Derwent London plc · LSE:DLN
Derwent London — H1 2009 Earnings Presentation
71 slides from Derwent London's earnings presentation, 2009
Slide 1: Derwent London plc 2009 interim results
Derwent London plc 2009 interim results
Slide 2: Contents
Contents Page Highlights 01 Results review 03 Debt and financing 11 Market summary 15 Valuation 18 Portfolio statistics 24 Portfolio management 29 Acquisitions and disposals 34 Projects update 36 Outlook 47 Appendices 49 Disclaimer 69 Contents Presentation: John Burns, Chris Odom, Simon Silver, Paul
Slide 3: Highlights
Highlights John Burns Highlights 0
Slide 4: Highlights
Highlights • Strong recurring pre-tax profits £33.3m • Total property return -9.6%, an outperformance against the wider market • Business model of providing modern space at mid-market rents remains robust and in demand • 155,000 sq ft lettings in H1 and low vacancy rate (3.9%) • Ownership of a portf
Slide 5: Results review
Results review 30 June 2009 Chris Odom Results review 0
Slide 6: Headline numbers
Headline numbers • Adjusted net asset value per share 993p (31 December 2008: 1,226p) • Recurring profit before tax £m Recurring profit before tax 33.3 Foreign exchange translation profit (3.6) Underlying recurring profit before tax 29.7 (H1 2008: £17.3m) • Diluted recurring earnings per share 30.17
Slide 7: Group balance sheet
Group balance sheet • Summarised format 30.06.09 30.06.08 31.12.08 £m £m £m Investment property 1,718.9 2,496.8 2,068.1 Other non-current assets 39.5 46.5 38.8 1,758.4 2,543.3 2,106.9 Non-current assets held for re-sale 110.2 - 17.5 Trading properties 7.5 8.4 7.5 Other current (liabilities)/assets (
Slide 8: Group balance sheet
Group balance sheet • Adjusted net asset value per share down 19% to 993p • Reconciliation of net asset value per share in Appendix 1 • Non-current assets held for re-sale are mainly 13-17 Fitzroy Street and The Rotunda, Kingston • Net debt is £16.1m lower than the 2008 year end • But LTV ratio at 4
Slide 9: Group income statement
Group income statement • Summarised format 6 months to Year to 30.06.09 30.06.08 31.12.08 £m £m £m Gross property income 63.1 57.5 119.0 Other income 0.6 0.1 0.9 Property outgoings (4.4) (7.2) (14.6) 59.3 50.4 105.3 Development income - 0.5 0.5 Reverse surrender premium - (8.3) (8.3) Trading stock w
Slide 10: Group income statement
Group income statement • A good set of half year results • Underlying valuation movement has outperformed IPD Central London Office Index • Recurring profit before tax increased to £33.3m from £9.0m • Reflects Derwent’s active management approach: • Rental growth from 2008 lettings • Capital expendi
Slide 11: Group income statement
Group income statement • Gross property income rose £5.6m compared with H1 2008 • Letting activity added £6.3m • Rent reviews contributed £2.3m • Reduction due to voids (£2.2m) and disposals (£1.5m) • Property outgoings were lower by £2.8m • Reduced transaction costs £0.8m • Lower void costs of £1.8
Slide 12: Cash flow
Cash flow • Cash inflow in half year of £15.8m after payment of dividends Half year to Year to 30.06.09 30.06.08 31.12.08 £m £m £m Operating activities 30.6 19.7 38.3 Dividend (15.7) (14.5) (23.5) 14.9 5.2 14.8 Investing activities 0.9 (71.0) (98.5) 15.8 (65.8) (83.7) • Both 2008 periods included th
Slide 13: Debt and financing
Debt and financing Chris Odom Debt and financing 11
Slide 14: Debt facilities and utilisation
Debt facilities and utilisation • Debt facilities total £1.145 billion. Full list of facilities is provided in Appendix 3 • New £125m five year facility replacing that expiring in November 2009 was signed in April 2009 • Next debt maturity is December 2011 • Unutilised committed facilities at 30 Jun
Slide 15: Debt covenants and gearing ratios
Debt covenants and gearing ratios • Secured loans only have two financial covenants • There have been no breaches of banks’ LTV covenants • Headroom under ICR covenants is currently substantial • Property values remain comfortably above current and predicted debt security requirements Security Headr
