Development Securities PLC Interim results for six months ended 31st August 2013

IMAGE TO BE CHANGED The MVMNT, Greenwich

2

Contents

Slide number

Overview and highlights

3 – 10

Financial results

11 – 15

Operating review - Overview - Legacy assets - Development and trading - Investment portfolio - Major development

16 - 28

Appendix 29 – 36

OVERVIEW AND HIGHLIGHTS

4

Headline numbers

EPRA NON-EPRA

Six

months

ended

31st Aug

2013

Year

ended

28th Feb

2013

Six

months

ended

31st Aug

2012

Six

months

ended

31st Aug

2013

Year

ended

28th Feb

2013

Six

months

ended

31st Aug

2012

Net Asset Value (£’m) 320.5 317.5 317.4 312.6 306.6 304.4

Net Asset Value per share

(pence) 262 260 259 255 251 249

Earnings/(loss) per share

(pence) 5.1 10.5 0.6 5.9 2.0 (1.4)

Development and trading

profits (£’m) 13.3 28.1 11.9 13.3 28.1 11.9

5

Group highlights

• Pre-tax profit of £8.1 million (28th February 2013: pre-tax profit of £0.8 million)

• EPRA NAV of £320.5 million equivalent to 262 pence per share increased from £317.5 million (260 pence per

share) as at 28th February 2013

• After deducting £2.9 million of 2013 final dividend, basic NAV of £312.6 million increased by £6.0 million (2.0 per

cent) from £306.6 million

• Development and trading gains of £13.3 million (six months to 31st August 2012: £11.9 million) delivered with

good visibility on further gains in the second half of the year and beyond – diversified portfolio of assets

continuing to generate steady profits with risk spread across multiple opportunities

• Investment portfolio valuations stabilised and set to recapture value - increase of £0.5 million in investment

portfolio including our share of JV assets

• Conservative balance sheet maintained – gearing reduced to 45.7 per cent (28th February 2013: 47.9 per cent).

Gearing including share of JVs at 56.5 per cent (28th February 2013: 63.9 per cent)

• Interim dividend of 2.4 pence per share declared. (31st August 2013: 2.4 pence per share)

6

Operational highlights

• On track with strategy of generating gains through regeneration - £13.3 million of development and trading gains

delivered in the period with more to follow over the next half of financial year and beyond

‒ £6.4 million of gains from concluding agreement at PaddingtonCentral (net of associated costs)

‒ £6.9 million of gains from other development and trading assets and Chrome portfolio

• Good progress made to release cash from legacy assets - £11.4 million payment received in the period from sale of

Broughton residential land and planning success at 399 Edgware Road

• Seven planning consents achieved from 28th February 2013 to date – significant value creator in process of

regeneration, enabling a profit stream for future periods

• Progress on major developments projects – 10 and 12 Hammersmith Grove and Southwark

• Element of realised gains recycled into further real estate opportunities with regeneration potential

