REG - Derwent London PLC - Unaudited Results for six months ended 30.06.22
11/08/2022 07:00
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RNS Number : 6317V Derwent London PLC 11 August 2022
11 August 2022
Derwent London plc ("Derwent London" / "the Group")
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2022
CONTINUING FLIGHT TO QUALITY
Paul Williams, Chief Executive of Derwent London, said:
"We are seeing good demand for our distinctive brand of high quality offices,
with short supply of prime space in our core locations. Despite the uncertain
macro environment, the continuing flight to quality combined with our strong
financial position gives us confidence that we are well placed with a pipeline
of value-adding opportunities."
Financial highlights
· Total return of 3.0%, up from 2.7% in H1 2021
· EPRA(1) NTA 4,023p per share, up 1.6% from 3,959p at December
2021
· Net rental income £93.9m, up 4.2% from £90.1m in H1 2021
· EPRA earnings 53.13p per share, down 1.7% from 54.04p in H1 2021
· IFRS profit before tax of £137.1m, up 13.2% from £121.1m in H1
2021
· Interim dividend raised 4.3% to 24.0p from 23.0p in H1 2021
· EPRA loan-to-value ratio 23.7% (December 2021: 22.3%); interest
cover 419% (FY 2021: 464%)
· Net debt of £1.36bn (December 2021: £1.25bn)
· Undrawn facilities and cash of £452m (December 2021: £608m)
First half activity
· Lettings of £7.1m at 9.3% above December 2021 ERV
· Renewals and regears of £6.2m, 8.0% above December 2021 ERV
· Reviews of £5.5m, 6.2% above December 2021 ERV
· Principal acquisitions of £130.2m and disposals of £65.9m
(excludes post-H1 transactions)
· Completion of developments at Soho Place W1 and The Featherstone
Building EC1
· Soho Place 88% let or sold
· First leases signed at The Featherstone Building (22% let), 10%
above ERV
· 25 Baker Street W1 (298,000 sq ft) demolition complete with 80%
of total construction costs fixed
· Network W1 (137,000 sq ft) committed with demolition underway
· Portfolio energy intensity 61kWh/sqm in H1, 18% below three-year
average
Portfolio update
· Portfolio valued at £5.9bn; underlying valuation increase of
1.7% including developments up 8.5%
· True equivalent yield 4.46% (December 2021: 4.50%)
· 0.9% increase in portfolio ERV
· EPRA vacancy rate 6.5% (December 2021: 1.6%) reflecting
development completions
· Bush House WC2 and 2 & 4 Soho Place W1 disposals completed in
July for £123.6m
Guidance
· Unchanged ERV guidance of 0% to +3% for 2022 average growth
across our portfolio
· Upward pressure on property yields; our portfolio expected to be
more resilient
(1) Explanations of how EPRA figures are derived from IFRS are shown in note
25
Webcast and conference call
There will be a live webcast together with a conference call for investors and
analysts at 09:30 BST today. The webcast can be accessed via
www.derwentlondon.com (http://www.derwentlondon.com)
To participate in the call, 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 7659 3000 Damian Wisniewski, Chief Financial Officer
Robert Duncan, Head of Investor Relations
Brunswick Group Simon Sporborg
Tel: +44 (0)20 7404 5959 Nina Coad
Emily Trapnell
CHIEF EXECUTIVE'S STATEMENT
Overview
Rents and yields in the London office market were stable through H1 2022 with
prime buildings continuing their outperformance in both occupational and
investment markets. Geopolitical events caused the macroeconomic environment
to deteriorate through the period leading to rising inflation and interest
rates, with upward pressure on yields emerging since the half year. Despite
this, the Group is well positioned with a high quality portfolio and strong
balance sheet.
Results overview
The Group's total return for the period was 3.0%, against 2.7% for the first
half of 2021 and 5.8% for the full year 2021. This return comes from the
dividend of 53.5p per share paid in June 2022 plus the 64p increase in EPRA
net tangible assets (NTA) per share to 4,023p during the period.
The Group's IFRS profit before tax increased 13.2% to £137.1m for the first
six months of 2022 against £121.1m for H1 2021. The increase is principally a
revaluation surplus (net of accounting adjustments) of £74.1m, higher than
the £58.1m recognised in H1 2021. After adjusting for fair value movements,
EPRA earnings were 53.13p per share, 1.7% lower than the 54.04p reported last
year. Net property and other income of £96.5m was 1.5% higher than the first
half of 2021 and administrative expenses £1.6m lower, but finance costs
increased by £4.5m to £18.7m on higher borrowings. Our annual dividend
remains well covered and we have increased the interim by 1.0p or 4.3% to
24.0p per share.
We remained net investors in the portfolio in H1 2022, including the payment
made to TfL plus costs of £71.9m on completion of Soho Place W1. As a result,
borrowings increased to £1.37bn from £1.25bn in December. Our gearing ratios
remain low, with the newly defined EPRA loan-to-value (LTV) ratio at 23.7%
against 22.3% at year end.
The balance sheet remains very strong with 90% of our borrowings at fixed
rates, undrawn facilities and cash of £452m and only £83m of debt to
refinance prior to June 2025. Following the sales of Bush House WC2 and 2
& 4 Soho Place W1 in July 2022, our debt levels reduced by c.£126m.
Continuing flight to quality and London's enduring appeal
Offices have an important role for companies in attracting and retaining
talent. An increasing number of businesses have actively re-engaged with their
long-term occupational requirements as Covid restrictions have lifted which
translated into high market take-up in H1. However, leasing transactions are
taking longer to complete as decision making timescales are being extended.
The supply of top quality buildings remains relatively constrained and
established businesses with large requirements continue to enter into early
pre-let discussions. In addition, we may see some development deferrals as
market conditions lead to a re-appraisal of schemes.
Despite some of the large Tech companies pulling back on their space expansion
plans, there remains a broad range of businesses with active requirements. A
variety of international companies continue to choose London for their UK or
European HQ.
CBRE reported a net withdrawal of tenant-controlled space in H1 across central
London. Combined with strong take-up, market vacancy has reduced to 8.2%
(December 2021: 8.8%) although this masks the ongoing divergence between the
West End at 4.3% (now back in line with the long-term average since 2000 of
4.2%) and the City at 12.3% (long-term average 6.6%). Space under offer is
close to record levels at 4.3m sq ft, 1.7m sq ft of which is in the West End.
Adaptability and amenity
Businesses want a combination of adaptable space and high quality amenity in
innovative and sustainable buildings. Our customer-focused approach led us to
initiatives such as DL/78, which opened last year and which is proving popular
with both existing and new customers. Based on its success, we are exploring
the potential to open an equivalent amenity in The Featherstone Building EC1.
Occupier needs cover a broad spectrum from very flexible to long-term leases.
We deliver bespoke solutions which recognise the differing demands of our
diverse customer base. For larger occupiers, typically on longer leases, this
might mean a combination of core and flex space with some optionality. For
smaller occupiers looking for greater flexibility, our 'Furnished + Flexible'
product provides an attractive solution, achieving a premium rent.
Portfolio activity
Leasing in H1 was strong with £7.1m of new rent signed on average 9.3% above
December 2021 ERV. Five leases comprised 71% of the total, including the first
two lettings at The Featherstone Building EC1 and two occupiers expanding at
White Collar Factory EC1, altogether 10% above ERV. In addition, several
leases elsewhere have been extended on terms ahead of ERV.
Given the flight to quality, we have been retaining large recently completed
developments for longer and have sold buildings where we expect lower returns
or where we do not believe they can be economically upgraded into the next
generation of prime product. Proceeds are being reinvested into our pipeline
of larger net zero schemes.
Portfolio reshaping and pipeline restocking activity continued in 2022 with
major acquisitions of £130.2m, principally 230 Blackfriars Road SE1 and the
final payments at Soho Place W1. In H1, we sold New River Yard EC1 for
£65.9m. Since the start of H2, we have completed the disposal of Bush House
WC2 and the forward-sale of 2 & 4 Soho Place W1 for a combined £123.6m.
The Group also exchanged a conditional contract to acquire the 2.5 acre Old
Street Quarter EC1, the site of the Moorfields Eye Hospital. Plans are being
evaluated for a major 750,000+ sq ft campus for the longer-term. Subject to
relocation of the hospital and subsequent receipt of vacant possession, the
£239m acquisition is expected to complete in 2027, when the site payment will
be made.
Our developments at Soho Place W1 (offices 100% pre-let) and The Featherstone
Building EC1 have now completed, adding £20.0m of contracted rent with a
further £9.9m of ERV to capture from vacant space. As a result, the EPRA
vacancy rate increased to 6.5% (December 2021: 1.6%).
At 25 Baker Street W1, following appointment of the main contractor in January
2022, 97% of the office construction costs (80% of total) have been fixed.
Demolition has completed and ground works are underway. At Network W1,
demolition has commenced under a fixed price contract and we have selected our
preferred tier one contractor for the main construction package. These two
projects have a combined ERV of £30.3m. In addition, there are a number of
smaller projects underway, including EPC upgrading activity.
Creating value responsibly
In July 2020, Derwent London became the first UK REIT to publish its Net Zero
Carbon 2030 pathway. We have set ourselves science-based targets, aligned with
a 1.5(o)C climate scenario, for reductions in energy usage and embodied
carbon.
Between our 2019 baseline and the end of 2021, energy intensity across our
managed portfolio, which encompasses Scope 1, 2 & tenant emissions in
Scope 3, reduced 17% to 134kWh/sqm, beating our targets. Despite a rise in
building occupation in H1 2022, we are on track to again exceed our target for
this year. The roll-out and integration of our Intelligent Building platform
will help deliver further efficiencies over the coming years.
Our EPC profile now comprises 62.3% 'A' or 'B' ratings by ERV (including
projects) with a further 17.9% rated 'C'. The results of the third-party
costed EPC survey we commissioned in 2021 have been integrated into our plans
and a series of actions set to ensure we remain compliant with evolving
legislation.
We are working with our stakeholders to deliver buildings that minimise the
Group's environmental impact through delivery and in operation. Local
authorities are challenging developers to meet stretching targets for embodied
carbon. At the same time, occupiers are setting their own sustainability
agendas for their operational energy usage, conscious of the role real estate
has in helping them achieve these ambitions.
Embodied carbon is a substantial contributor to our Scope 3 emissions, with
our current estimates for the recently completed schemes at 1 Soho Place W1 of
550kgCO(2)e/sqm and for The Featherstone Building EC1 of c.540kgCO(2)e/sqm.
Our on-site developments at 25 Baker Street W1 and Network W1 are being
designed as low carbon buildings, aligning with our 2025 target of
≤600kgCO(2)e/sqm which reflects the Greater London Authority's ambitious
requirement.
In addition to buying energy on green tariffs, we have been looking at a
number of sustainability initiatives, including the self-generation of
renewable energy, with our Scottish land presenting a number of opportunities.
In July 2022, the Group received resolution to grant planning consent for a
107 acre, 18.4MW solar park. This marks a significant stage in our renewable
energy generation plans with our appraisals showing this could deliver more
than 40% of the electricity used across our managed London portfolio.
Guidance and outlook
We expect the flight to quality to continue. We maintain guidance for 2022 of
average ERV growth in our portfolio of 0% to +3%, following 0.9% growth in H1.
Following a strong start to the year, the macroeconomic environment has
weakened. The substantial increase in financing costs and inflation, among
other factors, is bringing upward yield pressure across the real estate
sector. London continues to have global appeal and we believe our portfolio
will prove more resilient given the location and scarcity of our high quality
portfolio.
Derwent London creates best-in-class, adaptable and sustainable offices that
appeal to a diverse group of occupiers. The Group has a strong balance sheet
supported by a long weighted average unexpired debt term. Combined with a
large and predominantly income-producing portfolio, we believe we are
well-placed with a deep pipeline of value-adding opportunities which we expect
will enhance our future growth.
CENTRAL LONDON OFFICE MARKET
Occupational market
Take-up in H1 was 16% above the 10-year first half average with letting
activity of 6.4m sq ft. Both the West End and City were significantly above
long-term averages while Docklands lagged. Demand is broad-based with banking
& finance the most active sector at 24% followed by professional services
and creative industries, both at 19%.
Space under offer of 4.3m sq ft (December 2021: 4.4m sq ft) is 26% ahead of
the 10-year average, reflecting re-engagement by businesses with their
occupational strategies. The vacancy rate across London reduced by 0.6% in H1
to 8.2%, but this masks the wide divergence between the West End which is back
to the long-term average (4.3%, down 0.6% in H1) and City which remains
elevated (12.3%, down 0.3% in H1). There has been a net withdrawal of
tenant-controlled space to 6.5m sq ft (27% of total vacancy), 22% lower than
the peak in Q1 2021.
The first half saw 1.8m sq ft of development completions across central
London. The committed pipeline stands at 13.7m sq ft for delivery by 2026. The
availability of top tier property is expected to remain constrained for the
foreseeable future and occupiers continue to engage in pre-let discussions.
Currently 35% of the London committed pipeline is pre-let or under offer.
Investment market
According to CBRE, investment transaction volumes in H1 totalled £8.3bn, of
which £5.6bn was in Q1 making it one of the highest quarterly figures on
record. Through H1, investors from Asia were the most active at 47%, followed
by North America and the UK at 24% and 21% respectively. In particular, there
was appetite for well-let properties with strong sustainability credentials.
However, activity has slowed since the half year.
London remains an attractive office market globally. Yields compare favourably
to those in Europe which were marked to record low levels but have now started
to reverse. Prime yields in the West End and City were, according to CBRE,
unchanged through H1 at 3.25% and 3.75%, respectively. This compares to
Savills and JLL which both moved yields in the City up by 25bp in Q2. CBRE
estimates there is £37bn of potential investment demand targeting London
offices (December 2021: £40bn) and at June there was £3.8bn of property
under offer. However, deals are taking longer to complete and more recently we
have seen some buildings being withdrawn from the market.
VALUATION
Under our Valuer Appointment Policy, Knight Frank were appointed to value at
least half of our London assets as at H1 2022, with CBRE, our current valuer,
undertaking the balance. This followed a 'shadowing' exercise by Knight Frank
in 2021 which revealed no material differences. For the December 2022
valuation, Knight Frank will be appointed on all the London assets. Our
Scottish land, under 1% of the portfolio, continues to be valued by Savills.
The Group's investment portfolio was valued at £5.9bn on 30 June 2022. There
was a surplus of £87.5m in the first half which, after accounting adjustments
of £13.4m (see note 11), produced an uplift of £74.1m. This was an
underlying valuation increase of 1.7%. By location, our central London
properties, which represent 99% of the portfolio, were up 1.7% with the West
End 1.7% and City Borders 1.5%. The balance of the portfolio, our Scottish
holdings, was marginally down at -0.1%.
Our portfolio's capital growth outperformed the MSCI(1) Quarterly Index for
Central London Offices, at 0.8%. The wider UK All Property Index increased by
5.7%.
The further pick-up in leasing activity in H1, with occupiers focused on high
quality, environmentally attractive space, was reflected in our EPRA rental
values moving up 0.9%, an improvement on the 0.1% growth in H2 2021.
The portfolio's true equivalent yield tightened 4bp from 4.50% to 4.46% over
the first half. The initial yield is 3.1% (December 2021: 3.3%) which, after
allowing for the expiry of rent frees and contractual uplifts, rises to 4.2%
on a 'topped-up' basis (December 2021: 4.4%). These movements in the yield
profile are partly attributable to the inclusion of Soho Place W1 and The
Featherstone Building EC1 within the EPRA calculation, following their recent
completion, where the leases are in rent free or there is available space.
The total property return for the first six months was 3.3%, which compares to
the MSCI(1) Index of 2.5% for Central London Offices and 7.8% for UK All
Property.
During the first half we completed developments at Soho Place and The
Featherstone Building. These two projects were 68% let or sold. The Group has
two on-site developments at 25 Baker Street W1 and Network W1. The latter
commenced in June 2022. These are both due to finish in 2025 and require
£346m of capital expenditure to complete. Together the four schemes were
valued at £843m at June 2022 and delivered an 8.5% valuation uplift, after
capital expenditure. Excluding these developments, the portfolio valuation
increased 0.6% on an underlying basis, which includes an uplift on Bush House
WC2 prior to disposal.
Further details on the progress of our projects are in the 'Developments'
section below and additional guidance on the investment market is laid out in
the 'Guidance and outlook' section above.
(1) MSCI Central London Offices Quarterly Index
Portfolio reversion
Our contracted annualised cash rent as at 30 June 2022 was £179.4m, a 0.6%
increase over six months. With a portfolio ERV of £303.3m there is £123.9m
of potential reversion. Within this, £71.0m is contracted through rent-frees,
fixed uplifts and pre-lets, the majority of which is already straight-lined in
the income statement under IFRS accounting standards. On-site developments and
refurbishments could add £33.5m. The ERV of available space is £17.3m. The
majority of this is at our newly completed developments: £6.7m at The
Featherstone Building, which is 22% let, and £3.2m at the retail space at
Soho Place. The balance of the potential reversion of £2.1m comes from future
reviews and expiries less future fixed uplifts.
ASSET MANAGEMENT & INVESTMENT ACTIVITY
Letting activity - £7.1m of new rent at 9.3% above ERV
Letting activity in H1 2022 continued to strengthen compared to 2021. 24 new
leases totalling £7.1m pa were signed on 109,300 sq ft at an average 9.3%
above December 2021 ERV. With a relative shortage of top tier space, many
occupiers are prepared to pay premium rents for space that meets their
requirements. Five deals comprised 71% of the new rent achieved in H1. Since
the start of H2, £1.1m of new leases have been signed.
Leasing activity in H1 2022
Let Performance against
Dec 21 ERV (%)
Area Income Open market Overall(1)
sq ft
£m pa
Q1 55,900 3.5 6.8 6.8
Q2 53,400 3.6 11.8 11.8
H1 2022 109,300 7.1 9.3 9.3
(1) Includes short-term lettings at properties earmarked for redevelopment
At The Featherstone Building EC1, Dept Agency, a global digital solutions and
marketing business, leased 11,450 sq ft on the ninth and tenth floors at an
annual rent of £1.0m. Meanwhile, Marshmallow, a tech-based insurance
business, leased 16,220 sq ft on the first floor at an annual rent of £1.2m.
On average, these leases were 10% ahead of December 2021 ERV. Both occupiers
signed 10-year leases with breaks at year 5 and 6, respectively.
