DERWENT LONDON PLC ANNUAL RESULTS 2014

Transcription

1 DERWENT LONDON PLC ANNUAL RESULTS 204

2 CONTENTS Presenters: Contents: John Burns Simon Silver Damian Wisniewski Nigel George Paul Williams David Silverman Introduction and overview Results and financial review 5 Valuation and portfolio analysis 6 Portfolio management 25 Projects 33 Investment activity 42 Outlook for central London property 48 Outlook for Derwent London 53 Appendices 55 Disclaimer 90

3 INTRODUCTION AND OVERVIEW John Burns

4 HIGHLIGHTS Another strong set of results NAV growth +28.4% (Portfolio +20.4%) EPRA PBT +7.8% Dividend per share +8.6% Total return +30.% Performance and operations Underlying rental values +9.0% 9.2m (88,300 sq ft) of lettings in 204 with another 5.9m in 205 to date 204 lettings.2% above Dec 3 ERV Completed 07,000 sq ft of development with 59,000 sq ft on site Financial highlights Extended 550m of bank facilities 75m 2.75% convertible bonds 206 converted into new shares in Jan 5 LTV 24.0% at year end (9.9% after bonds conversion) 2

5 RAISING MIDDLE MARKET RENTS Good position Strong London economy Well placed in the Tech Belt and close to Crossrail Good demand Derwent product is attracting occupiers Rents are rising = Increasing Portfolio value by location Tech Belt only 8% 49% 4.2bn portfolio Both Tech Belt & Crossrail 2% 2% Close to Crossrail only Balance Tech Belt 33% middle market rents + Target range raised from psf to psf Rental income ( m pa) Letting activity 9.2m 8.0m 2.m under offer 5.9m let YTD 3

6 MAINTAINING DEVELOPMENT IMPETUS New starts in 205: The Copyright Building W 80 Charlotte Street W Development enhances returns : Est. profit on cost from Total cost m Initiation Dec 4 Five developments % 5% Two 205 new starts % 8% Developments and capex Raising income potential 2 Completions ( 000 sq ft) Completions Capital expenditure Capital expenditure ( m) Rental income / ERV ( m pa) Lease reversions Vacant space Contractual rental uplifts Passing rent Dec 204 Proforma See Appendices 25 and 26 2 Proforma impact of two 205 new starts 4

7 RESULTS AND FINANCIAL REVIEW Damian Wisniewski 5

8 FINANCIAL HEADLINES Dec 204 Dec 203 % change Total portfolio at fair value 4,68.m 3,353.m 24.3 EPRA net asset value per share 2,908p 2,264p 28.4 EPRA triple NAV per share 2,800p 2,222p 26.0 Gross property income 38.4m 3.6m 5.2 EPRA profit before tax m 57.8m 7.8 EPRA earnings per share 57.08p 53.87p 6.0 Profit for the year 749.8m 465.5m 6. Total dividend per share 39.65p 36.50p 8.6 Recommended final dividend per share 28.00p 25.75p 8.7 Net debt,03.3m 949.2m 6.8 Loan-to-value (LTV) ratio 24.0% 28.0% n/a NAV gearing 32.9% 40.0% n/a Net interest cover ratio 286% 279% n/a On a diluted basis 2 See Appendix 4 for reconciliation to IFRS profit before tax 6

9 NAV GROWTH Debt, net assets and gearing EPRA NAV per share up 28.4%: 2,908p from 2,264p Split 3.6% / 4.8% in H / H2 3,500 3,000 Net debt Net assets NAV gearing LTV ratio 3, Equity shareholders funds increased to 3,02m 2,500 2,000 2,304 2, Net debt increased by 6.8%:,03.3m from 949.2m m,500,663, % 75m of bonds converted to new shares in January 205, ,03 20 LTV and NAV gearing ratios reduced due to valuation increases Dec- Dec-2 Dec-3 Jun-4 Dec-4 0 Attributable to equity shareholders Appendices and 2 7

10 EPRA NAV MOVEMENT At 67.9m, the revaluation surplus in 204 was almost double that in 203 Revaluation surplus: Income statement Other comprehensive income Per accounts Trading property 2 EPRA surplus 667.m 4.8m 67.9m 3.0m 674.9m 654p 3,200 3,000 2, EPRA NAV per share ,908 Profit on disposal: Jaeger House W 7.3m 86 City Road EC 7.9m Suncourt House N 4.5m 35 & 37 Kentish Town Rd NW 3.9m Bramley Road W0 4.6m Investment properties 28.2m Prague joint venture 2.0m Queens trading properties 3.9m Total profit on disposal 34.m 33p Pence (p) 2,600 2,400 2,200 2,000 2,264 0-Jan Revaluation surplus EPRA EPS Profit on Convertible Dividend disposal bond 206 dilution Noninterest controlling Tax / other 3-Dec Surplus from owner-occupied part of 25 Savile Row 2 Adjusted through EPRA NAV Appendix 2 8

11 EPRA PROFIT BEFORE TAX EPRA profit 62.3m, up 8% from 57.8m in 203 Excludes 3.9m profit on sale of trading properties Admin costs up 6% due largely to higher staff costs EPRA profit before tax m 203 m Interest Capitalised interest (5.3) (4.8) Fees and costs Other (0.4) (0.3) Net finance costs Write-off on refinancing Total net finance costs m Rental income Surrender premiums received Rights of light Other income Property expenditure Admin expenses Net finance costs Share of joint ventures EPRA profit Appendices 3 to 5 9

12 GROSS PROPERTY INCOME Acquisitions (all in 203) include: 22 Kingsway WC2 2.9m 9 Charterhouse Street EC.2m Mark Square House EC2 0.7m Disposals include: -5 Grosvenor Place SW.6m Jaeger House W 0.6m Lettings and reviews include: Page Street SW 2.4m Tea Building E.4m -2 Stephen Street W.2m Breaks, expiries and voids include: -2 Stephen Street W.5m 25 Savile Row W.0m m Prior year Movements in gross property income Acquisitions Disposals Current year Prior year Scheme Breaks, Lettings & reviews voids expiries & voids Other 38.4 Current year 204 m 203 m Increase m Rental income SIC5 lease incentives & IAS7 fixed uplifts Gross rental income Other property income Gross property income Includes surrender premiums received net of write-off of lease incentive balances and rights of light receipts 0

