Derwent London Plc · LSE:DLN
Derwent London — FY2007 Earnings Presentation
70 slides from Derwent London's earnings presentation, 2008
Slide 1: Derwent London plc Results 2007
Derwent London plc Results 2007
Slide 2: Contents
Contents Page Achievements 1 Financial review 2 Market summary 14 Valuation 20 Portfolio statistics 25 Portfolio management 31 Acquisitions and disposals 35 • Acquisitions 36 • Disposals 40 Projects update 42 Conclusion 58 Appendices 60 • Capital expenditure 62 • Portfolio summary 63 • Portfolio sta
Slide 3: Achievements
Achievements • Integration of London Merchant Securities and Derwent Valley Holdings completed to create Derwent London • Converted to a REIT on 1st July 2007 • Disposals of £344 million producing a £130 million profit • Acquisitions of £142 million • Project capex of £61 million • Planning consents
Slide 4: Financial review
Financial review Financial review 0
Slide 5: 2007 year end results: Highlights
2007 year end results Highlights • Adjusted net asset value per share: 1,862p +8.4% on proforma of 1,717p • Adjusted net asset value per share excluding minorities: 1,801p +8.4% on proforma of 1,662p • Recurring profit before tax: £38.0 million +132% • Diluted recurring earnings per share: 34.99p +2
Slide 6: Balance sheet
2007 year end results Balance sheet • Summarised format DL & LMS Proforma DL only 2007 2006 £m £m £m Investment property 2,654.6 2,519.6 1,274.0 Other non-current assets 33.8 117.4 19.5 2,688.4 2,637.0 1,293.5 Assets held for resale 12.8 9.4 - Other current assets 12.5 (31.9) 8.2 Cash 10.3 13.9 - Ba
Slide 7: Balance sheet: Net asset value per share
2007 year end results Balance sheet • Net asset value per share 2007 Proforma 2006 £m p £m p £m p Total net assets 1,841.9 1,829 1,399.0 1,391 783.4 1,460 Adjustments 33.5 328.1 166.4 Adjusted total net assets 1,875.4 1,862 1,727.1 1,717 949.8 1,770 Minority interests (61.6) (56.0) - Adjusted total
Slide 8: Group income statement
2007 year end results Group income statement • Summarised format DL & LMS DL only 2007 2006 £m £m Gross property income 111.7 51.3 Property outgoings (9.9) (4.9) 101.8 46.4 Development income 2.0 11.6 Administrative expenses (17.9) (10.1) Goodwill impairment (353.3) - Revaluation surplus 90.3 223.3
Slide 9: Group income statement: reconciliation to IFRS
2007 year end results Group income statement • Recurring profit before tax +132% • Reconciliation to IFRS (loss)/profit before tax 2007 2006 £m £m Comment (Loss)/profit before tax (99.8) 242.8 Revaluation surplus (90.3) (223.3) Rise in yields H2 2007 JV revaluation surplus - (3.5) Profit on disposal
Slide 10: Group income statement
2007 year end results Group income statement • Gross property income rose £60.4 million • Ex LMS £54.4 million • Ex Derwent £ 6.0 million • Property outgoings rose £ 5.0 million • Void costs £ 2.5 million • Transaction costs £ 1.5 million • Development income • Telstar project completed • Final prof
Slide 11: Group income statement: taxation and dividend
2007 year end results Group income statement • Taxation credit • Impact of REIT status • Credit in 2007 of £200.7 million (2006 charge £60.6 million) • Write back of deferred tax £287.4 million • REIT conversion charge £53.6 million • Corporation tax £33.5 million • Deferred tax balance • Remaining
Slide 12: Cash flow
2007 year end results Cash flow • 2007 cash inflow due to disposals, post acquisition, post REIT 2007 2006 Operating activities 28.4 (5.6) Investing activities 69.2 (46.3) Dividend (13.2) (7.5) 84.4 (59.4) • Net investment in property £m Acquisitions 140.7 Capex 68.3 Disposals - property (343.3) - i
Slide 13: Debt and debt ratios
2007 year end results Debt and debt ratios • Year end net debt • Balance sheet £782.8 million • Drawn facilities £753.9 million • Current drawn facilities £797.1 million • Balance sheet gearing (balance sheet debt/net assets) • 05.03.08 44.8% • 31.12.07 42.5% • 31.12.06 44.7% • Interest cover (net r
Slide 14: Liability risk management
