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REPORT & ACCOUNTS 2017
DERWENT LONDON PLC
01
Derwent London plc
is the largest London-focused real estate investment
trust (REIT) and owns a 5.5 million sq ft portfolio of
mainly commercial real estate in 13 ‘villages’ across
central London.
What we do
The majority of our portfolio is income producing.
We aim for a balance between properties with potential
to add further value through regeneration and those
which have already been improved but where our asset
management skills can continue to grow value and income.
How we do it
Our focus on growth and building relationships drives
an income profile with embedded upside, revitalises
neighbourhoods and benefits local communities.
Our focus on earnings ensures we aim to increase rents
while carefully managing our cost base. Underlying the
business is a strong balance sheet with modest leverage
and uncomplicated and flexible financing.
Our overall objective is to provide
above average long-term returns to
our shareholders, while delivering
benefits for all our other stakeholders.
01 02 03
Governance
Financial
statements
Strategic
report
2017 in summary ..................................... 04
Chairman’s statement .............................. 06
Chief Executive’s statement ......................07
A well-placed portfolio ............................. 10
London: evolving and resilient ...................15
Central London office market ....................16
Our business model ...................................18
Our strategy ............................................. 20
Measuring our performance ..................... 30
Our principal risks ......................................34
Property review ........................................ 44
Valuation ...............................................45
Asset management ............................... 48
Development and refurbishment .......... 56
Investment activity ................................61
Finance review ......................................... 64
Responsibility ............................................72
Introduction from the Chairman ................ 88
Board of Directors .....................................90
Senior management .................................. 92
Corporate governance statement..............94
Nominations Committee report ...............102
Audit Committee report ..........................106
Risk Committee report ............................ 112
Remuneration Committee report ............ 116
Remuneration Policy report .....................130
Directors’ report ......................................136
Statement of Directors’ responsibilities .. 142
Independent Auditor’s report ................. 143
Group income statement ........................ 149
Group statement of
comprehensive income ....................... 150
Balance sheets ........................................151
Statements of changes in equity .............152
Cash flow statements ..............................153
Notes to the financial statements ........... 154
Other information
Ten-year summary ................................. 202
EPRA summary ....................................... 203
Principal properties ................................ 205
List of definitions .................................... 207
Communication with our shareholders ... 210
Above: 25 Savile Row W1
Front cover image: White Collar Factory EC1
Back cover image: Jean Prouvé artwork at White Collar Factory EC1
Derwent London plc Report & Accounts 2017
02
03
01
Strategic
report
2017 in summary ..................................... 04
Chairman’s statement .............................. 06
Chief Executive’s statement ......................07
A well-placed portfolio ............................. 10
London: evolving and resilient ...................15
Central London office market ....................16
Our business model ...................................18
Our strategy ............................................. 20
Measuring our performance ..................... 30
Our principal risks ......................................34
Property review ........................................ 44
Valuation ...............................................45
Asset management ............................... 48
Development and refurbishment .......... 56
Investment activity ................................61
Finance review ......................................... 64
Responsibility ............................................72
Above and left: The Copyright Building W1
Derwent London plc Report & Accounts 2017
Derwent London plc Report & Accounts 2017
04
2017 in
summary
Derwent London made strong
operational progress again this year.
Our core activities
p.18 Our business model
Asset
management
Development
& refurbishment
Investment activity
Highlights
– Record lettings of £41.5m
– Property disposals of £483m
– EPRA earnings growth of 22.4%
p.06 Chairman’s statement
p.07 Chief Executive’s statement
p.62 Case study: The Copyright Building
p.64 Finance review
05
80 Charlotte Street W1 offices
86% pre-let
p.44
Property review
p.52
Case study: 80 Charlotte Street
Net rental income
EPRA EPS
£161.1m
2016: £145.9m
+10.4%
94.2p
2016: 77.0p
+22.4%
Dividend
per share
59.7p
2016: 52.4p
+14.1%
Total return
7.7%
2016: 1.7%
Special dividend
per share
75p
2016: 52p
+44.2%
EPRA NAV per share
3,716p
2016: 3,551p
+4.6%
Completed White Collar Factory EC1
p.44
Property review
Loan-to-value
ratio (LTV)
13.2%
2016: 17.7%
Cash and
undrawn facilities
£523m
2016: £383m
401,000 sq ft of development
completed, with 623,000 sq ft
under construction at the year end
p.44 Property review
p.58 Case study: Brunel Building W2
Our central London market
Our main priorities for 2017
Our performance
Our responsibility
– Good levels of take-up
– Economic and political uncertainty
p.16 Central London office market
Our portfolio
– Underlying capital value rose 3.9%
– Vacancy rate halved to 1.3%
p.10 A well-placed portfolio
All achieved
– To deliver on our schemes
– To de-risk our pipeline via pre-letting
and fixing our construction costs
– To monitor for asset management
and disposal opportunities
p.20 Our strategy
p.54 Case study: Asset management
p.30 KPIs
p.116 Remuneration
Our balanced risk profile
– Our carbon intensity down 15%
– Supported 19 local community projects
– 99% of staff surveyed ‘proud to work
for Derwent London’
p.34 Our principal risks
p.06 Chairman’s statement
p.87 Governance
p.72 Responsibility
p.75 Case study: 25 Savile Row W1
p.76 Case study: COP21
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
06
Chairman’s
statement
Robert Rayne
Chairman
Operationally we have
had another excellent
year, setting a record for
new lettings with £41.5m
achieved. During the year
we completed White Collar
Factory EC1, a demonstration
of how we regenerate
important locations through
the creation of innovative
office space.
In addition we extended a number of
leases, notably on our major assets at
Angel Building EC1 and Tea Building E1.
These management activities have had
the impact of increasing income while
£482.8m of property disposals reduced
debt levels. Together these provided
further evidence of the attractions of the
Derwent London brand to both occupiers
and property investors.
London office values have firmed during
the last year and our NAV rose 4.6% to
3,716p per share in 2017. Our underlying
earnings grew more strongly, up 22.4% to
94.2p per share principally due to recent
development completions. After a 25%
rise in the 2016 final dividend, this earnings
growth enabled us to raise the 2017
interim dividend by 25% too. We have now
reverted to a growth rate closer to our long
term trend and propose raising the 2017
final dividend by 10.1% to 42.4p per share.
The final dividend will be paid on 8 June
2018 to investors on the share register on
4 May 2018. In the nine years since our
first full year as a UK REIT, our annual
compound growth in net assets, earnings
and dividends per share has been 13.2%,
17.7% and 10.4%, respectively.
p.08 Continued
07
Chief
Executive’s
statement
John Burns
Chief Executive
The London office market
remained resilient in 2017
as both occupier and
investor demand has been
strong. Although leasing
incentives have increased in
some instances and deals
take longer to complete,
prices remain firm.
Longer term demand will depend on the
continuing strength of the London economy,
the impact of the UK’s final Brexit settlement
and what actions the UK subsequently takes.
While our developments continue to take the
limelight with their design flair and pre-letting
successes, it is equally important we actively
manage our income-producing assets which
represent 86% of the portfolio. These divide
into core income and properties earmarked
for future development. In 2017 we had
significant success extending leases and
raising income, and this year we have
opportunities to do more of the same.
Our focus on designing office space
with the flexibility that today’s occupiers
require in improving areas and at middle-
market rents continues to serve us well.
The average ‘topped-up’ rent on our
London office portfolio is an undemanding
£50 per sq ft. During 2017 we let the
remaining available space at The White
Chapel Building E1 and all of the White
Collar Factory tower, as well as pre-letting
or placing under option virtually all of our
largest project ever at 80 Charlotte Street
W1. The latter has been committed to by
major international companies, Arup and
The Boston Consulting Group, nearly two
years ahead of expected completion.
p.09 Continued
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 08
Chairman’s
statement
continued
This performance does not include last
year’s 52.0p per share special dividend,
which was paid out in response to a
number of value enhancing transactions
announced with our last full year’s results.
We have continued to make highly
profitable disposals which, together with
rising underlying property values, have
seen our loan-to-value ratio (LTV) move
to exceptionally low levels. As a result the
Board has decided to propose another
special dividend totalling 75.0p per share
or £84m which will be paid with the final
dividend in June 2018.
Our developments continue to win awards
and our Annual Sustainability Report to be
published simultaneously with our Annual
Report demonstrates our commitment to
the environment and wider stakeholders.
Highlights from 2017 include White Collar
Factory achieving a BREEAM ‘Outstanding’
and LEED ‘Platinum’ on completion, the
highest levels possible. Our managed
portfolio achieved a significant reduction
in energy consumption, and the Derwent
London Community Fund has been
established for over five years during
which time it has invested in 56 different
local projects and grass roots initiatives.
Helen Gordon, CEO of Grainger plc,
was appointed as an independent non-
executive Director with effect from
1 January 2018. We welcome her and
her extensive knowledge of the real estate
market. Tim Kite, who was appointed
Company Secretary in 1995, retired in
October 2017 and we wish to thank him
for his valued assistance over the years.
His successor, David Lawler, brings with him
considerable experience in a similar role.
We have a strategically placed property
portfolio and considerable financial
resources which are greatly enhanced
through the skills of our people and their
relationships with occupiers, investors,
local communities, suppliers and advisors.
I would like to thank the Derwent London
team for ensuring that we continue to make
the most of our available opportunities in
a way that also allows other businesses to
thrive and creates long term value for the
communities in which we operate, as well
as achieving above average long-term
returns for our investors.
Robert Rayne
Chairman
27 February 2018
Strong performance
Above: White Collar Factory EC1
09
With an EPRA vacancy rate of only 1.3%,
we start 2018 with less immediate space
available than last year. Our current
development pipeline, including Soho
Place, totals 908,000 sq ft and is 30%
pre-let, and we have a further 165,000
sq ft under refurbishment which is 54%
pre-let. Our success in letting the available
space will be an important indicator of
market conditions and determine the
timing of the other projects in our
substantial long-term pipeline.
Following last year’s major disposals, the
Group had cash and undrawn facilities of
£523m at the year end. This year’s special
dividend will cost £84m and our expected
development expenditure over the next four
years, including Soho Place, is £574m. Our
LTV would rise from 13.2% to a proforma
24% after allowing for this expenditure.
Outlook
We have an exceptional pipeline of existing
opportunities, good interest in our product
and the business is particularly well placed,
despite the ongoing political and economic
uncertainty. With a robust financial position,
we are under no pressure to make disposals
but rather, we are looking to further grow
our portfolio. Against this background,
we estimate that in 2018 our average ERV
growth will be +2% to -3% and property
yields will be broadly stable. Given the
projects due for delivery in 2019 are
already 45% pre-let, we remain confident
in our longer term earnings growth. Based
on these prospects, we expect to raise our
2018 dividend by 10%. For the longer term,
we have started preliminary works at Soho
Place and have planning consent for a
number of other exciting future projects.
John Burns
Chief Executive
27 February 2018
Chief Executive’s
statement
continued
Our product and locations are also
attractive to investors as we made
£482.8m of investment sales last year,
11.8% above December 2016 values.
These deals, together with important
lease extensions, show the ongoing
appeal of our buildings which continue
to anticipate the trends in tenants’
occupational requirements.
In addition to 80 Charlotte Street, the
Brunel Building, Paddington W2 is our other
major scheme due for completion in 2019
and together these total 623,000 sq ft.
We have largely pre-let the former and are
seeing good occupier interest in the latter.
During 2017 we received resolutions to
grant planning consent for an additional
443,000 sq ft of development at 19-35
Baker Street W1 and Holden House W1
which means that at the year end we had
853,000 sq ft1 of consented potential
schemes. Included in this is Soho Place W1,
where we took possession in January 2018
and have now started preliminary works
on one of central London’s most prominent
sites located over the new Tottenham
Court Road Elizabeth line station.
Our developments represent the major
contributor to our income growth. At the
year end we had £110m of portfolio
reversion of which 40% related to rent free
periods and minimum uplifts. This means
that £44.2m is already taken into account
in our reported earnings. Therefore
earnings growth will be driven principally
by the remaining £65.8m of potential
upside. The letting of developments
and refurbishments represents 74%
of this growth.
1 This figure includes 132,000 sq ft attributable
to minority interests
Total property return
Total shareholder return
BREEAM ratings
Tenant retention/re-lets
Development potential
Reversionary percentage
Measures the income and
capital return on our portfolio
+8.0%
Exceeding our benchmark,
the MSCI IPD Central London
Offices Index, of +7.1%
Measures our share price
and dividend performance
+15.6%
Outperforming the
FTSE 350 Real Estate
Index return of +13.1%
Measures environmental impact
of commercial buildings
‘Outstanding’
White Collar Factory achieved
‘Outstanding’, exceeding
our target of ‘Excellent’
Measures our ability to retain or
re-let space following lease expiry
92%
Tenant retention of 57%
was within our target
range of 50-75%
We monitor the proportion of our
portfolio with the potential for
refurbishment or redevelopment
44%
Within our target
range of 35%-45%
Measures the growth in passing
rents, assuming the rent increased
to ERV and all current developments
were completed and let
69%
Down from 89% in 2016, reflecting strong
letting and disposal activity in 2017
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 Paddington
Brunel Building, one
of our two on-site
developments, is located
in this village. Rents in
Paddington have lagged
behind some of the other
‘villages’, but are starting
to catch up with the
benefits of Crossrail
and the substantial
investment into place-
making that we and
others are committing to.
Crossrail
The Elizabeth line
(Crossrail) is expected to
open at the end of 2018.
With over 70% of our
portfolio located close to
a Crossrail station, the
Group is set to benefit.
Fitzrovia
With 29% of our portfolio,
this is our largest ‘village’.
Located close to Crossrail
and at the fast-improving
eastern end of Oxford
Street, this area is seen
as potentially one of the
most exciting in central
London. It also contains
our 80 Charlotte Street
development, as well
as the major future
schemes, Soho Place
and Holden House.
11
Tech Belt
46% of our portfolio is
located in London’s Tech
Belt which has become
the preferred home to
many of London’s most
dynamic and creative
businesses.
Clusters
We like to build up
clusters of properties
by acquiring assets close
to existing holdings.
This strengthens our
understanding of
an area, creates
opportunities through
estate management and
allows us to offer our
occupiers optionality and
flexibility to grow and
adapt within our portfolio.
10
A well-placed
portfolio
98% of our portfolio is located in central
London, grouped in 13 ‘villages’, each
with its own individual identity. 60% can be
found in the West End and 38% in the City
Borders. The balance relates to properties
and land held on the northern outskirts of
Glasgow in Scotland.
87
Buildings
c.700
Leases
5.5m sq ft1
Area
1
Includes 0.6m sq ft of on-site developments
c.440
Tenants
£160.1m
Contracted net rental income
2016: £150.3m
£270.1m
Estimated rental value1
2016: £284.5m
1 After additional capex of £265m
3.4%
4.7%
EPRA net initial yield
2016: 3.4%
True equivalent yield
2016: 4.8%
6.0 years
7.8 years
2016: 6.5 years
WAULT1
1 Weighted average unexpired lease term
2016: 7.8 years
WAULT1 including pre-lets
1 Weighted average unexpired lease term
Central London office rent banding
‘Topped-up’ income %
12
£0-£30 per sq ft
£30-£40 per sq ft
£40-£50 per sq ft
£50-£60 per sq ft
£60+ per sq ft
13
11
20
28
28
Our ‘villages’
Portfolio weighting
Fitzrovia1
Victoria
29%
11%
West End
City Borders
Baker Street/Marylebone 4%
Provincial
60%
38%
2%
Paddington
Mayfair
Soho/Covent Garden
Islington/Camden
Clerkenwell
Old Street
Shoreditch/Whitechapel
Holborn
Holborn (non-Tech Belt)
Provincial
3%
2%
1%
10%
12%
11%
9%
4%
2%
2%
1
Includes North of Oxford Street
p.205 Principal properties
Ten largest tenants
% of rental income2
Burberry
Expedia
Government
WPP Group
Publicis Groupe
The Office Group
IWG
FremantleMedia Group
VCCP
House of Fraser
7.1
5.4
4.9
3.7
3.3
3.0
2.4
2.3
1.6
1.5
2 Based upon contracted net rental
income of £160.1m
2%
38%
t
l
e
B
h
c
e
T
Tenant diversity3
Media, TV, marketing
and advertising
Professional and
business services
Retail head offices
Retail and leisure
Government and
public administration
Financial
Other
60%
31
21
19
11
5
4
9
3 Expressed as a percentage of
annualised rental income of the
whole portfolio
Derwent London plc Report & Accounts 2017
Derwent London plc Report & Accounts 2017
Key
Villages
Tech belt
Derwent London properties
Elizabeth line
Bond Street Hyde ParkGreenParkSt James’sParkRanelaghGardensKensingtonGardensSouthwarkParkRegent’s ParkRiver ThamesRiver ThamesPADDINGTONBAKER STREET/MARYLEBONEMAYFAIRVICTORIAST JAMES’SSOHO/COVENT GARDENFITZROVIACLERKENWELLSHOREDITCHWHITECHAPELHOLBORNOLD STREETTHE CITYBLOOMSBURYISLINGTONNORTH OF OXFORDSTREET Liverpool Street FarringdonTottenham Court Road PaddingtonWhitechapelKing’s CrossSt. PancrasVictoriaEustonWaterlooCannon StreetLondon BridgeBlackfriarsFenchurch Street
13
14
15
The context
80 Charlotte Street
1 & 2 Stephen Street
Soho Place
Central London offices (CLO) by
business sector
Percentage of London office take-up
100
London’s serviced offices
Floor area (million sq ft)
12
Other Derwent London properties across Fitzrovia
Central London office stock
Percentage of floor area
City
32
West End 40
Midtown
11
Southbank
Docklands
8
9
Source: CBRE
80
60
40
20
0
Take-up in past
five years (CBRE)
Derwent London
CLO occupiers
Banking & finance
Business services
Consumer services & leisure
Creative industries
Manufacturing
Public sector
London office locations
Derwent London’s primary focus is as a
provider of central London office space
along with ancillary retail and residential.
There is currently 225m sq ft of office
space in central London, 72% of which
is concentrated in the West End or the
City. Approximately 75% of West End
office stock lies in a conservation area
compared to only around 33% in the
City. The City and Docklands also hold
the highest concentration of office
towers and financial occupiers.
Derwent London’s office portfolio
totals 5.5m sq ft and represents c.2%
of the total market. We have a 60%
weighting to the West End market
and no exposure to either the City
or Docklands.
Sources of London office take-up
Professional and business services have
long represented the highest proportion
of central London office take-up. More
recently the growth in demand from the
creative industries has matched the level
from financial services.
Derwent London’s product and
locations benefit from these recent
demand dynamics. We have a much
higher proportion of lettings to the
creative industries, and the consumer
services and leisure sectors than the
market as a whole, whereas our lettings
to banking and finance have been much
lower. JLL has recently reclassified
Aldgate, Clerkenwell and Shoreditch
(where 21% of our portfolio is located)
from ‘just emerged’ to ‘almost
mainstream’1.
“ We see a lot of opportunity
in London given the
continued growth of
ecommerce and technology
industries and the strong
pool of talent in the city.”
Johan Svanstrom
President of Hotels.com brand,
part of the Expedia group
10
8
6
4
2
0
2007
2012
2017
Source: Cushman & Wakefield
Changing patterns of working
Significant changes in working practices
such as the fact that 18% of London’s
workforce is self-employed (up 33% since
2008)2, or that working densities have
increased by over a third since 19973
have meant that the provision of office
space has had to evolve too. London is
the largest market for flexible office
space globally2, and this segment has
been the fastest-growing recent source
of demand in response to global trends
initially driven by technology and the
growth of SMEs and self-employment.
Although flexible office providers have
been a significant source of recent
take-up, this segment still represents
only c.4% of most global office markets
including London4. However, this
proportion is expected to grow with
a number of major pre-lets already
secured and the main operators in
expansion mode.
Derwent London’s focus on good
design and providing flexible workspace
with significant amenities means that
we have anticipated these trends.
In addition we have employed The
Office Group at White Collar Factory,
1 & 2 Stephen Street W1 and Angel
Square EC1 as part of a multi-let
strategy. We currently have c.5%
of our rental income deriving from
flexible office providers.
1 Digital London Revisited, JLL 2017
2 The Flexible Revolution, CBRE 2017
3 BCO (British Council for Offices)
4 Flexible Workspace, Colliers International 2017
Derwent London plc Report & Accounts 2017
London: evolving
and resilient
London’s economy and population have grown
significantly over the past 30 years, benefitting
from deregulation and the subsequent expansion
of the financial sector and, more recently, growth
from the creative industries.
Solid foundations
With a population of 8.9 million and 5.8
million jobs1, London is a major global city
and one of the largest cities in Europe.
Its economy has grown steadily since
2009 benefitting from the expansion of the
creative industries following the slowdown
in the global financial sector. It is estimated
that London has 2.0 million office jobs2.
This economic strength has been founded
on an ethnically diverse population with
the bedrock of a strong legal system, and
a strong educational and cultural base.
London is also an internationally renowned
retail and leisure destination. However, its
economic growth has slowed recently
along with the UK economy and the
uncertainty surrounding Brexit. Despite the
threat of some jobs leaving to the EU, the
London economy is still predicted to grow
and the population is expected to rise to
10.8 million by 2041, with an annual
average jobs increase of 49,000.1
Changing work and social patterns
The recent London Office Policy Review2
concluded that headcount growth will
outpace savings achieved through greater
office use efficiency. However, three
additional factors were identified: (1) the
adoption of agile working could change
locational preferences, building types and
specifications; (2) office automation could
impact c.30% of London jobs over the next
two decades3; and (3) Brexit. The review
concluded that the first two factors could
potentially ‘dwarf’ any Brexit impact and
that London needs ‘more, but different’
office space.
These conclusions need to be assessed
within the broader London policy mix
put forward in the Draft New London Plan.
The London Mayor states that the objective
should not be about growth at any cost
but there needs to be a rebalancing to
ensure that the benefits are more broadly
spread with a focus on ‘good growth’
zooming in on the key issues of affordability,
accommodation, infrastructure and pollution.4
A cyclical market
The London office market has proven
cyclical over time responding to a mixture
of factors: principally economic demand,
supply, interest rates and bank lending
exposure. The EU referendum was
expected to be a tipping-point by many
commentators, but so far its impact can
be seen in slower market activity rather
than a decline as the other factors have
been more benign.
Index
(1980 = 100)
350
300
250
200
150
100
50
0
1982 1987 1992 1997 2002 2007 2012 2017
Capital growth
Rental value growth
Source: MSCI IPD
As a result rental levels remain high
and yields very low compared to previous
cycles, which means office capital values
per sq ft are relatively high. One reason
for this has been the strong demand for
income producing assets globally which
was, in part, a response to the quantitative
easing strategies adopted by many of the
major central banks. In addition, political
risk remains high.
1 London’s Economic Outlook: Autumn 2017,
GLA Economics
2 London Office Policy Review 2017 for Greater
London Authority, CAG consultants and
Ramidus Consulting Limited
3 Agiletown: the relentless march of technology
and London’s response, Deloitte 2015
4 The Draft New London Plan December, 2017
Derwent London plc Report & Accounts 2017
16
17
Central London
office market
London and UK economic
growth has slowed since
the EU referendum result
but overall the outcome
has been better than
initially expected.
A notable feature last year was the
amount of space taken by the serviced
office providers in total 16.5% of total
market activity. We have a number of
leases with The Office Group, whose space
aligns with ours and who we have had a
relationship with since 2015. Technology
and working practices will mean that
going forward the serviced office sector
will continue to have an important
position in the London office market.
Looking forward, most estimates predict
ongoing low levels of UK GDP growth in the
next couple of years in the order of 1.0% to
1.7% pa, as Brexit and political uncertainty
continue to weigh on business decisions.
We have seen the first increase in base
rates in over 10 years when the Bank of
England raised them 0.25% to 0.5% and
stated that it expected to continue to move
these up gradually over a number of years
as the economy recovers.
The overall vacancy rate rose from 4.1%
to 4.7%, and the West End by a lesser
amount from 3.3% to 3.7%. Vacancy
rates have risen now for two years but still
remain below long-term average levels.
JLL is estimating current office demand
at 12.5m sq ft, which is lower than last
year and the long term trend, but active
demand of 9.6m sq ft is at its highest
level since June 2016.
Continuing economic expansion has seen
central London office take-up remain
good with CBRE estimating that 13.2m
sq ft of space was let in 2017, which was
an increase of 7% on 2016. This was in
excess of the long-term average but below
the recent trend. The West End remained
strong with 4.8m sq ft of lettings, the
highest level since 2007.
New office supply of 5.7m sq ft was
delivered in 2017, which was 20% lower
than predicted one year ago. There is
currently c.12m sq ft under construction
for completion in the next three years.
Given that 47% of the space under
construction is pre-let, available new space
for delivery in the next three years remains at
c.6m sq ft or under 3% of the total market.
The West End, where our current
developments are concentrated, has
only 1.1m sq ft or c.1% of the local market
stock under construction that is available.
CBRE estimates prime central London office
rents fell 2.9% in 2017, the first fall in almost
seven years. However the performance
varied by location. The West End was
weakest, down 4.5% led by Mayfair &
St James’s and Victoria, but rental levels
stabilised here in the second half of the
year. At the same time, Fitzrovia and
Paddington, where we have substantial
interests, saw rents rise by over 3%.
GVA estimates that rental incentives have
increased to about 20% of headline rent
from 15% in most central London locations
during 2017. Given the short term outlook
for supply and demand, we would expect a
similar mixed pattern for 2018 with headline
rents continuing to drift but certain
markets, particularly those impacted by
Crossrail, performing better.
Investment activity rose 26% last year to
£16.4bn reversing three years of decreases,
but all of the last six years have witnessed
very liquid markets with significant foreign
investment. Two high profile City deals, each
over £1bn and at substantial premiums, took
the 2017 headlines and stimulated increased
second half supply, as other investors tested
the market appetite. Despite widespread
demand not all these properties have found
buyers but, as there appears limited financial
pressure on vendors to sell and there is a
lack of income-producing alternatives,
we expect to see values remain broadly
stable in 2018. Recent reports continue to
highlight significant investor appetite from
the same regions that were active last year.
Central London office take-up
Central London office development pipeline
West End office development pipeline
Central London office investment transactions
Above: White Collar Factory EC1
Floor area million sq ft
20
15
10
5
0
2000
2002
2004
2006
2008
2010
2012
2014
2016
Floor area million sq ft
12
Vacancy rate %
12
9
6
3
0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
9
6
3
0
Floor area million sq ft
3
2
1
0
Vacancy rate %
£bn
12
20
8
4
15
10
5
West End
Central London average
Completed
Proposed
Vacancy rate
Completed
Proposed
Vacancy rate
Average
Rest of central London
Source: CBRE
Under construction
Completed average
Under construction
Completed average
Source: CBRE
Source: CBRE
Source: CBRE
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
0
0
2000
2002
2004
2006
2008
2010
2012
2014
2016
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
18
Our business model
How we add value to our unique portfolio to
deliver long-term benefits for all our stakeholders.
Inputs
Our assets
and resources
Properties
p.44
Financial
resources
p.64
People &
relationships
p.72
Activities
R i s k m anagement
p.34
Our core
activities
Asset
management
p.48
Development &
refurbishment
Outputs
Outcomes
Adding value
for stakeholders
Providing office spaces
for today’s businesses
p.44
Delivering above average
long-term returns
623,000 sq ft under
development in 2018
p.56
Our strategy
p.20
EPRA total return and EPRA NAV
p.56
p.30
Investment activity
p.61
Investing in neighbourhoods
& communities
p.78
%
30
20
10
0
19
£
40
30
20
10
Distinctively Derwent through...
Investing in our ‘villages’
Buildings in vibrant or emerging locations providing both
an income-producing portfolio and project pipeline.
Conservative financial base
A strong balance sheet with low gearing and flexible finance.
Experienced team
Our experienced management is supported by teams
of experts who specialise in our core activities, in an
open and collegiate culture that promotes collaboration.
p.30
KPIs
Proactive occupier relationships
Understanding occupier needs allows us to
anticipate market trends and offer tailored leases.
Market leading design
Our focus on design and innovation creates
sustainable and flexible buildings which meet
the needs of our tenants.
Disciplined investment approach
We acquire properties with future regeneration
opportunities and dispose of those with limited
future potential.
2010
2011
2012
2013
2014
2015
2016
2017
EPRA total return (%)
EPRA NAV (diluted) (£ per share)
Helping businesses to thrive
Helping businesses to thrive
Our well-located and competitively priced buildings
are characterised by generous volumes and good
light and amenities.
Adding value and growing dividends
Adding value and growing dividends
We aim to create value and grow our income on a
robust platform to the benefit of our shareholders
and other stakeholders.
Providing benefits to our stakeholders
Providing benefits to our stakeholders
Investing in our ‘villages’ improves locations, benefits local
communities and supports our suppliers and employees.
Enhancing environments
and communities
p.78
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
20
Our strategy
John Burns
Chief Executive
Our overall objective is to provide above average
long-term returns to our shareholders, while
delivering benefits for all our other stakeholders.
Our business model is designed to help
us achieve this by applying our asset
management and regeneration skills to our
5.5m sq ft property portfolio using our people,
relationships and financial resources to add
value and grow income while benefitting the
communities in which we operate and the
wider environment beyond.
p.18 Our business model
Our five strategic objectives
Our strategy has been broadly consistent
now for many years and is set out below
under five strategic objectives:
To optimise returns
and create value from
a balanced portfolio
To grow recurring
earnings and
cash flow
To attract, retain
and develop talented
employees
To design, deliver
and operate our
buildings responsibly
To maintain
strong and flexible
financing
p.24
p.26
p.28
p.28
p.29
1
2
3
4
5
Risks
The pursuit of outperformance requires
us to balance risk against likely returns;
our principal risks are listed under each
strategic objective on page 22 and are
explained in more detail on page 34.
KPIs
We use a number of Key Performance
Indicators (KPIs) and Key Metrics (KMs) to
help us measure our performance and to
assess the effectiveness of our strategy.
These are listed on page 22 for each
objective but the principal measures that
we apply to ascertain overall business
performance are Total Return (TR),
Total Property Return (TPR) and Total
Shareholder Return (TSR).
TR combines our dividends with the
growth in Net Asset Value (NAV) per
share to provide an overall return for the
year and is measured against a peer group.
TPR looks at the income and growth in
value from our properties and is measured
against an index of other properties.
TSR compares our dividends and share
price performance with the relevant index.
Remuneration
TR, TPR and TSR are the main performance
measures we use to determine the variable
elements of executive remuneration to
ensure there is a strong alignment between
the interests of shareholders and our
decision makers.
Our
strategy
Strategic
objectives
Priorities
p.22
2017 priorities
The detailed priorities that we set
for 2017 are described under the
five strategic objectives on page 22.
In summary, our main aims in 2017
were to deliver on our schemes, de-risk
our pipeline via pre-letting and fixing
our construction costs, and to monitor
the portfolio for asset management
and disposal opportunities.
Risks
p.34
KPIs
p.30
Risk management and the
property cycle
We manage risks via a risk register
which is updated and reviewed
regularly. The types of risks are split
into categories (see page 34) and are
judged against the likely impact upon
our strategy, operations and financial
position as well as their impact on our
external stakeholders. We aim to
balance the level of risk we take against
external factors such as the political and
economic background as well as our
reading of the London office cycle.
We can therefore adjust our approach,
adding projects (which are inherently
risky but offer higher returns) where we
believe this is appropriate, or focusing
more on retaining income or reducing
leverage if we feel that we have enough
risk already. Some of the decisions made
will lead to major works which can take
many years to complete. Therefore,
long-term planning, risk mitigation and
financial discipline are all essential.
Remuneration
p.116
21
Our purpose
Our purpose is to help improve and upgrade the
stock of office space in central London.
Through our brand of better designed, more flexible
and efficient buildings, we help the office occupiers
of today and tomorrow and their employees to
enjoy an environment both within and around their
office spaces which supports their own needs.
These are times of rapid change and so setting the
right corporate culture, thinking ahead for the long
term and engagement with our stakeholders are all
essential to achieve the right results.
Together with our tenants, the upgrading of London’s
office stock contributes towards workforce well-being
and will help to maintain London’s place as a global
business hub. By attracting and retaining talent, this
will help to continue moving this great city forward,
with all the social and economic benefits that this
should bring to our local communities and to society
as a whole.
Our values
Reputation, integrity
and good governance
Our culture
Hard-working
and adaptable
Building long-term
relationships
and trust
Driven by a passion
to improve London’s
office spaces
Focus on creative design
and embracing change
Progressive
and pragmatic
Openness and
transparency
‘Open door’
and inclusive
Sustainability
and responsibility
Collaborative
and supportive
p.72
For further reading on our values and culture
What makes Derwent
London different?
We specifically look to invest in emerging locations,
such as those around Crossrail stations which offer
inherent value and long-term growth prospects.
These acquisitions are our ‘raw materials’ and are
valued off existing use so their valuations typically
do not take account of the upside potential we
believe we can add.
Our buildings are almost all income producing,
though some are off low rents with future
refurbishment potential, while the regenerated
properties, most of which are let at affordable
mid-market rental levels (up to about £85 per
sq ft), have already benefitted from our actions.
In building a pipeline of opportunity for the next few
years, we have a strong focus on innovation and
design and on anticipating the needs of occupiers
both today and into the future. This has helped us
to establish a recognised brand.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 22
Our strategy
continued
p.30 Measuring our performance
p.34 Our principal risks
Total return and total shareholder
return measure our performance
across all our strategic objectives
2017 priorities
2017 progress
Priorities for 2018
KPIs and key metrics
Risks
Key
Achieved
Still in progress
Not achieved
23
p.24
1 To optimise returns and create value from a balanced portfolio
Seek acquisitions that meet our criteria
Limited opportunities were identified in 2017
Maintain balance between income generation and development activity
Balance maintained with 44% of the portfolio having development potential
Complete White Collar Factory and The Copyright Building
Both achieved
Progress 80 Charlotte Street and Brunel Building
Both progressing well
Monitor portfolio for further opportunities to recycle capital
Property disposals generated net proceeds of £482.8m, at a 11.8% premium
to book values
2 To grow recurring earnings and cash flow
Continuously monitor our portfolio for further asset
management initiatives
Extend income through renewals and re-gears for properties
not earmarked for regeneration
Considerable progress in void management and re-letting vacant space
New lettings achieved £41.5m of income, 1.3% above Dec 2016 ERV
Rent reviews increased income by 42% to £9.1m on 209,500 sq ft
Our retention and re-let rate was 92% in 2017
Renewals and re-gears increased income by 31% to £29.5m on 562,400 sq ft
De-risk 80 Charlotte Street and Brunel Building through pre-lets
Substantially pre-let the office space at 80 Charlotte Street W1
3 To attract, retain and develop talented employees
Review how we can ensure our people and culture are ‘Fit for the Future’
Project launched in early 2017 to review organisational structure and
governance, and to maximise individual performance
Conduct employee survey
Complete office refurbishment
Completed with excellent results
Achieved in May 2017
Focus on staff productivity and well-being
Further improvements made, supported by staff survey
Introduce other well-being initiatives
New ideas such as cholesterol testing and self-defence classes
4 To design, deliver and operate our buildings responsibly
Achieve BREEAM ‘Outstanding’ and LEED ‘Platinum’ ratings for
White Collar Factory
Achieve a SKA Gold rating for the refurbishment and fit out of our
25 Savile Row offices
Set science-based carbon targets to align with the Paris Climate
Change Agreement
Ensure our properties meet the requirements of the forthcoming
Minimum Energy Efficiency Standards for buildings
Achieved
Achieved
Achieved
Exercise undertaken and work ongoing
Continue to work with local community projects
Distributed £108,000 of funding across 19 projects
Obtain stronger validation of our methods
Achieved
5 To maintain strong and flexible financing
Refinance £28m secured facility maturing in 2018
Facility renewed until July 2022
Maintain or strengthen available facilities
The £75m revolving bank facility was extended to July 2022 and a £15m
development loan, expiring in May 2019, was provided in relation to our
Primister joint venture
Maintain good interest cover
Interest cover increased to 454% in 2017
• Seek acquisitions that meet our criteria
• Maintain balance between income
generation and development activity
• Progress 80 Charlotte Street, Brunel
Building and Soho Place
• De-risk the pipeline through further pre-lets
• Advance regeneration opportunities within
the portfolio
• Continuously monitor portfolio for
further asset management initiatives
• Extend income through renewals and
re-gears for properties not earmarked
for regeneration
• Manage voids and maximise income
from good asset management
• Secure further pre-lets
• Total property return
• Void management
• Development potential
• Reversionary percentage
• Capital return
• Inconsistent strategy
• Adverse Brexit settlement
• Reputational damage
• Increase in property yields
• Reduced development returns
• Cyber attack
• Non-compliance with health and safety legislation
• Non-compliance with environmental and sustainability legislation
• ‘On-site’ risk
• Contractor/subcontractor default
• Shortage of key staff
• Terrorism or other business interruption
• Total property return
• Void management
• Tenant receipts
• Reversionary percentage
• Tenant retention
• Capital return
• Inconsistent strategy
• Adverse Brexit settlement
• Reputational damage
• Reduced development returns
• Cyber attack
• Non-compliance with health and safety legislation
• ‘On-site’ risk
• Contractor/subcontractor default
• Shortage of key staff
• Terrorism or other business interruption
p.26
p.28
• Continue the ‘Fit for the Future’ programme
• Identify additional well-being initiatives
• Establish working group to recommend
improvements to lower scoring areas
identified by the staff survey
• Staff satisfaction, which will be
introduced as a KPI in 2018
• Reputational damage
• Cyber attack
• Non-compliance with health and safety legislation
• Non-compliance with environmental and sustainability legislation
• Other regulatory non-compliance
• Shortage of key staff
• Terrorism or other business interruption
• Develop our framework for health
and well-being in developments
• Implement a new carbon analysis
tool to monitor progress against
our science-based targets
• Deliver the next rounds of our
Community Fund
• Energy performance certificates
• BREEAM ratings
p.28
• Reputational damage
• Cyber attack
• Non-compliance with health and safety legislation
• Non-compliance with environmental and sustainability legislation
• Other regulatory non-compliance
• ‘On-site’ risk
• Contractor/subcontractor default
• Shortage of key staff
• Terrorism or other business interruption
p.29
• Review refinancing options for the
2019 convertible bonds
• Maintain or strengthen available facilities
• Maintain good interest cover
• Interest cover ratio
• Gearing and available resources
• Reversionary percentage
• Inconsistent strategy
• Adverse Brexit settlement
• Reputational damage
• Increase in property yields
• Reduced development returns
• Cyber attack
• Other regulatory non-compliance
• Shortage of key staff
• Terrorism or other business interruption
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 24
Our strategy
continued
1
To optimise returns
and create value from
a balanced portfolio
This section sets out the typical
lifecycle (A to G) of properties
within our 5.5m sq ft1 portfolio.
G Recycling assets
When we believe that we have extracted
most of the upside in value we will
normally look to recycle a property
by way of a sale, thereby freeing up
human and financial capital for the next
generation of acquisitions and projects.
A Adding opportunities
We start our property life cycle by
acquiring buildings with low capital
values. These are usually income
producing but would typically benefit
from further improvement and have
low current rents. They may also be
in locations we assess as having
underperformed or which are due
to benefit from infrastructure upgrades.
Most importantly, we like to buy where
we see potential to add area to the
building and/or to improve the quality
of the space. If these features are not
apparent or we do not see good value,
we are disciplined and will not buy for
the sake of buying alone.
Future
appraisal
20%
Income producing
86%
44%
Under
appraisal
4%
Consented
6%
On-site
developments
11%
Core income
56%
Core income on-site
refurbishments
3%
56%
We focus on the spaces
around buildings as
well as the buildings
themselves
1 Includes 0.6m sq ft of on-site developments
F Core income
The whole process can take many
years but, once a building is completed
and let, it moves to the ‘core income’
sector of the ‘doughnut’ chart where
we focus our asset management skills
on keeping our tenants happy, growing
our income streams and adding further
value where we see opportunities.
25
25
44% of our portfolio
is either on site or has
regeneration potential
B Focus on cash flow
Because the ‘raw’ properties that we buy
are almost always occupied and provide
an income cash flow, we have time to
work up our plans while enjoying yield;
this gives us the necessary flexibility to
assess what to do and when to do it.
Our plans for a building often go
through several iterations before
we settle on an optimal solution.
C Tenants and landlords
While working up the best approach
for the building, we start dialogues with
existing tenants to align leases thereby
extending income but with the flexibility
to exercise landlord breaks at future
dates. In some cases, this may mean
accepting income which is below normal
market levels but the aim is to retain
cash flow almost until the day we
are ready to commence a scheme.
During this period, we will negotiate with
landlords if we do not hold the property
freehold, and will work with our many
design team relationships, including
experts in minimising the social and
environmental impact, to progress to
a firm design. This normally involves
liaising with the local planning
authorities to seek planning consent
and consulting with local communities
and other key stakeholders.
D Balancing risk
We think ahead to plan the appropriate
balance of risk for the business and,
when we are ready, we will normally
start a scheme speculatively, i.e.
without any pre-letting in place.
We try to ensure the end product
will appeal to as broad a spectrum
of occupiers as possible and we often
find that we receive early interest
from potential tenants once we are
on site. Building out the scheme
requires considerable skill, experience
and teamwork so we work with a
chosen group of consultants,
contractors and subcontractors
to minimise the risks of delivery.
Those risks principally relate to time
delays and/or cost overruns, but there
are many technical and physical
constraints too, in relation to these large
and complex projects. Preparation of a
five-year plan every summer ensures
that we keep a balance between
income/dividend growth and value
adding through our riskier projects,
both now and into the future.
Marketing and branding
Getting our marketing and branding
right is another area where we devote
significant resource. We have a
dedicated internal team who engage
specialist consultants to ensure that
we present our product in a fresh and
positive way and at the right time.
p.58
For further reading on Brunel
Building development
Collaboration
As a relatively small team, we work with
many experts in their respective fields in
areas such as planning, architecture and
design, engineering and other technical
areas, lawyers, accountants and
contractors. We value and enjoy their input
and recognise the important contribution
that they make. We believe that they
also enjoy working with us, many having
been with us for a number of years, and
they share our satisfaction in creating new
spaces and improving the environment
around our buildings. Together, we strive
to improve with each job that we do.
We aim to avoid
over-specification
in our buildings
E Pre-letting during
construction
During the construction phase, we will
typically start to de-risk the project by
agreeing pre-letting terms with one
or more tenants. Our reputation is
something that we focus much time
and effort on building and protecting;
this can help us considerably in
generating interest in our schemes
even before our marketing campaigns
start. The momentum that this provides
encourages us to consider the next
phase of our project pipeline too, adding
further value where we see opportunities.
p.52
For further reading on the
80 Charlotte Street development
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 26
Our strategy
continued
2
To grow recurring
earnings and cash flow
The value of property is essentially
determined by contracted and expected
future cash flows. We never forget this.
Creating and then capturing reversion
The benefits of setting the conditions in
place for a property’s value to grow are,
in the long term, both value creation and
increasing cash flow but they can occur
at different times of the property cycle.
The value creation often comes first as
expectations of rental growth emerge
and it is this which gives rise to what we
call ‘reversion’, i.e. the extent to which
we can expect to grow income from its
current passing level.
Asset management
The job of our asset management team
is to capture the increased rents through
rent reviews, lease re-gears or other
lease restructuring. All these activities
are underpinned by maintaining
strong relationships with occupiers and
always with a focus on the needs
of our local communities.
Reversion
We measure and monitor the amount of
reversion in the portfolio using the chart
shown opposite. The main parts of this
build-up of estimated rental value are
as follows:
Like-for-like rental income
We use like-for-like rent analysis
(see EPRA definitions on page 207)
to determine how well we are growing
the net and gross rental income within
the non-development part of the
portfolio and we monitor irrecoverable
costs through the EPRA cost ratio
and void percentages. We also
place considerable focus on growing
EPRA earnings and our dividends to
shareholders as can be seen by the
progress made in recent years.
27
B Contracted rental uplifts
Either from the burning off of rent free
or half rent periods, or through fixed or
minimum future rental increases.
C Pre-let developments
and refurbishments
Where the contracted income will step up
on delivery of the scheme and will increase
further as rental incentives burn off.
D Vacant space
When let, this will lead to increases
in contracted income.
Our reversion
£m
300
250
200
150
150.3
(8.6)
18.4
160.1
24.5
2.8
14.3
270.1
24.2
44.2
100
50
0
Dec 16
net rent
Disposals
Reversion
captured
Dec 17
net rent
Contractual
uplifts
Pre-let
developments
and refurbishments
Vacant
(available)
Developments
and refurbishments
Reviews
and expiries
Dec 17
ERV
A The actions
that we take
These generally fall into the
following categories:
• working with tenants and
consultants to arrive at appropriate
rent review uplifts;
break clauses;
• extending lease lengths or removing
• arranging block dates to enable access
to buildings at an appropriate time;
• reviewing levels of ‘grey’ space, i.e.
floor area that is let but which is not
currently occupied or is being
marketed by a tenant;
• reducing irrecoverable costs
where it is reasonable and justified
(EPRA cost ratio);
• thinking ahead to work with and
understand our tenants’ needs,
thereby optimising income. Potential
examples are fixed or minimum rental
uplifts and a flexible approach to
dilapidations and alienation clauses
in leases; and
• taking a flexible approach at certain
buildings, like the Tea Building for
example, to keep lease lengths
shorter, while at other buildings
aiming for longer leases, particularly
on larger lettings.
We also grow our earnings in the
longer run by adding area and
developing spaces.
p.24
See strategic objective 1
E Developments
and refurbishments
Once completed and let, the value of
the future income streams will become
more certain and will gradually convert
to cash flow.
F Marking to current
market values
This is the pure ‘reversion’ inherent
in the existing leases but is only one
component of the full potential uplift
in our rental cash flows.
G Estimated rental
value (ERV)
Our valuers’ estimate of the total
rental value of our portfolio, including
developments and refurbishments
under construction.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 28
Our strategy
continued
97%
response rate to
our staff survey
96%
staff satisfaction
92%
staff retention
3
To attract, retain
and develop
talented employees
4
To design, deliver
and operate our
buildings responsibly
Our people are the most important
single factor in ensuring that we can
deliver our strategic objectives.
Sustainability and wider responsibility
continue to be integral parts of our
business model.
We place great importance on setting
the right culture which means recruiting
outstanding individuals, treating them
well and leading them effectively. We are
a collegiate organisation which listens to
and engages with its entire workforce and
we respect the views and input of every
member of our team, as demonstrated
by our high staff retention rates and
satisfaction scores.
Our recent staff survey highlighted the
most improved areas since 2015 were the
working environment and the IT equipment.
p.72
For further reading on people
We are focused on embedding the right
goals, thought processes and systems
across all aspects of the business and
on communicating our progress more
effectively. Our approach is set out in more
detail in our Responsibility and Governance
sections on pages 72 and 87, but essentially
involves working with our suppliers,
consultants and other stakeholders to
ensure that the design, construction
and operation of our buildings aim for
resilience, flexible usage and longevity.
This will mean that the buildings are fit for
purpose over a longer term, minimising
their carbon impact and providing social
and other environmental advantages.
It also means that we must build and
sustain a culture and approach that
values our whole stakeholder group
and seeks to work with them across all
aspects of our business model. Acting
responsibly means getting involved and
understanding local neighbourhood
needs over a sustained period. We have
also continued to improve the methods
we use to measure our performance and
how we get reliable external validation.
Who are our stakeholders?
Our stakeholders are all the people
who are affected by what we do and
how we do it. They include:
i)
ii)
suppliers and consultants;
contractors and subcontractors
(running to several thousand people);
5
To maintain
strong and
flexible financing
Over many years, Derwent London’s
financing model has been based on
the following main principles:
i) conservative financial leverage
to balance the business’s relatively
high operational leverage;
ii) a growing focus on interest
cover to support the credit rating;
iii) borrowing from a diverse group
of relationship lenders, both banks
and institutions, who understand
and support our business model;
iv) managing the cost of debt but also
looking to have significant protection
against possible interest rate rises
while extending debt maturities; and
v) keeping structures and covenants
simple and understandable.
This approach has provided stability,
which has helped us with decision making
and taking speculative development risk
from time to time, and the confidence
that financial resources would be available
to the business when they are needed.
With a balance sheet backed by low
leverage and facilities that are mainly
unsecured, acquisitions can be funded
without delay and there is visibility that
the development pipeline is capable
of being delivered without unduly stressing
the balance sheet. It has also helped us
when considering issues such as going
concern and viability statements, all of
which enables our key stakeholders to
have a high level of confidence in our
ability to deliver our plans.
iii) employees and their dependants;
iv)
local people living and working
in our ‘villages’;
investors and debt providers; and
v)
vi) tenants and their employees.
As a substantial payer of local and national
forms of taxation, we take the role we
play in wider society very seriously too.
29
All our unsecured debt facilities have the
same simple financial covenant package
so our lending relationships are on a level
playing field. In recent years, we have also
taken on more non-bank debt which has
extended the Group’s unexpired duration
of debt. It has also meant that a large
proportion of our debt is at fixed interest
rates giving greater certainty and helping
us with forward-looking financial modelling.
Our relationships with our funders – key
stakeholders in our business – are of great
importance to us and we meet with all of
them frequently.
p.64
For further reading see the Finance review
Our REIT status
Derwent London plc has been a Real
Estate Investment Trust (REIT) since
July 2007.
The REIT regime (see page 208) was
launched to provide a structure which
closely mirrors the tax position of an
investor holding property directly and
seeks to provide potential holdings in
liquid publicly quoted vehicles to a wide
range of investors. REITs are principally
asset managers with tax exempt
property rental businesses, but remain
subject to corporation tax on non-
exempt income and gains. In addition,
we are required to deduct withholding
tax from certain shareholders on
property income distributions and
in 2017 this amounted to £5.7m.
13.2%
LTV ratio (2016: 17.7%)
454%
Interest cover (2016: 370%)
£523m
Cash and undrawn
facilities (2016: £383m)
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 30
Measuring our
performance
There are 13 key performance
measures that we use to assess
progress against our overall objective
and our five strategic objectives.
They are also used to monitor the
impact of the principal risks that have
been identified and a number are
used to determine remuneration.
Performance measures
KPIs1
Key metrics2
Assess
progress
against our
objectives
Monitor
principal risks
Determine
remuneration
p.34
p.116
Key performance indicators
Total property return
Total property return is used to assess
progress against our property-focused
strategic objectives. We aim to
exceed the MSCI IPD Central London
Offices Index on an annual basis and
the MSCI IPD UK All Property Index
on a three-year rolling basis.
Our performance
Successful asset management
and progress made de-risking
our developments, illustrated by a
record year of lettings, contributed
to us exceeding both of our MSCI
IPD benchmarks again in 2017.
Our outperformance over each of
the past five years means we have
exceeded the MSCI IPD Central
London Offices Index and the MSCI
IPD UK All Property Index over that
period by 9% and 29%, respectively.
Annual
2013
2014
2015
2016
2017
2.9
2.6
8.0
7.1
1, 2, 3, 4, 5
3, 4, 5 R
%
25.1
23.5
18.5
15.8
19.9
19.7
Key
Strategic objectives
a balanced portfolio
1 To optimise returns and create value from
2 To grow recurring earnings and cash flow
3 To attract, retain and develop talented
4 To design, deliver and operate our
5 To maintain strong and flexible financing
buildings responsibly
employees
Other
R Remuneration
Derwent London
MSCI IPD Central London Offices Index
Three-year rolling
2013
2014
2015
2016
2017
7.0
14.5
10.4
18.4
13.8
16.0
11.5
10.3
8.9
Derwent London
MSCI IPD UK All Property Index
%
21.2
1 Measured against relevant internal and external benchmarks
2 Other key performance measurements
Key performance indicators
Total return
Total return equates to the
combination of NAV growth plus
dividends paid during the year.
We aim to exceed our benchmark,
which is the average of other major
real estate companies.
Our performance
Our total return of 7.7% meant that we
outperformed our benchmark in 2017.
Our cumulative performance over the
past five years of 114% has exceeded
our benchmark by 31%, demonstrating
how our strategy can deliver above
average long-term returns.
2013
2014
2015
31
1, 2, 3, 4, 5 R
%
30.1
15.1
21.9
21.9
23.0
18.7
2016
1.7
3.1
2017
7.7
6.6
Derwent London
Weighted average of major UK real estate companies
Void management
To optimise our rental income we plan
to minimise the space immediately
available for letting. We aim that
this should not exceed 10% of the
portfolio’s estimated rental value.
Our performance
Due to our letting success over
the past few years, particularly
at our on-site developments, the
EPRA vacancy rate has remained
consistently low and well below
our maximum guideline of 10%.
1.0
1.3
1.3
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Benchmark
Our performance
Due to the resilience of the London
economy, the quality of our tenants
and our effective credit control, rent
collection has remained high over the
past five years and consequently the
level of defaults has been de minimis.
Our performance
Due to both an increase in property
income and decrease in finance costs,
the net interest cover ratio increased
during 2017. We have comfortably
exceeded our benchmark of 200%
in each of the past five years.
2013
2014
2015
2016
2017
Benchmark
Our performance
Building 1 at White Collar Factory
received a BREEAM ‘Outstanding’
rating in 2017, exceeding our
benchmark.
White Collar Factory
(Building 1)
Tenant receipts
To maximise our cash flow and
minimise any potential bad debts,
we aim to collect more than 95% of
rent invoiced within 14 days of the
due date.
Interest cover ratio
We aim for our interest payable to
be covered at least two times by
net rents. The basis of calculation is
similar to the covenant included in the
loan documentation for our unsecured
bank facilities. Please see note 40 for
the calculation of this measure.
BREEAM ratings
BREEAM is an environmental impact
assessment method for commercial
buildings. Performance is measured
across a series of ratings: ‘Pass’,
‘Good’, ‘Very good’, ‘Excellent’ and
‘Outstanding’. We target minimum
BREEAM ratings of ‘Excellent’ for
major developments and ‘Very good’
for major refurbishments.
1, 2, 3, 4, 5
3, 4, 5 R
%
4.1
2.6
1, 1, 2, 3, 4, 5
3, 4, 5 R
%
%
99
98
98
98
97
1, 2, 3, 4, 5 R
1, 2, 3, 4,
279
286
362
370
454
1, 2, 3, 4, 55 R
1, 2, 3,
Completion
Rating
Q1 2017 ‘Outstanding’
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
32
Measuring our
performance
continued
33
Key metrics
Development potential
We monitor the proportion of our
portfolio with the potential for
refurbishment or redevelopment
to ensure that there are sufficient
opportunities for future value creation
in the portfolio.
Reversionary percentage
This is the percentage by which the
cash flow from rental income would
grow were the passing rent to be
increased to the estimated rental
value (ERV) and assuming the on-site
schemes are completed and let. It is
used to monitor the potential future
income growth of the Group.
Tenant retention
Maximising tenant retention following
tenant lease breaks or expiries when
we do not have redevelopment
plans minimises void periods and
contributes towards net rental income.
Our performance
The percentage of our portfolio
which is available for redevelopment,
regeneration or refurbishment was
44% at the end of 2017, which is
within our target range of 35% – 45%.
Our performance
During 2017 the reversion fell as
£18.4m of income was captured and
the Group made significant property
disposals. However, a year end figure
of 69%, helped by an increase in
ERV, demonstrates there remains
significant growth potential in our
income stream.
Our performance
Our retention and re-let rate was
92% in 2017 and averaged 86%
over the past five years, evidence
of the strong relationships we
have with our tenants and the
appeal of our mid-market product.
Gearing and available resources
The Group monitors capital on the
basis of NAV gearing and the LTV
ratio. We also monitor our undrawn
facilities and cash, and the level of
uncharged properties, to ensure
that we have sufficient flexibility
to take advantage of acquisition
and development opportunities.
Our performance
The proceeds from disposals
of £473m contributed to an
improvement in our gearing ratios
and substantial undrawn facilities
and cash. These levels provide
an ability to cope with future
fluctuations in the market and
react quickly to any potential
acquisition opportunities.
1, 2, 3, 4, 5
2, 3, 4, 5 R
%
2013
55
2014
52
2015
47
2016
43
2017
44
1, 2, 3, 4,
3, 4, 5 R
%
2013
56
2014
64
2015
103
2016
89
2017
69
1, 1, 2, 3, 4, 5
3, 4, 5 R
2013
Exposure (£m pa) 20.0
74
Retention (%)
Re-let (%)
14
Total (%)
88
2014
17.3
63
10
73
2015
17.0
45
44
89
2016
11.0
63
26
89
2017
8.5
57
35
92
£m
4,000
3,000
2,000
1,000
8
1
7
,
2
4
4
1
,
2
1, 2, 3, 4, 5 R
1, 2, 3, 4,
9
0
7
,
3
7
7
7
,
3
%
4 80
6
8
3
,
60
40
20
6
9
2
6
3
3
9
6
2
0
2013
2014
2015
3
8
3
2016
3
2
5
2017
0
Cash and undrawn facilities (£m)
NAV gearing (%)
Uncharged properties (£m)
LTV (%)
Key metrics
Energy Performance Certificates (EPCs)
EPCs indicate how energy efficient a
building is by assigning a rating from
‘A’ (very efficient) to ‘G’ (inefficient).
We target a minimum certification of
‘A’ for major new-build schemes and
‘B’ for major refurbishments.
Our performance
During 2017 we reviewed our
portfolio of EPCs and improved
ratings for a number of buildings
and units. In addition, the ‘A’ ratings
achieved for White Collar Factory
and the refurbishment at Morelands
met or exceeded our targets.
1, 2, 3, 4, 5 5 R
1, 2, 3,
Completion
Rating
White Collar Factory EC1
(Building 1)
Morelands, 5-27 Old Street
EC1 (part refurbishment)
Q1 2017
Q3 2017
A
A
Capital return
We compare our valuation performance
with the MSCI IPD Central London
Offices Index for capital growth.
Total shareholder return
To measure the Group’s achievement
of providing above average long-term
returns to its shareholders, we
compare our performance against
the FTSE UK 350 Super Sector Real
Estate Index, using a 30-day average
of the returns in accordance with
industry best practice.
Our performance
2017 was a strong year for
investment transactions in
central London and this demand
translated into firmer property
yields. Our letting activity and the
appeal of our mid-market product
meant that we exceeded our MSCI
IPD benchmark and have done so
over the past five years by a total
of 6.9%.
2013
2014
2015
2016
2017
1, 2, 3, 4, 5
3, 4, 5 R
%
12.6
11.2
20.4
19.0
16.5
15.7
(0.2)
(0.7)
3.9
3.6
Derwent London
MSCI IPD Central London Offices Index
Our performance
Derwent London’s TSR in 2017
of 15.6% resulted in a 2.5%
outperformance of the benchmark
index. Our ability to deliver above
average long-term returns is
demonstrated by the fact that
£100 invested in Derwent London
15 years or 10 years ago would, at
the end of 2017, have been worth
£699 or £256 compared with
£282 or £132, respectively, for
the benchmark index.
2013
2014
2015
(26.5)
2016
(12.4)
2017
Derwent London
1, 2, 3, 4, 5 R
16.4
17.2
%
24.8
26.0
24.5
11.4
15.6
13.1
FTSE UK 350 Super Sector Real Estate Index (FTSE All-Share REIT
Index used for 2012–2015)
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 34
35
Our principal risks
At Derwent London
we aim to deliver on
our strategic objectives
for the benefit of our
stakeholders while
operating within the
risk tolerance levels
set by our Board.
Risk is inherent in running any business
and our risk management procedures
are routinely reviewed and strengthened
to ensure that all foreseeable and
emerging risks are identified,
understood and managed.
Risk management
The role of our Board, with support from
the Risk Committee, is to ensure that our
risk management and internal controls
are robust so that we remain able to
swiftly identify and react to new threats
and uncertainties. Balanced with the
maintenance of a flexible business model
and strong financial structure, this better
enables us to weather uncertainties and
take advantage of opportunities.
Our overall low risk tolerance, alongside
a transparent and collaborative work style,
ensures that any potential risk is identified
quickly. Our approach to risk management
is contained on pages 98 to 99. Our risk
tolerance is set by the Board and is
described in the table on page 98.
The risk profile of the Group
As a predominantly London-based Group,
we are particularly sensitive to any factors
which impact upon central London’s growth
and demand for office space. Any decline
in the demand for London office space or
a significant increase in supply could
negatively impact upon:
• the valuation of our property portfolio;
• occupancy rates and, subsequently,
impact on our income; and
• availability of properties for acquisition
and the ease of disposal and refinancing.
The London office market has proven
to be cyclical and can be impacted by a
number of external and internal factors.
For example, changes in political agendas
or economic factors can impact upon the:
• ease of gaining planning permission
for new development projects;
• cost of acquisitions, i.e. stamp duty
land tax; and
• value of our properties for overseas
investors due to exchange rate
fluctuations.
Following the UK decision to leave the
EU, there continues to be uncertainty
surrounding Brexit negotiations and the
potential impact this could have on London
as a major global city. Although we remain
both committed to London and assured of
its resilience (see pages 10 to 17), we are
proactively managing the risks that could
arise in the short to medium term as the
impact of the Brexit negotiations are
realised, by:
• seeking pre-lets of our developments
with targeted marketing campaigns,
including greater use of social media;
• developing properties in locations where
there is greatest potential for future
demand, such as near Crossrail links;
• anticipating occupier trends by
engaging with our current tenants,
local communities and advisers;
• designing office space that is
innovative and sustainable with
communal and break-out spaces
that occupiers increasingly demand
in order to attract talent; and
• developing and maintaining a
strong brand.
Changes to our principal risks
The principal risks and uncertainties facing
the Group in 2018 are set out on pages 36
to 43 together with the potential impact
and the mitigating actions and controls in
place. Our principal risks are not an
exhaustive list of all risks facing the Group
but are a snapshot of the Company’s main
risk profile as at 27 February 2018.
During the year under review, there has been
a number of changes to our principal risks:
New principal risks
(i)
Due to our significant development
pipeline with a number of key projects
currently under construction including
80 Charlotte Street and the Brunel
Building, the risk of delays to our
projects and/or cost overruns (known
as ‘on-site’ risk) has been elevated to
a principal risk.
