Derwent London H1 2026 Earnings Report

Derwent London EPS Results

• Actual EPS: -GBX 16.59
• 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 2026
• Date: 8/7/2026
• Time: Before Market Opens
• Conference Call Date: Thursday, August 6, 2026
• Conference Call Time: 4:30AM 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 H1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong leasing momentum continued, with more than £30 million of leasing and asset-management transactions secured since the start of the year and new leases signed 5.1% above ERV. EPRA vacancy remained low at 4.4%, while rental reversion increased to £83.3 million.
• Positive Sentiment: Management cited robust London office fundamentals, with demand near a record high, availability below its 10-year average and particularly tight West End Grade A vacancy of 1.2%. AI-related take-up has accelerated, supporting the company’s expectations for 4%–7% ERV growth in 2026.
• Positive Sentiment: Development returns remain attractive: Network W1 completed fully pre-let with an ungeared IRR of approximately 11%, while four projects totaling 500,000 square feet are on site and forecast to deliver double-digit returns. The newly committed 50 Baker Street project is expected to generate an ungeared IRR above 12%.
• Positive Sentiment: Disposals are progressing ahead of the capital-allocation plan, with approximately £280 million completed or contracted at an average discount of just 3% to book value. The £50 million share buyback is more than halfway complete, and leverage has declined while new debt facilities have strengthened liquidity.
• Negative Sentiment: EPRA NTA fell 2.1% to £31.57 per share, reflecting a six-basis-point outward yield shift and a £45.8 million provision for the Old Street Quarter acquisition. Management warned the provision could change materially depending on planning progress and whether the site is de-risked or sold before development.

Presentation

[Paul Williams, CEO at Derwent London]

Well, good morning, everyone, welcome to the Derwent London H1 2026 results presentation. Today, you will hear from Damian, Emily, and me, following which we will be happy to take any questions you may have. Firstly, some key takeaways. We are delivering against the operational capital allocation targets we outlined in February, including the buyback. The London occupation market is strong, with active demand remaining above supply, driving rental growth across our portfolio. Whilst the investment market is more subdued, impacted by the war in the Middle East, we have sold well in accordance with our targets, we are pushing ahead with selective West End developments where forecast returns are strong, supported by the positive rental outlook. Turning to the key business highlights.

[Paul Williams, CEO at Derwent London]

We have delivered a very strong operational performance, securing over GBP 30 million of leasing and asset management transactions since the start of the year, there is more currently under offer. New leases have been signed more than 5% above ERV. Our asset management activity has extended leases in higher rents. Our EPRA vacancy rate remains low at 4.4%, we expect this to reduce further. We have continued to deliver value through development. Network W1 were completed during Q2, with the offices fully pre-let and delivering an ungeared IRR of around 11%. Rents well ahead of our underwrite more than offset the outward movement in market yields during construction. Our next phase of West End developments is firmly underway, with four major projects on site totaling 500,000 sq ft. Supported by rental growth and fixed price construction contracts, we forecast ungeared double-digit IRRs.

[Paul Williams, CEO at Derwent London]

Looking at the financials, earnings in H1 were ahead of guidance we gave in February, we're upgrading our guidance for 2026. We also reiterate guidance for 2027 through to 2030. NTA was down through H1, principally due to the small outward movement in yields following the conflict in the Middle East, a provision at Old Street Quarter, which Damian will provide further details on. In February, we laid out our returns focus capital allocation framework alongside a series of associated targets. I'm pleased to say that we are executing these strongly. This year, we have completed or contracted some GBP 280 million of disposals within 3% of book value, more is under offer or is in discussions. This compares well with our targets of GBP 400 million in 2026 and GBP 1 billion over three years.

[Paul Williams, CEO at Derwent London]

This provided financial capacity, we launched a GBP 50 million share buyback, which is now over halfway through. Further buybacks will be kept under consideration alongside other reinvestment opportunities that may emerge, including potential acquisitions. On developments, on building on our success at 25 Baker Street, we committed to 50 Baker Street in Q2. A project we're really excited about given the strength of the occupational market in Marylebone, which we forecast will deliver the highest development return for several years with an ungeared IRR in excess of 12%. I'm confident we have been conservative in our underwriting. Underlying this, our balance sheet is well placed. Leverage remains comfortable our average interest rate reduced in H1 compared to the second half last year following refinancing activity. I will hand over to Damian who will take you through the financial results and the valuation in more detail.