2007 year end results Liability risk management • Drawn facilities either fixed or hedged • 05.03.08 62% • Fixed rate debt and derivatives £m Fixed rate debt 175 Swaps 310 Cap 10 495 • Fair value adjustment for £175 million secured bond at 31.12.07 • £15.0 million (not included in accounts) • Spot w
Slide 15: Current debt facilities
2007 year end results Current debt facilities Nominal Maturity £m £m 6.5% secured bond 175.0 March 2026 Floating guaranteed unsecured loan note 32.0 February 2012 Committed bank facilities Revolving credit 100.0 April 2013 Term/revolving credit 359.0 March 2013 Revolving credit 200.0 December 2011 R
Slide 16: Market summary
Market summary Market summary 14
Slide 17: Our market: The West End
Our market The West End Central London office stock • A location that is: 120 West End City City & Docklands • 75% covered by conservation area status (City - 33%) 115 110 • 3,900 listed buildings (City - 600) 105 Stock (m sq ft) 100 • Controlled through tight planning regulations 95 • Protected vie
Slide 18: Our market: The West End
Our market The West End • A changing business map of the West End Major lettings Tenant Previous New Rent • Occupiers desire to stay in the West End - location location £psf at affordable rents Rio Tinto St James’s Paddington 50.00 Burberry St James’s Victoria 38.00 • The acceptance of new and impro
Slide 19: Our market: The London villages
Our market The London villages % 93 T END OUTER O N WES LO ND 6% L % 72 RA ND NT E CE T ES W 5% Camden/ Islington CITY OU 21%TER 7% TRA L CEN END 2% Clerkenwell 6% T % 66 Euston ES City 1% W 23% borders 3% Fitzrovia Shoreditch Ladbroke Grove 5% 6% 6% 2% Noho 0% Baker Street/ Holborn/ Paddington Mary
Slide 20: Our market: Occupational market
Our market Occupational market Central London vacancy rates West End 18% Central London • 16% City Take-up of 4.7m sq ft in 2007 - the highest annual total West End 14% since 2000 12% • Vacancy rate of 2.3%, down from 2.5% in June 2007 and 10% 3.5% in December 2006 8% 6% • Quality office space remai
Slide 21: Our market: Investment summary
Our market Investment summary • £17.5bn of transactions in 2007, 10% more than in 2006 and the highest ever recorded total • Overseas investors accounted for 57% of transactions with the US being the most active group (19%) • Investment activity slowed considerably in Q4 following the turbulence in
Slide 22: Valuation
Valuation Valuation 20
Slide 23: Valuation performance: Key points
Valuation performance Key points • Investment portfolio valuation Portfolio Valuation valuation surplus £m £m1 Investment properties 2,195.6 54.0 Development properties2 344.5 50.3 Underlying 2,540.1 104.3 Acquisitions 131.6 -9.9 Investment portfolio 2,671.7 94.4 • Performance from: • Rental growth
Slide 24: Valuation performance: By location
Valuation performance By location Valuation Valuation Portfolio movement surplus valuation Weighting 20071 20072 Comment £m % % £m West End Belgravia 141.7 5 13.9 17.3 Development potential/rental growth. Victoria 265.3 10 12.5 29.5 Horseferry House project surplus. Mayfair 64.0 2 8.2 4.8 Strong ren
Slide 25: Valuation performance: Yields
Valuation performance Yields True equivalent yields Proforma H1 June H2 Dec 2007 2006/7 movement 2007 movement 2007 movement % basis points % basis points % basis points West End 5.24 (1) 5.23 33 5.56 32 City 5.78 (29) 5.49 47 5.96 18 Central London 5.37 (7) 5.30 37 5.67 30 Provincial 5.80 (5) 5.75
Slide 26: Valuation performance: Yields
Valuation performance Yields Yield profile1 Initial Reversionary Yield yield yield spread % % % • Strong reversionary potential - 1.9% yield spread West End 4.0 6.2 2.2 City 5.2 6.6 1.4 • Low average rents at year end: Central London 4.3 6.3 2.0 • West End £24.36 psf • City £22.80 psf Provincial 5.7
Slide 27: Portfolio statistics
Portfolio statistics Portfolio statistics 25
Slide 28: Portfolio summary: Rental income profile
Portfolio summary Rental income profile Income profile Rental Rental uplift per annum Yield1 £m £m % Contracted rental income, net of ground rents2 117.6 4.4 Letting vacant accommodation - available 7.7 4.7 Completion and letting of current schemes 10.7 5.0 Anticipated rent review and lease renewal
