TIDMDLN
RNS Number : 0755I
Derwent London PLC
10 August 2021
10 August 2021
Derwent London plc ("Derwent London" / "the Group")
INTERIM RESULTS FOR THE HALF YEARED 30 JUNE 2021
INCREASED ACTIVITY AND CONFIDENCE
Financial highlights
-- Total return of 2.7%, -0.1% in H1 2020, -1.8% in FY 2020
-- EPRA(1) NTA 3,864p per share, up 1.4% from 3,812p at 31 December 2020
-- Net rental income of GBP90.1m, up from GBP84.4m in H1 2020
-- EPRA(1) earnings of GBP60.6m or 54.0p per share, up 10.5% from 48.9p in H1 2020
-- Interim dividend raised 4.5% to 23.0p from 22.0p in 2020
-- Net debt of GBP999.7m (GBP1,049.1m at 31 December 2020)
-- Loan-to-value ratio 17.3% (18.4% at 31 December 2020)
-- Undrawn facilities and cash of GBP527m (GBP476m at 31 December 2020)
Portfolio highlights
-- Portfolio valued at GBP5.4bn, an underlying value increase of 1.4%
-- True equivalent yield of 4.65%, tightening 9bp since December 2020
-- Total property return of 3.2%, outperforming our benchmark index(2) of 2.3%
-- EPRA vacancy rate rose from 1.8% to 3.3% in H1 (subsequently reduced to 2.4%)
-- ERV movement of -0.3% in first half of 2021
-- First half lettings GBP3.9m, 1.6% below December 2020 ERV with offices 0.4% above
-- Raised 2021 ERV guidance to +2% to -2% from 0% to -5%
Second half activity to date
-- Exchanged contracts to acquire two freeholds for GBP214.6m
-- Signed memorandum of understanding to form a JV with Lazari
Investments for a major development in Baker Street W1
-- Secured vacant possession of Bush House WC2, accelerating refurbishment opportunity
-- Exchanged contracts to sell Angel Square EC1 for GBP86.5m before costs
-- Resolution to grant consent for the redevelopment of Network Building W1
-- Second half lettings to date GBP3.8m, 2.2% above ERV
-- Potential pipeline now c.2.5m sq ft
(1) Explanations of how EPRA figures are derived from IFRS are
shown in note 23
(2) MSCI IPD Central London Offices Quarterly Index
Paul Williams, Chief Executive, commented:
"Sentiment is improving as the year progresses which has been
reflected in our results and encouraged us to raise our ERV
guidance. We are well positioned to invest and are moving forward
with our next phase of net zero carbon developments and today's
acquisitions have added to our extensive pipeline."
Webcast and conference call
There will be a live webcast together with a conference call for
investors and analysts at 09.30 GMT today. The audio webcast can be
accessed via www.derwentlondon.com
To participate in the call, please register at
www.derwentlondon.com
A recording of the conference call will also be made available
following the conclusion of the call on 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
CHIEF EXECUTIVE'S STATEMENT
Improved business confidence
London's business confidence and economy were stronger than
expected in the first six months helped by the successful roll out
of the UK's vaccination programme. In our sector this has been
reflected in increased property activity levels and the tightening
of property yields. We expect these trends to strengthen further in
the second half now that most lockdown restrictions have been
lifted.
Operationally, we have seen higher rent collection with offices,
the bulk of our income, now close to pre-Covid levels. Our letting
activity has picked up as the year has progressed and we have now
let 139,000 sq ft for GBP7.7m of which 50% was in Q3. We continue
to embed our net zero carbon strategies across the business and
support our local communities.
Our average ERV fell only 0.3% in the first six months which was
at the top end of our previous guidance but, as expected, higher
quality buildings are performing better. Our vacancy rate rose
marginally to 3.3% at 30 June 2021 but, following H2 lettings to
date, is now 2.4%.
Our current developments at Soho Place W1 and The Featherstone
Building EC1 are on track to complete in H1 2022. We are commencing
our next major project at 19-35 Baker Street W1 in Q4 this year
which will take our space on site to over 700,000 sq ft.
We have also taken advantage of robust investor demand for
central London office properties by disposing of two older
buildings in the year to date for GBP256.5m and will be investing
the proceeds in new acquisitions and our extended development
pipeline.
Major West End investment
Today we are announcing three transactions with Lazari
Investments.
We have exchanged contracts to acquire two freehold interests in
the West End's Knowledge Quarter(1) :
-- 250 Euston Road NW1 is a 165,900 sq ft office building on a
1.6 acre site. It is let to UCLH until 2039 at a rent of just GBP28
per sq ft, subject to 2.5% fixed annual increases compounded every
five years, coinciding with tenant break options. The consideration
is GBP189.9m including estimated costs.
-- 171-174 Tottenham Court Road W1 is a 16,200 sq ft mixed-use
property acquired for GBP24.7m after estimated costs. This is an
interesting strategic holding, part of a much larger block
including significant UCLH and UCL interests.
In addition, we have signed a memorandum of understanding with
Lazari Investments to form a 50:50 joint venture which is expected
to acquire their leasehold interests in a group of Baker Street
buildings totalling 122,200 sq ft. The consideration for our 50%
interest including costs is GBP64.4m.
It is our intention to apply for planning permission to create a
major c.240,000 sq ft development. This will be almost opposite our
19-35 Baker Street scheme due to commence later this year. Subject
to the necessary approvals this project could begin in 2024. A
further payment of GBP7.25m would be payable to the vendor when
planning and headlease regears are achieved.
The estimated initial financial impacts of these transactions
are disclosed in a separate RNS published today.
(1) London's Knowledge Quarter is defined as the small area
around Euston Road, Kings Cross and Bloomsbury which has a very
high concentration of academic, cultural, research, scientific and
medical organisations
Adding to our next phase of developments
In the second half we have received a resolution to grant
planning consent for either 137,000 sq ft of offices or 112,000 sq
ft of lab-enabled space at Network Building, Fitzrovia W1. We
expect to commence work on site in 2022. Also in the second half,
we have bought in the headlease interest in the South West Wing of
Bush House WC2 for GBP13.5m before costs. The Group already owns
the freehold to this 103,700 sq ft property facing the Strand. As
well as releasing marriage value we are working on plans to
refurbish and extend the building to c.130,000 sq ft, with a
potential start date in 2022, subject to planning. Including the
19-35 Baker Street project these two projects would take our next
phase of developments up to 565,000 sq ft in addition to our
existing 410,000 sq ft on site.
Improved first half results and dividend
The recovery in confidence and activity is reflected in a
significant improvement in our financial results compared to H1
2020 when the first impacts of Covid-19 were being felt.
Gross rental income for the six months to 30 June 2021 increased
modestly to GBP98.1m from GBP97.8m a year earlier, with the GBP9.5m
increase from 80 Charlotte Street W1 being offset by a combined
GBP9.4m of disposals and increased voids. However, the impact of
Covid-related rental waivers and other concessions has been
significantly lower in 2021 so that net property income on an EPRA
basis rose by 10.9% to GBP93.8m from GBP84.6m in H1 2020. EPRA
earnings have benefitted accordingly, rising 10.8% to GBP60.6m from
GBP54.7m in H1 2020. EPRA earnings per share were 10.5% higher at
54.0p from 48.9p in H1 2020 and were also 5.3% above the 51.3p in
H1 2019.
The investment property revaluation surplus for the half year
was GBP57.8m after accounting adjustments, which followed declines
of GBP68.3m in H1 2020 and GBP196.1m for the full year. This has
helped drive EPRA Net Tangible Assets to 3,864p per share, up 1.4%
from 3,812p as at December 2020, and IFRS profit before tax was
GBP121.1m for the first half compared to a loss of GBP14.0m in H1
2020. Adding back dividends paid gave a total return for the first
half of 2021 of 2.7% against -0.1% in H1 2020 and -1.8% for the
whole of 2020.
Our other financial ratios remain very secure with interest
covered 4.8 times and the Group's LTV ratio at 17.3%, the same as a
year earlier and a little lower than the 18.4% at 2020 year end.
All of these aspects have encouraged us to increase the interim
dividend by 4.5% to 23.0p per share, where it remains well
covered.
The London office market
Business activity has been improving as London follows the
roadmap out of lockdown and with the increased level of
vaccinations. We believe it is the strength of the London economy
and its adaptability in attracting new sectors that will ultimately
determine demand and Derwent London's long-term growth. London's
large, relatively young and well-educated labour pool continues to
attract growing businesses. All of this further endorses our
confidence in London.
Office demand has focused on much more than just location and
price for some time. A building's adaptability, amenities, ability
to promote wellbeing, sustainability and 'digital intelligence' are
increasingly important to occupiers. The pandemic has further
highlighted these broader issues. High quality office space is an
important weapon in promoting a business's culture and the 'war for
talent'.
One example of how we are responding is 'DL/78' which is due to
launch next month at our latest completed development 80 Charlotte
Street W1. Located at the heart of our Fitzrovia village it is a
purpose built occupier facility providing drop in space and
refreshments, as well as the opportunity to hire meeting rooms and
event space ranging in capacity from 8 to 100+ persons. We are
encouraged by the positive response to this initiative from our
occupiers.
Many businesses are still considering how changing working
practices will affect them in the future. However, we expect space
requirements to continue to focus on peak occupational demand,
which often requires a significant proportion of the workforce to
be present at one time. Less individual desk space may be replaced
by additional video conferencing facilities. In addition, as more
businesses return to their offices the need to be 'at the centre of
things' will be reinforced.
These views are supported by the results of our third occupier
questionnaire since the start of the Covid pandemic. This survey,
which covers 50% of our income, has consistently shown that
collaboration and social activity have been most missed during the
pandemic. As time has progressed, wellbeing, training and
innovation have become significant additional concerns. In February
we were encouraged to find that 51% of respondents intended to
increase their headcount. That has not changed, but the percentage
seeing no change has increased from 18% to 29%. As a result, 80%
have said they intend in increase or see no change in their
headcount in the next six to 12 months up from 69% in February.
An evolving business
The increasing flight to quality within the central London
office market has led us to take a more nuanced look at our
portfolio and strategy.
We expect to retain more of our larger modern developments where
we see good long-term demand. These will provide asset management
opportunities and a core of high quality income. These properties
will enable the Group to build on its network of established
occupier relationships as well as making meaningful long-term
investments promoting climate resilience, higher levels of customer
services, intelligent buildings and supporting local
communities.
An income producing pipeline of potential projects will remain
at the heart of our business. We will continue to ensure that it is
extensive and offers multiple opportunities where we can continue
to utilise our design skills, proactive management and our brand.
We will advance our active development programme which we expect to
remain a significant contributor to our performance. Our proven
ability to produce high quality product should serve us well in a
market where potential legislation is putting much of central
London's older office stock in need of improvement.
The Lazari transaction announced today involves a classic mix of
income-producing medium and longer-term opportunities in an area we
know well, adding to a major cluster of Derwent London properties.
It adds 243,200 sq ft to our potential development pipeline which
now totals c.2.5m sq ft based on pre-development floor areas.
The strong investment market has given us the opportunity to
dispose of some of those buildings where, on our estimates, we
believe we can find greater returns elsewhere. The proceeds will be
reinvested either into new acquisitions or the development
programme.
All this activity will continue to be based on a financial
structure with modest gearing and sufficient headroom to ensure we
retain the flexibility to deliver all our objectives.
A responsible business
Last year we published our pathway to becoming a net zero carbon
business by 2030. Our focus on sustainability is highlighted by the
delivery of net zero carbon developments and a continuing
investment in our buildings and teams.
The pandemic has increased levels of collaboration with our
stakeholders. We will continue to support our occupiers as they
return to work, as well as offer financial support on a case by
case basis to those whose businesses remain particularly impacted
by the pandemic. In particular we have been supporting many of our
retail and hospitality occupiers.
Our own employees have increasingly been back in the office and
we have benefitted from the increased levels of human interaction.
Feedback on our workplace initiatives has been positive and in the
second half we will be continuing to focus on wellness and mental
health initiatives as well as talent development and cultural
awareness.
The Group continues to enjoy excellent relationships with its
suppliers who have responded well to the challenges presented by
the pandemic. Recognising the importance of cashflow in these
times, our average payment terms to our suppliers remains at 20
days. Looking forward in the next 12 months, we will be awarding a
number of significant new construction contracts covering projects
commencing in 2021 and 2022. We are assuming a higher rate of
construction cost inflation than in recent years with both
materials and labour costs impacted. We have mitigated this in the
past with fixed price contracts and by working closely with our
contractors.
We support local communities around our buildings through our
Community Funds and direct sponsorships and donations. In H1, with
support from our partners AHMM and TTP, we delivered a new
counselling room for the Soup Kitchen in Fitzrovia. In H2 we will
be helping St Monica's Primary School, Hoxton in the Green Schools
Project and Chickenshed in providing two initiatives designed to
help young people get into employment. We are very active and we
continue to engage constructively to ensure outcomes that benefit
the wider community such as our commitment to provide 23 affordable
homes with the development of Network Building in Camden.
Outlook and upgrade in guidance
In the first six months the London office market and our own
portfolio have performed near the upper end of expectations. We are
continuing to see good letting activity and demand. The growth rate
in the London vacancy rate appears to be levelling, new supply
remains constrained and some previously available tenant-controlled
space has been withdrawn from the market. In the light of this
evidence and on the assumption that there is no further lockdown,
we are raising our average portfolio ERV guidance to +2.0% to -2.0%
for the year ending December 2021. This compares to our March 2021
estimate of 0% to -5%.
Our average portfolio investment yields tightened in the first
half as expected. They are still higher than those of comparable
European cities and there is strong demand from a wide range of
sources (estimated at GBP41bn by CBRE). Inflation has begun to rise
from very low levels, but it is not yet clear this will become a
long-term trend and the yield gap between property and many other
assets remains wide. We expect investment demand and property
yields to remain firm in the second half.
We will continue to focus on the pre-letting campaigns for the
offices at The Featherstone Building EC1 and the retail at 1 Oxford
Street (Soho Place) W1 (together 161,000 sq ft); commencing our
next major net zero carbon development at 19-35 Baker Street W1
which totals 298,000 sq ft and continuing the progress to becoming
a net zero carbon business by 2030.
On the back of our strong financial position we have made a
positive start to the second half, and we can now finalise our
plans for Network Building for a 2022 development start, preparing
to submit plans for Bush House and embedding the Lazari
transactions into our portfolio.
As a result, we expect the Group to benefit from London's
continuing economic recovery. Our business model should also gain
from the increasing focus on making cities climate resilient. Risks
remain and international travel is still limited but our strong
activity levels are supported by our skill sets, financial strength
and well established relationships. These should provide additional
impetus ensuring that we can still produce above average long-term
returns and benefits for all our stakeholders.
Board appointments
We recently announced the appointment of Sanjeev Sharma who will
join the board as an independent Non-Executive Director from 1
October 2021. He will become a member of the Risk, Audit and
Nominations Committees. On 31 October Simon Fraser will retire from
the board and his position as Senior Independent Director, a
position that will then be taken by Helen Gordon. We are looking
forward to working with Sanjeev and would like to thank Simon for
his considerable contribution to Derwent London over the last nine
years.
CENTRAL LONDON OFFICE MARKET
The pandemic continues to impact the London office market, but
there are signs that its grip is starting to loosen as the economy
recovers and London's business confidence improves.
Occupier demand
Activity is improving with first half take-up at 3.0m sq ft, 55%
higher than H2 2020 although, in absolute terms, this remains
significantly below pre-Covid levels. Professional and business
services represented 31% of demand, slightly below recent years,
banking and finance increased their share to 23% and creative
industries remained at c.20%.
