Annual Report • Dec 31, 2011
Annual Report
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Derwent London plc Report & Accounts 2011
| Who we are | 1 |
|---|---|
| Overview | 2 |
| At a glance | 4 |
| Financial highlights | 8 |
| Chairman's statement | 10 |
| Our portfolio | 13 |
| Our market | 14 |
| Strategy | 16 |
| Business model | 18 |
| Business strategy | 19 |
| Property lifecycle | 20 |
| Key performance indicators and metrics | 22 |
| Risk management | 25 |
| Performance | 28 |
| Property review | 30 |
| Valuation | 30 |
| Portfolio management | 32 |
| Investment activity | 36 |
| Projects | 37 |
| Planning the future | 40 |
| Development pipeline | 44 |
| Finance review | 48 |
| Sustainability | 56 |
| Governance | 70 |
| Board of Directors | 72 |
| Statement of Directors' responsibilities | 74 |
| Directors' report | 75 |
| Report of the Remuneration Committee | 86 |
| Report of the Nominations Committee | 96 |
| Report of the Audit Committee | 97 |
| Independent Auditor's report | 98 |
| Financial statements | 100 |
| Group income statement | 102 |
| Statements of comprehensive income | 103 |
| Balance sheets | 104 |
| Statements of changes in equity | 105 |
| Cash flow statements | 106 |
| Notes to the financial statements | 107 |
| Principal properties | 140 |
| Five-year summary | 142 |
| List of definitions | 143 |
| Financial calendar and advisors | 144 |
Derwent London is the largest real estate investment trust (REIT) focused on the central London commercial property market.
We aim to deliver above average long-term returns to shareholders.
Our aim is to acquire and own a portfolio of central London properties that has reversionary rents and significant opportunities to enhance and extract value through refurbishment, regeneration and redevelopment.
Buckley Building 49 Clerkenwell Green EC1
We took vacant possession of this 75,400 sq ft (7,000m2 ) prime Clerkenwell office building at the end of March 2011. Under an agreement with the outgoing tenant the rental income of £2.45m pa has been maintained until March 2015,
the date of the original lease expiry. The property is being refurbished and extended and will be delivered to the market in late 2012.
Type Offices Size 85,000 sq ft (7,900m2 ) Completion date 2012 Architect Buckley Gray Yeoman
Our portfolio comprises 5.4 million sq ft (501,400m2) of properties valued at £2.6 billion.
96% of our properties are located in central London, grouped in 17 "villages", each with its own culture and identity. 77% can be found in the West End and 19% in the City borders. The balance relates to properties held in Scotland on the northern outskirts of Glasgow.
Percentages weighted by valuation
Scotland: 4% Ladbroke Grove: 1%
1.3 2.1 8.1 (11.4) (4.6) 4.6 2.6 2.8 4.1 (2.9) 10 8 6 4 2 0 (2) (4) (6) (8) (10) (12) H1 07 H2 07 H1 08 H2 08 H1 09 H2 09 H1 10 H2 10 H1 11 H2 11
1Half yearly movement in estimated rental value
of the underlying portfolio
Rental value growth1 %
rental income
CBRE West End offices (by floor area)
| £0 – £20 psf | 8 |
|---|---|
| £20 – £30 psf | 15 |
| £30 – £40 psf | 29 |
| £40 – £50 psf | 40 |
| £50 – £60 psf | 4 |
| £60 + psf | 4 |
1 December 2007 = 100
1 Expressed as a percentage of annualised rental income
see page 32
see page 40
see page 37
100 lettings
2010: 100 2009: 101
Angel Building
100%
let by November
£16.7m pa income from new lettings
2010: £8.0m pa 2009: £9.3m pa
Angel Building lettings Expedia.com at £3.8m pa NG Bailey at £0.7m pa Sage Pay at £0.5m pa Jamie's Italian at £0.3m pa 495,700 sq ft 46,050m2
space let
2010: 347,000 sq ft (32,200m2 ) 2009: 339,000 sq ft (31,500m2 )
Lastminute.com at the Johnson Building at £0.95m pa
Pre-let to City University at 88 Rosebery Avenue at £1.2m pa
EPRA vacancy rate reduced to 1.3% at year end
889,000 sq ft 82,500m2 applications approved in 2011
80 Charlotte Street City Road Estate Turnmill Buckley Building 4 & 10 Pentonville Road Central Cross (Phase 1) 443,500 sq ft 41,200m2 applications awaiting approval at year end
£87.5m acquisitions
Network Building headlease 1 Page Street Morelands Buildings headlease
219,400 sq ft 20,380m2 projects completed 338,000 sq ft 31,400m2 projects on site at year end
6
Joint venture signed with Grosvenor for the redevelopment of 1-5 Grosvenor Place see page 34
Contract signed for the disposal of Riverwalk House and 232-242 Vauxhall Bridge Road for £77m subject to successful planning application see page 36
Pre-let agreed at 1 Page Street with Burberry for 127,000 sq ft (11,800m2) for £5.3m pa see page 34
2011
1,474p
EPRA NAV per share1 p
EPRA NNNAV per share1
1,607p 2010 1,425p
EPRA NNNAV per share1 p
Net property income
2011
£117.7m 2010
£113.0m
Net property income £m
2011
£52.3m 2010 £55.2m
EPRA profit before tax £m
EPRA earnings per share
2011
51.59p 2010
52.89p
EPRA earnings per share p
Dividend per share
2011
31.35p 2010 29.00p
Dividend per share p
Total shareholder return1 %
Derwent London
FTSE All-Share Real Estate Investment Trust
Calculated using a 30-day average of the returns
Total property return %
4.7%
EPRA "topped-up" net initial yield
5.2%
2010 5.3% EPRA vacancy rate
2011
1.3% 2010 5.9%
Derwent London has proven again that the strategy of focusing on mid-market central London is successful. EPRA net asset value per share increased by 15.4% to 1,701p and the portfolio generated a revaluation surplus of £172.1m. We have increased and extended our debt facilities to provide us with the firepower and flexibility to exploit the opportunities open to us.
Robert Rayne Non-executive Chairman
Derwent London recorded another strong performance in 2011, seeing good progress across a range of projects, whilst maximising flexibility and mitigating key risks. Our business model has again proved robust in turbulent markets, with the core central London office market holding up well. We have seen lower than average supply and continued strong demand both from tenants and a wide variety of domestic and overseas investors. EPRA net asset value per share increased by 15.4% to 1,701p from 1,474p at 31 December 2010 and the portfolio generated a revaluation surplus of £172.1m (2010: £301.7m).
In a period in which asset management has become ever more important, 2011 was a record year for lettings at the Group. This activity produced total rental income of £16.7m pa on floorspace of 495,700 sq ft (46,050m²). This surpassed our 2010 performance, when the lettings totalled £8.0m pa. These transactions reduced the Group's space immediately available for occupation to 1.3% by estimated rental value, down from 5.9% at the start of the year. There are a number of projects currently on site which, when completed, will increase this percentage. However, taking account of pre-lets, including Burberry's expansion into 1 Page Street SW1, and the continuing receipt of rental income from the Buckley Building (previously Woodbridge House) EC1, these schemes have been considerably derisked.
The year was also an important one for the Group in securing planning permissions at a number of properties which add to our store of future opportunities. In 2011 we received planning permission to create a total of 0.9m sq ft (82,500m²), an uplift on the existing floorspace at these properties of 68%. Amongst these consents, in our core Fitzrovia Estate, 80 Charlotte Street W1
will provide 367,000 sq ft (34,100m²) of development, a further step in the wider regeneration of the area. The City Road Estate EC1 scheme also received planning permission during the year. This 289,000 sq ft (26,800m²) office-led development is located at Old Street roundabout, in the centre of the area promoted by the Government as "Tech City". It will be developed using our "White Collar Factory" principles though we would require a pre-let of a substantial portion before proceeding with this scheme.
The development of Crossrail will have a significant beneficial impact on central London, and we intend to take full advantage of this with projects planned around both the Tottenham Court Road and Farringdon interchanges. Towards the end of 2011, in collaboration with Crossrail, we submitted a planning application for major regeneration at 1 Oxford Street W1. The 275,000 sq ft (25,500m²) proposed scheme would be built above the Tottenham Court Road Crossrail and London Underground station. We have the option to repurchase this site upon completion of the Crossrail works, around 2017. It is hoped to receive a planning decision shortly.
During the year we also made material progress on our proposed schemes in the Farringdon area, with Turnmill at 63 Clerkenwell Road EC1 and the Buckley Building on Clerkenwell Green EC1 both receiving planning consent. Turnmill is a 70,000 sq ft (6,500m²) new-build office development which will occupy a major corner site close to the Farringdon Crossrail interchange. The development is expected to start later in 2012. At the nearby Buckley Building we are now on site, enlarging the existing property to 85,000 sq ft (7,900m²) with works due to complete later this year.
"The Group's performance would not be possible without a highly committed and experienced team. It was gratifying that this was recognised when Derwent London was ranked fifth overall among UK companies in Management Today's "Britain's Most Admired Companies" Award."
In October 2011, we signed a Memorandum of Understanding with Grosvenor, our freeholder at 1-5 Grosvenor Place SW1, to consider redevelopment of the site. We are now pleased to confirm that we have progressed this relationship into a formal joint venture. The Group has restructured its headleases into a new 150-year term and sold 50% of this interest to Grosvenor for £60m. The existing buildings occupy an underutilised flagship site of 1.5 acres (0.6 hectares), at Hyde Park Corner. The transaction offers a unique opportunity to undertake a substantial mixed-use redevelopment in such a prominent location. Whilst we progress redevelopment plans, we are maintaining income through short-term, flexible lettings.
At 40 Chancery Lane WC2 we have undertaken similar active asset management. In early 2012 we exchanged conditional contracts with our freeholder to restructure and extend our interests here into a new 128-year lease. This has unlocked a redevelopment opportunity which is due to start in the second half of 2012. It will provide a new 100,000 sq ft (9,300m²) six-storey office building which we expect to complete by the end of 2014.
Towards the end of 2011, we submitted a planning application for the redevelopment of Riverwalk House on Millbank SW1. In contrast to the commercial developments above, this application is for a 148,000 sq ft (13,700m²) high-specification residential redevelopment. We have exchanged contracts to sell this and another nearby property for £77.3m to Ronson Capital Partners, with completion conditional on receipt of planning permission. This transaction will provide the Group with valuable experience of a major residential scheme and a continued interest by way of a profit overage.
Following the Government's recent decision to proceed with the HS2 rail link, the Board has given careful consideration to our proposed 265,000 sq ft (24,600m²) office and residential development at Hampstead Road NW1. The property is now expected to be compulsorily purchased as part of the construction of HS2. Despite having reached advanced negotiations on major pre-lets on this project, in view of the uncertainty as to the future of the site and the considerable investment needed to complete the project, we have decided to defer redevelopment. "Light touch" refurbishment options are now being considered that will enable us to let the space on flexible terms and we will keep the situation under review as the Government's plans progress.
The process of recycling the portfolio continues, disposing of properties where this appears an attractive option. In 2011 we sold £132.5m of mature and smaller assets, giving rise to a surplus on disposal of £36.1m. Where opportunities arose we also made acquisitions, totalling £87.5m, either near existing holdings such as 1 Page Street SW1, or where we could buy or lengthen headleases such as at the Network Building W1 and Morelands Buildings EC1. These purchases give us greater control over the future of these properties.
Despite a difficult period for UK and European banks when their cost of funds has been under renewed pressure and access to capital has been constrained, our covenant remains in demand and we continue to receive very good support from the banking sector. Including the issue of a £175m unsecured convertible bond in June 2011, we signed up a total of £600m of new or extended facilities in 2011. As well as deferring any bank refinancing risk until 2014, we have diversified our sources of finance
and anticipate that an increasing proportion of our future debt requirements is likely to come from non-bank sources.
The Group's performance would not be possible without a highly committed and experienced team. It was gratifying that this was recognised when Derwent London was ranked fifth overall among UK companies in Management Today's "Britain's Most Admired Companies" Award, and first in the property sector for the second consecutive year. In addition, the Angel Building was shortlisted for the prestigious RIBA Stirling Prize as well as being awarded a number of other accolades, endorsing the strength of our design philosophy. Further recognition of the quality of our business came when we were recently awarded the Estates Gazette "Property Company of the Year – Offices".
The portfolio performed well through the whole of 2011, increasing in underlying value by 7.6% to £2.6bn and driving the Group's EPRA net asset value to 1,701p per share compared with 1,474p a year earlier and 1,621p at June 2011. This 15.4% increase over the year was led by the £172.1m revaluation movement, which came mainly from rental growth, while the £301.7m surplus in 2010 also benefited from yield compression.
With strong lettings and new income from properties acquired, gross property income increased to £125.5m from £119.4m in 2010 but EPRA earnings per share fell slightly from 52.89p to 51.59p, due mainly to higher finance and administration costs. Profits on disposals of investment properties, which are not included in the EPRA earnings, totalled £36.1m in 2011 against £0.9m in 2010.
The Board continues to pursue a progressive dividend policy and is proposing an increase in the final dividend of 8.1% to 21.90p per share to be paid on 15 June 2012 to shareholders on the register at 18 May 2012. Of this amount, 18.10p will be paid as a PID under the UK REIT regime and there will be a scrip alternative. The total dividend for the year is therefore 31.35p, an increase of 8.1% on that in 2010 and a level which remains well covered by recurring earnings.
Property disposals during 2011 almost matched the combined investment in new acquisitions and capital expenditure and, with the valuation increase noted above, this has contributed to another fall in gearing. The Group's loan to value ratio at 31 December 2011 was 32.0% against 35.7% in December 2010 and undrawn and available bank facilities totalled £469m at December 2011, a substantial increase over the equivalent figure at December 2010 of £245m. In addition, there was £589m of uncharged property at December 2011 compared with £484m at the previous year end.
As previously announced, Donald Newell stepped down from his position as nonexecutive Director at the conclusion of the Annual General Meeting in May 2011. Don joined the Company when it merged with London Merchant Securities, where he had been on the Board since 1998. Again I would like to thank him for his valuable contribution and sound counsel throughout this period.
Whilst we believe that low GDP growth and a paucity of finance will continue to act as headwinds to the UK economy, including to the real estate market, we consider Derwent London to be strongly placed. The London
economy continues to show resilience and our focus on mid-market rentals accords with the somewhat straitened times in which we currently live. We have, and continue to attract, a diverse tenant mix, with an emphasis on companies from the Technology, Media and Telecoms sectors.
Despite the difficult state of the economy, we are encouraged by the continuing strength of our letting activity. We are on site or due to commence major capital projects covering over 500,000 sq ft (46,500m²) in 2012 which will involve total capital expenditure of about £137m. We have either pre-let commitments or continuing rental income over almost 50% of these projects.
In the near term, the London economy should receive a boost in 2012 with the Queen's Diamond Jubilee celebrations, the Olympics and the Paralympics and, in the medium term, our central London "villages" will greatly benefit from the progress of Crossrail.
We have a vibrant portfolio that is attractive to tenants, a strong pipeline of development opportunities and a very sound financial base. As a result we have capacity for further substantial investment in both new acquisitions and development expenditure, and we continually assess opportunities, whilst retaining flexibility over the timing of such commitments. We believe the Group is well positioned to deliver good returns both in the tough environment we currently face, and when more sustained economic growth appears.
Robert A. Rayne 1 March 2012
"We have a vibrant portfolio that is attractive to tenants, a strong pipeline of development opportunities and a very sound financial base. As a result we have capacity for further substantial investment in both new acquisitions and development expenditure, and we continually assess opportunities."
We provide high quality, innovative contemporary office space, priced at mid-market rents. With over half of the portfolio still to be worked, we have a wealth of valuecreating opportunities that can be crystallised through asset management or regeneration. With some major planning approvals in 2011, we have added to these opportunities.
We own and manage a 5.4 million sq ft (501,400m²) portfolio that was valued at £2.6bn as at 31 December 2011. Of our portfolio, 77% is in the West End, the main focus of our operations, in villages such as Fitzrovia, Victoria, Belgravia and Marylebone. The City borders account for 19% and include villages such as Old Street, Clerkenwell, Holborn and Shoreditch, and the remaining 4% is in Scotland, on the northern outskirts of Glasgow.
The portfolio consists of 122 buildings and has over 600 tenants covering a range of business sectors. Media, TV, marketing and advertising tenants account for 29% of our net rental income whilst professional and business services tenants comprise 28% and 13% of our income is from retail sales outlets.
Our portfolio's annualised net contracted rental income at the year end was £113.1m, compared to an estimated rental value of £160.4m, therefore offering strong reversionary potential. With passing rent of £25.79 per sq ft (£277.60 per m2 ) on our central London office portfolio, rising to £31.10 per sq ft (£334.80 per m2 ) once "topped up" for the expiry of rent-free periods and other rental incentives, average rents remain low.
| Ten principal tenants % of rental income1 | |
|---|---|
| Arup | 5.7 |
| Burberry | 4.6 |
| Saatchi & Saatchi | 3.8 |
| FremantleMedia Group | 3.0 |
| MWB Business Exchange | 2.7 |
| Thomson Reuters | 2.6 |
| Government | 2.6 |
| Pinsent Masons | 2.2 |
| BBC | 2.1 |
| House of Fraser | 1.8 |
Based upon contracted net rental income of £113.1m
Expressed as a percentage of annualised rental income
London was one of the strongest performing UK regions in 2011, and continues to attract national and international occupiers and inward investment. The central London office market saw take-up approximately 10% below the ten-year average but, with the lowest level of completed developments since the early 1990s, vacancy rates remained stable. Investment volumes remained subdued with overseas investors responsible for over half the transactions in the West End.
The UK economy grew by an estimated 0.9% in 2011, a weaker level than anticipated a year ago, with growth of 0.6% in the third quarter and contraction of 0.2% in the final quarter. UK base rates stayed at their historic low of 0.5% during the year whilst unemployment continued to rise and RPI inflation stayed at 5% or above for every month of 2011 with the exception of December.
Against this backdrop, and with the Government's austerity measures starting to impact the economy, the outlook for 2012 remains fragile. In addition, the sovereign debt issues in many parts of the Eurozone add to the economic and political uncertainty further subduing business sentiment and putting additional pressure on the cost of borrowing. The Bank of England is predicting that inflation will fall in 2012 and is hopeful that the further quantitative easing will help to stimulate the economy. Most commentators expect interest rates to remain unchanged throughout 2012 whilst the International Monetary Fund in January 2012 predicted that UK GDP growth for the year will be constrained at around 0.6% before rising to 2% in 2013. With this background, financial and business services employment in central London is expected to rise by 1.2% in 2012 before accelerating to 3.7% in 2013 according to Oxford Economics.
London, where 96% of Derwent London's portfolio is located, is a major centre for international business and commerce and generates approximately 20% of UK economic output. Its economy is predominantly service-based and was one of the strongest performing UK regions in the year. Despite London's significant exposure to the financial services sector and to Europe, the capital has remained resilient and continues to attract national and international occupiers and inward investment.
The year ahead will be a memorable one for London as it hosts the Olympic and Paralympic Games in the summer and will play a major role in the celebrations surrounding the Queen's Diamond Jubilee. These events are expected to boost sentiment and economic activity and further enhance London's international profile.
The West End was the strongest performing central London sub-area with occupier take-up at 6% above the 10-year average.
Central London has an office stock of approximately 218 million sq ft (20.3 million m²), making the capital a significant office centre in both a European and global context. By sub-area, 50% of London's office stock is in the City, 41% in the West End and 9% in Docklands. Derwent London focuses on the West End and its surrounds and tailors its space to the more diverse occupier base here, which mainly comprises companies from the media and professional and business services sectors. The City and Docklands are very much dominated by financial and legal occupiers.
As published by surveyors CBRE, central London office take-up for 2011 was 10.3 million sq ft (0.96 million m²). This was lower than the 14.6 million sq ft (1.36 million m²) recorded in 2010 and approximately 10% below the 10-year average. Relative to trend, and underlining the resilience of our chosen operating market, the West End was the strongest performing sub-area with annual take-up of 4.4 million sq ft (409,000m²). This was 6% above the 10-year average and 8% below the 2010 level. The Technology, Media and Telecommunications (TMT) sectors were particularly active in 2011 and accounted for 24% of West End take-up.
With the lowest level of completed developments since the early 1990s at 1.7 million sq ft (158,000m²), the CBRE central London vacancy rate by floorspace remained stable over the year, and below the 10-year average. This rate started the year at 5.5%, declined to 4.9% at the half year and finished at 5.2%. With few development completions, the West End's vacancy rate was even lower, commencing the year at 5.2%, falling to 3.8% at the half year before rising to 4.3% at the year end.
With the differing levels of supply and demand across the central London office sub-areas, the CBRE prime rent index showed West End rents increasing by 4.8% in 2011 compared to a 0.6% rise in the City.
Central London investment volumes, according to CBRE, totalled £8.4bn in 2011, down 14% on 2010 and 17% below the 10-year average. In the West End, annual transactions totalled £3.2bn with overseas investors accounting for 57% of the total. Over the year, prime yields in the West End remained at 4.0%, unchanged since mid-2010 and 150 basis points lower than their maximum during the downturn in 2009. City prime yields compressed by 35 basis points over the year and finished at 5.0%.
Source: CBRE
.
There are four key strands to Derwent London's business model which help to create long-term value for our shareholders, tenants and the communities in which we operate. Within each strand there are certain metrics and key performance indicators that are monitored to ensure we are on track. We also measure our performance against appropriate benchmarks.
John Burns Chief Executive Officer
Our business model creates long-term value for our shareholders, tenants and the communities in which we operate. We achieve this by acquiring, developing and extracting value from a portfolio of central London properties. Within the portfolio we aim to keep a balance between income producing properties and development projects, phasing our pipeline to maintain a strong financial position.
Our business model supports our strategy because we are:
We actively seek opportunities to acquire central London commercial properties with income-generating characteristics and regeneration potential.
Our portfolio contains a variety of types, sizes and locations of properties, primarily in the West End and the borders of the City, which provides well-designed space at mid-market rents which appeals to a wide range of tenants. We typically seek properties with low capital values in areas we believe are or will be up-andcoming. Our portfolio has retained reversionary characteristics and more than 50% has been identified as suitable for refurbishment or redevelopment. We are always looking for interesting acquisition opportunities and regularly assess the needs of the business, adjusting requirements in the light of this.
"We are confident that the Group is well positioned to deliver good returns both in the environment we currently face, and when more sustained economic growth appears."
Robert Rayne Chairman
We transform commercial properties through good design, creating attractive, contemporary spaces for our tenants, our prospective tenants and the local community. We work with a range of established and up-and-coming architectural, design and engineering practices to combine exciting and innovative architecture with environmentally friendly, high quality construction.
We seek a balance, maximising income where possible whilst at the same time freeing up space for development. We aim to generate sufficient ongoing income from the portfolio to exceed comfortably our administrative and financial costs. From this base, the volume of properties in the development pipeline can be adjusted depending on market conditions, tenant demand and the balance of the rest of the portfolio.
On a building-by-building basis, the asset management team seeks to minimise voids, capture the portfolio's reversion and work closely with tenants and other stakeholders to understand their needs, provide the best space to meet their budgets, and accommodate any expansion, contraction or relocation requirements.
We believe in flexible and uncomplicated financing. We maintain a sustainable level of gearing, based on a minimum level of interest cover and a maximum level for the overall Group loan to value ratio. At the same time we retain sufficient headroom so that we can take advantage of market opportunities. We vary our sources of funding in accordance with the lending environment. The strength of our balance sheet and the flexibility of our financing allow us to act quickly according to the different phases of the property cycle.
Our REIT status also allows us to operate in a tax-efficient manner.
Previous spread: Angel Building EC1
We plan to retain a portfolio focused on central London for the foreseeable future, as it represents our area of expertise and we are well placed to understand its set of unique characteristics.
Our recent acquisitions continue our strategy of buying assets of strategic importance, usually close to existing holdings. Our purchase of 1 Page Street SW1 was somewhat unusual for us in that it was an empty building, but we wished to increase our development exposure. The building, which has been pre-let to Burberry, is close to our Horseferry House holding, which is also occupied by Burberry.
We have also purchased or regeared headleases at the Network Building W1 and Morelands Buildings EC1 to expand our redevelopment opportunities at these sites. This strategy has continued into 2012 with the regearing of the headleases at 1-5 Grosvenor Place SW1 and our interests at 40 Chancery Lane WC2.
Good design has always been at the heart of our business. We work harder than most, with all our architects, engineers and designers, to get the details right, creating spaces with the light and volume that provide our tenants with attractive environments in which to work. Many of our developments adapt existing structures, saving embedded carbon and reducing the use of new materials, and we also build in features to minimise future energy and water consumption.
Our design-led ethos has been recognised with a number of awards in 2011. The Angel Building was shortlisted for the RIBA Stirling Prize following its RIBA London 2011 award and also won numerous accolades from organisations such as the British Council for Offices, the British Construction Industry, the Chartered Institution of Building Services Engineers, and New London Architecture. The Maple & Fitzroy development in Fitzrovia W1 also won 2011 RIBA London and New London Architecture awards.
In 2011 we set ourselves the goal of gaining a number of significant planning permissions. We obtained six major planning consents, several of which will be near Crossrail stations when open. 80 Charlotte Street W1 and Central Cross W1 are both near the Tottenham Court Road interchange, and Turnmill and Buckley Building EC1 are both near Farringdon station. In addition our City Road Estate Scheme EC1, adjacent to Old Street roundabout, and 4 & 10 Pentonville Road N1, near our Angel Building, gained permission. These developments are well placed to attract companies such as those in the TMT sector that have been particularly active in London of late, an area where we have had considerable success attracting and retaining tenants.
As at the end of 2011 we had five major projects on site and are due to commence work on 40 Chancery Lane WC2 and Turnmill EC1 later in 2012, giving a total pipeline under development of over 500,000 sq ft (46,500m2 ). We also expect planning decisions on Riverwalk House SW1, 1 Oxford Street W1, and 1 Page Street W1 as well as phase 3 of Central Cross.
Where appropriate, we work with landlords at our leasehold properties to regear headleases and thus improve the flexibility and financial viability of future developments.
In 2011, we purchased and regeared headleases at the Network Building and Morelands Buildings. At 40 Chancery Lane we have regeared our ownership with the leaseholders, the Colville Estate. Previously we held 76% leasehold with 17 years unexpired, 10% freehold and 14% with no ownership, and now we have a 128-year headlease across the entire site, unlocking a 100,000 sq ft (9,300m2 ) development which is due to start on site later in 2012.
Understanding the day-to-day needs of tenants is also important. We have developed tenant websites for each multi-let building we own and manage and run forums to discuss issues such as waste management, recycling and energy and water efficiency, as well as meeting tenants to discuss service charge budgets in advance. We also use standardised "green leases" in plain English and clauses to encourage improved sustainability.
We keep all forms of debt finance under review and move to refinance facilities well in advance of their expiry dates. We also aim to provide adequate protection against unpredictable changes in short-term interest rates through hedges and swaps. We maintain excellent longterm relationships with our core lenders, a tactic that has served us well in the uncertain financing environment in which we currently operate.
In 2011 we set ourselves the task of refinancing in good time the majority of the bank facilities expiring before the end of 2013, and diversifying our sources of debt finance. It was apparent that bank facility pricing was under pressure and there was a wall of refinancing and deleveraging pressure facing lenders. We subsequently successfully arranged £600m of new or extended facilities. As part of this refinancing we also diversified our sources of finance, with the issue of the £175m convertible bond, and we anticipate that a proportion of our future debt requirements will continue to come from non-bank sources.
Our policy of balancing refurbishment and development activity with income generation has greatly aided our cashflow management and we have continued to manage Group gearing by recycling capital, disposing of properties where we can realise an attractive price. Disposing of Riverwalk House for residential development will realise proceeds markedly above the valuation as an office building.
Our business model has been developed to combine flair, innovation and management focus to add value to our extensive portfolio of properties and maintain a stable long-term financial position. Success is not the result of short-term reactions; rather it is the fruit of our long-term vision to create inspirational buildings.
Our real estate purchases are not limited to any one specific type of property, but they typically share the common characteristics of being income-producing in their present state and with the potential for further enhancement.
We do not just know London, we have a detailed knowledge of each of our 17 different "villages" within the capital, their characters and culture and understand the sorts of people who work and live in them. We can map a distinctive future for each of them, and it is this knowledge which allows us to judge where to buy and for how much: we acquire where we perceive value and growth potential.
We have developed a reputation for anticipating the locations of tomorrow. Examples of this include our long-standing presence in Clerkenwell as well as the concentration of properties close to Crossrail stations.
While our essential approach to every property is consistent, we create a unique solution for each. Our business model has been proven and refined over time; it concentrates on refurbishment and regeneration of existing buildings and, only when necessary, outright redevelopment.
Through innovative planning solutions we look to add floorspace and, therefore, value to our buildings. We don't build "runof-the-mill" properties, we create
We work closely with each design team to reach the optimal solution which is reviewed by each department and the relevant Directors before appointing a contractor.
– The regeneration strategy focused on re-using the existing building structure to fulfil its potential, with the existing tired skin being removed and the floorplates increased through the infilling of the open internal courtyard and the extension of the frontage towards the street. In addition, a new floor was added incorporating a spectacular roof terrace.
– Two neighbouring buildings linked through a unified frontage with flexible floorplates and two reception areas to widen the appeal to a greater range of occupiers and increase the floor area by over 20%.
Successful and timely planning
The planning process has become increasingly time-consuming and expensive in recent years and it is therefore more important to ensure all issues are considered before an application is lodged.
We work closely with planning officers and engage with the local community and relevant stakeholders.
The design quality and regenerative aspects of our projects are subject to a detailed environmental impact assessment. This deals in detail with the effect of our projects on their local environment, assisting our ability to progress our planning applications to a successful conclusion.
see page 40
John Burns Chief Executive Officer
It is vital that each of our schemes is completed on time and on budget, both in terms of minimising capital spend and in bringing the property to market as quickly as possible. The costs and progress of each project are constantly monitored against budgets by our development team and experienced project managers.
Our contractors are selected from a short list of well-regarded firms and, whilst there is a balance to be achieved, we always place a premium on high quality.
We have excellent relationships with all the firms we employ and are regarded by consultants as good to work with, being firm but fair.
The letting process is assisted by the quality of our properties and the knowledge and expertise of our letting team as well as our approach to leasing. From the beginning we work hard to understand tenants' requirements. Principal-to-principal negotiations are carried out as soon as an introduction is made. This enables us to meet each potential tenant early in the process, which leads to deeper mutual understanding and a quicker transaction.
This process has contributed to our low vacancy rates compared to our peers (on average over the past ten years our vacancy rate has been 120 basis points below the market average) and our 2011 year end EPRA vacancy rate was 1.3%.
On larger schemes we will always consider a pre-let of part or all of
Horseferry House (2008) – 100% pre-let Angel Building (2010) – 48% pre-let, fully let within 13 months 33 George Street (2011) – 100% pre-let 88 Rosebery Avenue (2011) – 100% pre-let Central Cross Phase 1 (2013) – 67% pre-let 1 Page Street (2013) – 100% pre-let
the space to de-risk the project. By estimated income, over 50% of our on-site projects are pre-let or
Both our letting expertise and the ability to capture pre-lets significantly reduce the void period between completion and occupation by a tenant, thus reducing our exposure to business rates and service charges as well as positively impacting income.
It is not only important to let space quickly but also to let to the right tenant. We have extremely stringent covenant checks for all our prospective tenants and require deposits or guarantees if necessary. This approach has resulted in very low tenant failure rates over recent years.
under offer.
At the end of this process, which may take five years or 25 years, we may continue to hold the property for income or the capital may be recycled through disposal to start the process again.
In the past five years we have disposed of £640m of properties.
We outperformed all of our key performance indicator benchmarks in 2011.
| Objective | Measure | Progress | ||
|---|---|---|---|---|
| Maximise overall returns from the portfolio | Total return We aim to exceed the return from the combination of NAV growth and dividends achieved by the other major REIT companies |
2011 2010 |
Performance % 17.4 29.3 |
Benchmark % 10.9 19.9 |
| using an annualised calculation based on publicly available information |
||||
| Maximise returns from the investment portfolio | Total property return We aim to exceed the IPD Central London |
Performance % |
Benchmark % |
|
| Offices Index on an annual basis | 2011 2010 |
13.4 21.3 |
12.5 23.0 |
|
| We also aim to exceed the annualised IPD All UK Property Index return on a three-year |
Performance % |
Benchmark % |
||
| rolling basis | 2011 2010 |
12.1 1.4 |
8.8 (1.2) |
|
| Maximise returns from the investment portfolio | Void management We plan ahead to minimise the space |
Performance % |
Benchmark % |
|
| immediately available for letting and this should not exceed 10% of the portfolio's |
2011 2010 |
1.3 5.9 |
<10 <10 |
|
| estimated rental value | see page 32 | |||
| Maximise cash flow | Tenant receipts We aim to collect more than 95% of rent |
Performance % |
Benchmark % |
|
| invoiced within 14 days of the due date throughout the year |
Q1 2011 Q2 2011 Q3 2011 |
96 97 99 |
||
| Q4 2011 2011 average 2010 |
98 98 96 |
95 95 |
||
| Financial stability | Interest cover ratio | Performance % |
Benchmark % |
|
| We aim for our gross rental income to be at least twice our net interest payable. This measures our ability to meet our interest obligation and is similar to that in many of the Group's security-specific bank covenants. |
2011 2010 |
307 328 |
>200 >200 |
|
| Environmental sustainability | BREEAM ratings All developments in excess of 5,000m² to obtain a Building Research Establishment Environmental Assessment Method (BREEAM) rating of "Very Good" or above |
There were no project completions in excess of 5,000m² in 2011. However, since the end of 2007 our three major completions have received at least a "Very Good" rating and the Angel Building received an "Excellent" rating in 2010. The table below shows the expected ratings for 2012/13 completions. |
| Completion | Expected rating |
|
|---|---|---|
| 4 & 10 Pentonville Road | Q3 2012 | Very Good |
| Buckley Building | Q4 2012 | Very Good |
| Morelands Buildings | Q4 2012 | Outstanding |
| 1 Page Street | Q2 2013 | Excellent |
There are a number of further metrics which, whilst they do not constitute key performance indicators, nevertheless we find useful in monitoring the performance of the business.
| Objective | Measure | Progress | ||||
|---|---|---|---|---|---|---|
| Future capital growth | Development potential We monitor the proportion of our portfolio that has the potential for refurbishment or redevelopment |
51% of our portfolio has potential for refurbishment or redevelopment |
||||
| million sq ft % |
||||||
| 6 60 |
||||||
| 50 5 |
||||||
| 40 4 |
||||||
| 30 3 |
||||||
| 20 2 |
||||||
| 1 10 |
||||||
| 0 0 2007 2008 2009 2010 2011 |
||||||
| Future rental growth | Reversionary percentage | Portfolio earmarked for development (%) Reversion % |
||||
| This is the percentage by which the rental income cashflow would increase, were the passing rent to be increased to the estimated rental value |
2011 42 2010 27 |
|||||
| Environmental sustainability | Energy Performance Certificates (EPC) We design projects to achieve a "B" certificate for all new-build projects over 5,000m² and a minimum of "C" for all |
As mentioned earlier, no projects in excess of 5,000m² were completed in 2011. The anticipated certificates for the refurbishments currently on site are as follows: |
||||
| refurbishments over 5,000m² | Anticipated rating |
|||||
| 4 & 10 Pentonville Road C |
||||||
| Buckley Building C Morelands Buildings B |
||||||
| 1 Page Street C |
||||||
| Key metrics continued w |
| Objective | Measure | Progress | ||
|---|---|---|---|---|
| De-risking of income stream | Diversity of tenants A diverse tenant base, both in number and across different industries, protects our income stream |
see principal tenants and profile of tenants' business sectors charts on page 13 |
||
| Continuity of income | Tenant retention It is important, where we wish to retain income, we maximise tenant retention following tenant lease breaks or expiries and minimise any void period. |
2011 2010 Rental income exposure 16.2 11.5 (£m pa) Retention (%) 72 72 Re-let by year end (%) 21 17 Total income retention (%) 93 89 |
||
| Financial stability | Gearing Consistent with others in its industry, the Group monitors capital on the basis of balance sheet gearing and the loan to value ratio |
Balance sheet gearing Loan to value % % 2011 50.4 32.0 2010 59.4 35.7 |
||
| Financial flexibility | Available resources We ensure that we have sufficient flexibility to take advantage of acquisition and development opportunities and we carefully monitor our headroom |
Immediately Unsecured Headroom available properties £m £m £m 2011 476 469 589 2010 261 245 484 |
||
| Maximise returns to the investment portfolio | Capital return We compare our performance against the IPD Central London Offices Capital Growth Index |
Performance Benchmark % % 2011 7.6 7.3 2010 15.7 16.6 |
||
| Maximise returns to shareholders | Total shareholder return We compare our performance against the FTSE All-Share Real Estate Investment Trust Index¹ |
Performance Benchmark % % 2011 2.9 (7.9) 2010 22.9 11.0 |
In accordance with industry best practice, the benchmarks have been calculated using a 30-day average of the returns
Risk is an inherent part of running a business and, whilst the Board aims to maximise returns, the associated risks must be understood and managed. Overall responsibility for this process rests with the Board whilst executive management is responsible for designing, implementing and maintaining the necessary systems of control.