Slide 29: Portfolio summary: Contracted rental income analysis
Portfolio summary Contracted rental income analysis 30% Profile of occupied floor area • 70% of portfolio let at under £30 psf 25.4% 25.1% 25% 22.2% • A strategy to recycle assets - thereby maintaining low rents 20% 19.6% and reversionary potential Floor area 15% • A close relationship with our tena
Slide 30: Portfolio summary: Tenant business sectors
Portfolio summary Contracted rental income analysis 40% Profile of tenant business sectors • A diverse range of tenants 36.0 • 50% of rental income is from tenants paying over £0.5m pa 35% • Floor area 2.27m sq ft Contracted rental income 30% 25% • Weighted lease length 12 years 20% 19.0 18.8 • Aver
Slide 31: Portfolio summary: Vacant accommodation
Portfolio summary Vacant accommodation Vacant accommodation Floor Rental area per annum Comment 000 sq ft £m Available Qube 85 5.2 Offices/retail. Strathkelvin 65 1.1 Retail warehouse park. Planning obtained to open use - £0.2m u/o. Other 80 230 1.4 7.7 £0.4m u/o. Schemes 16-19 Gresse Street1 47 2.8
Slide 32: Portfolio summary: Reversionary profile
Portfolio summary Reversionary profile • Reversionary potential of occupied floor area of £36.6m Annualised reversionary profile £10 Lease expiry Rent review £8 • Rent reviews/lease expiries spread throughout the year Reversion (£m) £6 £4 • Assuming all rent reviews are concluded and all tenants £2
Slide 33: Portfolio management
Portfolio management Portfolio management 31
Slide 34: Lettings and activity: Key points
Lettings and activity Key points • Our market - mid range rents £40-£65 psf 45% Derwent London - Central London office lettings, 2007 Lettings by income Lettings by floorspace 40% • £8.3m pa of lettings in 2007 - 235,200 sq ft (Appendix 4) 35% • Qube £1.25m pa - 20,100 sq ft (£60 psf) 30% • 186 City
Slide 35: Lettings and activity: Asset management initiatives
Lettings and activity Asset management initiatives Angel Building, EC1 19-35 Baker Street, W1 • BT lease restructured - giving us control of the building • M&S lease surrendered • Rent £4.2m pa to continue until lease expiry in March 2010 • The first step in unlocking this 2 acre development Portfol
Slide 36: Smaller refurbishments underway
Lettings and activity Smaller refurbishments underway Creating value 151 Rosebery Avenue, EC1 Gordon House, SW1 100 George Street, W1 • Floor area • 24,000 sq ft • 16,000 sq ft • 3,200 sq ft penthouse offices, • Rental value • £0.8m pa (£35 psf) • £0.8m pa (£47.50 psf) 4,800 sq ft retail • Available
Slide 37: Acquisitions and disposals
Acquisitions and disposals Acquisitions and disposals 35
Slide 38: Acquisitions: Key points
Acquisitions Key points • Our acquisition requirements: • Low passing rents and a reversionary income profile • Improving locations • Supplement existing ownerships - critical mass • Planning/refurbishment potential • 2007 acquisitions - £141.5m, including costs • Income £6.0m pa • Net initial yield
Slide 39: Acquisitions: Castle House, Woodbridge House, Hampstead Road
Acquisitions Castle House, 75 Wells Street, W1 Woodbridge House, 30 Aylesbury Street, EC1 132-142 Hampstead Road, NW1 Acquisitions and disposals • £21.0m, including costs - virtual • £48.7m, including costs - freehold • £54.9m, including costs - freehold freehold • Net initial yield of 5.0% • Net in
Slide 40: Acquisitions: Fitzrovia Estate
Acquisitions Fitzrovia Estate • Valuation - £600m • Portfolio weighting - 23% • Floor area - 1.1m sq ft • Rental income - £20.5m pa • Rental value - £37.7m pa d oa tR ur Warren Street Co d Roa ton Eus en St Warr m Co ha ay nw W ay ton Hu af St Gr ntl Great Portland en ey Street St Grea ree tt t To e
Slide 41: Acquisitions: Fitzrovia objectives
Acquisitions • A number of key objectives: • To revitalise the area (1) • Strategy for retail improvement • Enhancement of public realm • Opportunity to optimise land use efficiently (2) • Flexibility for residential/affordable requirements on any development d • Increased height potential (3) oa tR
