Derwent London Plc Overview Governance
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REPORT & ACCOUNTS 2013 DERWENT LONDON PLC OVERVIEW GOVERNANCE What we do 6 Chairman’s letter on corporate governance 74 Key achievements 8 Board of Directors 75 Our portfolio 10 Statement of Directors’ responsibilities 77 Financial highlights 14 Directors’ report 78 Chairman’s statement 16 Letter from the Chairman of the STRATEGIC REPORT Remuneration Committee 90 Report of the Remuneration Committee 92 Our business model and strategy 24 Letter from the Chairman of the Risk management 28 Nominations Committee 110 Measuring our performance 33 Report of the Nominations Committee 110 Our market 38 Letter from the Chairman of the Valuation 40 Risk Committee 111 Investment activity 42 Report of the Risk Committee 111 Portfolio management 44 Letter from the Chairman of the Projects 49 Audit Committee 112 Development pipeline 54 Report of the Audit Committee 113 Sustainability 58 Independent Auditor’s report 115 Finance review 62 FINANCIAL STATEMENTS Group income statement 122 Group statement of comprehensive income 122 Balance sheets 123 Statements of changes in equity 124 Cash flow statements 125 Notes to the financial statements 126 Five-year summary 163 Principal properties 164 List of definitions 166 Images and front cover: 1-2 Stephen Street W1 Derwent London owns and manages a 5.7 million sq ft (530,000m2) portfolio of commercial real estate located predominantly in central London. This makes us the largest London-focused real estate investment trust (REIT). Our experienced team has a track record of creating value through the property cycle by regenerating our buildings via development or refurbishment, effective asset management and capital recycling. We typically acquire properties off-market with low capital values and modest rents in improving locations, most of which are either in the West End or the ‘Tech Belt’. We capitalise on the unique qualities of our properties – taking a fresh approach to the regeneration of each individual building with a focus on anticipating tenant requirements and an emphasis on design. Reflecting and supporting our real estate activities, the business has a strong balance sheet with modest leverage, a robust income stream and flexible financing. FLEXIBLE AND FORWARD THINKING – DISTINCTIVELY DERWENT Derwent London plc Report & Accounts 2013 1 OVERVIEW CLEAR OVERVIEW AND AND DISTINCT APPROACH WHAT WE DO Our principal objective is to deliver above average long-term returns to shareholders by providing well-designed and affordable offices in central London. A Previous pages: 4 Hardwick Street EC1 6 Overview B 3 OPTIMISE INCOME Employ our detailed knowledge of occupiers’ needs to let to high-quality tenants from a wide range of businesses. 5.4% increase in gross property income For more information see page 44 C 1 2 ACQUIRE C R E AT E W E L L- PROPERTIES DESIGNED AND UNLOCK OFFICE SPACE THEIR VALUE Purchase buildings in Transform properties A White Collar Factory, central London which can to create adaptable, Old Street EC1 Work started at this site be improved or regenerated. attractive, contemporary in January 2014 to create Restructure leases to unlock spaces for our tenants a 293,000 sq ft (27,220m2) additional value. and the local community. campus B Turnmill EC1 CGI of proposed façade and office entrance £130.2m 586,000SQ FT C The Buckley Building EC1 Reception area of refurbished acquisitions of three properties currently under development offices completed in 2013 or refurbishment For more information see page 42 For more information see page 49 For more information about the business model and strategy see page 24 7 4 KEY ACHIEVEMENTS RECYCLE CAPITAL Identify properties for disposal where value has In 2013, we had a record year been optimised and sell for lettings, added to and those which do not fit the Group’s long-term plans. progressed our development pipeline and arranged £800m £151.3m of refinancing. property sales For more information see page 42 20.0% increase in EPRA net asset value per share For more information see page 62 21.9% total return For more information see page 62 ACQUIRE PROPERTIES E AND UNLOCK THEIR VALUE We bought: Mark Square House, 1 Mark Square EC2, a 61,700 sq ft (5,730m2) Shoreditch office building for £29.6m 19 Charterhouse Street EC1, a 63,700 sq ft (5,920m2) office building in Clerkenwell for £41.3m 22 Kingsway WC2 comprising 5 91,400 sq ft (8,490m2) of offices as well as a theatre for £59.3m MAINTAIN ROBUST FINANCING D Negotiate flexible financing and retain a healthy level of interest cover and gearing. 279% net interest cover ratio For more information see page 62 8 D 22 Kingsway WC2 F 91,400 sq ft of offices in an improving area of Holborn bought in December 2013 E 19 Charterhouse Street EC1 Exterior of building opposite new Crossrail entrance to Farringdon station F Morelands Buildings EC1 Ongoing refurbishment. 