Derwent London H1 2025 Earnings Report

Derwent London EPS Results

• Actual EPS: GBX 52.20
• 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: H1 2025
• Date: 8/12/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, August 12, 2025
• Conference Call Time: 4:00AM 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 H1 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Operational performance: Delivered £13.8m of new rent in H1 with open market lettings 10.5% above ERV, driving a 3% accounting return for the half and 7.3% over the past twelve months.
• Positive Sentiment: Development pipeline: On-site completions at 25 Baker Street and Network are due this year with attractive returns, and work has commenced on key West End schemes including Holden House and an agreed head lease at 50 Baker Street.
• Positive Sentiment: Market fundamentals: London offices face a significant supply shortage, with Grade A vacancy in the West End at 1.4%, supporting sustained rental growth and reinforcing the company’s +3% to +6% ERV guidance for 2025.
• Neutral Sentiment: Financial position: EPRA NTA rose to 3187p per share and EPRA earnings were 52.2p per share in H1, with a 2% uplift in the interim dividend to 25.5p, while net rental income was marginally lower due to higher expenditure and finance costs.
• Negative Sentiment: Short-term headwinds: Elevated borrowing costs and reduced capitalized interest as projects complete are expected to weigh on H2 EPRA earnings, though margins should recover as interest rates ease and development activity matures.

Presentation

[Paul Williams, Chief Executive at Derwent London]

Good morning, and welcome to Dermot London's 2025 interim results presentation. As well as me, you will hear from Emily, Damien and Nigel this morning. I shall then wrap up before Q and A. However, before I start, I hope you've seen today's announcement that Nigel has made the decision to stand down from the Board with effect from March. I'm delighted that he will stay on as a consultant, working alongside our talented team.

[Paul Williams, Chief Executive at Derwent London]

Now Nigel has been integral to the success of Derwent over many years, indeed thirty seven. He asked me not to mention that number, but it is thirty seven years. On behalf of the board and everyone in the business, past and present, I wanted to pass on our many thanks. Thank you very much indeed, Nigel. Now we've delivered another good operational performance since the start of the year with £13,800,000 of new rent agreed.

[Paul Williams, Chief Executive at Derwent London]

Open market lettings were 10.5% above ERV. Our total accounting return in the first half was 3% or 7.3% over the last twelve months. Our two on-site projects at 25 Baker Street Network both compete this year and we expect them both to deliver attractive returns. And we've made good progress on our next phase of West End projects. At Holden House, work started earlier this month, one at 50 Baker Street, building on the success of 25 Baker Street opposite.

[Paul Williams, Chief Executive at Derwent London]

I'm delighted that we've agreed a new head lease, unlocking this striking project ahead of the start next year. London has a enduring appeal, and the key drivers of the office market are strong. There is a significant shortage of supply with limited speculative development and low existing availability of the right space. Demand remains well above the long term average, and many occupiers are in growth mode. As a result, businesses are thinking proactively to secure the right space.

[Paul Williams, Chief Executive at Derwent London]

The competition is translating into sustained rental growth. Now the outlook. Following growth of 3% in the first half, we are reiterating our full year ERV guidance of plus three percent to plus 6%. When combined with our earnings yield and development profits, we are confident we can deliver an attractive total return over the medium term. That consistent outperformance.

[Paul Williams, Chief Executive at Derwent London]

Now since 2020, our total property return has outperformed the MSCI London office index by an average two thirty basis points each year and by 120 basis points in the first half this year. Strategic reshaping to stay ahead of the continuing evolving office market supports our long term outperformance. Over the last five years, we've invested nearly £1,000,000,000 in the portfolio and have sold or contracted to sell a similar amount of property, which includes £215,000,000 this year to date. Proceeds have been reinvested into our regeneration led total return business, modeled with 1,500,000 square feet of highly profitable, class leading, well located space either completed or currently on-site. Now turning to our key differentiators which drive our outperformance.

[Paul Williams, Chief Executive at Derwent London]

We are a London specialist with the right product in the right location and the right approach. We have a unique design led division for each building based around a set of core principles. We like to be disruptive and push boundaries while ensuring we deliver in space which is adaptable to the evolving needs of occupiers. We know, however, that occupiers want more than just great space. They also want a close relationship with their landlord.

[Paul Williams, Chief Executive at Derwent London]

Our clustering approach allows us to leverage our scale to provide high quality amenity, like our lounges, in a cost effective way on a portfolio wide basis. We're seeing the benefits of this in leasing and asset management activity. Many of you have been around our portfolio, which is in well connected locations along the Elizabeth line, and you will be familiar with our larger HQ space and our smaller, more flexible fitted units. Reducing carbon through the development and operational stages of a building's life cycle runs through all that we do, including exploring new and innovative building materials and methods. We continue to build on our circular economy strategy.

[Paul Williams, Chief Executive at Derwent London]

Now confidence in our total return. Now looking at the total return and starting with earnings. Our long walk gives us good visibility on income. Combined with a focus on capturing reversion and controlling costs, we anticipate our earnings yield on NTA in excess of 3%. Now capital growth.