During 2011, the Board recognised the raised profile being given to risk management in the UK Corporate Governance Code and decided to establish a Risk Committee to increase the focus of the Group's work in this area. The committee first met in November 2011 and consists of June de Moller, John Burns and Damian Wisniewski under the chairmanship of Stephen Young.
The Group operates principally from one central London office with a relatively flat management structure. This enables the executive Directors to be closely involved in day-to-day matters and therefore able to quickly identify and respond to risks.
A key element in the systems of control is the Group's risk register, which is reviewed formally once a year. The register is initially prepared by the executive Board which, having identified the risks, collectively assesses the severity of each risk, the likelihood of it occurring and the strength of the controls in place. This approach allows the effect of any mitigating procedures to be considered and recognises that risk cannot be totally eliminated at an acceptable cost. There are also some risks that, with its experience and after due consideration, the Board will choose to accept.
The register, its method of preparation and the operation of the key controls in the Group's system of internal control, is then reviewed and commented upon by the Risk Committee before being considered and adopted by the full Board. The register was reviewed between December 2011 and February 2012 and the principal risks and uncertainties that the Group faces in 2012, together with the controls and mitigating factors, are set out below:
That the Group's strategy does not create the anticipated shareholder value or fails to meet investors' expectations.
| Risk and effect | Controls and mitigation | Action | ||
|---|---|---|---|---|
| – The Group's strategy is inconsistent with the state of the market in which it operates. |
– Each year the Group carries out a five-year strategic review, prepares a budget and also produces frequent rolling forecasts |
– The Board carried out its last annual strategic review in June 2011 and considered the sensitivity of six key |
||
| – The Group's development programme is not consistent with the economic cycle. |
covering the next two years. In the course of these exercises the Board considers the effect on key ratios of changing the |
measures to changes in eight underlying assumptions including interest rates, property yields, rental growth and levels |
||
| – The Group benefits from a strong | main underlying assumptions. | of capital recycling. | ||
| central London market and this could be adversely affected by, amongst other factors, ongoing crisis in the Eurozone, the introduction of a "Tobin" tax or the loss of London's current investment "safe haven" status. |
– The Group's plans can then be set so as to best realise its long-term strategic goals given the likely prevailing economic and market conditions. This flexibility arises from the policy of maintaining income from properties as far as possible until development starts. |
– The three rolling forecasts prepared during the year focused on the same key measures but considered the effect of varying different assumptions to reflect changing economic and market conditions. – The timing of the Group's development |
||
| – Over 50% of the Group's portfolio has been identified for future redevelopment. This enables the Board to delay marginal projects until market conditions are favourable. |
programme and the strategies for individual properties reflect the outcome of these considerations. |
|||
| – The risk remains significant and therefore in setting its plans the Board pays particular attention to maintaining sufficient headroom in all the Group's key ratios and covenants and interest cover. |
That the Group becomes unable to meet its financial obligations or finance the business appropriately.
| Risk and effect | Controls and mitigation | Action | ||
|---|---|---|---|---|
| – A substantial decline in property values or a material loss of rental income could |
– The Group's secured borrowings contain financial covenants based on specific |
– The Group issued £175m of unsecured convertible bonds during 2011. |
||
| result in a breach of the Group's financial covenants. This may accelerate the repayment of the Group's borrowings or result in their cancellation. |
security and not corporate ratios such as overall balance sheet gearing. Treasury control schedules are updated weekly whilst the rolling forecasts enable any potential problems to be identified at an early stage and corrective action to be taken. |
– The Group tested its compliance with its financial covenants regularly and operated comfortably within these limits throughout 2011. Property values could decline by 50% at the balance sheet date before there would be a breach of financial covenants. |
||
| – The Group has considerable headroom under its financial covenants, operates at a modest level of gearing and has a substantial amount of uncharged property that could be used in such circumstances. |
– At the year end the Group owned £589m of uncharged properties. |
|||
| – The Group's cost of borrowing is increased due to an inability to raise finance from its preferred sources. |
– The Group's five-year strategic review and rolling forecasts enable any financing requirement to be identified at an early stage. This allows the preferred source of finance to be identified and evaluated and, to a degree, raised when market |
– The Group's financing comes from a number of different sources/providers and has a varied maturity profile. The proportion of the Group's borrowings provided by bank loans has fallen from 80% to 59% over the year. |
||
| conditions are favourable. | – During 2011 the Group refinanced £600m. | |||
| – The weighted average duration of the Group's debt is 4.4 years. |
||||
| – At the year end the Group had £469m of unutilised committed bank facilities. |
||||
| – Financing costs are higher due to increases in interest rates. |
– The Group uses interest rate derivatives to "top up" the amount of fixed rate debt to a level commensurate with the perceived risk to the Group. |
– The Group has terminated two interest rate swaps which were at historic rates and initiated new instruments which have enabled the Group to lock in the lower rates that are available. |
||
| – 98% of borrowings were fixed or hedged at the year end. |
The Group suffers either a loss or adverse consequences due to processes being inadequate or not operating correctly.
| Risk and effect | Controls and mitigation | Action | |||
|---|---|---|---|---|---|
| – The Group's development projects do not produce the anticipated financial return due to delays in the planning process, increased construction costs or adverse letting conditions. |
– Standardised appraisals including contingencies are prepared for all investments and sensitivity analysis is undertaken to ensure that an adequate return is made in all circumstances considered likely to occur. |
– The Group is advised by top planning consultants and has considerable in house planning expertise. – Executive Directors represent the Group on a number of local bodies which |
|||
| – The scale of the Group's development | ensures that it remains aware of local issues. |
||||
| programme is managed to reflect anticipated market conditions. |
– The procurement process used by the | ||||
| – Regular cost reports are presented to the Board which monitor progress of actual |
Group includes the use of top firms of quantity surveyors and is designed to minimise uncertainty regarding costs. |
||||
| expenditure against budget. This allows potential adverse variances to be identified and addressed at an early stage. |
– Development costs are benchmarked to ensure that the Group obtains competitive pricing. |
||||
| – Post-completion reviews are carried out for all developments to ensure that improvements to the Group's procedures are identified and implemented. |
– The Group's style of accommodation remains in demand as evidenced by the 100 lettings achieved in both 2010 and 2011. |
||||
| – The Group has secured pre-lets for approximately 50% of the space in its current development programme which significantly "de-risks" these projects. |
|||||
| – The Group suffers a loss of rental income and increased vacant property costs due to tenants vacating or becoming bankrupt. In particular, in the current adverse economic conditions, there is increased stress on consumer spending which could lead to higher business failures. |
– All prospective tenants are considered by | – The Group has a diversified tenant base. | |||
| the Group's credit committee and security is taken where appropriate either in the form of parent company guarantees or rent deposits. The Group's property managers maintain regular contact with tenants and work closely with any that are facing financial difficulties. |
– The credit committee meets each week and considered 117 potential tenants during the year. The committee also monitors the content of a schedule of the tenants that the property managers are monitoring and the actions being taken. – In total the Group holds rental deposits amounting to £11.3m. |
||||
| – On average, the Group has collected 98% of the rents due within 14 days of the due date. |
|||||
| – The Group is unable to successfully implement its strategy due to a failure |
– The remuneration packages of all employees are benchmarked regularly. |
– The Group has recruited eight new members of staff during the year |
|||
| to recruit and retain key staff with appropriate skills. |
– Six-monthly appraisals identify training requirements which are fulfilled over the |
including key appointments in IT and corporate communications. |
|||
| – The Group's cost base is increased or | next year. | – Staff turnover during 2011 was low at 6%. | |||
| its reputation damaged through a breach of any of the legislation that forms the regulatory framework within which the Group operates. |
– The new Risk Committee will report to the Board concerning the Group's regulatory risk. |
– A Health and Safety report is presented at all executive and main Board meetings. |
|||
| – The Group employs a Health and Safety Manager. |
– The Group pays considerable attention to sustainability issues and produces a sustainability report annually. |
||||
| – A sustainability committee chaired by Paul Williams and advised by external consultants addresses risk in this area. |
|||||
4 & 10 Pentonville Road N1
The refurbishment of the two existing office buildings is underway. The buildings are being linked and reclad in Danish Petersen brick, with a Scandinavian-style interior. This will unify the street elevation, upgrade the
office space and increase the overall net floor area by over 20%. Completion is due in late 2012.
Type Offices Size 55,000 sq ft (5,110m Completion date 2012 Architect Stiff + Trevillion
In 2011, London continued to be investors' UK location of choice with strong domestic and international demand. This appetite, in a market with a scarcity of properties for sale coupled with rental growth performance, enabled London's commercial property values to outperform the rest of the UK again.
Nigel George Executive Director
1 Quarterly Index
Rental value growth1 %
In the first half of 2011, the investment market saw a marginal tightening of valuation yields and an improving rental growth trend. However, with the increased economic uncertainty in the Eurozone in the second half, sentiment was moderated and this stabilised yields and limited rental growth.
Within this environment, the Group's investment portfolio was valued at £2.6bn at 31 December 2011. The valuation surplus was £181.7m for the year, before lease incentive adjustments of £9.6m, giving a total movement of £172.1m. This valuation movement was below the £301.7m in 2010, a year when yield compression across the portfolio was more widespread.
The underlying valuation increase over the year was 7.6%, or 8.8% if property sales completed during the year had been retained and valued at their disposal level. Both were an outperformance against our comparative benchmark measures, the IPD Capital Growth Index for Central London Offices at 7.3%, and the IPD All UK Property Index at 1.7%. Valuation performance was stronger in the first half of the year with a 4.6% increase, slowing to 2.9% in the second half as the rate of rental growth eased.
Our London portfolio saw underlying capital values grow by 7.9% over the year. Within this, West End properties increased by 8.1% and City border properties rose by 7.1%. The remaining 4% of the portfolio, our Scottish assets, increased by 1.5% over the year.
Our projects that are currently on site and encompass the entire building, namely 1 Page Street, Buckley Building and 4 & 10 Pentonville Road, were valued at £96.2m as at 31 December 2011. This reflects a valuation uplift of 4.8% over their value on 31 December 2010 or date of purchase, if later. These projects are at a relatively early stage of development and offer the potential for material valuation uplift in the future.
1 Half yearly movement in estimated rental value of the underlying portfolio
| Valuation | Valuation | Total floor | Available | Project | |||
|---|---|---|---|---|---|---|---|
| Valuation | Weighting | performance1 | performance2, 3 | area | floor area | floor area | |
| £m | % | % | £m | m² | m² | m² | |
| West End | |||||||
| Central | 1,806.7 | 68 | 6.1 | 100.9 | 285,100 | 1,100 | 46,200 |
| Borders | 231.4 | 9 | 25.8 | 46.3 | 53,000 | 700 | 6,300 |
| 2,038.1 | 77 | 8.1 | 147.2 | 338,100 | 1,800 | 52,500 | |
| City | |||||||
| Borders | 493.7 | 19 | 7.1 | 32.7 | 126,100 | 3,700 | 12,300 |
| Central London | 2,531.8 | 96 | 7.9 | 179.9 | 464,200 | 5,500 | 64,800 |
| Provincial | 114.7 | 4 | 1.5 | 1.8 | 37,200 | 200 | – |
| Total portfolio 2011 | 2,646.5 | 100 | 7.6 | 181.7 | 501,400 | 5,700 | 64,800 |
| 2010 | 2,426.1 | 100 | 15.7 | 309.4 | 500,200 | 24,500 | 17,600 |
Properties held throughout the year
Including acquisitions
Before lease incentive adjustments of £9.6m
8.8%
underlying valuation increase (including property sales)
6.3%
2011 increase in underlying estimated rental value
As shown by our buoyant 2011 letting activity, good tenant demand moved rents forward and this growth was the principal driver in valuation performance. Over the year, the underlying estimated rental value increased by 6.3% (2010: 5.4%). Rental growth in the first half of the year was 4.1% before moderating to 2.1% in the second half as economic uncertainty increased.
On an EPRA basis, the portfolio's net initial yield was 4.4%, which would rise to 5.2% on a "topped-up" basis following the expiry of rent-free periods and contracted rental uplifts. The net reversionary yield was 5.8%.
The portfolio's true equivalent yield at 31 December 2011 was 5.61% against 5.65% at the half year and 5.77% at the end of 2010, reflecting the general yield stabilisation seen across the investment market, whereas there was a 67 basis point yield compression in 2010. On a total property return basis, the portfolio delivered 13.4% in 2011 compared to 21.3% in 2010. The IPD Total Return Index was 12.5% for Central London Offices and 7.8% for All UK Property.
"The positive regenerative impact of Crossrail is increasingly apparent in our villages close to Tottenham Court Road and Farringdon."
John Burns Chief Executive Officer
Active asset management is a cornerstone of the business and we made significant achievements in a number of areas during 2011. Letting activity was strong with a high volume of transactions at above estimated rental values whilst voids were kept to a minimum. We saw excellent tenant retention and rent collection remained prompt. Rent reviews and lease renewals captured portfolio reversion.
Paul Williams Executive Director
Our well-designed, mid-priced offices continued to prove popular and 2011 was another exceptional period of leasing activity. In total, we concluded 100 lettings on a floorspace of 495,700 sq ft (46,050m²) and a rental income of £16.7m pa, the highest ever level achieved by the Group. In 2010, we concluded a similar number of lettings but at £8.0m pa on a floorspace of 347,000 sq ft (32,200m²).
Lettings comprised £8.5m pa in the first half of the year and £8.2m pa in the second half. Two thirds of the lettings were "new income" as the floorspace concerned was producing a total rent of £5.3m pa at the start of 2011.
Open market transactions for the year accounted for 88% of the activity and achieved rents 11.2% higher than their December 2010 estimated rental values. The uplift was 8.9% for overall lettings, which include short-term transactions at our future development projects. In the second half of the year, open market transactions were 5.9% above June 2011 estimated rental values whilst overall transactions were 4.6% above.
Open market lettings at 11.2% above December 2010 ERV
Lettings during the year included:
Through asset management initiatives during the year, we captured further reversion within the portfolio and concluded 52 rent reviews and lease renewals that increased the Group's income by £0.9m pa, a 14.1% uplift on the previous income.
"Having been one of the pioneering tenants of the Tea Building in 2004, we are greatly appreciative of the way that Derwent London has accommodated our needs as a growing business, including our expansion within the building. To go from a converted warehouse to the best known creative hub in Shoreditch is testament to Derwent London's success in fulfilling their vision."
£16.7m pa
An exceptional year with 100 lettings at £16.7m pa
"As an iconic British luxury brand with a thriving modern culture today, we consider the quality of our real estate vital to the health of our brand and business. Derwent continues to be a dynamic partner to Burberry in realising our architectural ambitions through our headquarters buildings in London."
Burberry Group plc Horseferry House SW1 / 1 Page Street SW1
"Lastminute.com is delighted to be relocating to the Johnson Building, which is in the heart of the city and is a building designed to support the growing needs of our dynamic business."
Lastminute.com The Johnson Building EC1
"We needed a great new home for Innocent. Working with Derwent allowed us the creative freedom to really make the space work for us. They were instrumental in enabling us to meet our objective of creating an inspirational environment to help our people do their best work. It has been great working with such an intelligent and open minded landlord both developing the site and subsequently as tenants."
Innocent Drinks, Fruit Towers Portobello Dock W10
Although 19% (£21.4m) of the Group's 2010 year end income was subject to lease breaks and expiries during the year, tenant retention remained strong across the business. Excluding those where projects were imminent, the total exposure to lease breaks and expiries was 14% (£16.2m). Of this, 72% of income was retained (2010: 72%), 21% re-let prior to the year end (2010: 17%) and a further 2% re-let or placed under offer since the year end.
Rent collection continued to be prompt with on average 98% collected within 14 days of the due date. This is above the KPI collection target of 95% and compares with 96% in 2010.
With our strong letting activity and active portfolio management, the portfolio's EPRA vacancy rate by rental value, measured as space immediately available for occupation, ended the year at 1.3% or £1.9m pa. Half of this space has either been let subsequently or is under offer. This compared to 5.9% at the start of the year and 4.0% in June. By available floorspace, the year end vacancy rate was 1.3%, down from 4.9% a year earlier and 3.5% at the half-year. This compared favourably to the CBRE central London rate that decreased from 5.5% to 5.2% during the year.
Our five principal on-site projects have an estimated rental value of about £13m pa and, upon completion, would increase the Group's vacancy rate to around 9%. However, after adjusting for pre-lets and space under offer, the rate would reduce to approximately 5%.
| Rental uplift £m |
Rental per annum £m |
|
|---|---|---|
| Annualised contracted rental income, net of ground rents | 113.1 | |
| Contractual rental increases across the portfolio | 20.8 | |
| Letting 5,700m² available floor area | 1.9 | |
| Completion and letting 64,800m² of project floor area | 18.7 | |
| Anticipated rent review and lease renewal reversions | 5.9 | |
| Portfolio reversion | 47.3 | |
| Portfolio estimated rental value | 160.4 |
Letting activity has continued into 2012, with the completion of a further 153,100 sq ft (14,220m²) of transactions at a rental income of £6.0m pa.
These included 1 Page Street SW1 where we are pleased to announce that Burberry will be increasing their presence in our portfolio by pre-letting the entire 127,000 sq ft (11,800m²) building for £5.3m pa. This reflects a level of £50 per sq ft (£540 per m²) on the top three floors with £45 per sq ft (£485 per m²) on a typical midlevel floor. The lease is for a 20-year term with a tenant-only break option in year ten and a rent-free period equivalent to 22 months. The first review after five years will be subject to a minimum uplift to £5.7m pa. An amendment to the existing planning consent has been submitted and approval is anticipated shortly. The completion of the lease is conditional on obtaining satisfactory consent.
We are also pleased to announce that we have signed a joint venture agreement with Grosvenor, our freeholder, for the future redevelopment of 1-5 Grosvenor Place, Belgravia SW1. As part of the transaction our headleases, which were due to expire in 2063 and 2084, have been regeared into a new 150-year term at a ground rent of 5% of rental income. Simultaneously, the Group has sold 50% of its ownership to Grosvenor and received £60m before costs. Having assembled the ownership over many years, this initiative protects our value through the headlease regear and unlocks the opportunity for a substantial and prestigious mixeduse scheme, likely to include a luxury hotel, and commercial and residential space. The existing buildings, totalling 168,000 sq ft (15,600m²), are fully let at a gross income of £6.2m pa and occupy a prime 1.5 acre (0.6 hectare) island site, which overlooks Hyde Park Corner. Following the transaction our share of the income is £2.95m. We are in the process of selecting architects to work on this scheme.
£6.0m pa
153,100 sq ft (14,220m2) let in January and February 2012
| Net contracted rental income per annum £m |
Average rental income £ per m² |
Vacant space rental value per annum £m |
Rent review and lease reversions per annum £m |
Portfolio estimated rental value per annum £m |
Average unexpired lease length1 Years |
|
|---|---|---|---|---|---|---|
| West End | ||||||
| Central | 77.5 | 328 | 13.3 | 13.0 | 103.8 | 8.0 |
| Borders | 4.8 | 105 | 2.0 | 9.3 | 16.1 | 7.2 |
| 82.3 | 292 | 15.3 | 22.3 | 119.9 | 8.0 | |
| City | ||||||
| Borders | 25.2 | 231 | 5.3 | 3.8 | 34.3 | 4.8 |
| Central London | 107.5 | 275 | 20.6 | 26.1 | 154.2 | 7.2 |
| Provincial | 5.6 | 150 | – | 0.6 | 6.2 | 6.3 |
| Total portfolio 2011 | 113.1 | 264 | 20.6 | 26.7 | 160.4 | 7.2 |
| 2010 | 116.2 | 255 | 13.5 | 17.6 | 147.3 | 7.3 |
Lease length weighted by rental income and assuming tenants break at first opportunity
Average unexpired lease length1 Years
12
City borders
Central London
1Lease length weighted by rental income and assuming tenants break at first opportunity
No lease breaks exercised
Lease breaks exercised at first opportunity
Our balance sheet puts us in a strong position. We are buyers, but we need to see good value and are still prepared to recycle capital selectively.
David Silverman Executive Director
Further depth was added to our development pipeline with acquisitions in 2011 totalling £87.5m before costs.
of disposals
above December 2010 valuation
During the year the Group took the opportunity to recycle capital through the disposal of a mixture of mature and smaller assets. Sales totalled £132.5m before costs, had an income of £3.2m pa and gave rise to an overall surplus of £36.1m, or 38% above the December 2010 valuation. These included:
In addition, in December 2011 we exchanged conditional contracts to sell Riverwalk House SW1 and 232-242 Vauxhall Bridge Road SW1 for £77.3m to Ronson Capital Partners with completion subject to receipt of satisfactory planning permission. A planning decision is expected shortly. The Group will maintain an interest in the development by way of a profit overage arrangement and will work closely with the purchasers to enhance our expertise in residential projects.
Following the year end, at 1-5 Grosvenor Place SW1, we restructured our ownership and sold a 50% interest in the new headlease to Grosvenor for £60m as part of our joint venture arrangements for the future redevelopment of this site (see "Activity in 2012").
We have made significant progress in unlocking the value at a number of our projects and look forward to advancing our existing pipeline.
Simon Silver Executive Director
During the year we made excellent progress with our development programme through the completion of a range of refurbishments, the advancement of our on-site projects and the receipt of six major, value-creating planning consents. These total 0.9 million sq ft (82,500m²) and relate to 80 Charlotte Street W1, City Road Estate EC1, Turnmill EC1, Buckley Building EC1, 4 & 10 Pentonville Road N1 and the first phase of Central Cross W1. We await decisions on a number of other significant planning applications made in 2011 including 1 Oxford Street W1 and Riverwalk House SW1.
Despite the difficult state of the economy, we are encouraged by the strength of our letting activity and the relatively moderate level of space available to rent in our key markets. Our current development programme, which is either on-site or scheduled to commence in 2012, totals just over 0.5 million sq ft (46,500m²) on seven projects. These will have a potential net rental income of around £20m pa and will incur total capital expenditure of approximately £137m.
Disposals
In 2011, the Group completed 219,400 sq ft (20,380m²) of projects – 91,400 sq ft (8,490m²) in the first half of the year and 128,000 sq ft (11,890m²) in the second. After the disposal of Victory House, these are now fully let at £5.2m pa.
The principal completions were:
Smaller refurbishments at the Tea Building E1, Holden House W1, Morelands Buildings EC1 and 55-65 North Wharf Road W2 were also completed in the year. Overall, excluding capitalised interest, £41.0m of capital expenditure was invested in the portfolio in 2011.
At year end, five principal projects were on site totalling 338,000 sq ft (31,400m²) with an estimated net rental value of £13m pa and a capital expenditure to complete of £68m. By estimated income, 50% of these are pre-let or under offer. The schemes are:
In the year ahead, we are due to commence two exciting new-build projects totalling 170,000 sq ft (15,800m²) with a net estimated rental value of over £7m pa:
At 132-142 Hampstead Road NW1, following the Government's January 2012 decision to proceed with the HS2 high speed rail link, we have reluctantly decided to put on hold the 265,000 sq ft (24,600m²) office and residential redevelopment. This decision is due to the expectation that our ownership will be compulsorily purchased should HS2 be built. Despite having been in advanced negotiations for substantial office pre-lets, the considerable capital expenditure of around £90m needed to complete the project and the uncertainty as to its future leads us to believe that the risk to proceed with the planned redevelopment is too great. We are now considering several "light touch" refurbishment options that will allow us to offer space on flexible terms.
During the year, our development team advanced a number of major future projects that could commence from 2013. These were made up of planning permissions granted, planning applications submitted and appraisal studies.
Planning permissions included:
Planning applications made during the year included:
We continue to advance a number of appraisal studies across the portfolio. This year we will be progressing our plans at 1-5 Grosvenor Place SW1 and the retail phase of Central Cross W1 where planning applications will be submitted in due course.
| 2012-2013 | Current net income |
Pre-scheme area |
Proposed area |
Capital expenditure |
Potential delivery |
||
|---|---|---|---|---|---|---|---|
| £m pa | m2 | m2 | £m | Year | |||
| On site at December 2011 | |||||||
| 1 Page Street SW1 | – | 11,000 | 11,800 | 29.8 | Q2 2013 | ||
| Buckley Building EC1 | 2.5 | 7,000 | 7,900 | 12.8 | Q4 2012 | ||
| 4 & 10 Pentonville Road N1 | – | 4,100 | 5,100 | 6.9 | Q3 2012 | ||
| Central Cross W1 – Phases 1 & 2 | 0.9 | 3,900 | 4,100 | 12.6 | Q4 2013 | ||
| Morelands Buildings EC1 | 0.3 | 1,600 | 2,500 | 5.6 | Q4 2012 | ||
| 3.7 | 27,600 | 31,400 | 67.7 | ||||
| 2012 | |||||||
| 40 Chancery Lane WC2 | 0.7 | 5,700 | 9,300 | 43.6 | Q4 2014 | ||
| Turnmill EC1 | 0.3 | 3,800 | 6,500 | 25.8 | Q3 2014 | ||
| 1.0 | 9,500 | 15,800 | 69.4 | ||||
| 2013 | |||||||
| 80 Charlotte Street W11 | 4.7 | 20,700 | 34,100 | 126.3 | 2015 | ||
| 96-98 Bishop's Bridge Road W2 | – | – | 2,000 | 12.0 | 2014 | ||
| 4.7 | 20,700 | 36,100 | 138.3 | ||||
| Planning and design | 13.5 | ||||||
| Other | 43.6 | ||||||
| Total | 9.4 | 57,800 | 83,300 | 332.5 | |||
| 2014 onwards | Current net | Pre-scheme | Proposed | Vacant | |||
| income | area | area | possession | ||||
| City Road Estate EC1 | £m 0.8 |
m2 11,500 |
m2 26,800 |
Year 2012 |
Consented scheme, pre-let required | Comment | |
| Balmoral Grove Buildings N7 | 0.2 | 4,600 | 15,100 | 2013 | Appraisal studies | ||
| 1-5 Grosvenor Place SW1 | 6.1 | 15,600 | 24,200 | 2014/2016 | Appraisal studies | ||
| 55-65 North Wharf Road W2 | 1.0 | 7,200 | 29,100 | 2014 | Consented scheme | ||
| Central Cross W1 – Phase 3 | 0.8 | 3,200 | 4,800 | 2014 | Appraisal studies | ||
| 1 Oxford Street W1 | – | – | 25,500 | c.2017 | Planning application submitted | ||
| 8.9 | 42,100 | 125,500 | |||||
| Current net | Pre-scheme | Proposed | Vacant | ||||
| Other | income | area | area | possession | |||
| £m | m2 | m2 | Year | Comment | |||
| Riverwalk House SW1 | – | 7,000 | 13,700 | Vacant | Planning application submitted | ||
| 132-142 Hampstead Road NW1 | – | 21,400 | 24,600 | Vacant | Scheme options under review in light of HS2 | ||
| Wedge House SE1 | 0.3 | 3,600 | 7,400 | 2012 | Renewing planning permission | ||
| 60 Commercial Road E1 | 0.5 | 2,800 | 11,300 | 2012 | Consented scheme | ||
| 0.8 | 34,800 | 57,000 |
Pre-scheme area includes 18,600m2 at 80 Charlotte Street W1 and 2,100m2 at nearby properties
"As freeholders of 40 Chancery Lane, Colville have been working with Derwent London on this redevelopment, which will start on site later this year, and are impressed with the proposals for this new office building that will considerably enhance an important well-known central London location."
Colville Estate Properties Limited 40 Chancery Lane WC2
2011 was a very successful year for planning with applications for schemes totalling 82,500m2 being granted.
Proposed size: 5,100m2 22% uplift
Previously two neighbouring buildings opposite the successful Angel Building, the new unified frontage at Pentonville Road will create a distinct street presence in elegant Danish brick. We received planning permission in April 2011 for this office refurbishment and extension, which will transform the old-fashioned look with tinted glass into a modern, sophisticated building. Completion is expected in mid-2012.
Pre-scheme size: 7,000m² Proposed size: 7,900m² 13% uplift
We secured control of this building, which is close to Farringdon Crossrail hub, from the tenant in March 2011, whilst maintaining the £2.5m pa rental income until March 2015 and gained planning permission in May 2011. It is currently being refurbished, infilling the atrium to create additional office space. This can be achieved because of the old industrial nature of the building, which enjoys substantial floor to ceiling heights and large fenestration allowing high degrees of natural daylight penetration. The entrance is being relocated to a more prominent location on Clerkenwell Green and the ground floor façade remodelled.
Pre-scheme size: 1,950m2 Proposed size: 2,140m2 10% uplift
Our plans to give this property a new identity and to transform the building are firmly progressed. Phase 1 of our plan, for which we gained permission in September 2011, is underway to reconfigure the office entrance with a curvaceous glass and metal screen façade with a canopy blade overhead, and create 23,000 sq ft (2,140m²) of ground floor offices. Phase 2 will offer a further refurbishment of the first floor giving us the opportunity to create higher rental levels for the building.
of additional space from 2011 planning permissions
68%
increase on the existing floorspace
Pre-scheme size: 20,700m² Proposed size: 34,100m² 65% uplift
The Mayor of London granted planning permission for this major regeneration project located in the heart of our Fitzrovia Estate in September 2011. We are proposing an office-led regeneration on and around this 1.4 acre island site. This new landmark building will augment the wider regeneration of the area and includes a "pocket park" based on the New York Paley Park concept as well as retail space and residential units. The scheme will commence when the current lease to Saatchi & Saatchi, at a rent of £4.3m pa, expires in 2013 and will continue our plans for the regeneration and improvement of the Fitzrovia village.
Pre-scheme size: 11,500m² Proposed size: 26,800m² 130% uplift
In October, planning permission was granted for an office-led regeneration that includes a new 16-storey office building incorporating our White Collar Factory concept. This location has been identified as the centre of a Government initiative to attract technology companies and has been dubbed "Tech City".
The island site will contain different types of office styles which will suit a range of tenant occupiers. It should represent a "blank canvas" for young, creative up-and-coming technology companies.
In order to de-risk this project it will not be progressed without a major pre-let.
Turnmill EC1 Pre-scheme size: 3,800m² Proposed size: 6,500m² 71% uplift
Planning permission was obtained in September for a new office development. The building occupies a prominent corner site near to Farringdon station, which is currently being redeveloped as a Crossrail interchange. It will consist of an elegant brick façade and represents a return for us to a more traditional type of building design. We plan to start work on this building in the second half of 2012.
In addition to the permissions granted in 2011 shown on the previous pages, two existing permissions are being utilised: The following planning applications are expected in 2012/13 for schemes totalling in excess of 82,000m2:
40 Chancery Lane WC2 Current size: 5,700m² Proposed size: 9,300m² 64% uplift
Following the recent regear of the headlease, we will be undertaking a redevelopment of this large corner site in this prime Midtown location to create a striking new six-storey office building. The development will include a new retail unit on Chancery Lane and a publicly accessible landscaped courtyard that will bring natural daylight to the new office floors. The new building will be highly energy efficient with a low-energy cooling system compatible with opening windows and high specification glazing to create a high performance envelope.
Morelands Buildings EC1 (roof scheme) Current size: 7,400m² Proposed size: 8,200m² 11% uplift
Following the headlease regear, we are currently undertaking a refurbishment on part of the building which includes a new penthouse office floor of 8,500 sq ft (800m²), plus a new courtyard and reception which will lift the ambience of the whole building. Our aim is that this refurbishment will obtain an "Outstanding" BREEAM rating.
Current size: 730m² Proposed size: 2,000m² 274% uplift
This is a residential scheme of 21,400 sq ft (2,000m²), comprising 16 units together with ground floor retail space, at this former 1930s Bayswater cinema. Construction is expected to commence in early 2013 with completion due in late 2014.
In February 2012, we restructured our headleases and established a joint venture with our freeholder, Grosvenor, to work towards the redevelopment of this prime Belgravia location. The transaction gives us the opportunity to replace the existing buildings with offices, residential and a high quality hotel.
1 Page Street SW1 Current size: 11,000m² Proposed size: 11,800m² 8% uplift
This 2011 acquisition is situated opposite the Group's holding of Horseferry House. It is an 11-floor office building which is currently being refurbished to provide high quality, contemporary office space with a remodelled entrance. Following the involvement of the new tenant, Burberry plc, who have pre-let the whole building, an amendment to the planning permission has been submitted for the complete recladding using a contextual brick more in keeping with its surroundings. Approval is expected in April 2012 and scheme completion is expected mid-2013.
We have an option to re-acquire this site, which was compulsorily purchased from us in 2009, upon completion of the Tottenham Court Road Crossrail station works around 2017. This is a major regeneration opportunity in a key West End location. A planning application has been submitted that incorporates offices, retail and theatre above what will be a major transport hub following the completion of Crossrail. The project includes substantial public realm improvements and will integrate into the wider regeneration of St. Giles' Circus.
Pre-scheme size: 3,200m² Proposed size: 4,800m² 50% uplift
Subject to planning, we intend to extend the retail units on Tottenham Court Road out to the edge of the colonnade and convert car parking to basement retail, increasing the existing retail space by c50%. In addition, the public highway will be improved with new pavement furniture, lighting and a pedestrian-friendly crossing. Vacant possession can be obtained in 2014 and we are submitting a planning application in April 2012.
Riverwalk House SW1 Current size: 7,000m² Proposed size: 13,700m² 97% uplift
This building occupies a prestigious riverside location in Victoria. An agreement for sale was signed in December 2011 with Ronson Capital Partners, subject to planning permission, and a planning application for a high-grade residential development for 121 residential units and 2,500 sq ft (230m2 ) of cafe and gallery space was submitted in October.
| 2012 | 2013 | ||||
|---|---|---|---|---|---|
| 4 & 10 Pentonville Road | |||||
| Buckley Building (formerly Woodbridge House) | |||||
| Morelands Buildings (roof scheme) | |||||
| 1 Page Street | |||||
| Central Cross Phases 1 & 2 | |||||
| Turnmill | |||||
| 40 Chancery Lane | |||||
| 96-98 Bishop's Bridge Road | |||||
| 80 Charlotte Street | |||||
| Q1 | Q2 | Q3 | Q4 | Q1 | Q2 |
Village: Islington/Camden Type: Offices Proposed size: 55,000 sq ft (5,100m2 ) Completion date: 2012 Architect: Stiff + Trevillion
Capital expenditure to complete: £7m
Village: Clerkenwell Type: Offices Proposed size: 85,000 sq ft (7,900m2 ) Completion date: 2012 Architect: Buckley Gray Yeoman
Capital expenditure to complete: £13m
Village: Clerkenwell Type: Offices/Retail Scheme size: 27,000 sq ft (2,500m2 ) Completion date: 2013 Architect: AHMM Letting status: 63% pre-let
Capital expenditure to complete: £6m
Village: Victoria Type: Offices Size: 127,000 sq ft (11,800 m2 ) Completion date: 2013 Architect: PLP Architecture Letting status: 100% pre-let
Capital expenditure to complete: £30m
Village: Fitzrovia Type: Offices Scheme size: 44,000 sq ft (4,100m2 ) Completion date: 2013 Architect: ORMS
Capital expenditure: £13m
Turnmill EC1
Village: Clerkenwell Type: Offices Proposed size: 70,000 sq ft (6,500m2 ) Completion date: 2014 Architect: Piercy Conner
Capital expenditure: £26m
| 2012 | 2013 | ||||
|---|---|---|---|---|---|
| 4 &10 Pentonville Road | |||||
| Buckley Building (formerly Woodbridge House) | |||||
| Morelands Buildings (roof scheme) | |||||
| 1 Page Street | |||||
| Central Cross Phases 1 & 2 | |||||
| Turnmill | |||||
| 40 Chancery Lane | |||||
| 96-98 Bishop's Bridge Road | |||||
| 80 Charlotte Street | |||||
| Q1 | Q2 | Q3 | Q4 | Q1 | Q2 |
Village: Holborn/Midtown Type: Offices/Retail Proposed size: 100,000 sq ft (9,300m2 ) Completion date: 2014 Architect: Bennetts Associates
Capital expenditure: £44m
Village: Paddington Type: Residential/Retail Proposed size: 21,400 sq ft (2,000m2 Completion date: 2014 Architect: Stiff + Trevillion
Capital expenditure: £12m
Village: Fitzrovia Type: Offices/Residential/Retail Proposed size: 367,000 sq ft (34,100m2 ) Completion date: 2015 Architect: Make
Capital expenditure: £126m
18-30 Tottenham Court Road W1 (formerly Central Cross) Phase 3
Village: Fitzrovia Type: Mixed Scheme size: 52,000 sq ft (4,800m2 ) Completion date: 2015 Architect: ORMS
1-5 Grosvenor Place SW1
Village: Belgravia Type: Mixed Proposed size: 260,000 sq ft (24,200m2 )
Derwent London's net asset value increased by 15.4% to 1,701p per share on an EPRA basis and the total portfolio grew to over £2.6bn as at December 2011, helping to further reduce our already modest gearing ratios. We have also focused on refinancing a significant part of the Group's debt. Since the beginning of 2011, we have signed £600m of new or extended facilities, which includes the issue in June of a £175m 2.75% convertible bond.
