REG - Derwent London PLC - Half-Year Results
08/08/2024 07:00
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RNS Number : 6342Z Derwent London PLC 08 August 2024
8 August 2024
Derwent London plc ("Derwent London" / "the Group")
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2024
UPGRADING RENTAL GUIDANCE IN A STRENGTHENING MARKET
Paul Williams, Chief Executive of Derwent London, said:
"The pace of rental growth accelerated in H1 for the best offices in the right
locations whilst investment yields have recently stabilised, helping drive
greater confidence across the sector.
We have delivered another strong leasing performance, agreeing £8.8m of new
rent in H1 with open-market lettings more than 10% above the December 2023
ERV, including the third pre-let at 25 Baker Street W1. YTD lettings total
£10.8m, with a further £3.4m under offer. This more positive backdrop fed
through into the strongest ERV growth since 2016, giving us confidence to
upgrade our 2024 rental guidance to '3% to 6%'.
London is a world-class city with broad appeal to both international and
domestic businesses. Our design-led and amenity-rich best in class offices are
in demand, supported by London's high quality transport network. Supply of
space that meets occupier needs is relatively low. Our predominantly West End
portfolio is well-placed to benefit, in particular our on-site projects in
Marylebone and Fitzrovia.
In February 2024, we said we were nearing this cycle's valuation low point.
The outlook has continued to improve, supported by a strengthening of the UK
economic environment and an initial interest rate cut, with yields on London
offices looking increasingly attractive to a range of investors.
With our strong balance sheet and 40-year track record, we have the capacity
and ambition to accelerate our growth plans and are exploring a number of
opportunities while also continuing to build out our substantial pipeline.
Combined with rising rents, we expect to deliver increasingly attractive total
returns over the coming years."
Income statement H1 2024 H1 2023 Change Leverage Jun-24 Dec-23
Gross rental income £107.5m £105.9m 1.5% EPRA LTV 29.0% 27.9%
EPRA EPS 52.7p 49.5p 6.5% Interest cover 4.0x 4.1x
Dividend 25.0p 24.5p 2.0% Net debt/EBITDA 8.4x 8.8x
IFRS loss before tax £(27.2)m £(143.1)m - Cash and undrawn debt £566m £480m
Balance sheet Jun-24 Dec-23 Valuation H1 2024 FY 2023
EPRA NTA per share(1) 3,044p 3,129p -2.7% Valuation movement -1.7% -10.6%(2)
Total return -1.0% -11.7% - Equivalent yield 5.73% 5.55%
Net debt £1.37bn £1.36bn 1.0% ERV growth 2.0% 2.1%(3)
(1) Explanations of how EPRA figures are derived from IFRS are shown in note
24.
(2) 12-month figure, split -3.7% in H1 and -7.2% in H2.
(3) 12-month figure, split 0.9% in H1 and 1.2% in H2.
Portfolio highlights
· Underlying ERV growth 2.0%; strongest six-monthly performance since
2016
· Equivalent yield 5.73%, up 18bp in H1
· Capital values down 1.7%, with development values up 4.3%
· EPRA vacancy rate reduced to 3.2% (December 2023: 4.0%)
· Tenant retention/re-letting rate of 86%
Developments
· Resolution to grant planning at our c.240,000 sq ft 50 Baker Street
W1 development received on 6 August 2024
· 25 Baker Street W1 offices 84% pre-let, 14.6% above appraisal ERV;
13 apartments exchanged for £68.0m
· On-site and next phase of major projects total 0.9m sq ft, all in
the West End
Outlook
· 2024 ERV guidance upgraded, now '3% to 6%'
· Office yields increasingly attractive as the UK economic and
political environment continues to stabilise
· Attractive total returns anticipated over the coming years
Webcast and conference call
There will be a live webcast together with a conference call for investors and
analysts at 09:00 BST today.
To participate in the call or to access the webcast, please register at
www.derwentlondon.com (http://www.derwentlondon.com)
A recording of the webcast will also be made available following the event on
www.derwentlondon.com (http://www.derwentlondon.com)
For further information, please contact:
Derwent London Paul Williams, Chief Executive
Tel: +44 (0)20 3478 4217 Damian Wisniewski, Chief Financial Officer
Robert Duncan, Head of Investor Relations
Brunswick Group Nina Coad
Tel: +44 (0)20 7404 5959 Peter Hesse
CHIEF EXECUTIVE'S STATEMENT
· Valuation cycle levelled; rental growth to drive values with stable
yields
· 2024 ERV guidance upgraded, now '3% to 6%'
· Ongoing leasing success with £8.8m of new rent agreed in H1, 10.3%
above ERV(1)
o A further £2.0m signed in H2 to date above ERV
o YTD lettings £10.8m
· Strong balance sheet, with 29% LTV and capacity to invest
(1) Performance against Dec 2023 ERV excludes short-term development lettings.
Central London office occupational market gaining further momentum
The central London office market has strengthened further with the key
occupier themes continuing to be quality, location and amenity. At the same
time, existing supply that satisfies these requirements is limited and the
market development pipeline is constrained, driving rental growth for the best
space.
We delivered another good leasing performance in H1, signing £8.8m of new
leases at an average 7.8% premium to December 2023 ERV, and 10.3% excluding
short-term development lettings. This follows the £28.4m of activity in 2023
(8.0% above ERV). As at June 2024, a further £4.5m of space was under offer,
of which £2.0m has subsequently completed, taking YTD leasing activity to
£10.8m.
Activity was well spread across the portfolio and key transactions in H1
include:
· 25 Baker Street W1 - Cushman & Wakefield pre-let 17,100 sq ft at a
headline rent of £107.50 psf, substantially above December 2023 ERV, on a
15-year lease without breaks;
· The White Chapel Building E1 - Three new tenants have leased a combined
64,100 sq ft at an average headline rent of £51 psf, 5% ahead of ERV; and
· Furnished + Flexible - 10 new leases signed for a combined £2.5m,
11.9% above December 2023 net rent (adjusted for capex).
The Group's EPRA vacancy rate was 3.2% at 30 June 2024, a reduction of 80bp
compared to 31 December 2023. Our tenant retention/re-let rate was high at
86%, ahead of our long-term average.
Property yields now stabilised; rents to support growth in values
The UK economic environment continued to improve through H1 having begun to
recover late last year. With inflation now in line with the Bank of England's
2% target following a substantial reduction from its peak of 11% in October
2022, the UK base rate was cut by 25bp in August to 5.0%, and there are
further cuts on the horizon.
The 5-year swap rate has responded favourably and is now 3.6%. Further
declines in the cost of debt and improving availability should be expected to
encourage a recovery in investment activity. At £1.9bn, transaction volumes
in H1 were 65% below the 10-year H1 average. However, since the start of H2,
enquiry levels are picking up with CBRE reporting £19.2bn of global equity
targeting London offices.
In February, we highlighted with our 2023 full year results that "valuations
are now approaching this cycle's lows". In H1, the pace of MSCI capital value
declines slowed to 2.1%. Looking forward we expect a recovery in capital
values, principally driven by rental growth.
Balance sheet well positioned and growth in earnings
EPRA NTA decreased by 2.7% in H1 to 3,044p as underlying capital values across
our portfolio declined 1.7%. This was considerably lower than seen in 2023.
ERV growth of 2.0% partly offset 18bp of outward yield shift. Development
valuations rose 4.3% principally due to development surpluses coming through,
increased rental assumptions and the signing of a further pre-let at 25 Baker
Street W1, well above ERV.
Net debt was broadly flat in H1 at £1.37bn (2023: £1.36bn) as disposal
proceeds, mainly from the sale of Turnmill EC1, and retained earnings broadly
offset capital expenditure and payment of the 2023 final dividend. Together
with the movement in capital values, EPRA LTV increased marginally to 29.0%
(FY 2023: 27.9%).
EPRA earnings rose 6.5% to £59.2m or 52.7p per share (H1 2023: £55.6m or
49.5p), as gross rental income increased 1.5% to £107.5m compared to H1 2023,
and net rental income was up 4.5% to £95.0m as direct property costs came
down. The net debt/EBITDA ratio reduced slightly to 8.4 times (FY 2023: 8.8
times).
Our annual dividend remains well covered by EPRA earnings and we have
increased the 2024 interim dividend by 2.0% to 25.0p. In line with our
progressive policy, this is the 17(th) consecutive increase in our interim
dividend.
Delivering the right product
We remain focused on delivering the very best office space to meet London's
varied demand.
Whether it is refurbishing or delivering new-build, we are design-focused,
creating 'long-life, low carbon, intelligent' buildings that meet the evolving
requirements of occupiers, large or small, across a broad variety of sectors.
We are always mindful to deliver the right product for the relevant submarket
and know that one size does not fit all.
At the larger end, we deliver best-in-class HQ offices on long leases where we
have a strong track record of working closely with occupiers to provide
bespoke solutions. Well-established businesses require longer leases to assist
their long-term planning and financing, a trend we do not see changing.
At the smaller end, we offer our 'Furnished + Flexible' solution, which is
tailored to the building and the submarket within which it sits. This
currently extends to c.170,000 sq ft either operational or under construction
(3.2% of the portfolio). Over the next five years, this should increase to
c.300,000 sq ft (c.6%). In addition, we have c.160,000 sq ft (3.1%) leased to
third party operators, such as Fora and Soho Works, which takes our current
overall 'flex' weighting to 6.3%.
Providing a mix of this longer-term Cat A space as well as shorter term,
flexible and fitted space meets demand in the market, while providing us with
a well-balanced portfolio and longer WAULT.
Over the last five years we have developed the DL/Member offer to further
enhance our product. We know that businesses attribute as much value to the
quality of the landlord, amenity and service as they do the core office space.
We take a portfolio approach to the overall Derwent product, considering the
full offer not just the individual building or unit.
All our occupiers, irrespective of size, benefit from portfolio amenity,
community and experience via our DL/Member offering. For larger businesses,
this provides opportunity for activity outside of the HQ. For smaller
businesses, it offers flexible space where they can use amenity that they are
unlikely to have in their own demise. In addition, each individual that
occupies a Derwent building benefits from being part of a community which
provides access to social responsibility and charity initiatives, social
events, wellness agendas and local retail offers. DL/Member benefits include:
· DL/ Lounges (DL/78 and DL/28) - touch down work areas, pay as you go
meeting rooms and private event space;
· DL/ Service - café and catering facilities;
· DL/ App - curated retail offers and our digital community; and
· DL/ Experience - a full programme of community events.
Since launching these initiatives, we have had very positive feedback from
occupiers and the market, proving their value in attracting and retaining
tenants, and demonstrating strong demand for our product and brand.
Outlook and guidance - rental growth upgrade and strengthening total returns
The significant rise in space under offer shows substantial pent-up demand,
with occupiers prioritising high quality space in core central locations. At
the same time, supply of space that meets these criteria, whether existing or
under development, is low. The market is adjusting to this, and businesses
with large space requirements are committing earlier, putting further pressure
on supply.
Rental growth is accelerating for the best buildings. Our portfolio ERV
increased 2.0% in H1, the strongest half year performance since 2016.
Consequently, we are today upgrading our 2024 rental guidance to '3% to 6%'.
At 30 June 2024, our portfolio equivalent yield was 5.73%, an 18bp outward
movement from 31 December 2023. With the economic outlook continuing to
strengthen, the recent base rate cut plus further reductions on the horizon,
we expect the yield on London offices to be increasingly attractive to a range
of investors.
Looking ahead, we anticipate delivering attractive future accounting returns,
given the combination of growing rents, an improved yield outlook, and
visibility on development returns and earnings, underpinned by our long
average lease term.
CENTRAL LONDON OFFICE MARKET
· Overall vacancy rate 8.3% but Grade A vacancy very low: West End
1.2%; City 2.1%
· Space under offer continues to rise (up 58% in H1)
· Only 7.3m sq ft of speculative development under construction
· Prime yields stable in H1 and increasingly attractive as cost of
debt starts to reduce
Occupational market
The imbalance between supply and demand across the London office market
remains pronounced. Grade A vacancy is 1.8% and there are only 7.3m sq ft of
speculative development completions due by the end of 2027. While leasing
transactions are taking longer, the increase in space under offer suggests the
lower take-up in H1 should be temporary.
Overall vacancy has levelled off at 8.3%, with the West End at 4.5% and the
City at 10.8%. According to CBRE, lower quality, secondhand space comprises
over two-thirds of supply. The Grade A vacancy rate in the West End is only
1.2% and in the City is 2.1%. The central London development pipeline is
constrained, with 12.6m sq ft of space under construction and due to complete
by 2027. Of this, 42%, or 5.3m sq ft, is pre-let or under offer, rising to 54%
for projects due to complete in H2 2024. In line with longer-term trends,
pre-letting levels in the West End (23%) are below the City (62%).
Q2 take-up, which was 20% higher than Q1, benefited from some large Financial
pre-lets in the City, and since the start of H2 the West End has seen some of
the space under offer convert with the completion of several substantial
pre-lets, including BDO. Occupier enquiry levels remain high across a broad
range of sectors backed up by active demand rising 14% through H1 to 11.2m sq
ft, 56% above the five-year average.
Investment market
Liquidity across the market has been focused on smaller lot sizes where there
is less of a requirement for leverage. With £1.9bn of transactions completing
in H1, below the long-term average, the average lot size was only £29m. The
availability of debt has begun to improve in recent months. Last week we saw
the first cut in base rates and the 5-year swap rate has fallen back to 3.6%.
In a global context, London continues to enjoy a reputation as a safe haven.
As a result, sentiment is improving and a rising number of investors are
switching from a 'wait and see' approach to being more acquisitive.
Prime yields were unchanged in H1. At 4.0%, West End yields have increased
75bp compared to June 2022 while City yields have moved out 200bp to 5.75%.
VALUATION
· Capital values -1.7% in H1
o Developments (+4.3%) and high quality buildings (-0.8%) continue to
outperform
o MSCI Central London office quarterly capital value index -2.1%
· ERV growth of 2.0%
· Equivalent yield 5.73%; 18bp of outward yield shift
The Group's investment portfolio was valued at £4.8bn on 30 June 2024, an
underlying decrease in value of 1.7% in H1 which compares to a decline of 7.2%
in H2 2023. This resulted in an £89.8m deficit in the first half which, after
accounting adjustments of £0.6m (note 11), produced an overall decline of
£89.2m including our share of joint ventures.
