We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Register for Free to get streaming real-time quotes, interactive charts, live options flow, and more.
| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Derwent London Plc | LSE:DLN | London | Ordinary Share | GB0002652740 | ORD 5P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 2,030.00 | 2,034.00 | 2,040.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Real Estate Investment Trust | 190.5M | -476.4M | -4.2426 | -4.80 | 2.29B |
From Apr 2019 to Apr 2024
TIDMDLN
RNS Number : 2614X
Derwent London PLC
09 August 2018
9 August 2018
Derwent London plc ("Derwent London" / "the Group")
INTERIM RESULTS FOR THE HALF YEARED 30 JUNE 2018
OCCUPIER DEMAND UNDERPINS GROWTH POTENTIAL
Financial highlights
-- Net rental income GBP80.6m from GBP79.3m in H1 2017, up 1.6%
-- EPRA(1) earnings 66.9p per share from 45.4p in H1 2017, up 47.4%, including surrender premiums and significant non-recurring property income
-- Underlying(1) earnings 51.8p per share, up 14.0% -- Total return 3.1% in first six months:
o Dividends paid 117.4p per share, which includes 75.0p special
o EPRA NAV 3,713p per share from 3,716p in December 2017, down 0.1% after dividends
-- Interim dividend raised 10.2% to 19.10p per share from 17.33p in 2017 -- Equity shareholders' funds GBP4,133.8m from GBP4,128.3m in December 2017, up 0.1%
First half activity
-- New lettings totalling GBP8.4m, 8.2% above December 2017 estimated rental value (ERV) -- Capital expenditure of GBP80.9m including capitalised interest of GBP5.1m -- Progressing two new developments totalling 410,000 sq ft
Second half activity to date
-- Further lettings of GBP3.4m, including the top two floors of Brunel Building W2 -- Another GBP2.2m of rent under offer with good ongoing interest -- On-site developments 60% pre-let, up from 45% at December 2017 -- Exchanged contracts on leasehold acquisition at 88-94 Tottenham Court Road W1 for GBP42m
Portfolio update
-- Portfolio valued at GBP5.0bn; an underlying increase of 1.3% in H1 2018 -- Uplift on developments was 9.4% in the first six months -- True equivalent yield of 4.70%; tightening 3bp since December 2017 -- Total property return was 3.3% in H1 which was ahead of our benchmark index(2) of 2.7%
-- EPRA vacancy rate rose to 4.2% from 1.3% in December 2017 principally due to the completion of two refurbishments
-- ERV on an EPRA basis increased by 0.5% in H1 -- ERV guidance for 2018 improved to +2% to -1% from +2% to -3% in February 2018
Financial position
-- Interest cover 514% and loan-to-value ratio 15.2% -- Borrowings up to GBP786.9m from GBP730.8m in December 2017 -- Cash and undrawn facilities GBP403m
(1) Explanations of how EPRA and underlying figures are derived from IFRS are shown in note 23 (2) MSCI IPD Central London Offices Quarterly Index
John Burns, Chief Executive, commented:
"London's robust occupier demand has endorsed our actions to push ahead with recent developments, and we are now in a strong position to proceed with our next two major projects. We remain confident that Derwent London will continue to deliver the buildings for today's occupiers and grow our earnings over the medium term."
Webcast and conference call
There will be a live webcast together with a conference call for investors and analysts at 09:00 BST today. The audio webcast can be accessed via www.derwentlondon.com.
To participate in the call, please dial the following number: +44 (0)20 3059 5868.
A recording of the conference call will also be made available following the conclusion of the call on www.derwentlondon.com.
For further information, please contact:
Hot Features
Premium
Derwent London John Burns, Chief Executive
Tel: +44 (0)20 7659 3000 Damian Wisniewski, Finance Director
Quentin Freeman, Head of Investor Relations
Brunswick Group Simon Sporborg
Tel: +44 (0)20 7404 5959 Nina Coad
Emily Trapnell
OVERVIEW AND OUTLOOK
Since the EU referendum two years ago, the Group has achieved GBP65m of lettings and substantially de-risked almost one million sq ft of development. We have sold GBP713m of properties, invested GBP365m in capital expenditure, lowered debt by GBP187m and paid out GBP266m in dividends. All this has happened in a period of political uncertainty and slower economic growth during which central London office rents and values rose 0.6% and 0.7%, respectively, according to MSCI IPD.
In the first half of 2018 we achieved GBP8.4m of new lettings, progressed our on-site developments for delivery in 2019/2020 and advanced 410,000 sq ft of new developments. This momentum has continued into the second half and we have let or pre-let a further GBP3.4m including the top two floors of Brunel Building W2, which is now 40% pre-let. This takes the 623,000 sq ft of on-site developments to 60% pre-let.
First half net property income was up by 27% to GBP103.4m from GBP81.5m in H1 2017, driven by significant non-recurring property income. Net rental income was up 1.6% to GBP80.6m impacted by substantial disposals in 2017 and GBP2.5m of surrender premiums recognised in the period. EPRA earnings per share include non-recurring property income and therefore rose to 66.9p, an increase of 47.4% over H1 2017. Underlying earnings, which are set out in more detail in the financial review, increased by 14.0% to 51.8p per share from 45.4p in H1 2017. These figures support our decision to raise the interim dividend by 10.2% to 19.1p per share and we anticipate a similar rate of increase in the final dividend.
Portfolio growth was enhanced by the development programme so that, overall, it recorded an underlying gain of 1.3% and a revaluation surplus of GBP54.3m. This, together with our earnings, almost exactly matched our significant first half dividend distributions totalling 117.4p per share(1) , and therefore our NAV per share was only 3p lower at 3,713p.
(1) Final dividend of 42.4p together with special dividend of 75p per share relating to year ended 2017
The portfolio continues to offer considerable opportunity to capture reversion either through developments or lease events. At 30 June 2018, we had another GBP70.5m of additional rent inherent in our existing portfolio. We expect to incur a further GBP206m of capital expenditure to achieve this. The new developments at Soho Place W1 and The Featherstone Building EC1 could add a further GBP28.5m to our ERV potential with additional capital expenditure and site costs of GBP369m.
A focus on design has been an important foundation of the business and our activities continue to be endorsed by prestigious third party recognition. In the last six months both White Collar Factory EC1 and 25 Savile Row W1 received RIBA London and National awards. White Collar Factory also won the New London Architecture Wellbeing Award, and 25 Savile Row achieved a Gold SKA rating. This year also represents the fifth anniversary of our Community Fund and we have made further distributions supporting local initiatives in Fitzrovia and the Tech Belt. We also recently became supporters of the Financial Stability Board's Task Force on Climate-related Financial Disclosures having previously adopted its recommendations in our Annual Sustainability Report.
Our concentration on emerging locations while offering high quality product at middle-market rents is proving well suited to current market conditions. Recently we have seen some retailers and restaurants under strain which has led to a number of CVAs, but this remains a small part of our business. Looking to the future, providing current levels of business confidence persist, we are expecting ERV growth of between +2% and -1% in 2018 and for average yields to remain firm in our portfolio.
Against a background of modest rental growth and flat property yields, it is essential that we can create internal growth. Derwent London's portfolio has meaningful asset management and development opportunities. We also have the finances and the people to enable us to deliver them so we expect to continue to grow medium-term earnings and enhance our longer term prospects.
THE BOARD
We have announced today that Lucinda Bell will be joining the Board as an independent Non-Executive Director with effect from 1 January 2019. Lucinda is a Chartered Accountant with significant knowledge in the listed real estate sector, including 26 years at British Land latterly as Chief Financial Officer. She will join the Risk and Audit Committees.
CENTRAL LONDON OFFICE MARKET
Occupier demand remains good with CBRE reporting 6.4m sq ft of office take-up in central London in the first half of the year, 7.2% ahead of the same period last year. Flexible workspace accounted for 14.5% of take-up. The vacancy rate has risen to 4.6% which compares to 4.3% in December but remains below the long term average of 5.1%. The strength of demand is demonstrated by the amount of space under offer at the end of Q2 which CBRE estimates at 4.3m sq ft, the highest level recorded for 18 years.
As the year has progressed an additional 2.5m sq ft of London office space has begun construction for delivery in 2020 and 2021. This takes the total to 13.5m sq ft under construction of which 49% is pre-let. This means that expected new supply of unlet space over the next three and a half years is about 3% of the total market. West End supply remains tighter with only 1.6m sq ft of space under construction available which represents less than 2% of the local market.
CBRE is reporting unchanged prime rents across the central London office market in the first six months, except at Paddington where prime rents have risen 3.6%. This, in part, reflects our own activity at Brunel Building. Prime yields are also reported as unchanged as investment activity, at GBP7.9bn, remains strong, with a number of sizeable City deals. Asian investors continue to provide substantial liquidity and represented 56% of total purchases. Other overseas investors accounted for a further 24%. The West End market has had less stock available and consequently has been less active, although domestic investors are more involved with a 45% market share.
We expect the market overall to benefit from the opening of the Elizabeth line from the end of 2018 with the whole line expected to be operational by the end of 2019. We expect to benefit from this as 74% of our portfolio is located close to a station.
VALUATION
The general property market stability was reflected in the GBP5.0bn portfolio valuation at 30 June 2018 giving a surplus of GBP54.3m after accounting adjustments (see note 11). The underlying valuation growth was 1.3% and this follows a 2.5% uplift in H2 2017. Compared with our capital value benchmarks, this was an outperformance against the MSCI IPD Quarterly Index for Central London Offices, up 1.0%, but just below the wider UK All Property Index which was up 1.4%. By location, our central London properties, which represent 98% of the portfolio, increased in value by 1.4% with the City Borders up 2.3% and the West End up 0.8%. The balance of the portfolio, comprising our Scottish holdings, declined 1.9%.
Our rental values, on an EPRA basis, rose by 0.5% over the first half, a similar level to the 0.6% seen in H2 2017. The City Borders were up 0.6% and slightly outperformed the West End, up 0.4%.
The portfolio's EPRA initial yield was 3.4%, which, after allowing for the expiry of rent frees, half rents and contractual uplifts, rises to 4.3% on a 'topped-up' basis. The true equivalent yield came in 3bp to 4.70% and has tightened 13bp over the last 18 months as capital markets have settled post the referendum.
Our first half total property return was 3.3%, which compares to the MSCI IPD Indices of 2.7% for Central London Offices and 3.7% for UK All Property.
At year end we were on site with two major developments: 80 Charlotte Street and Brunel Building. These were valued at GBP499.0m in June 2018 and they delivered a strong 9.4% uplift. Excluding these, the underlying portfolio increase was 0.5%. We are now progressing the next programme of developments: Soho Place W1 and The Featherstone Building EC1 (formerly Monmouth House), which together were valued at GBP71.5m(1) . When combined with the on-site schemes our development programme represented about 11% of the portfolio. There is more detail on our consented development pipeline below.
Our contracted annualised net cash rent at June 2018 was GBP156.9m. This was 2% lower than December 2017, following the disposal of the Porters North joint venture and several lease expiries and surrenders for premiums where we are looking to refurbish the space. The portfolio's estimated reversion is correspondingly higher at GBP114.5m to give a total ERV of GBP271.4m.
The make-up of the reversion is shown in the table below. Of the total, GBP44.0m was contracted through rent-free periods, half rents and fixed uplifts, and most of this upside is already incorporated in the income statement. The remaining GBP70.5m (GBP29.5m scheme pre-lets plus GBP41.0m potential income) will contribute to future rent. As at 30 June 2018, 42% of this was pre-let, with the remaining growth to come from new lettings (37%) or lease events (21%).
Portfolio income potential 30 June 2018
Contracted Potential Rent
GBPm GBPm GBPm
Contracted rental income at 30 June 2018 156.9
Contractual rental uplifts 44.0
Pre-let element of on-site schemes 29.5(2)
----------------------------
73.5
Vacant space including refurbishments 10.9
On-site developments available 14.9(2)
Rent reviews and lease renewals 15.2
-------------------------------
41.0
------
Estimated rental value 271.4
---------------------------- ------------------------------- ------
(1) Total balance sheet carrying value at 30 June 2018 includes an additional GBP41.9m relating to discounted future headlease payments at Soho Place which are offset by an equal and opposite liability (see notes 11 and
18) (2) A further 20,500 sq ft pre-let at Brunel Building since 30 June 2018
PORTFOLIO MANAGEMENT
In the first six months, we achieved GBP8.4m of new lettings across 139,200 sq ft, on average 8.2% above December 2017 ERV. These transactions were dominated by the pre-letting at Brunel Building to Sony Pictures, which represented over 60% of the rents recorded in the first half. The other main letting in the period was 12,800 sq ft at 45-51 Whitfield Street W1 for a rent of GBP0.6m. There were a further 22 separate letting transactions which made up the remainder of the income. Since 30 June 2018, we have signed another GBP3.4m of lettings across 50,500 sq ft.
We show our main first half asset management activity in the table below. In total it covered 178,000 sq ft of space and we increased rents from GBP8.1m to GBP9.7m, which was 1.7% above ERV. The majority of these lease events were concentrated in 90 Whitfield Street W1, Morelands EC1 and 151 Rosebery Avenue EC1.
