REG - Derwent London PLC - INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE <Origin Href="QuoteRef">DLN.L</Origin> - Part 4
29/10/2014 12:44
- Part 4: For the preceding part double click ID:nRSN0758Pc
41.5 7.5 49.0 - - 0.7 49.7
Interest capitalisation 2.9 0.5 3.4 - - - 3.4
Additions 74.0 8.0 82.0 - - 0.7 82.7
Disposals (0.6) - (0.6) - (16.5) - (17.1)
Transfers (10.5) (130.2) (140.7) - 130.2 10.5 -
Revaluation 97.1 78.2 175.3 0.2 - - 175.5
Movement in grossing up of
headlease liabilities - (0.1) (0.1) - - - (0.1)
At 30 June 2013 2,456.6 431.9 2,888.5 18.1 130.2 11.2 3,048.0
At 1 January 2013 2,296.6 476.0 2,772.6 17.9 16.5 - 2,807.0
Acquisitions 129.8 (0.5) 129.3 - - - 129.3
Capital expenditure 81.0 18.0 99.0 - - 4.0 103.0
Interest capitalisation 3.8 0.9 4.7 - - 0.1 4.8
Additions 214.6 18.4 233.0 - - 4.1 237.1
Disposals (0.6) (79.3) (79.9) - (16.5) - (96.4)
Depreciation - - - (0.1) - - (0.1)
Transfers (18.5) - (18.5) - - 18.5 -
Revaluation 281.1 54.5 335.6 1.9 - - 337.5
Movement in grossing up of
headlease liabilities - 0.1 0.1 - - - 0.1
At 31 December 2013 2,773.2 469.7 3,242.9 19.7 - 22.6 3,285.2
Adjustments from fair value to carrying value
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 30 June 2014
Fair value 3,140.0 510.6 3,650.6 23.1 36.0 32.4 3,742.1
Revaluation of trading property - - - - - (3.1) (3.1)
Lease incentives and costs
included in receivables (73.4) (4.0) (77.4) - (0.5) - (77.9)
Grossing up of headlease liabilities - 8.2 8.2 - - - 8.2
Carrying value 3,066.6 514.8 3,581.4 23.1 35.5 29.3 3,669.3
At 30 June 2013
Fair value 2,516.7 427.7 2,944.4 18.1 130.0 11.2 3,103.7
Lease incentives and costs
included in receivables (60.1) (3.9) (64.0) - (0.5) - (64.5)
Grossing up of headlease liabilities - 8.1 8.1 - 0.7 - 8.8
Carrying value 2,456.6 431.9 2,888.5 18.1 130.2 11.2 3,048.0
At 31 December 2013
Fair value 2,843.1 465.6 3,308.7 19.7 - 24.7 3,353.1
Revaluation of trading property - - - - - (2.1) (2.1)
Lease incentives and costs
included in receivables (69.9) (4.1) (74.0) - - - (74.0)
Grossing up of headlease liabilities - 8.2 8.2 - - - 8.2
Carrying value 2,773.2 469.7 3,242.9 19.7 - 22.6 3,285.2
The property portfolio is subject to semi-annual external valuations and was revalued at 30 June 2014 by external valuers
on the basis of fair value in accordance with the RICS Valuation - Professional Standards (2012), which takes account of
the properties' highest and best use.
CBRE Limited valued the majority of the properties at £3,710.9m (30 June 2013: £3,073.6m; 31 December 2013: £3,322.8m) and
other valuers valued the remaining properties at £31.2m (30 June 2013: £30.1m; 31 December 2013: £30.3m). Of the
properties revalued by CBRE, £23.1m (30 June 2013: £18.1m; 31 December 2013: £19.7m) relating to owner-occupied property
was included within property, plant and equipment, £36.0m (30 June 2013: £130.0m; 31 December 2013: £nil) was included
within non-current assets held for sale, and £32.4m (30 June 2013: £11.2m; 31 December 2013: £24.7m) was in relation to
trading property.
The total fees, including the fee for this assignment, earned by CBRE (or other companies forming part of the same group of
companies within the UK) from the Group is less than 5.0% of their total UK revenues.
At 30 June 2014, the historic cost of the property portfolio owned by the Group was £2,473.9m (30 June 2013: £2,295.6m; 31
December 2013: £2,414.6m).