At White Collar Factory EC1, two occupiers have expanded. Brainlabs leased an
additional 11,540 sq ft for six years, expiring in line with their existing
term in 2028, nearly doubling their overall space. Adobe leased a further
10,180 sq ft on a 10-year term, increasing its floor area in the building 23%.
On average, the two leases were at 10% premium to December 2021 ERV.
Michael Kors signed a new 10-year lease on 18,850 sq ft at 90 Whitfield Street
W1. The rent of £72.50 per sq ft is 7.5% above ERV. Our nearby occupier
community space, DL/78, played an important role in achieving this letting.
Principal lettings in H1 2022
Property Tenant Area Rent Total annual rent Lease term Lease break Rent free equivalent
sq ft £ psf £m Years Year Months
Q1
90 Whitfield Street W1 Michael Kors 18,850 72.50 1.4 10 - 24
White Collar Factory EC1 Brainlabs 11,540 71.70 0.8 6 - 10.4
80 Charlotte Street W1 NewRiver REIT 4,090 70.00 0.3 5 - 11
Holden House W1 Talon Outdoor 5,120 49.50 0.3 5 3.5 6
Q2
The Featherstone Building EC1 Marshmallow 16,220 71.50 1.2 10 6 15, plus 9 if no break
The Featherstone Building EC1 Dept Agency 11,450 85.25 1.0 10 5 11.5, plus 11.5 if no break
White Collar Factory EC1 Adobe 10,180 70.00 0.7 10 6 12, plus 10 if no break
230 Blackfriars Road SE1 Wandle Housing Association 7,290 49.50 0.4 7.5 4 7, plus 6 if
no break
Sub-total 84,740 72.00 6.1
Other 24,560 40.70 1.0
Total 109,300 64.80 7.1
Asset management progress - reducing income risk and beating ERV
Lease renewals were agreed 12.9% above December 2021 ERV and 17.1% above the
previous rent, while regears were on average 1.5% below December 2021 ERV and
4.6% below the previous rent. This excludes the impact of a development
facilitation deal which involved the insertion of a near-term landlord break
option. In aggregate, 63% of breaks/expiries were retained or re-let prior to
the end of H1 excluding space taken back for projects and disposals.
Rent reviews averaged 6.2% above December 2021 ERV and 9.0% above the previous
rent. Income at risk in 2022 has reduced from 9% at the start of the year to
3%. The vacancy rate increased to 6.5% at H1 from 1.6% at December 2021, with
development completions at The Featherstone Building EC1 and Soho Place W1
comprising 3.7%.
The main asset management transaction in the period was the extension of
Morningstar's lease at Oliver's Yard EC1 to June 2027, following a short-term
regear agreed through Covid. Morningstar has agreed a rental uplift reflecting
an 18.8% premium to the previous rent and 14.2% above the net effective ERV.
As well as improving income duration, this also had a positive impact on
valuation with the valuers factoring in a longer lease to a strong occupier
covenant.
Asset management activity in H1 2022
Area Previous rent New rent Uplift New rent vs
'000 sq ft £m pa £m pa % Dec 21 ERV %
Rent reviews 83.7 5.0 5.5 9.0 6.2
Lease renewals 61.6 3.0 3.5 17.1 12.9
Lease regears(1) 21.1 1.4 1.3 (4.6) (1.5)
Total 166.4 9.4 10.3 9.6 7.3
(1) Excludes single development-linked regear
Rent collection - broadly back to pre-Covid levels
For the June quarter, we have now collected 96% of rent, with offices at 97%
and retail/hospitality at 83%. In relation to the two previous quarters, we
have received 99% of rent for both the December and March quarter days.
Investment activity - further portfolio upgrading
Over the last three and a half years, the Group has undertaken significant
capital recycling with over £700m of disposals and £1.1bn of acquisitions
and capex. Disposals have mainly comprised properties that no longer meet our
forward return criteria or which we do not believe can be upgraded into the
next generation of prime buildings. We continue to explore further disposal
opportunities for some of our smaller assets.
Acquisitions
230 Blackfriars Road SE1 was acquired in H1 for £58.3m, adding to our
longer-term development pipeline. Our current appraisal shows a potential
uplift in floor area from 60,300 sq ft to over 200,000 sq ft. Two new leases
have been agreed post-acquisition totalling 9,400 sq ft on average 21% above
acquisition ERV, increasing the income yield and extending the building's
income profile.
At Soho Place W1, following completion of the development the headlease
premium has now been paid to TfL, along with associated SDLT, totalling
£71.9m.
In May 2022, we exchanged a conditional contract for the long-dated
acquisition of Old Street Quarter EC1 (formerly known as The Moorfields Estate
EC1). This 400,000 sq ft freehold estate, located on a 2.5 acre site, has
potential for redevelopment into a 750,000+ sq ft mixed-use campus. This
£239m acquisition is expected to complete in 2027, subject to receipt of
final Treasury approval (expected in H2 2022), delivery of the new eye
hospital at St Pancras and subsequent vacant possession of the existing
Moorfields Eye Hospital.
Major acquisitions
Property Date Area Total after costs Net Net rental Net rental
sq ft
£m
yield
income
income
%
£m pa
£ psf
230 Blackfriars Road SE1 Q1 60,300 58.3 3.5 2.1 41.00
Soho Place W1 headlease Q1 - 71.9 - - -
Total acquisitions 60,300 130.2 - 2.1 -
Disposals
In H1, we completed the disposal of New River Yard EC1 for £65.9m.
In H2, the sale of Bush House WC2 exchanged and completed in July 2022 for
£83.9m, a significant 41% premium to December 2021 book value. In addition,
the forward-sale of the long leasehold interest in 2 & 4 Soho Place W1 for
£39.7m completed following delivery of the new theatre to Nimax Theatres.
Major disposals
Property Date Area Net proceeds Net Net rental
sq ft
£m
yield
income
%
£m pa
H1 2022
New River Yard EC1 Q2 70,700 65.9(1) 4.5 3.3
Total H1 disposals 70,700 65.9 4.5 3.3
H2 2022
2 & 4 Soho Place W1 Q3 18,400(2) 39.7 - -
Bush House WC2 Q3 103,700 83.9 - -
Total H2 disposals to date 122,100 123.6 - -
(1) After deduction of rental top-ups and sale costs (2) Office space
DEVELOPMENTS
H1 2022 completions
Soho Place W1, a net zero carbon development, comprised two buildings, 1 Soho
Place and 2 & 4 Soho Place. The 192,100 sq ft office element at 1 Soho
Place was fully pre-let to Apollo Group and G-Research in 2019 with a combined
contracted rent of £17.7m, reflecting an average rent of c.£93 per sq ft.
Following completion, the marketing campaign for the 34,000 sq ft retail
element was launched. With the Elizabeth line now open and footfall across
central London approaching pre-Covid levels supported by the ongoing recovery
in international tourism, we remain confident in the long-term attractions of
this prime retail location.
The embodied carbon intensity for 1 Soho Place is 550kgCO(2)e/sqm beating our
2025 and the GLA targets. A BREEAM 'Outstanding' rating is being targeted.
The embodied carbon intensity at 2 & 4 Soho Place is higher at
880kgCO(2)e/sqm principally due to the nature of theatre construction and the
relatively small floor area. The forward-sale of this building has completed
since the end of H1.
The Featherstone Building EC1, which is net zero carbon, is now 22% let by
floorspace. The embodied carbon intensity of the development is
c.540kgCO(2)e/sqm. The scheme incorporates our 'Intelligent Building'
infrastructure. We are targeting a BREEAM 'Outstanding' rating.
On-site projects
Major developments pipeline
Project Total 25 Baker Street W1 Network W1
Completion H1 2025 H2 2025
Office (sq ft) 350,000 218,000 132,000
Residential (sq ft) 52,000 52,000 -
Retail (sq ft) 33,000 28,000 5,000
Total area (sq ft) 435,000 298,000 137,000
Est. future capex (£m) 346 2412 105
Total cost(1) (£m) 697 463 234
ERV (c.£ psf) - 90 87.5
ERV (£m pa) 30.3 18.43 11.9
Pre-let/sold area (sq ft) 31,000 31,000 -
(1) Comprising book value at commencement, capex, fees and notional interest
on land, voids and other costs. Baker Street includes a 3.1% profit share
payaway to freeholder The Portman Estate
(2) Includes potential profit share to The Portman Estate
(3) Long leasehold, net of 2.5% ground rent
The refurbishment of Francis House SW1 completes in H2 2022. The 38,200 sq ft
scheme was pre-let to Edelman in 2021 on a 15-year lease with a break at year
10, at a rent of £2.9m (£76 per sq ft) reflecting a premium of 15% to ERV.
The building's EPC rating improved from 'C' to 'B'.
At 25 Baker Street W1 demolition works have completed and ground works are
progressing well. The scheme totals 298,000 sq ft, which comprises 218,000 sq
ft of offices, 28,000 sq ft of retail and 52,000 sq ft of residential. The
scheme is 10% pre-sold to The Portman Estate.
97% of the construction costs on the office element (80% of total) have been
fixed effectively mitigating our exposure to further build cost inflation.
Capex to complete is estimated at £241m including the potential profit share
to The Portman Estate. We are targeting BREEAM 'Outstanding' and NABERS 4 Star
ratings.
Our most recent development at Network W1 commenced in June 2022. We have
committed to deliver the 137,000 sq ft office-led scheme on a speculative
basis given the strength of occupier demand in Fitzrovia. Demolition costs
have been fixed in line with budget and we are in discussions with our
preferred contractor on the main build contract. Capex to complete is
estimated at £105m. A BREEAM 'Outstanding' rating and NABERS 4 Star ratings
are targeted.
Longer-term pipeline
We have a further 1.9m sq ft of space which forms part of our longer-term
pipeline (33% of current portfolio). This excludes the 750,000+ sq ft Old
Street Quarter EC1 project where the acquisition is scheduled to complete in
2027.
FINANCIAL REVIEW
Gross property and other income increased to £122.3m in the first half of
2022 from £120.4m in H1 2021. The prior period benefitted from £3.9m of
surrender premiums compared with only £0.4m in H1 2022 so the underlying
increase was 4.6%. Gross rental income was up by 3.7% to £101.7m with net
rental income growing from £90.1m in H1 2021 to £93.9m in H1 2022. Net
property and other income increased to £96.5m from £95.1m a year earlier,
the comparative figure also including the surrender premiums noted above. With
rent collection now almost back to pre-Covid levels, we have seen impairments
partially reversing giving rise to a credit of £0.6m in H1 2022 compared with
a charge of £1.4m in H1 2021.
IFRS profit from operations rose to £152.6m for the six months to 30 June
2022 against £134.1m for the half year to June 2021. The main reason for this
was an increase in the overall revaluation surplus for our investment
properties (after accounting adjustments for incentives) in the first half of
2022 to £73.4m from £57.8m in H1 2021. Administrative expenses were also
£1.6m below H1 2021 at £17.8m as lower provisions for variable pay more than
offset higher base staff salaries.
We have continued to invest in our portfolio and borrowings have grown as a
result, ending June 2022 at £1.37bn. This has increased gross interest costs
to £23.4m for the half year against £19.6m for the six months to 30 June
2021. Interest capitalised was a little lower in H1 2022 at £4.7m against
£5.4m in H1 2021, the result of development completions at Soho Place W1 and
The Featherstone Building EC1 during the first half. Derivative financial
instruments showed an overall gain of £2.9m in H1 2022 (H1 2021: £1.2m
uplift) following the significant rise in interest rates over the period. Our
share of the results at our new 50 Baker Street W1 joint venture was only
£0.1m, the net income of £1.2m almost offset by a revaluation deficit of
£1.1m.
The resulting IFRS profit before tax was up 13.2% to £137.1m for the half
year to 30 June 2022 against £121.1m in H1 2021. EPRA earnings, which exclude
fair value movements, fell marginally (1.7%) to 53.13p per share from 54.04p a
year earlier but would have shown a small increase after adjusting for the
surrender premiums.
EPRA like-for-like gross rental income, which excludes the effect of
acquisitions, disposals and developments, was up 1.1% compared to H2 2021 and
like-for-like net rental income was up 2.5% compared with H2 2021, helped by
the reversal of impairments mentioned earlier.
The partial reversal of impairments has also brought our EPRA cost ratio
(including direct vacancy costs) down to 23.3% in H1 2022 against 25.7% in H1
2021 and 24.3% for the whole of 2021. Excluding direct vacancy costs, it was
20.4% (H1 2021: 23.1%).
The Group's total return over the six-month period, including the 53.5p
dividend paid, was 3.0% compared to 2.7% for H1 2021 and 5.8% for the full
year 2021. The increase in our London office values in the first half of 2022
took the Group's EPRA Net Tangible Asset value per share above £40 for the
first time, ending at 4,023p against 3,864p at 30 June 2021 and 3,959p at 31
December 2021. With the substantial rise in interest rates providing a large
reduction in the fair value of our fixed rate debt, the Group's EPRA Net
Disposal Value has risen more significantly, up 185p per share or 4.8% to
4,069p from 3,884p as at 31 December 2021.
Capital expenditure totalled £69.2m in H1 2022, below the level seen in H1
2021 after the completion of two major schemes. In addition, our share of
capital expenditure in the 50 Baker Street W1 joint venture was £0.9m. At our
25 Baker Street W1 site groundworks are progressing well and, with a number of
smaller projects, which include EPC upgrade works, and demolition starting at
Network W1, we anticipate incurring around £70m of capital expenditure in the
second half. Including acquisitions made in H1, the total invested in the
portfolio in the first half was over £200m, considerably higher than the
£68m from trading and investment property disposals. The main property sold
in H1 was the New River Yard EC1 complex for net proceeds of £65m and Bush
House WC2, which completed in July 2022, was transferred to 'assets held for
sale' in our 30 June 2022 balance sheet. 2 & 4 Soho Place W1 was already
within this category and the sale of this building also completed in July
2022. First half acquisitions included the £68m headlease payment to TfL for
Soho Place together with £4m of SDLT. As a result, the grossing up of
headlease and other liabilities has seen a combined decrease of £66.1m.
We have started to incur initial planning and design costs and fees in
relation to the long-term project at Old Street Quarter EC1, with the site
acquisition due to complete no earlier than 2027. For the time being, as we do
not own the site, we are showing these costs as prepayments within the balance
sheet.
Financing and net debt
The last six months have been marked by a sharp increase in interest rates
following many years of exceptionally low rates. The market impact of this has
just started to be felt and has had only a marginal impact on our first half
results. We are relatively well protected against rising rates with 90% of our
debt at fixed rates as at 30 June 2022 and with an additional £75m forward
start interest rate swap at 1.36% up to April 2025. Helped by the £350m
10-year unsecured green bond issued in November last year, our debt is also
relatively long dated with a weighted average term of 6.5 years, bank
facilities extending until at least Q4 2026 and only one loan expiry of £83m
prior to June 2025.
As noted above, our debt levels have increased through H1 to bring net debt to
£1.36bn as at 30 June 2022 against £1.25bn at the 2021 year end. Total
borrowings were £1.37bn as at 30 June 2022. Full details are set out in note
19 to the balance sheet. This is equivalent to a loan-to-value ratio,
calculated on the new basis set out by EPRA (which includes our share of the
50 Baker Street W1 joint venture and which is close to the basis we adopted
previously) of 23.7% against 22.3% as at 31 December 2021. We have also set
out in note 26 the calculations for the old basis used (22.9% for the Group
LTV ratio and 22.7% including our 50% share of the Baker Street joint
venture). The Group's NAV gearing (the ratio of net debt to net assets) was
30.1% as at 30 June 2022 against 28.2% as at the 2021 year end.
As at 30 June 2022, the Group had £452m of cash and undrawn facilities (31
December 2021: £608m).
The disposals which completed in July 2022 have reduced our debt by about
£126m and, on a proforma basis, would have reduced the June 2022 EPRA LTV
ratio to 22.0% with a corresponding increase in cash and undrawn facilities.
Interest cover remains very strong at 419% including proportional
consolidation of our joint ventures but has fallen back from the 464% seen in
the 2021 full year, due mainly to the higher debt levels. Our main interest
cover debt covenant is 145% so there remains very substantial headroom.
Looking at the cash flow position, rents received were £93.8m in H1 2022, up
from £84.6m in H1 2021 and the first half was impacted by the funding of
insurance payments of £4.2m which will subsequently be collected from
tenants.
The higher level of bank borrowing at 30 June 2022 has brought our weighted
average interest cost down to 3.06% (31 December 2021: 3.14%) on a cash basis
and 3.18% (31 December 2021: 3.27%) including the IFRS adjustment on the
convertible and green bonds. The £175m convertible bonds mature in June 2025
with a current conversion price of 4,496p so are not dilutive at the
prevailing share price.
Qualifying expenditure under the Green Finance Framework
The qualifying expenditure as at 30 June 2022 for each project is set out in
the table below. This includes an element of 'look back' capital expenditure
on recent projects. The 25 Baker Street W1 scheme commenced in Q4 2021 and
practical completion is expected in H1 2025.
The cumulative qualifying expenditure on Eligible Green Projects (EGP) at 30
June 2022 was £597.6m, with £34.8m of this being incurred in H1 2022.
Cumulative spend on each EGP as at 30 June 2022:
Subsequent spend
Look back spend Q4 19 - H1 2022 spend Cumulative spend
FY 2021
Project/EGP £m £m £m £m
80 Charlotte Street W1 185.6 51.6 0.4 237.6
Soho Place W1 66.3 137.6 14.6 218.5
The Featherstone Building EC1 29.1 60.3 5.9 95.3
25 Baker Street W1 26.5 5.8 13.9 46.2
307.5 255.3 34.8 597.6
At 30 June 2022, following the issuance of the Green Bonds in November 2021,
total drawn borrowings from Green Financing Transactions were £455m. This
includes £105m from the green tranche of the Group's RCF and the £350m Green
Bonds.
Dividend
After considering our many stakeholder obligations, a 4.3% increase in the
interim dividend is proposed, taking it to 24.0p per share from 23.0p last
year. It will be paid as a PID on 14 October 2022 to shareholders on the
register as at 9 September 2022.
RISK MANAGEMENT AND INTERNAL CONTROLS
We have identified certain principal risks and uncertainties that could
prevent the Group from achieving its strategic objectives and have assessed
how these risks could best be mitigated, where possible, through a combination
of internal controls, risk management and the purchase of insurance cover.
These risks are reviewed and updated on a regular basis and were last formally
assessed by the Board in August 2022. The Group's approach to the management
and mitigation of these risks is included in the 2021 Report & Accounts.