Asset management H1 2018
Area Previous rent New rent Uplift Income v
sq ft GBPm pa GBPm pa % Dec 17 ERV %
Rent reviews 89,200 3.8 4.8 26.9 3.0
-------- -------------- --------- ------- --------------
Lease renewals 34,800 1.7 2.0 16.3 0.4
-------- -------------- --------- ------- --------------
Lease regears 54,000 2.6 2.9 8.7 0.7
-------- -------------- --------- ------- --------------
Total 178,000 8.1 9.7 18.8 1.7
-------- -------------- --------- ------- --------------
PROJECTS
As reported in 2017, we substantially pre-let the office element of 80 Charlotte Street W1, our largest development. We now expect this project to complete early in the first half of 2020 due to a combination of variations and some minor delays. So far this year we have also pre-let 40% of Brunel Building W2, including the pre-letting of the top two floors totalling 20,500 sq ft announced today, and we are seeing good interest in the remaining space. This project is due for completion in the first half of 2019. Together these two developments will add GBP42.0m to rental income and require future capital expenditure of GBP200m.
Our next major schemes are Soho Place W1, where we are already on site carrying out preliminary works, and The Featherstone Building EC1 where we will take possession in December 2018. The former is located in one of the best positions in London's West End over the Tottenham Court Road Elizabeth line station. The latter is beside our highly successful White Collar Factory development. Together the ERV on the two schemes is GBP30m and the additional capital expenditure and site costs total GBP369m.
Major developments pipeline
Property Area Capex to complete Comment
sq ft GBPm(1)
On-site projects
Brunel Building, 2 Canalside Walk W2 243,000 44 Offices - 40% pre-let
80 Charlotte Street W1 380,000 156 321,000 sq ft offices, 45,000 sq ft
residential and 14,000 sq ft retail - 73%
pre-let overall
----------- ------------------ ---------------------------------------------
623,000 200
----------- ------------------ ---------------------------------------------
Next projects
Soho Place W1 285,000 291(4) 209,000 sq ft offices, 36,000 sq ft retail
and 40,000 sq ft theatre
The Featherstone Building EC1 125,000 78 Offices, workspaces and retail
----------- ------------------ ---------------------------------------------
410,000 369
----------- ------------------ ---------------------------------------------
Other major planning consents
19-35 Baker Street W1(2) 293,000(3) 206,000 sq ft offices, 52,000 sq ft
residential and 35,000 sq ft retail
Holden House W1(2) 150,000 Retail flagship or retail and office scheme
----------- ------------------ ---------------------------------------------
443,000
----------- ------------------ ---------------------------------------------
Total 1,476,000
----------- ------------------ ---------------------------------------------
(1) As at 30 Jun 2018 (2) Resolution to grant planning permission (3) Total area - Derwent London has a 55% share of the joint venture
(4) Includes remaining site acquisition cost of GBP48m
At 31 December 2017 we were also on site with three major refurbishments. The first of these was Phase 2 of The White Chapel Building E1, which was pre-let and we will shortly be handing over to Fotografiska. The Johnson Building EC1 and the upper floors of 25 Savile Row W1 completed in the first half of this year and are the principal reason why our vacancy rate has increased to 4.2%. Together the three projects total 165,000 sq ft, with an ERV of c.GBP7.5m of which 32% is currently pre-let.
INVESTMENT ACTIVITY
We continue to actively seek opportunistic purchases but recently we have seen few properties that meet our investment criteria. In the current year we have added to our Fitzrovia holdings in 2018 with two strategic purchases: a small GBP7.8m purchase in Tottenham Mews W1 in the first half and since then we have exchanged contracts on the 36-year leasehold interest in 88-94 Tottenham Court Road W1 for GBP42m before costs, which comprises 37,400 sq ft of offices and 8,500 sq ft of retail. We already owned the freehold of the latter, which adjoins a number of existing ownerships and is located between 80 Charlotte Street and Tottenham Court Road. The passing rent is GBP2.5m, which equates to an average office rent of GBP48 per sq ft and a 6.0% initial yield. In the short term there are opportunities to capture reversion as leases expire and in the longer term it could facilitate the potential for a larger project incorporating our other adjoining properties.
Following 2017's exceptional sales activity, we expect to dispose of less property in the current year. In March 2018 as previously announced, Porters North N1 was sold at a 5% premium to book value following a lease extension and refurbishment programme. The building was held in a 50:50 joint venture, and our share of the net proceeds was GBP22.3m.
FINANCIAL REVIEW
Gross property and other income increased to GBP122.3m from GBP99.4m in H1 2017 due mainly to an unusually high value of non-recurring property items; surrender premiums of GBP2.5m and rights of light/access payments from neighbouring property owners of GBP17.7m were recognised in the income statement in the first half of 2018. Despite the substantial disposals in 2017, gross rental income was up by 1.8% to GBP86.9m with net rental income growing from GBP79.3m in H1 2017 to GBP80.6m in H1 2018. Net property and other income increased by 26.9% to GBP103.4m from GBP81.5m a year earlier.
IFRS profit from operations was GBP142.3m for the six months to 30 June 2018 against GBP154.5m for the half year to June 2017, the prior period benefitting from GBP19.1m of profits from disposals of investment properties. The overall revaluation surplus for our investment properties in the first half of 2018 was GBP54.0m (H1 2017: GBP66.7m) after accounting adjustments for incentives. Administrative expenses increased to GBP15.2m (H1 2017: GBP12.8m), returning to a figure almost identical to that in H1 2016. In 2017, the bonus and incentive payments were substantially lower than in either 2016 or 2018.
With lower average borrowings, total finance costs fell to GBP11.5m in H1 2018 from GBP14.3m in H1 2017 after interest capitalised on projects of GBP5.1m (H1 2017: GBP4.7m). Derivative financial instruments showed an overall small gain of GBP1.3m in H1 2018 (H1 2017: GBP1.9m) as medium-term interest rates moved up slightly over the period. Our share of the results at our two joint ventures was GBP1.9m (H1 2017: GBP3.7m), coming mainly from the gain on the sale of Porters North which completed in March 2018.
IFRS profit before tax was GBP134.0m for the half year to 30 June 2018 against GBP145.8m in H1 2017 but EPRA earnings, which exclude fair value movements and profits on disposals of investment properties, increased by 47.4% to GBP74.6m from GBP50.6m in H1 2017. EPRA earnings per share (EPS) were up by a similar amount to 66.93p from 45.42p. Both EPRA earnings and EPS include non-recurring property income so we have also provided 'underlying' figures. These exclude the GBP15.8m access rights receipt and GBP1.1m of the premiums received that compensate for rents that relate to subsequent periods (see note 23). Adjusting the EPRA EPS for these two amounts gives an underlying EPS of 51.77p per share, up 14.0% over H1 2017. Note that the underlying figures include rights of light and dilapidations receipts of GBP3.5m as these items occur frequently within our ongoing property operations.
EPRA like-for-like income has also been somewhat distorted this time by the unusually high non-rental income and surrender premiums and the corresponding sacrifice of short term rental income while new tenants are put in place. In addition, most of this year's rent reviews and lease expiries, which tend to lead to increases in contracted rent, occur in the second half of the year. Adjusting the EPRA like-for-like net rental income in the same way as the underlying EPS gives an increase of 5.1% when compared with H1 2017 and 0.8% with H2 2017. Adjusted like-for-like net property income, which excludes GBP16.9m of non-recurring property income in H1 2018, increased by 9.8% compared to H1 2017 and 4.9% compared to H2 2017.
The EPRA cost ratio was 20.9% in H1 2018, the same as H1 2017 and against 20.8% for the whole of 2017.
As in the first half of 2017, H1 2018 saw substantial dividends paid to shareholders. The final dividend for 2017 was 42.4p per share and the special dividend a further 75.0p per share, together reducing the Group net asset value by GBP130.9m. However, the profit for the period meant that total equity shareholders' funds and total net assets both increased slightly over the six months, to GBP4,133.8m and GBP4,197.1m, respectively. After allowing for a small increase in the number of ordinary shares, EPRA net asset value per share was down marginally to 3,713p per share from 3,716p in December 2017. This represents a total return, including the dividends, of 3.1% compared to 3.4% for H1 2017.
Capital expenditure, principally on our projects at 80 Charlotte Street W1, Brunel Building W2 and Phase 2 of The White Chapel Building E1, totalled GBP80.9m in H1 2018, marginally higher than the GBP79.5m incurred in H1 2017. We anticipate incurring a further GBP118m in the second half of 2018. There were GBP12.9m of investment property additions, the main ones being GBP7.8m at Tottenham Mews W1 and GBP5.1m site assembly costs at Soho Place W1. As we are now actively on site in anticipation of signing a building contract later this year, the GBP41.9m discounted headlease payments in relation to Soho Place are also included in the June 2018 balance sheet. There is a corresponding credit balance in non-current liabilities.
Note also that the carrying value of our share of the two joint venture investments of GBP41.6m includes cash of GBP14.3m following the sale in March 2018 of Porters North. We expect this cash to be distributed to the parent company later in the year.
Financing and net debt
Following the dividend payments in June, Group borrowings increased to GBP786.9m at H1 2018 from GBP730.8m in December 2017. However, borrowings were a little lower than the GBP794.4m in June 2017. Grossing-up for leasehold liabilities, which have grown to GBP56.0m at June 2018 following the recognition of GBP41.9m at Soho Place, GBP4.7m of derivative financial instruments (interest rate swaps) and netting off Group cash balances, net debt increased from GBP657.9m at December 2017 to GBP821.5m at 30 June 2018. However, the Group loan-to-value (LTV) ratio remains low, being 15.2% at 30 June 2018. This is close to the 14.9% a year earlier but higher than at December 2017 when it fell to 13.2%. Including the cash in joint ventures brings the June 2018 figure down to 14.8%. Interest cover has risen again to 514% for the six months to June 2018 compared to 454% for the 2017 full year and available undrawn facilities and cash totalled GBP403m. Note that interest cover calculations are based on net rental income and do not include the surrender premiums or rights of light/access rights receipts. Full details are in note 24.
Net cash from operating activities increased significantly to GBP72.1m for the half year to June 2018 from GBP37.2m in H1 2017, boosted considerably by GBP22.1m of cash receipts for the lease surrenders and rights of light/access rights.
Other than the repayment of our small bank facility within the Primister joint venture which held Porters North, there were no changes to our bank or other debt facilities in H1 2018. We paid GBP1.8m to defer or re-coupon certain interest rate swaps with the GBP28m swap for our Baker Street joint venture being extended by a year to March 2020 and with the fixed rate under the swap falling from 3.525% to 0.875%. Together with the higher levels of floating rate bank debt, this has helped bring down our weighted average interest cost from 3.80% on a cash basis at year end to 3.56% at June 2018. Including the IFRS adjustment on the convertible bonds, the rate fell from 4.11% to 3.86%. The GBP150m convertible bonds mature in July 2019 and have a current conversion price of GBP31.78 so they were not dilutive based on the share price as at 30 June 2018.
A summary of the overall debt position at 30 June 2018 is shown in the following table:
Jun 2018 Jun 2017 Dec 2017
Percentage of debt that is unsecured (%) 64 65 61
Percentage of non-bank debt (%) 78 75 84
Percentage of debt fixed or swapped (%) 82 99 88
Weighted average interest rate - cash basis (%) 3.56 3.71 3.80
Weighted average interest rate - IFRS basis (%) 3.86 3.99 4.11
Weighted average maturity of facilities (years) 5.8 6.7 6.3
Weighted average maturity of borrowings (years) 6.8 7.5 7.6
Undrawn facilities and cash (GBPm) 403 446 523
Uncharged properties (GBPm) 3,985 3,828 3,864
Dividend
We have raised the interim dividend by 10.2%, taking it to 19.10p per share from 17.33p last year. It will be paid as a PID on 19 October 2018 to shareholders on the register as at 14 September 2018. This follows the increase in last year's interim dividend by 25%, and special dividends totalling 127p per share paid since the beginning of June 2017.
RISK MANAGEMENT AND INTERNAL CONTROL
We have identified certain principal risks and uncertainties that could prevent the Group from achieving its strategic objectives and assessed how these risks could best be mitigated through a combination of internal controls, risk management and the purchase of insurance cover. These risks are reviewed and updated on a regular basis and were last formally assessed by the Board and Risk Committee in August 2018.
The principal risks and uncertainties facing the Group in 2018 are set out on the following pages with the potential effects, controls and mitigation factors. The Group's approach to the management and mitigation of these risks is included in the 2017 Annual Report.
Strategic risks
That the Group's business model and/or strategy does not create the anticipated shareholder value or fails to meet investors' and other stakeholder expectations.
Risk, effect and progression Controls and mitigation
----------------------------------------------------------- ------------------------------------------------------------------
1. Failure to implement the Group's strategy
The Group's strategy is not met due to poor strategy * The Group conducts an annual five-year strategic
implementation or a failure to respond review and prepares a budget and three rolling
appropriately to internal or external factors such as: forecasts covering the next two years.
* A economic downturn and/or the Group's development
programme being inconsistent with the current
economic cycle; * The Board considers the sensitivity of the Group KPIs
and key metrics to changes in the assumptions
underlying our forecasts in light of anticipated
* London losing its global appeal with a consequential economic conditions. If considered necessary,
impact on the property investment or occupational modifications are made.
markets.
* The Group's development pipeline has a degree of
flexibility that enables plans for individual
properties to be changed to reflect prevailing
economic circumstances.
* The Group seeks to maintain income from properties
until development commences and has an ongoing
strategy to extend income through lease renewals and
re-gearing.
* The Group aims to de-risk the development programme
through pre-lets.
* The Group maintains sufficient headroom in all the
Group's key ratios and financial covenants and a
focus on interest cover.
2. Adverse Brexit settlement
Risk that negotiations to leave the European Union result * The Group's strong financing and covenant headroom
in arrangements which are damaging enables it to weather a downturn.
to the London economy.
As a predominantly London-based group, we are particularly * The Group's diverse and high-quality tenant base
sensitive to any factors which provides resilience against tenant default.
impact upon London's growth and demand for office space.
