Development Securities PLC Preliminary results Developing value through real estate expertise May 2012
Contents Slide number Company strategy and market context 3 - 9 10 – 16 Preliminary results 17 – 30 Portfolio review 31 – 36 Property review Appendix 1 – Company information 37 – 39 Appendix 2 – Impairment provision and Peacocks administration 40 – 42 Appendix 3 – P roperty returns and IPD 43 – 45 Appendix 4 – Major developments: funding and timing 46 - 48 2
Company strategy and market context
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. We do not undertake major developments on our balance sheet and minimise exposure through forward-funding/pre-lets 3. 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%) 4
Group strategy Applying development expertise in a risk-averse manner across a diversified portfolio to generate attractive returns Use forward-funding and pre-lets/pre-sales to minimise development risk on major projects Major Utilise strength of balance sheet for small and medium size projects developments Portfolio includes commercial, retail, residential and leisure developments Investment portfolio provides stable income and prospect of significant capital appreciation Investment Target assets with core defensive income and enhancement potential in sectors where portfolio occupier demand is strong and supply of accommodation restricted Drive income growth through proactive asset management Including joint ventures and strategic partnerships Drive capital gains through upgrading secondary assets into prime/near-prime capitalising on yield arbitrage opportunities Development and Select the right buying opportunities where terms of trade in our favour and demand for exits trading portfolio is strong Target a 3 – 4 year turnaround of assets and IRRs of 20 per cent and above 5
Market update “Cash is still king” • Availability of bank debt for real estate opportunities is highly constrained – net new lending to real estate sector has been negative since early 2009. Some previously high profile lenders have withdrawn from the sector completely • Lack of liquidity, in particular in regional and secondary markets, has amplified the value of equity Stagnant economy holding back real estate growth • GDP growth negligible and likely to remain weak for medium-term • Economic weakness and pressure on the consumer will continue to hold back rental growth • Outside of prime investment markets e.g. Central London commercial/West End residential, few opportunities to capture meaningful rental and capital value growth Yield gap between prime and secondary property remains wide • Well-priced opportunities to buy secondary property and redevelop into institutional, prime or near-prime assets, capturing yield arbitrage • Real opportunities to generate value by applying development expertise to reposition functionally obsolete assets into sectors of demand Continuing to deploy our cash resources into selected real estate opportunities where capital growth can be achieved in spite of wider economic weakness 6
Market context – key graphs Lending to Commercial Property Initial Yield (%) Arbitrage opportunities still strong Net new lending negative for 8 consecutive quarters 14 7 13 14 Lending to property as a % of total loan book (LHS) Spread, %-points (RH S) 12 12 IPD low yield/prime, % (LHS) 12 6 Net new lending to property, £bn (RHS) IPD high yield/non-prime, % (LHS) 11 10 10 5 10 8 8 4 9 6 8 4 6 3 7 2 4 2 6 0 2 1 5 -2 4 -4 0 0 87 89 91 93 95 97 99 01 03 05 07 09 11 01 02 03 04 05 06 07 08 09 10 11 Source: Capital Economics Source: Capital Economics All-property initial yield minus 10 year gilt yield All-property initial yield minus FTSE All Share dividend yield Real estate market fairly priced Real estate market fairly priced 6 6 6 6 CE forecast 4 4 CE forecast 5 5 2 2 4 4 0 0 3 3 Property looks -2 -2 Property looks expensive expensive 2 2 -4 -4 IPD all property initial yields less yields on 10-year gilts, % IPD all property initial yields less FTSE All- 1 1 -6 -6 Share dividend yield, % -8 -8 0 0 90 92 94 96 98 00 02 04 06 08 10 12 14 90 92 94 96 98 00 02 04 06 08 10 12 14 Source: Capital Economics Source: Capital Economics 7
What is our focus? • Applying equity - real estate opportunities where our equity resource commands a powerful position in the market and terms of trade move towards us • Arbitrage opportunities - acquisition of selected secondary assets which through repositioning (in which planning uplift, change of use etc is a very important component) can be sold into sectors of the prime/near-prime or institutional market capitalising on yield differential • Risk diversification – acquisition of multiple assets across sectors and locations where demand is in evidence achieving a risk diversification as opposed to concentration of value in one or two individual assets • Reinvestment - potential for equity released from disposals of assets to be recycled into further yield arbitrage opportunities, market conditions permitting Investment of equity since July 2009: Development & Trading Investment Portfolio Portfolio Total Acquisition Cost (including development expenditure) 174.9 222.5 397.4 DS Equity 46.0 117.4 163.4 8
Where can we expect to make gains in the near term? 2013 2014 Development and trading portfolio Disposals following planning uplift Airport House Croydon X The MVMT, Greenwich X X Wick Site, Littlehampton X Rock portfolio X X 328 Sandbanks Road, Sandbanks X Westminster Palace Gardens X Braehead, Glasgow X Hale Barns X Dartmouth care home X Marsh Mills, Wessex X The Old Vinyl Factory, Hayes X Shepherds Bush Market X Investment portfolio Proactive asset management to drive rental growth Major development portfolio Development profits – 10 Hammersmith Grove X Legacy assets Release of cash from disposals 399 Edgware Road X Broughton X Manchester Arena Complex not included 9
Preliminary results 2012
2011-12 highlights Activity Details • Rock portfolio (sales of £17.2 million generating profits of £3.8 million to date) Disposals of assets • Wick site, Littlehampton (conditional pre-sale of 47,500 sq. ft. foodstore site to Morrisons) acquired since July 2009 • Westminster Palace Gardens (£22.9 million of sales contracts exchanged for residential and office (profits arising p/e 2012 component) and y/e 2013) • The MVMT, Greenwich (contracts exchanged with Willmott Dixon for £16.15 million for development of residential plot) • The Old Vinyl Factory, Hayes (80% stake in a shell office building sold to a specialist developer for an initial receipt of £3.8m. Further value expected from overage linked to this sale) • Planning secured on Wick site, Littlehampton (planning consent secured for 47,500 sq. ft. foodstore) • Shepherds Bush (outline planning secured for redevelopment of market and surrounding area) secondary assets to • Rock portfolio (planning consents secured on ten assets since January 2011) reposition into prime or • The Old Vinyl Factory (planning consent secured for first phase – 132 residential apartments) near-prime • Rembrandt House, Watford (planning consent secured for residential-led, mixed-use redevelopment) • Westminster Palace Gardens (planning consent for change of use from commercial to residential) • The MVMT (planning consent secured for mixed-use development comprising residential, hotel and student accommodation and community facilities) • Further acquisitions of 16 projects acquired since January 2011 real estate with strong options for repositioning • Forward-funding secured 10 Hammersmith Grove (forward-funding of first phase 110,000 sq. ft. prime office building by Scottish Widows Investment Partnership Property Trust for £50.0 million) on speculative London development 11
Recommend
More recommend
