Development Securities PLC. Interim results for six months ended 31st August 2012 Further results of strategy secured

Transcription

1 Development Securities PLC Interim results for six months ended 31st August 2012 Further results of strategy secured

2 Contents Slide number Overview and highlights 3-9 Interim results Portfolio and property review - Major development portfolio - Development and trading portfolio - Investment portfolio Appendix

3 Overview and highlights

4 Key financials 11.9 million of realised returns from development and trading portfolio (29th February 2012: 8.6 million; 31st December 2010: 5.0 million) Gains to strengthen from further asset disposals in the next twelve months and in the medium-term (development and trading assets carried at lower of cost and net realisable value - not revalued) Pre-tax loss of 0.7 million (loss of 1.3 million in six months to 30th June 2011) Net assets attributable to Shareholders of million (29th February 2012: million) a reduction of 6.9 million (2.2 per cent) equivalent to 5.6 pence per share after: 3.9 million final dividend in respect of the 14-month period to 29th February million of negative interest rate swap valuations 4.4 million of negative valuation movements in investment portfolio including our share of joint venture investment assets Progress made to realise cash from legacy assets: Planning consent achieved at 19-acre residential land in Broughton Planning application submitted for mixed-use scheme anchored by Morrisons foodstore at 399 Edgware Road Interim dividend of 2.4 pence per share declared (30th June 2011: 2.4 pence per share) Gearing of 48.3 per cent (29th February 2012: 48.8 per cent) 4

5 Market context Continued macro economy uncertainty holding back GDP growth Continued uncertainty surrounding the Eurozone Debt burden remains high new bank lending to real estate sector still highly constrained Outside of prime markets, real estate rental and capital growth is weak GDP growth is negligible and likely to remain so for the medium-term Interest rates at their lowest no further yield compression to sustain property values Occupier and consumer demand remains weak, limiting prospects for rental growth Yield gap between prime and secondary property widens further Real estate operators need to apply their expertise to drive capital growth 5

6 Our focus - creating value by transforming real estate Applying equity in a capital constrained environment, our equity resource commands a powerful position in the market and terms of trade move towards us Arbitrage opportunities - transformation of secondary real estate into prime/near-prime product to capture value uplift and deliver strong returns. This can be achieved by: Repositioning redundant/functionally obsolete real estate into sectors of demand through change of use or redevelopment Acquisition of real estate loans or portfolios from financial institutions which can be sold individually with or without adding value through the development process Risk diversification acquisition of multiple assets across sectors and locations where demand is in evidence achieving risk diversification as opposed to concentration of value in just a few individual assets maintain focus on delivering IRRs of 20 per cent and above Reinvestment of gains - equity released from disposals of assets is recycled into further yield arbitrage opportunities and trading opportunities 6

7 Further strong progress towards realisation of gains Gains from disposals of development and trading assets improve further Rock portfolio further sales of assets cumulative profits of 6.4 million generated to date Westminster Palace Gardens residential and retail sales completed additional profit of 1.5 million realised The MVMNT, Greenwich disposal of student accommodation plot and residential land element initial profits of 1.3 million Wick Site, Littlehampton completion of sale of site to Morrisons gains of 2.4 million realised Positive planning progress to create value through change of use Cross Quarter, Abbey Wood pre-let agreed with Sainsbury s subject to planning. Application to be submitted shortly The Old Vinyl Factory planning application submitted for a 1.5 million sq. ft. mixed-use scheme Unlocking value from legacy assets Broughton residential planning consent for 19-acre residential site secured 399 Edgware Road planning application submitted for mixed-use scheme with 80,000 sq. ft. Morrisons pre-let 7

8 Further gains to be unlocked in the near to medium-term Forecast of development and trading gains 8

9 Strong pipeline of disposals FY 2013 FY 2014 FY 2015 Airport House, Croydon X Manchester Arena Complex X Broughton residential X Rock Portfolio X HDD - Llanelli and Lawley village X 328, Sandbanks X X Other trading including loans X X 10 Hammersmith Grove X Rembrandt House, Watford X Shepherds Bush Market X 399 Edgware Road X Abbey Wood X X The Old Vinyl Factory, Hayes X X The MVMNT, Greenwich X X Ilford X Hale Barns X Dartmouth X Marsh Mills X Barwood-BLEL X Blue - Norwich X Blue - Pincents Hill X Braehead X 9