Negotiations are likely to be ongoing during 2018 and the * The Group focuses on good value, middle market rent
operating framework facing UK businesses properties which are less susceptible to reductions
and the effect on London post-Brexit cannot be accurately in tenant demand. The Group's average 'topped' up
predicted. office rent is only GBP50.23 per sq ft (2017:
GBP49.74 per sq ft).
* The Group develops properties in locations where
there is greatest potential for future demand, such
as near Crossrail stations.
* Income is maintained at future developments for as
long as possible.
* Ongoing strategy is to extend income through lease
renewals and re-gearing and to de-risk the
development programme through pre-lets.
* Updates received on occupier trends by engaging with
our current tenants and advisors.
3. Reputational damage
The Group's reputation is damaged, for example through * Close involvement of senior management in day-to-day
unauthorised and/or inaccurate media operations and established procedures for approving
coverage or failure to comply with relevant legislation. all external announcements.
We have an established and trusted brand. Our strong
culture, low overall risk tolerance and * All new members of staff benefit from an induction
established procedures and policies mitigate against the programme and are issued with our Group staff
risk of internal wrong-doing. handbook.
* The Group employs a Head of Investor and Corporate
Communications and retains services of an external PR
agency, both of whom maintain regular contact with
external media sources.
* A Group whistleblowing system for staff is maintained
to report wrongdoing anonymously.
* Social media channels are monitored.
* Ongoing engagement with local communities in areas
where the Group operates.
Financial risks
Significant steps have been taken in recent years to reduce or mitigate the Group's financial risks such that few are now considered to be principal risks of the Group. The main financial risk is that the Group becomes unable to meet its financial obligations, which is not currently a principal risk. Financial risks can arise from movements in the financial markets in which we operate and inefficient management of capital resources.
Risk, effect and progression Controls and mitigation
----------------------------- -----------------------------------
4. Increase in property yields
Increasing property yields, which may be a * The impact of yield changes is considered when
consequence of rising interest rates, would cause potential projects are appraised.
property values to fall. Interest rates have
remained low for an extended period and are
expected * The impact of yield changes on the Group's financial
to gradually rise over the next few years. Though covenants and performance are monitored regularly and
there is no direct relationship, this may are subject to sensitivity analysis to ensure that
cause property yields to increase. adequate headroom is preserved.
The underlying values of the properties in our
portfolio have remained resilient, and as at * The Group's move towards mainly unsecured financing
30 June 2018 have increased by 1.3%, despite the over the past few years has simplified the management
continuing economic uncertainties. of our financial covenants.
* The Group's low loan-to-value ratio reduces the
likelihood that falls in property values have a
significant impact on our business.
Operational risks
The Group suffers either a financial loss or adverse consequences due to processes being inadequate or not operating correctly, human factors or other external events.
Risk, effect and progression Controls and mitigation
----------------------------- -----------------------------------
5. Reduced development returns
The Group's development projects do not produce
the targeted financial returns due to one
or more of the following factors:
* Delay on site
* Increased construction costs
* Adverse letting conditions
For example: delays could lead to penalties
payable to pre-let tenants at 80 Charlotte
Street.
* Investment appraisals, which include contingencies
and inflationary cost increases, are prepared and
sensitivity analysis is undertaken to measure that an
adequate return is made in all likely circumstances.
* The procurement process used by the Group includes
the use of highly regarded firms of quantity
surveyors and is designed to minimise uncertainty
regarding costs.
* Development costs are benchmarked to ensure that the
Group obtains competitive pricing and, where
appropriate, fixed-price contracts are entered into.
* Procedures carried out before starting work on site,
such as site investigations, historical research of
the property and surveys conducted as part of the
planning application, reduce the risk of unidentified
issues causing delays once on site.
* The Group's pre-letting strategy reduces or removes
the letting risk of the development as soon as
possible.
* Post-completion reviews are carried out for all major
developments to ensure that improvements to the
Group's procedures are identified, implemented and
lessons learned.
6. Cyber attack
The Group is subject to a cyber-attack that
results in it being unable to use its IT systems
and/or loses data. This could lead to an
increase in costs whilst a significant diversion
of management time would have a wider impact.
* The Group's Business Continuity Plan is regularly
reviewed and tested.
* Independent internal and external 'penetration' tests
are regularly conducted to assess the effectiveness
of the Group's security.
* Multifactor authentication exists for remote access
to our systems.
* Incident response and remediation policies are in
place.
* The Group's data is regularly backed up and
replicated and our IT systems are protected by
anti-virus software and firewalls that are frequently
updated.
* Annual staff awareness and training programmes are
implemented.
* Security measures are regularly reviewed by the IT
Steering Committee.
7. Non-compliance with health and safety
legislation
The Group's cost base is increased and
management time is diverted through an incident
or
breach of health and safety legislation leading
to reputational damage and/or loss of our
licence to operate.
* The Group has a qualified health and safety team
whose performance is monitored and managed by the
Health and Safety Committee.
* External advisors (ORSA) appointed to advise on
construction health and safety.
* When required, external consultants are used on
facilities management matters.
* The Board and Executive Committee receive regular
updates and presentations on key health and safety
matters.
* All our properties have health, safety and fire
management procedures in place which are reviewed
annually.
* External project managers review health and safety on
each construction site on a monthly basis.
8. Non-compliance with environmental and
sustainability legislation
The Group's cost base is increased and * The Board and Executive Committee receive regular
management time is diverted through a breach of updates and presentations on environmental and
any sustainability performance and management matters.
of the legislation e.g. Minimum Energy
Efficiency Standards (MEES) for buildings. This
could * The Sustainability Committee monitors our performance
lead to damage to our reputation and/or loss of and management controls.
our licence to operate.
* Employment of qualified team led by an experienced
Head of Sustainability.
* The Group benchmarks its ESG (environmental, social
and governance) reporting against various industry
benchmarks.
* The Group has set long-term, science-based carbon
targets aligned with the outcome of the Paris Climate
Change Agreement & UK Climate Change Act (COP 21).
* Production of an Annual Sustainability Report, the
key data points and performance of which are
externally assured.
9. Other regulatory non-compliance
The Group's cost base is increased and * The Board and Risk Committee receive regular reports
management time is diverted through a breach of prepared by the Group's legal advisers identifying
any upcoming legislative/regulatory changes. External
of the legislation that forms the regulatory advice is taken on any new legislation.
framework within which the Group operates. This
could lead to damage to our reputation and/or
loss of our licence to operate. * Staff training and awareness programmes.
* Group policies and procedures dealing with all key
legislation are available on the Group's intranet.
* A Group whistleblowing system for staff is maintained
to report wrongdoing anonymously.
10. 'On-site' risk
Risk of project delays and/or cost overruns * Prior to construction beginning on site we conduct
caused by unidentified issues e.g. asbestos in site investigations including the building's history
refurbishments or ground conditions in and various surveys to identify any potential issues.
developments.
For example, delays could lead to penalties * Regular monitoring of our contractors' cash flows.
payable to pre-let tenants at 80 Charlotte
Street.
Our pre-let strategy has increased this risk. * Off-site inspection of key components to ensure they
have been completed to the requisite quality.
* Payments to contractors to incentivise them to
achieve agreed project timescale and damages agreed
in the event of delays/cost overruns.
* Frequent meetings with key contractors and
subcontractors to review the work programme.
11. Contractor/subcontractor default
Returns from the Group's developments are reduced * The financial standing of our main contractors is
due to delays and cost increases caused reviewed prior to awarding the project contract.
by either a main contractor or major
subcontractor defaulting during the project.
* Regular monitoring of our contractors' cash flows is
carried out.
* Key construction packages are acquired early in the
project's life to reduce the risks associated with
later default.
* Whenever possible the Group uses
contractors/subcontractors that it has previously
worked with successfully.
* Regular on-site supervision by a dedicated Project
Manager which monitors contractor performance and
identifies any problems at an early stage thereby
enabling remedial action to be taken.
* Performance bonds are sought if considered necessary.
* Our main contractors are responsible, and assume the
risk, for any subcontractor default.
12. Shortage of key staff
The Group is unable to successfully implement its * The Nominations Committee considers succession
strategy due to a failure to recruit and matters at Board level as a standing agenda item.
retain key staff with appropriate skills and/or
inadequate succession planning.
* Senior management succession is considered during the
five-year strategic reviews.
* Remuneration packages for all employees are
benchmarked regularly.
* Six-monthly performance appraisals identify training
requirements and career aspirations.
13. Terrorism or other business interruption
Elevated to a principal risk due to recent * The Group has comprehensive business continuity and
attacks in European capital cities. incident management procedures both at Group level
and for each of our managed buildings which are
regularly reviewed and tested.
* Fire protection and access/security procedures are in
place at all of our managed properties.
* Comprehensive property damage and business
interruption insurance which includes terrorism.
* At least annually, a fire risk assessment and health
and safety inspection is performed for each property
in our managed portfolio.
Financial instruments - risk management
The Group is exposed through its operations to the following financial risks:
-- credit risk; -- market risk; and -- liquidity risk.
In common with other businesses, the Group is exposed to risks that arise from its use of financial instruments. The following describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements.
There have been no substantive changes in the Group's exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous years.
Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises, are trade receivables, cash at bank, trade and other payables, floating rate bank loans, fixed rate loans and private placement notes, secured and unsecured bonds and interest rate swaps.
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group's risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority to executive management for designing and operating processes that ensure the effective implementation of the objectives and policies.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group's flexibility and its ability to maximise returns. Further details regarding these policies are set out below:
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from lease contracts in relation to its property portfolio. It is Group policy to assess the credit risk of new tenants before entering into such contracts. The Board has established a Credit Committee which assesses each new tenant before a new lease is signed. The review includes the latest sets of financial statements, external ratings, when available and, in some cases, forecast information and bank and trade references. The covenant strength of each tenant is determined based on this review and, if appropriate, a deposit or a guarantee is obtained.
As the Group operates predominantly in central London, it is subject to some geographical risk. However, this is mitigated by the wide range of tenants from a broad spectrum of business sectors.
Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. For banks and financial institutions, only independently rated parties with a minimum rating of investment grade are accepted. This risk is also reduced by the short periods that money is on deposit at any one time.
The carrying amount of financial assets recorded in the financial statements represents the Group's maximum exposure to credit risk without taking account of the value of any collateral obtained.
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk arises for the Group from its use of variable interest bearing instruments (interest rate risk).
It is currently Group policy that generally between 60% and 85% of external Group borrowings (excluding finance lease payables) are at fixed rates. Where the Group wishes to vary the amount of external fixed rate debt it holds (subject to it being generally between 60% and 85% of expected Group borrowings, as noted above), the Group makes use of interest rate derivatives to achieve the desired interest rate profile. Although the Board accepts that this policy neither protects the Group entirely from the risk of paying rates in excess of current market rates nor eliminates fully cash flow risk associated with variability in interest payments, it considers that it achieves an appropriate balance of exposure to these risks. At 30 June 2018, the proportion of fixed debt held by the Group was within this range at 82% (31 December 2017: 88%). During both 2018 and 2017, the Group's borrowings at variable rate were denominated in sterling.
The Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. When the Group raises long-term borrowings, it is generally at fixed rates.
Liquidity risk
Liquidity risk arises from the Group's management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.
The Group's policy is to ensure that it will always have sufficient headroom in its loan facilities to allow it to meet its liabilities when they become due. To achieve this aim, it seeks to maintain committed facilities to meet the expected requirements. The Group also seeks to reduce liquidity risk by fixing interest rates (and hence cash flows) on a portion of its long-term borrowings. This is further explained in the 'market risk' section above.
Executive management receives rolling projections of cash flow and loan balances on a regular basis as part of the Group's forecasting processes. At the balance sheet date, these projections indicated that the Group expected to have sufficient liquid resources to meet its obligations under all reasonably expected circumstances.
The Group's loan facilities and other borrowings are spread across a range of banks and financial institutions so as to minimise any potential concentration of risk. The liquidity risk of the Group is managed centrally by the finance department.
Capital disclosures
The Group's capital comprises all components of equity (share capital, share premium, other reserves, retained earnings and non-controlling interest).
The Group's objectives when maintaining capital are:
-- to safeguard the entity's ability to continue as a going concern so that it can continue to provide above average long-term returns for shareholders; and
-- to provide an above average annualised total return to shareholders.
The Group sets the amount of capital it requires in proportion to risk. The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may vary the amount of dividends paid to shareholders subject to the rules imposed by its REIT status. It may also seek to redeem bonds, return capital to shareholders, issue new shares or sell assets to reduce debt. Consistent with others in its industry, the Group monitors capital on the basis of NAV gearing and loan-to-value ratio. During 2018, the Group's strategy, which was unchanged from 2017, was to maintain the NAV gearing below 80% in normal circumstances. These two gearing ratios, as well as the interest cover ratio, are defined in the list of definitions at the end of this announcement and are derived in note 24.
Statement of Directors' responsibilities
The Directors' confirm that, to the best of their knowledge, these condensed consolidated interim financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by Disclosure and Transparency Rules (DTR) 4.2.7 and 4.2.8, namely:
-- An indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
-- Material related-party transactions in the first six months of the financial year and any material changes in the related-party transactions described in the last Annual Report.