Damian Wisniewski Finance Director
Looking back on 2011, the first half of the year showed a continuation of the relatively strong recovery in sentiment that characterised 2010 but, from mid-year onwards, the UK's economic recovery slowed and stresses within the Eurozone came prominently to the surface. Certain European governments found that the cost of refinancing their sovereign debt was set to rise dramatically. The interdependence of banks upon banks, and banks upon sovereign support, caused market concern and political solutions were not rapid enough to curtail a substantial loss of confidence. The UK emerged as something of a "safe haven", pushing gilt yields to almost record lows. However, confidence in the UK's domestic economy weakened in the second half, UK national debt levels also remain high and domestic consumer demand is under sustained pressure.
We therefore remain some way from "normal" market conditions. As a consequence, our financial initiatives in 2011 focused on preemptive mitigation of refinancing exposures, while also managing operational risk such as letting voids. At the same time, we have worked to unlock valuable development opportunities for the future.
increase in net asset value
since December 2009
| 2011 | per share | 2010 | per share | |
|---|---|---|---|---|
| £m | p | £m | p | |
| Net assets | 1,714.5 | 1,494.7 | ||
| Less minority interest | (51.8) | (45.9) | ||
| Net assets attributable to equity shareholders | 1,662.7 | 1,636 | 1,448.8 | 1,432 |
| Adjustment for: | ||||
| Deferred tax on revaluation surplus | 8.8 | 8.9 | ||
| Less share of minority interest | (0.6) | (0.3) | ||
| Fair value of derivative financial instruments | 51.9 | 25.4 | ||
| Less share of minority interest | (1.6) | (0.4) | ||
| Fair value of adjustment to secured bonds | 18.6 | 19.4 | ||
| 77.1 | 53.0 | |||
| EPRA adjusted net assets - undiluted | 1,739.8 | 1,712 | 1,501.8 | 1,484 |
| - diluted | 1,701 | 1,474 |
Investment property, net assets and gearing
Net assets
LTV ratio
The Group's EPRA adjusted net asset value per share increased by 15.4% to 1,701p per share as at 31 December 2011 from 1,474p a year earlier. As usual, the main constituent of this increase was the property portfolio valuation which showed an increase of 168p per share after allowing for capital expenditure and lease incentives. Profits arising on disposals of investment properties also contributed another 35.4p per share compared with 0.9p per share in 2010.
London commercial property values have not yet recovered to their December 2007 peak levels but, since December 2009, the Group has seen a cumulative increase of almost 47% in net asset value per share. Debt and gearing levels have also been reduced further in the last year and we have been able to enhance the level of undrawn and available bank facilities.
Due to an increase in the valuation of the part of 25 Savile Row W1 that the Group occupies as its head office, this part has now been reclassified from investment properties to ''property, plant and equipment" in compliance with IAS 16 and IAS 40. Please refer to note 2 for further details of this minor restatement of the prior year comparative numbers.
In accordance with IFRS 5, the properties that were expected to be sold during 2012 have been included in "assets held for sale" at the balance sheet date. These are discussed in the "Disposals" section of the Property Review and amounted to £137.5m.
The last year was characterised by a record level of new lettings and reviews for the Group which helped gross property income to grow by 5.1% to £125.5m from £119.4m for the year ended 31 December 2010. After taking account of lease breaks and expiries, new lettings increased gross income by £3.3m compared to 2010. Properties acquired in 2010 and 2011 added £7.2m of rental income when compared with the 2010 calendar year, partly due to the full year's contribution from Central Cross, while disposals only reduced rent by £1.6m. However, as we progressed schemes at Riverwalk House, Hampstead Road, 88 Rosebery Avenue and 4 & 10 Pentonville Road, the income generated from those properties fell by £4.4m when compared with the prior year. As noted last year, the Buckley Building continues to generate rental income of £2.5m pa during the construction period and beyond to 2015.
Premiums received from tenants terminating leases early totalled £1.4m after netting off the related accrued income from unamortised lease incentives. The largest premium received came from a tenant who paid £1.5m to vacate the Johnson Building in December 2011; the resulting write-off of unamortised rent accrued through the rent-free period totalled £0.9m. This lease surrender was supported by a back-to-back letting to Lastminute.com at a higher rental level.
5.1% increase in gross property income to £125.5m
| Properties | |||||
|---|---|---|---|---|---|
| owned throughout the |
Development | ||||
| two years | Acquisitions | Disposals | property | Total | |
| £m | £m | £m | £m | £m | |
| 2011 | |||||
| Rental income | 99.1 | 10.6 | 2.1 | 12.3 | 124.1 |
| Property expenditure | (6.9) | (0.7) | 0.2 | (3.5) | (10.9) |
| Net rental income | 92.2 | 9.9 | 2.3 | 8.8 | 113.2 |
| Other1 | 4.1 | – | – | 0.4 | 4.5 |
| Net property income | 96.3 | 9.9 | 2.3 | 9.2 | 117.7 |
| 2010 | |||||
| Rental income | 96.8 | 3.4 | 3.8 | 14.8 | 118.8 |
| Property expenditure | (6.9) | (0.4) | (0.5) | (1.7) | (9.5) |
| Net rental income | 89.9 | 3.0 | 3.3 | 13.1 | 109.3 |
| Other1 | 3.0 | – | – | 0.7 | 3.7 |
| Net property income | 92.9 | 3.0 | 3.3 | 13.8 | 113.0 |
| Increase based on gross rental income | 2.4% | 4.5% | |||
| Increase based on net rental income | 2.6% | 3.6% | |||
| Increase based on net property income | 3.7% | 4.2% |
1 Includes surrender premiums paid or received, dilapidation receipts and other income
profit from disposals of investment properties
Property outgoings and ground rents increased from £8.1m in 2010 to £9.8m due mainly to void costs being higher in 2011 during the post-completion period at the Angel Building until it was fully let and Riverwalk House's office tenant vacating in April 2011. In addition, surrender premiums of £1.9m were paid in 2011 of which the largest was a £1.3m payment to secure vacant possession at 210 Old Street. As a result, net property income increased by 4.2% to £117.7m, a slightly lower percentage than the increase in gross rents. Net rental income took account of a further recovery of £1.6m of commercial rates rebates from prior years, marginally lower than the £1.7m rates credit in 2010.
Excluding the impact of acquisitions, disposals and properties under development, like-for-like net property income on an EPRA basis rose by 3.7% from 2010 and an analysis is shown in the table above.
Administrative expenses increased to £22.7m from £20.9m in 2010 due mainly to increased staff and office costs. As in the previous year, we have both increased and strengthened the management team and we believe this was a contributory factor to the valuable planning consents won during the year. The Group's consistently strong performance over recent years has also contributed to an increase in the provision for long-term management incentives of £0.7m compared to 2010.
Average borrowings during the year were about £118m higher than in 2010. In addition, the impact of higher margins and fees charged on bank facilities renewed since November 2010 and the lower level of floating rate debt combined to increase net finance costs from 2010. Net finance costs, after capitalising £2.2m of interest in 2011, increased to £43.2m from £37.9m in 2010. The £175m of unsecured convertible bonds issued in June 2011 pay a cash coupon of 2.75% pa but, in accordance with IFRS accounting rules, we have recognised the hybrid nature of this instrument by booking an additional non-cash interest charge of 1.24% pa which added £1.0m to the 2011 finance cost. In future years, the additional charge will be £1.9m pa. In addition, the equity element of the convertible bond instrument of £9.4m, after costs, was recognised in reserves at the point of issue.
The resulting EPRA recurring profit before tax was £52.3m for the year ended 31 December 2011 compared with £55.2m in 2010. Tax recoveries from historical positions in the UK and USA meant that EPRA earnings per share fell by less than 3% to 51.59p from 52.89p in 2010.
The overall profit before taxation for the year was £233.0m compared to £352.8m in 2010, the reduction due mainly to the lower level of property revaluation movements in 2011. The surplus arising in 2011 from the revaluation of the Group's property portfolio amounted to £172.1m against £301.7m in 2010. A further contribution came from profits on disposals of investment properties in 2011 of £36.1m offset partially by the £26.5m markto-market deficit on interest rate swaps referred to below. The gain on disposals of investment properties came from the sales of low yielding properties at Covent Garden and 78-79 Pentonville Road in the first half of the year and Victory House, 18-30 Leonard Street and Harp House in the second half. In aggregate, these sales achieved 38% above December 2010 book values, after costs.
Gilt yields and swap rates over the medium and long-term fell strongly in the second half of 2011 after rising a little in the first half. This recent decline in rates has been quite exceptional, with the 10-year gilt hovering around 2.0% at the 2011 year end, illustrating a distinct cooling of UK growth and interest rate expectations. The resulting mark-to-market deficit of £26.5m for 2011 compares with a £2.4m deficit in 2010. Interest rates have so far remained low into 2012.
The 2011 tax credit relating to the non-REIT part of the business was £1.3m. This comprised a tax charge of £0.5m for the unelected share in our joint venture with the Portman Estate and a prior year tax credit of £1.8m. The latter item benefited from the resolution of a long-running US tax matter resulting in a cash receipt of £0.4m. In addition, we were able to release provisions against UK tax enquiries amounting to £1.4m. The deferred tax provision in 2011 fell slightly to £5.2m as the effect of the higher revaluation surplus was more than offset by previously unrecognised tax losses and the reduced UK corporation tax rate which falls to 25% on 1 April 2012.
A strategic aim for the year was to focus on refinancing before 2012 and
£600m
As the Group entered 2011 it faced £32.5m of bank facilities expiring in 2012 and a further £575m due to expire in 2013. We were also very aware of the deleveraging pressures facing real estate lending banks. Therefore, a principal strategic aim for the year was to focus on refinancing the majority of this requirement before 2012.
We had also previously flagged that we would look to seek out non-bank sources of debt and, after considering a number of other options, we decided to launch a £175m unsecured convertible bond in May 2011, the first of its type by a UK REIT. This was well received and was several times over-subscribed. Pricing settled at a 2.75% pa coupon with an initial exercise price of £22.22, some 50% above the Group's net asset value at December 2010. This issue provides a source of unsecured debt with no corporate or asset-specific financial covenants and a low coupon. It also carries a relatively modest risk of dilution given the high conversion price relative to net asset value. In documenting the issue, we were able to include an allowance of up to £350m for other capital markets issues such as private placements and bonds, together with unlimited access to bank and insurance company debt. We considered that this combination was unlikely to fetter our borrowing strategy over the five-year term of the bonds.
We have also taken action to renew and/or extend and refinance bank facilities during the year. In June 2011, the £100m bilateral revolving facility with The Royal Bank of Scotland was extended to a renewal date of April 2015; the margin increased to 120bp and steps up again in April 2012 to 175bp for loan to value (LTV) ratios up to 65% and 200bp in the less likely event that we draw above 65% LTV.
| Proforma | December 2011 |
|||||
|---|---|---|---|---|---|---|
| £m | £m | Maturity | £m | £m | Maturity | |
| 6.5% secured bonds | 175 | March 2026 | 175 | March 2026 | ||
| 2.75% unsecured convertible bonds | 175 | July 2016 | 175 | July 2016 | ||
| Loan notes | 1.1 | Repaid January 2012 | 1.1 | Repaid January 2012 | ||
| Overdraft | 10 | On demand | 10 | On demand | ||
| Committed bank facilities | ||||||
| Term | 28 | June 20181 | 28 | June 20181 | ||
| Term/revolving credit | 90 | December 2017 | 90 | December 2017 | ||
| Revolving credit | 125 | November 2015 | 125 | November 2015 | ||
| Revolving credit | 100 | April 2015 | 100 | April 2015 | ||
| Term/revolving credit | 125 | April 2014 | 125 | April 2014 | ||
| Revolving credit | 150 | January 2017 | 100 | November 2013 | ||
| Term/revolving credit | 150 | March 2013 | 375 | March 2013 | ||
| Term unsecured | 31.4 | June 2012 | 31.4 | June 2012 | ||
| Revolving credit | 150 | January 2017 | – | n/a | ||
| 949.4 | 974.4 | |||||
| Total debt facilities | 1,310.5 | 1,335.5 |
All facilities are secured unless noted otherwise
Subject to credit review in 2013
We were also able to increase the principal amount of our revolving bilateral loan facility with HSBC that expires in November 2015 from £100m to £125m. This £25m increase was executed in December 2011 on the same terms as the original facility which was arranged in November 2010.
Both of these transactions are indicative of the strong nature of our valued banking relationships and illustrate the increasingly binary nature of the bank loan environment. For a small number of chosen borrowers, funds are available on terms that remain reasonably attractive while, for others, the facilities are either all but unavailable or are priced at a significant premium.
In the second half of the year, we approached a number of potential lenders to refinance part of the £375m syndicated loan facility expiring in March 2013 that was inherited upon the merger with London Merchant Securities in 2007. Our intention was to remove the risk in relation to that part of this refinancing which was to be funded by banks while leaving a further part which could be replaced with non-bank funding in 2012. Derwent London favours facilities which are either held by one bank or by a small club of banks and we therefore preferred to avoid assembling a new large syndicated facility.
After receiving several offers of funding, in December 2011 we signed a new £150m fully revolving five-year facility provided equally by The Royal Bank of Scotland and Barclays and a new £150m fully revolving five-year facility provided by Lloyds Bank to replace and extend their existing £100m bilateral facility. Although signed in 2011, these new facilities did not become available for drawing until January 2012 and so, as at the 2011 balance sheet date, the £375m facility was still in place. In January 2012, the £375m facility was part-cancelled and now consists of a £150m fully revolving facility.
convertible bond issued in June
1 Excludes £10m overdraft facility
2 After new facilities entered into in January 2012
The debt profiles of the bank facilities as at 31 December 2011 and the pro-forma refinanced position are both provided above.
We believe that the pricing on these two new facilities is at good and sensible levels in the current market, which became considerably more difficult in the last quarter of 2011. In both cases, we have agreed a "ratchet" of margin pricing based on the amount drawn; at the lower end of the range of LTV ratios where we tend to operate most of the time, margins of 185bp and 160bp, respectively, were agreed for the two facilities while we expect to pay margins between 160bp and 215bp through the life of these loans. Should we need to draw the full amounts and in a situation where property security values were also to fall substantially from current levels, the margins in both facilities could be up to 250bp.
We are not seeking to renew the small £32.5m unsecured facility expiring in June 2012 which was originally arranged in connection with the loan notes offered at the time of the LMS merger. The remaining loan notes were repaid in January 2012.
In order to mitigate the effect of an increase in facility margins, we have taken steps to reduce the weighted average cost of our interest rate swaps. In January 2012, when the higher margins started to take effect, we broke two interest rate swaps with a principal amount of £130m and a weighted average rate of about 5.0%, excluding margin, which were due to expire in March 2013. The cost of breaking these swaps was £6.3m, a small discount to the additional interest charge that we would have incurred through the remaining life of the swaps. At the same time, we took out a new £70m swap to April 2019 at a rate of just under 2.0%, excluding margin. The impact of the new facility margins and swap rates is shown in the table on page 55.
Cash proceeds from the sales of investment properties during 2011 were £131.5m, which almost matched the £134.2m outflow incurred on capital expenditure and property acquisitions. Cash generated from operations after payment of the dividend totalled £21.8m for the year leading to an overall reduction in bank and other loans.
Taking account of amortisation of arrangement fees and other adjustments, the Group's net debt fell slightly to £864.5m at December 2011 compared to £887.8m a year earlier. After allowing for the cash raised from the issue of the convertible bond in June, bank loans were repaid by a net amount of £186.6m during the year compared to a net drawing of £158.8m in 2010.
Supported by the rise in portfolio values, gearing has fallen again in 2011 and the Group's overall LTV ratio, after allowing for unamortised loan arrangement costs, fell from 35.7% at 31 December 2010 to 32.0% at 31 December 2011. Balance sheet gearing fell from 59.4% to 50.4% over the same period. As noted above, our finance costs have increased in the year and, accordingly, the Group's overall interest cover ratio for the year fell a little to 307%, after capitalisation of interest, or 291% excluding capitalised interest, compared to 328% in 2010. These levels of LTV ratio and interest cover provide very substantial headroom for our bank facilities.
The weighted average length of unexpired debt facilities at 31 December 2011 was 4.4 years but, with the new facilities that became effective in January 2012, the pro-forma figure rises to 5.2 years, which is the same as at 31 December 2010.
1 After new facilities and swap arrangements entered into in January 2012
The issue of the convertible bonds in June 2011 increased available headroom under bank facilities but also raised the proportion of debt that is at fixed rates; at 31 December 2011, the percentage of debt at fixed rates was 98% though this has fallen to 90% in January 2012 on the termination of the old swaps and the arrangement of the new swap noted above. This level of fixed rates provides us with considerable protection against movements in interest rates but remains a little above our target range. As we invest further in the portfolio over the medium term, we expect this proportion to fall back under 85%.
As a result of the higher level of fixed rates and the increased margins that we pay on recently renewed bank facilities, the weighted average cost of debt, including the secured bond, increased from 4.34% at December 2010 to 4.91% at December 2011, inclusive of the non-cash element of the convertible bond, or 4.65% if the latter is excluded.
The bond issue increased the level of committed bank facilities available for drawing at 31 December 2011 to £469m compared with £245m the previous year, added to which there was an additional £589m of uncharged property in December 2011; the comparative figure at December 2010 was £484m. The low LTV ratio at December 2011 means that the Group's bank covenants, both for LTV ratio and interest cover, have significant headroom and we estimate that property values could fall by around 50% before there was an LTV ratio breach under any of the facilities.
Our dividend remains well covered and, as a result, the Board has been able to recommend an 8.1% increase in the proposed final dividend to 21.90p per share. Of the final dividend, 18.10p will be paid as a PID with the balance of 3.80p as a conventional dividend. This will bring the total dividend for the year to 31.35p per share, an increase of 2.35p or 8.1% over 2010. We will again offer a scrip dividend alternative as this has proved popular with shareholders with around 17% opting for shares rather than cash so far since it was introduced.
"We have been able to increase the dividend by 8.1% to 31.35p per share for the full year, a level at which it remains well covered by earnings."
Damian Wisniewski Finance Director
| 2011 £m |
2010 £m |
|---|---|
| Cash (3.5) |
(7.2) |
| Bank overdraft – |
5.6 |
| Revolving bank facilities 477.0 |
661.0 |
| Unsecured loan 31.4 |
31.4 |
| Loan notes 1.1 |
1.1 |
| Secured bonds 2026 175.0 |
175.0 |
| Fair value and issue costs 17.2 |
17.9 |
| Unsecured convertible bond 2016 175.0 |
– |
| Issue costs, equity component and unwinding of discount (12.6) |
– |
| Leasehold liabilities 7.4 |
7.4 |
| Bank loan arrangement costs (3.5) |
(4.4) |
| Net debt 864.5 |
887.8 |
| 2011 % |
2010 % |
|
|---|---|---|
| Balance sheet gearing | 50.4 | 59.4 |
| Loan to value ratio | 32.0 | 35.7 |
| Interest cover ratio | 307 | 328 |
| 2011 Proforma |
2011 | 2010 | |
|---|---|---|---|
| £m1 | £m | £m | |
| Bank loans | |||
| Floating rate | 15.4 | 15.4 | 259.4 |
| Capped | – | – | 10.0 |
| Swapped | 493.0 | 493.0 | 423.0 |
| 508.4 | 508.4 | 692.4 | |
| Floating rate loan notes | 1.1 | 1.1 | 1.1 |
| Fixed rate secured bonds 2026 | 175.0 | 175.0 | 175.0 |
| Fixed rate unsecured bonds 2016 | 175.0 | 175.0 | – |
| Total | 859.5 | 859.5 | 868.5 |
| Hedged and fixed rate (%) | 90 | 98 | 70 |
| Weighted average cost of debt (%)2 | 4.37 | 4.65 | 4.34 |
| Weighted average cost of debt (%)3 | 4.62 | 4.91 | 4.34 |
| Weighted average maturity of facilities (years) | 5.2 | 4.4 | 5.2 |
| Weighted average maturity of swaps (years) | 6.5 | 5.0 | 5.8 |
After new facilities, extensions and swap arrangements entered into in January 2012
Convertible bonds at 2.75%
Convertible bonds on IFRS basis
Derwent London sustainability milestones
| 2001 | 2002 | 2003 | 2004 | 2005 | 2006 |
|---|---|---|---|---|---|
| Environmental policy introduced |
First displacement air conditioning installation: Davidson Building |
First DALI (Digital Addressable Lighting Interface) lighting system installation: Johnson Building |
Energy reduction targets set |
"Whilst many businesses may see sustainability as a series of tick-boxes, at Derwent London we have a more fundamental approach, championing refurbishment over redevelopment wherever practical."
I was lucky enough to be here when Derwent London was founded, over 25 years ago, and am proud to say that we have been a responsible developer from the beginning. The evolution of our Environmental Policy, which was introduced in 2001, into a Sustainability Policy in 2008 continues to shape the business, most notably our building design and the ambition of our developments.
Our intent has always been to create interesting buildings that will remain relevant twenty or more years from now. Sustainability is a fundamental component of that intention, not least because efficiency drives both carbon and financial savings. Our approach of taking "difficult" buildings and reimagining them to create desirable buildings is affectionately known as "doing a Derwent". Making refurbishments work rather than redeveloping is good for the bottom line and for the environment. One of our proudest achievements, the completion of the Angel Building in 2010, reflects this, the reinvention of an existing building that created value for our shareholders and incorporates a number of sustainability features (more detail in the case study opposite). The building has won a number of architectural prizes, as well as being shortlisted for the RIBA Stirling prize in 2011.
The current generation of decision makers, be they heads of local community groups, planning officials, or members of Local Government, have been brought up with sustainability and expect businesses to embrace it. Whilst many businesses may see sustainability as a series of tick-boxes, at Derwent London we have a more fundamental approach, championing refurbishment over redevelopment whenever practical. We believe our concept of the White Collar Factory will help influence the next generation of office buildings. Derwent London aims to be best in class for customer service and that includes engaging with tenants in detail on how to run efficient buildings that enhance the community.
London is an inspirational place to be, full of creative people from every imaginable background, and I can think of few things more exciting than creating buildings that change the face of London.
"Our intent has always been to create interesting buildings that will remain relevant twenty or more years from now. Sustainability is a fundamental component of that intent."
Previous spread: Tea Building E1
As a major landowner with over 1.5m sq ft of property in Fitzrovia, we are committed to making this area a vibrant place for the community and businesses. We were a founding member of the Fitzrovia Partnership in 2009.
This business-led initiative seeks to bring together local businesses and work with local amenity groups and the statutory authorities to add value and deliver a tangible improvement to the management of Fitzrovia, and help preserve and enhance a vibrant commercial and residential district.
We continue to build relationships with community groups and have been donating our time and expertise, as well as financial support, for the past three years.
The development of the Angel Building, completed in 2010, received wide acclaim and is now fully let. We received awards from such esteemed organisations as RIBA, British Council for Offices, the British Construction Industry and New London Architecture.
Key sustainability features include:
We are pursuing a fresh idea for office space: a new type of building with lessons learnt from the best warehouses and factories – but one that is designed for the 21st century office worker rather than the 20th century blue-collar worker. We call it the "White Collar Factory".
Typically, the White Collar Factory is an office building that has big, flexible floor plates, large opening windows, generous volumes, large floor to ceiling height and robust concrete construction. It is light, open and connected because its dimensions are being defined by the potential of natural light and ventilation. It is smart because it is simple and does not rely on air conditioning and other technological add-ons that too often confuse choice with excess.
Our forthcoming development at City Road Estate for which we gained planning permission in 2011 (see page 41) will incorporate the White Collar factory concept.
Derwent London is committed to sustainability because we believe it is everyone's responsibility and because it gives our business an edge. We aim to create interesting, environmentally sustainable buildings with best in class customer service. We encourage all our employees, customers, suppliers and communities to join us in changing the face of London – meeting current needs without compromising those of future generations.
Our approach to sustainability underpins our design, construction, and building management to attract and retain tenants and meet planning and community needs. We provide a rewarding work environment to attract and retain high calibre employees. We also seek opportunities to influence the sector's approach to sustainability. We use our expertise and experience to communicate our beliefs at business events, and lead by example in our developments, such as the Angel Building.
When developing and refurbishing, we aim to minimise carbon emissions and wastage, using recycled materials and prioritising land use to the best effect. We are committed to refurbishing existing buildings as a preferred development option. A study undertaken at the Buckley Building in 2011 concluded there was 70% less embodied energy consumed during refurbishment than that of a standard office building. We install a wide range of energy and water-efficient technologies to optimise building efficiency.
Our approach to building management is to work in partnership with our suppliers and employees to deliver the best value to our tenants and the communities in which we operate. Our efforts help us manage our exposure to the CRC Energy Efficiency Scheme (CRC) in addition to conserving resources.
We continue to be listed in the FTSE4Good and participate in the Carbon Disclosure Project.
We received widespread recognition in 2011, reflecting the quality of our reporting and the culture of our business, together with our successes with "green" buildings.
Our key sustainability commitments are outlined in our Sustainability Policy. We aim to improve sustainability across all areas of business through strategic targets, sustainability frameworks and internal processes to allow closer monitoring of performance against our targets and policy objectives. This enables us to be more targeted in our improvements and more transparent in our reporting.
Our sustainability strategy and performance is overseen by Paul Williams, executive Director, supported by Tim Kite, Company Secretary. We manage sustainability closely through quarterly meetings with our external consultants, Jones Lang LaSalle and Arup, and by assigning specific responsibilities to key individuals within our business.
Our 2011 Sustainability Report provides a detailed insight into all our sustainability activities. Both this and our Sustainability Policy can be found on the Derwent London website at www.derwentlondon.com.
The following sections provide a high level overview of our sustainability strategy and performance for the year ended 31 December 2011.
Jones Lang LaSalle
We continue to set ourselves challenging targets each year to meet our policy commitments. We set targets in areas where we have either operational control or influence through occupier and contractor engagement. References to our managed portfolio are to the 53 multi-let properties in our portfolio that we manage and which represent 90% of the whole portfolio by floor area. The remaining buildings are either single-let or are not managed by Derwent London.
Performance is measured against 30 targets. These cover environmental, supplier, customer and community targets. We have performed well in 2011 as shown in the adjacent chart.
| Achieved/partially achieved |
|
|---|---|
| Environment | |
| 14 achieved, 1 partially achieved, | 79% |
| 4 not achieved | |
| Suppliers | |
| 1 achieved, 1 partially achieved | 100% |
| Customers | |
| 4 achieved, 1 not achieved | 80% |
| Communities | |
| 3 achieved, 1 not achieved | 75% |
Environment
reduction in water usage per square metre across managed portfolio
reduction in electricity usage per square metre across managed portfolio
reduction in gas usage per square metre across managed portfolio
average recycling rate at managed properties
Suppliers
24 days average invoice payment period Customers
Occupier satisfaction survey findings:
stated occupier satisfaction was "excellent" or "good"
81%
were "very satisfied" or "satisfied" with their relationship with Derwent London
Communities
3.5% increase in voluntary community investment since 2010 to £366,079
Employees
6% employee turnover compared to national average of 12.5%
We all have a duty to minimise pollution and work in an environmentally responsible manner. By focusing on resource efficiency and carbon reduction, and continuing to prioritise the regeneration of existing buildings, we will mitigate our climate change impact. We also engage with our tenants to improve the environmental performance of our managed assets.
For the last three years, we have focused on reviewing energy usage at selected office properties. From this we have identified actions that can be implemented across the portfolio to reduce energy consumption – a "bottom up" approach.
In 2011, we began our roll-out of smart metering to improve the granularity and accuracy of energy data. We continue to implement an energy management strategy at our managed properties; focusing on introducing controls to reduce energy consumption before addressing more capital-intensive options.
We work closely with our tenants to help improve the overall resource efficiency performance of our managed portfolio; for example, we are running a carbon reduction competition among tenants at the Johnson Building, awarding a trophy twice a year to the tenant achieving the greatest reduction in electricity use, and we have developed Green Travel Plans for 100% of our managed properties to encourage more sustainable modes of transport.
As a result of our initiatives, energy intensity across the portfolio has reduced by 13% this year from 104.93kWh/m2 in 2010 to 91.31kWh/m2 in 2011. Carbon intensity across the portfolio also reduced from 0.029 tonnes CO2 e/m2 in 2010 to 0.024 tonnes CO2 e/m2 in 2011.
In 2012, we have set ourselves overall portfolio energy and carbon reduction targets on an intensity basis for the first time. We will aim to achieve these targets by continuing our "bottomup" approach of reviewing individual properties to identify opportunities for improvement that can be applied throughout the managed portfolio.
On our development projects, we continue to target BREEAM and Energy Performance Certificate (EPC) ratings during design. In 2011 we undertook our first study of embodied energy at one of our refurbishment projects, demonstrating that our approach used approximately 70% less carbon than a new development of a standard office building. In 2012 we will expand this, adopting a consistent approach across our development portfolio.
Refurbishment of the Tea Building In 2011, the Tea Building contributed 7% of the carbon emissions in the managed portfolio. Monitoring at the Tea Building identified energy efficiency opportunities. A phased refurbishment is therefore being undertaken to improve the performance of the building. Key aspects of the refurbishment include doubleglazed windows, high efficiency lighting with sensor control, roof insulation and high efficiency rooftop plant with thermal loop to allow energy sharing throughout the building space. This is expected to result in the following performance improvements:
– Improve energy usage efficiency by 50%.
– Move EPC Rating from "E" to "B/C".
energy intensity reduction
carbon intensity reduction
| Target / future commitment | Delivery |
|---|---|
| Reduce managed portfolio energy usage (kWh/m2 ) by 5% compared to 2011 |
2012 |
| Introduce voluntary Display Energy Certificates at a number of buildings including the Johnson Building |
2012 |
| Reduce managed portfolio building-related carbon emissions (tonnes CO2 e/m2 ) by 3% compared to 2011 |
2012 |
| Report on embodied energy for key development projects over 5,000m2 |
2012 |
Electricity usage (landlord controlled areas)
Gas usage (total building)
Oil usage (total building)
Biomass usage (total building)
Intensity (kWh/m2
Reducing water consumption in our portfolio remains a priority and we continue to implement measures to achieve this. These include:
As a result of these and other initiatives, our water usage has reduced by 22% this year from 0.59m3 /m2 in 2010 to 0.47m3 /m2 in 2011.
We will continue to focus on water reduction in 2012, and look to increase the proportion of rainwater and greywater use within our new developments.
Intensity (m3/m2)
Water usage at our managed portfolio
| Target / future commitment | Delivery |
|---|---|
| Maintain portfolio mains water consumption below 0.5m3 /m2 |
2012 |
| Report percentage of water usage from rainwater harvesting |
2012 |
| All projects over 5,000m2 to be designed to include water saving systems such as rainwater or greywater harvesting |
2012 |
| New projects to be designed to achieve mains water usage of better than 0.55m3 /m2 |
2012 |
reduction in water usage intensity
64
The most significant achievement in 2011 was the diversion of all of our residual waste from landfill to incineration with energy recovery, thereby reducing our environmental impact and future costs associated with increasing landfill tax.
Whilst our properties are under development, we have, to date, targeted a high landfill diversion rate of 90%. Waste is monitored during demolition and construction and reported at completion for all developments in excess of 5,000m2 . As we did not complete any such developments in 2011 no data is available for this year.
We continue to review the quality of our data reporting regarding waste management and have implemented measures to improve its accuracy further this year.
Our waste recycling rate in 2011 was 48%, compared to 47% in 2010.
In 2012, our focus will be on improving recycling rates in our multi-let buildings and maintaining a high diversion rate from landfill for our developments.
of waste diverted from landfill
Managed waste use at our managed portfolio
Landfill (tonnes)
Recycled (tonnes)
Landfill (%)
Incineration (with energy recovery) (%)
Recycled (%)
| Target / future commitment | Delivery |
|---|---|
| Continue to meet zero managed office waste to landfill | 2012 |
| Achieve a minimum of 55% recycling rate in all properties for which Derwent London has control over waste management |
2012 |
| Projects to divert a minimum of 95% of demolition and construction waste from landfill |
2012 |
| Design new projects to include a minimum 20% recycled materials by value |
2012 |
Incineration (with energy recovery) (tonnes)
Our key stakeholders include our customers, suppliers, local communities and employees. Working with key stakeholders on our development and property management activities helps maximise shareholder value. Developing stable, trusting relationships is therefore a core element of our sustainability strategy.
We have developed long-term relationships with our key suppliers, which benefit the sustainability performance of our buildings. Open dialogue and a cooperative environment ensure we are all working towards the same objectives. Highlights from 2011 include:
| Year | 2008 | 2009 | 2010 | 2011 |
|---|---|---|---|---|
| Average payment period (days) |
24 | 21 | 23 | 24 |
| Number of suppliers engaged on sustainability issues |
– | 8 | 78¹ | 4 |
| ¹ In 2010 a supplier survey was conducted to better understand our supply chain |
management and risk.
| Delivery |
|---|
| 2012 |
| 2012/2013 |
average invoice payment period
We actively engage with our tenants to ensure buildings are operated efficiently and we deliver excellent service. Highlights from 2011 include:
In 2011, we conducted an extensive occupier satisfaction survey at 13 buildings, following a successful pilot at one building in 2010. Over 80 interviews took place with our tenants and key highlights from the findings include:
stated occupier satisfaction was "excellent" or "good"
| Target / future commitment | Delivery |
|---|---|
| Benchmark Derwent London's service charge communication against best practice |
2012 |
| All tenant-facing staff to undergo enhanced customer service training |
2012 |
| Roll out Environmental Working Groups to three more major buildings |
2012 |
| Revise service charge communication practices based on findings from benchmarking exercise |
2013 |
The communities in which we operate are becoming more vocal and knowledgeable about development activity. As a result it becomes ever more important that we maintain our high standards and willingness to engage with stakeholders. We are committed to having a positive impact on the communities in which we operate and take part in voluntary schemes such as the Considerate Constructors Scheme to monitor our performance. We continue to invest our time, experience, and financial resources to remain a considerate and engaged business.
Highlights from 2011 include:
increase in voluntary community investment, to £0.4m
The Victory House refurbishment created a high quality mixed-use development in central London. The Considerate Constructors Scheme (CCS) helps us quantify both community impact during development and environmental management. Victory House scored an excellent 35.5 out of 40, achieving compliance across all eight areas assessed and exceptional ratings in several.
Examples of good practice cited by the CCS assessor included:
| Target / future commitment | Delivery |
|---|---|
| Analyse community investment activities to date | 2012 |
| Develop and implement a community investment strategy for 2012 and beyond, aligned to development activities and material impacts |
2012 |
| Commission, scope and plan an evaluation of the socio-economic outcomes of a Derwent London project |
2012 |
| Evaluate the socio-economic impact of a Derwent London project |
2013 |
| Communicate, use and embed findings of the socio-economic evaluation in future developments |
2014 |
Attracting and retaining talented employees is important to successful delivery of our sustainability commitments. We continue to provide training opportunities to support employee development and strive to provide a stimulating and rewarding working environment.
