Derwent London plc · LSE:DLN
Derwent London — H1 2008 Earnings Presentation
59 slides from Derwent London's earnings presentation, 2008
Slide 1: Derwent London plc 2008 interim results
Derwent London plc 2008 interim results
Slide 2: Contents
Contents Page Achievements 1 Financial review 2 Market summary 12 Valuation 15 Portfolio statistics 20 Portfolio management 27 Acquisitions and disposals 31 Projects update 33 Conclusion 47 Appendices 49 • Debt facilities 51 • Capital expenditure 52 • Portfolio summary 53 • Portfolio statistics by v
Slide 3: Achievements
Achievements • £11.0 million per annum of new lettings to date - surpassing entire 2007 activity • Three major planning permissions obtained - totalling 680,000 sq ft (115% uplift) - all income producing • Important asset management initiatives concluded • Disposal of non-core assets of £56.1 millio
Slide 4: Financial review
Financial review Financial review 0
Slide 5: Headline numbers
2008 interim results Headline numbers • Adjusted net asset value per share fell 9.1% to 1,637p (31st December 2007: 1,801p) • Recurring profit before tax includes the reverse surrender premium paid at 1-3 Grosvenor Place Pre-surrender premium £17.3m Post-surrender premium £ 9.0m which compared with
Slide 6: Balance sheet
2008 interim results Balance sheet • Summarised format 30.6.08 30.6.07 31.12.07 £m £m £m Investment property 2,496.8 2,804.6 2,654.6 Other non-current assets 46.5 156.3 33.8 2,543.3 2,960.9 2,688.4 Assets held for resale 8.4 9.4 12.8 Other current assets 0.4 2.9 12.5 Cash 5.8 20.9 10.3 Bank overdraf
Slide 7: Net asset value per share
2008 interim results Net asset value per share • Reconciliation 30.6.08 30.6.07 31.12.07 £m p £m p £m p Total net assets 1,682.7 1,669 1,933.1 1,922 1,841.9 1,829 Adjustments 23.5 9.4 33.5 Adjusted total net assets 1,706.2 1,693 1,942.5 1,931 1,875.4 1,862 Minority interests* (56.4) (57.5) (61.6) Ad
Slide 8: Group income statement
2008 interim results Group income statement • Summarised format 6 months to Year to 30.6.08 30.6.07 31.12.07 £m £m £m Gross property income 57.5 50.5 111.7 Property outgoings (7.1) (4.4) (9.9) 50.4 46.1 101.8 Development income 0.5 6.8 2.0 Reverse surrender premium (8.3) - - Trading stock (1.0) - -
Slide 9: Group income statement
2008 interim results Group income statement • 2008 results include a full six months from LMS • Gross property income rose £7.0m, of which approximately £4.1m resulted from the additional month. Lettings and reviews added £6.1m while voids reduced rents by £2.8m • Within property expenditure, void c
Slide 10: Recurring profit before tax
2008 interim results Recurring profit before tax • Recurring profit before tax is £9.0m (30th June 2007: £12.3m) but............ this is reported after charging: • £8.3m in respect of the reverse surrender premium paid to the tenant at 1-3 Grosvenor Place • £1.0m in respect of a write down of housin
Slide 11: Cash flow
2008 interim results Cash flow • Cash outflow in half year of £65.8m, mainly due to payment of REIT conversion charge of £53.6m Half year to Year to 30.6.08 30.6.07 31.12.07 £m £m £m Operating activities 19.7 14.8 28.4 Investing activities (72.0) (88.6) 69.2 Dividend (13.5) (5.6) (13.2) (65.8) (79.4
Slide 12: Debt and debt ratios
Debt and debt ratios • New facilities of £128m signed this year, extending average life of debt to 6.3 years (31st December 2007: 6.1 years) • Next debt maturity is November 2009, then December 2011. Full list of facilities in Appendix 1. • Unutilised facilities at 30th June 2008 amounted to £310m •
Slide 13: Liability risk management
Liability risk management • 60% of net debt (nominal value) was either fixed or hedged at the half year • Interest rate is fixed by: £m Fixed rate debt 175.0 Swaps 310.0 Cap 10.0 495.0 • Total value of derivative instruments is £9.1m. Income statement credit of £7.8m. • The fair value adjustment of