The Directors are listed in the Derwent London plc Annual Report of 31 December 2017 and a list of the current Directors is maintained on the Derwent London plc website: www.derwentlondon.com. The maintenance and integrity of the Derwent London website is the responsibility of the Directors.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
On behalf of the Board
John D. Burns Damian M.A. Wisniewski
Chief Executive Officer Finance Director
9 August 2018
GROUP CONDENSED INCOME STATEMENT
Half year to 30.06.2018 Half year to 30.06.2017 Year to 31.12.2017
Unaudited Unaudited Audited
Note GBPm GBPm GBPm
--------------------------------- ----- ----------------------- ----------------------- ------------------
Gross property and other income 5 122.3 99.4 202.6
--------------------------------- ----- ----------------------- ----------------------- ------------------
Net property and other income 5 103.4 81.5 164.8
Administrative expenses (15.2) (12.8) (28.2)
Revaluation surplus 11 54.0 66.7 147.9
Profit on disposal of investment
property 6 0.1 19.1 50.3
Profit from operations 142.3 154.5 334.8
Finance costs 7 (11.5) (14.3) (27.1)
Movement in fair value of derivative
financial instruments 3.1 6.4 9.4
Financial derivative termination
costs 8 (1.8) (4.5) (7.3)
Share of results of joint
ventures 9 1.9 3.7 5.0
Profit before tax 134.0 145.8 314.8
Tax charge 10 (1.6) (0.6) (1.8)
Profit for the period 132.4 145.2 313.0
Attributable to:
- Equity shareholders 134.0 146.4 314.0
- Non-controlling interest (1.6) (1.2) (1.0)
132.4 145.2 313.0
Earnings per share 23 120.22p 131.42p 281.79p
Diluted earnings per share 23 119.81p 131.04p 281.12p
GROUP CONDENSED STATEMENT OF COMPREHENSIVE INCOME
Half year to 30.06.2018 Half year to 30.06.2017 Year to 31.12.2017
Unaudited Unaudited Audited
Note GBPm GBPm GBPm
-------------------------------------- -------- --------------- ----------------------- ------------------
Profit for the period 132.4 145.2 313.0
Actuarial gains/(losses) on defined
benefit pension scheme 0.8 (1.1) (0.9)
Revaluation surplus of owner-occupied
property 11 0.5 - 1.8
Deferred tax charge on revaluation 19 (0.2) (0.4) (0.7)
-------------------------------------- -------- --------------- ----------------------- ------------------
Other comprehensive income/(expense)
that will not be
reclassified to profit or loss 1.1 (1.5) 0.2
Total comprehensive income relating to
the period 133.5 143.7 313.2
Attributable to:
- Equity shareholders 135.1 144.9 314.2
- Non-controlling interest (1.6) (1.2) (1.0)
133.5 143.7 313.2
GROUP CONDENSED BALANCE SHEET
30.06.2018 30.06.2017 31.12.2017
Unaudited Unaudited Audited
Note GBPm GBPm GBPm
--------------------------------- ---- ---------- ---------- ----------
Non-current assets
Investment property 11 4,857.0 4,509.6 4,670.7
Property, plant and equipment 12 52.7 50.5 52.2
Investments 13 41.6 38.5 39.7
Pension scheme surplus 0.4 - -
Other receivables 14 109.1 100.6 105.2
--------------------------------- ---- ---------- ---------- ----------
5,060.8 4,699.2 4,867.8
Current assets
Trading property 11 28.5 14.1 25.3
Trade and other receivables 15 58.3 43.9 58.0
Cash and cash equivalents 21.4 102.8 87.0
--------------------------------- ---- ---------- ---------- ----------
108.2 160.8 170.3
Non-current assets held for sale 16 - 132.0 -
Total assets 5,169.0 4,992.0 5,038.1
Current liabilities
Borrowings 18 - 28.0 -
Trade and other payables 17 118.0 95.2 86.7
Corporation tax liability 3.5 1.8 2.1
Provisions 0.3 0.3 0.2
--------------------------------- ---- ---------- ---------- ----------
121.8 125.3 89.0
Non-current liabilities
Borrowings 18 786.9 794.4 730.8
Derivative financial instruments 18 4.7 11.0 7.9
Leasehold liabilities 18 56.0 14.1 14.1
Provisions 0.2 0.2 0.4
Pension scheme deficit - 1.4 0.4
Deferred tax 19 2.3 2.6 2.3
--------------------------------- ---- ---------- ---------- ----------
850.1 823.7 755.9
Total liabilities 971.9 949.0 844.9
Total net assets 4,197.1 4,043.0 4,193.2
Equity
Share capital 5.6 5.6 5.6
Share premium 189.5 188.7 189.2
Other reserves 941.6 940.9 942.9
Retained earnings 2,997.1 2,841.9 2,990.6
--------------------------------- ---- ---------- ---------- ----------
Equity shareholders' funds 4,133.8 3,977.1 4,128.3
Non-controlling interest 63.3 65.9 64.9
Total equity 4,197.1 4,043.0 4,193.2
GROUP CONDENSED STATEMENT OF CHANGES IN EQUITY
Attributable to equity shareholders
----------------------------------------------------
Equity Non-
Share Share Other Retained shareholders' controlling Total
capital premium reserves earnings funds interest equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ -------- ------- -------- -------- ------------- ----------- -------
At 1 January 2018 5.6 189.2 942.9 2,990.6 4,128.3 64.9 4,193.2
Profit/(loss) for the period - - - 134.0 134.0 (1.6) 132.4
Other comprehensive income - - 0.3 0.8 1.1 - 1.1
Transfer of owner-occupied
property - - - - - - -
Share-based payments - 0.3 (1.6) 2.6 1.3 - 1.3
Dividends paid - - - (130.9) (130.9) - (130.9)
At 30 June 2018 (unaudited) 5.6 189.5 941.6 2,997.1 4,133.8 63.3 4,197.1
At 1 January 2017 5.6 188.4 950.4 2,787.9 3,932.3 67.1 3,999.4
Profit/(loss) for the period - - - 146.4 146.4 (1.2) 145.2
Other comprehensive expense - - (0.4) (1.1) (1.5) - (1.5)
Transfer of owner-occupied
property - - (6.9) 6.9 - - -
Share-based payments - 0.3 (2.2) 2.6 0.7 - 0.7
Dividends paid - - - (100.8) (100.8) - (100.8)
At 30 June 2017 (unaudited) 5.6 188.7 940.9 2,841.9 3,977.1 65.9 4,043.0
At 1 January 2017 5.6 188.4 950.4 2,787.9 3,932.3 67.1 3,999.4
Profit/(loss) for the year - - - 314.0 314.0 (1.0) 313.0
Other comprehensive
income/(expense) - - 1.1 (0.9) 0.2 - 0.2
Transfer of owner-occupied
property - - (6.9) 6.9 - - -
Share-based payments - 0.8 (1.7) 2.8 1.9 - 1.9
Dividends paid - - - (120.1) (120.1) (1.2) (121.3)
At 31 December 2017 (audited) 5.6 189.2 942.9 2,990.6 4,128.3 64.9 4,193.2
GROUP CONDENSED CASH FLOW STATEMENT
Half year to 30.06.2018 Half year to 30.06.2017 Year to 31.12.2017
Unaudited Unaudited Audited
Note GBPm GBPm GBPm
---------------------------------- ---- ----------------------- ----------------------- ------------------
Operating activities
Rental income 79.0 74.1 154.2
Surrender premiums and other
property income 22.1 - 0.1
Property expenses (4.9) (11.2) (19.2)
Cash paid to and on behalf of
employees (12.6) (9.2) (19.5)
Other administrative expenses (2.0) (3.2) (7.3)
Interest paid 7 (8.3) (11.6) (21.7)
Other finance costs 7 (1.5) (1.7) (3.2)
Other income 0.7 1.2 2.9
Tax paid in respect of operating
activities (0.4) (1.2) (2.8)
Net cash from operating activities 72.1 37.2 83.5
Investing activities
Acquisition of properties (12.9) (0.9) (8.5) Capital expenditure on the property portfolio 7 (78.8) (87.2) (171.0) Reimbursement of capital expenditure 15.2 - 6.0 Disposal of investment and trading properties - 324.8 472.9 Repayment of shareholder loan - 1.2 1.3 Purchase of property, plant and equipment (0.3) (4.7) (5.0) VAT received/(paid) 15.0 (4.8) (11.7) Net cash (used in)/from investing activities (61.8) 228.4 284.0 Financing activities Net movement in revolving bank loans 54.5 (77.8) (170.8) Financial derivative termination costs (1.8) (4.5) (7.3) Net proceeds of share issues 0.3 0.3 0.8 Dividends paid to non-controlling interest holder - - (1.2) Dividends paid 20 (128.9) (98.5) (119.7) Net cash used in financing activities (75.9) (180.5) (298.2) (Decrease)/increase in cash and cash equivalents in the period (65.6) 85.1 69.3 Cash and cash equivalents at the beginning of the period 87.0 17.7 17.7 Cash and cash equivalents at the end of the period 21.4 102.8 87.0
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of preparation
Neither the financial information for the half year to 30 June 2018 nor the half year to 30 June 2017 was subject to an audit but has been subject to a review in accordance with the International Standard on Review Engagements (UK and Ireland) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity, issued by the Auditing Practices Board.
The comparative financial information presented herein for the year to 31 December 2017 does not constitute the Group's statutory accounts, but is derived from those accounts. The Group's statutory accounts for the year to 31 December 2017 have been delivered to the Registrar of Companies. The Auditor's report on those accounts was unmodified, did not draw attention to any matters by way of an emphasis of matter and did not contain any statement under Section 498 of the Companies Act 2006.
The financial information in these condensed consolidated financial statements is that of the holding company and all of its subsidiaries (the "Group") together with the Group's share of its joint ventures. It has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34 Interim Financial Reporting and should be read in conjunction with the annual report and accounts for the year to 31 December 2017 which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS), IFRS IC interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention as modified by the revaluation of investment properties, property, plant and equipment and financial assets and liabilities held for trading.
As with most other UK property companies and REITs, the Group presents many of its financial measures in accordance with the guidance criteria issued by the European Public Real Estate Association ('EPRA'). These measures, which provide consistency across the sector, are all derived from the IFRS figures in note 23.
Going concern
Under Provision C.1.3 of the UK Corporate Governance Code 2014, the Board needs to report whether the business is a going concern. In considering this requirement, the Directors have taken into account the following:
-- The Group's latest rolling forecast for the next two years, in particular the cash flows, borrowings and undrawn facilities.
-- The headroom under the Group's financial covenants.
-- The risks included on the Group's risk register that could impact on the Group's liquidity and solvency over the next 12 months.
-- The risks on the Group's risk register that could be a threat to the Group's business model and capital adequacy.
In particular the Directors have considered the relatively long-term and stable nature of the cash flows receivable under the tenant leases, the Group's loan-to-value ratio of 15.2%, the interest cover ratio of 514% and the GBP403m total of undrawn facilities and cash at 30 June 2018. They have also considered the fact that the average maturity of borrowings was 6.8 years at 30 June 2018.
The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the financial review. In addition, the Group's risks and risk management processes can be found within the risk management and internal controls.
Having due regard to these matters and after making appropriate enquiries, the Directors have reasonable expectation that the Group has adequate resources to continue in operational existence for a period of at least 12 months from the date of signing of these condensed consolidated financial statements and, therefore, the Board continues to adopt the going concern basis in their preparation.
2. Changes in accounting policies
The accounting policies used by the Group in these condensed financial statements are consistent with those applied in the Group's financial statements for the year to 31 December 2017, as amended to reflect the adoption of new standards, amendments and interpretations which became effective in the year as shown below.
New standards adopted during the period
The following standards, amendments and interpretations endorsed by the EU were effective for the first time for the Group's current accounting period and had no material impact on the financial statements.
IFRS 2 (amended) - Share Based Payments;
IFRS 4 (amended) - Insurance Contracts;
IAS 40 (amended) - Investment Property;
IFRS 17 - Insurance Contracts;
IFRIC 22 - Foreign Currency Transactions and Advance Consideration;
IFRIC 23 - Uncertainty over Income Tax Treatments;
Annual Improvements to IFRSs (2014 - 2016 cycle).
IFRS 9 Financial Instruments (effective from 1 January 2018)
This standard applies to classification and measurement of financial assets and financial liabilities, impairment provisioning and hedge accounting. The Group's assessment of IFRS 9 determined that the main area of potential impact was impairment provisioning on trade receivables, given the requirement to use a forward-looking expected credit loss model. However, the Group concludes that this has no material impact on its financial statements.
IFRS 15 Revenue from Contracts with Customers (effective from 1 January 2018)
IFRS 15 combines a number of previous standards, setting out a five step model for the recognition of revenue and establishing principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue. The standard is applicable to service charge income, facilities management income, investment property disposals and trading property disposals, but excludes rent receivable, which is within the scope of IFRS 16. The Group has completed its assessment of IFRS 15 and concludes that its adoption has no material impact on the financial statements.
Standards in issue but not yet effective
The following standards, amendments and interpretations were in issue at the date of approval of these financial statements but were not yet effective for the current accounting period and have not been adopted early. Based on the Group's current circumstances the Directors do not anticipate that their adoption in future periods will have a material impact on the financial statements of the Group.
IFRS 16 Leases (effective 1 January 2019)
This standard does not substantially affect the accounting for rental income earned by the Group as lessor. The main impact of the standard is the removal of the distinction between operating and finance leases for lessees, which will result in almost all leases being recognised on the balance sheet. As the Group does not hold any material operating leases as lessee, the impact of the standard is not expected to be material to the financial statements.
3. Significant judgments, key assumptions and estimates
Some of the significant accounting policies require management to make difficult, subjective or complex judgments or estimates. The following is a summary of those policies which management consider critical because of the level of complexity, judgment or estimation involved in their application and their impact on the financial statements.
Key sources of estimation uncertainty
-- Property portfolio valuation. -- Borrowings and derivatives.
