TIDMDLN
RNS Number : 6317V
Derwent London PLC
11 August 2022
11 August 2022
Derwent London plc ("Derwent London" / "the Group")
UNAUDITED RESULTS FOR THE SIX MONTHSED 30 JUNE 2022
CONTINUING FLIGHT TO QUALITY
Paul Williams, Chief Executive of Derwent London, said:
"We are seeing good demand for our distinctive brand of high
quality offices, with short supply of prime space in our core
locations. Despite the uncertain macro environment, the continuing
flight to quality combined with our strong financial position gives
us confidence that we are well placed with a pipeline of
value-adding opportunities."
Financial highlights
-- Total return of 3.0%, up from 2.7% in H1 2021
-- EPRA(1) NTA 4,023p per share, up 1.6% from 3,959p at December 2021
-- Net rental income GBP93.9m, up 4.2% from GBP90.1m in H1 2021
-- EPRA earnings 53.13p per share, down 1.7% from 54.04p in H1 2021
-- IFRS profit before tax of GBP137.1m, up 13.2% from GBP121.1m in H1 2021
-- Interim dividend raised 4.3% to 24.0p from 23.0p in H1 2021
-- EPRA loan-to-value ratio 23.7% (December 2021: 22.3%); interest cover 419% (FY 2021: 464%)
-- Net debt of GBP1.36bn (December 2021: GBP1.25bn)
-- Undrawn facilities and cash of GBP452m (December 2021: GBP608m)
First half activity
-- Lettings of GBP7.1m at 9.3% above December 2021 ERV
-- Renewals and regears of GBP6.2m, 8.0% above December 2021 ERV
-- Reviews of GBP5.5m, 6.2% above December 2021 ERV
-- Principal acquisitions of GBP130.2m and disposals of GBP65.9m
(excludes post-H1 transactions)
-- Completion of developments at Soho Place W1 and The Featherstone Building EC1
-- Soho Place 88% let or sold
-- First leases signed at The Featherstone Building (22% let), 10% above ERV
-- 25 Baker Street W1 (298,000 sq ft) demolition complete with
80% of total construction costs fixed
-- Network W1 (137,000 sq ft) committed with demolition underway
-- Portfolio energy intensity 61kWh/sqm in H1, 18% below three-year average
Portfolio update
-- Portfolio valued at GBP5.9bn; underlying valuation increase
of 1.7% including developments up 8.5%
-- True equivalent yield 4.46% (December 2021: 4.50%)
-- 0.9% increase in portfolio ERV
-- EPRA vacancy rate 6.5% (December 2021: 1.6%) reflecting development completions
-- Bush House WC2 and 2 & 4 Soho Place W1 disposals completed in July for GBP123.6m
Guidance
-- Unchanged ERV guidance of 0% to +3% for 2022 average growth across our portfolio
-- Upward pressure on property yields; our portfolio expected to be more resilient
(1) Explanations of how EPRA figures are derived from IFRS are
shown in note 25
Webcast and conference call
There will be a live webcast together with a conference call for
investors and analysts at 09:30 BST today. The webcast can be
accessed via www.derwentlondon.com
To participate in the call, please register at
www.derwentlondon.com
A recording of the webcast will also be made available following
the event 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
Robert Duncan, Head of Investor Relations
Brunswick Group Simon Sporborg
Tel: +44 (0)20 7404 5959 Nina Coad
Emily Trapnell
CHIEF EXECUTIVE'S STATEMENT
Overview
Rents and yields in the London office market were stable through
H1 2022 with prime buildings continuing their outperformance in
both occupational and investment markets. Geopolitical events
caused the macroeconomic environment to deteriorate through the
period leading to rising inflation and interest rates, with upward
pressure on yields emerging since the half year. Despite this, the
Group is well positioned with a high quality portfolio and strong
balance sheet.
Results overview
The Group's total return for the period was 3.0%, against 2.7%
for the first half of 2021 and 5.8% for the full year 2021. This
return comes from the dividend of 53.5p per share paid in June 2022
plus the 64p increase in EPRA net tangible assets (NTA) per share
to 4,023p during the period.
The Group's IFRS profit before tax increased 13.2% to GBP137.1m
for the first six months of 2022 against GBP121.1m for H1 2021. The
increase is principally a revaluation surplus (net of accounting
adjustments) of GBP74.1m, higher than the GBP58.1m recognised in H1
2021. After adjusting for fair value movements, EPRA earnings were
53.13p per share, 1.7% lower than the 54.04p reported last year.
Net property and other income of GBP96.5m was 1.5% higher than the
first half of 2021 and administrative expenses GBP1.6m lower, but
finance costs increased by GBP4.5m to GBP18.7m on higher
borrowings. Our annual dividend remains well covered and we have
increased the interim by 1.0p or 4.3% to 24.0p per share.
We remained net investors in the portfolio in H1 2022, including
the payment made to TfL plus costs of GBP71.9m on completion of
Soho Place W1. As a result, borrowings increased to GBP1.37bn from
GBP1.25bn in December. Our gearing ratios remain low, with the
newly defined EPRA loan-to-value (LTV) ratio at 23.7% against 22.3%
at year end.
The balance sheet remains very strong with 90% of our borrowings
at fixed rates, undrawn facilities and cash of GBP452m and only
GBP83m of debt to refinance prior to June 2025. Following the sales
of Bush House WC2 and 2 & 4 Soho Place W1 in July 2022, our
debt levels reduced by c.GBP126m.
Continuing flight to quality and London's enduring appeal
Offices have an important role for companies in attracting and
retaining talent. An increasing number of businesses have actively
re-engaged with their long-term occupational requirements as Covid
restrictions have lifted which translated into high market take-up
in H1. However, leasing transactions are taking longer to complete
as decision making timescales are being extended. The supply of top
quality buildings remains relatively constrained and established
businesses with large requirements continue to enter into early
pre-let discussions. In addition, we may see some development
deferrals as market conditions lead to a re-appraisal of
schemes.
Despite some of the large Tech companies pulling back on their
space expansion plans, there remains a broad range of businesses
with active requirements. A variety of international companies
continue to choose London for their UK or European HQ.
CBRE reported a net withdrawal of tenant-controlled space in H1
across central London. Combined with strong take-up, market vacancy
has reduced to 8.2% (December 2021: 8.8%) although this masks the
ongoing divergence between the West End at 4.3% (now back in line
with the long-term average since 2000 of 4.2%) and the City at
12.3% (long-term average 6.6%). Space under offer is close to
record levels at 4.3m sq ft, 1.7m sq ft of which is in the West
End.
Adaptability and amenity
Businesses want a combination of adaptable space and high
quality amenity in innovative and sustainable buildings. Our
customer-focused approach led us to initiatives such as DL/78,
which opened last year and which is proving popular with both
existing and new customers. Based on its success, we are exploring
the potential to open an equivalent amenity in The Featherstone
Building EC1.
Occupier needs cover a broad spectrum from very flexible to
long-term leases. We deliver bespoke solutions which recognise the
differing demands of our diverse customer base. For larger
occupiers, typically on longer leases, this might mean a
combination of core and flex space with some optionality. For
smaller occupiers looking for greater flexibility, our 'Furnished +
Flexible' product provides an attractive solution, achieving a
premium rent.
Portfolio activity
Leasing in H1 was strong with GBP7.1m of new rent signed on
average 9.3% above December 2021 ERV. Five leases comprised 71% of
the total, including the first two lettings at The Featherstone
Building EC1 and two occupiers expanding at White Collar Factory
EC1, altogether 10% above ERV. In addition, several leases
elsewhere have been extended on terms ahead of ERV.
Given the flight to quality, we have been retaining large
recently completed developments for longer and have sold buildings
where we expect lower returns or where we do not believe they can
be economically upgraded into the next generation of prime product.
Proceeds are being reinvested into our pipeline of larger net zero
schemes.
Portfolio reshaping and pipeline restocking activity continued
in 2022 with major acquisitions of GBP130.2m, principally 230
Blackfriars Road SE1 and the final payments at Soho Place W1. In
H1, we sold New River Yard EC1 for GBP65.9m. Since the start of H2,
we have completed the disposal of Bush House WC2 and the
forward-sale of 2 & 4 Soho Place W1 for a combined
GBP123.6m.
The Group also exchanged a conditional contract to acquire the
2.5 acre Old Street Quarter EC1, the site of the Moorfields Eye
Hospital. Plans are being evaluated for a major 750,000+ sq ft
campus for the longer-term. Subject to relocation of the hospital
and subsequent receipt of vacant possession, the GBP239m
acquisition is expected to complete in 2027, when the site payment
will be made.
Our developments at Soho Place W1 (offices 100% pre-let) and The
Featherstone Building EC1 have now completed, adding GBP20.0m of
contracted rent with a further GBP9.9m of ERV to capture from
vacant space. As a result, the EPRA vacancy rate increased to 6.5%
(December 2021: 1.6%).
At 25 Baker Street W1, following appointment of the main
contractor in January 2022, 97% of the office construction costs
(80% of total) have been fixed. Demolition has completed and ground
works are underway. At Network W1, demolition has commenced under a
fixed price contract and we have selected our preferred tier one
contractor for the main construction package. These two projects
have a combined ERV of GBP30.3m. In addition, there are a number of
smaller projects underway, including EPC upgrading activity.
Creating value responsibly
In July 2020, Derwent London became the first UK REIT to publish
its Net Zero Carbon 2030 pathway. We have set ourselves
science-based targets, aligned with a 1.5(o) C climate scenario,
for reductions in energy usage and embodied carbon.
Between our 2019 baseline and the end of 2021, energy intensity
across our managed portfolio, which encompasses Scope 1, 2 &
tenant emissions in Scope 3, reduced 17% to 134kWh/sqm, beating our
targets. Despite a rise in building occupation in H1 2022, we are
on track to again exceed our target for this year. The roll-out and
integration of our Intelligent Building platform will help deliver
further efficiencies over the coming years.
Our EPC profile now comprises 62.3% 'A' or 'B' ratings by ERV
(including projects) with a further 17.9% rated 'C'. The results of
the third-party costed EPC survey we commissioned in 2021 have been
integrated into our plans and a series of actions set to ensure we
remain compliant with evolving legislation.
We are working with our stakeholders to deliver buildings that
minimise the Group's environmental impact through delivery and in
operation. Local authorities are challenging developers to meet
stretching targets for embodied carbon. At the same time, occupiers
are setting their own sustainability agendas for their operational
energy usage, conscious of the role real estate has in helping them
achieve these ambitions.
Embodied carbon is a substantial contributor to our Scope 3
emissions, with our current estimates for the recently completed
schemes at 1 Soho Place W1 of 550kgCO(2) e/sqm and for The
Featherstone Building EC1 of c.540kgCO(2) e/sqm. Our on-site
developments at 25 Baker Street W1 and Network W1 are being
designed as low carbon buildings, aligning with our 2025 target of
<=600kgCO(2) e/sqm which reflects the Greater London Authority's
ambitious requirement.
In addition to buying energy on green tariffs, we have been
looking at a number of sustainability initiatives, including the
self-generation of renewable energy, with our Scottish land
presenting a number of opportunities. In July 2022, the Group
received resolution to grant planning consent for a 107 acre,
18.4MW solar park. This marks a significant stage in our renewable
energy generation plans with our appraisals showing this could
deliver more than 40% of the electricity used across our managed
London portfolio.
Guidance and outlook
We expect the flight to quality to continue. We maintain
guidance for 2022 of average ERV growth in our portfolio of 0% to
+3%, following 0.9% growth in H1.
Following a strong start to the year, the macroeconomic
environment has weakened. The substantial increase in financing
costs and inflation, among other factors, is bringing upward yield
pressure across the real estate sector. London continues to have
global appeal and we believe our portfolio will prove more
resilient given the location and scarcity of our high quality
portfolio.
Derwent London creates best-in-class, adaptable and sustainable
offices that appeal to a diverse group of occupiers. The Group has
a strong balance sheet supported by a long weighted average
unexpired debt term. Combined with a large and predominantly
income-producing portfolio, we believe we are well-placed with a
deep pipeline of value-adding opportunities which we expect will
enhance our future growth.
CENTRAL LONDON OFFICE MARKET
Occupational market
Take-up in H1 was 16% above the 10-year first half average with
letting activity of 6.4m sq ft. Both the West End and City were
significantly above long-term averages while Docklands lagged.
Demand is broad-based with banking & finance the most active
sector at 24% followed by professional services and creative
industries, both at 19%.
Space under offer of 4.3m sq ft (December 2021: 4.4m sq ft) is
26% ahead of the 10-year average, reflecting re-engagement by
businesses with their occupational strategies. The vacancy rate
across London reduced by 0.6% in H1 to 8.2%, but this masks the
wide divergence between the West End which is back to the long-term
average (4.3%, down 0.6% in H1) and City which remains elevated
(12.3%, down 0.3% in H1). There has been a net withdrawal of
tenant-controlled space to 6.5m sq ft (27% of total vacancy), 22%
lower than the peak in Q1 2021.
The first half saw 1.8m sq ft of development completions across
central London. The committed pipeline stands at 13.7m sq ft for
delivery by 2026. The availability of top tier property is expected
to remain constrained for the foreseeable future and occupiers
continue to engage in pre-let discussions. Currently 35% of the
London committed pipeline is pre-let or under offer.
Investment market
According to CBRE, investment transaction volumes in H1 totalled
GBP8.3bn, of which GBP5.6bn was in Q1 making it one of the highest
quarterly figures on record. Through H1, investors from Asia were
the most active at 47%, followed by North America and the UK at 24%
and 21% respectively. In particular, there was appetite for
well-let properties with strong sustainability credentials.
However, activity has slowed since the half year.
London remains an attractive office market globally. Yields
compare favourably to those in Europe which were marked to record
low levels but have now started to reverse. Prime yields in the
West End and City were, according to CBRE, unchanged through H1 at
3.25% and 3.75%, respectively. This compares to Savills and JLL
which both moved yields in the City up by 25bp in Q2. CBRE
estimates there is GBP37bn of potential investment demand targeting
London offices (December 2021: GBP40bn) and at June there was
GBP3.8bn of property under offer. However, deals are taking longer
to complete and more recently we have seen some buildings being
withdrawn from the market.
VALUATION
Under our Valuer Appointment Policy, Knight Frank were appointed
to value at least half of our London assets as at H1 2022, with
CBRE, our current valuer, undertaking the balance. This followed a
'shadowing' exercise by Knight Frank in 2021 which revealed no
material differences. For the December 2022 valuation, Knight Frank
will be appointed on all the London assets. Our Scottish land,
under 1% of the portfolio, continues to be valued by Savills.