During the year ended 31 December 2013, the Group transferred, at market value, properties previously held for investment
to trading property as it became the Group's intention to redevelop and sell these properties. Subsequent revaluation
surpluses relating to trading property are recognised as an adjustment to EPRA net asset value, but, in accordance with IAS
2 Inventories, are not recognised in the carrying value of the property.
Reconciliation of revaluation surplus
Half year to 30.06.2014 Half year to 30.06.2013 Year to 31.12.2013
£m £m £m
Total revaluation surplus 339.2 178.5 352.5
Lease incentives and costs (4.0) (3.0) (13.0)
Trading property revaluation surplus (1.0) - (2.1)
Owner-occupied property depreciation 0.1 - 0.1
IFRS revaluation surplus 334.3 175.5 337.5
Reported in the:
Group income statement 330.8 175.3 335.6
Group statement of comprehensive income 3.5 0.2 1.9
334.3 175.5 337.5
The fair value of the property portfolio has been determined using an income capitalisation technique, whereby contracted
and market rental values are capitalised with a market capitalisation rate. The resulting valuations are cross-checked
against the equivalent yields and the fair market values per square foot derived from comparable recent market transactions
on arm's length terms.
For properties under construction, the fair value is calculated by estimating the fair value of the completed property
using the income capitalisation technique less estimated costs to completion and a risk premium.
These techniques are consistent with the principles in IFRS 13 Fair Value Measurement and use significant unobservable
inputs such that the fair value measurement of each property within the portfolio has been classified as Level 3 in the
fair value hierarchy.
There were no transfers between Levels 1 and 2 or between Levels 2 and 3 in the fair value hierarchy in the half years to
30 June 2014 or 30 June 2013, or the year to 31 December 2013.
Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair
value hierarchy amount to £330.8m (half year to 30 June 2013: £175.3m; year to 31 December 2013: £335.6m) and are presented
in the Group income statement in the line item 'revaluation surplus'. The revaluation surplus for the owner-occupied
property of £3.5m (half year to 30 June 2013: £0.2m; year to 31 December 2013: £1.9m) was included within the revaluation
reserve.
All gains and losses recorded in profit or loss in the half years to 30 June 2014 and 30 June 2013, and the year to 31
December 2013 for recurring fair value measurements categorised within Level 3 of the fair value hierarchy are attributable
to changes in unrealised gains or losses relating to investment property held at 30 June 2014, 30 June 2013 and 31 December
2013, respectively.
13. Property, plant and equipment
Owner-
occupied
property Artwork Other Total
£m £m £m £m
At 1 January 2014 19.7 1.5 1.0 22.2
Depreciation (0.1) - (0.2) (0.3)
Revaluation 3.5 - - 3.5
At 30 June 2014 23.1 1.5 0.8 25.4
At 1 January 2013 17.9 1.5 0.9 20.3
Additions - - 0.2 0.2
Depreciation - - (0.2) (0.2)
Revaluation 0.2 - - 0.2
At 30 June 2013 18.1 1.5 0.9 20.5
At 1 January 2013 17.9 1.5 0.9 20.3
Additions - - 0.5 0.5
Disposals - - (0.1) (0.1)
Depreciation (0.1) - (0.3) (0.4)
Revaluation 1.9 - - 1.9
At 31 December 2013 19.7 1.5 1.0 22.2
Net book value
Cost or valuation 23.1 1.5 2.5 27.1
Accumulated depreciation - - (1.7) (1.7)
At 30 June 2014 23.1 1.5 0.8 25.4
Net book value
Cost or valuation 18.1 1.5 2.3 21.9
Accumulated depreciation - - (1.4) (1.4)
At 30 June 2013 18.1 1.5 0.9 20.5
Net book value
Cost or valuation 19.7 1.5 2.5 23.7
Accumulated depreciation - - (1.5) (1.5)
At 31 December 2013 19.7 1.5 1.0 22.2
The artwork is periodically valued by Bonhams on the basis of open market value and their extensive market knowledge. The
latest valuation was carried out in November 2012 and the Directors consider that there have been no material valuation
movements since that date. In accordance with IFRS 13 Fair Value Measurement, the artwork is deemed to be classified as
Level 3.