13 PROPERTY OUTGOINGS, EPRA RENTAL INCOME & COST RATIOS Property outgoings 204 m 203 m Property outgoings Ground rents Surrender premiums paid Dilapidation receipts (0.2) (0.) Decreased due to reduced average voids EPRA cost ratios 204 % 203 % EPRA - including direct vacancy costs EPRA - excluding direct vacancy costs Portfolio cost ratio EPRA like-for-like rental income 2 Rental income Net property Gross Net income Compared with % 4.2% 5.6% Compared with 203 (excl back rent) 4.3% 5.7% 7.2% EPRA costs including direct vacancy costs as a percentage of portfolio fair value on an annualised basis 2 See Appendix 6 for detailed reconciliation of like-for-like rental income

14 CASHFLOW Increase in net debt: By 64.m to,03.3m Forecast capital expenditure Capital expenditure (Major projects) Capital expenditure (Other projects) Capital expenditure m Capitalised interest Forecast spend 580m total 46m on major projects Actual spend Net cashflow movements 204 m 203 m Cash from operations Acquisitions (92.4) (30.) Capex (84.4) (3.2) (88.8) (08.4) Disposal proceeds Dividends paid (36.2) (3.) Other cashflow movements (2.8) (6.8) Increase in net borrowing (57.8) (79.2) Non cashflow items (6.3) 4.8 Increase in net debt (64.) (74.4) 4.% Further details of forecast capital expenditure can be found in Appendix 29 2

15 PROFORMA IMPACT OF MAJOR PROJECTS Dec 204 After bond conversion in January 205 After 46m capex 2 on major projects and contracted rents 3 Assuming 50% of projects let at ERV and 50% of flats sold Assuming 00% of projects let at ERV and 00% of flats sold Portfolio fair value 4,68m 4,68m 4,629m 4,589m 4,549m Drawn debt net of cash,002m 830m,29m,25m,2m Loan-to-value ratio 24.0% 9.9% 27.9% 27.3% 26.6% Net property income (adjusted) 29m 29m m 4 49m 4 88m Interest cost 45m 38m 52m 5 5m 5 50m 5 Net interest cover ratio 286% 338% 23% 294% 379% Speculative projects let / sold 0% 50% 00% 7.9m net of unamortised discount 2 See page 2 and Appendix 29 3 Adding contracted rents only and deducting income lost from schemes commencing 4 Net of void costs 5 Assuming a marginal interest rate of 3.0% 3

16 DEBT SUMMARY In January 204 we completed and drew down 00m of 5/20 year USPP unsecured notes In December 204 we extended our 550m bank facility to January 2020 and reduced the margin payable In December 204 we gave notice of early redemption for the 206 convertible bonds. These all converted to new ordinary shares in January 205 Next refinancing due in 207 Proforma Dec 204 Dec 203 Total facilities,76m,35m,25m Net debt 842.8m,03.3m 949.2m Unutilised facilities 32m 32m 283m Percentage of unsecured debt 58% 65% 63% Uncharged properties 2,78m 2,78m 2,44m Uncharged properties % of portfolio 65% 65% 64% Percentage of non-bank debt 59% 66% 60% Gearing: LTV ratio 9.9% 24.0% 28.0% NAV 26.0% 32.9% 40.0% Net interest cover 338% 286% 279% After conversion of 75m 206 bonds into new shares Appendices 7 and 8 4

17 DEBT FACILITIES Proforma 3 Dec 204 Dec 203 Average interest rate (spot) 3.99% 3.78% 3.64% Average interest rate (spot) % 4.22% 4.0% Proportion of drawn facilities at fixed rate or hedged 93% 94% 83% Average maturity of facilities 7. years 6.2 years 5.9 years Average maturity of borrowings 7.9 years 6.6 years 6.3 years Maturity profile of debt m Unsecured bank loans 249m 249m 287m Secured bank loans 98m 98m 98m Unsecured bonds and non-bank loans 250m 425m 325m Drawn Headroom Convertible bonds 206 Secured bonds and non-bank loans 258m 258m 258m Total facilities drawn 855m,030m 968m Convertible bonds at 2.75% and.25% 2 Convertible bonds on IFRS basis 3 After conversion of 75m 206 bonds into new shares Appendices 7 to 9 5

18 VALUATION AND PORTFOLIO ANALYSIS Nigel George 6

19 VALUATION Very strong capital growth in 204: Underlying 20.4% (203: 2.6%) City Borders continue to outperform at 26.3% (203: 20.3%) Seven projects on site in 204: Valued at 547.6m (+24.2% in 204) -2 Stephen Street W (offices) and Queens W2 completed Turnmill EC handed over to Publicis in Q Portfolio valuation m H 204 valuation movement % H2 204 valuation movement % Full year valuation movement % West End 2, City Borders, Central London 3, Provincial Underlying 4, Acquisitions 9. (2.8) (0.8) (.2) Investment portfolio 4, Principally properties in the Tech Belt Appendix 0 7

20 VALUATION DRIVERS AND PERFORMANCE Our total property return was ahead of benchmarks: Derwent London 25.% IPD Central London Offices 23.5% IPD All Property 7.9% Valuation performance Drivers of performance Contribution to surplus (%) Capital value growth (%) Development ERV/Income Yield -0 Derwent London IPD Central London Offices IPD All Property Quarterly Index 2 If Grosvenor Place was included, sold during 203, the valuation performance was 3.9% 8

21 RENTAL GROWTH Underlying rental value growth of 9.0%: Ahead of our expectations of 6-8% City Borders highest performer at.3%: Tea Building 2.3% Oliver s Yard 2.0% Morelands 28.3% West End achieved 8.4%: Greencoat & Gordon 3.6% Middlesex House 4.4% New lettings were.2% above December 203 ERV Half-yearly rental value growth (%) H 2005 H H H H Derwent London underlying rental growth IPD Central London Office Index H 200 Rental value growth H 20 H 202 H 203 H 204 Appendix 9

22 MOVEMENT IN YIELDS EPRA yields Net initial yield 3.4% (Dec 203: 4.2%): Topped-up net initial yield 4.0% (Dec 203: 4.8%) 7.5 True equivalent yield movement True equivalent yield 4.73% (Dec 203: 5.28%): bp 5bp 55 basis points reduction in basis points below previous cycle low Net reversionary yield 4.9% (Dec 203: 5.5%) True equivalent yield (%) bp 43bp 83bp 55bp 2bp 2bp 4bp 3bp 3bp 3bp 24bp 26bp 29bp 62bp H2 07 H2 08 H2 09 H2 0 H2 H2 2 H2 3 H2 4 On EPRA portfolio. Post H2 200 portfolio on an EPRA basis Appendix 2 20