The overall vacancy rate has risen to 9.3% from 8.0% in the
first six months, with the City vacancy rate at 12.7% rising faster
than the West End's at 6.0%. These levels are above long-term
trends but new space is estimated at under 15% of the total. CBRE
classify the majority as secondhand of which 41% is tenant
controlled. Much of this space is of lower quality which has been a
contributing factor to the two tier market, and the flight to
quality.
The impact on rent has been relatively modest with CBRE
estimating that prime rents have fallen 1.1% overall in the last
year, declining 2.2% in the City and actually rising 1.3% in the
West End. The MSCI IPD central London office index recorded average
rents rising 0.1%. This improving trend is reflected in the amount
of space under offer. This fell steadily from 3.7m sq ft at Q1 2020
to reach its low point at 1.9m sq ft in Q1 this year and has now
recovered to 2.7m sq ft at the end of Q2, its highest level for
five quarters.
The supply of available new space remains constrained despite
lower levels of pre-letting activity. The first half saw 2.9m sq ft
of space delivered leaving 11.2m sq ft under development compared
to 12.1m sq ft in December 2020. This space is 32% pre-let leaving
available new space due for delivery between now and the end of
2023 of 7.6m sq ft. This is in line with recent trends at c.3% of
the total market.
Investment demand
There were GBP3.9bn of investment transactions in the first half
of 2021 as estimated by CBRE, despite the UK being in lockdown for
a major part of the period. Nearly 70% of activity occurred in Q2,
which also represented the highest single quarter's activity since
2018 outside the two very active last quarters in 2019 and 2020.
This demand has seen the MSCI IPD central London office equivalent
yield move in 5bp to 4.85%.
Overall investment activity remains 35% below the pre-Covid
trend but is beginning to recover. There was greater interest from
North American buyers which represented 29% of the total and UK
investors at 28%. Asian and European buyers also remain active and
together amount to 34%. Overall, there seems increased interest in
UK assets not just in the property sector, as UK value growth has
lagged many international peers. These higher levels of interest
may reflect the impact of the UK leaving the EU in January 2021 as
well as the UK's population's relative levels of vaccination. The
largest single transactions were in the City and Whitechapel. CBRE
reports that potential investment demand remains high at
GBP41bn.
VALUATION
The Group's investment portfolio was valued at GBP5.4bn on 30
June 2021. There was a valuation surplus of GBP70.1m for the first
half which, after accounting adjustments of GBP12.0m (see note 10),
produced an uplift of GBP58.1m. This movement represents an
underlying valuation increase of 1.4%, and a reversal of the 2.1%
valuation fall seen over the second half of 2020. By location, our
central London properties, which represent 99% of the portfolio,
increased in value by 1.3% with the West End 1.6% and City Borders
0.7%. The balance of the portfolio, our Scottish holdings, were up
7.4% following a favourable residential planning consent.
Our portfolio's capital growth outperformed the MSCI IPD
Quarterly Index for Central London Offices, at 0.5%, but
underperformed the wider All UK Property Index which increased
2.9%.
Looking at EPRA metrics, with lower leasing activity than
pre-pandemic, our rental values fell marginally by 0.3%. Whilst our
portfolio has limited retail exposure it accounted for the fall, as
rental values in this sector fell by 5.8% compared to the marginal
0.1% increase for offices. The strong investment market, which
continues to see a hunt for yield from well let, quality buildings,
helped drive the portfolio's valuation yields lower. Accordingly,
the true equivalent yield tightened 9bp from 4.74% to 4.65% over
the first half of the year. The initial yield is 3.4%, which after
allowing for the expiry of rent frees and contractual uplifts,
rises to 4.6% on a 'topped-up' basis.
The total property return for the first six months was 3.2%,
which compares to the MSCI IPD Index of 2.3% for Central London
Offices and 5.3% for UK All Property.
We are on site with two major developments: Soho Place W1 and
The Featherstone Building EC1. Further details on their progress
are set out under 'Developments' below. They were valued at
GBP392.3m in June 2021 and delivered a 5.8% uplift. Both are
scheduled for completion in early 2022 and require GBP127m of
additional capex to complete. Their ERV is GBP28.6m, of which 59%
is pre-let by ERV. Excluding these developments, the portfolio
increased by 1.1%.
Portfolio reversion
Turning to our income profile, our contracted annualised cash
rent in June was GBP175.8m, which was a 7% decrease over the 6
months, mainly reflecting the disposal of the Johnson Building EC1
and falling income at our Portman joint venture, ahead of its
restructure and the redevelopment of 19-35 Baker Street W1. With a
portfolio ERV of GBP282.4m there is GBP106.6m of potential
reversion. Within this, GBP60.0m is contracted through rent-frees
and fixed uplifts, which under IFRS accounting treatment is already
mostly incorporated in the income statement. Our on-site
developments and major refurbishments could add GBP31.1m of which
GBP17.0m is pre-let at Soho Place. There is then GBP5.0m of
potential income from several ongoing smaller projects across the
portfolio. Our vacancy rate, whilst low, moved to 3.3% from 1.8%
over the first half. This represents GBP8.4m of reversion. Since
then our letting activity, including at the recently completed 6-8
Greencoat Place refurbishment, would take the level down to 2.4%.
The balance of the potential reversion GBP2.1m comes from future
reviews and expiries.
ASSET MANAGEMENT & INVESTMENT ACTIVITY
Our rent collection has steadily improved since the June 2020
Quarter Day. We have now received 93% of our June 2021 quarter
rents up from 89% when we last reported on 9 July 2021, and we
still have another 3% due to be paid this quarter. Our office rent
collection was 95% with another 2% due later in this quarter, and
we have now received 59% of our retail and hospitality rents
compared to 27% in July. In relation to the previous two quarters,
we have received or have payment plans in place for 96% of March
2021 quarter day rents and 97% of December 2020 rents.
June 2021 quarter(1)
Current position Announced 9 July
------------------------------------------
Office Retail/ Hospitality Total Office Retail/ Hospitality Total
-------------------- --------- --------------------
Rent received to date 95% 59% 93% 93% 27% 89%
Due later in the quarter(2) 2% 12% 3% 3% 31% 5%
Outstanding 2% 23% 3% 3% 36% 5%
Rent free 1% 6% 1% 1% 6% 1%
Total 100% 100% 100% 100% 100% 100%
-----------------------------
GBP38.4m GBP2.7m GBP41.1m GBP38.4m GBP2.7m GBP41.1m
----------------------------- -------------------- --------------------
1 Rent received to date for English quarter days 2 Principally monthly receipts
With a low vacancy rate we continue to have limited amounts of
space to let. The table below shows that Q1 was very quiet in the
market, but our activity and performance has since improved. The
sample size remains relatively low so single deals can have a major
impact. In the first half, our office transactions were 0.4% above
December 2020 ERV, brought down by short-term residential lettings.
However, our overall lettings were 1.6% below ERV on average.
Table 1: Letting activity 2021 to date
Let Performance against
Dec 20 ERV (%)
Area Income Open market Overall(1)
sq ft GBPm pa
Q1 14,400 0.3 (14.4) (16.8)
Q2 64,800 3.6 (0.1) (0.1)
----- -------- ------------ -----------
H1 79,200 3.9 (1.0) (1.6)
----- -------- ------------ -----------
Q3 59,800 3.8 2.2 2.2
----- -------- ------------ -----------
YTD 139,000 7.7 0.6 0.2
----- -------- ------------ -----------
(1) Includes short-term lettings at properties earmarked for
redevelopment
The largest deal in the first half was the letting to Depop who
took the first floor at 20 Farringdon Road EC1. Activity has
continued in the second half. We have let the recently completed
6-8 Greencoat Place SW1 to Fora, and The & Partnership has
chosen the Charlotte Building W1 as its main HQ which has seen them
take additional space as well as extend their existing lease. Our
'furnished & flexible' offer has made an important contribution
letting 20,900 sq ft in total. One of the larger of these deals was
at 3-5 Rathbone Place W1. More details on these transactions can be
seen in the table below.
Table 2: Principal lettings 2021 to date
Total
Office annual Lease Lease
Area rent rent term break Rent-free equivalent
Property Tenant sq ft GBP psf GBPm Years Year Months
H1
20 Farringdon Road 9, plus 4 if no
EC1 Depop 33,500 52.50 1.8 5 3 break
Tea Building E1 Soho House 7,600 50.00 0.4 10 - 24
19-23 Fitzroy Street 5, plus 3 if no
W1 Mission Media 4,500 73.80 0.3 5 3 break
Holden House W1 Envy 5,900 53.00 0.3 5 4 12
Atelier Capital 4, plus 2 if no
3-5 Rathbone Place W1 Partners 3,000 88.00 0.3 5 3 break
H2
6-8 Greencoat Place
SW1 Fora 32,400 68.50 2.2 15 - 34
Charlotte Building W1 The & Partnership 14,900 67.50 1.0 5 - 10
Total 101,800 61.90 6.3
A year ago, our asset management focus was on our 2021 lease
expiries which represented 24% of our rental income. By December
2020 this had reduced to 17% of this year's income. During the
first half we have retained or re-let 78% of all expiries and
completed the disposal of Johnson Building EC1. As a result at 30
June 2021 only 9% of our second half income was subject to expiry.
After adjusting for the disposal of Angel Square, and two buildings
being cleared for development this falls further to 5%. Thereafter
our lease expiry profile follows a more normal pattern.
In the first six months lease events have seen our rental income
increase by GBP1.9m. This activity covered rents on GBP16.5m of
rental income or 9% of our December 2020 annual rent. Overall,
these transactions were 3.5% below ERV. Most of the
underperformance was driven by just two transactions. Our lease
renewal performance was impacted by one letting to a retail
business and the rent review performance was impacted by a
transaction at Angel Square EC1. The performance of lease regears
was more in line with expectations. The aggregate performance of
our activities is shown in the table below.
Table 3: Asset management H1 2021
Area Previous rent New rent Uplift New rent vs
----------------
'000 sq ft GBPm pa GBPm pa % Dec 20 ERV %
---------------- -------------- --------- ------- -------------
Rent reviews 166.2 7.3 9.1 24.6 (4.3)
Lease renewals 31.4 1.9 1.8 (5.0) (6.2)
Lease regears 164.8 7.3 7.5 2.7 (1.8)
---------------- -------------- --------- ------- -------------
Total 362.4 16.5 18.4 11.5 (3.5)
---------------- -------------- --------- ------- -------------
Improving the energy efficiency of the existing portfolio
Our existing portfolio represents a very significant part of our
journey to net zero. In the first half we completed 6-8 Greencoat
Place SW1 improving its EPC rating from an 'E' to 'B'. In addition,
we fitted out 19 Fitzroy Street W1 as 'furnished & flexible'
space which involved upgrading its all-electric heat and power
services. This has seen that building's EPC rating rise from 'C' to
'A'. As a result of our first half actions, we are now fully
compliant with the 2023 EPC legislation, excluding known projects.
Our sights are now set on the potential 2030 legislation which will
require all our portfolio to be EPC 'B' or better.
Investment activity
Our investment team has had an active year to date
notwithstanding the continuing competitiveness of the market. The
majority of this activity relates to the second half and is
included in the table below. This excludes the three Baker Street
properties in joint venture with Lazari Investments, for which we
have signed a detailed memorandum of understanding.
Table 4: Major acquisitions 2021 to date
Net Net
Total after Net rental rental
Area costs yield income income
Property Date sq ft GBPm % GBPm pa GBP psf
250 Euston Road NW1 Q3 165,900 189.9 2.5 4.7 28.30
------ -------- ------------ ------- --------- ---------
171-174 Tottenham Court Road W1 Q3 16,200 24.7 2.6 0.6 57.50
------ -------- ------------ ------- --------- ---------
Holford Works WC1 (long leasehold) Q2 41,600 23.8 6.8 1.6 40.00
------ -------- ------------ ------- --------- ---------
Bush House WC2 (leasehold) Q3 103,700 14.5 - - -
------ -------- ------------ ------- --------- ---------
Total 327,400 252.9
-------- ------------ ------- --------- ---------
We continue to dispose of those assets where we think the
potential returns are less exciting. Recent events have made us
reconsider some of our potential schemes and the current strong
levels of investment demand have allowed us to crystalise these
buildings at good levels.
Table 5: Major disposals 2021
Gross
Area proceeds Net yield to purchaser Rent
Property Date sq ft GBPm % GBPm
Completed
Johnson Building EC1 Q1 192,700 170.0 4.1 7.3
------ -------- ---------- ----------------------- -------
Exchanged
Angel Square EC1 Q3 126,200 86.5 - 0.0(1)
------ -------- ---------- ----------------------- -------
Total 318,900 256.5 - 7.3
-------- ---------- ----------------------- -------
(1) To be sold with vacant possession
DEVELOPMENTS
We have two major developments under construction, both due for
delivery in H1 2022. In the next 18 months we expect to have
commenced our next phase of major schemes incorporating 19-35 Baker
Street W1, Network Building W1 and Bush House WC2. Together these
additional projects could add 565,000 sq ft to our on-site
programme. Beyond that our longer-term pipeline has been increased
by our second half investment transactions so that we have a
potential further 1.7 million sq ft, or 31% of our portfolio by
area, that could form the basis of future regeneration
activity.
On-site projects
At Soho Place W1, the offices and theatre element, in total
249,200 sq ft, is either pre-let or forward-sold. The pre-let
income has an ERV of GBP17.0m. This leaves 36,000 sq ft of retail,
with an ERV of GBP3.1m, still to let.
The Featherstone Building EC1, with an ERV of GBP8.5m, remains
available to pre-let. Following initial interest in a substantial
proportion of the space which has since been satisfied elsewhere,
we continue with the original multi-let strategy similar to our
successful campaign at Brunel Building W2.
Table 6: Major developments pipeline
Property Area Capex to complete Comment
sq ft GBPm(1)
On-site projects completing H1 2022
Soho Place W1 285,000 104(2) 209,000 sq ft offices, 36,000 sq ft retail
and 40,000 sq ft theatre - 87% pre-let /
forward
sold.
The Featherstone Building EC1 125,000 23 110,000 sq ft offices, 13,000 sq ft
workspaces and 2,000 sq ft retail.
----------- ------------------ ---------------------------------------------
410,000 127
----------- ------------------ ---------------------------------------------
Forthcoming projects completing 2025
19-35 Baker Street W1 298,000(3) 271 Consented. 218,000 sq ft offices, 52,000 sq
ft residential and 28,000 sq ft retail.
----------- ------------------ ---------------------------------------------
Planning
Holden House W1 150,000 - Consented. Office and retail scheme.
Network Building W1 137,000 - Dual consent for Office scheme and Life
Science scheme. Existing floorspace 70,000
sq ft.
----------- ------------------ ---------------------------------------------
287,000 -
----------- ------------------ ---------------------------------------------
Under active appraisal
Bush House, South West Wing WC2 130,000 - Existing floorspace 103,700 sq ft.
----------- ------------------ ---------------------------------------------
Total 1,125,000 398
----------- ------------------ ---------------------------------------------
(1) As at 30 June 2021 (2) Includes remaining site acquisition
cost and profit share to Crossrail
(3) Total area - Derwent London currently has a 55% share of the
joint venture
19-35 Baker Street W1
Our next major scheme 19-35 Baker Street, which totals 298,000
sq ft, is expected to commence at the beginning of Q4 2021 when we
exercise our development option with The Portman Estate. Subject to
payment, our 55% interest in a 69-year lease will become a wholly
owned 129-year headlease on the 206,000 sq ft office element. The
ground rent is initially 2.5% rising to 6% in 29 years' time.
The development also includes 45,000 sq ft of residential for
sale at 100 George Street W1, where we are working with Native
Land, and affordable housing. The bulk of the remaining space will
be pre-sold to The Portman Estate as part consideration for the
unwinding of our previous 55:45 joint venture.