Significant judgments
-- Compliance with the real estate investment trust (REIT) taxation regime.
A full explanation of these policies is included in the 2017 financial statements.
4. Segmental information
IFRS 8 Operating Segments requires operating segments to be identified on the basis of internal financial reports about components of the Group that are regularly reviewed by the chief operating decision maker (which in the Group's case is the Executive Committee comprising the six Executive Directors and six senior managers) in order to allocate resources to the segments and to assess their performance.
The internal financial reports received by the Group's Executive Committee contain financial information at a Group level as a whole and there are no reconciling items between the results contained in these reports and the amounts reported in the financial statements. These internal financial reports include the IFRS figures but also report the non-IFRS figures for the EPRA and underlying earnings and net asset value. Reconciliations of each of these figures to their statutory equivalents are detailed in note 23. Additionally, information is provided to the Executive Committee showing gross property income and property valuation by individual property. Therefore, for the purposes of IFRS 8, each individual property is considered to be a separate operating segment in that its performance is monitored individually.
The Group's property portfolio includes investment property, owner-occupied property, assets held for sale and trading property and comprised 97% office buildings* in central London by value (30 June 2017: 97%; 31 December 2017: 97%). The Directors consider that these individual properties have similar economic characteristics and therefore have been aggregated into a single operating segment. The remaining 3% (30 June 2017: 3%; 31 December 2017: 3%) represented a mixture of retail, hotel, residential and light industrial properties, as well as land, each of which is de minimis in its own right and below the quantitative threshold in aggregate. Therefore, in the view of the Directors, there is one reportable segment under the provisions of IFRS 8.
All of the Group's properties are based in the UK. No geographical grouping is contained in any of the internal financial reports provided to the Group's Executive Committee and, therefore, no geographical segmental analysis is required by IFRS 8. However, geographical analysis is included in the tables below to provide users with additional information. The majority of the Group's properties are located in London (West End central, West End borders and City borders), with the remainder in Scotland (Provincial).
* Some office buildings have an ancillary element such as retail or residential.
Gross property income
Office buildings Other Total
GBPm GBPm GBPm
-------------------------- ---------------- ----- -----
Half year to 30 June 2018
West End central 56.3 0.1 56.4
West End borders 10.0 - 10.0
City borders 38.2 0.2 38.4
Provincial - 2.3 2.3
104.5 2.6 107.1
Half year to 30 June 2017
West End central 41.2 0.3 41.5
West End borders 9.2 - 9.2
City borders 32.2 0.2 32.4
Provincial - 2.3 2.3
82.6 2.8 85.4
Year to 31 December 2017
West End central 79.4 0.4 79.8
West End borders 18.4 - 18.4
City borders 69.0 0.2 69.2
Provincial - 4.8 4.8
166.8 5.4 172.2
A reconciliation of gross property income to gross property and other income is given in note 5.
Property portfolio
Carrying value Fair value
------------------------- -------------------------
Office Office
buildings Other Total buildings Other Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------- --------- ----- ------- --------- ----- -------
30 June 2018
West End central 2,487.4 45.7 2,533.1 2,481.5 47.0 2,528.5
West End borders 443.8 - 443.8 465.8 - 465.8
City borders 1,850.7 7.5 1,858.2 1,900.9 7.4 1,908.3
Provincial - 97.4 97.4 - 99.7 99.7
4,781.9 150.6 4,932.5 4,848.2 154.1 5,002.3
30 June 2017
West End central 2,432.9 28.5 2,461.4 2,470.7 28.7 2,499.4
West End borders 428.3 - 428.3 446.9 - 446.9
City borders 1,706.2 6.5 1,712.7 1,744.0 6.5 1,750.5
Provincial - 98.0 98.0 - 101.0 101.0
4,567.4 133.0 4,700.4 4,661.6 136.2 4,797.8
31 December 2017
West End central 2,356.8 42.2 2,399.0 2,394.9 43.7 2,438.6
West End borders 439.3 - 439.3 459.7 - 459.7
City borders 1,799.1 6.5 1,805.6 1,844.4 6.4 1,850.8
Provincial - 98.6 98.6 - 101.2 101.2
4,595.2 147.3 4,742.5 4,699.0 151.3 4,850.3
A reconciliation between the fair value and carrying value of the portfolio is set out in note 11.
5. Property and other income
Half year to 30.06.2018 Half year to 30.06.2017 Year to 31.12.2017
GBPm GBPm GBPm
--------------------------------------- ----------------------- ----------------------- ------------------
Gross rental income 86.9 85.4 172.1
Surrender premiums 2.5 - 0.1
Other property income 17.7 - -
Gross property income 107.1 85.4 172.2
Service charge income 14.0 12.8 27.7
Other income 1.2 1.2 2.7
Gross property and other income 122.3 99.4 202.6
Gross rental income 86.9 85.4 172.1
Ground rent (expense)/credit (0.6) 0.1 (0.7)
---------------------------------------- ----------------------- ----------------------- ------------------
Service charge income 14.0 12.8 27.7
Service charge expenses (15.1) (14.0) (29.6)
---------------------------------------- ----------------------- ----------------------- ------------------
(1.1) (1.2) (1.9)
Other property costs (4.6) (5.0) (8.4)
Net rental income 80.6 79.3 161.1
(Write-down)/reversal of write-down of
trading property (0.2) 1.0 1.0
Other property income 17.7 - -
Other income 1.2 1.2 2.7
Surrender premiums 2.5 - 0.1
Reverse surrender premiums - - (0.2)
Dilapidation receipts 1.6 - 0.1
Net property and other income 103.4 81.5 164.8
Gross rental income included GBP5.8m (half year to 30 June 2017: GBP8.8m; year to 31 December 2017: GBP17.1m) relating to rents recognised in advance of cash receipts.
Other property income included GBP15.8m for granting a new access rights deed to a neighbouring property owner. The remaining GBP1.9m relates to rights of light income in the period.
Other income relates to fees and commissions earned in relation to the management of the Group's properties and was recognised in the Group income statement in accordance with the delivery of services.
6. Profit on disposal of investment property
Half year to 30.06.2018 Half year to 30.06.2017 Year to 31.12.2017
GBPm GBPm GBPm
--------------------------------------- ----------------------- ----------------------- ------------------
Gross disposal proceeds 0.1 327.1 486.3
Costs of disposal - (1.3) (3.5)
Net disposal proceeds 0.1 325.8 482.8
Carrying value - (295.6) (418.9)
Adjustment for lease costs and rents
recognised in advance - (11.1) (19.2)
Adjustment for capital contributions - - (4.2)
Adjustment for headlease liability - - 9.8
Profit on disposal of investment
property 0.1 19.1 50.3
7. Finance costs
Half year to 30.06.2018 Half year to 30.06.2017 Year to 31.12.2017
GBPm GBPm GBPm
--------------------------- ----------------------- ----------------------- ------------------
Finance costs
Bank loans and overdraft 1.1 3.7 5.9
Non-utilisation fees 1.1 0.8 1.8
Unsecured convertible bonds 1.9 1.9 3.8
Secured bonds 5.7 5.7 11.4
Unsecured private placement
notes 4.2 4.1 8.3
Secured loan 1.7 1.7 3.3
Amortisation of issue and
arrangement costs 1.0 1.0 2.0
Amortisation of the fair value
of the secured bonds (0.5) (0.5) (1.1)
Finance lease costs 0.3 0.5 1.0
Other 0.1 0.1 0.1
Gross finance costs 16.6 19.0 36.5
Less: interest capitalised (5.1) (4.7) (9.4)
Finance costs 11.5 14.3 27.1
Finance costs of GBP5.1m (half year to 30 June 2017: GBP4.7m; year to 31 December 2017: GBP9.4m) have been capitalised on development projects, in accordance with IAS 23 Borrowing Costs, using the Group's average cost of borrowing during each quarter. Total finance costs paid to 30 June 2018 were GBP14.9m (half year to 30 June 2017: GBP18.0m; year to 31 December 2017: GBP34.3m) of which GBP5.1m (half year to 30 June 2017: GBP4.7m; year to 31 December 2017: GBP9.4m) was included in capital expenditure on the property portfolio in the Group cash flow statement under investing activities.
8. Financial derivative termination costs
The Group incurred costs of GBP1.8m in the half year to 30 June 2018 (half year to 30 June 2017: GBP4.5m; year to 31 December 2017: GBP7.3m) deferring, re-couponing or terminating interest rate swaps.
9. Share of results of joint ventures
Half year to 30.06.2018 Half year to 30.06.2017 Year to 31.12.2017
GBPm GBPm GBPm
--------------------------- ----------------------- ----------------------- ------------------
Revaluation surplus 0.1 3.4 3.9
Profit on disposal of
investment property 1.3 - -
Other profit from operations
after tax 0.5 0.3 1.1
1.9 3.7 5.0
In March 2018, Primister Limited, in which the Group has a 50% shareholding, disposed of its freehold interest in Porters North N1 for GBP45.4m before costs, generating a profit of GBP2.6m net of tax.
See note 13 for further details on the Group's joint ventures.
10. Tax charge
Half year to 30.06.2018 Half year to 30.06.2017 Year to 31.12.2017
GBPm GBPm GBPm
--------------------------- ----------------------- ----------------------- ------------------
Corporation tax
UK corporation tax and income
tax in respect of profit for
the period 1.8 1.5 4.0
Other adjustments in respect of
prior years' tax - - (0.7)
Corporation tax charge 1.8 1.5 3.3
Deferred tax
Origination and reversal of
temporary differences (0.2) (0.6) (1.2)
Adjustment for changes in
estimates - (0.3) (0.3)
Deferred tax credit (0.2) (0.9) (1.5)
Tax charge 1.6 0.6 1.8
In addition to the tax charge of GBP1.6m (half year to 30 June 2017: GBP0.6m; year to 31 December 2017: GBP1.8m) that passed through the Group income statement, a deferred tax charge of GBP0.2m (half year to 30 June 2017: GBP0.4m; year to 31 December of 2017: GBP0.7m) was recognised in the Group statement of comprehensive income relating to the revaluation of the owner-occupied property at 25 Savile Row W1.
The effective rate of tax for the half year to 30 June 2018 is lower (half year to 30 June 2017: lower; year to 31 December 2017: lower) than the standard rate of corporation tax in the UK. The differences are explained below:
Half year to 30.06.2018 Half year to 30.06.2017 Year to 31.12.2017
GBPm GBPm GBPm
--------------------------------------- ------------------------ ----------------------- ------------------
Profit before tax 134.0 145.8 314.8
---------------------------------------- ----------------------- ----------------------- ------------------
Expected tax charge based on the
standard rate of
corporation tax in the UK of 19.00%
(2017: 19.25%)* 25.5 28.1 60.6
Difference between tax and accounting
profit on disposals (4.1) (4.0) (9.8)
REIT exempt income (5.5) (5.3) (10.8)
Revaluation surplus attributable to REIT
properties (10.3) (13.1) (27.4)
Expenses and fair value adjustments not
allowable for
tax purposes (2.0) (2.2) (4.4)
Capital allowances (1.9) (2.1) (4.2)
Other differences (0.1) (0.8) (1.5)
Tax charge on current period's profit 1.6 0.6 2.5
Adjustments in respect of prior years'
tax - - (0.7)
1.6 0.6 1.8
*Changes to the UK corporation tax rates were substantively enacted as part of the Finance Bill 2015 (on 26 October 2015) and the Finance Bill 2016 (on 7 September 2016). These include reducing the main rate to 19% from 1 April 2017 and then to 17% from 1 April 2020. Deferred taxes at the balance sheet date have been measured using the expected enacted tax rate and this is reflected in these financial statements.