The Board has confirmed that its risk appetite and key risk indicators remain
appropriate.
Since the release of our 2021 year-end results in February 2022, there is
greater economic uncertainty globally. In the UK, inflation has risen
substantially to 9.4% and the Bank of England has subsequently increased base
interest rates from 0.50% to 1.75%, with expectations of further rises. The
potential adverse impact of these factors on property yields has heightened
the risk of a fall in property values over the next six months. Consequently,
the Board has reinstated 'Fall in property values' as a principal risk for the
Group.
The main challenges facing the wider economy are material/labour shortages,
rising interest rates, inflation, and the increasing risk of recession. The
conflict in Ukraine has contributed to global supply chain disruption and
commodity price inflation, which will make our ability to secure fixed price
construction contracts more challenging in the medium-term. In respect of our
managed portfolio, the majority of costs are rechargeable through the service
charge to our occupiers. The impact of rising interest rates on Derwent London
will be marginal in the short-term, as over 90% of our debt is fixed or
hedged. A recession is unlikely to have a material impact on the Group or its
tenants in the short-term. However, in the medium to long-term, a recession
could lead to some of our occupiers facing a more challenging financial
situation which could result in Derwent London having higher vacancy rates and
reduced rent receipts.
The principal risks and uncertainties facing the Group for the remaining six
months of the financial year are set out on the following pages with the
potential impact and the mitigating actions and controls in place.
Strategic risks
That the Group's business model and/or strategy does not create the
anticipated shareholder value or fails to meet investors' and other
stakeholders' expectations.
Risk, effect and progression Controls and mitigation
1. Failure to implement the Group's strategy
The Group must respond and/or adapt appropriately to economic cycles as the · The Group's development pipeline has a degree of flexibility that
London office market has generally been cyclical in recent decades, with enables plans for individual properties to be changed to reflect prevailing
strong growth followed by sharp economic downturns precipitated by rising economic circumstances.
interest rates coinciding with significant oversupply. The Group's success
depends on implementing its strategy and responding appropriately to internal · The Group seeks generally to maintain income from properties until
or external factors including responding to changing work practices, development commences and has an ongoing strategy to extend income through
occupational demand, and London's global appeal. Should the Group fail to lease renewals and regears.
respond and adapt to such cycles or execute the projects that underpin its
strategy, this may have a negative impact on the Group's expected growth and · The Group aims to de-risk the development programme through pre-lets,
financial performance. Since the UK exited the European Union, there has been typically during the construction period.
no material impact on the Group's operations. The main risk to the Group
posed by Brexit is that economic growth in the UK may be negatively impacted · The Group conducts an annual strategic review, prepares a budget and
which may in turn affect London's growth and demand for office space. provides two-year rolling forecasts three times a year.
· The Board considers the sensitivity of the Group KPIs to changes in
the assumptions underlying our forecasts in light of anticipated economic
conditions. If considered necessary, modifications are made.
· The Group maintains sufficient headroom in all the Group's key ratios
and financial covenants with a particular focus on interest cover.
· The Group focuses on properties in good locations that are less
susceptible to reductions in tenant demand. The Group's average 'topped-up'
office rent is only £59.92 per sq ft.
· International trade negotiations are being monitored and potential
outcomes discussed with external advisers.
· The Credit Committee, chaired by either the CEO or CFO, assesses and
monitors the financial strength of potential and existing tenants. The Group's
diverse and high quality tenant base provides resilience against tenant
default.
· We maintain close and frequent contact with our tenants.
· The Group develops properties in locations where there is good
potential for future demand, such as near Crossrail stations. We do not have
any properties in the City or Docklands.
Financial risks
Significant steps have been taken in recent years to reduce or mitigate the
Group's financial risks. The main financial risk is that the Group becomes
unable to meet its financial obligations, which is not currently a principal
risk. Financial risks can arise from movements in the financial markets in
which we operate and inefficient management of capital resources.
Risk, effect and progression Controls and mitigation
2. Risk of tenants defaulting or tenant failure
The majority of the Group's revenues are comprised of rent received from its · Detailed reviews of all prospective tenants are performed.
tenants and any deterioration in their businesses and/or profitability could
in turn adversely affect the Group's rental income or increase the Group's bad · A "tenants on watch" register is maintained and regularly reviewed by
debts and/or number of lease terminations. In the event that some of our the Executive Committee and the Board.
tenants went into default, we could incur additional impairment charges and
write-offs of IFRS 16 lease incentive receivable balances which arise from the · The Credit Committee, chaired by either the CEO or CFO, assesses and
accounting requirement to spread any rent-free incentives given to a tenant monitors the financial strength of potential and existing tenants.
over the respective lease term.
· Rent deposits are held where considered appropriate; the balance at
30 June 2022 was £22m.
Due to the current economic conditions, our occupiers could be facing · The lease incentive receivable balance at 30 June 2022 was £179.8m
increased financial difficulty. Footfall at restaurants, retail and leisure after impairment provisions.
properties could reduce which could impact on the revenues and operations of
such tenants. It should be noted that restaurants and hospitality tenants · Active rent collection with regular reports to the Executive
account for approximately 8% of the Group's portfolio income. Committee on day 1, 7, 14 and 21.
· We maintain close and frequent contact with our tenants.
3. Income decline
Changes in macroeconomic factors may adversely affect London's office market. · The Credit Committee receives detailed reviews of all prospective
The Group is exposed to external factors which are outside its control, such tenants.
as future demand for office space, the 'grey' market in office space (i.e.
tenant controlled vacant space), weaknesses in retail and hospitality · A "tenants on watch" register is maintained and regularly reviewed by
businesses, increase in homeworking and the depth of any future recession and the Executive Committee and the Board.
subsequent rise in unemployment and/or interest rates. Such macroeconomic
conditions may lead to a general property market contraction, a decline in · Ongoing dialogue and proactive internal management is maintained with
rental values, decline in Group income and potentially property values. tenants to understand their concerns and requirements.
· The Group's low loan-to-value ratio and significant interest cover
ratio reduces the likelihood that falls in rental income and/or property
The impact of a potential recession caused by global supply chain disruption values would lead to a breach in our financial covenants.
and commodity price inflation resulting from the conflict in Ukraine is being
monitored by the Executive Committee and the Board. Although not likely to
impact on the Group and our tenants in the short-term, a recession could lead
to some of our occupiers facing a more challenging financial situation.
Restaurants and hospitality tenants account for approximately 8% of the
Group's portfolio income. Footfall at restaurants, retail and leisure
properties is likely to reduce, as consumer spending slows, which could impact
on the revenues and operations of such tenants.
4. Fall in property values
Since February 2022, the Bank of England has increased base interest rates to · The impact of yield changes is considered when potential projects are
1.75%, with expectations of further rises. The potential adverse impact of appraised.
these factors on property yields has heightened the risk of a fall in property
values. · The impact of yield changes on the Group's financial covenants and
performance are monitored regularly and are subject to sensitivity analysis to
ensure that adequate headroom is preserved.
The underlying value of our portfolio has remained resilient, increasing by · The Group's mainly unsecured financing makes the management of our
1.7% in H1 2022, after adjusting for capital expenditure, despite the financial covenants straightforward.
continuing economic uncertainties.
· The Group's low loan-to-value ratio reduces the likelihood that falls
in property values have a significant operational impact on our business.
Operational risks
The Group suffers either a financial loss or adverse consequences due to
processes being inadequate or not operating correctly, human factors or other
external events.
Risk, effect and progression Controls and mitigation
5. Risks arising from our development activities
A. Reduced development returns
Returns from the Group's developments may be adversely impacted due to: · Detailed reviews are performed on construction projects to ensure
that programme forecasts predicted by our contractors are aligned with our
· delays on site; views.
· increased construction costs; · The procurement process used by the Group includes the use of highly
regarded firms of quantity surveyors and is designed to minimise uncertainty
· material and labour shortages; and regarding costs.
· adverse letting conditions. · Development costs are benchmarked to ensure that the Group obtains
competitive pricing and, where appropriate, fixed price contracts are
negotiated.
Any significant delay in completing the development projects may result in · Post-completion reviews are carried out for all major developments to
financial penalties or a reduction in the Group's targeted financial returns. ensure that improvements to the Group's procedures are identified, implemented
and lessons learned.
· Procedures carried out before starting work on site, such as site
The Ukraine conflict is the third major disruption to the UK construction investigations, historical research of the property and surveys conducted as
industry following Brexit and the Covid pandemic. Energy prices in the UK have part of the planning application, reduce the risk of unidentified issues
been directly impacted by supply constraints to Europe of gas and oil from causing delays once on site.
Russia and the increased cost of energy is driving significant inflation on
many products - steel, cement, bricks, blocks and glass. We have secured a · Investment appraisals, which include contingencies and inflationary
fixed price for 97% of the costs for the office element of our 25 Baker Street cost increases, are prepared and sensitivity analysis is undertaken to judge
W1 development. However, our ability to secure fixed price construction whether an adequate return is made in all likely circumstances.
contracts in 2022 has been more challenging and it is likely that only part of
future contracts will be fixed. Delivery of programmes will be subjected to · The Group's pre-letting strategy reduces or removes the letting risk
materials and component shortages. Our experience of early ordering including of the development as soon as possible.
off-site storage, with strong supply chain relationships due to our early
payment terms, should mitigate any major delivery programme issues, however
some delays will be unavoidable. The Board is monitoring the potential impact
of a tighter planning environment on our strategy and development returns. In
addition to the proposed new Infrastructure Levy, which is likely to create
additional costs for the Group in the medium-term, local authorities are
requiring an ever-increasing level of justification for demolition instead of
refurbishment.
B. 'On-site' risk
Risk of project delays and/or cost overruns caused by unidentified issues. For · Regular monitoring of our contractors' project cash flows.
example, if the Group fails to:
· Frequent meetings with key contractors and subcontractors to review
· adequately appraise investments prior to starting work on-site, their work programme and maintain strong relationships.
including through taking into account contingencies and inflationary cost
increases; · Off-site inspection of key components to ensure they have been
completed to the requisite quality.
· use a procurement process that is properly designed (to minimise
uncertainty around costs) and that includes the use of highly regarded · Prior to construction beginning on site, we conduct site
quantity surveyors; investigations including the building's history and various surveys to
identify any potential issues.
· benchmark development costs;
· Monthly reviews of supply chain issues for each of our major
· conduct thorough site investigations to reduce the risk of projects, including in respect to potential labour shortages.
unidentified issues such as asbestos;
· Strict Covid-19 protocols at all of our on-site developments, in
· implement its pre-letting strategy; or accordance with Site Operating Procedures (published by the Construction
Leadership Council).
· conduct detailed reviews on construction projects to evaluate
programme forecasts made by contractors, development projects may be
significantly delayed and we could face a loss of rental income and penalties.
Inflationary pressures resulting largely from the conflict in Ukraine and
associated global supply chain disruption is putting future construction
budgets under pressure.
C. Contractor/subcontractor default
Returns from the Group's developments are reduced due to delays and cost · Regular monitoring of our contractors, including their project
increases caused by either a main contractor or major subcontractor defaulting cash flows, is carried out.
during the project. There have been ongoing issues within the construction
industry in respect of the level of risk and narrow profit margins being · Key construction packages are acquired early in each project's
accepted by contractors. life to reduce the risks associated with later default.
· The financial standing of our main contractors is reviewed prior
to awarding the project contract.
There is an increased risk of insolvencies in the construction industry as a
result of rising inflation and construction costs, which under fixed price · Our main contractors are responsible, and assume the immediate
contracts are a risk for the contractor. We have engaged with our principal risk, for subcontractor default.
contractors to ensure they have sufficient headroom under the fixed contracts
to cope with rising costs. In respect to the Network Building, we have liaised · Payments to contractors are in place to incentivise the
with our contractor, subcontractors and supply chain at an earlier design achievement of project timescales, with damages agreed in the event of
stage so that the developments programme and costs can be agreed delay/cost overruns.
collaboratively. We will continue to actively monitor the financial health of
our main contractors and subcontractors. · Regular on-site supervision by a dedicated Project Manager who
monitors contractor performance and identifies problems at an early stage,
thereby enabling remedial action to be taken.
· We use known contractors with whom we have established long-term
working relationships.
· Contractors are paid promptly and are encouraged to pay
subcontractors promptly.
6. Risk of business interruption
A. Cyber-attack on our IT systems
The Group may be subject to a cyber attack that results in it being unable to · The Group's Business Continuity Plan is regularly reviewed and
use its information systems and/or losing data. Such an attack could severely tested.
restrict the ability of the Group to operate, lead to an increase in costs
and/or require a significant diversion of management time. · Independent internal and external penetration/vulnerability tests
are regularly conducted to assess the effectiveness of the Group's security.
· Multi-Factor Authentication exists for remote access to our
There has been a heightened risk of cyber attacks amid escalating tensions systems.
over the conflict in Ukraine. To date, Derwent London has not experienced a
significant increase in cyber attacks. The IT team have been proactive in · Incident response and remediation processes are in place, which
providing regular guidance and refresher training to all employees on cyber are regularly reviewed and tested.
security matters.
· The Group's data is regularly backed up and replicated off-site.
· Our IT systems are protected by anti-virus software, security
anomaly detection and firewalls that are frequently updated.
· Frequent staff awareness and training programmes.
· Security measures are regularly reviewed by the IT department.
· The Group has been awarded the 'Cyber Essentials' accreditation
which demonstrates our commitment to cyber security.
B. Cyber-attack on our buildings
The Group is exposed to cyber attacks on its properties which may result in · Each building has incident management procedures which are
data breaches or significant disruption to IT-enabled tenant services. A major regularly reviewed and tested.
cyber attack against the Group or its properties could negatively impact the
Group's business, reputation and operating results. · Physical segregation between the building's core IT
infrastructure and tenants' corporate IT networks.
· Physical segregation of IT infrastructure between buildings
Our Intelligent Building project has completed its 'Proof of Concept' phase across the portfolio.
and roll-out of Phase 1 has commenced. The project involves considerable input
from various teams across the business including the IT team. We have worked · Inclusion of Building Managers in any cyber security awareness
alongside our portfolio IT partner to conduct network and IT asset inventories training and phishing simulations.
and cyber security assessments.
C. Significant business interruption (for example pandemic, terrorism-related
event or other business interruption)
Major incidents may significantly interrupt the Group's business, its
occupiers and/or supply chain. Such incidents could be caused by a wide range
of events such as fire, natural catastrophes, cyber events, terrorism,
pandemic outbreak, material supply chain failures and geopolitical factors. · Fire protection and access/security procedures are in place at
This could result in issues such as being unable to access or operate the all of our managed properties. At least annually, a fire risk assessment and
Group's properties, tenant failures or reduced rental income, share price health and safety inspection are performed for each property in our managed
volatility or loss of key suppliers. portfolio.
· The Group has comprehensive business continuity and incident
management procedures both at Group level and for each of our managed
Although not classified as a significant business interruption for Derwent buildings which are regularly reviewed and tested.
London, the war in Ukraine, among other issues, has caused global supply chain
and market volatility. · Government health guidelines are maintained at all of our
construction sites.
· Comprehensive property damage and business interruption insurance
which includes terrorism.
· Robust security at our buildings, including CCTV and access
controls.
· Most of our employees are capable of working remotely and have
the necessary IT resources.
7. Reputational damage
The Group has invested significantly in developing a well-regarded and · Close involvement of senior management in day-to-day operations
respected brand. The Group's reputation could be damaged, for example, through and established procedures for approving all external announcements.
unauthorised or inaccurate media coverage, unethical practices or behaviours
by the Group's executives, or failure to comply with relevant legislation. · All new members of staff benefit from an induction programme and
This could lead to a material adverse effect on the Group's operating are issued with our Group staff handbook.
performance and the overall financial position of the Group. Our strong
culture, low overall risk tolerance and established procedures and policies · The Group employs a Head of Investor and Corporate Communications
mitigate against the risk of internal wrongdoing. and retains services of an external PR agency, both of whom maintain regular
contact with external media sources.
· A Group whistleblowing system for staff is maintained to report
With the increased reporting requirements on ESG-related matters, the risk of wrongdoing anonymously.
reputational and/or litigation has risen if disclosures are misleading, or we
are non-compliant. · Social media channels are monitored.
· Ongoing engagement with local communities in areas where the
Group operates.
· Staff training and awareness programmes.
8. Our resilience to climate change
If the Group fails to respond appropriately, and sufficiently, to · The Board and Executive Committee receive regular updates and
climate-related risks or fails to benefit from the potential opportunities. presentations on environmental and sustainability performance and management
This could lead to damage to our reputation, loss of income and/or property matters as well as progress against our pathway to becoming net zero carbon by
values and loss of our licence to operate. In addition, there is a risk that 2030.
the cost of construction materials and providing energy, water and other
services to tenants will rise as a consequence of climate change. · The Sustainability Committee monitors our performance and
management controls.
· Strong team led by an experienced Head of Sustainability.
The UK Government continues to introduce more legislative aspects linked to
climate risk e.g. from 2022 certain listed entities will have to disclose in · The Group monitors its ESG (environmental, social and governance)
line with the TCFD and the latest energy white paper is setting out higher reporting against various industry benchmarks.
standards for energy efficiency in commercial and residential properties.
· Production of an annual Responsibility Report with key data and
performance points which are externally assured.
· In 2017 we adopted independently verified science-based carbon
targets which have been approved by the Science-Based Targets Initiative
(SBTi).
· Undertake periodic multi-scenario climate risk assessments
(physical and transition risk).
9. Non-compliance with regulation
A. Non-compliance with health and safety legislation
An incident or breach of health, safety and fire legislation leading to a risk
to life, reputational damage and/or loss of our licence to operate. For
example, a major health and safety incident could cause significant business · All our properties have the relevant health, safety and fire
interruption for the Group. management procedures in place which are reviewed annually.
· The Group has a qualified Health and Safety team whose
performance is monitored and managed by the Health and Safety Committee.
The health and safety-related risks arising from the Covid-19 pandemic have
reduced during 2022. The health and safety team have continued to promote · Health and safety statutory compliance within our managed
health and wellbeing alongside safety. The business has prepared for the portfolio is managed and monitored using RiskWise, a software compliance
implementation of a new Fire Safety Management System aligned with the platform. This is supported by annual property health checks.
requirements of the Fire Safety and Building Safety Acts. Refresher training
on health and safety matters will be provided to the Executive Committee and · The Managed Portfolio Health and Safety Manager with the support
Risk Committee in September. of internal and external stakeholders supports our Portfolio and Building
Managers to ensure statutory compliance.
