Derwent London Plc · LSE:DLN
Derwent London — FY2008 Earnings Presentation
68 slides from Derwent London's earnings presentation, 2009
Slide 1: Derwent London plc Results 2008
Derwent London plc Results 2008
Slide 2: Contents
Contents Page Achievements 01 Results review 02 Debt and financing 11 Market summary 16 Valuation 20 Portfolio statistics 25 Portfolio management 33 Acquisitions and disposals 37 Projects update 39 Summary 49 Appendices 51 • Debt facilities 53 • Financial detail 54 • Capital expenditure 55 • Portfol
Slide 3: Achievements
Achievements • 488,000 sq ft of letting activity in 2008 generating an annual rental income of £16.3m • Low vacancy rate maintained, representing 3.8% at the year end – down from 4.5% a year earlier • Development completions at Horseferry House and Arup II – both pre-let – new projects on hold • Dis
Slide 4: Results review
Results review 31 December 2008 Results review 0
Slide 5: Headline numbers
Headline numbers • Adjusted net asset value per share 1,226p (31 December 2007: 1,801p) • Recurring profit before tax £m Unadjusted recurring profit before tax 23.3 Reverse surrender premium paid 8.3 Foreign exchange translation loss 8.3 Adjusted recurring profit before tax 39.9 (2007: £37.6m) • Dil
Slide 6: Group balance sheet
Group balance sheet • Summarised format 31.12.08 31.12.07 £m £m Investment property 2,068.1 2,654.6 Other non-current assets 38.8 33.8 2,106.9 2,688.4 Assets held for sale 25.0 12.8 Other current (liabilities)/assets (9.1) 12.5 Cash 10.5 10.3 Bank overdrafts and loans (106.6) (120.6) Corporation tax
Slide 7: Net asset value per share
Net asset value per share • Reconciliation 31.12.08 31.12.07 £m p £m p Net assets attributable to equity shareholders 1,179.6 1,170 1,782.0 1,770 Deferred tax on revaluation surplus 8.4 11.4 Fair value of derivatives 26.9 (1.2) Fair value adjustment to bond on acquisition 20.9 21.6 1,235.8 1,226 1,8
Slide 8: Group income statement
Group income statement • Summarised format 2008 2007 £m £m Gross property income 119.0 111.7 Other income 0.9 - Property outgoings (14.6) (9.9) 105.3 101.8 Development income 0.5 2.0 Reverse surrender premium (8.3) - Trading stock write down (2.0) - 95.5 103.8 Administrative expenses (16.7) (17.9) R
Slide 9: Group income statement reconciliation
Group income statement • Reconciliation of recurring profit before tax to IFRS loss before tax 2008 2007 £m £m Loss before tax (606.5) (99.8) Revaluation deficit/(surplus) 602.1 (90.3) Joint venture revaluation deficit 1.3 - Profit on disposal of properties (1.2) (129.8) Loss on joint venture dispos
Slide 10: Group income statement
Group income statement • Gross property income increased £7.3m from 2007 to £119.0m • Growth driven by letting activity (£12.3m), with more still to come (eg Angel Building, Qube) • Main contributions were from Horseferry House (£3.1m), Qube (£1.5m), Tower House (£1.0m) • Extra month from LMS added
Slide 11: Group income statement: net finance costs
Group income statement • Net finance costs 2008 2007 £m £m Bank interest and loan notes 37.0 37.9 Secured bond 10.8 9.9 Other 1.1 1.3 48.9 49.1 Foreign exchange loss 8.3 (0.4) Finance income (1.7) (2.4) 55.5 46.3 • Increased interest in 2008 due to LMS extra month, estimated at £2m • Foreign exchang
Slide 12: Cash flow
Cash flow • Cash outflow for 2008 was £83.7m (2007: inflow £116.9m) after payment of dividends 2008 2007 £m £m Operating activities 38.3 28.4 Dividends (23.5) (13.2) 14.8 15.2 REIT conversion charge (53.6) - Investing activities (44.9) 101.7 (83.7) 116.9 • Dividends increased due to • New shares iss
