D
e
r
w
e
n
t
L
o
n
d
o
n
p
l
c
R
e
p
o
r
t
&
A
c
c
o
u
n
t
s
2
0
2
1
Derwent London plc
Report & Accounts 2021
DERWENT
LONDON
The largest London-focused REIT
with a distinctive 5.6 million sq ft
office-based portfolio across
13 London ‘villages’.
Our purpose
Our purpose is to improve and upgrade the stock of office space
in central London, turning poorer quality ‘brown’ buildings into
well-designed, adaptable and ‘green’ workplaces. This enables
our customers to attract and retain talent while bringing social,
environmental and economic benefits to all our stakeholders,
revitalising neighbourhoods and benefitting local communities.
Our pathway to becoming net zero carbon by 2030 is
supported by an open and progressive corporate culture
and the promotion of values that include building long-lasting
relationships. We aim to provide our shareholders with above
average long-term returns while contributing to workforce
wellbeing and helping maintain London’s position as a leading
global business location.
Our culture
— Dedicated 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
Front cover image: Soho Place W1
Centre image: 80 Charlotte Street W1
01
Contents
STRATEGIC REPORT
Summary and financial highlights..............................04
Reasons to invest ...........................................................06
Chairman’s statement ..................................................08
Chief Executive’s statement ........................................10
Our pathway to net zero carbon ..................................12
Central London office market .....................................14
A well placed portfolio ..................................................18
Reshaping the portfolio, restocking the pipeline ....20
Delivering net zero carbon buildings ..........................22
Pipeline projects & ‘super-sites’ .................................24
Our stakeholders ............................................................26
Our business model .......................................................28
Providing enhanced amenity .......................................30
Our strategy .....................................................................32
Measuring our performance ........................................44
Responsibility ................................................................50
— Environmental ..........................................................52
— Social ..........................................................................56
— Governance ...............................................................64
Property review ..............................................................76
— Valuation ....................................................................77
— Acquisitions & disposals ........................................80
— Leasing, asset management
& property management .......................................82
— Development & refurbishment .............................85
Financial review ..............................................................88
Going concern & viability ..............................................98
Our principal risks .......................................................100
GOVERNANCE
Introduction from the Chairman ..............................122
Governance at a glance .............................................123
The section 172(1) statement....................................124
Board of Directors .......................................................126
Senior management ...................................................128
Corporate governance statement ...........................130
Nominations Committee report ...............................144
Audit Committee report .............................................148
Risk Committee report ...............................................158
Responsible Business Committee report ..............166
Remuneration Committee report ............................172
Directors’ report ..........................................................194
FINANCIAL STATEMENTS
Statement of Directors’ responsibilities ................200
Independent Auditor’s report ...................................201
Group income statement ..........................................209
Group statement of
comprehensive income .............................................210
Balance sheets ............................................................211
Statements of changes in equity .............................212
Cash flow statements ................................................213
Notes to the financial statements ...........................214
Other information
Ten-year summary ......................................................268
EPRA summary ............................................................269
Principal properties ....................................................272
List of definitions .........................................................274
Communication with our shareholders ..................278
Awards & recognition ..................................................IBC
Financial StatementsGovernanceStrategic report 02
“ It was great being part of the
forward thinking discussions
on carbon and digitalisation.
Derwent’s attitude to collaboration
& valuing the entire supply chain
will allow us to tackle the carbon
challenges the industry faces.
A truly forward thinking, inclusive
and sustainable developer.”
Steve Holbrook, Skanska
Stakeholder Day 2021
DL/78 78 Charlotte Street W1
Derwent London plc Report & Accounts 2021 Strategic report
03
STRATEGIC
REPORT
Summary and financial highlights ............04
Reasons to invest.........................................06
Chairman’s statement ................................08
Chief Executive’s statement ......................10
Our pathway to net zero carbon ................12
Central London office market ...................14
A well placed portfolio ................................18
Reshaping the portfolio,
restocking the pipeline ...............................20
Delivering net zero carbon buildings ........22
Pipeline projects & ‘super-sites’ ...............24
Our stakeholders .........................................26
Our business model ....................................28
Providing enhanced amenity .....................30
Our strategy ..................................................32
Measuring our performance .....................44
Responsibility ...............................................50
— Environmental .......................................52
— Social .......................................................56
— Governance ............................................64
Property review ............................................76
— Valuation .................................................77
— Acquisitions & disposals ......................80
— Leasing, asset management
& property management .....................82
— Development & refurbishment ...........85
Financial review ...........................................88
Going concern & viability ............................98
Our principal risks ......................................100
Financial StatementsGovernance 04
2021
SUMMARY
It was an active year for the Group, with
a number of new strategic initiatives
launched. There was also significant
reshaping of the portfolio which
increased the depth of the development
pipeline. In addition, we continued to
support our many stakeholders,
progressed our net zero carbon plans
and commenced our next major project.
Operating highlights
— Completed £13.7m of new lettings, +3.6% above ERV
— Collected 98% of the Group’s 2021 rental income
— Further progressed schemes at Soho Place W1 and
The Featherstone Building EC1
— Commenced our newest net zero carbon project at 19-35
Baker Street W1, taking on-site projects to 746,000 sq ft
— Obtained dual planning consent for the redevelopment
of Network Building W1 (office or lab-enabled scheme)
— Submitted planning application for an 18.4 MegaWatt
solar park in Scotland
— Completed £417.5m of acquisitions and £405.1m of
disposals, reshaping the portfolio and adding to the
future development pipeline
— Issued new 1.875% £350m 10-year green bond
— Selected as the preferred bidder to acquire
The Moorfields Estate EC1
— Approved our Intelligent Building initiative roll-out
Stakeholders and responsibility
— Conducted our first net zero carbon occupier survey
to identity collaboration opportunities
— Received third party EPC upgrade report
— Attained National Equality Standard accreditation –
results in top 5% of companies
— Conducted fourth employee survey which indicated
high levels of staff satisfaction
— Launched new shared amenity space, DL/78, and
DL/App for our customers
— Continued to support the supply chain by maintaining
supplier payments at 20 days
— Committed £725k of community and sponsorship
donations for 2021
— Held our first Stakeholder Day in September 2021
as well as an Investor Day at DL/78
NON-FINANCIAL HIGHLIGHTS
TOTAL PROPERTY RETURN
Total property return of 6.3%, above
benchmark MSCI Central London Offices
Index of 5.9%
VACANCY RATE
Our EPRA vacancy rate
decreased during the year
NET ZERO CARBON PATHWAY
Submitted planning application for an
18.4MW solar park in Scotland
EPC COMPLIANCE
Percentage of portfolio by ERV
EPC 2023 compliant
EMPLOYEE SATISFACTION
The recent employee
survey reported that
overall employee
satisfaction remains
very high
6.3%
1.6%
107acres
99%
90.5%
Derwent London plc Report & Accounts 2021 FINANCIAL HIGHLIGHTS
TOTAL RETURN
2020: -1.8%
+7.6%
EPRA NET TANGIBLE ASSETS (NTA)
2020: 3,812p
05
Net Interest cover ratio
Net interest cover ratio (%)
500
400
300
200
100
0
+5.8%
491
454
462
446
464
362
370
263
279
286
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Loan-to-value ratio
Loan-to-value ratio (%)
40
30
20
10
0
3,959P
30.0
28.0
24.0
17.8
17.7
17.2
16.9
13.2
18.4
20.8
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
+3.9%
NET RENTAL INCOME
2020: £174.3m
+2.2%
£178.2M
EPRA EARNINGS PER SHARE (EPS)
2020: 99.2p
+9.7%
DIVIDEND PER SHARE
2020: 74.5p
+2.8%
108.8P
76.5P
Net rental income (£m)
Net rental income (£m)
200
180
160
140
120
145.9
138.7
128.7
121.7
114.1
178.0
174.3
178.2
161.1
161.1
100
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
EPRA EPS (p)
Ordinary dividend (p)
120
100
80
60
40
77.0
71.3
50.4
53.9
57.1
113.11
103.1
99.2
108.8
94.2
20
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Ordinary dividend (p)
Ordinary dividend (p)
80
68
56
44
32
33.70
36.50
43.40
39.65
72.45
74.45
76.50
65.85
59.732
52.362
20
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
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
Financial StatementsGovernanceStrategic report 06
REASONS
TO INVEST
FOCUS ON LONDON’S
DYNAMIC OFFICE MARKET
Improving market conditions and
occupier sentiment
— Flight to quality with market
polarisation
— Supply levelling off with reduction
in tenant-controlled availability
— Occupational take-up recovering
— Rental growth expected in 2022
— Investment yields attractive in
absolute terms and relative to
other global cities
— A highly liquid and transparent
market
— Strong investment demand for long
income or value-add opportunities
DEVELOPING QUALITY,
CREATING VALUE
Design-led, amenity-rich ‘long-life,
loose-fit, low carbon’ space
— Supports occupiers in their return
to the office and ‘war for talent’
— Forward thinking, adaptable space
that exceeds occupier expectations
— Development pipeline restocked
through 2021 with future ‘super-sites’
— Typically two or three major schemes
on site with annual capex of
£150m-£250m and attractive returns
— Confident commencing schemes on
a speculative basis, with a long track
record of pre-letting success
— Future projects net zero carbon
with ‘whole-life’ carbon approach
RELATIONSHIPS
AT OUR HEART
Long-term, collaborative relationships
with a broad range of stakeholders
— Village-based approach to provide
— Rent collection close to pre-
enhanced amenity
Covid levels
— Utilising occupier relationships to
— Use of tier one contractors and sub-
mitigate vacancies and maintain or
grow rental income
— Offering value for money to our
customers through affordable rents
contractors, paying a fair price to ensure
high quality results and delivery on time
— Supplier payments at 20 days in 2021
— Dividends increased every year
since 2007
STRONG
FINANCIALS
Moderately leveraged balance sheet,
with substantial available funds
— Uncomplicated, predominantly
unsecured debt structure
— Financial discipline through
capital recycling
— Debut green bond – £350m 10-year
— Business resilient through many
bond with 1.875% coupon – issued in
November 2021
— Fitch: ‘A-’ issuer rating with ‘A’ Senior
economic cycles
— Long drawn debt maturity of 7.2 years
— Relationship-driven and long-term
Unsecured rating
borrowing approach
NET ZERO CARBON
IN FOCUS
Sustainability embedded
throughout business
— Set out clear pathway to net zero
carbon by 2030
— Green Finance Framework and
Green debt
— Robust and transparent Green
Finance Framework reporting through
third party ‘reasonable’ assurance
— Well placed to deliver the partnership
approach needed to reach net zero
carbon including Scope 3
— Scottish land opportunity delivering
carbon credits and with renewable
energy potential
— Future-proofing portfolio with EPC
legislation compliance
0% to +3%
2022 ERV1 guidance
48%
Portfolio under development
or with regeneration potential
£115.5M
Cash reversion from current
rent to ERV1
20.8%
LTV ratio at 31 Dec 2021
2030
Net Zero Carbon Pathway
Derwent London plc Report & Accounts 2021
Progressive, innovative, design-led & relationship-driven
Delivering above average long-term total returns
Extracting value through asset management & development
with conservative leverage
07
FOCUS ON LONDON’S
DYNAMIC OFFICE MARKET
Improving market conditions and
occupier sentiment
— Flight to quality with market
polarisation
— Investment yields attractive in
absolute terms and relative to
— Supply levelling off with reduction
other global cities
in tenant-controlled availability
— A highly liquid and transparent
— Occupational take-up recovering
— Rental growth expected in 2022
market
— Strong investment demand for long
income or value-add opportunities
DEVELOPING QUALITY,
CREATING VALUE
Design-led, amenity-rich ‘long-life,
loose-fit, low carbon’ space
— Supports occupiers in their return
— Typically two or three major schemes
to the office and ‘war for talent’
on site with annual capex of
— Forward thinking, adaptable space
£150m-£250m and attractive returns
that exceeds occupier expectations
— Confident commencing schemes on
— Development pipeline restocked
a speculative basis, with a long track
through 2021 with future ‘super-sites’
record of pre-letting success
— Future projects net zero carbon
with ‘whole-life’ carbon approach
RELATIONSHIPS
AT OUR HEART
Long-term, collaborative relationships
with a broad range of stakeholders
— Village-based approach to provide
— Rent collection close to pre-
enhanced amenity
Covid levels
— Utilising occupier relationships to
— Use of tier one contractors and sub-
mitigate vacancies and maintain or
grow rental income
contractors, paying a fair price to ensure
high quality results and delivery on time
— Offering value for money to our
— Supplier payments at 20 days in 2021
customers through affordable rents
— Dividends increased every year
since 2007
STRONG
FINANCIALS
Moderately leveraged balance sheet,
with substantial available funds
— Uncomplicated, predominantly
— Financial discipline through
unsecured debt structure
capital recycling
— Debut green bond – £350m 10-year
— Business resilient through many
bond with 1.875% coupon – issued in
economic cycles
November 2021
— Long drawn debt maturity of 7.2 years
— Fitch: ‘A-’ issuer rating with ‘A’ Senior
— Relationship-driven and long-term
Unsecured rating
borrowing approach
NET ZERO CARBON
IN FOCUS
Sustainability embedded
throughout business
— Set out clear pathway to net zero
— Well placed to deliver the partnership
— Green Finance Framework and
carbon including Scope 3
carbon by 2030
Green debt
— Robust and transparent Green
approach needed to reach net zero
— Scottish land opportunity delivering
carbon credits and with renewable
Finance Framework reporting through
energy potential
third party ‘reasonable’ assurance
— Future-proofing portfolio with EPC
legislation compliance
0% to +3%
2022 ERV1 guidance
48%
Portfolio under development
or with regeneration potential
£115.5M
Cash reversion from current
rent to ERV1
20.8%
LTV ratio at 31 Dec 2021
2030
Net Zero Carbon Pathway
ROBUST ASSET-BACKED RETURNS
Delivering above average long-term total returns overseen
by experienced management team with strong track record
Total return: 10.9% pa 10-year average
Building blocks of total return
—
—
—
EPRA earnings yield (on NTA) supported by asset
repositioning and efficient cost base
Development returns as pre-lets secured and
construction de-risked
Underlying market polarisation with agents forecasting
prime rental growth and a ‘green premium’
Total return (indexed to 100)
(2011 = 100)
281
300
250
200
150
100
50
100
0
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
HIGH QUALITY TEAM
— A strong brand supported by a well-established and
experienced team with customer focus at its heart
— Reputation for thinking ahead to anticipate future trends
and being agile enough to adapt quickly to change
1 ERV: Estimated Rental Value
Financial StatementsGovernanceStrategic report
08
CHAIRMAN’S
STATEMENT
Derwent London is an entrepreneurial
business, with an open, collaborative
and inclusive approach. With confidence
in the medium-term outlook, despite
some near-term uncertainty, the Group
proceeded with portfolio reshaping
and restocking the pipeline. We also
progressed on-site and future schemes
while maintaining a focus on income.
Our financial results demonstrate the
progress we have made.
Net property and other income increased to £187.5m for the year
ended 31 December 2021 from £183.0m in 2020. This was helped
by impairment charges and write-offs against tenant receivables
of only £0.8m against £14.2m in 2020. Gross rental income fell
4.3% to £194.2m as we took lease surrenders for new schemes
and disposed of several higher yielding low growth properties.
EPRA earnings per share increased 9.7% to 108.8p from 99.2p
in 2020 and the IFRS profit before tax was £252.5m, more than
reversing the £83.0m loss reported in 2020.
Capital values across our £5.7bn portfolio rose by an underlying
3.5% with the main drivers being development surpluses and
downward valuation yield shift. This has taken total net assets
to £4.4bn with an increase in EPRA net tangible assets (NTA) of
3.9% to 3,959p per share from 3,812p in December 2020.
Recognising its importance to our shareholders, we propose
raising the final dividend by 1.05p to 53.5p, in line with our
progressive and well covered dividend policy. It will be paid on
1 June 2022 to shareholders on the register of members at
29 April 2022. This takes the full year’s dividend to 76.5p, an
increase of 2.8% over the prior year.
We have a strong team and a portfolio including many high
quality buildings which we believe meet the ever more demanding
requirements of occupiers. We have a pipeline of schemes that
will deliver modern, adaptable and sustainable space. All of this
is supported by a lowly geared balance sheet with substantial
capacity to finance growth.
The Group has a long and consistent track record of value creation
and effective capital allocation through property cycles. We also
have considerable experience in acquiring the right assets in
locations with supportive fundamentals. The Group is known for
targeting emerging sub-markets gaining early mover advantage,
delivering prime space in a supply-constrained market.
The schemes created by the Group over the long term show a
clear determination to ensure each is an improvement on the last
and to future-proof buildings as far as possible. This may come
through the design, the technology or the green credentials.
Our investment approach is supported by our in-house property
management and asset management teams who focus on
creating and strengthening close occupier relationships.
Sustainability has been a core element of our activity for many
years, incorporated across all elements of the business from
our buildings to our finances.
We have close relationships with asset owners, occupiers and
local communities. Our track record and long-term collaborative
approach has helped us uncover new off-market opportunities
such as the recent transactions with Lazari Investments and
230 Blackfriars Road SE1. We have also been selected as
preferred bidder for The Moorfields Estate EC1.
Mark Breuer
Chairman
Derwent London plc Report & Accounts 2021 09
80 Charlotte Street W1 is our first net zero carbon building,
launched in September 2021
The 2021 employee survey again demonstrated a high level of
engagement and widespread job satisfaction and, as we come
back together after the lockdowns of the last two years, our
common focus and culture have been preserved and strengthened.
The Board is confident that Derwent London has the right
strategy and business model to meet evolving occupier and
wider stakeholder requirements and to continue to deliver
above average long-term returns for shareholders.
Mark Breuer
Chairman
I wish to thank all the staff at Derwent London for their continuing
hard work through 2021. I would also like to congratulate Emily
Prideaux on her appointment as an Executive Director in March
2021, and Sanjeev Sharma who joined the Board as Non-Executive
Director in October. Simon Fraser retired as Non-Executive
Director in October and the Board thanks him for his substantial
contribution over nine years. He was replaced as Senior
Independent Director by Helen Gordon. In addition, I would like to
say thank you on behalf of the Board to David Silverman who has
played an integral role in our investment acquisitions and disposals
and will be stepping down as an Executive Director and leaving the
Group in April 2022.
Financial StatementsGovernanceStrategic report 10
CHIEF
EXECUTIVE’S
STATEMENT
The past year was an important one
for Derwent London and was our
busiest period for portfolio activity
for many years.
Paul Williams
Chief Executive
There was a significant recovery in net asset values, valuations
and profitability in 2021. The improvement in occupational and
investment markets, backed by rental collection returning to
close to pre-pandemic levels, has given us the confidence to
progress acquisitions and development plans. Projects include
commencement of 19-35 Baker Street W1 and design finalisation
following resolution to grant planning consent at Network Building
W1. In addition, we are progressing plans for Bush House WC2 plus
other smaller projects including Environmental Performance
Certificate (EPC) upgrades.
Investment activity has been focused on restocking our
development pipeline with future ‘super-sites’. These are
substantial regeneration schemes where we see potential to
at least double the floor area. We have favoured locations
benefitting from the twin drivers of strong forecast demand and low
availability of high quality space. Based on early appraisals, these
have potential for attractive development returns. Several should
also appeal to the Life Sciences sector, a market where we have
undertaken considerable research. We have sold £405.1m of
buildings, for £9.7m above book value, where we expected to
see lower returns.
We secured £13.7m of new lettings in 2021 at an average
+3.6% above December 2020 estimated rental value (ERV), with
a further £31.9m of asset management activity in line with ERV.
There was a distinct shift of emphasis among our occupiers to
taking a more strategic and longer-term approach to their
occupational needs.
Return to the office and changing working patterns
Our buildings are getting busier. Hybrid working is here to stay,
but our occupiers are planning for peak occupancy as daily
utilisation varies through the week. Tenants are increasingly
demanding of their space, requiring it to fulfil multiple functions.
Offices need to be design-led and amenity-rich, and able to adapt
to a more agile workforce. We believe our approach of delivering
‘long-life, loose-fit, low carbon’ space with enhanced amenity,
‘Intelligent Building’ infrastructure, and employee wellbeing
at its core will exceed these evolving requirements, as we are
seeing in DL/78 in W1.
London is a vibrant global city, with world class restaurants,
theatres and culture, whose resilience has been underscored by
the speed with which activity has returned. We look forward to the
opening of the Elizabeth line and capacity returning to the wider
transport network.
Sustainability and net zero carbon
In 2021 the Group made good progress towards its net zero
carbon ambitions following publication of our pathway in 2020.
In the short term, our portfolio emissions will likely increase as
office occupation levels continue to rise, but we remain well
within our science-based targets.
Our portfolio is 99% compliant with 2023 EPC legislation (EPC ‘E’
or better). Including projects, 61% of the portfolio is compliant with
potential 2030 legislation (‘A’ or ‘B’) by ERV. This compares with
JLL’s estimates for the wider London office market that only 23%
is 2030 compliant by floor area. For those buildings with EPC ‘C’ or
below, external consultants have now completed their initial report
into capex requirements to uplift EPC ratings to ‘B’ or above. In line
with our previous indications, we expect to invest c.£97m to 2030,
prior to any service charge recovery. A proportion is already
reflected in our valuations and existing capex plans.
Derwent London plc Report & Accounts 2021 11
I am delighted that Mark Breuer, Emily Prideaux and Sanjeev
Sharma all joined the Board in the year. Helen Gordon was
appointed as Senior Independent Director replacing Simon Fraser
who retired. I was also pleased to announce three internal
promotions to the Executive Committee: Vasiliki Arvaniti, Head
of Asset Management; Victoria Steventon, Head of Property
Management; and, John Davies, Head of Sustainability.
Finally, I want to thank David Silverman who will step down from
the Board and, after almost 20 years of service, will leave the
Group in April 2022. David has made a considerable contribution
to the Group’s success and we wish him well for the future.
Outlook
Our forward ERV guidance has improved through the last
12 months. We estimate our ERVs will grow in the range 0% to
+3% in 2022 as an average across our portfolio. As the economic
recovery gathers pace, we expect this will translate into sustained
future growth. With continuing strong investment demand, we
expect investment yields to remain firm.
London is firmly coming back to life. It continues to attract
global talent as a leading city where people want to live and work.
Our ‘long-life, loose-fit, low carbon’ approach, combined with the
delivery of distinctive next generation developments, puts us in an
excellent position to benefit from the emergence of rental growth
for the best properties.
Paul Williams
Chief Executive
As part of our sustainability agenda, we progressed Company-led
initiatives this year as well as participation at COP26 to bring
greater focus on the actions required across the industry. Our
inaugural Stakeholder Day and net zero carbon occupier survey
identified a number of potential collaboration opportunities to
reduce our combined impact on the environment, ambitions
shared by many of our occupiers. We also successfully issued
a Green Bond, raising £350m for 10 years at a 1.875% coupon.
This increased our total green debt potential to £650m.
Development projects
We have two large developments and one smaller refurbishment
due to complete in H1 2022. At Soho Place W1, the offices are either
pre-let or pre-sold with a rent of £17.0m, leaving the retail element
still available. We are confident of leasing the retail space given its
excellent location and prospects with the opening this year of the
Elizabeth line and a recovery in international tourism.
At The Featherstone Building EC1, which has an ERV of £8.6m,
there has been a marked increase in enquiries as the latest work
from home (WFH) guidance was lifted. Interest has come for a
range of size requirements and business sectors and we are in
no doubt as to the building’s prospects supported by a positive
outlook for the Tech Belt.
We have pre-let the entirety of Francis House SW1 to Edelman at a
substantial premium to ERV. This follows our letting earlier in the
year to Fora at our adjoining recently refurbished 6-8 Greencoat
Place SW1, also comfortably above ERV. The combined rent roll of
these two buildings is £5.1m.
In Q4 we commenced our latest major development at 19-35 Baker
Street W1 which extends to 298,000 sq ft. Completion is expected
in 2025. We also progressed plans for our next two projects. At
Network Building W1, resolution to grant planning consent was
secured for both offices and a Life Sciences scheme. Depending
on the outcome of early occupier discussions for each option, a
decision will be made shortly on which we take forward. At Bush
House WC2, we await the outcome of our planning application for
a refurbishment and extension. Together, these two projects have
the potential to deliver up to 267,000 sq ft of high quality space.
While the economy is recovering, short- and medium-term
inflationary pressures are becoming embedded in market
expectations. Build cost inflation picked up in the year and we
expect this to rise further. At 19-35 Baker Street, the demolition
and build contracts have been signed and 97% of capex on the
office element is now fixed, within budget.
Derwent London’s high quality team
The events of the last two years have provided clear demonstration
of the quality of the Derwent London team. Employees across the
business responded with energy and commitment to minimise
disruption and provide pragmatic and practical solutions to the
challenges that arose. Derwent London is an inclusive and
respectful employer that welcomes diversity and promotes
equality. We were particularly pleased that the Group was
awarded National Equality Standard accreditation in 2021,
coming in the top 5% of accredited companies.
Soho Place W1
Financial StatementsGovernanceStrategic report 12
OUR PATHWAY TO
NET ZERO CARBON
Site of proposed solar park on Scottish land
To achieve net zero carbon by 2030,
we have embedded sustainability
throughout our business and are
engaging actively with our occupiers.
For many years we have been working on reducing our carbon
footprint and in July 2020 we published our roadmap to achieving
net zero carbon by 2030. This is a major commitment reflecting
the Group’s view that the built environment has an important role
to play in mitigating the risk from rising temperatures.
To achieve our ambitions, we will need the support and
collaboration of our occupiers as over 60% of the portfolio’s
carbon emissions fall under Scope 3 (activities where we have no
direct control). In September 2021 we issued a net zero carbon
survey to our occupiers. This has given us valuable insight into
their carbon ambitions and potential collaboration opportunities.
Our actions focus on reducing operational carbon through
numerous portfolio initiatives. An important element is the use
of renewable sources of power in our buildings. We are looking at
ways of creating renewable energy on our Scottish land through
development of a solar park. Our business activities necessitate
the creation of some embodied carbon but we aim to proactively
reduce it using alternative materials and lower carbon construction
methods where appropriate. For those carbon emissions we
cannot eliminate, we will offset using reputable projects, such
as the woodland we have planted in Scotland or other registered
high quality schemes.
These activities tie into our green financing, including our debut
green bond issue in 2021, which in turn complies with our Green
Finance Framework. Both our green financing and environmental
data is independently assured by Deloitte.
Derwent London plc Report & Accounts 2021 13
Engaging with our occupiers
In H2 2021 we conducted an occupier survey to better understand
their carbon aspirations and to identify collaboration opportunities.
Of the 49% (by ERV) that responded, many are already taking
steps to reduce carbon emissions and there is a willingness to
work together.
What actions are you taking to reduce your carbon footprint?
Sustainability initiatives in Scotland
Carbon Code accredited woodland
In 2015 we planted 107 acres of woodland, which to date has
delivered carbon credits equivalent to 127 tCO2e. As the woodland
matures, the level of carbon credits will rise. These credits will be
prioritised for offsetting residual embodied carbon on future
projects as part of our commitment to using verified offset
schemes. We are exploring opportunities to plant more woodland.
Waste reduction measures
Employee/customer
engagement programmes
Energy efficiency measures
Buying renewable energy
71%
67%
63%
59%
Offsetting your carbon
51%
Water efficiency measures
23%
None of the mentioned
4%
Occupier views on green lease clauses
0
20
40
60
80
100
Not sure
Yes – happy to develop a non-legally
binding green partnership
Yes – happy to review green lease
clauses at regears or breaks
Other
Not applicable
31%
25%
20%
17%
7%
10
0
20
30
40
Green Finance Framework and Green Bond
Our Green Finance Framework (GFF) was originally launched in
October 2019. It provides a clear series of certifiable eligibility
benchmarks that projects are required to meet to qualify as ‘green’.
Annual reporting is subject to third party ‘reasonable’ assurance.
In October 2019, we were the first UK REIT to arrange a new
revolving credit facility (RCF) with a ‘green’ tranche. Of the £450m
RCF, £300m was classified as ‘green’. In November 2021, we issued
a £350m 1.875% 10-year green bond. The ‘A’ rated bond attracted
strong investor demand.
Cumulative Eligible Green Project (EGP) capex at 31 December 2021
was £563m across four eligible projects – see pages 96 and 97 for
details. This compares to green finance capacity of £650m. Capex
to come on committed eligible projects is estimated at £355m.
EGP capex vs green debt
£m
700
600
500
400
300
200
100
0
Green bond
Drawn Green RCF
Undrawn Green RCF
Qualifying expenditure
Green facilities
Proposed solar park
In 2021 we submitted a planning application for development
of an 18.4 MegaWatt solar park on our Scottish land. The site
is well located for connection into the electricity grid, which
has appropriate capacity. Appraisal studies show the scheme
could generate 40%+ of the electricity used across our
managed portfolio. We are excited by the prospect of providing
self-generated renewable electricity of certified origin for
our occupiers.
“We are looking forward to collaborating
on a more strategic approach. It is
good to know that this is important
to Derwent London too.”
Hobie Walker, AML (Derwent London occupier)
EPC compliance
As at December 2021, 40% of the portfolio (by ERV) had an
EPC rating of ‘B’ or above and 39% was EPC ‘C’ to ‘E’. On-site
developments accounted for a further 18%, with the remaining
3% either under review or exempt. In 2023, Minimum Energy
Efficiency Standard (MEES) legislation is changing, following which
it will not be possible to lease space in a building where the EPC
rating is below ‘E’; our portfolio is substantially 2023 compliant.
From 2030, the legislation is expected to be tightened further,
with the minimum EPC rating rising to ‘B’; including projects,
our portfolio is 61% 2030 compliant. For context, JLL estimates
that 23% (by floor area) of the London office market is currently
2030 compliant.
In 2021 we commissioned a third party report to determine the
costs of achieving 2030 compliance. The report estimates it will
cost c.£97m by 2030 to upgrade the affected area and bring all
our assets to EPC ‘B’ or above. Part of this cost is expected to
be recoverable through the service charge. Excluding the assets
acquired from Lazari Investments, 10 buildings account for just
under 90% of anticipated expenditure. 38% of expenditure to
achieve compliance is considered ‘minimal’, for example upgrading
to LED lights. A further 34% is considered ‘significant’, an example
of which is installation of new heat pump systems. The remaining
28% is classified as ‘major works’. See page 55 for further details.
Financial StatementsGovernanceStrategic report 14
CENTRAL LONDON
OFFICE MARKET
With a strong finish in Q4, both leasing
transactions and investment volumes in
2021 more closely resembled long-term
averages than in 2020 when Covid-19
pandemic disruption was at its greatest.
Whilst the UK started 2021 in lockdown this was gradually eased
as the year progressed. With the success of the UK Government’s
vaccination programme, restrictions were lifted in July and only
temporary and less severe restrictions re-imposed in response to
emergence of the Omicron variant in December. Confidence has
subsequently rebounded.
According to CBRE, office take-up across central London in 2021
was 9.1m sq ft, up 63% on 2020, 26% below the long-term average
(12.3m sq ft). This was well spread across a number of different
business sectors: Creative industries (TMT) accounted for 22%
with Banking & Finance at 21% and Professional at 20%. As 2021
progressed, the level of active requirements rose and demand
began to crystallise. The amount of space under offer at year end
nearly doubled from 2.1m sq ft at December 2020 to 3.8m sq ft,
which is +28% above the long-term average of 3.0m sq ft.
Vacancy rates remain high at 9.3% (December 2020: 7.9%)
against the longer-term average of 5.2% but empty space was
concentrated in the City core and Docklands which represent
56% of the total. The West End vacancy rate was lower at 5.2%
(December 2020: 5.5%; long-term average: 4.2%). In line with recent
trends, lower quality tier two space makes up the majority of the
vacancy at 74% of the total. Tenant-controlled space accounted
for over one-third of the vacancy at the start of 2021, but since May
there has been a steady removal of this space from the market,
finishing the year at 29%. This suggests that occupiers view their
space as increasingly important. Availability of tier one space
remains restricted and below trend emphasising a polarisation
of the market.
Commitment to speculative developments thinned through the
year with several schemes deferred. At December 2020, CBRE
estimated that 23.8m sq ft of space would complete between
2022 and 2024 but by December 2021 this had fallen by 11% to
21.3m sq ft. Of this, 11.6m sq ft was under construction of which
4.0m sq ft (34%) was pre-let and a further 9.7m sq ft was proposed.
This leaves 7.6m sq ft of speculative space which is below the
longer-term trend and less than the level of active demand
estimated by JLL at 8.3m sq ft.
Headline prime rental growth for central London was 7.4% in
2021 and typical rent-free incentives reduced from c.27 months
on a 10-year term to c.24 months. This market average masks
differences by location as well as a divergence between tier
one and tier two space. Rents for the former performed more
strongly and we anticipate this trend will continue in the future.
There has been much debate about the ‘green premium’ versus
the ‘brown discount’. Recent analysis by both Knight Frank and JLL,
corroborated by our own experience, suggest a building’s leasing
potential is increasingly influenced by environmental credentials,
such as BREEAM and EPC ratings and importantly wellness and
amenity provision. As changes to EPC legislation draw closer,
the focus on sustainability is widely expected to increase.
We have outlined our expectations for rental growth in 2022 in
the Chief Executive’s statement.
6-8 Greencoat Place SW1
refurbished in 2021
Derwent London plc Report & Accounts 2021 London a diverse city with broad appeal to business
London is a truly global city which appeals to a broad range of
businesses. Over the last five years, Business Services has
accounted for 24% of take-up, Creative Industries 22% and
Banking & Finance 20%.
The last few years have seen a number of occupiers eschew
traditional sub-markets in the flight to quality and focus on
emerging areas such as King’s Cross and Paddington, which have
responded with substantial amounts of new development. These
new areas are approaching their natural capacity and the volume
of development is consequently reducing. Established areas such
as the Tech Belt and emerging areas such as Southbank, which
benefit from strong transport links and connectivity but which
have not seen the same levels of overall regeneration, are firmly
on occupiers’ radars.
The pattern of ‘foot loose’ occupiers being location agnostic has
been well documented. Occupiers are predominantly focused on
the quality of space and its environmental credentials along with
amenity and transport links rather than just location.
15
Central London office stock
There is 234m sq ft of office space across 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
Since the EU referendum in June 2016, despite cautious
expectations from a range of economic forecasters, London
has experienced growth in both its population (+233,000 between
2016 and 2020) and jobs (+177,000 between June 2016 and
September 2021). The outlook for employment and economic
growth is positive. Oxford Economics and Experian both forecast
a strong recovery in economic output and employment for the UK
and for London.
London’s office cycle
London’s office market had three major cycles between
1980 and 2009 (see 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 2021.
A strong London economy with high and growing employment
is supportive of the office sector over the longer-term. With
constrained availability of high quality space, rental growth
forecasts across the major firms of agents rebounded through
2021. Most now expect positive rental growth in 2022 and 2023.
With our strategy of providing best in class differentiated buildings
we are well placed to capture this.
Agile working & the war for talent
From engagement with our occupiers, it is clear that the office
fulfils multiple functions. It is a place to work, collaborate, innovate,
interact, produce and mentor. Some of these tasks can be fulfilled
remotely but often with less positive outcomes. We have also
heard consistently how the office needs to be representative of a
business’ culture and brand and our occupiers have stated that
returning to the office is positive for business.
Global lockdowns have shone the spotlight on agile working but
this is not an entirely new trend. Employers have responded by
offering employees greater flexibility, in part to aid staff retention
and recruitment in the war for talent, as technology has emerged
that supports hybrid working.
Prior to the reimposition of WFH guidance at the end of 2021,
there were clear signs of a return to the office for an increasing
proportion of the workforce. Few businesses had formally
mandated employees to return given the associated risks,
but office utilisation was on a clear upward trend with the
West End busier than the City core, in line with trends seen
across our villages. Mid-week office utilisation was noticeably
higher than on Mondays or Fridays, demonstrating more agility
amongst the workforce. Our experience, in common with findings
of market research by the agents, is that occupational decisions
are being based on peak occupancy requirements and mid-week
utilisation levels.
London office cycle – index
(1980 = 100)
400
350
300
250
200
150
100
50
0
1980
1985
1990
1995
2000
2005
2010
2015
2021
Capital growth
Rental value growth
Source: MSCI
London’s vacant office space
In 2021 London’s vacancy remained high, rising from 8.1%
to 9.3%. There are three key trends, as discussed above.
First, availability is not evenly spread with the City comprising
45% vs the West End at 24%. Second, supply is dominated by
secondhand space at 74% of the total. Third, tenant-controlled
‘grey’ space represents 29% of available space, a reduction
from its peak of 34% in Q1 2021.
Breakdown of available space
Available space (million sq ft)
25
20
15
10
5
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
City
West End
Docklands, Midtown
& Southbank
Tenant controlled (%)
Secondhand (%)
Source: CBRE
%
100
80
60
40
20
0
Financial StatementsGovernanceStrategic report 16
CENTRAL LONDON
OFFICE MARKET CONTINUED
Within our portfolio we have seen a reconfiguration of spaces with a
shift in the ratio away from fixed desks towards more collaboration
space and meeting rooms with video-conference facilities. At the
same time, occupational densities are being reduced in a reversal
of the ‘max-packing’ trend from recent years. Our own experiences
show that, as businesses return to looking to the future, there is a
clear recognition of the importance of the role the office plays in
bringing people and teams together to enhance communication,
mentoring, creativity and importantly productivity.
London Underground usage gathered momentum following the
lifting of WFH guidance in July 2021, reaching in excess of 60% of
pre-Covid levels in October and November. Since the latest WFH
guidance was rescinded in mid-January 2022, travel has begun
to recover.
A return to normal service levels on the broader transport
network will be crucial in facilitating the return to the office.
The additional capacity that will be created with the opening of
the Elizabeth line will also help. Provision of ‘end of trip’ amenity,
such as bike facilities and showers, has come more into focus as
increasing numbers have switched away from public transport
to bicycle commuting.
London an attractive investment market
Investment volumes were weighted towards H2 2021 and in
particular Q4 with the completion of several large deals. CBRE
estimates £10.0bn of transactions completed in the year, +33%
above 2020 although 16% below the long-term average. Investor
demand is concentrated on either high quality buildings with
long leases let to good covenants or ‘value-add’ opportunities,
including ‘build to prime’ schemes, with strong competition for
these buildings. According to CBRE prime yields compressed
25bp over the year in the City and West End to 3.75% and
3.25% respectively.
London’s positive yield gap compared to other global cities,
combined with its other attributes, namely a high level of market
transparency, strong historic liquidity, long lease lengths and
robust legal system, have helped it retain its relative attractiveness
to global investors. CBRE estimates there is c.£40bn of potential
investment demand targeting London offices which compares
to current supply of £3.7bn. Asian investors account for 46% of
overall demand, followed by Europeans at 32%, North Americans
at 17% and Middle Eastern investors at 5%. UK investors were
most active in 2021 accounting for 35% of activity followed by
North Americans at 26%, Europeans at 22% and Asians at 14%.
As air travel restrictions continue to ease, we expect the level of
international investment to rise.
Central London office take-up
Central London development pipeline
Floor area (million sq ft)
Floor area (million sq ft)
20
15
10
5
0
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
12
9
6
3
0
Vacancy rate %
12
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
9
6
3
0
West End
Rest of central London
Central London average
Completed
Proposed
Vacancy rate
Source: CBRE
European yields
Yield (%)
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
Berlin
Paris
Frankfurt
Milan
Amsterdam
Madrid
West End
City
Dublin
Under construction
Completed average
Source: CBRE
Central London office investment transactions
£bn
25
20
15
10
5
0
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
Cyclical Low
Dec 21 yield
Dec 20 yield
Source: CBRE
Average
Source: CBRE
Derwent London plc Report & Accounts 2021
17
PORTFOLIO STATISTICS
£178.4M
Contracted net rental income
2020: £189.2m
3.3%
EPRA net initial yield
2020: 3.7%
6.3 YEARS
Weighted average unexpired
lease term (WAULT)
2020: 6.2 years
7.8 YEARS
WAULT including
rent-free and pre-lets
2020: 7.9 years
£293.9M
Estimated rental value1
2020: £291.2m
4.50%
True equivalent yield
2020: 4.74%
¹ After additional capex of £365m
Central London office rent
‘Topped-up’ income
City skyline from Old Street
£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
4%
8%
14%
27%
20%
27%
8.6%
6.4%
Ten largest tenants
% of rental income2
Expedia
Government & public
admin
5.3%
Burberry
Boston Consulting Group 3.8%
2.8%
Arup
2.8%
The Office Group
2.4%
Publicis Groupe
2.1%
Accenture
1.6%
Ticketmaster
1.6%
Adobe
2 Based upon contracted net rental
income of £178.4m
Tenant diversity
% of rental income2
Media
Business services
Online leisure
Retail head office
Government &
public admin
Retail & hospitality
Technology
Financial
Flexible office providers
Fintech
Other
21
19
10
8
8
8
8
6
4
3
5
Financial StatementsGovernanceStrategic report 19-35 Baker Street W1
On-site works commenced at our latest net
zero carbon development in Q4 2021. Prior to
commencement, we regeared the headlease
with The Portman Estate and converted
our interest in a 55:45 investment into a wholly-
owned long headlease. The scheme extends to
298,000 sq ft and represents an uplift in area
of 108%. Completion is scheduled for H1 2025.
We expect good leasing prospects for this
vibrant area of London.
Baker Street W1 JV
Located diagonally opposite our 19-35 Baker
Street development, we acquired a 50% joint
venture (JV) interest in this 122,200 sq ft block
in Q4 2021 from Lazari Investments. The site
has potential for a c.240,000 sq ft office-led
redevelopment from late 2024, subject to
agreeing a headlease regear with freeholder
The Portman Estate.
18
A WELL PLACED
PORTFOLIO
99% of our portfolio is located
in 13 London ‘villages’, each with
its own individual identity.
West End Central
Fitzrovia/North of Oxford Street
33%
Victoria
Paddington
Soho/Covent Garden
Baker Street/Marylebone
Mayfair
West End Borders & Other
Islington and Camden
Brixton
City Borders
Old Street
Clerkenwell
Shoreditch/Whitechapel
Provincial
Provincial
9%
7%
7%
3%
2%
7%
1%
12%
10%
8%
1%
Tech Belt
Soho Place W1
Soho Place, which extends to 285,000 sq ft, is due
to complete in H1 2022. We pre-let the offices to
G-Research and The Apollo Group early on in the
development. The retail space remains available
but we believe the location has enduring appeal
and retailer interest will recover, aided by opening
of the Elizabeth line.
Portfolio weighting
West End and other London
City Borders
Provincial
69%
30%
1%
Principal properties page 272
Key
Our villages
Knowledge Quarter
Tech Belt
Properties
Acquisition completed in 2022
Selected as preferred bidder
PimlicoVauxhallWandsworth RoadBrixtonCannon StreetLondonBridgeRiver ThamesRiver ThamesPADDINGTONBAKER STREET/MARYLEBONEMAYFAIRVICTORIASOHO/COVENT GARDENFITZROVIACLERKENWELLSHOREDITCHWHITECHAPELSOUTHBANKOLD STREETTHE CITYISLINGTONNORTH OF OXFORD STREET BRIXTONLiverpool Street TowerGatewayDLRFarringdonAngelTottenham Court Road PaddingtonMaryleboneWhitechapelKing’s CrossSt. PancrasVictoriaEustonBarbicanBlackfriarsFenchurch StreetBond Street Elephant and CastleWaterlooDerwent London plc Report & Accounts 2021
19
Knowledge Quarter
Approximately 34% of our portfolio lies
within the Knowledge Quarter which covers
the area around King’s Cross, Euston Road
and Bloomsbury encompassing our Fitzrovia,
Islington and Clerkenwell villages. There is
a significant concentration of Life Sciences
entities in this area. Network Building W1
and 250 Euston Road NW1 offer near-
and longer-term development potential.
230 Blackfriars Road SE1
Southbank is our latest new village following
the acquisition of 230 Blackfriars Road, which
completed in Q1 2022. This area of London is
benefitting from strong occupier demand
across several knowledge-based industries.
Our current plans for this ‘super-site’ envisage
commencement of a new 200,000+ sq ft
development scheme in the longer-term.
OUR PORTFOLIO IN NUMBERS
£5.7BN
5.6M SQ FT
77Buildings
406Tenants
Valuation
Net area (includes 0.8m sq ft
of on-site developments)
PimlicoVauxhallWandsworth RoadBrixtonCannon StreetLondonBridgeRiver ThamesRiver ThamesPADDINGTONBAKER STREET/MARYLEBONEMAYFAIRVICTORIASOHO/COVENT GARDENFITZROVIACLERKENWELLSHOREDITCHWHITECHAPELSOUTHBANKOLD STREETTHE CITYISLINGTONNORTH OF OXFORD STREET BRIXTONLiverpool Street TowerGatewayDLRFarringdonAngelTottenham Court Road PaddingtonMaryleboneWhitechapelKing’s CrossSt. PancrasVictoriaEustonBarbicanBlackfriarsFenchurch StreetBond Street Elephant and CastleWaterlooFinancial StatementsGovernanceStrategic report 20
RESHAPING THE PORTFOLIO,
RESTOCKING THE PIPELINE
The Featherstone Building and White Collar Factory EC1
2021 was our most active year for the
portfolio since 2007 with the acquisition
of new ‘super-sites’ and disposal of
non-core assets.
The acquisition of London Merchant Securities in 2007 was
transformative for Derwent London in providing a large stock of
older buildings to regenerate. Since then, we have continued to look
for new acquisitions to meet the Group’s long-term ambition that
50% or more of the portfolio has future repositioning potential.
In 2021 we made the decision to retain more of our larger recent
developments where we see good growth over the next few years.
We will also dispose of those few buildings where we believe
returns are more limited, freeing up capacity to finance
developments and other activities while maintaining modest
gearing. We expect this strategy to improve total returns.
Derwent London plc Report & Accounts 2021 21
230 Blackfriars Road SE1
Initial appraisal studies suggest the 60,300 sq ft office building
and 30 surface car parking spaces has potential for a scheme
in excess of 200,000 sq ft, or more than 3x existing floor area,
excluding Quadrant House to the rear.
2021 restocking activity
In 2021 we agreed to acquire, mainly off-market, several longer-
term development opportunities and agreed the sale of three
assets where future upside was limited. This restocking of the
pipeline with ‘super-sites’ has the potential to deliver a significant
uplift in space from the existing c.600,000 sq ft (including the JV
at 100%). Plans for each asset are at an early stage and subject to
planning, but we are excited by the longer-term return potential.
Transactions with Lazari Investments
Baker Street W1 JV
The assets acquired from Lazari Investments in H2 2021 have
longer-term repositioning potential.
230 Blackfriars Road SE1
The Moorfields Estate EC1
Derwent London was chosen as the preferred bidder in December
2021 for the acquisition of the 2.5 acre Moorfields Estate site,
with contracts expected to be exchanged in H1 2022. The purchase
is expected to complete in 2026 subject to vacant possession
when the new hospital in St Pancras becomes operational.
Following early discussions with local stakeholders, we
intend to deliver a substantial office-led mixed-use commercial
scheme. Plans include some Life Sciences space plus
affordable workspace.
Baker Street W1 joint venture
At Baker Street, the 2024 block date broadly coincides with
completion of our adjoining scheme at 19-35 Baker Street.
The existing ownership extends to 122,200 sq ft (at 100%).
This island site has potential for a new office-led scheme of
around 240,000 sq ft (+97%) subject to reaching agreement with
the freeholder, The Portman Estate, who also owns a building
within the site.
250 Euston Road NW1
Early appraisal studies suggest the site has potential to increase
scale from the existing 165,900 sq ft building to c.225,000 sq ft
(+35%). The current lease runs to 2039 with tenant-only breaks
every five years, the next of which is in April 2024.
171-174 Tottenham Court Road W1
This building forms part of an island site with long-term
development potential.
Reshaping the portfolio
Floorspace (million sq ft)
Development potential
(% of portfolio)
8
7
6
5
4
3
2
1
0
2014
2015
2016
2017
2018
2019
2020
2021
60
55
50
45
40
35
30
25
20
Core income
Consented/Appraisal
Development potential
On-site
The Moorfields Estate EC1
Financial StatementsGovernanceStrategic report
22
DELIVERING NET ZERO
CARBON BUILDINGS
On site
SOHO PLACE
W1
Target completion: H1 2022
THE FEATHERSTONE BUILDING
EC1
Target completion: H1 2022
FRANCIS HOUSE
SW1
Target completion: H1 2022
285,000 sq ft Development
Green Finance – Elected
BREEAM rating – Target: Outstanding
(Site A)/Excellent (Site B)
Work is approaching completion ahead of
handover to the tenants. One Soho Place
comprises 191,000 sq ft of offices, fully
pre-let to Apollo Group and G-Research,
plus 36,000 sq ft of retail still to let. 2-4
Soho Place, where we exchanged on
the sale of the long leasehold in 2020,
consists of 18,000 sq ft of offices plus a
40,000 sq ft theatre.
Total capex: £254m
Plus site acquisition and estimated
overage: £80m
2021
Soho Place
The Featherstone Building
Francis House
125,000 sq ft Development
Green Finance – Elected
BREEAM rating – Target: Outstanding
The scheme sits next to White Collar
Factory by the Old Street roundabout in
the heart of the Tech Belt. It incorporates
many of White Collar Factory’s innovative
features: 3.3m floor to ceiling height and
concrete core cooling. The building is
predominantly offices with 2,000 sq ft of
ancillary retail. The offices and retail are
still to let.
Total capex: £83m
38,000 sq ft Refurbishment
EPC rating – Target: B (from C)
This building forms a key part of the
Group’s larger holdings in Victoria.
The refurbishment project involves
retrofitting the heating system to
all electric boilers. The space was
pre-let in Q4 2021 to Edelman at a
rent ahead of the June 2021 ERV.
Total capex: £15m
2022
2023
19-35 Baker Street
Network Building
Bush House
Derwent London plc Report & Accounts 2021 23
Our aim is to have two or three major redevelopments
on site at any one time. Including our pipeline of smaller
refurbishment projects, we incur capex of £150m to
£250m per annum. On completion, these assets move
into our core income portfolio where they continue to
generate attractive returns for shareholders.
Potential 2022 schemes
19-35 BAKER STREET
W1
Target completion: H1 2025
298,000 sq ft Development
Green Finance – Elected
BREEAM rating – Target: Excellent
On-site works commenced in Q4 2021.
It will provide a mix of 218,000 sq ft offices,
28,000 sq ft retail and 52,000 sq ft
residential. Prior to commencement,
our interests with the freeholder were
restructured with the site now wholly
owned on a 129-year leasehold interest.
Total capex: £283m
Plus estimated overage: £18m
NETWORK BUILDING
W1
Target completion: 2025
Development
Dual planning consent secured in 2021
— Office-led (137,000 sq ft)
— Lab-enabled (112,000 sq ft)
Up to 96% uplift on existing floor area
Planned commencement: H2 2022
Total capex: £109m (Office scheme)
BUSH HOUSE
WC2
Potential commencement: H2 2022
Refurbishment and extension
Scheme size c.130,000 sq ft (subject to
planning). Up to 25% uplift on existing
floor area.
2024
2025
2026
19-35 Baker Street
Network Building
Bush House
Financial StatementsGovernanceStrategic report 24
PIPELINE PROJECTS & ‘SUPER-SITES’
48% of our portfolio has repositioning potential. We also
acquired 230 Blackfriars Road SE1 in Q1 2022 and are
the preferred bidder for The Moorfields Estate EC1.
THE
MOORFIELDS
ESTATE EC1
BAKER STREET W1
JOINT VENTURE
Development
Existing space: c.400,000 sq ft
Proposed: 750,000 sq ft+
Status: Appraisal studies
Timing: Long-term
Derwent London was selected
as the preferred bidder in
2021. Acquisition of the site
in 2026 is conditional on
exchange of contracts and
receipt of vacant possession.
BLUE STAR HOUSE SW9
Development
Existing space: 54,000 sq ft
Proposed: c.110,000 sq ft
Status: Appraisal studies
Timing: Medium-term
Derwent London plc Report & Accounts 2021 HOLDEN HOUSE W1
Development
Existing space: 90,000 sq ft
Proposed: 150,000 sq ft
Status: Consented
Timing: Long-term
25
Extension
Existing space: 273,000 sq ft
Proposed: c.420,000 sq ft
Status: Appraisal studies
Timing: Long-term
THE WHITE CHAPEL BUILDING E1
230
BLACKFRIARS
ROAD SE1
Development
Existing space: 122,200 sq ft
Proposed: c.240,000 sq ft
Status: Appraisal studies
Timing: Medium-term
Acquired from Lazari
Investments in Q4 2021 in
a 50:50 JV, there is potential
to double the floor area.
The late 2024 block date
broadly coincides with
our target completion of
19-35 Baker Street.
Development
Existing space: 60,300 sq ft
Proposed: 200,000 sq ft+
Status: Appraisal studies
Timing: Long-term
These are income-
producing buildings with
30 car parking spaces.
It has potential for a
significant uplift in space.
Financial StatementsGovernanceStrategic report 26
OUR
STAKEHOLDERS
Proactive and positive stakeholder
engagement helps to secure our
long-term success.
Each stakeholder group requires a distinct approach to
foster effective and mutually beneficial relationships. By
understanding our stakeholders and factoring them into
our decisions, we can secure our long-term success. Our
section 172(1) statement for the year ended 31 December
2021 is on pages 124 and 125 and demonstrates how our
stakeholders influenced some of the decisions taken by
the Board in 2021. Acting in a fair and responsible manner
is a core element of our business practice as seen in the
Responsibility section on pages 50 to 75.
We recognise that we have a responsibility to all our
stakeholders. Through our engagement strategy,
existing relationships with our stakeholders and, with an
understanding of their concerns and issues, we were able
to work closely alongside them during the pandemic and,
wherever possible, offer proactive support.
We held our first Stakeholder Day on 29 September 2021 to
engage with and inform our stakeholders on our intentions
and future projects. This included our Net Zero Carbon
Pathway, how we plan to generate green energy from
our Scottish land and our Intelligent Building strategy.
With over 100 attendees, representing the majority of our
stakeholder groups, our Stakeholder Day recognised that
‘relationships are at the core of what we do’ (see page 134).
We held our first Stakeholder Day at DL/78
in 2021, further details are on page 134
Our key stakeholders
Their material issues
How we engage
2021 outcomes and highlights
Further links
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
— The health and wellbeing of
employees and visitors
— Continuity of businesses
during the pandemic
— Suitable lease terms
— Well-designed and sustainable
(green) buildings
— Talent attraction/retention
— Amenities for employees and visitors
— Overall health and wellbeing
— Agile and flexible working practices
— Opportunities for training,
development and progression
— Opportunities to share ideas
and make a difference
— A diverse and inclusive
work environment
LOCAL COMMUNITIES & OTHERS
We are committed to
supporting the communities
in which we operate,
including the NHS, local
businesses, residents 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 & LOCAL GOVERNMENT
As a responsible employer
and business, we are
committed to engaging
constructively with the
central and local government
to ensure we support the
wider community
— Openness and transparency
— Proactive engagement with
local authorities
— Support for local economic
plans and strategies
— Compliant with legislation
— Timing of the economic recovery
as people return to city centres for
work and to support businesses
We communicate regularly with our existing occupier base via our dedicated
Leasing, Asset and Property Management teams, together with close Director
(see page 30)
— Launch of DL/78 and the DL/ App
Providing enhanced amenity
involvement. We do this through calls, meetings, engagement events and forums.
— Rent deferrals and concessions
During 2021, we provided proactive support to our occupiers. Occupier surveys
were commissioned to gather feedback and to measure our response to the
pandemic. In October 2021, we launched DL/78, a new amenity available to all
Derwent London office occupiers which reflects our design-led approach to
creating inspiring space for occupiers, which is both useful and engaging.
given to occupiers that were most
impacted by the pandemic
— £13.7m of lettings
— 1.6% EPRA vacancy rate
— 77% tenant retention/re-lets
page 30
page 82
Asset management
Executive annual bonus
void management target
page 184
We have an open and collaborative management structure and engage
regularly with our employees. Engagement methods include, but are
not limited to, employee surveys, CEO town hall meetings, Company
presentations, our intranet site, newsletters, awaydays and our wellbeing
programme. Employee engagement is frequently measured and we have
employee representatives on our Responsible Business Committee, which
is chaired by the designated Non-Executive Director (Dame Cilla Snowball)
for gathering the views of our workforce.
— Feedback from employee
surveys (see page 60)
— Attained National Equality
Standard accreditation
— 13% of our employees are trained
as mental health champions
— 13 town hall meetings were hosted
to share news and provide support
Staff satisfaction KPI
page 49
page 57
Diversity and inclusion
Employee engagement
page 135
We engage with the local community through the planning process,
our Community Fund, volunteering, charitable donations 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.
— Use of 16 flats donated to
University College Hospital
— Committed £725,000 of
community and sponsorship
donations for 2021
— 19 community projects
supported in 2021
Community Fund
page 61
Charities and sponsorships
page 61
Our pathway to net zero
carbon page 12
Through effective collaboration, we aim to build long-term relationships with our
— Our average payment term
Supply chain governance
suppliers so that we can develop and operate great spaces for our occupiers.
was 20 days
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
— £173.7m capital expenditure
— Revised our Supply Chain
Sustainability Standard
creditors. Our Supply Chain Sustainability Standard sets out our principles and
— Published our 2021 Modern
expectations in terms of the environmental, social, ethical and governance
Slavery Statement
issues which relate to our supply chains.
page 65
Supply Chain Sustainability
Standard page 169
Responsible payment
practices
page 169
During 2021, we have supported initiatives to reopen central London after
lockdown. We take a constructive and positive approach to working with
local authorities to ensure high-quality planning applications are submitted.
Similarly, we maintain proactive relationships with government departments
such as HMRC, via regular dialogue and correspondence. Paul Williams (CEO)
is Chairman of the Westminster Property Association (WPA), a not-for-profit
advocacy group, which focuses on policy, research and maintaining excellent
relationships with central London’s local authorities. Derwent London became
a part of London Borough of Islington’s London Living Wage Action Group to
support Islington to become a London Living Wage Borough.
— Maintained our ‘low-risk’ tax
Our journey to COP26
rating with HMRC
— Providing a theatre and public
realm as part of the Soho Place
development
— Achieved dual planning for the
Network Building W1
page 54
Working with local
authorities
page 62
Tax governance
page 65
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
— Financial performance
— Openness and transparency
— Proactive approach to communication
— Credit rating
— Low gearing
— Increase in green finance lending
We arrange debt facilities from a diverse group of providers ranging from
banks to institutional pension funds. We engage with these providers and
our credit rating agency 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.
— Raised £350m via a green bond
— Extended our Revolving Credit
Facilities with our UK banking
partners for a further year to 2026
— 20.8% loan-to-value ratio
— Interest cover 464%
— Fitch corporate credit rating of A-
KPI – interest cover ratio
page 46
Debt and financing
pages 94 and 95
Green Finance Framework
pages 13, 96 and 97
— Financial performance
— Strategy and business model
— Environmental, social and governance
(ESG) performance
— Dividend
Through our investor relations programme, which includes RNS
announcements, meetings, property tours and our Annual General
Meeting, we ensure shareholders’ views are brought into our boardroom
and considered in our decision making.
— Held an Investor Day on
28 September at DL/78
— 2.8% increase in dividend
— We received votes from 84.7%
of shareholders for the 2021 AGM
KPI – Total Shareholder
Return (TSR) page 46
Shareholder engagement
page 137
page 197
Annual General Meeting
Derwent London plc Report & Accounts 2021
Our key stakeholders
Their material issues
How we engage
2021 outcomes and highlights
Further links
27
OCCUPIERS
Our success is dependent
on our ability to understand
— The health and wellbeing of
employees and visitors
and respond to our occupiers’
— Continuity of businesses
needs and aspirations
EMPLOYEES
We have an experienced,
diverse and dedicated
workforce which we
recognise as a key asset
of our business
during the pandemic
— Suitable lease terms
— Well-designed and sustainable
(green) buildings
— Talent attraction/retention
— Amenities for employees and visitors
— Overall health and wellbeing
— Agile and flexible working practices
— Opportunities for training,
development and progression
— Opportunities to share ideas
and make a difference
— A diverse and inclusive
work environment
LOCAL COMMUNITIES & OTHERS
We are committed to
supporting the communities
in which we operate,
including the NHS, local
businesses, residents 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 & LOCAL GOVERNMENT
As a responsible employer
and business, we are
committed to engaging
constructively with the
— Openness and transparency
— Proactive engagement with
local authorities
— Support for local economic
central and local government
plans and strategies
to ensure we support the
— Compliant with legislation
wider community
— Timing of the economic recovery
as people return to city centres for
work and to support businesses
We communicate regularly with our existing occupier base via our dedicated
Leasing, Asset and Property Management teams, together with close Director
involvement. We do this through calls, meetings, engagement events and forums.
During 2021, we provided proactive support to our occupiers. Occupier surveys
were commissioned to gather feedback and to measure our response to the
pandemic. In October 2021, we launched DL/78, a new amenity available to all
Derwent London office occupiers which reflects our design-led approach to
creating inspiring space for occupiers, which is both useful and engaging.
— Launch of DL/78 and the DL/ App
(see page 30)
— Rent deferrals and concessions
given to occupiers that were most
impacted by the pandemic
— £13.7m of lettings
— 1.6% EPRA vacancy rate
— 77% tenant retention/re-lets
Providing enhanced amenity
page 30
Asset management
page 82
Executive annual bonus
void management target
page 184
We have an open and collaborative management structure and engage
regularly with our employees. Engagement methods include, but are
not limited to, employee surveys, CEO town hall meetings, Company
presentations, our intranet site, newsletters, awaydays and our wellbeing
programme. Employee engagement is frequently measured and we have
employee representatives on our Responsible Business Committee, which
is chaired by the designated Non-Executive Director (Dame Cilla Snowball)
for gathering the views of our workforce.
— Feedback from employee
surveys (see page 60)
— Attained National Equality
Standard accreditation
— 13% of our employees are trained
as mental health champions
— 13 town hall meetings were hosted
to share news and provide support
Staff satisfaction KPI
page 49
Diversity and inclusion
page 57
Employee engagement
page 135
We engage with the local community through the planning process,
our Community Fund, volunteering, charitable donations 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.
— Use of 16 flats donated to
University College Hospital
— Committed £725,000 of
community and sponsorship
donations for 2021
— 19 community projects
supported in 2021
Community Fund
page 61
Charities and sponsorships
page 61
Our pathway to net zero
carbon page 12
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. Our Supply Chain Sustainability Standard sets out our principles and
expectations in terms of the environmental, social, ethical and governance
issues which relate to our supply chains.
— Our average payment term
was 20 days
— £173.7m capital expenditure
— Revised our Supply Chain
Sustainability Standard
— Published our 2021 Modern
Slavery Statement
Supply chain governance
page 65
Supply Chain Sustainability
Standard page 169
Responsible payment
practices
page 169
During 2021, we have supported initiatives to reopen central London after
lockdown. We take a constructive and positive approach to working with
local authorities to ensure high-quality planning applications are submitted.
Similarly, we maintain proactive relationships with government departments
such as HMRC, via regular dialogue and correspondence. Paul Williams (CEO)
is Chairman of the Westminster Property Association (WPA), a not-for-profit
advocacy group, which focuses on policy, research and maintaining excellent
relationships with central London’s local authorities. Derwent London became
a part of London Borough of Islington’s London Living Wage Action Group to
support Islington to become a London Living Wage Borough.
— Maintained our ‘low-risk’ tax
rating with HMRC
— Providing a theatre and public
realm as part of the Soho Place
development
— Achieved dual planning for the
Network Building W1
Our journey to COP26
page 54
Working with local
authorities
page 62
Tax governance
page 65
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
— Financial performance
— Openness and transparency
— Proactive approach to communication
— Credit rating
— Low gearing
— Increase in green finance lending
We arrange debt facilities from a diverse group of providers ranging from
banks to institutional pension funds. We engage with these providers and
our credit rating agency 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.
— Raised £350m via a green bond
— Extended our Revolving Credit
Facilities with our UK banking
partners for a further year to 2026
— 20.8% loan-to-value ratio
— Interest cover 464%
— Fitch corporate credit rating of A-
KPI – interest cover ratio
page 46
Debt and financing
pages 94 and 95
Green Finance Framework
pages 13, 96 and 97
— Financial performance
— Strategy and business model
— Environmental, social and governance
(ESG) performance
— Dividend
Through our investor relations programme, which includes RNS
announcements, meetings, property tours and our Annual General
Meeting, we ensure shareholders’ views are brought into our boardroom
and considered in our decision making.
— Held an Investor Day on
28 September at DL/78
— 2.8% increase in dividend
— We received votes from 84.7%
of shareholders for the 2021 AGM
KPI – Total Shareholder
Return (TSR) page 46
Shareholder engagement
page 137
Annual General Meeting
page 197
Financial StatementsGovernanceStrategic report
28
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.
IMPACTED BY
Our environment
The London office market
and its wider context
page 14
Our assets and resources
Properties
page 18
Financial resources
page 88
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.
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
page 82
DEVELOPMENT
& REFURBISHMENT
Our focus on design, innovation
and value for money creates
sustainable and adaptable
buildings characterised by
generous volumes, good natural
light and high quality amenities
and wellness facilities
People and relationships
page 85
page 56
The views of
our stakeholders
Understanding their key
issues through effective
engagement
page 26
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
page 80
Strong governance
and risk management
page 100 and page 121
Derwent London plc Report & Accounts 2021 29
VALUE CREATED FOR
OUR STAKEHOLDERS
652,700 SQ FT
Rent reviews, lease renewals
and lease regears agreed in
2021 at a rent of £31.9m pa
PRIORITIES
Annual priorities
are set for each
strategic objective
746,000 SQ FT
On-site projects, 38% pre-let
page 34
RISKS
Risk management is
integral to the delivery
of our strategy
+9.3%
Average annual ordinary
dividend growth over 10 years
page 100
+10.9%
Average annual total return
over 10 years
KPIs &
REMUNERATION
Success against our
objectives is measured
using our KPIs and
rewarded through our
incentive schemes
£725K
Community Fund plus
sponsorship and donations
Driven by our five
strategic objectives
1.
2.
3.
4.
5.
TO OPTIMISE RETURNS
AND CREATE VALUE
FROM A BALANCED
PORTFOLIO
page 38
TO GROW RECURRING
EARNINGS AND
CASH FLOW
page 40
TO ATTRACT, RETAIN
AND DEVELOP
TALENTED
EMPLOYEES
page 41
TO DESIGN, DELIVER
AND OPERATE
OUR BUILDINGS
RESPONSIBLY
page 42
TO MAINTAIN
STRONG AND
FLEXIBLE FINANCING
page 43
page 44 and page 174
Measured via our KPIs
page 44
Financial StatementsGovernanceStrategic report 30
PROVIDING
ENHANCED
AMENITY
As the flight to quality in London
offices gathers pace, the focus on
amenity provision has been increasing,
encompassing services both within
the building and outside.
Derwent London has a long track record of providing high quality
amenities. Roof terraces, cafés, third party co-working spaces
among other services have been available for many years, as
well as generous reception areas and adaptability within the
customer space.
The Covid-19 pandemic has brought the quality of space to the
forefront of occupiers’ minds as they seek to bring employees
back to the office and as part of the ‘war for talent’. Occupiers
increasingly demand amenity that goes beyond their own space.
Our village-led approach, combined with a long-term investment
horizon, allows us to support communities in and around our
buildings, working in partnership with local businesses to deliver
services to occupiers while creating value for local stakeholders.
In 2021 we launched several new initiatives aimed
at enhancing customer experience and driving engagement.
DL/78, in Fitzrovia, is a shared community amenity space that
provides a club lounge and workspace available for use by our
occupiers, and includes bookable meeting rooms, a wellness
area and catering services. Occupier engagement and feedback
to date is very encouraging.
Derwent London plc Report & Accounts 2021 The White Chapel Building E1
Pocket Parks serve a dual function.
In addition to their beneficial impact on
wellbeing and the wider community,
green space also adds to a building’s
sustainability credentials.
The Poets’ Park - 80 Charlotte Street W1
31
End of trip amenities like
bike facilities and showers,
which we have long provided,
is increasingly in demand as
employees return to the office.
19 Fitzroy Street W1
Furnished + Flexible is one of our responses
to the flexible office market. Totalling 61,400 sq
ft, mainly in buildings with small floor plates, this
allows for quick, easy and efficient occupation
on an all-inclusive rent including furniture and
fittings and with flexible lease terms.
Customer DL/ App brings
the portfolio together to provide
occupiers with a seamless
experience showing available
‘Furnished + Flexible’ space and
meeting rooms, plus offers and
events across the portfolio.
Intelligent Building system architecture
will allow us to better integrate different
building software and systems. The data
captured will help us identify ways to
improve building efficiency and reduce
operational carbon emissions. We are
targeting 55% of the portfolio to be
Intelligent Building enabled by the end
of 2023.
The Featherstone Building EC1 – Intelligent Building
Financial StatementsGovernanceStrategic report 32
OUR STRATEGY
Our strategy is well established and
explains how we aim to fulfil our purpose
for the benefit of all our stakeholders.
During 2021, our priorities were adapted
to suit investment, occupier and
sustainability requirements.
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 strategic journey starts with the acquisition of central
London properties at low capital values where we see potential to
add value through regeneration. Having a pipeline of current and
future projects is a key part of our strategy and we aim for this to
represent approximately 50% of our portfolio by area. Value-
enhancing projects may take several years with profits derived
from a combination of planning uplift, the regearing of leases and
refurbishment or redevelopment. Good design and the needs of our
customers are at the heart of our plans. The returns generated by
our schemes have helped us outperform our benchmarks
(principally the MSCI Central London Offices Index).
Balancing the inherent risk of our development projects are the
‘core income’ properties, which represented 52% of our portfolio as
at 31 December 2021. Here the focus is on customer relationships
and maintaining or growing recurring earnings and cash flow
through active asset management. Our asset managers work
closely with our customers to meet their needs, for example by
offering a wide range of lease terms, providing adaptable space
and excellent amenities while helping to create a work environment
that supports innovation, productivity and wellbeing.
Whether planning, designing or 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 to
work together with a shared vision and common values. These
include focusing on creative design and ensuring sustainability
and responsibility are embedded in everything we do. We have
fostered an inclusive culture that is progressive and hard-working,
building a team passionate about improving London’s office space.
Delivering our 2021 priorities
Our primary goal for 2021 was to seek out new acquisitions to help
reshape our portfolio towards a greater proportion of properties
offering future ‘value-add’ opportunities. Against a competitive
market backdrop we had to work hard to find primarily off-market
opportunities using our skills and long-term relationships, and
were prepared to sacrifice some short-term income.
During 2021, we agreed more such acquisitions than in any year
since the transformational merger with London Merchant
Securities PLC in 2007. The 2021 acquisitions are set out in more
detail on pages 80 and 81. Acquisitions totalled £417.5m, excluding
The Moorfields Estate EC1 which we expect to acquire in 2026.
We also announced a nuanced shift in our strategy to hold onto
some of our recent high quality developments for longer than
previously following completion. These properties are in relatively
short supply and offer state of the art accommodation, good
environmental performance and amenities. As a result, we believe
they will outperform the central London office market over the next
few years. Conversely, in an increasingly polarised office market,
we identified a small number of our older buildings requiring capital
investment as potential underperformers which we will gradually
look to divest of. Johnson Building and Angel Square completed in
the year and contracts were exchanged in January 2022 for the sale
of New River Yard EC1.
Though significantly less impacted than 2020, Covid-19 continued
to cast a shadow through 2021. Despite this, work continued
successfully at all our on-site projects. Following the restructuring
of our 55% interest with The Portman Estate, we commenced a
substantial new scheme at 19-35 Baker Street W1.
Actions under our Net Zero Carbon Pathway have continued
through 2021 and we were involved in a number of climate
change initiatives including COP26. See pages 12, 13 and 54
for more details.
Maximising occupancy remains very important and, in 2021,
our asset managers continued to focus on supporting our
occupiers while also extending leases and removing break
options. At the same time, our property and facilities managers
have worked with occupiers to deal with the ongoing challenges
and restrictions resulting from the pandemic. Our year end EPRA
vacancy rate remains low at 1.6%, considerably below the wider
London office market.
OUR 2022 PRIORITIES
— To progress future projects and consolidate existing plans
including EPC upgrades , plus delivery and execution
across the business. This includes working up planning
applications on several projects and clearing impediments
to development as well as managing lease breaks
and expiries
— To complete Soho Place W1
— To complete and let The Featherstone Building EC1
— To further deliver on our net zero carbon programme and
develop our social and community engagement activities
— Retain and grow income and cash flow from the portfolio
— Seek new acquisition opportunities with upgrade potential
— Continue to work with occupiers and employees to address
their needs and maintain high satisfaction ratings
Derwent London plc Report & Accounts 2021 It was an active year of refinancing with our two revolving bank
facilities extended for another year to new five-year terms and
a successful debut green bond of £350m with a 10-year term.
The latter was unsecured and resulted in progressive
improvements to our Green Finance Framework, first published
in 2019. These activities have further strengthened our balance
sheet and financial position. More details are on page 94.
In terms of other priorities, we were very pleased to obtain
certification against the National Equality Standard which reflects
the hard work undertaken across the business in this important
area, with input from our Responsible Business Committee and
our Diversity & Inclusion Working Group. Our management
training programme also carried on in 2021 with a further
26 staff members benefitting.
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 generally take many years to
complete, requiring long-term planning, risk mitigation and
financial discipline.
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 44 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
relevant properties.
— TSR compares our dividends and share price performance
measures with the relevant index.
TR, TPR and TSR are the main performance measures we use
to determine the majority of the variable elements of executive
remuneration to ensure there is strong alignment between the
interests of shareholders and our decision makers. There are also
non-financial targets representing 25% of the potential bonus
which measure our success in meeting ESG and climate
change responsibilities and the needs of other stakeholders.
33
Further polarisation in the London office market
We made a nuanced change to our strategy and will now hold
recently completed developments for longer, recognising the
gap between properties which offer high quality, adaptable,
modern space appealing to the most discerning occupiers and
other office properties opened further in 2021.
These top tier properties are increasingly sought after by
occupiers and investors alike and offer strong flexibility in use,
high levels of wellbeing and excellent energy/ESG credentials as
well as good design. They are in relatively short supply and we
are seeing strengthening demand from occupiers who wish to
attract and retain the most talented employees, and we expect
to see rental growth for such properties in 2022. In addition to
recently completed developments, we also include high quality
older refurbishments or developments in this category.
The second category either require significant capital
investment to reach the highest standards or may not be
capable of reaching that level . Vacancy rates are rising for
these properties as occupiers choose more modern space or
more flexible solutions and we expect to see rents and values
underperform. The properties that we acquire tend to be of
secondary quality where we see opportunity to add value
through creating typically high quality Derwent London product.
Brunel Building W2
Financial StatementsGovernanceStrategic report 34
OUR STRATEGY CONTINUED
2021 priorities
2021 progress
Priorities for 2022
Key performance measures
Risks
1. TO OPTIMISE RETURNS AND CREATE VALUE FROM A BALANCED PORTFOLIO
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 W1 and The Featherstone
Building EC1
Secure pre-lets at The Featherstone Building
Commence on-site works at 19-35 Baker Street W1
Progress regeneration opportunities within
the portfolio
Completed £417.5m of acquisitions (including costs) with inherent value-
add opportunities and agreed to acquire 230 Blackfriars Road SE1 and The
Moorfields Estate EC1 (see page 21)
Completed £405.1m of disposals, including Johnson Building EC1 and Angel
Square EC1 which were deemed to have limited upside potential
Both projects are on track to complete in H1 2022. Soho Place 87% is pre-let
or pre-sold
In discussions with a number of interested parties for a range of requirements
Demolition works commenced October and preferred main build contractor
was identified
Successfully obtained dual planning permission for redevelopment of Network
Building W1, bought in leasehold interest at Bush House WC2 and advanced
extensive refurbishment works at Francis House SW1 which is 100% pre-let
2. TO GROW RECURRING EARNINGS AND CASH FLOW
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
Opened DL/78 in October, our first hybrid amenity space available to our
community of customers, and launched new DL/ App for their use
Maintained continuous dialogue with tenants around Covid-19 safety measures
and introduced air quality monitoring in common areas of all buildings
Carried out asset management activities over 652,700 sq ft, increasing rent by
9.2% from £29.2m to £31.9m. Our retention and re-let rate for 2021 was 77%
and the average lease length increased from 6.2 years to 6.3 years
Spent £17m of capex on smaller projects across the portfolio during 2021 to
improve space and amenity offering
— Complete development of Soho Place
— Total return
— Principal risks: 1, 2, 3, 4A, 4B, 4C, 5A, 5B, 5C,
— Total property return
— Total shareholder return
— EPRA earnings per share
— Reversionary percentage
— Development potential
— Void management
6, 7, 8A
— Emerging risks: A, D, E, F, G
and The Featherstone Building and
let remaining space
— Appoint main contractor and progress
the scheme at 19-35 Baker Street
— Commence on-site works at
Network Building
— Progress plans for Bush House,
Baker Street joint venture and
The Moorfields Estate
— Seek further opportunities within
the portfolio to upgrade or reposition
assets to maximise returns
— Dispose of properties that no longer
meet our investment criteria
— Continue to enhance amenity and
— Total return
— Principal risks: 1, 2, 3, 4A, 4B, 4C, 5A, 5B, 5C,
customer experience across the portfolio
— Total property return
6, 7, 8A
— Emerging risks: A, B, C, D, E, F, G, H, I
— Retain and grow income by proactively
managing voids and expiries while
both extending and increasing income
where viable
— Look to upgrade existing stock where
opportunities arise to maximise income
— Total shareholder return
— EPRA earnings per share
— Reversionary percentage
— Tenant retention
— Void management
page 38
page 40
Key to risks
Principal risks (pages 108 to 119)
1
Failure to implement the Group’s strategy
5B Cyber attack on our buildings
2 Risk of tenants defaulting or tenant failure
5C Significant business interruption
3
Income decline
6 Reputational damage
4A Reduced development returns
7 Our resilience to climate change
4B
‘On-site’ risk
8A Non-compliance with health and safety legislation
4C Contractor/subcontractor default
8B Other regulatory non-compliance
5A Cyber attack on our IT systems
Derwent London plc Report & Accounts 2021
Key to progress
Achieved
On target
Not achieved
35
2021 priorities
2021 progress
Priorities for 2022
Key performance measures
Risks
1. TO OPTIMISE RETURNS AND CREATE VALUE FROM A BALANCED PORTFOLIO
Seek new acquisitions in emerging areas of London
with potential to add value either by increasing
floor area or upgrading to higher quality stock
Completed £417.5m of acquisitions (including costs) with inherent value-
add opportunities and agreed to acquire 230 Blackfriars Road SE1 and The
Moorfields Estate EC1 (see page 21)
Dispose of properties that no longer meet our
Completed £405.1m of disposals, including Johnson Building EC1 and Angel
Square EC1 which were deemed to have limited upside potential
Progress Soho Place W1 and The Featherstone
Both projects are on track to complete in H1 2022. Soho Place 87% is pre-let
investment criteria
Building EC1
Secure pre-lets at The Featherstone Building
In discussions with a number of interested parties for a range of requirements
Commence on-site works at 19-35 Baker Street W1
Demolition works commenced October and preferred main build contractor
or pre-sold
was identified
Progress regeneration opportunities within
the portfolio
Successfully obtained dual planning permission for redevelopment of Network
Building W1, bought in leasehold interest at Bush House WC2 and advanced
extensive refurbishment works at Francis House SW1 which is 100% pre-let
2. TO GROW RECURRING EARNINGS AND CASH FLOW
Increase our amenity and customer experience
offering to tenants
Opened DL/78 in October, our first hybrid amenity space available to our
community of customers, and launched new DL/ App for their use
Continue to work with tenants to ensure the safe
Maintained continuous dialogue with tenants around Covid-19 safety measures
re-occupation of their work places
and introduced air quality monitoring in common areas of all buildings
Manage voids and expiries with a focus on
extending income through renewals and regears
Carried out asset management activities over 652,700 sq ft, increasing rent by
9.2% from £29.2m to £31.9m. Our retention and re-let rate for 2021 was 77%
and the average lease length increased from 6.2 years to 6.3 years
Consider opportunities to upgrade existing stock
Spent £17m of capex on smaller projects across the portfolio during 2021 to
to optimise income as vacancies occur
improve space and amenity offering
page 38
— Principal risks: 1, 2, 3, 4A, 4B, 4C, 5A, 5B, 5C,
6, 7, 8A
— Emerging risks: A, D, E, F, G
— Total return
— Total property return
— Total shareholder return
— EPRA earnings per share
— Reversionary percentage
— Development potential
— Void management
— Complete development of Soho Place
and The Featherstone Building and
let remaining space
— Appoint main contractor and progress
the scheme at 19-35 Baker Street
— Commence on-site works at
Network Building
— Progress plans for Bush House,
Baker Street joint venture and
The Moorfields Estate
— Seek further opportunities within
the portfolio to upgrade or reposition
assets to maximise returns
— Dispose of properties that no longer
meet our investment criteria
— Continue to enhance amenity and
customer experience across the portfolio
— Retain and grow income by proactively
managing voids and expiries while
both extending and increasing income
where viable
— Look to upgrade existing stock where
opportunities arise to maximise income
— Total return
— Total property return
— Total shareholder return
— EPRA earnings per share
— Reversionary percentage
— Tenant retention
— Void management
page 40
— Principal risks: 1, 2, 3, 4A, 4B, 4C, 5A, 5B, 5C,
6, 7, 8A
— Emerging risks: A, B, C, D, E, F, G, H, I
Key to risks
Emerging risks (pages 104 and 105)
A
The future of offices
G Adoption of technology
B
Long-term implications of Covid-19 on our portfolio
C Political risk arising from government response to issues
D
The rising cost of obtaining planning permission
H
I
The importance of ESG-related concerns to our key
stakeholders
Impact on businesses arising from the UK’s commitment
to be net zero carbon by 2050
E Diminished development pipeline
F
Increasing importance of amenities
Financial StatementsGovernanceStrategic report
36
OUR STRATEGY CONTINUED
2021 priorities
2021 progress
3. TO ATTRACT, RETAIN AND DEVELOP TALENTED EMPLOYEES
Continue ‘Fit for the Future’ programme
A further 26 employees participated in the 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 arrangements to ensure
collaboration is maintained
Work towards achieving National Equality
Standards accreditation
Conduct our fourth full employee survey in
October 2021
Conducted nine core skills sessions and five technical workshops during
the year. 53 people received unconscious bias training in collaboration
with Chickenshed
Various health and wellbeing education sessions conducted, further Workplace
Mental Health First Aid Champions appointed, care packages sent to those
living alone during lockdown
All staff provided with updated office protocols and attended 30-minute online
induction on Covid-19 safety measures before returning to the office
Gained National Equality Standard certification in December and ranked in top
5% of all companies surveyed – see pages 58 and 59
Completed survey in Q4 2021. 94% of respondents agreed that they are ‘proud
to work for Derwent London’ – see page 60
4. TO DESIGN, DELIVER AND OPERATE OUR BUILDINGS RESPONSIBLY
Continue to embed our Net Zero Carbon Pathway
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
Published our revised Responsible Development Framework outlining new
minimum net zero requirements for our development projects. Launched net
zero carbon occupier survey (see page 13) to gain greater understanding of
how we can work together to achieve goals. Submitted planning application
for a solar farm on our Scottish land. Launched Intelligent Building initiative to
capture operational energy consumption of managed properties
Established building specific operational energy targets, aligned with a 1.5°C
science-based scenario
Conducted various internal workshops
Supported 19 different projects during 2021 with a focus on wellbeing
5. TO MAINTAIN STRONG AND FLEXIBLE FINANCING
Maintain or strengthen available facilities
Maintain sufficient headroom on financial covenants
Transition all relevant loans and swaps from LIBOR to
SONIA based
Issued our first sterling-denominated green bond for £350m for a term of 10 years.