11. Property portfolio
Carrying value
Total Owner- Assets Total
investment occupied held for Trading property
Freehold Leasehold property property sale property portfolio
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------ -------- --------- ---------- -------- -------- -------- ---------
At 1 January 2018 3,867.0 803.7 4,670.7 46.5 - 25.3 4,742.5
------------------------------------------ -------- --------- ---------- -------- -------- -------- ---------
Acquisitions 7.8 5.1 12.9 - - - 12.9
Capital expenditure 37.3 35.2 72.5 - - 3.3 75.8
Interest capitalisation 2.6 2.4 5.0 - - 0.1 5.1
-------- --------- ---------- -------- -------- -------- ---------
Additions 47.7 42.7 90.4 - - 3.4 93.8
Revaluation 22.8 31.2 54.0 0.5 - - 54.5
Write-down of trading property - - - - - (0.2) (0.2)
Movement in grossing up of
headlease liabilities - 41.9 41.9 - - - 41.9
At 30 June 2018 3,937.5 919.5 4,857.0 47.0 - 28.5 4,932.5
At 1 January 2017 3,959.9 843.9 4,803.8 34.2 - 11.7 4,849.7
------------------------------------------ -------- --------- ---------- -------- -------- -------- ---------
Acquisitions 0.8 0.2 1.0 - - - 1.0
Capital expenditure 34.6 36.5 71.1 2.3 - 1.4 74.8
Interest capitalisation 2.6 2.1 4.7 - - - 4.7
-------- --------- ---------- -------- -------- -------- ---------
Additions 38.0 38.8 76.8 2.3 - 1.4 80.5
Disposals (295.6) - (295.6) - - - (295.6)
Transfers (8.2) (133.9) (142.1) 8.2 133.9 - -
Revaluation 43.4 23.3 66.7 - - - 66.7
Reversal of write-down of trading property - - - - - 1.0 1.0
Adjustment to assets held for sale - - - - (1.9) - (1.9)
At 30 June 2017 3,737.5 772.1 4,509.6 44.7 132.0 14.1 4,700.4
At 1 January 2017 3,959.9 843.9 4,803.8 34.2 - 11.7 4,849.7
------------------------------------------ -------- --------- ---------- -------- -------- -------- ---------
Acquisitions 0.8 - 0.8 - - 7.8 8.6
Capital expenditure 73.3 62.7 136.0 2.3 - 4.7 143.0
Interest capitalisation 4.7 4.6 9.3 - - 0.1 9.4
-------- --------- ---------- -------- -------- -------- ---------
Additions 78.8 67.3 146.1 2.3 - 12.6 161.0
Disposals (298.2) (120.7) (418.9) - - - (418.9)
Transfers (8.2) - (8.2) 8.2 - - -
Revaluation 134.7 13.2 147.9 1.8 - - 149.7
Reversal of write-down of trading property - - - - - 1.0 1.0
At 31 December 2017 3,867.0 803.7 4,670.7 46.5 - 25.3 4,742.5
Adjustments from fair value to carrying value
Total Owner- Assets Total
investment occupied held for Trading property
Freehold Leasehold property property sale property portfolio
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- -------- --------- ---------- -------- -------- -------- ---------
At 30 June 2018
Fair value 4,042.6 883.1 4,925.7 47.0 - 29.6 5,002.3
Revaluation of trading property - - - - - (1.1) (1.1)
Lease incentives and costs
included in receivables (105.1) (19.6) (124.7) - - - (124.7)
Grossing up of headlease liabilities - 56.0 56.0 - - - 56.0
Carrying value 3,937.5 919.5 4,857.0 47.0 - 28.5 4,932.5
At 30 June 2017
Fair value 3,829.8 775.5 4,605.3 44.7 133.7 14.1 4,797.8
Selling costs relating to assets
held for sale - - - - (1.7) - (1.7)
Lease incentives and costs
included in receivables (92.3) (17.5) (109.8) - - - (109.8)
Grossing up of headlease liabilities - 14.1 14.1 - - - 14.1
Carrying value 3,737.5 772.1 4,509.6 44.7 132.0 14.1 4,700.4
At 31 December 2017
Fair value 3,968.6 808.6 4,777.2 46.5 - 26.6 4,850.3
Revaluation of trading property - - - - - (1.3) (1.3)
Lease incentives and costs
included in receivables (101.6) (19.0) (120.6) - - - (120.6)
Grossing up of headlease liabilities - 14.1 14.1 - - - 14.1
Carrying value 3,867.0 803.7 4,670.7 46.5 - 25.3 4,742.5
Reconciliation of fair value
30.06.2018 30.06.2017 31.12.2017
GBPm GBPm GBPm
-------------------------------------------------------- ---------- ---------- ----------
Portfolio including the Group's share of joint ventures 5,029.2 4,842.2 4,897.6
Less: joint ventures (26.9) (44.4) (47.3)
IFRS property portfolio 5,002.3 4,797.8 4,850.3
The property portfolio is subject to semi-annual external valuations and was revalued at 30 June 2018 by external valuers on the basis of fair value in accordance with The RICS Valuation - Professional Standards, which takes account of the properties' highest and best use. When considering the highest and best use of a property, the external valuers will consider its existing and potential uses which are physically, legally and financially viable. Where the highest and best use differs from the existing use, the external valuers will consider the costs and the likelihood of achieving and implementing this change in arriving at the property valuation.
CBRE Limited valued properties at GBP4,969.2m (30 June 2017: GBP4,765.2m; 31 December 2017: GBP4,817.5m) and other valuers at GBP33.1m (30 June 2017: GBP32.6m; 31 December 2017: GBP32.8m). Of the properties revalued by CBRE, GBP47.0m (30 June 2017: GBP44.7m; 31 December 2017: GBP46.5m) relating to owner-occupied property was included within property, plant and equipment and GBP29.6m (30 June 2017: GBP14.1m; 31 December 2017: GBP26.6m) was included within trading property.
The total fees, including the fee for this assignment, earned by CBRE (or other companies forming part of the same group of companies within the UK) from the Group is less than 5.0% of their total UK revenues.
At 30 June 2018, the grossing up of headlease liabilities of GBP56.0m includes GBP41.9m for the discounted headlease liabilities in relation to Soho Place W1 where the Group is now actively on site.
Reconciliation of revaluation
surplus
Half year to 30.06.2018 Half year to 30.06.2017 Year to 31.12.2017
GBPm GBPm GBPm
--------------------------- ----------------------- ----------------------- ------------------
Total revaluation surplus 58.2 85.1 177.1
Share of joint ventures (0.1) (3.6) (4.9)
Lease incentives and costs (4.0) (12.1) (20.2)
Trading property revaluation
adjustment 0.2 - (1.3)
Assets held for sale selling
costs - (1.7) -
IFRS revaluation surplus 54.3 67.7 150.7
Reported in the:
Revaluation surplus 54.0 66.7 147.9
(Write-down)/reversal of
write-down of trading
property (0.2) 1.0 1.0
Group income statement 53.8 67.7 148.9
Group statement of
comprehensive income 0.5 - 1.8
54.3 67.7 150.7
12. Property, plant and equipment
Owner-
occupied
property Artwork Other Total
GBPm GBPm GBPm GBPm
------------------------- -------- ------- ----- -----
At 1 January 2018 46.5 1.6 4.1 52.2
Additions - - 0.3 0.3
Depreciation - - (0.3) (0.3)
Revaluation 0.5 - - 0.5
At 30 June 2018 47.0 1.6 4.1 52.7
At 1 January 2017 34.2 1.5 2.4 38.1
Additions 2.3 - 2.4 4.7
Disposals - - (0.2) (0.2)
Transfers 8.2 - - 8.2
Depreciation - - (0.3) (0.3)
At 30 June 2017 44.7 1.5 4.3 50.5
At 1 January 2017 34.2 1.5 2.4 38.1
Additions 2.3 0.1 2.6 5.0
Disposals - - (0.2) (0.2)
Transfers 8.2 - - 8.2
Depreciation - - (0.7) (0.7)
Revaluation 1.8 - - 1.8
At 31 December 2017 46.5 1.6 4.1 52.2
Net book value
Cost or valuation 47.0 1.6 6.2 54.8
Accumulated depreciation - - (2.1) (2.1)
At 30 June 2018 47.0 1.6 4.1 52.7
Net book value
Cost or valuation 44.7 1.5 5.8 52.0
Accumulated depreciation - - (1.5) (1.5)
At 30 June 2017 44.7 1.5 4.3 50.5
Net book value
Cost or valuation 46.5 1.6 5.9 54.0
Accumulated depreciation - - (1.8) (1.8)
At 31 December 2017 46.5 1.6 4.1 52.2
The artwork is periodically valued by Bonhams using their extensive market knowledge. The latest valuation was carried out in May 2018 and the Directors consider that there have been no material valuation movements since that date. In accordance with IFRS 13 Fair Value Measurement, the artwork is deemed to be classified as Level 3.
13. Investments
The Group has a 50% interest in two joint ventures, Primister Limited and Prescot Street Limited Partnership.
30.06.2018 30.06.2017 31.12.2017
GBPm GBPm GBPm
------------------------------------------------ ---------- ---------- ----------
At 1 January 39.7 36.0 36.0
Share of results of joint ventures (see note 9) 1.9 3.7 5.0
Repayment of shareholder loan - (1.2) (1.3)
41.6 38.5 39.7
The GBP41.6m investments at 30 June 2018 included GBP14.3m of cash held in Primister Limited as a result of the disposal of Porters North N1 (see note 9).
14. Other receivables (non-current)
30.06.2018 30.06.2017 31.12.2017
GBPm GBPm GBPm
------------------------------- ----- ---------- ----------
Prepayments and accrued income 109.1 96.9 105.2
Other - 3.7 -
109.1 100.6 105.2
Prepayments and accrued income relates to rents recognised in advance as a result of spreading the effect of rent free and reduced rent periods, capital contributions in lieu of rent free periods and contracted rent uplifts, as well as the initial direct costs of the letting, over the expected terms of their respective leases. Together with GBP15.6m (30 June 2017: GBP12.9m; 31 December 2017: GBP15.4m), which was included as current assets within trade and other receivables, these amounts totalled GBP124.7m at 30 June 2018 (30 June 2017: GBP109.8m; 31 December 2017: GBP120.6m).
15. Trade and other receivables
30.06.2018 30.06.2017 31.12.2017
GBPm GBPm GBPm
------------------ ---- ---------- ----------
Trade receivables 9.1 7.3 7.1
Other receivables 4.0 2.6 6.8
Prepayments 21.5 19.2 17.3
Other taxes - - 4.6
Accrued income 23.7 14.8 22.2
58.3 43.9 58.0
16. Non-current assets held for sale
30.06.2018 30.06.2017 31.12.2017
GBPm GBPm GBPm
------------------------------------------------ ---------- ---------- ----------
Transfer from investment property (see note 11) - 132.0 -
17. Trade and other payables
30.06.2018 30.06.2017 31.12.2017
GBPm GBPm GBPm
---------------- ----- ---------- ----------
Trade payables 1.8 2.5 2.0
Other payables 19.7 16.6 17.8
Accruals 46.1 35.7 27.1
Other taxes 8.3 3.4 -
Deferred income 42.1 37.0 39.8
118.0 95.2 86.7
18. Borrowings and derivative financial instruments
30.06.2018 30.06.2017 31.12.2017
------------- -------------- -------------
Book Fair Book Fair Book Fair
value value Value value value value
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------------ ------ ----- ------- ----- ------ -----
Current liabilities
Secured bank loan - - 28.0 28.0 - -
- - 28.0 28.0 - -
Non-current liabilities
1.125% unsecured convertible bonds 2019 147.0 157.0 144.2 151.1 145.6 158.3
6.5% secured bonds 2026 186.4 222.3 187.4 225.4 186.9 225.6
3.46% unsecured private placement notes 2028 29.8 30.7 29.8 30.8 29.8 31.0
4.41% unsecured private placement notes 2029 24.8 28.9 24.8 28.8 24.8 29.3
3.57% unsecured private placement notes 2031 74.6 75.8 74.5 75.7 74.5 76.4
4.68% unsecured private placement notes 2034 74.4 90.7 74.3 88.4 74.3 91.8
3.99% secured loan 2024 81.8 86.7 81.9 88.1 81.7 87.9
Unsecured bank loans 140.4 143.5 177.5 181.5 85.6 89.0
Secured bank loan 27.7 28.0 - - 27.6 28.0
Borrowings 786.9 863.6 794.4 869.8 730.8 817.3
Derivative financial instruments
expiring in greater than one year 4.7 4.7 11.0 11.0 7.9 7.9
Total borrowings and derivative
financial instruments 791.6 868.3 833.4 908.8 738.7 825.2
Reconciliation to net debt:
Borrowings and derivative financial instruments 791.6 833.4 738.7
Adjustments for:
Leasehold liabilities 56.0 14.1 14.1
Derivative financial instruments (4.7) (11.0) (7.9) Cash and cash equivalents (21.4) (102.8) (87.0) Net debt 821.5 733.7 657.9
The fair values of the Group's bonds have been estimated on the basis of quoted market prices, representing Level 1 fair value measurement as defined by IFRS 13 Fair Value Measurement.
The fair values of the 3.99% secured loan and the unsecured private placement notes were determined by comparing the discounted future cash flows using the contracted yield with those of the reference gilts plus the implied margins, and represent Level 2 fair value measurement.
The fair values of the Group's outstanding interest rate swaps have been estimated by using the mid-point of the yield curves prevailing on the reporting date and represent the net present value of the differences between the contracted rate and the valuation rate when applied to the projected balances for the period from the reporting date to the contracted expiry dates. These represent Level 2 fair value measurement.
The fair values of the Group's bank loans are approximately the same as their carrying amount, after adjusting for the unamortised arrangement fees, and also represent Level 2 fair value measurement.
The fair values of the following financial assets and liabilities are the same as their carrying amounts:
-- Cash and cash equivalents.
-- Trade receivables, other receivables and accrued income included within trade and other receivables.
-- Trade payables, other payables and accruals included within trade and other payables. -- Leasehold liabilities.
There have been no transfers between Level 1 and Level 2 or Level 2 and Level 3 in either 2018 or 2017.
Included within the leasehold liabilities of GBP56.0m at 30 June 2018 was GBP41.9m relating to the discounted headlease liabilities at Soho Place W1.
19. Deferred tax
Revaluation
surplus Other Total
GBPm GBPm GBPm
-------------------------------------------------- ----------- ----- -----
At 1 January 2018 4.5 (2.2) 2.3
Credited to the income statement (0.2) - (0.2)
Charged to other comprehensive income 0.2 - 0.2
At 30 June 2018 4.5 (2.2) 2.3
At 1 January 2017 5.3 (2.2) 3.1
(Credited)/charged to the income statement (0.7) 0.1 (0.6)
Change in tax rates in the income statement (0.5) 0.2 (0.3)
Charged to other comprehensive income 0.5 - 0.5
Change in tax rates in other comprehensive income (0.1) - (0.1)
At 30 June 2017 4.5 (1.9) 2.6
At 1 January 2017 5.3 (2.2) 3.1
Credited to the income statement (1.0) (0.2) (1.2)
Change in tax rates in the income statement (0.5) 0.2 (0.3)
Charged to other comprehensive income 0.8 - 0.8
Change in tax rates in other comprehensive income (0.1) - (0.1)
At 31 December 2017 4.5 (2.2) 2.3
Deferred tax on the revaluation surplus is calculated on the basis of the chargeable gains that would crystallise on the sale of the property portfolio at each balance sheet date. The calculation takes account of any available indexation on the historical cost of the properties. Due to the Group's REIT status, deferred tax is only provided at each balance sheet date on properties outside the REIT regime.