Slide 13: Debt and financing
Debt and financing Debt and financing 11
Slide 14: Net debt and gearing ratios
Net debt and gearing ratios • Net debt 31.12.08 31.12.07 £m £m Bank overdraft and loans 106.6 120.6 Financial liabilities 769.3 672.5 Cash and cash requirements (10.5) (10.3) Net debt 865.4 782.8 Acquired fair value of bond less costs (19.3) (19.9) Leasehold liabilities (8.6) (9.0) Drawn facilities
Slide 15: Debt facilities and utilisation
Debt facilities and utilisation • Debt facilities total £1.145 billion. Full list of facilities is provided in Appendix 1 • £125m facility maturing in November 2009 has been refinanced. It is fully credit approved by existing lender and only subject to completion of documentation • New facility • 5
Slide 16: Debt covenants
Debt covenants • Leasehold liabilities and fair value amounts are excluded from covenant testing • Covenant position • Structure of bank facilities gives maximum flexibility • Secured loans only have two financial covenants • Covenant ranges LTV ICR Documented 50-80% 120-150% Actual (27.2.09) 40-56%
Slide 17: Liability risk management
Liability risk management Fixed and hedged debt at 31 December 2008 • 66% of drawn facilities was either fixed or hedged at 31 Capped 1% December 2008 Fixed 21% • Current figure is 70% Swaps 44% • Maturity profile of fixed and hedged debt at 27 February 2009 is shown in the bar chart Floating 34% •
Slide 18: Market summary
Market summary Market summary 16
Slide 19: Our market: occupational market
Our market Occupational market Central London office vacancy rates West End 18 Central London 16 City West End • Take-up of 3.6m sq ft in 2008 – down 28% on 2007 and 14 City average West End average 1 Vacancy rate (%) 12 13% lower than the long term average 10 8 6 • First half take-up of 2.0m sq ft,
Slide 20: Our market: investment summary
Our market Investment summary Central London investment transactions 6 Total 1 • £7.4bn of central London office investment 5 4 quarter average transactions in 2008 – down 58% on 2007 and 20% lower than the ten-year average (1) 4 £ billion • However, transactions in the final quarter were £2.2bn 3 –
Slide 21: Our market: development pipeline
Our market Development pipeline West End development pipeline - December 2007 • Market response to the economic conditions – West 4.0 Completions Pre-let Speculative End development completions, 2008 to 2011, cut by 3.5 1 Floorspace (million sq ft) 3.0 1.9m sq ft (1) 2.5 2.0 • 4.5m sq ft of new offi
Slide 22: Valuation
Valuation Valuation 20
Slide 23: Valuation performance
Valuation performance Key points • Investment portfolio valuation 31 December 2008 Portfolio Valuation Valuation valuation movement movement £m £m1 % Investment properties 1,975.9 -543.6 -21.6 Development properties2 107.0 -46.9 -30.5 Underlying 2,082.9 -590.5 -22.1 Acquisitions 25.1 -6.6 -20.8 2,10
Slide 24: Valuation performance by location
Valuation performance By location Valuation Valuation Portfolio movement movement valuation Weighting 20081 20082 Comment £m % % £m West End Paddington 38.7 2 -7.6 -3.2 Planning permission at North Wharf Road Belgravia 118.7 6 -15.0 -21.0 Long term development potential Victoria 235.7 11 -19.2 -55.8
Slide 25: Valuation performance: true equivalent yields
Valuation performance True equivalent yields True equivalent yields Dec H1 June H2 Dec 2008 2007 movement 2008 movement 2008 movement % basis points % basis points % basis points West End 5.56 38 5.94 93 6.87 131 City Borders 5.96 67 6.63 131 7.94 198 Central London 5.67 41 6.08 100 7.08 141 Provinc
Slide 26: Valuation performance: yields and lease length