Both the £450m and £100m Revolving Credit Facilities were extended by one year
to 2026
Interest cover remains strong at 464%; property income could fall by 69% before
breaching the interest cover covenant
All LIBOR linked loans and swaps were transitioned to a SONIA basis during
the year
— Maintain or strengthen available facilities
— Total return
— Principal risks: 1, 2, 3, 4A, 4B, 5A, 5B, 5C, 6, 7,
— Maintain sufficient headroom on
financial covenants
— Total shareholder return
— Gearing and available
8A, 8B
— Emerging risks: B, C
— Ensure, where reasonable, green finance
resources
is used to fund eligible green projects,
and that the Green Finance Framework
is consistently applied
— Interest cover ratio
Priorities for 2022
Key performance measures
Risks
— Further embed diversity and inclusion
— Total return
— Principal risks: 5A, 5B, 5C, 6, 7, 8A, 8B
into the business
— Total shareholder return
— Emerging risks: B, H, I
— Establish focus group to review staff
— Staff satisfaction
survey results and put forward
recommendations to the
Executive Committee
— Continue with health and wellbeing
initiatives with a strong focus on
mental health and work-life balance
— Continue regular town hall meetings
to retain high levels of communication
and collaboration
— Hold our third all employee company
away day
offset projects on our Scottish land
— Continue to progress realigning our
Science-Based Targets in accordance
with emerging sector guidance
— Continue to develop, refine and embed
our approach to carbon accounting
— Implement recommendations from
Chickenshed’s review of our
Community Fund
— Develop an approach to measuring our
social value
— Progress asset specific net zero carbon
— Total return
— Principal risks: 1, 4B, 4C, 5A, 5B, 5C, 6, 7, 8A, 8B
action plans, including future EPC
— Total shareholder return
— Emerging risks: A, B, D, F, H, I
— Review and commence implementation
— Energy performance certificates
requirements
of findings from net zero carbon
occupier survey
— BREEAM ratings
— Energy intensity
— Carbon intensity
— Progress our renewable energy and carbon
— Accident frequency rate
page 41
page 42
page 43
Derwent London plc Report & Accounts 2021
2021 priorities
2021 progress
3. TO ATTRACT, RETAIN AND DEVELOP TALENTED EMPLOYEES
Continue ‘Fit for the Future’ programme
A further 26 employees participated in the Fit for the Future programme
Continue core skills sessions and technical
workshops and resume unconscious bias training
Conducted nine core skills sessions and five technical workshops during
the year. 53 people received unconscious bias training in collaboration
Continue health and wellbeing initiatives
Ensure safe re-occupation of our offices and
review hybrid working arrangements to ensure
collaboration is maintained
with Chickenshed
Various health and wellbeing education sessions conducted, further Workplace
Mental Health First Aid Champions appointed, care packages sent to those
living alone during lockdown
All staff provided with updated office protocols and attended 30-minute online
induction on Covid-19 safety measures before returning to the office
Work towards achieving National Equality
Gained National Equality Standard certification in December and ranked in top
Standards accreditation
5% of all companies surveyed – see pages 58 and 59
Conduct our fourth full employee survey in
Completed survey in Q4 2021. 94% of respondents agreed that they are ‘proud
October 2021
to work for Derwent London’ – see page 60
4. TO DESIGN, DELIVER AND OPERATE OUR BUILDINGS RESPONSIBLY
Continue to embed our Net Zero Carbon Pathway
requirements across the business
Continue to progress realigning our Science-Based
Established building specific operational energy targets, aligned with a 1.5°C
Targets in accordance with guidance
science-based scenario
Develop, refine and embed our approach to
Conducted various internal workshops
Supported 19 different projects during 2021 with a focus on wellbeing
carbon accounting
Deliver the next rounds of our Community Fund
and continue to extend our criteria to consider
charities facing financial hardship
37
page 41
Priorities for 2022
Key performance measures
Risks
— Total return
— Total shareholder return
— Staff satisfaction
— Principal risks: 5A, 5B, 5C, 6, 7, 8A, 8B
— Emerging risks: B, H, I
— Further embed diversity and inclusion
into the business
— Establish focus group to review staff
survey results and put forward
recommendations to the
Executive Committee
— Continue with health and wellbeing
initiatives with a strong focus on
mental health and work-life balance
— Continue regular town hall meetings
to retain high levels of communication
and collaboration
— Hold our third all employee company
away day
Published our revised Responsible Development Framework outlining new
minimum net zero requirements for our development projects. Launched net
zero carbon occupier survey (see page 13) to gain greater understanding of
how we can work together to achieve goals. Submitted planning application
for a solar farm on our Scottish land. Launched Intelligent Building initiative to
capture operational energy consumption of managed properties
— Progress asset specific net zero carbon
action plans, including future EPC
requirements
— Review and commence implementation
of findings from net zero carbon
occupier survey
— Progress our renewable energy and carbon
— Total return
— Total shareholder return
— BREEAM ratings
— Energy performance certificates
— Energy intensity
— Carbon intensity
— Accident frequency rate
— Principal risks: 1, 4B, 4C, 5A, 5B, 5C, 6, 7, 8A, 8B
— Emerging risks: A, B, D, F, H, I
page 42
offset projects on our Scottish land
— Continue to progress realigning our
Science-Based Targets in accordance
with emerging sector guidance
— Continue to develop, refine and embed
our approach to carbon accounting
— Implement recommendations from
Chickenshed’s review of our
Community Fund
— Develop an approach to measuring our
social value
5. TO MAINTAIN STRONG AND FLEXIBLE FINANCING
Maintain or strengthen available facilities
Maintain sufficient headroom on financial covenants
Interest cover remains strong at 464%; property income could fall by 69% before
breaching the interest cover covenant
Transition all relevant loans and swaps from LIBOR to
All LIBOR linked loans and swaps were transitioned to a SONIA basis during
SONIA based
to 2026
the year
Issued our first sterling-denominated green bond for £350m for a term of 10 years.
Both the £450m and £100m Revolving Credit Facilities were extended by one year
— Maintain or strengthen available facilities
— Maintain sufficient headroom on
financial covenants
— Ensure, where reasonable, green finance
is used to fund eligible green projects,
and that the Green Finance Framework
is consistently applied
— Total return
— Total shareholder return
— Gearing and available
resources
— Interest cover ratio
page 43
— Principal risks: 1, 2, 3, 4A, 4B, 5A, 5B, 5C, 6, 7,
8A, 8B
— Emerging risks: B, C
Financial StatementsGovernanceStrategic report
38
OUR STRATEGY CONTINUED
1. TO OPTIMISE RETURNS AND CREATE VALUE FROM A BALANCED PORTFOLIO
G
A
48%
UNDER DEVELOPMENT/
POTENTIAL
B
Future appraisal
24%
C
Core income
52%
5.57M SQ FT1
£178.4 M rent
Under appraisal
7%
D
Consented
3%
F
52%
CORE INCOME
On-site
developments
13%
E
On-site
refurbishments
1%
1 Comprises 4.82m sq ft of existing buildings plus 0.75m sq ft of on-site developments and on-site refurbishments
Derwent London plc Report & Accounts 2021
39
Our portfolio is constantly changing but
properties fall into one of several main
categories. The chart shown, which we
refer to as the ‘Derwent doughnut’, shows
how our 5.6m sq ft portfolio is balanced
between properties with potential to add
further value through regeneration and
those which have already been improved
but where our asset management skills
can continue to grow value and income.
This section sets out the typical life cycle
(A to G) of our properties, explaining how
maintaining portfolio balance is a key
factor in our strategy. Stakeholder,
climate change and wider ESG impacts
are also key considerations in the strategy
we pursue for each individual property.
48% UNDER DEVELOPMENT/POTENTIAL
A
Acquiring opportunities
Our property life cycle starts with the acquisition of buildings
or sites with modest capital values. These are usually income
producing but are often characterised by low rents per sq ft.
We particularly look for potential to add area to the building
and/or to improve the quality, amenity and environmental
performance of the space. They may also be in locations that
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’. As previously noted, 2021 was a particularly active year for
us in securing new opportunities for future schemes, including new
‘super-sites’ offering considerable scale for the future.
B
The importance of cash flow
By acquiring predominantly occupied properties that provide cash
flow, we have time to work up our plans while enjoying an income
yield. This gives us the necessary flexibility to assess what to do and
when to do it. Our plans for a building regularly go through several
iterations before settling on an optimal solution.
C
Dialogue with tenants and landlords
When exploring the best plan for the building, we speak with existing
tenants and, where appropriate, any ultimate landlord or other
relevant stakeholder. This helps us extend income but we generally
also agree landlord breaks at future dates to provide us with
flexibility over the timing of vacant possession. This may involve
accepting income below market levels but helps us retain cash flow
until we are ready to commence a scheme. During this period, we
will negotiate with landlords if we do not hold the property freehold,
and will work with our many design team relationships, including
experts in minimising any adverse social and environmental impacts,
to arrive at a firm design. This also requires liaising with the relevant
planning authorities to seek planning consent and consulting with
local communities and other key stakeholders.
D
Risk mitigation
We try to achieve the appropriate balance of risk and return for
the business. This enables us to start schemes speculatively,
i.e. without any pre-letting in place. By ensuring the end-product
will appeal to as many occupiers as possible, we often receive
early interest from potential tenants once we are on site. Design
and construction of these large and complex projects requires
considerable skill, experience and teamwork so we have developed
long-standing relationships with a chosen group of consultants,
contractors and subcontractors to minimise risks of delivery. Those
risks principally relate to time delays and/or cost overruns, but
there are many technical and physical constraints too. Preparation
of an annual ‘five-year plan’ helps us anticipate and maintain a
balance between income/dividend growth and value adding
through our higher risk projects, both now and into the future,
influenced by our responsibilities to our various stakeholders.
E
Pre-letting during construction
Supported by our reputation for delivering well-designed and
affordable buildings, we frequently de-risk projects by agreeing
pre-letting 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 many years into
the future.
52% CORE INCOME
F
Income and reversion
Once a building is completed and let, it moves to the ‘core income’
part of our ‘doughnut’ chart. Here, we focus our portfolio
management skills on satisfying our tenants’ needs, growing or
maintaining income and minimising voids, and adding further value
where we see opportunities. In the Covid-impacted world, we have
focused on extending leases or removing lease breaks, sometimes
for relatively short terms, to help our occupiers better understand
their evolving needs while keeping our vacancy rate low.
G
Recycling assets
We will often look to dispose of a property when we believe that we
have extracted most of the upside in value, or where it no longer
satisfies our investment criteria. This frees up time and finance
for the next generation of acquisitions and projects. In today’s
marketplace where top quality buildings offering adaptability,
environmental benefits and excellent amenities are in short supply,
we anticipate outperformance against benchmarks over the
short- to medium-term so are electing to hold certain tier one
properties for longer than previously.
Financial StatementsGovernanceStrategic report 40
OUR STRATEGY CONTINUED
2. TO GROW RECURRING EARNINGS AND CASH FLOW
Property valuations are essentially determined by contracted and
expected future cash flows in combination with a market yield
which takes account of risk, growth expectations, quality,
environmental considerations and other factors.
Creating and then capturing reversion
By establishing the right conditions for a property, we can both add
value over the longer-term and increase cash flow, but they can
occur at different times of the property cycle. The value creation
normally comes first as expectations of rental growth emerge
thereby giving rise to what we call ‘reversion’, i.e. the expectation
that income will grow from its current passing level.
Asset management actions
Our asset managers seek to capture income reversion through rent
reviews, lease regears or other forms of 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. In recent years, we have been successful at
capturing reversion. Rental growth, however, has been slow
since the EU referendum in 2016 and rents have fallen in inflation-
adjusted terms (see London market review on pages 14 to 17).
What we do to capture reversion
— we work with tenants and consultants to arrive at appropriate
rent review outcomes;
— we negotiate to extend leases or remove break clauses;
— we arrange ‘block dates’ to gain possession of buildings
when a scheme is planned;
— 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 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; and
— occupiers are increasingly looking for flexibility and
adaptability. We have long taken a flexible approach at many of
our assets, for example at Tea Building E1. We also lease space
to flexible office providers and have an established ‘Furnished
and Flexible’ offer which we are adding to. At other buildings,
we aim for longer leases, particularly on larger lettings.
PERFORMANCE MEASURES
We use like-for-like rent analysis (see EPRA definitions on page
274) to measure how gross and net rental income has grown
within the non-development segment of the portfolio. We
monitor irrecoverable costs through the EPRA cost ratio and
void percentages. We also place considerable emphasis on
growing EPRA earnings and returns to shareholders over
the long-term.
Profile of rental income expiry
Change in lease expiry profile at December 2021
(vs December 2020)
Contracted rental income %
Contracted rental income (%)
7
4
9
3
70
60
50
40
30
20
10
0
3
5
6
3
4
3
9
2
7
1
9
1
1
7
2
2
Up to 5
5 to 10
10 to 15
Years to expiry
15 to 20
Over 20
45
40
35
30
25
20
15
10
5
0
No lease breaks exercised
Lease breaks exercised at first opportunity
31 December 2020
31 December 2021
7
1
1
1
–
4
1
3
1
9
9
9
2
1
1
1
5
4
2021
2022
2023
2024
2025
2026
2027+
Derwent London plc Report & Accounts 2021
3. TO ATTRACT, RETAIN AND DEVELOP
TALENTED EMPLOYEES
Our employees are hugely valuable in the successful
delivery of Derwent London’s strategy and 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 to build long-term relationships with our
colleagues and other stakeholders. Our employees are our brand
ambassadors and we therefore invest considerable time and
resources in development and growth opportunities. When we
recruit externally, we look for 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, Sustainability
and Health and Safety Committees) which, together with the
project teams, report into our Executive Committee.
41
Derwent London conducted another staff satisfaction survey in
Q4 2021 which achieved very high scores and a response rate of
97%. These surveys are a forum for staff to provide honest, open
feedback, helping us identify areas where we have made a positive
impact and opportunities for improvement going forward. The
Group enjoys a high rate of staff retention with 29% having been
with the business for more than ten years but we are pleased to
have also welcomed 30 new employees in 2021.
We want all our employees to be able to bring their true selves
to work, feel valued and be part of a happy and supportive team.
As a result, diversity and wellbeing remain high on the agenda and
we were delighted to be awarded the National Equality Standard
accreditation for equality, diversity and inclusion at the end of
2021, a significant milestone in our journey. We remain focused on
building on this strong foundation and embedding our diversity and
inclusion ambitions throughout the business with mechanisms in
place for continuous review and measurement of progress.
Overall employee satisfaction
Proud to work at Derwent London
90.5%
94%
89%
Staff retention
25 Savile Row W1
Financial StatementsGovernanceStrategic report 42
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 52 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 52 to 55, together
with our full TCFD (Task Force on Climate-related Financial
Disclosures) disclosure on pages 68 to 73.
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
pages 26 and 27 for more information on stakeholder engagement).
An expanding body of evidence shows that a building’s leasing
credentials are increasingly influenced by its environmental
credentials. EPC ratings are a visible and commonly used
sustainability metric. Forthcoming changes to MEES legislation
are seen as an important moment for the sector. Our portfolio is
compliant with 2023 legislation (EPC ‘E’ or above) and 40% 2030
compliant (EPC ‘B’ or above) excluding projects which account for
a further 18%.
In 2021 we commissioned a third party report to determine the
upgrade costs to ensure 2030 compliance across our portfolio.
We estimate it will cost c.£97m by 2030 of which part may be
recoverable through the service charge. An exercise is now
underway to prioritise the order of works. See page 55 for
further details.
Members of the Sustainability and 80 Charlotte Street Building Management teams
Derwent London plc Report & Accounts 2021 43
5. TO MAINTAIN STRONG AND FLEXIBLE FINANCING
Derwent London’s financing model is based on the
following principles:
We finance our business using equity and a moderate level of debt
from a wide variety of sources. We are relationship driven and value
consistency and reliability with our lenders but we also look to be
progressive and innovative.
Our overriding principle is one of modest financial leverage and
generous interest cover, to balance the relatively higher 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
demonstrates that cash flows can be funded without delay and
reassures our management team and our stakeholders that the
development pipeline is capable of being financed and delivered
without overstretching the balance sheet.
In 2021, we extended our long-term unsecured fixed rate debt
portfolio with a debut green bond issue of £350 million. This was
supported by some updates to our Green Finance Framework,
originally adopted in 2019. The bond issue was very well received
and priced at just under 2% pa for a 10-year term. It lowers our
weighted average cost of borrowing while extending our financing
headroom and opening up a new form of fixed rate debt to
supplement the convertible bond and private placement markets
where we are already well known. We also extended our two
revolving bank facilities, repaid a small bank loan secured on
the Baker Street properties previously held in joint ownership
with The Portman Estate and converted our bank facilities from
LIBOR to SONIA.
— conservative financial leverage to balance the business’
relatively high operational leverage;
— a strong focus on interest cover to support our credit rating
(Fitch issuer default rating of ‘A-’ 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, valuing the
stability and mutual understanding that this creates over an
approach that seeks the very lowest funding cost.
OUR REIT STATUS
Derwent London plc has been a Real Estate Investment Trust
(REIT) since July 2007. The REIT regime (see page 276) 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 2021, £8.6m was paid to HMRC.
Sources of drawn debt1
£m
Revolving credit facilities
Secured loan
US private placement notes
Secured bonds
Unsecured green bonds
Unsecured convertible bonds
10.0
83.0
455.0
175.0
350.0
175.0
1,248.0
Debt maturity profile1
£m
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
83
10
30
175
230
118
127
540
475
1 Excludes other loans of £12.3m
Fixed rate bonds and loans
Drawn bank loans
Headroom
1 Excludes other loans of £12.3m
Financial StatementsGovernanceStrategic report
44
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.
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
Energy intensity*
Carbon intensity
Accident Frequency Rate*
Staff satisfaction
* KPI introduced in 2021
Soho Place W1
Derwent London plc Report & Accounts 2021 Key
Strategic objectives
a balanced portfolio
1. To optimise returns and create value from
2. To grow recurring earnings
and cash flow
45
5. To maintain strong
and flexible financing
R Remuneration
talented employees
3. To attract, retain and develop
4. To design, deliver and operate our
buildings responsibly
Financial KPIs
Our performance
Strategic objectives
Other
TOTAL RETURN
Total return equates to the
combination of NAV growth plus
dividends paid during the year.
We aim to exceed our benchmark,
which is the average of other major
real estate companies.
Our total return in 2021 was 5.8%,
against a benchmark of 17.8%, as the
performance of several of our peers was
positively impacted by their investment
in other property sectors including the
industrial sector. Despite this, Derwent
London’s average annual return of
4.7% over the past five years against a
benchmark of 1.2% demonstrates the
ability of our business model to generate
above average long-term returns.
20
15
10
5
0
(5)
(10)
(15)
(20)
1. 2. 3. 4. 5.
R
%
17.8
7.7 6.6
5.3
0.7
6.6
5.8
(1.8)
(3.9)
(12.8)
2017
2018
2019
2020
2021
Derwent London
Weighted average of major UK real estate companies
TOTAL PROPERTY RETURN
Total property return is used
to assess progress against our
property-focused strategic
objectives. We aim to exceed the
MSCI Central London Offices Index
on an annual basis and the MSCI
UK All Property Index on a three-
year rolling basis.
There was a 9.2% valuation uplift across
our three major schemes in the year –
Soho Place W1, The Featherstone Building
EC1 and 19-35 Baker Street W1 – due to
good progress on delivery and derisking
of the projects. These developments
contributed significantly to the portfolio’s
revaluation performance and were the
main reason for the 0.4% outperformance
of the MSCI Central London Offices Index
during 2021.
The three-year rolling average of 4.7%
pa demonstrates our ability to generate
returns against a background of relatively
stable rents and yields. This was a 0.4%
underperformance against the MSCI UK
All Property Index and was mainly due
to the strength of the industrial sector in
2020 and 2021.
7
6
5
4
3
2
1
0
(1)
(2)
(3)
Annual
8
8.0
7.1
6.0
5.3
7.4
4.1
1. 2.
R
%
6.3
5.9
0.3
XX
2017
2018
2019
(2.4)
2020
2021
Derwent London
MSCI IPD Central London Offices Index
Three-year rolling
16
%
14
12
10
8
6
4
2
0
10.3
8.9
6.6
5.6
7.1
5.8
4.6
4.7 5.1
1.6
2017
2018
2019
2020
2021
Derwent London
MSCI IPD UK All Property Index
Financial StatementsGovernanceStrategic report
46
MEASURING OUR PERFORMANCE CONTINUED
Financial KPIs
Our performance
Strategic objectives
Other
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, in comparison to those of our
peers mainly invested in other property
sectors, has meant that the Group
underperformed its benchmark index
in 2021. Despite this, the Group has
delivered long-term returns slightly
above the benchmark index, which is
demonstrated by the fact that £100
invested in Derwent London at the
start of 2012 was worth £271 at the end
of 2021, compared with £266 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 40.
EPS on an EPRA basis increased 9.7%
to 108.79p per share in 2021. This is
mainly due to the 2020 EPS being
impacted by 9p per share of write-offs/
impairment of receivable balances, to
reflect the weakened financial position
of some of our tenants. In 2021, write-
off/impairment was only 1p per share.
This was due to the improved financial
position of many of our tenants. Note that
the 2018 EPS included a one-off receipt of
14p per share.
GEARING AND AVAILABLE RESOURCES
The Group monitors capital on the
basis of NAV gearing and the LTV
ratio. We also monitor our undrawn
facilities and cash, and the level of
uncharged properties, to ensure
that we have sufficient flexibility to
take advantage of acquisition and
development opportunities.
Cash and undrawn facilities increased in
the year following the £350m green bond
issue. This was partially offset by net
investment in our portfolio.
The acquisitions in the year led to an
increase in the NAV gearing and LTV
ratios, but both remain at low levels.
INTEREST COVER RATIO (ICR)
We aim for interest payable to be
covered at least two times by net
rents. The basis of calculation is
similar to the covenant included
in the loan documentation for
our unsecured bank facilities.
See note 42 for the calculation
of this measure.
The net interest cover ratio (ICR)
increased again in 2021, mainly due to
write-off/impairment of the receivable
balances in 2020, which was included in
net property income. As a result of the
improved financial position of many of
our tenants in 2021, there have been less
write-offs/impairments required in the
year. Rental income would need to fall
by 69% before the main ICR covenant of
145% was breached.
1. 2. 3. 4. 5.
36.3
26.4
R
%
27.2
10.3
15.6
13.1
0.9
(9.2)
(14.1)
(16.6)
2017
2018
2019
2020
2021
Derwent London
FTSE UK 350 Super Sector Real Estate Index
1. 2.
94.23
113.07
103.09
99.19
p
108.79
2017
2018
2019
2020
2021
40
35
30
25
20
15
10
5
0
(5)
(10)
(15)
(20)
(25)
(30)
120
100
80
60
40
20
0
LTV ratio
NAV gearing
Cash and undrawn facilities
Uncharged properties
5.
2020
18.4%
24.3%
£476m
2021
20.8%
28.2%
£608m
£4,329m £4,769m
5.
500
400
300
200
100
0
454
491
462
446
464
%
2017
2018
2019
2020
2021
Benchmark
Derwent London plc Report & Accounts 2021 47
80 Charlotte Street W1
Non-financial KPIs
Our performance
Strategic objectives
Other
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 there are sufficient
opportunities for future value
creation in the portfolio.
TENANT RETENTION
Maximising tenant retention
following tenant lease breaks
or expiries when we do not have
redevelopment plans minimises
void periods and contributes
towards net rental income.
The Group’s ERV increased by £2.7m
during 2021 to £293.9m. This was helped
by the uplift and full inclusion of 19-35
Baker Street, partly offset by disposals in
the year. The 2021 ERV included potential
reversion of £115.5m, 65% of the net
passing rent of £178.4m, of which 47%
is contracted.
With on-site developments representing
14% of the portfolio at the end of 2021,
and a further 34% identified as potential
schemes, there are considerable
opportunities to add value through
regeneration. Following the reshaping
of the portfolio in the year, which
included selling some non-core assets
and acquiring future development
opportunities, our balance between
core income and development potential
is close to 50/50.
Our retention and re-let rate was 77%
in 2021, which is below our average of
87% over the past 5 years. This is mainly
due to minor refurbishment works being
carried out on a number of units in which
leases expired during the year.
1. 2.
2017
69
2018
72
2019
79
2020
54
2021
65
1.
R
2017
44
2018
41
2019
43
2020
43
2021
48
%
%
2.
2017
6.4
Exposure (£m pa)¹
57
Retention (%)
35
Re-let (%)
92
Total (%)
1 Excl. properties sold during the year and space taken back
2019
10.4
83
7
90
2018
14.6
76
14
90
2020
12.5
65
22
87
for projects.
R
2021
19.7
47
30
77
Financial StatementsGovernanceStrategic report 48
MEASURING OUR PERFORMANCE CONTINUED
Non-financial KPIs
Our performance
Strategic objectives
Other
Our ability to retain tenants and let space,
particularly at our on-site developments
and major refurbishments, has kept the
vacancy rate low. At the end of 2021, our
EPRA vacancy rate was under 2%, this
was helped by the successful letting
of all of 6-8 Greencoat Place SW1 prior
to completion. Additionally, our asset
managers have focused on tenant
retention and the re-gearing of leases
where possible across the portfolio.
1. 2.
1.8
R
%
1.6
1.8
1.3
0.8
3.0
2.5
2.0
1.5
1.0
0.5
0
2017
2018
2019
2020
2021
VOID MANAGEMENT
To optimise our rental income
we plan to minimise the space
immediately available for letting.
We aim for this to be below
10% of the portfolio’s estimated
rental value.
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.
Our three developments currently on
site were rated or expected to be rated
BREEAM ‘Outstanding’ or ‘Excellent’ at
Design Stage.
Following the completion of 80 Charlotte
Street in 2020, it received a final BREEAM
rating of ‘Excellent’ in 2021.
Soho Place W1
The Featherstone
Building EC1
19-35 Baker Street W1
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). We target a minimum
certification of ‘A’ for major new-
build schemes and ‘B’ for major
refurbishments.
ENERGY INTENSITY
This is a new KPI for 2021, and is
measured by energy consumption
(kWh) per square metre of landlord-
controlled floor area across our
managed like-for-like portfolio.
Our target is an annual decrease of
between 2% and 4% pa.
Our three on-site developments, Soho
Place, The Featherstone Building and
19-35 Baker Street are all targeting a
certification of A or B.
Soho Place W1
The Featherstone
Building EC1
19-35 Baker Street W1
1 Targeted
In 2021 landlord energy intensity in the
like-for-like portfolio increased by 3%.
This was outside our target range mainly
due to increased occupation levels across
the portfolio. The 28% reduction achieved
since our base year of 2013 means we
are on course to meet our 2027 energy
intensity target. In 2022, we will continue
to review our targets to ensure they are in
line with our Net Zero Carbon Pathway.
1.20
1.00
0.80
0.60
0.40
0.20
4.
Completion
Rating
H1 20221 Outstanding2
H1 20221 Outstanding2
H1 20251
Excellent1
4.
Completion
H1 20221
H1 20221
H1 20251
Rating
B1
A1
A1
4.
R
(2013 = 1.00)
0
2013
2015
2017
2019
2021
2023
2025
2027
Derwent London
IEA ETP emissions
Derwent London plc Report & Accounts 2021 49
Non-financial KPIs
Our performance
Strategic objectives
Other
CARBON INTENSITY
This is measured by emissions
intensity per square metre of
landlord-controlled floor area
across our managed like-for-like
portfolio. Our target is an annual
decrease of between 5% and
10% pa.
In 2021 landlord (Scope 1 & 2) emissions
intensity in the like-for-like portfolio
decreased by 2%. Despite an increase
in energy intensity as a result of
the reoccupation levels across the
portfolio, we are benefitting from the
decarbonisation of the grid and the start
of our transition to all electric heating
and cooling systems. The 55% reduction
achieved since our base year of 2013
means we are on course to meet our 2027
emissions target. In 2022, we will continue
to review our targets to ensure they are in
line with our Net Zero Carbon Pathway.
4.
R
(2013 = 1.00)
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
ACCIDENT FREQUENCY RATE (AFR)
This is a new KPI for 2021, and is
calculated based on the number
of RIDDOR injuries during the year
multiplied by 1,000,000 and divided
by the number of hours worked.
STAFF SATISFACTION
The satisfaction of our employees
is assessed through a number of
questions in the staff survey. We
aim to keep the satisfaction rate
above 80%.
In 2021, the AFR was 1.26 with only two
RIDDORs reported. This is down from
2.72 in 2020, in which six RIDDORs were
reported. The reduction has come mainly
as a result of making health & safety
a priority on all projects and ensuring
the expectations and standards are
communicated early on and included
in all tenders.
Despite another year of significant
challenges for individuals and the
business, staff satisfaction in 2021
remained high at 91%. We believe these
figures reflect our collaborative and
supportive workplace culture and the
pride our staff feel in working for Derwent.
%
%
4.
R
2020
2.72
2021
1.26
3.
R
2017
96.0
2018
90.4
2019
92.5
2020
96.3
2021
90.5
Financial StatementsGovernanceStrategic report 50
RESPONSIBILITY
Understanding and balancing the environmental, social and
governance issues specific to our business is fundamental to
operating responsibly. We believe this approach enables us to
continue to deliver long-term value for all our stakeholders.
ESG REPORTING STRUCTURE AND 2021 HIGHLIGHTS
ENVIRONMENTAL
SOCIAL
Pages 52 to 75
Pages 56 to 75
— Climate change
— Net zero carbon
— Our journey to COP26
— Office buildings’
energy performance
— Our people
— Community, occupiers and
other stakeholders
— Health & safety
GOVERNANCE
Pages 64 to 75
— Climate change
— Green finance
— Supply chain
— Human rights
— Tax
In 2021 we introduced processes to
monitor and track our progress to be net
zero carbon by 2030, we surveyed our
occupiers on their own ESG plans,
attended COP26 highlighting our plans
for renewable energy on our Scottish
land and commissioned a detailed
survey of the costs involved in upgrading
the portfolio to EPC B by 2030.
Health, wellbeing and safety of our staff
and people in and around our buildings
remained a core focus. In addition, we
achieved a strong National Equality
Standard result, conducted our fourth
independent biennial employee survey
and supported our communities through
our Community Fund, sponsorships
and donations.
During 2021 we hosted in-person
stakeholder and investor days,
received independent assurance
of our green finance reporting and
continued mandatory compliance
training across the Group.
7%
Reduction in like-for-like
water consumption
3%
Reduction in landlord emissions
“The delight and
enthusiasm from pupils
is palpable! This is an
exciting new initiative for
us at Mousetrap and we
are so grateful to Derwent
for making it possible”
Mousetrap Theatre Projects
Women on the Board
42%
4Employee representatives on the
Responsible Business Committee
Derwent London plc Report & Accounts 2021 ESG in our business
Derwent London takes a responsible approach to business by
seeking to maximise our positive impact on stakeholders, while
minimising the negative ones. Our long-term approach to investing
in London ‘villages’ and fostering relationships with our occupiers,
supported by innovative design, combine to provide us with a
platform to make a meaningful impact.
We recognise the importance of transparent and independently
assured reporting and the need to be bold, such as being the
first UK REIT to publish its Net Zero Carbon Pathway. We continue
to learn, and recognise the importance of working with our
stakeholders and others across our industry to achieve the
best results.
We also know that this discipline is fast evolving which means our
frameworks need to follow suit. Within our industry we are in a
relatively good position to adapt as we are well resourced and
have the relevant experience and expertise.
ESG is embedded throughout our business to ensure its
effectiveness. Although ESG aspects are often discussed
individually, they need to work together to maximise our impact
on society and the environment. This broader view improves our
ability to manage risk and creates value for all our stakeholders.
Our latest Responsibility Report is available to download at
https://rr.derwentlondon.com
2021 RATINGS
GRESB (Global Real Estate
Sustainability Benchmark)
2021 – score of 81, Greenstar
status, 'A' rated public disclosure
CDP 2021 – 'C' rating
DISCLOSURE INSIGHT ACTION
ISS Oekom – Prime status
MSCI – 'AA' rating
EPRA Sustainability Reporting
Awards 2021 – Gold award
51
OUR 7 ESG PRIORITIES
Our Responsibility Policy and Strategy
(available on our website) sets out what
operating responsibly means to us. There
are seven long-term priorities intrinsic to our
business and the needs of our stakeholders:
ASSETS RESPONSIBLY
BUILDINGS RESPONSIBLY
CREATING VALUE IN THE COMMUNITY
AND FOR OUR WIDER STAKEHOLDERS
1. DESIGNING AND DELIVERING
2. MANAGING OUR
3.
4. SETTING THE HIGHEST STANDARDS
5.
6.
7.
SETTING THE HIGHEST STANDARDS
OF CORPORATE GOVERNANCE
ENGAGING AND DEVELOPING
OUR EMPLOYEES
PROTECTING
HUMAN RIGHTS
OF HEALTH AND SAFETY
Clear and robust measurement and reporting underpins our
work. We adopt a variety of reporting frameworks enabling our
performance to be measured across different ESG platforms
(see page 66).
Our environmental, health and safety and green finance
data is assured at the reasonable level by Deloitte LLP. Our
auditor’s opinions can be found with their assurance statements
in the latest Responsibility Report (https://rr.derwentlondon.com).
Financial StatementsGovernanceStrategic report
2021 Progress
The focus for the year was to put robust processes in place to
enable us to monitor and track our progress towards being net zero
carbon by 2030.
Investment portfolio
Commitment
Our investment portfolio, including both managed and unmanaged
properties (see glossary), will be operated on a net zero carbon
basis by 2030. This involves driving down our energy consumption
significantly, upgrading and retrofitting some of our properties to
remove gas use and improve efficiency, as well as collaborating
with our occupiers.
Progress
Scope 3 (see glossary) emissions are a significant part of our
carbon footprint. Steps taken to address these in 2021 included:
— Setting building specific operational energy targets aligned
with a 1.5ºC scenario. This provides an annual roadmap for
each building to reach its 2030 targets
— Undertaking an EPC report to identify energy savings and to
ensure we are meeting the Minimum Energy Efficiency
Regulations for 2023 and 2030
— Recognising that collaboration is the way to achieve the best
net zero outcome, in September 2021 we launched a net zero
carbon occupier survey (see page 12) which focused on getting
a better understanding of how we can support our occupiers to
achieve their net zero goals
A key message from the survey is that our occupiers are keen to
work with us. This was evident in the engaging questions they
raised such as: ‘where do we start’, ‘where do the landlord’s
emissions end and occupiers’ begin’, and ‘how do we integrate
carbon reduction into day-to-day activities’.
The benefit of getting this level of detail from a wide spectrum
of occupiers is that it helps us identify where to concentrate
our efforts. Some easy wins include informing our occupiers of
what we’re already doing, such as providing renewable electricity.
We can also share with them details of our key facilities
management collaborators who support sustainable operations.
52
RESPONSIBILITY CONTINUED
ENVIRONMENTAL
Incorporating the right environmental
and climate change measures across
our business enables us to operate
responsibly and mitigates potential
negative impacts.
2021 HIGHLIGHTS
— Published revised Responsible Development Framework
— Conducted net zero carbon occupier survey
— Established building specific operational energy targets
in line with 1.5ºC science-based scenario
Climate change
Global warming is a material issue for our business and society.
In 2020 we published our Net Zero Carbon Pathway which sets out
how we intend to lessen our impact on climate warming. We use
the Task Force for Climate-related Financial Disclosures (TCFD)
recommendations and reporting framework to demonstrate our
approach to managing climate-related risks (see pages 68 to 73).
Net Zero Carbon Pathway
2021 marked the first full year following the release of our Net
Zero Carbon Pathway, which is aligned to the Better Buildings
Partnership (BBP)’s Net Zero Carbon Pathway Framework.
As part of our commitment, we analyse our activities to
ensure we are reducing our carbon footprint across all our
spheres of influence. Our strategy focuses on three principal
areas: investment portfolio, development pipeline and
corporate activities.
The Group reports annually on its progress towards net zero by
2030. A brief outline of our 2021 progress is set out below and a
more detailed review can be found in our Responsibility Report.
In addition, since 2018, we have disclosed our energy performance
at portfolio and individual asset levels, as well as the embodied
carbon of our latest developments (see Responsibility Report).
6-8 Greencoat Place SW1
EPC rating raised from E to B in 2021
Derwent London plc Report & Accounts 2021
53
19-35 Baker Street W1 is the
Group's first NABERS-UK project
Our occupiers are at different stages of their journeys, and
this survey was for many the first step in working together with
us. In 2022 we will use the survey results, as well as follow up
conversations, to guide our actions so that together we can help
lower operational carbon.
Development pipeline
Commitment
New developments and major refurbishments will be net zero
carbon on completion. Embodied carbon produced in the
development process will be offset and the buildings will be
operated using renewable energy and have appropriate energy
reduction targets in place.
Progress
In April 2021, we published our updated Responsible Development
Framework, which sets new net zero minimum requirements for
our developments. This includes, but is not limited, to:
— Designing and constructing our buildings for operational
efficiency. We have set a minimum NABERS UK 4-star rating
for future schemes
— Consideration of embodied carbon assessments and lower
carbon design options, including refurbishment
— Lower operational water consumption targets
— Assess feasibility of suitable renewable technology
— Carrying out post completion evaluations 12 months
after full occupation
We understand the whole industry needs to make significant
changes in the next decade if we are to collectively meet our net
zero carbon commitments. Therefore, when setting standards for
our new projects, we emphasise engaging with other stakeholders
so that together we can have a stronger impact. Throughout 2021
we spoke to many contractors to understand what was possible, as
well as the challenges presented by the use of innovative materials
such as low carbon or cement-free concrete or cross-laminated
timber. This work continues as we seek to better understand the
impacts of using non-traditional materials.
In H2 2021 we set embodied carbon targets based on our
own experience since 2013, as well as industry guidance.
A development’s embodied carbon, particularly the building’s
structure, makes up a significant part of the carbon footprint.
We work closely with our design and construction team to assess
and reduce this. However, we recognise that the supply chain will
also need to adapt to fully achieve our aims. Therefore, our targets
are phased as follows:
— Commercial Office New Build developments completing from
2025: <600kgCO2/m2
— Commercial Office New Build developments completing from
2030: <500kgCO2/m2
We are also introducing targets for our major refurbishments, which
will be based on our latest projects, as well as industry standards.
Financial StatementsGovernanceStrategic report 54
RESPONSIBILITY CONTINUED
ENVIRONMENTAL
Corporate activities
Commitment to renewable energy
Our commitment is to ensure that all the energy we procure is
from renewable sources (both electricity and gas).
Progress
We continue to procure 100% renewable, REGO backed electricity.
To date 23% of our gas supplies are from green gas sources and
we are reviewing how we can increase this. Other activities during
the year included:
— Our renewable energy feasibility study continued
— Submitted planning application for an 18.4MW solar park at
Lochfaulds Farm. Subject to planning permission, this could
provide the equivalent of 43% of the electricity needs of our
managed portfolio based on 2019 consumption
Commitment to offsetting
Where we are unable to manage out or eliminate carbon from our
business activities these emissions will be offset using robust,
verified carbon offset schemes.
Progress
In 2021 we completed the following schemes and offset the
residual carbon through our provider Natural Capital Partners:
— 19-23 Fitzroy Street – 180 tCO2e
— 3-5 Rathbone Place – 161 tCO2e
— 6-8 Greencoat Place – 763 tCO2e
— DL/78 – 93 tCO2e
The adopted scheme related to reforestation projects in
East Africa and is validated under VCS and CCB.
We are also looking at offsetting in the UK. We planted 30ha of trees
in Scotland in 2015 and have now received our first carbon offset
credits. We are investigating planting a further 425ha across our
Scottish land (equivalent to 794 football fields). Assuming only
half our plans prove to be feasible, 25 years after planting the
sequestered carbon from this woodland would be sufficient to
offset over four years of our current anticipated annual residual
emissions across the whole portfolio.
For a more detailed breakdown of our pathway see our
Responsibility Report.
Paul Williams being interviewed on COP TV
Our journey to COP26
Over its 26-year history the Conference of the Parties (COP) has
been the central forum driving nations’ progress in dealing with
climate change. COP26 was the first time the conference was held
in the UK and businesses and policy makers were brought together
to galvanise efforts to limit global warming to 1.5ºC.
The run up to the conference enabled the Group to learn from and
broaden its contacts with leading experts and other businesses
tackling climate change, as well as highlighting the work going on
across our industry. As part of this, we shared our own experiences
of our net zero carbon journey to date. This work continued
throughout the year with some Directors and members of the
Sustainability team sitting as panellists in virtual conferences or
contributing articles to various journals. In these, we gave insights
into our recent work in the portfolio and green finance, often
supported by occupiers or funders. The overriding theme was the
importance of collaboration to optimise environmental outcomes.
This was also the theme of our Stakeholder Day where we explored
mutual opportunities to best effect change.
At COP26 itself we highlighted the work we are undertaking
locally on our Scottish land as part of our net zero carbon journey.
Two examples are our plans for a solar park which, if successful,
could power up to 6,300 homes, and the potential expansion of our
tree planting programme. In addition, during the dedicated ‘Cities,
Regions and the Built Environment’ day, our Chief Executive Paul
Williams, presented in the conference’s main discussion arena.
Whilst the conference failed to achieve a commitment by all nations
to limit global warming to the 1.5ºC scenario, more progress was
made in climate change reporting with the decision to set up a
system of universal sustainability disclosures which will be
governed by International Financial Reporting Standards (IFRS).
This will lead to improved transparency and consistency across
the global economy.
For further details of our carbon data and climate-related
disclosures see pages 67 to 75 and our Responsibility Report.
Derwent London plc Report & Accounts 2021 55
Environmental performance in 2021
Carbon
Overall, 2021 saw a double digit rise in re-occupation numbers.
This led to a slight increase in energy intensity, however, we are
benefitting from the decarbonisation of the grid and the start
of our transition to all electric heating and cooling systems,
and therefore saw a 3% reduction in our Scope 1-3 emissions
(based on Scope 1 and 2 market-based emissions).
For more information see the Responsibility Report.
Energy
Our total energy consumption (including tenant and landlord)
increased by 1%. In 2021, our Asset and Property Management
teams continued to work closely with our tenants to understand
their work from home plans, reviewing our chiller strategies to
divert services to only active or occupied zones where possible
and enhanced optimisation of plant schedules. The impact of
increased occupation was offset by the disposal of Angel Square
and demolition of the existing buildings on the 19-35 Baker Street
development. As a result, we remain within our 2021 and longer-
term energy reduction targets (see below).
A positive step is that our landlord-only electricity consumption
decreased in 2021, benefitting from the management of our
partly occupied buildings, whilst tenant electricity consumption
(lighting and small power) increased significantly, emphasising
the importance of our occupier engagement strategy which we
will continue to develop over 2022.
Total building energy intensity
kWh/m2
200
160
120
80
40
0
-4%
-4%
-4%
-4%
-4%
-4%
-5%
-4%
-4%
2019
Baseline
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Actual
Target
% Target reduction year-on-year
Source: Derwent London
Water
In 2021 our water consumption intensity increased by 3%
compared to 2020. This closely follows occupancy levels, in so far
as from April to December last year our water consumption was up
from 2020, however, January-March levels in 2021 were
significantly below the pre-covid levels of early 2020.
Waste
Our recycling rate was 65% compared to 66% last year.
The majority of recyclable waste comes from occupier waste
streams, i.e. food waste, coffee cups, paper, packaging and
glass. As a result, our recycling rate remains below our 75% target.
This is expected to improve with higher re-occupation levels, and
will be a focus for our occupier engagement strategy for 2022.
OFFICE BUILDINGS’ ENERGY PERFORMANCE –
LOOKING TO THE FUTURE
To address the significant part the built environment plays
in the UK’s carbon footprint, the UK Government consulted
on the desired levels of buildings' minimum energy efficiency.
It concluded that from 2030 the minimum energy performance
certificate (EPC) rating should be increased to B (from E in
2023). This represents a major transformation, as the average
EPC rating across London’s office properties is currently D.
The outcome was not unexpected and tighter legislation is
included in our risk analysis. During 2021 we commissioned a
comprehensive report of the feasibility and costs of achieving
a minimum grade of B across our portfolio by 2030, as well as
identifying those properties that could become stranded as a
result of not being able to be upgraded.
The report concluded that the estimated costs of improvement
were c.£97m, in line with our previous guidance, and with no
building expected to be stranded. The majority of these
additional costs relate to upgrading lighting to LED, new
on-floor equipment, such as fan coil units, and replacing
heating and cooling plant.
We envisage a proportion of these costs will be recoverable
from service charges and some elements have already been
included in our valuations. We believe that the initial costs will
be offset by the benefit of higher future income returns.
In addition to raising the minimum EPC rating, the government
is also consulting on the proposed introduction of a building
performance standard which would enable public disclosure
of a building’s actual energy performance, similar in approach
to the Display Energy Certificate (DEC). Like the EPC changes,
we believe this will become a feature of the property market.
Within the BBP we helped bring an established Australian
scheme, NABERS, to the UK. NABERS works on a rating
system of 1-6 stars, with the score independently verified in
operation. Our 19-35 Baker Street scheme is one of the first
UK projects to adopt this system. Also, as a corporate target,
we have set a minimum 4-star rating on all our new schemes.
Francis House SW1
Targeting EPC B in 2022
Financial StatementsGovernanceStrategic report 56
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.
2021 HIGHLIGHTS
— Received National Equality Standard accreditation, our
results placed us in the top 5% of all companies surveyed
— Voted top in the sector and 38th overall in Management
Today Britain’s Most Admired Companies
— Conducted our fourth biennial independent
employee survey
Health and wellbeing
2021 was another unusually challenging year and we have all
been affected by the pandemic in different ways. Our teams
worked extremely hard in difficult circumstances and we remained
focused on safeguarding and supporting the health and wellbeing
of our employees.
We provide our employees with a range of benefits, services and
support whilst encouraging them to take a proactive role in their
own wellbeing. We continue to ensure individual physical and
psychological safety and to embed ‘agile’ ways of working to
ensure our employees have a good work-life balance.
Prior to returning to the office, we updated our office protocols
and implemented a compulsory 30-minute online induction course
to present our Covid-19 safety measures. These protocols continue
to be regularly reviewed with updates clearly communicated. Our
recent employee survey found 81% of respondents believed that
‘the Company is committed to ensuring the health and wellbeing
of employees’.
Other activities focused on resilience and all aspects of positive
wellbeing (physical, psychological and financial) including:
— Our Occupational Health provider presented on various topics
including long Covid, vaccines, variants, responsible behaviour
and supporting others
— The Group’s intranet provided newsletters, podcasts and
webinars, as well as links to websites, mental health charities
and other services
— Care packages were sent to employees living alone, single
parents or those in caring roles
— Completed ‘Fit for The Future’ programme for third
— Over 10% of employees are now trained as Workplace Mental
group of employees
— Maintained health and wellbeing initiatives and
increased our mental health champions’ network
11
Internal promotions
during 2021
89%
Employee retention rate
Staff survey
Health First Aid Champions
— Separate ‘Men’s Health’ and ‘Women’s Health’ workshops were
conducted and well attended
— A financial wellbeing seminar was run by our pension providers
— Social Committee events restarted in person, enabling
relationships to be built in a relaxed environment (especially
important for new joiners)
— Several ‘lunch and learn’ sessions were run including topics
such as mental health (run by a TED talk speaker), resilience
and boosting happiness
— Continuing involvement with community projects and
volunteering (see page 61)
Going forward, we continue to review workloads, encouraging
a good balance between work and personal commitments,
whilst fostering wellbeing and mental health.
Agreed
88%
81%
Agreed
“I feel that I can make a valid
contribution to the success of
Derwent London”
“I feel that the Company is
committed to ensuring the health
and wellbeing of employees”
DL/ 78 Customer team. DL/78 hosted a number of
staff and customer events during the year
Derwent London plc Report & Accounts 2021 Diversity and inclusion (D&I)
Derwent London is a respectful employer that welcomes diversity
and promotes equality, acceptance and teamwork. It is important
that we create an inclusive workplace in which our people can
bring their whole selves to work, feel valued and be able to make
a genuine impact.
The Group’s belief in ‘diversity of thought’ extends 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.
Our gender diversity data can be found on page 171.
D&I strategy topped our agenda in 2021 as we worked towards
achieving the National Equality Standard (NES). Seven areas
were assessed by EY: core components, talent, business,
people, leadership, relationships and review and measurement.
In December, we were delighted to be recognised for our
commitment (see page 58).
Our strong result reflected the passion and hard work of our
people who are committed to strengthening our D&I culture.
We continue to embed these ambitions throughout the
business, whilst regularly reviewing and measuring our
progress and impact on all our stakeholders.
“ It was an absolute pleasure working
with Derwent London on their
National Equality Standard
assessment. Derwent London has
made enormous strides, embracing
leading D&I practice across the
NES framework. Derwent London’s
certification, and the amount of work
that has gone in to achieving it, pays
testament to the importance it
places on having a diverse and
inclusive workplace culture.”
Simon Manterfield,
Senior Manager, EY
57
2021 D&I FOCUS
— Developed a comprehensive D&I strategy
— Internal promotions, effective from 1 January 2022,
improved the gender diversity of the Executive Committee
and achieved the Hampton-Alexander Review target
(see page 147)
— We are compliant with the Parker Review in respect of
Board ethnic diversity in advance of the 1 January 2024
deadline (see page 147)
— Enhanced existing generous family-friendly policies,
including 26 weeks full pay for maternity, adoption and
shared parental leave
— Continued unconscious bias awareness training for
all staff in collaboration with Chickenshed
— Nurtured a culture of transparency and openness to
encourage people to raise concerns and speak out
about bias or discrimination
— Continued to offer Parental Transition Coaching for
employees before, during and when returning from an
extended period of leave
— Encouraged women into our industry through work
experience and mentoring opportunities
— Maintained a diversity dashboard to better understand
our own business and whether key talent processes are
delivering equitable outcomes for different demographics
within Derwent London
— The Executive Committee attended Inclusive Leadership
Training to give them the tools and techniques to manage
diverse teams and personalities
— Our ‘Fit for the Future’ programme was enhanced to
include an Inclusive Management module
— Actively promoted D&I via the website and social media
— Incorporated D&I into our supply chain questionnaire to
ensure best practice
Given these initiatives, it was encouraging to see the results
from our recent employee survey regarding D&I and the
positive impact that this has had throughout the company
(see the case study on page 59).
The Social Committee arranged a football tournament
with Derwent London’s stakeholders
Financial StatementsGovernanceStrategic report 58
RESPONSIBILITY CONTINUED
IMPACT OF
OUR DIVERSITY &
INCLUSION WORK
DURING 2021
“ Derwent London should be
immensely proud of their National
Equality Standard certification, not
only because of their achievement
itself but also because they
responded to EY’s feedback with
absolute rigour and determination
and as a consequence their
results are some of the best
we have ever witnessed.”
Arun Batra,
CEO and founder of the UK National Equality Standard.
D&I Working Group receiving
our certificate from Arun Batra
Our initial National Equality Standard assessment by
EY took place between October 2020 and February 2021.
This provided us with an independent review of our Diversity
and Inclusion (D&I) policies and practices, with recommended
areas for improvement.
Over the next 10 months a new D&I Working Group established
clear priorities promoting D&I within Derwent London through
detailed measures setting out responsibilities and KPIs with
timelines. We have now been accredited with a result which
places us in the top 5% of the c.400 companies surveyed.
Derwent London plc Report & Accounts 2021 59
The latest employee survey carried out in October 2021
included questions on D&I to establish what impact our work has
had over the past 12 months. For the first time the survey asked
participants for their gender, ethnicity, disability and sexual
orientation as well as open D&I comment boxes. The results are
anonymous and included a ‘rather not say’ option.
Other positive results found:
— 82% agreed ‘Derwent London was an inclusive place to work’
— 84% agreed ‘I feel I can be myself at work’
— 84% felt ‘able to speak up in my team if I witnessed or
experienced behaviour which was not inclusive or respectful’
Given our recent work it was pleasing that 87% of respondents
believed that the ‘Directors visibly support the Company’s
commitment to D&I’. Progress was also reflected in that nearly
half of respondents agreed that ‘the work on D&I over the past
12 months has made them think differently and/or had an impact
on them personally.’
We also asked our employees to describe the culture of
Derwent London. The most mentioned words were ‘passionate’,
‘reputable’, ‘hard working’ and ‘professional.’ Other attributes
where the profile increased substantially from previous years
were ‘inclusive’ and ‘diverse’ which is encouraging in light of our
recent initiatives.
Financial StatementsGovernanceStrategic report 60
RESPONSIBILITY CONTINUED
SOCIAL
Staff survey
“I am proud to work for
Derwent London”
“I would recommend
Derwent London as a
great place to work”
Overall satisfaction with
working for Derwent London
Agreed
94%
87%
90%
Agreed
Very satisfied
or satisfied
Employee engagement
Our culture stems from our values and is a key strength of the
business. We stress the importance of inclusivity, collaboration,
and professionalism to help build long-term relationships with our
colleagues and other stakeholders. Employee engagement and
communication is very important. We have an ‘open-door’ policy
and are fortunate 80% of our employees are based at our head
office, 25 Savile Row W1, which enables effective, face-to-face
interaction. These factors, together with a range of formal and
informal communication channels (see page 135), have created
a highly engaged workforce.
During 2021, we continued to ensure open lines of communication
to enable our employees to stay positive, connected and
productive, whilst feeling valued and supported.
A valuable method to gather feedback and assess engagement,
is our independent biennial employee survey. The latest survey was
in Q4 2021 and we were delighted to achieve a 97% response rate
which, we believe, demonstrates an open culture. The results were
equally positive with 94% agreeing that they are ‘proud to work for
Derwent London’, 87% ‘would recommend Derwent London as a
great place to work’ and 88% ‘enjoy their day-to-day role’.
Our CEO leads monthly virtual town halls, supported by Directors
and our Head of HR. These meetings provided updates on strategy,
performance and initiatives, as well as Q&A sessions, team
presentations and several excellent guest speakers. We intend to
continue with these following the survey feedback as 96% of
respondents ‘find the town hall gatherings useful’ and 80% feel
‘adequately informed about our strategic direction’.
Attracting and optimising talent
We recognise that our employees are essential to the success
of the Group, therefore aim to create a culture which enables
our talented and diverse workforce to thrive. Derwent London
stresses the importance of staff feedback and encourages regular
performance conversations with line managers throughout the
year, in addition to formal biannual reviews.
The Group supports our employees to develop and grow their
careers. There were 11 internal promotions in 2021 including a
new Executive Director. In addition, a further eight promotions
were made from 1 January 2022, including three new Executive
Committee members. Comprehensive learning and development
programmes cater to all levels. These include a suite of core skills
training, our induction programme, internal technical workshops,
1-1 coaching, mandatory compliance training (see page 161),
bespoke building manager training and 360° feedback.
Our ‘Fit for the Future’ programme has been running for three
years and is an important aid to succession planning. To date, 51
employees have benefitted. Each group is mentored by a dedicated
coach and sponsored by two members of the Executive Committee.
The latter are heavily involved in the design and content of each
module which includes personal development, negotiation skills
and collaboration. The modules are supplemented with one-to-one
and group coaching sessions. The programme will be reviewed
during 2022, with the aim of relaunching in 2023.
Although we have a good record in recruiting from a diverse range
of candidates, the Group released new recruitment guidelines in
2021 to formalise our approach. These safeguard against bias, and
our diversity dashboard monitors outcomes to ensure these are
proportionate for different groups.
Our retention rate is high at 89%. 29% of our employees have more
than 10 years’ service, and 42% joined us over the past three years
(see page 171). We believe this provides the right level of continuity
and business knowledge, balanced with fresh ideas, skills
and experience.
One of the Staff Survey working groups
Derwent London plc Report & Accounts 2021 61
Community Fund
Our Community Fund supports projects which benefit the areas
in which we operate. In 2021 we considered applications for core
funding as well as grass roots projects in recognition of the impact
of the pandemic, with many community groups fighting for survival.
The fund supported 19 projects across the portfolio with a mix of
existing and new recipients. All selected projects aim to support
wellbeing, to improve people’s futures and to equip people with
skills for life.
Since inception in 2013 our Community Fund has introduced
us to many local groups in Fitzrovia and the Tech Belt. This has
broadened our perspectives and helped us better understand the
issues affecting local people. We are proud of what the fund has
achieved to date but need to ensure it remains fit for purpose.
To help achieve this we asked Chickenshed’s Youth Taskforce
to review our processes and to refresh our thinking around
‘Community’. We will implement some of the conclusions of
this review in 2022.
Focus on the homeless, mental health and D&I
During 2021 our Sponsorships and Donations Committee
supported the work of numerous charitable organisations. We
continued with the focus on supporting the homeless and mental
health by committing over £70,000 to charities working in these
two areas. Our support for increased D&I within the property
sector, as well as further afield, has resulted in a commitment of
over £130,000 in 2021 to organisations seeking to redress the
balance, including a 3-year bursary supporting an undergraduate
student at the Reading Real Estate Foundation and supporting
the establishment of The Academy of Real Assets (see page 62).
Derwent London employees volunteer their time in numerous ways,
supporting local education and community work (see page 62).
They also support events organised by other partners such as The
Paddington Partnership where they collected plastic waste and
rubbish polluting the local canal as part of The Great British Spring
Clean. In Recycle Week a Derwent London team, together with our
waste contractor Paper Round, removed discarded plastic and
glass from a stretch of beach along the River Thames.
Working with our occupiers
During the pandemic we have been supporting our occupiers
with their evolving space requirements and providing financial
support for those most in need. We also work together to support
our local communities such as the Writing Partners initiative at
The White Chapel Building E1, a literacy programme facilitated
by Tower Hamlets Education Business Partnerships now known
as The Switch.
Our inaugural online charity auction in aid of Teenage Cancer Trust
and Mind was a truly collaborative event involving suppliers and
occupiers from across the portfolio. Many of our suppliers and
other stakeholders generously donated items for the auction
which was open to our occupiers and staff. We were delighted
to raise over £13,500 for these two charities.
Our Glasgow office has also been engaging with a number of
charities and groups that support the local communities in and
around our Scottish portfolio, donating £15,000 to 11 charities
in 2021.
OUR COMMUNITIES, OCCUPIERS
AND OTHER STAKEHOLDERS
We recognise our role in ensuring our
buildings are an integral part of the
communities they sit within and strive
to create value where possible for all
our stakeholders.
2021 HIGHLIGHTS
— Maintained our support for local communities
— Reviewed our Community Fund in collaboration with
Chickenshed, an inclusive theatre company
— Initiated 3-year Reading Real Estate Foundation bursary
— Founder Member of the Academy of Real Assets
Charities and sponsorships
£105K
2021 Community Fund
committed
Given to c.130 projects since
inception
£850K
19Projects supported in 2021
£620K
Additional community and
sponsorship donations for 2021
Staff volunteering at The Great British Spring Clean
at Paddington
Financial StatementsGovernanceStrategic report 62
RESPONSIBILITY CONTINUED
SOCIAL
Working with local authorities
The Group also supports local authority initiatives. We joined the
London Living Wage Foundation in 2017. In 2021, alongside other
local stakeholders, we supported Islington in becoming a London
Living Wage Borough. As part of Living Wage Week 2021, we hosted
an event at White Collar Factory, bringing together some of the
Islington businesses that became Living Wage accredited
employers during the year.
We recognise the value of working with likeminded businesses
and being able to share knowledge and ideas. Being a member of
Westminster’s Responsible Business Network enables us to meet
other local businesses to learn which local groups need support.
For instance, along with individual staff donations, we supported
Westminster’s appeal for funds to provide daily items for refugee
families from Afghanistan.
Event at White Collar Factory during Islington Living Wage Week 2021
Supply chain
The Group also encourages its contractors to support local
communities around our developments by providing local
employment. We are pleased that both The Featherstone
Building and Soho Place exceeded their targets in this regard.
Members of Chickenshed and Derwent London staff
LIVING LETTERS, A COLLABORATION
WITH CHICKENSHED
Some Derwent London staff were anonymously matched with
16-19 year olds on Chickenshed’s BTEC education programme,
taking the role of virtual mentors sharing correspondence.
The first letter raised the issues of different perceptions.
The second letter focused more on hopes, concerns and
aspirations. This programme continues with the hope for
face-to-face meetings in 2022.
FOUNDER MEMBER OF THE ACADEMY
OF REAL ASSETS
The Academy of Real Assets was established in 2021 to
encourage students from less advantaged backgrounds to
consider real estate as a workplace and to introduce more
diversity and inclusion into the sector; something which
Derwent London believes is key for the industry. We hosted
the first membership event at DL/78.
Derwent London actively participates in the Academy’s
activities, such as school talks and career insights which
complements our staff volunteering programme engaging
with schools and colleges.
We hosted the Academy’s first Coffee Broadcast in December,
one in a series aimed at informing young students aged 15-19
years old about the property sector. They are being delivered
in partnership with Speakers for Schools and cover the whole
UK. This was an opportunity for students to see some of the
broader opportunities within the industry and to ask the team
questions about careers in real estate and sustainability.
Derwent London plc Report & Accounts 2021 HEALTH & SAFETY
Ensuring the health and safety (H&S)
of our employees and buildings is
fundamental to our business. We strive
to deliver great working places and
reduce risks.
2021 HIGHLIGHTS
— Introduced a new compliance system
— Created a Benchmarking Group to share H&S data with
our property peers
— Enhanced Fire Risk Assessments in line with the future
Fire Safety Act
— Focus on working safely at height across our portfolio
— Introduced monthly ‘Safety Surgeries’
The ‘Derwent Way’
The ‘Derwent Way’ communicates our inclusive H&S culture and
objectives to all our stakeholders.
Our Aim is to provide healthy, safe and secure environments for
our people, customers and contractors to work, live, visit and relax.
Our People are fundamental to the success of our business, which
is why we invest to ensure healthy and safe work environments.
Enhanced compliance platform
In 2021 the Group migrated the whole portfolio to an enhanced
H&S compliance platform in collaboration with internal and
external stakeholders. Our current combined commercial and
residential property H&S compliance score is 98%. We continue
to reinforce our staff and contractors’ health and safety culture,
assisted by a transparent approach with our supply chain.
The H&S team works with Property Management to ensure that
our buildings and projects are operated safely without health
risks, including meeting the additional challenges created by the
global pandemic.
We consider health, safety and wellbeing at every stage of a
building’s life cycle: from acquisition, through development,
management, leasing and disposal. This requires designing,
building, maintaining and operating our buildings using best
practices. It also includes specifying the appropriate materials
and design to ensure future safe and healthy maintenance and
management activities.
Our approach is centred on people, assets and developments.
63
People
Our staff are updated on H&S matters through regular training.
During 2021 new training continued to be rolled out to the Property
Management and Development teams. Training included Statutory
Compliance, Construction Design and Fire Marshals. The Covid-19
pandemic has mental as well as physical health impacts. In
response, a further 14 employees were trained to become Mental
Health First Aiders, taking the total to 20.
Employees also attended external H&S courses, such as NEBOSH,
IOSH, mental health first aid, water hygiene and tall building fire
management. Collectively, 88 training workdays were completed
in 2021.
Assets
Ensuring our occupiers, visitors and those who live and work in and
around our buildings are safe and healthy is critical. We introduced
a new reporting system, RiskWise, in June 2021 which has
enhanced our H&S data.
Our Fire Safety Management System continues to evolve in line
with BS 9997, meeting the requirements of the new Fire Safety and
Building Safety Acts expected to be introduced by the end of 2022.
Every property in our portfolio had a property health check and roof
survey. In addition, we reviewed our buildings’ physical wellbeing,
focusing on lighting, air and water qualities. Where necessary we
instigated improvements. This ensures a more holistic approach
to enhanced wellbeing as well as risk.
Developments
Our sites continued to follow the Construction Leadership Council’s
Covid-19 Site Operating Procedures and levels of infections on our
sites remained relatively low. This would not have been possible
without collaboration with our contractors and supply chain.
Together, we have ensured a strong response to mitigate the risks
generated by the pandemic.
We continue to raise the significance of health issues on our
construction projects, attributing to them the same importance
as safety. To help tackle some of these issues, during 2021 we
supported the Health and Safety Executive’s (HSE) campaigns in
mental health, musculoskeletal disorders and respiratory health.
Our H&S data is on page 66 and in the Responsibility Report.
1.26Accident Frequency Rate
314H&S inspections
5,842
Inductions
Financial StatementsGovernanceStrategic report 64
RESPONSIBILITY CONTINUED
GOVERNANCE
At Derwent London, acting in a fair and
responsible manner is a core element
of our business practice.
2021 HIGHLIGHTS
— 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 social media awareness, data privacy and
unconscious bias/respect in the workforce (see page 161)
— HMRC confirmed our ‘low-risk’ tax rating status until 2022
— Hosted Stakeholder and Investor Days
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, has overall
accountability for ESG matters however, the responsibility for
overseeing its day-to-day management is delegated to Nigel
George (Executive Director). Paul Williams 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
The section 172(1) statement page 124
Whistleblowing page 136
Anti-bribery and corruption page 165
Tax risk page 106
Compliance training page 161
OUR ESG GOVERNANCE FRAMEWORK
The Board
Overall responsibility for ESG matters
Risk
Committee
Identifies and evaluates
key ESG risks (principal
and emerging) ensuring
they are appropriately
managed
Responsible Business
Committee
Monitors the Group’s
corporate responsibility,
sustainability and
stakeholder engagement
activities
Report page 158
Report page 166
Audit
Committee
Remuneration
Committee
Monitors assurance and
internal financial control
arrangements
Ensures ESG factors are
included in the executive
remuneration framework
Report page 148
Report page 172
Executive Directors with assistance from the
Executive Committee
Responsible for overseeing the Group’s ESG initiatives
Sustainability
Committee
Responsible for
implementing the Board’s
ESG strategy
Health and Safety
Committee
Responsible for
monitoring health and
safety management
and performance
Sponsorship and
Donations Committee
Responsible for the
Group’s charitable
activities and donations
Social Committee
Aims to encourage
teamworking and
collaboration between
departments through
social activities
Derwent London plc Report & Accounts 2021 65
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.
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 2021
Scope 1, 2 and 3 GHG emissions data, intensity ratio and energy
data received ‘Public Reasonable Assurance’.
Our strategy and targets for energy consumption and carbon
emissions are set and monitored by the Board. The Board,
Responsible Business Committee 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
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 67 to 75).
Our sustainability work has drawn external recognition.
We maintain Greenstar status in the Global Real Estate
Sustainability Benchmark (GRESB) index with a score of 81,
we are listed in the FTSE4Good index and have a CDP rating of C.
SECR disclosure page 74
Climate change risk and opportunities page 103
Green finance governance
Our Green Finance Framework allows us to clearly link our
financing to the environmental benefits our activities generate.
The Audit Committee receives annual updates on our green finance
initiatives, including in respect to our reporting disclosures.
Our Green Finance Framework received independent assurance
from Deloitte LLP that it is aligned with the Loan Market
Association’s Extended Green Loan Principles and the complete
assurance statement is available on our website. Further
information on our Green Finance Framework is on pages 13,
96 and 97.
Supply chain governance
It is important to us that our suppliers and construction partners
operate ethically and share our ESG business principles.
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 sets out our
principles and expectations in terms of the environmental, social,
ethical and governance issues which relate to our supply chains.
Supply Chain Sustainability Standard page 169
During 2021:
— We reviewed best practice in terms of sustainable supply chain
management (e.g. BS 8903 and the Ethical Trading Initiative
(ETI) Base Code), to understand how we can improve our
performance and that of our supply chains.
— We requested evidence that our major suppliers were
compliant with the Standard. This involved completion of
a questionnaire and providing copies of key policies and
procedures (see page 169).
— We published a revised Standard which now includes our
expectations in respect of diversity and inclusion,
environmental issues, and preventing modern slavery.
Ensuring our payment practices are ethical is a key requirement
in governing our supply chain. This was of particular importance
due to the Covid-19 pandemic and its impact on businesses.
Responsible payment practices page 169
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 pages 67 and 167).
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
greatest potential 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.
Financial StatementsGovernanceStrategic report 66
RESPONSIBILITY CONTINUED
GOVERNANCE
Reporting frameworks and ESG data
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
— Net Zero Carbon Pathway
— Science-based carbon targets
— Task Force on Climate-related Financial
Disclosures (TCFD)
— Streamlined Energy and Carbon Reporting (SECR)
disclosure
— Volunteer 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
— Responsibility Report (https://rr.derwentlondon.com)
— Our pathway to net zero carbon (see page 12)
— Climate change governance (see pages 65, 68 and 69)
and risk management (see pages 72 and 102)
— Executive Directors’ annual bonus (see page 184)
— TCFD (see pages 68 to 73)
— SECR (see pages 74 and 75)
— Community Fund (see page 61)
— Our people (see pages 56 to 60)
— Diversity and inclusion (see pages 57 to 59 and 169 to 171)
— Health and safety (see page 63)
— Human rights and modern slavery (see pages 65 and 167)
— Supply Chain Sustainability Standard (see page 169)
— Audit Committee report (see pages 148 to 157)
— Risk Committee report (see pages 158 to 165)
— Our principal risks (see pages 100 to 119)
— Compliance training (see page 161)
Health and safety data
The table below details our key health and safety statistics. Our accident frequency rate (AFR) is given for 2021 and for developments only
in 2020. This data allows us to identify trends and highlights where we should focus.
Employees
Managed portfolio
2021
266,960
2020
n/a
2021
31,960
0
0
0
0
0
0
1
0
0
0
0
0
2020
n/a
10
5
0
0
0
0
n/a
n/a
n/a
n/a
Developments
2021
1,591,416
2020
2,204,499
42
2
0
0
0
0
26.39
5.66
0.13
1.26
46
6
0
0
0
0
n/a
n/a
n/a
2.72
9
0
0
0
0
0
0
n/a
n/a
0
Person hours worked1
Minor accidents2
RIDDORs2
Dangerous occurrences1
Fatalities2
Improvement notices2
Prohibition notices1
Injury rate1, 3
Lost day rate1, 4
Severity rate1, 5
RIDDOR AFR1, 6
Notes:
1 Data has been audited to the reasonable level by Deloitte LLP only in 2021.
2 Data has been audited to the reasonable level by Deloitte LLP in 2021 and 2020.
3
4 Lost day rate – (lost time injuries excluding RIDDOR)/ (total hours worked) *1,000,000.
5 Severity rate – total number of lost work days (excluding RIDDORs)/ total number of incidents.
6 RIDDOR accident frequency rate (AFR) – the number of RIDDORs/(total hours worked) *1,000,000.
Injury rate - (injuries excluding RIDDOR and lost time injuries)/ (total hours worked)*1,000,000.
n/a
n/a
n/a
n/a
0
n/a
n/a
0
Derwent London plc Report & Accounts 2021 67
UN SDG disclosures
The United Nations Sustainable Development Goals (SDG) are an international standard developed to support global change and
sustainable growth. We believe that we have a role in supporting the UK in responding to this standard and helping affect change.
We have reviewed the suite of 17 goals and have selected those goals which align most closely to our ESG priorities, which are set out
in the table below with 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,
Managing our assets
responsibly
5.5
7.2
5.5.2
7.2.1
7.3
7.3.1
11.7
11.7.1
12.5
12.6
13.2
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. A recent example of this is the Shadow Heroes
project we have supported. This project uses creative translation
workshops as a way to encourage children who have English as
an additional language to embrace their linguistic and cultural
identities with the aim of bringing about inclusive classrooms,
fostering a sense of belonging amongst marginalised language
users and to ultimately improve young people’s sense of
confidence in school and beyond.
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 Doorstep Library project which
aims to improve literacy skills by providing trained volunteers
for families whose children need extra help with their reading.
In place of face-to-face sessions, socially distanced book
swaps on families’ doorsteps have taken place, books have
been posted to children as well as one-on-one online reading
sessions between families and volunteers. The service gives
children the confidence to thrive at home and at school and
helps them have a better future through improved literacy skills.
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. To help guide us, our Diversity & Inclusion Working
Group is tasked with reviewing best practice and to challenge
our business to ensure we address equality robustly. In 2021 we
achieved the National Equality Standard with our results ranked
in the top 5% of accredited companies.
32% (33% in 2020) of the women within our business are in
managerial roles/positions.
Our aim is to ensure we purchase renewable energy for our
portfolio. All our electricity contracts which supply our buildings
are now REGO backed. As part of our net zero carbon programme
we are looking to how we 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 designed to help us reduce our energy
intensity. See Responsibility Report for the latest progress on
these targets.
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 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. We are reviewing these targets
to align them with a 1.5°C scenario.
Financial StatementsGovernanceStrategic report 68
RESPONSIBILITY CONTINUED
GOVERNANCE
The Task Force on Climate-related Financial Disclosures (TCFD)
The Group has used TCFD guidelines as part of its environmental reporting since 2018. Our latest disclosures, on pages 68 to 73, are
consistent with the TCFD recommendations and the recommended disclosures. Further information on the TCFD can be found on the
Financial Stability Board’s website at: www.fsb-tcfd.org.
Governance
Describe the Board’s oversight
of climate-related risks
and opportunities
page 121
The Board has overall responsibility for climate-related risks and opportunities.
The Responsible Business Committee (RBC), a principal committee of the Board (see report on pages 166 to 171), monitors the
management of our climate-related risks and opportunities and meets at least twice a year. One of its roles is to ensure that
the Board adequately reflects climate-related issues in its decision making. In turn, the RBC is kept informed by the Executive
and Sustainability Committees which are separately responsible for overseeing and implementing climate-related actions
and meet monthly and quarterly respectively. Chief Executive, Paul Williams, and Head of Sustainability, John Davies, are
members of the Executive and Sustainability Committees and provide regular updates to the RBC and the Board on our
climate-related work and the associated risks and opportunities.
During the year, the Board and various committees considered the following climate-related issues:
Responsible Business Committee – the current progress of our net zero carbon programme and targets, most notably the
setting of energy reduction targets for our managed properties and our net zero carbon occupier survey.
Risk Committee – the latest position of the Group with regards to the forthcoming Energy Performance Certificate (EPC)
changes from 1 April 2023 i.e. the minimum EPC rating of E applying to all operable leases less than 99 years and greater
than six months. Likewise, our preparations and financial impacts for the proposed 2030 changes and requirements for the
minimum EPC rating to change from E to B – a key transition risk identified in our scenario analysis (see page 161).
Audit Committee – the current progress of our green finance initiatives, including our new £350m green bond, which are
funding our latest net zero carbon buildings. In addition, the Committee received training on the assurance we currently
undertake on our environmental data which includes energy and carbon and our science-based targets, and where we could
expand this assurance in the future to cover other climate-related areas e.g. TCFD.
During the year the Board agreed on the appointment of John Davies to the Executive Committee, strengthening its climate
risk expertise and experience at this level.
An overview of the Board's climate-related skills, experience and knowledge is detailed in the chart on page 140.
Day-to-day oversight of climate-related aspects is undertaken by the Sustainability Committee which comprises key
department leaders:
— Paul Williams (Chief Executive)
— John Davies (Head of Sustainability)
— Nigel George (Executive Director)
— David Lawler (Company Secretary)
— Richard Baldwin (Director of Development)
— Katy Levine (Head of HR)
— Victoria Steventon (Head of Property Management)
— Vasiliki Arvaniti (Head of Asset Management)
The Sustainability Committee reviews the progress and performance on climate-related issues e.g. energy efficiency,
embodied carbon and legislation such as the minimum energy efficiency standards. A target performance and data
dashboard (inclusive of climate-related targets/metrics) is produced for discussion and analysis during the Sustainability
Committee and related sustainability performance meetings.
To embed a further level of oversight over climate-related issues, we have linked performance measures to the Executive
Directors' annual bonus calculations which focus on the improvement of carbon and energy intensity, accounting for 5% and
2.5% respectively of the bonus weighting. See page 184 for further details.
Derwent London plc Report & Accounts 2021 Governance continued
Describe management’s role in
assessing and managing
climate-related risks and
opportunities
Strategy
Describe the climate-related
risks and opportunities the
organisation has identified over
the short, medium and long-term
69
Our Chief Executive, Paul Williams, has overall accountability for ESG matters which includes climate-related issues.
However, the responsibility for overseeing its day-to-day ESG management is delegated to Nigel George (Executive Director).
Paul Williams oversees the review and performance as Chair of the Sustainability Committee and as a member of the main
Board and Responsible Business Committee. In addition, Nigel George sits on the main Board, Executive and Sustainable
Committees. Therefore, he is accountable for climate-related issues which, if significant, are brought directly to the attention
of the main Board.
John Davies, Head of Sustainability, has responsibility for developing, leading and, together with his team, implementing the
business-wide sustainability programme (inclusive of all climate-related aspects) and reports to Nigel George. As a result,
Nigel has a comprehensive oversight of all our climate-related work.
As mentioned above, the Sustainability Committee comprises key department representatives who each have a responsibility
for oversight and implementation of climate related issues within their department:
— David Lawler (Company Secretary) – is responsible for ensuring climate-related issues are adequately reflected within
our corporate governance structure e.g. our risk management processes
— Richard Baldwin (Director of Development) – is responsible for ensuring our development schemes embed the
required climate resilience and net zero carbon aspects within their design and delivery programmes e.g. high EPC and
BREEAM ratings
— Victoria Steventon (Head of Property Management) – is responsible for ensuring our properties are operated efficiently
e.g. they are reducing their energy consumption in line with our energy targets
— Vasiliki Arvaniti (Head of Asset Management) – is responsible (together with John Davies) for ensuring EPCs are tracked
and monitored across the investment portfolio. Likewise, that our asset management plans incorporate the necessary
improvement measures and budgets to allow our compliance with the forthcoming EPC legislation changes for 2030 and
our net zero carbon commitment
As set out above, there is a clear top down – bottom up ‘line of sight’ for climate-related aspects from the Board to the
Sustainability Committee (see page 64 and our ESG Governance Framework). Target performance and data dashboards
(inclusive of climate-related targets/metrics) are discussed and analysed during the Sustainability Committee and related
sustainability performance meetings.
See the Risk Management section on page 103 for an outline of how we approach the assessment and management of
climate-related risk.
page 32
We consider short-, medium- and long-term time horizons to be 0-5, 5-15 and 15+ years respectively, recognising that
climate-related issues are often (but not exclusively) linked to the medium- to long-term, and our properties have a life of
many decades.
Short-term – we have seen a greater shift in terms of legislation, first with the introduction in the UK of the Minimum Energy
Efficiency Standards (MEES) for commercial and domestic property and more recently, the proposed 2030 minimum EPC
rating changes linked to the acceleration of the government’s ambition to achieve net zero carbon by 2050. In addition,
customer demand continues to drive the requirement for buildings with robust sustainability credentials, which are cost
effective to occupy and promote higher levels of wellbeing and productivity. Our climate scenario analysis showed us that
these transition risks are focused primarily on the short-term, with EPC regulation, emissions offsets and cost of raw
materials presenting themselves as key risks after applying various mitigation measures from our Net Zero Carbon Pathway.
By managing these risks adequately, we believe the following opportunities could include:
— Energy efficient ‘green’ buildings with better EPCs could be 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 relationships.
Medium-term – we have identified the same issues as those that occur in the short-term. We must continually invest in and
develop our new and existing properties to ever higher regulatory standards and levels of efficiency to ensure we are able to
operate effectively and attract occupiers. This period covers our pathway to becoming a net zero business and it is important
that we minimise the amount of residual carbon needed to be offset.
Long-term – we need to invest in our existing portfolio and our development pipeline to ensure they are climate resilient such
that our central London buildings remain occupiable. It is possible, depending on what changes actually occur, that climate
changes may impact some of our properties which in turn could have a financial impact on our business e.g. increased
insurance premiums or loss of rental income. Our scenario analysis showed us that the physical risks are most material in
the long-term and present themselves most evidently in the 4°C scenario (aligned with the IPCC’s RCP 8.5), with heat stress,
flooding and subsidence being the most significant. By following our Net Zero Carbon Pathway and continuing to undertake
regular climate risk assessments, we believe we will be in a better position to manage these potential risks. The opportunities
that might present themselves include:
— The availability of buildings which become stranded because of physical risk impact could provide us with acquisition
opportunities at lower prices.
— Investing in the overall climate resilience of our buildings also improves asset value by reducing our maintenance costs
and extends a building’s life.
The processes used to determine the climate risks which are material to our business are set out in the Risk Management
section on page 103. In addition, see the Principal Risks section on pages 108 to 119 which details our overall risk profile and
approach to risk management.
We believe that property portfolios that are able to meet these challenges will remain attractive to occupiers and investors
and in good demand. This trend presents opportunities for the Group (see page 10).
