Derwent London Plc · LSE:DLN
Derwent London — H1 2010 Earnings Presentation
74 slides from Derwent London's earnings presentation, 2010
Slide 1: Derwent London plc Interim results 2010
Derwent London plc Interim results 2010
Slide 2: Contents
Contents Page Highlights 02 Results review 04 Valuation 16 Portfolio activity 24 Acquisitions 28 Market summary 35 Projects 39 Outlook 48 Appendices 50 Disclaimer 72 Presentation: John Burns, Damian Wisniewski, Simon Silver, Paul Williams, Nigel George, David Silverman
Slide 3: Highlights
Highlights John Burns
Slide 4: Highlights
Highlights • Strong NAV growth • Our trademark space in demand • Return to rental growth • Major acquisition • Excellent financial health • Progressive dividend Highlights 02
Slide 5: Results review
Results review Damian Wisniewski
Slide 6: Headline numbers
Headline numbers June Dec June 2010 2009 2009 Total portfolio at fair value £2,150.2m £1,918.4m £1,855.6m Adjusted net asset value per share 1,365p 1,168p 993p Gross property income £57.4m £123.8m £63.1m Recurring profit before tax (unadjusted)1 £26.8m £60.2m £33.3m Recurring profit before tax (adju
Slide 7: Group balance sheet
Group balance sheet June Dec June 2010 2009 2009 £m £m £m Investment property 2,119.0 1,888.6 1,718.9 Other non-current assets 49.2 47.5 39.5 2,168.2 1,936.1 1,758.4 Non-current assets held for re-sale - - 110.2 Trading properties 1.0 1.0 7.5 Other current assets and liabilities (13.9) (16.8) 1 (14.
Slide 8: Group balance sheet: debt, net assets and gearing
Group balance sheet Debt, net assets and gearing • Net assets up by 17% to £1.32bn 2,000 100 Net Debt Net Assets Balance sheet gearing Property gearing/LTV 1,650 80 • Net debt increased to £749m from £721m 1,300 1,319 60 £m • Further falls in LTV and balance sheet gearing ratios % 1,180 1,127 950 40
Slide 9: Group income statement
Group income statement Half year Half year ended ended June 2010 June 2009 £m £m Gross property income 57.4 63.1 Other income 1.1 0.6 Property outgoings (3.6) (4.4) Net property income 54.9 59.3 Total administrative expenses (9.5) (8.5) Revaluation surplus/(deficit) 199.8 (258.9) Profit/(loss) on di
Slide 10: Adjusted recurring profit before tax
Adjusted recurring profit before tax Adjusted recurring profit before tax 70 60 57.4 1.1 (4.7) (10.0) 50 (18.8) 40 £m 30 26.8 0.6 25.6 (0.4) 0.5 1.1 20 10 Results review Gross Other Property Admin Net Joint Adjusted Forex on Cash-settled Rates Recurring property income expenditure/ expenses finance
Slide 11: Group income statement
Group income statement • Gross property income in H1 2010 reduced by £5.7m compared to H1 2009, split as follows: £m Property disposals (6.7) Voids (2.4) Lettings, reviews and other 3.4 (5.7) H1 2010 H1 2009 £m £m Rental income 55.6 58.8 Surrender premium 0.3 - SIC15 lease incentives 1.5 4.3 57.4 63
Slide 12: Group income statement
Group income statement • Share of results of joint ventures includes £0.7m revaluation surplus • Fair value movement of derivatives in H1 2010 was a loss of £10.9m against a gain of £7.0m in H1 2009 • Changed treatment of loan arrangement costs and amortisation - refer to page 11 and Appendix 5 • Ne
Slide 13: Reclassification of loan arrangement costs and amortisation
Reclassification of loan arrangement costs and amortisation • Loan arrangement costs will in future be offset against the loan balances within ‘borrowings’ in accordance with IAS39 • Loan arrangement costs will be amortised through finance costs rather than administrative expenses • Non-utilisation
Slide 14: Cashflow