10 Interim results for the six months ended 31st August 2012

11 Results for the six months ended 31st August st Aug 2012 m 29th Feb 2012 m 30th Jun 2011 m Profit before revaluations, exceptional impairment, interest & taxation Net finance costs (4.9) (10.1) (4.0) Gain/(loss) before revaluations and taxation 4.6 (2.5) (2.6) Exceptional impairment - (2.8) - Swap mark-to-market valuations (0.9) (0.5) - Property revaluation (loss)/gains (including joint ventures) (4.4) (4.3) 1.3 Loss before tax (0.7) (10.1) (1.3) Loss per share (1.4)p (10.3)p (0.9)p Dividend per share 2.4p 5.6p 2.4p 11

12 Contribution to NAV reduction Net assets attributable to Shareholders at 29th February m Cash-related in the period m Non cash-related in the period m Contribution from investment property Contribution from development and trading portfolio Other operating income and costs (7.3) (7.3) Property revaluations (4.4) (4.4) Net interest costs (4.9) (4.9) Swap revaluations (3.7) (3.7) Taxation (0.7) (0.7) Dividends and share purchases (4.0) (4.0) Sub-total (6.9) 1.2 (8.1) Net assets attributable to Shareholders at 31st August

13 Change in NAV per share through the period Fair value adjustments 13

14 Net Debt 31st Aug 2012 m 29th Feb 2012 m 30th Jun 2011 m Gross debt Cash (54.2) (50.2) (75.6) Net debt Gearing 48.3% 48.8% 39.0% Share of net debt in joint ventures Net debt including joint ventures Gearing including joint ventures 67.7% 58.9% 47.3% Analysis of gross debt Fixed rate 48.7% 49.4% 53.9% Capped / SWAP 41.8% 44.7% 23.7% Floating rate 9.5% 5.9% 22.4% Weighted average interest rate 6.0% 6.0% 5.5% Maturing within (including JV s) m m m One year Two years Three years Four or more years Weighted average maturity 7.4 years 8.4 years 8.4 years 14

15 Portfolio and property review 1) Legacy assets 2) Major development portfolio 3) Development and trading portfolio 4) Investment portfolio

16 Group strategy Applying development expertise in a risk-averse manner across a diversified portfolio to generate attractive returns Major developments Use forward-funding and pre-lets/pre-sales to minimise development risk on major projects Utilise strength of balance sheet for small and medium size projects Portfolio includes commercial, retail, residential and leisure developments Development and trading portfolio Investment portfolio Drive capital gains through upgrading secondary assets into prime/near-prime capitalising on yield arbitrage opportunities Select the right buying opportunities where terms of trade in our favour and demand for exits is strong Target a 3 4 year turnaround of assets and IRRs of 20 per cent and above Investment portfolio provides stable income and prospect of significant capital appreciation Target assets with core defensive income and enhancement potential in sectors where occupier demand is strong and supply of accommodation restricted Drive income growth through proactive asset management Including joint ventures and strategic partnerships 16

17 1) Legacy assets - progress towards realisation of cash 399 Edgware Road, London NW9 Planning application submitted for a mixed-use scheme on 7-acre site following positive response to public consultation Pre-let agreed with Morrisons (subject to planning) for 80,000 sq. ft. foodstore to anchor the scheme Planning outcome anticipated in Q Broughton Planning consent granted by Welsh Assembly Government for 19-acre residential development in Broughton, Cheshire Discussions advanced with a housebuilder for sale of whole site at price in line with expectations 17

18 399 Edgware Road, London NW9 Morrison s pre-let secured, subject to planning 18

19 2) Major development portfolio Typically a late economic cycle activity driven by a growing economy and strengthening occupier demand, hence low levels of current activity. Strategy: Target major development schemes in: Key Central London and provincial office markets Urban, mixed-use regeneration in non-prime sites with strong uplift potential Complex sites requiring specialist expertise Do not develop major projects on own balance sheet de-risk developments through institutional forward-funding Limits exposure to downside risk in the property market and the development process Reduces exposure to bank debt Earn project management fee through the development process and a participation in the profit to the investors once project is complete Secure pre-lets or pre-sales where possible to minimise risk Highlights: Hammersmith Grove Practical completion anticipated in May Cambridge Science Park Appointed development manager in April 2012 by Trinity Hall college for three new office/lab buildings totalling 110,000 sq. ft. Pleased by occupier response showing resilience of biotech market. Two further phases at Hammersmith and Paddington total 350,000 sq. ft. 19