The historic cost of the artwork in the Group at 30 June 2014 was £1.5m (30 June 2013: £1.5m; 31 December 2013: £1.5m).
14. Other receivables (non-current)
30.06.2014 30.06.2013 31.12.2013
£m £m £m
Accrued income 70.4 58.3 66.4
Other 6.1 5.5 5.7
76.5 63.8 72.1
Accrued income relates to rents recognised in advance as a result of spreading the effect of rent free and reduced rent
periods, capital contributions in lieu of rent free periods and contracted rent uplifts, as well as the initial direct
costs of the letting, over the expected terms of their respective leases. Together with £7.5m (30 June 2013: £6.2m; 31
December 2013: £7.6m), which was included as current assets within trade and other receivables, these amounts totalled
£77.9m at 30 June 2014 (30 June 2013: £64.5m; 31 December 2013: £74.0m).
15. Trade and other receivables
30.06.2014 30.06.2013 31.12.2013
£m £m £m
Trade receivables 5.4 9.0 11.2
Other receivables 15.5 14.5 15.4
Prepayments 19.1 21.5 15.2
Sales and social security taxes 2.8 2.5 3.3
Accrued income 8.9 7.5 8.4
51.7 55.0 53.5
16. Non-current assets held for sale
30.06.2014 30.06.2013 31.12.2013
£m £m £m
Investment property (see note 12) 35.5 130.2 -
Investments - - 4.8
35.5 130.2 4.8
In July 2014, the Group exchanged contracts and completed on the sale of two freehold properties for a total of £37.4m
before costs.
In February 2014, the Group conditionally exchanged contracts to sell its 25% interest in the Euro Mall Sterboholy a.s.
joint venture in Prague for £5.4m before costs. In addition, as part of the transaction, a further £1.9m was received as
repayment of a shareholder loan.
In July 2013, the Group completed the sale of its 50% interest in 1-5 Grosvenor Place SW1 for a total of £132.5m before
costs.
As a result, this investment and these properties were recognised as non-current assets held for sale at 30 June 2014, 31
December 2013 and 30 June 2013, respectively, in accordance with IFRS 5 Non-current Assets Held for Sale.
17. Trade and other payables
30.06.2014 30.06.2013 31.12.2013
£m £m £m
Trade payables 6.6 8.5 8.9
Other payables 12.8 12.9 10.5
Accruals 33.0 28.4 28.1
Deferred income 38.7 35.6 36.1
91.1 85.4 83.6
18. Borrowings and derivative financial instruments
30.06.2014 30.06.2013 31.12.2013
Book Fair Book Fair Book Fair
value value Value value value value
£m £m £m £m £m £m
Current liabilities
Bank loans - - 124.9 125.0 - -
- - 124.9 125.0 - -
Non-current liabilities
2.75% unsecured convertible bonds 2016 169.1 212.6 166.4 199.3 167.7 204.5
1.125% unsecured convertible bonds 2019 136.3 145.1 - - 135.0 138.1
6.5% secured bonds 2026 190.2 208.3 191.1 202.7 190.6 199.0
4.68% unsecured private placement notes 74.2 75.3 - - - -
4.41% unsecured private placement notes 24.7 25.1 - - - -
3.99% secured loan 81.8 77.0 81.7 77.4 81.8 74.3
Unsecured bank loans 200.9 206.0 - - 281.1 287.0
Secured bank loans 97.4 98.0 368.2 372.5 97.3 98.0
Leasehold liabilities 8.2 8.2 8.9 8.9 8.2 8.2
Borrowings 982.8 1,055.6 816.3 860.8 961.7 1,009.1
Derivative financial instruments
expiring in greater than one year 15.9 15.9 37.3 37.3 15.9 15.9
Borrowings and derivative
financial instruments 998.7 1,071.5 978.5 1,023.1 977.6 1,025.0
Reconciliation to net debt:
Borrowings and derivative
financial instruments 998.7 978.5 977.6
Less:
Derivative financial instruments (15.9) (37.3) (15.9)
Cash and cash equivalents (8.7) (5.5) (12.5)
Net debt 974.1 935.7 949.2
The fair values of the Group's bonds have been estimated on the basis of quoted market prices, representing Level 1 fair
value measurement as defined by IFRS 13 Fair Value Measurement.
