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Derwent London plc
Report & Accounts 2020
Contents
Strategic report
Governance
Financial statements
Front cover and back cover images:
80 Charlotte Street W1
‘Choreographic Form, 2020’ by Hugo Dalton
2020 summary ..............................................................04
Operating in challenging times ..................................06
A resilient business ......................................................08
Delivering value to our customers .............................10
Supporting our stakeholders in 2020 .......................12
Chairman’s statement ..................................................14
Chief Executive’s statement .......................................16
Central London office market .....................................18
A well placed portfolio .................................................22
Investing in our pipeline ...............................................24
Our stakeholders ..........................................................26
Our pathway to net zero carbon ................................28
Our business model .....................................................30
Our strategy ...................................................................32
Measuring our performance ......................................42
Responsibility ................................................................46
Property review .............................................................64
Valuation ....................................................................65
Asset management & investment activity ........68
Development & refurbishment .............................71
Finance review ..............................................................74
Viability statement .......................................................82
Our principal risks .........................................................84
Introduction from the Chairman ..............................102
Governance at a glance ..............................................103
The section 172(1) statement ....................................104
Board of Directors ....................................................... 106
Senior management ..................................................108
Corporate governance statement ...........................110
Nominations Committee report ...............................124
Audit Committee report .............................................130
Risk Committee report ...............................................138
Responsible Business Committee report .............146
Remuneration Committee report
Annual statement ...................................................150
Remuneration at a glance ....................................152
Annual report on remuneration ..........................153
Schedule to the annual report
on remuneration .....................................................167
Directors’ report ...........................................................172
Statement of Directors’ responsibilities ................178
Independent Auditor’s report ...................................179
Group income statement ...........................................187
Group statement of
comprehensive income .............................................188
Balance sheets ............................................................189
Statements of changes in equity ............................190
Cash flow statements ................................................191
Notes to the financial statements ...........................192
Other information
Ten-year summary .....................................................242
EPRA summary ...........................................................243
Principal properties ...................................................246
List of definitions ........................................................248
Communication with our shareholders ................252
Awards & recognition ..................................................IBC
Strategic report
01
Derwent
London plc
The largest London-focused REIT
with a distinctive 5.6 million sq ft
office-based portfolio across
14 ‘villages’.
Our purpose
Our purpose is to help improve and upgrade the stock of
office space in central London. By taking poorer quality
‘brown’ buildings and turning them into modern, adaptable
and ‘green’ workspaces, we aim for above average
long-term returns to our shareholders while bringing
social, environmental and economic benefits to all our
stakeholders. With an open and progressive corporate
culture and by promoting values that include building
lasting relationships, our design-led ethos has created
a brand of well-designed, flexible and efficient buildings
at a wide range of rents. These help our occupiers attract
and retain talent but also revitalise neighbourhoods and
benefit local communities. Our approach contributes to
workforce wellbeing and helps maintain London’s position
as a leading global business location.
Our culture
• Hard-working and adaptable
• A passion to improve London’s office spaces
• Strong customer focus
• Progressive and pragmatic
• ‘Open door’ and inclusive
• Collaborative and supportive
Our values
• Reputation, integrity and good governance
• Building long-term relationships and trust
• Focus on creative design and embracing change
• Openness and transparency
• Sustainability and responsibility
80 Charlotte Street W1
02
Derwent London plc Report & Accounts 2020
Strategic report
03
Strategic
report
2020 summary ..................................................04
Operating in challenging times .....................06
A resilient business .........................................08
Delivering value to our customers ................10
Supporting our stakeholders in 2020 ..........12
Chairman’s statement .....................................14
Chief Executive’s statement ..........................16
Central London office market .......................18
A well placed portfolio ....................................22
Investing in our pipeline ..................................24
Our stakeholders ..............................................26
Our pathway to net zero carbon ...................28
Our business model .........................................30
Our strategy .......................................................32
Measuring our performance .........................42
Responsibility ...................................................46
Property review ................................................64
Valuation ........................................................65
Asset management &
investment activity .....................................68
Development & refurbishment .................71
Finance review ..................................................74
Viability statement ..........................................82
Our principal risks ............................................84
We were attracted to this
particular space because of
the superb location next to
a strategic Crossrail station,
the quality of the buildings
and our firm belief in the
regeneration of this area
which has an exciting future.
Despite these challenging
times, I have great faith in the
future of the office market of
Central London.
Sir Lloyd Dorfman
Soho Place W1
04
2020
summary
The year started with an optimistic
outlook, low vacancy rates and with
strong occupier demand backed
up by firm investment yields. As
we approached the end of Q1, the
significance of the Covid-19 pandemic
became more apparent and lockdown
took hold, forcing an unprecedented
fall in economic activity in the UK.
We responded by focusing on the health and safety of
our employees, occupiers and communities, enhancing
communication and providing support where it was
most needed. We kept our buildings open with tailored
cleaning and maintenance regimes while progressing
with our development projects and ESG/climate change
responsibilities. Our second half focus has continued to
support our customers and other stakeholders through
the various phases of lockdown and business continuity,
while extending leases where we can and pursuing further
regeneration opportunities.
Operating highlights
• 2021 lease expiries reduced from 26% of passing rents
to 17%, now 13%
• Collected 92% of 2020 rental income with a further
5% subject to payment plans
• Completed 80 Charlotte Street W1, our largest
development to date, achieving a 27% profit on cost
• Progressed Soho Place W1 and The Featherstone
Building EC1, together 410,000 sq ft and 61% pre-let
• Disposals of £153m
• Committed to a 297,000 office-led scheme at 19-35 Baker
Street W1
• Signed new £100m 5-year Revolving Credit Facility (RCF)
and extended £450m RCF by one year
Stakeholders and responsibility
• Published our pathway to be a net zero carbon
business by 2030
• Supported our occupiers, communities and NHS by
reducing service charge, raising donations budget by
179% and providing free accommodation to NHS staff
• Supported our supply chain by accelerating supplier
payments to 20 days on average
• No employees furloughed and supported staff
furloughed by some suppliers
• The results of our staff survey showed exceptional
satisfaction ratings
Financial highlights
Gross rental income
2019: £191.7m
+5.8%
£202.9m
EPRA earnings per share (EPS)
2019: 103.1p
-3.8%
Dividend per share (p)
2019: 72.5p
+2.8%
EPRA NTA per share
2019: 3,957p
-3.7%
Total return
2019: 6.6%
-127.3%
99.2p
74.5p
3,812p
-1.8%
Derwent London plc Report & Accounts 2020 Financial highlights
Net rental income (£m)
Net rental income (£m)
200
180
160
140
120
116.2
114.1
128.7
121.7
145.9
138.7
178.0
174.3
161.1
161.1
100
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Non-financial highlights
Total property return
Total property return of
0.3%, substantially above
benchmark MSCI IPD
Central London Offices
Index of -2.4%
EPRA EPS (p)
Ordinary dividend (p)
120
100
80
60
40
51.6
50.4
53.9
57.1
77.0
71.3
113.11
103.1
99.2
94.2
Vacancy rate
Our EPRA vacancy rate
increased during the
year but remains low
20
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Ordinary dividend (p)
Ordinary dividend (p)
80
68
56
44
32
36.50
39.65
43.40
31.35
33.70
72.45
74.45
65.85
59.732
52.362
Carbon intensity
Like-for-like carbon intensity
reduced by 27% (tCO2e/m²) in
the year and by 57% since 2013
20
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Loan-to-value ratio
Loan-to-value ratio (%)
40
30
20
10
0
32.0
30.0
28.0
24.0
17.8
17.7
17.2
16.9
18.4
13.2
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Net zero carbon
Publication of a detailed
pathway to achieve our net
zero carbon target by 2030
(see page 28)
Net Interest cover ratio
Net interest cover ratio (%)
261
263
279
286
362
370
491
454
462
446
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
500
400
300
200
100
0
Employee satisfaction
The recent employee
survey reported that
overall employee
satisfaction remains
very high
1 Includes 14p per share of access rights income in 2018
2 Excludes special dividends of 52p and 75p per share relating to 2016 and
2017, respectively
05
0.3%
1.8%
27%
2030
96.3%
Strategic report 06
Operating in
challenging
times
It has been an extraordinary year;
2020 started in a positive mood
following the decisive 2019 General
Election result, though much of the
UK’s future relationship with the EU
remained unclear. With a low vacancy
rate, London continued to attract
tenants across a wide variety of
sectors and we forecast a stronger
year for ERV growth supported by
low interest rates and with the
expectation that property yields
might tighten.
Four key challenges in 2020 including a pandemic
With climate change having been a central concern of
ours for some years, Brexit and the changing needs of
occupiers were the other issues at the top of our agenda.
However, the emergence of a pandemic in early 2020 and
the restrictions that resulted to help control its impact have
placed exceptional stress on many of our tenants and have
affected our own business performance and behaviour too.
On page 8, we set out in the section called “A resilient
business” nine important characteristics of our business
which have helped us navigate these challenges over the
last 12 months and which will provide us with resilience for
the future.
Brexit
• The UK narrowly voted to leave the European Union (EU) in
June 2016
• This created uncertainty over the UK’s future trading
relationships with the EU and other global partners
• The UK left the EU on 31 January 2020 with a transition period of
11 months during which intensive negotiations were conducted.
A trade deal was agreed on 24 December 2020 which became
effective on 1 January 2021
• The deal removes much of the uncertainty over trade and
tariffs but has given rise to additional rules and paperwork
• Negotiations continue over the UK’s financial services
relationships with the EU. This could particularly impact the City
and Docklands office markets though there have been relatively
few job losses so far and London remains a global financial centre
• Trade deals are gradually being negotiated with other
non-EU countries
Climate change
• Climate change is the defining issue of our time and will have
much more significant long-term effects than Brexit or the
Covid-19 pandemic
• It has continued to move up the agenda for office occupiers as
well as for the population as a whole and there is increasing
political action globally to shift behaviour and reduce emissions
of greenhouse gases
• 2020 was one of the three warmest years on record, with a high
number of weather-related disaster events
• On surveys of occupiers and potential occupiers, office buildings
exhibiting outstanding environmental credentials are
increasingly favoured while those with poor performance are
less attractive
p.48 Responsibility - Environment
White Collar Factory EC1
Derwent London plc Report & Accounts 2020 Occupier trends
• We have seen occupiers challenge their office requirements
even more through 2020 as the need for increased flexible
working patterns has accelerated. This is leading to the
establishment of a two-tier London office market
• Our product aims for outstanding design, adaptability and
flexibility in use. We focus on space and light with generous
ceiling heights, good access to public transport and value
for money as well as excellent environmental credentials
• We believe the importance of good office space to improve
collaboration, the development of ideas, teamwork and output
productivity (rather than just the number of hours sitting at
screens) is increasingly widely recognised
p. 18 Central London office market
Covid-19
• The first cases of Covid-19 emerged in Europe in early 2020
• The impact has grown in waves through 2020 and into 2021
with the UK now on its third lockdown
• Covid-19 has become the single largest global health crisis seen
in many decades and continues to be a significant risk with new
strains emerging to place added pressure on the healthcare sector
• In relation to the London office sector, the lockdowns and other
restrictions on movement and working practices have had a
greater economic impact than the virus itself. In the long-term,
it may take many years to recover from the reduction in jobs,
the disruption to education and the closure of many retail
and hospitality venues as well as the overall cost in GDP and
government borrowing
• However, there is good evidence that the vaccines now being
produced and distributed, as well as social distancing and
more testing, will help to contain the virus and enable economic
activity to bounce back relatively quickly
p. 143 Covid-19: protecting our occupiers
07
A resilient business
Derwent London is built on a unique set of
strengths which will enable us to meet these
challenges and are described in more detail
on the following pages.
A Low leverage
p. 8
B Focus on earnings
p. 8
C Net zero carbon pathway
p. 8
D Product/‘long-life loose-fit’
p. 9
E Balanced portfolio
p. 9
F Strong relationships
p. 9
G Support for our people
p. 9
H Consistency
p. 9
I
Effective governance
p. 9
Strategic report B Focus on earnings
A focus on earnings and dividend growth over the last few years has
strengthened our business resilience as well as providing increasing
income returns for our shareholders. This has come largely from
generating reversion in the portfolio and its subsequent realisation,
together with control over irrecoverable costs and a low vacancy rate.
We recognise the importan ce of dividends to our shareholders.
Derwent London has a relatively stable income stream though our
earnings have been affected significantly in 2020 after providing
support for our tenants and recognising impairment charges running
to over £14m. However, because we have historically operated with a
dividend payout ratio of only about 70% (equivalent to the dividend
being covered around 1.4 times by EPRA earnings), we have been able
to propose a 2.8% increase in the total dividend for this year. This is a
lower rate of growth than in recent years but remains well covered by
EPRA earnings at 1.3 times.
p. 38 Our strategy – To grow recurring earnings and cash flow
p. 74
Finance review
C Net zero carbon pathway
After many years of working towards this goal, our pathway to
net zero carbon (NZC) was published in July 2020. Details are set
out on page 28. Our focus on sustainability started in 2013 and we
have been publishing a report covering sustainability and wider
responsibility annually since then. The Responsible Business
Committee was formed in 2019 with Dame Cilla Snowball as chair
and is regularly updated by the Sustainability Committee. It is a
business priority for us that we are seen as leaders in our sector
towards a net zero carbon future. The NZC agenda is the most
significant long-term issue facing our industry and we intend to
continue focusing on reducing our carbon emissions and improving
all our ESG metrics as we head towards NZC by 2030.
p. 28 Our pathway to net zero carbon
08
A resilient
business
We set out here the key characteristics
of our business that helped us navigate
through the particular challenges of 2020.
A Low leverage
Derwent London has believed for many years that low financial
leverage is right for our business. This is mainly because the yield
on our assets is relatively low and, with a substantial development
pipeline, our ‘operational leverage’ is relatively high.
A strong balance sheet is one of the reasons we did not need to raise
fresh capital after the financial crisis of 2008/9. After peaking at
around 40% in 2008, the Group’s loan-to-value ratio has gradually
fallen and has now been below 20% since 2015. This has also helped
improve our interest cover, around 200bp higher than a decade ago,
enabling decisions to move ahead with important developments at
uncertain times. A good example is the development of the Brunel
Building which commenced around the time of the Brexit vote in
2016 and which yielded a profit on cost of over 60%.
Financial covenants relating to our debt remain extremely well
covered, critical in relation to the consideration of ‘going concern’ and
viability and helping us maintain the confidence of our stakeholders.
As in the past, this low leverage has enabled us to make the right
decisions for our business in 2020, helping us plan ahead to launch
a major new development at Baker Street and to provide support
where it is needed.
18.4%
Loan-to-value ratio
2019: 16.9%
p. 41 Our strategy - To maintain strong and flexible financing
p. 74
Finance review
80 Charlotte Street W1
Derwent London plc Report & Accounts 2020
09
D Product/‘long-life loose-fit’
The concept of designing a modern, energy-efficient building with
the flexible space characteristics of an older warehouse was first
captured in our White Collar Factory completed in 2017. The term
‘long-life loose-fit’ was used to describe a building where space
inside can be adapted easily and relatively inexpensively as
occupier needs evolve – as they always do – and came from
listening to our customers. We have adopted it ever since and
believe that it creates attractive and flexible space that appeals
to occupiers and investors. We have also focused on wellness,
outstanding design and adaptability and most of our buildings
are low-rise. Over the last year, many of these requirements have
been talked about even more as occupiers consider how they need
to adapt their spaces for a post Covid-19 world of more flexible
working patterns and social distancing.
£189.2m
Contracted net rental income
2019: £169.1m
p. 71 Development & refurbishment
E Balanced portfolio
For many years, we have had a portfolio balanced between income
and value creation, between finished and older stock (ripe for
improvement when the time comes) and with a wide variety of price
points. We recognise that some occupiers want the stability and
security of longer leases while others seek more cost-effective
flexible space. We have our own brand of ‘furnished and flexible’
space, i.e. smaller units which can be occupied quickly on short
leases. We also have serviced office providers as tenants who
specialise in providing this space (such as The Office Group).
On the majority of our office space, we enter into leases with terms
of 5 to 20 years with a wide range of tenants from diverse sectors.
Tea Building E1
G Support for our people
None of our own employees have been furloughed or lost their
jobs. Bonuses were paid to staff in December with the necessary
bonus reductions targeted towards our more highly paid employees.
We have provided laptops, printers and other equipment necessary
for our people to work effectively from home and have provided
regular support, including health and wellbeing initiatives, and
communication. They have responded magnificently and have kept
our business operating as efficiently as is possible through lockdown
periods.
p. 36 Our strategy - To optimise returns and create value from a balanced portfolio
p. 50 Responsibility - Our people
F Strong relationships
Derwent London’s business is built on relationships, some of them
lasting many years. These cover every group of stakeholder (see
page 26) and, like all good relationships, they should work for the
long-term benefit of both parties. In 2020, we have supported
tenants in a variety of ways based on their needs with rent deferrals,
rent-free periods (in such cases as small restaurants which have had
to close temporarily) and service charge waivers. With our relatively
low exposure to the retail sector, we collected over 92% of our total
rent in 2020 with a further 5% deferred for up to a year. In addition,
we have agreed extensions on our two revolving credit facilities with
our four relationship banks, all of whom we have worked with for
many years. We have also paid our suppliers and contractors more
quickly than ever before with an average payment period of 20 days
and have accelerated retention payments for some contracts. We
also topped up the salaries of staff furloughed by some of our
suppliers but who normally work within our buildings.
p. 26 Our stakeholders
H Consistency
Our business model, messaging, management team and culture
has all been consistent for many years though naturally evolving
and developing over time. With a high level of staff retention and
engagement, this has helped us across all aspects of our business,
both internally and when outward-facing. A reputation for good
corporate behaviour and fairness has also helped us in our dealings
through 2020.
p. 30 Our business model
I
Effective governance
An effective Board with committees run by experienced individuals
have supported our people and processes through 2020. However,
good governance is also about looking ahead, acting swiftly when
things change and trying to do the right thing. We acted quickly
when the pandemic emerged and have provided support to the
NHS, charities and members of our local communities while also
developing our practices in such areas as health and safety, diversity
and inclusion.
p. 101 Governance
Strategic report
10
Delivering
value to our
customers
Our occupiers are our valued customers
and their needs are at the forefront of
the business, from the buildings we
design to the collaborative relationships
that we build.
Modern businesses are increasingly using innovative and
engaging workspaces to attract and retain the best talent.
This goes beyond the physical specifications of the space
and considers the full user experience, from an appealing and
welcoming reception area through to the provision of valued
amenities, all key features of our buildings. This is enhanced
by our experienced team who work closely with our customers
to cultivate strong relationships and ensure they experience
consistently high levels of service, as well as the vibrant
communities we strive to create within our buildings and
across the portfolio.
As a high growth tech company that
must attract top talent, we had high
expectations for our new London HQ.
We are delighted with the Brunel
Building. It has a spectacular sense
of space and design that really makes
it stand out in the London cityscape.
Derwent have been a pleasure to work
with from the get-go. We have always
felt as if they were an extension of our
own people, and not the typical landlord.
We share a love of design and worked
hard to ensure that our interiors were
worthy of the building.
Our team loves the beautiful place
that they call ‘work’. And nothing could
heighten our collective IQ any more
than when we are together in such
a collaborative, inspiring space.
Well-designed space
We design our buildings with occupiers’ business needs and
aspirations in mind. We aim to create flexible space which can
be adapted to the varying and evolving needs of a diverse range
of occupiers. Careful consideration is given to creating space
that supports physical and mental wellbeing through such
means as the provision of outdoor space, cycle facilities and
optimisation of both natural light and natural ventilation, all of
which are of growing importance to our customers. We are also
increasingly harnessing the power of technology to enable our
customers to reduce their carbon footprint and operate their
space more efficiently. Our White Collar Factory building at Old
Street roundabout is a typical example with its generous
reception, adaptable floorplates, high ceilings, openable
windows linked to a building control system, ample cycle
storage and rooftop running track and terrace. For a number of
smaller units in the portfolio we also offer fully furnished
options which are generally let on shorter lease terms, ideal for
SMEs or larger organisations that want a combination of both
‘core’ and ‘flex’ space.
p. 9
Product/‘long-life loose-fit’
Above: White Collar Factory EC1
We feel privileged to be working with
an amazing landlord @derwentlondon who
has been supportive throughout
these challenging times.
Paymentsense Founders
An occupier in Morelands EC1
Derwent London plc Report & Accounts 2020 Strategic report
Strategic report
11
Supporting our customers
Building and supporting relationships with our customers
is a fundamental part of our business. This starts with
our tailored approach to agreeing commercial terms and
continues with the day-to-day operational support provided
by our experienced in-house Asset Management and Property
Management teams. This past year has been a particularly
challenging one for our customers and we have responded by
working with them to provide both financial and operational
support. We provided a 25% service charge waiver to all of our
occupiers for a period of six months, agreed payment plans
with businesses most impacted and, for those hardest hit,
mainly the retail and hospitality sectors, gave further financial
assistance in the form of rent-free periods. Operationally,
we ensured our workspaces were safe and healthy by deep
cleaning our buildings on a regular basis and providing
guidance and protocols to our customers as to how their
employees could reoccupy their offices safely within the
government guidelines. A survey of our managed portfolio
carried out in June 2020 indicated that 95% of customers
who responded rated our teams’ response to the situation
as either ‘very positive’ or ‘positive’, with no ‘negative’ ratings.
We have always taken the approach of maintaining frequent
communication with our customers which ensures we
understand their needs and can respond accordingly.
p. 68 Asset management
Right: The White Chapel Building E1
Creating communities
When a customer occupies space in one of our buildings
they become part of the Derwent London community.
To facilitate this sense of community, we are focused on
customer engagement. This includes running various events
throughout the year, some of which are building specific and
some of which are available to the wider portfolio. These might
involve encouraging health and wellbeing, such as the annual
White Collar Factory rooftop marathon relay or morning rooftop
yoga, or an educational talk or discussion held in one of our
spacious reception areas. Unfortunately, the pandemic has
limited our activities in this regard during 2020 but we plan to
return to these events and more when we can.
Left: 1 Oliver’s Yard EC1
Since engaging with Derwent on
day 1, it has been nothing short of a
magnificent experience. Their Transaction,
Design & Construction and Operations
teams always seem to go out of their way
to work with our firm to collaborate and
develop a true landlord/tenant partnership
that will last for years to come.
Jaime Fuertes, Apollo Global Management
12
Supporting our
stakeholders
in 2020
2020 was a year in which relationships
were more important than ever.
Employees
Most of our employees started working from home on 18 March.
With strong support from our Digital Innovation and Technology
team, equipment needed at home was either in place already
or, where larger screens or printers were needed, was sourced
rapidly, helped by the fact that we had operated an ‘agile working’
policy for several years. Processes were introduced to ensure
regular contact between in-house teams, but also across the
whole Group via virtual meetings, fortnightly town hall meetings
for the entire workforce and online social events. To ensure the
wellbeing of our employees, we focused on a number of physical
and mental health initiatives. Our Savile Row office’s internal
layout was reconfigured and labelled to allow socially distanced
working and a system was developed rapidly in-house to allow
employees to book desks when they needed to be in the office.
When the first lockdown was over, face-to-face contact was
possible again but on a limited basis with social distancing
remaining. All employees below the Board have remained on
full salaries and benefits and none were furloughed.
We are grateful to our teams, both internal and those we work
with from other organisations, for their exceptional response
to the challenges of the pandemic. This has ensured that our
business continued to run smoothly to the benefit of our
customers. We previously discussed our work with occupiers
(page 11), so these two pages highlight examples of where we were
able to provide additional support to some of our other stakeholders. 96%
Agreed that appropriate protocols were
put in place to support employees whilst
working from home and in the office during
the Covid-19 pandemic
Suppliers
Our supply chain is the backbone of our business, both
contractors and professional teams working on our sites and
those 200+ companies that ensure we provide agreed service
levels across the portfolio. We communicated early with them
all and have supported them with prompt payments to keep their
cash flowing; in 2020, we reduced our average payment days to
20 days from 25 in 2019. On our larger sites, we moved quickly
with our main contractors to ensure they were safe working
environments in accordance with the Site Operating Procedures
published by the Construction Leadership Council. All our sites
resumed work safely in April/May 2020. In addition, we assisted
supplier cash flow by early partial release of retention and
contributing to additional costs generated by the delays. Partly
as a preparation for any Brexit-related delays, we have facilitated
payment for materials and components properly vested and safely
stored off site, a strategy which has also served us well through
the challenges of the pandemic. These measures helped provide
our supply chain by reducing uncertainty in relation to time and
cost, enabling them to concentrate on delivery and quality.
Right: The Featherstone Building EC1
Derwent moved very quickly to support
Skanska and their supply chain in the
very early stages of the pandemic,
recognising the importance of this
to us and the wider supply chain.
This forward-thinking approach
makes them stand out in the industry.
Steve Holbrook, Manager Director, Skanska
Derwent London plc Report & Accounts 2020 Strategic report
13
NHS/hospitals
The Group has supported the NHS in a number of ways over
2020, including the free use of 16 furnished flats at Charlotte
Apartments W1 for the nine months to March 2021 and
subsequently extended to June 2021. This work was supported
by our partners who provided over 50 pieces of artwork to
brighten up the accommodation. In addition, we have provided
car parking and donated commercial fridges for the use of NHS
workers. We have also contributed to the UCL Medical Student
Support Fund and the 1928 Project. The latter supports NHS
staff at St Mary’s Hospital, Paddington.
p. 52 Responsibility - Community
Left: Final year medical students volunteering as part of the
UCLH Covid-19 Response Team
We are so grateful to Derwent for allowing
us to use these apartments for staff at
what has been a very tough time at UCLH.
This will transform the lives of staff who
cannot go home because family are
shielding, or who just need to be near the
hospital. This could not have come at a
better time. Thank you, on behalf of us all.
Baroness Julia Neuberger DBE, Chair of UCLH
Communities
In these unprecedented times, we believe it is critically
important to support the vulnerable in the communities around
our buildings and to help where we can with vital services. As a
result, we increased our charitable donations and sponsorships
in 2020 by 179%. We were able to get in touch directly with the
relevant organisations and respond to their immediate needs.
Our Sponsorship and Donations Committee acted fast and arranged
financial support within the early weeks of lockdown for homeless
outreach projects, community groups maintaining contact with their
elderly members and organisations supporting cancer patients.
We extended our support to The Soup Kitchen in Fitzrovia, as well
as initiated our support for The Brixton Soup Kitchen, Black Thrive,
Juvenis and Slade Adventure Playground in Brixton.
Right: The Soup Kitchen, Fitzrovia
Thank you for everything Derwent has
done for us. You have been instrumental
in making sure that the Soup Kitchen
continues our mission of feeding and
caring for London’s most vulnerable,
especially in such a challenging year.
Alex Brown, Director, The Soup Kitchen
Derwent’s response was brilliant
and we are so grateful.
West London Mission
14
Chairman’s
statement
2020 was an extraordinary year
dominated by the Covid-19 pandemic.
We experienced our first national
lockdown in March and, almost a
year later, we are now in our third and
hopefully last. The costs to the UK
economy are considerable and London
has been severely affected with its retail
and entertainment venues closed and
most office occupiers working from home.
Recovery will take time, but 2020 ended with the UK leaving the
EU with a trade deal and, at the start of the new year, the roll out
of a national vaccination programme. The success of this should
see higher levels of economic activity later in 2021. There is now
a clear strategy for relaxing the lockdown and the first steps have
been taken on the roadmap to lifting all lockdown restrictions by
21 June, providing the data allows it.
In difficult circumstances our teams have been working extremely
hard to ensure we have continued to function effectively and to
respond quickly to support our occupiers and other stakeholders.
During 2020, we significantly reduced the amount of income due for
expiry in 2021 through tenant engagement. From an exceptionally
low starting point, our EPRA vacancy rate remains low but has
risen in the last year and we expect it to increase further in 2021.
Our on-site developments are progressing well after some minor
delays in the first lockdown. Climate change will remain the major
global challenge of our time, which is why we made the significant
commitment to become a net zero carbon business by 2030 and,
in July 2020, we published our detailed pathway showing how we
propose to achieve this.
Our developments, including 80 Charlotte Street W1 which
completed in June, led to gross rental income rising 5.8% to £202.9m.
However, this growth was more than offset by increased costs and
Covid-related impairment charges which saw our net rents fall 2.1%.
As a result, EPRA earnings per share fell 3.8% to 99.2p. Our £5.4bn
portfolio, with good performance from our recent schemes and its
low retail exposure, proved relatively resilient and outperformed its
benchmarks, with underlying values falling 3.0%. This saw EPRA net
tangible assets (NTA) per share fall 3.7% to 3,812p. Overall, the Group
reported a total return of -1.8% as the modest decline in value of the
portfolio exceeded our dividends and other retained income.
We recognise the importance of the dividend for our shareholders,
and we propose raising the final dividend by 1p to 52.45p. This will
be paid on 4 June 2021 to shareholders on the register of members
at 30 April 2021. The final dividend would take the full year’s payout
to 74.45p, an increase of 2.8%. The increase was based on the level
of dividend cover, the longer-term outlook and our obligations to our
wider stakeholders.
This statement is my last after 37 years with the Company, either
as Chief Executive or latterly as Chairman for the past two years.
From its modest beginnings, Derwent London has grown to
become one of the leading London office providers. It has done
this, in part by focusing on what it knows best and by always
striving for improvement.
John Burns
Chairman
Derwent London plc Report & Accounts 2020 15
Reasons to invest
London – an established and
resilient global office market
Experienced and
collaborative team
Attracting a pool of talent from around
the world, London is home to many
global head offices, creative and
technology companies and is a global
financial centre
The Group has an established brand
supported by a well established and
experienced team with customer
focus at its heart
Delivering the right product
We have a reputation for delivering
buildings of outstanding design,
adaptability and good value backed up
by strong relationships with our supply
chain and other stakeholders. Since
2019 all our developments have been
NZC compliant
Strong balance sheet
Agile and forward-looking
With modest leverage, a focus on
earnings and dividend cover and an
uncomplicated financial structure, the
business has remained resilient
through many economic cycles
We have a track record of thinking
ahead to anticipate future trends and
being agile enough to adapt quickly
to change
Net zero carbon (NZC)
and responsibility
The Group behaves responsibly with
all its stakeholders, providing support
for those most in need and having
published its pathway to becoming
NZC by 2030 in July 2020
A key part of its success is the Derwent London team, whose
members have complemented and supported each other so
well. It is not easy to achieve this and much credit must go to our
Chief Executive, Paul Williams, together with Executive Directors
Damian Wisniewski, Nigel George and David Silverman. They have
helped shape the Group over time and will continue to lead it into
the future. Having worked with them for many years, it has been
no surprise to me to see how the Group has ably navigated the
difficult circumstances in the last year. I wish to thank all the
staff at Derwent London for their exceptional work in 2020 and
the wonderful support that they have given me over the years.
A special ‘thank you’ is owed to Simon Silver, my co-founder, who
announced in August 2020 his intention to retire from the Board,
stepping down on 26 February 2021. He has invested his energy
in ensuring our projects are innovative and of the highest quality.
He has built up strong relationships with some very talented
architects and has done so much to establish our design-led
Derwent London brand. He will continue to support the business
as a consultant until 31 December 2022, working alongside our
established and talented team as we create the next generation
of office space.
I am delighted with two recent board appointments. Mark Breuer,
who brings significant financial expertise, was appointed as a
Non-Executive Director and Chairman designate on 1 February
2021 and, as part of our succession plans, will take over as
Chairman in May. Emily Prideaux was appointed as Executive
Director on 1 March 2021. Emily has been with the Group since
2010 and has played an important role in our leasing team ever
since, leading it for nearly four years. Both appointments will
prove valuable additions to a strong Board.
With an excellent team, a balanced portfolio and strong finances,
the Group is very well placed to meet the challenges and take
the opportunities that are likely to arise over the next few years.
London will continue to be one of the world’s best cities for living,
recreation, education and for business. With the longer-term focus
on everchanging office occupation trends and climate change, our
purpose of helping improve and upgrade the stock of office space
in central London while providing benefits for all our stakeholders,
appears as relevant today as when the business was created.
I believe that Derwent London can look ahead with confidence as
it continues to provide the offices, amenities and surrounding
environments that London businesses require.
John Burns
Chairman
Strategic report 16
Chief
Executive’s
statement
Derwent London started 2020 in a
positive mood, seeing robust occupier
demand and keen investment interest,
though few then imagined how events
would unfold. Covid-19 has had a
significant impact on everyone, but
given the circumstances, I am pleased
by the resilience the Group has shown.
Paul Williams
Chief Executive
It was an unprecedented year but, with a clear roadmap out of
lockdown in place, we can now look forward to business confidence
returning and our offices and city centres being vibrant again.
There is much to be done and, like the economy, the London
office market is in a much weaker position than one year ago.
The Government’s continued support will help strengthen the
recovery but it will take time before confidence is fully restored.
We supported our stakeholders, made good business progress
and responded to market changes by focusing on reducing our
near-term lease expires. Our 2021 lease expiries have fallen from
26% of cash rent at the start of 2020 to 17% at year end and now
at 13% following lease regears and the sale of Johnson Building
EC1. We made good progress with our development programme,
completing 80 Charlotte Street W1 and committing to start our
next major scheme at 19-35 Baker Street W1 later this year.
We recycled assets, completing on £153m of disposals and have
ensured that our financial position remains strong. Importantly,
we made continued progress on sustainability following our green
financing in 2019. In February 2020, we committed to becoming a
net zero carbon business by 2030 and subsequently launched
our detailed pathway in July.
Further strengthening our relationships
In response to the pandemic, we quickly introduced Covid-19
compliant protocols in our buildings, and our property management
teams have supported our occupiers as restrictions changed over
the year. In relation to our own office, we adopted an ‘agile’ working
policy several years ago so were well prepared to work remotely,
though it is increasingly clear to us that virtual meetings are no
match for face-to-face contact. No staff were placed on furlough,
all employees below Director level received their full pay and
benefits throughout the year and we have not accessed any
government support.
This period has clearly demonstrated the value of our long-lasting
relationships which have continued to strengthen as we supported
each other. We provided a 25% service charge discount across the
whole portfolio for two rent quarters and, for those most in need,
we deferred or waived some rents. We increased our community
and sponsorship donations by 179% to £1.1m including the
temporary use by NHS staff of 16 flats at Charlotte Apartments.
Other relationships have proven equally important. Work on
our three major development sites paused in March, but the
contractors recommenced work within the new protocols relatively
quickly and, since then, good operational progress has been
maintained. We have also extended or refinanced £550m of the
Group’s revolving credit facilities.
Derwent London’s people
I am enormously proud of our Derwent London team and what they
have achieved this year. Many of my colleagues have worked very
long hours to ensure we met our operational objectives and the
needs of all our stakeholders. The convenience and efficiency of
office contact was replaced by online meetings and fortnightly Group
town hall meetings. Maintaining a work-life balance can be difficult,
and the focus has been on the wellbeing of our teams. I would like
to thank them for responding to the challenges so well, and also
our stakeholders for the continued support they give the Group.
I would like to give special thanks to John Burns, our Chairman,
and Simon Silver, Executive Director, both of whom, as part of our
succession planning, retire from the Board this year. They have
helped build an enduring brand and developed a strong team with
long-standing relationships. Simon will stay on as a consultant
for two years, so we will continue to benefit from his advice as he
works alongside our experienced team. We have made two excellent
Board appointments: Mark Breuer as Chairman Designate and
Emily Prideaux as Executive Director and I am confident in their
future contributions.
Derwent London plc Report & Accounts 2020 17
The London office market
The pandemic saw a marked slowdown in office leasing activity as
occupiers adopted a ‘wait and see’ approach: the overall vacancy
rate for the London office market doubled to 8.1%, rents fell and
incentives moved out. These headlines hide a more complex market
with the majority of the vacancy concentrated on poorer quality
buildings or secondhand space. The UK has left the EU with a
trade deal, but we have yet to see the longer-term impacts and
the financial services relationships are still to be determined.
This is important for the City and Docklands office markets,
where we are not located, but in the future the UK will have
some more flexibility to make its own rules.
Whatever the outcome of these talks, London is a major global city
with a rich and diverse culture and has a record of adapting well to
change. It remains a great place to live and work. These attributes
have given rise to a large and relatively young talent pool, which
benefits a broad range of businesses. In recent years demand has
come from a number of growing innovative sectors and this remains
the case with Tech, Digital Media and Life Sciences companies
looking to expand.
Over the last year, office demand has been particularly affected
by both low economic activity and the enforced and widespread
requirement to work from home. The latest government forecast
predicts that economic activity will recover substantially over
the next two years, as lockdown restrictions ease and
confidence improves.
We are increasingly hearing business leaders recognising the value
of the role offices play in supporting their culture, collaboration
and growth. We also expect more people will work from home at
least some of the time as businesses adopt more hybrid working
practices. This is an acceleration of an existing trend seen prior to
the pandemic. However, the impact on demand is more complex
and will take time to play out.
This message was reinforced by our recent tenant survey which
covered a sample of our major tenants representing over 50% of our
‘topped-up’ rental income. It found that all respondents were keen
to return to their offices, views which appear to have strengthened
since our previous survey in summer 2020. Collaboration, social
interaction and employee wellbeing are high on the list of what
occupiers missed most, but levels of productivity and mentoring
have been of increasing concern as remote working has persisted.
We expect offices to be used differently. There will be fewer desks
but more collaboration space, meeting rooms, video conference
facilities and other amenities. There will also be increasing
emphasis on mental health, wellbeing and environmental
performance. There will be less ‘max-packing’ going forwards.
Looking ahead in respect of changing working practices, we do
believe businesses will adopt more agile working practices and,
whilst we think this may reduce overall office demand to some
degree, we do not believe the impact will be significant.
The buildings we create have the adaptability to meet these evolving
trends and it has been very interesting to see how our occupiers
have been working on their plans for change. Buildings that are
unable to meet these objectives will suffer in value unless they
can be redeveloped or repurposed.
Unlike the letting market, the investment market saw a strong final
quarter, with investors backing London’s unique attributes and with
London office yields offering good value compared to other European
cities and alternative asset classes. Overseas demand remains
strong, with Asian and Continental European investors prominent at
the end of 2020. CBRE estimate that there is between £40-£45bn of
potential demand circling London offices. We expect activity to pick
up once the lockdown lifts.
Outlook
As restrictions ease, economic activity should start to improve.
Concern over the environment and climate change is now
recognised as our most important global issue but also represents
an opportunity for forward-looking businesses. This year Glasgow
will host COP26 which will highlight the necessary responses.
However, in the short-term, it is the pace of economic recovery
that will be the most important determinant of the London office
market’s performance.
New office supply is anticipated to remain constrained. Larger
businesses are likely to focus on good quality space and, as there
is less availability for these properties, we expect rents here to hold
up. Older and smaller units, where there is greater availability, may
prove more vulnerable. As such, we expect overall vacancy levels will
continue to rise but will remain lower in the West End than the City.
Our portfolio is weighted towards this adaptable and high quality
space, with most of the remainder comprising our current and future
projects. This is the raw material that can become the high quality
buildings of the future. Allowing for this mix, and given that retail
and hospitality represents only 9% of the portfolio, we estimate our
average 2021 ERVs will move in the range of 0% to -5% but we may
see a particularly wide spread of performance between our different
properties. Beyond this, rents could bounce back relatively quickly
along with the economy. We expect our investment yields to stay firm
or tighten for the better quality properties, as the positive yield gap
with alternative assets remains wide despite the recent weakness
in bond prices.
Although we are on the path to recovery, the effects of the lockdown
together with our policy of recycling some of our mature assets, may
impact our short-term EPRA earnings and dividend growth rates.
We believe these will recover relatively quickly as the economy grows,
with the delivery of our value-adding developments and through
income-producing acquisitions.
We continue to evolve our designs to ensure we have the right
product for today’s occupiers, and our next major development
commences on site at 19-35 Baker Street W1 later this year.
This innovative, adaptable and environmentally outstanding
project will take our on-site developments to over 700,000 sq ft.
On completion and letting, these schemes are estimated to create
a further £131m of development surpluses. Part of our strategy is to
make new acquisitions and we have the financial capacity to fund
these as well as our substantial regeneration programme. We will
also continue to upgrade our portfolio and explore renewable energy
options to meet our net zero carbon commitments. This should
ensure that we continue to deliver above average long-term returns.
Paul Williams
Chief Executive
Strategic report 18
Central London
office market
At the start of 2020 the outlook for the
London office market was positive;
the vacancy rate was low, demand
was good and the supply pipeline was
significantly pre-let.
London’s economic outlook
The pandemic has brought substantial economic contraction with
the UK’s GDP falling 9.9%, a hiatus in letting activity and has forced
many people to work from home. For the first time in many years,
London’s job numbers have fallen. The future is still uncertain and
some of the final arrangements with the EU undecided, but we are
now on a roadmap that should see the London economy start to
recover as the year progresses. On this basis we can look forward
with some optimism.
London’s economy is linked to both the domestic and international
markets. Consensus expects economies to recover as health
concerns reduce, with the UK economy predicted to grow 2-5%
in 2021. In February 2021 the Prime Minister set out a four-step
roadmap to lifting restrictions which, if all goes to plan, would see all
social restrictions lifted by 21 June. Government projections indicate
that the economy should recover to pre-Covid-19 levels in 2022.
The pandemic’s impact on the central London
office market
Take-up has been running below previous levels with many
businesses adopting a ‘wait and see’ approach until they have a
clearer view of the future. This is reflected in CBRE’s estimates of
2020 take-up at 5.6m sq ft, down 57% on 2019. The main sectors
behind last year’s activity were business and professional services
40%, TMT 20% and financial services and insurance 20%.
The low take-up contributed to the significant rise in 2020’s overall
vacancy rate from 3.9% to 8.1%. As in previous periods of weaker
occupier demand, the City vacancy rate at 10.8% has risen faster
and is higher than in the West End which is 5.8%. There has also
been a significant increase in secondhand and ‘grey’ space. CBRE
defines secondhand space as that which is not new, and for a
number of years it has represented an increasing proportion of
vacancy. In December 2020 it was 75% of the total, up from 69% a
year earlier. Even more significant was the rise in tenant controlled
or grey space which has risen over the same period from 26% to 35%
of total vacancy.
Flexible office providers have been an important component of
demand over the last five years, but over the course of last year we
saw take-up from the sector more than halve to 6%. The pandemic
and multiple lockdowns have certainly put the short-let business
model under pressure which has already seen casualties among the
more stretched businesses with potentially more to come. Longer
term there will still be demand and we expect flexibly-let space to
remain an important component of the London market.
Taking this into account, headline prime central London office rents
fell 7.6% in the year and rent-free periods moved out from c.24 to 27
months on a typical 10-year lease producing a fall in net effective
rents of c.10%.
In 2020, 4.7m sq ft of completed development space was added to
the London market. This was only 66% of what was predicted at the
beginning of the year. Looking forward there is 12.1m sq ft under
construction which is slightly below last year’s number despite the
high number of schemes carried forward. Of this additional space,
42% is pre-let or under offer, which leaves about 7.0m sq ft available
to let over the next three years. This represents c.3% of London’s
total office stock, a figure unchanged from previous years.
Given the market outlook, we expect the appetite for new
development will reduce and there is evidence that a number of
schemes were deferred in 2020. We believe development specific
funding may prove harder to secure and that some schemes will
become conditional on pre-lets. Conversely demand for better
quality space will continue to promote new activity, which should
mean that well-funded developers remain active.
80 Charlotte Street W1
The 80 Charlotte Street office reflects our
commitment to sustainable integrated
design fit to inspire staff and visitors. The
new offices provide access to open space
and greenery and reflect our aspirations
for low operational carbon and to be part
of the team to build one of the UK’s first
all electric commercial buildings. We look
forward to 80 Charlotte Street being part
of our wider London estate.
Geoff Hunt, Chief Operating Officer, UKIMEA at Arup
Derwent London plc Report & Accounts 2020 The London property market will take time to recover and we have
yet to see the impact of the withdrawal of the significant levels of
current government support. However, Knight Frank estimate that
there is 7.7m sq ft of active demand and we have seen an increased
level of activity since the recent roadmap was announced.
London has a rich culture and a large, diversified and relatively
young talent pool which benefits many businesses. It has proven
adaptable in the past with new industries replacing declining
ones. Industries looking to take space in London are Life Science,
Artificial Intelligence (AI), Fintech, Digital Media as well as the
existing Tech Titans.
The impact of working from home
As well as their impact on the economy, multiple lockdowns over the
last year have forced many people to work from home. We anticipate
that businesses will embrace positive change as we come out of the
pandemic and will adopt agile working policies on a greater scale.
This is not the same as full-time working from home. A more agile
workforce does not necessarily mean a reduction in overall footprint.
It will vary from business to business, is quite complex and will take
time to fully determine. To date, we have found in our buildings these
policies tend to lead to a reconfiguration rather than a reduction in
space requirements. Overall demand for offices will inevitably be
affected by both economic factors and workplace strategies such
as a reduction in workplace densities and a move away from
hot-desking. However, it is peak occupancy that will determine
overall space requirements. Whilst we see that there may be a
short-term reduction in demand, we do not believe this will be
significant or long-term.
This is supported by the results of our own recent tenant survey
in which we spoke to business leaders representing over half our
rental income. 82% of those surveyed agreed that they will be
adopting more agile working practices. We also learned that
almost half (44%) of those interviewed will be reducing overall office
densities, meaning more space will be required for each individual.
In terms of headcount, over the past year 39% of those interviewed
have increased their headcount whilst 45% have reduced – the
remaining 16% have seen no change. Encouragingly, looking ahead
to the next 6-12 months, 51% anticipate headcount growing with
only 8% anticipating a decrease, 18% expecting equilibrium and
23% undecided.
One clear message that came from the survey was that everyone
asked was looking forward to getting back to the office.
Attitudes appear to have changed the longer the lockdowns have
continued, the rhetoric has shifted and more of our occupiers are
highlighting the challenges they face from being away from the
office. These can be summarised as:
• Talent: this is as important as ever. Office quality, amenities and
surrounding areas play an important part in staff recruitment,
personal development and retention.
• Culture and identity: a business’s culture and identity is very hard
to convey and even harder to build from scratch in a virtual world.
The workplace is an opportunity to showcase company culture,
values and identity. This is important for employees and
customers alike.
• Communication, collaboration and social interaction: are greatly
missed and are not easy to replicate through remote working,
especially with new colleagues.
• Wellbeing: an office can help promote this through face-to-face
interaction and create a more distinct work-life balance.
• Productivity: space shared with other team members helps
inspire colleagues to produce a much more powerful response
to complex, challenging and creative tasks.
19
Central London office stock
There is 232m sq ft of office space in central London. 72%
is concentrated in the City and the West End (see below).
Our portfolio is principally in the West End and the Tech Belt.
We have no buildings in the City core and Docklands, and only
one building in Mayfair, the traditional heart of the West End.
Central London office stock
Percentage of floor area
City
West End
Midtown
Docklands
Southbank
33
39
11
9
8
Source: CBRE
London’s office cycle
London’s office market had three major cycles between 1980
and 2009 (see chart below), when strong growth was followed
by a sudden decline. These events were typically associated
with recessions and rising interest rates, and sometimes
exacerbated by office oversupply and distressed property
disposals. The latest cycle has been different with growth
rates peaking in 2015 and then stabilising until 2020.
London office cycle – index
(1980 = 100)
400
350
300
250
200
150
100
50
0
1980
1985
1990
1995
2000
2005
2010
2015
2020
Capital growth
Rental value growth
Source: MSCI IPD
London’s vacant office space
In 2020 London’s vacancy rose significantly from 3.9% to 8.1%.
Behind these figures lie a number of trends discussed above.
These are the sharper increase in City vacancy compared to
the West End, the importance of secondhand space, which
represents 75% of the vacancy, and the significant rise in
tenant controlled or ‘grey’ space which is now 35% of total
vacancy. These trends are shown in the chart below.
Breakdown of available space
Available space (sq ft)
25
20
15
10
5
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
%
100
80
60
40
20
0
City
West End
Docklands, Midtown
& Southbank
Tenant controlled (%)
Secondhand (%)
Source: CBRE
Strategic report 20
Central London office market continued
A flight to quality
We believe a two-tier market is developing with occupier demand,
particularly for larger businesses, focused on the best buildings.
These need to provide generous and adaptable spaces as
exemplified by Derwent London’s ‘long-life loose-fit’ approach.
In addition, our projects have expansive reception areas, roof
terraces and amenities such as cafés, ample bike storage
and showers.
Today’s occupiers are also focused on health and wellbeing and
the impact their workplaces are having on the environment and
climate change in particular. These latter aspects are much better
understood today through the increasing use of digital technology
in new buildings to monitor air quality and energy consumption in
real time.
Property management is another important component especially
for multi-let buildings. Occupiers are expecting a greater sense
of customer service, hospitality and community both inside and
outside their buildings. This is becoming increasingly important
as leases have generally become shorter with occupiers keen to
get more flexibility on at least some of their requirements.
Space that cannot meet the more exacting standards of today’s
occupiers may prove slower to let and may need to be redeveloped
or repurposed. We expect this existing trend to have been reinforced
by the lockdowns as businesses emerge with adjusted requirements,
our special product and wider portfolio initiatives standing us in
good position to benefit.
London skyline looking east
Investment demand expected to remain firm
Investment activity in 2020 at £7.6bn was down a third on 2019.
However, there was a strong final quarter totalling £4.3bn or 57%
of 2020’s total activity. Demand has come from Asia and Europe
representing 61% of the total, whereas UK property companies
and North American investors were only 8% in total.
The London office investment market remains attractive globally for
its transparency, liquidity and its yields. The recent CBRE EMEA 2021
Investor Intentions Survey ranked London as the number one city for
investment. International interest rates and bond yields remain at
very low levels despite some recent price moves. The strongest
demand remains for modern buildings let on long leases and there is
also good interest in development sites. There is no evidence yet of
any bank driven distress in the office market. CBRE estimate that
there is currently £40-45bn of equity circling for London offices
which compares to £7.1bn of London office buildings currently
available. In the short-term, during lockdown, activity is likely to
be lower but interest remains strong so we expect a significant
pick up in transactions as restrictions are lifted.
Our portfolio’s rental and yield outlook for 2021 is included in the
Chief Executive’s statement on pages 16 and 17.
Derwent London plc Report & Accounts 2020 Strategic report
21
3.7%
EPRA net initial yield
2019: 3.4%
7.9 years
WAULT including rent-free
and pre-lets
2019: 8.3 years
4.74%
True equivalent yield
2019: 4.77%
£0-£30 per sq ft
£30-£40 per sq ft
£40-£50 per sq ft
£50-£60 per sq ft
£60-£70 per sq ft
£70+ per sq ft
7%
5%
17%
26%
21%
24%
Central London office take-up
Floor area million sq ft
20
15
10
5
0
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
West End
Rest of central London
Central London average
Source: CBRE
West End office development pipeline
Floor area million sq ft
Vacancy rate %
12
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
8
4
0
3
2
1
0
Portfolio statistics
£189.2m
Contracted net rental income
2019: £169.1m
6.2 years
Weighted average unexpired
lease term (WAULT)
2019: 5.8 years
£291.2m
Estimated rental value1
2019: £303.0m
¹ After additional capex of £208m
Completed
Proposed
Vacancy rate
Under construction
Completed average
Source: CBRE
Central London development pipeline
Central London office rent
Floor area million sq ft
Vacancy rate %
‘Topped-up’ income
12
9
6
3
0
12
9
6
3
0
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
Completed
Proposed
Vacancy rate
Under construction
Completed average
Source: CBRE
Central London office investment transactions
£bn
25
20
15
10
5
0
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
Average
Source: CBRE
Ten largest tenants
% of rental income2
8.9%
Expedia
5.0%
Burberry
4.7%
Government
3.3%
The Office Group
2.5%
Arup
FremantleMedia Group 2.4%
2.3%
Publicis Groupe
1.9%
WPP Group
1.5%
Ticketmaster
1.5%
Adobe
2 Based upon contracted net rental
income of £189.2m
Tenant diversity
% of rental income2
Media
Business services
Online leisure
Retail & hospitality
Retail head office
Technology
Government & public
administration
Flexible office
providers
Financial
Fintech
Other
26%
16%
11%
9%
7%
7%
6%
6%
5%
3%
4%
22
A well placed
portfolio
99% of our portfolio is located in
14 London ‘villages’, each with its
own individual identity.
Our ‘villages’ 1
Fitzrovia/North of Oxford Street
32%
8%
6%
5%
3%
2%
8%
10%
13%
8%
3%
1%
1%
Victoria
Paddington
Soho/Covent Garden
Baker Street/Marylebone
Mayfair
Islington/Camden
Clerkenwell
Old Street
Shoreditch/Whitechapel
Holborn
Brixton
Provincial
1 By value
t
l
e
B
h
c
e
T
ISLINGTON/CAMDEN
King’s Cross
St. Pancras
Euston
FITZROVIA
OLD
STREET
CLERKENWELL
SHOREDITCH
Farringdon
Liverpool Street
Whitechapel
HOLBORN
THE CITY
Blackfriars
WHITECHAPEL
Cannon Street
Fenchurch Street
River Thames
London Bridge
BAKER STREET/
MARYLEBONE
Marylebone
Paddington
PADDINGTON
NORTH
OF OXFORD
STREET
Tottenham
Court Road
SOHO/
COVENT GARDEN
Bond Street
MAYFAIR
Victoria
VICTORIA
Elephant and Castle
Portfolio weighting
West End and other London
City Borders
Provincial
65%
34%
1%
p. 246 Principal properties
Key
Our villages
Tech Belt
Pipeline assets
(see pages 24 and 25)
Other properties
Elizabeth line
Battersea Park
Wandsworth Road
Waterloo
s
e
m
a
h
T
r
e
v
i
R
Vauxhall
BRIXTON
Brixton
Baker Street/MaryleboneMost of our properties in this village are currently held in a joint venture with The Portman Estate, in which the Group has a 55% interest. Following our commitment to start the development of 297,000 sq ft at 19-35 Baker Street in 2021, we have reached agreement to convert our share into a wholly-owned long leasehold interest in the new project and to dispose of our interests in other buildings in the area.Fitzrovia/North of Oxford Street/SohoThese three villages represent 37% of our portfolio and our largest single concentration of property. Soho Place, 285,000 sq ft, our largest on-site development, is located here and we recently submitted plans for the redevelopment of Network Building which, subject to planning, could start in 2022.BrixtonFollowing the acquisition of Blue Star House early in 2020, Brixton has become our latest new village. It is a vibrant mixed-use location, well connected to the centre of London, being only 11 minutes from Oxford Circus on the Victoria line.Elizabeth line (Crossrail)Following further delays this major infrastructure project is now expected to complete in 2022. Once open the impact should be significant as it will add c.10% to London’s rail network. We have 77% of our portfolio located close to an Elizabeth line station.Derwent London plc Report & Accounts 2020
BAKER STREET/
MARYLEBONE
Marylebone
Paddington
PADDINGTON
King’s Cross
St. Pancras
Euston
FITZROVIA
NORTH
OF OXFORD
STREET
Tottenham
Court Road
SOHO/
COVENT GARDEN
Bond Street
MAYFAIR
Victoria
VICTORIA
s
e
m
a
h
T
r
e
v
i
R
Vauxhall
Battersea Park
Wandsworth Road
ISLINGTON/CAMDEN
23
OLD
STREET
CLERKENWELL
SHOREDITCH
Farringdon
Liverpool Street
Whitechapel
HOLBORN
THE CITY
Blackfriars
WHITECHAPEL
Cannon Street
Fenchurch Street
River Thames
London Bridge
Waterloo
Elephant and Castle
Our portfolio in numbers
Valuation
Net area (includes 0.5m sq ft
of on-site developments)
£5.4bn
5.6m sq ft
Buildings
Tenants
BRIXTON
Brixton
83
482
Tech BeltApproximately 42% of our portfolio lies within this arc stretching from King’s Cross to Whitechapel. This area has proved very popular with some of London’s most dynamic and creative industries. The Featherstone Building development is in the Old Street village, which lies at the centre of the Tech Belt. Strategic report
24
Investing in our pipeline
At any one time, 5-15% of our portfolio is typically under
construction. Once completed, developments move into
our core income portfolio, while another 30-40% of our
portfolio represents our pipeline of future schemes.
On site
Committed
Soho Place
W1
285,000 sq ft
Development
Green Finance – elected
BREEAM rating –
Target: Outstanding
(Site A)/Excellent (Site B)
Completion is expected in
the first half of 2022. The
buildings ‘topped out’ in 2020
and work is well advanced on
the cladding, basement and
reception areas. During 2020
we pre-let the remaining
office space to Apollo Group
and forward sold the long
leasehold interest in 2-4
Soho Place, an 18,000 sq ft
office building plus a theatre.
There is 36,000 sq ft of retail
space still to let.
The Featherstone
Building EC1
125,000 sq ft
Development
6-8 Greencoat
Place SW1
32,000 sq ft
Refurbishment
Green Finance – elected
BREEAM rating –
Target: Outstanding
Green Finance – eligible
EPC rating –
Target: B from E
Francis House
SW1
38,000 sq ft
Refurbishment
EPC rating –
Target: B from C
Completion is due in the first
half of 2021. The building is
part of a larger 287,000 sq ft
holding in Victoria. We are
refurbishing this space,
including converting gas
boilers to more energy
efficient all electric ones.
This building is also part of
the larger holding in Victoria.
Work has started on an
upgrade which will involve
retrofitting the heating
system to all electric boilers
(see page 29). Completion is
due in the first half of 2022.
Completion is expected in
the first half of 2022. It sits
next to White Collar Factory,
incorporating many of the
latter’s innovative features:
3.3m floor to ceiling height,
concrete core cooling and
openable windows. The
building is predominantly
offices with 2,000 sq ft of
ancillary retail. We expect
to launch our main leasing
campaign later in 2021.
The depth of our pipeline
of existing income-
producing buildings
allows us to work up
several different
opportunities at once.
This gives us optionality
over which schemes
to progress and their
timing. We give some
examples here:
Key
On site and committed
Not yet committed
Site timeline
2020
2021
2022
2023
2024
2025
Derwent London plc Report & Accounts 2020
25
Committed
Not yet committed
19-35 Baker Street
W1
297,000 sq ft
Consented
Green Finance – proposed
BREEAM rating –
Target: Excellent
Angel Square
EC1
c.140,000 sq ft
Under appraisal
EPC rating –
Target: B from D
Network Building
W1
c.130,000 sq ft
Under appraisal
BREEAM rating –
Target: Excellent
Holden House
W1
150,000 sq ft
Consented
BREEAM rating –
Target: Excellent
Blue Star House
SW9
c.110,000 sq ft
Under appraisal
BREEAM rating –
Target: TBC
The Group has committed
to start this project in the
second half of 2021. It will
provide a mix of 217,000 sq ft
offices, 28,000 sq ft retail and
52,000 sq ft residential. Prior
to construction, our interests
with the freeholder will be
restructured so that we have
a wholly-owned 129-year
leasehold interest. Work is
expected to complete in 2025.
The Group is considering its
options for this building which
could involve a partial or
complete refurbishment.
Work could start in H2 2021.
We have applied for planning
permission to develop a
100-130,000 sq ft principally
Life Sciences or office
building, with some ground
floor retail. A decision on
the planning application is
expected in the first half of
2021. If approved, work
could start in 2022 for
completion in 2025.
We have consent for a 150,000
sq ft office and retail scheme.
In response to the economic
outlook, we have pushed back
the potential start date. In the
interim, we are retaining
income through extending
leases. Work could start in
2025.
Acquired one year ago, this
property sits on a 0.7 acre
site including a car park.
During 2020 we appointed
architects to help us consider
the options for regenerating
this building. Work could start
in 2025.
Strategic report
26
Our
stakeholders
We believe that to secure our long-term
success, we must take account of what
is important to our key stakeholders.
This is best achieved through proactive
and effective engagement.
Each stakeholder group requires a tailored engagement approach
to foster effective and mutually beneficial relationships. It is by
understanding our stakeholders, and factoring them into our
decisions, that we can secure our long-term success. Our section
172(1) statement for the year ended 31 December 2020 is on pages
104 and 105 and demonstrates how our stakeholders influenced
some of the principal decisions taken by the Board in 2020. Acting
in a fair and responsible manner is a core element of our business
practice as seen in the Responsibility section on pages 46 to 63.
These are extraordinary times, and we recognise that we have a
responsibility to all our stakeholders. Through our engagement
strategy, existing relationships with our key stakeholders and our
understanding of their key concerns and issues, we have been able
to work closely alongside them during the pandemic and, wherever
possible, offer proactive support.
Foremost in our efforts was the health, safety and wellbeing of
all our stakeholders, especially our customers and employees, as
well as the communities around our buildings. See ‘Supporting our
stakeholders in 2020’ on pages 12 and 13 for further information.
The Featherstone Building EC1 – Early payment to our subcontractor Skonto
Plan (based in Latvia) for the façade cladding enabled our main contractor
Skanska to store the majority of the façade elements before 31 December 2020.
This meant site operations were able to continue unaffected by tariffs and the
movement of goods arising from Brexit.
Our key stakeholders
Their material issues
How we engage
2020 outcomes and highlights
Further links
progression
Occupiers
Our success is dependent
on our ability to understand
and respond to our occupiers’
needs and aspirations
Employees
We have an experienced,
diverse and dedicated
workforce which we
recognise as a key asset of
our business
• Opportunity to share ideas and
make a difference
• Diversity and inclusion
• Their health and wellbeing
• Agile and flexible working practices
• Opportunities for development and
• Health and wellbeing of their
employees and visitors
• Continuity of their businesses
during the pandemic
• Suitable lease terms
• Well-designed and sustainable
work spaces
• Talent attraction/retention
• Amenities for their employees
We communicate regularly with our existing occupier base
via our dedicated Leasing, Asset and Property Management
teams and close Director involvement. We do this through calls,
meetings, social media, events and forums. During 2020, proactive
engagement was critical in providing support to our occupiers
and to understand how the pandemic was impacting upon them.
Occupier surveys were commissioned to gather feedback and to
measure our response to the pandemic.
• Rent deferrals and concessions given
• 25% contribution to tenants’ service
charges for March and June quarters
• £6.7m of new lettings
• 1.8% EPRA vacancy rate
• 87% tenant retention/re-lets
p. 68 Asset management
p. 161 Executive annual bonus –
Void management target
p. 10 Delivering value to our customers
presentations, awaydays and our wellbeing programme. Employee
for all employees
We have an open and collaborative management structure and
engage regularly with our employees. Engagement methods
include, but are not limited to, employee surveys, company
engagement is frequently measured, and we have three employee
representatives on our Responsible Business Committee which
is chaired by a designated Non-Executive Director. During 2020,
the CEO and other Directors hosted 17 town hall meetings to
share news, provide support and clear communication with
all employees.
• 96.3% staff satisfaction
• 93.0% staff retention
• 17 town hall meetings hosted virtually
• Three employees on the Responsible
Business Committee (see page 147)
• Responses from employee surveys
on page 51
• Appointed mental health champions
p. 45 KPI – Staff satisfaction
p. 115 Employee engagement
p. 12 Supporting our employees
We engage with the local community through the planning
process, our Community Fund, volunteering, charity work and
providing employment and work experience opportunities. We also
liaise with Non-Governmental Organisations (NGOs), Business
• Use of 16 flats donated to University
College Hospital (see page 13)
• Charitable donations and community
funding budget increased by 179%
Improvement Districts and industry bodies to enhance the positive
to £1.1m
impact we have on the communities in which we operate. During
2020, our CEO was in regular contact with the principal central
London borough councils to aid in support coordination.
• Contributed to the UCL Medical
Student Support Fund and the
1928 Project
p. 53 Our Community Fund
p. 13 Supporting our communities
p. 28 Our pathway to net zero
carbon
We take a constructive, positive approach to working with
local authorities to ensure high quality planning applications
are submitted. Similarly, we maintain positive and proactive
relationships with government departments, such as HMRC, via
regular dialogue and correspondence. During 2020, we have been
discussing and supporting initiatives to reopen central London
after lockdown.
• Maintained our ‘low-risk’ tax rating
with HMRC
• Progressing a theatre and public realm
as part of the Soho Place development
• Delivered a ‘pocket park’ at 80
Charlotte Street
p. 98 Our principal risks – Regulatory
non-compliance
p. 57 Tax governance
p. 24 Investing in our pipeline
Through our investor relations programme, which includes regular
updates, meetings, roadshows and our Annual General Meeting,
we ensure shareholder views are brought into our boardroom and
• 2.8% increase in dividend in 2020
• We received votes from 80.1% of
shareholders for the 2020 AGM
considered in our decision making.
p. 43 KPI – Total shareholder return (TSR)
p. 114 Shareholder engagement
p. 175 Annual General Meeting
Local communities and others
We are committed to
supporting the communities
in which we operate,
including the local
businesses, residents, the
NHS, and the wider public
Suppliers
We outsource many of our
activities to third party
suppliers and providers.
As a result, it is crucial that
we develop strong working
relationships
• Minimising local disruption
• Impact on the local economy
• Derwent London being a
responsible neighbour
• Effective communication and
engagement
• Long-term partnerships
• Collaborative approach
• Open terms of business
• Fair payment terms
Through effective collaboration, we aim to build long-term
relationships with our suppliers so that we can develop and
operate great spaces for our occupiers. We are signatories to the
CICM Prompt Payment Code and are clear about our payment
practices. We expect our suppliers to adopt similar practices
throughout their supply chains to ensure fair and prompt
treatment of all creditors.
• Accelerated our payments, so our
average payment term was 20 days
• Supported furloughed third party
service staff (see page 9)
• £175m capital expenditure
• £1.4m of early retention payments
p. 148 Supply Chain
Sustainability Standard
p. 135 Responsible payment practices
p. 57 Supply chain governance
Central and local government
As a responsible employer
and business, we are
committed to engaging
constructively with central
and local government to
ensure we are supporting the
wider community
Debt providers
We maintain close and
supportive relationships
with this group of long-term
stakeholders, characterised
by openness, transparency
and mutual understanding
Shareholders
We adopt an open and
transparent approach with
our investors with frequent
contact. They play an
important role in helping
shape our strategy and
monitoring our governance
• Openness and transparency
• Proactive and compliant with
new legislation
• Proactive engagement with
local authorities
• Support for local economic plans
and strategies
• Timing of the economic recovery,
as people return to city centres for
work and to support businesses
• Financial performance
• Openness and transparency
• Proactive approach to communication
• Credit rating
• Low gearing
We arrange debt facilities from a diverse group of providers
ranging from banks to institutional pension funds. We engage
with these providers and credit rating agencies through regular
meetings and presentations to ensure that they remain fully
informed on all relevant areas of our business. This high level of
engagement helps to support our credit relationships.
• Extended our existing £450m
Revolving Credit Facility (RCF) and
agreed a £100m RCF with Wells Fargo
• 18.4% loan-to-value ratio
• Interest cover 446%
• Fitch corporate credit rating of A-
p. 44 KPI – Interest cover ratio
p. 78 Debt and financing arrangements
p. 79 Green Finance Framework
• Financial performance
• Strategy and business model
• Environmental, social and governance
(ESG) performance
• Dividend
Derwent London plc Report & Accounts 2020 Our key stakeholders
Their material issues
How we engage
2020 outcomes and highlights
Further links
27
We communicate regularly with our existing occupier base
via our dedicated Leasing, Asset and Property Management
teams and close Director involvement. We do this through calls,
meetings, social media, events and forums. During 2020, proactive
engagement was critical in providing support to our occupiers
and to understand how the pandemic was impacting upon them.
Occupier surveys were commissioned to gather feedback and to
measure our response to the pandemic.
• Rent deferrals and concessions given
• 25% contribution to tenants’ service
charges for March and June quarters
• £6.7m of new lettings
• 1.8% EPRA vacancy rate
• 87% tenant retention/re-lets
p. 68 Asset management
p. 161 Executive annual bonus –
Void management target
p. 10 Delivering value to our customers
We have an open and collaborative management structure and
engage regularly with our employees. Engagement methods
include, but are not limited to, employee surveys, company
presentations, awaydays and our wellbeing programme. Employee
engagement is frequently measured, and we have three employee
representatives on our Responsible Business Committee which
is chaired by a designated Non-Executive Director. During 2020,
the CEO and other Directors hosted 17 town hall meetings to
share news, provide support and clear communication with
all employees.
We engage with the local community through the planning
process, our Community Fund, volunteering, charity work and
providing employment and work experience opportunities. We also
liaise with Non-Governmental Organisations (NGOs), Business
Improvement Districts and industry bodies to enhance the positive
impact we have on the communities in which we operate. During
2020, our CEO was in regular contact with the principal central
London borough councils to aid in support coordination.
Through effective collaboration, we aim to build long-term
relationships with our suppliers so that we can develop and
operate great spaces for our occupiers. We are signatories to the
CICM Prompt Payment Code and are clear about our payment
practices. We expect our suppliers to adopt similar practices
throughout their supply chains to ensure fair and prompt
treatment of all creditors.
We take a constructive, positive approach to working with
local authorities to ensure high quality planning applications
are submitted. Similarly, we maintain positive and proactive
relationships with government departments, such as HMRC, via
regular dialogue and correspondence. During 2020, we have been
discussing and supporting initiatives to reopen central London
after lockdown.
We arrange debt facilities from a diverse group of providers
ranging from banks to institutional pension funds. We engage
with these providers and credit rating agencies through regular
meetings and presentations to ensure that they remain fully
informed on all relevant areas of our business. This high level of
engagement helps to support our credit relationships.
• 96.3% staff satisfaction
• 93.0% staff retention
• 17 town hall meetings hosted virtually
for all employees
• Three employees on the Responsible
Business Committee (see page 147)
• Responses from employee surveys
on page 51
• Appointed mental health champions
• Use of 16 flats donated to University
College Hospital (see page 13)
• Charitable donations and community
funding budget increased by 179%
to £1.1m
• Contributed to the UCL Medical
Student Support Fund and the
1928 Project
• Accelerated our payments, so our
average payment term was 20 days
• Supported furloughed third party
service staff (see page 9)
• £175m capital expenditure
• £1.4m of early retention payments
• Maintained our ‘low-risk’ tax rating
with HMRC
• Progressing a theatre and public realm
as part of the Soho Place development
• Delivered a ‘pocket park’ at 80
Charlotte Street
• Extended our existing £450m
Revolving Credit Facility (RCF) and
agreed a £100m RCF with Wells Fargo
• 18.4% loan-to-value ratio
• Interest cover 446%
• Fitch corporate credit rating of A-
Through our investor relations programme, which includes regular
updates, meetings, roadshows and our Annual General Meeting,
we ensure shareholder views are brought into our boardroom and
considered in our decision making.
• 2.8% increase in dividend in 2020
• We received votes from 80.1% of
shareholders for the 2020 AGM
p. 45 KPI – Staff satisfaction
p. 115 Employee engagement
p. 12 Supporting our employees
p. 53 Our Community Fund
p. 13 Supporting our communities
p. 28 Our pathway to net zero
carbon
p. 148 Supply Chain
Sustainability Standard
p. 135 Responsible payment practices
p. 57 Supply chain governance
p. 98 Our principal risks – Regulatory
non-compliance
p. 57 Tax governance
p. 24 Investing in our pipeline
p. 44 KPI – Interest cover ratio
p. 78 Debt and financing arrangements
p. 79 Green Finance Framework
p. 43 KPI – Total shareholder return (TSR)
p. 114 Shareholder engagement
p. 175 Annual General Meeting
Occupiers
Our success is dependent
on our ability to understand
and respond to our occupiers’
needs and aspirations
• Health and wellbeing of their
employees and visitors
• Continuity of their businesses
during the pandemic
• Suitable lease terms
• Well-designed and sustainable
work spaces
• Talent attraction/retention
• Amenities for their employees
Employees
We have an experienced,
diverse and dedicated
workforce which we
recognise as a key asset of
progression
our business
• Their health and wellbeing
• Agile and flexible working practices
• Opportunities for development and
• Opportunity to share ideas and
make a difference
• Diversity and inclusion
Local communities and others
We are committed to
supporting the communities
in which we operate,
including the local
businesses, residents, the
NHS, and the wider public
• Minimising local disruption
• Impact on the local economy
• Derwent London being a
responsible neighbour
• Effective communication and
engagement
Suppliers
We outsource many of our
activities to third party
suppliers and providers.
As a result, it is crucial that
we develop strong working
relationships
• Long-term partnerships
• Collaborative approach
• Open terms of business
• Fair payment terms
Central and local government
As a responsible employer
and business, we are
committed to engaging
constructively with central
and local government to
ensure we are supporting the
wider community
Debt providers
We maintain close and
supportive relationships
with this group of long-term
stakeholders, characterised
by openness, transparency
and mutual understanding
Shareholders
We adopt an open and
transparent approach with
our investors with frequent
contact. They play an
important role in helping
shape our strategy and
monitoring our governance
• Openness and transparency
• Proactive and compliant with
new legislation
• Proactive engagement with
local authorities
• Support for local economic plans
and strategies
• Timing of the economic recovery,
as people return to city centres for
work and to support businesses
• Financial performance
• Openness and transparency
• Proactive approach to communication
• Credit rating
• Low gearing
• Financial performance
• Strategy and business model
• Environmental, social and governance
(ESG) performance
• Dividend
Strategic report 28
Our pathway to
net zero carbon
In July 2020 we set out our pathway
to achieve our commitment to become
a net zero carbon business by 2030.
To achieve our ambitions, we will need the support and collaboration
of our occupiers as our research found that over 60% of the
portfolio’s energy consumption fell under Scope 3 (activities where
we have no direct control).
Our actions are focused on reducing operational energy and carbon
through numerous initiatives across the portfolio. On the next page
we highlight examples of projects where we are creating all electric
buildings and, on some older buildings, we are replacing old gas
boilers with electric heating systems. A second important element
is to power our buildings using renewable sources of power. As part
of this we are looking at ways of creating renewable energy on our
Scottish estate. Unfortunately, our business activities necessitates
the creation of some embodied carbon but we aim to reduce it, in
part by using carbon accounting to measure the impact of our
schemes and by using alternative materials where appropriate.
Finally, for those carbon emissions we cannot eliminate we will be
looking to offset using reputable projects.
We have been working on reducing our carbon footprint for many
years and in 2020 we brought forward our target to be a net zero
carbon business by 20 years to 2030. This is a major commitment but
reflects the Group’s view that rising temperatures represent a major
risk and the built environment has an important role to play in
mitigating it.
These activities tie into our green financing, which in turn
complies with our Green Finance Framework. Both our financing
and our environmental data is independently assured. Day-to-day
responsibility for our strategy is led by our Net Zero Carbon
Committee which reports to the Responsible Business and
Executive Committees.
In July, we published our pathway that sets out in detail how we aim
to achieve this. It covers our corporate activities, developments and
investment portfolio. Our guiding principles are set out in the chart
below. Included in these is a commitment to annually report our
progress, to prioritise energy reductions and to only use offsetting
as a last option.
p. 48 Responsibility - Environment
Net zero carbon pathway
Transparency
Integrity
Influence
Innovation
Accountability
Reducing operational
energy and
carbon emissions
Procuring and
investing in
renewable energy
Reducing the
embodied carbon
of development
projects
Offsetting
residual carbon
emissions we
cannot
eliminate
Communication
and
collaboration
Governance
Green
finance
Independent
assurance
Derwent London plc Report & Accounts 2020 Strategic report
29
New developments
80 Charlotte Street W1
Located in the heart of Fitzrovia, this 323,000 sq ft building
completed in June 2020. It is our first all electric building and uses
air source heat pumps for all heating and cooling needs and, to
ensure the building is net zero carbon, it is powered by renewable
energy. There are 80m² of solar panels on the roof. Operational
efficiency is enhanced by the façade design limiting solar gain,
LED lighting and sensors allowing lighting to respond to ambient
light levels. Embodied carbon was reduced during development
by using lower carbon materials with higher recycled content
and increased waste minimisation. The Group has offset the
remaining embodied carbon emissions that could not be
eliminated (see page 71).
19-35 Baker Street W1
The Group expects to start this mixed-use 297,000 sq ft
development in H2 2021. It will have all electric heating and cooling,
air source heat pumps, openable windows, sensors to allow energy
monitoring and greywater harvesting to reduce water wastage.
There will be a significant number of cycle racks and shower
facilities, as well as biodiverse roofs and an expansive courtyard
area for public use. It will be our first development to utilise the
NABERS UK operational energy rating system which has the aim
of reducing the gap between a building’s expected and actual
operational performance. Completion is expected in 2025.
The remaining embodied carbon in the development will be offset
using verified schemes to achieve our net zero carbon objective.
Retrofitting existing buildings
Francis House SW1
We recently obtained vacant possession and have commenced
refurbishment works to deliver 38,000 sq ft of high quality
office space. The refurbished premises will become all electric,
with the old gas boilers removed. We will install high efficiency
heat recovery air conditioning with state-of-the-art energy
monitoring systems to maximise energy efficiency and encourage
occupier engagement.
Further improvements include installing openable double glazed
windows and a large cycle store with showers served by a low
energy air source heat pump. High efficiency LED lighting and
controls will also be installed. All fitted appliances will be energy
efficient and rated A+. This is anticipated to save c.16 tonnes of
CO2 pa compared to the previous system. The scheme is due to
complete in H1 2022.
90 Tottenham Court Road W1
An older multi-let office building located in Fitzrovia. Several
leases were due to expire in 2021 but we knew that University
College London (UCL) wanted more space. In Q3 2020 we signed
an agreement to lease with UCL to take 37,400 sq ft, up from
23,300 sq ft, on a 10-year term with a break in 2031.
The Group, in parallel with UCL’s own sustainability agenda, has
upgraded the gas fired boilers, replacing them with electric heat
pumps. The electric system is estimated to have a higher operating
cost than the traditional gas boilers, but the CO2 emission is more
than halved, saving c.14 tonnes of CO2 pa. Work has recently
completed.
30
Our business model
We apply our asset management and regeneration
skills to the Group’s 5.6m sq ft property portfolio
using our people, relationships and financial
resources to add value and grow income while
benefiting the communities in which we operate
and the wider environment beyond.
Driven by
Our purpose
To help improve and upgrade
the stock of office space in
central London, providing
above average long-term
returns to our shareholders
while bringing social and
economic benefits to all
our stakeholders.
By promoting values that
include building long-term
relationships and setting
an open and progressive
corporate culture, our
design-led ethos has created
a brand of well-designed,
flexible and efficient
buildings at affordable rents.
Impacted by
Our environment
The London office market
and its wider context
p. 18
Our assets and resources
Properties
p. 22
Financial resources
p. 74
People and relationships
p. 50
The views of
our stakeholders
Understanding their key
issues through effective
engagement
How we add value
Our core
activities
Asset management
Understanding our occupiers
helps us tailor buildings and
leases to their needs thereby
growing our income streams
and adding value
p. 68
Development
& refurbishment
Our focus on design, innovation
and value for money creates
sustainable and adaptable
buildings characterised by
generous volumes, good natural
light and class-leading amenities
and wellness facilities
p. 71
Investment activity
We recycle capital, acquiring
properties with future
regeneration opportunities to
build a pipeline of projects and
disposing of those which no
longer meet our investment
criteria
p. 26
p. 68
Strong governance
and risk management
p. 84
p. 101
Derwent London plc Report & Accounts 2020
How we add value
Driven by our five
strategic objectives
1.
To optimise returns
and create value
from a balanced
portfolio
p. 36
2. To grow recurring
earnings and
cash flow
p. 38
3. To attract, retain
and develop
talented employees
p. 39
4. To design, deliver
and operate
our buildings
responsibly
p. 40
5. To maintain
strong and flexible
financing
p. 41
31
Priorities
Annual priorities
are set for
each strategic
objective
Value created for our stakeholders
724,000 sq ft
Rent reviews, lease renewals and
lease regears agreed in 2020 at a
rent of £38.9m pa
480,000 sq ft
On-site projects, 52% pre-let
p. 34
Risks
Risk management is
integral to the delivery
of our strategy
+9.9%
Average annual ordinary dividend
growth over 10 years
+11.6%
p. 84
Average annual total return over
10 years
KPIs &
Remuneration
Success against our
objectives is measured
using our KPIs and
rewarded through our
incentive schemes
+179%
Increase in community and
sponsorship donations to £1.1m
from £0.4m in 2019
p. 42
p. 152
Measured via our KPIs
p. 42
Strategic report 32
Our strategy
Our strategy sets out the approach we
take to fulfil our purpose for the benefit
of our stakeholders. This strategy has
been consistent for several years but our
priorities have shifted as we adapt and
adjust to changing market conditions
and occupier needs.
The starting point involves acquiring properties at low capital
values in central London where there is potential to add value.
This may come from planning uplift, the regearing of leases or via
refurbishment or redevelopment, with good design at its heart and
a primary focus on the needs of our potential customers. The returns
generated by our value-adding schemes have helped us consistently
outperform our benchmarks (principally the MSCI IPD Central
London Offices Index).
Balancing the inherent risk of our development projects are the
‘core income’ properties, currently 57% of our portfolio. Here the
focus is on recurring earnings and cash flow through active asset
management. Integral to this are long-term relationships with our
customers and meeting their needs, for example by offering a wide
range of lease terms, providing adaptable space and excellent
amenities while creating a work environment for their employees
that supports productivity and wellbeing.
Whether designing and delivering schemes, we take a long-term
view, looking to identify risks to income or values early on. An
annual five-year plan is prepared to assess risks and opportunities,
and ensure our product is forward-looking and appeals to a wide
range of tenants.
Successful implementation of our strategy requires our teams,
such as Investment, Development, Asset Management, Property
Management and Finance, to work together with a shared vision
and common values. As set out on page 34, these include focusing
on creative design and ensuring sustainability and responsibility
are embedded in everything we do. Management has fostered an
inclusive culture that is progressive and hard-working, building a
team passionate about improving London’s office space.
This strategy is defined through our five strategic objectives:
1. To optimise returns and create value from a balanced portfolio
2. To grow recurring earnings and cash flow
3. To attract, retain and develop talented employees
4. To design, deliver and operate our buildings responsibly
5. To maintain strong and flexible financing
Our 2020 priorities
Even though the year brought more challenging circumstances
than expected, we have managed to achieve our original set
objectives with only minor delays while adding more priorities
as the year progressed.
80 Charlotte Street was completed in June 2020 with a profit on
cost of 27% and both The Featherstone Building and Soho Place
were progressed with programme slippage of one to three months
due to lockdowns. We also committed to start our Baker Street
scheme on site in Q4 2021 while moving forward with pipeline
projects for the future (see page 24).
Blue Star House in Brixton was acquired in Q1 2020 but it has
been a difficult market in which to buy. We also recycled capital by
exchanging contracts for the sale of Johnson Building in Q4 2020.
Our Net Zero Carbon Pathway was published in July 2020 and we
have continued to foster and embed responsibility throughout the
business (see Responsibility section pages 46 to 63).
Our asset managers have focused on supporting our occupiers
while also extending leases and removing breaks. At the same
time, our property teams have worked with occupiers dealing
with the challenges of the pandemic and the resulting restrictions
and lockdowns.
The year ended with an EPRA vacancy rate of 1.8%, considerably
lower than the London property market as a whole, and we carried
out asset management activities over 724,000 sq ft of area which
resulted in a rental uplift of 7.6%, from £36.1m to £38.9m.
In terms of other priorities, we now have a more diverse membership
on our Responsible Business Committee and have also set up a
Diversity Committee. Our management training programme has
continued in 2020 with a further 26 staff members benefiting and
we have also supported our stakeholders through the year with
no staff furloughed, faster payment of suppliers and additional
funds allocated to the NHS and other charitable bodies. Finally, we
refinanced or extended the terms of our two main revolving credit
facilities thereby strengthening further our balance sheet and
finances. Further details are on page 78.
Our 2021 priorities
• Seek new acquisition opportunities with potential to add value
with a focus on those where we can increase the scheme area
or create best-in-class accommodation, while balancing
income generation and development activity
• Be prepared to sacrifice income generation in the short-term
to find the right opportunities for future value creation
• Further define our net zero carbon programme and
monitor progress
• Commence demolition of 19-35 Baker Street W1 and
progress other pipeline schemes
• Manage voids and lease expiries within the portfolio
• Continue to work with occupiers to tackle the current pandemic
while increasing activity as the situation starts to recover
Risk management
Risk management is an integral part of our business and is
monitored regularly. This is split into categories considering
the likely impact on strategy, operations, financial position and
stakeholders. Our projects may take many years to complete,
requiring long-term planning, risk mitigation and financial discipline.
p. 84 Our principal risks
Derwent London plc Report & Accounts 2020
33
Performance measurement and remuneration
Key Performance Indicators (KPIs) help us measure our performance
and assess the effectiveness of our strategy.
These are listed on page 42 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 per share (measured using the EPRA NTA metric) to provide an
overall return for the year and is measured against a peer group.
TPR measures 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.
TR, TPR and TSR are the main performance measures we use to
determine the variable elements of executive remuneration to ensure
there is strong alignment between the interests of shareholders and
our decision makers.
An increasingly polarised central London office market
We have seen an increasing gap open up over the last year between properties which offer high quality, adaptable, modern space
and which therefore appeal to the most discerning occupiers and other office properties.
The first category offers strong flexibility in use, high levels
of wellbeing and excellent energy/ESG credentials as well as
good design. It is in short supply and we are seeing continuing
demand from occupiers who wish to attract and retain the most
talented employees, thereby helping to sustain rental levels.
These properties also appeal to investors, keeping yields low
with values remaining relatively strong. We expect that this
category will remain in short supply and have prioritised higher
levels of development/refurbishment to help create more of
this type of product.
The second category would either require significant capital
investment to reach the highest standards or may not be
capable of reaching that level due to inherent problems in
the fabric, layout, energy efficiency or location of the property.
These buildings are suffering from increasing vacancy rates as
occupiers choose more modern space or more flexible solutions
and we expect to see both their rents and values fall more
rapidly than the market as a whole. The properties that we
acquire tend to be of secondary quality so that we can then
add value to create the typical Derwent London product.
Examples in our portfolio are recently completed developments
like Brunel Building or White Collar Factory but would also
include high quality older refurbishments like Angel Building
and 90 Whitfield Street.
Examples in our portfolio are 19-35 Baker Street or The Network
Building where schemes are either underway or planned.
Brunel Building W2
Network Building W1
White Collar Factory EC1
19-35 Baker Street W1
Strategic report 34
Our strategy continued
2020 priorities
2020 progress
Priorities for 2021
Key performance measures
Risks
1. To optimise returns and create value from a balanced portfolio
Seek acquisitions in improving areas of London with regeneration
opportunities to move the balance between ‘core income’ and
development potential closer to 50/50
Purchased Blue Star House, Brixton SW9 for £38.1m (before costs) in January 2020.