Slide 16: Liability risk management
Liability risk management Fixed and hedged debt at 30 June 2009 • 71% of drawn facilities were either at fixed rates or hedged at Capped 1% 30 June 2009 Fixed 21% • Maturity profile of fixed and hedged debt is shown in the bar chart Swaps 49% • Average weighted LIBOR of hedging is 4.72% Floating 29%
Slide 17: Market summary
Market summary John Burns Market summary 15
Slide 18: Our market: West End office occupational market
Our market West End office occupational market Office vacancy rates Market Derwent London 18 Central London 16 City West End Take-up in H1 2009 was 1.1m sq ft An active six months 14 City average West End average • Lowest take-up level since H2 1991 • 50 transactions • Down 43% on H1 2008 • 155,000
Slide 19: Our market: Investment summary
Our market Investment summary Central London investment transactions Market Derwent London 6 Value of investment transactions (£bn) Total 4 quarter average H1 central London transactions £2.3bn Continue to recycle capital 5 • 41% lower than H1 2008 • 2008 – £73m 4 • 51% lower than long term average
Slide 20: Valuation
Valuation Nigel George Valuation 18
Slide 21: Valuation performance: Key points
Valuation performance Key points Portfolio Valuation Valuation valuation1 movement2 movement £m £m % Investment properties 1,740.3 -228.9 -11.6 Development properties3 113.9 -24.7 -17.8 Underlying 1,854.2 -253.6 -12.0 Acquisitions 1.4 -0.1 -7.4 1,855.6 -253.7 -12.0 • H1 2009 total property return of
Slide 22: Valuation performance: Drivers of movement
Valuation performance Drivers of movement H1 H1 * Six month period Drivers of valuation movement valuation rental movement growth % % Jun-09* -18 -94 12 West End -12.7 -13.1 Dec-08* City Borders -11.8 -6.2 -92 -51 43 Central London -12.5 -11.5 Jun-08* -169 -34 103 Provincial -5.4 -2.5 Underlying -12
Slide 23: Valuation performance: Yields
Valuation performance Yields True True Initial Reversionary Yield equivalent yield equivalent yield H1 yield1 yield1 spread Dec 2008 June 2009 movement % % % % % basis points West End 6.4 7.3 0.9 6.87 6.99 12 City Borders 8.1 8.8 0.7 7.94 8.06 12 Central London 6.8 7.6 0.8 7.08 7.21 13 Provincial 6.
Slide 24: Valuation performance: Estimated rental values
Valuation performance Estimated rental values Rental value growth West End Office rental value movements Dec 08 to Jun 09 25 10 160 Percentage of total ERV Portfolio weighting by rental value (%) West End ERV movement Jun 09 Half-yearly rental value growth index City Borders 150 1 ERV movement Dec 0
Slide 25: Valuation performance: Capital values psf
Valuation performance Capital values psf Capital value analysis • Low average capital values 15 550 • Portfolio £337 psf Valuation / ERV growth (six monthly %) 10 500 • West End Central £418 psf Capital value (£ psf) 5 450 0 400 • Return to December 2004 average capital values -5 350 -10 300 • Compa
Slide 26: Portfolio statistics
Portfolio statistics Nigel George Portfolio statistics 24
Slide 27: Portfolio summary: Rental income profile
Portfolio summary Rental income profile Core properties1 Developments2 Total Rental Rental Rental Rental Rental Rental uplift per annum uplift per annum uplift per annum Yield4 £m £m £m £m £m £m % Contracted rental income, net of ground rents 120.3 5.33 125.6 6.8 Letting vacant accommodation - avail
Slide 28: Portfolio summary: Vacancy levels
Portfolio summary Vacancy levels Vacant accommodation Vacancy trend 9 8 Vacancy rate Scheme completions Vacancy rate based on rental value (%) 8 7 7 6 6 Vacancy rate (%) +2.4 5 5 +1.5 4 4 4.2 4.2 3.8 3.9 3 3.3 3 2 2 1 1 0 Vacancy rate by rental value Vacancy rate by floor area Jun-08 Sep-08 Dec-08 M
Slide 29: Portfolio summary: H1 2009 lease breaks and expiries