The Group's investment portfolio was valued at GBP5.9bn on 30
June 2022. There was a surplus of GBP87.5m in the first half which,
after accounting adjustments of GBP13.4m (see note 11), produced an
uplift of GBP74.1m. This was an underlying valuation increase of
1.7%. By location, our central London properties, which represent
99% of the portfolio, were up 1.7% with the West End 1.7% and City
Borders 1.5%. The balance of the portfolio, our Scottish holdings,
was marginally down at -0.1%.
Our portfolio's capital growth outperformed the MSCI(1)
Quarterly Index for Central London Offices, at 0.8%. The wider UK
All Property Index increased by 5.7%.
The further pick-up in leasing activity in H1, with occupiers
focused on high quality, environmentally attractive space, was
reflected in our EPRA rental values moving up 0.9%, an improvement
on the 0.1% growth in H2 2021.
The portfolio's true equivalent yield tightened 4bp from 4.50%
to 4.46% over the first half. The initial yield is 3.1% (December
2021: 3.3%) which, after allowing for the expiry of rent frees and
contractual uplifts, rises to 4.2% on a 'topped-up' basis (December
2021: 4.4%). These movements in the yield profile are partly
attributable to the inclusion of Soho Place W1 and The Featherstone
Building EC1 within the EPRA calculation, following their recent
completion, where the leases are in rent free or there is available
space.
The total property return for the first six months was 3.3%,
which compares to the MSCI(1) Index of 2.5% for Central London
Offices and 7.8% for UK All Property.
During the first half we completed developments at Soho Place
and The Featherstone Building. These two projects were 68% let or
sold. The Group has two on-site developments at 25 Baker Street W1
and Network W1. The latter commenced in June 2022. These are both
due to finish in 2025 and require GBP346m of capital expenditure to
complete. Together the four schemes were valued at GBP843m at June
2022 and delivered an 8.5% valuation uplift, after capital
expenditure. Excluding these developments, the portfolio valuation
increased 0.6% on an underlying basis, which includes an uplift on
Bush House WC2 prior to disposal.
Further details on the progress of our projects are in the
'Developments' section below and additional guidance on the
investment market is laid out in the 'Guidance and outlook' section
above.
(1) MSCI Central London Offices Quarterly Index
Portfolio reversion
Our contracted annualised cash rent as at 30 June 2022 was
GBP179.4m, a 0.6% increase over six months. With a portfolio ERV of
GBP303.3m there is GBP123.9m of potential reversion. Within this,
GBP71.0m is contracted through rent-frees, fixed uplifts and
pre-lets, the majority of which is already straight-lined in the
income statement under IFRS accounting standards. On-site
developments and refurbishments could add GBP33.5m. The ERV of
available space is GBP17.3m. The majority of this is at our newly
completed developments: GBP6.7m at The Featherstone Building, which
is 22% let, and GBP3.2m at the retail space at Soho Place. The
balance of the potential reversion of GBP2.1m comes from future
reviews and expiries less future fixed uplifts.
ASSET MANAGEMENT & INVESTMENT ACTIVITY
Letting activity - GBP7.1m of new rent at 9.3% above ERV
Letting activity in H1 2022 continued to strengthen compared to
2021. 24 new leases totalling GBP7.1m pa were signed on 109,300 sq
ft at an average 9.3% above December 2021 ERV. With a relative
shortage of top tier space, many occupiers are prepared to pay
premium rents for space that meets their requirements. Five deals
comprised 71% of the new rent achieved in H1. Since the start of
H2, GBP1.1m of new leases have been signed.
Leasing activity in H1 2022
Let Performance against
Dec 21 ERV (%)
Area Income Open market Overall(1)
sq ft GBPm pa
-------- --------- ------------ -----------
Q1 55,900 3.5 6.8 6.8
Q2 53,400 3.6 11.8 11.8
-------- --------- ------------ -----------
H1 2022 109,300 7.1 9.3 9.3
-------- --------- ------------ -----------
(1) Includes short-term lettings at properties earmarked for
redevelopment
At The Featherstone Building EC1, Dept Agency, a global digital
solutions and marketing business, leased 11,450 sq ft on the ninth
and tenth floors at an annual rent of GBP1.0m. Meanwhile,
Marshmallow, a tech-based insurance business, leased 16,220 sq ft
on the first floor at an annual rent of GBP1.2m. On average, these
leases were 10% ahead of December 2021 ERV. Both occupiers signed
10-year leases with breaks at year 5 and 6, respectively.
At White Collar Factory EC1, two occupiers have expanded.
Brainlabs leased an additional 11,540 sq ft for six years, expiring
in line with their existing term in 2028, nearly doubling their
overall space. Adobe leased a further 10,180 sq ft on a 10-year
term, increasing its floor area in the building 23%. On average,
the two leases were at 10% premium to December 2021 ERV.
Michael Kors signed a new 10-year lease on 18,850 sq ft at 90
Whitfield Street W1. The rent of GBP72.50 per sq ft is 7.5% above
ERV. Our nearby occupier community space, DL/78, played an
important role in achieving this letting.
Principal lettings in H1 2022
Total annual Rent free
Property Tenant Area Rent rent Lease term Lease break equivalent
sq ft GBP psf GBPm Years Year Months
----------------- -------- -------- ---------------- ----------- ------------ ----------------
Q1
90 Whitfield
Street W1 Michael Kors 18,850 72.50 1.4 10 - 24
White Collar
Factory EC1 Brainlabs 11,540 71.70 0.8 6 - 10.4
80 Charlotte
Street W1 NewRiver REIT 4,090 70.00 0.3 5 - 11
Holden House W1 Talon Outdoor 5,120 49.50 0.3 5 3.5 6
----------------- -------- -------- ---------------- ----------- ------------ ----------------
Q2
The
Featherstone 15, plus 9 if
Building EC1 Marshmallow 16,220 71.50 1.2 10 6 no break
The
Featherstone 11.5, plus 11.5
Building EC1 Dept Agency 11,450 85.25 1.0 10 5 if no break
White Collar 12, plus 10 if
Factory EC1 Adobe 10,180 70.00 0.7 10 6 no break
230 Blackfriars Wandle Housing 7, plus 6 if
Road SE1 Association 7,290 49.50 0.4 7.5 4 no break
----------------- -------- -------- ---------------- ----------- ------------ ----------------
Sub-total 84,740 72.00 6.1
-------- -------- ---------------- ----------- ------------ ----------------
Other 24,560 40.70 1.0
-------- -------- ---------------- ----------- ------------ ----------------
Total 109,300 64.80 7.1
-------- -------- ---------------- ----------- ------------ ----------------
Asset management progress - reducing income risk and beating
ERV
Lease renewals were agreed 12.9% above December 2021 ERV and
17.1% above the previous rent, while regears were on average 1.5%
below December 2021 ERV and 4.6% below the previous rent. This
excludes the impact of a development facilitation deal which
involved the insertion of a near-term landlord break option. In
aggregate, 63% of breaks/expiries were retained or re-let prior to
the end of H1 excluding space taken back for projects and
disposals.
Rent reviews averaged 6.2% above December 2021 ERV and 9.0%
above the previous rent. Income at risk in 2022 has reduced from 9%
at the start of the year to 3%. The vacancy rate increased to 6.5%
at H1 from 1.6% at December 2021, with development completions at
The Featherstone Building EC1 and Soho Place W1 comprising
3.7%.
The main asset management transaction in the period was the
extension of Morningstar's lease at Oliver's Yard EC1 to June 2027,
following a short-term regear agreed through Covid. Morningstar has
agreed a rental uplift reflecting an 18.8% premium to the previous
rent and 14.2% above the net effective ERV. As well as improving
income duration, this also had a positive impact on valuation with
the valuers factoring in a longer lease to a strong occupier
covenant.
Asset management activity in H1 2022
Area Previous rent New rent Uplift New rent vs
------------------
'000 sq ft GBPm pa GBPm pa % Dec 21 ERV %
------------------ -------------- --------- ------- -------------
Rent reviews 83.7 5.0 5.5 9.0 6.2
Lease renewals 61.6 3.0 3.5 17.1 12.9
Lease regears(1) 21.1 1.4 1.3 (4.6) (1.5)
------------------ -------------- --------- ------- -------------
Total 166.4 9.4 10.3 9.6 7.3
------------------ -------------- --------- ------- -------------
(1) Excludes single development-linked regear
Rent collection - broadly back to pre-Covid levels
For the June quarter, we have now collected 96% of rent, with
offices at 97% and retail/hospitality at 83%. In relation to the
two previous quarters, we have received 99% of rent for both the
December and March quarter days.
Investment activity - further portfolio upgrading
Over the last three and a half years, the Group has undertaken
significant capital recycling with over GBP700m of disposals and
GBP1.1bn of acquisitions and capex. Disposals have mainly comprised
properties that no longer meet our forward return criteria or which
we do not believe can be upgraded into the next generation of prime
buildings. We continue to explore further disposal opportunities
for some of our smaller assets.
Acquisitions
230 Blackfriars Road SE1 was acquired in H1 for GBP58.3m, adding
to our longer-term development pipeline. Our current appraisal
shows a potential uplift in floor area from 60,300 sq ft to over
200,000 sq ft. Two new leases have been agreed post-acquisition
totalling 9,400 sq ft on average 21% above acquisition ERV,
increasing the income yield and extending the building's income
profile.
At Soho Place W1, following completion of the development the
headlease premium has now been paid to TfL, along with associated
SDLT, totalling GBP71.9m.
In May 2022, we exchanged a conditional contract for the
long-dated acquisition of Old Street Quarter EC1 (formerly known as
The Moorfields Estate EC1). This 400,000 sq ft freehold estate,
located on a 2.5 acre site, has potential for redevelopment into a
750,000+ sq ft mixed-use campus. This GBP239m acquisition is
expected to complete in 2027, subject to receipt of final Treasury
approval (expected in H2 2022), delivery of the new eye hospital at
St Pancras and subsequent vacant possession of the existing
Moorfields Eye Hospital.
Major acquisitions
Net Net rental Net rental
Area Total after costs yield income income
Property Date sq ft GBPm % GBPm pa GBP psf
230 Blackfriars Road SE1 Q1 60,300 58.3 3.5 2.1 41.00
Soho Place W1 headlease Q1 - 71.9 - - -
------ ------- ------------------ ------- ----------- -----------
Total acquisitions 60,300 130.2 - 2.1 -
------- ------------------ ------- ----------- -----------
Disposals
In H1, we completed the disposal of New River Yard EC1 for
GBP65.9m.
In H2, the sale of Bush House WC2 exchanged and completed in
July 2022 for GBP83.9m, a significant 41% premium to December 2021
book value. In addition, the forward-sale of the long leasehold
interest in 2 & 4 Soho Place W1 for GBP39.7m completed
following delivery of the new theatre to Nimax Theatres.
Major disposals
Net Net rental
Area Net proceeds yield income
Property Date sq ft GBPm % GBPm pa
H1 2022
New River Yard EC1 Q2 70,700 65.9(1) 4.5 3.3
------ ---------- ------------- ------- -----------
Total H1 disposals 70,700 65.9 4.5 3.3
---------- ------------- ------- -----------
H2 2022
2 & 4 Soho Place W1 Q3 18,400(2) 39.7 - -
Bush House WC2 Q3 103,700 83.9 - -
------ ---------- ------------- ------- -----------
Total H2 disposals to date 122,100 123.6 - -
---------- ------------- ------- -----------
(1) After deduction of rental top-ups and sale costs (2) Office
space
DEVELOPMENTS
H1 2022 completions
Soho Place W1, a net zero carbon development, comprised two
buildings, 1 Soho Place and 2 & 4 Soho Place. The 192,100 sq ft
office element at 1 Soho Place was fully pre-let to Apollo Group
and G-Research in 2019 with a combined contracted rent of GBP17.7m,
reflecting an average rent of c.GBP93 per sq ft. Following
completion, the marketing campaign for the 34,000 sq ft retail
element was launched. With the Elizabeth line now open and footfall
across central London approaching pre-Covid levels supported by the
ongoing recovery in international tourism, we remain confident in
the long-term attractions of this prime retail location.
The embodied carbon intensity for 1 Soho Place is 550kgCO(2)
e/sqm beating our 2025 and the GLA targets. A BREEAM 'Outstanding'
rating is being targeted.
The embodied carbon intensity at 2 & 4 Soho Place is higher
at 880kgCO(2) e/sqm principally due to the nature of theatre
construction and the relatively small floor area. The forward-sale
of this building has completed since the end of H1.
The Featherstone Building EC1, which is net zero carbon, is now
22% let by floorspace. The embodied carbon intensity of the
development is c.540kgCO(2) e/sqm. The scheme incorporates our
'Intelligent Building' infrastructure. We are targeting a BREEAM
'Outstanding' rating.
On-site projects
Major developments pipeline
Project Total 25 Baker Street W1 Network W1
Completion H1 2025 H2 2025
Office (sq ft) 350,000 218,000 132,000
Residential (sq ft) 52,000 52,000 -
Retail (sq ft) 33,000 28,000 5,000
Total area (sq ft) 435,000 298,000 137,000
Est. future capex (GBPm) 346 2412 105
Total cost(1) (GBPm) 697 463 234
ERV (c.GBP psf) - 90 87.5
ERV (GBPm pa) 30.3 18.43 11.9
Pre-let/sold area (sq ft) 31,000 31,000 -
--------------------------- ------------------- -----------
(1) Comprising book value at commencement, capex, fees and
notional interest on land, voids and other costs. Baker Street
includes a 3.1% profit share payaway to freeholder The Portman
Estate
(2) Includes potential profit share to The Portman Estate
(3) Long leasehold, net of 2.5% ground rent
The refurbishment of Francis House SW1 completes in H2 2022. The
38,200 sq ft scheme was pre-let to Edelman in 2021 on a 15-year
lease with a break at year 10, at a rent of GBP2.9m (GBP76 per sq
ft) reflecting a premium of 15% to ERV. The building's EPC rating
improved from 'C' to 'B'.
At 25 Baker Street W1 demolition works have completed and ground
works are progressing well. The scheme totals 298,000 sq ft, which
comprises 218,000 sq ft of offices, 28,000 sq ft of retail and
52,000 sq ft of residential. The scheme is 10% pre-sold to The
Portman Estate.
97% of the construction costs on the office element (80% of
total) have been fixed effectively mitigating our exposure to
further build cost inflation. Capex to complete is estimated at
GBP241m including the potential profit share to The Portman Estate.