Deferred tax assets have been recognised in respect of all tax losses and other temporary differences where the Directors believe it is probable that these assets will be recovered.
20. Dividend
Dividend
per share
------------------------
Half Half
Payment year year Year
date PID Non-PID Total to 30.06.2018 to 30.06.2017 to 31.12.2017
p p p GBPm GBPm GBPm
------------------ ------------ ------ -------- ------ --------------- --------------- ---------------
Current period
2018 interim 19 October
dividend 2018 19.10 - 19.10 - - -
------ -------- ------
Distribution
of current period
profit 19.10 - 19.10
Prior period
2017 interim 20 October
dividend 2017 17.33 - 17.33 - - 19.3
------ -------- ------
Distribution
of prior period
profit 17.33 - 17.33
Prior year
8 June
2017 final dividend 2018 35.00 7.40 42.40 47.3 - -
------ -------- ------
Distribution
of prior year
profit 35.00 7.40 42.40
Special dividend
2017 special 8 June
dividend 2018 - 75.00 75.00 83.6 - -
------ -------- ------
Distribution
of accumulated
profit - 75.00 75.00
9 June
2016 final dividend 2017 32.70 5.80 38.50 - 42.9 42.9
2016 special 9 June
dividend 2017 - 52.00 52.00 - 57.9 57.9
Dividends as
reported
in the
Group statement
of changes in
equity 130.9 100.8 120.1
-------------------- ------------ ------ -------- ------ --------------- --------------- ---------------
2017 final dividend 14 July (4.1) - -
withholding tax 2018
2017 interim
dividend
withholding 14 January
tax 2018 2.1 - (2.1)
2016 final dividend 14 July - (4.0) -
withholding tax 2017
2016 interim
dividend
withholding 14 January
tax 2017 - 1.7 1.7
Dividends paid as reported
in the
Group cash flow
statement 128.9 98.5 119.7
-------------------- ------------ ------ -------- ------ --------------- --------------- ---------------
21. Post balance sheet events
In August 2018, the Group exchanged contracts for the purchase of the leasehold interest in 88-94 Tottenham Court Road W1 for GBP42.0m, with completion expected in September 2018.
22. Related party disclosure
There have been no related party transactions during the half year to 30 June 2018 that have materially affected the financial position or performance of the Group. All related party transactions are materially consistent with those disclosed by the Group in its financial statements for the year ended 31 December 2017.
23. EPRA performance measures
Number of shares
------------------------------ --------- ---------- ---------- --------------- ---------- ----------
Earnings per share measures Net asset value per share measures
----------------------------- --------------------------------- ---------------------------------------
Weighted average for the
period ended At period ended
--------------------------------- ---------------------------------------
30.06.2018 30.06.2017 31.12.2017 30.06.2018 30.06.2017 31.12.2017
'000 '000 '000 '000 '000 '000
----------------------------- --------- ---------- ---------- --------------- ---------- ----------
For use in basic measures 111,460 111,402 111,431 111,536 111,454 111,475
Dilutive effect of share-based
payments 380 321 267 388 321 295
For use in other diluted
measures 111,840 111,723 111,698 111,924 111,775 111,770
The GBP150m unsecured convertible bonds 2019 ('2019 bonds') have a current conversion price of GBP31.78. The Group recognises the effect of conversion of the bonds if they are both dilutive and, based on the share price, likely to convert.
For both the half years to 30 June 2017 and 2018 and for the year ended 31 December 2017, the Group did not recognise the dilutive impact of the conversion of the 2019 bonds on its earnings per share (EPS) or net asset value (NAV) per share measures as, based on the recent share price, the bonds were not expected to convert.
The following tables set out reconciliations between the IFRS and EPRA earnings for the period and earnings per share. The adjustments made between the figures are as follows:
A - Disposal of investment and trading property, property held in joint ventures and associated tax and non-controlling interest
B - Revaluation movement on investment property and in joint ventures, write-down/reversal of write-down in trading property and associated deferred tax and non-controlling interest
C - Fair value movement and termination costs relating to derivative financial instruments, associated non-controlling interest and the dilutive effect of convertible bonds
In addition to the EPRA performance measures, underlying performance measures which exclude certain items considered to be non-recurring are used by the Directors to assess the operating performance of the Group. A reconciliation of the EPRA and underlying earnings for the half year to 30 June 2018 is presented below. For the half year to 30 June 2017 and year to 31 December 2017, no adjustments were made to the EPRA earnings to derive the underlying performance.
Earnings and earnings per share
------------------------------------------------------------------------ ----- -----------------------
Adjustments EPRA
IFRS A B C basis
GBPm GBPm GBPm GBPm GBPm
--------------------------------------------- ------- ------ ------ ----- -----------------------
Half year to 30 June 2018
Net property and other income 103.4 - 0.2 - 103.6
Total administrative expenses (15.2) - - - (15.2)
Revaluation surplus 54.0 - (54.0) - -
Profit on disposal of investment property 0.1 (0.1) - - -
Net finance costs (11.5) - - - (11.5)
Movement in fair value of derivative
financial instruments 3.1 - - (3.1) -
Financial derivative termination costs (1.8) - - 1.8 -
Share of results of joint ventures 1.9 (1.3) (0.1) - 0.5
Profit before tax 134.0 (1.4) (53.9) (1.3) 77.4
Tax charge (1.6) - (0.2) - (1.8)
Profit for the period 132.4 (1.4) (54.1) (1.3) 75.6
Non-controlling interest 1.6 - (3.1) 0.5 (1.0)
Earnings attributable to equity shareholders 134.0 (1.4) (57.2) (0.8) 74.6
Earnings per share 120.22p 66.93p
Diluted earnings per share 119.81p 66.70p
Underlying earnings and underlying earnings per share
---------------------------------------------------------------- ------ ----- -----------------------
Half year to 30.06.2018
GBPm
--------------------------------------------- ------- ------ ------ ----- -----------------------
EPRA earnings attributable to equity shareholders 74.6
Income from grant of access rights (15.8)
Surrender premiums relating to subsequent periods (1.1)
Underlying earnings attributable to equity shareholders 57.7
Underlying earnings per share 51.77p
Earnings and earnings per share
-------------------------------------------------------------------------------- ----- ------
Adjustments EPRA
IFRS A B C basis
GBPm GBPm GBPm GBPm GBPm
--- --------------------------------------------- ------- ------ ------- ----- ------
Half year to 30 June 2017
Net property and other income 81.5 - (1.0) - 80.5
Total administrative expenses (12.8) - - - (12.8)
Revaluation surplus 66.7 - (66.7) - -
Profit on disposal of investment property 19.1 (19.1) - - -
Net finance costs (14.3) - - - (14.3)
Movement in fair value of derivative
financial instruments 6.4 - - (6.4) -
Financial derivative termination costs (4.5) - - 4.5 -
Share of results of joint ventures 3.7 - (3.4) - 0.3
Profit before tax 145.8 (19.1) (71.1) (1.9) 53.7
Tax charge (0.6) - (1.2) - (1.8)
Profit for the period 145.2 (19.1) (72.3) (1.9) 51.9
Non-controlling interest 1.2 - (2.7) 0.2 (1.3)
Earnings attributable to equity shareholders 146.4 (19.1) (75.0) (1.7) 50.6
Earnings per share 131.42p 45.42p
Diluted earnings per share 131.04p 45.29p
Year to 31 December 2017
Net property and other income 164.8 - (1.0) - 163.8
Total administrative expenses (28.2) - - - (28.2)
Revaluation surplus 147.9 - (147.9) - -
Profit on disposal of investment property 50.3 (50.3) - - -
Net finance costs (27.1) - - - (27.1)
Movement in fair value of derivative
financial instruments 9.4 - - (9.4) -
Financial derivative termination costs (7.3) - - 7.3 -
Share of results of joint ventures 5.0 - (3.9) - 1.1
Profit before tax 314.8 (50.3) (152.8) (2.1) 109.6
Tax charge (1.8) 1.1 (1.5) - (2.2)
Profit for the year 313.0 (49.2) (154.3) (2.1) 107.4
Non-controlling interest 1.0 - (3.8) 0.4 (2.4)
Earnings attributable to equity shareholders 314.0 (49.2) (158.1) (1.7) 105.0
Earnings per share 281.79p 94.23p
Diluted earnings per share 281.12p 94.00p
Net asset value and net asset value per share
--------------------------------------------------------------------- ------- --------- -------
Undiluted Diluted
GBPm p p
-------------------------------------------------------------------- ------- --------- -------
At 30 June 2018
Net assets attributable to equity shareholders 4,133.8 3,706 3,693
Adjustment for:
Revaluation of trading properties net of tax 0.9
Deferred tax on revaluation surplus 4.5
Fair value of derivative financial instruments 4.7
Fair value adjustment to secured bonds 12.4
Non-controlling interest in respect of the above (1.1)
EPRA net asset value 4,155.2 3,725 3,713
Adjustment for:
Mark-to-market of secured bonds 2026 (47.3)
Mark-to-market of secured loan 2024 (3.7)
Mark-to-market of unsecured private placement notes 2029 and 2034 (19.6)
Mark-to-market of unsecured private placement notes 2028 and 2031 (1.5)
Mark-to-market of 1.125% unsecured convertible bonds 2019 (9.4)
Deferred tax on revaluation surplus (4.5)
Fair value of derivative financial instruments (4.7)
Unamortised issue and arrangement costs (7.6)
Non-controlling interest in respect of the above 1.1
-------------------------------------------------------------------- ------- --------- -------
EPRA triple net asset value 4,058.0 3,638 3,626
At 30 June 2017
Net assets attributable to equity shareholders 3,977.1 3,568 3,558
Adjustment for:
Deferred tax on revaluation surplus 4.5
Fair value of derivative financial instruments 11.0
Fair value adjustment to secured bonds 13.5
Non-controlling interest in respect of the above (1.9)
-------------------------------------------------------------------- ------- --------- -------
EPRA net asset value 4,004.2 3,593 3,582
Adjustment for:
Mark-to-market of secured bonds 2026 (50.5)
Mark-to-market of secured loan 2024 (5.1)
Mark-to-market of unsecured private placement notes 2029 and 2034 (17.2)
Mark-to-market of unsecured private placement notes 2028 and 2031 (1.5)
Mark-to-market of 1.125% unsecured convertible bonds 2019 (5.7)
Deferred tax on revaluation surplus (4.5)
Fair value of derivative financial instruments (11.0)
Unamortised issue and arrangement costs (8.9)
Non-controlling interest in respect of the above 1.9
-------------------------------------------------------------------- ------- --------- -------
EPRA triple net asset value 3,901.7 3,501 3,491
At 31 December 2017
Net assets attributable to equity shareholders 4,128.3 3,703 3,694
Adjustment for:
Revaluation of trading properties net of tax 1.0
Deferred tax on revaluation surplus 4.5
Fair value of derivative financial instruments 7.9
Fair value adjustment to secured bonds 12.9
Non-controlling interest in respect of the above (1.5)
-------------------------------------------------------------------- ------- --------- -------
EPRA net asset value 4,153.1 3,726 3,716
Adjustment for:
Mark-to-market of secured bonds 2026 (50.6)
Mark-to-market of secured loan 2024 (4.9)
Mark-to-market of unsecured private placement notes 2029 and 2034 (21.1)
Mark-to-market of unsecured private placement notes 2028 and 2031 (2.4)
Mark-to-market of 1.125% unsecured convertible bonds 2019 (11.8)
Deferred tax on revaluation surplus (4.5)
Fair value of derivative financial instruments (7.9)
Unamortised issue and arrangement costs (8.6)
Non-controlling interest in respect of the above 1.5
-------------------------------------------------------------------- ------- --------- -------
EPRA triple net asset value 4,042.8 3,627 3,617
Cost ratios
-------------------------------- ----------------------- ----------------------- ------------------
Half year to 30.06.2018 Half year to 30.06.2017 Year to 31.12.2017
GBPm GBPm GBPm
----------------------------- ----------------------- ----------------------- ------------------
Administrative expenses 15.2 12.8 28.2
Other property costs 4.6 5.0 8.4
Dilapidation receipts (1.6) - (0.1)
Net service charge costs 1.1 1.2 1.9
Service charge costs recovered
through rents
but not separately invoiced (0.1) (0.1) (0.3)
Management fees received less
estimated profit element (1.2) (1.2) (2.7)
Share of joint ventures'
expenses 0.2 0.3 0.5
EPRA costs (including direct
vacancy costs) (A) 18.2 18.0 35.9
Direct vacancy costs (2.0) (2.0) (2.5)
EPRA costs (excluding direct
vacancy costs) (B) 16.2 16.0 33.4
Gross rental income 86.9 85.4 172.1
Ground rent (0.6) 0.1 (0.7)
Service charge components of
rental income (0.1) (0.1) (0.3)
Share of joint ventures' rental
income less ground rent 1.0 0.8 1.8
Adjusted gross rental income (C) 87.2 86.2 172.9
EPRA cost ratio (including direct
vacancy costs) (A/C) 20.9% 20.9% 20.8%
EPRA cost ratio (excluding direct
vacancy costs) (B/C) 18.6% 18.6% 19.3%
In addition to the two EPRA cost ratios, the Group has calculated an additional cost ratio
based on its property portfolio fair value to recognise the 'total return' nature of the Group's
activities.
Property portfolio at fair value
(D) 5,002.3 4,797.8 4,850.3
Portfolio cost ratio (A/D) -
annualised 0.7% 0.8% 0.7%
The Group has not capitalised any overhead or operating expenses in either 2018 or 2017.