7

Development and trading contribution

Six months ended 31st Aug 2013

Six months ended 31st Aug 2012

Year ended

28th Feb 2013

£m £m £m

Rock portfolio 0.3 2.7 4.3

PaddingtonCentral 6.4 - -

HDD projects 2.0 - 0.9

Wick Site, Littlehampton - 2.4 2.5

Westminster Palace Gardens, London - 1.5 1.9

Project Management Fees/Net Rental Income 1.5 1.2 2.5

Gains arising from additional trading asset realisations 3.2 1.6 12.7

Other (0.1) 2.5 3.3

Gross contribution 13.3 11.9 28.1

8

Gains delivered across portfolio and more to follow

Current expectations of gains to be released across portfolio £

mill

ion

s

9

Strong pipeline of disposals established FY 2014 FY 2015 FY 2016+

MAJOR DEVELOPMENTS PORTFOLIO

Cambridge Science Park X X

10 Hammersmith Grove X

12 Hammersmith Grove X X

PaddingtonCentral X

Southwark X X

INVESTMENT PORTFOLIO

Manchester Arena X

Wick Lane Wharf X X

FY 2014 FY 2015 FY 2016+

DEVELOPMENT AND TRADING PORTFOLIO

Hale Barns X X

Marsh Mills X

Romford* X

Barnstable X

Beyond Green - Norwich X X

Beyond Green - Pincents Hill, Tilehurst X

Launceston X

Luneside East X

Sandbanks X

Tranmere - HDD X

Lawley - HDD X

Buckshaw - HDD X X

Newport - HDD X

Llanelli - HDD X

HDD - other X X

Abbey Wood X X

399 Edgware Road X

Dartmouth X

Rock Portfolio X

Rembrandt House, Watford X X

Woking X

Wind Farms X X

Shepherds Bush X

The MVMNT, Greenwich X

Kensington Church Street X

Real estate loan portfolios X

The Old Vinyl Factory, Hayes X X X

Morden Wharf X

Axis, Manchester X

Essex foodstore* X

Dublin mixed-use scheme* X

Atlantic Park X *New acquisitions made since 28th February 2013

10

Market context

• Consensus emerging about GDP growth

• Confidence returning to secondary markets as investors are looking outside of Central London in search of higher

yielding, good quality assets – supports our strategy of regional secondary investment

• Strengthening market in Greater London where we are active

• Residential prices growing – Government initiatives providing additional boost to housing value and supply with

residential land prices set to further benefit – our exposure to this market is established and increasing

• Near-term interest rates remain at historically low levels

FINANCIAL RESULTS

12

Results for the six months ended 31st August 2013

Six months ended

31st Aug 2013

£m

Six months ended

31st Aug 2012

£m

Year ended

28th Feb 2013

£m

Profit before revaluations, interest & taxation 12.7 9.5 23.8

Net finance costs (5.8) (4.9) (9.3)

Profit before revaluations and taxation 6.9 4.6 14.5

Swap mark-to-market valuations 0.7 (0.9) (0.8)

Property revaluation gains/(loss) (including joint ventures) 0.5 (4.4) (12.9)

Profit/(Loss) before tax 8.1 (0.7) 0.8

Profit/(Loss) per share 5.9p (1.4)p 2.0p

Dividend per share 2.4p 2.4p 4.8p

13

Contribution to NAV change

£m

Cash-related in

the period

£m

Non cash-related in

the period

£m

Net assets attributable to Shareholders at 28th February 2013 306.6

Contribution from investment property 6.5 6.5 -

Property revaluations 0.5 - 0.5

Contribution from development and trading portfolio 13.3 13.3 -

Operating costs (6.5) (6.5) -

Net interest costs (5.8) (5.8) -

Swap revaluations 2.9 - 2.9

Other (0.6) (0.6) -

Sub-total 10.3 6.9 3.4

Taxation (1.4) (1.4) -

Dividends (2.9) (2.9) -

Total movement 6.0 2.6 3.4

Net assets attributable to Shareholders at 31st August 2013 312.6

14

Change in NAV through the period (pence per share) P

ence

per

sh

are

255

(5.8)

(4.8) (1.1)

(2.4)

5.3

10.9

0.4 2.3

251

250

252

254

256

258

260

262

264

266

268

15

Net Debt

31st Aug 2013

£m

28th Feb 2013

£m

Gross debt 212.0 206.0

Cash (69.0) (59.2)

Net debt 143.0 146.8

Gearing 45.7% 47.9%

Share of net debt in joint ventures 33.7 49.3

Net debt including joint ventures 176.7 196.1

Gearing including joint ventures 56.5% 63.9%

Analysis of gross debt

Fixed rate 46.1% 48.0%

Capped / SWAP 43.9% 42.1%

Floating rate 10.0% 9.9%

Weighted average interest rate 5.7% 5.9%

Weighted average maturity 7.6 years 8.3 years

OPERATING REVIEW

1) Overview 2) Legacy assets 3) Development and trading portfolio 4) Major development portfolio 5) Investment portfolio