We have recently awarded the demolition contract, which was
within budget, and plan to finalise the main building contract in
H1 2022. The total capital expenditure is estimated at GBP271m and
we will draw down monies from the 'green' tranche of our revolving
credit facility. As well as joining our long-life, loose-fit high
quality portfolio the building will be our first NABERS UK
certified scheme and we are targeting BREEAM 'Excellent'. We gave
more details on the building's sustainability aspects in our Report
& Accounts 2020.
Refurbishments
Our two smaller retrofitting projects have progressed well. 6-8
Greencoat Place SW1 was completed in June and totals 32,400 sq ft
(see Table 2 for more details). Work started on the adjacent
Francis House SW1 in March and the completion of this 38,000 sq ft
project is due in H1 2022.
Network Building W1
The Group recently received two resolutions to grant consent at
the Network Building W1. We received consent for either an office
scheme or a lab-enabled project. The former totals 137,000 sq ft
and the latter will comprise 112,000 sq ft of lab-enabled space.
Both projects include 5,000 sq ft of retail. In addition, we are
providing 23 affordable homes in Tottenham Mews W1. Work will start
in H2 2022 for completion in 2025.
Bush House, South West Wing WC2
The recent acquisition of the outstanding 7-year leasehold
interest in Bush House accelerates our refurbishment ambitions for
this 103,700 sq ft building. We are working up plans for a
refurbishment and extension that could, subject to planning,
increase the lettable area to c.130,000 sq ft. If successful, we
could start this scheme in 2022.
Longer term pipeline
In the future we have other projects such as Holden House W1,
Blue Star House SW9 and The White Chapel Building E1 so that at 30
June we had a further 1.7 million sq ft (or 31% of the portfolio)
designated for future development. Our second half activity could
increase this by a further 243,200 sq ft (or 4%).
FINANCIAL REVIEW
Results for the period
Improved confidence among our occupiers and those who invest in
UK real estate has driven stronger results across most aspects of
our business compared to both H1 2020 and the last full year. In
addition, the Group's balance sheet remains lowly geared with
substantial headroom under our financial covenants and with
significant cash and available facilities. These outcomes benefit
all our stakeholders and have encouraged us to recommend a further
4.5% increase in the interim dividend payable to our
shareholders.
Derwent London's total return for the first half of 2021 was
+2.7% following a Covid-19 impacted 0.1% fall in H1 2020 and a 1.8%
decrease over the whole of 2020. EPRA net tangible assets (NTA) per
share increased by 1.4% to 3,864p from 3,812p as at 31 December
2020 and EPRA earnings per share were 54.0p for the first half of
2021, 10.5% higher than in H1 2020.
Gross rental income increased to GBP98.1m from GBP97.8m in H1
2020 after GBP9.7m of additional rent recognised on major lettings,
including GBP9.5m from 80 Charlotte Street W1 alone. This was
largely offset by additional voids which reduced rental income by
GBP4.9m, and disposals, principally the Johnson Building EC1 sold
in January 2021, where GBP4.5m less rent was recognised than in H1
2020. The acquisition of Holford Works WC1 added GBP0.2m and
Covid-related rent waivers took gross rents down by GBP0.6m
compared to H1 2020.
The first half of 2021 has also benefitted from GBP3.6m of net
surrender premiums, largely at 90 Whitfield Street W1.
Net rental income has recovered more significantly as our
occupiers have not needed the same level of support as last year,
reflected in gradually strengthening rent collection figures from
our office occupiers over the last few quarters. The overall
progress in sentiment has been reflected in the unwinding of
GBP1.6m of impairment provisions previously recognised in 2020 but
there remain a few sectors where the recovery has been slower.
Principally in relation to our retail, restaurant and leisure
occupiers, the overall net impairment charges booked in H1 2021
under IFRS 9 against trade and lease incentive receivables were
GBP1.2m. We also added GBP0.2m of service charge provisions to give
an overall first half impact estimated at GBP1.4m. This is
substantially lower than the GBP6.5m recognised in H1 2020 when
impairment charges totalled GBP3.6m, GBP0.8m of receivables were
written off and service charge waivers of GBP2.1m were provided.
Other property costs in H1 2021 totalled GBP6.6m, very similar to
the GBP6.9m in H1 2020.
As a result, net rental income was GBP90.1m in H1 2021, 6.8%
higher than the GBP84.4m in H1 2020, and net property and other
income, which includes the GBP3.6m of net surrender premiums, was
GBP95.1m, up GBP8.6m or 9.9% from H1 2020.
With more difficult letting conditions over the last year or so
and a higher vacancy rate, EPRA like-for-like gross rents fell
compared to H1 2020 by 4.5% and against H2 2020 by 3.4% but
like-for-like net rental income was 0.8% and 4.6% higher,
respectively due to the lower waivers and impairments.
Administrative expenses have increased to GBP19.4m for the half
year with a higher headcount and pay increases driving salaries up
by 9.6%. There was also a substantial rise in the amount accrued
for staff incentives, mainly a result of our higher share price.
Our EPRA cost ratio (including direct vacancy costs) has fallen
back to 25.7% from 28.9% in H1 2020 and 30.5% for the whole of 2020
but remains higher than in previous years. The overhead is impacted
by our investment in digital solutions, ESG, climate change
solutions, additional customer amenity and a growing governance and
assurance programme.
The investment property portfolio carrying value at 30 June 2021
rose slightly to GBP5.1bn after the usual adjustments for leasehold
incentives and headlease liabilities. Including owner-occupied
property (25 Savile Row W1), the assets held for sale (Angel Square
EC1, certain Baker Street properties and part of Soho Place W1) and
the trading properties, the total property portfolio was carried at
GBP5.3bn after a revaluation surplus for the half year of GBP58.8m.
Of this, GBP57.8m passes through the income statement compared to
the deficit in H1 2020 of GBP68.3m, with GBP1.0m of surplus on our
head office included in the statement of comprehensive income.
Profit from operations has accordingly recovered significantly to
GBP134.1m for the half year, against GBP2.8m in H1 2020 and a loss
of GBP49.2m for the full year 2020.
Net finance costs have increased a little to GBP14.2m from
GBP13.6m in H1 2020 mainly due to a lower level of capitalised
interest at GBP5.4m against GBP6.3m in H1 2020 and, as before, we
do not capitalise any overhead costs.
Overall, the IFRS profit before tax for the first half of 2021
was GBP121.1m with the profit for the period, after a small tax
charge, of GBP120.5m. The corresponding figures in H1 2020 were
losses of GBP14.0m and GBP13.2m, respectively.
Cash flow, net debt and financing
In order to provide support for some of our tenants in 2020, we
agreed to defer GBP11.8m of rental income under agreed payment
plans to the following year. Though this reduced our operating cash
flow in H1 2020 to GBP30.1m, it has helped boost cash from
operating activities in H1 2021 to GBP51.3m. Further cash receipts
of GBP166.5m have come from investment property disposals, chiefly
the sale of Johnson Building EC1. After capital expenditure and the
acquisition of Holford Works WC1, net cash received from investing
activities was GBP58.4m.
The cash generation seen has reduced our debt levels from an
already low base to provide a net debt figure of GBP999.7m at 30
June 2021, down from GBP1,049.1m at 31 December 2020. The Group's
loan-to-value ratio was 17.3% at 30 June 2021, the same as a year
earlier and below the 18.4% at December 2020, illustrating our
firepower for new acquisitions. It is also good to see that
interest cover has improved again to 477% or 4.8 times from 435% in
H1 2020 and 446% for the whole of 2020. For many years, this has
been one of our principal financial KPIs. Cash and undrawn
facilities have also risen to GBP527m, against GBP502m at June 2020
and GBP476m at the 2020 year end.
The next loan expiry relates to the GBP28m loan provided by HSBC
against some of our Baker Street properties and, with these
interests due to be reorganised with The Portman Estate in the next
few months, we expect to repay this loan in the second half of the
year. There has been no fresh refinancing in H1 2021 but we do
anticipate raising some new debt over the next twelve months.
As at 30 June 2021, the weighted average maturity of our
borrowings was 6.4 years (December 2020: 6.8 years) and the
interest rate payable on drawn debt was 3.44% (December 2020:
3.34%) on a cash basis and 3.58% (December 2020: 3.48%) on an IFRS
basis after adjusting for the convertible bond.
Qualifying expenditure under the Green Finance Framework
The qualifying 'green' expenditure as at 30 June 2021 for each
project is set out in the table below. The 80 Charlotte Street
scheme commenced in 2015 with Soho Place and The Featherstone
Building both starting on site in 2019.
The cumulative qualifying expenditure on Eligible Green Projects
('EGP's) at the half year was GBP489.7m, with GBP70.0m of this
being incurred in H1 2021.
Table 7: Cumulative spend on each EGP as at 30 June 2021
Project Look back spend Subsequent spend Cumulative spend
------------------------------- -----------------------
Q4 2019 2020 2021
-------------------------------
GBPm GBPm GBPm GBPm GBPm
------------------------------- -------- ------ -----------------
80 Charlotte Street W1 185.6 16.9 16.9 13.8 233.2
Soho Place W1 66.3 13.4 61.5 40.5 181.7
The Featherstone Building EC1 29.1 5.2 24.8 15.7 74.8
281.0 35.5 103.2 70.0 489.7
------
As at 30 June 2021, drawn borrowings on the GBP300m green
tranche of the Group's GBP450m revolving credit facility totalled
GBP83.0m.
The 19-35 Baker Street development, which is targeting BREEAM
excellent, will be elected as the next EGP.
Dividend
The dividend remains well covered by EPRA earnings and our
policy of a sustainable and progressive dividend is unchanged. With
these improved results, we are raising the interim dividend payable
for 2021 by 4.5% to 23.0p per share, all of which will be paid as a
Property Income Distribution on 15 October 2021 to shareholders on
the register as at 10 September 2021.
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 2021. The Board has confirmed that
its risk appetite and key risk indicators remain appropriate. The
Group's approach to the management and mitigation of these risks is
included in the 2020 Annual Report.
Covid-19 has had a considerable impact on the materiality of our
principal risks. As lockdown restrictions have eased, and the
economy re-opened, we expect to see a slow reversal.
As a business we have taken steps to mitigate the threat and
disruption being caused by the virus and have worked proactively
with our occupiers to assist them during this time of difficulty.
The safety and wellbeing of our employees and other key
stakeholders has been consistently at the forefront of our efforts.
Measures introduced at our buildings to reduce transmission remain
in place, including in respect to cleaning regimes, air ventilation
and social distancing in common areas.
Due to the Group's strong financial position and its proactive
response to the pandemic, the risks arising from Covid-19, and the
lockdown restrictions, have been carefully managed. The success of
the UK's vaccination programme has had a positive impact on the
number of Covid-19 cases resulting in serious illness,
hospitalisation and death. There remains a risk that variants
emerge with increased transmissibility, severity or are
vaccine-resistant.
Self-isolation requirements arising from NHS track and trace
'app' notifications, has had an impact on attendance at our
construction sites and for our occupiers. From 16 August 2021, all
adults in England who have received a second dose of a Covid-19
vaccine will be exempt from isolation if they come into contact
with a positive case, which should ease the impact of this
risk.
Beyond Covid-19, the Group has continued to make positive
progress on its Net Zero Carbon Pathway. In response to the
Department for Business, Energy & Industrial Strategy (BEIS)
the 'Future Trajectory to 2030' consultation, we have commissioned
a review of our portfolio to assess the steps we are required to
take to ensure our compliance by 2030.
The principal risks and uncertainties facing the Group for the
remaining six months of the financial year are set out on the
following pages with the potential impact and the mitigating
actions and controls in place.
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 stakeholders' expectations.
Risk, effect and progression Controls and mitigation
----------------------------------------------------------- ------------------------------------------------------------------
1. Failure to implement the Group's strategy
The Group's strategy is not met due to poor strategy * The Group's development pipeline has a degree of
implementation or a failure to respond flexibility that enables plans for individual
appropriately to internal or external factors such as: properties to be changed to reflect prevailing
* an economic downturn; economic circumstances.
* the Group's development programme being inconsistent * The Group seeks to maintain income from properties
with the current economic cycle; until development commences and has an ongoing
strategy to extend income through lease renewals and
regears.
* responding to changing work practices and
occupational demand; and/or
* The Group aims to de-risk the development programme
through pre-lets, typically during the construction
* London losing its global appeal with a consequential period.
impact on the property investment or occupational
markets.
* The Group conducts an annual strategic review,
prepares a budget and provides three two-year rolling
Although the Covid-19 pandemic did not stop the Group forecasts.
implementing its strategy, the lockdown
restrictions have marginally extended the project length
for Soho Place and The Featherstone * The Board considers the sensitivity of the Group KPIs
Building, and has caused significant economic disruption. to changes in the assumptions underlying our
Our strategy currently includes forecasts in light of anticipated economic
incorporating a retail element into our buildings to conditions. If considered necessary, modifications
provide amenity to our tenants and the are made.
local community. As Covid-19 has only amplified the
weaknesses within the retail market, this
aspect of our strategy is being reviewed. The impact of a * The Group maintains sufficient headroom in all the
potential recession on our strategy, Group's key ratios and financial covenants with a
and other longer-term consequences of the Covid-19 particular focus on interest cover.
pandemic, is being monitored by the Executive
Committee and the Board.
2. Implications of Brexit
International trade negotiations following Brexit result * Trade negotiations are being monitored and potential
in arrangements which are damaging outcomes discussed with external advisers.
to the London economy. As a London-based Group, we are
particularly impacted by factors which
affect London's growth and demand for office space. * The Group's strong financing and covenant headroom
On 2 June 2021, the UK's application to join the enables it to weather a downturn. In addition, the
Comprehensive and Progressive Trans-Pacific Group's diverse and high-quality tenant base provides
Partnership (CPTPP) was formally approved. The UK resilience against tenant default.
Government stated in its June 2020 Policy
Paper that it hopes that CPTPP membership will increase
trade and investment opportunities * Construction cost risk, with the exception of
for UK businesses and help the UK economy overcome the Government tariffs, sits with our main contractors.
economic effects of the Covid-19 pandemic. Early ordering and off-site holding facilities are in
For London, uncertainty remains until terms are agreed place for our development projects.
with the EU in respect of financial
services. The Group will continue to monitor international
trade negotiations. * The Group focuses on good value properties that are
less susceptible to reductions in tenant demand. The
Group's average 'topped-up' office rent is only
GBP58.35 per sq ft.
* Income is maintained at future development sites for
as long as possible. The Group develops properties in
locations where there is good potential for future
demand, such as near Crossrail stations. We do not
have any properties in the City.
Financial risks
Significant steps have been taken in recent years to reduce or
mitigate the Group's financial risks. 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
----------------------------- ------------------------
3. Risk of tenants defaulting or tenant failure
The risk that tenants become unable to pay their rents * Detailed reviews of all prospective tenants are
and/or their businesses fail. In the performed.
current environment, this risk has increased to be
classified as a principal risk for the
Group. * A "tenants at risk" register is maintained and
Due to the economic impact of Covid-19, and its regularly reviewed by the Executive Committee and the
potential long-term implications, occupiers Board.
could be facing increased financial difficulty.
Restaurants and hospitality occupiers (who
account for approximately 9% of our portfolio income) * Rent deposits are held where considered appropriate;
are of particular concern. Covid-19 the balance at 30 June 2021 was GBP18.2m.
has only amplified the weaknesses within the retail
market and there is a strong likelihood
that retail rents and values could fall even further. * Active rent collection with regular reports to the
Our occupiers perceive the restaurant, Executive Committee.
retail and leisure aspects within our portfolio as
amenities; hence we feel it is important
that they are retained within our building offerings. * We maintain close and frequent contact with our
tenants.
4. Risks arising from changing macroeconomic factors
A. Income decline
Due to the various risk factors, including: * The Credit Committee performs detailed reviews of all
* future demand for office space; prospective tenants.
