, less non-recoverable property operating
expenses, divided by the market value of the property, increased by
estimated purchasers' costs.
- Reversionary yield
The anticipated yield, to which the net initial yield will rise
to once the rent reaches the estimated rental values.
- True equivalent yield
The constant capitalisation rate which, if applied to all cash
flows from the portfolio, including current rent, reversions to
valuers' estimated rental value and such items as voids and
expenditures, equates to the valuation having taken into account
notional purchasers' costs. Rent is assumed to be received
quarterly in advance.
- Yield shift
A movement in the yield of a property asset, or like-for-like
portfolio, over a given year. Yield compression is a commonly-used
term for a reduction in yields.
27.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
FR UVVWRVRAUUAR
Derwent London (LSE:DLN)
Historical Stock Chart
From May 2024 to Jun 2024
Derwent London (LSE:DLN)
Historical Stock Chart
From Jun 2023 to Jun 2024