(ii)
The risk that an act of terrorism
interrupts the Group’s operations has
now been elevated to a principal risk
due to the recent terrorist activity in
European cities.
(iii) In order to focus our risk management
activities, we have split non-
compliance with health and safety
regulation and with environmental
and sustainability legislation from
‘regulatory non-compliance’.
Increasing risks
(iv) Partly driven by the economic
uncertainty arising from the decision
to leave the EU and the importance
of our development pipeline, the
risks of reduced development returns
and contractor/subcontractor default
have increased.
Decreasing risks
(v)
The risk that the Group is subject
to a cyber attack remains a principal
risk (see page 38) but the assessment
of this risk has slightly reduced
during the year due to the substantial
mitigation work being conducted by
management and our IT team.
Effect of mitigation actions on our principal risks
(See pages 36-43 for risks)
Risk profile
High
y
t
i
l
i
b
a
b
o
r
P
11
10
3
5
1
4
5
7
8
9
3
2
6
12
11
10
7
6
8
9
13
12
4
2
1
13
Strategic
Financial
Corporate
Low
Impact on the Group
High
2014
2015
2016
2017
Property
Gross risk basis
Net risk basis (post mitigation)
Viability statement
In accordance with provision C.2.2 of
the UK Corporate Governance Code,
the Directors and the senior management
team have assessed the prospects of the
Company over a longer period than the
12 months required by the ‘Going Concern’
Provision, taking account of the Group’s
current position and the potential impact
of its principal risks.
The Board conducted this viability review
over a period of five years to 31 December
2022, which was considered appropriate
for the following reasons:
five-year period;
• the Group’s strategic review covers a
• for a major scheme five years is a
reasonable approximation of the
maximum time taken from obtaining
planning permission for a development
to letting the property; and
• most leases contain a five-year rent
review pattern and therefore five years
allows for the forecasts to include the
reversion arising from those reviews.
The viability review considered a variety
of factors including, but not limited to,
the Group’s cash flows as identified in the
latest five-year strategic review, dividend
cover, REIT compliance, financial ratios
and stress testing of our business model.
We also reviewed potential Brexit
negotiation outcomes and the likely
impact on London and our business.
This year’s review was carried out in the
context of the £473m of property disposals
that were made in the past year which
further reduced the Group’s loan-to-value
ratio to 13.2% and helped increase interest
cover to 454%.
In addition, the level of cash and
undrawn facilities increased to £523m
during the year which meant that the
entire committed project pipeline on site
was fully funded as at 31 December 2017.
Full details of the process undertaken by
the Board is detailed on page 111 of the
Audit Committee report.
Based on the Board’s assessment, the
Directors have a reasonable expectation
that the Company will be able to continue
in operation and meet its liabilities as
they fall due over the five-year period
to 31 December 2022.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
36
Our principal risks
continued
Key
Strategic objectives
balanced portfolio
1 To optimise returns and create value from a
2 To grow recurring earnings and cash flow
3 To attract, retain and develop talented employees
buildings responsibly
4 To design, deliver and operate our
5 To maintain strong and flexible financing
Movement during the year
Risk increased
Risk unchanged
Risk decreased
37
Strategic risks
That the Group’s business model and/or strategy does not create the anticipated shareholder value or fails to meet investors’
and other stakeholders’ expectations.
Risk
Our key controls
Potential impact
What we did in 2017
Further mitigating actions for 2018
• The Group conducts an annual five-year strategic review and prepares a budget and
Strategic objectives
three rolling forecasts covering the next two years.
• The Board considers the sensitivity of the Group KPIs and key metrics to changes in
the assumptions underlying our forecasts in light of anticipated economic conditions.
If considered necessary, modifications are made.
• The Group’s development pipeline has a degree of flexibility that enables plans
for individual properties to be changed to reflect prevailing economic circumstances.
• The Group seeks to maintain income from properties until development commences
and has an ongoing strategy to extend income through lease renewals and re-gearing.
• The Group aims to de-risk the development programme through pre-lets.
• The Group maintains sufficient headroom in all the Group’s key ratios and financial
covenants and a focus on interest cover.
• The annual strategic review was performed in May 2017 and
reviewed at the Board’s strategy meeting on 23 June 2017.
• The Board considered the sensitivity of our KPIs and metrics
to changes in underlying assumptions including interest rates,
timing of projects, level of capital expenditure and the extent
of capital recycling.
• Three rolling forecasts were prepared.
• Pre-lets have been secured at 73% of 80 Charlotte Street,
part of the Group’s record year of lettings when 685,700 sq ft
of new lettings were secured.
• During the year the Group’s LTV ratio was further reduced
to 13.2%, its net interest cover ratio was above 450% and
the REIT ratios were comfortably met.
• De-risk the Brunel Building development
through our pre-letting strategy and
continued monitoring of construction progress.
• Monitor our portfolio for further asset
management activities.
• Extend income through renewals and re-gears
for properties not earmarked for regeneration.
• Decision on whether to commit to Soho Place.
• Continue with our current controls and
mitigating actions.
• Brexit risk assessments have been performed to understand
how the different scenarios of Brexit could impact on our
business model and strategy.
• Monitored Brexit negotiations and discussed potential
outcomes with external advisers.
• Monitored letting progress and demand for our buildings.
• As at 31 December 2017, the Group had cash and undrawn
facilities of £523m.
• Continue to monitor Brexit negotiations.
• We will continue with our current controls
and mitigating actions including operating
the business on a basis that balances risk
and income generation.
1, 2, 5
Business model
Could potentially impact on all
aspects of our business model.
KPIs and key metrics
• Total return
• Total property return
Strategic objectives
1, 2, 5
Business model
Could eventually impact on most
aspects of our business model.
KPIs and key metrics
• Total return
• Total property return
• Total shareholder return
Risk that negotiations to leave the EU result in arrangements
which are damaging to the London economy.
• The Group’s strong financing and covenant headroom enables it to weather a downturn.
• The Group’s diverse and high-quality tenant base provides resilience against tenant
As a predominantly London-based Group, we are particularly
sensitive to any factors which impact upon London’s growth
and demand for office space.
Negotiations are likely to be ongoing during 2018 and the
operating framework facing UK businesses and the effect
on London post-Brexit cannot be accurately predicted.
Movement during the year:
default. See page 12 for analysis of the Group’s tenant base.
• The Group focuses on good value, middle market rent properties which are less
susceptible to reductions in tenant demand. The Group’s average ‘topped-up’ office
rent is only £49.74 per sq ft.
• The Group develops properties in locations where there is greatest potential for future
demand, such as near Crossrail stations.
• Income is maintained at future developments for as long as possible.
• Ongoing strategy is to extend income through lease renewals and re-gearing and to
de-risk the development programme though pre-lets.
• Updates received on occupier trends by engaging with our current tenants and advisers.
1. Inconsistent strategy
The Group’s strategy is not met due to poor strategy
implementation or a failure to respond appropriately to internal
or external factors such as:
• an economic downturn and/or the Group’s development programme
being inconsistent with the current economic cycle; and
• London losing its global appeal with a consequential impact on
the property investment or occupational markets.
Movement during the year:
The Board considers this risk to have remained broadly the same.
Throughout the year, the Group continued to benefit from a
resilient central London office market.
2. Adverse Brexit settlement
Although some progress on negotiations has been made,
the Board considers this risk to have remained broadly the
same during the year.
3. Reputational damage
The Group’s reputation is damaged, e.g. through unauthorised
and/or inaccurate media coverage or failure to comply with
relevant legislation.
Movement during the year:
The Board considers this risk to have remained broadly the
same during the year.
We have an established and trusted brand. Our strong culture,
low overall risk tolerance and established procedures and
policies mitigate against the risk of internal wrongdoing.
Further information on how we mitigate against the risk of
non-compliance with legislation can be found on page 40.
• Close involvement of senior management in day-to-day operations and established
Strategic objectives
• Monitored investor views and press comments while
• Continue with our current controls and
procedures for approving all external announcements.
• All new members of staff benefit from an induction programme and are issued with our
Group staff handbook.
• The Group employs a Head of Investor and Corporate Communications and retains the
services of an external PR agency, both of whom maintain regular contact with external
media sources.
• A Group whistleblowing system for staff is maintained to report wrongdoing anonymously.
• Social media channels are monitored.
• Ongoing engagement with local communities in areas where the Group operates,
see page 78.
1, 2, 3, 4, 5
Business model
Could potentially impact on all
aspects of our business model.
KPIs and key metrics
• Total shareholder return
• Total return
• Total property return
Could indirectly impact on a number
of our other KPIs and key metrics.
maintaining contact with other stakeholders.
mitigating actions.
• Performed a review of our social media activity and agreed
a specific social media marketing plan and set advertising
budgets for the year.
• Developed a more extensive social media strategy for
implementation during 2018.
• Implement the social media strategy including
providing our staff with additional social
media training.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 38
Our principal risks
continued
Key
Strategic objectives
balanced portfolio
1 To optimise returns and create value from a
2 To grow recurring earnings and cash flow
3 To attract, retain and develop talented employees
buildings responsibly
4 To design, deliver and operate our
5 To maintain strong and flexible financing
Movement during the year
Risk increased
Risk unchanged
Risk decreased
39
Financial risks
Significant steps have been taken in recent years to reduce or mitigate the Group’s financial risks such that few are now considered
to be principal risks of the Group. The main financial risk is that the Group becomes unable to meet its financial obligations, which
is not currently a principal risk. Financial risks can arise from movements in the financial markets in which we operate and inefficient
management of capital resources.
Risk
Our key controls
Potential impact
What we did in 2017
Further mitigating actions for 2018
4. Increase in property yields
Increasing property yields, which may be a consequence of rising
interest rates, would cause property values to fall. Interest rates
have remained low for an extended period and are expected to
gradually rise over the next few years. Though there is no direct
relationship, this may cause property yields to increase.
• The impact of yield changes is considered when potential projects are appraised.
• The impact of yield changes on the Group’s financial covenants and performance are
monitored regularly and are subject to sensitivity analysis to ensure that adequate
headroom is preserved.
• The Group’s move towards mainly unsecured financing over the past few years has
Movement during the year:
simplified the management of our financial covenants.
• The Group’s low LTV ratio reduces the likelihood that falls in property values have a
significant impact on our business.
The Board considers this risk to have remained broadly the same
during the past year.
The underlying value of the properties in our portfolio have
remained resilient and in 2017 have increased by 3.9%, despite
the continuing economic uncertainties.
Operational risks
The Group suffers either a financial loss or adverse consequences due to processes being inadequate or not operating correctly,
human factors or other external events.
Strategic objectives
1, 5
Business model
• Our assets and resources
• Adding value for stakeholders
KPIs and key metrics
• Interest cover ratio
• Total return
• Total property return
• Gearing and available resources
• The Group produced three rolling forecasts during the year
which contain detailed sensitivity analyses, including the
effect of changes to yields.
• Quarterly management accounts were provided to the
Board and included the Group’s performance against the
financial covenants.
• Continue with our current controls and
mitigating actions.
5. Reduced development returns
The Group’s development projects do not produce the targeted
financial returns due to one or more of the following factors:
• delays on site;
• increased construction costs; and
• adverse letting conditions.
For example, delays could lead to penalties payable to pre-let
tenants at 80 Charlotte Street.
Movement during the year:
The ongoing economic uncertainty arising from the decision to
leave the EU has caused this risk to increase slightly. Although
pre-lets have substantially de-risked our schemes, they have also
led to greater financial exposure should projects be delivered late.
6. Cyber attack
The Group is subject to a cyber attack that results in it being
unable to use its IT systems and/or loses data. This could lead to
an increase in costs while a significant diversion of management
time would have a wider impact.
Movement during the year:
Risk has slightly decreased due to the controls and procedures
implemented during 2017.
• Investment appraisals, which include contingencies and inflationary cost increases,
are prepared and a sensitivity analysis is undertaken to ensure that an adequate
return is made in all likely circumstances.
• The procurement process used by the Group includes the use of highly regarded
firms of quantity surveyors and is designed to minimise uncertainty regarding costs.
• Development costs are benchmarked to ensure that the Group obtains competitive
pricing and, where appropriate, fixed-price contracts are entered into.
• Procedures carried out before starting work on site, such as site investigations,
historical research of the property and surveys conducted as part of the planning
application, reduce the risk of unidentified issues causing delays once on site.
• The Group’s pre-letting strategy reduces or removes the letting risk of the
development as soon as possible.
• Post-completion reviews are carried out for all major developments to ensure
that improvements to the Group’s procedures are identified, implemented and
lessons learned.
Strategic objectives
• Demand for our developments is evidenced by the significant
• Further de-risk the Brunel Building development
1, 2, 5
Business model
• Our core activities
• Adding value for stakeholders
KPIs and key metrics
• Total return
• Total property return
pre-letting activity in the year.
• Pre-lets were secured in 2017 over 276,900 sq ft (86% of
the offices) of 80 Charlotte Street.
• Sale of The Copyright Building for £148.2m, 21% above
valuation (see page 63 for further details).
• Closely monitored development programmes.
• Construction costs now substantially fixed on all
development projects.
through our pre-letting strategy.
• Continue with our current controls and mitigating
actions with a major focus on project monitoring.
• The Group’s Business Continuity Plan is regularly reviewed and tested
Strategic objectives
(further information on page 115).
• Independent internal and external ‘penetration’ tests are regularly conducted
to assess the effectiveness of the Group’s security.
• Multifactor authentication exists for remote access to our systems.
• Incident response and remediation policies are in place.
• The Group’s data is regularly backed up and replicated and our IT systems are
protected by anti-virus software and firewalls that are frequently updated.
• Annual staff awareness and training programmes are implemented.
• Security measures are regularly reviewed by the IT Steering Committee.
1, 2, 3, 4, 5
Business model
• Could potentially impact on all
aspects of our business model
KPIs and key metrics
• Total shareholder return
• Independent internal and external ‘wireless’ penetration tests were
• Perform an exercise to better understand the
conducted to assess the effectiveness of the Group’s security.
• The switchover of the IT systems to the Group’s back up facility
potential impact of a cyber attack on our Group.
• Upgrade firewall protection to enhance
was successfully tested.
• Independent benchmarking review of the Group’s cyber security
was carried out in November (see page 114 for further information).
• Embedded an AI (Artificial Intelligence) layer into our security
defence capability.
cyber defences.
• Further develop our incident response plans.
• Aim to introduce advanced internet filtering.
• Full business continuity test to be conducted.
• Review whether the Group would benefit from
• Replaced legacy hardware and redesigned our network as part
cyber insurance.
of the 25 Savile Row redevelopment project.
• Improved data storage retention and security.
• Staff awareness and IT policy training in December to make
staff more aware of the techniques that may be used to gain
unauthorised access to the Group’s systems.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 40
Our principal risks
continued
Risk
Our key controls
7. Non-compliance with health and safety legislation
The Group’s cost base is increased and management time is
diverted through an incident or breach of health and safety
legislation leading to reputational damage and/or loss of our
licence to operate.
New principal risk.
This risk was previously included within regulatory non-compliance.
• The Group has a qualified health and safety team whose performance is monitored
and managed by the Health and Safety Committee (see pages 80 to 81 for further
details).
• External advisers (ORSA) appointed to advise on construction health and safety.
• When required, external consultants are used on facilities management matters.
• The Board and Executive Committee receive regular updates and presentations
on key health and safety matters.
• All our properties have health, safety and fire management procedures in place
which are reviewed annually.
• External project managers review health and safety on each construction site
on a monthly basis.
8. Non-compliance with environmental and sustainability legislation
The Group’s cost base is increased and management time is
diverted through a breach of any of the legislation, e.g. Minimum
Energy Efficiency Standards (MEES) for buildings. This could lead
to damage to our reputation and/or loss of our licence to operate.
New principal risk.
This risk was previously included within regulatory non-compliance.
Further information on page 72.
• The Board and Executive Committee receive regular updates and presentations
on environmental and sustainability performance and management matters.
• The Sustainability Committee monitors our performance and management controls.
• Employment of a qualified team led by an experienced Head of Sustainability.
• The Group benchmarks its environmental, social and governance (ESG) reporting
against various industry benchmarks.
• The Group has set long-term, science-based carbon targets aligned with the outcome
of the Paris Climate Change Agreement and the UK Climate Change Act (COP 21).
• Production of an Annual Sustainability Report, the key data points and the performance
of which are externally assured (further information on pages 72 to 77).
9. Other regulatory non-compliance
The Group’s cost base is increased and management time is diverted
through a breach of any of the legislation that forms the regulatory
framework within which the Group operates. This could lead to
damage to our reputation and/or loss of our licence to operate.
Movement during the year:
The Board considers this risk to have remained broadly the same
during the year.
• The Board and the Risk Committee receive regular reports prepared by the
Group’s legal advisers identifying upcoming legislative/regulatory changes.
External advice is taken on any new legislation.
• Staff training and awareness programmes.
• Group policies and procedures dealing with all key legislation are available
on the Group’s intranet.
• A Group whistleblowing system for staff is maintained to report
wrongdoing anonymously.
41
Key
Strategic objectives
balanced portfolio
1 To optimise returns and create value from a
2 To grow recurring earnings and cash flow
3 To attract, retain and develop talented employees
buildings responsibly
4 To design, deliver and operate our
5 To maintain strong and flexible financing
Movement during the year
Risk increased
Risk unchanged
Risk decreased
Potential impact
What we did in 2017
Further mitigating actions for 2018
Strategic objectives
• ORSA presented to the Risk Committee on construction
health and safety matters in May.
• Approved the composition and revised terms of reference
of the Health and Safety Committee.
• The Risk Committee received regular updates on the Group’s
review of insulation cladding and fire protection procedures
(see pages 81 and 113 for further information).
1, 2, 3, 4
Business model
Could potentially impact on all
aspects of our business model.
KPIs and key metrics
• Total shareholder return
• A significant diversion of time could
affect a wider range of key metrics.
Strategic objectives
• An audit of our entire portfolio in respect of MEES has been
conducted. No significant issues were identified.
• Updated our sustainability framework documents to include
tougher carbon requirements which align with the Group’s
new science-based carbon targets.
• The Group continues to set sustainability targets which are
monitored during the year. Further information on pages 72 to 85.
• Recruit a new Head of Health and Safety.
• Review all our health and safety procedures
and systems, updating them as required.
• ORSA to present to the Health and Safety
Committee and Risk Committee.
• Perform an independent review of our
health and safety indicators during Q1 2018.
• The Health and Safety Committee to receive
regular reports from each external Project
Manager on health and safety at each of
our construction sites during the year.
• Project approval forms to be updated to ensure
any capital expenditure will not adversely affect
our carbon target performance or the EPC rating
of the property.
• Implementation of a new carbon measurement
tool to help the Group track its performance
against new targets.
• Quarterly review of our anti-bribery and corruption procedures
by the Risk Committee (see page 114 for more information).
• Board and Risk Committee received updates on General Data
Protection Regulations (GDPR) and preventing the facilitation
of tax evasion (further information on page 115).
• As part of our 2017 staff performance appraisals, all employees
confirmed they have reviewed and understood Group policies.
• The Board and Executive Committee will
continue to monitor the Group’s
implementation of the GDPR project.
• Governance procedures will be reviewed to
determine our compliance with the revised
UK Corporate Governance Code.
• Continue with our current controls and
• No whistleblowing incidents were reported during the year.
mitigating actions.
1, 3, 4
Business model
Could potentially impact on all
aspects of our business model.
KPIs and key metrics
• Total return
• BREEAM rating
• EPC rating
• A significant diversion of time could
affect a wider range of key metrics.
Strategic objectives
3, 4, 5
Business model
Could potentially impact on all
aspects of our business model.
KPIs and key metrics
• Total shareholder return
• A significant diversion of time could
affect a wider range of key metrics.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 42
Our principal risks
continued
Risk
10. ‘On-site’ risk
Key
Strategic objectives
balanced portfolio
1 To optimise returns and create value from a
2 To grow recurring earnings and cash flow
3 To attract, retain and develop talented employees
buildings responsibly
4 To design, deliver and operate our
5 To maintain strong and flexible financing
Movement during the year
Risk increased
Risk unchanged
Risk decreased
43
Our key controls
Potential impact
What we did in 2017
Further mitigating actions for 2018
Risk of project delays and/or cost overruns caused by
unidentified issues, e.g. asbestos in refurbishments or
ground conditions in developments.
For example, delays could lead to penalties payable to
pre-let tenants at 80 Charlotte Street. Our pre-let strategy
has increased this risk.
New principal risk.
• Prior to construction beginning on site we conduct site investigations including
the building’s history and various surveys to identify any potential issues.
• Regular monitoring of our contractors’ cash flows.
• Off-site inspection of key components to ensure they have been completed to
the requisite quality.
• Payments to contractors to incentivise them to achieve agreed project timescale
and damages agreed in the event of delays/cost overruns.
• Frequent meetings with key contractors and sub-contractors to review the
work programme.
Strategic objectives
• The Board and Executive Committee received regular updates
• We will aim to substantially fix the costs
on our principal developments.
• Quarterly cost reports provided an update on development
and programme for the Soho Place scheme
through the appointment of a main contractor.
progress from a cost, profitability and programme perspective.
• Continue with our current controls and
• Our development teams have managed to substantially fix
the costs for 80 Charlotte Street and the Brunel Building.
mitigating actions.
1, 2, 4
Business model
• Our core activities
• Adding value for stakeholders
KPIs and key metrics
• Total return
• Total property return
• Total shareholder return
• The financial standing of our main contractors is reviewed prior to awarding the
Strategic objectives
• The Board and Executive Committee received regular updates
• To mitigate risk at Soho Place, we will be
11. Contractor/subcontractor default
Returns from the Group’s developments are reduced due to delays
and cost increases caused by either a main contractor or major
subcontractor defaulting during the project.
Movement during the year:
The risk has slightly increased during the year, partly due to
the economic and political uncertainty and the importance of
delivering the Group’s key development projects.
12. Shortage of key staff
The Group is unable to successfully implement its strategy due
to a failure to recruit and retain key staff with appropriate skills
and/or inadequate succession planning.
Movement during the year:
project contract.
• Regular monitoring of our contractors’ cash flows is carried out.
• Key construction packages are acquired early in the project’s life to reduce the risks
associated with later default.
• Whenever possible the Group uses contractors/subcontractors that it has previously
worked with successfully.
• Regular on-site supervision by a dedicated Project Manager which monitors contractor
performance and identifies any problems at an early stage thereby enabling remedial
action to be taken.
• Performance bonds are sought if considered necessary.
• Our main contractors are responsible, and assume the risk, for any subcontractor default.
1, 2, 4
Business model
• Our core activities
• Adding value for stakeholders
KPIs and key metrics
• Total return
• Total property return
• Total shareholder return
• The Nominations Committee considers succession matters at Board level as a
Strategic objectives
standing agenda item.
• Senior management succession is considered during the five-year strategic reviews.
• Remuneration packages for all employees are benchmarked regularly.
• Six-monthly performance appraisals identify training requirements and career aspirations.
The Board considers this risk to have remained broadly the same
during the year.
As outlined on page 102, the Nominations Committee will be
focusing on Board succession in 2018.
13. Terrorism or other business interruption
Elevated to a new principal risk due to recent attacks in European
capital cities.
New principal risk.
• The Group has comprehensive business continuity and incident management
procedures both at Group level and for each of our managed buildings which
are regularly reviewed and tested (further information on page 115).
• Fire protection and access/security procedures are in place at all of our
managed properties.
• Comprehensive property damage and business interruption insurance which
includes terrorism.
• At least annually, a fire risk assessment and health and safety inspection is
performed for each property in our managed portfolio.
on our principal developments.
• Quarterly cost reports providing an update on development
progress from a cost, profitability and programme perspective.
conducting a two-stage procurement process
which allows us to assess and have input into
the selection of subcontractors.
• Continue with our current controls and
mitigating actions.
• Launch of the ‘Fit for the Future’ programme.
• The Group recruited 14 new members of staff during 2017
(13 in 2016) and we spent £75,500 on training initiatives.
• Arranged the Group’s first staff ‘awayday’ which included
an update on the Group’s strategy.
• The Group conducted a second detailed employee survey.
Further information on pages 82 to 84.
• Updated our incident management procedures for each of the
buildings in the managed portfolio to reflect increased risks.
• Provided training to our building managers on the management
of major incidents.
• Set up a working group to propose ideas to the
Executive Committee on how to address higher
priority areas following the second employee survey.
• To continue to cultivate, focus on and manage
the ‘talent pipeline’ via the ‘Fit for the Future’
programme, by identifying, assessing and
developing key individuals to enable them to
be ready and able to take on future key roles.
• Continue to support the Group in creating a
working environment that promotes individual
well-being and a respectful, inclusive,
collaborative and safe culture.
• Continue with our proactive approach to
anticipating changes to building regulations from
the Dame Judith Hackitt review, such as specifying
non-combustible materials where possible.
• Carry out tests of our business continuity and
incident management procedures.
• Continue with our current controls and
mitigating actions.
1, 2, 3, 4, 5
Business model
Could potentially impact on all
aspects of our business model.
KPIs and key metrics
Could impact on any Group KPIs.
Strategic objectives
1, 2, 3, 4, 5
Business model
Could potentially impact on all
aspects of our business model.
KPIs and key metrics
Could impact on any Group KPIs.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 44
45
Property review
p.45
Valuation
p.48
Asset management
p.56
Development and refurbishment
p.61
Investment activity
Valuation
Nigel George
Executive Director
Total property return
The Group’s investment
portfolio was valued at
£4.9bn at 31 December
2017. The primary
valuation drivers, projects,
yields and rental values,
all contributed positively
to produce a £177.1m
valuation surplus.
After accounting adjustments, see note
16, the total reported surplus was £150.7m.
The underlying valuation increase was
3.9% compared to a 0.2% decline in 2016.
Including the £482.8m of profitable disposals
the valuation surplus increases to 4.9%.
Accordingly the portfolio outperformed the
MSCI IPD Index for Central London Offices,
which increased by 3.6%.
Our central London properties, 98% of the
portfolio, saw an underlying valuation uplift
of 4.0%, with the West End at 1.9% and
the City Borders, principally the Tech Belt,
up 7.5%. The latter benefitted from our
successful projects, including White Collar
Factory and The White Chapel Building.
The balance of the portfolio at 2% is our
non-core Scottish holdings and this was
flat at +0.5%.
The portfolio’s total property return,
which is one of our KPIs, was 8.0% for
2017 compared to 2.9% in 2016. The
MSCI IPD Total Return Index was 7.1%
for Central London Offices and 10.2%
for UK All Property.
.
2
0
1
0
.
8
1
.
7
%
25
20
15
10
5
0
1
.
5
2
5
.
3
2
9
.
9
1
7
.
9
1
9
.
7
1
1
.
3
1
5
.
8
1
8
.
5
1
.
5
0
1
9
.
2
5
6 3
2
.
.
2013
2014
2015
2016
2017
Derwent London
MSCI IPD UK All Property1
MSCI IPD Central London Offices1
1 Quarterly Index
Left: White Collar Factory EC1
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
46
Valuation
continued
The portfolio reversion at year end was
£110.0m. Of this £68.4m is contractual
from fixed uplifts, the expiry of rent free
periods or pre-lets. The majority of the
balance comes from letting vacant space,
either available to occupy or under
construction. This totalled £27.3m, of
which 69% relates to the two on-site
developments: Brunel Building and
80 Charlotte Street. The final £14.3m
component of the reversion comes from
achieving market rents at future rent
reviews and lease renewals.
We were particularly active with our four
on-site developments at the beginning
of 2017. White Collar Factory was
completed and is now a core income
property. Brunel Building and 80 Charlotte
Street, which were valued at £404.7m at
December 2017, are not scheduled to
complete until 2019. Charlotte Street saw
strong pre-letting activity during the year.
These three developments delivered a
16.0% valuation uplift in 2017. The other
development, The Copyright Building
W1, was sold in the second half of the
year generating a valuation surplus of
21.0% above book value.
On an EPRA basis the portfolio’s initial yield
at December 2017 was 3.4% rising to a
‘topped-up’ 4.4% following the expiry of
rent free periods and contractual rental
uplifts. For the previous year, these figures
were 3.4% and 4.1%, respectively. The true
equivalent yield was 4.73%, a 10bp inward
movement over the year which compares
favourably with the 31bp yield expansion
in 2016. This change reflects stronger
investor demand for central London assets.
Our mid-market rental ‘villages’ continued
to attract a wide range of occupiers, but
the rate of rental growth has slowed. Our
EPRA rental value movement was up 1.7%.
As well as our record letting year, our asset
management team was busy capturing
growth from the core income element of
the portfolio through rent reviews, renewals
and lease re-gears. There are more details
on this activity in the Asset management
section (see page 48). These improvements
contributed to the 6.5% increase in the
annualised contracted rent, from £150.3m
to £160.1m. The gain was despite the loss
of £8.6m of contracted rent from disposals,
which also caused the total ERV to decline
5.1% to £270.1m.
Portfolio income potential
Valuation yields
Rental income £m
300
Reversion %
120
%
8
225
150
75
90
6
60
4
30
2
0
2013
2014
2015
2016
2017
0
0
2000
2002
2004
2006
2008
2010
2012
2014
2016
Contractual rent
Contractual rental uplifts (including pre-lets)
Available to occupy
Under refurbishment/development
Rent reviews and lease renewals
Reversion
Derwent London True Equivalent Yield (TEY)
Derwent London Initial Yield
10-year Gilt
Gap between DL TEY and 10-year Gilt
Average gap (262 bp)
47
Portfolio statistics – valuation
Valuation
£m
Weighting
%
Valuation1
performance
%
Let floor
area2
’000 sq ft
Vacant
available
floor area
’000 sq ft
Vacant
refurbishment
floor area
’000 sq ft
Vacant
project
floor area
’000 sq ft
Total
floor area
’000 sq ft
West End
Central
Borders
City
Borders
Central London
Provincial
Total portfolio
2017
2016
2,438.6
480.2
2,918.8
1,877.6
4,796.4
101.2
4,897.6
4,980.5
50
10
60
38
98
2
100
100
0.8
7.9
1.9
7.5
4.0
0.5
3.9
(0.2)
2,174
516
2,690
1,969
4,659
341
5,000
4,963
13
0
13
52
65
2
67
113
30
0
30
67
97
0
97
163
1 Underlying – properties held throughout the year
2
Includes pre-lets
Rental income profile
Annualised contracted rental income, net of ground rents
Contractual rental increases across the portfolio
Contractual rental from 89,000 sq ft pre-let refurbishment
Contractual rental from 275,000 sq ft pre-lets on developments
Letting 67,000 sq ft available floor area
Completion and letting 97,000 sq ft of refurbishments
Completion and letting 348,000 sq ft of developments
Anticipated rent review and lease renewal reversions
Portfolio reversion
Potential portfolio rental value
Portfolio statistics – rental income
348
0
348
0
348
0
348
742
Rental
uplift
£m
44.2
2.4
21.8
2.8
5.7
18.8
14.3
2,565
516
3,081
2,088
5,169
343
5,512
5,981
Rental
per annum
£m
160.1
110.0
270.1
West End
Central
Borders
City
Borders
Central London
Provincial
Total portfolio
2017
2016
Net
contracted
rental income
per annum
£m
Average
rental
income
£ per sq ft
Vacant
space
rental value
per annum
£m
Lease
reversions1
per annum
£m
Portfolio
estimated
rental value
per annum
£m
Average
unexpired
lease length2
Years
78.3
15.6
93.9
61.0
154.9
5.2
160.1
150.3
36.21
30.27
35.07
31.74
33.67
15.39
32.42
30.73
21.9
0.0
21.9
5.4
27.3
0.0
27.3
58.4
38.7
11.1
49.8
32.5
82.3
0.4
82.7
75.8
138.9
26.7
165.6
98.9
264.5
5.6
270.1
284.5
5.6
8.5
6.1
6.2
6.2
3.4
6.03
6.5
1 Contractual uplifts, rent review/lease renewal reversion and pre-lets
2 Lease length weighted by rental income at year end and assuming tenants break at first opportunity
3 7.8 years after adjusting for ‘topped-up’ rents and pre-lets
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
48
49
Asset
management
Paul WIlliams
Executive Director
Letting activity by rental income
£m pa
40
30
20
10
1
.
4
1
0
6
.
3
.
7
0
.
8
3
.
1
1
.
5
0
1
0
2010
2.6
2011
2012
2013
Pre-lets
Non pre-lets
3
.
3
1
2
.
8
2
6
6
.
8
.
4
2
.
2
5
1
9
.
1
1
2015
2016
2017
8
.
6
2.4
2014
We continue to make the
most of the opportunities
provided by the strength
of London’s occupational
market aligned with our
development programme.
During 2017 we let 685,700 sq ft achieving
rents of £41.5m (£41.3m net), at an
average level of 1.3% above December
2016 ERV. This represents an exceptional
level of activity surpassing last year’s
previous record by 32%, and it means that
we have achieved £56.2m of new lettings
in the 18 months since the EU referendum.
Letting activity 2017
Performance against
Dec 16 ERV (%)
Area
sq ft
439,200
H1
H2
246,500
2017 685,700
Income
£m pa
23.4
18.1
41.5
Open
market
1.8
2.4
2.1
Overall1
0.5
2.4
1.3
1
Includes short-term lettings at properties earmarked
for redevelopment
Our second half 2017 transactions covered
246,500 sq ft and achieved £18.1m of rent
at average rents 2.4% above December
2016 ERV, or 1.8% above June 2017 ERV.
Of our total lettings for the year, 61% by
income came from pre-lets notably at
80 Charlotte Street and The White Chapel
Building Phase 2 and a further 15% from
lettings at major completions, notably
White Collar Factory.
Principal lettings in 2017
Property
Q1
Tenant
Area
sq ft
Rent
£ psf
Total
annual rent
£m
Min/fixed uplift
at first review
£ psf
Lease term
Years
Lease break
Year
Rent free
equivalent
Months
80 Charlotte Street W1
White Collar Factory EC1
Angel Building EC1
Greencoat & Gordon House SW1 VCCP
20 Farringdon Road EC1
Arup
Adobe
Expedia
Accenture
133,600
14,900
12,500
12,800
11,500
Q2
The White Chapel Building E1
Phase 2 – lower ground floors
White Collar Factory EC1
Fotografiska
89,000
Box.com
The White Chapel Building E1
The White Chapel Building E1
Wilmington
ComeOn!
White Collar Factory EC12
Red Badger
78 Whitfield Street W1
78 Whitfield Street W1
78 Chamber Street E13
Made Thought
Yoyo Wallet
NetBooster
28,500
27,000
12,700
7,700
4,800
4,800
6,700
72.9
67.5
62.5
55.0
55.0
27.0
75.0
52.0
50.0
62.5
63.5
63.0
40.0
9.71
1.0
0.8
0.7
0.6
2.4
2.1
1.4
0.6
0.5
0.3
0.3
0.3
The Boston
Consulting Group
Arup
Freightliner
Russell & Bromley
Ergonom
Egress
123,500
85.5
10.6
19,800
12,100
3,800
8,800
6,700
75.0
71.0
–
54.0
67.5
1.51
0.9
0.7
0.5
0.5
Q3
80 Charlotte Street W1
80 Charlotte Street W1
90 Whitfield Street W1
Holden House W1
12-16 Fitzroy Street W1
White Collar Factory EC1
Q4
The Copyright Building W14
1 Annual increases of 2.25% for the first 15 years
2 Low rise buildings
3 Joint venture – Derwent London share
4 Since sold
81.5
74.5
–
–
–
27.7
–
–
–
65.6
–
–
–
–
83.8
–
–
57.0
–
20
11.5
13.3
8.5
10
15
15
10
10
10
10
4.5
10
15
20
10
10
15
10
–
–
–
–
5
33
22
18
13
9, plus 9
if no break
12
10
–
5
5
4.5
–
5
30, plus 6
if no break
18, plus 5
if no break
20
11, plus 8
if no break
9.5, plus 5
if no break
8
8
10
12 Confidential
–
–
5
10
5
33
22
3
15
9, plus 9
if no break
Bone Daddies
5,600
–
0.4
–
20
–
14
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 50
Asset
management
continued
Leases totalling 771,900 sq ft or c.15%
of our portfolio were subject to breaks or
expiries in 2017, which was 30% more than
in 2016. Rent review activity was lower,
but the average 42% increase in passing
rents matched last year and was 11% over
ERV. We saw particularly strong growth
at 88 Rosebery Avenue EC1 and 4 & 10
Pentonville Road N1, two buildings in the
Tech Belt.
Lease renewals were dominated by two
large transactions where we extended
leases on a short-term basis. The first was
at 19-35 Baker Street where we received
a resolution to grant planning consent
for redevelopment and therefore needed
to retain flexibility and the latter was
1 Stephen Street W1. The Group also had
considerable success re-gearing leases
to important tenants at Angel Building
(Expedia) and Tea Building (Mother).
In total these last four transactions
covered 416,000 sq ft, and show our
different approaches to lease events
depending on our plan for each building.
We retained or re-let 92% of the income
from properties where leases either
expired or were due to expire during
the year.
In 2017 our average lease length weighted
by contractual passing rent moved from
6.5 years to 6.0 years or 7.0 years allowing
for rent-free ‘top-ups’. These numbers were
impacted by the disposal of 8 Fitzroy Street
W1. Including the recently agreed pre-lets,
where the lease lengths are considerably
longer, the weighted average lease length
rises to 7.8 years, the same as last year.
A summary of our asset management
activity in the year can be found in the
table below.
The continuing demand for our product
means that our EPRA vacancy rate fell to
1.3% at the year end. This was down from
2.6% over the year despite two significant
development completions.
Refer to the case studies on pages 52
and 54 for more on our asset management
activities during the year.
Asset management 2017
Rent reviews
Lease renewals
Lease re-gears
Total
Below: Tea Building E1
Area
sq ft
209,500
269,600
292,800
771,900
Previous rent
£m pa
6.4
10.5
12.1
29.0
New rent
£m pa
9.1
13.2
16.3
38.6
Uplift
%
42
26
35
33
Income vs
Dec 16
ERV %
11
(6)
8
4
Rental value growth
Average unexpired lease length
Half-yearly rental value growth (%)
Years
51
8
6
4
2
0
6
6
.
2
5
.
8
.
4
.
2
4
1
.
4
0
.
3
6
2
.
H1 13 H2 13 H1 14 H2 14 H1 15 H2 15 H1 16 H2 16
H1 17 H2 17
0
.
1
1
.
1
.
6
0
8
6
4
2
0
Dec
2012
Jun
2013
Dec
2013
Jun
2014
Dec
2014
Jun
2015
Dec
2015
Jun
2016
Dec
2016
Jun
2017
Dec
2017
West End
City Borders
Central London
Profile of rental income expiry
Five-year vacancy trend
%
70
60
50
40
30
20
10
0
1
6
6
3
2
3
1
2
6
1
0
1
Up to 5
5-10
10-15
Years to expiry
No lease breaks exercised
Lease breaks exercised at first opportunity
5
1
7
15-20
1 1
Over 20
%
5
4
3
2
1
0
Retaining occupiers – Lease expiry and break analysis
Percentage of income
27
10
63
11
44
45
11
26
63
8
35
57
12
14
74
100
80
60
40
20
0
2013
2014
2015
2016
2017
Retained
Re-let
Vacant
Dec
2012
Jun
2013
Dec
2013
Jun
2014
Dec
2014
Jun
2015
Dec
2015
Jun
2016
Dec
2016
Jun
2017
Dec
2017
Derwent London (by rental value)
CBRE West End (by floor area)
Derwent London (by floor area)
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
53
52
Asset
management
continued
“ We are deeply excited to
agree space for our future
home at 80 Charlotte Street.
Derwent and their design
team have masterminded
a truly spectacular scheme
in this quiet and rapidly
improving corner of
Fitzrovia, close to the buzz
of central London. This will
be the perfect setting for our
people to connect, develop
and drive impact through
our work.”
Andy Veitch
Partner and Managing Director
of The Boston Consulting Group
Right: CGI of 80 Charlotte Street W1
Case study:
80 Charlotte Street W1 –
de-risking development
80 Charlotte Street in the heart of Fitzrovia is Derwent London’s
largest scheme to date. The area, known as a centre for the
media, advertising and design businesses, has improved rapidly
over the past decade due to its close proximity to Crossrail and the
core West End. The development, for which we obtained planning
permission in 2011, is on an island site and will comprise 332,000
sq ft of offices, 3,000 sq ft of retail and 45,000 sq ft of residential
(55 units). This is an increase in floorspace of 62% from the tired
1960s building that previously stood on the site.
When we committed to the scheme at the beginning of 2016 we
faced the challenges of delivery and finding an occupier, but with
the intention of mitigating these risks as the project proceeded.
To ensure this happens, the Group encourages collaboration
from its many specialist teams and consultants from the start
even though each team has separate responsibilities in the
development process.
Lowering construction risk: Derwent London has an experienced
team of in-house project managers, cost monitors and
development managers responsible for the project’s overall
design and construction with Multiplex acting as main contractor.
At the outset we believed that a fixed price contract would not
be the most cost-effective option. During 2017 the outstanding
cost was almost entirely fixed, a process made easier through our
relationship with the main contractor as well as engaging directly
with the subcontractor supply chain. The main construction risk
now resides with delivery with the building due for completion
at the end of 2019.
Lowering letting risk: The building boasts good flexibility in terms of
offering large, flexible floorplates as well as good multi-let capability,
providing varied options in respect of communal and dedicated
entrances. On-site amenity has been a common theme throughout
our recent developments: 80 Charlotte Street’s offer is significant,
with generous terraces (both private and a large communal facility),
an in-house café, as well as two restaurant opportunities on the two
eastern corners of the site. Our leasing and marketing team has been
involved from the beginning helping define the product’s identity.
The attractions of the building and its location were
demonstrated in 2017 with the early pre-let of 86% of the office
space (with a further 13% under option) to Arup and The Boston
Consulting Group (BCG). The transaction with Arup cemented an
existing longstanding relationship, whilst that with BCG brings a
new and significant tenant to the portfolio. The main letting risk
now lies with the leasing or disposal of the residential elements
of the scheme.
As a result of our team’s actions, we made meaningful progress
in reducing some of the major development risks associated with
the property during 2017.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 54
Asset
management
continued
“ In recent years, the area
around Tottenham Court
Road has gone through
a marked transformation.
Once considered the scruffy
end of Oxford Street, with
no real identity, the area has
become a thriving crossroads
between London’s creative
and technology industries.”
Ian Pidgeon
Partner at Knight Frank
Right: Tottenham Court Walk W1
55
Case study:
Asset management
Our relationships with occupiers are based on mutual trust,
teamwork and frequent dialogue maintained over the long term.
We believe this proactive approach distinguishes Derwent
London from many other landlords and explains why we are more
comfortable than some other property investors in offering a wide
range of lease terms to our occupiers and in owning multi-let
buildings. Our occupier meetings provide good market intelligence
as well as keeping us abreast of any changing needs of a particular
tenant. Changing needs create new opportunities as we look,
where we can, to accommodate them. Examples of this are set
out below:
Tea and Biscuit Building – Mother London
In 2003 Mother London made a long-term commitment to the
Biscuit Building in Shoreditch. Throughout the term of their
15-year lease a healthy working relationship was fostered and,
as the adjoining Tea Building was increasingly fitted with enhanced
‘Green Tea’ air conditioning, Mother identified the modernisation
of their office as a key driver to their future within the existing
premises. The strength of the relationship enabled us to come to
an agreement where we were able to retrofit a new air conditioning
system and install double glazed windows while the tenant
remained in situ. Following these improvements Mother has made
a fresh long-term commitment to 49,700 sq ft in the building.
Retail at the eastern end of Oxford Street W1
The depth of knowledge of our occupiers’ business requirements
facilitates transactions which enable us to unlock opportunities
from time to time. The relocation of Pret a Manger from Holden
House, Oxford Street, to another of our buildings on Rathbone
Place enabled the transformation of the immediate area.
Furthermore additional exit strategies were agreed with other
tenants including William Hill, Evans and a newsagents which
created an opportunity for new retailers. These now include
Russell and Bromley, Scribbler and PJ Tailors, all of whom had
longstanding ambitions to be in the area.
On Tottenham Court Road we worked closely with an existing
occupier to market their lease. We were able to expedite an
assignment to Yo!, on a longer term, whose subsequent
investment in the unit adds to the vibrancy of the area and
enhances the food offer to our existing office occupiers.
1 & 2 Stephen Street W1 – FremantleMedia
Longstanding substantial occupier, FremantleMedia Group
Limited, leases 83,400 sq ft in 1 & 2 Stephen Street which was
due to expire in 2019. We worked closely with them on a number
of scenarios involving the existing premises and possible relocation
to other Derwent London properties. The outcome has been a
new agreement with FremantleMedia committing to Stephen
Street for up to a further five years with a mutual break in 2021.
Our ongoing relationship was integral to the successful conclusion
of a transaction which enhanced the asset and at the same time
matched the mutual aspirations and business strategies of both
the occupier and ourselves.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 56
57
Development
and refurbishment
Simon Silver
Executive Director
Completions and capital expenditure
‘000 sq ft
700
600
500
400
300
200
100
0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Completions (‘000 sq ft)
Capital expenditure (£m)
Estimated capital expenditure (£m)
£m
350
300
250
200
150
100
50
Two developments
comprising 401,000 sq ft
were completed in 2017.
White Collar Factory
surpassed our expectations
with its progressive design
gaining considerable
international coverage.
The tower is fully let, with the tenants
in occupation, and the remaining lower
rise space is either let or under offer.
This development has achieved a 96%
profit on cost as at 31 December 2017.
The Copyright Building achieved a 23%
profit on cost (see case study on page 62).
At the year end we had two West End
projects under construction totalling
623,000 sq ft, which are 45% pre-let.
We have since started preliminary works
on Soho Place, also in the West End.
Our largest project is 80 Charlotte Street
in Fitzrovia (see case study on page 52).
The development comprises three
elements: first the largely pre-let offices
totalling 321,000 sq ft; secondly a
residential element of 45,000 sq ft in
55 units (25% are affordable) and finally
the ancillary retail of 14,000 sq ft.
The project is due for completion at the
end of 2019 and requires an additional
£182m of capital expenditure to complete.
The ERV is £25.8m pa.
The other major project at the year end
was Brunel Building, where we are seeing
good interest from potential occupiers
(see case study on page 58). Construction
is advancing well on this canalside project,
which is due to complete in the first half
of 2019. The building is designed to be
multi-let and has an external diagrid
structural frame thereby allowing the floors
to be virtually column free. There are two
significant terraces on the upper floors, one
of which is likely to be for communal use.
Capital expenditure to complete is £70m
and the ERV is £14.8m.
Major developments pipeline
Property
Completed projects
White Collar Factory, Old Street Yard EC1
293,000
H1 2017
The Copyright Building, 30 Berners Street W1
108,000
H2 2017
On-site projects
Brunel Building, 2 Canalside Walk W2
80 Charlotte Street W1
401,000
243,000
380,000
H1 2019
H2 2019
Property
Other major planning consents
Soho Place W1
Monmouth House EC1
19-35 Baker Street W1
Holden House W1
623,000
Area
sq ft
285,000
125,000
293,0002
150,000
853,000
Grand total (excluding completed projects)
1,476,000
1 At 31 December 2017
2 Total area – Derwent London has a 55% share of the joint venture
Area
sq ft
Delivery
Capex to
complete
£m1
Comment
–
–
265,000 sq ft offices, 20,000 sq ft retail,
8,000 sq ft residential – 94% let
88,000 sq ft offices and 20,000 sq ft retail –
100% let. Sold H2 2017.
Offices
332,000 sq ft offices, 45,000 sq ft residential
and 3,000 sq ft retail – 73% pre-let overall
70
182
252
Comment
209,000 sq ft offices, 36,000 sq ft retail and 40,000 sq ft theatre
Offices, workspaces and retail
206,000 sq ft offices, 52,000 sq ft residential and 35,000 sq ft retail
Retail flagship or retail and office scheme
In addition there were three smaller
projects in hand at the year end.
First there is the development of the
lower ground floors and a new pavilion
at The White Chapel Building. It has been
pre-let to Fotografiska who will operate
as the London Museum of Photography.
The project has been let for £2.4m,
requires additional capital expenditure
of £13m and is due for completion in
the second half of 2018. This will see the
final transformation of a tired back office
space, which we acquired in December
2015, into a vibrant creative and cultural
hub. Secondly we are refurbishing 57,200
sq ft at Johnson Building EC1 following
lease expiries. The estimated ERV here is
£3.2m. Finally we have recently completed
the refurbishment of 18,700 sq ft on the
upper floors of 25 Savile Row W1.
We recently gained access to the site
of our next exciting major mixed-use
development Soho Place, which lies above
the Tottenham Court Road Elizabeth line
station. This gateway onto the eastern
end of Oxford Street and Soho Square
will provide 209,000 sq ft of offices,
36,000 sq ft of retail as well as a new
theatre. Preliminary work has started with
the main construction contract expected
to be signed later in 2018. The further
capital expenditure and site payment is
estimated at £309m and the ERV at
£22.0m net. The earliest the project
could complete is in 2021.
Looking further ahead, Monmouth House
EC1, next to White Collar Factory, has
planning consent and we recently received
resolutions to grant consent for 19-35
Baker Street (where we hold 55% of a joint
venture with The Portman Estate) and
Holden House. Baker Street is an office-
led scheme, whereas Holden House would
be suitable for a major retail store. Given
the latter’s position in the fast improving
eastern end of Oxford Street and the
exceptional floorplate size for this location
it has considerable retail potential. We also
have planning for an alternative scheme
on this with a higher proportion of offices
giving us significant flexibility. Beyond
these three projects we are working up
active plans on another three buildings
representing 4% of the existing portfolio.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 59
58
Development
and refurbishment
continued
“ Paddington is, finally, going
places. The opening of
Crossrail could smooth the
last of this area’s rough edges.”
The Times
Right: Brunel Building W2
Case study:
Brunel Building, Paddington, W2
Derwent London acquired a 95-year leasehold interest in an
old warehouse block on Paddington Basin for c.£325 per sq ft
in 2001. We retained income from the building prior to
redevelopment while we worked on a new design with architects
Fletcher Priest, and looked to extend our ownership. Planning
was received for a mixed-use development in 2008, and in 2013
we secured an option to regear the leasehold interest thereby
unlocking the site for a landmark 243,000 sq ft office building on
a 999-year lease. The construction contract price is fixed and the
project is on target to complete in H1 2019 with £70m of capital
expenditure outstanding.
The main contractor is Laing O’Rourke and the team has
performed well, overcoming a number of site-specific challenges
such as building adjacent to the Victorian canal and close to the
Bakerloo line. The building’s cores are now complete and the
external steel diagrid in grey and signature orange is
progressing rapidly.
Brunel Building is an eye-catching new addition in Paddington;
its striking design, waterfront location and generous floor-to-
ceiling heights mean we are expecting to achieve prime rents
for the area, especially for the upper floors which benefit from
two terraces and impressive views across central London.
Paddington has witnessed a change in tenant types in recent
years and the area has been undergoing a transformation in its
public amenities. Brunel Building will play its part in opening up
the canalside to the public for the first time for at least 45 years.
Although Paddington is already well-connected, the arrival of the
Elizabeth line later this year will make central London even more
accessible with journey times to Tottenham Court Road of just
four minutes. All this activity, together with its relative value,
means that Paddington has become attractive to a much
broader mix of businesses.
Brunel Building will be the next Grade A development to be
released in the area. There has been good interest in the building
from a number of occupiers with a range of space requirements,
which supports our aim of achieving a number of lettings prior
to completion. In December 2017 the average ERV on the office
space was £62.50 per sq ft.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 60
Development
and refurbishment
continued
Investment
activity
Project summary – current
Property
On-site developments
Brunel Building W2
80 Charlotte Street W1
On-site refurbishments
The White Chapel Building E11
Other projects
Soho Place W1
Planning and design
Other
Total
Capitalised interest
Total including interest
1 Phase 2
2
Includes site acquisition cost
Project summary – future
Property
Consented
Monmouth House EC11
19-35 Baker Street W12
Holden House W1
Adjustment for joint venture
Under appraisal3
Premier House SW1
Network Building W1
Francis House SW14
Consented and appraisals
On-site projects
Pipeline
Current net
income
£m pa
Pre-scheme
area
‘000 sq ft
Proposed
area
‘000 sq ft
(0.1)
–
(0.1)
–
(0.1)
–
–
–
–
(0.1)
–
(0.1)
78
234
312
81
393
–
–
–
–
393
–
393
243
380
623
89
712
285
–
–
285
997
–
997
2018
capex
£m
56
72
128
12
140
18
5
17
40
180
12
192
2019
capex
£m
2020+
capex
£m
Total capex
to complete
£m
Delivery
date
Current office
c.ERV
psf
H1 2019
H2 2019
£62.50
£80.00
H2 2018
13
101
114
1
115
75
3
8
86
201
15
216
1
9
10
–
10
216
1
11
228
238
12
250
70
182
252
13
265
3092
9
36
354
619
39
658
Current net
income
£m pa
Pre-scheme
area
‘000 sq ft
Proposed
area
‘000 sq ft
Earliest
possession
year
Comment
0.3
5.8
6.5
12.6
(2.6)
10.0
2.2
3.1
3.1
8.4
18.4
(0.1)
18.3
69
146
90
305
(66)
239
62
64
90
216
455
393
848
125
293
150
568
(132)
436
80
100
130
310
746
997
1,743
2019 Adjacent to White Collar Factory
Joint venture
2020
Eastern end of Oxford Street
TBC
19–35 Baker Street W1
Derwent 55% interest
2018
2021
TBC
Previous table
David Silverman
Executive Director
Major disposals in 2017
Property
132-142
Hampstead
Road NW1
8 Fitzroy Street
W1
The Copyright
Building W1
Area
sq ft
Net
proceeds
£m
Net
proceeds
£ psf
Net yield to
purchaser
%
Rent
£m pa
Date
Q1 219,700
129.4
590
Q2 147,900
196.9
1,330
Q4 108,000
148.2
1,370
1.2
3.4
4.2
1.7
7.2
7.4
1
2
Includes 19–23 Featherstone Street EC1
Includes 88–100 George Street, 30 Gloucester Place and 69–85 Blandford Street W1
3 Areas proposed are estimated from initial studies
4
Includes 6–8 Greencoat Place SW1
61
We sold three major
properties in 2017 for £475m
net of costs and rental
‘top-ups’, demonstrating
the ongoing depth of
demand during 2017.
We have previously reported on all three
transactions, and the details are shown in
the table below. None of the disposals
offered significant opportunities for us to
add short-term value. The sale of 132-142
Hampstead Road NW1 was part of the HS2
site assembly, 8 Fitzroy Street was sold to the
occupier, Arup, as part of the 80 Charlotte
Street pre-let and The Copyright Building
was sold to a German fund (see case study
on page 62). The level of disposals was
above our medium term business targets
and has left us in a strong position to
recycle the proceeds principally into our
development activity, where we currently
expect development yields of 6.0% on cost.
We are continually on the hunt for
acquisitions but the scarcity of
opportunities that match our criteria has
meant that our activity has been limited in
2017 to a small acquisition in Victoria SW1
adding to our cluster in that location. Since
the year end we have exchanged contracts
to sell Porters North N1 (held in a 50% joint
venture) for £45.4m net of ‘top-ups’, which
is 5% above December 2017 book value.
Net investment
£m
400
200
0
(200)
(400)
2013
2014
2015
2016
2017
Capital expenditure
Disposals
Acquisitions
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
62
Investment
activity
continued
“ Fitzrovia is currently one
of the most dynamic areas
of London’s West End.”
Martin Schellein
Head of Investment Management
Europe at Union Investment
Right: The Copyright Building W1
63
Case study:
The Copyright Building W1 – driving
returns from acquisition through to sale
The story of The Copyright Building, Berners Street is one of five
years’ work focusing on value creation. Our activities ranged from
sourcing an interesting opportunity off-market, through a head
lease restructure, to obtaining a planning consent for an appealing
new high quality office and retail building and securing a major
pre-let of the offices. This enabled a forward sale ahead
of completion thereby crystallising attractive returns.
25-27 and 29-33 Berners Street were acquired from
The Performing Rights Society (PRS) in 2012 for £36.5m.
Comprising two post-war office buildings totalling 79,500 sq ft,
we acquired 68 year leasehold interests, either side of a smaller
building owned by our freeholder, the Berners Allsopp Estate.
The vendor took a short leaseback of the buildings, providing
us with income during the planning process. In conjunction with
our freeholder and, after considering refurbishment, we won a
valuable planning consent to redevelop all three buildings, having
regeared the headlease into a new 127-year leasehold interest.
The completed 108,000 sq ft office and retail building was
designed by award-winning architects, Piercy & Company
and construction began in early 2015 after rebranding it as
The Copyright Building.
In early 2016 we secured a major pre-let on the entire office
element to Capita plc, on a 20-year lease without breaks, for
their new London headquarters at a rent of £90 per sq ft on
the best space.
As the development was nearing completion, and in our view
seeing limited further opportunities to add value, we agreed a
forward sale of our leasehold interest in the building to Union
Investment for £148.2m net, reflecting a net initial yield of 4.2%,
and a capital value of £1,370 per sq ft. Our profit on cost was 23%.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 64
65
Finance review
Property portfolio value, net assets and gearing
£m
5,000
4,000
3,000
2,000
1,000
8
6
1
,
4
2
1
0
3
,
3
5
3
3
,
4
0
3
2
,
5
5
9
4
,
3
4
9
4
,
3
2
9
3
,
2
3
9
3
,
0
5
8
4
,
8
2
1
,
4
%
50
40
30
20
10
0
Dec 2013
Dec 2014
Dec 2015
Dec 2016
Dec 2017
0
Property portfolio at fair value (£m)
LTV ratio (%)
Net assets attributable to equity shareholders (£m)
Net asset value
Though underlying values for the main
part of our portfolio were fairly flat in 2017,
recent development projects such as White
Collar Factory provided strong valuation
uplifts and, as a result, the Group’s net
asset value grew by almost 5% during the
year. Adding back the 108p per share of
dividends paid in 2017, including last year’s
52p special dividend, the total return for the
year calculated on an EPRA basis was 7.7%.
This compares with the 1.7% total return in
2016 when the result of the EU referendum
was still reverberating.
Revaluation movement
Profit on disposals
EPRA earnings
Interim and final
dividend
Special dividend
Interest rate swap
termination costs
Dilutive effect of
convertible bonds
Non-controlling interest
Other
2017
p
138
45
94
(56)
(52)
(7)
–
–
3
165
2016
p
(38)
7
77
(44)
–
(8)
17
7
(2)
16
The Group’s IFRS net asset value was
£4.2bn at 31 December 2017 against just
under £4.0bn in 2016 and EPRA NAV per
share on a diluted basis increased to
3,716p per share, up 4.6% from 3,551p
a year earlier. The main movements in
EPRA NAV per share during the year are
summarised below compared with 2016:
The uplift in our property valuation through
2017 together with the strong profit
booked on property disposals added a
combined 183p per share to our net asset
value; this compares with a deficit of
31p per share for the same items in 2016.
Of the 138p per share revaluation uplift,
77p per share came from The White
Chapel Building, White Collar Factory
and 80 Charlotte Street alone while another
22p was gained at Angel Building partly
due to the Expedia re-gear. In total, the
revaluation gain for the year was £150.7m
of which £1.0m was a partial reversal of the
2016 write-down in respect of properties
held as trading stock and £1.8m came
from our new offices at 25 Savile Row;
the balance of £147.9m related to the
investment property portfolio.
Including £14.8m of letting and legal fees
being amortised over their respective lease
terms, accrued income from the ‘straight-
lining’ of rental income under IAS 17 and
SIC-15 was £120.6m at 31 December 2017
(2016: £116.9m). Although the balance
increased during the year as we recognised
income in advance of cash receipts and
incurred letting and legal fees, it also fell
by £19.2m due to the property disposals.
Our financial results for the
year ended 31 December
2017 showed a return to
meaningful net asset value
growth and another strong
rise in underlying earnings.
Financial overview
The continued de-risking of our pipeline
of value adding projects, high levels of
portfolio occupancy and gearing levels
which have fallen again after the receipt
of £472.9m from property disposals,
have combined to put us in a very strong
financial position. However, with continuing
political and economic uncertainty making
the outlook for the UK and London harder
than usual to anticipate, we believed that
2017 was the right time to de-risk the
business particularly as there were
attractive opportunities to do so. At the
same time, demand from occupiers and
investors alike has buoyed London’s
commercial property values and we found
no significant new properties to acquire
during the year. At present, we see more
attractive returns from investing in our
pipeline. We are also recommending a
10.1% increase in the final dividend and,
following last June’s 52p special dividend,
are proposing to pay out a further ‘special’
in June 2018 of 75p per share.
Presentation of financial results
The financial statements have been
prepared in accordance with International
Financial Reporting Standards (IFRS).
In common with usual and best practice
in our sector, alternative performance
measures have also been provided to
supplement IFRS based on the
recommendations of the European Public
Real Estate Association (EPRA). EPRA Best
Practice Recommendations (BPR) have
been adopted widely throughout this report
and are used within the business when
considering our operational performance as
well as matters such as dividend policy and
elements of our Directors’ remuneration.
Full reconciliations between IFRS and EPRA
figures are provided in note 38 and all the
EPRA definitions are included on page 207.
Damian Wisniewski
Finance Director
Summary
IFRS NAV
EPRA NAV per share
Property portfolio at fair value
Net rental income
Profit before tax
EPRA earnings per share (EPS)
Interim and final dividend per share
LTV ratio
NAV gearing
Net interest cover ratio
2017
3,716p
2016
£4,193.2m £3,999.4m
3,551p
£4,850.3m £4,942.7m
£145.9m
£54.5m
76.99p
52.36p
17.7%
22.6%
370%
£161.1m
£314.8m
94.23p
59.73p
13.2%
15.7%
454%
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 66
Finance review
continued
The overall year end make-up of our
portfolio valuation was as follows:
Fair value of property portfolio
Investment property
Owner-occupied
property
Trading property
Carrying value
Accrued income
Grossing up of
headlease liabilities
Revaluation of trading
property
Fair value of property
portfolio
Dec 2017
£m
Dec 2016
£m
4,670.7 4,803.8
46.5
25.3
34.2
11.7
4,742.5 4,849.7
116.9
120.6
(14.1)
(23.9)
1.31
–
4,850.3 4,942.7
1 Not included in the IFRS accounts
The net carrying value of joint venture
investments at 31 December was £39.7m
(2016: £36.0m) and the fair value of our
50% share of the two properties held was
£47.3m (2016: £37.8m). One of these,
Porters North, is due to be sold for £45.4m
net of rental ‘top-ups’ in March 2018, at
which point our only external joint venture
debt will be repaid.