We are targeting BREEAM 'Outstanding' and NABERS 4 Star
ratings.
Our most recent development at Network W1 commenced in June
2022. We have committed to deliver the 137,000 sq ft office-led
scheme on a speculative basis given the strength of occupier demand
in Fitzrovia. Demolition costs have been fixed in line with budget
and we are in discussions with our preferred contractor on the main
build contract. Capex to complete is estimated at GBP105m. A BREEAM
'Outstanding' rating and NABERS 4 Star ratings are targeted.
Longer-term pipeline
We have a further 1.9m sq ft of space which forms part of our
longer-term pipeline (33% of current portfolio). This excludes the
750,000+ sq ft Old Street Quarter EC1 project where the acquisition
is scheduled to complete in 2027.
FINANCIAL REVIEW
Gross property and other income increased to GBP122.3m in the
first half of 2022 from GBP120.4m in H1 2021. The prior period
benefitted from GBP3.9m of surrender premiums compared with only
GBP0.4m in H1 2022 so the underlying increase was 4.6%. Gross
rental income was up by 3.7% to GBP101.7m with net rental income
growing from GBP90.1m in H1 2021 to GBP93.9m in H1 2022. Net
property and other income increased to GBP96.5m from GBP95.1m a
year earlier, the comparative figure also including the surrender
premiums noted above. With rent collection now almost back to
pre-Covid levels, we have seen impairments partially reversing
giving rise to a credit of GBP0.6m in H1 2022 compared with a
charge of GBP1.4m in H1 2021.
IFRS profit from operations rose to GBP152.6m for the six months
to 30 June 2022 against GBP134.1m for the half year to June 2021.
The main reason for this was an increase in the overall revaluation
surplus for our investment properties (after accounting adjustments
for incentives) in the first half of 2022 to GBP73.4m from GBP57.8m
in H1 2021. Administrative expenses were also GBP1.6m below H1 2021
at GBP17.8m as lower provisions for variable pay more than offset
higher base staff salaries.
We have continued to invest in our portfolio and borrowings have
grown as a result, ending June 2022 at GBP1.37bn. This has
increased gross interest costs to GBP23.4m for the half year
against GBP19.6m for the six months to 30 June 2021. Interest
capitalised was a little lower in H1 2022 at GBP4.7m against
GBP5.4m in H1 2021, the result of development completions at Soho
Place W1 and The Featherstone Building EC1 during the first half.
Derivative financial instruments showed an overall gain of GBP2.9m
in H1 2022 (H1 2021: GBP1.2m uplift) following the significant rise
in interest rates over the period. Our share of the results at our
new 50 Baker Street W1 joint venture was only GBP0.1m, the net
income of GBP1.2m almost offset by a revaluation deficit of
GBP1.1m.
The resulting IFRS profit before tax was up 13.2% to GBP137.1m
for the half year to 30 June 2022 against GBP121.1m in H1 2021.
EPRA earnings, which exclude fair value movements, fell marginally
(1.7%) to 53.13p per share from 54.04p a year earlier but would
have shown a small increase after adjusting for the surrender
premiums.
EPRA like-for-like gross rental income, which excludes the
effect of acquisitions, disposals and developments, was up 1.1%
compared to H2 2021 and like-for-like net rental income was up 2.5%
compared with H2 2021, helped by the reversal of impairments
mentioned earlier.
The partial reversal of impairments has also brought our EPRA
cost ratio (including direct vacancy costs) down to 23.3% in H1
2022 against 25.7% in H1 2021 and 24.3% for the whole of 2021.
Excluding direct vacancy costs, it was 20.4% (H1 2021: 23.1%).
The Group's total return over the six-month period, including
the 53.5p dividend paid, was 3.0% compared to 2.7% for H1 2021 and
5.8% for the full year 2021. The increase in our London office
values in the first half of 2022 took the Group's EPRA Net Tangible
Asset value per share above GBP40 for the first time, ending at
4,023p against 3,864p at 30 June 2021 and 3,959p at 31 December
2021. With the substantial rise in interest rates providing a large
reduction in the fair value of our fixed rate debt, the Group's
EPRA Net Disposal Value has risen more significantly, up 185p per
share or 4.8% to 4,069p from 3,884p as at 31 December 2021.
Capital expenditure totalled GBP69.2m in H1 2022, below the
level seen in H1 2021 after the completion of two major schemes. In
addition, our share of capital expenditure in the 50 Baker Street
W1 joint venture was GBP0.9m. At our 25 Baker Street W1 site
groundworks are progressing well and, with a number of smaller
projects, which include EPC upgrade works, and demolition starting
at Network W1, we anticipate incurring around GBP70m of capital
expenditure in the second half. Including acquisitions made in H1,
the total invested in the portfolio in the first half was over
GBP200m, considerably higher than the GBP68m from trading and
investment property disposals. The main property sold in H1 was the
New River Yard EC1 complex for net proceeds of GBP65m and Bush
House WC2, which completed in July 2022, was transferred to 'assets
held for sale' in our 30 June 2022 balance sheet. 2 & 4 Soho
Place W1 was already within this category and the sale of this
building also completed in July 2022. First half acquisitions
included the GBP68m headlease payment to TfL for Soho Place
together with GBP4m of SDLT. As a result, the grossing up of
headlease and other liabilities has seen a combined decrease of
GBP66.1m.
We have started to incur initial planning and design costs and
fees in relation to the long-term project at Old Street Quarter
EC1, with the site acquisition due to complete no earlier than
2027. For the time being, as we do not own the site, we are showing
these costs as prepayments within the balance sheet.
Financing and net debt
The last six months have been marked by a sharp increase in
interest rates following many years of exceptionally low rates. The
market impact of this has just started to be felt and has had only
a marginal impact on our first half results. We are relatively well
protected against rising rates with 90% of our debt at fixed rates
as at 30 June 2022 and with an additional GBP75m forward start
interest rate swap at 1.36% up to April 2025. Helped by the GBP350m
10-year unsecured green bond issued in November last year, our debt
is also relatively long dated with a weighted average term of 6.5
years, bank facilities extending until at least Q4 2026 and only
one loan expiry of GBP83m prior to June 2025.
As noted above, our debt levels have increased through H1 to
bring net debt to GBP1.36bn as at 30 June 2022 against GBP1.25bn at
the 2021 year end. Total borrowings were GBP1.37bn as at 30 June
2022. Full details are set out in note 19 to the balance sheet.
This is equivalent to a loan-to-value ratio, calculated on the new
basis set out by EPRA (which includes our share of the 50 Baker
Street W1 joint venture and which is close to the basis we adopted
previously) of 23.7% against 22.3% as at 31 December 2021. We have
also set out in note 26 the calculations for the old basis used
(22.9% for the Group LTV ratio and 22.7% including our 50% share of
the Baker Street joint venture). The Group's NAV gearing (the ratio
of net debt to net assets) was 30.1% as at 30 June 2022 against
28.2% as at the 2021 year end.
As at 30 June 2022, the Group had GBP452m of cash and undrawn
facilities (31 December 2021: GBP608m).
The disposals which completed in July 2022 have reduced our debt
by about GBP126m and, on a proforma basis, would have reduced the
June 2022 EPRA LTV ratio to 22.0% with a corresponding increase in
cash and undrawn facilities.
Interest cover remains very strong at 419% including
proportional consolidation of our joint ventures but has fallen
back from the 464% seen in the 2021 full year, due mainly to the
higher debt levels. Our main interest cover debt covenant is 145%
so there remains very substantial headroom.
Looking at the cash flow position, rents received were GBP93.8m
in H1 2022, up from GBP84.6m in H1 2021 and the first half was
impacted by the funding of insurance payments of GBP4.2m which will
subsequently be collected from tenants.
The higher level of bank borrowing at 30 June 2022 has brought
our weighted average interest cost down to 3.06% (31 December 2021:
3.14%) on a cash basis and 3.18% (31 December 2021: 3.27%)
including the IFRS adjustment on the convertible and green bonds.
The GBP175m convertible bonds mature in June 2025 with a current
conversion price of 4,496p so are not dilutive at the prevailing
share price.
Qualifying expenditure under the Green Finance Framework
The qualifying expenditure as at 30 June 2022 for each project
is set out in the table below. This includes an element of 'look
back' capital expenditure on recent projects. The 25 Baker Street
W1 scheme commenced in Q4 2021 and practical completion is expected
in H1 2025.
The cumulative qualifying expenditure on Eligible Green Projects
(EGP) at 30 June 2022 was GBP597.6m, with GBP34.8m of this being
incurred in H1 2022.
Cumulative spend on each EGP as at 30 June 2022:
Subsequent spend
-------------------------
Q4 19 -
Look back spend FY 2021 H1 2022 spend Cumulative spend
Project/EGP GBPm GBPm GBPm GBPm
------------------------------- --------- -------------- -----------------
80 Charlotte Street W1 185.6 51.6 0.4 237.6
Soho Place W1 66.3 137.6 14.6 218.5
The Featherstone Building EC1 29.1 60.3 5.9 95.3
25 Baker Street W1 26.5 5.8 13.9 46.2
307.5 255.3 34.8 597.6
At 30 June 2022, following the issuance of the Green Bonds in
November 2021, total drawn borrowings from Green Financing
Transactions were GBP455m. This includes GBP105m from the green
tranche of the Group's RCF and the GBP350m Green Bonds.
Dividend
After considering our many stakeholder obligations, a 4.3%
increase in the interim dividend is proposed, taking it to 24.0p
per share from 23.0p last year. It will be paid as a PID on 14
October 2022 to shareholders on the register as at 9 September
2022.
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, where possible, 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 2022. The Group's
approach to the management and mitigation of these risks is
included in the 2021 Report & Accounts. The Board has confirmed
that its risk appetite and key risk indicators remain
appropriate.
Since the release of our 2021 year-end results in February 2022,
there is greater economic uncertainty globally. In the UK,
inflation has risen substantially to 9.4% and the Bank of England
has subsequently increased base interest rates from 0.50% to 1.75%,
with expectations of further rises. The potential adverse impact of
these factors on property yields has heightened the risk of a fall
in property values over the next six months. Consequently, the
Board has reinstated 'Fall in property values' as a principal risk
for the Group.
The main challenges facing the wider economy are material/labour
shortages, rising interest rates, inflation, and the increasing
risk of recession. The conflict in Ukraine has contributed to
global supply chain disruption and commodity price inflation, which
will make our ability to secure fixed price construction contracts
more challenging in the medium-term. In respect of our managed
portfolio, the majority of costs are rechargeable through the
service charge to our occupiers. The impact of rising interest
rates on Derwent London will be marginal in the short-term, as over
90% of our debt is fixed or hedged. A recession is unlikely to have
a material impact on the Group or its tenants in the short-term.
However, in the medium to long-term, a recession could lead to some
of our occupiers facing a more challenging financial situation
which could result in Derwent London having higher vacancy rates
and reduced rent receipts.
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 must respond and/or adapt appropriately to * The Group's development pipeline has a degree of
economic cycles as the London office flexibility that enables plans for individual
market has generally been cyclical in recent decades, properties to be changed to reflect prevailing
with strong growth followed by sharp economic circumstances.
economic downturns precipitated by rising interest
rates coinciding with significant oversupply.
The Group's success depends on implementing its * The Group seeks generally to maintain income from
strategy and responding appropriately to internal properties until development commences and has an
or external factors including responding to changing ongoing strategy to extend income through lease
work practices, occupational demand, renewals and regears.
and London's global appeal. Should the Group fail to
respond and adapt to such cycles or execute
the projects that underpin its strategy, this may have * The Group aims to de-risk the development programme
a negative impact on the Group's expected through pre-lets, typically during the construction
growth and financial performance. Since the UK exited period.
the European Union, there has been no
material impact on the Group's operations. The main
risk to the Group posed by Brexit is that * The Group conducts an annual strategic review,
economic growth in the UK may be negatively impacted prepares a budget and provides two-year rolling
which may in turn affect London's growth forecasts three times a year.
and demand for office space.
* The Board considers the sensitivity of the Group KPIs
to changes in the assumptions underlying our
forecasts in light of anticipated economic
conditions. If considered necessary, modifications
are made.
* The Group maintains sufficient headroom in all the
Group's key ratios and financial covenants with a
particular focus on interest cover.
* The Group focuses on properties in good locations
that are less susceptible to reductions in tenant
demand. The Group's average 'topped-up' office rent
is only GBP59.92 per sq ft.
* International trade negotiations are being monitored
and potential outcomes discussed with external
advisers.
* The Credit Committee, chaired by either the CEO or
CFO, assesses and monitors the financial strength of
potential and existing tenants. The Group's diverse
and high quality tenant base provides resilience
against tenant default.
* We maintain close and frequent contact with our
tenants.
* 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 or Docklands.
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
---------------------------------------------------- ------------------------------------------------------------
2. Risk of tenants defaulting or tenant failure
The majority of the Group's revenues are comprised of * Detailed reviews of all prospective tenants are
rent received from its tenants and any performed.
deterioration in their businesses and/or profitability
could in turn adversely affect the
Group's rental income or increase the Group's bad debts * A "tenants on watch" register is maintained and
and/or number of lease terminations. regularly reviewed by the Executive Committee and the
In the event that some of our tenants went into Board.
default, we could incur additional impairment
charges and write-offs of IFRS 16 lease incentive
receivable balances which arise from the * The Credit Committee, chaired by either the CEO or
accounting requirement to spread any rent-free CFO, assesses and monitors the financial strength of
incentives given to a tenant over the respective potential and existing tenants.
lease term.
Due to the current economic conditions, our occupiers * Rent deposits are held where considered appropriate;
could be facing increased financial the balance at 30 June 2022 was GBP22m.
difficulty. Footfall at restaurants, retail and leisure
properties could reduce which could
impact on the revenues and operations of such tenants. * The lease incentive receivable balance at 30 June
It should be noted that restaurants 2022 was GBP179.8m after impairment provisions.
and hospitality tenants account for approximately 8% of
the Group's portfolio income.
* Active rent collection with regular reports to the
Executive Committee on day 1, 7, 14 and 21.
* We maintain close and frequent contact with our
tenants.
3. Income decline
Changes in macroeconomic factors may adversely affect
London's office market. The Group is * The Credit Committee receives detailed reviews of all
exposed to external factors which are outside its prospective tenants.
control, such as future demand for office
space, the 'grey' market in office space (i.e. tenant
controlled vacant space), weaknesses * A "tenants on watch" register is maintained and
in retail and hospitality businesses, increase in regularly reviewed by the Executive Committee and the
homeworking and the depth of any future Board.
recession and subsequent rise in unemployment and/or
interest rates. Such macroeconomic conditions
may lead to a general property market contraction, a * Ongoing dialogue and proactive internal management is
decline in rental values, decline in maintained with tenants to understand their concerns
Group income and potentially property values. and requirements.