[Paul Williams, Chief Executive at Derwent London]

Yields have peaked, and we expect ERV growth to be sustained over the coming years. As a result, valuations are rising. Alongside proactive asset management activity and ensuring we own the right buildings in the right locations, we expect to outperform. Finally, developments. Our next three schemes all have planning, and we have an extensive pipeline of major projects and refurbishments, which we're confident will make an ongoing positive contribution to our total return. Thank you. I will now hand over to Emily.

[Emily Prideaux, Executive Director at Derwent London]

Thank you, Paul, and good morning, everyone. Occupiers are planning their real estate for the long term. Businesses are increasingly looking further ahead to secure space ahead of anticipated supply constraints and positioning themselves for the future, showing commitment to London. Good quality, sustainable and intelligent design is still driving the majority of occupier demand. Location remains paramount with the Elizabeth line having sharpened the focus on micro location and occupiers prioritizing transport connectivity.

[Emily Prideaux, Executive Director at Derwent London]

For businesses making real estate decisions, it is also about the strategic role the office plays and what it says about their business. Offices are strategic tools for talent attraction and retention. Businesses want and need environments that people want to come to that reflect their values, drive productivity, foster collaboration and well-being and support their brand identity. Looking now at market fundamentals. Take up in H1 twenty twenty five reached 5,200,000 square foot, with 70% of that being Grade A space.

[Emily Prideaux, Executive Director at Derwent London]

What's particularly encouraging is that around 80% of this activity was expansion led. We've also seen significant withdrawal of sublet space as tenants take the floors back for their own growth. Alongside sustained above average active demand, these are trends we expect to continue. And in respect of supply, the pipeline remains tight with 11,800,000 square foot under construction through to 2029, which is just 7,100,000 of that is speculative, equating to only seven months equivalent average take up. With 40% already pre let, the market continues to absorb new space with ongoing pressure on available stock in the medium term.

[Emily Prideaux, Executive Director at Derwent London]

Central London's overall vacancy stands at 7.8%. But when we focus on Grade A, it dropped sharply to just 2%. And in the West End, it's even lower at 1.4%, demonstrating the scarcity of premium options in the right locations. Now looking at our own leasing and asset management activity. We've delivered £13,800,000 of lettings, renewals and regears so far this year.

[Emily Prideaux, Executive Director at Derwent London]

Open market lettings were on average 10.5% ahead of ERV, and we've a further £3,800,000 of rent currently under offer. Our furnished and flexible offer continues to perform well with H1's transactions agreed well ahead of adjusted ERV. We've also seen strong leasing momentum at the Whitechapel Building, where the recent letting to be offices means the office space in the building is now fully let. A great story of active asset management, strong relationships and expansion is reflected in the deal to Adobe at White Collar Factory, where they've taken more space and extended their lease through to 02/1933. Retention remains high and our EPRA vacancy is just 3.7.

[Emily Prideaux, Executive Director at Derwent London]

Rent reviews have also delivered meaningful uplifts with $16,700,000 settled in the first half, on average 5.4% above previous rents. A standout example was at the Brunel Building, where Sony Pictures rent review resulted in a 13.5% uplift over the previous rent and a 10.4% outperformance on the RV. At Dermot London, we recognize that forward thinking businesses consider three factors with each real estate decision: the quality of the place, the flexibility and design of the space and the strength of the partnership with their landlord developer and investor. Our focus is to deliver excellence in each of these pillars. As London specialists and industry leaders with a strategically located Central London portfolio, we consistently set the standard for best in class office environments, underpinned by a strong brand, a proven track record and a distinctive approach to partnership.

[Emily Prideaux, Executive Director at Derwent London]

The quality of the Dermot London offer can hopefully be brought to life as we now look a little more closely at our exciting pipeline. Our major schemes alongside our refurbishments and future pipeline amount to potential 2,200,000 square feet over the coming years, all of which reflect exciting opportunities for regeneration. We're confident that development activity will deliver strong and improving returns as ERVs move in our favor, inflation on construction costs settle and the rates environment hopefully continues to improve. At this stage, we're committing to schemes where we know we can deliver profit on cost with a comfortable range of 15% to 25% and with opportunity to better this. In terms of those on-site, we're on-site at 25 Baker Street And Network, both due to complete this year as well as Holden House, which we've commenced this month.

[Emily Prideaux, Executive Director at Derwent London]

Across these three schemes, there is good potential to outperform the current 15% profit on cost projection, and we expect to deliver a yield on completion in excess of 6.5%. By way of update at 25 Baker Street, whilst we have physically completed the building, we await sign off from the building safety regulator, which is expected imminently. As you are aware, the offices are now 100% pre let and we have now let more than 50% of the retail space to Attis and Notto with good interest in the remaining units. In addition, the sale of the residential apartments is progressing well with contract exchange on 23 of the 41 private units for 113,100,000.0 At Network, which is due to complete at the end of the year, this beautifully designed Piercy and Co scheme is progressing well on-site and the quality of the product is outstanding with its beautifully crafted facade of scalloped concrete. Additionally, this building will be our lowest ever embodied carbon intensity delivered, likely to beat the number you see here on screen, well surpassing our twenty twenty five target and already likely to be very close to our 2030 target.

