Derwent picks up where it left off

Derwent London (DLN) was at pains to emphasise a return to normality in these results after having to hand out deferred payment terms to the tenants of its upscale, mostly empty if not technically unoccupied, prime London office space. Rent collection for the quarter improved to 95 per cent for its office space, which makes up the bulk of the company’s rent roll. The improved conditions meant the company posted a revaluation surplus for the half of £57.8m, completely reversing last year’s pandemic-induced losses.

The impact of rent deferrals meant that operating cash flow for the half was much improved at £51.3m, which had a knock-on impact in reducing net debt. Management anticipates that after an HSBC loan of £28m is paid this year, which was held against some of its Baker Street properties, it will seek new financing over the next 12 months. The company’s debt currently has a maturity averaging 6.4 years. The net debt figure was also helped by cash receipts of £166.5m from investment property activity, which after investments made came to a net £58.4m.

Derwent’s pipeline continues to grow with the refurbishment of Bush House, the old home of the BBC World Service, which subject to planning permission could be extended to 130,000 ft of rentable space.

Derwent has narrowed the discount to NAV significantly since our buy tip and continues to perform well despite the problems caused by the pandemic. At an adjusted forward PE ratio for this year of 34, the shares aren’t cheap, but the quality is there alongside a growing dividend. Buy.

Last IC view: Buy, 3,395p, 29 Apr 2021