* 'grey' market vacancy in office space (i.e. tena * A "tenants at risk" register is maintained and
nt regularly reviewed by the Executive Committee and the
controlled vacant space); Board.
* weaknesses in retail and hospitality businesses; * Ongoing dialogue is held with tenants to understand
their concerns and requirements.
* depth of recession;
* The Group's strong interest cover ratio reduces the
likelihood that income decline has a significant
* increase in homeworking; and impact on our business continuity.
* rising unemployment.
There is a risk that our income could decline which
could lead to lower interest cover under
our debt facility financial covenants. This could also
have an adverse impact upon the property
valuation and future dividend payments. In addition,
depending on how prolonged the adverse
impacts of Covid-19 are on businesses, and how our
occupiers fare during this period, we could
face additional risk of impairment of receivable
balances.
In light of Covid-19, we have been monitoring the
economic outlook, vacancy rates, financial
health of our tenants and the condition of the wider
property market.
B. The potential impact on our business from the
introduction of a new tax to replace or complement * The Executive Committee and Board monitor
business rates macroeconomic factors, including interest rates and
Due to the ongoing weakness of physical retail tax policy.
trading, the cost of supporting the economy
during Covid-19 and the loss of tax revenues, the
government has been reported as considering * The Group has an experienced Head of Tax who advises
measures to increase tax revenues. The government has the Board on the implications of tax policy.
been seeking views on how the business
rates system currently works, issues to be addressed,
ideas for change and a number of alternative
means of taxing non-residential property to either
replace or complement the business rates
system. Derwent London is particularly mindful of
alternatives being discussed which could
impose a tax on the landowner rather than the tenant.
In this respect, Derwent London will
keep abreast of any new developments in this area and
consider the impact of the various proposals
once more detail is published.
Since the publication of our 2020 Annual Report, the
economy has strengthened and has proven
robust. The likelihood of a new tax being introduced
to replace or complement business rates,
which would negatively impact on landlord, is now
deemed less likely.
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 * Detailed reviews are performed on construction
the targeted financial returns due to one projects to ensure that programme forecasts predicted
or more of the following factors: by our contractors are aligned with our views.
* delay on site
* The procurement process used by the Group includes
* increased construction costs the use of highly regarded firms of quantity
surveyors and is designed to minimise uncertainty
regarding costs.
* adverse letting conditions
* Development costs are benchmarked to ensure that the
* labour storages Group obtains competitive pricing and, where
appropriate, fixed price contracts are negotiated.
Due to restrictions introduced to prevent the
spread of Covid-19, our on-site developments * Post-completion reviews are carried out for all major
have been subject to delays of between one to developments to ensure that improvements to the
three months. During 2020, our Development team Group's procedures are identified, implemented and
liaised and agreed with our principal lessons learned.
contractors in respect to Covid-19-related
liabilities
and cost sharing. * The Group's pre-letting strategy reduces or removes
the letting risk of the development as soon as
possible.
* Procedures carried out before starting work on site,
such as site investigations, historical research of
the property and surveys conducted as part of the
planning application, reduce the risk of unidentified
issues causing delays once on site.
* Investment appraisals, which include contingencies
and inflationary cost increases, are prepared and
sensitivity analysis is undertaken to judge whether
an adequate return is made in all likely
circumstances.
B. 'On-site' risk
Risk of project delays and/or cost overruns * Strict Covid-19 protocols at all of our on-site
caused by unidentified issues e.g. asbestos in developments, in accordance with Site Operating
refurbishments or ground conditions in Procedures (published by the Construction Leadership
developments. For example, our successful Council).
pre-letting
programme means we could face a loss of rental
income and penalties if projects are delayed. * Regular monitoring of our contractors' cash flows.
Due to restrictions introduced to prevent the
spread of Covid-19, our on-site developments
have been subject to minor delays. The * Frequent meetings with key contractors and
Featherstone Building and Soho Place are still subcontractors to review their work programme.
expected
to be completed within their original budgets
under the revised programme. * Off-site inspection of key components to ensure they
Despite strict Covid-19 protocols on-site, there have been completed to the requisite quality.
is a risk of labour and resource shortages,
which could lead to productivity disruption and
project delay. * Prior to construction beginning on site, we conduct
site investigations including the building's history
and various surveys to identify any potential issues.
* Monthly reviews of supply chain issues for each of
our major projects, including in respect to potential
labour shortages.
C. Contractor/subcontractor default
Returns from the Group's developments are reduced * Regular monitoring of our contractors, including
due to delays and cost increases caused their project cash flows, is carried out.
by either a main contractor or major
subcontractor defaulting during the project.
There have * Key construction packages are acquired early in the
been ongoing issues within the construction project's life to reduce the risks associated with
industry in respect of the level of risk and later default.
narrow
profit margins being accepted by contractors. We
regularly monitor our contractors for any * The financial standing of our main contractors is
trading concerns. reviewed prior to awarding the project contract.
There is an increased risk of insolvencies in the
construction industry when the government's
Covid-19 furlough scheme ceases. Due to this * Our main contractors are responsible, and assume the
risk, we have been actively monitoring the immediate risk, for subcontractor default.
financial
health of our main contractors and
subcontractors. * Payments to contractors to incentivise them to
achieve agreed project timescale and damages agreed
in the event of delays/cost overruns.
* 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.
* 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 on our IT systems
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.
Over the past 12 months, there has been an
increase in cyber-attacks being perpetrated * Multi-Factor Authentication exists for remote access
online to our systems.
as cyber criminals seek to exploit Covid-19. In
response, we identified the key IT risks arising
from home working and implemented additional * Incident response and remediation processes are in
controls. place, which are regularly reviewed and tested.
* The Group's data is regularly backed up and
replicated off-site.
* Our IT systems are protected by anti-virus software,
security anomaly detection and firewalls that are
frequently updated.
* Frequent staff awareness and training programmes.
* Security measures are regularly reviewed by the IT
department.
* The Group has been awarded the 'Cyber Essentials'
badge to demonstrate our commitment to cyber
security.
B. Cyber-attack on our buildings
The Group is subject to a cyber-attack that * Each building has incident management procedures
results in data breaches or significant which are regularly reviewed and tested.
disruption
to IT-enabled tenant services. Buildings are
becoming 'smarter', with an increase in internet * Physical segregation between the building's core IT
enabled devices broadening the cyber security infrastructure and tenants' corporate IT networks.
threat landscape.
The potential impact of a cyber-attack on our
buildings has reduced due to the winding down * Physical segregation of IT infrastructure between
of services and overall low occupancy caused by buildings across the portfolio.
Covid-19. However, the potential risk of this
occurring has subsequently increased due to low
occupancy levels which could provide an * Inclusion of Building Managers in any cyber security
opportunity awareness training and phishing simulations.
for attack. During the lockdown, 24/7 security
was provided by outsourced providers.
C. Significant business interruption (for
example, pandemic, terrorism-related event or * The Group has comprehensive business continuity and
other incident management procedures both at Group level
business interruption) and for each of our managed buildings which are
The risk that a pandemic, terrorism-related event regularly reviewed and tested.
or other business interruption causes significant
business interruption to the Group and/or its
occupiers or supply chain. This could result * Government health guidelines are maintained at all of
in issues such as inability to access or operate our construction sites.
our properties, tenant failures or reduced
rental income, share price volatility, loss of
key suppliers, etc. * Most of our employees are capable of working remotely
Covid-19 has caused significant business and have the necessary IT resources.
interruption for some of our occupiers,
particularly
retail, travel, restaurants or other leisure * Fire protection and access/security procedures are in
services. During 2021, there has been limited place at all of our managed properties.
business interruption for Derwent London;
however, the lockdowns has caused a delay to our
development activities. * 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.
* Robust security at our buildings, including CCTV and
access controls.
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 culture, low overall risk tolerance * All new members of staff benefit from an induction
and established procedures and policies mitigate programme and are issued with our Group staff
against the risk of internal wrongdoing. handbook.
How the Group responds to, and manages, the
Covid-19 pandemic could either enhance or damage
our reputation. Feedback on how we have * The Group employs a Head of Investor and Corporate
responded, particularly in respect to our Communications and retains services of an external PR
occupiers, agency, both of whom maintain regular contact with
suppliers, employees and Community Fund, has external media sources.
generally been positive.
* 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.
* Staff training and awareness programmes.
8. Our resilience to climate change
The Group fails to respond appropriately, and * The Board and Executive Committee receive regular
sufficiently, to climate change risks or fails updates and presentations on environmental and
to benefit from the potential opportunities. This sustainability performance and management matters as
could lead to damage to our reputation, well as progress against our pathway to becoming net
loss of income and/or property values and loss of zero carbon by 2030.
our licence to operate.
Overall, the climate change agenda continues to
increase in prominence and importance. The * The Sustainability Committee monitors our performance
Government continues to introduce more and management controls.
legislative aspects linked to climate risk e.g.
from
2022 certain listed entities will have to * Strong team led by an experienced Head of
disclose in line with the TCFD. The latest energy Sustainability.
white paper is setting out higher standards for
energy efficiency in commercial and residential
properties. This will mean a shift in our core * The Group monitors its ESG (environmental, social and
market/area of business. governance) reporting against various industry
benchmarks.
* Production of an annual Responsibility Report with
key data and performance points which are externally
assured.
* In 2017 we adopted independently verified
science-based carbon targets which have been approved
by the Science-Based Targets Initiative (SBTi).
9. Non-compliance with regulation
A. Non-compliance with health and safety
legislation * All our properties have the relevant health, safety
The Group's cost base is increased, and and fire management procedures in place which are
management time is diverted through an incident reviewed annually.
or
breach of health, safety and fire legislation
leading to reputational damage and/or loss of * The Group has a qualified Health and Safety team
our licence to operate. whose performance is monitored and managed by the
During 2021, the health and wellbeing of our Health and Safety Committee.
employees, occupiers and other stakeholders has
been a top priority. We have invested additional
resources into health and safety. * Health and safety statutory compliance within our
managed portfolio is managed and monitored using
RiskWise, a software compliance platform. This is
supported by annual property health checks.
* The Managed Portfolio Health and Safety Manager with
the support of internal and external stakeholders
supports our Portfolio and Building Managers to
ensure statutory compliance.
* The Construction Health and Safety Manager, with the
support of internal and external stakeholders,
ensures our CDM Client duties are executed and
monitored and reviews health, safety and welfare on
each construction site on a monthly basis.
* The Board and Executive Committee receive frequent
updates and presentations on key health and safety
matters.
B. 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.
During 2021, we followed the UK government's * Staff training and awareness programmes.
regulations in respect of social distancing and
safe working practices. In accordance with
disclosure requirements, we ensured our * Group policies and procedures dealing with all key
stakeholders legislation are available on the Group's intranet.
and the wider investment market were kept
appraised of Derwent London's response to
Covid-19 * A Group whistleblowing system for staff is maintained
and its impact on our business. to report wrongdoing anonymously.
CMA investigations during 2021 have been focusing
on uncompetitive behaviour in the construction
industry, including price fixing, marketing * Managing our properties to ensure they are compliant
sharing and bid rigging. Derwent London seeks with the Minimum Energy Efficiency Standards (MEES)
assurances from prospective contractors on the for Energy Performance Certificates (EPCs).
status of any CMA investigations in which they
are involved.
10. 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,
accrued income arising from the spreading of lease incentives, 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 or 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.
The impact of Covid-19 has given rise to higher estimated
probabilities of default for some of the Group's occupiers. As a
result, impairment calculations have been carried out on trade
receivables and accrued income arising as a result of the spreading
of lease incentives using the forward-looking, simplified approach
to the expected credit loss model within IFRS 9. In addition, the
Credit Committee has reviewed its register of tenants at higher
risk, particularly in the retail or hospitality sectors, those in
administration or CVA and the top 50 tenants by size with the
remaining occupiers considered on a sector by sector basis.
As the Group operates predominantly in central London, it is
subject to some geographical concentration risk. However, this is
mitigated by the wide range of tenants from a broad spectrum of
business sectors.
Credit risk also arises from cash and cash equivalents and
deposits with banks and financial institutions. For banks and
financial institutions, only independently rated parties with 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 2021, the proportion of fixed debt held by
the Group was slightly above this range at 89% (31 December 2020:
85%). During both 2021 and 2020, 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 support for its other stakeholders;
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 2021, the Group's strategy, which was unchanged from
2020, 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 24.
The Group is also required to ensure that it has sufficient
property assets which are not subject to fixed or floating charges
or other encumbrances. Most of the Group's debt is unsecured and,
accordingly, there was GBP4.4bn of uncharged property as at 30 June
2021.
Statement of Directors' responsibilities
The Directors' confirm that, to the best of their knowledge,
these condensed interim financial statements have been prepared in
accordance with UK adopted International Accounting Standard 34,
'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority and that the interim management report includes a
fair review of the information required by DTR 4.2.7 and DTR 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 2020 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
9 August 2021
GROUP CONDENSED INCOME STATEMENT
Half year to 30.06.2021 Half year to 30.06.2020 Year to 31.12.2020
Unaudited Unaudited Audited
Note GBPm GBPm GBPm
--------------------------------- ----- ----------------------- ----------------------- ------------------
Gross property and other income 5 120.4 119.3 268.6
--------------------------------- ----- ----------------------- ----------------------- ------------------
Net property and other income(1) 5 95.1 86.5 183.0
Administrative expenses (19.4) (17.1) (37.8)
Revaluation surplus/(deficit) 10 57.8 (68.3) (196.1)
Profit on disposal 6 0.6 1.7 1.7
Profit/(loss) from operations 134.1 2.8 (49.2)
Net finance costs 7 (14.2) (13.6) (30.2)
Movement in fair value of derivative
financial instruments 2.2 (2.6) (1.9)
Financial derivative termination
costs 8 (1.0) (0.6) (1.7)
Profit/(loss) before tax 121.1 (14.0) (83.0)
Tax (charge)/credit 9 (0.6) 0.8 1.6
Profit/(loss) for the period 120.5 (13.2) (81.4)
Attributable to:
- Equity shareholders 120.2 (9.5) (77.6)
- Non-controlling interest 0.3 (3.7) (3.8)
120.5 (13.2) (81.4)
Basic earnings/(loss) per share 23 107.20p (8.49p) (69.34p)
Diluted earnings/(loss) per share 23 106.94p (8.49p) (69.34p)
(1) Net property and other income includes write-off/impairment
of receivables of GBP1.4m (half year to 30 June 2020: GBP4.4m; year
to 31 December 2020: GBP10.1m). In addition, net property and other
income included a service charge waiver of GBP2.1m in the half year
to 30 June 2020 and GBP4.1m in the year to 31 December 2020. See
note 3 for additional information.