The fair values of the 3.99% secured loan and the unsecured private placement notes were determined by comparing the
discounted future cash flows using the contracted yield with those of a prevailing market gilt, and represent Level 2 fair
value measurement.
The fair values of the Group's outstanding interest rate swaps have been estimated by using the mid-point of the yield
curves prevailing on the reporting date and represent the net present value of the differences between the contracted rate
and the valuation rate when applied to the projected balances for the period from the reporting date to the contracted
expiry dates. These represent Level 2 fair value measurement.
The fair values of the Group's bank loans are approximately the same as their carrying amounts, after adjusting for the
unamortised arrangement fees, and also represent Level 2 fair value measurement.
The fair values of the following financial assets and liabilities are the same as their carrying amounts:
· Cash and cash equivalents;
· Trade receivables, other receivables and accrued income included within trade and other receivables;
· Trade payables, other payables and accruals included within trade and other payables; and
· Leasehold liabilities.
There were no transfers between Level 1 and Level 2 or between Level 2 and Level 3 in the fair value hierarchy in the half
years to 30 June 2014 or 30 June 2013, or the year to 31 December 2013.
19. Deferred tax
Revaluation
surplus Other Total
£m £m £m
At 1 January 2014 5.5 (4.5) 1.0
Charged to the income statement 0.5 1.4 1.9
Changes in tax rates in the income statement (0.2) 0.2 -
Charged to other comprehensive income 0.6 - 0.6
Changes in tax rates in other comprehensive income (0.1) - (0.1)
At 30 June 2014 6.3 (2.9) 3.4
At 1 January 2013 4.1 (4.6) (0.5)
Charged to the income statement 0.5 0.1 0.6
At 30 June 2013 4.6 (4.5) 0.1
At 1 January 2013 4.1 (4.6) (0.5)
Charged/(credited) to the income statement 1.6 (0.3) 1.3
Changes in tax rates in the income statement (0.3) 0.4 0.1
Charged to other comprehensive income 0.2 - 0.2
Changes in tax rates in other comprehensive income (0.1) - (0.1)
At 31 December 2013 5.5 (4.5) 1.0
Deferred tax on the revaluation surplus is calculated on the basis of the chargeable gains that would crystallise on the
sale of the property portfolio at each balance sheet date. The calculation takes account of any available indexation on
the historic cost of the properties. Due to the Group's REIT status, deferred tax is only provided at each balance sheet
date on properties outside the REIT regime.
Deferred tax assets have been recognised in respect of all tax losses and other temporary differences where the Directors
believe it is probable that these assets will be recovered.
20. Dividend
Dividend per share Half year to 30.06.2014 Half year to 30.06.2013 Year to 31.12.2013
Payment date PID Non-PID Total
p p p £m £m £m
Current period
2014 interim dividend 23 October 2014 7.30 4.35 11.65 - - -
Distribution of current period profit 7.30 4.35 11.65
Prior period
2013 interim dividend 24 October 2013 6.00 4.75 10.75 - - 10.9
Distribution of prior period profit 6.00 4.75 10.75
Prior year
2013 final dividend 13 June 2014 23.50 2.25 25.75 26.4 - -
Distribution of prior year profit 29.50 7.00 36.50
2012 final dividend 14 June 2013 18.75 5.00 23.75 - 24.3 24.3
Dividends as reported in the
statement of changes in equity 26.4 24.3 35.2
2013 final scrip dividend 13 June 2014 (1.1) - -
2013 final dividend withholding tax 14 July 2014 (3.4) - -
2013 interim dividend withholding tax 14 January 2014 0.9 - (0.9)
2013 interim scrip dividend 24 October 2013 - - (1.2)
2012 final scrip dividend 14 June 2013 - (3.5) (3.5)
2012 final dividend withholding tax 12 July 2013 - (2.8) -
2012 interim dividend withholding tax 14 January 2013 - 1.5 1.5
Dividends paid as reported in the
cash flow statement 22.8 19.5 31.1
21. Gearing ratios
NAV gearing
30.06.2014 30.06.2013 31.12.2013
£m £m £m
Net debt 974.1 935.7 949.2
Net assets 2,719.1 2,118.2 2,370.5
NAV gearing 35.8% 44.2% 40.0%
Loan-to-value ratio
30.06.2014 30.06.2013 31.12.2013
£m £m £m
Net debt 974.1 935.7 949.2
Fair value adjustment of secured bonds (16.5) (17.4) (16.9)
Unamortised arrangement costs 14.1 9.7 14.6
Leasehold liabilities (8.2) (8.9) (8.2)