Cashflow • Modest increase in net debt to £749.2m from £720.8m • Net cashflow movement in investment property portfolio H1 2010 H1 2009 £m £m Acquisitions (1.3) (1.5) Capex (29.6) (44.9) Disposal proceeds 0.3 39.3 (30.6) (7.1) • Forecast capital expenditure for 2010 can be found in Appendix 18 Resul
Slide 15: Debt facilities, covenants and gearing
Debt facilities, covenants and gearing June Dec June 2010 2009 2009 Gearing LTV 33.8% 36.4% 44.3% Balance sheet 55.1% 61.9% 85.9% Interest cover 320% 330% 324% Total facilities £1,145m £1,145m £1,145m Unutilised committed facilities £409m £425m £309m Unutilised facilities drawable £375m £353m £246m
Slide 16: Liability risk management
Liability risk management Hedging profile at 30 June 2010 Capped • 80% of drawn facilities were either at fixed rates or hedged 1% at 30 June 2010 Fixed 24% • Maturity profile of fixed and hedged debt is shown in the Swaps 55% bar chart Floating 20% • During the period, £40m of swaps were extended t
Slide 17: Valuation
Valuation Nigel George
Slide 18: Valuation
Valuation H1 Portfolio valuation valuation movement2 • Strong H1 2010 valuation performance 1 £m % • Our villages in demand Core portfolio 2,047.2 10.3 Development properties3 103.0 10.5 Investment portfolio 2,150.2 10.3 • Low average capital values • Portfolio £420 psf • West End central £520 psf W
Slide 19: Valuation movement
Valuation Valuation performance 15 • Central London continues to deliver valuation 10 10.3 11.2 outperformance against the wider property market Valuation movement (%) 5 6.2 4.3 0 -3.1 • H1 2010 total property return of 13.3% -3.3 -3.8 -5.4 -5 -8.6 -10 • IPD Central London Offices1 14.2% -15 • IPD A
Slide 20: Rental values
Rental values Rental value growth • Return to rental growth 10 • Underlying portfolio 2.6% (-2.9% in H2 2009) 8 • Central London 2.9% (-2.9% in H2 2009) Half-yearly rental value growth (%) 8.1 6 • West End 3.0% (-1.8% in H2 2009) 4 4.6 2 2.6 1.3 0 • IPD Central London Offices1 2.8% -2 -2.9 -4 -4.6 -
Slide 21: Yields
Yields Initial and reversionary yields 9 • Portfolio initial yield1 of 5.0% Initial yield Reversionary yield 8.5 • Tightened by 100 bp in H1 2010 8 • If current development properties are 7 excluded the initial yield is 5.3% 6 6.2 6.0 • Portfolio reversionary1 yield of 6.2% Yield (%) 5 5.3 5.0 4 • 1
Slide 22: Rental income profile
Rental income profile Core properties1 Angel Building Total Rental Rental Rental Rental Rental Rental uplift per annum Yield uplift per annum uplift per annum Yield2 £m £m % £m £m £m £m % % Contracted rental income, net of ground rents 108.3 5.3 - 108.3 5.0 Angel pre-let area - Cancer Research UK -
Slide 23: Vacancy levels
Vacancy levels Five-year vacancy trend • Vacant space available for letting (1) • 2.2% by rental value 8 • 2.7% by floor area 7 6 Vacancy rate (%) 5 • Vacancy rate by rental value decreased from 3.6% at December 2009 following continued 4 1 strong letting activity 3 2 1 • Delivery of project space w
Slide 24: Lease expiries and breaks
Lease expiries and breaks Lease expiry and break analysis1 • H1 2010 expiries/breaks • Exposure of £12.2m equating to 10.6% of 13% rental income • £6.4m related to identified projects 7% • Mainly £4.2m BT lease expiry at Angel • Of £5.8m remaining: • 80% retained, 7% re-let, 13% vacant • Average tim
Slide 25: Portfolio activity
Portfolio activity John Burns
Slide 26: Lettings
Lettings H1 2010 letting activity • Our trademark space in demand £3.5 Letting • 47 lettings, totalling 125,700 sq ft at £3.5m pa £3.0 Cumulative letting income Cumulative Dec 09 rental value • £3.0m from space vacant at year end £2.5 • 30 open-market lettings at £2.6m pa • 17 short-term lettings at