Slide 42: Disposals
Disposals • A clear strategy set out at the time of the merger • To realign the portfolio through disposals of: • Vacant residential sites • Provincial assets • Non-core smaller properties • 2007 sales of £343.5m - net proceeds • £129.8m surplus • Exit yield of 1.7% • Substantial benefit from REIT c
Slide 43: Disposals
Disposals Property Floor Rental Net Capital Exit area income proceeds value yield Comment sq ft £m pa £m psf % London 1. Greenwich Reach, SE10 - - 109.9 - - 8 acre residential site. 2. 160 Brompton Road, SW3 25,000 0.8 44.3 1,800 1.8 Residential development potential. 3. Argosy House, W1 30,700 - 22
Slide 44: Projects update
Projects update Projects update 42
Slide 45: Project pipeline: Key points
Project pipeline Key points • Valuation surplus of £50.3m on the development properties - a 17% increase. • Qube, W1 • Portobello Dock, W10 • Horseferry House, SW1 • Arup II & III, W1 • Gresse Street/Rathbone Place, W1 • Leonard Street, EC2 • Further surpluses to come through despite the outward yie
Slide 46: Project pipeline: Current projects
Project pipeline Current projects Property Est capital Est Est Est Anticipated Floor expenditure Total Headline rental Est end surplus completion area to complete1 cost2 ERV value yield value to come date 000’s sq ft £m £m £ psf £m pa % £m £m Completed 1. Telstar, W2 107 - - - - - - - 2. Qube, W1 10
Slide 47: Qube, Whitfield Street, W1
Qube, 90 Whitfield Street, W1 Completed • Completed in October 2007 • 100,000 sq ft offices, 8,000 sq ft retail (6 units) • Letting update: • Offices - 18,840 sq ft to Aegis Media • £1.15m pa (£60 psf) - 15 year term • Retail - 1,220 sq ft to Itsu • £0.1m pa - 15 year term • 22.8% valuation uplift i
Slide 48: Portobello Dock, W10
Portobello Dock, W10 Current projects • Transformation of the area nearing completion • 69,000 sq ft mixed-use scheme: • New offices - 24,000 sq ft - ERV £35 psf • Refurbished offices - 26,000 sq ft - ERV £25 psf • Residential - 19,000 sq ft - 19 units • Residential pre-sold in February 08 • £12.6m
Slide 49: Project pipeline: Planning consents
Project pipeline Planning consents Property Current rental Existing Consented Earliest income pa floor area floor area Uplift completion Comments £m 000’s sq ft 000’s sq ft % 1. 20-26 Rosebery Avenue, EC1 (F) 0.2 25 37 48 2009 Office refurbishment. 2. Leonard Street, EC2 (F) n/a n/a 55 n/a 2010 Offi
Slide 50: Angel Building, St John Street, EC1
Angel Building, St John Street, EC1 Planning consents Projects update 48 Investing in Islington - a new landmark building
Slide 51: Angel Building: Planning consents timeline
Angel Building, St John Street, EC1 Planning consents 2007: • February • Architectural studies initiated • Existing building 162,000 sq ft • March • BT lease restructured giving us control and £4.2m pa of income until March 2010 • October • Planning application submitted for a 255,000 sq ft scheme 2
Slide 52: Angel Building: profit on cost sensitivity
Angel Building, St John Street, EC1 Planning consents • Floor area increase of 58% • Floor plates - circa 50,000 sq ft - units from 10,000 sq ft • Rental aspirations of £42 to £45 psf • Rental income helping to fund the development process • Detailed design underway Profit on cost sensitivity matrix
Slide 53: 55-65 North Wharf Road, W2
55-65 North Wharf Road, W2 Planning consents • Acquired in 2001 for £23 million • Long leasehold - expires 2096 • Existing buildings totalling 84,000 sq ft • Multi-let - lease expiries from 2010 • Current income £1.7m pa • Valuable planning consent obtained in January 2008 • Consented areas: • 240,0
Slide 54: 55-65 North Wharf Road, W2: design images
55-65 North Wharf Road, W2 Planning consents Double height Canal side spaces residential Projects update New public walkway A slender diagrid framework 52
Slide 55: Chancery Lane, WC2