[Damian Wisniewski, CFO at Derwent London]

Thank you, Paul, and good morning, everyone. Firstly, some key takeaways from me. As Paul has said, we've made good progress against the strategic targets set out in February. Disposals have enabled us to commence a GBP 50 million share buyback program in May, while also bringing down our LTV and net debt to EBITDA ratios over the last six months. First half EPRA earnings were slightly ahead of guidance, and we are upgrading our 2026 full year earnings forecast. We've increased the interim dividend again, as in every year since the merger in 2007, and it remains well covered by EPRA earnings. In relation to EPRA NTA, two points to make. First of all, the valuation saw six basis points of outward yield shift in the period, and we've also booked an early provision against the Old Street Quarter site, which we expect to acquire in late 2027.

[Damian Wisniewski, CFO at Derwent London]

Finally, the balance sheet remains strong. Our credit rating was reaffirmed in May, and we have arranged new or extended bank facilities since June. The financial highlights are shown here, and we'll take a look at each of these over the next few minutes. EPRA NTA at the 30th of June was GBP 31.57 per share. The main reasons for the 2.1% reduction were an overall revaluation deficit after accounting adjustments of GBP 0.18 per share and the provision booked against Old Street Quarter, equivalent to GBP 0.41. The total accounting return for the period is set out here. The first three bars show EPRA earnings, capital growth on the main portfolio excluding yield movements, and development returns seen in the half year. This takes us to a 3.7% total accounting return, indicating how the underlying business performed with neutral yields.

[Damian Wisniewski, CFO at Derwent London]

On the right-hand side, we show the positive impact of the buyback at H1, our estimate of the outward yield impact, and the Old Street Quarter provision. This takes us to the reported -0.4%. Now looking at the property valuation drivers. Underlying ERV growth was 2.6%, the highest first half increase in a decade, with the West End outperforming the East. This was offset by overall outward yield shift of six basis points. If you adjust for the large letting at Network and the sale of Horseferry House, the movement was effectively 15 basis points. As already mentioned, the developments did well, up 10.3% over the period. Network reached practical completion in May, and its valuation was up strongly. The rent achieved being 5% above December ERV. The valuers also tightened the investment yield, and we've been able to release some contingency.

[Damian Wisniewski, CFO at Derwent London]

Other projects on site were up just over 5%. The balance of the portfolio was down 1.3% on average, with the West End and the higher quality buildings outperforming. Some of our older properties, which were approaching refurbishment or are earmarked for disposal, saw greater declines as leases shortened. In addition, investment yields have moved out a bit for some of the larger lot sizes. The yield adjustment we mentioned has also impacted our total property return for the first half. Now on to Old Street. We expect to complete the acquisition of the Old Street site in Q4 2027. The GBP 239 million price was set over four years ago in May 2022, and at completion, the site will be valued on a residual value basis and subsequently held at fair value.

[Damian Wisniewski, CFO at Derwent London]

To date, our balance sheet includes the GBP 3 million deposit paid, plus GBP 11.9 million of planning, design, and other fees after impairment, all held within prepayments. We regularly consider the expected costs and benefits of the acquisition and the subsequent scheme. At the 30th of June 2026, after updating all the inputs and considering additional strategic delivery options for the site, we've booked a provision of GBP 45.8 million. We will update this six-monthly up to the time of acquisition, at which point it will be offset against any valuation adjustment. At December 2025, it was determined that no provision was required. Now turning to the income statement. As expected, gross rental income was down slightly compared to H1 2025. The positive impact in the period from Network, 25 Baker Street, and other lettings was GBP 12.5 million.

[Damian Wisniewski, CFO at Derwent London]

Network's annualized rental income of GBP 10.7 million after incentives will come through more clearly in the second half. However, we have a larger than usual number of projects on site and saw some additional vacancy earlier in the year, including 1 Page Street, which is being marketed for sale. These combined to bring rental income down by GBP 13.6 million compared to H1 2025. On a like-for-like basis compared to this time last year, gross rent was up 1% and net rent 2.7%. More details are in appendix three. EPRA earnings for the first half were GBP 54.6 million or GBP 0.487 per share. Actions taken to reduce costs saw property expenditure and admin expenses GBP 1.5 million lower. We expect admin costs to fall further in the second half. Net finance costs increased due partly to a GBP 2.3 million reduction in capitalized interest.

[Damian Wisniewski, CFO at Derwent London]

H1 2025 also benefited from convertible bonds with an IFRS rate of 2.3%. These were redeemed in June 2025 and replaced by conventional bonds at 5.25%. Looking ahead, we now expect EPRA earnings per share for 2026 to be between flat and 3% lower than in 2025. That's a 2%-3% upgrade from the beginning of the year guidance. Our outlook for earnings up to 2030 has also strengthened slightly. We've maintained guidance. The next slide shows where we're allocating capital, including the share buyback. We spent GBP 60 million on projects in H1. CapEx is expected to accelerate into the second half as the projects get fully into their stride. Development returns are looking interesting. Emily will explain our expectations here later.

