TIDMDLN
RNS Number : 3085I
Derwent London PLC
08 August 2019
Derwent London plc ("Derwent London" / "the Group")
INTERIM RESULTS FOR THE HALF YEARED 30 JUNE 2019
GOOD PROGRESS CONTINUES
Financial highlights
-- EPRA(1) NAV 3,852p per share from 3,776p in December 2018, up 2.0% or 3.7% from June 2018
-- Total return 3.3% compared to 3.1% in H1 2018
-- Net rental income GBP86.3m, up 7.1% from H1 2018
-- Underlying(1) earnings 51.34p per share against 51.77p in H1
2018 and 99.08p for full year 2018
-- IFRS earnings 118.09p per share versus 120.22p in H1 2018 and 199.33p for full year 2018
-- Interim dividend raised 9.9% to 21.00p from 19.10p per share in 2018
-- Issued GBP175m convertible bonds 2025 and repurchased GBP150m convertible bonds 2019
-- Interest cover 454% and LTV ratio of 17.6%
-- Weighted average debt maturity increased to 8.2 years with
cash and undrawn facilities of GBP495m
First half activity
-- New lettings totalling GBP18.1m, 7.5% above December 2018 estimated rental value (ERV)
-- Completion of Brunel Building, Paddington W2: 243,000 sq ft of which 98% let
-- 790,000 sq ft under development of which 59% is pre-let
-- Disposals of GBP76.9m (Group share), 6.9% above December 2018 book values
Second half activity to date
-- Q3 lettings to date GBP5.1m, in line with June 2019 ERV
-- Contracts exchanged to sell The Buckley Building EC1 for
GBP103m, 4.8% above December 2018 values
Portfolio update
-- Portfolio valued at GBP5.4bn, an underlying increase of 1.9% in H1 2019
-- Uplift on developments was 13.6% in the first six months
-- Total property return was 3.6% in H1 which compares to our comparator index(2) of 1.9%
-- EPRA vacancy rate 1.6%, down from 1.8% in December 2018
-- EPRA ERV growth was +0.4% with guidance for 2019 unchanged at +1% to -2%
(1) Explanations of how EPRA and underlying figures are derived
from IFRS are shown in note 22.
(2) MSCI IPD Central London Offices Quarterly Index
Paul Williams, Chief Executive of Derwent London, said:
"Our GBP18m of new lettings and low vacancy rate demonstrate the
continuing strength of occupier demand for Derwent London's
product. The commitment to our development strategy has increased
our earnings potential, and was a major contributor to our first
half total return of 3.3%. Recent refinancing activities have
further strengthened our financial position with an average debt
maturity of over eight years. We believe the Group is well
positioned to deliver the many opportunities within its dynamic
portfolio."
Webcast and conference call
There will be a live webcast together with a conference call for
investors and analysts at 09:00 BST today. The audio webcast can be
accessed via www.derwentlondon.com
To participate in the call, please register at
www.derwentlondon.com
For further information, please contact:
Derwent London Paul Williams, Chief Executive
Tel: +44 (0)20 7659 3000 Damian Wisniewski, Chief Financial
Officer
Quentin Freeman, Head of Investor
Relations
Brunswick Group Simon Sporborg
Tel: +44 (0)20 7404 5959 Nina Coad
Emily Trapnell
OVERVIEW
Derwent London continues to make good progress demonstrating the
portfolio's considerable potential and our team's ability to
realise it. In the first six months we achieved GBP18.1m of new
lettings, two thirds of our entire 2018 activity. On the back of
our continued letting success we committed to two new developments,
signing major building contracts totalling GBP252m. Our debt
facilities were also increased and extended; we drew down the
GBP250m US private placement arranged last year and issued GBP175m
convertible bonds while repurchasing our existing GBP150m
convertible bonds due for redemption this year. As a result, our
weighted average debt maturity has increased to 8.2 years from 5.9
years in December 2018. The Group's progress on so many fronts
demonstrates our ability to drive performance against a background
of lower central London office activity.
Asset management over the past year has seen our net rental
income grow to GBP86.3m for the first half of 2019, up 7.1%
compared to H1 2018. After an increase in administration and
finance costs, underlying and EPRA earnings were GBP57.3m for H1
2019, a decrease of 0.7% from underlying H1 2018 earnings when
surrender premiums and dilapidations receipts were GBP4.4m higher.
EPRA earnings were unusually high in H1 2018 due to the receipt of
a GBP15.8m access rights premium. The Group's IFRS profit before
tax for the half year was GBP130.0m compared with GBP134.0m in H1
2018.
With strong dividend cover and rental income starting to flow
from Brunel Building in June 2019, we have raised the interim
dividend 9.9% to 21.0p per share, and we anticipate a similar level
of growth for this year's final dividend.
Helped by development uplifts at Brunel Building, which was
virtually fully let on completion, the portfolio revaluation
surplus was 1.9% in the first half, comfortably ahead of our
comparator index, against 2.2% for the whole of 2018. As a result,
EPRA NAV rose 2.0% to 3,852p per share which, after adding back the
final dividend paid during the period, gives a total return of 3.3%
which compares to 3.1% in the first half of 2018.
We now have three projects under construction totalling 790,000
sq ft which, after including the first office pre-let of 102,600 sq
ft at Soho Place W1, are 59% pre-let. This activity is important as
a barometer for London office demand, and we continue to record
good progress, letting a further GBP5.1m since June 2019. These
include The Boston Consulting Group exercising its option to take a
further floor at 80 Charlotte Street W1, making the commercial
element 92% pre-let.
Adding the new developments at Soho Place and The Featherstone
Building EC1 in the first half increased our reversion to ERV by
22% to GBP140.1m. Excluding GBP71.8m of contractual rental uplifts,
which are largely already included in IFRS earnings, there is an
additional GBP68.3m estimated to add to rental income of which 44%
is pre-let. This requires a further GBP476m of capital expenditure
including capitalised interest, with the two new developments
scheduled to complete in 2022. In addition, we have planning
consent on two new West End projects totalling 443,000 sq ft, which
could start in late 2021/early 2022 and complete in 2025. On one of
these, 19-35 Baker Street W1, we reached a major milestone in May
by signing a conditional development agreement.
A key aspect of our investment strategy is to recycle our mature
assets and reinvest the proceeds into our developments or buildings
with long term regeneration potential. We announced today that
contracts have been exchanged for the sale of The Buckley Building
EC1 for GBP103m which, after rental 'top-ups' and costs, was 4.8%
above December 2018 book value. This transaction means we are close
to making c.GBP200m of disposals in the current year.
As responsible long-term property owners, we are committed to
creating sustainable and resilient buildings and mitigating their
impacts on climate change. This approach has become increasingly
important to our occupiers and other stakeholders. Our Science
Based Targets adopted in 2016 were independently endorsed last
year(1) and the Group is working towards becoming a net zero carbon
business by 2050. We are currently reviewing the specific measures
that would enable this target to be met by 2030.
(1) See Sustainability Report 2018
Outlook
We see good demand for our space and continue to sell properties
above book value having let over GBP100m by rent and sold GBP800m
of property since the EU referendum in June 2016. Letting market
activity has been lower in 2019 but this picture conceals a dynamic
market with an increasing focus on occupier needs, highlighted by
the strong demand for high quality modern space and the continued
growth in flexible offices. We believe that these trends play to
our strengths with our focus on design-led properties, good
occupier amenities and middle-market rents. Investment market
activity has fallen this year and may remain subdued during a
period of heightened political and economic uncertainty especially
in relation to Brexit. However, there is significant global capital
waiting to be deployed into the London office investment market
once conditions become clearer. In the absence of any significant
change to the current political or economic situation we continue
to expect ERV growth on our portfolio of +1% to -2% and for yields
to remain firm in 2019.
Board and management changes
As previously announced, with effect from 17 May 2019 John Burns
was appointed Non-Executive Chairman and Paul Williams became Chief
Executive.
Since that time, Paul has broadened the roles of the executive
team. Nigel George has taken responsibility for the development
department with Simon Silver retaining the regeneration projects
and his focus on design and architecture. David Silverman has added
the leasing, asset and property management teams to his investment
brief. Damian Wisniewski's job title has recently changed to Chief
Financial Officer and he now has additional strategic and
operational responsibilities. With the increasing focus on occupier
requirements, the Group's asset and property management teams have
also been strengthened with additional senior appointments.
CENTRAL LONDON OFFICE MARKET
The central London office market remains stable with low rental
and capital growth, while levels of letting and investment activity
are below the high levels of the past few years. However, as our
own performance shows, there continues to be a sufficient number of
transactions which support current rents and yields.
During the first six months of 2019 CBRE estimated that the
vacancy rate fell to 4.2% from 4.5%. Take-up at 5.8m sq ft was 9%
below the same period last year, but new supply was also 9% lower
at 1.8m sq ft. The continuing high level of pre-lettings means that
the amount of new space available to let remains relatively
low.
In February, we discussed two underlying market trends. First,
the continued expansion of flexible office providers, which has
come to represent a broad range of formats but typically involves
lettings with short leases, enhanced amenities and supportive
technology. Secondly, an increasingly two-tier letting market with
strong demand for modern and adaptable space but with older
buildings taking longer to let. Flexible office providers have
represented c.15% of central London office take-up in the last
three years (17% in the six months to June 2019) and now represent
c.6% of the total market. CBRE estimate that 70% of current
availability is secondhand space and 39% of this is tenant
controlled, or 'grey', space. We continue to expect unimproved
older space to lag the market.
Looking forward, the levels of available supply have reduced
slightly with 13.1m sq ft under construction for delivery in the
next three and half years, of which 61% is pre-let. As a result
there is 5.2m sq ft of new supply that will be available over the
next few years, which is below current levels of active demand
estimated at 9.7m sq ft by JLL.
Investment activity has fallen with GBP4.2bn of transactions in
the first half, 32% below the six monthly average. In part this
reflects less stock available on the market, but this trend could
also be seen as a Brexit hiatus with London offices still screening
attractively compared to global peers and with c.GBP32bn of equity
selectively looking for opportunities. CBRE records prime yields
unchanged at 3.75% in the West End and 4.0% in the City. During the
last nine months a number of short-let or vacant properties have
come to the market and these higher risk opportunities have seen
significant demand from domestic as well as foreign investors.
Overall domestic purchasers represented 40% of first half
investment activity, their highest share of transactions since
2011.
VALUATION
The Group's investment portfolio was valued at GBP5.4bn at 30
June 2019. There was a revaluation surplus of GBP92.0m which, after
accounting adjustments of GBP17.5m (see note 11), produced a
surplus of GBP74.5m. The underlying valuation growth was 1.9%,
following a 0.9% uplift in H2 2018. The performance came from
developments, as solid progress was made through delivery and
pre-letting activity. It outperformed our capital value benchmarks:
the MSCI IPD Quarterly Index for Central London Offices, up 0.1%,
and the wider UK All Property Index which was down 1.4%. By
location, our central London properties, which represent 98% of the
portfolio, increased in value by 2.0% with the West End up 2.9% and
City Borders up 0.5%. The balance of the portfolio, comprising our
Scottish holdings, declined 2.2%.
Our rental values on an EPRA basis rose by 0.4% over the first
half, broadly similar to the 0.6% seen in the second half of last
year. The City Borders were up 0.9% and the West End unchanged.
The portfolio's EPRA initial yield was 3.3% which, after
allowing for the expiry of rent-free and half rent periods and
contractual uplifts, rises to 4.7% on a 'topped-up' basis. The true
equivalent yield moved out by 1bp to 4.74% and has risen 22bp since
the EU referendum.
Our first half total property return was 3.6%, which also
outperformed the MSCI IPD indices of 1.9% for Central London
Offices and 0.8% for UK All Property.
At the start of the year we were on site with two major
developments, 80 Charlotte Street and Brunel Building, and have
since added two new developments, Soho Place and The Featherstone
Building. These four schemes were valued at GBP898.5m in June 2019
delivering a very strong 13.6% valuation uplift. Excluding their
performance, the underlying portfolio movement was a 0.2% decline.
Brunel Building, which achieved practical completion in May and is
fully let or under offer, was up 21.4% and has delivered an overall
profit on cost of 55%. The three developments now on site, valued
at GBP570.6m, represent about 11% of the portfolio and are set to
continue to deliver good valuation surpluses over the next few
years. There are more details under 'Projects' below.