Building is located in an emerging area and has future redevelopment potential with a
significant uplift in area
Complete 80 Charlotte Street in H1 2020
Progress Soho Place and The Featherstone Building
Completed in June 2020 with the office space 100% pre-let. Project delivered 27% profit
on cost and development yield of 6.9%
Both projects on track for completion in H1 2022. Impact of Covid-19 minimised through
close collaboration with contractors. Agreed forward sale of 2 & 4 Soho Place
Consider pre-lets at The Featherstone Building
Engaged in pre-let discussions with potential new tenants
Advance regeneration opportunities within the portfolio
Took further steps to agree terms with The Portman Estate to re-develop 19-35 Baker
Street W1. Submitted planning application for 100-130,000 sq ft redevelopment scheme at
Network Building W1
2. To grow recurring earnings and cash flow
Continue to be ‘landlord of choice’ by meeting tenants’ needs and
providing quality product
Provided both operational and financial support to tenants during pandemic. A survey
showed 95% of customers who participated rated our actions as either ‘very positive’
or ‘positive’
Continuously monitor portfolio for further asset management
initiatives
Asset management activity covered 724,000 sq ft (13% of portfolio area), increasing rent by
7.6% from £36.1m to £38.9m
Extend income through renewals and regears for properties not
earmarked for regeneration
Our retention and re-let rate was 87% in 2020. Decreased our 2021 lease expiry exposure
from 26% of portfolio income to 17% through renewals and regears, and increased average
lease length from 5.8 years to 6.2 years
3. To attract, retain and develop talented employees
Start the next 12-month ‘Fit for the Future’ programme for
28 employees
Offer Unconscious Bias training, core skills sessions and
technical workshops to all employees
Launch initiatives and run social events to enhance wellbeing
and collaboration
Set up steering group to assess the results of the 2019 staff survey
‘Fit for the Future’ programme continued during 2020 for 26 employees using a virtual
format, including 1-1 and group coaching sessions
Unconscious bias training commenced but now on hold until face-to-face sessions
permitted. Both core skills programme and technical workshops continued virtually during
2020
Line managers completed mental health training and mental health first aiders were
appointed. Various activities run including online exercise and mindfulness classes,
fortnightly social quiz and health assessments. Regular town hall meetings took place to
help staff remain connected and informed
Steering group formed of 14 employees reviewed results of the staff survey and presented
ideas to the Executive Committee in November 2020
4. To design, deliver and operate our buildings responsibly
Publish our programme that targets net carbon zero by 2030
and realign our Science Based Targets accordingly
Published our Net Zero Carbon Pathway in July 2020. First UK REIT to provide detailed
pathway. Progressed realignment of our Science Based Targets
Deliver the next rounds of our Community Fund
2020 rounds were successfully launched with over £97,000 invested in a range of
grassroots projects. An additional £50,000 was committed to community groups
particularly affected by the pandemic
5. To maintain strong and flexible financing
Maintain or strengthen available facilities
Maintain good interest cover
Manage the process of LIBOR discontinuation
and the transition to SONIA
Signed a new £100m 5-year Revolving Credit Facility (RCF) with Wells Fargo,
this refinances a £75m facility with the same lender
The £450m RCF was extended by one year to 2025
Interest cover remains strong at 446%; property income could fall by 68% before
breaching the interest cover covenant
Ongoing discussion with our banks and advisers on the transition to SONIA. New facilities
contain provisions that cover the cessation of LIBOR with a replacement benchmark
• Seek new acquisitions in emerging areas of
London with potential to add value either by
increasing floor area or upgrading to higher
quality stock
• Dispose of properties that no longer meet our
investment criteria
• Progress Soho Place and The Featherstone
Building
• Secure pre-lets at The Featherstone Building
• Commence on site works at 19-35 Baker Street W1
• Progress regeneration opportunities within
the portfolio
• Total return
• Total property return
• Total shareholder return
• EPRA earnings per share
• Reversionary percentage
• Development potential
• Void management
• Increase our amenity and customer experience
offering to tenants
• Continue to work with tenants to ensure the safe
re-occupation of their work places
• Manage voids and expiries with a focus on
extending income through renewals and regears
• Consider opportunities to upgrade existing stock
to optimise income as vacancies occur
• Total return
• Total property return
• Total shareholder return
• EPRA earnings per share
• Reversionary percentage
• Tenant retention
• Void management
• Failure to implement the Group’s strategy
• Implications of Brexit
• Risk of tenants defaulting or tenant failure
• Income decline
• The potential impact on our business from the introduction
of a new tax to replace or complement business rates
• Reduced development returns
• ‘On-site’ risk
• Contractor/subcontractor default
• Cyber attack on our IT systems
• Cyber attack on our buildings
• Significant business interruption
• Reputational damage
• Our resilience to climate change
• Non-compliance with health and safety legislation
• Failure to implement the Group’s strategy
• Implications of Brexit
• Risk of tenants defaulting or tenant failure
• Income decline
• The potential impact on our business from the introduction
of a new tax to replace or complement business rates
• Reduced development returns
• ‘On-site’ risk
• Contractor/subcontractor default
• Cyber attack on our IT systems
• Cyber attack on our buildings
• Significant business interruption
• Reputational damage
• Non-compliance with health and safety legislation
• Continue ‘Fit for the Future’ programme
• Continue core skills sessions and technical
workshops and resume Unconscious Bias training
• Continue health and wellbeing initiatives
• Ensure safe re-occupation of our offices and
review hybrid working arrangement to ensure
collaboration is maintained
• Work towards achieving National Equality
Standards (NES) accreditation
• Conduct our 4th full employee survey in
October 2021
• Total return
• Total shareholder return
• Staff satisfaction
• Cyber attack on our IT systems
• Cyber attack on our buildings
• Significant business interruption
• Reputational damage
• Our resilience to climate change
• Non-compliance with health and safety legislation
• Other regulatory non-compliance
• Continue to embed our net zero carbon pathway
• Total return
• Failure to implement the Group’s strategy
requirements across the business
• Continue to progress realigning our Science
Based Targets in accordance with guidance
• Develop, refine and embed our approach to
carbon accounting
• Deliver the next rounds of our Community Fund
and continue to extend our criteria to consider
charities facing financial hardship
• Total shareholder return
• BREEAM ratings
• Energy performance certificates
• Carbon intensity
• ‘On-site’ risk
• Contractor/subcontractor default
• Cyber attack on our IT systems
• Cyber attack on our buildings
• Significant business interruption
• Reputational damage
• Our resilience to climate change
• Non-compliance with health and safety legislation
• Other regulatory non-compliance
• Maintain or strengthen available facilities
• Maintain sufficient headroom on financial
covenants
• Transition all relevant loans and swaps from
LIBOR to SONIA based
• Total return
• Total shareholder return
• Gearing and available resources
• Interest cover ratio
• Failure to implement the Group’s strategy
• Implications of Brexit
• Risk of tenants defaulting or tenant failure
• Income decline
p. 36
p. 38
p. 39
p. 40
p. 41
• The potential impact on our business from the introduction
of a new tax to replace or complement business rates
• Reduced development returns
• Cyber attack on our IT systems
• Cyber attack on our buildings
• Significant business interruption
• Reputational damage
• Non-compliance with health and safety legislation
• Other regulatory non-compliance
Derwent London plc Report & Accounts 2020
2020 priorities
2020 progress
Priorities for 2021
Key performance measures
Risks
Key
Achieved
On target
Not achieved
35
p. 36
• Seek new acquisitions in emerging areas of
London with potential to add value either by
increasing floor area or upgrading to higher
quality stock
investment criteria
• Dispose of properties that no longer meet our
• Progress Soho Place and The Featherstone
• Secure pre-lets at The Featherstone Building
• Commence on site works at 19-35 Baker Street W1
• Progress regeneration opportunities within
Building
the portfolio
offering to tenants
• Increase our amenity and customer experience
• Continue to work with tenants to ensure the safe
• Manage voids and expiries with a focus on
extending income through renewals and regears
• Consider opportunities to upgrade existing stock
re-occupation of their work places
to optimise income as vacancies occur
workshops and resume Unconscious Bias training
• Continue ‘Fit for the Future’ programme
• Continue core skills sessions and technical
• Continue health and wellbeing initiatives
• Ensure safe re-occupation of our offices and
review hybrid working arrangement to ensure
collaboration is maintained
• Work towards achieving National Equality
• Conduct our 4th full employee survey in
Standards (NES) accreditation
October 2021
requirements across the business
• Continue to embed our net zero carbon pathway
• Continue to progress realigning our Science
Based Targets in accordance with guidance
• Develop, refine and embed our approach to
• Deliver the next rounds of our Community Fund
and continue to extend our criteria to consider
charities facing financial hardship
carbon accounting
• Maintain or strengthen available facilities
• Maintain sufficient headroom on financial
• Transition all relevant loans and swaps from
covenants
LIBOR to SONIA based
• Total return
• Total property return
• Total shareholder return
• EPRA earnings per share
• Reversionary percentage
• Development potential
• Void management
• Total return
• Total property return
• Total shareholder return
• EPRA earnings per share
• Reversionary percentage
• Tenant retention
• Void management
• Failure to implement the Group’s strategy
• Implications of Brexit
• Risk of tenants defaulting or tenant failure
• Income decline
• The potential impact on our business from the introduction
of a new tax to replace or complement business rates
• Reduced development returns
• ‘On-site’ risk
• Contractor/subcontractor default
• Cyber attack on our IT systems
• Cyber attack on our buildings
• Significant business interruption
• Reputational damage
• Our resilience to climate change
• Non-compliance with health and safety legislation
p. 38
• Failure to implement the Group’s strategy
• Implications of Brexit
• Risk of tenants defaulting or tenant failure
• Income decline
• The potential impact on our business from the introduction
of a new tax to replace or complement business rates
• Reduced development returns
• ‘On-site’ risk
• Contractor/subcontractor default
• Cyber attack on our IT systems
• Cyber attack on our buildings
• Significant business interruption
• Reputational damage
• Non-compliance with health and safety legislation
• Total return
• Total shareholder return
• Staff satisfaction
• Cyber attack on our IT systems
• Cyber attack on our buildings
• Significant business interruption
• Reputational damage
• Our resilience to climate change
• Non-compliance with health and safety legislation
• Other regulatory non-compliance
• Total return
• Total shareholder return
• BREEAM ratings
• Energy performance certificates
• Carbon intensity
• Failure to implement the Group’s strategy
• ‘On-site’ risk
• Contractor/subcontractor default
• Cyber attack on our IT systems
• Cyber attack on our buildings
• Significant business interruption
• Reputational damage
• Our resilience to climate change
• Non-compliance with health and safety legislation
• Other regulatory non-compliance
p. 39
p. 40
p. 41
• Total return
• Total shareholder return
• Gearing and available resources
• Interest cover ratio
• Failure to implement the Group’s strategy
• Implications of Brexit
• Risk of tenants defaulting or tenant failure
• Income decline
• The potential impact on our business from the introduction
of a new tax to replace or complement business rates
• Reduced development returns
• Cyber attack on our IT systems
• Cyber attack on our buildings
• Significant business interruption
• Reputational damage
• Non-compliance with health and safety legislation
• Other regulatory non-compliance
1. To optimise returns and create value from a balanced portfolio
Seek acquisitions in improving areas of London with regeneration
opportunities to move the balance between ‘core income’ and
Purchased Blue Star House, Brixton SW9 for £38.1m (before costs) in January 2020.
Building is located in an emerging area and has future redevelopment potential with a
development potential closer to 50/50
Complete 80 Charlotte Street in H1 2020
Progress Soho Place and The Featherstone Building
significant uplift in area
Completed in June 2020 with the office space 100% pre-let. Project delivered 27% profit
on cost and development yield of 6.9%
Both projects on track for completion in H1 2022. Impact of Covid-19 minimised through
close collaboration with contractors. Agreed forward sale of 2 & 4 Soho Place
Consider pre-lets at The Featherstone Building
Engaged in pre-let discussions with potential new tenants
Advance regeneration opportunities within the portfolio
Took further steps to agree terms with The Portman Estate to re-develop 19-35 Baker
Street W1. Submitted planning application for 100-130,000 sq ft redevelopment scheme at
Network Building W1
2. To grow recurring earnings and cash flow
Continue to be ‘landlord of choice’ by meeting tenants’ needs and
providing quality product
Provided both operational and financial support to tenants during pandemic. A survey
showed 95% of customers who participated rated our actions as either ‘very positive’
Continuously monitor portfolio for further asset management
Asset management activity covered 724,000 sq ft (13% of portfolio area), increasing rent by
initiatives
Extend income through renewals and regears for properties not
earmarked for regeneration
Our retention and re-let rate was 87% in 2020. Decreased our 2021 lease expiry exposure
from 26% of portfolio income to 17% through renewals and regears, and increased average
lease length from 5.8 years to 6.2 years
or ‘positive’
7.6% from £36.1m to £38.9m
3. To attract, retain and develop talented employees
Start the next 12-month ‘Fit for the Future’ programme for
‘Fit for the Future’ programme continued during 2020 for 26 employees using a virtual
28 employees
format, including 1-1 and group coaching sessions
Offer Unconscious Bias training, core skills sessions and
technical workshops to all employees
Unconscious bias training commenced but now on hold until face-to-face sessions
permitted. Both core skills programme and technical workshops continued virtually during
Launch initiatives and run social events to enhance wellbeing
and collaboration
2020
Line managers completed mental health training and mental health first aiders were
appointed. Various activities run including online exercise and mindfulness classes,
fortnightly social quiz and health assessments. Regular town hall meetings took place to
help staff remain connected and informed
Set up steering group to assess the results of the 2019 staff survey
Steering group formed of 14 employees reviewed results of the staff survey and presented
ideas to the Executive Committee in November 2020
4. To design, deliver and operate our buildings responsibly
Publish our programme that targets net carbon zero by 2030
and realign our Science Based Targets accordingly
Published our Net Zero Carbon Pathway in July 2020. First UK REIT to provide detailed
pathway. Progressed realignment of our Science Based Targets
Deliver the next rounds of our Community Fund
2020 rounds were successfully launched with over £97,000 invested in a range of
grassroots projects. An additional £50,000 was committed to community groups
particularly affected by the pandemic
5. To maintain strong and flexible financing
Maintain or strengthen available facilities
Maintain good interest cover
Manage the process of LIBOR discontinuation
and the transition to SONIA
Signed a new £100m 5-year Revolving Credit Facility (RCF) with Wells Fargo,
this refinances a £75m facility with the same lender
The £450m RCF was extended by one year to 2025
Interest cover remains strong at 446%; property income could fall by 68% before
breaching the interest cover covenant
Ongoing discussion with our banks and advisers on the transition to SONIA. New facilities
contain provisions that cover the cessation of LIBOR with a replacement benchmark
Strategic report
36
Our strategy continued
1. To optimise returns and create value from a balanced portfolio
A
43%
Under development/
potential
B
Future appraisal
23%
C
Core income
57%
5.56m sq ft1
£189.2m rent
Under appraisal
8%
D
Consented
4%
On-site
developments
7%
E
On-site
refurbishments
1%
G
F
57%
Core income
1 Comprises 5.08m sq ft of existing buildings plus 0.48m sq ft of on-site developments and on-site refurbishments
Derwent London plc Report & Accounts 2020
Our portfolio is dynamic and properties
tend to fall into one of several categories.
The chart shown here is often referred to
as the ‘Derwent doughnut’ and shows how
we balance our 5.6m sq ft portfolio between
those properties with potential to add value
through regeneration, and those which have
already been improved but where our asset
management skills can continue to grow
value and income. No two buildings are
identical but the typical life cycle (A to G)
of our properties is explained below,
with portfolio balance, stakeholder and
environmental impacts all key considerations
in the strategy we pursue for each property.
43% Under development/potential
A
Acquiring opportunities
It all starts with the acquisition of a new building where we see
potential to add value. We try to look for opportunities that others
might not see but the buildings typically have low capital values and
are usually income-producing with low rents. We particularly look for
potential to add area to the building and/or to improve the quality or
environmental impact of the space. Acquisitions may be in locations
which have underperformed or are due to benefit from infrastructure
upgrades. If these features are not apparent or we do not see good
value, we are disciplined in our capital allocation and are not ‘forced
buyers’. A combination of low interest rates and a lack of distress
among property owners has meant that identifying the right
properties at pricing that provides adequate returns proved difficult
in 2020 but we were pleased to buy Blue Star House in Brixton, a new
village for us.
B
The importance of cash flow
Though we are prepared to be flexible, most of the properties that
we acquire are occupied and provide cash flow, so we have time to
work out our plans while enjoying an income yield. This gives us the
necessary flexibility to arrive at an optimal solution, our ideas regularly
going through several iterations before settling on a final solution.
C
Dialogue with tenants and landlords
While working through our plans for a building, we engage with
existing tenants and, where appropriate, any ultimate landlord or other
interested party. This helps us understand all the constraints and may
allow income streams to be extended or made more flexible with
built-in or rolling breaks at future dates. We sometimes have to accept
income below market levels, but we aim to retain cash flow until we are
ready to commence on-site. 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/climate impacts, to arrive at our solution.
This also requires liaising with the relevant planning authorities to
seek planning consent and consulting with the local community.
37
D
Risk mitigation
We plan ahead to determine the appropriate balance of risk and
opportunity for the business and, when we are comfortable, will
normally start schemes speculatively, i.e. without any pre-letting in
place. Whether a refurbishment of an existing building or an all-new
design, by ensuring the end product appeals to as many occupiers
as possible, we often receive early interest from potential tenants
once we are on-site. Design and construction of large and complex
projects requires considerable skill, experience and collaboration
so we work with a chosen group of consultants, contractors and
subcontractors to minimise the risks of delivery. Those risks
principally relate to delays and/or cost overruns, but there are many
technical and physical issues to consider such as health, safety
and wellbeing. Preparation of an annual ‘five-year plan’ helps us
anticipate and maintain the critical balance between income/
dividend growth and longer-term value creation within our ‘total
return’ model guided strongly by our responsibilities to stakeholders
and the environment.
E
Pre-letting during construction
With our reputation for delivering well-designed, adaptable and
affordable buildings, we normally de-risk each project by agreeing
terms with one or more tenants during the construction phase.
The momentum that this provides encourages us to consider the
next phase of our project pipeline too, adding further value where
we see opportunities and planning several years ahead.
57% Core income
F
Income and reversion
The whole process takes many years but, once a building is
completed and let, it moves to the ‘core income’ sector, shown in
brown on the chart. Here, we focus more on property management
skills to satisfying our tenants’ needs, growing our income, adding
further value or improving other aspects such as energy efficiency
or amenities to promote ‘wellness’. This part of the portfolio is not
‘dry’ or without opportunity and remains the main focus of our Asset
Management team (see page 68). Leases typically vary from very
short to over 10 years, as shown in the table below and, in current
market conditions, there has been a focus on extending leases or
removing breaks where we can agree reasonable terms.
Profile of rental income expiry
Contracted rental income %
70
60
50
40
30
20
10
0
7
5
6
3
7
3
4
2
Up to 5
5 to 10
6
1
9
10 to 15
Years to expiry
9
8
15 to 20
2
2
Over 20
No lease breaks exercised
Lease breaks exercised at first opportunity
G
Recycling assets
When we believe that we have extracted most of the upside in
value, or where it no longer satisfies our investment criteria, we will
normally look to dispose of a property, thereby freeing up human and
financial capital for the next generation of acquisitions and projects.
Strategic report
As a result, extending income streams rather than growing rents
was our priority in 2020. In addition, we have been offering particular
support to our retail and hospitality tenants, many of whom have had
to close their premises for parts of the year and who offer an amenity
to our office occupiers.
What we do to capture reversion
• we work with tenants and consultants to arrive at appropriate
rent review settlements;
• we negotiate to extend leases or remove break clauses (a
particularly important focus for our asset managers in 2020);
• we arrange ‘block dates’ to gain access to buildings at an appropriate
time;
• we review levels of ‘grey’ space, i.e. floor area that is let but which
is not currently occupied or is being marketed by a tenant;
• we look to reduce irrecoverable costs, as measured by the
EPRA cost ratio;
• we try to anticipate our tenants’ needs, thereby optimising
income. Examples are fixed or minimum rental uplifts and a
flexible approach to dilapidations and alienation clauses in leases;
• we believe that creating the right sort of space that appeals to
the tenants’ own employees and addressing the climate change
aspects of our buildings will help generate further rental growth
in the future; and
• occupiers are increasingly looking for adaptability and flexibility.
For many years, we have taken a flexible approach as part of our
core brand values, e.g. our ‘furnished and flexible’ units, while,
at other buildings, aiming for longer leases, particularly on
larger lettings.
Performance measures
We use like-for-like rent analysis (see EPRA definitions on page
248) to measure how net and gross rental income has grown
within the non-development part of the portfolio. We monitor
irrecoverable costs through the EPRA cost ratio and void
percentages. We also place emphasis on growing EPRA earnings
over the medium-term though this has been impacted in 2020 by
the effect of the lockdown on our occupiers.
38
Our strategy continued
2. To grow recurring earnings and cash flow
Real estate values are largely determined by contracted and
expected future cash flows combined with a market yield which
takes account of risk, growth expectations, quality and other factors.
Creating and then capturing reversion
Putting in place the right strategy for a property can both add value
and increase cash flow. Value is usually recognised earlier in the
life cycle with the increasing cash flows following later. The value
creation normally comes from expectations of rental growth thereby
giving rise to what we call ‘reversion’, i.e. the expectation that income
will grow from its current passing level. This is a long-term model for
us and the focus in 2020 was biased more towards support for our
occupiers and maintaining cash flow.
Asset management actions
Our asset managers look to capture any increase in rents through
rent reviews, lease regears or other lease restructuring. This is
underpinned by strong relationships with occupiers and always
with a focus on the needs of our local communities and other
stakeholders. With market conditions becoming more difficult
through 2020, there was an increased focus on maintaining
income streams and supporting occupiers where this was needed.
Our customer focus is important in establishing and retaining
excellent relationships with our occupiers.
Impact on income of the pandemic
Covid-19 and the resulting lockdowns in 2020 and early 2021 have
had a significant impact on our occupiers. This has required support
for our stakeholders, including many among our tenant base. It also
meant that the collection of rents became a core business activity
in 2020 and our Credit Committee met multiple times each week to
consider tenants’ financial positions and requests for help, initiatives
such as service charge mitigation and the detailed management of
information relating to our income streams.
Change in lease expiry profile
Extending income was a priority in 2020
Contracted rental income (%)
45
40
35
30
25
20
15
10
5
0
3
4
0
3
6
2
7
1
0
1
–
1
1
9
9
8
9
7
1
1
0
1
2020
2021
2022
2023
2024
2025
2026+
31 December 2019
31 December 2020
Derwent London plc Report & Accounts 2020
39
Derwent London held another staff satisfaction survey in late 2020
which achieved very high scores. We also enjoy a high rate of staff
retention with 51% having been with the business for more than five
years but we are also pleased to have welcomed 30 new employees
to the Group in 2020. We aim for all our employees to feel valued and
part of a happy and supportive team. As a result, diversity and
wellbeing have been high on the agenda again during 2020. We
remain focused on continuous improvement and several successful
initiatives have been implemented during the year, some of which
were due to recommendations made in our employee surveys.
p. 50 Responsibility - Our people
100%
Response rate to
our staff survey
96%
Staff satisfaction
98%
Proud to work at
Derwent London
3. To attract, retain and develop
talented employees
Our employees are key to the successful delivery of Derwent
London’s strategy and to our long-term business performance.
We are an inclusive and respectful employer that welcomes diversity
and promotes equality. We have a high performing, progressive and
collaborative culture coupled with a consultative and professional
leadership style – one that focuses on teamwork and acting with
integrity in order to build long-term relationships with our colleagues
and other stakeholders. Our employees are ambassadors for our
brand and we therefore invest considerable time and resources in
recruiting outstanding individuals who bring new ideas, skills and
competencies to the business.
The Group’s reputation stems from behaviours and values promoted
by the Board and these are reinforced through our induction
programme, performance management process, core skills
workshops and our management and leadership development
programmes. 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 organised by discipline, we assemble teams for
specific projects that draw on expertise from across the business to
increase creativity and innovation. Collaboration is also facilitated
through a number of supporting committees (for example the Cost,
Credit and Health and Safety Committees) which, together with the
project teams, report into our Executive Committee.
Management development level 1 training programme
‘Fit for the Future’ level 1 training programme 2020: Emma Bester, Mark Caldwell,
Karolina Gasiorowska, Graham Jones, Emma Lange, Jamie Margaritis, Kevin Metherall,
Lorna O’Neil, Natalie Sivil and Ben Thomson
Strategic report 40
Our strategy continued
4. To design, deliver and operate
our buildings responsibly
Delivering well-designed, adaptable, occupier-focused buildings is
an integral part of our business model. We believe these buildings
offer better long-term value for occupiers, reduce letting risk and
void levels and command better rents, yields and values.
Setting high standards in terms of design and environmental
responsibility builds flexibility, longevity and climate resilience
into our portfolio, not just in our new developments but also in
the properties we manage.
To meet our target of becoming a net zero carbon business by
2030 (see page 48 for more details), we must develop buildings
that are even more energy efficient, powered by renewable energy
and have very low embodied carbon footprints. Likewise, we must
reduce our managed properties’ reliance on natural gas and
further improve their energy consumption.
We want to ensure our portfolio is fit for purpose over the long-term
and continues to generate the returns we expect.
Our approach to becoming net zero carbon is set out in further
detail in our Responsibility section on pages 48 and 49, together
with a summary of our TCFD (Task Force on Climate-related
Financial Disclosures).
We work with our stakeholder groups to ensure we are meeting
their expectations and standards, as well as acting responsibly.
This can range from engaging with the local communities in and
around our buildings, through using the best designers and
contractors, to ensure our buildings meet the standards we set
(see page 26 for more information on stakeholder engagement).
22%
Reduction in managed portfolio
carbon intensity (tCO2e/m2)
23%
Reduction in managed portfolio
energy use (kWh)
In 2020 we committed to net zero carbon emissions by 2030.
p. 28 Our pathway to net zero carbon
Members of Property and Sustainability teams
Szilvia Allen-Kovacs, Jessica Bubb, Simon Cain, Helen Joscelyne, Oliver Martin,
Gurcharan Sahota, Justyna Tobolska, Laura Townsend and Keith Walshe
80 Charlotte Street W1
Derwent London plc Report & Accounts 2020 5. To maintain strong and flexible financing
Derwent London’s financing model is based on the
following principles:
41
We finance our business using equity and a conservative level
of debt. We are relationship driven and, though we look to be
progressive and innovative, adopt policies which have been
consistent and well-proven over many years.
Our overriding principle is one of low financial leverage and generous
interest cover, to balance the relatively high risk attached to our
regeneration schemes. Using a combination of unsecured flexible
revolving bank facilities and longer-term fixed rate debt (both
secured and unsecured), we can adjust the level of drawn debt
to our day-to-day requirements.
We aim to maintain considerable headroom under our facilities
to enable us to move quickly when acquisition opportunities arise.
This has a cost in terms of non-utilisation fees but also provides
comfort that cash flows can be funded without delay and
demonstrates to us and our stakeholders that the development
pipeline is capable of being financed and delivered without
overstretching the balance sheet.
• conservative financial leverage to balance the business’s
relatively high operational leverage;
• a strong focus on interest cover to support our credit rating
(Fitch issuer default rating of A- but with a negative outlook);
• borrowing from a diverse group of relationship lenders, both
banks and institutions, who understand and support our
business model;
• managing the cost of debt but also looking to have significant
protection against possible interest rate rises and long average
debt maturities;
• keeping structures and covenants simple and understandable
and thinking ahead; and
• ensuring the Group’s financing strategy supports and is consistent
with our overall business goals.
This approach provides financial stability and helps us when
considering issues such as going concern and viability statements.
Our unsecured debt facilities have similar financial covenants
and we value long-term relationships with our lenders, preferring
the stability and mutual understanding that this creates over an
approach that seeks the very lowest funding cost. In recent years,
we have brought in new non-bank debt that has extended the
Group’s maturity profile and, in 2019, published our Green Finance
Framework to support the ‘green’ tranche of our principal revolving
credit facility.
Relationships with all our funders – key stakeholders in our
business – are of great importance to us and we communicate
with them all frequently.
Members of the Finance team
Our REIT status
Evon Allison, Anna Conversano, Karlie Forsythe, Jay Joshi, Chris Pool
and Jennifer Whybrow
Derwent London plc has been a Real Estate Investment Trust
(REIT) since July 2007. The REIT regime (see page 250) was
launched to provide a structure which closely mirrors the tax
position of an investor holding property directly and removes tax
inequalities between different real estate investors. REITs are
principally property investors 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 2020, £8.2m was paid to HMRC.
In 2020, we refinanced and increased the
amounts available under our revolving
credit facilities in difficult market
conditions, retaining and enhancing
the highly valued lender relationships
that we have built up over many years.
Damian Wisniewski, CFO
Strategic report 42
Measuring our
performance
We use a balance of financial and non-financial key performance
indicators (KPIs) to measure our performance and assess the
effectiveness of our strategy. They are also used to monitor the
impact of the principal risks that have been identified and a number
are used to determine remuneration.
Covid-19 has had a significant impact on the business and we have
seen an overall fall in property values in 2020, though our recent and
on-site developments have performed relatively well. Impairments
have also been recognised against some receivable balances which
has reduced net rental income and earnings. Despite this, the
business has remained resilient but some of our KPIs below have
been affected.
KPIs
Financial
Non-financial
Operational measures
Total return
Total property return
Total shareholder return
EPRA earnings per share
Gearing measures
Gearing and available
resources
Interest cover ratio
Operational measures
Reversionary percentage
Development potential
Tenant retention
Void management
Responsibility measures
BREEAM ratings
EPC
Carbon intensity
Staff satisfaction
Our performance
Our total return in 2020 was -1.8%,
against a benchmark of -12.8%, as the
performance of several of our peers was
negatively impacted by their exposure
to the retail sector. Derwent London’s
average annual return of 3.8% over the
past five years against a benchmark
of -1.5% demonstrates the ability of
our business model to generate above
average long-term returns.
1. 2. 3. 4. 5.
R
%
15
12
9
6
3
0
(3)
(6)
(9)
(12)
(15)
7.7
6.6
3.1
1.7
6.6
5.3
0.7
(1.8)
(3.9)
2016
2017
2018
2019
Derwent London
Weighted average of major UK real estate companies
(12.8)
2020
Financial KPIs
Total return
Total return equates to the combination
of NAV growth (measured using the
EPRA NTA metric) plus dividends paid
during the year. We aim to exceed our
benchmark, which is the average of
other major real estate companies.
Key
Strategic objectives
1.
2.
3.
4.
5.
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
Other
R Remuneration
Derwent London plc Report & Accounts 2020 Financial KPIs
Our performance
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.
While the rest of the portfolio saw a
modest fall in value, our developments
allowed us to outperform the MSCI
IPD’s Central London Offices Index by
2.7% during 2020, with a 5.3% valuation
uplift across our three major schemes
in the year – 80 Charlotte Street W1,
Soho Place W1 and The Featherstone
Building EC1 – due to good progress on
delivery and pre-letting.
The three-year rolling average of
4.6% p.a. demonstrates our ability to
generate returns against a background
of relatively stable rents and yields. This
was 3.0% p.a. higher than MSCI IPD’s
UK All Property Index.
7
6
5
4
3
2
1
0
(1)
(2)
(3)
Annual
8
8.0
7.1
1. 2. 3. 4. 5.
6.0
5.3
7.4
4.1
2.9 2.6
2016
2017
2018
2019
Derwent London
MSCI IPD Central London Offices Index
Three-year rolling
20
43
R
%
0.3
(2.4)
2020
%
18
16
14
12
10
8
6
4
2
0
16.0
11.5
10.3
8.9
6.6
5.6
7.1
5.8
4.6
1.6
2016
2017
2018
2019
2020
Derwent London
MSCI IPD UK All Property Index
1. 2. 3. 4. 5.
36.3
26.4
R
%
15.6
13.1
0.9
(9.2)
(14.1)
(16.6)
2017
2018
2019
2020
(12.4)
(26.5)
2016
Derwent London
FTSE UK 350 Super Sector Real Estate Index
1. 2. 3. 4. 5.
113.07
103.09
99.19
p
94.23
76.99
2016
2017
2018
2019
2020
40
35
30
25
20
15
10
5
0
(5)
(10)
(15)
(20)
(25)
(30)
120
100
80
60
40
20
0
Total shareholder return (TSR)
To measure the Group’s success in
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.
The fall in the share price during the
year has meant that the Group slightly
underperformed its benchmark index
in 2020. However, our ability to deliver
above average long-term returns is
demonstrated by the fact that £100
invested in Derwent London at the
start of 2011 was worth £252 at the end
of 2020, compared with £194 for the
benchmark index.
EPRA earnings per share (EPS)
EPRA EPS is the principal measure
used to assess the Group’s operating
performance and a key determinant
of the annual dividend. A reconciliation
of this figure back to the IFRS profit
can be found in note 39.
EPS on an EPRA basis fell 3.8% to
99.19p per share in 2020. This follows
9p per share of write-off/impairment
of receivable balances in the year to
reflect the weakened financial position
of some of our tenants, particularly in
the retail and hospitality sectors. Note
that the 2018 EPS included a one-off
receipt of 14p per share.
Strategic report 44
Measuring our performance continued
Financial KPIs
Our performance
Gearing and available resources
1. 2. 3. 4. 5.
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.
Cash and undrawn facilities fell in
the year due to net investment in our
portfolio of £61.1m. The fall in property
values in the year has given rise to a
small increase in the NAV gearing and
LTV ratios, but both remain at low levels.
LTV ratio
NAV gearing
Cash and undrawn facilities
Uncharged properties
2019
16.9%
21.9%
£511m
2020
18.4%
24.3%
£476m
£4,423m £4,329m
Interest cover ratio (ICR)
We aim for our interest payable to
be covered at least two times by
net rents. The basis of calculation is
the same as the covenant included
in the loan documentation for our
unsecured bank facilities. Please
see note 41 for the calculation of
this measure.
In January 2021, we completed on
the sale of Johnson Building, which
increased cash and available facilities
to over £640m on a proforma basis.
The net interest cover ratio (ICR)
decreased a little in 2020 due to the
write-off/impairment of the receivables
balance which is included in net
property income. Despite this, rental
income would need to fall by a further
68% before the main ICR covenant of
145% was breached.
500
400
300
200
100
0
1. 2. 3. 4. 5.
454
491
462
%
446
370
2016
2017
2018
2019
2020
Benchmark
Non-financial KPIs
Our performance
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.
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.
Tenant retention
Maximising tenant retention upon
lease breaks or expiries when we
do not have redevelopment plans
minimises void periods and contributes
towards net rental income.
1. 2. 3. 4. 5.
2016
89
2017
69
2018
72
2019
79
2020
54
1. 2. 3. 4. 5.
R
2016
43
2017
44
2018
41
2019
43
2020
43
%
%
As a result of a subdued leasing market
and income lost from disposals in the
year, the Group’s ERV decreased by
£11.8m during 2020 to £291.2m. This
included potential reversion of £102.0m,
54% of the net passing rent of £189.2m,
of which 57% is contracted.
With on-site developments and
refurbishments representing 8% of
the portfolio at the end of 2020, and
a further 35% identified as potential
schemes, there are considerable
opportunities to add value through
regeneration. We continue to seek
acquisitions to move the balance
between core income and development
potential closer to 50/50.
Our retention and re-let rate was 87%
in 2020 and is broadly in line with our
average of 90% over the past five years,
demonstrating the strong relationships
we have with our tenants and the appeal
of our mid-market product.
Exposure (£m pa)
Retention (%)
Re-let (%)
Total (%)
2016
11.0
63
26
89
2017
8.5
57
35
92
2018
14.9
76
14
90
2019
13.5
83
7
90
2020
16.1
65
22
87
1. 2. 3. 4. 5.
Derwent London plc Report & Accounts 2020 Non-financial KPIs
Our performance
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 ability to retain tenants and let
space, particularly at our on-site
developments, has kept the vacancy
rate low. At the end of 2020, our EPRA
vacancy rate was under 2%, a result of
successfully letting most of the office
space at 80 Charlotte Street prior to
completion in June. Additionally, our
asset managers have focused on tenant
retention and the regearing of leases
where possible across the rest of the
portfolio.
45
R
%
1. 2. 3. 4. 5.
1.8
1.8
1.3
0.8
2.6
3.0
2.5
2.0
1.5
1.0
0.5
0
2016
2017
2018
2019
2020
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.
80 Charlotte Street, which completed
in June 2020, is expected to receive a
final rating of ‘Excellent’ having received
this rating at Design Stage. Our two
developments currently on-site were
rated BREEAM ‘Outstanding’ at Design
Stage.
Following the completion of Brunel
Building in 2019, it received a final
BREEAM rating of ‘Excellent’ in 2020.
80 Charlotte Street W1
Soho Place W1
The Featherstone
Building EC1
1 Targeted
2 Certified at Design Stage
Energy performance certificates (EPC)
EPCs indicate the energy efficiency
of a building by assigning a rating
from ‘A’ (very efficient) to ‘G’ (inefficient).
Since 2017, we have targeted a
minimum certification of ‘A’ for major
new-build schemes and ‘B’ for major
refurbishments.
80 Charlotte Street is targeting an EPC
rating of ‘B’ post-completion. Our other
two on-site developments, Soho Place
and The Featherstone Building, are
targeting a certification of ‘B’ and ‘A’,
respectively.
80 Charlotte Street W1
Soho Place W1
The Featherstone
Building EC1
1 Targeted
1. 2. 3. 4. 5.
R
Rating
Completion
Excellent2
H1 2020
H1 20221 Outstanding2
H1 20221 Outstanding2
1. 2. 3. 4. 5.
Completion
H1 2020
H1 20221
H1 20221
Rating
B1
B1
A1
1. 2. 3. 4. 5.
R
(2013 = 1.00)
Carbon intensity
This is measured by emissions intensity
per metre squared of landlord-
controlled floor area across our
managed like-for-like portfolio. Our
target is an annual decrease of between
2% and 4% per annum.
In 2020, landlord (Scope 1 & 2)
emissions intensity in the like-for-
like portfolio decreased by 27%. This
was helped substantially by the low
occupation of our portfolio during the
year as a result of Covid-19. The 57%
reduction achieved since our base year
of 2013 means we are on course to meet
our emissions target by 2027. During
2021 we will be reviewing our targets to
ensure they are in line with our net zero
carbon pathway.
Staff satisfaction
The satisfaction of our employees
is assessed through a number of
questions in a staff survey. We aim to
keep the satisfaction rate above 80%.
Despite a year of significant challenges
for individuals and the business, staff
satisfaction in 2020 remained very
high at 96%. We believe these figures
reflect our collaborative and supportive
corporate culture and the pride our staff
feel in working for Derwent London.
1.20
1.00
0.80
0.60
0.40
0.20
0
2013
2015
2017
2019
2021
2023
2025
2027
Derwent London
IEA ETP emissions
1. 2. 3. 4. 5.
R
%
2016
96.0
2017
96.0
2018
90.4
2019
92.5
2020
96.3
Strategic report 46
Responsibility
To operate responsibly requires a clear understanding of the
environmental, social and governance (ESG) issues relevant to our
business. It is important we balance and manage these effectively
so we can create long-term value for all our stakeholders.
ESG reporting structure and 2020 highlights
Environmental
p. 48
to p. 49
• Climate resilience
• Net zero carbon
Social
p. 50
to p. 55
• Our people
• Community
• Health and safety
Governance
p. 56
to p. 57
• Climate change governance
• Tax governance
• Human rights
In 2020 we announced our ambitious
target to become net zero carbon by
2030 and launched our pathway setting
out the detail to achieve that. In this report,
we feature our work on climate risk
analysis which is an important part of
understanding how and where to prioritise
our actions.
2020 has been a year like no other where
the health, wellbeing, safety and support
of people has never been greater. We have
made particular efforts over the year to
prioritise the needs of our employees,
communities, occupiers, contractors and
suppliers. Our Community Fund has
continued apace with many projects
transferring online.
For Derwent London, governance is not
an exercise in compliance but an evolving
core discipline which generates value
for our stakeholders and underpins our
success. The oversight of ESG matters
is critical, allowing the Board to fully
understand the impact of its decisions
on key stakeholders as well as
emerging risks.
23%
27%
Reduction in managed portfolio energy use
Reduction in like-for-like carbon intensity
A wonderful project
harnessing the power
of music to heal and
enhance wellbeing.
Music and deep healing by
The Spitz Charitable Trust for
Bridgeside Lodge care home
Commissioned an
independent climate
risk analysis for 2020
p. 49 Climate risk analysis
Derwent London plc Report & Accounts 2020 Strategic report
47
Our 7 ESG priorities
Our Responsibility Policy and Strategy
(available on our website) set out what
being a responsible business means to
us, coupled with clear guiding principles
and seven long-term priorities which are
fundamental to our business and the
needs of our stakeholders, these being:
assets responsibly
and for our wider stakeholders
Designing and delivering
buildings responsibly
1
2 Managing our
3 Creating value in the community
4 Setting the highest standards
5 Engaging and developing
6 Protecting
7 Setting the highest standards
of corporate governance
of health and safety
our employees
human rights
What ESG means to us
We believe that operating a strong, successful business can
only be possible if there is clear recognition, understanding and
management of the environmental, social and governance (ESG)
issues that are important to both our stakeholders and our business.
For us this means incorporating ESG aspects into our business
strategy (see page 32), decision-making and management approach
to ensure we continue to operate a successful long-term business.
This forward thinking, more holistic perspective enables better
long-term thinking, reduces risk and maximises value for our
stakeholders.
ESG reporting
Robust performance monitoring and reporting underpins our
approach to managing ESG risks and opportunities. It is vital
that we are capable of accurately measuring our performance
and that our data is detailed, relevant and transparently reported.
Our environmental, green finance, and health and safety data is
all subject to ‘reasonable assurance’ verification by Deloitte LLP, as
determined by the ISAE 3000 (revised). The assurance statements
are published in our latest Responsibility Report, which is available
to download on our website.
The Group reports under several frameworks to provide a complete
picture of our responsibility progress and activities (see page 149)
and to allow comparison with our peers and other companies.
An overview of our ESG data and reporting outputs is available
on pages 58 to 62.
p. 58 Non-financial reporting
Our latest Responsibility Report is available to download on our website:
www.derwentlondon.com/responsibility
2020 Ratings
• GRESB (Global Real Estate
Sustainability Benchmark)
2020 – score of 80,
Greenstar status
• CDP 2020 – B rating
DISCLOSURE INSIGHT ACTION
• ISS Oekom – Prime status
• MSCI – A rating
• EPRA Sustainability
Reporting Awards 2020
– Gold award
48
Responsibility continued
Environment
We ensure our investment portfolio and
development pipeline incorporate the right
environmental management and resilience
measures to mitigate any potential
negative impacts of climate change.
Climate resilience
What it means to us
Ensuring our investment portfolio and development pipeline
incorporate the right resilience measures to mitigate any potential
negative impacts of climate change is important to us. It is a material
risk for our business, and we invest significant management time
and effort into ensuring we are managing the risks it presents
appropriately.
Our commitment
As part of our net zero carbon ambition, we are committed to
understanding the climate-related risks associated with our
business. This means analysing how our portfolio could be affected
by shifting climate conditions and ensuring we are prepared for the
move towards a new low-carbon economy.
We adopt the use of the Task Force for Climate-related Financial
Disclosures (TCFD) recommendations and reporting framework,
to describe our approach to managing climate-related risks and
our plans to deal with them (see pages 60 and 61).
To complement our extensive work in this area, during 2020, we
commissioned Willis Towers Watson to perform a detailed business-
wide climate risk analysis (looking at both physical and transition
risks). By assessing various scenarios, and the potential impacts,
we can ensure our management and business strategy is relevant,
robust and effective (see page 49).
During 2020, we set our ambition to become a net zero carbon
business by 2030 – 20 years earlier than our previous target date
of 2050. We were also the first UK property company to release a
detailed pathway to net zero carbon, aligned to the Better Buildings
Partnership (BBP) Net Zero Carbon Framework and in response to
our signing of their Climate Change Commitment.
As part of this commitment, we are required to report on our annual
progress and the steps we are taking along our pathway to achieve
our net zero carbon ambition. We have set out below a brief outline
of our progress during the year. A more detailed review, including
disclosures on the energy performance of our portfolio, can be
found in our latest Responsibility Report available on our website.
2020 Progress
Although we only released our pathway in July 2020, we have
started to make good progress in implementing it across our
business.
Developments
Commitment – New developments and major refurbishments
are to be net zero carbon on completion. They will be designed to
operate using renewable energy, the embodied carbon produced
in the development process will be offset, and they will have in
place appropriate energy reduction targets to reduce operational
energy consumption.
Progress – 80 Charlotte Street W1, completed in June 2020,
serves as an important blueprint for future schemes. It is our first
all electric building, with the heating and cooling needs supplied
by air source heat pumps. In addition, the building is powered by
renewable REGO-backed electricity and the embodied carbon
associated with its construction has been offset – see below for
further details.
Investment portfolio
Commitment – Our investment portfolio comprising both
managed and unmanaged properties will be operated on a net
zero carbon basis by 2030. This will involve driving down our
energy consumption significantly, upgrading and retrofitting
some of our properties to remove gas use and improve efficiency,
and proactive engagement and collaboration with our occupiers.
Progress – Our Net Zero Carbon Committee connects our
various business departments around a comprehensive action
plan. The interconnected nature of the plan requires multiple
departments to work together on individual actions. A
comprehensive review of our progress can be found in our latest
Responsibility Report.
Corporate activities
Renewable energy
Commitment – Ultimately our ambition is to ensure that all the
energy we procure is from renewable sources i.e. both electricity
and gas.
Progress – We continue to procure 100% renewable, REGO-
backed electricity. To date, 1% of our gas supplies are from green
gas sources and we are reviewing how this could be increased.
We continue to investigate renewable energy generation
opportunities that are available to us on our Scottish estate to
reduce our market-based dependency.
Offsetting
Commitment – Where we are unable to manage out or eliminate
carbon from our business activities, these emissions will be
offset using robust, verified schemes.
Progress – During 2020 we reviewed the offsetting market and
appointed Natural Capital Partners (specialists in climate
finance and carbon neutrality) as our provider. We have offset
the embodied carbon associated with our 80 Charlotte Street
development. This totalled 19,790 tCO2e (cradle to completed
construction, A1-A5). We purchased offsets from a community
reforestation project in East Africa which is validated under VCS
(Verified Carbon Standard) and CCB (Climate, Community and
Biodiversity) standards.
For a more detailed breakdown of our progress, see our Responsibility
Report on our website
Derwent London plc Report & Accounts 2020 Strategic report
49
Climate risk analysis
During 2020 we engaged Willis Towers Watson to assist us with
investigating the climate-related transition and physical risks
which might impact on our business, and to help us to ensure
we are focusing our management efforts in the right areas to
remain resilient.
The analysis looked at risks in different climate scenarios, in
this instance a 2°C and 4°C scenario i.e. a best case and worst
case, respectively. This ensured we were stress testing our
business appropriately.
The scenarios used were:
1.
Intergovernmental Panel on Climate Change (IPCC)
Representative Concentration Pathway (RCP) 2.6 – this
assumes a high likelihood that global temperatures will
not generally exceed 2°C over pre-industrial levels by the
end of this century.
2.
IPCC RCP 8.5 – this assumes that the climate will increase
in temperature by up to 4°C by 2100.
Through a series of risk workshops and extensive modelling, the results of the assessments showed the following:
2°C scenario transition risks
There were a range of transition risks identified across three
principal areas:
Policy and legal
• Pricing of GHG emissions
• Energy Performance Certificate (EPC) rating requirements
• Emissions offset
• Planning approval changes
• Climate change litigation
• Enhanced emissions reporting obligations
Market
• Change in customer demands
• Cost of debt
• Increased cost of raw materials
Reputation
• Investment risk
Although these pose a clear risk to our business, after applying the
mitigation measures already captured within the scope of our Net
Zero Carbon Pathway, very few of these risks showed a residual
impact. The transition risks which did, included:
• EPC rating requirements – tougher minimum energy efficiency
standards are likely to be introduced by 2030 which could
demand additional investment upgrades in our portfolio to
ensure compliance.
• Cost of raw materials – climate change could affect the input
costs to produce traditional development related materials or
building services e.g. energy or water. Utilising more innovative
low carbon materials could allow us to mitigate some of the
potential impacts this risk might pose.
• Emissions offset – the cost of high quality carbon offsetting
is likely to continue to rise due to supply constraints. Through
the combination of our energy/carbon reduction efforts and
investment in our portfolio, we should be able to reduce
our reliance on offsetting and our subsequent exposure to
adverse costs.
2°C scenario physical risks
The physical risks were identified across two types:
Chronic
• Heat stress
• Subsidence
• Coastal flooding and sea level rise
Acute
• Flooding
• Storms
• Infrastructure
Assessing these risks within a 2°C scenario showed overall that
our physical climate risk was deemed not to be significant.
However, in this scenario, one risk was assessed as still having
residual significance:
• Storms – many of our buildings could be exposed to windstorm
damage especially during the winter season. This will mean we
need to ensure we have the right protection features in place to
protect our building facades.
Whilst storms showed the most residual risk, heat stress,
subsidence and infrastructure also had a level of ‘possible risk’
within this scenario but were restricted due to the lower
temperature increases forecast in this scenario.
4°C scenario physical risks
Looking at the same risks under a 4°C scenario, the risk profile
changed with one risk in particular presenting itself as high risk:
• Heat stress – hotter summers under a 4°C world (10-20 days of
London being in a heatwave) will have an impact on our business,
by increasing cooling demands and subsequently increasing
energy consumption in our buildings and additional maintenance
stress and costs.
Moreover, storms, flooding, subsidence and infrastructure also
become significant risks.
We have not mapped the transition risk under a 4°C scenario as the
business has chosen a transition pathway which is aligned to 1.5°C.
Whilst it is obvious that a warmer climate will have a greater impact
on our business, we believe that our net zero carbon ambition will
ensure we are identifying and acting on these appropriately and
working towards becoming resilient to their effects.
50
Responsibility continued
Social
Our people
We aim to attract, inspire and engage
a talented and diverse workforce,
one that flourishes and is proud to
work for Derwent London.
2020 Achievements
• Provided mental health awareness training for line managers
and created mental health champions
• Promoted individual wellbeing within a respectful, inclusive
and collaborative culture
• Launched second cohort of ‘Fit for the Future’ (FFTF)
programme
• Steering group reviewed results of the 2019 employee survey
Attracting and optimising talent
We recognise that our employees are essential to the delivery of
Derwent London’s strategy and to our long-term performance.
We aim to create a culture in which our talented and diverse
workforce can thrive.
Of our employees, 51.3% have more than five years’ service and
35.7% of external talent has joined over the past three years (see
page 129). This provides the business with the right level of continuity
and knowledge, balanced with fresh ideas, experience and skills.
We continue to invest significantly in our employees. There is a
comprehensive learning and development programme catering
to our employees’ behavioural and technical needs at all levels.
This programme includes our induction programme, a suite of core
skills training, internal technical workshops, mandatory compliance
training (see page 141), bespoke training for building managers, 360°
feedback and the FFTF programme.
Derwent London has a continuous feedback approach and
encourages regular performance conversations with line managers
throughout the year, in addition to formal reviews.
It is important for us to have a strong talent pipeline. We have regular
succession planning discussions, and these are supported by our
FFTF programme. To date, 29 employees have benefited, with a
further 26 employees enrolled for 2020/21. Each group is mentored
by a dedicated executive coach and sponsored by two members of
the Executive Committee. The latter are heavily involved in the design
and content of the modules which include personal development,
negotiation skills and collaboration. The modules are supplemented
with one-to-one and group coaching sessions.
93%
Employee retention rate
52:48
Male:Female ratio
Diversity and inclusion
We are a respectful employer that welcomes diversity and promotes
equality, tolerance and teamwork. It is important to us that we create
an inclusive workplace in which our people can bring their whole
selves to work, feel valued and able to make an impact. The Group’s
belief in ‘diversity of thought’ extends our conception of diversity
beyond the traditional facets of gender, ethnicity, age and sexual
orientation to include personality, communication and work styles.
We recognise that diversity enriches our creativity and adds value for
our stakeholders.
Derwent London has been working towards achieving the Hampton-
Alexander Review gender diversity targets for female representation
on its Board, Executive Committee and senior management teams. An
overview of our progress since January 2018 is provided on page 127.
To enable us to achieve our overarching aim of becoming a truly
inclusive company, we appointed a third employee to our Responsible
Business Committee (see page 147), established a new Diversity
and Inclusion Working Group, chaired by our CEO, and signed up to
working towards achieving the National Equality Standard during
2021 (see page 149). Ongoing activities to advance diversity include:
• Mandatory unconscious bias training for all employees
• Nurturing a culture of transparency and openness which
encourages people to raise any concerns and speak out about
bias or discrimination
• Review of our family friendly policies
• Working with recruitment agencies to provide gender-balanced
shortlists
• Continuing with Parental Transition Coaching for employees before,
during and when returning from an extended period of leave
• Attracting women into our industry through work experience and
mentoring opportunities
Diversity and Inclusion Working Group
Vasiliki Arvaniti, Victor Ezimogho, Helen Joscelyne, Jay Joshi, Katy Levine, Maruf
Miah, Dupe Odunsi, Rosie Scott, Davina Stewart, Paul Williams and Vivian Wong
Derwent London plc Report & Accounts 2020 Employee engagement
An ‘open-door’ policy is part of our culture and encourages
interaction between employees and management.
This, together with a range of formal and informal
communication channels (see pages 26 and 115),
has helped create a highly engaged workforce.
A valuable method for us to gather feedback and assess
engagement is via our formal biennial employee survey.
The next survey is due to take place in October 2021. In the
meantime, we conducted a short survey in November 2020
and were delighted to achieve a 100% response rate which
we believe is a testament to the open culture we foster.
I am proud to work for Derwent London
Nov 2020
98%
Agreed
Oct 2019
96%
Agreed
I would recommend Derwent London
as a great place to work
Nov 2020
96%
Agreed
Oct 2019
89%
Agreed
Overall satisfaction with
working for Derwent London
Nov 2020
Oct 2019
96%
92%
Very Satisfied or Satisfied
Very Satisfied or Satisfied
The town halls have played a big part
in keeping the business abreast of
the Company’s performance,
showcasing other departments
whilst keeping it very personal.
A very supportive company that I am
proud to be working for.
I believe Derwent has gone above
and beyond to ensure the health
and wellbeing of employees.
51
Wellbeing
Safeguarding and supporting the health and wellbeing of our
employees is a core part of our HR strategy. We provide benefits,
services and support mechanisms to maintain and improve physical
and psychological wellbeing, whilst encouraging our employees to
take a more active role in their own wellbeing.
Our commitment to wellbeing has been central to how we have
supported employees through the pandemic. A Covid-19 Working
Group was established which focused on clear communication,
transparency and support. Our CEO has hosted fortnightly virtual
town hall meetings to offer support, reassurance and answer
questions from across the business, with presentations on our
activities from different teams.
During the initial lockdown in June, we asked employees, via a
questionnaire, how supported they felt whilst working from home.
The response rate was 93% and we received constructive feedback
on what was working well, any concerns and overall sentiment.
All respondents agreed that the Group provided clear guidance
in relation to its Covid-19 response and 95% agreed that their line
manager had been accessible, in regular contact and provided the
necessary support.
During periods when our employees were allowed to return to the
office, we provided Covid-19 antibody testing and an online session
to communicate the Covid-19 secure adaptations made to the office,
to ensure peace of mind and alleviate any anxiety.
This year, activities focused on resilience and all aspects of positive
wellbeing whether physical, psychological or financial, including:
• Mental health training for line managers, providing guidance in
having open conversations and being able to spot ‘early warning
signs’ in themselves and others
• Setting up a dedicated ‘lockdown link’ hub on our intranet
providing information on our benefit providers, employee
assistance programme, internal newsletters, seminars, health
and fitness and guidance about homeworking and home schooling
• Bespoke virtual yoga, Pilates, bootcamp and mindfulness classes
• Working closely with our occupational health provider in relation to
advice, referrals, pneumonia jabs and flu vouchers
• Social Committee events to build relationships in a fun, relaxed
environment whilst at home, including a fortnightly lockdown quiz
• Launch of an Invest@Work scheme providing an opportunity for
employees to save for their future
• Involvement with community projects and volunteering remotely
(see page 52)
Our November survey indicated that 97% of respondents felt that
we put appropriate, supportive protocols in place whilst working
from home and in the office during the Covid-19 pandemic.
Health assessments
We were delighted that 97% of respondents to our June Pulse
survey said that they agreed that health and wellbeing was a
priority for the Group. Following the initial lockdown, we worked
in partnership with a health and wellbeing specialist to offer
all employees the opportunity of signing up to an on-site 1-1
employee health check. Of our employees, 80% signed up and
received a same day health report with the aim of helping each
person make positive lifestyle changes and identify areas of
their health which could be improved.
p. 39 Our strategy - To attract, retain and develop talented employees
Strategic report 52
Responsibility continued
Social
Community, occupiers and
other stakeholders
We recognise our central role in ensuring
our buildings are an integral part of the
communities they sit within and that we
must constantly strive to create value and
opportunities wherever possible for local
neighbourhoods.
Enabling thriving communities
Our community engagement has at its heart the goal of supporting
local groups in the communities in which we operate and to ensure
that our business recognises its role within this. There are many
strands to our engagement to ensure maximum benefit to local
communities.
Financial support through our corporate giving and Community
Fund plays its part, however we place equal value on actively
supporting and being part of communities so we can make a real
impact. Employee volunteering, work experience opportunities
and opening our buildings up to their local communities have all
contributed to establishing and maintaining effective connections.
Over time, collaborative conversations with the organisations we
work with refresh our focus and ensure we address the aspirations
that communities have for everyone, increasing access to
opportunities and supporting long-term ambitions towards
empowering people.
p. 13 Supporting communities
2020 Highlights
• Established the first Derwent London architectural
scholarship at The Bartlett, University College London
• Focused on supporting the NHS and key workers
during lockdown
• Publication of socio-economic impact assessment of
White Collar Factory (see page 149)
• Provided remote volunteering support throughout the year
We are so incredibly grateful for
Derwent’s support – especially
through this particularly rough year.
Your financial support, but also your
kind voice at the end of emails, and
your desire to go above and beyond in
your support of our Senior Care, is
such an encouragement and joy to us.
Sarah Bennington, All Souls Clubhouse W1
Creating value in the community
Audience member at a relaxed performance of the West End production Mamma
Mia! (pre Covid-19) arranged by Mousetrap Theatre Projects. Derwent London’s
Community Fund provided core funding assistance during the 2020 lockdown.
Photo credit Alex Rumford
Themes
Local prosperity
Access to opportunities
Wellbeing
Empowering
communities
People
Neighbourhoods
Occupiers
Building and property
management teams
Employees
Outputs
Community Fund
Sponsorships and donations
Planning contributions
Volunteering/
pro bono contributions
Derwent London plc Report & Accounts 2020
Our Community Fund
Our Community Fund forms part of our ongoing sustainability
programme and commitment to developing engagement
with the local community, who we recognise as a key stakeholder.
The fund’s key priority is to support and create value in the
community. We support grassroot projects with a focus on
community events, environmental improvements, health and
wellbeing activities, music and culture and ongoing help for
disadvantaged groups. In 2020, the application guidelines were
relaxed to allow a wider group to apply for critical financial
assistance during the pandemic.
We remain steadfast to the original intention of the Community
Fund, first established in 2013 in Fitzrovia and in 2016 in the
Tech Belt: to help us engage effectively and to build strong
relationships with local groups. Over the years both funds have
enriched our knowledge of local areas and have opened up new
avenues for us to explore when responding to the needs of
community groups.
To date, over £750,000 has been given to over 110 projects.
During 2020 a total of £97,715 was awarded to 18 projects
across the two funds.
Corporate activities
Derwent London places great value on our relationships and the
support we give to communities through a number of activities.
Over the last five years the Sponsorship and Donations
Committee has approved over £1.03m of charitable donations
to good causes, with a further £500,000 of sponsorships.
In 2020 we continued our particular focus on mental health and
homelessness and funded the refurbishment of a counselling
room within The Soup Kitchen in Fitzrovia; a collaborative effort
alongside TTP on the build and AHMM as architects on a pro
bono basis.
Some of our Building Management team took part in LandAid’s
annual sleepout in February, braving what turned out to be one of
the coldest nights of the month to raise money towards LandAid’s
mission to end youth homelessness.
A team of building managers and property managers showed
their support for frontline workers and raised money for the
NHS Barts Charity by walking (virtually) from our London head
office to Glasgow (our furthest office) and back, 690 miles.
We also marked Mental Health Awareness Week in May across
the managed portfolio via positive daily Instagram posts and the
circulation of information sheets promoting good mental health
advice and signposting services to our occupiers.
Responsibility Report on our website
Community expenditure 2020
Sponsorships and donations
Community Fund
£540,000
£97,715
18
Community Fund projects across
Fitzrovia & West End and Tech Belt
69
Projects supported through
the Sponsorships and
Donations Committee
Strategic report
53
Collaboration with The Paddington Partnership
During lockdown many charities were faced with having to cancel
their volunteering programmes for the safety of everyone.
However, the need still remained for volunteers to ensure that
communities were supported on the ground.
The Paddington Partnership, an organisation Derwent London
has a long-standing relationship with, had also galvanised
themselves in the early stages of the pandemic to address the
urgent needs of the community and had worked tirelessly to
match donations of food, clothing and toiletries from businesses
to their community partners. Our employees were able to provide
their time to assist with video conference training for a school in
Paddington, marketing and website advice for a community centre,
phone calls to the elderly to reduce isolation and virtual career
talks to sixth form students.
Derwent London employees volunteering for The Great British September
Clean at Paddington Basin
The Derwent London Bartlett
Promise Scholarship
One of our major sponsorships starting in 2020 was a bursary
for a new MSci Architecture course at UCL’s Bartlett School of
Architecture, condensing the usual seven years course into five.
The Bartlett Promise scheme is aimed at under-represented
students and those from disadvantaged backgrounds, which
perfectly matches our desire to see greater diversity and inclusion
in the built environment professions. UCL believe that it is the only
initiative of its kind at an architecture school in the UK. Derwent
London’s contribution provides one student with a full fees and
living costs scholarship. This ensures that the lack of access to
funds is not an obstacle to accessing a university education.
‘Business as usual’ – still from a short film about climate change by Samuel
Jackson, beneficiary of Derwent London’s Bartlett Promise Scholarship
2020-2024 for their new MSci Architecture course
54
Responsibility continued
Social
Health and safety
Since the outbreak of the Covid-19
pandemic, we have been continually
adjusting our health and safety operations
as the situation unfolds, whilst continuing
to manage and mitigate risk in these
challenging times.
2020 Achievements
• Improved compliance reporting across all commercial and
residential sites
across all sites
• Completed enhanced third party slip testing programme
• Completed accessibility review across all sites
• Introduced online health and safety training
• Introduction and implementation of the ‘Derwent Way’,
Accessibility Audits and our internal Inclusive Design Guide
Why it matters
Our primary focus is the health, safety and wellbeing of our people,
tenants, residents, contractors and the public. The outbreak of the
Covid-19 pandemic and the ever-changing restrictions raised many
additional challenges. Our Health and Safety team has ensured the
Group continues to meet its health and safety requirements, whilst
continuing to manage and mitigate its risks. During 2020, we were
also able to further develop the team by setting out its foundations
and protocols for the future. These changes are now being promoted
across the Group and with external stakeholders.
Derwent London has developed a robust set of due diligence policies
and procedures, which are readily available and communicated to
our customers.
p. 101 Governance
The health, safety and wellbeing of our contractors is paramount –
The Featherstone Building EC1
Our approach to health and safety
The Derwent Way
The Derwent Way represents our health and safety approach. It
provides a suite of best practice procedures and explains our
inclusive health and safety culture to internal and external
stakeholders.
Our integrated approach to health, safety and wellbeing
ensures that it is considered at every stage during the life cycle
of our properties – from acquisition, through to development,
management, leasing and disposal. This requires working
collaboratively with our internal and external stakeholders to
design, build, maintain and operate our buildings using robust
working practices in order to ensure they are safe and healthy
environments to occupy.
Inclusive health and safety
Group
activities
Managed
portfolio
Construction
development
Mates in Mind (MIM)
During 2020 Derwent
London became a MIM
supporter and developed
the Derwent Way Health
and Wellbeing Standard,
which binds our contractors
to the MIM mental health
programme.
Why CLOCS?
Every year over 5,500
pedestrians, pedal cyclists
and motorcyclists in Britain
are killed or injured in
collisions, with construction
vehicles commonly involved.
Derwent London are a CLOCS
champion and committed
to demonstrating our
commitment to protection
of vulnerable road users,
from a client and contractor
perspective.
Derwent London plc Report & Accounts 2020 Health
For many years there has been a greater emphasis on safety
within the construction industry due to the immediacy of
incidents and accidents. This has led to a significant reduction in
the number of workplace incidents across the industry in general.
Our approach is to give health, both physical and mental, the same
prominence as safety so that occupational health-related matters
are also considered.
Mental health has become a major focus of our team during the
various lockdowns and there are currently 23 mental health first
aiders and numerous Mates in Mind champions within our projects.
This demonstrates the influence the Group can have on project
health, safety and wellbeing. We will continue to drive this in 2021.
Fire Safety Management System
Throughout 2020 we have worked hard to develop our Fire Safety
Management System in line with BS9997 and this is now ready for
external certification with implementation planned for 2021.
Managed portfolio
Following health and safety inspections of our commercial
properties within the managed portfolio in 2019, the Property
Management team has extended the compliance platform to
include residential properties. Further, as a part of a wider
compliance review, external slip testing and accessibility surveys
were carried out across our portfolio. The results of which are
assisting our contractors to ensure the safety and accessibility
of our buildings. We completed our workplace health and safety
reviews in-house this year and the results will enable us to improve
our standards further in 2021.
The Health and Safety team has supported the Property
Management team throughout the year to ensure that our buildings
and projects are being operated safely while minimising the risk of
spreading Covid-19.
Development
The Construction Leadership Council (CLC) was quick to respond
to the first lockdown and set up a Covid-19 Task Force, a panel of
industry experts, which included our Head of Health and Safety.
The outcome was the publication of Covid-19 Site Operating
Procedures by the CLC which we have implemented across all of
our construction sites, providing safe and healthy environments
for our contractors. 2020 was another busy development year, with
over 1m sq ft of projects either in concept, planning or construction
stage. This was made even more challenging by the lockdowns
and management issues caused by Covid-19. Our teams and the
entire supply chain, together with contractors, proved they were
up to the challenge. Throughout the year, we have maintained good
performance standards in what has been a very difficult period
(see page 62).
Health and safety on site
55
Between Derwent London, our contractors and external
consultants we have delivered:
Health and safety
briefings
Derwent Way briefings
Inductions
4,866
187
104
Leadership safety tours
Client monitoring
site visits
Toolbox talks
721
195
50
Site inspections
224
30
76
Safe start meetings
External health and
safety audits
Training
Ongoing training is important to ensure that we maintain the highest
level of health and safety standards and that awareness is raised
throughout the organisation. With Covid-19 restrictions in place
during 2020, we had to change the format of our health and safety
training and communication. Working with an external consultant,
we developed a suite of online training modules relevant to our sector
which have proven very popular and effective. We are proud to say
the team have worked hard to make them as interactive as possible,
which has produced excellent results. We also developed a new
compliance-focused health and safety training matrix which has
been rolled out to our Property Management and Development
teams. In addition, we have continued to enrol our people on external
courses, such as NEBOSH, IOSH and mental health first aid courses.
Collectively, 162 workdays of training was completed during 2020.
Priorities for 2021
• We will continue to set the tone and push the boundaries for health
and safety best practice
• Inspire visible leadership in health and safety
• Continue to raise awareness within our organisation and
supply chain
• Deliver safe, healthy and secure developments without incident
• Provide safe, healthy and secure places for our people,
customers and contractors to work, live, visit and relax
• Continue to emphasise the importance of physical and
mental health
As a responsible developer we have set high principles for health
and safety. Under the banner of the ‘Derwent Way’, we provide a
suite of best practice standards for our contractors which covers
topics such as working at height, asbestos, lead, fire, health and
wellbeing and design. The relevant standards now form part of our
contractual requirements. In line with our priority to ensure that
health is treated with equal importance as safety, we became a
Mates in Mind supporter in 2020.
Soho Place W1
Strategic report 56
Responsibility continued
Our ESG governance framework
Governance
At Derwent London, acting in a fair and
responsible manner is a core element
of our business practice.
2020 Highlights
• Responsible Business Committee approved the Net
Zero Carbon Pathway which was published in July 2020
(see page 28)
• Deloitte performed an independent assurance assessment
of our green financing arrangements
• Continued mandatory compliance training programme
for all employees (including Directors) which covered topics
such as fraud awareness, cyber security and competition law
(see page 141)
• HMRC confirmed our ‘low-risk’ tax rating status until 2022
A responsible business
The oversight of ESG matters is critical. It not only allows the
Board to understand more holistically the impact of its decisions
on key stakeholders and the environment, but also ensures it is
kept aware of any significant changes in the market. This includes
the identification of emerging trends and risks, which in turn can
be factored into its strategy discussions.
ESG is overseen principally by the Board, Responsible Business
Committee and Sustainability Committee (see our ESG governance
framework). Our Chief Executive, Paul Williams, is the designated
Director with overall accountability for ESG matters. He oversees
the review and performance of our responsibility work as chair of
the Sustainability Committee and as a member of the Responsible
Business Committee.
Additional governance disclosures
p. 104
The section
172(1) statement
p. 142 Anti-bribery and corruption
p. 116 Whistleblowing
p. 86
Tax risk
p. 141 Compliance training
The Board
Overall responsibility for ESG matters
Risk
Committee
Responsible Business
Committee
Identifies and evaluates
key ESG risks (principal
and emerging) ensuring
they are appropriately
managed
Monitors the Group’s
corporate responsibility,
sustainability and
stakeholder engagement
activities
p. 138 Report
p. 146 Report
Audit
Committee
Remuneration
Committee
Monitors assurance and
internal financial control
arrangements
Ensures ESG factors are
included in the executive
remuneration framework
p. 130 Report
p. 150 Report
Executive Committee
Responsible for overseeing the Group’s ESG initiatives
Sustainability
Committee
Health and Safety
Committee
Responsible for
implementing the Board’s
ESG strategy
Responsible for
monitoring health and
safety management
and performance
Sponsorship and
Donations Committee
Social
Committee
Responsible for
the Group’s charitable
activities and donations
Aims to encourage
teamworking and
collaboration between
departments through
social activities
Derwent London plc Report & Accounts 2020 57
Supply chain governance
It is important to us that our suppliers and construction
partners operate ethically and share our ESG business principles.
Our development projects can span several years and impact upon
numerous stakeholders and the environment. It is therefore critical
that we carefully chose and manage our development relationships.
Our supply chain governance procedures ensure our suppliers are
aware of the standards we expect from them and the business
practices which we will not tolerate. All suppliers with whom we
spend more than £20,000 per annum are required to provide
evidence of how they are complying with our Supply Chain
Sustainability Standard (the 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 (see page 148 for further information).
Ensuring our payment practices are ethical is a key requirement in
governing our supply chain. This was of particular importance during
2020 due to the Covid-19 pandemic and its impact on businesses.
p. 135 Responsible payment practices
Protecting human rights
The protection of human rights and fundamental freedoms is one of
our key ESG priorities which we manage from an internal (within our
business) and external perspective (within our supply chain and our
relationships with contractors) (see page 149).
Based on our ongoing risk assessment, we continue to believe the risk of
any slavery or human trafficking in respect of our employees is low. The
risk assessment of our supply chain indicated the potential greatest risk
existed in the use of building contractors for our development schemes,
as their work involves the use of subcontractors. This risk also exists in
some of the companies that provide Derwent London with services such
as cleaning and security. We ensure all of these suppliers are aware of
the Modern Slavery Act 2015 and we require them to formally confirm
they are in compliance with the legislation. We monitor and cross-check
our supply chain, from procurement to delivery.
Tax governance
We take our obligations as a taxpayer seriously and focus on ensuring
that, across the wide range of taxes that we deal with, we have the
governance and risk management processes in place to allow us
to meet all our continuing tax obligations. The Board has overall
responsibility for our tax strategy, risk assessment and tax
compliance. Our statement of tax principles, which is approved by
the Board, is available on our website.
We have an open and transparent relationship with HMRC and
seek to anticipate any tax risks at an early stage, including clarifying
areas of uncertainty with HMRC as they become evident. We keep
HMRC informed of how our business is structured and respond to
all questions or requests promptly. Our Head of Tax also regularly
engages with HMRC via his roles with the Chartered Institute of Tax
and the British Property Federation to support consultations or to
seek legislative clarification in areas that could potentially impact
our business.
Climate change governance
The governance of climate change risk and opportunities is
ultimately the responsibility of the Board. However, day-to-day
management is delegated to the Executive Committee and senior
management.
In July 2020, the Board published its pathway to becoming net zero
carbon by 2030 (see pages 28 and 29). Our strategy and targets
for energy consumption and carbon emissions are set and monitored
by the Board. The Board and Executive Committee receive regular
updates and presentations on environmental and sustainability
performance from the Head of Sustainability.
Climate change governance
Sustainability Committee
Informs the Executive Committee and Responsible
Business Committee on climate risk and appropriate
management measures taken
Sustainability Team
Develops and implements appropriate management
measures across the business and identifies climate risk to
inform the risk management process
Climate change progress and accountability
The Board monitors the Group’s progress through our science-
based targets, which were independently validated and approved
by the Science-Based Target initiative (SBTi) in 2019. In addition,
performance is externally assured by Deloitte LLP and our 2020
Scope 1, 2 and 3 GHG emissions data, intensity ratio and energy
data received ‘Public Reasonable Assurance’. A risk analysis of
climate change over the next 10 years was performed by Willis
Towers Watson; the results of which will be presented to the Risk
Committee in 2021 (see page 49).
We report under several frameworks to provide a complete
picture of our progress and activities and to allow comparison with
our peers and other companies (see pages 58 to 62 and 149).
Our sustainability work has drawn external recognition. We maintain
Greenstar status in the Global Real Estate Sustainability Benchmark
(GRESB) index with a score of 80, we are listed in the FTSE4Good
index and maintain our CDP rating of Management B.
p. 62 SECR disclosure
Green finance governance
Our Green Finance Framework allows us to clearly link our financing
to the environmental benefits our activities generate. Our Green
Finance Framework received independent assurance from Deloitte
that it is aligned with the Loan Market Association’s Extended Green
Loan Principles from December 2018 and the complete assurance
statement is available on our website. Further information on our
Green Finance Framework is on page 79.
Strategic report 58
Responsibility continued
ESG data and
reporting frameworks
New for this year, we have consolidated our
ESG data and our disclosures with the wide
range of reporting frameworks and indices
which are important to our stakeholders.
To enable our stakeholders to get a rounded view of our ESG
approach we align our reporting outputs with several recognised
reporting frameworks, such as the EPRA Best Practice Reporting
measures (both financial and sustainability), the United Nations
Sustainable Development Goals (UNSDGs), and the Task Force on
Climate-related Financial Disclosures (TCFD). In addition to the
summaries presented here, we also provide detailed disclosures
in our annual Responsibility Report.
Tea Building E1
Non-financial reporting
As we have fewer than 500 employees, the Non-Financial Reporting requirements contained in the Companies Act 2006 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 table below.
Our key policies and standards
Additional information
Environmental
matters
Social and employee aspects
Respect for human rights
Anti-corruption and
bribery issues
• Responsibility Policy
• Our target to be net zero carbon by 2030
• Science-based carbon targets
• Task Force on Climate-related Financial Disclosures
• Streamlined Energy and Carbon Reporting (SECR)
disclosure
• Volunteering Policy
• Equal Opportunities and Diversity Policy
• Professional Development and Training
• Shared Parental Leave
• Flexible Working Policy
• Individual Rights Policy
• Health and Safety Policy Statement
• Supply Chain Sustainability Standard
• Modern Slavery Statement
• Anti-bribery Policy
• Whistleblowing Policy
• Expenses Policy
• Money Laundering and Terrorist Financing Policy
• Preventing facilitation of Tax Evasion Policy
• Annual Responsibility Report (see our website)
• Net zero carbon strategy (see page 28)
• Climate change governance (see page 57) and risk
management (see pages 96 and 97)
• Executive Directors’ annual bonus (see page 161)
• Our Community Fund (see page 53)
• Our people (see pages 50 and 51)
• Diversity and inclusion (see pages 50 and 127)
• Health and safety (see page 54)
• Human rights and modern slavery (see pages 57
and 149)
• Supply Chain Sustainability Standard (see page 148)
• Audit Committee report (see pages 130 to 137)
• Risk Committee report (see pages 138 to 145)
• Our principal risks (see pages 84 to 99)
• Compliance training (see page 141)
Derwent London plc Report & Accounts 2020 59
UNSDG disclosures
The United Nations Sustainable Development Goals (UNSDGs) are an international standard developed to support global change and
sustainable growth. We believe that we have a part to play in supporting the UK in responding to this standard and helping to effect change
in London – the primary focus of our business operations and a major international city.
We have reviewed the suite of 17 goals and have selected those goals which align most closely to our ESG priorities.
Additional disclosures
Set out in the table below is a summary of our progress against the goals which are particularly significant to our business.
Our ESG priority
UN Goal
Applicable
target
Applicable
indicator
Our efforts
Creating value in the
community and for our
wider stakeholders
4.4
4.4.1
4.a
4.a.1
Protecting human rights,
Engaging and developing
our employees
5.1
5.1.1
Designing and delivering
buildings responsibly,
Managing our assets
responsibly
Creating value in the
community and for our
wider stakeholders
Managing our assets
responsibly
Designing and delivering
buildings responsibly
and Managing our assets
responsibly
5.5
7.2
7.3
11.7
12.5
12.6
13.2
5.5.2
7.2.1
7.3.1
11.7.1
12.5.1
12.6.1
13.2.2
Through our Community Fund we invest in and support
youth and adult ICT education and skills training – both
technical and vocational. Examples of this include working
with The Young Coneys’ School for Grown Ups and their
project to upskill 7 to 13 year olds in interdisciplinary
digital and creative skills. Likewise, our work with
SoapBox Online and their Soundscapes project, which is
a multimedia project co-produced by socially excluded
young people, producing audio visual representations of
young people’s experience and impact of Covid-19.
Through our Community Fund we invest in and support
projects which look to upgrade and improve youth
education facilities. A recent example of this is the St Mary
Magdalene School library bus project, where we helped
the school create a well needed library space for pupils
and the community. The project involved refurbishing a
1970s double decker bus into a fun, creative, inspiring
space where pupils can read and learn.
Beyond any legislative requirement, we are active in
ensuring meaningful gender equality in our business.
Whether that is making sure our business structure is
representative or making sure our suppliers have the
same policies and approaches in their businesses.
Some of our recent work internally includes the
formation of a new Diversity and Inclusion Working
Group, unconscious bias training and starting our journey
towards achieving the National Equality Standard.
Within our business, 33% of women are in managerial
roles/positions.
We purchase 100% REGO-backed electricity which
supplies our buildings, and as part of our net zero carbon
programme we are looking at how we can procure
renewable gas supplies and incorporate higher levels of
on-site renewable energy generation.
As part of our science-based targets we have a specific
energy intensity target (see our latest Responsibility
Report), designed to help us improve our energy intensity.
We actively promote the inclusion of public spaces in and
around our buildings and ensure they are fully accessible
to those with disabilities. In addition, we are part of the
London Mayor’s Business Climate Leaders Group which
was set up to help London become a zero-carbon city
by 2030.
We have established a portfolio wide minimum recycling
target of 75% and a no waste to landfill policy.
We integrate comprehensive sustainability reporting
information into our company reporting cycles and
public reporting.
We have independently verified science-based carbon
targets which are set to a 2°C reduction scenario.
This means we are committed to reducing our
carbon emissions and making sure our portfolio
is climate resilient.
Strategic report 60
Responsibility continued
The Task Force on Climate-related Financial Disclosures (TCFD)
We have made disclosures in line with the TCFD recommendations since 2018 and have been continuously refining the quality of our reporting
to give our stakeholders a holistic view of our approach to climate risk. To further integrate our reporting, we have linked the relevant section of
our disclose to the relevant section of our report.
Governance
Describe the board’s oversight of
climate-related risks and
opportunities.
The Board has overall responsibility for ESG matters, in which climate related aspects are included. The Responsible
Business Committee, a principal committee of the main Board, monitors the management of our climate related risks and
opportunities, which is in turn informed by our Sustainability Committee. Both CEO, Paul Williams, and Head of
Sustainability, John Davies, provide regular updates to all of these committees on our climate related work and the
associated risks and opportunities. Data and performance dashboards are provided to the committees to provide oversight.
p. 101
Describe management’s role in
assessing and managing climate-
related risks and opportunities.
Paul Williams, CEO, is the main Board member with overall accountability for sustainability. In addition, he is chairman of the
Sustainability Committee and oversees the performance of our climate-related work. Data and performance dashboards
are provided to the committees to provide oversight. The Sustainability team, led by John Davies, has day-to-day
management responsibility of climate related issues.
Strategy
Describe the climate-related risks and
opportunities the organisation has
identified over the short, medium and
long-term.
Describe the impact of climate-related
risks and opportunities on the
organisation’s businesses, strategy
and financial planning.
Describe the resilience of the
organisation’s strategy, taking into
consideration different climate-
related scenarios, including a 2°C or
lower scenario.
p. 32
Short-term (0-5 years) – market shift in terms of stricter legislation e.g. the introduction in the UK of the potential new
minimum energy efficiency standards (MEES) for commercial and domestic property in response to the UK committing to
becoming net zero carbon by 2050.
Medium-term (5-10 years) – market demand from occupiers for buildings and spaces with higher levels of efficiency, climate
resilience and lower carbon footprints.
Long-term (15+ years) – changing climatic conditions in London, principally storm events and rising temperatures, and their
impact on our buildings.
As a central London focused real estate investment trust (REIT) we invest in, develop, and manage property in central
London and, as such, climate-related issues affect the way we develop new buildings and how we manage existing ones.
Recognising that climate change has an impact on our business and subsequently our stakeholders has led us to develop
our Net Zero Carbon Pathway and announce our ambition to be a net zero carbon business by 2030 (aligned to a 1.5°C
climate scenario) – to find out more please see our website. Our pathway covers the breadth of our business activities to
ensure we are reducing our carbon footprint and exposure to risk, examples include:
Developments – our Sustainability Framework for Developments ensures we are designing buildings to be resilient to
physical risks such as changes in future weather patterns by making them long life, flexible and less reliant on mechanical
cooling and free from fossil fuel use (i.e. all electric heating and cooling).
Financial planning (capital expenditure and allocation) – we are looking to develop our approach to carbon accounting so
that we can include the cost of carbon in our financial appraisals and forecasting, which will enable us to understand and
capture the cost of carbon in our new schemes and business activities.
Managing assets – our Sustainability Framework for Assets ensures we have Building Sustainability Plans in place for
each asset which sets out how we will reduce energy consumption/carbon emissions effectively.
Acquisitions – our business model is based on acquiring older buildings and improving them to add value. During the
acquisition process, we look to assess the true carbon cost of a potential purchase and how we can transition it to a net zero
carbon pathway, including the eventual adoption of carbon appraisals.
Access to capital – our Green Finance Framework has been specifically developed to allow us to link our finances to our net
zero carbon ambitions by setting out performance criteria and a governance framework which enable us to show the direct
link between the use of our debt facilities and our development and refurbishment activities. For further details please see
our website.
As mentioned above we recognise that climate change does have an impact on our business, and part of our strategic
evolution has been our commitment to becoming a net zero carbon business by 2030 so that we can transparently address
the transitional and physical risks and opportunities which apply to our business. This is in addition to our existing
science-based targets, which are already aligned to a 2°C scenario.
Our pathway sets out a clear plan on how we will transition towards becoming a net zero carbon business by:
• Reducing the energy consumption and improving the efficiency of our assets
• Increasing renewable energy procurement e.g. green gas procurement, self-generated energy managing the future
risk of higher energy costs
• Adopting carbon accounting to enable us to anticipate the future cost of carbon so we can inform our decision-making
• Reducing the embodied carbon associated with our development schemes
• For those carbon emissions we cannot eliminate we will offset using verified schemes which remove carbon from
the atmosphere
For more detail on our Net Zero Carbon Pathway please see our website.
Derwent London plc Report & Accounts 2020
61
p. 84
Each year senior managers from the various business functions report their key risks (which includes sustainability/climate
change related risks) to the Executive Committee. The risks are assessed by the Committee to understand their severity,
likelihood and the optimal controls and/or mitigation required. For more detail on our risk management process please
see pages 96 and 97 in this report.
During 2020 we engaged Willis Towers Watson to assist us with a deeper dive analysis of climate-related risk set across
different climate scenarios – namely 2°C and 4°C scenarios. Further insight into the outputs from this work can be found on
page 49 and in our annual Responsibility Report.
Risk management
Describe how processes for
identifying, assessing, and managing
climate-related risks are integrated
into the organisation’s overall risk
management.
2°C scenario – aligned with the 1IPCC’s RCP 2.6
Transition risk and opportunities
• Stricter carbon legislation – tougher minimum energy efficiency standards are likely to be introduced which could
require additional investment in our portfolio to ensure compliance.
• Change in occupier demands – by adopting our net zero carbon ambition we can demonstrate good competitive
advantage and be able to capitalise on the demand for lower carbon assets which meet the changing market.
• Pricing of GHG emissions – while the cost of carbon is likely to continue to rise, without investment in our portfolio this
could result in higher costs.
• Cost of raw materials – climate change could affect the input costs to produce traditional development related
materials, but utilising more innovative low carbon materials could allow us to mitigate some of the potential impacts
this risk might pose.
Physical risks
• Heat stress – whilst within this climate scenario, and coupled with our management approach, this is not a high risk
to our business, we remain vigilant to any increase in temperature and the effect it could have e.g. increased cooling
demands and subsequent increases in energy consumption.
• Subsidence – although not a significant risk to our business, in this scenario temperature increases in different
climate scenarios, coupled with increased rainfall or flooding, could affect some of our older properties.
• Critical infrastructure – water and energy utilities together with road transportation could see increased demand
due to the increased probability of hot spells and drier summers, which could cause disruption to our business.
4°C scenario – aligned with the 2IPCC’s RCP 8.5
Transition risk and opportunities
As a business we have chosen a transition pathway which is aligned to 1.5°C therefore we have not mapped the risks here
for a 4°C scenario.
Physical risks
• Heat stress – hotter summers (10-20 days of London being in a heatwave) will have an impact on our business, by
increasing cooling demands and subsequent increases in energy consumption in our buildings and maintenance
costs.
• Flooding – in this climate scenario flood defences such as the Thames Barrier could be placed under increased stress
which could lead to failures, albeit this would only possibly affect four of our properties. In addition, flash flood risk
could increase.
• Subsidence/critical infrastructure – in this climate scenario instances of subsidence and critical infrastructure
disruption are likely to be more probable over the 2°C scenario.
Metrics and targets
Disclose the metrics used by the
organisation to assess climate-related
risks and opportunities in line with its
strategy and risk management
process.
Disclose Scope 1, Scope 2, and, if
appropriate, Scope 3 greenhouse gas
(GHG) emissions, and the related risks.
To enable our stakeholders to understand our impact and subsequent performance we report an extensive range of
consumption and intensity metrics relating to energy, carbon, waste and water in our annual Responsibility Report.
p. 45
We provide comprehensive disclosure of our Scope 1, 2 and 3 emissions in our Streamlined Energy and Carbon Reporting
(SECR) on page 62 in addition to the detailed energy and carbon data reporting in our annual Responsibility Report.
Describe the targets used by the
organisation to manage climate-
related risks and opportunities and
performance against targets.
We have developed a set of science-based targets which have been approved by the Science-Based Targets Initiative
(SBTi). These targets align our carbon reduction programme with our business activities and minimise the effects
of climate change on our managed portfolio. Please see our annual Responsibility Report for further details on our
science-based targets.
1
2
Intergovernmental Panel on Climate Change (IPCC) Representative Concentration Pathway (RCP) 2.6 assumes a high likelihood that global temperatures will not generally
exceed 2°C over pre-industrial levels by the end of this century.
