Annual Report 2012 - Development Securities PLC

More documents

Recommendations

Info

8 Development Securities PLC / Annual Report 2012 Group Strategy Applying development expertise in a risk-averse manner across a diversified portfolio to generate attractive returns We apply our real estate development and investment expertise across three principal areas, each guided by a distinct approach, to achieve a diversification of assets that minimises risk and maximises potential gains. Major development portfolio Development and trading portfolio Investment portfolio Focus on prime office developments in specific locations with limited potential supply Continue to seek opportunities for major forward-funded development projects but avoiding Central London acquisitions where price does not justify risk Focus on the right buying opportunities where terms of trade are in our favour and where sufficient occupier demand exists to support our exit strategies Targets, on average, a three to four year turnaround of assets and IRRs of 20 per cent and above Capital gains achieved by upgrading secondary assets into prime/near-prime, effectively arbitraging the yield differential between these two asset categories Targets assets with core defensive income and enhancement potential in sectors where occupier demand is strong and supply of accommodation restricted Drives income growth through proactive asset management Provides stable income and prospect of significant capital appreciation Including joint ventures and strategic partnerships
annualreport2012. developmentsecurities.com/ our-business/risk Risks Structured selection and management of risk Principal risks The Group’s business model is defined by the nature and extent of the risks which the Directors consider appropriate to its skills and size. Project specific risk and cumulative portfolio risk are key measures by which the Executive Directors appraise potential new transactions. The Group’s risk profile is maintained under continual review by its Risk Committee, which meets quarterly, and by the Board. The Directors consider the following to be the principal risks and uncertainties facing the business. They may be grouped as external risks, whose occurrence is beyond the control of the Group, and business risks, which the Directors choose to manage as part of the Group’s operations. External risks Market risk The real estate market is closely linked with the health of the local and national economies. Recessionary or stagnant conditions undermine the demand for new developments and exacerbate occupier risk in existing investment properties, hence significantly reducing their value. Taking into account changing consumer behaviour, some properties may be rendered not merely cyclically redundant, but functionally obsolete. Lack of liquidity available to prospective purchasers of our completed projects may delay our ability to realise planned disposals or reduce the prices we achieve. Current and prospective market conditions are a principal focus for both executive management and the Board. Our more detailed assessment of the position and our strategic and operating responses are set out in the Chairman’s Statement and Chief Executive’s Review on pages 2 to 5, and in the Operating Review on pages 11 to 31. Scarcity of opportunities The Group’s business is transactional and requires a flow of opportunities, which can be sparse either because of lack of market demand for new product or through excess equity forcing uncompetitive market pricing. Since the first equity raising in 2009, the Group’s strategy of exploiting the current spread between prime and secondary yields, targeting properties which offer opportunities for refurbishment or redevelopment, has attracted a strong pipeline of potential projects, owing to the lack of liquidity generally available for this part of the market and a restricted field of competition for such complex projects. The Group maintains a flexible approach to market opportunity, resisting the temptation to chase activity when prices move too high, and seeking sectors and locations where value can be generated, as described in the Operating Review on pages 11 to 31. People risk The Group’s success depends on the ability and experience of its Directors and management. The departure of key individuals or the failure to attract and retain new talent can result in the loss of core competencies and industry knowledge and networks. The Group aims to motivate and reward its team appropriately and competitively as described in the Remuneration Report, and the Board keeps the strength and depth of the team under continual review. Funding, liquidity and counterparty risks The transactional nature of our trading and development businesses means that the amount and timing of cash receipts is subject to variability, making