Slide 27: Lettings
Lettings Morelands EC1 Greencoat House SW1 • 5,600 sq ft £0.1m pa £20.50 psf • 3,400 sq ft £0.1m pa £39.50 psf • 7,500 sq ft £0.2m pa • 3,400 sq ft £20.00 psf £0.1m pa Portfolio activity £36.50 psf Suncourt House N1 19-23 Fitzroy Street W1 25
Slide 28: Charlotte Building Gresse Street W1
Charlotte Building 17 Gresse Street W1 • Fully let following Q3 letting to LinkedIn • 7,400 sq ft at £47.50 psf • Previous rents £43.50 - £45 psf • Total net annualised rental income £1.9m • Other tenants include: • Converse • Unanimis • Icon Entertainment • Brandopus • Awards received for this 47,0
Slide 29: Acquisitions
Acquisitions John Burns
Slide 30: Central Cross W1 - acquisition
Central Cross W1 - acquisition • Acquired post half year for £146m before costs • Net initial yield of 5.5% • Freehold - 2.1 acre site • 251,000 sq ft • 216,000 sq ft offices • 24,000 sq ft retail • 11,000 sq ft cinema • Annual rental income of £8.1m • 21 leases • 10 tenants • Average lease length o
Slide 31: Central Cross W1 - strategic West End location
Central Cross W1 - strategic West End location EUST ET ON R OAD TRE ER S WAR REN WARREN • Increases our holdings in the Oxford Street and Fitzrovia areas STRE ET STREET SOV EET BOL STR • Now 1.5m sq ft IELD URT ROAD EET FITZROY CHF STR SQUARE • £40m pa of rental income IT GRAFTON WAY AT T D LAN GRE
Slide 32: Central Cross W1 - retail potential
Central Cross W1 - retail potential • Existing retail • Over 400 ft retail frontage • 24,000 sq ft • £0.7m pa income • Very low Zone A rents at c. £100 psf • Issues • Poorly configured • Hidden behind columns • Small units • Limited tenant demand Acquisitions Existing retail frontage: Tottenham Cour
Slide 33: Central Cross W1 - retail potential
Central Cross W1 - retail potential • Potential retail • Infill to building line • Proposed floor area • 40,000 sq ft • Nearly double existing • Redefine location • Cater to wider sectors • Fashion & food • Zone A rents £250+ psf • Equates to c. £3.0m pa • Programme • Planning - next 12 months • Pos
Slide 34: Central Cross W1 - office potential
Central Cross W1 - office potential • Offices • Reception upgrade • Potential for 75,000 sq ft to become available in 2011 • Generous spaces - 3 metre floor to ceiling heights • Office extensions and terraces to be explored Existing office entrance Acquisitions 32
Slide 35: Making an entrance
Making an entrance........ Tower House WC2 Qube W1 Horseferry House SW1 Acquisitions Oliver’s Yard EC2 Johnson Building EC1 33 Greencoat House SW1
Slide 36: Market summary
Market summary John Burns
Slide 37: West End demand
West End demand West End take-up 6 5 Take-up (million sq ft) Annual average 4 3 Half-year average 2 1 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 H1 2010 Source: CB Richard Ellis Market Derwent London Market outlook Half year take-up of 2.4m sq ft Continued letting success Cautious economic
Slide 38: West End supply
West End supply West End development pipeline 2.5 12.5 2.5 Under construction or proposed Completed Vacancy Rate 2.0 10.0 2.0 Floor area (million sq ft) Vacancy rate (%) 1.5 7.5 1.5 1.0 5.0 1.0 Six months 0.5 2.5 earlier 0.5 0.0 0.0 0.0 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 200
Slide 39: Central London investment
Central London investment Central London investment transactions 6 Total Value of investment transactions (£bn) 4 quarter average 5 4 3 2 1 0 Q2 00 Q2 01 Q2 02 Q2 03 Q2 04 Q2 05 Q2 06 Q2 07 Q2 08 Q2 09 Q2 10 Source: CB Richard Ellis Market Derwent London Market outlook £3.1bn of H1 transactions No m
Slide 40: Projects