[Emily Prideaux, Executive Director at Derwent London]

Occupier discussions here continue with good momentum. At Holden House, we will be delivering a best in class West End redevelopment behind a retained facade and opposite the Elizabeth Line. Demolition has now commenced and a contractor has been appointed under a preconstruction services agreement. This scheme, designed by architects GSDHA, will comprise just over 110,000 square foot of office space with a new prominent entrance on Rathbone Place as well as circa 20,000 square foot of retail on Oxford Street. PC is anticipated H2 twenty twenty eight.

[Emily Prideaux, Executive Director at Derwent London]

The scheme will deliver large rooftop amenities, event space and terraces as well as characterful internal space around a beautifully designed atrium. As with all our developments, Holden House will deliver best in class sustainability credentials. Moving now to some comprehensive refurbishments where we're on-site. Firstly, Middlesex House. We are repositioning this beautiful 1930s warehouse, enhancing arrival spirits and end of trip facilities as well as adding a fantastic rooftop terrace.

[Emily Prideaux, Executive Director at Derwent London]

This will enable us to move rents on substantially with PC anticipated in the first half of next year. With a variety of size of units across the building, we will be offering both Cate and Cate plus space. At Stephen Street in the West End and Oliver's Yard at Old Street, we're carrying out significant rolling refurbishments on office floors and are simultaneously providing enhanced amenity and outdoor space at both. In addition, we'll be degassing both buildings and improving environmental credentials. In doing so, these works, we can move rents on significantly.

[Emily Prideaux, Executive Director at Derwent London]

And now on to our near term pipeline. At Greencone on Gordon, we will be delivering a comprehensive refurbishment of two Victorian warehouses. The scheme will comprise 108,000 square foot over seven floors and multiple units. The building boasts an abundance of character, and we'll be maximizing its inherent features throughout the scheme, bringing the stunning architectural heritage of the building back to life. And at 50 Baker Street, we've now agreed our rear gate with the Portland estate, as you've heard from Paul, and are due to commence in H2 twenty twenty six, just north of 25 Baker Street and on a one acre island site.

[Emily Prideaux, Executive Director at Derwent London]

This is an exciting prime West End scheme designed with The office building will have a dramatic and prominent entrance and voluminous reception. It will comprise 236,000 square foot, of which 18,000 square foot is ground floor retail. There will be seven floors above ground, the largest of which will be a unique 34,000 square foot. Large floor plates with three sixty degree aspect will allow for light and bright office floors. As you would expect, the scheme also provides for huge communal roof terrace with uninterrupted views and generous amenity throughout.

[Emily Prideaux, Executive Director at Derwent London]

In addition, we will be delivering 17 residential apartments on the site. Finally, looking at the longer term and our next phase of redevelopments. We have further projects totaling a combined circa 1,200,000 square foot at Farringdon Road, Bluestar House, Old Street Quarter and 230 Blackfriars Road. These projects offer a range of opportunities from a comprehensive office refurbishment to mixed use urban generation. At Bluestar, we will shortly be submitting a planning application for a change of use to hotel and hope to achieve an uplift in floor area of over 50%.

[Emily Prideaux, Executive Director at Derwent London]

At Old Street Quarter, we continue to work through a detailed study and expect to submit a planning application for this exciting mixed use urban generation project during the course of 2026. You'll be hearing more on these projects at year end. Hopefully, that provides a summary of the exciting schemes we have ahead as we continue to invest in and position our portfolio, driving returns and value in the longer term. I shall now hand over to Damian.

[Damian Wisniewski, CFO & Executive Director at Derwent London]

Thank you, Emily, and good morning, everyone. Firstly, the financial highlights. EPRA NTA increased in the first half to 31.87p per share. And adding back the dividend paid, our total accounting return was 3%. After the 4.2% TAR in H2 'twenty four, this takes it to 7.3% over the last twelve months.

[Damian Wisniewski, CFO & Executive Director at Derwent London]

Gross rental income rose to £109,100,000 but net rental income and EPRA earnings were marginally lower than in H1 'twenty four. Our dividend remains well covered, and we're increasing the interim dividend by 2% to 25.5p per share. It has also been a busy period of refinancing, and though borrowing levels are a little higher than at December, we expect them to fall back in H2. The movement in EPRA NTA per share in H1 'twenty five includes an upward revaluation movement of 46p per share compared to an 84p decline in H1 'twenty four. This is the main change, and the other figures are very close to last year.

[Damian Wisniewski, CFO & Executive Director at Derwent London]

Turning to EPRA earnings for the first half. These were £58,600,000 or 52.2p per share. Compared with H1 last year, gross rents were up and admin expenses down due to lower staff costs. However, property expenditure increased to £14,500,000 As we guided in February, net finance costs have also risen, a result of higher average borrowings and refinancing fixed rate debt in a higher interest rate environment. The gross rental income movement compared to H1 'twenty four takes account of lettings and asset management, which added £6,100,000 of income.

[Damian Wisniewski, CFO & Executive Director at Derwent London]

However, breaks and expiries took rent down by £3,300,000 and £1,200,000 was lost from disposals. On a like for like basis compared to this time last year, gross rent was up 3.1% and net rent 1.9%. More details are in Appendix eight. As noted earlier, property expenditure has increased with irrecoverable service charges rising to £4,100,000 in H1. This was due mainly to higher voids, partly on space taken back from refurbishment.

[Damian Wisniewski, CFO & Executive Director at Derwent London]

Property costs have also increased to £8,600,000 and at our lounges and other customer service facilities, the running costs rose to £1,800,000 The net cost is £1,300,000 as we also received £500,000 of rent and other income from these facilities, and they offer important amenities to help attract and retain our occupiers. Now turning to project expenditure across the portfolio. Developments and refurbishments included in investment property incurred £69,600,000 plus capitalized interest and staff costs. A further £1,400,000 was invested in the residential apartments for sale at 25 Baker Street. We also incurred £3,100,000 at our new solar park in Scotland, taking total expenditure for the first half up to £74,000,000 Including capitalized interest and staff costs, the total was £84,000,000 Future estimated CapEx is shown on Slide 33.

[Damian Wisniewski, CFO & Executive Director at Derwent London]

Expenditure in H2 is forecast to be very close to H1 at £88,000,000 and there's a detailed breakdown here on the chart. Note that we expect capitalized interest and overhead to be about £6,000,000 in the second half, in other words, 4,000,000 lower than in H1. And that's due to practical completion at 25 Baker Street, which is expected imminently. Estimated future EPC upgrade costs are £86,000,000 Now moving to refinancing highlights. These include the issue of new £250,000,000 seven year unsecured bonds at 5.25 percent in June, followed shortly by the redemption of £175,000,000 of convertible bonds at maturity.

[Damian Wisniewski, CFO & Executive Director at Derwent London]

We've also arranged and extended several bank facilities. These include signing a fresh four year term in July on our main £450,000,000 revolving credit facility, plus two one year extension options. Cash and undrawn facilities at the June 30 increased to $6.00 £4,000,000 The weighted average interest rate on our borrowings through the first half was 3.6% on a cash basis. Following refinancing, it ended the half year at June 30 at 4.1%. After last week's 25 basis point base rate cut, the average interest rate in our borrowings has fallen to about 4%, where we expect it to remain through to the end of the year, maybe a little lower if there is a further base rate cut later on.

[Damian Wisniewski, CFO & Executive Director at Derwent London]

Looking to 2026, we have £55,000,000 of private placement notes and £175,000,000 of LMS secured bonds due to be repaid by March. These have a combined average rate of 5.6. And with both fixed and floating rate debt pricing close to 5%, we forecast that our overall rate will fall in 2026 to about 3.9%. Some more debt summary figures on the next slide. Note that the maturity profile on the right is shown after the latest refinancing.

[Damian Wisniewski, CFO & Executive Director at Derwent London]

So there, we plan to invest a further £88,000,000 in our projects in H2. Borrowings are forecast to fall later this year as we have circa £180,000,000 of contracted sales to complete. Pounds 54,000,000 of this is the Francis House sale, with a balance from the residential and retail disposals at 25 Baker Street. To conclude, our balance sheet is in strong shape. And while we expect earnings to decline a little in the short term due to higher interest costs, lower capitalized interest and the take back of space for regeneration, our total accounting return outlook is the highest for several years. Thank you. And now over to Nigel.

[Nigel George, Executive Director at Derwent London]

Thank you, Damian, and good morning. Slide 38. The portfolio saw a valuation uplift of 1.2% in H1, and this follows on from the return to growth we saw in the second half of last year. This was from a mix of rising ERVs, asset management activity, project delivery and a slight yield tightening. Our on-site developments, 25 Baker Street and Network, which are nearing completion, were up 4.3%, and they have delivered 30% capital growth over the last two point five years.

[Nigel George, Executive Director at Derwent London]

They represent about 13% of the portfolio's value. Overall, we saw a property total return of 3.1% in H1, which was another good outperformance against the MSCI index, which delivered 1.9%. Also, the positive rental growth story helped us achieve a small outperformance against the MSCI All Property Index, and this is encouraging for our market. We continue to invest across the portfolio with £74,100,000 in our developments and refurbishments. I'm sure you're all aware of the government's recent announcement that it intends to prohibit upwards only rent reviews.

[Nigel George, Executive Director at Derwent London]

This came as a surprise to the industry, particularly due to the lack of consultation. It's very early days on this, and the sector will consult with the government. We think the market may consider alternatives to the rent review models, such as fixed uplifts. Turning now to rental values and yields. Valuation ERVs were up 2% in H1, continuing the trend we've seen since 'twenty two.

[Nigel George, Executive Director at Derwent London]

The West End was up 2.4% and the city borders, 0.4%. The stronger West End trend looks set to continue, especially in the space constrained market. Our average office rent is just under £52 a square foot. This ticked up a little. And with a top top rent of only £63 a square foot, this supports continued growth.

[Nigel George, Executive Director at Derwent London]

This is now flowing through to positive rent review settlements. Yields have leveled off, supported by the increased investment activity. Our equivalent yield moved in four basis points to 5.69%, mainly through asset management activity and specific events rather than a cyclical movement. Now a look at the usual buildup of ERVs. Our annual passing rent is £208,900,000 slightly up from December '4, mainly due to contracted uplifts coming through.

[Nigel George, Executive Director at Derwent London]

Overall, there is £114,300,000 of cash reversion in the portfolio. As shown, pounds 37,000,000 of this is contracted uplifts, so already in the accounting rent roll of 207,300,000.0 The balance of £77,300,000 is a 31% reversion in the portfolio and will be subject to appropriate rent free spreading when let. The developments at 25 Baker Street Network could have £34,500,000 Over 60% of this is pre let. There are then smaller projects in vacant space. The reversion for future rent reviews and lease expiries of £20,500,000 is up 12% since year end.

[Nigel George, Executive Director at Derwent London]

It is feeding through to valuations and will flow through to the income statement as these events come through. As you've heard from Emily, Holdenhouse is now on-site, so we've shown the impact on the right of this chart. We have deducted the ERV on the existing building and then added the schemes ERV. This will take the portfolio ERV to over £330,000,000 Now the investment market. This continues to improve with transactions of £3,300,000,000 in the first half, which is already 70% of last year's total.

[Nigel George, Executive Director at Derwent London]

Small lot sizes continue to be liquid, especially those in the West End. However, some larger lot sizes were traded, which is encouraging. We expect this trend to continue. The strong rental outlook as well as London is enduring appeal and expectations for a reduction in finance costs support a recovery in volumes. On sales, we were busy with a mixture of activity.

[Nigel George, Executive Director at Derwent London]

An owner occupied acquired Penterville Road. A UK pension fund is acquiring Francis House. At 25 Baker Street, further progress was made with presales of the residential departments. So overall disposals, we expect to receive over £200,000,000 this year. On acquisitions, we made a small purchase adjacent to our 90,000 square foot Moorlands property, where we extended and where we extended the head lease from one hundred and twelve years to one hundred and sixty years.

[Nigel George, Executive Director at Derwent London]

So some good asset management here and a long term development play. Finally, a brief sustainability update. The team continued to work with our occupiers to get energy uses down, and this was down 9% in the first half. Firstly, our intelligent building systems, which are using AI software within them to monitor the usage and then adjust it. Also, the benefits of our EPC upgrades over the last eighteen months are starting to cut consumption.

[Nigel George, Executive Director at Derwent London]

This was mainly the installation of Airsource heat pump at Stephen Street and plant upgrades at 17 Gressey Street. On embodied carbon, we firmed up our circular economy strategy last year, and this is being implemented at a holding house redevelopment. There is good opportunity for reuse, including existing fit outs, the raised floors and structural elements. At our 100 acre solar park, we've completed site prep and the support frames and now on to panel installation. Completion of the project and power generation is anticipated in H1 next year and should produce over 40% of the managed portfolio's electricity.

[Nigel George, Executive Director at Derwent London]

Now back to Paul, and thank you for your kind words earlier. Thank you.

[Paul Williams, Chief Executive at Derwent London]

Thank you very much indeed, Nigel. Now to the summary on page 45. As you have heard, we are well positioned for growth with a great portfolio and a strong balance sheet against a more favorable property market backdrop. Rents are growing as demand continues to outpace supply and yields are past their peak. We are committed to our next phase of West End developments and refurbishments with the next phase commencing in early twenty twenty six.

[Paul Williams, Chief Executive at Derwent London]

We will continue to recycle capital to ensure we stay ahead of market trends. We expect ERV growth of plus 3% to plus six percent in 2025, with further growth to follow. We have delivered consistent outperformance of both the property and corporate level. And with the strongest total return outlook for several years, we expect to deliver sustained long term value. Thank you.

[Paul Williams, Chief Executive at Derwent London]

We will now take questions from the room and from those who've joined us remotely. We'll start with the room. Are microphones for those that want to ask some questions. Working? There's a hole. Okay.

[Adam Shapton, Senior Analyst - European Research at Green Street Advisors, LLC]

Sorry. No worries. Adam Chapton from Green Street. One specific one and then one more general one please. Just on the lounge costs, is there seasonality to those costs as we look at the higher level in H1 versus the previous H1?

[Adam Shapton, Senior Analyst - European Research at Green Street Advisors, LLC]

Should we expect the same increase, similar increase in H2 versus H2?

[Damian Wisniewski, CFO & Executive Director at Derwent London]

I think we're now reaching a fairly steady state.

[Adam Shapton, Senior Analyst - European Research at Green Street Advisors, LLC]

It's been

[Damian Wisniewski, CFO & Executive Director at Derwent London]

building up in volume. I think we can say that the cost should stay roughly where they are now.

[Adam Shapton, Senior Analyst - European Research at Green Street Advisors, LLC]

Okay. Understood. And then more general one on capital allocation and sort of capital market signals as they pertain to Durbin. So there's a few ways to think about share price discount. So one is that your shares are at a more than at least a 25% discount to your reported values on an unlevered basis.

[Adam Shapton, Senior Analyst - European Research at Green Street Advisors, LLC]

Implied EPRA yield is above 6%. And that's I'm not talking about sort of daily share price moves, This has broadly been the case for about three years now. So thinking about that versus the 15% to 25% profit on cost you're underwriting for projects, I don't know what that would equate to in a yield on cost underwrite. But can you talk about the deliberations that you and the Board have about the appropriate pace and nature of net external growth in light in particular of those capital market signals on the equity side? And obviously, we know where your marginal cost of debt is too.

[Paul Williams, Chief Executive at Derwent London]

It's a good question. Obviously, we're focused on the business. We're taking a long term view investing into portfolio. Obviously, the board considers various options as to what best use of capital. I don't particularly want to shrink the business.

[Paul Williams, Chief Executive at Derwent London]

And obviously, buybacks could do that. And whether or not they are a long term benefit is open to question. But obviously, we'd consider all options. But at the moment, we have an exciting pipeline going forward. We're consistently beating ARV.

[Paul Williams, Chief Executive at Derwent London]

Our new lettings are 10.5%. We think the market is settled from a sort of investment yield point of view. We think we're past the peak. So hopefully, we could see further growth going forward. Damon, do you want to add to that?

[Damian Wisniewski, CFO & Executive Director at Derwent London]

No. I think it's interesting. We've had a period of quite substantial pricing adjustment in the sector. That seems to be coming to an end now. We've got rents growing as strongly as they have for some time.

[Damian Wisniewski, CFO & Executive Director at Derwent London]

We've got pretty stable yields. There is a shortage of good quality products out there, and our job is to supply that, and we believe that can provide attractive returns for our shareholders at the same time. So this is a time to have faith, I think, and look forward. These are great products that we're creating. And good product, the rents are growing much more quickly than they are for less good product.

[Damian Wisniewski, CFO & Executive Director at Derwent London]

So if you can improve the overall quality of the portfolio, you can get better returns going forward as well.

[Adam Shapton, Senior Analyst - European Research at Green Street Advisors, LLC]

Just to be clear, attractive returns for shareholders at the share price rather than on the basis of NTA. That's the key I think for investors, right? That's what you're underwriting.

[Damian Wisniewski, CFO & Executive Director at Derwent London]

We are underwriting off the metrics that we use, which is profit on cost and yield on cost and everything else. But you buy the shares at the share price ultimately.

[Adam Shapton, Senior Analyst - European Research at Green Street Advisors, LLC]

Sure. Okay. Thank you.

[Damian Wisniewski, CFO & Executive Director at Derwent London]

Thank you, Adam.

[Paul Williams, Chief Executive at Derwent London]

Who's next? Please. You've got microphone there or? Yeah, please.

[Zachary Gauge, Equity Research Analyst at UBS Group]

Yeah. Morning, team. It's Zachary Gage from UBS. I mean kind of linked a little bit to the share price reaction this morning kind of trying to think about why that reaction has been fairly negative. Obviously, NTA has come in lower than consensus and then sort of looking at your capital growth numbers sort of versus peers, I think you're 1.6% for the West End.

[Zachary Gauge, Equity Research Analyst at UBS Group]

Shaftesbury was 3.4% for their office portfolio. GP different reporting period obviously, but I think was 2.8% for the six months of March 31. So that's quite a bit stronger than the numbers you're reporting. Could you give any sort of insights as to why you think perhaps your portfolio is not getting the same level of capital growth, which obviously feeds into NTA and it's sort of a 3% total accounting return for the first six months of the year. That's obviously a little bit below your target return level.

[Zachary Gauge, Equity Research Analyst at UBS Group]

And then also feeding sort of on from that, I think as we discussed that the market really wants to see I think some larger core office disposals, it sort of it sounds like the market for that is picking up and there's more potential buyers out there. But is there any reason why we shouldn't be seeing that coming through in the second half of the year to sort of again prove that or get some evidence that debate over where the shares are versus the underlying asset values?

[Paul Williams, Chief Executive at Derwent London]

No, do you want to start? Do want me to start?

[Nigel George, Executive Director at Derwent London]

Yes. I mean the portfolio is a mixture of core income and opportunities. We didn't put the slide in this time, but the higher value properties have outperformed, and they've outperformed probably consistently for the last three or four valuations. We didn't put it in, but the same message was here. So there is a bit of a drag from the rest of the portfolio, and you need to take a little bit of a longer term view on those on the likes of the Holdens and the things that are coming through. So over the short term, you're right.

[Nigel George, Executive Director at Derwent London]

But I think over a longer period, as we've shown with the MSCI index, we've been outperforming every year for the last X number of years. So over a longer period, I think it under that's the real picture than a sort of micro last six months valuation.

[Paul Williams, Chief Executive at Derwent London]

We're obviously gearing up for the next phase. And you've got some schemes starting. Obviously, when building become near the end of their vacant possession time, values will decline a little bit. And when you gear up to improve your space, you're going to some good returns going forward. Anything else, Zach, at all?