23 CONTEXT TO YIELD MOVEMENT True equivalent yield gap of 298 bps from 0-year Gilt: Strong rental growth outlook Capital flows buoyant Undemanding capital values: Central London 752 psf West End Central 855 psf Tech Belt 657 psf Yield % or Gap between DL TEY and 0-year Gilt Derwent London True Equivalent Yield Derwent London Initial Yield Average gap (250 bps) Valuation yields 0-year Gilt Gap between DL TEY and 0-year Gilt 0 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-0 Dec-2 Dec-4 On EPRA portfolio. Post H2 200 portfolio on an EPRA basis Appendix 2 2

24 PORTFOLIO REVERSION Net income of 3.7m with ERV of 25.6m Significant reversion of 83.9m : Build-up of reversion 38% ( 32.0m) locked in, including: 90 Page Street 3.0m 4 & 0 Pentonville Road 2.0m Angel Building.9m Chancery Lane 4.7m (net) Turnmill 3.m EPRA vacancy rate 4.% (Dec 203.0%) On site projects vacant ERV 7.6m: White Collar Factory 4.7m Tottenham Court Walk 2.3m Rental uplift ( m) Contractual growth 7.8 Pre-let projects 7. Vacant (Available) 3.7 Vacant (Under refurb) 7.6 On-site projects 83.9m uplift on Dec 4 income Lease reversions Requires additional capex of 7m as set out in Appendix 29 Appendices 3 to 7 22

25 RENTAL VALUES 85% of portfolio income from central London offices: Average topped-up office rent psf: Core income portfolio 4.75 psf Development portfolio 26.3 psf Average ERV 4.77 psf: Core income portfolio psf Development portfolio psf Dec-3 Jun-4 Central London office rent profile Dec Topped-up rents < 30 psf 8% 8% psf 22% 29% psf 3% 29% > 50 psf 29% 24% psf Average current rent Average 'topped-up' rent Average ERV Appendix 8 23

26 OPPORTUNITIES ACROSS THE PORTFOLIO 48% of the portfolio core income with 52% projects - see Appendices 29 and 30 Core income On site Consented Includes: Angel Building EC Strathkelvin Retail Park, Scotland Oliver s Yard EC Tea Building E -2 Stephen Street W Horseferry House SW Johnson Building EC 8 Fitzroy Street W Page Street SW Qube W Greencoat & Gordon SW The Buckley Building EC Morelands EC 48% Core income 2.8m sq ft Existing portfolio 5.7m sq ft Turnmill EC 40 Chancery Lane WC2 73 Charlotte Street W White Collar Factory EC Tottenham Court Walk W 9% On site 0.5m sq ft 8% Consented on 0.4m sq ft 9% Under appraisal 0.5m sq ft.m sq ft Berners Street W 80 Charlotte Street W North Wharf Road W2 Oxford Street W 25 Savile Row W 0.9m sq ft A potential 2.0m sq ft from 0.9m sq ft Under appraisal Wedge House SE Balmoral Grove N7 Monmouth House EC Network Building W 9-35 Baker Street W Premier House SW Holden House W Offices psf Topped-up rent 4.75 ERV % Future appraisal.5m sq ft Future appraisal Includes: Hampstead Road NW Angel Square EC Bush House WC2 9 Charterhouse Street EC Francis House SW Since year end: 20 Farringdon Road EC 24

27 PORTFOLIO MANAGEMENT Paul Williams 25

28 LETTINGS AND ASSET MANAGEMENT HIGHLIGHTS Letting activity 60 transactions totalling 88,300 sq ft at a rent of 9.2m pa: Overall.2% above Dec 203 ERV with open market transactions, 8.% above TMT/Creative tenants comprised 76% of lettings 26% of deals in the Tech Belt A strong start to 205: 23,400 sq ft let at a rent of 5.9m pa 36,900 sq ft under offer at 2.m pa Asset management activity 72 rent reviews (568,800 sq ft) and lease renewals (95,500 sq ft): Increased income by 7.0% to 23.0m pa Vacancy rate increased from.0% at start of 204 to 4.% at year end: Development completions at -2 Stephen Street W and Davidson Building WC2 Rate would reduce to c.2.% following post year end lettings 26

29 RAISING THE RENTAL TONE 204 Refurb 54 psf 56% Refurb 50 psf 6% 4% Refurb 65 psf Morelands EC Q3 8,700 sq ft let at 54 psf rising to a minimum of 58 psf at first review Oliver s Yard EC Q 6,400 sq ft let at 50 psf rising to a minimum of psf at first review Middlesex House W Q3-4,300 sq ft let at 65 psf rising to a minimum of 70 psf at first review Uplift against December 203 ERV 27

30 WINNING NEW SPACE Middlesex House W Former car park transformed into 2,200 sq ft of offices: Pre-let at 0.5m pa / psf with a fixed uplift to psf at first review Previous income of 0.2m pa Greencoat and Gordon House SW Negotiated surrender of 40,000 sq ft part ground and basement, which was let on a long lease at 3k pa: Surrender cost.4m Already commenced works on part of the space - 9,000 sq ft office studios (ERV 0.4m pa) 28

31 LETTING VACANT SPACE: -2 STEPHEN STREET W Strong letting activity at the recently refurbished office space: H2 204: 34,850 sq ft let for 2.2m pa Q 205: 34,50 sq ft let for 2.2m pa 6,50 sq ft under offer 29

32 PHASED REFURBISHMENT: -2 STEPHEN STREET W UNDER OFFER UNDER OFFER UNDER REFURBISHMENT 8,075 sq ft 8,075 sq ft 0,900 sq ft 4,350 sq ft of offices will have been refurbished since acquisition in 200 Accounts for 53% of total office space psf - EXISTING OCCUPIERS FUTURE REFURBISHMENT 65 psf - FREUD COMMUNICATIONS 02,000 sq ft 65 psf - FREMANTLE 65 psf - THE OFFICE GROUP 65 psf - THE OFFICE GROUP 65 psf - THE OFFICE GROUP 20 metres TOTTENHAM COURT ROAD Phase (Q4 203) 2 8,300 sq ft offices - pre-let to BrandOpus at psf on ground Phase 2 (Q3 204) 85,50 sq ft offices - 00% let / under offer Phase 3 (Q2 205) 38,000 sq ft retail - eight units (one pre-let) Phase 4 (205) 0,900 sq ft under refurbishment (eighth floor) Plus profit share 2 Not visible in this view 30