17,800 sq ft pre-let to AHMM, which completed in 2013 and achieved BREEAM ‘Outstanding’ C R E AT E W E L L- G H DESIGNED OFFICE SPACE Completed 248,100 sq ft (23,050m2) of major projects, with refurbishments of: 127,000 sq ft (11,800m2) at 1 Page Street SW1 85,000 sq ft (7,900m2) at The Buckley Building EC1 17,800 sq ft (1,650m2) at Morelands Buildings EC1 G 1 Page Street SW1 I Refurbishment completed in 2013. New headquarters building for Burberry H The Buckley Building EC1 Refurbished 85,000 sq ft of offices on Clerkenwell Green I Mark Square House EC2 61,700 sq ft of offices. Let to Thomson Reuters. Acquired in 2013 OPTIMISE INCOME RECYCLE CAPITAL MAINTAIN ROBUST FINANCING Let all of The Buckley Building Sold 1-5 Grosvenor Place SW1 within six months of completion for £131.4m, a 70% premium Completed £800m of unsecured to December 2012 valuation Pre-let 155,600 sq ft (14,460m2) refinancing: at 40 Chancery Lane WC2 and Holdings in Commercial Road E1 Issued £150m 1.125% convertible Turnmill EC1 to existing tenant sold for £16.7m bonds due 2019 with a conversion Publicis Groupe price of £33.35 per share Extended tenant’s lease at Completed £550m unsecured the Grafton Hotel W1 from five-year revolving credit facility 77 to 150 years Signed £100m fixed rate unsecured private placement funding: £25m for 15 years at 4.41% and £75m for 20 years at 4.68% Derwent London plc Report & Accounts 2013 9 OUR PORTFOLIO Our portfolio comprises 5.7 million sq ft (530,000m2) of properties valued at £3.4 billion. 97% of our properties are ISLINGTON located in central London, grouped in 17 ‘villages’, each with its own culture CAMDEN and identity. 71% can be found in the Kings Cross West End and 26% in the City borders. The balance relates to properties held EUSTON in Scotland on the northern outskirts of Glasgow. OLD CLERKENWELL STREET SHOREDITCH FITZROVIA LADBROKE GROVE Whitechapel Farringdon BAKER STREET/ Liverpool Street MARYLEBONE NORTH OF OXFORD STREET Tottenham Paddington Court Road PADDINGTON HOLBORN WHITECHAPEL SOHO/ Bond Street COVENT GARDEN MAYFAIR SOUTHBANK 114 c.500 30% buildings tenants portfolio weighting in Tech Belt Victoria VICTORIA £3.4bn £126.0m £197.0m portfolio valuation net contracted estimated rental income rental value 10 Overview ISLINGTON CAMDEN Kings Cross EUSTON OLD CLERKENWELL STREET SHOREDITCH FITZROVIA LADBROKE GROVE Whitechapel Farringdon BAKER STREET/ Liverpool Street MARYLEBONE NORTH OF OXFORD STREET Tottenham Paddington Court Road PADDINGTON HOLBORN WHITECHAPEL SOHO/ Bond Street COVENT GARDEN MAYFAIR % 0 3 t l e B h OUR VILLAGES PORTFOLIOc WEIGHTING e T 23 Fitzrovia1 37% West End 71% SOUTHBANK 7 Victoria 12% City borders 26% Baker Street/Marylebone 5% Provincial 3% Soho/Covent Garden 4% Mayfair 2% Paddington 2% Islington/Camden (non Tech Belt) 1% Victoria VICTORIA West End other 1% Islington/Camden 7% % 0 3 t Clerkenwell 9% l e B h Old Street 5% c e T Shoreditch/Whitechapel 5% Holborn 4% Holborn (non Tech Belt) 3% Provincial 3% 1 Includes North of Oxford Street and Euston 11 ISLINGTON CAMDEN Kings Cross EUSTON OLD CLERKENWELL STREET SHOREDITCH FITZROVIA LADBROKE GROVE Whitechapel Farringdon BAKER STREET/ Liverpool Street MARYLEBONE NORTH OF OXFORD STREET Tottenham Paddington Court Road PADDINGTON HOLBORN WHITECHAPEL SOHO/ Bond Street COVENT GARDEN MAYFAIR SOUTHBANK TEN PRINCIPAL TENANTS % OF RENTAL INCOME1 Burberry 6.3 Public sector 5.9 Victoria VICTORIA Arup 4.9 Cancer Research UK 4.0 Thomson Reuters 3.5 VILLAGES FremantleMedia Group 2.7 TECH BELT MWB Business Exchange 2.4 DERWENT LONDON Pinsent Masons 1.9 PROPERTIES House of Fraser 1.8 CROSSRAIL EDF Energy 1.7 1 Based upon contracted net rental income of £126.0m Derwent London plc Report & Accounts 2013 12 Central London office rent profile Build up of reversion rental uplift £ per sq ft £m 40 80 38.46 71.0 17.6 30 60 32.65 19.9 25.79 20 40 1.8 1.5 7.8 10 20 22.4 0 Average Average Average 0 current ‘topped-up’ ERV rent rent Total Lease Vacant Pre-let growth Vacant On-site projects projects reversion (Available) reversions Contractual (Under refurb) Office rent banding – Profile of tenants’ business sectors1 ‘topped-up’ income1 % % Average £32.65 per sq ft £0 – £20 per sq ft 6 Media, TV, marketing and advertising 28 £20 – £30 per sq ft 12 Professional and business services 25 £30 – £40 per sq ft 29 Retail head offices, showrooms 14 £40 – £50 per sq ft 29 Retail sales 12 £50 – £60 per sq ft 20 Public sector 6 £60+ per sq ft 4 Charities 4 1 Expressed as a percentage of annualised ‘topped-up’ Financial 4 rental income Other 7 1 Expressed as a percentage of annualised rental income OPEN HERE TO SEE LONDON PORTFOLIO 13 Overview FINANCIAL HIGHLIGHTS EPRA MEASURES For more information