Portfolio summary H1 2009 lease breaks and expiries 100 Break and expiry analysis Average rent • H1 2009 breaks/expiries • Exposure of £4.9m, equating to 3.9% of rental income Proportion of rental income (%) 29 80 43 £26 psf 49 3 • 46% retained, 11% re-let, 43% vacant 60 • Half of the vacant relates
Slide 30: Portfolio summary: Average office rents and tenant profile
Portfolio summary Average office rents and tenant profile Office rent banding Profile of tenants' business sectors £60+ psf Other £50 - £60 psf 4% 9% £0 - £20 psf 4% 13% Government and public administration 7% £40 - £50 psf Professional and 17% business services Financial 40% £20 - £30 psf 7% 20% Re
Slide 31: Portfolio management
Portfolio management John Burns Portfolio management 29
Slide 32: Lettings and activity: Key points
Lettings and activity Key points • A focussed product aimed at the mid-range rental levels of £30-£50 psf • Delivering stylish design and quality • Despite low take-up levels in the central London office market we were active • 50 lettings at £4.6m per annum – totalling 155,000 sq ft • Average rent
Slide 33: Lettings and activity: Supply and demand
Lettings and activity Supply and demand • Quiet start to 2009 (1) 5 Lettings by income and timing • Continued letting activity since mid February (2) 4 Annual rental income (£m) 2 3 • Major activity in March – letting of Qube (3) 2 3 1 • Lettings of £4.6m pa in H1 2009 0 1 • 47% above the half year
Slide 34: Lettings and activity: Lettings H1 2009
Lettings and activity Lettings H1 2009 Qube W1 1 Grosvenor Place SW1 • 45,500 sq ft let at £2.19m pa • 13,700 sq ft let at £0.57m pa – offices fully let • 8,800 sq ft to Jupiter Investment • 31,100 sq ft to EDF Energy (£0.41m pa / £46 psf) (£1.48m pa / £47 psf) • 6,500 sq ft to ScanSafe (£0.29m pa /
Slide 35: Lettings and activity: Post half year lettings
Lettings and activity Post half year lettings • Occupier enquiries have continued in H2 • 26,400 sq ft of lettings since half year – £0.7m pa (7 transactions) • 28,500 sq ft under offer – £0.7m pa 45-51 Whitfield Street W1 • Part of our Fitzrovia estate • Tenant vacated in December 2008 • Refurbishm
Slide 36: Acquisitions and disposals
Acquisitions and disposals John Burns Acquisitions and disposals 34
Slide 37: Acquisitions and disposals: Key points
Acquisitions and disposals Key points • H1 2009 disposals 28 Dorset Square W1 • Net proceeds £39.1m • £16.8m after costs • Income £2.5m pa – disposal yield 6.5% • Net initial yield 6.1% • 8% below December 2008 book value • 4% above December 2008 • 20 properties sold book value • 28 Dorset Square, M
Slide 38: Projects update
Projects update Simon Silver Projects update 36
Slide 39: Projects update: Key points
Projects update Key points • Current projects – 57% pre-let • Angel Building, Arup III, Gresse Street • £68.2m of capex required to complete • Planning permissions total 800,000 sq ft – five future projects (Appendix 14) • 500,000 sq ft of additional space – 171% increase in floor area • Current inc
Slide 40: Projects update: Current projects
Projects update Current projects 17 Gresse Arup III Fitzroy Angel Building Street W1 Street W1 St John Street EC1 Total Floor area 59,000 sq ft3 85,000 sq ft 263,000 sq ft 407,000 sq ft Est costs to complete1 £6.2m £8.0m £54.0m £68.2m4 Total cost2 £26.6m £54.8m £118.3m £199.7m Headline ERV £45 psf £
Slide 41: Angel Building, St John Street EC1
Projects update Angel Building 407 St John Street EC1 • 263,000 sq ft Grade A office space • Building’s design comprises flexible internal space with high daylight levels • Incorporates latest initiatives to: • limit energy consumption • conserve water • create efficient temperature systems • 53% le
Slide 42: Angel Building, St John Street EC1
Projects update Angel Building 407 St John Street EC1 Full height atrium around Terraces with spectacular A striking building imaginative public art views Projects update 40 A welcome addition to the local area
Slide 43: Gresse Street W1
Projects update 17 Gresse Street W1 • Elegant 47,000 sq ft office building set around a landscaped granite courtyard • Completion in October 2009 • Designed for multi-letting • Attracting letting interest Projects update 41 Website: www.charlottebuildingw1.com