Slide 14: Market summary
Market summary Market summary 12
Slide 15: Our market: occupational market
Our market Occupational market Central London vacancy rates West End 18 Central London 16 City • Since 1990, West End annual take-up has averaged 4.1m 14 West End sq ft, ranging from 1.9m sq ft (1991) to 5.4m sq ft (2000) Vacancy rate (%) 12 10 • In the first half of 2008, despite the weakening econ
Slide 16: Our market: investment summary
Our market Investment summary • Central London investment transactions in H1 2008 totalled £4.1bn - 59% lower than H1 2007 • Overseas investors dominated activity accounting for 63% of purchases • Middle Eastern investors represented 22% of the overall total - targeting prime assets • German funds -
Slide 17: Valuation
Valuation Valuation 15
Slide 18: Valuation performance
Valuation performance Key points • Investment portfolio valuation June 2008 Portfolio H1 Valuation H1 Valuation valuation movement movement £m £m1 % Investment properties 2,365.0 -159.5 -6.3 Development properties2 137.7 -1.7 -1.3 Underlying 2,502.7 -161.2 -6.1 Acquisitions 15.5 -0.7 -4.1 Investment
Slide 19: Valuation performance by location
Valuation performance By location Valuation Valuation Portfolio movement surplus valuation Weighting H1 20081 H1 20082 Comment £m % % £m West End Paddington 42.0 2 0.9 0.4 Planning permission at North Wharf Road Belgravia 139.1 6 -0.2 -0.3 Long term development potential Camden/Islington 120.0 5 -1.
Slide 20: Valuation performance: yields
Valuation performance Yields True equivalent yields Dec H1 June 2007 movement 2008 % basis points % • 43bp outward movement in the equivalent yield West End 5.56 38 5.94 City Borders 5.96 67 6.63 Central London 5.67 41 6.08 • West End outperforming Provincial 6.45 103 7.48 5.72 43 6.15 Portfolio yie
Slide 21: Yield profile and lease length
Valuation performance Yields Yield profile1 Initial Reversionary Yield yield yield spread % % % • 50bp increase in the initial yield West End 4.5 6.5 2.0 City borders 5.7 7.2 1.5 Central London 4.8 6.7 1.9 Provincial 5.9 6.9 1.0 • Strong reversionary potential 4.9 6.7 1.8 • Weighted unexpired lease
Slide 22: Portfolio statistics
Portfolio statistics Portfolio statistics 20
Slide 23: 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 116.8 5.41 122.2 4.9 Letting vacant accommod
Slide 24: Portfolio summary: vacant accommodation
Portfolio summary Vacant accommodation Vacant accommodation Floor Rental at 30th June 2008 area per annum Comment 000 sq ft £m Available Qube 83 4.9 12,200 sq ft let at £0.71m pa post H1 Strathkelvin 75 1.2 Retail warehouse. A further planning decision awaited. Space under offer Portobello Dock 35 1
Slide 25: Portfolio summary: portfolio office rents
Portfolio summary Portfolio office rents Rent banding West End City Borders Total • A portfolio let off low office rents % % % £0 - £20 psf £20 - £30 psf 8 16 7 9 15 25 • 65% of our office rents are between £20 - £40 psf £30 - £40 psf 27 13 40 £40 - £50 psf 13 - 13 £50 - £60 psf 4 - 4 • Only 7% over
Slide 26: Portfolio summary: lease expiries
Portfolio summary Lease expiries Profile of rental income expiry • Lease expiries over the next five years - assuming 50% no renewals No lease breaks exercised Lease breaks exercised at first opportunity • No lease breaks exercised 26% 40% Contracted rental income 41% • Lease breaks exercised 41% 30
Slide 27: Portfolio summary: reversionary income profile
Portfolio summary Reversionary income profile Annualised reversionary profile £8,000,000 • A strong reversion in the portfolio Rent reviews Lease expiries £7,000,000 £6,000,000 £5,000,000 £4,000,000 • A solid start to 2008 with £2.9m pa of reversions £3,000,000 completed £2,000,000 • Saatchi, Arup,
Slide 28: 2008 H1 lease breaks and expiries