By location, our central London properties, which represent 98% of the
portfolio, were down 1.8% with the West End
-1.5% and City Borders -2.7%. The balance of the portfolio, our Scottish
holdings, was up 3.6%.
Our portfolio's capital growth outperformed the MSCI Central London Office
Quarterly Index which was down 2.1%. The wider UK All Property Index decreased
by 0.6%. Since the peak of the cycle in June 2022, capital values have fallen
23% according to the MSCI Central London Office quarterly index, mainly as the
result of a material correction in yields. Our portfolio has outperformed the
index, with capital values down 19% since the peak.
Improvements in the occupational market fed through to a 2.0% increase in our
EPRA rental values in H1, in line with earlier guidance, and ahead of the 1.2%
growth in H2 2023. This is the strongest six-monthly performance since 2016.
The portfolio true equivalent yield expanded by 18bp, from 5.55% to 5.73% over
the first half, a smaller increase compared to the 42bp outward movement in
the second half of 2023. The initial yield is 4.3% (December 2023: 4.3%)
which, after allowing for the expiry of rent frees and contractual uplifts,
rises to 5.3% on a 'topped-up' basis (December 2023: 5.2%).
The total property return for the first six months was +0.3%, which compares
to the MSCI Quarterly Index of -0.1% for Central London Offices and +1.9% for
UK All Property.
Our better buildings continue to outperform. The valuation of those with a
value in excess of £1,500 psf declined by only 0.8%, compared to those valued
at sub-£1,000 psf where values fell 3.5%.
Valuation movement by capital value banding in H1 2024
Capital value banding Weighting by value Capital value change
£ psf
%
%
≥£1,500 22 -0.8
£1,000 - 1,499 22 -1.5
<£1,000 46 -3.5
Sub-total 90 -2.4
On-site developments 10 4.3
Portfolio 100 -1.7
Our two on-site West End developments at 25 Baker Street W1 and Network W1
continued to make good progress. At 25 Baker Street, a third office pre-let
was signed and the forward sale of a further eight of the private residential
units was agreed. Together, these two projects are now 52% let or sold. Both
are due to complete in 2025 and require £153m of capital expenditure to
complete. They were valued at £487.3m at June 2024 and delivered a 4.3%
valuation uplift, after adjusting for capital expenditure. Performance was
driven by letting activity at improved rental values, additional residential
forward sales at 25 Baker Street and construction progress. Excluding
development properties, the portfolio declined 2.4% in value, on an underlying
basis.
Portfolio reversion
Our contracted annualised cash rent as at 30 June 2024 was £199.4m. With a
portfolio ERV of £311.1m there is £111.7m of potential reversion. Within
this, £48.6m is contracted through rent-frees and fixed uplifts, the majority
of which is already straight-lined in the income statement under IFRS
accounting standards. Our annualised accounting rent roll is £206.5m. On-site
developments and refurbishments could add £43.7m, of which £17.4m is
pre-let. The ERV of immediately available space is £8.4m. The balance of the
potential reversion of £11.0m comes from future reviews and expiries less
future fixed uplifts.
LEASING & ASSET MANAGEMENT
Lettings
· £8.8m of new leases, on average 7.8% above December 2023 ERV
o 10.3% above ERV excluding short-term development lettings
o Includes £1.8m pre-let at 25 Baker Street W1 (now 84% pre-let),
substantially above ERV
· Further £2.0m has completed in H2 to date (YTD: £10.8m), with
£3.4m currently under offer
Asset management
· 30 asset management transactions with rent of £6.0m, just above
ERV
EPRA vacancy rate
· Reduced to 3.2% through H1 2024
Lettings
H1 2024 saw good letting activity across the portfolio, with 27 leases signed
totalling £8.8m of rent, on average 7.8% ahead of December 2023 ERV. This
rises to 10.3% excluding short-term lettings at properties earmarked for
development, principally Holden House W1. Activity in both the West End and
City borders was ahead of December 2023 ERV. 'Furnished + Flexible' leasing
activity increased to £2.5m across 10 units (35,100 sq ft), on average 11.9%
ahead of December 2023 ERV.
Since the end of H1, we have agreed a further £2.0m of lettings on average
4.0% ahead of ERV, taking YTD leasing to £10.8m, and there is currently
£3.4m under offer.
Leasing activity in 2024 to date
Let Performance vs
Dec 2023 ERV (%)
Area Income WAULT(1) Open market Overall(2)
'000 sq ft
£m pa
Years
H1 2024 138.9 8.8 7.3 10.3 7.8
H2 to date 32.3 2.0 6.8 4.0 4.0
(1) Weighted average unexpired lease term (to break).
(2) Includes short-term lettings at properties earmarked for redevelopment.
Principal lettings in 2024 to date
Property Tenant Area Rent Total annual rent Lease term Lease break Rent free equivalent
sq ft
£ psf
£m
Years
Year
Months
H1
25 Baker Street W1 Cushman & Wakefield 17,100 107.50 1.8 15 - 34
The White Chapel Building E1 Pay UK 27,000 52.50 1.4 10 5 27
The White Chapel Building E1 PLP Architecture 22,300 50.00 1.1 10 - 24
The White Chapel Building E1 Breast Cancer Now 14,700 51.00 0.8 10 5 20, plus 10 if no break
The Featherstone Building EC1 incident.io(1) 6,900 86.70 0.6 2 - 1
Tea Building E1 Buttermilk(1) 7,300 66.50 0.5 4 3 2, plus 2 if no break
One Oxford Street W1 Starbucks 4,200 98.10 0.4 15 10 12
230 Blackfriars Road SE1 Hello! Magazine(1) 7,300 52.50 0.4 5.5 - 14
H2
1-2 Stephen Street W1 Envy 19,200 61.00 1.2 15 10 24, plus 12 if no break
The Featherstone Building EC1 Wiz Cloud(1) 5,800 89.50 0.5 3 2 -
230 Blackfriars Road SE1 Instant Offices 7,300 44.00 0.3 5.3 3 17
(1) Space leased on a 'Furnished + Flexible' basis.
Leasing by location in H1 2024
Location Pre-let income Non pre-let income Total income Performance vs
£m
£m
£m
Dec 2023 ERV
%
West End 1.8 1.4 3.2 9.5
City Borders 1.7 3.9 5.6 6.8
Total 3.5 5.3 8.8 7.8
Asset management progress
Asset management activity in H1 2024 totalled £6.0m across 30 transactions.
There were five rent reviews which were settled on average 3.9% above the
previous rent. Lease regears were agreed 5.4% above December 2023 ERV, and
lease renewals were 7.9% below ERV, although a number of these were short-term
development deals at 50 Baker Street W1 where works are expected to start on
site in 2026, following receipt of resolution to grant planning consent on 6
August 2024.
Asset management activity in H1 2024
Number Area Previous rent New rent(1) Uplift New rent vs Dec 2023 ERV
'000 sq ft
£m pa
£m pa
%
%
Rent reviews 5 22.1 1.3 1.4 3.9 6.5
Lease renewals 19 53.0 2.1 2.0 (4.7) (7.9)
Lease regears 6 40.8 2.6 2.6 1.4 5.4
Total 30 115.9 6.0 6.0 (0.2) 0.8
(1) Headline rent, shown prior to lease incentives.
During H1, the EPRA vacancy rate reduced from 4.0% to 3.2%. In total, 86% of
breaks/expiries were retained or re-let prior to the end of H1, excluding
space taken back for projects and disposals, in line with longer-term levels.
The Group's WAULT (to break) remains attractive at 6.0 years, rising to 7.1
years when 'topped-up' for incentives and pre-lets.
Rent and service charge collection rates are 100% for the December and March
quarters.
INVESTMENT
Development
· £109m of project expenditure in H1 2024
· Two major projects on site - 25 Baker Street W1 (298,000 sq ft) and Network
W1 (139,000 sq ft)
o 52% pre-let/sold
o 25 Baker Street offices 84% pre-let (14.6% above appraisal ERV)
o Combined 6.0% yield on cost and 14% development profit
· Medium and longer-term pipeline totals >1.3m sq ft
Disposals
· Total disposals £80.7m (after costs)
o Turnmill EC1 sold in Q2 for £76.6m at 4.9% initial yield; 9.1% ungeared
IRR
Developments and refurbishments
Major on-site projects - 437,000 sq ft (52% pre-let/sold)
We made good further progress in H1 2024 at our two on-site West End
development projects, 25 Baker Street W1 and Network W1, which together total
437,000 sq ft. 25 Baker Street is now 84% pre-let and demand is positive for
Network. We currently expect these to deliver a combined 14% development
profit and 6.0% yield on cost. As a sensitivity, every £10 psf movement in
the rent achieved on the remaining speculative space relative to the latest
ERV would change the yield on cost by c.30bp.
· 25 Baker Street W1 (298,000 sq ft) - an office-led scheme in
Marylebone, expected to complete in H1 2025. It comprises 218,000 sq ft of
best-in-class offices, 28,000 sq ft of new destination retail around a central
landscaped courtyard (part of which is being delivered for the freeholder, The
Portman Estate) and 52,000 sq ft of residential, of which 45,000 sq ft is
private. Occupier demand for the office space is high, with 84% pre-let at an
average headline rent of £103 psf, 14.6% ahead of the appraisal ERV. In
addition, the sale of the residential units is progressing well, with
contracts exchanged on 13 of the 41 private units for £68.0m. This reflects
an average capital value of £3,770 psf, 16% ahead of the appraisal value.
· Network W1 (139,000 sq ft) - an office-led scheme in Fitzrovia,
targeted for completion in H2 2025, comprising 134,000 sq ft of adaptable
offices and 5,000 sq ft of retail. Super structure works are progressing well
and the project remains on programme. We have adopted a number of circular
economy measures including the reconditioning and re-use of raised access
flooring, among others. There have been a number of pre-let enquiries from
multiple occupiers across a variety of sectors and against a backdrop of a
constrained development pipeline in the West End, especially Fitzrovia, we are
confident in the leasing prospects for this high-quality space.
Major on-site development projects
Project Total 25 Baker Street W1 Network W1
Completion H1 2025 H2 2025
Office (sq ft) 352,000 218,000 134,000
Residential (sq ft) 52,000 52,000 -
Retail (sq ft) 33,000 28,000 5,000
Total area (sq ft) 437,000 298,000 139,000
Est. future capex(1) (£m) 153 82 71
Total cost(2) (£m) 740 490 250
ERV (c.£ psf) - 100 95
ERV (£m pa) 34.0 20.9(3) 13.1
Pre-let/sold area (sq ft) 228,500 228,500 (4) -
Pre-let income (£m pa, net) 17.4 17.4 -
Yield on cost (%) 6.0 - -
Embodied carbon intensity c.600 c.530
(kgCO(2)e/sqm) - estimate
BREEAM rating (target) Outstanding(5) Outstanding
NABERS rating (target) 4 Star or above(5) 4 Star or above
Green finance Elected Elected
(1) As at 30 June 2024.
(2) Comprising book value at commencement, capex, fees and notional interest
on land, voids and other costs. 25 Baker Street W1 includes a profit share to
freeholder, The Portman Estate.
(3) Long leasehold, net of 2.5% ground rent.
(4) Includes pre-lets to PIMCO, Moelis and Cushman & Wakefield, and
forward sale of 13 private residential units at 30 June 2024, the pre-sold
affordable housing plus the courtyard retail and Gloucester Place offices
pre-sold to The Portman Estate.
(5) Excludes offices at 30 Gloucester Place.
Future development projects
In addition to our on-site projects, our medium to longer-term pipeline
extends to c.1.3m sq ft across four projects.
Medium-term pipeline
· Holden House W1 (c.150,000 sq ft) - from mid-2025: our updated plans
for this 'behind the façade' project have a higher office weighting and
better sustainability credentials.
· 50 Baker Street W1 (c.240,000 sq ft at 100%) - from early 2026: held
in a 50:50 joint venture with Lazari Investments, this leasehold property is
on The Portman Estate and headlease regear negotiations are making positive
progress. Resolution to grant planning consent was secured on 6 August.
Long-term pipeline
· Old Street Quarter EC1 (c.750,000 sq ft) could commence from 2028: Our
acquisition of this 2.5-acre island site is expected to complete from 2027,
conditional on delivery of the new eye hospital at St Pancras and subsequent
vacant possession of the existing site. Our studies suggest there is potential
for a substantial mixed-use campus development comprising both commercial and
'living' components.
· 230 Blackfriars Road SE1 (c.200,000 sq ft) from 2030: our early
appraisals show capacity for a large office-led development for this 1960s
building, more than three times the existing floor area.
Refurbishments
Refurbishment projects comprise a greater proportion of capital expenditure as
we continue to upgrade the portfolio to meet the evolving requirements of an
increasingly selective occupier base. We expect these projects to deliver an
attractive rental uplift driven by improved amenity offer, overall quality and
upgraded EPCs. Comprehensive refurbishments likely to commence over the coming
years include Greencoat & Gordon House SW1 and 20 Farringdon Road EC1.
Larger rolling refurbishments include 1-2 Stephen Street W1 and Middlesex
House W1.
We will continue to appraise smaller units, typically <10,000 sq ft, for
our 'Furnished + Flexible' product where occupiers are willing to pay a
premium rent for flexible, high-quality space with their own front door. We
currently have c.170,000 sq ft of this space either operational or under
construction, with a further c.130,000 sq ft expected to be delivered over the
coming years.
Acquisitions and disposals
Disposal activity in H1 totalled £80.7m (after costs), of which the principal
transaction was the sale of Turnmill EC1 for £76.6m at a slight premium to
the December 2023 book value. The sale price reflects a net yield of 4.9% and
a capital value of £1,100 psf. There were no acquisitions in the period.