Intergovernmental Panel on Climate Change (IPCC) Representative Concentration Pathway (RCP) 8.5 assumes that the climate will increase in temperature by up to 4°C by 2100.
Strategic report
62
Responsibility continued
Streamlined Energy and Carbon Reporting
(SECR) disclosure
In line with the SECR regulations, we present below our disclosure
which is comprised of our carbon footprint presented across Scopes
1, 2 and 3, together with an appropriate intensity metric – tCO2e/m2,
and our total energy use (kWh) from electricity, gas and biomass use.
Energy efficiency actions
Our focus on energy efficiency in 2020 was impacted by Covid-19
which required us to introduce different operating procedures for
ventilation and air conditioning in our buildings. To ensure a safe
working environment for our occupiers and building staff, we
increased the amount of fresh air intake to 100%, with no recirculated
air, and enhanced the air filtration to provide an added layer of
protection. During the year we have been able to collaborate with our
occupiers to deploy localised strategies, using our BMS systems to
divert services to active/occupied zones only. As a result, we saw a
significant reduction in energy consumption of over 23% in the period.
Some of the innovations and optimisation measures includes:
• BMS heath checks and time clock re-sets
• Ongoing LED/PIR rollout
• Reducing plant run time to collaborate with building occupancy
GHG and energy data
Total Scope 1
emissions (tCO2e)
Total Scope 2
emissions (tCO2e)
Total Scope 3
emissions (tCO2e)
Carbon intensity
ratio (tCO2e/m2)
Total energy use
(kWh of electricity,
gas and biomass use)
2020
3,326
2019
4,650
Difference
-28%
1,947
(location-
based)
0
(market-
based)
7,749
2,925
(location-
based)
0
(market-
based)
11,809
0.015
0.019
26,468,508
34,194,690
-33%
-34%
-22%
-23%
Data notes (reporting period 1 January to 31 December 2020)
Reporting
1 January to 31 December 2020
period
Boundary
(consolidation
approach)
Alignment
with financial
reporting
Operational control, based on our corporate activities
and managed property portfolio, all of which are
located in central London (UK).
The only variation is that our GHG emission/energy
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.
We arrange our GHG emissions reporting in line
with the Greenhouse Gas (GHG) Protocol Corporate
Accounting and Reporting Standard. For further
details on our data calculation methodology please
visit the data section of our annual Responsibility
Report.
DEFRA, 2020 - https://www.gov.uk/government/
collections/government-conversion-factors-for-
company-reporting for all emissions factors apart
from the Scope 2 market based factor which is based
on the provenance of our electricity supplies which are
from renewable sources.
We use the GHG Protocol Scope 3 Standard to collate
and report on our relevant Scope 3 emissions. Our
relevant emissions categories include fuel and energy
related activities, waste generated in operations,
business travel, water use and emissions from
downstream leased assets (tenant emissions).
Public reasonable assurance (using ISAE 3000) has
been provided by Deloitte LLP over all Scope 1, 2 and 3
GHG emissions data, intensity ratio and energy data.
Our assurance statement can be found in our annual
Responsibility Report.
Reporting
method
Emissions
factor source
Scope 3
emissions
Independent
assurance
For more analysis of our GHG emissions, energy consumption and
renewable energy generation, use and procurement please visit
the data section of our annual Responsibility Report.
Health and safety statistics
The table below details our key health and safety statistics and accident frequency rate (AFR) for 2019 and 2020. In addition, we also present
our AFR for our development projects, which has increased, for which there are a number of reasons. We brought the Client CDM monitoring
role in-house to ensure full visibility of our construction activities. We also now require contractors to provide monthly reports capturing our
data (for projects greater than four weeks). This data now allows us to identify trends and highlights where we should focus. A change in our
health and safety strategy, processes and behaviours has helped us make improvements for contractors on site.
Person hours worked
Employees
Managed portfolio
2020
n/a
2019
n/a
2020
n/a
2019
n/a
Developments
2020
2,204.499
2019
2,335.651
Minor accidents
RIDDORS
Dangerous occurrences
Fatalities
Improvement notices
Prohibition notices
RIDDOR (AFR)
Notes:
(i) Public reasonable assurance provided by Deloitte LLP over all minor accidents, RIDDORs, fatalities and improvement notices data. Our assurance statement can be found in our
46
6
0
0
0
0
2.72
10
0
0
0
0
0
n/a
1
0
0
0
0
0
n/a
48
5
0
0
0
0
n/a
7
0
0
0
0
0
n/a
34
2
0
0
0
0
0.08
annual Responsibility Report. This does not include Covid-19 events as there is no evidence that this is work-related.
(ii) RIDDOR Accident Frequency Rate = 2.72 (6 RIDDORS / 2,204,499 man hours)*1,000,000
Derwent London plc Report & Accounts 2020
ESG focus areas for 2021
Leadership commitment
As a responsible business, we balance
and manage our environmental, social
and governance (ESG) risks and
opportunities proactively, to add long-term
sustainable value to our business model
for the benefit of our stakeholders.
ESG is visible in our strategy, culture
and the design and management of our
buildings. Having issued our Net Zero
Carbon Pathway, we believe we are
playing an important role in improving
the performance and resilience of
London’s building stock and supporting
the UK in tackling the country’s overall
carbon footprint.
ESG will continue to rise in prominence,
as the UK focuses on confronting
climate change and as our stakeholders
demand sustainable workspaces.
We are confident that our early adoption
and understanding of the ESG issues
material to our business, provides us
with a solid foundation to further improve
the sustainability of our portfolio and
continue to deliver long-term value.
Paul Williams
Chief Executive
Strategic report
63
Environmental
• Continue to deliver our Net Zero Carbon Pathway
• Develop, refine and embed our approach to
carbon accounting
• Develop our net zero carbon tenant engagement plans
• Continue to research and assess the opportunities for
renewable energy generation on our Scottish estate
Social
People
• Continue with and conclude our second FFTF programme
• Conduct our full 4th employee survey in October 2021
• Work towards achieving the UK National Equality Standard
Community
• Continue to support equal access to higher education with
a bursary at Reading Real Estate Foundation
• Extend our Sponsorship and Donations commitment to
prioritising mental health and homeless organisations
• Focus on empowering local groups to effect the change
they want to see in their neighbourhoods through our
Community Fund
Health and Safety
• Progress our Fire Safety Management System ready
for third party accreditation
• Implement the requirements of the Fire Safety and
Building Safety Bills and integrate across the business
• Procure and embed improved compliance and e-permit
systems across the managed portfolio
• Focus on reducing RIDDORs across our development
projects
Governance
• Review the results of the UK National Equality Standard
assessment in Q1 2021
• Publish our 2021 Modern Slavery Statement and agree
focus areas to further strengthen our processes
• Host the Group’s first Stakeholder Day in 2021, subject
to no Covid-19 restrictions in H2 2021 (see page 114)
• Review the results of the climate change risk analysis
performed by Willis Towers Watson
64
Derwent London plc Report & Accounts 2020
Property review
Valuation .......................................................................65
Asset management
& investment activity ..............................................68
Development & refurbishment ..............................71
65
There was a deficit for the year of £178.5m, which after accounting
adjustments of £19.0m (see note 16), gives a reported deficit of
£197.5m. Underlying values decreased 3.0%, compared to a
3.9% uplift in 2019. However, we significantly outperformed our
benchmarks: the MSCI IPD Quarterly Index for Central London
Offices and the wider All UK Property Index which were down
5.6% and 6.6% respectively. The Royal Institution of Chartered
Surveyors relaxed the requirement to add uncertainty clauses
to central London office valuations, an obligation at the half year.
By location, our central London properties, which represent 99%
of the portfolio, dropped in value by 2.9% with the West End
down 3.3% and City Borders down 2.1%. Our Scottish holdings,
representing just 1% of the portfolio and principally retail,
declined 11.2%.
Using EPRA metrics, our rental values declined 2.8%, as a
subdued leasing market impacted rents. The relatively small retail
and hospitality element, 9% by income, was most affected, down
18.3% as London was in lockdown for much of the year. The office
portfolio was down a more modest 1.2%, with modern quality
product generally holding up well but the lesser quality buildings,
mainly those earmarked for redevelopment or major refurbishment,
more negatively impacted. By location, City Borders’ ERVs were
down 1.8%, more resilient than the West End down 3.3%.
The portfolio’s EPRA initial yield rose by 30bp to 3.7% which, after
allowing for the expiry of rent-frees and contractual uplifts, goes to
4.8% on a ‘topped-up’ basis, a 10bp increase over the year. Looking
at the true equivalent yield, this moved in marginally during the year
by 3bp from 4.77% to 4.74%. This now includes 80 Charlotte Street
following completion of the development in June. Given its quality,
size (10% of the portfolio) and long-term income stream, it had a
significant impact on the portfolio’s yield. If excluded, the portfolio’s
equivalent yield would be 4.80%, a 3bp expansion over the year.
This reflects weakening yields on the retail, shorter-term income
and leaseholds.
Our total property return of 0.3% compares favourably to the
MSCI IPD Index which delivered negative returns of -2.4% for
Central London Offices and -2.3% for UK All Property. This
outperformance came from the release of development surpluses,
the run-off of rent-free periods from earlier developments, such
as Brunel Building, which completed in 2019, and strong asset
management activity extending leases.
At the start of the year, we were on site with three major
developments, 80 Charlotte Street W1, Soho Place W1 and
The Featherstone Building EC1. These were valued at £848.3m
in December 2020 and delivered a 5.3% uplift as they progressed
and with further pre-let/forward sales commitments. Excluding
these developments, the underlying portfolio movement was down
4.4%. In June, 80 Charlotte Street, our largest development to date,
completed and was handed over to its occupiers, principally Arup
and Boston Consulting Group. There is only a small element of space
left to let and there has been good progress made on the disposal
of the apartments in this mixed-use development. This project has
delivered a profit on cost of 27%. The two developments currently
on-site, valued at £306.0m, represent 6% of the portfolio. This year
we will add our next major redevelopment project, 19-35 Baker
Street W1, to this category and more detail on this and other
projects can be found under ‘Development & Refurbishment’
on pages 71 to 73.
Valuation
The Group’s investment portfolio
was valued at £5.4bn as at
31 December 2020.
Nigel George
Executive Director
Total property return
%
15
10
5
0
(5)
2
.
0
1
0
.
8
1
.
7
4
.
7
0
.
6
3
.
5
0
.
6
9
.
2
5
.
6 3
.
2
1
.
4
2
.
1
3
.
0
)
4
.
2
(
)
3
.
2
(
(10)
2016
2017
2018
2019
2020
Derwent London
MSCI IPD UK All Property1
MSCI IPD Central London Offices1
1 Quarterly Index
Left: 19-35 Baker Street W1 – CGI
Strategic report
66
Valuation continued
Our contracted annualised cash rent at 31 December was
£189.2m. It increased 5.3% over the year, reflecting contracted
rental uplifts and development income from completions which
more than offset the impact of vacancies and the income lost from
disposals. The portfolio’s ERV of £291.2m includes £102.0m of
potential reversion. Looking at the increase in more detail, £58.0m
is contracted through rent-free periods and fixed uplifts, which
under IFRS accounting treatment is already mostly incorporated
in the income statement. Our on-site developments and major
refurbishments could add a further £33.2m to future income,
of which £17.0m or 51% is already pre-let. Despite the difficult
economic environment, our vacancy rate remains low at only 1.8%
(2019: 0.8%), representing £5.0m of reversion. The £5.8m balance
is from smaller refurbishments and future lease events.
True equivalent yield
%
7.5
7.0
6.5
6.0
5.5
5.0
4.5
15
(83)
(55)
(12)
(12)
(4) (3) (3) (3) (24)
5-year movement
+22 basis points
(26)
(29)
(17)
(4) 6
25 (4) (6) (3) 3
1
03
(3)
4.0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 2020
Valuation yields
Portfolio income potential
%
8
6
4
2
0
Rental income £m
350
Reversion %
120
280
210
140
70
96
72
48
24
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
0
2016
2017
2018
2019
2020
0
Derwent London True Equivalent Yield (TEY)
Derwent London Initial Yield
10-year Gilt
Gap between DL TEY and 10-year Gilt
Average gap (281 bp)
Contractual rent
Contractual rental uplifts (including pre-lets)
Available to occupy
Under refurbishment/development
Rent reviews and lease renewals
Reversion
Members of the Investment and Valuation teams
Rental value growth
Half-yearly rental value growth (%)
6
1
.
4
4
2
0
(2)
0
.
1
1
.
1
6
.
0
5
.
0
6
.
0
4
.
0
0
.
1
)
7
.
0
(
)
1
.
2
(
Jon Hall, Giles Sheehan, Vina Talwar, Lucy Taylor, Jonathan Theobald
and Tom Wade
H1 16 H2 16 H1 17 H2 17 H1 18 H2 18 H1 19 H2 19
H1 20 H2 20
Derwent London plc Report & Accounts 2020
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
67
West End
Central
Borders
City
Borders
Central London
Provincial
Total portfolio
3,013.6
475.4
3,489.0
1,789.8
5,278.8
76.7
5,355.5
5,475.2
56
9
65
34
99
1
100
100
(2.9)
(5.8)
(3.3)
(2.1)
(2.9)
(11.2)
(3.0)
3.9
2,553
546
3,099
1,668
4,767
343
5,110
5,333
51
8
59
106
165
4
169
53
2020
2019
48
0
48
6
54
0
54
10
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 249,000 sq ft pre-lets on developments
Letting 169,000 sq ft available floor area
Completion and letting 54,000 sq ft of refurbishments
Completion and letting 231,000 sq ft of developments
Anticipated rent review and lease renewal reversions
Portfolio reversion
Potential portfolio rental value
Portfolio statistics – rental income
106
0
106
125
231
0
231
240
Rental
uplift
£m
58.0
17.0
5.0
2.7
16.2
3.1
2,758
554
3,312
1,905
5,217
347
5,564
5,636
Rental
per annum
£m
189.2
102.0
291.2
West End
Central
Borders
City
Borders
Central London
Provincial
Total portfolio
2020
2019
Net
contracted
rental income
per annum
£m
Average
rental income
£ per sq ft
Vacant space
rental value
per annum
£m
Lease
reversion
per annum1
£m
Portfolio
estimated
rental value
per annum
£m
Average
unexpired
lease length2
Years
86.3
23.1
109.4
75.1
184.5
4.7
189.2
169.1
34.09
42.38
35.55
45.74
39.12
13.60
37.40
32.11
13.1
0.2
13.3
10.5
23.8
0.1
23.9
18.3
62.0
4.1
66.1
12.0
78.1
0.0
78.1
115.6
161.4
27.4
188.8
97.6
286.4
4.8
291.2
303.0
7.0
7.0
7.0
5.2
6.3
3.4
6.23
5.8
1 Contracted uplifts, rent reviews/lease renewal reversion and pre-lets
2 Lease length weighted by rental income at year end and assuming tenants break at first opportunity
3 7.9 years after adjusting for ‘topped-up’ rents and pre-lets
Strategic report 68
Asset
management
& investment
activity
We value our long-term and positive
relationships with our customers and this
has been particularly important for the
business over the last twelve months.
David Silverman
Executive Director
In the last few years we have invested in developing and upskilling
our Asset Management and Property Management teams as a key
point of contact with our customers. During 2020 they have been
working with our occupiers and we are delighted with the results
of this proactive engagement.
The initial focus has been very much on the health and safety at
our buildings, of the people that use them and their surroundings.
We assisted our occupiers returning to their offices in accordance
with the relevant guidelines. We have seen exceptional levels of
co-operation and collaboration which should further cement
our longer-term relationships. To help support all our customers,
we reduced our service charges by 25% for two quarters and we
achieved additional cost savings. We deferred or waived rents for
those most in need. The latter actions have been primarily focused
on the retail and hospitality sectors, which help, in normal times,
make the ground floors of our buildings such vibrant places.
We entered the year with limited space available and this, as well
as market conditions, meant that our new letting activity was
relatively low.
Letting activity 2020
Let
Area
sq ft
60,700
74,700
135,400
Includes short-term lettings at properties earmarked for redevelopment
Income
£m pa
2.6
4.1
6.7
H1
H2
2020
1
Performance against
Dec 19 ERV (%)
Open
market
20.2
0.0
6.0
Overall1
4.3
(3.7)
(0.8)
Our 2020 new letting activity totalled £6.7m which was 0.8% below
December 2019 ERV but, excluding short lettings, was 6.0% above.
The majority of the activity related to existing tenants demonstrating
the importance of long-standing relationships. TransferWise was our
most significant transaction, where as well as letting 17,250 sq ft we
extended the existing lease on 31,700 sq ft so that their occupation
has increased by 54%.
The bulk of last year’s asset management work focused on rent
reviews, renewals and regears. Our rent reviews saw a 9% uplift
over the previous rent. Major reviews included space at 1-2 Stephen
Street W1 and Turnmill EC1. At the beginning of the year, 10% of
our cash rent was due to expire in 2020 with a further 26% in 2021.
Many of these expiries related to potential developments, but we
have since opted to defer a couple of these through extensions and
re-lettings. This demonstrates the optionality within our portfolio.
We have also removed some tenant breaks to extend our income.
Asset management 2020
Area
’000 sq ft
192.0
251.0
Previous
rent
£m pa
11.2
10.9
New rent
£m pa
12.2
11.6
281.0
724.0
14.0
36.1
15.1
38.9
Uplift
%
9.3
6.0
7.5
7.6
New rent
vs Dec 19
ERV %
(1.0)
(11.7)
(0.9)
(4.4)
Rent reviews
Lease
renewals
Lease regears
Total
Of the 2020 expiries, 22% related to developments, and of the
remainder we retained or re-let 87%. This leaves 13% available which
contributed to the rise in the EPRA vacancy rate from 0.8% to 1.8%.
The other major contributor to the increase was at The White Chapel
Building E1 where the lease with Fotografiska was surrendered.
Derwent London plc Report & Accounts 2020 Principal lettings in 2020
Tenant
Property
Q1
80 Charlotte Street W1
Angel Building EC1
Q2
Tea Building E1
Q3
88-94 Tottenham Court Road W1 UCL
Soho Place W1
Q4
Tea Building E1
Tea Building E1
Apollo
Office
rent
£ psf
Total
annual rent
£m
Area
sq ft
13,100
6,550
Lee & Thompson
Expedia
70.001
40.302
Buckley Gray Yeoman
4,800
70.00
0.8
0.3
0.3
TransferWise
New Wave Capital
14,100
5,100
58.50
Confidential
0.8
Confidential
17,250
7,900
68,750
59.50
61.00
1.0
0.5
69
Lease
term
years
11
12.5
5
10
15
5
4
Lease
break
year
Rent-free
equivalent
months
–
5
–
5
–
–
–
26
9
9
12, plus 6 if no break
Confidential
13
2
1 £70 psf on ground, £47.50 psf on lower ground
2 Reception area now rentalised as offices let entirely to Expedia
Retaining occupiers – Lease expiry and break analysis
Average unexpired lease length
Percentage of income
Years
8
5
3
7
5
0
1
4
1
6
7
0
1
7
3
8
3
1
2
2
5
6
1
1
6
2
3
6
100
80
60
40
20
0
2016
2017
2018
2019
2020
8
6
4
2
0
Dec
2015
Jun
2016
Dec
2016
Jun
2017
Dec
2017
Jun
2018
Dec
2018
Jun
2019
Dec
2019
Jun
2020
Dec
2020
Retained
Vacant
Re-let
West End
City Borders
Central London
Members of the Leasing team
Members of the Asset Management team
Philippa Davies, Kane Lewis, Emma Lange
and Clare Stewart
Alice Basili, Rich Oliver, Lorna O’Neill, Elizabeth Preston, Charmaine Rees, Robert Selwyn,
Lucy Shillingford and William Waples
Strategic report
70
Asset management & investment activity continued
Significant progress was also made on our 2021 expiries so that
they fell from 26% of cash rent to 17% during the year ended
31 December 2020 and have since reduced further to 13%.
This included short-term lease extensions where we are keeping
buildings occupied prior to redevelopment such as 19-35 Baker
Street W1 and Holden House W1. We also extended a number of
leases so that 43% of our cash rent now expires after five years
compared to 30% one year ago. The latter included UCL at 88-94
Tottenham Court Road W1, City University at 88 Rosebery Avenue
EC1 and the Secretary of State at 401 St. John Street EC1.
We have made further progress in 2021 with Government Digital
Services committing to a further five years on one floor at The
White Chapel Building E1 and the completion of the disposal of
Johnson Building EC1 which had a number of leases expiring in
2021. However, we do expect to see our vacancy rise in 2021
reflecting the continuing economic uncertainty.
Investment activity
The Group’s strategy is to look to recycle assets with lower growth
potential while reinvesting the proceeds in our developments and
new acquisitions. During the year we sold one major property and
committed to sell two more. The disposal of 40 Chancery Lane WC2
was covered in last year’s Report and Accounts and we give more
detail of the disposal of 2 & 4 Soho Place W1 under ‘Development
& Refurbishment’ on page 71. In December 2020 we exchanged
contracts to dispose of Johnson Building EC1 for £170m, and that
disposal completed in January 2021. Johnson Building was one of
our first generation of refurbishments completed 15 years ago.
We completed one major acquisition in February 2020, Blue Star
House in Brixton SW9 for £38.1m before costs, which was covered
in the 2019 results.
Five-year vacancy trend
%
9
8
7
6
5
4
3
2
1
0
Dec
2015
Jun
2016
Dec
2016
Jun
2017
Dec
2017
Jun
2018
Dec
2018
Jun
2019
Dec
2019
Jun
2020
Dec
2020
Derwent London (by rental value)
CBRE Central London (by floor area)
Derwent London (by floor area)
Net investment
£m
400
300
200
100
0
(100)
(200)
(300)
(400)
(500)
Major disposals announced in 2020
Property
40 Chancery Lane WC2
80 Charlotte Street W1 – private residential
80 Charlotte Street W1 – affordable housing
Total (Completed)
Exchanged
2 & 4 Soho Place W1
Johnson Building EC1
Total (Exchanged)
Total
1 Office space
2 Net yield decreases to 2.5% after 40% of income expires in 2021
Major acquisition in 2020
Property
Blue Star House SW9
1 Rent on occupied office floorspace
2016
2017
2018
2019
2020
Capital expenditure
Disposals
Acquisitions
Date
Q1
Multiple
Q2
Q3
Q4
Area
sq ft1
103,700
16,050
9,470
129,220
18,4001
192,700
211,100
340,320
Gross
proceeds
£m1
121.3
29.7
2.5
153.5
40.5
170.0
210.5
364.0
Gross
proceeds
£ psf
1,170
1,850
270
1,190
2,200
880
1,000
1,070
Net yield to
purchaser
%
4.25
–
–
–
–
4.12
–
–
Rent
£m1
5.5
–
–
5.5
–
7.3
7.3
12.8
Date
Q1
Area
sq ft1
53,750
Total
cost
£m
38.1
Total
cost
£ psf
710
Net
yield
%
1.9
Net
rental
income
£m
0.8
Net
rental
income
£ psf
14.501
Derwent London plc Report & Accounts 2020
Development &
refurbishment
We continue to create modern and
adaptable spaces.
Simon Silver
Executive Director1
Completions and capital expenditure
‘000 sq ft
500
400
300
200
100
£m
250
200
150
100
50
0
2008
2010
2012
2014
2016
2018
2020
2022
Completions (‘000 sq ft)
Capital expenditure (£m)
Estimated capital expenditure (£m)
71
Office users are going through a period of accelerated
transformation and are increasingly aware of climate change.
Covid-19 initially brought some delays, pushing completions out
up to 3 months but our on-site projects are performing to the
revised timetable.
In June 2020, we completed our first net zero carbon development at
80 Charlotte Street W1 totalling 377,000 sq ft. Our profit on cost for
this project was 27%. The offices, 85% of the total space, are fully let
with the tenants fitting out. The bulk of the building is let to Arup and
the Boston Consulting Group for twenty years and at least twelve
years, respectively. We have sold 17 of the 22 apartments available
to sell at Asta House, and donated the use of 16 rental apartments
at 80 Charlotte Street to the NHS for one year. We offset the 19,790
tonnes of residual embodied carbon produced by the project in line
with our net zero carbon objectives. The offsets relate to a validated
community reforestation project in East Africa.
The Group has two large developments under construction.
Soho Place W1, comprising 285,000 sq ft, and The Featherstone
Building EC1, totalling 125,000 sq ft. Both are due to be completed
in the first half of 2022 and together are 61% pre-let or forward
sold with capital expenditure to complete of £189m.
During 2021 Apollo exercised its option to take additional space
at 1 Soho Place and we disposed of the long leasehold interest in
2 & 4 Soho Place, which comprises 18,400 sq ft of offices and a
theatre pre-let to Nimax. This forward sale will raise £40.5m for
the Group upon completion. As a result, the development is 87%
pre-let or forward sold, with 36,000 sq ft of retail remaining to be
let. While we are confident in the long-term attractions of this retail
location sitting over the Elizabeth line station at the junction of
Oxford Street and Charing Cross Road, we have lowered our retail
rental expectations to £3.5m which is in line with the market. The
overall profitability of the scheme has benefitted from the strong
performance of the larger office element.
The Featherstone Building has an ERV of £8.1m and is our largest
single letting exposure. This ‘long-life loose-fit’ space, next to our
successful White Collar Factory, has adopted many of the features
of its larger neighbour. These include concrete core cooling, opening
windows and generous 3.1m floor to ceiling heights. The development
will be net zero carbon, include ‘smart’ technology and wellness
certified. Our main marketing campaign is scheduled for later in
2021, but there is early letting interest.
We are committed to commence the development of 19-35 Baker
Street W1 in the second half of 2021. Contracts have been signed
to convert our 55% joint venture interest with the freeholder,
The Portman Estate, into a wholly owned 129-year lease on
the commercial element, paying an initial ground rent of 2.5%.
Our consideration for the enhanced interest is a mixture of
property and cash, which includes pre-selling to them the
retail and office space behind the new Baker Street building.
The scheme will comprise 217,000 sq ft offices, 28,000 sq ft
retail and 52,000 sq ft residential. The total capital expenditure is
estimated at £265m. As well as providing adaptable working spaces
with generous 3.1m floor to ceiling heights and significant natural
light, the office property will have all electric HVAC systems using
air source heat pumps, openable windows, energy sensors and
greywater harvesting. It will be our first NABERS UK certified scheme
which will confirm that the building meets a specific level of energy
performance in operation. In addition, we are creating new public
realm, which will run through the centre of the site.
1 Retired 26 February 2021
Strategic report 72
Development & refurbishment continued
In late 2020 we applied for planning consent to redevelop Network
Building W1. This project is targeting between 100-130,000 sq ft
depending on whether it will be used for Life Sciences or office use.
A decision is expected in H1 2021 and, if approved, work could start
in 2022 for completion in 2025.
In addition to our large schemes, we are continually working on a
number of smaller refurbishments. The two largest presently are:
6-8 Greencoat Place SW1 and Francis House SW1, both on site.
Together they total 70,000 sq ft and form part of our 223,600 sq ft
cluster of buildings. The refurbishment costs to complete are
estimated at £19m and include replacing the old gas boilers with
electric heating systems. This work will raise their EPC ratings
from E and C, respectively to B.
We have a further 1.7 million sq ft or 30% of the portfolio
earmarked for future development within our pipeline.
Area
sq ft
Capex to
complete
£m1
Comment
377,000
–
322,000 sq ft offices, 43,000 sq ft residential and
12,000 sq ft retail – 92% let/sold overall
285,000
1523
125,000
410,000
297,0002
150,000
130,000
280,000
987,000
37
189
265
–
–
–
454
209,000 sq ft offices, 36,000 sq ft retail and
40,000 sq ft theatre – 87% pre-let/pre-sold
110,000 sq ft offices, 13,000 sq ft workspaces
and 2,000 sq ft retail
Consented. 217,000 sq ft offices, 52,000 sq ft
residential and 28,000 sq ft retail
Consented. Office and retail scheme
Planning application submitted
Potential to increase floorspace from 70,000 sq ft
Major developments pipeline
Property
Projects completed in 2020
80 Charlotte Street W1
On-site projects completing H1 2022
Soho Place W1
The Featherstone Building EC1
Forthcoming projects completing 2025
19-35 Baker Street W1
Planning
Holden House W1
Network Building W1
Total (excluding completions)
1 As at 31 December 2020
2 Total area – Derwent London currently has a 55% share of the joint venture
3
Includes remaining site acquisition cost and profit share to Crossrail
Members of the Development team
Jo Benson, Tom French,
Caroline Haines,
Piers Harrop, Tim Hyman,
Benjamin Lesser,
Rebecca Lesser,
Matt Massey, Rosie Scott
and John Turner
Derwent London plc Report & Accounts 2020 Project summary – current projects
73
Property
On-site projects
Soho Place W11
The Featherstone Building EC1
6-8 Greencoat Place SW1
Francis House SW1
2021 projects
19-35 Baker Street W12
Planning and design
Other
Capitalised interest
Total
1
2
Current net
income
£m pa
Pre scheme
area
’000 sq ft
Proposed
area
’000 sq ft
2021
capex
£m
2022
capex
£m
2023+
capex
£m
Total capex
to complete
£m
Delivery
date
Current office
c.ERV
psf
–
–
–
–
–
3.4
3.4
–
–
3.4
–
3.4
107
69
32
40
248
143
391
–
–
391
–
391
285
125
32
38
480
297
777
–
–
777
–
777
74
32
5
11
122
16
138
2
31
171
13
184
78
5
–
3
86
43
129
1
12
142
4
146
–
–
–
–
–
206
206
–
5
211
15
226
152
37
5
14
208
265
473
3
48
524
32
556
H1 2022
H1 2022
H1 2021
H1 2022
£92.50
£70.00
£70.00
£65.00
H1 2025
£90.00
Includes remaining site acquisition cost and profit share to Crossrail
Includes 88-100 George Street, 30 Gloucester Place and 69-85 Blandford Street. Currently Derwent 55%, The Portman Estate 45%
Project summary – future projects
Property
Consented
Holden House W1
Under appraisal1
Angel Square EC1
Network Building W1
Bush House WC2
Blue Star House SW9
Other
Consented and under appraisal
On site and 2021 projects
Total
1 Areas proposed are estimated from initial studies
Current net
income
£m pa
Pre-scheme
area
’000 sq ft
Proposed
area
’000 sq ft
Earliest
possession
year
Comment
4.4
4.4
5.0
4.3
–
0.7
2.6
12.6
17.0
3.4
20.4
2025
2021
2022
TBC
2025
90
90
126
70
103
54
72
425
515
391
906
150
150
140
130
103
110
72
555
705
777
1,482
Refurbishment
Redevelopment
Refurbishment
Redevelopment
Principally 1 Oliver’s Yard EC1
Previous table
6-8 Greencoat Place SW1 – CGI
Strategic report 74
Finance review
After a year of considerable hardship
for many individuals, families,
institutions and employers and during
which our tenants have suffered from
unprecedented business disruption,
Derwent London has experienced its
first negative annual total return in over
a decade at -1.8% or -72p per share.
However, our business has proved
relatively resilient, our balance sheet and
liquidity remain very strong and we have
been able to provide financial and practical
help to our stakeholder groups
while paying an increased dividend.
Damian Wisniewski
Chief Financial Officer
Financial overview
The Covid-19 pandemic dominated the past year but 2020 was also
notable for an ever-increasing global awareness of climate change,
the long running trade negotiations between the UK and EU and, for
our sector in particular, a spotlight on the nature of office occupation.
The occupational market for London offices was impacted by these
factors with vacancy rates rising, ERVs under pressure and lease
incentives increasing. We have also been rebalancing the portfolio
with further disposals and a significant ongoing development
pipeline. Furthermore, our focus has shifted over the past year
to protecting income rather than capturing full reversion, and
extending leases rather than seeking maximum rental levels.
Against this background, the recent development completions at
Brunel Building and 80 Charlotte Street produced an increase in
gross rental income in the year. However, net rents and earnings
were impacted by impairments, waivers and write-offs and this
weaker occupational market has seen our property valuations
decline. Though partly offset by development activity and
continuing low yields, this has led to a 3.6% fall in total net assets.
The impact on operating cash flow in 2020 is also visible with
£14.5m of rents deferred to 2021 under agreed payment plans as
well as rent-free periods provided to those tenants most in need,
particularly in the retail and hospitality sectors. So far, we have
collected almost all these deferred amounts as they fall due and,
with the prospect of an improving economic background in the UK
through the rest of 2021, we anticipate that the operating cash flow
for 2021 should be correspondingly stronger than usual. However,
the property disposals made over the last year or so will have a
short-term impact on earnings until we are able to replace the
income with suitable new property acquisitions.
Strong relationships have also helped us extend, increase or
refinance our two revolving credit facilities, together totalling £550m.
Our leverage remains low and, though the impairments and waivers
booked have caused irrecoverable property costs to rise, interest
remains almost 4.5 times covered by net rents. As a result, the
Group is particularly well placed to benefit from opportunities
both within the existing portfolio and from potential acquisitions.
Each year, there is an increasing emphasis on environmental
matters within Derwent London. We have taken further steps in
2020 to understand and mitigate the impact of what we do upon
our environment now and in the future. As well as spending
£103.2m of our Green Finance on projects which meet our climate
change agenda, we have invested in carbon credits to support
green projects around the world and to offset the embodied
carbon in current and certain future projects. We have also
published our pathway to net zero carbon which includes a
commitment to carbon accounting.
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 Practices
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 39 and all the EPRA definitions are included on pages 248
and 249. For this year’s report, we have used the three new EPRA
net asset value measures and provided additional disclosures
relating to capital expenditure.
Derwent London plc Report & Accounts 2020 The Brexit trade negotiations rumbled on through most of the
year. An agreement was reached with the EU in December
2020 providing greater certainty in the future. We welcome this
while recognising the increased burden of compliance on some
businesses and the remaining areas still to be resolved such as
financial services.
Financial highlights
Total net asset
EPRA NTA per share
Property portfolio at fair value
Gross property and other income
Net rental income
IFRS (loss)/profit before tax
EPRA earnings per share (EPS)
Interim and final dividend per share
LTV ratio
NAV gearing
Net interest cover ratio
2020
3,812p
2019
£4,315.1m £4,476.9m
3,957p
£5,355.5m £5,475.2m
£230.3m
£178.0m
£280.6m
103.09p
72.45p
16.9%
21.9%
462%
£268.6m
£174.3m
(£83.0m)
99.19p
74.45p
18.4%
24.3%
446%
Property valuation decline reduces net asset value
Our business model is to drive income and create value through
property regeneration predominantly within the central London
office market. By creating modern and adaptable office space,
we aim to achieve long-term growth in earnings and dividends
with an important emphasis on our responsibilities as a business,
particularly with regard to our stakeholders and to climate change.
We believe that total return i.e. dividends paid plus net asset value
growth per share measured using the new EPRA net tangible assets
(NTA) measure, is the best single measure of our performance but
we also focus on our property returns, recurring earnings, dividend
cover and cash flow as well as a number of ESG metrics.
The main movements in EPRA NTA per share during the year
compared to 2019 are summarised in the adjacent chart. Though
earnings have been affected by additional irrecoverable costs
and the IFRS 9 impairments booked against receivable balances
(see page 76), the main feature of 2020 was the negative revaluation
movement of 176p per share compared to the positive 139p per
share in 2019:
75
Property portfolio
Our property portfolio was independently valued at £5.4bn as at
31 December 2020 allocated across the balance sheet as follows:
Investment property
Non-current asset held for sale
Owner-occupied property
Trading property
Property carrying value
Accrued income (non-current)
Accrued income (current)
Grossing up of headlease liabilities
Revaluation of trading property/other
Fair value of property portfolio
Dec 2020
£m
5,029.1
165.0
45.6
12.9
5,252.6
146.4
19.6
(66.5)
3.4
5,355.0
Dec 2019
£m
5,174.3
118.6
45.3
40.7
5,378.9
134.4
18.7
(59.5)
2.7
5,475.2
Total property additions during the year were £205.3m of which
capital expenditure represented £161.8m. This was about 28% lower
than anticipated a year ago, another impact of the lockdowns and
other restrictions which have affected construction sites. This may
partially reverse with higher capital expenditure in 2021 but we
expect overall programme extensions on our major schemes of about
one to three months. The principal acquisition was Blue Star House
SW9 in Brixton and the main disposal was 40 Chancery Lane WC2,
which completed in February 2020, plus 17 residential apartments
at Asta House W1. The latter were held as trading properties and the
success of the sales campaign is evidenced by the remaining
December 2020 balance of only £12.9m against £40.7m a year earlier.
EPRA net tangible assets per share
p
4,000
3,957
(176)
3,900
99
(73)
Opening EPRA NTA
Revaluation movement
Profit on disposals
EPRA earnings
Ordinary dividends paid
Redemption of 2019 convertible bonds
Issue of 2025 convertible bonds
Interest rate swap termination costs
Other
Closing EPRA NTA
2020
p
3,957
(176)
5
99
(73)
–
–
(2)
2
3,812
2019
p
3,775
139
14
103
(68)
(8)
7
(2)
(3)
3,957
3,800
3,700
y
r
a
u
n
a
J
1
n
o
i
t
a
u
a
v
e
R
l
–
–
–
3,812
5
l
a
s
o
p
s
i
d
n
o
t
i
f
o
r
P
i
s
g
n
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R
P
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2
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l
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(
2019
3,775
139
14
103
(68)
(8)
7
(5)
3,957
This has given rise to a 145p or 3.7% decrease in EPRA NTA per
share during the year. Adding back the dividends paid gave a
total return of -72p per share or -1.8%. As noted already, this is
the first time since 2009 that Derwent London’s total return has
been negative, reflecting the impact that the year’s events have
had on office occupation levels, vacancy rates and rental values.
Retail and restaurants make up c.9% of our portfolio by ERV but
the particular difficulties that these businesses have experienced
have also helped drive a substantial fall in retail values around
the portfolio.
Strategic report
76
Finance review continued
As noted earlier, commercial valuations have declined in 2020 with
a total revaluation deficit for the year of £195.7m after accounting
adjustments, £196.1m relating to the investment property portfolio
with a £0.4m surplus at our own offices at Savile Row. The latter
figure is shown in the Group Statement of Comprehensive Income.
The balance of unamortised legal and letting fees plus the
accrued income from the ‘straight-lining’ of rental income under
IFRS 16 to spread the effect of incentives over the lease terms has
increased to £166.0m (2019: £153.1m). This balance rises as income
is recognised through incentive periods and falls gradually once the
cash flows stabilise. This year, it also reflects £5.7m of impairments
booked in 2020 against these balances. We have performed a
thorough review of our top 83 tenants as well as analysing them
on a sector-by-sector basis. The nature of impairment testing is
judgemental and, with respect to long-term receivables under lease
commitments, requires us to estimate what may happen over many
years. It should be noted that future tenant failure has a potential
impact upon the recoverability of these balances. Our approach to
impairment testing is considered in more detail below.
The sale of Johnson Building EC1 had exchanged prior to the year
end with completion in January 2021 and this property has therefore
been reclassified as an ‘asset held for sale’.
The Baker Street properties, currently owned with The Portman
Estate, are consolidated within our investment property portfolio as
we hold 55% and have day-to-day control, but with a non-controlling
interest of £51.9m included within balance sheet ‘equity’. Later in
2021, we expect to acquire the remaining interest in the development
site at 19-35 Baker Street W1 while disposing of a number of the
other Baker Street properties.
Rent collection and impairment of receivables
Over the last few years, the Group has typically collected over
99% of its rent and service charge receivables from tenants
within two weeks of the due date, with negligible bad debts.
This pattern changed dramatically in early 2020 with the pandemic
and subsequent lockdown. The table below shows our rent collection
statistics quarter by quarter and means that we have now collected
92% of rents demanded for the 2020 rental year, with 5% still to
come on agreed deferred payment plans and 3% written off or
granted a rent-free period. The office collection rates are higher
at 94% collected plus 5% on agreed payment plans. However,
the tables illustrate the particular difficulties faced by our retail,
restaurant and leisure occupiers where we have provided
considerable support through waiving or deferring rents. In
addition, we granted a 25% service charge waiver across the
entire portfolio for the March to June and June to September
quarters in 2020 at a cost of £4.1m.
Because our rents are collected in advance, the impairment review
process also includes amounts outstanding relating to the first
quarter of 2021 but due on 25 December 2020. Rent collection for
the first quarter of 2021 was as follows:
Rent received to date
Due later in the quarter¹
Payment plans
Outstanding
Rent-free
Total
1 Principally monthly receipts
Dec 20 quarter
Retail/
Hospitality
54%
2%
0%
17%
27%
100%
£3.0m
Total
91%
0%
5%
2%
2%
100%
£44.1m
Office
93%
0%
5%
1%
1%
100%
£41.1m
Our portfolio in Scotland operates on the Scottish quarter days
and the figures are therefore not included in the tables above.
The Scottish estate, which consists of mainly retail properties, has
now collected 90% of 2020 rental income, with 3% deferred under
payment plans, 1% granted rent-free waivers and 6% outstanding.
The higher risks now associated with rent collection have led to
substantial impairments being booked against outstanding
receivable balances in 2020. Impairment reviews of trade receivables
and amounts due under the spreading of lease incentives have been
carried out using the expected credit loss model in accordance with
IFRS 9 for each of our 83 largest tenants, for others where we believe
the risk is greatest (such as retail, hospitality and leisure operators)
with the remaining balances considered according to their sector.
The result of this analysis, which has been carefully reviewed by
our management team and Audit Committee due to its judgemental
nature, was an impairment charge of £8.6m, split £2.9m for trade
receivables and £5.7m for IFRS 16 lease incentive receivables.
On top of that, receivables written off in 2020 were £1.2m and
service charge provisions were £0.3m. The resulting total cost of
impairments, write-offs and service charge waivers for 2020 was
£14.2m which is taken as a charge against earnings to arrive at net
rental income.
Note that, where rent-free periods have been granted under
existing leases, the cost of this additional incentive is then
required to be spread across the remaining lease term and therefore
subject to impairment testing as described above. This reduced
gross rental income in 2020 by £0.9m taking the total impact on
net rents to £15.1m.
2020 Rent collection
Rent received to date
Payment plans
Outstanding
Rent-free
Total
Dec 19 quarter
Mar 20 quarter
Jun 20 quarter
Sep 20 quarter
Office
100%
0%
0%
0%
100%
£38.0m
Retail/
Hospitality
100%
0%
0%
0%
100%
£3.7m
Office
92%
6%
0%
2%
100%
£38.8m
Retail/
Hospitality
34%
2%
4%
60%
100%
£3.8m
Office
91%
8%
0%
1%
100%
£39.5m
Retail/
Hospitality
48%
4%
7%
41%
100%
£3.7m
Office
94%
5%
0%
1%
100%
£41.7m
Retail/
Hospitality
71%
2%
9%
18%
100%
£3.3m
Derwent London plc Report & Accounts 2020 Property income and earnings
Gross property and other income increased to £268.6m from
£230.3m in 2019. This reflects a 5.8% increase in gross rental
income to £202.9m but has also seen £32.3m of sales of trading
properties from the apartments at Asta House included in 2020.
Surrender premiums and rights of light receipts added a further
£1.8m compared with £1.0m a year earlier. Much of the increase
in gross rents came from the completion of 80 Charlotte Street in
June 2020, adding £12.2m in 2020. Brunel Building, which completed
in mid 2019, also added £8.4m of rental income in 2020. With recent
lettings like this being subject to tenant incentives, the income
accrued in advance of cash receipts was £24.0m in 2020, compared
to £27.3m in 2019. Acquisitions added £0.7m but the increased rental
income from lettings was partly offset by £7.7m of rent lost from
property disposals in 2019 and 2020, additional void costs of £6.0m
and £0.9m recognised in 2020 from additional rent-free periods
provided to those tenants who needed support.
Gross rental income
3.6
(6.0)
20.6
(7.0)
191.7
Cost ratios
EPRA cost ratio, incl. direct vacancy costs
EPRA cost ratio, excl. direct vacancy costs
EPRA cost ratio, incl. direct vacancy costs
(without waivers and impairments)
EPRA cost ratio, excl. direct vacancy costs
(without waivers and impairments)
Portfolio cost ratio, incl. direct vacancy costs
2020
%
30.5
26.0
23.4
19.0
1.1
77
2019
%
23.9
22.5
23.9
22.5
0.8
After accounting adjustments for the straight-lining of incentives,
deferred legal and letting fees and grossing up of headlease
liabilities, the investment portfolio revaluation deficit was £196.1m
for the year compared with a surplus of £156.4m in 2019. The profit
on disposal of investment properties was £1.7m relating mainly to
40 Chancery Lane WC2 which completed in February 2020.
Due mainly to a £3.1m reduction in capitalised interest, finance costs
increased by £3.6m compared to 2019 to £30.3m. However, the prior
year included a £7.7m charge for the redemption of convertible bonds
so the total finance charges were £4.1m lower at £30.4m compared
to £34.5m in 2019. Interest rates fell again in 2020 giving rise to an
interest rate swap fair value deficit of £1.9m against £0.1m in 2019.
The resulting IFRS loss before tax for the year was £83.0m compared
to a profit before tax of £280.6m in 2019 and the IFRS loss per share
was 69.34p against earnings of 253.82p in 2019.
202.9
EPRA earnings, which exclude fair value movements and profits
on disposals of investment properties, fell by 3.6% to £111.0m
from £115.1m. EPRA earnings per share decreased by 3.8% to
99.2p from 103.1p in 2019. A table providing a reconciliation of the
IFRS results to EPRA earnings per share is included in note 39.
EPRA earnings
£m
220
210
200
190
180
170
r
a
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y
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P
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However, it is net rental income that illustrates the real impact of
Covid-19 on the business much more clearly. After booking £10.1m
of impairments or waivers against receivables and deducting the
£4.1m of service charge waivers referred to earlier, net rental income
fell to £174.3m from £178.0m in 2019, a 2.1% fall. We estimate that,
in the absence of Covid-19, net rental income would have grown by
approximately 6%.
Administrative expenses increased by 2.2% to £37.8m against a
12% increase in headcount compared with 2019. The business has
needed additional resource in such areas as corporate responsibility,
sustainability, property management and health and safety and
many of our people have worked considerably longer hours in 2020
than we would like. This is partly due to the inefficiencies of remote
working for a collaborative business such as ours and partly due to
the extra time and support given to occupiers this year. Our wellness
programmes and other support for our staff have also had cost
implications. As before, we do not capitalise any of our overheads.
The EPRA cost ratio reflects all the irrecoverable property costs,
impairment amounts and overheads and has therefore increased
substantially. Including direct vacancy costs, it rose to 30.5% from
23.9% in 2019. If the impairments and service charge waivers are
excluded, the 2020 cost ratio would have been 23.4%.
£m
250
200
150
100
50
0
202.9
(14.2)
5.3
(14.4)
(37.8)
(30.1)
0.6
(1.3)
111.0
e
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2019 191.7
–
4.6
(13.7)
(37.0)
(26.5)
(2.0)
(2.0)
115.1
Strategic report
78
Finance review continued
EPRA like-for-like rental income
The EPRA like-for-like gross rental income fell by 0.9% mainly
because of a slightly higher vacancy rate and our focus on extending
income rather than maximising rental levels. The income from new
lettings at 80 Charlotte Street is also excluded from these figures.
After impairments and other costs, EPRA like-for-like net rental
income fell by 9.8%.
EPRA like-for-like rental income
(Decrease)/increase based on gross rental
income
(Decrease)/increase based on net rental
income
Decrease based on net property income
2020
%
(0.9)
(9.8)
(8.9)
2019
%
4.4
4.7
(7.2)
Taxation
The corporation tax charge for the year ended 31 December 2020
was £0.2m. Most of our portfolio is within the REIT regime but this
charge relates to the Portman joint venture interests held outside the
REIT.
The movement in deferred tax for the year was a credit of £0.7m,
(2019: £0.6m credit); a £1.0m credit was taken through the income
statement mainly due to the release of overage from a property
previously disposed of, £0.4m was credited in respect of future
defined benefit pension liabilities and £0.6m was credited through
the income statement in relation to employee share schemes. In
addition, £1.3m was charged through retained earnings in relation
to future tax deductions for equity-settled share-based payments,
effectively reversing out the 2019 gains.
As well as other taxation paid during the year, in accordance with
our status as a REIT, £8.2m of tax was paid to HMRC relating to tax
withheld from shareholders on property income distributions (PIDs).
Derwent London’s principles of good governance extend to a
responsible approach to tax. Our statement of tax principles is
available on our website www.derwentlondon.com/investors/
governance/tax-principles and is approved by the Board in line with
the Group’s long-term values, culture and strategy. We have also
provided more information on our tax governance and risk
management on pages 57 and 140, respectively.
Borrowings, net debt and cash flow
Net debt rose 7% over the year to £1.05bn at 31 December 2020 but
remains at modest levels with a year end loan-to-value ratio (LTV) of
18.4%. The sale of Johnson Building in early January 2021 reduced
this further to a pro forma level of c.15.8% LTV. Group borrowings at
the 2020 year end were £1.03bn and, with leverage at this level, our
balance sheet remains as strong as ever. As a result, we would be
comfortable adding further debt to our capital structure if we can
find suitable acquisition opportunities and are in a position to move
quickly should we need to. Available cash and undrawn facilities
totalled £476m at 31 December 2020 (£511m at 31 December 2019)
and, again, increased further in January 2021 on the completion of
the £166m Johnson Building sale.
Borrowings have been kept low due mainly due to £157.3m of cash
from disposals, with capex spend of £175.2m impacted by lockdowns
and acquisitions of only £43.8m in the year.
Operating cash flow and interest cover have both been noticeably
affected by the lower rate of rent collections. Net cash from
operating activities fell from £97.1m in 2019 to £85.4m, the reduction
due to the rents waived or deferred to 2021 though also helped by
additional cash rents at Brunel Building and 80 Charlotte Street.
Assuming that the £14.5m of deferred rents are collected in 2021,
much of this cash flow reduction may reverse over the next year.
Interest cover for the year was 446% compared with 462% for 2019,
both figures being a long way above our debt covenant of 145%.
Debt and financing arrangements
After £875m of refinancing activity in 2019, including the publication
of our Green Finance Framework and the £300m ‘green’ tranche in
our £450m revolving credit facility (RCF), the past year was quieter
but still significant. The strength of our banking relationships has
been evidenced again with a new and enlarged five-year £100m
RCF signed with Wells Fargo and the extension of our £450m RCF
with HSBC, NatWest and Barclays. These four banks have been
supporting us with their balance sheets and transactional advice for
many years and we see them as key stakeholders in our business.
The new £100m Wells Fargo RCF was signed in November and
replaces their £75m facility which was due to expire in July 2022.
The new facility incorporates two possible one-year extensions
beyond the current expiry date of November 2025 and includes
an accordion option for another £25m. The facility helps extend
our debt maturity profile at a margin only slightly higher than
previously, increases our available facilities and has similar
financial covenants to other unsecured Group borrowings.
In December 2020, we also signed a one-year extension to the
£450m Group RCF provided by HSBC, NatWest and Barclays.
This facility incorporates our ‘green’ finance and we provide a
further update in this report on the progress made so far. This
shows the amounts drawn and the expenditure incurred on green
projects, all of which has been independently assured by Deloitte.
Maturity profile of debt facilities as at 31 December 2020
300.0
425.0
230.0
£m
2022
28.0
2024
83.0
2025
2026
2028
30.0
2029
2031
2034
118.0
125.0
127.0
Drawn
Headroom
Derwent London plc Report & Accounts 2020 Reporting under the green tranche of our £450m RCF
In line with the principles set out in the LMA Green Loan Principles guidance document and in accordance with the reporting requirements
set out in our Green Finance Framework (available on our website www.derwentlondon.com), we are disclosing the Eligible Green Projects
(EGPs) that have benefitted from the green funding element of our £450m RCF and the allocation of drawn funds to each project.
The projects benefitting from the £300m green funding element of the RCF are as follows:
79
Green project
Expected completion date
Category for eligibility
Impact reporting indicator
Green credentials
80 Charlotte Street W1
Completed in 2020
Soho Place W1
2022
Green building, criterion 1 of section 3.1
of the Framework (excludes Asta House
and Charlotte Apartments)
Green building, criterion 1 of
section 3.1 of the Framework
(excludes Site B – Theatre)
The Featherstone Building EC1
2022
Green building, criterion 1 of
section 3.1 of the Framework
Building certification achieved
(system and rating)
Building certification achieved
(system and rating)
Building certification achieved
(system and rating)
Achieved:
BREEAM – Excellent (design stage)
Expected:
BREEAM – Excellent
(post-construction), on target
LEED – Gold, on target
EPC – B, on target
Achieved:
BREEAM – Outstanding (design stage)
Expected:
BREEAM – Outstanding
(post-construction), on target
LEED – Platinum, on target
EPC – A, on target
Site A
Achieved:
BREEAM – Outstanding (design stage)
Expected:
BREEAM – Outstanding
(post-construction), on target
LEED – Gold, on target
EPC – B, on target
Site B – Offices
Achieved:
BREEAM – Excellent (design stage)
Expected:
BREEAM – Excellent
(post-construction), on target
EPC – B, on target
Qualifying ‘green’ expenditure
The qualifying expenditure as at 31 December 2020 for each project
is set out in the table below. This includes an element of ‘look back’
capital expenditure on live projects which had already been incurred
as at the refinancing date (October 2019), including the 80 Charlotte
Street scheme which commenced in 2015. Soho Place and The
Featherstone Building both commenced on site in 2019. There have
been no new EGPs elected in 2020.
Cumulative spend on each EGP as at the reporting date
EGP
80 Charlotte Street W1
Soho Place W1
The Featherstone
Building EC1
Look back
spend
£m
185.6
66.3
29.1
Subsequent spend
Q4 2019
£m
16.9
2020
£m
16.9
Cumulative
spend
£m
219.4
13.4
5.2
61.5
24.8
141.2
59.1
281.0
35.5
103.2
419.7
The cumulative qualifying expenditure on EGPs was £419.7m, with
£103.2m of this being incurred in 2020.
The drawn borrowings from Green Financing Transactions (GFTs) as
at 31 December 2020 were £80m; therefore, there was £220m of
available unallocated headroom within the £300m green tranche of
the Group’s £450m revolving credit facility as at 31 December 2020.
A requirement under the Framework and the facility agreement is for
there to be an excess of qualifying spend on EGPs over the amount of
drawn borrowings from GFTs which, as shown above, has been met.
More information can be found in the Responsibility Report 2020.
Green Finance Framework launched October 2019
Strategic report 80
Finance review continued
Our remaining bank facility is a £28m loan from HSBC secured on
the Baker Street properties. This is due to expire in July 2022 but is
likely to be repaid before then as the Baker Street arrangements
with the Portman Estate are unwound. The £28m interest rate swap
associated with this loan fell away in March 2020 and, with very low
amounts of bank debt drawn, we currently have no active interest
rate swaps in place. The other two swaps totalling £115m have
forward start dates and we paid £1.7m in 2020 to defer them
beyond the balance sheet date.
The Group’s weighted average interest rate fell by 20bp over the year
to 3.34% on a cash basis and 3.48% on an IFRS basis. The average
interest rate that we pay is dependent on the amount of inexpensive
floating rate bank debt that we have drawn. The weighted average
maturity of our borrowings was 6.8 years at 31 December 2020
compared to 7.8 years at 31 December 2019.
Dividend
We recognise the importance to our shareholders of a consistent
and sustainable dividend policy. Dividends declared in relation
to 2019 earnings were 1.4 times covered by EPRA earnings and
therefore, though EPRA earnings have dropped by 3.6% this year,
we have been able to recommend a 1p per share increase in the
final dividend for 2020 to 52.45p. This will be paid in June 2021
with 35.00p as a PID and the balance of 17.45p as a conventional
dividend. We will not be offering a scrip dividend alternative.
On top of the 1p per share increase in the 2020 interim dividend,
this brings the total dividend for 2020 to 74.45p which is 1.33 times
covered by EPRA earnings. Note that EPRA earnings in 2020
also exclude profits on the sale of investment and trading
properties totalling £6.9m; if these are added back, the dividend
cover was 1.4 times.
In arriving at our recommendation, we have also considered our
pension fund obligations, which are not material, the enhanced
amounts paid to charitable institutions and the fact that none of
our employees were furloughed in 2020.
LIBOR transition to SONIA
Members of the Finance team
LIBOR, the London Inter Bank Offer Rate interest rate benchmark
widely used for many financial products and contracts including
all of Derwent London’s bank loans and interest rate swaps, is
expected to be discontinued after the end of 2021. In its place, a
replacement ‘risk free’ rate, the Sterling Overnight Index Average
(SONIA) will generally be used.
A comparison of LIBOR and SONIA
There are two fundamental differences between SONIA
and LIBOR:
1. Term versus overnight rates
LIBOR is an annualised forward-looking term rate, with several
different tenors available ranging from one day to 12 months but
SONIA is only available as an overnight borrowing rate. LIBOR is
fixed in advance for a given term, meaning the interest amount
can be calculated at the beginning of the interest period while
SONIA will be compounded in arrears and therefore will not be
precisely known until the end of the period.
2. SONIA generally provides lower rates than LIBOR
LIBOR includes a banking sector risk or liquidity premium
whereas SONIA does not. This means that SONIA typically prices
8-13 bp lower than LIBOR, a difference that will need to be built
into the pricing structure through a credit adjustment spread.
Derwent London’s exposure and approach
We have three bank facilities and two interest rate swaps that use
LIBOR as the benchmark or reference rate. The documentation
for the loan facilities contains provisions that cover the cessation
of LIBOR with a replacement benchmark. However, as SONIA
is not a direct substitute for LIBOR, the method of calculation
will be adjusted to minimise any change to the total cost.
We are working with our relationship banks and advisers
to prepare for a smooth transition in preparation for the
cessation of LIBOR, and expect to complete this process
before the end of 2021.
Hardeep Babra, Val Brown, Lillian Morris, Nadia Naqvi, Heethen Patel and
Steve Ross
The Featherstone Building EC1
Derwent London plc Report & Accounts 2020 Undrawn
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
75.0
350.0
425.0
425.0
Drawn
£m
175.0
83.0
175.0
55.0
30.0
25.0
93.0
50.0
75.0
75.0
52.0
888.0
28.0
25.0
100.0
153.0
1,041.0
9.3
(5.8)
(11.3)
1,033.2
66.6
(50.7)
1,049.1
Debt facilities and reconciliation to borrowings and net debt at 31 December 2020
6.5% secured bonds
3.99% secured loan
1.5% unsecured convertible bonds
2.68% unsecured private placement notes
3.46% unsecured private placement notes
4.41% unsecured private placement notes
2.87% unsecured private placement notes
2.97% unsecured private placement notes
3.57% unsecured private placement notes
4.68% unsecured private placement notes
3.09% unsecured private placement notes
Non-bank debt
Bilateral term – secured
Bilateral revolving credit – unsecured
Club revolving credit – unsecured
Committed bank facilities
Debt facilities
Acquired fair value of secured bonds less amortisation
Equity adjustment to convertible bonds less amortisation
Unamortised issue and arrangement costs
Borrowings
Leasehold liabilities
Cash and cash equivalents
Net debt
Debt: key stats
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
81
Maturity
March 2026
October 2024
June 2025
January 2026
May 2028
January 2029
January 2029
January 2031
May 2031
January 2034
January 2034
Total
£m
175.0
83.0
175.0
55.0
30.0
25.0
93.0
50.0
75.0
75.0
52.0
888.0
28.0
July 2022
100.0 November 2025
450.0
October 2025
578.0
1,466.0
2020
2019
85
0
85
73
85
3.34
3.48
6.2
6.8
476
4,329
90
3
93
71
90
3.54
3.68
6.8
7.8
511
4,423
Strategic report 82
Viability
statement
Viability statement
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 2025.
The assessment highlighted that the Group has:
• a proven business model which has allowed us to remain flexible
and resilient during previous property cycles, periods of significant
uncertainty and the recent Covid-19 pandemic;
• a high quality customer base of tenants, with none of our
occupiers being responsible for more than 9.0% of total rental
income and relatively low exposure to the retail and restaurant
sectors;
• income visibility for the life of our leases which on average are
7.9 years (including rent-frees and pre-lets) with upward only or
contracted rent reviews;
• good interest in our space with strong pre-let interest in our
schemes;
• strong relationships with our debt providers. During 2020, a new
five-year £100m unsecured Revolving Credit Facility (RCF) was
signed with Wells Fargo and we extended our main £450m RCF
with our UK banking partners for a further year to 2025; and
• a low loan-to-value ratio of 18.4%.
Assessment of risks
Principal risks
The Schedule of Principal Risks is routinely subject to a
comprehensive review by the Executive Committee, Risk Committee
and the Board. Consideration is given to the risk likelihood, impact
and velocity (speed at which the risk could impact on the Group).
Time period
In accordance with the 2018 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.
It was agreed that none of the changes in risk likelihood or probability
during the year (see page 85) had a significant impact on the Group’s
viability. The Directors identified that, of the principal risks detailed
on pages 88 to 99, the following are the most important to the
assessment of the viability:
The Directors challenge the time period over which to assess viability
on an annual basis. The Directors determined that the five-year
period to 31 December 2025 remains an appropriate period over
which to assess its viability based on the following:
• for a major scheme, five years is a reasonable approximation of
the time taken from obtaining planning permission for a typical
development to letting the property; and
• most leases contain a five-year rent review pattern or break
options. Therefore, five years allows for the forecasts to include
the reversion arising from those reviews while also assessing the
potential impact of income lost from breaks exercised.
Although the Board’s viability review focused on a five-year period,
it did consider a number of longer-term factors when considering
the Group’s future prospects, including:
• the weighted average lease length of 7.9 years (including rent-
frees and pre-lets);
• after the refinancing completed during 2019 and 2020, the
weighted average unexpired term of our borrowings was 6.8 years;
• the impact of Covid-19 pandemic on home working, the future of
office space and our resilience;
• the nature of the property cycle and our expectations of how this
impacts us (see page 18); and
• changes in technology and tenant expectations.
• Implications of Brexit: as a predominantly London-based
Group, we are particularly sensitive to factors that impact upon
central London’s growth and demand for office space. London’s
economy, and its place as one of the world’s leading financial
centres, could be damaged if an adverse agreement is reached in
respect of financial services. The Group will continue to monitor
international trade negotiations, including the UK application to
join the Comprehensive and Progressive Trans-Pacific Partnership
(CPTPP). Due to our contingency planning, the short-term impact
of Brexit on Derwent London has been minimal.
• Income decline: the uncertainty and economic disruption
caused by the pandemic has increased the risk of tenant defaults
and could lead to a drop in occupier demand, and as such, has
increased the risk of a fall in income. Based on our forecasts, our
income would need to decline by 68% before we were at risk of
breaching our financial covenants. In the scenarios tested, our net
interest cover remained above 385% and our loan-to-value ratio
below 40%, both of which are comfortably within our financial
covenants.
• Our resilience to climate change: rising global temperatures are a
major risk factor for our business and the planet, increasing the
likelihood of heatwaves, flooding and property damage. Although
climate change will lead to an increase in costs as we take action
to combat its impact on our business (both in monetary terms and
management time), it would be unlikely to affect the viability of
the Group within the five-year review period. The Group has
committed to being net zero carbon by 2030.
The Directors considered that none of the individual principal risks
would in isolation compromise the Group’s viability over the five-year
period to 31 December 2025.
Derwent London plc Report & Accounts 2020 83
The modelling indicated that under all scenarios the Group would
still be able to execute its strategic plan over the next five years
without breaching any covenants or experiencing any liquidity
concerns. As at 31 December 2020, the value of the portfolio could
fall by 67% without breaching the gearing covenants and our
property income could fall by 68% before breaching the interest
cover covenant.
Covid-19 scenarios
The Directors’ assessment considered the uncertainty surrounding
the duration of the Covid-19 pandemic and its medium and longer-
term impacts on the global economy, our business and stakeholders.
This assessment took into account the adverse financial impact
already experienced by the Group and the disruption caused to our
occupiers and suppliers.
As part of our scenarios and forecasting, the Directors considered
the cost of rent-free concessions offered to occupiers, its accounting
implications and potential default and impairment provisions, as well
as additional potential vacancies. The outcome of these scenarios
indicated that the potential cost under both the ‘base case’ and
‘downside scenario’ would not prohibit the Group from continuing its
operations. The Group continues to closely monitor cash collection
rates and tenants at risk of experiencing financial difficulty with the
impact of any material changes assessed in revised forecasts.
It was also noted that the availability of further government support
was not a factor which impacted on the Group’s viability, as to date
we had not required governmental financial assistance, however it
could be a significant factor for some of our occupiers and supply
chain. Activities on our development sites continue with stringent
social distancing and safety measures in place, and productivity is
closely monitored to assess any potential programme delays.
Despite the uncertainty and disruption caused by Covid-19, the
business has traded well. Further information on our response to
Covid-19 and our business model resilience is on pages 6 to 13.
Emerging risks
The Group’s emerging risks are disclosed on page 87. Emerging risks
involve a high degree of uncertainty and are therefore factored into
the Board’s viability assessment. The methodology used to review
and identify emerging risks is on page 140.
The Directors considered that none of the individual emerging risks
would in isolation compromise the Group’s viability over the five-year
period to 31 December 2025.
Qualifications and assumptions
The key assumptions which underpin our strategic plan are:
• the Group’s business model remains broadly unchanged and
continues to focus on the central London office market;
• we continue to operate a progressive dividend policy whilst
targeting dividend cover in or above the range of 125% to 150%;
• our portfolio remains approximately the same size, at 5.56m sq ft
(2019: 5.64m sq ft); and
• we will recycle capital by selling buildings when we have
maximised their potential, or it no longer meets our investment
criteria, and purchasing buildings where there is a development
opportunity to replenish our pipeline.
We have the ability to flex our business model to react to unforeseen
circumstances or changes in the property cycle by either selling a
property to generate additional cash flow, or commencing or
stopping development projects to manage our capital expenditure.
We aim to maintain an adequate level of cash and available financial
facilities. Regular financial forecasting enables us to identify and
plan for additional funding requirements in advance.
Assessment of viability
To assess the Group’s viability, the business model and strategy were
stress tested against various scenarios and other sensitivities.
Sensitivity analysis of our strategy
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 were subjected to
sensitivity analysis to assess the Group’s ability to deliver its
strategic objectives.
Strengthened financial position
After an active year of refinancing in 2019, and the signing of a new
5-year £100m unsecured Revolving Credit Facility signed with Wells
Fargo during the year, the Group had £476m of undrawn facilities and
cash at 31 December 2020 (2019: £511m) and a weighted average
term of borrowings of 6.8 years (2019: 7.8 years).
Stress testing our risk resilience
The Directors stress tested our strategy against various scenarios
to determine whether they were likely to have a significant impact
on the Group’s solvency and liquidity over the five-year review period.
The Board reviewed the following scenarios:
• a ‘base case’ scenario which was management’s best estimate
of market and business changes;
• a ‘downside’ scenario which showed a more negative outlook on
property values, longer void and rent-free periods and poorer rent
collection rates; and
• a further four scenarios based on different business cases
in respect to the sale and purchase of potential properties,
future dividend payments and refinancing activities.
Strategic report 84
Our principal
risks
These are extraordinary times with
exceptional risks and heightened
uncertainty. During the year, Derwent
London responded to the Covid-19
outbreak through proactive risk
identification and mitigation, and
early and continual engagement
with our stakeholders.
The risk profile of the Group
Covid-19 and the resulting economic and social disruption has
brought unforeseen challenges to London and the wider global
economy; it has impacted on our business and in general our overall
risk profile is elevated. We provide information on the central London
office market on pages 18 to 21.
As a predominantly London-based Group, we are particularly
sensitive to factors that impact upon central London’s growth
and demand for office space. In the short-term, due to the impact
of both Covid-19 and Brexit, we expect unemployment to rise and
uncertainty to impact upon demand for office space and central
London’s growth. Any decline in the demand for London office space,
or a significant increase in supply, could negatively impact upon:
• the value of our property portfolio;
• occupancy rates and, subsequently, our income; and
• availability of properties for acquisition and the ease of disposal
and refinancing.
Demand for office buildings is becoming polarised. Well-designed,
modern buildings with adaptable floor plans and good floor-to-
ceiling heights are proving more desirable and easier to lease than
older, less attractive buildings which may require refurbishment. This
change in market demand will impact on our ability to lease certain
properties in our portfolio without additional capital expenditure.
Despite our elevated risk profile during 2020, our strong financial
position and proactive stakeholder-focused approach has helped us
to weather the uncertainty. The future outlook for London is looking
more promising: the Prime Minister has announced a roadmap to
cautiously ease lockdown restrictions and, as at the date of signing
this report, more than 22 million people in the UK have received at
least one dose of a coronavirus vaccine.
p. 6
Operating in challenging times
Effect of mitigation actions on our principal risks
High
y
t
i
l
i
b
a
b
o
r
P
5c
5b
3
5a
7
3
2
6a
6b
6c
9a
8
9b
4a
4a
1
4b
2
5c
5b
5a
7
8
1
9a
6a 6b
9b
6c
Zero
Impact on the Group
Gross risk basis
Net risk basis (post mitigation)
p. 88 to p. 99 Risks
1 Failure to implement the Group’s strategy
2
Implications of Brexit
3 Risk of tenants defaulting or tenant failure
4a Income decline
4b The potential impact on our business from
the introduction of a new tax to replace or
complement business rates
5a Reduced development returns
5b ‘On-site’ risk
5c Contractor/subcontractor default
6a Cyber attack on our IT systems
6b Cyber attack on our buildings
6c Significant business interruption
7 Reputational damage
8 Our resilience to climate change
9a Non-compliance with health and safety
High
legislation
9b Other regulatory non-compliance
Derwent London plc Report & Accounts 2020
Changes to our principal risks
The principal risks and uncertainties facing the Group in 2021 are set
out on pages 88 to 99 together with the potential impact and the
mitigating actions and controls in place. We define a principal risk
as one that is currently impacting on the Group or could impact the
Group over the next 12 months.
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
10 March 2021. During the year under review, there has been a
number of changes to our principal risks:
New principal risks
• Due to the trading difficulties arising from the Covid-19 pandemic
there is an increased risk of tenants defaulting or tenant failure,
particularly in respect to the leisure/retail sectors. Retail and
hospitality tenants currently account for c.9% of the Group’s
portfolio income. In the event one of our larger tenants went
into default, we could incur write offs of IFRS 16 lease incentive
balances which arise from the accounting requirement to
spread any rent-free incentives given to a tenant over the lease
term (see page 76).
• Due to the weakness of physical retail trading, the cost of
supporting the economy during Covid-19 and the loss of tax
revenues, the government has been reported as considering
measures to increase tax revenues. The potential impact on
our business from the introduction of a new tax to replace or
complement business rates is now considered a risk for the
Group (see page 90).
Changes to existing risks
• A significant business interruption was previously identified as
a principal risk, however we have expanded this risk to include
a pandemic in addition to a terrorism-related event or other
business interruption (see page 94).
• A fall in property values has been widened to ‘income decline’.
In addition to the risk of property values falling, there are other
risk factors which could led to income decline (see page 90).
• Adverse international trade negotiations following Brexit has been
widened to ‘implications of Brexit’. Despite the agreement of a
UK-EU trade agreement, there remains uncertainty in respect
of financial services, international trade negotiations and the
longer term implications of Brexit on London’s growth and appeal
(see pages 6 and 88).
85
Risk management
Our risk management procedures are regularly reviewed and
strengthened to ensure that all foreseeable and emerging risks
are identified, understood and managed. Our risk management
framework is on page 140 and further information on emerging risks
is on page 87. We have set an overall low tolerance to risk, which
alongside our culture, informs how our employees respond to risk.
Further information on our risk tolerance is set out on page 141.
Brexit-related risks
During 2020, the Board monitored trade negotiations and discussed
potential outcomes with external advisers, including the potential
impact on our contractors/subcontractors and supply chain.
We continued to implement our agreed contingency plans in respect
of our developments (including early ordering and off-site holding
facilities) and proactive supply chain management in collaboration
with our contractors, including the use of UK-based logistic hubs.
Due to our contingency planning, the short-term impact on Derwent
London has been minimal.
The Board will continue to monitor the longer-term impact of Brexit
on London’s appeal and growth and will monitor the negotiations
with the EU in respect of financial services.
Development risks
Our developments are large, high-value projects that can take
over five years from concept to completion. The success of our
development activities is reliant on taking managed and carefully
considered risk, which aims to deliver the office space our occupiers
desire when it is needed.
The Risk Committee receives reports from the Director of
Development on the Group’s major developments, which includes a
detailed assessment of the risks and risk mitigation plans in place.
Despite the disruption caused by Covid-19, our developments were
not significantly impacted, with practical completion being achieved
on 80 Charlotte Street in June 2020 and construction continuing at
Soho Place and The Featherstone Building. We provide further
commentary on the status of our three development-related
principal risks on pages 92 and 93.
Overview of changes to our principal risks
Covid-19 has led to our overall risk profile being elevated. The table below provides an overview of how our principal risks have been impacted.
Principal risk
1
2
3
4a
4b
5a
5b
5c
6a
6b
6c
7
8
9a
9b
Failure to implement the Group’s strategy
Implications of Brexit (previously, ‘Adverse international trade negotiations following Brexit’)
Risk of tenants defaulting or tenant failure
Income decline (previously, ‘Fall in property values’)
The potential impact on our business from the introduction of a new tax to replace or complement business
rates
Reduced development returns
Movement during 2020
New principal risk
New principal risk
‘On-site’ risk
Contractor/subcontractor default
Cyber attack on our IT systems
Cyber attack on our buildings
Significant business interruption (for example, pandemic, terrorism-related event or other business
interruption) (previously, ‘Terrorism-related or other business interruption’)
Reputational damage
Our resilience to climate change
Non-compliance with health and safety legislation
Other regulatory non-compliance
Strategic report 86
Our principal risks continued
Climate change risks
The major climate-related risk to our business is rising global
temperatures, increasing the likelihood of storms, heatwaves and
flooding, potentially leading to property damage, income disruption
and increased investment in upgrading mechanical heating and
cooling equipment (further information on page 28).
Climate change risks are identified and monitored as part of our
wider risk management procedures and are overseen by the Board
and Responsible Business Committee. When assessing climate
change, the Board considers both the direct and indirect risk they
pose (a summary of the key risks is shown in the table below).
Direct risks
• Rising temperatures
• More intense/unusual
weather events
• Rising sea levels
• Rainfall and high winds
delaying construction
Indirect risks
• Rising prices of utilities
• Rising material costs
• Additional regulatory and
compliance requirements
• Reputational risks
• Electricity supply disruptions
• Lower property values
The risks posed by climate change, which are contained in the
Group’s risk register, are factored into the Board’s viability
assessment which spans a five-year period (see page 82).
During the year, Willis Towers Watson were engaged to assist in the
identification, assessment and quantification of climate-related
risks and opportunities under pre-defined climate scenarios. An
overview of the review’s findings is available on page 49. The main
transition risk for Derwent London relates to Energy Performance
Certificate (EPC) rating requirements: currently environmental
regulation in the UK prevents leasing space with an EPC rating of
worse than E. The government’s latest energy white paper proposes
that this requirement be increased to a rating of B by 2030.
80 Charlotte Street was our first all electric building and net zero
carbon development. To reduce our exposure to the impacts of
climate change, all of our current and future developments are being
built to be net zero carbon (see page 29), including Soho Place W1,
The Featherstone Building EC1 and 19-35 Baker Street W1. When
managing our core income portfolio, we ensure our buildings operate
as efficiently as possible, with significant focus on energy and
carbon reduction (see page 29).
The main opportunities from climate change will arise from our
ability to adapt and respond to the risks appropriately. Energy
efficient ‘green’ buildings with better EPCs could let more quickly,
command higher rents and enjoy lower tenant turnover. Investing
in the overall energy efficiency of our buildings also improves asset
value by reducing our maintenance costs and extends a building’s
life. Working closely with tenants to manage building efficiency
should lead to closer landlord/tenant collaboration and
relationships.
p. 28
Our pathway to net zero carbon
p. 57
Climate change governance
Financial risks
Derwent London has a low financial risk profile. Fitch reaffirmed
our credit rating of A-, however, they have us ‘under watch’ and
our outlook has been marked as negative rather than stable due
to Covid-19, rent collections and concerns for the financial health
of our occupiers. This approach is consistent across our sector.
Our financial position remains strong. Our loan-to-value ratio has
risen slightly to 18.4% at 31 December 2020 based on year end
property valuations, and our net asset value gearing was 24.3%.
Interest cover is 446% and we have cash and undrawn facilities
of £476m.
During 2020, we recalibrated our forecasts for various scenarios
to take into account possible outcomes post-Covid-19 and they
will continue to be updated as the situation develops.
p. 141
Insurance
Tax risk
Our attitude towards tax risk is primarily governed by the Board’s
objectives to retain our REIT status and maintain our ‘low-risk’ rating
from HMRC. The Board was pleased to have received a ‘low-risk’
rating from HMRC which is valid until 2022. Further information on
tax governance is on pages 57 and 135.
The Group takes its responsibilities under the ‘corporate offences of
failure to prevent the facilitation of fraudulent tax evasion’ legislation
seriously and will not tolerate any facilitation of tax evasion by staff,
subcontractors or any of its other associates. To address these risks,
the Group has established procedures which are designed to prevent
its associated persons from deliberately and fraudulently facilitating
tax evasion. Ongoing training is provided to staff and a policy
document is kept updated on the Company intranet.
Derwent London brand
The Derwent London brand is well-regarded and respected within
our industry and we are recognised for innovation and developing
design-led buildings.
We demonstrate our brand and values through our external
memberships and associations. For example, we are founding
supporters of Real Estate Balance (see page 127), members of
the UK Green Building Council, Mayor of London’s Business Climate
Leaders and the Better Buildings Partnership. We are also signed
up to RE100 to demonstrate our commitment to 100% renewable
energy in our buildings.
In 2020, we were listed in Management Today’s ‘Britain’s Most
Admired Companies’, a peer-review study of corporate reputation.
We were delighted to come in 10th place overall and 1st for
our industry sector.
The protection of our brand and reputation is important to the future
success of the Group and is considered a principal risk. We detail on
page 96 the actions we are taking to protect our reputation.
Derwent London plc Report & Accounts 2020
87
Emerging risks
We define an ‘emerging risk’ as a condition, situation or trend that could significantly impact the Group’s financial strength, competitive
position or reputation within the next five years. Emerging risks involve a high degree of uncertainty and are therefore factored into the
Board’s viability assessment. The methodology used to review and identify emerging risks is on page 140.
During the year under review, the Directors identified four further emerging risks (identified in the table below) and removed ‘Reduced returns’
as it is now considered a current risk and is therefore being monitored via the Group’s Risk Register.
Emerging risk
Diminished
development
pipeline
Risk category
Strategic
Potential impact
As we complete our development pipeline, and in the absence of any
further acquisitions or disposals, the Group’s portfolio balance could
become more heavily weighted towards ‘core income’ and away from
development opportunities.
The future of
offices (new
emerging risk)
Strategic
As the pandemic led to widespread home working, questions have
been raised about office use and its role in business. There is a risk
that if agile/home working continues at high levels, and is sustained
in the long-term, it could lead to occupiers requiring less space,
increased vacant space and reduced rental income.
Long term
implications of
Covid-19 on our
portfolio (new
emerging risk)
Political risk
arising from
government
response to
issues (new
emerging risk)
Increasing
importance
of amenities
Adoption of
technology
Environmental
issues moving
up the social
agenda
Impact on
businesses
arising from
the UK’s
commitment
to be carbon
neutral by
2050 (new
emerging risk)
Strategic
Strategic
If the effects of Covid-19 are long-term, our existing portfolio
could require significant investment to make it more adaptable to
social distancing requirements and reduced occupational density.
This investment would require capital expenditure which might
not provide a financial return and could impact on the floor area
efficiency of our existing portfolio.
In order to protect the NHS and reduce Covid-19 transmission,
action has been taken by government to lock down large parts of
the UK economy. This has reduced access to education, increased
government borrowing and reduced economic activity unevenly
across the UK regions.
Operational
The provision of amenities and hospitality in buildings is becoming
increasingly important to tenants. The Group needs to ensure it is
adequately responding to these demands, so our product remains
attractive to tenants, thereby retaining its competitive edge.
Operational With technology advancing at a rapid pace the Group needs to ensure
it is sufficiently embracing these changes whilst making sure that the
Group’s strategy is driving which technology is adopted and not being
driven by the technology itself.
Operational Concerns around environmental issues, such as climate change,
Operational
are becoming more important to our stakeholders and to the
general public, and this is only likely to increase in the run up to
COP26. Companies not giving sufficient priority to these issues will
be unprepared for the risks posed by environmental issues which
will, in turn, adversely impact on their business and reputation.
Tighter regulation is being introduced which is orientated towards
sustainable development and is instigating changes to the planning
process and approval criteria which will have a material impact on our
development pipeline and standing investment portfolio.
As more of our tenants commit to becoming net zero carbon, tenants
will increasingly demand environmentally friendly buildings to help
them achieve these goals. Consequently our buildings that fail to
reach these standards could be at risk of losing tenants, suffering
a ‘brown’ discount and falling in value.
Costs are also likely to increase in respect to carbon taxes on
GHG emissions. Currently environmental regulation in the UK
prevents leasing space with an EPC rating of worse than E and this is
proposed, in the government’s latest energy white paper, to increase
to a rating of B by 2030, which will lead to increased capital
expenditure requirements.
Our actions
We continue to focus on recycling capital,
selling properties with limited future
potential and acquiring properties with
future regeneration opportunities in order to
maintain a balanced portfolio. On 30 January
2020, we acquired Blue Star House SW9
for £38.1m before costs, which has future
development potential.
Our view is that companies still need to bring
their staff together, for the collaboration that
social interaction brings, to build culture,
to attract and retain talent and to have a
physical embodiment of their brand. There
is no substitute for building relationships
with colleagues and clients in person. We
will continue to design and deliver space that
businesses want to occupy.
As part of our planning and design of new
developments, we are focused on ‘long-life
loose-fit’ adaptable spaces and wellness
factors that can enable people to meet
together in larger common areas, with higher
ceilings and better air quality and ventilation.
We monitor the situation to assess the
likely impact on jobs in London and therefore
the risk of a cyclical adjustment to rents.
We are supporting those tenants most in
need while extending leases where this can
be agreed with a focus on minimising voids
and protecting value.
We continue to review opportunities within
the portfolio to enhance our amenity
offering. This risk is directly related to
another emerging risk – the future of
offices (see above).
During 2020, we have been developing our
digital strategy and are currently testing both
intelligent building technology and apps.
We are committed to being net zero carbon
by 2030 and have published our Net Zero
Carbon Pathway.
We commissioned a risk analysis of climate
change-related risks to be performed by
Willis Towers Watson. In December 2020,
a working group of executives and senior
managers met with Willis Towers Watson
to discuss the key risks and our current
mitigation. An overview of the review’s
findings is on page 49.
A senior level working group will also be
created, with input from technical experts,
to explore the implications, practicalities,
and possible management responses to the
proposed legislation in the government’s
latest energy white paper.
Strategic report 88
Our principal risks continued
Strategic
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 2020
What we will be doing in 2021
1. Failure to implement the Group’s 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;
• the Group’s development programme being inconsistent with the current
economic cycle; and/or
• London losing its global appeal with a consequential impact on the property
investment or occupational markets.
Movement during 2020: Increased
Although the Covid-19 pandemic did not stop the Group implementing its strategy in
2020, the lockdown restrictions have marginally extended the project length for Soho
Place and The Featherstone Building, and has caused significant economic
disruption. Our strategy currently includes incorporating a retail element into our
buildings to provide amenity to our tenants and the local community. As Covid-19 has
only amplified the weaknesses within the retail market, this aspect of our strategy is
being reviewed. The impact of a potential recession on our strategy, and other
longer-term consequences of the Covid-19 pandemic, is being monitored by the
Executive Committee and the Board.
Executive responsibility: Paul Williams
2. Implications of Brexit
International trade negotiations following Brexit result in arrangements which
are damaging to the London economy. As a London-based Group, we are particularly
impacted by factors which affect London’s growth and demand for office space.
Movement during 2020: Unchanged
Trade negotiations with the European Union continued during 2020 despite the
Covid-19 pandemic, and resulted in the UK-EU Trade and Cooperation Agreement
(TCA) being finalised on 24 December 2020. For London, further uncertainty remains
until terms are agreed in respect of financial services. The financial services sector
contributes approximately £130 billion to the UK economy, 1.1 million jobs and 40% of
the sector’s exports are to the EU. London’s economy, and its place as one of the
world’s leading financial centres, could be damaged if an adverse agreement is
reached in respect of financial services. The Group will continue to monitor
international trade negotiations, including the UK application to join the
Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).
Executive responsibility: Paul Williams
• 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 regears.
• The Group aims to de-risk the development programme through pre-lets, typically
• The Group conducts an annual strategic review, prepares a budget and provides three
during the construction period.
two-year rolling forecasts.
• The Board considers the sensitivity of the Group KPIs to changes in the assumptions
underlying our forecasts in light of anticipated economic conditions. If considered
necessary, modifications are made.
• The Group maintains sufficient headroom in all the Group’s key ratios and financial
covenants with a particular focus on interest cover.
• Trade negotiations are being monitored and potential outcomes discussed with
external advisers.
• The Group’s strong financing and covenant headroom enables it to weather a
downturn. In addition, the Group’s diverse and high quality tenant base provides
resilience against tenant default.
• Construction cost risk, with the exception of Government tariffs, sits with our main
contractors. Early ordering and off-site holding facilities are in place for our
development projects.
• The Group focuses on good value properties that are less susceptible to reductions in
tenant demand. The Group’s average ‘topped-up’ office rent is only £57.71 per sq ft.
• Income is maintained at future development sites for as long as possible. The Group
develops properties in locations where there is good potential for future demand,
such as near Crossrail stations.
Strategic objectives
1. 2. 4. 5.
Business model
Could potentially impact on all aspects
of our business model
KPIs
• Total return
• Total property return
• Total shareholder return
• Examined opportunities for acquisitions to recycle capital.
• Monitored our portfolio for further asset management activities and managed the
vacancy rate.
• Prepared three rolling forecasts and a budget for 2021.
• Our credit rating of A- was renewed by Fitch in May 2020.
• The Board considered the sensitivity of our KPIs to changes in underlying
assumptions including interest rates, timing of projects, level of capital expenditure
and the extent of capital recycling.
• In respect to our de-risking strategy, we have pre-let 84% of Soho Place.
• The Group’s loan-to-value ratio remained low, its net interest cover ratio was 446%
and the REIT ratios were comfortably met.
• The Board will hold its annual Strategy
Away Day on 18 June 2021 to discuss
the Group’s five-year strategy.
• Examine opportunities for acquisitions
and disposals to recycle capital.
• Continue to extend income through
renewals and regears for properties not
earmarked for regeneration.
Strategic objectives
1. 2. 5.
Business model
Could potentially impact on all aspects
of our business model
KPIs
• Total return
• Total property return
• Total shareholder return
• Monitored the trade negotiations and discussed potential outcomes, including the
potential impact on our contractors/ subcontractors and supply chain.
• Received political and economic updates from external advisers throughout the
year.
• Monitored letting progress and demand for our buildings.
• As at 31 December 2020, the Group has cash and undrawn facilities of £476m.
• Laing O’Rourke and Skanska, the contractors of our two major on-site
developments, conducted detailed supply chain reviews in conjunction with
Derwent London and no major concerns were flagged in the event of a ‘hard Brexit’.
• Proactive supply chain management in collaboration with our contractors and use
of UK-based logistic hubs.
• We will continue with our current
controls and mitigating actions,
including operating the business on a
basis that balances risk and income
generation.