The impact of a potential recession caused by global
supply chain disruption and commodity * The Group's low loan-to-value ratio and significant
price inflation resulting from the conflict in Ukraine interest cover ratio reduces the likelihood that
is being monitored by the Executive falls in rental income and/or property values would
Committee and the Board. Although not likely to impact lead to a breach in our financial covenants.
on the Group and our tenants in the
short-term, a recession could lead to some of our
occupiers facing a more challenging financial
situation. Restaurants and hospitality tenants account
for approximately 8% of the Group's
portfolio income. Footfall at restaurants, retail and
leisure properties is likely to reduce,
as consumer spending slows, which could impact on the
revenues and operations of such tenants.
4. Fall in property values
Since February 2022, the Bank of England has increased * The impact of yield changes is considered when
base interest rates to 1.75%, with potential projects are appraised.
expectations of further rises. The potential adverse
impact of these factors on property yields
has heightened the risk of a fall in property values. * The impact of yield changes on the Group's financial
covenants and performance are monitored regularly and
The underlying value of our portfolio has remained are subject to sensitivity analysis to ensure that
resilient, increasing by 1.7% in H1 2022, adequate headroom is preserved.
after adjusting for capital expenditure, despite the
continuing economic uncertainties.
* The Group's mainly unsecured financing makes the
management of our financial covenants
straightforward.
* The Group's low loan-to-value ratio reduces the
likelihood that falls in property values have a
significant operational impact on our business.
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
Returns from the Group's developments may be adversely * Detailed reviews are performed on construction
impacted due to: projects to ensure that programme forecasts predicted
* delays on site; by our contractors are aligned with our views.
* increased construction costs; * The procurement process used by the Group includes
the use of highly regarded firms of quantity
surveyors and is designed to minimise uncertainty
* material and labour shortages; and regarding costs.
* adverse letting conditions. * Development costs are benchmarked to ensure that the
Group obtains competitive pricing and, where
appropriate, fixed price contracts are negotiated.
Any significant delay in completing the development
projects may result in financial penalties * Post-completion reviews are carried out for all major
or a reduction in the Group's targeted financial returns. developments to ensure that improvements to the
Group's procedures are identified, implemented and
The Ukraine conflict is the third major disruption to the lessons learned.
UK construction industry following
Brexit and the Covid pandemic. Energy prices in the UK
have been directly impacted by supply * Procedures carried out before starting work on site,
constraints to Europe of gas and oil from Russia and the such as site investigations, historical research of
increased cost of energy is driving the property and surveys conducted as part of the
significant inflation on many products - steel, cement, planning application, reduce the risk of unidentified
bricks, blocks and glass. We have issues causing delays once on site.
secured a fixed price for 97% of the costs for the office
element of our 25 Baker Street W1
development. However, our ability to secure fixed price * Investment appraisals, which include contingencies
construction contracts in 2022 has and inflationary cost increases, are prepared and
been more challenging and it is likely that only part of sensitivity analysis is undertaken to judge whether
future contracts will be fixed. Delivery an adequate return is made in all likely
of programmes will be subjected to materials and component circumstances.
shortages. Our experience of early
ordering including off-site storage, with strong supply
chain relationships due to our early * The Group's pre-letting strategy reduces or removes
payment terms, should mitigate any major delivery the letting risk of the development as soon as
programme issues, however some delays will possible.
be unavoidable. The Board is monitoring the potential
impact of a tighter planning environment
on our strategy and development returns. In addition to
the proposed new Infrastructure Levy,
which is likely to create additional costs for the Group
in the medium-term, local authorities
are requiring an ever-increasing level of justification
for demolition instead of refurbishment.
B. 'On-site' risk
Risk of project delays and/or cost overruns caused by * Regular monitoring of our contractors' project cash
unidentified issues. For example, if flows.
the Group fails to:
* adequately appraise investments prior to starting
work on-site, including through taking into account * Frequent meetings with key contractors and
contingencies and inflationary cost increases; subcontractors to review their work programme and
maintain strong relationships.
* use a procurement process that is properly designed
(to minimise uncertainty around costs) and that * Off-site inspection of key components to ensure they
includes the use of highly regarded quantity have been completed to the requisite quality.
surveyors;
* Prior to construction beginning on site, we conduct
* benchmark development costs; site investigations including the building's history
and various surveys to identify any potential issues.
* conduct thorough site investigations to reduce the
risk of unidentified issues such as asbestos; * Monthly reviews of supply chain issues for each of
our major projects, including in respect to potential
labour shortages.
* implement its pre-letting strategy; or
* Strict Covid-19 protocols at all of our on-site
* conduct detailed reviews on construction projects to developments, in accordance with Site Operating
evaluate programme forecasts made by contractors, Procedures (published by the Construction Leadership
development projects may be significantly delayed and Council).
we could face a loss of rental income and penalties.
Inflationary pressures resulting largely from the conflict
in Ukraine and associated global
supply chain disruption is putting future construction
budgets under pressure.
C. Contractor/subcontractor default
Returns from the Group's developments are reduced due to * Regular monitoring of our contractors, including
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
been ongoing issues within the construction industry in * Key construction packages are acquired early in each
respect of the level of risk and narrow project's life to reduce the risks associated with
profit margins being accepted by contractors. later default.
There is an increased risk of insolvencies in the
construction industry as a result of rising * The financial standing of our main contractors is
inflation and construction costs, which under fixed price reviewed prior to awarding the project contract.
contracts are a risk for the contractor.
We have engaged with our principal contractors to ensure
they have sufficient headroom under * Our main contractors are responsible, and assume the
the fixed contracts to cope with rising costs. In respect immediate risk, for subcontractor default.
to the Network Building, we have
liaised with our contractor, subcontractors and supply
chain at an earlier design stage so * Payments to contractors are in place to incentivise
that the developments programme and costs can be agreed the achievement of project timescales, with damages
collaboratively. We will continue agreed in the event of delay/cost overruns.
to actively monitor the financial health of our main
contractors and subcontractors.
* 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 may be subject to a cyber attack that results in * The Group's Business Continuity Plan is regularly
it being unable to use its information reviewed and tested.
systems and/or losing data. Such an attack could severely
restrict the ability of the Group
to operate, lead to an increase in costs and/or require a * Independent internal and external
significant diversion of management penetration/vulnerability tests are regularly
time. conducted to assess the effectiveness of the Group's
security.
There has been a heightened risk of cyber attacks amid
escalating tensions over the conflict
in Ukraine. To date, Derwent London has not experienced a * Multi-Factor Authentication exists for remote access
significant increase in cyber attacks. to our systems.
The IT team have been proactive in providing regular
guidance and refresher training to all
employees on cyber security matters. * Incident response and remediation processes are in
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'
accreditation which demonstrates our commitment to
cyber security.
B. Cyber-attack on our buildings
The Group is exposed to cyber attacks on its properties * Each building has incident management procedures
which may result in data breaches which are regularly reviewed and tested.
or significant disruption to IT-enabled tenant services. A
major cyber attack against the
Group or its properties could negatively impact the Group's * Physical segregation between the building's core IT
business, reputation and operating infrastructure and tenants' corporate IT networks.
results.
Our Intelligent Building project has completed its 'Proof * Physical segregation of IT infrastructure between
of Concept' phase and roll-out of buildings across the portfolio.
Phase 1 has commenced. The project involves considerable
input from various teams across the
business including the IT team. We have worked alongside * Inclusion of Building Managers in any cyber security
our portfolio IT partner to conduct awareness training and phishing simulations.
network and IT asset inventories and cyber security
assessments.
C. Significant business interruption (for example pandemic,
terrorism-related event or other
business interruption)
Major incidents may significantly interrupt the Group's * Fire protection and access/security procedures are in
business, its occupiers and/or supply place at all of our managed properties. At least
chain. Such incidents could be caused by a wide range of annually, a fire risk assessment and health and
events such as fire, natural catastrophes, safety inspection are performed for each property in
cyber events, terrorism, pandemic outbreak, material supply our managed portfolio.
chain failures and geopolitical
factors. This could result in issues such as being unable
to access or operate the Group's * The Group has comprehensive business continuity and
properties, tenant failures or reduced rental income, share incident management procedures both at Group level
price volatility or loss of key and for each of our managed buildings which are
suppliers. regularly reviewed and tested.
Although not classified as a significant business
interruption for Derwent London, the war * Government health guidelines are maintained at all of
in Ukraine, among other issues, has caused global supply our construction sites.
chain and market volatility.
* Comprehensive property damage and business
interruption insurance which includes terrorism.
* Robust security at our buildings, including CCTV and
access controls.
* Most of our employees are capable of working remotely
and have the necessary IT resources.
7. Reputational damage
The Group has invested significantly in developing a * Close involvement of senior management in day-to-day
well-regarded and respected brand. The operations and established procedures for approving
Group's reputation could be damaged, for example, through all external announcements.
unauthorised or inaccurate media
coverage, unethical practices or behaviours by the Group's
executives, or failure to comply * All new members of staff benefit from an induction
with relevant legislation. This could lead to a material programme and are issued with our Group staff
adverse effect on the Group's operating handbook.
performance and the overall financial position of the
Group. Our strong culture, low overall
risk tolerance and established procedures and policies * The Group employs a Head of Investor and Corporate
mitigate against the risk of internal Communications and retains services of an external PR
wrongdoing. agency, both of whom maintain regular contact with
external media sources.
With the increased reporting requirements on ESG-related
matters, the risk of reputational
and/or litigation has risen if disclosures are misleading, * A Group whistleblowing system for staff is maintained
or we are non-compliant. 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
If the Group fails to respond appropriately, and * The Board and Executive Committee receive regular
sufficiently, to climate-related risks or updates and presentations on environmental and
fails 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 our zero carbon by 2030.
licence to operate. In addition, there
is a risk that the cost of construction materials and
providing energy, water and other services * The Sustainability Committee monitors our performance
to tenants will rise as a consequence of climate change. and management controls.
The UK Government continues to introduce more legislative
aspects linked to climate risk e.g. * Strong team led by an experienced Head of
from 2022 certain listed entities will have to disclose in Sustainability.
line with the TCFD and the latest
energy white paper is setting out higher standards for
energy efficiency in commercial and * The Group monitors its ESG (environmental, social and
residential properties. 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).
* Undertake periodic multi-scenario climate risk
assessments (physical and transition risk).
9. Non-compliance with regulation
A. Non-compliance with health and safety legislation
An incident or breach of health, safety and fire
legislation leading to a risk to life, reputational * All our properties have the relevant health, safety
damage and/or loss of our licence to operate. For example, and fire management procedures in place which are
a major health and safety incident reviewed annually.
could cause significant business interruption for the
Group.
* The Group has a qualified Health and Safety team
The health and safety-related risks arising from the whose performance is monitored and managed by the
Covid-19 pandemic have reduced during Health and Safety Committee.
2022. The health and safety team have continued to promote
health and wellbeing alongside
safety. The business has prepared for the implementation * Health and safety statutory compliance within our
of a new Fire Safety Management System managed portfolio is managed and monitored using
aligned with the requirements of the Fire Safety and RiskWise, a software compliance platform. This is
Building Safety Acts. Refresher training supported by annual property health checks.
on health and safety matters will be provided to the
Executive Committee and Risk Committee
in September. * 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 Construction (Design and Management)
Regulations (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, including both physical and mental health.
B. Other regulatory non-compliance
Should the Group breach any of the legislation that forms * The Board and Risk Committee receive regular reports
the regulatory framework within prepared by the Group's legal advisers identifying
which the Group operates, the Group's cost base could upcoming legislative/regulatory changes. External
increase and management time could be advice is taken on any new legislation.
diverted. This could lead to damage to our reputation
and/or loss of our licence to operate.
* Staff training and awareness programmes. As part of
The Board are monitoring the potential impacts of proposed staff performance appraisals, all employees are
new legislation which could impact required to confirm they have reviewed and understood
on Derwent London, including the Levelling-up and Group policies.
Regeneration Bill and Corporate Governance
and Audit reform. A revised UK Corporate Governance Code is
expected, which is likely to become * Group policies and procedures dealing with all key
applicable to Derwent London from 1 January 2024. legislation are available on the Group's intranet.
Geopolitical risks have become more pronounced
with the Ukraine crisis and the international response to
the war. The significant and rapidly * A Group whistleblowing system for staff is maintained
expanding sanction list has given rise to compliance risks. to report wrongdoing anonymously.
With the increased reporting requirements
on ESG-related matters, the risk of reputational and/or
litigation has risen if disclosures * Managing our properties to ensure they are compliant
are misleading, or we are non-compliant. with the Minimum Energy Efficiency Standards (MEES)
for Energy Performance Certificates (EPCs).
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. The Group's EPRA loan-to-value ratio has
increased to 23.7% as at 30 June 2022 but remains modest.
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 though
the estimated risk is considered lower than in 2021. 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 74 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 2022, the proportion of fixed debt held by
the Group was above this range at 90% (31 December 2021: 99%).
During both 2022 and 2021, 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 and retained earnings).
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 2022, the Group's strategy, which was unchanged from
2021, 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 26.
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 GBP5.1bn of uncharged property as at 30 June
2022.
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 2021 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
10 August 2022
GROUP CONDENSED INCOME STATEMENT
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
Unaudited Unaudited Audited
Note GBPm GBPm GBPm
--------------------------------- ----- ----------------------- ----------------------- ------------------
Gross property and other income 5 122.3 120.4 240.2
--------------------------------- ----- ----------------------- ----------------------- ------------------
Net property and other income(1) 5 96.5 95.1 187.5
Administrative expenses (17.8) (19.4) (37.1)
Revaluation surplus 11 73.4 57.8 130.8
Profit on disposal 6 0.5 0.6 10.4
Profit from operations 152.6 134.1 291.6
Finance income 7 0.2 - -
Finance costs 7 (18.7) (14.2) (28.1)
Movement in fair value of derivative
financial instruments 3.5 2.2 4.8
Financial derivative termination
costs 8 (0.6) (1.0) (1.9)
Share of results of joint
ventures 9 0.1 - (13.9)
Profit before tax 137.1 121.1 252.5
Tax (charge)/credit 10 (1.8) (0.6) 1.3
Profit for the period 135.3 120.5 253.8
Attributable to:
- Equity shareholders 135.3 120.2 252.3
- Non-controlling interest - 0.3 1.5
135.3 120.5 253.8
Basic earnings per share 25 120.61p 107.20p 224.99p
Diluted earnings per share 25 120.35p 106.94p 224.44p
(1) Net property and other income includes a net credit of
GBP0.6m in relation to the write-off/movement in impairment of
receivables (half year to 30 June 2021: net charge of GBP1.4m; year
to 31 December 2021: net charge of GBP0.8m). See note 3 for
additional information.
