West End-focused REIT outperforms fully quoted peers with 8.4% NAV increase
Derwent London warned of weakening West End rents when it unveiled the strongest results from the quoted property sector so far this year.
In its first set of full-year results as a merged company, the West End landlord said its net asset value rose 8.4% to the year end December.
While the REIT said that tenant demand for West End properties remained firm, it warned: “In the event of a general economic slowdown, even in this distinctive area, rental growth is likely to be affected.”
Chief executive John Burns said: “We’re realistic. We can’t say that we will be immune, although we haven’t seen any noticeable change in our business so far.”
However, he said the West End was by far a more resilient market than the City, and that the group’s significant development pipeline would further insulate it from the downturn.
Burns also said that there was currently limited West End product for sale that the group considered to be of good value.
Derwent, which acquired London Merchant Securities just over one year ago, said a 3.9% decrease in NAV in the second half of the year was offset by the first half’s 12.8% rise.
However, it also posted a pretax loss of £99.8m for the year to end December, largely because of a £353m goodwill write-off incurred in the merger.
The value of the group’s portfolio, of which three-quarters is located in the West End, rose from £2.5bn to £2.7bn.
West End ‘more resilient’ than City
Shares have fallen steadily since merger, in line with sector
Analysis: KBC Peel Hunt
Derwent has progressed in its traditional, very reassuring way since the merger. It has the lowest average passing rent of the three West End specialists and will benefit from significant reversion over coming years, as well as development potential. The company has highlighted half of its portfolio for possible redevelopment over the next five to 10 years which, providing planning consents are gained, will lower the required rents to break-even by some 30% or more. We estimate the likely upside from the development programme over the next five years to be 250p per share.