17

1) Overview – the three aspects of our portfolio

Strong pipeline of value -enhancing deals developed

Typically late cycle activity –focus in this area is increasing

Investment portfolio held for consistent cash yield and to support overheads

Development and trading

Objective To create value through the regeneration of redundant or undervalued real estate, creating a product that can be sold into the prime or near-prime market • Real estate loan portfolios Objective To realise gains through the acquisition of loan portfolios secured against underlying real estate assets, from banks and financial services providers

Major developments

Objective To deliver prime developments that achieve maximum returns with reduced risk exposure

Investment portfolio Objective To sustain and grow a stable income stream from higher yielding investment assets with enhancement potential

18

• Applying equity – in a capital constrained environment, our equity resource commands a powerful position in the market as 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 and/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 assets across multiple sectors and locations where demand is in evidence achieving risk diversification as opposed to concentration of value in a few individual assets – target IRRs of 20 per cent and above

• Reinvestment of gains – equity released from disposals of assets is recycled into further arbitrage and development opportunities in an environment of strengthening GDP and economic outlook

Our focus - delivering gains by regenerating real estate

19

2) Legacy assets – progress made to release cash

c.£30 million cash to be released from legacy assets over next few years Broughton, Flintshire • £11.4 million of cash received in the period from sale of 19-acre

residential site to a housebuilder (at book value)

• Further £5.0 million to be released over the near- to medium-term

399 Edgware Road, London NW9 • Planning consent secured in May 2013 for a foodstore anchored mixed-

use scheme on seven-acre development site.

• Pre-let agreed with Morrisons for 80,000 sq. ft. foodstore to anchor the scheme

• Estimated cash release of £26.0 million over next 12-18 months

• £125 million redevelopment to also include 183 residential units, 54,000 sq. ft. of additional retail space and 580 car parking spaces

20

3) Development and trading – highlights

Asset realisations continue to generate solid gains

• £6.9 million of gains generated across development and trading portfolio excluding £6.4 million of gains generated from

PaddingtonCentral termination (net of associated costs)

• Rock portfolio sales concluded generating cumulative total profits of £8.4 million since acquisition in October 2010

• Initial equity investment released from Chrome portfolio through further asset realisations

Three new real estate opportunities secured

• Recycling an element of capital into new real estate opportunities offering regeneration potential

‒ Mixed-use town centre development project in Romford acquired for £8.3 million

‒ Joint venture agreed at ten-acre site in Essex for mixed-use development and conditional pre-let agreed with national

foodstore brand

‒ Residential-led mixed-use opportunity in prime area of Dublin acquired for €2.4 million

Further planning successes secured since year end to date

• Significant milestone in creating value

• Majority of planning consents achieved are for foodstore anchored mixed-use developments including residential land*

*Details of residential portfolio given on slide 30-31 in Appendix

21

4) Major developments – overview/highlights

Concluding agreement at PaddingtonCentral

• £12.1 million early cash return as a result of our concluding agreement at PaddingtonCentral:

‒ £5.0 million equity return

‒ £6.0 million compensation payment (gross)

‒ £1.1 million return on £5.0 million equity investment

Nascent economic recovery and growing demand for office accommodation in fringe Central London locations – renewed focus on office-led development

• 10 Hammersmith Grove

‒ 58 per cent of office space (five floors) under offer and two out of three restaurant units exchanged.

‒ Encouraging level of interest in remainder of office space

• 12 Hammersmith Grove

‒ Anticipate start on site in early 2014 of 165,000 sq. ft. speculative prime office building which will be forward-funded

• New development opportunity secured in Southwark

‒ Option agreement extended at site adjacent to Southwark underground station for development of office-led project

‒ Phased payments to be made over the next 18 months with first payment of £2.3 million having been made

‒ Area of office rental growth where demand for high quality office space is evident

22

10 & 12 Hammersmith Grove, West London

23

5) Investment portfolio – market overview Growing investor confidence in secondary market

• Competitive tension returns to secondary market:

‒ Demand spills out from perceived ‘overpriced’ Central London market as investors move higher up the risk curve in search of

good quality, higher yielding secondary real estate – assets which form the core of our investment portfolio

