Derwent London this morning posted strong full year results, reporting a record year for lettings as it continues to prove one of the landlords of choice for the vibrant TMT sector.
EPRA net asset value per share in the year to 31 December 2011 increased by 15.4% to 1,701p from 1,474p at 31 December 2010 and the portfolio generated a revaluation surplus of £172.1m (2010: £301.7m).
The property valuation grew 7.6% to £2.6bn , driven by ERV growth of 6.3% and 16bps yield compression across the portfolio.
Derwent said the NAV increase was “led by the £172.1m revaluation movement which came mainly from rental growth while the £301.7m surplus in 2010 also benefited from yield compression”.
Derwent said 2011 was a record year for lettings producing total rental income of £16.7m pa on floorspace of 495,700 sq ft, up from its 2010 performance, when the lettings totalled £8m pa.
The developer has in particular positioned its portfolio and "white collar factory" schemes well to appeal to one of the office markets rare vibrant sectors, the TMT sector.
Transactions reduced the group's space immediately available for occupation to 1.3% by estimated rental value, down from 5.9% at the start of the year.
Derwent said there are a number of projects currently on site which, when completed, will increase this percentage but taking account of prelets, including Burberry's expansion into 1 Page Street SW1, and the continuing receipt of rental income from the Buckley Building (previously Woodbridge House) EC1, these schemes have been" considerably derisked".
Among progress on a series of major developments it is working up Derwent highlighted further resolution on its October signing of a Memorandum of Understanding with Grosvenor, its freeholder at 1-5 Grosvenor Place SW1, to consider redevelopment of the site.
This morning it said the two companies had formed a joint venture. The group has restructured its headleases into a new 150-year term and sold 50% of the interest to Grosvenor for £60m. The existing buildings occupy an “underutilised flagship site” of 1.5 acres at Hyde Park Corner and the jv will now push on with a substantial mixed-use redevelopment. Whilst it progresses redevelopment plans, it is maintaining income through short-term, flexible lettings.
Elsewhere Derwent confirmed it had exchanged contracts to sell Riverwalk House on Millbank, SW1, a site where it has worked up plans for a 148,000 sq ft residential redevelopment. It is selling the site and another nearby property for £77.3m to Ronson Capital Partners, with completion conditional on receipt of planning permission. It said the transaction will provide the group with valuable experience of a major residential scheme and a continued interest by way of a profit overage.
However, Derwent said it had decided to delay development of its proposed 265,000 sq ft office and residential development at Hampstead Road, NW1, following the government's recent decision to proceed with the HS2 rail link. The property is now expected to be compulsorily purchased as part of the construction of HS2 and so, despite lining up significant prelets for the scheme, Derwent is deferring the scheme.
In terms of its financing, including the issue of a £175m unsecured convertible bond in June 2011, Derwent signed up a total of £600m of new or extended facilities in 2011. As well as deferring any bank refinancing risk until 2014, ithas diversified its sources of finance and anticipates that an increasing proportion of our future debt requirements is likely to come from non-bank sources.
John Burns, chief executive officer, said: "2011 has been another strong year for Derwent London. The robust leasing activity we experienced in the first half of the year has continued throughout 2011 and into 2012 and we are confident that the quality and distinctive space in our portfolio will continue to attract a diverse mix of tenants.
"We have made significant progress in unlocking the potential value at a number of our projects, and look forward to advancing our exciting pipeline. The positive regenerative impact of Crossrail is increasingly apparent in our villages close to Tottenham Court Road and Farringdon."