Derwent London (DLN) H1 2024 earnings summary

Executive summary

• Achieved planning permission for 50 Baker Street, nearly doubling floor area to 240,000 sq ft, and delivered the strongest half-year rental growth since 2016.

• Leasing activity over the last 18 months exceeded £40 million, with £10.8 million of new rent agreed in H1 2024, over 10% above ERV.

• Vacancy reduced to 3.2%, less than half the market rate, with strong demand for high-quality, well-located space and limited supply, especially in the West End.

• Upgraded 2024 ERV/rental growth guidance to 3%-6% due to ongoing supply-demand imbalance and outperforming assets.

• Robust balance sheet with £566m cash and undrawn facilities, 98% of debt fixed or hedged, and Fitch credit rating at BBB+ (issuer) and A- (senior unsecured).

Financial highlights

• EPRA NTA per share fell 2.7% to 3,044p, a smaller decline than last year.

• EPRA earnings increased 6.5% to £59.2m (52.7p per share); gross rental income rose 1.5% to £107.5m; net rental income up 4.5% to £95.0m.

• Interim dividend increased by 2% to 25.0p per share, with annual dividend 1.3x covered by EPRA earnings.

• Total accounting return in H1 was nearly flat at -1%, with income offsetting valuation fall.

• IFRS loss before tax reduced to £27.2m, mainly due to a smaller revaluation deficit.

Outlook and guidance

• Upgraded ERV/rental growth guidance for 2024 to 3%-6%, reflecting strong demand, limited supply, and stable yields.

• Expecting positive total return for H2 and full year, supported by stable yields and growing rents.

• Office yields seen as increasingly attractive; further interest rate cuts anticipated to support investment activity.