Derwent London plc Report & Accounts 2020
Key
Strategic objectives
1.
2.
3.
To optimise returns and create value from
a balanced portfolio
To grow recurring earnings and cash flow
4.
5.
To attract, retain and develop talented employees
Risk decreased
89
To design, deliver and operate our
buildings responsibly
Movement during the year
Risk increased
To maintain strong and flexible financing
Risk unchanged
That the Group’s business model and/or strategy does not create the anticipated shareholder value or fails to meet investors’ and other
Our key controls
Potential impact
What we did in 2020
What we will be doing in 2021
Strategic
stakeholders’ expectations.
Risk
1. Failure to implement the Group’s 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;
economic cycle; and/or
• the Group’s development programme being inconsistent with the current
• London losing its global appeal with a consequential impact on the property
investment or occupational markets.
Movement during 2020: Increased
Although the Covid-19 pandemic did not stop the Group implementing its strategy in
2020, the lockdown restrictions have marginally extended the project length for Soho
Place and The Featherstone Building, and has caused significant economic
disruption. Our strategy currently includes incorporating a retail element into our
buildings to provide amenity to our tenants and the local community. As Covid-19 has
only amplified the weaknesses within the retail market, this aspect of our strategy is
being reviewed. The impact of a potential recession on our strategy, and other
longer-term consequences of the Covid-19 pandemic, is being monitored by the
Executive Committee and the Board.
Executive responsibility: Paul Williams
2. Implications of Brexit
• 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 regears.
• The Group aims to de-risk the development programme through pre-lets, typically
• The Group conducts an annual strategic review, prepares a budget and provides three
during the construction period.
two-year rolling forecasts.
• The Board considers the sensitivity of the Group KPIs to changes in the assumptions
underlying our forecasts in light of anticipated economic conditions. If considered
necessary, modifications are made.
• The Group maintains sufficient headroom in all the Group’s key ratios and financial
covenants with a particular focus on interest cover.
Strategic objectives
1. 2. 4. 5.
Business model
Could potentially impact on all aspects
of our business model
KPIs
• Total return
• Total property return
• Total shareholder return
International trade negotiations following Brexit result in arrangements which
are damaging to the London economy. As a London-based Group, we are particularly
external advisers.
impacted by factors which affect London’s growth and demand for office space.
Movement during 2020: Unchanged
Trade negotiations with the European Union continued during 2020 despite the
Covid-19 pandemic, and resulted in the UK-EU Trade and Cooperation Agreement
(TCA) being finalised on 24 December 2020. For London, further uncertainty remains
until terms are agreed in respect of financial services. The financial services sector
contributes approximately £130 billion to the UK economy, 1.1 million jobs and 40% of
the sector’s exports are to the EU. London’s economy, and its place as one of the
world’s leading financial centres, could be damaged if an adverse agreement is
reached in respect of financial services. The Group will continue to monitor
international trade negotiations, including the UK application to join the
Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).
Executive responsibility: Paul Williams
• Trade negotiations are being monitored and potential outcomes discussed with
• The Group’s strong financing and covenant headroom enables it to weather a
downturn. In addition, the Group’s diverse and high quality tenant base provides
resilience against tenant default.
• Construction cost risk, with the exception of Government tariffs, sits with our main
contractors. Early ordering and off-site holding facilities are in place for our
development projects.
• The Group focuses on good value properties that are less susceptible to reductions in
tenant demand. The Group’s average ‘topped-up’ office rent is only £57.71 per sq ft.
• Income is maintained at future development sites for as long as possible. The Group
develops properties in locations where there is good potential for future demand,
such as near Crossrail stations.
Strategic objectives
1. 2. 5.
Business model
Could potentially impact on all aspects
of our business model
KPIs
• Total return
• Total property return
• Total shareholder return
• Examined opportunities for acquisitions to recycle capital.
• Monitored our portfolio for further asset management activities and managed the
vacancy rate.
• Prepared three rolling forecasts and a budget for 2021.
• Our credit rating of A- was renewed by Fitch in May 2020.
• The Board considered the sensitivity of our KPIs to changes in underlying
assumptions including interest rates, timing of projects, level of capital expenditure
and the extent of capital recycling.
• In respect to our de-risking strategy, we have pre-let 84% of Soho Place.
• The Group’s loan-to-value ratio remained low, its net interest cover ratio was 446%
and the REIT ratios were comfortably met.
• Monitored the trade negotiations and discussed potential outcomes, including the
potential impact on our contractors/ subcontractors and supply chain.
• Received political and economic updates from external advisers throughout the
year.
• Monitored letting progress and demand for our buildings.
• As at 31 December 2020, the Group has cash and undrawn facilities of £476m.
• Laing O’Rourke and Skanska, the contractors of our two major on-site
developments, conducted detailed supply chain reviews in conjunction with
Derwent London and no major concerns were flagged in the event of a ‘hard Brexit’.
• Proactive supply chain management in collaboration with our contractors and use
of UK-based logistic hubs.
• The Board will hold its annual Strategy
Away Day on 18 June 2021 to discuss
the Group’s five-year strategy.
• Examine opportunities for acquisitions
and disposals to recycle capital.
• Continue to extend income through
renewals and regears for properties not
earmarked for regeneration.
• We will continue with our current
controls and mitigating actions,
including operating the business on a
basis that balances risk and income
generation.
Strategic report
90
Our principal risks continued
Financial
Significant steps have been taken in recent years to reduce or mitigate the Group’s financial risks. 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 2020
What we will be doing in 2021
3. Risk of tenants defaulting or tenant failure
The risk that tenants become unable to pay their rents and/or their businesses fail. In
the current environment, this risk has increased to be classified as a principal risk for
the Group.
Movement during 2020: New principal risk
Due to the economic impact of Covid-19, and its potential long-term implications,
occupiers could be facing increased financial difficulty. Retail and hospitality
occupiers (who account for approximately 9% of our portfolio income) are of
particular concern. Covid-19 has only amplified the weaknesses within the retail
market and there is a strong likelihood that retail rents and values could fall even
further. Our occupiers perceive the restaurant, retail and leisure aspects within our
portfolio as amenities; hence we feel it is important that they are retained within our
building offerings.
Executive responsibility: Paul Williams
• The Credit Committee perform detailed reviews of all prospective tenants.
• A “tenants at risk” register is maintained and regularly reviewed by the Executive
• Rent deposits are held where considered appropriate; the balance at 31 December
Committee and the Board.
2020 was £18.8m.
• Active rent collection with regular reports to the Executive Committee.
• We maintain close and frequent contact with our tenants.
• Insurance for loss of rent is regularly considered.
4. Risks arising from changing macroeconomic factors
a.
Income decline (previously, ‘Fall in property values’)
• The Credit Committee receives detailed reviews of all prospective tenants.
• A “tenants at risk” register is maintained and regularly reviewed by the Executive
Committee and the Board.
• Ongoing dialogue is held with tenants to understand their concerns and requirements.
• The Group’s low loan-to-value ratio reduces the likelihood that falls in property values
have a significant impact on our business continuity.
Due to the various risk factors, including:
• future demand for office space;
• rising ‘grey’ market vacancy in office space (i.e. tenant controlled vacant space);
• weaknesses in retail and hospitality businesses;
• depth of recession;
• Brexit uncertainty; and
• rising unemployment.
There is a risk that our income could decline which could lead to lower interest cover
under our debt facility financial covenants. This could also have an adverse impact
upon the property valuation and future dividend payments. In addition, depending on
how prolonged the adverse impacts of Covid-19 are on businesses, and how our
occupiers fare during this period, we could face additional risk of income impairment.
Movement during 2020: Increased
In light of Covid-19, we have been monitoring the economic outlook, vacancy rates,
financial health of our tenants and the condition of the wider property market. Given
the ongoing uncertainty, it is difficult to forecast the impact on 2021 EPRA earnings or
cash receipts. Future dividends will remain under review.
Executive responsibility: Paul Williams
b. The potential impact on our business from the introduction of a new tax to replace or complement business rates
Due to the ongoing weakness of physical retail trading, the cost of supporting the
economy during Covid-19 and the loss of tax revenues, the government has been
reported as considering measures to increase tax revenues. One area that has
dominated the headlines is the reform of business rates. The government has been
seeking views on how the business rates system currently works, issues to be
addressed, ideas for change and a number of alternative means of taxing non-
residential property to either replace or complement the business rates system.
Derwent London is particularly mindful of alternatives being discussed which could
impose a tax on the landowner rather than the tenant. In this respect, Derwent
London will keep abreast of any new developments in this area and consider the
impact of the various proposals once more detail is published.
Movement during 2020: New principal risk
Executive responsibility: Damian Wisniewski
• The Executive Committee and Board monitor macroeconomic factors, including
interest rates and tax policy.
• The Group has an experienced Head of Tax who advises the Board on the implications
of tax policy.
Strategic objectives
1. 2. 5.
Business model
Asset management
KPIs
• Total property return
• EPRA earnings per share
• Interest cover ratio
• Tenant retention
• Void management
• We have maintained proactive engagement with our tenants, dealing with their
concerns on a case by case basis and supporting them as appropriate.
• Ensured consistency in our approach to similar tenants and prioritised assistance
to those most affected by Covid-19.
• Reduced service charges by 25% for two quarters.
• In respect of service charges, we agreed reductions in costs across our supply
chain. In total, we achieved savings of c.£1m per quarter against the service charge
• We have analysed the sectors which could perform well despite the current
economic difficulties, so that we can better focus our marketing and leasing
budgets.
activities.
• Continue to support restaurants, retail
and leisure amenities in our buildings.
• We will continue with our current
controls and mitigating actions.
Strategic objectives
1. 2. 5.
Business model
Could potentially impact on all
aspects of our business model
KPIs
• Interest cover ratio
• Total return
• Total property return
• During 2020, the Credit Committee performed a detailed analysis of our tenant
base, the strength of financial covenants and its future outlook.
• We maintained proactive engagement with our tenants, dealing with their concerns
on a case by case basis and supporting them as appropriate.
• In the light of the Covid-19 outbreak, the Board gave careful consideration to our
obligations to all our stakeholders and agreed that it remained appropriate to pay
the 2019 final dividend of 51.45p per share on 5 June 2020.
• The Board considered the sensitivity of our KPIs to changes in underlying
assumptions including interest rates, timing of projects, level of capital expenditure
and the extent of capital recycling.
• The Group produced a budget, strategic review and three rolling forecasts during
the year which contain detailed sensitivity analyses including the effect of changes
• Gearing and available resources
• Quarterly management accounts were provided to the Board.
to yields.
• We will continue with our current
controls and mitigating actions,
including operating the business on a
basis that balances risk and income
generation.
• The Board received political updates from external advisers and monitored the
situation during 2020.
• We will continue with our current
controls and mitigating actions.
• In the event the government opens a
consultation on tax-related policy, we
would respond with our views.
Strategic objectives
1. 2. 5.
Business model
Could potentially impact on all
aspects of our business model
KPIs
• Interest cover ratio
• Total return
• Total property return
• Gearing and available resources
Derwent London plc Report & Accounts 2020
Key
Key
Strategic objectives
Strategic objectives
1.
1.
2.
2.
3.
3.
To optimise returns and create value from
To optimise returns and create value from
a balanced portfolio
a balanced portfolio
To grow recurring earnings and cash flow
To grow recurring earnings and cash flow
4.
4.
5.
5.
91
To design, deliver and operate our
To design, deliver and operate our
buildings responsibly
buildings responsibly
Movement during the year
Movement during the year
Risk increased
Risk increased
To maintain strong and flexible financing
To maintain strong and flexible financing
Risk unchanged
Risk unchanged
To attract, retain and develop talented employees
To attract, retain and develop talented employees
Risk decreased
Risk decreased
Financial
Significant steps have been taken in recent years to reduce or mitigate the Group’s financial risks. 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.
The risk that tenants become unable to pay their rents and/or their businesses fail. In
the current environment, this risk has increased to be classified as a principal risk for
• The Credit Committee perform detailed reviews of all prospective tenants.
• A “tenants at risk” register is maintained and regularly reviewed by the Executive
• Rent deposits are held where considered appropriate; the balance at 31 December
Committee and the Board.
2020 was £18.8m.
• Active rent collection with regular reports to the Executive Committee.
• We maintain close and frequent contact with our tenants.
• Insurance for loss of rent is regularly considered.
3. Risk of tenants defaulting or tenant failure
the Group.
Movement during 2020: New principal risk
Due to the economic impact of Covid-19, and its potential long-term implications,
occupiers could be facing increased financial difficulty. Retail and hospitality
occupiers (who account for approximately 9% of our portfolio income) are of
particular concern. Covid-19 has only amplified the weaknesses within the retail
market and there is a strong likelihood that retail rents and values could fall even
further. Our occupiers perceive the restaurant, retail and leisure aspects within our
portfolio as amenities; hence we feel it is important that they are retained within our
building offerings.
Executive responsibility: Paul Williams
4. Risks arising from changing macroeconomic factors
a.
Income decline (previously, ‘Fall in property values’)
Due to the various risk factors, including:
• future demand for office space;
• rising ‘grey’ market vacancy in office space (i.e. tenant controlled vacant space);
• weaknesses in retail and hospitality businesses;
• The Credit Committee receives detailed reviews of all prospective tenants.
• A “tenants at risk” register is maintained and regularly reviewed by the Executive
Committee and the Board.
• Ongoing dialogue is held with tenants to understand their concerns and requirements.
• The Group’s low loan-to-value ratio reduces the likelihood that falls in property values
have a significant impact on our business continuity.
• depth of recession;
• Brexit uncertainty; and
• rising unemployment.
There is a risk that our income could decline which could lead to lower interest cover
under our debt facility financial covenants. This could also have an adverse impact
upon the property valuation and future dividend payments. In addition, depending on
how prolonged the adverse impacts of Covid-19 are on businesses, and how our
occupiers fare during this period, we could face additional risk of income impairment.
Movement during 2020: Increased
In light of Covid-19, we have been monitoring the economic outlook, vacancy rates,
financial health of our tenants and the condition of the wider property market. Given
the ongoing uncertainty, it is difficult to forecast the impact on 2021 EPRA earnings or
cash receipts. Future dividends will remain under review.
Executive responsibility: Paul Williams
seeking views on how the business rates system currently works, issues to be
addressed, ideas for change and a number of alternative means of taxing non-
residential property to either replace or complement the business rates system.
Derwent London is particularly mindful of alternatives being discussed which could
impose a tax on the landowner rather than the tenant. In this respect, Derwent
London will keep abreast of any new developments in this area and consider the
impact of the various proposals once more detail is published.
Movement during 2020: New principal risk
Executive responsibility: Damian Wisniewski
b. The potential impact on our business from the introduction of a new tax to replace or complement business rates
Due to the ongoing weakness of physical retail trading, the cost of supporting the
• The Executive Committee and Board monitor macroeconomic factors, including
economy during Covid-19 and the loss of tax revenues, the government has been
interest rates and tax policy.
reported as considering measures to increase tax revenues. One area that has
dominated the headlines is the reform of business rates. The government has been
of tax policy.
• The Group has an experienced Head of Tax who advises the Board on the implications
Risk
Our key controls
Potential impact
What we did in 2020
What we will be doing in 2021
• We have maintained proactive engagement with our tenants, dealing with their
concerns on a case by case basis and supporting them as appropriate.
• Ensured consistency in our approach to similar tenants and prioritised assistance
to those most affected by Covid-19.
• Reduced service charges by 25% for two quarters.
• In respect of service charges, we agreed reductions in costs across our supply
chain. In total, we achieved savings of c.£1m per quarter against the service charge
budgets.
• We have analysed the sectors which could perform well despite the current
economic difficulties, so that we can better focus our marketing and leasing
activities.
• During 2020, the Credit Committee performed a detailed analysis of our tenant
base, the strength of financial covenants and its future outlook.
• We maintained proactive engagement with our tenants, dealing with their concerns
on a case by case basis and supporting them as appropriate.
• In the light of the Covid-19 outbreak, the Board gave careful consideration to our
obligations to all our stakeholders and agreed that it remained appropriate to pay
the 2019 final dividend of 51.45p per share on 5 June 2020.
• The Board considered the sensitivity of our KPIs to changes in underlying
assumptions including interest rates, timing of projects, level of capital expenditure
and the extent of capital recycling.
• The Group produced a budget, strategic review and 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.
• Continue to support restaurants, retail
and leisure amenities in our buildings.
• We will continue with our current
controls and mitigating actions.
• We will continue with our current
controls and mitigating actions,
including operating the business on a
basis that balances risk and income
generation.
• The Board received political updates from external advisers and monitored the
situation during 2020.
• We will continue with our current
controls and mitigating actions.
• In the event the government opens a
consultation on tax-related policy, we
would respond with our views.
Strategic objectives
1. 2. 5.
Business model
Asset management
KPIs
• Total property return
• EPRA earnings per share
• Interest cover ratio
• Tenant retention
• Void management
Strategic objectives
1. 2. 5.
Business model
Could potentially impact on all
aspects of our business model
KPIs
• Interest cover ratio
• Total return
• Total property return
• Gearing and available resources
Strategic objectives
1. 2. 5.
Business model
Could potentially impact on all
aspects of our business model
KPIs
• Interest cover ratio
• Total return
• Total property return
• Gearing and available resources
Strategic report
92
Our principal risks continued
Operational
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.
Risk
Our key controls
Potential impact
What we did in 2020
What we will be doing in 2021
5. Risks arising from our development activities
a. Reduced development returns
The Group’s development projects do not produce the targeted financial returns due
to one or more of the following factors:
• delay on site;
• increased construction costs; and
• adverse letting conditions.
Movement during 2020: Increased
Due to restrictions introduced to prevent the spread of Covid-19, our on-site
developments have been subject to delays of between one to three months. During
2020, our Development team liaised and agreed with our principal contractors in
respect to Covid-19-related liabilities and cost sharing.
Executive responsibility: Nigel George
b.
‘On-site’ risk
Risk of project delays and/or cost overruns caused by unidentified issues e.g.
asbestos in refurbishments or ground conditions in developments. For example, our
successful pre-letting programme means we could face a loss of rental income and
penalties if projects are delayed.
Movement during 2020: Increased
Due to restrictions introduced to prevent the spread of Covid-19, our on-site
developments have been subject to minor delays. 80 Charlotte Street achieved
practical completion in June 2020, and The Featherstone Building and Soho Place are
still expected to be completed within their original budgets under the revised
programme.
Sites are now operational but are not at full capacity due to social distancing
measures. Despite strict Covid-19 protocols on-site, there is a risk of labour and
resource shortages as UK cases rise, which could lead to productivity disruption and
project delay.
Executive responsibility: Nigel George
c. 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. There have been ongoing issues within the construction industry in respect of
the level of risk and narrow profit margins being accepted by contractors. We regularly
monitor our contractors for any trading concerns.
Movement during 2020: Increased
There is an increased risk of insolvencies in the construction industry when the
government’s Covid-19 furlough scheme ceases. Due to this risk, we have been
actively monitoring the financial health of our main contractors and subcontractors.
Executive responsibility: Nigel George
• Development appraisals, which include contingencies and inflationary cost increases,
are prepared and sensitivity analysis is undertaken to judge whether 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 negotiated.
• 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.
• Detailed reviews are performed on construction projects to ensure that programme
forecasts predicted by our contractors are aligned with our views.
• 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.
• Strict Covid-19 protocols have been introduced at all of our on-site developments, in
accordance with Site Operating Procedures (published by the Construction
Leadership Council).
• Productivity is monitored on a monthly basis and our contractors have been
incentivised to achieve the reset programmes post the Covid-19 site closures.
• 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
• Frequent meetings with key contractors and subcontractors to review their work
requisite quality.
programme.
• Monthly reviews of Brexit-related supply chain issues.
• The financial standing of our main contractors is reviewed prior to awarding the
• Regular monitoring of our contractors, including their project cash flows, is carried
project contract.
out.
• Key construction packages are acquired early in the project’s life to reduce the risks
associated with later default.
• Regular on-site supervision is undertaken by a dedicated Project Manager who
monitors contractor performance and identifies problems at an early stage, thereby
enabling remedial action to be taken.
• Payments to contractors to incentivise them to achieve agreed project timescale and
damages agreed in the event of delays/cost overruns.
• Our main contractors are responsible for, and assume the immediate risk of,
• We use known contractors with whom we have established long-term working
subcontractor default.
relationships.
• Contractors are paid promptly and are encouraged to pay subcontractors promptly.
Business model
Could potentially impact on all aspects
of our business model
contractors.
Strategic objectives
1. 2. 5.
KPIs
• Total return
• Total property return
• Total shareholder return
• We have a flexible development pipeline and, where appropriate, we deferred
expenditure and decisions on future projects while keeping very close to our
contractors, professional consultants and the project teams on site.
• Agreed revised timeframes for achieving practical completion and the
apportionment of cost with our Soho Place and The Featherstone Building
• Monitored construction cost inflation in relation to future projects.
• The Board and Executive Committee received regular updates on our principal
developments including construction costs.
• In respect to our de-risking strategy, we have pre-let 84% of Soho Place.
• Both major on-site developments are progressing well. 100% of the costs for
The Featherstone Building, and 99.7% of the costs for Soho Place, have been agreed
and fixed.
• Continue with our current controls and
mitigating actions with a major focus on
project monitoring.
• Monitored and agreed the impact and risks of Covid-19 on our supply chain and
• Continue with our current controls and
other aspects of each project.
• The Board and Executive Committee received regular updates on our principal
mitigating actions.
developments.
• 100% of the costs for The Featherstone Building, and 99.7% of the costs for Soho
Place, have been agreed and fixed.
• Quarterly cost reports provided an update on development progress from a cost,
Adding value for stakeholders
profitability and programme perspective.
Strategic objectives
1. 2. 4.
Business model
Our core activities
KPIs
• Total return
• Total property return
• Total shareholder return
• Engaged continuously with our contractors, subcontractors and supply chain during
• Continue with our current controls and
mitigating actions.
Strategic objectives
1. 2. 4.
Business model
Our core activities
KPIs
• Total return
• Total property return
• Total shareholder return
• Agreed the apportioning of risk and costs between Derwent London and the
the Covid-19 pandemic.
contractors.
• Reduced retention from 3% to 2% against gross value certified to date to accelerate
cash flow to our supply chain, and suppliers were paid on average within 20 days.
• Accepted early ordering of materials ahead of their need on site to accelerate cash
• Worked alongside local authorities to extend permissible working hours on site.
• The Board and Executive Committee received regular updates on our principal
developments.
• Quarterly cost reports provided an update on development progress from a cost,
profitability and programme perspective.
Adding value for stakeholders
flow to our supply chain.
Derwent London plc Report & Accounts 2020
Key
Strategic objectives
1.
2.
3.
To optimise returns and create value from
a balanced portfolio
To grow recurring earnings and cash flow
4.
5.
93
To design, deliver and operate our
buildings responsibly
Movement during the year
Risk increased
To maintain strong and flexible financing
Risk unchanged
To attract, retain and develop talented employees
Risk decreased
Operational
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.
5. Risks arising from our development activities
a. Reduced development returns
The Group’s development projects do not produce the targeted financial returns due
to one or more of the following factors:
• delay on site;
• increased construction costs; and
• adverse letting conditions.
Movement during 2020: Increased
Due to restrictions introduced to prevent the spread of Covid-19, our on-site
developments have been subject to delays of between one to three months. During
2020, our Development team liaised and agreed with our principal contractors in
respect to Covid-19-related liabilities and cost sharing.
Executive responsibility: Nigel George
lessons learned.
• Development appraisals, which include contingencies and inflationary cost increases,
are prepared and sensitivity analysis is undertaken to judge whether 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 negotiated.
• 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.
• Detailed reviews are performed on construction projects to ensure that programme
forecasts predicted by our contractors are aligned with our views.
• Post-completion reviews are carried out for all major developments to ensure
that improvements to the Group’s procedures are identified, implemented and
b.
‘On-site’ risk
penalties if projects are delayed.
Movement during 2020: Increased
Risk of project delays and/or cost overruns caused by unidentified issues e.g.
asbestos in refurbishments or ground conditions in developments. For example, our
• Strict Covid-19 protocols have been introduced at all of our on-site developments, in
accordance with Site Operating Procedures (published by the Construction
successful pre-letting programme means we could face a loss of rental income and
Leadership Council).
• Productivity is monitored on a monthly basis and our contractors have been
incentivised to achieve the reset programmes post the Covid-19 site closures.
• 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
• Frequent meetings with key contractors and subcontractors to review their work
• Monthly reviews of Brexit-related supply chain issues.
Due to restrictions introduced to prevent the spread of Covid-19, our on-site
developments have been subject to minor delays. 80 Charlotte Street achieved
practical completion in June 2020, and The Featherstone Building and Soho Place are
still expected to be completed within their original budgets under the revised
requisite quality.
programme.
programme.
project delay.
Sites are now operational but are not at full capacity due to social distancing
measures. Despite strict Covid-19 protocols on-site, there is a risk of labour and
resource shortages as UK cases rise, which could lead to productivity disruption and
Executive responsibility: Nigel George
c. Contractor/subcontractor default
monitor our contractors for any trading concerns.
Movement during 2020: Increased
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 contract.
project. There have been ongoing issues within the construction industry in respect of
the level of risk and narrow profit margins being accepted by contractors. We regularly
out.
• The financial standing of our main contractors is reviewed prior to awarding the
• Regular monitoring of our contractors, including their project cash flows, is carried
• Key construction packages are acquired early in the project’s life to reduce the risks
associated with later default.
• Regular on-site supervision is undertaken by a dedicated Project Manager who
monitors contractor performance and identifies problems at an early stage, thereby
enabling remedial action to be taken.
• Payments to contractors to incentivise them to achieve agreed project timescale and
damages agreed in the event of delays/cost overruns.
• Our main contractors are responsible for, and assume the immediate risk of,
• We use known contractors with whom we have established long-term working
subcontractor default.
relationships.
• Contractors are paid promptly and are encouraged to pay subcontractors promptly.
There is an increased risk of insolvencies in the construction industry when the
government’s Covid-19 furlough scheme ceases. Due to this risk, we have been
actively monitoring the financial health of our main contractors and subcontractors.
Executive responsibility: Nigel George
Risk
Our key controls
Potential impact
What we did in 2020
What we will be doing in 2021
Strategic objectives
1. 2. 5.
Business model
Could potentially impact on all aspects
of our business model
KPIs
• Total return
• Total property return
• Total shareholder return
Strategic objectives
1. 2. 4.
Business model
Our core activities
Adding value for stakeholders
KPIs
• Total return
• Total property return
• Total shareholder return
Strategic objectives
1. 2. 4.
Business model
Our core activities
Adding value for stakeholders
KPIs
• Total return
• Total property return
• Total shareholder return
• We have a flexible development pipeline and, where appropriate, we deferred
expenditure and decisions on future projects while keeping very close to our
contractors, professional consultants and the project teams on site.
• Agreed revised timeframes for achieving practical completion and the
apportionment of cost with our Soho Place and The Featherstone Building
contractors.
• Monitored construction cost inflation in relation to future projects.
• The Board and Executive Committee received regular updates on our principal
developments including construction costs.
• In respect to our de-risking strategy, we have pre-let 84% of Soho Place.
• Both major on-site developments are progressing well. 100% of the costs for
The Featherstone Building, and 99.7% of the costs for Soho Place, have been agreed
and fixed.
• Monitored and agreed the impact and risks of Covid-19 on our supply chain and
other aspects of each project.
• The Board and Executive Committee received regular updates on our principal
developments.
• 100% of the costs for The Featherstone Building, and 99.7% of the costs for Soho
Place, have been agreed and fixed.
• Quarterly cost reports provided an update on development progress from a cost,
profitability and programme perspective.
• Engaged continuously with our contractors, subcontractors and supply chain during
• Agreed the apportioning of risk and costs between Derwent London and the
the Covid-19 pandemic.
contractors.
• Reduced retention from 3% to 2% against gross value certified to date to accelerate
cash flow to our supply chain, and suppliers were paid on average within 20 days.
• Accepted early ordering of materials ahead of their need on site to accelerate cash
flow to our supply chain.
• Worked alongside local authorities to extend permissible working hours on site.
• The Board and Executive Committee received regular updates on our principal
developments.
• Quarterly cost reports provided an update on development progress from a cost,
profitability and programme perspective.
• Continue with our current controls and
mitigating actions with a major focus on
project monitoring.
• Continue with our current controls and
mitigating actions.
• Continue with our current controls and
mitigating actions.
Strategic report
94
Our principal risks continued
Operational continued
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.
Risk
Our key controls
Potential impact
What we did in 2020
What we will be doing in 2021
6. Risk of business interruption
a. Cyber attack on our IT systems
The Group is subject to a cyber attack that results in it being unable to use its IT
systems and/or losing data. This could lead to an increase in costs whilst a significant
diversion of management time would have a wider impact. Considerable time has
been spent assessing cyber risk and strengthening our controls and procedures.
Movement during 2020: Increased
During 2020, there has been an increase in cyber attacks being perpetrated as cyber
criminals seek to exploit Covid-19. In response, we identified the key IT risks arising
from home working and implemented additional controls.
Executive responsibility: Damian Wisniewski
b. Cyber attack on our buildings
The Group is subject to a cyber attack that results in data breaches or significant
disruption to IT-enabled tenant services. Buildings are becoming ‘intelligent’, with an
increase in internet enabled devices broadening the cyber security threat landscape.
Movement during 2020: Unchanged
The potential impact of a cyber attack on our buildings has reduced due to the winding
down of services and overall low occupancy caused by Covid-19. Conversely, the
potential risk of this occurring has increased due to low occupancy levels which could
provide an opportunity for attack. During the lockdown, 24/7 security was provided by
outsourced providers.
Executive responsibility: David Silverman
• The Group’s Business Continuity Plan is regularly reviewed and tested.
• Independent internal and external ‘penetration’ tests are regularly conducted to
assess the effectiveness of the Group’s security.
• Multi-Factor Authentication exists for remote access to our systems.
• Incident response and remediation processes are in place, which are regularly
reviewed and tested.
• The Group’s data is regularly backed up and replicated off-site.
• Our IT systems are protected by anti-virus software, security anomaly detection and
firewalls that are frequently updated.
• Frequent staff awareness and training programmes.
• Security measures are regularly reviewed by the DIT department.
• The Group has been awarded the ‘Cyber Essentials’ badge to demonstrate our
commitment to cyber security.
• Each building has incident management procedures which are regularly reviewed and
• Physical segregation between the building’s core IT infrastructure and tenants’
tested.
corporate IT networks.
• Physical segregation of IT infrastructure between buildings across the portfolio.
• Inclusion of Building Managers in any cyber security awareness training and phishing
simulations.
c.
Significant business interruption (for example, pandemic, terrorism-related event or other business interruption)
(previously, ‘Terrorism-related or other business interruption’)
Could potentially impact on all aspects
protection for remote workers.
• All employees who did not already have work laptops, were issued with fully
encrypted and security hardened business-laptops to remove the need for personal
• Implement the recommendations
arising from the Capgemini cyber
• Introduced a secure internet gateway to mitigate the risk of internet-borne threats
computers.
during home working.
• Migrated to a cloud managed anti-virus and security platform to enhance
plans.
security audit.
• Further develop our IT governance
framework and incident response
• Implement further security controls to
enhance our layered defence model.
Strategic objectives
1. 2. 3. 4. 5.
Business model
of our business model
KPIs
• Total shareholder return
• Introduced OneDrive for business and Microsoft Teams to provide secure external
file sharing and video conferencing capabilities.
• Introduced Multi-Factor Authentication on all Office 365 accounts.
• Provided additional employee security awareness training and guidance on remote
working security best practices.
• Introduced Data Leak Prevention to mitigate the risk of personal data breaches.
• Conducted monthly vulnerability scans.
• Conducted simulated ‘phishing’ exercises as part of the ongoing security awareness
• Configured secure VPN connections for remote workers.
• Capgemini performed a cyber security audit during 2020. In addition, we
implemented the RSM recommendations which arose from the 2019 internal audit
programme.
review.
• Reviewed and updated our portfolio IT cyber security strategy.
• Completed cyber gap analysis audits.
• Contributed to security best practice documents as part of the Internet of Things
Security Foundation (IoTSF) Smart Buildings Working Group with stakeholders from
plans.
• Further develop our IT governance
framework and incident response
• Implement further security controls to
enhance our layered defence model.
across the commercial real estate industry.
• Conducted security reviews on network designs for any new buildings or
Strategic objectives
1. 2. 3. 4. 5.
Business model
of our business model
KPIs
• Total shareholder return
Could potentially impact on all aspects
refurbishments.
• Completed ‘smart school’ training for key stakeholders to raise awareness of the
IoTSF and the associated inherent cyber security risks.
• Sent phishing simulation tests to Building Managers.
• Completed mandatory security awareness training for all staff, including Building
Managers.
• The Executive Committee monitored the Covid-19 outbreak and its potential
implications since early-January 2020 with support from the Health & Safety
• Review the results of the internal audit
review into our response to Covid-19
Strategic objectives
1. 2. 3. 4. 5.
Business model
Could potentially impact on all aspects
of our business model
KPIs
• Could impact on any Group KPIs
managed portfolio.
Committee and a Covid-19 Working Group.
• RSM performed an internal audit into our response to Covid-19.
• Additional Board and Committee meetings were held during 2020 to respond to the
Covid-19 pandemic.
• Active engagement with tenants, our supply chain and employees.
• Implemented detailed ‘return to work’ procedures for 25 Savile Row and our
managed portfolio to ensure the safety of employees and occupiers.
• Updated our incident management procedures for each of the buildings in the
• Provided training to our Building Managers on the management of major incidents.
• Ensured that our employees have the right technology and resources to work as
effectively as possible from home, and that our communications with all
stakeholders are as transparent and informative as they can be.
and implement any arising
recommendations.
• Continue to work closely with, and
support, our occupiers and supply
chain.
• Continue with our current controls and
mitigating actions.
The risk that a pandemic, terrorism-related event or other business interruption
causes significant business interruption to the Group and/or its occupiers or supply
chain. This could result in issues such as inability to access or operate our properties,
tenant failures or reduced rental income, share price volatility, loss of key suppliers,
etc.
Movement during 2020: Increased
Covid-19 has caused significant business interruption for some of our occupiers,
particularly retail, travel, restaurants or other leisure services. During 2020, there has
been limited business interruption for Derwent London; however, the lockdown has
caused a delay to our development activities and reduction in cash flow due to
deferment, concessions or non-payment of rent.
Executive responsibility: All Executive Directors
• 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.
• Government health guidelines are maintained at all of our construction sites.
• Most of our employees are capable of working remotely and have the necessary IT
• Fire protection and access/security procedures are in place at all of our managed
• At least annually, a fire risk assessment and health and safety inspection are
performed for each property in our managed portfolio.
• Robust security at our buildings, including CCTV and access controls.
• Comprehensive property damage and business interruption insurance which includes
resources.
properties.
terrorism.
Derwent London plc Report & Accounts 2020
Key
Strategic objectives
1.
2.
3.
To optimise returns and create value from
a balanced portfolio
To grow recurring earnings and cash flow
4.
5.
95
To design, deliver and operate our
buildings responsibly
Movement during the year
Risk increased
To maintain strong and flexible financing
Risk unchanged
To attract, retain and develop talented employees
Risk decreased
Operational continued
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.
6. Risk of business interruption
a. Cyber attack on our IT systems
The Group is subject to a cyber attack that results in it being unable to use its IT
systems and/or losing data. This could lead to an increase in costs whilst a significant
• The Group’s Business Continuity Plan is regularly reviewed and tested.
• Independent internal and external ‘penetration’ tests are regularly conducted to
diversion of management time would have a wider impact. Considerable time has
assess the effectiveness of the Group’s security.
been spent assessing cyber risk and strengthening our controls and procedures.
Movement during 2020: Increased
During 2020, there has been an increase in cyber attacks being perpetrated as cyber
criminals seek to exploit Covid-19. In response, we identified the key IT risks arising
from home working and implemented additional controls.
Executive responsibility: Damian Wisniewski
• Multi-Factor Authentication exists for remote access to our systems.
• Incident response and remediation processes are in place, which are regularly
reviewed and tested.
• The Group’s data is regularly backed up and replicated off-site.
• Our IT systems are protected by anti-virus software, security anomaly detection and
firewalls that are frequently updated.
• Frequent staff awareness and training programmes.
• Security measures are regularly reviewed by the DIT department.
• The Group has been awarded the ‘Cyber Essentials’ badge to demonstrate our
commitment to cyber security.
b. Cyber attack on our buildings
The Group is subject to a cyber attack that results in data breaches or significant
disruption to IT-enabled tenant services. Buildings are becoming ‘intelligent’, with an
tested.
increase in internet enabled devices broadening the cyber security threat landscape.
Movement during 2020: Unchanged
• Each building has incident management procedures which are regularly reviewed and
• Physical segregation between the building’s core IT infrastructure and tenants’
corporate IT networks.
• Physical segregation of IT infrastructure between buildings across the portfolio.
• Inclusion of Building Managers in any cyber security awareness training and phishing
simulations.
The potential impact of a cyber attack on our buildings has reduced due to the winding
down of services and overall low occupancy caused by Covid-19. Conversely, the
potential risk of this occurring has increased due to low occupancy levels which could
provide an opportunity for attack. During the lockdown, 24/7 security was provided by
outsourced providers.
Executive responsibility: David Silverman
c.
Significant business interruption (for example, pandemic, terrorism-related event or other business interruption)
(previously, ‘Terrorism-related or other business interruption’)
The risk that a pandemic, terrorism-related event or other business interruption
causes significant business interruption to the Group and/or its occupiers or supply
• The Group has comprehensive business continuity and incident management
procedures both at Group level and for each of our managed buildings which are
chain. This could result in issues such as inability to access or operate our properties,
regularly reviewed and tested.
tenant failures or reduced rental income, share price volatility, loss of key suppliers,
etc.
Movement during 2020: Increased
• Government health guidelines are maintained at all of our construction sites.
• Most of our employees are capable of working remotely and have the necessary IT
• Fire protection and access/security procedures are in place at all of our managed
• Comprehensive property damage and business interruption insurance which includes
resources.
properties.
terrorism.
• At least annually, a fire risk assessment and health and safety inspection are
performed for each property in our managed portfolio.
• Robust security at our buildings, including CCTV and access controls.
Covid-19 has caused significant business interruption for some of our occupiers,
particularly retail, travel, restaurants or other leisure services. During 2020, there has
been limited business interruption for Derwent London; however, the lockdown has
caused a delay to our development activities and reduction in cash flow due to
deferment, concessions or non-payment of rent.
Executive responsibility: All Executive Directors
Risk
Our key controls
Potential impact
What we did in 2020
What we will be doing in 2021
Strategic objectives
1. 2. 3. 4. 5.
Business model
Could potentially impact on all aspects
of our business model
KPIs
• Total shareholder return
Strategic objectives
1. 2. 3. 4. 5.
Business model
Could potentially impact on all aspects
of our business model
KPIs
• Total shareholder return
Strategic objectives
1. 2. 3. 4. 5.
Business model
Could potentially impact on all aspects
of our business model
KPIs
• Could impact on any Group KPIs
• All employees who did not already have work laptops, were issued with fully
encrypted and security hardened business-laptops to remove the need for personal
computers.
• Introduced a secure internet gateway to mitigate the risk of internet-borne threats
during home working.
• Migrated to a cloud managed anti-virus and security platform to enhance
protection for remote workers.
• Introduced OneDrive for business and Microsoft Teams to provide secure external
file sharing and video conferencing capabilities.
• Introduced Multi-Factor Authentication on all Office 365 accounts.
• Provided additional employee security awareness training and guidance on remote
working security best practices.
• Introduced Data Leak Prevention to mitigate the risk of personal data breaches.
• Conducted monthly vulnerability scans.
• Conducted simulated ‘phishing’ exercises as part of the ongoing security awareness
programme.
• Configured secure VPN connections for remote workers.
• Capgemini performed a cyber security audit during 2020. In addition, we
implemented the RSM recommendations which arose from the 2019 internal audit
review.
• Reviewed and updated our portfolio IT cyber security strategy.
• Completed cyber gap analysis audits.
• Contributed to security best practice documents as part of the Internet of Things
Security Foundation (IoTSF) Smart Buildings Working Group with stakeholders from
across the commercial real estate industry.
• Conducted security reviews on network designs for any new buildings or
refurbishments.
• Completed ‘smart school’ training for key stakeholders to raise awareness of the
IoTSF and the associated inherent cyber security risks.
• Sent phishing simulation tests to Building Managers.
• Completed mandatory security awareness training for all staff, including Building
Managers.
• The Executive Committee monitored the Covid-19 outbreak and its potential
implications since early-January 2020 with support from the Health & Safety
Committee and a Covid-19 Working Group.
• RSM performed an internal audit into our response to Covid-19.
• Additional Board and Committee meetings were held during 2020 to respond to the
Covid-19 pandemic.
• Active engagement with tenants, our supply chain and employees.
• Implemented detailed ‘return to work’ procedures for 25 Savile Row and our
managed portfolio to ensure the safety of employees and occupiers.
• Updated our incident management procedures for each of the buildings in the
managed portfolio.
• Provided training to our Building Managers on the management of major incidents.
• Ensured that our employees have the right technology and resources to work as
effectively as possible from home, and that our communications with all
stakeholders are as transparent and informative as they can be.
• Implement the recommendations
arising from the Capgemini cyber
security audit.
• Further develop our IT governance
framework and incident response
plans.
• Implement further security controls to
enhance our layered defence model.
• Further develop our IT governance
framework and incident response
plans.
• Implement further security controls to
enhance our layered defence model.
• Review the results of the internal audit
review into our response to Covid-19
and implement any arising
recommendations.
• Continue to work closely with, and
support, our occupiers and supply
chain.
• Continue with our current controls and
mitigating actions.
Strategic report
96
Our principal risks continued
Operational continued
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.
Risk
Our key controls
Potential impact
What we did in 2020
What we will be doing in 2021
7. Reputational damage
The Group’s reputation is damaged, for example through unauthorised and/or
inaccurate media coverage or failure to comply with relevant legislation. We have
invested significantly in developing a well-regarded and respected brand. Our strong
culture, low overall risk tolerance and established procedures and policies mitigate
against the risk of internal wrongdoing.
Movement during 2020: Unchanged
How the Group responds to, and manages, the Covid-19 pandemic could either
enhance or damage our reputation. Feedback on how we have responded, particularly
in respect to our occupiers, suppliers, employees and Community Fund, has generally
been positive.
Executive responsibility: All Executive Directors
8. Our resilience to climate change
The Group fails to respond appropriately, and sufficiently, to climate change risks or
fails to benefit from the potential opportunities. This could lead to damage to our
reputation, loss of income and/or property values and loss of our licence to operate.
Movement during 2020: Unchanged
In July we published our Net Zero Carbon Pathway, which sets out in more detail how
we will become a net zero carbon business by 2030.
Executive responsibility: Paul Williams
• Close involvement of senior management in day-to-day operations and established
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
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.
• Staff training and awareness programmes.
• The Board and Executive Committee receive regular updates and presentations on
environmental and sustainability performance and management matters as well as
progress against our pathway to becoming net zero carbon by 2030.
• The Sustainability Committee monitors our performance and management controls.
• Strong team led by an experienced Head of Sustainability.
• The Group monitors its ESG (environmental, social and governance) reporting against
• Production of an annual Responsibility Report with key data and performance points
various industry benchmarks.
which are externally assured.
• In 2017 we adopted independently verified science-based carbon targets which have
been approved by the Science-Based Targets Initiative (SBTi).
Strategic objectives
1. 2. 3. 4. 5.
Business model
In order to support our community during Covid-19:
• Ensured the market and our key stakeholders were kept updated on our response to
• Followed a proactive and personalised response to our tenants facing difficulties
requirements.
Covid-19.
due to Covid-19.
• Continue communicating to, and
listening to, our stakeholders.
• Continue to support those in need.
• Continue to support our staff’s training
• Continue with our current controls and
mitigating actions.
Could potentially impact on all aspects
of our business model
KPIs
• Total return
• Total property return
• Total shareholder return
• The Directors waived 20% of their base salaries or fees for a three month period,
effective from 1 April 2020, which was used for charitable purposes.
• We increased our charitable donations, sponsorships and community funding by
• Worked with relevant agencies to provide accommodation and carparking to NHS
179% to £1.1m in 2020.
staff in central London.
• Continued to implement a mandatory compliance training programme for all
employees (including Directors).
Could indirectly impact on a number of
• Monitored investor views and press comments while maintaining contact with other
our other KPIs
stakeholders.
• Invested in a social media strategy, including providing some staff with additional
social media training.
• Prepared and published our pathway to become net zero carbon by 2030.
• Published our annual Responsibility Report in April 2020.
• Started investigations into off-site renewable energy generation opportunities
available to us to reduce our market-based dependency.
• We will look to align our SBTi targets to a
more challenging 1.5°C climate
scenario inline with our net zero carbon
ambition.
• Willis Towers Watson were engaged to assist in the identification, assessment and
quantification of climate related risks and opportunities under pre-defined climate
• A senior level working group will be
created, with input from technical
Could potentially impact on all aspects
scenarios (see page 49).
experts, to explore the implications,
practicalities, and possible
management responses to the
proposed legislation in the
government’s latest energy white
paper.
• Continue with our current controls and
mitigating actions.
Strategic objectives
1. 3. 4.
Business model
of our business model
KPIs
• Total return
• BREEAM rating
• Science based carbon target
performance
• Total shareholder return
A significant diversion of time could
affect a wider range of KPIs
Derwent London plc Report & Accounts 2020
Key
Strategic objectives
1.
2.
3.
To optimise returns and create value from
a balanced portfolio
To grow recurring earnings and cash flow
4.
5.
97
To design, deliver and operate our
buildings responsibly
Movement during the year
Risk increased
To maintain strong and flexible financing
Risk unchanged
To attract, retain and develop talented employees
Risk decreased
Operational continued
7. Reputational damage
against the risk of internal wrongdoing.
Movement during 2020: Unchanged
The Group’s reputation is damaged, for example through unauthorised and/or
• Close involvement of senior management in day-to-day operations and established
inaccurate media coverage or failure to comply with relevant legislation. We have
procedures for approving all external announcements.
invested significantly in developing a well-regarded and respected brand. Our strong
• All new members of staff benefit from an induction programme and are issued with
culture, low overall risk tolerance and established procedures and policies mitigate
our Group staff handbook.
• The Group employs a Head of Investor and Corporate Communications and retains
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.
• Staff training and awareness programmes.
How the Group responds to, and manages, the Covid-19 pandemic could either
enhance or damage our reputation. Feedback on how we have responded, particularly
in respect to our occupiers, suppliers, employees and Community Fund, has generally
been positive.
Executive responsibility: All Executive Directors
8. Our resilience to climate change
The Group fails to respond appropriately, and sufficiently, to climate change risks or
fails to benefit from the potential opportunities. This could lead to damage to our
• The Board and Executive Committee receive regular updates and presentations on
environmental and sustainability performance and management matters as well as
reputation, loss of income and/or property values and loss of our licence to operate.
progress against our pathway to becoming net zero carbon by 2030.
Movement during 2020: Unchanged
• The Sustainability Committee monitors our performance and management controls.
• Strong team led by an experienced Head of Sustainability.
• The Group monitors its ESG (environmental, social and governance) reporting against
• Production of an annual Responsibility Report with key data and performance points
various industry benchmarks.
which are externally assured.
• In 2017 we adopted independently verified science-based carbon targets which have
been approved by the Science-Based Targets Initiative (SBTi).
In July we published our Net Zero Carbon Pathway, which sets out in more detail how
we will become a net zero carbon business by 2030.
Executive responsibility: Paul Williams
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.
Risk
Our key controls
Potential impact
What we did in 2020
What we will be doing in 2021
Strategic objectives
1. 2. 3. 4. 5.
Business model
Could potentially impact on all aspects
of our business model
KPIs
• Total return
• Total property return
• Total shareholder return
Could indirectly impact on a number of
our other KPIs
Strategic objectives
1. 3. 4.
Business model
Could potentially impact on all aspects
of our business model
KPIs
• Total return
• BREEAM rating
• Science based carbon target
performance
• Total shareholder return
A significant diversion of time could
affect a wider range of KPIs
In order to support our community during Covid-19:
• Ensured the market and our key stakeholders were kept updated on our response to
• Followed a proactive and personalised response to our tenants facing difficulties
requirements.
Covid-19.
due to Covid-19.
• Continue communicating to, and
listening to, our stakeholders.
• Continue to support those in need.
• Continue to support our staff’s training
• Continue with our current controls and
mitigating actions.
• The Directors waived 20% of their base salaries or fees for a three month period,
effective from 1 April 2020, which was used for charitable purposes.
• We increased our charitable donations, sponsorships and community funding by
• Worked with relevant agencies to provide accommodation and carparking to NHS
179% to £1.1m in 2020.
staff in central London.
• Continued to implement a mandatory compliance training programme for all
employees (including Directors).
• Monitored investor views and press comments while maintaining contact with other
• Invested in a social media strategy, including providing some staff with additional
stakeholders.
social media training.
• Prepared and published our pathway to become net zero carbon by 2030.
• Published our annual Responsibility Report in April 2020.
• Started investigations into off-site renewable energy generation opportunities
available to us to reduce our market-based dependency.
• Willis Towers Watson were engaged to assist in the identification, assessment and
quantification of climate related risks and opportunities under pre-defined climate
scenarios (see page 49).
• We will look to align our SBTi targets to a
more challenging 1.5°C climate
scenario inline with our net zero carbon
ambition.
• A senior level working group will be
created, with input from technical
experts, to explore the implications,
practicalities, and possible
management responses to the
proposed legislation in the
government’s latest energy white
paper.
• Continue with our current controls and
mitigating actions.
Strategic report
98
Our principal risks continued
Operational continued
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.
Risk
Our key controls
Potential impact
What we did in 2020
What we will be doing in 2021
9. Non-compliance with regulation
a. 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.
Movement during 2020: Unchanged
During 2020, the health and wellbeing of our employees, occupiers and other
stakeholders has been a top priority. We have invested additional resources into
health and safety (see page 54).
Executive responsibility: Paul Williams
b. 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 2020: Unchanged
During 2020, we followed the UK government’s regulations in respect of
social distancing and safe working practices. In accordance with disclosure
requirements, we ensured our stakeholders and the wider investment market
were kept appraised of Derwent London’s response to Covid-19 and its impact
on our business.
Executive responsibility: Damian Wisniewski
• All our properties have the relevant health, safety and fire management procedures in
place which are reviewed annually.
• The Group has a qualified Health and Safety team whose performance is monitored
and managed by the Health and Safety Committee.
• Health and safety statutory compliance within our managed portfolio is managed and
monitored using QUOODA, a software compliance platform. This is supported by
annual property health checks.
• The Construction Health and Safety Manager, with the support of external advisers,
reviews health, safety and welfare on each construction site on a monthly basis.
• The Board and Executive Committee receive frequent updates and presentations on
key health and safety matters.
• The Board and 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.
anonymously.
• A Group whistleblowing system for staff is maintained to report wrongdoing
• Managing our properties to ensure they are compliant with the Minimum Energy
Efficiency Standards (MEES) for Energy Performance Certificates (EPCs).
• Our Head of Health and Safety was part of the Construction Leadership Council
(CLC) Covid-19 Task Force which recently published guidance for contractors
• Continue with our current controls and
mitigating actions.
Strategic objectives
1. 2. 3. 4. 5.
Business model
Could potentially impact on all aspects
of our business model
KPIs
• Total shareholder return
A significant diversion of time could
affect a wider range of KPIs
on-site operating procedures.
• Published a health and wellbeing guide for employees working from home.
• Performed detailed health and safety risk assessments of 25 Savile Row and
common areas within the managed portfolio and implemented initiatives aimed at
preserving social distancing and protecting our employees and occupiers.
• Performed a detailed health and safety audit of all residential properties and a
property health check of all commercial properties in our managed portfolio.
• Developed a health and safety knowledge library where all our procedures and
standards are made available to both internal and external stakeholders.
• Developed and implemented robust CDM procedures rolled out to our internal and
external project managers and our managed portfolio.
• Worked with our external fire consultants to become the first UK property company
to implement a new Fire Safety Management System in line with BS9997 in
preparation for the new Building Fire Safety Bill (see page 55).
• The Health and Safety Committee received regular health and safety reports from
the Director of Developments and Head of Health and Safety for each of our
construction sites during the year.
• Deloitte performed an assurance audit of our health and safety figures (see
page 62).
• Despite home working, our employees continued to follow the Group’s normal
compliance procedures, including in respect of the signing of documentation and
• Continue with our current controls and
mitigating actions.
Could potentially impact on all aspects
guidelines and was held on 15 May 2020.
Strategic objectives
3. 4. 5.
Business model
of our business model
KPIs
• Total shareholder return
A significant diversion of time could
affect a wider range of KPIs
delegated authorities.
• Our 2019 Annual Report and Responsibility Report was successfully published
despite lockdown restrictions.
• Our AGM arrangements were amended to be in accordance with UK government
• Quarterly review of our anti-bribery and corruption procedures by the Risk
Committee.
• Continued to implement a compliance training programme, mandatory for all
employees including the Board.
• As part of our 2020 staff performance appraisals, all employees confirmed they
have reviewed and understood Group policies.
Derwent London plc Report & Accounts 2020
Key
Strategic objectives
1.
2.
3.
To optimise returns and create value from
a balanced portfolio
To grow recurring earnings and cash flow
4.
5.
99
To design, deliver and operate our
buildings responsibly
Movement during the year
Risk increased
To maintain strong and flexible financing
Risk unchanged
To attract, retain and develop talented employees
Risk decreased
Operational continued
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.
9. Non-compliance with regulation
a. Non-compliance with health and safety legislation
and/or loss of our licence to operate.
Movement during 2020: Unchanged
During 2020, the health and wellbeing of our employees, occupiers and other
stakeholders has been a top priority. We have invested additional resources into
health and safety (see page 54).
Executive responsibility: Paul Williams
The Group’s cost base is increased and management time is diverted through an
• All our properties have the relevant health, safety and fire management procedures in
incident or breach of health and safety legislation leading to reputational damage
place which are reviewed annually.
• The Group has a qualified Health and Safety team whose performance is monitored
and managed by the Health and Safety Committee.
• Health and safety statutory compliance within our managed portfolio is managed and
monitored using QUOODA, a software compliance platform. This is supported by
annual property health checks.
• The Construction Health and Safety Manager, with the support of external advisers,
reviews health, safety and welfare on each construction site on a monthly basis.
• The Board and Executive Committee receive frequent updates and presentations on
key health and safety matters.
b. 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 2020: Unchanged
During 2020, we followed the UK government’s regulations in respect of
social distancing and safe working practices. In accordance with disclosure
requirements, we ensured our stakeholders and the wider investment market
were kept appraised of Derwent London’s response to Covid-19 and its impact
on our business.
Executive responsibility: Damian Wisniewski
• The Board and 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.
anonymously.
• A Group whistleblowing system for staff is maintained to report wrongdoing
• Managing our properties to ensure they are compliant with the Minimum Energy
Efficiency Standards (MEES) for Energy Performance Certificates (EPCs).
Risk
Our key controls
Potential impact
What we did in 2020
What we will be doing in 2021
Strategic objectives
1. 2. 3. 4. 5.
Business model
Could potentially impact on all aspects
of our business model
KPIs
• Total shareholder return
A significant diversion of time could
affect a wider range of KPIs
Strategic objectives
3. 4. 5.
Business model
Could potentially impact on all aspects
of our business model
KPIs
• Total shareholder return
A significant diversion of time could
affect a wider range of KPIs
• Our Head of Health and Safety was part of the Construction Leadership Council
(CLC) Covid-19 Task Force which recently published guidance for contractors
on-site operating procedures.
• Published a health and wellbeing guide for employees working from home.
• Performed detailed health and safety risk assessments of 25 Savile Row and
common areas within the managed portfolio and implemented initiatives aimed at
preserving social distancing and protecting our employees and occupiers.
• Performed a detailed health and safety audit of all residential properties and a
property health check of all commercial properties in our managed portfolio.
• Developed a health and safety knowledge library where all our procedures and
standards are made available to both internal and external stakeholders.
• Developed and implemented robust CDM procedures rolled out to our internal and
external project managers and our managed portfolio.
• Worked with our external fire consultants to become the first UK property company
to implement a new Fire Safety Management System in line with BS9997 in
preparation for the new Building Fire Safety Bill (see page 55).
• The Health and Safety Committee received regular health and safety reports from
the Director of Developments and Head of Health and Safety for each of our
construction sites during the year.
• Deloitte performed an assurance audit of our health and safety figures (see
page 62).
• Despite home working, our employees continued to follow the Group’s normal
compliance procedures, including in respect of the signing of documentation and
delegated authorities.
• Our 2019 Annual Report and Responsibility Report was successfully published
despite lockdown restrictions.
• Our AGM arrangements were amended to be in accordance with UK government
guidelines and was held on 15 May 2020.
• Quarterly review of our anti-bribery and corruption procedures by the Risk
Committee.
• Continued to implement a compliance training programme, mandatory for all
employees including the Board.
• As part of our 2020 staff performance appraisals, all employees confirmed they
have reviewed and understood Group policies.
• Continue with our current controls and
mitigating actions.
• Continue with our current controls and
mitigating actions.
Strategic report
100
Derwent London plc Report & Accounts 2020
Governance
101
Governance
Introduction from the Chairman ........................102
Governance at a glance .........................................103
The section 172(1) statement ..............................104
Board of Directors ...................................................106
Senior management ...............................................108
Corporate governance statement ......................110
Nominations Committee report .........................124
Audit Committee report ........................................130
Risk Committee report ..........................................138
Responsible Business
Committee report ....................................................146
Remuneration Committee report
Annual statement ...............................................150
Remuneration at a glance ................................152
Annual report on remuneration .....................153
Schedule to the annual report
on remuneration ..................................................167
Directors’ report ......................................................172
BCG looks forward to making
80 Charlotte Street our new home
in mid-2021. Now that construction
has finished, we are excited to
design the new office in line with our
broader strategy to lower our carbon
footprint, while bringing together
our various business units in a
dynamic and inspiring environment
that maximises collaboration
between our people and our clients.
Andy Veitch, Managing Director & Partner at
Boston Consulting Group
80 Charlotte Street W1
102
Introduction
from the
Chairman
John Burns
Chairman
2021 Focus areas
• Monitor the Group’s response to the continuing impacts of
• Induction of the new independent Non-Executive Chairman,
Covid-19
Mark Breuer
• Review the Group’s strategy and five-year plan
• Arrange our first Stakeholder Day, subject to no Covid-19
restrictions in H2 2021 (see page 114)
• Monitor the progress of our key development projects:
Soho Place W1 and The Featherstone Building EC1
Dear Shareholder,
On behalf of the Board, I am pleased to introduce the Group’s
Corporate governance statement on pages 110 to 123.
Governance during Covid-19
2020 has been a turbulent year, with Covid-19 and uncertainty
surrounding Brexit causing significant disruption. To ensure the
Board was able to actively support the business as the Covid-19
pandemic developed, additional Board and Committee meetings
were held to provide leadership and effective risk oversight.
Health, safety and wellbeing were key aspects of 2020.
The Responsible Business Committee focused particularly
on stakeholder engagement and the support being provided to
our occupiers, local communities and employees. Employee and
occupier pulse surveys were commissioned to provide valuable
insights for the Board (see pages 51 and 103). In addition, the
Non-Executive Directors joined a town hall meeting hosted by the
CEO to answer anonymous questions raised by staff (see page 115).
To ensure the safety of employees and our shareholders, we were
required to hold the 2020 AGM as a closed meeting. Despite the
restrictions, the 2020 AGM did include a short business update and
virtual Q&A session. Unfortunately, current UK government guidance
does not permit us to physically welcome shareholders to our 2021
AGM so we are taking the necessary steps to facilitate a further
closed meeting (see page 175).
Board changes
During 2021 there will be a number of changes to the composition
of the Board, including Mark Breuer succeeding me as Chairman, the
retirement of Simon Silver and the appointment of Emily Prideaux as
an Executive Director. The impact of the aforementioned changes on
the independence and diversity of the Board is discussed further on
pages 119 and 127.
A focus for the first half of 2021 will be the handover of responsibility
to my successor, Mark Breuer. I am sure that Mark will prove to be
a valued and respected addition to the Board and a highly effective
Chairman. I hand over with every confidence in Mark’s future success
and that of the Company.
I look forward to welcoming you virtually to our 2021 AGM on 14 May.
This will be my last AGM as a Director. I have greatly enjoyed my roles
at Derwent London and seeing the Company grow to the substantial
business it is today. I would like to thank you for your support.
Compliance with the UK Corporate Governance Code
I am pleased to report that for the year under review, we have
consistently applied the principles of good governance contained in
the 2018 UK Corporate Governance Code (the Code). Until the 2021
AGM, we will be unable to comply with provision 9 and 19 of the Code,
as I was not independent upon appointment and was previously CEO.
We are also in the process of reducing Executive Director pension
contributions and from 1 January 2022, we will be able to comply
in full with provision 38 of the Code. Further information is available
on page 155.
We were pleased that Derwent London continues to be externally
recognised for our transparent reporting and high governance
standards (see the inside back cover for a summary of our
recent awards).
If you wish to discuss any aspect of our governance
arrangements, please contact me via our Company Secretary,
David Lawler (telephone: +44 (0)20 7659 3000 or email:
company.secretary@derwentlondon.com).
John Burns
Chairman
10 March 2021
Derwent London plc Report & Accounts 2020 Governance
at a glance
Our approach to corporate
governance aims to preserve and
strengthen stakeholder confidence
in our business integrity, and
provide a working foundation of
accountability and flexibility.
103
UK Corporate Governance Code –
2020 compliance statement
The Board confirms that for the year ended 31 December 2020,
the principles of good corporate governance contained in the 2018
UK Corporate Governance Code (the Code) have been consistently
applied. Further information on the Code can be found on the
Financial Reporting Council’s website at: www.frc.org.uk
As our Non-Executive Chairman was not independent upon
appointment, was previously our CEO and has served for more
than nine years, we have been unable to comply with provisions
9 and 19 of the Code. We will remain non-compliant with these
provisions until John Burns steps down and Mark Breuer
succeeds as our independent Non-Executive Chairman at the
2021 AGM. The safeguards in place to ensure separation of
leadership were detailed on page 116 of the 2019 Annual Report
and operated effectively during the year.
Pension contribution rates for newly appointed Executive
Directors is aligned with the workforce at 15% of base salary.
The pension contribution rates for the current Executive Directors
is transitioning and will be 15% from 1 January 2022 (see page
155). We will remain partially compliant with provision 38 of the
Code until 1 January 2022, after which we will comply in full.
Stakeholder engagement
Board changes
To assess how the Company was handling the Covid-19 pandemic,
the Board commissioned pulse surveys to our employees and
occupiers. A sample of the responses received is provided below.
Employees
100%
Agreed that Derwent London
provided clear guidance to employees
in relation to its Covid-19 response
(75% strongly agreed)
97%
Agreed that it is clear that
their health and wellbeing is
a priority for Derwent London
(78% strongly agreed)
Occupiers
99%
Agreed that they are satisfied that
the measures taken during Covid-19
provided safety and comfort to them
and their employees
95%
Agreed that overall they have
found the Derwent London
approach to Covid-19 and
reoccupation positive: 48%
‘very positive’, 47% ‘positive’
and 5% ‘neutral’
We were delighted to announce
the appointment of Mark
Breuer as a Director, with
effect from 1 February 2021.
Mark will succeed John Burns
as our independent Non-
Executive Chairman following
the conclusion of the 2021
AGM. In addition, with effect
from 1 March 2021, Emily
Prideaux joined the Board as
an Executive Director.
Major Board activities
The major decisions taken by the Board and its Committees
during 2020 included:
• The sale of the Johnson Building EC1 for £170.0m before costs
• The redevelopment of 19-35 Baker Street W1 (see page 117)
• The refurbishment of Francis House SW1 for £12.3m
• The Directors increased the budget for charitable
donations, sponsorship and community funding by 179%
to £1.1m
• Approved a £100m Revolving Credit Facility (RCF) with Wells
Fargo and extended our main £450m RCF with our UK banking
partners for a further year to 2025 (see page 78)
p. 126 Chairman appointment
p. 122 Key activities of the Board
p. 104 The section 172(1) statement
Governance 104
The section
172(1) statement
The Board of Directors confirm that
during the year under review, it has acted to
promote the long-term success of the Company
for the benefit of shareholders, whilst having
due regard to the matters set out in section
172(1)(a) to (f) of the Companies Act 2006.
Issues, factors and stakeholders
The Board has direct engagement principally with our employees
and shareholders but is also kept fully apprised of the material
issues of other stakeholders through the Executive Directors, reports
from senior management and external advisers. On pages 26 and 27
we outline the ways in which we have engaged with key stakeholders
and the material issues that they have raised with us.
s172 factor
(a) the likely
consequences of
any decision in the
long-term
(b) the interests of
the Company’s
employees
(c) the need to foster the
Company’s business
relationships with
suppliers, customers
and others
(d) the impact of
the Company’s
operations on the
community and the
environment
(e) the desirability of the
Company maintaining
a reputation for
high standards of
business conduct
(f) the need to act fairly
between members of
the Company
Relevant disclosures
Company purpose (page 1)
Operating in challenging times (page 6)
Central London office market (page 18)
Investing in our pipeline (page 24)
Our business model (page 30)
Our strategy (page 32)
Non-financial reporting (page 58)
Our people (page 50)
Diversity and inclusion (page 50)
Employee engagement (page 115)
Delivering value to customers (page 10)
Supporting stakeholders in 2020 (page 12)
Responsible payment practices (page 135)
Anti-bribery and corruption (page 142)
Human rights and modern slavery (pages
57 and 149)
Supply Chain Sustainability Standard
(page 148)
Net Zero Carbon Pathway (page 28)
Supporting communities in 2020 (page 13)
TCFD disclosures (page 60)
Our Community Fund (page 53)
Corporate giving (page 53)
Derwent London brand (page 86)
Culture and values (page 111)
Whistleblowing (page 116)
Internal financial controls (page 134)
Awards and recognition (see inside
back cover)
Shareholder engagement (page 114)
Annual General Meeting (AGM) (page 175)
Rights attached to shares (page 173)
Voting rights (page 174)
Methods used by the Board
2020 was an unprecedented year. In addition to the main methods
used by the Board (listed below), in response to the uncertainty
and difficulties facing our stakeholders, the Board responded by:
• Holding additional meetings to ensure effective oversight of
management decisions and policies, particularly in respect to:
– financial support being offered to our occupiers;
– our ability to safely operate our buildings;
– supporting the local community and NHS; and
– providing clear communications and support to our employees.
• Seeking independent verification that the business is responding
proactively and effectively via:
– RSM internal audit into our response to Covid-19 (page 136);
– Occupier and employee pulse surveys (page 103); and
– Capgemini cyber security audit in response to the increase
in home working (page 144).
The main methods used by the Directors to perform their
duties include:
• the Board sets the Group’s purpose, values and strategy
and ensures they are aligned with our culture (see page 111);
• the Responsible Business Committee monitors the Group’s
corporate responsibility, sustainability and stakeholder
engagement activities and reports to the Main Board on its
activities (see pages 146 to 149);
• the Board utilises a stakeholder impact analysis to assess the
potential impact of significant capital expenditure decisions
on our stakeholders (see page 116);
• the Board’s risk management procedures identify the potential
consequences of decisions in the short, medium and long-term
so that mitigation plans can be put in place to prevent, reduce or
eliminate risks to our business and wider stakeholders (see pages
138 and 145);
• strategy reviews which assess the long-term sustainable success
of the Group and our impact on key stakeholders;
• direct and indirect stakeholder engagement (see pages 12 to 13
and 26 to 27);
• external assurance is received through audits, stakeholder
surveys and reports from brokers and advisers; and
• specific training for our Directors and senior managers.
Public interest statement – 2020
As a business that designs and manages office space, we are
aware of our wider obligations to be a responsible business
partner to our occupiers and within the communities in which we
operate. As our activities impact on multiple stakeholder groups
(see page 26), our Board ensures that stakeholder matters are
central to its decision-making alongside the long-term financial
success of our business.
We extend our obligations beyond the statutory requirements to
add value and build long-term mutually beneficial relationships.
Our obligations are incorporated into our purpose, which strongly
influences our values (see page 1). We have detailed on pages
12, 13, 26, 27 and 105 how we have acted in the public interest
during 2020.
Derwent London plc Report & Accounts 2020 Principal decisions in 2020 and how we have met our public interest obligations
The key activities and principal decisions undertaken by the Board in 2020 are detailed on pages 122 and 123. We detail below how the
Board factored stakeholders, and the information we received through engagement, into its decisions in 2020.
When making each decision, the Board carefully considered how it impacted on the success of the Group, its long-term (financial and
non-financial) impact and had due regard to the other matters set out in section 172(1)(a) to (f) of the Companies Act 2006.
105
Stakeholder
group
Occupiers
Engagement we received
During this challenging time, occupiers were
understandably monitoring their costs and sought
reductions wherever possible, especially when they
were unable to fully utilise the services. Due to the
lockdown restrictions, where feasible, we scaled back
services at our buildings to reduce the financial cost to
our occupiers. Despite the reduction, there were still
some costs to be incurred.
Through proactive and direct engagement with our
occupiers, via our Asset Management team, we
received early indications of which occupiers were
facing particular financial difficulty due to Covid-19.
Suppliers
Through close collaboration with our principal
contractors and main subcontractors we were kept
apprised of their response to the pandemic and how
it was impacting on their business, finances and staff.
As a business, we utilise various third party services to
assist in the management of our buildings, including
cleaning and security services. The Directors were
informed when our direct suppliers of services were
required to furlough staff due to lack of work arising
from the pandemic.
Local
community
Through our charitable connections, and close
relationships with local community services, we were
aware that they were facing increased demand due to
Covid-19 and donations and assistance were required.
Shareholders The Covid-19 pandemic had a significant impact on
the stock market and generally led to share prices
falling and dividends being cancelled. There was
considerable uncertainty surrounding whether
dividend payments would be made to shareholders.
Our response
The Board approved the reduction of service charges for the March
and June quarters by 25%. This was at a cost to the Company, and
subsequent saving to our occupiers, of £4.1m.
Principles were agreed early in the pandemic in respect to rent
concessions which allowed for fast and consistent actions. The
Directors approved the delegation of authority for approving rent
concessions to small occupiers to senior management allowing
for quicker response times which is critical in times of uncertainty.
In total, this was at a cost of £0.9m to the Company in 2020, with
the remaining cost of these concessions spread over the tenants’
remaining lease terms. Particular attention was given to occupiers
perceived to be most at risk, including retail and hospitality
occupiers. The Board’s support for these occupiers not only assisted
the businesses themselves but also helped to preserve the amenity
for the buildings’ other occupiers and the local community.
The Finance team worked hard to improve our average payment days
from 25 days in 2019 to 20 days in 2020. This was despite the initial
disruption to processes caused by home working. Improving our
average payment days assisted our contractors with their cash flow
and liquidity.
To support furloughed third party service staff, the Directors agreed
to ‘top-up’ wages by 20% so that there was no drop in income during
the furlough period. The Board were mindful that a significant
number of these workers were on relatively low wages and a 20%
reduction under furlough would be significant.
The Directors increased the budget for charitable donations,
sponsorship and community funding by 179% to £1.1m. This included
£186,000 paid for by waivers of 20% of base salaries/fees from each
Director for a three month period, effective from 1 April 2020. The
salary/fee waiver was a personal cost to the Directors.
The Board considered the financial strength of the business and
agreed to continue to pay the 2019 final dividend in June 2020 and
to pay an interim 2020 dividend in October. This decision provided
security to our shareholders who value the regular income received
from our dividend payments.
Employees
The Covid-19 pandemic and its uncertainty,
caused understandable concerns around job
security, ability to successfully work from home
and safeguarding their health when returning to
the office. Direct feedback from employees was
fed into the Covid-19 Working Group established in
February 2020 and this, in turn, was shared with the
Board and Executive Committee.
The CEO and other Directors provided clear communication to staff,
via regular town hall meetings which were open to all employees,
that the Group would not furlough employees nor would there be
redundancies. Transparent and detailed policies were published on
the procedures for working safely at home, ensuring their wellbeing
and safeguarding their health when they reoccupy the office.
Considerable effort was made to ensure our employees and office
spaces were safe when reoccupation was possible.
NHS
Through community engagement, and our close
relationship with University College Hospital, we were
made aware that there was a lack of storage facilities
for food and certain hospital staff were being housed
in hotels as they were unable to stay with their families
during the height of the pandemic.
The Directors responded by:
• providing use of 16 furnished flats at Charlotte Apartments to NHS
staff at University College Hospital free of charge for 12 months,
which has an equivalent rental value of c.£462,000;
• contributing to the UCL Medical Student Support Fund and the
1928 Project; and
• donating £20,000 to fund the purchase of commercial fridges to
store food for NHS workers.
Reference
to further
information
p. 11
p. 12
p. 13
p. 8
p. 12
p. 13
Factoring our stakeholders into our decisions
We provide further examples on how our stakeholders impacted on the Board’s discussions on the following pages:
p. 10 Delivering value to our customers
p. 12 Supporting our stakeholders in 2020
p. 117 19-35 Baker Street W1
Governance 106
Board of Directors
John Burns
Non-Executive Chairman, 76
Appointed to the Board: 1984
A chartered surveyor and co-founder of
Derwent Valley Holdings in 1984, John was
Chief Executive from 1984 to 2019. In 2007
he orchestrated the Group’s merger with
London Merchant Securities establishing
Derwent London as the largest London
specialist REIT. He was appointed
Non-Executive Chairman in 2019. John will
retire as a Director of Derwent London plc
following the conclusion of the 2021 Annual
General Meeting.
Paul Williams
Chief Executive, 60
Damian Wisniewski
Chief Financial Officer, 59
Appointed to the Board: 1998
Appointed to the Board: 2010
Paul is a chartered surveyor who joined
the Group in 1987. He was appointed
Chief Executive in 2019. He has overall
responsibility for Group strategy, business
development, sustainability, health and
safety and day-to-day operations.
Other public appointments: Director
of Sadler’s Wells Foundation and Chairman
of the Westminster Property Association.
Committee: Responsible Business.
A chartered accountant who held senior
finance roles at Chelsfield plc, Wood
Wharf Limited Partnership and Treveria
Asset Management. Damian has overall
responsibility for financial strategy, treasury,
taxation and financial reporting as well as
strategic and operational responsibilities.
Other public appointments: Trustee
and member of the governing body at the
Royal Academy of Music and Non-Executive
Director at the ABRSM.
Claudia Arney
Lucinda Bell
Simon Fraser
Non-Executive Director, 50
Non-Executive Director, 56
Senior Independent Director, 57
Appointed to the Board: 2015
Appointed to the Board: 2019
Appointed to the Board: 2012
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 public appointments: Non-Executive
Director of the Premier League and Kingfisher
plc. Chair of Deliveroo and Member of the
Takeover Panel (Hearings Committee).
Committees: Remuneration (chair), Audit,
Responsible Business, Nominations.
Lucinda is a chartered accountant and from
2011 to 2018 was CFO of The British Land
Company plc (British Land). Prior to that,
she held a range of finance and tax roles at
British Land.
Other public appointments: Non-Executive
Director of Crest Nicholson Holdings plc,
Non-Executive Trustee at National Citizens
Advice and Non-Executive Director at
Man Group.
Simon began his career in the City in 1986.
From 2004 until his retirement in 2011,
Simon was Managing Director and co-head
of corporate broking at Bank of America
Merrill Lynch.
Other public appointments: Non-Executive
Director of Lancashire Holdings Limited,
Cathedral Underwriting Limited, Legal and
General Investment Management Holdings
and Trustee of Glyndebourne Estate.
Committees: Audit (chair), Risk,
Remuneration, Nominations.
Committees: Nominations (chair),
Audit, Remuneration.
Derwent London plc Report & Accounts 2020 107
Simon Silver
Executive Director, 70
Nigel George
Executive Director, 57
David Silverman
Executive Director, 51
Appointed to the Board: 1986
Appointed to the Board: 1998
Appointed to the Board: 2008
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. Simon
retired as a Director of Derwent London plc on
26 February 2021.
Nigel is a chartered surveyor who joined
the Group in 1988. His responsibilities include
overseeing the development department,
as well as acquisitions, disposals and
investment analysis.
Other public appointments: Director of the
Chancery Lane Association Limited.
David joined the Group in 2002 and
is responsible for leading Derwent London’s
investment acquisitions and disposals.
In addition, his responsibilities include
overseeing the Group’s Leasing, Asset
and Property Management teams.
David is a past Chairman of Westminster
Property Association.
Other public appointments: Chairman
of the Chickenshed Property Company
and a Strategic Board member of New
West End Company.
Richard Dakin
Helen Gordon
Non-Executive Director, 57
Non-Executive Director, 61
Dame Cilla Snowball
Non-Executive Director, 62
Appointed to the Board: 2013
Appointed to the Board: 2018
Appointed to the Board: 2015
Richard is the Managing Director of Capital
Advisors Limited, part of CBRE, since 2014.
Previously, he had been employed at
Lloyds Bank since 1982 where he gained
an 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.
Committees: Risk (chair), Audit, Nominations.
Helen is a chartered surveyor and is CEO 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 public appointments: CEO of Grainger
plc, Board member and Immediate Past
President of the British Property Federation
and Vice Chair and Board Member of EPRA.
Committees: Remuneration, Nominations.
Cilla is the former Group Chairman and
Group CEO at AMV BBDO, the UK’s largest
advertising agency.
Other public appointments: Director of
Genome Research Limited, Non-Executive
Director of the Wellcome Sanger Institute
(Genomics Unit GRL) and The Wellcome
Trust (Governor).
Committees: Responsible Business (chair),
Nominations, Risk.
Governance 108
Senior management
Richard Baldwin
Director of Development
David Lawler
Company Secretary
Emily Prideaux
Director of Leasing
(Appointed to the Board as an Executive
Director on 1 March 2021)
Lesley Bufton
Matt Cook
John Davies
Head of Property Marketing
Head of Digital Innovation & Technology
Head of Sustainability
Jay Joshi
Treasurer
Katy Levine
Head of HR
Umar Loane
Head of Property Accounts
Derwent London plc Report & Accounts 2020 109
Key
Executive Committee
Jennifer Whybrow
Vasiliki Arvaniti
Head of Financial Planning & Analysis
Head of Asset Management
Victoria Steventon
Head of Property Management
Quentin Freeman
Head of Investor &
Corporate Communications
Clive Johnson
Head of Health & Safety
Nathan Johnstone
Head of Facilities Management
Heethen Patel
Financial Controller
Giles Sheehan
Head of Investment
David Westgate
Group Head of Tax
Governance 110
Corporate
governance
statement
Structure of the Governance section
The Governance section has been organised to follow the structure
and principles (A to R) of the 2018 UK Corporate Governance Code
(the Code) and illustrates how we have applied the Code principles
and complied with the provisions. Further information on the Code
and our compliance is on page 103.
1. Board leadership and Company purpose
p. 102
to
p. 149
A Effective Board (page 110)
B Purpose, values and culture (page 111)
C Governance framework and Board resources (page 112)
D Stakeholder engagement (page 114)
E Workforce policies and practices (page 116)
2. Division of responsibilities
p. 118
to
p. 123
F Board roles (page 118)
G Independence (page 119)
H External appointments and conflicts of interest (page 119)
I Key activities of the Board during 2020 (page 122)
3. Composition, succession and evaluation
p. 120
to
p. 129
J Appointments to the Board (page 120)
K Board skills, experience and knowledge (page 120)
L Annual Board evaluation (page 121)
4. Audit, risk and internal control
p. 130
to
p. 145
M Financial reporting (page 131)
External Auditor & Internal audit (pages 136 and 137)
N Review of the 2020 Annual Report (page 131)
O Internal financial controls (page 134)
Risk management (page 139)
5. Remuneration
p. 150
to
p. 170
P Linking remuneration with purpose and strategy (page 150)
Q Remuneration Policy review (page 150)
R Performance outcomes in 2020 (page 150)
Strategic targets (pages 157 and 161)
Board leadership and Company purpose
Effective Board
Our Board is composed of highly skilled professionals who bring
a range of skills, perspectives and corporate experience to our
boardroom (see pages 106, 107 and 120). In accordance with the
Code, the role of the Board is to promote the long-term sustainable
success of the Company, generate value for shareholders and
contribute to wider society.
To ensure sufficient time for discussion, the Board utilises its five
principal committees to effectively manage its time (see page 113).
At each Board meeting, the agenda ensures sufficient time for the
committee chairs to report on the contents of discussions, any
recommendations to the Board which require approval and the
actions taken.
The Board conducts a detailed annual review of our strategy
(including our purpose and strategic objectives). The next strategy
review is scheduled for June 2021 and will include high-level
exploratory discussions to challenge whether the strategy remains
fit for purpose. In addition, as we generate value through the core
activities identified in our business model, the flexibility of the
business model will also be assessed by the Board to ensure it
remains ‘future ready’.
p. 32
Our strategy
p. 30
Our business model
Board members and attendance in 2020
Chairman
John Burns (iii)
Executive Directors
Paul Williams, CEO
Damian Wisniewski, CFO
Simon Silver (iii)
Nigel George
David Silverman
Independent Non-Executive Directors
Claudia Arney
Lucinda Bell
Richard Dakin
Simon Fraser
Helen Gordon
Dame Cilla Snowball
Attendance(i) (ii)
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Notes:
(i) Percentages based on the meetings entitled to attend for the 12 months ended
31 December 2020
(ii) Additional Board and committee meetings were held during the year in response
to the Covid-19 pandemic
(iii) Simon Silver retired from the Board on 26 February 2021 and John Burns will
retire following the conclusion of the 2021 AGM
(iv) Mark Breuer and Emily Prideaux were appointed to the Board with effect from
1 February 2021 and 1 March 2021, respectively
Derwent London plc Report & Accounts 2020
111
Board leadership during Covid-19
Early monitoring and preparation
The coronavirus was identified in
early-2020 as an impending risk
with the potential to be a significant
disruptor to the Group. The Board
and Risk Committee reviewed
contingency plans, established a
Covid-19 Working Group which was
chaired by the CEO, and arranged
additional meetings as the crisis
evolved in order to provide oversight
and leadership (see page 112).
Clear and proactive communication
with stakeholders
During times of
uncertainty, clear and
proactive communication
is essential to provide
support and relief. We
detail on the following
pages how the Group
proactively engaged with
stakeholders during 2020
(pages 12, 13, 26, 27, 51, 114
and 115).
Preparation for the future
Covid-19 has had a profound
impact on businesses,
economies and society.
The Board has considered
the long-term implications on
our business, reassessed our
development pipeline, emerging
risks and the design and
operation of our office spaces.
Our resilience is discussed
further on pages 8 and 9.
Feedback and reflection
The Board sought independent
feedback via:
• employee and occupier pulse
surveys (see page 103), which
enabled management to receive
feedback and identify areas for
further action; and
• RSM, who performed an
independent internal audit into
the Company’s response to
Covid-19 (see page 136).
Further information on how the Covid-19 pandemic impacted on our governance framework and processes is on page 112.
Purpose, values and culture
Our purpose, values and culture are disclosed on page 1.
Purpose
Why we do
what we do
Values
The qualities
we embody
Culture
How we work
together
Our purpose communicates the Group’s strategic direction and
intentions to our employees, occupiers and wider stakeholders.
Due to its importance, it is reconfirmed on an annual basis to ensure
it continues to reflect the Board’s strategy, values and desired
culture. Our progress towards achieving our purpose during 2020
can be reviewed on the following pages:
• How we have helped to improve and upgrade the stock of office
space in central London (page 10).
• The above average long-term returns to our shareholders
(page 164).
• The social, environmental and economic benefits brought to all
our stakeholders (pages 46 to 63).
Our values articulate the qualities we embody and our underlying
approach to doing business (responsibly, with integrity and
openness). Our values are embedded in our operational practices
through the policies approved by the Board (see page 116) and the
direct oversight and involvement of the Executive Directors.
Our culture has developed from our values and is a key strength
of our business. The benefits of a strong culture are seen in our
employees’ engagement, retention and productivity. As the cultural
tone of a business comes from the boardroom, safeguarding our
culture is a key factor in the development of Board succession plans.
The Board reinforces our culture and values through its decisions,
strategy and conduct. Further information on how our Board factors
stakeholders into its decisions is on pages 114 and 116 and in its
section 172(1) statement on pages 104 and 105.
The Board monitors and assesses the culture of the Group via:
• Regularly meetings with management and inviting employees
to present at Board and committee meetings.
• Reviewing the outcomes of employee surveys.
• Assessing cultural indicators such as:
– management’s attitude to risk;
– compliance with the Group’s policies and procedures; and
– key performance indicators including staff retention
and engagement.
• Feedback from our wider stakeholders, including occupier pulse
surveys.
• Messages received via the Group’s whistleblowing system.
• Health and safety data.
• Promptness of payments to suppliers.
• Training data and spend.
• Independent assurance is sought via the outsourced internal
audit function and other advisers.
In addition to a question asking our employees to describe our
culture, the employee survey also provides valuable insights into
what is valued and seen as corporate norms. The Board was pleased
to note that when our employees described the core characteristics
of our culture in the 2019 employee survey, the top five responses
were passionate, creative, professional, hard working and reputable.
Further information on Board engagement with employees is on
page 115.
The Executive Committee has been delegated responsibility for
ensuring that policies and behaviours set at Board level are
effectively communicated and implemented across the business.
If the Board is concerned or dissatisfied with any behaviours or
actions, it seeks assurance from the Executive Committee that
corrective action is being taken. The Board has not needed to seek
corrective action during 2020.
Governance 112
Corporate governance statement continued
Governance framework and Board resources
Corporate governance is essential to ensuring our business
is run in the right way for the benefit of all of our stakeholders.
Our governance framework (see page 113) was established to provide
clear lines of accountability and responsibility. It also assists with the
sharing of information and facilitates fast decision making and
effective oversight.
Board approval is required for:
Major property
acquisitions or disposals
Major capital
expenditure projects
Material occupier
leases or contracts
Valued above £20m
Projected costs above £10m
Rental income greater than 7.5%
of the Group’s total rental income
Our governance arrangements support the development and
delivery of strategy by:
• ensuring accountability and responsibility;
• facilitating the sharing of information to inform decisions;
• establishing engagement programmes with key stakeholders
(see pages 26 and 27);
• maintaining a sound system of risk oversight, management and
an effective suite of internal controls (see pages 84 to 99);
• providing independent insight and knowledge from the
Non-Executive Directors; and
• facilitating the development and monitoring of key performance
indicators (see pages 42 to 45).
If any Director has concerns about the running of the Group or a
proposed course of action, they are encouraged to express those
concerns which are then minuted. No such concerns were raised
during 2020.
The Board maintains a formal schedule of matters which are
reserved solely for its approval. These matters include decisions
relating to the Group’s strategy, capital structure, financing, any
major property acquisition or disposal, the risk appetite of the Group
and the authorisation of capital expenditure above the delegated
authority limits.
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. The Board review and approve the ‘Schedule of matters
reserved for the Board’ on an annual basis.
The Directors utilise an electronic Board paper system which
provides immediate and secure access to papers. The Chairman
of the Board and the chairs of the committees set the agendas for
upcoming meetings with support from the Company Secretary.
During 2020, due to the Covid-19 pandemic, the majority of Board
and committee meetings were effectively held virtually using
conference video and call facilities.
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 are required to be clear and concise with any background
material included as an appendix. We often invite the author of the
paper/report to join the Board in their discussions, to enable our
Directors to truly ‘drill down’ into the data supplied and question
management directly.