[Damian Wisniewski, CFO at Derwent London]

The share buyback continues. After GBP 18.1 million of purchases up to the 30th of June, we have now completed about GBP 34 million in total. The current program of GBP 50 million should be finished in a few weeks' time, with a larger positive impact on NTA and earnings in H2 than in H1. Further buybacks will be considered in the future from surplus capital driven by disposals.

[Damian Wisniewski, CFO at Derwent London]

The buildup of our portfolio ERV is shown here. This is on a net effective basis. Total rental reversion has increased to GBP 83.3 million from GBP 70.9 million at year-end. The CapEx required has also increased with the commitment at 50 Baker Street. Moving on to refinancing highlights. In the first half, GBP 230 million of maturing fixed-rate debt was repaid, including the GBP 175 million LMS secured bonds at 6.5%. These have been refinanced with cheaper floating rate bank debt.

[Damian Wisniewski, CFO at Derwent London]

As a result, the weighted average interest rate that we paid in H1 2026 was 3.9%. That's lower than in H2 2025, but above the first half in 2025. Allowing for one further base rate increase this year, we expect our average interest rate to be 3.8% in H2. Since the end of June, we've increased total debt facilities by signing a new GBP 100 million, five-year unsecured revolving credit facility with Handelsbanken and have extended our main GBP 450 million group RCF to July 2030.

[Damian Wisniewski, CFO at Derwent London]

Finally from me, our debt summary. Cash and undrawn facilities at the 30th of June were GBP 481 million, but with a new facility in place on a pro forma basis, that's now up to GBP 581 million. Note also that the sale of 90 Whitfield Street is due to complete in a few weeks' time and will reduce borrowings by a net GBP 107 million.

[Damian Wisniewski, CFO at Derwent London]

All of our debt is now unsecured, 71% was at fixed rates at the 30th of June. With a strongly inverted interest rate curve, we expect to run higher levels of floating rate debt than usual for the time being. Thank you very much. Now over to Emily.

[Emily Prideaux, Executive Director at Derwent London]

Thank you, Damian. The fundamentals of the occupier market remain strong. In H1, availability and vacancy reduced, with Central London vacancy now below 7% and lower at 5% in the West End. Against this, demand has risen further, now sitting at just under 12 million square feet, supporting strong rental growth, which is now forecast across all London submarkets. Looking a little more closely at demand, it is now at its second highest level on record, with named requirements spanning a broad range of high-quality occupiers across multiple sectors. Professional services and financial occupiers dominate, while tech and AI have become increasingly important, which I will come onto in due course. Turning to supply. Against a backdrop of reducing availability and a constrained development pipeline in the coming years, there is good reason to be confident of rental growth.

[Emily Prideaux, Executive Director at Derwent London]

Current availability is well below the 10-year average for the first time since Q2 2020, and 33% of the 13.2 million square feet under construction is already pre-let or under offer. West End Grade A vacancy is as low as 1.2%, and as ever, we have good visibility on likely completions between now and the end of the decade, supporting our own pipeline, which we'll come onto later. AI has been a standout theme in the market this year. H1 AI take-up reached 700,000 sq ft, nearly double 2025's full-year total, with a further 600,000 sq ft of active demand in this sector still to be satisfied. London is a beneficiary of this direct demand. When AI companies choose Europe, they choose London. There is no meaningful challenger on the continent.

[Emily Prideaux, Executive Director at Derwent London]

Unrivaled talent, deep venture capital, and a mature innovation ecosystem, and we see this as a trend that will continue, with CBRE currently projecting significant further growth in the sector over the coming years. Turning now to the investment market on slide 24, where the picture is much more subdued and volumes are tracking below long-term averages. Q2 sentiment cooled after a strong start to the year, understandable given the global backdrop, but demand for London offices hasn't gone away. Capital is still there, and it's global in nature. GBP 25 billion of equity is targeting London from various geographies. In terms of our own activity across the portfolio, we have been active on sales. We're delivering on the strategy set out in February, GBP 280 million of sales transacted, on average 3% below book, with a further circa GBP 100 million to come this year.

[Emily Prideaux, Executive Director at Derwent London]

On acquisitions, we remain disciplined but ready to act on opportunities that can offer strong returns, maybe value add or core plus, and such opportunities will always be considered within that same framework and against other options, including share buybacks, where capital may be deployed. Operationally, looking first at our leasing activity, it's been a strong year. GBP 22 million of new income has transacted year to date, 5.1% ahead of ERVs, including the pre-let of Network to Databricks. In addition, we have a further GBP 5.3 million under offer at half year, setting us up for what's likely to be one of our highest years for new income on record. In terms of activity with our existing occupiers, we have continued to proactively manage our lease expiry and break profile, and this was reflected in a high level of renewals.