Major disposals in 2024 to date
Property Date Area Total after Net Net rental income
sq ft
costs
yield
£m pa
£m
%
Turnmill EC1 Q2 70,300 76.6 4.9 4.0
SUSTAINABILITY
· Energy intensity 73 kWh/sqm, down 8% compared to H1 2023
· Site preparation and infrastructure works underway at Scottish
solar park
· Carbon credits acquired to cover forecast embodied carbon emissions
to 2030
· 70% of portfolio rated EPC A or B
Reduction in energy intensity
We made positive progress reducing energy consumption across the London
managed portfolio in the first half. Ongoing engagement with occupiers and the
completion of a variety of initiatives such as installation of the first phase
of air source heat pumps at 1-2 Stephen Street W1, has delivered an 8%
reduction in consumption to 27.7m kWh compared to H1 2023 (30.2m kWh). This
resulted in energy intensity of 73 kWh/sqm, 8% below H1 2023 (79 kWh/sqm).
To facilitate the conversion of energy usage into a (location-based) carbon
equivalent figure, DEFRA releases an updated set of carbon factors each year
based on the evolving carbon intensity of the UK's energy mix. In 2023, there
was a c.7% increase in carbon intensity for electricity, the first increase
since 2014, linked to the impact of geopolitical instability. The 2024 carbon
factors for electricity are broadly unchanged compared to 2023.
Self generating electricity - making progress with solar park delivery
Following receipt of planning consent for a c.100 acre 18.4MW solar park on
our land in Scotland in 2023, our formal planning obligations have now been
discharged and site preparation and infrastructure works are underway. On
completion, we expect the electricity generated to be in excess of 40% of our
London managed portfolio's usage, on an annualised basis.
Our approach to the circular economy
For several years we have applied circular economy principles wherever
possible to our regeneration activity as part of our holistic approach to
reducing embodied carbon emissions. To advance this further, our internal
'Circular Economy Group', which has representation from across the business,
is formalising our strategy to enable re-use both across our portfolio as well
as with the wider community. Some examples of circular economy measures
already underway include the re-condition and re-use of raised access floor,
maximisation of the re-use of in-situ concrete formwork and re-use of MEP
within the portfolio.
Forward purchase of high quality carbon removal credits
As part of our Net Zero Carbon by 2030 pathway, we have set ourselves
stretching targets to reduce the embodied carbon footprint of our regeneration
activity. New builds completing from 2025 are targeting an embodied carbon
intensity of ≤600 kgCO(2)e/sqm, which reduces to ≤500 kgCO(2)e/sqm from
2030. We have committed to offset the residual embodied carbon using robust
verified carbon offset schemes, focused on carbon removal rather than
avoidance or mitigation. Based on our current forecast project profile, we
estimate annual embodied carbon emissions of c.15,000 tCO(2)e from our
regeneration activities over the coming years.
As part of our strategic planning, we forward-purchased credits, on a phased
basis, equivalent to 105,000 tCO(2)e for a total amount of £3.9m or
c.£35/tCO(2)e in H1. This follows our procurement of 81,600 credits in 2020
for £1.0m which have been used to offset the embodied carbon at a series of
completed projects.
70% of our portfolio now rated EPC A or B
In 2021, we outlined a c.£100m phased programme of works to ensure compliance
with evolving EPC legislation (Minimum Energy Efficiency Standards, MEES). As
at 30 June 2024, 70% of the portfolio was rated A or B (including our projects
at 25 Baker Street W1 and Network W1) in line with expected 2030 legislation,
which compares to the wider London office market at sub-30%. A further 18% are
rated C, taking our compliance with expected 2027 legislation (EPC C or above)
to 88%. The remainder of the portfolio is rated D or E, in line with current
MEES requirements.
FINANCIAL REVIEW
The financial results for the first half of 2024 reflect an improving
background for our brand of high-quality central London offices.
Property income and costs
Gross property and other income increased 5% to £139.9m in the first half of
2024 from £133.3m in H1 2023. Gross rental income rose to £107.5m, up 1.5%
over H1 2023, and trading property sales proceeds of £3.7m (H1 2023: £nil)
were recognised on the sale of Welby House SW1. Service charge income
increased modestly to £26.0m from £25.0m in H1 2023 but the high energy
costs seen last year have moderated. Service charge increases this year were
largely due to other cost items, particularly those where wages make up a
substantial proportion of the cost, such as cleaning, maintenance and
security.
Net rental income increased 4.5% to £95.0m from £90.9m in H1 2023 after
reductions in irrecoverable service charges and impairment costs. In H1
2023, irrecoverable service charges were higher than usual due partly to a
spike in energy costs but also to higher average vacancy rates. In H1 2023,
they reached £4.5m, reducing to £2.1m in H2 2023 and totalled £2.8m in the
current period to 30 June 2024. Impairment charges reduced to £0.4m in H1
2024 from £1.9m in H1 2023 with only minor impairments required for retail,
gym and hospitality occupiers.
Other property costs increased to £9.3m in H1 2024 from £8.6m in H1 2023.
These were made up of legal and letting costs, rates, ground rent and
repairs but the main increase was due to the running costs at DL/28 in The
Featherstone Building EC1 which opened in Q4 2023. Amenities such as this
and our DL/ Service food and beverage offer are primarily designed to support
rental income and help attract and retain occupiers rather than to be separate
profit centres. The cost of running DL/28, its DL/78 sister lounge in the
West End and DL/ Service was £1.2m in H1 2024 compared to £0.3m in H1 2023
when only the smaller DL/78 lounge was operating.
EPRA like-for-like gross rental income, which excludes the effect of
acquisitions, disposals and developments, was up 1.7% compared to H1 2023 and
the lower overall property costs helped like-for-like net rental income grow
3.4% compared with H1 2023.
With £0.2m of net surrender premiums recognised in the first half of 2024,
net property and other income increased 4.7% to £97.7m in H1 2024 compared to
£93.3m in H1 2023.
Rent and service charge receipts have been strong in 2024 with collection
rates now at almost 100% for the December and March quarter days.
Administrative expenses increased modestly to £19.8m from £19.2m in H1 2023.
This is mainly due to headcount growth through 2023 and pay rises in January
2024 averaging 6.1% across our workforce.
The lower irrecoverable property costs have also helped bring our EPRA cost
ratios down to 26.6% in H1 2024 (H1 2023: 28.8%) including direct vacancy
costs and 21.7% (H1 2023: 23.2%) excluding direct vacancy costs. As before,
we have not capitalised any of our internal development department costs in
2024 to date.
We saw significant upward movement in property investment yields from H2 2022
to the end of 2023. This continued into early 2024 but at a slower pace and
yield movements have been almost flat in the last few months. The
revaluation movement overall in H1 2024 was still a deficit but, at £87.2m
after accounting adjustments, was significantly lower than the £196.7m in H1
2023 and £581.5m for the whole of 2023. The Group's owner-occupied office
at 25 Savile Row W1 showed a £2.0m (H1 2023: £2.6m) reduction but our 50%
share of the 50 Baker Street W1 joint venture showed no revaluation movement
in H1 2024 after a £4.8m decline in H1 2023.
The profit on disposal of investment property of £1.5m after costs came from
the sales of Turnmill EC1 and a small property in Mallow Street EC1, the
proceeds together totalling £77.9m. Gross interest costs increased to
£24.8m in H1 2024 from £23.0m in H1 2023 but interest capitalised rose to
£5.0m from £2.7m in H1 2023 due to higher cumulative development expenditure
on which interest is capitalised. This brought net finance costs in H1 2024
down to £19.8m (H1 2023: £20.3m).
The substantially lower revaluation deficit has reduced the IFRS loss before
tax for the first half to £27.2m from a much larger loss of £143.1m in H1
2023. EPRA earnings, which exclude fair value movements, increased 6.5% to
£59.2m from £55.6m in H1 2023 and EPRA earnings per share (EPS) were also up
6.5% to 52.74p compared to 49.51p per share in H1 2023.
Project expenditure
Capital expenditure increased to £73.7m plus £4.0m of capitalised interest
on wholly-owned investment properties from £54.1m plus capitalised interest
of £2.3m in H1 2023. In addition, we incurred £25.1m plus capitalised
interest of £0.8m on our residential trading property at 25 Baker Street and
a further £4.1m, including £0.2m of capitalised interest, on the development
costs to be transferred to The Portman Estate upon completion of their retail
element. Prepaid development expenditure on the Old Street Quarter site, due
to be acquired no earlier than 2027, increased to £12.7m (30 June 2023:
£12.1m and 31 December 2023: £12.6m).
Total return and EPRA NTA
Altogether, the Group's total accounting return for the first half of 2024 was
-1.0% or -30p per share. This contrasts with -3.7% in H1 2023 and -11.7% for
the whole of 2023.
EPRA Net Tangible Asset value per share fell to 3,044p, down 2.7% from 3,129p
at 31 December 2023. This takes account of the 55p per share final dividend
for 2023 which was paid in May 2024.
Financing and net debt
Conditions in the lending environment for real estate and offices more
specifically have improved through the first half of 2024. This is notable
in the number of positive refinancing discussions we have held and is also
visible in the yield on our 2031 green bonds; this has reduced to about 5.2%
at the time of reporting, having been as high as 5.6% in the first half of
2024 when political and economic uncertainty was elevated.
Last week's 25bp cut in the Bank of England's base rate was welcome.
However, at the time of our 2023 full year results announcement in February,
our outlook was that UK base rates would have fallen further by now.
Uncertainty remains with the market suggesting one or more rate cuts over
the next few months followed by further reductions in 2025. This is broadly
positive for us and could also encourage more investment and refinancing
activity in the market more generally.
With rates having stayed higher through H1 2024, we opted to put in place some
relatively short-term financing. We signed a new £100m unsecured 3-year
term facility plus two 1-year extension options with NatWest in June 2024.
This is another example of the excellent support we receive from our
relationship lending banks. It increased our available cash and undrawn
facilities to £566m at 30 June 2024 (31 December 2023: £480m) in
anticipation of the repayment of our £83m fixed rate loan which matures in
October 2024. We have applied the £75m 1.36% interest rate swaps to this
new term loan bringing the current blended cost to 3.58%. The funds were
drawn in July to repay existing revolving credit facilities.
Group debt has increased slightly due mainly to the capital expenditure
invested in the portfolio partly offset by the sales of Turnmill and Mallow
Street for £77.1m (net). Total borrowing and derivative financial
instruments were £1.37bn at 30 June 2024 against £1.36bn as at 31 December
2023. Our £175m convertible bonds mature in June 2025 and we intend to put
in place additional borrowings over the next year.
Derwent London remains in a strong financial position, evidenced by Fitch
confirming an unchanged credit rating in May 2024 at BBB+ for the main issuer
default rating and A- for our senior unsecured debt rating, both with a stable
outlook. As at 30 June 2024, 98% of our debt was at fixed rates or hedged with
a weighted average term of 4.5 years, the £550m revolving bank facilities
extending to between Q4 2026 and Q4 2027.
EPRA loan-to-value ratio takes account of the property valuation declines plus
a 'net payables' amount of £75.6m in addition to net debt. Accordingly, it
increased slightly to 29.0% at 30 June 2024 (H1 2023: 25.0% and FY 2023:
27.9%).
Interest costs remained well covered by income in H1 2024 with interest cover,
excluding joint ventures, at 3.9 times (FY 2023: 4.1 times) against our
covenant of 1.45 times. Including our share of the joint ventures, interest
cover was 4.0 times. The weighted average interest cost on a cash basis was
3.15% as at 30 June 2024 (31 December 2023: 3.17%). On an IFRS basis, it was
3.27% against 3.29% at 31 December 2023.
Qualifying expenditure under our Green Finance Framework
Qualifying expenditure as at 30 June 2024 for each Eligible Green Project
(EGP) is shown below:
Project Look back Subsequent spend Cumulative
spend
spend
£m
£m
Q4 19 - H1 2024
FY 2023
spend
£
£m
80 Charlotte Street W1 185.6 52.5 0.1 238.2
Soho Place W1 57.5 165.9 0.4 223.8
The Featherstone Building EC1 29.1 68.4 0.8 98.3
25 Baker Street W1 26.5 132.1 60.9 219.5
Network W1 23.8 12.7 13.6 50.1
322.5 431.6 75.8 829.9
The cumulative qualifying expenditure on EGP's at 30 June 2024 was £829.9m,
with £75.8m of this being incurred in H1 2024. 80 Charlotte Street, Soho
Place and The Featherstone Building are all completed projects and are fully
operational. 25 Baker Street, which commenced on site in 2021, is due to
reach practical completion in H1 2025 and Network, which commenced on site in
2022 and was elected as an EGP in 2023, is due to reach practical completion
in H2 2025.
At 30 June 2024, total drawn borrowings from Green Financing Transactions were
£443.5m. This included £93.5m from the green tranche of the Group's main
£450m revolving credit facility plus the £350m Green Bonds.
Dividend
The interim dividend has been increased by 2.0% to 25.0p per share from 24.5p
in 2023. It will be paid as a PID on 11 October 2024 to shareholders on the
register as at 6 September 2024. The dividend remains well covered by EPRA
earnings and the board has also considered our other stakeholder obligations
when setting the level.
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.
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. These risks
are reviewed and updated on a regular basis and were last formally assessed by
the Board on 6 August 2024. The Group's approach to the management and
mitigation of these risks is included in the 2023 Report & Accounts. The
Board has confirmed that its risk appetite and key risk indicators remain
appropriate.
During 2024, the Board and Risk Committee identified opportunities to
consolidate and simplify the principal risks and uncertainties. As a result,
the number of standalone principal risks identified by the Group has reduced
from 15 to 10.
Macroeconomics have continued to have a major impact on UK real estate, with
the cost of new finance remaining relatively high and property investment
yields consequently rising a little further in H1 2024. We anticipate that the
risk of falling property values will continue to reduce further during H2
2024.
Refinancing risk has previously been identified as a risk for the Group. Our
next refinancing event is the £83m secured loan debt in October 2024. In June
2024, we entered into a £100m unsecured term loan facility to refinance the
£83m secured debt.
Investment volumes in the wider market have been low in 2024 to date. Over the
last five years to December 2023, we have sold £894.0m of property, primarily
focused on smaller non-core buildings where there was limited capacity for
extra floor area and amenity. Disposal proceeds have been recycled into our
development pipeline. With property values now close to their cyclical lows,
limited investment market activity and our EPRA loan-to-value at 29%, our
capital strategy may consider additional debt finance as well as the recycling
of assets.
Strategic risks
The Group's business model and/or strategy does not create the anticipated
shareholder value or fails to meet investors' and other stakeholders'
expectations.