Valuation performance Yields and lease length Yield profile1 Initial Reversionary Yield yield yield spread % % % • Initial yield based upon £126.4m annualised contracted West End 5.6 7.4 1.8 rental income at 31 December – Appendix 7 City borders 7.1 8.3 1.2 • Includes rent frees – principally Burber
Slide 27: Portfolio statistics
Portfolio statistics Portfolio statistics 25
Slide 28: Portfolio summary: rental income profile
Portfolio summary Rental income profile Income profile Core properties Developments Total Rental Rental Rental Rental Rental Rental uplift per annum uplift per annum uplift per annum Yield2 £m £m £m £m £m £m % Contracted rental income, net of ground rents 121.1 5.31 126.4 6.0 Letting vacant accommod
Slide 29: Portfolio summary: vacant accommodation
Portfolio summary Vacant accommodation Vacant accommodation Floor Rental at 31 December 2008 area per annum Comment 000 sq ft £m Available Qube, W1 46 2.5 41,000 sq ft under offer/let post year end Strathkelvin, Scotland 60 1.0 Encouraging interest following M&S letting in December 2008 Portobello D
Slide 30: Portfolio summary: tenant profile
Portfolio summary Tenant profile Profile of tenants' business sectors • Our occupier base covers a wide variety of business sectors 45 40 40 • Reflects the general composition of the West End Contracted rental income % 35 30 25 22 • Income collection in 2008 – averaged 97% within two 20 weeks of the
Slide 31: Portfolio summary: lease expiries
Portfolio summary Lease expiries Profile of rental income expiry • Lease expiries by income over the next five years 50% 48 No lease breaks exercised • No lease breaks exercised 33% Lease breaks exercised at first opportunity 40% • All lease breaks exercised 48% Contracted rental income 30% 33 31 •
Slide 32: Portfolio summary: 2008 lease expiries and breaks
Portfolio summary 2008 lease expiries and breaks Expiry analysis Lease expiries • 103 expiries in 2008 – £7m 30% • Included 37 holding over • Represented 5.5% of rental income 55% • 55% of income retained 15% • 35 vacated – 140,000 sq ft • 34% of space vacated was re-let (Wedge House 35,000 sq ft) R
Slide 33: Portfolio summary: portfolio office rents
Portfolio summary Portfolio office rents Rent banding West City End Borders Total % % % £0 - £20 psf 7 6 13 £20 - £30 psf 15 7 22 • Our low office rents should offer defensive qualities £30 - £40 psf 26 15 41 £40 - £50 psf 15 1 16 £50 - £60 psf 4 - 4 £60+ psf 4 71 - 29 4 100 • 63% of our office rent
Slide 34: Portfolio summary: office ERV movements
Portfolio summary Office ERV movements West End Office ERV movements Dec 07 to Dec 08 • The portfolio concentrated to ERV’s between 40% 15% £30-£60 psf (1) Percentage of total ERV 35% Portfolio weighting by ERV ERV movement 10% 1 30% 5% ERV movement 25% 20% 0% • Our middle market rental levels were
Slide 35: Portfolio management
Portfolio management Portfolio management 33
Slide 36: Lettings and activity
Lettings and activity Key points • Our market – mid range rents of £37-£55 psf • £16.3m pa of lettings in 2008 totalling 488,000 sq ft (82 transactions) – Appendix 6 • 29% of the letting activity was in the last quarter of 2008 – 141,000 sq ft • £9.3m of the £16.3m pa was new income – space that was
Slide 37: Asset management initiatives
Lettings and activity Asset management initiatives Angel Building, EC1 Greencoat & Gordon House, SW1 • 139,500 sq ft pre-let to • 26,100 sq ft let - £1.3m pa Cancer Research UK • Includes 15,900 sq ft pre-let • £5.6m pa (£41 psf) to The Benefit Express • 20 year lease with a break at £0.86m pa (£57.