· The Construction Health and Safety Manager, with the support of
internal and external stakeholders, ensures our Construction (Design and
Management) Regulations (CDM) client duties are executed and monitored and
reviews health, safety and welfare on each construction site on a monthly
basis.
· The Board and Executive Committee receive frequent updates and
presentations on key health and safety matters, including both physical and
mental health.
B. Other regulatory non-compliance
Should the Group breach any of the legislation that forms the regulatory · The Board and Risk Committee receive regular reports prepared by
framework within which the Group operates, the Group's cost base could the Group's legal advisers identifying upcoming legislative/regulatory
increase and management time could be diverted. This could lead to damage to changes. External advice is taken on any new legislation.
our reputation and/or loss of our licence to operate.
· Staff training and awareness programmes. As part of staff
performance appraisals, all employees are required to confirm they have
reviewed and understood Group policies.
The Board are monitoring the potential impacts of proposed new legislation
which could impact on Derwent London, including the Levelling-up and · Group policies and procedures dealing with all key legislation
Regeneration Bill and Corporate Governance and Audit reform. A revised UK are available on the Group's intranet.
Corporate Governance Code is expected, which is likely to become applicable to
Derwent London from 1 January 2024. Geopolitical risks have become more · A Group whistleblowing system for staff is maintained to report
pronounced with the Ukraine crisis and the international response to the war. wrongdoing anonymously.
The significant and rapidly expanding sanction list has given rise to
compliance risks. With the increased reporting requirements on ESG-related · Managing our properties to ensure they are compliant with the
matters, the risk of reputational and/or litigation has risen if disclosures Minimum Energy Efficiency Standards (MEES) for Energy Performance Certificates
are misleading, or we are non-compliant. (EPCs).
10. Financial instruments - risk management
The Group is exposed through its operations to the following financial risks:
· credit risk;
· market risk; and
· liquidity risk.
In common with other businesses, the Group is exposed to risks that arise from
its use of financial instruments. The following describes the Group's
objectives, policies and processes for managing those risks and the methods
used to measure them. Further quantitative information in respect of these
risks is presented throughout these financial statements.
There have been no substantive changes in the Group's exposure to financial
instrument risks, its objectives, policies and processes for managing those
risks or the methods used to measure them from previous years. The Group's
EPRA loan-to-value ratio has increased to 23.7% as at 30 June 2022 but remains
modest.
Principal financial instruments
The principal financial instruments used by the Group, from which financial
instrument risk arises, are trade receivables, accrued income arising from the
spreading of lease incentives, cash at bank, trade and other payables,
floating rate bank loans, fixed rate loans and private placement notes,
secured and unsecured bonds and interest rate swaps.
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group's risk
management objectives and policies and, whilst retaining ultimate
responsibility for them, it has delegated the authority to executive
management for designing and operating processes that ensure the effective
implementation of the objectives and policies.
The overall objective of the Board is to set policies that seek to reduce risk
as far as possible without unduly affecting the Group's flexibility and its
ability to maximise returns. Further details regarding these policies are set
out below:
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations. The Group is mainly exposed to credit risk from lease contracts
in relation to its property portfolio. It is Group policy to assess the credit
risk of new tenants before entering into such contracts. The Board has a
Credit Committee which assesses each new tenant before a new lease is signed.
The review includes the latest sets of financial statements, external ratings
when available and, in some cases, forecast information and bank or trade
references. The covenant strength of each tenant is determined based on this
review and, if appropriate, a deposit or a guarantee is obtained. The
Committee also reviews existing tenant covenants from time to time.
The impact of Covid-19 has given rise to higher estimated probabilities of
default for some of the Group's occupiers though the estimated risk is
considered lower than in 2021. Impairment calculations have been carried out
on trade receivables and accrued income arising as a result of the spreading
of lease incentives using the forward-looking, simplified approach to the
expected credit loss model within IFRS 9. In addition, the Credit Committee
has reviewed its register of tenants at higher risk, particularly in the
retail or hospitality sectors, those in administration or CVA and the top 74
tenants by size with the remaining occupiers considered on a sector by sector
basis.
As the Group operates predominantly in central London, it is subject to some
geographical concentration risk. However, this is mitigated by the wide range
of tenants from a broad spectrum of business sectors.
Credit risk also arises from cash and cash equivalents and deposits with banks
and financial institutions. For banks and financial institutions, only
independently rated parties with a minimum rating of investment grade are
accepted. This risk is also reduced by the short periods that money is on
deposit at any one time.
The carrying amount of financial assets recorded in the financial statements
represents the Group's maximum exposure to credit risk without taking account
of the value of any collateral obtained.
Market risk
Market risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate due to changes in market prices. Market
risk arises for the Group from its use of variable interest bearing
instruments (interest rate risk).
It is currently Group policy that generally between 60% and 85% of external
Group borrowings (excluding finance lease payables) are at fixed rates. Where
the Group wishes to vary the amount of external fixed rate debt it holds
(subject to it being generally between 60% and 85% of expected Group
borrowings, as noted above), the Group makes use of interest rate derivatives
to achieve the desired interest rate profile. Although the Board accepts that
this policy neither protects the Group entirely from the risk of paying rates
in excess of current market rates nor eliminates fully cash flow risk
associated with variability in interest payments, it considers that it
achieves an appropriate balance of exposure to these risks. At 30 June 2022,
the proportion of fixed debt held by the Group was above this range at 90% (31
December 2021: 99%). During both 2022 and 2021, the Group's borrowings at
variable rate were denominated in sterling.
The Group manages its cash flow interest rate risk by using floating-to-fixed
interest rate swaps. When the Group raises long-term borrowings, it is
generally at fixed rates.
Liquidity risk
Liquidity risk arises from the Group's management of working capital and the
finance charges and principal repayments on its debt instruments. It is the
risk that the Group will encounter difficulty in meeting its financial
obligations as they fall due.
The Group's policy is to ensure that it will always have sufficient headroom
in its loan facilities to allow it to meet its liabilities when they become
due. To achieve this aim, it seeks to maintain committed facilities to meet
the expected requirements. The Group also seeks to reduce liquidity risk by
fixing interest rates (and hence cash flows) on a portion of its long-term
borrowings. This is further explained in the 'market risk' section above.
Executive management receives rolling three-year projections of cash flow and
loan balances on a regular basis as part of the Group's forecasting processes.
At the balance sheet date, these projections indicated that the Group expected
to have sufficient liquid resources to meet its obligations under all
reasonably expected circumstances.
The Group's loan facilities and other borrowings are spread across a range of
banks and financial institutions so as to minimise any potential concentration
of risk. The liquidity risk of the Group is managed centrally by the finance
department.
Capital disclosures
The Group's capital comprises all components of equity (share capital, share
premium, other reserves and retained earnings).
The Group's objectives when maintaining capital are:
· to safeguard the entity's ability to continue as a going concern
so that it can continue to provide above average long-term returns for
shareholders and support for its other stakeholders; and
· to provide an above average annualised total return to
shareholders.
The Group sets the amount of capital it requires in proportion to risk. The
Group manages its capital structure and makes adjustments to it in light of
changes in economic conditions and the risk characteristics of the underlying
assets. In order to maintain or adjust the capital structure, the Group may
vary the amount of dividends paid to shareholders subject to the rules imposed
by its REIT status. It may also seek to redeem bonds, return capital to
shareholders, issue new shares or sell assets to reduce debt. Consistent with
others in its industry, the Group monitors capital on the basis of NAV gearing
and loan-to-value ratio. During 2022, the Group's strategy, which was
unchanged from 2021, was to maintain the NAV gearing below 80% in normal
circumstances. These two gearing ratios, as well as the interest cover ratio,
are defined in the list of definitions at the end of this announcement and are
derived in note 26.
The Group is also required to ensure that it has sufficient property assets
which are not subject to fixed or floating charges or other encumbrances. Most
of the Group's debt is unsecured and, accordingly, there was £5.1bn of
uncharged property as at 30 June 2022.
Statement of Directors' responsibilities
The Directors' confirm that, to the best of their knowledge, these condensed
interim financial statements have been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting' and the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority and that the interim management report includes a
fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:
· An indication of important events that have occurred during the
first six months of the financial year and their impact on the condensed set
of financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year; and
· Material related-party transactions in the first six months of
the financial year and any material changes in the related-party transactions
described in the last Annual Report.
The Directors are listed in the Derwent London plc Annual Report of 31
December 2021 and a list of the current Directors is maintained on the Derwent
London plc website: www.derwentlondon.com. The maintenance and integrity of
the Derwent London website is the responsibility of the Directors.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
On behalf of the Board
Paul M. Williams
Damian M.A. Wisniewski
Chief Executive
Chief Financial Officer
10 August 2022
GROUP CONDENSED INCOME STATEMENT
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
Unaudited Unaudited Audited
Note £m £m £m
Gross property and other income 5 122.3 120.4 240.2
Net property and other income(1) 5 96.5 95.1 187.5
Administrative expenses (17.8) (19.4) (37.1)
Revaluation surplus 11 73.4 57.8 130.8
Profit on disposal 6 0.5 0.6 10.4
Profit from operations 152.6 134.1 291.6
Finance income 7 0.2 - -
Finance costs 7 (18.7) (14.2) (28.1)
Movement in fair value of derivative financial instruments 3.5 2.2 4.8
Financial derivative termination costs 8 (0.6) (1.0) (1.9)
Share of results of joint ventures 9 0.1 - (13.9)
Profit before tax 137.1 121.1 252.5
Tax (charge)/credit 10 (1.8) (0.6) 1.3
Profit for the period 135.3 120.5 253.8
Attributable to:
- Equity shareholders 135.3 120.2 252.3
- Non-controlling interest - 0.3 1.5
135.3 120.5 253.8
Basic earnings per share 25 120.61p 107.20p 224.99p
Diluted earnings per share 25 120.35p 106.94p 224.44p
(1) Net property and other income includes a net credit of £0.6m in relation
to the write-off/movement in impairment of receivables (half year to 30 June
2021: net charge of £1.4m; year to 31 December 2021: net charge of £0.8m).
See note 3 for additional information.
GROUP CONDENSED STATEMENT OF COMPREHENSIVE INCOME
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
Unaudited Unaudited Audited
Note £m £m £m
Profit for the period 135.3 120.5 253.8
Actuarial (loss)/gains on defined benefit pension scheme (0.2) 1.8 2.7
Deferred tax charge on pension 20 - (0.3) (0.4)
Revaluation surplus of owner-occupied property 11 0.7 1.0 3.7
Deferred tax charge on revaluation 20 (0.2) (0.2) (1.3)
Other comprehensive income that will not be
reclassified to profit or loss 0.3 2.3 4.7
Total comprehensive income relating to the period 135.6 122.8 258.5
Attributable to:
- Equity shareholders 135.6 122.5 257.0
- Non-controlling interest - 0.3 1.5
135.6 122.8 258.5
GROUP CONDENSED BALANCE SHEET
30.06.2022 30.06.2021 31.12.2021
Unaudited Unaudited Audited
Note £m £m £m
Non-current assets
Investment property 11 5,495.9 5,068.6 5,359.9
Property, plant and equipment 12 54.5 51.6 54.0
Investments 14 51.3 0.9 51.1
Derivative financial instruments 19 2.7 - -
Deferred tax 20 - - 0.3
Pension scheme surplus 1.7 - 1.8
Other receivables 15 175.8 155.3 159.3
5,781.9 5,276.4 5,626.4
Current assets
Trading property 11 31.3 9.2 32.2
Trading stock 13 1.2 - 0.4
Trade and other receivables 16 78.9 75.5 61.7
Cash and cash equivalents 22 32.8 60.0 68.5
144.2 144.7 162.8
Non-current assets held for sale 17 115.4 163.1 102.8
Total assets 6,041.5 5,584.2 5,892.0
Current liabilities
Leasehold liabilities 19 - - 51.2
Borrowings 19 14.6 - 12.3
Derivative financial instruments 19 - - 0.4
Trade and other payables 18 126.5 135.3 128.3
Corporation tax liability 1.2 0.6 0.5
Provisions 0.2 0.5 0.3
142.5 136.4 193.0
Non-current liabilities
Borrowings 19 1,359.3 992.3 1,237.1
Derivative financial instruments 19 - 3.4 0.4
Leasehold liabilities 19 19.6 67.4 19.4
Provisions 0.2 0.3 0.3
Pension scheme deficit - 0.4 -
Deferred tax 20 1.1 1.1 -
1,380.2 1,064.9 1,257.2
Total liabilities 1,522.7 1,201.3 1,450.2
Total net assets 4,518.8 4,382.9 4,441.8
Equity
Share capital 5.6 5.6 5.6
Share premium 196.6 194.4 195.4
Other reserves 940.8 938.5 941.1
Retained earnings 3,375.8 3,192.2 3,299.7
Equity shareholders' funds 4,518.8 4,330.7 4,441.8
Non-controlling interest - 52.2 -
Total equity 4,518.8 4,382.9 4,441.8
GROUP CONDENSED STATEMENT OF CHANGES IN EQUITY
Attributable to equity shareholders
Equity Non-
Share Share Other Retained shareholders' controlling Total
capital premium reserves earnings funds interest equity
£m £m £m £m £m £m £m
At 1 January 2022 5.6 195.4 941.1 3,299.7 4,441.8 - 4,441.8
Profit for the period - - - 135.3 135.3 - 135.3
Other comprehensive income/(expense) - - 0.5 (0.2) 0.3 - 0.3
Share-based payments - 1.2 (0.8) 1.1 1.5 - 1.5
Dividends paid - - - (60.1) (60.1) - (60.1)
At 30 June 2022 (unaudited) 5.6 196.6 940.8 3,375.8 4,518.8 - 4,518.8
At 1 January 2021 5.6 193.7 939.4 3,124.5 4,263.2 51.9 4,315.1
Profit for the period - - - 120.2 120.2 0.3 120.5
Other comprehensive income - - 0.8 1.5 2.3 - 2.3
Share-based payments - 0.7 (1.7) 4.8 3.8 - 3.8
Dividends paid - - - (58.8) (58.8) - (58.8)
At 30 June 2021 (unaudited) 5.6 194.4 938.5 3,192.2 4,330.7 52.2 4,382.9
At 1 January 2021 5.6 193.7 939.4 3,124.5 4,263.2 51.9 4,315.1
Profit for the year - - - 252.3 252.3 1.5 253.8
Other comprehensive income - - 2.4 2.3 4.7 - 4.7
Share-based payments - 1.7 (0.7) 5.2 6.2 - 6.2
Dividends paid - - - (84.6) (84.6) - (84.6)
Acquisition of non-controlling interest - - - - - (53.4) (53.4)
At 31 December 2021 (audited) 5.6 195.4 941.1 3,299.7 4,441.8 - 4,441.8
GROUP CONDENSED CASH FLOW STATEMENT
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
Unaudited Unaudited Audited
Note £m £m £m
Operating activities
Rents received 93.8 84.6 187.0
Surrender premiums and other property income 0.4 3.6 5.7
Property expenses (8.4) (7.7) (14.3)
Cash paid to and on behalf of employees (14.0) (14.9) (26.9)
Other administrative expenses (4.7) (3.6) (7.8)
Interest received 7 0.2 - -
Interest paid 7 (12.4) (11.4) (21.9)
Other finance costs 7 (1.5) (1.5) (3.1)
Other income 1.5 2.1 4.1
Costs recoverable from tenants (4.2) - -
Disposal of trading properties 3.0 3.6 5.0
Expenditure on trading properties/stock (1.5) (0.2) (1.6)
Tax (payment)/receipt in respect of operating activities (0.7) 0.1 (0.5)
Net cash from operating activities 51.5 54.7 125.7
Investing activities
Acquisition of properties (137.2) (23.6) (251.8)
Capital expenditure on the property portfolio 7 (67.7) (87.2) (172.1)
Disposal of investment properties 65.0 166.5 297.3
Investment in joint ventures (0.3) - (64.1)
Settlement of shareholder loan - - 2.0
Purchase of property, plant and equipment (0.9) (0.8) (1.6)
Disposal of property, plant and equipment - - 0.2
VAT (paid)/received (11.8) 0.1 7.5
Net (used in)/cash from investing activities (152.9) 55.0 (182.6)
Financing activities
Net proceeds of green bond issue - - 346.0
Net movement in revolving bank loans 121.0 (43.4) (117.8)
Proceeds from other loan 2.3 - 12.3
Repayment of secured bank loan - - (28.0)
Financial derivative termination costs 8 (0.6) (1.0) (1.9)
Acquisition of non-controlling interest - - (53.4)
Net proceeds of share issues 1.2 0.7 1.8
Dividends paid 21 (58.2) (56.7) (84.3)
Net cash from/(used in) financing activities 65.7 (100.4) 74.7
(Decrease)/increase in cash and cash equivalents in the period (35.7) 9.3 17.8
Cash and cash equivalents at the beginning of the period 68.5 50.7 50.7
Cash and cash equivalents at the end of the period 22 32.8 60.0 68.5
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of preparation
The financial information for the half year to 30 June 2022 and the half year
to 30 June 2021 was not subject to an audit but has been subject to a review
in accordance with the International Standard on Review Engagements (UK and
Ireland) 2410, Review of Interim Financial Information Performed by the
Independent Auditor of the Entity, issued by the Auditing Practices Board.
The comparative financial information presented herein for the year to 31
December 2021 does not constitute the Group's statutory accounts, but is
derived from those accounts. The Group's statutory accounts for the year to 31
December 2021 have been delivered to the Registrar of Companies. The Auditors'
report on those accounts was unmodified, did not draw attention to any matters
by way of an emphasis of matter and did not contain any statement under
Section 498 of the Companies Act 2006.
The financial information in these condensed consolidated interim financial
statements is that of the holding company and all of its subsidiaries (the
'Group') together with the Group's share of its joint ventures. The Group's
condensed consolidated interim financial statements have been prepared in
accordance with UK adopted IAS 34 and the Disclosure Guidance and Transparency
Rules sourcebook of the UK's Financial Conduct Authority and should be read in
conjunction with the Annual Report and Accounts for the year to 31 December
2021, which have been prepared in accordance with UK-adopted International
Accounting Standards, (the 'applicable framework'), and with the provisions of
the Companies Act 2006 (the 'applicable legal requirements'). The financial
statements have been prepared under the historical cost convention as modified
by the revaluation of investment properties, the revaluation of property,
plant and equipment, assets held for sale, pension scheme, and financial
assets and liabilities held at fair value
As with most other UK property companies and real estate investment trusts
('REITs'), the Group presents many of its financial measures in accordance
with the guidance criteria issued by the European Public Real Estate
Association ('EPRA'). These measures, which provide consistency across the
sector, are all derived from the IFRS figures in note 25.