Risk, effect and progression Controls and mitigation
1. Failure to implement the Group's strategy
The Group's success depends on implementing its strategy and responding · The Board maintains a formal schedule of matters which are reserved
appropriately to internal and external factors including changing work solely for its approval. These matters include decisions relating to the
practices, occupational demand, economic and property cycles. Group's strategy, capital structure, financing, any major property acquisition
or disposal, the risk appetite of the Group and the authorisation of capital
expenditure above the delegated authority limits.
· Frequent strategic and financial reviews. An annual strategic
review and budget is prepared for Board approval alongside two-year rolling
forecasts which are prepared three times a year.
· Assess and monitor the financial strength of potential and existing
occupiers. The Group's diverse and high quality occupier base provides
resilience against occupier default.
· Maintain income from properties until development commences and
have an ongoing strategy to extend income through lease renewals and regears.
Developments are de-risked through pre-lets.
· Maintain sufficient headroom for all the key ratios and financial
covenants, with a particular focus on interest cover.
· Develop properties in central locations where there is good
potential for future demand, such as near the Elizabeth Line. We do not have
any properties in the City Core or Docklands.
Financial risks
The main financial risk is that the Group becomes unable to meet its financial
obligations. The probability of this occurring is low due to our significant
covenant headroom, low leverage, and strong credit metrics. 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. Refinancing risks
The risk that the Group's is unable to raise finance in a cost-effective · £100m term loan arranged in June 2024 at competitive margin.
manner that optimises the capital structure of the Group.
· Early and frequent engagement with existing and potential lenders
to maintain long-term relationships.
Gradual rise in interest costs incurred as debt refinanced over the next few · Preparation of five-year cash flow and annual budgets enable the
years, with a consequent impact on earnings and interest cover. Group to raise finance in advance of requirements.
· The Group's financial position is reviewed at each Executive
Committee and Board meeting with update on leverage metrics and capital
markets from the CFO.
· Annual review with credit rating agency and low leverage tolerance.
· Regular updates with our advisers to understand debt market trends.
This includes looking at new forms of debt, considering whether security
should be offered and the appropriate term.
· Recycling of capital is a key assumption in our annual budget and
is updated in each rolling forecast.
3. Income decline
The risk that the Group's income declines due to external factors which are · The Credit Committee, chaired by the CEO or CFO, conducts detailed
outside of its control, such as: reviews of all prospective occupiers and monitors the financial strength of
our existing occupiers.
· macroeconomic factors;
· The Group maintains a diverse range of occupiers. We focus on
· recession; letting our buildings to large and established businesses (headquarter spaces)
where the risk of default is lower, rather than SMEs.
· demand for office space;
· A 'tenants on watch' register is maintained and regularly reviewed
· the 'grey' market in office space (i.e occupier controlled vacant by the Executive Directors and the Board.
space); and
· Ongoing dialogue is maintained with occupiers to understand their
· occupier default or failure. concerns, requirements and future plans.
· Active in-house rent collection, with regular reports to the
Executive Directors on day 1, 7, 14 and 21 of each rent collection cycle.
Adverse macroeconomic conditions could lead to a general property market
contraction, a decline in rental values and Group income, which could impact · The Group's low loan-to-value ratio and high interest cover ratio
on property valuation yields. In the event of occupier default, we could incur reduces the likelihood that falls in property values have a significant impact
impairments and write-offs of IFRS 16 lease incentive receivable balances on our business continuity.
(which arise from the accounting requirement to spread any rent-free
incentives given to an occupier over the respective lease term), in addition · Regular review of the lease expiry profile.
to a loss of rental income.
· Rent deposits are held where considered appropriate.
4. Fall in property values
The potential adverse impact of the economic and political environment on · Property yields have risen significantly over the past 24 months
property yields could give rise to a risk of a fall in property values. and are now expected to be close to their cyclical peak.
· The Group's mainly unsecured financing makes management of our
financial covenants more straightforward.
A fall in property values will have an impact on the Group's net asset value
and gearing levels. · The Group's low loan-to-value ratio and high interest cover ratio
reduces the likelihood that falls in property values have a significant impact
on our business continuity.
· The impact of valuation yield changes is considered when potential
projects are appraised.
· The impact of valuation yield changes on the Group's financial
covenants and performance is monitored regularly and subject to sensitivity
analysis to ensure that adequate headroom is preserved.
· The Group produced a budget, five-year strategic review and three
rolling forecasts during the year which contain detailed sensitivity analysis,
including the effect of changes to valuation yields.
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. Reduced development returns
Returns from the Group's developments may be adversely impacted due to: · We use known 'Tier 1' contractors with whom we have established
working relationships and regularly work with tried and tested
· increased construction costs and interest rates; sub-contractors.
· labour and material shortages; · Prior to construction beginning on site, we conduct thorough site
investigations and surveys to reduce the risk of unidentified issues,
· movement in yields; including investigating the building's history and adjacent buildings/sites.
· contractor or subcontractor default; · Adequately appraise investments, including through: (a) the
benchmarking of development costs; and (b) following a procurement process
· delays on delivery due to poor contractor performance; that is properly designed (to minimise uncertainty around costs) and that
includes the use of highly regarded quantity surveyors.
· unexpected 'on-site' issues;
· Contractors are paid promptly and are encouraged to pay
· adverse letting conditions; and subcontractors promptly. Payments to contractors are in place to incentivise
the achievement of project timescales, with damages agreed in the event of
· other factors outside our control. delay/cost overruns.
Any significant delay in completing the development projects may result in · Regular on-site supervision by a dedicated Project Manager who
financial penalties or a reduction in the Group's targeted financial returns a monitors contractor performance and identifies problems at an early stage,
deferral of rental income. thereby enabling remedial action to be taken.
· Post-completion reviews are carried out for all major developments
to ensure that improvements to the Group's procedures are identified,
implemented and lessons learned.
6. Cyber-attack on our IT systems
The Group may be subject to a cyber attack that results in it being unable to · The Group's Business Continuity Plan and cyber security incident
use its information systems and/or losing data. response procedures are regularly reviewed and tested.
· Independent internal and external penetration/vulnerability tests
are regularly conducted to assess the effectiveness of the Group's security.
Such an attack could severely restrict the ability of the Group to operate,
lead to an increase in costs and/or require a significant diversion of · Multi-Factor Authentication is in place for access to our systems.
management time.
· The Group's data is regularly backed up and replicated off-site.
· Our IT systems are protected by anti-virus software, 24/7/365
threat hunting, security incident detection and response, security anomaly
detection and firewalls that are frequently updated.
· Frequent staff awareness and training programmes.
· Security measures are regularly reviewed by the DIT team.
7. Cyber-attack on our buildings
The Group is exposed to cyber attacks on its properties which may result in · The Group's cyber security incident response procedures are
data breaches or significant disruption to IT-enabled occupier services. regularly reviewed and tested.
· Physical segregation between the building's core IT infrastructure
and occupiers' corporate IT networks.
A major cyber attack against the Group or its properties could negatively
impact the Group's business, reputation and operating results. · Physical segregation of IT infrastructure between buildings across
the portfolio.
· Frequent staff awareness and training programmes. Building Managers
are included in any cyber security awareness training and phishing
simulations.
· Our IT systems are protected by anti-virus software, 24/7/365
threat hunting, security incident detection and response, security anomaly
detection and firewalls that are frequently updated.
· A vulnerability management program is in place.
8. Our resilience to climate change
If the Group fails to respond appropriately, and sufficiently, to · Our SBTi targets are aligned to a challenging 1.5°C climate
climate-related risks or fails to benefit from the potential opportunities. scenario in line with our net zero carbon ambition.
· We are progressing the construction of a 18.4 MW solar park at
Lochfaulds (Scotland), with delivery anticipated in 2026.
This could lead to reputational damage, loss of income and/or property values.
In addition, there is a risk that the cost of construction materials and · The Board and Executive Directors receive regular updates and
providing energy, water and other services to occupiers will rise. presentations on environmental and sustainability performance and management
matters, as well as progress against our pathway to becoming net zero carbon
by 2030.
· Undertake periodic multi-scenario climate risk assessments
(physical and transition risks) to identify risks and agree mitigation plans.
· Production of an annual Responsibility Report with key data and
performance points which are internally reviewed and externally assured.
9. Health and safety (H&S)
A major incident occurs at a managed property or development scheme which · Relevant and effective health, safety, and fire management policies
leads to significant injuries, harm, or fatal consequences. and procedures.
· The Group has a competent and qualified (CMIOSH x3) H&S team,
whose performance is monitored and reviewed by the CEO, and the H&S and
A major health and safety incident could cause loss of life, life-changing Risk Committees.
injuries, significant business interruption, Company or Director fines or
imprisonment, reputational damage, and/or loss of our licences to operate. · The H&S competence of our main contractors and service partners
is verified by the H&S team prior to their appointment.
· Our main contractors must submit suitable Construction Phase Plans,
Site Management and Logistics Plans, and Fire Management Plans, before works
commence.
· The H&S team, with the support of external appointments and
audits, ensure our Construction (Design and Management) (CDM) client duties
are executed and monitored on a monthly basis.
· The Board, Risk Committee and Executive Directors receive frequent
updates and presentations on key H&S matters, including 'Significant
Incidents', legislation updates, and H&S Performance trends across the
development and managed portfolio.
10. Non-compliance with law and regulations
The Group breaches any of the legislation that forms the regulatory framework · The Board and Risk Committee receive regular reports prepared by
within which the Group operates. the Group's legal advisers identifying upcoming legislative/regulatory
changes. External advice is taken on any new legislation, if required.
· Managing our properties to ensure they are compliant with the
The Group's cost base could increase and management time could be diverted. Minimum Energy Efficiency Standards (MEES) for Energy Performance Certificates
This could lead to damage to our reputation and/or loss of our licence to (EPCs).
operate.
· A Group whistleblowing system ('Speak-up') for staff is maintained
to report wrongdoing anonymously.
· Ongoing staff training and awareness programmes.
· Group policies and procedures dealing with all key legislation are
available on the Group's intranet.
· Quarterly review of our anti-bribery and corruption procedures by
the Risk Committee.
11. 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. Largely due to
decrease in property valuations, the Group's EPRA loan-to-value ratio has
increased to 29.0% as at 30 June 2024.
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.
Impairment calculations have been carried out on trade receivables and lease
incentive receivables, applying IFRS 9 and IAS 36, respectively. In addition,
the Credit Committee has reviewed its register of tenants at higher risk,
particularly in the retail or hospitality sectors, those in administration or
CVA and the top 50 tenants by size with the remaining occupiers considered on
a sector-by-sector basis.
As the Group operates predominantly in central London, it is subject to some
geographical concentration risk. However, this is mitigated by the wide range
of tenants from a broad spectrum of business sectors.
Credit risk also arises from cash and cash equivalents and deposits with banks
and financial institutions. For banks and financial institutions, only
independently rated parties with a minimum rating of investment grade are
accepted. This risk is also reduced by the short periods that money is on
deposit at any one time.
The carrying amount of financial assets recorded in the financial statements
represents the Group's maximum exposure to credit risk without taking account
of the value of any collateral obtained.
Market risk
Market risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate due to changes in market prices. Market
risk arises for the Group from its use of variable interest-bearing
instruments (interest rate risk).
It is currently Group policy that generally between 60% and 85% of external
Group borrowings (excluding finance lease payables) are at fixed rates. Where
the Group wishes to vary the amount of external fixed rate debt it holds
(subject to it being generally between 60% and 85% of expected Group
borrowings, as noted above), it 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 2024,
the proportion of fixed debt held by the Group was above this range at 98% (31
December 2023: 98%). During both 2024 and 2023, 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 two-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 2024, the Group's strategy, which was
unchanged from 2023, was to maintain the NAV gearing below 80% in normal
circumstances. These two gearing ratios, as well as the interest cover ratio
and net debt to EBITDA, are defined in the list of definitions at the end of
this announcement and are derived in note 25.
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 £4.2bn of
uncharged property as at 30 June 2024.