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. No such advice was sought by any Director during the year.
Impact of Covid-19 on the Group’s governance systems
The Board’s functioning
All Directors were able to
offer additional availability for
meetings, as required. Meetings
were held virtually through
secure conference video and
call functionality. Due to the
lockdown restrictions and
the need to maintain social
distancing, the Board hosted its
2020 Annual General Meeting as
a closed meeting (see page 175).
Risk oversight
In order to identify and manage
the risks arising from Covid-19,
the Board and Risk Committee
held additional meetings
during 2020 to ensure effective
oversight and monitoring.
Further information on the
Board’s risk management
framework is on page 140. A case
study on how we are protecting
our occupiers is on page 143.
Communications,
reporting and disclosures
The Directors ensured that
sufficient public disclosures
were made about the actual and
expected impacts of Covid-19
on our business and financial
condition, which included
quarterly rent collection updates.
Our CFO, Damian Wisniewski,
has addressed the FRC’s five
questions when reporting during
uncertainty on page 135.
Remuneration
In response to the Covid-19
pandemic, Directors base
salaries and fees were subject
to a voluntary 20% waiver for the
three-month period between
1 April 2020 and 30 June 2020
to support charitable initiatives.
The impact of Covid-19 was also
considered by the Remuneration
Committee when finalising the
annual bonus for 2020 (see
page 151).
Derwent London plc Report & Accounts 2020 Governance framework
We pride ourselves on conducting our business in an open and transparent manner. Our well-established culture ensures that our
governance framework remains flexible, allowing for fast decision making and effective oversight (further information on page 111).
The Board
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.
p. 32 Our strategy
p. 84 Our principal risks
p. 104
The section 172(1)
statement
p. 122
Key activities of the
Board during 2020
The Board delegates certain matters to its five principal committees
Nominations
Committee
Ensures the Board
(and its committees)
have the correct
balance of skills,
knowledge and
experience and that
adequate succession
plans are in place.
Audit
Committee
Oversees the Group’s
financial reporting,
maintains an appropriate
relationship with the
external Auditor and
monitors the Group’s
internal controls.
Risk
Committee
Reviews and monitors
the Group’s principal
and emerging risks
and the effectiveness
of the Group’s risk
management systems.
Remuneration
Committee
Establishes the Group’s
Remuneration Policy and
ensures there is a clear
link between performance
and remuneration.
Responsible
Business Committee
Monitors the Group’s
corporate responsibility,
sustainability
and stakeholder
engagement activities.
p. 124 Report
p. 130 Report
p. 138 Report
p. 150 Report
p. 146 Report
The terms of reference of each Board committee are available on the Group’s website at: www.derwentlondon.com
Executive Committee
The Board delegates the execution of the Company’s strategy and the day-to-day management of the business
to the Executive Committee.
p. 16
Chief Executive’s
statement
p. 42
Measuring our
performance
p. 64 Property review
p. 108 Members
113
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d
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t
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r
e
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n
a
s
r
e
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l
o
h
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r
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h
S
Supporting committees
The Executive Committee operates a number of supporting committees that provide oversight on key business activities
and risks such as Credit, Cost, Health and Safety, IT Liaison and Sustainability Committees.
p. 143 Credit Committee
p. 54
Health and Safety
Committee
p. 56
Sustainability
Committee
p. 53
Sponsorship
and Donations
Committee
Our shareholders and other key stakeholders play an important role in monitoring and safeguarding the governance of our Group.
Further information on how we engage with our shareholders is on page 114, employees on pages 12, 51 and 115, and other key stakeholders
on pages 12, 13, 26 and 27.
Governance
114
Corporate governance statement continued
Stakeholder engagement
We recognise the importance of clear communication and
proactive engagement with all of our stakeholders. Our stakeholder
engagement programmes are kept under routine review by
the Board.
p. 26
Our stakeholders
p. 10
Delivering value to customers
This was of particular importance during 2020 due to the
uncertainty and economic difficulties caused by Covid-19. Some
of our engagement methods required adjustment in response to
the restriction imposed by the government to slow the spread of
the virus, including the use of conference call facilities to hold
our 2020 Annual General Meeting (see page 175) and the
postponement of our 2020 Stakeholder Day. We are hoping
to hold our first Stakeholder Day in 2021. Further information
will be made available on our website in due course.
p. 12
Supporting our stakeholders during 2020
p. 104
The section 172(1) statement
How do we engage with our shareholders?
Shareholders play a valuable role in safeguarding the Group’s governance through, for example, the annual re-election of Directors,
monitoring and rewarding their performance and engagement and constructive dialogue with the Board.
The Group aims to be as transparent as possible with the information it provides to investors and welcomes face to face interaction.
Formally this can done at our AGM, and our Chairman aims to routinely meet with institutional investors and report their views to the Board.
However, Covid-19 restrictions have curtailed much of this activity, replacing it with a significant increase in virtual meetings and conferences.
We describe our main engagement methods in the table below.
Shareholder consultation
Investor meetings
Investor presentations
and property tours
Property conferences
We will always seek to engage with shareholders when considering material changes to either our Board, strategy
or remuneration policies. In 2019, the Remuneration Committee consulted with 20 of our largest shareholders,
representing 67.99% of our issued share capital, on our revised Remuneration Policy, a summary of which is on
pages 155 to 158.
During 2020, the Group held over 470 investor meetings with 203 existing and potential investors. Of these, 90 were
shareholders at the year end and their ownership represented c.60% of the shares in issue. Due to the pandemic the
majority of these were virtual meetings. These meetings are predominantly attended by our CEO, CFO and at least
one other senior executive. The meetings focused on the Group’s portfolio, strategy, the future of offices, the impact
of Brexit, Covid-19 and working from home. Where significant views were expressed, either during or following the
meetings, these were recorded and circulated to all Directors.
During 2020, we hosted in-person year end and virtual interim results presentations and four property tours.
Property tours and roadshow activity were severely restricted by the pandemic.
Due to the Covid-19 pandemic, the majority of conferences moved to a virtual format. During 2020, we attended
14 virtual property conferences.
Annual General Meeting (AGM) The AGM provides an opportunity for private shareholders, in particular, to question the Directors and the Chairs
of each of the Board committees. It was necessary to hold the 2020 AGM virtually due to the UK government’s
lockdown restrictions, however proceedings included a Q&A session for any shareholder or interested stakeholder
to ask questions of the Board. Information on the 2021 AGM is on page 175, including how we would engage with
shareholders in the event of a significant vote against an AGM resolution. We ensure that the Notice of AGM is issued
at least 20 working days in advance of the AGM date.
Our Annual Report is available to all shareholders. Through our electronic communication initiatives, we aim to
make our Annual Report as accessible as possible. Shareholders can opt to receive a hard copy in the post or PDF
copies via email or from our website. Additionally, if a shareholder holds their Derwent London shares via a nominee
account and encounters difficulty receiving our Annual Report via their nominee provider, they are welcome to
contact the Company Secretary to request a copy.
Our 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 calendar for the upcoming year.
We also create websites for specific developments which are used to explain the Group’s current projects in greater
detail. For example, you can find further information on Soho Place W1 and The Featherstone Building EC1 here:
www.1sohoplace.london
www.thefeatherstonebuilding.london
If shareholders have any concerns, which the normal channels of communication to the CEO, CFO or Chairman
have failed to resolve, or for which contact is inappropriate, then our Senior Independent Director, Simon Fraser,
is available to address them. Simon Fraser’s contact details are on page 124.
Contact details for our Investor Relations team, Company Secretary and Registrars are available on page 252.
Annual Report
Corporate
website
Development websites
Senior Independent Director
Other contacts
Derwent London plc Report & Accounts 2020
How do we engage with our employees?
We have an experienced, diverse and dedicated workforce which
is recognised as a key asset of our business. The Board and its
Committees routinely invite members of the management team to
join meetings to present on the matters being discussed, enabling
their input into discussions. In order to reach all employees (including
individuals engaged under contracts of service, agency workers,
and remote workers), the Board utilises a combination of formal
and informal engagement methods which are detailed below.
Non-Executive Director engagement with our employees
As the designated director for bringing the voice of employees
into our boardroom, Dame Cilla Snowball suggested a two-way
engagement event whereby the Non-Executive Directors (NEDs)
would host a town hall meeting for all employees to attend. The NED
town hall was initially intended to be a face-to-face event however
due to Covid-19 it was conducted virtually on 12 October 2020.
115
The event opened with the NEDs introducing themselves, their role
on the Board and their experiences. Employees were encouraged
to submit questions, anonymously if they wished, via the three
employee representatives of the Responsible Business Committee
(Ally Clements, Davina Stewart and Jonathan Theobald). The
questions were then answered live during the event by the NEDs
and covered topics which included:
• The role of a Non-Executive Director and a Senior
Independent Director.
• What attracted the NEDs to join the Board, what they enjoy about
Derwent London and how we differ from other organisations.
• The main risks arising from, and following, the Covid-19 pandemic.
• Their views on working from home, its impact on creativity and
• The flexibility and resilience of Derwent London’s business model
• How their businesses are handling Covid-19 and its impact on
• The roles of the Board’s principal committees and their key
priorities during the year.
mental health.
and strategy.
mental wellbeing.
Dedicated Non-Executive
Director
Responsible Business
Committee
Dame Cilla Snowball is the dedicated
Non-Executive Director for gathering the
views of the workforce. As chair of the
Responsible Business Committee, Cilla
oversaw and received updates on our
employee engagement methods. Further
information on Cilla’s role is on page 118.
The Responsible Business Committee has
appointed three employee representatives
as members. The Committee was
established at the end of 2018 to strengthen
the Board’s oversight of environmental and
social issues and monitor the Group’s
corporate responsibility, sustainability and
stakeholder engagement activities (see
pages 146 to 149).
Whistleblowing
Our whistleblowing system offers an
anonymous reporting line for employees
to raise any concerns directly with the
Board. The whistleblowing system allows
concerns to be raised either via telephone
or online web-reporting. Further
information on page 116.
Town hall meetings
The CEO hosted fortnightly virtual town
hall meetings to ensure all employees were
kept informed of business activity,
reassured and engaged. Employees were
encouraged to put questions forward in
advance (anonymously if they wished),
which were then answered during
the sessions.
How do we
engage with our
employees?
Intranet
Our intranet is used as a popular platform
for employees to access our policies and
be kept fully informed of the latest Group
news. In addition during the lockdown
restrictions, the intranet was used to share
links to useful information on social and
wellbeing, culture and entertainment,
health and safety, virtual quizzes and
home schooling.
Awaydays
Employee surveys
On 19 September 2019, the Executive
Directors hosted an all employee awayday
which focused on team work. Further
information on the awayday was provided
on page 85 of the 2019 Annual Report.
The next awayday is provisionally
scheduled for 2022.
We gather feedback regularly from our
employees to assess their levels of
engagement. We conduct a formal biennial
employee survey, designed and developed in
conjunction with an independent provider
and sponsored by the Executive Directors.
We also conduct more informal pulse
surveys on staff satisfaction (see page 51). In
2020, we conducted a Covid-19 pulse survey
to determine how our employees felt they
had been supported during the pandemic
and to receive feedback on home working
and our wellbeing initiatives.
Committees &
Working Groups
The Group currently operates an Innovation
Committee and Diversity & Inclusivity Working
Group which are comprised of employees from
across the business and chaired by our CEO.
The ideas and comments raised are fed directly
into the Board.
A working group is also established after each
formal employee survey with the aim of making
recommendations to the Executive Committee
on matters raised or areas where changes
could be made to further improve employee
engagement and satisfaction.
Governance 116
Corporate governance statement continued
Workforce policies and practices
The Board and Executive Committee review and approve all key
policies and practices which could impact on our workforce and
drive their behaviours. All policies are checked to ensure they
support the Group’s purpose and reflect our values (see page 111).
Policies are published on the intranet and contained within the
employee handbook. Our employees are required to confirm
their understanding of these policies upon recruitment and on
an annual basis.
To ensure policies are embedded in our business practices, we
hold presentations to staff which highlight the key messages
and notify them of any changes. We operate a mandatory training
programme which aims to reinforce key compliance messages in
areas such as anti-bribery, modern slavery, conflicts of interest, etc.
The Board 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
(2019: no messages).
Stakeholder impact analysis
The Board’s procedures require a stakeholder impact analysis to be
completed for all material decisions requiring its approval that could
impact on one or more of our stakeholder groups. The stakeholder
impact analysis assists the Directors in performing their duties
under s172 of the Companies Act 2006 and provides the Board
with assurance that the potential impacts on our stakeholders are
being carefully considered by management when developing plans
for Board approval.
The stakeholder impact analysis identifies:
• potential benefits and areas of concern for each
stakeholder group;
• the procedures and plans being implemented to mitigate
against any areas of concern; and
• who is responsible for ensuring the mitigation plans are
being effectively implemented.
Employees completing the stakeholder impact analysis are provided
with a training memo on the Board’s duty to shareholders and other
stakeholders, so that they are mindful of the importance of the
analysis to the Board’s discussions and, subsequently, so they can
ensure the analysis provides sufficient and relevant information.
By thoroughly understanding our key stakeholder groups, the Board
can factor their needs and concerns into boardroom discussions.
p. 104
The section 172(1) statement
p. 26
Our stakeholders
p. 141
Compliance training
All employees (including the Board) 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 to ensure it
remains up to date. The Board is satisfied that potential conflicts
have been effectively managed throughout the year (see page 119).
The Board approve the Remuneration Policy for the Executive
Directors and, via the Remuneration Committee, has oversight of
the wider workforce remuneration practices (further information
on page 154). Our remuneration policies and practices are aligned
with our pay principles, described on page 153, being:
• attract, retain and motivate;
• clarity and simplicity;
• alignment to strategy and culture;
• risk management;
• stewardship; and
• proportionality and fairness.
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. 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 employee
handbook, on our Group intranet and staff noticeboards. In addition
to an independent telephone line and online portal for anonymous
reporting of concerns, the Senior Independent Director acts as an
independent point of contact for whistleblowing concerns. Following
receipt of a whistleblowing message we have procedures in place
to ensure an independent and proportionate investigation. Any
significant issue relating to potential fraud is escalated to the Chair
of the Audit Committee immediately. In addition, Dame Cilla Snowball
(Chair of the Responsible Business Committee and designated
Director for gathering the views of the workforce) will be advised of
any significant concerns raised by our employees.
Derwent London plc Report & Accounts 2020
19-35 Baker Street W1 – factoring our stakeholders into our decisions
Governance
117
• Site waste: A site waste management plan will be followed
with all contractors being required to investigate opportunities
to eliminate/reduce waste at source. Of all waste materials,
98% will be diverted from landfill.
• Noise and dust: Noise and dust monitoring equipment will
be positioned around the site to ensure that the site remains
within the limits stipulated by Westminster City Council.
The construction method used for each activity will be
modelled in software in order to calculate noise levels. If the
model exceeds trigger levels, adjustments will be made until
the required noise levels are met. To limit dust, best practice
measures will be implemented, including jet washing of
vehicles, road sweepers etc.
• Vibration: A degree of vibration is likely due to the nature of the
works, however this will be carefully controlled, if it cannot be
eliminated. A vibration and movement monitoring strategy will
be produced, which sets limits using British Standard 5228
and 7385.
• Community engagement: Throughout our planning process,
we have maintained close engagement with local residents,
via letters, public exhibitions and consultations. Condition
Surveys and relevant Party Wall Awards will be completed
prior to construction. During construction, the Main
Contractor will engage with the local community via a Site
Community Plan.
98%
of all materials will be
diverted from landfill
19-35 Baker Street W1 – CGI of proposed scheme
The 19-35 Baker Street development is due to commence in
H2 2021. This 297,000 sq ft project will consist of 217,000 sq ft of
office space, 28,000 sq ft of retail space (20 units), and 52,000 sq ft
of residential (51 units). The site will feature a new public
passageway to a landscaped courtyard, providing retail and leisure
amenity.
Our stakeholder impact analysis identified the following:
1. Key benefits to our stakeholders
• The creation of a new central London destination, providing
a east-west pedestrian link between Baker Street and
Gloucester Place, new amenities and increased employment
opportunities for the local area.
• The public experience at street-level will be enhanced.
• The new Baker Street office building will provide adaptable
workspace for the future.
• We will continue to assist in improving local infrastructure,
through s.106 contributions, Mayoral and Westminster
Community Infrastructure Levy and Crossrail Contributions.
In addition, Derwent London made significant contributions
towards the Baker Street Two Way Project and will be
replacing the paving around the development to enhance
the street scene and safety for pedestrians.
• Our Main Contractor will engage with the City of Westminster
to develop a programme for training apprentices and set
targets for local employment and the use of local enterprises
on the scheme, wherever possible.
• 30 Gloucester Place is a listed building which will be subject
to extensive reconfiguration and refurbishment to create ten
intermediate affordable residential units and office space at
ground and lower ground. We will restore the condition of the
building’s exterior whilst improving its sustainability and
connectivity.
• Sustainability has been integral to the project. Key features
of the project are electric heating/cooling, air source heat
pumps, smart building energy monitoring, water recycling
bio-diverse roofs and verified carbon offset schemes. We are
targeting certification of BREEAM ‘Excellent’ and LEED ‘Gold’.
The all electric scheme ensures zero emissions on-site which
benefits local air quality. In addition, we will be planting new
trees, with an enhanced plant scape within the courtyard.
2. Mitigating our stakeholders key concerns
• Traffic: A traffic management risk assessment will be
conducted. Traffic on-site will be planned and controlled
carefully. The contractors and their supply chain will be
signed up to the CLOCS standards for construction logistics.
The site is well served by public transport links and main
contractors will actively promote the TfL cyclist awareness
Fleet Operators Recognition Scheme.
• The surrounding area and businesses: The project will be
enrolled in the Considerate Constructors Scheme. A detailed
construction logistics strategy will be developed to minimise
the impact on the surrounding area by making the site as
self-sufficient as possible. At all times, works will be carried
out in a safe and considerate manner with due regard to the
public, adjoining properties, businesses, and road users.
A Site Environmental Management Plan will be prepared,
incorporating relevant guidance identified within the City
of Westminster Code of Construction Practice.
118
Corporate governance statement continued
Division of responsibilities
Board roles
There is clear division between executive and non-executive responsibilities which ensure accountability and oversight. The roles of
Chairman and Chief Executive are separately held and their responsibilities are well defined, set out in writing and regularly reviewed
by the Board.
Chairman, John Burns
• Responsible for the effective running of the Board and
ensuring it is appropriately balanced to deliver the Group’s
strategic objectives
• Promote a boardroom culture that is rooted in the principles
of good governance and enables transparency, debate and
challenge
• Ensure 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, its shareholders
and other key stakeholders
Chief Executive, Paul Williams
• To provide clear and visible leadership
• Execute the Group’s strategy and commercial objectives
together with implementing the decisions of the Board and
its committees
• 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
• Manage the Group’s risk profile and ensure actions are
compliant with the Board’s risk appetite
• Investor relation activities, including effective and ongoing
communication with shareholders
Senior Independent Director, Simon Fraser
• 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
• To at least annually lead a meeting of the Non-Executive
Directors without the Chairman present to appraise the
performance of the Chairman
• To act as an intermediary for Non-Executive Directors when
necessary and act as Chairman if the Chairman is conflicted
• To act as an independent point of contact in the Group’s
whistleblowing procedures
Non-Executive Directors (NEDs)
• Provide constructive challenge to our executives, help to
develop proposals on strategy and monitor performance
against our KPIs
• Ensure that no individual or group dominates the Board’s
decision making
• Promote the highest standards of integrity and corporate
governance throughout the Company and particularly at
Board level
• Determine appropriate levels of remuneration for the
senior executives
• Review the integrity of financial reporting and that financial
controls and systems of risk management are robust
Designated NED for gathering the views of our workforce(i),
Dame Cilla Snowball
Cilla Snowball has been designated the NED responsible for
gathering the views of our workforce. This is achieved by:
• Attendance at key employee and business events, including
property launches and the Summer Party
• Review messages received through the whistleblowing
system from the Group’s employees
• Monitor the effectiveness of engagement programmes
established for employees
• Provide regular updates to the Board
• Monitor the outcome of employee surveys and provide input
on their design
Chief Financial Officer, Damian Wisniewski
• Support the CEO in developing and implementing strategy
• Provide financial leadership to the Group and align the Group’s
business and financial strategy
• Responsible for financial planning and analysis, treasury and
tax functions
• Responsible for presenting and reporting accurate and timely
historical financial information
• Manage the capital structure of the Group
• Investor relation activities, including communications with
investors, alongside the CEO
Other Executive Directors
• Support the CEO in developing and implementing strategy
• Oversee the day-to-day activities of the Group
• Manage, motivate and develop staff
• Develop business plans in collaboration with the Board
• Ensure that the policies and practices set by the Board
are adopted at all levels of the Group
• Investor relation activities, including communications
with investors, alongside the CEO
Company Secretary, David Lawler
• Secretary to the Board and its committees
• Develop Board and committee agendas and collate and
distribute papers
• Ensure compliance with Board procedures
• Advise on regulatory compliance and corporate governance
• Facilitate induction programmes for Directors and assisting
with their training and development, as required
• Responsible for communications with retail shareholders and
the organisation of the Annual General Meeting
• Available to support all Directors
(i) Although Cilla Snowball is the designated Director for gathering the views of
our workforce, the Chairman ensures that all Directors continue to remain
engaged with our employees and challenge and contribute to discussions
on workforce engagement.
Derwent London plc Report & Accounts 2020
Independence
Independence of the Board
(excluding the Chairman)
Status
Tenure of the Non-Executive Directors
Years
Independent
Executive
Under 3
3-6
6-9
9+
6
5
2
2
2
0
The Board has identified on page 110 which Directors are considered
to be independent. As at 31 December 2020, 54.5% of our Board
(excluding the Chairman) are independent Non-Executive Directors.
The Board has reconfirmed 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.
The Non-Executive Directors play an important role in ensuring that
no individual or group dominates the Board’s decision making. It is
therefore of paramount importance that their independence is
maintained. To safeguard their independence, Non-Executive
Directors are not permitted to serve more than three three-year
terms unless in exceptional circumstances (see page 125).
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.
John Burns, co-founder of Derwent London plc and the CEO for
over 30 years, was appointed Non-Executive Chairman for a
two-year term from the 2019 AGM. The appointment was considered
by the Nominations Committee to be a natural transitionary step to
preserve our culture and ensure an orderly succession following
Robbie Rayne’s decision to retire. As our Chairman was not
independent upon appointment, we will be unable to comply with
provisions 9 and 19 of the Code until Mark Breuer succeeds John as
independent Non-Executive Chairman following the conclusion of
the 2021 AGM (see page 103).
119
The announced Board changes will not impact on the independence
balance of the Board: it will remain at 54.5% (excluding the
Chairman). If the Chairman is included, then following the conclusion
of the 2021 AGM, the percentage of independent Directors will
improve from 50% to 58% of the Board.
Other external appointments
The Board takes into account a Director’s other external
commitments when considering them for appointment to satisfy
itself that the individual can discharge sufficient time to the Derwent
London Board and assess any potential conflicts of interest.
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. During the year under
review, Lucinda Bell became a Non-Executive Director of Man Group
plc (from 28 February 2020) and Claudia Arney became a member
of The Takeover Panel (from 1 May) and Chair of Deliveroo (from
25 November). Both Lucinda and Claudia notified the Chairman in
advance of their appointments, and the Board confirmed that it does
not believe that these additional directorships will affect Lucinda’s or
Claudia’s commitment to, or involvement with, the Derwent London
Board nor will it give rise to a potential conflict of interest.
Executive Directors may accept a non-executive role at another
company with the approval of the Board. Currently, none of our
Executive Directors are directors of other listed companies.
However, several of our Executive Directors are Trustees of
charitable organisations or members of industry-related bodies.
When assessing additional directorships, the Board considers the
number of public directorships held by the individual already and
their expected time commitment for those roles (see biographies
on pages 106 and 107). The Board takes into account guidance
published by institutional investors and proxy advisers as to
the maximum number of public appointments which can be
managed efficiently.
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 (see table on page 110 for Board
meeting attendance).
Conflicts of interest
As a Non-Executive Director’s independence could be impacted
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 valuers. To mitigate
against a potential conflict of interest, Richard does not take part in
any discussions on the valuation of the Group’s property portfolio at
either Board or committee level. In addition, he has no involvement
in any 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.
Governance 120
Corporate governance statement continued
Composition, succession and evaluation
Appointments to the Board
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.
Appointments are made based on the recommendation of the
Nominations Committee with due consideration given to the benefits
of diversity in its widest sense, including gender, social and ethnic
backgrounds and personal strengths. The Nominations Committee
report on pages 124 to 129 provides further information on:
• Board composition and Non-Executive Director tenure;
• Board appointments and induction;
• succession planning; and
• diversity.
Board skills, experience and knowledge
An effective Board requires the right mix of skills and experience.
Our Board is a diverse and effective team focused on promoting the
long-term success of the Group for the benefit of all stakeholders.
The Directors’ biographies are available on pages 106 and 107.
The chart below provides an overview of the skills and experience
of our Directors as at 31 December 2020.
Training
With the ever-changing 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 their annual
performance reviews.
As required, we invite professional advisers to provide in-depth
updates. Updates and training are not solely reserved for legislative
developments but aim to cover a range of issues including, but not
limited to, market trends, the economic and political environment,
environmental, technological and social considerations.
Our Company Secretary provides regular updates to the Board and
its committees on regulatory and corporate governance matters.
In addition, we invite our Directors to attend courses hosted by
the Deloitte Academy and PwC.
Our Directors receive training on their duties under section 172(1) of
the Companies Act 2006 as part of their induction process from the
Group’s corporate lawyers, Slaughter & May LLP. The training is
uploaded to the Board’s paper portal for easy reference. In addition,
at each meeting, the Board’s pack of documents includes the
codification of its duties alongside the meeting agenda to ensure it is
at the forefront of discussions.
During 2020:
• All Directors participated in online compliance training courses
on a range of topics including competition law, fraud awareness
and cyber security (further information on page 141).
• The Board received regular market and leasing updates.
• External independent advisers frequently presented to the
Board on the political and economic environment.
• The Executive Committee received a diversity and inclusion
presentation from Albert Williamson-Taylor, a founding partner
of AKT and their Design Director, to learn from his personal
experience as a senior leader from a BAME background.
• The Responsible Business Committee received a presentation
from EY on the UK National Equality Standard (see page 149).
• The Audit Committee received training on the valuation of the
Group’s portfolio and a year end/market environment update
which covered the following:
– the basis of valuing properties and areas to consider in the
current market environment;
– impairment work and the effect on the valuation; and
– how various scenarios could affect year end.
• The Risk Committee received a legal update from Slaughter
& May LLP in November.
• All Directors attended regular external briefing sessions from
the major accountancy firms.
Skills and experience
Executive and strategic leadership
Senior executive and
directorship experience
Financial acumen
Senior executive experience in financial
accounting, reporting or corporate finance
Property and real estate
Experience in property development,
construction or real estate
management
Governance and compliance
Prior experience as a Board
member, industry or membership
of governance bodies
Corporate responsibility and
community relations
Experience in corporate or social
responsibility, charitable bodies
or human resources
7
4
7
4
4
5
2
5
3
4
Health and safety, risk management
Experience in health and safety, risk
management or internal controls
Investor relations and engagement
Experience in investor relations (private or
institutional) and engagement
Capital projects
Experience working in an industry with
projects involving large-scale capital outlays
and long-term investment horizons
Remuneration
Prior Remuneration Committee membership
and/or experience in relation to remuneration
including incentive programmes
Number of Non-Executive Directors (including the Chairman)
Number of Executive Directors
4
7
6
2
5
5
4
1
Derwent London plc Report & Accounts 2020 Annual Board evaluation
On an annual basis, an evaluation process is undertaken
which considers the effectiveness of the Board, its principal
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 Board follows a formal
three-year cycle which was developed to enable reviews to be led
from a fresh perspective, each year.
The evaluation for the year ended 31 December 2019
Last year’s evaluation was described in the 2019 Annual Report
on pages 112 and 113 and was externally facilitated by The Effective
Board LLP. The evaluation identified a number of focus areas which
the Board and its committees addressed during 2020:
Board or
committee
Main Board
Risk
Committee
Nominations
Committee
Recommendation
Continue to perform
annual reviews on the
Group’s culture and
adherence to the Board’s
values and include
specific questions in
the employee appraisal
process or biennial
employee survey.
In light of the change
of Chairman and Chief
Executive, it was
recommended that the
Board considers having
an investor audit to gain
a comprehensive view
of their perceptions of
this change.
The Committee should
review how the risk
management system and
framework has worked
when an existing risk
or emerging risk has
emerged and impacted
on the Company.
The next employee
survey should try to
assess the risk culture
within the Company.
Despite continuing
diversity improvements,
it was agreed that this
will remain a focus
area for the Committee
during 2020.
Continue to focus on
Executive Committee
succession planning.
Responsible
Business
Committee
A minor amendment
suggested to the
Committee’s terms
of reference.
Status
Culture was assessed
as part of the 2020
Board evaluation.
Specific questions will
be included in the next
employee survey in 2021.
To be reviewed with the
new Non-Executive
Chairman, Mark Breuer,
following his induction in
H2 2021.
Covid-19 has impacted
on the Group’s risk profile
and risk management
systems (see pages
84 and 138). RSM
performed an internal
audit into our Covid-19
response (see page 136).
The next employee
survey is due to be
conducted in 2021.
Diversity and inclusion
was a focus area for the
Board and Nominations
Committee during 2020
(see pages 127 and 128).
Further information on
Executive Committee
succession planning is
on page 126.
This recommendation
has been actioned and
the updated terms of
reference are available
to download from our
corporate website.
Note:
(i) There were no recommendations for the Audit or Remuneration Committee
121
Year 3
Year 1
Internal evaluation
facilitated by the
Chairman
Externally facilitated
independent
review
Year 2
Internal evaluation
facilitated by the
Senior Independent
Director
The evaluation for the year ended 31 December 2020
The 2020 performance evaluation was internally facilitated by
Simon Fraser and was informed by the recommendations arising
from the 2019 evaluation. The process covered the following areas:
• The Group’s strategy and its effectiveness.
• The management of the business, and stakeholder engagement,
during the Covid-19 pandemic.
• The significant challenges that Derwent London is likely to face
over the next 12 months.
• The composition of the Board and its principal committees.
• Each Director’s contribution to the Board’s discussions.
• Whether there are any issues concerning the Board’s procedures,
processes, including information provided to the members, and
the resources made available to the Board.
• The effectiveness of the Chairman recruitment process and
Board’s succession planning.
The responses were collated and provided on an anonymous basis
to the Chairman of the Board and the Chairs of each committee.
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. Although the feedback received was
extremely positive from all Board members, the Board identified
a number of areas which it wishes to focus upon during 2021:
• The induction of Mark Breuer as Chairman Designate, and
handover of responsibility from John Burns.
• Ensuring the Group’s strategy remains appropriate in the
current economic environment.
• Board diversity which will be factored into the Board’s
recruitment processes.
Re-election of Directors
In accordance with the Code, all the Directors will be putting
themselves forward for re-election at the 2021 AGM, except Simon
Silver who retired on 26 February 2021 and John Burns who will retire
following the conclusion of the AGM. Mark Breuer and Emily Prideaux
will be seeking election as Directors following their appointments to
the Board on 1 February and 1 March 2021, respectively.
Following the formal performance evaluation (detailed above) and
taking into account the Directors’ skills and experience (set out on
pages 106, 107 and 120), the Board believes that the (re-)election of
each Director is in the best interests of the Company.
Governance 122
Corporate governance statement continued
Key activities of the Board during 2020
Overview
The Board met nine times during the year (including the Annual General Meeting). Additional meetings are arranged if necessary for the
Board to properly discharge its duties. An overview of our Board’s key activities is provided below.
Property portfolio
• Approved the acquisition of:
– Blue Star House, Brixton SW9
for £38.1m before costs
• Approved the disposal of:
– The long leasehold interest of
2 & 4 Soho Place W1 for £40.5m
before costs
– Sale of the Johnson Building EC1
for £170.0m before costs
• Approved the:
– redevelopment of 19-35 Baker
Street W1
– Francis House SW1 refurbishment
– submission of planning permission
for Network House W1
• Reviewed the Post Completion
report for the Brunel Building W2
• Received regular updates on the key
construction projects including
reviewing quarterly project cost reports
• Reviewed and approved the half-yearly
independent valuations of the Group’s
property portfolio
Strategy and financing
• Reviewed the short and long-term
implications of Covid-19 on the Group,
our developments and occupiers
• Ongoing updates from the Executive
Committee on the implementation of
strategy throughout the year
• Regularly reviewed the Group’s financial
structure and position, including:
– Approved a £100m Revolving Credit
Facility (RCF) with Wells Fargo
– Extended our main £450m RCF with
our UK banking partners for a further
year to 2025
– Received an update on our Green
Finance initiatives
• Regularly considered the impact of
Brexit and political uncertainty on our
business and strategy
• Reviewed the capital expenditure
pipeline for the next five years
• Provided with regular updates on
asset management, leasing and
investment activities from the senior
management team
Risk management and internal control
• Reviewed the Group’s principal risks
and considered emerging risks which
could impact on the five-year plan
• Received a presentation from
Capgemini on the cyber security
audit performed during 2020
• Verbal updates from the Risk and
Audit Committee chairs on the
key areas discussed
• Updates on the assurance audits
performed by RSM and the priority
actions arising
• Received regular reports on health and
safety matters, including the protocols
introduced to ensure our buildings are
safe for reoccupation (see page 143)
• Approved the 2020/21 mandatory
compliance training programme
• Reviewed the tenant at risk register
Link to strategic objectives:
Link to strategic objectives:
Link to strategic objectives:
1. 2. 4.
Board and
Committee
meetings
January
1. 4. 5.
February
• Audit Committee
• Main Board
• Executive
Committee
• Valuers Committee
Key
announcements
• Acquisition of Blue
Star House, Brixton
SW9
• Derwent London
2019 results
March
• Main Board
• Remuneration
Committee
• Risk Committee
• Message from CEO,
Paul Williams, on
Derwent London’s
response to the
Covid-19 outbreak
2. 3. 4.
April
• Main Board
• Executive
Committee
• Q1 business, AGM
and Covid-19 update
• Bondholders
meeting
May
• Main Board
• Risk Committee
• Responsible
Business
Committee
• Executive
Committee
• Information on the
2020 AGM
• Result of AGM
June
July
August
September
October
November
• Main Board
• Remuneration
Committee
• Executive
Committee
• Executive
Committee
• Audit Committee
• Main Board
• Risk Committee
• Valuers
Committee
• Executive
Committee
• Responsible
Business
Committee
December
• Main Board
• Nominations
Committee
• Audit Committee
• Executive
Committee
• Main Board
• Remuneration
Committee
• Nominations
Committee
• Risk Committee
• Completion of
80 Charlotte
Street W1
• June 2020 rent
collection
• Release of Net
Zero Carbon
Pathway
• Disposal of 2 & 4
Soho Place W1
• Interim results
• Board change
(Simon Silver’s
future
retirement)
• September 2020
• Q3 business
rent collection
update
• Board change
(Future
appointment of
Emily Prideaux)
Derwent London plc Report & Accounts 2020
Key activities of the Board during 2020
Key
Strategic objectives
1.
2.
To optimise returns and create value from
a balanced portfolio
To grow recurring earnings
and cash flow
3.
4.
To attract, retain and develop
talented employees
To design, deliver and operate our
buildings responsibly
5.
To maintain strong
and flexible financing
123
Corporate reporting and
performance monitoring
• Reviewed the rolling forecasts and
approved the 2021 budget
• Received updates from the chair of the
Remuneration Committee on the key
areas discussed
• Conducted a review of the Company’s
viability over the next five-year period
• Approved the year end and
interim results
• Approved the Q1 and Q3
business updates
• Reviewed the 2020 Annual Report
to ensure it is fair, balanced and
understandable
• Published rent collection statistics
as at 30 June and 30 September 2020
Stakeholder engagement
• Virtually hosted the Annual General
Meeting (AGM) on 15 May 2020
• Approved the Net Zero Carbon
Pathway (see page 28)
• Received updates from the chair of the
Responsible Business Committee on
the Group’s sustainability initiatives
and Covid-19 engagement response
to local communities and tenants
• Received updates on our investor
engagement programmes and
regular investor relations reports
• Reviewed the results of employee
and occupier pulse surveys on the
Group’s Covid-19 response
• Received progress updates on our
diversity targets and focus areas
(see pages 127 to 129)
Governance
• Chairman succession (which led to
the appointment of Mark Breuer as a
Non-Executive Director and Chairman
Designate on 1 February 2021)
• Approved the appointment of
Emily Prideaux as an Executive
Director effective from 1 March 2021
• Performed an internally facilitated
evaluation of the Board, its Committees
and all Directors led by the Senior
Independent Director (see page 121)
• Performed an annual review of the
Committees’ membership (see page 125)
• Received regular governance
updates from the Company Secretary
• Routinely considered the Board’s
conflict of interests
• Agreed that the Group would be
assessed by EY under the UK National
Equality Standard (see page 149)
Board and
Committee
meetings
January
February
March
• Audit Committee
• Main Board
• Executive
Committee
• Valuers Committee
• Main Board
• Remuneration
Committee
• Risk Committee
April
• Main Board
• Executive
Committee
Key
announcements
• Acquisition of Blue
Star House, Brixton
• Derwent London
2019 results
• Message from CEO,
Paul Williams, on
• Q1 business, AGM
and Covid-19 update
SW9
Derwent London’s
response to the
Covid-19 outbreak
• Bondholders
meeting
May
• Main Board
• Risk Committee
• Responsible
Business
Committee
• Executive
Committee
• Information on the
2020 AGM
• Result of AGM
Link to strategic objectives:
Link to strategic objectives:
1. 2. 5.
June
• Main Board
• Remuneration
Committee
3. 4.
July
• Executive
Committee
September
• Executive
Committee
August
• Audit Committee
• Main Board
• Risk Committee
• Valuers
Committee
October
• Executive
Committee
• Responsible
Business
Committee
• Completion of
80 Charlotte
Street W1
• June 2020 rent
collection
• Release of Net
Zero Carbon
Pathway
• Disposal of 2 & 4
Soho Place W1
• Interim results
• Board change
(Simon Silver’s
future
retirement)
• September 2020
rent collection
Link to strategic objectives:
1. 3.
November
• Audit Committee
• Executive
Committee
• Main Board
• Remuneration
Committee
• Nominations
Committee
• Risk Committee
• Q3 business
update
December
• Main Board
• Nominations
Committee
• Board change
(Future
appointment of
Emily Prideaux)
Governance
124
Nominations
Committee
report
Simon Fraser
Chair of the Nominations Committee
2021 Focus areas
• Ensure a smooth handover of responsibility as Mark Breuer
succeeds John Burns as Non-Executive Chairman
• Review the composition of the Board in order to agree the
specifications for future Non-Executive Director appointments
• Continue to monitor diversity initiatives, in particular those
which respond to the Parker Review recommendations (see
page 127)
• Monitor succession planning and our talent pipeline at Board
and Executive Committee level
Dear Shareholder,
I am pleased to present to you the report of the work of the
Nominations Committee for 2020.
Chair succession
A key focus area for the Committee in 2020 was to find a successor to
John Burns. On 26 January 2021, we were delighted to announce the
appointment of Mark Breuer as a Director with effect from 1
February 2021. Mark will succeed John Burns as our independent
Non-Executive Chairman following conclusion of the 2021 AGM.
Mark worked in investment banking for thirty years and, in 2017,
retired from a 20-year career at JP Morgan in London, where he held
the position of Vice Chairman Global M&A and was a member of the
Global Strategic Advisory Council. During his career, Mark served in
numerous client facing and management roles advising on strategy,
finance and corporate development. Mark is a Fellow of the Institute
of Chartered Accountants of England and Wales and currently serves
as a Non-Executive Director on the Board of DCC plc and Arix
Bioscience plc. We have provided an overview of our succession
activities and Mark’s induction on page 126.
The Committee would like to take this opportunity to thank John
Burns for his remarkable achievements in founding and leading
Derwent London for so many years, and for his excellent
chairmanship over the past two years.
Board appointments
Simon Silver retired from the Board on 26 February 2021 and Emily
Prideaux was appointed an Executive Director from 1 March 2021.
This internal appointment demonstrates the importance of creating
a strong talent pipeline.
A focus area for the next 18 months will be Non-Executive Director
recruitment, as Richard Dakin and I approach the ninth anniversary
of our appointments. The recruitment process will be led by Mark
Breuer, as Non-Executive Chairman, and will be supported by the
Nominations Committee.
Diversity
As a business we have put various initiatives into practice to
address gender diversity, which has resulted in us exceeding
two of the Hampton-Alexander Review targets in advance of the
31 December 2020 deadline, see page 127. Despite the gender
balance of the Executive Committee remaining an area for further
improvement, we are pleased with the great strides we have made
in respect to gender diversity, particularly at Board level and within
the Group’s talent pipeline.
The Board are mindful that ethnic diversity remains a challenge.
As at 1 January 2021, 23% of our workforce and 16% of the direct
reports to the Executive Committee identified as non-white
however, none of the leadership team or Board are from an ethnic
minority background. To further harness the benefits of a diversified
Board, the Committee is aiming to achieve the Parker Review
recommendation that at least one Director is of colour by 31
December 2024. We also intend to continue to support and develop
our talent pipeline in respect to cultural and ethnic diversity.
Further engagement
If you wish to discuss any aspect of the Committee’s activities,
I will be attending the forthcoming AGM on 14 May 2021 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
10 March 2021
Derwent London plc Report & Accounts 2020 Committee composition
Our Committee consists of six independent Non-Executive
Directors (biographies are available on pages 106 to 107). 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.
Simon Fraser, Chair
Claudia Arney
Lucinda Bell
Richard Dakin
Helen Gordon
Dame Cilla Snowball
Note:
(i) Mark Breuer became a member of the Committee following his appointment on
Independent
Yes
Yes
Yes
Yes
Yes
Yes
Attendance
100%
100%
100%
100%
100%
100%
Number of
meetings
7
7
7
7
7
7
1 February 2021.
The Committee’s role and responsibilities are set out in the terms
of reference, which were last updated in November 2020 and are on
the Company’s website at: www.derwentlondon.com/investors/
governance/board-committees.
Meetings of the Committee
During the year under review, the Committee held seven formal
meetings (2019: three meetings).
Committee performance evaluation
The 2020 evaluation of the Board, its committees and individual
Directors was internally facilitated by Simon Fraser, the Senior
Independent Director, in accordance with our three-year cycle of
evaluations (see page 121). There were no significant matters raised.
125
Board and committee composition
On an annual basis, the Nominations 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. The Committee’s review aims to
ensure each committee is appropriately composed to be effective
and is conducted alongside discussions on Board succession and
Non-Executive Director tenure.
The table below provides an overview of the composition of the
Board’s five principal committees as at 31 December 2020. Further
information on the Board’s diversity is on pages 119 and 127.
Audit
Committee
Risk
Committee
Remuneration
Committee
Responsible
Business
Committee
Nominations
Committee
Chair
Chair
Chair
Chair
Simon Fraser
Richard Dakin
Claudia Arney
Cilla Snowball
Helen Gordon
Lucinda Bell
Chair
6
4
3
4
–
–
Number of
independent NEDs
Number of Executive
Directors
Number of employee
representatives
Total membership
Note:
(i) During the year, a further employee (Davina Stewart) was appointed to become a
–
–
–
–
–
–
6
3
4
4
2
1
3
6
member of the Responsible Business Committee (see page 147).
Following the Committee’s review, it was confirmed that the
membership of the five principal committees continues to be
appropriate, effective and in accordance with the 2018 UK
Corporate Governance Code.
Non-Executive Directors’ tenure
The Committee monitors a schedule of the Non-Executive Directors’ tenure and reviews potential departure dates assuming the relevant
Directors are not permitted to serve more than three three-year terms (nine years) from their appointment date, unless in exceptional
circumstances (see the chart below).
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
Simon Fraser
Richard Dakin
Claudia Arney
Cilla Snowball
Helen Gordon
Lucinda Bell
Length of current tenure
Estimated remaining tenure based on ninth anniversary
The Committee’s focus for 2020 was on the appointment of an independent Non-Executive Chairman to succeed John Burns. During 2021,
the Committee will begin searching for an additional Non-Executive Director, as Richard Dakin and Simon Fraser approach the ninth
anniversary of their appointments. Further information on succession planning is on page 126.
Governance
126
Nominations Committee report continued
Chairman appointment
The Committee led the selection and appointment process for
a new Chairman to succeed John Burns with assistance from
Spencer Stuart, an executive search consultancy. Spencer Stuart
has no other connection to the Company or individual Directors.
At the forefront of the Committee’s discussions was the need to
ensure an orderly succession and preservation of the Group’s
culture, which remains a valuable core strength of the business.
A gender-balanced shortlist of candidates were interviewed by
the Nominations Committee in December 2020, following
which Mark Breuer was identified as the preferred candidate.
Following satisfactory conclusion of a thorough due diligence
and referencing process, the Committee recommended his
appointment to the Board.
Mark joined Derwent London as a Director on 1 February 2021 to
begin his induction process and it is scheduled to be completed
well in advance of the 2021 AGM.
Induction
The Company provides new Directors with a comprehensive and
tailored induction process which includes visiting a number of the
Group’s properties, meetings with the Group’s audit partner and
corporate lawyer, together with meetings with the Executive
Directors, Executive Committee and senior management.
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 coordinated.
Over the past couple of years, the Committee has led the succession
plans relating to the retirement of Robbie Rayne, John Burns and
Simon Silver and the appointment of Paul Williams as CEO, Mark
Breuer as Chairman Designate and Emily Prideaux as an Executive
Director. Following this period of heightened activity, the Committee’s
activities will primarily focus on Non-Executive Director and
Executive Committee succession.
Non-Executive Director succession
The Board have two Non-Executive Directors, Simon Fraser and
Richard Dakin, nearing the ninth anniversary of their appointments
(see page 125). The Committee intends to prepare a specification
for the appointment of a new Non-Executive Director following
completion of a detailed composition review of the Board, including
of its skills, experience and diversity.
p. 127
Board’s diversity policy
Induction programmes are developed by the Group’s company
secretarial department and approved by the Chair of the Committee.
If considered appropriate, new Directors are also provided with
external training that addresses their role and duties as a Director
of a quoted public company.
Executive Committee succession
The Committee 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.
We aim to limit the amount of information provided as reading
material during an induction process. All new Directors are provided
with access to our electronic Board paper system and the Group
intranet which provides easy and immediate access to the following
key documents:
• Our latest budget and five-year plan.
• Recent broker reports and feedback from our stakeholder
engagement programmes.
• Information on our sustainability initiatives, including our
Net Zero Carbon Pathway.
• The Group’s risk register, Schedule of Principal Risks and
emerging risks.
• Recent Board evaluation reports, including the report from
the latest externally facilitated review.
• Recent reports from the external Auditor, PwC.
• Organisation and legal charts, overview of the committee’s
membership and Non-Executive Director tenure.
• Matters reserved for the Board and the committees terms
of reference.
• Board calendars for the next five years.
During the year under review, the Company did not need to conduct
an induction process.
During 2020 and early 2021, the Executive Committee composition
was altered due to natural succession changes which included Rick
Meakin departing the business in October 2020 and Simon Silver
retiring from 26 February 2021. As at 1 March 2021, the Executive
Committee consists of five Executive Directors and three senior
managers, with a diversity balance of 25% female.
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. Further information
on the role of the Executive Committee is on page 113.
The Group’s talent pipeline has been strengthened through a number
of external appointments and internal promotions, including:
• the recruitment of Vasiliki Arvaniti (Head of Asset Management),
Nathan Johnstone (Head of Facilities Management) and Victoria
Steventon (Head of Property Management); and
• the internal promotion of Matt Cook (Head of Digital Innovation
& Technology), Jay Joshi (Treasurer) and Heethen Patel
(Financial Controller).
Information on the gender diversity of the Executive Committee and
its direct reports is on page 127. There were 10 internal promotions
across the Group during 2020, 40% of which were female and 40%
ethnic minorities.
p. 128
Diversity focus areas
Derwent London plc Report & Accounts 2020
Diversity and inclusion
Having a diverse, highly talented and skilled group of people at all
levels at Derwent London is fundamental to our business success.
Diversity and inclusion bring new ideas and fresh perspectives which
fuel innovation and creativity. This is why we actively work to attract,
retain and develop employees to improve our talent pipeline (further
information on pages 50 and 51).
We are founding supporters of Real Estate Balance and we are
members of the City Women Network (CWN) which provides
membership to all our senior female employees.
In 2020, we established a new Diversity & Inclusion Working Group
chaired by our CEO and during 2021 the Group will work towards
receiving accreditation for the UK National Equality Standard.
p. 149
UK National Equality Standard
p. 50
Our people
Board diversity
A diversified Board brings constructive challenge and fresh
perspectives to discussions. We consider diversity, in its widest
sense (and not limited to gender), during our Board composition
reviews and the development of recruitment specifications.
The Board’s diversity policy requires that, where possible, each
time a Director is recruited at least one of the shortlist candidates
is female, and wherever possible, at least one of the candidates is
non-white.
Whilst we have identified areas where we could further improve our
diversity balance, principally our ethnic diversity, we do not positively
discriminate during the recruitment process and are conscious that
altering the diversity of the Board can only be done in conjunction
with the underlying Board refreshment programme.
The Board’s gender balance is in accordance with the
Hampton-Alexander Review recommendations and will further
improve following the announced Board changes to be 42% female
following conclusion of the 2021 AGM. The Board, with assistance
from the Nominations Committee, has committed to implement the
Parker Review recommendations, including that the Board should
have at least one Director of colour by 2024.
Hampton-Alexander Review: gender diversity targets
The Company has been working towards achieving the
recommendations of the Hampton-Alexander Review and have
33% female representation on its Board, Executive Committee
and senior management teams (direct reports to the Executive
Committee) by 31 December 2020.
The target for boardroom diversity and direct reports to the
Executive Committee had been achieved well in advance of the
deadline, however, the gender balance of the Executive Committee
remains a challenge. Following natural succession changes, the
gender diversity of the Executive Committee improved to 25% as
at 1 March 2021. The gender balance of the Executive Committee
will continue to remain an area of focus during 2021.
An overview of our progress against the Hampton-Alexander
recommendations since January 2018 is provided to the right.
Hampton-Alexander Review: our progress
127
Board
%
45
40
35
30
25
20
15
10
5
0
2
4
3
3
3
3
9
2
3
2
January 2018
January 2019
January 2020
January 2021
2021 AGM
Executive Committee
%
40
35
30
25
20
15
10
5
0
0
2
2
2
5
2
7
1
0
1
January 2018
January 2019
January 2020
January 2021
March 2021
Direct reports
%
40
35
30
25
20
15
10
5
0
6
3
6
3
3
3
3
3
2
3
9
2
3
2
January 2018
January 2019
January 2020
January 2021
Target of 33% women
Notes:
(i) The Executive Committee is composed of five Executive Directors and three senior
managers (see pages 108 and 109).
(ii) The combined diversity balance of the Executive Committee and its direct reports
(excluding administrative and support staff) is 34.1% women as at 1 January 2021.
(iii) Direct reports to the Executive Committee, excluding administrative and support
staff, is 36.4% women. Direct reports to the Executive Committee, including
administrative and support staff, is 50.0% women.
Governance
128
Nominations Committee report continued
Diversity focus areas
The Board has established clear focus areas which aim to promote the importance of diversity at all stages from attracting diverse and
talented employees through to retention and promotion. The key focus areas have been widened to ensure sufficient attention is being
given to ethnic diversity in addition to other diversity considerations.
Focus
Attracting diverse, highly skilled
and talented employees
• Tackle unconscious bias
• Candidate shortlists to have
gender balance
• All recruiters are signatories to the
Standard Voluntary Code of Practice
• Recruit from a wide pool of talent
(including women returning to work)
Retaining the best talent
• Focus on women returning to work
• Promote the importance of work/
life balance
• Equal opportunities for all
Further actions required in 2021
• Recommence unconscious bias
training for all employees
• Continue with current initiatives
including our social responsibility
messaging, communicating our culture
and inclusive values to the market
• Relaunch our recruitment
guidelines booklet
Actions taken during 2020
• We intended to roll out the unconscious bias training
undertaken by Directors and senior managers in 2019
to all employees. Unfortunately, these sessions had
to be put on hold due to the Covid-19 pandemic as the
sessions are more effective when undertaken in a face
to face format
• A guest speaker from a BAME background presented
to the Executive Committee and to all employees via a
town hall meeting to share their life/work experiences in
the property industry
• All current recruitment agencies are signatories to the
Code of Practice
• During the year under review:
– 43.3% of new recruits have been female and 23.3%
of new recruits were non-white
– 69.2% of new female recruits were for ‘professional’
roles and 55.5% of the professional female recruits
were non-white
• We continued with current initiatives, which
included ensuring all shortlists had gender balance
where possible
• Continued with parental transition coaching for those
• Working towards achieving the UK
returning from a period of extended leave
• Focus on work/life balance and wellbeing during the
pandemic (especially during school closures)
• Conducted short pulse survey in June 2020 to measure
communication, support and guidance from the senior
management team and health and wellbeing support
• Set up new Diversity & Inclusion Working Group, chaired
National Equality Standard
accreditation (see page 149)
• Continue with the Fit for the
Future programme which is due
for completion in summer 2021
• 4th employee survey to be rolled
out during 2021
• A further 26 employees commenced the ‘Fit for the
Future’ programme
• Core Skills sessions and technical workshops continued
by our CEO
virtually
Promoting diversity
• Gender balance within our
internships and work
experience placements
• Aim to encourage more girls to be
interested in the construction and
property industry and challenge
harmful gender stereotyping
• Heads of Department demonstrate
that we are an inclusive employer
• Internship programmes and work experience
placements put on hold during 2020 due to Covid-19
• Our fortnightly town hall meetings, hosted by our CEO
focused on diversity and inclusion on a regular basis
• Increased the number of employee representatives
on our Responsible Business Committee to three
(including a BAME representative)
• Our monthly employee newsletters and intranet
newsfeed focused on diversity and inclusion e.g.
recognising and celebrating Black History Month
• Signed up to the #10,000 Black Interns programme
which offers paid work experience, training, mentorship
and development opportunities for the Black community
• Participate in careers and
volunteering events during 2021
• Seek to have gender and ethnic
balance within our internships and
work placements
• Identify ways in which we can
support ‘Pathways to Property’
• Host three interns in 2021 under the
#10,000 Black Interns programme
Derwent London plc Report & Accounts 2020 The Group’s composition and diversity
We have an experienced, diverse and dedicated workforce. The charts below provide a breakdown of our diversity as at 1 January 2021.
The Board’s composition as at 1 January 2021 is shown on pages 119 and 127.
Length of service
Years
Employees by age
Years
129
Under 3
3-5
5-10
10-15
15-20
20+
55
20
30
26
12
11
Headcount by department
Gender diversity
(including Board of Directors)
Number
8 HQ Building Services
4 Sustainability
19 or below
20-29
30-39
40-49
50-59
60+
0
19
45
43
31
16
Men
Women
80
74
Property
Management
51
Finance
& CoSec
20
Board of
Directors
12
Operational
Support
12
Ethnic origin
Number
p. 127 Gender diversity of the Board and Executive Committee
Leasing
& Property
Marketing
10
Development
14
Asset
Management
11
4
IR & Corp
Communications
8
Investment
Asian
Black
Chinese
Middle Eastern
Mixed
White British
White other
Undisclosed
13
13
3
1
5
100
18
1
Governance
130
Audit
Committee
report
Lucinda Bell
Chair of the Audit Committee
2021 Focus areas
• Prepare an Audit & Assurance Policy to provide shareholders
with additional confidence in the way the Group is governed and
the quality of information which is being reported
• Monitor audit reform best practice and consider if any further
improvements are required to our internal financial controls
• Review our Valuation Policy in light of the findings from the
benchmarking exercise being conducted during 2021 and the
RICS valuation review being performed by Peter Pereira Grey
(see page 133)
Dear Shareholder,
I am pleased to provide you with an overview of the Committee’s
main activities and areas of focus during the year.
The Covid-19 pandemic has caused significant disruption
and has required adjustment to the way we work and provide
oversight. Despite the disruption caused by Covid-19, the
Committee has been pleased with the work and commitment
shown by the Derwent London Finance team, the external Auditor
and independent valuers.
Portfolio valuation
The Committee considers the valuation of the Group’s property
portfolio to be a major area of judgement in determining the accuracy
of the financial statements (see page 132). A benchmarking exercise
of the Group’s valuation as at 31 March 2021 has been commissioned
and we will review the results during the first half of 2021. The
Committee will also monitor the RICS valuation review and will
consider its findings and recommendations once published.
Climate change
Climate change and its impact on reporting was discussed at the
Committee’s meeting in November. The Group has been voluntarily
disclosing under the TCFD since 2019 (see page 60). In addition, the
Committee received an update on the Group’s green financing
initiatives (see page 80). The Group is committed to being net zero
carbon by 2030, so it is important that all aspects of the business,
including its financing, contribute towards this goal.
Audit and financial reporting governance reform
The Committee will continue to monitor audit and financial reporting
governance reform recommendations and the Group’s response. In
particular, during 2021, the Committee will monitor the preparation
of an Audit & Assurance Policy.
Auditors
John Waters stepped down as PwC audit partner following the 2019
year end audit and was succeeded by Sandra Dowling. Sandra has
led the half-year review and the 2020 year end audit and the
Committee is satisfied with the transition of responsibility.
During 2020, the Committee performed a formal review of RSM’s
effectiveness (our outsourced internal auditors) and received an
update on how RSM complies with the Internal Audit Code of Practice
(see page 136). Overall, the Committee has been satisfied with the
work performed by RSM and with the additional assurance received
from their reviews. Management has actively embraced any
recommendations raised and has acted swiftly to implement the
limited number of recommendations identified.
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).
Lucinda Bell
Chair of the Audit Committee
10 March 2021
Derwent London plc Report & Accounts 2020 Committee composition
During the year under review, the Committee was composed
of independent Non-Executive Directors with a wide range of
experience, including real estate and finance (biographies are
available on pages 106 and 107). The Chair, Lucinda Bell, is a
Chartered Accountant and has an appropriate level of recent and
relevant financial experience to discharge her duties as Chair of
the Committee.
Lucinda Bell, Chair
Simon Fraser
Richard Dakin
Claudia Arney
Independent
Yes
Yes
Yes
Yes
Number of
meetings
3
3
3
3
Attendance
100%
100%
100%
100%
The Committee’s role and responsibilities are set out in the terms of
reference, which were last updated in March 2021 and are available
on the Company’s website at: www.derwentlondon.com/investors/
governance/board-committees
Meetings of the Committee
During the year under review, the Committee met three times,
in February, August and November (2019: four meetings).
Two additional subcommittee meetings are held each year with
the Group’s external property valuers to consider the valuation of
our property portfolio.
In addition to the Committee members, meetings are attended by
the internal and external Auditors and members of the Group’s
senior management team, at the request of the Committee Chair.
To further facilitate open dialogue and assurance, the Committee
holds private sessions with the Auditors without members of
management being present.
Committee performance evaluation
The 2020 evaluation of the Board, its committees and individual
Directors was internally facilitated by Simon Fraser, the Senior
Independent Director, in accordance with our three-year cycle of
evaluations (see page 121). There were no significant matters raised.
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. During 2020, this included a detailed review of the
accounting implications of rent waivers as a result of Covid-19, as
well as the process for impairing receivables.
When conducting its reviews, the Committee considers the overall
requirement that the financial statements present a ‘true and fair
view’ and the following:
• the accounting policies and practices applied (see note 42 on
• the effectiveness and application of internal financial controls
pages 238 to 241);
(see page 134);
• material accounting assumptions and estimates made by
management (see note 3 on pages 193 and 194);
• significant judgements or key audit matters identified by the
external Auditor (see pages 181 and 183); and
• compliance with relevant accounting standards and other
regulatory financial reporting requirements including the UK
Corporate Governance Code.
131
In order to assess the financial statements, the Committee regularly
reviews reports from members of the Finance team and the external
Auditor who are invited to attend the Committee’s meetings. Through
face-to-face discussions and detailed written reports, the
Committee members are able to understand the business rationale
for transactions and how they are being recorded and disclosed in
the financial statements.
Viability statement
The Committee 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.
This year’s assessment included factoring in the potential long-term
implications of Covid-19 on London’s office market and our strategy.
p. 82
Viability statement
Review of the 2020 Annual Report
At the request of the Board, the Committee was asked to review the
Group’s Annual Report and to consider whether, taken as a whole,
it was fair, balanced and understandable. In carrying out its review,
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?
Specific considerations for the 2020 Annual Report:
• Whether we clearly explain the actual and anticipated impact of
Covid-19 on our business and performance.
• New sections relating to:
– Operating in challenging times (pages 6 and 7);
– A resilient business (pages 8 and 9);
– Delivering value to our customers (pages 10 and 11);
– Supporting our stakeholders in 2020 (pages 12 and 13); and
– Our pathway to net zero carbon (pages 28 and 29).
• The section 172(1) statement has been expanded to include case
studies and a public interest statement.
• Whether we have adequately responded to the five questions
which the FRC Financial Reporting Lab believe investors will seek
information on from reports in times of uncertainty (see page 135).
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
2020 Annual Report is fair, balanced and provides sufficient clarity
for shareholders to understand our business model, strategy,
position and performance.
Governance
132
Audit Committee report continued
Significant financial judgements, key assumptions and estimates
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 2020 and the judgements adopted.
Issue
Valuation of the Group’s property portfolio
Due to its size and nature and the direct
impact upon the Group’s net asset
value, the Committee considers this
to be the primary area of judgement
in determining the accuracy of the
financial statements
Assumptions or estimates
Judgement
The valuation considers a range
of assumptions including future
rental income, investment yields,
anticipated outgoings and maintenance
costs, future development expenditure
and appropriate discount rates. The
external valuers also make reference to
market evidence of transaction prices
for similar properties (see note 16 on
pages 204 to 207).
Impairment review
Covid-19 and the resulting lockdowns
and other restrictions have impacted
the businesses of many of our
occupiers, particularly those in the retail
and hospitality sectors. Rent collection
has been affected and we have provided
support to those most in need, leading
to higher outstanding receivable
balances and probabilities of default in
some cases
Impairment testing of trade receivables
and accrued income recognised in
advance of receipt has been carried
out in accordance with IFRS 9 using
the expected credit loss model.
This has required judgements to be
made in relation to recoverability and
estimated probability of default across
our whole portfolio.
The valuation is performed twice yearly
by CBRE Limited and Savills (UK) Limited
(the ‘external valuers’) and, due to its
significance, is also reviewed by the
external Auditor. The Committee reviewed
the underlying assumptions used in
the valuation and the external valuers’
independence and methodology. These
procedures enabled the Committee to
be satisfied with the assumptions and
estimates used in the valuation of the
Group’s property portfolio.
The probability of default was considered
using a risk-based approach. In
particular, our top 50 tenants, those
in administration or CVA or in high risk
sectors, such as retail and hospitality,
were looked at in detail with the
remaining balances classified by sector.
The review was carried out by the
Finance team in conjunction with the
Credit Committee and a detailed paper
was reviewed by the Audit Committee
on 1 March 2021 and was subject to
significant discussion.
Taxation and REIT compliance
Should the Group not comply with UK
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
As a REIT, the Group benefits from tax
advantages. Income and chargeable
gains on the qualifying property rental
business are exempt from corporation
tax. Income that does not qualify as
property income within the REIT rules is
subject to corporation tax in the normal
way. There are a number of tests that
are applied annually, and in relation to
forecasts, to ensure the Group remains
well within the limits allowed within
those tests.
The Group employs a qualified and
experienced Head of Tax whom the
Committee meets at least annually.
The Committee noted the frequency
with which compliance with the tests
and 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.
Borrowings and derivatives
The calculation of fair values for the
Group’s financial instruments, such as
the USPP notes, 2025 convertible bonds
and interest rate swaps, is a technical
and complex area and the amounts
involved are significant
The fair values of the Group’s borrowings
and interest rate swaps are provided
by an independent third party based
on information provided to them by the
Group. This includes the terms of each
of the financial instruments and data
available in the financial markets (see
note 24 on page 213).
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 external
Auditor used its own treasury specialists
to re-perform the valuation and to
assess the reasonableness thereof. The
external Auditor subsequently confirmed
that no issues had arisen relating to the
valuations. The Committee was satisfied
with the level of assurance gained from
these procedures.
Derwent London plc Report & Accounts 2020
133
Effectiveness of the Group’s valuers
A review into the effectiveness of the external valuers is performed
after the year end and interim valuations, with assistance from
Nigel George, Executive Director. Due to the impact of Covid-19,
the valuation process was required to be undertaken remotely.
The effectiveness review for 2020 was conducted in February
and August and considered the following:
• experience and qualification of the valuation team;
• independence and objectivity;
• quality of presentation and data; and
• robustness of the valuation.
At both meetings it was concluded that the external valuers
performed to a high independent standard and, whilst it was not
ideal having the process performed remotely, it was conducted
well and the timetable for delivery was achieved.
Valuation benchmarking
The Committee has commissioned a benchmarking exercise
in relation to the property valuation, to be performed during
H1 2021. The purpose of the exercise is to assure the Committee
that the valuation of our portfolio is aligned against other
well-regarded firms.
The benchmarking exercise will entail:
• A sample of the portfolio’s valuations being benchmarked by
three external central London valuers.
• The sample will include approximately five properties,
representing 10% of the portfolio and a combined value of
c.£500m. The same properties will be valued by the three
valuers to allow for comparison.
• There will be a diverse range of assets selected including those
in development and well-let long-dated assets.
• Tenancy sheets, typical leases and tenure information will
be provided.
• Inspections will be arranged and the valuers will have access
to our Asset Managers.
Due to the subjective nature of property valuation, we would expect
there to be a range in the benchmark valuations. We will refer to the
RICS guidance on the accepted tolerance of Fair Value. The results
of the benchmarking exercise will be presented to the Committee.
Portfolio valuation
Our property portfolio is valued by the external valuers for our interim
and year end results. As at 31 December 2020, it was valued at
£5.356bn (2019: £5.475bn) and principally consists of 83 properties.
The valuation of the portfolio is a major component of net asset
value. Movements in that valuation are a significant part of how
we measure our progress and a key determinant of the Group’s
total return (a KPI and a performance measure for our Executive
Directors’ variable remuneration – see pages 161 and 162).
Due to its significance, the Committee monitors the objectivity
and independence of the external valuers’ work and hosts the
valuation meetings. The valuation meetings typically occur in
February and July prior to Audit Committee meetings.
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 (see page 119).
Key matters discussed during the meetings include:
• London office demand, investment volumes and vacancy rates;
• the assumptions underlying the valuation and the quality of data;
• valuation methodology and whether it was adversely impacted
by Covid-19;
• 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 MSCI Investment Property Databank (IPD) benchmark.
The assumptions underlying the valuation are discussed with the
external Auditor and an update on the matters discussed at the
meetings is provided to the Board. A material valuation uncertainty
clause on Derwent London’s valuation was applied as at 30 June
2020 due to Covid-19. This was to inform the reader of market
uncertainty due to limited evidence.
Although this was lifted for valuations to central London offices on
7 July 2020, this clause was still applicable to Derwent London’s
valuation as at 30 June 2020. A material valuation uncertainty
clause was not required for our 31 December 2020 valuation.
In November 2020, the Committee received training on the valuation
process and current market environment. The training focused on:
• The basis of valuing properties and areas to consider in the
current market environment.
• The impact of incentives and how property fair values are
allocated in the balance sheet.
• Consideration of the impairment analysis relating to receivables
and the effect on the valuation.
During 2021, the Committee will monitor the RICS valuation review
being led by Peter Pereira Grey. It is anticipated that the review’s
recommendations will be finalised in September 2021. In light of
the review’s recommendations and key findings, the Committee
will assess the Group’s valuation policy.
p. 22
Our property portfolio
Governance
134
Audit Committee report continued
Internal financial controls
On an ongoing basis, the Audit Committee reviews the adequacy
and effectiveness of the Group’s system of internal financial controls
which are described briefly in the table below. Further information
on risk management and internal control is available on pages 138
to 145 of the Risk Committee report.
The Committee received detailed reports on the operation and
effectiveness of the internal financial controls from members of the
senior management team. The outcome of the external audit at year
end and the half-year review are considered 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.
During 2020, the following changes were made to our system of
internal financial controls:
• Updated the Group’s Expenses Policy, which provides guidance to
employees on what they can claim for and the details that need to
be provided for a claim to be valid. To improve processes further,
we have identified an electronic expense software which will be
rolled out during 2021.
• Performed a detailed analysis of the Group’s financial and tax
fraud risk. The results, alongside confirmation on how the risks
were being mitigated, was presented to the Audit Committee in
November 2020.
Overview of internal financial controls
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. Our Group structure is organised to be simple
and transparent (i.e. relatively few subsidiaries) and our internal
control procedures and policies are well established, reviewed
annually and subject to external verification.
Although the Committee remains satisfied that the review of
internal financial controls did not reveal any significant weaknesses
or failures and they continue to operate effectively, it was agreed
that the documentation and evidence of assurance would be a
focus area for 2021. Information on the Risk Committee’s review of
non-financial internal controls and risk management is available
on pages 138 to 145.
Governance framework
Financial reviews and
internal procedures
Treasury and tax
procedures
Risk identification and
monitoring
Training and staff
awareness
External verification
Our governance framework (see page 113) 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.
Comprehensive systems of financial reporting and forecasting which are conducted frequently and
include both sensitivity and variance analysis. An annual budgeting exercise is carried out with three rolling
forecasts prepared. A five-year strategic review is prepared annually. Breakeven and sensitivity analyses
are included in both the five-year strategic review and the rolling forecasts.
Treasury is controlled by the Chief Financial Officer and Treasurer. All transactions are checked and
monitored. All complex or large transactions are discussed in advance with the Board and Executive
Directors and are externally reviewed by our advisers.
Taxation is a complex area and is subject to frequent external review. Corporate tax returns are prepared by
the Tax Assistant and reviewed by the Group Head of Tax and, on a sample basis, by RSM. Other higher risk
areas like PAYE and CIS (the Construction Industry Scheme which requires us to deduct tax at source from
the labour element of a subcontractor’s invoice unless they are properly authorised by HMRC) is subject to
thorough examination and testing. We maintain an open relationship with HMRC and have a ‘low risk’ tax
status. Further information on tax risk and tax governance is on pages 57, 86 and 135.
The Risk Committee regularly reviews the Group’s risk register, the schedule of key controls and key risk
indicators. 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’s report is on pages 138 to 145.
Staff compliance with internal policies is 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 employee 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 independent helpline for anonymous reporting of
concerns (see page 116).
During the year, no significant deficiencies had been raised by PwC as a result of their controls testing
undertaken as part of the annual audit. The outsourced internal auditors, RSM, perform various assurance
reviews as part of the annual Internal Audit Plan. During the year, none of these reviews revealed any
significant areas of concern (see page 136). 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. Each year, at renewal, a comprehensive review of the Group’s insurance
cover is prepared by its independent insurance adviser.
Derwent London plc Report & Accounts 2020 Responsible payment practices
Derwent London is a signatory to the Chartered Institute of Credit
Management (CICM) Prompt Payment Code which confirms our
commitment to best practice payment practices and the fair and
equal treatment of suppliers.
We are clear about our payment practices. Unless otherwise stated,
we aim to pay our suppliers within 30 days or otherwise will do so in
accordance with specified contract conditions. We expect our
suppliers to adopt similar practices throughout their supply chains
to ensure fair and prompt treatment of all creditors (see our Supply
Chain Sustainability Standard on page 148).
In 2018 we disclosed an average payment term of 28 days, which
improved to 25 days in 2019. Despite the challenges of lockdowns
and home working, we further reduced our average payment days
to 20 days in 2020.
On 19 January 2021, the Prompt Payment Reforms were announced
which require 95% of invoices from small businesses (defined as
those with fewer than 50 employees) to be paid within 30 days.
The reforms become applicable from 1 July 2021. Although we
currently pay all invoices on average within 30 days of receipt,
we will be considering during 2021 how we can identify small
businesses and record their specific payment days.
Governance
135
FRC: reporting during times of uncertainty
The Financial Reporting Lab released an infographic alongside
a joint regulatory statement from the FRC, Prudential
Regulation Authority and Financial Conduct Authority on the
information which investors sought to understand in times of
uncertainty. The infographic raised five questions based on:
• Resources: including the availability of cash
• Actions: to manage short-term expenditure and
ensure viability
• The future: how the decisions taken now ensure the
sustainability of the company and impact customers,
suppliers and employees
Our CFO, Damian Wisniewski, has addressed these five
questions below.
1. How much cash does the Company have?
The Company held cash of £50.7m at 31 December 2020,
plus undrawn available facilities of £425m.
2. What cash and liquidity could the Company obtain in
the short-term?
Year
2018
2019
2020
Average
payment term
28 days
25 days
20 days
Following completion of the sale of the Johnson Building for
£166.4m on 8 January 2021, the Group had cash and available
facilities of over £625m. With relatively low gearing and
£4.3bn of uncharged assets at the year end, additional
funding could be arranged in the short-term if necessary.
Tax governance
The Group’s Senior Accounting Officer (SAO) is our Chief Financial
Officer, Damian Wisniewski, and we employ an experienced
Head of Tax, David Westgate, who has dealt with our tax and
REIT compliance since 2008. Together, they report to the Board,
Audit and Risk Committee on the implementation of the Group’s
tax strategy and compliance. They also report on key changes in
relevant tax legislation and practice. When appropriate, the tax
consequences of all significant commercial transactions are
reviewed by the Board as part of its ‘due diligence’ considerations.
To maintain our REIT status, we are required to comply with the REIT
regulations. The Board receives frequent reports on our compliance
with the regulations, and the Audit Committee meets with the
Head of Tax at least annually. Regular oversight of tax governance
is provided by the Audit Committee and, where appropriate, the
Risk Committee.
Day-to-day tax administration is delegated to suitably trained
members of the Finance team, with the input of qualified external
tax advisers where necessary. An overview of our internal controls
for taxation, including how we seek external assurance from third
parties, is on page 134.
The Group has an open and transparent relationship with HMRC and
seek to anticipate any tax risks at an early stage, including clarifying
areas of uncertainty with HMRC as they become evident. We were
delighted that HMRC reaffirmed our ‘low-risk’ tax status until 2022.
3. What can the Company do to manage expenditure in
the short-term?
Our fixed overheads (before variable pay, such as bonuses)
are comprised mainly of staff and establishment costs,
running at approximately £2.2m per month. Capital
expenditure on our projects is much more substantial at
between £10m to £20m per month, with committed capital
expenditure of £233.5m at year end. If necessary, we could
decide to stop or delay these projects though there are no
plans to do so.
4. What other actions can the Company take to ensure
its viability?
Through 2020 and into 2021, we have focused on tenant
retention and the removal of tenant breaks or expiries.
By extending leases, even if this means accepting rental
levels below ERV, we can help with continuity of income.
With a strong investment market for good quality
commercial properties, we could also sell investment
properties if required.
5. How is the Company protecting its key assets and
value drivers?
By providing and operating modern, adaptable and well-
designed commercial offices that our occupiers need, we
protect our asset values and optimise our income potential.
For further information on our response to Covid-19 and our
plans for the future, see the following pages:
• Operating in challenging times (page 6)
• A resilient business (page 8)
• Supporting our stakeholders in 2020 (page 12)
• Chief Executive’s statement (page 16)
136
Audit Committee report continued
Internal audit
RSM were appointed as the Group’s outsourced internal audit
function in December 2018 following a competitive tender process
and are considered by the Committee to be independent. In addition
to performing an internal audit function, another team from RSM
also review our year end tax returns.
The Internal Audit Plan for 2020 was approved jointly by the Risk
and Audit Committees and included a combination of risk-based
audits and projects. During 2020, RSM performed six audits:
• charity and sponsorship;
• due diligence on acquisition of property;
• Covid-19 response;
• core financial controls;
• service charge management; and
• health and safety compliance.
During 2020, the Internal Audit Plan was flexed in response to the
changing risk environment to include an audit into Derwent London’s
response to the Covid-19 pandemic in relation to crisis management,
including IT, people, finance, operations, tax compliance and
strategy. The Executive Directors also commissioned independent
surveys for staff and tenants in order that their responses could be
included within the internal audit review.
The outcome of the audits performed were presented to the Risk
and Audit Committees and reported to the Board. The Committees
were pleased with the level of assurance received from the audits.
In addition, in August 2020, the Committee received an update on
RSM’s compliance with The Institute of Internal Auditors’ Internal
Audit Code of Practice.
The Committee receives a report on internal audit activity at each
meeting and monitors the status of internal audit recommendations
and management’s responsiveness to their implementation.
The other Board committees are kept updated on the outcome
of any reviews which fall within their areas of responsibility.
The Internal Audit Plan for 2021 was approved by the Audit and
Risk Committees in November 2020 and will include audits on
the following:
• procurement and contract management;
• digitisation;
• lease management;
• management of HR data;
• tax compliance; and
• financial and IT controls.
Effectiveness review of the internal auditors
A formal review of the effectiveness of the internal auditor and
the internal audit process was conducted in February 2020 and
considered the following:
• the qualification and expertise of RSM’s internal audit team;
• the relationship established and the extent to which RSM
have built an understanding of our business and systems;
• depth and breadth of internal audits;
• quality of reporting, including in respect to the regular
Internal Audit Progress Reports provided to the Audit and
Risk Committee; and
• quality of planning and ability to meet deadlines.
The Committee concluded that the internal audit process had been
conducted effectively and that the quality of audit and reporting
was rated highly.
2020
Yes
100%
100%
Internal auditor key performance indicators (KPIs)
Delivery KPIs
Audits commenced in line with original timescales
Draft reports issued within 10 days of debrief meeting
Management responses received within 10 days of
draft report
Final report issued within 5 days of management
response
Quality KPIs
Conformance with IIA Standards(i)
Liaison with external audit to allow, where appropriate
and required, the external Auditor to place reliance on
the work of internal audit
Two working day response time for all general
enquiries for assistance
One working day response time for emergencies and
potential fraud
Note:
(i) IIA International Standards for the Professional Practice of Internal Auditing from the
N/A in 2020
Yes
Yes
100%
100%
Chartered Institute of Internal Auditors
External Auditor
The Committee has primary responsibility for managing the
relationship with the external Auditor, including assessing their
performance, effectiveness and independence annually and
recommending to the Board their reappointment or removal.
Following a comprehensive tender in 2014, PricewaterhouseCoopers
LLP (PwC) were appointed as the Group’s Auditor. The Committee’s
current intention is to conduct its next competitive tender for the
2024 year end audit, in accordance with current regulation that
requires a tender every 10 years. The Company has chosen this
timetable due to the recent change in audit partner who will serve
for four years prior to the tender in order to provide continuity over
the next three year end audits. This timetable is subject to annual
assessment of the Auditor’s effectiveness and independence
(see page 137).
There are no contractual obligations which restrict the Committee’s
choice of Auditor or a minimum appointment period. 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.
Derwent London plc Report & Accounts 2020
137
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 with
approval by the Financial Conduct Authority). The type of non-audit
services deemed to be permissible include: review of the half-year
results and assurance work on non-financial data.
In accordance with audit legislation, the total fees for non-audit
services provided by the external Auditor to the Group shall be
limited to no more than 70% of the average of the statutory audit fee
for the Company paid to the Auditor in the last three consecutive
financial years.
The Committee has provided pre-approval limits which allow
management to appoint the external Auditor to conduct permissible
non-audit services if they fall below an amount it deems as trivial.
The approval limits for non-audit services is provided below and is
subject to annual review:
Value
Up to £25,000
£25,000 to £100,000
£100,001 and above
Approval required prior to engagement
Chief Financial Officer
At least two members of the Audit Committee
(including the Committee Chair)
Board of Directors
When reviewing requests for permitted non-audit services,
the Audit Committee will assess:
• whether the provision of such services impairs the Auditor’s
independence or objectivity and any safeguards in place to
eliminate or reduce such threats;
• the nature of the non-audit services;
• whether the skills and experience make the Auditor the most
suitable supplier of the non-audit service;
• the fee to be incurred for non-audit services, both for individual
non-audit services and in aggregate, relative to the Group audit
fee; and
• the criteria which govern the compensation of the individuals
performing the audit.
In accordance with the FRC Ethical Standard, the Audit Committee
would also assess whether it is probable that an objective,
reasonable and informed third party would conclude independence
is not compromised.
Annual review of the external Auditor
Following the year end audit, the Committee assessed the
effectiveness of the external Auditor. This effectiveness review is
performed on an annual basis and aims to ensure a robust audit
is performed, auditor performance is optimised and encourages
candid feedback and communication between the Auditor and
the Committee. The assessment followed the same approach as
disclosed in our 2019 Annual Report on page 125.
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;
• how the Auditor demonstrated professional scepticism and
challenged management’s assumptions where necessary;
• 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; and
• the outcome of the FRC’s inspection of PwC’s audit quality.
In assessing how the Auditor demonstrated professional scepticism
and challenged management’s assumptions, the Committee
considered the depth of discussions held with the Auditor,
particularly in respect to challenging the Group’s approach to its
significant judgements and estimates (see page 132). The Committee
has been pleased with the challenge raised by the new audit partner
and her team during the year.
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 2021, subject to reappointment at the
2021 AGM. 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.
Non-audit services
The objective of maintaining the Non-Audit Services Policy is to
ensure the independence of the external Auditor is not compromised
and that the provision of such services do not impair the external
Auditor’s objectivity. The Non-Audit Services Policy was subject to
review in August 2020 and an updated policy was approved in
November 2020. During 2020, the only non-audit service provided
by PwC was in respect of the interim results review.
Audit of Derwent London plc
and subsidiaries
Review of interim results
Other non-audit services
Total fees
2020
2019
£’000
415
44
–
459
%
90
10
–
100
£’000
387
42
–
429
%
90
10
–
100
Governance 138
Risk
Committee
report
Richard Dakin
Chair of the Risk Committee
2021 Focus areas
• Continue to monitor the Group’s principal and emerging risks
• Ensure health and safety risks are being effectively managed
across the Group (see page 54)
• Review results of a climate change risk analysis performed by
Willis Towers Watson (see page 49)
• Assess and manage the risks arising from the UK leaving
the European Union
• Continue to monitor the management of Covid-19-related risks
in respect to its impact on London, our business, occupiers
and supply chain
• Review the risks arising at our key developments:
The Featherstone Building EC1 and Soho Place W1
Dear Shareholder,
I am pleased to present our Risk Committee report for 2020 which
describes our activities and areas of focus during the year.
Risk profile of the Group
Since the signing of our 2019 Annual Report, Covid-19 was declared
a pandemic and has caused significant societal and economic
disruption, leading to the Group’s overall risk profile being elevated.
The restrictions introduced to limit the spread of the virus has had a
significant impact on the UK (and global) economy and has
accelerated existing office trends.
Due to the Group’s proactive response to the pandemic and its strong
financial position, the initial risks arising from Covid-19 have been
carefully managed. This was confirmed via an independent review
of Derwent London’s response to Covid-19, performed by the Group’s
internal audit provider, RSM (see page 136).
Despite the elevated risk profile, the Group has demonstrated its
resilience and values: relationships with key stakeholders have been
enhanced and support offered where required most. Looking ahead,
the Committee will continue to assess and monitor the risks arising
from the pandemic, and the implications of Brexit, in the short,
medium and long-term.
Key activities of the Committee during 2020
A significant proportion of the Committee’s time this year was spent
on overseeing the management of risks arising from the Covid-19
pandemic and the identification of emerging risks within the context
of the Group’s changing risk profile.
During 2020, additional meetings were arranged for the Board and
Risk Committee in March. The additional meetings enabled the
Committee to satisfy itself that risks were being proactively
identified and managed, and to provide assurance to the Board
that the risk management framework was operating effectively.
I would like to thank the executive team and management for their
diligence in quickly identifying arising and emerging risks so that
sufficient mitigation could be implemented. The Committee was
pleased with how management and our risk management systems
responded as the pandemic developed.
In addition to reviewing the Group’s risk register and Covid-19 risk
management procedures, the Committee’s main areas of focus
during 2020 related to health and safety, Brexit contingency
planning, development-related risks and cyber security.
Further information on how the Committee and the Group
responded to the cyber security risks arising from Covid-19
and home working is provided on page 144 of this report.
Further engagement
The forthcoming AGM is on 14 May 2021 and I will be available 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
10 March 2021
Derwent London plc Report & Accounts 2020 Committee composition
The Committee’s membership for the year under review is detailed
in the table below. In addition to the Committee members, the Board
Chairman, other Directors, senior management and the internal or
external Auditors, may be invited to attend all or part of any meeting
as and when appropriate and necessary.
Richard Dakin, Chair
Dame Cilla Snowball
Lucinda Bell
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 were last updated in November 2020, and are
available on the Company’s website at: www.derwentlondon.com/
investors/governance/board-committees
Meetings of the Committee
During the year under review, the Risk Committee met four times,
in March, May, August and November (2019: three meetings).
The Committee arranged an additional meeting in March to provide
guidance and risk management oversight as the Covid-19 pandemic
developed. The meetings in August and November included a joint
session with the Audit Committee to review the outcome of the
internal auditor’s reviews (further information on page 136).
Committee performance evaluation
The 2020 evaluation of the Board, its committees and individual
Directors was internally facilitated by Simon Fraser, the Senior
Independent Director, in accordance with our three-year cycle of
evaluations (see page 121). There were no significant matters raised.
Risk management
At Derwent London, the management of risk is treated as a critical
and core aspect of our business activities. Although the Board has
ultimate responsibility for ensuring the Group has robust risk
identification and management procedures in place, certain risk
management activities are delegated to the level that is most
capable of overseeing and managing the risks (see chart 1).
In order to gain a comprehensive understanding of the risks facing
the business and the management thereof, the Risk Committee
periodically receives presentations from senior managers and
external advisers.
A robust assessment of the principal risks facing the Group is
regularly performed by the Directors, 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 over
the coming 12 months. Our principal risks are documented in a
schedule which includes a comprehensive overview of the key
controls in place to mitigate the risk and the potential impact on
our strategic objectives, KPIs and business model. Due to its
importance, changes to the Schedule of Principal Risks can only
be made with approval from the Risk Committee or Board (changes
to the principal risks during the year under review are on page 85).
139
Risks not deemed to be principal to the Group are documented
within the Group’s risk register which is maintained by the Executive
Committee. The Board reviews and approves the Group’s risk
register on an annual basis and it is reviewed by the Risk Committee
at each of its meetings. In addition, risks deemed to be key indicators
of changes in the Group’s risk profile, or deviation from the Board’s
risk tolerance, are singled out and reported upon at each Risk
Committee meeting.
During the annual strategic review and approval of the five-year plan,
the Board assesses the emerging risks, being those that could
impact on the business in the medium to long-term (see page 87).
Emerging risks are identified through roundtable discussions and
horizon scanning. Emerging risks are discussed by the Committee
at each meeting and are included within the ‘on watch’ section of the
Group risk register.
Following the Risk Committee’s reviews, the Committee confirmed to
the Board that it is satisfied that the Group’s internal control and risk
management procedures:
• operated effectively throughout the period; and
• are in accordance with the guidance contained within the FRC’s
Guidance on Risk Management, Internal Control and Related
Financial and Business Reporting.