Portfolio summary 2008 H1 lease breaks and expiries Break analysis Lease breaks 5% 7% • 76 possible tenant breaks during the first half of 2008 • Represents less than 3% of net annualised income • Low average passing rent of £18 psf - affordable • 74% are in buildings earmarked for future projects -
Slide 29: Portfolio management
Portfolio management Portfolio management 27
Slide 30: Lettings and activity
Lettings and activity Key points • Our market - mid range rents of £40-£65 psf • £11.0m pa of new lettings in 2008 totalling 287,000 sq ft • Angel Building - £5.6m pa (139,500 sq ft) • Gordon House - £0.86m pa (15,900 sq ft) • 151 Rosebery Avenue - £0.73m pa (19,700 sq ft) • Qube - £0.71m pa (12,200
Slide 31: Asset management initiatives
Lettings and activity Asset management initiatives Angel Building, EC1 Gordon House, SW1 • 139,500 sq ft pre-let to • 15,900 sq ft pre-let to The Cancer Research UK Benefit Express • £5.6m pa (£41 psf) • £0.86m pa (£57.50 psf) • 20 year lease with a break at • Tenant taking two refurbished year 15 f
Slide 32: Asset management initiatives: Grosvenor Place, Charlotte Street
Lettings and activity Asset management initiatives 1-3 Grosvenor Place, SW1 80 Charlotte Street, W1 • Hanson’s lease surrender negotiated - 75,000 sq ft • Conclusion of a highly reversionary March 2008 rent review • Tenant paying £19 psf on a lease to 2024 - single review 2009 with Saatchi & Saatchi
Slide 33: Acquisitions and disposals
Acquisitions and disposals Acquisitions and disposals 31
Slide 34: Acquisitions and disposals
Acquisitions and disposals Key points • Our acquisition requirements: • Low passing rents and a reversionary income profile • Improving locations • Supplement existing ownerships - critical mass • Planning/refurbishment potential • H1 2008 acquisitions - £15.5m, excluding costs • Adjacent to existin
Slide 35: Projects update
Projects update Projects update 33
Slide 36: Project pipeline
Project pipeline Key points • Development surpluses to come through - 55% pre-let • Angel Building, EC1 • Arup III, W1 • 16-19 Gresse Street/Rathbone Place, W1 • Leonard Street, EC2 • Planning consents total 619,000 sq ft - five future projects • 159% increase in floor area - 380,000 sq ft of additi
Slide 37: Completed projects
Project pipeline Completed projects Arup II, Fitzroy Street, W1 Horseferry House, SW1 Portobello Dock, W10 • Completed March 2008 • Completed May 2008 • Completed May 2008 • 57,000 sq ft offices • 163,000 sq ft offices • 69,000 sq ft mixed use - • Pre-let to Arup - • Pre-let to Burberry - New and re
Slide 38: 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 Current developments 1. Gresse Street/Rathbone Place, W1
Slide 39: Angel Building, St John Street, EC1
Angel Building, St John Street, EC1 Current projects • A £90m development project Projects update • 263,000 sq ft with 139,500 sq ft pre-let to Cancer Research UK - £5.6m pa (£41 psf) • Potential income circa £10.5m pa 37 A transformation taking place
Slide 40: Angel Building: applying the design vision
Angel Building, St John Street, EC1 Current projects • Take a ‘tired’ 1980s building with • An unutilised open courtyard Projects update • Inflexible floor plates • Creating high quality Grade A offices • A dynamic atrium area • Achieve additional floor area - 62% uplift 38 Applying the Derwent Lond
Slide 41: Angel Building: designing space to transform an area
Angel Building, St John Street, EC1 Current projects • Existing structure offers some key features • Creating a striking remodelled facade • Good daylight and entrance Projects update • Excellent floor to ceiling heights • Flexible floor plates - 15,000 to 50,000 sq ft • Introduce ground floor life
Slide 42: 16-19 Gresse Street and Rathbone Place, W1
16-19 Gresse Street and Rathbone Place, W1 Current projects • Demolition complete, superstructure under construction • To create • New offices - 47,000 sq ft • Residential/retail - 12,000 sq ft at Rathbone Place • To achieve an impressive mixed-use scheme • Project completion spring 2009 Projects up