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 2023 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
7 August 2024
GROUP CONDENSED INCOME STATEMENT
Half year to 30.06.2024 Half year to 30.06.2023 Year to 31.12.2023
Unaudited Unaudited Audited
Note £m £m £m
Gross property and other income 5 139.9 133.3 265.9
Net property and other income 5 97.7 93.3 190.5
Administrative expenses (19.8) (19.2) (39.1)
Revaluation deficit 11 (87.2) (196.7) (581.5)
Profit on disposal 6 1.5 1.2 1.2
Loss from operations (7.8) (121.4) (428.9)
Finance income 7 0.2 0.7 0.9
Finance costs 7 (19.8) (20.3) (40.4)
Movement in fair value of derivative financial instruments (0.9) 0.7 (2.1)
Financial derivative termination income 8 - 1.0 1.8
Share of results of joint ventures 9 1.1 (3.8) (7.2)
Loss before tax (27.2) (143.1) (475.9)
Tax charge 10 (0.3) (0.1) (0.5)
(27.5) (143.2) (476.4)
Basic earnings per share 24 (24.50p) (127.53p) (424.25p)
Diluted earnings per share 24 (24.50p) (127.53p) (424.25p)
GROUP CONDENSED STATEMENT OF COMPREHENSIVE INCOME
Half year to 30.06.2024 Half year to 30.06.2023 Year to 31.12.2023
Unaudited Unaudited Audited
Note £m £m £m
Loss for the period (27.5) (143.2) (476.4)
Actuarial loss on defined benefit pension scheme - (0.3) (0.7)
Revaluation deficit of owner-occupied property 11 (2.0) (2.6) (3.9)
Deferred tax credit on revaluation 20 0.5 0.6 1.0
Other comprehensive expense that will not be
reclassified to profit or loss (1.5) (2.3) (3.6)
Total comprehensive expense relating to the period (29.0) (145.5) (480.0)
GROUP CONDENSED BALANCE SHEET
30.06.2024 30.06.2023 31.12.2023
Unaudited Unaudited Audited
Note £m £m £m
Non-current assets
Investment property 11 4,471.1 4,852.1 4,551.4
Property, plant and equipment 12 47.5 51.4 49.9
Investments 14 36.9 39.2 35.8
Derivative financial instruments 18 - 5.7 2.9
Deferred tax 20 0.1 - -
Pension scheme surplus 2.0 1.0 2.0
Other receivables 15 199.6 196.4 201.0
4,757.2 5,145.8 4,843.0
Current assets
Trading property 11 82.3 46.5 60.0
Trading stock 13 13.0 4.2 8.9
Trade and other receivables 16 51.5 51.3 42.7
Derivative financial instruments 18 2.0 - -
Corporation tax asset 0.4 0.4 0.4
Cash and cash equivalents 22 83.2 98.4 73.0
232.4 200.8 185.0
Total assets 4,989.6 5,346.6 5,028.0
Current liabilities
Borrowings 18 276.1 20.0 102.9
Leasehold liabilities 18 0.4 0.4 0.4
Trade and other payables 17 178.6 164.0 148.0
Provisions 0.1 0.1 0.1
455.2 184.5 251.4
Non-current liabilities
Borrowings 18 1,080.6 1,258.3 1,233.2
Leasehold liabilities 18 34.0 34.4 34.2
Provisions 0.3 0.1 0.3
Deferred tax 20 - 0.1 0.1
1,114.9 1,292.9 1,267.8
Total liabilities 1,570.1 1,477.4 1,519.2
Total net assets 3,419.5 3,869.2 3,508.8
Equity
Share capital 5.6 5.6 5.6
Share premium 196.6 196.6 196.6
Other reserves 937.9 938.6 939.3
Retained earnings 2,279.4 2,728.4 2,367.3
Total equity 3,419.5 3,869.2 3,508.8
GROUP CONDENSED STATEMENT OF CHANGES IN EQUITY
Attributable to equity shareholders
Share Share Other Retained Total
capital premium reserves earnings equity
£m £m £m £m £m
At 1 January 2024 5.6 196.6 939.3 2,367.3 3,508.8
Loss for the period - - - (27.5) (27.5)
Other comprehensive expense - - (1.5) - (1.5)
Share-based payments - - 0.1 1.3 1.4
Dividends paid - - - (61.7) (61.7)
At 30 June 2024 (unaudited) 5.6 196.6 937.9 2,279.4 3,419.5
At 1 January 2023 5.6 196.6 941.9 2,931.4 4,075.5
Loss for the period - - - (143.2) (143.2)
Other comprehensive expense - - (2.0) (0.3) (2.3)
Share-based payments - - (1.3) 1.7 0.4
Dividends paid - - - (61.2) (61.2)
At 30 June 2023 (unaudited) 5.6 196.6 938.6 2,728.4 3,869.2
At 1 January 2023 5.6 196.6 941.9 2,931.4 4,075.5
Loss for the year - - - (476.4) (476.4)
Other comprehensive expense - - (2.9) (0.7) (3.6)
Share-based payments - - 0.3 1.7 2.0
Dividends paid - - - (88.7) (88.7)
At 31 December 2023 (audited) 5.6 196.6 939.3 2,367.3 3,508.8
GROUP CONDENSED CASH FLOW STATEMENT
Half year to 30.06.2024 Half year to 30.06.2023 Year to 31.12.2023
Unaudited Unaudited Audited
Restated(1)
Note £m £m £m
Operating activities
Cash generated from operations 19 58.7 59.7 135.3
Interest received 0.2 0.7 0.8
Interest and other finance costs paid (15.5) (15.7) (38.1)
Distributions from joint ventures - 0.4 0.3
Tax paid in respect of operating activities - (1.3) (1.3)
Net cash from operating activities 43.4 43.8 97.0
Investing activities
Acquisition of properties - (0.9) (3.8)
Capital expenditure(2) (67.5) (51.9) (151.5)
Disposal of investment properties 73.0 65.2 65.4
Repayment of joint venture loans - 0.7 0.6
Purchase of property, plant and equipment (0.2) (0.4) (0.7)
VAT movement 1.7 (4.6) (8.0)
Net cash from/(used in) investing activities 7.0 8.1 (98.0)
Financing activities
Net movement in revolving bank loans 19.3 27.5 84.0
Proceeds from other loan - 0.3 0.3
Financial derivative termination income 8 - 1.0 1.8
Dividends paid 21 (59.5) (58.9) (88.7)
Net cash used in financing activities (40.2) (30.1) (2.6)
Increase/(decrease) in cash and cash equivalents in the period 10.2 21.8 (3.6)
Cash and cash equivalents at the beginning of the period 73.0 76.6 76.6
Cash and cash equivalents at the end of the period 22 83.2 98.4 73.0
(1) Figures for the prior period ended 30 June 2023 have been restated for
changes in accounting policies. See note 2 for additional information.
(2) Finance costs of £5.0m (half year to 30 June 2023: £2.7m; year to 31
December 2023: £6.5m) have been included in capital expenditure (see note 7).
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of preparation
The financial information for the half year to 30 June 2024 and the half year
to 30 June 2023 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 2023 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 2023 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
2023, 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 24.
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
2025, in particular the cash flows, borrowings, undrawn facilities, including
the severe but plausible downside case.
· 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 29.0%, the interest cover ratio of 398%, the £566m
total of undrawn facilities and unrestricted cash and the fact that the
average maturity of borrowings was 4.5 years at 30 June 2024. The impact of
the current economic situation, interest rates and cost inflation on the
business and its occupiers have been considered. The likely impact of climate
change has been incorporated into the Group's forecasts which have also taken
account of a programme of EPC upgrades across the portfolio. Based on the
Group's forecasts, rental income would need to decline by 63% and property
values would need to fall by 52% before breaching its financial covenants.
The £83m fixed rate loan and the £175m unsecured convertible bond, which
mature in October 2024 and June 2025, respectively, are current liabilities
and therefore the Group is in a net current liabilities position. However, as
noted above, the Group has access to £566m of available undrawn facilities
and cash to meet all current liabilities as they fall due. Included in this
balance is a £100m unsecured term loan facility which was signed on 24 June
2024.
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 Directors continue 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 2023, 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.
IAS 1 (amended) - Classification of liabilities as current or non-current,
Non-current Liabilities with Covenants;
IAS 7 (amended) - Statement of Cash Flows;
IFRS 7 (amended) - Supplier Finance Arrangements;
IFRS 16 (amended) - Lease Liability in a Sale and Leaseback.
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, with the exception of IFRS 18 where the Directors are
assessing its potential impact.
IAS 21 (amended) - The Effects of Changes in Foreign Exchange rates;
IFRS 7 and IFRS 9 (amended) - Classification and Measurement of Financial
Instruments;
IFRS 10 and IAS 28 (amended) - Sale or Contribution of Assets between an
investor and its Associate or Joint Venture;
IFRS 18 - Presentation and Disclosure in Financial Statements';
IFRS 19 - Subsidiaries without Public Accountability: Disclosures.
Restatement - Presentation of the Statement of Cash Flows - Change from the
direct method to the indirect method
In December 2023, the Group made a voluntary change to its accounting policy
in relation to the presentation of the cash flow statement and, as a result,
the operating cash flows are presented using the 'indirect' method as set out
in IAS 7 Statement of Cash Flows. The alternative presentation allowed under
IAS 7 known as the 'direct' method was used previously.
The indirect method contains a number of adjustments including non-cash items
included within the income statement and also sets out the main working
capital movements. As a result, it provides a clearer understanding of the
linkages between the profit/loss from operations and the cash flow from
operations. It aligns more closely with practice within the real estate
industry and provides more relevant information to users of the accounts.
The Group adopted the change in accounting policy and accordingly, the
comparative cash flow statement for the period ended 30 June 2023 has been
restated as shown in the table below.
Half year to
Half year to 30.06.2023
30.06.2023 Restated
£m £m
Direct method Indirect method
Operating activities Operating activities
Rents received 98.5 Cash generated from operations (note 19) 59.7
Surrender premiums and other property income 0.7 Interest received 0.7
Property expenses (16.9) Interest and other finance costs paid (15.7)
Service charge balance inflows 50.3 Distributions from joint ventures 0.4
Service charge balance outflows (42.9) Tax paid in respect of operating activities (1.3)
Tenant deposit inflows 0.7
Tenant deposit outflows (1.0) Net cash from operating activities 43.8
Cash paid to and on behalf of employees (16.3)
Other administrative expenses (5.8)
Interest received 0.7 Note 19. Cash generated from operations
Interest paid (13.8) Loss from operations (121.4)
Other finance costs (1.9)
Other income 3.9 Adjustment for non-cash items:
Expenditure on trading properties/stock (8.6) Revaluation deficit 196.7
Distribution received from joint venture 0.4 Depreciation and amortisation 0.5
Tax paid in respect of operating activities (1.3) Lease incentive/cost spreading (3.8)
VAT movement (2.9) Share based payments 0.9
Ground rent adjustment 0.2
Net cash from operating activities 43.8
Adjustment for other items:
Profit on disposal (1.2)
Changes in working capital:
Increase in receivables balance (11.7)
Increase in payables balance 8.5
Increase in trading property and trading stock (9.0)
Cash generated from operations 59.7
3. Significant judgments, key assumptions and estimates
The preparation of financial statements in accordance with the applicable
framework requires the use of certain significant accounting estimates and
judgements. It also requires management to exercise judgement in the process
of applying the Group's accounting policies. Not all of these accounting
policies require management to make difficult, subjective or complex
judgements or estimates. Estimates and judgements are continually evaluated
and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the
circumstances. Although these estimates are based on management's best
knowledge of the amount, event or actions, actual results may differ from
those estimates. The following is intended to provide an understanding of the
policies that management consider critical because of the level of complexity,
judgement or estimation involved in their application and their impact on
these condensed 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. More information is provided in note 11, including sensitivity
disclosures.
Other areas of estimation
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 under IFRS 9 and IAS 36, respectively. 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 testing of trade receivables and other financial assets is no
longer considered a key source of estimation uncertainty as the Group no
longer deems that the inherent uncertainty is likely to have a material impact
within the next 12 months. Accordingly, the associated sensitivities and
balances have not been disclosed.
Due to their size, the lease incentive receivables (non-current) of £172.3m
and lease incentive receivables (current) of £20.9m, net of impairments,
remain an area of estimation uncertainty for the Group.
Significant judgments
As a REIT, the Group benefits from tax advantages. Income and chargeable gains
on the qualifying property rental business are exempt from corporation tax.
Income that does not qualify as property income within the REIT rules is
subject to corporation tax in the normal way. There are a number of tests that
are applied annually, and in relation to forecasts, to ensure the Group
remains well within the limits allowed within those tests.
The Group met all the criteria with a substantial margin in each case, thereby
ensuring its REIT status is maintained. The Directors intend that the Group
should continue as a REIT for the foreseeable future.
In July 2023, it was confirmed that the Group has maintained its low risk
rating with HMRC following continued regular dialogue and a focus on
transparency and full disclosure.
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 twelve 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 24. 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 96% office buildings* in central
London by value (30 June 2023: 97%; 31 December 2023: 96%). The Directors
consider that these individual properties have similar economic
characteristics and therefore have been aggregated into a single operating
segment. The remaining 4% (30 June 2023: 3%; 31 December 2023: 4%) 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
£m £m £m
Half year to 30 June 2024
West End central 62.3 1.1 63.4
West End borders/other 8.4 - 8.4
City borders 33.2 0.4 33.6
Provincial - 2.4 2.4
Gross property income (excl. joint venture) 103.9 3.9 107.8
Share of joint venture gross property income 1.2 - 1.2
Total 105.1 3.9 109.0
Half year to 30 June 2023
West End central 61.2 0.8 62.0
West End borders/other 9.0 - 9.0
City borders 32.5 0.2 32.7
Provincial - 2.2 2.2
Gross property income (excl. joint venture) 102.7 3.2 105.9
Share of joint venture gross property income 1.1 - 1.1
Total 103.8 3.2 107.0
Year to 31 December 2023
West End central 123.7 1.7 125.4
West End borders/other 17.3 - 17.3
City borders 65.2 0.5 65.7
Provincial - 4.5 4.5
Gross property income (excl. joint venture) 206.2 6.7 212.9
Share of joint venture gross property income 2.2 - 2.2
Total 208.4 6.7 215.1
A reconciliation of gross property income to gross property and other income
is given in note 5.
Property portfolio
Carrying value Fair value
Office Office
buildings Other Total buildings Other Total
£m £m £m £m £m £m
30 June 2024
West End central 2,959.4 123.8 3,083.2 3,088.9 129.2 3,218.1
West End borders/other 292.7 - 292.7 307.0 - 307.0
City borders 1,136.4 6.1 1,142.5 1,168.4 6.1 1,174.5
Provincial - 79.1 79.1 - 79.7 79.7
Group (excl. joint venture) 4,388.5 209.0 4,597.5 4,564.3 215.0 4,779.3
Share of joint venture 34.8 - 34.8 34.7 - 34.7
Total 4,423.3 209.0 4,632.3 4,599.0 215.0 4,814.0
30 June 2023
West End central 3,101.2 84.6 3,185.8 3,219.0 88.7 3,307.7
West End borders/other 331.0 - 331.0 348.9 - 348.9
City borders 1,344.8 7.5 1,352.3 1,382.2 7.5 1,389.7
Provincial - 76.9 76.9 - 77.4 77.4
Group (excl. joint venture) 4,777.0 169.0 4,946.0 4,950.1 173.6 5,123.7
Share of joint venture 38.1 - 38.1 38.0 - 38.0
Total 4,815.1 169.0 4,984.1 4,988.1 173.6 5,161.7
31 December 2023
West End central 2,945.4 99.2 3,044.6 3,068.1 109.5 3,177.6
West End borders/other 302.3 - 302.3 318.4 - 318.4
City borders 1,228.8 6.7 1,235.5 1,266.3 6.7 1,273.0
Provincial - 75.1 75.1 - 75.7 75.7
Group (excl. joint venture) 4,476.5 181.0 4,657.5 4,652.8 191.9 4,844.7
Share of joint venture 34.0 - 34.0 33.8 - 33.8
Total 4,510.5 181.0 4,691.5 4,686.6 191.9 4,878.5
A reconciliation between the fair value and carrying value of the portfolio is
set out in note 11.