Income statement
We have maintained our focus on raising
underlying earnings from our portfolio in
2017. Some of this came from new lettings
at the recently completed properties such
as White Collar Factory and The White
Chapel Building but we have also grown
income from the like-for-like portfolio
and our costs have reduced too.
Gross rental income increased to £172.1m
from £155.4m in 2016 and net rental
income was up to £161.1m from £145.9m a
year before. These reflect annual increases
of 10.7% and 10.4%, respectively, in spite
of £482.8m of net property disposals
during the year. After taking account of fee
income from joint venture projects and the
£1.0m partial reversal of a trading property
provision booked in 2016, net property and
other income increased to £164.8m from
£149.2m in 2016. Lettings in 2016 and
2017 added £33.1m of rental income over
the year. Breaks, expiries and scheme voids
reduced rental income by £5.3m and the
disposals removed £11.1m. Irrecoverable
property costs increased slightly to £10.3m
but remain low at under 6% of rental
income due partly to our low vacancy rates.
EPRA earnings
Gross property income
£m
110
100
90
80
70
16.2
(1.6)
0.3
2.7
0.7
1.0
105.0
11.3
(11.1)
3.3
18.5
(1.7)
(3.6)
(0.5)
172.2
£m
190
175
160
156.0
85.7
r
a
e
y
r
o
i
r
P
e
m
o
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130
115
r
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2016 78.7
4.0
(0.6)
0.1
(0.9)
7.0
(2.6)
85.7
2016 152.0
6.1
5.7
9.3
(5.1)
(3.9)
(5.3)
(2.8)
156.0
67
Our share of the revaluation surplus in our
two small joint ventures was £3.9m in 2017
and they also contributed £1.1m of profits
after tax. However, as noted above, the
main portfolio revaluation showed a much
stronger result than in 2016 with a net uplift
after accounting adjustments of £147.9m
against a deficit of £37.1m in 2016. The
overall IFRS profit for the year was therefore
£313.0m compared with £53.6m in 2016.
EPRA earnings for 2017, which remove fair
value movements and the profits arising on
property disposals to arrive at an underlying
measure of performance, increased by 23%
during the year to £105.0m from £85.7m
in 2016; this reflects a 79% rise over the
past three years.
A table providing a reconciliation of the
IFRS results to EPRA earnings per share is
included in note 38.
We saw an 8.7% fall in administration
expenses during the year to £28.2m against
the background of an increased headcount
and our move into newly fitted offices.
The reduction was mainly due to substantial
falls in amounts booked for variable
remuneration. As in previous years, no
overheads or property costs were capitalised.
With these lower administration costs,
our EPRA cost ratios fell to 20.8%
(2016: 24.0%) of gross rental income
including direct vacancy costs and to
19.3% (2016: 22.4%) excluding those costs.
This is our largest ever level of annual
disposals and gave rise to an IFRS profit in
2017 of £50.3m or 45p per share. £24.9m
of this came from the sale of The Copyright
Building which was completed in 2017
and where the December 2016 valuation
had therefore still factored in significant
completion risks and profit to come.
It also took account of the sale of 132-142
Hampstead Road NW1 as part of the HS2
site assembly around Euston station and
8 Fitzroy Street to Arup, both of which
were announced with our 2016 results.
Total finance costs fell to £27.1m from
£27.8m in 2016 despite a £3.6m lower
level of interest capitalised; £9.4m was
capitalised in 2017 against £13.0m in the
previous year. Accordingly, the underlying
interest charge has fallen by around 11%
compared to 2016.
Cost ratios
EPRA cost ratio, incl.
direct vacancy costs
EPRA cost ratio, excl.
direct vacancy costs
Portfolio cost ratio, incl.
direct vacancy costs
2017
%
2016
%
20.8
24.0
19.3
22.4
0.7
0.8
Investment property disposals during the
year amounted to £482.8m after netting
off cash ‘top-ups’ for rent-free periods.
EPRA like-for-like rental income
2017
Gross rental income
Property expenditure
Net rental income
Reversal of write-down of trading property
Other1
Net property income
2016
Gross rental income
Property expenditure
Net rental income
Profit on disposal of trading properties
Write-down of trading property
Other1
Net property income
Increase based on gross rental income
Increase based on net rental income
Increase based on net property income
The mark-to-market cost of our remaining
interest rate swaps fell by £9.4m in 2017
partially offset by £7.3m of breakage costs.
With lower levels of debt, we decided to
break or defer £245m of interest rate swaps
in late 2017. Full details are provided under
‘net debt’ overleaf.
After adjustments to remove developments,
acquisitions and disposals, EPRA like-for-
like gross rental income increased by 5.1%
during the year with net property income
on a similar basis up by 5.2%. A full analysis
is shown in the table below.
Properties
owned
throughout
the year
£m
Acquisitions
£m
Disposals
£m
Development
property
£m
–
–
–
(0.6)
–
(0.6)
–
(0.1)
(0.1)
–
–
–
(0.1)
4.8
(0.6)
4.2
–
–
4.2
15.6
(0.6)
15.0
1.9
–
–
16.9
23.7
(4.4)
19.3
1.6
–
20.9
3.2
(2.6)
0.6
–
(1.6)
–
(1.0)
143.6
(6.0)
137.6
–
2.7
140.3
136.6
(6.2)
130.4
–
–
3.0
133.4
5.1%
5.5%
5.2%
Total
£m
172.1
(11.0)
161.1
1.0
2.7
164.8
155.4
(9.5)
145.9
1.9
(1.6)
3.0
149.2
10.7%
10.4%
10.5%
1
Includes surrender premiums paid or received, dilapidation receipts and other income
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
68
Finance review
continued
Taxation
The corporation tax charge for the year
ended 31 December 2017 increased to
£3.3m in 2017 from £2.0m in the previous
year. Part of this increase was due to the
reversal of the 2016 write-down on
residential apartments held as trading
stock and therefore outside the REIT
tax environment.
Net debt and cash flow
The property disposals during the year
raised cash proceeds of £472.9m which
helped to reduce net debt to £657.9m
at 31 December 2017 from £904.8m a
year earlier. The Group’s loan-to-value
(LTV) ratio fell correspondingly from
17.7% to 13.2% and NAV gearing
declined from 22.6% to 15.7%.
The movement in deferred tax liabilities for
the year was a credit of £0.8m. This was
made up of £1.5m (2016: £1.1m credit)
passing through the income statement
due mainly to the revaluation of non-REIT
Group properties plus a charge of £0.7m
in relation to the property we occupy at
25 Savile Row.
The other main cash flow items were the
cash generated from operating activities,
which increased by 7% to £83.5m, and
cash used as we invest in our portfolio.
Capital expenditure on projects paid was
£165.0m including £9.4m of capitalised
interest, both of which were a little lower
than the prior year.
In addition, £5.7m of further tax was paid
to HMRC during the year as, in line with
other REITs, we are required to withhold
tax from certain shareholders on property
income distributions.
Interest cover has shown another strong
increase to 454% for the year ended
31 December 2017 from 370% in 2016,
calculated on the net basis set out in
note 40.
Debt and financing arrangements
In the first half of the year, we extended the
maturity of our £75m unsecured revolving
facility from Wells Fargo by a further year to
July 2022. We also cancelled £100m of the
£550m revolving bank facility for which we
received a fee rebate of £0.75m. The size
of this facility, which expires in January
2022, is now £450m. A £40m interest
rate swap was terminated as part of these
arrangements at a slightly discounted
cost of £3.2m. A new short-term £15m
development loan facility was also agreed
with Barclays for our Primister joint venture
but will be repaid upon the sale of the JV’s
sole property, Porters North NW1, in March
2018. A £28m loan facility with HSBC
secured on assets that we hold with the
Portman Estate was also signed in July
2017. This five-year facility has a term to
July 2022 replacing the previous facility
which had been due to expire in June 2018.
Net debt
Cash
Bank facilities
3.99% secured loan 2024
6.5% secured bonds 2026
Acquired fair value of secured bonds less amortisation
3.46% unsecured private placement notes 2028
4.41% unsecured private placement notes 2029
3.57% unsecured private placement notes 2031
4.68% unsecured private placement notes 2034
1.125% unsecured convertible bonds 2019
Equity components and unwinding of discounts on convertible bonds
Leasehold liabilities
Unamortised issue and arrangement costs
Net debt
Gearing and interest cover ratio
LTV ratio
NAV gearing
Net interest cover ratio
2017
£m
(87.0)
117.0
83.0
175.0
12.9
30.0
25.0
75.0
75.0
150.0
(3.5)
14.1
(8.6)
657.9
2017
%
13.2
15.7
454
2016
£m
(17.7)
287.5
83.0
175.0
14.0
30.0
25.0
75.0
75.0
150.0
(5.6)
23.9
(10.3)
904.8
2016
%
17.7
22.6
370
Debt facilities
6.5% secured bonds
3.99% secured loan
1.125% unsecured convertible bonds
4.41% unsecured private placement notes
4.68% unsecured private placement notes
3.46% unsecured private placement notes
3.57% unsecured private placement notes
Non-bank debt
Term – secured
Bilateral revolving credit – unsecured
Club revolving credit – unsecured
Committed bank facilities
At 31 December 2017
Debt summary
Bank loans
Floating rate
Swapped
Non-bank debt
3.99% secured loan 2024
6.5% secured bonds 2026
1.125% unsecured convertible bonds 2019
Unsecured private placement notes 2028 – 2034
Total
Hedging profile (%)
Fixed
Swaps
Percentage of debt that is unsecured (%)
Percentage of non-bank debt (%)
Weighted average interest rate – cash basis (%)
Weighted average interest rate – IFRS basis (%)
Weighted average maturity of facilities (years)
Weighted average maturity of borrowings (years)
Undrawn facilities and cash
Uncharged properties
69
£m
Maturity
175
March 2026
83 October 2024
July 2019
January 2029
January 2034
May 2028
May 2031
150
25
75
30
75
613
28
75
450
553
1,166
2017
£m
89.0
28.0
117.0
83.0
175.0
150.0
205.0
613.0
730.0
84
4
88
61
84
3.80
4.11
6.3
7.6
523
3,864
July 2022
July 2022
January 2022
2016
£m
44.5
243.0
287.5
83.0
175.0
150.0
205.0
613.0
900.5
68
27
95
68
68
3.65
3.90
6.9
7.7
383
3,777
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 71
Below: White Collar Factory EC1
70
Finance review
continued
At the end of 2017, we had £523m of cash
and undrawn facilities and our two main
revolving bank facilities totalling £525m
were substantially undrawn. This required
us to break or defer most of our interest
rate swaps. Following the sale of The
Copyright Building, we broke a £60m
interest rate swap giving rise to a £0.2m
receipt and deferred £115m of swaps for
a payment of £1.7m. The £40m 2.446%
swap will now commence in October 2018
and expire in July 2022 and the £75m
1.359% swap will start in April 2019 and
run to April 2025. The phasing of these
forward-starting swaps has been planned
in line with expected spending on our
projects and the consequent likely increase
in future borrowings. They will also give
us a degree of protection should interest
rates rise more quickly than expected.
The remaining £70m forward start swap
has also been deferred to March 2018 at a
cost of £2.5m. The proportion of our debt
that is fixed or swapped into fixed rates was
88% (2016: 95%) as at 31 December 2017
excluding the forward start swaps.
Allowing for the additional IFRS charge
for our 2019 convertible bonds, the
interest rate was 4.11% (2016: 3.90%).
These average rates have both been
affected by the small amount of floating
rate bank debt outstanding at the end of
the year. After allowing for non-utilisation
fees, our marginal borrowing rate is 1.25%.
Dividend
The strong rise in recurring earnings per
share during the year has enabled us to
propose a final dividend of 42.4p per share.
This will be paid in June 2018 and is an
increase of 10.1% over last year’s final
dividend with 35.0p to be paid as a
property income distribution (PID)
with the balance of 7.4p as a conventional
dividend. There will not be a scrip
dividend alternative. In addition and partly
in recognition of the excellent property
disposals through the year which yielded a
profit on historic cost of £169m, a special
dividend of 75p per share will also be paid
to ordinary shareholders in June 2018.
At the balance sheet date, the weighted
average maturity of our debt was 7.6 years
(2016: 7.7 years) and the overall interest
rate paid was 3.80% (2016: 3.65%).
Our financial outlook
From a strong starting point, the Group
further improved its financial position
through the year with lower debt, increased
interest cover and earnings and a total return
of 7.7%. The low leverage, together with the
absence of current opportunities to buy new
assets that match our testing criteria, has
enabled us to propose substantial payments
to shareholders in H1 2018.
Our business model continues to work
well with recently completed development
projects providing both earnings and
valuation uplifts and our asset management
activities helping like-for-like rental income
to grow too. Further pre-lets have
substantially de-risked the on-site
development projects and continuing
strong occupier interest has encouraged
us to progress our next large project at
Soho Place. We also have a significant
pipeline of projects for the future.
Completion of the schemes at 80 Charlotte
Street, Brunel Building, The White Chapel
Building and Soho Place will incur about
£574m of capital expenditure from January
2018 and take our proforma LTV gearing
to 24%, assuming no further development
profits, acquisitions or disposals. We believe
this is appropriate positioning for us given
the current political and economic outlook
and will give us many continuing options as
we move the business forwards.
Maturity profile of debt facilities as at 31 December 2017
Maturity profile of fixed rates and swaps as at 31 December 2017
£m
2019
2022
2024
2026
150
117
83
175
2028
30
2029
25
2031
2034
75
75
Drawn
Headroom
£m
2019
436
2024
83
30
25
2026
2028
2029
2031
2034
Fixed rate
Hedged
75
75
150
28
175
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 72
73
Responsibility
Responsibility
1
2
3
1 John Davies Head of Sustainability 2 Paul Williams Executive Director
3 Katy Levine Head of Human Resources
Our Responsibility priorities
We have set the following long-term priorities to achieve the
two strategic objectives that relate to corporate responsibility:
Strategic objective: to design, deliver and operate our buildings responsibly
p.74 Designing and delivering buildings responsibly
p.76 Managing our assets responsibly
p.78 Creating value in the community and for our wider stakeholders
Strategic objective: to attract, retain and develop talented employees
p.80 Setting the highest standards of health and safety
p.82 Engaging and developing our employees
p.85 Protecting human rights
We continue to
develop and broaden
our sustainability and
corporate responsibility
agendas.
This year we have integrated our reporting
in these areas into a new ‘Responsibility’
section which we have extended to include
additional information on our corporate
culture and stakeholder engagement, how
we conduct our business and our focus on
health and safety.
Governance
Operating ethically and responsibly is
important to us, which is why we have a
robust governance framework (illustrated
on page 95) which establishes our core
responsibilities and levels of accountability.
We view governance as more than an
exercise in compliance – it is the underlying
values and principles that we adopt on
a daily basis that underpin our success.
As part of this, our Sustainability Committee
meets quarterly to review progress against
our sustainability programme and discuss
performance across the business.
This committee, chaired by executive
Director Paul Williams, reports directly
into the Executive Committee and then
to the main Board.
Environment
Our carbon management programme saw
a significant step forward in 2017 with the
setting of our first suite of science-based
targets, aligned with UK and international
climate change legislation. The next step
was to ensure we had appropriate systems
and processes in place to measure our
performance accurately against these
targets. This resulted in enhancements to
our sustainability framework documents for
our developments and assets to incorporate
the tougher carbon standards. We provide
further information on our targets and
performance on pages 73 to 77.
Employees and human rights
During the year under review, we
conducted our second employee survey.
One aim of the survey was to understand
whether the changes we enacted after
the first survey in 2015 had a real impact
on our employees’ engagement and
satisfaction. We were pleased to see that
our initiatives, which have been primarily
focused on our employees’ well-being
and our ‘Fit for the Future’ project, have
been positively received with overall job
satisfaction being exceptionally high at
96%. The employee survey is a useful
indicator of how our culture is developing
over time and in response to business
changes. A strong and healthy culture
remains a core strength of our business
(see page 82 for further information).
We support and respect the protection
of human rights and are guided by the
principles of the International Labour
Organisation’s declaration on Fundamental
Principles and Rights at Work, amongst
others. We have established procedures
and policies that aim to prevent the risk
of human trafficking or modern slavery
occurring in our business or supply chain
(further information on page 85). We offer
our employees fair compensation and
equal opportunity in a safe and healthy
workplace, which reflects our belief that
the success of our Group is strongly linked
with the fair and ethical treatment of our
employees and wider stakeholders.
External recognition
We are pleased that our work has been
recognised externally. We have been
ranked for the second time in the
prestigious Corporate Knights ‘2018
Global 100 Most Sustainable Companies
in the World’. The rankings are announced
at the World Economic Forum meeting in
Davos each year, representing the leading
2% of global companies in terms of
sustainability performance, and see us as
the only REIT within the top 100. We have
retained our Green Star status in the Global
Real Estate Sustainability Benchmark
(GRESB) for the sixth year in a row,
improving our score by 4% to 81.
Our performance
As in previous years, we have reported on progress against our targets so
that our stakeholders have a balanced perspective of how we maintain high
standards and performance, both day-to-day and over the longer term.
Combined targets
External targets
Internal targets
79%
Achieved
21%
Ongoing
People
97%
response rate
to our second
employee survey
60%
Achieved
37%
Ongoing (3%
partially achieved)
50%
Achieved
50%
Ongoing
2017 performance highlights
Resource efficiency
Communities
£108,000
has been awarded from
our Community Fund,
to 19 projects
9.6% reduction
in our carbon intensity
– tCO2e per £m of
turnover
15% reduction
in our carbon intensity
– tCO2e per m2
Recognition
2018
Corporate Knights
2018 Global 100 Most
Sustainable Companies
in the World
The only REIT ranked
in the top 2% of globally-
listed companies
GRESB (Global Real
Estate Sustainability
Benchmark) 2017
Green Star status
retained for the sixth
year in succession
with a score of 81
EPRA Sustainability
Reporting Awards
2017
Gold Award for
our 2016 Annual
Sustainability Report
Further information
As we have fewer than 500 employees, the Non-Financial Reporting
Regulations do not apply to us. However, due to our commitment to
promoting transparency in our reporting and business practices, we
have elected to provide further information in the following areas:
p.72
Environmental matters
p.85
Respect for human rights
p.78
Social matters
p.82
Employees
p.114 Anti-corruption and anti-bribery
matters (including business ethics)
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 74
Responsibility
continued
Designing
and delivering
buildings
responsibly
Our achievements in 2017
• Achieved our first LEED ‘Platinum’
rating at White Collar Factory
• Achieved our first SKA ‘Gold’ rating
at 25 Savile Row W1
Our focus areas for 2018
• Developing our framework for health
and well-being in developments
• Ensure our development pipeline
continues to incorporate our high
performance standards
White Collar Factory EC1
Formally launched in H1 2017, our White
Collar Factory represents many years of
research and development, incorporating
a series of design principles that enhance
its flexibility, utility and sustainability.
The outcome of this saw the tower, which
is now fully let, achieve ratings of BREEAM
‘Outstanding’, LEED ‘Platinum’, WiredScore
‘Platinum’ and an EPC of ‘A’ making it one
of only a few buildings to achieve such
broad recognition.
Our objective is to ensure sustainability
is considered and implemented at every
stage of the design and delivery of
our projects.
To help us deliver this objective,
we created our Sustainability Framework
for Developments (the Development
Framework), which established the
required standards and performance
from all our developments.
The Development Framework requires
a Project Sustainability Plan (PS Plan)
to be produced and maintained
throughout the lifetime of each project.
It sets out an action plan for how the key
risk areas (shown in the table below) will be
addressed and how the project team will
achieve the standards and performance
required under the Development Framework.
The PS Plan is reported to, and subject to
scrutiny from, the Sustainability Committee.
Above: White Collar Factory EC1
Right: 25 Savile Row W1
Summary of the Project Sustainability Plan
PS Plan sections:
Aspect
Targets
• Energy Performance
Certificate (EPC)
• Environmental assessment
methods (BREEAM/LEED)
• Energy and carbon
• Water
• Waste
• Materials
• Biodiversity
• Community
• Transport
• Construction impact
Building
assessment
methods
Climate change • Minimum of an EPC ‘A’ rating for new build projects
• Minimum of an EPC ‘B’ for all major refurbishments
• Achieve a minimum of BREEAM ‘Excellent’ for all new build projects
• Achieve a minimum of BREEAM ‘Very Good’ for all major refurbishment projects
• Achieve a minimum of LEED ‘Silver’ for all major new build projects
• Achieve a minimum of Home Quality Mark ‘4 Stars’ on all new residential developments
• All new build and major refurbishment projects to undertake a design in-use energy
assessment based on CIBSE TM54
• Require evidence from our suppliers that they are meeting our Supply Chain
Sustainability Standard (see page 85)
Energy and
carbon
Suppliers
75
25 Savile Row W1
During 2017, we moved into our newly
refurbished offices at 25 Savile Row.
As part of the design we wanted to
ensure, as we do with all our projects,
that sustainability was embedded in
our fit-out. To measure this we used
the Royal Institution of Chartered
Surveyors (RICS) SKA environmental
assessment method, which focuses
solely on fit-out works and assesses
projects across a range of sustainability
criteria, e.g. energy/carbon, materials,
water and occupier well-being.
The project achieved the highest
rating of ‘Gold’, meaning it is in the top
quartile of SKA-assessed projects and
the first project of its type to reach this
level of performance. 25 Savile Row
also received an EPC rating of ‘B’ in
line with our targets. For more details
of this project, refer to our latest
Annual Sustainability Report at:
www.derwentlondon.com/sustainability
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 76
77
Responsibility
continued
Our objective is to ensure all our
assets are managed and maintained
in a responsible manner in order to
maximise their efficiency.
management and sustainability teams
monitor the performance of each building’s
BSP and the outcome of their reviews is
reported to the Sustainability Committee.
Our carbon
footprint
Managing
our assets
responsibly
Our Sustainability Framework for
Assets sets out how we manage our
properties from a sustainability perspective.
This framework requires each managed
property to establish a Building
Sustainability Plan (BSP).
Each BSP is split into eight sections and
addresses a range of risk areas which require
the collection and recording of key data
(see table below). The BSP is maintained
and implemented by our building
management teams. Our senior property
Following the release of the Task Force on
Climate-related Financial Disclosures (TCFD)
Recommendations Report in June 2017,
we have prepared our first disclosures
based on the four recommended areas
(of governance, strategy, risk management
and metrics and targets). Our disclosures
for 2017 can be found within this year’s
Annual Sustainability Report which is
published on our website. Going forward
from 2018, we will publish this information
within our annual report and accounts.
Our achievements in 2017
• 9.6% reduction in our carbon
• 15% reduction in our carbon
intensity – tCO2e per m2
intensity – tCO2e per £m of turnover
Our focus areas for 2018
• Further roll out of our COP21 carbon
reduction programme across our five
year portfolio plan
• Review supplier questionnaire returns
to monitor compliance against our
Supply Chain Sustainability Standard
COP21
Climate change represents a principal
long-term risk for our business (see our
principal risk register on page 40) and the
setting of our science-based targets sees
us take an important step to support the
longevity of our portfolio and ensure our
assets are fit for the future, both from a
financial and carbon perspective. In order
to implement the targets and as part of
the target-setting process, we undertook
a review of our managed portfolio to
understand the types of intervention
required in each building over the next
10-20 years so that we could maintain
alignment with the reduction trajectory
set by our targets. These interventions
were then included in the BSP for each
property and into a new scenario analysis
tool, which has been developed to allow
us to review the impact of various actions,
including the disposal and acquisition of
properties and their effect on our targets.
In order that the Board can monitor the
effect our business is having on the
environment, carbon emissions will be
included as a Group KPI from 2018.
We present below our annual
greenhouse gas emissions (GHG) footprint
for 2017 compared to our 2016 baseline.
Moreover, there are a set of intensity ratios
appropriate for our business, both of which
fulfil the requirements of the Companies
Act 2006 (Strategic and Directors’ Report
Regulations 2013).
As with previous years, we have
seen a reduction in our carbon intensity
(tCO2e/m2). Although our Scope 2
emissions associated with electricity use
reduced by 19% compared to 2016, our
Scope 1 emissions increased leading to
overall increase in all scopes of 0.2%.
For further analysis and detail on our
GHG emissions please see our Annual
Sustainability Report, which can be found
at www.derwentlondon.com/sustainability
Total managed portfolio GHG emissions including corporate-based emissions
Scope 1
Scope 2 (location-based)
Scope 2 (market-based)
Scope 3
Energy-use
Travel
Fugitive
emissions
Energy-use
Gas (total building)
Fuel use in Derwent London company cars for
business travel
Refrigerant emissions
Electricity use – generation (landlord-controlled
areas and Derwent London occupied floor area)
Energy-use Market-based residual mix
Energy-use
Electricity use – WTT Generated Scope 3 indirect
GHG (landlord-controlled areas and Derwent
London occupied floor area)
Electricity use – T&D direct & WTT T&D indirect
(landlord-controlled areas and Derwent London
occupied floor area)
Gas (total building)
Fuel use in Derwent London company cars for
business travel WTT
Business air travel WTT
Business air travel
Water use (total building)
All
All
Biomass use (total building)
Scope 1 + 2 + 3
Scope 1+ 2 + 3
Travel
Water
Total (excl. market-based) All
Total (incl. market-based) All
Out of scope
Tenant emissions
Total portfolio emissions
(landlord and tenant)
Energy-use
(A) This data has been independently assured by Deloitte LLP
Intensity ratios
Annual report intensity metrics
Whole year (Q1 – Q4)
2017
3,412 (A)
28 (A)
% change
2016 to 2017
29.4%
23.0%
2016
2,637
23
881 (A)
5.3%
837
3,538 (A)
-18.5%
4,342
5,475 (A)
564 (A)
-4.5%
-13.5%
5,733
652
384 (A)
-15.1%
452
516 (A)
7 (A)
6 (A)
56 (A)
67 (A)
9,461 (A)
11,398 (A)
21
13,203
22,663
44.1%
58.6%
49.7%
45.4%
29.4%
0.2%
5.2%
-25.6%
-1.0%
-0.5%
358
5
4
38
52
9,443
10,834
28
13,330
22,774
Above: White Collar Factory EC1: Traffic light building management
system to denote windows are openable to allow for natural ventilation
tCO2e/£m turnover (Scopes 1 and 2 only, including Scope 1 fugitive emissions)
tCO2e/m2 (Scopes 1 and 2 only, including Scope 1 fugitive emissions)
2017
45.65
0.020
% change
2016 to 2017
-9.6%
-15.0%
2016
50.49
0.024
Summary of the Building Sustainability Plan
BSP sections
Aspect
Targets
• Performance dashboard
• Resource efficiency
(energy, carbon)
• Water efficiency
• Waste
• Biodiversity
• Transport
• Green Forum
• Special events
Climate change • Achieve a reduction in carbon intensity of 36% by 2022 and 55% by 2027 compared
• Achieve a reduction in energy intensity of 10% by 2022 and 16% by 2027 compared
to our 2013 baseline
to our 2013 baseline
Waste
Water
Suppliers
• Increase recycling rate to 75% for managed waste in all properties for which Derwent
London has management control of waste by the end of 2018
• Achieve a 5% reduction in water consumption intensity across our like-for-like
managed portfolio by 2019 compared to our 2015 baseline
• Ensure the staff within our contracted operational supply chain receive the London
• Require evidence from our suppliers that they are meeting our Supply Chain
Living Wage across our managed portfolio
Sustainability Standard (see page 85)
Data notes
Reporting period: 1 January to 31 December 2017.
Baseline year: 2016.
Boundary (consolidation approach): Operational control.
Alignment with financial reporting: The only variation is that the GHG emission data presented does not account for single-let properties or properties for which
we do not have management control. This is because we have no control or influence over the utility consumption in these buildings. However, the rental income
of these properties is included in our consolidated financial statements. The percentage movements are calculated using the figures before rounding.
Reporting method: The Greenhouse Gas (GHG) Protocol Corporate Accounting and Reporting Standard.
Emissions factor source: DEFRA, 2017 – https://www.gov.uk/government/collections/government-conversion-factors-for-company-reporting for all emissions
factors apart from the Scope 2 market based (residual mix) factor which is from Reliable disclosure systems for Europe, 2014 European residual mixes –
http://www.reliable-disclosure.org/documents/
Independent assurance: Public reasonable assurance (using ISAE 3000) provided by Deloitte LLP over all Scope 1, 2 and 3 GHG emissions data.
Data changes and restatements: None.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
78
Responsibility
continued
Creating value in
the community
and for our wider
stakeholders
Our achievements in 2017
• Invested £108,000 in 19 projects
in Fitzrovia and the Tech Belt
Our focus areas for 2018
• Launch the sixth year of the
Community Fund, with a new
streamlined application process
Below: Derwent London staff volunteering
for the Soup Kitchen Fitzrovia W1
Our objective is to develop and maintain
strong relationships with our local
communities and wider stakeholders.
An important aspect of our management
approach is positive engagement with our
local communities. To help us focus our
efforts, our Community Strategy sets out
a structured approach and requires us to
develop action plans for our major ‘villages’,
recognising their individuality.
As part of these action plans, we use our
Community Fund to support ‘grass roots’
projects and initiatives across London.
Initially starting in Fitzrovia in 2013, the
fund then grew to include the Tech Belt
and has, so far, supported 56 projects and
invested over £450,000. In addition, we
have supported a variety of organisations
through ‘pro bono’ work, volunteering,
employment opportunities and mentoring.
More information can be found on our
website at: www.derwentlondon.com/
sustainability/priorities/community
We also support a wide range of
charitable organisations through
various sponsorships and donations,
which during 2017 totalled £237,000.
Our main stakeholders are:
Local communities
We are committed to supporting the
communities in which we operate which
includes local businesses, residents and
the wider public. We engage with the local
community through our Community Fund
and projects, volunteering, charity work
and providing apprenticeships and work
experience opportunities. We also have
detailed initiatives and targets for reducing
our impact on the physical environment,
including our carbon, water and energy use.
The Government
As a responsible employer and business,
we ensure that we pay the right amount
of tax when it falls due. A statement of our
tax principles is published on our website.
We maintain a positive and proactive
relationship with HMRC and are considered
by HMRC to have a ‘low risk’ status. We also
ensure we are compliant with all legislation,
including best practice guidelines to ensure
we conduct our business in a legal, ethical
and responsible way.
Our occupiers
We communicate regularly with both our
existing tenant base and the wider business
community. We try to anticipate trends and
incorporate them early into our designs.
Our occupiers benefit from our active
management and high quality sustainable
space that meets their needs and helps
them to attract talent. Many of our
occupiers have moved within our portfolio
as their businesses have grown.
Our suppliers
We outsource many of our activities to
third-party suppliers and providers and, as
a result, it is crucial that we develop strong
working relationships with our supply
chain. Through effective collaboration
and engagement, we can add value and
develop great spaces to a high standard,
thereby delivering on our occupiers’
expectations. We are signatories to the
Prompt Payment Code, are clear about our
payment practices and expect our suppliers
to adopt similar practices throughout their
supply chain to ensure fair and prompt
treatment of all creditors.
“ The events encouraged residents to get to know their
neighbours and to improve their sense of belonging,
reduce isolation and therefore improve well-being.”
St Luke’s Parochial Trust, EC1 – Community events project
79
Our Community Fund
Our Community Fund continues to
develop and support numerous projects
and initiatives across our Fitzrovia and
Tech Belt portfolios. During the year,
there were three funding rounds, one
in Fitzrovia and two in the Tech Belt.
From these, 19 organisations (seven
in Fitzrovia and 12 in the Tech Belt)
received funding with over £108,000
invested across a range of projects, such
as inter-generational music programmes,
art clubs and lunch clubs for the elderly.
Above: The Spitz Charitable Trust – Well-being and music-making project
Our fund providers
We arrange debt facilities from a diverse
group of providers ranging from banks to
institutional pension funds. We maintain
close and supportive relationships with this
important group of long-term stakeholders,
characterised by openness, transparency
and mutual understanding. We meet with
them frequently, keep them well informed
in all relevant areas and also plan to ensure
our credit credentials and rating are
retained or enhanced.
Our employees
The continued strong performance of
our business would not be possible
without our motivated and highly skilled
employees. Therefore, it is important that
we continue to create the right environment
to encourage and create opportunities for
individuals and teams to realise their full
potential. We have an open and flat
management structure and engage
regularly with our employees through
surveys, appraisals, training programmes
and health and well-being seminars.
Our shareholders
Our shareholders play an important
role in monitoring and safeguarding
the governance of our Group. Through
effective and proactive engagement,
regular broker updates and our Annual
General Meeting, we ensure that their
views are brought into our Boardroom and
are at the forefront of Board discussions.
We have provided an overview of how
we engage with our shareholders in our
Corporate governance statement.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 80
Responsibility
continued
Setting the highest
standards of health
and safety
Our objective is to enhance and develop
our existing systems and procedures to
create an industry-leading capability.
We operate a robust system of risk
assessments for health, safety and fire
management at all our managed buildings.
The risk assessments are reviewed at least
annually or when there is an alteration to
the building. All compliance documents
are held on our ‘QUOODA’ management
system, which identifies when
documentation requires updating.
Our team of qualified health and safety
professionals carry out regular audits
and inspections on our portfolio.
We also have the support of a specialist
company, ORSA, on our construction
sites and, when required, we engage third
parties to complete fire risk assessments on
our properties to give an independent view.
Peter Withers
Head of Property & Facilities Management
Our health and safety structure
Main Board
Executive Committee
John Burns Chief Executive
Health and Safety Committee
Chaired by Paul Williams Executive Director
Head of Health
& Safety
Head of Property &
Facilities Management
ORSA Developments
H&S Team
Development
HR
Property Management
Health and safety working group
Health and safety working group
Our employees
Our employees are involved through the
health and safety working group, which
meets on a regular basis and has input from
all departments, where they can suggest
improvements and learn more about our
health and safety procedures. Derwent
London provides training to all Building
Managers, Fire Wardens and First Aiders
and we have a Chartered (CMIOSH)
qualified health and safety professional.
Our Group intranet, employee handbook
and induction programmes for new staff
contain information on our health, safety
and risk management procedures. On our
construction sites, under the CDM 2015
regulations, all our principal contractors
have a duty of care to ensure all operatives
and visitors are provided with a thorough
health and safety induction, defining the
current risks that are present on the
construction site. This process is managed
by an experienced and competent third
party who reports directly into the Head
of Health and Safety.
Although we are proud of our health and
safety record, we continually strive to
improve what we do. During the second
half of 2017 we initiated a comprehensive
review of our health and safety processes,
systems and resources to establish the
actions necessary to develop a sector-
leading capability in all aspects of our
construction, property management and
company activities. The scope of this
review is also encompassing our response
to the anticipated changes in the
regulatory environment following the
tragic events of the Grenfell Tower fire.
Our aim is to develop our established
processes and procedures into a robust
management system that fully integrates
all our activities.
Our implementation programme resulting
from this review will see activity continue
throughout the next 18 months to take the
best and most appropriate practices in the
industry and apply them at Derwent
London. A new Health and Safety Policy
Statement (available on our website) has
been formulated setting out our aims and
objectives together with a new Health and
Safety Committee established to drive
through the changes recommended from
the review. This committee is led by the
Board sponsor, Paul Williams. The diagram
to the left explains how this committee is
positioned in the overall Group structure.
81
In our commitment to continually improve
our health and safety, we will be raising its
profile as a core function both internally
and externally so that everyone affected by
our activities feels secure in the knowledge
that Derwent London is devoting the
resources and management focus
required to be a leader in the industry.
The Health and Safety Committee has
responsibility for our response to the
events resulting from the Grenfell Tower
fire. Immediately following the incident,
we instigated a comprehensive review of
our whole portfolio to assess any fire safety
risks we had in relation to cladding systems
and fire precautions in our buildings and
new developments. We were supported
in this review by Arup. The outcome of
this comprehensive review is discussed
in greater detail in the adjacent case
study. We will not be waiting for the
outcome of the Independent Review of
Building Regulations and Fire Safety (the
Dame Judith Hackitt review) – we have
been taking immediate steps to ensure
our buildings and new developments are
designed, constructed and maintained
to the highest standards. To date, we
have found no issues that represent
any significant risk to fire or life safety.
Derwent London’s response
to changing industry regulation
We fully support the independent review
being undertaken by Dame Judith Hackitt.
We anticipate that an outcome of this
review will be changes to the systems,
procedures and accountabilities for building
regulations, with greater clarity on the role
of mandatory requirements and guidance
notes as well as a higher emphasis on
competence and quality control.
The Derwent London development team,
together with our consultants, carried out
a comprehensive review of the use of
combustible materials in all our current
and future developments including Brunel
Building W2, 80 Charlotte Street W1 and
Soho Place W1. Where necessary,
we modified the specification in these
developments. For our Monmouth House
EC1 development, which is currently
at the detailed design stage, we have
thoroughly reviewed the design and
we are making changes to the materials
specified and the fire precautions to
achieve a higher standard of fire safety.
In addition to this, we are members of Build
UK – the industry association that is one of
the key contributors to the Hackitt review,
we use a specialist fire engineer on all our
major developments and we always look to
improve the safety of our buildings above
what is prescribed by the regulations.
In our existing portfolio we have carried
out a desktop and visual review of all
locations and found no buildings which
present a significant risk to fire or life
safety. We will however, during 2018, be
carrying out a more detailed investigation
of six buildings (due to their size and
residential use) to establish the robustness
of their existing fire precautions further
and broaden intrusive checks of building
materials if required. Our managed
portfolio benefits from annual reviews of
fire risk assessments and health and safety
inspections. Weekly checks are carried
out by our team of IOSH-trained Building
Managers. We have also commissioned
an independent review of a number of our
fire risk assessments to identify any areas
where improvements can be made.
Health and safety statistics
Person hours worked
Minor accidents
RIDDOR1 incidents
Dangerous occurrences
Fatalities
Improvement notices
Prohibition notices
RIDDOR frequency rate
People (employees)
2016
2017
Assets (managed properties)
2016
2017
Developments (construction projects)
2016
2017
n/a
2
0
0
0
0
0
n/a
n/a
1
0
0
0
0
0
n/a
n/a
35
2
0
0
0
0
n/a
n/a
30
4
0
0
0
0
n/a
1,606,311
23
2
0
0
0
0
0.12
2,602,482
55
5
0
0
0
0
0.19
1 Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013, Health and Safety Executive
Group’s review of insulation cladding and fire precautions
Our achievements in 2017
• Risk Committee provided with regular updates on the
• New Health and Safety Committee established
• Heart defibrillators installed in all managed buildings
• Issued revised Building Incident Management Procedures
(see page 99)
to reflect changed risks from terrorism
safety management system
Our focus areas for 2018
• Implement roadmap to create an enhanced health and
• Increase visibility of health and safety across the Group
• Enhance reporting capabilities from our existing
• Continue proactive response to industry Review of Building
• Develop Company-wide targets and KPI tracking system
Regulations and Fire Safety
compliance system
and externally
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 82
Responsibility
continued
Engaging and
developing our
employees
Our achievements in 2017
• ‘Fit for the Future’ project initiated
in early 2017 supported by the
Executive Committee
• Conducted our second
• The Savile Row refurbishment has
enhanced collaboration between
departments and provided a better
working environment focusing on
productivity and well-being
employee survey
• Received positive feedback on our
well-being initiatives which will
continue into 2018
Our focus areas for 2018
• Continue to manage the ‘talent
pipeline’ via the ‘Fit for the Future’
programme
• Set up a working group to propose
ideas to the Executive Committee,
on how we can continue to make
Derwent London an even better
place to work, following the second
employee survey in late 2017
• Continue to support the Group in
creating a working environment that
promotes individual well-being and
a respectful, inclusive, collaborative
and safe culture
• Revisit the security of personal data in
line with the new GDPR requirements
(see page 115)
Our objective is to attract, retain and
develop talented employees.
Culture and engagement
We aim to have a transparent and collegiate
culture coupled with a consultative
leadership style – one that stresses the
importance of teamwork and acting with
integrity to build long-term relationships
with our colleagues and other stakeholders.
An effective way for us to gather feedback
from our employees and assess their levels
of engagement is via our employee survey,
which is designed and developed in
conjunction with an independent provider
and sponsored by the executive Directors.
With a 97% response rate and no area
scoring less than 60% (‘strongly agree’ or
‘agree’), our 2015 survey was a hard act to
follow. However, we were pleased that our
2017 survey not only received the same
high response rate, but there was a
significant increase to the scores
in areas where we had instigated recent
improvements, notably with regards to IT
equipment and the office environment.
The adjectives chosen by our staff in
the survey to describe our culture were
‘passionate’, ‘creative’ and ‘professional’.
This demonstrates a highly motivated and
engaged workforce; 97% of those who took
part said they enjoy their day-to-day role
and 90% feel their efforts are noticed and
appreciated. Overall job satisfaction has
remained exceptionally high at 96%.
The success of our business and the
reputation established with our external
stakeholders stem from the behaviours
and values promoted by our Board. 99%
of the respondents agree they were
‘proud to work for Derwent London’ and
87% said they would recommend the
Group as a ‘great place to work’.
Derwent London teams
Acquisitions,
Investment
recycling
Leasing,
Property
marketing
8
Development
14
Business
support
21
12 Building
services
7
Board of
Directors
13
Finance and
Information
Technology
27
Asset
management
6
Property
management
22
4 Investor relations
and Corporate
communications
2 Human resources
3 Sustainability
118
Employees
£75,500
Training spend
88%
of employees would like
their long-term career
to be at Derwent London
57:43
Overall male:female ratio (%)
99%
said they were proud to
work for Derwent London
96%
Staff satisfaction
92%
Retention rate
83
These views are also reinforced through
our induction programme, performance
management process and development tools.
Our structure enables complex transactions
to be managed effectively and decisions
made quickly, with the overall aim of
creating value and driving income growth
across our portfolio. Although we are
structured by departments (see diagram on
page 82), cross-departmental teams work
on specific projects, drawing on expertise
from across the business. We believe this
approach increases creativity and
innovation. Collaboration is also facilitated
through a number of supporting committees
(for example the Cost, Credit and Health &
Safety Committees) which, together with
the project teams, report into our Executive
Committee (see page 95). The supporting
committees ensure accountability across
the business and enable changes in the
Group’s strategic focus to be communicated
and implemented.
In order to maintain high engagement levels,
we recognise that ongoing communication
is essential. We distribute information via
the Group intranet, regular seminars and
presentations. In addition, a working
group has been established to assess the
feedback from the 2017 employee survey
and make recommendations to the
Executive Committee.
Diversity and inclusivity
The Group is committed to being a truly
inclusive and respectful employer that
welcomes diversity and promotes equality.
We were pleased to see that in our 2017
employee survey 89% of respondents
said that they feel they can be themselves
at work.
We believe that a diverse workforce helps
to stimulate and support creativity and in
turn, drives innovation. In line with our
Equal Opportunities Policy, we give full
and fair consideration to all employment
applicants. Recruitment, training, reward
and career progression are based purely
on merit. We also accommodate, wherever
possible, part-time, agile and flexible
working requests.
Our employee base is relatively well
balanced with 57% male and 43% female
while, within our senior management
team, about one third are female.
Around three quarters of our employees
classify themselves as white and a quarter
as non-white. Diversity is important at all
levels of the business and we recently
appointed Helen Gordon as a non-
executive Director, which gives a female
representation of 43% on our non-
executive team. We have provided further
details of our diversity on page 105.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
84
Responsibility
continued
Developing and retaining our people
We recognise that our employees are
the most important ambassadors of the
Derwent London brand and therefore we
invest considerable time and resources
in recruiting the best talent in the market.
Once with us, we strive to ensure our
employees are happy at work, thrive in
their roles and feel valued and supported.
This is done through regular dialogue with
line managers to discuss performance,
identify training requirements, clarify
future objectives and understand individual
career aspirations. We also hold six-
monthly reviews and provide 360-degree
feedback as a development tool.
In 2017, we provided a series of internal
workshops and external courses, sponsored
professional qualifications and one-to-one
coaching. We recognise the importance
of career development and progression
for our employees and how these can
support our succession plans which are
fundamental to the future growth and
stability of the business.
We appreciate that all our line managers
have a vital role to play in leading by
example and we regularly design and
deliver interactive workshops to encourage
career conversations and ownership.
During 2018 our top talent/leadership
pipeline will be strengthened through our
‘Fit for the Future’ project which includes a
management and leadership development
programme. This will sit alongside a core
skills programme for all employees.
Our staff retention in 2017 was once again
high, at 92%. This is an important measure
for the Group, as we believe staff with a
deep knowledge of our business, culture
and processes are essential to delivering
our objectives.
Health and well-being
The health and well-being of our staff
continued to be a priority during 2017, with
several new initiatives introduced. Following
the Savile Row office refurbishment, which
was completed in May 2017, 97% of survey
respondents said they were happy with the
new office environment (a 27% increase
from 2015) and 94% agreed that the new
facilities support their well-being. We
introduced a café area where breakfast is
provided, which also provides opportunities
for colleagues to connect and socialise.
We offer all employees membership of a
healthcare cash plan which has access to
a number of extra services, including a 24/7
counselling and support helpline, fitness
and exercise discounts and a variety of
health and well-being resources.
In addition, we have worked closely with our
occupational health provider, continue to
offer flu vaccinations, provided a workshop
on cholesterol and offered cholesterol
tests. Our levels of absenteeism are very
low, but should an employee develop a
long-term health concern or disability,
our company doctor can offer confidential
support and, wherever possible, the
Company will make adjustments to
ensure a smooth return to work.
Derwent London awayday
In September 2017, we held our first
off-site Group awayday. This followed
feedback and recommendations from our
2015 employee survey and subsequent
working group. The purpose was to
ensure transparency, understanding and
engagement in our strategy, ambitions
and development pipeline. The day
included presentations from various
employees from across the business,
a team-building event and a motivational
speaker, followed by a social event at
our new White Collar Factory building.
The feedback was excellent and this
is something we aim to repeat.
“ It was a really worthwhile
day. The presentations
were informative, the
motivational speaker
inspiring and the game at
the end was an excellent
team-building experience.”
85
Protecting
human rights
We are fully committed to supporting,
developing and promoting diversity and
equality across our business (and our
supply chain) and aim to maintain an
inclusive culture, free from discrimination,
based on the values of fairness, dignity
and respect.
In April 2017, we published our first
statement under the Modern Slavery Act
2015 on our website, reporting on the steps
we have taken to ensure that slavery and
human trafficking is not taking place in any
part of our business or our supply chain.
Although we consider the risk of slavery
and human trafficking taking place in our
business to be negligible, and in our supply
chain to be low, we have established policies
and procedures to ensure that any potential
issues can be identified and prevented.
Like most property businesses, we
outsource many of our activities to third-
party suppliers and providers. As a result,
we develop strong working relationships.
We have always been clear with our
supply chain regarding what is important
to us as a business, including the levels
of performance and transparency that
we expect from the goods and services
we buy. In 2016, we launched our Supply
Chain Sustainability Standard (the
Standard) which sets out our principles and
expectations in terms of the environmental,
social and governance (ESG) issues that
we expect our suppliers to conform to.
A summary of the Standard is below (the
full Standard is available on our website).
If we spend more than £20,000 per annum
with a supplier, we require them to formally
acknowledge receipt of their copy of our
Standard, and that they have read and
fully understood its contents.
We have now commenced our due
diligence procedures, and have requested
evidence from all those suppliers as to how
they are supporting the implementation
of our Standard in their work with us, and
how they manage ESG risks in their own
businesses. We envisage that the initial due
diligence process will be completed during
2018. Further details on our anti-bribery
and corruption policies and processes are
on page 114.
Summary of the Supply Chain Sustainability Standard
Aspect
Anti-bribery and corruption
Standards expected from our suppliers
Employment and labour practices • Fair pay and working time practices which ensure compliance with National Minimum Wage and
the London Living Wage together with working time legislation
• Operate an ethical business policy which sets out how they govern their business and supply chains
• We will not tolerate any form of corruption, bribery or anti-competitive behaviour in our supply chain
• No use of exclusive ‘zero hours’ contracts
• No illegal, forced or child labour
• Suppliers to have appropriate equality and diversity polices to ensure the active promotion of
employment diversity
Health and safety
Community
Environmental
Payment practices
of their business and service provision
• Adequate health and safety policies and management systems appropriate to the nature and scale
• To comply with Derwent London’s health and safety standards and procedures
• Support us in the successful delivery of our Community Strategy
• Development contractors on our larger schemes have to achieve a minimum target score
(currently 38) in the Considerate Constructors Scheme, and to undertake at least one community
day every year during the life of a project
• Offer full and fair opportunity for local suppliers to actively participate in our supply chains
• Offer local employment and apprenticeship opportunities
• Suppliers are to have robust environmental management policies and procedures in place.
• To comply with the Derwent London Sustainability Framework for Developments and/or Assets
• We expect our main contractors to have a certified environmental management system (EMS) in
place, accredited to ISO14001 or EMAS (Eco-Management and Audit Scheme)
• Unless otherwise stated, we aim to pay our suppliers within 30 days or otherwise will do so in
accordance with specified contract conditions and are signatories of the Prompt Payment Code
• Suppliers are required to adopt similar payment practices throughout their supply chains to ensure
fair and prompt payment
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 86
87
02
Governance
Introduction from the Chairman ����������������88
Board of Directors �������������������������������������90
Senior management ���������������������������������� 92
Corporate governance statement��������������94
Nominations Committee report ���������������102
Audit Committee report ��������������������������106
Risk Committee report ���������������������������� 112
Remuneration Committee report ������������116
Remuneration Policy report ���������������������130
Directors’ report ��������������������������������������136
Above and left: White Collar Factory EC1
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 88
89
Introduction
from the Chairman
Robert Rayne
Chairman
Focus areas for 2018
• Review the Group’s strategy, five-year plan and budget
• Continue to focus on Board succession planning
• Monitor the changes being made to the UK Corporate Governance
• Monitor the success of initiatives to improve the Group’s diversity
Code and ensure our compliance
Board members and attendance
Chairman
Robert Rayne
Executive
John Burns
Simon Silver
Damian Wisniewski
Paul Williams
Nigel George
David Silverman
Independent non-executive
Stephen Young
Simon Fraser
Richard Dakin
Claudia Arney
Cilla Snowball
Stuart Corbyn
Helen Gordon
Attendance
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
n/a
Percentages based on the meetings entitled to attend for the 12 months ended 31 December 2017
Stuart Corbyn stepped down as a non-executive Director on 19 May 2017
Helen Gordon joined the Board as a non-executive Director from 1 January 2018
Dear Shareholder,
On behalf of the Board, I am pleased
to introduce the Group’s Corporate
governance statement for 2017.
Governance
At Derwent London, we do not view
corporate governance as simply an exercise
in compliance but as an evolving and core
discipline which underpins the success of
the Company. We therefore welcome any
changes which aim to strengthen and
promote the principles of good corporate
governance. During the coming year, we will
be monitoring the finalisation of a revised
UK Corporate Governance Code (the Code)
with the objective of ensuring we are fully
compliant in advance of its effective date.
During the year ended 31 December
2017, we have applied the principles
of good governance contained in the
Code. Following the resignation of
Stuart Corbyn on 19 May 2017, we were
unable to comply with provision B.1.2
(which recommends that at least half of our
Board should be independent, excluding
the Chairman) as our Board consisted of
five independent non-executive Directors
and six executive Directors.
As a Board we are confident that we
continued to effectively apply principle B.1
of the Code and this did not impact upon
our ability to effectively discharge our
duties. My role as Chairman is to ensure
that our Boardroom discussions benefit
from diverse perspectives and is not
dominated by any Director or group of
Directors, which continued to be the case
throughout 2017. Decisions relating to our
financial reporting and the remuneration
outcomes for our executive Directors are
delegated to the Audit Committee and
Remuneration Committee, respectively,
which are solely comprised of independent
non-executive Directors.
With the appointment of Helen Gordon,
as a non-executive Director with effect
from 1 January 2018, we became compliant
with all the principles and provisions of the
Code. Further information on the Code
can be found on the Financial Reporting
Council’s website at: www.frc.org.uk
We consistently challenge ourselves to
improve the clarity and transparency of
our reporting and were delighted to receive
several external accolades during the year:
• nominated for and won EPRA ‘Gold’ for
our 2016 annual report and accounts;
• nominated for and won EPRA ‘Gold’ for
our 2016 Annual Sustainability Report;
and
• nominated for the Investor Relations
Society’s ‘Best annual report – FTSE 250’.
Strategy
The Board takes seriously our responsibility
for ensuring the Group is capable of
delivering on our strategic objectives
and operating in the best interests of
our stakeholders over the long term.
We reviewed in detail the strategy and
five-year plan in June 2017 and challenged
management on the strength of their
planning, and expectations for the future,
to ensure the Group remains resilient during
this period of continuing uncertainty.
Employee engagement and diversity
Derwent London benefits from an engaged
and highly skilled workforce. During the
latter half of 2017, a second employee
survey was conducted which we have
reviewed in depth. We remain pleased with
the level of commitment from the Group to
act upon suggestions and potential areas
for improvement which arise from these
surveys. Further details on this year’s
survey can be found on page 82.
The Board is committed to ensuring that
the Group is free of discrimination and
is equitable to all employees. We have
therefore made it a Board priority for
2018 to monitor the initiatives to improve
diversity across the Group (further
information on diversity at Derwent
London is provided on page 83 and 105).
Board changes
We have a strong and diverse Board with each
Director contributing fully to our Boardroom
discussions. In 2018, we will continue to
focus on our succession plans at Board level
and for our senior executives. I would like
to extend a personal welcome to Helen
Gordon, who joined us from 1 January 2018.
Annual General Meeting
As in previous years, I would encourage
you to attend the Company’s Annual
General Meeting on 18 May 2018 where
you will have the opportunity to meet the
Chairs of the Board Committees and
members of senior management.
Robert Rayne
Chairman
27 February 2018
Key activities of the Board during 2017
The Board met seven times during the year (including the Annual General
Meeting). One meeting every year is arranged specifically to consider the
Group’s strategy and five-year plan. Additional meetings are arranged if
necessary for the Board to properly discharge its duties.
An overview of our Board’s key activities are provided below.
Our property portfolio
Strategy
• Approved the sale of
the freehold interest
in 132-142 Hampstead
Road NW1, 8 Fitzroy
Street W1 and the
long leasehold interest
in The Copyright
Building W1
• Provided with regular
updates on asset
management, leasing
and investment
from the senior
management team
• Reviewed and
approved the
independent valuation
of the Group’s
property portfolio
• Received regular
updates on the key
construction projects:
–Brunel Building W2
–The Copyright
Building
–80 Charlotte
Street W1
–White Collar
Factory EC1
• Reviewed quarterly
project cost reports
Risk management and
internal control
• Received updates
from the Risk and Audit
Committee Chairs on
the key areas discussed
• Reviewed the outcome
of the Group’s fire
safety portfolio review
following the Grenfell
Tower fire tragedy
• Received regular
reports on health
and safety matters
• Held the annual
strategy review day
in June 2017 which
included receiving
presentations from the
Executive Committee
and updates from
external advisers
• Ongoing updates
from the Executive
Committee on the
implementation of
strategy throughout
the year
• Considered the
risks and scenarios
which could impact
on the Group over
the long term
• Approved the
five-year strategic plan
Corporate reporting and
performance monitoring
• Reviewed the rolling
forecast
• Approved the budget
• Received updates
from the
Remuneration
Committee Chair
on the achievement
of performance
targets by senior
executives in respect
to their variable pay
(annual bonus and
Performance Share
Plan (PSP) awards)
• Approved the
year-end and
interim results
• Approved the
quarterly (Q1 and Q3)
business updates to
the market
Stakeholder engagement
• Our Annual General
Meeting (AGM) was
held on 19 May 2017
• Received updates
on our investor
engagement
programme and
regular investor
relations reports
• Considered the
outcomes and agreed
the next steps arising
from the second
Group-wide
employee survey
• Received an update on
the actions taken since
the last employee
survey and the success
of the ‘Fit for the
Future’ initiative
• Received updates
on our sustainability
initiatives
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
90
91
Board of Directors
1 The Hon. Robert A. Rayne, 69
Non-executive Chairman
Appointed to the Board: 2007
Skills and expertise: Robert Rayne was
Chief Executive Officer of London Merchant
Securities plc and has been on the Boards of
a number of public companies, including First
Leisure Corporation plc and Crown Sports plc.
Other current appointments: Non-executive
Director of LMS Capital plc and Richoux Group
plc and Chairman of Voreda Capital.
2 John D. Burns, 73
Chief Executive
Appointed to the Board: 1984
Skills and expertise: A chartered surveyor
and founder of Derwent Valley Holdings in
1984, John has overall responsibility for Group
strategy, business development and day-to-
day operations. John is a past Chairman of
the Westminster Property Association.
Other current appointment: Member of
the Strategic Board of the New West End
Company Limited.
3 Damian M.A. Wisniewski, 56
Finance Director
Appointed to the Board: 2010
Skills and expertise: Damian is a chartered
accountant and, prior to joining Derwent
London, he held senior finance roles at
Treveria Asset Management, Wood
Wharf Limited Partnership and Chelsfield
plc. He has overall responsibility for
financial strategy, treasury, taxation
and financial reporting.
Other current appointments: Trustee and
member of the governing body at the
Royal Academy of Music and non-executive
Director at the Associated Board of the
Royal Schools of Music.
4 Simon P. Silver, 67
Executive Director
Appointed to the Board: 1986
Skills and expertise: Co-founder of
Derwent Valley Holdings, Simon has overall
responsibility for the Group’s development
and regeneration programme together
with the commissioning of architects.
He is also at the forefront of the Company’s
brand identity. He is an honorary fellow
of the Royal Institute of British Architects.
5 Paul M. Williams, 57
Executive Director
Appointed to the Board: 1998
Skills and expertise: Paul is a chartered
surveyor who joined the Group in 1987.
His responsibilities include portfolio
asset management, major leasing
transactions, supervision of refurbishment
and development projects and sustainability.
Other current appointments: Director of
The Paddington Partnership, Director of
Sadler’s Wells Foundation and member
of the Westminster Property Association.
6 Nigel Q. George, 54
Executive Director
Appointed to the Board: 1998
Skills and expertise: Nigel is a chartered
surveyor who joined the Group in 1988.
His responsibilities include acquisitions
and disposals and investment analysis.
Other current appointment: Director of
the Chancery Lane Association Limited.
7 David G. Silverman, 48
Executive Director
Appointed to the Board: 2008
Skills and expertise: David is a chartered
surveyor who joined the Group in 2002.
His responsibilities include overseeing
the Group’s investment acquisitions and
disposals. David is a past Chairman of
the Westminster Property Association.
Other current appointment: Chairman
of Chicken Shed Property Co.
8 Helen C. Gordon, 58
Non-executive Director
Appointed to the Board: 2018
Skills and expertise: Helen is a chartered
surveyor and is Chief Executive Officer of
Grainger plc. Previously, she was Global
Head of Real Estate Asset Management
of Royal Bank of Scotland plc and has held
senior property positions at Legal & General
Investment Management, Railtrack and
John Laing Developments.
Other current commitments: Chief
Executive Officer of Grainger plc, Junior Vice
President of the British Property Federation,
Board Member of EPRA (European Public
Real Estate Association).
Committee: Remuneration.
9 Richard D.C. Dakin, 54
Non-executive Director
Appointed to the Board: 2013
Skills and expertise: Richard has been
Managing Director of Capital Advisors
Limited, part of CBRE, since 2014. Previously,
he had been employed at Lloyds Bank since
1982 where he undertook a variety of roles
including commercial and corporate banking
and leveraged finance, gaining extensive
knowledge of property finance and the real
estate sector. He is a Fellow of the Royal
Institution of Chartered Surveyors and an
Associate Member of Corporate Treasurers.
Other current appointment: Managing
Director of Capital Advisors Limited
Committees: Risk (chair), Audit, Nominations.
10 Claudia I. Arney, 47
Non-executive Director
Appointed to the Board: 2015
Skills and expertise: Claudia was Group
Managing Director of Emap until 2010. Prior
to that she held senior roles at HM Treasury,
Goldman Sachs and the Financial Times.
Other current appointments: Chair of the
Governance Committee of Aviva PLC, Chair
of the Remuneration Committee of Halfords
PLC, and a non-executive Director of the
Premier League.
Committees: Remuneration (chair), Audit.
11 Dame Cilla D. Snowball, 59
Non-executive Director
Appointed to the Board: 2015
Skills and expertise: Cilla is Group Chairman
and Group CEO at AMV BBDO and a past
Chairman of the Advertising Association
and past President of the Thirty Club.
Other current appointments: Director
of BBDO Worldwide and Chairman of
the Women’s Business Council.
Committees: Nominations, Risk.
12 Simon W.D. Fraser, 54
Senior Independent Director
Appointed to the Board: 2012
Skills and expertise: Simon started his
career in the City in 1986 and, from 1997
to his retirement in 2011, worked at Bank
of America Merrill Lynch where from 2004
he was Managing Director and co-head of
corporate broking. Here he led a variety of
transactions including equity raisings and
advised company boards on a range of issues.
Other current appointments: Non-executive
Director of Lancashire Holdings Limited,
Cathedral Underwriting Limited and of
Legal and General Investment Management
Holdings and Trustee of Glyndebourne Estate.
Committees: Nominations (chair),
Audit, Remuneration.
13 Stephen G. Young, 62
Non-executive Director
Appointed to the Board: 2010
Skills and expertise: Stephen is a chartered
management accountant. Previously he has
held a number of senior positions including
Chief Executive of Meggitt PLC and Group
Finance Director at Meggitt PLC, Thistle
Hotels plc and the Automobile Association.