Slide 44: Gresse Street W1
Projects update 17 Gresse Street W1 Creating clear spaces Attractive terrace Elegant architecture Projects update 42 A dynamic West End location in a rare pocket of calm
Slide 45: Arup III, Fitzroy Street W1
Projects update Arup III Fitzroy Street W1 • The final phase of new headquarters for Arup • Pre-let: • Rent £3.6m pa (£42 psf) – undemanding • Term 25 years, no breaks • 85,000 sq ft offices • Completion December 2009 • Creating a prime asset • Long term income • International tenant Projects update
Slide 46: Appraisal studies: The Turnmill, Clerkenwell Road EC1
Appraisal studies The Turnmill 63 Clerkenwell Road EC1 • Existing building – 45,000 sq ft • 2007 – planning consent obtained for refurbishment – 65,000 sq ft City Roa • 2009 – planning application submitted for a d G St os y St w Jo n el delto hn Myd lR kle new seven storey office buildingd – 76,000
Slide 47: Appraisal studies: Commercial Road E1
Appraisal studies 60 Commercial Road E1 l yC bur • Looking at new and alternative development options Pad St Mathe eet Club Camlet St Boundary St a Str Rhod Chilton Vallance Row w’s Row • Existing building – 30,000 sq ft offices generating l St Old Nicho St treet Road u hS High Street New Inn Yard R
Slide 48: Project pipeline: Summary
Project pipeline Summary • Gresse Street and Arup III due to complete in H2 2009 • Angel Building due to complete in H2 2010 • Ensuring flexibility for future projects • Active portfolio management – where Derwent excels • North Wharf Road, Paddington • Chancery Lane, Holborn • Planning applications
Slide 49: Outlook
Outlook John Burns Outlook 47
Slide 50: Outlook
Outlook • Success achieved despite a difficult market • Continued strong letting progress • Low vacancy rate maintained • Low average rent of £25 psf – focus on the more resilient middle rental market • Disposal of mature assets to recycle capital • Strong balance sheet and sound financing • Focus f
Slide 51: Appendices
Appendices Appendices aN Ke}
Slide 52: Appendices
Appendices Page Page 1. Net asset value per share 51 11. Lease length 61 2. Group income statement 52 12. Lease expiry profile 62 3. Debt facilities 53 13. Capital expenditure 63 4. Net debt 54 14. Planning consents 64 5. Valuation performance 55 15. Appraisal studies 65 6. Portfolio summary 56 16.
Slide 53: Net asset value per share
Appendix 1 Net asset value per share • Reconciliation 30.06.09 30.06.08 31.12.08 £m p £m p £m p Net assets attributable to equity shareholders 952.7 945 1,627.3 1,614 1,179.6 1,170 Deferred tax on revaluation surplus 7.3 10.4 8.4 Fair value of derivatives 20.4 (9.1) 26.9 Fair value adjustment to bon
Slide 54: Group income statement
Appendix 2 Group income statement • Reconciliation of recurring profit before tax to IFRS loss before tax 6 months to Year to 30.06.09 30.06.08 31.12.08 £m £m £m Loss before tax (223.3) (144.7) (606.5) Revaluation deficit 258.9 163.8 602.1 Joint venture revaluation deficit 1.3 0.3 1.3 Loss/(profit)
Slide 55: Debt facilities
Appendix 3 Debt facilities Nominal Maturity £m £m 6.5% secured bond 175.0 March 2026 Floating rate guaranteed unsecured loan note 2.8 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 April
Slide 56: Net debt
Appendix 4 Net debt • Net debt 30.06.09 31.12.08 £m £m Bank overdraft and loans 4.3 106.6 Financial liabilities 854.0 769.3 Cash and cash equivalents (9.0) (10.5) Net debt 849.3 865.4 Acquired fair value of bond less costs (19.0) (19.3) Leasehold liabilities (8.6) (8.6) Drawn facilities 821.7 837.5
Slide 57: Valuation performance
Appendix 5 Valuation performance Valuation Valuation Portfolio movement movement valuation Weighting H1 20091 H1 20092 Comment £m % % £m West End Fitzrovia/Euston 478.4 26 -9.8 -51.9 Long term income, eg Arup II & III, Qube Victoria 211.9 11 -10.3 -24.4 98% occupancy rate Baker Street/Marylebone 88.
