Derwent upgrades lettings guidance despite wider full-year loss

Derwent London reporting a robust lettings performance in its 2023 results on Wednesday, despite reporting a wider loss, as it upgraded its guidance for the new financial year.

The FTSE 250 company said that, despite a decrease in EPRA net tangible assets (NTA) to 3,129p per share, down 13.8% year-on-year, it recorded a gross rental income of £212.8m, marking a 2.8% increase from £207.0m in 2022.

Additionally, EPRA earnings stood at £114.5m or 102.0p per share, down slightly from the prior year, with the second half of the year demonstrating a 6% increase over the first half.

However, the company reported an IFRS loss before tax of £475.9m, widening from a £279.5m loss in 2022, resulting in a total return of -11.7%.

Despite the challenges, Derwent London made a 1.3% increase in full-year dividends, reaching 79.5p per share.

In terms of letting activity, the company experienced significant growth, with lettings in 2023 amounting to £28.4m compared to £9.8m in the previous year.

Notably, lettings at 25 Baker Street W1 contributed £16.0m, marking a 13.4% increase above estimated rental values (ERV).

The company noted a reduction in EPRA vacancy to 4.0% and £41.5m of asset management transactions, surpassing December 2022 ERVs.

Despite an underlying decline in portfolio valuation by 10.6%, development valuations saw an 8.1% increase, primarily driven by pre-letting activities at 25 Baker Street W1.

Looking ahead, Derwent London anticipated an average increase of 2% to 5% in ERVs across its portfolio for 2024.

The company said it expected better buildings to outperform amidst reduced inflation and a corresponding adjustment in yields.

“We had a strong year for leasing in 2023, achieving over £28m of new rent, on average 8% ahead of ERV,” said chief executive officer Paul Williams.

“Today we are upgrading our rental growth guidance for 2024 - despite macro uncertainty, businesses are prioritising quality, amenity and sustainability, supporting good demand for the right product in the right location.

“This plays well to our strengths and reflects London's diverse and robust occupational market, particularly in the West End.

“After a year of substantial outward yield movement, investment opportunities are starting to emerge and our balance sheet positions us well.”

Reporting by Josh White for Sharecast.com.