Other current appointment: Non-executive
Director of The Weir Group PLC.
Committees: Audit (chair), Risk, Remuneration.
5
11
13
7
9
3
12
8
4
2
10
6
1
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93
Senior management
Executive Committee
All of our main departments are represented on the Executive
Committee which ensures accountability across the business
and that changes in the Group’s strategic focus are communicated
and implemented. Decisions can be taken on all but the most
important issues which are reserved for the Board (see page 94).
The Executive Committee is composed of six executive Directors
(biographical details on page 90) and five senior managers.
Our Executive Committee usually meets monthly and can meet
on an ad hoc basis. This, together with the close proximity within
which we work and the way we manage our projects, enables us
to handle complex transactions and make quick decisions, with
the overall aim of creating value and driving income growth
across our portfolio.
3
11
10
9
7
8
1
2
4
5
6
12
13
14
Executive senior management
1 Ben Ridgwell Head of Asset & Property Management 2 Richard Baldwin Head of Development 3 David Lawler Company Secretary
4 Emily Prideaux Head of Leasing 5 Rick Meakin Group Financial Controller
Senior management
6 Katy Levine Head of Human Resources 7 John Davies Head of Sustainability 8 Giles Sheehan Associate, Investment
9 Mark Murray Head of Information Technology 10 Lesley Bufton Head of Property Marketing
11 Quentin Freeman Head of Investor Relations & Corporate Communications 12 Jennifer Whybrow Head of Financial Planning & Analysis
13 Peter Withers Head of Property & Facilities Management 14 David Westgate Head of Tax
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
94
95
Corporate
governance statement
Effective leadership
Our Board
Led by our Chairman, Robert Rayne, the Board is committed to
promoting the long-term success of the Group for the benefit
of our shareholders and other stakeholders. Our Directors
are highly skilled professionals, who bring a range of skills,
perspectives and corporate experience to our Boardroom.
The Board is responsible for decisions relating to the Group’s
strategy, capital structure and financing, any major property
acquisition or disposal, the risk appetite of the Group and the
authorisation of capital expenditure above the delegated
authority limits (currently set at £10m). Although the Board
is formally required to authorise capital expenditure above
this limit, the open nature of our organisation means that
the Board is aware of all active projects within our portfolio.
When making their decisions, the Board consider:
• our desire to always act with integrity in an open and
honest manner;
• the interests and well-being of our employees;
• our impact on local communities and the environment;
• the wants and needs of our current and future tenants; and
• developing relationships with our key contractors and suppliers.
Our Board has established the governance framework illustrated
in the chart on page 95 to support the development of good
governance practices throughout the Group. The Executive
Committee has been delegated responsibility for ensuring
that policies and behaviours set at Board level are effectively
communicated and implemented across the Group’s business.
Our intranet is also used as a platform for employees to access
our policies and be kept fully informed of the latest Group news.
Key responsibilities
• Set strategy and deliver value to shareholders and stakeholders;
• Monitor management activity and performance against targets;
• Provide constructive challenge to ensure management remains
focused on our strategic objectives; and
• Promote the long-term success of the Group for the benefit
of stakeholders.
Culture
We believe that our culture is a key strength of our business
and we see the benefits of our strong culture on our employees’
engagement, retention and productivity.
We monitor the culture of the Group, by meeting regularly with
members of the management team and reviewing the outcomes
of the employee surveys. Within the Responsibility section, on
pages 82 to 84, there are further details on the outcome of the
latest employee survey and how our employees describe
Derwent London’s culture.
Annual review of strategy
The Board, Executive Committee and members of the senior
management team meet annually at an off-site location to review,
discuss and challenge our strategy. Our annual strategy review
was held on 23 June 2017 in London and included:
• Presentations from the Executive Committee on the five-year
plan and the key assumptions underlying the projections.
• Presentations from senior management on:
–The importance of maintaining our balanced portfolio;
–Updates on the investment market;
–Our asset management activities;
–Derwent London’s ‘Fit for the Future’ initiative;
–Co-working; and
–Managing relationships with our contractors.
• Presentations from external guest speakers on occupier trends
and cyber security.
• Potential risks and scenarios which could impact on the Group
over the next five, 10 and 15 years.
• Debates on the adequacy and depth of our planning for the
future.
• The lessons we have learnt over the past five years and how
this can be implemented into our five-year plan for the future.
Governance framework
We pride ourselves on conducting our business in an open and transparent manner. Our governance framework
remains flexible due to our culture and allows for fast decision making and effective oversight.
The Board is primarily responsible for setting the Group’s strategy for delivering long-term value to our shareholders and other
stakeholders, providing effective challenge to management concerning the execution of the strategy and ensuring the Group
maintains an effective risk management and internal control system.
The Board
p.89 Board activities in 2017
p.90 Biographies
p.97 Roles and responsibilities
The Board delegates certain matters to its four principal committees
Nominations Committee
Responsible for ensuring our
Board and its Committees
have the correct balance
of skills, knowledge and
experience and ensuring
adequate succession plans
are in place.
p.102 Read the report
Audit Committee
Responsible for reviewing,
and reporting to the Board
on the Group’s financial
reporting, maintaining an
appropriate relationship
with the Group’s Auditor
and monitoring the internal
control systems.
p.106 Read the report
Risk Committee
Responsible for reviewing
and monitoring the
Group’s key risks and the
effectiveness of the risk
management systems.
p.112 Read the report
Remuneration Committee
Responsible for establishing
the Group’s Remuneration
Policy and ensuring there
is a clear link between our
performance and the
remuneration we pay.
p.116 Read the report
The terms of reference of each Board Committee are available on the Group’s website at: www.derwentlondon.com
Our annual strategy review is a valuable tool to keep strategy at
the forefront of discussions and to ensure it remains flexible and
relevant in our changing environment. We have organised our
next strategy review for 13 June 2018.
The Board delegates the execution of the Company’s strategy and the day-to-day management of the business to the
Executive Committee.
Executive Committee
p.20 Our strategy
p.92 Members
The Group operates a number of supporting committees which provide oversight on key business activities and risks such as;
the Sustainability, Health and Safety, IT Steering, Credit and Cost Committees.
Supporting committees
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 96
97
Corporate
governance statement
continued
Independence
The independence of our non-executive Directors is considered
on a regular basis to ensure that they remain capable of providing
unbiased and objective contribution to Boardroom discussions.
Any Director who has concerns about the running of the Group
or a proposed course of action is encouraged to express those
concerns which are then minuted. No such concerns were
raised during 2017.
The Chairman held a number of meetings with the non-executive
Directors without executive management being present.
These meetings are useful to safeguard the independence
of our non-executive Directors by providing them with time
to discuss their views in a more private environment.
The Board considers that our non-executive Directors remain
independent from executive management and free from any
business or other relationship which could materially interfere
with the exercise of their judgement.
All Directors have confirmed (as they are required to do
annually) that they have been able to allocate sufficient time
to discharge their responsibilities effectively. Our Directors are
required to notify the Chairman of any alterations to their external
commitments that arise during the year with an indication of the
time commitment involved.
On 1 January 2018, Stephen Young became a non-executive
Director of The Weir Group PLC. Stephen notified our Chairman
in advance of his appointment and the Board has confirmed that
it does not believe that this change in directorship will effect
Stephen’s commitment to, or involvement with, the Derwent
London Board nor will it give rise to a potential conflict of interest.
We have established an agreed procedure by which Directors
can, for the purposes of discharging their duties, obtain
independent professional advice at the Company’s expense.
No Director had reason to use this facility during 2017.
Conflict of interests
As a non-executive Director’s independence could be impinged
where a Director has a conflict of interest, the Board operates a
policy that restricts a Director from voting on any matter in which
they might have a personal interest unless the Board unanimously
decides otherwise. Prior to all major Board decisions, the Chairman
requires the Directors to confirm that they do not have a potential
personal conflict with the matter being discussed. If a conflict does
arise, the Director is excluded from discussions.
An example of this policy in effect, is in relation to Richard
Dakin, who is the Managing Director of Capital Advisors Limited
(a wholly owned subsidiary of CBRE) who are the Group’s external
independent valuers. To mitigate against a potential conflict of
interest, Richard does not take part in any considerations of the
valuation of the Group’s property portfolio at either Board or
Committee level. In addition, he has no involvement in any
discussions or decisions regarding the appointment of CBRE or
the fees paid to them. During the annual performance evaluation
of the Board, its Committees and individual Directors, the impact
of this role on Richard’s independence has been considered.
The Board continue to conclude that Richard remains
independent both in character and judgement.
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 register of potential conflicts
of interest is regularly reviewed by the Board to ensure it remains
up-to-date. The Board are satisfied that potential conflicts have
been effectively managed throughout the period.
Information sharing
The Board and its Committees are provided with comprehensive
papers in a timely manner to ensure that the members are fully
briefed on the matters to be discussed at their meetings.
The Chairman of the Board and the Chairs of the Committees
set the agendas for upcoming meetings with support from the
Company Secretary.
There is a ‘schedule of upcoming matters’ which is routinely
discussed by the Board and its Committees throughout the
year. At each meeting, the agenda for the upcoming meeting is
discussed, to allow our non-executive Directors to see the areas
we intend to tackle, and provides an opportunity for their input
and requests.
The Directors utilise an electronic Board paper system which
provides immediate and secure access to papers. We aim to
ensure that the information shared with our Board is of sufficient
depth to facilitate debate and to fully understand the content
without becoming unwieldy and unproductive. Papers to the Board
are required to be clear and concise with any background material
included as an appendix to the papers.
Role and responsibilities
Our Board is composed of the Chairman, six executive Directors, six independent non-executive Directors and is supported by our
Company Secretary. Their key responsibilities are set out below:
Chairman
Chief Executive (CEO)
• Responsible for the effective running of the Board and
ensuring it is appropriately balanced to deliver the Group’s
strategic objectives
• Executing the Group’s strategy and commercial objectives
together with implementing the decisions of the Board and
its Committees
• Promoting a Boardroom culture that is rooted in the
principles of good governance and enables challenge,
debate and transparency
• Ensuring that the Board as a whole plays a full and
constructive part in the development of strategy and
that there is sufficient time for Boardroom discussion
• Effective engagement between the Board and its
shareholders
• To keep the Chairman and Board appraised of important and
strategic issues facing the Group
• To ensure that the Group’s business is conducted with the
highest standards of integrity, in keeping with our culture
• Managing the Group’s risk profile, including the maintenance
of appropriate health, safety and environmental policies
Senior Independent Director (SID)
Non-executive Directors (NEDs)
• Provide a sounding board for the Chairman in matters of
governance or the performance of the Board
• Available to shareholders if they have concerns which
have not been resolved through the normal channels of
communication with the Company
• Provide constructive challenge to our executives, help to
develop proposals on strategy and monitor performance
against our KPIs
• Ensuring that no individual or group dominates the Board’s
decision making
• To at least annually lead a meeting of the non-executive
Directors without the Chairman present to appraise the
performance of the Chairman
• Promoting the highest standards of integrity and corporate
governance throughout the Company and particularly at
Board level
• To act as an intermediary for non-executive Directors
when necessary
• Determining appropriate levels of remuneration for the senior
executives
• To act as an independent point of contact in the Group’s
whistleblowing procedure
• Review the integrity of financial reporting and that financial
controls and systems of risk management are robust
The roles of Chairman and Chief Executive are separately held and their responsibilities are clearly established, set out in writing and
regularly reviewed by the Board.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 98
99
At Derwent London, our risk management activities span
three focus areas:
How we identify risk
Risks are identified through workshop debates between the Executive Committee and members of senior management, analytical
techniques, independent reviews and use of historical data and lessons learnt.
Risk management framework
Corporate
governance statement
continued
Risk management
Our Board have ultimate responsibility for ensuring the Group have
robust risk identification and management procedures in place.
The diagram on page 113 illustrates the Group’s risk management
structure and how certain risk management activities are
delegated to the level that is most capable of overseeing and
managing the risks.
The Group’s risk tolerance is set by the Board and is the level
of risk we are willing to accept to achieve our strategic objectives.
Our overall risk tolerance is low and is contained in our Risk
Appetite Statement (see the table below for an overview of this
statement). This tolerance, alongside our culture, informs how our
staff respond to risk. Due to our openness and collaborative work
style, any potential problem, risk or issue is identified quickly so
appropriate action can be taken.
Our approach to risk management is based on the International
Risk Management Standard ISO31000 and consists of a Risk
Management Policy, Risk Appetite Statement and Risk
Management Process Document.
• Corporate governance: Protecting our shareholders’ and
stakeholders’ interests and to discharge our legal
responsibilities;
• Operations: Ensure service delivery is maintained and the
long-term viability of the Group; and
• Projects: Ensure that projects are delivered to the required
standard, on time, on budget and in accordance with our
high standards.
p.34 An overview of the Group’s risk profile
p.36 Principal risks facing the Group
p.112 Risk Committee’s report
Overview of risk appetite:
Category
Operational
risks
Risk tolerance
Operational risks include health and safety risks, continuity of the IT systems
and retention of the senior management team.
Financial risk Other than market-driven movements that are beyond the Group’s immediate
control, the Group will not generally accept risks where it is probable that:
• Asset values decline by more than £100m from the Group’s annual budget;
• EPRA profit before tax deviates by more than £5m from the Group’s annual budget;
• Cost overruns occur on capital projects of more than 5% of the approved capex
budget; and
• The Group’s interest cover ratio will fall to within 20% of the level set in the
Group’s borrowing covenants.
Low
Low
Medium
Low
Low
Health and safety
IT continuity
Staff retention
REIT status
Credit rating
Decrease in asset value Medium
Medium
Profits
Medium
Cost overruns
Medium
Interest cover
It is recognised that inherent market risk may result in these financial tolerances,
in particular the assets limit, being exceeded. The Board accepts this market risk
but seeks to manage and mitigate its impact where possible.
Reputational
risk
The Group has a low tolerance for risk in connection with reputational risk.
In particular, this level of risk tolerance relates to any action that could
adversely affect the Derwent London brand.
Brand value
Regulatory risk The Group’s tolerance for regulatory risk arising from statute or the UK Corporate
Governance Code and from adherence to ‘best practice’ guides.
Statutory
Governance
Low
Low
Low
At the Board’s strategy review on 23 June 2017, scenarios for the future were considered which assisted with the identification of
potential risks and how they could impact on our strategy (see page 94). The continuous review of strategy and our environment,
ensures that we do not become complacent and that we respond in a timely manner to any changes.
How we assess risk
Following the identification of a potential risk, the Executive Committee undertake a detailed assessment process to:
• gain sufficient understanding of the risk to allow an effective and efficient mitigation strategy to be determined;
• allow the root cause of risks to be identified;
• estimate the probability of the risk occurring and the potential quantitative and qualitative impacts; and
• understand the Group’s current exposure to the risk and the ‘target risk profile’ which will be achieved following the completion
of mitigation plans.
How we monitor risk
Once a risk has been identified and assessed, a risk owner is assigned who is considered to be in the best position to influence
and monitor the outcome of the risk.
As part of our risk management procedures, the Executive Committee and Risk Committee routinely conduct monitoring exercises
to ensure that risk management activities are being consistently applied across the Group, that they remain sufficiently robust and
to identify any weaknesses or enhancements which could be made to the procedures.
Monitoring activities include:
• the regular review and updating of risks and the risk registers;
• independent third-party reviews of the risk management process to provide further assurance of its effectiveness;
• alerting the Board to new risks and changes to existing risks;
• monitoring how the risk profile is changing for the Group; and
• providing assurance that risks are being managed effectively and where any assurance gaps are in existence, identifiable
action plans are being implemented.
How we respond to risk
We implement controls and procedures in response to identified risks with the aim of reducing our risk exposure, so that it is aligned
or below our risk appetite. The mitigation plans in place for our principal risks are described in greater detail on pages 36 to 43.
Defibrillators
As part of our proactive approach to risk management, we
decided to install equipment in our managed properties to
provide an immediate response to cardiac arrest. With 30,000
people sustaining cardiac arrest each year, a person’s chance
of survival falls by approximately 10% for each minute that
passes without defibrillation. We installed defibrillator units
in the 20 locations where we have a trained on-site resource,
which provides our tenants with assurance that we are
taking steps to counter such a common medical occurrence.
Weekly inspections of the defibrillators are carried out and
our staff received training on their use.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
100
101
Corporate
governance statement
continued
Engaging with our shareholders
We recognise the importance of clear communication and
proactive engagement with our shareholders. A summary of our
shareholder engagement programme has been provided below.
Investor meetings
During 2017, the Group held over 250 investor meetings with 170
existing and potential investors. Of these, 73 were shareholders
at the year end and their ownership represented over 60% of the
shares in issue.
Investor meetings are predominantly attended by our CEO,
Finance Director and at least one other senior executive.
The meetings focused on the Group’s portfolio, strategy and the
London office outlook. Where significant views were expressed,
either during or following the meetings, these were recorded and
circulated to all Directors. In 2017, we held our first sustainability
roadshow in the Netherlands.
A calendar of our main shareholder events in 2017
January
February
March
Property conference in London
2016 results presentation
Roadshows (Netherlands and UK)
Property conferences (London and New York)
Salesforce presentations
Salesforce presentation
Annual General Meeting (AGM)
2017 Q1 Business update
Salesforce presentations
Sustainability roadshow (Netherlands)
Property conferences (Amsterdam, Dublin and London)
–
2017 H1 Results presentation
Roadshow (UK)
April
May
June
July
August
September Roadshow (Netherlands)
Property conferences (London and New York)
–
October
November 2017 Q3 Business update
Equity conferences (London)
Salesforce presentation
December Property conference (Cape Town)
If shareholders have any concerns, which the normal channels of
communication to the CEO, Finance Director or Chairman have failed
to resolve, or for which contact is inappropriate, then our Senior
Independent Director, Simon Fraser, is available to address them.
Institutional shareholders and fund managers
Our senior executives maintain regular contact with institutional
shareholders and fund managers, through presentations and
visits to our Group’s property assets. In 2017, we hosted 60
property tours. The Board receives regular reports on these
meetings which includes a summary of any significant issues
raised by the shareholders.
Training and development
With the ever-changing dynamic environment in which Derwent
London operates, it is important for our executive and non-
executive Directors to remain aware of recent, and upcoming,
developments. We require all Directors to keep their knowledge
and skills up-to-date and include training discussions with the
Chairman in our annual performance reviews.
As required, we invite professional advisers to provide in-depth
updates. Updates and training is not solely reserved for legislative
developments but aims to cover a range of issues including, but
not limited to, market developments and trends, economic,
environmental and social considerations. Our Company Secretary
provides regular updates to the Board and its Committees on
regulatory and corporate governance matters.
During 2018 we have organised presentations for the Board and
its Committees on the following topic areas:
• cyber risk management;
• regular Audit Committee training sessions (which will include
an update on accounting standards); and
• executive remuneration trends and best practice.
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.
Our performance, training and development
Evaluation
On an annual basis, an evaluation process is undertaken which
considers the effectiveness of the Board, its Committees and
individual Directors. This review identifies areas for improvement,
informs training plans for our Directors and identifies areas of
knowledge, expertise or diversity which should be considered
in our succession plans.
The evaluation for the year ended 31 December 2016, was
conducted in Q1 2017 and externally facilitated by Lintstock,
an independent third party which carries out no other work for the
Company. As part of this process, Lintstock conducted confidential
interviews with each member of the Board. The Board felt that the
interview process allowed matters to be discussed in greater detail
and for areas of potential improvement to surface through debate.
We anticipate that our next externally facilitated review will be
conducted in Q1 2020.
In Q1 2018, the evaluation was completed using a questionnaire
which focused on the key themes which arose from the 2017
externally facilitated review. The responses were collated and
provided on an anonymous basis to the Chairman of the Board and
the Chairs of the Committees. As a result of this evaluation, the
Board is satisfied that its structure, balance of skills and operation
continues to be satisfactory and appropriate for the Group.
The Board has identified a number of areas which it wishes
to focus upon during 2018, including people and talent
management, our gender pay gap, succession planning at
Board level, our investment programme and compliance
matters including General Data Protection Regulation (GDPR).
Property conferences
In 2017 we attended 13 property conferences in London,
Amsterdam, New York, Cape Town and Dublin.
Remuneration consultation
During 2016, as part of our comprehensive review of our
remuneration structure, we consulted a number of our major
shareholders. The Remuneration Committee was grateful for
the feedback received which was incorporated into our final
Remuneration Policy which received 98.40% votes in favour
at our 2017 AGM. The Committee continues to encourage
an open and constructive dialogue with shareholders and
their representative bodies.
Annual General Meeting (AGM)
Our 2017 AGM was held on 19 May 2017 and we were
delighted to receive in excess of 89% votes in favour for all
of our resolutions. The 2018 AGM is to be held on 18 May at
The Westbury hotel, Bond Street, London W1S 2YF and we
encourage our shareholders to attend. The AGM provides an
opportunity for private shareholders in particular to question
the Directors and the Chair of each of the Board Committees.
Annual report
Our annual report and accounts is available to all shareholders.
Through our electronic communication initiatives, we aim to make
our annual report as accessible as possible for our shareholders,
who can opt to receive a hard copy in the post or PDF copies via
email or from our website.
Corporate website
The Group’s website, www.derwentlondon.com, has a dedicated
investor section which includes our annual reports, results
presentations (which are made to analysts and investors at the
time of the interim and full year results) and our financial and
dividend calendar for the upcoming year.
We create websites for specific developments which are used to
explain the Group’s current activities in greater detail. For example,
you can find further information on the Brunel Building and
80 Charlotte Street here:
• www.brunelbuilding.com
• www.80charlottestreet.com
Debtholder engagement
Our Finance Director, Damian Wisniewski, hosts the annual
meeting of the holders of the London Merchant Securities Limited
£175m 6.50% secured bonds 2026 in May or June each year.
Key contacts for our shareholders
We have included contact details for our Investor Relations
Team, Company Secretary and our Registrars on page 210.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 102
103
Nominations
Committee report
Simon Fraser
Chair of the Nominations Committee
Focus areas for 2018
• Continue to focus on succession planning
• Monitor the induction programme for Helen Gordon
• Review the reappointment of three of our NEDs as they approach the
end of their current three-year appointments
Committee membership and attendance
Simon Fraser, Chair
Richard Dakin
Cilla Snowball
Independent
Yes
Yes
Yes
Number
of meetings
4
4
4
Attendance
100%
100%
100%
The Committee’s role and responsibilities are set out in the terms
of reference which are available on the Company’s website at:
www.derwentlondon.com/investors/governance/board-committees
Dear Shareholder,
I am pleased to present to you the report
of the work of the Nominations Committee
for 2017.
2017 has been a busy year for the
Committee with particular focus on the
recruitment of a new independent non-
executive Director (NED) following Stuart
Corbyn’s decision to step down from the
Board in May.
Helen Gordon was our preferred candidate
following a rigorous recruitment process
and we are delighted that she has joined
us. Helen has undergone a comprehensive
induction programme which we describe
in full on page 103.
In addition to our recruitment activities,
we continued to consider succession
planning at Board and executive level;
further information can be found on
page 104 of this report.
The Board will monitor the actions arising
from the Company’s second Group-wide
employee survey which was conducted in
the latter part of 2017 and is described in
more detail on pages 82 to 84. We were
pleased to note that the overall job
satisfaction score was high at 96%.
During 2018, the Committee will continue
to focus on succession planning and will
review the reappointment of three of our
non-executive Directors as they approach
the end of their current three-year
appointments.
If you wish to discuss any aspect of the
Committee’s activities, I will be attending
the upcoming AGM on 18 May 2018 and
would welcome your questions. I am also
available via our Company Secretary, David
Lawler (telephone: +44 (0)20 7659 3000
or email: company.secretary@
derwentlondon.com).
Simon Fraser
Chair of the Nominations Committee
27 February 2018
Committee composition
Our Committee consists of three independent non-executive
Directors. At the request of the Committee, members of the
Executive Committee, senior management team and external
advisers may be invited to attend all or part of any meeting,
as and when appropriate.
Meetings of the Committee
During the year under review, the Committee held four meetings
(in May, August, November and December) which occurred either
before or after a scheduled Board meeting (2016: two meetings).
Board composition
As part of the Board’s annual effectiveness review, described on
page 101, the Committee considers the composition of the Board
and its Committees in terms of its balance of skills, experience,
length of service, knowledge of the Group and wider diversity
considerations. This review held particular importance in 2017 as
it formed the basis for the development of our NED specification
which we shared with recruitment specialists, Spencer Stuart, to
assist us in sourcing NED candidates.
The membership of the Committees continues to be appropriate
and in accordance with best practice and the UK Corporate
Governance Code. Consideration has been given to the
Committee(s) which Helen Gordon would join following her
appointment. The Committee considered Helen’s skills and
experience and recommended that she become a member
of the Remuneration Committee.
Recruitment of a new NED
The Committee led the process to recruit a non-executive Director
with support from the entire Board. Spencer Stuart were chosen as
our executive search providers due to their specialist knowledge of
recruiting at Board level. Spencer Stuart has no other connection
with the Group and is a signatory to the Voluntary Code of
Conduct of Executive Search Firms.
Spencer Stuart provided a long list of potential candidates
and first stage interviews were conducted by the Chair of the
Committee. A final shortlist of three candidates was selected
for final stage interviews with the Committee members, CEO
and Chairman of the Board.
The skills and experience that we felt would add particular benefit
to the Board was an independent non-executive candidate with
extensive real estate sector knowledge and executive experience.
The Committee was unanimous in their final recommendation to
the Board of Helen Gordon for the role of non-executive Director,
and were delighted to welcome Helen to our Boardroom in
January 2018. Helen is an excellent match for our requirements.
p.90 Helen’s full biography
p.133 Our policy on NED fees
Helen Gordon
Non-executive Director
Induction aims
• Gain an insight into the Derwent London portfolio and how
we aim to generate long-term value for our stakeholders
• Meet with the Executive Committee and senior management
to understand the day-to-day operations of the business
and the culture of the Group
• Have discussions with the CEO on our KPIs, strategic
objectives, business model and our plans for the future
We aim to limit the amount of information provided as
reading material during an induction process. Helen was
provided with access to our electronic Board paper system
and Group intranet which provided easy and immediate
access to the following key documents:
• The Group’s risk register;
• Our 2018 budget and five-year plan;
• Recent broker reports and feedback from our shareholder
engagement programme;
• Information on our sustainability initiatives;
• Recent reports from the external Auditor, PwC; and
• Matters reserved for the Board and Committee Terms
of Reference.
Key Induction events
5 January 2018
9 January 2018
19 January 2018
Site tours around our properties within
the Tech Belt with insights provided by
our senior management team
Individual meetings with members of the
Executive Committee
Site tours of our Fitzrovia, Angel and
Paddington properties with insights
provided by our senior management team
2 February 2018
Meeting with our corporate lawyers,
Slaughter & May LLP
14 February 2018
To be arranged
in advance of the
next Remuneration
Committee meeting
Meeting with the CEO and Finance Director
to discuss the implementation of strategy
and our plans for the future
Presentations on our key developments
in construction: 80 Charlotte Street,
Brunel Building and Soho Place W1
Individual meetings with members of
the Executive Committee
Meeting with Claudia Arney, Chair of the
Remuneration Committee, to gain an
overview of how our Remuneration Policy
ensures a clear link between performance
and pay for executives
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 104
Nominations
Committee report
continued
Induction
The Company provides new Directors with a comprehensive and
tailored induction process which includes visiting a number of
the Group’s properties with senior management, meetings with
the Group’s audit partner and corporate lawyer together with
meetings with members of the senior management team.
If considered appropriate, new Directors are provided with
external training that addresses their role and duties as a Director
of a quoted public company. Helen’s induction programme is
described in greater detail on page 103 and was developed
by the Group’s Company Secretarial department and approved
by the Chair of the Committee.
Diversity
At Derwent London, we ensure that appointments to our Board
are made solely on merit with the overriding objective of ensuring
that the Board maintains the correct balance of skills, length of
service and knowledge of the Group to successfully determine
the Group’s strategy.
A diversified Board brings constructive challenge and fresh
perspectives to discussions. Our gender diversity policy
ensures that, where possible, each time a member of senior
management or a Director is recruited, at least one of the long
list of candidates is female. We consider diversity, in its widest
sense (and not limited to gender), during our Board composition
reviews and during the development of recruitment specifications.
While we have identified areas where we could further improve
our diversity balance, we do not positively discriminate during
the recruitment process and are conscious that altering the
diversity of the Board can only be in conjunction with the
underlying Board refreshment programme.
Following the appointment of Helen Gordon on 1 January 2018
our gender balance at Board level has further improved to be
23% women (2016: 15%).
Promoting diversity
Derwent London fully support and are signatories to the
Property Week Diversity Charter and the RICS Inclusive
Employer Quality Mark. We are founding supporters of Real
Estate Balance and we are also members of the City Women
Network (CWN) which provides membership to all our senior
female employees. During the coming year, we will be hosting
a CWN event at one of the buildings in our portfolio. CWN is
one of the longest established independent organisations for
senior professional and business women in the UK. Established
in 1978, CWN is committed to furthering the professional and
personal development of female talent in business.
“Diversity is a fundamental principle of our business.
Signing this charter demonstrates our commitment to
diversity and to helping establish a best-practice framework
across the sector.” Damian Wisniewski, Finance Director,
on signing the Property Week Diversity Charter.
Succession planning
As Directors we have a duty to ensure the long-term success
of the Company which includes ensuring that we have a steady
supply of talent for executive positions and established succession
plans for Board changes.
The Committee considers the Group’s succession planning on
a regular basis to ensure that changes to the Board are proactively
planned and co-ordinated. The length of tenure of our non-
executive Directors is contained on page 105.
The Committee also monitors the development of the executive
team below the Board to ensure that there is a diverse supply
of senior executives and potential future Board members with
appropriate skills and experience. The Executive Committee
considers the adequacy of the Group’s succession plans below
the Board as part of the five-year strategy review and provides
updates to the Committee.
Appointment review
During 2018, three of our non-executive Directors will reach the
end of their current three-year term of appointment.
For Cilla Snowball and Claudia Arney this will be the end of their
first three-year term on the Derwent London Board. Simon Fraser
has served on the Board for five years and will be approaching the
end of his second three-year term. The non-executive Directors
will not be present when their appointment is reviewed.
When a non-executive Director reaches the end of their current
three-year term, the Committee reviews their appointment and
considers whether they should be recommended for a further
three-year term (subject to AGM reappointment on an annual
basis), by taking into account their:
• contribution to Boardroom discussion;
• independence (with particular attention being paid to
their independence as they begin to approach nine years
on the Board);
• length of tenure on the Board;
• outcome of their individual annual effectiveness reviews;
• Board composition; and
• time commitment to the appointment (including other
external appointments).
We will report back on our review and recommendations
within the 2018 annual report.
105
Communications
Banking and finance
Property
Environmental
and social
2
3
2
2
67
51
Asian
Black
White British
White other
Other
11
10
76
15
6
Board
Our Board is a diverse and effective team who are focused on promoting the long-term success of the Group.
Non-executive tenure (excl. Chairman)
Non-executive industry experience
Years
Number
0-3
3-6
6-9
9+
All employees
We have an experienced, diverse and dedicated workforce.
Length of service
Years
Employees by age
Years
Under 3
3-5
5-10
10-15
15-20
20+
20-29
30-39
40-49
50-59
60+
3
2
1
0
36
14
35
14
10
9
11
37
33
27
10
Gender diversity
Number
All
employees
10
10
3
4
Board of Directors
(incl. the Chairman)
Senior
management
Men
Women
Ethnic origin
Number
Note: these figures include Helen Gordon who was appointed as a non-executive Director from 1 January 2018.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
106
107
Audit
Committee report
Stephen Young
Chair of the Audit Committee
Focus areas for 2018
• Support the transition period as Craig Hughes prepares to step down
• Consider the effectiveness of our whistleblowing procedures and
whether they can be widened to include other key stakeholders
• Review our internal control procedures in respect to money laundering
as our audit partner
and the prevention of tax evasion
Committee membership and attendance
Stephen Young, Chair
Simon Fraser
Richard Dakin
Claudia Arney
Independent
Yes
Yes
Yes
Yes
Number
of meetings
4
4
4
4
Attendance
100%
100%
100%
100%
The Committee’s role and responsibilities are set out in the terms
of reference which are available on the Company’s website at:
www.derwentlondon.com/investors/governance/board-committees
Committee effectiveness
As part of the wider Board evaluation
process, we considered the Committee’s
own procedures to identify areas for
further improvement and to ensure we
continue to operate efficiently and within
our terms of reference. I was pleased that
all aspects of the review were positive
and that the Committee continues to
operate effectively.
Further engagement
I welcome questions from shareholders
on the Committee’s activities. If you wish
to discuss any aspect of this report, please
contact me via our Company Secretary,
David Lawler (telephone: +44 (0)20
7659 3000 or email: company.secretary@
derwentlondon.com). I will be attending
the 2018 AGM, alongside my fellow Board
members and look forward to meeting
you there.
Stephen Young
Chair of the Audit Committee
27 February 2018
Dear Shareholder,
I am pleased to present our Audit
Committee Report for 2017 which
describes our activities and areas of focus.
Financial reporting
We were pleased to advise the Board that
the 2017 annual report and accounts are
fair, balanced and understandable and
provide the necessary information for
our shareholders to assess the Company’s
position, prospects, business model and
strategy. Our review process is described
in greater detail on page 111.
Our review of the significant financial
judgements made during the year and key
financial reporting issues are described on
page 108 of this report.
New audit partner
Following the 2018 year-end audit and
publication of the 2018 annual report, it is
intended that Craig Hughes will step down
as our audit partner, after overseeing our
audit process for five years. After discussing
the handover process in detail with Craig
Hughes and our Finance Director, Damian
Wisniewski, we are assured that the
transition and handover period will be
efficiently managed.
Internal control
On behalf of the Board we monitor the
Group’s internal controls to ensure they
remain robust and are effectively
implemented. Details of this year’s review,
alongside an overview of the internal
controls in place at Derwent London,
are discussed on pages 109 to 110. In
conjunction with this review, we considered
whether Derwent London could benefit
from the establishment of an internal audit
function. We concluded that there remains
no need to establish an internal audit
function. However, it was agreed that we
would engage with external providers of
internal audit services from time to time if
matters were identified by the Committee
which required such review (further
information can be found on page 110).
Committee composition
The Committee is composed of four independent non-executive
Directors with a good diversity of experience including real
estate and finance. The Chair, Stephen Young, is a qualified
accountant and has an appropriate level of recent and relevant
financial experience to discharge his duties as Chair of the
Committee.
Meetings of the Committee
During the year under review, the Audit Committee met four
times, in February, May, August and November (2016: four
meetings). In addition to the Committee members, meetings
are attended by the external Auditor and members of the
Group’s senior management team, at the request of the
Committee Chair. Two additional meetings are held each
year with the Group’s independent property valuers (CBRE)
to consider the valuation of our property portfolio.
Financial reporting
One of the Committee’s principal responsibilities is to review
and report to the Board on the clarity and accuracy of the
Group’s financial statements, including the annual report
and interim statement. When conducting their reviews,
the Committee considers:
• the accounting policies and practices applied (see page
110 of this report for further details on the financial controls
and procedures in place for our financial reporting);
• material accounting judgements and assumptions made by
management or significant issues or audit risks identified
by the external Auditor (see pages 108 and 143); and
• compliance with relevant accounting standards and other
regulatory financial reporting requirements including the
UK Corporate Governance Code.
The Committee received reports from management on the
potential impact of the new accounting standards which will
become effective on 1 January 2018 (IFRS 9 and IFRS 15) and
1 January 2019 (IFRS 16). The reports included the outcome of
an external review, conducted by BDO, which verified our internal
assessment of the impact and implementation at Derwent London.
Further details on the new accounting standards are contained
on page 154. Following our discussions with management, the
Committee is satisfied that management are fully prepared to
comply in full with the new standards.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 108
Audit
Committee report
continued
Significant financial judgements
Any key accounting issues or judgements made by management are monitored and discussed with the Committee throughout the
year. The table below provides information on the key issues discussed with the Committee in 2017 and the judgements adopted.
Key issues
Valuation of the
Group’s property
portfolio
Taxation and REIT
compliance
Borrowings and
derivatives
Judgement
The Committee considers this to be the major area of judgement in determining the accuracy of the financial
statements as it is the principal component in determining the Group’s net asset value. The procedures detailed
below enabled the Committee to be satisfied with the assumptions and judgements used in the valuation of the
Group’s property portfolio.
The Committee was aware that, should the Group not comply with the REIT regulations, it could incur tax
penalties or ultimately be expelled from the REIT regime which would have a significant effect on the financial
statements. The Committee noted the frequency with which compliance with the regulations was reported to
the Board and considered the margin by which the Group complied. Based on this and the level of headroom
shown in the latest Group forecasts the Committee agreed that, once again, no further action was required for
the current year.
Calculation of the fair values of the Group’s financial instruments, such as the 2019 convertible bonds and
interest rate swaps, was seen as an area of elevated risk. The Committee noted that the valuations were carried
out by an independent third party which had valued the instruments in previous years and that the Auditor used
its own treasury specialists to reperform the valuation and to assess the reasonableness thereof. The Auditor
subsequently confirmed that no issues had arisen relating to the valuation. The Committee was satisfied with
the level of assurance gained from these procedures.
Valuation
The value of our property portfolio is reviewed for our interim and
year end results and, as at 31 December 2017, was independently
valued at £4.9 billion and principally consists of 87 properties in
13 ‘villages’ across London.
External Auditor
The Committee has primary responsibility for overseeing the
relationship with the external Auditor including annually assessing
their performance, effectiveness and independence and
recommending to the Board their reappointment or removal.
Valuing our portfolio is a significant part of how we assess our
success as it underlies our net asset value and subsequently our
total return (a KPI – see page 31 – and a performance measure
for our executive Directors’ variable remuneration). Due to
its significance, the Committee monitors the objectivity and
independence of CBRE (our independent property valuers) and
host the valuation meetings, without management being present.
The valuation meetings typically occur in February and July prior
to the main Audit Committee meetings and, due to his position
as Managing Director of Capital Advisors Limited, a wholly-owned
subsidiary of CBRE Limited, Richard Dakin does not take part in
discussions regarding the valuation of the Group’s property
portfolio (further information is provided on page 96).
Key matters discussed during the meetings include the
assumptions underlying the valuation, any valuation which
required a greater level of judgement than normal, for example
development properties, and any valuation movements that were
not broadly in line with that of the Investment Property Databank
(IPD) benchmark. The assumptions are discussed with the external
Auditor and an update on the matters discussed at the meetings
are provided to the Board.
Following a comprehensive tender in 2014,
PricewaterhouseCoopers LLP (PwC) were appointed as the
Group’s Auditor. Prior to this appointment, BDO had been the
Group’s Auditor since 1985. The Committee anticipates that the
next competitive tender will be conducted no later than 2024 in
accordance with current regulation that requires a tender every
10 years. There are no contractual obligations which restrict the
Committee’s choice of Auditor or a minimum appointment period.
Craig Hughes will reach the end of his term as audit partner
following the 2018 year end audit. The Committee will meet with
the new audit partner during the year and will work alongside
Craig and our Finance Director to ensure a smooth handover and
induction process. The first audit under the supervision of our new
audit partner will be the 2019 year end audit.
The Company has complied with the provisions of the Competition
and Markets Authority’s Order for the financial year under review in
respect to audit tendering and the provision of non-audit services.
£’000
Audit of Derwent London plc and
subsidiaries
Review of interim results
Other non-audit services
Total fees
2017
340
40
4
384
2016
330
39
0
369
109
Non-audit services
The objective of maintaining the Non-Audit Services Policy is
to ensure that the provision of such services do not impair the
external Auditor’s independence or objectivity. During 2017,
PwC provided non-audit services which totalled £43,715 which
includes the review of our half-year results (2016: £38,500).
Overview of our Non-Audit Services Policy
Under the policy, all services provided by the external Auditor
(other than the audit itself) are regarded as non-audit services.
Our policy draws a distinction between permissible services
(which could be provided subject to conditions set by the
Committee) and prohibited services (which may not be provided
by the external Auditor except in exceptional circumstances
when the Auditor has been provided approval by the Financial
Conduct Authority). The type of non-audit services deemed to
be permissible include: assurance work on non-financial data,
tax services including tax advisory, and reporting best practice.
The Committee has provided pre-approval which allows
management to appoint the external Auditor to conduct
permissible non-audit services if they fall below a set fee level.
The Committee review the pre-approval limit on an annual basis
and it is currently set at £25,000. Permissible services which are
above the pre-approval limit require approval from at least two
members of the Audit Committee (including the Committee
Chair). When considering if the services should be approved,
the Committee will ensure that the Auditor’s objectivity and
independence are not threatened. Any non-audit service provided
by the external Auditor is reported to the Board. In the unlikely
event that the provision of non-audit services would exceed
£100,000, the Committee would request Board approval.
Internal control
On an ongoing basis, the Committee reviews the adequacy and
effectiveness of the Group’s system of internal financial controls
which are described briefly in the table on page 110.
While Derwent London is a large business in terms of the size of
its balance sheet and market capitalisation, we are relatively small
when considering the number of people working directly in the
business. Almost all of our staff work in the same building and are
in close proximity to our Executive Committee members, making
close supervision and monitoring easy to apply. Our Group
structure is organised to be simple and transparent and our internal
control procedures and policies are well established, reviewed
annually and subject to external verification from our advisers.
The Committee received detailed reports on the operation and
effectiveness of the internal controls from members of the senior
management team. The outcome of the external audits (at half
year and year end) are reviewed in respect to our internal
controls. The Committee also receives updates on the policies
and procedures in place and how these are being communicated
to and complied with by our staff.
Working with the Auditor
The external Auditor (the lead audit partner and their team)
attends the Committee’s meetings to provide insight and
challenge and to present their reports on the review of the
half-year results and audit of the year end financial statements.
To further facilitate open dialogue and assurance, the Committee
holds private sessions with the Auditor without members of
management being present.
The Committee received a training update from PwC in November
2017 which was tailored to the Committee’s requests and covered
areas such as corporate reporting best practice, non-financial
reporting, risk reporting and viability. The Committee agreed
that the session provided a valuable overview of key issues and
requested that a further training session be organised in 2018.
Annual review of the external Auditor
Following the year end audit, the Committee assessed the
effectiveness of the external Auditor. The assessment took into
account the views of senior management and was supported by
a questionnaire which covered the Auditor’s resources, objectivity,
character, knowledge, organisation, judgements and quality
of reporting.
As part of their review, the Committee reviewed the audit plan,
which was focused on risk and materiality, and considered the
quality of the planning, whether the agreed plan had been met,
the extent to which it was tailored to our business and its ability
to respond to any changes in the business.
An important aspect of managing the external Auditor relationship
is ensuring there are adequate safeguards to protect Auditor
objectivity and independence. In assessing this matter the
Committee considered the following:
• The Auditor’s independence letter which annually confirms their
independence and compliance with the Financial Reporting
Council’s (FRC) Ethical Standard.
• The operation, and compliance with, the Group’s policy on
non-audit work being performed by the Auditor.
• The tenure of the external Auditor and the lead audit partner.
• How the Auditor identified risks to audit quality and how these
were addressed, including the network level controls the
Auditor relied upon.
• The outcome of the FRC’s inspection of PwC’s audit quality.
After taking all of these matters into account, the Committee
concluded that PwC had performed their audit effectively,
efficiently and to a high quality. Accordingly, the Committee
has recommended to the Board that PwC be reappointed as
Auditor to the Group for the year ending 31 December 2018.
Any feedback arising from the annual assessment will be
discussed with the external Auditor for implementation into
the audit plan for the next year end audit.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 110
Audit
Committee report
continued
The Committee remains satisfied that the review of internal controls did not reveal any significant weaknesses and they continue to
operate effectively. During 2018, the Committee will review the controls on money laundering and the prevention of tax evasion and
policies on non-audit services and whistleblowing.
Overview of internal controls
Governance
framework
Our governance framework (shown on page 95) supports effective internal control through an approved schedule
of matters reserved for decision by the Board and the Executive Committee, supported by defined responsibilities,
levels of authority and supporting committees.
Financial reviews
and internal
procedures
We have comprehensive systems of financial reporting and forecasting which are conducted frequently during the
year and include both sensitivity and variance analysis. An annual budgeting exercise is carried out with three rolling
forecasts prepared during the year. A five-year strategic review is prepared annually. Break-even and sensitivity
analyses are included in both the five-year strategic review and the rolling forecasts.
Risk identification
and monitoring
Training and staff
awareness
External
verification
The Risk Committee regularly reviews the Group’s risk register, the schedule of key controls and key risk indicators,
for financial and non-financial risks, throughout the year. The schedule of key controls provides evidence of how
the controls are being operated and their effectiveness. Our risk management procedures are robust and include
initiatives such as a ‘tenant at risk’ register and a back-up IT facility. The Risk Committee report is on pages 112 to
115.
Staff compliance with internal policies are routinely confirmed to the Committee. Staff are aware of the delegated
authority limits set by the Board and confirm their understanding of our internal policies which are contained
on our Group intranet and in our staff handbook. Staff have six-monthly performance reviews with any training
requirements identified and fulfilled within six months. The Group operates a whistleblowing policy which includes
access to an external helpline.
During the year, no matters had been raised by PwC as a result of their controls testing undertaken as part of
the annual audit. The Group’s VAT procedures are subject to ongoing periodic review by external advisers.
Comprehensive reviews of the Group’s financial controls have also been undertaken with assistance from external
advisers. Regular annual credit ratings, including risk assessments, are conducted by Standard & Poor’s. Each year,
at renewal, a comprehensive review of the Group’s insurance cover is prepared by its independent insurance adviser.
Internal audit
On an annual basis the Committee considers whether Derwent
London would benefit from the establishment of an internal
audit function. At their November 2017 meeting, the Committee
held discussions on this issue and requested external clarification
of which FTSE 250 companies in our sector did have internal
audit functions.
In February 2018, the Committee reviewed the Group’s working
practices and, due to the relatively small scale and level of
complexity of the organisation, the focused nature of the Group’s
business and the close involvement of Directors in day-to-day
operations, concluded there remains no need to establish an
internal audit function. For areas where a high degree of specialist
knowledge is required or where there are higher risks, the
Committee agreed that external assurance will be sought.
Whistleblowing
As a business we seek to conduct ourselves with honesty and
integrity and believe that it is our duty to take appropriate
measures to identify and remedy any malpractice within or
affecting the Company. All of our employees embrace our high
standards of conduct and are encouraged to speak out if they
witness any wrongdoing which falls short of those standards.
Our whistleblowing procedures are included within our staff
handbook which is provided to all new members of staff and
published on our Group intranet and on staff noticeboards.
Following our last internal review of the procedures, it was agreed
that our Senior Independent Director would act as an independent
point of contact for whistleblowing concerns. The Committee felt
that having the Senior Independent Director as a point of contact
for serious concerns added brevity and independent oversight to
the procedures and reassures our employees that their concerns
would be handled with sufficient seniority.
Our whistleblowing policy ensures that any significant issues
relating to potential fraud, are escalated to the Chair of the
Committee immediately. The Committee receives updates from
the Company Secretary on the operation of the whistleblowing
system. During the year under review, we did not receive any
whistleblowing messages (2016: no messages).
The Committee will consider the effectiveness of our
whistleblowing procedures during the coming year and will
consider whether other key stakeholders could be included
in their scope.
111
Specific consideration for the 2017 annual report
• The strategic report was restructured to provide clearer
explanation and linkage between our strategy, business model
and KPIs
• The presentation of our business model has been revised to
provide greater clarity on how we generate value (see page 18)
• A new Responsibility section has been created which combines
our sustainability and corporate responsibility reporting and
includes additional information on our corporate culture and
stakeholder engagement, how we conduct our business and
our focus on health and safety (see pages 72 to 85).
The Committee paid particular attention to these changes to
ensure they did not impact on the balance and clarity of the
annual report. Following its review, the Committee confirmed
to the Board that the 2017 annual report is fair, balanced and
provides sufficient clarity for shareholders to understand our
business model, strategy and performance.
Review of the 2017 annual report
At the request of the Board, the Committee was asked to review
the Group’s annual report and accounts and to consider whether,
taken as a whole, they were fair, balanced and understandable.
In carrying out this review, and subsequently reporting its opinion
to the Board, the Committee had regard to the following:
Fairness and balance
• Is the report open and honest, are we reporting on our
weaknesses, difficulties and challenges alongside our successes
and opportunities?
• Do we provide clear explanations of our KPIs and is there strong
linkage between our KPIs and our strategy?
• Do we show our progress over time and is there consistency in
our metrics and measurements?
Understandable
• Do we explain our business model, strategy and accounting
policies simply using precise and clear language?
• Do we break up lengthy narrative with quotes, tables, case
studies and graphics?
• Do we have a consistent tone across the annual report?
• Are we clearly ‘signposting’ to where additional information
can be found?
Viability statement
We have reviewed the process and assessment of the Company’s prospects and viability made by management for the next five
years which formed the basis for the viability statement contained on page 35 of the Risk report. Detailed below is an overview
of the process.
Approach
Time period
Details
The Committee challenged management as to whether the five-year time period adopted remains appropriate.
Strategic review and
sensitivity analysis
A detailed five-year strategic review was conducted which considers the Group’s cash flows, dividend cover,
REIT compliance and other key financial ratios over the period. These metrics are subjected to sensitivity
analysis to assess the impact of the principal risks to the Group’s ability to deliver its strategic objectives, which
are set out on pages 36 to 43, both individually and in unison.
Stress testing our risk
resilience
Stress testing our
business model
Brexit
The model was stress tested to consider its resilience specifically to those risks that, if they occurred, were likely
to have a significant impact on the Group’s solvency and liquidity over the five-year review period. These risks
were identified as those that would affect property values, the availability of finance or the Group’s cash flow and
a scenario was modelled that assumed a severe decrease in property values combined with significant letting
delays at the Group’s developments and a decrease in rental income. The starting point for the scenario testing
has been substantially helped by the actions taken in 2017 to increase recurring earnings and further reduce
our loan-to-value (LTV) ratio to only 13.2%, its lowest level for many years. The assumptions were considered
extreme but none of the key metrics were breached with our LTV ratio remaining below 50% and net interest
cover staying above 280%.
Our business model was also stress tested for a fall in property values. As a result of the substantial £473m
of property disposals in 2017 and our actions to grow recurring earnings, NAV gearing was down to 15.7% at
December 2017 and interest cover was increased to 4.54 times. In addition, our cash and available undrawn
facilities grew to £523m meaning that our committed development pipeline was fully funded. The stress testing
established that, all other assumptions remaining unchanged, it would take a fall in values in excess of 65% to
cause the Group to breach its financing covenants.
As a predominantly London-based Group we are particularly susceptible to changes which can adversely impact
on London’s future prosperity. We considered a range of Brexit negotiation outcomes and their potential impact
on our business model, strategy and viability. Although an adverse Brexit settlement for London would negatively
impact on our business, it would be unlikely to affect the long-term viability of the Group.
Review of financing
requirements
A comprehensive review of the financing requirements of the Group over the five-year period was carried out,
having regard to the level of unutilised facilities at the year end and the assumptions in the five-year review
concerning capital recycling.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 112
113
Risk
Committee report
Richard Dakin
Chair of the Risk Committee
Focus areas for 2018
• The ongoing review of the Group’s key risks
• Monitor health and safety across the Group
• Ensure compliance with the General Data Protection Regulations (GDPR)
• Monitor the testing of the Group’s cyber attack risk, information security
and business continuity plans
Committee membership and attendance
Richard Dakin, Chair
Cilla Snowball
Stephen Young
Independent
Yes
Yes
Yes
Number
of meetings
4
4
4
Attendance
100%
100%
100%
The Committee’s role and responsibilities are set out in the terms
of reference which are available on the Company’s website at:
www.derwentlondon.com/investors/governance/board-committees
Dear Shareholder,
I am pleased to present our Risk Committee
report for 2017 which describes our
activities and areas of focus during the year.
At Derwent London, the management
of risk is treated as a critical and core
aspect of our business activities. Our risk
management framework is described in
greater detail on pages 98 to 99.
With the continuing economic and political
uncertainty sparked by the referendum
decision to leave the EU, our responsibility is
to ensure that management are proactively
planning for the risks and challenges which
could arise from the consequences of the
Brexit negotiations and the eventual
outcome. Of particular concern is the
impact unfavourable negotiations could
have on the UK economy and specifically
London which will feed through into our
leasing activities and ultimately the
valuation of our portfolio.
During the review of the five-year plan,
we worked with management to identify
the various scenarios that could arise from
the Brexit negotiations and the mitigation
plans being put into place. Sensitivity
analyses were conducted which tested the
resilience of our strategic plan and included
a number of worst-case scenarios. Due to
our strong financial structure, Derwent
London remains flexible and able to
weather the uncertainty of these possible
events. More information on our principal
risks are contained on pages 36 to 43.
2017 was another important year for the
Committee and I have set out our key
activities on page 113.
The upcoming AGM is on 18 May 2018
and I will be in attendance to answer any
questions on the Committee’s activities
that you may have. If you wish to contact
me, I am available via our Company
Secretary, David Lawler (telephone:
+44 (0)20 7659 3000 or email:
company.secretary@derwentlondon.com).
Richard Dakin
Chair of the Risk Committee
27 February 2018
Committee composition
The Committee is composed of three independent non-executive
Directors. In addition to the Committee members, the Chairman
of the Board, other Directors, senior management or the external
Auditor may be invited to attend all or part of any meeting as and
when appropriate and necessary.
Meetings of the Committee
During the year under review, the Risk Committee met four times,
in February, May, August and November (2016: four meetings).
Risk management
During the year under review, the Committee reviewed the
Group’s risk management procedures including the ‘criteria matrix’
which forms the basis for how risks are classified and assessed.
The Committee agreed that the ‘criteria matrix’ should assess risks
on a gross and net risk basis (previously, risk was only assessed
on a gross basis) and that the impact rating for financial risks
should be adjusted to better reflect the risk tolerance levels set
for the Group. Our risk management procedures are described
in greater detail on pages 98 to 99.
Key activities of the Committee during 2017
In addition to routinely reviewing the Group’s risk register,
the Committee’s main areas of focus during 2017 were:
• Met with the Group’s health and safety consultants, ORSA, and
received a presentation on how we manage and mitigate health
and safety risks at our construction sites (further information on
page 114);
• As part of our anti-bribery and corruption controls, the
Committee reviewed the Group’s gifts and hospitality register
(see page 114 for more details) and the Group’s conflict of
interest register, on a quarterly basis;
• Received regular updates on our cyber security initiatives and
received a presentation from Capgemini on the outcome of
their cyber security audit (more on page 114);
• Received an update on recent legal developments which are
of particular relevance to the Risk Committee from the Group’s
legal advisers, Slaughter & May LLP;
• Discussed with management the project plan in place for the
implementation of GDPR requirements;
• Reviewed an assessment of the Group’s procedures for
preventing the facilitation of tax evasion;
• Provided with regular updates on a fire safety audit conducted
on our entire portfolio following the Grenfell Tower fire tragedy
(further information on page 81); and
• Met with the Group’s insurance brokers, JLT, to discuss the
risks and insurance being put into place in respect to the Soho
Place development.
A robust assessment of the principal risks facing the Group is
regularly performed, which takes into account the risks that could
threaten our business model, future performance, solvency or
liquidity, as well as the Group’s strategic objectives. In order to
gain a more comprehensive understanding of the risks facing the
business and the management thereof, the Committee periodically
receives presentations from senior managers and external advisers.
Following these reviews, the Committee has confirmed to the Board
that it is satisfied that the Group’s risk management and internal
control systems operated effectively throughout the period.
Risk management structure
Board
• Overall responsibility for risk management and internal control
• Sets strategic objectives and risk appetite
• Sets delegation of authority limits for senior management
Risk Committee
Audit Committee
• Monitors and reviews the
Group’s risk register
• Monitors assurance and internal
control arrangements
• Identifies and evaluates key risks
and tolerance levels and ensures
they are appropriately managed
• Manages the external audit
process and reviews the
Auditor’s reports
Executive Committee
• Maintains the Group’s risk register
• Manages the Group’s risk management procedures
• Reviews the operation and effectiveness of key controls
• Provides guidance and advice to staff on risk identification
and mitigation plans
Senior management
• Engages with the Executive Committee to identify risks
• Allocated risk managers oversee and manage risks
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 114
Risk
Committee report
continued
Health and safety (construction)
Health and safety is a vital element in our business activities.
The Group is positively committed to providing a safe
environment at all our properties for the benefit of tenants,
employees, contractors and visitors.
In May 2017, the Committee met with ORSA who have been
appointed as our corporate health and safety advisers for all
construction projects from January 2017. ORSA outlined to the
Committee the main elements of their role and the key health and
safety risks at the major constructions sites, including 80 Charlotte
Street, the Brunel Building and The Copyright Building.
ORSA also provided an overview of our health and safety
performance and the Committee were pleased that there has
been a significant improvement in our Reporting of Injuries,
Diseases and Dangerous Occurrences Regulations (RIDDOR)
performance for the period 2016 to 2017.
Information and cyber security
To safeguard the security and privacy of information entrusted
to us, we have robust procedures in place. The procedures
ensure that we:
Anti-bribery and corruption
We are committed to the highest standards of ethical conduct
and integrity in our business practices and adopt a zero tolerance
approach to bribery and corruption. An overview of our policies
and procedures in this area is contained in the table below. As part
of our ongoing governance process, we will be reviewing our anti-
bribery and corruption procedures for areas of further
improvement during 2018.
Business gifts and
corporate hospitality:
Any gift or hospitality received must
be reasonable in value, appropriate to
the occasion and provided openly and
transparently. It must not compromise,
nor appear to compromise, the Group
nor the business judgement of our staff.
All staff are required to complete
quarterly returns, which are submitted
to the Company Secretary, for gifts or
hospitality received in excess of a pre-
agreed limit set by the Committee. This
includes cases where the limit is reached
from one supplier or contact over a
12-month period. The Committee review
all instances where the limit is exceeded.
Facilitation payments: Facilitation payments are bribes and are
• safeguard the security and privacy of our customers and
employees, to ensure that the business retains their trust
and confidence;
• protect the Group’s intellectual property rights, financial
interests and competitive edge;
• maintain our reputation and brand value; and
• comply with applicable legal and regulatory requirements.
Expenses:
Conflicts of interest:
Our cyber security procedures have been strengthened
considerably in recent years in response to the increasing
threat this poses to businesses, and it remains an area that
we keep under continuous review.
During 2017, we requested that Capgemini (who perform no
other function for the Company) challenge our procedures and
our IT management team on the effectiveness of our controls
and provide practical suggestions for how we can address any
potential vulnerability. At its meeting in November, the Committee
reviewed the outcome of the audit and agreed the response and
timeframes for implementing the recommendations. Management
will be required to provide the Committee with a status update on
the implementation of the recommendations at the Committee’s
August 2018 meeting.
All staff are required to attend a mandatory information security
workshop each year which focuses on our policies and procedures,
cyber and personal security. This year’s workshops took place over
four days in November 2017 and included a presentation from an
external security expert. Our Group intranet also includes a ‘tips
and tricks’ section for our staff with guidance on issues such as
cyber security, social media and general security awareness.
Donations:
Training:
Suppliers:
strictly prohibited. Facilitation payments are
made to facilitate or speed up bureaucratic
transactions, often with public bodies.
All expenses are required to be approved by
an executive Director or direct line manager.
All conflicts of interest or potential
conflicts of interest must be notified to
the Company Secretary and a register
of such notifications will be maintained.
The Corporate governance statement
on page 96, explains our process for
managing potential conflicts.
We do not make political donations.
Charitable donations are handled by the
Sponsorships and Donations Committee.
We provide our employees with guidance
notes and training on our anti-bribery,
corruption and ethical standards on a
regular basis.
All suppliers with whom we spend more
than £20,000 pa are required to comply
with, and provide evidence of how, they
are implementing our Supply Chain
Sustainability Standard which includes
a minimum requirement that any form
of corruption, bribery or anti-competitive
behaviour or actions are not tolerated
within our supply chain (further information
on page 85).
115
During 2017, we revised our ‘know your client’ procedures to
further tighten our processes in this area. In 2018, management
will arrange training sessions for our staff, and in particular the
four groups detailed above, to raise awareness of the issues.
Business continuity and disaster recovery
Derwent London has formal procedures for use in the event
of an emergency that disrupts our normal business operations
which consist of:
• A Crisis Management Team (CMT) composed of key personnel
deemed necessary to assist with the recovery of the business.
The Business Continuity Plan empowers the CMT to make
strategic and effective decisions to support the recovery of
the business until we are able to return to normal working.
• A Business Continuity Plan (BCP) which serves as the centralised
repository for the information, tasks and procedures that would
be necessary to facilitate Derwent London’s decision-making
process and its timely response to any disruption or prolonged
interruption to our normal activities. The aim of the BCP is to
enable the recovery of prioritised business operations as soon
as practicable.
• An off-site disaster recovery suite is available in the event of an
emergency to provide IT and data facilities to our staff who either
work on site at the suite or via our ‘agile’ working capabilities.
The strength of our business continuity and disaster recovery
plans are regularly tested to ensure they are continually refined
and to reduce the potential for failure; detailed below are the
scheduled tests for 2018.
Legal updates
General Data Protection Regulations (GDPR)
The GDPR, which come into force on 25 May 2018, will require
a revised and tougher approach to the handling and using of
personal data. Derwent London holds relatively limited personal
data, relating mainly to human resources, CCTV and private
residential data.
We have appointed legal advisers, TLT, to assist us with our data
mapping and compliance project in respect to GDPR. A steering
group has been established to manage the project and ensure
that all key tasks are completed on time. In addition, each
department has appointed a ‘Data Champion’ to ensure the
successful implementation of the project’s outcomes and
ongoing governance.
Comprehensive training programmes have been arranged for all
of our staff, including our Data Champions, and are scheduled to
be completed during the first few months of 2018.
The Committee and Board will be routinely updated on the
project’s progress and to date, are satisfied that management are
undertaking all necessary steps to ensure the Group’s compliance
with GDPR.