40 Chancery Lane, WC2 Planning consents • A prime Holborn location • Our ownership ( ): • 40 Chancery Lane and 20 Took’s Court • 61,500 sq ft • Multi-let - £1.1m pa (£18 psf) • Part freehold/part leasehold • Our freeholder’s ownership ( ): • 45 Chancery Lane - 9,600 sq ft • Combined • Valuable redev
Slide 56: Chancery Lane, WC2: planning consent
40 Chancery Lane, WC2 Planning consents • Planning consent for 102,000 sq ft • 16,000 sq ft floor plates • A 44% floor area increase • Introduce retail/restaurant space Projects update • A rare opportunity to deliver a new office building in this renowned location 54 Achieving imaginative planning s
Slide 57: Project pipeline: Feasibility studies
Project pipeline Feasibility studies Current Existing Potential Outline Planning Planning income area area studies evaluation application Comment £m pa 000’s sq ft 000’s sq ft City Road Estate Following a planning refusal in 2007 we are working on a revised application. 1.0 100 200 Two substantial o
Slide 58: Project pipeline: Feasibility studies
Project pipeline Feasibility studies Current Existing Potential Outline Planning Planning income area area studies evaluation application Comment £m pa 000’s sq ft 000’s sq ft Hampstead Road Located near Euston Station. There is the potential for an office/residential development in 2012. 2.0 231 28
Slide 59: Project pipeline: Summary
Project pipeline Summary • Over 200,000 sq ft of schemes completed in 2007 - Telstar and Qube • Current projects totalling 0.4m sq ft • 70% pre-let • Delivering valuable planning consents • Seven planning consents banked totalling 0.9m sq ft of space • A 114% floor area increase • Angel Building - r
Slide 60: Conclusion
Conclusion Conclusion 58
Slide 61: Conclusion
Conclusion • A strong operational performance in a testing market • Achieved our post merger goals of: • Integration • Disposals • A portfolio that is characterised by: • Low average rents - £23.91 psf in Central London • Solid unexpired average lease length of 9.1 years • A flexible development pip
Slide 62: Appendices
Appendices Appendices 60
Slide 63: Appendices
Appendices 1. Capital expenditure 2. Portfolio summary 3. Portfolio statistics by village 4. Principal lettings - 2007 5. Project pipeline map 6. Management structure - executive team Appendices 61
Slide 64: Capital expenditure
Appendix 1 Capital expenditure Summary by property 2007 2008 2009 2010 actual budget budget & beyond1 budget £m £m £m £m Horseferry House 13.5 11.0 0.7 - Qube 12.4 0.1 1.0 - Portobello Dock 8.6 2.4 0.2 - Howland House, Arup II & III 7.4 20.2 12.4 - 16-19 Gresse Street 3.4 11.7 9.4 0.2 Angel Building
Slide 65: Portfolio summary
Appendix 2 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 1,761.3 69.5 25.
Slide 66: Portfolio statistics by village
Appendix 3 Portfolio statistics by village Vacant Net Average Vacant Rent review/ Total Estimated Floor floor contracted rental accommodation lease renewal reversion rental Valuation Weighting area area rental income income rental value reversion value £m pa % sq ft 000’s 000’s £m pa £psf £m pa £m p
Slide 67: Principal lettings - 2007
Appendix 4 Principal lettings - 2007 Qube, 90 Whitfield Street, W1 186 City Road, EC1 Tower House, WC2 100 George Street, W1 • Office floor and retail unit • 38,300 sq ft • 3 lettings - Xstrata, LG • Pre-let: London & • • and Canamens Newcastle Aegis and Itsu £1.1m pa • 15,400 sq ft • 9,900 sq ft •
Slide 68: Project pipeline map
Appendix 5 Project pipeline map Potential floor area sq ft Camden/ Current projects Islington 7, 19 1. Portobello Dock, W10 69,000 2. Horseferry House, SW1 163,000 3. Gresse Street, W1 59,000 4. Arup II & III, W1 142,000 Clerkenwell Euston 5, 9 City 433,000 borders 17 Fitzrovia Planning consents Lad
Slide 69: Management structure - executive team
Appendix 6 Management structure - executive team • John Burns Chief Executive • Simon Silver Head of Development • Chris Odom Finance Director • Nigel George Director • Paul Williams Director • David Silverman Director • Tim Kite Company Secretary • Nick Groves Senior Investment Manager • Russell Du
Slide 70: 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