[Zachary Gauge, Equity Research Analyst at UBS Group]

Yeah. And just on the sort of the larger office disposals and appetite for your sort of core holdings.

[Nigel George, Executive Director at Derwent London]

Well, you've seen seen an increase in turnover this year, which is, you were saying, it's 70% of what it was last year. And if you drill down into that, it's quite encouraging. You've had bigger lot sizes being sold, Hanover Square, Manchester Square. You've also had owner occupiers of State Street buying in a big chunk, dollars 300,000,000. You've also had value add opportunities.

[Nigel George, Executive Director at Derwent London]

So the spectrum of buyers is there, is typical of a more standard market. We just need more activity and we need a bit more probably debt moving in the right direction, and I think it will unlock that. If you go look at what's happening in Europe, they do get big transactions over there, but the cost of debt is a lot lower. So I think we need a little bit more on the debt side, but the rental growth side is coming through. So it's happening.

[Paul Williams, Chief Executive at Derwent London]

Yes, please.

[Thomas Rands, Senior Equity Research Analyst at Berenberg]

Thanks. Morning. It's Thomas at Berenberg. Just a couple of questions. One on market supply.

[Thomas Rands, Senior Equity Research Analyst at Berenberg]

Just wonder if you can give us a sense of the depth of activity in the refurb market. You yourselves have got a decent amount of refurb work going on at the moment. So I just wonder if you can give any color on whether you're seeing more competing new supply coming from that refurb part of the market, especially with more tenants choosing to stay put and perhaps what it means for longer term ERV growth?

[Paul Williams, Chief Executive at Derwent London]

Yes, think it is picking up. Obviously, the carbon story would suggest that more refurbishment will be encouraged. We're certainly picking up with ours, with our Middlesex houses and our GreenCare houses. Emily, have you seen a big uptick in Yes.

[Emily Prideaux, Executive Director at Derwent London]

Mean, I think the market is very much retrofit first from a planning perspective. So that is definitely going to be a feature. And I think it's important to note that from a market perception perspective, it doesn't just need to be new build to be the good quality. So that tier below brand new build ground up is still very much in the good quality bracket of the marketplace that we talk about.

[Thomas Rands, Senior Equity Research Analyst at Berenberg]

Thanks.

[Thomas Rands, Senior Equity Research Analyst at Berenberg]

Second question, just Damian, you're mentioning earnings will just run a bit lower in the short term. Just wondering if you can give a bit more color on where you expect them to trough out. And just to clarify, that would be EPRA earnings, so excludes profits on your resi sales.

[Damian Wisniewski, CFO & Executive Director at Derwent London]

Yes. Thank you. I mean, I think we've got rental growth now, which is at or around the increase in our general costs. After a number of years when rental growth has been running below cost inflation, we're now at a position where you can expect rents and overheads to move in the right direction. So I think rents will outperform overheads.

[Damian Wisniewski, CFO & Executive Director at Derwent London]

The main issue for us at the moment is the interest costs are higher. Now we've had we've we've refinanced and the cost of our debt has gone up, and it's true across across most most of the space at the moment. And we have this situation where when we complete bigger bigger projects, the capitalized interest goes down as well. So I think in the second half, we're gonna see earnings fall by, you know, 4 or 5,000,000, that that sort of number. That should be it, I think, for now.

[Damian Wisniewski, CFO & Executive Director at Derwent London]

And after that, we should see the capitalized interest move up as the projects become more mature, rents will grow, and we should see, I think, some growth in earnings going forward.

[Thomas Rands, Senior Equity Research Analyst at Berenberg]

That's helpful. Thank you.

[Paul Williams, Chief Executive at Derwent London]

Very well. Oh, please. Yes.

[Neil Green, Analyst at J.P.Morgan Cazenove]

Morning. Neil Green from JPMorgan. Just one. You've outlined the activity to come in the development pipeline and obviously comments around demand and supply being very much in your favor. How do you think about the pre letting of those projects as they get closer to completion please?

[Neil Green, Analyst at J.P.Morgan Cazenove]

Or would you perhaps wait until they are nearly finished? Thanks.

[Paul Williams, Chief Executive at Derwent London]

We've obviously been very pleased with the pre let we achieved at Baker Street. Historically, West End has not been such a pre let market. But encouraged by interest, we've got a network. But the market is growing, as you quite rightly point. And we see some good ARV growth.

[Paul Williams, Chief Executive at Derwent London]

There's always a balance between taking a pre let and taking off the table and derisking versus waiting for the market to grow. Emily, And would you like to add a bit to that?

[Emily Prideaux, Executive Director at Derwent London]

Yes. I think there's two things. I think ERV is moving in our favor. So we've always got to strike a balance of making sure we're getting tomorrow's rents. I think the other thing to look at on the projects themselves is the size of the whole asset, but also the floor plate size.

[Emily Prideaux, Executive Director at Derwent London]

So a 50 Bake Street, for example, you've got very large floor plates. Holden House, you've got more akin to Brunel Building or Network Building 15 to 20 ks floor plates. That makes a difference on how early occupiers generally out. So but the market is the length of time occupiers are in the market is extended as we know in terms of people are coming out earlier, window shopping for longer, etcetera. So we'll be there ready to capture the interest when it lands.

[Emily Prideaux, Executive Director at Derwent London]

But there are multifactors feeding into when or when you pre land and transact. Transact.

[Paul Williams, Chief Executive at Derwent London]

Any other questions from the floor? Right. We got any questions on the telephone, Dune? One question.

[Paul May, Director & Head - Real Estate Equity Research at Barclays]

Well, question from Paul May from Barclays. A couple of questions from me. Mean, obviously, all the focus on NAV and MTA movement, share price performance. Is it not the case that the shares are down because your earnings are a miss and probably a further miss than was expected at the full year? I think we saw this at the full year as well.

[Paul May, Director & Head - Real Estate Equity Research at Barclays]

Share price reaction was negative. We've seen it with others. So just wondering at what point does earnings become a core focus for you and sort of driving cash flow? Obviously, as you say, the next six months is going to be tough, but then we're going to see that growing. Just wonder, does that become a greater focus for you?

[Paul May, Director & Head - Real Estate Equity Research at Barclays]

Or will you always be more focused on the capital side? You have a couple of others?

[Paul Williams, Chief Executive at Derwent London]

Jamie, do want to add to that, Paul's question?

[Damian Wisniewski, CFO & Executive Director at Derwent London]

Yes. Paul, we've always been focused on earnings. I think if you follow this over the last few years, you'll know that. I mean, clearly, we are also a total return business, so it's getting a balance between earnings and creating value. But this is this has always been an earnings business, and I think you'll be if you look at our earnings profile compared to our main peers, they've they've been pretty impressive. So, yes, very much earnings focused.

[Paul Williams, Chief Executive at Derwent London]

Getting that balance right.

[Paul May, Director & Head - Real Estate Equity Research at Barclays]

Yes. No, that's good. I mean, I think that the point was in the statement is a lot of total return commentary. And I think the earnings the first mention of like for like earnings or rental growth was until Page 12. So I think getting back to that earnings progression, I think we'll certainly see a reaction in the share price.

[Paul May, Director & Head - Real Estate Equity Research at Barclays]

The other one, I think it's been mentioned a few times, the supportive rate movements will see the market improve. I mean, The UK five year swap is basically flat since January 2023. And that's despite base rates going from 3.5% to 5% back down to 4%. So the kind of funding cost for a lot of owners has basically been the same for the last over two years now. And yet the market is still not particularly strong.

[Paul May, Director & Head - Real Estate Equity Research at Barclays]

I mean, at what level are you hoping or expecting rates to get get that support in the market? Because surely for that to happen, we're looking at a weak economic outlook, which then has an effect on the rental side. Just wondering what you're sort of looking for or expecting.

[Damian Wisniewski, CFO & Executive Director at Derwent London]

Well, I mean, first of all, certainly for us, the GILT is important or more important than the swap. So that has been much more volatile. We've seen those rates come off a little bit in the last few months. Clearly, lower rates are more attractive for borrowers than higher rates. But I think it's important to look forwards.

[Damian Wisniewski, CFO & Executive Director at Derwent London]

And at the moment, the investment market is, I think, focusing more on the rental growth outlook than than on anything else. So I think it's a combination of all those things. These are quite small marginal movements that we need, but the combination of stronger rental growth, more stable yields, and gradually slightly falling debt costs, I think is quite helpful in this market.

[Paul May, Director & Head - Real Estate Equity Research at Barclays]

Okay. Sorry, last one. Apologies if I missed it in the presentation. I think the statement mentioned some capitalized admin costs have increased. Just wondered what level that is and where it was and where it's increased to.

[Paul May, Director & Head - Real Estate Equity Research at Barclays]

So I imagine that will also work as a headwind in the second half. Is that right?

[Damian Wisniewski, CFO & Executive Director at Derwent London]

The number was 1,400,000 for the first half. This is essentially some of our development team who work on specific projects, and we've been capitalizing their costs. It's quite a small number, as you can tell.

[Paul May, Director & Head - Real Estate Equity Research at Barclays]

Perfect. Thank you very much.

[Paul Williams, Chief Executive at Derwent London]

Thank you, Paul. Any other questions from the telephone? Anything on the webcast, John? Well, thank you very much for today's attendance. We're all around later if anyone wants to come and give us a call or have a chat afterwards.

[Paul Williams, Chief Executive at Derwent London]

And thank you very much indeed for your attendance. And have a good summer. Thank you very much.

Participants

Executives

• Paul Williams, Chief Executive
• Emily Prideaux, Executive Director
• Damian Wisniewski, CFO & Executive Director
• Nigel George, Executive Director

Analysts

• Adam Shapton, Senior Analyst - European Research at Green Street Advisors, LLC
• Zachary Gauge, Equity Research Analyst at UBS Group
• Thomas Rands, Senior Equity Research Analyst at Berenberg
• Neil Green, Analyst at J.P.Morgan Cazenove
• Paul May, Director & Head - Real Estate Equity Research at Barclays