Failure to prevent tax evasion
In response to the new corporate offence for failing to prevent
the criminal facilitation of tax evasion, the Committee received
the results of a detailed risk assessment which was undertaken,
with assistance from external advisers, to identify the risk of
facilitation of tax evasion by Derwent London and individuals
associated with us. The review identified four groups of associated
persons where the risk could potentially arise, being purchases of
property, contractors, tenants and small suppliers, however the
risk was not considered to be material.
Testing our business continuity procedures
Test
Business Continuity Plan review
Purpose
The CMT meet to review and update the business continuity plan, review
current threat levels, and agree on any action points.
Desktop review
IT component test
A desktop exercise which uses a series of scenarios to rehearse decision
making and familiarise the CMT members with their roles.
A technical test of the individual components required to carry out a failover
of IT services to our disaster recovery suite.
January 2018
IT disaster recovery test
A technical test to carry out a full IT systems failover from our offices to the
disaster recovery suite.
March 2018
Full business continuity test
A full plan invocation exercise covering one disaster scenario and testing all
contingency functions at the disaster recovery suite. Representatives from
each department will confirm all business critical functions are still available.
September 2018
Date
March 2018
Summer 2018
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 116
117
Remuneration
Committee report
Claudia Arney
Chair of the Remuneration Committee
Focus areas for 2018
• Review the changes being made to the UK Corporate Governance
Code in respect to executive remuneration and the role of the
Remuneration Committee
• Receive updates on the implementation of initiatives intended to
• Conduct a competitive tender process for our independent
reduce the gender pay gap
remuneration consultants
Membership and attendance
Claudia Arney, Chair
Simon Fraser
Stephen Young
Independent
Yes
Yes
Yes
Number
of meetings
2
2
2
Attendance
100%
100%
100%
Helen Gordon became a member of the Remuneration Committee from 1 January 2018
The Committee’s role and responsibilities are set out in the terms
of reference which are available on the Company’s website at:
www.derwentlondon.com/investors/governance/board-committees
Shareholder engagement
I look forward to receiving your support at
our 2018 AGM on Friday 18 May, where I
will be available to respond to any questions
shareholders may have on this report or in
relation to any of the Committee activities.
In the meantime if you would like to discuss
any aspect of our Remuneration Policy
please feel free to contact me through
David Lawler, the Company Secretary,
(telephone: +44 (0)20 7659 3000 or email:
company.secretary@derwentlondon.com).
Claudia Arney
Chair of the Remuneration Committee
27 February 2018
Annual statement
Dear Shareholder,
As Chair of the Remuneration Committee
and on behalf of the Board, I am pleased
to present our report on Directors’
remuneration for 2017.
At the 2017 AGM, shareholders approved
our revised Remuneration Policy with 98.4%
of votes cast in favour. We were delighted
that our shareholders continue to endorse
our remuneration framework. This year,
rather than reproduce in full the approved
policy, we have instead provided extracts
from it. A copy of the complete
Remuneration Policy can be found on our
website at: www.derwentlondon.com/
investors/governance /board-committees
The Annual Report on Remuneration,
describing how the Remuneration Policy
has been applied in practice for the year
ended 31 December 2017, is provided on
pages 118 to 129 and has been updated
to reflect decisions made and outcomes
generated during the year.
We will continue to be transparent about
how pay and performance is reported at
Derwent London and how decisions made
by the Committee continue to support the
strategic direction of the business.
Pay and performance outcomes in 2017
Executive performance is closely aligned
to business performance with a high
proportion of total remuneration delivered
through variable pay designed to reward
achievement of long-term strategic targets.
In a remuneration context this means
rewarding performance that reflects our
strategic objectives (which are included
on page 20 of the Strategic report).
The Group’s results for 2017 are outlined
in the Strategic report and include a total
property return of 8.0% and a total return
of 7.7%. Both these KPIs are measures of
performance used in assessing the level
of performance-related pay for the
executive Directors.
To ensure that remuneration reflects a
balanced performance, a scorecard of
additional metrics is taken into account
by the Committee when considering the
strategic element of the Group’s annual
bonus scheme. Taking all these measures
into account resulted in a bonus entitlement
of 80.4% of base salary being earned.
Conditional awards made to executive
Directors in 2015 under the Group’s
Performance Share Scheme (PSP) will vest
in March 2018. These awards were subject
to two performance conditions each over
50% of the award and both measured over
the three-year period from 1 January 2015
to 31 December 2017. The first element
was based on total shareholder return (TSR)
performance compared with that of a group
of 12 real estate companies. This measure
has been finalised and none of that part of
the award will vest. The second part was
based on the Group’s total property return
compared to properties in the MSCI IPD
Central London Offices Total Return Index.
The combined assessment of the two
performance measures as at 27 February
2018 was that around 26.5% of the total
award will vest.
The Committee believes that the outturn
of both the annual bonus and the PSP fairly
represents the Group’s financial and share
price performance over their respective
performance periods.
Further information about the levels of
executive remuneration earned in 2017,
including details of performance against
the relevant targets, are given on pages
122 and 123.
Implementation in 2018
The Committee reviewed the performance
and development of our executive Directors
during the year. In light of performance,
the Committee has increased executive
Directors’ salaries by 3% from 1 January
2018, which is in line with the general
cost of living increases across the Group.
In respect of incentive remuneration, the
annual bonus and long-term incentive plan
(LTIP) opportunities remain unchanged for
2018. The Committee made some minor
changes to the strategic element of the
annual bonus, to strengthen the target
ranges and to ensure they are aligned
with the Group’s strategic objectives and
priorities for the coming year; further
information is provided on page 125.
The Board believes in share ownership
across the broader workforce to align the
interests of employees, executive Directors
and shareholders. The existing Employee
Share Option Plan (ESOP), which currently
extends to over 60% of our workforce,
will expire this year. At the 2018 AGM,
a resolution will seek authority to put in
place a similar ESOP to operate for a further
10 years (the Derwent London Employee
Share Option Plan 2018). We will also be
seeking authority to introduce a Sharesave
(SAYE) Plan for 2018, in which all
permanent employees, including executive
Directors, will be eligible to participate.
Over the coming year, the Board and the
Committee will consider the impact on
the Company of the proposed changes to
the UK Corporate Governance Code and
any secondary legislation introduced by
the Government. This includes how we
might bring the employee voice to the
Boardroom and the disclosure of CEO
pay ratios. The Committee welcomes the
developments in this area. The Board and
Committee will also review the Group’s
gender pay gap, alongside the initiatives
being implemented to reduce the gap.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 118
Remuneration
Committee report
continued
Annual Report on Remuneration
This part of the Directors’ remuneration report explains how
we have implemented our Remuneration Policy during 2017.
The policy in place for the year was approved by shareholders
at the 2017 AGM. This Annual Report on Remuneration will be
subject to an advisory vote at our 2018 AGM.
Following a busy year in 2016 with the review of our
Remuneration Policy, the Committee only required two meetings
in 2017 (in February and December). None of the members who
have served during the year had any personal interest in the
matters decided by the Committee and are all considered to
be independent. The Company Secretary acted as Secretary
to the Committee.
Role of the Remuneration Committee
The role of the Committee is to determine and recommend
to the Board a responsible and transparent remuneration
framework, which is clearly linked to our performance and
strategy, for rewarding and incentivising the Company’s most
senior executives. In doing so, the Committee ensures that
our Remuneration Policy is aligned with the Company’s key
remuneration principles, which include:
• Rewarding executives for delivering above average long-term
returns to shareholders;
• Enabling the Company to recruit, retain and motivate the
best people;
• Promoting long-term sustainable performance while ensuring
that the structure does not create incentives for management
to operate outside the Group’s risk appetite;
• Ensuring the metrics used in incentive schemes remain
effectively aligned to business strategy;
• Reflecting developments in evolving best practice and corporate
governance; and
• Taking account of wider stakeholders, including employees
when determining executive Directors’ remuneration.
The Committee’s composition, responsibilities and operation
comply with the principles of good governance (as set out in the
UK Corporate Governance Code), with the Listing Rules (of the
FCA) and with the Companies Act 2006. The terms of reference
for the Committee can be found on the Company’s website
at: www.derwentlondon.com/investors/governance/board-
committees and were last updated in August 2017. During 2018,
the terms of reference will be reviewed to reflect changes to the
revised UK Corporate Governance Code.
Advisers to the Committee
The Committee has authority to obtain the advice of external
independent remuneration consultants. New Bridge Street
(a trading name for Aon plc) have been retained as the
Committee’s principal consultants since 2002, with the last
competitive tender being conducted in 2012. New Bridge
Street provide no other services to the Group and subsequently
the Committee believe them to be capable of providing
appropriate, objective and independent advice.
During the year under review, New Bridge Street provided
independent assistance to the Committee on the setting of
salaries, updates on market practice and governance, shareholder
consultation support and the operation of the Performance Share
Plan (PSP) and the annual bonus scheme, which included an
independent assessment of PSP vesting and annual bonus
performance outcomes. The fees paid to New Bridge Street
for these services, based on hourly rates, amount to £32,513
(2016: £82,500).
The Committee have decided to complete a competitive tender
process during 2018 for their external independent remuneration
consultants.
Shareholder voting and engagement
At the Company’s 2017 AGM, our Remuneration Policy and
Annual Report on Remuneration received the following votes
from shareholders:
2017 AGM
Votes cast in favour
Votes cast against
Votes withheld
Total votes cast
Remuneration Policy
82.7m 98.40%
1.60%
0.09%
75.5%
1.3m
0.07m
84.2m
Annual Report
on Remuneration
83.8m 99.54%
0.46%
0.00%
75.5%
0.4m
0.0m
84.2m
The Committee was extremely pleased with the level of
shareholder support, with a 99.54% vote in favour of the Directors’
Annual Report on Remuneration (2016 AGM: 95.47%; 2015 AGM:
99.55%) and 98.40% vote in favour of the Directors’ Remuneration
Policy (2014 AGM: 99.53%).
The Committee encourages an open and constructive dialogue
with shareholders and their representative bodies, and will
consult with major shareholders on any material changes to the
Remuneration Policy or to how it is implemented. We are aware
that the executive remuneration landscape is evolving and of the
potential for change, and will continue to monitor developments
as they arise.
119
Relative importance of the spend on pay
In order to give shareholders an understanding of how total
expenditure on remuneration (for all employees) compares to
certain core financial dispersals of the Company, the table below
demonstrates the relative importance of the Company’s spend
on employee pay for the period 2016 to 2017.
Percentage increase in the remuneration of the Chief Executive
The table below shows the movement in the salary, benefits and
annual bonus for the Chief Executive between the current and
previous financial year compared to that for an average employee
(excluding Directors).
£m
Staff costs
Distributions to
shareholders
Net asset value
2017
19.9
120.1
4,128
2016
24.5
49.7
3,932
% change
(18.8)
141.6
5.0
Note: The net asset value of the Group is shown as it is the primary measure by which
investors measure the success of the Group.
£’000
Chief Executive
Salary
Benefits
Bonus
Average employee
Salary
Benefits
Bonus
2017
2016
% change
638.0
220.1
513.0
72.6
14.4
27.0
638.0
215.4
222.5
70.6
16.3
23.3
–
2.2
130.6
2.8
(11.7)
15.9
Note: Benefits includes pension contributions and life assurance, were applicable.
Further information on the remuneration paid to our wider workforce is provided
on page 126.
Chief Executive pay for performance comparison
The graph below shows the value on 31 December 2017, of £100 invested in Derwent London on 31 December 2008 compared to
that of £100 invested in the FTSE 350 Super Sector Real Estate Index. The other points plotted are the values at intervening financial
year ends. 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. The market price of the 5p ordinary shares at 31 December 2017 was
£31.18 (2016: £27.72). During the year, they traded in a range between £24.28 and £31.20 (2016: £22.57 and £33.96).
Total shareholder return
£
700
600
500
400
300
200
100
0
577.8
464.1
491.1
424.9
211.9
237.2
207.9
235.2
371.6
175.0
319.2
223.1
229.6
100.0
100.0
31 Dec
2008
181.4
108.6
31 Dec
2009
119.5
31 Dec
2010
110.8
145.0
31 Dec
2011
31 Dec
2012
31 Dec
2013
31 Dec
2014
31 Dec
2015
31 Dec
2016
31 Dec
2017
Derwent London
FTSE United Kingdom 350 Super Sector Real Estate Index
Source: Datastream (Thomson Reuters)
Note: The TSR chart data is based on the 30-day average over the period 2 December to 31 December for each year.
Remuneration of the Chief Executive 2008–2017
Financial year ended
Total remuneration
(single figure) (£’000)
Annual bonus
(% of maximum)
Long-term variable
pay (% of maximum)
31/12/2008 31/12/2009
31/12/2010
31/12/2011
31/12/2012 31/12/2013
31/12/2014 31/12/2015
31/12/2016 31/12/2017
956
1,384
2,304
2,387
2,721
2,478
2,648
2,529
1,403
1,653
25.6
36.5
62.5
87.5
90.0
47.6
50.0
50.0
85.4
83.8
95.0
55.2
92.6
50.0
74.2
65.7
23.3
24.9
53.6
26.5
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 120
Remuneration
Committee report
continued
Total remuneration in 2017
The table below sets out the remuneration paid to each Director for the financial years ended 31 December 2017 and 31 December
2016 as a single figure. A full breakdown of fixed pay and pay for performance in 2017 can be found on pages 121 to 124.
Executive Directors
2017
John Burns
Simon Silver
Damian Wisniewski
Nigel George
Paul Williams
David Silverman
Total
2016
John Burns
Simon Silver
Damian Wisniewski
Nigel George
Paul Williams
David Silverman
Total
Non-executive Directors
Robert Rayne(iii)
Stuart Corbyn(iv)
Stephen Young
Simon Fraser
Richard Dakin
Claudia Arney
Cilla Snowball
Total
Salary
638
547
417
417
417
417
2,853
638
547
407
407
407
407
2,813
Fixed pay (£’000)
Pay for performance (£’000)
Bonus
Taxable
benefits
Pension
and life
assurance
Subtotal
Cash
Deferred
LTIPs(i)(ii)
Subtotal
Performance
Total
remuneration
(£’000)
70
53
23
24
23
21
214
67
49
22
22
22
20
202
150
146
93
95
97
94
675
149
144
88
94
92
90
657
858
746
533
544
537
532
3,742
854
740
517
523
521
517
3,672
513
440
335
335
335
335
2,293
222
191
142
142
142
142
981
0
0
0
0
0
0
0
0
0
0
0
0
0
–
282
242
179
179
179
179
1,240
327
280
208
208
208
208
1,439
795
682
514
514
514
514
3,533
549
471
350
350
350
350
2,420
Year ended 31 December 2017 (£’000)
Year ended 31 December 2016 (£’000)
Taxable
benefits
45
–
–
–
–
–
–
45
Pension
and life
assurance
–
–
–
–
–
–
–
–
Fees
150
24
62
68
62
58
51
475
Total
195
24
62
68
62
58
51
520
Taxable
benefits
44
–
–
–
–
–
–
44
Pension
and life
assurance
–
–
–
–
–
–
–
–
Fees
150
55
62
71
62
54
51
505
1,653
1,428
1,047
1,050
1,051
1,046
7,275
1,403
1,211
867
873
871
867
6,092
Total
194
55
62
71
62
54
51
549
Notes:
(i) Performance LTIPs for 2017 relate to the 2015 PSP award which will vest on 30 March 2018 and for which the performance conditions related to the year ended
31 December 2017. The value is based on an estimate of expected vesting (inclusive of dividend equivalents) and the average share price over the last three months
of the financial year ending 31 December 2017 of £27.95.
(ii)
(iii)
In the past year’s annual report, the potential value of vesting PSP awards for 2016 was calculated using the average share price for the three months ended 31 December
2016, being £25.12. We have restated the 2016 ‘Performance LTIP’ figures, in the table above to reflect the actual number of PSP awards which vested on 29 May 2017
(inclusive of dividend equivalents) using the share price on the day of vesting (being, £27.73). The restated value provides a difference of £2.61 per vested share in
comparison to our estimates contained in the 2016 annual report on page 98. Further details of vesting and dividend equivalents is provided on page 127.
In addition to his fee as Chairman, Robert Rayne’s letter of appointment provides for a car and fuel allowance which are included in the table above. In addition, in order
to undertake his duties, Robert Rayne is provided with a driver and secretary, together with a contribution to his office running costs.
(iv) Stuart Corbyn stepped down from the Board at the AGM on 19 May 2017.
(v) Written confirmation has been received from the Directors that they have not received any other items in the nature of remuneration.
121
2017
base salary
(£’000)
638
547
417
417
417
417
2016
base salary
(£’000)
638
547
407
407
407
407
%
Change
–
–
2.5
2.5
2.5
2.5
Fixed pay in 2017
Base salary
Executive Director
John Burns
Simon Silver
Damian Wisniewski
Nigel George
Paul Williams
David Silverman
Notes:
(i) John Burns and Simon Silver declined any increase in their base salary for 2017.
(ii) Base salaries for the other executive Directors were increased by 2.5%, which was in line with the cost of living increase awarded to the wider workforce, from £406,500
to £416,500.
(iii) The percentage increase in remuneration for an average employee can be found in page 119.
Benefits
Executive Directors are entitled to a car and fuel allowance and private medical insurance. Further details of the taxable benefits paid
in 2017 can be found in the table below.
Executive Director
John Burns
Simon Silver
Damian Wisniewski
Nigel George
Paul Williams
David Silverman
Car and fuel
allowance
(£’000)
48
38
16
17
16
16
Private
medical
insurance
(£’000)
22
15
7
7
7
5
Total 2017
taxable
benefits
(£’000)
70
53
23
24
23
21
Total 2016
taxable
benefits
(£’000)
67
49
22
22
22
20
Pension and life assurance
In addition to life assurance, Directors receive a pension contribution or cash supplement (or a mix of both) of up to 20% of salary.
Legacy arrangements for some Directors mean that a fixed amount is paid in addition to the 20% contribution, which results in a
maximum pension contribution of up to 21% of salary.
Executive Director
John Burns
Simon Silver
Damian Wisniewski
Nigel George
Paul Williams
David Silverman
2017
pension and
life assurance
(£’000)
150
146
93
95
97
94
2016
pension and
life assurance
(£’000)
149
144
88
94
92
90
Note: There has been no change in the pension contributions or life assurance received by the executive Directors in 2017. The change in the annual cost of these benefits is
due to increases in life assurance premiums.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 122
Remuneration
Committee report
continued
Pay for performance
Determination of 2017 annual bonus outcome
The performance measures set for the year under review were a combination of financial based metrics (worth 75% of the bonus
potential) and strategic targets (worth 25% of the bonus potential). The maximum bonus potential for executive Directors is 150% of
salary. Based on actual 2017 performance, the annual bonus payment for executive Directors was 53.6% of the maximum potential
(2016: 23.3%; 2015: 74.2%). This has been derived as follows:
Financial based metrics
Performance measure
Total return
Total property return (TPR)
Weighting
% of bonus
37.5
Basis of calculation
Total return against
other major real
estate companies(i)
37.5
Relative to MSCI IPD
Central London Offices
Total Return Index
Threshold(ii)
Maximum(iii)
%
6.1
7.1
%
11.6
10.1
Actual
%
7.7
Payable
%
16.9
8.0
16.7
Total bonus payable for financial based metrics
33.6
Notes:
(i) The major real estate companies contained in the comparator group for the 2017 annual bonus are: The British Land Company plc, Great Portland Estates plc, Land Sec
plc, Shaftesbury plc, Big Yellow Group plc, Workspace Group plc, Capital & Regional plc, Capital & Counties Properties plc, Hammerson plc, Intu Properties plc, St Modwen
Properties plc and Segro plc.
(ii) For achieving the threshold performance target, i.e. at the MSCI IPD Index or median total return against our sector peers, 22.5% of the maximum bonus opportunity will
become payable.
(iii) Total return pay-out accrues on a straight-line basis between the threshold level for median performance and maximum payment for upper quartile performance or better.
For TPR, the pay-out accrues on a straight-line basis between the threshold level for index performance and maximum payment for index +3.0%.
Strategic targets
Maximum
award
5.0%
2017
achievement
1.3%
Payable
%
4.4
5.0%
57%
1.4
Target
range
0-10%
50-75%
Performance measure
Void management
This is measured by the Group’s average EPRA vacancy rate over
the year. More details on this KPI are given on page 31.
Tenant retention
This is measured by the percentage of tenants that remain in
their space when their lease expires. More details on this key
metric are given on page 32.
Portfolio’s development potential
This is measured by the percentage of the Group’s portfolio by
area, where a potential development scheme has been identified.
More details on this key metric are given on page 32.
Unexpired lease term
This is measured by the ‘topped-up’ weighted average unexpired
lease term of the Group’s core income producing portfolio
including pre-lets. This key metric is published in the investor
presentation for the year ended 31 December 2017 (page 71)
which is available on our website.
Sustainability
This is assessed by the Group’s achievements against the
BREEAM benchmark at its new developments or major
refurbishments. More details on this KPI are given on page 31.
Staff satisfaction
Staff surveys are used to assess this measure.
Total bonus payable for strategic targets:
Total bonus payable as a percentage of maximum potential (financial and strategic targets):
New build – ‘Excellent’
Major refurbishment –
‘Very good’
70% to >90% of staff
to be satisfied or better
5-10 years
35-45%
123
The total bonus for each executive is therefore:
Executive Director
John Burns
Simon Silver
Other Directors
Bonus payable
Deferred bonus
% of
maximum
53.6
53.6
53.6
% of
salary
80.4
80.4
80.4
Cash bonus
payable
513
440
335
£
–
–
–
% of
salary
–
–
–
Note: Other Directors are Damian Wisniewski, Paul Williams, Nigel George and David Silverman, whose base salary and subsequently, annual bonus pay-out will be identical.
In accordance with our Remuneration Policy, bonuses of up to 100% of base salary are paid as cash. Amounts in excess of 100% are
deferred into shares of which 50% are released after 12 months and the balance after 24 months. As the bonus achieved for 2017 is
below 100% of salary, the entire bonus will be paid as cash with no deferral.
Performance Share Plan (PSP)
Vesting of awards
As shown in the table below, the PSP awards granted in 2015 will vest on 30 March 2018 at 26.5%.
Performance measure
Total property return (TPR)
Weighting
% of award
50
Total shareholder return (TSR)
50
Basis of calculation
Relative to MSCI IPD
Central London Offices
Total Return Index
TSR of major real
estate companies(i)
Threshold(ii)
%
8.6
4.3
Three
quarter
vesting %
11.1
Maximum(iii)
%
13.6
Actual
%
10.0
% vesting/
estimated
vesting
26.5
n/a
45.0
2.6
0
Notes:
(i) The major real estate companies contained in the comparator group for determining our TSR performance are: Big Yellow Group plc, The British Land Company plc,
Capital & Regional plc, Capital & Counties Properties plc, Great Portland Estates plc, Hammerson plc, Intu Properties plc, Land Sec plc, Quintain Estates and Development
plc, St Modwen Properties plc, Segro plc, Shaftesbury plc, Workspace Group plc. Since the comparator group was agreed in 2015, Quintain Estates and Development plc
has delisted. The Remuneration Committee’s approach was to exclude this company from the comparator group when determining TSR performance. The removal of this
company from the comparator list had no impact on the outcome.
(ii) For achieving the threshold performance target, i.e. at the MSCI IPD Index or median TSR against our sector peers, 22.5% of the maximum award will vest.
(iii) For TSR, the pay-out accrues on a straight-line basis between the threshold level for median performance and maximum payment for upper quartile performance or better.
For TPR, the pay-out accrues on a straight-line basis between the threshold level for index performance, three quarter vesting for index +2.5% and maximum payment for
index +5.0%.
As required by the scheme rules, before allowing any vesting, the Committee considered whether these performance measures
reflected the Group’s underlying financial performance. Having considered a range of key financial indicators, including profits and
NAV performance, the Committee concluded that this was the case.
Therefore, the vesting for each executive will be:
Executive Director
John Burns
Simon Silver
Other Directors
Number of
awards granted
35,750
30,675
22,770
Number of shares vesting
based on performance
(26.5%)
9,473
8,128
6,034
Dividend equivalent
cash sum
(estimate)
£17,050
£14,618
£10,845
Total estimate value
of award on vesting
£281,820
£241,795
£179,495
2.5%
44%
2.3
Note: Other Directors are Damian Wisniewski, Paul Williams, Nigel George and David Silverman, who were granted identical number of awards under the PSP grant in 2015.
The value of the vesting awards is based on the average share price over the last three months of the financial year ended
31 December 2017 being £27.95 and includes a dividend equivalent cash payment. In accordance with the Performance Share
Plan (PSP) rules, the Remuneration Committee has discretion to allow PSP participants to receive a payment upon the vesting of
their awards, which is equivalent to the value of any dividends paid on those shares between the grant date and the vesting date.
The estimated value of the vesting awards has been included within the ‘single figure’ total remuneration table on page 120.
In accordance with the PSP rules, vested awards are subject to a two-year holding period. This means that for any awards which vest
under the PSP 2015 Grant, at least the after-tax number of vested shares must be retained by the executive for a minimum of two
years from the point of vesting, i.e. until March 2020.
2.5%
8.8 years
1.9
5.0% All sustainability
targets have
been achieved
5.0%
96%
5.0
5.0
20.0
53.6
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
124
Remuneration
Committee report
continued
Grant of awards
On 20 March 2017, the Committee made an award under the Group’s 2014 PSP to executive Directors on the following basis:
Executive Director
John Burns
Simon Silver
Other Directors
Number
shares
awarded
47,250
40,550
30,850
Face value
of award
£
1,275,750
1,094,850
832,950
Note: Other Directors are Damian Wisniewski, Paul Williams, Nigel George and David Silverman, who were granted identical number of awards under the PSP grant in 2017.
Awards were granted as nil-cost options and equivalent to 200% of base salary, with 22.5% of the award vesting at threshold
performance. The share price used to determine the level of the award was the closing share price on the day immediately preceding
the grant date of £27.00. The performance periods will run over three financial years and, dependent upon the achievement of the
performance conditions, the awards will vest on 20 March 2020.
The performance conditions attached to these awards are detailed below. Half of an award vests according to the Group’s relative TSR
performance versus the constituents of the FTSE 350 Super Sector Real Estate Index with the following vesting profile:
TSR performance of the Company relative to FTSE 350 Real Estate Index constituents tested over three years
Below median
At median
Upper quartile
Straight-line vesting occurs between these points
Vesting
(% of TSR
part of award)
0
22.5
100
The other half of an award vests according to the Group’s relative TPR versus the MSCI IPD UK All Property Total Return Index with the
following vesting profile:
Derwent London’s annualised TPR versus the MSCI IPD UK All Property Index tested over three years
Below index
At index
Index +3.0%
Straight-line vesting occurs between these points
Vesting
(% of TPR
part of award)
0
22.5
100
If threshold performance is not achieved over the three-year performance period, none of the award will vest. 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.
For awards granted under the 2014 PSP in 2014 and beyond, at least the after-tax number of vested shares must be retained for a
minimum holding period of two years. This five-year aggregate period is considered appropriate for a Company focused on aligning
executives with shareholders over the long term. To the extent that awards vest, the Committee has discretion to allow the Directors
to receive the benefit of any dividends paid over the vesting period in the form of a dividend-equivalent cash payment.
Outside appointments for executive Directors
Executive Directors may accept a non-executive role at another company with the approval of the Board. The executive is entitled
to retain any fees paid for these services. During 2017, our executive Directors did not receive fees for their external appointments.
Further information on our executive Directors’ external appointments is provided on page 90.
Payments to past Directors and for loss of office
No payments were made to past Directors or in respect of loss of office during 2017 or 2016.
On 19 May 2017, Stuart Corbyn stepped down as a non-executive Director. There were no payments in connection with his departure
and details of the fees paid to Stuart are provided in the ‘single figure’ total remuneration table on page 120.
Implementation of policy in 2018
Fixed pay in 2018
Base salary
The base salaries that are applicable from 1 January 2018 are as follows:
Executive Director
John Burns
Simon Silver
Damian Wisniewski
Nigel George
Paul Williams
David Silverman
125
2018
base salary
(£’000)
657
564
429
429
429
429
2017
base salary
(£’000)
638
547
417
417
417
417
%
Change
3.0
3.0
3.0
3.0
3.0
3.0
Note: Base salaries for the executive Directors were increased by 3.0%, to £657,200 and £564,000 for John Burns and Simon Silver (respectively) and £429,000 for the
other executive Directors, which was in line with the cost of living increase awarded to the wider workforce.
There will be no change to the non-executive Director fees for the year ending 31 December 2018. The last increase to our non-executive
Director’s fees was with effect from 1 January 2016. Further details of the fees effective from 1 January 2018 are detailed below:
Non-executive Director fees
Chairman(i)
Base fee
Committee Chair(ii)
Senior Independent Director
Committee membership fee
Effective from
1 January 2018
(£’000)
150.0
42.5
7.5
5.5
4.0
Effective from
1 January 2017
(£’000)
150.0
42.5
7.5
5.5
4.0
%
Change
–
–
–
–
–
Notes:
(i)
In addition to his fee as Chairman, Mr Rayne’s letter of appointment provides for a car (and fuel), driver and secretary, together with a contribution to his office
running costs.
(ii)
In addition to their chairmanship fee, a Committee Chair also receives the Committee membership fee. In aggregate, the Chair of a Committee would receive £11,500 per
annum for their role on a Committee.
Benefits and pension
Benefits will continue to include a car and fuel allowance, private medical insurance and life assurance. Pension benefits are provided
by way of a Company contribution at up to 21% of salary for all executive Directors.
Pay for performance in 2018
Annual bonus
In accordance with our Remuneration Policy, the maximum bonus potential for executive Directors in 2018 is 150% of salary. The
performance measures and weightings set for the 2018 annual bonus are structured the same as in 2017.
The financial targets will be worth 75% of the total bonus potential and the performance measures will be total return (37.5%) and total
property return (37.5%) and calculated on the same basis as the 2017 annual bonus (as shown in the table on page 122). The major
real estate companies contained in the total return comparator group for the 2018 annual bonus will be disclosed in next year’s
Directors’ remuneration report.
The strategic targets will be worth 25% of the total bonus potential and will be broadly the same as those set in 2017 (as shown in the
table on page 122), except for the addition of a new target in respect of carbon intensity and changes to the target ranges for the void
management, portfolio development potential and staff satisfaction metrics. The introduction of a carbon intensity target into the
annual bonus, reinforces our commitment to reducing our carbon emissions profile (scope 1 and 2) on an annual basis. In line with our
COP21 science-based targets, our target range will be a year-on-year reduction of -2 to -4%. The carbon intensity target will be worth
2.5% of the annual bonus. To accommodate this new strategic target, the weighting of the sustainability (BREEAM benchmarking)
target has been reduced from 5% to 2.5% of the annual bonus. The target ranges detailed below have been amended to be better
aligned with our strategic objectives and priorities for the coming year:
• Void management of 1 to 8% (previously, 0 to 10%);
• Portfolio development potential of 37 to 47% (previously, 35 to 45%); and
• Staff satisfaction of 75% to >95% (previously, 70% to >90%).
Bonuses earned above 100% of salary will be subject to deferral into Company shares with half of the deferred element released on
the first anniversary of the deferral and the remaining half released on the second anniversary.
The cash and deferred elements of bonuses are subject to provisions that enable the Committee to recover the cash paid (clawback)
or to lapse the associated deferred shares (withhold payments) in the event of a misstatement of results for the financial year to which
the bonus relates, error in calculation or for gross misconduct within two years of the payment of the cash bonus, or vesting of the
deferred bonus shares.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 126
Remuneration
Committee report
continued
Long-term incentives
It is proposed that long-term incentive awards in 2018 will be granted at 200% of salary to all executive Directors. The performance
conditions attached to the awards will be structured as those for the 2017 grant which are detailed on page 124. The performance
period will run from 1 January 2018 to 31 December 2020. To the extent that awards vest, the Committee has discretion to allow
the Directors to receive the benefit of any dividends paid over the vesting period in the form of a dividend equivalent cash payment.
The after-tax number of vested shares must be retained for a holding period of two years.
Awards are subject to provisions that enable the Committee to recover value in the event of a misstatement of results for any of the
financial years to which the vesting of an award related, or an error in calculation when determining the vesting result, or as a result
of misconduct which results in the individual ceasing to be a Director or employee of the Group within two years of the vesting, i.e.
clawback provisions apply. The mechanism through which the clawback can be implemented enables the Committee to (i) reduce the
cash bonus earned in a subsequent year and/or reduce outstanding discretionary long-term incentive share awards, i.e. withholding
amounts to become payable may be used to effect a clawback or (ii) for the Committee to require that a net of tax balancing cash
payment be made.
p.20 More about our strategic objectives
p.30 More about our KPIs and key metrics
Remuneration structure of our wider workforce
We value and appreciate our employees and aim to provide market competitive remuneration and benefit packages in order to
continue to be seen as an employer of choice. The remuneration structure for our wider workforce is similar to that of our executive
Directors and contains both fixed and performance-based elements. Base salaries are reviewed annually and any increases become
effective from 1 January. The Committee are kept informed of salary increases to the wider workforce.
We enrol all of our employees into an annual discretionary bonus scheme. Our approach is to reward our employees on individual
performance and their contribution to the performance of the Group. In 2017, 98% of our workforce below Board level received an
annual bonus.
All employees are eligible to participate in our non-contributory occupational pension scheme. We offer all employees who join our
pension scheme a complimentary annual meeting with an independent financial adviser to advise them on their investment options.
In addition, our employees are invited into a non-contractual healthcare cash plan which offers an affordable way to help with everyday
healthcare costs.
Our employees, excluding the Directors, are eligible to join our Employee Share Option Plan (ESOP) after completion of three years
of service. The ESOP grants options which are exercisable after three years at a pre-agreed option price. In 2017, we granted 131,100
options to 68 employees. The ESOP has been a successful retention scheme for 10 years. We will be requesting approval from our
shareholders at the 2018 AGM to introduce a similar ESOP scheme.
In addition, to encourage Group-wide share ownership, the Committee are recommending that shareholders approve a new HMRC
approved Sharesave (SAYE) Plan at the 2018 AGM. The SAYE Plan will be open to all permanent UK-based employees.
Managing shareholder dilution
The table below sets out the available dilution capacity for the Company’s employee share plans based on the limits set out in the rules
of those plans that relate to issuing new shares.
Total issued share capital as at 31 December 2017
Investment Association share limits (in any consecutive ten-year period):
Current dilution for all share plans
Headroom relative to 10% limit
5% for executive plans – current dilution for discretionary (executive) plans
Headroom relative to 5% limit
2017
111.5 m
2.2%
7.8%
1.5%
3.5%
127
Schedules to the Annual Report on Remuneration (unaudited unless otherwise indicated)
Directors’ interests (audited)
Directors’ interests in shares
Details of the Directors’ interests in shares are provided in the table below.
Executive Director
John Burns(i)
Simon Silver(ii)
Damian Wisniewski(ii)
Nigel George(iv)
Paul Williams(iii)
David Silverman(v)
Total
Non-executive Director
Robert Rayne
Stephen Young
Simon Fraser
Richard Dakin
Claudia Arney
Cilla Snowball
Total
Number at 31 December 2017
Number at 31 December 2016
Beneficially
held
Deferred
shares
Conditional
shares
Total
Beneficially
held
Deferred
shares
Conditional
shares
Total
656,287
178,617
29,983
54,568
50,510
26,219
996,184
4,127,125
1,000
2,000
0
2,500
0
4,132,625
1,124
964
716
716
716
716
4,952
123,700
106,150
79,550
79,550
79,550
79,550
781,111
285,731
110,249
134,834
130,776
106,485
548,050 1,549,186
–
–
–
–
–
–
0
4,127,125
–
1,000
–
2,000
–
0
–
2,500
–
–
0
0 4,132,625
653,847
213,617
28,067
49,352
48,594
22,499
1,015,976
4,174,703
1,000
2,000
0
2,500
0
4,180,203
5,568
4,777
3,545
3,545
3,545
3,545
24,525
120,805
103,650
76,945
76,945
76,945
76,945
532,235
–
–
–
–
–
–
0
–
–
–
–
–
–
0
780,220
322,044
108,557
129,842
129,084
102,989
1,572,736
4,174,703
1,000
2,000
0
2,500
0
4,180,203
Notes:
(i) John Burns acquired 4,444 shares in aggregate under the Company’s deferred bonus scheme (3,319 shares were released from the 2015 deferral and 1,125 shares from
the 2016 deferral on 28 March 2017). To satisfy the tax liability arising, John sold 2,004 shares immediately upon their release at an average share price of £26.725 per
share. John acquired and immediately sold 11,044 shares from the PSP 2014 grant which vested on 1 June 2017. These shares were sold at an average price of £27.73 per
share. A dividend equivalent cash payment totalling £20,698 was paid to John based on these vesting shares.
(ii) Simon Silver acquired and immediately sold 3,813 shares in aggregate under the Company’s deferred bonus scheme (2,848 shares were released from the 2015 deferral
and 965 shares from the 2016 deferral on 28 March 2017). The shares were sold at an average share price of £26.725 per share. Simon acquired and immediately sold
9,474 shares from the PSP 2014 grant which vested on 1 June 2017. These shares were sold at an average price of £27.73 per share. A dividend equivalent cash payment
totalling £17,755 was paid to Simon based on these vesting shares. On 10 October 2017, Simon sold 35,000 shares at an average price of £27.39 per share.
(iii) Damian Wisniewski and Paul Williams each acquired and immediately sold 2,829 shares in aggregate under the Company’s deferred bonus scheme (2,113 shares were
released from the 2015 deferral and 716 shares from the 2016 deferral on 28 March 2017). The shares were sold at an average share price of £26.725 per share. Damian
and Paul each acquired 7,033 shares from the PSP 2014 grant which vested on 1 June 2017. To predominantly satisfy the tax liability arising, they each sold 5,117 shares
immediately upon vesting at an average share price of £27.73 per share. A dividend equivalent cash payment totalling £13,181 was paid to both Damian and Paul based
on these vesting shares.
(iv) Nigel George acquired 2,829 shares in aggregate under the Company’s deferred bonus scheme (2,113 shares were released from the 2015 deferral and 716 shares from the
2016 deferral on 28 March 2017). To satisfy the tax liability arising, Nigel sold 1,333 shares immediately upon their release at an average share price of £26.725 per share.
Nigel acquired 7,033 shares from the PSP 2014 grant which vested on 1 June 2017. To satisfy the tax liability arising, Nigel sold 3,313 shares immediately upon vesting at
an average share price of £27.73 per share. A dividend equivalent cash payment totalling £13,181 was paid to Nigel based on these vesting shares.
(v) David Silverman acquired and immediately sold 2,829 shares in aggregate under the Company’s deferred bonus scheme (2,113 shares were released from the 2015
deferral and 716 shares from the 2016 deferral on 28 March 2017). The shares were sold at an average share price of £26.725 per share. David acquired 7,033 shares
from the PSP 2014 grant which vested on 1 June 2017. To satisfy the tax liability arising, David sold 3,313 shares immediately upon vesting at an average share price
of £27.73 per share. A dividend equivalent cash payment totalling £13,181 was paid to David based on these vesting shares.
Directors’ shareholding guideline
The shareholding guideline in place for the year ended 31 December 2017, requires all executive Directors to work towards holding
shares in Derwent London plc equivalent to 200% of base salary. There is no shareholding guideline for non-executive Directors.
The shareholding guideline was increased under the new Remuneration Policy approved by shareholders at the 2017 AGM (previously,
the guideline was 200% of salary for the Chief Executive and 125% of salary for other Directors).
Executive Director
John Burns
Simon Silver
Damian Wisniewski
Nigel George
Paul Williams
David Silverman
Number of
beneficially
held shares
656,287
178,617
29,983
54,568
50,510
26,219
2017 base
salary
(£’000)
638
547
417
417
417
417
Shareholding guideline
(% of base salary)
Target
200%
200%
200%
200%
200%
200%
Achieved
3207%
1017%
224%
409%
378%
196%
The share ownership guidelines for executive Directors also requires them to retain at least half of any deferred bonus shares or
performance shares which vest (net of tax) until the guideline is met. Only wholly-owned shares will count towards the guideline.
The value of the beneficially held shares has been calculated using the closing share price on 31 December 2017 of £31.18.
Due to the relatively large shareholdings of our executive Directors, a small change in our share price would have a material impact
on their wealth. For example, a 5% drop in our share price would result in a loss of value for our Chief Executive, John Burns, equivalent
to approximately 160% of his base salary.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
128
Remuneration
Committee report
continued
Long-term incentive plans (audited)
Deferred Bonus Plan
Details of the deferred bonus shares held by the Directors are set out in the table below:
Deferred bonus
John Burns
Date of grant
25/03/2015
At grant
During the year
Market
price
at date
of grant
(£)
35.27
Original
Grant
(number)
6,639
01 January
2017
(number)
3,319
Deferred
(number)
–
Released
(number)
3,319
31 December
2017
(number)
0
Market
price
at date
of release
(£)
26.725
23/03/2016
31.21
2,249
2,249
Simon Silver
25/03/2015
35.27
8,888
5,695
5,568
2,848
23/03/2016
31.21
1,929
1,929
Damian
Wisniewski
25/03/2015
35.27
7,624
4,227
4,777
2,113
23/03/2016
31.21
1,432
1,432
Nigel George
25/03/2015
35.27
5,659
4,227
3,545
2,113
23/03/2016
31.21
1,432
1,432
Paul Williams
25/03/2015
35.27
5,659
4,227
3,545
2,113
23/03/2016
31.21
1,432
1,432
David Silverman
25/03/2015
35.27
5,659
4,227
3,545
2,113
23/03/2016
31.21
1,432
1,432
Total
5,659
39,148
3,545
24,525
–
0
–
–
0
–
–
0
–
–
0
–
–
0
–
–
0
0
1,125
1,124
26.725
4,444
2,848
1,124
0
26.725
965
964
26.725
3,813
2,113
964
0
26.725
716
716
26.725
2,829
2,113
716
0
26.725
716
716
26.725
2,829
2,113
716
0
26.725
716
716
26.725
2,829
2,113
716
0
26.725
716
716
26.725
Performance Share Plan
The outstanding PSP awards held by Directors are set out in the table below:
At grant
During the year
129
Performance
Share Plan
John Burns
Simon Silver
Damian
Wisniewski
Nigel George
Paul Williams
David Silverman
Other employees
Total
Date of award
29/05/2014
30/03/2015
04/04/2016
20/03/2017
29/05/2014
30/03/2015
04/04/2016
20/03/2017
29/05/2014
30/03/2015
04/04/2016
20/03/2017
29/05/2014
30/03/2015
04/04/2016
20/03/2017
29/05/2014
30/03/2015
04/04/2016
20/03/2017
29/05/2014
30/03/2015
04/04/2016
20/03/2017
29/05/2014
30/03/2015
22/05/2015
04/04/2016
20/03/2017
Value at
release
£’000
Release
date(s)
89 24/03/2016 and
28/03/2017
30 28/03/2017 and
23/03/2018
76 24/03/2016 and
28/03/2017
26 28/03/2017 and
23/03/2018
57 24/03/2016 and
28/03/2017
19 28/03/2017 and
23/03/2018
57 24/03/2016 and
28/03/2017
19 28/03/2017 and
23/03/2018
57 24/03/2016 and
28/03/2017
19 28/03/2017 and
23/03/2018
57 24/03/2016 and
28/03/2017
19 28/03/2017 and
23/03/2018
Market
price
at date
of grant
(£)
27.12
34.65
31.35
27.00
1 January
2017
(number)
44,355
35,750
40,700
–
120,805
38,050
30,675
34,925
–
103,650
28,245
22,770
25,930
–
76,945
28,245
22,770
25,930
–
76,945
28,245
22,770
25,930
–
76,945
28,245
22,770
25,930
–
76,945
12,745
10,280
20,510
28,270
–
71,805
Granted
(number)
–
–
–
47,250
47,250
–
–
–
40,550
40,550
–
–
–
30,850
30,850
–
–
–
30,850
30,850
–
–
–
30,850
30,850
–
–
–
30,850
30,850
–
–
–
–
42,640
42,640
604,040 253,840
27.12
34.65
31.35
27.00
27.12
34.65
31.35
27.00
27.12
34.65
31.35
27.00
27.12
34.65
31.35
27.00
27.12
34.65
31.35
27.00
27.12
34.65
34.65
31.35
27.00
Vested
(number)
11,044
–
–
–
11,044
9,474
–
–
–
9,474
7,033
–
–
–
7,033
7,033
–
–
–
7,033
7,033
–
–
–
7,033
7,033
–
–
–
7,033
3,174
–
–
–
–
3,174
Lapsed
(number)
33,311
–
–
–
33,311
28,576
–
–
–
28,576
21,212
–
–
–
21,212
21,212
–
–
–
21,212
21,212
–
–
–
21,212
21,212
–
–
–
21,212
9,571
–
–
–
–
9,571
51,824 156,306
31 December
2017
(number)
0
35,750
40,700
47,250
123,700
0
30,675
34,925
40,550
106,150
0
22,770
25,930
30,850
79,550
0
22,770
25,930
30,850
79,550
0
22,770
25,930
30,850
79,550
0
22,770
25,930
30,850
79,550
0
10,280
20,510
28,270
42,640
101,700
649,750
Market
price
at date
of vesting
(£)
27.73
Value vested
(inclusive of
dividend
equivalents)
£’000
Earliest
vesting date
327 29/05/2017
30/03/2018
04/04/2019
20/03/2020
27.73
27.73
27.73
27.73
27.73
27.73
280 29/05/2017
30/03/2018
04/04/2019
20/03/2020
208 29/05/2017
30/03/2018
04/04/2019
20/03/2020
208 29/05/2017
30/03/2018
04/04/2019
20/03/2020
208 29/05/2017
30/03/2018
04/04/2019
20/03/2020
208 29/05/2017
30/03/2018
04/04/2019
20/03/2020
94 29/05/2017
30/03/2018
22/05/2018
04/04/2019
20/03/2020
1,533
Notes:
(i) The bonus deferred on 25 March 2015 was released in two tranches; 50% of the award was released 12 months after deferral (on 24 March 2016) and the remaining
balance was released after 24 months (on 28 March 2017). The bonus released in March 2017 has been valued using the middle market share price on the release date.
(ii) As the 2016 and 2017 annual bonuses did not reach 100% of base salary, there was no bonus deferral during 2017 or 2018. Further information on the 2017 annual bonus
can be found on page 122.
2,829
19,573
716
4,952
525
Notes:
(i)
The PSP award granted on 29 May 2014 vested on 1 June 2017 at a vesting level of 24.9%. The value of the vesting awards was based on the middle market share price
on the vesting date and is inclusive of a dividend equivalents payment made in cash (see note below for further details).
(ii)
In accordance with the PSP rules, the Remuneration Committee has discretion to allow PSP participants to receive a payment upon the vesting of their awards, which is
equivalent to the value of any dividends paid on those shares between the grant date and the vesting date. For the 2014 PSP grant, this dividend equivalent payment was
made in cash and equated to dividends paid between May 2014 and May 2017. The dividend equivalent payment has been included in the table above, within the value
of the vesting awards, and equates to £20,698 for John Burns, £17,755 for Simon Silver and £13,181 for the other executive Directors.
(iii) The PSP award granted on 20 March 2017 will vest on 20 March 2020. The performance targets attached to this award are detailed on page 124.
Weighted average exercise price of PSP awards
Weighted average remaining contracted life of PSP awards
31 December
2017
–
1.24 years
31 December
2016
–
1.31 years
1 January
2016
–
1.29 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 2017 was £nil (2016: £nil). The weighted average market price of awards vesting in 2017 was £27.73 (2016: £32.05).
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
130
131
Remuneration
Policy report
Derwent London’s Remuneration Policy remains unchanged from that approved by shareholders at the AGM on 19 May 2017
(which was approved by 98.40% of those shareholders who voted). For convenience, extracts from the policy are included
below (with numbers and dates appropriately updated) to provide context for how decisions were made during the year.
Our full Remuneration Policy can be found on our website at: www.derwentlondon.com/investors/governance/board-committees
Remuneration for executive Directors comprises the following elements:
Summary of remuneration elements for executive Directors
Fixed pay
Base salary
Purpose and link to strategy
Benefits
Purpose and link to strategy
Pension
Purpose and link to strategy
To help recruit, retain and motivate high calibre
executives. Reflects experience and importance to
the business.
To provide a market-competitive benefits package
to help recruit and retain high-calibre executives.
Medical benefits to help minimise disruption to business.
To help recruit and retain high-calibre
executives and reward continued
contribution to the business.
Fixed pay
Variable pay
Operation
Operation
Base salary + Benefits + Pension + Annual bonus + Long-term incentive =
Total remuneration
Normally reviewed annually. Any increase is normally
effective from 1 January. Factors taken into account in
the review include:
• The role, experience and performance of the individual
and the Company;
• Economic conditions;
• Increases throughout the rest of the business; and
• Levels in companies with similar business
characteristics.
Performance-based
Salaries are set after having due regard to the salary
levels operating in companies of a broadly similar size and
complexity, the responsibilities of each individual role,
individual performance and an individual’s experience.
Benefits include, but are not limited to, private medical
insurance, car and fuel allowance and life assurance.
In certain circumstances, the Committee may also
approve additional allowances relating to relocation
of an executive Director or other expatriate benefits
required to perform the role.
The Committee may provide other employee benefits to
executive Directors on broadly similar terms to the wider
workforce.
The Committee has the ability to reimburse reasonable
business related expenses and any tax thereon.
A summary of our policy on fixed pay is on page 131
Fixed pay in 2017 is on page 121
A summary of our policy on variable pay is on page 132
Variable pay in 2017 is on pages 122 and 123
Details on the total remuneration paid to our
Directors in 2017 is on page 120
Our aims
The key aims of the Committee’s Remuneration Policy for senior executives are:
• To ensure that the Company attracts, retains and motivates executives who have the skills and experience necessary to make a
significant contribution to the delivery of the Group’s objectives;
• To incentivise key executives through a remuneration package that is appropriately competitive with other real estate companies
taking into account the experience and importance to the business of the individuals involved, while also having broad regard to
the level of remuneration in FTSE 350 companies of a similar size. The Committee also takes account of the pay and conditions
throughout the Company;
• To align, as far as possible, the interests of the senior executives with those of shareholders by providing a significant proportion
of the Directors’ total remuneration potential through a balanced mix of short- and long-term performance-related elements that
are consistent with the Group’s business strategy;
• To enable executive Directors to accumulate shareholdings in the Company over time that are personally meaningful to them;
• To ensure that performance measures under incentive schemes support the Company’s strategy, have appropriately stretching
performance conditions attached and are designed so as to be consistent with best practice; and
• To ensure that the Group’s remuneration structure does not encourage management to adopt an unacceptable risk profile for
the business.
Maximum
Maximum
The current salary levels are detailed in the Annual
Report on Remuneration on page 125 and will be eligible
for increases during the period that the Directors’
Remuneration Policy operates.
During this time, to the extent that salaries are
increased, increases will normally be consistent with
the policy applied to the workforce generally (in a
percentage of salary terms).
Increases beyond those linked to the workforce
generally (in a percentage of salary terms) may be
awarded in certain circumstances such as where there
is a change in responsibility, experience or a significant
increase in the scale of the role and/or size, value and/or
complexity of the Group.
The Committee retains the flexibility to set the salary
of a new hire at a discount to the market level initially,
and to implement a series of planned increases over
the subsequent few years, potentially higher than for
the wider workforce, in order to bring the salary to the
desired position, subject to individual performance.
The maximum cost of providing benefits is not
pre-determined and may vary from year-to-year based
on the overall cost to the Company in securing these
benefits for a population of employees (particularly
health insurance and death-in-service cover).
The only benefit which is considered to be significant
in value terms is the provision of a company car (or the
provision of cash in lieu of providing a company car).
The value of the benefit will be either the taxable value
assessed according to HMRC rules when a company car
is provided or the cash amount in the case of cash in lieu
of a company car. In either case, the provision of this
benefit is limited to a cost of £50,000 per annum.
The Committee has discretion to approve a higher
cost in exceptional circumstances (such as relocation),
or where factors outside of the Committee’s control
have changed materially (such as increases in
insurance premiums).
Performance framework
Performance framework
A broad assessment of personal and corporate
performance is considered as part of the salary review.
None.
Performance framework
None.
Operation
The Company operates a defined
contribution pension scheme.
Where contributions would exceed
either the lifetime or annual
contribution limits, cash payments
in lieu are made.
Maximum
Directors receive a contribution or
cash supplement (or a mix of both)
of up to 20% of salary.
Legacy arrangements for some
Directors mean that a fixed
amount is paid in addition to
the 20% contribution.
The continuation of these
arrangements for existing
employees means that their
maximum pension will be up
to 21% of salary.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 132
Remuneration
Policy report
continued
Variable pay
Annual bonus
Purpose and link to strategy
Long-term incentives
Purpose and link to strategy
To incentivise the annual delivery of stretching financial
targets and strategic goals. Financial performance
measures reflect KPIs of the business.
To align the long-term interests of the Directors with
those of the Group’s shareholders, to incentivise value
creation over the long term and to aid retention.
Share ownership guidelines
Purpose and link to strategy
To provide alignment between
executives and shareholders.
Operation
Operation
Operation
Bonus payments are determined by the Committee after
the year end, based on performance against the targets
set at the start of the year.
Bonuses up to 100% of salary are paid as cash. Amounts
in excess of 100% are deferred into shares of which 50%
are released after 12 months and the balance after 24
months. These deferred shares are potentially forfeitable
if the executive leaves prior to the share release date.
Dividend equivalents accrue on vested deferred shares.
The bonus is not pensionable. The cash and deferred
elements of bonuses are subject to provisions that
enable the Committee to recover the cash paid
(clawback) or to lapse the associated deferred shares
(withhold payments) in the event of a misstatement
of results, error in calculation or for gross misconduct.
The Committee makes an award of performance shares
each year.
Vesting is determined by the Group’s achievements
against stretching performance targets over three years
and continued employment. The Group’s performance
against the targets is independently verified on behalf
of the Committee.
Executive Directors are required
to retain at least half of any
deferred bonus share awards or
performance shares vesting (net
of tax) until the guideline is met.
Only wholly-owned shares will
count towards the guideline.
A further holding period of two years is required on the
after-tax vested shares.
Dividend equivalents may accrue on performance shares
to the extent that performance conditions have been
met, payable at the end of the vesting or, if applicable,
the end of the holding period.
Clawback and malus provisions apply in the event of
misstatement, an error in calculation or as a result of
misconduct which results in the individual ceasing to
be a Director or employee of the Group within two
years of vesting.
Awards will be satisfied by either newly-issued shares or
shares purchased in the market. Any use of newly-issued
shares will be limited to corporate governance compliant
dilution limits contained in the scheme rules.
Maximum
Maximum
Maximum bonus potential, for the achievement of
stretching performance conditions is 150% of salary
for all Directors.
Annual award limit: up to 200% of salary in any
financial year.
Maximum
All executive Directors –
200% of salary.
Non-executive Directors –
no guideline.
133
Variable pay continued
Annual bonus
Performance framework
At least 75% of the annual bonus will be based
on financial measures with up to 25% based on
strategic objectives.
Metrics may include but are not limited to:
• Total return against other comparable real estate
companies;
• Total property return versus an appropriate IPD
index; and
• Performance objectives tailored to the delivery of the
Group’s short- and medium-term strategy.
Up to 22.5% of the relevant bonus element will be
payable for threshold performance against the financial
measures, with full pay-out for achieving challenging
stretch performance targets.
The performance measures will be reviewed annually by
the Committee and the Committee retains discretion to
vary measures and weightings as appropriate (subject
to the minimum financial measures weighting set out
above) to ensure they continue to be linked to the
delivery of Company strategy.
The Committee has discretion to adjust the payment
outcome if it is not deemed to reflect appropriately
the overall business performance of the Company
over the performance period. Any exercise of
discretion will be detailed in the following year’s
Annual Report on Remuneration.
Details of the bonus targets will be disclosed
retrospectively in the following year’s Annual Report
on Remuneration when they are no longer deemed
commercially sensitive by the Board.
Long-term incentives
Performance framework
Share ownership guidelines
Performance framework
Long-term incentive awards vest based on three-year
performance against a challenging range of performance
targets, with at least one third of an award based on TSR.
None.
Other metrics may include, but are not limited to,
total property return relative to an appropriate IPD (or
equivalent) index, total return and NAV or earnings growth.
Up to 22.5% of each part of an award vests for achieving
the threshold performance level with full vesting for
achieving challenging stretch performance targets.
No awards vest for below threshold performance levels.
The performance criteria will be reviewed annually by
the Committee prior to each grant and the Committee
has discretion to vary measures and weightings as
appropriate to ensure they continue to be linked to the
delivery of Company strategy subject to the minimum
weighting on TSR as set out above.
The Committee has discretion to adjust the vesting
outcome in exceptional circumstances to ensure that
vesting outcomes are a true reflection of the overall
performance of the Company over the performance period.
Any use of discretion will be fully explained in the
following year’s Annual Report on Remuneration.
Summary of remuneration elements for non-executive Directors and the Chairman
Performance framework
Maximum
To help recruit and retain high-calibre non-executive Directors with relevant skills and
experience. Reflects time commitments and scope of responsibility.
Operation
The remuneration for the Chairman is set by the full Board (excluding the Chairman).
The remuneration for non-executive Directors is set by the executive Directors.
The Chairman receives benefits limited to a company car and driver, secretarial provision and
office costs. Periodic fee reviews will set a base fee and, where relevant, fees for additional
services such as serving on a Board Committee, chairing a Board Committee or holding the
position of Senior Independent Director.
The review will consider the expected time commitments and scope of responsibilities for each
role as well as market levels in companies of comparable size and complexity.
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.
Non-executives Directors’ fees (and benefits where
applicable) may be increased at higher rates than the
wider workforce given that fees may only be reviewed
periodically and to ensure that any changes in time
commitment are appropriately recognised in the fee
levels set.
Performance framework
None.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 134
Remuneration
Policy report
continued
Illustrating the application of the Remuneration Policy
The Committee aims to provide a significant part of the Directors’ total remuneration through variable pay and the following diagram
illustrates the remuneration opportunity provided to the Directors by the remuneration structure at minimum, target and maximum
levels of performance.
Remuneration scenarios for executive Directors
£’000s
3,500
3,000
2,500
2,000
1,500
1,000
500
0
£3,159
42%
£1,647
31%
18%
30%
52%
£859
100%
27%
£730
100%
£2,704
42%
31%
27%
£1,407
18%
30%
52%
£2,040
42%
31%
27%
£1,054
18%
30%
52%
£539
100%
Minimum
Target
John Burns
Maximum
Minimum
Target
Simon Silver
Maximum
Minimum
Target
Other Directors
Maximum
Fixed elements
Annual variable element
Long-term variable element
The potential reward opportunities illustrated above were calculated using base salaries effective from 1 January 2018 (full details
of remuneration for 2018 can be found on pages 125 to 126). The assumptions set out below have been made in compiling the
above charts:
Assumptions
Fixed pay
Minimum
Base salary effective 1 January
2018. The value of benefits relates
to taxable benefits and is based on
the cost of supplying those benefits
in the year ended 31 December 2017,
as a proxy. Pension value set at 20%
of salary.
Target
Base salary effective 1 January
2018. The value of benefits relates
to taxable benefits and is based on
the cost of supplying those benefits
in the year ended 31 December 2017,
as a proxy. Pension value set at 20%
of salary.
Maximum
Base salary effective 1 January
2018. The value of benefits relates
to taxable benefits and is based on
the cost of supplying those benefits
in the year ended 31 December 2017,
as a proxy. Pension value set at 20%
of salary.
Annual bonus No annual bonus payable.
50% of annual bonus payable
(equivalent to 75% of base salary).
PSP
No LTIP awards vest.
22.5% vesting of the LTIP awards.
Maximum annual bonus (100% of
bonus potential equivalent to 150%
of base salary).
Full vesting (100% of award
equivalent to 200% of base salary).
Notes:
Amounts have been rounded to the nearest £1,000.
Share price growth on vesting and any dividends payable on vesting shares have been ignored.
Non-taxable benefits (life assurance) are excluded.
Other Directors are: Damian Wisniewski, Paul Williams, Nigel George and David Silverman, whose salary, annual bonus and LTIP arrangements for 2018 are identical.
The benefit value for the ‘other Directors’ is based on the highest benefit received in the year ended 31 December 2017.
135
Service contracts and compensation for loss of office
As part of the major review of the Directors’ remuneration
structure undertaken in 2013/2014, all the executive Directors
entered into new service contracts dated 16 May 2014. Executive
Directors’ service contracts are terminable either by the Company
providing 12 months’ notice or by the executive providing six
months’ notice. Contracts include a payment in lieu of notice
clause which provides for monthly-phased payments throughout
the notice period which include pro-rated salary, benefits and
pension only and are subject to mitigation. In addition, the
Company may also make payments in relation to any statutory
claim against the Company or make a modest provision in respect
of legal costs or outplacement fees. The new service contracts
have no change of control provisions and all other elements were
brought up-to-date in line with best practice.
With regard to annual bonus for a departing executive Director,
if employment ends by reason of death, retirement, injury,
ill-health, disability, redundancy or transfer of employment outside
the Group, or any other reason as determined by the Committee,
i.e. the individual is a ‘good leaver’, the executive Director may
be considered for a bonus payment. If the termination is for any
other reason, any entitlement to bonus would normally lapse.
Under any circumstance, it is the Committee’s policy to ensure
that any bonus payment reflects the departing executive
Director’s performance. Any bonus payment will normally be
delayed until the performance conditions have been determined
for the relevant period and be subject to a pro-rata reduction for
the portion of the relevant bonus year that the individual was
employed. Deferred bonus share awards will normally lapse on
cessation of employment, however, in the case of good leavers,
awards typically vest on the normal vesting date (or on cessation
in the event of death).