24. Gearing and interest cover
NAV gearing
30.06.2018 30.06.2017 31.12.2017
Note GBPm GBPm GBPm
------------ ---- ------- ---------- ----------
Net debt 18 821.5 733.7 657.9
Net assets 4,197.1 4,043.0 4,193.2
NAV gearing 19.6% 18.1% 15.7%
Loan-to-value ratio
30.06.2018 30.06.2017 31.12.2017
Note GBPm GBPm GBPm
---------------------------------------- ---- ---------- ---------- ----------
Net debt 18 821.5 733.7 657.9
Fair value adjustment of secured bonds (12.4) (13.5) (12.9)
Unamortised issue and arrangement costs 7.5 8.9 8.6
Leasehold liabilities 18 (56.0) (14.1) (14.1)
Drawn debt 760.6 715.0 639.5
Fair value of property portfolio 11 5,002.3 4,797.8 4,850.3
Loan-to-value ratio 15.2% 14.9% 13.2%
At 30 June 2018, the loan-to-value ratio including the Group's share of joint ventures was 14.8% (30 June 2017: 14.9%; 31 December 2017: 13.2%).
Net interest cover ratio
Half year to 30.06.2018 Half year to 30.06.2017 Year to 31.12.2017
Note GBPm GBPm GBPm
------------------------- ---- ----------------------- ----------------------- ------------------
Net property and other
income 5 103.4 81.5 164.8
Adjustments for:
Other income 5 (1.2) (1.2) (2.7)
Other property income 5 (17.7) - -
Net surrender premiums 5 (2.5) - (0.1)
Write-down/(reversal of
write-down) of trading
property 5 0.2 (1.0) (1.0)
Reverse surrender premiums 5 - - 0.2
Adjusted net property income 82.2 79.3 161.2
Finance costs 7 11.5 14.3 27.1
Adjustments for:
Other finance costs 7 (0.1) (0.1) (0.1)
Amortisation of fair value
adjustment to secured
bonds 7 0.5 0.5 1.1
Amortisation of issue and
arrangement costs 7 (1.0) (1.0) (2.0)
Finance costs capitalised 7 5.1 4.7 9.4
16.0 18.4 35.5
Net interest cover ratio 514% 431% 454%
For the half year ended 30 June 2018, the net interest cover ratio including the Group's share of joint ventures was 516% (half year ended 30 June 2017: 433%; year ended 31 December 2017: 458%).
25. Total return
Half year to 30.06.2018 Half year to 30.06.2017 Year to 31.12.2017
p p p
------------------------------ ----------------------- ----------------------- ------------------
EPRA net asset value on a diluted
basis
At end of period 3,713 3,582 3,716
At start of period (3,716) (3,551) (3,551)
(Decrease)/increase (3) 31 165
Dividend per share 117 91 108
Increase including dividend 114 122 273
Total return 3.1% 3.4% 7.7%
26. List of definitions
Capital return
The annual valuation movement arising on the Group's portfolio expressed as a percentage return on the valuation at the beginning of the year adjusted for acquisitions and capital expenditure.
Diluted figures
Reported results adjusted to include the effects of potential dilutive shares issuable under the Group's share option schemes and the convertible bonds.
Earnings/earnings per share (EPS)
Earnings represent the profit or loss for the period attributable to equity shareholders and are divided by the weighted average number of ordinary shares in issue during the financial period to arrive at earnings per share.
Estimated rental value (ERV)
This is the external valuers' opinion as to the open market rent which, on the date of valuation, could reasonably be expected to be obtained on a new letting or rent review of a property.
European Public Real Estate Association (EPRA)
A not-for-profit association with a membership of Europe's leading property companies, investors and consultants which strives to establish best practices in accounting, reporting and corporate governance and to provide high-quality information to investors. EPRA published its latest Best Practices Recommendations in November 2016. This includes guidelines for the calculation of the following performance measures which the Group has adopted.
- EPRA earnings per share
Earnings from operational activities.
- EPRA net asset value per share
NAV adjusted to include trading properties and other investment interests at fair value and to exclude certain items not expected to crystallise in a long-term investment property business model.
- EPRA triple net asset value per share
EPRA NAV adjusted to include the fair values of (i) financial instruments, (ii) debt and (iii) deferred taxes on revaluations, where applicable.
- EPRA cost ratio (including direct vacancy costs)
EPRA costs as a percentage of gross rental income less ground rent (including share of joint venture gross rental income less ground rent). EPRA costs include administrative expenses, other property costs, net service charge costs and the share of joint ventures' overheads and operating expenses (net of any service charge costs), adjusted for service charge costs recovered through rents and management fees.
- EPRA cost ratio (excluding direct vacancy costs)
Calculated as above, but with an adjustment to exclude direct vacancy costs.
- EPRA net initial yield (NIY)
Annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable property operating expenses, divided by the market value of the EPRA property portfolio, increased by estimated purchasers' costs.
- EPRA "topped up" net initial yield
This measure incorporates an adjustment to the EPRA NIY in respect of the expiration of rent free periods (or other unexpired lease incentives such as discounted rent periods and stepped rents).
- EPRA vacancy rate
Estimated rental value (ERV) of immediately available space divided by the ERV of the EPRA portfolio.
In addition, the Group has adopted the following recommendation for investment property reporting.
- EPRA like-for-like rental income growth
The growth in rental income on properties owned throughout the current and previous periods under review. This growth rate includes revenue recognition and lease accounting adjustments but excludes properties held for development in either period and properties acquired or disposed of in either period.
Fair value adjustment
An accounting adjustment to change the book value of an asset or liability to its market value.
Ground rent
The rent payable by the Group for its leasehold properties. Under IFRS, these leases are treated as finance leases and the cost allocated between interest payable and property outgoings.
Headroom
This is the amount left to draw under the Group's loan facilities (i.e. the total loan facilities less amounts already drawn).
Interest rate swap
A financial instrument where two parties agree to exchange an interest rate obligation for a predetermined amount of time. These are generally used by the Group to convert floating rate debt to fixed rates.
Key Performance Indicators (KPIs)
Activities and behaviours, aligned to both business objectives and individual goals, against which the performance of the Group is annually assessed.
Lease incentives
Any incentive offered to occupiers to enter into a lease. Typically the incentive will be an initial rent free or half rent period, stepped rents, or a cash contribution to fit-out or similar costs.
Loan-to-value ratio (LTV)
Drawn debt net of cash divided by the fair value of the property portfolio. Drawn debt is equal to drawn facilities less cash and the unamortised equity element of the convertible bonds.
Mark-to-market
The difference between the book value of an asset or liability and its market value.
MSCI Inc. (MSCI IPD)
MSCI Inc. is a company that produces independent benchmarks of property returns. The Group measures its performance against both the Central London Offices Index and the All UK Property Index.
NAV gearing
Net debt divided by net assets.
Net assets per share or net asset value (NAV)
Equity shareholders' funds divided by the number of ordinary shares in issue at the balance sheet date.
Net debt
Borrowings plus bank overdraft less cash and cash equivalents.
Net interest cover ratio
Net property income, excluding all non-core items divided by interest payable on borrowings and non-utilisation fees.
Property income distribution (PID)
Dividends from profits of the Group's tax-exempt property rental business under the REIT regulations.
Non-PID
Dividends from profits of the Group's taxable residual business.
Real Estate Investment Trust (REIT)
The UK Real Estate Investment Trust ("REIT") regime was launched on 1 January 2007. On 1 July 2007, Derwent London plc elected to convert to REIT status.
The REIT legislation was introduced to provide a structure which closely mirrors the tax outcomes of direct ownership in property and removes tax inequalities between different real estate investors. It provides a liquid and publically available vehicle which opens the property market to a wide range of investors.
A REIT is exempt from corporation tax on qualifying income and gains of its property rental business providing various conditions are met. It remains subject to corporation tax on non-exempt income and gains e.g. interest income, trading activity and development fees.
REITs must distribute at least 90% of the Group's income profits from its tax exempt property rental business, by way of dividend, known as a property income distribution. These distributions can be subject to withholding tax at 20%.
If the Group distributes profits from the non-tax exempt business, the distribution will be taxed as an ordinary dividend in the hands of the investors.
Rent reviews
Rent reviews take place at intervals agreed in the lease (typically every five years) and their purpose is usually to adjust the rent to the current market level at the review date. For upwards only rent reviews, the rent will either remain at the same level or increase (if market rents are higher) at the review date.
Reversion
The reversion is the amount by which ERV is higher than the rent roll of a property or portfolio. The reversion is derived from contractual rental increases, rent reviews, lease renewals and the letting of space that is vacant and available to occupy or under development or refurbishment.
Scrip dividend
Derwent London plc sometimes offers its shareholders the opportunity to receive dividends in the form of shares instead of cash. This is known as a scrip dividend.
Total property return (TPR)
Total property return is a performance measure calculated by the MSCI IPD and defined in the MSCI Global Methodology Standards for Real Estate Investment as 'the percentage value change plus net income accrual, relative to the capital employed'.
Total return
The movement in EPRA adjusted net asset value per share on a diluted basis between the beginning and the end of each financial period plus the dividend per share paid during the period expressed as a percentage of the EPRA net asset value per share on a diluted basis at the beginning of the year.
Total shareholder return (TSR)
The growth in the ordinary share price as quoted on the London Stock Exchange plus dividends per share received for the period, expressed as a percentage of the share price at the beginning of the year.
Underlying portfolio
Properties that have been held for the whole of the period (i.e. excluding any acquisitions or disposals made during the period).
Underlying valuation increase
The valuation increase on the underlying portfolio.
Yields
- Net initial yield
Annualised rental income based on cash rents passing at the balance sheet date, less non-recoverable property operating expenses, divided by the market value of the property, increased by estimated purchasers' costs.
- Reversionary yield
The anticipated yield, which the net initial yield will rise to once the rent reaches the estimated rental values.
- True equivalent yield
The constant capitalisation rate which, if applied to all cash flows from the portfolio, including current rent, reversions to valuers' estimated rental value and such items as voids and expenditures, equates to the valuation having taken into account notional purchasers' costs. Rent is assumed to be received quarterly in advance.
- Yield shift
A movement in the yield of a property asset, or like-for-like portfolio, over a given period. Yield compression is a commonly-used term for a reduction in yields.
27. Copies of this announcement will be available on the company's website, www.derwentlondon.com, from the date of this statement. Copies will also be available from the Company Secretary, Derwent London plc, 25 Savile Row, London, W1S 2ER.
Independent review report to Derwent London plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Derwent London plc's condensed consolidated interim financial statements (the 'interim financial statements') in the interim results of Derwent London plc for the 6 month period ended 30 June 2018. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- The Group condensed balance sheet as at 30 June 2018.
-- The Group condensed income statement and Group condensed statement of comprehensive income for the period then ended.
-- The Group condensed cash flow statement for the period then ended. -- The Group condensed statement of changes in equity for the period then ended. -- The notes to the interim financial statements.
The interim financial statements included in the interim results have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the Directors
The interim results, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim results in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial statements in the interim results based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the interim results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
9 August 2018
Notes to editors
Derwent London plc
Derwent London plc owns 87 buildings in a commercial real estate portfolio predominantly in central London valued at GBP5.0 billion (including joint ventures) as at 30 June 2018, making it the largest London-focused real estate investment trust (REIT).
Our experienced team has a long track record of creating value throughout the property cycle by regenerating our buildings via development or refurbishment, effective asset management and capital recycling.
We typically acquire central London properties off-market with low capital values and modest rents in improving locations, most of which are either in the West End or the Tech Belt. We capitalise on the unique qualities of each of our properties - taking a fresh approach to the regeneration of every building with a focus on anticipating tenant requirements and an emphasis on design.
Reflecting and supporting our long-term success, the business has a strong balance sheet with modest leverage, a robust income stream and flexible financing.
Landmark schemes in our 5.5 million sq ft portfolio include White Collar Factory EC1, Angel Building EC1, The Buckley Building EC1, 1-2 Stephen Street W1, Horseferry House SW1 and Tea Building E1.
In 2018 to date the Group has won the Property Week Property Company of the Year award whilst White Collar Factory scooped RIBA National and London awards, an RICS award, two BCO awards for Commercial Workplace and Innovation and an NLA Wellbeing award. 25 Savile Row also won RIBA National and London awards and SKA Gold for the fit-out. In 2017 the Group collected the Property Week Developer of the Year award and EG Offices Company of the Year and won further awards from RIBA, Civic Trust and BCO. In 2013 Derwent London launched a voluntary Community Fund and has to date supported 70 community projects in Fitzrovia and the Tech Belt.
The Company is a public limited company, which is listed on the London Stock Exchange and incorporated and domiciled in the UK. The address of its registered office is 25 Savile Row, London, W1S 2ER.
For further information see www.derwentlondon.com or follow us on Twitter at @derwentlondon
Forward-looking statements
This document contains certain forward-looking statements about the future outlook of Derwent London. By their nature, any statements about future outlook involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. Actual results, performance or outcomes may differ materially from any results, performance or outcomes expressed or implied by such forward-looking statements.
No representation or warranty is given in relation to any forward-looking statements made by Derwent London, including as to their completeness or accuracy. Derwent London does not undertake to update any forward-looking statements whether as a result of new information, future events or otherwise. Nothing in this announcement should be construed as a profit forecast.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
IR QVLFBVVFEBBE
(END) Dow Jones Newswires
August 09, 2018 02:00 ET (06:00 GMT)
1 Year Derwent London Chart |
1 Month Derwent London Chart |
It looks like you are not logged in. Click the button below to log in and keep track of your recent history.
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions
