Derwent London H2 2024 Earnings Report

Derwent London EPS Results

• Actual EPS: GBX 106.50
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Derwent London Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Derwent London Announcement Details

• Quarter: H2 2024
• Date: 2/27/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, February 27, 2025
• Conference Call Time: 3:30AM ET

Derwent London (LON:DLN) owns 66 buildings in a commercial real estate portfolio predominantly in central London valued at £4.9 billion as at 31 December 2023, making it the largest London office-focused real estate investment trust (REIT). Our experienced team has a long track record of creating value throughout the property cycle by regenerating our buildings via development or refurbishment, effective asset management and capital recycling. We typically acquire central London properties off-market with low capital values and modest rents in improving locations, most of which are either in the West End or the Tech Belt. We capitalise on the unique qualities of each of our properties - taking a fresh approach to the regeneration of every building with a focus on anticipating tenant requirements and an emphasis on design. Reflecting and supporting our long-term success, the business has a strong balance sheet with modest leverage, a robust income stream and flexible financing. As part of our commitment to lead the industry in mitigating climate change, Derwent London has committed to becoming a net zero carbon business by 2030, publishing its pathway to achieving this goal in July 2020. In 2019 the Group became the first UK REIT to sign a Revolving Credit Facility with a 'green' tranche. At the same time, we also launched our Green Finance Framework and signed the Better Buildings Partnership's climate change commitment. The Group is a member of the 'RE100' which recognises Derwent London as an influential company, committed to 100% renewable power by purchasing renewable energy, a key step in becoming a net zero carbon business. Derwent London is one of the property companies worldwide to have science-based carbon targets validated by the Science Based Targets initiative (SBTi). Landmark buildings in our 5.4 million sq ft portfolio include 1 Soho Place W1, 80 Charlotte Street W1, Brunel Building W2, White Collar Factory EC1, Angel Building EC1, 1-2 Stephen Street W1, Horseferry House SW1 and Tea Building E1. In January 2022 we were proud to announce that we had achieved the National Equality Standard - the UK's highest benchmark for equality, diversity and inclusion. In May 2023 we were recognised on the Sunday Times Best Places to Work List 2023 within the medium-sized organisation category and in the following month we won two OAS awards - West End New Build for Soho Place W1 and Developer of the Year whilst we were also highly commended for The Featherstone Building in the City New Build category. In October 2023, White Collar Factory EC1 won the BCO's Test of Time 2023 award, Soho Place W1 won the British Construction Industry Awards' Best Commercial Property Project of the Year and Derwent London was awarded the EG Employer Award. In March 2023 we placed in the top three of the Property Sector in Management Today's Britain's Most Admired Companies awards 2022. In October 2022, 80 Charlotte Street won the BCO's Best National Commercial Workplace award 2022. In 2013 the Company launched a voluntary Community Fund which has to date supported over 160 community projects in the West End and the Tech Belt. The Company is a public limited company, which is listed on the London Stock Exchange and incorporated and domiciled in the UK. The address of its registered office is 25 Savile Row, London, W1S 2ER.

Derwent London H2 2024 Earnings Call Transcript

Key Takeaways

• Lettings and rental growth: In 2024 Derwent signed £18.9 m of new rent at over 12% above ERV, achieved 4.3% ERV growth (its strongest since 2016) and reduced its EPRA vacancy rate to 3.1%.
• Development-led returns: The group invests £150–200 m annually in regeneration projects, with on-site schemes up 15% in value, 25 Baker Street fully pre-let and 50 Baker Street secured with £100 m of CapEx added to the pipeline.
• Robust financial performance: Derwent delivered a positive total return of 3.2%, EPRA NTA per share rose by 20p, EPRA EPS increased by 4.4%, and the final dividend was raised for the 17th consecutive year to 80.5p, while LTV remained just below 30%.
• Outlook underpinned by supply constraints: With prime vacancy at 2% and limited speculative development, active occupier demand remains strong, supporting an ERV growth forecast of 3–6% in 2025 and stable yields.
• Prime London focus and sustainability: The portfolio has been reshaped to fewer, higher-quality assets in key West End villages, with c.2 m sq ft of regeneration on site or planned, and operational carbon intensity down 14% alongside net-zero building initiatives.

Presentation

[Paul Williams, Chief Executive at Derwent London]

Happy to start. Good morning, and welcome to Derwent London twenty twenty four full year's results presentation here at DL twenty eight. As well as hearing from me, you will hear from Damien, Nigel and Emily. I shall then wrap up before Q and A. Turning to Slide two and our highlights from 2024.

[Paul Williams, Chief Executive at Derwent London]

A key theme over the last two to three years has been one of strong occupational market for high quality Central London offices. In 2024, we had another successful year for lettings at £18,900,000 of new rent signed with open market lettings more than 12% above ERV. Now twenty twenty three transactions were dominated by the initial pre lets at 25 Baker Street, where the office is now fully pre let, but in 2024, we saw strong activity across all our villages at different price points. At 4.3%, ERV growth was the strongest since 2016. This is now driven a further significant uplift in our reversion.

[Paul Williams, Chief Executive at Derwent London]

Our EPRA vacancy rate reduced by a further 90 basis point to 3.1%. Our business model is based on regeneration, investing £150,000,000 to £200,000,000 each year. Our on-site projects, both of which are progressing on time and on budget, increased value by over 15%. This again has supported an attractive total property return outperformance compared to our index. At Network, we have ongoing dialogue with a number of parties with the completion of the building not expected until the end of the year.

[Paul Williams, Chief Executive at Derwent London]

Having secured resolution to grant consent for a major scheme at 50 Baker Street, we bought out our JV partner. At £370 per square foot, this is an attractive valuation compared to pricing levels seen in the market and adds an additional £100,000,000 of CapEx to our near time pipeline. We're a great believer in the location. Now this time last year, we believe yields will begin to stabilize. In the first half, we saw a rise of just 18 basis point.

[Paul Williams, Chief Executive at Derwent London]

In H2, in line with our guidance, our equivalent yield was stable. When combined with our development profits, our underlying valuation growth was positive at 0.2%. However, this marks a notable turnaround with growth of 1.9% in H2. As a result, I'm pleased to say that we're reporting a positive total return of 3.2%. Now to outlook.

[Paul Williams, Chief Executive at Derwent London]

More and more companies across a wide spectrum want to be in town. With a prime vacancy rate of just 2% and a constrained development pipeline over the medium term, London faces a supply shortfall for high quality space and well connected locations. Active demands remain strong. We therefore expect the pace of ERV growth to be sustained at between 36% for our portfolio in 2025 with better buildings again likely to outperform. Together with development profits and assuming yields remain stable, our total return outlook is as strong as it has been for several years.

[Paul Williams, Chief Executive at Derwent London]

Turning over now to Slide three. Now London is in demand. A thriving London supports a thriving occupier market. London's economic growth continues to outperform the wider UK market at around 25% of GDP. It is the powerhouse of The UK.

[Paul Williams, Chief Executive at Derwent London]

This supports forecasts of further employment growth across a diverse mix of sectors. However, despite robust demand, the supply response has so far been muted, particularly in the West End, where planning is more restricted. This is pushing rental growth across the market. By contrast, the investment market remains quiet in 2024 as volatility in interest rates and a geopolitical backdrop caused investors remain largely on the sidelines. Investment activity was dominated by small lot sizes.

[Paul Williams, Chief Executive at Derwent London]

Today, there has been limited distress and consequently limited value in the market. However, there are signs that the investment market is gaining momentum with several new investor groups emerging and some larger deals completing since the start of the year. Having remained disciplined, we would certainly like to buy, but have seen little value to date. Slide four in our strategy. London is our market and has been for forty years.

[Paul Williams, Chief Executive at Derwent London]

With a long term business model, we understand the decisions we take around capital allocation and operational models will impact returns over several years. Our brand is very important to us as are our differentiators including our green credentials and a meaty rich building providing outperformance through strong pre lettings and tenant retention. Our portfolio has been reshaped to fewer but higher quality buildings. Now our four key areas of focus are ensuring our portfolio is in the right locations and of the right quality, involving our differentiated product to the changing needs of occupiers, having a comprehensive development pipeline for the short, medium and long term, and of course, capital allocation. 75% of our portfolio is in the dynamic submarkets of London West End.

[Paul Williams, Chief Executive at Derwent London]

Our buildings are well located around London's excellent transport network. Our village led approach means we invest in cost efficient way in portfolio amenity to maximize the benefits to occupiers. It also means we deliver a design led product, which meets a wide range of requirements from large HQs to our long leases to smaller flex units. Over the next three to four years, we will deliver 1,000,000 square feet of new best in class space across the West End with a further 1,000,000 square feet beyond that. Generation has been and will remain an important contributor to our total return, and we're excited about the future, particularly against the backdrop of strong ERV growth.

[Paul Williams, Chief Executive at Derwent London]

As disciplined investors, capital recycling will always be important to us. Over the last five years, we have actively reshaped our portfolio to ensure the properties we own are fit for the future or can be repositioned. We're seeing more opportunities to invest and have the appetite to do so. Thank you, and I'll hand over to Damon on our financial results.

[Damian Wisniewski, CFO at Derwent London]

Thank you, Paul, and good morning, everyone. The highlights on Slide six reflect the improved property yield conditions that we noted at our interim results in August. With continuing ERV growth and development profits, revaluation surplus in the second half largely offset the decline in H1. As a result, after adding back dividends paid, our total return for the year was 3.2% and EPRA NTA per share ended the year 20p higher at Gross and net rents increased too and EPRA earnings per share rose 4.4% to The final dividend is raised for the seventeenth consecutive year to taking the total to 80.5 per share, 1.3% higher than last year. The total dividend remains 1.3 times covered by EPRA earnings.

[Damian Wisniewski, CFO at Derwent London]

At this stage of the cycle, we've allowed the gearing to increase marginally with year end EPRA LTV now just below 30%. All debt ratios remain comfortable. The movement in EPRA NTA per share is on Slide seven. On top of EPRA earnings, there was per share of profit on disposals, mainly from the sale of turn mill. Total dividends paid in the year were and after accounting adjustments such as the straight lining of rent incentives, the overall revaluation deficit on our wholly owned portfolio was million or 8p per share, a strong reversal after the first half deficit of 84p.

[Damian Wisniewski, CFO at Derwent London]

Slide eight shows EPRA earnings. Gross rents increased to

[Damian Wisniewski, CFO at Derwent London]

million

[Damian Wisniewski, CFO at Derwent London]

and we also received surrender premiums of which million came from 4 And 10 Pentonville Road where the tenant vacated the building ahead of its sale. Admin expenses increased 5% on higher salaries and bonuses, but property and net finance costs were almost unchanged over the year. Net finance costs of million were helped by million of capitalized interest. Due to very strong rent collection in 2024, impairment charges were only million down from million in 2023. Overall, EPRA earnings per share was split in the first half, rising to in the second.

[Damian Wisniewski, CFO at Derwent London]

Slide nine, gross rental income. Increases here came from ongoing lettings and asset management, 5,200,000.0 from current year transactions and million from those during 2023. Million was lost from breaks and expiries and million from disposals. On a like for like basis, gross rental income was up 2.6% with net rent up 4.3%. Slide 10 shows our property expenditure over the last two years.