GROUP CONDENSED STATEMENT OF COMPREHENSIVE INCOME
Half year to 30.06.2021 Half year to 30.06.2020 Year to 31.12.2020
Unaudited Unaudited Audited
Note GBPm GBPm GBPm
-------------------------------------- -------- --------------- ----------------------- ------------------
Profit/(loss) for the period 120.5 (13.2) (81.4)
Actuarial gains/(loss) on defined
benefit pension scheme 1.8 (3.1) (4.1)
Deferred tax (charge)/credit on
pension 18 (0.3) 0.5 0.4
Revaluation surplus of owner-occupied
property 10 1.0 0.1 0.4
Deferred tax charge on revaluation 18 (0.2) (0.1) (0.2)
-------------------------------------- -------- --------------- ----------------------- ------------------
Other comprehensive income/(expense)
that will not be
reclassified to profit or loss 2.3 (2.6) (3.5)
Total comprehensive income/(expense)
relating to the period 122.8 (15.8) (84.9)
Attributable to:
- Equity shareholders 122.5 (12.1) (81.1)
- Non-controlling interest 0.3 (3.7) (3.8)
122.8 (15.8) (84.9)
GROUP CONDENSED BALANCE SHEET
30.06.2021 30.06.2020 31.12.2020
Unaudited Unaudited Audited
Note GBPm GBPm GBPm
--------------------------------- ---- ---------- ---------- ----------
Non-current assets
Investment property 10 5,068.6 5,219.1 5,029.1
Property, plant and equipment 11 51.6 50.0 50.2
Investments 12 0.9 1.3 0.9
Trade and other receivables 13 155.3 140.1 146.4
--------------------------------- ---- ---------- ---------- ----------
5,276.4 5,410.5 5,226.6
Current assets
Trading property 10 9.2 36.5 12.9
Trade and other receivables 14 75.5 76.5 76.2
Cash and cash equivalents 20 60.0 201.8 50.7
--------------------------------- ---- ---------- ---------- ----------
144.7 314.8 139.8
Non-current assets held for sale 15 163.1 - 165.0
Total assets 5,584.2 5,725.3 5,531.4
Current liabilities
Trade and other payables 16 135.3 115.1 106.7
Corporation tax liability 0.6 0.8 0.5
Provisions 0.5 0.2 0.6
--------------------------------- ---- ---------- ---------- ----------
136.4 116.1 107.8
Non-current liabilities
Borrowings 17 992.3 1,134.2 1,033.2
Derivative financial instruments 17 3.4 6.3 5.6
Leasehold liabilities 17 67.4 60.4 66.6
Provisions 0.3 0.2 0.4
Pension scheme deficit 0.4 2.6 2.2
Deferred tax 18 1.1 0.8 0.5
--------------------------------- ---- ---------- ---------- ----------
1,064.9 1,204.5 1,108.5
Total liabilities 1,201.3 1,320.6 1,216.3
Total net assets 4,382.9 4,404.7 4,315.1
Equity
Share capital 5.6 5.6 5.6
Share premium 194.4 193.3 193.7
Other reserves 938.5 935.6 939.4
Retained earnings 3,192.2 3,218.2 3,124.5
--------------------------------- ---- ---------- ---------- ----------
Equity shareholders' funds 4,330.7 4,352.7 4,263.2
Non-controlling interest 52.2 52.0 51.9
Total equity 4,382.9 4,404.7 4,315.1
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 2021 5.6 193.7 939.4 3,124.5 4,263.2 51.9 4,315.1
Profit for the period - - - 120.2 120.2 0.3 120.5
Other comprehensive income - - 0.8 1.5 2.3 - 2.3
Share-based payments - 0.7 (1.7) 4.8 3.8 - 3.8
Dividends paid - - - (58.8) (58.8) - (58.8)
At 30 June 2021 (unaudited) 5.6 194.4 938.5 3,192.2 4,330.7 52.2 4,382.9
At 1 January 2020 5.6 193.0 936.2 3,286.4 4,421.2 55.7 4,476.9
Loss for the period - - - (9.5) (9.5) (3.7) (13.2)
Other comprehensive expense - - - (2.6) (2.6) - (2.6)
Share-based payments - 0.3 (0.6) 1.5 1.2 - 1.2
Dividends paid - - - (57.6) (57.6) - (57.6)
At 30 June 2020 (unaudited) 5.6 193.3 935.6 3,218.2 4,352.7 52.0 4,404.7
At 1 January 2020 5.6 193.0 936.2 3,286.4 4,421.2 55.7 4,476.9
Loss for the year - - - (77.6) (77.6) (3.8) (81.4)
Other comprehensive
income/(expense) - - 0.2 (3.7) (3.5) - (3.5)
Share-based payments - 0.7 3.0 1.6 5.3 - 5.3
Dividends paid - - - (82.2) (82.2) - (82.2)
At 31 December 2020 (audited) 5.6 193.7 939.4 3,124.5 4,263.2 51.9 4,315.1
GROUP CONDENSED CASH FLOW STATEMENT
Half year to 30.06.2021 Half year to 30.06.2020 Year to 31.12.2020
Unaudited Unaudited Audited
Note GBPm GBPm GBPm
---------------------------------- ---- ----------------------- ----------------------- ------------------
Operating activities
Rents received 84.6 71.9 161.9
Surrender premiums and other
property income 3.6 - 2.7
Property expenses (7.7) (9.6) (19.1)
Cash paid to and on behalf of
employees (14.9) (16.4) (27.5)
Other administrative expenses (3.6) (3.8) (8.0)
Interest received 7 - - 0.2
Interest paid 7 (11.4) (11.3) (25.4)
Other finance costs 7 (1.5) (1.3) (2.9)
Other income 2.1 0.6 3.5
Tax receipt in respect of
operating activities 0.1 - -
Net cash from operating activities 51.3 30.1 85.4
Investing activities
Acquisition of properties (23.6) (43.7) (43.8)
Capital expenditure on the
property portfolio 7 (87.4) (72.7) (174.6)
Disposal of investment properties 166.5 126.0 125.6
Disposal of trading properties 3.6 3.4 31.7
Receipts from joint ventures - - 0.4
Net purchase of property, plant and
equipment (0.8) (0.1) (0.4)
VAT received/(paid) 0.1 3.7 (0.9)
Net cash from/(used in) investing
activities 58.4 16.6 (62.0)
Financing activities
Repayment of revolving bank loan - - (6.5)
Drawdown of new revolving bank
loan - - 24.2
Net movement in revolving bank
loans (43.4) 156.5 38.0
Financial derivative termination
costs 8 (1.0) (0.6) (1.7)
Net proceeds of share issues 0.7 0.2 0.6
Dividends paid 19 (56.7) (55.5) (81.8)
Net cash (used in)/from financing
activities (100.4) 100.6 (27.2)
Increase/(decrease) in cash and cash
equivalents in the period 9.3 147.3 (3.8)
Cash and cash equivalents at the
beginning of the period 50.7 54.5 54.5
Cash and cash equivalents at the
end of the period 20 60.0 201.8 50.7
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of preparation
The financial information for the half year to 30 June 2021 and
the half year to 30 June 2020 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 2020 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 2020 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. On 31 December 2020, IFRS as adopted by the
European Union at that date was brought into UK law and became
UK-adopted International Accounting Standards, with future changes
being subject to endorsement by the UK Endorsement Board. The Group
transitioned to UK-adopted International Accounting Standards in
its consolidated financial statements on 1 January 2021. This
change constitutes a change in accounting framework however, there
is no impact on recognition, measurement or disclosure.
The Group's condensed consolidated financial statements have
been prepared in accordance with UK adopted IAS 34 and the
Disclosure Guidance and Transparency Rules sourcebook of the UK's
Financial Conduct Authority and should be read in conjunction with
the Annual Report and Accounts for the year to 31 December 2020,
which have been prepared in accordance with International
Accounting Standards in conformity with the requirements of the
Companies Act 2006 and IFRS adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union. 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.
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
23.
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 period to 31
December 2022, 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.
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 17.3%, the net interest cover
ratio of 477%, the GBP527m total of undrawn facilities and cash and
the fact that the average maturity of borrowings was 6.4 years at
30 June 2021. They have also considered the impact of the Covid-19
pandemic and lockdown on the Group's business and occupiers. There
is a risk that income could decline further with an increased risk
of tenant defaults and drop in demand for office and retail space
due to the economic outlook. Based on the Group's forecasts, rental
income would need to decline by 70% and property values would need
to fall by 69% before breaching financial covenants. In the
'downside' scenarios tested over the period to 31 December 2022,
which assume a more negative outlook on property values, longer
voids and poorer rent collection rates, net interest cover remained
above 350% and loan-to-value ratio below 40%, both of which are
comfortably within the Group's financial covenants.
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 2020, 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 were
effective for the first time for the Group's current accounting
period and had no material impact on the financial statements.
References to Conceptual Framework in IFRSs (amended);
IFRS 16 (amended) - Covid-19-related Rent Concessions;
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (amended) - Interest
Rate Benchmark Reform - Phase 2.
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.
IFRS 17 - Insurance Contracts;
IAS 1 (amended) - Classification of liabilities as current or
non-current;
IAS 1 and IFRS Practice Statement 2 (amended) - Disclosure of
Accounting Policy;
IAS 8 (amended) - Definition of Accounting Estimate;
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
The Group uses the valuation carried out by external valuers as
the fair value of its property portfolio. The valuation considers a
range of assumptions including future rental income streams,
investment yields, anticipated outgoings and maintenance costs,
future development expenditure and appropriate discount rates. The
external valuers also make reference to market evidence of
transaction prices for similar properties. Against the backdrop of
the Covid-19 pandemic, the valuers have also considered the impact
of additional rent free periods granted on the valuation, as well
as the impact of occupiers from sectors deemed highest risk. For
example, deductions equal to the rent free granted have been made
to the valuations, being predominantly for retail units,
restaurants and fitness clubs.
Impairment testing of trade receivables and other financial
assets
Trade receivables and accrued rental income recognised in
advance of receipt are subject to impairment testing. This accrued
rental income arises due to the spreading of rent free and reduced
rent periods, capital contributions and contracted rent uplifts in
accordance with IFRS 16 Leases.
Impairment calculations have been carried out using the
forward-looking, simplified approach to the expected credit loss
model within IFRS 9. Covid-19 and the resulting economic and social
disruption have brought significant challenges to London, the UK
and the wider global economy; it has impacted on the Group's
business and in general the overall risk profile is elevated,
though the severity of the impact is less than in 2020. Although
restrictions are gradually being lifted, there remains an elevated
risk of certain tenants defaulting or failing, particularly in
respect to the leisure/retail/hospitality sectors. The impact of
Covid-19 has given rise to higher estimated probabilities of
default for some of the Group's occupiers, so the impairment
provisions calculated as at 30 June 2021 are higher than in
previous periods (see note 14). In arriving at the estimates, the
Group considered the tenants at higher risk, particularly in the
retail or hospitality sectors, those in administration or CVA, the
top 50 tenants by size and has also considered the remaining
balances classified by sector. The impairment provisions are
included within 'Other receivables (non-current)' (see note 13) and
'Trade and other receivables' (see note 14) as shown below:
Other
receivables Trade
(non-current) and other receivables Total
GBPm GBPm GBPm
------------------------------------------------- -------------- ---------------------- ------
Lease incentive receivables before impairment 146.9 17.5 164.4
Impairment of lease incentive receivables (4.6) (1.0) (5.6)
Net lease incentive included within accrued income 142.3 16.5 158.8
Trade receivables before impairment - 31.2 31.2
Impairment of trade receivables - (4.6) (4.6)
Service charge provision - (0.5) (0.5)
Net trade receivables - 26.1 26.1
Impairment (4.6) (5.6) (10.2)
Service charge provision - (0.5) (0.5)
Write-off/impairment of receivables (4.6) (6.1) (10.7)
The assessment considered the risk of tenant failures or
defaults using information on tenants' payment history, deposits
held, the latest known financial position together with forecast
information where available, ongoing dialogue with tenants as well
as other information such as the sector in which they operate.
Following this, tenants were classified as either low, medium or
high risk and the table below provides further information. The
impairment against the lease incentive receivable balance was
GBP5.6m and against the trade receivables balance was GBP5.1m.
Lease incentive Lease incentive
receivables receivables Trade
(non-current) (current) receivables
GBPm GBPm GBPm
-------------------------- --------------- --------------- ------------
Balance before impairment
Low risk 127.8 11.1 10.0
Medium risk 11.4 4.5 7.7
High risk 7.7 1.9 13.5
146.9 17.5 31.2
Impairment
Low risk (0.3) - -
Medium risk (0.6) (0.3) (0.3)
High risk (3.7) (0.7) (4.8)
(4.6) (1.0) (5.1)
142.3 16.5 26.1
All amounts included within trade receivables are current.
Borrowings and derivatives
The fair values of the Group's borrowings and interest rate
swaps are provided by an independent third party based on
information provided to them by the Group. This includes the terms
of each of the financial instruments and data available in the
financial markets.
Significant judgments
Compliance with the real estate investment trust (REIT) taxation
regime.
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
four senior managers) in order to allocate resources to the
segments and to assess their performance.
The internal financial reports received by the Group's Executive
Committee contain financial information at a Group level as a whole
and there are no reconciling items between the results contained in
these reports and the amounts reported in the financial statements.
These internal financial reports include the IFRS figures but also
report the non-IFRS figures for the EPRA Earnings and Net Asset
Value metrics. Reconciliations of each of these figures to their
statutory equivalents are detailed in note 23. 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 98%
office buildings* in central London by value (30 June 2020: 97%; 31
December 2020: 98%). The Directors consider that these individual
properties have similar economic characteristics and therefore have
been aggregated into a single operating segment. The remaining 2%
(30 June 2020: 3%; 31 December 2020: 2%) 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/outer 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 2021
West End central 56.3 - 56.3
West End borders/other 10.2 - 10.2
City borders 32.8 0.2 33.0
Provincial - 2.2 2.2
99.3 2.4 101.7
Half year to 30 June 2020
West End central 47.7 - 47.7
West End borders/other 10.1 - 10.1
City borders 37.6 0.3 37.9
Provincial - 2.3 2.3
95.4 2.6 98.0
Year to 31 December 2020
West End central 104.3 0.1 104.4
West End borders/other 20.4 - 20.4
City borders 74.9 0.5 75.4
Provincial - 4.5 4.5
199.6 5.1 204.7
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 2021
West End central 3,064.6 40.8 3,105.4 3,091.0 41.9 3,132.9
West End borders/other 490.0 - 490.0 517.0 - 517.0
City borders 1,602.9 8.2 1,611.1 1,644.0 8.2 1,652.2
Provincial - 81.0 81.0 - 81.5 81.5
5,157.5 130.0 5,287.5 5,252.0 131.6 5,383.6
30 June 2020
West End central 2,923.3 77.4 3,000.7 2,940.9 82.0 3,022.9
West End borders/other 472.0 - 472.0 501.5 - 501.5
City borders 1,739.7 8.0 1,747.7 1,791.3 8.0 1,799.3
Provincial - 80.5 80.5 - 81.5 81.5
5,135.0 165.9 5,300.9 5,233.7 171.5 5,405.2
31 December 2020
West End central 2,936.7 45.9 2,982.6 2,966.2 47.4 3,013.6
West End borders/other 447.9 - 447.9 475.4 - 475.4
City borders 1,738.2 8.0 1,746.2 1,781.7 8.1 1,789.8
Provincial - 75.9 75.9 - 76.7 76.7
5,122.8 129.8 5,252.6 5,223.3 132.2 5,355.5
A reconciliation between the fair value and carrying value of
the portfolio is set out in note 10.
5. Property and other income
Half year to 30.06.2021 Half year to 30.06.2020 Year to 31.12.2020
GBPm GBPm GBPm
--------------------------------------- ----------------------- ----------------------- ------------------
Gross rental income 98.1 97.8 202.9
Surrender premiums received 3.9 0.2 0.9
Write-off of associated rents previously
recognised in advance (0.3) - -
Other property income - - 0.9
Gross property income 101.7 98.0 204.7
Trading property sales proceeds(1) 3.6 5.1 32.3
Service charge income(1) 13.6 14.7 28.1
Other income(1) 1.5 1.5 3.5
Gross property and other income 120.4 119.3 268.6
Gross rental income 98.1 97.8 202.9
---------------------------------------- ----------------------- ----------------------- ------------------
Write-off of receivables - (0.8) (1.2)
Impairment of receivables (1.4) (3.6) (8.9)
---------------------------------------- ----------------------- ----------------------- ------------------
Write-off/impairment of receivables (1.4) (4.4) (10.1)
Service charge waiver - (2.1) (4.1)
---------------------------------------- ----------------------- ----------------------- ------------------
Service charge income(1) 13.6 14.7 28.1
Service charge expenses (15.1) (16.3) (30.9)
---------------------------------------- ----------------------- ----------------------- ------------------
(1.5) (1.6) (2.8)
Property costs (5.1) (5.3) (11.6)
Net rental income 90.1 84.4 174.3
---------------------------------------- ----------------------- ----------------------- ------------------
Trading property sales proceeds(1) 3.6 5.1 32.3
Trading property cost of sales (3.1) (4.3) (27.1)
---------------------------------------- ----------------------- ----------------------- ------------------
Profit on disposal of trading properties 0.5 0.8 5.2
Other property income - - 0.9
Other income 1.5 1.5 3.5
Net surrender premiums received 3.6 0.2 0.9
Dilapidation receipts 0.1 - -
Write-down of trading property (0.7) (0.4) (1.8)
Net property and other income 95.1 86.5 183.0
(1) In line with IFRS 15 Revenue from Contracts with Customers,
the Group recognised a total GBP18.7m ( half year to 30 June 2020:
GBP21.3m ; year to 31 December 2020: GBP63.9m) of other income,
trading property sales proceeds and service charge income, which
relates to expenditure that is directly recoverable from tenants,
within gross property and other income.