Slide 58: Portfolio summary
Appendix 6 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 1,250.9 78.7 28.4
Slide 59: Portfolio statistics by village
Appendix 7 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: Annualised contracted rental income
Appendix 8 Annualised contracted rental income Reconciliation of contracted income Dec 08 to Jun 09 Annualised contracted rental income at 30 June 2009 132 130 • Includes • Annualised rents under committed leases 1 Contracted income (£m) 2.3 1.2 -2.1 128 126.4 -2.0 -0.2 • Pre-letting income 126 125.
Slide 61: Vacant accommodation
Appendix 9 Vacant accommodation Vacant accommodation Floor Rental at 30 June 2009 area per annum Comment 000 sq ft £m Available Strathkelvin Scotland 60 0.9 7,500 sq ft in negotiation 4 Grosvenor Place SW1 18 0.8 8,000 sq ft under offer/in negotiation City Road Estate EC1 27 0.6 Short leases pending
Slide 62: Tenant profile
Appendix 10 Tenant profile Net Net Average income1 income rental income Key expiry dates % £m £psf Arup2 8.0 10.2 33.09 2023 (£4.5m), 2031 (£3.9m) Government 7.0 8.8 23.78 2011 (£3.3m), 2021 (£1.5m), 2022 (£1.7m) Burberry 4.1 5.2 32.26 2033 with break in 2023 (£5.2m) Saatchi & Saatchi 3.7 4.7 28.17
Slide 63: Lease length
Appendix 11 Lease length Average unexpired lease length2 • Weighted average unexpired lease length of 12 8.0 years 11 West End City Borders Central London • Central London 7.7 years 10 • Provincial 11.4 years 9 8 Years 7 6 5 4 3 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 2 Lease length weighted by re
Slide 64: Lease expiry profile
Appendix 12 Lease expiry profile Portfolio income1 West City H2 West City End Borders 2009 End Borders 2010 2011 2012 2013 Total % % % % % % % % % % Expiries 1 - 1 3 1 4 6 2 8 21 Angel expiry - - - 3 - 3 - - - 3 Single breaks 1 - 1 3 1 4 4 4 4 17 Rolling breaks 2 1 3 2 - 2 - - - 5 4 1 5 11 2 13 10 6
Slide 65: Capital expenditure
Appendix 13 Capital expenditure Summary by property 2008 2009 2010 2011 actual budget budget & beyond1 budget £m £m £m £m Angel Building 12.0 46.0 26.9 2.3 Arup Phase III 3.9 13.5 0.2 - 17 Gresse St & 7-8 Rathbone Place 7.8 10.6 0.4 - Tea Building 0.8 4.7 0.2 - Arup Phase II 12.4 3.0 - - Castle Hous
Slide 66: Planning consents
Appendix 14 Planning consents Leonard Wedge Chancery North Wharf City Road Street EC21 House SE11 Lane WC21,2 Road W22 Estate EC11 Total Current rental income n/a £0.3m pa £1.0m pa £1.6m pa £0.8m pa £3.7m pa Existing floor area n/a 39,000 sq ft 71,000 sq ft 84,000 sq ft 102,000 sq ft 296,000 sq ft C
Slide 67: Appraisal studies
Appendix 15 Appraisal studies Property Current Current Existing Potential Appraisal income income area area studies/planning Comment £m pa £psf 000’s sq ft 000’s sq ft evaluation A key ownership in the heart of our Fitzrovia estate, with the potential Charlotte Street for major redevelopment. 4.7 28
Slide 68: Appraisal studies – Charing Cross Road WC2
6.6 CGIs Appendix 16 Denmark Place Consolidated Developments / Foster Architects (Future development - exact height and footprint unknown) Appraisal studies – Charing Cross Road WC2 NNW ESE N site B NE N E • Proposed Crossrail interchange at the junction of Oxford Street and Charing Cross Road • Des
Slide 69: Investing in design
Appendix 17 Investing in design • Delivering well designed developments by working with the country’s most creative architectural talent 151 Rosebery Avenue - Horseferry House - AHMM North Wharf Road - Fletcher Priest Hugh Broughton Architects • Commissioning artists to help create special public ar
Slide 70: Management structure – executive team
Appendix 18 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 71: 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