GROUP CONDENSED STATEMENT OF COMPREHENSIVE INCOME
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
Unaudited Unaudited Audited
Note GBPm GBPm GBPm
-------------------------------------- -------- --------------- ----------------------- ------------------
Profit for the period 135.3 120.5 253.8
Actuarial (loss)/gains on defined
benefit pension scheme (0.2) 1.8 2.7
Deferred tax charge on pension 20 - (0.3) (0.4)
Revaluation surplus of owner-occupied
property 11 0.7 1.0 3.7
Deferred tax charge on revaluation 20 (0.2) (0.2) (1.3)
-------------------------------------- -------- --------------- ----------------------- ------------------
Other comprehensive income that will
not be
reclassified to profit or loss 0.3 2.3 4.7
Total comprehensive income relating to
the period 135.6 122.8 258.5
Attributable to:
- Equity shareholders 135.6 122.5 257.0
- Non-controlling interest - 0.3 1.5
135.6 122.8 258.5
GROUP CONDENSED BALANCE SHEET
30.06.2022 30.06.2021 31.12.2021
Unaudited Unaudited Audited
Note GBPm GBPm GBPm
--------------------------------- ---- ---------- ---------- ----------
Non-current assets
Investment property 11 5,495.9 5,068.6 5,359.9
Property, plant and equipment 12 54.5 51.6 54.0
Investments 14 51.3 0.9 51.1
Derivative financial instruments 19 2.7 - -
Deferred tax 20 - - 0.3
Pension scheme surplus 1.7 - 1.8
Other receivables 15 175.8 155.3 159.3
--------------------------------- ---- ---------- ---------- ----------
5,781.9 5,276.4 5,626.4
Current assets
Trading property 11 31.3 9.2 32.2
Trading stock 13 1.2 - 0.4
Trade and other receivables 16 78.9 75.5 61.7
Cash and cash equivalents 22 32.8 60.0 68.5
--------------------------------- ---- ---------- ---------- ----------
144.2 144.7 162.8
Non-current assets held for sale 17 115.4 163.1 102.8
Total assets 6,041.5 5,584.2 5,892.0
Current liabilities
Leasehold liabilities 19 - - 51.2
Borrowings 19 14.6 - 12.3
Derivative financial instruments 19 - - 0.4
Trade and other payables 18 126.5 135.3 128.3
Corporation tax liability 1.2 0.6 0.5
Provisions 0.2 0.5 0.3
--------------------------------- ---- ---------- ---------- ----------
142.5 136.4 193.0
Non-current liabilities
Borrowings 19 1,359.3 992.3 1,237.1
Derivative financial instruments 19 - 3.4 0.4
Leasehold liabilities 19 19.6 67.4 19.4
Provisions 0.2 0.3 0.3
Pension scheme deficit - 0.4 -
Deferred tax 20 1.1 1.1 -
--------------------------------- ---- ---------- ---------- ----------
1,380.2 1,064.9 1,257.2
Total liabilities 1,522.7 1,201.3 1,450.2
Total net assets 4,518.8 4,382.9 4,441.8
Equity
Share capital 5.6 5.6 5.6
Share premium 196.6 194.4 195.4
Other reserves 940.8 938.5 941.1
Retained earnings 3,375.8 3,192.2 3,299.7
--------------------------------- ---- ---------- ---------- ----------
Equity shareholders' funds 4,518.8 4,330.7 4,441.8
Non-controlling interest - 52.2 -
Total equity 4,518.8 4,382.9 4,441.8
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 2022 5.6 195.4 941.1 3,299.7 4,441.8 - 4,441.8
Profit for the period - - - 135.3 135.3 - 135.3
Other comprehensive
income/(expense) - - 0.5 (0.2) 0.3 - 0.3
Share-based payments - 1.2 (0.8) 1.1 1.5 - 1.5
Dividends paid - - - (60.1) (60.1) - (60.1)
At 30 June 2022 (unaudited) 5.6 196.6 940.8 3,375.8 4,518.8 - 4,518.8
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 2021 5.6 193.7 939.4 3,124.5 4,263.2 51.9 4,315.1
Profit for the year - - - 252.3 252.3 1.5 253.8
Other comprehensive income - - 2.4 2.3 4.7 - 4.7
Share-based payments - 1.7 (0.7) 5.2 6.2 - 6.2
Dividends paid - - - (84.6) (84.6) - (84.6)
Acquisition of non-controlling
interest - - - - - (53.4) (53.4)
At 31 December 2021 (audited) 5.6 195.4 941.1 3,299.7 4,441.8 - 4,441.8
GROUP CONDENSED CASH FLOW STATEMENT
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
Unaudited Unaudited Audited
Note GBPm GBPm GBPm
---------------------------------- ---- ----------------------- ----------------------- ------------------
Operating activities
Rents received 93.8 84.6 187.0
Surrender premiums and other
property income 0.4 3.6 5.7
Property expenses (8.4) (7.7) (14.3)
Cash paid to and on behalf of
employees (14.0) (14.9) (26.9)
Other administrative expenses (4.7) (3.6) (7.8)
Interest received 7 0.2 - -
Interest paid 7 (12.4) (11.4) (21.9)
Other finance costs 7 (1.5) (1.5) (3.1)
Other income 1.5 2.1 4.1
Costs recoverable from tenants (4.2) - -
Disposal of trading properties 3.0 3.6 5.0
Expenditure on trading
properties/stock (1.5) (0.2) (1.6)
Tax (payment)/receipt in respect
of operating activities (0.7) 0.1 (0.5)
Net cash from operating activities 51.5 54.7 125.7
Investing activities
Acquisition of properties (137.2) (23.6) (251.8)
Capital expenditure on the
property portfolio 7 (67.7) (87.2) (172.1)
Disposal of investment properties 65.0 166.5 297.3
Investment in joint ventures (0.3) - (64.1)
Settlement of shareholder loan - - 2.0
Purchase of property, plant and
equipment (0.9) (0.8) (1.6)
Disposal of property, plant and
equipment - - 0.2
VAT (paid)/received (11.8) 0.1 7.5
Net (used in)/cash from investing
activities (152.9) 55.0 (182.6)
Financing activities
Net proceeds of green bond issue - - 346.0
Net movement in revolving bank
loans 121.0 (43.4) (117.8)
Proceeds from other loan 2.3 - 12.3
Repayment of secured bank loan - - (28.0)
Financial derivative termination
costs 8 (0.6) (1.0) (1.9)
Acquisition of non-controlling
interest - - (53.4)
Net proceeds of share issues 1.2 0.7 1.8
Dividends paid 21 (58.2) (56.7) (84.3)
Net cash from/(used in) financing
activities 65.7 (100.4) 74.7
(Decrease)/increase in cash and cash
equivalents in the period (35.7) 9.3 17.8
Cash and cash equivalents at the
beginning of the period 68.5 50.7 50.7
Cash and cash equivalents at the
end of the period 22 32.8 60.0 68.5
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of preparation
The financial information for the half year to 30 June 2022 and
the half year to 30 June 2021 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 2021 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 2021 have been delivered to
the Registrar of Companies. The Auditors' 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
interim 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. The Group's condensed consolidated interim
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 2021, which have been prepared in accordance
with UK-adopted International Accounting Standards, (the
'applicable framework'), and with the provisions of the Companies
Act 2006 (the 'applicable legal requirements'). The financial
statements have been prepared under the historical cost convention
as modified by the revaluation of investment properties, the
revaluation of property, plant and equipment, assets held for sale,
pension scheme, and financial assets and liabilities held at fair
value
As with most other UK property companies and real estate
investment trusts ('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 25.
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 2023, in particular the cash flows, borrowings, undrawn
facilities and with no refinancing exposure in the next 12
months.
-- 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 12 months
following approval of these interim financial statements.
-- 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
predictable nature of the income receivable under the tenant
leases, the Group's EPRA loan-to-value ratio of 23.7%, the interest
cover ratio of 419%, the GBP452m total of undrawn facilities and
cash and the fact that the average maturity of borrowings was 6.5
years at 30 June 2022. The impact of the Covid-19 pandemic on the
business and its occupiers has been considered. The impact in 2022
was considerably less than in 2021 as evidenced by a partial
reversal in impairment charges and rent collection rates now close
to that seen pre-pandemic. Office occupation rates are also
gradually recovering. The likely impact of climate change has been
incorporated into the Group's forecasts and it continues to review
the impact of EPC upgrades across the portfolio. The Group's latest
rolling forecast has taken into account the higher than usual level
of political and economic uncertainty arising from events in Europe
and the inflationary price increases being seen particularly for
commodity and energy. Based on the Group's forecasts, rental income
would need to decline by 65% or property values would need to fall
by 61% before breaching its 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 interim 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 2021, 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 the Conceptual Framework in IFRSs (amended);
IFRS 16 (amended) - Covid-19-Related Rent Concessions beyond 30
June 2021;
IAS 37 (amended) - Onerous Contracts - Cost of Fulfilling a
Contract;
Annual Improvements to IFRS Standards 2018-2020;
IAS 16 (amended) - Property, Plant and Equipment: Proceeds
before Intended Use.
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 (amended) - Insurance Contracts;
IAS 1 (amended) - Classification of liabilities as current or
non-current;
IAS 1 and IFRS Practice Statement 2 (amended) - Disclosure of
Accounting Policies;
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;
IAS 12 (amended) - Income Taxes: Deferred Tax Related to Assets
and Liabilities Arising from a Single Transaction.
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, 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 and take into account the
impact of climate change and related Environmental, Social and
Governance considerations. Knight Frank LLP were appointed to value
at least half of the property portfolio as at 30 June 2022. More
information is provided in note 11.
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. The impact of the Covid-19 pandemic on the
Group's business and its occupiers has been considered and in 2022
the severity of the impact was considerably less than in 2021 as
evidenced by a partial reversal in impairment charges and rent
collection rates now close to that seen pre-pandemic. The result is
a GBP1.9m reduction in the provision for the half year to 30 June
2022 and after adding receivable balances written off of GBP1.3m,
the total credit to the income statement for the half year to 30
June 2022 was GBP0.6m, compared to the GBP1.4m charge recognised
for the half year to 30 June 2021. 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 74 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 15) and 'Trade and other receivables' (see
note 16) as shown below:
Other Trade
receivables and other receivables
(non-current) (current) Total
GBPm GBPm GBPm
-------------------------------------------------- -------------- ---------------------- -----
Lease incentive receivables before impairment 165.1 19.2 184.3
Impairment of lease incentive receivables (3.2) (1.0) (4.2)
Write-off (0.2) (0.1) (0.3)
Net lease incentive included within accrued income 161.7 18.1 179.8
Trade receivables before impairment - 9.3 9.3
Impairment of trade receivables - (3.1) (3.1)
Service charge provision - (0.3) (0.3)
Write-off - (1.0) (1.0)
Net trade receivables - 4.9 4.9
The assessment considered the risk of tenant failures and
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
GBP4.2m and against the trade receivables balance was GBP3.4m.
Lease incentive Lease incentive Trade
receivables receivables receivables
(non-current) (current) (current)
GBPm GBPm GBPm
-------------------------- --------------- --------------- ------------
Balance before impairment
Low risk 151.8 14.3 3.8
Medium risk 7.1 2.8 1.3
High risk 6.0 2.0 3.2
164.9 19.1 8.3
Impairment
Low risk - - -
Medium risk (0.4) (0.2) (0.2)
High risk (2.8) (0.8) (3.2)
(3.2) (1.0) (3.4)
161.7 18.1 4.9
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 are the four
executive Directors assisted by the other eight members of the
Executive Committee) 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 25. Additionally,
information is provided to the Executive Committee showing gross
property income and property valuation by individual property.
Therefore, for the purposes of IFRS 8, each individual property is
considered to be a separate operating segment in that its
performance is monitored individually.
The Group's property portfolio includes investment property,
owner-occupied property and trading property and comprised 97%
office buildings* in central London by value (30 June 2021: 98%; 31
December 2021: 97%). The Directors consider that these individual
properties have similar economic characteristics and therefore have
been aggregated into a single operating segment. The remaining 3%
(30 June 2021: 2%; 31 December 2021: 3%) represented a mixture of
retail, 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 2022
West End central 57.3 0.8 58.1
West End borders/other 8.2 - 8.2
City borders 33.2 0.2 33.4
Provincial - 2.4 2.4
Gross property income (excl. joint venture) 98.7 3.4 102.1
Share of joint venture gross property income 1.3 - 1.3
Total 100.0 3.4 103.4
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
Gross property income (excl. joint venture) 99.3 2.4 101.7
Share of joint venture gross property income - - -
Total 99.3 2.4 101.7
Year to 31 December 2021
West End central 108.4 0.3 108.7
West End borders/other 18.5 - 18.5
City borders 67.6 0.5 68.1
Provincial - 4.5 4.5
Gross property income (excl. joint venture) 194.5 5.3 199.8
Share of joint venture gross property income 0.4 - 0.4
Total 194.9 5.3 200.2
A reconciliation of gross property income to gross property and
other income is given in note 5.
Included in the table above is GBP1.3m (half year to 30 June
2021: GBPnil; year to 31 December 2021: GBP0.4m) of the Group's
share of gross property income in relation to the joint venture
located within West End central. See note 9.
Property portfolio
Carrying value Fair value
------------------------- -------------------------
Office Office
buildings Other Total buildings Other Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- --------- ----- ------- --------- ----- -------
30 June 2022
West End central 3,444.8 80.2 3,525.0 3,562.5 80.9 3,643.4
West End borders/other 400.5 - 400.5 422.0 - 422.0
City borders 1,676.4 8.1 1,684.5 1,716.5 8.1 1,724.6
Provincial - 82.6 82.6 - 83.4 83.4
Group (excl. joint venture) 5,521.7 170.9 5,692.6 5,701.0 172.4 5,873.4
Share of joint venture 50.1 - 50.1 50.0 - 50.0
Total 5,571.8 170.9 5,742.7 5,751.0 172.4 5,923.4
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
Group (excl. joint venture) 5,157.5 130.0 5,287.5 5,252.0 131.6 5,383.6
Share of joint venture - - - - - -
Total 5,157.5 130.0 5,287.5 5,252.0 131.6 5,383.6
31 December 2021
West End central 3,313.6 82.2 3,395.8 3,348.9 84.2 3,433.1
West End borders/other 408.1 - 408.1 431.4 - 431.4
City borders 1,649.7 8.4 1,658.1 1,690.4 8.4 1,698.8
Provincial - 82.2 82.2 - 83.0 83.0
Group (excl. joint venture) 5,371.4 172.8 5,544.2 5,470.7 175.6 5,646.3
Share of joint venture 50.2 - 50.2 50.0 - 50.0
Total 5,421.6 172.8 5,594.4 5,520.7 175.6 5,696.3
A reconciliation between the fair value and carrying value of
the portfolio is set out in note 11.