Going concern
Under Provision 30 of the UK Corporate Governance Code 2018, the Board needs
to report whether the business is a going concern. In considering this
requirement, the Directors have taken into account the following:
· The Group's latest rolling forecast for the period to 31 December
2023, in particular the cash flows, borrowings, undrawn facilities and with no
refinancing exposure in the next 12 months.
· The headroom under the Group's financial covenants.
· The risks included on the Group's risk register that could impact
on the Group's liquidity and solvency over the 12 months following approval of
these interim financial statements.
· The risks on the Group's risk register that could be a threat to
the Group's business model and capital adequacy.
The Directors have considered the relatively long-term and predictable nature
of the income receivable under the tenant leases, the Group's EPRA
loan-to-value ratio of 23.7%, the interest cover ratio of 419%, the £452m
total of undrawn facilities and cash and the fact that the average maturity of
borrowings was 6.5 years at 30 June 2022. The impact of the Covid-19 pandemic
on the business and its occupiers has been considered. The impact in 2022 was
considerably less than in 2021 as evidenced by a partial reversal in
impairment charges and rent collection rates now close to that seen
pre-pandemic. Office occupation rates are also gradually recovering. The
likely impact of climate change has been incorporated into the Group's
forecasts and it continues to review the impact of EPC upgrades across the
portfolio. The Group's latest rolling forecast has taken into account the
higher than usual level of political and economic uncertainty arising from
events in Europe and the inflationary price increases being seen particularly
for commodity and energy. Based on the Group's forecasts, rental income would
need to decline by 65% or property values would need to fall by 61% before
breaching its financial covenants.
The financial position of the Group, its cash flows, liquidity position and
borrowing facilities are described in the financial review. In addition, the
Group's risks and risk management processes can be found within the risk
management and internal controls.
Having due regard to these matters and after making appropriate enquiries, the
Directors have reasonable expectation that the Group has adequate resources to
continue in operational existence for a period of at least 12 months from the
date of signing of these condensed consolidated interim financial statements
and, therefore, the Board continues to adopt the going concern basis in their
preparation.
2. Changes in accounting policies
The accounting policies used by the Group in these condensed financial
statements are consistent with those applied in the Group's financial
statements for the year to 31 December 2021, as amended to reflect the
adoption of new standards, amendments and interpretations which became
effective in the year as shown below.
New standards adopted during the period
The following standards, amendments and interpretations were effective for the
first time for the Group's current accounting period and had no material
impact on the financial statements.
References to the Conceptual Framework in IFRSs (amended);
IFRS 16 (amended) - Covid-19-Related Rent Concessions beyond 30 June 2021;
IAS 37 (amended) - Onerous Contracts - Cost of Fulfilling a Contract;
Annual Improvements to IFRS Standards 2018-2020;
IAS 16 (amended) - Property, Plant and Equipment: Proceeds before Intended
Use.
Standards in issue but not yet effective
The following standards, amendments and interpretations were in issue at the
date of approval of these financial statements but were not yet effective for
the current accounting period and have not been adopted early. Based on the
Group's current circumstances, the Directors do not anticipate that their
adoption in future periods will have a material impact on the financial
statements of the Group.
IFRS 17 (amended) - Insurance Contracts;
IAS 1 (amended) - Classification of liabilities as current or non-current;
IAS 1 and IFRS Practice Statement 2 (amended) - Disclosure of Accounting
Policies;
IAS 8 (amended) - Definition of Accounting Estimate;
IFRS 10 and IAS 28 (amended) - Sale or Contribution of Assets between an
Investor and its Associate or Joint Venture;
IAS 12 (amended) - Income Taxes: Deferred Tax Related to Assets and
Liabilities Arising from a Single Transaction.
3. Significant judgments, key assumptions and estimates
Some of the significant accounting policies require management to make
difficult, subjective or complex judgments or estimates. The following is a
summary of those policies which management consider critical because of the
level of complexity, judgment or estimation involved in their application and
their impact on the financial statements.
Key sources of estimation uncertainty
Property portfolio valuation
The Group uses the valuation carried out by external valuers as the fair value
of its property portfolio. The valuation considers a range of assumptions
including future rental income, investment yields, anticipated outgoings and
maintenance costs, future development expenditure and appropriate discount
rates. The external valuers also make reference to market evidence of
transaction prices for similar properties and take into account the impact of
climate change and related Environmental, Social and Governance
considerations. Knight Frank LLP were appointed to value at least half of the
property portfolio as at 30 June 2022. More information is provided in note
11.
Impairment testing of trade receivables and other financial assets
Trade receivables and accrued rental income recognised in advance of receipt
are subject to impairment testing. This accrued rental income arises due to
the spreading of rent free and reduced rent periods, capital contributions and
contracted rent uplifts in accordance with IFRS 16 Leases.
Impairment calculations have been carried out using the forward-looking,
simplified approach to the expected credit loss model within IFRS 9. The
impact of the Covid-19 pandemic on the Group's business and its occupiers has
been considered and in 2022 the severity of the impact was considerably less
than in 2021 as evidenced by a partial reversal in impairment charges and rent
collection rates now close to that seen pre-pandemic. The result is a £1.9m
reduction in the provision for the half year to 30 June 2022 and after adding
receivable balances written off of £1.3m, the total credit to the income
statement for the half year to 30 June 2022 was £0.6m, compared to the £1.4m
charge recognised for the half year to 30 June 2021. In arriving at the
estimates, the Group considered the tenants at higher risk, particularly in
the retail or hospitality sectors, those in administration or CVA, the top 74
tenants by size and has also considered the remaining balances classified by
sector.
The impairment provisions are included within 'Other receivables
(non-current)' (see note 15) and 'Trade and other receivables' (see note 16)
as shown below:
Other Trade Total
receivables and other receivables
(non-current) (current)
£m £m £m
Lease incentive receivables before impairment 165.1 19.2 184.3
Impairment of lease incentive receivables (3.2) (1.0) (4.2)
Write-off (0.2) (0.1) (0.3)
Net lease incentive included within accrued income 161.7 18.1 179.8
Trade receivables before impairment - 9.3 9.3
Impairment of trade receivables - (3.1) (3.1)
Service charge provision - (0.3) (0.3)
Write-off - (1.0) (1.0)
Net trade receivables - 4.9 4.9
The assessment considered the risk of tenant failures and defaults using
information on tenants' payment history, deposits held, the latest known
financial position together with forecast information where available, ongoing
dialogue with tenants as well as other information such as the sector in which
they operate. Following this, tenants were classified as either low, medium or
high risk and the table below provides further information. The impairment
against the lease incentive receivable balance was £4.2m and against the
trade receivables balance was £3.4m.
Lease incentive Lease incentive Trade
receivables receivables receivables
(non-current) (current) (current)
£m £m £m
Balance before impairment
Low risk 151.8 14.3 3.8
Medium risk 7.1 2.8 1.3
High risk 6.0 2.0 3.2
164.9 19.1 8.3
Impairment
Low risk - - -
Medium risk (0.4) (0.2) (0.2)
High risk (2.8) (0.8) (3.2)
(3.2) (1.0) (3.4)
161.7 18.1 4.9
Borrowings and derivatives
The fair values of the Group's borrowings and interest rate swaps are provided
by an independent third party based on information provided to them by the
Group. This includes the terms of each of the financial instruments and data
available in the financial markets.
Significant judgments
Compliance with the real estate investment trust (REIT) taxation regime.
4. Segmental information
IFRS 8 Operating Segments requires operating segments to be identified on the
basis of internal financial reports about components of the Group that are
regularly reviewed by the chief operating decision maker (which in the Group's
case are the four executive Directors assisted by the other eight members of
the Executive Committee) in order to allocate resources to the segments and to
assess their performance.
The internal financial reports received by the Group's Executive Committee
contain financial information at a Group level as a whole and there are no
reconciling items between the results contained in these reports and the
amounts reported in the financial statements. These internal financial
reports include the IFRS figures but also report the non-IFRS figures for the
EPRA Earnings and Net Asset Value metrics. Reconciliations of each of these
figures to their statutory equivalents are detailed in note 25. Additionally,
information is provided to the Executive Committee showing gross property
income and property valuation by individual property. Therefore, for the
purposes of IFRS 8, each individual property is considered to be a separate
operating segment in that its performance is monitored individually.
The Group's property portfolio includes investment property, owner-occupied
property and trading property and comprised 97% office buildings* in central
London by value (30 June 2021: 98%; 31 December 2021: 97%). The Directors
consider that these individual properties have similar economic
characteristics and therefore have been aggregated into a single operating
segment. The remaining 3% (30 June 2021: 2%; 31 December 2021: 3%) represented
a mixture of retail, residential and light industrial properties, as well as
land, each of which is de minimis in its own right and below the quantitative
threshold in aggregate. Therefore, in the view of the Directors, there is
one reportable segment under the provisions of IFRS 8.
All of the Group's properties are based in the UK. No geographical grouping is
contained in any of the internal financial reports provided to the Group's
Executive Committee and, therefore, no geographical segmental analysis is
required by IFRS 8. However, geographical analysis is included in the tables
below to provide users with additional information. The majority of the
Group's properties are located in London (West End central, West End
borders/outer and City borders), with the remainder in Scotland (Provincial).
* Some office buildings have an ancillary element such as retail or
residential.
Gross property income
Office buildings Other Total
£m £m £m
Half year to 30 June 2022
West End central 57.3 0.8 58.1
West End borders/other 8.2 - 8.2
City borders 33.2 0.2 33.4
Provincial - 2.4 2.4
Gross property income (excl. joint venture) 98.7 3.4 102.1
Share of joint venture gross property income 1.3 - 1.3
Total 100.0 3.4 103.4
Half year to 30 June 2021
West End central 56.3 - 56.3
West End borders/other 10.2 - 10.2
City borders 32.8 0.2 33.0
Provincial - 2.2 2.2
Gross property income (excl. joint venture) 99.3 2.4 101.7
Share of joint venture gross property income - - -
Total 99.3 2.4 101.7
Year to 31 December 2021
West End central 108.4 0.3 108.7
West End borders/other 18.5 - 18.5
City borders 67.6 0.5 68.1
Provincial - 4.5 4.5
Gross property income (excl. joint venture) 194.5 5.3 199.8
Share of joint venture gross property income 0.4 - 0.4
Total 194.9 5.3 200.2
A reconciliation of gross property income to gross property and other income
is given in note 5.
Included in the table above is £1.3m (half year to 30 June 2021: £nil; year
to 31 December 2021: £0.4m) of the Group's share of gross property income in
relation to the joint venture located within West End central. See note 9.
Property portfolio
Carrying value Fair value
Office Office
buildings Other Total buildings Other Total
£m £m £m £m £m £m
30 June 2022
West End central 3,444.8 80.2 3,525.0 3,562.5 80.9 3,643.4
West End borders/other 400.5 - 400.5 422.0 - 422.0
City borders 1,676.4 8.1 1,684.5 1,716.5 8.1 1,724.6
Provincial - 82.6 82.6 - 83.4 83.4
Group (excl. joint venture) 5,521.7 170.9 5,692.6 5,701.0 172.4 5,873.4
Share of joint venture 50.1 - 50.1 50.0 - 50.0
Total 5,571.8 170.9 5,742.7 5,751.0 172.4 5,923.4
30 June 2021
West End central 3,064.6 40.8 3,105.4 3,091.0 41.9 3,132.9
West End borders/other 490.0 - 490.0 517.0 - 517.0
City borders 1,602.9 8.2 1,611.1 1,644.0 8.2 1,652.2
Provincial - 81.0 81.0 - 81.5 81.5
Group (excl. joint venture) 5,157.5 130.0 5,287.5 5,252.0 131.6 5,383.6
Share of joint venture - - - - - -
Total 5,157.5 130.0 5,287.5 5,252.0 131.6 5,383.6
31 December 2021
West End central 3,313.6 82.2 3,395.8 3,348.9 84.2 3,433.1
West End borders/other 408.1 - 408.1 431.4 - 431.4
City borders 1,649.7 8.4 1,658.1 1,690.4 8.4 1,698.8
Provincial - 82.2 82.2 - 83.0 83.0
Group (excl. joint venture) 5,371.4 172.8 5,544.2 5,470.7 175.6 5,646.3
Share of joint venture 50.2 - 50.2 50.0 - 50.0
Total 5,421.6 172.8 5,594.4 5,520.7 175.6 5,696.3
A reconciliation between the fair value and carrying value of the portfolio is
set out in note 11.
Included in the table above is property in relation to the Group's share of
the joint venture located within West End central, with a carrying value of
£50.1m (half year to 30 June 2021: £nil; year to 31 December 2021: £50.2m)
and a fair value of £50.0m (half year to 30 June 2021: £nil; year to 31
December 2021: £50.0m). See notes 11 and 14.
5. Property and other income
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
£m £m £m
Gross rental income 101.7 98.1 194.2
Surrender premiums received 0.4 3.9 3.6
Write-off of associated rents previously recognised in advance - (0.3) -
Other property income - - 2.0
Gross property income 102.1 101.7 199.8
Trading property sales proceeds(1) 1.6 3.6 6.7
Service charge income(1) 16.8 13.6 30.2
Other income(1) 1.8 1.5 3.5
Gross property and other income 122.3 120.4 240.2
Gross rental income 101.7 98.1 194.2
Movement in impairment of receivables 0.6 (1.4) (0.8)
Service charge income(1) 16.8 13.6 30.2
Service charge expenses (18.3) (15.1) (33.6)
(1.5) (1.5) (3.4)
Property costs (6.9) (5.1) (11.8)
Net rental income 93.9 90.1 178.2
Trading property sales proceeds(1) 1.6 3.6 6.7
Trading property cost of sales (1.3) (3.1) (6.0)
Profit on disposal of trading properties 0.3 0.5 0.7
Other property income - - 2.0
Other income 1.8 1.5 3.5
Net surrender premiums received 0.4 3.6 3.6
Dilapidation receipts 0.1 0.1 0.9
Write-down of trading property - (0.7) (1.4)
Net property and other income 96.5 95.1 187.5
(1) In line with IFRS 15 Revenue from Contracts with Customers, the Group
recognised a total £20.2m (half year to 30 June 2021: £18.7m; year to 31
December 2021: £40.4m) of other income, trading property sales proceeds and
service charge income, which relates to expenditure that is directly
recoverable from tenants, within gross property and other income.
Gross rental income includes £10.9m (half year to 30 June 2021: £9.6m; year
to 31 December 2021: £20.2m) 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.
The impairment review has been carried out using the expected credit loss
model within IFRS 9 Financial Instruments (see notes 3 and 16 for additional
information). Included in this provision is a charge of £0.4m against trade
receivables relating to rental income for the 24 June 2022 quarter day. Most
of this income is deferred and has not yet been recognised in the income
statement. A 10% increase/decrease to the absolute probability rates of tenant
default in the year would result in a £1.8m decrease and £1.7m increase
respectively, in the Group's profit for the period. This sensitivity has been
performed on the medium to high risk tenants as the significant estimation
uncertainty is wholly related to these.
6. Profit on disposal
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
£m £m £m
Investment property
Gross disposal proceeds 67.3 168.6 402.4
Costs of disposal (1.4) (2.1) (3.7)
Net disposal proceeds 65.9 166.5 398.7
Carrying value (65.4) (165.9) (387.5)
Adjustment for lease costs and rents recognised in advance - - (0.7)
Profit on disposal of investment property 0.5 0.6 10.5
Artwork
Carrying value - - (0.1)
Profit on disposal of artwork - - (0.1)
Profit on disposal 0.5 0.6 10.4
Included within gross disposal proceeds is £67.2m relating to the disposal of
the Group's freehold interest in New River Yard EC1 in June 2022, which was
classified as a non-current asset held for sale at 31 December 2021.
7. Finance income and finance costs
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
£m £m £m
Finance income
Other 0.2 - -
Finance income 0.2 - -
Finance costs
Bank loans 0.9 0.3 0.9
Non-utilisation fees 1.0 1.1 2.1
Unsecured convertible bonds 1.9 1.9 3.9
Unsecured green bonds 3.3 - 0.8
Secured bonds 5.7 5.7 11.4
Unsecured private placement notes 7.8 7.8 15.6
Secured loan 1.7 1.7 3.3
Amortisation of issue and arrangement costs 1.3 1.2 2.5
Amortisation of the fair value of the secured bonds (0.6) (0.7) (1.3)
Obligations under headleases 0.4 0.4 0.7
Other - 0.2 0.2
Gross interest costs 23.4 19.6 40.1
Less: interest capitalised (4.7) (5.4) (12.0)
Finance costs 18.7 14.2 28.1
Finance costs of £4.7m (half year to 30 June 2021: £5.4m; year to 31
December 2021: £12.0m) have been capitalised on development projects, in
accordance with IAS 23 Borrowing Costs, using the Group's average cost of
borrowing during each quarter. Total finance costs paid to 30 June 2022 were
£18.6m (half year to 30 June 2021: £18.3m; year to 31 December 2021:
£37.0m) of which £4.7m (half year to 30 June 2021: £5.4m; year to 31
December 2021: £12.0m) was included in the £67.7m (half year to 30 June
2021: £87.2m; year to 31 December 2021: £172.1m) capital expenditure on the
property portfolio in the Group cash flow statement under investing
activities.
8. Financial derivative termination costs
The Group incurred costs of £0.6m in the half year to 30 June 2022 (half year
to 30 June 2021: £1.0m; year to 31 December 2021: £1.9m) deferring interest
rate swaps, of which £0.2m (half year to 30 June 2021: £nil; year to 31
December 2021: £nil) relates to swaps maturing in the current financial year.
9. Share of results of joint ventures
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
£m £m £m
Income 1.3 - 0.4
Administrative expenses (0.1) - (0.1)
Revaluation deficit (1.1) - (10.2)
0.1 - (9.9)
Joint venture acquisition costs incurred - - (4.0)
Share of results of joint ventures 0.1 - (13.9)
The share of results of joint ventures for the period ended 30 June 2022
includes the Group's 50% share in the Derwent Lazari Baker Street Limited
Partnership. See note 14 for further details of the Group's joint ventures.