33 DEALING WITH LEASE EXPIRIES: ANGEL SQUARE EC 28,700 sq ft freehold office Short-term expiries March 205: 79,900 sq ft at.5m pa Dec 205: 30,500 sq ft at 0.9m pa Pre-let 57,600 sq ft to Expedia at 2.m pa 3

34 RISING CONSTRUCTION COSTS London construction cost inflation : 5.0% to 7.5% in % to 6.0% in % to 5.0% in 207 Driven by a combination of: Labour costs and skills shortages - slowing delivery Material price inflation Increased London activity Less competition leading to rising contractor margins On site schemes - prices fixed Immediate pipeline: Fixed stage pricing Leverage on buying power and supply chain Source: EC Harris, G&T, Gleeds, Mace and Sweett 32

35 PROJECTS Simon Silver 33

36 Q3 Q3 H2 H DELIVERING OUR PIPELINE Q 07,000 sq ft of completions in ,000 sq ft of projects on site at 3 December 204 Turnmill EC Q2 Two major new starts in 205: The Copyright Building, Berners Street W (05,000 sq ft) - Q 80 Charlotte Street W (380,000 sq ft) - H2 An exciting next wave of major projects: 40 Chancery Lane WC2 Q3 Committed to starting North Wharf Road W2 (240,000 sq ft) in 206 Oxford Street W (275,000 sq ft) commencement See Appendices 2 to 32 for completions, scheme appraisals and capital expenditure Tottenham Court Walk W 73 Charlotte Street W White Collar Factory EC Berners Street W 80 Charlotte Street W

37 206 COMPLETION: WHITE COLLAR FACTORY EC 293,000 sq ft mixed-use scheme: 237,000 sq ft White Collar Factory 6-storey office tower 39,000 sq ft office campus 9,000 sq ft retail 8,000 sq ft residential (nine units) Scheme update: Demolition completed in August 204 Main build contract underway and construction progressing well Office rent of c. 55 psf Capex to complete c. 94m Completion Q

38 RECENT START: THE COPYRIGHT BUILDING W The Copyright Building, Berners Street New headlease agreed: 27-year term 2.5% gearing Profit sharing arrangement above 20% profit on cost Vacant possession obtained 05,000 sq ft new-build scheme: 85,000 sq ft of offices 20,000 sq ft of retail 22% uplift on previous area Office rent of c psf Capex to complete c. 5m Completion H

39 205 MAJOR PROJECT: 80 CHARLOTTE STREET W Flexible floor plates of c.40,000 sq ft 67 Whitfield Street: 4,000 sq ft private residential WHITFIELD STREET Whitfield Street: 2,000 sq ft offices 2,000 sq ft private residential 0,000 sq ft affordable residential 80 Charlotte Street island site: 309,000 sq ft offices 4,000 sq ft retail CHARLOTTE STREET Pocket park 37

40 205 MAJOR PROJECT: 80 CHARLOTTE STREET W Commences H2 205 Largest project undertaken (380,000 sq ft) Main development occupies a.4 acre island site Office rent c. 75 psf Capex c. 75m Completion in

41 THE NEXT WAVE: NORTH WHARF ROAD W2 Commences 206, completion ,000 sq ft offices Located next to Paddington station a major new Crossrail hub Office ERV c. 60 psf 39

42 PLANNING APPLICATION: WEDGE HOUSE SE Wedge House, 40 Blackfriars Road Working with Hoxton Hotel on a mixed-use development: 4,800 sq ft of offices 68,200 sq ft hotel: 92 rooms Ground floor café / restaurant Mezzanine conference space Rooftop bar and restaurant Planning application submitted January

43 INVESTMENT ACTIVITY David Silverman 42

44 PRINCIPAL ACQUISITIONS IN 204 Property Date Area Total cost Net yield Rental income Lease length sq ft m psf % m psf years 9-23 Featherstone Street EC Q 27, Angel Square EC Q4 28, Total 56, Acquisition criteria: Low passing rents and capital values psf Located in improving areas Refurbishment/redevelopment potential Income-producing while working up a property plan for each asset Often located near existing Group assets Average unexpired lease length, as at 3 December 204, assuming tenants break at first opportunity 43

45 CREATING CLUSTERS: ISLINGTON 9% of the portfolio is in Islington UNDERGROUND sq ft Angel Square 28,700 Angel Building 262, Pentonville Road 53, St. John Street 2, ,

46 ACQUISITION IN 205: 20 FARRINGDON ROAD EC 70,600 sq ft acquired for 88.0m plus costs Minimum 75-year long leasehold - 0% gearing Adjacent to Farringdon Crossrail station Major future project Significant near term potential to increase rents Rent: 3.2m pa (net) Average office rent 27 psf Net initial yield 3.4% Capital value 545 psf Excludes 26,200 sq ft ground floor offices let at a peppercorn rent (break in December 205) 45

47 CREATING CLUSTERS: CLERKENWELL Significant Clerkenwell exposure with 5% in 200 to % in 205 following purchase sq ft Acquired 20 Farringdon Road 70, Charterhouse Street 63, Turnmill 70, The Buckley Building 85, Johnson Building and 90, St. Cross Street 580, UNDERGROUND THAMESLINK 2 Excludes Johnson Building, which is located in our Holborn village 46

48 PRINCIPAL INVESTMENT DISPOSALS Continued disposal of smaller / mature assets - five London properties sold in 204 for 98.0m: Rental income of 3.9m 204 Date Area Net proceeds Net yield to purchaser Net surplus Dec 203 Net surplus Jun 204 sq ft m psf % % % Jaeger House W Q2 24, , City Road EC Q3 38, & 37 Kentish Town Road NW Q3 24, Suncourt House N Q4 26, Bramley Road W0 Q4 30, Total 45, Disposal of two properties and a 50% interest in a third property so far in : Rental income of 5.m 205 Date Area Net proceeds Net yield to purchaser Net surplus Dec 203 Net surplus Jun 204 sq ft m psf % % % 22 Kingsway WC2 Q 9, () Mark Square House EC2 Q 6, and 6 Prescot Street E (50%) Q 53, Total 206, Net surplus from the four sales in H2 2 As part of swap for acquisition of 20 Farringdon Road 3 50% of total due to joint venture 47