5. Property and other income
Half year to 30.06.2024 Half year to 30.06.2023 Year to 31.12.2023
£m £m £m
Gross rental income 107.5 105.9 212.8
Surrender premiums received 0.2 - 0.1
Other property income 0.1 - -
Gross property income 107.8 105.9 212.9
Trading property sales proceeds(1) 3.7 - -
Service charge income(1) 26.0 25.0 48.5
Other income(1) 2.4 2.4 4.5
Gross property and other income 139.9 133.3 265.9
Gross rental income 107.5 105.9 212.8
Movement in impairment of receivables (0.3) (1.9) (2.0)
Movement in impairment of prepayments (0.1) - (0.6)
Service charge income(1) 26.0 25.0 48.5
Service charge expenses (28.8) (29.5) (55.1)
(2.8) (4.5) (6.6)
Property costs (9.3) (8.6) (17.4)
Net rental income 95.0 90.9 186.2
Trading property sales proceeds(1) 3.7 - -
Trading property cost of sales (3.7) - -
Profit on disposal of trading properties - - -
Other property income 0.1 - -
Other income 2.4 2.4 4.5
Net surrender premiums received 0.2 - 0.1
Dilapidation receipts - 0.1 0.1
Write-down of trading property - (0.1) (0.4)
Net property and other income 97.7 93.3 190.5
(1) In line with IFRS 15 Revenue from Contracts with Customers, the Group
recognised £32.1m (half year to 30 June 2023: £27.4m; year to 31 December
2023: £53.0m) of other income, trading property sales proceeds and service
charge income within gross property and other income.
Gross rental income includes £3.8m (half year to 30 June 2023: £3.0m; year
to 31 December 2023: £5.9m) relating to rents recognised in advance of cash
receipts.
Other 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.
6. Profit on disposal
Half year to 30.06.2024 Half year to 30.06.2023 Year to 31.12.2023
£m £m £m
Investment property
Gross disposal proceeds 77.9 66.2 66.3
Costs of disposal (0.8) (0.6) (0.7)
Net disposal proceeds 77.1 65.6 65.6
Carrying value (70.4) (64.0) (64.0)
Adjustment for lease costs and rents recognised in advance (5.2) (0.4) (0.4)
Profit on disposal of investment property 1.5 1.2 1.2
Included within gross disposal proceeds is £77.4m relating to the disposal of
the Group's freehold interest in Turnmill EC1 in June 2024.
7. Finance income and finance costs
Half year to 30.06.2024 Half year to 30.06.2023 Year to 31.12.2023
£m £m £m
Finance income
Net interest received on defined benefit pension scheme asset - - (0.1)
Bank interest receivable (0.1) (0.7) (0.8)
Other (0.1) - -
Finance income (0.2) (0.7) (0.9)
Finance costs
Bank loans 2.1 0.1 1.1
Non-utilisation fees 0.9 1.1 2.2
Unsecured convertible bonds 2.0 2.0 3.9
Unsecured green bonds 3.4 3.3 6.7
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 1.3 2.6
Amortisation of the fair value of the secured bonds (0.8) (0.7) (1.5)
Obligations under headleases 0.6 0.7 1.3
Other 0.1 - 0.3
Gross interest costs 24.8 23.0 46.9
Less: interest capitalised (5.0) (2.7) (6.5)
Finance costs 19.8 20.3 40.4
Finance costs of £5.0m (half year to 30 June 2023: £2.7m; year to 31
December 2023: £6.5m) 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 2024 were
£20.6m (half year to 30 June 2023: £18.4m; year to 31 December 2023:
£44.6m) of which £5.0m (half year to 30 June 2023: £2.7m; year to 31
December 2023: £6.5m) was included in capital expenditure on the property
portfolio in the Group cash flow statement under investing activities.
8. Financial derivative termination income
The Group incurred no costs or income in the half year to 30 June 2024 (half
year to 30 June 2023: income of £1.0m; year to 31 December 2023: income of
£1.8m) deferring or terminating interest rate swaps.
9. Share of results of joint ventures
Half year to 30.06.2024 Half year to 30.06.2023 Year to 31.12.2023
£m £m £m
Net property income 1.2 1.1 2.2
Administrative expenses (0.1) (0.1) (0.2)
Revaluation deficit - (4.8) (9.2)
Share of results of joint ventures 1.1 (3.8) (7.2)
The share of results of joint ventures for the period ended 30 June 2024
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
Half year to 30.06.2024 Half year to 30.06.2023 Year to 31.12.2023
£m £m £m
Deferred tax
Origination and reversal of temporary differences 0.3 0.1 0.5
Tax charge 0.3 0.1 0.5
In addition to the tax charge of £0.3m (half year to 30 June 2023: charge
of £0.1m; year to 31 December 2023: charge of £0.5m) that passed through
the Group income statement, a deferred tax credit of £0.5m (half year to 30
June 2023: credit of £0.6m; year to 31 December of 2023: charge of £1.0m)
was recognised in the Group statement of comprehensive income. See note 20 for
further details.
The effective rate of tax for the half year to 30 June 2024 is lower (half
year to 30 June 2023: lower; year to 31 December 2023: lower) than the
standard rate of corporation tax in the UK. The differences are explained
below:
Half year to 30.06.2024 Half year to 30.06.2023 Year to 31.12.2023
£m £m £m
Loss before tax (27.2) (143.1) (475.9)
Expected tax credit based on the standard rate of
corporation tax in the UK of 25.00% (2023: 23.50%)(1) (6.8) (33.6) (111.8)
Difference between tax and accounting profit on disposals (0.4) (0.3) 6.1
REIT exempt income (11.3) (10.1) (20.8)
Revaluation deficit attributable to REIT properties 22.5 46.9 131.7
Expenses and fair value adjustments not allowable for
tax purposes - 0.9 2.1
Capital allowances (3.9) (4.0) (7.6)
Other differences 0.2 0.3 0.8
Tax on current period's loss 0.3 0.1 0.5
Tax charge 0.3 0.1 0.5
(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
£m £m £m £m £m £m £m
At 1 January 2024 3,280.5 1,270.9 4,551.4 46.1 - 60.0 4,657.5
Capital expenditure 35.4 38.3 73.7 - - 25.1 98.8
Interest capitalisation 0.9 3.1 4.0 - - 0.8 4.8
Additions 36.3 41.4 77.7 - - 25.9 103.6
Disposals (69.8) (0.6) (70.4) - - (3.6) (74.0)
Revaluation (71.4) (15.8) (87.2) (2.0) - - (89.2)
Movement in grossing up of
headlease liabilities - (0.4) (0.4) - - - (0.4)
At 30 June 2024 3,175.6 1,295.5 4,471.1 44.1 - 82.3 4,597.5
At 1 January 2023 3,700.5 1,301.5 5,002.0 50.0 54.2 39.4 5,145.6
Acquisitions 0.6 - 0.6 - - - 0.6
Capital expenditure 25.2 28.9 54.1 - - 6.8 60.9
Interest capitalisation 0.5 1.8 2.3 - - 0.4 2.7
Additions 26.3 30.7 57.0 - - 7.2 64.2
Disposals (7.3) (2.5) (9.8) - (54.2) - (64.0)
Revaluation (177.6) (19.1) (196.7) (2.6) - - (199.3)
Write-down of trading property - - - - - (0.1) (0.1)
Movement in grossing up of
headlease liabilities - (0.4) (0.4) - - - (0.4)
At 30 June 2023 3,541.9 1,310.2 4,852.1 47.4 - 46.5 4,946.0
At 1 January 2023 3,700.5 1,301.5 5,002.0 50.0 54.2 39.4 5,145.6
Acquisitions 3.8 - 3.8 - - - 3.8
Capital expenditure 59.8 72.5 132.3 - - 20.0 152.3
Interest capitalisation 1.1 4.2 5.3 - - 1.0 6.3
Additions 64.7 76.7 141.4 - - 21.0 162.4
Disposals (7.3) (2.5) (9.8) - (54.2) - (64.0)
Revaluation (477.4) (104.1) (581.5) (3.9) - - (585.4)
Write-down of trading property - - - - - (0.4) (0.4)
Movement in grossing up of
headlease liabilities - (0.7) (0.7) - - - (0.7)
At 31 December 2023 3,280.5 1,270.9 4,551.4 46.1 - 60.0 4,657.5
Adjustments from fair value to carrying value
Total Owner- Total
investment occupied Trading property
Freehold Leasehold property property property portfolio
£m £m £m £m £m £m
At 30 June 2024
Fair value 3,340.5 1,307.7 4,648.2 44.1 87.0 4,779.3
Revaluation of trading property - - - - (4.7) (4.7)
Lease incentives and costs
included in receivables (164.9) (45.3) (210.2) - - (210.2)
Grossing up of headlease liabilities - 33.1 33.1 - - 33.1
Carrying value 3,175.6 1,295.5 4,471.1 44.1 82.3 4,597.5
At 30 June 2023
Fair value 3,709.4 1,316.8 5,026.2 47.4 50.1 5,123.7
Revaluation of trading property - - - - (3.6) (3.6)
Lease incentives and costs
included in receivables (167.5) (40.5) (208.0) - - (208.0)
Grossing up of headlease liabilities - 33.9 33.9 - - 33.9
Carrying value 3,541.9 1,310.2 4,852.1 47.4 46.5 4,946.0
At 31 December 2023
Fair value 3,450.0 1,278.8 4,728.8 46.1 69.8 4,844.7
Revaluation of trading property - - - - (9.8) (9.8)
Lease incentives and costs
included in receivables (169.5) (41.5) (211.0) - - (211.0)
Grossing up of headlease liabilities - 33.6 33.6 - - 33.6
Carrying value 3,280.5 1,270.9 4,551.4 46.1 60.0 4,657.5
Reconciliation of fair value
30.06.2024 30.06.2023 31.12.2023
£m £m £m
Portfolio including the Group's share of joint ventures 4,814.0 5,161.7 4,878.5
Less: joint ventures (34.7) (38.0) (33.8)
IFRS property portfolio 4,779.3 5,123.7 4,844.7
The property portfolio is subject to semi-annual external valuations and was
revalued at 30 June 2024 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. There were no
such instances in the year.
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. Each
property is considered a separate asset class based on the unique nature,
characteristics and risks of the property.
The external valuations for the entire portfolio at June 2024 were carried out
by Knight Frank LLP.
Knight Frank valued the properties at £4,779.3m (30 June 2023: £5,087.0m; 31
December 2023: £4,807.9m) and other valuers at £nil (30 June 2023: £36.7m;
31 December 2023: £36.8m). The combined value was £4,779.3m (30 June 2023:
£5,123.7m; 31 December 2023: £4,844.7m). Of the properties revalued,
£44.1m (30 June 2023: £47.4m; 31 December 2023: £46.1m) relating to
owner-occupied property was included within property, plant and equipment and
£87.0m (30 June 2023: £50.1m; 31 December 2023: £69.8m) 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.
Net zero carbon and EPC compliance
The Group published its pathway to net zero carbon in July 2020 and has set
2030 as its target date to achieve this. £75.8m (half year to 30 June 2023:
£44.5m; year to 31 December 2023: £102.4m) of eligible 'green' capital
expenditure, in accordance with the Group's Green Finance Framework, was
incurred in the half year to 30 June 2024 on the major developments at 80
Charlotte Street W1, Soho Place W1, The Featherstone Building EC1, 25 Baker
Street W1 and Network W1. In addition, the Group continues to hold carbon
credits to support certain externally validated green projects to offset
embodied carbon.
To quantify one of the impacts of climate change on the valuation, an
independent third-party assessment was carried out in 2021 to estimate the
cost of EPC upgrades across the portfolio. Following a review of the latest
scope changes in building regulation, subsequent inflation, disposals, and
work carried out to date, the estimated amount was £91m at 30 June 2024. Of
this amount, a specific deduction of £44m was included in the 30 June 2024
external valuation. In addition, further amounts have been allowed for in the
expected costs of future refurbishment projects.
Reconciliation of revaluation deficit
Half year to 30.06.2024 Half year to 30.06.2023 Year to 31.12.2023
£m £m £m
Total revaluation deficit (89.8) (201.5) (583.3)
Share of joint ventures - 4.7 9.3
Lease incentives and costs (4.4) (2.9) (5.8)
Trading property revaluation adjustment 5.1 1.0 (5.2)
Other (0.1) (0.7) (0.8)
IFRS revaluation deficit (89.2) (199.4) (585.8)
Reported in the:
Revaluation deficit (87.2) (196.7) (581.5)
Write-down of trading property - (0.1) (0.4)
Group income statement (87.2) (196.8) (581.9)
Group statement of comprehensive income (2.0) (2.6) (3.9)
(89.2) (199.4) (585.8)
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 £2.50 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 (4.5%) (3.6%) (3.8%) (2.4%) (4.2%)
-25bp 5.0% 3.9% 4.1% 2.5% 4.6%
ERV
+£2.50 psf 3.8% 5.0% 4.5% 17.7% 4.3%
-£2.50 psf (3.8%) (5.0%) (4.5%) (17.7%) (4.3%)
12. Property, plant and equipment
Owner-
occupied
property Other Total
£m £m £m
At 1 January 2024 46.1 3.8 49.9
Additions - 0.1 0.1
Depreciation - (0.5) (0.5)
Revaluation (2.0) - (2.0)
At 30 June 2024 44.1 3.4 47.5
At 1 January 2023 50.0 4.3 54.3
Additions - 0.2 0.2
Depreciation - (0.5) (0.5)
Revaluation (2.6) - (2.6)
At 30 June 2023 47.4 4.0 51.4
At 1 January 2023 50.0 4.3 54.3
Additions - 0.6 0.6
Depreciation - (1.1) (1.1)
Revaluation (3.9) - (3.9)
At 31 December 2023 46.1 3.8 49.9
Net book value
Cost or valuation 44.1 9.3 53.4
Accumulated depreciation - (5.9) (5.9)
At 30 June 2024 44.1 3.4 47.5
Net book value
Cost or valuation 47.4 8.8 56.2
Accumulated depreciation - (4.8) (4.8)
At 30 June 2023 47.4 4.0 51.4
Net book value
Cost or valuation 46.1 9.2 55.3
Accumulated depreciation - (5.4) (5.4)
At 31 December 2023 46.1 3.8 49.9
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
30.06.2024 30.06.2023 31.12.2023
£m £m £m
Trading stock 13.0 4.2 8.9
13.0 4.2 8.9
Trading stock relates to capitalised development expenditure incurred which is
due to be transferred under development agreements to a third party upon
completion. This has been included in trading stock, as opposed to trading
property, as the Group does not have an ownership interest in the property.