Financial StatementsGovernanceStrategic report 70
RESPONSIBILITY CONTINUED
GOVERNANCE
Strategy continued
Describe the impact of
climate-related risks and
opportunities on the
organisation’s businesses,
strategy, and financial planning
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, refurbish and manage our existing portfolio and
engage with our occupiers. This in turn affects the kinds of suppliers and consultants we use in these activities to ensure we
have the requisite level of expertise. As described on page 6, this is driven by an ever-increasing demand from our occupiers
and other stakeholders wanting buildings with higher levels of sustainability credentials, as well as the regulatory landscape
becoming tougher and more demanding.
The recognition that climate change has a material impact on our business and our stakeholders led us to develop our Net
Zero Carbon Pathway to become a net zero carbon business by 2030 (aligned to a 1.5°C climate scenario). Our pathway covers
the breadth of our business activities to ensure we are reducing our carbon footprint and exposure to risk, examples include:
Financial planning (operating costs, capital expenditure and allocation) – to ensure we are capturing the cost of carbon
appropriately we are developing our approach to carbon accounting such that we are including the cost of carbon in our
financial appraisals and forecasting, so we understand and capture the cost of carbon in our new schemes and business
activities. In addition, we are undertaking specific reviews to help us understand the cost of certain transition risks. During
2021 we commissioned a report to understand the actions and costs required to ensure our portfolio would remain compliant
with the proposed changes to the minimum EPC ratings required from 2030 – see page 55 for further details.
Access to capital – we believe in the future it will be harder to access good quality, affordable finance without being able to
demonstrate how we are addressing and effectively managing climate risk. In response, our Green Finance Framework has
been specifically developed to allow us to link our finances to our net zero ambitions by setting out performance criteria and a
governance framework which enable us to clearly show the link between the use of our debt facilities to our development and
refurbishment activities. To date we have two specific facilities which are linked to our framework – the £300m ‘green’ element
of our main corporate £450m revolving credit facility and a £350m green bond issued in 2021. These are helping to fund our
latest eligible projects – see pages 22 to 25 for further details.
Acquisitions and divestments – our business model is based on acquiring older buildings and improving them to add value.
Prior to a new purchase we now undertake carbon appraisals to establish the incumbent carbon liability allowing a more
holistic understanding of cost. In addition, we also establish the EPC related risk and, if the rating is low, what actions and cost
will be required to improve it. We have disposed some assets where the estimated additional costs associated with the
transition to better energy performance influenced our decision.
Developments – our Responsible Development Framework and Net Zero Carbon Pathway ensure we set the right design brief
for our development pipeline. These ensure that the properties are more climate resilient such as building them for a longer
life, to be more flexible to occupy and operate, less reliant on mechanical cooling and free from fossil fuel use i.e. all electric
heating and cooling.
Managing assets – our Responsible Framework for Assets and Net Zero Carbon Pathway ensure we have plans and targets in
place for each managed asset which set out how we will reduce energy consumption/carbon emissions effectively to meet our
overarching targets.
Derwent London plc Report & Accounts 2021 71
Strategy continued
Describe the resilience of the
organisation’s strategy, taking
into consideration different
climate-related scenarios,
including a 2°C or lower scenario
Our properties are subject to climate-related risks, such as increasing temperatures, which could lead to greater physical
stresses and, in turn, increase our costs e.g. management and utility costs.
Our business model involves both investing in new developments and acquiring older properties which hold future
regeneration potential. We ensure a high degree of resilience in our new developments and regeneration of older properties
by setting high standards for sustainability, which includes climate-related aspects. When managing our core income
portfolio, we have a significant focus on energy and carbon reduction, ensuring our buildings operate as efficiently as
possible. As a result, our strategy centres around the concept of continual improvement which ensures a high degree of both
climate and financial resilience. Ultimately, we do not envisage having to make changes to our approach when considering
climate-related scenarios.
We recognise that climate change does have an impact on our business and part of our strategic response has been the
commitment to becoming a net zero carbon business by 2030 such 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 target, which
is already aligned to a 2°C scenario.
In 2020 Willis Towers Watson provided a detailed analysis of the Group's climate-related risks, set across different climate
scenarios – a 2°C scenario for transition risk (aligned with IPCC’s RCP 2.6) and a 2°C and 4°C scenario for physical risk
(aligned with the IPCC’s RCP 8.5). Set out below is a summary of their findings:
Transition risk
Policy & legal
— Pricing of GHG emissions
— Energy Performance Certificate rating requirements
— Emissions offsets
— 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
Physical risk
The physical risk assessment was undertaken through two plausible climate scenarios – IPCC RCP 2.6 and 8.5, within which
the analysis focused on three time horizons:
1. Current climate (2020 to 2030)
2. Medium-term climate change impact (2050)
3. Longer-term impact (2080 to end of century) where models were available for key perils and where a clear climate change
signal warranted modelling of the time horizon or scenario
The assessment also included a review of current climate exposures, climate change implications for those exposures,
indicative loss modelling and analysis and forecasts of the likely electricity and gas usage for selected properties. The
physical risks were identified across two types:
Chronic
— Heat stress
— Subsidence
— Coastal flooding and sea level rise
Acute
— Flooding
— Storms
— Infrastructure
As part of our approach to managing both transition and physical risks, we are committed to becoming a net zero carbon
business by 2030. Our Net Zero Carbon Pathway sets out a clear plan on how we will transition towards this 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
— Carbon offsetting via verified removal schemes for those emissions we cannot eliminate
These commitments, coupled with our Responsible Development Framework and Sustainable Framework for Assets and net
zero action plans for individual assets, support the business in addressing and managing the above risks and enabling it to
move towards net zero carbon.
Financial StatementsGovernanceStrategic report 72
RESPONSIBILITY CONTINUED
GOVERNANCE
Risk management
Describe the organisation’s
processes for identifying and
assessing climate-related risks.
Describe the organisation’s
processes for managing
climate-related risks. Describe
how processes for identifying,
assessing and managing
climate-related risks are
integrated into the organisation’s
overall risk management. (As all
recommended disclosures are
heavily interrelated we have
opted to combine our disclosure)
page 100
The responsibility for managing our corporate risk lies with the Executive Committee, Board and Risk Committee. Each
year the Executive Committee collate and assess the key risks, which include sustainability/climate change related risks.
This assessment seeks to understand risk severity and likelihood as well as the optimal controls and/or mitigation actions
required. This approach allows the effects of any mitigating procedures to be considered properly, recognising that risk
cannot be eliminated in every circumstance. The risk register is then put forward to the Board and Risk Committee for
consideration, review and ultimately adoption. Climate-related risks and opportunities are also highlighted and discussed
by the Responsible Business and Sustainability Committees where appropriate. These risks can include transition risk
(e.g. regulatory risk and reputational risk) and physical environmental risk.
To assess the materiality of climate-related risk we worked with Willis Towers Watson in 2020 to specifically explore
climate risk and opportunity. This followed a structured identification and assessment of the transition and physical risks
applicable to our business across two climate scenarios, namely 2°C and 4°C scenarios aligned with the IPCC’s RCP 2.6 and
8.5 pathways respectively.
As part of the scenario analysis, the transition risks identified within the 2°C scenario estimated the financial materiality for
each risk using a structured template to capture any impacts to the profit and loss (revenue and expenditures) and impacts to
the balance sheet (assets and liabilities and capital/financing). High and low impact estimates were given to applicable cost
components depending on the success of planned mitigating actions, and risks given a 1 to 5 impact rating according to a
defined rating criterion. Working through the assessment process and applying mitigation measures already captured within
the scope of our Net Zero Carbon Pathway and those within our existing business processes, demonstrated that few of these
risks had a residual impact. Those which remained were:
Energy Performance Certificate rating requirements
When we undertook the assessment, tougher minimum energy performance certificate standards were indicated by the
Government. These have now been confirmed and will be phased in during the period up to 2030. It was assessed that
complying with the new measures would result in significant additional investment across our portfolio. To address this, in
2021 we commissioned a report to review the actions and costs required to meet these new standards – see pages 52 to 55
for further details.
Cost of raw materials
Climate change could affect the input costs of traditional development related materials or building services e.g. energy and
water. Utilising more innovative low carbon materials could allow us to mitigate some of the potential impacts this risk might
pose. To monitor the effects of this on our business, we track the construction costs (of which material costs are a part) and
inflationary impacts on those costs to understand the impact on our business. See the Chief Executive statement for further
detail (see page 10).
Emissions offsets
The cost of high-quality carbon offsetting is likely to continue to rise due to supply constraints. However, the energy/carbon
reduction initiatives and investment in our portfolio should enable us to reduce our reliance on offsetting and exposure to
significant cost movements. We publish details of our annual offsetting practices, (see page 54). Where we purchase any
new offsets, we will state the costs together with any applicable inflationary commentary.
The physical risks assessed within the 2°C scenario highlighted:
Storms
Many of our buildings could be exposed to windstorm damage especially during the winter season. This was the most
significant risk in this scenario and means we need to ensure we have the right features in place to protect our building
façades.
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.
Within the 4°C scenario the risks assessed highlighted:
Heat stress
Hotter summers (10-20 days of heatwave pa in London) will impact our business, by increasing cooling demands and thereby
increasing energy consumption and maintenance costs for our buildings.
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 possibly only 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 more probable.
Derwent London plc Report & Accounts 2021 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
Describe the targets used by the
organisation to manage
climate-related risks and
opportunities and performance
against targets
73
page 44
To enable our stakeholders to understand our climate-related impact and subsequent performance, the data section of our
Responsibility Report (https://rr.derwentlondon.com) includes an extensive range of consumption and intensity metrics for
energy, carbon, waste and water, and reflect those highlighted in the buildings and materials groups, namely:
— Total energy consumed, broken down by source (e.g. purchased electricity and renewable sources)
— Total fuel consumed percentage from coal, natural gas, oil, and renewable sources
— Building energy intensity (by square area)
— Building water intensity (by square area)
— GHG emissions intensity from buildings (square area) and from new construction and redevelopment
— For each property type, the percentage certified as sustainable
All the above metrics are presented in the data section of our latest Responsibility Report with at least the previous year’s
data to allow for comparison. In addition, our previous reports are available on our website which contain several years’ worth
of data, allowing for historical trend analysis.
As identified in our materiality review, resource efficiency (which includes energy efficiency, greenhouse gases, climate
change and water) is a material issue for our business and, as such, is classified as a principal risk (see page 116). Further to
this, performance against our science-based carbon targets form a part of our Executive Directors’ remuneration – details of
which can be found on page 184.
In addition to the above metrics, we also use our science-based carbon targets and a specific scenario analysis tool to
support us in the strategic planning of our portfolio and undertake future projections of carbon intensity reduction set against
recognised 2°C transition scenarios, namely the IEA ETP 2DS and the nationally determined UK climate change commitments
modelling trajectory.
We publish a detailed data report which sets out our environmental data performance. This includes extensive carbon
reporting across all scopes: Scopes 1, 2 and 3 using the Greenhouse Gas (GHG) Protocol Corporate Accounting and Reporting
Standard. Likewise, we provide trend analysis across several years to show progress and historical performance.
Refer to the data section of our latest Responsibility Report for our carbon reporting which also includes full details of the
aggregation and calculation methodology. Moreover, we publish a summary of our corporate carbon footprint on page 74.
Following our review of the Paris International Climate Change Agreement in 2016, we developed a set of science-based
carbon targets to ensure we align our carbon reduction programme to its objectives, as well as minimising our risk exposure
to climate change on our managed portfolio.
These were verified by the Science-Based Target initiative (SBTi) in 2019 and are:
“We commit to reduce Scope 1 and 2 GHG emissions 55% per square metre by 2027 from a 2013 base year. Derwent London
also commits to reduce Scope 3 GHG emissions 20% per square metre by 2027 from a 2017 base year.”
As part of our revised net zero ambition, we will be reviewing these targets to align them with a 1.5°C climate warming scenario
and we will provide further updates when this is complete.
To see the latest progress against these targets refer to the science-based carbon target performance section of our latest
Responsibility Report.
Financial StatementsGovernanceStrategic report
74
RESPONSIBILITY CONTINUED
GOVERNANCE
Streamlined Energy and Carbon Reporting
(SECR) disclosure
In line with the SECR regulations, we present below our disclosure
which is comprised of our carbon emissions across Scopes 1 and 2
together with an appropriate intensity ratio – tCO2e/m2. We also set
out our Scope 3 emissions and global energy use (kWh) used to
calculate our emissions.
New for this year, we have expanded our reporting to provide a
more detailed perspective on our carbon emissions, likewise the
emissions and energy which we are not directly responsible for
but derive from our buildings i.e. the energy consumption of our
occupiers and the associated emissions.
GHG and energy data
Scope 1 and 2 emissions1
Scope 1
(combustion of fuel)
Managed portfolio gas use
and fuel use in Derwent
London owned vehicles
Emissions associated with
certified green gas use
Scope 1 (operation
of facilities)
Managed portfolio
refrigerant loss from air
conditioning systems
Scope 2 (purchased
electricity, heat, steam
and cooling for our
own use)
Managed portfolio
electricity use for common
parts and shared services
(landlord-controlled areas)
- no heat, steam or cooling
was/is purchased
Emissions associated with
renewable REGO backed
electricity use
Total Scope 1 and 2
emissions
Carbon intensity ratio
(tCO2e/m2)
Derived from total Scope 1
and 2 emissions
Proportion of Scope 1
and 2 emissions assured
by an independent third
party (see data notes
table below)
1 Numbers may not sum due to rounding
tCO2e
Difference
2021
3,173
2020
3,326
-5%
Location-
based
Market-
based
2,428
3,291
-26%
–
–
Location-
based
1,678
1,947
-14%
Market-
based
63
0
Location-
based
Market-
based
Location-
based
4,852
5,273
-8%
2,491
3,291
-24%
0.013
0.015
100%
100%
Scope 3 emissions1
Category
Purchased goods
and services
Capital goods
Notes
N/A
See note
below on
emissions
outside of
current scope
N/A
Fuel and energy
related activities
Upstream
transportation
& distribution
Waste management
Business travel
Employee commuting Measured but
deemed to be
de minimus
N/A
N/A
N/A
N/A
N/A
Emissions
from tenant
electricity
consumption
N/A
N/A
Upstream leased
assets
Downstream
transportation &
distribution
Processing of sold
products
Use of sold products
End-of-life treatment
of sold products
Downstream
leased assets
Franchises
Investments
Water
Total Scope 3
emissions
Proportion of Scope
3 emissions assured
by an independent
third party (see data
notes table)
tCO2e
Difference
2021
2020
3,063
2,118
45%
25
6
<5%
25
14
<5%
-1%
–
5,099
5,555
-8%
16
37
8,208
7,749
6%
100%
100%
Outside of current Scope 3 emissions
Category
Notes
tCO2e
Difference
2021
1,036
2020
19,790
-95%
Capital goods
Embodied
carbon
from major
developments
and
refurbishments
Energy efficiency actions
During 2021 we saw an increase in the re-occupation of our buildings
as the Covid-19 lockdown measures were eased and our occupiers
returned to their workplaces. Throughout this time, we were and still
are operating a range of Covid-19 based safety measures to maintain
a safe working environment for our occupiers. As a result, we saw
energy consumption levels start to return to levels more consistent
with fully occupied buildings and not the significant reductions seen
in 2020 at the start of the pandemic. However, this has not stopped
us implementing a range of energy efficiency measures like installing
energy efficient air handling unit filters and optimising plant and
building management schedules and, where possible, aligning
them with the re-occupation plans of our occupiers.
Derwent London plc Report & Accounts 2021
75
ESG FOCUS AREAS FOR 2022
ENVIRONMENTAL
— Progress asset specific net zero carbon (NZC) action plans
— Start to implement findings from NZC occupier survey
— Continue to progress realigning science-based targets
in accordance with emerging guidance
— Continue to develop our approach to carbon accounting
— Increase our waste recycling rate
SOCIAL
People
— Further embed D&I into the business
— Continue health and wellbeing initiatives with a focus
on mental health and work-life balance
— Deliver our third all-employee awayday
Community
— Continue our Community Fund in its 10th year
— Participate in #10000BlackInterns programme
— Develop an approach to measuring our social impact
Health and Safety
— Additional focus on both physical and mental health
across our activities
— Broaden the use of RiskWise to assist construction and
design, as well as contractor, water and environmental
management
— Maintain our overall H&S compliance platform score at
a minimum of 95%
GOVERNANCE
— Publish our 2022 Modern Slavery Statement and agree
focus areas to further strengthen our processes
— Engage with our major shareholders in respect to our
2023 Remuneration Policy
— Review the final recommendations arising from the
BEIS consultation on audit reform and agree a timetable
for implementation
— Continue our mandatory compliance programme
By doing this, we were able to rationalise the increased energy
demand from our occupiers and balance the required Covid-19
ventilation safety measures.
We measure the embodied carbon footprint of all our development
schemes which would be relevant for inclusion in the capital goods
category. However, there are as yet no agreed property-specific
accounting principles in place to capture the footprint of these
emissions appropriately, which avoid the under or over inflation
of the Scope 3 figures on an annual basis.
kWh
2021
2020
17,288,719 18,069,846
Difference
-4%
7,953,114
8,398,662
24,016,115
22,315,697
-5%
8%
25,241,833 26,468,508
-5%
49,257,948 48,784,205
1%
Gas (combusted on a whole
building basis)
Electricity (consumption from
landlord-controlled areas)
Electricity (consumption from
tenant-controlled areas)
Total energy (consumption
from landlord-controlled
areas for electricity and gas)
Total building energy
(consumption from landlord
and tenant-controlled areas
for electricity and gas)
Data notes
Reporting
period
Boundary
(consolidation
approach)
Alignment
with financial
reporting
Reporting
method
Emissions
factor source
Independent
assurance
1 January to 31 December 2021.
We use an operational control boundary approach
based on our corporate activities and managed
central London (UK) property portfolio.
The only variation is that our GHG emissions/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 visit the
data section of our latest Responsibility Report.
DEFRA, 2021 - https://www.gov.uk/government/
collections/government-conversion-factors-
for-company-reporting for all emissions factors
apart from the Scope 2 market based factors
which are based on the provenance of our electricity
and some gas supplies which are from renewable/
green sources.
Public reasonable assurance (using ISAE 3000) is
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 latest
Responsibility Report.
For more analysis of our GHG emissions, energy consumption and
renewable energy generation, use and procurement visit the data
section of our latest Responsibility Report.
Financial StatementsGovernanceStrategic report 76
PROPERTY REVIEW
Valuation ................................................. 77
Acquisitions & disposals ...................... 80
Leasing, asset management
& property management ..................... 82
Development & refurbishment ........... 85
The Featherstone Building EC1
Derwent London plc Report & Accounts 2021 VALUATION
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
1
.
4
2
.
1
3
.
0
3
.
6
9
.
5
)
4
.
2
(
)
3
.
2
(
(10)
2017
2018
2019
2020
2021
Derwent London
MSCI UK All Property1
MSCI Central London Offices1
1 Quarterly Index
77
The Group’s investment portfolio was valued at £5.7bn on
31 December 2021. There was a valuation surplus of £142.9m
for the year, which after accounting adjustments of £9.8m (see
note 11), gives a reported surplus of £133.1m. This performance
represents an underlying valuation increase of 3.5%, and a reversal
of the 3.0% decline seen in 2020. By location, our central London
properties, which represent 99% of the portfolio, increased in
value by 3.4% with the West End +3.9% and City Borders +2.5%.
The balance of the portfolio, our Scottish holdings, was up 9.9%.
Our portfolio’s underlying capital growth outperformed the
MSCI Quarterly Index for Central London Offices, at 2.5%, but
underperformed the wider UK All Property Index which increased
by an exceptional 11.5%.
Looking at EPRA metrics, our estimated rental values (ERV) in 2021
fell marginally by 0.2% against a decline of 2.8% in 2020. Our office
ERVs were up slightly at 0.2%. Our retail rental values, where our
exposure is limited, fell by 5.8% focused in H1.
The investment market remained buoyant, especially for quality
buildings and secure income streams, which helped drive the
portfolio’s valuation yields lower. Accordingly, the true equivalent
yield tightened 24 basis points from 4.74% to 4.50% over the year.
It is worth noting that the 250 Euston Road NW1 acquisition
accounted for 7 basis points of the yield movement. The EPRA
initial yield is 3.3% which, after allowing for the expiry of rent-frees
and contractual uplifts, rises to 4.4% on a ‘topped-up’ basis.
5
.
6
1
The total property return for the year was 6.3%, which compares
to the MSCI Index of 5.9% for Central London Offices and 16.5%
for UK All Property, the latter driven mainly by very strong yield
compression and rental growth for industrials and logistics.
We are on site with three major developments, each at different
stages of delivery. Soho Place W1 and The Featherstone Building
EC1 are nearing completion with delivery scheduled for H1 2022.
Following demerger of our properties held with The Portman
Estate, we obtained vacant possession of 19-35 Baker Street W1
in September 2021, commenced demolition and have recently
signed the main building contract. Completion is scheduled for
2025. Further details on all these projects are set out under
‘Development & Refurbishment’ below. Combined, they were
valued at £577.1m in December 2021 and delivered a 9.2% valuation
uplift over the year, after adjusting for capital expenditure. An
additional £355m is required to complete these projects. Their
combined ERV is £47.1m, of which 36% is pre-let. Excluding these
developments, the portfolio valuation increased by 2.9% on an
underlying basis.
Portfolio reversion
Our contracted annualised cash rent on 31 December 2021 was
£178.4m. This 5.7% decrease in the year was principally due to
the loss of income from the disposal of the Johnson Building EC1
and Angel Square EC1 and obtaining vacant possession of 19-35
Baker Street, ahead of redevelopment.
Financial StatementsGovernanceStrategic report
78
VALUATION CONTINUED
With a portfolio ERV of £293.9m there is £115.5m of potential cash
reversion. Within this, £54.6m is contracted through rent-frees,
fixed uplifts and indexation. Under IFRS, a large proportion of this
contracted income is already recognised within the accounting
gross rental income. Our on-site developments and major
refurbishments could add £50.0m, of which £17.0m is pre-lettings
at Soho Place W1 and £2.9m at Francis House SW1. There is then
£7.2m of potential income from several ongoing smaller projects
across the portfolio. ERV on space available to occupy is relatively
small at £3.8m, reflecting our EPRA vacancy rate of 1.6%, which is
down slightly from the 1.8% at the start of the year.
With Soho Place and The Featherstone Building being delivered in
the next few months, if no further pre-lets are secured the vacancy
rate would rise to 5.9% upon their completion. There is then £5.8m
of reversion from anticipated rent reviews and expiries. However,
this is offset by £5.9m already included within contracted uplifts
where there is rental indexation and minimum uplifts on rent
reviews to levels above their current ERV.
Valuation yields
Portfolio income potential
%
8
6
4
2
0
Rental income £m
350
Reversion %
120
280
210
140
70
96
72
48
24
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
0
2017
2018
2019
2020
2021
0
Derwent London True Equivalent Yield (TEY)
Derwent London Initial Yield
10-year Gilt
Gap between DL TEY and 10-year Gilt
Average gap (285 bp)
Contractual rent
Contractual rental uplifts (including pre-lets)
Available to occupy
Under refurbishment/development
Rent reviews and lease renewals
Reversion
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)
(26)
(29)
5-year movement
-33 basis points
(17)
(4) 6
25 (4) (6) (3) 3 1
03
(3) (9)
(15)
Rental value growth
Half-yearly rental value growth (%)
2
1
.
1
0
.
1
6
.
0
5
.
0
6
.
0
4
.
0
1
.
0
)
3
.
0
(
)
7
.
0
(
)
1
.
2
(
1
0
(1)
(2)
(3)
4.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
2020
2021
H1 17 H2 17 H1 18 H2 18 H1 19 H2 19 H1 20 H2 20
H1 21 H2 21
Derwent London plc Report & Accounts 2021
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
79
West End
Central
Borders
City
Borders
Central London
Provincial
3,483.6
431.4
3,915.0
1,698.7
5,613.7
83.0
Total portfolio
5,696.7
5,355.5
1 Underlying – properties held throughout the year
2
2021
2020
Includes pre-lets
61
8
69
30
99
1
100
100
4.2
1.5
3.9
2.5
3.4
9.9
3.5
(3.0)
2,573
419
2,992
1,415
4,407
326
4,733
5,110
38
10
48
96
144
2
146
169
157
0
157
79
236
0
236
54
Rental income profile
Annualised contracted rental income, net of ground rents
Contractual rental increases across the portfolio
Contractual rental from 287,000 sq ft pre-lets on developments
Letting 146,000 sq ft available floor area
Completion and letting 236,000 sq ft of refurbishments
Completion and letting 459,000 sq ft of developments
Anticipated rent review and lease renewal reversions
Future contracted growth above ERV
Portfolio reversion
Potential portfolio rental value
Portfolio statistics – rental income
334
0
334
125
459
0
459
231
Rental
uplift
£m
54.6
19.9
3.8
7.2
30.1
5.8
(5.9)
3,102
429
3,531
1,715
5,246
328
5,574
5,564
Rental
per annum
£m
178.4
115.5
293.9
West End
Central
Borders
City
Borders
Central London
Provincial
Total portfolio
2021
2020
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
90.1
21.3
111.4
62.5
173.9
4.5
178.4
189.2
35.29
51.11
37.51
44.92
39.89
13.94
38.10
37.40
26.3
0.4
26.7
14.4
41.1
0.0
41.1
23.9
62.2
0.4
62.6
11.5
74.1
0.3
74.4
78.1
178.6
22.1
200.7
88.4
289.1
4.8
293.9
291.2
7.0
7.3
7.0
5.4
6.4
2.8
6.33
6.2
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 7.8 years after adjusting for 'topped-up' rents and pre-lets
Financial StatementsGovernanceStrategic report 80
ACQUISITIONS
& DISPOSALS
David Silverman
Executive Director
Through 2021, a nuanced change was made to the Group’s strategy.
For the time being we expect to retain more of our larger recent
developments where we see good growth. At the same time, we
may look to sell some of those buildings where we believe returns
will be more limited. Disposal proceeds will be reinvested into new
acquisitions and the development programme. Our investment
activity through 2021 has been closely aligned to this.
The Group’s investment team had a very busy year. We invested
£417.5m in the acquisition of eight buildings. The Lazari Baker
Street JV and 230 Blackfriars Road are potential future ‘super-
sites’ where we see substantial uplifts in floor area when
compared to the existing buildings.
In addition, the Group was selected as preferred bidder for
The Moorfields Estate EC1 in December 2021. The c.400,000 sq ft
of buildings, on a 2.5 acre site, has potential for a substantial
redevelopment and is considered another future ‘super-site’.
Major disposals completed in 2021 realised net proceeds of
£396.4m, rising to £405.1m including smaller sales. After year end,
contracts were exchanged for the sale of New River Yard EC1 for
net proceeds (after rental top ups) of £66.0m.
Restructuring of The Portman Estate Baker
Street holdings
At the end of Q3 2021, our Baker Street holdings with The Portman
Estate (TPE) was restructured. This was a longstanding 55:45
jointly owned company with TPE which owned properties in
Baker Street W1 and the surrounding area. The restructuring
involved Derwent London buying in the 45% of shares previously
owned by TPE, resulting in the Group taking full ownership of the
development site at 19-35 Baker Street and TPE granting a new
129-year headlease over the site. Other properties owned within
the company were transferred to TPE and the Group made a
balancing payment of £6.2m. Refer to the Finance section for
further details.
Net property investment
£m
400
300
200
100
0
(100)
(200)
(300)
(400)
(500)
2017
2018
2019
2020
2021
Capital expenditure
Disposals
Acquisitions
Derwent London plc Report & Accounts 2021
81
Area
sq ft
Total
cost
£m
Net yield
%
Net rental
income
£m pa
Net rental
income
£psf
41,600
23.7
103,700
165,900
16,200
61,100
388,500
–
388,500
14.5
190.3
24.3
64.03
316.8
100.7
417.5
6.9
–
2.5
2.6
4.0
–
–
–
3.5
1.6
–
4.7
0.6
2.6
9.5
–
9.5
2.1
40.00
–
28.30
57.50
42.50
–
–
–
41.00
250 Euston Road NW1
Major acquisitions
Property
H1 2021
Holford Works WC11
H2 2021
Bush House WC22
250 Euston Road NW1
171-174 Tottenham Court Road W1
Baker Street W1 JV (50% share)
19-35 Baker Street W1 (headlease regear)
Date
Q2
Q3
Q3
Q3
Q4
Q4
2022 to date
230 Blackfriars Road SE1
1 Long leasehold
2 Leasehold
3 Subject to receiving planning and regear of the headlease an additional £7.25m is payable
Q1
60,300
58.3
Major disposals
Property
2021
Johnson Building EC1
Angel Square EC11
The Portman Estate properties2
19-35 Baker Street W1 (headlease surrender)
Date
Q1
Q3
Q4
Q4
2022 exchanged
New River Yard EC1
1 Sold with vacant possession
2
3 After rental top ups
Includes 16-20 Baker Street, 27-33 Robert Adam Street, 17-39 George Street and 26-27 Castlereagh Street W1
Area
sq ft
Net proceeds
£m
Net yield to
purchaser %
Rent
£m
192,700
126,200
50,600
369,500
–
369,500
165.6
85.0
45.1
295.7
100.7
396.4
Q1
70,700
66.03
4.1
–
–
–
–
–
4.5
7.3
–
–
7.3
–
7.3
3.3
Financial StatementsGovernanceStrategic report 82
LEASING, ASSET
MANAGEMENT
& PROPERTY
MANAGEMENT
Rent collection
Prior to Covid-19, the Group typically collected over 99% of its rent
from tenants within two weeks of the quarter date, with negligible
bad debts. This pattern changed in early 2020 with the pandemic
and subsequent lockdown as we supported those of our occupiers
most in need. Staying close to our customers, combined with the
subsequent recovery in 2021, helped us deliver a high level of
recovery of deferrals agreed in 2020. Through 2021, office
collection rates improved and have now returned to pre-Covid
levels while retail (only 8% of income) continued to lag.
Lettings
Leasing activity in 2021 totalled £13.7m across 50 transactions
despite having little space available. Activity, however, picked up
following publication by the Government of the ‘Roadmap out of
lockdown’ at the end of Q1. Three deals – to Depop at 20 Farringdon
Road EC1, Fora at 6-8 Greencoat Place SW1 and Edelman at
Francis House SW1 – accounted for half of new rent secured.
On average, new leases were signed at +3.6% above December
2020 ERV. Pre-lettings accounted for £5.8m or 43% by value in
six transactions.
Since the start of 2022, a further four leases across 28,300 sq ft
have been signed with a rent roll of £1.9m pa at +8.7% above
December 2021 ERV.
Letting activity 2021
Let
Area
sq ft
79,200
159,000
238,200
Income
£m pa
3.9
9.8
13.7
Performance against
Dec 20 ERV (%)
Open
market
(1.0)
5.9
3.9
Overall1
(1.6)
5.9
3.6
Includes short-term lettings at properties earmarked for redevelopment
H1
H2
2021
1
Emily Prideaux
Executive Director
Asset management
At the start of 2021, 17% of passing rent was subject to break or
expiry in the year. In aggregate, 77% of breaks and expiries were
retained or re-let in the year. Looking forward, breaks and expiries
in 2022 account for 9% of passing rent, already considerably
below the 13% at June 2021.
In Q1, renewals and regears were mainly short-term roll overs
as occupiers continued to adopt a ‘wait and see’ approach to
their office space. As the year progressed, there was a notable
shift towards longer-term solutions. 27 lease renewals and
43 lease regears completed in 2021. The table below provides
further details.
Asset management 2021
Area
’000 sq ft
251,500
114,000
Previous
rent
£m pa
9.9
5.2
New rent
£m pa
11.9
5.5
Uplift
%
20.2
7.3
Rent reviews
Lease
renewals
Lease regears
Total
Excludes transactions on assets subsequently sold or taken back for major
redevelopment
287,200
652,700
14.1
29.2
14.5
31.9
2.3
9.2
New rent
vs Dec 20
ERV %
1.1
(0.9)
(0.5)
0.0
Derwent London plc Report & Accounts 2021 83
Principal lettings in 2021
Property
H1
20 Farringdon Road EC1
Tea Building E1
H2
Francis House SW1
6-8 Greencoat Place SW1
Charlotte Building W1
80 Charlotte Street W1 (resi)
The White Chapel Building E1
Total
Tenant
Depop
Soho House
Edelman
Fora
The & Partnership
Q Apartments
Emperor Design
Area
sq ft
33,500
7,600
38,200
32,400
14,900
13,400
12,700
152,700
Rent
£ psf
52.50
50.00
76.00
68.50
67.50
52.10
49.50
62.90
Total
annual rent
£m
Lease
term
years
Lease
break
year
Rent-free
equivalent
months
1.8
0.4
2.9
2.2
1.0
0.7
0.6
9.6
5
10
15
15
5
10
10
3
-
10
-
-
-
5
9, plus 4 if no break
24
25, plus 9 if no break
34
10
3
12, plus 6 if no break
Retaining occupiers – Lease expiry and break analysis
Average unexpired lease length
Percentage of income
Years
0
1
4
1
6
7
0
1
7
3
8
3
1
2
2
5
6
3
2
0
3
7
4
8
5
3
7
5
100
80
60
40
20
0
2017
2018
2019
2020
2021
8
6
4
2
0
Dec
2016
Jun
2017
Dec
2017
Jun
2018
Dec
2018
Jun
2019
Dec
2019
Jun
2020
Dec
2020
Jun
2021
Dec
2021
Retained
Vacant
Re-let
West End
City Borders
Central London
Members of the Leasing, Asset and
Property Management teams
Financial StatementsGovernanceStrategic report
84
LEASING, ASSET MANAGEMENT
& PROPERTY MANAGEMENT CONTINUED
Property management
Property management is the main point of contact with our
occupiers. 2020 and 2021 were busy years for the team who
responded proactively to provide pragmatic and practical
solutions for occupiers while also rolling out and maintaining
Covid-19 secure protocols across our estate. We have also
embraced new technologies to enhance cleaning and air safety.
The team has introduced new initiatives to drive customer
engagement. As well as encouraging a return to the office, some
of these events have helped raise money to support local charities.
We re-tendered major contracts to ensure high and consistent
quality and value for our occupiers and to ensure that high
standards of customer experience are delivered consistently.
Our property managers work closely with our Sustainability
team to deliver on our net zero carbon ambitions, for example
through co-ordination of plant maintenance.
Five-year vacancy trend
%
9
8
7
6
5
4
3
2
1
0
Dec
2016
Jun
2017
Dec
2017
Jun
2018
Dec
2018
Jun
2019
Dec
2019
Jun
2020
Dec
2020
Jun
2021
Dec
2021
Derwent London (by rental value)
CBRE Central London (by floor area)
Derwent London (by floor area)
The Featherstone Building EC1
Derwent London plc Report & Accounts 2021 DEVELOPMENT &
REFURBISHMENT
Nigel George
Executive Director
Paul Williams
Chief Executive
Completions and capital expenditure
‘000 sq ft
500
400
300
200
100
£m
250
200
150
100
50
0
2007
2009
2011
2013
2015
2017
2019
2021
2023
Completions (‘000 sq ft)
Capital expenditure (£m)
Estimated capital expenditure (£m)
85
At the end of 2021 we were on site at three major projects:
Soho Place W1, The Featherstone Building EC1 and 19-35
Baker Street W1.
Soho Place is due to complete in H1 2022. The office space at
1 Soho Place was pre-let to Apollo Group and G-Research in 2019.
When combined with the forward-sale of 2 & 4 Soho Place, which
comprises 18,400 sq ft of offices and a 40,000 sq ft theatre pre-let
to Nimax, all of the office space is either pre-let or forward-sold.
Scheme profitability has benefitted from the strong performance
of the office element. The marketing campaign for the 36,000 sq ft
of retail space is due to be launched in April. We are confident in the
long-term attractions of this retail location above the Elizabeth line
station at the junction of Oxford Street and Charing Cross Road.
The ERV of this space stabilised through H2 2021 with CBRE’s
rental expectation now £3.1m. The development will be net zero
carbon and we are targeting a BREEAM ‘Outstanding’ rating on
the commercial element.
The Featherstone Building is due to reach practical completion
in H1 2022 with an ERV of £8.6m. The space incorporates many
of the features of White Collar Factory EC1, such as concrete core
cooling, openable windows and generous floor to ceiling heights as
well as high quality amenities. Combined with the location in the
heart of the Tech Belt, we remain confident in the prospects for
this building. Current enquiries are for a range of different size
requirements and we have seen an increase over recent weeks
in enquiry levels. The development will also be net zero carbon,
while also incorporating our ‘Intelligent Building’ infrastructure
and with WELL ‘Enabled’ credentials. We are targeting a BREEAM
‘Outstanding’ rating.
On-site works at 19-35 Baker Street W1 commenced in Q4
2021. This scheme extends to 298,000 sq ft, a 108% uplift on the
pre-existing space, the majority of which is offices (218,000 sq ft).
Most of the retail is subject to a forward sale agreement with The
Portman Estate. The Group has entered an agreement for Native
Land to act as our development partner for the private residential,
providing funding as well as development and marketing advice in
exchange for which they will receive a share of the profits.
The 19-35 Baker Street demolition contract was secured below
budget and the main building contract, which was finalised in
Q1 2022, was in line with budget. 97% of capex on the office
element is now fixed effectively mitigating our exposure to further
build cost inflation. Capital expenditure is estimated at £266m
and we will use capacity under our green finance facilities to fund
eligible expenditure. The development has been designed to be
‘long-life, loose-fit’ with 3.2m floor to ceiling heights, integrated
‘Intelligent Building’ infrastructure, double height lobby, roof
terraces and generous public realm. The building will be net zero
carbon with a target of BREEAM ‘Outstanding’, NABERS 4 Star
(our first NABERS UK certified scheme) and WELL ‘Enabled’
credentials on the office element. Completion is due in 2025.
Financial StatementsGovernanceStrategic report 86
DEVELOPMENT &
REFURBISHMENT CONTINUED
We completed our 32,400 sq ft refurbishment at 6-8 Greencoat
Place SW1 in June 2021 which was effectively pre-let to Fora. In Q4
2021, we pre-let the whole of our on-site refurbishment at Francis
House SW1 (38,200 sq ft) to Edelman. Both these transactions were
at premiums to ERV.
In 2021, the Group secured a dual planning consent for Network
Building W1: offices (137,000 sq ft) and lab-enabled Life Sciences
(112,000 sq ft). Both benefit from ground floor retail. On a
speculative basis, we would expect to deliver the office scheme
but we have had an early approach from a life sciences operator.
On-site works are expected to commence in H2 2022 with capex
for either option of c.£100m.
At Bush House WC2, a planning application was submitted in 2021
for a c.26,000 sq ft extension to the current building which would
increase the overall floor area from 103,700 sq ft to c.130,000 sq ft.
On-site works are expected to commence later this year on either
the larger scheme, subject to planning, or refurbishment of the
existing building.
Beyond the near-term pipeline, a further 1.7m sq ft, or 31% of the
portfolio, has development potential.
Major developments pipeline
Property
H1 2022 completions
Soho Place W1
The Featherstone
Building EC1
In demolition
19-35 Baker Street W1
Proposed area
Capex to
complete
£m1
285,000
125,000
410,000
298,000
298,000
792
10
89
2663
355
2022 schemes
Network Building W1
137,000
c.100
Bush House WC2
130,000
c.100
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, 2,000 sq ft retail
Comment
218,000 sq ft offices, 28,000 sq ft retail, 45,000 sq ft private residential and
7,000 sq ft affordable residential. Demolition commenced October 2021
Dual planning consent: Offices and ground floor retail (137,000 sq ft) or lab-enabled Life
Sciences and ground floor retail (112,000 sq ft). Up to 96% uplift on existing floor area
Refurbishment and extension project, totalling c.130,000 sq ft (subject to planning)
Potential 25% uplift to existing floor area
267,000
975,000
Total
1 As at 31 December 2021
2
2
Includes remaining site acquisition cost and profit share to Crossrail
Includes profit share payments
6-8 Greencoat Place SW1
Derwent London plc Report & Accounts 2021
87
Project summary – current projects
Members of The Featherstone
Building Project team
Current net
income
£m pa
Pre scheme
area
’000 sq ft
Proposed
area
’000 sq ft
2022
capex
£m
2023
capex
£m
2024+
capex
£m
Total capex
to complete
£m
Delivery
date
Current office
c.ERV
psf
–
–
–
–
–
2.1
2.1
–
–
–
2.1
–
2.1
107
69
40
143
359
70
429
–
–
–
429
–
429
285
125
38
298
746
137
883
–
–
–
883
–
883
79
10
8
50
147
12
159
10
12
16
197
6
203
–
–
2
103
105
22
127
1
2
16
146
6
152
–
–
–
113
113
70
183
–
–
14
197
11
208
79
10
10
266
365
104
469
11
14
46
540
23
563
H1 2022
H1 2022
H1 2022
H1 2025
£92.50
£72.50
£76.00
£90.00
2025
Property
On-site projects
Soho Place W11
The Featherstone Building EC1
Francis House SW1
19-35 Baker Street W12
2022 projects
Network Building W1
Strathkelvin Retail Park
Planning and design
Other3
Total
Capitalised interest
Total including interest
1
2
3
Includes remaining site acquisition cost and profit share to Crossrail
Includes profit share payments
Includes EPC upgrades
Project summary – future projects
Property
Consented
Holden House W1
Under appraisal1
Bush House WC2
Baker Street W1 JV
Blue Star House SW9
Other
Consented and under appraisal
On site and 2022 projects
Pipeline
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
2025
2021
2024
2025
3.9
3.9
–
2.5
0.8
4.0
7.3
11.2
2.1
13.3
90
90
104
61
54
171
390
480
429
909
150
150
130
120
110
171
531
681
883
1,564
Refurbishment and potential extension
Joint venture, 50% share
Redevelopment
Includes Oliver’s Yard EC1 and
45 Whitfield Street W1
Previous table
Financial StatementsGovernanceStrategic report 88
FINANCE
REVIEW
The past year has seen a return towards
more normal business conditions
punctuated by periods of elevated
uncertainty when levels of Covid-19
infection increased.
Damian Wisniewski
Chief Financial Officer
PRESENTATION OF FINANCIAL RESULTS
The financial statements have been prepared in accordance
with UK-adopted International Accounting Standards.
In common with usual and best practice in our sector,
alternative performance measures have also been provided
to supplement IFRS based on the recommendations of the
European Public Real Estate Association (‘EPRA’). EPRA Best
Practice Recommendations (BPR) have been adopted widely
throughout this report and are used within the business when
considering our operational performance as well as matters
such as dividend policy and elements of our Directors’
remuneration. Full reconciliations between IFRS and EPRA
figures are provided in note 40 and all the EPRA definitions
are included on pages 274 and 275.
Introduction
With lockdowns having eased and the UK’s very successful
vaccination programme providing some protection from the worst
impacts of 2021’s Covid-19 variants, activity across most of our
stakeholder groups has gradually recovered. This is evidenced by
many economic indicators including GDP growth, employment and
investment. Our own experiences have borne this out with office
rental collections now almost at pre-Covid levels and most of our
occupiers planning further ahead once more. We have responded
with a substantial investment programme in new future projects
and have reshaped the business more than in any year since the
LMS merger in 2007.
Challenges remain with businesses facing increased compliance
requirements and staff shortages while also tackling the climate
change and biodiversity emergencies. We take these issues very
seriously but also see them as opportunities to differentiate our
product and business while becoming ever more customer
focused. Cost inflation is now also being widely felt, though views
differ on how long it will last. However, the economy is expected to
grow and many of London’s businesses are actively recruiting and
expressing greater confidence in the future than for some time.
Financial overview
As noted in last year’s report and with a subtle change in emphasis
announced during 2021, we have continued to rebalance the
portfolio. We have made disposals where we see more challenging
future returns and replaced them with some new acquisitions
to provide future projects and ‘super-sites’ for the next decade
or so. This reshaping is not finished and we hope to secure further
value-add opportunities in the future which may see balance sheet
gearing rise a little higher. I have previously noted our shift in focus,
with future value creation a higher current priority than income
growth; this may provide some short-term impact on earnings
until we are able to replace all the income lost from recent
disposals. However, we now anticipate income reversion
increasing as meaningful rental growth comes through for
the strongest office product.
Financial highlights
Total net assets
EPRA NTA per share
Property portfolio at fair value
Gross property and other income
Net rental income
IFRS profit/(loss) before tax
EPRA earnings per share (EPS)
Interim and final dividend per share
LTV ratio
NAV gearing
Net interest cover ratio
2021
£4,441.8m
3,959p
2020
£4,315.1m
3,812p
£5,646.3m £5,355.5m
£268.6m
£174.3m
(£83.0m)
99.19p
74.45p
18.4%
24.3%
446%
£240.2m
£178.2m
£252.5m
108.79p
76.50p
20.8%
28.2%
464%
Our asset and property managers continue to engage with our
occupiers to extend leases, remove breaks and minimise voids.
With relatively strong property revaluations and much lower
impairment provisions booked in 2021 than in 2020, this has helped
2021 earnings rise significantly with IFRS earnings up 294.33p to
224.99p per share and EPRA earnings per share up 9.7% to 108.8p.
I cannot recall a more active year for our development team either
and all this activity helped the Group produce a total return of 5.8%.
Derwent London plc Report & Accounts 2021 89
Property portfolio
Our property portfolio was externally valued at £5.6bn (excluding
the new joint venture) as at 31 December 2021, allocated across
the balance sheet as follows:
Investment property
Non-current assets held for sale
Owner-occupied property
Trading property
Property carrying value
Accrued income (non-current)
Accrued income (current)
Grossing up of headlease liabilities
Profit share due to TfL
Revaluation of trading property/other
Fair value of property portfolio
Fair value of properties held in
joint venture (50%)
Dec 2021
£m
5,359.9
102.8
49.3
32.2
5,544.2
159.3
24.1
(70.4)
(14.8)
3.9
5,646.3
Dec 2020
£m
5,029.1
165.0
45.6
12.9
5,252.6
146.4
19.6
(66.5)
–
3.4
5,355.5
50.0
–
The year was marked by transactions with The Portman Estate
(TPE) and Lazari Investments Ltd (Lazari) which have helped unlock
two different and large-scale development opportunities in Baker
Street W1. Further opportunities for future growth have also come
from acquisitions announced subsequently in 2021 but their
impact will be felt more in the medium term.
Firstly, we acquired TPE’s 45% £53.4m non-controlling interest
in Portman Investments Baker Street Ltd (PIBS) on 30 September
2021. PIBS was a longstanding 55%/45% joint company holding
properties in two main blocks adjoining Baker Street and George
Street. Because it was majority owned and controlled by the
Derwent London plc group, it was consolidated within our accounts
for many years subject to a non-controlling interest. As part of this
overall transaction, properties in George Street, Baker Street,
Robert Adam Street and Castlereagh Street W1 totalling £45.2m
were disposed of to TPE. The last part of the transaction was to
surrender the existing headleases to TPE with a new 129 year
headlease being granted by TPE across the 19-35 Baker Street
site. This surrender and regrant of the headleases has been
treated as a £100.7m disposal and subsequent acquisition
though no cash passed between the parties on this element
as the transactions netted off; the net cash that passed from
Derwent to TPE on completion of the various steps outlined here
was £6.2m. The result is that the Group now has a long leasehold
interest in the newly geared development site at 19-35 Baker
Street where work is underway to demolish the old buildings.
The other major transaction was the acquisition of two buildings
from Lazari Investments in October 2021 and the formation of
a 50/50 joint venture. The buildings acquired were 250 Euston
Road NW1 for £190.3m and 171-174 Tottenham Court Road W1 for
£24.3m, both inclusive of costs. The joint venture was formed in
October as a Limited Partnership; each partner has an effective
50% share in a deadlocked structure and our 50% interest is
therefore held within Investments (note 18) rather than being
included within the Property portfolio (note 16).
Turning to liquidity, as expected the Group’s rental collections
bounced back well in 2021 but we also executed some very
successful treasury transactions, notably our new £350m 1.875%
10-year unsecured green bond issue in November. This is further
evidence of our commitment across the business to a net zero
carbon future.
Return to growth
The portfolio showed a return to revaluation growth in 2021.
This came from downward yield shift for well let offices together
with development profits from recent schemes and modest ERV
growth for the best properties. With IFRS earnings comfortably
exceeding dividends paid, the closing EPRA Net Tangible Assets
(NTA) per share was 3,959p, up 3.9% from December 2020.
Similarly, IFRS equity shareholders’ funds increased over the
year by 4.2% to £4.44bn.
Opening EPRA NTA
Revaluation movement
Profit on disposals
EPRA earnings
Ordinary dividends paid
Interest rate swap termination costs
Share of joint venture results
Other
Closing EPRA NTA
2021
p
3,812
119
9
109
(75)
(2)
(12)
(1)
3,959
2020
p
3,957
(176)
5
99
(73)
(2)
–
2
3,812
Derwent London continues to focus on property returns, recurring
earnings, sustained dividend growth and modest leverage as well
as our Net Zero Carbon Pathway and a number of other ESG and
stakeholder-focused metrics. However, we believe that total return
(i.e. dividends paid plus EPRA Net Tangible Assets growth per
share) is the best single measure of our financial performance.
After adding back the dividends paid, the Group’s total return
(see note 41) recovered to 5.8% in 2021 after the 1.8% decline
seen in 2020.
EPRA net tangible assets per share
p
4,250
4,000
3,750
3,812
109
(75)
119
9
(12)
(3)
3,959
3,500
y
r
a
u
n
a
J
1
n
o
i
t
a
u
a
v
e
R
l
)
t
i
c
i
f
e
d
(
/
s
u
p
r
u
s
l
2020
3,957
(176)
l
a
s
o
p
s
i
d
n
o
t
i
f
o
r
P
5
i
d
a
p
s
d
n
e
d
i
v
i
D
i
s
g
n
n
r
a
e
A
R
P
E
m
o
r
f
s
t
l
u
s
e
R
s
e
r
u
t
n
e
v
t
n
o
j
i
r
e
h
t
O
r
e
b
m
e
c
e
D
1
3
99
(73)
–
–
3,812
Financial StatementsGovernanceStrategic report
90
FINANCE REVIEW CONTINUED
The joint venture holds three leasehold properties in Baker Street
W1 which are currently income producing but where the intention is
to work up a major new scheme subject to planning, site assembly
and regearing of the headlease. The Group’s share of the properties
acquired cost £64.0m but was subsequently revalued at £50.0m as
at 31 December 2021 giving a JV revaluation deficit for the year of
£14.0m. It is expected that the valuation should rise in due course
upon a successful planning and headlease gearing outcome.
In addition to the transactions above, other property acquisitions
during the year included £23.8m for the long leasehold interest at
Holford Works WC1 and £14.5m for the short leasehold interest
at Bush House WC2. Altogether, acquisitions totalled £353.6m.
Capital expenditure in 2021 increased to £166.1m plus £12.0m of
capitalised interest bringing total additions to £531.7m in the year.
Disposals included the Johnson Building EC1, which was disclosed
as an ‘asset held for sale’ at the start of 2021, and Angel Square
EC1, which completed in August 2021. The properties within
‘non-current assets held for sale’ at 31 December 2021 were New
River Yard and 2 & 4 Soho Place W1, with carrying values of £63.7m
and £37.5m, respectively. New River Yard exchanged in January
2022 with completion expected in Q2 2022 and contracts for the
sale of 2 & 4 Soho Place have been exchanged with completion
expected later in 2022.
The trading property held at 31 December 2021 included the last
remaining residential apartment at Asta House W1. This was
subsequently sold post the year end and brings to an end our
development of these units connected with the 80 Charlotte Street
scheme. The other item in trading stock was Welby House SW1
which was written down by £1.4m in 2021.
The overall wholly-owned property portfolio valuation performed
much better than in 2020 and gave rise to a total revaluation
surplus for the year of £130.8m after accounting adjustments, of
which £3.7m related to our owner-occupied head office at Savile
Row. The latter figure is shown in the Group Statement of
Comprehensive Income rather than the Income Statement.
The balance of unamortised letting and legal fees plus the accrued
income from the ‘straight-lining’ of rental income under IFRS 16 to
spread the effect of incentives and fixed uplifts over the lease
terms has increased to £183.4m (2020: £166.0m). This balance rises
as income is recognised through incentive periods and falls
gradually once the cash flows stabilise.
The grossing up of headlease liabilities increased the carrying
values of the leasehold properties by £70.4m (2020: £66.5m) but
there is an equal and opposite liability within ‘net debt’ (note 24) and
the profit share payable to TfL on the Soho Place scheme of £14.8m
makes up the remaining balance.
Rent collection and impairment of receivables
One of the clearest barometers of the Covid-19 period for the real
estate sector has been the impact on rent collection rates. This was
very noticeable in the early lockdown days of H1 2020, particularly
for retail and hospitality tenants or for those in the travel and
entertainment businesses, but had already started to recover
significantly in H2 2020. It is good to report that rent collection
rates have continued to move back towards pre-Covid levels for our
office portfolio through 2021 and into 2022. For the December 2021
quarter day rents, we have now collected 98% of office rents and
97% of overall rents, including our share of the new joint venture.
The retail and hospitality sectors continue to lag but are showing
much stronger payment performances than in 2020 and occupiers
are now generally not asking for concessions beyond some
requests for monthly rental payments.
Rent received to date
Due later in the quarter1
Outstanding
Rent-free granted
Total
1 Principally monthly receipts
Dec 21 quarter
Retail/
Hospitality
83%
4%
13%
0%
100%
£2.3m
Total
97%
1%
2%
0%
100%
£42.6m
Office
98%
1%
1%
0%
100%
£40.3m
Impairment reviews using the expected credit-loss model in
accordance with IFRS 9 have continued in 2021 against trade
receivables as well as amounts due under the spreading of lease
incentives. These have been carried out for each of our 50 largest
tenants and for others where we believe the risk is elevated, with
the remaining balances considered according to their sector.
Substantial impairment charges and write-offs totalling £14.2m
were incurred against receivable balances in 2020. In 2021, these
amounts have reduced considerably to £0.8m, this total amount
including £2.4m of charges reversed from 2020. This pattern
is due to an improved assessment of the risks as the financial
health of tenants has improved as well as lower outstanding
balances. For example, net trade receivables were back to
normal year end levels at £6.9m as at 31 December 2021,
75% lower than the £27.5m a year earlier.
2021 Rent collection
Rent received to date
Outstanding
Rent-free granted
Total
Dec 20 quarter
Mar 21 quarter
Jun 21 quarter
Sep 21 quarter
Office
99%
1%
0%
100%
£41.4m
Retail/
Hospitality
73%
9%
18%
100%
£2.9m
Office
98%
1%
1%
100%
£40.0m
Retail/
Hospitality
68%
13%
19%
100%
£3.0m
Office
99%
1%
0%
100%
£38.8m
Retail/
Hospitality
81%
12%
7%
100%
£2.6m
Office
100%
0%
0%
100%
£38.5m
Retail/
Hospitality
88%
11%
1%
100%
£2.5m
Derwent London plc Report & Accounts 2021 Property income and earnings
Net property and other income increased to £187.5m for the year
ended 31 December 2021 from £183.0m in 2020. However, there are
several different themes underlying this overall increase, set out in
note 5 and explained briefly below.
Gross rental income
£m
220
210
200
190
180
170
9.5
0.7
(9.4)
202.9
(9.5)
194.2
r
a
e
y
r
o
i
r
P
r
o
j
a
M
s
t
n
e
m
p
o
l
e
v
e
d
s
g
n
i
t
t
e
l
t
e
s
s
a
&
r
e
h
t
O
t
n
e
m
e
g
a
n
a
m
,
s
k
a
e
r
B
i
s
d
o
v
&
s
e
i
r
i
p
x
e
s
l
a
s
o
p
s
i
d
&
s
n
o
i
t
i
s
i
u
q
c
A
r
a
e
y
t
n
e
r
r
u
C
Gross property and other income fell to £240.2m for the year to
31 December 2021 from £268.6m in the prior year, the main reason
for this being significantly lower sales of trading properties at Asta
House. Most of the apartments were disposed of in 2020, hence the
reduction in disposal proceeds from £32.3m in 2020 to £6.7m in
2021. The next apartments that we will undertake are those at our
19-35 Baker Street scheme where the main building contract will
commence shortly. These are due to complete in 2025 so trading
property disposal proceeds are expected to be very low for the next
few years. In addition, gross rental income fell back a little in 2021
to £194.2m from £202.9m in 2020. This was mainly the result of
property disposals where the income yields were relatively higher
and acquisitions where they were lower. Gross rents have also been
impacted by the ‘softer’ letting and lease extension transactions
undertaken through 2020 and early 2021 when the pandemic was
affecting occupier sentiment. In particular, we undertook a number
of transactions to extend leases at passing rental levels while
offering incentives that took the net effective rents a little lower
than previously. Combined with a small increase in the average
vacancy rate, this also explains why EPRA like-for-like gross rental
income has declined over the year. Surrender premiums and other
property income increased to £5.6m in 2021 from £1.8m in 2020,
helping offset some of the lower gross rents. Other factors were
service charge income rising to £30.2m in 2021 against £28.1m in
2020 and other income of £3.5m, the same as in 2020. Together,
these movements account for the reduction in gross property and
other income referred to above.
91
However, as in 2020, it is net property income that shows the full
impact of the Covid-19 pandemic on our business. As noted above,
with much stronger rent collection and occupation levels among
most of our occupiers, impairment charges and bad debts fell to
£0.8m in 2021, a significant improvement from the £10.1m booked
in 2020. Irrecoverable service charges also fell from £6.9m in 2020
to £3.4m in 2021 as we did not repeat the £4.1m service charge
‘holiday’ that we allowed tenants in 2020. Other property costs
were broadly unchanged at £11.8m against £11.6m in 2020. As a
result, net rental income increased to £178.2m in 2021, a 2.2%
increase over the year.
Lower profits from the Asta House apartment ‘trading’ sales of
£0.7m in 2021 against £5.2m in 2020 were largely offset by higher
surrender premiums recognised. As a result, net property and other
income also saw a rise of 2.5% to £187.5m from £183.0m in 2020.
Administrative expenses were 1.9% lower than in 2020 at £37.1m,
with increased headcount and staff salaries/bonus offset by
lower Directors’ remuneration. Cost pressure is being seen
across the business and professional salaries are rising at a rate
above general inflation. This is impacting our own staff cost but
also those of the many professional advisers, consultants and
contractors that work with us. As before, we do not capitalise any of
our overhead.
Lower impairment and administrative expenses have seen our
EPRA cost ratio move back down to a more normal level compared
to the ‘spike’ in 2020. Including direct vacancy costs, it fell to 24.3%
from 30.5% in 2020.
Cost ratios
EPRA cost ratio, incl. direct vacancy costs
EPRA cost ratio, excl. direct vacancy costs
Portfolio cost ratio, incl. direct vacancy costs
2021
%
24.3
21.1
0.8
2020
%
30.5
26.0
1.1
The investment portfolio revaluation surplus after accounting
adjustments for the straight-lining of incentives, deferred legal/
letting fees and the grossing up of headlease rentals was £130.8m
for the year compared with a deficit of £196.1m in 2020. The profit
on disposal, relating mainly to Angel Square which completed in
August 2021, was £10.4m (2020: £1.7m).
Net finance costs were £28.1m in 2021 after capitalised interest of
£12.0m, a decrease of £2.0m over the net charge of £30.1m in 2020.
With slightly higher interest rates across the swap curve, the fair
value of forward-start swaps moved in our favour by £4.8m, or
£2.9m after netting off derivative termination costs.
When the new joint venture transaction with Lazari Investments
in relation to the Baker Street properties was announced, we
anticipated a revaluation deficit for the first accounting period.
The Group’s share of that was £10.2m and, after profit from
operations of £0.3m, the net result for the period attributable to
the Group was a loss of £9.9m. After allowing for acquisition costs
of £4.0m, the total IFRS loss attributable to our share of the joint
venture was £13.9m.
Financial StatementsGovernanceStrategic report
92
FINANCE REVIEW CONTINUED
The Group’s resulting IFRS profit before tax for the year was
£252.5m after the loss before tax of £83.0m in 2020 and IFRS
earnings per share were 224.99p against a loss of 69.34p in the
prior year.
A table providing a reconciliation of the IFRS results to EPRA
earnings per share is included in note 40.
EPRA earnings
£m
250
200
150
100
50
0
194.2
(0.8)
9.1
(14.3)
(37.1)
(28.1)
(0.2)
(0.8)
122.0
s
r
e
v
i
a
W
e
m
o
c
n
i
l
a
t
n
e
r
s
s
o
r
G
s
t
n
e
m
r
i
a
p
m
i
&
e
m
o
c
n
i
r
e
h
t
o
d
n
a
s
m
u
m
e
r
P
i
e
r
u
t
i
d
n
e
p
x
e
y
t
r
e
p
o
r
p
r
e
h
t
O
s
e
s
n
e
p
x
e
e
v
i
t
a
r
t
s
i
n
m
d
A
i
s
t
s
o
c
e
c
n
a
n
i
f
t
e
N
r
e
h
t
O
t
i
d
e
r
c
/
)
e
g
r
a
h
c
(
x
a
T
i
s
g
n
n
r
a
e
A
R
P
E
2020 202.9 (14.2)
5.3
(14.4)
(37.8)
(30.1)
0.6
(1.3)
111.0
EPRA like-for-like rental income
EPRA like-for-like gross rental income was down by 3.9% over
the year, due mainly to our decision to extend leases through the
pandemic in 2020 and early 2021 with incentives higher than
usual and slightly increased average vacancy levels. However,
EPRA like-for-like net rental income was up by 2.7% over the year,
benefitting from the lower impairment charges. Likewise, EPRA net
property income, which includes surrender premiums, was up by
5.9% on a like-for-like basis.
EPRA like-for-like rental income
Decrease based on gross rental income
Increase/(decrease) based on net
rental income
Increase/(decrease) based on net
property income
2021
%
(3.9)
2.7
5.9
2020
%
(0.9)
(9.8)
(8.9)
Internal controls, assurance and the
regulatory environment
We have recently seen a widespread increase in stakeholder
focus on assurance and internal controls, linked partly to the
BEIS review. Internal audits over the past two years have already
had a beneficial impact on our control environment and, while no
financial loss or reputational damage has been noted from this
work, we recognise that the evidencing and documentation of
robust controls are of increasing interest to our stakeholders and
to regulators more widely.
We provided feedback in relation to the BEIS review and await
the final conclusions and recommendations of their report with
interest. In parallel, we have also been working on a draft audit
and assurance policy which tackles our assurance approach for
those limited parts of the business which are not yet subject to
external assurance. Our principal third party checks include the
annual statutory audit, internal audit procedures carried out
throughout the year, service charge audits, a twice-yearly external
valuation plus the assurance work carried out on our ESG data
and procedures, health and safety reports and green finance.
We recognise the importance of high quality reporting that
stands up to scrutiny, both from within the business through
robust internal control mechanisms and also from third-party
verification. This work is ongoing and is expected to escalate.
Taxation
The corporation tax charge for the year ended 31 December
2021 was £0.5m. Most of our portfolio is within the REIT regime
but this charge relates to the Portman Estate non-controlling
interest held outside the REIT up until it was acquired by us at the
end of Q3 as well as income from property trading operations.
The movement in deferred tax for the year was a credit of £0.8m
(2020: £0.7m credit).
A £1.8m credit was taken through the income statement mainly
due to the reversal of the deferred tax liability once the Portman
Estate’s 45% interest in the jointly-owned company was acquired,
bringing the asset fully within the REIT regime. In addition, £0.7m
was credited through equity in relation to future tax deductions
for equity-settled share-based payments, £0.4m was charged in
respect of future defined benefit pension liabilities, and £1.3m was
charged in relation to the owner-occupied property at Savile Row.
As well as other taxation paid during the year, in accordance with
our status as a REIT, £8.6m 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 65 and 164, respectively.
Derwent London plc Report & Accounts 2021
Borrowings, net debt and cash flow
In last year’s report, I noted that our low leverage meant that we
would be comfortable adding further debt to our capital structure if
the right acquisition opportunities were identified. In 2021, those
opportunities crystallised in the form of acquisitions totalling
£251.8m plus £53.4m arising on the acquisition of The Portman
Estate’s 45% interest in PIBS. Because the latter was already
consolidated within the Group accounts and did not result in a
change of control, it is required by IAS 7 to be shown in ‘financing’
activities rather than ‘investing’ activities. In addition, we spent
£172.1m on capital expenditure including capitalised interest and
incurred a further £1.6m on trading stock additions. The latter
arises when we invest in properties where the intention upon
completion is to sell rather than hold. Altogether, this meant that
£478.9m was spent on property acquisitions and development
expenditure, compared with £219.6m in 2020.
This cash outflow was offset by £297.3m of property disposal
proceeds. As a result, Group borrowings increased by £216.2m to
£1.25bn at 31 December 2021. This is the highest level the Group
has seen but it remains relatively modest, equivalent to a loan-to-
value (LTV) ratio of 20.8% against 18.4% a year earlier. Moreover,
the level of headroom under debt facilities has increased after the
financing activities noted below; as at 31 December 2021, available
cash and undrawn facilities totalled £608m compared with £476m
at 31 December 2020.
93
Following correspondence during Q4 2021 with the Corporate
Reporting Review Team of the Financial Reporting Council, we have
agreed to reclassify the cash flows relating to the investment in,
and disposal of, trading properties within the Group Cash Flow
Statement. Accordingly we have re-presented the Statement for
the year ended 31 December 2020 to reclassify £31.7m of cash
receipts and £1.2m of expenditure on trading properties from
‘investing activities’ to ‘operating activities’. This has the effect of
increasing the net cash inflow from operations in 2020 from £85.4m
to £115.9m with a corresponding increase in the net cash outflow in
investing activities from £62.0m to £92.5m. There is no net impact
upon the cash flow statement overall and there is no impact on any
balance sheet or income statement figures.
As reported last year, net cash from operations was adversely
impacted in 2020 from the immediate effects of the pandemic.
Our response at the time was to agree cash deferrals and other
forms of tenant support that reduced cash rental receipts in 2020.
Almost all of that deferred rent has subsequently been collected
in 2021 such that the rents received in 2021 were £25.1m higher
than 2020 at £187.0m. Net cash from operating activities further
increased in 2021 to £125.7m from the restated £115.9m in 2020.
Note that the cash flow from operations may be affected in the next
few years by the build-up of trading stock at our 19-35 Baker Street
development with both residential and some retail components of
the scheme earmarked for onward sale.
The lower levels of impairment in 2021 have helped interest cover
recover to 464% for the year compared to 446% in 2020 and 462%
in the pre-Covid 2019. Our debt covenant remains at 145%.
Members of the Finance team
Financial StatementsGovernanceStrategic report 94
FINANCE REVIEW CONTINUED
Debt and financing
The Group had another year of active and successful refinancing
in 2021. Both of the unsecured revolving credit facilities (RCFs)
totalling £550m were extended for a year to fresh five year terms,
evidence of the continuing excellent relationships we have with our
four longstanding and valued lending banks. They have provided
further support and advice through the year and remain key
stakeholders in our business.
We documented the second and final one-year extension to the
£450m RCF provided by HSBC, NatWest and Barclays, taking the
maturity out to October 2026. This facility incorporates a £300m
‘green’ tranche and details of the qualifying projects, expenditure
incurred and amounts drawn are shown below. As before, these
disclosures have been subject to a ‘reasonable’ level of assurance
by Deloitte.
Maturity profile of debt facilities as at 31 December 2021
175
240
£m
2024
83
2025
2026
2028
30
2029
2031
2034
118
127
Drawn
Headroom
475
In advance of the unwinding of the 55%/45% joint investment with
the Portman Estate, the £28m secured loan provided by HSBC was
repaid and cancelled. As noted earlier, the main Baker Street island
site under development is now wholly-owned and subject to a new
headlease. Development expenditure is being funded from existing
Group revolving debt facilities, including the green tranche of our
£450m RCF.
The main financing activity in 2021 was a debut green bond. This
was very well received and raised just under £350m at 1.875% for
10 years to November 2031. The bonds were rated ‘A’ by Fitch and
will be utilised in accordance with our Green Finance Framework,
updated as required to deal with the green bonds as well as the
existing green RCF tranche.
As a result of this financing activity, the Group’s weighted average
interest rate fell by 20bp over the year to 3.14% on a cash basis and
3.27% on an IFRS basis which adjusts for the convertible bonds.
In addition, the weighted average maturity of our borrowings
increased to 7.2 years at 31 December 2021 compared to 6.8 years
at 31 December 2020.
Dividend
We continue to operate a progressive and sustainable dividend
policy. After considering our pension funding obligations and
other stakeholder requirements, the Board is recommending a
1.05p per share or 2.0% increase in the final dividend to 53.5p.
This will be paid in June 2022 with 35.5p as a PID and the balance
of 18.0p as a conventional dividend. We will not be offering a scrip
dividend alternative.
540
This takes the total dividend for 2021 to 76.5p, 2.8% higher
than 2020. Dividends declared in relation to 2021 earnings were
1.42 times covered by EPRA earnings and 2.94 times covered
by IFRS earnings.
We also documented our first one-year extension for the £100m
RCF provided by Wells Fargo taking its term out to November 2026.
In Q4, both the RCFs and their associated interest rate swaps were
transitioned from a LIBOR to a SONIA basis. These two forward-
start swaps totalling £115m have commencement dates in January
2022 and £1.9m was paid in 2021 to defer their effective starting
dates. Rates have moved in our favour during the year such that the
mark-to-market fair value on these swaps improved by £4.8m.
Derwent London plc Report & Accounts 2021 Debt facilities and reconciliation to borrowings and net debt at 31 December 2021
1.5% unsecured convertible bonds
6.5% secured bonds
1.875% unsecured green 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
3.99% secured loan
Other loans
Non-bank debt
Bilateral revolving credit – unsecured
Club revolving credit – unsecured
Committed bank facilities
Debt facilities
Acquired fair value of secured bonds less amortisation
Unamortised discount on unsecured green bonds
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
Impact of joint ventures
Fair value of portfolio (£m)
Net property and other income (£m)
LTV ratio (%)
Net interest cover ratio (%)
95
Undrawn
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100.0
440.0
540.0
540.0
Total
£m
Maturity
175.0
June 2025
175.0
March 2026
350.0 November 2031
January 2026
May 2028
January 2029
January 2029
55.0
30.0
25.0
93.0
50.0
75.0
75.0
52.0
83.0
12.3
1,250.3
January 2031
May 2031
January 2034
January 2034
October 2024
n/a
100.0 November 2026
450.0
October 2026
550.0
1,800.3
Drawn
£m
175.0
175.0
350.0
55.0
30.0
25.0
93.0
50.0
75.0
75.0
52.0
83.0
12.3
1,250.3
–
10.0
10.0
1,260.3
8.0
(1.8)
(4.5)
(12.6)
1,249.4
70.6
(68.5)
1,251.5
2021
2020
99
0
99
79
99
3.14
3.27
6.5
7.2
608
4,769
85
0
85
73
85
3.34
3.48
6.2
6.8
476
4,329
2021
2020
Group
5,646.3
187.5
21.0
463
Group and
share of JVs
5,696.3
187.9
20.8
464
Group
5,355.5
183.0
18.4
446
Group and
share of JVs
5,355.5
183.0
18.4
446
Financial StatementsGovernanceStrategic report 96
FINANCE REVIEW CONTINUED
REPORTING UNDER
THE GREEN FINANCE
FRAMEWORK
Derwent London’s Green Finance
Framework (the Framework) has been
updated again this year as a result of the
green bond issuance in November 2021.
The Framework has been prepared in line with the LMA Green
Loan Principles and ICMA Green Bond Principles guidance
document, has been externally reviewed and a second party
opinion has been obtained. The latest Framework
is available on our website at www.derwentlondon.com.
In accordance with the reporting requirements set out in the
Framework, we are disclosing the Eligible Green Projects (EGPs)
that have benefited from the green funding element of our
£450m RCF and £350m green bonds 2031 (together the Green
Financing Transactions (GFTs)) and the allocation of drawn
funds to each project.
The projects benefiting from the GFTs are as follows:
Green project
Expected completion date
80 Charlotte Street W1
Completed in 2020
Soho Place W1
2022
The Featherstone Building EC1
2022
19-35 Baker Street W1
2025
Category for eligibility
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)
Green building, criterion 1 of
section 3.1 of the Framework
Green building, criterion 1 of
section 3.1 of the Framework
(excludes retail and refurbished
residential)
Impact reporting indicator
Building certification achieved
(system & rating)
Building certification achieved
(system & rating)
Building certification achieved
(system & rating)
Building certification achieved
(system & rating)
Green credentials
Achieved:
BREEAM – Excellent EPC – B
Expected:
LEED – Gold, 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
Achieved:
BREEAM – Outstanding
(design stage)
Expected:
BREEAM – Outstanding
(post construction), on target
LEED – Platinum, on target
EPC – A, on target
Offices Expected:
BREEAM – Excellent (design
stage), on target
LEED – Gold, on target
EPC – A, on target
Private residential Expected:
Home Quality Mark – 4 Stars
(design stage), on target
Derwent London plc Report & Accounts 2021 97
The drawn borrowings from GFTs as at 31 December 2021 were
£360m, which included £10m from the green tranche of the RCF
and the £350m Green Bonds. Therefore, there was £290m of
headroom within the £300m green tranche of the Group’s £450m
revolving credit facility as at 31 December 2021, of which £203m
is available green headroom.
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 all GFTs which, as shown
opposite, has been met.
More information can be found in the Responsibility Report 2021.
https://rr.derwentlondon.com
green
finance
framework
www.derwentlondon.com/
greenfinance
The 19-35 Baker Street project includes part new development
and part refurbishment. The project will be assessed under the
BREEAM, LEED and Home Quality Mark standards where
applicable. Sections of this project do not qualify as eligible
expenditure under the Framework, relating mainly to the retail
and refurbished residential elements, and these have been
excluded from the qualifying green expenditure.
Qualifying ‘green’ expenditure
The qualifying expenditure as at 31 December 2021 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 original refinancing date in October 2019.
Soho Place and The Featherstone Building both commenced on
site in 2019 and are due to reach practical completion in H1 2022.
The 19-35 Baker Street scheme commenced on site in October
2021. Costs incurred on the eligible sections of this development
prior to October 2021 have been included in the ‘look-back’
spend for this project as they occurred prior to the project
being formally elected.
Cumulative spend on each EGP as at the reporting date
EGP
80 Charlotte Street W1
Soho Place W1
The Featherstone Building EC1
19-35 Baker Street W1
Look back
spend
£m
185.6
Subsequent spend
Q4 19 –
2021
FY 2020
spend
£m
£m
17.8
33.8
Cumulative
spend
£m
237.2
66.3
29.1
26.5
307.5
74.9
30.0
–
138.7
62.7
30.3
5.8
116.6
203.9
89.4
32.3
562.8
Green borrowings and qualifying expenditure
£m
800
600
400
200
0
300
350
563
£290m
total
headroom
203
360
Green
facilities
Qualifying
expenditure
Drawn green
borrowings
Green RCF
Green expenditure
Available green headroom
Green bond
Drawn facilities
The cumulative qualifying expenditure on EGPs was £562.8m,
with £116.6m of this being incurred in 2021 (excluding expenditure
incurred on 19-35 Baker Street prior to October).
The net proceeds of the Bonds were initially used to repay amounts
drawn under the Group’s revolving credit facilities, including the
£300m green tranche, thereby refinancing the EGPs in line with
our Green Finance Framework.
Financial StatementsGovernanceStrategic report
98
GOING CONCERN
& VIABILITY
In accordance with the 2018 UK Corporate Governance Code
(the Code), the Directors and the senior management team have
assessed the prospects of the Company:
— in the short-term (over the next 12 months) as required by the
‘Going concern’ provision; and
— in the medium-term (a five-year period to 31 December 2026)
as required by the ‘Viability statement’ provision.
This statement also contains references to the longer-term threats
to the Company’s resilience.
Short-term
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 (including sensitivity
analysis) for the next two years, in particular the cash flows,
borrowings and undrawn facilities;
— 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.
Our principal risks
The Schedule of Principal Risks contains the risks which are
currently impacting on the Group or could impact the Group over
the next 12 months. These risks are 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). It was noted that tenant lease expiries or
breaks represented 8% of 2022 income. However, given the level of
headroom, the Board agreed that none of the changes in risk
likelihood or probability during the year (see page 101) had a
significant impact on the Group’s short-term viability.
Significant financial judgements, key assumptions
and estimates
Any key accounting issues or judgements are monitored and
discussed with the Audit Committee throughout the year. The table
on page 151 provides information on the key issues discussed in
2021 and the judgements adopted. The key sources of estimation
uncertainty in the next 12 months are considered to be:
— Impairment of receivables: a review of the receivable
balances as at 31 December 2021 has been undertaken
(see note 3 on page 215). It has revealed a charge of £0.8m in
2021 for impairment and write-offs compared with £10.1m in
2020. Areas of focus were tenants at higher risk (particularly
in the retail or hospitality sectors), tenants in administration
or CVA, the top 69 tenants by size and the remaining balances
classified by sector. The methodology and assumptions
used have been subject to review by the external Auditors
and Audit Committee (see page 151).
— Property portfolio valuation: when determining the value of
our portfolio, the valuers consider a range of assumptions.
More information is provided in note 3 on page 215 and note 16
on page 227.
GOING CONCERN STATEMENT
Having due regard to these matters, and after making
appropriate enquiries, the Directors have a reasonable
expectation that the Group and Company have adequate
resources to continue in operational existence until at least
February 2023. Therefore, the Board continues to adopt the
going concern basis in preparing the financial statements.
Medium-term
The Directors challenge the time period over which to assess the
Company’s medium-term viability on an annual basis. The Directors
determined that the five-year period to 31 December 2026 remains
an appropriate period 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;
— 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; and
— the weighted average unexpired term of borrowings was 7.2
years as at 31 December 2021.
Assessment of viability
The Board’s medium-term assessment included careful
consideration of the Group’s business model, strategy and internal
controls. 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 higher risk retail and
restaurant sectors;
— a known level of tenant lease expiries and breaks which is
being actively managed by our Asset Management team;
— reasonable income visibility for the life of our leases which on
average are 7.8 years (including rent-frees and pre-lets) with
upward only or contracted rent reviews;
— a higher than usual amount of new space being delivered from
2022 to 2026 as developments and refurbishments complete
which could cause void levels to increase;
— a strengthened financial position. In 2021, we raised £350m via
a senior unsecured green bond for a term of 10 years. As at 31
December 2021, the Group had £608m of undrawn facilities
and cash (2020: £476m);
— strong relationships with our debt providers. During 2021, we
extended our two Revolving Credit Facilities for a further year
to 2026; and
— a low loan-to-value ratio of 20.8%.
In addition, the business model and strategy were stress tested
against various scenarios and other sensitivities.
Derwent London plc Report & Accounts 2021 99
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.
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
5.57m sq ft (2020: 5.56m sq ft); and
— we will recycle capital by selling buildings when we have
maximised their potential, or they no longer meet 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.
Regular financial forecasting enables us to identify and plan for
additional funding requirements in advance.
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 six scenarios assessed were:
— 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, higher inflation, future dividend payments
and refinancing activities.
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. 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 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 2021, the value of the portfolio could
fall by 63% without breaching the gearing covenants and our
property income could fall by 69% before breaching the interest
cover covenant.
For further information see the following disclosures:
Debt and financing pages 94 and 95
Supply chain risks page 107
Business continuity and cyber security pages 162 and 163
Principal risks
The Directors identified that, of the principal risks detailed on
pages 108 to 119, the following are the most important to the
assessment of the Group’s ability to continue to operate and
meet its financial liabilities as they fall due in the medium-term:
— Income decline: Based on our forecasts, our income would
need to decline by 69% before we were at risk of breaching
our financial covenants. When subjected to a 15% fall in
both rental income and property values our interest cover
remained above 300% 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 is 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 2026.
Emerging risks
The Group’s emerging risks are disclosed on pages 104 to 105.
Emerging risks involve a high degree of uncertainty and are
therefore factored into the Board’s medium-term viability
assessment and the long-term sustainability of the Group.
The methodology used to review and identify emerging risks is
on page 164.
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 2026.
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 2026.
Long-term
The Board considered a number of longer-term factors (which
could impact on the Company and its business model in the
next five to 10 years) and how these were being addressed (see
page 150):
— agile working, the role of the office and the war for talent
(see page 15);
— the nature of London’s office cycle (see page 15);
— climate change risk and opportunities as we carry out our
plans to reach net zero carbon by 2030 (see pages 68 to 73);
— changes in technology and tenant expectations; and
— increased availability of long-term funding: after the
refinancing completed in recent years, the weighted
average unexpired term of our borrowings was 7.2 years
as at 31 December 2021.
Further information on how the Board promotes the long-term
sustainable success of Derwent London is on page 130.
Financial StatementsGovernanceStrategic report 100
OUR PRINCIPAL
RISKS
We responded to the Covid-19 pandemic
with proactive risk mitigation, as well as
early and continual engagement with
our stakeholders.
The risk profile of the Group
As a predominantly London-based Group, we are particularly
sensitive to factors that impact upon central London’s growth and
demand for office space. We provide information on the central
London office market on pages 14 to 17.
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.
During the second half of 2021, as the Government completed its
roadmap to ease lockdown restrictions, London’s business
confidence and the wider economy started to rebound. Individuals
and businesses are starting to adapt to ‘living with Covid-19’ with
assistance from the vaccination and booster programmes.
The emergence of the new Omicron variant of Covid-19 in early
December, led to the implementation of ‘Plan B’ restrictions which
were later lifted from 26 January 2022. With the lessening of
restrictions and the successful vaccination programme, the
outlook for the UK economy is looking more positive.
Effect of mitigation actions on our principal risks
High
y
t
i
l
i
b
a
b
o
r
P
4a
6
5b
5c
3
1
4c
4b
2
5a
8a
7
3
8b
4c
4b
8a
5b
8b
5a
4a
6
7
2
1
5c
Zero
Impact on the Group
High
Gross risk basis
Net risk basis (post mitigation)
1 Failure to implement the
Group’s strategy
2 Risk of tenants defaulting or
tenant failure
3
Income decline
4a Reduced development returns
4b ‘On-site’ risk
4c Contractor/subcontractor default
5a Cyber attack on our IT systems
5b Cyber attack on our buildings
5c Significant business interruption
6 Reputational damage
7 Our resilience to climate change
8a Non-compliance with health and
safety legislation
8b Other regulatory non-compliance
Derwent London plc Report & Accounts 2021 101
Arising from the upturn in the economy, the new challenges facing
the Group and the wider economy are, material and labour
shortages and inflation. Overall, our risk profile remains elevated
but is expected to slowly stabilise to pre-Covid levels during 2022.