cash flow forecasts uncertain. In addition the pressure on banks to reduce their exposure to real estate and to increase the risk-weighting of such lending, as well as the continuing risk of a credit crisis in the European banking sector, all threaten to constrain the liquidity available to us to fund acquisitions or refinance existing borrowings as they fall due. Such conditions also heighten counterparty risk both operationally, in sale contracts and joint venture agreements, and financially, in cash deposit and hedging arrangements. These risks are kept under continuous review by the executive team and discussed by the Board at every meeting. Further analysis of the risks and our processes for analysis and management are set out in the Financial Review on pages 39 to 40. Business risks Planning risk Procuring an appropriate and valuable planning consent is a key element of the creation of value through property development. Our current strategic focus on regeneration and redevelopment relies significantly on our skills in this area. Securing planning permission is a complex and uncertain process with applications subject to objection from a wide range of potential stakeholders, and hence is prone to delay, modification and rejection. The Directors rely on their experience and local knowledge supplemented by advisors and, in some cases, by sector-specialist partners, to maximise the chance of success and reduce the risks and costs of failure. Construction risk Construction is subject to risks of cost overruns, delay and the failure of an appointed contractor. The Group examines these risks in each case, conducting appropriate due diligence on the capabilities and financial security of its prospective contractors. The Group deploys its own experienced project managers to minimise the likelihood and impact of the above risks. Development Securities PLC / Annual Report 2012 9
Page 1 and 2: Developing value Annual Report 2012
Page 3 and 4: Financial Highlights Demonstrable o
Page 5 and 6: annualreport2012. developmentsecuri
Page 9: From left to right: Michael Marx Ch
Page 13 and 14: Operating Review Developing value T
Page 15 and 16: Westminster Palace Gardens, London
Page 17 and 18: Development Securities PLC / Annual
Page 19 and 20: Bexleyheath, Kent A prominent retai
Page 21 and 22: Development Securities PLC / Annual
Page 23 and 24: 328 Sandbanks Road, Dorset A single
Page 27 and 28: Development and trading assets Watf
Page 29 and 30: Investment assets Property Manchest
Page 31 and 32: Bannerbrook Coventry Braehead Glasg
Page 33 and 34: Investment property - key statistic
Page 35 and 36: Case study St Andrew’s Club Earli
Page 37 and 38: Case study Who Owns the City In Nov
Page 41 and 42: The £15.6 million bank loan to the
Page 43 and 44: Result for the period and movement
Page 45 and 46: The Group’s share of joint ventur
Page 49 and 50: details of the share option schemes
Page 51 and 52: The Directors have no present inten
Page 53 and 54: Disclosure of information to audito
Page 55 and 56: Company. V M Mitchell chaired a mee
Page 57 and 58: Internal control The Directors ackn
Page 59 and 60: Remuneration Report Dear Shareholde
Page 61 and 62:
) Annual bonus The non-pensionable
Page 63 and 64:
In addition, the Committee must be
Page 65 and 66:
l) Retirement benefits Qualifying m
Page 67 and 68:
Financial Statements Group Independ
Page 69 and 70:
Consolidated Balance Sheet As at 29
Page 71 and 72:
Consolidated Cash Flow Statement Fo
Page 73 and 74:
staff to manage the property (over
Page 75 and 76:
g) Intangible assets (i) Goodwill G
Page 77 and 78:
Available-for-sale financial assets
Page 79 and 80:
Financial Statements 2 Segmental an
Page 81 and 82:
Investment £’000 Development and
Page 83 and 84:
6 Finance income and costs a) Finan
Page 85 and 86:
14-month period ended 29th February
Page 87 and 88:
12 Intangible assets Financial Stat
Page 89 and 90:
The Group’s share of assets and l
Page 91 and 92:
Financial Statements In July 2011,
Page 93 and 94:
Financial Statements Included in th
Page 95 and 96:
Available-for-sale financial assets
Page 97 and 98:
£38,000,000 variable rate loan £2
Page 99 and 100:
Liquidity risk A review of the Grou
Page 101 and 102:
Financial Statements 19 Deferred in
Page 103 and 104:
Share-based payments The following
Page 105 and 106:
23 Financial commitments and operat
Page 107 and 108:
28 Post balance sheet events Since
Page 109 and 110:
Company Balance Sheet As at 29th Fe
Page 111 and 112:
No expense is recognised for awards
Page 113 and 114:
35 Financial assets Financial State
Page 115 and 116:
Financial Statements Any options gr
Page 117 and 118:
Financial Calendar and Advisors Fin
Page 120:
Development Securities PLC Portland
show all

Annual Report 2012 - Development Securities PLC

Create successful ePaper yourself

Delete template?

Save as template?