10. Tax charge/(credit)
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
£m £m £m
Corporation tax
UK corporation tax and income tax in respect of result for the period 1.3 - 0.9
Other adjustments in respect of prior years' tax - - (0.4)
Corporation tax charge 1.3 - 0.5
Deferred tax
Origination and reversal of temporary differences 0.5 0.6 (1.1)
Adjustment for changes in estimates - - (0.7)
Deferred tax charge/(credit) 0.5 0.6 (1.8)
Tax charge/(credit) 1.8 0.6 (1.3)
In addition to the tax charge of £1.8m (half year to 30 June 2021: charge of
£0.6m; year to 31 December 2021: credit of £1.3m) that passed through the
Group income statement, a deferred tax charge of £0.2m (half year to 30 June
2021: charge of £0.5m; year to 31 December of 2021: charge of £1.7m) was
recognised in the Group statement of comprehensive income and a deferred tax
charge of £0.7m (half year to 30 June 2021: credit of £0.5m; year to 31
December 2021: credit of £0.7m) was recognised in the Group statement of
changes in equity. See note 20 for further details.
The effective rate of tax for the half year to 30 June 2022 is lower (half
year to 30 June 2021: lower; year to 31 December 2021: lower) than the
standard rate of corporation tax in the UK. The differences are explained
below:
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
£m £m £m
Profit before tax 137.1 121.1 252.5
Expected tax charge based on the standard rate of
corporation tax in the UK of 19.00% (2021: 19.00%)(1) 26.0 23.0 48.0
Difference between tax and accounting profit on disposals 0.1 (0.1) (0.7)
REIT exempt income (7.2) (6.9) (14.9)
Revaluation surplus attributable to REIT properties (14.3) (12.2) (32.2)
Expenses and fair value adjustments not allowable for
tax purposes (0.2) (1.0) 4.6
Capital allowances (3.0) (2.7) (4.3)
Other differences 0.4 0.5 (1.4)
Tax on current period's profit 1.8 0.6 (0.9)
Adjustments in respect of prior years' tax - - (0.4)
Tax charge/(credit) 1.8 0.6 (1.3)
(1) Changes to the UK corporation tax rates were substantively enacted as part
of the Finance Act 2021 (on 24 May 2021) and include increasing the main rate
to 25% effective on or after 1 April 2023. Deferred taxes at the balance sheet
date have been measured using the expected enacted tax rate and this is
reflected in these financial statements.
11. Property portfolio
Carrying value
Total Owner- Assets Total
investment occupied held for Trading property
Freehold Leasehold property property sale property portfolio
£m £m £m £m £m £m £m
At 1 January 2022 4,139.1 1,220.8 5,359.9 49.3 102.8 32.2 5,544.2
Acquisitions 0.1 132.9 133.0 - - - 133.0
Capital expenditure 26.7 42.5 69.2 - 0.1 0.1 69.4
Interest capitalisation 0.9 3.5 4.4 - - 0.3 4.7
Additions 27.7 178.9 206.6 - 0.1 0.4 207.1
Disposals - - - - (65.4) (1.3) (66.7)
Transfers (62.6) (13.3) (75.9) - 75.9 - -
Revaluation 39.4 32.0 71.4 0.7 2.0 - 74.1
Movement in grossing up of
headlease liabilities - (51.3) (51.3) - - - (51.3)
Movement in grossing up of
other liabilities - (14.8) (14.8) - - - (14.8)
At 30 June 2022 4,143.6 1,352.3 5,495.9 50.0 115.4 31.3 5,692.6
At 1 January 2021 3,893.5 1,135.6 5,029.1 45.6 165.0 12.9 5,252.6
Acquisitions - 23.7 23.7 - - - 23.7
Capital expenditure 45.0 55.7 100.7 - - - 100.7
Interest capitalisation 1.1 4.3 5.4 - - - 5.4
Additions 46.1 83.7 129.8 - - - 129.8
Disposals (0.9) - (0.9) - (165.0) (3.0) (168.9)
Transfers (83.9) (78.9) (162.8) - 162.8 - -
Revaluation 39.4 18.4 57.8 1.0 - - 58.8
Write-down of trading property - - - - - (0.7) (0.7)
Transfer from prepayments
and accrued income - - - - 0.3 - 0.3
Movement in grossing up of
headlease liabilities - 0.7 0.7 - - - 0.7
Movement in grossing up of
other liabilities - 14.9 14.9 - - - 14.9
At 30 June 2021 3,894.2 1,174.4 5,068.6 46.6 163.1 9.2 5,287.5
At 1 January 2021 3,893.5 1,135.6 5,029.1 45.6 165.0 12.9 5,252.6
Acquisitions 214.6 139.0 353.6 - - - 353.6
Capital expenditure 76.6 88.4 165.0 - - 1.1 166.1
Interest capitalisation 2.4 9.6 12.0 - - - 12.0
Additions 293.6 237.0 530.6 - - 1.1 531.7
Disposals (75.8) (146.7) (222.5) - (165.0) (5.9) (393.4)
Transfers (63.7) (63.0) (126.7) - 101.2 25.5 -
Revaluation 91.5 39.3 130.8 3.7 - - 134.5
Write-down of trading property - - - - - (1.4) (1.4)
Transfer from prepayments
and accrued income - - - - 1.6 - 1.6
Movement in grossing up of
headlease liabilities - 3.8 3.8 - - - 3.8
Movement in grossing up of
other liabilities - 14.8 14.8 - - - 14.8
At 31 December 2021 4,139.1 1,220.8 5,359.9 49.3 102.8 32.2 5,544.2
Adjustments from fair value to carrying value
Total Owner- Assets Total
investment occupied held for Trading property
Freehold Leasehold property property sale property portfolio
£m £m £m £m £m £m £m
At 30 June 2022
Fair value 4,305.9 1,367.2 5,673.1 50.0 118.8 31.5 5,873.4
Selling costs relating to assets
held for sale - - - - (3.4) - (3.4)
Revaluation of trading property - - - - - (0.2) (0.2)
Lease incentives and costs
included in receivables (162.3) (34.0) (196.3) - - - (196.3)
Grossing up of headlease liabilities - 19.1 19.1 - - - 19.1
Carrying value 4,143.6 1,352.3 5,495.9 50.0 115.4 31.3 5,692.6
At 30 June 2021
Fair value 4,044.1 1,116.6 5,160.7 46.6 166.2 10.1 5,383.6
Selling costs relating to assets
held for sale - - - - (3.1) - (3.1)
Revaluation of trading property - - - - - (0.9) (0.9)
Lease incentives and costs
included in receivables (149.9) (24.2) (174.1) - - - (174.1)
Grossing up of headlease liabilities - 67.1 67.1 - - - 67.1
Grossing up of other liabilities - 14.9 14.9 - - - 14.9
Carrying value 3,894.2 1,174.4 5,068.6 46.6 163.1 9.2 5,287.5
At 31 December 2021
Fair value 4,296.2 1,161.9 5,458.1 49.3 104.8 34.1 5,646.3
Selling costs relating to assets
held for sale - - - - (2.0) - (2.0)
Revaluation of trading property - - - - - (1.9) (1.9)
Lease incentives and costs
included in receivables (157.1) (26.3) (183.4) - - - (183.4)
Grossing up of headlease liabilities - 70.4 70.4 - - - 70.4
Grossing up of other liabilities - 14.8 14.8 - - - 14.8
Carrying value 4,139.1 1,220.8 5,359.9 49.3 102.8 32.2 5,544.2
Reconciliation of fair value
30.06.2022 30.06.2021 31.12.2021
£m £m £m
Portfolio including the Group's share of joint ventures 5,923.4 5,383.6 5,696.3
Less: joint ventures (50.0) - (50.0)
IFRS property portfolio 5,873.4 5,383.6 5,646.3
The property portfolio is subject to semi-annual external valuations and was
revalued at 30 June 2022 by external valuers on the basis of fair value in
accordance with The RICS Valuation - Professional Standards, which takes
account of the properties' highest and best use. When considering the highest
and best use of a property, the external valuers will consider its existing
and potential uses which are physically, legally and financially viable.
Where the highest and best use differs from the existing use, the external
valuers will consider the costs and the likelihood of achieving and
implementing this change in arriving at the property valuation.
The valuation reports produced by the external valuers are based on
information provided by the Group such as current rents, terms and conditions
of lease agreements, service charges and capital expenditure. This
information is derived from the Group's financial and property management
systems and is subject to the Group's overall control environment. In
addition, the valuation reports are based on assumptions and valuation models
used by the external valuers. The assumptions are typically market related,
such as yields and discount rates, and are based on their professional
judgement and market observation and take into account the impact of climate
change and related Environmental, Social and Governance considerations.
The external valuations for the London-based portfolio at June 2022 were
carried out by CBRE Limited and Knight Frank LLP. Knight Frank have been
appointed to value 100% of the London-based portfolio in December 2022.
CBRE valued the properties at £2,680.4m (30 June 2021: £5,348.6m; 31
December 2021: £5,610.8m), Knight Frank at £3,156.9m (30 June 2021: £nil;
31 December 2021: £nil) and other valuers at £36.1m (30 June 2021: £35.0m;
31 December 2021: £35.5m). The combined value was £5,873.4m (30 June 2021:
£5,383.6m; 31 December 2021: £5,646.3m). Of the properties revalued,
£50.0m (30 June 2021: £46.6m; 31 December 2021: £49.3m) relating to
owner-occupied property was included within property, plant and equipment,
£118.8m (30 June 2021: £166.2m; 31 December 2021: £104.8m) was included
within non-current assets held for sale and £31.5m (30 June 2021: £10.1m; 31
December 2021: £34.1m) was included within trading property.
The total fees, including the fee for this assignment, earned by each valuer
(or other companies forming part of the same group of companies within the UK)
from the Group is less than 5.0% of their total UK revenues.
At 31 December 2021, the grossing up of headlease liabilities included a net
£51.3m for the discounted headlease liabilities in relation to Soho Place W1.
In March 2022, the Group acquired the headlease from TfL for a premium of
£68.0m subject to an intermediary long leasehold interest and as a result,
the headlease liability was reversed. At 30 June 2022, the value of this
intermediary long leasehold interest was £16.8m. At the same date, the
estimated profit share to TfL for the development of Soho Place W1 has been
accrued and included within capital expenditure and £14.8m previously
included in 'grossing up of other liabilities' has been reversed.
The Group published its pathway to net zero carbon in July 2020 and has set
2030 as its target date to achieve this. £34.8m (half year to 30 June 2021:
£70.0m; year to 31 December 2021: £116.6m) of eligible 'green' capital
expenditure, in accordance with the Group's Green Finance Framework, was
incurred in the half year to 30 June 2022 on the major developments at 80
Charlotte Street W1, Soho Place W1, The Featherstone Building EC1 and 25 Baker
Street W1. In addition, the Group continues to hold carbon credits to support
certain externally validated green projects to offset embodied carbon.
In 2021, the Group commissioned a third-party report to determine the costs of
achieving EPC compliance across the portfolio by 2030. The study indicated an
estimated cost of c.£97m to upgrade the Group's properties to EPC 'B' or
above. As at 30 June 2022, part of these costs have been taken into account in
the property portfolio valuations. The Group have also considered the
estimated amount of capital expenditure recoverable through service charges or
not already included within future planned refurbishment projects.
Reconciliation of revaluation surplus
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
£m £m £m
Total revaluation surplus 87.5 70.1 142.9
Share of joint ventures 1.0 - 13.9
Lease incentives and costs (12.9) (8.4) (19.7)
Trading property revaluation adjustment 1.1 (0.5) (2.0)
Assets held for sale selling costs (2.6) (3.1) (2.0)
IFRS revaluation surplus 74.1 58.1 133.1
Reported in the:
Revaluation surplus 73.4 57.8 130.8
Write-down of trading property - (0.7) (1.4)
Group income statement 73.4 57.1 129.4
Group statement of comprehensive income 0.7 1.0 3.7
74.1 58.1 133.1
Sensitivity of measurement to variations in the significant unobservable
inputs
The significant unobservable inputs used in the fair value measurement
categorised within Level 3 of the fair value hierarchy of the Group's property
portfolio, together with the impact of significant movements in these inputs
on the fair value measurement, are shown below:
Impact on fair value measurement Impact on fair value measurement
Unobservable input of significant increase in input of significant decrease in input
Gross ERV Increase Decrease
Net initial yield Decrease Increase
Reversionary yield Decrease Increase
True equivalent yield Decrease Increase
There are inter-relationships between these inputs as they are partially
determined by market conditions. An increase in the reversionary yield may
accompany an increase in gross ERV and would mitigate its impact on the fair
value measurement.
A sensitivity analysis was performed to ascertain the impact on the fair value
of a 25 basis point shift in true equivalent yield and a £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 (5.6%) (4.9%) (5.1%) (3.0%) (5.3%)
-25bp 6.3% 5.4% 5.7% 3.2% 5.9%
ERV
+£2.50 psf 4.2% 4.8% 4.7% 17.4% 4.6%
-£2.50 psf (4.2%) (4.8%) (4.7%) (17.4%) (4.6%)
12. Property, plant and equipment
Owner-
occupied
property Other Total
£m £m £m
At 1 January 2022 49.3 4.7 54.0
Additions - 0.3 0.3
Depreciation - (0.5) (0.5)
Revaluation 0.7 - 0.7
At 30 June 2022 50.0 4.5 54.5
At 1 January 2021 45.6 4.6 50.2
Additions - 0.8 0.8
Depreciation - (0.4) (0.4)
Revaluation 1.0 - 1.0
At 30 June 2021 46.6 5.0 51.6
At 1 January 2021 45.6 4.6 50.2
Additions - 1.3 1.3
Disposals - (0.2) (0.2)
Depreciation - (0.9) (0.9)
Revaluation 3.7 (0.1) 3.6
At 31 December 2021 49.3 4.7 54.0
Net book value
Cost or valuation 50.0 9.1 59.1
Accumulated depreciation - (4.6) (4.6)
At 30 June 2022 50.0 4.5 54.5
Net book value
Cost or valuation 46.6 9.1 55.7
Accumulated depreciation - (4.1) (4.1)
At 30 June 2021 46.6 5.0 51.6
Net book value
Cost or valuation 49.3 8.8 58.1
Accumulated depreciation - (4.1) (4.1)
At 31 December 2021 49.3 4.7 54.0
Artwork, which is included within 'Other', is periodically valued by Bonhams
on the basis of fair value using their extensive market knowledge. The latest
valuation was carried out in December 2021. In accordance with IFRS 13 Fair
Value Measurement, the artwork is deemed to be classified as Level 3.
13. Trading stock
30.06.2022 30.06.2021 31.12.2021
£m £m £m
Trading stock 1.2 - 0.4
1.2 - 0.4
Trading stock relates to development expenditure which is due to be disposed
of to third parties under development agreements.
14. Investments
The Group has a 50% interest in four joint venture vehicles, Derwent Lazari
Baker Street Limited Partnership, Dorrington Derwent Holdings Limited,
Primister Limited and Prescot Street Limited Partnership.
30.06.2022 30.06.2021 31.12.2021
£m £m £m
At 1 January 51.1 0.9 0.9
Additions 0.1 - 64.1
Joint venture acquisition costs - - (4.0)
Revaluation deficit (see note 9) (1.1) - (10.2)
Other profit from operations (see note 9) 1.2 - 0.3
51.3 0.9 51.1
The Group's share of its investments in joint ventures is represented by the
following amounts in the underlying joint venture entities.
Joint ventures Group share
30.06.2022 30.06.2021 31.12.2021 30.06.2022 30.06.2021 31.12.2021
£m £m £m £m £m £m
Non-current assets 100.2 - 100.5 50.1 - 50.2
Current assets 5.0 1.2 3.7 2.5 0.6 1.9
Current liabilities (3.4) (0.7) (2.7) (1.7) (0.3) (1.3)
Non-current liabilities (120.9) - (120.8) (60.4) - (60.4)
Net assets (19.1) 0.5 (19.3) (9.5) 0.3 (9.6)
Loans provided to joint ventures 60.8 0.6 60.7
Total investment in joint ventures 51.3 0.9 51.1
15. Other receivables (non-current)
30.06.2022 30.06.2021 31.12.2021
£m £m £m
Prepayments and accrued income
Rents recognised in advance 161.7 142.3 147.0
Initial direct letting costs 14.1 13.0 12.3
175.8 155.3 159.3
Prepayments and accrued income include £161.7m (30 June 2021: £142.3m; 31
December 2021: £147.0m) after impairments (see note 3) relating to rents
recognised in advance as a result of spreading tenant lease incentives over
the expected terms of their respective leases. This includes rent free and
reduced rent periods, capital contributions in lieu of rent free periods and
contracted rent uplifts. In addition, £14.1m (30 June 2021: £13.0m; 31
December 2021: £12.3m) relates to the spreading effect of the initial direct
costs of letting over the same term. Together with £20.5m (30 June 2021:
£18.8m; 31 December 2021: £24.1m), which was included as accrued income
within trade and other receivables (see note 16), these amounts totalled
£196.3m at 30 June 2022 (30 June 2021: £174.1m; 31 December 2021: £183.4m).
The total movement in tenant lease incentives is shown below:
30.06.2022 30.06.2021 31.12.2021
£m £m £m
At 1 January 168.2 149.7 149.7
Amounts taken to income statement 10.7 9.3 19.9
Capital incentives granted - - 0.7
Lease incentive impairment 1.2 0.1 0.3
Adjustment for non-current asset held for sale - (0.3) (1.6)
Disposal of investment properties - - (0.5)
Write off to bad debt (0.3) - (0.3)
179.8 158.8 168.2
Amounts included in trade and other receivables (see note 16) (18.1) (16.5) (21.2)
At period end 161.7 142.3 147.0
16. Trade and other receivables
30.06.2022 30.06.2021 31.12.2021
£m £m £m
Trade receivables 4.9 26.1 6.9
Other receivables 8.5 4.3 3.7
Prepayments 37.8 24.9 24.7
Other taxes 6.0 - -
Accrued income
Rents recognised in advance 18.1 16.5 21.2
Initial direct letting costs 2.4 2.3 2.9
Other 1.2 1.4 2.3
78.9 75.5 61.7
Trade receivables are split as follows:
less than three months due 4.9 23.1 6.8
between three and six months due - 2.9 0.1
between six and twelve months due - 0.1 -
4.9 26.1 6.9
The Group has £7.6m (30 June 2021: £10.7m; 31 December 2021: £9.5m) of
provision for bad debts as shown below. £3.4m are included in trade
receivables, £1.0m in accrued income and £3.2m in prepayments and accrued
income within other receivables (non-current). See notes 3 and 15.