During 2021, we further strengthened our financial position through
the raising of additional funds (see information on our new ‘Green
Bond’ on pages 13, 96 and 97) and the renewal of our Revolving
Credit Facilities (RCFs) for an additional year. Our strong financial
position and proactive stakeholder-focused approach will help us
to weather the current uncertainty.
Demand for office buildings remains polarised. Well-designed,
energy efficient, amenity rich, 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. Without additional capital
expenditure to improve energy efficiency, our ability to lease certain
properties in our portfolio could be impacted.
Delivering net zero carbon buildings page 22
Qualifying ‘green’ expenditure page 96
Changes to our principal risks
The principal risks and uncertainties facing the Group in 2022 are
set out on pages 108 to 119 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.
During the year under review, there has been the following changes
to our principal risks:
— Implications of Brexit: We are now classifying Brexit as a
general business risk rather than a standalone principal risk
and it has been incorporated into ‘Failure to implement the
Group’s strategy’ as a factor which could impact on London.
— Introduction of a new tax to replace or complement business
rates: The likelihood of a new tax being introduced to replace
or complement business rates, which would negatively impact
on landlords, is now deemed less likely and has been
declassified from ‘principal’. This risk is now being managed on
the Group Risk Register.
Risk tolerance
Like any business, we face a number of risks and uncertainties. The Group’s risk tolerance is set by the Board and is the level of risk we are
willing to accept to achieve our strategic objectives. Our overall risk tolerance is low and is contained in our Risk Appetite Statement (see the
table below for an overview of this statement). This tolerance, alongside our culture, informs how our staff respond to risk. Due to our 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
annual budget.
— Cost overruns occur on capital projects of more than 5% of the approved
capex budget.
— The Group’s interest cover ratio will fall to within 20% of the level set in the
Group’s borrowing covenants.
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.
Reputational
Regulatory
Zero:
Low:
Zero tolerance to risk-taking
Not willing to take any significant risks
Medium:
Willing to take measured risks if they are identified, assessed and controlled
High:
Willing to take significant risks
Zero
Low
Medium
Low
Medium
Low
Low
Health and safety
IT continuity
Staff retention
Climate change resilience
Other operational risks
REIT status
Corporate credit rating
Decrease in asset value (>£100m) Medium
Medium
Profits (£5m)
Medium
Cost overruns (>5%)
Medium
Interest cover (<20%)
Brand value
Statutory
Governance
Low
Zero
Low
Financial StatementsGovernanceStrategic report 102
OUR PRINCIPAL RISKS CONTINUED
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 164 and further information on emerging
risks is on pages 104 and 105.
In addition to our usual review process, during 2021, a detailed
review of our Schedule of Principal Risks, Schedule of Emerging
Risks and Group Risk Register was performed with input from
Slaughter and May LLP as we prepared our prospectus for the
launch of our new green bond (see pages 13, 96 and 97). This review
resulted in only minor amendments to our risk registers, which
provided further assurance that our risk documentation is
thorough and transparent. In addition, the Board implemented an
assurance framework for each principal risk to determine how each
control is managed, overseen and independently verified.
Additional risk management disclosures:
Fraud risk assessment page 155
Fire risk management page 161
Water hygiene management page 161
Cyber and information security page 162
Business continuity and disaster recovery page 163
Anti-bribery and corruption page 165
Human rights and modern slavery page 167
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, 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. Further in 2021, we became founding
members of the Academy of Real Assets (see page 62).
In 2021, we were listed in Management Today’s ‘Britain’s Most
Admired Companies’, a peer-review study of corporate reputation,
and achieved the National Equality Standard accreditation. 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 116 the actions we are taking to protect our reputation.
Cyber security and ransomware
The National Cyber Security Centre identified ransomware as the
most immediate threat to UK businesses. A focus area for 2022 will
be a detailed review of our ‘incident response playbooks’ and the
updating of our Business Continuity Plan to incorporate
ransomware as a legitimate scenario for disaster recovery. During
Q1 2022, an independent review of our controls in respect to
ransomware will be conducted and we will aim to implement any
arising recommendations during 2022.
Our cyber security processes are regularly independently reviewed,
with any recommendations for further strengthening of our
processes implemented. During 2021, IT Governance performed an
independent cyber security health check and vulnerability scan
(penetration test) and RSM performed an IT Controls audit. Our
Cyber Essentials accreditation was renewed in 2021, having passed
an external security scan of all internet-facing services and an
assessment of technical and operational controls.
We also offer all our employees regular cyber security training.
During 2021, we promoted Cybersecurity Awareness Month and
stimulated phishing attacks (see page 162).
Risk documentation and monitoring
Schedule of Principal Risks
Schedule of
Emerging Risks
Group Risk Register
Key risk indicators
Functional/departmental
risk registers
Contains the risks which are classified as the Group’s main risks which are currently impacting on
the Group or could impact the Group over the next 12 months (see pages 108 to 119). The Schedule of
Principal Risks includes an assurance framework to evidence how each control is managed, overseen
and independently verified. As at 31 December 2021, the Schedule of Principal Risks contains 13 risks.
Contains the internal and external emerging risks 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. As at 31 December 2021, the Schedule of Emerging Risks contains nine risks
(see pages 104 and 105).
Provides a high level overview of the key risks which could impact on the Group (excluding those
classified as ‘principal risks’). As at 31 December 2021, the Group Risk Register contains 34 risks.
The Risk Committee has identified risk areas which could indicate an increase in the Group’s risk profile.
These indicators are reviewed at each Risk Committee meeting and are compared against the Board’s
risk tolerance framework (see page 101). Any deviance or significant increase are subject to challenge
by the Risk Committee. The risk indicator contains 16 risk areas including cyber security, cost inflation,
project status, data protection, and health and safety incidents etc.
Risk registers are maintained at a departmental/functional level to ensure detailed monitoring of
risks, where necessary. These registers are the responsibility of each department and are periodically
reviewed by the Risk Committee during risk-specific presentations. Examples of these register are
the development risk registers for each building project, the ‘tenant on watch’ register and the ‘Home
working and Covid-19 related IT risks’ register.
Derwent London plc Report & Accounts 2021 Climate change
Climate change is a major global challenge and will impact how
business operates in the future. Given that the built environment
contributes significantly to the UK’s overall carbon footprint, we
must find the solutions to further reduce emissions and develop
renewable energy sources.
Since our science-based targets were first verified in 2019, by the
Science-Based Target initiative (SBTi), we have been working
towards achieving net zero carbon.
In 2020, we became the first UK property company to release a
detailed pathway to net zero carbon, aligned to the Better Buildings
Partnership (BBP) Net Zero Carbon Pathway Framework (see
page 12). Working towards achieving net zero carbon is aligned to
our reward programme, through the addition of climate-related
targets in the Directors’ annual bonus targets (see page 184).
Our pathway to net zero carbon page 12
Climate change governance page 65
Our SECR disclosure page 74
Climate change risks
We identify and monitor climate change risks as part of our wider
risk management procedures which are overseen by the Board and
its principal committees (see pages 160 and 164).
The risks posed by climate change are assessed in respect to their
impact in the short-term (within the next five years), medium-term
(five to 10 years) and long-term (15+ years). Climate change risks
are also factored into the Board’s viability assessment and
strategic planning process which both span a five-year period (see
page 98).
Physical risks
— Heat stress
— Subsidence
— Coastal flooding & sea level rise
— Flooding
— Storms
— Infrastructure
For more on climate-related
risk page 72
Transition risks
— Pricing of GHG emissions
— Energy Performance Certificate
rating requirements
— Emissions offsets
— Planning approval changes
— Climate change litigation
— Enhanced emissions reporting
obligations
— Change in customer demands
— Cost of debt
— Increased cost of raw materials
— Investment risk
To better understand and plan for the risks posed by climate
change we have commissioned various studies and reviews. In
2020, we undertook a multi-scenario climate risk assessment
(the results of which are in our TCFD disclosures on page 71).
This assessment highlighted that the most significant/financially
costly transition risk to the Group was the proposed changes to
energy performance certificates (EPCs) from 2030. In response,
during 2021, we commissioned a feasibility and cost report on our
portfolio to determine the potential impact on the Group and to
assist us in developing our strategy for achieving an EPC grade B
by 2030. Further information on the outcome of this report is on
page 55.
103
Climate change opportunities
The main opportunity from climate change will arise from our ability
to adapt and respond to the risks appropriately, so that we do not
have to deviate from our business model and can continue to
deliver sustainable long-term value to our stakeholders. We believe
that property portfolios that are able to meet climate-related
challenges will remain attractive to occupiers and investors, and in
good demand.
Other opportunities include:
— Short-term:
– Energy efficient ‘green’ buildings with better EPCs could be
let more quickly, command higher rents and enjoy lower
tenant turnover.
– Working closely with tenants to manage building efficiency
should lead to closer landlord/tenant relationships. During
2021, we conducted an occupier net zero carbon survey so
that we can assist our occupiers with their own climate
change ambitions.
— Medium-term:
– Regenerating buildings is at the heart of our business and
provides the Group with significant opportunities to lead
the sector in taking action to mitigate and adapt to climate
change.
– 80 Charlotte Street W1 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,
including the Featherstone Building EC1 and 19-35 Baker
Street W1.
— Long-term:
– The availability of buildings which become stranded
because of physical risk impacts, could provide us with
acquisition opportunities at lower costs.
– Investing in the overall energy efficiency of our buildings
also improves asset value by reducing our maintenance
costs and extends a building’s life.
Further information on the climate-related opportunities we have
identified over the short-, medium- and long-term is on page 69.
We continue to research and assess the opportunities for
renewable energy generation on our Scottish land. In 2015, we
planted 107 acres under the Woodland Carbon Code which, to date,
has delivered carbon credits equivalent to 127 TCO2e (see page 13).
In 2021, we submitted a planning application for development of an
18.4 MegaWatt solar park on our Scottish land which could
generate c.43% of the electricity used across our managed
portfolio (see page 13).
Our key actions during 2021:
Occupier survey on their carbon aspirations page 13
Sustainability initiatives in Scotland page 13
Net zero: 2021 progress page 52
Our journey to COP26 page 54
Energy performance - looking to the future page 55
Green Finance Framework pages 13, 96 and 97
Audit Committee training on ESG assurance page 148
Financial StatementsGovernanceStrategic report
104
OUR PRINCIPAL RISKS CONTINUED
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 and strategic planning process. During the year under review, the Directors identified an additional emerging
risk (‘The rising cost of obtaining planning permission’) and widened ‘The importance of ESG-related concerns to our key stakeholders’ to
include both environmental and societal concerns. The methodology used to review and identify emerging risks is on page 164.
Strategic:
Risk
A. The future of offices
The Covid-19 pandemic, and the associated
lockdown restrictions, has led to widespread
agile and homeworking for some of the UK’s
office-based workforce. As a result, the
future role of offices has been subject to
considerable discussion among both
landlords and occupiers, and more widely
in the media.
Potential impact
Our actions
We will continue to design and deliver space
that businesses want to occupy. 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.
In the event agile and/or homeworking continues at high
levels, and is sustained in the long-term, it could lead to
occupiers requiring less space, increased vacant space
and downward pressure on rental levels. In addition,
office space which has fewer desks, more collaboration
space, meeting rooms, video conference facilities and
other amenities is likely to be more desirable to
occupiers. Buildings that are unable to meet these
objectives may suffer in value unless they can be
redeveloped or repurposed.
Strategic objectives
1. 2. 4.
B. Long-term implications of Covid-19 on our portfolio
The extent of the long-term impact of the
Covid-19 pandemic on the Group will depend
on external factors which are outside the
Group’s control, including, for example, if
preventative measures become less effective
against any new variants of Covid-19 which
may be identified.
Strategic objectives
2. 3. 4. 5.
There is a risk of new variants leading to the re-
introduction of societal restrictions in the UK, which
could have a significant impact on the Group’s business,
its occupiers and the economic outlook for London.
C. Political risk arising from government response to issues
In the past couple of years, the Government
has introduced various restrictions to protect
the NHS and reduce Covid-19 transmission.
On 21 February 2022, the Government outlined
its ‘living with Covid’ plan which could end all
of the remaining legal restrictions.
The actions taken by the Government has involved a
significant amount of public funds. Government
borrowing has increased and the impact of higher taxes
could have an adverse effect on the economy for many
years.
Strategic objectives
2. 5.
D. The rising cost of obtaining planning permission (new emerging risk)
The length of time from application to
approval, the need for more affordable
housing or offices as a condition of planning,
and the associated costs, are all factors. In
addition, 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.
1. 2. 4.
Strategic objectives
The rising cost and challenge of obtaining planning
permission could have an impact on the Group’s ability to
realise its development ambitions and could result in
increased capital expenditure during the early stages of
development planning, resulting in lower development
returns.
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 natural ventilation.
We will continue to 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 liaise with each London authority to
understand their needs with the aim of building
a partnership and providing value to local
communities –for example via our Community
Fund, community initiatives and local
employment opportunities etc.
E. Diminished development pipeline
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.
Through our development projects we generate value
and higher rates of return than from our ‘core income’
properties. If our development pipeline started to
diminish, our returns are likely to fall which could impact
on our ability to maintain a progressive dividend policy
for our shareholders.
Strategic objectives
1. 2.
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.
During the year under review, we have invested
in replenishing our pipeline through strategic
acquisitions (see pages 20 and 21).
Derwent London plc Report & Accounts 2021 Key
Strategic objectives
a balanced portfolio
1. To optimise returns and create value from
2. To grow recurring earnings
and cash flow
105
5. To maintain strong
and flexible financing
talented employees
3. To attract, retain and develop
4. To design, deliver and operate our
buildings responsibly
Operational:
Risk
F. Increasing importance of amenities
The provision of amenities and hospitality in
buildings is becoming increasingly important
to tenants.
G. Adoption of technology
With technology in the sector advancing at a
rapid pace the Group needs to ensure it is
embracing these changes sufficiently whilst
making sure that the Group’s strategy is
driving which technology is adopted and not
being driven by the technology itself.
Potential impact
Our actions
The Group needs to ensure it is adequately responding to
these demands, so our product remains attractive to
tenants, thereby retaining its competitive edge. This risk
is directly related to another emerging risk – ‘The future
of offices’.
Strategic objectives
1. 2. 4.
A failure to adopt technology could lead to the Group
becoming less efficient than its competitors, leading to a
loss of competitive advantage.
Buildings are increasingly becoming ‘intelligent’ and
tenants may begin to choose such buildings over those
without the same technological amenities. If the Group
fails to respond to tenant demands for technology, the
Group’s office spaces could become less desirable,
leading to potential vacancies and loss of rental income.
Strategic objectives
1. 2.
We continue to review opportunities within the
portfolio to enhance our amenity offering. In
October 2021, we launched DL/78 at 80
Charlotte Street W1. Located at the heart of our
Fitzrovia village it is a purpose built occupier
facility providing drop-in space and
refreshments, as well as the opportunity to hire
meeting rooms and event space ranging in
capacity from 8 to 100+ persons. We have been
encouraged by the positive response to this
initiative from our occupiers.
We have a Digital Strategy which is being
implemented by our dedicated, cross-function
and highly collaborative Digital, Innovation &
Technology team. We critically analyse new
technology to ensure that maximum value can
be derived from any new system or service that
we choose to add into our overall digital and
technological framework. In particular,
analysing the capability of the new system or
service to support our Net Zero Carbon
Pathway.
During 2021, we launched the DL/ App which
offers a curated collection of features and
benefits for our office occupiers including easy
bookings and access to information about
rooms, events and other benefits at DL/78.
H. The importance of ESG-related concerns to our key stakeholders (previously, ‘Environmental issues moving up the social agenda’)
Environmental, social and governance
concerns (including, climate change and
diversity and inclusion) is important to
Derwent London, our stakeholders and the
general public.
If we do not give sufficient priority to these issues, and
fail to act as a responsible corporate entity, we will be
unprepared for the risks and opportunities arising and it
will, in turn, adversely impact on our business and
reputation.
We recognise the importance of clear
communication and proactive engagement
with all of our stakeholders. During 2021:
— We hosted our first Stakeholder Day (see
page 134).
Strategic objectives
2. 3. 4.
I. Impact on businesses arising from the UK’s commitment to be net zero carbon by 2050
As more of the Group’s tenants commit to
becoming net zero carbon, it is likely that
tenants will demand evermore
environmentally-friendly buildings.
Buildings that fail to reach the standards expected by
occupiers could lose tenants, suffer a discount and fall in
value. In order to improve its older buildings, the Group
may need to commit to additional capital expenditure,
which may not be recoverable through higher rents. The
Group may also be unable to lease the space during the
improvement phase, leading to reduced rental income
and longer void periods.
There is a risk that greater carbon taxation
on greenhouse gas emissions will lead to
increased costs for the Group. In addition,
while current environmental regulation in the
UK only prohibits the leasing of space with
an Energy Performance Certificate (‘EPC’)
rating of E or below, the government has
proposed increasing the minimum EPC rating
to B by 2030.
An increase in the minimum EPC rating will lead to
increased capital expenditure requirements for the
Group.
Strategic objectives
2. 3. 4.
— Achieved accreditation from the National
Equality Standard (see page 58).
— Attended COP26 and submitted a planning
application to self-generate renewable
energy at our land holdings in Scotland (see
page 13).
— Received external recognition through
FTSE4Good, EPRA and GRESB
sustainability benchmarking.
We are committed to being net zero carbon by
2030 and have published our Net Zero Carbon
Pathway. We publish our progress and
achievements in our annual Responsibility
Report.
In preparation for the proposed changes to EPC
legislation from 2030, in Q4 2021, we
commissioned an assessment of our portfolio
to identify the potential capital expenditure
requirements to ensure our compliance by
2030 (see page 55).
TCFD page 68
Financial StatementsGovernanceStrategic report 106
OUR PRINCIPAL RISKS CONTINUED
Financial risks
Derwent London has a low financial risk profile. Fitch reaffirmed
our credit rating of A-, with a negative outlook, in May 2021. This
was mainly due to the continued uncertainty of Covid-19, rent
collections and concerns for health of our occupiers, at the time
of rating.
Our financial position remains strong. During 2021, Derwent
London was pleased to announce its first unsecured green bond
for £350m at a term of 10 years. We also extended our Revolving
Credit Facilities with our UK banking partners for a further year
to 2026. Our loan-to-value ratio has risen to 20.8% at 31 December
2021 based on year end property valuations, and our net asset
value gearing being 28.2%. Interest cover is 464%, alongside cash
and undrawn facilities of £608m.
Fraud risk assessment page 155
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 Damian Wisniewski (CFO) and senior members
of the Finance, Leasing, Property and Asset Management teams.
Since 2020, due to the difficulties being faced by our current and
prospective tenants, the Credit Committee has met on a more
frequent basis. The ‘tenants on watch’ register was regularly
reviewed to carefully monitor the financial performance of
existing tenants. As at 31 December 2021, the 29 tenants included
on the ‘tenants on watch’ register represented 4% of the Group’s
contracted net rental income, and mainly consists of businesses
operating in retail and hospitality sectors.
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.
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.
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. 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.
Tax governance page 65
Lease expiries and vacancies
To provide flexibility within our portfolio for project work, a
percentage of our leases expire per annum. Unusually in 2021, we
had a higher-than-normal lease expiry exposure, with £33.3m of
income subject to breaks/expiries (17% of our income). In addition,
at the beginning of 2021 there were concerns that Covid-19 and
Brexit could lead to rising unemployment, which would impact upon
demand for office space resulting in higher vacancy rates.
Lease expiries and vacancies were subsequently identified as a
potential risk area. The Risk Committee received updates on the
work of the Asset Management team to reduce the Group’s
exposure. Through active asset management activities, good
relationships with our occupiers, and partly assisted by the
economy rebounding following the easing of lockdown restrictions,
our 2021 lease expiry exposure reduced significantly, with 77%
being retained or re-let.
77%
Tenant retention/re-lets
Protecting our occupiers
Protecting our occupiers and stopping the spread of the Covid-19
virus in our buildings was a priority as our tenants returned to their
office spaces during 2021. To ensure their health and safety we
implemented the following measures:
— Social distancing, one-way traffic flow systems and clear
signage
— Readily available hand sanitiser units
— Restrictions on numbers using lifts and WC accommodation
— 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
— Lateral flow testing programme for Derwent London Building
Management team and our contractors
— Random Covid-19 testing of our air-conditioning filters
We will continue to offer these measures until our occupiers deem
them no longer necessary.
During the year, we also tracked the confirmed cases of Covid-19
throughout our managed portfolio. 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.
Derwent London plc Report & Accounts 2021 107
Supply chain risks
Our supply chain is important to our business; the contractors and
professional teams working on our sites, and the 200+ suppliers
that ensure we provide agreed service levels across the portfolio.
To support our supply chain, we have worked to reduce our average
days from 25 days in 2019 to 20 days in 2021. In addition, due to the
Covid-19 pandemic, we assisted supplier cash flow by early partial
release of retention and contributing to additional costs generated
by the delays.
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.
Average payment term
Days
Risk area
Material shortages
30
25
20
15
10
5
0
28
25
20
20
2018
2019
2020
2021
Labour shortages
Responsible payment practices page 169
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 mitigate supply chain risks, by reducing uncertainty in
relation to time and cost, enabling them to concentrate on delivery
and quality.
We are pleased to be one of the first developers in the UK
who require our supply chain partners to follow the Common
Assessment Standard which was developed by Build UK, with
the support of CECA. The Common Assessment Standard covers
12 key areas of risk management (including, health and safety,
environmental, equality and corporate social responsibility).
The aim of the Common Assessment Standard is to improve
supply chain efficiency and reduce supply chain risks.
We set out our principles and expectations in terms of the
environmental, social, ethical and governance issues which relate
to our supply chains in our Supply Chain Sustainability Standard
(the Standard). The Standard renews our commitment to ensuring
our supply chain remains as engaged as we are in setting the
highest standards and reducing the risk that a supplier acts in a
manner which is contrary to our values.
Human rights and modern slavery page 167
Supply Chain Sustainability Standard page 169
Inflation
Covid-19
Planning
Comment
In 2021, our on-site development projects
were safeguarded from material shortages
due to early ordering and strong supply
chain relationships. Material shortages
could become a more material issue in the
short-term, if demand continues to rise and
supply issues continue.
Underlying skill shortages across the
construction industry were exacerbated
by Brexit and Covid-19. Derwent London’s
strategy of securing Tier 1 contractors and
subcontractors for project delivery, provides us
with the best prospect of securing labour and
repeat business. During 2021, none of our on-site
projects experienced any insurmountable issues
in respect to labour.
Inflation is putting pressure on construction
costs. Where possible, designs are diverted
away from materials attracting higher price
increases. Our Soho Place and Featherstone
Building developments had fixed price contracts,
resulting in Derwent London not being exposed
to inflation. In respect to the Baker Street
development, which is commencing in Q3 2022,
83% of the costs have been fixed. Derwent
London’s strong reputation for being fair,
reasonable and for paying our supply chain
promptly, makes us well placed as preferred
clients in the construction industry.
Our development projects continue to progress
as we adapt to Covid-19 restrictions and
protocols. We comply with strict Covid-19
protocols at all of our on-site developments, in
accordance with Site Operating Procedures.
De-risking planning is achieved by a sound
understanding of policy coupled with a
collaborative approach with the borough and
local community. We are required to meet the
sustainability agenda in respect of net zero
carbon and operational energy consumption.
There are concerns that planning in London may
become more challenging against the backdrop
of the UK Government’s ‘levelling up agenda’. We
will be monitoring the outcome of the ‘Planning
for the Future White Paper’ and ‘Changes to the
current planning system’ consultations and the
upcoming Planning Bill.
We provide further commentary on the status of our three
development-related principal risks on pages 112 and 115.
Financial StatementsGovernanceStrategic report 108
OUR PRINCIPAL RISKS CONTINUED
Schedule of Principal Risks
The principal risks and uncertainties facing the Group in 2022 are set out on pages 108 to 119. 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 23 February 2022. The key controls identified were in
operation during the year under review and up to the date the 2021 Report & Accounts was approved.
STRATEGIC
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 2021
What we will be doing in 2022
1. FAILURE TO IMPLEMENT THE GROUP’S STRATEGY
The Group’s success depends on implementing its strategy and responding
appropriately to internal or external factors including responding to
changing work practices, occupational demand and London’s global appeal.
— 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 generally 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
during the construction period.
— The Group conducts an annual strategic review, prepares a budget and provides
two-year rolling forecasts three times a year.
— 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.
— 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
£59.69 per sq ft.
— International trade negotiations are being monitored and potential outcomes
discussed with external advisers.
— The Group’s diverse and high quality tenant base provides resilience against
tenant default.
— The Group develops properties in locations where there is good potential for
future demand, such as near Crossrail stations. We do not have any properties in
the City or Docklands.
While it is not yet possible to fully evaluate the impact that Brexit will have on
the Group’s operations, the main risk to the Group posed by Brexit is that
economic growth in the UK may be negatively impacted which may in turn
affect London’s growth and demand for office space.
In addition, the Group must respond and/or adapt appropriately to economic
cycles as the London office market has generally been cyclical in recent
decades, with strong growth followed by sharp economic downturns
precipitated by rising interest rates coinciding with significant oversupply.
Should the Group fail to respond and adapt to such cycles or execute the
projects that underpin its strategy, this may have a negative impact on the
Group’s expected growth and financial performance.
Movement during 2021: Unchanged
Although the Covid-19 pandemic has not stopped the Group implementing
its strategy, the lockdown restrictions have marginally extended the project
length for Soho Place and The Featherstone Building, and has caused
significant disruption to the economy. Covid-19 has only amplified
weaknesses within the retail market, and we are reviewing on an ongoing
basis the retail elements in our buildings. 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. 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. In respect to Brexit, the Group
continued to monitor international trade negotiations. During 2021, labour
shortages occurred due to the relocation of European labour back to the EU
which had an impact on supply chains and the construction industry.
Executive responsibility: Paul Williams
Strategic objectives
— The Board held its annual strategy awayday on 18 June 2021 to discuss the
— Examine opportunities for acquisitions
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
Group’s five-year strategy.
and disposals to recycle capital.
— Examined opportunities for acquisitions and disposals to recycle capital.
— Continue to extend income through
— Completed a number of important acquisitions which has helped to restock
renewals and regears for properties
the Group’s development pipeline (see pages 20 to 21 and 24 to 25).
— Monitored our portfolio for further asset management activities and
managed the vacancy rate.
— Prepared rolling forecasts three times a year and a budget for 2022.
— Our credit rating of A- was renewed by Fitch in May 2021.
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
— The Board considered the sensitivity of our KPIs to changes in underlying
income generation.
assumptions including interest rates, timing of projects, level of capital
expenditure and the extent of capital recycling.
— Began to pursue opportunities to self-generate renewable energy from our
land holdings in Scotland and liaised with our occupiers to align our net zero
carbon journeys (see page 13).
— In respect to our de-risking strategy, we have pre-let 87% of Soho Place.
— The Group’s loan-to-value ratio remained low, its net interest cover ratio was
464% and the REIT ratios were comfortably met.
— Tenant surveys were performed to provide further insights to the Board.
— We understand the importance of amenities to our occupiers. During 2021,
we opened DL/78, launched the new DL/ app, and further improved the
facilities available in our buildings (see pages 30 and 31).
— Monitored international 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
— Monitored letting progress and demand for our buildings.
— As at 31 December 2021, the Group has cash and undrawn facilities
throughout the year.
of £608m.
Derwent London plc Report & Accounts 2021 Key
Strategic objectives
a balanced portfolio
1. To optimise returns and create value from
2. To grow recurring earnings
and cash flow
109
5. To maintain strong
and flexible financing
talented employees
3. To attract, retain and develop
4. To design, deliver and operate our
buildings responsibly
Schedule of Principal Risks
The principal risks and uncertainties facing the Group in 2022 are set out on pages 108 to 119. 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 23 February 2022. The key controls identified were in
operation during the year under review and up to the date the 2021 Report & Accounts was approved.
STRATEGIC
The Group’s business model and/or strategy does not create the anticipated shareholder value or fails to meet
investors’ and other stakeholders’ expectations.
1. FAILURE TO IMPLEMENT THE GROUP’S STRATEGY
appropriately to internal or external factors including responding to
individual properties to be changed to reflect prevailing economic circumstances.
changing work practices, occupational demand and London’s global appeal.
— The Group seeks generally to maintain income from properties until development
commences and has an ongoing strategy to extend income through lease
While it is not yet possible to fully evaluate the impact that Brexit will have on
the Group’s operations, the main risk to the Group posed by Brexit is that
economic growth in the UK may be negatively impacted which may in turn
affect London’s growth and demand for office space.
renewals and regears.
during the construction period.
In addition, the Group must respond and/or adapt appropriately to economic
cycles as the London office market has generally been cyclical in recent
decades, with strong growth followed by sharp economic downturns
precipitated by rising interest rates coinciding with significant oversupply.
Should the Group fail to respond and adapt to such cycles or execute the
projects that underpin its strategy, this may have a negative impact on the
Group’s expected growth and financial performance.
Movement during 2021: Unchanged
£59.69 per sq ft.
Although the Covid-19 pandemic has not stopped the Group implementing
its strategy, the lockdown restrictions have marginally extended the project
tenant default.
— 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
two-year rolling forecasts three times a year.
— 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.
— 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
— International trade negotiations are being monitored and potential outcomes
discussed with external advisers.
— The Group’s diverse and high quality tenant base provides resilience against
— The Group develops properties in locations where there is good potential for
future demand, such as near Crossrail stations. We do not have any properties in
the City or Docklands.
length for Soho Place and The Featherstone Building, and has caused
significant disruption to the economy. Covid-19 has only amplified
weaknesses within the retail market, and we are reviewing on an ongoing
basis the retail elements in our buildings. 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. 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. In respect to Brexit, the Group
continued to monitor international trade negotiations. During 2021, labour
shortages occurred due to the relocation of European labour back to the EU
which had an impact on supply chains and the construction industry.
Executive responsibility: Paul Williams
Risk
Our key controls
Potential impact
What we did in 2021
What we will be doing in 2022
The Group’s success depends on implementing its strategy and responding
— The Group’s development pipeline has a degree of flexibility that enables plans for
Strategic objectives
— The Board held its annual strategy awayday on 18 June 2021 to discuss the
— 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.
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
Group’s five-year strategy.
— Examined opportunities for acquisitions and disposals to recycle capital.
— Completed a number of important acquisitions which has helped to restock
the Group’s development pipeline (see pages 20 to 21 and 24 to 25).
— Monitored our portfolio for further asset management activities and
managed the vacancy rate.
— Prepared rolling forecasts three times a year and a budget for 2022.
— Our credit rating of A- was renewed by Fitch in May 2021.
— 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.
— Began to pursue opportunities to self-generate renewable energy from our
land holdings in Scotland and liaised with our occupiers to align our net zero
carbon journeys (see page 13).
— In respect to our de-risking strategy, we have pre-let 87% of Soho Place.
— The Group’s loan-to-value ratio remained low, its net interest cover ratio was
464% and the REIT ratios were comfortably met.
— Tenant surveys were performed to provide further insights to the Board.
— We understand the importance of amenities to our occupiers. During 2021,
we opened DL/78, launched the new DL/ app, and further improved the
facilities available in our buildings (see pages 30 and 31).
— Monitored international 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 2021, the Group has cash and undrawn facilities
of £608m.
Financial StatementsGovernanceStrategic report 110
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 2021
What we will be doing in 2022
2. RISK OF TENANTS DEFAULTING OR TENANT FAILURE
The majority of the Group’s revenues are comprised of rent received from its
tenants and any deterioration in their businesses and/or profitability could
in turn adversely affect the Group’s rental income or increase the Group’s
bad debts and/or number of lease terminations. In the event that some of
our tenants went into default, we could incur impairments and write-offs of
IFRS 16 lease incentive receivable balances which arise from the accounting
requirement to spread any rent-free incentives given to a tenant over the
respective lease term.
Movement during 2021: Reduced
Due to the economic impact of Covid-19, and its potential long-term
implications, occupiers could be facing increased financial difficulty.
Restaurants and hospitality tenants account for approximately 6% of the
Group’s portfolio income. Despite re-opening restaurants, retail and leisure
properties, footfall is lower than pre Covid-19 levels, disproportionately
impacting on the revenues and operations of such tenants.
Executive responsibility: Paul Williams
3. INCOME DECLINE
Changes in macroeconomic factors may adversely affect London’s office
market. The Group is exposed to external factors which are outside the
Group’s control, such as future demand for office space, the ‘grey’ market in
office space (i.e. tenant controlled vacant space), weaknesses in retail and
hospitality businesses, increase in homeworking and the depth of any
future recession and subsequent rise in unemployment and/or interest
rates. Such macroeconomic conditions may lead to a general property
market contraction, a decline in rental values, decline in Group income and
potentially property values. Any reduction in property income could also
have an adverse impact on the value of the Group’s properties and may
hinder any future dividend payments.
Movement during 2021: Unchanged
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.
Executive responsibility: Paul Williams
— Detailed reviews of all prospective tenants are performed.
— A ‘tenants on watch’ register is maintained and regularly reviewed by the
Executive Committee and the Board.
— Rent deposits are held where considered appropriate; the balance at
31 December 2021 was £17.6m.
— Active rent collection with regular reports to the Executive Committee.
— We maintain close and frequent contact with our tenants.
Strategic objectives
— We have maintained proactive engagement with our tenants, dealing with
— We will continue with our current
their concerns on a case-by-case basis and supporting them as appropriate.
controls and mitigating actions.
— Ensured consistency in our approach to similar tenants and prioritised
assistance to those most affected by Covid-19.
— Due to the difficulties being faced by our current and prospective tenants,
the Credit Committee continued to meet on a frequent basis (see page 106).
— We have continued to support restaurants, retail and leisure amenities in
our buildings.
1. 2. 5.
Business model
— Asset management
KPIs
— Total property return
— EPRA earnings per share
— Interest cover ratio
— Tenant retention
— Void management
— The Credit Committee receives detailed reviews of all prospective tenants.
— A ‘tenants on watch’ register is maintained and regularly reviewed by the
Executive Committee and the Board.
— Ongoing dialogue and proactive internal management is maintained 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.
Strategic objectives
— We maintained proactive engagement with our tenants, dealing with their
— We will continue with our current
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
concerns on a case-by-case basis and supporting them as appropriate.
— 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.
— Through active asset management activities, good relationships with our
occupiers, and partly assisted by the economy rebounding following the
easing of lockdown restrictions, our lease expiry exposure reduced
significantly during 2021 (see page 106).
— The ‘tenants on watch’ register was regularly reviewed to carefully monitor
the financial performance of existing tenants.
— Quarterly management accounts were provided to the Board.
controls and mitigating actions,
including operating the business
on a basis that balances risk and
income generation.
Derwent London plc Report & Accounts 2021
Key
Strategic objectives
a balanced portfolio
1. To optimise returns and create value from
2. To grow recurring earnings
and cash flow
111
5. To maintain strong
and flexible financing
talented employees
3. To attract, retain and develop
4. To design, deliver and operate our
buildings responsibly
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.
2. RISK OF TENANTS DEFAULTING OR TENANT FAILURE
The majority of the Group’s revenues are comprised of rent received from its
— Detailed reviews of all prospective tenants are performed.
tenants and any deterioration in their businesses and/or profitability could
— A ‘tenants on watch’ register is maintained and regularly reviewed by the
in turn adversely affect the Group’s rental income or increase the Group’s
Executive Committee and the Board.
bad debts and/or number of lease terminations. In the event that some of
— Rent deposits are held where considered appropriate; the balance at
our tenants went into default, we could incur impairments and write-offs of
31 December 2021 was £17.6m.
IFRS 16 lease incentive receivable balances which arise from the accounting
— Active rent collection with regular reports to the Executive Committee.
requirement to spread any rent-free incentives given to a tenant over the
— We maintain close and frequent contact with our tenants.
respective lease term.
Movement during 2021: Reduced
Due to the economic impact of Covid-19, and its potential long-term
implications, occupiers could be facing increased financial difficulty.
Restaurants and hospitality tenants account for approximately 6% of the
Group’s portfolio income. Despite re-opening restaurants, retail and leisure
properties, footfall is lower than pre Covid-19 levels, disproportionately
impacting on the revenues and operations of such tenants.
Executive responsibility: Paul Williams
3. INCOME DECLINE
market contraction, a decline in rental values, decline in Group income and
potentially property values. Any reduction in property income could also
have an adverse impact on the value of the Group’s properties and may
hinder any future dividend payments.
Movement during 2021: Unchanged
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.
Executive responsibility: Paul Williams
Risk
Our key controls
Potential impact
What we did in 2021
What we will be doing in 2022
Strategic objectives
— 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.
— Due to the difficulties being faced by our current and prospective tenants,
the Credit Committee continued to meet on a frequent basis (see page 106).
— We have continued to support restaurants, retail and leisure amenities in
our buildings.
1. 2. 5.
Business model
— Asset management
KPIs
— Total property return
— EPRA earnings per share
— Interest cover ratio
— Tenant retention
— Void management
— We will continue with our current
controls and mitigating actions.
Changes in macroeconomic factors may adversely affect London’s office
— The Credit Committee receives detailed reviews of all prospective tenants.
market. The Group is exposed to external factors which are outside the
— A ‘tenants on watch’ register is maintained and regularly reviewed by the
Group’s control, such as future demand for office space, the ‘grey’ market in
Executive Committee and the Board.
office space (i.e. tenant controlled vacant space), weaknesses in retail and
— Ongoing dialogue and proactive internal management is maintained with
hospitality businesses, increase in homeworking and the depth of any
tenants to understand their concerns and requirements.
future recession and subsequent rise in unemployment and/or interest
— The Group’s low loan-to-value ratio reduces the likelihood that falls in
rates. Such macroeconomic conditions may lead to a general property
property values have a significant impact on our business continuity.
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
— We maintained proactive engagement with our tenants, dealing with their
concerns on a case-by-case basis and supporting them as appropriate.
— 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.
— Through active asset management activities, good relationships with our
occupiers, and partly assisted by the economy rebounding following the
easing of lockdown restrictions, our lease expiry exposure reduced
significantly during 2021 (see page 106).
— The ‘tenants on watch’ register was regularly reviewed to carefully monitor
the financial performance of existing tenants.
— Quarterly management accounts were provided to the Board.
— We will continue with our current
controls and mitigating actions,
including operating the business
on a basis that balances risk and
income generation.
Financial StatementsGovernanceStrategic report
112
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 2021
What we will be doing in 2022
4A. REDUCED DEVELOPMENT RETURNS
Returns from the Group’s developments may be adversely impacted due to:
— Detailed reviews are performed on construction projects to ensure that
Strategic objectives
— We have a flexible development pipeline and, where appropriate, we deferred
— Continue with our current controls and
— delays on site;
— increased construction costs;
— labour shortages;
— materials and material shortages; and
— adverse letting conditions.
Despite strict Covid-19 protocols on site, there is a risk of labour and
resource shortages both on site and in the supply chain, which could lead to
productivity disruption and project delay. Any significant delay in completing
the development projects may result in financial penalties or a reduction in
the Group’s targeted financial returns.
Movement during 2021: Increased
During 2021, our Development team liaised and agreed processes to
mitigate against delays or cost increases with our principal contractors
due to potential material and labour shortages.
Executive responsibility: Paul Williams
4B. ‘ON SITE’ RISK
programme forecasts predicted by our contractors are aligned with our views.
— 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.
— 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.
— 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.
— Investment 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 Group’s pre-letting strategy reduces or removes the letting risk of the
development as soon as possible.
Risk of project delays and/or cost overruns caused by unidentified issues.
For example, if the Group fails to: (i) adequately appraise investments
prior to starting work on site, including through taking into account
contingencies and inflationary cost increases; (ii) use a procurement
process that is properly designed (to minimise uncertainty around costs)
and that includes the use of highly regarded quantity surveyors; (iii)
benchmark development costs; (iv) conduct thorough site investigations
to reduce the risk of unidentified issues such as asbestos; (v) implement
pre-letting strategy; or (vi) conduct detailed reviews on construction
projects to evaluate programme forecasts made by contractors,
development projects may be significantly delayed and we could face
a loss of rental income and penalties.
— Strict Covid-19 protocols at all of our on site developments, in accordance with
Site Operating Procedures (published by the Construction Leadership Council).
— Regular monitoring of our contractors’ cash flows.
— Frequent meetings with key contractors and subcontractors to review their work
programme and maintain strong relationships.
— Off-site inspection of key components to ensure they have been completed to the
requisite quality.
— Prior to construction beginning on site, professional project managers conduct
site investigations including the building’s history and various surveys to identify
any potential issues.
— Monthly reviews of Brexit-related supply chain issues for each of our major
projects, including in respect to potential labour shortages.
Movement during 2021: Unchanged
Due to the restrictions introduced to prevent the spread of Covid-19, our on
site developments have been subject to minor delays. The Featherstone
Building and Soho Place are aiming to achieve practical completion in H1
2022 and are still expected to be completed within their original budgets.
Sites are now fully operational in accordance with Site Operating
Procedures Version 9. Despite strict Covid-19 protocols on site, there is
a risk of labour and resource shortages both on site and in the supply
chain, which could lead to productivity disruption and project delay.
Executive responsibility: Paul Williams
expenditure and decisions on future projects while keeping very close to our
mitigating actions with a major focus
contractors, professional consultants and the project teams on site.
on project monitoring.
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 construction cost inflation in relation to future projects.
— The Board and Executive Committee received regular updates on our
principal developments including construction costs.
— Both major on site developments are progressing well. 100% of the costs for
The Featherstone Building and Soho Place, have been agreed and fixed.
— Demand for construction activity in Central London is increasing and input
costs of both materials and labour are increasing.
— Specific risk assessments on budget allowances for inflation are kept under
review on a quarterly basis to test adequacy of budgets.
— In respect to our de-risking strategy, we have pre-let 87% of Soho Place.
Strategic objectives
— The Board and Executive Committee received regular updates on our
— Continue with our current controls and
mitigating actions.
— 100% of the costs for The Featherstone Building and Soho Place, have been
principal developments.
agreed and fixed.
— Quarterly cost reports provided an update on development progress from a
cost, profitability and programme perspective.
— Monitored the number of on site workers being required to isolate due to
being notified by the NHS app and the potential impact on our projects.
1. 2. 4. 5.
Business model
— Our core activities
— Adding value for
stakeholders
KPIs
— Total return
— Total property return
— Total shareholder return
Derwent London plc Report & Accounts 2021 Key
Strategic objectives
a balanced portfolio
1. To optimise returns and create value from
2. To grow recurring earnings
and cash flow
113
5. To maintain strong
and flexible financing
talented employees
3. To attract, retain and develop
4. To design, deliver and operate our
buildings responsibly
Risk
Our key controls
Potential impact
What we did in 2021
What we will be doing in 2022
Returns from the Group’s developments may be adversely impacted due to:
— Detailed reviews are performed on construction projects to ensure that
Strategic objectives
— We have a flexible development pipeline and, where appropriate, we deferred
1. 2. 5.
Business model
Could potentially impact on all
aspects of our business model
KPIs
— Total return
— Total property return
— Total shareholder return
expenditure and decisions on future projects while keeping very close to our
contractors, professional consultants and the project teams on site.
— Monitored construction cost inflation in relation to future projects.
— The Board and Executive Committee received regular updates on our
principal developments including construction costs.
— Both major on site developments are progressing well. 100% of the costs for
The Featherstone Building and Soho Place, have been agreed and fixed.
— Demand for construction activity in Central London is increasing and input
costs of both materials and labour are increasing.
— Specific risk assessments on budget allowances for inflation are kept under
review on a quarterly basis to test adequacy of budgets.
— In respect to our de-risking strategy, we have pre-let 87% of Soho Place.
— Continue with our current controls and
mitigating actions with a major focus
on project monitoring.
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
4A. REDUCED DEVELOPMENT RETURNS
— delays on site;
— increased construction costs;
— labour shortages;
— materials and material shortages; and
— adverse letting conditions.
Despite strict Covid-19 protocols on site, there is a risk of labour and
resource shortages both on site and in the supply chain, which could lead to
productivity disruption and project delay. Any significant delay in completing
the development projects may result in financial penalties or a reduction in
the Group’s targeted financial returns.
Movement during 2021: Increased
During 2021, our Development team liaised and agreed processes to
mitigate against delays or cost increases with our principal contractors
due to potential material and labour shortages.
Executive responsibility: Paul Williams
4B. ‘ON SITE’ RISK
programme forecasts predicted by our contractors are aligned with our views.
— 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.
— 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.
— 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.
— Investment 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 Group’s pre-letting strategy reduces or removes the letting risk of the
development as soon as possible.
Risk of project delays and/or cost overruns caused by unidentified issues.
— Strict Covid-19 protocols at all of our on site developments, in accordance with
For example, if the Group fails to: (i) adequately appraise investments
Site Operating Procedures (published by the Construction Leadership Council).
prior to starting work on site, including through taking into account
— Regular monitoring of our contractors’ cash flows.
contingencies and inflationary cost increases; (ii) use a procurement
— Frequent meetings with key contractors and subcontractors to review their work
process that is properly designed (to minimise uncertainty around costs)
programme and maintain strong relationships.
and that includes the use of highly regarded quantity surveyors; (iii)
— Off-site inspection of key components to ensure they have been completed to the
benchmark development costs; (iv) conduct thorough site investigations
requisite quality.
to reduce the risk of unidentified issues such as asbestos; (v) implement
— Prior to construction beginning on site, professional project managers conduct
pre-letting strategy; or (vi) conduct detailed reviews on construction
site investigations including the building’s history and various surveys to identify
projects to evaluate programme forecasts made by contractors,
any potential issues.
development projects may be significantly delayed and we could face
— Monthly reviews of Brexit-related supply chain issues for each of our major
projects, including in respect to potential labour shortages.
a loss of rental income and penalties.
Movement during 2021: Unchanged
Strategic objectives
— The Board and Executive Committee received regular updates on our
— Continue with our current controls and
principal developments.
mitigating actions.
— 100% of the costs for The Featherstone Building and Soho Place, have been
agreed and fixed.
— Quarterly cost reports provided an update on development progress from a
cost, profitability and programme perspective.
— Monitored the number of on site workers being required to isolate due to
being notified by the NHS app and the potential impact on our projects.
1. 2. 4. 5.
Business model
— Our core activities
— Adding value for
stakeholders
KPIs
— Total return
— Total property return
— Total shareholder return
Due to the restrictions introduced to prevent the spread of Covid-19, our on
site developments have been subject to minor delays. The Featherstone
Building and Soho Place are aiming to achieve practical completion in H1
2022 and are still expected to be completed within their original budgets.
Sites are now fully operational in accordance with Site Operating
Procedures Version 9. Despite strict Covid-19 protocols on site, there is
a risk of labour and resource shortages both on site and in the supply
chain, which could lead to productivity disruption and project delay.
Executive responsibility: Paul Williams
Financial StatementsGovernanceStrategic report 114
OUR PRINCIPAL RISKS CONTINUED
OPERATIONAL CONTINUED
Risk
4C. 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.
Movement during 2021: Unchanged
There is an ongoing risk of insolvencies in the construction industry. Due to
this risk, we have been actively monitoring the financial health of our main
contractors and subcontractors.
Executive responsibility: Paul Williams
5A. CYBER ATTACK ON OUR IT SYSTEMS
The Group may be subject to a cyber attack that results in it being unable to
use its information systems and/or losing data. Such an attack could
severely restrict the ability of the Group to operate, lead to an increase in
costs and/or require a significant diversion of management time.
Movement during 2021: Increased
This risk has been heightened during the Covid-19 pandemic, as cyber-
criminals seek to exploit the disruption caused by employees working from
home. In response, we identified the key IT risks arising from homeworking
and implemented additional controls.
Executive responsibility: Damian Wisniewski
Our key controls
Potential impact
What we did in 2021
What we will be doing in 2022
— Regular monitoring of our contractors, including their project cash flows, is
Strategic objectives
— Engaged continuously with our contractors, subcontractors and supply
— Continue with our current controls and
carried out.
— Key construction packages are acquired early in the project’s life to reduce the
risks associated with later default.
— The financial standing of our main contractors is reviewed prior to awarding the
project contract.
— Our main contractors are responsible, and assume the immediate risk, for
subcontractor default.
— Payments to contractors are in place to incentivise the achievement of project
timescales, with damages agreed in the event of delay/cost overruns.
— Regular on site supervision by a dedicated Project Manager who monitors
contractor performance and identifies problems at an early stage, thereby
enabling remedial action to be taken.
— We use known contractors with whom we have established long-term
working relationships.
— Contractors are paid promptly and are encouraged to pay subcontractors
promptly.
— The Group’s Business Continuity Plan is regularly reviewed and tested.
— Independent internal and external penetration/vulnerability 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’ accreditation which
demonstrates our commitment to cyber security.
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. 3. 4. 5.
Business model
Could potentially impact on all
aspects of our business model
KPIs
5B. CYBER ATTACK ON OUR BUILDINGS
The Group is exposed to cyber attacks on its properties which may result in
data breaches or significant disruption to IT-enabled tenant services. A
major cyber attack against the Group or its properties could negatively
impact the Group’s business, reputation and operating results.
Movement during 2021: Unchanged but likely to increase as our buildings
become more ‘intelligent’
— Each building has incident management procedures which are regularly reviewed
and tested.
— 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 all cyber security awareness training and
phishing simulations.
Executive responsibility: David Silverman
chain during the Covid-19 pandemic.
— Our suppliers were paid on average within 20 days.
— Accepted early ordering of materials ahead of their need on site to accelerate
mitigating actions.
— Worked alongside local authorities to extend permissible working hours on
cash flow to our supply chain.
site.
principal developments.
— The Board and Executive Committee received regular updates on our
— Quarterly cost reports provided an update on development progress from
a cost, profitability and programme perspective.
— Total shareholder return
awareness programme.
— Monitored our secure internet gateway and cloud managed malware
— Implement the recommendations
protection for malicious activity during home/office working.
— Provided additional employee awareness training on social media and
remote working security best practice.
arising from RSM’s internal audit of
our IT controls and the cyber security
health check performed by IT
— Monitored our Data Leak Prevention system for any indications of personal
Governance.
data breaches.
— Remediated any key findings from the last security penetration test and
commissioned another independent internal/external test.
— Conducted a simulated ‘phishing’ exercise as part of the ongoing security
— Implement further security controls to
— Completed a business continuity test and full disaster recovery test.
— Enhancing cloud security and anomaly
— On 30 July 2021, our Cyber Essentials accreditation was renewed, having
detection for remote workers.
passed an external security scan of all internet-facing services and an
— Enhancing our security patching and
assessment of technical and operational controls.
— IT Governance conducted a cyber security health check which consisted of
mobile device management
capabilities to support a hybrid
a review of our information security governance framework, an internal/
working model.
external vulnerability scan and employee questionnaire (see page 162).
— Perform a detailed review of our
‘ransomware security incident
response playbook’ (see page 162).
enhance our layered defence model.
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
— Engaged with a portfolio IT partner to provide additional support for ICT
— Further develop our IT governance
infrastructure and cyber security assessments.
framework, security monitoring and
— Conducted security reviews on network designs for any new buildings, or
security incident response
refurbishments.
procedures.
— Ensured that cyber security remains a key consideration in the delivery of
— Implement further security controls to
intelligent buildings and digital initiatives.
enhance our layered defence model.
— Continued to collaborate with the IoT Security Foundation and other industry
— Collaborate with our portfolio IT
stakeholders on the development of a set of intelligent buildings security
partner on mitigating any cyber risks
identified following cyber security
assessments.
— Sent phishing simulation tests to Building Managers.
— Completed mandatory security awareness training for all staff, including
guidance documents.
Building Managers.
Derwent London plc Report & Accounts 2021 Key
Strategic objectives
a balanced portfolio
1. To optimise returns and create value from
2. To grow recurring earnings
and cash flow
115
5. To maintain strong
and flexible financing
talented employees
3. To attract, retain and develop
4. To design, deliver and operate our
buildings responsibly
Risk
Our key controls
Potential impact
What we did in 2021
What we will be doing in 2022
Returns from the Group’s developments are reduced due to delays and cost
— Regular monitoring of our contractors, including their project cash flows, is
Strategic objectives
— Engaged continuously with our contractors, subcontractors and supply
— Continue with our current controls and
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. 3. 4. 5.
Business model
Could potentially impact on all
aspects of our business model
KPIs
— Total shareholder return
chain during the Covid-19 pandemic.
mitigating actions.
— Our 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.
— Monitored our secure internet gateway and cloud managed malware
— Implement the recommendations
protection for malicious activity during home/office working.
— Provided additional employee awareness training on social media and
remote working security best practice.
— Monitored our Data Leak Prevention system for any indications of personal
data breaches.
— Remediated any key findings from the last security penetration test and
commissioned another independent internal/external test.
— Conducted a simulated ‘phishing’ exercise as part of the ongoing security
awareness programme.
— Completed a business continuity test and full disaster recovery test.
— On 30 July 2021, 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.
— IT Governance conducted a cyber security health check which consisted of
a review of our information security governance framework, an internal/
external vulnerability scan and employee questionnaire (see page 162).
arising from RSM’s internal audit of
our IT controls and the cyber security
health check performed by IT
Governance.
— Perform a detailed review of our
‘ransomware security incident
response playbook’ (see page 162).
— Implement further security controls to
enhance our layered defence model.
— Enhancing cloud security and anomaly
detection for remote workers.
— Enhancing our security patching and
mobile device management
capabilities to support a hybrid
working model.
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
— Engaged with a portfolio IT partner to provide additional support for ICT
— Further develop our IT governance
infrastructure and cyber security assessments.
— Conducted security reviews on network designs for any new buildings, or
refurbishments.
— Ensured that cyber security remains a key consideration in the delivery of
intelligent buildings and digital initiatives.
— Continued to collaborate with the IoT Security Foundation and other industry
stakeholders on the development of a set of intelligent buildings security
guidance documents.
— Sent phishing simulation tests to Building Managers.
— Completed mandatory security awareness training for all staff, including
Building Managers.
framework, security monitoring and
security incident response
procedures.
— Implement further security controls to
enhance our layered defence model.
— Collaborate with our portfolio IT
partner on mitigating any cyber risks
identified following cyber security
assessments.
4C. CONTRACTOR/SUBCONTRACTOR DEFAULT
increases caused by either a main contractor or major subcontractor
carried out.
defaulting during the project. There have been ongoing issues within the
— Key construction packages are acquired early in the project’s life to reduce the
construction industry in respect of the level of risk and narrow profit
risks associated with later default.
margins being accepted by contractors.
— The financial standing of our main contractors is reviewed prior to awarding the
Movement during 2021: Unchanged
— Our main contractors are responsible, and assume the immediate risk, for
project contract.
subcontractor default.
There is an ongoing risk of insolvencies in the construction industry. Due to
this risk, we have been actively monitoring the financial health of our main
contractors and subcontractors.
Executive responsibility: Paul Williams
— Payments to contractors are in place to incentivise the achievement of project
timescales, with damages agreed in the event of delay/cost overruns.
— Regular on site supervision by a dedicated Project Manager who monitors
contractor performance and identifies problems at an early stage, thereby
enabling remedial action to be taken.
— We use known contractors with whom we have established long-term
— Contractors are paid promptly and are encouraged to pay subcontractors
working relationships.
promptly.
5A. CYBER ATTACK ON OUR IT SYSTEMS
The Group may be subject to a cyber attack that results in it being unable to
— The Group’s Business Continuity Plan is regularly reviewed and tested.
use its information systems and/or losing data. Such an attack could
— Independent internal and external penetration/vulnerability tests are regularly
severely restrict the ability of the Group to operate, lead to an increase in
conducted to assess the effectiveness of the Group’s security.
costs and/or require a significant diversion of management time.
— Multi-Factor Authentication exists for remote access to our systems.
Movement during 2021: Increased
This risk has been heightened during the Covid-19 pandemic, as cyber-
criminals seek to exploit the disruption caused by employees working from
home. In response, we identified the key IT risks arising from homeworking
and implemented additional controls.
Executive responsibility: Damian Wisniewski
— 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’ accreditation which
demonstrates our commitment to cyber security.
5B. CYBER ATTACK ON OUR BUILDINGS
The Group is exposed to cyber attacks on its properties which may result in
— Each building has incident management procedures which are regularly reviewed
data breaches or significant disruption to IT-enabled tenant services. A
and tested.
major cyber attack against the Group or its properties could negatively
— Physical segregation between the building’s core IT infrastructure and tenants’
impact the Group’s business, reputation and operating results.
corporate IT networks.
Movement during 2021: Unchanged but likely to increase as our buildings
become more ‘intelligent’
— Physical segregation of IT infrastructure between buildings across the portfolio.
— Inclusion of Building Managers in all cyber security awareness training and
phishing simulations.
Executive responsibility: David Silverman
Financial StatementsGovernanceStrategic report 116
OUR PRINCIPAL RISKS CONTINUED
OPERATIONAL CONTINUED
Risk
5C. SIGNIFICANT BUSINESS INTERRUPTION
(for example, pandemic, terrorism-related event or other business interruption)
Our key controls
Major incidents may significantly interrupt the Group’s business, its
occupiers and/or supply chain. Such incidents could be caused by a wide
range of events such as a pandemic, terrorism-related events, natural
catastrophes or fires. This could result in issues such as being unable to
access or operate the Group’s properties, tenant failures or reduced rental
income, share price volatility or loss of key suppliers.
Movement during 2021: Unchanged
The ramifications of the Covid-19 outbreak have been far-reaching across
all sectors and the pandemic has created extreme economic volatility. The
Group has suffered minimal disruption due to Covid-19 and has been
capable of operating successfully remotely during lockdown restrictions.
However, the lockdowns have caused a delay to our development activities
and reduction in cash flow due to deferment or non-payment of rent.
Executive responsibility: All Executive Directors
6. REPUTATIONAL DAMAGE
— 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 resources.
— Fire protection and access/security procedures are in place at all of our
managed properties.
— Comprehensive property damage and business interruption insurance which
includes terrorism.
— At least annually, a fire risk assessment and health and safety inspection are
performed for each property in our managed portfolio, in addition to annual
Planned Preventive Maintenance surveys.
— Robust security at our buildings, including CCTV and access controls.
The Group has invested significantly in developing a well-regarded and
respected brand. The Group’s reputation could be damaged, for example,
through unauthorised or inaccurate media coverage, unethical practices or
behaviours by the Group’s executives, or failure to comply with relevant
legislation. This could lead to a material adverse effect on the Group’s
operating performance and the overall financial position of the Group. Our
strong culture, low overall risk tolerance and established procedures and
policies mitigate against the risk of internal wrongdoing.
— 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
Movement during 2021: Reduced
Feedback on how we have responded to the Covid-19 pandemic, particularly
in respect to our occupiers, suppliers, employees and Community Fund, has
generally been positive.
Executive responsibility: All Executive Directors
7. OUR RESILIENCE TO CLIMATE CHANGE
If 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. In addition, there is a risk that the cost of
construction materials and providing energy, water and other services to
occupiers will rise as a consequence of climate change.
Movement during 2021: Unchanged
Overall, climate change risk continues to increase in prominence and
importance. The UK Government continues to introduce more legislative
aspects linked to climate risk e.g. from 2022 certain listed entities will have
to disclose in line with the TCFD and the latest energy white paper is setting
out higher standards for energy efficiency in commercial and residential
properties.
Executive responsibility: Nigel George
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 ESG (environmental, social and governance) 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 reporting against various industry benchmarks.
— Production of an annual Responsibility Report with key data and performance
points which are externally assured.
— In 2017 we adopted science-based carbon targets which have been
independently verified by the Science-Based Targets initiative (SBTi).
Potential impact
What we did in 2021
What we will be doing in 2022
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
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. 2. 3. 4. 5.
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
— Engaged with a portfolio IT partner to provide additional support for ICT
— Continue with our current controls and
infrastructure and cyber security assessments.
mitigating actions.
— Continued to configure secure VPN connections and deploy fully encrypted
laptops to enable secure hybrid working capabilities.
— Provided additional employee awareness training on social media and
remote working security best practice.
— Remediated any key findings from the last security penetration test
and commissioned another independent internal/external test.
— Completed a business continuity technical test and full disaster
recovery test.
— Conducted monthly vulnerability scans.
— Worked with our external fire consultants to be amongst the first UK
property companies to implement a Fire Safety Management System in
line with BS9997.
In order to support our community during Covid-19:
— Ensured the market and our key stakeholders were kept updated on our
— Followed a proactive and personalised response to our tenants facing
response to Covid-19.
difficulties due to Covid-19.
— Committed £725,000 of community and sponsorship donations for 2021.
— Worked with relevant agencies to provide accommodation and car parking
free of charge to NHS 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 stakeholders.
— Continue communication with, and
listening to, our stakeholders.
— Continue to support those in need.
— Continue to support our staff’s training
— Continue with our current controls and
requirements.
mitigating actions.
— Published our annual Responsibility Report in April 2021.
— Continued investigations into off-site renewable energy generation
opportunities available to us to reduce our market-based dependency,
— Review the findings arising from the
occupier net zero carbon survey and
how we can support our occupiers
which included submitting a planning application for an 18.4MW solar
achieving their goals.
park on Lochfaulds Farm (see page 13).
— Refreshed our Development Framework for Developments, which sets
new minimum requirements for the development pipeline.
— Investigate planting a further 425ha of
trees across our Scottish land
(equivalent to 794 football fields).
— We set building specific operational energy targets, aligned with a 1.5°C
— Agree a strategy for the portfolio to
science-based scenario.
achieve an EPC B grade by 2030
— Launched our first net zero carbon occupier survey focused specifically on
following the results of the feasibility
better understanding how we can support our occupiers achieve their goals
and cost report.
(see page 13).
— Continue with our current controls and
— Ensured our 2021 Report & Accounts contains disclosures which are
mitigating actions.
consistent with Task Force on Climate-Related Financial Disclosures (TCFD)
recommendations (see pages 68 to 73).
— Commissioned a comprehensive report into the feasibility and costs of
achieving an EPC B grade across our portfolio by 2030 (see page 55).
— Attended, and presented, at the Conference of the Parties 26 (COP26)
(see page 54).
Derwent London plc Report & Accounts 2021
Key
Strategic objectives
a balanced portfolio
1. To optimise returns and create value from
2. To grow recurring earnings
and cash flow
117
5. To maintain strong
and flexible financing
talented employees
3. To attract, retain and develop
4. To design, deliver and operate our
buildings responsibly
Risk
Our key controls
Potential impact
What we did in 2021
What we will be doing in 2022
5C. SIGNIFICANT BUSINESS INTERRUPTION
(for example, pandemic, terrorism-related event or other business interruption)
Major incidents may significantly interrupt the Group’s business, its
— The Group has comprehensive business continuity and incident management
occupiers and/or supply chain. Such incidents could be caused by a wide
procedures both at Group level and for each of our managed buildings which are
range of events such as a pandemic, terrorism-related events, natural
regularly reviewed and tested.
catastrophes or fires. This could result in issues such as being unable to
— Government health guidelines are maintained at all of our construction sites.
access or operate the Group’s properties, tenant failures or reduced rental
— Most of our employees are capable of working remotely and have the necessary
income, share price volatility or loss of key suppliers.
IT resources.
— Fire protection and access/security procedures are in place at all of our
managed properties.
includes terrorism.
— Comprehensive property damage and business interruption insurance which
— At least annually, a fire risk assessment and health and safety inspection are
performed for each property in our managed portfolio, in addition to annual
Planned Preventive Maintenance surveys.
— Robust security at our buildings, including CCTV and access controls.
Movement during 2021: Unchanged
The ramifications of the Covid-19 outbreak have been far-reaching across
all sectors and the pandemic has created extreme economic volatility. The
Group has suffered minimal disruption due to Covid-19 and has been
capable of operating successfully remotely during lockdown restrictions.
However, the lockdowns have caused a delay to our development activities
and reduction in cash flow due to deferment or non-payment of rent.
Executive responsibility: All Executive Directors
6. REPUTATIONAL DAMAGE
The Group has invested significantly in developing a well-regarded and
— Close involvement of senior management in day-to-day operations and
respected brand. The Group’s reputation could be damaged, for example,
established procedures for approving all external announcements.
through unauthorised or inaccurate media coverage, unethical practices or
— All new members of staff benefit from an induction programme and are issued
behaviours by the Group’s executives, or failure to comply with relevant
with our Group staff handbook.
legislation. This could lead to a material adverse effect on the Group’s
— The Group employs a Head of Investor and Corporate Communications and
operating performance and the overall financial position of the Group. Our
retains services of an external PR agency, both of whom maintain regular contact
strong culture, low overall risk tolerance and established procedures and
with external media sources.
policies mitigate against the risk of internal wrongdoing.
— 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.
Movement during 2021: Reduced
Feedback on how we have responded to the Covid-19 pandemic, particularly
in respect to our occupiers, suppliers, employees and Community Fund, has
generally been positive.
Executive responsibility: All Executive Directors
7. OUR RESILIENCE TO CLIMATE CHANGE
If the Group fails to respond appropriately, and sufficiently, to climate
— The Board and Executive Committee receive regular updates and presentations
change risks or fails to benefit from the potential opportunities. This could
on ESG (environmental, social and governance) matters as well as progress
lead to damage to our reputation, loss of income and/or property values and
against our pathway to becoming net zero carbon by 2030.
loss of our licence to operate. In addition, there is a risk that the cost of
— The Sustainability Committee monitors our performance and
construction materials and providing energy, water and other services to
management controls.
occupiers will rise as a consequence of climate change.
— Strong team led by an experienced Head of Sustainability.
— The Group monitors its ESG reporting against various industry benchmarks.
— Production of an annual Responsibility Report with key data and performance
points which are externally assured.
— In 2017 we adopted science-based carbon targets which have been
independently verified by the Science-Based Targets initiative (SBTi).
Movement during 2021: Unchanged
Overall, climate change risk continues to increase in prominence and
importance. The UK Government continues to introduce more legislative
aspects linked to climate risk e.g. from 2022 certain listed entities will have
to disclose in line with the TCFD and the latest energy white paper is setting
out higher standards for energy efficiency in commercial and residential
properties.
Executive responsibility: Nigel George
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
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. 2. 3. 4. 5.
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
— Engaged with a portfolio IT partner to provide additional support for ICT
— Continue with our current controls and
infrastructure and cyber security assessments.
mitigating actions.
— Continued to configure secure VPN connections and deploy fully encrypted
laptops to enable secure hybrid working capabilities.
— Provided additional employee awareness training on social media and
remote working security best practice.
— Remediated any key findings from the last security penetration test
and commissioned another independent internal/external test.
— Completed a business continuity technical test and full disaster
recovery test.
— Conducted monthly vulnerability scans.
— Worked with our external fire consultants to be amongst the first UK
property companies to implement a Fire Safety Management System in
line with BS9997.
In order to support our community during Covid-19:
— Ensured the market and our key stakeholders were kept updated on our
response to Covid-19.
— Followed a proactive and personalised response to our tenants facing
difficulties due to Covid-19.
— Committed £725,000 of community and sponsorship donations for 2021.
— Worked with relevant agencies to provide accommodation and car parking
free of charge to NHS 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 stakeholders.
— Continue communication with, and
listening to, our stakeholders.
— Continue to support those in need.
— Continue to support our staff’s training
requirements.
— Continue with our current controls and
mitigating actions.
— Published our annual Responsibility Report in April 2021.
— Continued investigations into off-site renewable energy generation
opportunities available to us to reduce our market-based dependency,
which included submitting a planning application for an 18.4MW solar
park on Lochfaulds Farm (see page 13).
— Refreshed our Development Framework for Developments, which sets
new minimum requirements for the development pipeline.
— We set building specific operational energy targets, aligned with a 1.5°C
science-based scenario.
— Launched our first net zero carbon occupier survey focused specifically on
better understanding how we can support our occupiers achieve their goals
(see page 13).
— Review the findings arising from the
occupier net zero carbon survey and
how we can support our occupiers
achieving their goals.
— Investigate planting a further 425ha of
trees across our Scottish land
(equivalent to 794 football fields).
— Agree a strategy for the portfolio to
achieve an EPC B grade by 2030
following the results of the feasibility
and cost report.
— Continue with our current controls and
— Ensured our 2021 Report & Accounts contains disclosures which are
mitigating actions.
consistent with Task Force on Climate-Related Financial Disclosures (TCFD)
recommendations (see pages 68 to 73).
— Commissioned a comprehensive report into the feasibility and costs of
achieving an EPC B grade across our portfolio by 2030 (see page 55).
— Attended, and presented, at the Conference of the Parties 26 (COP26)
(see page 54).
Financial StatementsGovernanceStrategic report
118
OUR PRINCIPAL RISKS CONTINUED
OPERATIONAL CONTINUED
Risk
Our key controls
Potential impact
What we did in 2021
What we will be doing in 2022
8A. 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, safety and fire legislation leading to
reputational damage and/or loss of our licence to operate. For example, a
major health and safety incident could cause significant business
interruption for the Group
Movement during 2021: Reduced
During 2021, 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. Our accident frequency rate (AFR) for development
projects in 2021 was 1.26 (2020: 2.72) a reduction of 53.7% (see page 66).
Executive responsibility: Paul Williams
— 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 RiskWise, a software compliance platform. This is supported
by annual property health checks.
— The Managed Portfolio Health and Safety Manager with the support of internal
and external stakeholders supports our Portfolio and Building Managers to
ensure statutory compliance.
— The Construction Health and Safety Manager, with the support of internal and
external stakeholders, ensures our Construction (Design and Management)
Regulations (CDM) client duties are executed and monitored and 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, including both physical and mental health.
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
— Our Head of Health and Safety was part of the Construction Leadership
— Prepare the business for the
Council (CLC) Covid-19 Task Force, which published guidance for contractors
on-site operating procedures. He also sits on the Construction Industry
Councils (CIC) Building Safety Committee Chairs the Health and Safety
implementation of our new Fire Safety
Management System aligned with the
requirements of the Fire Safety and
Executives (HSE) Managing Risk Well Group and sits on the new Building
Building Safety Acts.
Safety Alliance Group and output of the post-Grenfell Hackett report, which
— Continue with our current controls and
is setting the competencies for the new duties of the Accountable Person
mitigating actions.
and Building Safety Manager.
— Introduce an e-permit system, CDM
— Published a health and wellbeing guide for employees working from home.
and water hygiene module within our
— Became a supporter of the Mates in Mind Mental Health programme
RiskWise platform.
designed specifically for the construction industry, developed a working
— Monitoring Contractor performance in
from home guide and arranged webinars on topics such as resilience, mental
line with their KPIs.
health and nutrition.
— Continuing the focus on health giving it
— Performed detailed health and safety risk assessments of 25 Savile Row and
the same billing as safety.
common areas within the managed portfolio and implemented initiatives
— Continue to raise Derwent London’s
aimed at preserving social distancing and protecting our employees and
profile across the property and
occupiers.
development sectors.
— Launched our new bespoke compliance system, RiskWise, which is
embedded into our business operations.
— Performed a detailed health and safety audit of all residential properties and
a property health check of all commercial properties in our managed
portfolio, in conjunction with six monthly risk assessment checks by external
specialist water consultants.
— Developed a health and safety knowledge library where all our procedures
and standards are made available to both internal and external stakeholders.
— Worked with our external fire consultants to be amongst the first UK
property companies to implement a Fire Safety Management System in
— Set up a property benchmarking group to share best practice accident data
line with BS9997.
and agree KPIs.
8B. OTHER REGULATORY NON-COMPLIANCE
Should the Group breach any of the legislation that forms the regulatory
framework within which the Group operates, the Group’s cost base could
increase and management time could be diverted. This could lead to
damage to our reputation and/or loss of our licence to operate.
Movement during 2021: Reduced
During 2020 and 2021, we have 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.
During 2021, the Competition and Markets Authority (the ‘CMA’) has been
investigating uncompetitive behaviour in the construction industry,
including price fixing, marketing sharing and bid rigging. Although the Group
seeks assurances from prospective contractors on the status of any CMA
investigations in which they are involved, the use of contractors which are
found to be engaging in uncompetitive behaviour could lead to reputational
damage for the Group.
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.
— A Group whistleblowing system for staff is maintained to report wrongdoing
anonymously.
— Managing our properties to ensure they are compliant with the Minimum Energy
Efficiency Standards (MEES) for Energy Performance Certificates (EPCs).
Strategic objectives
— Despite homeworking, our employees continued to follow the Group’s normal
— Continue with our current controls and
compliance procedures, including in respect of the signing of documentation
mitigating actions.
3. 4. 5.
Business model
Could potentially impact on all
aspects of our business model
KPIs
— Total return
— Total property return
— Total shareholder return
A significant diversion of time
could affect a wider range
of KPIs
and delegated authorities.
— Our 2020 Report & Accounts 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 14 May 2021.
— 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 2021 staff performance appraisals, all employees confirmed
they have reviewed and understood Group policies.
Derwent London plc Report & Accounts 2021 Key
Strategic objectives
a balanced portfolio
1. To optimise returns and create value from
2. To grow recurring earnings
and cash flow
119
5. To maintain strong
and flexible financing
talented employees
3. To attract, retain and develop
4. To design, deliver and operate our
buildings responsibly
Risk
Our key controls
Potential impact
What we did in 2021
What we will be doing in 2022
8A. NON-COMPLIANCE WITH HEALTH AND SAFETY LEGISLATION
The Group’s cost base is increased, and management time is diverted
— All our properties have the relevant health, safety and fire management
through an incident or breach of health, safety and fire legislation leading to
procedures in place which are reviewed annually.
reputational damage and/or loss of our licence to operate. For example, a
— The Group has a qualified Health and Safety team whose performance is
major health and safety incident could cause significant business
monitored and managed by the Health and Safety Committee.
interruption for the Group
Movement during 2021: Reduced
During 2021, 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. Our accident frequency rate (AFR) for development
projects in 2021 was 1.26 (2020: 2.72) a reduction of 53.7% (see page 66).
Executive responsibility: Paul Williams
— Health and safety statutory compliance within our managed portfolio is managed
and monitored using RiskWise, a software compliance platform. This is supported
by annual property health checks.
— The Managed Portfolio Health and Safety Manager with the support of internal
and external stakeholders supports our Portfolio and Building Managers to
ensure statutory compliance.
— The Construction Health and Safety Manager, with the support of internal and
external stakeholders, ensures our Construction (Design and Management)
Regulations (CDM) client duties are executed and monitored and 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, including both physical and mental health.
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
— Our Head of Health and Safety was part of the Construction Leadership
— Prepare the business for the
Council (CLC) Covid-19 Task Force, which published guidance for contractors
on-site operating procedures. He also sits on the Construction Industry
Councils (CIC) Building Safety Committee Chairs the Health and Safety
Executives (HSE) Managing Risk Well Group and sits on the new Building
Safety Alliance Group and output of the post-Grenfell Hackett report, which
is setting the competencies for the new duties of the Accountable Person
and Building Safety Manager.
— Published a health and wellbeing guide for employees working from home.
— Became a supporter of the Mates in Mind Mental Health programme
designed specifically for the construction industry, developed a working
from home guide and arranged webinars on topics such as resilience, mental
health and nutrition.
implementation of our new Fire Safety
Management System aligned with the
requirements of the Fire Safety and
Building Safety Acts.
— Continue with our current controls and
mitigating actions.
— Introduce an e-permit system, CDM
and water hygiene module within our
RiskWise platform.
— Monitoring Contractor performance in
line with their KPIs.
— Continuing the focus on health giving it
— 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.
the same billing as safety.
— Continue to raise Derwent London’s
profile across the property and
development sectors.
8B. OTHER REGULATORY NON-COMPLIANCE
Should the Group breach any of the legislation that forms the regulatory
— The Board and Risk Committee receive regular reports prepared by the Group’s
Strategic objectives
framework within which the Group operates, the Group’s cost base could
legal advisers identifying upcoming legislative/regulatory changes. External
increase and management time could be diverted. This could lead to
advice is taken on any new legislation.
damage to our reputation and/or loss of our licence to operate.
— Staff training and awareness programmes.
Movement during 2021: Reduced
— 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).
During 2020 and 2021, we have 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.
During 2021, the Competition and Markets Authority (the ‘CMA’) has been
investigating uncompetitive behaviour in the construction industry,
including price fixing, marketing sharing and bid rigging. Although the Group
seeks assurances from prospective contractors on the status of any CMA
investigations in which they are involved, the use of contractors which are
found to be engaging in uncompetitive behaviour could lead to reputational
damage for the Group.
Executive responsibility: Damian Wisniewski
3. 4. 5.
Business model
Could potentially impact on all
aspects of our business model
KPIs
— Total return
— Total property return
— Total shareholder return
A significant diversion of time
could affect a wider range
of KPIs
— Launched our new bespoke compliance system, RiskWise, which is
embedded into our business operations.
— Performed a detailed health and safety audit of all residential properties and
a property health check of all commercial properties in our managed
portfolio, in conjunction with six monthly risk assessment checks by external
specialist water consultants.
— Developed a health and safety knowledge library where all our procedures
and standards are made available to both internal and external stakeholders.
— Worked with our external fire consultants to be amongst the first UK
property companies to implement a Fire Safety Management System in
line with BS9997.
— Set up a property benchmarking group to share best practice accident data
and agree KPIs.
— Despite homeworking, our employees continued to follow the Group’s normal
compliance procedures, including in respect of the signing of documentation
and delegated authorities.
— Our 2020 Report & Accounts 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 14 May 2021.
— 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 2021 staff performance appraisals, all employees confirmed
they have reviewed and understood Group policies.
— Continue with our current controls and
mitigating actions.
Financial StatementsGovernanceStrategic report 120
“ Derwent London continues to
be externally recognised for our
transparent reporting and high
governance standards. We were
delighted to have achieved the top
position in the Property/Residential
& Commercial REITs sector in
Britain’s Most Admired Companies
awards for 2021. We have now won
the top place seven times since 2012.
This is a reflection of everyone’s hard
work and commitment, and I am
immensely proud.”
Paul Williams
Chief Executive
Derwent London plc Report & Accounts 2021 Governance
121
GOVERNANCE
Introduction from the Chairman ........... 122
Governance at a glance .......................... 123
The section 172(1) statement ................. 124
Board of Directors .................................... 126
Senior management ................................ 128
Corporate governance statement ......... 130
Nominations Committee report ............ 144
Audit Committee report .......................... 148
Risk Committee report ........................... 158
Responsible Business
Committee report .................................... 166
Remuneration Committee report
— Annual statement ............................... 172
— Remuneration at a glance ................. 174
— Annual report on remuneration ....... 175
Directors’ report ....................................... 194
Financial StatementsStrategic report 122
INTRODUCTION
FROM THE
CHAIRMAN
Mark Breuer
Chairman
2022 FOCUS AREAS
— Review the Group’s strategy and five-year plan
— Monitor the progress of our key development projects:
Soho Place W1, The Featherstone Building EC1 and
19-35 Baker Street W1
— Ensure a smooth handover of responsibility to a new
Risk Committee Chair when Richard Dakin steps down
from the Board
— Remuneration Policy review and consultation with
major shareholders and proxy voting agencies
— Engage in an externally facilitated Board performance
evaluation
REVIEWING OUR PURPOSE
Our purpose communicates the Group’s strategic direction
and intentions to our employees, occupiers and wider
stakeholders. Due to its importance, it is regularly reviewed
by the Board.
At the Board’s strategy review meeting in June 2021, it was
agreed that our purpose could be simplified to ensure
greater clarity and reference to the importance of our net
zero carbon journey. The overall sentiment of our purpose
remains unchanged and continues to highlight our
emphasis on deep and ongoing relationships, our focus on
corporate responsibility and wellbeing.
Our purpose pages 1 and 131
Dear Shareholder,
On behalf of the Board, I am pleased to introduce the Group’s
Corporate governance statement on pages 130 to 143.
The Board’s activities
2021 has been an active and progressive year for the Group. As well
as overseeing the management of risks which have arisen from the
Covid-19 pandemic, the Board and its principal committees have:
— approved a number of key acquisitions and disposals (see
page 20);
— approved the issue of a green bond (see page 13);
— held an Investor Day and the Group’s first Stakeholder Day (see
page 134) which I attended alongside the Executive Directors
and Cilla Snowball (Chair of the Responsible Business
Committee);
— held a strategy review meeting in June 2021;
— achieved the National Equality Standard (see page 58); and
— reviewed the support being provided to our local communities,
occupiers and employees.
Further information on our key activities is provided on pages 142
to 143 and in the individual committee reports on pages 144 to 193.
Board changes
During 2021, we were pleased to welcome Emily Prideaux and
Sanjeev Sharma to the Board on 1 March and 1 October,
respectively. Emily was an internal appointment and demonstrated
the strength of Derwent London’s talent pipeline. Sanjeev brings a
wealth of people management experience to the Board (Sanjeev’s
full biography is on page 127). Following Simon Fraser stepping
down from the Board upon reaching his ninth anniversary, we
appointed Helen Gordon to the role of Senior Independent Director.
Richard Dakin will reach his ninth anniversary of appointment
during 2022. The Board will focus on appointing a successor for the
role of Risk Committee Chair and managing the transition process.
Compliance with the UK Corporate Governance Code (the Code)
Our compliance with the Code during the year is disclosed on page
123 in our compliance statement. I am pleased to report that from
1 January 2022, we are complying in full with the principles and
provisions of good governance contained in the Code.
The Annual General Meeting (AGM) and re-election of Directors
To ensure the safety of employees and our shareholders, we were
required to hold the 2021 AGM as a closed meeting. Despite the
restrictions, the 2021 AGM did include a short business update and
virtual Q&A session. This year, we are aiming to host our 2022 AGM
at DL/78, which will allow our shareholders to see first-hand this
exciting new occupier space (see pages 30 and 197). Alongside my
fellow Directors, I hope that you will be able to join us.
In accordance with the Code, all Directors will be putting
themselves forward for election at the AGM. Following an internal
performance evaluation, I can confirm that each Director’s
performance continues to be highly effective and demonstrates a
high level of commitment to their roles (see page 141).
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).