Our contracted annualised cash rent at 30 June 2019 was
GBP163.2m, 2.3% higher than December 2018. With a portfolio ERV of
GBP303.3m there is GBP140.1m of potential reversion after capital
expenditure. Looking at this in more detail, GBP71.8m is contracted
through rent-free and half rent periods and fixed uplifts. Under
IFRS accounting most of this upside is already incorporated in the
income statement. Our on-site developments could add GBP56.4m of
which GBP30.3m was already pre-let. The letting of other vacant
space across the portfolio could add GBP5.3m, the principal
elements being space at Johnson Building EC1 (now let) and 90
Whitfield Street W1. The balance of GBP6.6m of potential uplifts is
from future rent reviews and lease expiries.
PORTFOLIO MANAGEMENT
Traditional leases continue to represent the major part of our
activity. Lettings of GBP18.1m in the first half proved no
exception, dominated by pre-lettings at Brunel Building W2 (now
completed) and our first office pre-let at Soho Place W1. The
latter is now 50% pre-let, two and a half years ahead of
completion. All these transactions have been previously
announced.
Elsewhere we let another 87,000 sq ft across 24 transactions for
GBP2.1m, including 6,000 sq ft at 5-8 Hardwick Street EC1 for GBP66
per sq ft on the offices, the temporary re-letting of the third
floor at 19-35 Baker Street W1 and the two retail units at Turnmill
EC1. The latter fell vacant last year, but we have re-let them
significantly above December 2018 ERV.
Principal lettings in 2019 to date
Office Total
Area rent annual Lease Lease Rent free
sq GBP rent term break equivalent
Property Tenant ft psf GBPm Years Year Months
H1
1 Soho Place
W1 G-Research 102,600 94.70 9.7 15 - 32
Brunel Building
W2 Splunk 49,600 75.00 3.7 12 - 20
Brunel Building 20, plus 6
W2 Paymentsense 33,000 77.50 2.6 15 10 if no break
--------------- -------- ------- -------- ------- ------- -------------
H2
80 Charlotte
Street W1 BCG 40,650 82.50 3.4 15 12 Confidential
Johnson Building 10, plus 8
EC1 Oktra 18,300 47.50 0.9 10 5 if no break
Johnson Building Access 15, plus 12
EC1 Intelligence 17,800 45.00 0.8 10 5 if no break
261,950 80.50 21.1
In Q3 The Boston Consulting Group exercised its option to take
the fourth floor at 80 Charlotte Street. This increases their
commitment by nearly a third to 164,150 sq ft. We give more details
under 'Projects' below. We have recently let the remaining 36,100
sq ft refurbished space at Johnson Building EC1 for GBP1.7m.
In the first six months of 2019 the portfolio's EPRA vacancy
rate has fallen to 1.6% from 1.8%. Our asset and property managers
were involved in 59 lease events totalling 478,000 sq ft,
representing 8% of the portfolio. These transactions raised
existing income by 21.4% to GBP24.3m and were on average 0.6% below
December 2018 ERV. Lease renewals represented 21% of new income,
rent reviews 51% and regears 28%. There were major contributions
from The Buckley Building EC1 (now exchanged for disposal),
Charlotte Building W1, 20 Farringdon Road EC1, Oliver's Yard EC1, 1
Page Street SW1 and 88 Rosebery Avenue EC1.
At 30 June 2019, 4% of our portfolio by income was let to third
party flexible office providers principally The Office Group, IWG
and Knotel. In addition, we have developed our own 'Cat A+/Plug and
Play' format on some of our smaller spaces with the objective of
making leasing of this space as frictionless as possible. Currently
this covers just 20,300 sq ft over nine small units within larger
buildings. To date we are securing average rental premium allowing
for voids of c.15 to 20% on a net effective basis. Subject to
availability, this space in our portfolio could double in the next
twelve months, but even then would represent under 1% of our
portfolio.
PROJECTS
At the end of May we completed the development of Brunel
Building, Paddington W2. The building has 3.5m floor to ceiling
heights, column-free internal floors, two major roof terraces and a
ground floor restaurant. The project has opened up the canal
towpath for public access for the first time in over 50 years. All
the offices were fully pre-let to seven tenants representing a
diverse range of industries: Sony Pictures, Splunk, Paymentsense,
Hellman & Friedman, Premier League, Coach and Alpha FX. The
restaurant is under offer and the property will generate GBP17.2m
of net rent.
Our flagship development in Fitzrovia, 80 Charlotte Street W1,
is continuing to progress well and The Boston Consulting Group has
confirmed that it will be taking another floor representing 40,650
sq ft for GBP3.4m. This means that the office space is now 96%
pre-let, leaving 12,250 sq ft of offices,14,000 sq ft of retail and
31,600 sq ft of residential still available. We topped out the
building in May and it remains on track for completion in H1
2020.
In the first half we committed to our next two major
developments. Soho Place W1 was already a cleared site and in
February we signed the main building contract for GBP195m with
Laing O'Rourke and construction is underway. Demolition work on The
Featherstone Building EC1 site is nearly complete and we signed the
GBP58m main building contract with Skanska in June. Both projects
are due for completion in H1 2022 with the capital expenditure
almost entirely fixed.
Major developments pipeline
Property Area Capex Comment
sq ft to complete
GBPm(1)
Completed
Brunel Building, 2 Canalside 243,200 - Offices and retail - 98%
Walk W2 let
On-site
321,000 sq ft offices,
45,000 sq ft residential
and 14,000 sq ft retail
- 85% pre-let / pre-sold
80 Charlotte Street W1 380,000 69 overall
209,000 sq ft offices,
36,000 sq ft retail and
40,000 sq ft theatre -
Soho Place W1 285,000 262(3) 42% commercial space pre-let(4)
110,000 sq ft offices,
The Featherstone Building 13,000 sq ft workspaces
EC1 125,000 70 and 2,000 sq ft retail
----------- ------------- ---------------------------------
790,000 401
----------- ------------- ---------------------------------
Major planning consents
19-35 Baker Street W1 293,000(2) 206,000 sq ft offices,
52,000 sq ft residential
and 35,000 sq ft retail
Holden House W1 150,000 Retail flagship or retail
and office scheme
----------- ------------- ---------------------------------
443,000
----------- ------------- ---------------------------------
Total (excluding completions) 1,233,000
----------- ------------- ---------------------------------
(1) As at 30 Jun 2019 (2) Total area - Derwent London currently
has a 55% share of the joint venture
(3) Includes remaining site acquisition cost and profit share to
Crossrail (4) In addition 40,000 sq ft theatre is pre-let
Looking forward, our next two major projects, comprising 443,000
sq ft in the West End, have full planning consent. The larger of
these is at 19-35 Baker Street W1 where we hold a 71-year leasehold
interest in a joint venture between Derwent London (55%) and The
Portman Estate (45%). We have recently signed an option to unwind
the joint venture, which could give the Group a new 129-year lease
across the site with The Portman Estate receiving a 2.5% ground
rent rising to 6% in the 29th year of the development. The new
arrangement could enable work to start in late 2021.
Thereafter, we are looking at additional schemes sourced from
another 25% of the portfolio, currently comprising 1.4m sq ft.
These properties have been acquired over many years specifically
for their latent development potential.
Parallel to these major projects we are continually looking at
ways of improving the core investment portfolio. An example of this
activity is our current work at Tea Building E1 where we are
upgrading the entrance and at the same time have created 5,100 sq
ft of new space. This minor refurbishment is due for completion in
September 2019.
INVESTMENT ACTIVITY
We disposed of two properties for GBP76.9m in the first half,
which have been previously reported. Together these achieved 6.9%
above December 2018 book value net of costs.
Today we announced that contracts have been exchanged for the
sale of The Buckley Building EC1 for a gross value of GBP103.0m,
which represents a net initial yield to the purchaser of 4.4%. Net
proceeds after 'top-ups' and costs are GBP99.6m, 4.8% above
December 2018 and June 2019 book values. We regenerated and
extended this building in 2013 and have just completed the first
round of rent reviews. As well as endorsing the property's
valuation, this disposal is an example of our strategy of selling
mature assets to reinvest into our higher yielding development
programme. The Group also recently sold 16 Prescot Street E1 for
substantially above book value. This last disposal means that we
currently hold no properties in joint ventures off balance
sheet.
Disposals sold or exchanged in 2019 to date
Gross Gross Net yield
Property Date Area proceeds proceeds to purchaser Rent
sq ft(1) GBPm(1) GBP % GBPm(1)
psf
Premier House SW1 Q1 60,700 50.0 820 - -
9 Prescot Street E1
(50% interest) Q2 48,500 26.9 560 4.5 1.3
16 Prescot Street E1
(50% interest) Q3 4,400 1.8 400 2.6 0.05
The Buckley Building
EC1 Q3 85,100 103.0 1,210 4.4 4.9
Total 198,700 181.7 910 - 6.25
(1) Derwent London share
In June we added to our holdings at the eastern end of Oxford
Street with the acquisition of 3-5 Rathbone Place W1 for GBP21.0m
including costs. The property comprises 11,200 sq ft of offices and
6,600 sq ft restaurant and gym. The passing rent was GBP870,000
with the offices let at an average rent of GBP58 per sq ft. The
building is reversionary with most of the office leases due to
expire in the next few years, and in the longer term the property
could form part of a larger scheme incorporating some of our other
interests in the area.
FINANCIAL REVIEW
The Group's EPRA net asset value per share increased by 2.0% to
3,852p at 30 June 2019 from 3,776p at 31 December 2018. Adding back
the dividends paid of 46.75p per share, the total return for the
first half was 123p per share or 3.3%.
Net property and other income was GBP88.5m in H1 2019 against
GBP103.4m in H1 2018, the prior period benefitting from a combined
GBP21.8m for rights of light and access premiums, surrender
premiums and dilapidations receipts. By contrast, H1 2019 only saw
surrender premiums of GBP0.5m but growth in rental income over the
period has been more significant. Gross rental income was up from
GBP86.9m in H1 2018 to GBP93.1m, an increase of 7.1%, and net
rental income also grew by 7.1% from GBP80.6m in H1 2018 to
GBP86.3m for the first half of 2019.
Much of this increased rental income came from recent lettings
or lease regears. In exchange for longer lease terms, rent-free
periods have been granted and income recognised on a straight-line
basis during incentive periods therefore grew to GBP12.1m in H1
2019 from GBP5.8m in H1 2018. This accounting treatment is
unchanged following the introduction of IFRS 16, the new leasing
standard which became effective this year, replacing SIC-15 and IAS
17.
EPRA like-for-like gross rental income was up by 3.7% compared
to H1 2018 and by 3.5% when compared with H2 2018. EPRA
like-for-like net rental income increased by 3.2% and 5.2%,
respectively, over the same periods.
Administrative expenses rose to GBP17.1m for the first six
months after an increase in management incentives of GBP1.0m over
H1 2018 and other staff costs up by GBP0.7m. This reflects a
headcount up by 10 over the last year as we have added to the
property and asset management teams. Our EPRA cost ratio remained
at 23.3% for H1 2019, a similar level to that for the whole of
2018. As in the past, no overhead costs are capitalised.
The investment property portfolio showed an overall revaluation
surplus after accounting adjustments of GBP75.0m for the six months
to 30 June 2019, 39% higher than in the corresponding period last
year, and the profit on disposal of our investment property at
Premier House SW1 was GBP4.7m. Altogether, the profit from
operations for the half year was GBP151.1m, up from GBP142.3m in H1
2018.
Due mainly to higher average borrowings, net finance costs
increased by GBP1.3m to GBP12.8m in the first half of 2019 after
capitalising GBP6.6m of interest. In addition, GBP7.8m was charged
to the income statement on redeeming the Group's 2019 convertible
bonds and writing off GBP0.1m of unamortised arrangement costs. Our
share of joint venture results for the half year totalled GBP2.0m
(GBP1.9m in H1 2018), including a profit on disposal at Prescot
Street E1 of GBP0.8m. This brought the Group's IFRS profit before
tax for the half year to GBP130.0m against GBP134.0m in H1
2018.
EPRA earnings, which exclude fair value movements, profits on
disposal and the bond redemption premium, were GBP57.3m in H1 2019.
As shown in the table below, EPRA earnings for the first half of
2018 were unusually high at GBP74.6m due to the various premiums
received in the period but underlying earnings, which stripped out
GBP16.9m of premiums received but still included rights of light
and dilapidations receipts of GBP3.5m, were GBP57.7m. Earnings per
share have shown a similar pattern with the EPRA EPS for H1 2019 of
51.34p marginally below the underlying level in H1 2018 but with
the difference more than explained by surrender premiums and
dilapidations receipts.