30.06.2022 30.06.2021 31.12.2021
£m £m £m
Provision for bad debts
At 1 January 9.5 9.3 9.3
Lease incentive provision 0.2 (0.1) (0.2)
Trade receivables provision (0.8) 1.3 0.8
Service charge provision - 0.2 0.1
Released (1.3) - (0.5)
At period end 7.6 10.7 9.5
The provision for bad debts are split as follows:
less than three months due 3.6 5.2 4.3
between three and six months due 0.2 0.4 0.2
between six and twelve months due 0.5 0.5 0.3
greater than twelve months due 3.3 4.6 4.7
7.6 10.7 9.5
17. Non-current assets held for sale
30.06.2022 30.06.2021 31.12.2021
£m £m £m
Prior period transfer from investment property 39.5 - -
Transfer from investment property (see note 11) 75.9 162.8 101.2
Transfer from prepayments and accrued income - 0.3 1.6
115.4 163.1 102.8
In July 2022, the Group exchanged contracts and completed on the sale of its
freehold interest in Bush House, South West Wing WC2. The property was valued
at £77.0m at 30 June 2022. In accordance with IFRS 5 Non-current Assets Held
for Sale, this property was recognised as a non-current asset held for sale
and, after deducting selling costs of £1.1m, the carrying value at 30 June
2022 was £75.9m.
In July 2020, the Group exchanged contracts on the sale of its leasehold
interest in 2 & 4 Soho Place W1, with completion occurring in July 2022.
The property was valued at £41.8m at 30 June 2022. In accordance with IFRS 5
Non-current Assets Held for Sale, this property was recognised as a
non-current asset held for sale and, after deducting selling costs of £2.3m,
the carrying value at 30 June 2022 was £39.5m.
18. Trade and other payables
30.06.2022 30.06.2021 31.12.2021
£m £m £m
Trade payables 7.3 4.9 3.2
Other payables 37.5 35.1 38.0
Other taxes - 3.4 8.0
Accruals 38.3 49.5 37.2
Deferred income 43.4 42.4 41.9
126.5 135.3 128.3
Deferred income primarily related to rents received in advance.
19. Net debt and derivative financial instruments
30.06.2022 30.06.2021 31.12.2021
Book Fair Book Fair Book Fair
value value Value value value value
£m £m £m £m £m £m
Current liabilities
Other loans 14.6 14.6 - - 12.3 12.3
14.6 14.6 - - 12.3 12.3
Non-current liabilities
1.5% unsecured convertible bonds 2025 169.2 156.2 167.3 171.5 168.3 174.0
6.5% secured bonds 2026 181.7 192.2 183.0 212.8 182.4 205.7
1.875% unsecured green bonds 2031 346.2 285.3 - - 346.0 344.6
Unsecured private placement notes 2026 - 2034 453.2 452.4 453.0 502.7 453.0 493.1
3.99% secured loan 2024 82.6 85.1 82.4 87.4 82.5 85.6
Unsecured bank loans 126.4 131.0 78.7 83.0 4.9 10.0
Secured bank loan - - 27.9 28.0 - -
1,359.3 1,302.2 992.3 1,085.4 1,237.1 1,313.0
Borrowings 1,373.9 1,316.8 992.3 1,085.4 1,249.4 1,325.3
Derivative financial instruments expiring in
less than one year - - - - 0.4 0.4
greater than one year (2.7) (2.7) 3.4 3.4 0.4 0.4
Total borrowings and derivative
financial instruments 1,371.2 1,314.1 995.7 1,088.8 1,250.2 1,326.1
Reconciliation to net debt:
Borrowings and derivative financial instruments 1,371.2 995.7 1,250.2
Adjustments for:
Leasehold liabilities 19.6 67.4 70.6
Derivative financial instruments 2.7 (3.4) (0.8)
Cash and cash equivalents (32.8) (60.0) (68.5)
Net debt 1,360.7 999.7 1,251.5
The fair values of the Group's bonds have been estimated on the basis of
quoted market prices, representing Level 1 fair value measurement as defined
by IFRS 13 Fair Value Measurement.
The fair values of the 3.99% secured loan and the unsecured private placement
notes were determined by comparing the discounted future cash flows using the
contracted yield with those of the reference gilts plus the implied margins,
and represent Level 2 fair value measurement.
The fair values of the Group's outstanding interest rate swaps have been
estimated by using the mid-point of the yield curves prevailing on the
reporting date and represent the net present value of the differences between
the contracted rate and the valuation rate when applied to the projected
balances for the period from the reporting date to the contracted expiry
dates. These represent Level 2 fair value measurement.
The fair values of the Group's bank loans are approximately the same as their
carrying amount, after adjusting for the unamortised arrangement fees, and
also represent Level 2 fair value measurement.
The fair values of the following financial assets and liabilities are the same
as their carrying amounts:
· Cash and cash equivalents.
· Trade receivables, other receivables and accrued income included
within trade and other receivables.
· Trade payables, other payables and accruals included within trade
and other payables.
· Leasehold liabilities.
There have been no transfers between Level 1 and Level 2 or Level 2 and Level
3 in either 2022 or 2021.
The Group's secured bank loan was settled during the previous year in advance
of the acquisition of the non-controlling interest from The Portman Estate.
The loan was previously secured by a fixed charge over £110.0m of the Group's
properties as at 30 June 2021. The 3.99% secured loan 2024 was secured by a
fixed charge over £302.7m (30 June 2021: £310.9m; 31 December 2021:
£305.2m) of the Group's properties. In addition, the secured bonds 2026 were
secured by a floating charge over a number of the Group's subsidiary companies
which contained £502.6m (30 June 2021: £576.2m; 31 December 2021: £571.8m)
of the Group's properties.
Other loans consist of a £14.6m interest-free loan with no fixed repayment
date from a third party providing development consultancy services on the
residential element of the 25 Baker Street W1 development. The loan will be
repaid from the sale proceeds of these residential apartments after completion
of the scheme. The agreement provides for a profit share on completion of the
sales which, under IFRS 9 Financial Instruments, has been deemed to have a
carrying value of £nil at 30 June 2022 (30 June 2021: £nil; 31 December
2021: £nil). The carrying value of the loan at 30 June 2022 was £14.6m (30
June 2021: £nil; 31 December 2021: £12.3m).
All additional drawings in the period have been made from existing revolving
credit facilities, and there are no new debt facilities in the period. The
Group continue to maintain significant headroom on all financial covenants.
20. Deferred tax
Revaluation
surplus Other Total
£m £m £m
At 1 January 2022 3.3 (3.6) (0.3)
Charged to the income statement 0.3 0.2 0.5
Charged to other comprehensive income 0.2 - 0.2
Charged to equity - 0.7 0.7
At 30 June 2022 3.8 (2.7) 1.1
At 1 January 2021 3.5 (3.0) 0.5
Charged to the income statement 0.2 0.4 0.6
Charged to other comprehensive income 0.2 0.3 0.5
Credited to equity - (0.5) (0.5)
At 30 June 2021 3.9 (2.8) 1.1
At 1 January 2021 3.5 (3.0) 0.5
(Credited)/charged to the income statement (1.6) 0.5 (1.1)
Change in tax rates in the income statement 0.1 (0.8) (0.7)
Charged to other comprehensive income 0.9 0.5 1.4
Change in tax rates in other comprehensive income 0.4 (0.1) 0.3
Credited to equity - (0.7) (0.7)
At 31 December 2021 3.3 (3.6) (0.3)
Deferred tax on the balance sheet revaluation surplus is calculated on the
basis of the chargeable gains that would crystallise on the sale of the
property portfolio at each balance sheet date. The calculation takes account
of any available indexation on the historical cost of the properties. Due to
the Group's REIT status, deferred tax is only provided at each balance sheet
date on properties outside the REIT regime.
Deferred tax assets have been recognised in respect of all tax losses and
other temporary differences where the Directors believe it is probable that
these assets will be recovered.
21. Dividend
Dividend per share Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
Payment date PID Non-PID Total
p p p £m £m £m
Current period
2022 interim dividend 14 October 2022 24.00 - 24.00 - - -
Prior year
2021 final dividend 1 June 2022 35.50 18.00 53.50 60.1 - -
2021 interim dividend 15 October 2021 23.00 - 23.00 - - 25.8
58.50 18.00 76.50
2020 final dividend 4 June 2021 35.00 17.45 52.45 - 58.8 58.8
Dividends as reported in the
Group statement of changes in equity 60.1 58.8 84.6
2021 final dividend withholding tax 14 July 2022 (5.4) - -
2021 interim dividend withholding tax 14 January 2022 3.5 - (3.5)
2020 final dividend withholding tax 14 July 2021 - (5.3) -
2020 interim dividend withholding tax 14 January 2021 - 3.2 3.2
Dividends paid as reported in the
Group cash flow statement 58.2 56.7 84.3
22. Cash and cash equivalents
30.06.2022 30.06.2021 31.12.2021
£m £m £m
Cash at bank 32.8 60.0 68.5
32.8 60.0 68.5
23. Post balance sheet events
In July 2022, the Group exchanged and completed the disposal of its freehold
interest in Bush House, South West Wing WC2 for £85.0m before costs.
In July 2022, the Group completed the disposal of its leasehold interest in 2
& 4 Soho Place W1, for £40.5m before costs.
In August 2022, the Group received £16.8m following the completion of the
grant of an intermediary long leasehold interest as per the Soho Place W1
development agreement.
24. Related party disclosure
There have been no related party transactions during the half year to 30 June
2022 that have materially affected the financial position or performance of
the Group. All related party transactions are materially consistent with those
disclosed by the Group in its financial statements for the year ended 31
December 2021.
25. EPRA performance measures
Number of shares
Earnings per share measures Net asset value per share measures
Weighted average for the
period ended At period ended
30.06.2022 30.06.2021 31.12.2021 30.06.2022 30.06.2021 31.12.2021
'000 '000 '000 '000 '000 '000
For use in basic measures 112,179 112,129 112,139 112,291 112,174 112,209
Dilutive effect of share-based payments 244 275 273 203 292 308
For use in other diluted measures 112,423 112,404 112,412 112,494 112,466 112,517
The £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 2021 and 2022 and for the year ended 31 December 2021, the
Group did not recognise the dilutive impact of the conversion of the 2025
bonds on its earnings per share (EPS) or net asset value (NAV) per share
metrics as, based on the share price at the end of each period, the bonds were
not expected to convert.
The following tables set out reconciliations between the IFRS and EPRA
Earnings for the period and earnings per share. The adjustments made between
the figures are as follows:
A - Disposal of investment and trading property (including the Group's share
in joint ventures), and associated tax and non-controlling interest.
B - Revaluation movement on investment property and in joint ventures,
write-down of trading property and associated deferred tax and non-controlling
interest.
C - Fair value movement and termination costs relating to derivative
financial instruments and associated non-controlling interest.
Earnings and earnings per share
Adjustments EPRA
IFRS A B C basis
£m £m £m £m £m
Half year to 30 June 2022
Net property and other income 96.5 (0.3) - - 96.2
Administrative expenses (17.8) - - - (17.8)
Revaluation surplus 73.4 - (73.4) - -
Profit on disposal of investments 0.5 (0.5) - - -
Net finance costs (18.5) - - - (18.5)
Movement in fair value of derivative
financial instruments 3.5 - - (3.5) -
Financial derivative termination costs (0.6) - - 0.2 (0.4)
Share of results of joint ventures 0.1 - 1.1 - 1.2
Profit before tax 137.1 (0.8) (72.3) (3.3) 60.7
Tax charge (1.8) 0.4 0.3 - (1.1)
Profit for the period 135.3 (0.4) (72.0) (3.3) 59.6
Earnings attributable to equity shareholders 135.3 (0.4) (72.0) (3.3) 59.6
Earnings per share 120.61p 53.13p
Diluted earnings per share 120.35p 53.01p
Half year to 30 June 2021
Net property and other income 95.1 (0.5) 0.7 - 95.3
Administrative expenses (19.4) - - - (19.4)
Revaluation surplus 57.8 - (57.8) - -
Profit on disposal of investments 0.6 (0.6) - - -
Net finance costs (14.2) - - - (14.2)
Movement in fair value of derivative
financial instruments 2.2 - - (2.2) -
Financial derivative termination costs (1.0) - - 1.0 -
Profit before tax 121.1 (1.1) (57.1) (1.2) 61.7
Tax charge (0.6) - 0.2 - (0.4)
Profit for the period 120.5 (1.1) (56.9) (1.2) 61.3
Non-controlling interest (0.3) - (0.4) - (0.7)
Earnings attributable to equity shareholders 120.2 (1.1) (57.3) (1.2) 60.6
Earnings per share 107.20p 54.04p
Diluted earnings per share 106.94p 53.91p
Adjustments EPRA
IFRS A B C basis
£m £m £m £m £m
Year to 31 December 2021
Net property and other income 187.5 (0.7) 1.4 - 188.2
Administrative expenses (37.1) - - - (37.1)
Revaluation surplus 130.8 - (130.8) - -
Profit on disposal of investments 10.4 (10.4) - - -
Net finance costs (28.1) - - - (28.1)
Movement in fair value of derivative
financial instruments 4.8 - - (4.8) -
Financial derivative termination costs (1.9) - - 1.9 -
Share of results of joint ventures (13.9) - 14.2 - 0.3
Profit before tax 252.5 (11.1) (115.2) (2.9) 123.3
Tax credit/(charge) 1.3 - (1.5) - (0.2)
Profit for the year 253.8 (11.1) (116.7) (2.9) 123.1
Non-controlling interest (1.5) - 0.4 - (1.1)
Earnings attributable to equity shareholders 252.3 (11.1) (116.3) (2.9) 122.0
Earnings per share 224.99p 108.79p
Diluted earnings per share 224.44p 108.53p
EPRA net asset value metrics
30.06.2022 30.06.2021 31.12.2021
£m £m £m
Net assets attributable to equity shareholders 4,518.8 4,330.7 4,441.8
Adjustments for:
Revaluation of trading properties 0.2 0.9 1.9
Deferred tax on revaluation surplus(1) 1.9 2.0 1.7
Fair value of derivative financial instruments (2.7) 3.4 0.8
Fair value adjustment to secured bonds 7.3 8.7 8.0
Non-controlling interest in respect of the above(1) - (0.4) -
EPRA Net Tangible Assets 4,525.5 4,345.3 4,454.2
Per share measure - diluted 4,023p 3,864p 3,959p
Net assets attributable to equity shareholders 4,518.8 4,330.7 4,441.8
Adjustments for:
Revaluation of trading properties 0.2 0.9 1.9
Fair value adjustment to secured bonds 7.3 8.7 8.0
Mark-to-market of fixed rate debt 62.9 (91.6) (69.5)
Unamortised issue and arrangement costs (11.3) (10.2) (12.6)
EPRA Net Disposal Value 4,577.9 4,238.5 4,369.6
Per share measure - diluted 4,069p 3,769p 3,884p
Net assets attributable to equity shareholders 4,518.8 4,330.7 4,441.8
Adjustments for:
Revaluation of trading properties 0.2 0.9 1.9
Deferred tax on revaluation surplus 3.8 3.9 3.3
Fair value of derivative financial instruments (2.7) 3.4 0.8
Fair value adjustment to secured bonds 7.3 8.7 8.0
Non-controlling interest in respect of the above - (0.7) -
Purchasers' costs(2) 399.4 366.1 383.9
EPRA Net Reinstatement Value 4,926.8 4,713.0 4,839.7
Per share measure - diluted 4,380p 4,191p 4,301p
( )
(1) Only 50% of the deferred tax on the revaluation surplus is excluded.
(2) Includes Stamp Duty Land Tax. Total costs assumed to be 6.8% of the
portfolio's fair value.
Cost ratios
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
£m £m £m
Administrative expenses 17.8 19.4 37.1
Write-off/impairment of receivables (0.6) 1.4 0.8
Other property costs 6.4 4.7 10.4
Dilapidation receipts (0.1) (0.1) (0.9)
Net service charge costs 1.5 1.5 3.4
Service charge costs recovered through rents
but not separately invoiced (0.3) (0.4) (0.6)
Management fees received less estimated profit element (1.8) (1.5) (3.5)
Share of joint ventures' expenses 0.3 - (0.1)
EPRA Costs (including direct vacancy costs) (A) 23.2 25.0 46.6
Direct vacancy costs (2.9) (2.5) (6.1)
EPRA Costs (excluding direct vacancy costs) (B) 20.3 22.5 40.5
Gross rental income 101.7 98.1 194.2
Ground rent (0.5) (0.4) (1.4)
Service charge components of rental income (0.3) (0.4) (0.5)
Share of joint ventures' rental income less ground rent (1.3) - (0.5)
Adjusted gross rental income (C) 99.6 97.3 191.8
EPRA Cost Ratio (including direct vacancy costs) (A/C) 23.3% 25.7% 24.3%
EPRA Cost Ratio (excluding direct vacancy costs) (B/C) 20.4% 23.1% 21.1%
In addition to the EPRA Cost Ratios, the Group has calculated an additional
cost ratio based on its property portfolio fair value to recognise the 'total
return' nature of the Group's activities.
Property portfolio at fair value (D) 5,873.4 5,383.6 5,646.3
Portfolio cost ratio (A/D) - annualised 0.8% 0.9% 0.8%
The Group has not capitalised any overhead or operating expenses in either
2022 or 2021.