Chart 1: Our 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
• Identifies and evaluates key
risks (principal and
emerging), ensuring they
are appropriately managed
• Works alongside the Board
to set the risk tolerance
levels for the Group
• Monitors assurance and
internal financial control
arrangements
• Manages the external audit
process and reviews the
Auditors’ 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 and oversee their risk response
Governance 140
Risk Committee report continued
Risk management framework
Identify
Assess
Monitor
Respond
Top down
Board considers
future scenarios and
identifies principal
and emerging risks
Bottom up
Risks identified through
workshop debates
Detailed assessment by
the Executive Committee
Emerging risks are
kept under review and
reassessed annually
Risk owner assigned and
Executive Committee and
Risk Committee conduct
monitoring exercises
Introduce controls and
procedures to reduce risk
exposure and understand
how risks relate and
impact upon each other
How do we monitor risks?
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 the Schedule of Principal
Risks, the Group’s risk register and ‘on watch’ register;
• independent third party reviews of the risk management
process to provide further assurance of its effectiveness;
• alerting the Board to new emerging 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 exist, identifiable action plans
are being implemented.
How do 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 successful management of risk
cannot be done in isolation without understanding how risks relate
and impact upon each other. At Derwent London, we consider the
interconnectivity between risks which allows us to prioritise areas
that require increased oversight and remedial action. The mitigation
plans in place for our principal risks are described in greater detail
on pages 88 to 99.
How do we identify risks?
• Top down approach to identify the principal risks that could
threaten the delivery of our strategy: at the Board’s strategy
reviews, scenarios for the future are considered which assist with
the identification of principal and emerging risks and how they
could impact on our strategy. 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.
• Bottom up approach at a departmental and functional level: risks
are identified through workshop debates between the Executive
Committee and members of senior management, analysis,
independent reviews and use of historical data and experience.
Risk registers are maintained at a departmental/functional
level to ensure detailed monitoring of risks. During 2020, the
Digital Innovation & Technology (DIT) department maintained
an additional risk register in respect to home working and
Covid-19-related IT risks (see page 144). Risks contained on the
departmental registers are fed into the main Group risk register
depending on the individual risk probability and potential impact.
• Independent assurance: RSM, as the Group’s independent
internal auditors, perform reviews of the Group’s departments
and key activities which provide assurance to the Board and
Committee that risks are being identified and effectively
managed. In addition, these reviews highlight any
recommendations for further action.
How do we assess risk?
Following the identification of a potential risk, the Executive
Committee undertakes 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 the risk 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’ (in accordance with the Board’s risk
appetite) which will be achieved following the completion of
mitigation plans.
Where necessary, external assistance is sought to assess potential
risks and advise on mitigation strategies. Emerging risks are kept
under review via the ‘on watch’ register and reassessed during the
annual strategy reviews.
Derwent London plc Report & Accounts 2020 Insurance
We use insurance to transfer risks which we cannot fully mitigate.
Our comprehensive insurance programme covers all of our assets
and insurable risks. We are advised by our insurance brokers,
Marsh, who report to the Risk Committee on an annual basis.
We have a long-standing relationship with our insurers, RSA,
who perform regular reviews of our properties that aim to identify
risk improvement areas.
During 2020, the insurance market hardened with insurers reducing
the amount of capacity they are willing to allocate to any one risk.
This resulted in an overall capacity contraction, conservative
underwriting and a significant rise in premiums. The largest
insurance risk for Derwent London relates to construction and
Directors’ & Officers’ insurance as both current policies expire in
2021 and we are expecting to see premiums increase due to current
market conditions.
In respect to Property Owners insurance, we were pleased to arrange
a new Long Term Agreement in March 2020, which means that both
Derwent London, and our occupiers, will not suffer any significant
premium increases during 2021.
141
Compliance training
Since May 2019, the Risk Committee has operated a training
programme which provides refresher training on a range of risk
and compliance topics (including anti-bribery and corruption,
data protection and modern slavery) to all employees and members
of the Board.
At the launch of each training topic, an introductory email is sent to
participants advising them of why the training is important and links
to further information (including Company policies and guidance
notes). The training is accessed via an online portal and each topic
takes approximately 30 to 60 minutes to complete.
The topics covered during 2020 included:
• anti-money laundering;
• competition law;
• fraud awareness; and
• cyber security.
The Committee were pleased with the level of engagement from
employees for the new compliance programme with on average
95% of all participants (inclusive of the Board) completing each
training module.
p. 120
Board training in 2020
Risk tolerance
Like any business, we face a number of risks and uncertainties. An overview of the Group’s risk profile is available on pages 84 to 99.
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. During 2020,
the Board added climate change resilience to its Risk Appetite Statement and set its risk tolerance as low.
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 open and collaborative working style, any potential
problem, risk or issue is identified quickly so appropriate action can be taken.
Category
Operational
Risk tolerance
Operational risks include health and safety risks, continuity of the IT system
and retention of the senior management team.
Financial
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
• Cost overruns occur on capital projects of more than 5% of the approved
annual budget.
capex budget.
• The Group’s interest cover ratio will fall to within 20% of the level set in the
Group’s borrowing covenants.
Zero
Low
Medium
Low
Medium
Low
Low
Health and safety
IT continuity
Staff retention
Climate change resilience
Other operational risks
REIT status
Credit rating
Decrease in asset value (>£100m) Medium
Medium
Profits (£5m)
Medium
Cost overruns (>5%)
Medium
Interest cover (<20%)
Reputational
Regulatory
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.
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.
The Group’s tolerance for regulatory risk arising from statute or the UK
Corporate Governance Code and from adherence to ‘best practice’ guides.
Brand value
Statutory
Governance
Zero:
Low:
The Board has a zero tolerance to risk-taking
The Board is not willing to take any significant risks
Medium:
The Board is willing to take measured risks if they are identified, assessed and controlled
High:
The Board is willing to take significant risks
Low
Zero
Low
Governance
142
Risk Committee report continued
Development risks
The Risk Committee’s role is to gain assurance that risks are being
identified, effectively managed and where possible mitigated.
At each meeting during 2020, the Risk Committee met with the
Director of Development, Richard Baldwin, and members of the
Development team to discuss the Group’s largest development
projects and the management of risks.
We have classified three development-related risks as principal
to the Group – reduced development returns, ‘on-site’ risk and
contractor/subcontractor default – these are discussed in further
detail on pages 92 and 93.
p. 92
Risks arising from our development activities
Brexit
The Committee’s responsibility during 2020 was to ensure that
management was proactively planning for the risks and challenges
which could arise from the Brexit transition negotiations and the
eventual outcome.
At each annual strategic review since the referendum decision,
the Board as a whole considered potential Brexit scenarios on the
Group’s five-year strategic plan and long-term viability.
In 2021, the Committee will continue to monitor international
trade negotiations, including the UK application to join the
Comprehensive and Progressive Trans-Pacific Partnership (CPTPP)
and the agreement of terms with the EU in respect of the financial
services sector (see pages 88 and 89).
p. 85
Brexit-related risks
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.
Test
Corporate hospitality
Business gifts
Hospitality and
Gift Returns
Political donations
Charitable donations
Contractors and
suppliers
Supply Chain
Sustainability Standard
Payments
Facilitation payments
Conflicts
of interest
Training
Whistleblowing procedures
Purpose
Hospitality 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.
Generally, gifts should not be accepted unless valued less than £50, are not cash or a cash equivalent (e.g.
gift certificate), are appropriate to the circumstances and are not given with the intention of compromising or
influencing the party to whom it is being given.
All staff are required to complete quarterly Hospitality and Gift Returns which document all instances of third-
party hospitality or gifts (given or received) over that three-month period if the value is in excess of £50 for
hospitality and £10 for gifts. The Hospitality and Gift Returns are subject to review by the Risk Committee.
The Company strictly prohibits any political donations being made on its behalf.
Charitable donations are handled by the Sponsorships and Donations Committee. ‘Know your client’ procedures
are applied to charitable organisations to ensure we are dealing with a valid body acting in good faith and with
charitable objectives.
Our zero-tolerance approach is communicated to all suppliers, contractors and business partners. Due diligence
procedures determine if a third party has previous convictions under the Bribery Act. All contracts with suppliers
or contractors prohibit the payment of bribes or engaging in any corrupt practice. The Company has the right to
terminate agreements in the event a bribe is paid or other corrupt practice undertaken.
Contains the minimum standards we expect from our major suppliers (further information on page 148).
All payments made must be warranted, transparent and proper. All payments must be accurately recorded
through the normal accounting and financial procedures without any deception or disguise as to the recipient’s
identity or the purpose of the payment in question. No one approves their own expense claim. All expense claims
must be approved by a Director or senior manager.
Facilitation payments are bribes and are strictly prohibited.
All conflicts of interest or potential conflicts of interest must be notified to the Company Secretary and a register
of such notifications is maintained. The Corporate governance statement on page 119 explains our process for
managing potential conflicts.
We provide our employees with guidance notes and regular training on anti-bribery, corruption, ethical standards
and the prevention of the facilitation of tax evasion.
A confidential helpline is available for staff to report concerns anonymously. Further information on page 116.
Derwent London plc Report & Accounts 2020
Governance
143
Covid-19: protecting our occupiers
Protecting our occupiers and stopping the spread of the virus
in our buildings was a priority as our tenants returned to their
office spaces following the first lockdown. To ensure their
health and safety we implemented the following measures:
• Social distancing and one-way traffic flow systems
with clear signage
• Readily available hand sanitiser units
• Restrictions on numbers using lifts and WCs
• Fresh air ventilation
• Enhanced cleaning regimes and upon notification
of a confirmed case, an electrostatic clean was
undertaken automatically
• Temperature checks on entry on agreement with occupiers
• Encouraging the use of face masks within the common areas
• Random Covid-19 testing of our air-conditioning filters
During the year, we also tracked the confirmed cases of
Covid-19 throughout our managed portfolio. As at 31 December
2020, there had been a total of 76 confirmed cases from our
occupiers, with unfortunately one death reported. There
have been 17 confirmed cases to date for Derwent London
employees (Building Managers, Security Officers or Reception
teams) across the managed portfolio. Of the total 93 cases,
52 of these occurred in November and December 2020.
The data of confirmed cases clearly showed that, where there
were several incidents, these were concentrated to a tenant’s
area and not more widely spread throughout the building.
This provided our occupiers, and the Board, with comfort that
our measures were proving effective in minimising the spread
of the virus.
We maintain weekly dialogue with all occupiers to understand
their changing occupancy plans and adapt our building
specific plans in response. In addition, to support our occupiers,
we have stopped non-essential services as far as possible and
for March and June quarters we reduced our service charges
by 25%.
Tea Building E1
Credit Committee
The Credit Committee is a supporting committee within the Group’s
governance framework which typically meets on a weekly basis to
assess and monitor the financial strength of potential and existing
tenants. The Credit Committee is chaired by the CEO and its
members include David Silverman (Executive Director) and
senior members of the Finance, Leasing, Property and Asset
Management teams.
During 2020, due to the difficulties being faced by our current and
prospective tenants, the Credit Committee met on a more frequent
basis and the meetings were additionally attended by our CFO,
Damian Wisniewski. The ‘tenants at risk’ register was regularly
reviewed to carefully monitor the financial performance of existing
tenants. As at 31 December 2020, the 57 tenants included on the
‘tenants at risk’ register represented 8% of the Group’s contracted
net rental income, and mainly consists of businesses operating in
retail and hospitality sectors.
The Credit Committee’s remit of responsibilities includes the
assessment of:
• lettings to new tenants;
• additional space for existing tenants;
• renewals/regears;
• rent concessions;
• an existing tenant moving within the portfolio; and
• assignments/subleases.
We are aware that during times of heightened uncertainty, receiving
a swift response to queries is important. The Credit Committee
delegated authority to the Asset Management team and Head of
Asset Management to quickly help and assist our smaller occupiers
during the Covid-19 lockdowns in respect to rent concessions.
The Risk Committee and Audit Committee were updated on the work
of the Credit Committee during the year under review, to ensure it
was in agreement with the accounting principles being applied and
the management of risk. The Risk Committee confirms that it is
satisfied with the extensive due diligence process being undertaken
by the Credit Committee.
Health and safety
Due to the Covid-19 pandemic and the restrictions imposed during
the year, the Health and Safety team was required to adjust how it
operates to meet our business health and safety needs. The Group’s
primary concern was the health, safety and wellbeing of our people,
tenants, residents, contractors and the public (see pages 54 and 55).
At each Committee meeting, a detailed update is provided on health
and safety matters on both the managed portfolio and the
development pipeline. During 2020, the Committee were kept
apprised of the following:
• the development of the ‘return to the office’ plan and procedures
for employees and occupiers returning to our buildings following
the easing of lockdown restrictions;
• the Fire Safety Bill and Building Safety Bill and Derwent
London’s compliance;
• the latest operating procedures for development sites; and
• induction and health and safety training.
p. 54
Health and safety
144
Risk Committee report continued
Cyber security
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.
The Committee reviews a dashboard of key risk indicators at each
meeting which includes information security and cyber risk-related
KPIs. During 2020, there were 109,735 (2019: 201,532) attempted
attacks on our systems, none of which resulted in a serious security
breach and 99.96% (2019: 99.98%) of the attempts were stopped
before they reached the intended targets – this highlights the
robustness of our cyber security posture.
Due to the Covid-19 pandemic and the change in the way we were
required to work during the lockdown restrictions, a Home Working
& Covid-19 Cyber Risk Register was produced which identified
the key IT risks arising and the additional controls put into place
for risk mitigation. The Risk Committee reviewed this register at
each meeting during 2020 and received regular updates on the
implementation and effectiveness of the additional controls,
which included:
• Multi-Factor Authentication (MFA) on all Office 365 accounts;
• additional employee awareness training and guidance on remote
working security; and
• ensured that all business-critical IT systems, such as financial
packages, are securely accessible remotely.
Our Digital Innovation & Technology (DIT) team tested the
effectiveness of our ongoing security awareness programme
in 2020 by sending fake phishing emails to staff in May and
monitoring their response. Any staff member who clicked on the
links contained in the test emails, or entered their credentials was
provided with further training on the dangers and tips on how to
identify phishing emails.
All staff participate in mandatory information security workshops
each year which focus on our policies and procedures, cyber and
personal security. 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. During 2021, all
employees and Directors will complete social media awareness and
IT security training as part of our compliance training programme
(see page 141).
During 2020, we requested that Capgemini conduct a Cyber Risk
Review. Capgemini utilised the Information Security Forum (ISF)
benchmark tool combined with a 427 question Security Health-
check Questionnaire to review our security control environment.
Derwent London’s cyber risk landscape was classified as low to
medium based on our current operations, however, it was noted that
this is trending upwards as we develop our Intelligent Building and
Digital strategies.
In November, the Committee reviewed the outcome of the audit
and were pleased that Capgemini had noted the improvements
made since the prior audit in 2018 and that this was reflected in
the overall improvement in benchmarking scores. The Committee
agreed the responses and timeframes for implementing the audit
recommendations. Management will be required to provide the
Committee with a status update on the implementation of the
recommendations during 2021.
Cyber Essentials accreditation
As part of our ongoing commitment to cyber security, on 3 April 2020
our Cyber Essentials accreditation was renewed, having passed
an external security scan of all internet-facing services and an
assessment of technical and operational controls. Cyber Essentials
is a government-backed, industry-supported scheme which helps
guard against the most common cyber threats and demonstrates to
stakeholders our commitment to cyber security.
On 22 October 2020, the Group’s Information Security Manager
was awarded the CISM (Certified Information Security Manager)
qualification by ISACA (Information Systems Audit and Control
Association). CISM is a globally accepted and recognised standard of
achievement among information security professionals that is aimed
at improving alignment between information security programmes
and broader business objectives.
Information security
To safeguard the security and privacy of information entrusted to us,
we have robust procedures and a layered defence model in place.
This ensures that we:
• maintain the confidentiality, integrity and availability of data and
safeguard the 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.
During 2021, all employees will undertake refresher training on
protecting personal data.
Derwent London plc Report & Accounts 2020
145
Business continuity and disaster recovery
Due to the Covid-19 pandemic and lockdown restrictions in 2020, we were required to close our London office for several months.
During this period, all staff received full pay (no furlough) and the vast majority were capable of working effectively remotely. To facilitate
home working, additional systems and security controls were rapidly rolled out and employees were provided with secure devices to access
their work files safely alongside remote IT support.
Capgemini, in its Cyber Risk Review report to the Risk Committee, commented that “The speed at which Derwent London was able to roll out
these changes highlights the excellent Business Continuity capability that the organisation has developed and has helped it adapt extremely
quickly with minimal disruption”.
Disaster recovery procedures
Derwent London has formal procedures for use in the event of an emergency that disrupts our normal business operations which consist of:
Business Continuity
Plan (BCP)
The BCP 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.
Crisis Management
Team (CMT)
The CMT is composed of
key personnel deemed
necessary to assist with
the recovery of the
business. The BCP
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.
Off-site disaster
recovery suite
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.
Testing
and review
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.
An overview of the
disaster recovery tests
due to take place during
2021 are provided in the
table below.
The Covid-19 pandemic had a considerable impact on how our business operated, particularly during the lockdown restrictions, which
required us to implement some aspects of our Business Continuity Plan. All our major systems have been tested whilst at home, including
invoicing, arrears collection, payroll, document signing, supplier payments and half-year reporting. During the process we have learnt further
lessons to strengthen our plans.
Although our DIT department performed technical tests to ensure our off-site disaster recovery suite is fully operational, our IT failover
mechanism to the off-site suite has not been fully tested in 2020. Our priority for 2021 is to test the closure of IT systems at 25 Savile Row
and their failover to the off-site disaster recovery suite. In addition, during 2021, our Business Continuity Plan will be subject to an
independent review.
The last full business continuity test was performed in September 2018, which was staged as a complete loss of power at our head
office building at 25 Savile Row. The test was overseen by independent verifiers, IT Governance Limited, who assessed our procedures
and efficiency. The entire process from the loss of primary power, transfer to our disaster recovery suite and roll back to Savile Row took
6 hours and 45 minutes (a 3 hour and 20-minute improvement on our previous full test completed in October 2016).
Business continuity tests planned for 2021
Test
Business Continuity Plan review
IT component test
Full IT disaster recovery test
Desktop review
Purpose
The CMT team to meet regularly to review and update the business continuity plan and
cascade list, review current threat levels and agree on any action points.
A technical test of the individual components required to carry out a failover of IT
services to our disaster recovery suite.
A full IT systems failover from our offices to our disaster recovery suite and testing that
all IT functions and business-related activities can be adequately performed.
A desktop exercise which uses a series of scenarios to rehearse decision making and
familiarise the CMT members with their roles.
Date
Ongoing during 2021
Q1 2021
Q2 2021
H2 2021
Governance
146
Responsible
Business
Committee
report
Dame Cilla Snowball
Chair of the Responsible Business Committee
2021 Focus areas
• Review the findings of the UK National Equality Standard
assessment being independently conducted by EY
• Ensure adherence to the Group’s Net Zero Carbon Pathway
• Review and approve the structure and contents of the 2021
• Monitor the Group’s community, charitable and sponsorship
employee survey
initiatives
Dear Shareholder,
I am pleased to present to you the report of the work of the
Responsible Business Committee for 2020. I would suggest that
this report is read alongside the Responsibility section on pages 46
to 63 which provides further information on Derwent London’s
ESG activities.
Supporting our stakeholders
In these unprecedented times, our responsibility to our stakeholders
and the wider community is of paramount importance. At each
meeting during 2020, the Committee received detailed updates on
how the business was proactively responding and offering support
to our key stakeholders, including our employees, local communities,
occupiers and supply chain.
During the year, the Group’s commitment to charitable donations,
sponsorships and community funding was increased by 179% to
£1.1m (see pages 52 and 53). This included the donation of 16
furnished flats at Charlotte Apartments to University College
Hospital, to use free of charge, for 12 months (see page 13).
Derwent London supported employees throughout the pandemic
by ensuring job security (no redundancy or furlough), clear
communication and a strong focus on physical health and mental
wellbeing (see pages 12, 51 and 115). The Committee’s employee
representatives also prepared monthly newsletters which shared
news and welcomed new starters.
Diversity and inclusion
The Group is committed to being an inclusive and respectful
employer that welcomes diversity and promotes equality,
acceptance and teamwork. In response to the Black Lives Matter
movement, the Committee reviewed our anti-racism and ethnic
diversity initiatives. These discussions received input from our
employee representatives, Ally, Davina and Jonathan.
One outcome of the discussions was agreement that the Group
would be independently assessed by Ernst & Young (EY) under
the UK National Equality Standard (NES). The NES assessment will
provide Derwent London with an independent, comprehensive
quality review of our equality, diversity and inclusion policies
and practices, identifying areas for improvement and a detailed
roadmap with recommendations (see page 149).
Net zero carbon
The Group’s Net Zero Carbon Pathway was published in July 2020
and details the steps the Group will take in order to be net zero
carbon by 2030. The Committee reviewed and approved the
pathway prior to its release and will continually monitor progress
to ensure the business remains on track.
Employee members
The benefits of employees on the Committee has been evident
and the Board agreed that a further employee would be appointed
during the year. We were delighted to welcome Davina Stewart to
the Committee from October 2020 (see page 147). During 2020,
all employee-members of the Committee have been fully engaged
in the Committee’s activities and have strengthened the employee
voice in our boardroom.
If you wish to discuss any aspect of the Committee’s activities,
I will be available at the 2021 AGM on 14 May 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).
Dame Cilla Snowball
Chair of the Responsible Business Committee
10 March 2021
Derwent London plc Report & Accounts 2020 Committee composition
Our Committee consists of two independent Non-Executive
Directors, the Chief Executive and three employee-members. 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.
Dame Cilla Snowball, Chair
Claudia Arney
Paul Williams
Ally Clements
Jonathan Theobald
Davina Stewart
(i) Percentages are based on the meetings entitled to attend for the 12 months ended
Independent
Yes
Yes
No
Employee
Employee
Employee
Attendance(i)
100%
100%
100%
100%
100%
100%(ii)
Number
of meetings
2
2
2
2
2
1
31 December 2020.
(ii) Davina Stewart was appointed as an employee-member of the Committee on
8 October 2020.
The Committee’s role and responsibilities are set out in the terms
of reference, which were last updated in December 2019 and are
available on the Company’s website at: www.derwentlondon.com/
investors/governance/board-committees
Meetings of the Committee
During the year under review, the Committee held two formal
meetings (in May and October) (2019: two meetings). In addition
to the formal meetings, the Committee holds ad hoc informal
meetings, and the Committee chair meets privately with the
employee-members.
Committee performance evaluation
The 2020 evaluation of the Board, its committees and individual
Directors was internally facilitated by Simon Fraser, the Senior
Independent Director, in accordance with our three-year cycle of
evaluations (see page 121). There were no significant matters raised.
Key activities of the Committee during 2020
The main focus areas for the Committee during 2020 was
monitoring how the Group was supporting its key stakeholders
during the Covid-19 pandemic and approving the Group’s pathway
to becoming net zero carbon by 2030. In addition, the Committee:
• Stakeholder engagement:
– Reviewed the results of the Covid-19 employee and occupier
pulse surveys.
– Received a presentation on wellbeing and health initiatives
available to employees (including, mental health) during the
home working period.
– Reviewed the suggestions and actions arising from the
2020 Employee Survey Working Group.
• Diversity and inclusion:
– Received a presentation from EY on the UK National Equality
Standard and agreed that an independent assessment of the
Group would be undertaken in the first half of 2021 (see page
149).
• Net zero carbon:
– Received updates on our progress to net zero carbon by 2030.
– Received an update on feedback received following the
publication of our Net Zero Carbon Pathway.
• Responsible business:
– Reviewed the socio-economic impact assessment for
White Collar Factory EC1.
– Agreed the Modern Slavery focus areas for 2020.
Governance
147
Employees on the
Responsible Business Committee
Ally Clements
Senior Property Marketing Co-ordinator
Joined Derwent London: March 2013
Appointed to the Committee:
January 2019
Davina Stewart
Property Accounts Manager
Joined Derwent London: June 2015
Appointed to the Committee:
October 2020
Jonathan Theobald
Associate, Investment
Joined Derwent London: December 2012
Appointed to the Committee:
December 2019
Employee engagement
During 2020, the Company engaged actively with employees
and communities to ensure these two key stakeholder groups
were fully supported (see pages 12 and 13). The employee
members of the Committee assisted by organising monthly
staff newsletters which aims to promote the wellbeing and
connectivity of staff, being available for fellow employees to
voice any concerns as well as raising questions that can then
be discussed in the Company town hall meetings. Ally, Davina
and Jonathan also hosted the Employee Survey Working Group
meetings and joined discussions with the Directors on diversity
and inclusion matters.
p. 50
Our people
p. 115
Employee engagement
p.12
Supporting our
stakeholders in 2020
p. 52
Community support
Monthly staff newsletter
148
Responsible Business Committee report continued
Supply Chain Sustainability Standard
All suppliers with whom we spend more than £20,000 per annum are required to comply with, and provide evidence of how, they are
implementing our Supply Chain Sustainability Standard (the 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.
A summary of the Standard is below. The complete Standard is available to download on our website.
Aspect
Anti-bribery and corruption
Employment and
labour practices
Health and safety
Community
Environmental
Payment practices
Standards expected from our suppliers
• 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.
• Fair pay and working time practices which ensure compliance with the National Minimum Wage and the
London Living Wage together with working time legislation.
• No use of exclusive ‘zero hours’ contracts.
• No illegal, forced or child labour.
• Suppliers to have appropriate equality and diversity policies to ensure the active promotion of
employment diversity.
• Adequate health and safety policies and management systems appropriate to the nature and scale of
their business and service provision.
• 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.
• We 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.
During 2019, we requested evidence that our major suppliers were compliant with the Supply Chain Sustainability Standard. This involved
completion of a questionnaire and providing copies of key policies and procedures. Overall, we received an excellent response rate of 98%.
Due to the Covid-19 pandemic, it has been agreed that we will engage with our suppliers on the Standard during the second half of 2021.
p. 12
How we supported our suppliers in 2020
p. 57
Supply chain governance
1 Oliver’s Yard EC1
Derwent London plc Report & Accounts 2020
UK National Equality Standard
In order to assess the Group’s strengths and key areas for
improvement in respect to equality, diversity and inclusion, the
Committee agreed that Derwent London would be independently
assessed under the UK National Equality Standard. The UK
National Equality Standard is supported by the Home Office and
the Confederation of British Industry (CBI) and the Equality and
Human Rights Commission (EHRC) was involved in its development
and launch.
The assessment will be completed during the first half of 2021 and
will focus on 35 competencies which are broken into five categories.
The assessment process will include stakeholder interviews and
document review, alongside employee interviews and focus groups.
Human rights and modern slavery
The protection of human rights and fundamental freedoms is one of
our key ESG priorities which we manage from an internal (within our
business) and external perspective (within our supply chain and our
relationships with contractors).
Internally, the Board monitors our culture to ensure we maintain
our values and high standards of transparency and integrity.
Our Human Resources team ensures that we have the right systems
and processes in place to strengthen and sustain our culture.
Further information on the development of our employees can be
found on page 50. The Board’s role in managing the Group’s culture
can be found on page 111.
Externally, we are active in ensuring our ESG standards are clearly
communicated to our supply chains, principally via our Supply
Chain Sustainability Standard. In addition, we are clear on our
zero-tolerance position with regards to slavery and human
trafficking as set out in our Modern Slavery Statement, which can
be found at: www.derwentlondon.com/investors/governance/
modern-slavery-act
During 2020, we continued to identify and implement ways to
strengthen our policies and procedures in respect of the protection
of human rights and prevention of modern slavery. The Committee
receive annual updates on progress from our designated “champion”,
who is a senior manager responsible for ensuring the Board’s policies
on modern slavery are implemented. In addition, the Committee
reviewed in detail the answers provided by suppliers in respect to
modern slavery following the supplier audit performed in 2019 on
the Supply Chain Sustainability Standard (see page 148). We also
continued to monitor and cross-check our supply chain, from
procurement to delivery.
Reporting frameworks
The Group reports under several frameworks to provide a complete
picture of our responsibility progress and activities and to allow
comparison with our peers and other companies. Our reporting aims
to show not only a property sector specific perspective (EPRA Best
Practice Reporting measures) but also a broader international
perspective (the Global Reporting Index and the United Nations
Sustainable Development Goals). For further details on our EPRA
measures, please see pages 243 to 245, and for our Global Reporting
Index disclosures and United Nations Sustainable Development
Goals alignment, see our annual Responsibility Report.
Governance
149
Socio-economic impact assessment
of White Collar Factory EC1
White Collar Factory is a 291,000 sq ft development, completed
in H1 2017, which contains offices, retail, residential units and
a public square.
Since 2013 one of Derwent London’s objectives has been to
carry out a socio-economic survey on its major developments
once they have been occupied for more than one year. We
believe it is important to understand our developments’
impacts on their neighbourhoods. At White Collar Factory we
also measured the building’s impact on occupiers’ wellbeing.
The assessment was compiled before the Covid-19 pandemic
and included three phases. A desktop research stage which
involved a site visit, stakeholder mapping and interviews.
This was followed by a period of on-site research which
included street surveys with local businesses and with
occupiers. Finally, an analysis of the data and production of a
report which was reviewed by the Committee in October 2020.
A broad range of stakeholders were covered as part of
the assessment:
• Building occupiers
• Building staff
• Local businesses
• Local residents
• Local workers
• Local Authority (London Borough of Islington)
On-street responses revealed good knowledge of the building
and how it fits within the locality, with positive comments on
the green space, open areas, safety aspects, cleanliness and
architecture.
We believe it is important for our occupiers to enjoy the
local area and, as a direct result, boost the local economy.
Results of the assessment showed that the development is
having a positive impact on local footfall and revenue. Local
businesses estimated that there has been a 7% increase in
footfall with a total occupier spend of £6.6m per annum with
local businesses.
The impact assessment also provided recommendations to
maintain and improve the positive impact of White Collar
Factory on its occupiers and the wider community. The
Committee discussed these in detail with management.
Socio-economic impact assessment of White Collar Factory
150
Remuneration
Committee
report
Claudia Arney
Chair of the Remuneration Committee
2021 Focus areas
• Operation of the 2021 annual bonus and grant of 2021
Performance Share Plan (PSP) awards to ensure they
remain appropriate given the difficult trading environment
resulting from the pandemic
• Continue to keep under review the effectiveness and
relevance of performance conditions and comparator
groups for variable remuneration
• Continue to keep wider workforce remuneration arrangements
under review, taking these into account when considering
remuneration arrangements for Executive Directors
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 2020. The Annual report on remuneration, describing how the
Remuneration Policy has been applied for the year ended
31 December 2020 and how we intend to implement policy for 2021,
is provided on pages 153 to 170.
Our Remuneration Policy was approved by shareholders at the
2020 AGM and received 95.5% of votes cast in favour. Rather than
reproduce the policy in full, we have provided a summary on pages
155 to 158. A copy of the complete Remuneration Policy can be found
on our website at: www.derwentlondon.com/investors/governance/
board-committees
Linking Executive Directors’ remuneration with our purpose
and strategy
Our Remuneration Policy is designed to be simple and transparent
and to promote effective stewardship that is vital to the delivery of the
Group’s purpose – to help improve and upgrade the stock of our office
space in central London, providing above average long-term returns
to our shareholders while bringing social and economic benefits to all
our stakeholders.
Success against our strategic objectives is measured using our KPIs,
which are largely embedded within the executive remuneration
framework as illustrated by the chart on page 152.
Derwent London values openness and transparency. To this end the
Committee strives to provide clarity on how pay and performance
is reported at Derwent London and how decisions made by the
Committee support our purpose and the strategic direction of the
Group.
Performance outcomes in 2020
2020 has been a challenging year with Covid-19 having a significant
impact on our occupiers and the Group, as well as on the wider
economy and society. As a business, Derwent London’s resilience
has been evident and, as outlined in the Strategic report, we have
continued to perform well relative to our REIT peer group.
The Group has delivered sustained and strong long-term returns to
shareholders, despite continued economic uncertainty. As noted on
page 164, a £100 investment in Derwent London shares at the start of
2011 would have generated a return (including reinvestment of
dividends) of £252 in 10 years compared to the FTSE 350 Supersector
Real Estate Index with a return of £194.
When determining the annual bonus and PSP outcomes based on
2020 performance, the Committee considered performance against
financial and strategic targets, as well as broader perspectives
including: underlying business performance and affordability; the
experience of shareholders; and the experience of employees and
other stakeholders. The following was noted:
• The final 2019 dividend of 51.45 pence per share was paid in full.
• The Group raised the 2020 interim dividend by 4.8% to 22.00 pence
per share and the proposed 2020 final dividend has been increased
by 1.9% to 52.45 pence per share.
• TSR performance for the years 2018 to 2020 was 16.7%
compared to the median of the FTSE 350 Supersector Real
Estate Index of (0.5)%. While our TSR for the financial year has
declined, reflecting the impact of Covid-19 on the business, our
performance has exceeded the median of the FTSE 350
Supersector Real Estate Index.
• No employees were furloughed or made redundant during 2020.
The Company did not receive government support or loans.
Derwent London plc Report & Accounts 2020 • The average 2020 salary increase for the wider workforce was
4.7% and, from 1 January 2021, all employees received at least
a 2% increase.
• All eligible employees received a bonus for 2020.
• The Group increased its 2020 commitment to charitable donations,
sponsorships and community funding by 179% to £1.1m. The
increase was partly funded by Directors waiving 20% of their
second quarter salaries and fees.
• We supported our tenants during the pandemic, providing
contributions to service rate charges and relief on rent.
The Committee approved the following incentive outcome for 2020:
• An annual bonus vesting of 66.3% of the maximum opportunity
(equivalent to 99.5% of base salary). The Committee exercised its
discretion to reduce the annual bonus payout by 30.0% from 96.3%
of the maximum opportunity, which was the bonus outturn based
on actual performance (see page 161). The Committee recognised
that whilst the Group has performed well relative to our REIT
peer group and management had performed well in difficult
circumstances, shareholders have been impacted by the Group’s
absolute financial and share price performance during the year,
due to the disruption caused by Covid-19 on the business and real
estate sector. The 2020 bonuses earned by the executives were
therefore 31.6% lower than the bonuses paid for 2019. For
reference, the 2020 bonuses earned by employees were on average
21.0% less compared to 2019.
• A PSP award vesting of 81.6% of maximum opportunity (see page
162). Given the strong returns delivered for shareholders over the
past three years, the Committee considered that this outcome was
appropriate.
Management changes
Simon Silver’s retirement and treatment of outstanding incentives
As announced on 11 August 2020, Simon Silver retired as an Executive
Director on 26 February 2021. There was no payment for loss of office
on Simon ceasing to be a Director. Simon continued to receive his
salary, benefits and pension until his retirement date. The table
below provides information on the treatment of his annual bonus
and PSP arrangements.
Annual
bonus
PSP
awards
Annual bonus for the year ended 31 December 2020 will be
paid in March 2021 based on performance against targets
and is detailed on page 162.
Eligible to earn a pro rata bonus for the period to 26 February
2021. This will remain subject to performance for the year
ending 31 December 2021.
Simon Silver is not eligible to receive a PSP grant in 2021 or
thereafter. In respect of his outstanding PSP awards, they will:
• Vest in accordance to their normal vesting timetable subject
to the achievement of the relevant performance conditions;
• Be subject to the normal post-vesting holding period of two
years; and
• Will be subject to a pro rata reduction for the period
26 February 2021 to the end of the performance period.
For the period 1 March 2021 to 31 December 2022, Simon will be
employed as an adviser reporting to Paul Williams and will be paid a
salary of £150,000 per annum for this role.
Emily Prideaux’ remuneration as an Executive Director
Emily Prideaux was appointed to the Board from 1 March 2021 in the
role of Executive Director. With effect from 1 March 2021, Emily will
receive a base salary of £410,000 per annum. Emily’s salary has been
positioned below that of the other Executive Directors’ salaries to
reflect that Emily is stepping up into the role of Executive Director.
This reflects shareholder guidance and best practice where an
Executive Director is new in the role. The Committee intends to align
Emily’s salary with the other Executive Directors over the next three
years as her role and experience develops.
151
It is currently intended that Emily’s salary will be increased to
£450,000 per annum with effect from 1 January 2022 and then
aligned with the other Executive Directors’ salaries (currently
£489,600) from 1 January 2023. These salary increases will remain
subject to continued good Group performance and Emily’s personal
performance in her role. In accordance with our Remuneration Policy,
as a newly appointed Executive Director, Emily’s pension contribution
will be aligned with the wider workforce at 15% of salary. All other
aspects of Emily’s remuneration package will be aligned with the
other Executive Directors.
John Burns’ retirement and appointment of Mark Breuer as
Non-Executive Chairman
As announced on 26 January 2021, John Burns will retire as
Non-Executive Chairman on 14 May 2021 and will be succeeded by
Mark Breuer. There will be no payment for loss of office on John Burns
ceasing to be a Director. Mark was appointed a Non-Executive
Director on 1 February 2021 and will commence as Non-Executive
Chairman following conclusion of the 2021 AGM. Mark will receive a
fee of £250,000 per annum as Non-Executive Chairman. The
Committee believes this is an appropriate fee in the context of
recruiting a high calibre and experienced individual and taking into
account the size and complexity of the Group. It is also in line with
the fee received by John Burns as Non-Executive Chairman.
Implementation in 2021
The Committee reviewed the performance and development of our
Executive Directors during the year and decided to increase Executive
Directors’ salaries by 2% from 1 January 2021. This increase is in line
with the general cost of living increases across the Group. Simon
Silver’s salary remained unchanged for the period 1 January 2021
to his retirement.
The annual bonus and PSP opportunities and financial performance
measures remain largely unchanged for 2021. The exceptions being:
• The constituents of the total return comparator group have been
updated to ensure that the comparator group remains appropriate
in terms of number of constituents, financial size of constituents
and balance of portfolio as regards to asset type and geographical
location (see page 155).
• Some changes have been made to strategic targets which make up
25% of the bonus to reflect our evolving strategic priorities. These
changes include the reintroduction of tenant retention as a target
and the addition of two new ESG-linked measures (energy
intensity and accident incident rate). When assessing staff
satisfaction scores, the Committee will also consider any variance
between genders (see page 157).
The Committee reviewed the Group’s share price performance prior to
determining award levels for 2021 PSP awards. As the current share
price was broadly similar, compared to the share price at the time the
2020 PSP awards were granted (£33.14), the Committee considered it
appropriate to award a maximum opportunity of 200% of salary to
Executive Directors (in line with the maximum opportunity under the
Remuneration Policy). The Committee will take into account any
potential windfall gains when determining the vesting outcome.
Further engagement
I look forward to receiving your support at our 2021 AGM, 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 the
Company Secretary, David Lawler (telephone: +44 (0)20 7659 3000
or email: company.secretary@derwentlondon.com)
Claudia Arney
Chair of the Remuneration Committee
10 March 2021
Governance 152
Remuneration
at a glance
To incentivise our employees to achieve our
strategy, we provide market competitive
remuneration which is both transparent
and aligned with our culture.
Wider employee and stakeholder considerations
The Committee considers pay policies and practices for
employees across the Group, and the stakeholder experience,
when making remuneration decisions for Executive Directors.
179%
increase in 2020 donations and
community funding (£1.1m). Partly
funded by Directors waiving 20% of
their Q2 salaries and fees
16
flats donated for use by University
College Hospital free of charge for
12 months (see page 13)
25%
contribution to tenants’ service
charges for the March and
June quarters
100%
of employees below the Board received
their full salaries and benefits during
2020. None were furloughed.
Remuneration Policy and structure summary
Reward linked to performance
Component
Base salary
and benefits
Pension
Annual bonus
• 37.5% Relative TR
• 37.5% Relative TPR
• 25% Strategic
LTIP
• 50% Relative TSR
• 50% Relative TPR
Shareholding
guidelines
Key features
Attract and retain high calibre executives
17.5% of salary from 1 January 2021
Reduce to 15% of salary by 1 January 2022
(in line with wider workforce levels)
Maximum opportunity of 150% of salary
Linked to key financial and strategic KPIs
Any bonus earned in excess of 100%
of salary is deferred into shares over three
years
Maximum opportunity of 200% of salary
Linked to key financial KPIs
Three-year performance period plus
two-year holding period
200% of salary for all executives
Guideline is met by all executives(iii)
Post-employment guidelines apply
Notes:
(i) Strong link between performance against strategy and KPIs and reward.
(ii) Supports long-term stewardship and takes into account risk management.
(iii) Excluding Emily Prideaux who was appointed an Executive Director on 1 March
2021. Emily will work towards achieving the shareholding guideline.
Annual bonus earned by Executive Directors
Measure
Relative TR
Relative TPR
Strategic
Total
After discretion
Actual
Threshold Maximum
37.5% -20.3% -1.8% -1.8%
37.5% -2.4% -0.4%
0.3%
25.0%
Bonus
earned
(% max)
37.5
37.5
21.3
96.3
66.3
The Committee exercised its discretion to reduce the annual bonus payout
from 96.3% to 66.3% of maximum opportunity (see page 161).
PSP earned by Executive Directors
Measure
Relative TSR
Relative TPR
Total
Threshold Maximum
50% (0.5)%
1.6%
50%
Actual
41.7% 16.7%
4.5%
4.6%
PSP
earned
(% max)
32.8
48.8
81.6
The Committee considers that these outcomes are fair in the context of our
underlying performance and the experience of our shareholders and
stakeholders.
How our KPIs are embedded within the executive remuneration framework
Financial KPIs
Performance measures
Non-financial KPIs
Operational measures
Total return
Total property return
Total shareholder return
EPRA earnings per share
Annual bonus
TR
TPR
TSR
Relative total return (37.5%)
Relative total property return (37.5%)
Strategic (25%)
Gearing measures
PSP
Gearing and available resources
Relative total property return (50%)
Interest cover ratio
Relative TSR (50%)
TR
TPR
S
TPR
TSR
Performance against all KPIs is taken into account
when assessing underlying business performance
Operational measures
Reversionary percentage
Development potential
Tenant retention
Void management
Responsibility measures
BREEAM
EPC
Carbon intensity
Staff satisfaction
S
S
S
S
Derwent London plc Report & Accounts 2020 153
Annual report on remuneration
This part of the Directors’ remuneration report explains how we have implemented our Remuneration Policy during 2020.
The Remuneration Policy in place for the year was approved by shareholders at the 2020 AGM. We have provided a summary of our
Remuneration Policy on pages 155 to 158. Our full Remuneration Policy can be found on our website at: www.derwentlondon.com/investors/
governance/board-committees
This Annual report on remuneration will be subject to an advisory vote at our 2021 AGM on 14 May 2021.
Role of the Remuneration Committee
The role of the Committee is to determine and recommend to the Board the Remuneration Policy for Executive Directors, and set the
remuneration for the Chair, Executive Directors and senior management (including the Company Secretary). In doing so, the Committee
ensures that the Remuneration Policy is aligned with the Company’s key remuneration principles as well as taking into account the principles
of clarity, simplicity, risk, predictability, proportionality and alignment to culture set out in the 2018 UK Corporate Governance Code.
Attract, retain and
motivate
Clarity and simplicity
Alignment to strategy
and culture
Risk management
Stewardship
Proportionality and
fairness
Support an effective pay for performance culture which enables the Company to attract, retain and motivate Executive
Directors who have the skills and experience necessary to deliver the Group’s purpose of helping to improve and upgrade
the stock of office space in central London, providing above average long-term returns to our shareholders while bringing
social and economic benefits to all our stakeholders. External market practice is considered when determining the
Directors’ Remuneration Policy.
Ensure that remuneration arrangements are simple and transparent to key stakeholders and take account of pay policies
for the wider workforce. Details of the potential values that may be earned through the remuneration arrangements are
set out in the Remuneration Policy.
Align remuneration with the Group’s objectives and long-term strategy and reflect our culture through a balanced
mix of short- and long-term performance-related pay and ensure that performance metrics remain effectively
aligned with strategy.
Promote long-term sustainable performance through sufficiently stretching performance targets, whilst ensuring that
the incentive framework does not encourage Executive Directors to operate outside the Group’s risk appetite (see page
141). Malus and clawback provisions apply to annual bonus and PSP awards, and the Committee has the means to apply
discretion and judgement to vesting outcomes.
Promote long-term shareholdings by Executive Directors that support alignment with long-term shareholder interests.
Executive Directors are subject to within-employment and post-employment shareholding guidelines. Once PSP awards
have vested there is a two-year holding period during which Executive Directors are not able to sell their shares to support
sustainable decision making.
Total remuneration should fairly reflect the performance delivered by the Executive Directors and the Group. The
Committee takes into account underlying business performance and the experience of shareholders and other
stakeholders when determining vesting outcomes, ensuring that poor performance is not rewarded. The Committee
considers the approach to wider workforce pay and policies when determining the Directors’ Remuneration Policy to
ensure that it is appropriate in this context.
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 March 2021.
Committee composition
None of the members who have served on the Committee 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.
Committee performance evaluation
The 2020 evaluation of the Board, its committees and individual
Directors was internally facilitated by Simon Fraser, the Senior
Independent Director, in accordance with our three-year cycle of
evaluations (see page 121). No significant issues were identified.
Independent
Yes
Yes
Yes
Yes
Claudia Arney, Chair
Simon Fraser
Helen Gordon
Lucinda Bell
Note:
(i) Helen Gordon was unable to attend the March 2020 meeting due to a prior business
commitment. Helen read the papers in advance of the meeting and provided her
comments to the Committee chair.
Attendance
100%
100%
67%(i)
100%
Number of
meetings
3
3
2
3
Advisers to the Committee
The Committee has authority to obtain the advice of external
independent remuneration consultants. Deloitte LLP have been
retained as the Committee’s principal consultants since July 2018,
following a competitive tender process. Deloitte is one of the
founding members of the Remuneration Consulting Group. The
Committee has been fully briefed on Deloitte’s compliance with the
voluntary code of conduct in respect of the provision of remuneration
consulting services.
Governance 154
Remuneration Committee report continued
During the year under review, Deloitte provided independent
assistance to the Committee in respect of, among other things,
the following matters:
• Performance assessment against annual bonus and PSP targets.
• Review of the Directors’ Remuneration Policy.
• Market practice and corporate governance update.
The fees paid to Deloitte for their services to the Committee during
the year, based on time and expenses, amounted to £53,640.
A separate team at Deloitte LLP also provided sustainability and
health and safety audit assurance consultancy, corporate tax
consultancy and employment tax consultancy services to the Group.
The Committee took this work into account and, due to the nature
and extent of the work performed, concluded that it did not impair
Deloitte’s ability to advise the Committee objectively and free from
influence. It is the view of the Committee that the Deloitte
engagement team that provide remuneration advice to the
Committee do not have connections with Derwent London or its
Directors that may impair their independence. The Committee
therefore deem Deloitte capable of providing appropriate, objective
and independent advice.
Shareholder voting and engagement
The Committee’s resolutions at the Company’s 2020 AGM in respect
of the Remuneration Policy and the Annual report on remuneration,
received the following votes from shareholders:
Votes cast in favour
Votes cast against
Votes withheld
Total votes cast
Annual report on
remuneration
88.6m 98.9%
1.1%
–
–
1.0m
0.0m
89.6m
Remuneration
Policy
85.6m 95.5%
4.5%
–
–
4.0m
0.0m
89.6m
The Committee was extremely pleased with the level of shareholder
support at the 2020 AGM (c.80% of our issued share capital voted);
further information on page 175.
The Committee encourages ongoing, open and constructive
dialogue with shareholders and their representative bodies. The
Committee consulted with major shareholders prior to the 2020 AGM
on changes to the Remuneration Policy and total property return
performance targets. In response to specific shareholder feedback,
the Committee, with the executives agreement, committed to
align the level of pensions for the incumbent Executive Directors’
with the wider workforce by 1 January 2022. The Committee is very
appreciative of the time taken by shareholders to provide their
feedback which was taken into account.
Wider workforce considerations
When making remuneration decisions for Executive Directors,
the Committee considers pay policies and practices across the 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 is kept informed of salary increases for
the wider workforce, as well as any significant changes in practice
or policy.
During 2020, despite the Covid-19 pandemic, all of our employees
below the Board continued to receive their full salaries and benefits
and none were furloughed. Further information on how we supported
the health and wellbeing of our employees is on page 51.
We enrol all of our employees into an annual discretionary bonus
scheme. Our approach is to reward our employees based on their
individual performance and their contribution to the performance of
the Group. In 2020, 100% of our workforce below Board level (not
subject to probation) received an annual bonus (2019: 100%).
All employees are eligible to participate in our non-contributory
occupational pension scheme operated as a Master Trust with
Fidelity. Fidelity offer all employees who are members of the pension
scheme ongoing support and training opportunities in respect of
their pension and investments. Since 1 January 2020, all employees
are eligible to receive an employer pension contribution equal to
15% of salary per annum.
In addition, all employees receive private medical insurance,
dental care and are invited into a non-contractual healthcare
cash plan which offers an affordable way to help with everyday
healthcare costs.
In order to align the interests of our employees and those of our
shareholders, we operate an Employee Share Option Plan (ESOP).
Employees, excluding the Directors, are eligible to join the ESOP
subject to performance. The ESOP grants options which are
exercisable after three years at a pre-agreed option price. In 2020,
we granted 174,300 options to 79% of our employees below the
Board and Executive Committee (2019: 142,900 options to 72% of
our employees). Further information is on page 199.
In addition, to encourage Group-wide share ownership, the Company
operates a HMRC tax efficient Sharesave Plan which was approved
by shareholders at the 2018 AGM. The second grant under the
Sharesave Plan was made on 9 April 2020 with a take-up rate of 69%
of eligible employees saving on average £195.85 per month. This is an
increase on the 2019 grant in terms of the number of employees and
the average savings amount. The Committee has been pleased with
the level of take-up, especially within the context of ongoing
uncertainty caused by Brexit and the Covid-19 pandemic. Further
information on the Sharesave Plan is on page 168.
We have an open, collaborative and inclusive management structure
and engage regularly with our employees on a range of issues
including the Group’s approach to remuneration. We do this through
an appraisal process, structured career conversations, employee
surveys, our intranet site, Company presentations, awaydays and
our wellbeing programme (see pages 51 and 115). Employee
engagement is frequently measured and we have a designated
Non-Executive Director, Dame Cilla Snowball, who chairs the
Responsible Business Committee.
While during the year we have not specifically consulted with
employees regarding executive remuneration arrangements, the
Committee feels that there is sufficient channels by which employee
feedback on a range of matters can be fed into the Board and would
take relevant feedback into account as appropriate.
Derwent London plc Report & Accounts 2020 Summary of remuneration policy
We have provided a summary of the key elements of the Remuneration Policy for Executive Directors and Non-Executive Directors approved
by shareholders at the 2020 AGM on pages 155 to 158. In addition, we have set out how the Remuneration Policy will be implemented in 2021.
Our full Remuneration Policy can be found on our website at: www.derwentlondon.com/investors/governance/board-committees
155
Element
Base
salary
How operated
Normally reviewed annually.
Factors taken into account include:
• the role, experience and performance
of the individual and the Company;
• economic conditions;
• pay and conditions throughout the
• practice in companies with similar
business; and
business characteristics.
Benefits
Pension
Include, but are not limited to, private
medical insurance, car and fuel
allowance and life assurance.
Executive Directors may participate
in the Sharesave Plan and any other
all-employee plans on the same
basis as other employees up to HMRC
approved limits.
Executive Directors participate in the
Company’s defined contribution pension
scheme or may receive cash payments
in lieu of contributions (e.g. where
contributions would exceed either the
lifetime or annual contribution limits).
Annual
bonus
Bonuses up to 100% of salary are paid
as cash. Amounts in excess of 100%
are deferred into shares for three years
subject to continued employment.
Dividend equivalents may accrue on
deferred shares. Such amounts will
normally be paid in shares.
Malus and clawback provisions apply
(see note 1 on page 156).
The Committee has discretion to
adjust the payment outcome if it is
not deemed to reflect the underlying
financial or non- financial performance
of the business, the performance of
the individual or the experience of
shareholders or other stakeholders
over the performance period.
Maximum opportunity
No maximum but increases will normally
be consistent with the policy applied to
the workforce generally (in percentage
of salary terms).
Set at a level which the Committee
considers to be appropriate taking into
account the overall cost to the Company
in securing the benefits, individual
circumstances, benefits provided to the
wider workforce and market practice.
Maximum Company contribution or cash
supplement (or a mix of both) for current
Executive Directors will be aligned with
the contribution available to the wider
workforce as follows:
• From 1 January 2020, 20% of salary;
• From 1 January 2021, 17.5% of salary;
• From 1 January 2022, 15% of salary.
The maximum Company contribution
(or cash payment in lieu) for a newly
appointed Executive Director will be
aligned with the contribution available
to wider workforce (currently 15%
of salary).
and
Maximum opportunity of up to 150% of
salary may be awarded in respect of a
financial year.
Implementation for 2021
With effect from 1 January 2021, Executive Directors’ salaries
(excluding Simon Silver’s) were increased by 2% which is
consistent with the increase received across the wider workforce.
Executive Director
Paul Williams, CEO
Damian Wisniewski, CFO
Simon Silver
Nigel George
David Silverman
2021 salary
(£’000)
612.0
489.6
581.0
489.6
489.6
2020 salary
(£’000)
600.0
480.0
581.0
480.0
480.0
Emily Prideaux was appointed to the Board on 1 March 2021 and
will receive a base salary of £410,000 per annum.
Benefits will continue to include a fully expensed car or car
allowance, private medical insurance and life assurance.
Pension contribution for the current Executive Directors
(Paul Williams, Damian Wisniewski, Nigel George and David
Silverman) was reduced to 17.5% of salary from 1 January 2021.
Emily Prideaux was appointed to the Board on 1 March 2021.
Emily’s pension contribution is 15% of base salary. For any new
Executive Directors appointed to the Board, pension allowance will
be limited to a maximum of 15% of salary which is in line with the
pension opportunity received across a significant proportion of the
wider workforce.
Maximum opportunity: 150% of salary for all Executive Directors.
Performance metrics and weightings (as a percentage of maximum
opportunity):
• Total return versus a comparator group of real estate
• Total property return versus the MSCI IPD Central London
Offices (CLO) Index (37.5%)
• Strategic objectives (25%)
The total return and total property return targets are set out below.
companies (37.5%)
Total return vs real estate comparator group
Below median
Median
Upper quartile
Straight-line vesting occurs between these points
Vesting (% of total
return award)
0%
22.5%
100%
The comparator group comprises of Big Yellow Group plc, The British
Land Company plc, Capital & Counties Properties plc, CLS Holdings
plc, Great Portland Estates plc, Hammerson plc, Helical plc,
Landsec plc, LondonMetric Property plc, Segro plc, Shaftesbury plc,
UK Commercial Property, Unite Group plc and Workspace Group plc.
The Committee reviewed the comparator group during the year to
ensure that it remained of an appropriate size following the delisting
of Intu Properties. The Committee decided that it was appropriate
to add LondonMetric Property plc, UK Commercial Property, CLS
Holdings plc and Unite Group plc to the comparator group.
TPR vs the MSCI IPD CLO Index
Below Index
Index
Index + 2%
Straight-line vesting occurs between these points
Vesting (% of total
return award)
0%
22.5%
100%
The strategic targets, ranges and weightings for the 2021 annual
bonus are disclosed in note 2 on page 157.
Governance 156
Remuneration Committee report continued
Maximum opportunity
Maximum opportunity of up to 200% of
salary may be awarded in respect of a
financial year.
Element
Long-term
incentives
How operated
Award of performance shares which vest
after three years subject to performance
measures set by the Committee and
continued employment.
Awards will be subject to a two-year
post-vesting holding period.
Dividend equivalents may accrue on
performance shares. Such amounts will
normally be paid in shares.
Malus and clawback provisions apply
(see note 1 below).
The Committee has discretion to adjust
the vesting outcome if it is not deemed
to reflect appropriately the underlying
financial or non-financial performance
of the business, the performance of
the individual or the experience of
shareholders or other stakeholders over
the performance period.
Share
ownership
guidelines
n/a
Within-employment: Executive Directors
are expected to build up and retain a
shareholding equal to 200% of salary.
Until the shareholding guideline is met,
50% of any deferred bonus awards or
PSP awards vesting (net of tax) normally
must be retained.
Post-employment: Executive Directors
who step down from the Board are
required to retain a holding in ‘guideline
shares’ equal to:
• 200% of salary (or their actual
shareholding at the point of departure
if lower) for the first 12 months
following stepping down as an
Executive Director.
• 100% of salary (or their actual
shareholding at the point of departure
if lower) for the subsequent
12 months.
‘Guideline shares’ do not include
shares that the Executive Director has
purchased or which have been acquired
pursuant to deferred share awards or
PSP awards which vested before
1 January 2020.
Implementation for 2021
Maximum opportunity: 200% of salary for all Executive Directors.
Performance metrics and weightings (as a percentage of maximum
opportunity):
• Total shareholder return versus the constituents of the FTSE 350
Super Sector Real Estate Index (50%).
• Total property return versus the MSCI IPD UK All Property Index
(50%).
The total return and total property return targets are set out below.
TSR vs FTSE 350 Super Sector Real Estate Index
Below median
Vesting (% of total
return award)
0%
Median
Upper quartile
Straight-line vesting occurs between these points
22.5%
100%
Annualised TPR vs the MSCI IPD UK All Property Index
Below Index
Index
Index + 2%
Straight-line vesting occurs between these points
Vesting (% of total
return award)
0%
22.5%
100%
As at 10 March 2021, all of our Executive Directors have achieved the
within-employment guideline (see page 168) except Emily Prideaux
who was appointed an Executive Director on 1 March 2021. Emily
will work towards achieving the shareholding guideline.
Note 1: Malus and clawback
Malus and clawback provisions apply to annual bonus, deferred bonus and performance shares over the following time periods:
Annual bonus
Deferred bonus
Malus
To such time as payment is made.
To such time as the award vests.
Performance shares
To such time as the award vests.
Clawback
Up to two years following payment.
No clawback provisions apply (as malus provisions apply for three years
from the date of award).
Up to two years following vesting.
Malus and clawback may apply in the following circumstances:
1. Material misstatement of financial results.
2. An error in assessing performance conditions which has led to an overpayment.
3. Dismissal due to gross misconduct.
4. Serious reputational damage (for bonuses and PSP awards granted in 2020 onwards).
5. Corporate failure (for bonuses and PSP awards granted in 2020 onwards).
Derwent London plc Report & Accounts 2020 157
Note 2: Strategic targets for the 2021 annual bonus
The strategic targets for the 2021 annual bonus will be broadly the same as those used for the 2020 annual bonus (see page 161). For the 2021
annual bonus we have reintroduced tenant retention as a target and added two new ESG-linked measures (energy intensity and accident
incident rate). When assessing staff satisfaction scores, the Committee will consider any variance between genders.
Performance measure
Void management
This is measured by the Group’s average EPRA vacancy rate over the year.
Tenant retention
This is measured by the percentage of tenants that remain in their space when their lease expires.
Staff satisfaction
Staff surveys are used to assess this measure. In assessing this target the Committee will consider
any variance in staff satisfaction scores between genders.
Accident incident rate
This is calculated based on the number of RIDDOR injuries during the year multiplied by 100,000 and
divided by the number of site workers.
Portfolio development potential
This is measured by the percentage of the Group’s portfolio by area, where a potential development
scheme has been identified.
Net Zero Carbon Pathway targets
These measures have been set to be consistent with our ambition to be net zero carbon by 2030.
Carbon intensity
This is measured by emissions intensity per m2 of landlord-controlled floor area across our
managed like-for-like portfolio.
Energy intensity
This is measured by energy consumption (kWh) per m2 of landlord-controlled floor area across our
managed like-for-like portfolio.
Target
range(ii)
8% to 2%
Maximum
award
5.0%
50% to 75%
80% to >95% of staff to be
satisfied or better
5.0%
2.5%
>0% to 5% reduction
2.5%
35% to 50%
2.5%
-5% to -10%
5.0%
-2% to -4%
2.5%
25%
Notes:
(i) The references above show the link between our strategic objectives and our annual bonus targets (our five strategic objectives can be found on pages 34 to 41).
(ii) Payout accrues on a straight-line basis, between threshold and maximum performance.
Outside appointments for Executive Directors
Executive Directors may accept a non-executive role at another company with the approval of the Board. The Executive Director is entitled to
retain any fees paid for these services. During 2020, our Executive Directors did not receive fees for their external appointments. Further
information on our Executive Directors’ external appointments is provided on pages 106 and 107.
Payments to past Directors and for loss of office
No payments were made to past Directors or in respect of loss of office during 2020. The impact of Simon Silver’s retirement on his
remuneration (i.e. treatment of outstanding PSP awards) is disclosed on page 151.
Service contracts and letters of appointment
Executive Directors
Executive Directors’ service contracts do not have a fixed expiry date, however, they are terminable either by the Company providing 12 months’
notice or by the executive providing six months’ notice.
Paul Williams, CEO
Damian Wisniewski, CFO
Nigel George
Emily Prideaux
David Silverman
Date of service contract
22 November 2018
10 July 2019
10 July 2019
26 February 2021
14 August 2019
Notice period
Service contract expiry date
12 months’ notice to the
Executive Director and
6 months’ notice from the
Executive Director
Rolling service contract with
no fixed contract end date
Non-Executive Directors
Non-Executive Directors are appointed for initial three-year terms which thereafter may be extended, subject to re-election at each AGM.
John Burns(i)
Mark Breuer(i)
Simon Fraser(i)
Richard Dakin(i)
Claudia Arney
Dame Cilla Snowball
Helen Gordon
Lucinda Bell
Note:
Appointment date to the Board
25 May 1984
1 February 2021
1 September 2012
6 August 2013
18 May 2015
1 September 2015
1 January 2018
1 January 2019
Current tenure as at 1 January 2021
36 years, 7 months
n/a
8 years, 4 months
7 years, 5 months
5 years, 7 months
5 years, 4 months
3 years
2 years
Date of latest appointment letter
17 May 2019
25 January 2021
8 August 2018
6 August 2019
8 August 2018
8 August 2018
4 November 2020
8 August 2018
Appointment letter expiry date
14 May 2021
1 February 2024
1 September 2021
6 August 2022
31 May 2021
31 August 2021
31 December 2023
1 January 2022
(i) Further information on Chairman and Non-Executive Director succession is on pages 124 and 126.
Governance 158
Remuneration Committee report continued
Summary table for the Chairman and Non-Executive Directors
Operation
Chairman The remuneration of the Chairman is set by the Board (excluding
Non-
Executive
Directors
the Chairman).
The Chairman receives an annual fee and benefits limited to the use of a
driver, a secretarial provision and office costs. Non-significant benefits
may be provided if considered appropriate.
The Chairman does not receive pension or participate in incentive
arrangements.
The remuneration for Non-Executive Directors is set by the Executive
Directors.
Non-Executive Directors receive a base fee plus additional fees for
Committee chairmanship, Committee membership and for the Senior
Independent Director.
Non-Executive Directors may be eligible to receive benefits including, but
not limited to, secretarial provision and travel costs.
Non-Executive Directors do not receive pension contributions or
participate in incentive arrangements.
Executive Directors’ remuneration in 2020
Remuneration for Executive Directors comprises the following elements:
Total remuneration
p. 159
Implementation for 2021
John Burns will continue to receive a Chairman fee of
£250,000 per annum until his retirement from the Board
on 14 May 2021.
With effect from 14 May 2021, Mark Breuer will take
over the role of Non-Executive Chairman. His inclusive
Chairman fee from this date will be £250,000 per annum.
Mark will not receive the use of a driver or contributions
to his office costs.
The base fee for Non-Executive Directors remains
unchanged from 2020. The last increase made to
Non-Executive Director fees was with effect from
1 January 2019.
Non-Executive Director fees
Base fee
Committee chair
Senior Independent Director
Committee membership fee
2021 fee
(£’000)
47.5
7.5
10.0
4.0
In addition to their chairmanship fee, a Committee chair also
receives the Committee membership fee.
Fixed pay
p.160
Base salary
Benefits
Pension
Variable pay
Performance-based
Annual bonus
p. 161
Long-term incentive
p. 162
Protecting, and aligning with, shareholder interests
Malus and clawback
Shareholding guidelines
p. 156
p.168
Holding period
p.163
Derwent London plc Report & Accounts 2020
Total remuneration in 2020 (audited)
The table below sets out the remuneration paid to each Director for the financial years ended 31 December 2020 and 31 December 2019
as a single figure. A full breakdown of fixed pay and pay for performance in 2020 can be found on pages 160 to 164.
159
Executive Directors
(£’000)
2020
Paul Williams, CEO
Damian Wisniewski, CFO
Simon Silver
Nigel George
David Silverman
Former Executive Director
John Burns
2019
Paul Williams, CEO
Damian Wisniewski, CFO
Simon Silver
Nigel George
David Silverman
Former Executive Director
John Burns(vii)
Non-Executive Directors
(£’000)
John Burns(viii)
Simon Fraser
Richard Dakin
Claudia Arney
Dame Cilla Snowball
Helen Gordon
Lucinda Bell(ix)
Notes:
(i)
Fixed pay
Salary(i)
Taxable
benefits
Pension
and life
assurance(ii)
Bonus(x)
Pay for performance
Performance
Subtotal
Cash
Deferred
LTIPs(iii)(iv)(v)
Subtotal
Other items in
the nature of
remuneration(vi)
Total
remuneration
600
480
581
480
480
–
543
463
581
463
463
260
23
23
51
22
21
–
24
23
52
23
22
21
135
107
146
107
106
–
123
102
154
105
103
758
610
778
609
607
–
690
588
787
591
588
597
478
578
478
478
–
–
–
–
–
–
–
543
463
581
463
463
247
210
264
210
210
59
340
260
118
772
772
1,015
772
772
472
618
618
813
618
618
681
1,369
1,250
1,593
1,250
1,250
472
1,408
1,291
1,658
1,291
1,291
1,059
3
1
–
3
3
–
2
2
–
2
2
–
2020
Taxable
benefits
–
–
–
–
–
–
–
Fees
250
77
67
71
67
56
71
Total
250
77
67
71
67
56
71
2019
Taxable
benefits
–
–
–
–
–
–
–
Fees
158
77
67
71
67
56
67
2,130
1,861
2,371
1,862
1,860
472
2,100
1,881
2,445
1,884
1,881
1,399
Total
158
77
67
71
67
56
67
In response to the Covid-19 pandemic, Directors base salaries and fees were subject to a voluntary 20% waiver for the three month period between 1 April 2020 and 30 June 2020
(see page 160). The waived remuneration was used for charitable donations and sponsorships, further information on pages 52 and 53. The salaries and fees disclosed for 2020 are
before the voluntary 20% waiver.
(ii) 2020 pension contributions were calculated based on salaries before the voluntary 20% waiver.
(iii) Performance LTIPs for 2020 relate to the 2018 PSP awards which will vest on 6 March 2021 and for which the performance conditions related to the year ended 31 December 2020.
The value is based on an estimate of expected vesting of 81.6% and the average share price over the last three months of the financial year ended 31 December 2020 of £29.80.
This amount includes the value of additional shares awarded in respect of dividend equivalents. For details of the amount attributable to share price appreciation see page 162.
In the 2019 Annual Report, the potential value of 2017 PSP awards vesting for which the performance conditions related to the year ended 31 December 2019 was calculated using
the average share price for the three months ended 31 December 2019, being £36.22. The 2019 Performance LTIP figures in the table above, have been restated to reflect the actual
number of 2017 PSP awards which vested on 20 March 2020 using the share price on the day of vesting (being, £27.61). The restated value provides a difference of (£8.61) per vested
share in comparison to the estimates contained in the 2019 Annual Report on page 154. Further details of vesting is provided on page 169.
(iv)
(v) The 2017 PSP awards which vested on 20 March 2020 were granted on 20 March 2017 when the share price was £27.00. Between grant and the vesting date, the share price had
(vi)
slightly increased to £27.61 which equated to an increase in value of each vesting share equivalent to £0.61. The proportion of the value disclosed in the single figure attributable to
share price growth is therefore 2.3%. The Remuneration Committee did not exercise discretion in respect of the share price appreciation.
Included in the column for ‘other items in the nature of remuneration’ is the grant under the Derwent London Sharesave Plan made on 9 April 2020. These have been calculated
based on the middle market share price on the date of grant being £36.14 minus the value of the awards at the option price which was £27.53. Further information on the Derwent
London Sharesave Plan is on page 168.
(vii) For the period 1 January 2019 to 17 May 2019, John Burns received a pro rata base salary as Chief Executive equivalent to £677,000 per annum. John Burns’ annual bonus and LTIP
vesting for 2019 were both subject to a pro rata reduction, further information is provided on pages 157 and 158 of the 2019 Annual Report.
(viii) For the period 18 May 2019 to 31 December 2019, John Burns’ fees as Non-Executive Chair were £250,000 per annum subject to a pro rata reduction. In order to undertake his
duties, John Burns is also provided with a driver and secretary, together with a contribution to his office running costs.
(ix) Lucinda Bell was appointed to the Board on 1 January 2019. From 17 May 2019, Lucinda Bell became Chair of the Audit Committee and a member of the Remuneration Committee
following Stephen Young’s retirement from the Board.
(x) The Committee exercised its discretion to reduce the 2020 annual bonus payout from 96.3% to 66.3% of maximum opportunity (see page 160).
Governance 160
Remuneration Committee report continued
Fixed pay in 2020
Base salaries and fees
In light of the changes to salaries made during 2019, which are outlined on page 155 of the 2019 Annual Report, the Executive Directors did
not receive a salary increase on 1 January 2020 (the wider workforce increase was 4.7%). In response to the Covid-19 pandemic, Directors
base salaries and fees were subject to a voluntary 20% waiver for the three month period between 1 April 2020 and 30 June 2020.
Executive Directors
Paul Williams, CEO
Damian Wisniewski, CFO
Simon Silver
Nigel George
David Silverman
Non-Executive Directors
John Burns
Simon Fraser
Richard Dakin
Claudia Arney
Dame Cilla Snowball
Helen Gordon
Lucinda Bell
2020
base salary/fee
20%
waiver
Actual 2020
base salary/fee
600,000
480,000
581,000
480,000
480,000
250,000
77,000
67,000
71,000
67,000
55,500
71,000
30,000
24,000
29,050
24,000
24,000
12,500
3,850
3,350
3,550
3,350
2,775
3,550
570,000
456,000
551,950
456,000
456,000
237,500
73,150
63,650
67,450
63,650
52,725
67,450
Benefits
Executive Directors are entitled to a car and fuel allowance, private medical insurance and life assurance. Further details of the taxable
benefits paid in 2020 can be found in the table below.
Executive Directors
Paul Williams, CEO
Damian Wisniewski, CFO
Simon Silver
Nigel George
David Silverman
Car and fuel allowance
Private medical insurance
Total 2020
taxable benefits
£16,000
£16,000
£39,232
£16,000
£16,000
£7,534
£6,837
£12,289
£6,161
£4,990
£23,534
£22,837
£51,521
£22,161
£20,990
Pension and life assurance
In addition to life assurance, Executive Directors (except David Silverman) received a cash supplement of up to 20% of salary (calculated based
on the salary before the voluntary 20% waiver). David Silverman received £5,500 paid into the Group’s Fidelity Master Trust pension scheme
with the remainder of his entitlement paid as a cash supplement. As noted on page 155, Executive Director pension provision will be aligned
with the contribution available to the wider workforce as follows: 17.5% of salary from 1 January 2021; and 15% of salary from 1 January 2022.
There was no change in the life assurance received by the Executive Directors in 2020. The change in the annual cost of these benefits is due to
increases in life assurance premiums.
Pay for performance
Determination of 2020 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 2020 performance, the annual bonus payout for Executive Directors was 96.3% of the maximum potential (2019: 97%; 2018: 68.5%).
The Committee considered the formulaic performance outcome alongside broader perspectives including: underlying business performance
and affordability; the experience of shareholders; and the experience of employees and other stakeholders. Points specifically considered are
set out in the Chair’s Annual statement on page 151.
The Committee recognised that whilst the Group has performed well relative to our REIT peer group, shareholders have been impacted by the
Group’s absolute financial and share price performance during the year, due to the disruption caused by Covid-19 on the business and real
estate sector. With this in mind, the Committee exercised its discretion to reduce the annual bonus payout from 96.3% to 66.3% of maximum
opportunity (30.0% reduction). The Committee considers that this outcome is fair in the context of our underlying performance and the
experience of our shareholders and stakeholders.
Derwent London plc Report & Accounts 2020 2020 annual bonus outcome
Bonus payable for financial-based performance
Bonus payable for strategic target performance
Total bonus payable based on performance
Discretion applied by the Committee
Total bonus payable for 2020 (% of the maximum)
Financial-based metrics
Performance measure
Total return
Weighting % of bonus
37.5
Total property return (TPR)
37.5
Bonus payable for financial-based performance
Basis of calculation
Total return versus other major real
estate companies(i)
Versus the MSCI IPD Quarterly
Central London Offices Total Return
Index
Threshold(ii)
Maximum(iii)
%
-20.3
-2.4
%
-1.8
-0.4
Actual
%
-1.8
0.3
161
75.0%
21.3%
96.3%
(30.0)%
66.3%
Payable
%
37.5
37.5
75.0
Notes:
(i) The major real estate companies contained in the comparator group for the 2020 annual bonus are: Big Yellow Group plc, The British Land Company plc, Capital & Counties
Properties plc, Great Portland Estates plc, Hammerson plc, Helical plc, Intu Properties plc, Landsec plc, Segro plc, Shaftesbury plc and Workspace Group 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 payout 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 payout accrues on a straight-line basis between the threshold level for Index performance and maximum payment for Index +2%.
Strategic targets
Performance measure(ii)
Void management
This is measured by the Group’s average EPRA
vacancy rate over the year.
Portfolio development potential
This is measured by the percentage of the
Group’s portfolio by area, where a potential
development scheme has been identified.
Unexpired lease term
This is measured by the ‘topped-up’ weighted
average unexpired lease term of the Group’s portfolio,
including pre-let developments.
Carbon intensity (iii)
This is measured by emissions intensity per
m2 of landlord-controlled floor area across
our managed like-for-like portfolio.
Staff satisfaction
Staff surveys are used to assess this measure.
Route map to net zero carbon
Subject to external verification that it meets the
Better Buildings Partnership Climate Change
Commitment and best practice guidance.
Link to
strategic
objectives(i)
1. 2.
1.
1. 2.
4.
3.
4.
Target
range(ii)
7% to 1%
Maximum
award
5.0%
2020
achievement
1.8%
Proportion
awarded
for 2020
4.3%
35% to 50%
2.5%
43%
1.3%
6 to 9 years
5.0%
7.9 years
3.2%
-5 to -10
5.0%
-27
5.0%
80% to >95% of
staff to be satisfied
or better
Published
during 2020
2.5%
96.3%
2.5%
Published on
28 July 2020.
See page 28
5.0%
25%
5.0%
21.3%
Notes:
(i) Success against our strategic objectives is measured using our KPIs (see pages 42 to 45) and rewarded through our incentive schemes and annual bonus. The references
above show the link between our strategic objectives and our annual bonus targets (further information on our five strategic objectives can be found on pages 34 to 41).
(ii) Payout accrues on a straight-line basis, between threshold and maximum performance.
(iii) Achievement of the carbon intensity target could potentially have been affected by the Covid-19 pandemic. This was taken into account in the downward discretion applied by
the Committee (see page 151).
(iv) The strategic targets for the 2021 annual bonus are available in note 2 on page 157.
Key
Strategic objectives
1.
2.
To optimise returns and create value from
a balanced portfolio
To grow recurring earnings and cash flow
3.
4.
To attract, retain and develop talented employees
5.
To maintain strong and flexible financing
To design, deliver and operate our
buildings responsibly
Governance
162
Remuneration Committee report continued
The total bonus for each executive is therefore:
Bonus payable
% of
maximum
% of
salary
Cash bonus
payable
£’000
Deferred bonus
£’000
% of
salary
Executive Directors
Paul Williams, CEO
Damian Wisniewski, CFO
Simon Silver
Other Executive Directors(i)
Note:
(i) Other Executive Directors are Nigel George and David Silverman whose base salary and subsequently, annual bonus payout, will be identical.
66.3
66.3
66.3
66.3
99.5
99.5
99.5
99.5
597
478
578
478
–
–
–
–
–
–
–
–
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 and released after three years.
Performance Share Plan (PSP) vesting of awards
As shown in the table below, the PSP awards granted in 2018 will vest on 8 March 2021 at 81.6% of maximum opportunity.
Performance measure
Total property return (TPR)
Total shareholder return (TSR)
Weighting
% of award
50
50
Basis of calculation
MSCI IPD Quarterly UK All
Property Total Return Index
FTSE 350 Super Sector
Real Estate Index(i)
Threshold(ii)
Maximum(iii)
%
1.6
(0.5)
%
4.6
41.7
Actual
%
4.5
16.7
% vesting/
estimated
vesting
48.8
32.8
81.6
Notes:
(i) The constituents of the FTSE 350 Super Sector Real Estate Index as at the start of the Performance Period (i.e. 1 January 2018).
(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 (which is calculated based on a three-month weekday average Return Index excluding UK public holidays ended on: (1) the day before the performance period start date;
and (2) the performance period end date) vesting accrues on a straight-line basis between the threshold level for median performance and maximum level for upper quartile
performance or better. For TPR, vesting accrues on a straight-line basis between the threshold level for Index performance and maximum level for Index +3%.
Given the strong returns delivered for shareholders over the past three years, and taking into account the discretion applied to reduce the
vesting outcome of the 2020 annual bonus, the Committee considered that the PSP vesting outcome was appropriate. Therefore, the vesting
for each executive will be:
Number of
awards granted
Number of shares
vesting based on
performance (81.6%)
Dividend equivalents(i)
(number of shares)
Total number
of shares vesting
Total estimated value
of award on vesting
Executive Directors
Paul Williams, CEO
Damian Wisniewski, CFO
Simon Silver
Other Executive Directors(ii)
Former Executive Director
John Burns(iii)
Notes:
(i) In accordance with the PSP rules, the Remuneration Committee has discretion to allow PSP participants to receive the benefit of any dividends paid on vesting shares between the
772,208
772,208
1,015,227
772,208
25,913
25,913
34,068
25,913
29,104
29,104
38,263
29,104
23,749
23,749
31,223
23,749
2,164
2,164
2,845
2,164
471,675
44,586
14,506
15,828
1,322
grant date and the vesting date in the form of additional vesting shares.
(ii) Other Executive Directors are Nigel George and David Silverman, who were granted an identical number of awards under the PSP grant in 2018.
(iii) John Burns’ award was subject to a pro rata reduction for the period 17 May 2019 to the end of the performance period and is subject to the normal holding period of two years.
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 2020
being £29.80. The estimated value of the vesting awards has been included within the ‘single figure’ total remuneration table on page 159.
The Company’s share price rose by £0.32 between the grant date (6 March 2018) and the end of the performance period (31 December 2020)
from £29.48 to £29.80. The proportion of the value disclosed in the single figure attributable to share price growth is therefore 1.1%. The
Remuneration Committee did not consider that it was necessary to exercise discretion in respect of share price fluctuations since grant.
Derwent London plc Report & Accounts 2020 163
Holding period
In accordance with the PSP rules, vested awards are subject to a two-year holding period whereby 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. An overview of the holding periods for awards
granted since 2016 has been provided below.
Grant
2016 Grant
Grant date
4 April 2016
2017 Grant
20 March 2017
2018 Grant
6 March 2018
2019 Grants
2020 Grant
12 March 2019
14 August 2019
13 March 2020
Performance period
1 January 2016 to
31 December 2018
1 January 2017 to
31 December 2019
1 January 2018 to
31 December 2020
1 January 2019 to
31 December 2021
1 January 2020 to
31 December 2022
Vesting date
4 April 2019
Holding period
Two years
Holding period ceases
4 April 2021
20 March 2020
Two years
20 March 2022
8 March 2021
Two years
8 March 2023
12 March 2022
14 August 2022
13 March 2023
Two years
Two years
12 March 2024
14 August 2024
13 March 2025
Overall, the Committee considers that the Remuneration Policy has operated as it intended during 2020 and that the pay outcomes are aligned
with the experience of shareholders and other stakeholders.
Grant of PSP awards
On 13 March 2020, the Committee made an award under the Group’s 2014 PSP to Executive Directors on the following basis:
Paul Williams, CEO
Damian Wisniewski, CFO
Simon Silver
Other Executive Directors(i)
Note:
(i) Other Executive Directors are Nigel George and David Silverman, who were granted identical number of awards under the PSP grant in March 2020.
Number of
shares awarded
36,210
28,968
35,063
28,968
Face value of
award £
1,199,999
960,000
1,161,988
960,000
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 awards was the closing share price on the day immediately preceding the grant date of
£33.14 (note: a share price of £32.53 was used to determine the level of PSP awards granted in March 2019). The performance period will run
over three financial years and, dependent upon the achievement of the performance conditions, the awards will vest on 13 March 2023 and
will be subject to a two-year holding period as outlined in the table above.
50% of the 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 the TSR of the constituents of the FTSE 350 Super Sector Real Estate Index
tested over three-year performance period ending 31 December 2022
Below Median
Median
Upper quartile and above
Straight-line vesting occurs between these points
Vesting
(% of TSR
part of award)
0%
22.5%
100%
50% of the award vests according to the Group’s TPR versus the MSCI IPD Quarterly UK All Property Total Return Index with the following
vesting profile:
Annualised TPR versus the MSCI IPD Quarterly UK All Property Index tested over three years
Below Index
At Index
Index + 2%
Straight-line vesting occurs between these points
Vesting
(% of TSR
part of award)
0%
22.5%
100%
The Committee has discretion to reduce the extent of vesting in the event that it considers that performance against either measure is
inconsistent with underlying financial performance and/or the experience of key stakeholders. At least the after-tax number of vested shares
must be retained for a minimum holding period of two years. To the extent that awards vest, the Committee has discretion to allow the
Executive Directors to receive the benefit of any dividends paid over the vesting period in the form of additional vesting shares.
Governance 164
Remuneration Committee report continued
Grant of Sharesave Plan options
On 9 April 2020, the Company granted options under the Derwent London Sharesave Plan. The three-year contract for the options started on
1 June 2020. These options are exercisable at a price of £27.53 per share from 1 June 2023 and are not subject to any performance conditions.
Monthly
saving amount
£250
£125
£250
Number
of shares
under option
326
163
326
Market price
at grant
36.14
36.14
36.14
Executive Directors
Paul Williams, CEO
Damian Wisniewski, CFO
Other Executive Directors(ii)
Notes:
(i) The value of the award is based on the middle market share price on the grant date minus the option price. Further information on the Derwent London Sharesave Plan is on pages
Option price
£27.53
£27.53
£27.53
Value of award(i)
£2,806.86
£1,403.43
£2,806.86
154 and 168.
(ii) Other Executive Directors are Nigel George and David Silverman.
Pay for performance comparison
The graph below shows the value on 31 December 2020 of £100 invested in Derwent London on 31 December 2010 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.
Total Shareholder Return (TSR)
£
400
350
300
250
200
150
100
50
0
259.0
198.5
208.0
177.3
190.4
173.9
220.1
196.8
222.1
178.8
302.8
226.0
252.4
194.1
166.6
146.4
143.1
121.3
100.0
100.0
102.9
92.7
31 Dec
2010
31 Dec
2011
31 Dec
2012
31 Dec
2013
31 Dec
2014
31 Dec
2015
31 Dec
2016
31 Dec
2017
31 Dec
2018
31 Dec
2019
31 Dec
2020
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
Financial year ending
Chief Executive
31/12/2011 31/12/2012 31/12/2013 31/12/2014 31/12/2015 31/12/2016 31/12/2017 31/12/2018
31/12/2020
John
Burns
2,387
John
Burns
2,721
John
Burns
2,478
John
Burns
2,648
John
Burns
2,529
John
Burns
1,403
John
Burns
1,681
John
Burns
2,219
Total remuneration
(single figure) (£’000)
Annual bonus
(% of maximum)
Long-term variable pay
(% of maximum)
Notes:
(i) Total remuneration for 2019 has been restated to reflect the actual number of 2017 PSP awards which vested on 20 March 2020 using the share price on the day of vesting
65.75
46.0
83.8
68.5
55.2
90.0
50.0
50.0
85.4
95.0
23.3
53.6
26.5
65.7
92.6
24.9
74.2
97.0
Paul
Williams
2,130
66.3
81.6
(being, £27.61). The restated value provides a difference of (£8.61) per vested share in comparison to the estimates contained in the 2019 Annual Report which were based on the
average three month share price for the year ended 31 December 2019 which was £36.22. Further details of total remuneration is provided on page 159.
(ii) The annual bonus (% of maximum) and long-term variable pay (% of maximum) for John Burns in 2019 is based on remuneration in the role of Chief Executive.
(iii) Paul Williams’ 2019 total remuneration is in respect of his tenure as Chief Executive from 17 May 2019. His salary, bonus and PSP has been subject to a pro rata time reduction.
31/12/2019(i)(ii)(iii)
John
Burns
1,399
Paul
Williams
2,100
Derwent London plc Report & Accounts 2020 165
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 2020
Investment Association share limits (in any consecutive 10-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
2020
111.9 m
2.2%
7.8%
1.2%
3.8%
Chief Executive pay ratio
As Derwent London has less than 250 employees, we are not required to disclose the CEO pay ratio. However, given our commitment to high
standards of transparency and corporate governance, the Committee considers it appropriate to disclose the CEO pay ratio voluntarily.
For the years ended 31 December 2018 to 31 December 2020, the Chief Executive’s total remuneration as a ratio against the full-time
equivalent remuneration of UK employees is detailed in the table below:
Base salary
Total remuneration
CEO pay ratio
£47,000
£64,000
£95,266
Year ended 31 December 2020
25th percentile
50th percentile
75th percentile
Year ended 31 December 2019
25th percentile
50th percentile
75th percentile
Year ended 31 December 2018
25th percentile
50th percentile
75th percentile
Notes:
(i) Total remuneration includes one-off employee gains received through the exercise of options granted under the Employee Share Option Plan (see pages 154 and 199).
(ii) Chief Executive remuneration for the year ended 31 December 2020 is Paul Williams’ 2020 ‘single figure’ (see page 159), before the voluntary 20% salary waiver.
(iii) Chief Executive remuneration for the year ended 31 December 2019 is based on the aggregated total remuneration earned by John Burns and Paul Williams in respect of their
£58,237
£76,842
£148,867
£63,211
£89,274
£153,828
£62,499
£86,463
£137,452
£40,993
£68,462
£67,500
£45,057
£59,250
£75,000
34:1
25:1
15:1
40:1
28:1
17:1
38:1
29:1
15:1
tenures as Chief Executive during 2019. Their total remuneration figures have been restated to reflect the actual number of 2017 PSP awards which vested on 20 March 2020 using
the share price on the day of vesting (see page 169). The impact of the restatement on the CEO pay ratio for the year ended 31 December 2019 was that it reduced from 44:1 for the
25th percentile, from 31:1 for the 50th percentile, and from 18:1 for the 75th percentile. The restated CEO pay ratio, based on the actual total remuneration received by John Burns
and Paul Williams in 2019, is included within the above table.
(iv) The workforce comparison is based on the payroll data for the period 1 January to 31 December for all employees (including the Chief Executive but excluding the Non-Executive
Directors) and includes employer pension contributions, life assurance and the healthcare cash plan.
(v) The CEO pay ratio has been rounded to the nearest whole number.
For each year, the Company has calculated the ratio in line with the reporting regulations using ‘Method A’ (determine total full-time equivalent
remuneration for all UK employees for the relevant financial year; rank the data and identify employees whose remuneration places them at
the 25th, 50th and 75th percentile).