EPRA Adjustments Underlying
GBPm GBPm GBPm
------- ------------ -----------
Earnings in H1 2018 74.6 (16.9) 57.7
Movements to H1 2019 from H1
2018:
Gross rental income 6.2 - 6.2
Surrender premiums (2.0) 1.1 (0.9)
Rights of light/access premiums (17.7) 15.8 (1.9)
Dilapidations receipts (1.6) - (1.6)
Administration/finance/other (2.2) - (2.2)
------- ------------ -----------
Total movements (17.3) 16.9 (0.4)
Earnings in H1 2019 57.3 - 57.3
We expect that the current year will be our highest yet for
capital expenditure as we redevelop or regenerate our older
buildings into newer and greener ones fit for today's occupiers. In
the first half, we incurred capital expenditure of GBP103.3m
including GBP6.6m of capitalised interest and anticipate spending a
little more again in the second half.
Financing and net debt
Group borrowings increased from GBP914.5m at 31 December 2018 to
GBP973.3m at 30 June 2019 after net cash invested in the portfolio
of GBP34.5m. Net debt, which includes leasehold liabilities and
nets out the half-year cash balance of GBP31.5m, increased by a
similar amount to GBP1,003.5m at 30 June 2019 from GBP956.9m at 31
December 2018. As a result, the Group's loan-to-value ratio
increased marginally to 17.6% from 17.2% at the year end. Interest
cover for the six-month period was 454%.
Cash from operating activities was GBP42.9m in H1 2019,
considerably below the equivalent in H1 2018 when the various cash
premiums were received, but 15% higher than in H1 2017.
Our Group facilities have been refreshed and extended in 2019
with the drawdown on 31 January of GBP250m of new senior unsecured
US private placement notes and the subsequent refinancing in June
of our GBP150m 2019 convertible bonds with the issue of GBP175m new
2025 convertible bonds. This has taken the weighted average
maturity of our borrowings from 5.9 years at 31 December 2018 to
8.2 years at 30 June 2019.
The new convertible bonds will pay a cash coupon of 1.5% and
have an initial conversion price of GBP44.96. The bonds have been
bifurcated for accounting purposes and will incur an IFRS interest
cost of 2.3%. The equity component of the bonds recognised at issue
was GBP7.5m (or 7p per share), almost matching the GBP8.5m (or 8p
per share) redemption premium paid to the 2019 bondholders to
purchase their bonds. As at 30 June 2019, GBP2.3m of the 2019 bonds
remained outstanding and were all redeemed at par on 24 July.
As a result of the refinancing activities, undrawn facilities
and cash increased to GBP495m at 30 June 2019 and, with low levels
of bank debt drawn, the Group's weighted average interest rate rose
marginally to 3.56% on a cash basis and 3.70% on an IFRS basis.
Dividend
We have raised the interim dividend by 9.9% to 21.00p from
19.10p last year. It will be paid as a PID on 18 October 2019 to
shareholders on the register as at 13 September 2019.
RISK MANAGEMENT AND INTERNAL CONTROLS
We have identified certain principal risks and uncertainties
that could prevent the Group from achieving its strategic
objectives and have assessed how these risks could best be
mitigated through a combination of internal controls, risk
management and the purchase of insurance cover. These risks are
reviewed and updated on a regular basis and were last formally
assessed by the Board in August 2019.
The principal risks and uncertainties facing the Group in 2019
are set out on the following pages with the potential impact and
the mitigating actions and controls in place. The Group's approach
to the management and mitigation of these risks is included in the
2018 Annual Report.
Following the recent change in Prime Minister, there is now a
heightened risk of a 'hard Brexit' due to his stated commitment to
leave the European Union (EU) on 31 October 2019 with or without a
deal. Leaving the EU without a deal could further elevate the
current high level of economic and political uncertainty. We detail
the possible effect of a hard Brexit on our business on page 47 of
our 2018 Annual Report.
Strategic risks
That the Group's business model and/or strategy does not create
the anticipated shareholder value or fails to meet investors' and
other stakeholder expectations.
Risk, effect and progression Controls and mitigation
----------------------------------------------------------- ------------------------------------------------------------------
1. Failure to implement the Group's
strategy * The Group conducts an annual five-year strategic
The Group's strategy is not met review and prepares a budget and three rolling
due to poor strategy implementation forecasts covering the next two years.
or a failure to respond appropriately
to internal or external factors
such as: * The Board considers the sensitivity of the Group KPIs
* an economic downturn and/or the Group's development to changes in the assumptions underlying our
programme being inconsistent with the current forecasts in light of anticipated economic
economic cycle; conditions. If considered necessary, modifications
are made.
* London losing its global appeal with a consequential
impact on the property investment or occupational * The Group's development pipeline has a degree of
markets. flexibility that enables plans for individual
properties to be changed to reflect prevailing
economic circumstances.
During 2019, the Group continued
to benefit from a resilient central
London office market despite * The Group seeks to maintain income from properties
continuing political uncertainty. until development commences and has an ongoing
strategy to extend our income through lease renewals
and regearing.
* The Group aims to de-risk the development programme
through pre-lets.
* The Group maintains sufficient headroom in all the
Group's key ratios and financial covenants with a
focus on interest cover.
2. Adverse Brexit settlement
Risk that negotiations to leave * The Group's strong financing and covenant headroom
the EU result in arrangements enables it to weather a downturn.
which are damaging to the London
economy.
As a predominantly London-based * The Group's diverse and high-quality tenant base
group, we are particularly sensitive provides resilience against tenant default.
to any factors which impact upon
London's growth and demand for
office space. * The Group focuses on good value, middle market rent
properties which are less susceptible to reductions
in tenant demand. The Group's average 'topped-up'
office rent is only GBP56.31 per sq ft (2018:
GBP53.25 per sq ft).
* The Group develops properties in locations where
there is good potential for future demand, such as
near Crossrail stations.
* Income is maintained at future development sites for
as long as possible.
* Ongoing strategy is to extend income through lease
renewals and regearing and to de-risk the development
programme though pre-lets.
* Brexit negotiations are being monitored and potential
outcomes discussed with external advisers.
* Brexit risk assessments have been performed to
understand how the different scenarios of Brexit
could impact on our business model and strategy.
3. Management of succession
Risk that the Board's succession * John Burns was appointed the Non-Executive Chairman
plans, effective during 2019, until May 2021 and will aim to retain the culture of
fail to retain our senior management the Group and ensure an orderly succession.
team and lead to a loss of our
culture and/or talent.
* Simon Fraser, Senior Independent Director, acts as a
'sounding board' for the Chairman and an independent
point of contact for Directors and Shareholders.
* Remuneration packages are benchmarked regularly.
* Six monthly performance appraisals identify training
requirements and career aspirations.
* The Board monitors the culture of the Group.
Financial risks
Significant steps have been taken in recent years to reduce or
mitigate the Group's financial risks such that few are now
considered to be principal risks of the Group. The main financial
risk is that the Group becomes unable to meet its financial
obligations, which is not currently a principal risk. Financial
risks can arise from movements in the financial markets in which we
operate and inefficient management of capital resources.
Risk, effect and progression Controls and mitigation
----------------------------- ------------------------
4. Fall in property values
Increasing property yields, which * The impact of yield changes is considered when
may be a consequence of rising potential projects are appraised.
interest rates, would cause property
values to fall. Interest rates
have remained low for an extended * The impact of yield changes on the Group's financial
period and could rise gradually covenants and performance are monitored regularly and
over the next few years. Though are subject to sensitivity analysis to ensure that
there is no direct relationship, adequate headroom is preserved.
this may cause property yields
to increase.
The underlying value of our investment * The Group's mainly unsecured financing makes the
portfolio has remained resilient, management of our financial covenants
increasing by 1.9% in H1 2019, straightforward.
despite the continuing economic
uncertainties.
The probability that property * The Group's low loan-to-value ratio reduces the
values will fall has increased likelihood that falls in property values have a
during 2019 as normal property significant impact on our business.
cycles last for approximately
seven years and we are currently
at over eight years into the
current cycle. The Bank of England's
Monetary Policy Committee increased
interest rates during 2018 from
0.5 to 0.75%. The direction of
future base rate changes is unclear
but any rate increases are anticipated
to be slow and incremental.
Operational risks
The Group suffers either a financial loss or adverse
consequences due to processes being inadequate or not operating
correctly, human factors or other external events.
Risk, effect and progression Controls and mitigation
----------------------------- ------------------------
5. Risks arising from our development activities
A. Reduced development returns
The Group's development projects do not produce * Investment appraisals, which include contingencies
the targeted financial returns due to one and inflationary cost increases, are prepared and
or more of the following factors: sensitivity analysis is undertaken to judge whether
* Delay on site an adequate return is made in all likely
circumstances.
* Increased construction costs
* The procurement process used by the Group includes
the use of highly regarded firms of quantity
* Adverse letting conditions surveyors and is designed to minimise uncertainty
regarding costs.
For example, delays could lead to penalties
payable to pre-let tenants at 80 Charlotte * Development costs are benchmarked to ensure that the
Street. Group obtains competitive pricing and, where
Due to our significant development pipeline, with appropriate, fixed-price contracts are negotiated.
a number of key projects currently under
construction including 80 Charlotte Street, Soho
Place and The Featherstone Building, the * Procedures carried out before starting work on site,
risk of delays to our projects and/or cost such as site investigations, historical research of
overruns remain a principal risk. the property and surveys conducted as part of the
planning application, reduce the risk of unidentified
issues causing delays once on site.
* The Group's pre-letting strategy reduces or removes
the letting risk of the development as soon as
possible.
* Detailed reviews are performed on construction
projects to ensure that forecasts are aligned with
our contractors.
* Post-completion reviews are carried out for all major
developments to ensure that improvements to the
Group's procedures are identified, implemented and
lessons learned.
B. 'On-site' risk
Risk of project delays and/or cost overruns * Prior to construction beginning on site, we conduct
caused by unidentified issues e.g. asbestos in site investigations including the building's history
refurbishments or ground conditions in and various surveys to identify any potential issues.
developments.
For example, our successful pre-letting programme
at 80 Charlotte Street means we could face * Regular monitoring of our contractors' cash flows.
a loss of rental income and penalties if the
project is delayed.
* Off-site inspection of key components to ensure they
have been completed to the requisite quality.
* Frequent meetings with key contractors and
subcontractors to review their work programme.
C. Contractor/subcontractor default
Returns from the Group's developments are reduced * The financial standing of our main contractors is
due to delays and cost increases caused reviewed prior to awarding the project contract.
by either a main contractor or major
subcontractor defaulting during the project.
There have been well-publicised issues for a * Regular monitoring of our contractors, including
number of major contractors, including the their project cash flows, is carried out.
insolvency
of Carillion and the funding problems of other
major contractors. Although the insolvency * Key construction packages are acquired early in the
of Carillion did not significantly impact on our project's life to reduce the risks associated with
contractors (or subcontractors) it did highlight later default.
the ongoing issues within the construction
industry and the level of risk (and thin profit
margins) being accepted by contractors. We * Whenever possible the Group uses
regularly monitor our contractors for any trading contractors/subcontractors that it has previously
concerns. worked with successfully.
* Regular on-site supervision by a dedicated Project
Manager who monitors contractor performance and
identifies problems at an early stage, thereby
enabling remedial action to be taken.
* Payments to contractors to incentivise them to
achieve agreed project timescale and damages agreed
in the event of delays/cost overruns.
* Performance bonds are sought if considered necessary.
* Our main contractors are responsible, and assume the
immediate risk, for subcontractor default.
* We use known contractors with whom we have
established long-term working relationships.
* Contractors are paid promptly and are encouraged to
pay subcontractors promptly.
6. Risk of business interruption
A. Cyber attack
The Group is subject to a cyber attack that * The Group's Business Continuity Plan is regularly
results in it being unable to use its IT systems reviewed and tested.
and/or losing data. This could lead to an
increase in costs whilst a significant diversion
of management time would have a wider impact. * Independent internal and external 'penetration' tests
Considerable time has been spent assessing cyber are regularly conducted to assess the effectiveness
risk and strengthening our controls and of the Group's security.
procedures.
* Multifactor authentication exists for remote access
to our systems.
* Incident response and remediation policies are in
place.
* The Group's data is regularly backed up and
replicated and our IT systems are protected by
anti-virus software and firewalls that are frequently
updated.
* Annual staff awareness and training programmes.
* Security measures are regularly reviewed by the IT
department.
* The Group has recently been awarded the 'Cyber
Essentials' badge to demonstrate our commitment to
cyber security.