With regards to PSP awards, if a participant resigns voluntarily,
the award lapses. The 2014 PSP rules provide standard ‘good
leaver’ definitions for death, retirement, injury, ill-health, disability,
redundancy or transfer of employment outside the Group, or any
other reason at the Committee’s discretion, whereby awards will
vest at their original vesting date subject to performance criteria
being achieved and time pro-rating to reduce vested awards for
time served in the relevant period. The Committee can decide
not to pro-rate an award if it regards it as inappropriate to do so
in the particular circumstances. Alternatively, for a ‘good leaver’,
the Committee can decide that the award will vest on cessation
subject to the performance conditions measured at that time and
the same pro-rating described above. Such treatment will apply
in the case of death.
In the event of a change of control, the treatment detailed
above for good leavers would apply albeit with performance
tested over the shortened performance period, and early
vesting (if appropriate).
The non-executive Directors listed below do not have service
contracts but are appointed for three-year terms which expire
as follows:
Non-executive Director
Claudia Arney
Simon Fraser
Cilla Snowball
Robert Rayne
Stephen Young
Richard Dakin
Helen Gordon
Date of latest
appointment letter
17 April 2015
27 July 2016
26 May 2015
25 March 2016
2 February 2017
2 February 2017
8 November 2017
Expiry date
31 May 2018
31 August 2018
31 August 2018
25 March 2019
31 July 2019
31 July 2019
1 January 2021
Note: Helen Gordon’s appointment commenced on 1 January 2018.
Robert Rayne has a letter of appointment, which runs for
three years, expiring on 25 March 2019. In addition to his fee
as Chairman, it provides for a car (and fuel allowance), 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.
Recruitment and promotion policy
The complete policy on recruitment and promotion is contained
in the Policy Report on our corporate website and in the 2016
Annual Report and Accounts. Below is an abbreviated version
of our policy.
When facilitating an external recruitment or an internal promotion
the Committee will apply the same principles as contained in the
‘Executive Director policy table’ on pages 131 to 133 of this report.
In addition to these elements, the Committee may pay relevant
relocation and legal expenses in order to facilitate a recruitment.
Annual bonus payments will be pro-rated for the period of
employment and, depending on the nature and timing of an
appointment, the Committee reserves the right to set different
performance measures, targets and weightings for the first bonus
plan year if considered appropriate. In respect to an internal hire,
existing long-term incentive awards would continue over their
original vesting period and remain subject to their terms as at
the date of grant.
Should it be the case that the Remuneration Committee considers
it necessary to buy out remuneration which an individual would
forfeit on leaving their current employer, such compensation
would be structured so that the terms of the buy-out would
have a fair value no higher than that of what is being forfeited
and would generally be determined on a comparable basis taking
into account the form, structure and vesting schedule of the
remuneration being replaced as well as the probability of vesting.
The Committee has the discretion to determine the type of
replacement award (cash, shares), the vesting period and whether
or not performance conditions apply. Where possible this will be
accommodated under the Company’s existing incentive plans,
but it may be necessary to utilise the exemption under rule 9.4.2
of the Listing Rules. Shareholders will be informed of any such
payments in the following year’s Annual Report on Remuneration.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
136
137
Directors’ report
David Lawler
Company Secretary
The Directors’ report for the financial year ended 31 December 2017 is
set out on pages 136 to 139 inclusive. Additional information which is
incorporated into this Directors’ report by reference, including information
required in accordance with the Companies Act 2006 and Listing Rule
9.8.4R of the Financial Conduct Authority’s Listing Rules, can be located
on the following pages:
p.01
Future business developments
(throughout the strategic report)
p.139 Going concern statement
p.35 Viability statement
p.158 Interest capitalised
p.77 Greenhouse gas emissions
p.172 Financial instruments
p.82 Employee engagement
p.179 Financial risk management
p.87 Governance
p.180 Credit, market and liquidity risks
p.128 Long-term incentive schemes
p.190 Related party transactions
p.139 Contracts of significance
The Directors present their annual report
and audited financial statements for the
year ended 31 December 2017.
This annual report contains certain
forward-looking statements. By their
nature, any statements about the future
outlook involve risk and uncertainty
because they relate to events and
depend on circumstances that may or
may not occur in the future. Actual results,
performance or outcomes may differ
materially from any results, performance
or outcomes expressed or implied by such
forward-looking statements. Each forward-
looking statement speaks only as of the
date of that particular statement.
No representation or warranty is given in
relation to any forward-looking statements
made by Derwent London, including as to
their completeness or accuracy. Nothing
in this report and accounts should be
construed as a profit forecast.
Both the Strategic report and the Directors’
report have been drawn up and presented
in accordance with and in reliance upon
applicable English Company law, and the
liabilities of the Directors in connection with
that report shall be subject to the limitations
and restrictions provided by such law.
Company status and branches
Derwent London plc is a Real Estate
Investment Trust (REIT) and the holding
company of the Derwent London group
of companies which includes no branches.
It is listed on the London Stock Exchange
main market with a premium listing.
Results and dividends
The financial statements set out the results of the Group for the
financial year ended 31 December 2017 and are shown on page
149. The Directors recommend a final dividend of 42.40 pence
per ordinary share for the year ended 31 December 2017, in
addition to a special dividend of 75.0 pence per ordinary share.
Taken together with the interim dividend of 17.33 pence per
ordinary share paid in October 2017, makes a total dividend for
the year of 134.73 pence (2016: 104.36 pence) per ordinary
share. Subject to approval by shareholders of the recommended
final and special dividends, the dividend to shareholders for 2017
will total £150m. If approved, the Company will pay the final and
special dividends on 8 June 2018 to shareholders on the register
of members at 4 May 2018.
PID and non-PID dividends
As a REIT, Derwent London must distribute at least 90% of the
Group’s income profits from its tax-exempt property rental
business by way of a dividend, which is known as a Property
Income Distribution (PID). These distributions can be subject
to withholding tax at 20%. Dividends from profits of the Group’s
taxable residual business are non-PID and will be taxed as an
ordinary dividend.
Substantial shareholders
Table 1 shows the holdings in the Company’s issued share capital
which had been notified to the Company pursuant to the Financial
Conduct Authority’s Disclosure Guidance and Transparency Rules.
The information below was correct at the date of notification.
It should be noted that these holdings are likely to have changed
since the Company was notified. However, notification of any
change is not required until the next notifiable threshold is crossed.
Directors
The Directors of the Company who were in office during the
year, and up to the date of the signing of the financial statements,
are set out on page 90. Each Director served throughout the
financial year ended 31 December 2017, save for Stuart Corbyn
who stepped down from the Board on 19 May 2017 and Helen
Gordon who was appointed to the Board with effect from 1
January 2018.
The Board shall consist of no fewer than two Directors and not
more than 15. Shareholders may vary the minimum and/or
maximum number of Directors by passing an ordinary resolution.
Copies of the executive Directors’ service contracts are available
to shareholders for inspection at the Company’s registered office
and at the Annual General Meeting (AGM). Details of the Directors’
remuneration and service contracts and their interests in the
shares of the Company are set out on pages 116 to 135.
Table 1
Appointment and replacement of Directors
Directors may be appointed by ordinary resolution of the
shareholders, or by the Board. Appointment of a Director from
outside the Group 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.
At every AGM of the Company, any of the Directors who have
been appointed by the Board since the last AGM shall seek
election by the members. Notwithstanding provisions in the
Company’s Articles of Association, the Board has agreed,
in accordance with the UK Corporate Governance Code
(Provision B.7.1) and in line with previous years, that all of the
Directors wishing to continue will retire and, being eligible, offer
themselves for re-election by the shareholders at the 2018 AGM.
Directors’ indemnity
Directors’ and officers’ liability insurance is maintained by the
Company.
Powers of the Directors
Subject to the Company’s Articles of Association, the Companies
Act and any directions given 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
undertakings, 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.
Share capital
As at 27 February 2018, the Company’s issued share capital
comprised a single class of 5p ordinary shares and equalled an
amount of £5,573,741 divided into 111,474,821 ordinary shares.
Details of the ordinary share capital and shares issued during the
year can be found in note 27 to the financial statements.
Rights and restrictions attaching to shares
Subject to the Articles of Association, the Companies Act and
other shareholders’ rights, shares in the Company may be issued
with such rights and restrictions as the shareholders may by
ordinary resolution decide, or if there is no such resolution, as the
Board may decide provided it does not conflict with any resolution
passed by the shareholders.
Invesco Limited
BlackRock Investment Management (UK) Ltd
Norges Bank
Lady Jane Rayne
31 December 2017
27 February 20181
Direct/
indirect
Indirect
Indirect
Direct
Direct
Number
of shares
(m)
15.7
6.9
5.6
3.6
%
14.07
6.21
5.01
3.56
Direct/
indirect
Indirect
Indirect
Direct
Direct
Number
of shares
(m)
15.7
6.9
5.6
3.6
%
14.07
6.21
5.01
3.56
1 Being the latest practicable date prior to the publication of the annual report.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 138
Directors’ report
continued
These rights and restrictions will apply to the relevant shares as
if they were set out in the Articles of Association. Subject to the
Articles of Association, the Companies Act and other shareholders’
rights, unissued shares are at the disposal of the Board.
Variation of rights
The rights attached to any class of shares can be amended if
approved, either by 75% of shareholders holding the issued
shares in that class by amount, or by special resolution passed at
a separate meeting of the holders of the relevant class of shares.
Every member and every duly appointed proxy present at a
general meeting or class meeting has, upon a show of hands,
one vote and every member present in person or by proxy has,
upon a poll, one vote for every share held by him or her.
No person holds securities in the Company carrying special rights
with regard to control of the Company.
Derwent London shares held by the Group
At 31 December 2017 the Group held 4,952 Derwent London
shares in order to deliver the deferred bonus shares to the
Directors and other senior executives when the deferral periods
expire. Movements on the holding of these shares are detailed
in table 2.
Restrictions on transfer of securities in the Company
There are no specific restrictions on the transfer of securities
in the Company, which is governed by its Articles of Association
and prevailing legislation. The Company is not aware of any
agreements between shareholders that may result in
restrictions on the transfer of securities.
Powers in relation to the Company issuing or buying back its
own shares
At the 2017 AGM, shareholders authorised the Company to
allot relevant securities,
(i) up to a nominal amount of £1,856,497; and
(ii)
up to a nominal amount of £3,712,994, after deducting
from such limit any relevant securities allotted under (i),
in connection with an offer by way of a rights issue.
This authority is renewable annually. A special resolution will be
proposed at the 2018 AGM to grant a similar authority (i) up to
a nominal amount of £1,857,728 (being one-third of the issued
share capital of the Company) or £3,716,013 in connection with
an offer by way of a rights issue (being two-thirds of the issued
share capital).
In respect to the non-pre-emptive allotment of securities, a special
resolution will be proposed to shareholders at the 2018 AGM to
renew authority to non-pre-emptively allot securities up to a
nominal amount of £278,687 (representing 5% of the issued
share capital) in connection with an offer by way of a rights issue
(in accordance with s551 of the Companies Act). The Company
will also seek authority to make non-pre-emptive issues for cash
in connection with rights issues and otherwise up to a nominal
amount of £278,687 (representing a further 5% of the issued
share capital).
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 11,147,482 ordinary shares and the resolution sets the minimum
and maximum prices which may be paid. The Directors will only
purchase the Company’s shares in the market if they believe it is
in the best interests of shareholders generally.
Voting
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 of Association.
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.
Restrictions on voting
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 of Association) 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.
Table 2
Number of 5p ordinary shares
Percentage of issued share capital (%)
Price (£)
Year ended 31 December 2017
Year ended 31 December 2016
As at
1 January
2017
25,040
0
Acquired
–
Disposal
20,088
–
26.73
As at
31 December
2017
4,952
0
–
As at
1 January
2016
44,803
0
–
Acquired
9,906
0
31.21
Disposal
29,669
0
31.21
As at
31 December
2016
25,040
0
–
139
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 Auditor is
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 and ensure that the Auditor is
aware of such information.
Greenhouse gas emissions
Our annual GHG (greenhouse gas) emissions footprint for 2017
compared to our 2016 footprint together with a set of intensity
ratios appropriate for our business, both of which fulfil the
requirements of the Companies Act 2006 (Strategic and
Directors’ Report) Regulations 2013 is contained on page 77.
For further analysis and detail on our GHG emissions please
see our Annual Sustainability Report, which can be found at:
www.derwentlondon.com/sustainability
Going concern
Under Provision C.1.3 of the UK Corporate Governance Code,
the Board is required to report whether the business is a going
concern. In considering this requirement, the Directors have
taken into account the following:
• The Group’s latest rolling forecast for the next two years, in
particular the cash flows, borrowings and undrawn facilities.
Sensitivity analysis is included within these forecasts;
• The headroom under the Group’s financial covenants; and
• The risks included on the Group’s risk register that could impact
on the Group’s liquidity and solvency over the next 12 months.
Having due regard to these matters and after making appropriate
enquiries, the Directors have a reasonable expectation that the
Group and Company have adequate resources to continue in
operational existence until at least February 2019. Therefore,
the Board continues to adopt the going concern basis in
preparing the financial statements.
Annual General Meeting (AGM)
The 34th AGM of Derwent London plc will be held at
The Westbury hotel, Bond Street, London W1S 2YF on 18 May
2018 at 10.30 am. The Notice of Meeting together with
explanatory notes is contained in the circular to shareholders that
accompanies the report and accounts.
Significant agreements
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 of
Association give the Directors power to take such steps, including
the power to:
• Identify a substantial shareholder;
• Withhold the payment of dividends to a substantial
shareholder; and
• Require the disposal of shares forming part of a
substantial shareholding.
There is no person with whom the Group has a contractual
or other arrangement which is essential to the business of
the Company.
Amendment of Articles of Association
Unless expressly specified to the contrary in the Articles
of Association of the Company, the Company’s Articles of
Association may be amended by a special resolution of the
Company’s shareholders.
Fixed assets
The Group’s portfolio was professionally revalued at 31
December 2017, resulting in a surplus of £177.1m, before
accounting adjustments of £26.4m. The portfolio is included
in the Group balance sheet at a carrying value of £4,743m.
Further details are given in note 16 of the financial statements.
Post-balance sheet events
Details of post-balance sheet events are given in note 35 of
the financial statements.
Political donations
There were no political donations during 2017 (2016: nil).
The Strategic report and Directors’ report have been approved
by the Board of Directors and signed on its behalf by:
Auditors
PricewaterhouseCoopers LLP, which was appointed in 2014
following a competitive tender process, has expressed its
willingness to continue in office as the Group’s Auditor and
accordingly, resolutions to reappoint it and to authorise the
Directors to determine its remuneration will be proposed at
the AGM. These are resolutions 18 and 19 set out in the
Notice of Meeting.
David Lawler
Company Secretary
27 February 2018
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
140
141
03
Financial
statements
Statement of Directors’ responsibilities ���142
Independent Auditor’s report ������������������143
Group income statement �������������������������149
Group statement of
comprehensive income ������������������������150
Balance sheets ���������������������������������������� 151
Statements of changes in equity �������������152
Cash flow statements ������������������������������ 153
Notes to the financial statements ������������154
Other information
Ten-year summary ����������������������������������202
EPRA summary ����������������������������������������203
Principal properties ���������������������������������205
List of definitions �������������������������������������207
Communication with our shareholders ����210
Above and left: The White Chapel Building E1
Derwent London plc Report & Accounts 2017
Derwent London plc Report & Accounts 2017 142
143
Statement of
Directors’ responsibilities
The Directors are responsible for preparing the annual report,
the report of the Remuneration Committee and the financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the Group and Company financial statements in
accordance with International Financial Reporting Standards (IFRS)
as adopted by the EU. Under company law the Directors must not
approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Group and the
Company and of the profit or loss of the Group for that period. In
preparing these financial statements, the Directors are required to:
consistently;
• select suitable accounting policies and then apply them
• make judgements and accounting estimates that are
• state whether applicable IFRSs as adopted by the European
reasonable and prudent;
Union have been followed, subject to any material departures
disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for the maintenance and integrity
of the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
The Directors consider that the annual report and accounts,
taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess
the Group’s position, performance, business model and strategy.
Each of the Directors, whose names and functions are listed on
page 90, confirm that to the best of their knowledge:
• The Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and
fair view of the assets, liabilities, financial position and profit
and loss of the Group; and
• The Strategic Report includes a fair review of the development
and performance of the business and the position of the Group,
together with a description of the principal risks and
uncertainties that it faces.
The financial statements on pages 149 to 201 were approved by
the Board of Directors and signed on its behalf by:
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 and the Group and
enable them to ensure that the financial statements and the
report of the Remuneration Committee comply with the
Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation. They are also
responsible for safeguarding the assets of the Company
and the Group and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
John Burns
Chief Executive
Damian Wisniewski
Finance Director
27 February 2018
Independent
Auditor’s report
Report on the audit of the financial statements
Opinion
In our opinion, Derwent London plc’s Group financial statements
and Company financial statements (the ‘financial statements’):
• give a true and fair view of the state of the Group’s and of the
Company’s affairs as at 31 December 2017 and of the Group’s
profit and the Group’s and the Company’s cash flows for the
year then ended;
• have been properly prepared in accordance with IFRSs
as adopted by the European Union and, as regards the
Company’s financial statements, as applied in accordance
with the provisions of the Companies Act 2006; and
• have been prepared in accordance with the requirements of
the Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
Our audit approach
Overview
Materiality
• Overall Group materiality:
£50.1 million (2016: £50.5 million),
based on 1% of total assets.
• Specific Group materiality:
£4.0 million (2016: £4.0 million)
applied to property and other
income, administrative expenses,
provisions and working
capital balances.
• Overall Company materiality:
£34.2 million (2016: £40.4 million)
based on 2% of total assets.
Materiality
Audit scope
Key audit
matters
We have audited the financial statements, included within the
Report and Accounts (the ‘Annual Report’), which comprise:
the balance sheets as at 31 December 2017; the Group income
statement and Group statement of comprehensive income for
the year ended 31 December 2017; the cash flow statements
for the year ended 31 December 2017; the statements of changes
in equity for the year ended 31 December 2017; and the notes
to the financial statements, which include a description of the
significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law.
Our responsibilities under ISAs (UK) are further described in the
Auditors’ responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis
for our opinion.
Independence
We remained independent of the Group in accordance with the
ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard,
as applicable to listed public interest entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements.
To the best of our knowledge and belief, we declare that non-
audit services prohibited by the FRC’s Ethical Standard were
not provided to the Group or the Company.
Other than those disclosed in the Audit Committee Report, we
have provided no non-audit services to the Group or the Company
in the period from 1 January 2017 to 31 December 2017.
Audit scope
• We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial
statements as a whole, taking into account the geographic
structure of the Group, the accounting processes and controls,
and the industry in which the Group operates.
• The Group’s properties are spread across 27 statutory entities
with the Group financial statements being a consolidation of
these entities, the Company and the Group’s joint ventures.
All parts of the Group, including the joint ventures, were
identified as requiring an audit of their complete financial
information, either due to their size or their risk characteristics
or statutory requirement. This work, all of which was carried
out by the Group audit team, together with additional
procedures performed on the consolidation, gave us sufficient
appropriate audit evidence for our opinion on the Group
financial statements as a whole.
Key audit matters
• Valuation of investment properties (Group).
• Compliance with REIT guidelines (Group).
• Accounting for borrowings and derivatives (Group and parent).
The scope of our audit
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the Directors made
subjective judgements, for example in respect of significant
accounting estimates that involved making assumptions and
considering future events that are inherently uncertain.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 144
Independent
Auditor’s report
Continued
We gained an understanding of the legal and regulatory
framework applicable to the Group and the industry in which
it operates, and considered the risk of acts by the Group which
were contrary to applicable laws and regulations, including
fraud. We designed audit procedures at Group and significant
component level to respond to the risk, recognising that the risk
of not detecting a material misstatement due to fraud is higher
than the risk of not detecting one resulting from error, as fraud
may involve deliberate concealment by, for example, forgery or
intentional misrepresentations, or through collusion. We focused
on laws and regulations that could give rise to a material
misstatement in the Group and Company financial statements,
including, but not limited to, the Companies Act 2006, the Listing
Rules, the UK tax legislation, the REIT rules and equivalent local
laws and regulations applicable to the subsidiary companies.
Our tests included, but were not limited to, review of the financial
statement disclosures to underlying supporting documentation,
review of correspondence with legal advisers, enquiries of
management and review of the REIT calculations and supporting
documentation in so far as they related to the financial
statements. There are inherent limitations in the audit procedures
described above and the further removed non-compliance with
laws and regulations is from the events and transactions reflected
in the financial statements, the less likely we would become
aware of it.
We did not identify any key audit matters relating to irregularities,
including fraud. As in all of our audits we also addressed the risk of
management override of internal controls, including testing journals
and evaluating whether there was evidence of bias by the Directors
that represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’
professional judgement, were of most significance in the audit
of the financial statements of the current period and include the
most significant assessed risks of material misstatement (whether
or not due to fraud) identified by the auditors, including those
which had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of
the engagement team. These matters, and any comments we
make on the results of our procedures thereon, were addressed in
the context of our audit of the financial statements as a whole, and
in forming our opinion thereon, and we do not provide a separate
opinion on these matters. This is not a complete list of all risks
identified by our audit.
Key audit matter
Valuation of investment properties
Group
Refer to page 108 (Report of the Audit Committee), pages 165
to 168 (Notes to the financial statements – Note 16) and page
199 (Significant accounting policies).
The Group’s investment properties were valued at £4,670.7 million
as at 31 December 2017 and a revaluation gain of £147.9 million
was accounted for under ‘revaluation surplus’ in the Group income
statement. In excess of 98% of the value of the Group’s investment
property portfolio comprises offices and commercial space within
central London. The remainder of the portfolio represents a retail
park, cottages and strategic land in Scotland.
Valuations are carried out by third-party valuers in accordance
with the RICS Valuation – Professional Standards and IAS 40.
There are significant judgements and estimates to be made in
relation to the valuation of the Group’s investment properties.
Where available, the valuations take into account evidence of
market transactions for properties and locations comparable
to those of the Group.
The central London investment property portfolio mainly
features office accommodation and includes:
• Standing investments: These are existing properties that
are currently let. They are valued using the income
capitalisation method.
• Development projects: These are properties currently under
development or identified for future development. They
have a different risk and investment profile to the standing
investments. These are valued using the residual appraisal
method (i.e. by estimating the fair value of the completed
project using the income capitalisation method less
estimated costs to completion and a risk premium).
The most significant judgments and estimates affecting the
valuation included yields and estimated rental value (ERV)
growth (as described in note 16 of the financial statements).
For development projects, other assumptions including costs
to completion and risk premium assumptions are also factored
into the valuation.
The existence of significant estimation uncertainty, coupled
with the fact that only a small percentage difference in individual
property valuations when aggregated could result in material
misstatement, is why we have given specific audit focus and
attention to this area.
Compliance with REIT guidelines
Group
Refer to page 108 (Report of the Audit Committee) and page 155
(Significant judgements, key assumptions and estimates).
The UK REIT regime grants companies tax exempt status
provided they meet the rules within the regime. The rules are
complex and the tax exempt status has a significant impact on
the financial statements. The complexity of the rules creates a
risk of inadvertently breaching and the Group’s profit becoming
subject to tax.
145
How our audit addressed the key audit matter
The valuers used by the Group are CBRE Limited for the central
London portfolio and Savills for the remaining investment property
portfolio in Scotland. We assessed the competence and capabilities
of the firms and verified their qualifications by discussing the scope
of their work and reviewing the terms of their engagements for
unusual terms or fee arrangements. Based on this work, we are
satisfied that the firms remain independent and competent and
that the scope of their work was appropriate.
We tested the data inputs underpinning the investment property
valuation for a sample of properties, including rental income,
acquisitions and capital expenditure, by agreeing them to the
underlying property records held by the Group to assess the
reliability, completeness and accuracy of the underlying data.
The underlying property records were assessed for reliability by
reviewing signed and approved lease contracts or sale/purchase
contracts and by reviewing approved third-party invoices. For the
properties currently under development, we traced the costs to
date included within development appraisals to quantity surveyor
reports and confirmed that they were comparable to costs
incurred on similar completed projects. In addition, we visited
a number of the key properties in central London that are under
development to confirm the status of developments. We met with
the external valuers independently of management and obtained
the valuation reports to discuss and challenge the valuation
methodology and assumptions.
We involved our internal valuation specialists to compare the
valuations of each property to our independently formed market
expectations and challenged any differences. In doing this we
used evidence of comparable market transactions and focused
in particular on properties where the growth in capital values was
higher or lower than our expectations based on market indices.
We identified the following assets for further testing: standing
investments where the valuation fell outside the expected range;
ongoing and planned development projects; high value assets
over £100m; and acquisitions.
In relation to these assets, we found that yield rates and ERVs were
predominantly consistent with comparable information for central
London offices and assumptions appropriately reflected comparable
market information. Where assumptions did not fall within our
expected range, we assessed whether additional evidence presented
in arriving at the final valuations was appropriate, and, whether
this was robustly challenged by the external independent valuers.
Variances were predominantly due to property specific factors
such as new lettings at higher rents, movements in ERV or yield
to reflect market transactions in close proximity or the derisking
of development projects nearing completion. We verified the
movements to supporting documentation including evidence
of comparable market transactions where appropriate.
We challenged the Directors and Audit Committee on the
movements in the valuations and found that they were able to
provide explanations and refer to appropriate supporting evidence.
We confirmed our understanding of management’s approach to
ensuring compliance with the REIT regime rules.
We obtained management’s calculations and supporting
documentation, checking their accuracy by verifying the inputs
and calculation. We involved our internal specialists to verify the
accuracy of the application of the rules.
We found that the assessment prepared was free from material
error and consistent with the UK REIT guidelines.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 146
Independent
Auditor’s report
Continued
Key audit matter
Accounting for borrowings and derivatives
Group and parent
Refer to page 108 (Report of the Audit Committee), pages 172 to
180 (Notes to the financial statements – Note 23) and pages 200
to 201 (Significant accounting policies).
How our audit addressed the key audit matter
We obtained and reviewed each loan contract to understand the
terms and conditions. Where debt covenants were identified, we
re-performed management’s calculations to verify compliance
with the contracts. The carrying value of all debt was agreed to
third-party confirmations.
The Group has secured and unsecured debt totalling £730.8 million
(2016: £898.6 million). The debt includes unsecured convertible
debt of £145.6 million (2016: £142.9 million) with an option for the
Group to convert the debt when certain criteria have been met.
The Group uses interest rate swaps on a portion of its debt.
The interest rate swaps were valued at 31 December 2017 by
external valuers and the fair value was £7.9 million (2016: £17.3
million). The valuation of the swaps is based on market movements
which can fluctuate significantly in the year and could have a
material impact on the Group financial statements. The valuation
also involves judgement and therefore is considered an area of
audit focus.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the
Group and the Company, the accounting processes and controls,
and the industry in which they operate.
For derivatives, we agreed the carrying value to valuations obtained
directly from the third-party valuers, JC Rathbone Associates.
We assessed the competence and capabilities of the external
valuers by considering their qualifications and market experience.
We involved our internal specialists who performed independent
valuations to recalculate the value using independent market data.
From our work on of the terms of the debt arrangements in place
as at 31 December 2017, we consider the borrowings and derivatives
to be accounted for appropriately, valued correctly in the context
of materiality, and disclosed appropriately.
Materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to
determine the scope of our audit and the nature, timing and
extent of our audit procedures on the individual financial
statement line items and disclosures and in evaluating the
effect of misstatements, both individually and in aggregate
on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
Group financial statements
£50.1 million (2016: £50.5 million).
Company financial statements
£34.2 million (2016: £40.4 million).
How we determined it 1% of total assets.
2% of total assets.
Specific materiality
£4.0 million (2016: £4.0 million).
How we determined it 5% of profit before tax excluding investment property
–
–
valuation movements and profit on disposal of
investment properties and net finance costs (capped
at £4.0m).
Rationale for
benchmark applied
The key driver of the business and determinant of the
Group's value is direct property investments. Due to
this, the key area of focus in the audit is the valuation
of investment properties. On this basis, we set an
overall Group materiality level based on total assets.
In addition, a number of key performance indicators
of the Group are driven by income statement items
and we therefore also applied a lower specific materiality
for testing property and other income, administrative
expenses, provisions and working capital balances.
The key driver of the business and determinant of the
Company's value is investments in subsidiaries. Due to
this, the key area of focus in the audit is the valuation
of investments in subsidiaries. On this basis, we set an
overall Company materiality level based on total assets.
For each component in the scope of our Group audit, we
allocated a materiality that is less than our overall Group
materiality. The range of materiality allocated across
components was calculated individually based on the
materiality of each statutory entity.
We agreed with the Audit Committee that we would report
to them misstatements identified during our audit above
£2.5 million (Group audit) (2016: £2.6 million) and £1.7 million
(Company audit) (2016: £2.0 million) as well as misstatements
below those amounts that, in our view, warranted reporting for
qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
We are required to report if we
have anything material to add or
draw attention to in respect of the
Directors’ statement in the financial
statements about whether the Directors
considered it appropriate to adopt the
going concern basis of accounting
in preparing the financial statements
and the Directors’ identification of any
material uncertainties to the Group’s
and the Company’s ability to continue
as a going concern over a period of
at least 12 months from the date of
approval of the financial statements.
We are required to report if the
Directors’ statement relating to Going
Concern in accordance with Listing Rule
9.8.6R(3) is materially inconsistent with
our knowledge obtained in the audit.
Outcome
We have nothing material
to add or to draw
attention to. However,
because not all future
events or conditions
can be predicted, this
statement is not a
guarantee as to the
Group’s and Company’s
ability to continue as a
going concern.
We have nothing to
report.
Reporting on other information
The other information comprises all of the information in the
Annual Report other than the financial statements and our
auditors’ report thereon. The Directors are responsible for the
other information. Our opinion on the financial statements does
not cover the other information and, accordingly, we do not
express an audit opinion or, except to the extent otherwise
explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If we identify
an apparent material inconsistency or material misstatement, we
are required to perform procedures to conclude whether there is
a material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact.
We have nothing to report based on these responsibilities.
With respect to the Strategic report and Directors’ report, we
also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on the responsibilities described above and our work
undertaken in the course of the audit, the Companies Act 2006,
(CA06), ISAs (UK) and the Listing Rules of the Financial Conduct
Authority (FCA) require us also to report certain opinions and
matters as described below (required by ISAs (UK) unless
otherwise stated).
147
Strategic report and Directors’ report
In our opinion, based on the work undertaken in the course
of the audit, the information given in the Strategic report and
Directors’ report for the year ended 31 December 2017 is
consistent with the financial statements and has been prepared
in accordance with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Group and
Company and their environment obtained in the course of the
audit, we did not identify any material misstatements in the
Strategic report and Directors’ report. (CA06)
The Directors’ assessment of the prospects of the Group
and of the principal risks that would threaten the solvency
or liquidity of the Group
We have nothing material to add or draw attention to regarding:
• The Directors’ confirmation on page 113 of the Annual Report
that they have carried out a robust assessment of the principal
risks facing the Group, including those that would threaten its
business model, future performance, solvency or liquidity.
• The disclosures in the Annual Report that describe those risks
• The Directors’ explanation on page 35 of the Annual Report
and explain how they are being managed or mitigated.
as to how they have assessed the prospects of the Group, over
what period they have done so and why they consider that
period to be appropriate, and their statement as to whether
they have a reasonable expectation that the Group will be
able to continue in operation and meet its liabilities as they fall
due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications
or assumptions.
We have nothing to report having performed a review of the
Directors’ statement that they have carried out a robust
assessment of the principal risks facing the Group and statement
in relation to the longer-term viability of the Group. Our review
was substantially less in scope than an audit and only consisted of
making inquiries and considering the Directors’ process supporting
their statements; checking that the statements are in alignment
with the relevant provisions of the UK Corporate Governance
Code (the ‘Code’); and considering whether the statements are
consistent with the knowledge and understanding of the Group
and Company and their environment obtained in the course of
the audit. (Listing Rules).
Other Code Provisions
We have nothing to report in respect of our responsibility to
report when:
• The statement given by the Directors, on page 142, that they
consider the Annual Report taken as a whole to be fair, balanced
and understandable, and provides the information necessary
for the members to assess the Group’s and Company’s position
and performance, business model and strategy is materially
inconsistent with our knowledge of the Group and Company
obtained in the course of performing our audit.
• The section of the Annual Report on pages 108 to 109
describing the work of the Audit Committee does not
appropriately address matters communicated by us to
the Audit Committee.
• The Directors’ statement relating to the Company’s compliance
with the Code does not properly disclose a departure from a
relevant provision of the Code specified, under the Listing
Rules, for review by the auditors.
Directors’ remuneration
In our opinion, the part of the Directors’ remuneration report to
be audited has been properly prepared in accordance with the
Companies Act 2006 (CA06).
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 148
Independent
Auditor’s report
Continued
Responsibilities for the financial statements and the audit
Responsibilities of the Directors for the financial statements
As explained more fully in the Statement of Directors’
Responsibilities set out on page 142, the Directors are responsible
for the preparation of the financial statements in accordance with
the applicable framework and for being satisfied that they give
a true and fair view. The Directors are also responsible for such
internal control as they determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible
for assessing the Group’s and the Company’s ability to continue as
a going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless
the Directors either intend to liquidate the Group or the Company
or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditors’ report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect
a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and
only for the Company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other
purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to
whom this report is shown or into whose hands it may come
save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
• We have not received all the information and explanations we
• Adequate accounting records have not been kept by the
require for our audit; or
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
are not made; or
• Certain disclosures of Directors’ remuneration specified by law
• The Company financial statements and the part of the Directors’
remuneration report to be audited are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the audit committee, we were
appointed by the Directors on 14 May 2014 to audit the financial
statements for the year ended 31 December 2014 and subsequent
financial periods. The period of total uninterrupted engagement
is four years, covering the years ended 31 December 2014 to
31 December 2017.
Craig Hughes
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
27 February 2018
Group income statement
for the year ended 31 December 2017
Gross property and other income
Net property and other income
Administrative expenses
Revaluation surplus/(deficit)
Profit on disposal of investment property
Profit from operations
Finance costs
Movement in fair value of derivative financial instruments
Financial derivative termination costs
Share of results of joint ventures
Profit before tax
Tax charge
Profit for the year
Attributable to:
Equity shareholders
Non-controlling interest
Earnings per share
Diluted earnings per share
The notes on pages 154 to 201 form part of these financial statements.
149
Note
5
5
16
6
7
8
9
10
15
29
38
38
2017
£m
202.6
164.8
(28.2)
147.9
50.3
334.8
(27.1)
9.4
(7.3)
5.0
314.8
(1.8)
2016
£m
193.7
149.2
(30.9)
(37.1)
7.5
88.7
(27.8)
0.3
(9.0)
2.3
54.5
(0.9)
313.0
53.6
314.0
(1.0)
313.0
58.7
(5.1)
53.6
281.79p
52.73p
281.12p
52.59p
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
150
Group statement of
comprehensive income
for the year ended 31 December 2017
Profit for the year
Actuarial losses on defined benefit pension scheme
Revaluation surplus/(deficit) of owner-occupied property
Deferred tax (charge)/credit on revaluation
Other comprehensive income/(expense) that will not be reclassified to profit or loss
Total comprehensive income relating to the year
Attributable to:
Equity shareholders
Non-controlling interest
The notes on pages 154 to 201 form part of these financial statements.
Note
14
16
26
2017
£m
313.0
(0.9)
1.8
(0.7)
0.2
2016
£m
53.6
(2.1)
(5.5)
1.3
(6.3)
313.2
47.3
314.2
(1.0)
313.2
52.4
(5.1)
47.3
Balance sheets
as at 31 December 2017
Non-current assets
Investment property
Property, plant and equipment
Investments
Deferred tax
Other receivables
Current assets
Trading property
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Corporation tax liability
Provisions
Non-current liabilities
Borrowings
Derivative financial instruments
Provisions
Pension scheme deficit
Deferred tax
Total liabilities
Total net assets
Equity
Share capital
Share premium
Other reserves
Retained earnings1
Equity shareholders’ funds
Non-controlling interest
Total equity
151
Registered No. 1819699
Note
16
17
18
26
19
16
20
31
21
22
23
23
22
14
26
27
28
28
28
Group
2017
£m
4,670.7
52.2
39.7
–
105.2
4,867.8
25.3
58.0
87.0
170.3
2016
£m
4,803.8
38.1
36.0
–
109.1
4,987.0
11.7
38.5
17.7
67.9
Company
2017
£m
–
5.1
1,225.8
2.1
–
1,233.0
–
1,469.6
85.8
1,555.4
2016
£m
–
3.2
1,186.7
2.2
–
1,192.1
–
1,513.2
6.9
1,520.1
5,038.1
5,054.9
2,788.4
2,712.2
86.7
2.1
0.2
89.0
744.9
7.9
0.4
0.4
2.3
755.9
110.0
1.6
0.4
112.0
922.5
17.3
0.3
0.3
3.1
943.5
902.3
1.1
0.2
903.6
516.3
7.0
0.4
0.4
–
524.1
658.8
0.1
0.4
659.3
682.7
15.5
0.3
0.3
–
698.8
844.9
1,055.5
1,427.7
1,358.1
4,193.2
3,999.4
1,360.7
1,354.1
5.6
189.2
942.9
2,990.6
4,128.3
64.9
4,193.2
5.6
188.4
950.4
2,787.9
3,932.3
67.1
3,999.4
5.6
189.2
929.1
236.8
1,360.7
–
1,360.7
5.6
188.4
930.8
229.3
1,354.1
–
1,354.1
1 Retained earnings for the Company include profit for the year of £125.7m (2016: loss of £35.1m).
The financial statements were approved by the Board of Directors and authorised for issue on 27 February 2018.
John Burns
Chief Executive
Damian Wisniewski
Finance Director
The notes on pages 154 to 201 form part of these financial statements.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
152
Statements of changes in equity
for the year ended 31 December 2017
Cash flow statements
for the year ended 31 December 2017
Group
At 1 January 2017
Profit/(loss) for the year
Other comprehensive income/(expense)
Transfer of owner-occupied property
Share-based payments
Dividends paid
At 31 December 2017
At 1 January 2016
Profit for the year
Other comprehensive expense
Share-based payments
Dividends paid
Scrip dividends
At 31 December 2016
Company
At 1 January 2017
Profit for the year
Other comprehensive expense
Share-based payments
Dividends paid
At 31 December 2017
At 1 January 2016
Loss for the year
Other comprehensive expense
Share-based payments
Dividends paid
Scrip dividends
At 31 December 2016
1 See note 28.
Share
capital
£m
Share
premium
£m
Other
reserves1
£m
Retained
earnings
£m
Equity
shareholders’
funds
£m
Non-
controlling
interest
£m
5.6
–
–
–
–
–
5.6
5.6
–
–
–
–
–
5.6
5.6
–
–
–
–
5.6
5.6
–
–
–
–
–
5.6
188.4
–
–
–
0.8
–
189.2
186.3
–
–
1.0
–
1.1
188.4
188.4
–
–
0.8
–
189.2
186.3
–
–
1.0
–
1.1
188.4
950.4
–
1.1
(6.9)
(1.7)
–
942.9
952.9
–
(4.2)
1.7
–
–
950.4
930.8
–
–
(1.7)
–
929.1
929.1
–
–
1.7
–
–
930.8
2,787.9
314.0
(0.9)
6.9
2.8
(120.1)
2,990.6
2,777.7
58.7
(2.1)
3.3
(48.6)
(1.1)
2,787.9
229.3
125.7
(0.9)
2.8
(120.1)
236.8
312.9
(35.1)
(2.1)
3.3
(48.6)
(1.1)
229.3
3,932.3
314.0
0.2
–
1.9
(120.1)
4,128.3
3,922.5
58.7
(6.3)
6.0
(48.6)
–
3,932.3
1,354.1
125.7
(0.9)
1.9
(120.1)
1,360.7
1,433.9
(35.1)
(2.1)
6.0
(48.6)
–
1,354.1
67.1
(1.0)
–
–
–
(1.2)
64.9
72.9
(5.1)
–
–
(0.7)
–
67.1
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
equity
£m
3,999.4
313.0
0.2
–
1.9
(121.3)
4,193.2
3,995.4
53.6
(6.3)
6.0
(49.3)
–
3,999.4
1,354.1
125.7
(0.9)
1.9
(120.1)
1,360.7
1,433.9
(35.1)
(2.1)
6.0
(48.6)
–
1,354.1
The notes on pages 154 to 201 form part of these financial statements.
Operating activities
Property income
Property expenses
Cash paid to and on behalf of employees
Other administrative expenses
Interest paid
Other finance costs
Other income
Tax paid in respect of operating activities
Net cash from/(used in) operating activities
Investing activities
Acquisition of properties
Capital expenditure on the property portfolio
Disposal of investment and trading properties
Investment in joint ventures
Repayment of shareholder loan
Purchase of property, plant and equipment
VAT (paid)/received
Net cash from/(used in) investing activities
Financing activities
Net movement in intercompany loans
Net movement in revolving bank loans
Drawdown of private placement notes
Financial derivative termination costs
Net proceeds of share issues
Dividends paid to non-controlling interest holder
Dividends paid
Net cash (used in)/from financing activities
Increase in cash and cash equivalents in the year
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The notes on pages 154 to 201 form part of these financial statements.
Group
2017
£m
154.3
(19.2)
(19.5)
(7.3)
(21.7)
(3.2)
2.9
(2.8)
83.5
(8.5)
(165.0)
472.9
–
1.3
(5.0)
(11.7)
284.0
–
(170.8)
–
(7.3)
0.8
(1.2)
(119.7)
(298.2)
69.3
17.7
87.0
2016
£m
147.1
(18.0)
(21.8)
(5.6)
(22.0)
(2.3)
2.4
(2.1)
77.7
(18.0)
(213.5)
224.7
(3.0)
–
(4.5)
4.8
(9.5)
–
(103.9)
104.3
(9.0)
1.0
(0.8)
(48.6)
(57.0)
11.2
6.5
17.7
Company
2017
£m
–
–
(19.5)
(7.9)
(16.8)
(2.2)
2.4
–
(44.0)
–
–
–
–
1.3
(2.7)
–
(1.4)
420.9
(170.4)
–
(7.3)
0.8
–
(119.7)
124.3
78.9
6.9
85.8
Note
7
7
7
25
27
30
31
153
2016
£m
–
–
(21.7)
(6.0)
(20.8)
(1.3)
2.3
–
(47.5)
–
–
–
(1.3)
–
(1.4)
–
(2.7)
107.7
(103.9)
104.3
(9.0)
1.0
–
(48.6)
51.5
1.3
5.6
6.9
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 154
155
Notes to the financial statements
for the year ended 31 December 2017
1 Basis of preparation
The financial statements have been prepared in accordance
with International Financial Reporting Standards, as adopted
by the European Union (IFRS), IFRS Interpretations Committee
interpretations and with those parts of the Companies Act
2006 applicable to companies reporting under IFRS. The
financial statements have been prepared under the historical
cost convention as modified by the revaluation of investment
properties, property, plant and equipment and financial
assets and liabilities held for trading.
Going concern
The Board continues to adopt the going concern basis in preparing
these consolidated financial statements. In considering this
requirement, the Directors have taken into account the following:
• The Group’s latest rolling forecast for the next two years, in
particular the cash flows, borrowings and undrawn facilities.
Sensitivity analysis is included within these forecasts.
• The headroom under the Group’s financial covenants.
• The current and forecast risks included on the Group’s
Risk Register that could impact on the Group’s liquidity
and solvency over the next 12 months from the date of
approval of the financial statements.
2 Changes in accounting policies
The principal accounting policies are described in note 41 and are
consistent with those applied in the Group’s financial statements
for the year to 31 December 2016, as amended to reflect the
adoption of new standards, amendments and interpretations
which became effective in the year as shown below.
New standards adopted during the year
The following standards, amendments and interpretations
endorsed by the EU were effective for the first time for the
Group’s 31 December 2017 year end and had no material
impact on the financial statements.
IAS 7 (amended) – Statement of Cash Flows;
IAS 12 (amended) – Income Taxes; and
IFRS 12 – Disclosure of Interests in Other Entities.
Standards in issue but not yet effective
The following standards, amendments and interpretations were
in issue at the date of approval of these financial statements
but were not yet effective for the current accounting year and
have not been adopted early. Based on the Group’s current
circumstances the Directors do not anticipate that their adoption
in future periods will have a material impact on the financial
statements of the Group.
IFRS 2 (amended) – Share Based Payments;
IFRS 4 (amended) – Insurance Contracts;
IAS 40 (amended) – Investment Property;
IFRS 17 – Insurance Contracts;
IFRIC 22 – Foreign Currency Transactions and Advance
Consideration;
IFRIC 23 – Uncertainty over Income Tax Treatments; and
Annual Improvements to IFRSs (2014 – 2016 cycle).
In addition to the above, IFRS 9 Financial Instruments, IFRS 15
Revenue from Contracts with Customers and IFRS 16 Leases were
in issue at the date of approval of these financial statements but
were not yet effective for the current accounting period and have
not been adopted early.
IFRS 9 Financial Instruments (effective from 1 January 2018)
This standard applies to classification and measurement of
financial assets and financial liabilities, impairment provisioning
and hedge accounting. Management’s assessment of IFRS 9
determined that the main area of potential impact was impairment
provisioning on trade receivables for the Group and balances due
from subsidiaries for the Company. In both cases, this was due
to the requirement to use a forward-looking expected credit loss
model. Having carried out an assessment, it is considered that
the introduction of IFRS 9 will not have a material impact on the
financial statements of either the Group or the Company.
IFRS 15 Revenue from Contracts with Customers
(effective from 1 January 2018)
IFRS 15 combines a number of previous standards, setting out
a five-step model for the recognition of revenue and establishing
principles for reporting useful information to users of financial
statements about the nature, amount, timing and uncertainty
of revenue. The standard is applicable to service charge income,
facilities management income, investment property disposals
and trading property disposals, but excludes rent receivable,
which is within the scope of IFRS 16. The Group has completed
its assessment of IFRS 15 and considers that its adoption will
not have a material impact on the financial statements.
IFRS 16 Leases (effective 1 January 2019)
This standard does not substantially affect the accounting for
rental income earned by the Group as lessor. The main impact
of the standard is the removal of the distinction between
operating and finance leases for lessees, which will result
in almost all leases being recognised on the balance sheet.
As the Group does not hold any material operating leases
as lessee, the impact of the standard is not expected to be
material to the financial statements.
4 Segmental information
IFRS 8 Operating Segments requires operating segments to
be identified on the basis of internal financial reports about
components of the Group that are regularly reviewed by the
chief operating decision maker (which in the Group’s case is
the Executive Committee comprising the six executive Directors
and five senior managers) in order to allocate resources to the
segments and to assess their performance.
The internal financial reports received by the Group’s Executive
Committee contain financial information at a Group level as a
whole and there are no reconciling items between the results
contained in these reports and the amounts reported in the
financial statements. These internal financial reports include the
IFRS figures but also report the non-IFRS figures for the EPRA
earnings and net asset value. Reconciliations of each of these
figures to their statutory equivalents are detailed in note 38.
Additionally, information is provided to the Executive Committee
showing gross property income and property valuation by
individual property. Therefore, for the purposes of IFRS 8, each
individual property is considered to be a separate operating
segment in that its performance is monitored individually.
The Group’s property portfolio includes investment property,
owner-occupied property and trading property and comprised
97% office buildings1 by value at 31 December 2017 (2016: 95%).
The Directors consider that these individual properties have similar
economic characteristics and therefore have been aggregated
into a single operating segment. The remaining 3% (2016: 5%)
represented a mixture of retail, hotel, residential and light industrial
properties, as well as land, each of which is de minimis in its own
right and below the quantitative threshold in aggregate. Therefore,
in the view of the Directors, there is one reportable segment under
the provisions of IFRS 8.
All of the Group’s properties are based in the UK. No geographical
grouping is contained in any of the internal financial reports
provided to the Group’s Executive Committee and, therefore, no
geographical segmental analysis is required by IFRS 8. However,
geographical analysis is included in the tables below to provide
users with additional information regarding the areas contained
in the Strategic Report. The majority of the Group’s properties
are located in London (West End central, West End borders and
City borders), with the remainder in Scotland (Provincial).
1 Some office buildings have an ancillary element such as retail or residential.
3 Significant judgements, key assumptions and estimates
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.
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.
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
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.
Key sources of estimation uncertainty
Property portfolio valuation
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.
More information is provided in note 16.
Borrowings and derivatives
The fair values of the Group’s borrowings and interest rate swaps
are based on estimates provided by independent third parties.
The estimates are based on the terms of each of the financial
instruments using data available in the financial markets. More
information is provided in note 23.
Significant judgements
Compliance with the real estate investment trust (REIT)
taxation regime
As a consequence of the Group’s REIT status, income and
chargeable gains on the qualifying property rental business
are exempt from corporation tax.
In order for the Group to remain in the REIT regime, it is subject
to a number of criteria that it must meet in each accounting
period. The Group comfortably met all the criteria in 2017
ensuring our REIT status is maintained. The Directors intend that
the Group should continue as a REIT for the foreseeable future.
Income that does not qualify as property income within the
REIT rules is subject to corporation tax in the normal way.
Such income includes development fees, interest income, sale
of trading properties and our interest in unelected joint ventures.
The Group has maintained its ‘low risk’ rating with HMRC due to
the continued regular dialogue we maintain with them and our
transparent approach.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 156
Notes to the financial statements
Continued
4 Segmental information (continued)
Gross property income
West End central
West End borders
City borders
Provincial
2017
2016
Office
buildings
£m
79.4
18.4
69.0
–
166.8
Other
£m
0.4
–
0.2
4.8
5.4
Total
£m
79.8
18.4
69.2
4.8
172.2
Office
buildings
£m
81.4
17.2
48.0
–
146.6
Other
£m
4.2
–
0.2
5.0
9.4
Total
£m
85.6
17.2
48.2
5.0
156.0
A reconciliation of gross property income to gross property and other income is given in note 5.
Property portfolio
Carrying value
West End central
West End borders
City borders
Provincial
Fair value
West End central
West End borders
City borders
Provincial
2017
2016
Office
buildings
£m
2,356.8
439.3
1,799.1
–
4,595.2
2,394.9
459.7
1,844.4
–
4,699.0
Other
£m
42.2
–
6.5
98.6
147.3
43.7
–
6.4
101.2
151.3
Total
£m
2,399.0
439.3
1,805.6
98.6
4,742.5
2,438.6
459.7
1,850.8
101.2
4,850.3
Office
buildings
£m
2,531.5
408.3
1,665.4
–
4,605.2
2,573.9
426.5
1,693.6
–
4,694.0
Other
£m
141.1
–
6.4
97.0
244.5
142.1
–
6.3
100.3
248.7
Total
£m
2,672.6
408.3
1,671.8
97.0
4,849.7
2,716.0
426.5
1,699.9
100.3
4,942.7
A reconciliation between the fair value and carrying value of the portfolio is set out in note 16.
157
2016
£m
155.4
0.1
0.5
156.0
12.5
22.8
2.4
193.7
155.4
(0.7)
22.8
(24.1)
(1.3)
(7.5)
145.9
12.5
(10.6)
1.9
(1.6)
0.5
2.4
0.1
(0.1)
0.1
149.2
2017
£m
172.1
0.1
–
172.2
–
27.7
2.7
202.6
172.1
(0.7)
27.7
(29.6)
(1.9)
(8.4)
161.1
–
–
–
1.0
–
2.7
0.1
(0.2)
0.1
164.8
5 Property and other income
Gross rental income
Surrender premiums received
Other property income
Gross property income
Trading property sales proceeds
Service charge income
Other income
Gross property and other income
Gross rental income
Ground rent
Service charge income
Service charge expenses
Other property costs
Net rental income
Trading property sales proceeds
Trading property cost of sales
Profit on trading property disposals
Reversal of write-down/(write-down) of trading property
Other property income
Other income
Surrender premiums received
Reverse surrender premiums
Dilapidation receipts
Net property and other income
Rental income included £17.1m (2016: £10.3m) relating to rents recognised in advance of cash receipts.
In 2017 and 2016, other income related to fees and commissions earned in relation to the management of the Group’s properties
and was recognised in the Group income statement in accordance with the delivery of services.
6 Profit on disposal of investment property
Gross disposal proceeds
Costs of disposal
Net disposal proceeds
Carrying value
Adjustment for lease costs and rents recognised in advance
Adjustment for capital contributions
Adjustment for headlease liability
2017
£m
486.3
(3.5)
482.8
(418.9)
(19.2)
(4.2)
9.8
50.3
2016
£m
210.6
(2.6)
208.0
(198.8)
(1.7)
–
–
7.5
Included within profit on disposal is £14.6m relating to the sale of 132-142 Hampstead Road NW1 in March 2017 and £24.9m relating
to the sale of The Copyright Building W1 in November 2017. In addition, gross disposal proceeds reflect £5.0m of accrued overage in
relation to Riverwalk House SW1 which was originally sold in 2012.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 158
159
Notes to the financial statements
Continued
7 Finance costs
Finance costs
Bank loans and overdraft
Non-utilisation fees
Unsecured convertible bonds
Secured bonds
Unsecured private placement notes
Secured loan
Amortisation of issue and arrangement costs
Amortisation of the fair value of the secured bonds
Finance lease costs
Other
Gross interest costs
Less: interest capitalised
2017
£m
5.9
1.8
3.8
11.4
8.3
3.3
2.0
(1.1)
1.0
0.1
36.5
(9.4)
27.1
2016
£m
11.8
1.2
3.8
11.4
7.0
3.3
2.2
(1.0)
1.0
0.1
40.8
(13.0)
27.8
Finance costs of £9.4m (2016: £13.0m) have been capitalised on development projects, in accordance with IAS 23 Borrowing Costs,
using the Group’s average cost of borrowings during each quarter. Total finance costs paid to 31 December 2017 were £34.3m
(2016: £37.3m) of which £9.4m (2016: £13.0m) was included in capital expenditure on the property portfolio in the Group cash
flow statement under investing activities.
8 Financial derivative termination costs
In 2017, the Group incurred costs of £7.3m (2016: £9.0m) deferring, re-couponing or terminating interest rate swaps.
9 Share of results of joint ventures
Revaluation surplus
Other profit from operations after tax
See note 18 for further details of the Group’s joint ventures.
10 Profit before tax
This is arrived at after charging:
Depreciation and amortisation
Contingent rent payable under property finance leases
Auditor’s remuneration
Audit – Group
Audit – subsidiaries
2017
£m
3.9
1.1
5.0
2017
£m
0.7
0.7
0.3
0.1
2016
£m
1.8
0.5
2.3
2016
£m
0.4
0.7
0.3
0.1
In 2017, audit fees for the Group were £280,000 (2016: £270,000) and for the subsidiaries £60,000 (2016: £60,000). Fees for
non-audit services, relating to the half year review and a review of the turnover certificates, were £43,715 (2016: £38,500).
Details of the Auditor’s independence are included on pages 108 to 109.
11 Directors’ emoluments
Remuneration for management services
Share-based payments
Post-employment benefits
National insurance contributions
2017
£m
5.4
1.4
0.7
7.5
1.0
8.5
2016
£m
3.9
4.1
0.7
8.7
1.2
9.9
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. Of the £1.1m charged in 2017 (2016: £4.9m), £0.9m (2016: £4.7m) related
to equity-settled share options and deferred bonus shares.
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 (see page 116). The only key management personnel
are the Directors.
12 Employees
Staff costs, including those of Directors:
Wages and salaries
Social security costs
Other pension costs
Share-based payments expense relating to equity-settled schemes
Group
2017
£m
14.8
2.2
1.8
1.1
19.9
2016
£m
15.6
2.2
1.9
4.9
24.6
Company
2017
£m
14.7
2.1
1.8
1.1
19.7
2016
£m
15.5
2.1
1.8
4.9
24.3
The monthly average number of employees in the Group during the year, excluding Directors, was 105 (2016: 100). The monthly
average number of employees in the Company during the year, excluding Directors, was 94 (2016: 83). All were employed in
administrative or support roles. Of the Group employees there were 13 (2016: 13) whose costs were recharged or partially recharged
to tenants.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 160
161
Notes to the financial statements
Continued
13 Share-based payments
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, other than the employee share plan that is detailed below.
Group and Company – equity-settled option scheme
This scheme is separate from the performance share plan that is disclosed in the report of the Remuneration Committee and the
Directors are not entitled to any awards under this scheme.
Exercise
price
£
Adjusted
exercise price1
£
Outstanding
at
1 January
Movement in options
Granted
Adjustment1
Exercised
Lapsed
6.10
16.60
16.89
21.61
26.91
34.04
30.64
28.42
–
–
–
–
–
–
–
1,600
200
16,420
55,950
76,900
67,450
93,250
–
311,770
2,465
5,200
28,680
86,750
93,350
76,000
–
292,445
–
–
–
–
–
–
–
131,100
131,100
–
–
–
–
–
–
95,250
95,250
–
–
223
582
862
1,018
1,336
1,893
5,914
–
–
–
–
–
–
–
–
(600)
–
(2,000)
(17,200)
(13,360)
–
–
–
(33,160)
(865)
(5,000)
(12,260)
(30,800)
–
–
–
(48,925)
Outstanding
at
31 December
1,000
200
14,643
39,332
64,402
66,718
91,936
132,993
411,224
–
–
–
–
–
(1,750)
(2,650)
–
(4,400)
–
–
–
–
(16,450)
(8,550)
(2,000)
(27,000)
1,600
200
16,420
55,950
76,900
67,450
93,250
311,770
Year of grant
For the year to 31 December 2017
2009
2011
2012
2013
2014
2015
2016
2017
6.10
16.60
17.19
21.99
27.39
34.65
31.20
28.93
6.10
16.60
17.19
21.99
27.39
34.65
31.20
For the year to 31 December 2016
2009
2011
2012
2013
2014
2015
2016
Number of shares:
Exercisable
Non-exercisable
Weighted average exercise price of share options:
Exercisable
Non-exercisable
Weighted average remaining contracted life of share options:
Exercisable
Non-exercisable
Weighted average exercise price of share options that lapsed:
Exercisable
Non-exercisable
31 December
2017
31 December
2016
1 January
2016
119,577
291,647
74,170
237,600
36,345
256,100
£23.75
£30.41
£20.57
£30.95
£16.35
£27.72
5.79 years
8.48 years
6.06 years
8.32 years
6.05 years
8.23 years
–
£32.57
–
£29.97
–
£26.28
1 Following the payment of the special dividend of 52 pence per share on 9 June 2017, the Remuneration Committee exercised their discretion and adjusted the number of
outstanding unapproved ‘B’ options and their option price, to ensure participants were not disadvantaged by the payment to shareholders of the special dividend.
The weighted average share price at which options were exercised during 2017 was £28.87 (2016: £31.81).
The weighted average fair value of options granted during 2017 was £6.05 (2016: £6.84).
The following information is relevant in the determination of the fair value of the options granted during 2017 and 2016 under the
equity-settled employee share plan operated by the Group.
Option pricing model used
Risk-free interest rate
Volatility
Dividend yield
2017
Binomial lattice
0.4%
24.0%
1.8%
2016
Binomial lattice
0.8%
23.0%
1.4%
For both the 2017 and 2016 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 as the standard deviation of expected share price returns, is based on a statistical analysis of daily
prices over the past four years.
14 Pension costs
The Group and Company operate both 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.
Defined contribution plan
The total expense relating to this plan in the current year was £1.6m (2016: £1.6m).
Defined benefit plan
The Company sponsors the scheme which is a funded defined benefit arrangement. This is a separate trustee-administered fund
holding the pension scheme assets to meet long-term pension liabilities for some 63 past and four present employees as at
31 October 2016. The level of retirement benefit is principally based on basic salary at the last scheme anniversary of employment
prior to leaving active service and is linked to changes in inflation up to retirement.
The scheme is subject to the funding legislation, which came into force on 30 December 2005, outlined in the Pensions Act 2004.
This, together with documents issued by the Pensions Regulator, and Guidance Notes adopted by the Financial Reporting Council,
set out the framework for funding defined benefit occupational pension schemes in the UK.
The trustees of the scheme are required to act in the best interest of the scheme’s beneficiaries. The appointment of the trustees
is determined by the scheme’s trust documentation. It is policy that one-third of all trustees should be nominated by the members.
A full actuarial valuation was carried out as at 31 October 2016 in accordance with the scheme funding requirements of the Pensions
Act 2004 and the funding of the scheme is agreed between the Company and the trustees in line with those requirements. These in
particular require the surplus/deficit to be calculated using prudent, as opposed to best estimate actuarial assumptions.
This actuarial valuation showed a deficit of £8.3m. The Company has agreed with the trustees that it will aim to eliminate the deficit
over a period of seven years and one month from 14 November 2017 by the payment of annual contributions of £0.9m payable by
each 31 December from 31 December 2017 to 31 December 2024 inclusive. In addition the Company has agreed with the trustees
that it will pay 91.5% of pensionable salaries including member contributions in respect of the cost of accruing benefits and will meet
expenses of the scheme, DIS premiums and levies to the Pension Protection Fund separately.
For the purposes of IAS 19 the actuarial valuation as at 31 October 2016, which was carried out by a qualified independent actuary,
has been updated on an approximate basis to 31 December 2017. There have been no changes in the valuation methodology adopted
for this period’s disclosures compared to the previous period’s disclosures.
Amounts included in the balance sheet
Fair value of plan assets
Present value of defined benefit obligation
Net (liability)/asset
2017
£m
17.6
(18.0)
(0.4)
2016
£m
15.9
(16.2)
(0.3)
2015
£m
13.7
(12.6)
1.1
The present value of the scheme liabilities is measured by discounting the best estimate of future cash flows to be paid out by the
scheme using the projected unit credit method. The value calculated in this way is reflected in the net liability in the balance sheet
as shown above.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
162
Notes to the financial statements
Continued
Fair value of plan assets
UK equities
Overseas equities
Government bonds
Cash
Other
Total assets
163
2015
£m
0.5
0.5
2.8
0.8
9.1
13.7
2017
£m
0.7
0.7
2.7
1.0
12.5
17.6
2016
£m
0.6
0.6
2.6
0.8
11.3
15.9
14 Pension costs (continued)
The projected unit credit method is an accrued benefits valuation method in which allowance is made for projected earnings
increases for active members. The accumulated benefit obligation is an alternative actuarial measure of the scheme’s liabilities,
whose calculation differs from that under the projected unit credit method in that it includes no assumption for future earnings
increases. In assessing this figure for the purpose of these disclosures, allowance has been made for future statutory revaluation
of benefits up to retirement. At the balance sheet date the accumulated benefit obligation was £18.0m (2016: £16.2m).