Included in the table above is property in relation to the
Group's share of the joint venture located within West End central,
with a carrying value of GBP50.1m (half year to 30 June 2021 :
GBPnil; year to 31 December 2021 : GBP50.2m) and a fair value of
GBP50.0m (half year to 30 June 2021 : GBPnil; year to 31 December
2021 : GBP50.0m). See notes 11 and 14.
5. Property and other income
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
GBPm GBPm GBPm
--------------------------------------- ----------------------- ----------------------- ------------------
Gross rental income 101.7 98.1 194.2
Surrender premiums received 0.4 3.9 3.6
Write-off of associated rents previously
recognised in advance - (0.3) -
Other property income - - 2.0
Gross property income 102.1 101.7 199.8
Trading property sales proceeds(1) 1.6 3.6 6.7
Service charge income(1) 16.8 13.6 30.2
Other income(1) 1.8 1.5 3.5
Gross property and other income 122.3 120.4 240.2
Gross rental income 101.7 98.1 194.2
Movement in impairment of receivables 0.6 (1.4) (0.8)
Service charge income(1) 16.8 13.6 30.2
Service charge expenses (18.3) (15.1) (33.6)
---------------------------------------- ----------------------- ----------------------- ------------------
(1.5) (1.5) (3.4)
Property costs (6.9) (5.1) (11.8)
Net rental income 93.9 90.1 178.2
---------------------------------------- ----------------------- ----------------------- ------------------
Trading property sales proceeds(1) 1.6 3.6 6.7
Trading property cost of sales (1.3) (3.1) (6.0)
---------------------------------------- ----------------------- ----------------------- ------------------
Profit on disposal of trading properties 0.3 0.5 0.7
Other property income - - 2.0
Other income 1.8 1.5 3.5
Net surrender premiums received 0.4 3.6 3.6
Dilapidation receipts 0.1 0.1 0.9
Write-down of trading property - (0.7) (1.4)
Net property and other income 96.5 95.1 187.5
(1) In line with IFRS 15 Revenue from Contracts with Customers,
the Group recognised a total GBP20.2m ( half year to 30 June 2021:
GBP18.7m ; year to 31 December 2021: GBP40.4m) 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 GBP10.9m (half year to 30 June
2021: GBP9.6m; year to 31 December 2021: GBP20.2m) relating to
rents recognised in advance of cash receipts.
O ther income relates to fees and commissions earned from
tenants 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 review has been carried out using the expected
credit loss model within IFRS 9 Financial Instruments (see notes 3
and 16 for additional information). Included in this provision is a
charge of GBP0.4m against trade receivables relating to rental
income for the 24 June 2022 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 GBP1.8m decrease and GBP1.7m
increase 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.
6. Profit on disposal
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
GBPm GBPm GBPm
--------------------------------------- ----------------------- ----------------------- ------------------
Investment property
Gross disposal proceeds 67.3 168.6 402.4
Costs of disposal (1.4) (2.1) (3.7)
Net disposal proceeds 65.9 166.5 398.7
Carrying value (65.4) (165.9) (387.5)
Adjustment for lease costs and rents
recognised in advance - - (0.7)
Profit on disposal of investment
property 0.5 0.6 10.5
Artwork
Carrying value - - (0.1)
Profit on disposal of artwork - - (0.1)
Profit on disposal 0.5 0.6 10.4
Included within gross disposal proceeds is GBP67.2m relating to
the disposal of the Group's freehold interest in New River Yard EC1
in June 2022, which was classified as a non-current asset held for
sale at 31 December 2021.
7. Finance income and finance costs
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
GBPm GBPm GBPm
--------------------------- ----------------------- ----------------------- ------------------
Finance income
Other 0.2 - -
Finance income 0.2 - -
Finance costs
Bank loans 0.9 0.3 0.9
Non-utilisation fees 1.0 1.1 2.1
Unsecured convertible bonds 1.9 1.9 3.9
Unsecured green bonds 3.3 - 0.8
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 1.3 1.2 2.5
Amortisation of the fair value
of the secured bonds (0.6) (0.7) (1.3)
Obligations under headleases 0.4 0.4 0.7
Other - 0.2 0.2
Gross interest costs 23.4 19.6 40.1
Less: interest capitalised (4.7) (5.4) (12.0)
Finance costs 18.7 14.2 28.1
Finance costs of GBP4.7m (half year to 30 June 2021: GBP5.4m;
year to 31 December 2021: GBP12.0m) 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 2022 were GBP18.6m (half year
to 30 June 2021: GBP18.3m; year to 31 December 2021: GBP37.0m) of
which GBP4.7m (half year to 30 June 2021: GBP5.4m; year to 31
December 2021: GBP12.0m) was included in the GBP67.7m ( half year
to 30 June 2021: GBP87.2m; year to 31 December 2021: GBP172.1m)
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 GBP0.6m in the half year to 30 June
2022 (half year to 30 June 2021: GBP1.0m; year to 31 December 2021:
GBP1.9m) deferring interest rate swaps, of which GBP0.2m (half year
to 30 June 2021: GBPnil; year to 31 December 2021: GBPnil) relates
to swaps maturing in the current financial year.
9. Share of results of joint ventures
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
GBPm GBPm GBPm
--------------------------- ----------------------- ----------------------- ------------------
Income 1.3 - 0.4
Administrative expenses (0.1) - (0.1)
Revaluation deficit (1.1) - (10.2)
0.1 - (9.9)
Joint venture acquisition
costs incurred - - (4.0)
Share of results of joint
ventures 0.1 - (13.9)
The share of results of joint ventures for the period ended 30
June 2022 includes the Group's 50% share in the Derwent Lazari
Baker Street Limited Partnership. See note 14 for further details
of the Group's joint ventures.
10. Tax charge/(credit)
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
GBPm GBPm GBPm
--------------------------- ----------------------- ----------------------- ------------------
Corporation tax
UK corporation tax and income
tax in respect of result for
the period 1.3 - 0.9
Other adjustments in respect of
prior years' tax - - (0.4)
Corporation tax charge 1.3 - 0.5
Deferred tax
Origination and reversal of
temporary differences 0.5 0.6 (1.1)
Adjustment for changes in
estimates - - (0.7)
Deferred tax charge/(credit) 0.5 0.6 (1.8)
Tax charge/(credit) 1.8 0.6 (1.3)
In addition to the tax charge of GBP1.8m (half year to 30 June
2021: charge of GBP0.6m; year to 31 December 2021: credit of
GBP1.3m) that passed through the Group income statement, a deferred
tax charge of GBP0.2m (half year to 30 June 2021: charge of
GBP0.5m; year to 31 December of 2021: charge of GBP1.7m) was
recognised in the Group statement of comprehensive income and a
deferred tax charge of GBP0.7m (half year to 30 June 2021: credit
of GBP0.5m; year to 31 December 2021: credit of GBP0.7m) was
recognised in the Group statement of changes in equity. See note 20
for further details.
The effective rate of tax for the half year to 30 June 2022 is
lower (half year to 30 June 2021: lower; year to 31 December 2021:
lower) than the standard rate of corporation tax in the UK. The
differences are explained below:
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
GBPm GBPm GBPm
--------------------------------------- ------------------------ ----------------------- ------------------
Profit before tax 137.1 121.1 252.5
---------------------------------------- ----------------------- ----------------------- ------------------
Expected tax charge based on the
standard rate of
corporation tax in the UK of 19.00%
(2021: 19.00%)(1) 26.0 23.0 48.0
Difference between tax and accounting
profit on disposals 0.1 (0.1) (0.7)
REIT exempt income (7.2) (6.9) (14.9)
Revaluation surplus attributable to REIT
properties (14.3) (12.2) (32.2)
Expenses and fair value adjustments not
allowable for
tax purposes (0.2) (1.0) 4.6
Capital allowances (3.0) (2.7) (4.3)
Other differences 0.4 0.5 (1.4)
Tax on current period's profit 1.8 0.6 (0.9)
Adjustments in respect of prior years'
tax - - (0.4)
Tax charge/(credit) 1.8 0.6 (1.3)
(1) Changes to the UK corporation tax rates were substantively
enacted as part of the Finance Act 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.
11. 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 2022 4,139.1 1,220.8 5,359.9 49.3 102.8 32.2 5,544.2
------------------------------- -------- --------- ---------- -------- -------- -------- ---------
Acquisitions 0.1 132.9 133.0 - - - 133.0
Capital expenditure 26.7 42.5 69.2 - 0.1 0.1 69.4
Interest capitalisation 0.9 3.5 4.4 - - 0.3 4.7
-------- --------- ---------- -------- -------- -------- ---------
Additions 27.7 178.9 206.6 - 0.1 0.4 207.1
Disposals - - - - (65.4) (1.3) (66.7)
Transfers (62.6) (13.3) (75.9) - 75.9 - -
Revaluation 39.4 32.0 71.4 0.7 2.0 - 74.1
Movement in grossing up of
headlease liabilities - (51.3) (51.3) - - - (51.3)
Movement in grossing up of
other liabilities - (14.8) (14.8) - - - (14.8)
At 30 June 2022 4,143.6 1,352.3 5,495.9 50.0 115.4 31.3 5,692.6
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 2021 3,893.5 1,135.6 5,029.1 45.6 165.0 12.9 5,252.6
------------------------------- -------- --------- ---------- -------- -------- -------- ---------
Acquisitions 214.6 139.0 353.6 - - - 353.6
Capital expenditure 76.6 88.4 165.0 - - 1.1 166.1
Interest capitalisation 2.4 9.6 12.0 - - - 12.0
-------- --------- ---------- -------- -------- -------- ---------
Additions 293.6 237.0 530.6 - - 1.1 531.7
Disposals (75.8) (146.7) (222.5) - (165.0) (5.9) (393.4)
Transfers (63.7) (63.0) (126.7) - 101.2 25.5 -
Revaluation 91.5 39.3 130.8 3.7 - - 134.5
Write-down of trading property - - - - - (1.4) (1.4)
Transfer from prepayments
and accrued income - - - - 1.6 - 1.6
Movement in grossing up of
headlease liabilities - 3.8 3.8 - - - 3.8
Movement in grossing up of
other liabilities - 14.8 14.8 - - - 14.8
At 31 December 2021 4,139.1 1,220.8 5,359.9 49.3 102.8 32.2 5,544.2
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 2022
Fair value 4,305.9 1,367.2 5,673.1 50.0 118.8 31.5 5,873.4
Selling costs relating to assets
held for sale - - - - (3.4) - (3.4)
Revaluation of trading property - - - - - (0.2) (0.2)
Lease incentives and costs
included in receivables (162.3) (34.0) (196.3) - - - (196.3)
Grossing up of headlease liabilities - 19.1 19.1 - - - 19.1
Carrying value 4,143.6 1,352.3 5,495.9 50.0 115.4 31.3 5,692.6
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 31 December 2021
Fair value 4,296.2 1,161.9 5,458.1 49.3 104.8 34.1 5,646.3
Selling costs relating to assets
held for sale - - - - (2.0) - (2.0)
Revaluation of trading property - - - - - (1.9) (1.9)
Lease incentives and costs
included in receivables (157.1) (26.3) (183.4) - - - (183.4)
Grossing up of headlease liabilities - 70.4 70.4 - - - 70.4
Grossing up of other liabilities - 14.8 14.8 - - - 14.8
Carrying value 4,139.1 1,220.8 5,359.9 49.3 102.8 32.2 5,544.2
Reconciliation of fair value
30.06.2022 30.06.2021 31.12.2021
GBPm GBPm GBPm
-------------------------------------------------------- ---------- ---------- ----------
Portfolio including the Group's share of joint ventures 5,923.4 5,383.6 5,696.3
Less: joint ventures (50.0) - (50.0)
IFRS property portfolio 5,873.4 5,383.6 5,646.3
The property portfolio is subject to semi-annual external
valuations and was revalued at 30 June 2022 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.
The valuation reports produced by the external valuers are based
on information provided by the Group such as current rents, terms
and conditions of lease agreements, service charges and capital
expenditure. This information is derived from the Group's financial
and property management systems and is subject to the Group's
overall control environment. In addition, the valuation reports are
based on assumptions and valuation models used by the external
valuers. The assumptions are typically market related, such as
yields and discount rates, and are based on their professional
judgement and market observation and take into account the impact
of climate change and related Environmental, Social and Governance
considerations.
The external valuations for the London-based portfolio at June
2022 were carried out by CBRE Limited and Knight Frank LLP. Knight
Frank have been appointed to value 100% of the London-based
portfolio in December 2022.
CBRE valued the properties at GBP2,680.4m (30 June 2021:
GBP5,348.6m; 31 December 2021: GBP5,610.8m), Knight Frank at
GBP3,156.9m (30 June 2021: GBPnil; 31 December 2021: GBPnil) and
other valuers at GBP36.1m (30 June 2021: GBP35.0m; 31 December
2021: GBP35.5m). The combined value was GBP5,873.4m (30 June 2021:
GBP5,383.6m; 31 December 2021: GBP5,646.3m). Of the properties
revalued, GBP50.0m (30 June 2021: GBP46.6m; 31 December 2021:
GBP49.3m) relating to owner-occupied property was included within
property, plant and equipment, GBP118.8m (30 June 2021: GBP166.2m;
31 December 2021: GBP104.8m) was included within non-current assets
held for sale and GBP31.5m (30 June 2021: GBP10.1m; 31 December
2021: GBP34.1m) 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 31 December 2021, the grossing up of headlease liabilities
included a net GBP51.3m for the discounted headlease liabilities in
relation to Soho Place W1. In March 2022, the Group acquired the
headlease from TfL for a premium of GBP68.0m subject to an
intermediary long leasehold interest and as a result, the headlease
liability was reversed. At 30 June 2022, the value of this
intermediary long leasehold interest was GBP16.8m. At the same
date, the estimated profit share to TfL for the development of Soho
Place W1 has been accrued and included within capital expenditure
and GBP14.8m previously included in 'grossing up of other
liabilities' has been reversed.