Gross rental income includes GBP9.6m (half year to 30 June 2020:
GBP9.7m; year to 31 December 2020: GBP24.0m) relating to rents
recognised in advance of cash receipts.
O ther 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.
The impairment has been carried out using the expected credit
loss model within IFRS 9 Financial Instruments (see notes 3 and 14
for additional information). Included in this provision is a charge
of GBP0.9m against trade receivables relating to rental income for
the 24 June 2021 quarter day. Most of this income is deferred and
has not yet been recognised in the income statement. A 10%
increase/decrease to the absolute probability rates of tenant
default in the year would result in a GBP2.5m increase and GBP2.3m
decrease respectively, in the Group's profit for the period. This
sensitivity has been performed on the medium to high risk tenants
as the significant estimation uncertainty is wholly related to
these.
In response to Covid-19, a 25% waiver of the service charge due
in the second and third quarter of 2020 was given to occupiers at a
cost of GBP2.1m in the half year to 30 June 2020 and a further
GBP2.0m in the second half of 2020.
6. Profit on disposal
Half year to 30.06.2021 Half year to 30.06.2020 Year to 31.12.2020
GBPm GBPm GBPm
--------------------------------------- ----------------------- ----------------------- ------------------
Investment property
Gross disposal proceeds 168.6 120.8 120.9
Costs of disposal (2.1) (0.5) (0.6)
Net disposal proceeds 166.5 120.3 120.3
Carrying value (165.9) (118.6) (118.6)
Profit on disposal of investment
property 0.6 1.7 1.7
Included within gross disposal proceeds is GBP167.6m relating to
the disposal of the Group's freehold interest in Johnson Building
EC1 in January 2021, which was classified as a non-current asset
held for sale at 31 December 2020.
7. Finance income and total finance costs
Half year to 30.06.2021 Half year to 30.06.2020 Year to 31.12.2020
GBPm GBPm GBPm
--------------------------- ----------------------- ----------------------- ------------------
Finance income
Bank interest receivable - 0.1 0.2
Finance income - 0.1 0.2
Finance costs
Bank loans 0.3 1.2 2.3
Non-utilisation fees 1.1 0.8 1.7
Unsecured convertible bonds 1.9 1.9 3.9
Secured bonds 5.7 5.7 11.4
Unsecured private placement
notes 7.8 7.8 15.6
Secured loan 1.7 1.7 3.3
Amortisation of issue and
arrangement costs 1.2 1.1 2.2
Amortisation of the fair value
of the secured bonds (0.7) (0.6) (1.3)
Obligations under headleases 0.4 0.3 0.9
Other 0.2 0.1 0.2
Gross interest costs 19.6 20.0 40.2
Less: interest capitalised (5.4) (6.3) (9.9)
Finance costs 14.2 13.7 30.3
Loan arrangement costs written
off - - 0.1
Total finance costs 14.2 13.7 30.4
Finance costs of GBP5.4m (half year to 30 June 2020: GBP6.3m;
year to 31 December 2020: GBP9.9m) 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 2021 were GBP18.3m (half year
to 30 June 2020: GBP18.9m; year to 31 December 2020: GBP38.2m) of
which GBP5.4m (half year to 30 June 2020: GBP6.3m; year to 31
December 2020: GBP9.9m) was included in the GBP87.4m ( half year to
30 June 2020: GBP72.7m; year to 31 December 2020: GBP174.6m)
capital expenditure on the property portfolio in the Group cash
flow statement under investing activities.
8. Financial derivative termination costs
The Group incurred costs of GBP1.0m in the half year to 30 June
2021 (half year to 30 June 2020: GBP0.6m; year to 31 December 2020:
GBP1.7m) deferring interest rate swaps.
9. Tax charge/(credit)
Half year to 30.06.2021 Half year to 30.06.2020 Year to 31.12.2020
GBPm GBPm GBPm
--------------------------- ----------------------- ----------------------- ------------------
Corporation tax
UK corporation tax and income
tax in respect of result for
the period - 0.4 0.8
Other adjustments in respect of
prior years' tax - - (0.6)
Corporation tax charge - 0.4 0.2
Deferred tax
Origination and reversal of
temporary differences 0.6 (1.2) (2.0)
Adjustment for changes in
estimates - - 0.2
Deferred tax charge/(credit) 0.6 (1.2) (1.8)
Tax charge/(credit) 0.6 (0.8) (1.6)
In addition to the tax charge of GBP0.6m (half year to 30 June
2020: credit of GBP0.8m; year to 31 December 2020: credit of
GBP1.6m) that passed through the Group income statement, a deferred
tax charge of GBP0.5m (half year to 30 June 2020: credit of
GBP0.4m; year to 31 December of 2020: credit of GBP0.2m) was
recognised in the Group statement of comprehensive income and a
deferred tax credit of GBP0.5m (half year to 30 June 2020: charge
of GBP1.2m; year to 31 December 2020: charge of GBP1.3m) was
recognised in the Group statement of changes in equity. See note 18
for further details.
The effective rate of tax for the half year to 30 June 2021 is
lower (half year to 30 June 2020: lower; year to 31 December 2020:
lower) than the standard rate of corporation tax in the UK. The
differences are explained below:
Half year to 30.06.2021 Half year to 30.06.2020 Year to 31.12.2020
GBPm GBPm GBPm
--------------------------------------- ------------------------ ----------------------- ------------------
Profit/(loss) before tax 121.1 (14.0) (83.0)
---------------------------------------- ----------------------- ----------------------- ------------------
Expected tax charge/(credit) based on
the standard rate of
corporation tax in the UK of 19.00%
(2020: 19.00%)(1) 23.0 (2.7) (15.8)
Difference between tax and accounting
profit on disposals (0.1) 0.9 1.2
REIT exempt income (6.9) (7.5) (14.7)
Revaluation (surplus)/deficit
attributable to REIT properties (12.2) 12.7 36.6
Expenses and fair value adjustments not
allowable for
tax purposes (1.0) (0.4) (1.3)
Capital allowances (2.7) (2.4) (5.3)
Other differences 0.5 (1.4) (1.7)
Tax on current period's profit/(loss) 0.6 (0.8) (1.0)
Adjustments in respect of prior years'
tax - - (0.6)
Tax charge/(credit) 0.6 (0.8) (1.6)
(1) Changes to the UK corporation tax rates were substantively
enacted as part of the Finance Bill 2021 (on 24 May 2021) and
include increasing the main rate to 25% effective on or after 1
April 2023. Deferred taxes at the balance sheet date have been
measured using the expected enacted tax rate and this is reflected
in these financial statements.
10. Property portfolio
Carrying value
Total Owner- Assets Total
investment occupied held for Trading property
Freehold Leasehold property property sale property portfolio
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- -------- --------- ---------- -------- -------- -------- ---------
At 1 January 2021 3,893.5 1,135.6 5,029.1 45.6 165.0 12.9 5,252.6
------------------------------- -------- --------- ---------- -------- -------- -------- ---------
Acquisitions - 23.7 23.7 - - - 23.7
Capital expenditure 45.0 55.7 100.7 - - - 100.7
Interest capitalisation 1.1 4.3 5.4 - - - 5.4
-------- --------- ---------- -------- -------- -------- ---------
Additions 46.1 83.7 129.8 - - - 129.8
Disposals (0.9) - (0.9) - (165.0) (3.0) (168.9)
Transfers (83.9) (78.9) (162.8) - 162.8 - -
Revaluation 39.4 18.4 57.8 1.0 - - 58.8
Write-down of trading property - - - - - (0.7) (0.7)
Transfer from prepayments
and accrued income - - - - 0.3 - 0.3
Movement in grossing up of
headlease liabilities - 0.7 0.7 - - - 0.7
Movement in grossing up of
other liabilities - 14.9 14.9 - - - 14.9
At 30 June 2021 3,894.2 1,174.4 5,068.6 46.6 163.1 9.2 5,287.5
At 1 January 2020 4,121.2 1,053.1 5,174.3 45.3 118.6 40.7 5,378.9
------------------------------- -------- --------- ---------- -------- -------- -------- ---------
Acquisitions 43.5 - 43.5 - - - 43.5
Capital expenditure 31.0 31.6 62.6 (0.1) - 0.1 62.6
Interest capitalisation 3.8 2.3 6.1 - - 0.2 6.3
-------- --------- ---------- -------- -------- -------- ---------
Additions 78.3 33.9 112.2 (0.1) - 0.3 112.4
Disposals - - - - (118.6) (4.1) (122.7)
Revaluation (56.4) (11.9) (68.3) 0.1 - - (68.2)
Write-down of trading property - - - - - (0.4) (0.4)
Movement in grossing up of
headlease liabilities - 0.9 0.9 - - - 0.9
At 30 June 2020 4,143.1 1,076.0 5,219.1 45.3 - 36.5 5,300.9
At 1 January 2020 4,121.2 1,053.1 5,174.3 45.3 118.6 40.7 5,378.9
------------------------------- -------- --------- ---------- -------- -------- -------- ---------
Acquisitions 43.5 - 43.5 - - - 43.5
Capital expenditure 64.1 87.8 151.9 (0.1) - 0.1 151.9
Interest capitalisation 4.6 5.1 9.7 - - 0.2 9.9
-------- --------- ---------- -------- -------- -------- ---------
Additions 112.2 92.9 205.1 (0.1) - 0.3 205.3
Disposals - - - - (118.6) (26.3) (144.9)
Transfers (161.2) - (161.2) - 161.2 - -
Revaluation (178.7) (17.4) (196.1) 0.4 - - (195.7)
Write-down of trading property - - - - - (1.8) (1.8)
Transfer from prepayments
and accrued income - - - - 3.8 - 3.8
Movement in grossing up of
headlease liabilities - 7.0 7.0 - - - 7.0
At 31 December 2020 3,893.5 1,135.6 5,029.1 45.6 165.0 12.9 5,252.6
Adjustments from fair value to carrying value
Total Owner- Assets Total
investment occupied held for Trading property
Freehold Leasehold property property sale property portfolio
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- -------- --------- ---------- -------- -------- -------- ---------
At 30 June 2021
Fair value 4,044.1 1,116.6 5,160.7 46.6 166.2 10.1 5,383.6
Selling costs relating to assets
held for sale - - - - (3.1) - (3.1)
Revaluation of trading property - - - - - (0.9) (0.9)
Lease incentives and costs
included in receivables (149.9) (24.2) (174.1) - - - (174.1)
Grossing up of headlease liabilities - 67.1 67.1 - - - 67.1
Grossing up of other liabilities - 14.9 14.9 - - - 14.9
Carrying value 3,894.2 1,174.4 5,068.6 46.6 163.1 9.2 5,287.5
At 30 June 2020
Fair value 4,283.9 1,035.0 5,318.9 45.3 - 41.0 5,405.2
Revaluation of trading property - - - - - (4.5) (4.5)
Lease incentives and costs
included in receivables (140.8) (19.4) (160.2) - - - (160.2)
Grossing up of headlease liabilities - 60.4 60.4 - - - 60.4
Carrying value 4,143.1 1,076.0 5,219.1 45.3 - 36.5 5,300.9
At 31 December 2020
Fair value 4,037.0 1,091.6 5,128.6 45.6 167.0 14.3 5,355.5
Selling costs relating to assets
held for sale - - - - (2.0) - (2.0)
Revaluation of trading property - - - - - (1.4) (1.4)
Lease incentives and costs
included in receivables (143.5) (22.5) (166.0) - - - (166.0)
Grossing up of headlease liabilities - 66.5 66.5 - - - 66.5
Carrying value 3,893.5 1,135.6 5,029.1 45.6 165.0 12.9 5,252.6
The property portfolio is subject to semi-annual external
valuations and was revalued at 30 June 2021 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 GBP5,348.6m (30 June 2020:
GBP5,373.5m; 31 December 2020: GBP5,324.5m) and other valuers at
GBP35.0m (30 June 2020: GBP31.7m; 31 December 2020: GBP31.0m). Of
the properties revalued by CBRE, GBP46.6m (30 June 2020: GBP45.3m;
31 December 2020: GBP45.6m) relating to owner-occupied property was
included within property, plant and equipment, GBP166.2m (30 June
2020: GBPnil; 31 December 2020: GBP167.0m) was included within
non-current assets held for sale and GBP10.1m (30 June 2020:
GBP41.0m; 31 December 2020: GBP14.3m) 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.
At 30 June 2021, the grossing up of other liabilities of
GBP14.9m related to the discounted profit share for the development
at Soho Place W1.
The Group published its pathway to net zero carbon in July 2020
and has set 2030 as its target date to achieve this. GBP70.0m (half
year to 30 June 2020: GBP43.8m; year to 31 December 2020:
GBP103.2m) of eligible 'green' capital expenditure was incurred in
the half year to 30 June 2021 on our major developments at 80
Charlotte Street W1, Soho Place W1 and The Featherstone Building
EC1. As these have met the criteria to be eligible qualifying
projects under our Green Finance Framework, we have utilised the
green tranche of our GBP450m revolving credit facility. In
addition, the Group has invested in carbon credits to support
externally validated green projects to offset the embedded carbon
in our developments.
Reconciliation of revaluation
surplus/(deficit)
Half year to 30.06.2021 Half year to 30.06.2020 Year to 31.12.2020
GBPm GBPm GBPm
--------------------------- ----------------------- ----------------------- ------------------
Total revaluation
surplus/(deficit) 70.1 (58.4) (178.5)
Lease incentives and costs (8.4) (7.4) (16.7)
Trading property revaluation
adjustment (0.5) (2.8) (0.3)
Assets held for sale selling
costs (3.1) - (2.0)
IFRS revaluation
surplus/(deficit) 58.1 (68.6) (197.5)
Reported in the:
Revaluation surplus/(deficit) 57.8 (68.3) (196.1)
Write-down of trading
property (0.7) (0.4) (1.8)
Group income statement 57.1 (68.7) (197.9)
Group statement of
comprehensive income 1.0 0.1 0.4
58.1 (68.6) (197.5)
Sensitivity of measurement to variations in the significant
unobservable inputs
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
of the Group's property portfolio, together with the impact of
significant movements in these inputs on the fair value
measurement, are shown below:
Impact on fair value measurement Impact on fair value measurement
Unobservable input of significant increase in input of significant decrease in input
----------------------- ------------------------------------ ------------------------------------
Gross ERV Increase Decrease
Net initial yield Decrease Increase
Reversionary yield Decrease Increase
True equivalent yield Decrease Increase
----------------------- -------------------------------- --------------------------------
There are inter-relationships between these inputs as they are
partially determined by market conditions. An increase in the
reversionary yield may accompany an increase in gross ERV and would
mitigate its impact on the fair value measurement.