Property-related capital expenditure
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
£m £m £m
Group (excluding joint ventures)
Acquisitions 133.0 23.7 353.6
Development 57.4 85.3 146.6
Investment properties
Incremental lettable space 0.1 - 0.1
No incremental lettable space 11.7 12.7 16.7
Tenant incentives 0.1 2.7 2.5
Capitalised Interest 4.7 5.4 12.0
Joint ventures (50% share)
Acquisitions - - 60.0
Development 1.0 - 0.2
Total capital expenditure 208.0 129.8 591.7
Conversion from accrual to cash basis
Group (excluding joint ventures) (0.5) - (107.6)
Joint ventures (50% share) (0.1) (18.8) (0.2)
Total capital expenditure on a cash basis 207.4 111.0 483.9
26. Gearing and interest cover
NAV gearing
30.06.2022 30.06.2021 31.12.2021
Note £m £m £m
Net debt 19 1,360.7 999.7 1,251.5
Net assets 4,518.8 4,382.9 4,441.8
NAV gearing 30.1% 22.8% 28.2%
Loan-to-value ratio
30.06.2022 30.06.2021 31.12.2021
Note £m £m £m
Group loan-to-value
Net debt 19 1,360.7 999.7 1,251.5
Fair value adjustment of secured bonds (7.3) (8.7) (8.0)
Unamortised discount on unsecured green bonds 1.8 - 1.8
Unamortised issue and arrangement costs 11.3 10.2 12.6
Leasehold liabilities 19 (19.6) (67.4) (70.6)
Drawn debt net of cash (A) 1,346.9 933.8 1,187.3
Fair value of property portfolio (B) 11 5,873.4 5,383.6 5,646.3
Loan-to-value ratio (A/B) 22.9% 17.3% 21.0%
Proportionally consolidated loan-to-value
Drawn debt net of cash (A) 1,346.9 933.8 1,187.3
Share of cash and cash equivalents in joint ventures (1.5) (0.5) (1.2)
Drawn debt net of cash including Group's share of joint ventures (C) 1,345.4 933.3 1,186.1
Fair value of property portfolio (B) 5,873.4 5,383.6 5,646.3
Share of fair value of property portfolio of joint venture 50.0 - 50.0
Fair value of property portfolio including Group's share of joint venture (D) 5,923.4 5,383.6 5,696.3
Proportionally consolidated loan-to-value (C/D) 22.7% 17.3% 20.8%
EPRA loan-to-value
Drawn debt net of cash including Group's share of joint ventures (C) 1,345.4 933.3 1,186.1
Debt with equity characteristics (14.6) - (12.3)
Adjustment for hybrid debt instruments 3.9 5.2 4.5
Net payables adjustment 69.1 78.5 91.7
Adjusted debt (E) 1,403.8 1,017.0 1,270.0
Fair value of property portfolio including Group's share of joint venture (D) 5,923.4 5,383.6 5,696.3
EPRA loan-to-value (E/D) 23.7% 18.9% 22.3%
Net interest cover ratio
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
Note £m £m £m
Group net interest cover ratio
Net property and other income 5 96.5 95.1 187.5
Adjustments for:
Other income 5 (1.8) (1.5) (3.5)
Other property income 5 - - (2.0)
Net surrender premiums 5 (0.4) (3.6) (3.6)
Write-down of trading property 5 - 0.7 1.4
Profit on disposal of trading properties 5 (0.3) (0.5) (0.7)
Adjusted net property income 94.0 90.2 179.1
Finance income 7 (0.2) - -
Finance costs 7 18.7 14.2 28.1
18.5 14.2 28.1
Adjustments for:
Finance income 7 0.2 - -
Other finance costs 7 - (0.2) (0.2)
Amortisation of fair value adjustment to secured bonds 7 0.6 0.7 1.3
Amortisation of issue and arrangement costs 7 (1.3) (1.2) (2.5)
Finance costs capitalised 7 4.7 5.4 12.0
22.7 18.9 38.7
Net interest cover ratio 414% 477% 463%
Proportionally consolidated net interest cover ratio
Adjusted net property income 94.0 90.2 179.1
Share of joint ventures' net property income 1.1 - 0.4
Adjusted net property income including share of joint ventures 95.1 90.2 179.5
Net interest payable 22.7 18.9 38.7
Proportionally consolidated net interest cover ratio 419% 477% 464%
27. Total return
Half year to 30.06.2022 Half year to 30.06.2021 Year to 31.12.2021
p p p
EPRA Net Tangible Assets on a diluted basis
At end of period 4,023 3,864 3,959
At start of period (3,959) (3,812) (3,812)
Increase 64 52 147
Dividend per share 54 52 75
Increase including dividend 118 104 222
Total return 3.0% 2.7% 5.8%
28. List of definitions
Building Research Establishment Environmental Assessment Method (BREEAM)
An environmental impact assessment method for non-domestic buildings.
Performance is measured across a series of ratings; Good, Very Good, Excellent
and Outstanding.
Capital return
The annual valuation movement arising on the Group's portfolio expressed as a
percentage return on the valuation at the beginning of the year adjusted for
acquisitions and capital expenditure.
Company Voluntary Arrangement (CVA)
An insolvency procedure allowing a company with debt problems or that is
insolvent to reach a voluntary agreement with its creditors to repay its debt
over a fixed period.
Diluted figures
Reported results adjusted to include the effects of potential dilutive shares
issuable under the Group's share option schemes and the convertible bonds.
Earnings/earnings per share (EPS)
Earnings represent the profit or loss for the period attributable to equity
shareholders and are divided by the weighted average number of ordinary shares
in issue during the financial period to arrive at earnings per share.
Energy Performance Certificate (EPC)
An EPC is an asset rating detailing how energy efficient a building is, rated
by carbon dioxide emission on a scale of A-G, where an A rating is the most
energy efficient. They are legally required for any building that is to be put
on the market for sale or rent.
Estimated rental value (ERV)
This is the external valuers' opinion as to the open market rent which, on the
date of valuation, could reasonably be expected to be obtained on a new
letting or rent review of a property.
European Public Real Estate Association (EPRA)
A not-for-profit association with a membership of Europe's leading property
companies, investors and consultants which strives to establish best practices
in accounting, reporting and corporate governance and to provide high-quality
information to investors. EPRA's Best Practices Recommendations includes
guidelines for the calculation of the following performance measures which the
Group has adopted.
- EPRA Earnings Per Share
Earnings from operational activities.
- EPRA loan-to-value ratio (LTV)
Debt divided by the property value. Debt is equal to drawn facilities less
cash, adjusted for debt with equity characteristics, adding back the equity
portion of hybrid debt instruments and including net payables if applicable.
Property value is equal to the fair value of the property portfolio including
net receivables if applicable.
- EPRA Net Reinstatement Value (NRV) per share
NAV adjusted to reflect the value required to rebuild the entity and assuming
that entities never sell assets. Assets and liabilities, such as fair value
movements on financial derivatives are not expected to crystallise in normal
circumstances and deferred taxes on property valuation surpluses are excluded.
- EPRA Net Tangible Assets (NTA) per share
Assumes that entities buy and sell assets, thereby crystallising certain
levels of unavoidable deferred tax.
- EPRA Net Disposal Value (NDV) per share
Represents the shareholders' value under a disposal scenario, where deferred
tax, financial instruments and certain other adjustments are calculated to the
full extent of their liability, net of any resulting tax.
- EPRA Cost Ratio (including direct vacancy costs)
EPRA costs as a percentage of gross rental income less ground rent (including
share of joint venture gross rental income less ground rent). EPRA costs
include administrative expenses, other property costs, net service charge
costs and the share of joint ventures' overheads and operating expenses (net
of any service charge costs), adjusted for service charge costs recovered
through rents and management fees.
- EPRA Cost Ratio (excluding direct vacancy costs)
Calculated as above, but with an adjustment to exclude direct vacancy costs.
- EPRA Net Initial Yield (NIY)
Annualised rental income based on the cash rents passing at the balance sheet
date, less non-recoverable property operating expenses, divided by the market
value of the EPRA property portfolio, increased by estimated purchasers'
costs.
- EPRA 'topped-up' Net Initial Yield
This measure incorporates an adjustment to the EPRA NIY in respect of the
expiration of rent free periods (or other unexpired lease incentives such as
discounted rent periods and stepped rents).
- EPRA Vacancy Rate
Estimated rental value (ERV) of immediately available space divided by the ERV
of the EPRA portfolio.
- EPRA like-for-like rental income growth
The growth in rental income on properties owned throughout the current and
previous periods under review. This growth rate includes revenue recognition
and lease accounting adjustments but excludes properties held for development
in either period and properties acquired or disposed of in either period.
Fair value adjustment
An accounting adjustment to change the book value of an asset or liability to
its market value.
Ground rent
The rent payable by the Group for its leasehold properties. Under IFRS, a
liability is recognised using the discounted payments due. Fixed lease
payments made are allocated between the interest payable and the reduction in
the outstanding liability. Any variable payments are recognised in the income
statement in the period to which it relates.
Headroom
This is the amount left to draw under the Group's loan facilities (i.e. the
total loan facilities less amounts already drawn).
Interest rate swap
A financial instrument where two parties agree to exchange an interest rate
obligation for a predetermined amount of time. These are generally used by the
Group to convert floating rate debt to fixed rates.
Key Performance Indicators (KPIs)
Activities and behaviours, aligned to both business objectives and individual
goals, against which the performance of the Group is annually assessed.
Lease incentives
Any incentive offered to occupiers to enter into a lease. Typically the
incentive will be an initial rent free or half rent period, stepped rents, or
a cash contribution to fit-out or similar costs.
Loan-to-value ratio (LTV)
Drawn debt net of cash divided by the fair value of the property portfolio.
Drawn debt is equal to drawn facilities less cash and the unamortised equity
element of the convertible bonds.
Mark-to-market
The difference between the book value of an asset or liability and its market
value.
MSCI Inc. (MSCI IPD)
MSCI Inc. is a company that produces independent benchmarks of property
returns. The Group measures its performance against both the Central London
Offices Index and the UK All Property Index.
National Australian Built Environment Rating System (NABERS)
This is a building performance rating system, introduced into the UK, which
provides an energy performance benchmark using a simple star rating system on
a 1-6 scale. This helps property owners understand and communicate a
building's performance versus other similar buildings to occupiers. Ratings
are validated on an annual basis.
NAV gearing
Net debt divided by net assets.
Net assets per share or net asset value (NAV)
Equity shareholders' funds divided by the number of ordinary shares in issue
at the balance sheet date.
Net debt
Borrowings plus bank overdraft less cash and cash equivalents.
Net interest cover ratio
Net property income, excluding all non-core items divided by interest payable
on borrowings and non-utilisation fees.
Property income distribution (PID)
Dividends from profits of the Group's tax-exempt property rental business
under the REIT regulations.
Non-PID
Dividends from profits of the Group's taxable residual business.
Real Estate Investment Trust (REIT)
The UK Real Estate Investment Trust ("REIT") regime was launched on 1 January
2007. On 1 July 2007, Derwent London plc elected to convert to REIT status.
The REIT legislation was introduced to provide a structure which closely
mirrors the tax outcomes of direct ownership in property and removes tax
inequalities between different real estate investors. It provides a liquid and
publicly available vehicle which opens the property market to a wide range of
investors.
A REIT is exempt from corporation tax on qualifying income and gains of its
property rental business providing various conditions are met. It remains
subject to corporation tax on non-exempt income and gains e.g. interest
income, trading activity and development fees.
REITs must distribute at least 90% of the Group's income profits from its tax
exempt property rental business, by way of dividend, known as a property
income distribution. These distributions can be subject to withholding tax at
20%.
If the Group distributes profits from the non-tax exempt business, the
distribution will be taxed as an ordinary dividend in the hands of the
investors (non-PID).
Rent reviews
Rent reviews take place at intervals agreed in the lease (typically every five
years) and their purpose is usually to adjust the rent to the current market
level at the review date. For upwards only rent reviews, the rent will either
remain at the same level or increase (if market rents are higher) at the
review date.
Reversion
The reversion is the amount by which ERV is higher than the rent roll of a
property or portfolio. The reversion is derived from contractual rental
increases, rent reviews, lease renewals and the letting of space that is
vacant and available to occupy or under development or refurbishment.
Scrip dividend
Derwent London plc sometimes offers its shareholders the opportunity to
receive dividends in the form of shares instead of cash. This is known as a
scrip dividend.
Task Force on Climate-related Financial Disclosures (TCFD)
Set up by the Financial Stability Board (FSB) in response to the G20 Finance
Ministers and Central Bank Governors request for greater levels of
decision-useful, climate-related information; the TCFD was asked to develop
climate-related disclosures that could promote more informed investment,
credit (or lending), and insurance underwriting decisions. In turn, this would
enable stakeholders to understand better the concentrations of carbon-related
assets in the financial sector and the financial system's exposures to
climate-related risks.
'Topped-up' rent
Annualised rents generated by the portfolio plus rent contracted from expiry
of rent free periods and uplifts agreed at the balance sheet date.
Total property return (TPR)
Total property return is a performance measure calculated by the MSCI IPD and
defined in the MSCI Global Methodology Standards for Real Estate Investment as
'the percentage value change plus net income accrual, relative to the capital
employed'.
Total return
The movement in EPRA Net Tangible Assets per share on a diluted basis between
the beginning and the end of each financial period plus the dividend per share
paid during the period expressed as a percentage of the EPRA Net Tangible
Assets per share on a diluted basis at the beginning of the year.
Total shareholder return (TSR)
The growth in the ordinary share price as quoted on the London Stock Exchange
plus dividends per share received for the period, expressed as a percentage of
the share price at the beginning of the year.
Transmission and distribution (T&D)
The emissions associated with the transmission and distribution losses in the
grid from the transportation of electricity from its generation source.
Underlying portfolio
Properties that have been held for the whole of the period (i.e. excluding any
acquisitions or disposals made during the period).
Underlying valuation increase
The valuation increase on the underlying portfolio.
Well to tank (WTT)
The emissions associate with extracting, refining and transporting raw fuel to
the vehicle, asset or process under scrutiny.
Yields
- Net initial yield
Annualised rental income based on cash rents passing at the balance sheet
date, less non-recoverable property operating expenses, divided by the market
value of the property, increased by estimated purchasers' costs.
- Reversionary yield
The anticipated yield, which the net initial yield will rise to once the rent
reaches the estimated rental values.
- True equivalent yield
The constant capitalisation rate which, if applied to all cash flows from the
portfolio, including current rent, reversions to valuers' estimated rental
value and such items as voids and expenditures, equates to the valuation
having taken into account notional purchasers' costs. Rent is assumed to be
received quarterly in advance.
- Yield shift
A movement in the yield of a property asset, or like-for-like portfolio, over
a given period. Yield compression is a commonly-used term for a reduction in
yields.
29. Copies of this announcement will be available on the company's website,
www.derwentlondon.com, from the date of this statement. Copies will also be
available from the Company Secretary, Derwent London plc, 25 Savile Row,
London, W1S 2ER.
Independent review report to Derwent London plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Derwent London plc's condensed consolidated interim financial
statements (the "interim financial statements") in the Interim Results 2022
Announcement of Derwent London plc for the 6 month period ended 30 June 2022
(the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim financial statements comprise:
· the Group condensed Balance Sheet as at 30 June 2022;
· the Group condensed Income Statement and Group condensed Statement
of Comprehensive Income for the period then ended;
· the Group condensed Cash Flow Statement for the period then ended;
· the Group condensed Statement of Changes in Equity for the period
then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Results 2022
Announcement of Derwent London plc have been prepared in accordance with UK
adopted International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the Interim Results 2022
Announcement and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the interim financial
statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with this ISRE. However, future events or
conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Interim Results 2022 Announcement, including the interim financial
statements, is the responsibility of, and has been approved by the directors.
The directors are responsible for preparing the Interim Results 2022
Announcement in accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority. In preparing
the Interim Results 2022 Announcement, including the interim financial
statements, the directors are responsible for assessing the group's ability to
continue as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or to cease operations, or have
no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the Interim Results 2022 Announcement based on our review. Our
conclusion, including our Conclusions relating to going concern, is based on
procedures that are less extensive than audit procedures, as described in the
Basis for conclusion paragraph of this report. This report, including the
conclusion, has been prepared for and only for the company for the purpose of
complying with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior consent in
writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
10 August 2022
Notes to editors
Derwent London plc
Derwent London plc owns 75 buildings in a commercial real estate portfolio
predominantly in central London valued at £5.9 billion as at 30 June 2022,
making it the largest London-focused real estate investment trust (REIT).
Our experienced team has a long track record of creating value throughout the
property cycle by regenerating our buildings via development or refurbishment,
effective asset management and capital recycling.
We typically acquire central London properties off-market with low capital
values and modest rents in improving locations, most of which are either in
the West End or the Tech Belt. We capitalise on the unique qualities of each
of our properties - taking a fresh approach to the regeneration of every
building with a focus on anticipating tenant requirements and an emphasis on
design.
Reflecting and supporting our long-term success, the business has a strong
balance sheet with modest leverage, a robust income stream and flexible
financing.
As part of our commitment to lead the industry in mitigating climate change,
Derwent London has committed to becoming a net zero carbon business by 2030,
publishing its pathway to achieving this goal in July 2020. In 2019 the
Group became the first UK REIT to sign a Revolving Credit Facility with a
'green' tranche. At the same time, we also launched our Green Finance
Framework and signed the Better Buildings Partnership's climate change
commitment. The Group is a member of the 'RE100' which recognises Derwent
London as an influential company, committed to 100% renewable power by
purchasing renewable energy, a key step in becoming a net zero carbon
business. Derwent London is one of only a few property companies worldwide
to have science-based carbon targets validated by the Science Based Targets
initiative (SBTi).
Landmark buildings in our 5.6 million sq ft portfolio include 1 Soho Place W1,
80 Charlotte Street W1, Brunel Building W2, White Collar Factory EC1, Angel
Building EC1, 1-2 Stephen Street W1, Horseferry House SW1 and Tea Building E1.
In January 2022 we were proud to announce that we had achieved the National
Equality Standard - the UK's highest benchmark for equality, diversity and
inclusion. In April 2022, Derwent London won the BCO Best Commercial
Workplace award for 80 Charlotte Street. In October 2021, the Group won EG's
UK Company of the Year award and in January 2022 came top of the Property
Sector and 38th position overall in Management Today's Britain's Most Admired
Companies awards 2021. In 2020 the Group won several awards for Brunel
Building with the most prominent being the BCO Best Commercial Workplace
award. In 2013 the Company launched a voluntary Community Fund which has to
date supported well over 100 community projects in the West End and the Tech
Belt.
The Company is a public limited company, which is listed on the London Stock
Exchange and incorporated and domiciled in the UK. The address of its
registered office is 25 Savile Row, London, W1S 2ER.
For further information see www.derwentlondon.com
(http://www.derwentlondon.com) or follow us on Twitter at @derwentlondon
Forward-looking statements
This document contains certain forward-looking statements about the future
outlook of Derwent London. By their nature, any statements about future
outlook involve risk and uncertainty because they relate to events and depend
on circumstances that may or may not occur in the future. Actual results,
performance or outcomes may differ materially from any results, performance or
outcomes expressed or implied by such forward-looking statements.
No representation or warranty is given in relation to any forward-looking
statements made by Derwent London, including as to their completeness or
accuracy. Derwent London does not undertake to update any forward-looking
statements whether as a result of new information, future events or
otherwise. Nothing in this announcement should be construed as a profit
forecast.
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