Jealousy can be a cruel and powerful mistress – as anyone who has ever looked at someone else’s life, career or success and thought “I want that” will attest. The ugly truth is that human nature dictates we are more likely to find fault with, rather than to celebrate, those who are doing better than the majority.
And so John Burns has achieved one of life’s great and most coveted rarities – celebrated success in his own sector. The chief executive of Derwent London has been described by one commentator as “the developer’s favourite developer and a man in charge of one of the best-performing listed property companies of this year and many past years”.
“Well that’s very complimentary,” says Burns graciously, before equally graciously adding that he does not donate much time to dwelling on the comments of others, positive or otherwise. And looking back at how his company has performed over the past five years – some of the toughest in history for property – it is clear to see where his energy has gone instead.
Derwent London was the only UK listed property company not to raise equity in 2008-09 in response to the financial crisis. It is the largest central London-focused REIT, with a portfolio valued at £2.9bn, and has a development pipeline that Burns claims is big enough to keep the group – which grew 5% over the past 10 months – comfortably busy for the next decade.
Here, the 68-year-old former “window-gazer”, who had no interest in anything at school other than rugby, reveals how he propelled Derwent London to such dizzying heights of success, discusses the emergence of residential REITS and explains why he will be looking at future development opportunities east of Shoreditch but no further north than Islington.
Success in a cold climate
Perhaps one of the reasons Burns has managed to keep his peers so firmly onside as he has prospered is his almost clinical analysis of Derwent London’s success. It is completely devoid of self congratulation – making it more a case of good advice than a boasting session.
Take navigating through tough times, for example – something he has certainly proved he is more than capable of. “You can be the greatest genius in the world with a building,” he says. “But if you don’t buy right, and if you haven’t got the finance right, then nothing else is going to help. You need a strict discipline over finance.
“It’s the ratios. As a REIT, we have rules which are quite tight. We always enjoy a very good cover of income to our interest cover.”
He adds: “The world has changed. Whereas a few years ago if you weren’t leveraging up to 100% you weren’t in the game, today the REITs’ average is 35-40%, and we are at the 30% level. So that becomes harder again. It’s managing the business.”
Derwent London posted a 4.1% boost in net asset value in the six months to the end of June, but saw its pretax profit drop from £173.3m to £102.4m, caused mainly by a reduced revaluation surplus. A new £83m, 12-year facility was secured in August, completing the refinancing of its facilities, due to expire in 2013. It had £410m of undrawn facilities and £595m of uncharged properties at 30 June.
One of the most pivotal moments for the company, which Burns set up with Simon Silver as Derwent Valley in 1984, was the merger with London Merchant Securities in 2007.
“With Derwent Valley, we were one of the early syndicate people,” says Burns. “We would put deals together, I would call the boys and say ‘we’ve got this, how much are you in for?’ and then we would put a bit of our pocket money in and see what happened.
“I had always looked at London Merchant Securities and knew it had exactly the kit and the properties we wanted,” he smiles. “I knew the buildings were coming to the end of their life, so I got together with Robbie Rayne [then managing director and chief executive of LMS] and we did a deal. It has been pivotal.”
Burns considers this moment in Derwent London’s history as one of the key drivers behind its strong position in a tough market today. “We didn’t have to do a rights issue because our rights issue was London Merchant Securities, and that was at 3.5% dilution and discount,” he says. “And when you are doing 40% discounts it is very difficult to make a buck.
“That’s why we didn’t raise it – we thought we had enough headroom. We had good investors calling us at the time saying ‘you’re crazy; you’ve got to tap the market’. A week later they rang up to apologise as we did have the headroom and we had the stock to go forward. That’s why we have kept our ground since. We didn’t follow the masses. We never do.”
East of Shoreditch
The move certainly paid off. Derwent London now has the killer combination of a portfolio valued at nearly £3bn and a healthy development pipeline.
Flagship schemes include the Burberry building at 1 Page Street, SW1, the 100,000 sq ft Chancery Lane scheme, WC2, and – the biggest the company will ever have done – the 1.5m sq ft 80 Charlotte Street scheme, W1, currently let to Saatchi and Saatchi.
On where else Derwent is eyeing, it should come as no surprise that Burns will be sticking to his own advice – “know your market” – remaining in areas he knows well.
“One thing our schemes all have in common is Crossrail, which we really support,” he says. “We are not going to City core, that’s for sure. We are still much more comfortable dealing north of the river. We don’t like Hammersmith but we do like west London. We won’t go further north than Islington and we will go out east – never to Stratford, but to Shoreditch. In fact, let’s go a bit beyond Shoreditch.”
In terms of moving away from offices to residential development – the 80 Charlotte Street scheme will incorporate residential – Burns says that Derwent will not start doing mainstream resi schemes.
“The Saatchi flats are very interesting and pose a question about letting. I don’t believe people will be able to afford to buy in the south for much longer. They’ll be letting. I also believe there will be residential REITS in the future. I don’t think we will see Derwent with a high proportion of residential business, but when alternative uses are of higher value than carrying out an office scheme, we have got to do it.”
As for working with joint venture partners – Burns doesn’t rule it out. “People say we don’t do jvs. Well, we would be delighted to do them as long as we can do them and not stretch the business.”
Driving Derwent forward
Burns’ outlook is positive for London property in 2013. “In London we are seeing growth. We have seen 5% this year and we don’t think that will change. There will be a big pick up of space in 2013, and the West End will continue to take space,” he says. “I can’t comment on the City, but Clerkenwell has been the City Soho for while, and you are getting terrific rents there on new properties.”
Is this growth Derwent London-specific though, or is it industry wide? “It’s certainly West End-wide. It’s great out there at the moment and I think all the West End boys would agree.
“As for us more specifically, we are just sticking to what we know and keeping it clear. We are Derwent of London, we are London-centric, we don’t do City core, we are buying buildings in the middle market and we have always stuck to that. I think that has got something to do with the strong position we are in today.” A clinical and clear a message as ever.
Being Burns
I never leave the house without… my mobile phone and my iPad
My favourite city in the world is… I have two – New York and Venice
If I could have a superpower it would be… an extra six hours in the day