Highlights from 2011 include:
In 2011, we formalised our internal communications in an employee handbook, which brought better structure to our previously more informal human resource communications. This provides clearer information for employees and signposts important information. An intranet site has been created to give employees instant access to their handbook and provides an effective launch-pad for further communication improvements in 2012.
| Target / future commitment | Delivery |
|---|---|
| Identify where Derwent London can further impact employee well-being and attendance by improving the work environment |
2012 |
| Deliver 100% of staff training needs within six months of identification |
2012 |
employee turnover compared with 12.5%, the national rate for UK companies
1 Page Street Victoria SW1
1 Page Street is a vacant building that Derwent London purchased in 2011. The building has been pre-let to Burberry on a 20-year lease and is undergoing an extensive refurbishment to replace the façade and increase the
floor area to 127,000 sq ft. The building is adjacent to Derwent London's Horseferry House, which is also let to Burberry.
Type Offices Size 127,000 sq ft (11,800m Completion date 2013 Architect PLP Architecture
John D. Burns, 67 Chief Executive Officer
John has been a Director of the Company since 1984 and has overall responsibility for Group strategy, business development and day-to-day operations. He is a member of the strategic board of the New West End Company Limited. He is also a member of the Risk Committee.
Damian M.A. Wisniewski, 50 Finance Director
Damian is a chartered accountant and has overall responsibility for financial strategy, treasury, taxation and financial reporting. He joined the Board on 1 February 2010, prior to which he held senior finance roles at Treveria Asset Management, Wood Wharf Limited Partnership and Chelsfield plc. He is a member of the Risk Committee.
Robert A. Rayne, 63 Non-executive Chairman
The Hon R.A. Rayne joined the Board in February 2007. He has been on the boards of a number of public companies, including First Leisure Corporation plc and Crown Sports plc, and is a Director of LMS Capital plc. He is also a nonexecutive Director of Weatherford International Inc., and was Chief Executive Officer of London Merchant Securities plc.
Simon P. Silver, 61 Executive Director
Simon has overall responsibility for the development and regeneration programme. He became a Director in 1986 and is an honorary fellow of the Royal Institute of British Architects.
Paul M. Williams, 51 Executive Director
Paul is a chartered surveyor and was appointed to the Board in 1998. His responsibilities include portfolio asset management, supervision of refurbishment and development projects and sustainability. He is a Director of The Paddington Waterside Partnership.
Nigel Q. George, 48 Executive Director
A chartered surveyor, Nigel was appointed to the Board in 1998. He has responsibility for acquisitions and investment analysis. He is a Director of the Chancery Lane Association.
David G. Silverman, 42 Executive Director
David joined the Board in January 2008. He is a chartered surveyor and is responsible for investment acquisitions and disposals. He is Chairman of the Westminster Property Association.
John C. Ivey, 70 Non-executive Deputy Chairman
A chartered accountant, John was a nonexecutive Director of RWS Holdings plc until January 2010 and was formerly Chief Executive of The Davis Service Group plc. He has served on the Board since 1984 and is a member of the Nominations Committee.
Robert A. Farnes, 66 Senior independent Director
Robert is a chartered surveyor. He was previously the Chairman of CB Hillier Parker and joined the Board in 2003. He chairs the Remuneration Committee and is a member of the Audit and Nominations Committees.
Stuart A. Corbyn, 66 Non-executive Director (Senior Independent Director from 1 April 2012)
Stuart is a chartered surveyor. He was appointed to the Board in 2006. Until December 2008, he was Chief Executive of Cadogan Estates, one of the principal private estates in London, and is a former president of the British Property Federation. He chairs the Nominations Committee and is a member of the Audit and Remuneration Committees.
June de Moller, 64 Non-executive Director
June joined the Board in February 2007. She is a non-executive Director of Temple Bar Investment Trust plc. Previously, she was Managing Director of Carlton Communications Plc and a nonexecutive Director of Cookson Group plc, BT plc, AWG plc, J Sainsbury plc, Archant Limited and London Merchant Securities plc. She is a member of the Audit, Risk, Remuneration and Nominations Committees.
Simon J. Neathercoat, 63 Non-executive Director
Simon is a chartered accountant. He joined the Board in 1999 and is a member of the Nominations Committee. He is senior independent Director of Lombard Medical Technologies plc and a non-executive Director of Fairfield Energy PLC. Previously, he was Managing Director of Dresdner Kleinwort Wasserstein. He is a member of the Nominations Committee.
Stephen G. Young, 56 Non-executive Director
Stephen is a chartered management accountant. He joined the Board in August 2010. He is Group Finance Director at Meggitt plc. Previously, he held the position of Group Finance Director at Thistle Hotels plc and the Automobile Association. He chairs the Audit and Risk Committees whilst serving on the Remuneration and Nominations Committees.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company, for safeguarding the assets of the Company, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a Directors' report and Directors' remuneration report which comply with the requirements of the Companies Act 2006.
The Directors are responsible for preparing the annual report and the financial statements in accordance with the Companies Act 2006. The Directors are also required to prepare financial statements for the Group in accordance with International Financial Reporting Standards, as adopted by the European Union (IFRSs) and Article 4 of the IAS Regulation. The Directors have chosen to prepare the financial statements for the Company in accordance with IFRSs.
International Accounting Standard 1 requires that financial statements present fairly for each financial year the Group's and Company's financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's "Framework for the preparation and presentation of financial statements". In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs. A fair presentation also requires the Directors to:
The Directors confirm to the best of their knowledge:
Financial statements are published on the Group's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Group's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.
On behalf of the Board
John D. Burns, Chief Executive Officer
Damian M.A. Wisniewski, Finance Director 1 March 2012
The Directors present their report and the financial statements for the year ended 31 December 2011.
On behalf of the Board, I am pleased to report on the Group's corporate governance performance in 2011.
At Derwent London, we are committed to running a business that is responsible, honest, transparent and accountable in the belief that good governance is not simply an exercise in compliance but underpins the success of the Company.
This year the Company is formally subject to the provisions of the UK Corporate Governance Code (the "Code") for the first time. Last year we complied with a number of the new provisions that this introduced in addition to the requirements of the Combined Code, the prevailing authority at that time. For 2011, the Board believes that the Company has complied with the main and supporting principles of the Code except for provision A.3.1 regarding my independence on appointment and B.1.1 which addresses the independence of non-executive Directors. These matters are discussed more fully in the following section.
During the year there have been a number of consultations and initiatives aimed at improving corporate governance. We have monitored these and adopted those which we considered would further improve the governance of our business. I would highlight the following three developments.
We noted the publication of the Davies review "Women on Boards" and the ongoing debate that it engendered. As a Board, we have always believed that the only qualification needed to be a Director of the Company is the appropriate talent – irrespective of background or gender. We will continue to appoint and promote on this basis with due regard to the benefits of diversity identified in Lord Davies' report. I am aware of the suggestion that we publish an aspirational target in respect of gender diversity but am reluctant to do so as we are in the process of recruiting two additional non-executive Directors over the next eighteen months and I would not want to suggest that positive discrimination might influence our selection.
In accordance with the new requirement under the Code, we have used an independent third party to facilitate the annual review of the effectiveness of the Board and its Committees.
In response to the renewed emphasis given to risk management in the Code, we reviewed our approach to this matter and concluded that a Risk Committee should be established as a new sub-committee of the Board. Whilst overall responsibility for risk management remains with the Board, we consider that a separate committee focused on this one area can only further improve the relevant controls and systems. The Committee was established in November under the chairmanship of Stephen Young and is served by June de Moller, John Burns and Damian Wisniewski.
We noted the recent Government proposals on executive pay and remuneration reporting and will monitor the progress of the various requirements over the next year before assessing what impact, if any, they have on the Company's remuneration policy and/ or reporting. We are, however, introducing "clawback" provisions that will apply in certain circumstances to the Group's bonus scheme and long-term incentive plan, in anticipation of it becoming a requirement in the updated Code later in the year.
The Annual General Meeting (AGM) is an important opportunity for members to meet and speak with the Directors of the Company and I encourage shareholders to attend the meeting on 16 May 2012.
Robert A. Rayne Chairman
A review of the development of the Group's business during the year, the principal risks and uncertainties facing the Group and its future prospects is included in the Chairman's statement and the business review. The information required by section 417 of the Companies Act 2006 and by rules 4.1.8 to 4.1.11 of the Disclosure and Transparency Rules is given on pages 10 to 69. These sections should be read in conjunction with this report and are incorporated into the Directors' report by reference. The disclosures in respect of the use of financial instruments are given in notes 27 and 28 of the financial statements.
At the start of the year, the Board consisted of:
A non-executive Chairman: Robert Rayne
Seven non-executive Directors: John Ivey Robert Farnes Stuart Corbyn Stephen Young June de Moller Simon Neathercoat Donald Newell
Six executive Directors: John Burns Simon Silver Damian Wisniewski Nigel George Paul Williams David Silverman
Donald Newell retired at the AGM held in May 2011.
As noted above, Robert Rayne, John Ivey and Simon Neathercoat do not qualify to be deemed independent using the criteria set out in provision B.1.1. of the Code and the Company does not comply with Code provision A.3.1 which requires a new Chairman to be independent on appointment. The Board has therefore specifically considered the independence of these three non-executive Directors.
Robert Rayne served in an executive capacity at London Merchant Securities plc prior to the merger in 2007 and consequently is not deemed independent. However, he continues to make an important contribution as Chairman of the Board and the Directors therefore consider that his position remains entirely justified.
Both John Ivey and Simon Neathercoat have served on the Board for more than nine years and are therefore not deemed independent. The Board has considered their expertise and commitment and reviewed the performance of their duties during the year and remains satisfied that their independence is unimpaired and effectively exercised.
On 31 March 2012 Robert Farnes' period of service as a non-executive Director will reach nine years. The Board does not believe that an independent state of mind ceases on a particular date and has no current concerns about Robert's independence. However, in accordance with best practice, on 1 April 2012 he will hand over the chairmanship of the Remuneration Committee to June de Moller and be replaced by Stuart Corbyn as the Group's Senior Independent Director. In addition, at the year end, he will step down from both the Remuneration Committee and the Audit Committee.
None of these Directors has any association with management that might compromise their independence and all four are standing for re-election at the Company's AGM on 16 May 2012. During the year, the Nominations Committee continued with the process of refreshment which was introduced in 2010 to address the independence issues that had been identified, through an orderly process of change. An independent executive search agency has been appointed to assist with the recruitment of two new independent non-executive Directors over the next 18 months. It is anticipated that both John Ivey and Simon Neathercoat will retire from the Board during the same period.
In addition, the Directors considered the composition of the Board having particular regard to the recommendation made in Lord Davies' "Women on Boards" report. The Board currently consists of 13 directors, one (8%) of whom is female. The Board also took note of the gender diversity throughout the Company which showed that overall 45% of staff are female whilst at the executive level 37% of employees are female. Taking all factors into account, the Directors continue to believe that the Board has an appropriate balance of skills, experience, independence and knowledge of the Company to satisfy the requirements of good corporate governance.
A formal schedule, which has been approved by the Board, sets out the division of responsibilities between the Chairman, who is responsible for the effectiveness of the Board, and the Chief Executive Officer, who is responsible for the day-to-day operations of the business.
The Board is responsible for setting the Company's strategic aims, ensuring that adequate resources are available to meet its objectives and reviewing management performance. The formal list of matters reserved for the full Board's approval is maintained and reviewed periodically. The full Board met six times during the year and six meetings are scheduled for 2012. Extra meetings will be arranged if necessary. Additionally, the executive Board, which consists of the executive Directors, met ten times in 2011. Both bodies are provided with comprehensive papers in a timely manner to ensure that the Directors are fully briefed on matters to be discussed at these meetings.
The Board maintains a number of Board Committees. The terms of reference of each Committee are available on the Group's website. Set out below are details of the membership and duties of the three principal Committees that operated throughout 2011. A Risk Committee, which is chaired by Stephen Young and served by June de Moller, John Burns and Damian Wisniewski, was established in November 2011.
At the start of the year the Committee comprised June de Moller, Simon Neathercoat, Stuart Corbyn, Donald Newell and Stephen Young under the chairmanship of Robert Farnes. Donald Newell left the Committee in May 2011 and Simon Neathercoat on 31 December 2011. It is responsible for establishing the Company's remuneration policy and individual remuneration packages for the executive Directors and selected other senior executives. There were six meetings of the Committee in 2011. The report of the Remuneration Committee is set out on pages 86 to 95.
This Committee is currently chaired by Stephen Young, who took over the role from Simon Neathercoat on 1 April 2011 and was served throughout the year by Stuart Corbyn, Robert Farnes and June de Moller. Donald Newell served on the Committee until his retirement in May 2011. Simon Neathercoat stepped down from the Committee on 31 December 2011. The Committee is responsible for considering the application of financial reporting and internal control principles and for maintaining an appropriate relationship with the Company's auditors. The Committee met four times during 2011. The report of the Audit Committee is on page 97.
At any point in time, this Committee consists of all of the non-executive Directors except the Chairman, under the chairmanship of Stuart Corbyn. Its responsibilities include identifying external candidates for appointment as Directors and, subsequently, recommending their appointment to the Board. If requested, the Committee will make a recommendation concerning an appointment to the Board from within the Company. The Committee met three times during 2011. The report of the Nominations Committee is on page 96.
| Full Board |
Executive Board |
Remuneration Committee |
Audit Committee |
Nominations Committee |
Risk Committee |
|
|---|---|---|---|---|---|---|
| Number of meetings | 6 | 10 | 6 | 4 | 3 | 1 |
| Executive | ||||||
| J.D. Burns | 6 | 10 | – | – | – | 1 |
| S.P. Silver | 6 | 9 | – | – | – | – |
| D.M.A. Wisniewski | 6 | 10 | – | – | – | 1 |
| P.M. Williams | 6 | 9 | – | – | – | – |
| N.Q. George | 6 | 10 | – | – | – | – |
| D.G. Silverman | 6 | 10 | – | – | – | – |
| Non-executive | ||||||
| R.A. Rayne | 6 | – | – | – | – | – |
| J.C. Ivey | 6 | – | – | – | 1 | – |
| S.J. Neathercoat | 6 | – | 6 | 4 | 2 | – |
| R.A. Farnes | 6 | – | 6 | 4 | 3 | – |
| S.A. Corbyn | 6 | – | 6 | 4 | 3 | – |
| D. Newell (to May 2011) | 2 | – | 2 | 2 | – | – |
| J. de Moller | 5 | – | 6 | 4 | 2 | 1 |
| S.G. Young | 6 | – | 6 | 4 | 3 | 1 |
Directors' attendance at Board and Committee meetings during the year was as follows:
Having regard to the requirement of provision B.6.2 of the Code, the Board, for the first time, appointed an independent third party to facilitate the annual review of the effectiveness of the Board, its Committees and individual Directors.
The review was initiated by all Directors completing an online questionnaire prepared by the third party which covered the processes and performance of the Board and its Committees together with a self-assessment questionnaire addressing the Director's own performance and contribution.
The responses were externally summarised and reviewed by the Chairman, the Senior Independent Director or the Committee chairmen as appropriate. Any significant matters were discussed with the individual Directors by the Chairman.
As a result of the evaluation, the Board is satisfied that the structure, mix of skills and operation of the Board continues to be satisfactory and appropriate for the Company. In addition, the Chairman is satisfied that the non-executive Directors standing for re-election at the AGM continue to be effective and show commitment to their roles.
The performance of the Chairman was separately assessed by the non-executive Directors under the leadership of the Senior Independent Director.
Appointment of a Director from outside the Company is on the recommendation of the Nominations Committee, whilst internal promotion is a matter decided by the Board unless it is considered appropriate for a recommendation to be requested from the Nominations Committee.
The Directors shall be not less than two and not more than 15 in number. The shareholders may vary the minimum and/or maximum number of Directors by passing an ordinary resolution. Other than as required by the Remuneration Committee, a Director shall not be required to hold any shares in the Company. Directors may be appointed by the Company by ordinary resolution or by the Board. A Director appointed by the Board holds office only until the next AGM of the Company and is then eligible for re-appointment. The Board or any Committee authorised by the Board may from time to time appoint one or more Directors to hold any employment or executive office for such period and on such terms as they may determine and may also revoke or terminate any such appointment.
The articles provide that at every AGM of the Company any Director who has been appointed by the Board since the last AGM, or who held office at the time of the two preceding AGMs and who did not retire at either of them, or who has held office with the Company, other than employment or executive office, for a continuous period of nine years or more at the date of the meeting, shall retire from office and may offer himself for reappointment by the members. However, in accordance with Provision B.7.1 of the Code all Directors are subject to annual re-election and therefore at the next AGM all the Directors will retire and, being eligible, offer themselves for re-election. Biographies of all the Directors are given on pages 72 and 73.
The Company may by special resolution remove any Director before the expiration of his period of office. The office of a Director shall be vacated if:
If considered appropriate, new Directors are sent on an external training course addressing their role and duties as a director of a quoted public company. Existing Directors monitor their own continued professional development and are encouraged to attend those courses that keep their market and regulatory knowledge current.
All Directors have access to the services of the Company Secretary and any Director may instigate an agreed procedure whereby independent professional advice may be sought at the Company's expense. Directors and officers liability insurance is maintained by the Company.
Subject to the Company's articles, the Companies Acts and any directions given by the Company by special resolution, the business of the Company will be managed by the Board who may exercise all the powers of the Company, whether relating to the management of the business of the Company or not. In particular, the Board may exercise all the powers of the Company to borrow money, to guarantee, to indemnify, to mortgage or charge any of its undertaking, property, assets (present and future) and uncalled capital and to issue debentures and other securities and to give security for any debt, liability or obligation of the Company or of any third party.
The Directors of the Company during the year and their interests in the share capital of the Company, including shares over which options have been granted, either under the Executive Share Option Scheme or the Performance Share Plan, are shown below. All of these interests are held beneficially.
| Ordinary shares of 5p each | Options | |||
|---|---|---|---|---|
| At 31 December | 2011 | 2010 | 2011 | 2010 |
| R.A. Rayne | 4,350,017 | 4,350,017 | 157,345 | 157,345 |
| J.C. Ivey | 79,072 | 79,072 | – | – |
| J.D. Burns | 737,127 | 718,268 | 231,800 | 248,875 |
| S.P. Silver | 346,465 | 340,687 | 198,050 | 212,075 |
| N.Q. George | 20,348 | 30,348 | 123,230 | 130,155 |
| P.M. Williams | 35,168 | 35,168 | 123,230 | 130,155 |
| D.G. Silverman | 6,821 | – | 106,990 | 108,140 |
| D.M.A. Wisniewski | – | – | 65,590 | 34,590 |
| S.J. Neathercoat | 8,000 | 8,000 | – | – |
| R.A. Farnes | 6,838 | 6,838 | – | – |
| S.A. Corbyn | 1,000 | 1,000 | – | – |
| J. de Moller | 2,985 | 2,985 | – | – |
| D. Newell | 1,492 | 1,492 | – | – |
| S.G. Young | 1,000 | 1,000 | – | – |
There have been no changes in any of the Directors' interests between the year end and 1 March 2012.
The Directors did not exercise any options during the year and no new options were granted to Directors under the Executive Share Option Scheme. A conditional grant of 231,050 shares was made to Directors under the Performance Share Plan whilst 144,460 shares vested to the Directors from an earlier conditional award at a zero exercise price. The remaining 158,065 shares of this award lapsed.
Other than as disclosed in note 40, the Directors have no interest in any material contracts of the Company.
The Company's articles permit the Directors to regulate conflicts of interest. The Board operates a policy for managing and, where appropriate, approving conflicts or potential conflicts of interest whereby Directors are required to notify the Company as soon as they become aware of a situation that could give rise to a conflict or potential conflict of interest. The Board is satisfied that this policy has operated effectively throughout the period.
The Company recognises the importance of clear communication with shareholders. Regular contact with institutional shareholders and fund managers is maintained, principally by the executive Directors, through the giving of presentations and organising visits to the Group's property assets. The Board receives regular reports of these meetings which include a summary of any significant issues raised by the shareholders. The annual report, which is available to all shareholders, reinforces this communication. The AGM provides an opportunity for shareholders to question the Directors and, in particular, the chairman of each of the Board committees. An alternative channel of communication to the Board is available through Stuart Corbyn, the Senior Independent Director, who takes over the role from Robert Farnes on 1 April 2012.
The principal risks and uncertainties facing the Group in 2012 together with the controls and mitigating factors are set out on pages 25 to 27. The systems that control the risks form the Group's system of internal control. The key elements of the Group's internal control framework are:
The effectiveness of this system and the operation of the key components thereof have been reviewed for the accounting year and the period to the date of approval of the financial statements.
The Board has considered the need for an internal audit function but continues to believe that this is unnecessary given the size and complexity of the Group.
As at 1 March 2012, the Company's issued share capital comprised a single class of 5p ordinary shares. Details of the ordinary share capital and shares issued during the year can be found in note 30 to the financial statements.
The Company can issue shares with any rights or restrictions attached to them as long as this is not restricted by any rights attached to existing shares. These rights or restrictions can be decided either by an ordinary resolution passed by the shareholders or by the Directors as long as there is no conflict with any resolution passed by the shareholders. These rights and restrictions will apply to the relevant shares as if they were set out in the articles. Subject to the articles, the Companies Act and other shareholders' rights, unissued shares are at the disposal of the Board.
Shareholders will be entitled to vote at a general meeting whether on a show of hands or a poll, as provided in the Companies Act. Where a proxy is given discretion as to how to vote on a show of hands this will be treated as an instruction by the relevant shareholder to vote in the way in which the proxy decides to exercise that discretion. This is subject to any special rights or restrictions as to voting which are given to any shares or upon which any shares may be held at the relevant time and to the articles.
If more than one joint holder votes (including voting by proxy), the only vote which will count is the vote of the person whose name is listed first on the register for the share.
Unless the Directors decide otherwise, a shareholder cannot attend or vote shares at any general meeting of the Company or upon a poll or exercise any other right conferred by membership in relation to general meetings or polls if he has not paid all amounts relating to those shares which are due at the time of the meeting, or if he has been served with a restriction notice (as defined in the articles) after failure to provide the Company with information concerning interests in those shares required to be provided under the Companies Act.
The Company is not aware of any agreements between shareholders that may result in restrictions on voting rights.
There are no restrictions on the transfer of securities in the Company, except:
The Company is not aware of any agreements between shareholders that may result in restrictions on the transfer of securities.
If the Companies Act allows this, the rights attached to any class of shares can be changed if it is approved either in writing by shareholders holding at least three quarters of the issued shares of that class by amount (excluding any shares of that class held as treasury shares) or by a special resolution passed at a separate meeting of the holders of the relevant class of shares. This is called a "class meeting".
All the articles relating to general meetings will apply to any such class meeting, with any necessary changes. The following changes will also apply:
The provisions of this article will apply to any change of rights of shares forming part of a class. Each part of the class which is being treated differently is treated as a separate class in applying this article.
The rights conferred upon the holders of any shares shall not, unless otherwise expressly provided in the rights attaching to those shares, be deemed to be varied by the creation or issue of further shares ranking pari passu with them.
No person holds securities in the Company carrying special rights with regard to control of the Company.
The Directors were granted authority at the last AGM held in 2011 to allot relevant securities up to a nominal amount of £1,686,672. That authority will apply until the conclusion of this year's AGM. At this year's AGM shareholders will be asked to grant an authority to allot relevant securities (i) up to a nominal amount of £1,694,567 and (ii) comprising equity securities up to a nominal amount of £3,389,134 (after deducting from such limit any relevant securities allotted under (i)), in connection with an offer by way of a rights issue, (the "section 551 authority"), such section 551 authority to apply until the end of next year's AGM.
A special resolution will also be proposed to renew the Directors' power to make non-preemptive issues for cash in connection with rights issues and otherwise up to a nominal amount of £254,185. A further special resolution will be proposed to renew the Directors' authority to repurchase the Company's ordinary shares in the market. The authority will be limited to a maximum of 10,167,401 ordinary shares and the resolution sets the minimum and maximum prices which may be paid.
In addition to those of the Directors disclosed on page 80, the Company has been notified of the following interests in the issued ordinary share capital as at 1 March 2012.
| Number of shares | issued share capital |
|
|---|---|---|
| Withers Trust Corporation | 6,217,444 | 6.12 |
| Withers Trust Corporation Ltd, and James McCarthy | 5,548,731 | 5.46 |
| Cohen & Steers Capital Management Inc | 5,231,757 | 5.15 |
| Ameriprise Financial Inc. | 5,132,584 | 5.05 |
| BlackRock Investment Management (UK) Ltd | 5,035,211 | 4.95 |
| Standard Life Investments | 4,284,390 | 4.22 |
| Third Avenue Management LLC | 3,944,764 | 3.88 |
| Lady Jane Rayne | 3,593,838 | 3.54 |
| Legal & General Investment Management | 3,482,391 | 3.43 |
There are no agreements between the Company and its Directors or employees providing for compensation for loss of office or employment that occurs because of a takeover bid, except that, under the rules of the Group's share-based remuneration schemes, some awards may vest following a change of control.
Some of the Group's banking arrangements are terminable upon a change of control of the Company.
As a REIT, a tax charge may be levied on the Company if it makes a distribution to another company which is beneficially entitled to 10% or more of the shares or dividends in the Company or controls 10% or more of the voting rights in the Company, (a substantial shareholder), unless the Company has taken reasonable steps to avoid such a distribution being made. The Company's articles give the Directors power to take such steps, including the power:
There is no person with whom the Group has a contractual or other arrangement which is essential to the business of the Company.
Unless expressly specified to the contrary in the articles of the Company, the Company's articles may be amended by a special resolution of the Company's shareholders.
The Group's policy is to agree terms of business with suppliers prior to the supply of goods or services. In the absence of any dispute, invoices are paid in accordance with these terms. For the year ended 31 December 2011, the average payment period was 24 days (2010: 23 days).
The Group made charitable donations of £0.1m during the year (2010: £0.1m).
The Group's freehold and leasehold investment properties were professionally revalued at 31 December 2011, resulting in a surplus of £181.7m, before deducting the lease incentive adjustment of £9.6m. The freehold and leasehold investment properties are included in the Group balance sheet at a carrying value of £2,599.5m. Further details are given in note 17 of the financial statements.
Percentage of
Details of post balance sheet events are given in note 38 of the financial statements.
Having considered the Group's latest rolling forecast for the next two years including in particular the cash flow, borrowings and undrawn facilities and made due enquiries, the Directors have reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. Therefore, the Board continues to adopt the going concern basis in preparing the financial statements.
BDO LLP has expressed its willingness to continue in office and accordingly, resolutions to re-appoint it and to authorise the Directors to determine its remuneration will be proposed at the AGM. These are resolutions 17 and 18 set out in the notice of meeting.
The Directors who held office at the date of approval of this Directors' report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditors are unaware and that each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information.
The notice of meeting contained in the circular to shareholders that accompanies the report and accounts includes four resolutions to be considered as special business.
Resolution 19 is an ordinary resolution which will renew the authority of the Directors under Section 551 of the Companies Act 2006 to allot shares. Paragraph A of the resolution gives the Directors authority to allot ordinary shares up to an aggregate nominal amount of £1,694,567, which represents about one third of the issued ordinary share capital (excluding treasury shares) of the Company as at the latest practicable date prior to the publication of this document.
In line with guidance issued by the Association of British Insurers, paragraph B of the resolution gives the Directors authority to allot ordinary shares in connection with a rights issue in favour of ordinary shareholders up to an aggregate nominal amount of £3,389,134, as reduced by the nominal amount of any shares issued under paragraph A of the resolution. This amount (before any reduction) represents approximately two-thirds of the issued ordinary share capital (excluding treasury shares) of the Company as at the latest practicable date prior to the publication of this document.
The Directors have no present intention of issuing shares except on the exercise of options under the Company's share option scheme, on the vesting of shares under the Company's performance share plan or in connection with the scrip dividend scheme. The authority will expire at the conclusion of the next AGM after the passing of the resolution or, if earlier, the close of business on 16 August 2013.
Resolution 20 is a special resolution, proposed annually, and will renew the Directors' power under Sections 570 and 573 of the Companies Act 2006. The resolution empowers the Directors to allot or, now that the Company may hold shares as treasury shares (as further described below), sell shares for cash in connection with pre-emptive offers and the scrip dividend scheme (where the scrip election is made after the declaration (but before payment) of a final dividend) as if section 561 of the Companies Act 2006 did not apply to any such allotment or sale. The resolution further empowers the Directors to allot or, in the case of treasury shares, sell shares for cash, otherwise than on a pre-emptive basis, up to an aggregate nominal value of £254,185, which is equivalent to approximately 5% of the issued share capital as at the latest practicable date prior to the publication of this document.
In respect of this aggregate nominal amount, the Directors confirm their intention to follow the provisions of the Pre-Emption Group's Statement of Principles regarding cumulative usage of authorities within a rolling three-year period where the Principles provide that usage in excess of 7.5% should not take place without prior consultation with shareholders.
Allotments made under the authorisation in paragraph B of resolution 19 would be limited to allotments by way of a rights issue only (subject to the right of the Board to impose necessary or appropriate limitations to deal with, for example, fractional entitlements and regulatory matters).
The authority will expire at the conclusion of the next AGM after the passing of the resolution or, if earlier, the close of business on 16 August 2013.
Resolution 21 is proposed as a special resolution to renew the authority under section 701 of the Companies Act 2006 which enables the Company to purchase its own shares. This authority enables the Directors to act quickly, if, having taken account of all major factors such as the effect on earnings and net asset value per share, gearing levels and alternative investment opportunities, such purchases are considered to be in the Company's and shareholders' best interest while maintaining an efficient capital structure. The special resolution gives the Directors authority to purchase up to 10% of the Company's ordinary shares and specifies the maximum and minimum prices at which shares may be bought. The authority will expire at the conclusion of the next AGM after the passing of the resolution or, if earlier, the close of business on 16 August 2013.
The Companies Act 2006 permits the Company to hold any such repurchased shares in treasury, with a view to possible re-issue at a future date, as an alternative to immediately cancelling them (as had previously been required under the relevant legislation). Accordingly, if the Company purchases any of its shares pursuant to resolution 21, the Company may cancel those shares or hold them in treasury. Such a decision will be made by the Directors at the time of purchase on the basis of the Company's and shareholders' best interests. As at the date of the notice of meeting, the Company held no shares in treasury.
The total number of options to subscribe for ordinary shares outstanding at 1 March 2012 was 1,322,375, which represented 1.30% of the issued share capital (excluding treasury shares) at that date. If the Company were to purchase the maximum number of ordinary shares permitted by this resolution, the options outstanding at 1 March 2012 would represent 1.61% of the issued share capital (excluding treasury shares).
Resolution 22 is required to reflect the implementation of the Shareholder Rights Directive which, in the absence of a special resolution to the contrary, increased the notice period for general meetings of the Company to 21 days. The Company is currently able to call general meetings (other than an AGM) on 14 clear days' notice and would like to preserve this ability. The shorter notice period would not be used as a matter of routine, but only where the flexibility is merited by the business of the meeting and it is thought to be to the advantage of the shareholders as a whole. The approval will be effective until the Company's next AGM, when it is intended that a similar resolution will be proposed.
By order of the Board.
Timothy J. Kite ACA Company Secretary 1 March 2012
At the start of the year, the Remuneration Committee consisted of Simon Neathercoat, Stuart Corbyn, Donald Newell, June de Moller and Stephen Young under the chairmanship of Robert Farnes. Donald Newell left the Committee in May 2011 when he retired and Simon Neathercoat stepped down on 31 December 2011. None of the members who have served during the year had any personal interest in the matters decided by the Committee, or any day-to-day involvement in the running of the business and, therefore, are considered to be independent.
The Committee's responsibilities include determining remuneration packages for the executive Directors and selected other senior executives. It also oversees the operation of the Group's bonus scheme and Performance Share Plan and considers whether the schemes encourage the taking of excessive business risk. The full terms of reference of the Committee are available on the Company's website.
New Bridge Street (NBS) – a trading name of Aon Corporation – was retained to provide independent assistance to the Committee regarding the setting of salaries and the operation of the Performance Share Plan and bonus scheme. In particular, NBS determine entitlements under the bonus scheme and the extent of vesting of the conditional share awards and ensure that the measures used for both schemes are comparable and consistent. NBS did not provide any other services to the Group during the year. No Director had any involvement in determining his own remuneration although some of the matters considered by the Committee were discussed with John Burns. The Company Secretary acted as secretary to the Committee.
The key aims of the Committee's remuneration policy for senior executives are:
A full review of executive remuneration arrangements was last carried out by NBS during 2007 and a revised remuneration structure applied from 2008. After four years of operation, the Committee considered whether the structure should be reviewed during 2011 but concluded that as it continued to meet the objectives of the Committee and was broadly in line with best practice, no review was necessary. The Committee will continue to monitor the need for a formal review of the remuneration strategy through 2012. The key elements of the structure are outlined below:
a) Base salary and benefits
Base salaries for executive Directors are reviewed annually by the Committee with changes being effective from 1 January. At the review carried out in December 2011, the Committee agreed a basic increase of approximately 3% for 2012 which took into account the excellent results that the management team continued to produce, the competitive nature of the market for top performing executives in the sector and the overall economic climate.
In recognition of the increased experience and importance to the business of recently appointed directors, the Committee again followed its policy of awarding such Directors an extra salary increase in addition to the basic increase. Accordingly, the Committee awarded an additional £25,000 increase to David Silverman and an additional £10,000 increase to Damian Wisniewski. These extra increases continue to move these Directors' remuneration towards appropriate market benchmarks.
Resultant salaries effective from 1 January 2012 (2011 equivalents in brackets) are John Burns £567,000 (£550,000), Simon Silver £486,000 (£472,000), Nigel George £361,000 (£350,000), Paul Williams £361,000 (£350,000), Damian Wisniewski £361,000 (£340,000), David Silverman £335,000 (£300,000).
The executive Directors receive a pension contribution worth 20% of base salary to a defined contribution scheme or a salary supplement in lieu of part or all of this contribution. The principal benefits in kind comprise a company car and medical insurance.
The annual bonus structure has been unchanged since 2008. For 2011 the scheme offered a maximum bonus potential for John Burns and Simon Silver of 150% of salary and 125% of salary for the other executive Directors.
Any bonus up to 100% of salary is paid in cash with any excess amount being compulsorily deferred in shares. Half of these shares are released 12 months after the award and the remainder released 24 months after the award. These shares will be potentially forfeitable if the executive leaves the Company prior to the share release date.
Three quarters of the bonus is based equally on two annual financial measures, namely net asset value (NAV) growth which is compared to the total return of properties in the IPD Central London Offices Total Return Index and total return (being NAV growth plus dividends) which is measured against that of other major real estate companies. The final 25% is available for the Committee to award at its discretion. Total return is one of the KPIs used to measure the Group's overall success and its use in calculating a significant part of the Directors' bonus ensures an alignment of interest between delivery of the Group's strategy and Directors' remuneration.
Provision has been made for a bonus for 2011 of 90% (2010: 87.5%) of the maximum potential. In making this award, the Committee has given due regard to the performance measures mentioned above, the Group's total shareholder return for the year and the other achievements outlined earlier in the report and accounts, in particular the refinancing achieved in the year, the number of planning consents received, the level of lettings and the well-controlled developments.
The Group's Performance Share Plan (PSP) was established in 2004, with a number of changes approved by shareholders in 2008.
The maximum permitted annual award of shares under the plan is 200% of salary (with a higher limit of 300% of salary for use in the event of exceptional circumstances such as recruitment). The Committee's policy for 2011, which has been consistent since the scheme was reviewed in 2008, was to limit awards to 175% of salary for John Burns and Simon Silver and 150% of salary for the other Directors. It is the Committee's intention to continue this policy for 2012.
Vesting of awards under the PSP will normally occur to the extent that pre-set performance targets have been satisfied provided that, in usual circumstances, the executive is still employed at the end of the three-year vesting period. Where an employee retires during the three-year vesting period their award will be adjusted in accordance with the scheme rules. Performance targets for awards granted in 2011 were as follows:
– 50% of an award will be determined by the Company's total shareholder return (TSR) compared to that of the companies listed below:
| Big Yellow Group plc | Land Securities plc |
|---|---|
| British Land plc | Quintain Estates and Development plc |
| Capital and Counties plc | St Modwen Properties plc |
| Capital & Regional plc | Segro plc |
| Capital Shopping Centres Group plc | Shaftesbury plc |
| Great Portland Estates plc | Workspace Group plc |
| Hammerson plc |
TSR will be measured over a single three-year performance period from the date of grant and will be calculated by comparing average performance over three months prior to the start and the end of the performance period. TSR calculations are performed independently for the Committee by NBS.
– 50% of an award will be determined by the Company's NAV growth compared to the return from properties in the IPD Central London Offices Total Return Index over the performance period. Performance will be measured over a single three-year period from the start of the financial year in which the award is granted.