49 OUTLOOK FOR CENTRAL LONDON PROPERTY John Burns 48

50 WEST END OFFICE DEMAND Market statistics Take-up of 4.4m sq ft in 204: The highest in four years and 4% above average 6 West End take-up Prime West End rents rose 0.7% pa:.% in Fitzrovia to 75 psf Prime rents of 2.50 psf Mayfair/St James s, psf in Soho and 70 psf in both Victoria and Covent Garden Derwent London s view Good demand for our space and we expect this demand to continue A wide range of active business sectors Occupiers becoming increasingly footloose Space being delivered is letting well, at above ERV Take-up (million sq ft) 5 Average Source: CBRE See Appendices 9 and 20 49

51 WEST END OFFICE SUPPLY Market statistics Low vacancy rate of 2.7% (3.4% end-203) Significantly lower than long-term average of 4.6% Development completions of.7m sq ft in 205: 9% above long-term average (.07m sq ft) Forecast completions of 2.23m sq ft in 206 (62% committed) Significant fall in expected 204 completions since the half year Derwent London s view Continued supply-demand imbalance in favour of landlords Supply picking up but not expected to significantly raise vacancy rate Positive rental outlook Floor area (million sq ft) West End office development pipeline Completed Under construction Proposed Completed average Vacancy rate Vacancy rate (%) Source: CBRE See Appendices 9 and 20 50

52 Haggerston Kentish Town Highbury & Islington Chalk Farm THE EVOLVING TECH BELT Camden Road Caledonian Road Essex Road Londo Field Tech Belt Baker Street Marylebone Derwent London 2 Edgware Road Hyde Park Primrose Hill 25 million sq ft : Hyde Park Corner Albany St Regent s Park Portland Pl Camden Town % of central London office stock c.,750 properties Marble Arch Regent s Park High demand for the location Above average rental growth and yield compression Great Portland Street Green Park Knightsbridge 2 Buckingham Source: CoStar As at 3 December 204 Palace Oxford Circus St James s St Warren Street Best performing area over the last three years Crossrail Marylebone Baker Street 2.m sq ft 26 properties Bond Street Green Park North of Oxford Street Crossrail.4bn capital value (33% of portfolio) 83m pa rental income Mayfair St James s Poland St Euston Euston Fitzrovia Goodge St Piccadilly Circus Tottenham Court Road Soho / Covent Garden St James s Park St James s Park Islington Upper Woburn Pl Woburn Pl Horse Guards Parade Leicester Square Kings Cross S t Pancras International Bloomsbury Russell Square Covent Garden Charing Cross Westminster Houses of Parliament Wharfdale Rd Embankment Thameslink Holborn Holborn Carnegie St Crossrail Clerkenwell New Square Temple Waterloo Southbank Chancery Lane Bream s Buildings Lambeth North River Thames Angel Clerkenwell Green Farringdon Southwark Blackfriars Rd Blackfriars Bridge Blackfriars Thameslink TECH BELT Tate Modern Barbican The City St Paul s Old Street Crossrail Mansion House Borough Moorgate Bank Old Street Cannon Street Liverpool Street Monument London Bridge Shoreditch Hoxton Shoreditch High Street Whitechapel Aldgate Minories Fenchurch Street Tower Gateway Tower Hill Aldgate East River Thames St Matthew s Row Park Crossrail 5 Whitechape Cannon Street Rd The Highway es

53 CENTRAL LONDON OFFICE INVESTMENT MARKET Market statistics Another good year for the central London office investment market with 8.4bn of transactions 63% above long-term average of.3bn and 8% below the record year of 203 Overseas investors dominant (69%) Prime yields flat in West End at 3.75% and down 25 bps in City to 4.25% Derwent London s view Strong London economy leading to healthy occupier and investment markets Positive rental growth outlook with yields expected to stay firm Inflow of money looks set to continue Risks Global and political uncertainty General Election / EU Referendum in the UK Economy Relative appeal diminishes Significant rise in interest rates / bonds Currency Value of investment transactions ( bn) Average Central London office investment Source: CBRE 52

54 OUTLOOK FOR DERWENT LONDON John Burns 53

55 OUTLOOK Our market London economic outlook remains good Rental growth looks set to continue: Estimated to grow 6-8% in 205 Low yields supported by lack of alternatives: Expected to remain firm in 205 Derwent London Property portfolio well positioned for growth: Significant reversions Increased development activity Extensive development opportunities Financial platform suitable for raised activity 54

56 APPENDICES 55

57 APPENDICES. Group balance sheet Rent and tenant banding Net asset value per share Central London office vacancy Group income statement Central London office rental growth Reconciliation of IFRS and EPRA profits completions Explanation of EPRA adjustments completions EPRA like-for-like rental income Other 205 completions Debt facilities Oxford Street W - option site Net debt Profit on cost of developments 8 9. Fixed rates and hedging Profit on cost of 205 starts Valuation performance by village Impact of 205 starts 83. Rental value growth Potential project delivery Valuation yields Project summary Portfolio reversion Project summary Vacant space - available and projects Project pipeline Lease expiries and breaks / vacancy rates Portfolio map Lease expiry profile and lease length Management structure - executive team Portfolio statistics by village 73 56

58 APPENDIX - GROUP BALANCE SHEET Dec 204 m Dec 203 m Investment property 4,04.0 3,242.9 Owner-occupied property Other non-current assets ,54.5 3,343. Non-current assets held for sale Other current assets and liabilities (58.6) (3.8) Trading property Cash and cash equivalents Financial liabilities - current (70.5) - Corporation tax - assets and liabilities 0.2 (.4) (90.).9 Financial liabilities - non-current (857.6) (96.7) Other non-current liabilities (3.) (7.6) (888.7) (979.3) Total net assets 3, ,370.5 Non-controlling interest (63.5) (66.5) Attributable to equity shareholders 3,02.2 2,