Mark Breuer
Chairman
23 February 2022
Derwent London plc Report & Accounts 2021 123
GOVERNANCE
AT A GLANCE
Transparency and strong corporate
governance helps us to generate value
for our stakeholders and underpins
our success.
EMPLOYEE ENGAGEMENT
Employee engagement continuously remains a priority, to inspire
and engage, our talented and diverse workforce. In 2021, we
achieved the National Equality Standard accreditation and
received feedback from our 4th biennial employee survey:
90.5%
employee satisfaction
81%
of employees recognised
Derwent London’s commitment
to health and wellbeing
Our people page 56
The section 172(1) statement page 124
NON-EXECUTIVE DIRECTOR CHANGES
MAJOR BOARD ACTIVITIES
In October 2021, we announced the appointment of Helen Gordon
as the new Senior Independent Director and Sanjeev Sharma as
a Non-Executive Director. We are fully compliant with the Hampton-
Alexander Review and Parker Review recommendations on
Board diversity (see page 147).
Helen Gordon
Senior Independent Director
Sanjeev Sharma
Non-Executive Director
The Board’s major decisions and activities during 2021 included:
Key decisions:
— Disposal of Angel Square EC1
— Acquisition of Bush House WC2, Headlease
— Acquisition of 250 Euston Road NW1
— Acquisition of 171-174 Tottenham Court Road W1
— Agreed three off-market transactions with Lazari Investments
— Acquisition of 230 Blackfriars Road SE1
— Raised £350m via a 10-year 1.875% green bond
— Terms agreed to acquire The Moorfields Estate EC1
— Disposal of New River Yard EC1
Key activities:
— Reviewed the Group’s talent pipeline and succession plans
— Monitored the Group’s performance towards net zero carbon
— Investor Day held on 28 September at DL/78
— Achieved the National Equality Standard accreditation
Non-Executive Director appointment page 146
Key activities of the Board page 142
UK CORPORATE GOVERNANCE CODE – 2021 COMPLIANCE STATEMENT
The Board confirms that for the year ended 31 December 2021, the principles of good corporate governance contained in the 2018 UK
Corporate Governance Code (the Code) have been consistently applied. However, we were unable to comply in full with provisions 9, 19 and
38 (our explanation for non-compliance is provided below). From 1 January 2022, we have been compliant with all provisions of the Code.
Further information on the Code can be found on the Financial Reporting Council’s website at: www.frc.org.uk
Provision
9: The chair should be independent on
appointment. A chief executive should
not become chair of the same company.
If, exceptionally, this is proposed by the
board, major shareholders should be
consulted ahead of appointment
19: The chair should not remain in post
beyond nine years from the date of their
first appointment to the board
38: The pension contribution rates for
executive directors, or payments in lieu,
should be aligned with those available to
the workforce
Explanation
For the period 1 January 2021 to 14 May 2021, we were non-compliant with
provisions 9 and 19 of the Code as our Chairman during this period (John
Burns) was not independent upon appointment, was previously our CEO and
had served for more than nine years. John Burns was Chairman for two years
to facilitate an orderly succession and protect our culture. The Nominations
Committee’s decision was made after careful deliberation and consultation
with major shareholders. To ensure the separation of leadership between the
Chairman and CEO we implemented numerous safeguards (see page 116 of
the 2019 Report & Accounts) which operated effectively
Pension contribution rates for newly appointed Executive Directors is
aligned with the workforce at 15% of base salary. Since 1 January 2020, the
Remuneration Committee has been implementing its transition plan which
reduced pension contribution rates for the current Executive Directors (being,
Paul Williams, Damian Wisniewski, David Silverman and Nigel George) from
20% to 15% by 1 January 2022. During 2021, the pension contribution rates
for the current Executive Directors was 17.5% of salary
Current status
We appointed an independent
Non-Executive Chairman, Mark
Breuer, on 14 May 2021. We are
now fully compliant with provisions
9 and 19
From 1 January 2022, we are fully
compliant with provision 38 as the
pension contribution rates for all
Executive Directors is 15% (aligned
with the wider workforce)
Financial StatementsStrategic reportGovernance
124
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 Responsible Business
Committee and 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 (pages 1 and 131)
Central London office market (page 14)
Reshaping the portfolio, restocking the
pipeline (page 20)
Pipeline projects & super-sites (page 24)
Our business model (page 28)
Our strategy (page 32)
Our people (page 56)
Diversity and inclusion (page 57)
National Equality Standard (page 58)
Non-financial reporting (page 66)
Employee engagement (page 135)
Providing enhanced amenities (page 30)
Human rights and modern slavery (pages 65
and 167)
Stakeholder Day (page 134)
Responsible payment practices (page 169)
Supply Chain Sustainability Standard
(page 169)
Environmental (page 52)
Our pathway to net zero carbon (page 12)
TCFD disclosures, GHG and energy data
(pages 68 to 75)
Community Fund (page 61)
Derwent London brand (page 102)
Purpose, values and culture (pages 1 and 131)
Whistleblowing (page 136)
Internal financial controls (page 154)
Anti-bribery and corruption (page 165)
Awards and recognition (see inside
back cover)
Shareholder engagement (page 137)
Annual General Meeting (AGM) (page 197)
Rights attached to shares (page 196)
Voting rights (page 196)
PUBLIC INTEREST STATEMENT – 2021
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 to 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 131). We have detailed
on pages 12, 13, 26, 27, 30, 31 and 50 to 75 how we have acted in
the public interest during 2021.
Methods used by the Board
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 131);
— the Responsible Business Committee monitors the Group’s
corporate responsibility, sustainability and stakeholder
engagement activities and reports to the Board on its activities
(see pages 166 to 171);
— the Board assess the potential impact of significant capital
expenditure decisions on our stakeholders (see page 136);
— 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 (see
pages 160 and 164);
— 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 26
to 27 and 134 to 137);
— external assurance is received from stakeholder surveys,
brokers and advisers; and
— specific training for our Directors and senior managers.
In response to the continuing uncertainty and difficulties facing our
stakeholders due to the Covid-19 pandemic, and in addition to the
main methods listed above, the Board also:
— held two strategy meetings in 2021 to ensure our strategy
remains fit for purpose (see page 130);
— organised the Group’s first Stakeholder Day and an Investor
Day which were attended by the Chairman, Executive Directors
and senior management (see page 134);
— continued to oversee management’s decisions and policies in
respect to:
– our ability to safely operate our buildings;
– supporting the local community; and
– providing clear communications and support to our
employees.
— in addition to the feedback received at the Stakeholder Day
and Investor Day, the Board received more regular feedback
from our stakeholders through:
– the occupier carbon aspiration questionnaire (see page 13);
– the 2021 biennial employee survey and employee pulse
surveys (see page 60); and
– updates on engagement with occupiers and suppliers.
Derwent London plc Report & Accounts 2021 125
Principal decisions in 2021 and how we have met our public interest obligations
The key activities and principal decisions undertaken by the Board in 2021 are detailed on pages 142 and 143. We detail below how the
Board factored stakeholders, and the information we received through engagement, into its decisions in 2021.
Engagement we received
Occupiers
During 2021, the Asset Management team contacted
most of our occupiers and maintained this contact
throughout.
Two occupier surveys were conducted during 2021 to
gather feedback to better understand the impact of the
pandemic on our occupiers and their key concerns. The
results of these engagement activities were shared with
the Board and Responsible Business Committee.
In addition, the Sustainability team conducted an
occupier survey which focused on their carbon
aspirations. Further information on this survey, and our
response to the engagement received, is on page 13.
Employees
The Board and Responsible Business Committee were
made aware via our employee survey and feedback
received from the D&I Working Group that:
— there was a proportion of employees that found
homeworking was leading to longer working days.
— there was some anxiety and uncertainty surrounding
the measures in place for when employees started to
return to the office environment.
Local communities and others
The feedback we received in 2021, highlighted that
homelessness and mental health remained a concern
within communities.
We were aware that certain University College Hospital
staff were being housed in hotels as they were unable to
stay with their families during the height of the pandemic
(see pages 13 and 105 of the 2020 Report & Accounts).
We sought engagement from the Chickenshed Youth
Taskforce on our Community Fund guidelines, to ensure
it remains accessible and true to its original intention of
supporting local communities.
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.
Our response
— To monitor good air quality, we ensured all building ventilation systems were compliant
with Covid-19 regulations and introduced CO2 monitoring to assess ventilation levels and
provide comfort to our occupiers.
— Requests for financial support was tailored to businesses individual needs rather than a
blanket approach. 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.
— Due to the pandemic, more occupiers were utilising the bike racks at our buildings. It was
identified that additional bike racks were required for some of our buildings, and these
were installed. This was a relatively small capital expenditure however, it reflected the
changing needs of our occupiers and helped to support their wellbeing (see page 30).
— In response to feedback from our occupiers, we installed farm towers at Oliver’s Yard and
the White Chapel building to add more biophilia in our buildings and to support wellbeing.
— Guidance was provided to employees on how to support their wellbeing and safeguard
their health whilst at home. At a number of town hall meetings, the CEO reiterated the
importance of balancing work and personal commitments. In recognition of their hard
work, the Board gave all employees extra days off on 1 June and 24 December.
— In advance of returning to the office, an updated protocol guide and a compulsory
30-minute online induction were distributed on the Covid-19 safety measures in place.
— Our Occupational Health provider was invited to present at town hall meetings on topics
including ‘long covid’, vaccines, variants, responsible behaviour and supporting others.
— Increased our mental health champions’ network: 13% of the business are now trained as
mental health champions (see page 56).
— We donated £40,000 to groups supporting the homeless and £30,000 to mental health
charities. We donated over £130,000 to organisations seeking to address diversity and
inclusion within the property sector, including a three-year bursary supporting an
undergraduate student at the Reading Real Estate Foundation and supporting the
establishment of the Academy of Real Assets (see page 62).
— The total for charitable donations, sponsorship and community funding during 2021 was
£704,000.
— The business extended use of 16 furnished flats at Charlotte Apartments to NHS staff at
University College Hospital free of charge. This was initially agreed in 2020 for seven
months, before being extended for a further six months in 2021, and has a total equivalent
rental value of c.£598,000.
— The feedback received from the Chickenshed Youth Taskforce will be used to refresh our
guidelines, application and evaluation process during 2022.
— The Finance team worked hard to reduce our average payment days to 20 days, which
assisted our contractors with their cash flow and liquidity.
— To support furloughed third party service staff, Derwent London continued to ‘top-up’
wages by 20% so that there was no drop in income during the furlough period between
March 2020 to 30 September 2021. The Board were mindful that a significant number of
these workers were on relatively low wages and a 20% reduction under the Coronavirus
Job Retention Scheme would be significant. After the furlough period ended, we
reinstated all service staff back to our buildings. This helped to ensure jobs and salaries
remained protected.
Central and local government
Paul Williams (CEO) is Chairman of the Westminster
Property Association (WPA), a not-for-profit advocacy
group, which focuses on policy, research and maintaining
excellent relationships with Central London’s local
authorities. In 2021, WPA launched two research papers
on net zero carbon and sustainability which included
contribution from Derwent London.
Tackling climate change is a serious challenge and
requires coordinated action.
Islington Council was working towards becoming a
London Living Wage Borough and was seeking support
from businesses.
— Through his WPA role, Paul receives invaluable feedback from local authorities and other
stakeholders which can be brought to our Board and inform our decision making.
— Paul Williams and John Davies (Head of Sustainability) attended and presented at COP26.
We also hosted a tour of our Scottish land where planning permission is being sought for
renewable energy initiatives (see page 13). Damian Wisniewski (CFO) spoke at the London
Climate Action Week summit in June 2021 on how we can work together to make progress
on climate change. Derwent London’s Net Zero Carbon Pathway is aligned with the target
for London to be carbon neutral by 2030.
— Derwent London became a part of Islington’s London Living Wage Action Group. In
celebration of Living Wage Week 2021, White Collar Factory hosted an event for Islington
Council, which brought together some of the Islington businesses that have become Living
Wage accredited employers over the past 12 months. We also signed-up to participate in
the ‘Making Living Wage Places’ initiative, run by the Living Wage Foundation. Derwent
London has been London Living Wage Foundation accredited since 2017 (see page 62).
Shareholders
The Covid-19 pandemic continued to have an impact on
the stock market. There was considerable uncertainty
surrounding whether dividend payments would be made
to shareholders and the ability of businesses to weather
the continuing uncertainty.
— The Board considered the financial strength of the business and agreed to continue to pay
the 2020 final dividend in June 2021 and to pay an interim 2021 dividend in October. This
decision provided security to our shareholders who value the regular income received from
our dividend payments.
— We hosted an Investor Day on 28 September, which provided an opportunity for our
investors to meet with members of the Board and raise any questions (see page 134).
— Despite being unable to host an in person AGM in 2021, the Directors ensured there were
audio facilities so that our shareholders could follow proceedings and ask questions.
Financial StatementsStrategic reportGovernance 126
BOARD OF
DIRECTORS
1.
2.
4.
6.
3.
5.
1. David Silverman, 52
Executive Director
2. Emily Prideaux, 42
Executive Director
Appointed to the
Board: 2008
Appointed to the
Board: 2021
David joined the
Group in 2002 and is
responsible for leading
Derwent’s investment
acquisitions and
disposals. In addition,
his responsibilities
include overseeing the
Group’s property
management team.
David is a past
Chairman of
Westminster Property
Association.
Other public
appointments:
Member of the Board
of Directors of New
West End Company
and Chairman of the
Chickenshed Property
Company.
Emily has overall
responsibility for
overseeing Leasing and
Asset Management
transactions, building
on our excellent
customer service and
relations, leading our
marketing and digital
strategy, whilst
continuing to ensure
that our future
developments provide
best in class
workspace for the
next generation of
businesses. Emily is
a chartered surveyor
and was previously
Director of Investment
Management at CB
Richard Ellis North
America.
Other public
appointments: Director
of The Paddington
Partnership.
3. Helen Gordon, 62
Senior Independent
Director
Appointed to the
Board: 2018
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
commitments: 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.
6. Dame Cilla
Snowball, 63
Non-Executive Director
Appointed to the
Board: 2015
Cilla is the former
Group Chairman and
Group CEO at AMV
BBDO, one of the top
advertising agencies
in the UK.
Other public
appointments:
Governor of the
Wellcome Trust and
Director of Genome
Research Limited.
Committees:
Responsible
Business (Chair),
Nominations, Risk.
4. Damian
Wisniewski, 60
Chief Financial Officer
Appointed to the
Board: 2010
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.
5. Mark Breuer, 59
Non-Executive
Chairman
Appointed to the
Board: 2021
Mark worked in
investment banking for
30 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.
Mark is a Fellow of the
Institute of Chartered
Accountants of
England and Wales,
having qualified in
1987, and has a BA
from Vassar College
in the US.
Other public
appointment:
Chairman of DCC plc.
Committees:
Nominations (Chair).
Derwent London plc Report & Accounts 2021 Governance
127
12.
10.
9.
7.
8.
11.
7. Richard Dakin, 58
Non-Executive Director
8. Paul Williams, 61
Chief Executive
9. Claudia Arney, 51
Non-Executive Director
10. Sanjeev Sharma, 58
Non-Executive Director
11. Nigel George, 58
Executive Director
12. Lucinda Bell, 57
Non-Executive Director
Appointed to the
Board: 2013
Appointed to the
Board: 1998
Appointed to the
Board: 2015
Appointed to the
Board: 2021
Appointed to the
Board: 1998
Appointed to the
Board: 2019
Richard is the
Managing Director of
Capital Advisors, 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.
Committees:
Risk (Chair), Audit,
Nominations.
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.
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: Chair
of Deliveroo plc and
Non-Executive Director
of Kingfisher plc.
Member of the
Takeover Panel
(Hearings Committee)
and Lead Non-
Executive Board
Member for the
Department for Digital,
Culture, Media & Sport.
Committees:
Remuneration (Chair),
Audit, Responsible
Business,
Nominations.
Sanjeev is a member of
the Real Estate
Balance board, and
is an independent
member of the Estates
Strategy Committee
of King’s College
University London.
Other public
appointments: Chief
Property Portfolio
Officer at M&G Real
Estate – a leading
financial solutions
provider for global real
estate investors, which
is part of M&G plc’s
£67.2 billion Private &
Alternative Assets
division.
Committees:
Audit, Risk,
Nominations.
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
appointment: Director
of the Chancery Lane
Association Limited.
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, and
Non-Executive Director
at Man Group Plc.
Committees:
Audit (Chair), Risk,
Remuneration,
Nominations.
Financial StatementsStrategic report 128
SENIOR
MANAGEMENT
7.
7.
5.
5.
6.
6.
3.
3.
1.
1.
4.
4.
2.
2.
EXECUTIVE COMMITTEE
SENIOR MANAGEMENT
1.
2.
3.
4.
5.
6.
7.
Jennifer Whybrow
Head of Financial Planning & Analysis
John Davies*
Head of Sustainability
David Lawler
Company Secretary
Vasiliki Arvaniti*
Head of Asset Management
Richard Baldwin
Director of Development
Jay Joshi
Treasurer
Victoria Steventon*
Head of Property Management
8.
9.
10.
11.
12.
13.
Tim Hyman
Group Architect
Katy Levine
Head of Human Resources
Robert Duncan
Head of Investor Relations & Strategic
Planning
Heethen Patel
Financial Controller
Matt Cook
Head of Digital Innovation & Technology
Lesley Bufton
Head of Property Marketing
14. Giles Sheehan
Head of Investment
15.
16.
Clive Johnson
Head of Health & Safety
Philippa Davies
Head of Leasing
17. David Westgate
Group Head of Tax
18.
Jonathan Theobald
Head of Investment Analytics
19. Umar Loane
Head of Property Accounts
* effective from 1 January 2022
Derwent London plc Report & Accounts 2021
129
13.
13.
19.
8.
8.
10.
10.
9.
9.
14
16.
11.
11.
9.
17.
12.
12.
15.
18.
Financial StatementsStrategic reportGovernance 130
CORPORATE
GOVERNANCE
STATEMENT
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 126, 127 and 140). To ensure sufficient time
for discussion, the Board utilises its five principal committees to
effectively manage its time (see page 133). 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). Some of the key aspects
discussed by the Board during its strategy discussions included:
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 123.
— our aspirations, culture and purpose (see page 131);
— the role and future of the office (see page 15), tenant sectors
to watch and, changes in occupier demand;
— changes to the London office market and investment market;
— succession planning (see page 146);
— feedback received from our employees and other key
stakeholders;
Page 130
to page 137
— our development pipeline in respect to its replenishment
and future potential (see pages 20 and 21); and
— climate change risk and opportunities.
1. Board leadership and Company purpose
A Effective Board (page 130)
B Purpose, values and culture (page 131)
C Governance framework and Board resources (pages 132 and 133)
D Stakeholder engagement (page 134)
Responsible Business Committee (pages 166 to 171)
E Workforce policies and practices (page 136)
2. Division of responsibilities
F Board roles (page 138)
Page 138
to page 143
G Independence (page 139)
H External appointments and conflicts of interest (page 139)
I Key activities of the Board in 2021 (page 142)
3. Composition, succession and evaluation
J Appointments to the Board (pages 140 and 146)
K Board skills, experience and knowledge (page 140)
L Annual Board evaluation (page 141)
4. Audit, risk and internal control
M Financial reporting (page 149)
External Auditor & Internal audit (pages 155 to 157)
N Review of the 2021 Report & Accounts (page 150)
O Internal financial controls (page 154)
Risk management (page 159)
5. Remuneration
Page 140
to page 147
Page 148
to page 171
Page 172
to page 193
P Linking remuneration with purpose and strategy (pages 174 and 175)
Q Remuneration Policy review (page 173)
R Performance outcomes in 2021 (pages 183 to 185)
Strategic targets (pages 179 and 184)
Promoting the long-term success of Derwent London
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. The
appropriateness of our business model is regularly reviewed by
the Board at its strategy review meetings to ensure it remains
capable of generating long-term sustainable value for our
shareholders and other key stakeholders. In order for the
business to continue to generate long-term sustainable value,
the Board’s actions during 2021, included:
— We completed a number of important acquisitions which
has helped to restock the Group’s development pipeline
(see page 20). A well-stocked pipeline of potential
development opportunities is a source of future returns
for the Group and a key factor in our ability to continue to
deliver above average returns to our stakeholders.
— During the year, we began to pursue opportunities to self-
generate renewable energy from our land holdings in Scotland
and liaised with our occupiers to align our net zero carbon
journeys (see page 13).
— We understand the importance of amenities to our occupiers.
During 2021, we opened DL/78, launched the new DL/ App,
and further improved the facilities available in our buildings
(see page 30).
— We increased the availability of long-term funding. An
additional £350m of finance was raised via a green bond
and we extended our Revolving Credit Facilities. As at 31
December 2021, our weighted average term of borrowings
increased to 7.2 years.
Further information on how we create long-term value is available
on the following pages:
Reasons to invest page 6
Our strategy page 32
The section 172(1) statement page 124
Derwent London plc Report & Accounts 2021 PURPOSE
Why we do
what we do
VALUES
The qualities
we embody
CULTURE
How we work
together
Our purpose, values and culture are disclosed on pages 1 and 122.
Purpose and values
Our purpose communicates the Group’s strategic direction and
intentions to our employees, occupiers and wider stakeholders.
Due to its importance, it is regularly reviewed by the Board. At the
Board’s strategy review meeting in June 2021, it was agreed that
our purpose could be simplified to ensure greater clarity and
reference to the importance of our net zero carbon journey (see
page 1). Our progress towards achieving our purpose during 2021
can be reviewed on the following pages:
— How we have helped to improve and upgrade the stock of
office space in central London (pages 20 to 25).
— The above average long-term returns to our shareholders
(pages 46 and 187).
— The social, environmental and economic benefits brought to
all our stakeholders (pages 50 to 75).
Our values articulate the qualities we embody and our underlying
approach to doing business. Our values are embedded in our
operational practices through the policies approved by the Board
and the direct oversight and involvement of the Executive Directors.
The Executive Directors have 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 will seek assurance that corrective action is being
taken. No such action was required during 2021.
Culture
Our culture has developed from our values and is a key strength
of our business. The benefits of a strong culture is seen in our
employees’ engagement scores, retention rate year-on-year and
levels of productivity. As the cultural tone of a business comes
from the boardroom, safeguarding our culture is a key factor in
the development of the Board’s succession plans.
Assessment and monitoring
The Board monitors and assesses the culture of the Group via:
— Regularly meeting with management and inviting employees
to present at Board and committee meetings.
— Gleaning feedback via the employee representatives that sit
on our Responsible Business Committee.
— Assessing cultural indicators such as:
– management’s attitude to risk;
– health and safety data;
– compliance with the Group’s policies and procedures; and
– key performance indicators, including staff retention.
— Feedback from our wider stakeholders, including at our
Stakeholder Day and from occupier pulse surveys.
— Messages received via the Group’s whistleblowing system.
— Promptness of payments to suppliers.
— Independent assurance is sought via the outsourced internal
audit function and other advisers.
131
The biennial employee surveys provide 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 2021 employee survey, the top responses
were ‘passionate’, ‘professional’, ‘hardworking’ and ‘reputable’.
In addition, ‘diverse’ and ‘inclusive’ were attributes of our culture
which were used substantially more than in our last employee
survey in 2019, highlighting the effectiveness of our initiatives and
progress in these areas (see page 59).
With assistance from advisers, the Board will seek independent
assurance that the Group’s culture is clearly understood by our
employees and key stakeholders during 2022 (see page 141).
Embedding our culture
The Board reinforces our culture and values through its decisions,
strategy and conduct.
Culture and value ‘fit’ is a key consideration during our recruitment
process, which is reinforced during our induction programme,
monthly town halls run by the CEO, and is monitored through
performance appraisals. As part of the six-monthly performance
review cycle, our employees reflect on whether they demonstrate
the core ‘competencies’ outlined in the review. These competencies
include the ability to build strong internal and external
relationships, communicate clearly, build trust, and demonstrate
creativity, initiative and teamwork. These discussions reinforce the
behaviours we wish to foster within our workforce and link our
culture to our reward mechanisms.
Our senior management team undertake training to ensure they are
supporting their teams and encouraging the behaviours which align
with our culture. During 2021, management training covered
recognising and supporting mental health concerns, diversity and
inclusion, and unconscious bias.
Maintaining our culture during uncertainty and periods of change
The Covid-19 pandemic caused disruption and required adjustment
to the way we work, lead our teams, collaborate and communicate.
Early emphasis was placed on supporting our key stakeholder
groups, including our employees, occupiers and local communities.
For our employees, we provided clear communication, reassurance
and implemented further initiatives to support their mental health
and wellbeing (see page 56).
It was critical that any new joiners during this period, who were
unable to physically meet their teams or experience the office
environment, gained a clear sense of our cultural identity. This was
principally facilitated through frequent team video/conference
calls, our employee newsletters, vast information on our intranet
site and monthly town halls. As part of National Inclusion Week,
‘coffee catchups’ were organised for randomly selected staff to
get to know someone they perhaps had not had a chance to meet
yet. This initiative was particularly helpful for new starters who
had joined throughout the year and had limited interaction with
other departments.
In addition, we hosted two in-person induction sessions in July
and September which included a discussion with Davina Stewart
(an employee member of the Responsible Business Committee)
on the topic of diversity and inclusion and our culture. At our
Property & Building Management Awayday, the HR team hosted
an interactive session on Derwent London’s culture and values.
Financial StatementsStrategic reportGovernance 132
CORPORATE GOVERNANCE STATEMENT CONTINUED
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 preparer of the report
to attend meetings so the Board can gain a better understanding
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.
Board members and attendance in 2021
Attendance
at Board
meetings(i)
100%
100%
Chairman
Mark Breuer (from 1 February 2021)
John Burns (until 14 May 2021)
Executive Directors
Paul Williams, CEO
Damian Wisniewski, CFO
Nigel George
Emily Prideaux (from 1 March 2021)
Simon Silver (until 26 February 2021)
David Silverman (until 14 April 2022)
Independent Non-Executive Directors
Claudia Arney
Lucinda Bell
Richard Dakin
Simon Fraser (until 31 October 2021)
Helen Gordon
Cilla Snowball
Sanjeev Sharma (from 1 October 2021)
Notes:
(i) Percentages based on the meetings entitled to attend for the 12 months ended
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
31 December 2021
Governance arrangements 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 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 154, 159,
160 and 164);
— providing independent insight and knowledge from the
Non-Executive Directors; and
— facilitating the development and monitoring of key
performance indicators (see pages 44 to 49).
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 2021.
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.
On 6 August 2021, a detailed review of the Board’s delegated
authority limits was conducted, and amendments were made in
respect to the limits for major property acquisitions/disposals
and major capital expenditure projects. The revised authority
limits are detailed below:
Board approval is required for:
Major property
acquisition or disposal
Major capital
expenditure project
Material occupier
lease or contract
Level of approval:
Valued above £40m
(previously £20m)
Projected costs above £20m
(previously £10m)
Rental income greater than 7.5% of
the Group’s total rental income
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 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.
Derwent London plc Report & Accounts 2021 133
s
r
e
d
l
o
h
e
k
a
t
s
r
e
h
t
o
d
n
a
s
r
e
d
l
o
h
e
r
a
h
S
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 132).
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.
Our strategy
page 32
Our principal risks
page 100
The section 172(1)
statement page 124
Key activities of the
Board during 2021
page 142
The Board delegates certain matters to its five principal committees
Risk
Committee
Reviews and monitors
the Group’s principal
and emerging risks and
the effectiveness of the
Group’s risk management
systems.
Audit
Committee
Oversees the Group’s
financial reporting,
maintains an appropriate
relationship with the
external Auditor and
monitors the Group’s
internal financial
controls.
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.
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.
Report page 158
Report page 148
Report page 172
Report page 166
Report page 144
The terms of reference of each Board committee are available on the Group’s website at: www.derwentlondon.com
Executive Directors
The Board delegates the execution of the Company’s strategy and the day-to-day management of the business
to the Executive Directors, assisted by other members of the Executive Committee.
Chief Executive’s statement
page 10
Measuring our performance
page 44
Property review
page 76
Members
page 128
Supporting committees
The executives operate a number of supporting committees that provide oversight on key business activities and risks.
Credit Committee
page 106
Health and
Safety Committee
page 64
Sustainability
Committee
page 65
Sponsorship and
Donations Committee
page 64
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 (see page 137), employees (see page 135) and other key stakeholders are
on pages 26 to 27.
Financial StatementsStrategic reportGovernance
134
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.
Stakeholder engagement has been particularly important in the
past two years, 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 and 2021 Annual General
Meeting (see page 197) and the postponement of our 2020
Stakeholder Day which took place in 2021.
During the year under review, we utilised various engagement
channels to receive invaluable feedback from our key stakeholders
(see pages 26 to 27) which was factored into our principal decisions
and activities (see pages 124 and 125).
For further information see the following disclosures:
Our strategy page 32
Our people page 56
National Equality Standard page 58
The section 172(1) statement page 124
Stakeholder Day 2021
“It was tremendous to see
how much Derwent value the
opinion and engagement of
their stakeholders”.
Andrew Ridley-Barker,
Multiplex Construction Europe Ltd.
Stakeholder Day attendee
STAKEHOLDER DAY
To enhance our understanding of our stakeholders’ views
and concerns, we held our first Stakeholder Day on
29 September 2021 at DL/78. Attendees included the
Executive Directors, Mark Breuer (Chairman) and Cilla
Snowball (Non-Executive Director) as well as occupiers,
local charities, contractors, suppliers, advisers and
members of the local authorities.
At the event our stakeholders were informed of our
purpose, values, our 2030 Net Zero Carbon Pathway, and
future projects including our ‘Intelligent Building’ initiatives.
The event was well received by attendees and further
emphasised that strong stakeholder relationships are
central to our collaborative approach.
STAKEHOLDER CHARITY AUCTION
Following consultation with our employees, Derwent
London nominated two charities to support during 2021.
In order to raise funds for the chosen charities we held a
virtual auction from 15 to 19 November.
The online auction site was open to all of our occupiers via
the DL/ App and saw a high level of interaction from
suppliers and friends of Derwent London through generous
donations and bids. Gifts donated by our stakeholders
included a signed Cristiano Ronaldo football boot and a
‘Spa for two’ at Mandarin Oriental. We were delighted with
the level of engagement and support we received.
£13,857
was raised and divided equally between our chosen
charities, MIND and The Teenage Cancer Trust
INVESTOR DAY
On 28 September 2021, we held an Investor Day which
included presentations from the Executive Directors on the
London office market, the sustainability of our portfolio
(our Net Zero Carbon Pathway), our future developments
and investment activity.
The day included a property tour of six properties in our
portfolio (including the recent acquisitions from Lazari
investments) and a drinks reception with the Chairman,
Executive Directors and members of senior management.
Derwent London plc Report & Accounts 2021
135
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. In order
to reach all employees, the Board utilises a combination of formal and informal engagement methods which are detailed below.
How the Board factored employee engagement into its decisions in 2021 page 125
Dedicated Non-Executive
Director
Responsible Business
Committee
Whistleblowing
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. During
2021, Cilla attended the Stakeholder Day
and various employee events. Further
information on Cilla’s role is on page 138.
The Responsible Business Committee
has appointed four employees as
members. Having employee members
on a Board-level committee, enables
the diverse voice of our employees to be
brought directly into our Boardroom,
providing invaluable insight. The
Committee also strengthens the
Board’s oversight of environmental and
social issues and, monitors the Group’s
corporate responsibility, sustainability
and stakeholder engagement activities
(see pages 166 to 171).
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 136. Due to
the ‘open door’ nature of our business,
concerns are often raised directly with
management, the CEO or HR team, and
appropriately investigated.
Town hall meetings
The CEO hosts monthly virtual town hall
meetings to ensure all employees are
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. In 2021, our
Occupational Health provider was
invited to present at town hall meetings
on topics including ‘long covid’, vaccines,
variants, responsible behaviour and
supporting others.
HOW DO WE
ENGAGE WITH OUR
EMPLOYEES?
Social Media channels
A variety of Social Media channels are
utilised to enhance engagement and
the exchange of information on the
Company’s activities to all stakeholders.
These channels include, Facebook,
Twitter, Instagram, the DL/ App and
our Intranet. In particular our intranet is
used as a popular platform for
employees to access our policies and to
receive information on wellbeing, health
and safety, and training.
Awaydays
Employee surveys
Working Groups
Awaydays provide an opportunity for
our CEO to share the vision and strategy
for the future, encourage collaboration
across the business and, most
importantly, have fun. Our next
employee awayday is provisionally
scheduled for September 2022.
During 2021, we organised an awayday
for our property and building managers
which focused on risk management,
contractor management and excellence
in customer care.
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 (see page 60). A
working group is established after each
formal employee survey with the aim of
making recommendations to the
Executive Committee.
The Group currently operates a number
of working groups covering areas such
as diversity and inclusion, innovation,
and social events. Feedback received
from these workings groups are given to
the Responsible Business Committee or
the Executive Directors, and ultimately
the Board.
The Diversity and Inclusion Working
Group page 169
Financial StatementsStrategic reportGovernance 136
CORPORATE GOVERNANCE STATEMENT CONTINUED
Workforce policies and practices
The Executive Directors, with assistance from members of the
Executive Committee, review and approve all key policies and
practices which could impact on our workforce or influence their
behaviours to ensure they support the Group’s purpose and reflect
our values (see page 131).
Policies are published on the intranet and where relevant included
in 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.
Compliance training page 161
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 139).
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 176). Our remuneration policies and practices are aligned with
our pay principles, described on page 175.
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.
During 2021, the Group migrated to a new whistleblowing system
provider. The new arrangements were rolled out to all employees,
including the building management teams. In the 2021 employee
survey, 84% of employees confirmed they would feel able to speak
up if they witnessed or experienced behaviour which was not
consistent with our culture/policies.
Although this is an encouraging figure, we aspire for this to be
100%. We have therefore set ‘wrongdoing and the reporting of
concerns’ as the topic for Q1 2022 under our compulsory
compliance training programme.
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 messages via our whistleblowing
system (2020: no messages). Due to the ‘open door’ nature of our
business, concerns are often raised directly with management,
the CEO or HR team, and appropriately investigated.
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.
Board decisions which are likely to have the greatest impact on
our stakeholders are those relating to our development projects
particularly in respect to demolitions and rebuilds. These projects
can cause:
— traffic disruption;
— noise and dust;
— vibrations; and
— impact on the surrounding area, communities and businesses.
To mitigate these issues, we enrol our development projects in the
Considerate Constructors Scheme, conduct detailed traffic
management risk assessments, noise and dust monitoring, and
work in accordance with the relevant local authorities’ Construction
Management Plan. The construction methods to be used are
modelled in software in order to calculate noise levels and if the
model exceeds trigger levels, adjustments are made until the
required noise levels are met.
At all times, work on our development sites is carried out in a safe
and considerate manner with due regard to the public, adjoining
properties, businesses, and road users. We maintain regular
contact with local communities via various channels including,
community engagement forums, newsletters, letters, public
exhibitions and consultations. We disclosed on pages 117 and 107
of the 2020 and 2019 Report & Accounts, the outcome of
stakeholder impact analyses performed for the 19-35 Baker Street
W1 and Soho Place W1 projects, respectively.
Derwent London plc Report & Accounts 2021
137
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.
Our Chairman aims to routinely meet with institutional investors and report their views to the Board. Upon his appointment to Chairman,
Mark Breuer wrote to all major shareholders inviting them to meet with him to discuss any areas of concerns or provide feedback. For our
private investors, there is an opportunity to meet the entire Board (including the Non-Executive Directors) at our Annual General Meeting
(AGM). Our Senior Independent Director, Helen Gordon, is also available to discuss any shareholder concerns.
We describe our main engagement methods in the table below.
Shareholder consultation
Investor meetings
Investor presentations
and property tours
Property conferences
AGM
Articles of Association
Annual Report & Accounts
Corporate website
Development websites
Senior Independent Director
Other contacts
We will always seek to engage with shareholders when considering material changes to either our
Board, strategy or remuneration policies. During 2022, the Remuneration Committee will consult with
shareholders on proposed changes to our Remuneration Policy (see page 173).
During 2021, the Group held 267 investor meetings with 214 existing and potential investors. Of these,
69 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 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 2021, we hosted virtual year end and interim results presentations and three property tours.
Property tours and roadshow activity were severely restricted by the pandemic. On 28 September 2021,
we held an Investor Day which included a property tour of six properties in our portfolio (including the
recent acquisitions from Lazari investments).
Due to the Covid-19 pandemic, the majority of conferences moved to a virtual format. During 2021, we
attended 11 virtual property conferences.
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 and 2021 AGMs 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 2022 AGM is on page 197, 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.
At the 2021 AGM we sought, and received, shareholder approval for a number of amendments to our
Articles of Association (the Articles) which primarily reflected updates to legislation, the UK Corporate
Governance Code 2018 and to provide for procedural mechanics governing how the Company may hold
general meetings, including annual general meetings, through a combination of a physical meeting and
the use by shareholders of an electronic facility. An explanation for the changes was contained in the
2021 Notice of AGM (on pages 15 and 16) which is available on our website.
At the 2022 AGM, we will be seeking shareholder approval to raise the aggregate maximum fees payable
to our Non-Executive Directors under the Articles by £100,000 to £800,000 a year (see page 197).
Our annual Report & Accounts is available to all shareholders. Through our electronic communication
initiatives, we aim to make our annual Report & Accounts 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 & Accounts 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
Report & Accounts, 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.1oxfordstreet.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, Helen Gordon, is available to address them. Helen Gordon can be contacted via the Company
Secretary whose contact details are on page 278.
Contact details for our Investor relations team, Company Secretary and Registrars are available on
page 278.
How the Board factored shareholder engagement into its decisions in 2021 page 125
Investor Day page 134
Annual General Meeting page 197
Financial StatementsStrategic reportGovernance
138
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, Mark Breuer
— 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
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
— 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
— 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
— Effective engagement between the Board, its shareholders
compliant with the Board’s risk appetite
and other key stakeholders
— Investor relation activities, including effective and ongoing
Senior Independent Director, Helen Gordon
— 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
— 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
communication with shareholders
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
whistleblowing procedures
investors, alongside the CEO
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
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
— Review messages received through the whistleblowing system
— Investor relation activities, including communications with
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
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 governance
throughout the Company, 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
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 assist 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 2021 Independence
The Board has identified on page 132 which Directors are
considered to be independent. The Board has reconfirmed that
our Non-Executive Directors remain independent from executive
management and free from any business or other relationships
which could materially interfere with the exercise of their judgement.
Independence of the Board
(excluding the Chairman)
Status
Independent
Executive
6
5
54.5%
of our Board (excluding the
Chairman) are independent
Non-Executive Directors
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 145).
Tenure of the Non-Executive Directors
(including the Chairman)
Years
139
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, Simon Fraser became a Non-Executive Director of Segro plc
with effect from 1 May 2021. Simon notified the Chairman in
advance of his appointment, and the Board confirmed that it
does not believe that this additional directorship affected Simon’s
commitment to, or involvement with, the Derwent London Board,
nor did 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 126 and 127). 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 132 for Board
meeting attendance).
Under 3
3-6
6-9
9+
4.2 YEARS
The average tenure of our
Non-Executive Directors
(including the Chairman)
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 until the conclusion of the 2021 AGM. As our Chairman was
not independent upon appointment, we were unable to comply
with provisions 9 and 19 of the Code until Mark Breuer succeeded
John as independent Non-Executive Chairman on 14 May 2021
(see page 123).
3
1
3
0
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.
Financial StatementsStrategic reportGovernance 140
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 144 to 147 provides
further information on:
— Board composition and Non-Executive Director tenure;
— Board appointments and induction;
— succession planning; and
— Board 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 126 and 127. The
chart below provides an overview of the skills and experience of our
Directors as at 31 December 2021.
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 2021:
— All Directors participated in online compliance training courses
on a range of topics including social media awareness, data
privacy and unconscious bias (see page 161).
— The Board received regular market and leasing updates.
— External independent advisers frequently presented to the
Board on the political and economic environment.
— The Responsible Business Committee received a presentation
from EY on the National Equality Standard.
— The Audit Committee received training from Deloitte on ESG/
sustainability assurance.
— 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
Climate change
Relevant skills, experience or knowledge of
climate change and its associated risks and
opportunities
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
Number of Non-Executive Directors (including the Chairman)
Number of Executive Directors
7
4
7
2
4
5
2
3
5
3
Corporate responsibility and
community relations
Experience in corporate or social
responsibility, charitable bodies
or human resources
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
4
4
7
6
4
2
5
5
3
0
Derwent London plc Report & Accounts 2021 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 that was developed
to enable reviews to be led from a fresh perspective, each year.
The next externally facilitated evaluation is due to be conducted
for the year ending 31 December 2022.
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
Last year’s evaluation was described in the 2020 Report &
Accounts on page 121 and was internally facilitated by Simon
Fraser (our previous Senior Independent Director). The evaluation
identified a number of focus areas which the Board and its
committees addressed during 2021:
Focus area
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
Actions during 2021
— Mark joined Derwent London as a
Director on 1 February 2021 to begin
his induction process which was
completed well in advance of the 2021
AGM
— Two strategy meetings were held in
May and June 2021, the
implementation of the actions arising
were monitored by the Board
— Sanjeev Sharma was appointed a
Non-Executive Director on 1 October
2021 and is from a non-white ethnic
minority background
141
The evaluation for the year ended 31 December 2021
The 2021 performance evaluation was internally facilitated by
Mark Breuer (Chairman) and was informed by the
recommendations arising from the 2020 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; and
— whether there are any issues concerning the Board’s
procedures and processes, including information provided to
the members, and the resources made available to the Board.
The responses were collated and provided on an anonymous basis
to 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 2022:
Focus area
Company culture
Actions for 2022
— With assistance of advisers, ensure the
Group’s culture is clearly understood by
our employees and key stakeholders
Employee
development and
career management
— Nominations Committee to continue its
focus on employee development and
career management during 2022
Board papers
— Continue to streamline Board papers,
with supporting papers included as
appendices
— Endeavour to distribute committee
papers to committee members a week
prior to each meeting
In respect to the evaluation of the Chairman, Helen Gordon (Senior
Independent Director) met with the Non-Executive Directors in
private sessions to consider Mark Breuer’s individual performance
as Non-Executive Chairman. The Non-Executive Directors were
unanimous in agreeing that Mark has shown commitment to the
role, objective judgement and has created a culture in the
Boardroom which facilitates openness and debate.
The evaluation for the year ending 31 December 2022
In accordance with our three-year cycle, the performance
evaluation for the year ending 31 December 2022 will be externally
facilitated by an independent provider. The Chairman and Senior
Independent Director met with potential reviewers and made a
recommendation to the Board on 22 February 2022. The evaluation
process will commence in Q4 2022, and the outcome of the
evaluation will be reported in the 2022 Report & Accounts.
Financial StatementsStrategic reportGovernance 142
CORPORATE GOVERNANCE STATEMENT CONTINUED
KEY ACTIVITIES OF THE BOARD DURING 2021
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.
Property portfolio
— Approved the acquisitions of:
– Bush House WC2 Headlease
for £13.5m before costs
– 250 Euston Road NW1,
£189.9m inclusive of costs
– 171-174 Tottenham Court Road W1,
£24.7m inclusive of costs
– Agreed joint venture with Lazari
Investments to develop three
leasehold properties in Baker
Street, initial consideration of
£64.0m inclusive of costs
– 230 Blackfriars Road SE1
for £55.0m before costs
– Terms agreed to acquire
The Moorfields Estate EC1
— Approved the disposal of:
– Angel Square EC1 for
£86.5m before costs
– New River Yard EC1 for
£67.5m before costs
— Received regular updates on key
construction projects from asset
and property management, and
investment activities from the senior
management team
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
Directors on the implementation of
strategy throughout the year
— Received regular updates on lease
expiries and potential vacancies
— Regularly reviewed the Group’s
financial structure and position:
– Raised £350m via a 10-year
1.875% green bond
– Extended the Group’s two
Rolling Credit Forecasts
– Received an update on our
Green finance initiatives
— Reviewed the Group’s five-year
forecast including a review of
the pipeline for next five years
— Reviewed the quarterly project
cost report
Risk management and internal control
— Reviewed the Group’s principal risks
and considered emerging risks which
could impact on the five-year plan
— Received regular reports on health
and safety matters, including those
related to the Covid-19 pandemic
— Reviewed Covid Risk Management
including managing the portfolio,
development, tenants and
property management
— Ongoing review of the development
risks at Soho Place and the
Featherstone Building
— Received an update on Cyber &
IT Security
— Verbal updates from the Risk
and Audit Committee chairs on
the key areas discussed
— Updates on the assurance
audits performed by RSM and
the actions arising
— Reviewed the compliance training
completion rates and approved the
2021/2022 training programme
Link to strategic objectives:
Link to strategic objectives:
Link to strategic objectives:
1. 2. 4.
Board and
committee
meetings
Key
announcements
1. 2. 4. 5.
February
— Executive Committee
— Main Board
January
— Main Board
— Nominations
Committee
— December 2020 rent
collection
— Appointment of Mark
Breuer as Chairman
Designate
— Full year results
announcement date
2. 3. 4.
April
— Executive Committee
— Nominations
Committee
— Risk Committee
March
— Audit Committee
— Main Board
— Nominations
Committee
— Remuneration
Committee
— Valuers Committee
— Results for year ended
31 December 2021
— March 2021 rent
collection
May
— Audit Committee
— Executive
Committee
— Main Board
— Nominations
Committee
— Responsible
Business
Committee
— AGM
— Q1 Business
update
— Annual Report 2020 &
— LMS Bondholders
Notice of AGM
meeting
— Published results
of the 2021 AGM
June
July
August
September October
November
December
— Executive
Committee
— Executive
Committee
— Audit Committee
— Main Board
— Main Board
— Executive
— Audit Committee
strategy
awayday
Committee
— Main Board
— Nominations
— Nominations Committee
Committee
— Risk Committee
— Valuers Committee
— Responsible
Business
Committee
— Executive
Committee
— Main Board
— Nominations
Committee
— Remuneration
Committee
— Risk Committee
— June 2021 rent
— Acquisition of Bush House
— Investor and
— Resignation of
— Raised £350m
— Terms agreed to
collection
WC2 Headlease for £13.5m
— Disposal of Angel
before costs
Square EC1
— Appointment of Sanjeev
Analyst
Presentation
held on 28
— Fora lets 6-8
Sharma and the retirement
September 2021
Greencoat
Place SW1
of Simon Fraser
— Interim results
David Silverman
10-year 1.875%
acquire The
Moorfields
Estate EC1
green bond
— Acquisition of 230
Blackfriars Road
SE1 for £55.0m
before costs
— Acquisition of 250 Euston
Road NW1, 171-174
Tottenham Court Road and
Baker Street W1 joint venture
with Lazari Investments
Derwent London plc Report & Accounts 2021 Key
Strategic objectives
a balanced portfolio
1. To optimise returns and create value from
2. To grow recurring earnings
and cash flow
143
5. To maintain strong
and flexible financing
talented employees
3. To attract, retain and develop
4. To design, deliver and operate our
buildings responsibly
2021 has been an active and progressive year for the Group. As well as managing the risks which have arisen from the Covid-19
pandemic, the Group has made a number of key acquisitions, issued a green bond, and has held its first Stakeholder Day. An overview
of our Board’s key activities is provided below.
Corporate reporting and
performance monitoring
— Reviewed the rolling forecasts and
approved the 2022 budget
— Received regular updates on the
Group’s Net Zero Carbon Pathway
to 2030
— Approved the year end and
interim results
— Approved the Q1 and Q3
business updates
— Received assurance reports from
Deloitte in respect to our Green finance
framework and disclosures under the
Task Force on Climate-Related
Financial Disclosures (TCFD)
— Published rent collection statistics
as at March, June, September and
December 2021
— Reviewed the 2021 Report &
Accounts to ensure it is fair,
balanced and understandable
— Published our annual
Responsibility Report
— Reviewed and approved the
half-yearly valuations of the
Group’s property portfolio
Stakeholder engagement
— Virtually hosted the Annual General
Meeting (AGM) on 14 May 2021
— Hosted our Investor Day on 28
September (see page 134)
— Hosted our first Stakeholder Day on
29 September 2021 (see page 134)
— Received updates from the
Responsible Business Committee on
the Group’s sustainability and
stakeholder initiatives including:
– Our diversity targets and focus
areas from the Diversity & Inclusion
Working Group (see pages 169
to 171)
– The results of employee and
occupier pulse surveys
— Received updates on our investor
engagement programmes and regular
investor relations reports
Governance
— Appointed Mark Breuer as
Independent Chairman
— Appointed Helen Gordon as
Senior Independent Director
— Appointed Sanjeev Sharma as a
Non-Executive Director
— Routinely considered the Board’s
conflict of interests
— Performed a review of the Board, its
Committees and all Directors led by
the Chairman, including the review
of the Committees’ membership
(see page 141 and 145)
— Received updates from the
chairs of the Remuneration and
Audit Committees on the key
areas discussed
— Reviewed the outcome of the
assessment performed by EY for
the National Equality Standard
accreditation (see page 58)
— Received regular governance
updates from the Company Secretary
Link to strategic objectives:
Link to strategic objectives:
Link to strategic objectives:
1. 2. 5.
June
July
3. 4.
1. 3.
August
September October
November
— Main Board
strategy
awayday
— Executive
Committee
— Nominations
Committee
— Audit Committee
— Main Board
— Nominations Committee
— Risk Committee
— Valuers Committee
— Executive
Committee
— Executive
Committee
— Audit Committee
— Executive
Committee
— Main Board
— Nominations
Committee
— Remuneration
Committee
— Risk Committee
December
— Main Board
— Responsible
Business
Committee
— June 2021 rent
collection
— Disposal of Angel
Square EC1
— Fora lets 6-8
Greencoat
Place SW1
— Acquisition of Bush House
WC2 Headlease for £13.5m
before costs
— Appointment of Sanjeev
Sharma and the retirement
of Simon Fraser
— Interim results
— Acquisition of 250 Euston
— Investor and
Analyst
Presentation
held on 28
September 2021
— Resignation of
— Raised £350m
David Silverman
10-year 1.875%
green bond
— Acquisition of 230
Blackfriars Road
SE1 for £55.0m
before costs
— Terms agreed to
acquire The
Moorfields
Estate EC1
Road NW1, 171-174
Tottenham Court Road and
Baker Street W1 joint venture
with Lazari Investments
January
— Main Board
— Nominations
Committee
February
— Main Board
Board and
committee
meetings
March
April
May
— Executive Committee
— Audit Committee
— Executive Committee
— Audit Committee
— Main Board
— Nominations
Committee
— Remuneration
Committee
— Valuers Committee
— Nominations
Committee
— Risk Committee
— Executive
Committee
— Main Board
— Nominations
Committee
— Responsible
Business
Committee
— AGM
— Results for year ended
— March 2021 rent
— Q1 Business
31 December 2021
collection
— Annual Report 2020 &
— LMS Bondholders
Notice of AGM
update
meeting
— Published results
of the 2021 AGM
Key
announcements
— December 2020 rent
collection
— Appointment of Mark
Breuer as Chairman
Designate
— Full year results
announcement date
Financial StatementsStrategic reportGovernance 144
NOMINATIONS
COMMITTEE
REPORT
Mark Breuer
Chair of the Nominations Committee
2022 FOCUS AREAS
— Continue to monitor the Group’s talent and
development pipeline (see pages 60 and 146)
— Review the wider recommendations arising from the
FCA’s consultation on diversity and inclusion (page 147
and 171) and continue to monitor diversity initiatives
— Ensure a smooth handover of responsibility to a new
Risk Committee Chair when Richard Dakin steps down
from the Board
Dear Shareholder,
This is my first report to you as Chair of the Nominations Committee
and I am pleased to present an overview of the Committee’s work
during 2021. It has been a particularly busy year for the Committee
which included recruiting a new Non-Executive Director,
monitoring the Group’s diversity initiatives, talent development
and succession plans.
Non-Executive Director changes
In October 2021, we welcomed Sanjeev Sharma as an independent
Non-Executive Director, Simon Fraser stepped down after serving
nine years on the Board, and Helen Gordon was appointed Senior
Independent Director. All of these changes were managed
efficiently and the induction programme was thorough (an
overview is provided on page 146).
As Richard Dakin (Non-Executive Director) approaches his ninth
anniversary on the Board, it is anticipated that he will step down as
a Director by the end of 2022. The Committee have considered the
composition of the Board, its effectiveness and diversity, and has
concluded that no further appointments to the Board will be made
during 2022.
Executive Director changes
David Silverman (Executive Director) will be leaving the Group on
14 April 2022 after 13 years as a Board Director. David Silverman’s
current responsibilities will be allocated amongst the other
Executive Directors and the Board will not seek to appoint a
replacement Executive Director.
Since 2018, and through natural succession changes, the number
of Executive Directors on the Board has reduced from six to four,
which is more aligned with other FTSE 250 companies.
Diversity and inclusion
Over the past few years, the business has introduced various
initiatives to address gender diversity and we are pleased with the
great strides that have been made. In total, 52% of employees are
female and we are seeing progressive improvement in the number
of women at executive level and as direct reports to the Executive
Committee (see pages 147, 169 and 171).
The Board is fully compliant with the gender diversity
recommendations of the Hampton-Alexander Review and
the proposed Board diversity targets contained in the FCA’s
consultation on ‘Diversity and inclusion on company boards and
executive committees’ (see page 147).
In respect to ethnic diversity, the Board’s composition is in
accordance with the Parker Review recommendation that at least
one Director is from an ethnic minority background by 31 December
2024. Although there has been improvement in the ethnic diversity
of the Board, and within the Group’s senior management teams, we
are mindful that this remains a focus area so that we can further
harness the benefits of diversity. We intend to continue to support
the diversity and development of the Group’s talent pipeline.
Further engagement
If you wish to discuss any aspect of the Committee’s activities,
I will be attending the forthcoming AGM on 13 May 2022 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).
Mark Breuer
Chair of the Nominations Committee
23 February 2022
Derwent London plc Report & Accounts 2021 Committee composition and performance
Our Committee consists of seven independent Non-Executive
Directors (biographies are available on pages 126 and 127). At the
request of the Committee, Executive Directors, members of the
senior management team and external advisers may be invited
to attend all or part of any meeting, as and when appropriate.
During the year under review, the Committee was particularly busy
and held eight formal meetings (2020: seven meetings), to oversee
the search for a new Non-Executive Director (Sanjeev Sharma).
Mark Breuer, Chair(ii)
Claudia Arney
Lucinda Bell
Richard Dakin
Helen Gordon
Sanjeev Sharma(ii)
Cilla Snowball
Simon Fraser(iii)
Notes:
(i) Percentages are based on the meetings entitled to attend for the 12 months ended
Attendance(i)
100%
100%
100%
100%
100%
100%
100%
100%
Independent
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Number of
meetings
6
8
8
8
8
1
8
7
31 December 2021.
(ii) Mark Breuer and Sanjeev Sharma joined the Committee following their appointment
to the Board on 1 February 2021 and 1 October 2021, respectively.
(iii) Simon Fraser joined all meetings of the Committee until his retirement from the
Board on 31 October 2021. Simon Fraser stepped down as Committee Chair, and
was succeeded by Mark Breuer, following the conclusion of the 2021 AGM.
The Committee’s role and responsibilities are set out in the terms
of reference, which were last updated in May 2021 and are on the
Company’s website at: www.derwentlondon.com/investors/
governance/board-committees
The 2021 evaluation of the Board, its committees and individual
Directors, was internally facilitated by Mark Breuer, the Chairman
of the Board, in accordance with our three-year cycle of evaluations
(see page 141). The review confirmed that the Committee continues
to operate effectively, with no significant matters raised.
145
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 did not
identify any material skill gaps on the Board or its committees.
An overview of the Board’s skills, experience and knowledge is
on page 140.
The Committee’s review also aims to ensure each committee is
appropriately composed to be effective and is conducted alongside
discussions on Board succession and Non-Executive Director
(NED) tenure.
The table below provides an overview of the composition of the
Board’s five principal committees as at 1 January 2022. Further
information on the Board’s diversity is on pages 147 and 171.
Audit
Committee
Risk
Committee
Remuneration
Committee
Mark Breuer
Richard Dakin
Claudia Arney
Cilla Snowball
Helen Gordon
Lucinda Bell
Sanjeev
Sharma
Number of
independent NEDs
Number of
Executive Directors
Number of
employee
representatives
Total membership
Chair
✓
✓
✓
✓
✓
4
–
–
4
Chair
✓
4
–
–
4
Responsible
Business
Committee
Nominations
Committee
Chair
Chair
✓
✓
3
–
–
3
✓
✓
✓
✓
✓
✓
7
–
–
7
✓
Chair
2
1
4
7
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).
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Richard Dakin
Claudia Arney
Cilla Snowball
Helen Gordon
Lucinda Bell
Mark Breuer
Sanjeev Sharma
Based on Richard Dakin’s tenure, it is anticipated that he will step down as a Director by the end of 2022. Further information on succession
planning is on page 146.
Financial StatementsStrategic reportGovernance
146
NOMINATIONS
COMMITTEE REPORT CONTINUED
Non-Executive Director appointment
During the year under review, the Nominations Committee led
the selection and appointment process for a new Non-Executive
Director, as Simon Fraser approached his ninth year on the Board.
Spencer Stuart, an executive search consultancy, provided
assistance to the Committee and was made aware of the Board’s
diversity policy (see page 147). Spencer Stuart has no other
connection to the Company or individual Directors.
It was a key component of our specification that a new member
of the Board has an understanding of the property sector, an
entrepreneurial mindset, a passion for culture and diversity,
and extensive people management experience. Spencer Stuart
provided a long list of potential candidates, and first stage
interviews were conducted by the Chair of the Committee
and Cilla Snowball, Non-Executive Director. A shortlist of two
candidates was selected for final stage interviews with the
Committee members, CEO and CFO.
Following satisfactory conclusion of a thorough due diligence and
referencing process, the Committee unanimously recommended
Sanjeev Sharma’s appointment to the Board. We were delighted
that Sanjeev joined our Board on 1 October 2021. Sanjeev’s
biography is available on page 127.
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.
Induction programmes are developed by the Group’s Company
Secretarial team 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.
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
Schedule of 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 committees’
membership and Non-Executive Director tenure.
— Matters reserved for the Board and the committees’ terms
of reference.
During the year under review, the Company conducted two
induction processes for Mark Breuer and more recently
Sanjeev Sharma.
Appointment review
As Claudia Arney, Cilla Snowball and Lucinda Bell approached the
end of their current term of office, the Committee performed a
rigorous review of their appointments during 2021. None of the
Non-Executive Directors were present when their term of
appointment was considered by the Committee.
As part of this review, the Committee considered the following
factors: contribution to boardroom discussion, independence,
industry knowledge, length of tenure on the Board, outcome of their
latest individual annual effectiveness review, Board composition
(including diversity considerations), and time commitment to the
appointment (including other external appointments).
The Committee is pleased to report that it is satisfied with the
ongoing performance and commitment of Claudia, Cilla and
Lucinda and recommended that their appointments be extended
for another three-year term.
Succession planning
As Directors we have a duty to ensure the long-term success of the
Company, which includes ensuring that we have a steady supply of
talent for executive positions and established succession plans for
Board changes. The Committee considers the Group’s succession
planning on a regular basis to ensure that changes to the Board are
proactively planned and co-ordinated.
Over the past couple of years, the Committee has led the
succession plans for the recent Board changes including the
appointment of Paul Williams as CEO, Mark Breuer as Non-
Executive Chairman and Helen Gordon as Senior Independent
Director. David Silverman will be leaving the Group on 14 April 2022
and the Board has agreed that David’s responsibilities will be
allocated amongst the other Executive Directors and therefore a
replacement Executive Director will not be appointed.
In November 2021, the Committee reviewed the Group’s long-term
talent pipeline and succession plans, with particular attention
being given to individuals showing potential to be ‘leaders of the
future’, current and future skill gaps (including training needs)
and areas of risk within the business (including impending
retirements). As part of its review, the Committee requested an
update on specific development plans for key talent and suggested
that the Remuneration Committee review the Group’s long-term
incentive schemes for employees, as part of its Remuneration
Policy review in 2022, to ensure they remain appropriate and
effective for talent retention.
The Committee’s succession planning activities during 2022 will
therefore primarily focus on Non-Executive Directors, the Executive
Committee and the wider talent pipeline.
The Executive Directors are responsible for the Group’s succession
plans below the Board. The Committee receives periodic updates
on these succession plans, and 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.
Derwent London plc Report & Accounts 2021 147
As at 1 January 2022, the Executive Committee consists of five
Executive Directors, the Company Secretary and six senior
managers. Victoria Steventon (Head of Property Management),
Vasiliki Arvaniti (Head of Asset Management) and John Davies
(Head of Sustainability) were appointed members of the Executive
Committee from 1 January 2022. The diversity balance of the
Executive Committee is now 33% female and 8% from an ethnic
minority background. Further information on the gender diversity of
the Executive Committee, and its direct reports, is provided in the
chart below. The membership of the Executive Committee will be
considered further during 2022.
The Group’s talent pipeline has been strengthened through a
number of external appointments and internal promotions
(see page 60).
Non-Executive Director succession
Richard Dakin is nearing the ninth anniversary of his appointment
(see page 145) and it is anticipated that he will step down as a
Director by the end of 2022. The Committee does not intend to
recruit a Non-Executive Director following Richard’s retirement
from the Board.
In preparation for Claudia Arney reaching her ninth anniversary on
the Board in the first half of 2024, Sanjeev Sharma will join the
Remuneration Committee during 2022 to ensure he has the
knowledge to succeed Claudia Arney as Chair, in accordance with
the UK Corporate Governance Code (provision 32).
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 Committee is aware of the FCA’s consultation on ‘Diversity
and inclusion on company boards and executive committees’
and welcomes all recommendations which seek to improve
transparency. The Committee can confirm that as at 1 January
2022, the Board complies with the proposed changes to the
Listing Rules in respect to Board diversity targets:
— At least 40% of the board are women (including individuals
self-identifying as women): 42% of our Board are women
(improving further to 46% after David Silverman steps down
from the Board on 14 April 2022).
— At least one of the senior board positions (Chair, CEO, SID
or CFO) is held by a woman (including individuals self-
identifying as women): Helen Gordon is our Senior
Independent Director.
— At least one member of the board is from a non-white ethnic
minority background: Sanjeev Sharma (Non-Executive
Director) is from a non-white ethnic minority background.
During 2022, the Committee will review the wider proposals
contained in the FCA consultation and will monitor the release
of the final recommendations.
The diversity of our Board is in accordance with the Hampton-
Alexander Review and Parker Review recommendations. An
overview of our recent progress against the Hampton-Alexander
recommendations is provided below.
HAMPTON-ALEXANDER REVIEW: OUR PROGRESS
Women on the Board
(including the Chairman)
1 January 2021: 33%
42%
Number: 5 (+1 from 2020)
Female Non-Executive
Directors
(excluding the Chairman)
1 January 2021: 66%
66%
Number: 4 (no change)
Women in senior
Board positions(i)
(including the Chairman)
1 January 2021: 0%
25%
Number: 1 (+1 from 2020)
Women on the Executive
Committee(ii)
1 January 2021: 22%
Female direct reports to the
Executive Committee(iii)
1 January 2021: 36%
Women in senior
management(iv)
1 January 2021: 33%
33%
Number: 4 (+2 from 2020)
49%
Number: 25 (+13 from 2020)
32%
Number: 6 (+1 from 2020)
Notes:
(i) Senior positions on the Board include the CEO, CFO, Chairman and Senior Independent Director.
(ii) The combined diversity balance of the Executive Committee and its direct reports (excluding administrative and support staff) is 53.4% women.
(iii) Direct reports to the Executive Committee, excluding administrative and support staff, is 49.0% women. Direct reports to the Executive Committee, including
administrative and support staff, is 57.4% women.
(iv) Senior management are on pages 128 and 129. During 2021, there was a net change in the composition of the senior management team of two new members, of
which one was female and one was male. The number of women in senior management increased from five to six.
Financial StatementsStrategic reportGovernance 148
AUDIT
COMMITTEE
REPORT
Lucinda Bell
Chair of the Audit Committee
2022 FOCUS AREAS
— Implement our new Valuer Appointment Policy which
sets out our procedures in respect to valuer rotation
and tenure (see page 152)
— Continue to focus on climate change matters in
financial statements, including assurance from
Deloitte on ESG disclosures (see page 153)
— Review the final recommendations arising from the
BEIS consultation on ‘Restoring trust in audit and
corporate governance’ and agree a timetable for their
implementation (see page 153)
— Progress preparation of an Audit & Assurance Policy
— Review the effectiveness of our outsourced internal
audit function
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 continued to require adjustment to the way we work and
provide oversight. However, our procedures operated efficiently
and provided sufficient flexibility, such that disruption during the
year was minimal.
Portfolio valuation
The Committee considers the valuation of the Group’s property
portfolio to be the principal area of judgement in determining the
accuracy of the financial statements (see page 151). In order to
obtain assurance that the portfolio valuation is fairly valued in
accordance with the RICS Valuation Global Standards and the UK
national supplement (the Red Book), a benchmarking exercise was
conducted (see page 152). The Committee was satisfied with the
outcome of the exercise and received further assurance that the
methodology used by CBRE is robust. Following the benchmarking
exercise, and the release of the ‘Independent Review of Real Estate
Investment Valuations’ commissioned by RICS, the Committee
revised its Valuer Appointment Policy (see page 152).
Climate change
As the Group is committed to being net zero carbon by 2030, it is
important that our financial reporting reflects and supports this
goal. The Committee received training on the assurance received
from Deloitte, including in respect to its depth and breadth in
comparison to our industry peers. The Committee also sought
information from the external valuers on how climate change was
being factored in the portfolio valuation and considered how
climate change impacted other items in the financial statements.
During the year, the Committee received updates on the Group’s
‘green finance’ initiatives, including the new £350m green bond, the
green funding element of our £450m RCF and the revisions made to
the Group’s Green Finance Framework (see pages 13, 96 and 97).
BEIS consultation on ‘Audit and financial reporting
governance’ reform
The Company responded to the BEIS consultation on 1 July 2021,
in respect to the recommendations of most significance to
Derwent London. In response to the consultation, the Committee:
— reviewed the assurance received on the Group’s financial
disclosures, to identify areas where further assurance could
be gained (see page 153);
— expanded its viability/resilience disclosures (see page 150);
— commenced preparation of an Audit and Assurance Policy;
and
— discussed with management its plans to further enhance the
internal control framework. During 2022, we will commission a
review of our internal controls in order to identify focus areas.
During 2022, the Committee will monitor the outcome of the
consultation and the implementation of any required changes to
the Group’s practices or reporting.
Financial Reporting Council (FRC) engagement
Following correspondence in late 2021 and early 2022 with the
Corporate Reporting Review Team of the FRC, we have agreed to
classify the cash flows relating to the additions to, and disposal of,
trading properties within the Group Cash Flow Statement within
‘net operating activities’ rather than ‘investing activities’. We have
re-presented the statement for the year ended 31 December 2020
to reclassify £31.7m of cash receipts and £1.2m of expenditure on
Derwent London plc Report & Accounts 2021 149
trading properties from ‘investing activities’ to ‘operating activities’.
This presentation has also been adopted for the year ended
31 December 2021 and will be applied consistently in future
(see page 150).
External Auditor
The Committee is pleased with the performance and level of
challenge received from the PwC audit team led by Sandra Dowling.
In 2021, the Committee piloted the use of audit quality indicators
(AQIs) to assist with its assessments of PwC’s quality and
performance (see page 156).
The 2021 evaluation of the Board, its committees and individual
Directors, was internally facilitated by Mark Breuer, the Chairman
of the Board, in accordance with our three-year cycle of evaluations
(see page 141). The review confirmed that the Committee continues
to operate effectively, with 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 & Accounts
and interim statement.
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
23 February 2022
Committee composition and performance
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 126 and 127). 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.
In addition to the Committee members, meetings are attended by
the Board Chairman, 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.
During the year under review, the Committee met four times, in
March, May, August and November (2020: three meetings). Two
additional sub-committee meetings are held each year with the
Group’s external property valuers to consider the valuation of our
property portfolio.
Lucinda Bell, Chair
Claudia Arney
Richard Dakin
Simon Fraser(ii)
Sanjeev Sharma(iii)
Notes:
(i) Percentages are based on the meetings entitled to attend for the 12 months ended
Attendance(i)
100%
100%
100%
100%
100%
Independent
Yes
Yes
Yes
Yes
Yes
Number of
meetings
4
4
4
3
1
31 December 2021.
(ii) Simon Fraser joined all meetings of the Committee until his retirement from the
Board on 31 October 2021.
(iii) Sanjeev Sharma joined the Committee following his appointment to the Board on
1 October 2021.
The Committee’s role and responsibilities are set out in the terms
of reference, which were last updated in February 2022 and are
available on the Company’s website at: www.derwentlondon.com/
investors/governance/board-committees
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 43 on
pages 263 to 267) including in respect to any significant
transactions during the year, for example the unwinding of the
previous investment and, surrender and regear of leases with
The Portman Estate and the three off-market West End
transactions with Lazari Investments (see pages 89, 90, 92, 93,
250 and 254);
— the effectiveness and application of internal financial controls
(see page 154);
— material accounting assumptions and estimates made by
management (see note 3 on pages 215 and 216);
— significant judgements or key audit matters identified by
the external Auditor (see pages 202 to 204); and
— compliance with relevant accounting standards and other
regulatory financial reporting requirements including the
UK Corporate Governance Code and European Single
Electronic Format (ESEF) requirements.
In order to assess the financial statements, the Committee
regularly reviews reports from the CFO, 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.
In accordance with DTR4.1.14R, Derwent London is required to
publish its annual Report & Accounts in eXtensible HyperText Mark-
up Language (XHTML) and key elements of its financial statements
need to be ‘tagged’ using eXtensible Business Reporting Language
(XBRL) in accordance with single electronic format taxonomy. The
2021 Report & Accounts will be formatted and ‘tagged’ in
accordance with these requirements.
The Committee received updates on how management were
preparing for the new requirements, which included:
— the appointment of an external specialist (Toppan Merrill) to
assist with tagging;
— a trial run was completed to test our processes using the 2020
Report & Accounts;
— a detailed review process for the checking of all tags was
established; and
— a timetable was prepared to ensure both the PDF and XHTML
formats of the 2021 Report & Accounts would be available at
the same time and published on the Company’s website.
Financial StatementsStrategic reportGovernance 150
AUDIT COMMITTEE
REPORT CONTINUED
Review of the 2021 Report & Accounts
At the request of the Board, the Committee was asked to review
the Group’s Report & Accounts 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 Report & Accounts?
— Are we clearly ‘signposting’ to where additional information
can be found?
Specific considerations for the 2021 Report & Accounts:
— Whether we clearly explain the climate change-related risks
and opportunities facing the Group and our progress against
our Net Zero Carbon Pathway (see pages 12, 13 and 68 to 73).
— Whether we provide sufficient disclosures on the assurance
of information reported within the annual Report & Accounts
(see page 153).
— Whether our 2021 Report & Accounts contains disclosures
which are consistent with Task Force on Climate-Related
Financial Disclosures recommendations in accordance with
Listing Rule 9.8.6(8)(b) (see pages 68 to 73).
— Enhanced disclosures in respect of:
– Reasons to invest in Derwent London (pages 6 and 7).
– Reshaping the portfolio, restocking the pipeline (pages
20 and 21).
– Our project pipeline & ‘super-sites’ (pages 24 and 25).
– Providing enhanced amenity (pages 30 and 31).
– How the Board monitors and assesses the Group’s culture
(page 131).
– Diversity and inclusion (pages 57 to 59).
– Risk documentation, monitoring and management
structure (pages 102 and 160).
– Our emerging risks (pages 104 and 105).
The Committee paid particular attention to these changes to
ensure they did not impact on the balance and clarity of the Report
& Accounts. Following its review, the Committee confirmed to
the Board that the 2021 Report & Accounts is fair, balanced and
provides sufficient clarity for shareholders to understand our
business model, strategy, position and performance.
Financial Reporting Council:
Presentation of cash flow statement
Following correspondence in late 2021 and early 2022 with the
Corporate Reporting Review Team of the Financial Reporting
Council (FRC), we have agreed to classify the cash flows relating
to the additions to, and disposal of, trading properties within the
Group Cash Flow Statement within ‘net operating activities’ rather
than ‘investing activities’.
We have re-presented the statement for the year ended 31
December 2020 to reclassify £31.7m of cash receipts and £1.2m
of expenditure on trading properties from ‘investing activities’ to
‘operating activities’. This has the effect of increasing the net
cash from operations in 2020 from £85.4m to £115.9m with a
corresponding increase in the net cash used in investing activities
from £62.0m to £92.5m. This presentation has also been adopted
for the year ended 31 December 2021 and will be applied
consistently in future. There is no net impact upon the cash flow
statement overall and there is no impact on any balance sheet or
income statement figures.
The review conducted by the FRC was based solely on the
Group’s published 2020 Report & Accounts and does not provide
any assurance that the Report & Accounts are correct in all
material respects.
Going Concern and Viability
In order to improve and expand our disclosures, we have combined
our Going Concern and Viability Statements. Our disclosures now
include the following assessments:
Short-term assessment: considers the prospects of the Company
over the next 12 months and whether the business is a ‘going
concern’, which includes a detailed review of the following:
— the Group’s latest rolling forecast (including sensitivity
analysis) for the next two years, in particular the cash flows,
borrowings and undrawn facilities;
— 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.
Medium-term assessment: considers whether the Company
would remain able to continue in operation and meet its liabilities
as they fall due over a five-year period. This assessment involves
detailed scenarios, stress testing, sensitivity analysis and review
of assumptions and estimates.
Long-term assessment: considers the factors which could impact
on the Company and its business model in the next five to 10 years,
including the Group’s principal and emerging risks, alongside
factors such as technological, social and environmental changes.
The Committee reviewed the process and assumptions behind
the short-, medium- and long-term assessments conducted by
management before recommending these disclosures to the
Board for final approval.
Going Concern & Viability page 98
Derwent London plc Report & Accounts 2021 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 2021 and the judgements adopted.
Issue
Assumptions or estimates
Judgement
151
Valuation of the Group’s property portfolio
Due to its size, 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.
The valuation considers a range of
assumptions including future rental income,
investment yields, anticipated outgoings and
maintenance costs, future expenditure and
appropriate returns. The external valuers
also make reference to market evidence of
transaction prices for similar properties (see
note 16 on pages 226 to 229).
The valuation is performed twice yearly by a
combination of 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’ objectivity and methodology.
In addition, during the year under review, a
benchmarking exercise was conducted to
provide further assurance to the Committee
(see page 152). 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 16 February 2022 and
was subject to significant discussion.
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.
In some cases, the probability of default
has been estimated as significantly lower
compared with 31 December 2020 and rent
arrears were also considerably lower at
31 December 2021 than a year earlier.
During 2021, a feasibility and cost report
was commissioned to estimate the costs
of upgrading our older buildings to achieve
an EPC rating of B or above by 2030. This
information has been shared with our
valuers and is being factored into our capital
expenditure programmes for 2022 onwards.
Where any immediate action or expenditure is
needed, the relevant amounts would be provided
for but, these costs are expected to arise over
several years as future refurbishment plans are
prepared, which should add value to the buildings
and are not current capital commitments.
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
substantial 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 pages 235 to 244).
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.
Impairment review
Covid-19, the resulting lockdowns and
other restrictions have impacted the
businesses of many of our occupiers,
particularly those in the retail and
hospitality sectors. The impact was
more significant in 2020, but certain
sectors have continued to face lower
than normal volumes and margins
in 2021. Though it has recovered
significantly in recent quarters, rent
collection continued to be impacted
in 2021 and we have provided some
financial support, where needed. Trade
receivable balances have been reduced
significantly since 31 December 2020.
Climate change
The subject of climate change, the
responsibility of office owners and the
needs of our occupiers in this area, have
all grown significantly in importance
through 2021. We have a programme
to upgrade the energy efficiency of our
older buildings and have considered how
the costs of such retro-fitting should be
reflected in our financial statements,
including our property valuations.
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.
Financial StatementsStrategic reportGovernance
The Committee was satisfied with the benchmarking results which
provided further assurance that the methodology used by CBRE
was robust.
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.
The effectiveness review for 2021 was conducted in February and
August and considered the following:
— experience, qualification and objectivity of the valuation team;
— quality of presentation and data; and
— robustness of the valuation.
At both meetings it was concluded that the external valuers
performed to a high standard and, whilst it was not ideal having the
process performed remotely, it was conducted well and the
timetable for delivery was achieved.
Overview of our Valuer Appointment Policy
When reviewing its Valuer Appointment Policy, the Committee took
into consideration the outcome of the RICS ‘Independent Review of
Real Estate Investment Valuations’ performed by Peter Pereira
Gray (the RICS review) and published in January 2022.
The Committee’s revised Valuer Appointment Policy states that the
Group’s external valuer should be rotated at least every five years,
subject to annual assessment of their effectiveness and objectivity.
The RICS review recommends that the maximum term of
appointment for a valuation firm is nine years.
There are no contractual obligations which could restrict the
Group’s choice of valuer or a minimum appointment period.
As our current valuer (CBRE) has exceeded the maximum tenure
under the revised policy, Knight Frank have been appointed to value
at least 50% of the London-based portfolio for the June 2022
valuation. CBRE will value the balance of the London-based
portfolio with Knight Frank ‘shadowing’. Subject to Knight Frank’s
overall performance, Knight Frank will be appointed on 100% of the
London-based portfolio for the December 2022 valuation.
Savills will be engaged to value our Scottish land which accounts
for c.1% of the Group’s portfolio. The Committee will consider its
policy in respect to the valuation of the Scottish land in 2023.
152
AUDIT COMMITTEE
REPORT CONTINUED
Portfolio valuation
Our property portfolio is valued by the external valuers for
our interim and year end results. As at 31 December 2021, it was
valued at £5.697bn (2020: £5.356bn) and principally consists of
77 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 45 and 183). 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 139).
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;
— how climate change was factored into the valuation; and
— any valuation movements that were not broadly in line with
that of the MSCI 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 well placed portfolio pages 18 to 19
Valuation benchmarking
The Committee commissioned a benchmarking exercise in relation
to the property valuation, which was performed during Q2 2021. The
purpose of the exercise was to assure the Committee that the
valuation of our portfolio was fair and aligned with the RICS
Valuation Global Standards and the Red Book.
The benchmarking exercise entailed:
— Three valuers, including CBRE, valued a sample of our portfolio
(comprised of five assets) which represent a cross-section of
properties from on-site development to long-dated income.
— The sample totalled approximately £700m of assets (c.13% of
our portfolio value).
— The valuation date was 31 March 2021.
— Each valuer used a similar methodology and the resulting
valuations were broadly aligned.
Derwent London plc Report & Accounts 2021 Restoring trust in audit and corporate governance
The Committee welcomes all developments which aim to improve
transparency in governance and trust in our disclosures. The
Company responded to the BEIS consultation on 1 July 2021,
in respect to the recommendations of most significance to
Derwent London.
The results of the consultation, and the final agreed reforms,
are anticipated to be published during 2022. The Committee will
monitor the outcome of the consultation and the implementation
of any required changes to the Group’s practices or reporting.
The table below provides an overview of some of the proposed
reforms included in the consultation, and how we anticipate
responding, if these become applicable to Derwent London:
Proposed reforms
Directors’ accountability for internal controls, dividends and capital maintenance
Internal controls and
detecting fraud
Legality and
affordability of
dividends
New corporate reporting
Resilience statement
Audit & Assurance
Policy
Company directors
Executive pay and
strengthening clawback
and malus provisions
An independent review will be
commissioned during 2022 to provide
clear focus areas on how we can
further strengthen our internal control
framework, including in respect to fraud
detection/prevention.
In our 2022 Report & Accounts, we intend
to widen our disclosures in respect to
distributable reserves.
On pages 98 and 99, we have started to
transition to a ‘Resilience statement’ by
expanding our disclosures on the short-,
medium- and long-term threats to the
Company’s resilience. If required, we will
prepare a ‘Resilience statement’ for the
2022 Report & Accounts.
During 2022, we will continue to progress
the development of an Audit & Assurance
Policy.
As part of the Remuneration Policy
review being conducted during 2022, the
Remuneration Committee will consider
the inclusion of additional conditions
to its malus and clawback provisions.
The conditions which currently apply to
our malus and clawback provisions are
disclosed in note 1 on page 178.
The BEIS consultation proposed various reforms in respect of the
purpose and scope of audits, auditor reporting and audit market
supervision and competition. If applicable, we intend to implement
any reforms as part of our next competitive external audit tender.
The Committee’s current intention is to conduct this tender for the
2024 year end audit (see page 156).
If the final recommended reforms require the Audit Committee to
undertake additional responsibilities, these will be added to the
Committee’s terms of reference.
153
Assurance
Derwent London’s approach to assurance is influenced by our
low tolerance to risk taking (see page 101) and our conservative
management style. If sufficient assurance cannot be gained,
we seek independent assurance from our outsourced internal
auditors, external auditors, independent advisers and
specialist consultants.
The main area of reporting risk relates to the valuation of our
portfolio. The valuation of our portfolio is a major component of
net asset value and is a key determinant for our investors when
assessing our performance. In addition, movements in the
valuation are a significant part of how we measure our progress
and a key determinant of the Group’s total return. Due to its
significance, the biannual valuation is subject to a detailed internal
review by our investment and valuation team, which consists of
experienced and qualified professionals, and is overseen by the
Valuers Committee and Audit Committee. The external valuers are
subject to annual evaluations which focuses on their objectivity
(see page 152).
Key aspects of the ESG data that we disclose in our annual Report
& Accounts is subject to ‘reasonable assurance’ verification by
Deloitte LLP, including in respect of:
— Environmental, energy and carbon reporting (all Scope 1, 2
and 3 GHG emissions data, intensity ratio and energy data);
— Health and safety statistics (all minor accidents, RIDDORs,
fatalities and improvement notices data); and
— Our Green Finance Framework, which received independent
assurance from Deloitte that it is aligned with the Loan Market
Association’s Extended Green Loan Principles.
The assurance statements are published in our annual
Responsibility Reports which are available on our website.
