Derwent London earnings fall in 'unprecedented' year

Derwent London reported a negative total return of -1.8% in its full-year results on Thursday, swinging from a positive 6.6% in 2019, as its EPRA net tangible assets fell 3.7% to 3,812p per share.

The FTSE 250 property investment and development company said its gross rental income grew 5.8% year-on-year in 2020 to £202.9m, while its net rental income slipped 2.1% to £174.3m after £14.2m in impairment and write-offs.

Rent collection for the year ended 31 December now stood at 92%, with a further 5% under agreed payment plans and 3% granted rent-free periods.

EPRA earnings for the year totalled £111.0m, or 99.2p per share, falling 3.8% from 103.1p in 2019, as the board proposed a 1.9% hike in the final dividend to 52.45p per share.

That would result in a 2.8% improvement in the total full-year dividend, to 74.45p per share.

During the year, Derwent arranged or extended two debt facilities totalling £550m, with the company reporting interest cover of 446% and a loan-to-value ratio of 18.4% at year-end.

Undrawn facilities and cash stood at £476m, falling from £511m at the end of 2019.

Looking at its portfolio, Derwent reported a total property return of 0.3% for 2020, compared to its benchmark index of -2.4%, as its EPRA vacancy rate rose to 1.8% at year-end from 0.8% a year earlier.

It said 2021 lease expiries reduced from 26% of passing rent to 17% at year-end, and was now at 13%, of which 5% related to future projects.

The company completed 80 Charlotte Street, W1 in June, its first net zero carbon development, and currently had 410,000 square feet under construction, with 61% of that pre-let.

It had also committed to the 297,000 square foot redevelopment at 19-35 Baker Street, W1, planning to be on site in the second half of 2021.

A total of £153m of property disposals was completed in 2020, with the portfolio value at year end falling by an underlying 3% year-on-year to £5.4bn, while its underlying valuation uplift on developments came in at 5.3%.

Derwent said its true equivalent yield tightened by three basis points over the year to 4.74%, while its estimated recovery value decreased by 2.8% over the year.

Looking ahead, Derwent said its “differentiated product” was “well-placed” to outperform as lockdowns eased, with its guidance for 2021 to see average estimated recovery values on its portfolio to move 0% to -5%.

IAverage investment yields on its portfolio, meanwhile, were expected to remain firm.

“It has been an unprecedented year for London and its communities, with many businesses recognising the importance of a return to the office for combined learning, creativity and productivity,” said chief executive officer Paul Williams.

“Recent events have accelerated changes required by our occupiers with a growing emphasis on wellbeing and environmental performance.

“With our innovative brand of well-designed, adaptable offices and our continued focus on responding to climate change, I believe Derwent London is well positioned to meet the changes in the modern workplace.”

At 0845 GMT, shares in Derwent London were down 0.91% at 3,280p.