59 APPENDIX 2 - NET ASSET VALUE PER SHARE Dec 204 Dec 203 Diluted Diluted m p m p Net assets attributable to equity shareholders 3,02.2 2,304.0 Conversion of 2.75% unsecured convertible bonds Net assets for diluted NAV 3,82.7 2,864 2,47.7 2,230 Revaluation of trading properties Fair value of secured bonds (36.4) (7.) Fair value of unsecured bonds (4.2) 0. Fair value of fixed rate secured loan (.) 8.7 Fair value of fixed rate unsecured private placement notes (.) - Unamortised issue and arrangement costs (.9) (2.3) EPRA triple NAV 3,2. 2,800 2, ,222 Fair value of bonds and costs Deferred tax on revaluation surplus Fair value of derivatives Fair value adjustment to secured bonds on acquisition less amortisation Non-controlling interest in respect of the above (3.2) (2.2) EPRA NAV 3, ,908 2, ,264 58

60 APPENDIX 3 - GROUP INCOME STATEMENT Year ended Dec 204 m Year ended Dec 203 m Gross property income Profit on disposal of trading properties Other income Property outgoings (8.2) (9.3) Net property and other income Total administrative expenses Admin expenses (28.) (26.4) Cash-settled options (0.3) (28.4) (0.3) (26.7) Revaluation surplus H H Profit on disposals Property Investment Net finance costs (42.4) (4.2) Loan issue costs write-off - (3.2) Joint venture (JV) results JV revaluation (0.3) Other JV profit Derivatives fair value adjustment (9.4) 38.5 Financial derivative termination costs (2.0) (3.7) IFRS profit before tax Tax charge (3.9) (2.4) IFRS profit for the year A reconciliation of the IFRS profit before tax to the EPRA profit before tax is shown in Appendix 4 59

61 APPENDIX 4 - RECONCILIATION OF IFRS AND EPRA PROFITS Reconciliation of IFRS profit before tax to EPRA profit before tax Year ended Year ended Dec 204 Dec 203 m m IFRS profit before tax Revaluation surplus (667.) (335.6) Joint venture revaluation surplus (.9) 0.3 Profit on disposal of properties and investments (30.2) (53.5) Profit on disposal of trading properties (3.9) - Fair value movement in derivatives 9.4 (38.5) Financial derivative termination costs Loan arrangement costs written off Movement in cash-settled share options EPRA profit before tax

62 APPENDIX 5 - EXPLANATION OF EPRA ADJUSTMENTS 204 Adjustments IFRS A B C EPRA EPRA m m m m m m Net property income and other income 36. (3.9) Total administrative expenses (28.4) 0.3 (28.) (26.4) Revaluation surplus 667. (667.) - - Profit on disposal of investment property 28.2 (28.2) - - Profit on disposal of investment 2.0 (2.0) - - Net finance costs (42.4) (42.4) (4.2) Derivatives fair value adjustment (9.4) Financial derivative termination costs (2.0) Share of results of joint ventures 2.5 (.9) 0.6. Profit before tax (34.) (669.0) Tax charge (3.9).0.2 (.7) (.) Profit for the year (33.) (667.8) Non-controlling interest (2.) 0.4 (0.3) (2.0) (.6) Profit for the year attributable to equity shareholders (33.) (657.4) Earnings per share 78.60p 57.08p 53.87p A Disposal of investment property and investment in joint venture and associated tax B Revaluation surplus on investment property and in joint ventures and associated deferred tax and non-controlling interest C Fair value movement and termination costs relating to derivative financial instruments and associated non-controlling interest and movement in the valuation of cash-settled options 6

63 APPENDIX 6 - EPRA LIKE-FOR-LIKE RENTAL INCOME Properties owned throughout the year m Acquisitions m Disposals m Development property m 204 Rental income Property expenditure (3.9) - (0.) (4.0) (8.0) Net rental income Profit on disposal of trading properties Other Net property income Rental income Property expenditure (5.0) - (0.7) (3.5) (9.2) Net rental income Other Net property income Increase based on gross rental income 2.9% 4.4% Increase based on net rental income 4.2% 5.8% Increase based on net property income 5.6% 9.5% Total m Includes surrender premiums paid or received, dilapidation receipts, rights of light and other income 62

64 APPENDIX 7 - DEBT FACILITIES m m Maturity 6.5% secured bonds 75 March % secured loan 83 October % unsecured convertible bonds 75 July % unsecured convertible bonds 50 July % unsecured private placement notes 25 January % unsecured private placement notes 75 January 2034 Committed bank facilities Term - secured 28 June 208 Term/revolving credit - secured 90 December 207 Revolving credit - unsecured 550 January At 3 December 204,35 Conversion of 2.75% unsecured convertible bonds (75) n/a At 3 January 205,76 Bonds all redeemed in January

65 APPENDIX 8 - NET DEBT Proforma Dec 204 Dec 203 m m m Financial liabilities - current Financial liabilities - due after more than year Acquired fair value of secured bonds less amortisation (6.0) (6.0) (6.9) Equity component of unsecured bonds Unwinding of discount of unsecured bonds (2.9) (9.4) (5.5) Unamortised issue and arrangement costs Leasehold liabilities (8.3) (8.3) (8.2) Facilities - drawn 855.0, Facilities - undrawn Total debt facilities,76.0,35.0,25.0 Proforma Dec 204 Dec 203 m m m Financial liabilities 857.6, Cash and cash equivalents (4.8) (4.8) (2.5) Net debt 842.8, Convertible bonds 206 all redeemed in January

66 APPENDIX 9 - FIXED RATES AND HEDGING Proforma 2 Dec 204 Dec 203 Proportion of drawn facilities at fixed rates or hedged 93% 94% 83% Weighted average duration of swaps 4.0 years 4.0 years 4.8 years Mark-to-market cost of swaps 25.2m 25.2m 5.9m Weighted average duration of fixed rate instruments 0.3 years 7.7 years 7.4 years Proforma hedging profile 2 Maturity profile of fixed and hedged debt Swaps 33% Floating 7% m Fixed 60% Hedged Fixed rate Convertible bonds 206 Excludes 70m forward start swap from March 205 to March After conversion of 75m 206 bonds into new shares 65