[Damian Wisniewski, CFO at Derwent London]

Property costs largely stabilized in 2024. However, some properties with inclusive leases incurred irrecoverable costs and a few service charge caps were triggered in H2 by EPC upgrade works at Stevens Street. The other main increases, which are at our lounges and customer service facilities, with a significantly enhanced cafe offer and a full year's operation here at DL 28 Old Street. As well as benefiting lettings and tenant retention, the related income from these facilities grew to million from million in 2023. Overall, property expenditure was million equivalent to 11.5% of gross rental income.

[Damian Wisniewski, CFO at Derwent London]

Slide 11 shows 2024 project expenditure. We're conscious of all capital allocation options open to us and believe that around million of project spend or around 4% of portfolio value is an appropriate balance of risk and return. 25 Baker Street took the lion's share with million, million was incurred on the main office building and million on the build and fit out of the residential for sale, which is held as trading property. We have now contracted to sell million of these apartments with completion expected later this year. The remaining units will be spread between twenty five and twenty six.

[Damian Wisniewski, CFO at Derwent London]

Note that any trading profits will not form part of EPRA earnings. The 50 Baker Street project incurred million of CapEx in 2024, million while in the JV. Finally, we spent million on a number of refurbishment schemes across the portfolio, including million at Stevens Street and million at the upgrade of Strath Kelvin Retail Park. Slide 12 sets out estimated future projects. We expect to spend about million again in 2025, a 68% increase over the figure for 2025 that we showed you this time last year.

[Damian Wisniewski, CFO at Derwent London]

This comes from project rephrasing and added refurbishments as well as buying out the remainder of 50 Baker Street. Our revised estimate for EPC upgrade costs has fallen to million, million of which is a specific deduction in the valuation. The movement this year takes account of cost inflation as well as million of EPC spend at Stephen Street. Slide 13 shows our usual pro form a. It includes million of committed CapEx on our major projects and only takes contracted lettings and sales into account.

[Damian Wisniewski, CFO at Derwent London]

The outcome should be significantly better than this, but it does show that debt ratios remain affordable under this scenario. Slide 14. 20 20 four was an active year of refinancing. It was also a year when U. K.

[Damian Wisniewski, CFO at Derwent London]

Base rates fell less quickly than expected and which saw continuing volatility in longer term rates, which moved up notably towards the end of the year. Currently, U. K. Based rates are very close to the ten year gilt, both at around 4.5%. Our response has been to arrange additional bank facilities totaling million with existing relationship lenders, two in 2024 and one in February 2025.

[Damian Wisniewski, CFO at Derwent London]

This provides us with flexibility at increasingly attractive all in costs and reflects the favorable lending conditions we're now seeing. Details are set out in the note. Note that release of the security on the million loan repaid increased our uncharged asset pool to billion and eighty five percent of our drawn debt was fixed or hedged at year end. Long term rates may continue to be volatile through 2025. We are ready to arrange additional long term debt when we judge conditions are right.

[Damian Wisniewski, CFO at Derwent London]

This Slide 15 shows the potential impact of refinancing upcoming fixed rate debt maturities at 5.25% over the next two years. Our 175,000,000 convertible bonds fall due in June year. The IFRS rate, which passes through the income statement, is 2.3% and the cash coupon 1.5%. Refinancing this at 5.25% would add 5,200,000 to our annual interest cost with a consequent impact on earnings. We show the same analysis for The U.

[Damian Wisniewski, CFO at Derwent London]

S. PPE notes falling due in early twenty twenty six and the LMS secured bonds in March '6. The latter has a coupon of 6.5%, so which are saving if refinanced at 5.25%. Our main million revolving bank facility is also due to be renegotiated this year, but we expect pricing to be broadly similar to the current facility. Assuming unchanged debt levels and a future base rate of 4%, this refinancing activity would move our weighted average interest rate up by year end 2025 to about 4% and it would remain approximately the same in 2026.

[Damian Wisniewski, CFO at Derwent London]

Slide 16. Against this background, although gearing has risen a bit in 2024, our debt ratios and covenants all remain comfortable. Cash and undrawn facilities rose over the year to million and have increased further with the new million facility signed in February. Our borrowings had a weighted average unexpired term of four years and an average interest rate of around 3.5%. Thank you.

[Damian Wisniewski, CFO at Derwent London]

And now over to Nigel.

[Nigel George, Executive Director at Derwent London]

Thank you, Damian. Good morning. Slide 18. After two years of valuation declines, 2024 saw a return to modest growth with an uplift of 0.2%. Key drivers were ERV performance, yield stabling and strong development surpluses.

[Nigel George, Executive Director at Derwent London]

There's also good leasing and asset management activity. On our on-site developments, 25 Baker Street Network, which both complete later this year, they were up 15.1%. Together, this translated into a total property return of 4.1%, which was a good outperformance against the MSCI London Index, which delivered 1.3%. So a solid two eighty basis point outperformance. Slide 19, themes.

[Nigel George, Executive Director at Derwent London]

As mentioned, our on-site developments, which are 12% of the portfolio, delivered excellent returns. Good construction progress was made ahead of completion later this year. Both projects saw rental growth. And at 25 Baker Street, we pre let the remaining offices. The latest yield on costs is now well over 6%, and we expect this to improve with activity at Network ahead of completion later in the year.

[Nigel George, Executive Director at Derwent London]

More details on the appraisals are set out on Appendix 41. As shown on the chart, better quality buildings continued to outperform, generally those over £1,500 per square foot, driven by quality of space, amenity and location. Over 45% of our properties have capital values less than per square foot, and many such as Middlesex, Greencoat and Farrington are our future pipeline. So there's good upside to come from these projects down the line. In addition to our on-site developments, we're currently continuing to invest in the portfolio in refurbishments, upgrades and EPC works.

[Nigel George, Executive Director at Derwent London]

As mentioned, EPC worked within the valuation totaled million and investment was mainly at Stephen Street, although there was other smaller works across the portfolio to improve efficiency. Slide 20, rental value and yields. Valuation ERVs were up 4.3% over the year. We've now had positive rental growth for three years, and this is the strongest figure since 2016. With good demand for quality, amenity rich space and green space, this trend looks set to continue, especially in the constrained West End market.

[Nigel George, Executive Director at Derwent London]

Our average passing rent is just over £50 a square foot, slightly down over the year following the sale of Terminal. On a top to top basis, rents are at £63 per square foot and support continued growth in passing rents, which will flow through to positive rent reviews. On yields, having moved out 120 basis points over two point five years, and as anticipated, they stabilized in the second half of twenty twenty four. Whilst there are economic headwinds and a close watch on the funding market, the valuation cycle appears to have reached the bottom and turned. Our equivalent yield is now 5.73% and a reversionary yield of 6.3%.

[Nigel George, Executive Director at Derwent London]

Interestingly, this reversionary yield is the highest for over fifteen years. Now Slide '21, build up of the ERV. Our annualized passing rent is £204,300,000 slightly down on £23,000,000 mainly due to disposals. There is £116,200,000 of cash reversed in the portfolio to give an ERV of over £320,000,000 As shown £42,300,000 of this is contracted uplist, so already captured in the accounting rent roll of million. The balance of million is a 30% reversion in the portfolio and will be subject to appropriate rent free spreading when let.

[Nigel George, Executive Director at Derwent London]

The developments at 25 Baker Street in network, which complete in 2025, could add £34,400,000 which is up over the year. Over 60% of this is pre let. There are then smaller projects in vacant space. On the right, the key movement in the bridge is the reversion on future rent reviews and lease expiries. This was up 160% to million as our ERVs move forward across the portfolio, underpinned by strong letting activity and evidence.

[Nigel George, Executive Director at Derwent London]

This will feed through initially to valuations and then to the income statement as these events come through. Now the investment market on Slide 22. As Paul mentioned, while there are pockets of activity in the market, overall investment transactions remain low in 2024. Smaller lot sizes were more active, especially those in the core West End. Whilst the rental growth picture is more positive, improving forward looking returns and values, a lot of investors for the cost of debt is holding back activity.

[Nigel George, Executive Director at Derwent London]

However, it is worth noting that we're now seeing greater institutional interest and names from the past reemerging. Our main disposal was terminal in Farringdon for just over million. This single let property went to a private buyer. On the acquisition side, we bought out our JV partner at 50 Baker Street, having secured a resolution to grant planning this and lock for major development in 2026. Now sustainability update on Slide '24.

[Nigel George, Executive Director at Derwent London]

'20 '20 '4 was a year a busy year in this area, moving forward on many areas. Our Embodied Carbon on our Embodied Carbon, we formalized our Circular Economy strategy by joining up with partners, Material Index and Collection CEO. This will be fully implemented later in the year with our Holden House development. It will give us the opportunity to repurpose and reuse a wide range of items from the fabrics such as steels and potentially the glass to fit our elements including partition doors and raised floors. We also continue to work with our peers establishing the first cross industry work group to accelerate the decarbonization of concrete.

[Nigel George, Executive Director at Derwent London]

With a building structure accounting for over 50% of embodied carbon, it's a key priority for the industry. Elsewhere, our external ratings remained at the forefront of good practice, and we were pleased to move our CDP to Grade A. Behind the scenes for the last eighteen months, we've been working on a new in house database system. And in 2024, this was the first full year of operation. This has automated a lot of our data collection, analysis and outputs, giving our teams more time to influence.

[Nigel George, Executive Director at Derwent London]

This year, we will further integrate this with our intelligent building systems, which will help us spot trends earlier and react to them. Finally, energy usage on Slide 25. As shown, energy intensity was down 8%, driven by our continued tenant engagement and equipment upgrades. Our operational carbon footprint was down 14% as reduced gas usage moving more towards electricity. Our land in Scotland is a key differentiator and works are progressing in our solar park development where we're on-site.

[Nigel George, Executive Director at Derwent London]

Panel installation is expected to start this summer with clean energy generation to start in 'twenty six and this should deliver about 40% of our managed portfolio requirements. Now over to Emily.

[Emily Prideaux, Executive Director at Derwent London]

Thank you, Nigel, and good morning, everyone. We delivered another robust year of letting activity, agreeing 18,900,000 of new rent in 2024. Demand was more evenly spread across the portfolio, reflecting the broader recovery across the occupational market. The offices at our major on-site development scheme, 25 Baker Street, are now fully pre let, ahead of completion this year with an average rent of per square foot, 16.5% premium to the appraisal ERV. With million of lettings signed to date and a further million under offer, we're confident in the leasing outlook for 2025.

[Emily Prideaux, Executive Director at Derwent London]

Turning now to asset management on Slide 28. In total, we agreed million of rent reviews, renewals and regears. Rent reviews of million were agreed 8% above ERV. Encouragingly as such, we've seen reversion captured in rent reviews and lease renewals, driving future income and value. And at the end of the year, after adjusting for disposals and space taken back for larger products, 85% of income exposed to breaks and expiries had been retained or re let, in line with our ten year average of 84%.

[Emily Prideaux, Executive Director at Derwent London]

Slide 29 and London. London is a leading global city acclaimed for its adaptability and resilience. It attracts more venture capital investment than any other European city, underlining its role as European's hub for technology and innovation. It has several world renowned universities, drawing talent from across the globe and across sectors. The forecast rise in office based jobs and GDP growth further strengthens London's enduring competitive advantage.

[Emily Prideaux, Executive Director at Derwent London]

The importance of office space in London continues to prevail with businesses across a broad range of sectors strongly emphasizing the importance of having employees in the office. And leadership teams are increasingly issuing clear mandates to this effect. We are London Specialists with valuable insight into how businesses view London on the global stage. It is a city with all the elements for a promising and robust future. And despite the volatile macroeconomic environment, we remain optimistic about London's prospects and its office sector.

[Emily Prideaux, Executive Director at Derwent London]

Now looking at the occupational market. The key indicators of the occupational market are on the right trajectory, showing promising signs of recovery. Year on year, take up has increased by 4%, and we anticipate this upward trend to continue. Vacancy rates across Central London fell by 1.1% from the previous year, settling at 7.5%. Grade A vacancy, however, is just 1.9%, nearly four times lower than the overall rate for London.

[Emily Prideaux, Executive Director at Derwent London]

At the end of twenty twenty four, active demand reached a record 12,800,000 square feet, significantly above the five year average, as occupiers look ahead to secure the right space. Slide 31, supply. Looking ahead, 42% of the market development pipeline outlined out as far as 2028 is already pre let, leaving only 8,400,000 square foot of committed speculative schemes to complete over the next four years. Applying average long term take up levels, this equates to about nine months of total supply in the market. Now looking at some of the occupational market themes throughout 2024, Slide 32.

[Emily Prideaux, Executive Director at Derwent London]

Location remains critical, with micro locations offering excellent connectivity and amenities becoming increasingly prominent. Quality remains paramount, not just in terms of the design and the building itself, but also in respect of the landlord, their credibility, accessibility and the approach taken, which seems increasingly valued by occupiers today. And finally, as rents accelerate for the limited supply of prime space, occupiers will consider the stay put option where feasible as they weigh up the costs and broader value of an office move. Before looking ahead at our pipeline and in response to these themes, I wanted to now take a brief look at our portfolio and the differentiated product and offer that we provide. We have a 5,400,000 square foot portfolio in Central London.

[Emily Prideaux, Executive Director at Derwent London]

And at the heart of these buildings lies our vision, creating inspiring and distinctive spaces where people thrive. Alongside our belief in London, we are focused on creating a differentiated market leading product that we know will capture demand and drive future value and returns. We prioritize innovation, inspiring architecture and sustainability in our designs. Our approach in building our unique London portfolio considers the needs of businesses today and in the future as well as the experience of every individual that works in our buildings. The relationships we foster at every level are essential to our success.

[Emily Prideaux, Executive Director at Derwent London]

We recognize the importance of a user focused, considered and personalized approach, which we know yields financial rewards. Now looking at our strategically balanced portfolio on Slide 35. We have a diverse portfolio deliberately aligned with London's demand profile, catering to a wide range of businesses and sectors. Our occupiers range from 500 square feet to 200,000 square feet and more, attracting both large long term HQ occupiers and small high growth businesses seeking ready to go furnished space on shorter, more flexible terms. With over 70 furnished and flex units now delivered or underway in the portfolio and more in the pipeline, we anticipate organic growth in this offer for spaces under 10,000 square feet.

[Emily Prideaux, Executive Director at Derwent London]

Alongside this, however, we remain focused on ensuring our portfolio is appropriately weighted towards traditional HQ spaces delivered to CAFE standards. Our strategic focus is to maintain a well balanced mix, ensuring a robust WALT, sustainable profit margins and efficient operational cost management while meeting the full spectrum of market demand. And our entire portfolio is supported by our integrated DL member offer for all our occupiers, providing tangible value to businesses and individuals alike. We know that 71% of businesses in our portfolio are now actively engaged with our DL member offer. And this has played a part in many transactions, both in respect of attracting new tenants as well as retaining existing.

[Emily Prideaux, Executive Director at Derwent London]

Now moving on to our regeneration pipeline, Slide 38. We have an extensive regeneration pipeline of approximately 2,000,000 square feet and are currently on-site at 25 Baker Street And Network, both completing this year. Holden House is due to commence in H2 this year, with Greencoat of Gordon and 50 Baker Street commencing at H1 twenty twenty six. Alongside these schemes, we have two significant rolling refurbishments at 1 To 2 Stephen Street and Middlesex House, delivering repositioned space over the course of this year and next. And looking further ahead, plans are in motion for schemes at 20 Farringdon, Old Street Quarter and 230 Blackfriars Road.

[Emily Prideaux, Executive Director at Derwent London]

Slide 39. We made good progress this year at 25 Baker Street And Network. Our profit on cost for the combined projects is currently 15%, a slight increase to this time a year ago, principally driven by market fundamentals as well as pre lets. Our usual yield on cost, which is on a value as appraisal basis, so after rent free periods, is 6.1% on these projects. We also now show a second yield calculation as at project completion, which is more in line with how our peers report.

[Emily Prideaux, Executive Director at Derwent London]

This is 6.9% and essentially allows for capitalized interest rather than notional finance cost. For more detail, please refer to Appendix 41. The value of our on-site developments increased 15.1%, reflecting the completion of the pre letting campaign at 25 Baker Street and further progress on delivery on both sites. A little more on 25 Baker Street. Ahead of completion later in H1, the office space is fully pre let with a gross rent per annum of million and an average vault to break of thirteen point five years.

[Emily Prideaux, Executive Director at Derwent London]

The positive letting campaign at this building has seen ERV beat increasing since construction started in 2022 with a total beat of 16.5%. This, alongside our strong roster of tenants, supports our view that rents for the right space in the right locations are rising with opportunity for good future reversion. As a reminder, the Hopkins design scheme is both confident and classical in Portland stone and reflects timeless and modern architecture. It provides almost 9,000 square foot of terraces and a unique Skyrim Lounge at the Tenth Floor 11 with panoramic views across London. Turning now to network on Slide 43.

[Emily Prideaux, Executive Director at Derwent London]

Works on-site are progressing well with completion on track for the end of this year and CapEx to complete of million. A beautifully designed Piercing Company scheme with a carefully crafted facade of scalloped concrete, the building will be a net zero, all electric, intelligent building with our lowest embodied carbon intensity delivered to date. The double height Terrazzo reception, premium end of journey facilities and roof terraces with uninterrupted views will make this a very special Fitzrovia building in our core village and adjacent to DL78. We're in active discussions with a number of parties and remain confident in the product we're delivering. Turning now to Slide 46.

[Emily Prideaux, Executive Director at Derwent London]

We have an exciting pipeline ahead at Holden House, 50 Baker Street and Greencoat and Gordon House, where we're targeting a combined development yield of 6% to 7%. Holden House is 134,000 square foot redevelopment behind a retained facade of an original Grade II listed building. Due to commence later this year, the scheme celebrates Charles Holden's architecture and with modern and refined additions. The scheme provides optimum office floor plates of 18,000 square feet, opposite in Elizabeth Line Station at the southern end of Fitzrovia. It will deliver characterful internal space and a beautifully designed atrium, which is not only aesthetically striking but also functional, contributing to an innovative cooling system that uses natural ventilation.

[Emily Prideaux, Executive Director at Derwent London]

Additionally, the scheme includes rooftop amenities, event space and terraces. Looking now at 50 Baker Street on Slide 49. Due to commence in H1 2026, just north of 25 Baker Street on a one acre site, this scheme is bold and rhythmic in its architectural response to the location. The scheme will be 240,000 square foot, of which 18,000 square foot is ground floor retail. There'll be seven floors above ground, which are varied in size from 16,000 square foot to 34,000 square foot.

[Emily Prideaux, Executive Director at Derwent London]

In addition, we'll be delivering 17 residential apartments on-site. Slide 50. The office building will have a dramatic and prominent entrance and volumous reception. Large floor plates with three sixty degree aspect will allow for abundantly light and bright office floors and once again, standout rooftop amenities. Looking now to Greencoat and Gordon on Slide 52.

[Emily Prideaux, Executive Director at Derwent London]

We'll be delivering a comprehensive refurbishment of two Victorian warehouses. The scheme will compromise 108,000 square foot over seven floors and multiple units with terraces on the upper floors and amenities throughout the building. The building boasts an abundance of character and stands out in this busy submarket. As we've done previously at Francis House and Greencourt Place, we will maximize its inherent features throughout the scheme, bringing the stunning architectural heritage of the building back to life. Now looking at our rolling refurbishments on Slide 53.

[Emily Prideaux, Executive Director at Derwent London]

We have an ongoing rolling refurbishment program focused on upgrading existing properties, supporting our commitment to sustainability and allowing us to deliver strong, attractive rental uplifts and returns. Some of the examples of projects in our current pipeline here include Middlesex House and 1 To 2 Stephen Street. And looking further ahead to the longer term pipeline, we have several exciting projects in the longer term, totaling over 1,000,000 square feet, with studies underway at 20 Farringdon, Old Street Quarter and 230 Blackfriars Road. To maximize value on our longer term projects, we are and will be exploring the appropriate balance of uses to maximize value, including residential and other living sectors, in particularly at Old Street Quarter. And finally, on Slide 55.

[Emily Prideaux, Executive Director at Derwent London]

As I hope these slides have shown, we remain design led in all that we do with ambition to deliver the very best workspace for London's current and future office demand. We prioritized brilliant architecture and interiors and an innovative approach to holistic design. Above all, however, we're focused on designing, building and shaping a portfolio for future success and to drive values and returns through strategic capital allocation.

[Paul Williams, Chief Executive at Derwent London]

Thank you very much, Emily. Slide 57, a strong total return outlook. Derwent is a well stocked pipeline, a portfolio which is well aligned to the occupational market. We're seeing significant increase in our adversary profile, which will drive capital values in the near term and gross rental income over the medium term as it is captured. Our predominantly West End development pipeline will be delivered in increasingly tight market.

[Paul Williams, Chief Executive at Derwent London]

Supported by the investment we have made in our member initiative, including our launches, leasing prospects are strong. We're committed to capital recycling. As well as ensuring our portfolio remains fit for the future. It will also provide the firepower to fund both annual CapEx and potential acquisition opportunities, which we expect to emerge. Now to remind you of guidance.

[Paul Williams, Chief Executive at Derwent London]

We expect average ERV growth for our portfolio of plus 3% to plus 6% in 2025 with a range of performance depending on quality, location and state of life cycle. Supported by ongoing ERV growth and assuming valuation yields remain stable, our total return outlook is the strongest it has been for several years. Thank you. And we'll now take questions from the room and then from those who've joined remotely. So who wants to raise them for this, please?

[Paul Williams, Chief Executive at Derwent London]

Thanks, Stephen.

[Callum Marley, Equity Analyst at Kolytics]

Callum Marley from Colytics. Congratulations on the good results. Just two questions. Looking at the financing section of the presentation, you've noticeably increased your exposure to unhedged floating debt. I believe you also have about 75,000,000 of swaps expiring this year.