[Emily Prideaux, Executive Director at Derwent London]

Our EPRA vacancy remains low at 4.4%, or 3.5% if you exclude 88 to 94 Tottenham Court Road, which is now under offer for sale. Finally, a reminder of how we strategically position our portfolio. We proactively shape it to meet London's varied demand because we understand what occupiers want, not just from the space itself, but service and amenity around it as well. London is a global HQ city, and that remains our core business. Strong and durable walls through long-term lettings to large established businesses. We do flex too to mirror the market proportionality. Flexible space today sits at around 8.5% of our office portfolio, rising to just over 12% if we include third-party operators such as Fora. Underpinning all of it, HQ and flex alike, is our DL/Member offer, which the market now understands and clearly values.

[Emily Prideaux, Executive Director at Derwent London]

In respect to flex more specifically, we expect this to continue to grow to around 15%. As ever, how we deliver flex, as with everything else, is returns and margins focused. For flex and managed space, that means factoring in operational costs as well as the CapEx. Now moving on to our development pipeline. Just to set the scene on development more broadly, the backdrop has been challenging. Outward yield movement, combined with a period where construction cost inflation has outweighed rental growth, has made some development harder to justify. Despite that challenging backdrop and not insignificant outward yield shift, we've delivered strong returns on our recent schemes, 25 Baker Street and Network, where rental growth has now been proven. Now the landscape is improving, not necessarily across the board, but for the right developments in the right locations.

[Emily Prideaux, Executive Director at Derwent London]

Our approach remains disciplined and returns focused, always aligned to our wider capital allocation strategy, where development can make a genuinely positive contribution to total accounting return through both development returns and earnings in the medium to long term. Add to that the draft London Plan published earlier this quarter, which paints an improved picture for development in London, alongside pro-growth local authorities who are actively engaged with our sector. The complexities of developments remain, but the case for the right development is building for those that know their marketplace. We have a strong pipeline, carefully selected. Our major projects comprise two redevelopments and two refurbishments, offering attractive returns of a combined IRR of 12%, a profit on cost of 18%, and a development yield of around 7%. I will briefly talk on each.

[Emily Prideaux, Executive Director at Derwent London]

Following on from our success at 25 Baker Street, we are now on site at 50 Baker Street, delivering unique large office floor plates with strong architectural language and a very special and unique rooftop in a sub-market where supply is very thin. We are very confident of strong rental growth here. In terms of the sustainability story, as well as the usual top credentials, we are pioneering a U.K. first by transforming concrete from the existing building into structural concrete for the new and are aiming for over 20% of the new building material to be from recycled sources. Holden House is a 133,000 sq ft redevelopment behind a retained facade at the southern end of Fitzrovia, bordering Soho, and directly opposite the Dean Street entrance to the Elizabeth line at Tottenham Court Road.

[Emily Prideaux, Executive Director at Derwent London]

The scheme includes a beautiful atrium, which supports an innovative servicing strategy, delivering fantastic workspace and again, exemplary green credentials. Greencoat & Gordon gives new life to these characterful Victorian warehouse buildings in a sub-market traditionally dominated by glass and steel. We can offer something genuinely different here, and we expect to deliver a mix of flex and traditional cat A space. Finally, Middlesex House, 50,000 sq ft within a refurbished 1930s building, complete with a fantastic new terrace and amenity offer, where we will be looking to provide a self-contained building of flexible workspace. In summary, there is a lot to be excited about across these current schemes. We understand that development does not work everywhere, but these projects have been selected specifically because they will make a positive contribution to our overall returns, consistent with our wider capital allocation framework.

[Emily Prideaux, Executive Director at Derwent London]

Looking beyond these schemes, alongside any disciplined acquisitions over time and other refurbishments in the portfolio, we have further opportunity to maximize value on a number of sites and potential schemes. We are getting VP of 20 Farringdon next year. This building sits above the Crossrail station at Farringdon, and we are looking to give it a new life, refurbishing the existing building with focus on ground floor and rooftop. Old Street Quarter, you have heard from others on this today, but we have optionality on delivery here, and there will be more to follow on this as we progress through planning. Finally, 230 Blackfriars Road. There is scope to get a good planning permission in respect of bulk and mass with optionality again around delivery. I shall now hand over to Paul to wrap up.