During 2021, we started to review the assurance we receive in
respect to corporate reporting, the handling of risks and internal
controls. To date, the exercise has highlighted the following key
actions:
— As detailed above, our key ESG data is subject to annual
assurance by Deloitte, however, historically the Committee
was not presented with the outcome of these reviews. In
November 2021, the Committee received training on the
assurance provided by Deloitte and, in February 2022, the
Committee reviewed the outcome of the latest assurance
reviews. Going forward, Deloitte will provide regular updates
to the Committee on their assurance work.
— We identified that our EPRA disclosures published in the
annual Report & Accounts are not currently subject to external
verification. A peer analysis confirmed that this was normal
practice within our industry. We will consider how we could
gain independent assurance on these disclosures during 2022.
— The Group has been voluntarily disclosing under the Task Force
on Climate-Related Financial Disclosures (TCFD) for the past
three years. As these disclosures are now mandatory for the
2021 Report & Accounts and all future reports, the Committee
agreed that Deloitte would perform a review of our disclosures
and share their comments with the Committee. The
Committee will consider whether further assurance is required
over our TCFD disclosures during 2022.
Financial StatementsStrategic reportGovernance 154
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.
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 by our internal auditors,
RSM (see page 155).
The Committee receives detailed reports on the operation and
effectiveness of the internal financial controls from members of
the senior management team and the internal auditors. In addition,
the outcome of the external audit at year end and the half-year
review are considered in respect to internal controls.
As training and staff awareness forms part of the Group’s internal
control framework, the Audit and Risk Committee receives updates
on the policies and procedures in place and how these are being
communicated to, and complied with, by our staff.
Overview of internal financial controls
We utilise IT systems and automated workflows to manage our
financial processes, including the processing and authorisation of
payments and data input (see the table below). All BACS payment
files are encrypted on generation and access is monitored by our
security systems.
In 2021, the Digital Innovation & Technology (DIT) team
implemented an ITIL-aligned service desk platform and new
processes/controls were designed for our financial systems in
respect to user management. These workflows promote
automation, ensure the correct approvals have been gained, and
provide full auditability of any work carried out. The DIT team
regularly ensures that all business-critical IT systems, such as
financial packages, are securely accessible remotely.
The Committee have agreed that a review will be commissioned
during 2022, to provide clear focus areas on how we can further
strengthen our internal control framework, including in respect
to fraud detection/prevention. In addition, during 2022, we will roll
out software to automate the creation and approval of expenses.
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.
Further information on risk management and non-financial
internal controls is available in the Risk Committee report.
Risk management page 159
Governance
framework
Financial reviews
and internal
procedures
Treasury and tax
procedures
Risk identification
and monitoring
IT controls
Training and staff
awareness
External verification
Our governance framework (see page 133) supports effective internal control through an approved schedule of matters
reserved for decision by the Board and the Executive Directors, 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 65 and 106.
The Risk Committee regularly reviews the Group’s risk registers, 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 ‘tenants on watch’ register and a back-up IT facility.
The Risk Committee’s report is on pages 158 to 165.
All financial transactions are recorded and, where required, approved utilising finance systems or automated workflows.
Role based access is in place for all financial solutions, managed by the DIT service desk. Data transfers between
programs are either automated or imported with minimal manual intervention to maintain the integrity of the data.
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 agreed within six months. The Group operates a whistleblowing policy which
includes access to an independent helpline for anonymous reporting of concerns (see page 136).
During the year, no significant deficiencies had been raised by PwC as a result of their control 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. The implementation of recommendations arising from the RSM reviews are monitored by the Audit
Committee. 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 2021 155
Fraud risk assessment
On an annual basis, the Committee reviews the Group’s fraud risk
assessment prepared by management which details the policies
and processes which safeguard the Company’s assets, prevent
and detect fraud and errors.
The largest costs incurred by the Company relate to capital
expenditure or property transactions which are subject to
approval in accordance with the Board’s delegated authority
limits, before costs are incurred (by the Cost Committee for costs
up to £5m, the CEO and the Executive Directors for costs up to
£20m and by the Board for any capital expenditure over £20m).
Approval is documented in minutes which are required to be seen
before the budgets are assigned. The approved budgets are then
subject to internal monitoring to ensure they remain within the
approved limits.
The Board’s delegated authority limits page 132
The risks identified by the fraud risk assessment, in respect to
financial fraud and error, are mitigated through the following key
controls:
— A two-stage approval process is required for invoices and
transactions, either through the use of software or forms.
There is a further two-stage approval process for the release
of final payments.
— Sufficient support/evidence is required by the Finance team
which is subject to validation before payments are made.
— Payroll is prepared by an experienced team and reviewed by
the Head of HR and the Treasurer. Payment variance reports
are prepared to explain movements.
— Training is provided to staff to ensure they are aware of
the latest methods used by those attempting to defraud
the Company.
— Use of third parties to produce or review information,
including in respect to project monitoring agencies, internal
and external Auditors etc.
— Preparation of a detailed budget and three rolling forecasts
against which actuals are compared.
— The process of producing the quarterly management accounts
involves detailed variance analysis to prior periods and
forecasts, as well as a number of reconciliations of both
balance sheet and income statement items.
Further information on cyber security page 162
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 2021 was approved jointly by the Risk
and Audit Committees and included a combination of risk-based
audits and projects (see the table below). The outcome of the audits
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.
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.
Audits performed
during 2021
— Procurement and
contract management
— Lease management
— Management of HR data
— Tax governance and
reporting
— Core financial controls
— IT general controls
Audits to be performed under
the Internal Audit Plan 2022
— Health and safety
— Cyber security
— Strategic planning
— Joint venture
governance
— Financial controls
A formal review of the effectiveness of the internal auditor and the
internal audit process was conducted in February 2022 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
Committees; and
— quality of planning and ability to meet deadlines.
The Committee concluded that the internal audit process had been
conducted effectively.
Members of the Company
Secretarial team
Financial StatementsStrategic reportGovernance 156
AUDIT COMMITTEE
REPORT CONTINUED
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 in 2020, who will serve for four years prior to the
tender in order to provide continuity over the next two year end
audits. This timetable is subject to annual assessment of the
Auditor’s effectiveness and independence.
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.
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 considered:
— the qualification and expertise of the Lead Audit Partner and
the wider audit team;
— the availability of resources to perform a comprehensive and
timely audit;
— adherence to the Non-Audit Services Policy;
— length of tenure and ability to perform an independent audit;
— quality of the audit plan, overall audit and outcome report;
— quality of planning and ability to meet deadlines; and
— quality of audit in respect of key judgements and estimates.
Independence
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;
— how the Auditor demonstrated professional scepticism and
challenged management’s assumptions where necessary;
— the tenure of the external Auditor and the lead audit partner;
— the outcome of the FRC’s inspection of PwC’s audit quality;
— the operation, and compliance with, the Group’s policy on
non-audit work being performed by the Auditor; and
— how the Auditor identified risks to audit quality and how these
were addressed, including the network level controls the
Auditor relied upon.
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 pages 151 and 202
to 204). Sandra Dowling has been lead audit partner since the 2020
half-year review. The Committee has been pleased with the
challenge raised by Sandra and her team during the year.
Audit quality
Audit quality can be challenging to define and measure. In response
to the FRC thematic review on Audit Quality Indicators (AQIs)
released in May 2020, the Committee agreed the six AQIs which
would be used to assess PwC in the financial year ended
31 December 2021.
The Committee found that the use of AQIs was an effective addition
to its review processes and they will continue to be used for the
year ending 31 December 2022.
Outcome
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 2022, subject to
reappointment at the 2022 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.
The ‘Independent Auditor’s report to the members of Derwent
London plc’ is available on pages 201 to 208, and its audit opinion is
consistent with the report received by the Audit Committee.
Independent auditor’s report page 201
Non-audit services in 2021
During 2021, in addition to the interim results review, PwC were
asked to assist with the preparation and issue of comfort letters as
part of the new green bond issuance (see page 13). The total fee for
this project was £90,000.
This service was approved in accordance with the Group’s
Non-Audit Service Policy and received Committee approval prior
to commencement.
The Committee noted that this type of service is permissible
under the UK FRC Ethical Standard 2019. The Committee was in
agreement with the rationale that PwC were best placed to perform
this service due to their knowledge and understanding of the Group.
The non-audit services provided by PwC during the year under
review totalled £150,000 (see table on page 157). The Committee
confirmed that it does not believe that the level or nature of the
non-audit services provided during 2021 have impacted on PwC’s
actual or perceived independence as Auditors.
Derwent London plc Report & Accounts 2021 157
Overview of our Non-Audit Services Policy
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.
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 includes 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 are provided below and
are 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.
Non-audit services in the past three consecutive financial years
Our Non-Audit Services Policy requires that the total fees for non-audit services are limited to no more than 70% of the average statutory
audit fee in the last three consecutive financial years. Given the low value of non-audit services historically provided, the level of non-audit
services remains well below the 70% fee cap.
2021
2020
2019
Audit of Derwent London plc and subsidiaries(i) (ii)
Review of interim results
Other non-audit services
Total fees
Notes:
(i) The audit fee in relation to the year ended 31 December 2020 includes a cost overrun of £79,000. This was largely due to the inefficiencies of remote working and the extended
£’000
471
60
90
621
%
76
10
14
100
£’000
494
44
–
538
£’000
404
42
–
446
%
92
8
–
100
%
91
9
–
100
timetable that resulted from the lockdown in place throughout the audit period.
(ii) The audit fee in relation to the year ended 31 December 2019 includes a cost overrun of £17,275.
Financial StatementsStrategic reportGovernance 158
RISK
COMMITTEE
REPORT
Richard Dakin
Chair of the Risk Committee
2022 FOCUS AREAS
Dear Shareholder,
I am pleased to present our Risk Committee report for 2021
which describes our activities and areas of focus during the year.
Risk profile of the Group
2021 continued to be a challenging year for the Group, our
occupiers and the wider economy. The risks arising from Covid-19
and the implications of the lockdown restrictions, continued to
have an impact through the first half of 2021 and required careful
management. Following the completion of the UK Government’s
roadmap to ease restrictions, we saw a stronger second half with
the economy showing signs of recovery. Despite the easing of
restrictions, uncertainty and risk remained.
The emergence of the new Omicron variant of Covid-19 in early
December, led to the implementation of ‘Plan B’ restrictions which
were later lifted from 26 January 2022. With the lessening of
restrictions, the successful vaccination programme, and as
guidance is shifting towards ‘living with coronavirus’, the outlook
for the UK economy is looking more positive.
Arising from the upturn in the economy, the new challenges facing
the Group and the wider economy are, material and labour
shortages and inflation (see pages 101 and 107).
Independent assurance
An important part of our overall risk governance is to review the
results of independent external reviews on a variety of risks.
During 2021, we received the following independent assurance:
— annual independent façade/fire risk assessments;
— annual Planned Preventive Maintenance surveys, which are
conducted across the managed portfolio;
— six monthly risk assessment checks by external specialist
water consultants;
— Ongoing monitoring of the Group’s principal and
— an independent risk analysis of the Group’s key climate
emerging risks
— Monitor the risks arising from material shortages,
labour shortages and inflation (see page 107)
— Ensure health and safety risks are being effectively
managed across the Group (see page 161)
— Review results of the energy performance certificate
(EPC) feasibility and costs report (see page 55)
— Review the outcome, and potential impact, of the
Planning Bill reforms
change-related risks;
— IT Governance performed an independent cyber security
health check and vulnerability scan (penetration test); and
— RSM performed function specific audits during 2021, which
included audits on our IT controls, lease management and
procurement/contract management (see page 155).
Key activities of the Committee during 2021
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. We have again
focused our attention on a variety of risks within four key
categories: our business and clients, economic and political,
environmental and technology.
I am grateful to the executive team and management for their
proactive approach to the changing environment throughout the
year. Particular focus was given to:
— Health and safety matters, including protecting our occupiers
and employees, and statutory compliance
— Our occupiers, including their financial wellbeing, covenant
strength and ability to use their office spaces (see page 106)
— Environmental risks and opportunities, including EPC
regulatory compliance (see page 161)
— Cyber risk management (see page 162)
— Asset management risks, including lease expiries and vacancy
rate exposure (see page 106)
— Development and supply chain risks (see page 107)
Derwent London plc Report & Accounts 2021 The Risk Committee remains satisfied that the Group’s
non-financial internal controls and risk management processes
continue to operate effectively, and that its reviews did not reveal
any significant weaknesses or failures.
Further engagement
The forthcoming AGM is on 13 May 2022 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
23 February 2022
Committee composition and performance
The Committee’s membership for the year under review is detailed
in the table below. Helen Gordon will join the Committee as a
member from 1 March 2022.
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 or necessary.
During the year under review, the Risk Committee met three times
(2020: four meetings). The meeting in August included a joint
session with the Audit Committee to review the outcome of the
internal auditor’s reviews (see page 155).
Richard Dakin, Chair
Lucinda Bell
Sanjeev Sharma(i)
Cilla Snowball
Note:
(i) Percentages are based on the meetings entitled to attend for the 12 months ended
Independent
Yes
Yes
Yes
Yes
Attendance(i)
100%
100%
100%
100%
Number of
meetings
3
3
1
3
31 December 2021. Sanjeev Sharma joined the Committee following his
appointment to the Board on 1 October 2021.
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
The 2021 evaluation of the Board, its committees and individual
Directors, was internally facilitated by Mark Breuer, the Non-
Executive Chairman, in accordance with our three-year cycle of
evaluations (see page 141). The review confirmed that the
Committee continues to operate effectively, with 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 the Group’s robust risk identification and
management procedures, certain risk management activities are
delegated to the level that is most capable of overseeing and
managing the risks.
Our risk management structure page 160
In order to gain a comprehensive understanding of the risks facing
the business and the management thereof, the Risk Committee
159
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, taking 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. The Schedule of Principal Risks also includes an
assurance framework to evidence how each control is managed,
overseen and independently verified.
Due to its importance, changes to the Schedule of Principal Risks
can only be made with approval from the Risk Committee or Board
(changes made to our principal risks during 2021 are on page 101).
Risks not deemed to be principal to the Group are documented
within the Group’s Risk Register which is maintained by the
Executive Directors, with assistance from 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.
Risk documentation and monitoring page 102
During the annual strategic review and approval of the five-year
plan, the Board conducts a robust assessment of the Group’s
emerging risks, being those that could impact on the business in
the medium- to long-term. Emerging risks are identified through
roundtable discussions and horizon scanning. Emerging risks are
discussed by the Committee at each meeting.
Emerging risks page 104
The Audit Committee reviews the adequacy and effectiveness of
the Group’s system of internal financial controls which are
described briefly in the table on page 154. The Audit Committee
remains satisfied that the review of internal financial controls did
not reveal any significant weaknesses or failures and they continue
to operate effectively.
Internal financial controls page 154
During 2021, we commenced a review into the assurance which can
be evidenced in respect to corporate reporting and, the handling of
risks and internal controls (both, financial and non-financial).
Further information on the initial outcomes of this review is detailed
in the Audit Committee report.
Assurance page 153
Following the Audit Committee’s and Risk Committee’s reviews, the
chairs of each committee confirmed to the Board that it is satisfied
that the Group’s internal control framework (financial and non-
financial) 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.
Financial StatementsStrategic reportGovernance 160
RISK COMMITTEE
REPORT CONTINUED
Our risk management structure
— Overall responsibility for risk management and internal controls, and for the review of their effectiveness
— Sets strategic objectives and risk appetite
— Sets delegation of authority limits for senior management
— Ensures that a healthy purposeful culture has been embedded throughout the organisation (with input from the Executive Directors)
— Agrees the Group’s strategy to managing climate change resilience, approving and monitoring progress against the pathway
to net zero carbon (with input from the Responsible Business Committee)
The Board
Risk Committee
— Monitors and reviews the Board’s risk registers
— Works alongside the Board to set the risk tolerance levels
for the Group
— Receives updates on key risks and monitors the Group’s risk
indicators
— Determines the nature and extent of the principal and emerging
risks facing the Group
— Agrees how the principal risks should be managed or mitigated
to reduce the likelihood of their incidence or their impact
— Monitors and reviews the risk management and non-financial
internal control systems, and management’s processes, and
satisfies itself that they are functioning effectively and that
corrective action is being taken where necessary
In addition to the Risk Committee, the Board’s other principal committees manage risks relevant to their areas of responsibility
Audit Committee
Remuneration Committee
Responsible Business Committee Nominations Committee
— Reviews the assurance
received for the information
published in our financial
statements and key
announcements
— Manages the external and
internal audit process and
reviews the Auditor’s reports
— Monitors the internal financial
control arrangements, and
satisfies itself that they are
functioning effectively and
that corrective action is being
taken where necessary
— Ensures that remuneration
and reward arrangements
promote long-term
sustainable performance and
retention of key talent
— Monitors the incentive
framework to ensure it does
not encourage Executive
Directors to operate outside
the Board’s risk tolerance
— Oversees the Group’s
— Ensures the Board (and its
policies in respect of: modern
slavery, the protection of
human rights, achieving our
Net Zero Carbon Pathway and
employee satisfaction and
wellbeing, etc.
— Monitors the Group’s
corporate responsibility,
sustainability and stakeholder
engagement activities
— Monitors the Group’s diversity
and inclusion initiatives
committees) have the correct
balance of skills, knowledge
and experience
— Ensures that adequate
succession plans
are in place for the Board,
Executive Directors and the
wider talent pipeline
— Ensures the design and implementation of appropriate risk
— Maintains the Group’s Risk Registers and reviews the operation
Executive Directors, with assistance from the Executive Committee
management and internal control systems that identify the risks
facing the company and enable the Board to make a robust
assessment of the principal risks
— Ensures sound internal and external information and
communication processes, and takes responsibility for external
communication on risk management and internal controls
and effectiveness of key controls
— Provides guidance and advice to staff on risk identification
and mitigation plans
— Engages with the Executive Directors and senior management
— Risk management is devolved to the appropriate level most
to identify risks
— Allocates ‘risk managers’ and oversees their response
capable of identifying and managing the risk
Heads of Departments
Derwent London plc Report & Accounts 2021 161
Health and safety
At each Committee meeting, a detailed update is provided on
health and safety matters on both the managed portfolio and the
development pipeline.
Health and safety page 63
Fire risk management
Our buildings are subject to annual fire risk assessments, regular
fire alarm testing, six-monthly fire door surveys, smoke extract and
ventilation testing, and sprinkler testing (where applicable). Fire
strategy documents are routinely reviewed, and where necessary
updated by our Fire Engineers, OFR Consulting.
Our façade fire risk assessments have confirmed that our
managed portfolio does not contain any ACMs (aluminium
composite material) or HPLs (high pressure laminates). To manage
our fire risks, upon acquisition of a new building, a full façade fire
survey is undertaken to maintain compliance and identify any
issues promptly.
We continue to monitor fire safety best practice and regulation
and have determined the actions required to ensure our
compliance with the new Fire Safety and Building Safety Acts.
Water hygiene management
Legionella bacteria is commonly found in water. Although it is
impossible to completely eradicate the risk of legionella, Derwent
London have robust risk management procedures in place to
ensure that the legionella risk is appropriately managed to ensure
that incidences are low, and if an incident does occur, it can be
quickly identified and rectified.
The primary methods used to manage and mitigate the risk from
legionella are:
— weekly water temperature control checks;
— monthly water samples;
— legionella awareness training; and
— assurance from six monthly risk assessment checks by
external specialist water consultants.
Our independent water consultants also review our procedures and
processes to ensure they remain sufficient to effectively manage
legionella risk. Whilst we have proactively dealt with a number of
instances in our portfolio, to date, there have been no notifications
of legionella illness.
Energy performance certificates (EPCs)
An independent risk analysis of the Group’s key climate change-
related risks was conducted (see page 49 of the 2020 Report
& Accounts), which identified compliance with EPC legislation as
an emerging transition risk which could have a material impact on
the Group.
From 1 April 2023, a minimum EPC rating of E will apply to all
operable leases but excluding leases over 99 years or less than
six months (the 2023 regulations).
The Committee reviewed regular updates on the work performed
by the Sustainability, Development and Asset Management teams
and was pleased to note that our portfolio was fully compliant
with the 2023 regulations (excluding the properties acquired during
the year).
In preparation for the proposed 2030 regulations, we
commissioned an independent review during 2021 to assess the
suitability of our buildings to achieve EPC B ratings and the required
capital expenditure. In Q1 2022, the Committee will review the
results of these surveys and, alongside senior management, agree
next steps (see page 55).
Compliance training
The Group operates a compliance training programme which is
mandatory for all employees and members of the Board. The Risk
Committee oversee the programme, agree the topics to be covered
and receive an update on completion rates. The programme covers
a range of risk and compliance topics (including anti-bribery and
corruption, unconscious bias, data protection and modern slavery).
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 topics covered during 2021 included:
— social media awareness;
— data privacy; and
— unconscious bias/respect in the workplace.
The Committee was pleased with the level of engagement from
employees with, on average, 97% of all participants (inclusive of the
Board) completing each training module.
Members of the Health and Safety and
Soho Place Building Management teams
Financial StatementsStrategic reportGovernance 162
RISK COMMITTEE
REPORT CONTINUED
Cyber security
Our cyber security controls 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. We adopt a layered approach to cyber security which
provides multiple opportunities for threats to be identified before
they can cause harm.
Our layered security approach consists of the following:
Policies, procedures,
and awareness
Physical security
Perimeter security
Internal security
Host security
Application
security
Data
security
We recognise that ransomware has been identified by the National
Cyber Security Centre as the most immediate threat to UK
businesses. In addition to our layered security approach, we
maintain a ‘ransomware security incident response playbook’.
During 2022, we will perform a detailed review of our ransomware
playbook and will update our Business Continuity Plan to
incorporate ransomware as a potential scenario for disaster
recovery. Additionally, during Q1 2022, an independent review of our
controls in respect to ransomware will be conducted.
Our Digital Innovation & Technology (DIT) team tested the
effectiveness of our ongoing security awareness programme in
2021 by sending fake phishing emails to staff in November and
monitored 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. Each year, all staff participate
in mandatory information security training and, throughout the
month of October, the DIT team promoted Cybersecurity
Awareness Month by sharing cyber security themed tips
and guidance.
Our cyber security procedures are subject to regular independent
reviews and tests. In December 2021, IT Governance conducted a
cyber security health check consisting of a review of our
information security governance framework, an internal/external
vulnerability scan and an employee questionnaire to gauge cyber
awareness levels. The Committee receives updates on the outcome
of these tests/assessments and monitors the implementation of
any arising recommendations.
The Committee reviews a dashboard of key risk indicators at each
meeting which includes information security and cyber risk-related
KPIs. During 2021, there were 131,319 (2020: 109,735) attempted
attacks on our systems, none of which were successful and 99.97%
(2020: 99.96%) of the attempts were stopped before they reached
the intended targets, with the remaining attempts immediately
being reported to our DIT team – this highlights the robustness of
our cyber security posture and awareness campaigns.
Cyber Essentials accreditation
As part of our ongoing commitment to cyber security, on 30 July
2021 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.
Information security
We have robust procedures in place to safeguard the security and
privacy of information entrusted to us. 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.
We operate a data protection steering committee, which is
comprised of Data Protection Champions from each department
and meets on a monthly basis. In August 2021, the Committee was
provided with an update on the work performed by the data
protection steering committee, which included mandatory
refresher training to all employees on protecting personal data.
Compliance training page 161
Derwent London plc Report & Accounts 2021 163
Business continuity and disaster recovery
Derwent London has formal procedures for use in the event of an emergency that disrupts our normal business operations which
consist of:
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
2022 are provided in the
table below.
The pandemic has provided an opportunity to stress test our infrastructure and demonstrate our ability to provide reliable, remote
connectivity to the entire workforce over a prolonged period.
On 23 April 2021, the DIT team completed a technical test to ensure the resilience of our IT infrastructure in the event of a complete outage
at 25 Savile Row. The test was successful; and we were able to confirm that all failover mechanisms for critical IT services functioned as
expected and all services continued to operate from backup infrastructure at our disaster recovery site.
On Friday 25 June to Saturday 26 June, a full disaster recovery test was successfully completed. This included a failover of all critical IT
infrastructure/services to our disaster recovery suite and all business applications were tested by a group of stakeholders from across
the business. The entire process, from the failover to our disaster recovery suite, to restoring services at 25 Savile Row, took six hours
and 25 minutes (a 20 minute improvement on our previous full test completed in October 2018).
During 2022, we will be changing the location of our off-site disaster recovery suite. Once the change has been finalised, a full IT disaster
recovery test will be performed to ensure that all IT functions and business-related activities can be adequately performed.
Test
Business Continuity Plan review
IT Component test
Full IT disaster recovery test
Desktop review
Purpose
The CMT team 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 focusing on ransomware to rehearse scenarios to
ensure we are adequately prepared.
Date
Ongoing during 2022
Q1 2022
Q2 2022
Q2/3 2022
Financial StatementsStrategic reportGovernance
164
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 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. Since
2020, the DIT department has maintained an additional risk
register with respect to homeworking and Covid-19 related IT
risks. 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: the Group’s outsourced internal audit
function 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 at each Risk Committee meeting and are reassessed
during the annual strategy reviews.
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
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, Schedule of Emerging Risks and the
Group’s Risk 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 108 to 119.
Derwent London plc Report & Accounts 2021 165
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. All employees will receive
refresher training on anti-bribery and corruption during 2022 as part of the mandatory compliance training programme.
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
Compliance training page 161
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. During the past two years, due to the Covid-19 pandemic, there has been a significant
reduction in hospitality.
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 169).
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 139 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 reporting helpline is available for staff to raise concerns anonymously (see page 136).
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 property insurers, who perform regular reviews of our properties that aim to identify risk improvement areas.
Due to our proactive risk management processes, Derwent London has a low claims record which makes us attractive to insurers.
During 2021, as we were operating within a Long Term Agreement for our key property-related insurances, our occupiers were not impacted
by the hardening insurance market. Following the transaction with Lazari investments, which led to the creation of the ‘Baker Street joint
venture’ (see page 21), we acquired professional indemnity insurance to offset any risks arising from the operation of the joint venture.
Over the past two years, the insurance market has 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. It is predicted
that premiums will continue to rise above inflation in 2022.
Financial StatementsStrategic reportGovernance 166
RESPONSIBLE
BUSINESS
COMMITTEE
REPORT
Dame Cilla Snowball
Chair of the Responsible Business Committee
2022 FOCUS AREAS
— Review the recommendations arising from the
Employee Survey Working Group and occupier
pulse surveys
— Oversee the work of the Diversity and Inclusion Working
Group and provide support for its initiatives
— Ensure adherence to the Group’s Net Zero Carbon
Pathway and receive regular updates on progress
— Continue to monitor the Group’s community, charitable
and sponsorship initiatives
Britain’s Most Admired Companies –
sector winner and 38th overall
Dear Shareholder,
As the Chair of the Responsible Business Committee, I am pleased
to present our report of the work of the Committee for 2021. I would
suggest that this report is read alongside the Responsibility section
on pages 50 to 75.
Supporting our stakeholders
We continue to prioritise stakeholder engagement as a key driver of
the business. This has been especially critical during the pandemic
when the Committee has received detailed updates on the input
from, and support to, our employees, occupiers, communities and
the supply chain. We were particularly pleased to see the many
proactive efforts that Derwent London has made to support
communities over such a difficult year.
We were pleased to review the results of the 2021 Employee Survey
showing continuing high levels of pride and job satisfaction at
Derwent London, in spite of the challenges of Covid. Pulse surveys
among our occupiers were also conducted through the various
stages of lockdown, hybrid working and return to the office. The
Committee was pleased to participate in the Stakeholder Day at
DL/78 in September (see page 134).
Diversity and inclusion
The Committee received regular updates from the Diversity and
Inclusion Working Group on its activities and discussions (see page
169). The Committee also reviewed the Group’s progress towards
achieving the National Equality Standard accreditation and was
delighted to see Derwent London achieve full compliance across
all 35 of the competencies at the end of 2021. A remarkable
achievement and testament to the hard work of Katy Levine
(Head of HR) and the Diversity and Inclusion Working Group.
Net zero carbon
The Committee received updates on the Group’s progress
towards being net zero carbon by 2030. Of particular interest was
stakeholder engagement with our occupiers on our net zero plans
and how Derwent London can partner with their own sustainability
efforts (see page 13). This was an important discussion at the
Stakeholder Day, held at DL/78 in the 80 Charlotte Street building,
Derwent London’s first all-electric building, demonstrating the
Group’s sustainability principles in action. We were also pleased to
see Derwent London actively participate at COP26.
Employee members
The benefits of having employees on the Committee have been
evident in 2021, particularly when, during periods of remote working
due to the pandemic, the Board were able to be closely informed of
staff welfare and engagement.
I would like to thank Ally Clements, Jonathan Theobald and Davina
Stewart for their insights and contributions to the Committee and
their tireless efforts over the past year. Ally and Jonathan both
retired from the Committee at the end of their term in December
2021 and we are grateful to them for setting such a high bar as the
first employee representatives on the Committee. We welcome
Matt Massey, Lucy Taylor and Kirsty Williams, who join Davina as
employee representatives in 2022 (see page 168).
If you wish to discuss any aspect of the Committee’s activities,
I will be available at the 2022 AGM 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
23 February 2022
Derwent London plc Report & Accounts 2021 Committee composition and performance
During 2021, our Committee consisted of two independent
Non-Executive Directors, the Chief Executive and three employee
members. At the request of the Committee, Executive Directors,
members of senior management, other Board members and
external advisers may be invited to attend all or part of any meeting,
as and when appropriate.
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
167
During the year under review, the Committee held two formal
meetings (in May and December) (2020: two meetings). In addition
to the formal meetings, the Committee holds ad hoc informal
meetings. The Chair of the Committee is also the Group’s
designated NED for gathering the views of our workforce (see
page 138).
Cilla Snowball, Chair
Claudia Arney
Ally Clements(i)
Davina Stewart
Jonathan Theobald(i)
Paul Williams
Note:
(i) Jonathan Theobald and Ally Clements tenure on the Committee ended on
Independent
Yes
Yes
Employee
Employee
Employee
No
Number of
meetings
2
2
2
2
2
2
Attendance
100%
100%
100%
100%
100%
100%
3 December 2021 and they have now stepped down as members. Matt Massey,
Lucy Taylor and Kirsty Williams were appointed as employee members of the
Committee from 1 January 2022 and were invited to attend the 3 December 2021
meeting as observers.
The Committee’s role and responsibilities are set out in the terms of
reference, which were last updated in May 2021 and are available
on the Company’s website at: www.derwentlondon.com/
investors/governance/board-committees
The 2021 evaluation of the Board, its committees and individual
Directors, was internally facilitated by Mark Breuer, the Chairman
of the Board, in accordance with our three-year cycle of evaluations
(see page 141). The review confirmed that the Committee continues
to operate effectively, with no significant matters raised.
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 269 to 271, and
for our Global Reporting Index disclosures and United Nations
Sustainable Development Goals alignment, see our annual
Responsibility Report.
During 2021, 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 169).
Key activities of the Committee during 2021
The Committee continued to focus on how the Group has been
supporting its key stakeholders during the Covid-19 pandemic and
the continuing uncertainty. Climate change is a major global
challenge and at each of its meetings, the Committee reviewed the
Group’s progress against our Net Zero Carbon Pathway (see pages
12 and 13). During 2021, the Committee’s keys activities were:
— Stakeholder engagement:
– Received an update on our community initiatives and
engagement (see pages 26 to 27 and 62 to 63)
– Reviewed the results of the Covid-19 employee and
occupier pulse surveys
– Agreed the content of the 2021 employee survey and
reviewed its results (see page 60)
– Received a presentation on occupier engagement and an
update on the work of the Asset Management team
– Received regular updates on how we are engaging with,
and developing, our employees (see page 60)
— Diversity and inclusion:
– Received a presentation from EY on the National Equality
Standard and received updates on the Group’s progress to
being accredited (see page 58)
– Received regular updates on the Diversity and Inclusion
Working Group and its activities and discussions (see
page 169)
— Net zero carbon:
– Monitored our progress to net zero carbon by 2030
(see page 52)
– Received an update on stakeholder engagement in respect
to communicating our Net Zero Carbon Pathway and
assisting our stakeholders in achieving their own goals
(see page 13)
— Responsible business:
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).
– Reviewed the revised Supply Chain Sustainability Standard
and received an update on engagement with key suppliers
during 2021 (see page 169)
– Received an update on the Group’s modern slavery
initiatives and recommendations
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.
The Board’s role in managing the Group’s culture can be found on
page 131.
Financial StatementsStrategic reportGovernance 168
RESPONSIBLE BUSINESS
COMMITTEE REPORT CONTINUED
COMMITTEE EMPLOYEE MEMBERS
Lucy Taylor
Investment Manager
Joined Derwent London in March 2019
Appointed to the Committee: January 2022
Expected term expiry: December 2024
Kirsty Williams
Business Liaison Manager
Joined Derwent London in February 2007
Appointed to the Committee: January 2022
Expected term expiry: December 2024
Matt Massey
Senior Project Manager
Joined Derwent London in March 2014
Appointed to the Committee: January 2022
Expected term expiry: December 2024
Davina Stewart
Property Accounts Manager
Joined Derwent London in June 2015
Appointed to the Committee: October 2020
Expected term expiry: December 2023
Employees on the Responsible Business Committee
The employee members of the Committee are fully involved in
all aspects of the Committee’s activities, including attendance
at meetings and contribution to discussions and decisions.
The employee members also extend the Committee’s influence
within the business, by being actively involved in employee
engagement diversity and inclusion initiatives.
Ally Clements and Jonathan Theobald completed their tenure
on the Committee in December 2021. The Committee is
thankful for the level of commitment both have shown in the
role and their involvement in the Committee’s activities. Having
employee members on a Board-level committee, enables the
diverse voice of our employees to be brought directly into our
Boardroom, providing invaluable insight.
Due to the number and high quality of applicants, in December,
three new employees were appointed to the Committee. The
Committee agreed that the three new members would serve on
the Committee for three years.
“ Being part of the Responsible Business
Committee was such a fantastic
experience. Representing the voice of
employees at Board level whilst also
contributing towards important ESG
topics that affect how we operate
and are regarded as a business, was
a real privilege.”
Ally Clements
Senior Property Marketing Co-ordinator
Member of the Committee from January 2019
to December 2021
Derwent London plc Report & Accounts 2021
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). The Standard sets out our principles and expectations in
terms of the environmental, social, ethical and governance issues
which relate to our supply chains and renews our commitment to
ensuring our supply chain remains as engaged as we are in setting
the highest standards.
In August 2021, we published a revised Standard which is available
to download on our website. The Standard now includes our
expectations in respect of diversity and inclusion, environmental
issues and preventing modern slavery. In respect to diversity and
inclusion, our Standard extends beyond basic compliance and
requires our suppliers to advise how diversity and inclusion is
embedded in their working practices.
During 2021, we requested evidence that our major suppliers were
compliant with the Standard. This involved completion of a
questionnaire and providing copies of key policies and procedures.
Overall, we received an excellent response rate, with all 49
suppliers responding.
— All suppliers confirmed they have an equality, diversity and
inclusion policy that aligns with the Equality Act 2010, and 48
suppliers confirmed this is communicated to their staff.
— All suppliers confirmed they have a policy/procedure in place
to ensure that bullying, harassment, and discrimination
(based on all protected characteristics) is not tolerated.
— All suppliers confirmed they have a modern slavery policy
that addresses items raised in the Modern Slavery Act 2015,
and 44 suppliers confirmed they provide staff training on
the subject.
— Three suppliers advised that they use limited zero hour
contracts. After engagement, these suppliers clarified that
zero hour contracts are not used at any Derwent London sites.
As the use of zero hour contracts is not aligned with our
principles, we will seek to engage with these suppliers further
during 2022.
All suppliers who have not confirmed compliance with our Standard
will be contacted to understand the reason and to agree a time plan
for compliance.
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. In 2021, our average payment days was
20 days (see page 107).
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. During 2021,
we liaised with our suppliers to identify those which fall within
the new requirements. Although we currently pay all invoices on
average within 30 days of receipt, determining our small business
suppliers and recording their specific payment days will remain a
priority for 2022.
169
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. Further information on how
diversity and inclusion factors into our strategy is on page 41.
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.
During 2021, in order to assess the Group’s strengths and key areas
for improvement in respect to equality, diversity and inclusion,
Derwent London was independently assessed under the National
Equality Standard. The Committee reviewed the results of the
assessment and was delighted that the Group was awarded the
accreditation (further information on page 58).
The Diversity and Inclusion Working Group
The Diversity and Inclusion Working Group (the D&I Working Group)
consists of 13 members and meets monthly to further advance the
Group’s diversity and inclusion vision and strategy.
Each month, an Executive Director and Head of Department are
invited to join the D&I Working Group’s meetings. This provides the
Directors and senior management with insights into the diversity
and inclusion initiatives being developed, understand what the
working group is trying to achieve, and how they can support
and promote the initiatives. The Committee received updates
on the work of the D&I Working Group at each meeting, which
during 2021 included:
— Employee induction programme: Diversity and inclusion is now
incorporated into our induction programme and presents an
opportunity for new employees to understand our vision and
strategy and share ideas or initiatives.
— Redesign of the corporate website: The D&I Working Group
shared with the Board that there was a lack of perceived
diversity on our website. The website was subsequently
redesigned to better represent the people and culture of
Derwent London.
— 2021 Employee Survey: At the request of the D&I Working
Group, the 2021 employee survey asked for respondents’
gender, ethnicity, sexual orientation and disability. This
addition to the survey will allow the Directors to establish if
there are variances/inconsistency in experiences.
— Promoting the work of the D&I Working Group: At a town hall
meeting, the D&I Working Group introduced its members, role
and the Company’s diversity and inclusion strategy. In addition,
a diversity and inclusion ‘mailbox’ has been created for sharing
ideas, and a dedicated page has been created on the intranet.
— National Inclusion Week coffee ‘catch up’.
In 2022, the D&I Working Group will continue to raise awareness of
all aspects of diversity, inclusion and equality, further embed our
2021 initiatives, promote the relevant training and welcome
inspiring guest speakers to town hall meetings.
For further information, see the following disclosures:
More on diversity and inclusion page 57
National Equality Standard page 58
Board’s diversity policy page 147
Financial StatementsStrategic reportGovernance 170
RESPONSIBLE BUSINESS
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 any unconscious bias
— All candidate shortlists to
have gender balance
— 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
Promoting diversity
— Gender balance within our
internships and work
experience placements
— Aim to encourage more
females to be interested in
the construction and property
industry and challenge
harmful gender stereotyping
— Heads of Department
demonstrate that we are an
inclusive employer
Actions taken during 2021
— Working closely with all recruitment consultants to ensure
Further actions required in 2022
— Continue with current
diversity shortlists are received for every vacancy
— Launched new recruitment guidelines to ensure consistency
of approach
— Launched a recruitment log to ensure that the data and
demographics are analysed within a recruitment process
including candidate pool, interview pool and hires
— Updated and relaunched our Diversity & Inclusion page on
the internet to publicise our employee value proposition
— Increased focus on actively promoting ourselves as an
employer that embraces Diversity & Inclusivity
— Relaunched our unconscious bias training alongside
Chickenshed for all employees
— Two guest speakers from an ethnic background, within the
property industry, presented to the Executive Committee and
employees via a town hall meeting to share their experiences,
challenges and journeys
— During the year under review:
– 60% of new recruits have been female
– 37% of new recruits were non-white
– 72% of new female recruits were for ‘professional’ roles
(i.e. excludes administrative, trainee and support roles)
– 91% of new ethnic minority recruits were for
‘professional’ roles
— Created and set up a new Diversity & Inclusion Working
Group Worked towards achieving the National Equality
Standard accreditation
— Rolled out Inclusive Leadership & Behaviour training to the
Executive Committee and other Senior Managers
— Continued with parental transition coaching for those
returning from a period of extended leave
— Strong focus on supporting work/life balance and health
and wellbeing
— Launched our new agile working policy
— Enhanced and relaunched our Family Friendly policies
— A further 26 employees participated in the ‘Fit for the
Future’ programme
— Core Skills sessions and technical workshops
continued virtually
— Rolled out our fourth full employee survey run by an
independent provider
— Internship programmes and work experience placements
format was tweaked in line with Covid-19 restrictions
— Our monthly town hall meetings, hosted by our CEO focused
on diversity and inclusion on a regular basis
— We increased the number of employee representatives on
our Responsible Business Committee to four
— Our intranet and screensavers focused on diversity and
inclusion e.g. recognising and celebrating Black History
Month, Eid, Jewish Holidays etc.
— Working with Pathways to Property
initiatives including our
social responsibility
messaging, communicating
our culture and inclusive
values to the market
— Continue with our
unconscious bias
training programme
— Continue to work closely
with all recruitment
consultants
— Focus on mental health
and wellbeing
— Analyse and digest the
feedback from the
employee survey and
explore recommendations
and actions through
focus groups
— Host an employee awayday
— Continue to offer Core Skills
sessions and training
opportunities
— Participate in careers
and volunteering events
during 2022
— Continue to have gender
and ethnic balance within
our internships and work
placements
— Host three interns under
the #10000BlackInterns
programme
— Continue with training on
diversity and inclusivity
e.g. allyship
— Continue to use the town
halls to communicate
diversity and inclusivity
initiatives and guest
speakers
Derwent London plc Report & Accounts 2021 The Group’s composition and diversity
We have an experienced, diverse and dedicated workforce. The information below provides a breakdown of our diversity as at 1 January
2022. Further information on the Board’s composition as at 1 January 2022 is shown on pages 139 and 147. We will monitor the outcome of
the FCA’s consultation on ‘diversity and inclusion on company boards and executive committees’ and will address the recommendations
once they are finalised. The variance between genders in responses to employee surveys is taken into account by the Remuneration
Committee when determining the annual bonus payout for Executive Directors in relation to the staff satisfaction metric (see page 184).
171
Headcount by department
Number
Length of service
Years
7 HQ Building Services
5 Sustainability
Property
Management
55
Finance
& CoSec
24
Board of
Directors
12
Operational
Support
12
Employees by age
Years
Development
16
Asset
Management
11
8
Investment
Leasing
& Property
Marketing
9
4
IR & Corp
Communications
Under 3
3-5
5-10
10-15
15-20
20+
19 or below
20-29
30-39
40-49
50-59
60+
69
13
34
24
10
13
0
21
53
41
30
18
Number
of total
employees(i)
% of total
employees
Number in
the executive
committee
and its direct
reports(ii)
% of executive
committee
and its direct
reports(ii)
Number
of Board
members(iii)
Number
of senior
positions on
the Board(iv)
% of
Board(iii)
34
29
–
79
84
–
48.5%
51.5%
–
Gender
Men
Women
Not specified/prefer not to say
Ethnicity
White British or White Other
Mixed/Multiple Ethnic Groups
Asian/Asian British
Black/African/Caribbean/Black British
Other Ethnic Group
Not specified/prefer not to say
Total
Notes:
(i) Total employees include the Board of Directors.
(ii) Includes the Executive Committee and its direct reports (excluding administrative and support staff).
(iii) The Board includes the Chairman, Executive Directors and Non-Executive Directors.
(iv) Senior positions on the Board include the CEO, CFO, Chairman and Senior Independent Director.
75.5%
3.7%
9.8%
7.9%
3.1%
–
–
123
6
16
13
5
–
163
54
2
2
2
3
–
63
54.0%
46.0%
–
85.6%
3.2%
3.2%
3.2%
4.8%
–
–
7
5
–
11
–
1
–
–
–
12
58.3%
41.7%
–
91.7%
–
8.3%
–
–
–
–
3
1
–
4
–
–
–
–
–
4
Financial StatementsStrategic reportGovernance
172
REMUNERATION
COMMITTEE
REPORT
Claudia Arney
Chair of the Remuneration Committee
2022 FOCUS AREAS
— Remuneration Policy review and consultation with
major shareholders and proxy voting agencies
— Review the Group’s share-based incentive schemes for
the wider workforce to ensure they remain appropriate
and effective for talent retention
— Operation of the 2022 annual bonus and grant of 2022
Performance Share Plan (PSP) awards
— Continue to keep under review the effectiveness and
relevance of performance conditions and comparator
groups for variable remuneration
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 2021. The Annual report on remuneration,
describing how the Remuneration Policy has been applied for the
year ended 31 December 2021 and how we intend to implement
policy for 2022, is provided on pages 175 to 193.
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
177 to 180. 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 (see page 1).
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 174.
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 2021
Based on performance against the financial and strategic targets,
the incentive outcomes for 2021 were as follows:
— An annual bonus vesting of 30.9% of the maximum
opportunity (equivalent to 46.4% of base salary)
(see page 183).
— A PSP award vesting of 18.1% of maximum opportunity
(see page 185).
The Committee considered the formulaic vesting outcomes against
broader perspectives including: underlying business performance
and affordability; the experience of shareholders; and the
experience of employees and other stakeholders.
The Group’s 2021 TPR performance was 6.3% compared to the
MSCI IPD Quarterly Central London Offices Total Return Index of
5.9%. The Group’s TSR performance for the years 2019 to 2021 was
24.1% compared to the median of the FTSE 350 Supersector Real
Estate Index of 12%.
The Group has completed a number of key acquisitions during
2021. The acquisitions add to our extensive pipeline and offer
considerable opportunities for asset management and medium-
to longer-term development; and are therefore a measure of the
executive leadership team’s strong lead indicator performance.
As disclosed via RNS on 10 August 2021, whilst the Lazari
Investments transaction provides a key long-term development
opportunity, the Group’s portfolio valuation was adversely affected
by the transaction and this has impacted the Group’s Total Return
and TPR performance for 2021.
Derwent London plc Report & Accounts 2021 173
The Committee also noted the following:
— The Group raised the 2021 interim dividend by 4.6% to
23.00 pence per share and the proposed 2021 final dividend
has been increased by 2.0% to 53.5 pence per share.
— No employees were furloughed or made redundant during
2020 or 2021.
— The Company has not received government support or loans.
— The average salary increase for eligible employees was 5.5%
in 2021 and at least 3.2% from 1 January 2022.
— All eligible employees received a bonus for 2021.
— We continued to support our tenants, providing relief on
rent where required.
The Group has continued to perform strongly in difficult
circumstances and has made strategic decisions during the
year which will provide longer-term growth opportunities, which
is testament to the quality and commitment of our executive
leadership team. Nevertheless, circa 90% of the Executive
Directors’ incentive opportunity is based on relative performance
against Real Estate peers and the Committee determined
that it was not appropriate to apply discretion to adjust the
formulaic outcome.
David Silverman’s departure from the Board and treatment of
outstanding incentives
As announced on 14 October 2021, David Silverman will step down
as an Executive Director and leave the Group on 14 April 2022. There
will be no payment for loss of office in respect of David’s departure.
David will continue to receive his salary, benefits and pension until
his leaving date. David was eligible for a bonus in respect of the year
ended 31 December 2021 and will be treated as a good leaver in
respect of his outstanding PSP awards (which will be capable of
vesting at the normal time subject to performance and pro-rating for
time served, and any amounts that vest will be subject to a two-year
holding period). David will also be required to hold shares following
his departure in accordance with the Group’s post-employment
shareholding guidelines. Further information is set out on page 178.
Implementation in 2022
The Committee reviewed the performance and development of
our Executive Directors during the year and, with the exception
of David Silverman and Emily Prideaux, decided to increase
Executive Directors’ salaries by 3% from 1 January 2022. All eligible
employees received at least a 3.2% salary increase from 1 January
2022. David Silverman’s salary will remain unchanged for the period
1 January 2022 to his leaving date.
Emily Prideaux was appointed an Executive Director on 1 March
2021. Emily’s salary was positioned below the other Executive
Directors on appointment to reflect that she was stepping up into
the role of an Executive Director. As detailed on page 151 of the 2020
Report & Accounts, Emily’s salary has been increased by 9.8% to
£450,000 with effect from 1 January 2022. The Committee intends
to further align Emily’s salary with the other Executive Directors by
1 January 2023, subject to good Group and personal performance.
Pension contribution for Paul Williams, Damian Wisniewski, Nigel
George and David Silverman were reduced to 15% of salary from
1 January 2022, to be aligned with the wider workforce. Pension
contribution for Emily Prideaux was set at 15% of salary on her
appointment as Executive Director.
The annual bonus and PSP opportunities and financial
performance measures remain largely unchanged for 2022.
Minor changes have been made to strategic targets which make up
25% of the bonus. We will use the Group’s accident frequency rate
in respect to development projects as our accident rate metric,
our carbon intensity and energy intensity targets will be assessed
on a rolling three-year reduction, and our target range for void
management has been expanded to 10% to 2% (previously, 8%
to 2%) (see page 179).
The Committee reviewed the Group’s share price performance
prior to determining award levels for the 2022 PSP grant. As the
share price on 22 February 2022 was broadly similar to the share
price at the time the 2021 PSP awards were granted (£33.16),
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.
The Board reviewed the Non-Executive Director fees during the
year (without the Non-Executive Directors being present) and
decided to increase the base fee by £5,000 to £52,500, the
committee chair fee by £2,500 to £10,000, and the committee
membership fee by £1,000 to £5,000. The Board considers this level
of fees appropriate for a company of our size and complexity. The
last increase to Non-Executive Director base fees was with effect
from 1 January 2019 and the last increase to the committee chair
and membership fees were with effect from 1 January 2015.
Remuneration Policy review
The current Remuneration Policy was approved by shareholders
at the 2020 AGM and is now approaching the end of its three-year
term. During the coming year, the Committee will conduct a
comprehensive review of its remuneration arrangements to ensure
it remains closely aligned with the Company’s strategic aims,
purpose, attitude to risk and culture, and will seek consultation
with our major shareholders on any proposed changes.
On promotion to Chief Executive in May 2019, Paul Williams’ salary
was positioned towards the lower end of market for a company of
our size and below that of his predecessor’s salary. This reflected
that Paul was stepping up into the role of Chief Executive. As
detailed on page 121 of the 2019 Report & Accounts, the Committee
committed to keep Paul’s salary level under review as he develops
and gains experience in the role; and may award an increase above
the wider workforce average to move his salary level closer to the
market rate. Therefore, as part of the Remuneration Policy review,
the Committee will also review Paul’s salary to ensure that it is
appropriately positioned against the market, taking into account
his experience and performance in the role since appointment.
Ongoing and transparent dialogue with our shareholders is
important to us and informs the Committee’s thinking on
remuneration matters. I therefore encourage all of our
shareholders to engage with us during the review process.
Further engagement
I look forward to receiving your support at our 2022 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).
The Directors’ remuneration report has been approved by the Board
of Directors and signed on its behalf by:
Claudia Arney
Chair of the Remuneration Committee
23 February 2022
Financial StatementsStrategic reportGovernance 174
REMUNERATION
AT A GLANCE
We are transparent about our pay
practices which aim to incentivise
our employees to achieve our
strategy and generate sustainable
value for our stakeholders. Our
Remuneration Policy was supported
by 95.5% of our shareholders.
REWARD LINKED TO PERFORMANCE
Annual bonus earned by Executive Directors
Measure
Relative TR
Relative TPR
Strategic
Total
Threshold Maximum
7.7% 22.9%
7.9%
5.9%
Actual
5.8%
6.3%
37.5%
37.5%
25.0%
PSP earned by Executive Directors
Measure
Relative TSR
Relative TPR
Total
Threshold Maximum
50% 12.0%
4.9%
50%
Actual
71.2% 24.1%
4.6%
7.9%
Bonus
earned
(% max)
0.0
14.5
16.4
30.9
PSP
earned
(% max)
18.1
0.0
18.1
The Committee considers that these outcomes are fair in the
context of our underlying performance and the experience of our
shareholders and stakeholders.
WIDER STAKEHOLDER CONSIDERATIONS
The Committee considers pay policies and practices for employees,
as well as feedback from key stakeholders, when making
remuneration decisions for Executive Directors.
— 100% of employees below the Board received full salaries and
benefits during 2021. None were furloughed
— All eligible employees received at least a 3.2% salary increase
from 1 January 2022
— 2.8% increase to the dividend in 2021
— Total charitable donations and funds of £704,000
— Held our first Stakeholder Day on 29 September (see page 134)
SUMMARY OF OUR REMUNERATION POLICY
AND REMUNERATION STRUCTURE
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
From 1 January 2022, 15% of salary (in line
with the wider workforce)
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(i)
Post-employment guidelines apply
During the coming year, the Committee will conduct a
comprehensive review of its remuneration arrangements to ensure
it remains closely aligned with the Company’s strategic aims,
purpose, attitude to risk and culture, and will seek consultation
with our major shareholders on any proposed changes.
Notes:
(i) Excluding Emily Prideaux who was appointed an Executive Director on 1 March 2021.
Emily is working towards achieving the shareholding guideline (see page 191)
HOW OUR KPIS ARE EMBEDDED WITHIN THE EXECUTIVE REMUNERATION FRAMEWORK
Performance measures
Non-financial KPIs
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%)
Performance against all KPIs is taken into account
when assessing underlying business performance
TR
TPR
S
TPR
TSR
Operational measures
Reversionary percentage
Development potential
Tenant retention
Void management
Responsibility measures
BREEAM
EPC
Carbon & Energy intensity
Staff satisfaction
Accident frequency rate
S
S
S
S
S
S
Derwent London plc Report & Accounts 2021 175
ANNUAL REPORT ON REMUNERATION
(unaudited unless otherwise indicated)
This part of the Directors’ remuneration report explains how we have implemented our Remuneration Policy during 2021. The Remuneration
Policy in place for the year was approved by shareholders at the 2020 AGM on 15 May. We have provided a summary of our Remuneration
Policy on pages 177 to 180. 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 2022 AGM on 13 May 2022.
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 Chairman, 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 (see page 1). 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 maximum potential values that may be earned through the
remuneration arrangements are set out in the summary of our Remuneration Policy on pages 177 to 180.
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 101). 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 Remuneration Policy to ensure that
it is appropriate in this context.
Committee composition and performance
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.
The 2021 evaluation of the Board, its committees and individual
Directors, was internally facilitated by Mark Breuer, the Chairman
of the Board, in accordance with our three-year cycle of evaluations
(see page 141). The review confirmed that the Committee continues
to operate effectively, with no significant matters raised.
Claudia Arney will reach her ninth anniversary on the Board in 2024.
Sanjeev Sharma will join the Committee from 1 March 2022 to ensure
he has the knowledge to succeed Claudia Arney as Chair, in
accordance with the UK Corporate Governance Code.
Number of
meetings
Claudia Arney, Chair
Simon Fraser(ii)
Helen Gordon
Lucinda Bell
Notes:
(i) Percentages are based on the meetings entitled to attend for the 12 months ended
2
1
2
2
Independent
Yes
Yes
Yes
Yes
Attendance(i)
100%
100%
100%
100%
31 December 2021.
(ii) Simon Fraser stepped down from the Board on 31 October 2021. Simon attended 100%
of the Committee meetings he was entitled to attend prior to his retirement date.
The Committee’s role and responsibilities are set out in the terms of
reference, which were last updated in February 2022 and are
available on the Company’s website at: www.derwentlondon.com/
investors/governance/board-committees
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.
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.
— Market practice and corporate governance updates.
— Benchmarking of Non-Executive Director fees.
— Remuneration arrangements for a departing Executive Director.
The fees paid to Deloitte for their services to the Committee during
the year, based on time and expenses, amounted to £41,700.
Financial StatementsStrategic reportGovernance 176
REMUNERATION
COMMITTEE REPORT CONTINUED
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 recent AGMs 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
(2021 AGM)
88.9m 95.0%
5.0%
0.0%
–
4.7m
0.0m
93.6m
Remuneration
Policy
(2020 AGM)
85.6m 95.5%
4.5%
0.0%
–
4.0m
0.0m
89.6m
The Committee was extremely pleased with the level of shareholder
support at the 2021 AGM (c.84.7% of our issued share capital
voted). 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 feedback was taken into
account (see page 154 of the 2020 Report & Accounts for details).
The current Remuneration Policy was approved by shareholders
at the 2020 AGM and is now approaching the end of its three-year
term. During 2022, the Committee will conduct a comprehensive
review of its remuneration arrangements to ensure it remains
closely aligned with the Company’s strategic aims, purpose,
attitude to risk and culture, and will seek consultation with our
major shareholders on any proposed changes.
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.
As part of the Remuneration Policy review being conducted during
2022, the Committee will consider the Group’s share-based
incentive schemes for the wider workforce to ensure they remain
appropriate and effective for talent retention.
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 56.
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 2021, 100% of our workforce below Board level (not
subject to probation) received an annual bonus (2020: 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. 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 2021,
we granted 198,800 options to 78% of our employees below the
Board and Executive Committee (2020: 174,300 options to 79% of
our employees). Further information is on page 221.
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 third grant under
the Sharesave Plan was made on 15 April 2021, with employees
saving on average £177 per month. 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.
As at 1 January 2022, 118 employees are saving into our Sharesave
Plan (72.4% of our employees). Further information on the
Sharesave Plan is on page 191.
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 28, 29, 125 and
135). Employee engagement is frequently measured and we have a
designated Non-Executive Director, Dame Cilla Snowball, who
chairs the Responsible Business Committee.
The Committee considers that there are sufficient channels for
employees to discuss a range of matters, including executive
remuneration, with the Board. The Committee considers pay and
conditions across the Group, as well as any employee feedback
when making decisions on executive remuneration.
Derwent London plc Report & Accounts 2021 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 177 to 180. There has been no deviation in the implementation of the Remuneration
Policy during 2021. In addition, we have set out how the Remuneration Policy will be implemented in 2022. Our full Remuneration Policy can
be found on our website at: www.derwentlondon.com/investors/governance/board-committees
177
Maximum opportunity
No maximum, but increases
will normally be consistent
with the policy applied to
the workforce generally (in
percentage of salary terms).
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
business; and
— practice in companies
with similar business
characteristics.
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 Executive Directors from
1 January 2022 is aligned with
the contribution available to
the wider workforce (currently
15% of salary).
Maximum opportunity of
up to 150% of salary may
be awarded in respect of a
financial year.
Benefits
Pension
Annual
bonus
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).
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 178).
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.
Implementation for 2022
With effect from 1 January 2022, Executive Directors salaries (excluding Emily
Prideaux and David Silverman) were increased by 3%. All eligible employees
received at least a 3.2% salary increase from 1 January 2022.
2022 salary
£’000
630.4
504.3
450.0
504.3
489.6
Executive Director
Paul Williams, CEO
Damian Wisniewski, CFO
Emily Prideaux(i)
Nigel George
David Silverman(ii)
Notes:
(i) Emily Prideaux was appointed an Executive Director on 1 March 2021. Emily’s salary
was positioned below the other Executive Directors on appointment. As detailed on
page 151 of the 2020 Report & Accounts, Emily’s salary has been increased by 9.8%
to £450,000 with effect from 1 January 2022. The Committee intends to further align
Emily’s salary with the other Executive Directors by 1 January 2023, subject to good
Group and personal performance.
2021 salary
£’000
612.0
489.6
410.0
489.6
489.6
(ii) David Silverman did not receive a salary increase effective from 1 January 2022. He
will continue to receive a base salary of £489,600 until he steps down from the
Board on 14 April 2022 (further information on page 179).
Benefits will continue to include a fully expensed car or car allowance, private
medical insurance and life assurance.
Company contribution and/or cash supplement equal to 15% of salary for all
Executive Directors.
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 companies (37.5%)
— 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.
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 and confirmed that it remained appropriate.
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 2022 annual bonus are
disclosed in note 2 on page 179.
Financial StatementsStrategic reportGovernance 178
REMUNERATION
COMMITTEE REPORT CONTINUED
Maximum opportunity
Maximum opportunity of
up to 200% of salary may
be awarded in respect of a
financial year.
Implementation for 2022
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 shareholder return and total property return targets are set out below.
TSR vs FTSE 350 Super Sector Real Estate Index
Below median
Median
Upper quartile
Straight-line vesting occurs between these points
Annualised TPR vs the MSCI IPD UK All Property Index
Below Index
Index
Index + 2%
Straight-line vesting occurs between these points
Vesting (% of
TSR award)
0%
22.5%
100%
Vesting (% of total
return award)
0%
22.5%
100%
As at 23 February 2022, all of our Executive Directors have achieved the within-
employment guideline (see page 191) except Emily Prideaux, who was appointed
an Executive Director on 1 March 2021. Emily will work towards achieving the
shareholding guideline.
On 14 April 2022, David Silverman will cease to be a Director and employee of the
Group. It is anticipated that David Silverman will be deemed to hold in excess of
200% of salary in ‘guideline shares’ on leaving Derwent London and will therefore
be required to retain a shareholding in accordance with the post-employment
share ownership guidelines.
The Committee will monitor David’s compliance with the post-employment share
ownership guidelines.
n/a
Element
Long-term
incentives
Share
ownership
guidelines
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.
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.
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.
5. Corporate failure.
Derwent London plc Report & Accounts 2021 179
Note 2: Strategic targets for the 2022 annual bonus
The strategic targets for the 2022 annual bonus will be broadly the same as those used for the 2021 annual bonus (see page 184). For the
2022 annual bonus, we will use the Group’s accident frequency rate as our accident rate metric, our carbon intensity and energy intensity
targets will be assessed on a rolling three-year reduction, and our target range for void management has been expanded to 10% to 2%
(previously, 8% to 2%).
Performance measure(i)
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 rate(iii)
For 2022, this will be our Accident Frequency Rate, which is calculated based on the number of
development RIDDOR injuries during the year multiplied by 1,000,000 and divided by ‘work hours’.
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(iv)
This is measured by emissions intensity per m2 of landlord-controlled floor area across our
managed like-for-like portfolio, against the rolling three-year average.
Energy intensity(iv)
This is measured by energy consumption (kWh) per m2 of landlord-controlled floor area across
our managed like-for-like portfolio, against the rolling three-year average.
Target range(ii)
10% to 2%
Maximum award
5.0%
50% to 75%
5.0%
80% to >95% of staff to be
satisfied or better
65% to 75% of the latest
industry benchmark
2.5%
2.5%
35% to 50%
2.5%
-5% to -10%
5.0%
-2% to -4%
2.5%
25%
Notes:
(i) The link between the performance measures and our strategic objectives is shown in the table on page 184.
(ii) Payout accrues on a straight-line basis, between threshold and maximum performance.
(iii) In 2021, we used Accident Incident Rate (see page 184). Our Accident Frequency Rate (AFR) for 2021 was 1.26 (2020: 2.72) a reduction of 53.7%. AFR is subject to independent
assurance from Deloitte.
(iv) For the 2022 bonus, the three-year average to 31 December 2022 will be compared against the three-year average to 31 December 2021.
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 2021, our Executive Directors did not receive fees for their external appointments. Further
information on our Executive Directors’ external appointments is provided on pages 126 and 127.
Payments to past Directors and for loss of office (audited)
Simon Silver retired as an Executive Director on 26 February 2021. The impact of Simon Silver’s retirement on his remuneration was
disclosed on page 151 of the 2020 Report & Accounts. Simon Silver remained eligible to earn a pro rata bonus for the 2021 financial year.
His PSP awards granted on 12 March 2019 and 13 March 2020 remain capable of vesting in accordance with their normal vesting timetable,
subject to the achievement of the relevant performance conditions and a pro rata reduction for the period 26 February 2021 to the end of
the performance period. Details of Simon Silver’s 2021 bonus earned and 2019 PSP award expected vesting outcome are disclosed on
pages 184 and 185 respectively.
David Silverman will step down from the Board on 14 April 2022 and the table below discloses how this will impact on his remuneration.
There will be no payment for loss of office in respect of David’s departure. David will continue to receive his salary, benefits and pension
until his leaving date. The table below provides information on the treatment of his annual bonus and PSP arrangements.
Element
Annual bonus
PSP awards
Sharesave options
Post-employment
shareholding guidelines
Agreed treatment
— Annual bonus for the year ended 31 December 2021 will be paid in March 2022 based on performance against
targets and is detailed on page 184.
— David Silverman will not be eligible to receive a bonus in respect of the period 1 January to 14 April 2022.
David Silverman will not be eligible to receive a PSP grant in 2022.
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 two-year holding period; and
— Will be subject to a pro rata reduction for the period 14 April 2022 to the end of the performance period
All outstanding Sharesave options will lapse on his leaving date (see page 191).
It is anticipated that David Silverman will be deemed to hold in excess of 200% of salary in ‘guideline shares’ on
leaving Derwent London and will therefore be required to retain a shareholding in accordance with the post-
employment shareholding guidelines (see pages 178 and 191).
Financial StatementsStrategic reportGovernance 180
REMUNERATION
COMMITTEE REPORT CONTINUED
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(i)
Note:
(i) David Silverman will step down from the Board on 14 April 2022 (further information on page 179).
Date of service contract
22 November 2018
10 July 2019
10 July 2019
26 February 2021
14 August 2019
12 months’ notice to the
Executive Director and
six months’ notice from
the Executive Director.
Notice period
Service contract expiry date
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.
Appointment date to the Board
1 February 2021
6 August 2013
18 May 2015
Mark Breuer
Richard Dakin(i)
Claudia Arney
Dame Cilla Snowball 1 September 2015
Helen Gordon
Lucinda Bell
Sanjeev Sharma
Note:
(i) Richard Dakin will reach his ninth anniversary on the Derwent London Board during 2022. It is anticipated that he will step down as a Director by the end of 2022.
Current tenure as at 1 January 2022
11 months
8 years, 5 months
6 years, 7 months
6 years, 4 months
4 years
3 years
3 months
Date of latest appointment letter
25 January 2021
5 August 2019
5 May 2021
9 August 2021
4 November 2020
11 November 2021
6 August 2021
Appointment letter expiry date
1 February 2024
6 August 2022
18 May 2024
31 August 2024
31 December 2023
1 January 2025
1 October 2024
1 January 2018
1 January 2019
1 October 2021
Further information on Non-Executive Director succession is on page 146.
Summary table for the Chairman and Non-Executive Directors
Operation
Chairman The remuneration of the Chairman is set by the Board
Non-
Executive
Directors
(excluding the Chairman).
The Chairman receives an annual fee.
The Chairman may be eligible to receive benefits including, but
not limited to, the use of a driver, secretarial provision, office
costs and travel costs.
The Chairman does not receive pension contributions 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.
Implementation for 2022
Mark Breuer’s inclusive Chairman fee is £250,000 per annum and
remains unchanged from 2021. Mark does not receive the benefits
of a driver or contributions to his office costs.
With effect from 1 January 2022, the Board have approved
the following increases to Non-Executive Director fees
(see page 173):
Non-Executive Director fees
Base fee
Committee chair
Senior Independent Director
Committee membership fee
2022 fee
£’000
52.5
10.0
10.0
5.0
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.
The Non-Executive Director base fee and Senior Independent
Director fee were last increased with effect from 1 January 2019.
The committee chair and membership fees were last increased
with effect from 1 January 2015.
Derwent London plc Report & Accounts 2021 181
Total remuneration in 2021 (audited)
The table below sets out the remuneration paid to each Director for the financial years ended 31 December 2021 and 31 December 2020 as
a single figure. A full breakdown of fixed pay and pay for performance in 2021 can be found on pages 182 to 185.
Executive Directors
£’000
2021
Paul Williams, CEO
Damian Wisniewski, CFO
Emily Prideaux(vii)
Nigel George
David Silverman
Former Executive Director
Simon Silver(viii)
2020
Paul Williams, CEO
Damian Wisniewski, CFO
Simon Silver
Nigel George
David Silverman
Former Executive Director
John Burns
Non-Executive Directors
Fixed pay
Pay for performance (variable pay)
Salary(i)
Taxable
benefits
Pension
and life
assurance(ii)
Bonus
Performance
Subtotal
Cash
Deferred
LTIPs(iii)(iv)(v)
Subtotal
Other items in
the nature of
remuneration(vi)
Total
remuneration
612
490
342
490
490
97
600
480
581
480
480
–
23
23
15
22
21
11
23
23
51
22
21
–
121
95
57
97
96
756
608
414
609
607
22
130
135
107
146
107
106
758
610
778
609
607
284
227
159
227
227
43
597
478
578
478
478
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
222
178
48
178
178
153
856
856
1,125
856
856
506
405
207
405
405
196
1,453
1,334
1,703
1,334
1,334
523
523
–
1
3
–
–
–
3
1
–
3
3
–
1,262
1,014
624
1,014
1,012
326
2,214
1,945
2,481
1,946
1,944
523
2021
2020
£’000
Mark Breuer(ix)
Richard Dakin
Claudia Arney
Cilla Snowball
Helen Gordon
Lucinda Bell
Sanjeev Sharma(x)
Former Non-Executive Directors
John Burns(xi)
Simon Fraser(xii)
Notes:
(i) 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
Total
173
67
71
67
57
71
15
Fees
173
67
71
67
57
71
15
Fees
–
67
71
67
56
71
–
Total
–
67
71
67
56
71
–
250
77
250
77
93
61
93
61
–
–
–
–
Taxable
benefits
–
–
–
–
–
–
–
Taxable
benefits
–
–
–
–
–
–
–
2020. The waived remuneration was used for charitable donations and sponsorships. 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 2021 relate to the 2019 PSP awards which will vest on 14 March 2022 and 15 August 2022 and for which the performance conditions related to the year
ended 31 December 2021. The value is based on an estimate of expected vesting of 18.1% and the average share price over the last three-months of the financial year ended 31
December 2021 of £33.90. 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 185.
(iv) In the 2020 Report & Accounts, the potential value of 2018 PSP awards vesting for which the performance conditions related to the year ended 31 December 2020 was
calculated using the average share price for the three-months ended 31 December 2020, being £29.80. The 2020 Performance LTIP figures in the table above have been restated
to reflect the actual number of 2018 PSP awards which vested on 16 March 2021 using the share price on the day of vesting (being, £33.03). The restated value provides a
difference of £3.23 per vested share in comparison to the estimates contained in the 2020 Report & Accounts on page 159. Further details of vesting is provided on page 193.
(v) The 2018 PSP awards which vested on 16 March 2021 were granted on 6 March 2018 when the share price was £29.48. Between grant and the vesting date, the share price had
increased to £33.03 which equated to an increase in value of each vesting share equivalent to £3.55. The proportion of the value disclosed in the single figure attributable to
share price growth is therefore 10.7%. The Remuneration Committee did not exercise discretion in respect of the share price appreciation.
(vi) Included in the column for ‘other items in the nature of remuneration’ is the grant under the Derwent London Sharesave Plan made on 15 April 2021. These have been calculated
based on the middle market share price on the date of grant being £33.57 minus the value of the awards at the option price which was £25.93. Further information on the
Derwent London Sharesave Plan is on page 186.
(vii) Emily Prideaux was appointed an Executive Director on 1 March 2021. The remuneration for 2021, is the actual remuneration paid to Emily Prideaux since her appointment.
(viii) 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. Simon was eligible to earn a bonus for the period to 26 February 2021 on a pro rata daily basis (see page 184). Simon’s 2019
PSP awards will vest in accordance with the normal timetable on 14 March 2022, subject to performance, and a pro rata reduction for the period 26 February 2021 to the end of
the performance period (see page 185).
(ix) For the period 1 February 2021 to 14 May 2021, Mark Breuer as Chairman Designate received a base fee of £47,500 per annum and a committee membership fee of £4,000 per
annum. From 14 May 2021, Mark Breuer took over the role of Non-Executive Chairman. His inclusive Chairman fee from this date was £250,000 per annum.
(x) Sanjeev Sharma was appointed a Non-Executive Director on 1 October 2021. The fees for 2021, are the actual fees paid to Sanjeev Sharma since his appointment.
(xi) For the period 1 January 2021 to 14 May 2021, John Burns’ fees as Non-Executive Chairman was £250,000 per annum subject to a pro rata reduction. In order to undertake his
duties, John Burns was also provided with a driver and secretary, together with a contribution to his office running costs.
(xii) Simon Fraser stepped down from the Board on 31 October 2021. The fees for 2021 shown in the table above are the actual fees paid to Simon Fraser until his retirement date.
Financial StatementsStrategic reportGovernance 182
REMUNERATION
COMMITTEE REPORT CONTINUED
Executive Directors’ remuneration in 2021
Remuneration for Executive Directors comprises the following elements:
Total remuneration
Fixed pay
Variable pay
Base salary | Benefits | Pension
Annual bonus | Long-term incentive
Performance-based
Fixed pay in 2021 (audited)
Base salaries and fees
Salaries for the Executive Directors were increased by 2.0% with effect from 1 January 2021, which was in line with the cost of living
increase awarded to the wider workforce (see page 189). Emily Prideaux was appointed an Executive Director on 1 March 2021; from
her appointment, Emily’s base salary was £410,000 per annum.
During 2020, 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 and 30 June 2020. The comparison base salary for 2020 detailed in the table below is the Directors’
base salaries before the 20% waiver. The actual base salaries paid to Directors during 2020 is detailed on page 160 of the 2020 Report
& Accounts.
2021
base salary/fee
2020
base salary/fee
£600,000
£480,000
–
£480,000
£480,000
£612,000
£489,600
£341,667
£489,600
£489,600
Executive Directors
Paul Williams, CEO
Damian Wisniewski, CFO
Emily Prideaux(i)
Nigel George
David Silverman
Former Executive Directors
Simon Silver(ii)
Non-Executive Directors
Mark Breuer(i)
Richard Dakin
Claudia Arney
Cilla Snowball
Helen Gordon
Lucinda Bell
Sanjeev Sharma(i)
Former Non-Executive Directors
John Burns(iii)
Simon Fraser(iv)
Notes:
(i) Mark Breuer, Emily Prideaux and Sanjeev Sharma were appointed to the Board on 1 February, 1 March and 1 October 2021, respectively. The base salaries shown in the table
£172,605
£67,000
£71,000
£67,000
£57,167
£71,000
£14,875
–
£67,000
£71,000
£67,000
£55,500
£71,000
–
£250,000
£77,000
£92,742
£60,679
£581,000
£96,833
above are the actual fees/salary paid to them for the periods they were Directors.
(ii) Simon Silver’s salary remained unchanged at £581,000 per annum for the period 1 January 2021 until his retirement date on 26 February 2021.
(iii) John Burns’ fee remained unchanged at £250,000 per annum for the period 1 January 2021 until his retirement date on 14 May 2021.
(iv) From May 2021, Simon Fraser’s fee reduced from £77,000 to £69,500 per annum as Mark Breuer succeeded him as Chair of the Nominations Committee. Simon Fraser
stepped down from the Board on 31 October 2021.
Derwent London plc Report & Accounts 2021 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 2021 can be found in the table below.
Car and fuel allowance
Private medical insurance
Total 2021 taxable benefits
183
Executive Directors
Paul Williams, CEO
Damian Wisniewski, CFO
Emily Prideaux(i)
Nigel George
David Silverman
Former Executive Directors
Simon Silver(ii)
Notes:
(i) Emily Prideaux was appointed an Executive Director on 1 March 2021, therefore her benefits shown in the table above are for the period 1 March to 31 December 2021.
(ii) The benefits which Simon Silver received remained unchanged for the period 1 January 2021 until his retirement date on 26 February 2021.
£16,000
£16,000
£13,334
£16,000
£16,000
£7,487
£6,791
£2,267
£6,161
£4,943
£9,081
£1,983
£23,487
£22,791
£15,601
£22,161
£20,943
£11,064
Pension and life assurance
Paul Williams, Damian Wisniewski, Nigel George and Simon Silver each received a cash supplement of 17.5% of salary. David Silverman and
Emily Prideaux received £4,000 and £3,333, respectively, into the Group’s Fidelity Master Trust pension scheme with the remainder of their
entitlement paid as a cash supplement. No other Directors are accruing benefits under a money purchase pension scheme.
From 1 January 2022, the Executive Director pension provision has been aligned with the contribution available to the wider workforce at
15% of salary.
There was no change in the life assurance benefits received by the Executive Directors in 2021. The change in the annual cost is due to
increases in life assurance premiums.
Pay for performance (audited)
Determination of 2021 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 2021 performance, the annual bonus payout for Executive Directors is 30.9% of the maximum potential (2020: 96.3%; 2019: 97%;
2018: 68.5%). The Committee exercised its discretion to reduce the 2020 annual bonus payout by 30.0% (from 96.3% to 66.3%).
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 pages 172 and 173. The Committee determined that it was not
appropriate to apply discretion to adjust the formulaic outcome.
2021 annual bonus outcome
Bonus payable for financial-based performance
Bonus payable for strategic target performance
Total bonus payable for 2021 (% of the maximum)
Financial-based metrics
Performance measure
Total return
Weighting
% of bonus
37.5
Total property return (TPR)
37.5
14.5%
16.4%
30.9%
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)
%
7.7
5.9
%
22.9
7.9
Actual
%
5.8
Payable
%
0.0
6.3
14.5
Total bonus payable for financial-based metrics
Notes:
(i) The major real estate companies contained in the comparator group for the 2021 annual bonus are: Big Yellow Group plc, The British Land Company plc, Capital & Counties
14.5
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.
(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%.
Financial StatementsStrategic reportGovernance 184
REMUNERATION
COMMITTEE REPORT CONTINUED
Strategic targets
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(iii): 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(iv): This is calculated based on the number of
development RIDDOR injuries during the year, multiplied by 100,000 and
divided by the number of site workers (inductions).
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(v): This is measured by emissions intensity per m2 of
landlord-controlled floor area across our managed like-for-like portfolio.
Energy intensity(v): This is measured by energy consumption (kWh) per m2
of landlord-controlled floor area across our managed like-for-like portfolio.
Link to
strategic
objectives(i)
1. 2.
1. 2.
3.
4.
1.
4.
4.
Target
range(ii)
8% to 2%
Maximum
award
5.0%
2021
achievement
1.6%
Proportion
awarded
for 2021
5.0%
50% to 75%
5.0%
77%
5.0%
80% to >95%
of staff to be
satisfied or better
>0% to 5%
reduction
2.5%
90.5%
1.8%
2.5%
72.2%
reduction
2.5%
35% to 50%
2.5%
47.6%
2.1%
-5% to -10%
5.0%
-1%
0.0%
-2% to -4%
2.5%
+2%
0.0%
25%
16.4%
Notes:
(i) Success against our strategic objectives is measured using our KPIs (see pages 44 to 49) 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 32 to 43).
(ii) Payout accrues on a straight-line basis, between threshold and maximum performance.
(iii) The variance between genders in responses to the employee survey was taken into account by the Committee when determining the payout for staff satisfaction. The results
of the employee survey showed a 0.7% variance between genders, with female satisfaction being at 95.6% and male satisfaction at 94.9%.
(iv) Our accident incident rate in 2021 was 34.23 (2020: 123.3) a reduction of 72.2%. For the 2022 annual bonus, the target will change to accident frequency rate (see note 2 on
page 179). Our accident frequency rate for 2021 was 1.26 (2020: 2.72) a reduction of 53.7% (see page 66).
(v) Achievement of the carbon and energy intensity targets have been affected primarily by the Covid-19 pandemic. As building occupation rose throughout 2021 following the
release of lockdown restrictions, there was a subsequent increase in energy consumption compared to the significant reduction in 2020 (see page 74).
(vi) The strategic targets for the 2022 annual bonus are available in note 2 on page 179.
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
Emily Prideaux(i)
Nigel George
David Silverman
Former Executive Directors
Simon Silver(ii)
Notes:
(i) Emily Prideaux earned a bonus equal to £159,400 in respect of her role as an Executive Director (1 March to 31 December 2021) and this amount is disclosed in the table above.
Emily Prideaux also earned a bonus equal to £40,600 in respect of her role prior to being appointed as an Executive Director (1 January to 28 February 2021). Her total bonus
earned in respect of 2021 was therefore £200,000.
46.4
46.4
46.4
46.4
46.4
30.9
30.9
30.9
30.9
30.9
284
227
159
227
227
–
–
–
–
–
46.4
30.9
44
–
–
–
–
–
–
–
(ii) Simon Silver retired as an Executive Director on 26 February 2021 and his bonus payout was calculated on a pro rata daily basis for the period 26 February 2021 to the end of
the performance period.
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, subject to continued employment.
Derwent London plc Report & Accounts 2021
185
Performance Share Plan (PSP) vesting of awards
The Group granted share-based awards under the PSP on 12 March 2019 and 14 August 2019. The grant made in August 2019 was only to
Paul Williams to reflect his increase in salary (from £442,000 to £600,000), following his promotion to Chief Executive on 17 May 2019. The
March and August 2019 grants were subject to the same performance conditions over a three-year performance period which ended on
31 December 2021.
As shown in the table below, the PSP awards granted in 2019 will vest on 14 March 2022 and 15 August 2022 at 18.1% of maximum opportunity.
Performance measure
Total property return (TPR)
Weighting
% of award
50
Total shareholder return (TSR)
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)
%
4.9
12.0
%
7.9
71.2
Actual
%
4.6
24.1
% vesting/
estimated
vesting
0.0
18.1
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 2019).
(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%.
The Committee determined that it was not appropriate to apply discretion to adjust the formulaic outcome. Therefore, the vesting for each
executive will be:
Number of
awards granted
Number of shares
vesting based on
performance (18.1%)
Dividend equivalents(i)
(number of shares)
Total number
of shares vesting
Total estimated value
of award on vesting
Value on vesting
attributable to share
price growth
Executive Directors
Paul Williams, CEO (March)
(August)
(Total)
4,918
1,214
6,132
4,918
1,334
4,918
4,918
27,174
6,713
33,887
27,174
7,377
27,174
27,174
335
84
419
335
91
335
335
5,253
1,298
6,551
5,253
1,425
5,253
5,253
£178,077
£44,003
£222,080
£178,077
£48,308
£178,077
£178,077
£7,197
£5,815
£13,012
£7,197
£1,952
£7,197
£7,197
Damian Wisniewski, CFO
Emily Prideaux(ii)
Nigel George
David Silverman
Former Executive Director
Simon Silver(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 grant date and the vesting date in the form of additional vesting shares. The dividend equivalents for Paul Williams’ August award is an estimate and the actual number of
shares will not be known until the 2021 Final Dividend is paid on 1 June 2022.
£153,127
35,720
4,229
4,517
288
£6,188
(iii) Emily Prideaux’s PSP award was granted in respect of her role prior to being appointed an Executive Director.
(iii) Simon Silver’s award was subject to a pro rata reduction for the period 26 February 2021 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 2021,
being £33.90. The estimated value of the vesting awards has been included within the ‘single figure’ total remuneration table on page 181.