Slide 43: Gresse Street and Rathbone Place property swap
16-19 Gresse Street and Rathbone Place, W1 Current projects • Since half year, property swap completed with the Evelyn Estate • Freehold of Gresse Street swapped for a leasehold interest and additional properties on Rathbone Place • New 120 year headleases • Ground rent @ 10% on Gresse Street, 15% o
Slide 44: 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. Leonard Street, EC21 n/a n/a 55 n/a 2010 Offices/residential 2. Wedge House, SE11 - 39 81 108 - Scheme on hold 3. The Turn
Slide 45: Leonard Street, EC2
Leonard Street, EC2 Planning consents • Former car park - adjacent to Oliver’s Yard • Planning consent for a 55,000 sq ft development • New offices - 20,000 sq ft • Residential - 35,000 sq ft - 47 units • Earliest completion 2010 Projects update 43 Creative planning solutions
Slide 46: Appraisal studies
Project pipeline Appraisal studies Current Existing Potential Outline Planning Planning income area area studies evaluation application Comment £m pa 000’s sq ft 000’s sq ft Planning refused in 2007, now City Road Estate subject to a planning appeal that will be determined in autumn 0.9 100 200 2008
Slide 47: Appraisal studies
Project pipeline Appraisal studies Current Existing Potential Outline Planning Planning income area area studies evaluation application Comment £m pa 000’s sq ft 000’s sq ft Adjacent to Euston Station. There is Hampstead Road potential for a substantial mixed use scheme. 2.0 230 300 A long term deve
Slide 48: Project pipeline summary
Project pipeline Summary • 289,000 sq ft of schemes completed in first half 2008 - 76% pre-let • Arup II, W1 (pre-let) • Portobello Dock, W10 • Horseferry House, SW1 (pre-let) • Current developments of 407,000 sq ft • 55% of the floor area pre-let • Challenging market conditions - focus on creative
Slide 49: Conclusion
Conclusion Conclusion 47
Slide 50: Conclusion
Conclusion • Success achieved through: • A focus on the middle rental market - £40 to £65 psf • Our well designed spaces attracting tenants • De-risking developments by pre-letting • Disposal of non-core assets • A strong balance sheet and financial position • In these tough market conditions: • Foc
Slide 51: Appendices
Appendices Appendices 49
Slide 52: Appendices
Appendices 1. Debt facilities 2. Capital expenditure 3. Portfolio summary 4. Portfolio statistics by village 5. Project pipeline map 6. Management structure - executive team Appendices 50
Slide 53: Debt facilities
Appendix 1 Debt facilities Nominal Maturity £m £m 6.5% secured bond 175.0 March 2026 Floating rate guaranteed unsecured loan note 3.6 February 2012 Committed bank facilities Term* 28.0 June 2018 Revolving credit 100.0 November 2013 Revolving credit 100.0 April 2013 Term/revolving credit 375.0 March
Slide 54: Capital expenditure
Appendix 2 Capital expenditure Summary by property 2007 2008 2009 2010 actual budget budget & beyond1 budget £m £m £m £m Arup II & III 7.4 17.7 15.5 - Angel Building 2.3 14.8 53.4 19.7 Horseferry House 13.5 11.2 0.5 - 16-19 Gresse Street 3.4 10.0 11.5 1.1 Portobello Dock 8.6 4.0 0.4 - Gordon House 0
Slide 55: Portfolio summary
Appendix 3 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 1,703.9 75.7 27.
Slide 56: Portfolio statistics by village
Appendix 4 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 57: Project pipeline map
Appendix 5 Project pipeline map Potential floor area sq ft Camden/ Current projects Islington 1, 16 1. Angel Building, EC1 263,000 2. Gresse Street, W1 59,000 3. Arup III, W1 85,000 407,000 Clerkenwell Planning consents Euston 6 City 14 Fitzrovia borders 4. Leonard Street, EC2 55,000 Ladbroke 4, 9 S
Slide 58: 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 59: 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