All actuarial gains and losses are recognised in the year in which they occur in the Group statement of comprehensive income.
Reconciliation of the impact of the asset ceiling
It has been assumed that the application of IFRIC 14 has no effect on the IAS 19 figures.
The £12.5m in the ‘other’ asset class is made up of holdings of £7.5m in equity-linked gilt funds and £5.0m in absolute return funds.
None of the fair values of the assets shown above include any directly-held financial instruments of the Group or property occupied
by, or other assets used by, the Group. All of the scheme assets have a quoted market price in an active market (with the exception
of the Trustee’s bank account balance) representing Level 1 fair value measurement as defined by IFRS 13 Fair Value Measurement.
It is the policy of the trustees and the Group to review the investment strategy at the time of each funding valuation. The Trustees’
investment objectives and the processes undertaken to measure and manage the risks inherent in the plan investment strategy are
illustrated by the asset allocation at 31 December 2017.
There are no asset-liability matching strategies currently being used by the plan.
Reconciliation of the opening and closing present value of the defined benefit obligation
Significant actuarial assumptions
At 1 January
Current service cost
Interest cost
Actuarial losses due to scheme experience
Actuarial gains due to changes in demographic assumptions
Actuarial losses due to changes in financial assumptions
Benefits paid, death in service premiums and expenses
At 31 December
There have been no scheme amendments, curtailments or settlements in the year.
Reconciliation of the opening and closing fair value of the plan assets
At 1 January
Interest income
Return on plan assets (excluding amounts included in interest income)
Contributions by the Group
Benefits paid, death in service premiums and expenses
At 31 December
The actual return on the plan assets over the year was £1.4m (2016: £2.8m).
Defined benefit costs recognised in the income statement
Current service cost
Amounts recognised in other comprehensive income
Gain on plan assets (excluding amounts recognised in net interest cost)
Experience losses arising on the defined benefit obligation
Gain from changes in the demographic assumptions underlying the present value of the defined benefit obligation
Loss from changes in the financial assumptions underlying the present value of the defined benefit obligation
Total loss recognised in other comprehensive income
2017
£m
16.2
0.1
0.4
1.6
(0.6)
0.9
(0.6)
18.0
2017
£m
15.9
0.4
1.0
0.9
(0.6)
17.6
2017
£m
0.1
2017
£m
1.0
(1.6)
0.6
(0.9)
(0.9)
2016
£m
12.6
0.1
0.5
–
–
4.4
(1.4)
16.2
2016
£m
13.7
0.5
2.3
0.7
(1.3)
15.9
2016
£m
0.1
2016
£m
2.3
–
–
(4.4)
(2.1)
Discount rate
Inflation (RPI)
Salary increases
Allowance for commutation of pension for cash at retirement
2017
%
2.50
3.20
4.70
75% of Post A
Day Pension
2016
%
2.70
3.40
4.90
75% of Post A
Day Pension
2015
%
3.95
3.30
4.80
75% of Post A
Day Pension
The mortality assumptions adopted at 31 December 2017 are 80% of the standard tables S2PxA, year of birth, no age rating for males
and females, projected using CMI_2016 converging to 1.25% p.a. These imply the following life expectancies:
Life expectancy at age 65
Male retiring in 2017
Female retiring in 2017
Male retiring in 2037
Female retiring in 2037
Analysis of the sensitivity to the principal assumptions of the present value of the defined benefit obligation
Discount rate
Inflation (RPI)
Salary increases
Rate of mortality
Allowance for commutation of pension
for cash at retirement
Change in assumption
Decrease of 0.25% p.a.
Increase of 0.25% p.a.
Increase of 0.25% p.a.
Increase in life expectancy of one year
Members commute an extra 10% of
Post A Day pension on retirement
Years
23.8
25.6
25.2
27.1
Change in liabilities
Increase by 6.8%
Increase by 0.3%
Increase by 0.3%
Increase by 3.8%
Decrease by 1.7%
The sensitivities shown above are approximate. Each sensitivity considers one change in isolation. The average duration of the defined
benefit obligation at the year ended 31 December 2017 is 29 years.
The scheme typically exposes the Group to actuarial risks such as investment risk, interest rate risk, salary growth risk, mortality risk
and longevity risk. A decrease in corporate bond yields, a rise in inflation or an increase in life expectancy would result in an increase
to the scheme’s liabilities. This would detrimentally impact the balance sheet position and may give rise to increased charges in the
income statement. This effect would be partially offset by an increase in the value of the scheme’s bond holdings.
The best estimate of contributions to be paid by the Group to the plan for the year commencing 1 January 2018 is £1.0m.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
164
165
Notes to the financial statements
Continued
15 Tax charge
Corporation tax
UK corporation tax and income tax in respect of profit for the year
Other adjustments in respect of prior years’ tax
Corporation tax charge
Deferred tax
Origination and reversal of temporary differences
Adjustment for changes in estimates
Deferred tax credit
Tax charge
2017
£m
4.0
(0.7)
3.3
(1.2)
(0.3)
(1.5)
1.8
2016
£m
1.9
0.1
2.0
(0.9)
(0.2)
(1.1)
0.9
In addition to the tax charge of £1.8m (2016: £0.9m) that passed through the Group income statement, a deferred tax charge of
£0.7m (2016: credit of £1.3m) was recognised in the Group statement of comprehensive income relating to the revaluation of the
owner-occupied property at 25 Savile Row W1.
The effective rate of tax for 2017 is lower (2016: lower) than the standard rate of corporation tax in the UK. The differences are
explained below:
Profit before tax
Expected tax charge based on the standard rate of corporation tax in the UK of 19.25% (2016: 20.00%)1
Difference between tax and accounting profit on disposals
REIT exempt income
Revaluation (surplus)/deficit attributable to REIT properties
Expenses and fair value adjustments not allowable for tax purposes
Capital allowances
Other differences
Tax charge in respect of profit for the year
Adjustments in respect of prior years’ tax
Tax charge
2017
£m
314.8
60.6
(9.8)
(10.8)
(27.4)
(4.4)
(4.2)
(1.5)
2.5
(0.7)
1.8
2016
£m
54.5
10.9
(1.2)
(7.8)
7.2
(2.8)
(5.3)
(0.2)
0.8
0.1
0.9
1 Changes to the UK corporation tax rates were substantively enacted as part of the Finance Bill 2015 (on 26 October 2015) and the Finance Bill 2016 (on 7 September 2016).
These include reducing the main rate to 19% from 1 April 2017 and then to 17% from 1 April 2020. Deferred taxes at the balance sheet date have been measured using the
expected enacted tax rate and this is reflected in these financial statements.
16 Property portfolio
Group
Carrying value
At 1 January 2017
Acquisitions
Capital expenditure
Interest capitalisation
Additions
Disposals
Transfers
Revaluation
Reversal of write-down of trading property
At 31 December 2017
At 1 January 2016
Acquisitions
Capital expenditure
Interest capitalisation
Additions
Disposals
Transfers
Revaluation
Write-down of trading property
Movement in grossing up of headlease liabilities
At 31 December 2016
Adjustments from fair value to carrying value
At 31 December 2017
Fair value
Revaluation of trading property
Lease incentives and costs included in receivables
Grossing up of headlease liabilities
Carrying value
At 31 December 2016
Fair value
Lease incentives and costs included in receivables
Grossing up of headlease liabilities
Carrying value
Reconciliation of fair value
Portfolio including the Group’s share of joint ventures
Joint ventures
IFRS property portfolio
Freehold
£m
Leasehold
£m
Total
investment
property
£m
Owner-
occupied
property
£m
Trading
property
£m
Total
property
portfolio
£m
3,959.9
0.8
73.3
4.7
78.8
(298.2)
(8.2)
134.7
–
3,867.0
4,006.8
12.0
116.1
10.6
138.7
(158.1)
(10.1)
(17.4)
–
–
3,959.9
3,968.6
–
(101.6)
–
3,867.0
4,054.0
(94.1)
–
3,959.9
843.9
–
62.7
4.6
67.3
(120.7)
–
13.2
–
803.7
825.5
–
75.7
2.4
78.1
(40.7)
–
(19.7)
–
0.7
843.9
808.6
–
(19.0)
14.1
803.7
842.8
(22.8)
23.9
843.9
4,803.8
0.8
136.0
9.3
146.1
(418.9)
(8.2)
147.9
–
4,670.7
4,832.3
12.0
191.8
13.0
216.8
(198.8)
(10.1)
(37.1)
–
0.7
4,803.8
4,777.2
–
(120.6)
14.1
4,670.7
4,896.8
(116.9)
23.9
4,803.8
34.2
–
2.3
–
2.3
–
8.2
1.8
–
46.5
36.1
–
3.6
–
3.6
–
–
(5.5)
–
–
34.2
46.5
–
–
–
46.5
34.2
–
–
34.2
11.7
7.8
4.7
0.1
12.6
–
–
–
1.0
25.3
10.5
–
2.9
–
2.9
(10.2)
10.1
–
(1.6)
–
11.7
26.6
(1.3)
–
–
25.3
11.7
–
–
11.7
4,849.7
8.6
143.0
9.4
161.0
(418.9)
–
149.7
1.0
4,742.5
4,878.9
12.0
198.3
13.0
223.3
(209.0)
–
(42.6)
(1.6)
0.7
4,849.7
4,850.3
(1.3)
(120.6)
14.1
4,742.5
4,942.7
(116.9)
23.9
4,849.7
2017
£m
4,897.6
(47.3)
4,850.3
2016
£m
4,980.5
(37.8)
4,942.7
The property portfolio is subject to semi-annual external valuations and was revalued at 31 December 2017 by external valuers on the
basis of fair value in accordance with The RICS Valuation – Professional Standards, which takes account of the properties’ highest and
best use. When considering the highest and best use of a property, the external valuers will consider its existing and potential uses
which are physically, legally and financially viable. Where the highest and best use differs from the existing use, the external valuers
will consider the costs and the likelihood of achieving and implementing this change in arriving at the property valuation.
CBRE Limited valued properties at £4,817.5m (2016: £4,910.7m) and other valuers at £32.8m (2016: £32.0m), giving a combined
value of £4,850.3m (2016: £4,942.7m). Of the properties revalued by CBRE, £46.5m (2016: £34.2m) relating to owner-occupied
property was included within property, plant and equipment and £26.6m (2016: £11.7m) was in relation to trading property.
The total fees, including the fee for this assignment, earned by CBRE (or other companies forming part of the same group of
companies within the UK) from the Group is less than 5.0% of their total UK revenues.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
166
167
Notes to the financial statements
Continued
16 Property portfolio (continued)
During the year ended 31 December 2016, the Group transferred, at market value, a property previously held for investment to trading
property as it was being developed for sale. Any future revaluation surplus relating to the trading property will be recognised as an
adjustment to EPRA net asset value, but, in accordance with IAS 2 Inventories, will not be recognised in the carrying value of the
property as trading properties are stated at the lower of cost and net realisable value. In 2016 the net realisable value of this property
was lower than its cost which resulted in a £1.6m write-down. An increase in the net realisable value in 2017 resulted in a write back
of this adjustment. In addition, in 2017, there was a write-down of £0.6m on another trading property that was acquired in the year.
Reconciliation of revaluation surplus/(deficit)
Total revaluation surplus/(deficit)
Less:
Share of joint ventures
Lease incentives and costs
Trading property revaluation surplus
IFRS revaluation surplus/(deficit)
Reported in the:
Revaluation surplus/(deficit)
Reversal of write-down/(write-down) of trading property
Group income statement
Group statement of comprehensive income
2017
£m
177.1
(4.9)
(20.2)
(1.3)
150.7
147.9
1.0
148.9
1.8
150.7
2016
£m
(20.9)
(1.8)
(21.5)
–
(44.2)
(37.1)
(1.6)
(38.7)
(5.5)
(44.2)
Valuation process
The valuation reports produced by the external valuers are based on information provided by the Group such as current rents, terms
and conditions of lease agreements, service charges and capital expenditure. This information is derived from the Group’s financial and
property management systems and is subject to the Group’s overall control environment. In addition, the valuation reports are based
on assumptions and valuation models used by the external valuers. The assumptions are typically market related, such as yields and
discount rates, and are based on their professional judgement and market observation. Each property is considered a separate asset
class based on the unique nature, characteristics and risks of the property.
Members of the Group’s investments team, who report to the executive Director responsible for the valuation process, verify all major
inputs to the external valuation reports, assess the individual property valuation changes from the prior year valuation report and hold
discussions with the external valuers. When this process is complete, the valuation report is recommended to the Audit Committee,
which considers it as part of its overall responsibilities.
Valuation techniques
The fair value of the property portfolio has been determined using an income capitalisation technique, whereby contracted and market
rental values are capitalised with a market capitalisation rate. The resulting valuations are cross-checked against the equivalent yields
and the fair market values per square foot derived from comparable recent market transactions on arm’s length terms.
For properties under construction, the fair value is calculated by estimating the fair value of the completed property using the income
capitalisation technique less estimated costs to completion and a risk premium.
These techniques are consistent with the principles in IFRS 13 Fair Value Measurement and use significant unobservable inputs such
that the fair value measurement of each property within the portfolio has been classified as Level 3 in the fair value hierarchy.
There were no transfers between Levels 1 and 2 or between Levels 2 and 3 in the fair value hierarchy during either 2017 or 2016.
Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy
amount to a gain of £147.9m (2016: loss of £37.1m) and are presented in the Group income statement in the line item ‘revaluation
surplus/(deficit)’. The revaluation surplus for the owner-occupied property of £1.8m (2016: deficit of £5.5m) was included within the
revaluation reserve.
All gains and losses recorded in profit or loss in 2017 and 2016 for recurring fair value measurements categorised within Level 3 of the
fair value hierarchy are attributable to changes in unrealised gains or losses relating to investment property held at 31 December 2017
and 31 December 2016, respectively.
Quantitative information about fair value measurement using unobservable inputs (Level 3)
Valuation technique
Fair value (£m)1
Area (‘000 sq ft)
Range of unobservable inputs2:
Gross ERV (per sq ft pa)
Minimum
Maximum
Weighted average
Net initial yield
Minimum
Maximum
Weighted average
Reversionary yield
Minimum
Maximum
Weighted average
True equivalent yield (EPRA basis)
Minimum
Maximum
Weighted average
West End
central
Income
capitalisation
West End
borders
Income
capitalisation
City
borders
Income
capitalisation
Provincial
commercial
Income
capitalisation
Provincial
land
Income
capitalisation
Total
2,438.6
2,565
480.2
516
1,877.6
2,088
£13
£176
£55
0.0%
5.2%
3.0%
2.4%
9.5%
4.9%
2.3%
7.3%
4.5%
£40
£55
£52
2.5%
4.7%
3.0%
4.8%
5.8%
5.2%
4.9%
5.1%
4.9%
£10
£62
£49
0.0%
4.7%
3.0%
4.0%
5.6%
4.9%
4.2%
5.4%
4.8%
67.9
343
£8
£15
£15
6.3%
13.0%
6.4%
6.8%
13.8%
6.9%
6.7%
14.7%
6.9%
33.3
–
4,897.6
5,512
n/a3
n/a3
n/a3
0.0%
10.1%
1.6%
0.0%
9.8%
1.8%
9.2%
10.9%
10.5%
Includes the Group’s share of joint ventures.
1
2 Costs to complete are not deemed a significant unobservable input by virtue of the high percentage that is already fixed.
3 There is no calculation of gross ERV per sq ft pa. The land totals 5,235 acres.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
168
Notes to the financial statements
Continued
17 Property, plant and equipment
Owner-
occupied
property
£m
Artwork
£m
Other
£m
16 Property portfolio (continued)
Sensitivity of measurement to variations in the significant unobservable inputs
The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of
the Group’s property portfolio, together with the impact of significant movements in these inputs on the fair value measurement,
are shown below:
Unobservable input
Gross ERV
Net initial yield
Reversionary yield
True equivalent yield
Impact on fair value measurement
of significant increase in input
Increase
Decrease
Decrease
Decrease
Impact on fair value measurement
of significant decrease in input
Decrease
Increase
Increase
Increase
There are inter-relationships between these inputs as they are partially determined by market conditions. An increase in the
reversionary yield may accompany an increase in gross ERV and would mitigate its impact on the fair value measurement.
A sensitivity analysis was performed to ascertain the impact on the fair value of a 25 basis point shift in true equivalent yield and
a £2.50 psf shift in ERV.
True equivalent yield
+25bp
- 25bp
ERV
+£2.50 psf
- £2.50 psf
Historic cost
Investment property
Owner-occupied property
Trading property
Total property portfolio
West End
central
West End
borders
City
borders
Provincial
commercial
Provincial
land
(5.3%)
5.9%
4.6%
(4.6%)
(4.9%)
5.4%
4.8%
(4.8%)
(5.0%)
5.5%
5.2%
(5.2%)
(3.5%)
3.8%
17.0%
(17.0%)
(2.3%)
2.4%
–
–
Total
(5.1%)
5.6%
5.0%
(5.0%)
2017
£m
2,697.0
19.8
33.0
2,749.8
2016
£m
2,838.5
14.1
18.4
2,871.0
Group
At 1 January 2017
Additions
Disposals
Depreciation
Transfers
Revaluation
At 31 December 2017
At 1 January 2016
Additions
Depreciation
Revaluation
At 31 December 2016
Net book value
Cost or valuation
Accumulated depreciation
At 31 December 2017
Net book value
Cost or valuation
Accumulated depreciation
At 31 December 2016
Company
At 1 January 2017
Additions
Disposals
Depreciation
At 31 December 2017
At 1 January 2016
Additions
Disposals
Depreciation
At 31 December 2016
Net book value
Cost or valuation
Accumulated depreciation
At 31 December 2017
Net book value
Cost or valuation
Accumulated depreciation
At 31 December 2016
34.2
2.3
–
–
8.2
1.8
46.5
36.1
3.6
–
(5.5)
34.2
46.5
–
46.5
34.2
–
34.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.5
0.1
–
–
–
–
1.6
1.5
–
–
–
1.5
1.6
–
1.6
1.5
–
1.5
0.9
0.1
–
–
1.0
0.9
–
–
–
0.9
1.0
–
1.0
0.9
–
0.9
2.4
2.6
(0.2)
(0.7)
–
–
4.1
1.5
1.3
(0.4)
–
2.4
5.9
(1.8)
4.1
4.8
(2.4)
2.4
2.3
2.7
(0.2)
(0.7)
4.1
1.4
1.3
–
(0.4)
2.3
5.9
(1.8)
4.1
4.9
(2.6)
2.3
169
Total
£m
38.1
5.0
(0.2)
(0.7)
8.2
1.8
52.2
39.1
4.9
(0.4)
(5.5)
38.1
54.0
(1.8)
52.2
40.5
(2.4)
38.1
3.2
2.8
(0.2)
(0.7)
5.1
2.3
1.3
–
(0.4)
3.2
6.9
(1.8)
5.1
5.8
(2.6)
3.2
The artwork is periodically valued by Bonhams on the basis of fair value using their extensive market knowledge. The latest valuation
was carried out in October 2016 and the Directors consider that there have been no material valuation movements since that date.
In accordance with IFRS 13 Fair Value Measurement, the artwork is deemed to be classified as Level 3.
The historic cost of the artwork in the Group at 31 December 2017 was £1.6m (2016: £1.5m) and £1.0m (2016: £0.9m) in the
Company. See note 16 for the historic cost of owner-occupied property and IFRS 13 Fair Value Measurement disclosures.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 170
171
Notes to the financial statements
Continued
18 Investments
Group
The Group has a 50% interest in two joint ventures, Primister Limited and Prescot Street Limited Partnership.
At 1 January
Additions
Repayment of shareholder loan
Share of results of joint ventures (see note 9)
At 31 December
2017
£m
36.0
–
(1.3)
5.0
39.7
2016
£m
30.7
3.0
–
2.3
36.0
19 Other receivables (non-current)
Prepayments and accrued income
Other
Group
2017
£m
105.2
–
105.2
2016
£m
105.4
3.7
109.1
Company
2017
£m
–
–
–
2016
£m
–
–
–
Prepayments and accrued income relates to rents recognised in advance as a result of spreading the effect of rent free and reduced
rent periods, capital contributions in lieu of rent free periods and contracted rent uplifts, as well as the initial direct costs of the letting,
over the expected terms of their respective leases. Together with £15.4m (2016: £11.5m), which was included as current assets within
trade and other receivables, these amounts totalled £120.6m at 31 December 2017 (2016: £116.9m).
The Group’s share of its investments in joint ventures is represented by the following amounts in the underlying joint venture entities.
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
Loans provided to joint ventures
Total investment in joint ventures
Income
Expenses
Profit for the year
2017
2016
Joint ventures
£m
52.7
44.1
(15.1)
(43.3)
38.4
Group share
£m
26.4
22.1
(7.6)
(21.7)
19.2
20.5
39.7
Joint ventures
£m
75.3
7.0
(5.4)
(48.5)
28.4
Group share
£m
37.7
3.5
(2.7)
(24.3)
14.2
21.8
36.0
10.6
(0.6)
10.0
5.3
(0.3)
5.0
5.2
(0.6)
4.6
2.6
(0.3)
2.3
In January 2018, Primister Limited exchanged contracts for the sale of its freehold interest in Porters North N1 for £45.4m before
costs with completion expected in March 2018. The property has been included in current assets held for sale as it was being actively
marketed for sale as at 31 December 2017.
Company
At 1 January 2016
Additions
At 31 December 2016
Additions
Repayment of shareholder loan
Reversal of impairment
At 31 December 2017
Subsidiaries
£m
1,185.4
–
1,185.4
40.0
–
0.4
1,225.8
Joint ventures
£m
–
1.3
1.3
–
(1.3)
–
–
Total
£m
1,185.4
1.3
1,186.7
40.0
(1.3)
0.4
1,225.8
At 31 December 2017, the carrying value of the investment in wholly-owned subsidiaries and joint ventures were 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 and joint ventures at the lower of cost and recoverable amount and recognise
any impairment, or reversal thereof, in the income statement.
20 Trade and other receivables
Trade receivables
Amounts owed by subsidiaries
Other receivables
Prepayments
Other taxes
Accrued income
Group
2017
£m
7.1
–
6.8
17.3
4.6
22.2
58.0
2016
£m
5.1
–
2.7
15.5
–
15.2
38.5
Company
2017
£m
–
1,459.9
1.3
0.1
8.2
0.1
1,469.6
2016
£m
–
1,512.0
1.0
0.2
–
–
1,513.2
Group trade receivables are split as follows:
less than three months due
Group trade receivables includes a provision for bad debts as follows:
At 1 January
Released
At 31 December
The provision for bad debts is split as follows:
less than three months due
None of the amounts included in other receivables are past due and therefore no ageing has been shown.
2017
£m
7.1
7.1
2017
£m
0.3
–
0.3
0.3
0.3
21 Trade and other payables
Trade payables
Amounts owed to subsidiaries
Other payables
Other taxes
Accruals
Deferred income
Group
2017
£m
2.0
–
17.8
–
27.1
39.8
86.7
2016
£m
2.0
–
16.7
6.5
45.9
38.9
110.0
Company
2017
£m
0.4
890.3
0.9
–
10.6
0.1
902.3
2016
£m
5.1
5.1
2016
£m
0.3
–
0.3
0.3
0.3
2016
£m
–
647.0
1.2
0.8
9.7
0.1
658.8
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
172
173
Notes to the financial statements
Continued
22 Provisions
At 1 January 2017
Provided in the income statement
Utilised in year
At 31 December 2017
Due within one year
Due after one year
At 1 January 2016
Provided in the income statement
Utilised in year
At 31 December 2016
Due within one year
Due after one year
Group
£m
Company
£m
0.7
0.2
(0.3)
0.6
0.2
0.4
0.6
1.2
0.2
(0.7)
0.7
0.4
0.3
0.7
0.7
0.2
(0.3)
0.6
0.2
0.4
0.6
1.2
0.2
(0.7)
0.7
0.4
0.3
0.7
The provisions in both the Group and the Company relate to national insurance that is payable on gains made by employees on the
exercise of share options granted to them. The eventual liability to national insurance is dependent on:
• the market price of the Company’s shares at the date of exercise;
• the number of equity share options that are exercised; and
• the prevailing rate of national insurance at the date of exercise.
23 Borrowings and derivative financial instruments
Non-current liabilities
1.125% unsecured convertible bonds 2019
6.5% secured bonds 2026
3.46% unsecured private placement notes 2028
4.41% unsecured private placement notes 2029
3.57% unsecured private placement notes 2031
4.68% unsecured private placement notes 2034
3.99% secured loan 2024
Unsecured bank loans
Secured bank loans
Intercompany loan
Gross debt
Leasehold liabilities
Borrowings
Derivative financial instruments expiring in greater than one year
Total borrowings and derivative financial instruments
Reconciliation of borrowings to net debt:
Borrowings
Cash and cash equivalents
Net debt
Group
2017
£m
145.6
186.9
29.8
24.8
74.5
74.3
81.7
85.6
27.6
–
730.8
14.1
744.9
7.9
752.8
2016
£m
142.9
187.9
29.8
24.8
74.5
74.3
82.1
254.3
28.0
–
898.6
23.9
922.5
17.3
939.8
Company
2017
£m
–
–
29.8
24.8
74.5
74.3
81.7
85.6
–
145.6
516.3
–
516.3
7.0
523.3
2016
£m
–
–
29.8
24.8
74.5
74.3
82.1
254.3
–
142.9
682.7
–
682.7
15.5
698.2
744.9
(87.0)
657.9
922.5
(17.7)
904.8
516.3
(85.8)
430.5
682.7
(6.9)
675.8
1.125% unsecured convertible bonds 2019
In July 2013 the Group issued £150m of convertible bonds. The unsecured instruments pay a coupon of 1.125% until July 2019 or the
conversion date, if earlier. The initial conversion price was set at £33.35 per share, but following the 2016 final dividend and special
dividend the conversion price has been adjusted to £32.73 per share. In accordance with IAS 32, the equity and debt components of
the bonds 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, deemed to be 2.67%. As a result, £137.4m was recognised as a liability in the balance sheet
on issue and the remainder of the proceeds, £12.6m, which represent the equity component, was credited to reserves. The difference
between the fair value of the liability and the principal value is being amortised through the income statement from the date of issue.
Issue costs of £3.8m were allocated between equity and debt and the element relating to the debt component is being amortised over
the life of the bonds. The issue costs apportioned to equity of £0.3m have not been amortised. The fair value was determined by the
ask-price of £107.88 per £100 as at 31 December 2017 (2016: £105.38 per £100). The carrying value at 31 December 2017 was
£145.6m (2016: £142.9m).
Reconciliation of nominal value to carrying value:
Nominal value
Fair value adjustment on issue allocated to equity
Debt component on issue
Unamortised issue costs
Amortisation of fair value adjustment
Carrying amount included in borrowings
£m
150.0
(12.6)
137.4
(0.9)
9.1
145.6
6.5% secured bonds 2026
As a result of the acquisition of London Merchant Securities plc in 2007, the secured bonds 2026 were included at fair value less
unamortised issue costs. This difference between fair value at acquisition and principal value is being amortised through the income
statement. The fair value at 31 December 2017 was determined by the ask-price of £128.94 per £100 (2016: £128.91 per £100).
The carrying value at 31 December 2017 was £186.9m (2016: £187.9m).
3.46% unsecured private placement notes 2028 and 3.57% unsecured private placement notes 2031
In February 2016, the Group arranged unsecured private placement notes, comprising £30m for 12 years and £75m for 15 years.
The funds were drawn on 4 May 2016. The fair values were determined by comparing the discounted future cash flows using the
contracted yields with those of the reference gilts plus the implied margins. The references were a 6% 2028 gilt and a 4.75% 2030
gilt both with an implied margin which is unchanged since the date of fixing. The carrying values at 31 December 2017 were £29.8m
(2016: £29.8m) and £74.5m (2016: £74.5m), respectively.
4.41% unsecured private placement notes 2029 and 4.68% unsecured private placement notes 2034
In November 2013, the Group arranged unsecured private placement notes, comprising £25m for 15 years and £75m for 20 years.
The funds were drawn on 8 January 2014. The fair values were determined by comparing the discounted future cash flows using the
contracted yields with those of the reference gilts plus the implied margins. The references were a 6% 2028 gilt and a 4.25% 2032
gilt both with an implied margin which is unchanged since the date of fixing. The carrying values at 31 December 2017 were £24.8m
(2016: £24.8m) and £74.3m (2016: £74.3m), respectively.
3.99% secured loan 2024
In July 2012, the Group arranged a 12¼-year secured fixed rate loan. The loan was drawn on 1 August 2012. The fair value was
determined by comparing the discounted future cash flows using the contracted yield with those of the reference gilt plus an implied
margin. The reference was a 5% 2025 gilt with an implied margin which is unchanged since the date of fixing. The carrying value at
31 December 2017 was £81.7m (2016: £82.1m).
Bank borrowings
In 2017, the maturity of the £75m revolving credit facility arranged in July 2015 was extended by one year to 2022.
In 2016, the maturity of £450m of the £550m facility arranged in September 2013 was extended by one year to 2022. The remaining
£100m was later cancelled in March 2017.
As all main corporate facilities were refinanced or amended in the past few years, the fair values of the Group’s bank loans are deemed
to be approximately the same as their carrying amount, after adjusting for the unamortised arrangement fees.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 174
175
Notes to the financial statements
Continued
23 Borrowings and derivative financial instruments (continued)
Undrawn committed bank facilities – maturity profile
Group
At 31 December 2017
At 31 December 2016
Company
At 31 December 2017
At 31 December 2016
< 1
year
£m
–
–
–
–
1 to 2
years
£m
2 to 3
years
£m
3 to 4
years
£m
–
–
–
–
–
–
–
–
–
–
–
–
4 to 5
years
£m
436.0
144.0
> 5
years
£m
–
221.5
Total
£m
436.0
365.5
436.0
144.0
–
221.5
436.0
365.5
Intercompany loans
The terms of the intercompany loan in the Company mirror those of the unsecured convertible bonds 2019. As with the bonds, debt
and equity components of the intercompany loan have been accounted for separately, and the fair value of the debt components is
identical to that of the bonds. The carrying value at 31 December 2017 was £145.6m (2016: £142.9m).
Derivative financial instruments
The derivative financial instruments consist of interest rate swaps, the fair values of which represent 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 2017
for the period to the contracted expiry dates.
The Group has a £70m forward starting interest rate swap effective from 29 March 2018, a £40m forward starting interest rate swap
effective from 15 October 2018, and a £75m forward starting interest rate swap effective from 1 April 2019. These swaps are not
included in the 31 December 2017 figures in the table below, but the financial impact from the effective dates onwards is included
in the relevant tables in this note.
The fair values of the Group’s outstanding interest rate swaps have been estimated using the mid-point of the yield curves prevailing
on the reporting date and represent the net present value of the differences between the contracted rate and the valuation rate when
applied to the projected balances for the period from the reporting date to the contracted expiry dates.
At 31 December 2017
Interest rate swaps
At 31 December 2016
Interest rate swaps
Group
Weighted
average
interest rate
%
Principal
£m
Average life
Years
Principal
£m
Company
Weighted
average
interest rate
%
Average life
Years
28.0
3.53
1.2
–
–
–
243.0
1.82
4.6
215.0
1.60
4.9
Secured and unsecured debt
Secured
6.5% secured bonds 2026
3.99% secured loan 2024
Secured bank loans
Unsecured
1.125% unsecured convertible bonds 2019
3.46% unsecured private placement notes 2028
4.41% unsecured private placement notes 2029
3.57% unsecured private placement notes 2031
4.68% unsecured private placement notes 2034
Unsecured bank loans
Intercompany loans
Group
2017
£m
186.9
81.7
27.6
296.2
145.6
29.8
24.8
74.5
74.3
85.6
–
434.6
2016
£m
187.9
82.1
28.0
298.0
142.9
29.8
24.8
74.5
74.3
254.3
–
600.6
Company
2017
£m
–
81.7
–
81.7
–
29.8
24.8
74.5
74.3
85.6
145.6
434.6
2016
£m
–
82.1
–
82.1
–
29.8
24.8
74.5
74.3
254.3
142.9
600.6
Gross debt
730.8
898.6
516.3
682.7
At 31 December 2017, the Group’s 3.99% secured loan 2024 was secured by a fixed charge over £272.3m (2016: £191.7m) of the
Group’s properties and £nil (2016: £10.0m) of cash on deposit. The Group’s secured bank loan was secured by a fixed charge over
£122.1m (2016: £129.4m) of the Group’s properties. In addition, the secured bonds 2026 were secured by a floating charge over
a number of the Group’s subsidiary companies which contained £592.3m (2016: £844.4m) of the Group’s properties.
At 31 December 2017, the Company’s 3.99% secured loan 2024 was secured by a fixed charge over £272.3m (2016: £191.7m) of
the Group’s properties and £nil (2016: £10.0m) of cash on deposit.
Fixed interest rate and hedged debt
At 31 December 2017 and 2016, the Group’s fixed rate and hedged debt included the unsecured convertible bonds 2019, the secured
bonds 2026, a secured loan 2024, the unsecured private placement notes 2028, 2029, 2031 and 2034 and the hedged bank debt.
At 31 December 2017 and 2016, the Company’s fixed rate debt comprised a secured loan 2024, the unsecured private placement
notes 2028, 2029, 2031 and 2034, the hedged bank debt and the intercompany loans.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 176
177
Notes to the financial statements
Continued
Contractual undiscounted cash outflows
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 contractual undiscounted cash outflows arising from the Group’s gross debt.
23 Borrowings and derivative financial instruments (continued)
Interest rate exposure
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:
Group
At 31 December 2017
1.125% unsecured convertible bonds 2019
6.5% secured bonds 2026
3.46% unsecured private placement notes 2028
4.41% unsecured private placement notes 2029
3.57% unsecured private placement notes 2031
4.68% unsecured private placement notes 2034
3.99% secured loan 2024
Unsecured bank loans
Secured bank loans
At 31 December 2016
1.125% unsecured convertible bonds 2019
6.5% secured bonds 2026
3.46% unsecured private placement notes 2028
4.41% unsecured private placement notes 2029
3.57% unsecured private placement notes 2031
4.68% unsecured private placement notes 2034
3.99% secured loan 2024
Unsecured bank loans
Secured bank loans
Company
At 31 December 2017
3.46% unsecured private placement notes 2028
4.41% unsecured private placement notes 2029
3.57% unsecured private placement notes 2031
4.68% unsecured private placement notes 2034
3.99% secured loan 2024
Unsecured bank loans
Intercompany loans
At 31 December 2016
3.46% unsecured private placement notes 2028
4.41% unsecured private placement notes 2029
3.57% unsecured private placement notes 2031
4.68% unsecured private placement notes 2034
3.99% secured loan 2024
Unsecured bank loans
Intercompany loans
Floating
rate
£m
Hedged
£m
–
–
–
–
–
–
–
85.6
–
85.6
–
–
–
–
–
–
–
43.6
–
43.6
–
–
–
–
–
85.6
–
85.6
–
–
–
–
–
43.6
–
43.6
–
–
–
–
–
–
–
–
27.6
27.6
–
–
–
–
–
–
–
210.7
28.0
238.7
–
–
–
–
–
–
–
–
–
–
–
–
–
210.7
–
210.7
Fixed
rate
£m
145.6
186.9
29.8
24.8
74.5
74.3
81.7
–
–
617.6
142.9
187.9
29.8
24.8
74.5
74.3
82.1
–
–
616.3
29.8
24.8
74.5
74.3
81.7
–
145.6
430.7
29.8
24.8
74.5
74.3
82.1
–
142.9
428.4
Gross
debt
£m
Weighted
average
interest rate1
%
Weighted
average
life
Years
145.6
186.9
29.8
24.8
74.5
74.3
81.7
85.6
27.6
730.8
142.9
187.9
29.8
24.8
74.5
74.3
82.1
254.3
28.0
898.6
29.8
24.8
74.5
74.3
81.7
85.6
145.6
516.3
29.8
24.8
74.5
74.3
82.1
254.3
142.9
682.7
2.67
6.50
3.46
4.41
3.57
4.68
3.99
1.73
5.24
4.11
2.67
6.50
3.46
4.41
3.57
4.68
3.99
2.68
4.25
3.90
3.46
4.41
3.57
4.68
3.99
1.73
2.67
3.26
3.46
4.41
3.57
4.68
3.99
2.68
2.67
3.24
1.6
8.2
10.3
11.0
13.3
16.0
6.8
4.1
4.6
7.6
2.6
9.2
11.3
12.0
14.3
17.0
7.8
5.0
1.5
7.7
10.3
11.0
13.3
16.0
6.8
4.1
1.6
7.5
11.3
12.0
14.3
17.0
7.8
5.0
2.6
7.6
1 The weighted average interest rates are based on the nominal amounts of the debt facilities.
Group
At 31 December 2017
1.125% unsecured convertible bonds 2019
6.5% secured bonds 2026
3.46% unsecured private placement notes 2028
4.41% unsecured private placement notes 2029
3.57% unsecured private placement notes 2031
4.68% unsecured private placement notes 2034
3.99% secured loan 2024
Unsecured bank loans
Secured bank loans
Total on maturity
Leasehold liabilities
Interest on gross debt
Effect of interest rate swaps
Gross loan commitments
At 31 December 2016
1.125% unsecured convertible bonds 2019
6.5% secured bonds 2026
3.46% unsecured private placement notes 2028
4.41% unsecured private placement notes 2029
3.57% unsecured private placement notes 2031
4.68% unsecured private placement notes 2034
3.99% secured loan 2024
Unsecured bank loans
Secured bank loans
Total on maturity
Leasehold liabilities
Interest on gross debt
Effect of interest rate swaps
Gross loan commitments
Reconciliation to borrowings:
Group
At 31 December 2017
Maturing in:
< 1 year
1 to 2 years
2 to 3 years
3 to 4 years
4 to 5 years
> 5 years
At 31 December 2016
Maturing in:
< 1 year
1 to 2 years
2 to 3 years
3 to 4 years
4 to 5 years
> 5 years
< 1
year
£m
–
–
–
–
–
–
–
–
–
–
0.8
28.0
2.5
31.3
–
–
–
–
–
–
–
–
–
–
1.2
30.8
5.2
37.2
1 to 2
years
£m
150.0
–
–
–
–
–
–
–
–
150.0
0.8
28.3
3.1
182.2
–
–
–
–
–
–
–
–
28.0
28.0
1.2
31.1
5.3
65.6
2 to 3
years
£m
–
–
–
–
–
–
–
–
–
–
0.8
26.8
1.3
28.9
150.0
–
–
–
–
–
–
–
–
150.0
1.2
31.4
4.0
186.6
3 to 4
years
£m
–
–
–
–
–
–
–
–
–
–
0.8
26.9
0.6
28.3
–
–
–
–
–
–
–
–
–
–
1.2
30.2
1.7
33.1
4 to 5
years
£m
> 5
years
£m
Total
£m
–
–
–
–
–
–
–
89.0
28.0
117.0
0.8
24.8
0.4
143.0
–
–
–
–
–
–
–
31.0
–
31.0
1.2
30.3
0.9
63.4
–
175.0
30.0
25.0
75.0
75.0
83.0
–
–
463.0
187.9
122.6
(0.1)
773.4
–
175.0
30.0
25.0
75.0
75.0
83.0
228.5
–
691.5
237.0
146.7
0.2
1,075.4
150.0
175.0
30.0
25.0
75.0
75.0
83.0
89.0
28.0
730.0
191.9
257.4
7.8
1,187.1
150.0
175.0
30.0
25.0
75.0
75.0
83.0
259.5
28.0
900.5
243.0
300.5
17.3
1,461.3
Gross loan
commitments
£m
Interest on
gross debt
£m
Effect of
interest
rate swaps
£m
Leasehold
liabilities
£m
Non-cash
amortisation
£m
Borrowings
£m
Adjustments
31.3
182.2
28.9
28.3
143.0
773.4
1,187.1
37.2
65.6
186.6
33.1
63.4
1,075.4
1,461.3
(28.0)
(28.3)
(26.8)
(26.9)
(24.8)
(122.6)
(257.4)
(30.8)
(31.1)
(31.4)
(30.2)
(30.3)
(146.7)
(300.5)
(2.5)
(3.1)
(1.3)
(0.6)
(0.4)
0.1
(7.8)
(5.2)
(5.3)
(4.0)
(1.7)
(0.9)
(0.2)
(17.3)
(0.8)
(0.8)
(0.8)
(0.8)
(0.8)
(173.8)
(177.8)
(1.2)
(1.2)
(1.2)
(1.2)
(1.2)
(213.1)
(219.1)
–
(4.4)
–
–
(3.9)
9.1
0.8
–
–
(7.1)
–
(1.4)
6.6
(1.9)
–
145.6
–
–
113.1
486.2
744.9
–
28.0
142.9
–
29.6
722.0
922.5
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
178
179
Notes to the financial statements
Continued
Derivative financial instruments cash flows
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.
23 Borrowings and derivative financial instruments (continued)
Company
At 31 December 2017
3.46% unsecured private placement notes 2028
4.41% unsecured private placement notes 2029
3.57% unsecured private placement notes 2031
4.68% unsecured private placement notes 2034
3.99% secured loan 2024
Unsecured bank loans
Intercompany loans
Total on maturity
Interest on debt
Effect of interest rate swaps
Gross loan commitments
At 31 December 2016
3.46% unsecured private placement notes 2028
4.41% unsecured private placement notes 2029
3.57% unsecured private placement notes 2031
4.68% unsecured private placement notes 2034
3.99% secured loan 2024
Unsecured bank loans
Intercompany loans
Total on maturity
Interest on debt
Effect of interest rate swaps
Gross loan commitments
Reconciliation to borrowings:
Company
At 31 December 2017
Maturing in:
< 1 year
1 to 2 years
2 to 3 years
3 to 4 years
4 to 5 years
> 5 years
At 31 December 2016
Maturing in:
< 1 year
1 to 2 years
2 to 3 years
3 to 4 years
4 to 5 years
> 5 years
< 1
year
£m
–
–
–
–
–
–
–
–
16.0
1.7
17.7
–
–
–
–
–
–
–
–
19.1
4.4
23.5
1 to 2
years
£m
–
–
–
–
–
–
150.0
150.0
16.2
2.9
169.1
–
–
–
–
–
–
–
–
19.5
4.4
23.9
2 to 3
years
£m
–
–
–
–
–
–
–
–
14.6
1.3
15.9
–
–
–
–
–
–
150.0
150.0
20.1
3.9
174.0
3 to 4
years
£m
–
–
–
–
–
–
–
–
14.7
0.6
15.3
–
–
–
–
–
–
–
–
18.8
1.7
20.5
4 to 5
years
£m
> 5
years
£m
Total
£m
–
–
–
–
–
89.0
–
89.0
12.8
0.4
102.2
–
–
–
–
–
31.0
–
31.0
18.9
0.9
50.8
30.0
25.0
75.0
75.0
83.0
–
–
288.0
82.8
(0.1)
370.7
30.0
25.0
75.0
75.0
83.0
228.5
–
516.5
95.5
0.2
612.2
30.0
25.0
75.0
75.0
83.0
89.0
150.0
527.0
157.1
6.8
690.9
30.0
25.0
75.0
75.0
83.0
259.5
150.0
697.5
191.9
15.5
904.9
Gross loan
commitments
£m
Interest on
gross debt
£m
Effect of
interest
rate swaps
£m
Leasehold
liabilities
£m
Non-cash
amortisation
£m
Borrowings
£m
Adjustments
17.7
169.1
15.9
15.3
102.2
370.7
690.9
23.5
23.9
174.0
20.5
50.8
612.2
904.9
(16.0)
(16.2)
(14.6)
(14.7)
(12.8)
(82.8)
(157.1)
(19.1)
(19.5)
(20.1)
(18.8)
(18.9)
(95.5)
(191.9)
(1.7)
(2.9)
(1.3)
(0.6)
(0.4)
0.1
(6.8)
(4.4)
(4.4)
(3.9)
(1.7)
(0.9)
(0.2)
(15.5)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4.4)
–
–
(3.5)
(2.8)
(10.7)
–
–
(7.1)
–
(1.4)
(6.3)
(14.8)
–
145.6
–
–
85.5
285.2
516.3
–
–
142.9
–
29.6
510.2
682.7
Group
Maturing in:
< 1 year
1 to 2 years
2 to 3 years
3 to 4 years
4 to 5 years
> 5 years
Gross contractual cash flows
Company
Maturing in:
< 1 year
1 to 2 years
2 to 3 years
3 to 4 years
4 to 5 years
> 5 years
Gross contractual cash flows
2017
Receivable
£m
2017
Payable
£m
2016
Receivable
£m
2016
Payable
£m
0.6
1.4
1.4
1.4
1.4
2.6
8.8
0.4
1.4
1.4
1.4
1.4
2.6
8.6
(3.1)
(4.5)
(2.7)
(2.0)
(1.8)
(2.5)
(16.6)
(2.1)
(4.3)
(2.7)
(2.0)
(1.8)
(2.5)
(15.4)
1.3
1.9
2.5
2.0
1.6
1.9
11.2
1.1
1.8
2.3
2.0
1.6
1.9
10.7
(6.5)
(7.2)
(6.5)
(3.7)
(2.5)
(2.1)
(28.5)
(5.5)
(6.2)
(6.2)
(3.7)
(2.5)
(2.1)
(26.2)
Financial instruments – risk management
The Group is exposed through its operations to the following financial risks:
• credit risk;
• market risk; and
• liquidity risk.
In common with 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 34 to 43.
There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes
for managing those risks or the methods used to measure them from previous years.
Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises, are trade receivables, cash at bank,
trade and other payables, floating rate bank loans, fixed rate loans and private placement notes, secured and unsecured bonds and
interest rate swaps.
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, while retaining
ultimate responsibility for them, it has delegated the authority to executive management for designing and operating processes that
ensure the effective implementation of the objectives and policies.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s
flexibility and its ability to maximise returns. Further details regarding these policies are set out below:
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations. The Group is mainly exposed to credit risk from lease contracts in relation to its property portfolio. It is Group policy to
assess the credit risk of new tenants before entering into such contracts. The Board has established a credit committee which assesses
each new tenant before a new lease is signed. The review includes the latest sets of financial statements, external ratings, when
available, and, in some cases, forecast information and bank and trade references. The covenant strength of each tenant is determined
based on this review and, if appropriate, a deposit or a guarantee is obtained.
As the Group operates predominantly in central London, it is subject to some geographical risk. However, this is mitigated by the wide
range of tenants from a broad spectrum of business sectors.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 180
Notes to the financial statements
Continued
23 Borrowings and derivative financial instruments (continued)
Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. For banks and financial
institutions, only independently rated parties with a minimum rating of investment grade are accepted. This risk is also reduced by
the short periods that money is on deposit at any one time. The 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 20.
The carrying amount of financial assets recorded in the financial statements represents the Group’s maximum exposure to credit risk
without taking account of the value of any collateral obtained.
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices.
Market risk arises for the Group from its use of variable interest bearing instruments (interest rate risk).
The Group monitors its interest rate exposure on a regular basis. Sensitivity analysis performed to ascertain the impact on profit or
loss and net assets of a 50 basis point shift in interest rates would result in an increase of £0.3m (2016: £0.2m) or a decrease of
£0.3m (2016: £0.2m).
It is currently Group policy that generally between 60% and 85% of external Group borrowings (excluding finance lease payables) are
at fixed rates. Where the Group wishes to vary the amount of external fixed rate debt it holds (subject to it being generally between 60%
and 85% of expected Group borrowings, as noted above), the Group makes use of interest rate derivatives to achieve the desired
interest rate profile. Although the Board accepts that this policy neither protects the Group entirely from the risk of paying rates in excess
of current market rates nor eliminates fully cash flow risk associated with variability in interest payments, it considers that it achieves an
appropriate balance of exposure to these risks. At 31 December 2017, the proportion of fixed debt held by the Group was slightly above
this range at 88% (2016: 95%). During both 2017 and 2016, the Group’s borrowings at variable rate were denominated in sterling.
The Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. When the Group raises long-term
borrowings, it is generally at fixed rates.
Liquidity risk
Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its debt
instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.
The Group’s policy is to ensure that it will always have sufficient headroom in its loan facilities to allow it to meet its liabilities when they
become due. To achieve this aim, it seeks to maintain committed facilities to meet the expected requirements. The Group also seeks to
reduce liquidity risk by fixing interest rates (and hence cash flows) on a portion of its long-term borrowings. This is further explained in
the ‘market risk’ section above.
Executive management receives rolling three-year projections of cash flow and loan balances on a regular basis as part of the Group’s
forecasting processes. At the balance sheet date, these projections indicated that the Group expected to have sufficient liquid
resources to meet its obligations under all reasonably expected circumstances.
The Group’s loan facilities and other borrowings are spread across a range of banks and financial institutions so as to minimise any
potential concentration of risk. The liquidity risk of the Group is managed centrally by the finance department.
Capital disclosures
The Group’s capital comprises all components of equity (share capital, share premium, other reserves, retained earnings and non-
controlling interest).
The Group’s objectives when maintaining capital are:
• to safeguard the entity’s ability to continue as a going concern so that it can continue to provide above average long-term returns
• to provide an above average annualised total return to shareholders.
for shareholders; and
The Group sets the amount of capital it requires in proportion to risk. The Group manages its capital structure and makes adjustments
to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the
capital structure, the Group may vary the amount of dividends paid to shareholders subject to the rules imposed by its REIT status. It
may also seek to redeem bonds, return capital to shareholders, issue new shares or sell assets to reduce debt. Consistent with others
in its industry, the Group monitors capital on the basis of NAV gearing and loan-to-value ratio. During 2017, the Group’s strategy, which
was unchanged from 2016, was to maintain the NAV gearing below 80% in normal circumstances. These two gearing ratios, as well as
the interest cover ratio, are defined in the list of definitions on page 208 and are derived in note 40.
181
Total
carrying
value
£m
87.0
20.6
107.6
(145.6)
(186.9)
(29.8)
(24.8)
(74.5)
(74.3)
(81.7)
(113.2)
(14.1)
(7.9)
(46.9)
(799.7)
Fair value
through profit
and loss
£m
Loans and
receivables
£m
Amortised
cost
£m
–
–
–
–
–
–
–
–
–
–
–
–
(7.9)
–
(7.9)
87.0
20.6
107.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(145.6)
(186.9)
(29.8)
(24.8)
(74.5)
(74.3)
(81.7)
(113.2)
(14.1)
–
(46.9)
(791.8)
(7.9)
107.6
(791.8)
(692.1)
–
–
–
–
–
–
–
–
–
–
–
–
(17.3)
–
(17.3)
17.7
23.0
40.7
–
–
–
17.7
23.0
40.7
–
–
–
–
–
–
–
–
–
–
–
–
(142.9)
(187.9)
(29.8)
(24.8)
(74.5)
(74.3)
(82.1)
(282.3)
(23.9)
–
(64.6)
(987.1)
(142.9)
(187.9)
(29.8)
(24.8)
(74.5)
(74.3)
(82.1)
(282.3)
(23.9)
(17.3)
(64.6)
(1,004.4)
24 Financial assets and liabilities and fair values
Categories of financial assets and liabilities
Group
Financial assets
Cash and cash equivalents
Other assets – current1
Financial liabilities
1.125% unsecured convertible bonds 2019
6.5% secured bonds 2026
3.46% unsecured private placement notes 2028
4.41% unsecured private placement notes 2029
3.57% unsecured private placement notes 2031
4.68% unsecured private placement notes 2034
3.99% secured loan 2024
Bank borrowings due after one year
Leasehold liabilities
Derivative financial instruments
Other liabilities – current2
At 31 December 2017
Financial assets
Cash and cash equivalents
Other assets – current1
Financial liabilities
1.125% unsecured convertible bonds 2019
6.5% secured bonds 2026
3.46% unsecured private placement notes 2028
4.41% unsecured private placement notes 2029
3.57% unsecured private placement notes 2031
4.68% unsecured private placement notes 2034
3.99% secured loan 2024
Bank borrowings due after one year
Leasehold liabilities
Derivative financial instruments
Other liabilities – current2
At 31 December 2016
(17.3)
40.7
(987.1)
(963.7)
1 In 2017, other assets includes all amounts shown as trade and other receivables in note 20 except lease incentives and costs; sales and social security taxes; and
prepayments of £37.4m (2016: £15.5m) for the Group and £8.3m (2016: £0.2m) for the Company. All amounts are non-interest bearing and are receivable within one year.
2 In 2017, other liabilities for the Group include all amounts shown as trade and other payables in note 21 except deferred income and sales and social security taxes of
£39.8m (2016: £45.4m) for the Group and of £0.1m (2016: £0.9m) for the Company. All amounts are non-interest bearing and are due within one year.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
182
183
Notes to the financial statements
Continued
Reconciliation of net financial assets and liabilities to borrowings and derivative financial instruments:
Net financial assets and liabilities
Other assets – current
Other liabilities – current
Cash and cash equivalents
Borrowings and derivative financial instruments
Group
2017
£m
(692.1)
(20.6)
46.9
(87.0)
(752.8)
2016
£m
(963.7)
(23.0)
64.6
(17.7)
(939.8)
Company
2017
£m
121.6
(1,461.3)
902.2
(85.8)
(523.3)
2016
£m
163.8
(1,513.0)
657.9
(6.9)
(698.2)
24 Financial assets and liabilities and fair values (continued)
Fair value
through profit
and loss
£m
Loans and
receivables
£m
Amortised
cost
£m
Total
carrying
value
£m
Fair value measurement
The table below shows the fair values, where applicable, of borrowings and derivative financial instruments held by the Group,
together with a reconciliation to net financial assets and liabilities. Details of inputs and valuation methods used to derive the fair
values are shown in note 23.
Company
Financial assets
Cash and cash equivalents
Other assets – current1
Financial liabilities
3.46% unsecured private placement notes 2028
4.41% unsecured private placement notes 2029
3.57% unsecured private placement notes 2031
4.68% unsecured private placement notes 2034
3.99% secured loan 2024
Bank borrowings due after one year
Intercompany loans
Derivative financial instruments
Other liabilities – current2
At 31 December 2017
Financial assets
Cash and cash equivalents
Other assets – current1
Financial liabilities
3.46% unsecured private placement notes 2028
4.41% unsecured private placement notes 2029
3.57% unsecured private placement notes 2031
4.68% unsecured private placement notes 2034
3.99% secured loan 2024
Bank borrowings due after one year
Intercompany loans
Derivative financial instruments
Other liabilities – current2
–
–
–
–
–
–
–
–
–
–
(7.0)
–
(7.0)
85.8
1,461.3
1,547.1
–
–
–
–
–
–
–
–
(890.3)
(890.3)
–
–
–
(29.8)
(24.8)
(74.5)
(74.3)
(81.7)
(85.6)
(145.6)
–
(11.9)
(528.2)
85.8
1,461.3
1,547.1
(29.8)
(24.8)
(74.5)
(74.3)
(81.7)
(85.6)
(145.6)
(7.0)
(902.2)
(1,425.5)
(7.0)
656.8
(528.2)
121.6
–
–
–
6.9
1,513.0
1,519.9
–
–
–
–
–
–
–
(15.5)
–
(15.5)
–
–
–
–
–
–
–
–
(647.0)
(647.0)
–
–
–
(29.8)
(24.8)
(74.5)
(74.3)
(82.1)
(254.3)
(142.9)
–
(10.9)
(693.6)
6.9
1,513.0
1,519.9
(29.8)
(24.8)
(74.5)
(74.3)
(82.1)
(254.3)
(142.9)
(15.5)
(657.9)
(1,356.1)
At 31 December 2016
(15.5)
872.9
(693.6)
163.8
1 In 2017, other assets includes all amounts shown as trade and other receivables in note 20 except lease incentives and costs; sales and social security taxes; and
prepayments of £37.4m (2016: £15.5m) for the Group and £8.3m (2016: £0.2m) for the Company. All amounts are non-interest bearing and are receivable within one year.
2 In 2017, other liabilities for the Group include all amounts shown as trade and other payables in note 21 except deferred income and sales and social security taxes of
£39.8m (2016: £45.4m) for the Group and of £0.1m (2016: £0.9m) for the Company. All amounts are non-interest bearing and are due within one year.
At 31 December 2017
1.125% unsecured convertible bonds 2019
6.5% secured bonds 2026
3.46% unsecured private placement notes 2028
4.41% unsecured private placement notes 2029
3.57% unsecured private placement notes 2031
4.68% unsecured private placement notes 2034
3.99% secured loan 2024
Bank borrowings due after one year
Intercompany loan
Derivative financial instruments
Amounts not fair valued:
Cash and cash equivalents
Other assets – current
Leasehold liabilities
Other liabilities – current
Net financial assets and liabilities
At 31 December 2016
1.125% unsecured convertible bonds 2019
6.5% secured bonds 2026
3.46% unsecured private placement notes 2028
4.41% unsecured private placement notes 2029
3.57% unsecured private placement notes 2031
4.68% unsecured private placement notes 2034
3.99% secured loan 2024
Bank borrowings due after one year
Intercompany loan
Derivative financial instruments
Amounts not fair valued:
Cash and cash equivalents
Other assets – current
Leasehold liabilities
Other liabilities – current
Net financial assets and liabilities
Group
Company
Fair value
£m
(158.3)
(225.6)
(31.0)
(29.3)
(76.4)
(91.8)
(87.9)
(117.0)
–
(7.9)
(825.2)
(152.4)
(225.6)
(30.8)
(28.8)
(75.6)
(88.5)
(88.2)
(287.5)
–
(17.3)
(994.7)
Carrying
value
£m
(145.6)
(186.9)
(29.8)
(24.8)
(74.5)
(74.3)
(81.7)
(113.2)
–
(7.9)
(738.7)
87.0
20.6
(14.1)
(46.9)
(692.1)
(142.9)
(187.9)
(29.8)
(24.8)
(74.5)
(74.3)
(82.1)
(282.3)
–
(17.3)
(915.9)
17.7
23.0
(23.9)
(64.6)
(963.7)
Carrying
value
£m
–
–
(29.8)
(24.8)
(74.5)
(74.3)
(81.7)
(85.6)
(145.6)
(7.0)
(523.3)
85.8
1,461.3
–
(902.2)
121.6
–
–
(29.8)
(24.8)
(74.5)
(74.3)
(82.1)
(254.3)
(142.9)
(15.5)
(698.2)
6.9
1,513.0
–
(657.9)
163.8
Fair value
£m
Fair value
hierarchy
–
–
(31.0)
(29.3)
(76.4)
(91.8)
(87.9)
(89.0)
(158.3)
(7.0)
(570.7)
–
–
(30.8)
(28.8)
(75.6)
(88.5)
(88.2)
(259.5)
(152.4)
(15.5)
(739.3)
Level 1
Level 1
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 1
Level 1
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
There have been no transfers between Level 1 and Level 2 or Level 2 and Level 3 in either 2017 or 2016.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
184
185
Notes to the financial statements
Continued
25 Cash flow information
Net debt reconciliation
Group
Long-term borrowings
Leasehold liabilities
Total liabilities from financing activities
Cash and cash equivalents
Net debt
Company
Long-term borrowings
Total liabilities from financing activities
Cash and cash equivalents
Net debt
26 Deferred tax
Group
At 1 January 2017
Credited to the income statement
Change in tax rates in the income statement
Charged to other comprehensive income
Change in tax rates in other comprehensive income
At 31 December 2017
At 1 January 2016
(Credited)/charged to the income statement
Change in tax rates in the income statement
Credited to other comprehensive income
Change in tax rates in other comprehensive income
At 31 December 2016
Company
At 1 January 2017
Credited to the income statement
Change in tax rates in the income statement
At 31 December 2017
At 1 January 2016
Charged to the income statement
Change in tax rates in the income statement
At 31 December 2016
Non-cash changes
Amortisation
of issue and
arrangement
costs
£m
Fair value
adjustments
£m
Disposals
£m
2016
£m
Cash flows
£m
898.6
23.9
922.5
(17.7)
904.8
682.7
682.7
(6.9)
675.8
(170.8)
–
(170.8)
(69.3)
(240.1)
(170.4)
(170.4)
(78.9)
(249.3)
2.0
–
2.0
–
2.0
1.9
1.9
–
1.9
1.0
–
1.0
–
1.0
2.1
2.1
–
2.1
Revaluation
surplus
£m
5.3
(1.0)
(0.5)
0.8
(0.1)
4.5
8.7
(1.8)
(0.3)
(1.2)
(0.1)
5.3
–
–
–
–
–
–
–
–
–
(9.8)
(9.8)
–
(9.8)
–
–
–
–
Other
£m
(2.2)
(0.2)
0.2
–
–
(2.2)
(3.2)
0.9
0.1
–
–
(2.2)
(2.2)
(0.2)
0.3
(2.1)
(3.2)
0.9
0.1
(2.2)
2017
£m
730.8
14.1
744.9
(87.0)
657.9
516.3
516.3
(85.8)
430.5
Total
£m
3.1
(1.2)
(0.3)
0.8
(0.1)
2.3
5.5
(0.9)
(0.2)
(1.2)
(0.1)
3.1
(2.2)
(0.2)
0.3
(2.1)
(3.2)
0.9
0.1
(2.2)
Deferred tax on the revaluation surplus is calculated on the basis of the chargeable gains that would crystallise on the sale of the property
portfolio at each balance sheet date. The calculation takes account of any available indexation on the historic cost of the properties.
Due to the Group’s REIT status, deferred tax is only provided at each balance sheet date on properties outside the REIT regime.
Deferred tax assets have been recognised in respect of all tax losses and other temporary differences where the Directors believe
it is probable that these assets will be recovered.