Vesting will be on the basis outlined below:
| TSR performance | NAV growth performance | Vesting percentage |
|---|---|---|
| Below median | Below median | 0% |
| Median | Median | 25% |
| Upper quartile | Out-perform median by 5% p.a. | 100% |
| Intermediate performance | Intermediate performance | Pro-rata between 25% and 100% |
This mix of measures is felt by the Committee to be appropriate as it rewards executives for achieving above market levels of growth in asset value and above market returns to shareholders, both key measures of performance for the Group.
Details of outstanding share entitlements under the scheme, along with associated performance conditions, are set out on page 91 in table 2.
The following diagram illustrates the balance between fixed and variable pay achieved by both the remuneration structure for John Burns and Simon Silver and that for the rest of the executives at both target and maximum levels of performance.
The target figures reflect the Committee's intention that, on average, the LTIP will deliver 60% of the maximum potential and the bonus scheme 50% of potential.
Clawback provisions are being introduced to both the bonus scheme and the Performance Share Plan which will operate in certain cases of misstatement or misconduct.
In line with best practice, the Company has a share ownership guideline for executive Directors requiring them to retain at least half of any share awards vesting from 1 January 2009 as shares (after paying any tax due on the shares) until they have a shareholding worth at least 100% of their salary (200% of salary for the CEO). David Silverman and Damian Wisniewski, who have both recently joined the Board, have yet to reach the guideline.
The service contracts of John Burns and Simon Silver are dated 20 May 1997 whilst those of Nigel George and Paul Williams are dated 31 March 1999 and that of David Silverman 2 January 2008. These contracts have no stated termination date but require 12 months' notice of termination by the Company or six months' notice by the executive. They include a provision whereby the Company will pay, by way of liquidated damages, a cash amount equivalent to 12 months' salary, benefits in kind and a pension contribution or salary supplement of at least 20% of basic salary. No defined contractual entitlement to compensation arises from a change of control of the Company. Damian Wisniewski's service contract is dated 2 February 2010. In addition to terms similar to those of the other Directors, his contract includes certain post termination restrictions and a mitigation clause. Under this mitigation clause, instead of paying the liquidated damages provision outlined above, the Company can, at its discretion, alternatively make monthly payments throughout the notice period until the executive obtains an alternative employment at which point (except in the event of the Company giving notice following a change of control) monthly payments cease or are reduced depending upon the value of remuneration arising from the alternative role. If this clause is used by the Company, monthly payments would comprise one-twelfth of the total of his annual basic salary, annual pension contribution, annual value of benefits in kind and 20% of his maximum bonus potential.
The remuneration for the Chairman is set by the full Board. The remuneration for nonexecutive Directors, which consists of fees for their services in connection with Board and Board committee meetings and, where relevant, for additional services such as chairing a Board committee, is also set by the whole Board. As part of the recruitment process, the remuneration of the non-executive Directors will be reviewed during 2012 to ensure that the fees are at an appropriate level. Neither the Chairman nor non-executive Directors are eligible for pension scheme membership and do not participate in the Company's bonus or equity-based incentive schemes although the Chairman has a number of unexercised options granted under the historic LMS Executive Share Option Scheme, details of which are given in table 4 on page 94.
The non-executive Directors do not have service contracts and are appointed for three year terms which expire as follows: Stuart Corbyn, 23 May 2012; June de Moller, 31 January 2013; Stephen Young, 9 July 2013; Simon Neathercoat, 28 February 2014; John Ivey, 12 December 2014; and Robert Farnes, 31 December 2014. Mr Rayne has a letter of appointment, which runs for three years, expiring on 31 January 2013. In addition to his fee as Chairman, it provides for a car, driver and secretary, together with a contribution to his office running costs. His letter of appointment also contains provisions relating to payment in lieu of notice, which are similar to those for the executive Directors.
Details of Directors' remuneration are given in table 1 below:
| 2,846 | 2,362 | 525 | 190 | 5,923 | 2,242 | 8,165 | 520 | |
|---|---|---|---|---|---|---|---|---|
| S.G. Young | 51 | – | – | – | 51 | – | 51 | – |
| D. Newell | 20 | – | – | – | 20 | – | 20 | – |
| J. de Moller | 47 | – | – | – | 47 | – | 47 | – |
| S.A. Corbyn | 52 | – | – | – | 52 | – | 52 | – |
| R.A. Farnes | 58 | – | – | – | 58 | – | 58 | – |
| S.J. Neathercoat | 48 | – | – | – | 48 | – | 48 | – |
| J.C. Ivey | 58 | – | – | – | 58 | – | 58 | – |
| R.A. Rayne | 150 | – | – | 31 | 181 | – | 181 | – |
| Non-executive | ||||||||
| D.G. Silverman | 300 | 300 | 37 | 19 | 656 | 260 | 916 | 65 |
| P.M. Williams | 350 | 350 | 44 | 20 | 764 | 354 | 1,118 | 80 |
| N.Q. George | 350 | 350 | 44 | 18 | 762 | 354 | 1,116 | 80 |
| D.M.A. Wisniewski | 340 | 340 | 43 | 20 | 743 | – | 743 | 74 |
| S.P. Silver | 472 | 472 | 165 | 34 | 1,143 | 585 | 1,728 | 105 |
| J.D. Burns | 550 | 550 | 192 | 48 | 1,340 | 689 | 2,029 | 116 |
| Executive | ||||||||
| 2011 | Salary and fees £'000 |
Bonus – cash £'000 |
Bonus – deferred shares £'000 |
Benefits in kind £'000 |
Sub total £'000 |
Gains from equity-settled schemes £'000 |
Total £'000 |
Pension and life assurance £'000 |
| 2010 | Salary and fees |
Bonus – cash |
Bonus – deferred shares |
Benefits in kind |
Sub total |
Gains from equity-settled schemes |
Total | Pension and life assurance |
|---|---|---|---|---|---|---|---|---|
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Executive | ||||||||
| J.D. Burns | 525 | 525 | 164 | 46 | 1,260 | 377 | 1,637 | 111 |
| S.P. Silver | 450 | 450 | 141 | 26 | 1,067 | 110 | 1,177 | 101 |
| C.J. Odom | 26 | – | – | 1 | 27 | 235 | 262 | 7 |
| N.Q. George | 335 | 335 | 31 | 14 | 715 | 520 | 1,235 | 77 |
| P.M. Williams | 335 | 335 | 31 | 20 | 721 | 365 | 1,086 | 77 |
| D.G. Silverman | 275 | 275 | 26 | 16 | 592 | 104 | 696 | 60 |
| D.M.A. Wisniewski | 289 | 289 | 27 | 18 | 623 | – | 623 | 62 |
| Non-executive | ||||||||
| R.A. Rayne | 150 | – | – | 31 | 181 | 825 | 1,006 | – |
| J.C. Ivey | 58 | – | – | – | 58 | – | 58 | – |
| S.J. Neathercoat | 49 | – | – | – | 49 | – | 49 | – |
| R.A. Farnes | 53 | – | – | – | 53 | – | 53 | – |
| S.A. Corbyn | 49 | – | – | – | 49 | – | 49 | – |
| J. de Moller | 44 | – | – | – | 44 | – | 44 | – |
| D. Newell | 44 | – | – | – | 44 | – | 44 | – |
| S.G. Young | 18 | – | – | – | 18 | – | 18 | – |
| 2,700 | 2,209 | 420 | 172 | 5,501 | 2,536 | 8,037 | 495 |
Chris Odom served as a Director for one month in 2010 and Donald Newell retired in May 2011. Damian Wisniewski and Stephen Young joined the Board in February 2010 and August 2010 respectively. John Burns served as a non-executive Director of Berendsen plc until 24 September 2010 and received fees of £30,000 in that year. In accordance with the Committee's policy, the fees were retained by Mr Burns.
Details of the conditional share awards held by Directors and employees under the Group's Performance Share Plan at 31 December 2011 are given in table 2 below:
| Table 2 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Market price at award date £ |
Earliest vesting date |
J.D. Burns |
S.P. Silver |
C.J. Odom |
N.Q. George |
P.M. Williams |
D.G. Silverman |
D.M.A. Wisniewski |
Employees | Total |
| 22.30 | 03/04/10 | 20,175 | 16,815 | 13,000 | 12,330 | 12,330 | – | – | 7,395 | 82,045 |
| 11.57 | 05/06/11 | 75,625 | 64,275 | 40,825 | 38,875 | 38,875 | 28,500 | – | 15,550 302,525 | |
| 8.25 | 15/04/12 | 106,000 | 90,150 | 57,250 | 54,500 | 54,500 | 42,700 | – | 23,000 428,100 | |
| Interest as at 1 January 2010 | 201,800 | 171,240 | 111,075 | 105,705 | 105,705 | 71,200 | – | 45,945 812,670 |
Shares conditionally awarded during the year:
| Market price at award date £ |
Earliest vesting date |
||||||||
|---|---|---|---|---|---|---|---|---|---|
| 13.66 | 01/04/13 | 67,250 | 57,650 | – | 36,780 | 36,780 | 30,190 | 34,590 | 14,640 277,880 |
Shares vested or lapsed during the year:
| Market price at award date £ |
Market price at date of vesting £ |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 22.30 | 13.81 | (9,597) | (7,998) | (6,184) | (5,865) | (5,865) | – | – | (3,517) | (39,026) |
| 22.30 | 14.09 | (2) | (2) | (1) | (1) | (1) | – | – | (1) | (8) |
| 22.30 | Lapsed | (10,576) | (8,815) | (6,815) | (6,464) | (6,464) | – | – | (3,877) | (43,011) |
| Interest as at 31 December 2010 248,875 | 212,075 | 98,075 | 130,155 | 130,155 | 101,390 | 34,590 | 53,190 1,008,505 |
Shares conditionally awarded during the year:
| Market price at award date £ |
Earliest vesting date |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 16.43 | 01/04/14 | 58,550 | 50,250 | – | 31,950 | 31,950 | 27,350 | 31,000 | 12,750 | 243,800 |
Shares vested or lapsed during the year:
| Market price at award date £ 11.57 |
Market price at date of vesting £ 18.22 |
(37,813) | (32,138) | – | (19,438) | (19,438) | (14,250) | – | (7,775) (130,852) | |
|---|---|---|---|---|---|---|---|---|---|---|
| 11.57 | 18.06 | – | – | (13,608) | – | – | – | – | – | (13,608) |
| 11.57 | Lapsed | (37,812) | (32,137) | (27,217) | (19,437) | (19,437) | (14,250) | – | (7,775) (158,065) | |
| Interest as at 31 December 2011 | 231,800 | 198,050 | 57,250 | 123,230 | 123,230 | 100,240 | 65,590 | 50,390 | 949,780 |
| 31 December 2011 |
31 December 2010 |
1 January 2010 |
|
|---|---|---|---|
| Weighted average exercise price of PSP awards | – | – | – |
| Weighted average remaining contracted life of PSP awards | 1.08 years 1.30 years 1.76 years |
At each year end, none of the outstanding awards were exercisable. The weighted average exercise price of awards that either vested or lapsed in 2011 was £nil (2010: £nil). The weighted average market price at the date of vesting in 2011 was £18.20 (2010: £13.81).
For all awards granted under the PSP:
The Committee has discretion to reduce the extent of vesting in the event that it feels that performance against either measure of performance is inconsistent with underlying financial performance.
The TSR comparator group for awards granted up to 2007 comprises the constituents, as at the date of grant, of the FTSE All-Share Real Estate Index. For subsequent awards a defined comparator group of real estate companies has been used. The comparator group for 2012 is likely to be the same as for 2011, which is set out earlier in this report. 25% of awards subject to the TSR target vest for median performance over the three-year performance period, increasing to full vesting for upper quartile performance.
If the Group's NAV performance matches that of the median performing property in the Index over the three-year performance period, 25% of awards subject to the NAV target vest. Vesting increases on a sliding scale to full vesting for matching the return from the upper quartile performing property in the Index (awards up to 2007) or for outperforming the median performing property by 5% per annum (subsequent awards).
The performance criteria in respect of the 2008 award were measured on 5 June 2011 and showed a vesting percentage of 50%. The balance of the awards lapsed. As required by the scheme rules, before allowing any vesting, the Committee considered whether the Group's TSR and NAV performance reflected its underlying financial performance. Having considered a range of key financial indicators, including profits, the Committee concluded that this was the case.
Details of the options held by Directors and employees under the Executive Share Option Scheme at 31 December 2011 are given in table 3 below. Disclosure relating to the Employee Share Option Plan in which the Directors do not participate is given in note 13.
| Exercise price £ |
Date from which exercisable |
Expiry date | J.D. Burns |
C.J. Odom |
N.Q. George |
P.M. Williams |
D.G. Silverman |
Employees | Total |
|---|---|---|---|---|---|---|---|---|---|
| 5.015 | 14/04/03 | 13/04/10 | – | – | 11,000 | – | – | – | 11,000 |
| 7.235 | 12/04/04 | 11/04/11 | 42,000 | – | 15,000 | – | – | – | 57,000 |
| 6.725 | 15/04/05 | 14/04/12 | – | – | 10,750 | 12,250 | – | 6,500 | 29,500 |
| 4.265 | 22/04/06 | 21/04/13 | – | 26,000 | 20,500 | 22,500 | – | 11,500 | 80,500 |
| 8.590 | 05/07/07 | 04/07/14 | – | – | – | – | 9,500 | 10,500 | 20,000 |
| 10.710 | 26/04/08 | 25/04/15 | – | – | – | – | 10,000 | 10,000 | 20,000 |
| 13.630 | 08/06/09 | 07/06/16 | – | – | – | – | 6,750 | 7,500 | 14,250 |
| Outstanding at 1 January 2010 | 42,000 | 26,000 | 57,250 | 34,750 | 26,250 | 46,000 | 232,250 |
No options were granted during 2010
Options exercised during 2010
| Outstanding at 31 December 2011 – |
– | – | – | 6,750 | 11,500 | 18,250 |
|---|---|---|---|---|---|---|
| No options were granted, exercised or lapsed during 2011 | ||||||
| – Outstanding at 31 December 2010 |
– | – | – | 6,750 | 11,500 | 18,250 |
| (42,000) | (26,000) | (57,250) | (34,750) | (19,500) | (34,500) | (214,000) |
| – | – | – | – | – | (3,000) | (3,000) |
| – | – | – | – | (10,000) | – | (10,000) |
| – | – | – | – | (9,500) | – | (9,500) |
| – | – | – | – | – | (3,000) | (3,000) |
| – | – | – | – | – | (10,500) | (10,500) |
| – | – | – | – | – | (11,500) | (11,500) |
| – | – | – | – | – | (6,500) | (6,500) |
| (42,000) | – | – | – | – | – | (42,000) |
| – | (26,000) | (20,500) | (22,500) | – | – | (69,000) |
| – | – | (10,750) | (12,250) | – | – | (23,000) |
| – | – | (15,000) | – | – | – | (15,000) |
| – | – | (11,000) | – | – | – | (11,000) |
The weighted average exercise price of options exercised in 2011 was £nil (2010: £6.36) and the weighted average market price at the date of exercise was £nil (2010: £13.19).
| 31 December 2011 |
31 December 2010 |
1 January 2010 |
|
|---|---|---|---|
| Number of shares: Exercisable Non-exercisable |
18,250 – |
18,250 – |
218,000 14,250 |
| Weighted average exercise price of share options: Exercisable Non-exercisable |
£12.51 – |
£12.51 – |
£6.40 £13.63 |
| Weighted average remaining contracted life of share options: Exercisable Non-exercisable |
4.01 years – |
5.01 years – |
2.78 years 6.44 years |
The exercise of options granted under the 1997 Executive Share Option Scheme is subject to a three-year performance criteria. This states that a year's options can only be exercised once the growth of the Group's net asset value per share over a subsequent three-year period exceeds the increase of the IPD Central London Office Capital Growth Index over the same period by 6% or more. All outstanding options have met this criterion.
Following the acquisition of LMS, options that had already vested under the LMS Executive Share Option Scheme were converted to options over Derwent London shares. Details of these options, all of which are exercisable, are given in table 4 below: Table 4
| Exercise price | R.A. | |
|---|---|---|
| £ | Expiry date | Rayne |
| 9.54 | 05/11/11 | 225,401 |
| 7.54 | 29/08/13 | 65,615 |
| 9.92 | 01/09/14 | 50,274 |
| 12.03 | 28/06/15 | 41,456 |
| Outstanding at 1 January 2010 | 382,746 |
Options exercised during 2010
| Market price at | ||
|---|---|---|
| Exercise price | date of exercise | |
| £ | £ | |
| 9.54 | 13.20 | (225,401) |
| Outstanding at 31 December 2010 | 157,345 |
No options were granted, exercised or lapsed in 2011
The weighted average exercise price of options exercised during 2011 was £nil (2010: £9.54) and the weighted average market price at the date of exercise £nil (2010: £13.20).
In respect of the options outstanding at 31 December 2011 in table 4 the weighted average exercise price is £9.48 (2010: £9.48) and the weighted average remaining contracted life is 2.5 years (2010: 3.5 years).
The market price of the 5p ordinary shares at 31 December 2011 was £15.60 (2010: £15.61). During the year, they traded in a range between £14.00 and £18.80 (2010: £12.08 and £16.05).
Total shareholder return compared to the FTSE All-Share Real Estate Investment Trusts Indices.
FTSE All-Share Real Estate Investment Trust Index
Source: Thomson Reuters
This graph shows the value, by the end of 2011, of a return over five years of £100 invested in Derwent Valley Holdings/Derwent London compared to that of £100 invested in the FTSE All-Share Real Estate Investment Trusts Index. This index has been chosen by the Committee as it is considered the most appropriate benchmark against which to assess the relative performance of the Company for this purpose. To produce a "fair value", each point is a 30-day average of the return.
The disclosure on Directors' remuneration in tables 1, 2, 3 and 4 above has been audited as required by the Companies Act 2006.
On behalf of the Board.
Robert A. Farnes Chairman of the Remuneration Committee 1 March 2012
Throughout the year the Committee consisted of Simon Neathercoat, John Ivey, Robert Farnes, June de Moller and Stephen Young under the chairmanship of Stuart Corbyn. Donald Newell was also a member of the Committee until his retirement in May 2011. All members are considered independent by the Company, having no day-to-day involvement with the Company.
The terms of reference for the Committee are available on the Company's website.
The Committee meets at least once a year to plan and, if appropriate, carry out the annual appraisal of the Board and its Committees. Further meetings are arranged, as required, to discharge the Committee's responsibilities in connection with identifying and nominating to the Board suitable candidates to fill vacancies for non-executive Directors and, if requested, executive Directors. The Committee met three times in 2011.
During the year, the Committee has carried out the following:
The Committee is chaired by Stephen Young, who took over the role from Simon Neathercoat on 1 April 2011. Stuart Corbyn, Robert Farnes and June de Moller served on the Committee throughout the year and Donald Newell served until his retirement in May 2011. Simon Neathercoat stepped down from the Committee on 31 December 2011. All members are considered independent by the Company, having no day-to-day involvement with the Company. Stephen Young is a qualified accountant and considered to have appropriate recent and relevant financial experience. The Committee has access to further financial expertise at the Company's expense, if required.
The terms of reference for the Committee are available on the Company's website.
The Committee met four times during the year to discharge its responsibilities. Meetings are attended by the Group's external Auditors, independent property valuers (CBRE) and members of the Group's senior management when invited.
During the year, the Committee has carried out the following:
Stephen G. Young Chairman of the Audit Committee 1 March 2012
We have audited the financial statements of Derwent London plc for the year ended 31 December 2011 which comprise Group income statement, Group and parent Company statements of comprehensive income, Group and parent Company balance sheets, Group and parent Company statements of changes in equity, Group and parent Company cashflow statements and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an Auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
As explained more fully in the statement of Directors' responsibilities, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.
A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/private.cfm.
In our opinion:
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
Richard Kelly (Senior Statutory Auditor) For and on behalf of BDO LLP, Statutory Auditor London United Kingdom 1 March 2012
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
for the year ended 31 December 2011
| 2011 | 2010 | ||
|---|---|---|---|
| Note | £m | Restated £m |
|
| Gross property income | 125.5 | 119.4 | |
| Other income | 2.0 | 1.7 | |
| Total income | 5 | 127.5 | 121.1 |
| Property outgoings | 6 | (9.8) | (8.1) |
| Net property income | 117.7 | 113.0 | |
| Administrative expenses | 2 | (22.7) | (20.9) |
| Revaluation surplus | 2 | 170.1 | 298.1 |
| Profit on disposal of investment properties | 7 | 36.1 | 0.9 |
| Profit from operations | 301.2 | 391.1 | |
| Finance income | 8 | 1.1 | 1.9 |
| Finance costs | 8 | (44.3) | (39.8) |
| Movement in fair value of derivative financial instruments | (26.5) | (2.4) | |
| Share of results of joint ventures | 9 | 1.5 | 2.0 |
| Profit before tax | 10 | 233.0 | 352.8 |
| Tax credit | 15 | 1.3 | – |
| Profit for the year | 234.3 | 352.8 | |
| Attributable to: | |||
| Equity shareholders | 32 | 228.3 | 343.6 |
| Minority interest | 6.0 | 9.2 | |
| Earnings per share | 16 | 225.20p | 339.68p |
| Diluted earnings per share | 16 | 217.67p | 337.47p |
for the year ended 31 December 2011
| 2011 | 2010 Restated |
||
|---|---|---|---|
| Note | £m | £m | |
| Profit for the year | 234.3 | 352.8 | |
| 14 | (3.5) | (0.4) | |
| 17 | 2.0 | 3.6 | |
| 29 | 0.7 | (1.0) | |
| – | 0.2 | ||
| Other comprehensive (expense)/income | (0.8) | 2.4 | |
| Total comprehensive income relating to the year | 233.5 | 355.2 | |
| 227.5 | 346.0 | ||
| Group Actuarial losses on defined benefit pension scheme Revaluation surplus of owner-occupied property Deferred tax on revaluation surplus Foreign currency translation Attributable to: Equity shareholders Minority interest Actuarial losses on defined benefit pension scheme Total comprehensive income relating to the year |
6.0 | 9.2 | |
| 233.5 | 355.2 | ||
| Company | |||
| Profit for the year | 90.3 | 131.3 | |
| 14 | (3.5) | (0.4) | |
| Other comprehensive expense | (3.5) | (0.4) | |
| 86.8 | 130.9 |
as at 31 December 2011
| Group | Company | |||||
|---|---|---|---|---|---|---|
| 2011 | 2010 Restated |
2009 Restated |
2011 | 2010 | ||
| Note | £m | £m | £m | £m | £m | |
| Non-current assets | ||||||
| Investment property | 2, 17 | 2,444.9 | 2,373.3 | 1,876.9 | – | – |
| Property, plant and equipment | 2, 18 | 19.4 | 16.7 | 13.1 | 1.6 | 0.7 |
| Investments | 19 | 9.7 | 8.4 | 6.4 | 837.6 | 712.7 |
| Deferred tax | 29 | – | – | – | 3.3 | 2.6 |
| Pension scheme surplus | 14 | – | 0.7 | 0.8 | – | 0.7 |
| Other receivables | 21 | 55.4 | 45.8 | 38.9 | – | – |
| 2,529.4 | 2,444.9 | 1,936.1 | 842.5 | 716.7 | ||
| Current assets | ||||||
| Trading properties | 22 | – | – | 1.0 | – | – |
| Trade and other receivables | 23 | 45.0 | 37.7 | 44.0 | 546.4 | 686.1 |
| Corporation tax asset | – | – | – | 0.8 | 2.1 | |
| Cash and cash equivalents | 34 | 3.5 | 7.2 | 19.0 | – | – |
| 48.5 | 44.9 | 64.0 | 547.2 | 688.2 | ||
| Non-current assets held for sale | 24 | 137.5 | – | – | – | – |
| Total assets | 2,715.4 | 2,489.8 | 2,000.1 | 1,389.7 | 1,404.9 | |
| Current liabilities | ||||||
| Bank overdraft and loans | 27 | 32.5 | 5.6 | 5.9 | 32.5 | 0.2 |
| Trade and other payables | 25 | 70.9 | 63.4 | 59.0 | 164.4 | 310.0 |
| Corporation tax liability | 1.3 | 3.3 | 5.4 | – | – | |
| Derivative financial instruments | 27 | – | – | 1.6 | – | – |
| Provisions | 26 | 1.6 | 1.4 | 2.3 | 0.5 | 0.3 |
| 106.3 | 73.7 | 74.2 | 197.4 | 310.5 | ||
| Non-current liabilities | ||||||
| Borrowings | 27 | 835.5 | 889.4 | 733.9 | 359.8 | 347.5 |
| Derivative financial instruments | 27 | 51.9 | 25.4 | 21.4 | 30.7 | 10.2 |
| Provisions | 26 | 0.5 | 0.7 | 0.8 | 0.5 | 0.7 |
| Pension scheme deficit Deferred tax |
14 29 |
1.5 5.2 |
– 5.9 |
– 5.9 |
1.5 – |
– – |
| 894.6 | 921.4 | 762.0 | 392.5 | 358.4 | ||
| Total liabilities | 1,000.9 | 995.1 | 836.2 | 589.9 | 668.9 | |
| Total net assets | 1,714.5 | 1,494.7 | 1,163.9 | 799.8 | 736.0 | |
| Equity | ||||||
| Share capital | 30 | 5.0 | 5.0 | 5.0 | 5.0 | 5.0 |
| Share premium | 31 | 162.9 | 158.2 | 156.9 | 162.9 | 158.2 |
| Other reserves | 31 | 936.6 | 924.0 | 920.1 | 600.5 | 475.1 |
| Retained earnings | 31 | 558.2 | 361.6 | 45.2 | 31.4 | 97.7 |
| Equity shareholders' funds | 1,662.7 | 1,448.8 | 1,127.2 | 799.8 | 736.0 | |
| Minority interest | 51.8 | 45.9 | 36.7 | – | – | |
| Total equity | 1,714.5 | 1,494.7 | 1,163.9 | 799.8 | 736.0 |
The financial statements were approved by the Board of Directors and authorised for issue on 1 March 2012.
for the year ended 31 December 2011
| Share | Share | Other | Retained | Minority | Total | ||
|---|---|---|---|---|---|---|---|
| capital £m |
premium £m |
reserves £m |
earnings £m |
Total £m |
interest £m |
equity £m |
|
| Group | |||||||
| At 1 January 2011 (restated) | 5.0 | 158.2 | 924.0 | 361.6 | 1,448.8 | 45.9 | 1,494.7 |
| Total comprehensive income for the year | – | – | 2.7 | 224.8 | 227.5 | 6.0 | 233.5 |
| Share-based payments expense | |||||||
| transferred to reserves | – | – | 2.4 | – | 2.4 | – | 2.4 |
| Transfer between reserves in respect | |||||||
| of performance share plan | – | – | (1.9) | 1.9 | – | – | – |
| Issue of convertible bonds | – | – | 9.4 | – | 9.4 | – | 9.4 |
| Premium on issue of shares | – | 4.7 | – | – | 4.7 | – | 4.7 |
| Dividends paid | – | – | – | (30.1) | (30.1) | (0.1) | (30.2) |
| At 31 December 2011 | 5.0 | 162.9 | 936.6 | 558.2 | 1,662.7 | 51.8 | 1,714.5 |
| At 1 January 2010 (as previously reported) | 5.0 | 156.9 | 916.8 | 48.5 | 1,127.2 | 36.7 | 1,163.9 |
| Restatement (see note 2) | – | – | 3.3 | (3.3) | – | – | – |
| At 1 January 2010 (restated) | 5.0 | 156.9 | 920.1 | 45.2 | 1,127.2 | 36.7 | 1,163.9 |
| Total comprehensive income for the year | – | – | 2.8 | 343.2 | 346.0 | 9.2 | 355.2 |
| Share-based payments expense | |||||||
| transferred to reserves | – | – | 2.2 | – | 2.2 | – | 2.2 |
| Transfer between reserves in respect | |||||||
| of performance share plan | – | – | (1.1) | 1.1 | – | – | – |
| Premium on issue of shares | – | 1.3 | – | – | 1.3 | – | 1.3 |
| Dividends paid | – | – | – | (27.9) | (27.9) | – | (27.9) |
| At 31 December 2010 (restated) | 5.0 | 158.2 | 924.0 | 361.6 | 1,448.8 | 45.9 | 1,494.7 |
| Company At 1 January 2011 |
5.0 | 158.2 | 475.1 | 97.7 | 736.0 | – | 736.0 |
| Total comprehensive income for the year | – | – | – | 86.8 | 86.8 | – | 86.8 |
| Share-based payments expense | |||||||
| transferred to reserves | – | – | 2.4 | – | 2.4 | – | 2.4 |
| Transfer between reserves in respect | |||||||
| of performance share plan | – | – | (1.9) | 1.9 | – | – | – |
| Premium on issue of shares | – | 4.7 | – | – | 4.7 | – | 4.7 |
| Transfer between reserves1 | – | – | 124.9 | (124.9) | – | – | – |
| Dividends paid | – | – | – | (30.1) | (30.1) | – | (30.1) |
| At 31 December 2011 | 5.0 | 162.9 | 600.5 | 31.4 | 799.8 | – | 799.8 |
| At 1 January 2010 | 5.0 | 156.9 | 331.2 | 136.4 | 629.5 | – | 629.5 |
| Total comprehensive income for the year | – | – | – | 130.9 | 130.9 | – | 130.9 |
| Share-based payments expense | |||||||
| transferred to reserves | – | – | 2.2 | – | 2.2 | – | 2.2 |
| Transfer between reserves in respect | |||||||
| of performance share plan | – | – | (1.1) | 1.1 | – | – | – |
| Premium on issue of shares | – | 1.3 | – | – | 1.3 | – | 1.3 |
| Transfer between reserves1 | – | – | 142.8 | (142.8) | – | – | – |
| Dividends paid | – | – | – | (27.9) | (27.9) | – | (27.9) |
| At 31 December 2010 | 5.0 | 158.2 | 475.1 | 97.7 | 736.0 | – | 736.0 |
£124.9m (2010: £142.8m) relating to the impairment of the Company's investment in LMS has been transferred to other reserves from retained earnings.
for the year ended 31 December 2011
| Group 2011 |
2010 | Company 2011 |
2010 | ||
|---|---|---|---|---|---|
| Note | £m | £m | £m | £m | |
| Operating activities | |||||
| Cash received from tenants | 116.8 | 117.1 | – | – | |
| Direct property expenses | (13.1) | (9.8) | – | – | |
| Cash paid to and on behalf of employees | (14.4) | (13.7) | (14.2) | (12.9) | |
| Other administrative expenses | (5.2) | (5.7) | (5.0) | (4.3) | |
| Interest received | – | 0.1 | – | 0.1 | |
| Interest paid | 8 | (36.5) | (38.8) | (14.6) | (24.0) |
| Other finance costs | (1.8) | (1.8) | (1.5) | (1.4) | |
| Other income | 2.1 | 2.1 | 1.8 | 2.0 | |
| Tax paid in respect of operating activities | (0.7) | (3.0) | (0.5) | (2.0) | |
| Net cash from/(used in) operating activities | 47.2 | 46.5 | (34.0) | (42.5) | |
| Investing activities | |||||
| Acquisition of investment properties Capital expenditure on investment properties |
8 | (91.6) (42.6) |
(148.0) (49.5) |
– – |
– – |
| Disposal of investment properties | 131.5 | 8.5 | – | – | |
| Purchase of property, plant and equipment | (0.2) | (0.4) | (0.2) | (0.4) | |
| Disposal of property, plant and equipment | – | 0.1 | – | 0.1 | |
| Distributions received from joint ventures | 0.3 | – | – | – | |
| Advances to minority interest holder | (0.8) | (1.0) | – | – | |
| Net cash used in investing activities | (3.4) | (190.3) | (0.2) | (0.3) | |
| Financing activities | |||||
| Net proceeds of bond issue | 170.2 | – | – | – | |
| Repayment of revolving bank loan | (75.0) | (94.2) | (75.0) | (94.2) | |
| Drawdown of new revolving bank loan | – | 60.0 | – | 60.0 | |
| Net movement in intercompany loans | – | – | 180.3 | 14.7 | |
| Net movement in other revolving bank loans | (179.1) | 193.0 | (113.0) | 94.0 | |
| Drawdown of non-revolving bank loans | 67.5 | 0.3 | 67.5 | 0.3 | |
| Repayment of loan notes | – | (0.3) | – | (0.3) | |
| Net proceeds of share issues | 30 | – | 1.3 | – | 1.3 |
| Dividends paid to minority interest holder | (0.1) | – | – | – | |
| Dividends paid | 33 | (25.4) | (27.8) | (25.4) | (27.8) |
| Net cash (used in)/from financing activities | (41.9) | 132.3 | 34.4 | 48.0 | |
| Increase/(decrease) in cash and cash equivalents in the year | 1.9 | (11.5) | 0.2 | 5.2 | |
| Cash and cash equivalents at the beginning of the year | 1.6 | 13.1 | (0.2) | (5.4) | |
| Cash and cash equivalents at the end of the year | 34 | 3.5 | 1.6 | – | (0.2) |
for the year ended 31 December 2011
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union, IFRIC 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, available for sale investments, and financial assets and liabilities held for trading. The accounting policies used are consistent with those applied in the 2010 annual financial statements, as amended to reflect the adoption of new standards, amendments and interpretations which became effective in the year and the presentational changes outlined below.
The principal accounting policies are described in note 41 and are consistent with those applied in the year ended 31 December 2010. The new standards adopted during 2011 and the changes in accounting policies in 2011 are outlined below.
The following standards, amendments and interpretations endorsed by the EU are effective for the first time for the Group's 31 December 2011 year end:
IAS 24 Related Party Disclosures (revised); IAS 32 Financial Instruments: Presentation (amendment); IFRIC 14 IAS 19 The Limit of a Defined Benefit Asset, Minimum Funding Requirements and their Interaction; IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments; and
Amendments arising from the 2010 annual improvements project.
These had no material impact on the financial statements.
At the date of authorisation of these financial statements, the following standards and interpretations applicable to the Group's financial statements which have not been applied in these financial statements were in issue but not yet effective at the year end. The following standards are deemed not relevant to the Group or to have no material impact on the financial statements of the Group when the relevant standards come into effect:
IFRS 7 Financial Instruments Disclosures (amendment);
IFRS 9 Financial Instruments;
IFRS 12 Disclosure of Interests in Other Entities;
IFRS 13 Fair Value Measurement;
IAS 1 Presentation of Financial Statements (amendment);
IAS 12 Income Taxes (amendment);
IAS 19 Employee Benefits (amendment);
The following standards will affect the accounting for any future joint arrangements entered into by the Group:
IFRS 10 Consolidated Financial Statements; and IFRS 11 Joint Arrangements.
As a result of the issue of £175m convertible bonds in June 2011, the following accounting policy has been adopted by the Group:
The fair value of the liability component of a convertible bond is determined using the market interest rate for an equivalent non-convertible bond. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or maturity of the bonds. The remainder of the proceeds is allocated to the conversion option. This is recognised and included in shareholders' equity, net of income tax effects and is not subsequently re-measured. Issue costs are apportioned between the liability and the equity components of the convertible bonds based on their carrying amounts at the date of issue. The portion relating to the equity component is charged directly against equity. The issue costs apportioned to the liability are amortised over the life of the bond. The issue costs apportioned to equity are not amortised.
In addition, with effect from 1 January 2011, the Group has made the following changes to its accounting policies:
In accordance with IAS 23, Borrowing Costs, interest has been capitalised on development projects. The Group capitalises interest on development expenditure at the average cost of borrowings during the period. In the year to 31 December 2011 the Group capitalised £2.2m of interest. Had the Group adopted this policy from 1 January 2010, interest of £0.2m would have been capitalised during the year to 31 December 2010. Due to the immaterial amounts involved in 2010 and prior years, the comparative figures have not been restated for this accounting policy change.
The Group occupies a portion of one of its properties. Due to an increased level of occupation and an uplift in the valuation, the Directors now consider the owner-occupied portion to be significant. It has, therefore, been transferred to property, plant and equipment from investment property in accordance with IAS 40, Investment Property, and IAS 16, Property, Plant and Equipment. This part of the building is now being depreciated, in a similar way to other tangible fixed assets, over its remaining useful life with the depreciation included in administrative expenses. The respective revaluation movement and associated deferred tax is recognised in other comprehensive income as opposed to the income statement and included within a revaluation reserve in equity rather than in retained earnings.