Projects — © = op) c fe) £ oe
Slide 41: Projects - key points
Projects - key points • Angel development completing shortly • Refurbishment programme continues • Pipeline of major developments progressing • Ability to be flexible on delivery Projects 39 Angel Building EC1
Slide 42: Angel Building, St John Street EC1
Angel Building, St John Street EC1 • Striking 263,000 sq ft six-storey office building • Completion Q3 2010 • Cancer Research UK occupying 126,000 sq ft • On-site fitting out • Rent £5.0m pa - 2 years rent free • 20 year lease - break at 15 years • Balance 137,000 sq ft • Upper floors with terraces
Slide 43: Refurbishments
Refurbishments 1 Maple Place W1 • 20,000 sq ft 9-10 Rathbone Place W1 • 12,000 sq ft • Active programme of projects • Delivered 50,000 sq ft in H1 2010 • On-site at June 2010: • 140,000 sq ft • Capex £17.4m • Rental value £4.5m pa • To follow: • 33 George Street - 14,000 sq ft • 2-14 Pentonville Roa
Slide 44: Refurbishments - Victory House, Tottenham Court Road W1
Refurbishments - Victory House, Tottenham Court Road W1 • Comprehensive refurbishment underway • Office: 30,000 sq ft, Residential: 12,000 sq ft • Part of the continued improvement of our Fitzrovia estate Date 2010 2011 2012 Stage Available Projects Construction Area 12 months 42,000 sq ft Capex £10
Slide 45: Pipeline - 132/142 Hampstead Road NW1
Pipeline - 132/142 Hampstead Road NW1 • Existing buildings • 230,000 sq ft of warehouse space • Planning application to be submitted shortly • Office: 233,000 sq ft • Residential: 32,000 sq ft • Comprehensive refurbishment and extension • Includes new ‘sky’ floors with panoramic views Date 2010 2010
Slide 46: Pipeline - City Road Estate EC1
Pipeline - City Road Estate EC1 • Planning application now submitted • Includes new 16-storey office building totalling 220,000 sq ft • Innovative office development incorporating White Collar Factory concept • Set around a new public square Date 2010/2012 2013 2014 2015 2016 Stage Income £1.3m pa A
Slide 47: Pipeline - Charlotte Street W1
Pipeline - 80 Charlotte Street W1 • 1.4 acre island site in the heart of our Fitzrovia estate • Our designs are taking shape • Autumn 2010 planning application anticipated • Aim - create a new office hub set around public realm • Currently occupied by Saatchi & Saatchi • Leases expire 2013 Date 2010
Slide 48: Projects - summary
Projects - summary • Delivering space through our refurbishments • Strong design ethos • Exciting schemes in the pipeline • New opportunities with acquisition of Central Cross Projects 46 Angel Building EC1 - spectacular roof terraces
Slide 49: Outlook
Outlook John Burns
Slide 50: Outlook
Outlook • Continued outperformance from Central London markets • Rental growth returning - economy awareness • Yields stabilised • Strength of overseas buyers for prime • More opportunities becoming available in our market - ideal for strong buyers • Progress portfolio regeneration opportunities Out
Slide 51: Appendices
Appendices
Slide 52: Appendices
Appendices Page Page 1. Net asset value per share 51 12. Portfolio statistics by village 62 2. Group income statement 52 13. Annualised contracted rental income 63 3. Debt facilities 53 14. Vacant accommodation at half year 64 4. Net debt 54 15. Rent banding and tenant profile 65 5. Reclassification
Slide 53: Appendix - net asset value per share
Appendix 1 - net asset value per share June 2010 Dec 2009 June 2009 £m p £m p £m p Net assets attributable to equity shareholders 1,319.1 1,304 1,127.2 1,117 952.7 945 Deferred tax on revaluation surplus 8.8 7.8 7.3 Fair value of derivatives 33.4 23.4 20.4 Fair value adjustment to bond on acquisitio