14. Investments
The Group has a 50% interest in three joint venture vehicles, Derwent Lazari
Baker Street Limited Partnership, Dorrington Derwent Holdings Limited and
Primister Limited.
30.06.2024 30.06.2023 31.12.2023
£m £m £m
At 1 January 35.8 43.9 43.9
Revaluation deficit (see note 9) - (4.8) (9.2)
Other profit from operations (see note 9) 1.1 1.0 2.0
Distributions received - (0.3) (0.3)
Repayment of shareholder loan - (0.6) (0.6)
36.9 39.2 35.8
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
30.06.2024 30.06.2023 31.12.2023 30.06.2024 30.06.2023 31.12.2023
£m £m £m £m £m £m
At 1 January 67.9 85.0 85.0 33.9 42.5 42.5
Additions 1.7 0.6 1.3 0.8 0.3 0.6
Revaluation - (9.5) (18.4) - (4.8) (9.2)
Movement in headlease liability 0.2 0.2 - 0.1 0.1 -
Non-current assets 69.8 76.3 67.9 34.8 38.1 33.9
Current assets 7.5 5.2 7.2 3.8 2.6 3.6
Current liabilities (2.9) (2.5) (2.8) (1.4) (1.3) (1.4)
Non-current liabilities (121.0) (120.9) (121.0) (60.5) (60.4) (60.5)
Net liabilities (46.6) (41.9) (48.7) (23.3) (21.0) (24.4)
Loans provided to joint ventures 60.2 60.2 60.2
Total investment in joint ventures 36.9 39.2 35.8
15. Other receivables (non-current)
30.06.2024 30.06.2023 31.12.2023
£m £m £m
Prepayments and accrued income
Rents recognised in advance 172.3 169.5 173.9
Initial direct letting costs 14.6 14.8 14.5
Other 12.7 12.1 12.6
199.6 196.4 201.0
Prepayments and accrued income include £172.3m (30 June 2023: £169.5m; 31
December 2023: £173.9m) after impairments 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, £14.6m (30 June 2023: £14.8m; 31 December 2023:
£14.5m) relates to the spreading effect of the initial direct costs of
letting over the same term. Together with £23.3m (30 June 2023: £23.7m; 31
December 2023: £22.6m), which was included as accrued income within trade and
other receivables (see note 16), these amounts totalled £210.2m at 30 June
2024 (30 June 2023: £208.0m; 31 December 2023: £211.0m).
Other prepayments represent £12.7m (30 June 2023: £12.1m; 31 December 2023:
£12.6m) of costs incurred in relation to Old Street Quarter EC1. This was
after a £0.7m (30 June 2023: £nil; 31 December 2023: £0.6m) impairment in
accordance with IAS 36 Impairment of Assets. In May 2022, the Group entered
into a conditional contract to acquire the freehold of Old Street Quarter
island site. The site is being sold by Moorfields Eye Hospital NHS Foundation
Trust and UCL, together the Oriel joint initiative ("Oriel"). Completion is
subject to Oriel's receipt of final Treasury approval (received in February
2023), delivery by Oriel of a new hospital at St Pancras and subsequent vacant
possession of the site, which is anticipated in 2027.
The total movement in tenant lease incentives is shown below:
30.06.2024 30.06.2023 31.12.2023
£m £m £m
At 1 January 194.1 188.8 188.8
Amounts taken to income statement 3.8 3.0 5.9
Lease incentive reversal 0.1 (0.5) 0.5
Disposal of investment properties (4.7) (0.3) (0.3)
Write off to bad debt (0.1) (0.1) (0.8)
193.2 190.9 194.1
Amounts included in trade and other receivables (see note 16) (20.9) (21.4) (20.2)
At period end 172.3 169.5 173.9
16. Trade and other receivables
30.06.2024 30.06.2023 31.12.2023
£m £m £m
Trade receivables 8.7 13.0 10.4
Other receivables 5.7 4.9 2.0
Prepayments 12.8 8.7 6.9
Accrued income
Rents recognised in advance 20.9 21.4 20.2
Initial direct letting costs 2.4 2.3 2.4
Other 1.0 1.0 0.8
51.5 51.3 42.7
Trade receivables are split as follows:
less than three months due 8.3 10.5 10.3
between three and six months due 0.2 2.3 0.1
between six and twelve months due 0.2 0.2 -
8.7 13.0 10.4
Trade receivables are stated net of impairment.
In response to the Group's climate change agenda, costs of £1.3m (30 June
2023: £1.1m; 31 December 2023: £1.1m) were incurred in relation to a c.100
acre, 18.4MW solar park on its Scottish land and have been included within
prepayments. Planning consent for this project was received in June 2023.
The Group has £4.7m (30 June 2023: £5.8m; 31 December 2023: £4.6m) of
provision for bad debts as shown below. £2.3m has been included in trade
receivables, £0.5m in accrued income and £1.9m in prepayments and accrued
income within other receivables (non-current). See note 15.
30.06.2024 30.06.2023 31.12.2023
£m £m £m
Provision for bad debts
At 1 January 4.6 5.0 5.0
Trade receivables provision 0.3 0.7 0.5
Lease incentive provision (0.2) 0.5 -
Service charge provision 0.2 0.5 0.7
Released (0.2) (0.9) (1.6)
At period end 4.7 5.8 4.6
The provision for bad debts are split as follows:
less than three months due 0.9 2.5 0.7
between three and six months due 0.2 0.1 0.3
between six and twelve months due 0.8 0.3 0.8
greater than twelve months due 2.8 2.9 2.8
4.7 5.8 4.6
17. Trade and other payables
30.06.2024 30.06.2023 31.12.2023
£m £m £m
Trade payables 8.0 10.2 0.7
Other payables(1) 3.0 1.6 3.6
Other taxes 5.5 5.0 3.3
Accruals 49.7 34.9 30.5
Deferred income 49.5 53.0 50.8
Tenant rent deposits 26.5 27.0 27.0
Service charge balances 36.4 32.3 32.1
178.6 164.0 148.0
(1) Other payables for the half year ended 30 June 2023 has been re-presented
to disaggregate service charge balances and has no impact on the total amount
disclosed.
Deferred income primarily related to rents received in advance.
18. Net debt and derivative financial instruments
30.06.2024 30.06.2023 31.12.2023
Book Fair Book Fair Book Fair
value value Value value value value
£m £m £m £m £m £m
Current liabilities
Other loans 20.0 20.0 20.0 20.0 20.0 20.0
3.99% secured loan 2024 83.0 82.4 - - 82.9 81.8
1.5% unsecured convertible bonds 2025 173.1 168.2 - - - -
276.1 270.6 20.0 20.0 102.9 101.8
Non-current liabilities
1.5% unsecured convertible bonds 2025 - - 171.1 157.3 172.1 164.7
6.5% secured bonds 2026 179.0 176.5 180.3 172.3 179.6 178.1
1.875% unsecured green bonds 2031 347.0 276.4 346.6 242.9 346.8 279.0
Unsecured private placement notes 2026 - 2034 453.6 391.3 453.3 392.8 453.5 399.0
3.99% secured loan 2024 - - 82.7 79.5 - -
Unsecured bank loans 101.0 104.0 24.3 27.5 81.2 84.0
1,080.6 948.2 1,258.3 1,072.3 1,233.2 1,104.8
Borrowings 1,356.7 1,218.8 1,278.3 1,092.3 1,336.1 1,206.6
Derivative financial instruments expiring in
less than one year (2.0) (2.0) - - - -
greater than one year - - (5.7) (5.7) (2.9) (2.9)
Total borrowings and derivative
financial instruments 1,354.7 1,216.8 1,272.6 1,086.6 1,333.2 1,203.7
Reconciliation to net debt:
Borrowings and derivative financial instruments 1,354.7 1,272.6 1,333.2
Adjustments for:
Leasehold liabilities 34.4 34.8 34.6
Derivative financial instruments 2.0 5.7 2.9
Cash at bank excluding restricted cash (20.3) (39.1) (13.9)
(see note 22)
Net debt 1,370.8 1,274.0 1,356.8
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 discounting the contractual cash flows by the
replacement rate. The replacement rate is the sum of the current underlying
Gilt rate plus the market implied margin. These 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 2024 or 2023.
Unsecured bank borrowings are accounted for at amortised costs. At 30 June
2024, there was £104.0m (30 June 2023: £27.5m; 31 December 2023: £84.0m)
drawn on the RCFs and the unamortised arrangement fees were £3.0m (30 June
2023: £3.4m; 31 December 2023: £2.8m), resulting in the carrying value being
a £101.0m (30 June 2023: £24.1m; 31 December 2023: £81.2m).
Other loans consist of a £20.0m 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 £nil at 30 June 2024 (30 June 2023: £nil; 31 December
2023: £nil). The carrying value of the loan at 30 June 2024 was £20.0m (30
June 2023: £20.0m; 31 December 2023: £20.0m).
The 3.99% secured loan 2024 was secured by a fixed charge over £241.4m (30
June 2023: £258.7m; 31 December 2023: £246.6m) 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 £384.4m (30 June
2023: £420.5m; 31 December 2023: £395.9m) of the Group's properties.
All additional drawings in the period have been made from existing revolving
credit facilities, and there are no new debt facilities in the period. The
Group continue to maintain significant headroom on all financial covenants.
In June 2024, Derwent London plc signed an agreement for an unsecured term
loan facility of £100m. As of 30 June 2024, the Group had not drawn any funds
from this facility. The loan is for a three-year term and has two one-year
extension options.
19. Cash generated from operations
The cash flow statement has been restated, with operating cash flows now being
presented using the 'indirect' method as set out in IAS 7 Statement of Cash
Flows. See note 2 Changes in accounting policies for more information.
Half year to 30.06.2024 Half year to 30.06.2023 Year to 31.12.2023
Restated(1)
£m £m £m
Loss from operations (7.8) (121.4) (428.9)
Adjustment for non-cash items:
Revaluation deficit 87.2 196.7 581.5
Depreciation and amortisation 0.5 0.5 1.1
Lease incentive/cost spreading (4.1) (3.8) (6.6)
Share based payments 1.6 0.9 2.5
Ground rent adjustment 0.2 0.2 0.3
Adjustment for other items:
Profit on disposal (1.5) (1.2) (1.2)
Changes in working capital:
Increase in receivables balance (3.3) (11.7) (3.7)
Increase in payables balance 12.3 8.5 17.5
Increase in trading property and trading stock (26.4) (9.0) (27.2)
Cash generated from operations 58.7 59.7 135.3
(1) Prior year figures have been restated for changes in accounting policies.
See note 2 for additional information.
Cash generated from operations included £3.6m cash inflows (half year to 30
June 2023: £nil; year to 31 December 2023: £nil) from disposal of trading
property. It also included £17.3m cash outflows (half year to 30 June 2023:
£7.1m; year to 31 December 2023: £19.2m) in relation to expenditure on
trading properties and £4.9m cash outflows (half year to 30 June 2023:
£1.5m; year to 31 December 2023: £5.5m) in relation to expenditure on
trading stock.
20. Deferred tax
Revaluation
(deficit)/ Other Total
surplus
£m £m £m
At 1 January 2024 2.8 (2.7) 0.1
Charged to the income statement - 0.3 0.3
Credited to other comprehensive income (0.5) - (0.5)
At 30 June 2024 2.3 (2.4) (0.1)
At 1 January 2023 3.7 (3.1) 0.6
Charged to the income statement 0.1 - 0.1
Credited to other comprehensive income (0.6) - (0.6)
At 30 June 2023 3.2 (3.1) 0.1
At 1 January 2023 3.7 (3.1) 0.6
Charged to the income statement 0.1 0.4 0.5
Credited to other comprehensive income (1.0) - (1.0)
At 31 December 2023 2.8 (2.7) 0.1
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 30.06.2024 Half year to 30.06.2023 Year to 31.12.2023
Payment date PID Non-PID Total
p p p £m £m £m
Current period
2024 interim dividend 11 October 2024 25.00 - 25.00 - - -
Prior year
2023 final dividend 31 May 2024 39.00 16.00 55.00 61.7 - -
2023 interim dividend 13 October 2023 24.50 - 24.50 - - 27.5
63.50 16.00 79.50
2022 final dividend 2 June 2023 38.50 16.00 54.50 - 61.2 61.2
Dividends as reported in the
Group statement of changes in equity 61.7 61.2 88.7
2023 final dividend withholding tax 12 July 2024 (5.9) - -
2023 interim dividend withholding tax 12 January 2024 3.7 - (3.7)
2022 final dividend withholding tax 14 July 2023 - (6.0) -
2022 interim dividend withholding tax 13 January 2023 - 3.7 3.7
Dividends paid as reported in the
Group cash flow statement 59.5 58.9 88.7
22. Cash and cash equivalents
30.06.2024 30.06.2023 31.12.2023
£m £m £m
Cash at bank 20.3 39.1 13.9
Cash held in restricted accounts
Tenant rent deposits 26.5 27.0 27.0
Service charge balances 36.4 32.3 32.1
83.2 98.4 73.0
23. Related party disclosure
There have been no related party transactions during the half year to 30 June
2024 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 2023.
24. 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
30.06.2024 30.06.2023 31.12.2023 30.06.2024 30.06.2023 31.12.2023
Unaudited Unaudited Audited Unaudited Unaudited Audited
'000 '000 '000 '000 '000 '000
For use in basic measures 112,258 112,291 112,291 112,258 112,291 112,291
Dilutive effect of share-based payments 336 229 243 359 224 257
For use in other diluted measures 112,594 112,520 112,534 112,617 112,515 112,548
The £175m unsecured convertible bonds 2025 ('2025 bonds') have an initial
conversion price set at £44.96.
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 2024 and 2023 and for the year ended 31 December 2023, 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.
B - Revaluation movement on investment property, in joint ventures and other
interests, write-down of trading property and associated deferred tax.
C - Fair value movement and termination costs relating to derivative
financial instruments.