Slide 38: Asset management initiatives
Lettings and activity Asset management initiatives Tea Building, E1 100 George Street, W1 • 10,000 sq ft, 25 room boutique • 4th floor penthouse - 3,200 sq ft hotel, pre-let to Soho House • Pre-let at £0.29m pa (£85 psf) • £0.28m pa, 12 months rent free • 5 months rent free • 23 year lease Tea Build
Slide 39: Acquisitions and disposals
Acquisitions and disposals Acquisitions and disposals 37
Slide 40: Acquisitions and disposals
Acquisitions and disposals Key points • 2008 disposals – net proceeds £72.6m • Income £3.2m pa – disposal yield 4.4% • Profit £1.2m – included £1.6m of surplus from the sale of residential lease extensions • 29 properties sold – Bournemouth and Southampton retail, Portobello Dock residential • 2008
Slide 41: Projects update
Projects update Projects update 39
Slide 42: Projects update: key points
Projects update Key points • Current projects – 57% pre-let • Angel Building, Arup III, Gresse Street • Creating exciting and vibrant spaces that represent good value • £99m of capex required to complete • Valuation movement of all development properties -30.5% • Outward yield movement and increased
Slide 43: Current projects
Projects update 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 Developments 1. Gresse Street/Rathbone Place, W1 59 10.3 3
Slide 44: Angel Building, St John Street, EC1
Projects update Angel Building, St John Street, EC1 • Pre-2008 • Today • Summer 2010 • 162,500 sq ft building • 263,000 sq ft refurbishment • Project delivery • Let at £4.2m pa to BT until • Demolition works completed March 2010 • Building taken back to frame Projects update • Main works to the expa
Slide 45: Angel Building, St John Street, EC1
Projects update Angel Building, St John Street, EC1 • Exciting new identity with triple span entrance • Spectacular atrium Projects update • Flexible floor plates (10,000 - 50,000 sq ft) • New ground floor life • Cafe/retail, lounges, public art 43 A close attention to detail to create a new landmar
Slide 46: 16-19 Gresse Street, W1
Projects update 16-19 Gresse Street, W1 • 47,000 sq ft of offices – completion autumn 2009 • A courtyard environment Projects update • Exciting new facade • Aluminium with fritted and opaque glass panels • 5th and 6th floor roof terraces 44 Creating a location in the West End
Slide 47: Appraisal studies: Charing Cross Road, WC2
Appraisal studies Charing Cross Road, WC2 • Existing buildings – 107,000 sq ft mix of offices Tottenham Court Road and retail producing £3.4m pa ( ) Oxford Street Centre Point • February 2009 – The Astoria and 17 Oxford Street compulsory purchased – 45,000 sq ft – income £1m pa (A) D C • Interim pro
Slide 48: Appraisal studies: Charing Cross Road, WC2
Appraisal studies Charing Cross Road, WC2 • A major Crossrail transport interchange proposed at the corner of Oxford Street and Charing Cross Road • Revitalising the eastern end of Oxford Street • Derwent London masterplanning the above ground commercial space • Current studies include • 200,000 sq
Slide 49: Project pipeline: planning consents
Project pipeline Planning consents Property Current rental Existing Consented income pa floor area floor area Uplift Comments £m 000’s sq ft 000’s sq ft % 1. Leonard Street, EC21 n/a n/a 55 n/a Offices/residential site 2. Wedge House, SE11 0.3 39 81 108 Re-let 5 year term with breaks 3. The Turnmill
Slide 50: Project pipeline: summary
Project pipeline Summary • To complete and let current projects • New projects on hold - a number of exciting opportunities for when the market recovers • North Wharf Road, Paddington • Chancery Lane, Holborn • Maximise income and flexibility • Traditionally a core part of our business • To continue
Slide 51: Summary
Summary Summary 49
Slide 52: Summary
Summary • A difficult year for the property sector but relative success was achieved • Property outperformance • Our brand of space continues to attract tenants • Low passing rents – defensive qualities • Managing voids actively – low vacancy rate of 3.8% • Experienced asset management team • For th