67 APPENDIX 0 - VALUATION PERFORMANCE BY VILLAGE Valuation Dec 204 m Weighting Dec 204 % Valuation movement 204 % West End Central Fitzrovia 2, Victoria Baker Street/Marylebone Soho/Covent Garden Mayfair Paddington , West End Borders Islington/Camden Other West End 2, City Borders Clerkenwell Holborn Old Street Shoreditch/Whitechapel Southbank Other , Central London 4, Provincial Investment portfolio 4, Underlying - properties held throughout the year 2 Includes Euston and North of Oxford Street 66

68 APPENDIX - RENTAL VALUE GROWTH Rental value growth 203 % H 204 % H2 204 % West End City Borders Central London Provincial Underlying % On EPRA portfolio 67

69 APPENDIX 2 - VALUATION YIELDS Yield (%) Yields profile 8 Pre-EPRA EPRA Reversionary yield True equivalent yield Initial yield 2 Dec-04 Dec-06 Dec-08 Dec-0 Dec-2 Dec-4 EPRA initial yields Net initial yield % Topped-up initial yield % West End City Borders Central London Provincial EPRA portfolio True equivalent yields 2 Dec 203 % H 204 movement basis points June 204 % H2 204 movement basis points Dec 204 % West End 5.05 (23) 4.82 (25) 4.57 City Borders 5.7 (37) 5.34 (34) 5.00 Central London 5.25 (27) 4.98 (29) 4.69 Provincial 6.8 (6) 6.65 (20) 6.45 Underlying 5.28 (26) 5.02 (29) 4.73 Six-monthly data 2 On EPRA portfolio 68

70 APPENDIX 3 - PORTFOLIO REVERSION Rent uplift pa Rent pa m m m Contracted rental income, net of ground rents 3.7 Contractual rental uplifts Page Street SW Stephen Street W & 0 Pentonville Road N 2.0 Angel Building EC.9 Other Pre-let projects 40 Chancery Lane WC2 4.7 Turnmill EC Total contracted uplift 32.0 Vacant space 2 Available to occupy (EPRA) 7. Under refurbishment 3.7 Four on-site developments (non-epra) One phased on-site project (non-epra) Lease reversions Anticipated rent reviews and lease renewals Estimated rental value of investment portfolio 25.6 Net income after deduction of.0m ground rent 2 Detailed in Appendix 4 3 Capex to complete 7m - see Appendix 29 69

71 APPENDIX 4 - VACANT SPACE - AVAILABLE AND PROJECTS Vacant area 000 sq ft Pre-let area 000 sq ft Total area 000 sq ft Vacant ERV m pa Pre-let ERV m pa Total gross ERV m pa Ground rent m pa Total net ERV m pa Comment Available to occupy (EPRA) -2 Stephen Street W ,50 sq ft let in Q 205 Davidson Building WC Angel Square EC ,000 sq ft let to Expedia in Q 205 Other Under refurbishment Holden House W ,000 sq ft under offer Greencoat & Gordon House SW Tea & Biscuit Building E Other On-site developments (non-epra) White Collar Factory EC Turnmill EC ,200 sq ft pre-let to Publicis 3.m pa 40 Chancery Lane WC (.0) ,400 sq ft pre-let to Publicis 5.7m pa 2 73 Charlotte Street W ,600 sq ft residential and,900 sq ft offices (.0) 23. On-site phased project (non-epra) Tottenham Court Walk W (.0) 25.4 Total (.0) 36.2 Part of the 57,600 sq ft Expedia letting 2 4.7m net of ground rent 70

72 APPENDIX 5 - LEASE EXPIRIES AND BREAKS / VACANCY RATES 7.3m of income subject to breaks / expiries in 204: 73% of tenants income retained or re-let Portfolio average lease length 6.6 years EPRA vacancy rate of 4.% at year end up from.0% at start of the year Vacant space ERV totals 7.m pa: 49% exchanged or completed since year end Lease expiry and break analysis EPRA vacancy rates Percentage of income (%) Vacancy rate (%) Derwent London (by rental value) Derwent London (by floor area) CBRE West End offices (by floor area) Retained Re-let Vacant 0 Dec-09 Dec-0 Dec- Dec-2 Dec-3 Dec-4 As at reporting date 7

73 APPENDIX 6 - LEASE EXPIRY PROFILE AND LEASE LENGTH West End Expiries and breaks as a percentage of portfolio income City Borders Provincial Total Expiries Holding over Rolling breaks Single breaks Profile of rental income expiry Average unexpired lease length 2 Contracted rental income (%) No lease breaks exercised 54 Lease breaks exercised at first opportunity Up to Over 20 Years to expiry Years 0 West End City Borders Central London Dec-09 Dec-0 Dec- Dec-2 Dec-3 Dec-4 Based upon annualised contracted rental income of 3.7m 2 Lease length weighted by rental income and assuming tenants break at first opportunity 72

74 APPENDIX 7 - PORTFOLIO STATISTICS BY VILLAGE Valuation m Weighting % Floor area 000 sq ft Vacant floor area 000 sq ft Net contracted rental income m pa Average rental income psf Vacant space rental value m pa Rent review / lease renewal reversion m pa Total reversion m pa Estimated rental value m pa West End Central Fitzrovia,5.4 37, Victoria Baker Street/Marylebone Soho/Covent Garden Mayfair Paddington , , West End Borders Islington/Camden Other West End 2, , City Borders Clerkenwell Holborn Old Street Shoreditch/Whitechapel Southbank Other City Borders, , Central London 4, , Provincial Investment portfolio 4, , Includes Euston and North of Oxford Street 2 If owner occupied area (part 25 Savile Row W) is excluded the average rental income is psf 73

75 APPENDIX 8 - RENT AND TENANT BANDING Central London topped-up office rent banding Profile of tenants business sector psf % 0-20 psf 4% psf 4% Charities 4% Financial 4% Other 8% Media, TV, marketing and advertising 29% psf 8% Government and public admin 6% psf 22% Retail sales 2% psf 3% Retail head offices, showrooms 3% Professional and business services 24% Expressed as a percentage of annualised rental income after expiry of rent free periods and stepped rents 2 Expressed as a percentage of annualised rental income of the whole portfolio 74

76 APPENDIX 9 - CENTRAL LONDON OFFICE VACANCY Vacancy rate (%) West End City Central London West End average City average 2 0 Q 00 Q 02 Q 04 Q 06 Q 08 Q 0 Q 2 Q 4 Source: CBRE 75