Drawn debt 963.5 919.1 938.7
Fair value of property portfolio 3,742.1 3,103.7 3,353.1
Loan-to-value ratio 25.7% 29.6% 28.0%
Net interest cover ratio
Half year to 30.06.2014 Half year to 30.06.2013 Year to 31.12.2013
£m £m £m
Net property and other income 65.9 59.5 124.3
Adjustments for:
Other income (1.1) (1.1) (2.0)
Other property income (1.4) - -
Net surrender premiums received - (0.1) (0.7)
Reverse surrender premiums 0.3 0.3 0.2
Adjusted net property income 63.7 58.6 121.8
Finance income - - (0.2)
Finance costs 21.1 20.7 41.4
21.1 20.7 41.2
Adjustments for:
Finance income - - 0.2
Other finance costs - (0.2) (0.3)
Amortisation of fair value adjustment to secured bonds 0.5 0.4 0.9
Amortisation of issue and arrangement costs (1.7) (1.5) (3.2)
Finance costs capitalised 2.3 3.4 4.8
22.2 22.8 43.6
Net interest cover ratio 287% 257% 279%
22. Total return
Half year to 30.06.2014 Half year to 30.06.2013 Year to 31.12.2013
p p p
EPRA net asset value on a diluted basis
At end of period 2,572.00 2,054.00 2,264.00
At start of period (2,264.00) (1,886.00) (1,886.00)
Increase 308.00 168.00 378.00
Dividend per share 25.75 23.75 34.50
Increase including dividend 333.75 191.75 412.50
Total return 14.7% 10.2% 21.9%
23. Cash and cash equivalents
30.06.2014 30.06.2013 31.12.2013
£m £m £m
Cash at bank 8.7 5.5 12.5
24. Post balance sheet events
Since 30 June 2014, the Group has completed the disposal of 186-188 City Road and 35-37 Kentish Town Road for a total of
£37.4m before costs, which will generate a profit before tax of £12.6m in the full year 2014 results. Of this, £11.2m has
been recognised in the 30 June 2014 revaluation surplus.
25. Risk management and internal control
The Board recognises that risk is an inherent part of running a business and, whilst it aims to maximise returns, the
associated risks must be understood and managed. Whilst overall responsibility for this process rests with the Board it
has delegated responsibility for assurance concerning the risk management process to the Audit Committee and the Risk
Committee. Executive management is responsible for designing, implementing and maintaining the necessary systems of
internal control.
The Group operates principally from one central London office with relatively short management reporting lines.
Consequently, members of the Executive Committee are closely involved in day-to-day matters and able to quickly identify
areas of increasing risk and respond accordingly.
A key element in the system of internal controls is the Group's risk register which is reviewed formally by the Board once
a year. During 2013, the Group's processes for preparing the risk register and reporting the results both internally and
externally were reviewed by a third party. Whilst no major points were identified a number of recommendations were made
which were implemented in preparing the register this year. The register is prepared by the members of the Executive
Committee who, having identified the risks, collectively assess the severity of each risk, the likelihood of it occurring
and the strength of the controls in place. This approach allows the effect of any mitigating procedures to be reflected in
the final assessment. It also recognises that risk cannot be totally eliminated at an acceptable cost and that there are
some risks which, with its experience and after due consideration, the Board will choose to accept.
The register, its method of preparation and the operation of the key controls in the Group's system of internal control,
are reviewed throughout the year by the Risk Committee which periodically receives presentations from senior management to
gain a more in-depth understanding of the control environment in certain areas of the business. The register was updated
between December 2013 and February 2014 and includes 42 risks spread between strategic risks, operational risks and
financial risks.
The principal risks and uncertainties that the Group faces in 2014, together with the controls and mitigating factors, are
set out below:
Strategic risks
That the Group's strategy does not create the anticipated shareholder value or fails to meet investors' expectations.
Risk, effect and progression Controls and mitigation Action
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