‒ Debt availability within secondary market increases

‒ Yield compression in secondary market as economy continues to show signs of strengthening

• Outlook for secondary market is positive:

‒ Early signs of occupational markets stabilising

‒ Additional weight of money looking to invest in this market will drive further yield compression

‒ Strengthening market place is encouraging us to recycle an element of our investment portfolio:

‒ Disposal of Manchester Arena completed since year end

‒ Contracts exchanged to sell the Great Western Trading Estate in Brentford at a price ahead of 28th February 2013 book

value

Investment portfolio set to recapture further value as economy strengthens

24

Valuations stabilise as asset management enhances value

Portfolio valuations have stabilised and are set to recapture value

• After disposal of residential land at Broughton for £11.4 million, valuation of directly held investment portfolio at £208.0 million

(28th February 2013: £220.1 million)

• Net valuation uplift of £0.5 million including our share of JV investment assets

• Only significant valuation decline at Atlantic Village:

‒ £1.4 million of valuation decline as a result of softening rents and tenant incentives in order to retain and attract occupiers

‒ Yields have stabilised

‒ Property will benefit from additional footfall and critical mass as a result of extension of Atlantic Village and also consented

development to follow at neighbouring Atlantic Park

‒ Considering other initiatives to drive footfall including a simplified Atlantic Village Phase 2

Proactive asset management continues to extract maximum value from our assets

• Momentum in new lettings maintained

• Contracted rent stable at £15.4 million compared to £15.5 million as at 28th February 2013

• Void rates decreased to 6.3 per cent from 9.7 per cent at 28th February 2013

Top 5 occupiers as at 31st August 2013 Annual rent

£m % of contracted

rent

1 Waitrose 2.1 13.4%

2 Primark Stores Limited 0.5 3.2%

3 Sports World 0.5 3.1%

4 Martin McColl Ltd 0.5 3.1%

5 Brausch & Co 0.4 2.7%

25

Direct investment portfolio – overview

Tenant profile Location profile

Lease profile Analysis by sector

26

Six months

ended

31st Aug 2013

Year ended

28th Feb 2013

Portfolio value £208.0m £220.1m

Number of assets 25 25

Contracted rent £15.4m £15.5m

Valuation yield 7.5% 7.5%

Equivalent yield 7.8% 7.9%

Voids 6.3% 9.7%

Direct investment portfolio – overview cont…

27

Investment property portfolio contribution (includes share of JVs) Six months

ended 31st Aug 2013

£m

Six months ended

31st Aug 2012 £m

Year ended 28th Feb 2013

£m

Revenue 7.7 8.0 16.1

Direct costs (1.2) (1.6) (4.0)

6.5 6.4 12.1

(Loss)/gains on disposals (0.6) - 0.9

Asset management fees and joint venture net income 0.6 1.2 (0.2)

Contribution prior to revaluation 6.5 7.6 12.8

Revaluation (loss)/gain

- Direct

- Share of JV

(1.0)

1.5

(7.3)

2.9

(16.3)

3.5

Contribution 7.0 3.2 0.0

28

Investment portfolio analysis – core investment portfolio*

Sector

Capital value

(£m)

% of

portfolio by

capital value

Void rates

(%)

Net initial

yield

(%)

Weighted

average lease

length

(years)

London/SE

weighting

(%)

Valuation

movement

(%)

Foodstore anchored 64.2 33.3 3.4 5.5 13.8 33.3

1.1

Foodstore anchored

(outside DS ownership)

37.7 19.6 2.2 9.2 5.8 5.7 1.5

Other Retail 46.6 24.2 12.6 8.0 9.7 8.8 (3.0)

Commercial 21.3 11.1 6.7 9.3 7.8 7.0 (1.4)

Mixed-use 22.8 11.8 0.9 7.6 10.5 2.1 (0.3)

Total 192.6 100.0 6.3 7.5 8.6 56.1 (0.2)

*Analysis covers core investment assets – direct investment portfolio excluding developable land and site assembly