[Callum Marley, Equity Analyst at Kolytics]

Can you explain the rationale there given the growing inflationary pressures both internally and obviously from the risk of tariffs and also your comments that the bond market is likely to stay volatile this year?

[Paul Williams, Chief Executive at Derwent London]

David, do I pass that to you?

[Damian Wisniewski, CFO at Derwent London]

Yes. I mean, this is all about getting the balance, I think. We've been very heavily hedged and fixed for the last few years. Last year was an interesting year. Rates were a little bit difficult to predict.

[Damian Wisniewski, CFO at Derwent London]

I I think we're getting to a situation now where floating rates may come down a bit further, fixed rates may not. So we've got a current base rate of 4.5%. If you apply a sensible margin to that, you're looking at some mid to slightly above that 5% s all in rate. If that comes down a bit further, we're expecting further cuts this year. Can't be guaranteed, but we're expecting them.

[Damian Wisniewski, CFO at Derwent London]

That might come down to the low 5% s. And that's pretty much in line with where long term rates are as well. So it's quite an interesting position. There isn't actually much of a difference at the moment. At the right time, we're ready to go and fix a bit more.

[Damian Wisniewski, CFO at Derwent London]

We definitely like to. Currently, we're 85% fixed. That will come down a bit later in the year, but we'll still be substantially hedged. So we're comfortable with the situation. It's a difficult judgment.

[Damian Wisniewski, CFO at Derwent London]

Clearly, one likes to have long term fixed rate debt, but you need some flexible bank debt as well because we move up and down the leverage cycle a bit as well. I hope that answers the question.

[Callum Marley, Equity Analyst at Kolytics]

Yes, that's clear. And then just a second one. I'm going to jump through some pages here. Page 100, where you've got the development pipeline for the office market, There's a significant amount coming online in 2025. And then page 85 as well, where you're showing your expiries for this year, 2025, also quite large.

[Callum Marley, Equity Analyst at Kolytics]

What's the risk there to your kind of long term or this year rent forecast of 3% to 6% and also your current low vacancy levels?

[Paul Williams, Chief Executive at Derwent London]

Well, our vacancy rate is obviously reduced. Our retention rate historically has been very high. I think for last year, it was 85%. I think the point that Emily has made about our lounges, etcetera, our member offer, that seems to retain an awful lot of occupiers. So I feel pretty positive about the ability to retain our occupiers and a lot of them move around.

[Paul Williams, Chief Executive at Derwent London]

Emily, do you want to add some points to that?

[Emily Prideaux, Executive Director at Derwent London]

No, I think in respect to the expiries coming up in our own portfolio, obviously, we're already in discussions on many of those. And in respect of Slide 100 in the pipeline, over 50% of that those schemes coming through this year is already pre let. And as is often the case, some of that will bump into future years as some delays do happen. So it's we're proactively managing.

[Nigel George, Executive Director at Derwent London]

It's also just worth looking at on 85% the rent passing on this. You can see passing rents $58,000,000 ERV $65,000,000 So this is the point these are not expensive rents to come off, so some may stay.

[Paul Williams, Chief Executive at Derwent London]

Thank you, Cam. Who's next? Please.

[Paul Williams, Chief Executive at Derwent London]

Max.

[Max Nimmo, Director - Real Estate Equity Research at Deutsche Numis]

Max Noem, Deutsche Neuwirth. Maybe just on the investment market. You said you were not quite seeing value just yet. And I'm just quite interested to understand if we're starting to see more institutional buyers coming back to the market, is there a chance that actually if vendors hold their nerve, you may not actually find value and a chance to buy?

[Max Nimmo, Director - Real Estate Equity Research at Deutsche Numis]

So that's the first question. And on the second one, just on the 3% to 6% ERV growth outlook, it's obviously in line with where you were in the second half of last year. But clearly, as Emily was saying, the indicators are all kind of moving much more positively. And I think we can all see that. I'm just wondering, should we read this as this is how much ERV growth we think the valuers are likely to kind of allow us to push through rather than actually what what you're actually seeing on the underlying market given you're leasing 12% ahead of ERV and 25 Baker Street was 16% or something ahead.

[Max Nimmo, Director - Real Estate Equity Research at Deutsche Numis]

So just your view on that as well.

[Paul Williams, Chief Executive at Derwent London]

I'll start. I'll answer reverse or reversal of the ERV growth plus 3% to plus 6% is an average across our portfolio. And you have to look at some of the assets that we hold back for future development, short term lettings, all the rest of it. So it is an average ERV rather than necessary headline ERV for new lettings for the rest of it. So we feel pretty positive.

[Paul Williams, Chief Executive at Derwent London]

We upgraded the guidance, as you know, in August and we reaffirm that. We did 4.3, which is double what we did the year before. So I feel very positive. I think for these schemes, you would expect to continue to outperform that. But as I say, that is a valuation ERV.

[Paul Williams, Chief Executive at Derwent London]

In respect of the Invest Market that we bought in the 50 Baker Street, we want to be active. The portfolio that is in good shape, the balance sheet is in good shape, we would certainly like to add to it when we can. We might sell it a bit as well. So we're always looking, I think, but we've also remained disciplined to make sure we don't chase the market as pay too much for something. So hopefully, we 2025 will be very active here.

[Paul Williams, Chief Executive at Derwent London]

You're sitting next door to our Director of Investments and he will notice that question and continue looking. Anyone else want to add anything to that? Emily, on ERVs?

[Emily Prideaux, Executive Director at Derwent London]

I think you've answered your own question, Max, in terms of it is very much a valuation ERVs. We've got to look at the whole portfolio as an average. I think what's encouraging is that all of the big houses, like Frank recently noted at their breakfast, that all submarkets are now showing growth over this year. So both in terms of location and quality, that demand is kind of spreading healthily across the market. And as you've seen at Baker Street, as we've gone through the scheme and even going down the building, rents have moved in the right direction.