As a result of this second accounting policy change, the following adjustments have been made to the comparative income statements, statements of comprehensive income, statements of changes in equity and the balance sheets:
| Restated position | As previously reported | Impact | ||||
|---|---|---|---|---|---|---|
| 2010 £m |
2009 £m |
2010 £m |
2009 £m |
2010 £m |
2009 £m |
|
| Income statement | ||||||
| Administrative expenses1 | (20.9) | (17.6) | (20.8) | (17.5) | (0.1) | (0.1) |
| Revaluation surplus/(deficit) | 298.1 | (79.6) | 301.6 | (81.1) | (3.5) | 1.5 |
| Tax credit/(charge) | – | 8.7 | (1.0) | 9.4 | 1.0 | (0.7) |
| Profit/(loss) for the year | 352.8 | (24.8) | 355.4 | (25.5) | (2.6) | 0.7 |
| Other comprehensive income/(expense) in the year2 | 2.4 | (4.5) | (0.2) | (3.8) | 2.6 | (0.7) |
| Overall impact on total comprehensive income | – | – | ||||
| Basic earnings/(loss) per share (p) | 339.68 | (25.89) | 342.25 | (26.59) | (2.57) | 0.70 |
| Diluted earnings/(loss) per share (p) | 337.47 | (25.89) | 340.03 | (26.59) | (2.56) | 0.70 |
| Investment property £m |
Property, plant and equipment £m |
Other reserves3 £m |
Retained earnings £m |
|
|---|---|---|---|---|
| Balance sheet 1 January 2009 |
||||
| As previously reported Restated position |
2,085.6 2,072.3 |
1.2 14.5 |
923.4 927.6 |
95.0 90.8 |
| Impact | (13.3) | 13.3 | 4.2 | (4.2) |
| 31 December 2009 As previously reported Restated position |
1,888.6 1,876.9 |
1.4 13.1 |
916.8 920.1 |
48.5 45.2 |
| Impact | (11.7) | 11.7 | 3.3 | (3.3) |
| 31 December 2010 As previously reported Restated position |
2,388.5 2,373.3 |
1.5 16.7 |
918.1 924.0 |
367.5 361.6 |
| Impact | (15.2) | 15.2 | 5.9 | (5.9) |
Restatement due to the depreciation charge on the owner-occupied portion of the investment property.
Represents the revaluation surplus, net of deferred tax, for the owner-occupied portion of the investment property, previously reported in the income statement.
3 The difference represents the transfer from retained earnings to the accumulated revaluation reserve, net of deferred tax, of the owner-occupied portion of the investment property.
The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates and judgements. It also requires management to exercise judgement in the process of applying the Group's accounting policies. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results may differ from those estimates.
The Group's significant accounting policies are stated in note 41. Not all of these accounting policies require management to make difficult, subjective or complex judgements or estimates. The following is intended to provide an understanding of the policies that management consider critical because of the level of complexity, judgement or estimation involved in their application and their impact on the consolidated financial statements. These judgements involve assumptions or estimates in respect of future events. Actual results may differ from these estimates.
The Group is required to judge when there is sufficient objective evidence to require the impairment of individual trade receivables. It does this on the basis of the age of the relevant receivables, external evidence of the credit status of the debtor entity and the nature of any disputed amounts.
Exceptional items are defined as those items which are sufficiently material by either their size or nature as to require separate disclosure. Deciding which items meet this definition requires the Group to exercise its judgement.
The Group uses the valuation carried out by its independent valuers as the fair value of its property portfolio. The valuation is based upon assumptions including future rental income, anticipated maintenance costs, future development costs and the appropriate discount rate. The valuers also make reference to market evidence of transaction prices for similar properties.
Where the outcome of an outstanding rent review is reasonably certain, rent is accrued from the rent review date based upon an estimated annual rent. This estimate is derived from knowledge of market rents for comparable properties and is only accrued where the outcome is considered to be reasonably certain.
The Group is a REIT and is thereby exempt from tax on both rental profits and chargeable gains. In order to retain REIT status, certain ongoing criteria must be maintained. The main criteria are as follows:
The Directors intend that the Group should continue as a REIT for the foreseeable future, with the result that deferred tax is no longer recognised on temporary differences relating to the property rental business which is within the REIT structure.
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 its executive Board comprising the six executive Directors) in order to allocate resources to the segments and to assess their performance.
The internal financial reports received by the Group's executive Board 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 adjusted earnings per share, net asset value and profit figures. Reconciliations of each of these figures to their statutory equivalents are detailed in note 16. Additionally, information is provided to the executive Board showing gross property income and investment 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 and assets held for sale and comprises 92% office buildings¹ by value. The Directors consider that these properties have similar economic characteristics. Therefore, these individual properties have been aggregated into a single operating segment. The remaining 8% represents a mixture of retail, hotel, residential and light industrial properties, as well as land, each of which is de minimis in its own right. Accordingly, the Directors are of the view that it is appropriate to disclose two reportable segments, "office buildings" and "other", by reference to gross property income and property value.
No tenant accounts for more than 10% of gross property income in either 2011 or 2010, and no individual property accounts for more than 10% of the value of the property portfolio in either year.
Some office buildings have an ancillary element such as retail or residential.
| Property portfolio1 | ||||||
|---|---|---|---|---|---|---|
| Gross property income | Carrying value | Fair value | ||||
| 2011 | 2010 2011 2010 |
2011 | 2010 | |||
| £m | £m | £m | £m | £m | £m | |
| Office buildings | 115.5 | 109.2 | 2,397.1 | 2,173.8 | 2,439.3 | 2,205.8 |
| Other | 10.0 | 10.2 | 202.4 | 214.7 | 207.2 | 220.3 |
| 125.5 | 119.4 | 2,599.5 | 2,388.5 | 2,646.5 | 2,426.1 |
A reconciliation between the fair value and carrying value of the portfolio is set out in note 17.
All of the Group's properties are based in the UK. The Group also has a joint venture in Prague which represents 0.2% of the Group's assets (see note 19) and is excluded from this analysis. No geographical grouping is contained in any of the internal financial reports provided to the Group's executive Board. Therefore, no geographical segmental analysis is required by IFRS 8. However, the following analysis is included to provide users with additional information regarding the geographical areas contained in the business review.
| Property portfolio | ||||||
|---|---|---|---|---|---|---|
| Gross property income | Carrying value | Fair value | ||||
| 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |
| £m | £m | £m | £m | £m | £m | |
| West End central | 82.5 | 82.6 | 1,786.3 | 1,662.6 | 1,806.7 | 1,679.7 |
| West End borders | 9.2 | 7.3 | 220.3 | 174.5 | 231.4 | 178.2 |
| City borders | 27.5 | 23.9 | 482.9 | 443.3 | 493.7 | 456.1 |
| Provincial | 6.3 | 5.6 | 110.0 | 108.1 | 114.7 | 112.1 |
| 125.5 | 119.4 | 2,599.5 | 2,388.5 | 2,646.5 | 2,426.1 |
| 2011 | 2010 | |
|---|---|---|
| £m | £m | |
| Rental income | 124.1 | 118.8 |
| Surrender premiums received | 2.4 | 0.7 |
| Write-off of associated rents previously recognised in advance | (1.0) | (0.1) |
| 1.4 | 0.6 | |
| Gross property income | 125.5 | 119.4 |
| Other income | 2.0 | 1.7 |
| 127.5 | 121.1 |
Included within rental income is £1.8m (2010: £1.0m) of income from a lease at one of the Group's buildings where an agreement was entered into to restructure the lease arrangements such that the Group could obtain possession of the building whilst maintaining rental income. The Group has included the income from this building within gross property income as, although similar to a lease surrender arrangement, the Group's entitlement to this rental income is linked to its continued ownership of the property rather than being an unconditional amount receivable (whether as an upfront payment or through a series of instalments). Additionally, rental income includes £8.8m (2010: £5.4m) relating to rents recognised in advance of the cash receipts.
Other income relates to fees and commissions earned in relation to the management of the Group's properties and is recognised in the Group income statement in accordance with the delivery of services. It also includes £0.2m (2010: £nil) of development income which represents the finalisation of the profit share earned by the Group from the project management of the construction and letting of a property on behalf of a third party.
| 2011 £m |
2010 £m |
|
|---|---|---|
| Ground rents | 0.3 | 0.3 |
| Reverse surrender premiums | 1.9 | 0.2 |
| Other property costs | 7.6 | 7.6 |
| 9.8 | 8.1 |
Property outgoings include £0.2m (2010: £0.1m) of costs relating to properties which produced no income during the year.
| 2011 | 2010 | |
|---|---|---|
| £m | £m | |
| Gross disposal proceeds | 132.5 | 1.1 |
| Costs of disposal | (1.2) | – |
| Net disposal proceeds | 131.3 | 1.1 |
| Carrying value | (95.0) | (0.2) |
| Adjustment for rents recognised in advance | (0.2) | – |
| 36.1 | 0.9 |
| 2011 | 2010 | |
|---|---|---|
| £m | £m | |
| Finance income | ||
| Return on pension plan assets | 0.8 | 0.8 |
| Other | 0.3 | 1.1 |
| Total finance income | 1.1 | 1.9 |
| Finance costs | ||
| Bank loans and overdraft | 27.0 | 25.4 |
| Non-utilisation fees | 1.9 | 1.4 |
| Secured bonds | 11.4 | 11.4 |
| Unsecured convertible bonds | 3.8 | – |
| Amortisation of issue and arrangement costs | 2.0 | 1.0 |
| Amortisation of the fair value of the secured bonds | (0.8) | (0.8) |
| Finance leases | 0.5 | 0.5 |
| Pension interest costs | 0.6 | 0.6 |
| Foreign exchange loss | – | 0.2 |
| Other | 0.1 | 0.1 |
| Gross interest costs | 46.5 | 39.8 |
| Less: interest capitalised | (2.2) | – |
| Total finance costs | 44.3 | 39.8 |
Interest of £2.2m (2010: £nil) has been capitalised on development projects, in accordance with IAS 23, Borrowing Costs, using the Group's average cost of borrowings during each quarter. Total interest paid during 2011 was £38.5m (2010: £38.8m) of which £2.0m (2010: £nil) was included in capital expenditure on investment properties in the Group cash flow statement under investing activities.
The foreign exchange loss in 2010 of £0.2m resulted from the translation of an intercompany loan from a non-trading US subsidiary. The impact on net asset value from this exchange movement was minimal as there is an offsetting entry in equity (see Group statement of comprehensive income). During 2011, there was no exchange loss or gain on the intercompany loan.
Other finance income in 2010 included £0.8m received as a contribution towards the costs of arranging alternative financing upon the early repayment of a banking facility. In accordance with IAS 39, Financial Instruments: Recognition and Measurement, this amount was credited to the income statement. No such contribution was received in 2011.
| 2011 | 2010 | |
|---|---|---|
| £m | £m | |
| Revaluation surplus | 0.9 | 0.9 |
| Other profit from operations after tax | 0.6 | 1.1 |
| 1.5 | 2.0 |
See note 19 for further details of the Group's joint ventures.
| 2011 | 2010 | |
|---|---|---|
| Restated | ||
| £m | £m | |
| This is arrived at after charging: | ||
| Depreciation and amortisation | 0.4 | 0.3 |
| Contingent rent payable under property finance leases | 0.3 | 0.3 |
| Auditor's remuneration | ||
| Audit – Group | 0.3 | 0.2 |
| Audit – subsidiaries | 0.1 | 0.1 |
| 2011 | 2010 | |
|---|---|---|
| £m | £m | |
| Remuneration for management services | 5.5 | 5.0 |
| Non-executive Directors' remuneration | 0.5 | 0.5 |
| Gain on exercise of share options | 2.2 | 2.5 |
| Pension contributions | 0.5 | 0.5 |
| 8.7 | 8.5 | |
| National insurance contributions | 1.1 | 1.2 |
| 9.8 | 9.7 |
Included within the figures shown in note 12 below are amounts recognised in the Group income statement, in accordance with IFRS 2, Share-based Payment, relating to the Directors. These are an expense of £3.3m (2010: £2.6m) and a credit of £0.1m (2010: £0.1m) relating to equity-settled and cash-settled share options respectively.
Details of the Directors' remuneration awards under the long-term incentive plan and options held by the Directors under the Group share option schemes are given in the report of the Remuneration Committee on pages 86 to 95. The only key management personnel are the Directors.
| Group 2011 £m |
2010 £m |
Company 2011 £m |
2010 £m |
|
|---|---|---|---|---|
| Staff costs, including those of Directors: | ||||
| Wages and salaries | 11.0 | 10.0 | 11.0 | 10.0 |
| Social security costs | 1.6 | 1.2 | 1.6 | 1.2 |
| Pension costs | 1.3 | 1.2 | 1.3 | 1.2 |
| Share-based payments expense relating to equity-settled schemes | 3.3 | 2.6 | 3.3 | 2.4 |
| Share-based payments credit relating to cash-settled schemes | (0.1) | (0.1) | – | – |
| 17.1 | 14.9 | 17.2 | 14.8 |
The average number of employees in the Group during the year, excluding Directors, was 80 (2010: 77). The average number of employees in the Company during the year, excluding Directors, was 76 (2010: 73). All were employed in administrative roles. In addition, there were a further 13 Group employees (2010: 11) whose costs were recharged to tenants.
Details of the options held by Directors and employees under the Group's share option schemes are given in the report of the Remuneration Committee on pages 86 to 95, other than the employee share plan that is discussed below.
This scheme is separate to the performance share plan and other option schemes as disclosed in the report of the Remuneration Committee on pages 86 to 95. The Directors are not entitled to any awards under this scheme.
| Exercise | Date | |||
|---|---|---|---|---|
| price | from which | Expiry | Number | |
| £ | exercisable | date | of options | |
| Outstanding at 1 January 2010 | 6.10 | 18/03/2012 17/03/2019 | 64,500 | |
| Options granted during the year | 13.20 | 18/03/2013 17/03/2020 | 58,500 | |
| Options lapsed | 6.10 | (5,000) | ||
| Options lapsed | 13.20 | (2,500) | ||
| Options lapsed during the year | (7,500) | |||
| Outstanding at 31 December 2010 | 115,500 | |||
| Options granted during the year | 16.60 | 25/03/2014 24/03/2021 | 87,500 | |
| Options lapsed | 6.10 | (2,000) | ||
| Options lapsed | 13.20 | (3,000) | ||
| Options lapsed | 16.60 | (1,000) | ||
| Options lapsed during the year | (6,000) | |||
| Outstanding at 31 December 2011 | 197,000 |
No share options were exercisable at 31 December 2011 or 31 December 2010.
The weighted average exercise price of share options at 31 December 2011 was £12.62 (2010: £9.54). The weighted average remaining contracted life of share options at 31 December 2011 was 8.37 years (2010: 8.70 years). The weighted average exercise price of options that lapsed during 2011 was £11.40 (2010: £8.47). No share options were forfeited during 2011 or 2010.
The following information is relevant in the determination of the fair value of the options granted during 2010 and 2011 under the equity-settled employee share plan operated by the Group.
| Risk-free | |||
|---|---|---|---|
| interest | Dividend | ||
| rate | Volatility | yield | |
| Date of grant | % | % | % |
| 18 March 2010 | 3.4 | 40.0 | 2.0 |
| 25 March 2011 | 2.4 | 40.0 | 1.8 |
For both the 2011 and 2010 grants, additional assumptions have been made that there is no employee turnover and 50% of employees exercise early when the share options are 20% in the money and 50% of employees exercise early when the share options are 100% in the money. The volatility assumption, measured at the standard deviation of expected share price returns, is based on a statistical analysis of daily prices over the last three years.
All options relating to the cash-settled option scheme arose as a result of the acquisition of London Merchant Securities plc.
A binomial lattice pricing model was used to value the cash-settled options. The closing share price at 31 December 2011 of £15.60 (2010: £15.61) and a dividend yield of 1.9% (2010: 1.8%) were used together with a risk-free interest rate of 0.3% (2010: between 0.5% and 1.3%) depending on the term of the options.
Due to the small number of individuals who have been granted these options, an assumption of zero employee turnover has been made. Additionally, volatilities of 28% pa and 25% pa have been used for options with expected terms of one and two years respectively (2010: 21% pa, 44% pa and 46% pa).
In general, the value of an option is affected by how quickly employees are assumed to exercise their awards after vesting. In this case, however, given the other assumptions, the share price at 31 December 2011, and the fact that the expected lives of the options are relatively short, the fair values are not sensitive to this assumption. It has been assumed that employees try to maximise their returns and therefore do not exercise their options immediately, but tend to exercise their options later at the financially optimal date.
The Group and Company operate a defined contribution scheme and a defined benefit scheme. The latter was acquired as part of the acquisition of London Merchant Securities plc in 2007 and is closed to new members. All new employees are entitled to join the defined contribution scheme. The assets of the pension schemes are held separately from those of the Group companies.
The total expense relating to this plan in the current year was £0.9m (2010: £0.9m).
The defined benefit scheme, which is contributory for members, provides benefits based on final pensionable salary and contributions are invested in a Managed Fund Policy with F&C Fund Management Limited, Legal & General Investment Management Limited and Ruffer LLP plus annuity policies held in the name of the Trustees.
The pension charge for the defined benefit scheme is assessed in accordance with the advice of a qualified actuary. The most important assumptions made in connection with the establishment of this charge were that the return on the fund will be 6.9% pa (2010: 7.7% pa) and that salaries will be increased at 4.6% pa (2010: 5.0% pa). The market value of assets of the scheme at 31 December 2011 was £13.2m (2010: £12.0m) and the actuarial value of those assets on an ongoing basis represented 90% (2010: 110%) of the benefit of £14.7m (2010: £10.9m) that had accrued to members allowing for expected future increases in earnings. The pension deficit is £1.5m (2010: £0.7m surplus). The Group paid a deficit reduction contribution of £1.0m during the year (2010: £nil).
| 2011 | 2010 | 2009 | 2008 | 2007 | |
|---|---|---|---|---|---|
| £m | £m | £m | £m | £m | |
| Present value of funded obligations | (14.7) | (10.9) | (9.9) | (7.7) | (8.8) |
| Fair value of plan assets | 13.2 | 12.0 | 10.7 | 8.7 | 11.6 |
| Unrecognised surplus | – | (0.4) | – | – | – |
| Recognised (deficit)/surplus for defined benefit obligations | (1.5) | 0.7 | 0.8 | 1.0 | 2.8 |
| 2011 £m |
2010 £m |
2009 £m |
2008 £m |
2007 £m |
|
|---|---|---|---|---|---|
| At 1 January | 0.7 | 0.8 | 1.0 | 2.8 | – |
| Arising on acquisition of subsidiary | – | – | – | – | 1.4 |
| Net return | 1.3 | 0.3 | – | 0.3 | 0.1 |
| Actuarial (losses)/profits recognised in retained earnings | (3.5) | (0.4) | (0.2) | (2.1) | 1.3 |
| At 31 December | (1.5) | 0.7 | 0.8 | 1.0 | 2.8 |
| 2011 £m |
2010 £m |
2009 £m |
2008 £m |
2007 £m |
|
|---|---|---|---|---|---|
| Current service costs | (0.1) | (0.1) | (0.1) | (0.1) | (0.1) |
| Interest on obligation | (0.6) | (0.6) | (0.5) | (0.5) | (0.5) |
| Expected return on plan assets | 0.8 | 0.8 | 0.6 | 0.8 | 0.6 |
| 0.1 | 0.1 | – | 0.2 | – |
The income is recognised in the following line items in the income statement:
| 2011 £m |
2010 £m |
2009 £m |
2008 £m |
2007 £m |
|
|---|---|---|---|---|---|
| Administrative expenses | (0.1) | (0.1) | (0.1) | (0.1) | (0.1) |
| Other finance costs | (0.6) | (0.6) | (0.5) | (0.5) | (0.5) |
| Finance income | 0.8 | 0.8 | 0.6 | 0.8 | 0.6 |
| 0.1 | 0.1 | – | 0.2 | – |
| 2011 £m |
2010 £m |
2009 £m |
2008 £m |
2007 £m |
|
|---|---|---|---|---|---|
| At 1 January | 12.0 | 10.7 | 8.7 | 11.6 | – |
| Arising on acquisition of subsidiary | – | – | – | – | 10.8 |
| Expected return | 0.8 | 0.8 | 0.6 | 0.8 | 0.6 |
| Total contributions | 1.1 | 0.1 | 0.1 | 0.1 | 0.1 |
| Benefits paid | (0.5) | (0.4) | – | (0.4) | (0.1) |
| Actuarial (losses)/gains | (0.2) | 0.8 | 1.3 | (3.4) | 0.2 |
| At 31 December | 13.2 | 12.0 | 10.7 | 8.7 | 11.6 |
The actual return on the plan assets for the year was £0.6m (2010: £1.6m). The overall expected return on plan assets is derived as the weighted average of the long-term expected returns from each of the main asset classes. The long-term expected rate of return on cash is determined by reference to gilt rates at the balance sheet dates. The long-term expected return on bonds is determined by reference to corporate bond yields at the balance sheet date. The long-term expected rates of return on equities and property are based on the rate of return on bonds with allowance for outperformance.
| 2011 | 2010 | 2009 | 2008 | 2007 | |
|---|---|---|---|---|---|
| £m | £m | £m | £m | £m | |
| At 1 January | 10.9 | 9.9 | 7.7 | 8.8 | – |
| Arising on acquisition of subsidiary | – | – | – | – | 9.4 |
| Service cost | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 |
| Interest cost | 0.6 | 0.6 | 0.5 | 0.5 | 0.5 |
| Benefits paid | (0.5) | (0.5) | – | (0.4) | (0.1) |
| Actuarial losses/(gains) | 3.6 | 0.8 | 1.6 | (1.3) | (1.1) |
| At 31 December | 14.7 | 10.9 | 9.9 | 7.7 | 8.8 |
| 2011 | 2010 | 2009 | 2008 | 2007 | |
|---|---|---|---|---|---|
| £m | £m | £m | £m | £m | |
| Experience (losses)/gains on plan assets | (0.2) | 0.8 | 1.3 | (3.4) | 0.2 |
| Experience (losses)/gains on plan liabilities | (3.6) | (0.8) | (1.6) | 1.3 | 1.1 |
| 2011 £m |
2010 £m |
2009 £m |
2008 £m |
2007 £m |
|
|---|---|---|---|---|---|
| Equities | 2.3 | 2.9 | 9.3 | 6.6 | 9.7 |
| Bonds | 2.2 | 2.0 | 1.0 | 1.3 | 0.8 |
| Property | – | – | – | 0.1 | 0.1 |
| Cash | 1.4 | 0.3 | 0.4 | 0.7 | 1.0 |
| Funds | 7.3 | 6.8 | – | – | – |
| Total | 13.2 | 12.0 | 10.7 | 8.7 | 11.6 |
| 2011 % pa |
2010 % pa |
2009 % pa |
2008 % pa |
2007 % pa |
|
|---|---|---|---|---|---|
| Discount rate at 31 December | 4.7 | 5.4 | 5.7 | 6.3 | 5.9 |
| Expected return on plan assets at 31 December | 6.9 | 7.7 | 7.1 | 6.8 | 7.3 |
| Future salary increases | 4.6 | 5.0 | 5.0 | 4.4 | 4.7 |
| Inflation | 3.1 | 3.5 | 3.5 | 2.9 | 3.2 |
| Future pension increases | 4.6 | 5.0 | 5.0 | 5.0 | 5.0 |
| 2011 | 2010 | |
|---|---|---|
| Restated | ||
| £m | £m | |
| Corporation tax credit/(charge) | ||
| UK corporation tax and income tax on profit for the year | (0.5) | (1.2) |
| Other adjustments in respect of prior years' tax | 1.8 | 0.2 |
| 1.3 | (1.0) | |
| Deferred tax credit | ||
| Origination and reversal of temporary differences | 0.4 | 0.8 |
| Adjustment for changes in estimates | (0.4) | 0.2 |
| – | 1.0 | |
| 1.3 | – |
In addition, £0.7m (2010: £nil) of deferred tax was recognised in the statement of comprehensive income relating to revaluation of the owner-occupied investment property.
The effective rate of tax for 2011 is lower (2010: lower) than the standard rate of corporation tax in the UK. The differences are shown below:
| 2011 | 2010 | |
|---|---|---|
| Restated | ||
| £m | £m | |
| Profit before tax | 233.0 | 352.8 |
| Expected tax charge based on the standard rate of corporation tax | ||
| in the UK of 26.5% (2010: 28.0%)1 | (61.7) | (98.8) |
| Difference between tax and accounting profit on disposals | 9.6 | 1.6 |
| REIT exempt income | 7.6 | 8.5 |
| Revaluation surplus attributable to REIT properties | 44.5 | 83.3 |
| Expenses and fair value adjustments not (allowable)/deductible for tax purposes | (3.2) | 1.4 |
| Capital allowances | 3.8 | 3.4 |
| Other differences | (1.1) | 0.4 |
| Tax charge on current year's profit | (0.5) | (0.2) |
| Adjustments in respect of prior years' tax | 1.8 | 0.2 |
| 1.3 | – |
The expected tax rate for 2011 has been changed in line with the 2011 Finance Act.
On 2 June 2011, the Group issued £175m of unsecured convertible bonds. The initial conversion price of the bonds was set at £22.22 and the share price at 31 December 2011 was £15.60. Although it is not expected that the bonds would be converted at this share price, the dilutive effect of these shares is required to be recognised in accordance with IAS 33, Earnings Per Share. For the year ended 31 December 2011, these shares are dilutive for basic earnings per share. However, they are anti-dilutive for both EPRA and underlying earnings per share and all net asset per share measures, and have therefore been excluded from those calculations.
| Earnings per share | Net asset value per share | ||||
|---|---|---|---|---|---|
| Weighted average | At 31 December | ||||
| 2011 | 2010 | 2011 | 2010 | ||
| '000 | '000 | '000 | '000 | ||
| Number of shares | |||||
| For use in basic measures | 101,375 | 101,155 | 101,641 | 101,200 | |
| Dilutive effect of convertible bonds | 4,587 | – | – | – | |
| Dilutive effect of share-based payments | 667 | 661 | 656 | 669 | |
| For use in diluted earnings per share | 106,629 | 101,816 | 102,297 | 101,869 | |
| Less dilutive effect of convertible bonds | (4,587) | – | – | – | |
| For use in other diluted measures | 102,042 | 101,816 | 102,297 | 101,869 |
| Diluted | ||||
|---|---|---|---|---|
| Profit before | Earnings | earnings | ||
| tax £m |
Earnings £m |
per share p |
per share p |
|
| Diluted earnings for year ended 31 December 2011 | 232.1 | 217.67 | ||
| Interest effect of dilutive convertible bond | (3.8) | |||
| Undiluted profit/earnings | 233.0 | 228.3 | 225.20 | |
| Adjustment for: | ||||
| Disposal of properties | (36.1) | (36.1) | ||
| Group revaluation surplus | (170.1) | (169.5) | ||
| Joint venture revaluation surplus | (0.9) | (0.9) | ||
| Fair value movement in derivative financial instruments | 26.5 | 26.5 | ||
| Movement in valuation of cash-settled share options | (0.1) | (0.1) | ||
| Minority interests in respect of the above | – | 4.1 | ||
| EPRA | 52.3 | 52.3 | 51.59 | 51.25 |
| Rates credits | (1.6) | (1.6) | ||
| Underlying | 50.7 | 50.7 | 50.01 | 49.69 |
| Year ended 31 December 2010 (restated) | 352.8 | 343.6 | 339.68 | 337.47 |
| Adjustment for: | ||||
| Disposal of properties | (0.9) | (0.9) | ||
| Group revaluation surplus | (298.1) | (298.3) | ||
| Joint venture revaluation surplus | (0.9) | (0.9) | ||
| Fair value movement in derivative financial instruments | 2.4 | 2.4 | ||
| Movement in valuation of cash-settled share options | (0.1) | 0.1 | ||
| Minority interests in respect of the above | – | 7.5 | ||
| EPRA (restated) | 55.2 | 53.5 | 52.89 | 52.55 |
| Foreign exchange loss | 0.2 | 0.2 | ||
| Rates credits | (1.7) | (1.7) | ||
| Underlying (restated) | 53.7 | 52.0 | 51.41 | 51.07 |
The figures for 2010 have been restated for the change in accounting policy in respect of owner-occupied property as outlined in note 2.
| £m | Basic p |
Diluted p |
|
|---|---|---|---|
| At 31 December 2011 | |||
| Net assets | 1,714.5 | ||
| Minority interest | (51.8) | ||
| Net assets attributable to equity shareholders | 1,662.7 | 1,636 | 1,625 |
| Adjustment for: | |||
| Deferred tax on revaluation surplus | 8.2 | ||
| Fair value of derivative financial instruments | 50.3 | ||
| Fair value adjustment to secured bonds | 18.6 | ||
| EPRA adjusted net asset value | 1,739.8 | 1,712 | 1,701 |
| Adjustment for: | |||
| Deferred tax on revaluation surplus | (8.2) | ||
| Fair value of derivative financial instruments | (50.3) | ||
| Mark-to-market of unsecured bonds | 2.4 | ||
| Mark-to-market of secured bonds | (39.4) | ||
| EPRA triple net asset value | 1,644.3 | 1,618 | 1,607 |
| At 31 December 2010 | |||
| Net assets | 1,494.7 | ||
| Minority interest | (45.9) | ||
| Net assets attributable to equity shareholders | 1,448.8 | 1,432 | 1,422 |
| Adjustment for: | |||
| Deferred tax on revaluation surplus | 8.6 | ||
| Fair value of derivative financial instruments | 25.0 | ||
| Fair value adjustment to secured bonds | 19.4 | ||
| EPRA adjusted net asset value | 1,501.8 | 1,484 | 1,474 |
| Adjustment for: | |||
| Deferred tax on revaluation surplus | (8.6) | ||
| Fair value of derivative financial instruments | (25.0) | ||
| Mark-to-market of secured bonds | (16.7) | ||
| EPRA triple net asset value | 1,451.5 | 1,434 | 1,425 |
| Freehold £m |
Leasehold £m |
Total investment property £m |
Owner occupied property £m |
Assets held for sale £m |
Total property portfolio £m |
|
|---|---|---|---|---|---|---|
| Group | ||||||
| Carrying value | ||||||
| At 1 January 2011 | 1,965.7 | 407.6 | 2,373.3 | 15.2 | – | 2,388.5 |
| Acquisitions | 85.5 | 6.1 | 91.6 | – | – | 91.6 |
| Capital expenditure | 32.5 | 6.5 | 39.0 | – | 2.0 | 41.0 |
| Additions | 118.0 | 12.6 | 130.6 | – | 2.0 | 132.6 |
| Interest capitalisation | 1.9 | 0.3 | 2.2 | – | – | 2.2 |
| Disposals | (95.0) | – | (95.0) | – | – | (95.0) |
| Depreciation | – | – | – | (0.1) | – | (0.1) |
| Transfers | (58.0) | (66.3) | (124.3) | – | 123.5 | (0.8) |
| Revaluation | 136.3 | 21.8 | 158.1 | 2.0 | 12.0 | 172.1 |
| At 31 December 2011 | 2,068.9 | 376.0 | 2,444.9 | 17.1 | 137.5 | 2,599.5 |
| At 1 January 2010 (restated) | 1,526.1 | 350.8 | 1,876.9 | 11.7 | – | 1,888.6 |
| Acquisitions | 148.0 | – | 148.0 | – | – | 148.0 |
| Capital expenditure | 42.1 | 7.4 | 49.5 | – | – | 49.5 |
| Additions | 190.1 | 7.4 | 197.5 | – | – | 197.5 |
| Disposals | – | (0.2) | (0.2) | – | – | (0.2) |
| Depreciation | – | – | – | (0.1) | – | (0.1) |
| Transfer from trading property | 1.0 | – | 1.0 | – | – | 1.0 |
| Revaluation | 248.5 | 49.6 | 298.1 | 3.6 | – | 301.7 |
| At 31 December 2010 (restated) | 1,965.7 | 407.6 | 2,373.3 | 15.2 | – | 2,388.5 |
| At 1 January 2009 (restated) | 1,709.2 | 363.1 | 2,072.3 | 13.3 | – | 2,085.6 |
| Acquisitions | – | 9.8 | 9.8 | – | – | 9.8 |
| Capital expenditure | 80.2 | 11.3 | 91.5 | – | – | 91.5 |
| Additions | 80.2 | 21.1 | 101.3 | – | – | 101.3 |
| Disposals | (207.9) | (8.1) | (216.0) | – | – | (216.0) |
| Depreciation | – | – | – | (0.1) | – | (0.1) |
| Revaluation | (55.4) | (24.1) | (79.5) | (1.5) | – | (81.0) |
| Grossing up of headlease liabilities | – | (1.2) | (1.2) | – | – | (1.2) |
| At 31 December 2009 (restated) | 1,526.1 | 350.8 | 1,876.9 | 11.7 | – | 1,888.6 |
| Adjustments from fair value to carrying value | ||||||
| At 31 December 2011 | ||||||
| Fair value | 2,118.4 | 373.8 | 2,492.2 | 17.1 | 137.2 | 2,646.5 |
| Rents recognised in advance | (49.5) | (4.1) | (53.6) | – | (0.8) | (54.4) |
| Grossing up of headlease liabilities Carrying value |
– 2,068.9 |
6.3 376.0 |
6.3 2,444.9 |
– 17.1 |
1.1 137.5 |
7.4 2,599.5 |
| At 31 December 2010 | ||||||
| Fair value | 2,007.9 | 403.0 | 2,410.9 | 15.2 | – | 2,426.1 |
| Rents recognised in advance | (42.2) | (2.8) | (45.0) | – | – | (45.0) |
| Grossing up of headlease liabilities | – | 7.4 | 7.4 | – | – | 7.4 |
| Carrying value | 1,965.7 | 407.6 | 2,373.3 | 15.2 | – | 2,388.5 |
| At 31 December 2009 | ||||||
| Fair value | 1,561.6 | 345.1 | 1,906.7 | 11.7 | – | 1,918.4 |
| Rents recognised in advance | (35.5) | (1.7) | (37.2) | – | – | (37.2) |
| Grossing up of headlease liabilities | – | 7.4 | 7.4 | – | – | 7.4 |
| Carrying value | 1,526.1 | 350.8 | 1,876.9 | 11.7 | – | 1,888.6 |
The property portfolio was revalued at 31 December 2011 by external valuers, on the basis of market value as defined by the Valuation Standards published by The Royal Institution of Chartered Surveyors. CBRE Limited valued properties at £2,615.2m (2010: £2,396.2m, 2009: £1,889.9m) and other valuers at £31.3m (2010: £29.9m, 2009: £28.5m). Of the properties revalued by CBRE, £17.1m (2010: £15.2m, 2009: £11.7m) relating to owner-occupied property was included within property, plant and equipment and £137.5m (2010: £nil, 2009: £nil) was included within non-current assets held for sale.
The figures for 31 December 2010 and 31 December 2009 have been restated for the change in accounting policy in respect of owner-occupied property as outlined in note 2. Also see note 2 for the accounting policy in relation to interest capitalisation.
The revaluation surplus in the income statement of £170.1m for the year ended 31 December 2011 (2010: £298.1m) included the revaluation surplus for the non-current assets held for sale of £12.0m (2010: £nil). The revaluation surplus for the owner-occupied property of £2.0m (2010: £3.6m) was included within the revaluation reserve.
The transfer of £0.8m (2010: £nil, 2009: £nil) relates to artwork held at the Group's properties which was previously capitalised as part of the property. However, as these items are transferable and would not necessarily be included with a sale of a property they have been transferred to property, plant and equipment in the current year (see note 18).