The Group published its pathway to net zero carbon in July 2020
and has set 2030 as its target date to achieve this. GBP34.8m (half
year to 30 June 2021: GBP70.0m; year to 31 December 2021:
GBP116.6m) of eligible 'green' capital expenditure, in accordance
with the Group's Green Finance Framework, was incurred in the half
year to 30 June 2022 on the major developments at 80 Charlotte
Street W1, Soho Place W1, The Featherstone Building EC1 and 25
Baker Street W1. In addition, the Group continues to hold carbon
credits to support certain externally validated green projects to
offset embodied carbon.
In 2021, the Group commissioned a third-party report to
determine the costs of achieving EPC compliance across the
portfolio by 2030. The study indicated an estimated cost of
c.GBP97m to upgrade the Group's properties to EPC 'B' or above. As
at 30 June 2022, part of these costs have been taken into account
in the property portfolio valuations. The Group have also
considered the estimated amount of capital expenditure recoverable
through service charges or not already included within future
planned refurbishment projects.
Reconciliation of revaluation
surplus
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
GBPm GBPm GBPm
--------------------------- ----------------------- ----------------------- ------------------
Total revaluation surplus 87.5 70.1 142.9
Share of joint ventures 1.0 - 13.9
Lease incentives and costs (12.9) (8.4) (19.7)
Trading property revaluation
adjustment 1.1 (0.5) (2.0)
Assets held for sale selling
costs (2.6) (3.1) (2.0)
IFRS revaluation surplus 74.1 58.1 133.1
Reported in the:
Revaluation surplus 73.4 57.8 130.8
Write-down of trading
property - (0.7) (1.4)
Group income statement 73.4 57.1 129.4
Group statement of
comprehensive income 0.7 1.0 3.7
74.1 58.1 133.1
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
central borders/other borders commercial Total
---------------------- -------- ------------- ------- ---------- ------
True equivalent yield
+25bp (5.6%) (4.9%) (5.1%) (3.0%) (5.3%)
-25bp 6.3% 5.4% 5.7% 3.2% 5.9%
----------------------- -------- ------------- ------- ---------- ------
ERV
+GBP2.50 psf 4.2% 4.8% 4.7% 17.4% 4.6%
-GBP2.50 psf (4.2%) (4.8%) (4.7%) (17.4%) (4.6%)
----------------------- -------- ------------- ------- ---------- ------
12. Property, plant and equipment
Owner-
occupied
property Other Total
GBPm GBPm GBPm
------------------------- -------- ----- -----
At 1 January 2022 49.3 4.7 54.0
Additions - 0.3 0.3
Depreciation - (0.5) (0.5)
Revaluation 0.7 - 0.7
At 30 June 2022 50.0 4.5 54.5
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 2021 45.6 4.6 50.2
Additions - 1.3 1.3
Disposals - (0.2) (0.2)
Depreciation - (0.9) (0.9)
Revaluation 3.7 (0.1) 3.6
At 31 December 2021 49.3 4.7 54.0
Net book value
Cost or valuation 50.0 9.1 59.1
Accumulated depreciation - (4.6) (4.6)
At 30 June 2022 50.0 4.5 54.5
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 49.3 8.8 58.1
Accumulated depreciation - (4.1) (4.1)
At 31 December 2021 49.3 4.7 54.0
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 December
2021. In accordance with IFRS 13 Fair Value Measurement, the
artwork is deemed to be classified as Level 3.
13. Trading stock
30.06.2022 30.06.2021 31.12.2021
GBPm GBPm GBPm
-------------- ---------- ---------- ----------
Trading stock 1.2 - 0.4
1.2 - 0.4
Trading stock relates to development expenditure which is due to
be disposed of to third parties under development agreements.
14. Investments
The Group has a 50% interest in four joint venture vehicles,
Derwent Lazari Baker Street Limited Partnership, Dorrington Derwent
Holdings Limited, Primister Limited and Prescot Street Limited
Partnership.
30.06.2022 30.06.2021 31.12.2021
GBPm GBPm GBPm
------------------------------------------ ----- ---------- ----------
At 1 January 51.1 0.9 0.9
Additions 0.1 - 64.1
Joint venture acquisition costs - - (4.0)
Revaluation deficit (see note 9) (1.1) - (10.2)
Other profit from operations (see note 9) 1.2 - 0.3
51.3 0.9 51.1
The Group's share of its investments in joint ventures is
represented by the following amounts in the underlying joint
venture entities.
Joint ventures Group share
---------------------------------- ----------------------------------
30.06.2022 30.06.2021 31.12.2021 30.06.2022 30.06.2021 31.12.2021
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Non-current assets 100.2 - 100.5 50.1 - 50.2
Current assets 5.0 1.2 3.7 2.5 0.6 1.9
Current liabilities (3.4) (0.7) (2.7) (1.7) (0.3) (1.3)
Non-current liabilities (120.9) - (120.8) (60.4) - (60.4)
Net assets (19.1) 0.5 (19.3) (9.5) 0.3 (9.6)
Loans provided to joint ventures 60.8 0.6 60.7
Total investment in joint ventures 51.3 0.9 51.1
15. Other receivables (non-current)
30.06.2022 30.06.2021 31.12.2021
GBPm GBPm GBPm
-------------------------------- ----- ---------- ----------
Prepayments and accrued income
Rents recognised in advance 161.7 142.3 147.0
Initial direct letting costs 14.1 13.0 12.3
175.8 155.3 159.3
Prepayments and accrued income include GBP161.7m (30 June 2021:
GBP142.3m; 31 December 2021: GBP147.0m) 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, GBP14.1m (30 June 2021: GBP13.0m; 31 December
2021: GBP12.3m) relates to the spreading effect of the initial
direct costs of letting over the same term. Together with GBP20.5m
(30 June 2021: GBP18.8m; 31 December 2021: GBP24.1m), which was
included as accrued income within trade and other receivables (see
note 16), these amounts totalled GBP196.3m at 30 June 2022 (30 June
2021: GBP174.1m; 31 December 2021: GBP183.4m).
The total movement in tenant lease incentives is shown
below:
30.06.2022 30.06.2021 31.12.2021
GBPm GBPm GBPm
-------------------------------------------------------------- ------ ---------- ----------
At 1 January 168.2 149.7 149.7
Amounts taken to income statement 10.7 9.3 19.9
Capital incentives granted - - 0.7
Lease incentive impairment 1.2 0.1 0.3
Adjustment for non-current asset held for sale - (0.3) (1.6)
Disposal of investment properties - - (0.5)
Write off to bad debt (0.3) - (0.3)
179.8 158.8 168.2
Amounts included in trade and other receivables (see note 16) (18.1) (16.5) (21.2)
At period end 161.7 142.3 147.0
16. Trade and other receivables
30.06.2022 30.06.2021 31.12.2021
GBPm GBPm GBPm
------------------------------- ---- ---------- ----------
Trade receivables 4.9 26.1 6.9
Other receivables 8.5 4.3 3.7
Prepayments 37.8 24.9 24.7
Other taxes 6.0 - -
Accrued income
Rents recognised in advance 18.1 16.5 21.2
Initial direct letting costs 2.4 2.3 2.9
Other 1.2 1.4 2.3
78.9 75.5 61.7
Trade receivables are split as follows:
less than three months due 4.9 23.1 6.8
between three and six months due - 2.9 0.1
between six and twelve months due - 0.1 -
4.9 26.1 6.9
The Group has GBP7.6m (30 June 2021: GBP10.7m; 31 December 2021:
GBP9.5m) of provision for bad debts as shown below. GBP3.4m are
included in trade receivables, GBP1.0m in accrued income and
GBP3.2m in prepayments and accrued income within other receivables
(non-current). See notes 3 and 15.
30.06.2022 30.06.2021 31.12.2021
GBPm GBPm GBPm
---------------------------- ----- ---------- ----------
Provision for bad debts
At 1 January 9.5 9.3 9.3
Lease incentive provision 0.2 (0.1) (0.2)
Trade receivables provision (0.8) 1.3 0.8
Service charge provision - 0.2 0.1
Released (1.3) - (0.5)
At period end 7.6 10.7 9.5
The provision for bad debts are split as follows:
less than three months due 3.6 5.2 4.3
between three and six months due 0.2 0.4 0.2
between six and twelve months due 0.5 0.5 0.3
greater than twelve months due 3.3 4.6 4.7
7.6 10.7 9.5
17. Non-current assets held for sale
30.06.2022 30.06.2021 31.12.2021
GBPm GBPm GBPm
------------------------------------------------ ---------- ---------- ----------
Prior period transfer from investment property 39.5 - -
Transfer from investment property (see note 11) 75.9 162.8 101.2
Transfer from prepayments and accrued income - 0.3 1.6
115.4 163.1 102.8
In July 2022, the Group exchanged contracts and completed on the
sale of its freehold interest in Bush House, South West Wing WC2.
The property was valued at GBP77.0m at 30 June 2022. 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 GBP1.1m, the carrying value at 30 June
2022 was GBP75.9m.
In July 2020, the Group exchanged contracts on the sale of its
leasehold interest in 2 & 4 Soho Place W1, with completion
occurring in July 2022. The property was valued at GBP41.8m at 30
June 2022. 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 GBP2.3m, the carrying
value at 30 June 2022 was GBP39.5m.
18. Trade and other payables
30.06.2022 30.06.2021 31.12.2021
GBPm GBPm GBPm
---------------- ----- ---------- ----------
Trade payables 7.3 4.9 3.2
Other payables 37.5 35.1 38.0
Other taxes - 3.4 8.0
Accruals 38.3 49.5 37.2
Deferred income 43.4 42.4 41.9
126.5 135.3 128.3
Deferred income primarily related to rents received in
advance.
19. Net debt and derivative financial instruments
30.06.2022 30.06.2021 31.12.2021
---------------- --------------- ----------------
Book Fair Book Fair Book Fair
value value Value value value value
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------- ------- ------- ------ ------- ------- -------
Current liabilities
Other loans 14.6 14.6 - - 12.3 12.3
14.6 14.6 - - 12.3 12.3
Non-current liabilities
1.5% unsecured convertible bonds 2025 169.2 156.2 167.3 171.5 168.3 174.0
6.5% secured bonds 2026 181.7 192.2 183.0 212.8 182.4 205.7
1.875% unsecured green bonds 2031 346.2 285.3 - - 346.0 344.6
Unsecured private placement notes 2026 - 2034 453.2 452.4 453.0 502.7 453.0 493.1
3.99% secured loan 2024 82.6 85.1 82.4 87.4 82.5 85.6
Unsecured bank loans 126.4 131.0 78.7 83.0 4.9 10.0
Secured bank loan - - 27.9 28.0 - -
1,359.3 1,302.2 992.3 1,085.4 1,237.1 1,313.0
Borrowings 1,373.9 1,316.8 992.3 1,085.4 1,249.4 1,325.3
Derivative financial instruments expiring in
less than one year - - - - 0.4 0.4
greater than one year (2.7) (2.7) 3.4 3.4 0.4 0.4
Total borrowings and derivative
financial instruments 1,371.2 1,314.1 995.7 1,088.8 1,250.2 1,326.1
Reconciliation to net debt:
Borrowings and derivative financial
instruments 1,371.2 995.7 1,250.2
Adjustments for:
Leasehold liabilities 19.6 67.4 70.6
Derivative financial instruments 2.7 (3.4) (0.8)
Cash and cash equivalents (32.8) (60.0) (68.5)
Net debt 1,360.7 999.7 1,251.5
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 2022 or 2021.
The Group's secured bank loan was settled during the previous
year in advance of the acquisition of the non-controlling interest
from The Portman Estate. The loan was previously secured by a fixed
charge over GBP110.0m of the Group's properties as at 30 June 2021.
The 3.99% secured loan 2024 was secured by a fixed charge over
GBP302.7m (30 June 2021: GBP310.9m; 31 December 2021: GBP305.2m) 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 GBP502.6m (30 June 2021:
GBP576.2m; 31 December 2021: GBP571.8m) of the Group's
properties.
Other loans consist of a GBP14.6m interest-free loan with no
fixed repayment date from a third party providing development
consultancy services on the residential element of the 25 Baker
Street W1 development. The loan will be repaid from the sale
proceeds of these residential apartments after completion of the
scheme. The agreement provides for a profit share on completion of
the sales which, under IFRS 9 Financial Instruments, has been
deemed to have a carrying value of GBPnil at 30 June 2022 (30 June
2021: GBPnil; 31 December 2021: GBPnil). The carrying value of the
loan at 30 June 2022 was GBP14.6m (30 June 2021: GBPnil; 31
December 2021: GBP12.3m).
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.
20. Deferred tax
Revaluation
surplus Other Total
GBPm GBPm GBPm
-------------------------------------------------- ----------- ----- -----
At 1 January 2022 3.3 (3.6) (0.3)
Charged to the income statement 0.3 0.2 0.5
Charged to other comprehensive income 0.2 - 0.2
Charged to equity - 0.7 0.7
At 30 June 2022 3.8 (2.7) 1.1
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 2021 3.5 (3.0) 0.5
(Credited)/charged to the income statement (1.6) 0.5 (1.1)
Change in tax rates in the income statement 0.1 (0.8) (0.7)
Charged to other comprehensive income 0.9 0.5 1.4
Change in tax rates in other comprehensive income 0.4 (0.1) 0.3
Credited to equity - (0.7) (0.7)
At 31 December 2021 3.3 (3.6) (0.3)
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.
21. Dividend
Dividend per share
----------------------
Half year to Half year to Year to
Payment date PID Non-PID Total 30.06.2022 30.06.2021 31.12.2021
p p p GBPm GBPm GBPm
------------- -------------- ------ ------- ----- ------------- ------------- -------------
Current period
2022 interim
dividend 14 October 2022 24.00 - 24.00 - - -
Prior year
2021 final
dividend 1 June 2022 35.50 18.00 53.50 60.1 - -
2021 interim
dividend 15 October 2021 23.00 - 23.00 - - 25.8
------ ------- -----
58.50 18.00 76.50
2020 final
dividend 4 June 2021 35.00 17.45 52.45 - 58.8 58.8
Dividends as
reported in the
Group statement
of changes in
equity 60.1 58.8 84.6
--------------- -------------- ------ ------- ----- ------------- ------------- -------------
2021 final
dividend
withholding
tax 14 July 2022 (5.4) - -
2021 interim
dividend
withholding
tax 14 January 2022 3.5 - (3.5)
2020 final
dividend
withholding
tax 14 July 2021 - (5.3) -
2020 interim
dividend
withholding
tax 14 January 2021 - 3.2 3.2
Dividends paid as reported in
the
Group cash flow
statement 58.2 56.7 84.3
--------------- ------ ------- -----
22. Cash and cash equivalents
30.06.2022 30.06.2021 31.12.2021
GBPm GBPm GBPm
------------- ---------- ---------- ----------
Cash at bank 32.8 60.0 68.5
32.8 60.0 68.5
23. Post balance sheet events
In July 2022, the Group exchanged and completed the disposal of
its freehold interest in Bush House, South West Wing WC2 for
GBP85.0m before costs.