Slide 54: Appendix - group income statement
Appendix 2 - group income statement • Reconciliation of IFRS profit/(loss) before tax to recurring and adjusted recurring profit before tax Half year Year Half year ended ended ended June 2010 Dec 2009 June 2009 £m £m £m Profit/(loss) before tax (IFRS) 216.4 (34.9) (223.3) Revaluation (surplus)/defi
Slide 55: Appendix - debt facilities
Appendix 3 - debt facilities Nominal Maturity £m £m 6.5% secured bond 175.0 March 2026 Floating rate guaranteed unsecured loan note 1.4 February 2012 Committed bank facilities Term1 28.0 June 2018 Term/revolving credit 125.0 April 2014 Revolving credit 100.0 November 2013 Revolving credit 100.0 Apri
Slide 56: Appendix - net debt
Appendix 4 - net debt June Dec June 2010 2009 2009 £m £m £m £m £m £m Current liability bank loans - - - Financial liabilities 749.9 733.9 851.0 Acquired fair value of bond less amortisation (18.2) (18.6) (19.0) Leasehold liabilities (7.4) (7.4) (8.6) Unamortised loan arrangement costs 2.2 2.6 (3.0)
Slide 57: Appendix - reclassification of loan arrangement costs
Appendix 5 - reclassification of loan arrangement costs • Changes due to the reclassification noted on page 11 are shown in the blue boxes below Income statement H1 2010 Previous FY 2009 New Previous H1 2009 New £m £m £m £m £m £m £m Administrative expenses -1.4 20.0 -2.5 17.5 9.1 -1.3 7.8 Finance co
Slide 58: Appendix - Central Cross acquisition
Appendix 6 - Central Cross acquisition • The acquisition of Central Cross which completed on 10 August 2010 has the following pro-forma impact on key financial measures as at 30 June 2010 • Based on fair value of £146.0m June 2010 proforma June 2010 including as reported Central Cross Investment pro
Slide 59: Appendix - valuation performance
Appendix 7 - valuation performance H1 2010 H1 2010 H1 2009 H2 2009 2009 portfolio valuation valuation valuation valuation valuation movement movement movement movement £m % % % % West End 1,614.7 11.6 -12.7 10.9 -2.8 City Borders 432.8 5.9 -11.8 7.3 -5.3 Central London 2,047.5 10.4 -12.5 10.1 -3.3 P
Slide 60: Appendix - valuation performance by village
Appendix 8 - valuation performance by village Valuation Valuation H1 2010 H1 2010 movement movement Valuation Weighting H1 20101 H1 20102,3 Comment £m % % £m West End Mayfair 47.0 2 19.6 7.7 Savile Row rental growth & yield shift Victoria 290.0 14 15.8 39.5 Noho 181.2 8 12.3 19.9 Letting activity at
Slide 61: Appendix - valuation yields
Appendix 9 - valuation yields Portfolio yields Initial Reversionary Yield yield1 yield1 spread 10 % % % Initial yield True equivalent yield Reversionary yield West End 4.6 6.0 1.4 9 City Borders 6.6 7.1 0.5 8 Yield (%) Central London 5.0 6.2 1.2 7 Provincial 5.2 5.7 0.5 6 5.0 6.2 1.2 5 4 3 Jun-00 Ju
Slide 62: Appendix - valuation yields and rental value growth
Appendix 10 - valuation yields and rental value growth True equivalent H1 True equivalent H1 2010 yield Dec 20091 movement yield June 20101 rental value growth % basis points % % West End 6.17 (56) 5.61 West End 3.0 City Borders 7.16 (34) 6.82 City Borders 2.4 Central London 6.38 (52) 5.86 Central L
Slide 63: Appendix 11 - portfolio summary
Appendix 11- portfolio summary Net Vacant Rent review contracted floor area and lease Total Estimated rental income Average rental value reversions reversion rental value Valuation per annum rental income per annum per annum per annum per annum £m £m £psf £m £m £m £m West End Central 1,462.3 71.6 27
Slide 64: Appendix - portfolio statistics by village
