Derwent London PLC DLN Interim Management Statement

  Derwent London PLC (DLN) - Interim Management Statement

RNS Number : 1644R
Derwent London PLC
15 November 2012


15 November 2012 

             Derwent London plc ("Derwent London" / "the Group")



· Lettings of 77,500 sq ft (7,200m^2) secured in the second half to date at
a 7.4% premium to 30 June 2012 ERV, at an annual rent of £3.1m

· 47,700 sq ft (4,430m^2) let at 10-4 Pentonville Road N1 to Ticketmaster
for £1.9m pa

· EPRA vacancy rate maintained at 1.1%

· Commenced construction of 40 Chancery Lane WC2 and Turnmill EC1 which
together will provide 170,000 sq ft (15,800m^2) of floorspace

· Purchase of 111,000 sq ft (10,310m^2) at 9 and 16 Prescot Street E1 for
£23.0m, a capital value of £207 per sq ft (£2,230 per m^2)

· Completed £83m 12-year secured debt facility with Cornerstone at a fixed
rate of 3.99%

· Loan to value ratio remains low at 30% with undrawn facilities at 30
September of £376m

John Burns, Chief Executive Officer of Derwent London, commented:

"Our business continues to perform well. Robust demand in our markets has led
to steadily rising rents, the letting of nearly all of 10-4 Pentonville Road
and a low vacancy rate of around 1% across the investment portfolio. We have
significantly increased our on-site development with the commencement of 40
Chancery Lane and Turnmill and we are pushing forward with additional projects
that will see this activity increase further."

Webcast and conference call

There will be a live webcast together with a conference call for investors and
analysts at 09:00 GMT today.

The webcast can be accessed via

To participate in the call, please dial the following number: +44 (0)20 3059

Please say "IMS" when asked for the participant code.

A recording of the conference call will also be made available following the
conclusion of the call on

For further information, please contact:

Derwent London
John Burns, Chief Executive Officer

Tel: +44 (0)20 7659 3000 Damian
Wisniewski, Finance Director

Louise Rich, Head of Investor Relations

Brunswick Group Kate

Tel: +44 (0)20 7404 5959
Elizabeth Adams

Sheena Shah

Market overview

In 2012 to date, central London offices have outperformed the wider UK
investment and occupier markets.

With ongoing uncertainty in the Eurozone and elsewhere, London remains a
preferred investment destination for global investors, who are widening their
search from the traditional 'super prime' areas of Mayfair and St James's to a
broader area of central London. Investment activity in the first nine months
of the year was high with CBRE reporting that central London office investment
totalled £10.4bn, 15% higher than the 2011 annual total. Overseas investors
accounted for 73% of these transactions.

The supply of new office space in central London remains low, particularly in
the West End, our key operating market, where 76% of our portfolio by value is
located. According to CBRE, the West End vacancy rate of immediately
available space was just 3.9% at the end of the third quarter, well below the
10-year average of 5.4%. However with supply limited and some occupiers
taking a 'wait and see' approach, overall take-up in the West End for the
first nine months of the year was 2.6m sq ft (242,000m^2), below the long-term
average according to CBRE. Nevertheless occupiers remain confident about
central London according to Jones Lang LaSalle, reporting a 23% increase in
active demand since the half year, with a 26% increase in the West End. This
supply-demand imbalance is continuing to place upward pressure on central
London rents with 2.5% rental growth in the IPD Central London Office Index in
the first nine months of the year compared to nil growth for the IPD All UK
Property Index.

This rental growth, in a relatively flat yield environment, has led to a 2.5%
capital value increase in central London offices in the first nine months
according to IPD, with a 0.7% increase in the third quarter of the year.
Although the Group's portfolio was not valued during this period our valuers,
CBRE, have indicated that in the light of recent letting activity where rents
have been agreed above estimated rental value (ERV), the performance of the
portfolio over the quarter to 30 September 2012 is likely to have been better
than that of the IPD Central London Office Index.

Portfolio management

The recent performance of Derwent London's portfolio demonstrates the benefit
of active management, apposite properties and solid markets. Vacancy rates in
the portfolio remain low as tenants continue to be attracted to the Derwent
London brand of space and the strong letting performance that we saw in the
first half has continued into the second half, with rents achieved above June
2012 ERVs.

The current EPRA vacancy rate of the portfolio is just 1.1%, which is
unchanged from that reported as at 30 June 2012 despite the completion of 10-4
Pentonville Road N1 which is now substantially let.

Since 1 July 2012 the Group has let 77,500 sq ft (7,200m^2) at an annual rent
of £3.1m, 7.4% above 30 June 2012 ERV. 

