Derwent London ups final dividend, adds more on back of new deals

Derwent London has recommended a special dividend after it announced £327m of property disposals above book value that are expected to complete in coming weeks.

The 52p per share dividend will be paid on 9 June on top of a proposed 25% increase to the final dividend to 38.50p per share that takes the ordinary full year payout to 52.36p, an increase of 20.6%, and the total to 104.36p.

The FTSE 250 group also reported an EPRA net asset value per share of 3,551p at the end of the year, up just 0.5% from 3,535p over 12 months and 1.3% lower than 3,598p at the half-way stage last year.

But this was higher than the consensus forecast of 3,429p.

Derwent's portfolio was valued 0.2% lower at £5.0bn, driven by 31 basis points of yield weakness, but rental values rose by 5.1% on an EPRA basis.

Net rental income increased 5.2% to £145.9m from £138.7m in 2015 as the office space company enjoyed a record year of lettings, totalling £31.4m, on average 6.3% above December 2015 estimated rental value.

Total cash rental reversion was estimated at £134.2m in December 2016, which requires £363m of outstanding capital expenditure, and was 39% contractual or pre-let.

"We expect much of the current economic uncertainty to persist as UK-EU negotiations are likely to be protracted. How this impacts on London businesses remains to be seen but, so far, activity has been surprisingly resilient with UK economic activity improving in the second half," said the company in its outlook statement.

Although management believe they should remain cautious and have positioned the business accordingly, all its properties remain largely full and continue to attract good occupational and investment demand.

Chief executive John Burns guided to ERV movements across the portfolio of between 0% and -5% in 2017.

"We have seen our property yields move out 31bp since December 2015, and these may drift out a little further in the current year."

On Tuesday, Derwent announced that it had secured a major 20-year prelet with Arup for 41% of 80 Charlotte St in line with ERV, relet space at Angel Building to Expedia and extended the lease by nine years to 2030 that also adds 10% to the building value in the process, and agreed two disposals at premia to book value.

The special dividend, Burns said, took account of these new transactions announcements, as well as the low gearing of the group with a loan-to-value ratio of 17.7% as at 31 December 2016.

"We retain significant flexibility and firepower for the future including opportunities to make further acquisitions or to add to our pipeline of projects."