The Company’s share price was £32.53 and £29.42 at the point of grant, respectively, (March and August 2019). Based on the average share
price over the last three months of the financial year ended 31 December 2021, being £33.90, the Company’s share price has risen by £1.37
and £4.48, since the March and August grant dates, respectively. The proportion of the value disclosed in the single figure attributable to
share price growth is therefore 5.9% for Paul Williams and 4.0% for the other Executive Directors (the actual value attributable to share
price growth is contained in the table above). The Remuneration Committee did not consider that it was necessary to exercise discretion
in respect of share price fluctuations since grant.
Overall, the Committee considers that the Remuneration Policy has operated as it intended during 2021 and that the pay outcomes are
aligned with the experience of shareholders and other stakeholders.
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.
Grant
2017 Grant
2018 Grant
2019 Grants
2020 Grant
2021 Grant
Grant date
20 March 2017
6 March 2018
12 March 2019
14 August 2019
13 March 2020
12 March 2021
Performance period
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
1 January 2021 to 31 December 2023
Vesting date
20 March 2020
8 March 2021
12 March 2022
14 August 2022
13 March 2023
12 March 2024
Holding period
Two years
Two years
Two years
Two years
Two years
Holding period ceases
20 March 2022
8 March 2023
12 March 2024
14 August 2024
13 March 2025
12 March 2026
Financial StatementsStrategic reportGovernance
186
REMUNERATION
COMMITTEE REPORT CONTINUED
Grant of PSP awards
On 12 March 2021, the Committee made an award under the Group’s 2014 PSP to Executive Directors on the following basis:
Paul Williams, CEO
Damian Wisniewski, CFO
Emily Prideaux
Nigel George
David Silverman
Number of
shares awarded
36,911
29,529
24,728
29,529
29,529
Face value
of award
£1,223,969
£979,182
£819,980
£979,182
£979,182
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
£33.16 (note: a share price of £33.14 was used to determine the level of PSP awards granted in March 2020). The performance period will run
over three financial years and, dependent upon the achievement of the performance conditions, the awards will vest on 12 March 2024 and
will be subject to a two-year holding period as outlined in the table on page 185.
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 2023
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.
Grant of Sharesave Plan options
On 15 April 2021, the Company granted options under the Derwent London Sharesave Plan. The three-year contract for the Options started
on 1 June 2021. These Options are exercisable at a price of £25.93 per share from 1 June 2024 and are not subject to any performance
conditions.
Executive Directors
Damian Wisniewski, CFO
Emily Prideaux
Notes:
(i) The face value of the award is based on the middle market share price on the grant date multiplied by the number of shares under option.
(ii) 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
Option price
£25.93
£25.93
Market price
at grant
£33.57
£33.57
Face value
of award(i)
£5,808
£11,649
Monthly
saving amount
£125
£250
Value of
award(ii)
£1,322
£2,651
Number
of shares
under option
173
347
on page 191.
Derwent London plc Report & Accounts 2021 187
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 2021
Investment Association share limits (in any consecutive ten-year period):
Current dilution for all share plans
Headroom relative to 10% limit
5% for executive plans – current dilution for discretionary (executive) plans
Headroom relative to 5% limit
2021
112.2 m
2.3%
7.7%
1.2%
3.8%
Pay for performance comparison
The graph below shows the value on 31 December 2021 of £100 invested in Derwent London on 31 December 2011, 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
251.6
214.1
202.1
191.3
185.0
187.7
213.8
212.3
215.8
243.8
192.9
294.2
270.5
266.4
245.3
209.4
161.8
158.0
139.0
130.9
100.0
100.0
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
31 Dec
2021
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
31/12/2012 31/12/2013 31/12/2014 31/12/2015 31/12/2016 31/12/2017 31/12/2018
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
31/12/2019(i)(ii)
John
Burns
1,399
Paul
Williams
2,100
31/12/2020(iii) 31/12/2021
Paul
Williams
1,262
Paul
Williams
2,214
95.0
85.4
Total remuneration
(single figure) (£’000)
Annual bonus
(% of maximum)
Long-term variable pay
(% of maximum)
Notes:
(i) 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.
(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) Total remuneration for 2020 has been restated to reflect the actual number of 2018 PSP awards which vested on 16 March 2021 using the share price on the day of vesting (being,
£33.03). The restated value provides a difference of £3.23 per vested share in comparison to the estimates contained in the 2020 Report & Accounts which were based on the
average three-month share price for the year ended 31 December 2020, which was £29.80. Further details of total remuneration is provided on page 181.
46.0 65.75
65.75
30.9
66.3
83.8
68.5
55.2
50.0
23.3
53.6
26.5
65.7
92.6
24.9
74.2
81.6
18.1
97.0
97.0
Financial StatementsStrategic reportGovernance 188
REMUNERATION
COMMITTEE REPORT CONTINUED
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 2021, 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
£48,500
£63,750
£91,750
£67,908
£90,289
£143,168
Year ended 31 December 2021
25th percentile
50th percentile
75th percentile
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 176 and 221).
(ii) Chief Executive remuneration for the year ended 31 December 2021 is Paul Williams’ 2021 ‘single figure’ (see page 181).
(iii) Chief Executive remuneration for the year ended 31 December 2020 is Paul Williams’ 2020 ‘single figure’ (see page 181), before the voluntary 20% salary waiver. Paul’s total
£58,237
£76,842
£148,867
£63,211
£89,274
£153,828
£62,499
£86,463
£137,452
£47,000
£64,000
£95,266
£40,993
£68,462
£67,500
£45,057
£59,250
£75,000
19:1
14:1
9:1
35:1
26:1
16:1
40:1
28:1
17:1
38:1
29:1
15:1
remuneration has been restated to reflect the actual number of 2018 PSP awards which vested on 16 March 2021, using the share price on the day of vesting (see page 193). The
impact of the restatement on the CEO pay ratio for the year ended 31 December 2020 was that it increased from 34:1 for the 25th percentile, from 25:1 for the 50th percentile,
and from 15:1 for the 75th percentile. The restated CEO pay ratio, based on the actual total remuneration received by Paul Williams in 2020, is included within the above table.
(iv) 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
tenures as Chief Executive during 2019.
(v) 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.
(vi) 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). This method was used due it being the most accurate way of calculating the ratio.
The Board have confirmed that the ratio is consistent with the Company’s wider policies on employee pay, reward and progression.
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 2020 to 2021.
£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
2021
27.7
84.6
4,442
2020
29.2
82.2
4,263
% change
(5.4)
2.8
4.0
base our total return calculation on EPRA net tangible assets (NTA). Further information, including how this figure is calculated, is on page 89.
Derwent London plc Report & Accounts 2021 Percentage increase in remuneration
The table below shows the percentage change in the salary or fees, benefits and annual bonus, for each of the Directors compared to that
for an average employee, for the periods 2019 to 2020 and 2020 to 2021.
189
2019 to 2020
Benefits
(6.2)
2020 to 2021
Benefits
(3.7)
Bonus
(21.0)
Bonus
+22.5
Salary/Fees
+4.7
Salary/Fees
+0.3
(0.2)
(0.2)
n/a
0.0
(0.2)
n/a
+2.0
+2.0
n/a
+2.0
+2.0
n/a
% change
Average employee(i)
Executive Directors(ii)(iii)
Paul Williams, CEO(iv)
Damian Wisniewski, CFO
Simon Silver (until 26 February 2021)(v)
Nigel George
David Silverman
Emily Prideaux (from 1 March 2021)(vi)
Non-Executive Directors
John Burns (until 14 May 2021)(vii)
Mark Breuer (from 1 February 2021)(viii)
Simon Fraser (until 31 October 2021)(iv)
Richard Dakin
Claudia Arney
Cilla Snowball
Helen Gordon
Lucinda Bell(x)
Sanjeev Sharma (from 1 October 2021)(xi)
Notes:
(i) The annual percentage change is calculated based on the mean employee pay for employees of Derwent London plc, the parent company of the Group, and not those employed
(100)
–
–
–
–
–
–
–
–
(100)
–
–
–
–
–
–
–
–
(40)
–
0.0
0.0
0.0
0.0
0.0
+6.0
–
n/a
n/a
n/a
0.0
0.0
0.0
+3.0
0.0
n/a
(52.5)
(52.5)
n/a
(52.5)
(52.5)
n/a
(24.4)
(29.0)
(31.6)
(29.0)
(29.0)
n/a
+10.5
+3.7
–
+3.7
+3.7
n/a
+0.1
(1.4)
(1.7)
(3.9)
(1.7)
n/a
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
by other subsidiary companies, 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 181.
(iii) Benefits include all taxable benefits (including car allowance, private medical and dental etc.).
(iv) From 2019 to 2020, 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.
(v) Simon Silver retired as an Executive Director on 26 February 2021 and therefore the percentage change in remuneration for 2020 to 2021 is not applicable.
(vi) Emily Prideaux was appointed an Executive Director on 1 March 2021 and therefore the percentage change in remuneration is not applicable.
(vii) John Burns stepped down as Chief Executive on 17 May 2019, following which he served as Non-Executive Chairman until his retirement on 14 May 2021. The percentage change
in fees in 2019 therefore incorporates both his salary received as Chief Executive and fees received as Non-Executive Chairman. The percentage change in remuneration for
2020 to 2021 is not applicable.
(viii) Mark Breuer was appointed to the Board as Chairman Designate on 1 February 2021 and then took over the role of Chairman from 14 May 2021. Therefore the percentage change
in remuneration is not applicable.
(ix) Simon Fraser stepped down as a Non-Executive Director on 31 October 2021 and therefore the percentage change in remuneration for 2020 to 2021 is not applicable.
(x) Lucinda Bell became Audit Committee Chair from 17 May 2019.
(xi) Sanjeev Sharma was appointed a Non-Executive Director on 1 October 2021 and therefore the percentage change in remuneration is not applicable.
Salary/fees
— The average employee salary increase includes employees who were not eligible for a salary increase (i.e. new joiners and leavers,
depending on the date of joining or leaving the Group). The average 2021 salary increase for eligible employees (excluding promotions)
was 5.5%.
— There was no change in the underlying fees payable to Non-Executive Directors during 2021. The change for Helen Gordon relates to
her appointment as Senior Independent Director effective from 31 October 2021. The last increase to Non-Executive Director base
fees was with effect from 1 January 2019 and the last increase to the committee chair and membership fees were with effect from
1 January 2015. The Board has approved an increase to Non-Executive Director fees effective from 1 January 2022 (see page 180).
Benefits
There was no change in the benefits received by the average employee or the Executive Directors in 2021 or 2020. The change in the annual
cost is due to the cost of purchasing private medical and life insurance.
Bonus
— The 2021 bonus for the Executive Directors reduced further from 2020, by 52.5%. In comparison, the average employee bonus
increased by 22.5%.
— The 2020 bonus for the average employee and Executive Directors was lower than 2019 due to the impact of the Covid-19 pandemic on
the business and the wider economy. 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%.
Financial StatementsStrategic reportGovernance 190
REMUNERATION
COMMITTEE REPORT CONTINUED
Directors’ interests (audited)
Directors’ interests in shares
Details of the Directors’ interests in shares are provided in the table below.
Number at 31 December 2021
Number at 31 December 2020
Beneficially
held
Deferred
shares
Conditional
shares(vii)
Share
options(viii)
Total
Beneficially
held
Deferred
shares
Conditional
shares
Share
options
Total
Executive Directors
Paul Williams, CEO(i)
Damian Wisniewski,
CFO(ii)
Nigel George(iii)
David Silverman(iii)
Emily Prideaux(iv)
Total
Non-Executive
Directors
Mark Breuer(v)
Richard Dakin
Claudia Arney
Cilla Snowball
Helen Gordon(vi)
Lucinda Bell
Sanjeev Sharma
Total
86,383
65,661
90,948
64,196
5,322
312,510
7,000
–
2,500
–
938
1,000
–
11,438
3,737
3,182
107,008
85,671
674
684
197,802
155,198
72,576
51,952
7,655
6,545
99,201
85,246
674
511
180,106
144,254
3,182
3,182
–
13,283
85,671
85,671
41,157
405,178
674
674
3,267
5,973
180,475
153,723
49,746
736,944
75,416
48,664
–
248,608
6,545
6,545
–
27,290
85,246
85,246
–
354,939
674
674
–
2,533
167,881
141,129
–
633,370
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,000
–
2,500
–
938
1,000
–
11,438
–
–
2,500
–
918
1,000
–
4,418
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,500
–
918
1,000
–
4,418
There have been no other changes to the above interests between 31 December 2021 and 23 February 2022.
Notes:
(i) Paul Williams acquired 25,913 shares from the PSP 2018 grant which vested on 16 March 2021. The vesting shares included dividend equivalents in the form of 2,164 additional
shares. To satisfy the tax liability arising, Paul Williams sold 12,204 shares immediately upon vesting at an average share price of £33.03 per share. Paul Williams acquired and
immediately sold 3,830 shares under the Company’s deferred bonus scheme when they were released from the 2020 deferral on 16 March 2021. These shares were sold at an
average price of £33.03 per share. On 23 March 2021, Paul Williams acquired 188 shares under the Company’s deferred bonus scheme when they were released from the 2019
deferral. To satisfy the tax liability arising, Paul Williams sold 90 shares immediately upon their release at an average share price of £32.02 per share.
(ii) Damian Wisniewski acquired 25,913 shares from the PSP 2018 grant which vested on 16 March 2021. The vesting shares included dividend equivalents in the form of 2,164
additional shares. To satisfy the tax liability arising, Damian Wisniewski sold 12,204 shares immediately upon vesting at an average share price of £33.03 per share. Damian
Wisniewski acquired and immediately sold 3,261 shares under the Company’s deferred bonus scheme when they were released from the 2020 deferral on 16 March 2021. These
shares were sold at an average price of £33.03 per share. Damian Wisniewski acquired and immediately sold 188 shares under the Company’s deferred bonus scheme when they
were released from the 2019 deferral on 23 March 2021. These shares were sold at an average price of £32.02 per share. On 15 April 2021, Damian Wisniewski was granted 173
share options under the Derwent London Sharesave Plan, further information on page 186.
(iii) Nigel George and David Silverman each acquired 25,918 shares from the PSP 2018 grant which vested on 16 March 2021. The vesting shares included dividend equivalents in the
form of 2,164 additional shares. To satisfy the tax liability arising, they each sold 12,204 shares immediately upon vesting at an average share price of £33.03 per share. On 16
March 2021, Nigel George and David Silverman each acquired 3,261 shares under the Company’s deferred bonus scheme when they were released from the 2020 deferral. To
satisfy the tax liability arising, they each sold 1,536 shares immediately upon their release at an average share price of £33.03 per share. On 23 March 2021, Nigel George and
David Silverman each acquired 188 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 90 shares immediately upon their release at an average share price of £32.02 per share.
(iv) Emily Prideaux was appointed an Executive Director on 1 March 2021, Emily’s awards include those that were granted prior to her appointment. Emily Prideaux acquired 6,037
shares from the PSP 2018 grant which vested on 16 March 2021. The vesting shares included dividend equivalents in the form of 501 additional shares. To satisfy the tax liability
arising, Emily Prideaux sold 2,844 shares immediately upon vesting at an average share price of £33.03 per share. On 15 April 2021, Emily Prideaux was granted 347 share options
under the Derwent London Sharesave Plan, further information on page 186.
(v) On 11 March 2021, Mark Breuer purchased 4,000 shares at an average share price of £33.12. Mark Breuer purchased a further 3,000 shares on 18 May 2021 at an average share
price of £33.78.
(vi) During 2021, Helen Gordon reinvested her dividend to purchase an additional 20 shares.
(vii) Conditional shares are those which are subject to performance conditions. For further information on the Performance Share Plan see pages 185, 186 and 193.
(viii) Share options principally relate to the Sharesave Plan (see pages 186 and 191) and are unvested. For Emily Prideaux only, she has outstanding Employee Share Option Plan
(ESOP) awards which were granted in respect of her role prior to being appointed an Executive Director
Derwent London plc Report & Accounts 2021
191
Directors’ shareholding guideline
Executive Directors are subject to within-employment and post-employment shareholding guidelines (see page 178). The within-
employment shareholding guideline for the year ended 31 December 2021 expects all Executive Directors to work towards holding shares
in Derwent London plc equivalent to 200% of base salary. As at 31 December 2021, all Executive Directors have exceeded the within-
employment shareholding guideline, except Emily Prideaux who was appointed an Executive Director from 1 March 2021. Emily Prideaux
is working towards achieving the within-employment shareholding guideline.
Within-employment shareholding guideline
Executive Directors
Paul Williams, CEO
Damian Wisniewski, CFO
Nigel George
David Silverman
Emily Prideaux
Notes:
(i) The base salaries shown in the table above are as at 31 December 2021. Further information on fixed pay during 2021 is provided on page 182.
(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 2021 of £34.15.
2021 salary(i)
£612,000
£489,600
£489,600
£489,600
£410,000
482%
458%
634%
448%
44%
200%
200%
200%
200%
200%
Beneficially
held shares
86,383
65,661
90,948
64,196
5,322
(% of base salary)
Value of
beneficially
held shares(ii)
£2,949,980
£2,242,323
£3,105,874
£2,192,293
£181,746
Target
Achieved
All other employees 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 all PSP recipients (including
Executive Directors) 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 24% 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 191). The outstanding Sharesave options held by Directors are set out in the
table below:
At Grant
During the year
Date of Grant
Option price
£
1 January
2021
(number)
Granted
(number)
Exercised
(number)
Lapsed
(number)
31 December
2021
(number)
Market price
at date of
exercise
£
Value at
exercise
£’000 Maturity date
Executive Directors
Paul Williams, CEO
30/04/2019
09/04/2020
Damian Wisniewski, CFO 30/04/2019
09/04/2020
15/04/2021
Nigel George
David Silverman
30/04/2019
09/04/2020
30/04/2019
09/04/2020
25.80
27.53
25.80
27.53
25.93
25.80
27.53
25.80
27.53
Emily Prideaux
15/04/2021
25.93
Other employees
Other employees
30/04/2019
09/04/2020
15/04/2021
25.80
27.53
25.93
348
326
674
348
163
–
511
348
326
674
348
326
674
–
–
–
–
–
–
–
173
173
–
–
–
–
–
–
347
347
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
348
326
674
348
163
173
684
348
326
674
348
326
674
347
347
18,070
21,263
–
39,333
41,866
–
–
13,394
13,394
13,914
–
–
–
–
–
(1,080)
(978)
(104)
(2,162)
(2,162)
16,990
20,285
13,290
50,565
53,618
01/06/2022
01/06/2023
01/06/2022
01/06/2023
01/06/2024
01/06/2022
01/06/2023
01/06/2022
01/06/2023
01/06/2024
01/06/2022
01/06/2023
01/06/2024
Total
Note:
(i) On 15 April 2021, the Company granted options over 13,914 shares under the Derwent London Sharesave Plan. The three-year contract for the Options started on 1 June 2021.
These Options are exercisable at a price of £25.93 per share from 1 June 2024 and are not subject to any performance conditions.
Financial StatementsStrategic reportGovernance
192
REMUNERATION
COMMITTEE REPORT CONTINUED
Long-term incentive plans (audited)
Deferred Bonus Plan
Details of the deferred bonus shares held by the Directors are set out in the table below:
At Grant
During the year
Market price
at date
of grant
£
Original
Grant
(number)
1 January
2021
(number)
Deferred
(number)
Released
(number)
31 December
2021
(number)
Market price
at date
of release
£
Value at
release
£’000
Earliest
release
dates
Date of award
Executive Directors
Paul Williams, CEO
20/03/2019
32.50
363
182
13/03/2020
33.03
7,474
7,474
Damian Wisniewski, CFO 20/03/2019
32.50
7,837
363
7,656
182
13/03/2020
33.03
6,364
6,364
Nigel George
20/03/2019
32.50
6,727
363
6,546
182
13/03/2020
33.03
6,364
6,364
David Silverman
20/03/2019
32.50
6,727
363
6,546
182
13/03/2020
33.03
6,364
6,364
Former Executive Directors
John Burns
20/03/2019
32.50
556
278
6,727
6,546
13/03/2020
33.03
3,572
3,572
Simon Silver
20/03/2019
32.50
4,128
476
3,850
238
13/03/2020
33.03
7,996
7,996
Other employees
Other employees
13/03/2020
33.03
1,834
1,834
8,472
8,234
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(182)
–
32.02
6
(3,737)
3,737
33.03
123
(3,919)
(182)
3,737
–
32.02
6
(3,182)
3,182
33.03
105
(3,364)
(182)
3,182
–
32.02
6
(3,182)
3,182
33.03
105
(3,364)
(182)
3,182
–
32.02
6
(3,182)
3,182
33.03
105
(3,364)
3,182
20/03/2020
& 22/03/2021
15/03/2021
& 14/03/2022
20/03/2020
& 22/03/2021
15/03/2021
& 14/03/2022
20/03/2020
& 22/03/2021
15/03/2021
& 14/03/2022
20/03/2020
& 22/03/2021
15/03/2021
& 14/03/2022
(278)
–
32.02
(1,786)
1,786
33.03
9
59
20/03/2020
& 22/03/2021
15/03/2021
& 14/03/2022
(2,064)
(238)
1,786
–
32.02
8
(3,998)
3,998
33.03
132
20/03/2020
& 22/03/2021
15/03/2021
& 14/03/2022
(4,236)
3,998
(917)
917
33.03
30
15/03/2021
& 14/03/2022
Total
Notes:
(i) The 2019 annual bonus in excess of 100% of salary was deferred into shares on 13 March 2020 and will be released in two tranches, 50% on or after 15 March 2021 and the
700
1,834
42,452
1,834
41,212
–
–
(917)
(21,228)
917
19,984
remaining 50% on or after 14 March 2022. On 16 March 2021, the Directors chose to sell all, or a proportion, of their released shares (which included a number to discharge the
relevant tax obligations), in all cases at an average price of £33.03 per share. Further information is in the notes to the Directors’ interests in shares table on page 190.
(ii) The 2018 annual bonus in excess of 100% of salary was deferred into shares on 20 March 2019 and was released in two tranches, 50% on 20 March 2020 and the remaining 50%
on 23 March 2021. On 23 March 2021, the Directors chose to sell all, or a proportion, of their released shares (which included a number to discharge the relevant tax obligations),
in all cases at an average price of £32.02 per share. Further information is in the notes to the Directors’ interests in shares table on page 190.
(iii) 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 16 March 2021 and 23 March 2021 are excluded from the above table. For the shares
released on 16 March 2021, the additional dividend equivalent shares equated to 11 shares for John Burns, 8 shares for Simon Silver and 6 shares each for the other Executive
Directors. For the shares released on 16 March 2021, the additional dividend equivalent shares equated to 45 shares for John Burns, 93 for Paul Williams, 100 shares for Simon
Silver and 79 shares each for the other Executive Directors.
Derwent London plc Report & Accounts 2021 Performance Share Plan (PSP)
The outstanding PSP awards held by Directors are set out in the table below:
At Grant
During the year
Market price
at date
of grant
£
Date of
award
1 January
2021
(number)
Granted
(number)
Vested
(number)
Lapsed
(number)
31 December
2021
(number)
Market price
at date
of vesting
£
Value vested
(inclusive
of dividend
equivalents)
£’000
Earliest
vesting
date
193
Executive Directors
Paul Williams, CEO
06/03/2018
12/03/2019
14/08/2019
13/03/2020
12/03/2021
29.48
32.53
29.42
33.14
33.16
Damian Wisniewski,
CFO
06/03/2018
29.48
Nigel George
David Silverman
Emily Prideaux
12/03/2019
13/03/2020
12/03/2021
06/03/2018
12/03/2019
13/03/2020
12/03/2021
06/03/2018
12/03/2019
13/03/2020
12/03/2021
06/03/2018
12/03/2019
13/03/2020
12/03/2021
Former Executive Directors
John Burns
06/03/2018
Simon Silver
Other employees
Other employees
06/03/2018
12/03/2019
13/03/2020
06/03/2018
12/03/2019
13/03/2020
12/03/2021
32.53
33.14
33.16
29.48
32.53
33.14
33.16
29.48
32.53
33.14
33.16
29.48
32.53
33.14
33.16
29.48
29.48
32.53
33.14
29.48
32.53
33.14
33.16
29,104
27,174
6,713
36,210
–
99,201
29,104
27,174
28,968
–
85,246
29,104
27,174
28,968
–
85,246
29,104
27,174
28,968
–
85,246
6,784
7,377
9,052
–
23,213
44,586
44,586
38,263
35,720
35,063
109,046
–
–
–
–
36,911
36,911
–
–
–
29,529
29,529
–
–
–
29,529
29,529
–
–
–
29,529
29,529
–
–
–
24,728
24,728
(25,913)
–
–
–
–
(25,913)
(25,913)
–
–
–
(25,913)
(25,913)
–
–
–
(25,913)
(25,913)
–
–
–
(25,913)
(6,037)
–
–
–
(6,037)
(3,191)
–
–
–
–
(3,191)
(3,191)
–
–
–
(3,191)
(3,191)
–
–
–
(3,191)
(3,191)
–
–
–
(3,191)
(747)
–
–
–
(747)
–
–
–
–
–
–
(15,828)
(15,828)
(34,068)
–
–
(34,068)
(28,758)
(28,758)
(4,195)
–
–
(4,195)
–
27,174
6,713
36,210
36,911
107,008
–
27,174
28,968
29,529
85,671
–
27,174
28,968
29,529
85,671
–
27,174
28,968
29,529
85,671
–
7,377
9,052
24,728
41,157
–
–
–
35,720
35,063
70,783
35,700
33,030
34,843
–
103,573
635,357
–
–
–
31,654
31,654
181,880
(28,053)
–
–
–
(28,053)
(187,638)
(7,647)
–
–
–
(7,647)
(54,111)
–
33,030
34,843
31,654
99,527
575,488
33.03
856 06/03/2021
12/03/2022
14/08/2022
13/03/2023
12/03/2024
33.03
856 06/03/2021
33.03
33.03
33.03
12/03/2022
13/03/2023
12/03/2024
856 06/03/2021
12/03/2022
13/03/2023
12/03/2024
856 06/03/2021
12/03/2022
13/03/2023
12/03/2024
199 06/03/2021
12/03/2022
13/03/2023
12/03/2024
33.03
523 06/03/2021
33.03
33.03
1,125 06/03/2021
12/03/2022
13/03/2023
927 06/03/2021
12/03/2022
13/03/2023
12/03/2024
Total
Notes:
(i) The PSP award granted on 6 March 2018 vested on 16 March 2021 at a vesting level of 81.6%. The value of the vesting awards was based on the share price on the vesting date
6,198
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 2018 PSP grant, dividend equivalents were in the form of
additional vesting shares and equated to dividends paid between March 2018 and March 2021. The dividend equivalent shares have been included in the table above, within the
number of vesting awards, and equate to 1,322 shares for John Burns, 2,845 shares for Simon Silver and 2,164 shares each for the other Executive Directors.
(iii) The PSP awards granted on 12 March 2021 will vest on 12 March 2024. The performance targets attached to these awards are detailed on page 186.
Weighted average exercise price of PSP awards
Weighted average remaining contracted life of PSP awards
31/12/2021
–
1.20 years
31/12/2020
–
1.19 years
31/12/2019
–
1.20 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 2021 was £’nil (2020: £’nil). The weighted average market price of awards vesting in 2021 was £33.03 (2020: £27.65).
Financial StatementsStrategic reportGovernance 194
DIRECTORS’
REPORT
David Lawler
Company Secretary
The Directors’ report for the financial year ended 31
December 2021 is set out on pages 194 to 197. 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:
Future business developments
pages 1 to 120
Stakeholder engagement pages 26 & 134
Diversity and inclusion pages 57, 147 & 169 to 171
Charitable donations page 61
Going Concern & Viability page 98
The section 172(1) statement page 124
Assessing and monitoring culture page 131
Review of the 2021 Report & Accounts page 150
Internal financial control page 154
Risk management and internal controls page 159
Total remuneration in 2021 page 181
Long-term incentive plans pages 191 to 193
Interest capitalised page 219
Financial instruments pages 235 to 244
Financial risk management page 243
Credit, market and liquidity risks pages 243 & 244
Related party disclosures pages 254 & 255
The Directors present their annual report and audited financial
statements for the year ended 31 December 2021.
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 2021, we have applied the
principles of good governance contained in the UK Corporate
Governance Code 2018 (the ‘Code’). We were unable to comply with
provisions 9 and 19 of the Code until the conclusion of the 2021
AGM and we were only partially compliant with provision 38 until
1 January 2022, when we became fully compliant. Our explanation
for the departures from the Code is contained within our
Compliance Statement for 2021 on page 123. Further details on
how we have applied the Code can be found in the Governance
section on pages 120 to 197. 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. Derwent London is a public listed
company 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 2021 and are shown on pages
209 to 267. The Directors recommend a final dividend of 53.5 pence
per ordinary share for the year ended 31 December 2021. When
taken together with the interim dividend of 23.00 pence per
ordinary share paid in October 2021, this results in a total dividend
for the year of 76.50 pence (2020: 74.45 pence) per ordinary share.
Subject to approval by shareholders of the recommended final
dividend, the dividend to shareholders for 2021 will total £60.0m. If
approved, the Company will pay the final dividend on 1 June 2022 to
shareholders on the register of members at 29 April 2022.
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.
Derwent London plc Report & Accounts 2021 195
Key stakeholders
The long-term success of the Group is dependent on its relationships with its key stakeholders. On pages 28 and 29 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.
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.
T. Rowe Price Associates, Inc
Norges Bank
BlackRock Investment Management (UK) Ltd
Ameriprise Financial Inc
(Columbia Threadneedle)
Lady Jane Rayne
Direct/indirect
Indirect
Direct
Indirect
Indirect
31 December 2021
Number of shares
(m)
14.6
10.1
6.0
4.9
Direct
3.6
Direct/indirect
Indirect
Direct
Indirect
Indirect
23 February 2022
Number of shares
(m)
14.6
10.1
6.0
4.9
Direct
3.6
%
13.0
9.0
5.4
4.8
3.6
%
13.0
9.0
5.4
4.8
3.6
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 is on pages 26,
27 and 124.
Directors
The Directors of the Company are set out on pages 126 and 127; all
of which were in office during the year under review except for the
following Board changes:
— Mark Breuer, Emily Prideaux and Sanjeev Sharma were
appointed Directors of the Company on 1 February, 1 March
and 1 October 2021, respectively.
— Simon Silver and Simon Fraser retired from the Board on 26
February and 31 October 2021, respectively.
David Silverman will step down as a Director on 14 April 2022.
David’s current responsibilities will be allocated amongst the other
Executive Directors and therefore it is not the Board’s current
intention to appoint a replacement.
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 172 to 193.
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. Sanjeev Sharma will therefore be seeking election as
a Director following his appointment to the Board on 1 October
2021. 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 election at the AGM on 13 May 2022, except
Simon Silver and Simon Fraser who retired on 26 February and 31
October 2021, respectively, and David Silverman who will step down
as a Director on 14 April 2022.
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 were in force
throughout the year (and at the date of approval of the financial
statements) and are qualifying indemnity provisions under the
Companies Act 2006. Our indemnity arrangements were subject to
a best practice review with our lawyers during 2021.
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 140.
Financial StatementsStrategic reportGovernance
196
DIRECTORS’
REPORT CONTINUED
Capital structure
As at 23 February 2022, the Company’s issued share capital
comprised a single class of 5p ordinary shares and equalled an
amount of £5,610,425 divided into 112,208,510 ordinary shares.
The market price of the 5p ordinary shares at 31 December 2021
was £34.15 (2020: £30.96). During the year, they traded in a range
between £30.16 and £38.50 (2020: £23.34 and £43.62).
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.
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 2021, the Group holds 19,984 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 185). Movements on the holding of these shares are detailed
at the bottom of the page.
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 2021 AGM, shareholders authorised the Company to allot
relevant securities:
— up to a nominal amount of £1,865,837; 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.
This authority is renewable annually. An ordinary resolution will be
proposed at the 2022 AGM to grant a similar authority to allot:
— up to a nominal amount of £1,869,955 (being one-third of the
issued share capital of the Company); and
— up to a nominal amount of £3,740,471, 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 2022 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 £280,521 (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 £280,521 (representing a further 5% of the
issued share capital).
A further special resolution will be proposed to renew the Directors’
authority to repurchase the Company’s ordinary shares in the
market. The authority will be limited to a maximum of 11,220,851
ordinary shares and the resolution sets the minimum and
maximum prices which may be paid. The Directors will only
purchase the Company’s shares in the market if they believe it is in
the best interests of shareholders generally.
Voting
Shareholders will be entitled to vote at a general meeting whether
on a show of hands or a poll, as provided in the Companies Act.
Where a proxy is given discretion as to how to vote on a show of hands
this will be treated as an instruction by the relevant shareholder to
vote in the way in which the proxy decides to exercise that discretion.
This is subject to any special rights or restrictions as to voting which
are given to any shares or upon which any shares may be held at the
relevant time and to the Articles of Association.
If more than one joint holder votes (including voting by proxy), the
only vote which will count is the vote of the person whose name is
listed first on the register for the share.
Number of 5p ordinary shares
Price
Percentage of issued share capital
Year ended 31 December 2021
Year ended 31 December 2020
As at
1 January
2021
41,185
Acquired
568
33.04
As at
31 December
2021
19,984
As at
1 January
2020
2,484
Disposal
21,769
As at
31 December
2020
41,185
Disposal
1,267
Acquired
39,968
33.03
0%
0%
Derwent London plc Report & Accounts 2021
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.
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 and financial 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.
In accordance with the Company’s Articles, the maximum
aggregate fees payable to Non-Executive Directors are £700,000 a
year. The amount of headroom available under this fee limit is
presently low. Accordingly, although there are currently no plans to
make any material changes to Directors’ fees other than the
changes disclosed on page 173, the Board believes it is desirable to
increase the fee limit to provide flexibility for any future increase in
Directors’ fees or any further increase in the number of Directors,
and will therefore seek shareholder approval at the 2022 AGM to
raise the aggregate maximum fees payable to its Non-Executive
Directors by £100,000 to £800,000 a year.
Fixed assets
The Group’s portfolio was professionally revalued at 31 December
2021, resulting in a surplus of £142.9m, before accounting
adjustments of £23.7m and share of joint venture of £13.9m. The
portfolio is included in the Group balance sheet at a carrying value
of £5,544m. Further details are given in note 16 of the financial
statements.
197
Post-balance sheet events
Details of post-balance sheet events are given in note 37 of the
financial statements.
Political donations
There were no political donations during 2021 (2020: 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
15 and 16 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 74 of the Responsibility
section, which includes our annual GHG (greenhouse gas)
emissions footprint, global energy use figure and an intensity ratio
appropriate for our business, which fulfil the requirements of the
Companies Act 2006 (Strategic and Directors’ Report) Regulations
2013. For further analysis and detail on our GHG emissions, please
see our annual Responsibility Report, which can be found at: www.
derwentlondon.com/responsibility
Annual General Meeting (AGM)
In response to Covid-19, and in line with the related public health
guidance and legislation issued by the UK Government, the 2021
AGM was held as a closed meeting. Shareholders were able to
participate in the AGM, and ask questions of the Board remotely, via
call facilities. We were delighted to receive in excess of 87% votes in
favour of all resolutions. In total, 84.7% of our shareholders (voting
capital) voted at the 2021 AGM (which compares favourably to the
FTSE 250 average of 69.65%).
The 38th AGM of Derwent London plc will be held in DL/78 at 80
Charlotte Street, London W1A 1AQ on 13 May 2022 at 10.30am. The
Notice of Meeting together with explanatory notes is contained in
the circular to shareholders that accompanies the annual Report &
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
23 February 2022
Financial StatementsStrategic reportGovernance 198
“ We finance our business using
equity and a moderate level of
debt from a wide variety of sources.
We are relationship driven and
value consistency and reliability with
our lenders, but we also look to be
progressive and innovative. 2021
was an active year of refinancing
which has further strengthened our
balance sheet and financial position.”
Damian Wisniewski
Chief Financial Officer
Derwent London plc Report & Accounts 2021 199
FINANCIAL
STATEMENTS
Statement of Directors’
responsibilities .......................................... 200
Independent Auditor’s report ................. 201
Group income statement ........................ 209
Group statement of
comprehensive income .......................... 210
Balance sheets ......................................... 211
Statements of changes in equity ........... 212
Cash flow statements .............................. 213
Notes to the financial statements ......... 214
Other information
Ten-year summary ................................... 268
EPRA summary ......................................... 269
Principal properties .................................. 272
List of definitions ...................................... 274
Communication with our shareholders .. 278
Awards & recognition ................................IBC
GovernanceStrategic reportFinancial Statements 200
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
IN RESPECT OF THE FINANCIAL STATEMENTS
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 on
pages 126 and 127 confirm that, to the best of their knowledge:
— the Group and Company financial statements, which have
been prepared in accordance with UK-adopted international
accounting standards, give a true and fair view of the assets,
liabilities and financial position of the Group and Company,
and of the profit of the Group; and
— the Strategic report includes a fair review of the development
and performance of the business and the position of the Group
and Company, together with a description of the principal risks
and uncertainties that it faces.
On behalf of the Board
Paul M. Williams
Chief Executive
Damian M.A. Wisniewski
Chief Financial Officer
23 February 2022
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 the Company financial statements in
accordance with UK-adopted international accounting standards.
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 applicable UK-adopted international accounting
standards 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 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 also 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.
Derwent London plc Report & Accounts 2021
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF DERWENT LONDON PLC
201
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 2021 and of the Group’s
profit and the Group’s and Company’s cash flows for the year
then ended;
— have been properly prepared in accordance with UK-adopted
international accounting standards; and
— have been prepared in accordance with the requirements of
the Companies Act 2006.
We have audited the financial statements, included within the
Report & Accounts 2021 (the “Annual Report”), which comprise: the
Balance sheets as at 31 December 2021; 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.
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.
Other than those disclosed in note 10 to the financial statements,
we have provided no non-audit services to the Company or its
controlled undertakings 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 63 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.
— In planning our audit, we made enquiries with management
to understand the extent of the potential impact of climate
change risk on the financial statements. Management
concluded that there was no material impact on the financial
statements. Our evaluation of this conclusion included
challenging key judgements and estimates in areas where we
considered that there was greatest potential for climate
change impact. We particularly considered how climate
change risks would impact the assumptions made in the
valuation of investment properties as explained in our key
audit matter below. We also considered the consistency of
the disclosures in relation to climate change made within
the Annual Report, the financial statements and the
knowledge obtained from our audit. We assessed the
consideration of the cost of delivering the Group’s climate
change and sustainability strategy within the going concern
and viability forecasts.
Key audit matters
— Valuation of investment properties (Group)
— Revenue recognition (Group)
— Valuation of borrowings and derivatives (Group)
— Accounting for the expected credit loss provision (Group)
— Compliance with REIT guidelines (Group)
— Valuation of investments in and loans to subsidiaries
(Company)
Materiality
— Overall Group materiality: £58.9 million (2020: £55.3 million)
based on 1% of Total Assets.
— Specific materiality of £5.8 million (2020: £7.1 million) for
certain income statement line items which is calculated based
on 5% of Profit Before Tax after removing revaluation of
investment properties (whether held directly or through joint
ventures), profit on disposal and fair value movements
on derivatives.
— Overall Company materiality: £37.4 million (2020: £33.7 million)
based on 1% of Total Assets.
— Performance materiality: £44.1 million (2020: £41.4 million)
(Group) and £28.0 million (2020: £25.3 million) (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 StatementsGovernanceStrategic report 202
INDEPENDENT AUDITOR’S REPORT CONTINUED
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.
Valuation of borrowings and derivatives (Group) and valuation of
investments in and loans to subsidiaries (Company) are new key
audit matters this year. Covid-19, which was a key audit matter last
year, is no longer included because of the lower level of uncertainty
from Covid-19 in comparison to the prior year. Otherwise, the key
audit matters below are consistent with last year.
Key audit matter
Valuation of investment properties
Group
Refer to the Audit Committee report (Significant financial judgements,
key assumptions and estimates), note 3 (Significant judgements, key
assumptions and estimates) and note 16 (Property portfolio) to the
financial statements.
The Group has investment properties totalling £5,359.9 million
(2020: £5,029.1 million).
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 (the ‘Valuers’) in
accordance with the Royal Institute of Chartered Surveyors Valuation
– Professional Standards, International Accounting Standard 40
(Investment Property) and International Financial Reporting Standard
13 (Fair Value Measurement).
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 existence of significant estimation uncertainty, coupled with the
fact that only a small percentage difference in individual property
valuations when aggregated could result in material misstatement,
is why we have given specific audit focus and attention to this area.
How our audit addressed the key audit matter
The valuers used by the Group are CBRE 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
Valuers 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 Valuers
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 used by the Valuers. The underlying
property records were assessed for reliability by obtaining signed and
approved lease contracts or sale/purchase contracts and by inspecting
approved third party invoices and tracing back to bank statements. For
the properties currently under development, we agreed the costs to date
included within development appraisals to quantity surveyor reports. We
met with the Valuers independently of management and obtained the
valuation reports to discuss and challenge the valuation methodology
and assumptions. We also challenged the external valuers as to the
extent to which recent market transactions and expected rental values
which they made use of in deriving their valuations took into account the
impact of climate change.
Given the inherent subjectivity involved in the valuation of the property
portfolio, and therefore the need for deep market knowledge when
determining the most appropriate assumptions and the technicalities of
valuation methodology, we engaged our internal valuation experts (qualified
chartered surveyors) to assist us in our audit of this area. We involved our
internal valuation experts to compare the valuations of each property
with our independently formed market expectations and challenged
any differences outside of our expected range. 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 independent publicly available 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
overall materiality; and acquisitions.
Derwent London plc Report & Accounts 2021
Key audit matter
Valuation of investment properties continued
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.
These balances require adjustments made to rental income to
ensure revenue is recorded on a straight-line basis over the course
of the lease.
Valuation of borrowings and derivatives
Group
Refer to the Audit Committee report (Significant financial judgements,
key assumptions and estimates), note 3 (Significant judgements,
key assumptions and estimates) and note 24 (Net debt and derivative
financial instruments) to the financial statements.
The Group has secured and unsecured debt totalling £1,249.4 million
(2020: £1,033.2 million).
There were two extensions for the existing £450.0 million revolving
credit facility and £100.0 million revolving credit facility during the
year. In addition, as a direct consequence of the Inter-Bank Offered
Rate reform, amendments to these facilities had been made on the
floating interest rates of the London Inter-Bank Offered Rate with
the replacement of the Sterling Overnight Indexed Average plus
a Credit Adjustment Spread. These extensions and amendments
were determined by management to be modifications of the existing
facilities rather than an extinguishment.
A £350.0 million 1.875% green bond was issued during the year which
is redeemable in 2031.
There have been a number of financing activities during the year. These
warranted additional audit focus due to the magnitude of the activities
and the potential for complex contractual terms that introduce
judgement into how they were accounted for.
203
How our audit addressed the key audit matter
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 de-risking
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 have no matters to report in respect of this work.
We performed sample testing over the lease data recorded in the two
tenancy management systems to supporting lease agreements, to gain
comfort over the accuracy of the data.
We also performed a recalculation of a sample of rental income based
on the information in the tenancy management system (that generates
rental demands) to gain comfort over the completeness of revenue
recognised. We tested on a sample basis the automatic calculation of
rental demands.
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 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
International Financial Reporting Standard 16 (Leases) (“IFRS 16”).
We recalculated a sample of lease incentive adjustments posted to
revenue in the year to ensure that lease incentive debtors are being
recognised properly as accrued income and subsequently amortised in
line with IFRS 16.
We used substantive testing procedures to ensure that a sample of rental
concessions offered to tenants as a result of Covid-19 had been correctly
accounted for within the requirements of IFRS 16.
We have no matters to report in respect of this work.
We obtained and reviewed each loan contract to understand the terms
and conditions. Where debt covenants were identified, we re-performed
management’s calculations to verify compliance with the contracts.
The carrying value of all debt was agreed to third party confirmations.
We obtained and reviewed the loan amendment contracts to understand
the terms and conditions of the term extensions. We considered if
the amendments constituted a modification or extinguishment and
confirmed that the amendments were a modification in accordance with
International Financial Reporting Standard 9 - Financial Instruments
(“IFRS 9”).
We reviewed the agreement pertaining to the green bond issued during
the year and assessed the accounting treatment applied against IFRS 9.
For derivatives, we agreed the carrying value to valuations obtained
directly from the third party valuers, Chatham Financial. We assessed the
competence and capabilities of the external valuers by considering their
qualifications and market experience. We involved our internal experts
who performed independent valuations to recalculate the value using
independent market data.
From our work on the terms of the debt arrangements in place as at
31 December 2021, we consider the borrowings and derivatives to be
accounted for appropriately, valued correctly in the context of materiality,
and disclosed appropriately.
We have no matters to report in respect of this work.
Financial StatementsGovernanceStrategic report 204
INDEPENDENT AUDITOR’S REPORT CONTINUED
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. Whilst
conditions improved in 2021 as a result of the vaccine programme,
there remains a risk of tenants defaulting or tenant failure, particularly
in respect to the leisure, retail and hospitality sectors. The continued
impact of Covid-19 has therefore given rise to higher estimated
probabilities of default for specific tenants than pre the pandemic.
During the year an ECL provision of £9.5 million (2020: £9.3 million) has
been recorded as a provision for bad debts. 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 50 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.
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.
The obligations of the REIT regime include requirements to comply with
balance of business, dividend and income cover tests. The Group’s
status as a REIT underpins its business model and shareholder
returns. For this reason, it warrants special audit focus.
Valuation of investments in and loans to subsidiaries
Company
Refer to notes 18 (Investments) and 20 (Trade and other receivables) to
the financial statements.
The Company has investments in subsidiaries of £1,749.8 million (2020:
£1,615.9 million) and loans to subsidiaries of £1,860.7 million (2020:
£1,659.4 million) as at 31 December 2021. This is following the recognition
of a £19.9 million (2020: £47.3 million) provision for impairment on
investments in subsidiaries and an expected credit loss impairment
of £nil (2020: £nil) recognised on loans to subsidiaries in the year.
The Company’s accounting policy for investments and loans is to
hold them at cost less any impairment. Impairment of the loans is
calculated in accordance with International Financial Reporting
Standard 9 (Financial Instruments), where expected credit losses
are considered to be the excess of the Company’s interest in a
subsidiary over the subsidiary’s fair value. Investments in subsidiaries
are assessed for impairment in line with International Accounting
Standard 36 (Impairment of Assets).
Given the inherent judgement and complexity in assessing both the
carrying value of a subsidiary company and the expected credit loss of
intercompany receivables, this was identified as a key audit matter.
How our audit addressed the key audit matter
We verified the mathematical accuracy of the model and provision
calculation of the ECL.
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 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 International
Financial Reporting Standard 16 (Leases). 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 reviewed the disclosures made in relation to the ECL provision and the
sensitivity of the provision to the underlying probability of default applied.
We have no matters to report in respect of this work.
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 calculations. We
involved our internal taxation specialists to verify the accuracy of the
application of the rules and to re-perform the REIT compliance tests.
We found that the assessment prepared was free from material error and
consistent with the UK REIT guidelines.
We obtained the directors’ impairment assessment for the recoverability
of investments in and loans to subsidiaries as at 31 December 2021.
We assessed the accounting policy for investments and loans to subsidiaries
to ensure they were compliant with UK-adopted International Accounting
Standards. We verified that the methodology used by the directors in
arriving at the carrying value of each subsidiary, and the expected credit
loss ‘simplified approach’ provision for intercompany receivables, was
compliant with UK-adopted International Accounting Standards.
We identified the key judgement within the requirement for impairment
of both the investments and loans to subsidiaries to be the underlying
valuation of investment property held by the subsidiaries. For details of
our procedures over investment property valuations please refer to the
Group key audit matter above.
We have no matters to report in respect of this work.
Derwent London plc Report & Accounts 2021
205
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 63 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
£58.9 million (2020: £55.3 million).
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
£37.4 million (2020: £33.7 million).
1% of Total Assets
The key driver of the business and determinant of
the Company’s value is investments in and loans to
subsidiaries. Due to this, the key area of focus in the
audit is the valuation of investments in and loans
to in subsidiaries. On this basis, we set an overall
Company materiality level based on total assets.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of
materiality allocated across components was £57.0 to £47.5 million. Certain components were audited to a local statutory audit materiality
that was also less than our overall Group materiality.
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% (2020: 75%) of overall materiality, amounting to £44.1 million (2020: £41.4 million) for the Group financial
statements and £28.0 million (2020: £25.3 million) for the Company financial statements.
In addition, we set a specific materiality level of £5.8 million (2020: £7.1 million) for certain income statement line items which is calculated
based on 5% of Profit Before Tax after removing revaluation of investment properties (whether held directly or through joint ventures), profit
on disposal and fair value movements on derivatives.
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 £2.9 million (for items
audited using overall materiality) and £0.5 million (for items audited using specific materiality) (2020: £2.7 million and £0.7 million) (Group
audit) and £1.8 million (2020: £1.7 million) (Company audit) as well as misstatements below those amounts that, in our view, warranted
reporting for qualitative reasons.
Financial StatementsGovernanceStrategic report
206
INDEPENDENT AUDITOR’S REPORT CONTINUED
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:
— Agreed the underlying cash flow projections to Board approved
forecast and assess how this forecast is compiled;
— Considered management’s forecasting accuracy by comparing
how the forecast made at the half year compare to the actuals
performance in the second half of the year;
— Tested the integrity of the underlying formulas and
calculations within the going concern and cash flow models;
— Understood and assessed the appropriateness of the key
assumptions under both in the base case and in the severe but
plausible downside scenarios, including assessing whether we
considered the downside sensitivities to be appropriately
severe;
— Performed sample testing over the data and information of
the properties used in the forecast made by the Cougar
forecasting system to the supporting documents to gain
comfort over the accuracy of the data and information in the
Cougar forecasting system;
— Assessed the consideration of the cost of delivering the
Group’s climate change and sustainability strategy within the
underlying going concern and viability forecasts;
— Evaluated whether the directors’ conclusion, that sufficient
liquidity and covenant headroom existed to continue trading
operationally throughout the period to 31 December 2023
under the base and severe but plausible scenarios, is
appropriate; and
— Reviewed the disclosures provided relating to the going
concern basis of preparation and found that these provided an
explanation of the directors’ assessment that was consistent
with the evidence we obtained.
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.
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 directors’ 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,
which includes reporting based on the Task Force on Climate-
related Financial Disclosures (TCFD) recommendations. 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.
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 2021 is consistent with the
financial statements and has been prepared in accordance with
applicable legal requirements.
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.
Derwent London plc Report & Accounts 2021 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.
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.
207
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 in respect of the financial statements, 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.
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, 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.
Based on our understanding of the Group and industry, we
identified that the principal risks of non-compliance with laws and
regulations related to breaches of the Real Estate Investment Trust
(REIT) status section 1158 of the Corporation Tax Act 2010 and
non-compliance with the UK regulatory principles, such as those
governed by the Listings Rules, 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 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, as well as those charged with governance, 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;
— Reviewing the reports made by internal audit;
Financial StatementsGovernanceStrategic report 208
INDEPENDENT AUDITOR’S REPORT CONTINUED
— 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 above;
— 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.
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.
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.
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
eight years, covering the years ended 31 December 2014 to 31
December 2021.
Other matter
As required by the Financial Conduct Authority Disclosure Guidance
and Transparency Rule 4.1.14R, these financial statements form part
of the ESEF-prepared annual financial report filed on the National
Storage Mechanism of the Financial Conduct Authority in
accordance with the ESEF Regulatory Technical Standard (“ESEF
RTS”). This auditors’ report provides no assurance over whether the
annual financial report has been prepared using the single electronic
format specified in the ESEF RTS.
Sandra Dowling (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
23 February 2022
Derwent London plc Report & Accounts 2021 GROUP INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2021
Gross property and other income
Net property and other income1
Administrative expenses
Revaluation surplus/(deficit)
Profit on disposal
Profit/(loss) from operations
Finance income
Finance costs
Loan arrangement costs written off
Movement in fair value of derivative financial instruments
Financial derivative termination costs
Share of results of joint ventures
Profit/(loss) before tax
Tax credit
Profit/(loss) for the year
Attributable to:
Equity shareholders
Non-controlling interest
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
209
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
2021
£m
240.2
187.5
(37.1)
130.8
10.4
291.6
–
(28.1)
–
4.8
(1.9)
(13.9)
252.5
1.3
253.8
(81.4)
252.3
1.5
253.8
(77.6)
(3.8)
(81.4)
224.99p
(69.34p)
224.44p
(69.34p)
Note
5
5
16
6
7
7
7
8
9
10
15
31
40
40
1 Net property and other income in 2021 includes write-off/impairment of receivables of £0.8m (2020: £10.1m plus a service charge waiver of £4.1m). See note 3 for additional
information.
The notes on pages 214 to 267 form part of these financial statements.
GovernanceStrategic reportFinancial Statements 210
GROUP STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2021
Profit/(loss) for the year
Actuarial gains/(losses) on defined benefit pension scheme
Deferred tax (charge)/credit on pension
Revaluation surplus of owner-occupied property
Deferred tax charge on revaluation
Other comprehensive income/(expense) that will not be reclassified to profit or loss
Note
14
27
16
27
2021
£m
253.8
2.7
(0.4)
3.7
(1.3)
4.7
2020
£m
(81.4)
(4.1)
0.4
0.4
(0.2)
(3.5)
Total comprehensive income/(expense) relating to the year
258.5
(84.9)
Attributable to:
Equity shareholders
Non-controlling interest
The notes on pages 214 to 267 form part of these financial statements.
257.0
1.5
258.5
(81.1)
(3.8)
(84.9)
Derwent London plc Report & Accounts 2021
BALANCE SHEETS
AS AT 31 DECEMBER 2021
Non-current assets
Investment property
Property, plant and equipment
Investments
Deferred tax
Pension scheme surplus
Other receivables
Current assets
Trading property
Trading stock
Trade and other receivables
Corporation tax asset
Cash and cash equivalents
Non-current assets held for sale
Total assets
Current liabilities
Borrowings
Leasehold liabilities
Trade and other payables
Corporation tax liability
Derivative financial instruments
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
211
REGISTERED NO. 1819699
Group
2021
£m
5,359.9
54.0
51.1
0.3
1.8
159.3
5,626.4
32.2
0.4
61.7
–
68.5
162.8
2020
£m
5,029.1
50.2
0.9
–
–
146.4
5,226.6
12.9
–
76.2
–
50.7
139.8
Company
2021
£m
–
22.6
1,749.8
3.6
1.8
–
1,777.8
–
–
1,898.9
–
68.2
1,967.1
2020
£m
–
23.7
1,615.9
3.1
–
–
1,642.7
–
–
1,682.3
0.4
50.1
1,732.8
102.8
165.0
–
–
5,892.0
5,531.4
3,744.9
3,375.5
12.3
51.2
128.3
0.5
0.4
0.3
193.0
1,237.1
0.4
19.4
0.3
–
–
1,257.2
–
–
106.7
0.5
–
0.6
107.8
1,033.2
5.6
66.6
0.4
2.2
0.5
1,108.5
–
1.2
1,281.7
0.7
0.4
0.3
1,284.3
1,054.7
0.4
22.9
0.3
–
–
1,078.3
–
1.2
1,072.9
–
–
0.6
1,074.7
821.7
5.6
24.1
0.4
2.2
–
854.0
1,450.2
1,216.3
2,362.6
1,928.7
4,441.8
4,315.1
1,382.3
1,446.8
5.6
195.4
941.1
3,299.7
4,441.8
–
4,441.8
5.6
193.7
939.4
3,124.5
4,263.2
51.9
4,315.1
5.6
195.4
925.6
255.7
1,382.3
–
1,382.3
5.6
193.7
926.3
321.2
1,446.8
–
1,446.8
Note
16
17
18
27
14
19
16
30
20
33
21
24
24
22
24
23
24
24
24
23
14
27
28
29
29
29
30
1 Retained earnings for the Company include profit for the year of £11.6m (2020: £1.8m).
The financial statements were approved by the Board of Directors and authorised for issue on 23 February 2022.
Paul Williams
Chief Executive
Damian Wisniewski
Chief Financial Officer
The notes on pages 214 to 267 form part of these financial statements.
GovernanceStrategic reportFinancial Statements
212
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2021
Group
At 1 January 2021
Profit for the year
Other comprehensive income
Share-based payments
Dividends paid
Acquisition of non-controlling interest
At 31 December 2021
At 1 January 2020
Loss for the year
Other comprehensive income/(expense)
Share-based payments
Dividends paid
At 31 December 2020
Company
At 1 January 2021
Profit for the year
Other comprehensive income
Share-based payments
Dividends paid
At 31 December 2021
At 1 January 2020
Profit for the year
Other comprehensive expense
Share-based payments
Dividends paid
At 31 December 2020
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
193.7
–
–
1.7
–
–
195.4
193.0
–
–
0.7
–
193.7
193.7
–
–
1.7
–
195.4
193.0
–
–
0.7
–
193.7
939.4
–
2.4
(0.7)
–
–
941.1
936.2
–
0.2
3.0
–
939.4
926.3
–
–
(0.7)
–
925.6
923.3
–
–
3.0
–
926.3
3,124.5
252.3
2.3
5.2
(84.6)
–
3,299.7
3,286.4
(77.6)
(3.7)
1.6
(82.2)
3,124.5
321.2
11.6
2.3
5.2
(84.6)
255.7
403.7
1.8
(3.7)
1.6
(82.2)
321.2
4,263.2
252.3
4.7
6.2
(84.6)
–
4,441.8
4,421.2
(77.6)
(3.5)
5.3
(82.2)
4,263.2
1,446.8
11.6
2.3
6.2
(84.6)
1,382.3
1,525.6
1.8
(3.7)
5.3
(82.2)
1,446.8
51.9
1.5
–
–
–
(53.4)
–
55.7
(3.8)
–
–
–
51.9
–
–
–
–
–
–
–
–
–
–
–
–
Total
equity
£m
4,315.1
253.8
4.7
6.2
(84.6)
(53.4)
4,441.8
4,476.9
(81.4)
(3.5)
5.3
(82.2)
4,315.1
1,446.8
11.6
2.3
6.2
(84.6)
1,382.3
1,525.6
1.8
(3.7)
5.3
(82.2)
1,446.8
The notes on pages 214 to 267 form part of these financial statements.
Derwent London plc Report & Accounts 2021 CASH FLOW STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
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
Disposal of trading properties
Expenditure on trading properties
Tax paid in respect of operating activities
Net cash from/(used in) operating activities
Investing activities
Acquisition of properties
Capital expenditure on the property portfolio
Disposal of investment properties
Investment in joint ventures
Settlement of shareholder loan
Receipts from joint ventures
Proceeds from sale of investments
Purchase of property, plant and equipment
Disposal of property, plant and equipment
VAT received/(paid)
Net cash (used in)/from investing activities
Financing activities
Net proceeds of green bond issue
Net movement in intercompany loans
Repayment of revolving bank loan
Drawdown of new revolving bank loan
Net movement in revolving bank loans
Proceeds from other loan
Repayment of secured bank loan
Financial derivative termination costs
Acquisition of non-controlling interest
Net proceeds of share issues
Dividends paid
Net cash from/(used in) financing activities
Increase/(decrease) 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 214 to 267 form part of these financial statements.
213
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
Note
7
7
7
1
1
1
7
26
26
26
8
30
28
32
33
Group
2021
£m
187.0
5.7
(14.3)
(26.9)
(7.8)
–
(21.9)
(3.1)
4.1
5.0
(1.6)
(0.5)
125.7
(251.8)
(172.1)
297.3
(64.1)
2.0
–
–
(1.6)
0.2
7.5
(182.6)
346.0
–
–
–
(117.8)
12.3
(28.0)
(1.9)
(53.4)
1.8
(84.3)
74.7
17.8
50.7
68.5
2020
Restated
£m
Company
2021
£m
161.9
2.7
(19.1)
(27.5)
(8.0)
0.2
(25.4)
(2.9)
3.5
31.7
(1.2)
–
115.9
(43.8)
(173.4)
125.6
–
–
0.4
–
(0.4)
–
(0.9)
(92.5)
–
–
(6.5)
24.2
38.0
–
–
(1.7)
–
0.6
(81.8)
(27.2)
(3.8)
54.5
50.7
–
–
–
(26.6)
(8.5)
–
(19.4)
(2.2)
3.8
–
–
–
(52.9)
–
–
–
–
–
–
82.0
(1.2)
0.1
–
80.9
346.0
(153.7)
–
–
(117.8)
–
–
(1.9)
–
1.8
(84.3)
(9.9)
18.1
50.1
68.2
GovernanceStrategic reportFinancial Statements 214
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
1 Basis of preparation
On 31 December 2020, IFRS as adopted by the European Union
at that date was brought into UK law and became UK-adopted
International Accounting Standards, with future changes being
subject to endorsement by the UK Endorsement Board. The Group
transitioned to UK-adopted International Accounting Standards in
its consolidated financial statements on 1 January 2021. This
change constitutes a change in accounting framework however,
there is no impact on recognition, measurement or disclosure.
The financial statements have been prepared in accordance with
UK-adopted International Accounting Standards, (the ‘applicable
framework’), and have been prepared in accordance with the
provisions of the Companies Act 2006 (the ‘applicable legal
requirements’). The financial statements have been prepared
under the historical cost convention as modified by the revaluation
of investment properties, the revaluation of property, plant and
equipment, assets held for sale, pension scheme, and financial
assets and liabilities held at fair value.
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 2021 of 21.0%,
the interest cover ratio of 463%, the £608m total of undrawn
facilities and cash and the fact that the average maturity of
borrowings was 7.2 years at 31 December 2021. The impact of the
Covid-19 pandemic on the business and its occupiers has been
considered. The impact in 2021 was considerably less than in 2020
as evidenced by lower impairment charges and stronger rent
collection rates. Rent collection has improved quarter by quarter
and, for our office occupiers, is now close to that seen pre-
pandemic. Office occupation rates are also gradually recovering.
The likely impact of climate change has been incorporated in our
forecasts and an exercise has been carried out to better
understand the cost of upgrading those properties in our portfolio
with lower EPC ratings. There is a risk that, without capital
investment, some of the buildings with lower EPC ratings could in
future suffer from higher vacancy rates and income/valuation
decline. Based on our forecasts, rental income would need to
decline by 69% and property values would need to fall by 63%
before breaching our financial covenants. When subjected to a 15%
fall in both rental income and property values our interest cover
remained above 300% 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 98.
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.
Presentation of cash flow statement
Following correspondence in late 2021 and early 2022 with the
Corporate Reporting Review Team of the Financial Reporting
Council (‘FRC’), we have agreed to classify the cash flows relating
to the additions to, and disposal of, trading properties within the
Group Cash Flow Statement within ‘net operating activities’ rather
than ‘investing activities’. We have re-presented the statement for
the year ended 31 December 2020 to reclassify £31.7m of cash
receipts and £1.2m of expenditure on trading properties from
‘investing activities’ to ‘operating activities’. This has the effect of
increasing the net cash from operations in 2020 from £85.4m to
£115.9m with a corresponding increase in the net cash used in
investing activities from £62.0m to £92.5m. This presentation has
also been adopted for the year ended 31 December 2021 and will be
applied consistently in future. There is no net impact upon the cash
flow statement overall and there is no impact on any balance sheet
or income statement figures. The review conducted by the FRC was
based solely on the Group’s published 2020 annual report and
accounts and does not provide any assurance that the report and
accounts are correct in all material respects.
2 Changes in accounting policies
The principal accounting policies are described in note 43 and are
consistent with those applied in the Group’s financial statements
for the year to 31 December 2020, 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 were
effective for the first time for the Group’s current accounting period
and had no material impact on the financial statements.
IFRS 16 (amended) – Covid-19-related Rent Concessions;
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (amended) – Interest Rate
Benchmark Reform – Phase 2.
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.
Derwent London plc Report & Accounts 2021 215
IFRS 17 – Insurance Contracts;
IAS 1 (amended) – Classification of liabilities as current or non-current;
IAS 1 and IFRS Practice Statement 2 (amended) – Disclosure of Accounting Policy;
IAS 8 (amended) – Definition of Accounting Estimate;
IFRS 10 and IAS 28 (amended) – Sale or Contribution of Assets between an investor and its Associate or Joint Venture;
IFRS 3 (amended) – Business Combinations;
IAS 16 (amended) – Property, plant and equipment;
IAS 37 (amended) – Provision, contingent liabilities and contingent assets;
IFRS 1, IFRS 9, IAS 41 and IFRS 16 annual improvements;
IAS 12 (amended) – deferred tax related to assets and liabilities arising from a single transaction;
Annual improvements to IFRS Standards 2018-2020.
3 Significant judgements, key assumptions and estimates
The preparation of financial statements in accordance with the applicable framework requires the use of certain significant 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 43. 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 and take into account the impact of climate change and related Environmental, Social and Governance considerations.
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. The impact of the Covid-19 pandemic on the Group’s business and its occupiers has been considered and in 2021 the severity of the
impact has reduced and the charge to the income statement was lower than in 2020. Rent collection rates have improved and are close to
pre-Covid levels. However, there remains an elevated risk of certain tenants defaulting or failing, particularly in respect to the retail and
hospitality sectors. This has resulted in an additional provision totalling £0.2m for 2021. After adding receivable balances written off of
£0.6m, the total charge for provisions and write-offs in 2021 was £0.8m, lower than the £10.1m recognised in 2020. In arriving at the
estimates, the Group considered the tenants at higher risk, particularly in the retail or hospitality sectors, those in administration or CVA,
the top 69 tenants by size and has 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
Write-off
Net trade receivables
Impairment
Service charge provision
Other receivables
(non-current)
£m
Trade and other
receivables
£m
151.9
(4.7)
(0.2)
147.0
–
–
–
–
–
(4.7)
–
(4.7)
22.0
(0.7)
(0.1)
21.2
11.3
(3.8)
(0.3)
(0.3)
6.9
(4.5)
(0.3)
(4.8)
Total
£m
173.9
(5.4)
(0.3)
168.2
11.3
(3.8)
(0.3)
(0.3)
6.9
(9.2)
(0.3)
(9.5)
GovernanceStrategic reportFinancial Statements 216
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
3 Significant judgements, key assumptions and estimates (continued)
The assessment considered the risk of tenant failures or 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 cumulative impairment against lease incentive receivable balances was £5.4m and against trade
receivable balances was £4.1m.
Lease incentive
receivables
(non-current)
£m
Lease incentive
receivables
(current)
£m
Trade
receivables
(current)
£m
Balance before impairment
Low risk
Medium risk
High risk
Impairment
Low risk
Medium risk
High risk
138.0
6.3
7.4
151.7
(0.2)
(0.4)
(4.1)
(4.7)
17.4
3.2
1.3
21.9
–
(0.1)
(0.6)
(0.7)
Net lease incentive included within accrued income
147.0
21.2
All amounts included within trade receivables are current.
3.7
2.3
5.0
11.0
–
(0.1)
(4.0)
(4.1)
6.9
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 2021 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 2021 217
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 makers (which in the Group’s case are the five executive Directors assisted
by the other seven members of the Executive Committee) 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 IFRS figures but also report non-IFRS figures for the EPRA earnings and net asset value. Reconciliations
of each of these figures to their statutory equivalents are detailed in note 40. 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 97% office
buildings1 by value at 31 December 2021 (2020: 98%). The Directors consider that these individual properties have similar economic
characteristics and therefore have been aggregated into a single reportable segment. The remaining 3% (2020: 2%) 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
2021
2020
Office
buildings
£m
108.4
18.5
67.6
–
194.5
Other
£m
0.3
–
0.5
4.5
5.3
Total
£m
108.7
18.5
68.1
4.5
199.8
Office
buildings
£m
104.3
20.4
74.9
–
199.6
Other
£m
0.1
–
0.5
4.5
5.1
Total
£m
104.4
20.4
75.4
4.5
204.7
A reconciliation of gross property income to gross property and other income is given in note 5.
Excluded from the table above is £0.4m of the Group’s share of gross property income in relation to joint ventures located within West End
central. See note 9.
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
2021
2020
Office
buildings
£m
3,313.6
408.1
1,649.7
–
5,371.4
3,348.9
431.4
1,690.4
–
5,470.7
Other
£m
82.2
–
8.4
82.2
172.8
84.2
–
8.4
83.0
175.6
Total
£m
3,395.8
408.1
1,658.1
82.2
5,544.2
3,433.1
431.4
1,698.8
83.0
5,646.3
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
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
A reconciliation between the fair value and carrying value of the portfolio is set out in note 16.
Excluded from the table above is property in relation to the Group’s share of joint ventures located within West End central, with a carrying
value of £50.2m and a fair value of £50.0m. See notes 16 and 18.
Financial StatementsGovernanceStrategic report 218
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
Dilapidation receipts
Write–down of trading property
Net property and other income
2021
£m
194.2
3.6
2.0
199.8
6.7
30.2
3.5
240.2
194.2
(0.8)
–
30.2
(33.6)
(3.4)
(11.8)
178.2
6.7
(6.0)
0.7
2.0
3.5
3.6
0.9
(1.4)
187.5
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
1 In line with IFRS 15 Revenue from Contracts with Customers, the Group recognised a total of £40.4m (2020: £63.9m) 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 £20.2m (2020: £24.0m) 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 impairment review has been carried out using the expected credit loss model within IFRS 9 Financial Instruments (see notes 3 and 15
for additional information). Included in this provision is a charge of £0.6m against trade receivables relating to rental income for the 25
December 2021 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 £1.8m increase and £1.9m decrease respectively, in
the Group’s profit for the period. This sensitivity has been performed on the medium to high risk tenants as the significant estimation
uncertainty is wholly related to these.
In the year to 31 December 2020, a 25% waiver of two quarters’ service charge was given to support occupiers across the whole portfolio in
response to Covid-19 at a cost of £4.1m to the Group.
Derwent London plc Report & Accounts 2021 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
Carrying value
Loss on disposal of artwork
Profit on disposal
219
2020
£m
120.9
(0.6)
120.3
(118.6)
–
1.7
–
–
1.7
2021
£m
402.4
(3.7)
398.7
(387.5)
(0.7)
10.5
(0.1)
(0.1)
10.4
Included within gross disposal proceeds for 2021 is £167.6m relating to the disposal of the Group’s freehold interest in Johnson Building EC1
in January 2021, which was classified as a non-current asset held for sale at 31 December 2020 and £86.5m relating to the disposal of the
Group’s freehold interest in Angel Square EC1 in August 2021.
Also included within gross disposal proceeds for 2021 is £100.7m relating to the surrender of headleases at 19-35 Baker Street W1. A new
headlease was subsequently regranted and is included in ‘additions’ in Note 16. In addition, the Group disposed of its leasehold interests in
17-39 George Street, 16-20 Baker Street, 27-33 Robert Adam Street and 26-27 Castlereagh Street W1 for gross proceeds of £45.2m (see
note 30).
7 Finance income and total finance costs
Finance income
Bank interest receivable
Finance income
Finance costs
Bank loans
Non-utilisation fees
Unsecured convertible bonds
Unsecured green 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
Total finance costs
2021
£m
–
–
0.9
2.1
3.9
0.8
11.4
15.6
3.3
2.5
(1.3)
0.7
0.2
40.1
(12.0)
28.1
–
28.1
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
Finance costs of £12.0m (2020: £9.9m) 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 2021 were £37.0m (2020: £38.2m) of
which £12.0m (2020: £9.9m) 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 £1.9m in the year to 31 December 2021 (2020: £1.7m) deferring interest rate swaps.
Financial StatementsGovernanceStrategic report 220
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
9 Share of results of joint ventures
Income
Administrative expenses
Revaluation deficit
Joint venture acquisition costs incurred
2021
£m
0.4
(0.1)
(10.2)
(9.9)
(4.0)
(13.9)
2020
£m
–
–
–
–
–
–
The share of results of joint ventures for the year ended 31 December 2021 includes the Group’s 50% share in the Derwent Lazari Baker
Street Limited Partnership since its formation in October 2021. See note 18 for further details of the Group’s joint ventures.
10 Profit/(loss) before tax
This is arrived at after charging:
Depreciation
Contingent rent payable under headleases
Auditor’s remuneration
Audit – Group
Audit – subsidiaries
2021
£m
0.9
1.4
0.4
0.1
In 2021, audit fees for the Group were £376,718 (2020: £395,252) and for the subsidiaries £94,180 (2020: £98,588). The prior year
comparatives include additional fees billed for scope changes and cost overruns. Fees for non-audit services, relating to the half year
review, were £60,000 (2020: £43,705) and other non-audit services were £90,000 (2020: £nil).
Details of the Auditor’s independence are included on page 156.
11 Directors’ emoluments
Remuneration for management services
Share-based payments
Post-employment benefits
National insurance contributions
2021
£m
4.0
3.6
0.5
8.1
1.1
9.2
2020
£m
0.7
1.1
0.4
0.1
2020
£m
5.2
3.3
0.6
9.1
1.3
10.4
An amount of £1.7m (2020: £4.2m) relating to the Directors is included within Share-based payments expense of £4.3m (2020: £5.8m)
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 172 to 193. 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
2021
£m
18.5
2.5
2.4
4.3
27.7
2020
£m
18.5
2.7
2.2
5.8
29.2
Company
2021
£m
18.5
2.3
2.2
4.4
27.4
2020
£m
18.5
2.6
2.1
5.7
28.9
The monthly average number of employees in the Group during the year, excluding Directors, was 140 (2020: 132). The monthly average number
of employees in the Company during the year, excluding Directors, was 120 (2020: 114). All were employed in administrative or support roles.
Of the Group’s employees, there were 39 (2020: 34) whose costs were recharged or partially recharged to tenants via service charges.
Derwent London plc Report & Accounts 2021 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
page 185.
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.
221
Exercise
price
£
Adjusted
exercise price1
£
Outstanding
at
1 January
Movement in options
Granted
Exercised
Lapsed
Outstanding
at
31 December
Year of grant
For the year to 31 December 2021
2013
2014
2015
2016
2017
2018
2019
2020
2021
For the year to 31 December 2020
2013
2014
2015
2016
2017
2018
2019
2020
21.99
27.39
34.65
31.20
28.93
30.29
32.43
30.02
33.28
21.99
27.39
34.65
31.20
28.93
30.29
32.43
30.02
21.09
26.27
33.23
29.93
27.75
29.57
32.43
30.02
33.28
21.09
26.27
33.23
29.93
27.75
29.57
32.43
30.02
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
–
–
–
–
–
–
–
–
204,079
204,079
–
–
–
–
–
–
–
174,300
174,300
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
–
(1,600)
(5,807)
(762)
(28,893)
(22,399)
–
–
–
(59,461)
–
(1,584)
(740)
(8,757)
(11,680)
–
–
–
(22,761)
–
–
(2,605)
–
–
–
(5,550)
(6,500)
(3,250)
(17,905)
–
–
–
–
(2,860)
(3,942)
(6,275)
(1,825)
(14,902)
4,158
17,050
35,062
37,635
70,553
91,835
124,025
165,975
200,829
747,122
4,158
18,650
43,474
38,397
99,446
114,234
129,575
172,475
620,409
31 December
2021
31 December
2020
1 January
2020
256,293
490,829
204,125
416,284
115,760
368,012
£29.37
£31.96
£29.23
£30.66
£30.39
£30.14
4.92 years
7.30 years
5.29 years
8.36 years
5.41 years
8.30 years
£33.23
£31.56
£27.81
£31.14
£32.54
£29.74
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 2021 was £35.82 (2020: £34.82).
The weighted average fair value of options granted during 2021 was £8.23 (2020: £6.27).
GovernanceStrategic reportFinancial Statements 222
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 2021 and 2020 under the equity-settled
employee share plan operated by the Group.
Option pricing model used
Risk free interest rate
Volatility
Dividend yield
2021
Binomial lattice
0.3%
30.0%
2.2%
2020
Binomial lattice
0.2%
26.0%
2.4%
For both the 2021 and 2020 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) 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 page 186.
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 Group companies.
Defined contribution plan
The total expense relating to this plan in the current year was £2.0m (2020: £2.0m).
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 2022 is £1.4m (31 December 2021
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 2021.
Derwent London plc Report & Accounts 2021 Amounts included in the balance sheet
Fair value of plan assets
Present value of defined benefit obligation
Net asset/(liability)
223
2019
£m
53.9
(53.4)
0.5
2021
£m
62.7
(60.9)
1.8
2020
£m
66.6
(68.8)
(2.2)
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 asset/(liability) 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 (gains)/losses due to changes in demographic assumptions
Actuarial (gains)/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
Other
At 31 December
The actual return on the plan assets including interest income over the year was a loss of £2.8m (2020: gain of £13.9m).
Amounts recognised in other comprehensive income
(Loss)/gain on plan assets (excluding amounts recognised in net interest cost)
Experience losses arising on the defined benefit obligation
Gain/(loss) from changes in the demographic assumptions underlying the present value
of the defined benefit obligation
Gain/(loss) from changes in the financial assumptions underlying the present value
of the defined benefit obligation
Total gain/(loss) recognised in other comprehensive income
Fair value of plan assets
UK equities
Overseas equities
LDI
Buy and maintain credit
Government bonds
Cash
Other
Insured assets
Total assets
2021
£m
0.6
0.6
6.2
4.1
–
1.4
9.3
40.5
62.7
2021
£m
68.8
–
0.8
0.7
(0.1)
(6.9)
(2.4)
60.9
2021
£m
66.6
0.8
(3.6)
1.4
(2.4)
(0.1)
62.7
2021
£m
(3.6)
(0.7)
0.1
6.9
2.7
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
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
GovernanceStrategic reportFinancial Statements 224
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
14 Pension costs (continued)
The £9.3m (2020: £15.1m) in the ‘other’ asset class is made up of holdings of £5.5m (2020: £9.6m) in equity-linked bonds, £2.4m (2020: £5.5m) in
global funds and £1.4m (2020: £nil) in sterling liquidity 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 2021.
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
2021
%
1.9
n/a
n/a
75% of Post A
Day Pension
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
The mortality assumptions adopted at 31 December 2021 are 85% of the standard tables S3NXA_L, year of birth, no age rating for males and
females, projected using CMI 2020 converging to 1.25% p.a. These imply the following life expectancies:
Life expectancy at age 65
Male retiring in 2021
Female retiring in 2021
Male retiring in 2041
Female retiring in 2041
Years
24.8
26.5
26.1
27.8
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 2021 is 15 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 2022 is £1.4m.
Derwent London plc Report & Accounts 2021 15 Tax credit
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
Tax credit
225
2020
£m
0.8
(0.6)
0.2
(2.0)
0.2
(1.8)
(1.6)
2021
£m
0.9
(0.4)
0.5
(1.1)
(0.7)
(1.8)
(1.3)
In addition to the tax credit of £1.3m (2020: £1.6m) that passed through the Group income statement, a deferred tax charge of £1.3m
(2020: £0.2m) relating to the revaluation of the owner-occupied property at 25 Savile Row W1 and a charge of £0.4m (2020: credit of £0.4m)
relating to the future defined benefit pension liabilities were recognised in the Group statement of comprehensive income.
The effective rate of tax for 2021 is lower (2020: lower) than the standard rate of corporation tax in the UK. The differences are
explained below:
Profit/(loss) before tax
Expected tax charge/(credit) based on the standard rate of corporation tax in the UK of 19.00% (2020: 19.00%)1
Difference between tax and accounting profit on disposals
REIT exempt income
Revaluation (surplus)/deficit attributable to REIT properties
Expenses and fair value adjustments not allowable for tax purposes
Capital allowances
Other differences
Tax credit in respect of profit/(loss) for the year
Adjustments in respect of prior years’ tax
Tax credit in respect of profit/(loss) for the year
2021
£m
252.5
48.0
(0.7)
(14.9)
(32.2)
4.6
(4.3)
(1.4)
(0.9)
(0.4)
(1.3)
2020
£m
(83.0)
(15.8)
1.2
(14.7)
36.6
(1.3)
(5.3)
(1.7)
(1.0)
(0.6)
(1.6)
1 Changes to the UK corporation tax rates were substantively enacted as part of the Finance Bill 2021 (on 24 May 2021) and include increasing the main rate to 25% effective on or
after 1 April 2023. Deferred taxes at the balance sheet date have been measured using the expected enacted tax rate and this is reflected in these financial statements.
GovernanceStrategic reportFinancial Statements 226
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
16 Property portfolio
Group
Carrying value
At 1 January 2021
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
Movement in grossing up of other liabilities
At 31 December 2021
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
Adjustments from fair value to carrying value
At 31 December 2021
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
Grossing up of other liabilities
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
Freehold
£m
Leasehold
£m
Total
investment
property
£m
Owner-
occupied
property
£m
Assets
held for
sale
£m
Trading
property
£m
Total
property
portfolio
£m
3,893.5
214.6
76.6
2.4
293.6
(75.8)
(63.7)
91.5
–
–
–
–
4,139.1
4,121.2
43.5
64.1
4.6
112.2
–
(161.2)
(178.7)
–
–
–
3,893.5
4,296.2
–
–
(157.1)
–
–
4,139.1
4,037.0
–
–
(143.5)
–
3,893.5
1,135.6
139.0
88.4
9.6
237.0
(146.7)
(63.0)
39.3
–
–
3.8
14.8
1,220.8
1,053.1
–
87.8
5.1
92.9
–
–
(17.4)
–
–
7.0
1,135.6
1,161.9
–
–
(26.3)
70.4
14.8
1,220.8
1,091.6
–
–
(22.5)
66.5
1,135.6
5,029.1
353.6
165.0
12.0
530.6
(222.5)
(126.7)
130.8
–
–
3.8
14.8
5,359.9
5,174.3
43.5
151.9
9.7
205.1
–
(161.2)
(196.1)
–
–
7.0
5,029.1
5,458.1
–
–
(183.4)
70.4
14.8
5,359.9
5,128.6
–
–
(166.0)
66.5
5,029.1
45.6
–
–
–
–
–
–
3.7
–
–
–
–
49.3
45.3
–
(0.1)
–
(0.1)
–
–
0.4
–
–
–
45.6
49.3
–
–
–
–
–
49.3
45.6
–
–
–
–
45.6
165.0
–
–
–
–
(165.0)
101.2
–
–
1.6
–
–
102.8
118.6
–
–
–
–
(118.6)
161.2
–
–
3.8
–
165.0
104.8
(2.0)
–
–
–
–
102.8
167.0
(2.0)
–
–
–
165.0
12.9
–
1.1
–
1.1
(5.9)
25.5
–
(1.4)
–
–
–
32.2
40.7
–
0.1
0.2
0.3
(26.3)
–
–
(1.8)
–
–
12.9
34.1
–
(1.9)
–
–
–
32.2
14.3
–
(1.4)
–
–
12.9
5,252.6
353.6
166.1
12.0
531.7
(393.4)
–
134.5
(1.4)
1.6
3.8
14.8
5,544.2
5,378.9
43.5
151.9
9.9
205.3
(144.9)
–
(195.7)
(1.8)
3.8
7.0
5,252.6
5,646.3
(2.0)
(1.9)
(183.4)
70.4
14.8
5,544.2
5,355.5
(2.0)
(1.4)
(166.0)
66.5
5,252.6
Derwent London plc Report & Accounts 2021
Reconciliation of fair value
Portfolio including the Group's share of joint ventures and trading stock
Less: trading stock
Portfolio including the Group's share of joint ventures
Less: joint ventures
IFRS property portfolio
227
2021
£m
5,696.7
(0.4)
5,696.3
(50.0)
5,646.3
2020
£m
5,355.5
–
5,355.5
–
5,355.5
The property portfolio is subject to semi-annual external valuations and was revalued at 31 December 2021 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 £5,610.8m (2020: £5,324.5m) and other valuers at £35.5m (2020: £31.0m), giving a combined
value of £5,646.3m (2020: £5,355.5m). Of the properties revalued by CBRE, £49.3m (2020: £45.6m) relating to owner-occupied property was
included within property, plant and equipment and £34.1m (2020: £14.3m) 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.