The largest transaction was the recently announced letting of 47,700 sq ft
(4,430m^2) of 10-4 Pentonville Road to Ticketmaster, at £45 per sq ft (£484
per m^2) on the top floor and £42.50 per sq ft (£457 per m^2) on a typical
mid-level floor giving a total rent of £1.9m pa. The completion of this
development, opposite our Angel Building where rents of £42 per sq ft (£452
per m^2) were achieved in 2011, continues the regeneration of this
increasingly vibrant part of Islington.

Lettings in 2012 to date total £12.0m pa, at an average premium to 31 December
2011 ERVs of 5.8%.


Since the half year we have completed 10-4 Pentonville Road and made good
progress with our other development projects. The Group is on site at six
major projects totalling 495,000 sq ft (46,000m^2) of which 32% is pre-let.
The appendix includes further details of the development programme.

Buckley Building EC1 is nearing completion and there is strong interest at
this imaginative project near Farringdon station. 

Construction contracts have been signed and demolition work is well underway
at both 40 Chancery Lane WC2 and Turnmill EC1. These projects involve capital
expenditure of c.£60m from 2012 onwards, and will be completed in the second
half of 2014.

We have also started construction of a 3,000 sq ft (280m^2) 'live suite' at
City Road EC1 which will be used to showcase our White Collar Factory
concept. The suite will be completed in the first quarter of 2013 and is
being built to demonstrate the attributes of the future development of the
289,000 sq ft (26,800m²) City Road Estate scheme.

We have had further planning success since the publication of the interim
results. Permission has been granted to extend the retail units at 18-30
Tottenham Court Road W1, where there are lease breaks in 2014, to create a new
and improved double-height frontage for the existing colonnade and to convert
basement car parking to retail. This project, part of the regeneration of 1-2
Stephen Street, will increase the retail space by 70% to 41,000 sq ft
(3,810m^2) and provide modern units directly onto this busy shopping street.
The transformational improvement of this quarter of the West End has already
begun with the opening of Primark at the eastern end of Oxford Street, and
will undoubtedly accelerate as the start of Crossrail services at Tottenham
Court Road station draws closer.

In addition in November we received approval for the redevelopment of 73
Charlotte Street W1 on our Fizrovia estate to provide 11 residential units,
two of which are affordable, and 1,900 sq ft (180m^2) of offices. We expect
to start work on site after the receipt of vacant possession in the second
half of 2013.

At 1-5 Grosvenor Place SW1 Hopkins Architects have been appointed and detailed
proposals for the site are being drawn up.


In the second half of the year Derwent London has purchased the freeholds of 9
and 16 Prescot Street, Whitechapel E1 for £23.0m before costs. This reflects
a capital value of £207 per sq ft (£2,230 per m^2), with a total passing rent
of £1.3m pa and a net initial yield to the Group of 5.4%.

9 Prescot Street is an office building of 102,700 sq ft (9,540m^2) which is
let until January 2015 to Co-operative Bank plc at a low passing rent
of£11.50 per sq ft (£124 per m^2). 16 Prescot Street is a property of 8,300
sq ft (770m^2), occupied by a restaurant paying £9.00 per sq ft (£97 per

These acquisitions are in an improving area of Whitechapel close to Tower
Hill, Aldgate and Aldgate East stations. They offer asset management angles
in the short term whilst providing an interesting future refurbishment
opportunity. 9 Prescot Street has many of the features of the Tea Building of
ten years ago, namely low rents, good volume and floor plates yet in need of


After £86.7m of property sales at Riverwalk House, Vauxhall Bridge Road and
the Triangle Centre in Scotland and the acquisition of 9 Prescot Street for
£21.5m, all of which completed during the third quarter of 2012, net debt
reduced to £816.9m at 30 September 2012 from £870.2m three months earlier.
This brought the Group's overall loan to value ratio down to 30.0% and would
have been lower still had the property portfolio been revalued in September.
Balance sheet gearing also fell from 48.5% at 30 June 2012 to 45.4% at the end
of September. Capitalised project expenditure for the first nine months of
the year totalled £45.1m including £3.6m of capitalised interest. Capital
costs have accelerated to c. £8m per month now that both Chancery Lane and
Turnmill are on site.

The completion of the Group's current refinancing requirements was explained
in some detail in our interim statement and has contributed towards a weighted
average maturity for drawn debt of 6.5 years as at 30 September 2012 compared
with 5.6 years at 30 September 2011. Together with low gearing and strong
interest cover of 358% for the year to date, we are well placed to finance
additional property acquisitions and capital expenditure. There were £376m of
undrawn committed bank facilities at the end of September 2012 plus a further
£543m of uncharged properties.