A sensitivity analysis was performed to ascertain the impact on
the fair value of a 25 basis point shift in true equivalent yield
and a GBP2.50 psf shift in ERV on the property valuations. The
Group believes this captures the range of variations in these key
valuation assumptions. The results are shown in the tables
below:
West End West End City Provincial Provincial
central borders/other borders commercial land Total
---------------------- -------- ------------- ------- ---------- ---------- ------
True equivalent yield
+25bp (5.3%) (5.0%) (5.1%) (2.8%) (2.3%) (5.1%)
-25bp 5.9% 5.5% 5.6% 3.0% 2.4% 5.6%
---------------------- -------- ------------- ------- ---------- ---------- ------
ERV
+GBP2.50 psf 4.2% 4.8% 4.8% 17.9% - 4.7%
-GBP2.50 psf (4.2%) (4.8%) (4.8%) (17.9%) - (4.7%)
---------------------- -------- ------------- ------- ---------- ---------- ------
11. Property, plant and equipment
Owner-
occupied
property Other Total
GBPm GBPm GBPm
------------------------- -------- ----- -----
At 1 January 2021 45.6 4.6 50.2
Additions - 0.8 0.8
Depreciation - (0.4) (0.4)
Revaluation 1.0 - 1.0
At 30 June 2021 46.6 5.0 51.6
At 1 January 2020 45.3 4.9 50.2
Additions (0.1) 0.2 0.1
Depreciation - (0.4) (0.4)
Revaluation 0.1 - 0.1
At 30 June 2020 45.3 4.7 50.0
At 1 January 2020 45.3 4.9 50.2
Additions (0.1) 0.4 0.3
Disposals - (0.7) (0.7)
Revaluation 0.4 - 0.4
At 31 December 2020 45.6 4.6 50.2
Net book value
Cost or valuation 46.6 9.1 55.7
Accumulated depreciation - (4.1) (4.1)
At 30 June 2021 46.6 5.0 51.6
Net book value
Cost or valuation 45.3 8.0 53.3
Accumulated depreciation - (3.3) (3.3)
At 30 June 2020 45.3 4.7 50.0
Net book value
Cost or valuation 45.6 8.3 53.9
Accumulated depreciation - (3.7) (3.7)
At 31 December 2020 45.6 4.6 50.2
Artwork, which is included within 'Other', is periodically
valued by Bonhams on the basis of fair value using their extensive
market knowledge. The latest valuation was carried out in May 2018
and, after allowing for the artwork disposal in 2019, 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.
12. Investments
Although the respective property interests have now been
disposed of, the Group has a continuing 50% interest in three joint
venture vehicles, Dorrington Derwent Holdings Limited, Primister
Limited and Prescot Street Limited Partnership.
30.06.2021 30.06.2020 31.12.2020
GBPm GBPm GBPm
----------------------- ---- ---------- ----------
At 1 January 0.9 1.3 1.3
Distributions received - - (0.4)
0.9 1.3 0.9
13. Trade and other receivables (non-current)
30.06.2021 30.06.2020 31.12.2020
GBPm GBPm GBPm
------------------------------- ----- ---------- ----------
Prepayments and accrued income 155.3 138.9 146.4
Trade receivables - 1.2 -
155.3 140.1 146.4
Prepayments and accrued income include GBP142.3m (30 June 2020:
GBP123.4m; 31 December 2020: GBP132.3m) after impairments (see note
3) relating to rents recognised in advance as a result of spreading
tenant lease incentives over the expected terms of their respective
leases. This includes rent free and reduced rent periods, capital
contributions in lieu of rent free periods and contracted rent
uplifts. In addition, GBP13.0m (30 June 2020: GBP15.5m; 31 December
2020: GBP14.1m) relates to the spreading effect of the initial
direct costs of letting over the same term. Together with GBP18.8m
(30 June 2020: GBP21.3m; 31 December 2020: GBP19.6m), which was
included as accrued income within trade and other receivables (see
note 14), these amounts totalled GBP174.1m at 30 June 2021 (30 June
2020: GBP160.2m; 31 December 2020: GBP166.0m).
The total movement in tenant lease incentives is shown
below:
30.06.2021 30.06.2020 31.12.2020
GBPm GBPm GBPm
-------------------------------------------------------------- ------ ---------- ----------
At 1 January 149.7 135.9 135.9
Amounts taken to income statement 9.3 9.7 23.0
Capital incentives granted - 0.2 0.5
Movement in provision for lease incentive impairment 0.1 (2.9) (5.7)
Adjustment for non-current asset held for sale (0.3) - (3.2)
Write off to bad debt - (0.6) (0.8)
158.8 142.3 149.7
Amounts included in trade and other receivables (see note 14) (16.5) (18.9) (17.4)
At period end 142.3 123.4 132.3
14. Trade and other receivables
30.06.2021 30.06.2020 31.12.2020
GBPm GBPm GBPm
------------------ ---- ---------- ----------
Trade receivables 26.1 26.0 27.5
Other receivables 4.3 6.7 4.1
Prepayments 24.9 19.5 22.6
Accrued income 20.2 24.3 22.0
75.5 76.5 76.2
Trade receivables are split as follows:
less than three months due 23.1 17.1 17.4
between three and six months due 2.9 2.2 3.5
between six and twelve months due 0.1 6.7 6.6
26.1 26.0 27.5
The Group has GBP10.7m (30 June 2020: GBP4.0m; 31 December 2020:
GBP9.3m) of provision for bad debts as shown below. GBP5.1m are
included in trade receivables, GBP1.0m in accrued income and
GBP4.6m in prepayments and accrued income within other receivables
(non-current). See notes 3 and 13.
30.06.2021 30.06.2020 31.12.2020
GBPm GBPm GBPm
---------------------------- ----- ---------- ----------
Provision for bad debts
At 1 January 9.3 0.4 0.4
Lease incentive provision (0.1) 1.0 5.7
Trade receivables provision 1.3 2.9 3.2
Service charge provision 0.2 - 0.3
Released - (0.3) (0.3)
At period end 10.7 4.0 9.3
The provision for bad debts are split as follows:
less than three months due 5.2 0.9 3.2
between three and six months due 0.4 0.2 0.5
between six and twelve months due 0.5 0.5 1.0
greater than twelve months due (non-current) 4.6 2.4 4.6
10.7 4.0 9.3
15. Non-current assets held for sale
30.06.2021 30.06.2020 31.12.2020
GBPm GBPm GBPm
------------------------------------------------ ---------- ---------- ----------
Transfer from investment property (see note 10) 162.8 - 161.2
Transfer from prepayments and accrued income 0.3 - 3.8
163.1 - 165.0
In July 2021, the Group exchanged contracts on the sale of its
freehold interest in Angel Square EC1. The property was valued at
GBP85.0m at 30 June 2021. In accordance with IFRS 5 Non-current
Assets Held for Sale, this property was recognised as a non-current
asset held for sale and, after deducting selling costs of GBP1.9m,
the carrying value at 30 June 2021 was GBP83.1m.
In July 2020, the Group exchanged contracts on the sale of its
leasehold interest in 2 & 4 Soho Place W1. The property was
valued at GBP34.0m at 30 June 2021. In accordance with IFRS 5
Non-current Assets Held for Sale, this property was recognised as a
non-current asset held for sale and, after deducting selling costs
of GBP0.8m, the carrying value at 30 June 2021 was GBP33.2m.
The Group expects to exchange contracts in the second half of
2021 on the sale of its leasehold interests in 16-20 Baker Street
W1, 27-33 Robert Adam Street W1, 17-39 George Street W1 and 26-27
Castlereagh Street W1. The properties were valued at GBP46.3m at 30
June 2021. The sale of these properties is highly probable and in
accordance with IFRS 5 Non-current Assets Held for Sale the
properties have been recognised as non-current assets held for
sale. After deducting selling costs of GBP0.3m, the carrying value
at 30 June 2021 was GBP46.0m.
In December 2020, the Group exchanged contracts for the sale of
its freehold interest in Johnson Building EC1. The property was
valued at GBP167.0m at 31 December 2020. In accordance with IFRS 5
Non-current Assets Held for Sale, this property was recognised as a
non-current asset held for sale and, after deducting selling costs
of GBP2.0m, the carrying value was GBP165.0m.
16. Trade and other payables
30.06.2021 30.06.2020 31.12.2020
GBPm GBPm GBPm
---------------- ----- ---------- ----------
Trade payables 4.9 2.8 2.5
Other payables 35.1 17.2 21.2
Other taxes 3.4 7.2 4.0
Accruals 49.5 43.6 32.0
Deferred income 42.4 44.3 47.0
135.3 115.1 106.7
Deferred income primarily related to rents received in
advance.
At 30 June 2021, other payables included GBP14.9m discounted
profit share for the development at Soho Place W1 (see note
10).
17. Net debt and derivative financial instruments
30.06.2021 30.06.2020 31.12.2020
--------------- ---------------- ----------------
Book Fair Book Fair Book Fair
value value Value value value value
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------- ------ ------- ------- ------- ------- -------
Non-current liabilities
1.5% unsecured convertible bonds 2025 167.3 171.5 165.4 159.8 166.4 174.2
6.5% secured bonds 2026 183.0 212.8 184.2 224.5 183.6 220.3
Unsecured private placement notes 2026 - 2034 453.0 502.7 452.7 511.6 452.9 526.4
3.99% secured loan 2024 82.4 87.4 82.2 89.6 82.3 89.1
Unsecured bank loans 78.7 83.0 221.8 225.0 120.1 125.0
Secured bank loan 27.9 28.0 27.9 28.0 27.9 28.0
Borrowings 992.3 1,085.4 1,134.2 1,238.5 1,033.2 1,163.0
Derivative financial instruments expiring in
greater than one year 3.4 3.4 6.3 6.3 5.6 5.6
Total borrowings and derivative
financial instruments 995.7 1,088.8 1,140.5 1,244.8 1,038.8 1,168.6
Reconciliation to net debt:
Borrowings and derivative financial
instruments 995.7 1,140.5 1,038.8
Adjustments for:
Leasehold liabilities 67.4 60.4 66.6
Derivative financial instruments (3.4) (6.3) (5.6)
Cash and cash equivalents (60.0) (201.8) (50.7)
Net debt 999.7 992.8 1,049.1
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 2021 or 2020.
At 30 June 2021, the Group's secured bank loan and the 3.99%
secured loan 2024 were secured by a fixed charge over GBP111.0m (30
June 2020: GBP100.7m; 31 December 2020: GBP105.2m) and GBP310.9m
(30 June 2020: GBP308.5m; 31 December 2020: GBP304.5m),
respectively, of the Group's properties. In addition, the secured
bonds 2026 were secured by a floating charge over a number of the
Group's subsidiary companies which contained GBP576.2m (30 June
2020: GBP633.3m; 31 December 2020: GBP616.5m) of the Group's
properties.
All additional drawings in the period have been made from
existing revolving credit facilities, and there are no new debt
facilities in the period. The Group continue to maintain
significant headroom on all financial covenants.
18. Deferred tax liabilities
Revaluation
surplus Other Total
GBPm GBPm GBPm
-------------------------------------------------- ----------- ----- -----
At 1 January 2021 3.5 (3.0) 0.5
Charged to the income statement 0.2 0.4 0.6
Charged to other comprehensive income 0.2 0.3 0.5
Credited to equity - (0.5) (0.5)
At 30 June 2021 3.9 (2.8) 1.1
At 1 January 2020 3.3 (2.1) 1.2
Credited to the income statement (0.3) (1.1) (1.4)
Change in tax rates in the income statement 0.3 (0.1) 0.2
Credited to other comprehensive income - (0.5) (0.5)
Change in tax rates in other comprehensive income 0.1 - 0.1
Charged to equity - 1.4 1.4
Changes in tax rates in equity - (0.2) (0.2)
At 30 June 2020 3.4 (2.6) 0.8
At 1 January 2020 3.3 (2.1) 1.2
Credited to the income statement (0.3) (1.7) (2.0)
Change in tax rates in the income statement 0.3 (0.1) 0.2
Charged/(credited) to other comprehensive income 0.1 (0.4) (0.3)
Change in tax rates in other comprehensive income 0.1 - 0.1
Charged to equity - 1.3 1.3
At 31 December 2020 3.5 (3.0) 0.5
Deferred tax on the balance sheet 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 to Half year to Year to
Payment date PID Non-PID Total 30.06.2021 30.06.2020 31.12.2020
p p p GBPm GBPm GBPm
------------- -------------- ------ ------- ----- ------------- ------------- -------------
Current period
2021 interim
dividend 15 October 2021 23.00 - 23.00 - - -
------ ------- -----
23.00 - 23.00
Prior year
2020 final
dividend 4 June 2021 35.00 17.45 52.45 58.8 - -
2020 interim
dividend 16 October 2020 22.00 - 22.00 - - 24.6
------ ------- -----
57.00 17.45 74.45
2019 final
dividend 5 June 2020 34.45 17.00 51.45 - 57.6 57.6
Dividends as
reported in the
Group statement
of changes in
equity 58.8 57.6 82.2
-------------- ------ ------- -----
2020 final
dividend
withholding
tax 14 July 2021 (5.3) - -
2020 interim
dividend
withholding
tax 14 January 2021 3.2 - (3.2)
2019 final
dividend
withholding
tax 14 July 2020 - (4.9) -
2019 interim
dividend
withholding
tax 14 January 2020 - 2.8 2.8
Dividends paid as reported in
the
Group cash flow
statement 56.7 55.5 81.8
------ ------- -----
20. Cash and cash equivalents
30.06.2021 30.06.2020 31.12.2020
GBPm GBPm GBPm
---------------------- ---------- ---------- ----------
Cash at bank 60.0 76.8 50.7
Cash held in deposits - 125.0 -
60.0 201.8 50.7
21. Post balance sheet events
In July 2021, the Group exchanged contracts for the disposal of
its freehold interest in Angel Square EC1 for GBP86.5m before
costs, with completion expected in August 2021.
In August 2021, the Group exchanged contracts for the
acquisition of the leasehold interest in Bush House, South West
Wing WC2 for GBP13.5m before costs.
In August 2021, the Group exchanged contracts for the
acquisitions of the freehold interests in 250 Euston Road NW1 and
171-174 Tottenham Court Road W1 for GBP214.6m inclusive of
estimated costs. In addition, the Group signed a memorandum of
understanding to form a joint venture to acquire leasehold
interests in three buildings in Baker Street W1 for GBP64.4m
inclusive of estimated costs for a 50% interest.
22. Related party disclosure
There have been no related party transactions during the half
year to 30 June 2021 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
2020.
23. EPRA performance measures
Number of shares
Earnings per share measures Net asset value per share measures
Weighted average for the
period ended At period ended
30.06.2021 30.06.2020 31.12.2020 30.06.2021 30.06.2020 31.12.2020
'000 '000 '000 '000 '000 '000
---------- ---------- --------------- ---------- ----------
For use in basic measures 112,129 111,872 111,912 112,174 111,947 111,961
Dilutive effect of share-based
payments 275 304 350 292 222 341
For use in other diluted
measures 112,404 112,176 112,262 112,466 112,169 112,302
The GBP175m unsecured convertible bonds 2025 ('2025 bonds') have
an initial conversion price set at GBP44.96.