Historical cost
| 2011 | 2010 | 2009 | |
|---|---|---|---|
| Restated | Restated | ||
| £m | £m | £m | |
| Investment property | 2,055.5 | 2,085.8 | 1,887.6 |
| Owner-occupied property | 7.3 | 7.3 | 7.2 |
| Assets held for sale | 69.2 | – | – |
| Total property portfolio | 2,132.0 | 2,093.1 | 1,894.8 |
| Owner | ||||
|---|---|---|---|---|
| occupied | ||||
| property £m |
Artwork £m |
Other £m |
Total £m |
|
| Group | ||||
| At 1 January 2011 | 15.2 | 0.7 | 0.8 | 16.7 |
| Additions | – | – | 0.3 | 0.3 |
| Transfers | – | 0.8 | – | 0.8 |
| Depreciation | (0.1) | – | (0.3) | (0.4) |
| Revaluation | 2.0 | – | – | 2.0 |
| At 31 December 2011 | 17.1 | 1.5 | 0.8 | 19.4 |
| At 1 January 2010 (restated) | 11.7 | 0.7 | 0.7 | 13.1 |
| Additions | – | – | 0.4 | 0.4 |
| Disposals | – | – | (0.1) | (0.1) |
| Depreciation | (0.1) | – | (0.2) | (0.3) |
| Revaluation | 3.6 | – | – | 3.6 |
| At 31 December 2010 (restated) | 15.2 | 0.7 | 0.8 | 16.7 |
| At 1 January 2009 (restated) | 13.3 | 0.7 | 0.5 | 14.5 |
| Additions | – | – | 0.4 | 0.4 |
| Depreciation | (0.1) | – | (0.2) | (0.3) |
| Revaluation | (1.5) | – | – | (1.5) |
| At 31 December 2009 (restated) | 11.7 | 0.7 | 0.7 | 13.1 |
| Net book value | ||||
| Cost or valuation | 17.1 | 1.5 | 1.8 | 20.4 |
| Accumulated depreciation | – | – | (1.0) | (1.0) |
| At 31 December 2011 | 17.1 | 1.5 | 0.8 | 19.4 |
| Cost or valuation | 15.2 | 0.7 | 2.9 | 18.8 |
| Accumulated depreciation | – | – | (2.1) | (2.1) |
| At 31 December 2010 (restated) | 15.2 | 0.7 | 0.8 | 16.7 |
| Cost or valuation | 11.7 | 0.7 | 2.7 | 15.1 |
| Accumulated depreciation | – | – | (2.0) | (2.0) |
| At 31 December 2009 (restated) | 11.7 | 0.7 | 0.7 | 13.1 |
The figures for 31 December 2010 and 31 December 2009 have been restated for the change in accounting policy in respect of owner-occupied property as outlined in note 2.
| Artwork £m |
Other £m |
Total £m |
|
|---|---|---|---|
| Company | |||
| At 1 January 2011 | 0.1 | 0.6 | 0.7 |
| Additions | – | 0.3 | 0.3 |
| Transfers | 0.8 | – | 0.8 |
| Depreciation | – | (0.2) | (0.2) |
| At 31 December 2011 | 0.9 | 0.7 | 1.6 |
| At 1 January 2010 | 0.1 | 0.5 | 0.6 |
| Additions | – | 0.4 | 0.4 |
| Disposals | – | (0.1) | (0.1) |
| Depreciation | – | (0.2) | (0.2) |
| At 31 December 2010 | 0.1 | 0.6 | 0.7 |
| Net book value | |||
| Cost or valuation | 0.9 | 1.6 | 2.5 |
| Accumulated depreciation | – | (0.9) | (0.9) |
| At 31 December 2011 | 0.9 | 0.7 | 1.6 |
| Cost or valuation | 0.1 | 1.8 | 1.9 |
| Accumulated depreciation | – | (1.2) | (1.2) |
| At 31 December 2010 | 0.1 | 0.6 | 0.7 |
The artwork is periodically valued by Bonhams on the basis of open market value and the Directors consider whether any valuation movements have taken place prior to each year end. The latest valuation was carried out in March 2011.
The historic cost of the artwork in the Group at 31 December 2011 was £1.5m (2010: £0.7m) and £0.9m (2010: £0.1m) in the Company. See note 17 for the historic cost of owner-occupied property.
The Group has a 50% interest in the joint venture Primister Limited and a 25% interest and 50% voting rights in the joint venture Euro Mall Sterboholy a.s..
| 2011 | 2010 | |
|---|---|---|
| £m | £m | |
| At 1 January | 8.4 | 6.4 |
| Additions | 0.1 | – |
| Distributions received | (0.3) | – |
| Share of results of joint ventures (see note 9) | 1.5 | 2.0 |
| At 31 December | 9.7 | 8.4 |
The Group's share of its investments in joint ventures is represented by the following amounts in the underlying joint venture companies.
| 2011 | 2010 | |
|---|---|---|
| £m | £m | |
| Non-current assets | 20.6 | 20.5 |
| Current assets | 2.1 | 1.8 |
| Current liabilities | (4.3) | (4.0) |
| Non-current liabilities | (8.7) | (9.9) |
| Net assets | 9.7 | 8.4 |
| Income | 3.5 | 3.8 |
| Expenses | (2.0) | (1.8) |
| Profit for the year | 1.5 | 2.0 |
| Subsidiaries £m |
Joint ventures £m |
Total £m |
|
|---|---|---|---|
| Shares in subsidiaries | |||
| At 1 January 2010 | 569.5 | – | 569.5 |
| Impairment reversal | 142.8 | – | 142.8 |
| At 31 December 2010 | 712.3 | – | 712.3 |
| Impairment reversal | 124.9 | – | 124.9 |
| At 31 December 2011 | 837.2 | – | 837.2 |
| Loans | |||
| At 1 January 2010, 31 December 2010 and 31 December 2011 | – | 0.4 | 0.4 |
| At 31 December 2011 | 837.2 | 0.4 | 837.6 |
| At 31 December 2010 | 712.3 | 0.4 | 712.7 |
At 31 December 2011 and 31 December 2010, the carrying value of the investment in London Merchant Securities Ltd was reviewed in accordance with IAS 36, Impairment of Assets on both value in use and fair value less costs to sell bases. The Company's accounting policy is to carry investments in subsidiary undertakings at the lower of cost and net asset value and recognise any impairment, or reversal thereof, in the income statement. In the opinion of the Directors, the most appropriate estimate of the recoverable amount is the net asset value of the subsidiaries. In view of the valuation movement relating to the investment properties, there has been an increase in the net asset value of the subsidiaries (2010: increase) which has been reflected as an impairment reversal in the Company income statement of £124.9m (2010: £142.8m), all of which relates to the investment in London Merchant Securities Ltd.
The principal operating companies within the Group at 31 December 2011 are:
| Ownership | Principal activity | |
|---|---|---|
| Subsidiaries | ||
| Caledonian Property Estates Limited | 100% | Property investment |
| Caledonian Property Investments Limited | 100% | Property investment |
| Central London Commercial Estates Limited | 100% | Property investment |
| Derwent Central Cross Limited1 | 100% | Property investment |
| Derwent Henry Wood Limited1 | 100% | Property investment |
| Derwent London Page Street Limited1 | 100% | Property investment |
| Derwent Valley Central Limited1 | 100% | Property investment |
| Derwent Valley Limited | 100% | Property investment |
| Derwent Valley London Limited1 | 100% | Property investment |
| Derwent Valley Property Developments Limited1 | 100% | Property investment |
| Derwent Valley Property Investments Limited1 | 100% | Property investment |
| Kensington Commercial Property Investments Limited | 100% | Property investment |
| LMS (City Road) Limited | 100% | Property investment |
| LMS Offices Limited | 100% | Property investment |
| The New River Company Limited | 100% | Property investment |
| West London & Suburban Property Investments Limited | 100% | Property investment |
| Portman Investments (Baker Street) Limited | 55% | Property investment |
| Caledonian Properties Limited | 100% | Property trading |
| Derwent London Capital (Jersey) Limited1 | 100% | Finance company |
| Derwent Valley Finance Limited | 100% | Finance company |
| London Merchant Securities Limited1 | 100% | Holding company |
Indicates subsidiary undertakings held directly.
All holdings are of ordinary shares.
| Joint ventures | ||
|---|---|---|
| Primister Limited | 50% | Property investment |
| Euro Mall Sterboholy a.s. | 25% | Property investment |
The Company controls 50% of the voting rights of each of the joint ventures. All are accounted for and disclosed in accordance with IAS 31, Interests in Joint Ventures.
All of the above companies are registered and operate in England and Wales except for Euro Mall Sterboholy a.s., which is registered in the Czech Republic and Derwent London Capital (Jersey) Limited which is registered in Jersey.
| Group | Company | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| £m | £m | £m | £m | |
| Accrued income | 50.1 | 41.3 | – | – |
| Other | 5.3 | 4.5 | – | – |
| 55.4 | 45.8 | – | – |
Accrued income relates to rents recognised in advance as a result of spreading the effect of rent-free or half rent periods and capital contributions in lieu of rent-free periods as well as contractual rent increases during the lease over the term of their respective leases. At 31 December 2011, the total rents recognised in advance were £54.4m (2010: £45.0m), with £4.3m of this amount (2010: £3.7m) included as current assets within trade and other receivables.
During the year ended 31 December 2010, trading properties of £1.0m were transferred to investment property at book value, as the Directors were of the opinion that these properties will be held for long-term capital appreciation.
| Group 2011 £m |
2010 £m |
Company 2011 £m |
2010 £m |
|
|---|---|---|---|---|
| Trade receivables | 9.0 | 7.5 | – | – |
| Amounts owed by subsidiaries | – | – | 544.5 | 684.8 |
| Other receivables | 13.0 | 11.7 | 0.7 | 0.2 |
| Prepayments | 16.5 | 14.8 | 0.7 | 0.5 |
| Sales and social security taxes | 2.2 | – | 0.5 | 0.6 |
| Accrued income | 4.3 | 3.7 | – | – |
| 45.0 | 37.7 | 546.4 | 686.1 |
| 2011 £m |
2010 £m |
|
|---|---|---|
| Group trade receivables are split as follows: | ||
| less than three months due | 8.8 | 7.2 |
| between three and six months due | 0.2 | 0.2 |
| between six and twelve months due | – | 0.1 |
| 9.0 | 7.5 |
Group trade receivables includes a provision for bad debts as follows:
| 2011 | 2010 | |
|---|---|---|
| £m | £m | |
| At 1 January | 0.9 | 1.9 |
| Additions | 0.6 | 0.5 |
| Released | (1.0) | (1.5) |
| At 31 December | 0.5 | 0.9 |
| The provision for bad debts is split as follows: | ||
| less than six months due | 0.4 | 0.4 |
| between six and twelve months due | – | 0.1 |
| over twelve months due | 0.1 | 0.4 |
| 0.5 | 0.9 |
None of the amounts included in other receivables are past due and therefore no ageing has been shown.
| 2011 £m |
2010 £m |
|
|---|---|---|
| Investment properties (see note 17) | 137.5 | – |
In February 2012, the Group signed a joint venture agreement with Grosvenor, the freeholder of 1-5 Grosvenor Place SW1, to consider the redevelopment of the site. As part of this transaction, the Group was granted a 150-year headlease and sold 50% of its ownership to the Grosvenor Estate for £60m, before costs. In addition, the Group has exchanged contracts to sell two properties with completion conditional on a suitable planning permission the receipt of which is expected to occur during the second half of 2012. Therefore, at 31 December 2011, these properties have been recognised as non-current assets held for sale in accordance with IFRS 5, Non-current Assets Held for Sale (see note 17 for historic cost).
| Group 2011 £m |
2010 £m |
Company 2011 £m |
2010 £m |
|
|---|---|---|---|---|
| Trade payables | 7.1 | 1.9 | 5.8 | 2.6 |
| Amounts owed to subsidiaries | – | – | 150.2 | 296.9 |
| Other payables | 10.9 | 10.4 | 0.2 | 0.6 |
| Sales and social security taxes | – | 0.2 | – | – |
| Accruals | 17.1 | 16.2 | 8.2 | 9.9 |
| Deferred income | 35.8 | 34.7 | – | – |
| 70.9 | 63.4 | 164.4 | 310.0 |
| Share | National insurance on |
Share | National insurance on |
|||||
|---|---|---|---|---|---|---|---|---|
| option | Onerous | share-based | 2011 | option | Onerous | share-based | 2010 | |
| liability | contract | payments | Total | liability | contract | payments | Total | |
| £m | £m | £m | £m | £m | £m | £m | £m | |
| Group | ||||||||
| At 1 January | 1.1 | 0.4 | 0.6 | 2.1 | 2.1 | 0.5 | 0.5 | 3.1 |
| (Released)/provided in the | ||||||||
| income statement | (0.1) | – | 0.3 | 0.2 | (0.1) | – | 0.2 | 0.1 |
| Utilised in year | – | (0.1) | (0.1) | (0.2) | (0.9) | (0.1) | (0.1) | (1.1) |
| At 31 December | 1.0 | 0.3 | 0.8 | 2.1 | 1.1 | 0.4 | 0.6 | 2.1 |
| Due within one year | 1.0 | 0.1 | 0.5 | 1.6 | 1.1 | 0.1 | 0.2 | 1.4 |
| Due after one year | – | 0.2 | 0.3 | 0.5 | – | 0.3 | 0.4 | 0.7 |
| 1.0 | 0.3 | 0.8 | 2.1 | 1.1 | 0.4 | 0.6 | 2.1 | |
| Company | ||||||||
| At 1 January | – | 0.4 | 0.6 | 1.0 | – | 0.5 | 0.5 | 1.0 |
| Provided in the | ||||||||
| income statement | – | – | 0.2 | 0.2 | – | – | 0.2 | 0.2 |
| Utilised in year | – | (0.1) | (0.1) | (0.2) | – | (0.1) | (0.1) | (0.2) |
| At 31 December | – | 0.3 | 0.7 | 1.0 | – | 0.4 | 0.6 | 1.0 |
| Due within one year | – | 0.1 | 0.4 | 0.5 | – | 0.1 | 0.2 | 0.3 |
| Due after one year | – | 0.2 | 0.3 | 0.5 | – | 0.3 | 0.4 | 0.7 |
| – | 0.3 | 0.7 | 1.0 | – | 0.4 | 0.6 | 1.0 |
National insurance is payable on gains made by employees on the exercise of share-based payments granted to them. The eventual liability to national insurance is dependent on:
The onerous contract relates to the excess of rent payable over rent receivable on a lease at the Group's previous head office which expires in August 2014 and reflects the discounted present value of future net payments under that lease.
A provision is made for the potential liability for cash-settled share options based on the valuation carried out at each balance sheet date (see note 13).
| Group | Company | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| £m | £m | £m | £m | |
| Current liabilities | ||||
| Bank overdraft | – | 5.6 | – | 0.2 |
| Unsecured bank loan | 31.4 | – | 31.4 | – |
| Loan notes | 1.1 | – | 1.1 | – |
| 32.5 | 5.6 | 32.5 – – – |
0.2 | |
| Non-current liabilities | ||||
| 6.5% secured bonds 2026 | 192.2 | 192.9 | – | |
| 2.75% unsecured convertible bonds 2016 | 162.4 | – | ||
| Intercompany loan | – | – | 162.1 | – |
| Bank loans | 473.5 | 656.6 | 197.7 | 315.0 |
| Unsecured bank loan | – | 31.4 | – | 31.4 |
| Loan notes | – | 1.1 | – | 1.1 |
| Leasehold liabilities | 7.4 | 7.4 | – | – |
| 835.5 | 889.4 | 359.8 | 347.5 | |
| Derivative financial instruments expiring in greater than one year | 51.9 | 25.4 | 30.7 | 10.2 |
| Total liabilities | 919.9 | 920.4 | 423.0 | 357.9 |
| Group | Company | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| £m | £m | £m | £m | |
| Secured | ||||
| Bank loans | 473.5 | 656.6 | 197.7 | 315.0 |
| 6.5% secured bonds 2026 | 192.2 | 192.9 | – | – |
| 665.7 | 849.5 | 197.7 | 315.0 | |
| Unsecured | ||||
| Loan notes | 1.1 | 1.1 | 1.1 | 1.1 |
| Bank loans | 31.4 | 31.4 | 31.4 | 31.4 |
| 2.75% unsecured convertible bonds 2016 | 162.4 | – | – | – |
| Intercompany loan | – | – | 162.1 | – |
| Overdrafts | – | 5.6 | – | 0.2 |
| 194.9 | 38.1 | 194.6 | 32.7 | |
| Gross debt | 860.6 | 887.6 | 392.3 | 347.7 |
| Leasehold liabilities | 7.4 | 7.4 | – | – |
| Total debt | 868.0 | 895.0 | 392.3 | 347.7 |
| Cash and cash equivalents | (3.5) | (7.2) | – | – |
| Net debt | 864.5 | 887.8 | 392.3 | 347.7 |
At 31 December 2011, £1,551.9m (2010: £1,482.4m) of the Group's properties were subject to a fixed charge to secure the Group's bank loans. In addition, the 2026 bonds are secured by a floating charge over a number of the Group's subsidiary companies which contain £477.0m (2010: £436.6m) of the Group's properties.
At 31 December 2011, £945.3m (2010: £750.8m) of the Group's properties were subject to a fixed charge to secure the Company's bank loans.
IFRS 7, Financial Instruments: Disclosure, requires disclosure of the maturity of the Group's and Company's remaining contractual financial liabilities. The tables below show the anticipated undiscounted cash outflows arising from the Group's gross debt.
| < 1 | 1 to 2 | 2 to 3 | 3 to 4 | 4 to 5 | > 5 | ||
|---|---|---|---|---|---|---|---|
| year £m |
years £m |
years £m |
years £m |
years £m |
years £m |
Total £m |
|
| Group | |||||||
| At 31 December 2011 | |||||||
| Bank loans | – | 274.0 | 65.0 | 40.0 | – | 98.0 | 477.0 |
| 6.5% secured bonds 2026 | – | – | – | – | – | 175.0 | 175.0 |
| 2.75% unsecured convertible bonds 2016 | – | – | – | – | 175.0 | – | 175.0 |
| Loan notes | 1.1 | – | – | – | – | – | 1.1 |
| Unsecured loans | 31.4 | – | – | – | – | – | 31.4 |
| Total on maturity | 32.5 | 274.0 | 65.0 | 40.0 | 175.0 | 273.0 | 859.5 |
| Leasehold liabilities | 0.7 | 0.7 | 0.7 | 0.7 | 0.7 | 60.3 | 63.8 |
| Interest on gross debt | 21.4 | 19.3 | 18.2 | 18.1 | 15.9 | 107.4 | 200.3 |
| Effect of interest rate swaps | 14.8 | 10.8 | 8.0 | 5.0 | 3.3 | 5.1 | 47.0 |
| Gross loan commitments | 69.4 | 304.8 | 91.9 | 63.8 | 194.9 | 445.8 | 1,170.6 |
| At 31 December 2010 | |||||||
| Bank overdrafts | 5.6 | – | – | – | – | – | 5.6 |
| Bank loans | – | – | 484.0 | 89.0 | 60.0 | 28.0 | 661.0 |
| 6.5% secured bonds 2026 | – | – | – | – | – | 175.0 | 175.0 |
| Loan notes | – | 1.1 | – | – | – | – | 1.1 |
| Unsecured loans | – | 31.4 | – | – | – | – | 31.4 |
| Total on maturity | 5.6 | 32.5 | 484.0 | 89.0 | 60.0 | 203.0 | 874.1 |
| Leasehold liabilities | 0.6 | 0.6 | 0.6 | 0.6 | 0.6 | 43.5 | 46.5 |
| Interest on gross debt | 19.7 | 25.6 | 22.0 | 15.5 | 14.6 | 119.2 | 216.6 |
| Effect of interest rate swaps | 12.7 | 8.9 | 3.0 | 0.6 | (0.7) | (7.2) | 17.3 |
| Gross loan commitments | 38.6 | 67.6 | 509.6 | 105.7 | 74.5 | 358.5 | 1,154.5 |
Reconciliation to total debt:
| Adjustments: | ||||||
|---|---|---|---|---|---|---|
| Gross loan commitments |
Interest on gross debt |
Effect of interest rate swaps |
Leasehold liabilities |
Non-cash amortisation |
Total debt |
|
| £m | £m | £m | £m | £m | £m | |
| Group | ||||||
| At 31 December 2011 | ||||||
| Maturing in: | ||||||
| < 1 year | 69.4 | (21.4) | (14.8) | (0.7) | – | 32.5 |
| 1 to 2 years | 304.8 | (19.3) | (10.8) | (0.7) | (0.3) | 273.7 |
| 2 to 3 years | 91.9 | (18.2) | (8.0) | (0.7) | (0.6) | 64.4 |
| 3 to 4 years | 63.8 | (18.1) | (5.0) | (0.7) | (1.4) | 38.6 |
| 4 to 5 years | 194.9 | (15.9) | (3.3) | (0.7) | (12.6) | 162.4 |
| > 5 years | 445.8 | (107.4) | (5.1) | (52.9) | 16.0 | 296.4 |
| 1,170.6 | (200.3) | (47.0) | (56.4) | 1.1 | 868.0 | |
| At 31 December 2010 | ||||||
| Maturing in: | ||||||
| < 1 year | 38.6 | (19.7) | (12.7) | (0.6) | – | 5.6 |
| 1 to 2 years | 67.6 | (25.6) | (8.9) | (0.6) | – | 32.5 |
| 2 to 3 years | 509.6 | (22.0) | (3.0) | (0.6) | (0.7) | 483.3 |
| 3 to 4 years | 105.7 | (15.5) | (0.6) | (0.6) | (0.9) | 88.1 |
| 4 to 5 years | 74.5 | (14.6) | 0.7 | (0.6) | (1.4) | 58.6 |
| > 5 years | 358.5 | (119.2) | 7.2 | (36.1) | 16.5 | 226.9 |
| 1,154.5 | (216.6) | (17.3) | (39.1) | 13.5 | 895.0 |
| < 1 | 1 to 2 | 2 to 3 | 3 to 4 | 4 to 5 | > 5 | ||
|---|---|---|---|---|---|---|---|
| year | years | years | years | years | years | Total | |
| £m | £m | £m | £m | £m | £m | £m | |
| Company | |||||||
| At 31 December 2011 | |||||||
| Bank loans | – | 26.0 | 65.0 | 40.0 | – | 70.0 | 201.0 |
| Intercompany loan | – | – | – | – | 175.0 | – | 175.0 |
| Loan notes | 1.1 | – | – | – | – | – | 1.1 |
| Unsecured loans | 31.4 | – | – | – | – | – | 31.4 |
| Total on maturity | 32.5 | 26.0 | 65.0 | 40.0 | 175.0 | 70.0 | 408.5 |
| Interest on debt | 7.1 | 7.0 | 6.5 | 6.2 | 4.0 | 1.6 | 32.4 |
| Effect of interest rate swaps | 7.0 | 6.9 | 5.5 | 3.5 | 2.6 | 2.1 | 27.6 |
| Gross loan commitments | 46.6 | 39.9 | 77.0 | 49.7 | 181.6 | 73.7 | 468.5 |
| At 31 December 2010 | |||||||
| Bank overdrafts | 0.2 | – | – | – | – | – | 0.2 |
| Bank loans | – | – | 170.0 | 89.0 | 60.0 | – | 319.0 |
| Loan notes | – | 1.1 | – | – | – | – | 1.1 |
| Unsecured loans | – | 31.4 | – | – | – | – | 31.4 |
| Total on maturity | 0.2 | 32.5 | 170.0 | 89.0 | 60.0 | – | 351.7 |
| Interest on debt | 4.2 | 7.0 | 7.4 | 3.1 | 2.1 | – | 23.8 |
| Effect of interest rate swaps | 5.2 | 3.4 | 1.6 | 0.5 | (0.5) | (4.8) | 5.4 |
| Gross loan commitments | 9.6 | 42.9 | 179.0 | 92.6 | 61.6 | (4.8) | 380.9 |
Reconciliation to total debt:
| Adjustments: | ||||||
|---|---|---|---|---|---|---|
| Gross loan | Interest on | Effect of interest | Leasehold | Non-cash | Total | |
| commitments | gross debt | rate swaps | liabilities | amortisation | debt | |
| £m | £m | £m | £m | £m | £m | |
| Company | ||||||
| At 31 December 2011 | ||||||
| Maturing in: | ||||||
| < 1 year | 46.6 | (7.1) | (7.0) | – | – | 32.5 |
| 1 to 2 years | 39.9 | (7.0) | (6.9) | – | (0.1) | 25.9 |
| 2 to 3 years | 77.0 | (6.5) | (5.5) | – | (0.6) | 64.4 |
| 3 to 4 years | 49.7 | (6.2) | (3.5) | – | (1.4) | 38.6 |
| 4 to 5 years | 181.6 | (4.0) | (2.6) | – | (12.9) | 162.1 |
| > 5 years | 73.7 | (1.6) | (2.1) | – | (1.2) | 68.8 |
| 468.5 | (32.4) | (27.6) | – | (16.2) | 392.3 | |
| At 31 December 2010 | ||||||
| Maturing in: | ||||||
| < 1 year | 9.6 | (4.2) | (5.2) | – | – | 0.2 |
| 1 to 2 years | 42.9 | (7.0) | (3.4) | – | – | 32.5 |
| 2 to 3 years | 179.0 | (7.4) | (1.6) | – | (0.3) | 169.7 |
| 3 to 4 years | 92.6 | (3.1) | (0.5) | – | (0.9) | 88.1 |
| 4 to 5 years | 61.6 | (2.1) | 0.5 | – | (1.3) | 58.7 |
| > 5 years | (4.8) | – | 4.8 | – | (1.5) | (1.5) |
| 380.9 | (23.8) | (5.4) | – | (4.0) | 347.7 |
Undrawn committed bank facilities – maturity profile
| < 1 year £m |
1 to 2 years £m |
2 to 3 years £m |
3 to 4 years £m |
4 to 5 years £m |
> 5 years £m |
Total £m |
|
|---|---|---|---|---|---|---|---|
| Group | |||||||
| At 31 December 2011 | 10.0 | 201.0 | 60.0 | 185.0 | – | 20.0 | 476.0 |
| At 31 December 2010 | 4.4 | – | 91.0 | 36.0 | 40.0 | 90.0 | 261.4 |
| Company | |||||||
| At 31 December 2011 | 10.0 | 74.0 | 60.0 | 185.0 | – | 20.0 | 349.0 |
| At 31 December 2010 | 4.4 | – | 30.0 | 36.0 | 40.0 | 90.0 | 200.4 |
At 31 December 2010, the Group's fixed rate debt comprised the secured bonds 2026 together with the instruments used to hedge its floating rate debt. Additionally, at 31 December 2011, it comprised the unsecured convertible bonds 2016, issued during the year. At 31 December 2011 and 31 December 2010, the Company's fixed rate debt comprised the instruments used to hedge its floating rate debt.
As a result of the acquisition of London Merchant Securities plc in 2007, the secured bonds 2026 were included at fair value less issue costs. This difference between fair value and principal value is being amortised through the income statement. The fair value shown in note 28 was determined by the ask-price of £122 per £100 as at 31 December 2011 (2010: £109 per £100). The carrying value at 31 December 2011 was £192.2m (2010: £192.9m).
In June 2011 the Group issued a convertible bond. The unsecured instrument pays a coupon of 2.75% until July 2016. In accordance with IFRS the equity and debt components of the bond are accounted for separately and the fair value of the debt component has been determined using the market interest rate for an equivalent non-convertible bond. As a result, £165.4m was recognised as a liability in the balance sheet on issue and the remainder of the proceeds, £9.6m, which represents the equity component, was credited to reserves. The difference between the fair value of the liability and the principal value is amortised through the income statement from the date of issue. Issue costs of £4.8m have been allocated between equity and debt and the element relating to the debt component is amortised over the life of the bond. The issue costs apportioned to equity of £0.2m are not amortised. The fair value shown in note 28 was determined by the ask-price of £99 per £100 as at 31 December 2011. The carrying value at 31 December 2011 was £162.4m.
Reconciliation of nominal value to carrying value:
| £m | |
|---|---|
| Nominal value | 175.0 |
| Fair value adjustment on issue allocated to equity | (9.6) |
| Debt component on issue | 165.4 |
| Unamortised issue costs | (4.0) |
| Amortisation of fair value adjustment | 1.0 |
| Carrying amount included in total debt at 31 December 2011 | 162.4 |
The hedged debt consists of interest rate swaps and, in 2010, an interest rate cap. The fair value of the interest rate swaps represents the net present value of the difference between the contracted fixed rates and the fixed rates payable if the swaps were to be replaced on 31 December 2011 for the period to the contracted expiry dates. The fair value of the interest rate cap represented the net cost of replacement on identical terms at prices prevailing on 31 December 2010.
| Group | Company | ||||||
|---|---|---|---|---|---|---|---|
| Weighted average |
Weighted average |
||||||
| Principal £m |
interest rate % |
Average life Years |
Principal £m |
interest rate % |
Average life Years |
||
| At 31 December 2011 | |||||||
| Interest rate swaps | 493.0 | 4.055 | 4.97 | 265.0 | 3.686 | 5.69 | |
| At 31 December 2010 | |||||||
| Interest rate swaps | 423.0 | 4.199 | 5.80 | 195.0 | 3.867 | 6.60 | |
| Interest rate cap | 10.0 | 6.010 | 0.46 | 10.0 | 6.010 | 0.46 |
After taking into account the various interest rate hedging instruments entered into by the Group and the Company, the interest rate exposure of the Group's and Company's gross debt was:
| Floating rate £m |
Hedged £m |
Fixed rate £m |
Gross debt £m |
Weighted average cost of debt % |
Weighted average life Years |
|
|---|---|---|---|---|---|---|
| Group | ||||||
| At 31 December 2011 | ||||||
| Bank loans | – | 473.5 | – | 473.5 | 4.87 | 2.61 |
| 6.5% secured bonds 20261 | – | – | 192.2 | 192.2 | 6.50 | 14.22 |
| 2.75% unsecured convertible bonds 20161 | – | – | 162.4 | 162.4 | 3.99 | 4.54 |
| Loan notes | 1.1 | – | – | 1.1 | 0.25 | 0.09 |
| Unsecured loans | 11.9 | 19.5 | – | 31.4 | 1.86 | 0.47 |
| 13.0 | 493.0 | 354.6 | 860.6 | 4.91 | 5.29 | |
| At 31 December 2010 | ||||||
| Bank overdrafts | 5.6 | – | – | 5.6 | 2.50 | – |
| Bank loans | 223.6 | 433.0 | – | 656.6 | 3.90 | 2.93 |
| 6.5% secured bonds 20261 | – | – | 192.9 | 192.9 | 6.50 | 15.22 |
| Loan notes | 1.1 | – | – | 1.1 | 0.18 | 1.09 |
| Unsecured loans | 31.4 | – | – | 31.4 | 1.78 | 1.47 |
| 261.7 | 433.0 | 192.9 | 887.6 | 4.34 | 5.35 | |
| Company At 31 December 2011 |
||||||
| Bank loans | – | 197.7 | – | 197.7 | 5.91 | 3.76 |
| Intercompany loan | – | – | 162.1 | 162.1 | 3.99 | 4.54 |
| Loan notes | 1.1 | – | – | 1.1 | 0.25 | 0.09 |
| Unsecured loans | 11.9 | 19.5 | – | 31.4 | 1.86 | 0.47 |
| 13.0 | 217.2 | 162.1 | 392.3 | 4.76 | 3.83 | |
| At 31 December 2010 | ||||||
| Bank overdrafts | 0.2 | – | – | 0.2 | 2.50 | – |
| Bank loans | 110.0 | 205.0 | – | 315.0 | 3.94 | 3.20 |
| Loan notes | 1.1 | – | – | 1.1 | 0.18 | 1.09 |
| Unsecured loans | 31.4 | – | – | 31.4 | 1.78 | 1.47 |
| 142.7 | 205.0 | – | 347.7 | 3.74 | 2.15 |
The weighted average costs of debt for the secured bonds and the unsecured convertible bonds are based on the nominal amounts of £175m.
The following table provides an analysis of the anticipated contractual cash flows for the derivative financial instruments using undiscounted cash flows. These amounts represent the gross cash flows of the derivative financial instruments and are settled as either a net payment or receipt.
| 2011 Receivable |
2011 Payable |
2010 Receivable |
2010 Payable |
|
|---|---|---|---|---|
| £m | £m | £m | £m | |
| Group | ||||
| Maturing in: | ||||
| < 1 year | 5.2 | (20.0) | 5.1 | (17.8) |
| 1 to 2 years | 4.3 | (15.1) | 8.9 | (17.8) |
| 2 to 3 years | 4.4 | (12.2) | 9.9 | (12.9) |
| 3 to 4 years | 4.0 | (9.0) | 9.5 | (10.1) |
| 4 to 5 years | 4.9 | (8.3) | 8.8 | (8.1) |
| > 5 years | 18.4 | (23.6) | 36.5 | (29.3) |
| Gross contractual cash flows | 41.2 | (88.2) | 78.7 | (96.0) |
| Company | ||||
| Maturing in: | ||||
| < 1 year | 2.8 | (9.8) | 2.3 | (7.5) |
| 1 to 2 years | 2.9 | (9.8) | 4.1 | (7.5) |
| 2 to 3 years | 3.0 | (8.5) | 5.9 | (7.5) |
| 3 to 4 years | 3.0 | (6.5) | 5.8 | (6.3) |
| 4 to 5 years | 3.7 | (6.3) | 4.8 | (4.3) |
| > 5 years | 10.3 | (12.4) | 19.1 | (14.3) |
| Gross contractual cash flows | 25.7 | (53.3) | 42.0 | (47.4) |
| Fair value | Total | ||||
|---|---|---|---|---|---|
| through profit | Loans and | Amortised | carrying | ||
| and loss £m |
receivables £m |
cost £m |
value £m |
Fair value £m |
|
| Group | |||||
| Financial assets | |||||
| Cash and cash equivalents | – | 3.5 | – | 3.5 | 3.5 |
| Other assets – current1 | – | 26.3 | – | 26.3 | 26.3 |
| – | 29.8 | – | 29.8 | 29.8 | |
| Financial liabilities | |||||
| Borrowings due within one year | – | – | (32.5) | (32.5) | (32.5) |
| Borrowings due after one year | – | – | (480.9) | (480.9) | (484.4) |
| 6.5% secured bonds 2026 | – | – | (192.2) | (192.2) | (214.4) |
| 2.75% unsecured convertible bonds 2016 | – | – | (162.4) | (162.4) | (164.0) |
| Derivative financial instruments | (51.9) | – | – | (51.9) | (51.9) |
| Other liabilities – current2 | – | – | (35.1) | (35.1) | (35.1) |
| (51.9) | – | (903.1) | (955.0) | (982.3) | |
| At 31 December 2011 | (51.9) | 29.8 | (903.1) | (925.2) | (952.5) |
| Financial assets | |||||
| Cash and cash equivalents | – | 7.2 | – | 7.2 | 7.2 |
| Other assets – current1 | – | 22.9 | – | 22.9 | 22.9 |
| – | 30.1 | – | 30.1 | 30.1 | |
| Financial liabilities | |||||
| Bank overdrafts | – | – | (5.6) | (5.6) | (5.6) |
| Borrowings due after one year | – | – | (696.5) | (696.5) | (700.9) |
| 6.5% secured bonds 2026 | – | – | (192.9) | (192.9) | (191.7) |
| Derivative financial instruments | (25.4) | – | – | (25.4) | (25.4) |
| Other liabilities – current2 | – | – | (28.5) | (28.5) | (28.5) |
| (25.4) | – | (923.5) | (948.9) | (952.1) | |
| At 31 December 2010 | (25.4) | 30.1 | (923.5) | (918.8) | (922.0) |
| Company | |||||
| Financial assets | |||||
| Other assets – current1 | – | 545.2 | – | 545.2 | 545.2 |
| – | 545.2 | – | 545.2 | 545.2 | |
| Financial liabilities | |||||
| Borrowings due within one year | – | – | (32.5) | (32.5) | (32.5) |
| Borrowings due after one year | – | – | (197.7) | (197.7) | (201.0) |
| Intercompany loan | – | – | (162.1) | (162.1) | (164.0) |
| Derivative financial instruments | (30.7) | – | – | (30.7) | (30.7) |
| Other liabilities – current2 | – | (150.2) | (14.2) | (164.4) | (164.4) |
| (30.7) | (150.2) | (406.5) | (587.4) | (592.6) | |
| At 31 December 2011 | (30.7) | 395.0 | (406.5) | (42.2) | (47.4) |
| Financial assets | |||||
| Other assets – current1 | – | 685.0 | – | 685.0 | 685.0 |
| – | 685.0 | – | 685.0 | 685.0 | |
| Financial liabilities | |||||
| Bank overdrafts | – | – | (0.2) | (0.2) | (0.2) |
| Borrowings due after one year | – | – | (347.5) | (347.5) | (351.5) |
| Derivative financial instruments | (10.2) | – | – | (10.2) | (10.2) |
| Other liabilities – current2 | – | (296.9) | (13.1) | (310.0) | (310.0) |
| (10.2) | (296.9) | (360.8) | (667.9) | (671.9) | |
| At 31 December 2010 | (10.2) | 388.1 | (360.8) | 17.1 | 13.1 |
1 Other assets includes all amounts shown as trade and other receivables in note 23 except prepayments and sales and social security taxes of £18.7m (2010: £14.8m) for the Group and £1.2m (2010: £1.1m) for the Company. All amounts are non-interest bearing and are receivable within one year.