B. Terrorism or other business interruption
The risk that an act of terrorism interrupts the * The Group has comprehensive business continuity and
Group's operations is considered a principal incident management procedures both at Group level
risk due to terrorist activity in European and for each of our managed buildings which are
cities. regularly reviewed and tested.
* Fire protection and access/security procedures are in
place at all of our managed properties.
* Comprehensive property damage and business
interruption insurance which includes terrorism.
* At least annually, a fire risk assessment and health
and safety inspection are performed for each property
in our managed portfolio.
7. Reputational damage
The Group's reputation is damaged, for example * Close involvement of senior management in day-to-day
through unauthorised and/or inaccurate media operations and established procedures for approving
coverage or failure to comply with relevant all external announcements.
legislation.
We have invested significantly in developing a
well-regarded and respected brand. Our strong * All new members of staff benefit from an induction
culture, low overall risk tolerance and programme and are issued with our Group staff
established procedures and policies mitigate handbook.
against
the risk of internal wrongdoing.
* The Group employs a Head of Investor and Corporate
Communications and retains services of an external PR
agency, both of whom maintain regular contact with
external media sources.
* A Group whistleblowing system for staff is maintained
to report wrongdoing anonymously.
* Social media channels are monitored.
* Ongoing engagement with local communities in areas
where the Group operates.
8. Non-compliance with regulation
A. Non-compliance with health and safety
legislation * The Group has a qualified health and safety team
The Group's cost base is increased and management whose performance is monitored and managed by the
time is diverted through an incident or Health and Safety Committee.
breach of health and safety legislation leading
to reputational damage and/or loss of our
licence to operate. * External advisors (ORSA) appointed to advise on
Following independent review of our health and construction health and safety.
safety procedures, the Group has gained a better
understanding of health and safety risks.
* The Board and Executive Committee receive regular
updates and presentations on key health and safety
matters.
* All our properties have health, safety and fire
management procedures in place which are reviewed
annually.
* External project managers review health and safety on
each construction site on a monthly basis.
B. Climate change and non-compliance with
environmental and sustainability legislation * The Board and Executive Committee receive regular
The Group's cost base is increased and management updates and presentations on environmental and
time is diverted due to the impacts of climate sustainability performance and management matters.
change on our portfolio and/or a breach of any
legislation. This could lead to damage to our
reputation, loss of income and/or property value, * The Sustainability Committee monitors our performance
and loss of our licence to operate. and management controls.
Although the risk of climate change remains
unchanged for the Group, this is a growing area
of concern for our stakeholders and is receiving * Employment of qualified team led by an experienced
additional public focus (for example, the Head of Sustainability.
Government's Green Finance Strategy was published
in July 2019).
* The Group benchmarks its ESG (environmental, social
and governance) reporting against various industry
benchmarks.
* The Group has set long-term, science-based carbon
targets and actively monitors portfolio performance
against these.
* Production of an Annual Sustainability Report, the
key data points and performance of which are
externally assured.
C. Other regulatory non-compliance
The Group's cost base is increased and management * The Board and Risk Committee receive regular reports
time is diverted through a breach of any prepared by the Group's legal advisers identifying
of the legislation that forms the regulatory upcoming legislative/regulatory changes. External
framework within which the Group operates. This advice is taken on any new legislation.
could lead to damage to our reputation and/or
loss of our licence to operate.
* Staff training and awareness programmes.
* Group policies and procedures dealing with all key
legislation are available on the Group's intranet.
* A Group whistleblowing system for staff is maintained
to report wrongdoing anonymously.
9. 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 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 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. The committee also reviews existing
tenant covenants from time to time.
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).
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 30 June 2019, due to long-term refinancing in the
year to date, the proportion of fixed debt held by the Group was
above this range at 94% (31 December 2018: 70%). During both 2019
and 2018, 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. When the Group raises
long-term borrowings, it is generally 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 2019, the Group's strategy, which was unchanged from
2018, was to maintain the NAV gearing below 80% in normal
circumstances. These two gearing ratios, as well as the interest
cover ratio, are defined in the list of definitions at the end of
this announcement and are derived in note 23.
Statement of Directors' responsibilities
The Directors' confirm that, to the best of their knowledge,
these condensed consolidated interim financial statements have been
prepared in accordance with IAS 34 'Interim Financial Reporting',
as adopted by the European Union and that the interim management
report includes a fair review of the information required by
Disclosure and Transparency Rules (DTR) 4.2.7 and 4.2.8,
namely:
-- An indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements, and a description of the
principal risks and uncertainties for the remaining six months of
the financial year; and
-- Material related-party transactions in the first six months
of the financial year and any material changes in the related-party
transactions described in the last Annual Report.
The Directors are listed in the Derwent London plc Annual Report
of 31 December 2018 and a list of the current Directors is
maintained on the Derwent London plc website:
www.derwentlondon.com. The maintenance and integrity of the Derwent
London website is the responsibility of the Directors.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
On behalf of the Board
Paul M. Williams Damian M.A. Wisniewski
Chief Executive Chief Financial Officer
8 August 2019
GROUP CONDENSED INCOME STATEMENT
Half year Half year
to 30.06.2019 to 30.06.2018 Year to 31.12.2018
Unaudited Unaudited Audited
Note GBPm GBPm GBPm
----------------------------------- ---- -------------- -------------- ------------------
Gross property and other income 5 110.7 122.3 228.0
----------------------------------- ---- -------------- -------------- ------------------
Net property and other income 5 88.5 103.4 185.9
Administrative expenses (17.1) (15.2) (32.3)
Revaluation surplus 11 75.0 54.0 83.4
Profit on disposal of investment
property 6 4.7 0.1 5.2
Profit from operations 151.1 142.3 242.2
Finance income 7 0.2 - -
Finance costs 7 (13.0) (11.5) (23.5)
Bond redemption premium 7 (7.8) - -
Movement in fair value of derivative
financial instruments (1.3) 3.1 4.3
Financial derivative termination
costs 8 (1.2) (1.8) (3.5)
Share of results of joint ventures 9 2.0 1.9 2.1
Profit before tax 130.0 134.0 221.6
Tax charge 10 (0.4) (1.6) (2.7)
Profit for the period 129.6 132.4 218.9
Attributable to:
- Equity shareholders 131.8 134.0 222.3
- Non-controlling interest (2.2) (1.6) (3.4)
129.6 132.4 218.9
Earnings per share 22 118.09p 120.22p 199.33p
Diluted earnings per share 22 117.79p 119.81p 198.91p
GROUP CONDENSED STATEMENT OF COMPREHENSIVE INCOME
Half year to Half year
30.06.2019 to 30.06.2018 Year to 31.12.2018
Unaudited Unaudited Audited
Note GBPm GBPm GBPm
------------------------------------ ---- --------- -------------- ------------------
Profit for the period 129.6 132.4 218.9
Actuarial gains on defined benefit
pension scheme 1.1 0.8 -
Revaluation (deficit)/surplus
of owner-occupied property 11 (0.5) 0.5 0.7
Deferred tax credit/(charge) on
revaluation 18 0.2 (0.2) 0.1
------------------------------------ ---- --------- -------------- ------------------
Other comprehensive income that
will not be
reclassified to profit or loss 0.8 1.1 0.8
Total comprehensive income relating
to the period 130.4 133.5 219.7
Attributable to:
- Equity shareholders 132.6 135.1 223.1
- Non-controlling interest (2.2) (1.6) (3.4)
130.4 133.5 219.7
GROUP CONDENSED BALANCE SHEET
30.06.2019 30.06.2018 31.12.2018
Unaudited Unaudited Audited
Note GBPm GBPm GBPm
--------------------------------- ---- ---------- ---------- ----------
Non-current assets
Investment property 11 5,179.0 4,857.0 5,028.2
Property, plant and equipment 12 52.2 52.7 53.1
Investments 13 2.8 41.6 29.1
Pension scheme surplus 1.7 0.4 0.3
Other receivables 14 136.9 109.1 123.1
--------------------------------- ---- ---------- ---------- ----------
5,372.6 5,060.8 5,233.8
Current assets
Trading property 11 40.6 28.5 36.3
Trade and other receivables 15 56.9 58.3 61.4
Cash and cash equivalents 31.5 21.4 18.3
--------------------------------- ---- ---------- ---------- ----------
129.0 108.2 116.0
Total assets 5,501.6 5,169.0 5,349.8
Current liabilities
Borrowings 17 2.3 - 148.4
Derivative financial instruments 17 1.1 - -
Trade and other payables 16 109.0 118.0 103.1
Corporation tax liability 1.2 3.5 2.1
Provisions 0.4 0.3 0.3
--------------------------------- ---- ---------- ---------- ----------
114.0 121.8 253.9
Non-current liabilities
Borrowings 17 971.0 786.9 766.1
Derivative financial instruments 17 3.8 4.7 3.6
Leasehold liabilities 17 61.7 56.0 60.7
Provisions 0.2 0.2 0.3
Deferred tax liabilities 18 1.2 2.3 1.8
--------------------------------- ---- ---------- ---------- ----------
1,037.9 850.1 832.5
Total liabilities 1,151.9 971.9 1,086.4
Total net assets 4,349.7 4,197.1 4,263.4
Equity
Share capital 5.6 5.6 5.6
Share premium 190.1 189.5 189.6
Other reserves 937.5 941.6 943.5
Retained earnings 3,157.7 2,997.1 3,063.2
--------------------------------- ---- ---------- ---------- ----------
Equity shareholders' funds 4,290.9 4,133.8 4,201.9
Non-controlling interest 58.8 63.3 61.5
Total equity 4,349.7 4,197.1 4,263.4
GROUP CONDENSED STATEMENT OF CHANGES IN EQUITY
Attributable to equity shareholders
----------------------------------------------------
Equity Non-
Share Share Other Retained shareholders' controlling Total
capital premium reserves earnings funds interest equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ -------- ------- -------- -------- ------------- ----------- -------
At 1 January 2019 5.6 189.6 943.5 3,063.2 4,201.9 61.5 4,263.4
Profit/(loss) for the
period - - - 131.8 131.8 (2.2) 129.6
Other comprehensive
(expense)/income - - (0.3) 1.1 0.8 - 0.8
Share-based payments - 0.5 (1.1) 2.6 2.0 - 2.0
Bond redemption - - (12.1) 11.2 (0.9) - (0.9)
Bond issue - - 7.5 - 7.5 - 7.5
Dividends paid - - - (52.2) (52.2) (0.5) (52.7)
At 30 June 2019 (unaudited) 5.6 190.1 937.5 3,157.7 4,290.9 58.8 4,349.7
At 1 January 2018 5.6 189.2 942.9 2,990.6 4,128.3 64.9 4,193.2
Profit/(loss) for the
period - - - 134.0 134.0 (1.6) 132.4
Other comprehensive income - - 0.3 0.8 1.1 - 1.1
Share-based payments - 0.3 (1.6) 2.6 1.3 - 1.3
Dividends paid - - - (130.9) (130.9) - (130.9)
At 30 June 2018 (unaudited) 5.6 189.5 941.6 2,997.1 4,133.8 63.3 4,197.1
At 1 January 2018 5.6 189.2 942.9 2,990.6 4,128.3 64.9 4,193.2
Profit/(loss) for the
year - - - 222.3 222.3 (3.4) 218.9
Other comprehensive income - - 0.8 - 0.8 - 0.8
Share-based payments - 0.4 (0.2) 2.5 2.7 - 2.7
Dividends paid - - - (152.2) (152.2) - (152.2)
At 31 December 2018 (audited) 5.6 189.6 943.5 3,063.2 4,201.9 61.5 4,263.4
GROUP CONDENSED CASH FLOW STATEMENT
Half year Half year
to 30.06.2019 to 30.06.2018 Year to 31.12.2018
Unaudited Unaudited Audited
Note GBPm GBPm GBPm
--------------------------------------- ---- -------------- -------------- ------------------
Operating activities
Rental income 82.2 79.0 159.5
Surrender premiums and other
property income 0.5 22.1 22.2
Property expenses (10.7) (4.9) (19.1)
Cash paid to and on behalf of
employees (14.2) (12.6) (22.0)
Other administrative expenses (5.6) (2.0) (5.2)
Interest received 7 0.2 - -
Interest paid 7 (7.9) (8.3) (17.4)
Other finance costs 7 (1.7) (1.5) (2.6)
Other income 1.9 0.7 2.9
Tax paid in respect of operating
activities (1.8) (0.4) (3.1)
Net cash from operating activities 42.9 72.1 115.2
Investing activities
Acquisition of properties (20.7) (12.9) (57.3)
Capital expenditure on the property
portfolio 7 (101.3) (78.8) (187.5)
Reimbursement of capital expenditure 1.2 15.2 15.9
Disposal of investment and trading
properties 57.9 - 0.3
Investment in joint ventures - - (0.8)
Dividend and loan repayment
from joint venture 28.8 - 13.5
Purchase of property, plant
and equipment - (0.3) (0.8)
Disposal of property, plant
and equipment 0.1 - -
VAT (paid)/received (0.5) 15.0 7.6
Net cash used in investing activities (34.5) (61.8) (209.1)
Financing activities
Net proceeds of bond issue 171.3 - -
Drawdown of private placement
notes 248.8 - (0.2)
Net movement in revolving bank
loans (207.5) 54.5 180.5
Bond redemption (147.7) - -
Bond redemption premium (8.5) - -
Financial derivative termination
costs 8 (1.2) (1.8) (3.5)
Net proceeds of share issues 0.5 0.3 0.4
Dividends paid to non-controlling interest
holder (0.5) - -
Dividends paid 19 (50.4) (128.9) (152.0)
Net cash from/(used in) financing
activities 4.8 (75.9) 25.2
Increase/(decrease) in cash and cash
equivalents in the period 13.2 (65.6) (68.7)
Cash and cash equivalents at the beginning
of the period 18.3 87.0 87.0
Cash and cash equivalents at
the end of the period 31.5 21.4 18.3
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of preparation
The financial information for the half year to 30 June 2019 and
the half year to 30 June 2018 was not subject to an audit but has
been subject to a review in accordance with the International
Standard on Review Engagements (UK and Ireland) 2410, Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity, issued by the Auditing Practices Board.
