Derwent London PLC (DWVYF) (FY 2024) Earnings Call Highlights: Strong Lettings and Dividend ...

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Fri, Feb 28, 2025, 12:03 AM 4 min read

New Rents Signed: GBP18.9 million in 2024, with open market lettings more than 12% above ERV.
ERV Growth: 4.3%, the strongest since 2016.
EPRA Vacancy Rate: Reduced by 90 basis points to 3.1%.
Total Return: Positive total return of 3.2% for the year.
EPRA NTA per Share: Ended the year 20p higher at 3,149p.
Earnings per Share: Increased by 4.4% to 106.5p.
Final Dividend: Raised to 55.5p, total dividend 80.5p per share, 1.3% higher than last year.
Gross Rents: Increased to GBP214.8 million.
Net Finance Costs: GBP39.6 million, aided by GBP11.2 million of capitalized interest.
Gross Rental Income: Up 2.6% on a like-for-like basis, with net rent up 4.3%.
Property Expenditure: GBP24.8 million, equivalent to 11.5% of gross rental income.
Project Expenditure: GBP200 million expected in 2025, with significant investments in 25 Baker Street and other projects.
Cash and Undrawn Facilities: GBP487 million, increased further with new GBP150 million facilities.
Development Yield on Cost: 6.1% for ongoing projects, with a potential increase to 6.9% at project completion.
Leasing Activity: GBP18.9 million of new rent in 2024, with 25 Baker Street fully pre-let.

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Release Date: February 27, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Derwent London PLC (DWVYF) reported a successful year for lettings in 2024, with new rents signed at GBP18.9 million, exceeding ERV by over 12%.
The company's EPRA vacancy rate decreased by 90 basis points to 3.1%, indicating strong occupancy levels.
Derwent London PLC (DWVYF) achieved a positive total return of 3.2% for the year, with a notable turnaround in valuation growth in the second half.
The company has a robust development pipeline, with significant projects like 25 Baker Street and Network expected to complete this year, contributing to future growth.
The final dividend was raised for the 17th consecutive year to 55.5p, reflecting the company's commitment to returning value to shareholders.

Negative Points

The investment market remained quiet in 2024 due to interest rate volatility and geopolitical uncertainties, limiting acquisition opportunities.
Derwent London PLC (DWVYF) faces potential risks from increased exposure to unhedged floating debt amidst inflationary pressures.
There is a possibility of a drop in EPRA earnings in 2025 due to rising finance costs and the lumpy nature of development income.
The company noted that the supply response in the West End has been muted, which could impact future rental growth if demand shifts.
Despite strong leasing activity, the investment market's slow recovery could hinder the company's ability to capitalize on potential acquisition opportunities.

Q & A Highlights

Q: Callum Marley from Kolytics asked about the rationale behind Derwent London PLC's increased exposure to unhedged floating debt, given inflationary pressures and bond market volatility. A: Damian Wisniewski, CFO, explained that the company has been heavily hedged and fixed in recent years. With current base rates at 4.5%, they expect rates to potentially decrease, making floating rates more attractive. The company remains 85% fixed and is prepared to fix more when conditions are favorable.

Q: Callum Marley also inquired about the risk to Derwent London's rent forecast of 3% to 6% and low vacancy levels, given the significant development pipeline and expiries in 2025. A: CEO Paul Williams noted that the company's vacancy rates have reduced and retention rates are high. Emily Prideaux, Executive Director, added that they are already in discussions regarding upcoming expiries and that over 50% of the development pipeline is pre-let.

Q: Max Nimmo from Deutsche Numis questioned whether institutional buyers returning to the market might prevent Derwent London from finding value in acquisitions. A: CEO Paul Williams stated that while they are keen to add to their portfolio, they remain disciplined and will not overpay. They are optimistic about being active in 2025.

Q: Max Nimmo also asked about the 3% to 6% ERV growth outlook, given the positive market indicators and leasing performance above ERV. A: CEO Paul Williams clarified that the 3% to 6% growth is an average across the portfolio, considering assets held for future development. Emily Prideaux added that market rents are expected to be well ahead of 6%, but the guidance reflects a portfolio average.

Q: An unidentified participant asked about the potential impact on earnings in 2025 due to development income, capitalized interest, and increased finance costs. A: CFO Damian Wisniewski acknowledged that EPRA earnings might fall slightly due to rising finance costs, but trading profits from residential sales will offset this. The total return outlook remains strong, with value increases from ERV growth and developments.

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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