[Paul Williams, CEO at Derwent London]

Thank you very much, Emily. As you've heard, we are performing strongly, delivering against the targets we laid out with our capital allocation framework. Operational momentum is continuing. We are capturing the growing reversion and driving income through our leasing asset management activity. We are active in the investment market, executing a decisive plan to further optimize our already high-quality portfolio. We're making good progress on four Western projects, which all deliver attractive returns and which are well located to benefit from the strong rental growth we are seeing. Before allowing for one-off items, the portfolio is on track to generate returns of 7%-10% per annum over the medium term. The strength of the occupational market gives us confidence to reiterate our ERV guidance of +4% to +7% this year, following a 2.6% growth in H1.

[Paul Williams, CEO at Derwent London]

We are upgrading our 2026 earnings guidance with H1 better than forecast. The building blocks are in place to deliver 25%-30% growth in EPRA earnings by 2030. Earlier this year, I announced my retirement as Chief Executive. Today marks my last set of results after nearly 40 years at Derwent, before Jonathan Murphy takes over on the 1st of September. I want to take this opportunity to thank you all for your support and your engagement. I also want to thank the whole of the Derwent team, and particularly Damian, Emily, and Nigel for their friendship and wise counsel. I know I'm leaving the business in strong hands and look forward to seeing it continue to thrive. Thank you. We're now happy to take questions from the floor, followed by the webcast. Please, Jonny.

[Jonny Coubrough, Analyst at Deutsche Numis]

Thanks very much. Jonny Coubrough from Deutsche Numis. Could I ask firstly, in terms of the strong rental backdrop, are you seeing any indication of a change in incentives in the face of that improvement?

[Emily Prideaux, Executive Director at Derwent London]

I think incentives have remained fairly stubborn at around 24 months on 10 years. The large reason for that is the construction cost inflation that we've seen over the cycle, which obviously impacts the tenants as much as us. Actually them holding firm I see as quite a positive rather than having gone out further in that regard.

[Jonny Coubrough, Analyst at Deutsche Numis]

Thanks very much. Second question would be in terms of Old Street Quarter, if the modeling assumed 100% chance of disposal, how would that impact the provision?

[Paul Williams, CEO at Derwent London]

Well, it's very sensitive, that provision. As you sell the scheme without going through the developments, you obviously give up development profits. That would increase the provision. I'm not going to give you an actual number because there are so many other moving parts, but it would be substantially higher than the existing provision.

[Jonny Coubrough, Analyst at Deutsche Numis]

Thanks very much. Just the last one in terms of new developments. Do you think contractors are building in much larger contingency into their bids where they offer a fixed price now, and is it challenging to get a fixed price off them?

[Paul Williams, CEO at Derwent London]

Let me answer that question firstly. I think being associated with Derwent product is seen as very positive for contractors. We've got a very good relationship with Tier 1 contractors. We've just gone through the process of fixing the price for both Holden and for 50 Baker Street. I would like to re-fix the price with contractors we know well. They're obviously a little bit more cautious about the Middle East, but they know that we pay well, we pay well on time, and we're good to work with. We were able to fix without paying a big premium and we've got some contingency left within the scheme in case there are further issues. We feel very positive. We've delivered through some very difficult circumstances, made great profits, and hopefully our contractors will make some money as well. Thank you.

[Jonny Coubrough, Analyst at Deutsche Numis]

Thanks very much.

[Paul Williams, CEO at Derwent London]

Any other questions? Oh yeah, Paul. Thank you.

[Paul May, Analyst at Barclays]

Hi, it's Paul May from Barclays. First one's a bit of a boring one for you, Damian.

[Paul Williams, CEO at Derwent London]

Yeah.

[Paul May, Analyst at Barclays]

Can you explain your capitalized interest policy, the rate used, and has anything material changed? How are you going to approach the Old Street Quarter? Will you capitalize against the cost or the lower residual value? Will you undertake activities or investment in order to keep capitalized interest artificially high, or is the plan ultimately that it will reduce as CapEx or development reduces?

[Damian Wisniewski, CFO at Derwent London]

That's a very long question, sorry. Let me try and answer it.

[Paul Williams, CEO at Derwent London]

It's a good question.

[Damian Wisniewski, CFO at Derwent London]

Our policy hasn't changed. You'll notice that the capitalized interest has actually fallen from H1 2025 to H1 2026 by about GBP 2 million. It's a little higher than we expected when we did the forecast at the beginning of the year, mainly because Network completed later, we capitalized interest for a couple of months longer. We got a little bit less income from Network as a result. The net impact was quite small. The policy essentially is unchanged. I think, coming back to Old Street Quarter, when we buy the site, assume we hold it, that would be a site in which we would capitalize interest on the acquisition cost. Initially, the impact on earnings would be very small. Remember, we capitalize at an average rate, not at a marginal rate. Currently we're capitalizing at about 4.5%.