The comparative financial information presented herein for the
year to 31 December 2018 does not constitute the Group's statutory
accounts, but is derived from those accounts. The Group's statutory
accounts for the year to 31 December 2018 have been delivered to
the Registrar of Companies. The Auditor's report on those accounts
was unmodified, did not draw attention to any matters by way of an
emphasis of matter and did not contain any statement under Section
498 of the Companies Act 2006.
The financial information in these condensed consolidated
financial statements is that of the holding company and all of its
subsidiaries (the "Group") together with the Group's share of its
joint ventures. It has been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Conduct
Authority and with IAS 34 Interim Financial Reporting and should be
read in conjunction with the annual report and accounts for the
year to 31 December 2018 which have been prepared in accordance
with International Financial Reporting Standards as adopted by the
European Union (IFRS), IFRS IC 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 and financial
assets and liabilities held for trading.
As with most other UK property companies and REITs, the Group
presents many of its financial measures in accordance with the
guidance criteria issued by the European Public Real Estate
Association ('EPRA'). These measures, which provide consistency
across the sector, are all derived from the IFRS figures in note
22.
Going concern
Under Provision 30 of the UK Corporate Governance Code 2018, 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.
-- 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 17.6%, the
interest cover ratio of 454% and the GBP495m total of undrawn
facilities and cash at 30 June 2019. They have also considered the
fact that the average maturity of borrowings was 8.2 years at 30
June 2019.
The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are described in the financial
review. In addition, the Group's risks and risk management
processes can be found within the risk management and internal
controls.
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 a
period of at least 12 months from the date of signing of these
condensed consolidated financial statements and, therefore, the
Board continues to adopt the going concern basis in their
preparation.
2. Changes in accounting policies
The accounting policies used by the Group in these condensed
financial statements are consistent with those applied in the
Group's financial statements for the year to 31 December 2018, 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 period
The following standards, amendments and interpretations endorsed
by the EU were effective for the first time for the Group's current
accounting period and had no material impact on the financial
statements.
IFRIC 23 - Uncertainty over Income Tax Treatments;
IFRS 9 (amended) - Prepayment Features with Negative
Compensation and modifications of financial liabilities;
IAS 28 (amended) - Long-term interests in Associates and Joint
Ventures;
IAS 19 (amended) - Plan Amendment, Curtailment or
Settlement;
Annual Improvements to IFRSs (2015 - 2017 cycle).
IFRS 16 Leases (effective 1 January 2019)
The main impact of this leasing standard, which replaces IAS 17
and SIC-15, is the removal of the distinction between operating and
finance leases for lessees, which will result in almost all leases
being recognised on the balance sheet. As the Group does not hold
any material operating leases as lessee, the impact of the standard
is not material to the financial statements. This standard does not
substantially affect the accounting for rental income earned by the
Group as lessor.
Standards 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 period 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.
References to Conceptual Framework in IFRSs (amended);
IFRS 17 - Insurance Contracts;
IFRS 10 and IAS 28 (amended) - Sale or Contribution of Assets
between an investor and its Associate or Joint Venture.
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.
Key sources of estimation uncertainty
-- Property portfolio valuation.
-- Borrowings and derivatives.
Significant judgments
-- Compliance with the real estate investment trust (REIT) taxation regime.
A full explanation of these policies is included in the 2018
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 the
Executive Committee comprising the five Executive Directors and
five 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 and underlying earnings
and net asset value. 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 97%
office buildings* in central London by value (30 June 2018: 97%; 31
December 2018: 97%). The Directors consider that these individual
properties have similar economic characteristics and therefore have
been aggregated into a single operating segment. The remaining 3%
(30 June 2018: 3%; 31 December 2018: 3%) 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. 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. 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
Office
buildings Other Total
GBPm GBPm GBPm
-------------------------- ---------- ----- -----
Half year to 30 June 2019
West End central 40.5 0.1 40.6
West End borders 9.7 - 9.7
City borders 40.8 0.2 41.0
Provincial - 2.3 2.3
91.0 2.6 93.6
Half year to 30 June 2018
West End central 56.3 0.1 56.4
West End borders 10.0 - 10.0
City borders 38.2 0.2 38.4
Provincial - 2.3 2.3
104.5 2.6 107.1
Year to 31 December 2018
West End central 95.5 0.1 95.6
West End borders 19.3 - 19.3
City borders 76.1 0.5 76.6
Provincial - 4.5 4.5
190.9 5.1 196.0
A reconciliation of gross property income to gross property and
other income is given in note 5.
Property portfolio
Carrying value Fair value
------------------------- -------------------------
Office Office
buildings Other Total buildings Other Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------- --------- ----- ------- --------- ----- -------
30 June 2019
West End central 2,801.6 58.2 2,859.8 2,805.4 61.0 2,866.4
West End borders 435.2 - 435.2 461.6 - 461.6
City borders 1,873.2 7.7 1,880.9 1,933.6 7.6 1,941.2
Provincial - 90.2 90.2 - 91.7 91.7
5,110.0 156.1 5,266.1 5,200.6 160.3 5,360.9
30 June 2018
West End central 2,487.4 45.7 2,533.1 2,481.5 47.0 2,528.5
West End borders 443.8 - 443.8 465.8 - 465.8
City borders 1,850.7 7.5 1,858.2 1,900.9 7.4 1,908.3
Provincial - 97.4 97.4 - 99.7 99.7
4,781.9 150.6 4,932.5 4,848.2 154.1 5,002.3
31 December
2018
West End central 2,659.4 53.8 2,713.2 2,658.1 54.9 2,713.0
West End borders 439.2 - 439.2 462.5 - 462.5
City borders 1,859.5 7.7 1,867.2 1,913.7 7.7 1,921.4
Provincial - 91.9 91.9 - 93.8 93.8
4,958.1 153.4 5,111.5 5,034.3 156.4 5,190.7
A reconciliation between the fair value and carrying value of
the portfolio is set out in note 11.
5. Property and other income
Half year Half year
to 30.06.2019 to 30.06.2018 Year to 31.12.2018
GBPm GBPm GBPm
-------------------------------- -------------- -------------- ------------------
Gross rental income 93.1 86.9 175.1
Surrender premiums received 0.5 2.5 3.2
Other property income - 17.7 17.7
Gross property income 93.6 107.1 196.0
Service charge income 15.4 14.0 29.1
Other income 1.7 1.2 2.9
Gross property and other income 110.7 122.3 228.0
Gross rental income 93.1 86.9 175.1
Ground rent expense (0.7) (0.6) (1.4)
--------------------------------- -------------- -------------- ------------------
Service charge income 15.4 14.0 29.1
Service charge expenses (16.6) (15.1) (32.0)
--------------------------------- -------------- -------------- ------------------
(1.2) (1.1) (2.9)
Other property costs (4.9) (4.6) (9.7)
Net rental income 86.3 80.6 161.1
Other property income - 17.7 17.7
Other income 1.7 1.2 2.9
Other costs - - (0.4)
Surrender premiums received 0.5 2.5 3.2
Reverse surrender premiums - - (0.1)
Dilapidation receipts - 1.6 1.7
Write-down of trading property - (0.2) (0.2)
Net property and other income 88.5 103.4 185.9
Gross rental income included GBP12.1m (half year to 30 June
2018: GBP5.8m; year to 31 December 2018: GBP13.4m) relating to
rents recognised in advance of cash receipts.
In the prior period, other property income included GBP15.8m for
granting a new access rights deed to a neighbouring property owner,
with the remaining GBP1.9m relating to rights of light income.
Other income relates to fees and commissions earned in relation
to the management of the Group's properties and was recognised in
the Group income statement in accordance with the delivery of
services.
6. Profit on disposal of investment property
Half year Half year Year to
to 30.06.2019 to 30.06.2018 31.12.2018
GBPm GBPm GBPm
--------------------------------- -------------- -------------- -----------
Gross disposal proceeds 50.4 0.1 5.4
Costs of disposal (0.5) - -
Net disposal proceeds 49.9 0.1 5.4
Carrying value (45.2) - (0.2)
Profit on disposal of investment
property 4.7 0.1 5.2
7. Finance income and total finance costs
Half year Half year
to 30.06.2019 to 30.06.2018 Year to 31.12.2018
GBPm GBPm GBPm
-------------------------------------- -------------- -------------- ------------------
Finance income
Other 0.2 - -
Finance income 0.2 - -
Finance costs
Bank loans and overdraft 1.2 1.1 3.6
Non-utilisation fees 1.0 1.1 1.9
Unsecured convertible bonds 2.0 1.9 3.9
Secured bonds 5.7 5.7 11.4
Unsecured private placement
notes 7.1 4.2 8.3
Secured loan 1.7 1.7 3.3
Amortisation of issue and arrangement
costs 1.1 1.0 2.1
Amortisation of the fair value
of the secured bonds (0.6) (0.5) (1.2)
Finance lease costs 0.3 0.3 0.7
Other 0.1 0.1 0.2
Gross interest costs 19.6 16.6 34.2
Less: interest capitalised (6.6) (5.1) (10.7)
Finance costs 13.0 11.5 23.5
Bond redemption premium 7.8 - -
Total finance costs 20.8 11.5 23.5
Finance costs of GBP6.6m (half year to 30 June 2018: GBP5.1m;
year to 31 December 2018: GBP10.7m) have been capitalised on
development projects, in accordance with IAS 23 Borrowing Costs,
using the Group's average cost of borrowing during each quarter.
Total finance costs paid to 30 June 2019 were GBP16.2m (half year
to 30 June 2018: GBP14.9m; year to 31 December 2018: GBP30.7m) of
which GBP6.6m (half year to 30 June 2018: GBP5.1m; year to 31
December 2018: GBP10.7m) was included in capital expenditure on the
property portfolio in the Group cash flow statement under investing
activities.
Included in the bond redemption premium of GBP7.8m is GBP0.1m of
unamortised loan arrangement costs written off.
8. Financial derivative termination costs
The Group incurred costs of GBP1.2m in the half year to 30 June
2019 (half year to 30 June 2018: GBP1.8m; year to 31 December 2018:
GBP3.5m) deferring, re-couponing or terminating interest rate
swaps.
9. Share of results of joint ventures
Half year Half year
to 30.06.2019 to 30.06.2018 Year to 31.12.2018
GBPm GBPm GBPm
--------------------------------- -------------- -------------- ------------------
Revaluation surplus/(deficit) 0.9 0.1 (0.1)
Profit on disposal of investment
property 0.8 1.3 1.3
Other profit from operations
after tax 0.3 0.5 0.9
2.0 1.9 2.1
In May 2019, Prescot Street GP Limited and Prescot Street
Nominees Limited, in which the Group has a 50% shareholding,
disposed of the freehold interest in 9 Prescot Street E1 for
GBP53.9m before costs, generating a profit of GBP1.6m.