2 Other liabilities for the Group include all amounts shown as trade and other payables in note 25 except deferred income of £35.8m (2010: £34.7m) and sales and social security taxes of £nil (2010: £0.2m). All amounts are non-interest bearing and are due within one year.
Reconciliation of net financial assets and liabilities to total borrowings and derivatives:
| Group 2011 £m |
2010 £m |
Company 2011 £m |
2010 £m |
|
|---|---|---|---|---|
| Net financial assets and liabilities | (925.2) | (918.8) | (42.2) | 17.1 |
| Other assets – current | (26.3) | (22.9) | (545.2) | (685.0) |
| Other liabilities – current | 35.1 | 28.5 | 164.4 | 310.0 |
| Cash and cash equivalents | (3.5) | (7.2) | – | – |
| Total net borrowings and derivatives | (919.9) | (920.4) | (423.0) | (357.9) |
All the Group's and Company's financial liabilities designated at fair value through profit and loss are defined as level 2, in accordance with IFRS 7, as they are derived from inputs other than quoted prices which are observable from the liability. There have been no transfers between level 1 and level 2 in 2011 or 2010.
The Group is exposed through its operations to the following financial risks:
In common with all 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. Further information on risk as required by IFRS 7 is given on pages 25 to 27 and page 81.
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 periods.
The Company has the same risk profile as the Group (except tenant credit risk, which does not exist in the Company) and therefore no separate analysis has been provided in relation to the Company.
The principal financial instruments used by the Group, from which financial instrument risk arises, are trade receivables, cash at bank, bank overdraft, trade and other payables, floating rate bank loans, secured and unsecured bonds, interest rate swaps and, in 2010, an interest rate cap.
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 for designing and operating processes that ensure the effective implementation of the objectives and policies to executive management.
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 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 its lease contracts. It is Group policy to assess the credit risk of new tenants before entering into 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 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 quantitative disclosures of the credit risk exposure in relation to trade and other receivables which are neither past due nor impaired are disclosed in note 23.
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 arises from the Group's use of interest bearing instruments. It is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk).
The Group is exposed to cash flow interest rate risk from borrowings at variable rates. It is currently Group policy that 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 at least 60% and no more than 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 31 December 2011, the proportion of fixed debt held by the Group was above this range at 98%. In January 2012, two interest rate swaps were broken and replaced with a lower value of swap. This had the effect of reducing this figure to 90%. During both 2011 and 2010, the Group's borrowings at variable rate were denominated in sterling.
The Group monitors the interest rate exposure on a regular basis. A sensitivity analysis was performed to ascertain the impact on profit or loss and net assets of a 50 basis point shift in interest rates and this would result in an increase of £0.1m (2010: £1.3m) or a decrease of £0.1m (2010: £1.3m).
The Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps (quantitative disclosures are given in note 27). The Group generally raises long-term borrowings at floating rates and swaps them into fixed.
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 "fair value and cash flow interest rate risk" section above.
The executive management receives rolling three-month cash flow projections on a monthly basis and three-year projections of 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 are spread across a range of banks so as to minimise any potential concentration of risk. The liquidity risk of the Group is managed centrally by the finance department.
The Group's capital comprises all components of equity (share capital, share premium, other reserves, retained earnings and minority 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 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 adjust the amount of dividends paid to shareholders, 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 balance sheet gearing and the loan to value ratio. During 2011, the Group's strategy, which was unchanged from 2010, was to maintain the balance sheet gearing below 80% in normal circumstances. The three gearing ratios are defined on page 143 and are derived below.
| 2011 £m |
2010 £m |
|
|---|---|---|
| Net debt | 864.5 | 887.8 |
| Net assets | 1,714.5 | 1,494.7 |
| Balance sheet gearing | 50.4% | 59.4% |
| 2011 | 2010 | |
|---|---|---|
| £m | £m | |
| Net debt | 864.5 | 887.8 |
| Unamortised issue costs and fair value adjustment of secured bonds | (18.6) | (19.4) |
| Unamortised arrangement costs | 7.9 | 5.9 |
| Leasehold liabilities | (7.4) | (7.4) |
| Drawn facilities | 846.4 | 866.9 |
| Fair value of property portfolio | 2,646.5 | 2,426.1 |
| Loan to value ratio | 32.0% | 35.7% |
| 2011 | 2010 | |
|---|---|---|
| £m | £m | |
| Gross property income | 125.5 | 119.4 |
| Surrender premiums | (2.4) | (0.7) |
| Ground rent | (0.8) | (0.8) |
| Gross rental income net of ground rent | 122.3 | 117.9 |
| Net finance costs | 43.2 | 37.9 |
| Foreign exchange loss | – | (0.2) |
| Net pension return | 0.2 | 0.3 |
| Finance lease costs | (0.5) | (0.5) |
| Amortisation of fair value adjustment to secured bonds | 0.8 | 0.8 |
| Amortisation of issue and arrangement costs | (2.0) | (1.0) |
| Non-utilisation fees | (1.9) | (1.4) |
| Net interest payable | 39.8 | 35.9 |
| Interest cover ratio | 307% | 328% |
| Revaluation | |||
|---|---|---|---|
| surplus | Other | Total | |
| £m | £m | £m | |
| Group | |||
| Deferred tax liability | |||
| At 1 January 2011 | 8.9 | (3.0) | 5.9 |
| Released during the year in other comprehensive income | (0.7) | – | (0.7) |
| Provided/(released) during the year in the income statement | 1.2 | (0.8) | 0.4 |
| Change in tax rates | (0.6) | 0.2 | (0.4) |
| At 31 December 2011 | 8.8 | (3.6) | 5.2 |
| At 1 January 2010 | 8.1 | (2.2) | 5.9 |
| Provided during the year in other comprehensive income | 1.0 | – | 1.0 |
| Provided/(released) during the year in the income statement | 0.1 | (0.9) | (0.8) |
| Change in tax rates | (0.3) | 0.1 | (0.2) |
| At 31 December 2010 | 8.9 | (3.0) | 5.9 |
| Company | |||
| Deferred tax asset | |||
| At 1 January 2011 | – | 2.6 | 2.6 |
| Provided during the year in the income statement | – | 0.8 | 0.8 |
| Change in tax rates | – | (0.1) | (0.1) |
| At 31 December 2011 | – | 3.3 | 3.3 |
| At 1 January 2010 | – | 1.6 | 1.6 |
| Provided during the year in the income statement | – | 1.1 | 1.1 |
| Change in tax rates | – | (0.1) | (0.1) |
| At 31 December 2010 | – | 2.6 | 2.6 |
Deferred tax on the revaluation surplus is calculated on the basis of the chargeable gains that would crystallise on the sale of the investment property portfolio as at each balance sheet date. The calculation takes account of indexation on the historic cost of the properties and any available capital losses. Due to the Group's REIT status, deferred tax is only provided at each balance sheet date on properties outside of the REIT regime.
The authorised share capital was £6.04m at 1 January 2010, 31 December 2010 and 31 December 2011. The number of 5p ordinary shares in issue at the year end was 101,640,982 (2010: 100,200,297). In 2011, 296,225 (2010: nil) shares were issued as a result of scrip dividends awarded during the year, 144,460 (2010: 39,034) shares were issued as a result of awards vesting under the Group's Performance Share Plan, and, in 2010, 211,000 shares were issued as a result of the exercise of share options which realised proceeds of £1.3m. The number of outstanding share options and other share awards granted are disclosed in the report of the Remuneration Committee on pages 86 to 95 and note 13.
The following describes the nature and purpose of each reserve within shareholders' equity:
| Reserve Share premium Other |
Description and purpose Amount subscribed for share capital in excess of nominal value less directly attributable issue costs. |
|---|---|
| Merger | Premium on the issue of shares as equity consideration for the acquisition of London Merchant Securities plc (LMS). The Company balance also includes its impairment of the investment in LMS. |
| Foreign exchange Revaluation Other |
Gains or losses arising on retranslating the net assets of overseas operations. Revaluation of the owner-occupied property and the associated deferred tax. Equity portion of the convertible bonds. |
| Retained earnings | Fair value of equity instruments granted but not yet exercised under share-based payments. Cumulative net gains and losses recognised in the Group income statement. |
The breakdown of other reserves is as follows:
| Group | Company | ||||
|---|---|---|---|---|---|
| 2011 | 2010 | 2009 | 2011 | 2010 | |
| Restated | Restated | ||||
| £m | £m | £m | £m | £m | |
| Merger reserve | 910.5 | 910.5 | 910.5 | 596.7 | 471.8 |
| Foreign exchange translation reserve | 4.2 | 4.2 | 4.0 | – | – |
| Revaluation reserve | 8.7 | 6.0 | 3.4 | – | – |
| Equity portion of the convertible bonds | 9.4 | – | – | – | – |
| Fair value of equity instruments under share-based payments | 3.8 | 3.3 | 2.2 | 3.8 | 3.3 |
| 936.6 | 924.0 | 920.1 | 600.5 | 475.1 |
The revaluation reserve has been restated in 2010 and 2009 for the change in accounting policy in respect of owner-occupied property as outlined in note 2.
The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and has not presented its own income statement in these financial statements. Profit for the year includes a profit of £90.3m (2010: £131.3m) which has been dealt with in the accounts of the Company.
| Dividend | ||||
|---|---|---|---|---|
| Payment | per share | 2011 | 2010 | |
| date | p | £m | £m | |
| Current year | ||||
| 2011 final dividend | 15 June 2012 | 21.90 | – | – |
| 2011 interim dividend | 4 November 2011 | 9.45 | 9.6 | – |
| Distribution of current year profit | 31.35 | 9.6 | – | |
| Prior year | ||||
| 2010 final dividend | 16 June 2011 | 20.25 | 20.5 | – |
| 2010 interim dividend | 5 November 2010 | 8.75 | – | 8.8 |
| Distribution of prior year profit | 29.00 | 20.5 | 8.8 | |
| 2009 final dividend | 17 June 2010 | 18.85 | – | 19.1 |
| Dividends as reported in the Group statement of changes in equity | 30.1 | 27.9 | ||
| 2011 interim dividend withholding tax | 27 January 2012 | (1.4) | – | |
| 2011 interim scrip dividend | 4 November 2011 | (2.3) | – | |
| 2010 final scrip dividend | 16 June 2011 | (2.4) | – | |
| 2010 interim dividend withholding tax | 14 January 2011 | 1.4 | (1.4) | |
| 2009 interim dividend withholding tax | 14 January 2010 | – | 1.3 | |
| Dividends paid as reported in the Group cash flow statement | 25.4 | 27.8 |
| Group | Company | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| £m | £m | £m | £m | |
| Overdrafts | – | (5.6) | – | (0.2) |
| Short-term deposits | 3.5 | 7.2 | – | – |
| 3.5 | 1.6 | – | (0.2) |
| 2011 | 2010 | |
|---|---|---|
| % | % | |
| Total return | 17.4 | 29.3 |
Contracts for capital expenditure entered into by the Group at 31 December 2011 and not provided for in the accounts amounted to £17.0m (2010: £11.6m). These contracts relate wholly to the construction, development or enhancement of the Group's investment properties. At 31 December 2011 and 31 December 2010, there were no obligations for the purchase, repair or maintenance of investment properties.
The Company and its subsidiaries are party to cross guarantees securing the overdraft and certain bank loans. At 31 December 2011 the maximum liability that could arise for the Company from the cross guarantees amounted to £nil (2010: £5.4m).
Where the Company enters into financial guarantee contracts and guarantees the indebtedness of other companies within the Group, the Company considers these to be insurance arrangements, and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time that it becomes probable that the Company will be required to make a payment under the guarantee.
In February 2012, the Group signed a joint venture agreement with Grosvenor, for the future development of 1-5 Grosvenor Place, SW1. As part of the transaction the headleases, that were due to expire in 2063 and 2084, were regeared into a new 150-year term at a ground rent of 5% of rental income. Simultaneously, the Group has sold 50% of its ownership to Grosvenor and received £60m, before costs.
| 2011 £m |
2010 £m |
|
|---|---|---|
| Operating lease receipts | ||
| Minimum lease receipts under non-cancellable operating leases to be received: | ||
| not later than one year | 117.8 | 112.2 |
| later than one year and not later than five years | 333.7 | 315.4 |
| later than five years | 839.8 | 815.7 |
| 1,291.3 | 1,243.3 | |
| 2011 | 2010 | |
| £m | £m | |
| Finance lease obligations | ||
| Minimum lease payments under finance leases that fall due: | ||
| not later than one year | 0.7 | 0.6 |
| later than one year and not later than five years | 2.8 | 2.4 |
| later than five years | 60.3 | 43.5 |
| 63.8 | 46.5 | |
| Future contingent rent payable on finance leases | (23.3) | (5.9) |
| Future finance charges on finance leases | (33.1) | (33.2) |
| Present value of finance lease liabilities | 7.4 | 7.4 |
| Present value of minimum finance lease obligations: | ||
| later than one year and not later than five years | 0.1 | 0.1 |
| later than five years | 7.3 | 7.3 |
| 7.4 | 7.4 |
In accordance with IAS 17, Leases, the minimum lease payments are allocated as follows:
| 2011 £m |
2010 £m |
|
|---|---|---|
| Finance charge | 0.5 | 0.5 |
| Contingent rent | 0.3 | 0.3 |
| Total | 0.8 | 0.8 |
The Group has over 800 leases granted to its tenants. These vary dependent on the individual tenant and the respective property and demise but typically are let for a term of five to 15 years, at a market rent with provisions to review to market rent every five years. Standard lease provisions include service charge payments and recovery of other direct costs.
The weighted average lease length of the leases granted during 2011 was 10.0 years (2010: 8.4 years). Of these leases, 59% (2010: 47%) included a rent-free or half rent period or at the start of the lease.
Details of Directors' remuneration are given in the report of the Remuneration Committee on pages 86 to 95 and note 11. Other related party transactions are as follows:
Up until 1 October 2011, John Burns and Simon Silver were partners in The Pilcher Hershman Partnership (LLP), estate agents, when they resigned. After their resignation they held no further interest in the partnership. The partnership received fees at a commercial rate in respect of the letting, acquisition and disposal of certain properties owned by the Group of £0.5m in the nine months to 30 September 2011 (year to 31 December 2010: £0.5m). Procedures had been established whereby the Audit Committee were able to verify that neither John Burns nor Simon Silver derived any direct benefit from these fees.
In 2011, following a move to smaller premises, LMS Capital plc, an investment company of which Robert Rayne is a director, occupied offices owned by the Group for which they paid a commercial rent of £0.2m (2010: £0.4m). The Group also contributed £0.1m (2010: £0.1m) to LMS Capital plc's running costs in the year.
During the year, the Group paid fees at a commercial rate in respect of the acquisition of certain properties of £nil (2010: £0.2m) to Everton Philips LLP, a firm in which the son of Mr J.D. Burns was a partner, and £0.1m (2010: £nil) in respect of the disposal of certain properties to Hamilton Investment Properties Ltd, a company of which Mr S.P. Silver's son was a director.
There are no outstanding balances owed to the Group with respect to all of the above transactions.
At 31 December 2011, included within other receivables in note 23 is an amount owed by the Portman Estate, the minority owner of one of the Group's subsidiaries, of £10.2m (2010: £9.7m). The majority of this amount represents advances to the Portman Estate, relating to proceeds received upon the disposal of jointly owned properties. This debt will be discharged by a distribution to shareholders.
The Company received interest from some of its subsidiaries during the year. These transactions are summarised below:
| Interest (payable)/receivable | Balance owed/(owing) | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| £m | £m | £m | £m | |
| Related party | ||||
| Derwent Central Cross Limited | 6.9 | 2.9 | 146.9 | 145.6 |
| Derwent Henry Wood Limited | 2.3 | 0.2 | 49.0 | 49.4 |
| Derwent Valley Central Limited | 4.3 | 12.0 | 143.3 | 219.5 |
| Derwent Valley London Limited | 5.0 | 6.4 | 108.6 | 135.7 |
| Derwent Valley Property Developments Limited | 3.3 | 2.7 | 92.5 | 58.6 |
| Derwent Valley Property Investments Limited | (2.6) | (0.2) | (73.3) | (3.2) |
| Derwent Valley West End Limited | – | (0.1) | – | (2.1) |
| Derwent London Page Street Limited | – | – | 0.4 | – |
| Derwent London Capital (Jersey) Limited1 | (2.8) | – | (164.8) | – |
| Derwent Valley Property Trading Limited | – | 0.1 | – | 0.1 |
| Derwent Valley Railway Company2 | – | – | (0.2) | (0.2) |
| London Merchant Securities Limited3 | (4.4) | (6.4) | (69.7) | (215.5) |
| 12.0 | 17.6 | 232.2 | 387.9 |
The payable balance at 31 December 2011 includes the long-term intercompany loan of £162.1m (2010: £nil) included in note 27.
Dormant company.
Balance owed includes subsidiaries which form part of the LMS sub-group.
The Group has not made any provision for bad or doubtful debts in respect of related party debtors. Intercompany balances are repayable on demand except the long-term loan from Derwent London Capital (Jersey) Limited, the payment and repayment terms of which mirror those of the convertible bonds.
From 1 January 2010, interest was charged on the on-demand intercompany balances at an arm's length basis.
The Group financial statements incorporate the financial statements of Derwent London plc and all of its subsidiaries, together with the Group's share of the results of its joint ventures.
Subsidiary undertakings are those entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences and until the date control ceases.
Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement. Interests in joint ventures are accounted for using the equity method of accounting as permitted by IAS 31, Interests in Joint Ventures, and following the procedures for this method set out in IAS 28, Investments in Associates. The equity method requires the Group's share of the joint venture's post-tax profit or loss for the period to be presented separately in the income statement and the Group's share of the joint venture's net assets to be presented separately in the balance sheet.
Intra-group balances and any unrealised gains and losses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with joint ventures are eliminated to the extent of the Group's interest in the joint venture concerned. Unrealised losses are eliminated in the same way, but only to the extent that there is no evidence of impairment.
Gross property income arises from two main sources:
(i) Rental income – This arises from operating leases granted to tenants. An operating lease is a lease other than a finance lease. A finance lease is one whereby substantially all the risks and rewards of ownership are passed to the lessee.
Rental income is recognised in the Group income statement on a straight-line basis over the term of the lease in accordance with SIC 15, Operating Leases – Incentives. This includes the effect of lease incentives given to tenants, which are normally in the form of rent-free or half rent periods or capital contributions in lieu of rent-free periods and the effect of payments received from tenants on the grant of leases.
For income from property leased out under a finance lease, a lease receivable asset is recognised in the balance sheet at an amount equal to the net investment in the lease, as defined in IAS 17, Leases. Minimum lease payments receivable, again defined in IAS 17, are apportioned between finance income and the reduction of the outstanding lease receivable so as to produce a constant periodic rate of return on the remaining net investment in the lease. Contingent rents, being the difference between the rent currently receivable and the minimum lease payments when the net investment in the lease was originally calculated, are recognised in property income in the years in which they are receivable.
(ii) Surrender premiums – Payments received from tenants to surrender their lease obligations are recognised immediately in the Group income statement.
Other income consists of commissions and fees arising from the management of the Group's properties and is recognised in the Group income statement in accordance with the delivery of service.
In accordance with IAS 23, Borrowing Costs, the Group capitalises interest on development expenditure at the average cost of borrowings during the period.
Under the transitional provisions of IFRS 1, no expense is recognised for options or conditional shares granted on or before 7 November 2002.
Business combinations are accounted for under the acquisition method. Any excess of the purchase price of business combinations over the fair value of the assets, liabilities and contingent liabilities acquired and resulting deferred tax thereon is recognised as goodwill. Any discount is credited to the Group income statement in the period of acquisition. Goodwill is recognised as an asset and reviewed for impairment. Any impairment is recognised immediately in the Group income statement and is not subsequently reversed. Any residual goodwill is reviewed annually for impairment.
(i) Valuation – Investment properties are those that are held either to earn rental income or for capital appreciation or both, including those that are undergoing redevelopment. Investment properties are measured initially at cost, including related transaction costs. After initial recognition, they are carried in the Group balance sheet at fair value adjusted for the carrying value of leasehold interests and lease incentive debtors. Fair value is the amount for which an investment property could be exchanged between knowledgeable and willing parties in an arm's length transaction. The valuation is undertaken by independent valuers who hold recognised and relevant professional qualifications and have recent experience in the locations and categories of properties being valued.
Surpluses or deficits resulting from changes in the fair value of investment property are reported in the Group income statement in the year in which they arise.
Investments in joint ventures, being those entities over whose activities the Group has joint control, as established by contractual agreement, are included in the Group's balance sheet at cost together with the Group's share of post-acquisition reserves, on a net equity basis. Investments in subsidiaries and joint ventures are included in the Company's balance sheet at the lower of cost and their net asset value. Any impairment is recognised immediately in the income statement.
Non-current assets are classified as held for sale if their carrying value will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met if the sale is highly probable, the asset is available for immediate sale in its present condition, being actively marketed and management is committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification.
Non-current assets, including related liabilities, classified as held for sale are measured at the lower of carrying value and fair value less costs of disposal.
At each reporting date, these interest rate derivatives are measured at fair value, being the estimated amount that the Group would receive or pay to terminate the agreement at the balance sheet date, taking into account current interest rates and the current credit rating of the counterparties. The gain or loss at each fair value remeasurement is recognised in the Group income statement.
(v) Trade payables – Trade payables are recognised and carried at the original transaction value.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the tax computations, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. In respect of the deferred tax on the revaluation surplus, this is calculated on the basis of the chargeable gains that would crystallise on the sale of the investment portfolio as at the reporting date. The calculation takes account of available indexation on the historic cost of the properties and any available capital losses.
Deferred tax is calculated at the tax rates that are expected to apply in the period, based on Acts substantially enacted at the year end, when the liability is settled or the asset is realised. Deferred tax is included in profit or loss for the period, except when it relates to items recognised in other comprehensive income or directly in equity.
Dividends payable on the ordinary share capital are recognised in the year in which they are declared.
On consolidation, the assets and liabilities of foreign entities are translated into sterling at the rate of exchange ruling at the balance sheet date and their income statement and cash flows are translated at the average rate for the period. Exchange differences arising from the retranslation of long-term monetary items forming part of the Group's net investment in foreign entities are recognised in the foreign exchange reserve on consolidation.
Transactions entered into by Group entities in currencies other than the entity's functional currency are recorded at the exchange rate prevailing at the transaction dates. Foreign exchange gains and losses resulting from settlement of these transactions and from retranslation of monetary assets and liabilities denominated in foreign currencies are recognised in the Group income statement.
| Offices (O), | ||||
|---|---|---|---|---|
| Value | Retail/restaurant (R), Residential (Re), |
Approx. | ||
| banding £m |
Industrial (I), Leisure (L) |
Freehold (F), Leasehold (L) |
net area m2 |
|
| West End: Central (68%) | ||||
| Fitzrovia1 /Euston (36%) |
||||
| Central Cross, 18-30 Tottenham Court Road, W1 | 100+ | O/R/L | F | 23,800 |
| 132-142 Hampstead Road, NW1 | 25-50 | O/I | F | 21,400 |
| 80 Charlotte Street, W1 | 75-100 | O | F | 18,600 |
| Arup Phases II & III, 8 Fitzroy Street, W1 | 100+ | O | F | 13,700 |
| Qube, 90 Whitfield Street, W1 | 100+ | O/R/Re | F | 10,200 |
| Holden House, 54-68 Oxford Street, W1 | 75-100 | O/R | F | 8,400 |
| Henry Wood House, 3-7 Langham Place, W1 | 50-75 | O/R/L | L | 7,400 |
| Middlesex House, 34-42 Cleveland Street, W1 | 25-50 | O | F | 6,000 |
| Network Building, 95-100 Tottenham Court Road, W1 | 25-50 | O/R | F | 6,000 |
| 88-94 Tottenham Court Road, W1 | 0-25 | O/R | F | 4,900 |
| Charlotte Building, 17 Gresse Street, W1 | 25-50 | O | L | 4,400 |
| 80-85 Tottenham Court Road, W1 | 25-50 | O/R | F | 4,100 |
| 60 Whitfield Street, W1 | 25-50 | O | F | 3,400 |
| 75 Wells Street, W1 | 0-25 | O/R | L | 3,200 |
| 43 and 45-51 Whitfield Street, W1 | 0-25 | O | F | 2,900 |
| 53-65 Whitfield Street, W1 | 0-25 | O | F | 2,800 |
| 120-134 Tottenham Court Road, W12 | 25-50 | R/L | F | 2,700 |
| 7-8, 9 and 10 Rathbone Place, W1 | 0-25 | O/R/Re | L | 2,100 |
| 1-5 Maple Place and 12-16 Fitzroy Street, W1 | 0-25 | O | F | 1,900 |
| Victoria (14%) | ||||
| Horseferry House, Horseferry Road, SW1 | 100+ | O | F | 15,100 |
| Greencoat and Gordon House, Francis Street, SW1 | 75-100 | O | F | 11,900 |
| 1 Page Street, SW1 | 50-75 | O | F | 11,8003 |
| Riverwalk House, 157-166 Millbank, SW1 | 50-75 | O | F | 7,000 |
| Premier House, 10 Greycoat Place, SW1 | 25-50 | O | F | 5,800 |
| 6-8 Greencoat Place, SW1 | 0-25 | O | F | 3,100 |
| 232-242 Vauxhall Bridge Road, SW1 | 0-25 | O | F | 2,200 |
| Belgravia (5%) | ||||
| Hyde Park Corner Estate, SW1: | 100+ | O/R/Re | L | 15,600 |
| 1 Grosvenor Place | ||||
| 4 Grosvenor Place | ||||
| 3-5 Pembroke Close | ||||
| Baker Street/Marylebone (5%) | ||||
| 19-35 Baker Street, W1 | 25-50 | O/R | L | 6,600 |
| 88-110 George Street, W1 | 25-50 | O/R/Re | L | 4,200 |
| 30 Gloucester Place, W1 | 0-25 | O/Re | L | 2,200 |
| 16-20 Baker Street and 27-33 Robert Adam Street, W1 | 0-25 | O/R/Re | L | 2,100 |
| 17-39 George Street, W1 | 0-25 | O/R/Re | L | 2,000 |
| Soho/Covent Garden (5%) | ||||
| Bush House, South West Wing, Strand, WC2 | 0-25 | O | F | 10,000 |
| Tower House, 10 Southampton Street, WC2 | 25-50 | O/R/Re | F | 4,900 |
| Davidson Building, 5 Southampton Street, WC2 | 25-50 | O/R | F | 3,900 |
| Jaeger House, 57 Broadwick Street, W1 | 0-25 | O/R | F | 2,300 |
| Mayfair (2%) | ||||
| 25 Savile Row, W1 | 50-75 | O/R | F | 3,900 |
| Paddington (1%) | ||||
| 55-65 North Wharf Road, W2 | 25-50 | O | L | 7,200 |
| Offices (O), Retail/restaurant (R), |
|||||
|---|---|---|---|---|---|
| Value | Residential (Re), | Approx. | |||
| banding £m |
Industrial (I), Leisure (L) |
Freehold (F), Leasehold (L) |
net area m2 |
||
| West End: Borders (9%) | |||||
| Islington/Camden (8%) | |||||
| Angel Building, 407 St. John Street, EC1 | 100+ | O/R | F | 24,400 | |
| 4 & 10 Pentonville Road, N1 | 0-25 | O | F | 5,1003 | |
| Balmoral Grove Buildings and 1-9 Market Road, N7 | 0-25 | O/I | F | 4,600 | |
| Suncourt House, 18-26 Essex Road, N1 | 0-25 | O/R | F | 2,500 | |
| 423-425 Caledonian Road, N7 | 0-25 | O | F | 1,700 | |
| Ladbroke Grove (1%) | |||||
| Portobello Dock and Kensal House, W10 | 0-25 | O/R | F | 4,800 | |
| City: Borders (19%) | |||||
| Old Street (5%) | |||||
| 1 Oliver's Yard, EC2 | 75-100 | O/R | F | 17,200 | |
| City Road Estate, EC1: | 25-50 | O/R | F | 11,500 | |
| 70-74 City Road | |||||
| Sophia House, 76 City Road | |||||
| Transworld House, 82-100 City Road | |||||
| 36-37 Featherstone Street | |||||
| 13-15 Mallow Street | |||||
| 210 Old Street | |||||
| Monmouth House, 58-64 City Road, EC1 | 0-25 | O | F | 3,900 | |
| 186 City Road, EC1 | 0-25 | O | F | 3,600 | |
| Clerkenwell (5%) | |||||
| 88 Rosebery Avenue, EC1 | 25-50 | O | F | 9,600 | |
| Morelands Buildings, 5-27 Old Street, EC1 | 0-25 | O/R | L | 8,300 | |
| Buckley Building, 49 Clerkenwell Green, EC1 | 25-50 | O | F | 7,9003 | |
| Turnmill, 63 Clerkenwell Road, EC1 | 0-25 | O | F | 3,800 | |
| 5-8 Hardwick Street and 161 Rosebery Avenue, EC1 | 0-25 | O | F | 3,300 | |
| 151 Rosebery Avenue, EC1 | 0-25 | O | F | 2,200 | |
| Holborn (5%) | |||||
| Johnson Building, 77 Hatton Garden, EC1 | 75-100 | O | F | 14,600 | |
| 40 Chancery Lane, WC2 and 20-21 Tooks Court, EC4 | 0-25 | O | F/L | 5,700 | |
| 6-7 St. Cross Street, EC1 | 0-25 | O | F | 3,100 | |
| Shoreditch (4%) | |||||
| Tea Building, Shoreditch High Street, E1 | 75-100 | O/R/L | F | 23,300 | |
| 60 Commercial Road, E1 | 0-25 | O | F | 2,800 | |
| Provincial (4%) | |||||
| Scotland (4%) | |||||
| Strathkelvin Retail Park, Bishopbriggs, Glasgow | 50-75 | R | F | 29,100 | |
| Triangle Centre, Bishopbriggs, Glasgow | 0-25 | O/R | F | 6,800 | |
| Land, Bishopbriggs, Glasgow | 25-50 | – | F | 5,500 acres |
Includes areas north of Oxford Street.
Includes a 324-room hotel.
Proposed scheme area.
( ) percentages weighted by valuation.
| 2011 £m |
20101 £m |
20091 £m |
2008 £m |
2007 £m |
|
|---|---|---|---|---|---|
| Gross property income | 125.5 | 119.4 | 123.8 | 119.0 | 111.7 |
| Net property income | 117.7 | 113.0 | 114.8 | 95.5 | 103.8 |
| EPRA profit before tax | 52.3 | 55.2 | 61.8 | 22.2 | 36.6 |
| Profit/(loss) on disposal of properties and investments | 36.1 | 0.9 | (16.6) | 1.2 | 130.8 |
| Profit/(loss) before tax | 233.0 | 352.8 | (34.9) | (606.5) | (99.8) |
| Net assets | 1,714.5 | 1,494.7 | 1,163.9 | 1,215.0 | 1,841.9 |
| Property portfolio at fair value | 2,599.5 | 2,388.5 | 1,918.4 | 2,108.0 | 2,671.7 |
| Revaluation surplus/(deficit) | 172.1 | 301.7 | (81.1) | (602.1) | 90.3 |
| Net debt | 864.5 | 887.8 | 720.8 | 865.4 | 782.8 |
| Cash flow2 | 18.3 | (171.6) | 139.5 | (83.7) | 116.9 |
| Net cash inflow from operating activities | 47.1 | 46.5 | 66.4 | 38.3 | 28.4 |
| Acquisitions | 91.6 | 148.0 | 10.2 | 31.9 | 140.7 |
| Capital expenditure on properties | 42.6 | 49.5 | 94.6 | 72.9 | 68.3 |
| Disposals | 131.5 | 8.5 | 195.5 | 72.6 | 352.4 |
| EPRA earnings per share (p) | 51.59 | 52.89 | 57.14 | 21.74 | 36.18 |
| Underlying earnings per share (p) | 50.01 | 51.40 | 50.79 | 21.24 | 33.48 |
| Dividend per share IFRS (p) |
29.60 | 27.60 | 24.50 | 23.15 | 18.03 |
| Distribution of year earnings (p) | 31.35 | 29.00 | 27.00 | 24.50 | 22.50 |
| Net asset value per share (p) | 1,636 | 1,432 | 1,117 | 1,170 | 1,770 |
| EPRA net asset value per share (p) – undiluted | 1,712 | 1,484 | 1,168 | 1,226 | 1,801 |
| EPRA net asset value per share (p) – diluted | 1,701 | 1,474 | 1,161 | 1,222 | 1,795 |
| EPRA triple net asset value per share (p)3 | 1,607 | 1,425 | 1,126 | 1,206 | 1,770 |
| EPRA total return (%) | 17.4 | 29.3 | (2.9) | (30.6) | 2.8 |
| Gearing | |||||
| Balance sheet (%) | 50.4 | 59.4 | 61.9 | 71.2 | 42.5 |
| Loan to value (%) | 32.0 | 35.7 | 36.4 | 39.7 | 28.2 |
| Interest cover ratio (%) | 307 | 328 | 330 | 247 | 224 |
The comparative figures for 2009 and 2010 have been restated for the changes outlined in note 2. The 2007 to 2008 figures have not been altered. 2
Cashflow is the net cash from operating and investing activities less the dividend paid.
Calculated on a fully diluted basis.
A list of definitions is provided on page 143.
Equity shareholders' funds divided by the number of ordinary shares in issue at the balance sheet date.
Earnings represent the profit or loss for the year attributable to equity shareholders and are divided by the weighted average number of ordinary shares in issue during the financial year to arrive at earnings per share.
Earnings per share adjusted to include the dilutive effects of potential shares issuable under the Group's share option schemes and the convertible bond.
A not-for-profit association with a membership of Europe's leading property companies, investors and consultants who strive to establish best practices in accounting, reporting and corporate governance and to provide high-quality information to investors. In October 2010, EPRA published its Best Practices Recommendations (www.epra.com/media/EPRA_2010_BPR.pdf). This includes guidelines for the calculation of the following performance measures:
Derwent London has adopted the EPRA methodology for all of these measures. In addition, in accordance with EPRA guidelines, we have made company-specific adjustments to adjusted profit and adjusted earnings per share to arrive at the underlying positions (see below).
EPRA earnings per share adjusted for items which are excluded to show the underlying trend.
Dividends from profits of the Group's tax-exempt property rental business under the REIT regulations.
Dividends from profits of the Group's taxable residual business.
Borrowings plus bank overdraft less cash and cash equivalents.
Gross property income, excluding surrender premiums, less ground rent divided by interest payable on borrowings less interest receivable and capitalised interest.
The nominal value of borrowed funds divided by the fair value of investment property.
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.
The BREEAM rating assesses the operational and the embodied environmental impacts of individual buildings. The ratings are Pass, Good, Very Good, Excellent and Outstanding.
The regulations place a legal duty on employers to report workrelated deaths, major injuries or over-three-day injuries, work-related diseases and dangerous occurrences (near miss accidents) to the Health and Safety Executive.
An index, compiled by Investment Property Databank Limited, of the central and inner London offices in their quarterly valued universe.
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.
The movement in EPRA adjusted net asset value per share between the beginning and the end of each financial year plus the dividend per share paid during the year expressed as a percentage of the EPRA adjusted net asset value per share at the beginning of the year.
The annual capital appreciation, net of capital expenditure, plus the net annual rental income received, expressed as a percentage of capital employed (property value at the beginning of the year plus capital expenditure).
The growth in the ordinary share price as quoted on the London Stock Exchange plus dividends per share received for the year, expressed as a percentage of the share price at the beginning of the year.
The annualised contracted rental income, net of ground rents.
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. Assumes rent is received quarterly in advance.
The reversion is the amount by which the rental value as estimated by the Group's external valuers 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 vacant space.
Properties that have been held for the whole of the financial year.
| Issue of first quarter 2012 interim management statement | 9 May 2012 |
|---|---|
| Annual General Meeting | 16 May 2012 |
| Payment of 2011 final dividend | 15 June 2012 |
| Announcement of 2012 interim results | August 2012 |
| Issue of third quarter 2012 interim management statement | November 2012 |
| Payment of 2012 interim dividend | November 2012 |
| Announcement of 2012 results | March 2013 |
Auditor BDO LLP
Principal solicitors Slaughter and May
Brokers UBS JP Morgan Cazenove Principal clearing bank HSBC Bank plc
Registrar Equiniti
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Derwent London plc
Registered office: 25 Savile Row London W1S 2ER
T +44 (0)20 7659 3000 F +44 (0)20 7659 3100 www.derwentlondon.com
Registered No. 1819699
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