In July 2022, the Group completed the disposal of its leasehold
interest in 2 & 4 Soho Place W1, for GBP40.5m before costs.
In August 2022, the Group received GBP16.8m following the
completion of the grant of an intermediary long leasehold interest
as per the Soho Place W1 development agreement.
24. Related party disclosure
There have been no related party transactions during the half
year to 30 June 2022 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
2021.
25. 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
30.06.2022 30.06.2021 31.12.2021 30.06.2022 30.06.2021 31.12.2021
'000 '000 '000 '000 '000 '000
---------- ---------- --------------- ---------- ----------
For use in basic measures 112,179 112,129 112,139 112,291 112,174 112,209
Dilutive effect of share-based
payments 244 275 273 203 292 308
For use in other diluted
measures 112,423 112,404 112,412 112,494 112,466 112,517
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 2021 and 2022 and for
the year ended 31 December 2021, 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 2022
Net property and other income 96.5 (0.3) - - 96.2
Administrative expenses (17.8) - - - (17.8)
Revaluation surplus 73.4 - (73.4) - -
Profit on disposal of investments 0.5 (0.5) - - -
Net finance costs (18.5) - - - (18.5)
Movement in fair value of derivative
financial instruments 3.5 - - (3.5) -
Financial derivative termination costs (0.6) - - 0.2 (0.4)
Share of results of joint ventures 0.1 - 1.1 - 1.2
Profit before tax 137.1 (0.8) (72.3) (3.3) 60.7
Tax charge (1.8) 0.4 0.3 - (1.1)
Profit for the period 135.3 (0.4) (72.0) (3.3) 59.6
Earnings attributable to equity shareholders 135.3 (0.4) (72.0) (3.3) 59.6
Earnings per share 120.61p 53.13p
Diluted earnings per share 120.35p 53.01p
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
Adjustments EPRA
IFRS A B C basis
GBPm GBPm GBPm GBPm GBPm
Year to 31 December 2021
Net property and other income 187.5 (0.7) 1.4 - 188.2
Administrative expenses (37.1) - - - (37.1)
Revaluation surplus 130.8 - (130.8) - -
Profit on disposal of investments 10.4 (10.4) - - -
Net finance costs (28.1) - - - (28.1)
Movement in fair value of derivative
financial instruments 4.8 - - (4.8) -
Financial derivative termination costs (1.9) - - 1.9 -
Share of results of joint ventures (13.9) - 14.2 - 0.3
Profit before tax 252.5 (11.1) (115.2) (2.9) 123.3
Tax credit/(charge) 1.3 - (1.5) - (0.2)
Profit for the year 253.8 (11.1) (116.7) (2.9) 123.1
Non-controlling interest (1.5) - 0.4 - (1.1)
Earnings attributable to equity shareholders 252.3 (11.1) (116.3) (2.9) 122.0
Earnings per share 224.99p 108.79p
Diluted earnings per share 224.44p 108.53p
EPRA net asset value metrics
30.06.2022 30.06.2021 31.12.2021
GBPm GBPm GBPm
Net assets attributable to equity shareholders 4,518.8 4,330.7 4,441.8
Adjustments for:
Revaluation of trading properties 0.2 0.9 1.9
Deferred tax on revaluation surplus(1) 1.9 2.0 1.7
Fair value of derivative financial instruments (2.7) 3.4 0.8
Fair value adjustment to secured bonds 7.3 8.7 8.0
Non-controlling interest in respect of the above(1) - (0.4) -
EPRA Net Tangible Assets 4,525.5 4,345.3 4,454.2
Per share measure - diluted 4,023p 3,864p 3,959p
Net assets attributable to equity shareholders 4,518.8 4,330.7 4,441.8
Adjustments for:
Revaluation of trading properties 0.2 0.9 1.9
Fair value adjustment to secured bonds 7.3 8.7 8.0
Mark-to-market of fixed rate debt 62.9 (91.6) (69.5)
Unamortised issue and arrangement costs (11.3) (10.2) (12.6)
EPRA Net Disposal Value 4,577.9 4,238.5 4,369.6
Per share measure - diluted 4,069p 3,769p 3,884p
Net assets attributable to equity shareholders 4,518.8 4,330.7 4,441.8
Adjustments for:
Revaluation of trading properties 0.2 0.9 1.9
Deferred tax on revaluation surplus 3.8 3.9 3.3
Fair value of derivative financial instruments (2.7) 3.4 0.8
Fair value adjustment to secured bonds 7.3 8.7 8.0
Non-controlling interest in respect of the above - (0.7) -
Purchasers' costs(2) 399.4 366.1 383.9
EPRA Net Reinstatement Value 4,926.8 4,713.0 4,839.7
Per share measure - diluted 4,380p 4,191p 4,301p
(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 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
GBPm GBPm GBPm
----------------------- ----------------------- ------------------
Administrative expenses 17.8 19.4 37.1
Write-off/impairment of
receivables (0.6) 1.4 0.8
Other property costs 6.4 4.7 10.4
Dilapidation receipts (0.1) (0.1) (0.9)
Net service charge costs 1.5 1.5 3.4
Service charge costs recovered
through rents
but not separately invoiced (0.3) (0.4) (0.6)
Management fees received less
estimated profit element (1.8) (1.5) (3.5)
Share of joint ventures'
expenses 0.3 - (0.1)
EPRA Costs (including direct
vacancy costs) (A) 23.2 25.0 46.6
Direct vacancy costs (2.9) (2.5) (6.1)
EPRA Costs (excluding direct
vacancy costs) (B) 20.3 22.5 40.5
Gross rental income 101.7 98.1 194.2
Ground rent (0.5) (0.4) (1.4)
Service charge components of
rental income (0.3) (0.4) (0.5)
Share of joint ventures' rental
income less ground rent (1.3) - (0.5)
Adjusted gross rental income (C) 99.6 97.3 191.8
EPRA Cost Ratio (including direct
vacancy costs) (A/C) 23.3% 25.7% 24.3%
EPRA Cost Ratio (excluding direct
vacancy costs) (B/C) 20.4% 23.1% 21.1%
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) 5,873.4 5,383.6 5,646.3
Portfolio cost ratio (A/D) -
annualised 0.8% 0.9% 0.8%
The Group has not capitalised any overhead or operating expenses
in either 2022 or 2021.
Property-related capital
expenditure
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
GBPm GBPm GBPm
Group (excluding joint ventures)
Acquisitions 133.0 23.7 353.6
Development 57.4 85.3 146.6
Investment properties
Incremental lettable space 0.1 - 0.1
No incremental lettable space 11.7 12.7 16.7
Tenant incentives 0.1 2.7 2.5
Capitalised Interest 4.7 5.4 12.0
Joint ventures (50% share)
Acquisitions - - 60.0
Development 1.0 - 0.2
Total capital expenditure 208.0 129.8 591.7
Conversion from accrual to cash
basis
Group (excluding joint
ventures) (0.5) - (107.6)
Joint ventures (50% share) (0.1) (18.8) (0.2)
Total capital expenditure on a
cash basis 207.4 111.0 483.9
26. Gearing and interest cover
NAV gearing
30.06.2022 30.06.2021 31.12.2021
Note GBPm GBPm GBPm
Net debt 19 1,360.7 999.7 1,251.5
Net assets 4,518.8 4,382.9 4,441.8
NAV gearing 30.1% 22.8% 28.2%
Loan-to-value ratio
30.06.2022 30.06.2021 31.12.2021
Note GBPm GBPm GBPm
Group loan-to-value
Net debt 19 1,360.7 999.7 1,251.5
Fair value adjustment of secured bonds (7.3) (8.7) (8.0)
Unamortised discount on unsecured green bonds 1.8 - 1.8
Unamortised issue and arrangement costs 11.3 10.2 12.6
Leasehold liabilities 19 (19.6) (67.4) (70.6)
Drawn debt net of cash (A) 1,346.9 933.8 1,187.3
Fair value of property portfolio (B) 11 5,873.4 5,383.6 5,646.3
Loan-to-value ratio (A/B) 22.9% 17.3% 21.0%
Proportionally consolidated loan-to-value
Drawn debt net of cash (A) 1,346.9 933.8 1,187.3
Share of cash and cash equivalents in joint ventures (1.5) (0.5) (1.2)
Drawn debt net of cash including Group's share of joint ventures (C) 1,345.4 933.3 1,186.1
Fair value of property portfolio (B) 5,873.4 5,383.6 5,646.3
Share of fair value of property portfolio of joint venture 50.0 - 50.0
Fair value of property portfolio including Group's share of joint
venture (D) 5,923.4 5,383.6 5,696.3
Proportionally consolidated loan-to-value (C/D) 22.7% 17.3% 20.8%
EPRA loan-to-value
Drawn debt net of cash including Group's share of joint ventures (C) 1,345.4 933.3 1,186.1
Debt with equity characteristics (14.6) - (12.3)
Adjustment for hybrid debt instruments 3.9 5.2 4.5
Net payables adjustment 69.1 78.5 91.7
Adjusted debt (E) 1,403.8 1,017.0 1,270.0
Fair value of property portfolio including Group's share of joint
venture (D) 5,923.4 5,383.6 5,696.3
EPRA loan-to-value (E/D) 23.7% 18.9% 22.3%
Net interest cover ratio
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
Note GBPm GBPm GBPm
Group net interest cover ratio
Net property and other income 5 96.5 95.1 187.5
Adjustments for:
Other income 5 (1.8) (1.5) (3.5)
Other property income 5 - - (2.0)
Net surrender premiums 5 (0.4) (3.6) (3.6)
Write-down of trading property 5 - 0.7 1.4
Profit on disposal of trading
properties 5 (0.3) (0.5) (0.7)
Adjusted net property income 94.0 90.2 179.1
Finance income 7 (0.2) - -
Finance costs 7 18.7 14.2 28.1
18.5 14.2 28.1
Adjustments for:
Finance income 7 0.2 - -
Other finance costs 7 - (0.2) (0.2)
Amortisation of fair value
adjustment to secured bonds 7 0.6 0.7 1.3
Amortisation of issue and
arrangement costs 7 (1.3) (1.2) (2.5)
Finance costs capitalised 7 4.7 5.4 12.0
22.7 18.9 38.7
Net interest cover ratio 414% 477% 463%
Proportionally consolidated net
interest cover ratio
Adjusted net property income 94.0 90.2 179.1
Share of joint ventures' net
property income 1.1 - 0.4
Adjusted net property income
including share of joint
ventures 95.1 90.2 179.5
Net interest payable 22.7 18.9 38.7
Proportionally consolidated net
interest cover ratio 419% 477% 464%
27. Total return
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
p p p
----------------------- ----------------------- ------------------
EPRA Net Tangible Assets on a
diluted basis
At end of period 4,023 3,864 3,959
At start of period (3,959) (3,812) (3,812)
Increase 64 52 147
Dividend per share 54 52 75
Increase including dividend 118 104 222
Total return 3.0% 2.7% 5.8%
28. 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 loan-to-value ratio (LTV)
Debt divided by the property value. Debt is equal to drawn
facilities less cash, adjusted for debt with equity
characteristics, adding back the equity portion of hybrid debt
instruments and including net payables if applicable. Property
value is equal to the fair value of the property portfolio
including net receivables if applicable.
- 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.
Task Force on Climate-related Financial Disclosures (TCFD)
Set up by the Financial Stability Board (FSB) in response to the
G20 Finance Ministers and Central Bank Governors request for
greater levels of decision-useful, climate-related information; the
TCFD was asked to develop climate-related disclosures that could
promote more informed investment, credit (or lending), and
insurance underwriting decisions. In turn, this would enable
stakeholders to understand better the concentrations of
carbon-related assets in the financial sector and the financial
system's exposures to climate-related risks.
'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.
Transmission and distribution (T&D)
The emissions associated with the transmission and distribution
losses in the grid from the transportation of electricity from its
generation source.
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.
Well to tank (WTT)
The emissions associate with extracting, refining and
transporting raw fuel to the vehicle, asset or process under
scrutiny.
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.
29. 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 2022 Announcement of Derwent London plc for
the 6 month period ended 30 June 2022 (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.
The interim financial statements comprise:
-- the Group condensed Balance Sheet as at 30 June 2022;
-- 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
2022 Announcement 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.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410, 'Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity' issued by the Financial Reporting Council 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 2022 Announcement and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on
the review procedures performed in accordance with this ISRE.
However, future events or conditions may cause the group to cease
to continue as a going concern.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The Interim Results 2022 Announcement, 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 2022 Announcement in accordance with
the Disclosure Guidance and Transparency Rules sourcebook of the
United Kingdom's Financial Conduct Authority. In preparing the
Interim Results 2022 Announcement, including the interim financial
statements, the directors are responsible for assessing the group's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the
group or to cease operations, or have no realistic alternative but
to do so.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim Results 2022 Announcement based
on our review. Our conclusion, including our Conclusions relating
to going concern, is based on procedures that are less extensive
than audit procedures, as described in the Basis for conclusion
paragraph of this report. 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.
PricewaterhouseCoopers LLP
Chartered Accountants
London
10 August 2022
Notes to editors
Derwent London plc
Derwent London plc owns 75 buildings in a commercial real estate
portfolio predominantly in central London valued at GBP5.9 billion
as at 30 June 2022, 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 buildings in our 5.6 million sq ft portfolio include 1
Soho Place W1, 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 2022 we were proud to announce that we had achieved
the National Equality Standard - the UK's highest benchmark for
equality, diversity and inclusion. In April 2022, Derwent London
won the BCO Best Commercial Workplace award for 80 Charlotte
Street. In October 2021, the Group won EG's UK Company of the Year
award and in January 2022 came top of the Property Sector and 38th
position overall in Management Today's Britain's Most Admired
Companies awards 2021. In 2020 the Group won several awards for
Brunel Building with the most prominent being the BCO Best
Commercial Workplace award. In 2013 the Company launched a
voluntary Community Fund which 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.
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