See note 13 for further details of the Group's joint
ventures.
10. Tax charge
Half year Half year
to 30.06.2019 to 30.06.2018 Year to 31.12.2018
GBPm GBPm GBPm
-------------------------------------- -------------- -------------- ------------------
Corporation tax
UK corporation tax and income tax in
respect of profit for the period 0.8 1.8 2.9
Other adjustments in respect of
prior years' tax - - 0.2
Corporation tax charge 0.8 1.8 3.1
Deferred tax
Origination and reversal of temporary
differences (0.4) (0.2) (0.4)
Deferred tax credit (0.4) (0.2) (0.4)
Tax charge 0.4 1.6 2.7
In addition to the tax charge of GBP0.4m (half year to 30 June
2018: GBP1.6m; year to 31 December 2018: GBP2.7m) that passed
through the Group income statement, a deferred tax credit of
GBP0.2m (half year to 30 June 2018: charge of GBP0.2m; year to 31
December of 2018: credit of GBP0.1m) was recognised in the Group
statement of comprehensive income relating to the revaluation of
the owner-occupied property at 25 Savile Row W1.
The effective rate of tax for the half year to 30 June 2019 is
lower (half year to 30 June 2018: lower; year to 31 December 2018:
lower) than the standard rate of corporation tax in the UK. The
differences are explained below:
Half year Half year
to 30.06.2019 to 30.06.2018 Year to 31.12.2018
GBPm GBPm GBPm
-------------------------------------- --------------- -------------- ------------------
Profit before tax 130.0 134.0 221.6
--------------------------------------- -------------- -------------- ------------------
Expected tax charge based on the
standard rate of
corporation tax in the UK of 19.00%
(2018: 19.00%)* 24.7 25.5 42.1
Difference between tax and accounting
profit on disposals (0.9) (4.1) (1.0)
REIT exempt income (4.8) (5.5) (10.7)
Revaluation surplus attributable
to REIT properties (14.2) (10.3) (15.2)
Expenses and fair value adjustments
not allowable for
tax purposes (1.6) (2.0) (8.1)
Capital allowances (2.7) (1.9) (4.6)
Other differences (0.1) (0.1) -
Tax charge on current period's profit 0.4 1.6 2.5
Adjustments in respect of prior
years' tax - - 0.2
Tax charge 0.4 1.6 2.7
*Changes to the UK corporation tax rates were substantively
enacted as part of the Finance Bill 2015 (on 26 October 2015) and
the Finance Bill 2016 (on 7 September 2016). These include reducing
the main rate to 19% from 1 April 2017 and then to 17% from 1 April
2020. Deferred taxes at the balance sheet date have been measured
using the expected enacted tax rate and this is reflected in these
financial statements.
11. Property portfolio
Carrying value
Total Owner- Total
investment occupied Trading property
Freehold Leasehold property property property portfolio
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ -------- --------- ---------- -------- -------- ---------
At 1 January 2019 4,034.1 994.1 5,028.2 47.0 36.3 5,111.5
------------------------ -------- --------- ---------- -------- -------- ---------
Acquisitions 21.0 - 21.0 - - 21.0
Capital expenditure 58.3 34.4 92.7 - 4.0 96.7
Interest capitalisation 3.4 2.9 6.3 - 0.3 6.6
-------- --------- ---------- -------- -------- ---------
Additions 82.7 37.3 120.0 - 4.3 124.3
Disposals (45.4) 0.2 (45.2) - - (45.2)
Revaluation 11.8 63.2 75.0 (0.5) - 74.5
Movement in grossing up
of
headlease liabilities - 1.0 1.0 - - 1.0
At 30 June 2019 4,083.2 1,095.8 5,179.0 46.5 40.6 5,266.1
At 1 January 2018 3,867.0 803.7 4,670.7 46.5 25.3 4,742.5
------------------------ -------- --------- ---------- -------- -------- ---------
Acquisitions 7.8 5.1 12.9 - - 12.9
Capital expenditure 37.3 35.2 72.5 - 3.3 75.8
Interest capitalisation 2.6 2.4 5.0 - 0.1 5.1
-------- --------- ---------- -------- -------- ---------
Additions 47.7 42.7 90.4 - 3.4 93.8
Revaluation 22.8 31.2 54.0 0.5 - 54.5
Write-down of trading
property - - - - (0.2) (0.2)
Movement in grossing up
of
headlease liabilities - 41.9 41.9 - - 41.9
At 30 June 2018 3,937.5 919.5 4,857.0 47.0 28.5 4,932.5
At 1 January 2018 3,867.0 803.7 4,670.7 46.5 25.3 4,742.5
------------------------ -------- --------- ---------- -------- -------- ---------
Acquisitions 52.1 5.1 57.2 - - 57.2
Capital expenditure 84.5 75.7 160.2 (0.2) 10.8 170.8
Interest capitalisation 5.2 5.1 10.3 - 0.4 10.7
-------- --------- ---------- -------- -------- ---------
Additions 141.8 85.9 227.7 (0.2) 11.2 238.7
Disposals (0.2) - (0.2) - - (0.2)
Revaluation 25.5 57.9 83.4 0.7 - 84.1
Write-down of trading
property - - - - (0.2) (0.2)
Movement in grossing up
of
headlease liabilities - 46.6 46.6 - - 46.6
At 31 December 2018 4,034.1 994.1 5,028.2 47.0 36.3 5,111.5
Adjustments from fair value to carrying
value
Total Owner- Total
investment occupied Trading property
Freehold Leasehold property property property portfolio
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- -------- --------- ---------- -------- -------- ---------
At 30 June 2019
Fair value 4,212.1 1,059.1 5,271.2 46.5 43.2 5,360.9
Revaluation of trading
property - - - - (2.6) (2.6)
Lease incentives and costs
included in receivables (128.9) (25.0) (153.9) - - (153.9)
Grossing up of headlease
liabilities - 61.7 61.7 - - 61.7
Carrying value 4,083.2 1,095.8 5,179.0 46.5 40.6 5,266.1
At 30 June 2018
Fair value 4,042.6 883.1 4,925.7 47.0 29.6 5,002.3
Revaluation of trading
property - - - - (1.1) (1.1)
Lease incentives and costs
included in receivables (105.1) (19.6) (124.7) - - (124.7)
Grossing up of headlease
liabilities - 56.0 56.0 - - 56.0
Carrying value 3,937.5 919.5 4,857.0 47.0 28.5 4,932.5
At 31 December 2018
Fair value 4,151.4 955.0 5,106.4 47.0 37.3 5,190.7
Revaluation of trading
property - - - - (1.0) (1.0)
Lease incentives and costs
included in receivables (117.3) (21.6) (138.9) - - (138.9)
Grossing up of headlease
liabilities - 60.7 60.7 - - 60.7
Carrying value 4,034.1 994.1 5,028.2 47.0 36.3 5,111.5
Reconciliation of fair value
30.06.2019 30.06.2018 31.12.2018
GBPm GBPm GBPm
-------------------------------- ---------- ---------- ----------
Portfolio including the Group's
share of joint ventures 5,362.7 5,029.2 5,217.6
Less: joint ventures (1.8) (26.9) (26.9)
IFRS property portfolio 5,360.9 5,002.3 5,190.7
The property portfolio is subject to semi-annual external
valuations and was revalued at 30 June 2019 by external valuers on
the basis of fair value in accordance with The RICS Valuation -
Professional Standards, 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 GBP5,327.8m (30 June 2018:
GBP4,969.2m; 31 December 2018: GBP5,157.8m) and Savills at GBP33.1m
(30 June 2018: GBP33.1m; 31 December 2018: GBP32.9m). Of the
properties revalued by CBRE, GBP46.5m (30 June 2018: GBP47.0m; 31
December 2018: GBP47.0m) relating to owner-occupied property was
included within property, plant and equipment and GBP43.2m (30 June
2018: GBP29.6m; 31 December 2018: GBP37.3m) was included within
trading property.
The total fees, including the fee for this assignment, earned by
each valuer (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.
Reconciliation of revaluation surplus
Half year Half year
to 30.06.2019 to 30.06.2018 Year to 31.12.2018
GBPm GBPm GBPm
-------------------------------------- -------------- -------------- ------------------
Total revaluation surplus 92.0 58.2 100.2
Share of joint ventures (0.9) (0.1) (0.2)
Lease incentives and costs (15.0) (4.0) (16.5)
Trading property revaluation
adjustment (1.6) 0.2 0.4
IFRS revaluation surplus 74.5 54.3 83.9
Reported in the:
Revaluation surplus 75.0 54.0 83.4
Write-down of trading property - (0.2) (0.2)
Group income statement 75.0 53.8 83.2
Group statement of comprehensive
income (0.5) 0.5 0.7
74.5 54.3 83.9
12. Property, plant and equipment
Owner-
occupied
property Artwork Other Total
GBPm GBPm GBPm GBPm
------------------------- -------- ------- ----- -----
At 1 January 2019 47.0 1.6 4.5 53.1
Depreciation - - (0.4) (0.4)
Revaluation (0.5) - - (0.5)
At 30 June 2019 46.5 1.6 4.1 52.2
At 1 January 2018 46.5 1.6 4.1 52.2
Additions - - 0.3 0.3
Depreciation - - (0.3) (0.3)
Revaluation 0.5 - - 0.5
At 30 June 2018 47.0 1.6 4.1 52.7
At 1 January 2018 46.5 1.6 4.1 52.2
Additions (0.2) - 1.1 0.9
Depreciation - - (0.7) (0.7)
Revaluation 0.7 - - 0.7
At 31 December 2018 47.0 1.6 4.5 53.1
Net book value
Cost or valuation 46.5 1.6 6.7 54.8
Accumulated depreciation - - (2.6) (2.6)
At 30 June 2019 46.5 1.6 4.1 52.2
Net book value
Cost or valuation 47.0 1.6 6.2 54.8
Accumulated depreciation - - (2.1) (2.1)
At 30 June 2018 47.0 1.6 4.1 52.7
Net book value
Cost or valuation 47.0 1.6 7.0 55.6
Accumulated depreciation - - (2.5) (2.5)
At 31 December 2018 47.0 1.6 4.5 53.1
The artwork is periodically valued by Bonhams using their
extensive market knowledge. The latest valuation was carried out in
May 2018 and the Directors consider that there have been no
material valuation movements since that date. In accordance with
IFRS 13 Fair Value Measurement, the artwork is deemed to be
classified as Level 3.
13. Investments
The Group has a 50% interest in three joint ventures, Dorrington
Derwent Holdings Limited, Primister Limited and Prescot Street
Limited Partnership.
30.06.2019 30.06.2018 31.12.2018
GBPm GBPm GBPm
----------------------------------- ------ ---------- ----------
At 1 January 29.1 39.7 39.7
Share of results of joint ventures
(see note 9) 2.0 1.9 2.1
Additions - - 0.8
Repayment of loan (21.0) - -
Distributions received (7.3) - (13.5)
2.8 41.6 29.1
14. Other receivables (non-current)
30.06.2019 30.06.2018 31.12.2018
GBPm GBPm GBPm
------------------------------- ----- ---------- ----------
Prepayments and accrued income 136.9 109.1 123.1
Prepayments and 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 GBP17.0m (30 June 2018: GBP15.6m; 31 December
2018: GBP15.8m), which was included as current assets within trade
and other receivables (see note 15), these amounts totalled
GBP153.9m at 30 June 2019 (30 June 2018: GBP124.7m; 31 December
2018: GBP138.9m).