[Emily Prideaux, Executive Director at Derwent London]

So we're pretty optimistic that those market rents are going to be well ahead of that 6%, but the 3% to 6% is the range of the portfolio.

[Paul Williams, Chief Executive at Derwent London]

I think that's an interesting dynamic that happened in 'twenty 4%. You'll see now that our peers have been saying the same thing. Actually, it's not just top end rents have been rising. Rents right across our portfolio have been rising. Whitechapel had a particularly good year last year with very strong rents.

[Paul Williams, Chief Executive at Derwent London]

And so for the right stock in the right location, that has to be close to Elizabeth Line or mainline station. I think we're pretty positive for the whole of Central London. So hopefully, you'll be right. The ERVs will be even stronger than our average valuation ERV.

[Nigel George, Executive Director at Derwent London]

Can I I just want to add one final point? You've got to remember the valuation ERV is some of its rent reviews, so it's net effective. And so you need a headline and the discount for that. Also on the pre letting, you're pre letting ahead of completion, so you'd expect to try and capture some of that growth for when you deliver. So it's a bit more detailed than that.

[Paul Williams, Chief Executive at Derwent London]

But anyway, thank you very much, Max. You've got a supplementary question with that, deal with both issues? Sorry, who's next? Please. Zack.

[Zachary Gauge, Equity Research Analyst at UBS Group]

Working now?

[Paul Williams, Chief Executive at Derwent London]

Yes. I

[Zachary Gauge, Equity Research Analyst at UBS Group]

think I turned the last one off, so that's going well.

[Paul Williams, Chief Executive at Derwent London]

Easily done. Go on. Yeah.

[Nigel George, Executive Director at Derwent London]

Upskilling.

[Zachary Gauge, Equity Research Analyst at UBS Group]

Yeah. So sorry. It's aggregated from UPS. Page six of the press release, you have sort of a paragraph on on earnings. You mentioned that lumpy nature of developments, the income coming online, capitalized interest going offline, and of course, the increase in finance costs that's already been mentioned.

[Zachary Gauge, Equity Research Analyst at UBS Group]

And that may impact debt per earnings in 2025. So can we read into that that potentially we do see a drop off in earnings in 2025? I know consensus is slightly up in terms of what they expect to be. But is that sort of an indication that earnings may decrease next year potentially even into 2026 as you also lose the rent from the two schemes that are potentially going under construction?

[Damian Wisniewski, CFO at Derwent London]

Yes, David. Yes, I mean, we've given quite a bit of guidance there. I think we think rents are going to go up a bit. We've commented quite a bit on the financing cost. They're definitely going up by more.

[Damian Wisniewski, CFO at Derwent London]

So I think you can expect to see EPRA earnings fall a bit this year. But don't forget, we've got the trading profits coming through from the George Street Apartments. It doesn't go into EPRA, but it's definitely still earnings. So it's interesting overall, the next two years where you might see those interest costs go up before the rents really get captured, but we've got the sales from those residential apartments, which will offset that. So it's a sort of technical point.

[Damian Wisniewski, CFO at Derwent London]

EPRA doesn't include trading profits from those residential sales, but they're part of our overall property return from that mixed use scheme. So I hope that gives you a feeling. And then going through two to three years later, we should see the ERVs captured and the earnings starting to move forward as well. The important thing to point out though is our total return outlook for the next two years is the strongest it's been for really several years. So earnings are important, but there's more to it than earnings.

[Damian Wisniewski, CFO at Derwent London]

We are capturing good value increases from the RV growth in the developments as well.

[Paul Williams, Chief Executive at Derwent London]

Good. Thank you very much, Zack. Anyone else got a question? Anyone else in the floor? Right.

[Paul Williams, Chief Executive at Derwent London]

Have we got anything on the telephone at all? One? Okay. Is that from the web, is it?

[Robert Duncan, Head of Investor Relations & Strategic Planning at Derwent London]

Valentina, I think, is going to take some questions there

[Paul Williams, Chief Executive at Derwent London]

from the call. Okay. Don't worry, patience is one of my very strong points. Yes. Miranda doesn't believe that, but anyway.

[Paul Williams, Chief Executive at Derwent London]

No.

[Robert Duncan, Head of Investor Relations & Strategic Planning at Derwent London]

I'm struggling with technical issues, so apologies for those online. If there are questions, then do feel free to come through to me, Robbie Duncan.

[Paul Williams, Chief Executive at Derwent London]

Yes, exactly. Why don't they come through by e mail and we'll try to answer that. So I know it's going to be a busy day and some of you are going to disappear down the road. So, if we got any more questions, thank you very much for attending today. Have a good day.

[Paul Williams, Chief Executive at Derwent London]

And I want to finish by wishing Miranda all the best for our future jobs. She's going to the other side. I wouldn't say the dark side, but she's going to the other side. We wish you well. We will miss you from future presentations.

[Paul Williams, Chief Executive at Derwent London]

Thank you very much indeed. Good luck, and have a good day, everyone. Thank you very much.

Participants

Executives

• Paul Williams, Chief Executive
• Damian Wisniewski, CFO
• Nigel George, Executive Director
• Emily Prideaux, Executive Director
• Robert Duncan, Head of Investor Relations & Strategic Planning

Analysts

• Callum Marley, Equity Analyst at Kolytics
• Max Nimmo, Director - Real Estate Equity Research at Deutsche Numis
• Zachary Gauge, Equity Research Analyst at UBS Group