Slide 53: Appendices
Appendices Appendices 51
Slide 54: Appendices
Appendices 1. Debt facilities 2. Finance detail 3. Capital expenditure 4. Portfolio summary 5. Portfolio statistics by village 6. Principal lettings 2008 7. Annualised contracted rental income 8. Projects completed in 2008 • Arup II, W1 • Horseferry House, SW1 • Portobello Dock, W10 9. Appraisal stu
Slide 55: Debt facilities
Appendix 1 Debt facilities Nominal Maturity £m £m 6.5% secured bond 175.0 March 2026 Floating rate guaranteed unsecured loan note 3.2 February 2012 Committed bank facilities Term1 28.0 June 2018 Term/revolving credit 2 125.0 [March] 2014 Revolving credit 100.0 November 2013 Revolving credit 100.0 Ap
Slide 56: Financial detail
Appendix 2 Financial detail Increase in gross property income 2008 -4.2 Surrender premium -7.0 Disposals LMS acquisition 4.1 Acquisitions 3.4 -5.2 Voids Rent reviews 3.9 Lettings 12.3 -10 -5 0 5 10 15 Group property income (£ million) Property expenditure 2008 Administrative expenses 2008 Other £2.0
Slide 57: Capital expenditure
Appendix 3 Capital expenditure Summary by property 2008 2009 2010 2011 actual budget budget & beyond1 budget £m £m £m £m Angel Building 12.0 46.3 25.1 3.6 Arup III 3.9 14.0 - - 16-19 Gresse St & 7-8 Rathbone Place 7.8 10.1 0.2 - Tea Building 0.8 4.3 - - Arup II 12.4 2.7 - - Castle House, 75 Wells St
Slide 58: Portfolio summary
Appendix 4 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 1,429.6 79.2 28.
Slide 59: Portfolio statistics by village
Appendix 5 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 reversion2 value £m % sq ft 000’s sq ft 000’s £m pa £psf £m pa
Slide 60: Principal lettings 2008
Appendix 6 Principal lettings 2008 Approximate Rental Headline net area per annum rental Timing Comment sq ft £m £psf 2008 Angel Building, EC1 139,500 5.60 41 Q3 Pre-let to Cancer Research UK Qube, W1 44,400 2.32 56/58 Q3-Q4 Office floors to HOK and Tribal; retail units to Space NK and Tossed Greenc
Slide 61: Annualised contracted rental income
Appendix 7 Annualised contracted rental income Reconciliation of contracted income Dec 07 to Dec 08 Annualised contracted rental income at 135 31 December 2008 130 +10.6 +1.5 -3.3 • Includes 126.4 • Annualised rents under committed leases Contracted income £m 125 120 117.6 • Pre-lets – eg Soho House
Slide 62: Projects completed in 2008 - Arup II, W1
Appendix 8 Projects completed in 2008 - Arup II, W1 112 • Completed April 2008 • 57,000 sq ft offices • Pre-let to Arup – 25 years, no breaks Appendices • Rent £2.4m pa (£42 psf) • Occupancy rate 100% 60 Impressive offices around a central atrium
Slide 63: Projects completed in 2008 - Horseferry House, SW1
Appendix 8 Projects completed in 2008 - Horseferry House, SW1 112 • Completed May 2008 • 163,000 sq ft offices • Pre-let to Burberry - 25 year lease, break at 15 Appendices • Rent £5.3m pa (£38 psf) • Occupancy rate 100% 61 A new home for an iconic British clothing brand
Slide 64: Projects completed in 2008 - Portobello Dock, W10
Appendix 8 Projects completed in 2008 - Portobello Dock, W10 112 • Completed May 2008 • 69,000 sq ft mixed use scheme • New and refurbished offices Appendices • Residential units - sold • Occupancy rate 8.0% 62 An attractive waterside campus location
Slide 65: Appraisal studies
Appendix 9 Appraisal studies Property Current Existing Potential Appraisal income area area studies/planning Comment £m pa 000’s sq ft 000’s sq ft evaluation A major redevelopment opportunity on our Fitzrovia Estate, which is part Charlotte Street of a masterplan to revitalise this West End location
Slide 66: Building cost trends
Appendix 10 Building cost trends Building inflationary trends 900 Tender Price Index Retail Price Index Building Cost Index • Prices rose by 2% in first half and fell 10% 800 in the second half of 2008 (1) 700 • Davis Langdon Tender Price forecast Index (1976 = 100) 600 • 2009 -5% to -8% • 2010 -4%
Slide 67: Management structure - executive team
Appendix 11 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 D
Slide 68: 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