15. Trade and other receivables
30.06.2019 30.06.2018 31.12.2018
GBPm GBPm GBPm
------------------ ---- ---------- ----------
Trade receivables 9.8 9.1 10.7
Other receivables 3.9 4.0 4.1
Prepayments 23.3 21.5 20.6
Accrued income 19.9 23.7 26.0
56.9 58.3 61.4
16. Trade and other payables
30.06.2019 30.06.2018 31.12.2018
GBPm GBPm GBPm
---------------- ----- ---------- ----------
Trade payables 3.1 1.8 1.4
Other payables 20.4 19.7 17.8
Other taxes 1.2 8.3 2.5
Accruals 42.9 46.1 38.7
Deferred income 41.4 42.1 42.7
109.0 118.0 103.1
17. Net debt and derivative financial instruments
30.06.2019 30.06.2018 31.12.2018
---------------- ------------- -------------
Book Fair Book Fair Book Fair
value value Value value value value
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------- ------- ------ ----- ------ -----
Current liabilities
1.125% unsecured convertible
bonds 2019 2.3 2.3 - - 148.4 152.3
2.3 2.3 - - 148.4 152.3
Non-current liabilities
1.125% unsecured convertible
bonds 2019 - - 147.0 157.0 - -
1.5% unsecured convertible
bonds 2025 163.6 164.1 - - - -
6.5% secured bonds 2026 185.3 222.7 186.4 222.3 185.9 222.1
2.68% unsecured private placement
notes 2026 54.7 55.4 - - - -
3.46% unsecured private placement
notes 2028 29.8 31.7 29.8 30.7 29.8 30.9
4.41% unsecured private placement
notes 2029 24.8 29.9 24.8 28.9 24.8 29.0
2.87% unsecured private placement
notes 2029 92.5 95.5 - - - -
2.97% unsecured private placement
notes 2031 49.8 51.8 - - - -
3.57% unsecured private placement
notes 2031 74.6 78.9 74.6 75.8 74.6 76.4
3.09% unsecured private placement
notes 2034 51.7 54.5 - - - -
4.68% unsecured private placement
notes 2034 74.4 95.0 74.4 90.7 74.4 90.9
3.99% secured loan 2024 82.0 88.1 81.8 86.7 81.9 87.0
Unsecured bank loans 60.0 62.0 140.4 143.5 267.0 269.5
Secured bank loan 27.8 28.0 27.7 28.0 27.7 28.0
971.0 1,057.6 786.9 863.6 766.1 833.8
Borrowings 973.3 1,059.9 786.9 863.6 914.5 986.1
Derivative financial instruments
expiring in
less than one year 1.1 1.1 - - - -
greater than one year 3.8 3.8 4.7 4.7 3.6 3.6
4.9 4.9 4.7 4.7 3.6 3.6
Total borrowings and derivative
financial instruments 978.2 1,064.8 791.6 868.3 918.1 989.7
Reconciliation to net debt:
Borrowings and derivative
financial instruments 978.2 791.6 918.1
Adjustments for:
Leasehold liabilities 61.7 56.0 60.7
Derivative financial instruments (4.9) (4.7) (3.6)
Cash and cash equivalents (31.5) (21.4) (18.3)
Net debt 1,003.5 821.5 956.9
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.
-- Leasehold liabilities.
There have been no transfers between Level 1 and Level 2 or
Level 2 and Level 3 in either 2019 or 2018.
18. Deferred tax liabilities
Revaluation
surplus Other Total
GBPm GBPm GBPm
------------------------------------------- ----------- ----- -----
At 1 January 2019 3.6 (1.8) 1.8
Credited to the income statement (0.2) (0.2) (0.4)
Credited to other comprehensive income (0.2) - (0.2)
At 30 June 2019 3.2 (2.0) 1.2
At 1 January 2018 4.5 (2.2) 2.3
Credited to the income statement (0.2) - (0.2)
Charged to other comprehensive income 0.2 - 0.2
At 30 June 2018 4.5 (2.2) 2.3
At 1 January 2018 4.5 (2.2) 2.3
(Credited)/charged to the income statement (0.8) 0.4 (0.4)
Credited to other comprehensive income (0.1) - (0.1)
At 31 December 2018 3.6 (1.8) 1.8
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 historical 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. Dividend
Dividend per
share
---------------------
Half year Half year
to to Year to
Payment date PID Non-PID Total 30.06.2019 30.06.2018 31.12.2018
p p p GBPm GBPm GBPm
-------------------- -------- -------- ----- ------- ----- ---------- ---------- ----------
Current period
18 October
2019 interim dividend 2019 21.00 - 21.00 - - -
----- ------- -----
Distribution of
current
period profit 21.00 - 21.00
Prior year
2018 final dividend 7 June 2019 30.00 16.75 46.75 52.2 - -
19 October
2018 interim dividend 2018 19.10 - 19.10 - - 21.3
----- ------- -----
Distribution of prior
year profit 49.10 16.75 65.85
2017 final dividend 8 June 2018 35.00 7.40 42.40 - 47.3 47.3
2017 special dividend 8 June 2018 - 75.00 75.00 - 83.6 83.6
Dividends as reported in
the
Group statement of changes
in equity 52.2 130.9 152.2
------------------------------ -------- ------ ------- ----- ---------- ---------- ----------
2018 final dividend
withholding tax 12 July 2019 (4.1) - -
2018 interim dividend 14 January
withholding tax 2019 2.3 - (2.3)
2017 final dividend
withholding tax 14 July 2018 - (4.1) -
2017 interim dividend 14 January
withholding tax 2018 - 2.1 2.1
Dividends paid as reported in
the
Group cash flow statement 50.4 128.9 152.0
------------------------------ -------- ------ ------- ----- ---------- ---------- ----------
20. Post balance sheet events
Contracts were exchanged on 2 August 2019 for the sale of The
Buckley Building EC1 for a net sale price of GBP99.6m with
completion expected in September 2019.
21. Related party disclosure
There have been no related party transactions during the half
year to 30 June 2019 that have materially affected the financial
position or performance of the Group. All related party
transactions are materially consistent with those disclosed by the
Group in its financial statements for the year ended 31 December
2018.
22. EPRA and underlying performance measures
Number of shares
-------------------------------- ------- ---------- ---------- ---------- ---------- ----------
Earnings per share Net asset value per
measures share measures
------------------------------- ------------------------------- ----------------------------------
Weighted average for
the
period ended At period ended
------------------------------- ----------------------------------
30.06.2019 30.06.2018 31.12.2018 30.06.2019 30.06.2018 31.12.2018
'000 '000 '000 '000 '000 '000
------------------------------- ------- ---------- ---------- ---------- ---------- ----------
For use in basic measures 111,608 111,460 111,521 111,660 111,536 111,540
Dilutive effect of share-based
payments 287 380 239 281 388 239
For use in other diluted
measures 111,895 111,840 111,760 111,941 111,924 111,779
The Group recognises the effect of conversion of the convertible
bonds if they are both dilutive and, based on the share price,
likely to convert. GBP147.7m of the GBP150m unsecured convertible
bonds 2019 ('2019 bonds') were redeemed in the period up to 30 June
2019. The remaining 2019 bonds had a conversion price of GBP31.43
and the new GBP175m unsecured convertible bonds 2025 ('2025 bonds')
have a conversion price of GBP44.96.
For both the half years to 30 June 2018 and 2019 and for the
year ended 31 December 2018, the Group did not recognise the
dilutive impact of the conversion of the 2019 bonds or 2025 bonds
on its earnings per share (EPS) or net asset value (NAV) per share
measures as, based on the share price at the end of each period,
the bonds were not expected to convert.
The following tables set out reconciliations between the IFRS
and EPRA earnings for the period and earnings per share. The
adjustments made between the figures are as follows:
A - Disposal of investment and trading property (including the
Group's share in joint ventures), and associated tax and
non-controlling interest
B - Revaluation movement on investment property and in joint
ventures, write-down of trading property and associated deferred
tax and non-controlling interest
C - Fair value movement and termination costs relating to
derivative financial instruments, associated non-controlling
interest and the bond redemption premium
In addition to the EPRA performance measures, underlying
performance measures which exclude certain items considered to be
non-recurring are used by the Directors to assess the operating
performance of the Group. A reconciliation of the EPRA and
underlying earnings is presented below.
Earnings and earnings per share
------------------------------------------------------------------------ -------------- -----------
Adjustments EPRA
IFRS A B C basis
GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ------- ----- -------------- -------------- -----------
Half year to 30 June 2019
Net property and other income 88.5 - - - 88.5
Administrative expenses (17.1) - - - (17.1)
Revaluation surplus 75.0 - (75.0) - -
Profit on disposal of investment
property 4.7 (4.7) - - -
Net finance costs (20.6) - - 7.8 (12.8)
Movement in fair value of derivative
financial instruments (1.3) - - 1.3 -
Financial derivative termination
costs (1.2) - - 1.2 -
Share of results of joint ventures 2.0 (0.8) (0.9) - 0.3
Profit before tax 130.0 (5.5) (75.9) 10.3 58.9
Tax charge (0.4) - (0.2) - (0.6)
Profit for the period 129.6 (5.5) (76.1) 10.3 58.3
Non-controlling interest 2.2 - (3.2) - (1.0)
Earnings attributable to equity
shareholders 131.8 (5.5) (79.3) 10.3 57.3
Earnings per share 118.09p 51.34p
Diluted earnings per share 117.79p 51.21p
Half year to 30 June 2018
Net property and other income 103.4 - 0.2 - 103.6
Administrative expenses (15.2) - - - (15.2)
Revaluation surplus 54.0 - (54.0) - -
Profit on disposal of investment
property 0.1 (0.1) - - -
Net finance costs (11.5) - - - (11.5)
Movement in fair value of derivative
financial instruments 3.1 - - (3.1) -
Financial derivative termination
costs (1.8) - - 1.8 -
Share of results of joint ventures 1.9 (1.3) (0.1) - 0.5
Profit before tax 134.0 (1.4) (53.9) (1.3) 77.4
Tax charge (1.6) - (0.2) - (1.8)
Profit for the period 132.4 (1.4) (54.1) (1.3) 75.6
Non-controlling interest 1.6 - (3.1) 0.5 (1.0)
Earnings attributable to equity
shareholders 134.0 (1.4) (57.2) (0.8) 74.6
Earnings per share 120.22p 66.93p
Diluted earnings per share 119.81p 66.70p
Earnings and earnings per share
------------------------------------------------------------------------ -------------- -----------
Adjustments EPRA
IFRS A B C basis
GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ------- ----- -------------- -------------- -----------
Year to 31 December 2018
Net property and other income 185.9 - 0.2 - 186.1
Administrative expenses (32.3) - - - (32.3)
Revaluation surplus 83.4 - (83.4) - -
Profit on disposal of investment
property 5.2 (5.2) - - -
Net finance costs (23.5) - - - (23.5)
Movement in fair value of derivative
financial instruments 4.3 - - (4.3) -
Financial derivative termination
costs (3.5) - - 3.5 -
Share of results of joint ventures 2.1 (1.3) 0.1 - 0.9
Profit before tax 221.6 (6.5) (83.1) (0.8) 131.2
Tax charge (2.7) 0.3 (0.7) - (3.1)
Profit for the year 218.9 (6.2) (83.8) (0.8) 128.1
Non-controlling interest 3.4 - (5.5) 0.1 (2.0)
Earnings attributable to equity
shareholders 222.3 (6.2) (89.3) (0.7) 126.1
Earnings per share 199.33p 113.07p
Diluted earnings per share 198.91p 112.83p
Underlying earnings and underlying earnings
per share
-------------------------------------------------------- -------------- -------------- -----------
Half year Half year Year to
to 30.06.2019 to 30.06.2018 31.12.2018
GBPm GBPm
-------------------------------------- ------- ----- -------------- -------------- -----------
EPRA earnings attributable to equity shareholders 57.3 74.6 126.1
Net income from grant of access rights - (15.8) (15.6)
Surrender premiums relating to subsequent
periods - (1.1) -
Underlying earnings attributable to equity
shareholders 57.3 57.7 110.5
Underlying earnings per share 51.34p 51.77p 99.08p
Net asset value and net asset value per share
-------------------------------------------------- ------- --------- -------
Undiluted Diluted
GBPm p p
------------------------------------------------- ------- --------- -------
At 30 June 2019
Net assets attributable to equity shareholders 4,290.9 3,843 3,833
Adjustment for:
Revaluation of trading properties net of
tax 2.1
Deferred tax on revaluation surplus 3.2
Fair value of derivative financial instruments 4.9
Fair value adjustment to secured bonds 11.2
Non-controlling interest in respect of the
above (0.8)
EPRA net asset value 4,311.5 3,861 3,852
Adjustment for:
Mark-to-market of secured bonds 2026 (47.7)
Mark-to-market of secured loan 2024 (5.1)
Mark-to-market of unsecured private placement
notes (37.7)
Mark-to-market of 1.5% unsecured convertible
bonds 2025 3.3
Deferred tax on revaluation surplus (3.2)
Fair value of derivative financial instruments (4.9)
Unamortised issue and arrangement costs (10.6)
Non-controlling interest in respect of the
above 0.8
------------------------------------------------- ------- --------- -------
EPRA triple net asset value 4,206.4 3,767 3,758
At 30 June 2018
Net assets attributable to equity shareholders 4,133.8 3,706 3,693
Adjustment for:
Revaluation of trading properties net of
tax 0.9
Deferred tax on revaluation surplus 4.5
Fair value of derivative financial instruments 4.7
Fair value adjustment to secured bonds 12.4
Non-controlling interest in respect of the
above (1.1)
------------------------------------------------- ------- --------- -------
EPRA net asset value 4,155.2 3,725 3,713
Adjustment for:
Mark-to-market of secured bonds 2026 (47.3)
Mark-to-market of secured loan 2024 (3.7)
Mark-to-market of unsecured private placement
notes (21.1)
Mark-to-market of 1.125% unsecured convertible
bonds 2019 (9.4)
Deferred tax on revaluation surplus (4.5)
Fair value of derivative financial instruments (4.7)
Unamortised issue and arrangement costs (7.6)
Non-controlling interest in respect of the
above 1.1
------------------------------------------------- ------- --------- -------
EPRA triple net asset value 4,058.0 3,638 3,626
At 31 December 2018
Net assets attributable to equity shareholders 4,201.9 3,767 3,759
Adjustment for:
Revaluation of trading properties net of
tax 0.8
Deferred tax on revaluation surplus 3.6
Fair value of derivative financial instruments 3.6
Fair value adjustment to secured bonds 11.8
Non-controlling interest in respect of the
above (0.9)
------------------------------------------------- ------- --------- -------
EPRA net asset value 4,220.8 3,784 3,776
Adjustment for:
Mark-to-market of secured bonds 2026 (47.1)
Mark-to-market of secured loan 2024 (4.0)
Mark-to-market of unsecured private placement
notes (22.2)
Mark-to-market of 1.125% unsecured convertible
bonds 2019 (3.6)
Deferred tax on revaluation surplus (3.6)
Fair value of derivative financial instruments (3.6)
Unamortised issue and arrangement costs (6.5)
Non-controlling interest in respect of the
above 0.9
------------------------------------------------- ------- --------- -------
EPRA triple net asset value 4,131.1 3,704 3,696
Cost ratios
-------------------------------------------------- -------------- -------------- ------------------
Half year Half year
to 30.06.2019 to 30.06.2018 Year to 31.12.2018
GBPm GBPm GBPm
----------------------------------------------- -------------- -------------- ------------------
Administrative expenses 17.1 15.2 32.3
Other property costs 4.9 4.6 9.7
Other costs - - 0.4
Dilapidation receipts - (1.6) (1.7)
Net service charge costs 1.2 1.1 2.9
Service charge costs recovered through
rents
but not separately invoiced (0.2) (0.1) (0.3)
Management fees received less estimated
profit element (1.7) (1.2) (2.9)
Share of joint ventures' expenses 0.3 0.2 0.4
EPRA costs (including direct
vacancy costs) (A) 21.6 18.2 40.8
Direct vacancy costs (1.6) (2.0) (4.4)
EPRA costs (excluding direct
vacancy costs) (B) 20.0 16.2 36.4
Gross rental income 93.1 86.9 175.1
Ground rent (0.7) (0.6) (1.4)
Service charge components of rental
income (0.2) (0.1) (0.3)
Share of joint ventures' rental income
less ground rent 0.6 1.0 1.7
Adjusted gross rental income
(C) 92.8 87.2 175.1
EPRA cost ratio (including direct
vacancy costs) (A/C) 23.3% 20.9% 23.3%
EPRA cost ratio (excluding direct
vacancy costs) (B/C) 21.6% 18.6% 20.8%
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) 5,360.9 5,002.3 5,190.7
Portfolio cost ratio (A/D) - annualised 0.8% 0.7% 0.8%
The Group has not capitalised any overhead or operating expenses
in either 2019 or 2018.