[Damian Wisniewski, CFO at Derwent London]

That's including all the costs on top of the interest cost. Given the marginal rates are a little bit higher, there'd be a small earnings impact, but relatively small. Does that answer most of your questions? I think they were probably a couple.

[Paul May, Analyst at Barclays]

Yep. No, that's got all of it, I think, which is good.

[Paul Williams, CEO at Derwent London]

Yeah.

[Paul May, Analyst at Barclays]

You highlighted larger write-downs in weaker assets. How overvalued are some of your assets, would you say, on that basis? Was this focused on specific assets that you're looking to dispose of, i.e., did assets earmarked for disposal see larger write-downs than the others?

[Paul Williams, CEO at Derwent London]

You want to start that one?

[Emily Prideaux, Executive Director at Derwent London]

Yeah. I think the bifurcation in the market still exists, you're certainly seeing the higher development assets seeing better growth. I think in terms of the read-across of the whole portfolio, the volumes have been low. Valuation systems are retrospective. To put a number on how far up things are over or undervalued, obviously, we can't do. The important thing is that tail. In terms of the assets we're selling, we have third-party valuations. They're valued by Knight Frank and we look at that with them.

[Paul Williams, CEO at Derwent London]

I'll just make the point, as you get towards the end of a lease

[Paul Williams, CEO at Derwent London]

The income drops off. Values have to take that into account. You move towards, essentially, a vacant possession value. It's quite natural to see things like that falling in value. That's really what we're talking about here when we've seen we've got shortening leases, some vacancy, that's got an impact on individual property valuations. That's been driving those falls at the tail.

[Paul Williams, CEO at Derwent London]

Some of those are opportunities as well for future refurbishments or for others. If you look at ourselves today through quite difficult macro environment, just 3% below book, I think is a pretty positive story with a range of different properties. With any portfolio, you're always going to have some really good winners and occasional few losers.

[Paul May, Analyst at Barclays]

Yeah. As I say, it's just more on the assets earmarked for disposal.

[Paul Williams, CEO at Derwent London]

Yeah.

[Paul May, Analyst at Barclays]

We've seen with others that they write those down quite aggressively, then sell in line with book. I just wondered if that was something that you were doing as well or looking to do, or whether the valuers were minded to do that, to obviously save themselves.

[Damian Wisniewski, CFO at Derwent London]

I wouldn't say we've done it like that, but a building like Page Street, for example. This time last year, it was occupied by Burberry. Currently, it's empty. It's on the market. The value's fallen quite a bit, but that's mainly because it's now vacant. There we go.

[Paul May, Analyst at Barclays]

Makes sense. Cool. Last one. You highlighted an increased confidence in your FY 2030 EPS target, I assume, driven by stronger operational performance. Given your comments, is it fair to assume you're now towards the top end of the 25%-30% range? What would it take for you to increase that target?

[Paul Williams, CEO at Derwent London]

Damian, you can answer that question.

[Damian Wisniewski, CFO at Derwent London]

Yeah. Well, you know I'm usually quite careful with these things. 2030 is way away. Our model has strengthened since we last reported, but I didn't think it was right to upgrade guidance four years in advance. We're feeling more confident, but we're maintaining guidance. If you can say, I can say I'm a little bit more confident even than I was in February, if that helps.

[Paul May, Analyst at Barclays]

Perfect. Thank you.

[Damian Wisniewski, CFO at Derwent London]

Thank you.

[Paul Williams, CEO at Derwent London]

Thank you, Paul. Zach.

[Zachary Gauge, Analyst at UBS]

Yeah, thanks. It's Zachary Gauge from UBS. A couple of questions. First one, just to wrap up on the EPRA earnings guidance upgrade for 2026, how much of that is driven by the higher capitalized interest versus organic things that we should be thinking about as a run rate into H2? Obviously you were originally guiding a 20% increase in H2, presumably that's now flattened out largely because of the capitalized interest. Please let me know if there's other things to take into account as a run rate into H2. The second one is on share buybacks.

[Zachary Gauge, Analyst at UBS]

You did mention that's still part of the capital allocation framework going forward, given the shares are now GBP 20.21 versus where they were when you first announced an intention, do you have a level where you think they actually don't make sense, given in particular the P&L yield you'd have to sell at for them to make sense is considerably lower than it was three, four months ago?

[Paul Williams, CEO at Derwent London]

Do you want to start with the EPRA—

[Damian Wisniewski, CFO at Derwent London]

Yeah, no, I'll start.

[Paul Williams, CEO at Derwent London]

—earnings?