20 10 Hammersmith Grove Practical completion anticipated in May

21 3) Development and trading portfolio Strategy: Converting secondary assets to prime or near-prime to exploit current arbitrage opportunities Driving capital growth through planning gains and proactive asset management rather than relying on market momentum Selecting the right buying opportunities in sectors where demand for exits is strong e.g. foodstore anchored mixed-use schemes, selected residential, student housing and hotels Diversification of financial risk limited equity deployed in each project Often distressed sellers with no access to finance so terms of trade move in our favour Highlights: Further disposals of assets to institutions, housebuilders and others Rock portfolio further sales Westminster Palace Gardens completion of sales of residential and retail components The MVMNT, Greenwich sale of residential and student accommodation land element Planning uplift through e.g. change of use underpinning c.50 per cent of added value Further acquisitions of selected real estate and loan portfolios to be repositioned into sectors of demand 21

22 328, Sandbanks, Dorset Practical completion in September. Marketing now underway 22

23 The Old Vinyl Factory, Hayes Masterplan for 1.5 million sq. ft. mixed-use scheme submitted 23

24 4) Investment portfolio Strategy Careful stock selection of assets with core defensive income and enhancement/redevelopment potential Focus on: Foodstore anchored retail schemes with 5 25 additional retail units that can be proactively asset managed and available surface car parking to accommodate scheme extension where appropriate Other selected sectors with strong occupier demand and restricted supply Proactive asset management to grow income and capital value rather than relying on market momentum to drive growth lease re-gears, extensions, restructurings, new planning consents etc 24

25 Overview of investment portfolio Tenant profile Location profile PLC/Nationals 62% Local Traders 18% Regional Multiples 16% FTSE 100 3% Government 1% South East 44% South West 16% North 15% London 13% Wales 8% Midlands 4% Lease profile Analysis by sector 0-5 years 37% 5-10 years 32% years 14% years+ 8% 20 years+ 9% Retail 58% Mixed 25% Industrial 9% Office 7% Residential 1% 25

26 Overview/highlights Negative valuation movements of 4.4 million (1.7 per cent decline) including our share of joint venture investment assets 1.7 per cent decline compares against 2.4 per cent decline in six-month universal IPD index (including representation of central London, out of town shopping centres and leisure) Value declines concentrated in regional secondary assets Tenant administrations (including Clinton Cards) in four assets carried loss of 0.3 million Value recovery of 0.8 million in five assets previously devalued by Peacocks failure Contracted rent increased to 15.2 million from 14.9 million as at 29th February 2012 Void rates reduced to 8.3 per cent compared to 11.4 per cent at 29th February

27 Investment property portfolio statistics 31st Aug th Feb th Jun 2011 Portfolio value 231.4m 237.9m 210.0m Number of assets Rent roll 15.2m 14.9m 12.5m Initial yield 7.5% 7.3% 6.1% Equivalent yield 7.6% 7.5% 7.3% Voids 8.3% 11.4% 8.0% 27

28 Investment property portfolio contribution 31st Aug 2012 m 29th Feb 2012 m 30th Jun 2011 m Revenue Direct costs (1.6) (3.7) (1.0) Gains on disposals Asset management fees and joint venture net income (0.2) Contribution prior to revaluation Revaluation (loss)/gain - Direct - Share of JV (7.3) 2.9 (4.7) Contribution

29 Analysis of capital returns direct investment portfolio Capital return for six month period to 31st August 2012 per cent m Portfolio (2.9)% (6.1) 31st Aug 2012 m Portfolio value 29th Feb 2012 m Prime retail (0.4)% (0.1) South East secondary (0.7)% (0.7) Regional secondary (5.3)% (5.3) Total N.B. These figures are valuations with no accounting adjustments for lease incentives etc 29

30 Wick Lane Wharf, East London Mostly let at rental tones ahead of expectations 30

31 Appendix

32 Executive team Michael Marx Chief Executive Graham Prothero Finance Director Julian Barwick Executive Director (Development) Matthew Weiner Executive Director (Investment) 32

