Contrary to the views of industry naysayers, Derwent London (DLN) provided a timely reminder that in the real property world life goes on. Emphasising this point, net rental income rose by over 10 per cent to £161m, while continued yield compression meant that the previous year’s portfolio devaluation of £37.1m was replaced with a valuation uplift of £148m. Shareholders were rewarded with a 75p per share special dividend, and the shares jumped nearly 5 per cent, while adjusted net asset value (NAV) rose 4.6 per cent to 3,716p.
It was also another record year for lettings, bringing in £41.5m at 1.3 per cent above December 2016's estimated rental value. In addition, property disposals raised £482.8m at 11.8 per cent above the estimated rental value. This helped to finance £165m of capital expenditure and a further £265m to complete major year-end projects. Construction for delivery in 2019 is running at 623,000 square feet of which 45 per cent is already pre-let. All in all, the consented future development pipeline more than doubled to 853,000 sq ft.
While leasing incentives have increased in some cases, demand for office space in London remained strong. At the year-end, there was £110m of portfolio reversion (extra rental income if all rents were marked to market), with 40 per cent relating to rent-free periods. Some of this has already been taken into account, but there remains a potential £68.5m of upside to be crystallised. And at 1.3 per cent, the vacancy rate is lower than a year earlier.
Access to Soho Place, situated above Tottenham Court Road Elizabeth line station, was secured during the year and comprises 209,000 sq ft of office space, as well as retail space of 36,000 sq ft. However, this will swallow a further £309m and will not complete until 2021.
Analysts at Peel Hunt are forecasting adjusted NAV of 3,715p a share at the December 2018 year-end.
| DERWENT LONDON (DLN) | ||||
| ORD PRICE: | 3,056p | MARKET VALUE: | £3.41bn | |
| TOUCH: | 3,054-3,057p | 12-MONTH HIGH: | 3,133p | LOW: 2,574p |
| DIVIDEND YIELD: | 2.0% | TRADING PROPERTIES: | £25.3m | |
| DISCOUNT TO NAV: | 17% | |||
| INVESTMENT PROP: | £4.67bn | NET DEBT: | 16% | |
| Year to 31 Dec | Net asset value (p) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p)* |
| 2013 | 2248 | 468 | 446 | 36.5 |
| 2014 | 2931 | 754 | 719 | 39.7 |
| 2015 | 3528 | 780 | 695 | 43.4 |
| 2016 | 3561 | 55 | 53 | 52.36 |
| 2017 | 3703 | 315 | 282 | 59.73 |
| % change | +4 | +478 | +435 | +14 |
| Ex-div: | 03 May | |||
| Payment: | 08 Jun | |||
| *Not including special dividend of 52p a share in 2016 and 75p in 2017 | ||||