The Group recognises the effect of conversion of the bonds if
they are both dilutive and, based on the share price, likely to
convert. For both the half years to 30 June 2020 and 2021 and for
the year ended 31 December 2020, the Group did not recognise the
dilutive impact of the conversion of the 2025 bonds on its earnings
per share (EPS) or net asset value (NAV) per share metrics 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 and associated non-controlling
interest
Earnings and earnings per share
Adjustments EPRA
IFRS A B C basis
GBPm GBPm GBPm GBPm GBPm
Half year to 30 June 2021
Net property and other income 95.1 (0.5) 0.7 - 95.3
Administrative expenses (19.4) - - - (19.4)
Revaluation surplus 57.8 - (57.8) - -
Profit on disposal of investments 0.6 (0.6) - - -
Net finance costs (14.2) - - - (14.2)
Movement in fair value of derivative
financial instruments 2.2 - - (2.2) -
Financial derivative termination costs (1.0) - - 1.0 -
Profit before tax 121.1 (1.1) (57.1) (1.2) 61.7
Tax charge (0.6) - 0.2 - (0.4)
Profit for the period 120.5 (1.1) (56.9) (1.2) 61.3
Non-controlling interest (0.3) - (0.4) - (0.7)
Earnings attributable to equity shareholders 120.2 (1.1) (57.3) (1.2) 60.6
Earnings per share 107.20p 54.04p
Diluted earnings per share 106.94p 53.91p
Half year to 30 June 2020
Net property and other income 86.5 (0.8) 0.4 - 86.1
Administrative expenses (17.1) - - - (17.1)
Revaluation deficit (68.3) - 68.3 - -
Profit on disposal of investments 1.7 (1.7) - - -
Net finance costs (13.6) - - - (13.6)
Movement in fair value of derivative
financial instruments (2.6) - - 2.6 -
Financial derivative termination costs (0.6) - - 0.6 -
Loss before tax (14.0) (2.5) 68.7 3.2 55.4
Tax credit 0.8 (0.8) - - -
(Loss)/profit for the period (13.2) (3.3) 68.7 3.2 55.4
Non-controlling interest 3.7 - (4.4) - (0.7)
Earnings attributable to equity shareholders (9.5) (3.3) 64.3 3.2 54.7
(Loss)/earnings per share (8.49p) 48.90p
Diluted (loss)/earnings per share (8.49p) 48.76p
The diluted loss per share for the period to 30 June 2020 was restricted to a loss of 8.49p
per share, as the loss per share cannot be reduced by dilution in accordance with IAS 33,
Earnings per Share.
Adjustments EPRA
IFRS A B C basis
GBPm GBPm GBPm GBPm GBPm
Year to 31 December 2020
Net property and other income 183.0 (5.2) 1.8 - 179.6
Administrative expenses (37.8) - - - (37.8)
Revaluation deficit (196.1) - 196.1 - -
Profit on disposal of investments 1.7 (1.7) - - -
Net finance costs (30.2) - - 0.1 (30.1)
Movement in fair value of derivative
financial instruments (1.9) - - 1.9 -
Financial derivative termination costs (1.7) - - 1.7 -
(Loss)/profit before tax (83.0) (6.9) 197.9 3.7 111.7
Tax credit 1.6 (1.0) - - 0.6
(Loss)/profit for the year (81.4) (7.9) 197.9 3.7 112.3
Non-controlling interest 3.8 - (5.1) - (1.3)
Earnings attributable to equity shareholders (77.6) (7.9) 192.8 3.7 111.0
(Loss)/earnings per share (69.34p) 99.19p
Diluted (loss)/earnings per share (69.34p) 98.88p
The diluted loss per share for the year to 31 December 2020 was restricted to a loss of 69.34p
per share, as the loss per share cannot be reduced by dilution in accordance with IAS 33,
Earnings per Share.
EPRA net asset value metrics
30.06.2021 30.06.2020 31.12.2020
GBPm GBPm GBPm
Net assets attributable to equity shareholders 4,330.7 4,352.7 4,263.2
Adjustment for:
Revaluation of trading properties 0.9 4.5 1.4
Deferred tax on revaluation surplus(1) 2.0 1.7 1.8
Fair value of derivative financial instruments 3.4 6.3 5.6
Fair value adjustment to secured bonds 8.7 10.0 9.3
Non-controlling interest in respect of the above(1) (0.4) (0.4) (0.4)
EPRA Net Tangible Assets 4,345.3 4,374.8 4,280.9
Per share measure - diluted 3,864p 3,900p 3,812p
Net assets attributable to equity shareholders 4,330.7 4,352.7 4,263.2
Adjustment for:
Revaluation of trading properties 0.9 4.5 1.4
Fair value adjustment to secured bonds 8.7 10.0 9.3
Mark-to-market of fixed rate debt (91.6) (103.9) (127.8)
Unamortised issue and arrangement costs (10.2) (10.4) (11.3)
EPRA Net Disposal Value 4,238.5 4,252.9 4,134.8
Per share measure - diluted 3,769p 3,792p 3,682p
Net assets attributable to equity shareholders 4,330.7 4,352.7 4,263.2
Adjustment for:
Revaluation of trading properties 0.9 4.5 1.4
Deferred tax on revaluation surplus 3.9 3.4 3.5
Fair value of derivative financial instruments 3.4 6.3 5.6
Fair value adjustment to secured bonds 8.7 10.0 9.3
Non-controlling interest in respect of the above (0.7) (0.7) (0.7)
Purchasers' costs(2) 366.1 367.6 364.2
EPRA Net Reinstatement Value 4,713.0 4,743.8 4,646.5
Per share measure - diluted 4,191p 4,229p 4,138p
(1) Only 50% of the deferred tax on the revaluation surplus is
excluded .
(2) Includes Stamp Duty Land Tax. Total costs assumed to be 6.8%
of the portfolio's fair value .
Cost ratios
Half year to 30.06.2021 Half year to 30.06.2020 Year to 31.12.2020
GBPm GBPm GBPm
----------------------- -----------------------
Administrative expenses 19.4 17.1 37.8
Write-off/impairment of
receivables 1.4 4.4 10.1
Service charge waiver - 2.1 4.1
Other property costs 4.7 4.6 10.5
Dilapidation receipts (0.1) - -
Net service charge costs 1.5 1.6 2.8
Service charge costs recovered
through rents
but not separately invoiced (0.4) (0.3) (0.4)
Management fees received less
estimated profit element (1.5) (1.5) (3.5)
EPRA Costs (including direct
vacancy costs) (A) 25.0 28.0 61.4
Direct vacancy costs (2.5) (4.6) (9.0)
EPRA Costs (excluding direct
vacancy costs) (B) 22.5 23.4 52.4
Gross rental income 98.1 97.8 202.9
Ground rent (0.4) (0.7) (1.1)
Service charge components of
rental income (0.4) (0.3) (0.4)
Adjusted gross rental income (C) 97.3 96.8 201.4
EPRA Cost Ratio (including direct
vacancy costs) (A/C) 25.7% 28.9% 30.5%
EPRA Cost Ratio (excluding direct
vacancy costs) (B/C) 23.1% 24.2% 26.0%
In addition to the 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) 5,383.6 5,405.2 5,355.5
Portfolio cost ratio (A/D) -
annualised 0.9% 1.0% 1.1%
The Group has not capitalised any overhead or operating expenses
in either 2021 or 2020.
Property-related capital
expenditure
Half year to 30.06.2021 Half year to 30.06.2020 Year to 31.12.2020
GBPm GBPm GBPm
----------------------- -----------------------
Acquisitions 23.7 43.5 43.5
Development 85.3 57.9 134.1
Investment properties
No incremental lettable space 12.7 3.1 16.3
Tenant incentives 2.7 1.6 1.5
Capitalised Interest 5.4 6.3 9.9
Total capital expenditure 129.8 112.4 205.3
Conversion from accrual to cash
basis (18.8) 4.0 13.1
Total capital expenditure on a
cash basis 111.0 116.4 218.4
24. Gearing and interest cover
NAV gearing
30.06.2021 30.06.2020 31.12.2020
Note GBPm GBPm GBPm
Net debt 17 999.7 992.8 1,049.1
Net assets 4,382.9 4,404.7 4,315.1
NAV gearing 22.8% 22.5% 24.3%
Loan-to-value ratio
30.06.2021 30.06.2020 31.12.2020
Note GBPm GBPm GBPm
Net debt 17 999.7 992.8 1,049.1
Fair value adjustment of secured bonds (8.7) (10.0) (9.3)
Unamortised issue and arrangement costs 10.2 10.4 11.3
Leasehold liabilities 17 (67.4) (60.4) (66.6)
Drawn debt 933.8 932.8 984.5
Fair value of property portfolio 10 5,383.6 5,405.2 5,355.5
Loan-to-value ratio 17.3% 17.3% 18.4%
Net interest cover ratio
Half year to 30.06.2021 Half year to 30.06.2020 Year to 31.12.2020
Note GBPm GBPm GBPm
Net property and other income 5 95.1 86.5 183.0
Adjustments for:
Other income 5 (1.5) (1.5) (3.5)
Other property income 5 - - (0.9)
Net surrender premiums 5 (3.6) (0.2) (0.9)
Write-down of trading property 5 0.7 0.4 1.8
Profit on disposal of trading
properties 5 (0.5) (0.8) (5.2)
Adjusted net property income 90.2 84.4 174.3
Finance income 7 - (0.1) (0.2)
Finance costs 7 14.2 13.7 30.3
14.2 13.6 30.1
Adjustments for:
Finance income 7 - 0.1 0.2
Other finance costs 7 (0.2) (0.1) (0.2)
Amortisation of fair value
adjustment to secured bonds 7 0.7 0.6 1.3
Amortisation of issue and
arrangement costs 7 (1.2) (1.1) (2.2)
Finance costs capitalised 7 5.4 6.3 9.9
18.9 19.4 39.1
Net interest cover ratio 477% 435% 446%
25. Total return
Half year to 30.06.2021 Half year to 30.06.2020 Year to 31.12.2020
p p p
----------------------- ----------------------- ------------------
EPRA Net Tangible Assets on a
diluted basis
At end of period 3,864 3,900 3,812
At start of period (3,812) (3,957) (3,957)
Increase/(decrease) 52 (57) (145)
Dividend per share 52 51 73
Increase/(decrease) including
dividend 104 (6) (72)
Total return 2.7% (0.1%) (1.8%)
26. List of definitions
Building Research Establishment Environmental Assessment Method
(BREEAM)
An environmental impact assessment method for non-domestic
buildings. Performance is measured across a series of ratings;
Good, Very Good, Excellent and Outstanding.
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.
Company Voluntary Arrangement (CVA)
An insolvency procedure allowing a company with debt problems or
that is insolvent to reach a voluntary agreement with its creditors
to repay its debt over a fixed period.
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.
Energy Performance Certificate (EPC)
An EPC is an asset rating detailing how energy efficient a
building is, rated by carbon dioxide emission on a scale of A-G,
where an A rating is the most energy efficient. They are legally
required for any building that is to be put on the market for sale
or rent.
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's Best Practices Recommendations 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 Reinstatement Value (NRV) per share
NAV adjusted to reflect the value required to rebuild the entity
and assuming that entities never sell assets. Assets and
liabilities, such as fair value movements on financial derivatives
are not expected to crystallise in normal circumstances and
deferred taxes on property valuation surpluses are excluded.
- EPRA Net Tangible Assets (NTA) per share
Assumes that entities buy and sell assets, thereby crystallising
certain levels of unavoidable deferred tax.
- EPRA Net Disposal Value (NDV) per share
Represents the shareholders' value under a disposal scenario,
where deferred tax, financial instruments and certain other
adjustments are calculated to the full extent of their liability,
net of any resulting tax.
- EPRA Cost Ratio (including direct vacancy costs)
EPRA costs as a percentage of gross rental income less ground
rent (including share of joint venture gross rental income less
ground rent). EPRA costs include administrative expenses, other
property costs, net service charge costs and the share of joint
ventures' overheads and operating expenses (net of any service
charge costs), adjusted for service charge costs recovered through
rents and management fees.
- EPRA Cost Ratio (excluding direct vacancy costs)
Calculated as above, but with an adjustment to exclude direct
vacancy costs.
- EPRA Net Initial Yield (NIY)
Annualised rental income based on the cash rents passing at the
balance sheet date, less non-recoverable property operating
expenses, divided by the market value of the EPRA property
portfolio, increased by estimated purchasers' costs.
- EPRA 'topped-up' Net Initial Yield
This measure incorporates an adjustment to the EPRA NIY in
respect of the expiration of rent free periods (or other unexpired
lease incentives such as discounted rent periods and stepped
rents).
- EPRA Vacancy Rate
Estimated rental value (ERV) of immediately available space
divided by the ERV of the EPRA portfolio.
- EPRA like-for-like rental income growth
The growth in rental income on properties owned throughout the
current and previous 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, a liability is recognised using the discounted payments
due. Fixed lease payments made are allocated between the interest
payable and the reduction in the outstanding liability. Any
variable payments are recognised in the income statement in the
period to which it relates.
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.
National Australian Built Environment Rating System (NABERS)
This is a building performance rating system, introduced into
the UK, which provides an energy performance benchmark using a
simple star rating system on a 1-6 scale. This helps property
owners understand and communicate a building's performance versus
other similar buildings to occupiers. Ratings are validated on an
annual basis.
NAV gearing
Net debt divided by net assets.
Net assets per share or net asset value (NAV)
Equity shareholders' funds divided by the number of ordinary
shares in issue at the balance sheet date.
Net debt
Borrowings plus bank overdraft less cash and cash
equivalents.
Net interest cover ratio
Net property income, excluding 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 (non-PID).
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 Net Tangible Assets 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 Tangible Assets 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.
27. Copies of this announcement will be available on the
company's website, www.derwentlondon.com, from the date of this
statement. Copies will also be available from the Company
Secretary, Derwent London plc, 25 Savile Row, London, W1S 2ER.
Independent review report to Derwent London plc
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed Derwent London plc's condensed consolidated
interim financial statements (the "interim financial statements")
in the interim results of Derwent London plc for the 6 month period
ended 30 June 2021 (the "period").
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 UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
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 2021;
-- 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
of Derwent London plc have been prepared in accordance with UK
adopted International Accounting Standard 34, 'Interim Financial
Reporting' and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
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
9 August 2021
Notes to editors
Derwent London plc
Derwent London plc owns 81 buildings in a commercial real estate
portfolio predominantly in central London valued at GBP5.4 billion
as at 30 June 2021, making it the largest London-focused real
estate investment trust (REIT).
Our experienced team has a long track record of creating value
throughout the property cycle by regenerating our buildings via
development or refurbishment, effective asset management and
capital recycling.
We typically acquire central London properties off-market with
low capital values and modest rents in improving locations, most of
which are either in the West End or the Tech Belt. We capitalise on
the unique qualities of each of our properties - taking a fresh
approach to the regeneration of every building with a focus on
anticipating tenant requirements and an emphasis on design.
Reflecting and supporting our long-term success, the business
has a strong balance sheet with modest leverage, a robust income
stream and flexible financing.
As part of our commitment to lead the industry in mitigating
climate change, Derwent London has committed to becoming a net zero
carbon business by 2030, publishing its pathway to achieving this
goal in July 2020. In 2019 the Group became the first UK REIT to
sign a Revolving Credit Facility with a 'green' tranche. At the
same time, we also launched our Green Finance Framework and signed
the Better Buildings Partnership's climate change commitment. The
Group is a member of the 'RE100' which recognises Derwent London as
an influential company, committed to 100% renewable power by
purchasing renewable energy, a key step in becoming a net zero
carbon business. Derwent London is one of only a few property
companies worldwide to have science-based carbon targets validated
by the Science Based Targets initiative (SBTi).
Landmark schemes in our 5.4 million sq ft portfolio include 80
Charlotte Street W1, Brunel Building W2, White Collar Factory EC1,
Angel Building EC1, 1-2 Stephen Street W1, Horseferry House SW1 and
Tea Building E1.
In January 2021, Derwent London came top of the Property Sector
and 10th position overall in Management Today's Britain's Most
Admired Companies awards 2020. In the year the Group has won
several awards for Brunel Building with the most prominent being
the BCO Best Commercial Workplace award. In 2019 the Group won EG
Offices Company of the Year, the CoStar West End Deal of the Year
for Brunel Building and Westminster Business Council's Best
Achievement in Sustainability award. In 2013 the Company launched a
voluntary Community Fund and has to date supported well over 100
community projects in the West End 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
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END
IR KKLFBFVLBBBL
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