Earnings and earnings per share
Adjustments EPRA
IFRS A B C basis
£m £m £m £m £m
Half year to 30 June 2024 (unaudited)
Net property and other income 97.7 - 0.1 - 97.8
Administrative expenses (19.8) - - - (19.8)
Revaluation surplus (87.2) - 87.2 - -
Profit on disposal of investments 1.5 (1.5) - - -
Net finance costs (19.6) - - - (19.6)
Movement in fair value of derivative
financial instruments (0.9) - - 0.9 -
Share of results of joint ventures 1.1 - - - 1.1
Loss before tax (27.2) (1.5) 87.3 0.9 59.5
Tax charge (0.3) - - - (0.3)
(Loss)/earnings attributable to equity shareholders (27.5) (1.5) 87.3 0.9 59.2
(Loss)/earnings per share (24.50p) 52.74p
Diluted (loss)/earnings per share (24.50p) 52.58p
The diluted loss per share for the period to 30 June 2024 has been restricted
to a loss of 24.50p per share, as the loss per share cannot be reduced by
dilution in accordance with IAS 33, Earnings per Share.
Half year to 30 June 2023 (unaudited)
Net property and other income 93.3 - 0.1 - 93.4
Administrative expenses (19.2) - - - (19.2)
Revaluation surplus (196.7) - 196.7 - -
Profit on disposal of investments 1.2 (1.2) - - -
Net finance costs (19.6) - - - (19.6)
Movement in fair value of derivative
financial instruments 0.7 - - (0.7) -
Financial derivative termination costs 1.0 - - (1.0) -
Share of results of joint ventures (3.8) - 4.8 - 1.0
Loss before tax (143.1) (1.2) 201.6 (1.7) 55.6
Tax charge (0.1) - 0.1 - -
(Loss)/earnings attributable to equity shareholders (143.2) (1.2) 201.7 (1.7) 55.6
(Loss)/earnings per share (127.53p) 49.51p
Diluted (loss)/earnings per share (127.53p) 49.41p
The diluted loss per share for the period to 30 June 2023 was restricted to a
loss of 127.53p per share, as the loss per share cannot be reduced by dilution
in accordance with IAS 33, Earnings per Share.
Adjustments EPRA
IFRS A B C basis
£m £m £m £m £m
Year to 31 December 2023 (audited)
Net property and other income 190.5 - 1.0 - 191.5
Administrative expenses (39.1) - - - (39.1)
Revaluation surplus (581.5) - 581.5 - -
Profit on disposal of investments 1.2 (1.2) - - -
Net finance costs (39.5) - - - (39.5)
Movement in fair value of derivative
financial instruments (2.1) - - 2.1 -
Financial derivative termination costs 1.8 - - (1.8) -
Share of results of joint ventures (7.2) - 9.2 - 2.0
Loss before tax (475.9) (1.2) 591.7 0.3 114.9
Tax charge (0.5) - 0.1 - (0.4)
(Loss)/earnings attributable to equity shareholders (476.4) (1.2) 591.8 0.3 114.5
(Loss)/earnings per share (424.25p) 101.97p
Diluted (loss)/earnings per share (424.25p) 101.75p
The diluted loss per share for the year to 31 December 2023 was restricted to
a loss of 424.25p per share, as the loss per share cannot be reduced by
dilution in accordance with IAS 33, Earnings per Share.
EPRA net asset value metrics
30.06.2024 30.06.2023 31.12.2023
Unaudited Unaudited Audited
£m £m £m
Net assets attributable to equity shareholders 3,419.5 3,869.2 3,508.8
Adjustments for:
Revaluation of trading properties 4.7 3.6 9.8
Deferred tax on revaluation surplus(1) 1.2 1.6 1.4
Fair value of derivative financial instruments (2.0) (5.7) (2.9)
Fair value adjustment to secured bonds 4.3 5.8 5.0
EPRA Net Tangible Assets 3,427.7 3,874.5 3,522.1
Per share measure - diluted 3,044p 3,444p 3,129p
Net assets attributable to equity shareholders 3,419.5 3,869.2 3,508.8
Adjustments for:
Revaluation of trading properties 4.7 3.6 9.8
Fair value adjustment to secured bonds 4.3 5.8 5.0
Mark-to-market of fixed rate debt 141.9 190.6 133.4
Unamortised issue and arrangement costs (7.0) (8.8) (7.4)
EPRA Net Disposal Value 3,563.4 4,060.4 3,649.6
Per share measure - diluted 3,164p 3,609p 3,243p
Net assets attributable to equity shareholders 3,419.5 3,869.2 3,508.8
Adjustments for:
Revaluation of trading properties 4.7 3.6 9.8
Deferred tax on revaluation surplus 2.3 3.2 2.8
Fair value of derivative financial instruments (2.0) (5.7) (2.9)
Fair value adjustment to secured bonds 4.3 5.8 5.0
Purchasers' costs(2) 325.0 348.4 329.4
EPRA Net Reinstatement Value 3,753.8 4,224.5 3,852.9
Per share measure - diluted 3,333p 3,755p 3,423p
(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 (unaudited)
Half year to 30.06.2024 Half year to 30.06.2023 Year to 31.12.2023
£m £m £m
Administrative expenses 19.8 19.2 39.1
Write-off/impairment of receivables 0.3 1.9 2.0
Other property costs 8.3 7.4 15.2
Dilapidation receipts - (0.1) (0.1)
Net service charge costs 2.8 4.5 6.6
Service charge costs recovered through rents
but not separately invoiced (0.5) (0.3) (0.9)
Management fees received less estimated profit element (2.4) (2.4) (4.5)
Share of joint ventures' expenses 0.2 0.2 0.4
EPRA Costs (including direct vacancy costs) (A) 28.5 30.4 57.8
Direct vacancy costs (5.2) (5.9) (10.4)
EPRA Costs (excluding direct vacancy costs) (B) 23.3 24.5 47.4
Gross rental income 107.5 105.9 212.8
Ground rent (1.0) (1.2) (2.2)
Service charge components of rental income (0.5) (0.3) (0.9)
Share of joint ventures' rental income less ground rent 1.2 1.2 2.4
Adjusted gross rental income (C) 107.2 105.6 212.1
EPRA Cost Ratio (including direct vacancy costs) (A/C) 26.6% 28.8% 27.3%
EPRA Cost Ratio (excluding direct vacancy costs) (B/C) 21.7% 23.2% 22.3%
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) 4,779.3 5,123.7 4,844.7
Portfolio cost ratio (A/D) - annualised 1.2% 1.2% 1.2%
In accordance with our accounting policy, the Group has not capitalised any
overhead or operating expenses in either the first half of 2024 or the whole
of 2023.
Property-related capital expenditure (unaudited)
Half year to 30.06.2024 Half year to 30.06.2023 Year to 31.12.2023
£m £m £m
Group (excluding joint ventures)
Acquisitions - 0.6 3.8
Development 80.0 51.0 127.3
Investment properties
Incremental lettable space 0.8 1.7 -
No incremental lettable space 18.0 8.2 25.0
Capitalised interest 4.8 2.7 6.3
Joint ventures (50% share)
Development 0.8 0.3 0.6
Total capital expenditure 104.4 64.5 163.0
Conversion from accrual to cash basis
Group (excluding joint ventures) (18.8) (4.2) 12.1
Joint ventures (50% share) (0.1) 0.1 0.1
Total capital expenditure on a cash basis 85.5 60.4 175.2
25. Gearing and interest cover
NAV gearing
30.06.2024 30.06.2023 31.12.2023
Note £m £m £m
Net debt 18 1,370.8 1,274.0 1,356.8
Net assets 3,419.5 3,869.2 3,508.8
NAV gearing 40.1% 32.9% 38.7%
Loan-to-value ratio
30.06.2024 30.06.2023 31.12.2023
Note £m £m £m
Group loan-to-value
Net debt 18 1,370.8 1,274.0 1,356.8
Fair value adjustment of secured bonds (4.3) (5.8) (5.0)
Unamortised discount on unsecured green bonds 1.4 1.6 1.5
Unamortised issue and arrangement costs 7.0 8.8 7.4
Leasehold liabilities 18 (34.4) (34.8) (34.6)
Drawn debt net of cash (A) 1,340.5 1,243.8 1,326.1
Fair value of property portfolio (B) 11 4,779.3 5,123.7 4,844.7
Loan-to-value ratio (A/B) 28.0% 24.3% 27.4%
Proportionally consolidated loan-to-value
Drawn debt net of cash (A) 1,340.5 1,243.8 1,326.1
Share of cash and cash equivalents in joint ventures (2.2) (1.0) (2.2)
Drawn debt net of cash including Group's share of joint ventures (C) 1,338.3 1,242.8 1,323.9
Fair value of property portfolio (B) 4,779.3 5,123.7 4,844.7
Share of fair value of property portfolio of joint venture 34.7 38.0 33.8
Fair value of property portfolio including Group's share of joint venture (D) 4,814.0 5,161.7 4,878.5
Proportionally consolidated loan-to-value (C/D) 27.8% 24.1% 27.1%
EPRA loan-to-value
Drawn debt net of cash including Group's share of joint ventures (C) 1,338.3 1,242.8 1,323.9
Debt with equity characteristics (20.0) (20.0) (20.0)
Adjustment for hybrid debt instruments 1.3 2.6 2.0
Net payables adjustment 75.6 65.9 57.2
Adjusted debt (E) 1,395.2 1,291.3 1,363.1
Fair value of property portfolio including Group's share of joint venture (D) 4,814.0 5,161.7 4,878.5
EPRA loan-to-value (E/D) 29.0% 25.0% 27.9%
Net interest cover ratio
Half year to 30.06.2024 Half year to 30.06.2023 Year to 31.12.2023
Note £m £m £m
Group net interest cover ratio
Net property and other income 5 97.7 93.3 190.5
Adjustments for:
Other income 5 (2.4) (2.4) (4.5)
Other property income 5 (0.1) - -
Net surrender premiums 5 (0.2) - (0.1)
Write-down of trading property 5 - 0.1 0.4
Adjusted net property income 95.0 91.0 186.3
Finance income 7 (0.2) (0.7) (0.9)
Finance costs 7 19.8 20.3 40.4
19.6 19.6 39.5
Adjustments for:
Finance income 7 0.2 0.7 0.9
Other finance costs 7 (0.1) - (0.3)
Amortisation of fair value adjustment to secured bonds 7 0.8 0.7 1.5
Amortisation of issue and arrangement costs 7 (1.3) (1.3) (2.6)
Finance costs capitalised 7 5.0 2.7 6.5
24.2 22.4 45.5
Net interest cover ratio 393% 406% 409%
Proportionally consolidated net interest cover ratio
Adjusted net property income 95.0 91.0 186.3
Share of joint ventures' net property income 1.2 1.1 2.2
Adjusted net property income including share of joint ventures 96.2 92.1 188.5
Net interest payable 24.2 22.4 45.5
Proportionally consolidated net interest cover ratio 398% 411% 414%
Net debt to EBITDA
Half year to 30.06.2024 Half year to 30.06.2023 Year to 31.12.2023
Note £m £m £m
Net debt to EBITDA
Net debt (A) 18 1,370.8 1,274.0 1,356.8
Loss for the period (27.5) (143.2) (476.4)
Add back: tax charge 10 0.3 0.1 0.5
Loss before tax (27.2) (143.1) (475.9)
Add back: net finance charges 7 19.6 19.6 39.5
Add back: movement in fair value of
derivative financial instruments 0.9 (0.7) 2.1
Add back: financial derivative termination income 8 - (1.0) (1.8)
(6.7) (125.2) (436.1)
Add back: profit on disposal of investment property 6 (1.5) (1.2) (1.2)
Add back: revaluation deficit 11 87.2 196.7 581.5
Add back: share of joint venture revaluation deficit 9 - - 9.2
Add back: depreciation 12 0.5 0.5 1.1
EBITDA for the period 79.5 70.8 154.5
EBITDA - prior 6 month period 83.7 80.7 n/a
EBITDA - rolling 12 months (B) 163.2 151.5 154.5
Net debt to EBITDA (A/B) 8.4 8.4 8.8
26. Total return
Half year to 30.06.2024 Half year to 30.06.2023 Year to 31.12.2023
p p p
EPRA Net Tangible Assets on a diluted basis
At end of period 3,044 3,444 3,129
At start of period (3,129) (3,632) (3,632)
Decrease (85) (188) (503)
Dividend per share 55 55 79
Decrease adding back dividend (30) (133) (424)
Total return (1.0%) (3.7%) (11.7%)
27. List of definitions
Better Buildings Partnership (BBP)
The BBP is a collaboration of the UK's leading commercial property owners who
are working together to improve the sustainability of existing commercial
building stock.
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.
EBITDA
Earnings before interest, tax, depreciation and amortisation.
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 capital expenditure
The total expenditure incurred on the acquisition, enhancement, and
development of investment properties. This can include amounts spent on any
investment properties under construction or related development projects, as
well as the amounts spent on the completed (operational) investment property
portfolio. Capitalised finance costs included in the financial statements are
also presented within this total. The costs are presented on both an accrual
and a cash basis, for both the Group and the proportionate share of joint
ventures.
- 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 unrestricted cash and cash equivalents.
Net debt to EBITDA
Net Debt to EBITDA is the ratio of gross debt less unrestricted cash to
earnings before interest, tax, depreciation and amortisation (EBITDA).
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.
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.
28. 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 2024
Announcement of Derwent London plc for the 6 month period ended 30 June 2024
(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 2024;
· 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 2024
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 ("ISRE (UK) 2410"). 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 2024
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 ISRE (UK) 2410. 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 2024 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 2024
Announcement in accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority. In preparing
the Interim Results 2024 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 2024 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
7 August 2024
Notes to editors
Derwent London plc
Derwent London plc owns 63 buildings in a commercial real estate portfolio
predominantly in central London valued at £4.8 billion as at 30 June 2024,
making it the largest London office-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 redevelopment 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.
We are frequently recognised in industry awards for the quality, design and
innovation of our projects. Landmark buildings in our 5.3 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.
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. Our science-based
carbon targets validated by the Science Based Targets initiative (SBTi). In
2013 the Company launched a voluntary Community Fund which has to date
supported over 160 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
(http://www.derwentlondon.com) or follow us on X (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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