[Damian Wisniewski, CFO at Derwent London]

On the earnings, I think there are winners and losers. One of the things that's changed in the second half compared to where we were in February, we were expecting a rate cut later in the year, so our finance costs were a bit lower in H2, which is one of the reasons for the upgrade in February for H2 versus H1. That's gone the other way today. I'm now expecting, in accordance with the market, probably one rate increase. That has an impact on H2. H1 was quite a bit stronger than we expected. The capitalized interest really is offset by the later rented Network W1 pretty closely. There's really other things around the portfolio and a bit of cost reduction that's driven that increase. It's basically organic growth in the portfolio. There has been a shift because of the interest rate change.

[Damian Wisniewski, CFO at Derwent London]

That's the main difference. The other point is we've got Page Street on the market. It's vacant currently. The longer we hold it, the more that hits earnings in H2. That's a little bit difficult to be sure. We've modeled it on the basis we sell at the end of the period. If we were to sell it a bit earlier, we could perhaps be a bit stronger still. It depends on individual buildings like that. Hope that helps.

[Paul Williams, CEO at Derwent London]

Do you want to have a go at the buyback?

[Damian Wisniewski, CFO at Derwent London]

On the buyback, yeah. It still works at this level. We're only going to look at buybacks in the future if we've got surplus capital. If the disposals go very well, we've got surplus capital, we then look at the model, where can we best allocate it. If at that stage a buyback still makes sense, we will consider one. I think today, let's finish this one first, and we've got lots of interesting things to spend the money on. Thanks, Zach.

[Zachary Gauge, Analyst at UBS]

Thanks.

[Adam Shapton, Analyst at Green Street]

Morning. Adam Shapton at Green Street. A quick one on Old Street Quarter. Have you had any approaches to buy the site pre-planning or buy your option, as it were?

[Paul Williams, CEO at Derwent London]

Obviously, I wouldn't want to reveal anything that's commercially sensitive. We have had some approaches. There's some interesting things. Our focus is getting planning permission. We've got a very interesting scheme working very well with Related Argent. We have been talking to a few people, early days because it's a two-and-a-half acre site in central London, it's bound to attract certain interest. We'll let the market know once and if we do anything. Actually the focus for the time being is obviously to get the planning permission. We're working very well, Rich, Paul, and his team on both with Islington and GLA. We will consider how we might de-risk. We've always said it is extremely unlikely we would deliver it ourselves. We've got Related Argent helping us, we'd obviously look at options to de-risk.

[Paul Williams, CEO at Derwent London]

We get people knocking on doors quite regularly, not just on things like that, but also, "Can we buy this? Can we buy that?" Because strength of the portfolio. We'll let you know when we've got some news.

[Adam Shapton, Analyst at Green Street]

Of course. That's very clear. Thanks. On flex within the portfolio. You're indicating growth to 15% of the portfolio. I think six months ago, the indication was 10%-15%. I guess if we go back a couple of years, it might've been we're happy at five or whatever it is. That's growing, and I understand that's the way the market is moving. Can you talk a bit about the shape that that takes? Is that going to be 30% of certain buildings, or is it going to be entire buildings? One technical point on ERVs. When you say the Stephen Street flex letting that happened in the first half was an 11% beat to ERV, is that on a flex ERV or a more conventional—

[Emily Prideaux, Executive Director at Derwent London]

Yeah.

[Adam Shapton, Analyst at Green Street]

—ERV?

[Emily Prideaux, Executive Director at Derwent London]

I'll answer the second bit first because that's a shorter answer. Yes, we move our ERVs up as we add the CapEx for the additional CapEx when we're turning it to flex. That is against a flex ERV, i.e., it would be a higher beat if it was against the Cat A ERV.

[Adam Shapton, Analyst at Green Street]

Okay. Just as a sort of bigger picture follow-up on that, the ERVs you talk about for the whole portfolio, is that—

[Emily Prideaux, Executive Director at Derwent London]

There'll be a blend of both Cat A and flex.

[Adam Shapton, Analyst at Green Street]

Yeah. Okay. That will naturally move up as well as you convert more to flex ERV.

[Emily Prideaux, Executive Director at Derwent London]

Yes.

[Adam Shapton, Analyst at Green Street]

Okay.

[Emily Prideaux, Executive Director at Derwent London]

Going back to your first question in terms of the flex, the growth that we're projecting here is based on growth within our portfolio, i.e., not buying in specifically for that purpose. As the market's moved, we appraise everything under 10,000 sq ft now on the basis of both flex and Cat A. More often than not, we'll deliver everything under 5,000 sq ft almost certainly, and occasionally we do the larger space takes between five to seven. That growth factors in those units that we know are coming vacant in the coming years of that size, effectively. In terms of what the shape of it looks like, we have now more self-contained buildings, particularly in Fitzrovia, where they will be fully flex buildings on the smaller side. The growth is also, well, two of the schemes we discussed will push some of that growth.