23. Gearing and interest cover
NAV gearing
30.06.2019 30.06.2018 31.12.2018
Note GBPm GBPm GBPm
------------ ---- ------- ---------- ----------
Net debt 17 1,003.5 821.5 956.9
Net assets 4,349.7 4,197.1 4,263.4
NAV gearing 23.1% 19.6% 22.4%
Loan-to-value ratio
30.06.2019 30.06.2018 31.12.2018
Note GBPm GBPm GBPm
---------------------------------- ---- ---------- ---------- ----------
Net debt 17 1,003.5 821.5 956.9
Fair value adjustment of secured
bonds (11.2) (12.4) (11.8)
Unamortised issue and arrangement
costs 10.6 7.5 6.5
Leasehold liabilities 17 (61.7) (56.0) (60.7)
Drawn debt 941.2 760.6 890.9
Fair value of property portfolio 11 5,360.9 5,002.3 5,190.7
Loan-to-value ratio 17.6% 15.2% 17.2%
Net interest cover ratio
Half year Half year
to 30.06.2019 to 30.06.2018 Year to 31.12.2018
Note GBPm GBPm GBPm
--------------------------------------- -------------- -------------- ------------------
Net property and other income 5 88.5 103.4 185.9
Adjustments for:
Other income 5 (1.7) (1.2) (2.9)
Other property income 5 - (17.7) (17.7)
Net surrender premiums 5 (0.5) (2.5) (3.2)
Write-down of trading property 5 - 0.2 0.2
Reverse surrender premiums 5 - - 0.1
Adjusted net property income 86.3 82.2 162.4
Finance income 7 (0.2) - -
Finance costs 7 13.0 11.5 23.5
12.8 11.5 23.5
Adjustments for:
Finance income 7 0.2 - -
Other finance costs 7 (0.1) (0.1) (0.2)
Amortisation of fair value adjustment
to secured bonds 7 0.6 0.5 1.2
Amortisation of issue and arrangement
costs 7 (1.1) (1.0) (2.1)
Finance costs capitalised 7 6.6 5.1 10.7
19.0 16.0 33.1
Net interest cover ratio 454% 514% 491%
24. Total return
Half year Half year
to 30.06.2019 to 30.06.2018 Year to 31.12.2018
p p p
---------------------------------- -------------- -------------- ------------------
EPRA net asset value on a diluted
basis
At end of period 3,852 3,713 3,776
At start of period (3,776) (3,716) (3,716)
Increase/(decrease) 76 (3) 60
Dividend per share 47 117 137
Increase including dividend 123 114 197
Total return 3.3% 3.1% 5.3%
25. List of definitions
Capital return
The annual valuation movement arising on the Group's portfolio
expressed as a percentage return on the valuation at the beginning
of the year adjusted for acquisitions and capital expenditure.
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 period
attributable to equity shareholders and are divided by the weighted
average number of ordinary shares in issue during the financial
period 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.
EPRA published its latest Best Practices Recommendations in
November 2016. This includes guidelines for the calculation of the
following performance measures which the Group has adopted.
- EPRA earnings per share
Earnings from operational activities.
- EPRA net asset value per share
NAV adjusted to include trading 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.
In addition, the Group has adopted the following recommendation
for investment property reporting.
- EPRA like-for-like rental income growth
The growth in rental income on properties owned throughout the
current and previous periods under review. This growth rate
includes revenue recognition and lease accounting adjustments but
excludes properties held for development in either period and
properties acquired or disposed of in either period.
Fair value adjustment
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.
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.
MSCI Inc. (MSCI IPD)
MSCI Inc. is a company that produces independent benchmarks of
property returns. The Group measures its performance against both
the Central London Offices Index and the UK All Property Index.
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 and leasehold liabilities plus bank overdraft less
cash and cash equivalents.
Net interest cover ratio
Net property income, excluding all non-core items 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 UK Real Estate Investment Trust ("REIT") regime was launched
on 1 January 2007. On 1 July 2007, Derwent London plc elected to
convert to REIT status.
The REIT legislation was introduced to provide a structure which
closely mirrors the tax outcomes of direct ownership in property
and removes tax inequalities between different real estate
investors. It provides a liquid and publicly available vehicle
which opens the property market to a wide range of investors.
A REIT is exempt from corporation tax on qualifying income and
gains of its property rental business providing various conditions
are met. It remains subject to corporation tax on non-exempt income
and gains e.g. interest income, trading activity and development
fees.
REITs must distribute at least 90% of the Group's income profits
from its tax exempt property rental business, by way of dividend,
known as a property income distribution. These distributions can be
subject to withholding tax at 20%.
If the Group distributes profits from the non-tax exempt
business, the distribution will be taxed as an ordinary dividend in
the hands of the investors.
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 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 space that is vacant and available to occupy or under
development or refurbishment.
Scrip dividend
Derwent London plc sometimes offers its shareholders the
opportunity to receive dividends in the form of shares instead of
cash. This is known as a scrip dividend.
'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.
Total property return (TPR)
Total property return is a performance measure calculated by the
MSCI IPD and defined in the MSCI Global Methodology Standards for
Real Estate Investment as 'the percentage value change plus net
income accrual, relative to the capital employed'.
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
period plus the dividend per share paid during the period expressed
as a percentage of the EPRA net asset value per share on a diluted
basis at the beginning of the year.
Total shareholder return (TSR)
The growth in the ordinary share price as quoted on the London
Stock Exchange plus dividends per share received for the period,
expressed as a percentage of the share price at the beginning of
the year.
Underlying portfolio
Properties that have been held for the whole of the period (i.e.
excluding any acquisitions or disposals made during the
period).
Underlying valuation increase
The valuation increase on the underlying portfolio.
Yields
- Net initial yield
Annualised rental income based on 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, 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 period. Yield compression is a
commonly-used term for a reduction in yields.
26. Copies of this announcement will be available on the
company's website, www.derwentlondon.com, from the date of this
statement. Copies will also be available from the Company
Secretary, Derwent London plc, 25 Savile Row, London, W1S 2ER.
Independent review report to Derwent London plc
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed Derwent London plc's interim condensed
consolidated financial statements (the "interim financial
statements") in the interim results of Derwent London plc for the 6
month period ended 30 June 2019. Based on our review, nothing has
come to our attention that causes us to believe that the interim
financial statements are not prepared, in all material respects, in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the Group condensed balance sheet as at 30 June 2019;
-- the Group condensed income statement and group condensed
statement of comprehensive income for the period then ended;
-- the Group condensed cash flow statement for the period then ended;
-- the Group condensed statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the interim results
have been prepared in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the Directors
The interim results, including the interim financial statements,
is the responsibility of, and has been approved by, the directors.
The directors are responsible for preparing the interim results in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the interim results based on our review.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the interim
results and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
8 August 2019
Notes to editors
Derwent London plc
Derwent London plc owns 84 buildings in a commercial real estate
portfolio predominantly in central London valued at GBP5.4 billion
(including joint ventures) as at 30 June 2019, making it the
largest London-focused real estate investment trust (REIT).
The Company's experienced team has a long track record of
creating value throughout the property cycle by regenerating its
buildings via development or refurbishment, effective asset
management and capital recycling.
The Company typically acquires 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. The Company capitalises on the unique qualities of each of
its 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 the Company's long-term success, the
business has a strong balance sheet with modest leverage, a robust
income stream and flexible financing.
Landmark schemes in the Company's 5.7 million sq ft portfolio
include Brunel Building W2, White Collar Factory EC1, Angel
Building EC1, 1-2 Stephen Street W1, Horseferry House SW1 and Tea
Building E1.
In 2019 to date, the Group has won the CoStar West End Deal of
the Year for Brunel Building. In 2018, the Group won EG Offices
Company of the Year, whilst White Collar Factory scooped RIBA
National and London awards, RICS National and London awards, two
BCO awards for Commercial Workplace and Innovation, an EG Creative
Places award and an NLA Wellbeing award. 25 Savile Row also won
RIBA National and London awards and SKA Gold for the fit-out. In
2013 the Company launched a voluntary Community Fund and has to
date supported 89 community projects in Fitzrovia and the Tech
Belt.
The Company is a public limited company, which is listed on the
London Stock Exchange and incorporated and domiciled in the UK. The
address of its registered office is 25 Savile Row, London, W1S
2ER.
For further information see www.derwentlondon.com or follow us
on Twitter at @derwentlondon
Forward-looking statements
This document contains certain forward-looking statements about
the future outlook of Derwent London. By their nature, any
statements about future outlook involve risk and uncertainty
because they relate to events and depend on circumstances that may
or may not occur in the future. Actual results, performance or
outcomes may differ materially from any results, performance or
outcomes expressed or implied by such forward-looking
statements.
No representation or warranty is given in relation to any
forward-looking statements made by Derwent London, including as to
their completeness or accuracy. Derwent London does not undertake
to update any forward-looking statements whether as a result of new
information, future events or otherwise. Nothing in this
announcement should be construed as a profit forecast.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR BUGDIISGBGCR
(END) Dow Jones Newswires
August 08, 2019 02:00 ET (06:00 GMT)
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
