Derwent London PLC (STU:DVK) (H1 2025) Earnings Call Highlights: Strong Rental Growth Amidst ...
Open Market Lettings: 10.5% above ERV.
Total Accounting Return: 3% in the first half, 7.3% over the last 12 months.
Gross Rental Income: GBP109.1 million.
EPRA Earnings: GBP58.6 million or 52.2p per share.
Interim Dividend: Increased by 2% to 25.5p per share.
Net Rental Income: Marginally lower than in H1 '24.
Property Expenditure: Increased to GBP14.5 million.
EPRA NTA: Increased to 31.87p per share.
Valuation Uplift: 1.2% in H1.
Development and Refurbishment Expenditure: GBP74.1 million.
Future Estimated CapEx: GBP88 million in H2.
Cash and Undrawn Facilities: GBP604 million as of June 30.
Weighted Average Interest Rate: 3.6% on a cash basis, ended at 4.1% as of June 30.
Portfolio ERV: Expected to exceed GBP330 million.
Central London Vacancy Rate: 7.8%, Grade A at 2%, West End at 1.4%.
EPRA Vacancy Rate: 3.7%.
Rent Reviews: GBP16.7 million settled, 5.4% above previous rents.
Development Yield on Completion: Expected in excess of 6.5%.
Residential Sales at 25 Baker Street: Contracts exchanged on 23 of 41 units for GBP113.1 million.
Warning! GuruFocus has detected 8 Warning Signs with STU:DVK.
Release Date: August 12, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Derwent London PLC (STU:DVK) delivered a strong operational performance with GBP13.8 million of new rent agreed, with open market lettings 10.5% above ERV.
The company has made significant progress on its West End projects, including the commencement of work at Holden House and the completion of 25 Baker Street and Network projects.
Derwent London PLC (STU:DVK) has consistently outperformed the MSCI London Office Index, with a total property return exceeding the index by an average of 230 basis points annually since 2020.
The company has a robust pipeline of projects, with 1.5 million square feet of highly profitable, well-located space either completed or currently on site.
Derwent London PLC (STU:DVK) is committed to sustainability, with initiatives such as reducing carbon emissions and implementing a circular economy strategy in its developments.
Negative Points
The company's net rental income and EPRA earnings were marginally lower than in the first half of 2024, despite an increase in gross rental income.
Property expenditure increased to GBP14.5 million, driven by higher voids and increased costs at customer service facilities.
The company's borrowing levels are higher than at the end of the previous year, with increased interest costs due to refinancing in a higher interest rate environment.
Derwent London PLC (STU:DVK) faces challenges from the government's announcement to prohibit upwards-only rent reviews, which could impact future rental agreements.
The company's earnings are expected to decline in the short term due to higher interest costs and lower capitalized interest as projects complete.
Q & A Highlights
Q: Is there seasonality to the lounge costs, and should we expect similar increases in H2 as seen in H1? A: Damian Wisniewski, CFO, stated that the costs have reached a steady state and should remain roughly where they are now.
Q: How does the Board deliberate on capital allocation given the share price discount and implied EPRA yield? A: Paul Williams, CEO, explained that the Board considers various options for capital use, focusing on long-term portfolio investment. They are confident in their pipeline and market conditions, which they believe will lead to growth.
Q: Why is Derwent's capital growth lower compared to peers, and will there be larger core office disposals in H2? A: Paul Williams, CEO, noted that the portfolio includes a mix of core income and opportunities, with higher value properties outperforming. Nigel George, Executive Director, added that the market is improving, with larger lot sizes being sold, indicating potential for future disposals.
Q: What is the impact of refurbishment market activity on ERV growth? A: Paul Williams, CEO, and Emily Prideaux, Executive Director, highlighted that refurbishment is encouraged due to carbon considerations. The market perceives high-quality refurbishments as competitive with new builds, supporting ERV growth.
Q: How does Derwent approach pre-letting projects nearing completion? A: Paul Williams, CEO, stated that while historically the West End hasn't been a pre-let market, they are encouraged by interest at Network. Emily Prideaux, Executive Director, added that they balance pre-letting with capturing future ERV growth, considering factors like project size and floor plate.
Q: Is the share price decline due to earnings misses, and will earnings become a core focus? A: Damian Wisniewski, CFO, emphasized that earnings have always been a focus, balancing them with total return. They expect earnings to decline slightly in the short term due to higher interest costs but anticipate growth as projects mature.
Q: What level of interest rates would support market improvement? A: Damian Wisniewski, CFO, noted that gilt rates are crucial and have been volatile. The combination of rental growth, stable yields, and slightly falling debt costs is expected to support market improvement.
Q: What is the impact of increased capitalized admin costs? A: Damian Wisniewski, CFO, explained that GBP1.4 million was capitalized for the development team working on specific projects, a relatively small number.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
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