Due to the uncertainty and difficulties arising from Covid-19, there has been a general decrease in incentive remuneration payout for all
employees, including the Executive Directors. The Remuneration Committee also exercised its discretion to reduce the 2020 annual bonus
payout (see page 151). As a significant proportion of executive remuneration is dependent upon performance and incentive payouts, this has
decreased the CEO pay comparator for 2020. The Board have confirmed that the ratio is consistent with the Company’s wider policies on
employee pay, reward and progression.
Governance 166
Remuneration Committee report continued
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
2019 to 2020.
£m
Staff costs(i)
Distributions to shareholders
Net asset value attributable to equity shareholders(ii)
Notes:
(i) Staff costs includes salaries, employer pension contributions, social security costs and share-based payment expenses relating to equity-settled schemes.
(ii) Net asset value attributable to equity shareholders was chosen as it is a key determinate of the Group’s total return and is used by management to measure our progress. We base
% change
4.9%
8.7%
(3.6)%
2020
29.2
82.2
4,263
2019
27.8
75.6
4,421
our total return calculation on EPRA net tangible assets (NTA). Further information, including how this figure is calculated, is on page 75.
Percentage increase in remuneration
The table below shows the percentage change in the salary or fees, benefits and annual bonus from 2019 to 2020 for each of the Directors who
served during 2020 compared to that for an average employee.
Salary/Fees
+4.7%
% change
Average employee(i)
Executive Directors(ii)
Paul Williams, CEO
Damian Wisniewski, CFO
Simon Silver
Nigel George
David Silverman
Non-Executive Directors
John Burns
Simon Fraser
Richard Dakin
Claudia Arney
Dame Cilla Snowball
Helen Gordon
Lucinda Bell
Notes:
(i) The annual percentage change of the average remuneration of the Company’s employees, calculated on a full-time equivalent basis.
(ii) The Directors remuneration used to calculate the percentage change is taken from the ‘single figure’ table on page 159.
(iii) Benefits includes all taxable benefits (including car allowance, private medical and dental etc).
+10.5%
+3.7%
–
+3.7%
+3.7%
(40)%
0%
0%
0%
0%
0%
+6%
2019 to 2020
Benefits(iii)
(6.2)%
+0.1%
(1.4)%
(1.7)%
(3.9)%
(1.7)%
(100)%
–
–
–
–
–
–
Bonus
(21.0)%
(24.4)%
(29.0)%
(31.6)%
(29.0)%
(29.0)%
(100)%
–
–
–
–
–
–
Salary/fees
• The average employee salary increased by 4.7% in comparison to 3.7% for most of the Executive Directors, except Paul Williams.
Paul Williams’ salary was increased from £442,000 to £600,000 effective from his appointment as CEO on 17 May 2019.
• The 3.7% rise in base salaries for Nigel George, David Silverman and Damian Wisniewski relates to the increase received due to the
restructuring of the executive team and the increase in responsibilities, effective from 17 June 2019. None of the Executive Directors
received a salary increase effective from 1 January 2020.
Benefits
• There was no change in the benefits received by the average employee or the Executive Directors in 2020. The change in the annual cost
is due to the cost of purchasing private medical and life insurance.
Bonus
• The 2020 bonus for the average employee and Executive Directors was lower than 2019 due to the current economic situation.
Despite achieving the pre-set performance measures at 96.3%, the Committee exercised its discretion to reduce the 2020 annual
bonus for Executive Directors to 66.3%, a 30.0% reduction. The average employee bonus from 2019 to 2020, reduced by 21.0%.
Non-Executive Directors
• John Burns stepped down as Chief Executive on 17 May 2019, following which he has served as Non-Executive Chairman. The percentage
change in fees for John Burns therefore incorporates both his salary received as Chief Executive and fees received as Non-Executive
Chairman in 2019.
• Lucinda Bell became Audit Committee Chair from 17 May 2019 following Stephen Young stepping down from the Board.
Derwent London plc Report & Accounts 2020 Schedule 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 Directors
Paul Williams, CEO(i)
Damian Wisniewski, CFO(ii)
Simon Silver(iii)
Nigel George(i)
David Silverman(i)
Total
Non-Executive
John Burns(iv)
Simon Fraser
Richard Dakin
Claudia Arney
Dame Cilla Snowball
Helen Gordon(v)
Lucinda Bell
Total
Beneficially
held
72,576
51,952
121,518
75,416
48,664
370,126
271,549
2,000
–
2,500
–
918
1,000
277,967
Number at 31 December 2020
Conditional
shares
Deferred
shares
Share
options
Total
Beneficially
held
Number at 31 December 2019
Conditional
shares
Deferred
shares
Share
options
7,655
6,545
8,234
6,545
6,545
35,524
3,850
–
–
–
–
–
–
3,850
99,201
85,246
109,046
85,246
85,246
463,985
44,586
–
–
–
–
–
–
44,586
674
511
–
674
674
2,533
–
–
–
–
–
–
–
–
180,106
144,254
238,798
167,881
141,129
872,168
319,985
2,000
–
2,500
–
918
1,000
326,403
60,632
40,105
132,767
63,472
36,720
333,696
432,595
2,000
–
2,500
–
906
1,000
438,987
363
363
476
363
363
1,928
556
–
–
–
–
–
–
556
93,841
87,128
114,533
87,128
87,128
469,758
91,836
–
–
–
–
–
–
91,836
348
348
–
348
348
1,392
–
–
–
–
–
–
–
–
167
Total
155,184
127,944
247,776
151,311
124,559
806,774
524,987
2,000
–
2,500
–
906
1,000
531,379
There have been no other changes to the above interests between 31 December 2020 and 10 March 2021.
Notes:
(i) Paul Williams, Nigel George and David Silverman each acquired 22,394 shares from the PSP 2017 grant which vested on 20 March 2020. The vesting shares included dividend
equivalents in the form of 2,111 additional shares. To satisfy the tax liability arising, they each sold 10,547 shares immediately upon vesting at an average share price of £27.61 per
share. On 20 March 2020, Paul Williams, Nigel George and David Silverman each acquired 185 shares under the Company’s deferred bonus scheme when they were released from
the 2019 deferral. To satisfy the tax liability arising, they each sold 88 shares immediately upon their release at an average share price of £27.61 per share. On 9 April 2020, they were
each granted 326 share options under the Derwent London Sharesave Plan, further information on page 168.
(ii) Damian Wisniewski acquired 22,394 shares from the PSP 2017 grant which vested on 20 March 2020. The vesting shares included dividend equivalents in the form of 2,111 additional
shares. To satisfy the tax liability arising, Damian sold 10,547 shares immediately upon vesting at an average share price of £27.61 per share. Damian Wisniewski acquired and
immediately sold 185 shares under the Company’s deferred bonus scheme when they were released from the 2019 deferral on 20 March 2020. These shares were sold at an average
price of £27.61 per share. On 9 April 2020, Damian was granted 163 share options under the Derwent London Sharesave Plan, further information on page 168.
(iii) Simon Silver acquired 29,436 shares from the PSP 2017 grant which vested on 20 March 2020. The vesting shares included dividend equivalents in the form of 2,775 additional
shares. To satisfy the tax liability arising, Simon sold 13,273 shares immediately upon vesting at an average share price of £27.61 per share. Simon Silver acquired and immediately
sold 243 shares under the Company’s deferred bonus scheme when they were released from the 2019 deferral on 20 March 2020. These shares were sold at an average price of
£27.61 per share. On 17 December 2019, Simon transferred 18,742 shares to a UK registered charity for nil consideration. On 16 March 2020, Simon purchased 3,500 shares at an
average share price of £29.32. On 23 November 2020, Simon sold 12,170 shares at an average sale price of £31.82.
(iv) John Burns acquired 24,662 shares from the PSP 2017 grant which vested on 20 March 2020. The vesting shares included dividend equivalents in the form of 2,326 additional shares.
To satisfy the tax liability arising, John sold 11,121 shares immediately upon vesting at an average share price of £27.61 per share. On 20 March 2020, John Burns acquired 284 shares
under the Company’s deferred bonus scheme when they were released from the 2019 deferral. To satisfy the tax liability arising, John sold 129 shares immediately upon their release
at an average share price of £27.61 per share. On 17 December 2019, John transferred 11,742 shares to a UK registered charity for nil consideration. On 16 November 2020, John sold
163,000 shares at an average sale price of £32.89.
(v) During 2020, Helen Gordon reinvested her dividend to purchase an additional 12 shares.
Governance
168
Remuneration Committee report continued
Directors’ shareholding guideline
Executive Directors are subject to within-employment and post-employment shareholding guidelines (see page 156). The within-employment
shareholding guideline for the year ended 31 December 2020 expects all Executive Directors to work towards holding shares in Derwent
London plc equivalent to 200% of base salary. As at 31 December 2020, all Executive Directors have exceeded the within-employment
shareholding guideline.
Within-employment shareholding guideline
Executive Director
Paul Williams, CEO
Damian Wisniewski, CFO
Simon Silver
Nigel George
David Silverman
Notes:
(i) The base salaries shown in the table above are as at 31 December 2020. Further information on fixed pay during 2020 is provided on page 160.
(ii) The value of the Executive Directors’ beneficially held shares has been calculated using the average closing share price during the year ended 31 December 2020 of £30.96.
2020 salary(i)
£600,000
£480,000
£581,000
£480,000
£480,000
374%
335%
648%
486%
314%
£2,246,953
£1,608,434
£3,762,197
£2,334,879
£1,506,637
Target
(% of base salary)
200%
200%
200%
200%
200%
Beneficially
held shares
72,576
51,952
121,518
75,416
48,664
Achieved
Value of beneficially
held shares(ii)
All Executive Committee members granted PSP awards are expected to work towards holding shares in Derwent London plc equivalent to 50%
of base salary. There is no shareholding guideline for Non-Executive Directors. The share ownership guidelines for Executive Directors and
Executive Committee members 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.
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, Paul Williams, equivalent to
approximately 19% of his base salary.
Sharesave Plan (audited)
To encourage Group-wide share ownership, the Company operates a HMRC tax efficient Sharesave Plan which was approved by shareholders
at the 2018 AGM (further information on page 154). The first grant under the Sharesave Plan was in 2019. The outstanding Sharesave options
held by Directors are set out in the table below:
During the year
1 January
2020
(number)
Granted(i) Exercised
(number)
(number)
Lapsed
(number)
31 December
2020
(number)
Market price
at date of
exercise (£)
Value at
exercise
£’000
Maturity
date
Executive Directors
Paul Williams, CEO
At grant
Date
of grant
Option
price
30/04/2019
09/04/2020
25.80
27.53
Damian Wisniewski, CFO 30/04/2019
09/04/2020
25.80
27.53
Nigel George
David Silverman
Other employees
Other employees
30/04/2019
09/04/2020
25.80
27.53
30/04/2019
09/04/2020
25.80
27.53
30/04/2019
09/04/2020
25.80
27.53
348
–
348
348
–
348
348
–
348
348
–
348
–
326
326
–
163
163
–
326
326
–
326
326
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
348
326
674
348
163
511
348
326
674
348
326
674
18,814
–
18,814
20,206
–
21,589
21,589
22,730
–
–
–
–
(744)
(326)
(1,070)
(1,070)
18,070
21,263
39,333
41,866
01/06/2022
01/06/2023
01/06/2022
01/06/2023
01/06/2022
01/06/2023
01/06/2022
01/06/2023
01/06/2022
01/06/2023
Total
Note:
(i) On 9 April 2020, the Company granted options over 22,730 shares under the Derwent London Sharesave Plan. The three-year contract for the Options started on 1 June 2020.
These Options are exercisable at a price of £27.53 per share from 1 June 2023 and are not subject to any performance conditions.
Derwent London plc Report & Accounts 2020
Long-term incentive plans (audited)
Performance Share Plan (PSP)
The outstanding PSP awards held by Directors are set out in the table below:
At grant
Date
of grant
Market
price at date
of grant (£)
During the year
1 January
2020
(number)
Granted(iii)
(number)
Vested(i)(ii)
(number)
Lapsed
(number)
31 December
2020
(number)
Market
price at date
of vesting (£)
Value
vested
£’000
Earliest
vesting
date
169
Executive Directors
Paul Williams, CEO
20/03/2017
06/03/2018
12/03/2019
14/08/2019
13/03/2020
Damian Wisniewski, CFO 20/03/2017
06/03/2018
12/03/2019
13/03/2020
Simon Silver
Nigel George
David Silverman
20/03/2017
06/03/2018
12/03/2019
13/03/2020
20/03/2017
06/03/2018
12/03/2019
13/03/2020
20/03/2017
06/03/2018
12/03/2019
13/03/2020
Former Executive Directors
John Burns
20/03/2017
06/03/2018
Other employees
Other employees
21/03/2017
06/03/2018
12/03/2019
13/03/2020
27.00
29.48
32.53
29.42
33.14
27.00
29.48
32.53
33.14
27.00
29.48
32.53
33.14
27.00
29.48
32.53
33.14
27.00
29.48
32.53
33.14
27.00
29.48
27.00
29.48
32.53
33.14
30,850
29,104
27,174
6,713
–
93,841
30,850
29,104
27,174
–
87,128
40,550
38,263
35,720
–
114,533
30,850
29,104
27,174
–
87,128
30,850
29,104
27,174
–
87,128
47,250
44,586
91,836
–
–
–
–
36,210
36,210
–
–
–
28,968
28,968
–
–
–
35,063
35,063
–
–
–
28,968
28,968
–
–
–
28,968
28,968
(22,394)
–
–
–
–
(22,394)
(22,394)
–
–
–
(22,394)
(29,436)
–
–
–
(29,436)
(22,394)
–
–
–
(22,394)
(22,394)
–
–
–
(22,394)
(8,456)
–
–
–
–
(8,456)
(8,456)
–
–
–
(8,456)
(11,114)
–
–
–
(11,114)
(8,456)
–
–
–
(8,456)
(8,456)
–
–
–
(8,456)
–
–
–
(24,662)
–
(24,662)
(22,588)
–
(22,588)
–
29,104
27,174
6,713
36,210
99,201
–
29,104
27,174
28,968
85,246
–
38,263
35,720
35,063
109,046
–
29,104
27,174
28,968
85,246
–
29,104
27,174
28,968
85,246
–
44,586
44,586
42,640
42,484
40,407
–
125,531
687,125
(21,690)
–
–
–
–
–
–
43,895
43,895
(21,690)
202,072 (165,364)
(20,950)
–
–
–
(20,950)
(88,476)
–
42,484
40,407
43,895
126,786
635,357
27.61
618
27.61
618
27.61
813
27.61
618
27.61
618
20/03/2020
08/03/2021
12/03/2022
14/08/2022
13/03/2023
20/03/2020
08/03/2021
12/03/2022
13/03/2023
20/03/2020
08/03/2021
12/03/2022
13/03/2023
20/03/2020
08/03/2021
12/03/2022
13/03/2023
20/03/2020
08/03/2021
12/03/2022
13/03/2023
27.61
681
20/03/2020
08/03/2021
27.61
542
20/03/2020
08/03/2021
12/03/2022
13/03/2023
Total
Notes:
(i) The PSP award granted on 20 March 2017 vested on 20 March 2020 at a vesting level of 65.75%. The value of the vesting awards was based on the middle market share price on the
4,508
vesting date and is inclusive of dividend equivalents in the form of additional vesting shares (see note ii for further details).
(ii) In accordance with the PSP rules, the Remuneration Committee has discretion to allow PSP participants to receive dividend equivalents 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 2017 PSP grant, dividend equivalents were in the form of additional
vesting shares and equated to dividends paid between March 2017 and March 2020. The dividend equivalent shares have been included in the table above, within the number of
vesting awards, and equates to 2,326 shares for John Burns, 2,775 shares for Simon Silver and 2,111 shares each for the other Executive Directors.
(iii) The PSP awards granted on 13 March 2020 will vest on 13 March 2023. The performance targets attached to these awards are detailed on page 162.
Weighted average exercise price of PSP awards
Weighted average remaining contracted life of PSP awards
31/12/2020
–
1.19 years
31/12/2019
–
1.20 years
01/01/2019
–
1.22 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 2020 was £nil (2019: £nil). The weighted average market price of awards vesting in 2020 was £27.65 (2019: £32.18).
Governance
170
Remuneration Committee report continued
Deferred Bonus Plan
Details of the deferred bonus shares held by the Directors are set out in the table below:
At grant
Market price
at date of
grant (£)
Date
of grant
Original
Grant
(number)
1 January
2020 Deferred(iii) Released(i) (ii)
(number)
(number)
(number)
31 December
2020
(number)
Market price
at date of
release (£)
Value at
release
£’000
Release
dates
During the year
Executive Directors
Paul Williams, CEO
Damian Wisniewski, CFO
Simon Silver
Nigel George
David Silverman
20/03/2019
13/03/2020
20/03/2019
13/03/2020
20/03/2019
13/03/2020
20/03/2019
13/03/2020
20/03/2019
13/03/2020
32.50
33.03
32.50
33.03
32.50
33.03
32.50
33.03
32.50
33.03
363
7,474
7,837
363
6,364
6,727
476
7,996
8,472
363
6,364
6,727
363
6,364
363
–
363
363
–
363
476
–
476
363
–
363
363
–
–
7,474
7,474
–
6,364
6,364
–
7,996
7,996
–
6,364
6,364
–
6,364
(182)
–
(182)
(182)
–
(182)
(238)
–
(238)
(182)
–
(182)
(182)
–
181
7,474
7,655
181
6,364
6,545
238
7,996
8,234
181
6,364
6,545
181
6,364
27.61
5.0
27.61
5.0
27.61
6.7
27.61
5.0
27.61
5.0
Former Executive Directors
John Burns
20/03/2019
13/03/2020
32.50
33.03
556
3,572
556
–
–
3,572
(278)
–
278
3,572
27.61
7.8
6,727
363
6,364
(182)
6,545
Other employees
Other employees
13/03/2020
33.03
1,834
–
1,834
–
1,834
4,128
556
3,572
(278)
3,850
22/03/2021
15/03/2021 &
14/03/2022
22/03/2021
15/03/2021 &
14/03/2022
22/03/2021
15/03/2021 &
14/03/2022
22/03/2021
15/03/2021 &
14/03/2022
22/03/2021
15/03/2021 &
14/03/2022
22/03/2021
15/03/2021 &
14/03/2022
15/03/2021 &
14/03/2022
Total
Notes:
(i) The 2018 annual bonus in excess of 100% of salary was deferred on 20 March 2019 and will be released in two tranches; 50% of the award was released 12 months after deferral
34.5
1,834
42,452
–
2,484
1,834
39,968
–
(1,244)
1,834
41,208
(on 20 March 2020) and the remaining balance will be released after 24 months (on 22 March 2021). See note ii for information on the release of shares on 20 March 2020.
(ii) In accordance with the Annual Bonus Plan rules, the Remuneration Committee has discretion to allow participants to receive dividend equivalents upon the release of their deferred
bonus shares, which is equivalent to the value of any dividends paid on those shares between the deferral date and the release date. The dividend equivalents are in the form of
additional shares. The dividend equivalent shares added to the released shares on 20 March 2020 are excluded from the above table, but equated to 6 shares for John Burns,
5 shares for Simon Silver and 4 shares each for the other Executive Directors.
(iii) The 2019 annual bonus in excess of 100% of salary was deferred on 13 March 2020 and will be released in two tranches; 50% of the award will be released 12 months after deferral
(on 15 March 2021) and the remaining balance after 24 months (on 14 March 2022).
Right: 6-8 Greencoat Place SW1 – CGI of
proposed refurbishment to front elevation
Derwent London plc Report & Accounts 2020
Governance
171
172
Directors’
report
David Lawler
Company Secretary
The Directors’ report for the financial year ended 31 December
2020 is set out on pages 172 to 175. 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 by page reference in the body of this
Directors’ report and on the following pages:
p. 3
Future business developments
(throughout the Strategic report)
p. 175 Significant agreements
p. 26 Stakeholder engagement
p. 197
Interest capitalised
p. 82
Viability statement
p. 213 Financial instruments
p. 104 The section 172(1) statement
p. 219 Financial risk management
p. 50 Diversity and inclusion
p. 220
Credit, market and
liquidity risks
p. 134
Internal financial control
p. 230 Related party disclosure
p. 140
Risk management and
internal controls
p. 53 Charitable donations
p. 169 Long-term incentive schemes
p. 131
Review of the 2020
Annual Report
The Directors present their Annual Report and audited financial
statements for the year ended 31 December 2020.
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.
Corporate governance arrangements
During the year ended 31 December 2020, we have applied the
principles of good governance contained in the UK Corporate
Governance Code 2018 (the ‘Code’). Our Compliance Statement for
2020 is on page 103. Further details on how we have applied the Code
can be found in the Governance section on pages 101 to 175. The
Code can be found in the Corporate Governance section of the
Financial Reporting Council’s website: www.frc.org.uk
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, and is registered and domiciled in
England and Wales (company number 01819699).
Results and dividends
The financial statements set out the results of the Group for the
financial year ended 31 December 2020 and are shown on page 187.
The Directors recommend a final dividend of 52.45 pence per
ordinary share for the year ended 31 December 2020. When taken
together with the interim dividend of 22.00 pence per ordinary share
paid in October 2020, this results in a total dividend for the year of
74.45 pence (2019: 72.45 pence) per ordinary share. Subject to
approval by shareholders of the recommended final dividend, the
dividend to shareholders for 2020 will total £58.7m. If approved, the
Company will pay the final dividend on 4 June 2021 to shareholders
on the register of members at 30 April 2021.
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.
Key stakeholders
The long-term success of the Group is dependent on its relationships
with its key stakeholders. On pages 26 and 27 we outline the ways in
which we have engaged with key stakeholders, the material issues
that they have raised with us, and how these issues have been taken
into account in the Board’s decision-making processes.
Derwent London plc Report & Accounts 2020 173
Substantial shareholders
The table below 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 may have changed since the Company was notified. However, notification of any change is not required until the next
notifiable threshold is crossed.
PGGM Vermogensbeheer B.V.
Norges Bank
BlackRock Investment Management (UK) Ltd
T. Rowe Price Associates, Inc
Ameriprise Financial Inc
(Columbia Threadneedle)
Lady Jane Rayne
Direct/indirect
Direct
Direct
Indirect
Indirect
Indirect
31 December 2020
Number of shares
(m)
9.4
10.1
6.0
5.6
4.8
Direct
3.6
Direct/indirect
Direct
Direct
Indirect
Indirect
Indirect
10 March 2021
Number of shares
(m)
8.9
10.1
6.0
11.2
4.8
Direct
3.6
%
8.37
9.00
5.39
5.03
4.75
3.56
%
7.94
9.00
5.39
10.01
4.75
3.56
Employees
The Board recognises the importance of attracting, developing and
retaining the right people. In accordance with best practice, we have
employment policies in place which provide equal opportunities for
all employees, irrespective of sex, race, colour, disability, sexual
orientation, religious beliefs or marital status. Dame Cilla Snowball
is the designated Director responsible for gathering the views of the
workforce. Further information on the Board’s methods for engaging
with the workforce are on pages 50, 51 and 115. During the year, an
additional employee joined the Responsible Business Committee
as a member (see page 147).
Directors
The Directors of the Company who were in office during the year
under review are set out on pages 106 and 107. Between
31 December 2020 to the date the financial statements were
signed, Simon Silver retired as a Director on 26 February 2021
and Mark Breuer and Emily Prideaux were appointed Directors
on 1 February and 1 March 2021, respectively.
The Board is required to 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 150 to 170.
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. Mark Breuer and Emily Prideaux will therefore be
seeking election as Directors following their appointment to the
Board on 1 February and 1 March 2021, respectively.
Notwithstanding provisions in the Company’s Articles of Association,
the Board has agreed, in accordance with the Code 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 2021 AGM. All Directors who held office during
the financial year under review, will be putting themselves forward
for re-election at the AGM on 14 May 2021, except Simon Silver who
retired on 26 February 2021 and John Burns who will retire following
the conclusion of the AGM.
Directors’ indemnity
The Company maintains appropriate Directors’ and Officers’ liability
insurance cover in respect of any potential legal action brought against
its Directors. The Company has also indemnified each Director to the
extent permitted by law against any liability incurred in relation to acts or
omissions arising in the ordinary course of their duties. The indemnity
arrangements are qualifying indemnity provisions under the Companies
Act 2006 and were in force throughout the year.
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 is 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.
Directors’ training and development
Details of the training that has been provided to the Executive and
Non-Executive Directors during the year can be found on page 120.
Share capital
As at 10 March 2021, the Company’s issued share capital comprised
a single class of 5p ordinary shares and equalled an amount of
£5,598,070 divided into 111,961,411 ordinary shares.
The market price of the 5p ordinary shares at 31 December 2020 was
£30.96 (2019: £40.10). During the year, they traded in a range between
£23.34 and £43.62 (2019: £27.85 and £40.82).
Details of the ordinary share capital and shares issued during the
year can be found in note 28 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.
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.
Governance 174
Directors’ report continued
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
As at 31 December 2020, the Group holds 41,185 Derwent London shares in order to deliver the deferred bonus shares to the Directors and
other senior executives when the deferral periods expire (see page 170). Movements on the holding of these shares are detailed below.
Year ended 31 December 2020
Year ended 31 December 2019
As at
1 January 2020
2,484
Acquired
39,968
£33.03
As at
31 December
2020
41,185
As at
1 January 2019
–
Disposal
1,267
As at
31 December
2019
2,484
Disposal
–
Acquired
2,484
£32.50
0%
0%
Number of 5p
ordinary shares
Price
Percentage of
issued share capital
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 2020 AGM, shareholders authorised the Company to allot
relevant securities:
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
11,196,141 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.
(i) up to a nominal amount of £1,862,702; and
(ii)
up to a nominal amount of £3,725,962, 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. An ordinary resolution will be
proposed at the 2021 AGM to grant a similar authority to allot:
(i)
(ii)
up to a nominal amount of £1,865,837 (being one-third of the
issued share capital of the Company); and
up to a nominal amount of £3,732,234, after deducting from
such limit any relevant securities allotted under (i), in connection
with an offer by way of a rights issue (being two-thirds of the
issued share capital).
At the 2021 AGM, similar to previous years, authority will be sought
via a special resolution to enable the Directors to allot securities and/
or sell any treasury shares for cash on a non-pre-emptive basis up to
a nominal amount of £279,904 (representing 5% of the issued share
capital). In addition, authority will be sought via a special resolution
to enable the Directors to allot securities and/or sell treasury shares
for cash on a non-pre-emptive basis for the purposes of financing (or
refinancing, if the authority is to be used within six months after the
original transaction) an acquisition or other capital investment. The
allotment of equity securities or sale of treasury shares under such
authority will also be limited to a nominal amount of £279,904
(representing a further 5% of the issued share capital).
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 they have not paid all amounts relating to
those shares which are due at the time of the meeting, or if they have
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.
Derwent London plc Report & Accounts 2020
175
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 that is essential to the business of the Company.
Amendment of Articles of Association
Unless expressly specified to the contrary in the Company’s Articles
of Association (the Articles), the Articles may be amended by a
special resolution of the Company’s shareholders.
During 2020, the Board reviewed the Articles to ensure that they
reflected updates to legislation, the UK Corporate Governance
Code 2018 and included procedural mechanics governing how
the Company may hold general meetings (including through a
combination of a physical meeting and the use by shareholders of an
electronic facility). The Directors will be seeking shareholder approval
at the 2021 AGM to alter the Articles with a full summary of the
proposed changes being disclosed in the Notice of Meeting.
Fixed assets
The Group’s portfolio was professionally revalued at 31 December
2020, resulting in a deficit of £178.5m, before accounting
adjustments of £19.0m. The portfolio is included in the Group
balance sheet at a carrying value of £5,253m. 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 36 of the
financial statements.
Political donations
There were no political donations during 2020 (2019: nil).
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 Audit
Committee, for and on behalf of the Directors, to determine its
remuneration will be proposed at the AGM. These are resolutions
16 and 17 set out in the Notice of Meeting.
The Directors who held office at the date of approval of this
Directors’ report confirm that, so far as they are each aware, there
is no relevant audit information of which the Company’s 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
In line with our commitment to transparent and best practice
reporting, we have included our streamlined energy and carbon
reporting (SECR) disclosures on page 62 of the Responsibility
section, which includes our annual GHG (greenhouse gas) emissions
footprint and an intensity ratio appropriate for our business, which
fulfil the requirements of the Companies Act 2006 (Strategic and
Directors’ Report) Regulations 2013. We are committed to becoming
a net zero carbon business by 2030 and our Net Zero Carbon
Pathway to achieving this was published on 28 July 2020. For further
analysis and detail on our GHG emissions, please see our annual
Responsibility Report, which can be found at: www.derwentlondon.
com/responsibility
Going concern
Under provision 30 of the 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 March 2022. Therefore, the
Board continues to adopt the going concern basis in preparing
the financial statements.
Annual General Meeting (AGM)
In response to the Covid-19 pandemic, and in line with the related
public health guidance and legislation issued by the UK government,
the 2020 AGM was held on 15 May as a closed meeting. Shareholders
and other stakeholders were able to participate in the AGM, and
ask questions of the Board remotely, via conference call facilities.
We were delighted to receive in excess of 90% votes in favour of all
resolutions. In total, 80.10% of our shareholders (voting capital) voted
at the 2020 AGM.
Unfortunately, current government guidance does not permit us to
physically welcome shareholders to our 2021 AGM. Derwent London
plc’s 2021 AGM will be held at 25 Savile Row, London W1S 2ER on
14 May at 10.30 am. The AGM will be run as a closed meeting.
Shareholders will not be able to attend in person, however they
will be able to participate via conference call facilities.
The Notice of Meeting together with explanatory notes is
contained the circular to shareholders that accompanies the
Report and Accounts.
In the event we receive 20% or more votes against a recommended
resolution at a general meeting, we would announce the actions
we intend to take to engage with our shareholders to understand
the result in accordance with the Code. We would follow this
announcement with a further update within six months of the
meeting, with an overview of our shareholders’ views on the
resolutions and the remedial actions we have taken. To date, the
Board has not been required to follow these procedures due to the
high level of support received from shareholders.
The Strategic report and Directors’ report have been approved by
the Board of Directors and signed by order of the Board by:
David Lawler
Company Secretary
10 March 2021
Governance 176
Derwent London plc Report & Accounts 2020
Financial statements
177
Financial
statements
Statement of Directors’ responsibilities ........178
Independent Auditor’s report .............................179
Group income statement ......................................187
Group statement of
comprehensive income .........................................188
Balance sheets ........................................................189
Statements of changes in equity .......................190
Cash flow statements .............................................191
Notes to the financial statements ....................192
Other information
Ten-year summary ..................................................242
EPRA summary .........................................................243
Principal properties ................................................246
List of definitions .....................................................248
Communication with our shareholders ..........252
Awards & recognition .............................................IBC
TransferWise is continuing to grow,
and making sure we have the right
space for our people is crucial for
our future plans. As many people mix
working from home, the office, and
remotely, we know just how important
flexibility is to our team. Following
internal workplace surveys and focus
groups, we learned that our people
wanted a hybrid working model
that caters to that as well as it can.
By expanding our office space, and
offering more flexibility for our teams
to work however and wherever suits
them best, we can ensure we’re
equipped for the future of work.
Darren Graver, Office Expansions Lead at TransferWise
Tea Building E1
178
Statement of Directors’ responsibilities
in respect of the financial statements
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulation.
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 accounting standards in conformity with the
requirements of the Companies Act 2006. Additionally, the Financial
Conduct Authority’s Disclosure Guidance and Transparency Rules
require the Directors to prepare the Group financial statements in
accordance with international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union.
Under company law, 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 Company and of the
profit or loss of the Group for that period. In preparing the financial
statements, the Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• state whether, for the Group and Company, international
accounting standards in conformity with the requirements of the
Companies Act 2006 and, for the Group, international financial
reporting standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union have been followed,
subject to any material departures disclosed and explained in the
financial statements;
• make judgements and accounting estimates that are reasonable
and prudent; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and Company
will continue in business.
The Directors are also responsible for safeguarding the assets of
the Group and Company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s and
Company’s transactions and disclose with reasonable accuracy at
any time the financial position of the Group and Company and enable
them to ensure that the financial statements and the Directors’
Remuneration Report comply with the Companies Act 2006.
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.
Directors’ confirmations
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 and
Company’s position and performance, business model and strategy.
Each of the Directors, whose names and functions are listed in pages
106 and 107 confirm that, to the best of their knowledge:
• the Group and Company financial statements, which have been
prepared in accordance with international accounting standards
in conformity with the requirements of the Companies Act 2006,
give a true and fair view of the assets, liabilities, financial position
and loss of the Group and profit of the Company; and
• the Strategic report includes a fair review of the development and
performance of the business and the position of the Group and
Company, together with a description of the principal risks and
uncertainties that it faces.
The financial statements on pages 187 to 241 were approved by the
Board of Directors and signed on its behalf by:
Paul Williams
Chief Executive
Damian Wisniewski
Chief Financial Officer
10 March 2021
Derwent London plc Report & Accounts 2020 Independent Auditor’s report
to the members of Derwent London plc
179
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 2020 and of the Group’s
loss and the Group’s and Company’s cash flows for the year
then ended;
• have been properly prepared in accordance with international
accounting standards in conformity with the requirements of
the Companies Act 2006; and
• have been prepared in accordance with the requirements of
the Companies Act 2006.
We have audited the financial statements, included within the
Report and Accounts 2020 (the “Annual Report”), which comprise:
the Balance sheets as at 31 December 2020; the Group income
statement and Group statement of comprehensive income, the
Cash flow statements, and the Statements of changes in equity for
the year then ended; 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.
Separate opinion in relation to international financial
reporting standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union
As explained in note 1 to the Group financial statements, the Group,
in addition to applying international accounting standards in
conformity with the requirements of the Companies Act 2006, has
also applied international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union.
In our opinion, the Group financial statements have been properly
prepared in accordance with international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002
as it applies in the European Union.
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.
Other than those disclosed in note 10 to the financial statements,
we have provided no non-audit services to the Group in the period
under audit.
Our audit approach
Overview
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 51 statutory entities with
the Group financial statements being a consolidation of these
entities, the Company and the Group’s joint ventures. All work was
carried out by the Group audit team with additional procedures
performed on the consolidation to ensure sufficient coverage for
our opinion on the Group financial statements as a whole.
Key audit matters
• Valuation of investment properties (Group)
• Compliance with REIT guidelines (Group)
• Covid-19 (Group and Company)
• Accounting for the expected credit loss provision (Group)
• Revenue recognition (Group)
Materiality
• Overall Group materiality: £55.3million (2019: £56.2million)
based on 1% of Total Assets.
• Specific materiality of £7.1million (2019: £4.0million) applied
to property and other income, administrative expenses, provisions
and working capital balances.
• Overall Company materiality: £33.7million (2019: £48.7million)
based on 1% of Total Assets.
• Performance materiality: £41.4million (Group) and £25.3million
(Company).
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.
Financial statements 180
Independent Auditor’s report continued
Capability of the audit in detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with
our responsibilities, outlined in the Auditors’ responsibilities for
the audit of the financial statements section, to detect material
misstatements in respect of irregularities, including fraud.
The extent to which our procedures are capable of detecting
irregularities, including fraud, is detailed below.
There are inherent limitations in the audit procedures described
above. We are less likely to become aware of instances of non-
compliance with laws and regulations that are not closely related
to events and transactions reflected in the financial statements.
Also, 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.
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.
Accounting for the expected credit loss provision, Covid-19 and
Revenue recognition are new key audit matters this year. Accounting
for borrowings and derivatives, which was a key audit matter last
year, is no longer included because of the lower level of new financing
activity in comparison to the prior year. Otherwise, the key audit
matters below are consistent with last year.
Based on our understanding of the Group and industry, we identified
that the principal risks of non-compliance with laws and regulations
related to non-compliance with health and safety or environmental
and sustainability legislation and breaches of the Real Estate
Investment Trust (REIT) status section 1158 of the Corporation Tax
Act 2010, and we considered the extent to which non-compliance
might have a material effect on the financial statements. We also
considered those laws and regulations that have a direct impact on
the preparation of the financial statements such as the Companies
Act 2006. We evaluated management’s incentives and opportunities
for fraudulent manipulation of the financial statements (including
the risk of override of controls), and determined that the principal
risks were related to posting inappropriate journal entries to increase
revenue or reduce expenditure, and management bias in accounting
estimates and judgemental areas of the financial statements such
as the valuation of investment properties. Audit procedures
performed by the engagement team included:
• Discussions with management, including the Company Secretary,
over their consideration of known or suspected instances of
non-compliance with laws and regulation and fraud;
• Understanding and evaluating management’s controls designed
to prevent and detect irregularities;
• Discussion with and review of the reports made by internal audit;
• Assessment of matters reported on the Group’s whistleblowing
helpline and the results of management’s investigation of such
matters where relevant;
• Review of tax compliance with the involvement of our tax
specialists in the audit;
• Procedures relating to the valuation of investment properties
described in the related key audit matter below;
• Reviewing relevant meeting minutes, including those of the Board
of Directors, Risk Committee and the Audit Committee; and
• Identifying and testing journal entries, in particular any journal
entries posted with unusual account combinations or posted by
senior management.
Derwent London plc Report & Accounts 2020 Key audit matter
Valuation of investment properties
Group
Refer to the Audit Committee report (Significant financial judgements,
key assumptions and estimates) and note 16 (Property portfolio) to the
financial statements.
The Group’s property portfolio principally consists of 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, IAS 40 and IFRS 13.
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 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 deficit on revaluation is primarily driven by the impact of the Covid-19
pandemic on the retail element of the property portfolio. Excluding the
retail element, relatively flat ERVs have been maintained in the central
London property market and the development properties have increased
in value.
The existence of significant estimation uncertainty particularly during
the current pandemic, 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 the Audit Committee report (Significant financial judgements,
key assumptions and estimates) and note 3 (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 an inadvertent breach and the
Group’s profit becoming subject to tax.
181
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 majority of the remaining investment
property portfolio in Scotland. They are well-known firms, with sufficient
experience of the Group’s market. 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 objective 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. 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 with 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 categories of assets for further testing:
standing investments where the valuation fell outside the expected
range; ongoing and planned development projects; high value assets
over £100million; 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. Variances were largely due to
property specific factors such as movements in ERV or yield to reflect
market transactions in close proximity, exposure to retail 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 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 taxation 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.
Financial statements 182
Independent Auditor’s report continued
Key audit matter
Covid-19
Group and Company
Refer to the Strategic report – “Our principal risks”, the Viability
statement, the Audit Committee report, and note 3 (Significant
judgements, key assumptions and estimates).
The Covid-19 pandemic has had an impact on the performance of the
Group during 2020. As a result, the pandemic has brought increased
estimation uncertainty to certain areas of the financial statements.
In order to assess the impact of Covid-19 on the business, management
has updated their risk assessment and prepared an analysis of the
potential impact on the revenues, profits, cash flows, operations and
liquidity position of the Group for the next 12 months. The analysis and
related assumptions have been used by management in its assessment
of the level of provisions required against several balance sheet items,
as well as underpinning the Group’s going concern and viability analysis.
The key areas of the financial statements most impacted by the
increased estimation uncertainty are described below:
i) Valuation of investment properties, in particular in respect of
properties dependent on the retail or hospitality sectors;
ii) Accounting for the expected credit loss provision; and
iii) Going concern forecasts. The Directors have carefully considered the
appropriateness of the going concern basis of preparation, including
assessing the impact on the Group’s working capital and projected
covenant compliance using their experience of the impacts of the
pandemic during 2020.
How our audit addressed the key audit matter
In response to the key areas identified as being significantly impacted
by Covid-19, we performed the following procedures:
We evaluated the Group’s updated risk assessment and analysis and
considered whether it addresses the relevant potential risks posed
by Covid-19.
We specifically considered the areas identified as most impacted by the
increased estimation uncertainty:
i) Refer to our key audit matter above for details of how we considered
the impact of Covid-19 on our audit procedures over the valuation of
investment properties;
ii) Refer to our key audit matter below for details of how we considered
the impact of Covid-19 on the accounting for the expected credit loss
provision; and
iii) In respect of going concern, we assessed the Directors’ going
concern analysis in light of Covid-19 and obtained evidence to
support the key assumptions used in preparing the going concern
model, including assessing covenant headroom within the base and
downside case scenarios.
The key assumptions included:
• Tenant covenant assumptions
• Void and rent-free period assumptions
• Cash collection assumptions.
We challenged these assumptions and the reasonableness of the
mitigating actions assumed in preparing the analysis with reference to
actual results during 2020. We obtained and reperformed the Group’s
forecast covenant compliance calculations, including sensitising the
profits and cash flows as applicable for each covenant to assess the
potential impact of our downside sensitivities on covenant compliance.
We considered whether changes to working practices brought about by
Covid-19 had an adverse impact on the effectiveness of management’s
business process, and we are satisfied in this regard.
Further detail of our audit procedures performed in respect of going
concern and our conclusions on going concern are set out in the
“Conclusions relating to going concern” section of our report below.
We reviewed the disclosures presented in the Annual Report in relation
to Covid-19 and going concern and assessed their consistency with the
financial statements and the evidence we obtained in our audit.
No issues were identified in our testing.
Derwent London plc Report & Accounts 2020 Key audit matter
Accounting for the expected credit loss provision
Group
Refer to the Audit Committee report (Significant financial judgements,
key assumptions and estimates), note 3 (Significant judgements, key
assumptions and estimates) and note 20 (Trade and other receivables)
to the financial statements.
IFRS 9 requires that credit losses on financial assets are measured and
recognised using the “expected credit loss” (ECL) approach. The Group
has applied the simplified approach to trade receivables and lease
incentive debtors.
Covid-19 and the resulting economic and social disruption brought
unforeseen challenges to London and the wider global economy;
impacting the Group and in general the overall risk profile.
Due to the restrictions arising from the Covid-19 pandemic there is
an increased risk of tenants defaulting or tenant failure, particularly
in respect to the leisure, retail and hospitality sectors. The impact of
Covid-19 has therefore given rise to higher estimated probabilities of
default for specific tenants.
The estimation uncertainty in the ECL calculation has been increased
by the uncertainties around collection of receivables as well as the
recoverability of lease incentive debtors caused by Covid-19.
During the year an ECL provision of £9.2million (2019: £0.4million)
has been recorded. In arriving at the Group’s estimate, management
has considered the probability of default for tenants at higher risk,
particularly in the retail or hospitality sectors, those in administration or
company voluntary arrangements (CVA) and the top 83 tenants by size.
Management has also considered the remaining balances classified by
sector risk.
Due to the subjectivity of the assumptions used therein, we have
considered this an area of audit focus.
Revenue recognition
Group
Refer to the Strategic report – “Our principal risks” and note 5 (Property
and other income) to the financial statements.
Revenue for the Group consists primarily of rental income. Rental income
is based on tenancy agreements where there is a standard process in
place for recording revenue.
There are certain transactions within revenue that warrant additional audit
focus because of an increased inherent risk of error due to their non-
standard nature.
These include spreading of tenant incentives, guaranteed rent increases
and rental concessions given to tenants as a result of Covid-19. These
balances require adjustments made to rental income to ensure revenue is
recorded on a straight-line basis over the course of the lease.
183
How our audit addressed the key audit matter
We obtained and examined the calculations of the ECL provision.
We evaluated the basis for determining the categorisation of tenants
by risk and the associated probability of default percentages applied to
each category.
We tested a sample of tenant rent concessions and deferrals granted in
response to Covid-19 to underlying agreements or communication with
the tenants.
We tested the treatment of concessions to ensure that they have been
correctly accounted for as lease modifications in line with IFRS 16. We
also ensured these have been appropriately included within the ECL
calculation.
We reviewed the risk committee meeting minutes and compared these
against the ECL model to ensure that the tenant specific discussions
were reflected in the provision calculation.
We obtained an ageing report of trade receivables and tested the
accuracy by checking the ageing of selected invoices on a sample basis.
We performed independent research over a sample of tenants in order to
assess any contradictory evidence and how this had been incorporated
into the forward-looking probability of default assigned to the tenant.
We evaluated the key judgements and estimates relating to the
application of the probability of default.
We also reviewed the disclosures made in relation to the ECL provision
and the sensitivity of the provision to the underlying probability of default
applied.
No issues were identified in our testing.
We carried out tests of controls over the input of data into the tenancy
management system and the automatic calculation of rental demands.
We performed substantive testing procedures over rental income and
lease incentives to ensure the recording of revenue is accurate.
For rental income balances, we tested a sample of balances to invoices
and traced receipts to bank statements and ensured that rental income
had been appropriately recorded. We also performed a recalculation
of a sample of rental income based on the information in the tenancy
management system to gain comfort over the completeness of
revenue recognised.
We performed sample testing over the lease data recorded in the
tenancy management system to supporting lease agreements, to gain
comfort over the accuracy of the data in the tenancy management
system.
We tested a sample of lease incentive debtor balances back to
supporting documentation agreeing the inputs to the lease incentive
calculations and assessed the appropriateness of the calculations in line
with IFRS 16 (Leases).
We recalculated a sample of lease incentive adjustments posted to
revenue in the year to ensure that lease incentive debtors are being
accrued for and subsequently amortised in line with IFRS 16 (Leases).
We used substantive testing procedures to ensure that a sample of rental
concessions and deferrals offered to tenants as a result of Covid-19 had
been correctly accounted for within the requirements of IFRS 16 (Leases).
We assessed the recoverability of trade and lease incentive debtors,
refer to our key audit matter above which addresses the accounting
for the expected credit loss provision under the requirements of IFRS 9
(Financial Instruments).
No issues were identified in our testing.
Financial statements
184
Independent Auditor’s report continued
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.
The Group’s properties are spread across 51 statutory entities
with the Group financial statements being a consolidation of these
entities, the Company and the Group’s joint ventures. All work was
carried out by the Group audit team with additional procedures
performed on the consolidation to ensure sufficient coverage and
appropriate audit evidence for our opinion on the Group financial
statements as a whole.
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:
Financial statements – Group
£55.3million (2019 : £56.2million).
1% of Total Assets
Overall materiality
How we determined it
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.
Financial statements – Company
£33.7million (2019: £48.7million).
1% of Total Assets
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.
We use performance materiality to reduce to an appropriately
low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds overall materiality. Specifically,
we use performance materiality in determining the scope of our audit
and the nature and extent of our testing of account balances, classes
of transactions and disclosures, for example in determining sample
sizes. Our performance materiality was 75% of overall materiality,
amounting to £41.4million for the Group financial statements and
£25.3million for the Company financial statements.
In addition, we set a specific materiality level of £7.1million
(2019: £4.0million) for property and other income, administrative
expenses, provisions and working capital balances. This equates
to 5% of loss before tax adjusted for capital and other items.
In determining the performance materiality, we considered a
number of factors – the history of misstatements, risk assessment
and aggregation risk and the effectiveness of controls – and
concluded that an amount at the upper end of our normal range
was appropriate.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above £2.7 million (for
items audited using overall materiality) and £0.7 million (for items
audited using specific materiality) (2019: £2.7 million and £0.4 million)
(Group audit) and £1.7 million (2019: £2.4 million) (Company audit)
as well as misstatements below those amounts that, in our view,
warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the Directors’ assessment of the Group’s and the
Company’s ability to continue to adopt the going concern basis of
accounting included:
• Audited the integrity of the underlying formulas and calculations
within the going concern model;
• Considered management’s forecasting accuracy by comparing
how the forecasts made at the half year compare to the actual
performance in the second half of the year;
• Performed further sensitivity analysis on the downside going
concern scenario to model the impact of the top tenants defaulting
on rent due from September and December 2020. Sufficient
liquidity and covenant headroom exists to accommodate this
under the stress tested downside scenario;
• Tested a sample of cash receipts from the September and
December 2020 quarters to assess if the collection rates assumed
within the going concern base case and downside reflect actual
experience during the pandemic;
• Tested a sample of rent waivers and deferrals and compared these
to the assumptions under the base case and downside going
concern assessment to consider the reasonableness of the
assumptions; and
• Reverse stress tested the downside going concern assessment by
assessing the total fall in investment property required in order to
breach banking covenants.
Derwent London plc Report & Accounts 2020
Based on the work we have performed, we have not identified
any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group’s
and the Company’s ability to continue as a going concern for a period
of at least twelve months from when the financial statements are
authorised for issue.
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 2020 is consistent with the
financial statements and has been prepared in accordance with
applicable legal requirements.
185
In auditing the financial statements, we have concluded that
the Directors’ use of the going concern basis of accounting in
the preparation of the financial statements is appropriate.
However, because not all future events or conditions can be
predicted, this conclusion is not a guarantee as to the Group’s and
the Company’s ability to continue as a going concern.
In relation to the Company’s reporting on how they have applied the
UK Corporate Governance Code, we have nothing material to add or
draw attention to in relation to the Directors’ statement in the
financial statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with
respect to going concern are described in the relevant sections of
this 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 our work undertaken in the course of the audit, the
Companies Act 2006 requires us also to report certain opinions and
matters as described below.
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.
Directors’ Remuneration
In our opinion, the part of the Remuneration Committee report to be
audited has been properly prepared in accordance with the
Companies Act 2006.
Corporate governance statement
The Listing Rules require us to review the Directors’ statements
in relation to going concern, longer-term viability and that part of
the corporate governance statement relating to the Company’s
compliance with the provisions of the UK Corporate Governance
Code specified for our review. Our additional responsibilities
with respect to the corporate governance statement as other
information are described in the Reporting on other information
section of this report.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial
statements and our knowledge obtained during the audit, and we
have nothing material to add or draw attention to in relation to:
• The Directors’ confirmation that they have carried out a robust
assessment of the emerging and principal risks;
• The disclosures in the Annual Report that describe those principal
risks, what procedures are in place to identify emerging risks and
an explanation of how these are being managed or mitigated;
• The Directors’ statement in the financial statements about
whether they considered it appropriate to adopt the going concern
basis of accounting in preparing them, and their identification of
any material uncertainties to the Group’s and Company’s ability
to continue to do so over a period of at least twelve months from
the date of approval of the financial statements;
• The Directors’ explanation as to their assessment of the Group’s
and Company’s prospects, the period this assessment covers and
why the period is appropriate; and
• The Directors’ statement as to whether they have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the period of its
assessment, including any related disclosures drawing attention
to any necessary qualifications or assumptions.
Our review of the Directors’ statement regarding the longer-term
viability of the Group was substantially less in scope than an audit
and only consisted of making inquiries and considering the Directors’
process supporting their statement; checking that the statement
is in alignment with the relevant provisions of the UK Corporate
Governance Code; and considering whether the statement is
consistent with the financial statements and our knowledge and
understanding of the Group and Company and their environment
obtained in the course of the audit.
Financial statements 186
Independent Auditor’s report continued
In addition, based on the work undertaken as part of our audit,
we have concluded that each of the following elements of the
corporate governance statement is materially consistent with the
financial statements and our knowledge obtained during the audit:
• The Directors’ statement that they consider the Annual Report,
taken as a whole, is fair, balanced and understandable, and
provides the information necessary for the members to assess
the Group’s and Company’s position, performance, business
model and strategy;
• The section of the Annual Report that describes the review
of effectiveness of risk management and internal control
systems; and
• The section of the Annual Report describing the work of the
Audit Committee.
We have nothing to report in respect of our responsibility to report
when 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.
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, 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.
Our audit testing might include testing complete populations of
certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited number
of items for testing, rather than testing complete populations. We will
often seek to target particular items for testing based on their size or
risk characteristics. In other cases, we will use audit sampling to
enable us to draw a conclusion about the population from which the
sample is selected.
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 obtained all the information and explanations we
require for our audit; or
• adequate accounting records have not been kept by the Company,
or returns adequate for our audit have not been received from
branches not visited by us; or
• certain disclosures of Directors’ remuneration specified by law
are not made; or
• the Company financial statements and the part of the
Remuneration Committee report to be audited are not in
agreement with the accounting records and returns.; or
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
seven years, covering the years ended 31 December 2014 to 31
December 2020.
Sandra Dowling (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
10 March 2021
Derwent London plc Report & Accounts 2020 Group income statement
for the year ended 31 December 2020
Gross property and other income
Net property and other income1
Administrative expenses
Revaluation (deficit)/surplus
Profit on disposal
(Loss)/profit from operations
Finance income
Finance costs
Bond redemption premium
Loan arrangement costs written off
Movement in fair value of derivative financial instruments
Financial derivative termination costs
Share of results of joint ventures
(Loss)/profit before tax
Tax credit/(charge)
(Loss)/profit for the year
Attributable to:
Equity shareholders
Non-controlling interest
Basic (loss)/earnings per share
Diluted (loss)/earnings per share
187
2019
£m
230.3
182.6
(37.0)
156.4
13.8
315.8
0.2
(26.7)
(7.7)
(0.1)
(0.1)
(2.7)
1.9
280.6
(2.5)
2020
£m
268.6
183.0
(37.8)
(196.1)
1.7
(49.2)
0.2
(30.3)
–
(0.1)
(1.9)
(1.7)
–
(83.0)
1.6
(81.4)
278.1
(77.6)
(3.8)
(81.4)
283.4
(5.3)
278.1
(69.34p)
253.82p
(69.34p)
253.11p
Note
5
5
16
6
7
7
7
7
8
9
10
15
30
39
39
¹ Net property and other income in 2020 include write-off/impairment of receivables of £10.1m and service charge waiver of £4.1m. See note 3 for additional information.
The notes on pages 192 to 241 form part of these financial statements.
Financial statements 188
Group statement of comprehensive income
for the year ended 31 December 2020
(Loss)/profit for the year
Actuarial losses on defined benefit pension scheme
Deferred tax credit on pension
Revaluation surplus/(deficit) of owner-occupied property
Deferred tax (charge)/credit on revaluation
Other comprehensive expense that will not be reclassified to profit or loss
Total comprehensive (expense)/income relating to the year
Attributable to:
Equity shareholders
Non-controlling interest
The notes on pages 192 to 241 form part of these financial statements.
Note
14
27
16
27
2020
£m
(81.4)
(4.1)
0.4
0.4
(0.2)
(3.5)
2019
£m
278.1
(0.6)
–
(1.8)
0.1
(2.3)
(84.9)
275.8
(81.1)
(3.8)
(84.9)
281.1
(5.3)
275.8
Derwent London plc Report & Accounts 2020 Balance sheets
as at 31 December 2020
Non-current assets
Investment property
Property, plant and equipment
Investments
Deferred tax
Pension scheme surplus
Other receivables
Current assets
Trading property
Trade and other receivables
Corporation tax asset
Cash and cash equivalents
Non-current assets held for sale
Total assets
Current liabilities
Leasehold liabilities
Trade and other payables
Corporation tax liability
Provisions
Non-current liabilities
Borrowings
Derivative financial instruments
Leasehold liabilities
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
189
Registered No. 1819699
Group
2020
£m
5,029.1
50.2
0.9
–
–
146.4
5,226.6
12.9
76.2
–
50.7
139.8
2019
£m
5,174.3
50.2
1.3
–
0.5
134.4
5,360.7
40.7
58.6
–
54.5
153.8
Company
2020
£m
–
23.7
1,615.9
3.1
–
–
1,642.7
–
1,682.3
0.4
50.1
1,732.8
2019
£m
–
25.2
1,550.2
3.2
0.5
–
1,579.1
–
1,676.6
0.4
54.0
1,731.0
165.0
118.6
–
–
5,531.4
5,633.1
3,375.5
3,310.1
–
106.7
0.5
0.6
107.8
1,033.2
5.6
66.6
0.4
2.2
0.5
1,108.5
–
112.5
0.3
0.9
113.7
976.6
3.7
59.5
1.5
–
1.2
1,042.5
1.2
1,072.9
–
0.6
1,074.7
821.7
5.6
24.1
0.4
2.2
–
854.0
1.1
988.0
–
0.9
990.0
764.0
3.7
25.3
1.5
–
–
794.5
1,216.3
1,156.2
1,928.7
1,784.5
4,315.1
4,476.9
1,446.8
1,525.6
5.6
193.7
939.4
3,124.5
4,263.2
51.9
4,315.1
5.6
193.0
936.2
3,286.4
4,421.2
55.7
4,476.9
5.6
193.7
926.3
321.2
1,446.8
–
1,446.8
5.6
193.0
923.3
403.7
1,525.6
–
1,525.6
Note
16
17
18
27
14
19
16
20
32
21
24
22
23
24
24
24
23
14
27
28
29
29
29
¹ Retained earnings for the Company include profit for the year of £1.8m (2019: £49.7m).
The financial statements were approved by the Board of Directors and authorised for issue on 10 March 2021.
Paul Williams
Chief Executive
Damian Wisniewski
Chief Financial Officer
The notes on pages 192 to 241 form part of these financial statements.
Financial statements
190
Statements of changes in equity
for the year ended 31 December 2020
Group
At 1 January 2020
Loss for the year
Other comprehensive income/(expense)
Share-based payments
Dividends paid
At 31 December 2020
At 1 January 2019
Profit/(loss) for the year
Other comprehensive expense
Share-based payments
Bond redemption
Bond issue
Dividends paid
At 31 December 2019
Company
At 1 January 2020
Profit for the year
Other comprehensive expense
Share-based payments
Dividends paid
At 31 December 2020
At 1 January 2019
Profit for the year
Other comprehensive expense
Bond redemption
Bond issue
Share-based payments
Dividends paid
IFRS 16 adjustment
At 31 December 2019
¹ See note 29.
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
193.0
–
–
0.7
–
193.7
189.6
–
–
3.4
–
–
–
193.0
193.0
–
–
0.7
–
193.7
189.6
–
–
–
–
3.4
–
–
193.0
936.2
–
0.2
3.0
–
939.4
943.5
–
(1.7)
(0.8)
(12.3)
7.5
–
936.2
923.3
–
–
3.0
–
926.3
928.9
–
–
(12.3)
7.5
(0.8)
–
–
923.3
3,286.4
(77.6)
(3.7)
1.6
(82.2)
3,124.5
3,063.2
283.4
(0.6)
4.6
11.4
–
(75.6)
3,286.4
403.7
1.8
(3.7)
1.6
(82.2)
321.2
414.7
49.7
(0.6)
11.4
–
4.6
(75.6)
(0.5)
403.7
4,421.2
(77.6)
(3.5)
5.3
(82.2)
4,263.2
4,201.9
283.4
(2.3)
7.2
(0.9)
7.5
(75.6)
4,421.2
1,525.6
1.8
(3.7)
5.3
(82.2)
1,446.8
1,538.8
49.7
(0.6)
(0.9)
7.5
7.2
(75.6)
(0.5)
1,525.6
55.7
(3.8)
–
–
–
51.9
61.5
(5.3)
–
–
–
–
(0.5)
55.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
equity
£m
4,476.9
(81.4)
(3.5)
5.3
(82.2)
4,315.1
4,263.4
278.1
(2.3)
7.2
(0.9)
7.5
(76.1)
4,476.9
1,525.6
1.8
(3.7)
5.3
(82.2)
1,446.8
1,538.8
49.7
(0.6)
(0.9)
7.5
7.2
(75.6)
(0.5)
1,525.6
The notes on pages 192 to 241 form part of these financial statements.
Derwent London plc Report & Accounts 2020 Cash flow statements
for the year ended 31 December 2020
Operating activities
Rents received
Surrender premiums and other property income
Property expenses
Cash paid to and on behalf of employees
Other administrative expenses
Interest received
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
Reimbursement of capital expenditure
Disposal of investment properties
Disposal of trading properties
Investment in joint ventures
Receipts from joint ventures
Purchase of property, plant and equipment
Disposal of property, plant and equipment
VAT paid
Net cash used in investing activities
Financing activities
Net proceeds of bond issue
Net movement in intercompany loans
Repayment of revolving bank loan
Drawdown of new revolving bank loan
Net movement in revolving bank loans
Bond redemption
Bond redemption premium
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
(Decrease)/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 192 to 241 form part of these financial statements.
191
2019
£m
–
–
–
(24.2)
(9.5)
–
(16.8)
(2.9)
3.3
–
(50.1)
–
–
–
–
–
–
–
(0.2)
0.1
–
(0.1)
–
115.5
–
–
(203.1)
–
–
248.8
(2.7)
3.5
–
(75.1)
86.9
36.7
17.3
54.0
Note
7
7
7
7
26
26
26
8
28
31
32
Group
2020
£m
161.9
2.7
(19.1)
(27.5)
(8.0)
0.2
(25.4)
(2.9)
3.5
–
85.4
(43.8)
(175.2)
0.6
125.6
31.7
–
0.4
(0.4)
–
(0.9)
(62.0)
–
–
(6.5)
24.2
38.0
–
–
–
(1.7)
0.6
–
(81.8)
(27.2)
(3.8)
54.5
50.7
2019
£m
171.0
0.5
(18.6)
(24.4)
(9.9)
0.2
(18.8)
(3.0)
3.6
(3.5)
97.1
(31.6)
(204.0)
3.5
159.3
–
(0.6)
30.3
(0.3)
1.3
(2.2)
(44.3)
171.0
–
–
–
(203.1)
(150.0)
(8.5)
248.8
(2.7)
3.5
(0.5)
(75.1)
(16.6)
36.2
18.3
54.5
Company
2020
£m
–
–
–
(27.3)
(7.6)
0.2
(20.5)
(2.0)
3.1
–
(54.1)
–
–
–
–
–
–
–
(0.4)
–
–
(0.4)
–
77.7
(6.5)
24.2
38.0
–
–
–
(1.6)
0.6
–
(81.8)
50.6
(3.9)
54.0
50.1
Financial statements 192
Notes to the financial statements
for the year ended 31 December 2020
1 Basis of preparation
The financial statements have been prepared in accordance
with international accounting standards in conformity with the
requirements of the Companies Act 2006 (‘IFRS’) and the applicable
legal requirements of the Companies Act 2006. In addition to
complying with international accounting standards in conformity
with the requirements of the Companies Act 2006, the consolidated
financial statements also comply with international financial
reporting standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union. 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 at fair
value or amortised cost.
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.
• The headroom under the Group’s financial covenants.
• The risks included on the Group’s risk register that could impact
on the Group’s liquidity and solvency over the next 12 months.
• The risks on the Group’s risk register that could be a threat to the
Group’s business model and capital adequacy.
The Directors have considered the relatively long-term and
predictable nature of the income receivable under the tenant leases,
the Group’s year end loan-to-value ratio for 2020 of 18.4%, the
interest cover ratio of 446%, the £476m total of undrawn facilities
and cash and the fact that the average maturity of borrowings was
6.8 years at 31 December 2020. They have also considered the
impact of the Covid-19 pandemic and lockdown on the Group’s
business and occupiers. There is a risk that income could decline
further with an increased risk of tenant defaults and drop in demand
for office and retail space due to the economic outlook. Based on our
forecasts, rental income would need to decline by 68% and property
values would need to fall by 67% before breaching our financial
covenants. In the scenarios tested, our net interest cover remained
above 385% and our loan-to-value ratio below 40%, both of which
are comfortably within our financial covenants. Further information
is provided in the Group’s viability statement on page 82.
The financial position of the Group, its cash flows, liquidity position
and borrowing facilities are described in the financial review. In
addition, the Group’s risks and risk management processes can
be found within the risk management and internal controls.
Having due regard to these matters and after making appropriate
enquiries, the Directors have reasonable expectation that the Group
has adequate resources to continue in operational existence for a
period of at least 12 months from the date of signing of these
consolidated financial statements and, therefore, the Board
continues to adopt the going concern basis in their preparation.
2 Changes in accounting policies
The principal accounting policies are described in note 42 and are
consistent with those applied in the Group’s financial statements for
the year to 31 December 2019, 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 current
accounting period and had no material impact on the financial
statements.
References to Conceptual Framework in IFRSs (amended);
IAS 1 and IAS 8 (amended) – Definition of Material;
IFRS 3 (amended) – Definition of a Business;
IFRS 16 (amended) – Covid-19-Related Rent Concessions.
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 period 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 17 – Insurance Contracts;
IAS 1 (amended) – Classification of liabilities as current or
non-current;
IFRS 10 and IAS 28 (amended) – Sale or Contribution of Assets
between an investor and its Associate or Joint Venture;
IFRS 3 (amended) – Reference to the Conceptual Framework;
IAS 16 (amended) – Property, Plant and Equipment: Proceeds
before Intended Use.
Derwent London plc Report & Accounts 2020 193
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 42. 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 external valuers as the fair value of its property portfolio. The valuation considers a range of
assumptions including future rental income, investment yields, anticipated outgoings and maintenance costs, future development
expenditure and appropriate discount rates. The external valuers also make reference to market evidence of transaction prices for similar
properties. Against the backdrop of the Covid-19 pandemic, the valuers have also considered the impact of additional rent-free periods
granted on the valuation, as well as the impact of occupiers from sectors deemed highest risk. For example, deductions equal to the rent-free
granted have been made to the valuations, being predominantly for retail units, restaurants and fitness clubs. More information is provided
in note 16.
Impairment testing of trade receivables and other financial assets
Trade receivables and accrued rental income recognised in advance of receipt are subject to impairment testing. This accrued rental
income arises due to the spreading of rent-free and reduced rent periods, capital contributions and contracted rent uplifts in accordance
with IFRS 16 Leases.
Impairment calculations have been carried out using the forward-looking, simplified approach to the expected credit loss model within
IFRS 9. Covid-19 and the resulting economic and social disruption has brought unforeseen challenges to London, the UK and the wider global
economy; it has impacted on our business and in general our overall risk profile is elevated. Due to the restrictions arising from the Covid-19
pandemic there is an increased risk of certain tenants defaulting or failing, particularly in respect to the leisure/retail/hospitality sectors.
The impact of Covid-19 has given rise to higher estimated probabilities of default for some of our occupiers, so the impairment provisions
calculated as at 31 December 2020 are higher than in previous periods (see note 20). In arriving at our estimates, we have considered the
tenants at higher risk, particularly in the retail or hospitality sectors, those in administration or CVA, the top 83 tenants by size and have also
considered the remaining balances classified by sector. The impairment provisions are included within ‘Other receivables (non-current)’
(see note 19) and ‘Trade and other receivables’ (see note 20) as shown below:
Lease incentive receivables before impairment
Impairment of lease incentive receivables
Write-off
Net lease incentive included within accrued income
Trade receivables before impairment
Impairment of trade receivables
Service charge provision
Bad debt provision released
Write-off
Net trade receivables
Impairment
Write-off
Write-off/impairment of receivables
Other receivables
(non-current)
£m
137.3
(4.6)
(0.4)
132.3
Trade and other
receivables
£m
18.9
(1.1)
(0.4)
17.4
–
–
–
–
–
–
(4.6)
(0.4)
(5.0)
31.1
(3.2)
(0.3)
0.3
(0.4)
27.5
(4.3)
(0.8)
(5.1)
Total
£m
156.2
(5.7)
(0.8)
149.7
31.1
(3.2)
(0.3)
0.3
(0.4)
27.5
(8.9)
(1.2)
(10.1)
The assessment considered the risk of tenant failures and defaults using information on tenants’ payment history, deposits held, the
latest known financial position together with forecast information where available, ongoing dialogue with tenants as well as other
information such as the sector in which they operate. Following this, tenants were classified as either low, medium or high risk and the table
below provides further information. The impairment against the lease incentive receivable balance was £5.7m and £3.2m against the trade
receivables balance.
Financial statements 194
Notes to the financial statements continued
3 Significant judgements, key assumptions and estimates (continued)
Balance before impairment
Low risk
Medium risk
High risk
Impairment
Low risk
Medium risk
High risk
Lease incentive
receivables
(non-current)
£m
Lease incentive
receivables
(current)
£m
101.8
27.5
7.6
136.9
–
(1.6)
(3.0)
(4.6)
10.4
6.0
2.1
18.5
–
(0.3)
(0.8)
(1.1)
Total
£m
112.2
33.5
9.7
155.4
–
(1.9)
(3.8)
(5.7)
Net lease incentive included within accrued income
132.3
17.4
149.7
Balance before impairment
Low risk
Medium risk
High risk
Impairment
Low risk
Medium risk
High risk
Net trade receivables
Trade
receivables
£m
14.2
7.5
9.0
30.7
–
(0.3)
(2.9)
(3.2)
27.5
All amounts included within trade receivables are current.
Borrowings and derivatives
The fair values of the Group’s borrowings and interest rate swaps are provided by an independent third party based on information provided to
them by the Group. This includes the terms of each of the financial instruments and data available in the financial markets. More information is
provided in note 24.
Significant judgements
Compliance with the real estate investment trust (REIT) taxation regime
As a REIT, the Group benefits from tax advantages. Income and chargeable gains on the qualifying property rental business are exempt
from corporation tax. Income that does not qualify as property income within the REIT rules is subject to corporation tax in the normal way.
There are a number of tests that are applied annually, and in relation to forecasts, to ensure the Group remains well within the limits allowed
within those tests.
The Group met all the criteria in 2020 with a substantial margin in each case, thereby ensuring its REIT status is maintained. The Directors
intend that the Group should continue as a REIT for the foreseeable future.
The Group has maintained its low risk rating with HMRC following continued regular dialogue and a focus on transparency and full disclosure.
Derwent London plc Report & Accounts 2020 195
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 five executive Directors and four 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 tangible assets. Reconciliations
of each of these figures to their statutory equivalents are detailed in note 39. 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 reportable segment in that its performance is monitored individually.
The Group’s property portfolio includes investment property, owner-occupied property and trading property and comprised 98% office
buildings1 by value at 31 December 2020 (2019: 97%). The Directors consider that these individual properties have similar economic
characteristics and therefore have been aggregated into a single reportable segment. The remaining 2% (2019: 3%) represented a mixture
of retail, 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/other and City borders), with the remainder in Scotland
(Provincial).
¹ Some office buildings have an ancillary element such as retail or residential.
Gross property income
West End central
West End borders/other
City borders
Provincial
Office
buildings
£m
104.3
20.4
74.9
–
199.6
2020
2019
Other
£m
0.1
–
0.5
4.5
5.1
Total
£m
104.4
20.4
75.4
4.5
204.7
Office
buildings
£m
87.3
19.3
81.1
–
187.7
Other
£m
0.1
–
0.5
4.4
5.0
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/other
City borders
Provincial
Fair value
West End central
West End borders/other
City borders
Provincial
Office
buildings
£m
2,936.7
447.9
1,738.2
–
5,122.8
2,966.2
475.4
1,781.7
–
5,223.3
2020
2019
Other
£m
45.9
–
8.0
75.9
129.8
47.4
–
8.1
76.7
132.2
Total
£m
2,982.6
447.9
1,746.2
75.9
5,252.6
3,013.6
475.4
1,789.8
76.7
5,355.5
Office
buildings
£m
2,933.6
434.8
1,860.2
–
5,228.6
2,944.1
464.2
1,912.8
–
5,321.1
Other
£m
58.0
–
7.7
84.6
150.3
60.5
–
7.7
85.9
154.1
A reconciliation between the fair value and carrying value of the portfolio is set out in note 16.
Total
£m
87.4
19.3
81.6
4.4
192.7
Total
£m
2,991.6
434.8
1,867.9
84.6
5,378.9
3,004.6
464.2
1,920.5
85.9
5,475.2
Financial statements 196
Notes to the financial statements continued
5 Property and other income
Gross rental income
Surrender premiums received
Other property income
Gross property income
Trading property sales proceeds¹
Service charge income¹
Other income¹
Gross property and other income
Gross rental income
Write–off/impairment of receivables
Service charge waiver
Service charge income1
Service charge expenses
Property costs
Net rental income
Trading property sales proceeds¹
Trading property cost of sales
Profit on trading property disposals
Other property income
Other income¹
Surrender premiums received
Write–down of trading property
Net property and other income
2020
£m
202.9
0.9
0.9
204.7
32.3
28.1
3.5
268.6
202.9
(10.1)
(4.1)
28.1
(30.9)
(2.8)
(11.6)
174.3
32.3
(27.1)
5.2
0.9
3.5
0.9
(1.8)
183.0
2019
£m
191.7
1.0
–
192.7
–
34.0
3.6
230.3
191.7
–
–
34.0
(36.1)
(2.1)
(11.6)
178.0
–
–
–
–
3.6
1.0
–
182.6
¹ In line with IFRS 15 Revenue from Contracts with Customers, the Group recognised a total £63.9m (2019: £37.6m) of other income, trading property sales proceeds and service
charge income, which relates to expenditure that is directly recoverable from tenants, within gross property and other income.
Gross rental income includes £24.0m (2019: £27.3m) relating to rents recognised in advance of cash receipts.
Other income relates to fees and commissions earned from tenants 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.
The write-off/impairment of receivables in the year ended 31 December 2020 of £10.1m includes £1.2m of receivable balances written off, a
£0.3m service charge provision and an impairment charge of £8.6m, £2.9m of which relates to trade receivables and £5.7m to lease incentive
receivables. The impairment has been carried out using the expected credit loss model within IFRS 9 Financial Instruments (see note 3 for
additional information). Included in this provision is a charge of £1.1m against trade receivables relating to rental income for the 25 December
2020 quarter day. Most of this income is deferred and has not yet been recognised in the income statement. A 10% increase/decrease to the
absolute probability rates of tenant default in the year would result in a £4.4m increase and £3.3m decrease respectively, in the Group’s loss
for the year. This sensitivity has been performed on the medium to high risk tenants as the significant estimation uncertainty is wholly related
to these (see note 3).
In response to Covid-19, a 25% waiver of two quarters’ service charge was given to support occupiers across the whole portfolio at a cost of
£4.1m to the Group in the year to 31 December 2020.
Derwent London plc Report & Accounts 2020 6 Profit on disposal
Investment property
Gross disposal proceeds
Costs of disposal
Net disposal proceeds
Carrying value
Adjustment for lease costs and rents recognised in advance
Profit on disposal of investment property
Artwork
Gross disposal proceeds
Carrying value
Profit on disposal of artwork
Profit on disposal
197
2019
£m
155.2
(1.9)
153.3
(136.8)
(3.3)
13.2
1.2
(0.6)
0.6
2020
£m
120.9
(0.6)
120.3
(118.6)
–
1.7
–
–
–
1.7
13.8
In February 2020, the Group completed the disposal of the long leasehold interest in 40 Chancery Lane WC2 for £120.1m after rental top-ups.
In 2019, gross disposal proceeds included £150.7m after rental top-ups from the disposal of Premier House SW1 and The Buckley Building EC1.
7 Finance income and total finance costs
Finance income
Bank interest receivable
Other
Finance income
Finance costs
Bank loans
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
Obligations under headleases
Other
Gross interest costs
Less: interest capitalised
Finance costs
Loan arrangement costs written off
Bond redemption premium
Total finance costs
2020
£m
0.2
–
0.2
2.3
1.7
3.9
11.4
15.6
3.3
2.2
(1.3)
0.9
0.2
40.2
(9.9)
30.3
0.1
–
30.4
2019
£m
–
0.2
0.2
2.1
2.1
3.9
11.4
15.0
3.3
2.2
(1.2)
0.7
0.2
39.7
(13.0)
26.7
0.1
7.7
34.5
Finance costs of £9.9m (2019: £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 2020 were £38.2m (2019: £34.8m) of which
£9.9m (2019: £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
The Group incurred costs of £1.7m in the year to 31 December 2020 (2019: £2.7m) deferring or terminating interest rate swaps.
Financial statements 198
Notes to the financial statements continued
9 Share of results of joint ventures
Profit on disposal of investment property
Other profit from operations after tax
See note 18 for further details of the Group’s joint ventures.
10 (Loss)/profit before tax
This is arrived at after charging:
Depreciation
Contingent rent payable under headleases
Auditor’s remuneration
Audit – Group
Audit – subsidiaries
2020
£m
–
–
–
2020
£m
0.7
1.1
0.4
0.1
2019
£m
1.7
0.2
1.9
2019
£m
0.7
1.5
0.4
0.1
In 2020, audit fees for the Group were £329,634 (2019: £310,708) and for the subsidiaries £77,500 (2019: £63,500). Fees for non-audit services,
relating to the half year review, were £43,705 (2019: £42,432).
Details of the Auditor’s independence are included on pages 136 to 137.
11 Directors’ emoluments
Remuneration for management services
Share based payments
Post-employment benefits
National insurance contributions
2020
£m
5.2
3.3
0.6
9.1
1.3
10.4
2019
£m
6.2
2.9
0.7
9.8
1.4
11.2
An amount of £4.2m (2019: £2.8m) relating to the Directors is included within the £5.8m (2019: £4.6m) for Share-based payments expense
relating to equity-settled schemes in note 12. This is in accordance with IFRS 2 Share-based Payment.
Details of the Directors’ remuneration awards under the long-term incentive plan and options held by the Directors under the Group share
option schemes are given in the report of the Remuneration Committee on pages 150 to 170. 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
2020
£m
18.5
2.7
2.2
5.8
29.2
2019
£m
18.5
2.6
2.1
4.6
27.8
Company
2020
£m
18.5
2.6
2.1
5.7
28.9
2019
£m
18.4
2.5
2.1
4.5
27.5
The monthly average number of employees in the Group during the year, excluding Directors, was 132 (2019: 116). The monthly average number
of employees in the Company during the year, excluding Directors, was 114 (2019: 104). All were employed in administrative or support roles.
Of the Group’s employees, there were 17 (2019: 13) whose costs were recharged or partially recharged to tenants via service charges.
Derwent London plc Report & Accounts 2020 199
13 Share-based payments
Details of the options held by Directors under the Performance Share Plan (PSP) are given in the report of the Remuneration Committee
on pages 162 to 163.
Group and Company – equity-settled option scheme
The Employee Share Option Plan (ESOP) is designed to incentivise and retain eligible employees. The ESOP is separate to the PSP disclosed
in the report of the Remuneration Committee. The Directors are not entitled to any awards under the ESOP.
Year of grant
For the year to 31 December 2020
2013
2014
2015
2016
2017
2018
2019
2020
For the year to 31 December 2019
2011
2012
2013
2014
2015
2016
2017
2018
2019
Exercise
price
£
Adjusted
exercise price1
£
Outstanding
at
1 January
Movement in options
Granted
Exercised
Lapsed
Outstanding
at
31 December
17.19
21.99
27.39
34.65
31.20
28.93
30.29
32.43
16.60
17.19
21.99
27.39
34.65
31.20
28.93
30.29
32.43
16.49
21.09
26.27
33.23
29.93
27.75
29.57
32.43
16.60
16.49
21.09
26.27
33.23
29.93
27.75
29.57
32.43
4,158
20,234
44,214
47,154
113,986
118,176
135,850
–
483,772
200
13,455
37,422
53,739
63,975
88,591
124,584
132,978
–
514,944
–
–
–
–
–
–
–
174,300
174,300
–
–
–
–
–
–
–
–
142,900
142,900
–
(1,584)
(740)
(8,757)
(11,680)
–
–
–
(22,761)
(200)
(13,455)
(33,264)
(33,505)
(13,519)
(39,377)
–
–
–
(133,320)
–
–
–
–
(2,860)
(3,942)
(6,275)
(1,825)
(14,902)
–
–
–
–
(6,242)
(2,060)
(10,598)
(14,802)
(7,050)
(40,752)
4,158
18,650
43,474
38,397
99,446
114,234
129,575
172,475
620,409
–
–
4,158
20,234
44,214
47,154
113,986
118,176
135,850
483,772
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
2020
31 December
2019
1 January
2019
204,125
416,284
115,760
368,012
168,791
346,153
£29.23
£30.66
£30.39
£30.14
£27.14
£29.15
5.29 years
8.36 years
5.41 years
8.30 years
5.26 years
8.38 years
£27.81
£31.14
£32.54
£29.74
£33.26
£28.85
¹
In 2018, following the payment of the special dividend of 75 pence per share, 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 2020 was £34.82 (2019: £36.08).
The weighted average fair value of options granted during 2020 was £6.27 (2019: £6.87).
Financial statements 200
Notes to the financial statements continued
13 Share-based payments (continued)
The following information is relevant in the determination of the fair value of the options granted during 2020 and 2019 under the equity-settled
employee share plan operated by the Group.
Option pricing model used
Risk free interest rate
Volatility
Dividend yield
2020
Binomial lattice
0.2%
26.0%
2.4%
2019
Binomial lattice
0.9%
24.0%
2.0%
For both the 2020 and 2019 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 last four years.
Group and Company – Save As You Earn scheme
The Save As You Earn (SAYE) scheme is designed to allow employees (including Directors) to purchase shares in the Company in a tax efficient
manner. The SAYE plan is an HMRC approved scheme. Employees can participate on an annual basis and save up to £250 per month per
grant. Further details are given in the report of the Remuneration Committee on pages 162 and 163.
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 £2.0m (2019: £1.9m).
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 past employees. The Scheme closed to future benefit accrual on 31 July 2019.
The level of retirement benefit is principally based on basic salary at the last scheme anniversary of employment prior to leaving active service
and increases at 5% pa in deferment.
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 2019 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 £7.3m. The Company agreed with the trustees that it will aim to eliminate the deficit over a period of
5 years and 2 months from 31 October 2019 by the payment of a contribution of £0.9m by 31 December 2019, followed by annual contributions
of £1.4m payable by each 31 December from 31 December 2020 to 31 December 2024 inclusive. In addition, the Company has agreed with the
trustees that the Company will meet expenses of running the Scheme and levies to the Pension Protection Fund separately. The estimated
amount of total employer contributions expected to be paid to the Scheme during the year to 31 December 2021 is £1.4m (31 December 2020
actual: £1.4m).
For the purposes of IAS 19 the actuarial valuation as at 31 October 2019, which was carried out by a qualified independent actuary, has been
updated on an approximate basis to 31 December 2020.
Derwent London plc Report & Accounts 2020 Amounts included in the balance sheet
Fair value of plan assets
Present value of defined benefit obligation
Net (liability)/asset
201
2018
£m
49.1
(48.8)
0.3
2020
£m
66.6
(68.8)
(2.2)
2019
£m
53.9
(53.4)
0.5
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.
The value calculated in this way is reflected in the net (liability)/asset in the balance sheet as shown above.
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
We have considered the application of IFRIC 14 and deemed it to have no material effect on the IAS 19 figures.
Reconciliation of the opening and closing present value of the defined benefit obligation
At 1 January
Current service cost
Interest cost
Actuarial losses due to scheme experience
Actuarial losses/(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 opening and closing values of the fair value of 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 a gain of £13.9m (2019: gain of £6.4m).
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
(Loss)/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
Fair value of plan assets
UK equities
Overseas equities
Government bonds
Cash
Other
Insured assets
Total assets
2020
£m
0.5
0.5
4.8
0.2
15.1
45.5
66.6
2020
£m
53.4
–
1.1
6.4
1.6
8.9
(2.6)
68.8
2020
£m
53.9
1.1
12.8
1.4
(2.6)
66.6
2020
£m
–
2020
£m
12.8
(6.4)
(1.6)
(8.9)
(4.1)
2019
£m
0.5
0.5
3.0
0.5
14.0
35.4
53.9
2019
£m
48.8
0.1
1.4
–
(0.6)
6.2
(2.5)
53.4
2019
£m
49.1
1.4
5.0
0.9
(2.5)
53.9
2019
£m
0.1
2019
£m
5.0
–
0.6
(6.2)
(0.6)
2018
£m
0.4
0.4
2.7
–
11.5
34.1
49.1
Financial statements 202
Notes to the financial statements continued
14 Pension costs (continued)
The £15.1m (2019: £14.0m) in the ‘other’ asset class is made up of holdings of £9.6m (2019: £9.0m) in equity-linked gilt funds and £5.5m
(2019: £5.0m) in absolute return funds.
The Scheme’s assets are held exclusively within instruments with quoted market prices in an active market with the exception of the
holdings in insurance policies and the trustee’s bank account. The insured assets have been set equal to the value of the insured liabilities
but before allowance has been made for the impact of equalising benefits for the different effects of GMP for males and females.
The Scheme does not invest directly in property occupied by the Group or in financial securities issued by the Group.
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 2020.
There are no asset-liability matching strategies currently being used by the plan.
Significant actuarial assumptions
Discount rate
Inflation (RPI)
Salary increases
Allowance for commutation of pension for cash at retirement
2020
%
1.2
n/a
n/a
75% of Post A
Day Pension
2019
%
2.1
n/a
n/a
75% of Post A
Day Pension
2018
%
2.9
3.2
4.7
75% of Post A
Day Pension
The mortality assumptions adopted at 31 December 2020 are 85% of the standard tables S3NXA_L, year of birth, no age rating for males and
females, projected using CMI 2019 converging to 1.25% p.a. These imply the following life expectancies:
Life expectancy at age 65
Male retiring in 2020
Female retiring in 2020
Male retiring in 2040
Female retiring in 2040
Years
24.8
26.4
26.1
27.7
Analysis of the sensitivity to the principal assumptions of the present value of the defined benefit obligation
Discount rate
Rate of mortality
Change in assumption
Decrease of 0.25% p.a.
Increase in life expectancy of one year
Change in liabilities
Increase by 4.0%
Increase by 6.0%
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 2020 is 16 years for the Scheme as a whole or 26 years when only considering non-
insured members.
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 2021 is £1.4m.
Derwent London plc Report & Accounts 2020 15 Tax (credit)/charge
Corporation tax
UK corporation tax and income tax in respect of results 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)/charge
Tax (credit)/charge
203
2019
£m
1.0
0.7
1.7
0.8
–
0.8
2.5
2020
£m
0.8
(0.6)
0.2
(2.0)
0.2
(1.8)
(1.6)
In addition to the tax credit of £1.6m (2019: charge of £2.5m) that passed through the Group income statement, a deferred tax charge of charge
of £0.2m (2019: credit of £0.1m) 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 2020 is lower (2019: lower) than the standard rate of corporation tax in the UK. The differences are explained below:
(Loss)/profit before tax
Expected tax (credit)/charge based on the standard rate of corporation tax in the UK of 19.00% (2019: 19.00%)¹
Difference between tax and accounting profit on disposals
REIT exempt income
Revaluation deficit/(surplus) attributable to REIT properties
Expenses and fair value adjustments not allowable for tax purposes
Capital allowances
Other differences
Tax (credit)/charge in respect of (loss)/profit for the year
Adjustments in respect of prior years’ tax
Tax (credit)/charge
2020
£m
(83.0)
(15.8)
1.2
(14.7)
36.6
(1.3)
(5.3)
(1.7)
(1.0)
(0.6)
(1.6)
2019
£m
280.6
53.3
(2.6)
(11.2)
(29.2)
(4.4)
(5.5)
1.4
1.8
0.7
2.5
¹ Changes to the UK corporation tax rates were substantively enacted as part of the Finance Bill 2015 (on 26 October 2015) and include reducing the main rate to 19%. The reduction to
17% from 1 April 2020 enacted as part of the Finance Bill 2016 has been cancelled as announced in the Budget on 11 March 2020, maintaining the rate of corporation tax at 19%.
Deferred taxes at the balance sheet date have been measured using the expected enacted tax rate and this is reflected in these financial statements.