Appendix

30

Residential market offers growth opportunities

• We have developed a substantial pipeline of real estate opportunities that include a significant residential component

• Circa 7,000 residential units are either being constructed, have planning consent or are in the planning process (see next slide) – approximately 50 per cent of the units represent a long-term strategy of delivery

• Residential land prices set to increase as house prices continue to rise – competitive bidding on existing residential land sales already showing some upside

• Given the renewed strength in residential land and the volume of exposure that we have to residential opportunities, we are reappraising our strategy of unlocking value from our residential land

• This could include land disposals, joint ventures or direct development as a means to extract maximum value from our portfolio

• The growing Private Rented Sector could also provide a strategic option for us in the delivery of the consented residential element of some of selected schemes

31

Growing pipeline of residential developments Scheme Name Number of Units

Constructed / Completed Wick Lane Wharf, London* 112

328 Sandbanks Road, Dorset* 5

The Collection, Lawley Village* 12

Hebble Wharf , Wakefield* 22

The MVMNT, Greenwich* 181

Nokoto Court, Bridgwater* 16

The Collection (Duplexes/Townhouses), Lawley Village* 27

Wallis Court, Buckshaw Village 30

405

Under Construction Market Place, Romford 22

Hale Barns 24

46

Planning Permission Granted Cross Quarter, Abbey Wood 216

Rembrandt House ,Watford 107

Shepherds Bush Market 212

The Old Vinyl Factory ,Hayes* 685

Anchorwood Bank, Barnstaple 350

Launceston 275

399 Edgware Road 183

North Sprowston and Old Catton, Norwich 3,500

Valentines House, Ilford 110

5638

Plannning submitted/pending Didcot 24

24

Design Phase Morden Wharf, Greenwich 700

Kensington Church Street 40

Tilehurst 250

990

TOTAL 7103 *Residential sales achieved

32

Executive team

Michael Marx

Chief Executive

Julian Barwick

Executive Director

(Development)

Marcus Shepherd

Finance Director

Matthew Weiner

Executive Director

(Investment)

Page 33

Five core principles The following principles, consistently followed over 15 years, underpin our strategy and our approach to risk-management:

1. We target modest levels of gearing (c.50% – 60%)

2. 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.

3. 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.

4. We maintain an active investment portfolio whereby rents contribute towards 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 invest predominantly in the UK

Extended in 2013 by an initial investment in Ireland

Page 34

Market context – key graphs

Lending to Commercial Property

Net new lending negative for 8 consecutive quarters

Initial Yield (%)

Arbitrage opportunities still strong

Source: Capital Economics

All-property initial yield minus 10 year gilt yield

Real estate market fairly priced

All-property initial yield minus FTSE All Share dividend yield

Real estate market fairly priced

Source: Capital Economics

Source: Capital Economics Source: Capital Economics

0

50

100

150

200

250

300

350

400

2

3

4

5

6

7

8

9

10

04 05 06 07 08 09 10 11 12 13

Non-prime to prime spread, bps (RHS)

IPD low yield/prime, % (LHS)

IPD mid. & high yield/non-prime, % (LHS)

-6

-4

-2

0

2

4

6

8

10

12

14

4

5

6

7

8

9

10

11

12

13

87 89 91 93 95 97 99 01 03 05 07 09 11 13

Lending to property as a % of total loan book (LHS)

Net new lending to property, £bn (RHS)

0

1

2

3

4

5

6

0

1

2

3

4

5

6

90 92 94 96 98 00 02 04 06 08 10 12 14 16

IPD all property initial yields less FTSE All-Share dividend yield,%

Property looks expensive

CE forecast

-8

-6

-4

-2

0

2

4

6

-8

-6

-4

-2

0

2

4

6

90 92 94 96 98 00 02 04 06 08 10 12 14 16

IPD all property initial yields less yields on 10-year gilts, %

Property looks expensive

CE forecast

Page 35

UK property IPD returns 1981 - 2012

Annualised av. return Capital:

2.3% Income:

6.5%

36

Disclaimer

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