As previously reported, the Group has reduced the level of interest rate swaps
that it currently holds to £368m as at 30 September 2012 from £493m at the
beginning of the year. However, the addition of the £83m fixed rate loan from
Cornerstone in the second half, together with lower overall borrowings, have
kept the level of fixed rate and hedged borrowings at a higher proportion than
our target range. The proportion at 30 September 2012 was 96.9% of total
debt, in anticipation of further capital expenditure. Largely as a result of
this, the Group's weighted average cost of drawn funds increased to 5.02% at
30 September including the cost of the convertible bonds on an IFRS basis.
Based on the cash coupon of the bonds at 2.75%, the weighted average cost of
debt was 4.76%. With a marginal rate on new borrowings of c.2.25%, the
weighted average cost of debt is dependent on the level of amounts drawn.


We are continuing to unlock opportunities within our portfolio and see a
strong operating environment across our business. Rents are rising, there is
good demand for our space and vacancy levels are low. We believe that we will
see at least the 4 to 5% growth in rental values over 2012 that we indicated
previously and expect our valuation yields to remain firm. Our current
projects are progressing well and we have a consented future pipeline of well
over one million sq ft (100,000m^2) together with considerable financial

Against this background, we are confident about the prospects for our current
schemes and are pushing forward with additional value-adding initiatives that
will see our on-site activity increase further.

Appendix - Project pipeline

                                  Proposed area  Proposed Comment and
Property                                  sq ft      area delivery date
Projects on site
       1 Page Street SW1                127,000    11,800 Offices, 100%
                                                          pre-let, Q2 2013
       40 Chancery Lane WC2             100,000     9,300 Offices, Q4 2014
       Buckley Building, 49              85,000     7,900 Offices, Q1 2013
       Clerkenwell Green EC1
       Turnmill, 63 Clerkenwell          70,000     6,500 Offices, Q3 2014
       Road EC1
Phased schemes
       1-2 Stephen Street W1 -           86,000     7,990 Offices, part
       Ph 1 & 2                                           pre-let, 2013
       Morelands Building, 5-27          27,000     2,510 Offices, 2012 and
       Old Street EC1                                     2013
                                        495,000    46,000
Planning consents*                Proposed area  Proposed Comment
                                          sq ft      area
       80 Charlotte Street W1           385,000    35,800 Offices and
       55-65 North Wharf Road W2        313,000    29,100 Offices and
       City Road Estate EC1             289,000    26,800 'White Collar
                                                          Factory' offices
       1 Oxford Street W1               275,000    25,500 Offices, retail and
       60 Commercial Road E1            122,000    11,300 Student residential
       Wedge House, 30-40                80,000     7,400 Offices
       Blackfriars Road SE1
       18-30 Tottenham Court             41,000     3,810 Retail, Part 1-2
       Road W1 - Ph 3                                     Stephen St
       Queens, 96-98 Bishop's            21,400     1,990 Residential
       Bridge Road W2
       73 Charlotte Street W1            15,500     1,440 Residential and
                                      1,541,900   143,140
* Excluding 132-142 Hampstead Road NW1 where there is planning consent for a
265,000 sq ft (24,600m²) mixed-use scheme. This site is expected to be
compulsorily purchased as part of the construction of HS2.


This document includes statements that are forward-looking in nature.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements
of Derwent London plc to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Any such forward-looking statements speak only as of the date of
this document and Derwent London plc does not undertake to update
forward-looking statements to reflect events or circumstances after that
date. Information contained in this document relating to the Group should not
be relied upon as an indicator of future performance.

Notes to editors

Derwent London plc is the largest central London focused REIT with an
investment portfolio of £2.7bn as at 30 June 2012. The Group is one of
London's most innovative office specialist property regenerators and investors
and is well known for its design-led philosophy and creative management
approach to development.

Derwent London's core strategy is to acquire and own a portfolio of central
London property that has reversionary rents and significant opportunities to
enhance and extract value through refurbishment, regeneration and
redevelopment. The Group owns and manages an investment portfolio of 5.3
million sq ft (490,000m^2), as at 30 June 2012, of which 96% is located in
central London, with a specific focus on the West End and the areas bordering
the City of London. Landmark schemes by Derwent London include Angel Building
EC1, 8 Fitzroy Street W1, Qube W1, Horseferry House SW1, Johnson Building EC1,
Davidson Building WC2 and Tea Building E1.

Derwent London came fifth overall in the 2011 Management Today awards for
'Britain's Most Admired Companies' and has also recently won the Estates
Gazette Property Company of the Year - Offices award. In 2011, Angel Building
was shortlisted for the RIBA Stirling Prize following its RIBA London 2011
award and has also won numerous accolades from organisations such as the
British Council for Offices, the British Construction Industry, the American
Institute of Architects and New London Architecture.

In 2012 the Tea Building won a RIBA regional award and an AJ Retrofit award
for the 'Green Tea' refurbishment to improve the environmental performance of
the building. Derwent London was also the European listed sector leader for
offices in the 2012 GRESB survey.

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