Rental growth slowed in the second half and chief executive John Burns thinks current conditions are here to stay. But he still expects rents to rise by about 5 per cent in 2012. After a record year for lettings, Derwent's vacancy rate is just 1.3 per cent, so space is tight. And most of the company's offices are on the gentrifying northern fringes of the West End – places such as Clerkenwell and Angel, as well Fitzrovia, its traditional home. That makes them appealing to the jeans-wearing media and internet sectors that drove the office lettings market last year.
Derwent had five main development projects under way at the year-end. The biggest is near Victoria and has been entirely pre-let to Burberry. Broker Jefferies expects adjusted NAV of 1,791p at year-end.
|DERWENT LONDON (DLN)|
|ORD PRICE:||1,715p||MARKET VALUE:||£1.74bn|
|TOUCH:||1,714-1,717p||12M HIGH / LOW||1,911p||1,386p|
|DIVIDEND YIELD:||1.8%||TRADING PROP:||nil|
|PREMIUM TO NAV:||5%|
|INVESTMENT PROP:||£2.44bn||NET DEBT:||50%|
Derwent has a superb market position and track record, but the shares have raced ahead this year and now trade at around spot NAV – one to buy on weakness. Hold.
Last IC view: Good value, 1,563p, 24 August 2011