Derwent London's focus on commercial property in the West End of London is paying off; but this is not just luck. Management of the FTSE 250-listed real estate investment trust (Reit) was astute enough to dispose of non-core assets some years ago at the top of the market, so it went into the recession with a highly defensive property portfolio and low gearing. As a result, it was the only Reit not to undertake an equity raise last year.
The underlying trading picture is much improved, too, helped by 10.3 per cent uplift in the property book which has risen in value by £200m to £2.15bn since the end of December. The letting picture is also encouraging, with 47 lettings during the six-month period, totalling 126,000 sq ft of space, while the vacancy rate is only 2.2 per cent although this is expected to track up as new developments become available for let.
Derwent expects rental growth of around 5 per cent in the second half and future prospects are underpinned by the big development at the Angel in North London, which will be coming stream soon, and development of the Central Cross site, which has just been acquired. Meanwhile, broker forecasts are being moved up and Collins Stewart has lifted its full-year net asset value (NAV) estimate from 1,409p to 1,450p.
DERWENT LONDON (DLN)
|ORD PRICE:||1,420p||MARKET VALUE:||£1.4bn|
|TOUCH:||1,417-1,422p||12-MONTH HIGH:||1,460p||LOW: 1,103p|
|DIVIDEND YIELD:||1.9%||TRADING STOCK:||£1m|
|PREMIUM TO NAV:||4%|
|INVESTMENT PROPERTIES:||£2.12bn||NET DEBT:||57%|
|Half-year to 30 Jun||Net asset value (p)||Pre-tax profit (£m)||Earnings per share (p)||Dividend per share (p)|
Ex-div: 29 Sep
Payment: 5 Nov
Demand continues to be strong for commercial property rentals in central London and Derwent is an attractive management story. But the shares now trade in line with NAV estimates and, on valuation grounds, they are fairly priced.
Last IC view: Good value, 1,322p, 19 Mar 2010