27 Share capital
The movement in the number of 5p ordinary shares in issue is shown in the table below:
Number of shares in issue
At 1 January 2016
Issued as a result of scrip dividends
Issued as a result of awards vesting under the Group’s Performance Share Plan
Issued as a result of the exercise of share options1
At 31 December 2016
Issued as a result of awards vesting under the Group’s Performance Share Plan
Issued as a result of the exercise of share options1
At 31 December 2017
1 Proceeds from these issues were £0.8m (2016: £1.0m).
Number
111,172,101
33,884
134,177
49,675
111,389,837
51,824
33,160
111,474,821
The number of outstanding share options and other share awards granted are disclosed in the report of the Remuneration
Committee and note 13.
28 Reserves
The following describes the nature and purpose of each reserve within shareholders’ equity:
Reserve
Share premium
Other reserves:
Merger
Revaluation
Other
Description and purpose
Amount subscribed for share capital in excess of nominal value less directly attributable issue costs.
Premium on the issue of shares as equity consideration for the acquisition of London Merchant
Securities plc (LMS).
Revaluation of the owner-occupied property and the associated deferred tax.
Equity portion of the convertible bonds for the Group and intercompany loans for the Company.
Fair value of equity instruments granted but not yet exercised under share-based payments.
Retained earnings
Cumulative net gains and losses recognised in the Group income statement together with other
items such as dividends and share-based payments.
Other reserves
Merger reserve
Revaluation reserve
Equity portion of the convertible bonds
Equity portion of long-term intercompany loan
Fair value of equity instruments under share-based payments
Group
2017
£m
910.5
13.8
12.3
–
6.3
942.9
2016
£m
910.5
19.6
12.3
–
8.0
950.4
Company
2017
£m
910.5
–
–
12.3
6.3
929.1
2016
£m
910.5
–
–
12.3
8.0
930.8
29 Profit for the year attributable to members of Derwent London plc
Profit for the year in the Group income statement includes a profit of £125.7m (2016: loss of £35.1m) generated by the Company.
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.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
186
187
Notes to the financial statements
Continued
30 Dividend
34 Leases
Current year
2017 final dividend1
2017 interim dividend
Distribution of current year profit
Special dividend
2017 special dividend1
Distribution of accumulated profit
Prior year
2016 final dividend
2016 interim dividend
Distribution of prior year profit
Special dividend
2016 special dividend
Distribution of accumulated profit
2015 final dividend
Dividends as reported in the Group
statement of changes in equity
2017 interim dividend withholding tax
2016 interim dividend withholding tax
2015 final scrip dividend
2015 interim dividend withholding tax
Dividends paid as reported in the
Group cash flow statement
Payment
date
Dividend per share
PID
p
Non-PID
p
8 June 2018
20 October 2017
35.00
17.33
52.33
7.40
–
7.40
Total
p
42.40
17.33
59.73
8 June 2018
–
–
75.00
75.00
75.00
75.00
9 June 2017
21 October 2016
32.70
13.86
46.56
5.80
–
5.80
38.50
13.86
52.36
9 June 2017
–
–
52.00
52.00
52.00
52.00
10 June 2016
30.80
–
30.80
14 January 2018
14 January 2017
10 June 2016
14 January 2016
2017
£m
–
19.3
19.3
–
–
42.9
–
42.9
57.9
57.9
–
120.1
(2.1)
1.7
–
–
2016
£m
–
–
–
–
–
–
15.5
15.5
–
–
34.2
49.7
–
(1.7)
(1.1)
1.7
Operating lease receipts
Minimum lease receipts under non-cancellable operating leases to be received:
not later than one year
later than one year and not later than five years
later than five years
Finance lease obligations
Minimum lease payments under finance leases that fall due:
not later than one year
later than one year and not later than five years
later than five years
Future contingent rent payable on finance leases
Future finance charges on finance leases
Present value of finance lease liabilities
Present value of minimum finance lease obligations:
later than one year and not later than five years
later than five years
In accordance with IAS 17 Leases, the minimum lease payments are allocated as follows:
119.7
48.6
Finance charge
Contingent rent
Total
2017
£m
2016
£m
165.0
545.0
649.6
1,359.6
164.6
557.1
774.0
1,495.7
2017
£m
2016
£m
0.8
3.2
187.9
191.9
(19.6)
(158.2)
14.1
1.2
4.8
237.0
243.0
(19.8)
(199.3)
23.9
0.1
14.0
14.1
2017
£m
1.0
0.7
1.7
0.1
23.8
23.9
2016
£m
1.0
0.7
1.7
1 Subject to shareholder approval at the Annual General Meeting on 18 May 2018.
31 Cash and cash equivalents
Cash at bank
Group
2017
£m
87.0
2016
£m
17.7
Company
2017
£m
85.8
2016
£m
6.9
32 Capital commitments
Contracts for capital expenditure entered into by the Group at 31 December 2017 and not provided for in the accounts relating to
the construction, development or enhancement of the Group’s investment properties amounted to £253.9m (2016: £319.4m), whilst
those relating to the Group’s trading properties amounted to £13.2m (2016: £15.4m). At 31 December 2017 and 31 December 2016,
there were no material obligations for the purchase, repair or maintenance of investment or trading properties.
33 Contingent liabilities
The Company and its subsidiaries are party to cross guarantees securing certain bank loans. At 31 December 2017 and 31 December
2016, there was no liability that could arise for the Company from the cross guarantees.
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.
The Group has approximately 700 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 20 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 commencing during 2017 was 12.2 years (2016: 9.1 years). Of these leases, on a weighted average basis, 97%
(2016: 96%) included a rent free or half rent period.
35 Post balance sheet events
Crossrail completed the base infrastructure works at Soho Place W1 and handed over the site to the Group in January 2018.
In January 2018 Primister Limited, in which the Group is a joint shareholder, exchanged contracts for the sale of its freehold interest
in Porters North N1 for £45.4m before costs, with completion expected in March 2018.
On 27 February 2018 a special dividend of 75p per share was proposed, which is subject to shareholder approval at the Annual
General Meeting on 18 May 2018.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
188
189
Notes to the financial statements
Continued
36 List of subsidiaries and joint ventures
A full list of subsidiaries and joint ventures as at 31 December 2017 is set out below:
Ownership3
Principal activity
Subsidiaries
Asta Commercial Limited
Bargate Quarter Limited
BBR (Commercial) Limited
BBR Property Limited1
Caledonian Properties Limited
Caledonian Property Estates Limited
Caledonian Property Investments Limited
Carlton Construction & Development Company Limited
Central London Commercial Estates Limited
Charlotte Apartments Limited
80 Charlotte Street Limited1
Corinium Estates Limited2
City Shops Limited2
Derwent Asset Management Limited1
Derwent Central Cross Limited1
Derwent Henry Wood Limited1
Derwent London Angel Square Limited1
Derwent London Asta Limited
Derwent London Charlotte Street (Commercial) Limited
Derwent London Charlotte Street Limited1
Derwent London Copyright House Limited1
Derwent London Development Services Limited1
Derwent London Farringdon Limited1
Derwent London Grafton Limited1
Derwent London Howland Limited1
Derwent London KSW Limited1
Derwent London Oliver’s Yard Limited1
Derwent London Page Street (Nominees) Limited
Derwent London Page Street Limited1
Derwent London Whitfield Street Limited1
Derwent Valley Central Limited1
Derwent Valley City Limited2
Derwent Valley Employee Trust Limited1
Derwent Valley Finance Limited
Derwent Valley Limited
Derwent Valley London Limited1
Derwent Valley Properties Limited2
Derwent Valley Property Developments Limited1
Derwent Valley Property Investments Limited1
Derwent Valley Property Trading Limited
Derwent Valley Railway Company1
Derwent Valley West End Limited1
Kensington Commercial Property Investments Limited
22 Kingsway Limited1
LMS (City Road) Limited
LMS Finance Limited
LMS (Goodge Street) Limited2
LMS Industrial Finance Limited2
100%
65%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Property investment
Investment company
Property investment
Property trading
Property investment
Property investment
Property investment
Dormant
Property investment
Property investment
Property investment
Dormant
Dormant
Property management
Property investment
Property investment
Property investment
Property trading
Property investment
Property trading
Property investment
Management services
Property investment
Property investment
Property investment
Property investment
Property investment
Dormant
Property investment
Property investment
Property investment
Dormant
Dormant
Finance company
Holding company
Property investment
Dormant
Property investment
Property investment
Property trading
Dormant
Property investment
Property investment
Dormant
Property investment
Investment holding
Dormant
Dormant
LMS Leisure Investments Limited2
LMS Offices Limited
LMS Outlets Limited2
LMS Properties Limited2
LMS Residential Limited2
LMS Services Limited2
LMS Shops Limited2
London Merchant Securities Limited1
LS Kingsway Limited
Merchant Nominees Limited2
Merchant Overseas Holdings Limited2
Palaville Limited2
Rainram Investments Limited2
Shaftesbury Square Properties Limited2
The New River Company Limited
West London & Suburban Property Investments Limited
Urbanfirst Limited
Derwent London Capital No. 2 (Jersey) Limited1
Portman Investments (Baker Street) Limited
Joint ventures
Dorrington Derwent Holdings Limited
Dorrington Derwent Investment Limited
Prescot Street GP Limited
Prescot Street Leaseco Limited
Prescot Street Limited Partnership
Prescot Street Nominees Limited
Primister Limited
Ownership3
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
55%
50%
50%
50%
50%
50%
50%
50%
Principal activity
Dormant
Property investment
Dormant
Dormant
Dormant
Dormant
Dormant
Holding company
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Property investment
Property investment
Investment holding
Finance company
Property investment
Holding company
Investment company
Management company
Property investment
Property investment
Dormant
Property investment
1 Indicates subsidiary undertakings held directly.
2 These subsidiaries have not traded in the year and an application has been made to Companies House to strike them off.
3 All holdings are of ordinary shares.
The Company controls 50% of the voting rights of its joint ventures, which are accounted for and disclosed in accordance with IFRS
11 Joint Arrangements.
The Company’s interest in Portman Investments (Baker Street) Limited is accounted for and disclosed in accordance with IAS 27
Consolidated and Separate Financial Statements. This gives rise to a non-controlling interest within equity in the Group balance sheet
and the separate disclosure of the non-controlling interest’s share of the Group’s profit for the year in the Group income statement
and Group statement of comprehensive income.
All of the entities above are incorporated and domiciled in England and Wales, with the exception of 22 Kingsway Limited and
Derwent London Capital No. 2 (Jersey) Limited, which are incorporated and domiciled in Jersey. In addition, all the entities are
registered at 25 Savile Row, London, W1S 2ER, with the exception of:
Channel Islands;
• 22 Kingsway Limited and Derwent London Capital No. 2 (Jersey) Limited, which are registered at 47 Esplanade, St Helier, JE1 0BD,
• Dorrington Derwent Holdings Limited and Dorrington Derwent Investment Limited, which are registered at 16 Hans Road,
• Primister Limited, which is registered at Quadrant House, Floor 6, 4 Thomas More Square, London, E1W 1YW.
London, SW3 1RT;
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
190
191
Notes to the financial statements
Continued
37 Related party disclosure
Details of Directors’ remuneration are given in the report of the Remuneration Committee on pages 116 to 135 and note 11. A full list of
subsidiaries and joint ventures is given in note 36. Other related party transactions are as follows:
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 loan from Derwent London Capital No. 2 (Jersey) Limited, the payment and repayment terms
of which mirror those of the convertible bonds.
Group
The Hon. R.A. Rayne is a Director of LMS Capital plc, an investment company, which had a lease over offices owned by the Group for
which they paid a commercial rent of £0.3m (2016: £0.4m). This lease terminates on 24 March 2018. During the year, the Group also
contributed £0.1m (2016: £0.1m) to LMS Capital plc’s running costs.
There are no outstanding balances owed to the Group with respect to all of the above transactions.
At 31 December 2017, included within other receivables in note 20 is an amount owed by the Portman Estate, the minority owner of
one of the Group’s subsidiaries, of £2.0m (2016: £2.0m).
Company
The Company received interest from and paid interest to some of its subsidiaries during the year. These transactions are
summarised below:
Interest income/(expense)
Balance receivable/(payable)
Related party
22 Kingsway Limited
80 Charlotte Street Limited
BBR (Commercial) Limited
BBR Property Limited
Derwent Asset Management Limited
Derwent Central Cross Limited
Derwent Henry Wood Limited
Derwent London Asta Limited
Derwent London Angel Square Limited
Derwent London Capital No. 2 (Jersey) Limited1
Derwent London Charlotte Street (Commercial) Limited
Derwent London Charlotte Street Limited
Derwent London Copyright House Limited
Derwent London Development Services Limited
Derwent London Farringdon Limited
Derwent London Grafton Limited
Derwent London Howland Limited
Derwent London KSW Limited
Derwent London Oliver’s Yard Limited
Derwent London Page Street Limited
Derwent Whitfield Street Limited
Derwent Valley Central Limited
Derwent Valley London Limited
Derwent Valley Property Developments Limited
Derwent Valley Property Investments Limited
Derwent Valley Property Trading Limited
Derwent Valley Railway Company2
Derwent Valley West End Limited
London Merchant Securities Limited3
2017
£m
–
6.9
(0.1)
(0.2)
–
8.5
2.0
0.7
3.6
(3.8)
–
(0.1)
3.1
–
4.5
(1.5)
(1.1)
3.8
2.9
0.5
0.8
(4.4)
7.2
1.5
(3.7)
0.1
–
0.1
(6.0)
25.3
2016
£m
–
–
–
(0.2)
–
8.3
1.9
0.4
3.4
(3.8)
–
–
3.0
0.4
4.1
0.7
5.0
3.6
–
0.7
–
(7.5)
4.6
1.7
(4.0)
–
–
0.1
5.6
28.0
1 The payable balance at 31 December 2017 includes the intercompany loan of £145.5m (2016: £142.9m) included in note 23.
2 Dormant company.
3 Balance owed includes subsidiaries which form part of the LMS sub-group.
(33.5)
192.0
(2.4)
(5.5)
(0.7)
198.9
46.6
16.4
83.1
(145.5)
(1.0)
(1.6)
(26.3)
–
105.1
(37.3)
(75.6)
88.6
123.0
10.1
33.1
(90.1)
180.4
40.9
(90.6)
7.3
(0.2)
2.2
(193.4)
424.0
(33.5)
–
(2.3)
(5.3)
(0.5)
203.5
47.3
15.3
84.3
(142.8)
1.1
(1.6)
85.9
18.7
105.2
(26.8)
123.9
88.9
–
15.2
–
(108.8)
152.0
32.3
(83.3)
–
(0.2)
2.3
151.3
722.1
2017
£m
2016
£m
The definition of these measures can be found on page 207.
Interest is charged on the on-demand intercompany balances at an arm’s length basis.
38 EPRA performance measures
Summary table
EPRA earnings
EPRA net asset value
EPRA triple net asset value
EPRA vacancy rate
EPRA cost ratio (including direct vacancy costs)
EPRA net initial yield
EPRA 'topped-up' net initial yield
Number of shares
For use in basic measures
Dilutive effect of share-based payments
For use in diluted measures
2017
2016
£105.0m
£4,153.1m
£4,042.8m
1.3%
20.8%
3.4%
4.4%
Pence
per share
94.23
3,716
3,617
£85.7m
£3,966.3m
£3,853.5m
2.6%
24.0%
3.4%
4.1%
Pence
per share
76.99
3,551
3,450
Earnings per share
Weighted average
Net asset value per share
At 31 December
2017
’000
111,431
267
111,698
2016
’000
111,315
296
111,611
2017
’000
111,475
295
111,770
2016
’000
111,390
291
111,681
The £150m unsecured convertible bonds 2019 (‘2019 bonds’) have a current conversion price of £32.73. The Group recognises
the effect of conversion of the bonds if they are both dilutive and, based on the share price, likely to convert.
For the year ended 31 December 2017 and 31 December 2016, the Group did not recognise the dilutive impact of the conversion
of the 2019 bonds on its earnings per share (EPS) or net asset value (NAV) per share measures as, based on the recent share price,
the bonds were not expected to convert.
The following tables set out reconciliations between the IFRS and EPRA earnings for the year and earnings per share. The adjustments
made between the figures are as follows:
A – Disposal of investment and trading property, and associated tax and non-controlling interest
B – Revaluation movement on investment property and in joint ventures, (reversal of write-down)/write-down of trading property
and associated deferred tax and non-controlling interest
C – Fair value movement and termination costs relating to derivative financial instruments, associated non-controlling interest and
the dilutive effect of convertible bonds
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
192
193
Notes to the financial statements
Continued
38 EPRA performance measures (continued)
Earnings and earnings per share
Year ended 31 December 2017
Net property and other income
Total administrative expenses
Revaluation surplus
Profit on disposal of investment property
Net finance costs
Movement in fair value of derivative financial instruments
Financial derivative termination costs
Share of results of joint ventures
Profit before tax
Tax charge
Profit for the year
Non-controlling interest
Earnings attributable to equity shareholders
Earnings per share
Diluted earnings per share
Year ended 31 December 2016
Net property and other income
Total administrative expenses
Revaluation deficit
Profit on disposal of investment property
Net finance costs
Movement in fair value of derivative financial instruments
Financial derivative termination costs
Share of results of joint ventures
Profit before tax
Tax charge
Profit for the year
Non-controlling interest
Earnings attributable to equity shareholders
Earnings per share
Diluted earnings per share
A
£m
–
–
–
(50.3)
–
–
–
–
(50.3)
1.1
(49.2)
–
(49.2)
(1.9)
–
–
(7.5)
–
–
–
–
(9.4)
0.5
(8.9)
–
(8.9)
Adjustments
B
£m
(1.0)
–
(147.9)
–
–
–
–
(3.9)
(152.8)
(1.5)
(154.3)
(3.8)
(158.1)
1.6
–
37.1
–
–
–
–
(1.8)
36.9
(2.2)
34.7
(7.6)
27.1
IFRS
£m
164.8
(28.2)
147.9
50.3
(27.1)
9.4
(7.3)
5.0
314.8
(1.8)
313.0
1.0
314.0
281.79p
281.12p
149.2
(30.9)
(37.1)
7.5
(27.8)
0.3
(9.0)
2.3
54.5
(0.9)
53.6
5.1
58.7
52.73p
52.59p
C
£m
–
–
–
–
–
(9.4)
7.3
–
(2.1)
–
(2.1)
0.4
(1.7)
–
–
–
–
–
(0.3)
9.0
–
8.7
–
8.7
0.1
8.8
EPRA
basis
£m
163.8
(28.2)
–
–
(27.1)
–
–
1.1
109.6
(2.2)
107.4
(2.4)
105.0
94.23p
94.00p
148.9
(30.9)
–
–
(27.8)
–
–
0.5
90.7
(2.6)
88.1
(2.4)
85.7
76.99p
76.78p
Net asset value and net asset value per share
At 31 December 2017
Net assets attributable to equity shareholders
Adjustment for:
Revaluation of trading properties net of tax
Deferred tax on revaluation surplus
Fair value of derivative financial instruments
Fair value adjustment to secured bonds
Non-controlling interest in respect of the above
EPRA net asset value
Adjustment for:
Mark-to-market of secured bonds 2026
Mark-to-market of secured loan 2024
Mark-to-market of unsecured private placement notes 2029 and 2034
Mark-to-market of unsecured private placement notes 2028 and 2031
Mark-to-market of 1.125% unsecured convertible bonds 2019
Deferred tax on revaluation surplus
Fair value of derivative financial instruments
Unamortised issue and arrangement costs
Non-controlling interest in respect of the above
EPRA triple net asset value
At 31 December 2016
Net assets attributable to equity shareholders
Adjustment for:
Deferred tax on revaluation surplus
Fair value of derivative financial instruments
Fair value adjustment to secured bonds
Non-controlling interest in respect of the above
EPRA net asset value
Adjustment for:
Mark-to-market of secured bonds 2026
Mark-to-market of secured loan 2024
Mark-to-market of unsecured private placement notes 2029 and 2034
Mark-to-market of unsecured private placement notes 2028 and 2031
Mark-to-market of 1.125% unsecured convertible bonds 2019
Deferred tax on revaluation surplus
Fair value of derivative financial instruments
Unamortised issue and arrangement costs
Non-controlling interest in respect of the above
EPRA triple net asset value
£m
Undiluted
p
Diluted
p
4,128.3
3,703
3,694
1.0
4.5
7.9
12.9
(1.5)
4,153.1
(50.6)
(4.9)
(21.1)
(2.4)
(11.8)
(4.5)
(7.9)
(8.6)
1.5
4,042.8
3,726
3,716
3,627
3,617
3,932.3
3,530
3,521
5.3
17.3
14.0
(2.6)
3,966.3
(50.6)
(5.2)
(17.3)
(1.4)
(8.0)
(5.3)
(17.3)
(10.3)
2.6
3,853.5
3,561
3,551
3,459
3,450
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
194
195
Notes to the financial statements
Continued
38 EPRA performance measures (continued)
Cost ratio
Administrative expenses
Other property costs
Dilapidation receipts
Net service charge costs
Service charge costs recovered through rents but not separately invoiced
Management fees received less estimated profit element
Share of joint ventures’ expenses
EPRA costs (including direct vacancy costs) (A)
Direct vacancy costs
EPRA costs (excluding direct vacancy costs) (B)
Gross rental income
Ground rent
Service charge components of rental income
Share of joint ventures’ rental income less ground rent
Adjusted gross rental income (C)
EPRA cost ratio (including direct vacancy costs) (A/C)
EPRA cost ratio (excluding direct vacancy costs) (B/C)
2017
£m
28.2
8.4
(0.1)
1.9
(0.3)
(2.7)
0.5
35.9
(2.5)
33.4
172.1
(0.7)
(0.3)
1.8
172.9
2016
£m
30.9
7.5
(0.1)
1.3
(0.3)
(2.4)
0.5
37.4
(2.5)
34.9
155.4
(0.7)
(0.3)
1.3
155.7
20.8%
24.0%
19.3%
22.4%
In addition to the two EPRA cost ratios, the Group has calculated an additional cost ratio based on its property portfolio fair value to
recognise the ‘total return’ nature of the Group’s activities.
Property portfolio at fair value (D)
Portfolio cost ratio (A/D)
The Group has not capitalised any overhead or operating expenses in either 2017 or 2016.
4,850.3
4,942.7
0.7%
0.8%
Net initial yield and ‘topped-up’ net initial yield
Property portfolio – wholly owned
Share of joint ventures
Less non-EPRA properties1
Completed property portfolio
Allowance for:
Estimated purchasers’ costs
Estimated costs to complete
EPRA property portfolio valuation (A)
Annualised contracted rental income, net of ground rents
Share of joint ventures
Less non-EPRA properties1
Add outstanding rent reviews
Less estimate of non-recoverable expenses
Current income net of non-recoverable expenses (B)
Contractual rental increases across the portfolio
Less non-EPRA properties1
Contractual rental increases across the EPRA portfolio
‘Topped-up’ net annualised rent (C)
EPRA net initial yield (B/A)
EPRA ‘topped-up’ net initial yield (C/A)
Vacancy rate
Annualised estimated rental value of vacant premises
Portfolio estimated rental value
Less non-EPRA properties1
EPRA vacancy rate
1 In accordance with EPRA best practice guidelines, deductions are made for development properties, land and long-dated reversions.
39 Total return
EPRA net asset value on a diluted basis
At end of year
At start of year
Increase
Dividend per share
Increase including dividend
Total return
2017
£m
2016
£m
4,850.3
47.3
(608.4)
4,289.2
291.7
0.8
4,581.7
4,942.7
37.7
(950.7)
4,029.7
274.0
5.4
4,309.1
158.6
1.5
(0.8)
1.1
(3.4)
(3.1)
157.0
68.4
(21.8)
46.6
203.6
3.4%
4.4%
2017
£m
2.8
270.1
(50.3)
219.8
149.3
1.0
(2.1)
2.9
(3.9)
(3.1)
147.2
47.8
(18.3)
29.5
176.7
3.4%
4.1%
2016
£m
5.4
284.5
(77.5)
207.0
1.3%
2.6%
2017
p
2016
p
3,716
(3,551)
165
108
273
3,551
(3,535)
16
45
61
7.7%
1.7%
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
196
197
Notes to the financial statements
Continued
40 Gearing and interest cover
NAV gearing
Net debt
Net assets
NAV gearing
Loan-to-value ratio
Net debt
Fair value adjustment of secured bonds
Unamortised issue and arrangement costs
Leasehold liabilities
Drawn debt
Fair value of property portfolio
Loan-to-value ratio
Net interest cover ratio
Net property and other income
Adjustments for:
Other income
Other property income
Net surrender premiums received
(Reversal of write-down)/write-down of trading property
Profit on disposal of trading properties
Reverse surrender premiums
Adjusted net property income
Finance costs
Adjustments for:
Other finance costs
Amortisation of fair value adjustment to secured bonds
Amortisation of issue and arrangement costs
Finance costs capitalised
Net interest payable
2017
£m
657.9
2016
£m
904.8
4,193.2
3,999.4
15.7%
22.6%
2017
£m
657.9
(12.9)
8.6
(14.1)
639.5
2016
£m
904.8
(14.0)
10.3
(23.9)
877.2
4,850.3
4,942.7
13.2%
17.7%
2017
£m
164.8
(2.7)
–
(0.1)
(1.0)
–
0.2
161.2
27.1
27.1
(0.1)
1.1
(2.0)
9.4
35.5
2016
£m
149.2
(2.4)
(0.5)
(0.1)
1.6
(1.9)
0.1
146.0
27.8
27.8
(0.1)
1.0
(2.2)
13.0
39.5
41 Significant accounting policies
Basis of consolidation
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.
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the
Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns
through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group.
They are deconsolidated from the date that 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 IFRS 11 Joint Arrangements, and following
the procedures for this method set out in IAS 28 Investments in Associates and Joint Ventures. The equity method requires the
Group’s share of the joint venture’s post-tax profit or loss for the year 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
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 and IAS 17 Leases. 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 contracted
rent uplifts and 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
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.
Net interest cover ratio
454%
370%
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
198
199
Notes to the financial statements
Continued
41 Significant accounting policies (continued)
Expenses
(i) Lease payments – Where investment properties are held under operating leases, the leasehold interest is classified as if it were
held under a finance lease, which is recognised at its fair value on the balance sheet, within the investment property carrying
value. Upon initial recognition, a corresponding liability is included as a finance lease liability. Minimum lease payments are
apportioned between the finance charge and the reduction of the outstanding liability so as to produce a constant periodic rate
of interest on the remaining finance lease liability. Contingent rents payable, being the difference between the rent currently
payable and the minimum lease payments when the lease liability was originally calculated, are charged as expenses within
property expenditure in the years in which they are payable.
(ii)
Dilapidations – Dilapidations monies received from tenants in respect of their lease obligations are recognised immediately in the
Group income statement, unless they relate to future capital expenditure. In the latter case, where the costs are considered to be
recoverable they are capitalised as part of the carrying value of the property.
(iii) Reverse surrender premiums – Payments made to tenants to surrender their lease obligations are charged directly to the Group
income statement unless the payment is to enable the probable redevelopment of a property. In the latter case, where the costs
are considered to be recoverable, they are capitalised as part of the carrying value of the property.
(iv) Other property expenditure – Vacant property costs and other property costs are expensed in the year to which they relate, with
the exception of the initial direct costs incurred in negotiating and arranging leases which are, in accordance with IAS 17 Leases,
added to the carrying value of the relevant property and recognised as an expense over the lease term on the same basis as the
lease income.
Employee benefits
(i) Share-based remuneration
Equity settled – The Company operates a long-term incentive plan and share option scheme. The fair value of the conditional
awards of shares granted under the long-term incentive plan and the options granted under the share option scheme are
determined at the date of grant. This fair value is then expensed on a straight-line basis over the vesting period, based on an
estimate of the number of shares that will eventually vest. At each reporting date, the non-market based performance criteria
of the long-term incentive plan are reconsidered and the expense is revised as necessary. In respect of the share option
scheme, the fair value of the options granted is calculated using a binomial lattice pricing model.
Under the transitional provisions of IFRS 1, no expense is recognised for options or conditional shares granted on or before
7 November 2002.
(ii) Pensions
(a) Defined contribution plans – Obligations for contributions to defined contribution pension plans are recognised as an
expense in the Group income statement in the period to which they relate.
(b) Defined benefit plans – The Group’s net obligation in respect of defined benefit post-employment plans, including pension
plans, is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return
for their service in the current and prior periods. That benefit is discounted to determine its present value, and the fair value
of any plan assets is deducted. The discount rate is the yield at the balance sheet date on AA credit-rated bonds that have
maturity dates approximating the terms of the Group’s obligations. The calculation is performed by a qualified actuary using
the projected unit credit method. Any actuarial gain or loss in the period is recognised in full in the Group statement of
comprehensive income.
Business combinations
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.
Investment property
(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 and letting cost receivables. Fair value is the price that would be received to sell an investment
property in an orderly transaction between market participants at the measurement date. 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.
(ii)
Capital expenditure – Capital expenditure, being costs directly attributable to the redevelopment or refurbishment of an
investment property, up to the point of it being completed for its intended use, are capitalised in the carrying value of that
property. In addition, in accordance with IAS 23 Borrowing Costs, finance costs that are directly attributable to such expenditure
are capitalised using the Group’s average cost of borrowings during each quarter.
(iii) Disposal – Properties are treated as disposed when the Group transfers the significant risks and rewards of ownership to the buyer.
Generally this would occur on completion of contract. On disposal, any gain or loss is calculated as the difference between the net
disposal proceeds and the carrying value at the last year end plus subsequent capitalised expenditure during the year. Where the
net disposal proceeds have yet to be finalised at the balance sheet date, the proceeds recognised reflect the Directors’ best
estimate of the amounts expected to be received. Any contingent consideration is recognised at fair value at the balance sheet
date. The fair value is calculated using future discounted cash flows based on expected outcomes with estimated probabilities
taking account of the risk and uncertainty of each input.
(iv) Development – When the Group begins to redevelop an existing investment property for continued use as an investment property
or acquires a property with the subsequent intention of developing as an investment property, the property is classified as an
investment property and is accounted for as such. When the Group begins to redevelop an existing investment property with a
view to sale, the property is transferred to trading properties and held as a current asset. The property is remeasured to fair value
as at the date of transfer with any gain or loss being taken to the income statement. The remeasured amount becomes the
deemed cost at which the property is then carried in trading properties.
Trading property
Trading property relate to property being developed for sale. In accordance with IAS 2 Inventories, they are held at the lower of cost
and net realisable value.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
200
201
Notes to the financial statements
Continued
41 Significant accounting policies (continued)
Property, plant and equipment
(i) Owner-occupied property – Owner-occupied property is stated at its revalued amount, which is determined in the same manner
as investment property. It is depreciated over its remaining useful life (40 years) with the depreciation included in administrative
expenses. On revaluation, any accumulated depreciation is eliminated against the gross carrying amount of the property
concerned, and the net amount restated to the revalued amount. Subsequent depreciation charges are adjusted based on the
revalued amount for each property. Any difference between the depreciation charge on the revalued amount and that which
would have been charged under historic cost is transferred, net of any related deferred tax, between the revaluation reserve
and retained earnings as the property is utilised. Surpluses or deficits resulting from changes in the fair value are reported in
the Group statement of comprehensive income. The land element of the property is not depreciated.
(ii) Artwork – Artwork is stated at revalued amounts on the basis of open market value.
(iii) Other – Plant and equipment is depreciated at a rate of between 10% and 25% per annum which is calculated to write off the
cost, less estimated residual value of the individual assets, over their expected useful lives.
Investments
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
recoverable amount. Any impairment is recognised immediately in the income statement.
Non-current assets held for sale
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.
Financial liabilities
(i) Bank loans and fixed rate loans – Bank loans and fixed rate loans are included as financial liabilities on the balance sheets at the
amounts drawn on the particular facilities. Interest payable is expensed as a finance cost in the year to which it relates.
(ii) Non-convertible bonds – These are included as a financial liability on the balance sheet net of the unamortised discount and costs
on issue. The difference between this carrying value and the redemption value is recognised in the Group income statement over
the life of the bond on an effective interest basis. Interest payable to bond holders is expensed in the year to which it relates.
(iii) Convertible bonds – 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 remeasured. 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.
(iv) Finance lease liabilities – Finance lease liabilities arise for those investment properties held under a leasehold interest and
accounted for as investment property. The liability is initially calculated as the present value of the minimum lease payments,
reducing in subsequent years by the apportionment of payments to the lessor, as described above under the heading for
lease payments.
(v)
Interest rate derivatives – The Group uses derivative financial instruments to manage the interest rate risk associated with the
financing of the Group’s business. No trading in financial instruments is undertaken.
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 because the Group does not apply hedge accounting.
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.
(vi) Trade payables – Trade payables are recognised and carried at the original transaction value.
Financial assets
(i)
Cash and cash equivalents – Cash comprises cash in hand and on-demand deposits less overdrafts. Cash equivalents comprise
short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value.
(ii)
Trade receivables – Trade receivables are recognised and carried at the original transaction value. A provision for impairment is
established where there is objective evidence that the Group will not be able to collect all amounts due according to the original
terms of the receivables concerned.
Deferred tax
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.
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.
Cash flow
Transactions in the cash flow statement under operating, investing and financing activities have been prepared net of value added
tax in order to reflect the true cash inflows and outflows of the Group.
Dividends
Dividends payable on the ordinary share capital are recognised in the year in which they are declared.
Foreign currency translation
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.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 202
203
Ten-year summary (unaudited)
EPRA summary (unaudited)
2017
£m
2016
£m
2015
£m
2014
£m
2013
£m
2012
£m
2011
£m
2010
£m
2009
£m
20082
£m
Income statement
Gross property income
Net property income and
other income
Profit on disposal of
properties and investments
Profit before tax
172.2
156.0
152.0
138.4
131.6
124.8
125.5
119.4
123.8
119.0
164.8
149.2
148.6
136.1
124.3
117.0
117.7
113.0
114.8
95.5
50.3
314.8
7.5
54.5
40.2
779.5
30.2
753.7
53.5
467.9
10.8
228.1
36.1
233.0
0.9
352.8
(16.6)
(34.9)
1.2
(606.5)
Earnings and dividend per share
EPRA earnings
EPRA earnings per share (p)
Dividend paid (p)
Distribution of years’ profit (p)
Special dividend (p)
105.0
94.23
107.83
59.73
75.00
85.7
76.99
44.66
52.36
52.00
78.7
71.34
40.60
43.40
–
58.6
57.08
37.40
39.65
–
55.1
53.87
34.50
36.50
–
51.3
50.36
31.85
33.70
–
52.3
51.59
29.70
31.35
–
53.6
52.89
27.60
29.00
–
57.6
57.14
24.50
27.00
–
21.9
21.74
23.15
24.50
–
Net asset value
Net assets
Net asset value per share
(p) – undiluted
EPRA net asset value per share
4,193.2 3,999.4 3,995.4
3,075.7 2,370.5
1,918.0
1,714.5
1,494.7
1,163.9
1,215.0
3,703
3,530
3,528
2,931
2,248
1,824
1,636
1,432
1,117
1,170
(p) – diluted
3,716
3,551
3,535
2,908
2,264
1,886
1,701
1,474
1,161
1,222
EPRA triple net asset value per
share (p) – diluted
EPRA total return (%)
3,617
7.7
3,450
1.7
3,463
23.0
2,800
30.1
2,222
21.9
1,764
12.7
1,607
17.4
1,425
29.3
1,126
(2.9)
1,206
(30.6)
Property portfolio
Property portfolio at fair value 4,850.3 4,942.7 4,954.5
651.4
Revaluation surplus/(deficit)
(42.6)
149.7
4,168.1
671.9
3,353.1 2,859.6 2,646.5
172.1
175.3
337.5
2,426.1
301.7
1,918.4 2,108.0
(602.1)
(81.1)
Cash flow statement
Cash flow1
Net cash from
operating activities
Acquisitions
Capital expenditure
on properties
Disposals
Gearing and debt
Net debt
NAV gearing (%)
Loan-to-value ratio (%)
Net interest cover ratio (%)
247.8
19.6
(43.6)
(57.3)
(65.9)
1.9
18.4
(171.6)
139.5
(83.7)
83.5
8.5
77.7
18.0
165.0
472.9
213.5
224.7
76.0
246.2
116.4
277.2
65.6
92.4
113.2
114.4
657.9
15.7
13.2
454
904.8
22.6
17.7
370
911.7
22.8
17.8
362
1,013.3
32.9
24.0
286
57.5
130.1
108.4
149.7
949.2
40.0
28.0
279
52.5
99.8
78.6
161.0
874.8
45.6
30.0
263
47.2
91.6
46.5
148.0
66.4
10.2
42.6
131.5
49.5
8.5
94.6
195.5
39.3
31.9
72.9
72.6
864.5
50.4
32.0
261
887.8
59.4
35.7
286
720.8
61.9
36.4
280
865.4
71.2
39.7
215
1 Cash flow is the net cash from operating and investing activities less the dividend paid.
2 2008 was the Group’s first full year following the merger of Derwent Valley Holdings plc and London Merchant Securities plc. It was also the Group’s first full year as a REIT.
A list of definitions is provided on page 207.
EPRA Measure
EPRA Performance Measures
EPRA earnings
EPRA undiluted earnings per share
EPRA net asset value (NAV)
EPRA diluted NAV per share
EPRA triple NAV
EPRA diluted triple NAV per share
EPRA vacancy rate
EPRA cost ratio (including direct
vacancy costs)
EPRA net initial yield
EPRA ‘topped-up’ net initial yield
Definition
Earnings from operational activities
EPRA earnings divided by the weighted average number of
ordinary shares in issue during the financial year
NAV adjusted to include trading properties and other investment
interests at fair value and to exclude certain items not expected
to crystallise in a long-term investment property business model
EPRA NAV divided by the number of ordinary shares in issue at
the financial year end adjusted to include the effects of potential
dilutive shares issuable under the Group’s share option schemes
and the convertible bonds
EPRA NAV adjusted to include the fair values of (i) financial
instruments, (ii) debt and (iii) deferred taxes on revaluations,
where applicable
EPRA triple NAV divided by the number of ordinary shares in
issue at the financial year end adjusted to include the effects of
potential dilutive shares issuable under the Group’s share option
schemes and the convertible bonds
Estimated rental value (ERV) of immediately available space
divided by the ERV of the EPRA portfolio
Administrative and operating costs (including costs of direct
vacancy) divided by gross rental income
Annualised rental income based on the cash rents passing at
the balance sheet date, less non-recoverable property operating
expenses, divided by the market value of the EPRA property
portfolio, increased by estimated purchasers’ costs
This measure incorporates an adjustment to the EPRA NIY in
respect of the expiration of rent free periods (or other unexpired
lease incentives such as discounted rent periods and stepped rents)
2017
2016
£105.0m
94.23p
£85.7m
76.99p
£4,153.1m £3,966.3m
3,716p
3,551p
£4,042.8m £3,853.5m
3,617p
3,450p
1.3%
2.6%
20.8%
24.0%
3.4%
3.4%
4.4%
4.1%
EPRA Sustainability Performance Measures
Environmental Sustainability Performance Measures
Total electricity consumption
Like-for-like total electricity
consumption
Total fuel consumption
Like-for-like total fuel consumption
Building energy intensity
Total direct greenhouse gas (GHG)
emissions
Total indirect greenhouse gas (GHG)
emissions
Like-for-like total direct greenhouse gas
(GHG) emissions
Like-for-like total indirect greenhouse
gas (GHG) emissions
Energy use across our total managed portfolio (landlord/common
areas) – annual kWh
Energy use across our like-for-like portfolio (landlord/common
areas) – annual kWh
Energy use across our total managed portfolio (landlord/common
areas); a total of gas, oil and biomass consumption – annual kWh
Energy use across our like-for-like portfolio (landlord/common
areas); a total of gas, oil and biomass consumption – annual kWh
Energy use across our total managed portfolio (landlord/common
areas) – kWh per m2
Total managed portfolio emissions (landlord influenced portfolio
emissions); a total of Scope 1 emissions – annual metric tonnes
CO2e
Total managed portfolio emissions (landlord influenced portfolio
emissions); Scope 2 energy-use – annual metric tonnes CO2e
Like-for-like emissions (landlord influenced portfolio emissions,
building related only); Scope 1 energy-use – annual metric tonnes
CO2e
Like-for-like emissions (landlord influenced portfolio emissions,
building related only); Scope 2 energy-use – annual metric tonnes
CO2e
10,107,931 10,580,966
7,666,941
9,414,212
19,100,056 15,237,152
11,199,989 14,446,722
75.25
78.07
4,321
3,533
3,538
4,342
1,957
2,528
2,695
3,879
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
204
205
EPRA summary (unaudited)
Continued
Principal properties (unaudited)
EPRA Measure
EPRA Sustainability Performance Measures (continued)
Environmental Sustainability Performance Measures (continued)
Greenhouse gas (GHG) intensity from
building energy consumption
Total water consumption
Definition
Like-for-like total water consumption
Building water intensity
Intensity (Scopes 1 & 2) per m2/£m turnover/fair market value
(reported in tCO2e/m2) – kg CO2e/m2/year
Water use across our total managed portfolio (excluding retail
consumption) – annual m3
Water use across our like-for-like portfolio (excluding retail
consumption) – annual m3
Water use across our total managed portfolio (excluding retail
consumption) – m3/m2/year
2017
2016
0.020
0.024
195,660
150,413
117,236
131,300
0.52
0.47
Total weight of waste by disposal route Waste generated across our total managed portfolio – annual
2,535
2,739
Like-for-like total weight of waste by
disposal route
metric tonnes and proportion by disposal route
Waste generated across our like-for-like portfolio – annual metric
tonnes and proportion by disposal route
2,004
2,514
Social Performance Measures
Employee gender diversity
Gender pay ratio
New hires and turnovers
Employee health and safety
Asset health and safety assessments
Asset health and safety compliance
Employees’ training and development
Employee performance appraisals
Community engagement, impact
assessments and development
programmes
Governance Performance Measures
Composition of the highest
governance body
Process for nominating and selecting
the highest governance body
Process for managing conflicts of
interest
Percentage of male and female employees in the organisation’s
governance bodies (committee or boards responsible for the
strategic guidance of the organisation)
Ratio of the basic salary and/or remuneration of men to women.
As we have less than 250 employees we are not obliged by the
Equality Act 2010 (Gender Pay Gap Information) Regulations 2017
to disclose our gender pay gap information.
Total number and rate of new employee hires and employee
turnover during the reporting period
Occupational health and safety performance with relation to
direct employees
Proportion of assets controlled for which health and safety
impacts have been reviewed or assessed for compliance or
improvement
Any incidents of non-compliance with regulations and/or
voluntary standards concerning the health and safety impacts
of assets assessed during the reporting period
Average hours of training that the organisation’s employees have
undertaken in the reporting period
Percentage of total employees who received regular performance
and career development reviews during the reporting period
Percentage of assets under operational control that have
implemented local community engagement, impact assessments
and/or development programmes
Number of executive Board members, number of independent/
non-executive Board members, average tenure of the governance
body and number of independent/non-executive Board members
with competencies relating to environmental and social topics
Nomination and selection process for the highest governance
body and its members, and the criteria used to guide the
nomination and selection process
Process for the highest governance body to ensure conflicts
of interest are avoided and managed
See page 105
See page 84
See page 81
See page 80
See page 81
See the EPRA Reporting
section in our 2017
Annual Sustainability
Report
West End: Central (50%)
Fitzrovia1 (29%)
80 Charlotte Street W1
1-2 Stephen Street & Tottenham Court Walk W1
90 Whitfield Street W1
Holden House, 54-68 Oxford Street W1
Henry Wood House, 3-7 Langham Place W1
Middlesex House, 34-42 Cleveland Street W1
Network Building, 95-100 Tottenham Court Road W1
88-94 Tottenham Court Road W1
Charlotte Building, 17 Gresse Street W1
80-85 Tottenham Court Road W1
60 Whitfield Street W1
43 and 45-51 Whitfield Street W1
Rathbone Studios, 7-10 Rathbone Place W1
1-5 Maple Place and 12-16 Fitzroy Street W1
76-78 Charlotte Street W1
50 Oxford Street W13
Victoria (11%)
Horseferry House, Horseferry Road SW1
Greencoat and Gordon House, Francis Street SW1
1 Page Street SW1
Premier House, 10 Greycoat Place SW1
Francis House, 11 Francis Street SW1
6-8 Greencoat Place SW1
Baker Street/Marylebone (4%)
19-35 Baker Street W1
88-110 George Street W1
30 Gloucester Place W1
16-20 Baker Street and 27-33 Robert Adam Street W1
17-39 George Street W1
Paddington (3%)
Brunel Building, 2 Canalside Walk W2
Value
banding
£m
200+
200+
100-200
100-200
50-100
50-100
50-100
0-25
50-100
50-100
25-50
25-50
0-25
0-25
0-25
0-25
100-200
100-200
100-200
25-50
25-50
25-50
50-100
25-50
0-25
0-25
25-50
100-200
50-100
25-50
0-25
Offices (O), Retail/
restaurant (R),
Residential (Re),
Industrial (I),
Leisure (L)
Freehold (F),
Leasehold (L)
Approximate
net area
sq ft
O/R/Re
O/R/L
O/R/Re
O/R
O/R/L
O
O/R
O/R
O
O/R
O
O
O/R/Re
O
O
O/R
O
O
O
O
O
O
O/R
O/R/Re
O/Re
O/R/Re
O/R/Re
O
O/R
O
O/R/L
F
F
F
F
L
F
F
F
L
F
F
F
L
F
F
F
F
F
F
F
F
F
L
L
L
L
L
L
F
F
L
380,0002
265,000
109,400
90,200
79,900
65,700
64,200
52,400
47,200
44,500
36,200
30,900
23,300
20,300
11,000
6,100
162,700
139,000
127,800
62,000
57,000
33,200
77,800
44,800
23,600
21,000
21,400
243,0002
43,100
107,900
–
See pages 90 and 105
Mayfair (2%)
25 Savile Row W1
See page 103
See page 96
Soho/Covent Garden (1%)
Bush House, South West Wing, Strand WC2
Soho Place W1
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017 206
207
Principal properties (unaudited)
Continued
List of definitions (unaudited)
Value
banding
£m
200+
100-200
50-100
0-25
0-25
100-200
50-100
50-100
50-100
50-100
50-100
25-50
0-25
0-25
200+
100-200
0-25
0-25
200+
100-200
25-50
100-200
100-200
25-50
50-100
25-50
Offices (O), Retail/
restaurant (R),
Residential (Re),
Industrial (I),
Leisure (L)
Freehold (F),
Leasehold (L)
Approximate
net area
sq ft
O/R
O
O
O
O
O/R/L
O
O/R
O/R
O/R
O
O
O
O
O/R/Re
O/R
O
O
O/R/L
O
O/R
O/R
O/R
O
R/L
–
F
F
F
F
F
L
F
L
F
F
F
F
F
F
F
F
F
F
F
F
F
F
L
F
F
F
261,900
126,200
53,400
44,100
12,300
166,300
103,700
89,500
85,100
70,300
63,700
35,000
24,000
12,000
293,300
185,100
41,500
27,500
269,600
272,900
106,900
156,800
103,700
33,800
325,500
5,200 acres
West End: Borders (10%)
Islington/Camden (10%)
Angel Building, 407 St. John Street EC1
Angel Square EC1
4 & 10 Pentonville Road N1
Porters North, 8-14 Crinan Street N14
401 St. John Street EC1
City: Borders (38%)
Clerkenwell (12%)
20 Farringdon Road EC1
88 Rosebery Avenue EC1
Morelands, 5-27 Old Street EC1
The Buckley Building, 49 Clerkenwell Green EC1
Turnmill, 63 Clerkenwell Road EC1
19 Charterhouse Street EC1
5-8 Hardwick Street and 161 Rosebery Avenue EC1
151 Rosebery Avenue EC1
3-4 Hardwick Street EC1
Old Street (11%)
White Collar Factory, Old Street Yard EC1
1 Oliver’s Yard EC1
Monmouth House, 58-64 City Road EC1
19-23 Featherstone Street EC1
Shoreditch/Whitechapel (9%)
Tea Building, 56 Shoreditch High Street E1
The White Chapel Building E1
9 and 16 Prescot Street E14
Holborn (6%)
Johnson Building, 77 Hatton Garden EC1
40 Chancery Lane WC2
6-7 St. Cross Street EC1
Provincial (2%)
Scotland (2%)
Strathkelvin Retail Park, Bishopbriggs, Glasgow
Land, Bishopbriggs, Glasgow
1 Includes North of Oxford Street.
2 Proposed scheme area.
3 Includes 36-38 and 42-44 Hanway Street W1.
4 Joint venture, Derwent London has a 50% interest.
( ) Percentages weighted by valuation.
Tech Belt (46%)
Average ‘topped-up’ rent
Annualised rents generated by the portfolio plus rent contracted
from expiry of rent free periods and uplifts agreed at the balance
sheet date.
Capital return
The annual valuation movement arising on the Group’s portfolio
expressed as a percentage return on the valuation at the beginning
of the year adjusted for acquisitions and capital expenditure.
Diluted figures
Reported results adjusted to include the effects of potential
dilutive shares issuable under the Group’s share option schemes
and the convertible bonds.
Earnings/earnings per share (EPS)
Earnings represent the profit or loss for the 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.
Estimated rental value (ERV)
This is the external valuers’ opinion as to the open market rent
which, on the date of valuation, could reasonably be expected
to be obtained on a new letting or rent review of a property.
European Public Real Estate Association (EPRA)
A not-for-profit association with a membership of Europe’s leading
property companies, investors and consultants which strives to
establish best practices in accounting, reporting and corporate
governance and to provide high-quality information to investors.
EPRA published its latest Best Practices Recommendations in
November 2016. This includes guidelines for the calculation of the
following performance measures which the Group has adopted.
• EPRA earnings per share
Earnings from operational activities
• EPRA net asset value per share
NAV adjusted to include trading properties and other
investment interests at fair value and to exclude certain
items not expected to crystallise in a long-term investment
property business model.
• EPRA triple net asset value per share
EPRA NAV adjusted to include the fair values of (i) financial
instruments, (ii) debt and (iii) deferred taxes on revaluations,
where applicable.
• EPRA cost ratio (including direct vacancy costs)
EPRA costs as a percentage of gross rental income less ground
rent (including share of joint venture gross rental income less
ground rent). EPRA costs include administrative expenses, other
property costs, net service charge costs and the share of joint
ventures’ overheads and operating expenses (net of any service
charge costs), adjusted for service charge costs recovered
through rents and management fees.
• EPRA cost ratio (excluding direct vacancy costs)
Calculated as above, but with an adjustment to exclude
direct vacancy costs.
• EPRA net initial yield (NIY)
Annualised rental income based on the cash rents passing
at the balance sheet date, less non-recoverable property
operating expenses, divided by the market value of the EPRA
property portfolio, increased by estimated purchasers’ costs.
• EPRA ‘topped-up’ net initial yield
This measure incorporates an adjustment to the EPRA NIY
in respect of the expiration of rent free periods (or other
unexpired lease incentives such as discounted rent periods
and stepped rents).
• EPRA vacancy rate
Estimated rental value (ERV) of immediately available space
divided by the ERV of the EPRA portfolio.
In addition, the Group has adopted the following recommendation
for investment property reporting.
• EPRA like-for-like rental income growth
The growth in rental income on properties owned throughout
the current and previous year under review. This growth rate
includes revenue recognition and lease accounting adjustments
but excludes properties held for development in either year and
properties acquired or disposed of in either year.
Fair value adjustment
An accounting adjustment to change the book value of an asset
or liability to its market value.
Ground rent
The rent payable by the Group for its leasehold properties.
Under IFRS, these leases are treated as finance leases and the
cost allocated between interest payable and property outgoings.
Headroom
This is the amount left to draw under the Group’s loan facilities
(i.e. the total loan facilities less amounts already drawn).
Interest rate swap
A financial instrument where two parties agree to exchange
an interest rate obligation for a predetermined amount of time.
These are generally used by the Group to convert floating rate
debt to fixed rates.
Key Performance Indicators (KPIs)
Activities and behaviours, aligned to both business objectives
and individual goals, against which the performance of the
Group is annually assessed. Performance measured against
them is referenced in the Annual Report.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
208
209
List of definitions (unaudited)
Continued
Lease incentives
Any incentive offered to occupiers to enter into a lease. Typically
the incentive will be an initial rent free or half rent period, stepped
rents, or a cash contribution to fit-out or similar costs.
REITs must distribute at least 90% of the Group’s income profits
from its tax exempt property rental business, by way of dividend,
known as a property income distribution. These distributions can
be subject to withholding tax at 20%.
Loan-to-value ratio (LTV)
Drawn debt net of cash divided by the fair value of the property
portfolio. Drawn debt is equal to drawn facilities less cash and
the unamortised equity element of the convertible bonds.
Mark-to-market
The difference between the book value of an asset or liability
and its market value.
MSCI Inc. (MSCI IPD)
MSCI Inc. is a company that produces independent benchmarks
of property returns. The Group measures its performance
against both the Central London Offices Index (including Inner
London) and the UK All Property Index.
NAV gearing
Net debt divided by net assets.
If the Group distributes profits from the non-tax exempt business,
the distribution will be taxed as an ordinary dividend in the hands
of the investors.
Rent reviews
Rent reviews take place at intervals agreed in the lease (typically
every five years) and their purpose is usually to adjust the rent to
the current market level at the review date. For upwards only rent
reviews, the rent will either remain at the same level or increase (if
market rents are higher) at the review date.
Reversion
The reversion is the amount by which ERV is higher than the
rent roll of a property or portfolio. The reversion is derived from
contractual rental increases, rent reviews, lease renewals and the
letting of space that is vacant and available to occupy or under
development or refurbishment.
Net assets per share or net asset value (NAV)
Equity shareholders’ funds divided by the number of ordinary
shares in issue at the balance sheet date.
Net debt
Borrowings plus bank overdraft less cash and cash equivalents.
Net interest cover ratio
Net property income, excluding all non-core items divided by
interest payable on borrowings and non-utilisation fees.
Scrip dividend
Derwent London plc sometimes offers its shareholders the
opportunity to receive dividends in the form of shares instead
of cash. This is known as a scrip dividend.
Total property return (TPR)
Total property return is a performance measure calculated by
MSCI IPD and defined in the MSCI Global Methodology Standards
for Real Estate Investment as ‘the percentage value change plus
net income accrual, relative to the capital employed.’
Property income distribution (PID)
Dividends from profits of the Group’s tax-exempt property rental
business under the REIT regulations.
Non-PID
Dividends from profits of the Group’s taxable residual business.
Total return
The movement in EPRA adjusted net asset value per share on a
diluted basis between the beginning and the end of each financial
year plus the dividend per share paid during the year expressed as
a percentage of the EPRA net asset value per share on a diluted
basis at the beginning of the year.
Real Estate Investment Trust (REIT)
The UK Real Estate Investment Trust (‘REIT’) regime was launched
on 1 January 2007. On 1 July 2007, Derwent London plc elected
to convert to REIT status.
Total shareholder return (TSR)
The growth in the ordinary share price as quoted on the London
Stock Exchange plus dividends per share received for the year,
expressed as a percentage of the share price at the beginning
of the year.
The REIT legislation was introduced to provide a structure which
closely mirrors the tax outcomes of direct ownership in property
and removes tax inequalities between different real estate
investors. It provides a liquid and publicly available vehicle
which opens the property market to a wide range of investors.
A REIT is exempt from corporation tax on qualifying income and
gains of its property rental business providing various conditions
are met. It remains subject to corporation tax on non-exempt
income and gains e.g. interest income, trading activity and
development fees.
Underlying portfolio
Properties that have been held for the whole of the year (i.e.
excluding any acquisitions or disposals made during the year).
Underlying valuation increase
The valuation increase on the underlying portfolio.
Global 100 Index
The Global 100 Index is a ranking of the world's most sustainable
corporations. The list is compiled by Toronto-based media and
investment advisory firm Corporate Knights. Each year, the latest
iteration of the index is announced at the World Economic Forum
in Davos, Switzerland.
Leadership in Energy and Environmental Design (LEED)
LEED is a US-based environmental impact assessment method
for buildings. Performance is measured across a series of ratings
– ‘Certified’, ‘Silver’, ‘Gold’ and ‘Platinum’.
Reporting of Injuries, Diseases and Dangerous Occurrences
Regulations (RIDDORs)
The regulations place a legal duty on employers to report work-
related deaths, major injuries or over-three-day injuries, work
related diseases and dangerous occurrences (near miss accidents)
to the Health and Safety Executive.
SKA
SKA is a sustainability rating method developed specifically for
fit-out projects. It sets out a range of good practice criteria and
measures. Performance is measured across a series of ratings –
‘Bronze’, ‘Silver’ and ‘Gold’.
Transmission and distribution (T&D)
The emissions associated with the transmission and distribution
losses in the grid from the transportation of electricity from its
generation source.
Well to tank (WTT)
The emissions associated with extracting, refining and
transporting raw fuel to the vehicle, asset or process under
scrutiny.
Yields
• Net initial yield
Annualised rental income based on the cash rents passing
at the balance sheet date, less non-recoverable property
operating expenses, divided by the market value of the
property, increased by estimated purchasers' costs.
• Reversionary yield
• True equivalent yield
The anticipated yield to which the net initial yield will rise,
once the rent reaches the estimated rental values.
The constant capitalisation rate which, if applied to all cash
flows from the portfolio, including current rent, reversions to
valuers’ estimated rental value and such items as voids and
expenditures, equates to the valuation having taken into
account notional purchasers’ costs. Rent is assumed to be
received quarterly in advance.
• Yield shift
A movement in the yield of a property asset, or like-for-like
portfolio, over a given year. Yield compression is a commonly-
used term for a reduction in yields.
Sustainability and corporate responsibility
Building Research Establishment Environmental Assessment
Method (BREEAM)
An environmental impact assessment method for commercial
buildings. Performance is measured across a series of ratings;
‘Pass’, ‘Good’, ‘Very Good’, ‘Excellent’ and ‘Outstanding’.
Carbon emissions Scopes 1, 2 and 3
Scope 1 – direct emissions;
Scope 2 – indirect emissions; and
Scope 3 – other indirect emissions.
CDP
The CDP is an organisation which works with shareholders and
listed companies to facilitate the disclosure and reporting of
climate change data and information.
Department for Environment, Food and Rural Affairs (DEFRA)
The government department responsible for environmental
protection, food production and standards, agriculture, fisheries
and rural communities in the United Kingdom.
Energy Performance Certificate (EPC)
An EPC is an asset rating detailing how energy efficient a building
is, rated by carbon dioxide emission on a scale of ‘A’ to ‘G’, where
an ‘A’ rating is the most energy efficient. They are legally required
for any building that is to be put on the market for sale or rent.
Global Real Estate Sustainability Benchmark (GRESB)
The Global Real Estate Sustainability Benchmark is an initiative set
up to assess the environmental and social performance of public
and private real estate investments and allow investors to
understand their performance.
Derwent London plc Report & Accounts 2017Derwent London plc Report & Accounts 2017
210
Communication
with our shareholders
Shareholder enquiries
Enquiries relating to shareholders, such as queries concerning
notification of change of address, dividend payments and lost share
certificates, should be made to the Company’s registrars, Equiniti.
Website
Financial information about the Company, including annual
reports, public announcements and share price data, is available
from the Company’s website at: www.derwentlondon.com.
The Company has a share account, management and dealing
facility for all shareholders via Equiniti Limited. This offers
shareholders secure access to their account details held on
the share register, to amend address information and payment
instructions directly, as well as providing a simple and
convenient way of buying and selling the Company’s ordinary
shares. For internet services visit www.shareview.co.uk.
The Shareview Dealing service is also available by telephone
on +44 (0) 3456 037037 between 8.00 am and 4.30 pm,
Monday to Friday (excluding UK Bank Holidays).
The best way to ensure that dividends are received as quickly
as possible is to instruct the Company’s registrars to pay them
directly into a bank or building society account; tax vouchers are
then mailed to shareholders separately. This method also avoids
the risk of dividend cheques being delayed or lost in the post.
Dividend mandate forms are available from the registrars, either
from their website at: www.shareview.co.uk or by telephone on
the Equiniti general shareholder helpline number below.
Advisers
Stockbrokers
Solicitors
Auditor
Registrars
JP Morgan Cazenove
UBS
Slaughter & May LLP
PricewaterhouseCoopers LLP
Equiniti
Financial and dividend calendar – 2018
Our forthcoming financial and dividend calendar for
2018 is provided below. These dates are provisional
and subject to change. For up-to-date information,
refer to the financial calendar on our corporate website
at: www.derwentlondon.com/investors/calendar
Financial calendar
Final results announced
Q1 Business Update
Annual General Meeting
Interim results announced
Q3 Business Update
Dividend calendar
27 Feb
10 May
18 May
9 August
8 November
Ex-dividend date
Record date
Dividend paid
Final and
special dividends:
3 May
4 May
8 June
Interim dividend:
13 September
14 September
19 October
Contact details
Our registrars
Equiniti Limited
Aspect House
Lancing Business Park
Lancing
West Sussex
BN99 6DA
Equiniti general shareholder helpline:
Calling from the UK: 0371 384 2179
Calling from overseas: +44 (0) 121 415 7047
Lines are open 8.30am to 5.30pm, Monday
to Friday (excluding UK Bank Holidays).
Company Secretary
David Lawler
Company Secretary
Derwent London
25 Savile Row
London
W1S 2ER
United Kingdom
Telephone: +44 (0)20 7659 3000
Fax: +44 (0)20 7659 3100
Email: company.secretary@derwentlondon.com
Investor relations
Quentin Freeman
Head of Investor Relations & Corporate Communications
Derwent London
25 Savile Row
London
W1S 2ER
United Kingdom
Telephone: +44 (0)20 7659 3000
Fax: +44 (0)20 7659 3100
Email: ir@derwentlondon.com
Designed and produced by MerchantCantos
www.merchantcantos.com
Printed by Empress Litho Limited
Derwent London plc Report & Accounts 2017 Derwent London plc
Registered office:
25 Savile Row
London W1S 2ER
T +44 (0)20 7659 3000
www.derwentlondon.com
Registered No. 1819699
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