Financial statements 204
Notes to the financial statements continued
16 Property portfolio
Group
Carrying value
At 1 January 2020
Acquisitions
Capital expenditure
Interest capitalisation
Additions
Disposals
Transfers
Revaluation
Write-down of trading property
Transfer from prepayments and accrued income
Movement in grossing up of headlease liabilities
At 31 December 2020
At 1 January 2019
Acquisitions
Capital expenditure
Interest capitalisation
Additions
Disposals
Transfers
Revaluation
Transfer from prepayments and accrued income
Movement in grossing up of headlease liabilities
At 31 December 2019
Adjustments from fair value to carrying value
At 31 December 2020
Fair value
Selling costs relating to assets held for sale
Revaluation of trading property
Lease incentives and costs included in receivables
Grossing up of headlease liabilities
Carrying value
At 31 December 2019
Fair value
Selling costs relating to assets held for sale
Revaluation of trading property
Lease incentives and costs included in receivables
Grossing up of headlease liabilities
Carrying value
Freehold
£m
Leasehold
£m
Total
investment
property
£m
Owner-
occupied
property
£m
Assets
held for
sale
£m
Trading
property
£m
Total
property
portfolio
£m
4,121.2
43.5
64.1
4.6
112.2
–
(161.2)
(178.7)
–
–
–
3,893.5
4,034.1
21.0
110.7
7.7
139.4
(137.1)
–
84.8
–
–
4,121.2
4,037.0
–
–
(143.5)
–
3,893.5
4,257.7
–
–
(136.5)
–
4,121.2
1,053.1
–
87.8
5.1
92.9
–
–
(17.4)
–
–
7.0
1,135.6
994.1
11.0
76.8
4.5
92.3
0.3
(107.0)
71.6
–
1.8
1,053.1
1,091.6
–
–
(22.5)
66.5
1,135.6
1,010.2
–
–
(16.6)
59.5
1,053.1
5,174.3
43.5
151.9
9.7
205.1
–
(161.2)
(196.1)
–
–
7.0
5,029.1
5,028.2
32.0
187.5
12.2
231.7
(136.8)
(107.0)
156.4
–
1.8
5,174.3
5,128.6
–
–
(166.0)
66.5
5,029.1
5,267.9
–
–
(153.1)
59.5
5,174.3
45.3
–
(0.1)
–
(0.1)
–
–
0.4
–
–
–
45.6
47.0
–
0.1
–
0.1
–
–
(1.8)
–
–
45.3
45.6
–
–
–
–
45.6
45.3
–
–
–
–
45.3
118.6
–
–
–
–
(118.6)
161.2
–
–
3.8
–
165.0
–
–
–
–
–
–
107.0
–
14.6
(3.0)
118.6
167.0
(2.0)
–
–
–
165.0
119.0
(0.4)
–
–
–
118.6
40.7
–
0.1
0.2
0.3
(26.3)
–
–
(1.8)
–
–
12.9
36.3
–
3.6
0.8
4.4
–
–
–
–
–
40.7
14.3
–
(1.4)
–
–
12.9
43.0
–
(2.3)
–
–
40.7
5,378.9
43.5
151.9
9.9
205.3
(144.9)
–
(195.7)
(1.8)
3.8
7.0
5,252.6
5,111.5
32.0
191.2
13.0
236.2
(136.8)
–
154.6
14.6
(1.2)
5,378.9
5,355.5
(2.0)
(1.4)
(166.0)
66.5
5,252.6
5,475.2
(0.4)
(2.3)
(153.1)
59.5
5,378.9
Derwent London plc Report & Accounts 2020
205
The property portfolio is subject to semi-annual external valuations and was revalued at 31 December 2020 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. There were no such instances in the year.
CBRE Limited valued properties at £5,324.5m (2019: £5,443.0m) and other valuers at £31.0m (2019: £32.2m), giving a combined value of
£5,355.5m (2019: £5,475.2m). Of the properties revalued by CBRE, £45.6m (2019: £45.3m) relating to owner-occupied property was included
within property, plant and equipment and £14.3m (2019: £43.0m) 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.
The Group published its pathway to net zero carbon in July 2020 and has set 2030 as its target date to achieve this. £103.2m of capital
expenditure was incurred in 2020 on our major developments at 80 Charlotte Street W1, Soho Place W1 and The Featherstone Building EC1.
As these have met the criteria to be eligible qualifying projects under our Green Finance Framework, we have utilised the green tranche of
our £450m revolving credit facility (more information can be found on page 79). In addition, the Group has invested in carbon credits to support
externally validated green projects to offset the embodied carbon in our developments.
Following exchange of contracts in December 2020 for the sale of its freehold interest in Johnson Building EC1, the Group transferred
£161.2m from investment property to assets held for sale. This subsequently completed in January 2021. A revaluation deficit of £9.5m
relating to the asset held for sale is included within the revaluation deficit of £196.1m.
Reconciliation of revaluation (deficit)/surplus
Total revaluation (deficit)/surplus
Less:
Lease incentives and costs
Assets held for sale selling costs
Trading property revaluation surplus
IFRS revaluation (deficit)/surplus
Reported in the:
Revaluation (deficit)/surplus
Write-down of trading property
Group income statement
Group statement of comprehensive income
2020
£m
(178.5)
(16.7)
(2.0)
(0.3)
(197.5)
(196.1)
(1.8)
(197.9)
0.4
(197.5)
2019
£m
188.5
(32.2)
(0.4)
(1.3)
154.6
156.4
–
156.4
(1.8)
154.6
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.
Financial statements 206
Notes to the financial statements continued
16 Property portfolio (continued)
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 2020 or 2019.
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 deficit of £196.1m (2019: gain of £156.4m) and are presented in the Group income statement in the line item ‘revaluation (deficit)/surplus’.
The revaluation surplus for the owner-occupied property of £0.4m (2019: deficit of £1.8m) was included within the Group statement of
comprehensive income.
All gains and losses recorded in profit or loss in 2020 and 2019 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 2020 and
31 December 2019, respectively.
Quantitative information about fair value measurement using unobservable inputs (Level 3)
Valuation technique
Fair value (£m)
Area ('000 sq ft)
Range of unobservable inputs¹:
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
Total
5,355.5
5,564
West End
central
Income
capitalisation
West End
borders/other
Income
capitalisation
City
borders
Income
capitalisation
Provincial
commercial
Income
capitalisation
Provincial
land
Income
capitalisation
3,013.6
2,758
475.4
554
1,789.8
1,905
£19
£134
£59
0.0%
6.5%
2.7%
2.6%
10.9%
4.8%
1.5%
5.5%
4.6%
£43
£59
£49
1.9%
6.3%
4.6%
3.4%
8.5%
5.4%
3.3%
5.3%
5.0%
£32
£63
£52
1.9%
4.9%
3.9%
3.4%
5.8%
5.0%
3.6%
5.2%
4.8%
45.1
347
£4
£13
£14
8.6%
22.1%
8.8%
8.3%
22.1%
9.2%
8.6%
20.2%
8.8%
31.6
–
n/a2
n/a2
n/a2
0.0%
10.0%
2.4%
0.0%
9.4%
1.4%
9.7%
11.0%
10.5%
¹ Costs to complete are not deemed a significant unobservable input by virtue of the high percentage that is already fixed.
² There is no calculation of gross ERV per sq ft pa. The land totals 5,500 acres.
Derwent London plc Report & Accounts 2020 207
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.
Against the increased economic uncertainty of the pandemic, a sensitivity analysis has been performed to ascertain the impact of a 25 basis
point shift in true equivalent yield and a £2.50 per sq ft shift in ERV on the property valuations. The Group believes this captures the range of
variations in these key valuation assumptions. The results are shown in the tables below:
True equivalent yield
+25bp
-25bp
ERV
+£2.50 psf
-£2.50 psf
Historical cost
Investment property
Owner-occupied property
Assets held for sale
Trading property
Total property portfolio
West End
central
West End
borders/other
City
borders
Provincial
commercial
Provincial
land
(5.2%)
5.7%
4.2%
(4.2%)
(4.8%)
5.3%
5.1%
(5.1%)
(5.0%)
5.5%
4.8%
(4.8%)
(2.8%)
2.9%
17.9%
(17.9%)
(2.3%)
2.4%
–
–
2020
£m
3,149.2
19.6
65.7
22.6
3,257.1
Total
(5.1%)
5.6%
4.7%
(4.7%)
2019
£m
3,009.7
19.7
76.2
48.6
3,154.2
Financial statements
208
Notes to the financial statements continued
17 Property, plant and equipment
Owner-
occupied
property
£m
Right-of-use
asset
£m
Artwork
£m
Other
£m
Group
At 1 January 2020
Additions
Depreciation
Revaluation
At 31 December 2020
At 1 January 2019
Additions
Disposals
Depreciation
Revaluation
At 31 December 2019
Net book value
Cost or valuation
Accumulated depreciation
At 31 December 2020
Net book value
Cost or valuation
Accumulated depreciation
At 31 December 2019
Company
At 1 January 2020
Additions
Depreciation
At 31 December 2020
At 1 January 2019
Adjustment on transition to IFRS 16
Additions
Depreciation
At 31 December 2019
Net book value
Cost or valuation
Accumulated depreciation
At 31 December 2020
Net book value
Cost or valuation
Accumulated depreciation
At 31 December 2019
45.3
(0.1)
–
0.4
45.6
47.0
0.1
–
–
(1.8)
45.3
45.6
–
45.6
45.3
–
45.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
20.4
–
(1.2)
19.2
–
21.6
–
(1.2)
20.4
21.6
(2.4)
19.2
21.6
(1.2)
20.4
1.0
–
–
–
1.0
1.6
–
(0.6)
–
–
1.0
1.0
–
1.0
1.0
–
1.0
1.0
–
–
1.0
1.0
–
–
–
1.0
1.0
–
1.0
1.0
–
1.0
3.9
0.4
(0.7)
–
3.6
4.5
0.2
(0.1)
(0.7)
–
3.9
7.3
(3.7)
3.6
6.9
(3.0)
3.9
3.8
0.4
(0.7)
3.5
4.4
–
0.2
(0.8)
3.8
7.3
(3.8)
3.5
6.9
(3.1)
3.8
Total
£m
50.2
0.3
(0.7)
0.4
50.2
53.1
0.3
(0.7)
(0.7)
(1.8)
50.2
53.9
(3.7)
50.2
53.2
(3.0)
50.2
25.2
0.4
(1.9)
23.7
5.4
21.6
0.2
(2.0)
25.2
29.9
(6.2)
23.7
29.5
(4.3)
25.2
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 May 2018 and, after allowing for the artwork disposal in 2019, 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 historical cost of the artwork in the Group at 31 December 2020 was £1.0m (2019: £1.0m) and £1.0m (2019: £1.0m) in the Company.
See note 16 for the historical cost of owner-occupied property and IFRS 13 Fair Value Measurement disclosures.
Derwent London plc Report & Accounts 2020 18 Investments
Group
Although the respective property interests have now been disposed of, the Group has a continuing 50% interest in three joint venture vehicles,
Dorrington Derwent Holdings Limited, Primister Limited and Prescot Street Limited Partnership.
209
At 1 January
Share of results of joint ventures (see note 9)
Additions
Repayment of shareholder loan
Distributions received
At 31 December
2020
£m
1.3
–
–
–
(0.4)
0.9
2019
£m
29.1
1.9
0.6
(21.3)
(9.0)
1.3
The Group’s share of its investments in joint ventures is represented by the following amounts in the underlying joint venture entities.
Current assets
Current liabilities
Net assets
Loans provided to joint ventures
Total investment in joint ventures
Income
Expenses
Profit for the year
Company
At 1 January 2019
Additions
At 31 December 2019
Additions
Impairment
At 31 December 2020
2020
2019
Joint ventures
£m
1.2
(0.7)
0.5
Group share
£m
0.6
(0.3)
0.3
0.6
0.9
Joint ventures
£m
2.1
(0.7)
1.4
Group share
£m
1.1
(0.4)
0.7
0.6
1.3
–
–
–
–
–
–
3.9
(0.1)
3.8
1.9
–
1.9
Subsidiaries
£m
1,226.4
323.8
1,550.2
113.0
(47.3)
1,615.9
Joint ventures
£m
–
–
–
–
–
–
Total
£m
1,226.4
323.8
1,550.2
113.0
(47.3)
1,615.9
At 31 December 2020, the carrying values 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.
Financial statements 210
Notes to the financial statements continued
19 Other receivables (non-current)
Prepayments and accrued income
Group
2020
£m
146.4
2019
£m
134.4
Company
2020
£m
–
2019
£m
–
Prepayments and accrued income include £132.3m (2019: £119.7m) after impairments (see note 3) relating to rents recognised in advance as a
result of spreading tenant lease incentives over the expected terms of their respective leases. This includes rent-free and reduced rent
periods, capital contributions in lieu of rent-free periods and contracted rent uplifts. In addition, £14.1m (2019: £14.7m) relates to the spreading
effect of the initial direct costs of letting over the same term. Together with £19.6m (2019: £18.7m), which was included as accrued income
within trade and other receivables (see note 20), these amounts totalled £166.0m at 31 December 2020 (2019: £153.1m).
The total movement in tenant lease incentives is shown below:
At 1 January
Amounts taken to income statement
Capital incentives granted
Lease incentive impairment
Adjustment for non-current asset held for sale
Disposal of investment properties
Write off to bad debt
Amounts included in trade and other receivables (see note 20)
At 31 December
20 Trade and other receivables
Trade receivables
Amounts owed by subsidiaries
Other receivables
Prepayments
Other taxes
Accrued income
Group trade receivables are split as follows:
less than three months due
between three and six months due
between six and twelve months due
2020
£m
135.9
23.0
0.5
(5.7)
(3.2)
–
(0.8)
149.7
(17.4)
132.3
Company
2020
£m
–
1,659.4
0.8
22.0
–
0.1
1,682.3
2020
£m
17.4
3.5
6.6
27.5
2019
£m
123.5
27.3
1.8
–
(13.9)
(2.8)
–
135.9
(16.2)
119.7
2019
£m
–
1,651.7
1.3
23.0
0.5
0.1
1,676.6
2019
£m
7.8
0.1
–
7.9
Group
2020
£m
27.5
–
4.1
22.6
–
22.0
76.2
2019
£m
7.9
–
4.4
20.6
–
25.7
58.6
Group trade receivables at 31 December 2020 increased due to a delay in tenant rent payments resulting from the impact of Covid-19.
As a result, the expected credit loss assessment under IFRS 9 (see note 3) resulted in a higher impairment provision.
Amounts owed by subsidiaries are unsecured, have no fixed date of repayment and are repayable on demand. These balances have been
considered as part of the full expected credit loss assessment under IFRS 9. In light of the subsidiaries’ financial position the impairments
are deemed immaterial.
Derwent London plc Report & Accounts 2020
The Group has £9.3m of provision for bad debts as shown below. £3.6m are included in trade receivables, £1.1m in accrued income and
£4.6m in prepayments and accrued income within other receivables (non-current) (note 19).
Provision for bad debts
At 1 January
Trade receivables provision
Lease incentive provision
Service charge provision
Released
At 31 December
The provision for bad debts are split as follows:
less than three months due
between three and six months due
between six and twelve months due
greater than twelve months due
21 Non-current assets held for sale
Transferred from investment properties (see note 16)
Transferred from prepayments and accrued income
Movement in grossing up of headlease liabilities
2020
£m
0.4
3.2
5.7
0.3
(0.3)
9.3
3.2
0.5
1.0
4.6
9.3
2020
£m
161.2
3.8
–
165.0
211
2019
£m
0.3
0.1
–
–
–
0.4
0.4
–
–
–
0.4
2019
£m
107.0
14.6
(3.0)
118.6
In December 2020, the Group exchanged contracts for the sale of its freehold interest in Johnson Building EC1. The property was valued at
£167.0m at 31 December 2020. In accordance with IFRS 5 Non-current Assets Held for Sale, this property was recognised as a non-current
asset held for sale and, after deducting selling costs of £2.0m, the carrying value was £165.0m (see note 16).
22 Trade and other payables
Trade payables
Amounts owed to subsidiaries
Other payables
Other taxes
Accruals
Deferred income
Deferred income primarily relates to rents received in advance.
Group
2020
£m
2.5
–
21.2
4.0
32.0
47.0
106.7
2019
£m
7.2
–
19.8
2.1
38.6
44.8
112.5
Company
2020
£m
0.2
1,055.3
0.3
0.8
16.2
0.1
1,072.9
2019
£m
0.2
972.6
0.4
–
14.6
0.2
988.0
Financial statements
212
Notes to the financial statements continued
23 Provisions
At 1 January 2020
Provided in the income statement
Utilised in year
At 31 December 2020
Due within one year
Due after one year
At 1 January 2019
Provided in the income statement
Provided in reserves
Utilised in year
At 31 December 2019
Due within one year
Due after one year
Group
£m
2.4
0.2
(1.6)
1.0
0.6
0.4
1.0
0.6
1.4
1.0
(0.6)
2.4
0.9
1.5
2.4
Company
£m
2.4
0.2
(1.6)
1.0
0.6
0.4
1.0
0.6
1.4
1.0
(0.6)
2.4
0.9
1.5
2.4
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.
In 2019, both the Group and the Company also included a provision for deferred shares in respect of the Directors’ 2019 bonus that was
granted in 2020.
Derwent London plc Report & Accounts 2020 24 Net debt and derivative financial instruments
Non-current liabilities
1.5% unsecured convertible bonds 2025
6.5% secured bonds 2026
2.68% unsecured private placement notes 2026
3.46% unsecured private placement notes 2028
4.41% unsecured private placement notes 2029
2.87% unsecured private placement notes 2029
2.97% unsecured private placement notes 2031
3.57% unsecured private placement notes 2031
3.09% unsecured private placement notes 2034
4.68% unsecured private placement notes 2034
3.99% secured loan 2024
Unsecured bank loans
Secured bank loan
Intercompany loan
Borrowings
Leasehold liabilities
Derivative financial instruments expiring in greater than one year
Gross debt
Reconciliation to net debt:
Gross debt
Derivative financial instruments
Cash and cash equivalents
Net debt
213
2019
£m
–
–
54.7
29.9
24.8
92.5
49.8
74.6
51.7
74.4
82.1
65.0
–
164.5
764.0
26.4
3.7
794.1
794.1
(3.7)
(54.0)
736.4
Group
2020
£m
166.4
183.6
54.8
29.9
24.9
92.6
49.8
74.6
51.8
74.5
82.3
120.1
27.9
–
2019
£m
164.5
184.8
54.7
29.9
24.8
92.5
49.8
74.6
51.7
74.4
82.1
65.0
27.8
–
1,033.2
976.6
66.6
5.6
59.5
3.7
1,105.4
1,039.8
1,105.4
1,039.8
(5.6)
(50.7)
1,049.1
(3.7)
(54.5)
981.6
Company
2020
£m
–
–
54.8
29.9
24.9
92.6
49.8
74.6
51.8
74.5
82.3
120.1
–
166.4
821.7
25.3
5.6
852.6
852.6
(5.6)
(50.1)
796.9
1.125% unsecured convertible bonds 2019
In July 2013 the Group issued £150m of convertible bonds. The unsecured instruments paid a coupon of 1.125%, had a conversion price of
£31.43 and maturity date of July 2019. In June 2019, the Group redeemed £147.7m of the bonds at a premium of £8.5m and the outstanding
£2.3m of bonds were repaid to the bondholders on maturity.
1.5% unsecured convertible bonds 2025
In June 2019 the Group issued £175m of convertible bonds. The unsecured instruments pay a coupon of 1.5% until June 2025 or the conversion
date, if earlier. The initial conversion price was set at £44.96 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 2.3%. As a result, £167.3m was recognised as a liability in the balance sheet on issue and the
remainder of the proceeds, £7.7m, which represents 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 £4.0m 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 £0.2m have not been amortised. The fair value was determined by the ask-price of £102.90 per £100 as at
31 December 2020 (2019: £109.10 per £100). The carrying value at 31 December 2020 was £166.4m (2019: £164.5m).
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
175.0
(7.7)
167.3
(2.8)
1.9
166.4
Financial statements 214
Notes to the financial statements continued
24 Net debt and derivative financial instruments (continued)
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 2020 was determined by the ask-price of £125.90 per £100 (2019: £127.30 per £100). The carrying value at 31 December
2020 was £183.6m (2019: £184.8m).
2.68% unsecured private placement notes 2026, 2.87% unsecured private placement notes 2029, 2.97% unsecured private placement
notes 2031 and 3.09% unsecured private placement notes 2034
In October 2018, the Group arranged unsecured private placement notes, comprising £55m for 7 years, £93m for 10 years, £50m for 12 years
and £52m for 15 years. The funds were drawn on 31 January 2019. The fair values were determined by comparing the discounted future cash
flows using the contracted yields with those of reference gilts plus implied margins. The references were a 2% 2025 gilt, 1.625% 2028 gilt,
4.75% 2030 gilt and a 4.25% 2032 gilt all with an implied margin which is unchanged since the date of fixing. The carrying values at
31 December 2020 were £54.8m (2019: £54.7m), £92.6m (2019: £92.5m), £49.8m (2019: £49.8m) and £51.8m (2019: £51.7m), respectively.
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 reference gilts plus 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 2020 were £29.9m (2019: £29.9m) and £74.6m (2019: £74.6m),
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 reference gilts plus 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 2020 were £24.9m (2019: £24.8m) and £74.5m (2019: £74.4m),
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 2020 was £82.3m
(2019: £82.1m).
Bank borrowings
In November 2020, a new fully revolving £100m minimum five-year unsecured loan facility was completed. An existing £75m facility from the
same lender was cancelled at the same time.
In October 2019, the main corporate £450m revolving credit facility was amended to include a £300m ‘green tranche’ and extended out to
2024. In 2020, the maturity of this facility was extended by one year to 2025.
As all main corporate facilities were refinanced or amended in 2019 and 2020, 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.
Undrawn committed bank facilities – maturity profile
Group
At 31 December 2020
At 31 December 2019
Company
At 31 December 2020
At 31 December 2019
< 1
year
£m
–
–
–
–
1 to 2
years
£m
–
–
–
–
2 to 3
years
£m
–
68.5
–
68.5
3 to 4
years
£m
–
–
–
–
4 to 5
years
£m
425.0
388.0
425.0
388.0
> 5
years
£m
–
–
–
–
Total
£m
425.0
456.5
425.0
456.5
Derwent London plc Report & Accounts 2020 215
Intercompany loans
The terms of the intercompany loan in the Company mirror those of the unsecured convertible bonds 2025. 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 2020 was £166.4m (2019: £164.5m).
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 2020 for the period to the
contracted expiry dates.
The Group has a £40m forward starting interest rate swap effective from 15 January 2021, and a £75m forward starting interest rate swap
effective from 4 January 2021. These swaps are not included in the 31 December 2020 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.
Group
Weighted
average
interest rate
%
Principal
£m
Average life
Years
Principal
£m
Company
Weighted
average
interest rate
%
Average life
Years
At 31 December 2020
Interest rate swaps
At 31 December 2019
Interest rate swaps
Secured and unsecured debt
Secured
6.5% secured bonds 2026
3.99% secured loan 2024
Secured bank loans
Unsecured
1.5% unsecured convertible bonds 2025
Unsecured private placement notes 2026 – 2034
Unsecured bank loans
Intercompany loans
–
–
–
28.0
0.88
0.2
Group
2020
£m
183.6
82.3
27.9
293.8
166.4
452.9
120.1
–
739.4
–
–
2019
£m
184.8
82.1
27.8
294.7
164.5
452.4
65.0
–
681.9
–
–
Company
2020
£m
–
82.3
–
82.3
–
452.9
120.1
166.4
739.4
–
–
2019
£m
–
82.1
–
82.1
–
452.4
65.0
164.5
681.9
Borrowings
1,033.2
976.6
821.7
764.0
At 31 December 2020, the Group’s secured bank loan and the 3.99% secured loan 2024 were secured by a fixed charge over £105.2m
(2019: £105.7m) and £304.5m (2019: £311.6m), respectively, 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 £616.5m (2019: £634.5m) of the Group’s properties.
At 31 December 2020, the Company’s 3.99% secured loan 2024 was secured by a fixed charge over £304.5m (2019: £311.6m) of the
Group’s properties.
Fixed interest rate and hedged debt
At 31 December 2020, the Group’s fixed rate and hedged debt included the unsecured convertible bonds, the secured bonds, a secured
loan and the unsecured private placement notes. Additionally, at 31 December 2019, this also included hedged bank debt.
At 31 December 2020 and 2019, the Company’s fixed rate debt comprised a secured loan, the unsecured private placement notes and the
intercompany loans.
Financial statements
216
Notes to the financial statements continued
24 Net debt 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 borrowings were:
Group
At 31 December 2020
1.5% unsecured convertible bonds 2025
6.5% secured bonds 2026
Unsecured private placement notes 2026 – 2034
3.99% secured loan 2024
Unsecured bank loans
Secured bank loan
At 31 December 2019
1.125% unsecured convertible bonds 2019
1.5% unsecured convertible bonds 2025
6.5% secured bonds 2026
Unsecured private placement notes 2026 – 2034
3.99% secured loan 2024
Unsecured bank loans
Secured bank loans
Company
At 31 December 2020
Unsecured private placement notes 2026 – 2034
3.99% secured loan 2024
Unsecured bank loans
Intercompany loans
At 31 December 2019
Unsecured private placement notes 2026 – 2034
3.99% secured loan 2024
Unsecured bank loans
Intercompany loans
Floating
rate
£m
Hedged
£m
–
–
–
–
120.1
27.9
148.0
–
–
–
–
–
65.0
–
65.0
–
–
120.1
–
120.1
–
–
65.0
–
65.0
–
–
–
–
–
–
–
–
–
–
–
–
–
27.8
27.8
–
–
–
–
–
–
–
–
–
–
Fixed
rate
£m
166.4
183.6
452.9
82.3
–
–
885.2
–
164.5
184.8
452.4
82.1
–
–
883.8
452.9
82.3
–
166.4
701.6
452.4
82.1
–
164.5
699.0
Borrowings
£m
Weighted
average
interest rate1
%
Weighted
average
life
Years
166.4
183.6
452.9
82.3
120.1
27.9
1,033.2
–
164.5
184.8
452.4
82.1
65.0
27.8
976.6
452.9
82.3
120.1
166.4
821.7
452.4
82.1
65.0
164.5
764.0
2.30
6.50
3.42
3.99
1.11
1.84
3.48
2.67
2.30
6.50
3.42
3.99
1.76
2.70
3.68
3.42
3.99
1.11
2.30
2.90
3.42
3.99
1.76
2.30
3.08
4.5
5.2
9.7
3.8
4.8
1.6
6.8
0.6
5.5
6.2
10.7
4.8
4.6
2.6
7.8
9.7
3.8
4.8
4.4
7.3
10.7
4.8
4.6
5.5
8.4
¹ The weighted average interest rates are based on the nominal amounts of the debt facilities.
Derwent London plc Report & Accounts 2020
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.
217
Group
At 31 December 2020
1.5% unsecured convertible bonds 2025
6.5% secured bonds 2026
Unsecured private placement notes 2026 – 2034
3.99% secured loan 2024
Unsecured bank loans
Secured bank loans
Total on maturity
Leasehold liabilities
Interest on borrowings
Effect of interest rate swaps
Gross loan commitments
At 31 December 2019
1.5% unsecured convertible bonds 2025
6.5% secured bonds 2026
Unsecured private placement notes 2026 – 2034
3.99% secured loan 2024
Unsecured bank loans
Secured bank loans
Total on maturity
Leasehold liabilities
Interest on borrowings
Effect of interest rate swaps
Gross loan commitments
Reconciliation to borrowings:
Group
At 31 December 2020
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 2019
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
–
–
–
–
–
–
–
0.7
34.6
1.6
36.9
–
–
–
–
–
–
–
0.7
34.8
1.0
36.5
1 to 2
years
£m
–
–
–
–
–
28.0
28.0
52.2
34.6
1.8
116.6
–
–
–
–
–
–
–
0.7
34.8
1.1
36.6
2 to 3
years
£m
–
–
–
–
–
–
–
0.7
34.3
0.9
35.9
–
–
–
–
6.5
28.0
34.5
52.2
34.7
0.9
122.3
3 to 4
years
£m
–
–
–
83.0
–
–
83.0
0.7
34.5
0.9
119.1
–
–
–
–
–
–
–
0.7
34.1
0.3
35.1
4 to 5
years
£m
> 5
years
£m
Total
£m
175.0
–
–
–
125.0
–
300.0
0.7
29.6
0.4
330.7
–
–
–
83.0
62.0
–
145.0
0.7
33.9
0.3
179.9
–
175.0
455.0
–
–
–
630.0
180.0
88.6
–
898.6
175.0
175.0
455.0
–
–
–
805.0
176.5
116.9
0.1
1,098.5
175.0
175.0
455.0
83.0
125.0
28.0
1,041.0
235.0
256.2
5.6
1,537.8
175.0
175.0
455.0
83.0
68.5
28.0
984.5
231.5
289.2
3.7
1,508.9
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
36.9
116.6
35.9
119.1
330.7
898.6
1,537.8
36.5
36.6
122.3
35.1
179.9
1,098.5
1,508.9
(34.6)
(34.6)
(34.3)
(34.5)
(29.6)
(88.6)
(256.2)
(34.8)
(34.8)
(34.7)
(34.1)
(33.9)
(116.9)
(289.2)
(1.6)
(1.8)
(0.9)
(0.9)
(0.4)
–
(5.6)
(1.0)
(1.1)
(0.9)
(0.3)
(0.3)
(0.1)
(3.7)
(0.7)
(52.2)
(0.7)
(0.7)
(0.7)
(180.0)
(235.0)
(0.7)
(0.7)
(52.2)
(0.7)
(0.7)
(176.5)
(231.5)
–
(0.1)
–
(0.7)
(4.8)
(2.2)
(7.8)
–
–
(0.4)
–
(4.3)
(3.2)
(7.9)
–
27.9
–
82.3
295.2
627.8
1,033.2
–
–
34.1
–
140.7
801.8
976.6
Financial statements
218
Notes to the financial statements continued
24 Net debt and derivative financial instruments (continued)
Company
At 31 December 2020
Unsecured private placement notes 2026 – 2034
3.99% secured loan 2024
Unsecured bank loans
Intercompany loans
Total on maturity
Leasehold liability
Interest on debt
Effect of interest rate swaps
Gross loan commitments
At 31 December 2019
Unsecured private placement notes 2026 – 2034
3.99% secured loan 2024
Unsecured bank loans
Intercompany loans
Total on maturity
Leasehold liability
Interest on debt
Effect of interest rate swaps
Gross loan commitments
Reconciliation to borrowings:
Company
At 31 December 2020
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 2019
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
–
–
–
–
–
2.1
22.8
1.6
26.5
–
–
–
–
–
2.1
22.7
1.0
25.8
1 to 2
years
£m
–
–
–
–
–
2.1
22.9
1.8
26.8
–
–
–
–
–
2.1
22.7
1.1
25.9
2 to 3
years
£m
–
–
–
–
–
2.1
23.0
0.9
26.0
–
–
6.5
–
6.5
2.1
22.7
0.9
32.2
3 to 4
years
£m
–
83.0
–
–
83.0
2.1
23.1
0.9
109.1
–
–
–
–
–
2.1
22.7
0.3
25.1
4 to 5
years
£m
> 5
years
£m
Total
£m
–
–
125.0
175.0
300.0
2.1
18.3
0.4
320.8
–
83.0
62.0
–
145.0
2.1
22.5
0.3
169.9
455.0
–
–
–
455.0
23.0
82.9
–
560.9
455.0
–
–
175.0
630.0
25.1
99.8
0.1
755.0
455.0
83.0
125.0
175.0
838.0
33.5
193.0
5.6
1,070.1
455.0
83.0
68.5
175.0
781.5
35.6
213.1
3.7
1,033.9
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
26.5
26.8
26.0
109.1
320.8
560.9
1,070.1
25.8
25.9
32.2
25.1
169.9
755.0
1,033.9
(22.8)
(22.9)
(23.0)
(23.1)
(18.3)
(82.9)
(193.0)
(22.7)
(22.7)
(22.7)
(22.7)
(22.5)
(99.8)
(213.1)
(1.6)
(1.8)
(0.9)
(0.9)
(0.4)
–
(5.6)
(1.0)
(1.1)
(0.9)
(0.3)
(0.3)
(0.1)
(3.7)
(2.1)
(2.1)
(2.1)
(2.1)
(2.1)
(23.0)
(33.5)
(2.1)
(2.1)
(2.1)
(2.1)
(2.1)
(25.1)
(35.6)
–
–
–
(0.7)
(4.8)
(10.8)
(16.3)
–
–
(0.2)
–
(4.3)
(13.0)
(17.5)
–
–
–
82.3
295.2
444.2
821.7
–
–
6.3
–
140.7
617.0
764.0
Derwent London plc Report & Accounts 2020
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.
219
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
2020
Receivable
£m
2020
Payable
£m
2019
Receivable
£m
2019
Payable
£m
–
–
0.1
0.1
0.1
–
0.3
–
–
0.1
0.1
0.1
–
0.3
(1.6)
(1.8)
(1.0)
(1.0)
(0.5)
–
(5.9)
(1.6)
(1.8)
(1.0)
(1.0)
(0.5)
–
(5.9)
0.6
0.9
0.9
0.7
0.7
0.4
4.2
0.6
0.9
0.9
0.7
0.7
0.4
4.2
(1.6)
(2.0)
(1.8)
(1.0)
(1.0)
(0.5)
(7.9)
(1.6)
(2.0)
(1.8)
(1.0)
(1.0)
(0.5)
(7.9)
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 84 to 99.
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, accrued income
arising from the spreading of lease incentives, 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, whilst 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:
Financial statements 220
Notes to the financial statements continued
24 Net debt and derivative financial instruments (continued)
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 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 or trade references. The covenant strength of each tenant is determined based on this review and, if appropriate, a
deposit or a guarantee is obtained. The Committee also reviews existing tenant covenants from time to time.
The impact of Covid-19 has given rise to higher estimated probabilities of default for some of the Group’s occupiers. As a result, impairment
calculations have been carried out on trade receivables and accrued income arising as a result of the spreading of lease incentives using
the forward-looking, simplified approach to the expected credit loss model within IFRS 9. In addition, the Credit Committee has reviewed its
register of tenants at higher risk, particularly in the retail or hospitality sectors, those in administration or CVA and the top 83 tenants by size
with the remaining occupiers considered on a sector by sector basis.
As the Group operates predominantly in central London, it is subject to some geographical risk. However, this is mitigated by the wide range of
tenants from a broad spectrum of business sectors.
Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. For banks and financial institutions,
only independently rated parties with 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 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 at least a quarterly 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 £0.8m (2019: £0.3m) or a decrease of £0.7m
(2019: £0.3m).
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 2020, the proportion of fixed debt held by the Group was within this range at 85% (2019: 93%).
During both 2020 and 2019, 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.
Derwent London plc Report & Accounts 2020 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:
221
• to safeguard the entity’s ability to continue as a going concern so that it can continue to provide above average long-term returns for
shareholders; and
• to provide an above average annualised total return to shareholders.
The Group sets the amount of capital it requires in proportion to risk. The Group manages its capital structure and makes adjustments to
it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital
structure, the Group may 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 2020, the Group’s strategy, which was unchanged from 2019, was
to maintain the NAV gearing below 80% in normal circumstances. These two gearing ratios, as well as the net interest cover ratio, are defined
in the list of definitions on pages 249 to 250 and are derived in note 41.
The Group is also required to ensure that it has sufficient property assets which are not subject to fixed or floating charges or other
encumbrances. Most of the Group’s debt is unsecured and, accordingly, there was £4.3bn (2019: £4.4bn) of uncharged property as at
31 December 2020.
25 Financial assets and liabilities and fair values
Categories of financial assets and liabilities
Fair value
through profit
and loss
£m
Financial
assets held at
amortised cost
£m
Financial
liabilities held at
amortised cost
£m
Total
carrying
value
£m
Group
Financial assets
Cash and cash equivalents
Other assets – current1
Financial liabilities
1.5% unsecured convertible bonds 2025
6.5% secured bonds 2026
Unsecured private placement notes 2026 – 2034
3.99% secured loan 2024
Bank borrowings due after one year
Leasehold liabilities
Derivative financial instruments
Other liabilities – current2
At 31 December 2020
Financial assets
Cash and cash equivalents
Other assets – current1
Financial liabilities
1.5% unsecured convertible bonds 2025
6.5% secured bonds 2026
Unsecured private placement notes 2026 – 2034
3.99% secured loan 2024
Bank borrowings due after one year
Leasehold liabilities
Derivative financial instruments
Other liabilities – current2
At 31 December 2019
–
–
–
–
–
–
–
–
–
(5.6)
–
(5.6)
50.7
34.0
84.7
–
–
–
–
–
–
–
–
–
–
–
–
(166.4)
(183.6)
(452.9)
(82.3)
(148.0)
(66.6)
–
(55.7)
(1,155.5)
50.7
34.0
84.7
(166.4)
(183.6)
(452.9)
(82.3)
(148.0)
(66.6)
(5.6)
(55.7)
(1,161.1)
(5.6)
84.7
(1,155.5)
(1,076.4)
–
–
–
–
–
–
–
–
–
(3.7)
–
(3.7)
(3.7)
54.5
19.3
73.8
–
–
–
–
–
–
–
–
–
–
–
–
(164.5)
(184.8)
(452.4)
(82.1)
(92.8)
(59.5)
–
(65.6)
(1,101.7)
54.5
19.3
73.8
(164.5)
(184.8)
(452.4)
(82.1)
(92.8)
(59.5)
(3.7)
(65.6)
(1,105.4)
73.8
(1,101.7)
(1,031.6)
¹
In 2020, 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
£42.2m (2019: £39.3m) for the Group and £22.0m (2019: £23.5m) for the Company. All amounts are non-interest bearing and are receivable within one year.
² In 2020, other liabilities include all amounts shown as trade and other payables in note 22 except deferred income and sales and social security taxes of £51.0m (2019: £46.9m)
for the Group and £0.9m (2019: £0.2m) for the Company. All amounts are non-interest bearing and are due within one year.
Financial statements 222
Notes to the financial statements continued
25 Financial assets and liabilities and fair values (continued)
Fair value
through profit
and loss
£m
Financial
assets held at
amortised cost
£m
Financial
liabilities held at
amortised cost
£m
Total
carrying
value
£m
Company
Financial assets
Cash and cash equivalents
Other assets – current1
Financial liabilities
Unsecured private placement notes 2026 – 2034
3.99% secured loan 2024
Bank borrowings due after one year
Intercompany loan
Leasehold liabilities
Derivative financial instruments
Other liabilities – current2
At 31 December 2020
Financial assets
Cash and cash equivalents
Other assets – current1
Financial liabilities
Unsecured private placement notes 2026 – 2034
3.99% secured loan 2024
Bank borrowings due after one year
Intercompany loan
Leasehold liabilities
Derivative financial instruments
Other liabilities – current2
At 31 December 2019
–
–
–
–
–
–
–
–
(5.6)
–
(5.6)
50.1
1,660.3
1,710.4
–
–
–
–
–
–
(1,055.3)
(1,055.3)
–
–
–
(452.9)
(82.3)
(120.1)
(166.4)
(25.3)
–
(16.7)
(863.7)
50.1
1,660.3
1,710.4
(452.9)
(82.3)
(120.1)
(166.4)
(25.3)
(5.6)
(1,072.0)
(1,924.6)
(5.6)
655.1
(863.7)
(214.2)
–
–
–
–
–
–
–
–
(3.7)
–
(3.7)
(3.7)
54.0
1,653.1
1,707.1
–
–
–
–
–
–
(972.6)
(972.6)
–
–
–
(452.4)
(82.1)
(65.0)
(164.5)
(26.4)
–
(41.6)
(832.0)
54.0
1,653.1
1,707.1
(452.4)
(82.1)
(65.0)
(164.5)
(26.4)
(3.7)
(1,014.2)
(1,808.3)
734.5
(832.0)
(101.2)
¹
In 2020, 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 £42.2m (2019: £39.3m) for the Group and £22.0m (2019: £23.5m) for the Company. All amounts are non-interest bearing and are receivable within one year.
² In 2020, other liabilities include all amounts shown as trade and other payables in note 22 except deferred income and sales and social security taxes of £51.0m (2019: £46.9m)
for the Group and £0.9m (2019: £0.2m) for the Company. All amounts are non-interest bearing and are due within one year.
Reconciliation of net financial assets and liabilities to gross debt:
Net financial assets and liabilities
Other assets – current
Other liabilities – current
Cash and cash equivalents
Gross debt
Group
2020
£m
(1,076.4)
(34.0)
55.7
(50.7)
2019
£m
(1,031.6)
(19.3)
65.6
(54.5)
(1,105.4)
(1,039.8)
Company
2020
£m
(214.2)
(1,660.3)
1,072.0
(50.1)
(852.6)
2019
£m
(101.2)
(1,653.1)
1,014.2
(54.0)
(794.1)
Derwent London plc Report & Accounts 2020 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 24.
Group
Company
Carrying value
£m
Fair value
£m
Carrying value
£m
Fair value
£m
Fair value
hierarchy
223
At 31 December 2020
1.5% unsecured convertible bonds 2025
6.5% secured bonds 2026
Unsecured private placement notes 2026 – 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 2019
1.5% unsecured convertible bonds 2025
6.5% secured bonds 2026
Unsecured private placement notes 2026 – 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
–
–
(526.4)
(89.1)
(125.0)
(174.2)
(5.6)
(920.3)
–
–
(493.7)
(87.8)
(68.5)
(183.9)
(3.7)
(837.6)
Level 1
Level 1
Level 2
Level 2
Level 2
Level 2
Level 2
Level 1
Level 1
Level 2
Level 2
Level 2
Level 2
Level 2
(174.2)
(220.3)
(526.4)
(89.1)
(153.0)
–
(5.6)
(1,168.6)
(183.9)
(222.8)
(493.7)
(87.8)
(96.5)
–
(3.7)
(1,088.4)
(166.4)
(183.6)
(452.9)
(82.3)
(148.0)
–
(5.6)
(1,038.8)
50.7
34.0
(66.6)
(55.7)
(1,076.4)
(164.5)
(184.8)
(452.4)
(82.1)
(92.8)
–
(3.7)
(980.3)
54.5
19.3
(59.5)
(65.6)
(1,031.6)
–
–
(452.9)
(82.3)
(120.1)
(166.4)
(5.6)
(827.3)
50.1
1,660.3
(25.3)
(1,072.0)
(214.2)
–
–
(452.4)
(82.1)
(65.0)
(164.5)
(3.7)
(767.7)
54.0
1,653.1
(26.4)
(1,014.2)
(101.2)
The fair value of the following financial assets and liabilities are the same as their carrying amounts:
• Cash and cash equivalents.
• Trade receivables, other receivables and accrued income included within trade and other receivables.
• Trade payables, other payables and accruals included within trade and other payables.
• Leasehold liabilities.
There have been no transfers between Level 1 and Level 2 or Level 2 and Level 3 in either 2020 or 2019.
Financial statements 224
Notes to the financial statements continued
26 Cash flow information
Net debt reconciliation
Group
Borrowings
Leasehold liabilities
Total liabilities from financing activities
Cash and cash equivalents
Net debt
Company
Borrowings
Leasehold liabilities
Total liabilities from financing activities
Cash and cash equivalents
Net debt
2019
£m
Cash flows
£m
Impact of
issue and
arrangement
costs
£m
Fair value
adjustments
£m
Acquisitions
£m
Unwind of
discount
£m
Non-cash changes
976.6
59.5
1,036.1
(54.5)
981.6
764.0
26.4
790.4
(54.0)
736.4
55.7
–
55.7
3.8
59.5
55.7
–
55.7
3.9
59.6
1.0
–
1.0
–
1.0
0.8
–
0.8
–
0.8
(0.1)
–
(0.1)
–
(0.1)
1.2
–
1.2
–
1.2
–
5.3
5.3
–
5.3
–
–
–
–
–
–
1.8
1.8
–
1.8
–
(1.1)
(1.1)
–
(1.1)
2020
£m
1,033.2
66.6
1,099.8
(50.7)
1,049.1
821.7
25.3
847.0
(50.1)
796.9
Derwent London plc Report & Accounts 2020
27 Deferred tax
Group
At 1 January 2020
Credited to the income statement
Change in tax rates in the income statement
Charged/(credited) to other comprehensive income
Charged to equity
Change in tax rates in other comprehensive income
At 31 December 2020
At 1 January 2019
(Credited)/charged to the income statement
Credited to other comprehensive income
Credited to equity
At 31 December 2019
Company
At 1 January 2020
Credited to the income statement
Charged to equity
Change in tax rates in the income statement
At 31 December 2020
At 1 January 2019
Credited to the income statement
At 31 December 2019
225
Revaluation
deficit/(surplus)
£m
Other
£m
Total
£m
3.3
(0.3)
0.3
0.1
–
0.1
3.5
3.6
(0.2)
(0.1)
–
3.3
–
–
–
–
–
–
–
–
(2.1)
(1.7)
(0.1)
(0.4)
1.3
–
(3.0)
(1.8)
1.0
–
(1.3)
(2.1)
(3.2)
(1.0)
1.3
(0.2)
(3.1)
(2.1)
(1.1)
(3.2)
1.2
(2.0)
0.2
(0.3)
1.3
0.1
0.5
1.8
0.8
(0.1)
(1.3)
1.2
(3.2)
(1.0)
1.3
(0.2)
(3.1)
(2.1)
(1.1)
(3.2)
Deferred tax on the balance sheet 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 historical 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.
In 2019, £1.3m was credited to equity relating to equity settled share-based payments and represented the amount by which the total
expected tax deduction exceeded the cumulative IFRS 2 expense. In 2020, the £1.3m charge reverses this to a nil balance.
Where applicable, deferred tax assets in the Company 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.
28 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 2019
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 2019
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 2020
¹ Proceeds from these issues were £0.6m (2019: £3.5m).
Number
111,539,937
100,029
133,320
111,773,286
165,364
22,761
111,961,411
The number of outstanding share options and other share awards granted are disclosed in the report of the Remuneration Committee and
note 13.
Financial statements 226
Notes to the financial statements continued
29 Reserves
The following describes the nature and purpose of each reserve within shareholders’ equity:
Reserve
Share premium
Other reserves:
Merger
Revaluation
Other
Retained earnings
Other reserves
Merger reserve
Revaluation reserve
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.
Cumulative net gains and losses recognised in the Group income statement together with other items such
as dividends.
Group
2020
£m
910.5
13.1
7.5
–
8.3
2019
£m
910.5
12.9
7.5
–
5.3
Company
2020
£m
910.5
–
–
7.5
8.3
2019
£m
910.5
–
–
7.5
5.3
939.4
936.2
926.3
923.3
Equity portion of the convertible bonds
Equity portion of long-term intercompany loan
Fair value of equity instruments under share-based payments
30 (Loss)/profit for the year attributable to members of Derwent London plc
(Loss)/profit for the year in the Group income statement includes a profit of £1.8m (2019: £49.7m) 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.
31 Dividend
Current year
2020 final dividend¹
2020 interim dividend
Prior year
2019 final dividend
2019 interim dividend
2018 final dividend
Dividends as reported in the
Group statement of changes in equity
Payment
date
Dividend per share
PID
p
Non-PID
p
4 June 2021
16 October 2020
5 June 2020
18 October 2019
35.00
22.00
57.00
34.45
21.00
55.45
17.45
–
17.45
17.00
–
17.00
Total
p
52.45
22.00
74.45
51.45
21.00
72.45
7 June 2019
30.00
16.75
46.75
2020 interim dividend withholding tax
2019 interim dividend withholding tax
2018 interim dividend withholding tax
Dividends paid as reported in the
Group cash flow statement
¹ Subject to shareholder approval at the AGM on 14 May 2021.
14 January 2021
14 January 2020
14 January 2019
2020
£m
–
24.6
24.6
57.6
–
57.6
–
82.2
(3.2)
2.8
–
2019
£m
–
–
–
–
23.4
23.4
52.2
75.6
–
(2.8)
2.3
81.8
75.1
Derwent London plc Report & Accounts 2020 32 Cash and cash equivalents
Cash at bank
227
2019
£m
54.0
Group
2020
£m
50.7
2019
£m
54.5
Company
2020
£m
50.1
33 Capital commitments
Contracts for capital expenditure entered into by the Group at 31 December 2020 and not provided for in the accounts relating to the
construction, development or enhancement of the Group’s investment properties amounted to £233.1m (2019: £317.4m), whilst that relating
to the Group’s trading properties amounted to £0.4m (2019: £0.5m). At 31 December 2020 and 31 December 2019, there were no material
obligations for the purchase, repair or maintenance of investment or trading properties.
34 Contingent liabilities
The Company and its subsidiaries are party to cross guarantees securing certain bank loans. At 31 December 2020 and 31 December 2019,
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.
35 Leases
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
Headlease obligations
Minimum lease payments under headleases 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 headleases
Future finance charges on headleases
Present value of headlease liabilities
Present value of minimum headlease obligations:
not later than one year
later than one year and not later than five years
later than five years
2020
£m
2019
£m
199.2
607.5
918.7
1,725.4
Company
2020
£m
2.1
8.4
23.0
33.5
–
(8.2)
25.3
1.2
5.1
19.0
25.3
192.2
577.6
723.1
1,492.9
2019
£m
2.1
8.4
25.1
35.6
–
(9.2)
26.4
1.1
5.0
20.3
26.4
Group
2020
£m
0.7
54.3
180.0
235.0
(1.7)
(166.7)
66.6
–
49.6
17.0
66.6
2019
£m
0.7
54.3
176.5
231.5
(23.1)
(148.9)
59.5
–
47.7
11.8
59.5
The Group has approximately 798 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 2020 was 14.7 years (2019: 11.2 years). Of these leases, on a weighted average basis, 97% (2019: 95%) included a
rent-free or half rent period.
Financial statements
228
Notes to the financial statements continued
36 Post balance sheet events
In January 2021, the Group completed the disposal of its freehold interest in Johnson Building EC1 for £167.6m.
37 List of subsidiaries and joint ventures
A full list of subsidiaries and joint ventures as at 31 December 2020 is set out below:
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
Derwent Asset Management Limited¹
Derwent Central Cross Limited¹
Derwent Henry Wood Limited¹
Derwent London No.1 Limited
Derwent London Angel Square Limited¹
Derwent London Asta Limited
Derwent London Asta Residential Limited
Derwent London Brixton Limited¹
Derwent London Capital No. 3 (Jersey) Limited¹
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 Featherstone Limited¹
Derwent London Gallery Limited¹
Derwent London Grafton Limited¹
Derwent London Green Energy Limited¹
Derwent London Holden House Limited¹
Derwent London Howland Limited¹
Derwent London KSW Limited¹
Derwent London Oliver's Yard Limited¹
Derwent London Page Street (Nominee) Limited
Derwent London Page Street Limited¹
Derwent London Savile Row Limited¹
Derwent London Whitfield Street Limited¹
Derwent Valley Central Limited¹
Derwent Valley Employee Trust Limited¹
Derwent Valley Finance Limited
Derwent Valley Limited
Derwent Valley London Limited¹
Derwent Valley Property Developments Limited¹
Derwent Valley Property Investments Limited¹
Derwent Valley Property Trading Limited¹
Derwent Valley Railway Company¹
Ownership2
Principal activity
100%
65%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
55%
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
Property management
Property investment
Property investment
Dormant
Property investment
Property investment
Property trading
Property investment
Finance company
Property investment
Property trading
Property investment
Development services
Property investment
Property investment
Property investment
Property investment
Energy production
Property investment
Property investment
Property investment
Property investment
Dormant
Property investment
Property investment
Property investment
Property investment
Employee trust
Finance company
Holding company
Property investment
Property investment
Property investment
Property trading
Dormant
Derwent London plc Report & Accounts 2020 Derwent Valley West End Limited¹
Kensington Commercial Property Investments Limited
22 Kingsway Limited¹
LMS (City Road) Limited
LMS Finance Limited
LMS Offices Limited
London Merchant Securities Limited¹
Portman Investments (Baker Street) Limited
The New River Company Limited
Urbanfirst Limited
West London & Suburban Property Investments Limited
Joint ventures
Dorrington Derwent Holdings Limited
Dorrington Derwent Investments Limited
Prescot Street GP Limited
Prescot Street Nominees Limited
Primister Limited
Indicates subsidiary undertakings held directly.
¹
² All holdings are of ordinary shares.
229
Ownership2
100%
100%
100%
100%
100%
100%
100%
55%
100%
100%
100%
50%
50%
50%
50%
50%
Principal activity
Property investment
Property investment
Dormant
Property investment
Investment holding
Property investment
Holding company
Property investment
Property investment
Investment holding
Property investment
Holding company
Investment company
Management company
Dormant
Property investment
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 and Derwent London No.1 Limited are 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 (loss)/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. 3 (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:
• 22 Kingsway Limited and Derwent London Capital No. 3 (Jersey) Limited, which are registered at 47 Esplanade, St Helier, JE1 0BD,
• Dorrington Derwent Holdings Limited and Dorrington Derwent Investments Limited, which are registered at 16 Hans Road, London,
Channel Islands;
SW3 1RT;
• Primister Limited, which is registered at Quadrant House, Floor 6, 4 Thomas More Square, London, E1W 1YW.
Financial statements 230
Notes to the financial statements continued
38 Related party disclosure
Details of Directors’ remuneration are given in the report of the Remuneration Committee on pages 150 to 170 and note 11. A full list of
subsidiaries and joint ventures is given in note 37. Other related party transactions are as follows:
Group
During the year, the Group contributed £0.1m (2019: £0.1m) to the running costs of Buxton Jones Consultants Limited, a company of which
John Burns is a director.
At 31 December 2020, included within other receivables in note 20 is an amount owed by the Portman Estate, the non-controlling 45%
owner of one of the Group’s subsidiaries, of £2.0m (2019: £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 Angel Square Limited
Derwent London Brixton Limited
Derwent London Capital No. 2 (Jersey) Limited
Derwent London Capital No. 3 (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 Featherstone Limited
Derwent London Gallery Limited
Derwent London Grafton Limited
Derwent London Green Energy Limited
Derwent London Holden House Limited
Derwent London Howland Limited
Derwent London KSW Limited
Derwent London Oliver's Yard Limited
Derwent London Page Street Limited
Derwent London Savile Row Limited
Derwent London 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
2020
£m
–
8.3
(0.1)
(0.3)
–
7.5
(0.1)
(0.3)
1.5
–
(3.9)
–
(0.1)
(0.1)
1.2
(0.4)
0.9
–
(0.4)
–
4.6
(0.3)
(4.0)
5.0
–
–
1.8
2.9
8.1
(6.8)
(4.4)
0.2
–
0.1
(0.3)
20.6
2019
£m
–
8.7
(0.1)
(0.2)
–
8.0
1.0
(0.1)
–
(1.8)
(2.1)
–
(0.1)
(0.1)
0.3
(0.2)
1.7
–
(0.4)
–
6.8
(0.3)
(1.3)
5.3
0.1
–
1.7
(0.5)
12.4
(6.4)
(4.3)
0.3
–
0.1
(1.5)
27.0
2020
£m
(33.5)
209.6
–
–
(0.9)
185.4
(3.1)
(7.2)
41.9
–
(166.3)
–
–
–
42.7
(10.2)
21.9
(0.5)
–
(4.9)
115.4
–
(102.7)
125.9
–
(0.5)
45.4
81.4
182.3
(177.3)
(112.9)
5.8
(0.2)
1.8
(1.6)
437.7
2019
£m
(33.5)
213.2
(2.6)
(6.1)
(0.8)
189.0
(1.0)
(4.5)
–
–
(164.4)
(1.1)
(1.8)
(3.3)
14.3
(6.1)
40.8
–
(8.6)
–
161.1
(7.7)
(98.7)
126.6
0.1
–
40.8
41.1
310.7
(157.1)
(105.9)
8.0
(0.2)
1.9
(29.6)
514.6
¹ The payable balance at 31 December 2020 includes the intercompany loan of £166.4m (2019: £164.5m) included in note 24.
² Dormant company.
³ Balance owed includes subsidiaries which form part of the LMS sub-group.
Derwent London plc Report & Accounts 2020 231
The Company 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. 3 (Jersey) Limited, the payment and repayment terms of which
mirror those of the convertible bonds.
Interest is charged on the on-demand intercompany balances at an arm’s length basis.
39 EPRA performance measures and core recommendations (unaudited)
Summary table of EPRA performance measures
EPRA earnings
EPRA net tangible assets
EPRA net disposal value
EPRA net reinstatement value
EPRA cost ratio (including direct vacancy costs)
EPRA net initial yield
EPRA 'topped-up' net initial yield
EPRA vacancy rate
The definition of these measures can be found on pages 248 and 249.
For use in basic measures
Dilutive effect of share-based payments
For use in diluted measures
2020
2019
Pence
per share
p
99.19
3,812
3,682
4,138
£115.1m
£4,439.0m
£4,315.4m
£4,812.6m
23.9%
3.4%
4.7%
0.8%
£111.0m
£4,280.9m
£4,134.8m
£4,646.5m
30.5%
3.7%
4.8%
1.8%
Pence
per share
p
103.09
3,957
3,847
4,290
Earnings per share
Weighted average
2020
’000
111,912
350
112,262
2019
’000
111,652
315
111,967
Net asset value per share
At 31 December
2020
’000
111,961
341
112,302
2019
’000
111,773
400
112,173
The £175m unsecured convertible bonds 2025 (‘2025 bonds’) have an initial conversion price set at £44.96. The £150m unsecured convertible
bonds 2019 (‘2019 bonds’) were repurchased in 2019.
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 2019 and 2020, the Group did not recognise the dilutive impact of the conversion of the 2019 bonds or 2025 bonds on its
earnings per share (EPS) or net asset value (NAV) per share metrics as, based on the share price at the end of each year, 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 (including the Group’s share in joint ventures), and associated tax and non-controlling interest.
B – Revaluation movement on investment property and in joint ventures, 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, the fair value
part of the bond redemption premium and loan arrangement costs written off.
Financial statements 232
Notes to the financial statements continued
39 EPRA performance measures and core recommendations (unaudited) (continued)
The Group has adopted the new set of EPRA NAV metrics effective for the period beginning 1 January 2020. A reconciliation between the
new and the previous metrics for both the current and comparative accounting periods is presented below.
Earnings and earnings per share
Year ended 31 December 2020
Net property and other income
Total administrative expenses
Revaluation deficit
Profit on disposal of investments
Net finance costs
Movement in fair value of derivative financial instruments
Financial derivative termination costs
(Loss)/profit before tax
Tax credit
(Loss)/profit for the year
Non-controlling interest
Earnings attributable to equity shareholders
(Loss)/earnings per share
Diluted (loss)/earnings per share
Adjustments
B
£m
1.8
–
196.1
–
–
–
–
197.9
–
197.9
(5.1)
192.8
A
£m
(5.2)
–
–
(1.7)
–
–
–
(6.9)
(1.0)
(7.9)
–
(7.9)
IFRS
£m
183.0
(37.8)
(196.1)
1.7
(30.2)
(1.9)
(1.7)
(83.0)
1.6
(81.4)
3.8
(77.6)
(69.34p)
(69.34p)
C
£m
–
–
–
–
0.1
1.9
1.7
3.7
–
3.7
–
3.7
EPRA
basis
£m
179.6
(37.8)
–
–
(30.1)
–
–
111.7
0.6
112.3
(1.3)
111.0
99.19p
98.88p
The diluted loss per share for the period to 31 December 2020 have been restricted to a loss of 69.34p per share, as the loss per share cannot
be reduced by dilution in accordance with IAS 33, Earnings per Share.
Year ended 31 December 2019
Net property and other income
Total administrative expenses
Revaluation surplus
Profit on disposal of investments
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
182.6
(37.0)
156.4
13.8
(34.3)
(0.1)
(2.7)
1.9
280.6
(2.5)
278.1
5.3
283.4
253.82p
253.11p
–
–
–
(13.8)
–
–
–
(1.7)
(15.5)
0.7
(14.8)
–
(14.8)
–
–
(156.4)
–
–
–
–
–
(156.4)
(0.2)
(156.6)
(7.5)
(164.1)
–
–
–
–
7.8
0.1
2.7
–
10.6
–
10.6
–
10.6
182.6
(37.0)
–
–
(26.5)
–
–
0.2
119.3
(2.0)
117.3
(2.2)
115.1
103.09p
102.80p
Derwent London plc Report & Accounts 2020 EPRA net asset value metrics
Net assets attributable to equity shareholders
Adjustment for:
Revaluation of trading properties
Deferred tax on revaluation surplus¹
Fair value of derivative financial instruments
Fair value adjustment to secured bonds
Non-controlling interest in respect of the above¹
EPRA net tangible assets
Per share measure – diluted
Net assets attributable to equity shareholders
Adjustment for:
Revaluation of trading properties
Fair value adjustment to secured bonds
Mark-to-market of fixed rate debt
Unamortised issue and arrangement costs
EPRA net disposal value
Per share measure – diluted
Net assets attributable to equity shareholders
Adjustment for:
Revaluation of trading properties
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
Purchasers’ costs²
EPRA net reinstatement value
Per share measure – diluted
¹ Only 50% of the deferred tax on the revaluation surplus is excluded.
² Includes Stamp Duty Land Tax. Total costs assumed to be 6.8% of the portfolio’s fair value.
233
2020
£m
2019
£m
4,263.2
4,421.2
1.4
1.8
5.6
9.3
(0.4)
4,280.9
2.3
1.6
3.7
10.6
(0.4)
4,439.0
3,812p
3,957p
4,263.2
4,421.2
1.4
9.3
(127.8)
(11.3)
4,134.8
2.3
10.6
(107.2)
(11.5)
4,315.4
3,682p
3,847p
4,263.2
4,421.2
1.4
3.5
5.6
9.3
(0.7)
364.2
4,646.5
2.3
3.3
3.7
10.6
(0.8)
372.3
4,812.6
4,138p
4,290p
Financial statements 234
Notes to the financial statements continued
39 EPRA performance measures and core recommendations (unaudited) (continued)
Reconciliation of new EPRA net asset value metrics to previous metrics
EPRA net tangible assets
Adjustment for:
Deferred tax on revaluation surplus
Non-controlling interest in respect of the above
EPRA net asset value
Per share measure – diluted
EPRA net reinstatement value
Adjustment for:
Purchasers’ costs
EPRA net asset value
Per share measure – diluted
As the Group’s EPRA net disposal value is the same as the EPRA triple net asset value, there are no reconciling items.
EPRA net disposal value
Per share measure – diluted
Cost ratio
Administrative expenses
Write-off/impairment of receivables (A)
Service charge waiver (A)
Other property costs
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) (B)
Direct vacancy costs
EPRA costs (excluding direct vacancy costs) (C)
Gross rental income
Ground rent
Service charge components of rental income
Share of joint ventures' rental income less ground rent
Adjusted gross rental income (D)
EPRA cost ratio (including direct vacancy costs) (B/D)
EPRA cost ratio (excluding direct vacancy costs) (C/D)
2020
£m
4,280.9
1.8
(0.4)
4,282.3
2019
£m
4,439.0
1.7
(0.4)
4,440.3
3,813p
3,958p
4,646.5
4,812.6
(364.2)
4,282.3
(372.3)
4,440.3
3,813p
3,958p
4,134.8
4,315.4
3,682p
3,847p
2020
£m
37.8
10.1
4.1
10.5
2.8
(0.4)
(3.5)
–
61.4
(9.0)
52.4
202.9
(1.1)
(0.4)
–
201.4
2019
£m
37.0
–
–
10.1
2.1
(0.5)
(3.6)
0.3
45.4
(2.6)
42.8
191.7
(1.5)
(0.5)
0.5
190.2
30.5%
23.9%
26.0%
22.5%
Derwent London plc Report & Accounts 2020 Adjusted EPRA cost ratios¹
Adjusted EPRA cost ratio (including direct vacancy costs and excluding write-off/impairment of receivables) ((B-A)/D)
Adjusted EPRA cost ratio (excluding direct vacancy costs and excluding write-off/impairment of receivables) ((C-A)/D)
235
2020
£m
23.4%
19.0%
2019
£m
23.9%
22.5%
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 (E)
Portfolio cost ratio (B/E)
5,355.5
5,475.2
1.1%
0.8%
1 In addition to the standard EPRA cost ratios (both including and excluding direct vacancy costs), adjusted versions of these ratios have also been presented which remove the impact
of the write-off/impairment of receivables and service charge waiver.
The Group has not capitalised any overheads in either 2020 or 2019.
Net initial yield and ‘topped-up’ net initial yield
Property portfolio – wholly owned
Less non-EPRA properties1
Completed property portfolio
Allowance for:
Estimated purchasers’ costs
EPRA property portfolio valuation (A)
Annualised contracted rental income, net of ground rents
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)
¹
In accordance with EPRA best practice guidelines, deductions are made for development properties, land and long-dated reversions.
2020
£m
5,355.5
(574.4)
4,781.1
2019
£m
5,475.2
(846.2)
4,629.0
325.1
5,106.2
314.8
4,943.8
189.2
(2.8)
2.6
(2.6)
(2.8)
186.4
58.0
(0.2)
57.8
244.2
169.1
(1.0)
0.4
(2.0)
(2.6)
166.5
65.0
(0.3)
64.7
231.2
3.7%
3.4%
4.8%
4.7%
Financial statements 236
Notes to the financial statements continued
39 EPRA performance measures and core recommendations (unaudited) (continued)
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.
2020
£m
4.7
291.2
(42.5)
248.7
2019
£m
2.0
303.0
(60.5)
242.5
1.8%
0.8%
Like-for-like rental growth
2020
Gross rental income
Other property expenditure
Write-off/impairment of receivables
Impact of service charge waiver
Net rental income
Other
Net property and other income
2019
Gross rental income
Property expenditure
Net rental income
Other
Net property and other income
Change based on:
Gross rental income
Net rental income
Net property and other income
Property-related capital expenditure
Acquisitions
Development
Investment properties
Incremental lettable space
No incremental lettable space
No incremental lettable space – joint ventures
Tenant incentives
Capitalised interest
Total capital expenditure
Conversion from accrual to cash basis
Total capital expenditure on a cash basis
Like-for-like
portfolio
£m
Development
property
£m
Acquisitions
and disposals
£m
28.8
(1.7)
(0.4)
(0.4)
26.3
(1.7)
24.6
9.0
(2.6)
6.4
0.5
6.9
172.4
(12.3)
(9.5)
(3.7)
146.9
5.3
152.2
173.9
(11.0)
162.9
4.1
167.0
(0.9%)
(9.8%)
(8.9%)
1.7
(0.4)
(0.2)
–
1.1
5.1
6.2
8.8
(0.1)
8.7
–
8.7
2020
£m
43.5
134.1
–
16.3
–
1.5
9.9
205.3
13.1
218.4
Total
£m
202.9
(14.4)
(10.1)
(4.1)
174.3
8.7
183.0
191.7
(13.7)
178.0
4.6
182.6
5.8%
(2.1%)
0.2%
2019
£m
32.0
167.9
1.1
16.0
0.1
6.1
13.0
236.2
(4.1)
232.1
Derwent London plc Report & Accounts 2020
40 Total return
EPRA net tangible assets on a diluted basis
At end of year
At start of year
(Decrease)/increase
Dividend per share
(Decrease)/increase including dividend
Total return
41 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 net of cash
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
Surrender premiums received
Write-down of trading property
Profit on disposal of trading properties
Adjusted net property income
Finance income
Finance costs
Adjustments for:
Finance income
Other finance costs
Amortisation of fair value adjustment to secured bonds
Amortisation of issue and arrangement costs
Finance costs capitalised
Net interest payable
237
2019
p
3,957
(3,775)
182
68
250
2020
p
3,812
(3,957)
(145)
73
(72)
(1.8%)
6.6%
2020
£m
1,049.1
2019
£m
981.6
4,315.1
4,476.9
24.3%
21.9%
2020
£m
1,049.1
(9.3)
11.3
(66.6)
984.5
2019
£m
981.6
(10.6)
11.5
(59.5)
923.0
5,355.5
5,475.2
18.4%
16.9%
2020
£m
183.0
(3.5)
(0.9)
(0.9)
1.8
(5.2)
174.3
(0.2)
30.3
30.1
0.2
(0.2)
1.3
(2.2)
9.9
39.1
2019
£m
182.6
(3.6)
–
(1.0)
–
–
178.0
(0.2)
26.7
26.5
0.2
(0.2)
1.2
(2.2)
13.0
38.5
Net interest cover ratio
446%
462%
Financial statements 238
Notes to the financial statements continued
42 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 consolidated from the date on which control is transferred to the Group. They are no longer consolidated 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 IFRS 16
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 IFRS 16 Leases. Minimum lease payments receivable, again defined in IFRS 16, 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. In circumstances where surrender payments received relate to specific periods, they are deferred and recognised in
those periods.
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.
Service charges
Service charge income relates to expenditure that is directly recoverable from tenants.
Derwent London plc Report & Accounts 2020
239
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)
(iii)
(iv)
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.
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.
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 IFRS 16 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.
The Group leases out investment properties under operating leases with rents generally payable monthly or quarterly. The Group is
exposed to changes in the residual value of properties at the end of current lease agreements, and mitigates this risk by actively managing
its tenant mix in order to maximise the weighted average lease term, minimise vacancies across the portfolio and maximise exposure to
tenants with strong financial characteristics. The Group also grants lease incentives to encourage high quality tenants to remain in
properties for longer lease terms.
Financial statements
240
Notes to the financial statements continued
42 Significant accounting policies (continued)
(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)
(iv)
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.
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.
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.
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.
Derwent London plc Report & Accounts 2020 241
Financial assets
(i)
Cash and cash equivalents – Cash comprises cash in hand and on-demand deposits. 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. This balance is subject to impairment
testing under IFRS 9 using the forward-looking, simplified approach to the expected credit loss model.
(iii)
Lease incentive receivables – In accordance with IFRS 16, rental income is recognised in the Group income statement on a straight-line
basis over the term of the lease. This includes the effect of lease incentives given to tenants (in the form of rent-free periods, half rent
periods or capital contributions in lieu of rent-free periods) and any contracted rental uplifts granted at lease inception. The result is a
receivable balance included within accrued income in the balance sheet. This balance is subject to impairment testing under IFRS 9 using
the forward-looking, simplified approach to the expected credit loss model.
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)
(iii)
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.
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 re-measured. Issue costs are apportioned between the liability
and the equity components of the convertible bonds based on their carrying amounts at the date of issue. The portion relating to the
equity component is charged directly against equity. The issue costs apportioned to the liability are amortised over the life of the bond.
The issue costs apportioned to equity are not amortised.
(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.
(vi) Trade payables – Trade payables are recognised and carried at the original transaction value.
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 historical 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.
Financial statements
242
Ten-year summary
(unaudited)
2020
£m
2019
£m
2018
£m
2017
£m
2016
£m
2015
£m
2014
£m
2013
£m
2012
£m
2011
£m
Income statement
Gross property income
Net property income and other income
Profit on disposal of properties and investments
(Loss)/profit before tax
204.7
183.0
1.7
(83.0)
192.7
182.6
13.8
280.6
196.0
185.9
5.2
221.6
172.2
164.8
50.3
314.8
Earnings and dividend per share
EPRA earnings
EPRA earnings per share (p)
Dividend paid (p)
Interim/final dividend for the year (p)
Special dividend paid (p)
Net asset value
Net assets
Net asset value per share (p) – undiluted
EPRA NTA per share (p) – diluted
EPRA NDV per share (p) – diluted
EPRA NRV per share (p) – diluted
Total return (%)
Property portfolio
Property portfolio at fair value
Revaluation (deficit)/surplus
Cash flow statement
Cash flow¹
Net cash from operating activities
Acquisitions
Net capital expenditure on properties
Investment and trading property disposals
Gearing and debt
Net debt
NAV gearing (%)
Loan-to-value ratio (%)
Net interest cover ratio (%)
156.0
149.2
7.5
54.5
85.7
76.99
44.66
52.36
52.00
152.0
148.6
40.2
779.5
78.7
71.34
40.60
43.40
–
138.4
136.1
30.2
753.7
58.6
57.08
37.40
39.65
–
131.6
124.3
53.5
467.9
55.1
53.87
34.50
36.50
–
124.8
117.0
10.8
228.1
51.3
50.36
31.85
33.70
–
125.5
117.7
36.1
233.0
52.3
51.59
29.70
31.35
–
111.0
99.19
73.45
74.45
–
115.1
103.09
67.75
72.45
–
126.1
113.07
136.50
65.85
–
105.0
94.23
107.83
59.73
75.00
4,315.1 4,476.9 4,263.4 4,193.2 3,999.4 3,995.4 3,075.7 2,370.5 1,918.0 1,714.5
1,636
1,697
1,607
1,877
17.4
3,808
3,812
3,682
4,138
(1.8)
2,931
2,906
2,800
3,163
30.1
3,528
3,532
3,463
3,825
23.0
3,530
3,550
3,450
3,852
1.7
3,956
3,957
3,847
4,290
6.6
3,767
3,775
3,696
4,092
5.3
2,248
2,262
2,222
2,470
21.9
1,824
1,884
1,764
2,076
12.7
3,703
3,714
3,617
4,011
7.7
5,355.5 5,475.2 5,190.7 4,850.3 4,942.7 4,954.5
651.4
(195.7)
154.6
149.7
(42.6)
84.1
4,168.1 3,353.1 2,859.6 2,646.5
172.1
175.3
671.9
337.5
(58.4)
85.4
43.8
174.6
157.3
(22.3)
97.1
31.6
200.5
159.3
(245.9)
115.2
57.3
171.6
0.3
1,049.1
24.3
18.4
446
981.6
21.9
16.9
462
956.9
22.4
17.2
491
247.8
83.5
8.5
165.0
472.9
657.9
15.7
13.2
454
19.6
77.7
18.0
213.5
224.7
904.8
22.6
17.7
370
(43.6)
76.0
246.2
116.4
277.2
(57.3)
65.6
92.4
113.2
114.4
(65.9)
57.5
130.1
108.4
149.7
911.7 1,013.3
32.9
22.8
24.0
17.8
286
362
949.2
40.0
28.0
279
1.9
52.5
99.8
78.6
161.0
874.8
45.6
30.0
263
18.4
47.2
91.6
42.6
131.5
864.5
50.4
32.0
261
¹ Cash flow is the net cash from operating and investing activities less the dividend paid.
A list of definitions is provided from page 248.
Derwent London plc Report & Accounts 2020 EPRA summary
(unaudited)
EPRA Measure
EPRA Performance Measures
EPRA earnings
EPRA undiluted earnings per share EPRA earnings divided by the weighted average number of ordinary shares in
Earnings from operational activities
Definition
EPRA net tangible assets (NTA)
EPRA diluted NTA per share
EPRA net disposal value (NDV)
EPRA diluted NDV per share
EPRA net reinstatement
value (NRV)
EPRA diluted NRV per share
EPRA cost ratio (including direct
vacancy costs)
EPRA net initial yield
EPRA 'topped-up' net initial yield
EPRA vacancy rate
issue during the financial year
Assumes that entities buy and sell assets, thereby crystallising certain
levels of unavoidable deferred tax
EPRA NTA 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
Represent the shareholders’ value under a disposal scenario, where deferred
tax, financial instruments and certain other adjustments are calculated to
the full extent of their liability, net of any resulting tax
EPRA NDV 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
NAV adjusted to reflect the value required to rebuild the entity and assuming
that entities never sell assets. Assets and liabilities, such as fair value
movements on financial derivatives are not expected to crystallise in normal
circumstances and deferred taxes on property valuation surpluses are
excluded
EPRA NRV 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
Administrative & 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)
Estimated rental value (ERV) of immediately available space divided by the ERV
of the EPRA portfolio
243
2020
2019
£111.0m
99.19p
£115.1m
103.09p
£4,280.9m £4,439.0m
3,812p
3,957p
£4,134.8m £4,315.4m
3,682p
3,847p
£4,646.5m £4,812.6m
4,138p
4,290p
30.5%
23.9%
3.7%
3.4%
4.8%
4.7%
1.8%
0.8%
Financial statements 244
EPRA summary continued
EPRA Measure
Definition
2020
2019
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
Greenhouse gas (GHG) intensity
from building energy consumption
Total water consumption
Like-for-like total water
consumption
Building water intensity
Total weight of waste by
disposal route
Like-for-like total weight of waste
by disposal route
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
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
Waste generated across our total managed portfolio – annual metric tonnes
and proportion by disposal route
Waste generated across our like-for-like portfolio – annual metric tonnes
and proportion by disposal route
8,398,662
11,510,515
8,021,003
10,205,290¹
18,069,846
22,684,175
15,135,365
19,878,966¹
72.47
3,326
1,947
2,783
1,853
0.015
84.65
4,650
2,925
3,694¹
2,595¹
0.019¹
95,719
205,781
85,852
181,086
0.29
1,162
0.50
3,202
874
2,350¹
¹
Prior year restated to reflect a change in methodology of the like-for-like portfolio. See the EPRA Reporting section in our 2020 Annual Responsibility Report for full explanation.
Derwent London plc Report & Accounts 2020 Asset health and safety
assessments
Asset health and safety compliance Any incidents of non-compliance with regulations and/or voluntary
EPRA Measure
Social Performance Measures
Employee gender diversity
Gender pay ratio
New hires and turnover
Employee health and safety
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
Definition
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
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
245
See page 127
See page 50
See pages 54, 55 and 62
See pages 54, 55 and 62
See the EPRA Reporting
section in our 2020 annual
Responsibility Report
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 pages 106, 107, 108,
110 and 120
See pages 124 to 129
See page 119
Financial statements
246
Principal properties
(unaudited)
West End: Central (56%)
Fitzrovia1 (32%)
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
Charlotte Building, 17 Gresse Street W1
88-94 Tottenham Court Road W1
80-85 Tottenham Court Road W1
Rathbone Studios, 3-10 Rathbone Place W1
60 Whitfield Street W1
43 and 45-51 Whitfield Street W1
1-5 Maple Place and 12-16 Fitzroy Street W1
76-78 Charlotte Street W1
50 Oxford Street W12
Victoria (8%)
Horseferry House, Horseferry Road SW1
Greencoat and Gordon House, Francis Street SW1
1 Page Street SW1
Francis House, 11 Francis Street SW1
6-8 Greencoat Place SW1
Paddington (6%)
Brunel Building, 2 Canalside Walk W2
Soho/Covent Garden (5%)
Soho Place W1
Bush House, South West Wing, Strand WC2
Baker Street/Marylebone (3%)
19-35 Baker Street W1
88-110 George Street W1
30 Gloucester Place W1
17-39 George Street W1
16-20 Baker Street and 27-33 Robert Adam Street W1
26-27 Castlereagh Street W1
Offices (O),
Retail/restaurant (R),
Residential (Re),
Industrial (I),
Leisure (L)
Value
banding
£m
Freehold (F),
Leasehold (L)
BREEAM
Rating
Approximate
net area
sq ft
200+
200+
100-200
100-200
50-100
50-100
50-100
50-100
50-100
25-50
25-50
50-100
25-50
0-25
0-25
0-25
100-200
100-200
100-200
0-25
25-50
O/R/Re
O/R/L
O/R/Re
O/R
O/R/L
O
O/R
O
O/R
O/R
O/R/Re/L
O
O
O
O
O/R
O
O
O
O
O
200+
O/R
200+
25-50
50-100
25-50
0-25
0-25
0-25
0-25
O/R/L
O
O/R
O/R/Re
O/Re
O/R/Re
O/R/Re
O
F
F
F
F
L
F
F
L
F
F
L/F
F
F
F
F
F
F
F
F
F
F
L
L
F
L
L
L
L
L
L
F
*Excellent
Very Good
Very Good
Excellent
377,000
265,400
108,900
90,200
79,900
65,700
64,200
47,200
45,900
44,500
42,700
36,200
30,900
20,300
10,400
6,100
162,700
138,600
127,800
52,800
32,200
Excellent
243,400
*Outstanding,
*Excellent
285,000
103,000
74,500
44,800
23,600
21,500
21,000
8,100
Very Good
43,000
Mayfair (2%)
25 Savile Row W1
50-100
O/R
Derwent London plc Report & Accounts 2020 247
Offices (O),
Retail/restaurant (R),
Residential (Re),
Industrial (I),
Leisure (L)
Freehold (F),
Leasehold (L)
BREEAM
Rating
Approximate
net area
sq ft
Value
banding
£m
200+
50-100
50-100
0-25
25-50
O/R
O
O
O
O/R
200+
O/R/Re
100-200
50-100
100-200
100-200
50-100
50-100
50-100
25-50
0-25
0-25
200+
100-200
100-200
25-50
25-50
25-50
O/R
O/R
O/R/L
O
O/R
O/R
O
O
O
O
O/R/L
O/L
O/R
O
R/L
–
F
F
F
F
F
F
F
F
L
F
L
F
F
F
F
F
F
F
F
F
F
F
Excellent
Very Good
Outstanding,
Excellent,
Very Good
*Outstanding
Outstanding
Excellent,
Very Good
268,300
126,200
53,400
12,300
53,750
291,400
186,000
125,000
166,300
103,700
88,700
70,300
63,700
35,000
24,000
12,000
270,900
272,900
157,900
33,800
325,500
5,500 acres
West End: Borders/other (9%)
Islington/Camden (8%)
Angel Building, 407 St. John Street EC1
Angel Square EC1
4 & 10 Pentonville Road N1
401 St. John Street EC1
Brixton (1%)
Blue Star House SW9
City: Borders (34%)
Old Street (13%)
White Collar Factory, Old Street Yard EC1
1 Oliver’s Yard EC1
The Featherstone Building EC1
Clerkenwell (10%)
20 Farringdon Road EC1
88 Rosebery Avenue EC1
Morelands, 5-27 Old Street 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
Shoreditch/Whitechapel (8%)
Tea Building, 56 Shoreditch High Street E1
The White Chapel Building E1
Holborn (3%)
Johnson Building, 77 Hatton Garden EC13
6-7 St. Cross Street EC13
Provincial (1%)
Scotland (1%)
Strathkelvin Retail Park, Bishopbriggs, Glasgow
Land, Bishopbriggs, Glasgow
Includes North of Oxford Street
¹
² Includes 36-38 and 42-44 Hanway Street W1
3 Sold in January 2021
* On-track for Post-Completion target
( ) Percentages weighted by valuation
Tech Belt (42%)
Financial statements
248
List of definitions
(unaudited)
Better Buildings Partnership (BBP)
The BBP is a collaboration of the UK’s leading commercial property
owners who are working together to improve the sustainability of
existing commercial building stock.
Building Research Establishment
Environmental Assessment Method (BREEAM)
An environmental impact assessment method for non-domestic
buildings. Performance is measured across a series of ratings;
Pass, Good, Very Good, Excellent and Outstanding.
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.
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.
Carbon emissions Scopes 1, 2 and 3
Scope 1 – direct emissions;
Scope 2 – indirect emissions; and
Scope 3 – other indirect emissions.
Company Voluntary Arrangement (CVA)
An insolvency procedure allowing a company with debt problems or
that is insolvent to reach a voluntary agreement with its creditors to
repay its debt over a fixed period.
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.
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.
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-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.
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’s Best Practices Recommendations 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 reinstatement value (NRV) per share
NAV adjusted to reflect the value required to rebuild the entity
and assuming that entities never sell assets. Assets and
liabilities, such as fair value movements on financial derivatives
are not expected to crystallise in normal circumstances and
deferred taxes on property valuation surpluses are excluded.
• EPRA net tangible assets (NTA) per share
Assumes that entities buy and sell assets, thereby crystallising
certain levels of unavoidable deferred tax.
• EPRA net disposal value (NDV) per share
Represent the shareholders’ value under a disposal scenario,
where deferred tax, financial instruments and certain other
adjustments are calculated to the full extent of their liability,
net of any resulting tax.
• 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.
Derwent London plc Report & Accounts 2020 249
• 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.
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.
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.
Previous EPRA NAV metrics
• 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.
Fair value adjustment
An accounting adjustment to change the book value of an asset or
liability to its market value.
Global 100 most sustainable companies
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.
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.
Ground rent
The rent payable by the Group for its leasehold properties. Under
IFRS, a liability is recognised using the discounted payments due.
Fixed lease payments made are allocated between the interest
payable and the reduction in the outstanding liability. Any variable
payments are recognised in the income statement in the period to
which it relates.
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.
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.
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.
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 and the UK All Property Index.
National Australian Built Environment Rating
System (NABERS)
This is a building performance rating system which provides an
energy performance benchmark using a simple star rating system
on a 1-6 scale. This helps property owners understand and
communicate a building’s performance versus other similar
buildings to occupiers. Ratings are validated on an annual basis.
NAV gearing
Net debt divided by net assets.
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.
Financial statements 250
List of definitions continued
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.
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.
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.
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.
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 (PID). These distributions can be
subject to withholding tax at 20%.
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 (non-PID).
Renewable Energy Guarantees of Origin (REGO)
The REGO scheme administered by Ofgem provides transparency
to consumers about the proportion of electricity that supplier’s
source/provide from renewable generation.
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.
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.
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.
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.
Streamlined energy and carbon reporting (SECR)
The SECR regulations were introduced in April 2019 and require
companies incorporated in the UK to undertake enhanced
disclosures of their energy and carbon emissions in their
financial reporting.
Task Force on Climate-related Financial
Disclosures (TCFD)
Set up by the Financial Stability Board (FSB) in response to the G20
Finance Ministers and Central Bank Governors request for greater
levels of decision-useful, climate-related information; the TCFD was
asked to develop climate-related disclosures that could promote
more informed investment, credit (or lending), and insurance
underwriting decisions. In turn, this would enable stakeholders to
understand better the concentrations of carbon-related assets in
the financial sector and the financial system’s exposures to climate-
related risks.
‘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.
Derwent London plc Report & Accounts 2020 251
Total property return (TPR)
Total property return is a performance measure calculated by the
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’.
Total return
The movement in EPRA net tangible assets 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 tangible assets per share on a diluted
basis at the beginning of the year.
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.
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.
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.
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
The anticipated yield to which the net initial yield will rise once
the rent reaches the estimated rental values.
• True equivalent yield
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.
Financial statements 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
Our Registrars
Equiniti (EQ)
Equiniti Limited
Aspect House
Lancing Business Park
Lancing
West Sussex BN99 6DA
United Kingdom
Equiniti general shareholder helpline:
Calling from the UK: 0371 384 2192
Calling from overseas: +44 (0) 121 415 0804
Lines are open 9.00am to 5.00pm, Monday to
Friday (excluding public holidays in England
and Wales)
Company secretarial
David Lawler
Company Secretary
Derwent London
25 Savile Row
London
W1S 2ER
United Kingdom
Telephone: +44 (0)20 7659 3000
Email: company.secretary@derwentlondon.com
Investor relations
Quentin Freeman
Head of Investor & Corporate Communications
Derwent London
25 Savile Row
London
W1S 2ER
United Kingdom
Telephone: +44 (0)20 7659 3000
Email: ir@derwentlondon.com
252
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.
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 037 037 between 8.00 am and 4.30 pm, Monday
to Friday (excluding public holidays in England and Wales).
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.
Advisers
Stockbrokers
Solicitors
Auditor
Registrars
JP Morgan Cazenove
UBS
Slaughter & May LLP
PricewaterhouseCoopers LLP
Equiniti Limited
Financial and dividend calendar – 2021
Our forthcoming financial and dividend calendar for 2021 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
11 March
06 May
14 May
10 August
04 November
Dividend calendar
Ex-dividend date
Record date
Dividend paid
Final dividend
29 April
30 April
04 June
Interim dividend
09 September
10 September
15 October
Derwent London plc Report & Accounts 2020 Awards and recognition
Derwent London won numerous awards for its achievements and buildings in 2020,
a sample of which are shown below.
EPRA Gold for
Annual Report
Britain’s Most Admired Companies –
sector winner and top 10 overall
FTSE4Good –
Member since 2003
EPRA Gold for
Annual Responsibility Report
GRESB 2020 – Global Real Estate
Sustainability Benchmark – 4 star
DISCLOSURE INSIGHT ACTION
CDP - Management B rating
IR Society –
2020 Best Annual Report FTSE250
Gold award –
2020 Corporate & Financial Awards
Brunel Building –
2020 BCO Commercial workplace award
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Derwent London plc
Registered office: 25 Savile Row, London W1S 2ER
T +44 (0)20 7659 3000
www.derwentlondon.com
Registered No: 1819699