At 31 December 2021, the grossing up of other liabilities of £14.8m related to the discounted profit share to TfL for the development at Soho
Place W1.
Following exchange of contracts in December 2021 for the sale of its freehold interest in New River Yard EC1, the Group transferred £63.7m
from investment property to assets held for sale. This subsequently completed in January 2022. A revaluation deficit of £1.2m relating to
the asset held for sale is included within the revaluation surplus of £130.8m.
Contracts exchanged in July 2020 for the sale of its leasehold interest in 2 & 4 Soho Place W1, with completion expected in 2022. As a result
the Group transferred £37.5m from investment property to assets held for sale. A revaluation deficit of £0.8m relating to the asset held for
sale is included within the revaluation surplus of £130.8m.
Net zero carbon and EPC compliance
The Group published its pathway to net zero carbon in July 2020 and has set 2030 as its target date to achieve this. £116.6m (year to 31
December 2020: £103.2m) of eligible ‘green’ expenditure was incurred in the year to 31 December 2021 on major developments at 80
Charlotte Street W1, Soho Place W1, The Featherstone Building EC1 and 19-35 Baker Street W1. As these have met the criteria to be eligible
qualifying projects under the Green Finance Framework, the Group has utilised the green tranche of the £450m revolving credit facility and
the £350m green bonds (more information can be found on pages 96 to 97).
In 2021, the Group commissioned a third party report to determine the costs of achieving EPC compliance across the portfolio by 2030.
Results of the study indicate an estimated cost of c.£97m to upgrade the Group’s properties to EPC ‘B’ or above. An exercise is underway to
estimate the amount of capital expenditure that is recoverable through service charges or not already included within future planned
refurbishment projects. Any committed capital expenditure has been included in note 34.
Reconciliation of revaluation surplus/(deficit)
Total revaluation surplus/(deficit)
Less:
Share of joint ventures
Lease incentives and costs
Assets held for sale selling costs
Trading property revaluation surplus
IFRS revaluation surplus/(deficit)
Reported in the:
Revaluation surplus/(deficit)
Write-down of trading property
Group income statement
Group statement of comprehensive income
2021
£m
142.9
13.9
(19.7)
(2.0)
(2.0)
133.1
130.8
(1.4)
129.4
3.7
133.1
2020
£m
(178.5)
–
(16.7)
(2.0)
(0.3)
(197.5)
(196.1)
(1.8)
(197.9)
0.4
(197.5)
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.
GovernanceStrategic reportFinancial Statements 228
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
16 Property portfolio (continued)
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 and
take into account the impact of climate change and related Environmental, Social and Governance considerations. Each property is
considered a separate asset class based on the unique nature, characteristics and risks of the property.
Members of the Group’s investment team, who report to the executive Director responsible for the valuation process, verify all major
inputs to the external valuation reports, assess the individual property valuation changes from the prior year valuation report and hold
discussions with the external valuers. When this process is complete, the valuation report is recommended to the Audit Committee, which
considers it as part of its overall responsibilities.
Valuation techniques
The fair value of the property portfolio has been determined using an income capitalisation technique, whereby contracted and market
rental values are capitalised with a market capitalisation rate. The resulting valuations are cross-checked against the equivalent yields and
the fair market values per square foot derived from comparable recent market transactions on arm’s length terms. For properties under
construction, the fair value is calculated by estimating the fair value of the completed property using the income capitalisation technique
less estimated costs to completion and a risk premium. These techniques are consistent with the principles in IFRS 13 Fair Value
Measurement and use significant unobservable inputs such that the fair value measurement of each property within the portfolio has been
classified as Level 3 in the fair value hierarchy. There were no transfers between Levels 1 and 2 or between Levels 2 and 3 in the fair value
hierarchy during either 2021 or 2020.
Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy
amount to a gain of £130.8m (2020: deficit of £196.1m) and are presented in the Group income statement in the line item ‘revaluation
surplus/(deficit)’. The revaluation surplus for the owner-occupied property of £3.7m (2020: deficit of £0.4m) was included within the Group
statement of comprehensive income.
All gains and losses recorded in profit or loss in 2021 and 2020 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 2021 and
31 December 2020, respectively.
Quantitative information about fair value measurement using unobservable inputs (Level 3)
Valuation technique
Fair value (£m)1
Area (’000 sq ft)
Range of unobservable inputs2:
Gross ERV (per sq ft pa)
Minimum
Maximum
Weighted average
Net initial yield
Minimum
Maximum
Weighted average
Reversionary yield
Minimum
Maximum
Weighted average
True equivalent yield (EPRA basis)
Minimum
Maximum
Weighted average
West End
central
Income
capitalisation
West End
borders/other
Income
capitalisation
City
borders
Income
capitalisation
Provincial
commercial
Income
capitalisation
Provincial
land
Income
capitalisation
Total
3,483.6
3,102
431.4
429
1,698.7
1,715
£28
£101
£60
2.5%
6.7%
2.4%
2.5%
6.5%
4.4%
2.4%
5.9%
4.3%
£24
£58
£52
2.5%
5.0%
4.6%
3.8%
5.0%
4.8%
3.5%
5.3%
4.9%
£39
£63
£51
2.6%
5.3%
3.5%
3.8%
5.6%
4.8%
2.7%
5.0%
4.7%
46.9
328
–
£13
£13
7.8%
8.1%
8.1%
7.8%
8.5%
8.5%
8.1%
9.0%
8.1%
36.1
–
5,696.7
5,574
n/a3
n/a3
n/a3
0.0%
10.0%
1.3%
0.0%
9.4%
1.3%
9.7%
10.4%
10.4%
Includes the Group’s share of joint ventures.
1
2 Costs to complete are not deemed a significant unobservable input by virtue of the high percentage that is already fixed.
3 There is no calculation of gross ERV per sq ft pa. The land totals 5,500 acres.
Derwent London plc Report & Accounts 2021 229
Sensitivity of measurement to variations in the significant unobservable inputs
The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the Group’s
property portfolio, together with the impact of significant movements in these inputs on the fair value measurement, are shown below:
Unobservable input
Gross ERV
Net initial yield
Reversionary yield
True equivalent yield
Impact on fair value measurement
of significant increase in input
Increase
Decrease
Decrease
Decrease
Impact on fair value measurement
of significant decrease in input
Decrease
Increase
Increase
Increase
There are inter-relationships between these inputs as they are partially determined by market conditions. An increase in the reversionary
yield may accompany an increase in gross ERV and would mitigate its impact on the fair value measurement.
A sensitivity analysis 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
(5.5%)
6.2%
4.2%
(4.2%)
(4.9%)
5.4%
4.8%
(4.8%)
(5.1%)
5.6%
4.9%
(4.9%)
(3.0%)
3.2%
19.3%
(19.3%)
(2.3%)
2.5%
–
–
2021
£m
3,292.6
19.6
38.5
44.0
3,394.7
Total
(5.3%)
5.9%
4.7%
(4.7%)
2020
£m
3,149.2
19.6
65.7
22.6
3,257.1
GovernanceStrategic reportFinancial Statements
230
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 2021
Additions
Disposals
Depreciation
Revaluation
At 31 December 2021
At 1 January 2020
Additions
Depreciation
Revaluation
At 31 December 2020
Net book value
Cost or valuation
Accumulated depreciation
At 31 December 2021
Net book value
Cost or valuation
Accumulated depreciation
At 31 December 2020
Company
At 1 January 2021
Additions
Disposals
Depreciation
Revaluation
At 31 December 2021
At 1 January 2020
Additions
Depreciation
At 31 December 2020
Net book value
Cost or valuation
Accumulated depreciation
At 31 December 2021
Net book value
Cost or valuation
Accumulated depreciation
At 31 December 2020
45.6
–
–
–
3.7
49.3
45.3
(0.1)
–
0.4
45.6
49.3
–
49.3
45.6
–
45.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
19.2
–
–
(1.2)
–
18.0
20.4
–
(1.2)
19.2
21.6
(3.6)
18.0
21.6
(2.4)
19.2
1.0
–
(0.1)
–
(0.1)
0.8
1.0
–
–
–
1.0
0.8
–
0.8
1.0
–
1.0
1.0
–
(0.1)
–
(0.1)
0.8
1.0
–
–
1.0
0.8
–
0.8
1.0
–
1.0
3.6
1.3
(0.1)
(0.9)
–
3.9
3.9
0.4
(0.7)
–
3.6
8.0
(4.1)
3.9
7.3
(3.7)
3.6
3.5
1.3
(0.1)
(0.9)
–
3.8
3.8
0.4
(0.7)
3.5
8.0
(4.2)
3.8
7.3
(3.8)
3.5
Total
£m
50.2
1.3
(0.2)
(0.9)
3.6
54.0
50.2
0.3
(0.7)
0.4
50.2
58.1
(4.1)
54.0
53.9
(3.7)
50.2
23.7
1.3
(0.2)
(2.1)
(0.1)
22.6
25.2
0.4
(1.9)
23.7
30.4
(7.8)
22.6
29.9
(6.2)
23.7
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 December 2021. 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 2021 was £0.9m (2020: £1.0m) and £0.9m (2020: £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 2021 18 Investments
Group
The Group has a 50% interest in four joint venture vehicles, Derwent Lazari Baker Street Limited Partnership, Dorrington Derwent Holdings
Limited, Primister Limited and Prescot Street Limited Partnership.
231
At 1 January
Additions
Joint venture acquisition costs
Revaluation deficit
Other profit from operations
Distributions received
At 31 December
2021
£m
0.9
64.1
(4.0)
(10.2)
0.3
–
51.1
2020
£m
1.3
–
–
–
–
(0.4)
0.9
In October 2021, the Group entered into a 50:50 joint venture with Lazari Investments Limited to establish the Derwent Lazari Baker Street
Limited Partnership. The Group’s 50% share was acquired for £64.1m, including £4.0m of acquisition costs and fees and £0.1m of working
capital contributions. The joint venture holds three properties, 38-52 Baker Street W1, 54-60 Baker Street W1 and 66-70 Baker Street W1,
is funded by loans from its partners and has no third party borrowings.
The Group’s share of its investments in joint ventures is represented by the following amounts in the underlying joint venture entities.
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
Loans provided to joint ventures
Total investment in joint ventures
Income
Administrative expenses
Revaluation deficit
Loss for the year
Company
At 1 January 2020
Additions
Impairment
At 31 December 2020
Additions
Disposals
Repayment of capital
Impairment
At 31 December 2021
2021
2020
Joint ventures
£m
100.5
3.7
(2.7)
(120.8)
(19.3)
0.7
(0.1)
(20.4)
(19.8)
Group share
£m
50.2
1.9
(1.3)
(60.4)
(9.6)
60.7
51.1
0.4
(0.1)
(10.2)
(9.9)
Joint ventures
£m
–
1.2
(0.7)
–
0.5
–
–
–
–
Group share
£m
–
0.6
(0.3)
–
0.3
0.6
0.9
–
–
–
–
Subsidiaries
£m
1,550.2
113.0
(47.3)
1,615.9
268.0
(80.7)
(33.5)
(19.9)
1,749.8
At 31 December 2021, the carrying values of the investment in wholly-owned subsidiaries were reviewed in accordance with IAS 36
Impairment of Assets on both a ‘value in use’ and ‘fair value less costs to sell’ basis. The Company’s accounting policy is to carry
investments in subsidiary undertakings at the lower of cost and recoverable amount and recognise any impairment, or reversal thereof,
in the income statement. As a result, the Company recognised an impairment charge of £19.9m (2020: £47.3m). This was due to property
revaluation deficits charged to the income statement in a number of the property investment subsidiaries held directly or indirectly by the
Company. Investment properties are held by the property investment subsidiaries with any surpluses or deficits resulting from a change in
their fair values being reported in the income statement of those subsidiaries, thereby affecting their fair values.
GovernanceStrategic reportFinancial Statements 232
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
19 Other receivables (non-current)
Prepayments and accrued income
Group
2021
£m
159.3
2020
£m
146.4
Company
2021
£m
–
2020
£m
–
Prepayments and accrued income include £147.0m (2020: £132.3m) 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, £12.3m (2020: £14.1m) relates to the
spreading effect of the initial direct costs of letting over the same term. Together with £24.1m (2020: £19.6m), which was included as
accrued income within trade and other receivables (see note 20), these amounts totalled £183.4m at 31 December 2021 (2020: £166.0m).
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
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
2021
£m
149.7
19.9
0.7
0.3
(1.6)
(0.5)
(0.3)
168.2
(21.2)
147.0
Company
2021
£m
–
1,860.7
15.2
23.0
–
1,898.9
2021
£m
6.8
0.1
–
6.9
2020
£m
135.9
23.0
0.5
(5.7)
(3.2)
–
(0.8)
149.7
(17.4)
132.3
2020
£m
–
1,659.4
0.8
22.0
0.1
1,682.3
2020
£m
17.4
3.5
6.6
27.5
Group
2021
£m
6.9
–
3.7
24.7
26.4
61.7
2020
£m
27.5
–
4.1
22.6
22.0
76.2
Group trade receivables as at 31 December 2021 are stated net of impairment. The balances have reduced over the year as amounts deferred
or uncollected in 2020 were received. As a result, the expected credit loss assessment under IFRS 9 (see note 3) was lower than in 2020.
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 and no impairments were determined to be required (2020: £nil).
Other receivables in the Company as at 31 December 2020 includes a £12.3m (2020: £nil) interest-free loan with no fixed repayment date
provided to a subsidiary for the development of the residential element at 19-35 Baker Street W1. The loan will be repaid from the sale
proceeds of these residential apartments after the completion of the scheme.
Derwent London plc Report & Accounts 2021
The Group has £9.5m of provision for bad debts as shown below. £4.1m is included in trade receivables, £0.7m in accrued income and
£4.7m in prepayments and accrued income within other receivables (non-current) (note 19).
Provision for bad debts
At 1 January
Lease incentive provision
Trade receivables 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
233
2020
£m
0.4
5.7
3.2
0.3
(0.3)
9.3
3.2
0.5
1.0
4.6
9.3
2021
£m
9.3
(0.2)
0.8
0.1
(0.5)
9.5
4.3
0.2
0.3
4.7
9.5
2021
£m
101.2
1.6
102.8
2020
£m
161.2
3.8
165.0
In December 2021, the Group exchanged contracts for the sale of its freehold interest in New River Yard EC1. The property was valued at
£66.5m as at 31 December 2021. 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 £1.2m, the carrying value was £65.3m (see note 16).
In July 2020, the Group exchanged contracts on the sale of its leasehold interest in 2 & 4 Soho Place W1. The property was valued at £38.3m
as at 31 December 2021. The disposal is expected to complete in 2022 and therefore, in accordance with IFRS 5 Non-current Assets Held
for Sale, this property was recognised as a non-current asset held for sale. After deducting selling costs of £0.8m, the carrying value at 31
December 2021 was £37.5m (see note 16).
22 Trade and other payables
Trade payables
Amounts owed to subsidiaries
Other payables
Other taxes
Accruals
Deferred income
Group
2021
£m
3.2
–
38.0
8.0
37.2
41.9
128.3
2020
£m
2.5
–
21.2
4.0
32.0
47.0
106.7
Company
2021
£m
0.1
1,262.9
1.2
1.7
15.1
0.7
1,281.7
2020
£m
0.2
1,055.3
0.3
0.8
16.2
0.1
1,072.9
Deferred income primarily relates to rents received in advance.
At 31 December 2021, other payables included £14.8m discounted profit share for the development at Soho Place W1 (see note 16).
GovernanceStrategic reportFinancial Statements
234
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
23 Provisions
At 1 January 2021
Provided in the income statement
Utilised in year
At 31 December 2021
Due within one year
Due after one year
At 1 January 2020
Provided in the income statement
Utilised in year
At 31 December 2020
Due within one year
Due after one year
Group
£m
1.0
0.6
(1.0)
0.6
0.3
0.3
0.6
2.4
0.2
(1.6)
1.0
0.6
0.4
1.0
Company
£m
1.0
0.6
(1.0)
0.6
0.3
0.3
0.6
2.4
0.2
(1.6)
1.0
0.6
0.4
1.0
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.
Derwent London plc Report & Accounts 2021 24 Net debt and derivative financial instruments
Current liabilities
Other loans
Non-current liabilities
1.5% unsecured convertible bonds 2025
6.5% secured bonds 2026
1.875% unsecured green bonds 2031
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
235
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
Group
2021
£m
12.3
12.3
168.3
182.4
346.0
54.8
29.9
24.9
92.6
49.8
74.7
51.8
74.5
82.5
4.9
–
–
1,237.1
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
–
1,033.2
Company
2021
£m
–
–
–
–
346.0
54.8
29.9
24.9
92.6
49.8
74.7
51.8
74.5
82.5
4.9
–
168.3
1,054.7
Borrowings
1,249.4
1,033.2
1,054.7
821.7
Leasehold liabilities – current
Leasehold liabilities – non-current
Derivative financial instruments – current
Derivative financial instruments – non-current
Gross debt
Reconciliation to net debt:
Gross debt
Derivative financial instruments
Cash and cash equivalents
Net debt
51.2
19.4
0.4
0.4
1,320.8
1,320.8
(0.8)
(68.5)
1,251.5
–
66.6
–
5.6
1,105.4
1,105.4
(5.6)
(50.7)
1,049.1
1.2
22.9
0.4
0.4
1,079.6
1,079.6
(0.8)
(68.2)
1,010.6
1.2
24.1
–
5.6
852.6
852.6
(5.6)
(50.1)
796.9
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
£102.00 per £100 as at 31 December 2021 (2020: £102.90 per £100). The carrying value at 31 December 2021 was £168.3m (2020: £166.4m).
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
(2.2)
3.2
168.3
GovernanceStrategic reportFinancial Statements
236
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 2021 was determined by the ask-price of £117.60 per £100 (2020: £125.90 per £100). The carrying
value at 31 December 2021 was £182.4m (2020: £183.6m).
1.875% unsecured green bonds 2031
In November 2021, the Group issued £350m of green bonds on a 10-year term maturing in 2031. The unsecured instrument pays a coupon
of 1.875% and the effective interest rate is 1.934%. This represents an issue discount of £1.8m. The unsecured green bonds 2031 are
accounted for at amortised cost. The fair value at 31 December 2021 was determined by the ask-price of £98.45 per £100. The carrying
value at 31 December 2021 was £346.0m. The £350m green bonds will be used to fund qualifying ‘green’ expenditure in accordance with
the Group’s Green Finance Framework.
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 2021 were £54.8m (2020: £54.8m), £92.6m (2020: £92.6m), £49.8m (2020: £49.8m) and £51.8m (2020: £51.8m), 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 2021 were £29.9m (2020: £29.9m) and £74.7m (2020: £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 2021 were £24.9m (2020: £24.9m) and £74.5m (2020:
£74.5m), 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 2021
was £82.5m (2020: £82.3m).
Derwent London plc Report & Accounts 2021 237
Bank borrowings
In 2021, the Group exercised the one-year extension option on both the £100m revolving credit facility (“RCF”) and the £450m RCF, thereby
extending the maturities of both facilities out to 2026.
The main corporate £450m RCF includes a £300m ‘green tranche’ to fund qualifying ‘green’ expenditure in accordance with the Group’s
Green Finance Framework.
As all main corporate facilities were refinanced or amended recently, 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.
During the year, in preparation for the cessation of LIBOR, the benchmark rate of the existing bank loans were transitioned onto a SONIA
basis.
Undrawn committed bank facilities – maturity profile
Group
At 31 December 2021
At 31 December 2020
Company
At 31 December 2021
At 31 December 2020
< 1
year
£m
–
–
–
–
1 to 2
years
£m
2 to 3
years
£m
3 to 4
years
£m
–
–
–
–
–
–
–
–
–
–
–
–
4 to 5
years
£m
540.0
425.0
540.0
425.0
> 5
years
£m
–
–
–
–
Total
£m
540.0
425.0
540.0
425.0
Other loans
Other loans consist of a £12.3m interest-free loan with no fixed repayment date from a third party providing development consultancy
services on the residential element of the 19-35 Baker Street W1 development. The loan will be repaid from the sale proceeds of these
residential apartments after completion of the scheme. The agreement provides for a profit share on completion of the sales which, under
IFRS 9 Financial Instruments, has been deemed to have a carrying value of £nil at 31 December 2021 (2020: £nil). The carrying value of the
loan at 31 December 2021 was £12.3m (2020: £nil).
Intercompany loans
The terms of the intercompany loan in the Company mirror those of the unsecured convertible bonds 2025. As with the convertible 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 of this loan at 31 December 2021 was £168.3m (2020: £166.4m).
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 2021 for the period to the
contracted expiry dates.
During the year, all interest rate swaps were transitioned from LIBOR basis swaps to SONIA.
The Group has a £40m forward starting interest rate swap effective from 17 January 2022, and a £75m forward starting interest rate swap
effective from 4 January 2022. These swaps are not included in the 31 December 2021 figures in the table below.
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.
GovernanceStrategic reportFinancial Statements 238
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
24 Net debt and derivative financial instruments (continued)
Secured and unsecured debt
Secured
6.5% secured bonds 2026
3.99% secured loan 2024
Secured bank loan
Unsecured
1.5% unsecured convertible bonds 2025
1.875% unsecured green bonds 2031
Unsecured private placement notes 2026 – 2034
Unsecured bank loans
Other loans
Intercompany loan
Group
2021
£m
182.4
82.5
–
264.9
168.3
346.0
453.0
4.9
12.3
–
2020
£m
183.6
82.3
27.9
293.8
166.4
–
452.9
120.1
–
–
984.5
739.4
Company
2021
£m
–
82.5
–
82.5
–
346.0
453.0
4.9
–
168.3
972.2
2020
£m
–
82.3
–
82.3
–
–
452.9
120.1
–
166.4
739.4
Borrowings
1,249.4
1,033.2
1,054.7
821.7
As at 31 December 2021, the Group’s secured bonds 2026 were secured by a floating charge over a number of the Group’s subsidiary
companies which contained £571.8m (2020: £616.5m) of the Group’s properties. The Group’s secured bank loan was settled during the year
in advance of the acquisition of the non-controlling interest from The Portman Estate, see note 30. The loan was previously secured by a
fixed charge over £105.2m of property as at 31 December 2020.
At 31 December 2021, the Company’s 3.99% secured loan 2024 was secured by a fixed charge over £305.2m (2020: £304.5m) of the Group’s
properties.
Fixed interest rate and hedged debt
At 31 December 2021, the Group’s fixed rate and hedged debt included the unsecured convertible bonds, the unsecured green bonds, the
secured bonds, a secured loan, the unsecured private placement notes and other loans. At 31 December 2020, the Group’s fixed rate and
hedged debt included the unsecured convertible bonds, the secured bonds, secured loan and the unsecured private placement notes.
At 31 December 2021, the Company’s fixed rate and hedged debt included the unsecured green bonds, a secured loan, the unsecured
private placement notes and the intercompany loans. At 31 December 2020, the Company’s fixed rate and hedged debt included a secured
loan, the unsecured private placement notes and the intercompany loans.
Derwent London plc Report & Accounts 2021 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:
239
Group
At 31 December 2021
1.5% unsecured convertible bonds 2025
6.5% secured bonds 2026
1.875% unsecured green bonds 2031
Unsecured private placement notes 2026 – 2034
3.99% secured loan 2024
Unsecured bank loans
Other loans2
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
Company
At 31 December 2021
1.875% unsecured green bonds 2031
Unsecured private placement notes 2026 – 2034
3.99% secured loan 2024
Unsecured bank loans
Intercompany loan
At 31 December 2020
Unsecured private placement notes 2026 – 2034
3.99% secured loan 2024
Unsecured bank loans
Intercompany loan
Floating
rate
£m
Hedged
£m
Fixed
rate
£m
Borrowings
£m
Weighted
average
interest rate1
%
Weighted
average
life
Years
–
–
–
–
–
4.9
–
4.9
–
–
–
–
120.1
27.9
148.0
–
–
–
4.9
–
4.9
–
–
120.1
–
120.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
168.3
182.4
346.0
453.0
82.5
–
12.3
1,244.5
166.4
183.6
452.9
82.3
–
–
885.2
346.0
453.0
82.5
–
168.3
1,049.8
452.9
82.3
–
166.4
701.6
168.3
182.4
346.0
453.0
82.5
4.9
12.3
1,249.4
166.4
183.6
452.9
82.3
120.1
27.9
1,033.2
346.0
453.0
82.5
4.9
168.3
1,054.7
452.9
82.3
120.1
166.4
821.7
2.30
6.50
1.93
3.42
3.99
1.25
–
3.27
2.30
6.50
3.42
3.99
1.11
1.84
3.48
1.93
3.42
3.99
1.25
2.30
2.78
3.42
3.99
1.11
2.30
2.90
3.4
4.2
9.9
8.7
2.8
4.8
–
7.2
4.5
5.2
9.7
3.8
4.8
1.6
6.8
9.9
8.7
2.8
4.8
3.4
7.7
9.7
3.8
4.8
4.4
7.3
1 The weighted average interest rates are based on the nominal amounts of the debt facilities.
2 Other loans shown above are interest free and have no fixed repayment date. For further detail, see other loans section above.
GovernanceStrategic reportFinancial Statements 240
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
24 Net debt and derivative financial instruments (continued)
Contractual undiscounted cash outflows
IFRS 7 Financial Instruments: Disclosure, requires disclosure of the maturity of the Group’s and Company’s remaining contractual financial
liabilities. The tables below show the contractual undiscounted cash outflows arising from the Group’s gross debt.
Group
At 31 December 2021
1.5% unsecured convertible bonds 2025
6.5% secured bonds 2026
1.875% unsecured green bonds 2031
Unsecured private placement notes 2026 – 2034
3.99% secured loan 2024
Unsecured bank loans
Other loans
Total on maturity
Leasehold liabilities
Interest on borrowings
Effect of interest rate swaps
Gross loan commitments
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
Total on maturity
Leasehold liabilities
Interest on borrowings
Effect of interest rate swaps
Gross loan commitments
< 1
year
£m
–
–
–
–
–
–
–
–
52.2
39.5
0.8
92.5
–
–
–
–
–
–
–
0.7
34.6
1.6
36.9
1 to 2
years
£m
–
–
–
–
–
–
–
–
0.8
39.6
–
40.4
–
–
–
–
–
28.0
28.0
52.2
34.6
1.8
116.6
2 to 3
years
£m
–
–
–
–
83.0
–
–
83.0
0.8
39.6
–
123.4
–
–
–
–
–
–
–
0.7
34.3
0.9
35.9
3 to 4
years
£m
4 to 5
years
£m
> 5
years
£m
Total
£m
175.0
–
–
–
–
–
12.3
187.3
0.8
34.9
–
223.0
–
–
–
83.0
–
–
83.0
0.7
34.5
0.9
119.1
–
175.0
–
55.0
–
10.0
–
240.0
0.8
27.2
–
268.0
175.0
–
–
–
125.0
–
300.0
0.7
29.6
0.4
330.7
–
–
350.0
400.0
–
–
–
750.0
193.7
100.9
–
1,044.6
–
175.0
455.0
–
–
–
630.0
180.0
88.6
–
898.6
175.0
175.0
350.0
455.0
83.0
10.0
12.3
1,260.3
249.1
281.7
0.8
1,791.9
175.0
175.0
455.0
83.0
125.0
28.0
1,041.0
235.0
256.2
5.6
1,537.8
Derwent London plc Report & Accounts 2021 Reconciliation to borrowings:
Group
At 31 December 2021
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 2020
Maturing in:
< 1 year
1 to 2 years
2 to 3 years
3 to 4 years
4 to 5 years
> 5 years
Company
At 31 December 2021
1.875% unsecured green bonds 2031
Unsecured private placement notes 2026 – 2034
3.99% secured loan 2024
Unsecured bank loans
Intercompany loan
Total on maturity
Leasehold liability
Interest on debt
Effect of interest rate swaps
Gross loan commitments
At 31 December 2020
Unsecured private placement notes 2026 – 2034
3.99% secured loan 2024
Unsecured bank loans
Intercompany loan
Total on maturity
Leasehold liability
Interest on debt
Effect of interest rate swaps
Gross loan commitments
241
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
92.5
40.4
123.4
223.0
268.0
1,044.6
1,791.9
36.9
116.6
35.9
119.1
330.7
898.6
1,537.8
< 1
year
£m
–
–
–
–
–
–
2.1
28.2
0.8
31.1
–
–
–
–
–
2.1
22.8
1.6
26.5
(39.5)
(39.6)
(39.6)
(34.9)
(27.2)
(100.9)
(281.7)
(34.6)
(34.6)
(34.3)
(34.5)
(29.6)
(88.6)
(256.2)
1 to 2
years
£m
–
–
–
–
–
–
2.1
28.2
–
30.3
–
–
–
–
–
2.1
22.9
1.8
26.8
(0.8)
–
–
–
–
–
(0.8)
(1.6)
(1.8)
(0.9)
(0.9)
(0.4)
–
(5.6)
(52.2)
(0.8)
(0.8)
(0.8)
(0.8)
(193.7)
(249.1)
(0.7)
(52.2)
(0.7)
(0.7)
(0.7)
(180.0)
(235.0)
2 to 3
years
£m
–
–
83.0
–
–
83.0
2.1
28.2
–
113.3
–
–
–
–
–
2.1
23.0
0.9
26.0
3 to 4
years
£m
–
–
–
–
175.0
175.0
2.1
23.6
–
200.7
–
83.0
–
–
83.0
2.1
23.1
0.9
109.1
4 to 5
years
£m
–
55.0
–
10.0
–
65.0
2.1
21.5
–
88.6
–
–
125.0
175.0
300.0
2.1
18.3
0.4
320.8
–
–
(0.5)
(6.7)
2.1
(5.8)
(10.9)
–
(0.1)
–
(0.7)
(4.8)
(2.2)
(7.8)
–
–
82.5
180.6
242.1
744.2
1,249.4
–
27.9
–
82.3
295.2
627.8
1,033.2
> 5
years
£m
Total
£m
350.0
400.0
–
–
–
750.0
21.0
100.9
–
871.9
455.0
–
–
–
455.0
23.0
82.9
–
560.9
350.0
455.0
83.0
10.0
175.0
1,073.0
31.5
230.6
0.8
1,335.9
455.0
83.0
125.0
175.0
838.0
33.5
193.0
5.6
1,070.1
GovernanceStrategic reportFinancial Statements
242
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
24 Net debt and derivative financial instruments (continued)
Reconciliation to borrowings:
Company
At 31 December 2021
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 2020
Maturing in:
< 1 year
1 to 2 years
2 to 3 years
3 to 4 years
4 to 5 years
> 5 years
Gross loan
commitments
£m
Interest on
gross debt
£m
Effect of
interest
rate swaps
£m
Leasehold
liabilities
£m
Non-cash
amortisation
£m
Borrowings
£m
Adjustments
31.1
30.3
113.3
200.7
88.6
871.9
1,335.9
26.5
26.8
26.0
109.1
320.8
560.9
1,070.1
(28.2)
(28.2)
(28.2)
(23.6)
(21.5)
(100.9)
(230.6)
(22.8)
(22.9)
(23.0)
(23.1)
(18.3)
(82.9)
(193.0)
(0.8)
–
–
–
–
–
(0.8)
(1.6)
(1.8)
(0.9)
(0.9)
(0.4)
–
(5.6)
(2.1)
(2.1)
(2.1)
(2.1)
(2.1)
(21.0)
(31.5)
(2.1)
(2.1)
(2.1)
(2.1)
(2.1)
(23.0)
(33.5)
–
–
(0.5)
(6.7)
(5.3)
(5.8)
(18.3)
–
–
–
(0.7)
(4.8)
(10.8)
(16.3)
–
–
82.5
168.3
59.7
744.2
1,054.7
–
–
–
82.3
295.2
444.2
821.7
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.
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
2021
Receivable
£m
2021
Payable
£m
2020
Receivable
£m
2020
Payable
£m
0.7
1.0
1.0
0.5
–
–
3.2
0.7
1.0
1.0
0.5
–
–
3.2
(1.5)
(1.0)
(1.0)
(0.5)
–
–
(4.0)
(1.5)
(1.0)
(1.0)
(0.5)
–
–
(4.0)
–
–
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)
Derwent London plc Report & Accounts 2021 243
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 100 to 119.
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. The Group’s loan-to-value ratio has increased to 20.8%
as at 31 December 2021 but remains modest.
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:
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 though the estimated
risk is considered lower than in 2020. 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 69 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 £0.1m (2020: £0.8m) or a decrease of £0.1m
(2020: £0.7m).
GovernanceStrategic reportFinancial Statements 244
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
24 Net debt and derivative financial instruments (continued)
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 the 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 2021, the proportion of fixed debt held by the Group was above this range
at 99% (2020: 85%) following the green bond issue in November 2021 which has a fixed interest rate. It was initially used to repay amounts
drawn under the Group’s revolving credit facilities, which have a floating interest rate. During both 2021 and 2020, the Group’s borrowings at
variable rate were denominated in sterling.
The Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. When the Group raises long-term
borrowings, it is generally at fixed rates.
Liquidity risk
Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its debt
instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.
The Group’s policy is to ensure that it will always have sufficient headroom in its loan facilities to allow it to meet its liabilities when they
become due. To achieve this aim, it seeks to maintain committed facilities to meet the expected requirements. The Group also seeks to
reduce liquidity risk by fixing interest rates (and hence cash flows) on a portion of its long-term borrowings. This is further explained in the
‘market risk’ section above.
Executive management receives rolling three-year projections of cash flow and loan balances on a regular basis as part of the Group’s
forecasting processes. At the balance sheet date, these projections indicated that the Group expected to have sufficient liquid resources to
meet its obligations under all reasonably expected circumstances.
The Group’s loan facilities and other borrowings are spread across a range of banks and financial institutions so as to minimise any
potential concentration of risk. The liquidity risk of the Group is managed centrally by the finance department.
Capital disclosures
The Group’s capital comprises all components of equity (share capital, share premium, other reserves, retained earnings and non-
controlling interest).
The Group’s objectives when maintaining capital are:
— to safeguard the entity’s ability to continue as a going concern so that it can continue to provide above average long-term returns 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 2021, the Group’s strategy, which was unchanged
from 2020, 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 274 and are derived in note 42.
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 £4.8bn (2020: £4.3bn) of uncharged property as at 31
December 2021.
Derwent London plc Report & Accounts 2021 25 Financial assets and liabilities and fair values
Categories of financial assets and liabilities
Group
Financial assets
Cash and cash equivalents
Other assets – current1
Financial liabilities
1.5% unsecured convertible bonds 2025
6.5% secured bonds 2026
1.875% unsecured green bonds 2031
Unsecured private placement notes 2026 – 2034
3.99% secured loan 2024
Bank borrowings due after one year
Other loans
Leasehold liabilities
Derivative financial instruments
Other liabilities – current2
At 31 December 2021
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
245
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
–
–
–
–
–
–
–
–
–
–
–
(0.8)
–
(0.8)
68.5
13.1
81.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(168.3)
(182.4)
(346.0)
(453.0)
(82.5)
(4.9)
(12.3)
(70.6)
–
(78.4)
(1,398.4)
68.5
13.1
81.6
(168.3)
(182.4)
(346.0)
(453.0)
(82.5)
(4.9)
(12.3)
(70.6)
(0.8)
(78.4)
(1,399.2)
(0.8)
81.6
(1,398.4)
(1,317.6)
–
–
–
–
–
–
–
–
–
(5.6)
–
(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)
84.7
(1,155.5)
(1,076.4)
1
2
In 2021, 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 £48.6m (2020: £42.2m) for the Group. All amounts are non-interest bearing and are receivable within one year.
In 2021, other liabilities include all amounts shown as trade and other payables in note 22 except deferred income and sales and social security taxes of £49.9m (2020: £51.0m)
for the Group. All amounts are non-interest bearing and are due within one year.
GovernanceStrategic reportFinancial Statements 246
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
1.875% unsecured green bonds 2031
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 2021
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
–
–
–
–
–
–
–
–
–
(0.8)
–
(0.8)
68.2
1,875.9
1,944.1
–
–
–
–
–
–
–
(1,262.9)
(1,262.9)
–
–
–
(346.0)
(453.0)
(82.5)
(4.9)
(168.3)
(24.1)
–
(16.4)
(1,095.2)
68.2
1,875.9
1,944.1
(346.0)
(453.0)
(82.5)
(4.9)
(168.3)
(24.1)
(0.8)
(1,279.3)
(2,358.9)
(0.8)
681.2
(1,095.2)
(414.8)
–
–
–
–
–
–
–
–
(5.6)
–
(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)
655.1
(863.7)
(214.2)
1
2
In 2021, 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 £23.0m (2020: £22.0m) for the Company. All amounts are non-interest bearing and are receivable within one year.
In 2021, other liabilities include all amounts shown as trade and other payables in note 22 except deferred income and sales and social security taxes of £2.4m (2020: £0.9m) for
the Company. All amounts are non-interest bearing and are due within one year.
Derwent London plc Report & Accounts 2021 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
247
2020
£m
(214.2)
(1,660.3)
1,072.0
(50.1)
(852.6)
Group
2021
£m
(1,317.6)
(13.1)
78.4
(68.5)
2020
£m
(1,076.4)
(34.0)
55.7
(50.7)
Company
2021
£m
(414.8)
(1,875.9)
1,279.3
(68.2)
(1,320.8)
(1,105.4)
(1,079.6)
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
At 31 December 2021
1.5% unsecured convertible bonds 2025
6.5% secured bonds 2026
1.875% unsecured green bonds 2031
Unsecured private placement notes 2026 – 2034
3.99% secured loan 2024
Bank borrowings due after one year
Other loans
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 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
–
–
(344.6)
(493.1)
(85.6)
(10.0)
–
(174.0)
(0.8)
(1,108.1)
Level 1
Level 1
Level 1
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
–
–
(526.4)
(89.1)
(125.0)
(174.2)
(5.6)
(920.3)
Level 1
Level 1
Level 2
Level 2
Level 2
Level 2
Level 2
(174.0)
(205.7)
(344.6)
(493.1)
(85.6)
(10.0)
(12.3)
–
(0.8)
(1,326.1)
(174.2)
(220.3)
(526.4)
(89.1)
(153.0)
–
(5.6)
(1,168.6)
(168.3)
(182.4)
(346.0)
(453.0)
(82.5)
(4.9)
(12.3)
–
(0.8)
(1,250.2)
68.5
13.1
(70.6)
(78.4)
(1,317.6)
(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)
–
–
(346.0)
(453.0)
(82.5)
(4.9)
–
(168.3)
(0.8)
(1,055.5)
68.2
1,875.9
(24.1)
(1,279.3)
(414.8)
–
–
(452.9)
(82.3)
(120.1)
(166.4)
(5.6)
(827.3)
50.1
1,660.3
(25.3)
(1,072.0)
(214.2)
The fair values of the following financial assets and liabilities are the same as their carrying values:
— 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 2021 or 2020.
GovernanceStrategic reportFinancial Statements 248
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
26 Net debt to cash flow reconciliation
Net debt reconciliation
The table below shows net debt movement during the year as a result of cash flows and other non-cash movements.
Group
Current liabilities
Borrowings
Leasehold liabilities
Non-current liabilities
Borrowings
Leasehold liabilities
Total liabilities from
financing activities
2020
£m
Cash flows
£m
–
–
12.3
–
1,033.2
66.6
200.2
–
1,099.8
212.5
Cash and cash equivalents
Net debt
(50.7)
1,049.1
(17.8)
194.7
Company
Current liabilities
Leasehold liabilities
Non-current liabilities
Borrowings
Leasehold liabilities
Total liabilities from
financing activities
1.2
–
821.7
24.1
228.2
–
847.0
228.2
Cash and cash equivalents
Net debt
(50.1)
796.9
(18.1)
210.1
Non-cash changes
Impact of
issue and
arrangement
costs
£m
Fair value
adjustments
£m
Acquisitions
£m
Unwind of
discount
£m
Disposals
£m
Transfer from
non-current
to current
£m
–
–
3.8
–
3.8
–
3.8
–
3.5
–
3.5
–
3.5
–
–
–
–
–
–
–
–
1.3
–
1.3
–
1.3
–
–
–
2.5
2.5
–
2.5
–
–
–
–
–
–
–
–
(0.1)
1.7
1.6
–
1.6
–
–
(1.2)
(1.2)
–
(1.2)
2021
£m
12.3
51.2
–
–
–
51.2
–
(0.2)
(0.2)
–
(0.2)
–
–
–
–
–
–
–
(51.2)
1,237.1
19.4
–
–
–
–
–
–
–
–
–
1,320.0
(68.5)
1,251.5
1.2
1,054.7
22.9
1,078.8
(68.2)
1,010.6
Derwent London plc Report & Accounts 2021
27 Deferred tax
Group
At 1 January 2021
(Credited)/charged to the income statement
Change in tax rates in the income statement
Charged to other comprehensive income
Credited to equity
Change in tax rates in other comprehensive income
At 31 December 2021
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
Company
At 1 January 2021
Charged to the income statement
Credited to equity
Change in tax rates in the income statement
At 31 December 2021
At 1 January 2020
Credited to the income statement
Charged to equity
Change in tax rates in the income statement
At 31 December 2020
249
Revaluation
surplus/(deficit)
£m
Other
£m
Total
£m
3.5
(1.6)
0.1
0.9
–
0.4
3.3
3.3
(0.3)
0.3
0.1
–
0.1
3.5
–
–
–
–
–
–
–
–
–
–
(3.0)
0.5
(0.8)
0.5
(0.7)
(0.1)
(3.6)
(2.1)
(1.7)
(0.1)
(0.4)
1.3
–
(3.0)
(3.1)
1.0
(0.7)
(0.8)
(3.6)
(3.2)
(1.0)
1.3
(0.2)
(3.1)
0.5
(1.1)
(0.7)
1.4
(0.7)
0.3
(0.3)
1.2
(2.0)
0.2
(0.3)
1.3
0.1
0.5
(3.1)
1.0
(0.7)
(0.8)
(3.6)
(3.2)
(1.0)
1.3
(0.2)
(3.1)
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
ring-fence.
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 fully paid
At 1 January 2020
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
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 2021
1 Proceeds from these issues were £1.8m (2020: £0.6m).
Number
111,773,286
165,364
22,761
111,961,411
187,638
59,461
112,208,510
The number of outstanding share options and other share awards granted are disclosed in the report of the Remuneration Committee and
note 13.
GovernanceStrategic reportFinancial Statements 250
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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
2021
£m
910.5
15.5
7.5
–
7.6
2020
£m
910.5
13.1
7.5
–
8.3
Company
2021
£m
910.5
–
–
7.5
7.6
2020
£m
910.5
–
–
7.5
8.3
941.1
939.4
925.6
926.3
Equity portion of the convertible bonds
Equity portion of long-term intercompany loan
Fair value of equity instruments under share-based payments
30 Non-controlling interest
In September 2021, the Group exercised its development option at 19-35 Baker Street W1 with The Portman Estate (“TPE”). As per the
agreement, the Group acquired TPE’s 45% non-controlling interest for a consideration of £53.4m and disposed of properties in 17-39
George Street, 16-20 Baker Street, 27-33 Robert Adam Street and 26-27 Castlereagh Street W1 for gross proceeds of £45.2m. The Group’s
original headleases for the development site were surrendered and a new 129-year headlease was subsequently granted providing
additional development rights across the 19-35 Baker Street W1 site. This surrender and regrant of the headleases was a non-cash
transaction and has been treated as a £100.7m disposal and subsequent acquisition. As part of the scheme, the Group will develop a
portion of the site for TPE and the costs associated with this are recognised as trading stock per IAS 2 Inventories.
31 Profit/(loss) for the year attributable to members of Derwent London plc
Profit/(loss) for the year in the Group income statement includes a profit of £11.6m (2020: £1.8m) generated by the Company. The Company
has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and has not presented its own income
statement in these financial statements.
Derwent London plc Report & Accounts 2021 251
2020
£m
–
–
–
–
24.6
24.6
57.6
82.2
–
(3.2)
2.8
2021
£m
–
25.8
25.8
58.8
–
58.8
–
84.6
(3.5)
3.2
–
32 Dividend
Current year
2021 final dividend1
2021 interim dividend
Prior year
2020 final dividend
2020 interim dividend
2019 final dividend
Dividends as reported in the
Group statement of changes in equity
Payment
date
Dividend per share
PID
p
Non-PID
p
1 June 2022
15 October 2021
4 June 2021
16 October 2020
35.50
23.00
58.50
35.00
22.00
57.00
18.00
–
18.00
17.45
–
17.45
Total
p
53.50
23.00
76.50
52.45
22.00
74.45
5 June 2020
34.45
17.00
51.45
2021 interim dividend withholding tax
2020 interim dividend withholding tax
2019 interim dividend withholding tax
Dividends paid as reported in the
Group cash flow statement
1 Subject to shareholder approval at the AGM on 13 May 2022.
33 Cash and cash equivalents
14 January 2022
14 January 2021
14 January 2020
Cash at bank
84.3
81.8
Group
2021
£m
68.5
2020
£m
50.7
Company
2021
£m
68.2
2020
£m
50.1
34 Capital commitments
Contracts for capital expenditure entered into by the Group at 31 December 2021 and not provided for in the accounts relating to the
construction, development or enhancement of the Group’s investment properties amounted to £51.2m (2020: £183.5m), whilst that relating
to the Group’s trading properties amounted to £0.9m (2020: £0.4m). The expenditure on investment properties for 2020 has been re-
presented to remove £49.6m of costs already accounted for within grossing up of headlease liabilities. At 31 December 2021 and 31
December 2020, there were no material obligations for the purchase, repair or maintenance of investment or trading properties.
In January 2022, the Group entered into a construction contract for the redevelopment of 19-35 Baker Street W1, amounting to £158.4m.
35 Contingent liabilities
In 2021, the Group entered into a 50:50 joint venture with Lazari Investments Limited, Derwent Lazari Baker Street Limited Partnership (see
note 18). Subject to receiving planning on a scheme which includes the three leasehold properties within the joint venture and a fourth
property owned by the freeholder, and a regear of the headlease, an additional £7.3m of deferred consideration is payable to Lazari
Investments Limited. The deferred consideration is treated as a contingent liability in accordance with IAS 37 Provisions, Contingent
Liabilities and Contingent Assets, as the amount is only confirmed by the occurrence of uncertain future events not wholly within the
control of the Group.
The Company and its subsidiaries are party to cross guarantees securing certain bank loans. At 31 December 2021 and 31 December 2020,
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.
GovernanceStrategic reportFinancial Statements 252
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
36 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
2021
£m
2020
£m
188.5
609.4
833.5
1,631.4
Company
2021
£m
2.1
8.3
21.0
31.4
–
(7.3)
24.1
1.2
5.3
17.6
24.1
199.2
607.5
918.7
1,725.4
2020
£m
2.1
8.4
23.0
33.5
–
(8.2)
25.3
1.2
5.1
19.0
25.3
Group
2021
£m
52.2
3.2
193.7
249.1
(0.3)
(178.2)
70.6
51.2
(0.1)
19.5
70.6
2020
£m
0.7
54.3
180.0
235.0
(1.7)
(166.7)
66.6
–
49.6
17.0
66.6
The Group has approximately 611 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 2021 was 8.4 years (2020: 14.7 years). Of these leases, on a weighted average basis, 94% (2020: 97%) included a
rent free or half rent period.
37 Post balance sheet events
In January 2022, the Group acquired the leasehold interest in 230 Blackfriars Road SE1 for £55.0m before costs.
In January 2022, the Group exchanged contracts for the disposal of its freehold interest in New River Yard EC1 for £67.5m before costs and
rental top-ups.
In January 2022, the Group signed the main construction contract for the 19-35 Baker Street W1 development amounting to £158.4m.
Derwent London plc Report & Accounts 2021
38 List of subsidiaries and joint ventures
A full list of subsidiaries and joint ventures as at 31 December 2021 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 Angel Building Limited
Derwent London AD Limited1
Derwent London Asta Limited
Derwent London Asta Residential Limited
Derwent London Baker Street Limited
Derwent London BH Limited1
Derwent London Brixton Limited1
Derwent London BSP Limited
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 George Street Limited1
Derwent London Green Energy Limited1
Derwent London Holden House Limited1
Derwent London Holford Works Limited1
Derwent London Horseferry Limited1
Derwent London Howland Limited1
Derwent London KSW Limited1
Derwent London No.2 Limited1
Derwent London No.4 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 White Chapel Limited1
Derwent London White Collar 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
253
Ownership2
Principal activity
100%
65%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Property investment
Investment Company
Dormant
Dormant
Property investment
Property Investment
Property Investment
Dormant
Property investment
Property investment
Property investment
Property management
Property Investment
Property Investment
Property Investment
Energy Production
Property trading
Dormant
Property investment
Property investment
Property investment
Property investment
Finance Company
Dormant
Dormant
Dormant
Development Services
Property Investment
Property Investment
Property Investment
Dormant
Property Trading
Energy Production
Property Investment
Property Investment
Property Investment
Dormant
Property Investment
Property Investment
Property Investment
Property investment
Dormant
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Employee Trust
Investment Holding
Holding Company
Property investment
Property Investment
Property Investment
GovernanceStrategic reportFinancial Statements
254
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
38 List of subsidiaries and joint ventures (continued)
Derwent Valley Property Trading Limited1
Derwent Valley Railway Company1
Derwent Valley West End Limited1
Kensington Commercial Property Investments Limited
LMS (City Road) Limited
LMS Finance Limited
LMS Offices Limited
London Merchant Securities Limited1
Merbrook Bond Property Unit Trust
The New River Company Limited
Urbanfirst Limited
West London & Suburban Property Investments Limited
Joint ventures
Derwent Lazari Baker Street GP Limited
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.
Ownership2
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Principal activity
Property Trading
Dormant
Property Investment
Property Investment
Property Investment
Investment Holding
Property Investment
Holding Company
Property Unit Trust
Property Investment
Investment Holding
Property Investment
50%
50%
50%
50%
50%
50%
Management Company
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.
All of the entities above are incorporated and domiciled in England and Wales, with the exception of Derwent London Capital No. 3 (Jersey)
Limited and Merbrook Bond Property Unit Trust, 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:
— Derwent London Capital No. 3 (Jersey) Limited, which is registered at 47 Esplanade, St Helier, JE1 0BD, Channel Islands;
— Dorrington Derwent Holdings Limited and Dorrington Derwent Investments Limited, which are registered at 16 Hans Road, London,
SW3 1RT;
— Primister Limited, which is registered at Quadrant House, Floor 6, 4 Thomas More Square, London, E1W 1YW;
— Merbrook Bond Property Unit Trust, which is registered at 26 New Street, St Helier, Jersey, JE2 3RA.
39 Related party disclosure
Details of Directors’ remuneration are given in the report of the Remuneration Committee on pages 172 to 193 and note 11. Details of
transactions with joint ventures are shown in note 18. A full list of subsidiaries and joint ventures is given in note 38. Other related party
transactions are as follows:
Group
During the year, the Group ceased its contributions (2020: £0.1m) to the running costs of Buxton Jones Consultants Limited, a company of
which John Burns, the previous CEO of the Group, is a director.
In September 2021, £2.0m owed by The Portman Estate, the non-controlling 45% owner of one of the Group’s subsidiaries, was settled as
part of the acquisition of the non-controlling interest. This amount was previously included within other receivables in note 20 as at 31
December 2020. The Group also disposed of 17-39 George Street, 16-20 Baker Street, 27-33 Robert Adam Street and 26-27 Castlereagh
Street W1 for gross proceeds of £45.2m. See note 30 for further details.
Derwent London plc Report & Accounts 2021 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)
255
Related party
22 Kingsway Limited
80 Charlotte Street Limited
BBR (Commercial) Limited2
BBR Property Limited2
Derwent Asset Management Limited
Derwent Central Cross Limited
Derwent Henry Wood Limited
Derwent London AD Limited
Derwent London Angel Square Limited
Derwent London BH Limited
Derwent London Brixton Limited
Derwent London BSP Limited
Derwent London Capital No. 3 (Jersey) Limited1
Derwent London Charlotte Street Limited2
Derwent London Copyright House Limited2
Derwent London Development Services Limited
Derwent London Farringdon Limited
Derwent London Featherstone Limited
Derwent London Gallery Limited
Derwent London George Street Limited
Derwent London Grafton Limited2
Derwent London Green Energy Limited
Derwent London Holden House Limited
Derwent London Holford Works Limited
Derwent London Horseferry Limited
Derwent London Howland Limited2
Derwent London KSW Limited
Derwent London No.2 Limited
Derwent London No.4 Limited
Derwent London Oliver’s Yard Limited
Derwent London Page Street Limited
Derwent London Savile Row Limited
Derwent London White Chapel 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
2021
£m
–
9.1
–
–
–
7.6
(0.2)
–
(0.2)
0.2
1.8
–
(3.9)
–
–
2.7
(0.6)
0.9
–
–
–
–
4.9
0.5
(0.1)
–
(4.4)
1.1
–
5.2
(0.2)
(0.1)
–
1.9
4.2
2.4
(7.9)
(5.0)
0.3
–
(0.1)
(5.6)
14.5
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
2021
£m
–
224.4
–
–
(1.0)
181.0
(5.3)
(5.0)
–
14.7
43.5
3.3
(168.3)
–
–
80.3
(16.0)
20.4
(0.2)
(4.5)
–
(4.6)
118.3
15.9
(3.0)
–
(107.0)
128.0
(20.0)
124.6
(5.8)
(4.5)
(1.5)
46.1
116.3
113.8
(194.7)
(122.9)
6.1
(0.2)
(3.7)
(139.0)
429.5
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
1 The payable balance at 31 December 2021 includes the intercompany loan of £168.3m (2020: £166.4m) included in note 24.
2 Dormant company.
3 Balance owed includes subsidiaries which form part of the LMS sub-group.
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.
GovernanceStrategic reportFinancial Statements 256
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
40 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 274 and 275.
Number of shares
For use in basic measures
Dilutive effect of share-based payments
For use in diluted measures
2021
2020
Pence
per share
p
108.79
3,959
3,884
4,301
£111.0m
£4,280.9m
£4,134.8m
£4,646.5m
30.5%
3.7%
4.8%
1.8%
£122.0m
£4,454.2m
£4,369.6m
£4,839.7m
24.3%
3.3%
4.4%
1.6%
Pence
per share
p
99.19
3,812
3,682
4,138
Earnings per share
Weighted average
2021
’000
112,139
273
112,412
2020
’000
111,912
350
112,262
Net asset value per share
At 31 December
2021
’000
112,209
308
112,517
2020
’000
111,961
341
112,302
The £175m unsecured convertible bonds 2025 (‘2025 bonds’) have an initial conversion price set at £44.96.
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
years ended 31 December 2020 and 2021, the Group did not recognise the dilutive impact of the conversion of the 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 and loan
arrangement costs written off.
Derwent London plc Report & Accounts 2021 Earnings and earnings per share
Year ended 31 December 2021
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 credit
Profit for the year
Non-controlling interest
Earnings attributable to equity shareholders
Earnings per share
Diluted 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
257
EPRA
basis
£m
188.2
(37.1)
–
–
(28.1)
–
–
0.3
123.3
(0.2)
123.1
(1.1)
122.0
108.79p
108.53p
179.6
(37.8)
–
–
(30.1)
–
–
111.7
0.6
112.3
(1.3)
111.0
99.19p
98.88p
C
£m
–
–
–
–
–
(4.8)
1.9
–
(2.9)
–
(2.9)
–
(2.9)
–
–
–
–
0.1
1.9
1.7
3.7
–
3.7
–
3.7
Adjustments
B
£m
A
£m
(0.7)
–
–
(10.4)
–
–
–
–
(11.1)
–
(11.1)
–
(11.1)
(5.2)
–
–
(1.7)
–
–
–
(6.9)
(1.0)
(7.9)
–
(7.9)
1.4
–
(130.8)
–
–
–
–
14.2
(115.2)
(1.5)
(116.7)
0.4
(116.3)
1.8
–
196.1
–
–
–
–
197.9
–
197.9
(5.1)
192.8
IFRS
£m
187.5
(37.1)
130.8
10.4
(28.1)
4.8
(1.9)
(13.9)
252.5
1.3
253.8
(1.5)
252.3
224.99p
224.44p
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)
The diluted loss per share for the period to 31 December 2020 was 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.
GovernanceStrategic reportFinancial Statements 258
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
40 EPRA performance measures and core recommendations (unaudited) (continued)
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.
2021
£m
2020
£m
4,441.8
4,263.2
1.9
1.7
0.8
8.0
–
4,454.2
1.4
1.8
5.6
9.3
(0.4)
4,280.9
3,959p
3,812p
4,441.8
4,263.2
1.9
8.0
(69.5)
(12.6)
4,369.6
1.4
9.3
(127.8)
(11.3)
4,134.8
3,884p
3,682p
4,441.8
4,263.2
1.9
3.3
0.8
8.0
–
383.9
4,839.7
1.4
3.5
5.6
9.3
(0.7)
364.2
4,646.5
4,301p
4,138p
Derwent London plc Report & Accounts 2021 Cost ratio
Administrative expenses
Write-off/impairment of receivables
Service charge waiver
Other property costs
Dilapidation receipts
Net service charge costs
Service charge costs recovered through rents but not separately invoiced
Management fees received less estimated profit element
Share of joint ventures’ expenses
EPRA costs (including direct vacancy costs) (A)
Direct vacancy costs
EPRA costs (excluding direct vacancy costs) (B)
Gross rental income
Ground rent
Service charge components of rental income
Share of joint ventures’ rental income less ground rent
Adjusted gross rental income (C)
EPRA cost ratio (including direct vacancy costs) (A/C)
EPRA cost ratio (excluding direct vacancy costs) (B/C)
In addition to the two EPRA cost ratios, the Group has calculated an additional cost ratio based on its
property portfolio fair value to recognise the ‘total return’ nature of the Group’s activities.
Property portfolio at fair value (D)
Portfolio cost ratio (A/D)
The Group has not capitalised any overheads in either 2021 or 2020.
259
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
2021
£m
37.1
0.8
–
10.4
(0.9)
3.4
(0.6)
(3.5)
(0.1)
46.6
(6.1)
40.5
194.2
(1.4)
(0.5)
(0.5)
191.8
24.3%
30.5%
21.1%
26.0%
5,646.3
5,355.5
0.8%
1.1%
GovernanceStrategic reportFinancial Statements
260
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
40 EPRA performance measures and core recommendations (unaudited) (continued)
Net Initial Yield and ‘topped-up’ Net Initial Yield
Property portfolio – wholly owned
Share of joint ventures
Less non-EPRA properties1
Completed property portfolio
Allowance for:
Estimated purchasers’ costs
EPRA property portfolio valuation (A)
Annualised contracted rental income, net of ground rents
Share of joint ventures
Less non-EPRA properties1
Add outstanding rent reviews
Less estimate of non-recoverable expenses
Current income net of non-recoverable expenses (B)
Contractual rental increases across the portfolio
Less non-EPRA properties1
Contractual rental increases across the EPRA portfolio
‘Topped-up’ net annualised rent (C)
EPRA net initial yield (B/A)
EPRA ‘topped-up’ net initial yield (C/A)
Vacancy rate
Annualised estimated rental value of vacant premises
Portfolio estimated rental value
Less non-EPRA properties1
EPRA vacancy rate
2021
£m
5,646.3
50.0
(785.3)
4,911.0
334.0
5,245.0
175.9
2.5
(0.5)
0.1
(3.5)
(3.9)
174.5
55.5
–
55.5
230.0
2020
£m
5,355.5
–
(574.4)
4,781.1
325.1
5,106.2
189.2
–
(2.8)
2.6
(2.6)
(2.8)
186.4
58.0
(0.2)
57.8
244.2
3.3%
3.7%
4.4%
4.8%
2021
£m
3.8
293.8
(59.9)
233.9
2020
£m
4.7
291.2
(42.5)
248.7
1.6%
1.8%
¹
In accordance with EPRA best practice guidelines, deductions are made for development properties, land and long-dated reversions.
Property-related capital expenditure
Acquisitions
Development
Investment properties
Incremental lettable space
No incremental lettable space
Tenant incentives
Capitalised interest
Total capital expenditure
Conversion from accrual to cash basis¹
Total capital expenditure on a cash basis
Group (excl.
Joint ventures)
£m
353.6
146.6
2021
Joint ventures
(50% share)
£m
60.0
0.2
0.1
16.7
2.5
12.0
531.5
(107.6)
423.9
–
–
–
–
60.2
(0.2)
60.0
Total
Group
£m
413.6
146.8
0.1
16.7
2.5
12.0
591.7
(107.8)
483.9
Group (excl.
Joint ventures)
£m
43.5
134.1
–
16.3
1.5
9.9
205.3
11.9
217.2
2020
Joint ventres
(50% share)
£m
–
–
–
–
–
–
–
–
–
Total
Group
£m
43.5
134.1
–
16.3
1.5
9.9
205.3
11.9
217.2
¹ The conversion from accrual to cash basis figure includes £100.7m in relation to the regrant of a headlease at 19-35 Baker Street W1, see note 30.
Derwent London plc Report & Accounts 2021
41 Total return (unaudited)
EPRA net tangible assets on a diluted basis
At end of year
At start of year
Increase/(decrease)
Dividend per share
Increase/(decrease) including dividend
Total return
42 Gearing and interest cover
NAV gearing
Net debt
Net assets
NAV gearing
Loan-to-value ratio
Group loan-to-value
Net debt
Fair value adjustment of secured bonds
Unamortised discount on unsecured green bonds
Unamortised issue and arrangement costs
Leasehold liabilities
Drawn debt net of cash
Fair value of property portfolio
Group loan-to-value ratio
Proportionally consolidated loan-to-value
Drawn debt net of cash
Share of joint ventures cash and cash equivalents
Drawn debt net of cash
Fair value of property portfolio
Share of fair value of property portfolio of joint ventures
Fair value of property portfolio including Group’s share of joint ventures
Proportionally consolidated loan-to-value
261
2020
p
3,812
(3,957)
(145)
73
(72)
2021
p
3,959
(3,812)
147
75
222
5.8%
(1.8%)
2021
£m
1,251.5
2020
£m
1,049.1
4,441.8
4,315.1
28.2%
24.3%
2021
£m
2020
£m
1,251.5
(8.0)
1.8
12.6
(70.6)
1,187.3
1,049.1
(9.3)
–
11.3
(66.6)
984.5
5,646.3
5,355.5
21.0%
18.4%
1,187.3
(1.2)
1,186.1
5,646.3
50.0
5,696.3
984.5
(0.6)
983.9
5,355.5
–
5,355.5
20.8%
18.4%
GovernanceStrategic reportFinancial Statements 262
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
42 Gearing and interest cover (continued)
Net interest cover ratio
Group 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
Group net interest cover ratio
Proportionally consolidated net interest cover ratio
Adjusted net property income
Share of joint ventures’ net property income
Adjusted net property income including share of joint ventures
Net interest payable
Proportionally consolidated net interest cover ratio
2021
£m
2020
£m
187.5
183.0
(3.5)
(2.0)
(3.6)
1.4
(0.7)
179.1
–
28.1
28.1
–
(0.2)
1.3
(2.5)
12.0
38.7
(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
463%
446%
179.1
0.4
179.5
174.3
–
174.3
38.7
39.1
464%
446%
Derwent London plc Report & Accounts 2021 263
43 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. Where the total consideration due under a lease is modified, for example, where a concession is granted to a tenant,
the revised total amount due under the lease is recognised on a straight-line basis over the remaining term of the lease.
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, fees charged to tenants for the management of certain Group properties and administration
services provided to joint ventures. Other income is recognised in the Group income statement in accordance with the delivery of services
as required by IFRS 15 Revenue from Contracts with Customers.
Service charges
Service charge income relates to expenditure that is directly recoverable from tenants, excluding management fees which are included in
‘other income’. Service charge income is recognised as revenue in the period to which it relates as required by IFRS 15 Revenue from
Contracts with Customers.
GovernanceStrategic reportFinancial Statements
264
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
43 Significant accounting policies (continued)
Expenses
(i)
Lease payments – Where investment properties are held under operating leases, the leasehold interest is classified as if it were held
under a finance lease, which is recognised at its fair value on the balance sheet, within the investment property carrying value. Upon
initial recognition, a corresponding liability is included as a finance lease liability. Minimum lease payments are apportioned between
the finance charge and the reduction of the outstanding liability so as to produce a constant periodic rate of interest on the remaining
finance lease liability. Contingent rents payable, being the difference between the rent currently payable and the minimum lease
payments when the lease liability was originally calculated, are charged as expenses within property expenditure in the years in which
they are payable.
(ii)
Dilapidations – Dilapidations monies received from tenants in respect of their lease obligations are recognised immediately in the
Group income statement, unless they relate to future capital expenditure. In the latter case, where the costs are considered to be
recoverable they are capitalised as part of the carrying value of the property.
(iii)
Reverse surrender premiums – Payments made to tenants to surrender their lease obligations are charged directly to the Group
income statement unless the payment is to enable the probable redevelopment of a property. In the latter case, where the costs are
considered to be recoverable, they are capitalised as part of the carrying value of the property.
(iv)
Other property expenditure – Vacant property costs and other property costs are expensed in the year to which they relate, with the
exception of the initial direct costs incurred in negotiating and arranging leases which are, in accordance with 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.
Derwent London plc Report & Accounts 2021
265
Investment property
(i)
Valuation – Investment properties are those that are held either to earn rental income or for capital appreciation or both, including
those that are undergoing redevelopment. Investment properties are measured initially at cost, including related transaction costs.
After initial recognition, they are carried in the Group balance sheet at fair value adjusted for the carrying value of leasehold interests
and lease incentive and letting cost receivables. Fair value is the price that would be received to sell an investment property in an
orderly transaction between market participants at the measurement date. The valuation is undertaken by independent valuers who
hold recognised and relevant professional qualifications and have recent experience in the locations and categories of properties
being valued.
Surpluses or deficits resulting from changes in the fair value of investment property are reported in the Group income statement in the
year in which they arise.
(ii)
(iii)
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.
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.
Disposal – Properties are treated as disposed when the Group transfers the significant risks and rewards of ownership to the buyer.
Generally this would occur on completion of contract. On disposal, any gain or loss is calculated as the difference between the net
disposal proceeds and the carrying value at the last year end plus subsequent capitalised expenditure during the year. Where the net
disposal proceeds have yet to be finalised at the balance sheet date, the proceeds recognised reflect the Directors’ best estimate of
the amounts expected to be received. Any contingent consideration is recognised at fair value at the balance sheet date. The fair value
is calculated using future discounted cash flows based on expected outcomes with estimated probabilities taking account of the risk
and uncertainty of each input.
(iv)
Development – When the Group begins to redevelop an existing investment property for continued use as an investment property or
acquires a property with the subsequent intention of developing as an investment property, the property is classified as an investment
property and is accounted for as such. When the Group begins to redevelop an existing investment property with a view to sale, the
property is transferred to trading properties and held as a current asset. The property is remeasured to fair value as at the date of
transfer with any gain or loss being taken to the income statement. The remeasured amount becomes the deemed cost at which the
property is then carried in trading properties.
Trading property and trading stock
Trading property relates to property being developed for sale. Trading stock relates to development expenditure which is due to be disposed
of to third parties under development agreements. In accordance with IAS 2 Inventories, trading property and trading stock are held at the
lower of cost and net realisable value. Proceeds from sale are recognised in the Group’s income statement when title has been transferred
to the purchaser as required by IFRS 15 Revenue from Contracts with Customers.
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.
GovernanceStrategic reportFinancial Statements
266
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
43 Significant accounting policies (continued)
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.
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.
Where there has been a change to the terms of a debt agreement, such as the applicable interest rate or benchmark rate, this is
assessed under IFRS 9 using quantitative and qualitative assessments to determine if the debt modification is considered substantial
enough to be deemed an extinguishment. It is common for loan facilities agreements to include extension options which extend the
loan maturity out by one year. When these options are exercised as per the agreement, with no changes to other terms, this is deemed
to be a modification of the loan and not an extinguishment.
(ii)
Non-convertible bonds – These are included as a financial liability on the balance sheet net of the unamortised discount and costs on
issue. The difference between this carrying value and the redemption value is recognised in the Group income statement over the life
of the bond on an effective interest basis. Interest payable to bond holders is expensed in the year to which it relates.
(iii)
Convertible bonds – The fair value of the liability component of a convertible bond is determined using the market interest rate for an
equivalent non-convertible bond. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or
maturity of the bonds. The remainder of the proceeds is allocated to the conversion option. This is recognised and included in
shareholders’ equity, net of income tax effects and is not subsequently 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.
Derwent London plc Report & Accounts 2021
267
(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.
GovernanceStrategic reportFinancial Statements
268
TEN-YEAR SUMMARY
(UNAUDITED)
2021
£m
2020
£m
2019
£m
2018
£m
2017
£m
2016
£m
2015
£m
2014
£m
2013
£m
2012
£m
Income statement
Gross property income
Net property income and other income
Profit on disposal of properties and investments
Profit/(loss) before tax
199.8
187.5
10.4
252.5
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
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
–
122.0
108.79
75.45
76.50
–
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
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 surplus/(deficit)
Cash flow statement
Cash flow1
Net cash from/(used in) financing activities
Gearing and debt
Net debt
NAV gearing (%)
Loan-to-value ratio (%)
Net interest cover ratio (%)
¹ Cash flow is the net cash from operating and investing activities less the dividend paid.
A list of definitions is provided from page 274.
4,441.8 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
1,824
1,884
1,764
2,076
12.7
3,808
3,812
3,682
4,138
(1.8)
3,959
3,959
3,884
4,301
5.8
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
3,703
3,714
3,617
4,011
7.7
5,646.3 5,355.5 5,475.2 5,190.7 4,850.3 4,942.7 4,954.5
651.4
(195.7)
134.5
154.6
149.7
(42.6)
84.1
4,168.1 3,353.1 2,859.6
175.3
337.5
671.9
(141.2)
74.7
(58.4)
(27.2)
(22.3)
(16.6)
(245.9)
25.2
247.8
(298.2)
19.6
(57.0)
(43.6)
2.0
(57.3)
23.4
(65.9)
42.9
1.9
(31.4)
1,251.5 1,049.1
24.3
18.4
446
28.2
20.8
464
981.6
21.9
16.9
462
956.9
22.4
17.2
491
657.9
15.7
13.2
454
904.8
22.6
17.7
370
911.7 1,013.3
32.9
22.8
24.0
17.8
286
362
949.2
40.0
28.0
279
874.8
45.6
30.0
263
Derwent London plc Report & Accounts 2021 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
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
shares in 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 and operating costs (including costs of direct vacancy)
divided by gross rental income
Annualised rental income based on the cash rents passing at
the balance sheet date, less non-recoverable property operating
expenses, divided by the market value of the EPRA property portfolio,
increased by estimated purchasers’ costs
This measure incorporates an adjustment to the EPRA NIY in respect of
the expiration of rent free periods (or other unexpired lease incentives
such as discounted rent periods and stepped rents)
Estimated rental value (ERV) of immediately available space divided by
the ERV of the EPRA portfolio
269
2021
2020
£122.0m
108.79p
£111.0m
99.19p
£4,454.2m £4,280.9m
3,959p
3,812p
£4,369.6m £4,134.8m
3,884p
3,682p
£4,839.7m £4,646.5m
4,301p
4,138p
24.3%
30.5%
3.3%
3.7%
4.4%
4.8%
1.6%
1.8%
Financial StatementsGovernanceStrategic report 270
EPRA SUMMARY CONTINUED
EPRA Measure
Definition
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
2021
2020
7,953,114
8,398,662
6,969,749
6,983,1501
17,288,719
18,069,846
16,055,685
15,455,3121
68.65
3,173
1,678
2,941
1,470
0.013
72.47
3,326
1,947
2,8421
1,6171
0.015
102,168
95,719
88,954
88,3351
0.29
1,157
695
0.29
1,162
7771
¹
Prior year restated to reflect a change in methodology of the like-for-like portfolio. See the EPRA Reporting section in our 2021 Annual Responsibility Report for full explanation.
Derwent London plc Report & Accounts 2021 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
Any incidents of non-compliance with regulations and/or voluntary
standards concerning the health and safety impacts of assets
assessed during the reporting period
Average hours of training that the organisation’s employees have
undertaken in the reporting period
Percentage of total employees who received regular performance and
career development reviews during the reporting period
Percentage of assets under operational control that have implemented
local community engagement, impact assessments and/or
development programmes
271
See page 171
See page 56
See page 63 and 66
See page 63 and 66
See the EPRA Reporting
section in our 2021 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 page 126, 127, 132, 139
and 140
See page 144 to 147
See page 139
EPRA Measure
Social Performance Measures
Employee gender diversity
Gender pay ratio
New hires and turnover
Employee health and safety
Asset health and safety
assessments
Asset health and safety
compliance
Employees training and
development
Employee performance appraisals
Community engagement,
impact assessments and
development programmes
Governance Performance Measures
Composition of the highest
governance body
Process for nominating
and selecting the highest
governance body
Process for managing
conflicts of interest
Financial StatementsGovernanceStrategic report
272
PRINCIPAL PROPERTIES
(UNAUDITED)
West End: Central (61%)
Fitzrovia1 (33%)
80 Charlotte Street W12
1-2 Stephen Street & Tottenham Court Walk W1
250 Euston Road NW1
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
171-174 Tottenham Court Road W1
76-78 Charlotte Street W1
50 Oxford Street W13
Victoria (9%)
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 (7%)
Brunel Building, 2 Canalside Walk W2
Soho/Covent Garden (7%)
Soho Place W1
Bush House, South West Wing, Strand WC2
Baker Street/Marylebone (3%)
19-35 Baker Street W1
Baker Street JV with Lazari Investments (50% share)
38-42, 54-60 & 66 Baker Street W1
Mayfair (2%)
25 Savile Row 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
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
0-25
100-200
100-200
100-200
0-25
25-50
O/R/Re
O/R/L
O
O/R/Re
O/R
O/R/L
O
O/R
O
O/R
O/R
O/R/Re/L
O
O
O
O/R
O
O/R
O
O
O
O
O
200+
O/R
200+
25-50
O/R/L
O
100-200
O/R/Re
O/R
50-100
O/R
F
F
F
F
F
L
F
F
L
F
F
L/F
F
F
F
F
F
F
F
F
F
F
F
L
L
F
L
L
F
Excellent
Very Good
Very Good
Excellent
349,400
266,200
165,900
108,900
90,600
79,900
65,700
64,200
47,200
45,900
44,500
42,500
36,200
30,900
20,300
16,200
11,100
6,100
162,700
138,600
127,800
52,600
32,400
Excellent
243,400
*Outstanding,
*Excellent
*Outstanding,
*Very Good
285,000
103,700
298,000
61,000
Very Good
43,000
Derwent London plc Report & Accounts 2021 273
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
25-50
0-25
25-50
O/R
O
O/I
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
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
R/L
–
F
F
F
F
F
F
F
F
L
F
L
F
F
F
F
F
F
F
F
F
Excellent
Very Good
Outstanding,
Excellent,
Very Good
*Outstanding
Outstanding
Excellent,
Very Good
268,300
53,400
41,600
12,300
53,400
291,400
186,000
125,000
166,300
103,700
88,700
70,300
63,700
34,000
24,900
11,800
271,100
273,700
325,500
5,500 acres
West End: Borders/other (8%)
Islington/Camden (7%)
Angel Building, 407 St. John Street EC1
4 & 10 Pentonville Road N1
Holford Works, Cruikshank Street WC1
401 St. John Street EC1
Brixton (1%)
Blue Star House, 234-244 Stockwell Road SW9
City: Borders (30%)
Old Street (12%)
White Collar Factory, Old Street Yard EC1
1 Oliver’s Yard EC1
The Featherstone Building, 66 City Road 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
Provincial (1%)
Scotland (1%)
Strathkelvin Retail Park, Bishopbriggs, Glasgow
Land, Bishopbriggs, Glasgow
Includes North of Oxford Street
¹
² Excludes sold residential
3
* On-track for Post-Completion target
( ) Percentages weighted by valuation
Includes 36-38 and 42-44 Hanway Street W1
Tech Belt (42%)
Financial StatementsGovernanceStrategic report 274
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.
Carbon emissions Scopes 1, 2 and 3
Scope 1 – direct emissions;
Scope 2 – indirect emissions; and
Scope 3 – other indirect emissions.
CDP
The CDP is an organisation which works with shareholders and
listed companies to facilitate the disclosure and reporting of
climate change data and information.
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 2021 275
— EPRA ‘topped-up’ net initial yield
This measure incorporates an adjustment to the EPRA NIY
in respect of the expiration of rent-free periods (or other
unexpired lease incentives such as discounted rent periods
and stepped rents).
— EPRA vacancy rate
Estimated rental value (ERV) of immediately available space
divided by the ERV of the EPRA portfolio.
In addition, the Group has adopted the following recommendation
for investment property reporting.
— EPRA like-for-like rental income growth
The growth in rental income on properties owned throughout
the current and previous year under review. This growth
rate includes revenue recognition and lease accounting
adjustments but excludes properties held for development
in either year and properties acquired or disposed of in
either year.
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.
Managed portfolio
This is the reporting portfolio we use to measure and report our
environmental data e.g. utility usage, waste generated and carbon
emissions. The properties within this portfolio are directly managed
by the Group i.e. we have operational control.
Fair value adjustment
An accounting adjustment to change the book value of an asset or
liability to its market value.
Mark-to-market
The difference between the book value of an asset or liability and
its market value.
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.
MSCI Inc. (MSCI)
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.
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.
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.
Headroom
This is the amount left to draw under the Group’s loan facilities
(i.e. the total loan facilities less amounts already drawn).
NAV gearing
Net debt divided by net assets.
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.
ISS-Oekom
ISS-Oekom is an ESG rating service that provides corporate and
country ESG research and ratings that enables its clients to identify
material social and environmental risks and opportunities.
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.
Net assets per share or net asset value (NAV)
Equity shareholders’ funds divided by the number of ordinary
shares in issue at the balance sheet date.
Net debt
Borrowings plus bank overdraft less cash and cash equivalents.
Net interest cover ratio
Net property income, excluding all non-core items divided by
interest payable on borrowings and non-utilisation fees.
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.
GovernanceStrategic reportFinancial Statements 276
LIST OF DEFINITIONS CONTINUED
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.
Science Based Target initiative (SBTi)
The Science Based Targets initiative (SBTi) is a collaboration
between CDP, the United Nations Global Compact, World
Resources Institute (WRI) and the World Wide Fund for Nature
(WWF). The SBTi defines and promotes best practice in science-
based target setting and independently assesses and approves
companies’ targets. Science-based targets provide companies
with a clearly defined pathway to future-proof growth by specifying
how much and how quickly they need to reduce their greenhouse
gas emissions.
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.
Total property return (TPR)
Total property return is a performance measure calculated by the
MSCI 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.
Derwent London plc Report & Accounts 2021 277
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.
Unmanaged portfolio
This is the portfolio of single-let properties where we have no
operational control. We do not report environmental data from
this portfolio.
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.
GovernanceStrategic reportFinancial Statements 278
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 8.00am and 4.30pm, 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 – 2022
Our forthcoming financial and dividend calendar for 2022 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
24 February
05 May
13 May
11 August
03 November
Dividend calendar
Ex-dividend date
Record date
Dividend paid
Final dividend
28 April
29 April
01 June
Interim dividend
08 September
09 September
14 October
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 7047
Lines are open 8.30am to 5.30pm, 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
Robert Duncan
Head of Investor Relations & Strategic Planning
Derwent London
25 Savile Row
London
W1S 2ER
United Kingdom
Telephone: +44 (0)20 3478 4217
Email: robert.duncan@derwentlondon.com
Derwent London plc Report & Accounts 2021 AWARDS AND RECOGNITION
Derwent London won numerous awards for its achievements and buildings in 2021,
a sample of which are shown below.
EPRA Gold for
Annual Report
Britain’s Most Admired Companies –
sector winner and 38th overall
FTSE4Good –
Member since 2003
EPRA Sustainability Reporting
Awards 2021 – Gold award
GRESB (Global Real Estate Sustainability
Benchmark) 2021 – score of 81, Greenstar
status, ‘A’ rated public disclosure
DISCLOSURE INSIGHT ACTION
CDP – Management C rating
MSCI
ISS Oekom
NES
PwC’s Building Public Trust
CGI annual report of the year
EG company of the year
Designed and produced by
Brunswick Creative
www.brunswickgroup.com
This report is printed on Arcoprint Extra White.
It is made from FSC® certified and other controlled material.
Printed sustainably in the UK by Pureprint, a Carbon Neutral company
with FSC® Chain of custody and ISO 14001-certified environmental
management system recycling 100% of all dry waste.
D
e
r
w
e
n
t
L
o
n
d
o
n
p
l
c
R
e
p
o
r
t
&
A
c
c
o
u
n
t
s
2
0
2
1
Derwent London plc
Registered office: 25 Savile Row, London W1S 2ER
T +44 (0)20 7659 3000
www.derwentlondon.com
Registered No: 1819699