Appendix 12 - portfolio statistics by village Vacant Net Average Vacant Rent review/ Estimated Floor floor contracted rental accommodation lease renewal Total rental Valuation Weighting area area rental income income rental value reversion reversion value £m % sq ft 000’s sq ft 000’s £m pa £psf £m p
Slide 65: Appendix - annualised contracted rental income
Appendix 13 - annualised contracted rental income Reconciliation of contracted income Dec 09 to June 10 125 • Annualised contracted rental income at 30 June 2010 Contracted income (£m) 120 1.4 1 • Includes 0.1 (0.7) (6.4) 2 • Annualised rents under committed leases 114.9 115 • Rent frees - £1.4m 110
Slide 66: Appendix - vacant accommodation at half year
Appendix 14 - vacant accommodation at half year Floor Rental area per annum Comment ‘000 sq ft £m Available Strathkelvin Retail Park Scotland 50 0.7 Lettings to Boots and Pets at Home totalling 20,000 sq ft 4 Grosvenor Place SW1 14 0.6 7,500 sq ft let/under offer since half year City Road Estate EC1
Slide 67: Appendix - rent banding and tenant profile
Appendix 15 - rent banding and tenant profile Central London office rent banding Profile of tenant’s business sector 1 £60+ psf Other £50-£60 psf 5% £0-£20 psf 10% 3% 10% Professional and Financial business services 7% 26% £40-£50 psf Government and 20% £20-£30 psf public administration 22% 8% Retai
Slide 68: Appendix - lease expiry profile and lease length
Appendix 16 - lease expiry profile and lease length Percentage of portfolio income1 West City H2 West City End Borders 2010 End Borders 2011 2012 2013 2014 Total Expiries 1 1 2 6 1 7 2 10 4 25 Single breaks 1 - 1 2 3 5 3 4 5 18 Rolling breaks 1 2 3 2 - 2 - - - 5 Holding over 1 - 1 - - - - - - 1 4 3
Slide 69: Appendix - central London vacancy rates and rental growth
Appendix 17 - central London vacancy rates and rental growth Central London office vacancy rates Central London prime office rental growth 18 Central London 40 16 City 30 West End 14 Rental growth (% pa) City average 20 Vacancy rate (%) 12 West End average 10 10 8 0 Q2 00 Q2 01 Q2 02 Q2 03 Q2 04 Q2
Slide 70: Appendix - capital expenditure
Appendix 18 - capital expenditure Actual 2009 Budget 2010 Budget 2011 Budget 2012+1 £m £m £m £m Current developments Angel Building EC1 42.4 30.8 1.5 - 42.4 30.8 1.5 - Current refurbishments Victory House, Tottenham Court Road W1 - 6.9 2.4 0.3 1 Maple Place/12 Fitzroy Street W1 - 2.5 - - 65 Whitfiel
Slide 71: Appendix - planning consents
Appendix 19 - planning consents Current Current Existing Area Scheme Property1 income income area uplift area Comment £m pa £psf 000’s sqf % 000’s sqf Planning consent for 35,000 sq ft of residential (47 units) and Leonard Street 20,000 sq ft of offices n/a n/a n/a n/a 55 Planning consent granted in
Slide 72: Appendix - appraisal studies
Appendix 20 - appraisal studies Current Current Existing Area Potential Existing Proposed income income area uplift area Comment £m pa £psf 000’s sqf % 000’s sqf A 1.4 acre ownership in the heart of our Fitzrovia estate, office Charlotte Street development proposed. See page 45. 4.3 21 200 60 320 Te
Slide 73: Appendix - management structure - executive team
Appendix 21 - management structure - executive team • John Burns Chief Executive • Simon Silver Head of Regeneration • Damian Wisniewski Finance Director • Nigel George Property Director • Paul Williams Property Director • David Silverman Property Director • Tim Kite Company Secretary • Russell Durl
Slide 74: Disclaimer
Disclaimer This presentation includes statements that are forward-looking in nature. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Derwent London plc to be materially different from any f