77 APPENDIX 20 - CENTRAL LONDON OFFICE RENTAL GROWTH Rental growth (% pa) Q 00 Q 02 Q 04 Q 06 Q 08 Q 0 Q 2 Q West End City Central London Source: CBRE 76

78 APPENDIX COMPLETIONS Queens W2 2,400 sq ft residential and retail scheme: 8,700 sq ft residential (6 units) 2,700 sq ft retail let in Q 205 Completed October 204 Seven apartments sold for 5.7m in Stephen Street W 85,50 sq ft of offices delivered in September 204: 28,350 sq ft pre-let to Freud Communications 6,500 sq ft let to FremantleMedia 34,50 sq ft let to The Office Group in Q 205 6,50 sq ft under offer Rents 65+ psf 77

79 APPENDIX COMPLETIONS Turnmill, 63 Clerkenwell Road EC 70,500 sq ft scheme completed Q 205: 58,200 sq ft offices pre-let to Publicis Groupe at 3.m pa (net) 2,300 sq ft retail under offer 40 Chancery Lane WC2 0,800 sq ft due to complete Q2 205: 97,400 sq ft offices pre-let to Publicis Groupe at 5.7m pa (gross) or 4.7m pa (net) 4,400 sq ft retail under offer 78

80 APPENDIX 23 - OTHER 205 COMPLETIONS Tottenham Court Walk W 38,000 sq ft retail extension and refurbishment - completes Q2 205 Eight units - one pre-let Increases previous area by 58% Provides modern units directly onto Tottenham Court Road a busy and vibrant shopping street Close to Crossrail - arrives Charlotte Street W 5,500 sq ft: 3,600 sq ft residential (,700 sq ft private),900 sq ft offices Completes Q

81 APPENDIX 24 - OXFORD STREET W - OPTION SITE Oxford Street W Start c ,000 sq ft mixed-use scheme 204,000 sq ft offices 37,000 sq ft retail 34,000 sq ft 350-seat theatre Located above Tottenham Court Road station also a new Crossrail interchange 80

82 APPENDIX 25 - PROFIT ON COST OF DEVELOPMENTS Queens Turnmill Completion Completed Q 205 Q2 205 Q3 205 Q3 206 Commercial area (sq ft) 46,900 2,700 70,500 0,800, ,000 Residential area (sq ft) 40,300 8, ,600 8,000 Est. future capex ( m) Total cost ( m) ERV ( psf) c ERV ( m pa) Sensitivity 3 - project surplus ( m) and profit on cost (%) Summary m Yield +0.25% Base -0.25% End value psf 20m 39m 6m Less: Total cost % 4% 47% Project surplus 54 34m 54m 76m Base Less: Booked to Dec % 45% 52% Surplus to come 5 48m 69m 92m psf Profit on total cost 45% 44% 50% 56% Profit to come on total cost 5% Rent 40 Chancery Lane 73 Charlotte Street White Collar Factory Comprising book value at commitment, capex, fees and notional interest on land, voids and other costs 2 As a long leasehold interest, ERV is net of the 8% ground rent 3 Sensitivity applies to non pre-let commercial floor area 8

83 APPENDIX 26 - PROFIT ON COST OF 205 STARTS Berners Street Completion Commercial area (sq ft) 440,000 05, ,000 Residential area (sq ft) 45,000-45,000 2 Est. future capex ( m) Total cost ( m) ERV ( psf) c c ERV ( m pa) Charlotte Street Sensitivity 4 - project surplus ( m) and profit on cost (%) Summary m Yield +0.25% Base -0.25% End value psf 93m 9m 48m Less: Total cost 497 9% 24% 30% Project surplus 40 3m 40m 70m Base Less: Booked to Dec % 28% 34% Surplus to come 89 33m 6m 93m psf Profit on total cost 28% 27% 32% 39% Profit to come on total cost 8% Rent Comprising book value at commitment, capex, fees and notional interest on land, voids and other costs. Berners Street land value as at December 204 and 80 Charlotte Street land value as at December 20, following receipt of planning permission 2 Private residential 35,000 sq ft and affordable housing 0,000 sq ft 3 As a long leasehold interest, ERV is net of a 2.5% ground rent 4 Sensitivity applies to commercial areas only and before the deduction of any potential overage payment at Berners Street 82

84 APPENDIX 27 - IMPACT OF 205 STARTS Proposed 205 project starts: Berners Street W and 80 Charlotte Street W Proforma ERV m Impact on ERV of the two developments Portfolio ERV 25.6 Less: ERV on existing buildings.2 Potential ERV on the two projects Proforma Estimated capex 343m 3 to achieve proforma ERV Additional potential of.5m sq ft 4 from other consented projects and appraisals Assumptions Rental uplift ( m) Current rental income Current reversion Development ERV Property -5.7 sq ft 000 Capex m Berners Street Charlotte Street Total m uplift on Dec 4 ERV No change in values from December All expected schemes delivered on time and budget No additions or disposals No other activity -5 Existing buildings Potential No change in strategy Dec 204 values, assumes 7m of capex to complete 2 Requires 226m capex, see chart 3 Excluding capitalised interest 4 See Appendices 28 to 3 83

85 APPENDIX 28 - POTENTIAL PROJECT DELIVERY Estimated completions ('000 sq ft) Under construction Potential starts 226 Turnmill EC 40 Chancery Lane WC2 293 White Collar Factory EC Berners Street W Wedge House SE Balmoral Grove N North Wharf Road W2 80 Charlotte Street W 25 Monmouth House 2 EC 592 Premier House SW Network Building W 9-35 Baker Street W Oxford Street W As at December Includes 9-23 Featherstone Street EC 84

86 APPENDIX 29 - PROJECT SUMMARY Property Current net income m pa Pre scheme area 000 sq ft Proposed area 000 sq ft 205 capex m 206 capex m 207+ capex m Total capex to complete m Delivery date Current office ERV psf On-site projects 2 Turnmill EC Q Chancery Lane WC Q Charlotte Street W Q3 205 Residential White Collar Factory EC Q3 206 c. 55 Tottenham Court Walk W Q2 205 Retail starts (consented) Berners Street W c Charlotte Street W c starts (consented) North Wharf Road W c , General Planning and design Other Total , Capitalised interest Total including interest 7. 66, Excluding projects that commence in 207 and beyond (as at December 204) 2 As at 3 December 204, fixed price contracts 85