33 Five core principles The following five commandments, consistently followed over 15 years, underpin our strategy and our approach to risk-management: 1. We only invest in UK property 2. We focus primarily on commercial property We maintain a predominant focus on securing planning consents and redeveloping commercial property although the emphasis of our activities may shift between major, complex developments and smaller scale development and trading properties at the different stages of the property cycle. Since July 2009, we have broadened the scope of our real estate activities to include mixed-use projects that include residential, hotel and student accommodation. 3. We do not undertake major developments on our balance sheet and minimise exposure through forward-funding/pre-lets We consider large-scale development projects to be generally a late economic cycle activity driven by an expanding economy and strengthening demand. We have never believed it appropriate for a company of our size to accept sole development risk in relation to our substantial development projects and consequently, we share the majority of development project risk with financial institutions and partners who are the more appropriate long-term investors. 4. We maintain an active investment portfolio whereby rents cover operational expenses Our investment portfolio provides a steady and predictable flow of funds, contributing significantly towards central overheads and mitigating the more uneven profits and cash flow arising from the major development and trading portfolio. The investment portfolio accounts for a significant element of invested equity and represents a diverse portfolio of assets across the UK, comprising carefully selected retail and office properties. 5. We target modest levels of gearing (c.50% 60%) Page 33

34 Market context key graphs Initial Yield (%) Lending to Commercial Property Arbitrage opportunities still strong Net new lending negative for 8 consecutive quarters Lending to property as a % of total loan book (LHS) Net new lending to property, bn (RHS) Source: Capital Economics Source: Capital Economics All-property initial yield minus FTSE All Share dividend yield All-property initial yield minus 10 year gilt yield Real estate market fairly priced Real estate market fairly priced CE forecast 6 5 CE forecast Property looks expensive 3-2 Property looks expensive IPD all property initial yields less FTSE All-Share dividend yield, % IPD all property initial yields less yields on 10-year gilts, % Source: Capital Economics Page 34 Source: Capital Economics

35 Disclaimer This presentation has been prepared by Development Securities PLC (the Company ). No representation or warranty (express or implied) of any nature is given nor is any responsibility or liability of any kind accepted by the Company or any of its directors, officers, employees, advisers, representatives or other agents, with respect to the truthfulness, completeness or accuracy of any information, projection, representation or warranty (expressed or implied), omissions, errors or misstatements in this presentation, or any other written or oral statement provided. In particular, no responsibility or liability is or will be accepted and no representation or warranty is or is authorised to be given as to the accuracy, reliability or reasonableness of any forward-looking statement, including any future projections, management targets, estimates or assessments of future prospects contained in this presentation, or of any assumption or estimate on the basis of which they have been given (which may be subject to significant business, economic or competitive uncertainties and contingencies beyond the control of the management of the Company). Any such forward-looking statements have not been independently audited, examined or otherwise reviewed or verified. All views expressed in this presentation are based on financial, economic, market and other conditions prevailing as of the date of this presentation. The Company does not undertake to provide access to any additional information or to update any future projections, management targets, estimates or assessment of future prospects or any other forward-looking statements to reflect events that occur or circumstances that arise after the date of this presentation, or to correct any inaccuracies in this presentation which may become apparent. Past performance is not indicative of future results and forward-looking statements are not guarantees of future performance. This presentation is for information purposes only and does not constitute an offering document or an offer of transferable securities to the public in the UK. This presentation is not intended to provide the basis for any credit or other evaluation of any securities of the Company and should not be considered as a recommendation that any investor should subscribe for, dispose of or purchase any such securities or enter into any other transaction with the Company or any other person. The merits and suitability of any investment action in relation to securities should be considered carefully and involve, among other things, an assessment of the legal, tax, accounting, regulatory, financial, credit and other related aspects of such securities. This presentation is being communicated or distributed within the UK only to persons to whom it may lawfully be communicated, and has not been approved for the purposes of section 21 of the Financial Services and Markets Act It may not be reproduced (in whole or in part), distributed or transmitted to any other person without the prior written consent of the Company. In particular this presentation is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. Any recipients of this presentation outside the UK should inform themselves of and observe any applicable legal or regulatory requirements in their jurisdiction, and are treated as having represented that they are able to receive this presentation without contravention of any law or regulation in the jurisdiction in which they reside or conduct business. 35