[Emily Prideaux, Executive Director at Derwent London]

Middlesex House, for example, we were going to deliver 50% flex. We're now probably likely to deliver 100%. Greencoat House is about 50/50 flex to Cat A, depending on where the demand lands. Those two are fairly chunky increases, if you like, that are feeding into that number.

[Adam Shapton, Analyst at Green Street]

The ERVs for those projects—

[Emily Prideaux, Executive Director at Derwent London]

The ERVs at the moment—

[Adam Shapton, Analyst at Green Street]

—are flex.

[Emily Prideaux, Executive Director at Derwent London]

—are appraised on the 50/50 for both. They will probably move as we agree to sign off the CapEx for more at Middlesex in the next half.

[Paul Williams, CEO at Derwent London]

Thank you, Adam. Any other questions from the room? Robbie, have we got any questions on the webcast?

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

We do. Thank you for that. There's quite a few sort of around a theme. Rather than read the individual questions, what I'm going to do is sort of amalgamate them, combine them. Principally, the main one is two around share buybacks and around Old Street. Excuse me. Broadly speaking, looking at the economics of a buyback as the share price has gone up, can we talk about how we think about the economics of it and then on a risk-adjusted basis relative to, say, the returns on other sources of capital redeployment, like development?

[Paul Williams, CEO at Derwent London]

Do you want to deal with that?

[Damian Wisniewski, CFO at Derwent London]

Yeah, I guess I can. We've obviously announced our first buyback. I think that's gone pretty well. I think going forwards, there's a balance here between short-term gain. The buybacks, even at today's share price, are obviously quite accretive to NTA. What you give up is the ability to grow earnings. We're talking more and more about earnings in this sector. I think it's been interesting having the questions today. The important thing for this business is to be really investable, and we're looking at the strong earnings growth through to 2030. That comes from investing in the schemes rather than doing buybacks. I think at the moment, really the share buyback issue really only arises when you've got surplus capital. If we were to make additional disposals over and above our expectations today, we then have a decision to make.

[Damian Wisniewski, CFO at Derwent London]

What do we do with the spare capacity? Do we invest it into new acquisitions? Do we do more development? Do we do a buyback? At the time, we'll look at those things in their entirety, and we'll balance it out.

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

Great, thank you. Then looking at the Old Street quarter provision, you've sort of answered, you gave some good detail earlier on. Is there anything that suggests there's going to be more through the second half?

[Damian Wisniewski, CFO at Derwent London]

The provision booked at June is based on our views at June and the judgments we've made. If those judgments change, the provision can go up or down. I think we have to wait and see how we feel. Very much the focus today is getting the planning application in. That's the way we can generate the most value, whatever we do. Plan for the next six months or so, get that planning application in, maximize the value creation. The provision will largely come down to how we decide to deliver. How much of this do we do ourselves? How much do we de-risk? As Paul's mentioned, we've got people interested in the site. The less we do, the less we can take those development profits ourselves. The more CapEx we save, and the more we can do perhaps a share buyback with it.

[Damian Wisniewski, CFO at Derwent London]

There's a lot of things to balance here. We can't answer where we'll be in six months' time. I'm looking forward to that in six months' time. For the time being, we're comfortable we've made a good start. The focus is very much on the planning application.

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

Two more technical questions. The first links to total property return versus the MSCI Central London Index. Is there anything specific that led to the underperformance in the first half?

[Emily Prideaux, Executive Director at Derwent London]

Yeah.

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

The second, sorry, just the second one is—

[Emily Prideaux, Executive Director at Derwent London]

Yeah.

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

—on Page Street, the vacancy there, is that within the like for like GRI performance that we presented?

[Emily Prideaux, Executive Director at Derwent London]

Do you want to do Page Street first?

[Damian Wisniewski, CFO at Derwent London]

Yeah. Page Street is currently not in the like for like. We're stripping it out, so it's not available for let. Not in the EPRA portfolio.

[Emily Prideaux, Executive Director at Derwent London]

In terms of the MSCI, it's a good question. Hopefully you're aware we do normally comfortably beat the MSCI. We have been in touch with MSCI, as I know others have, and we think this is relating to the data set of this half, where a lot of low-yielding development stock has come into the data set, which we think is slightly distorting the numbers. The MSCI pool has also got a bit smaller, we think it's relative to that low-yielding stock that's coming through.

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

Lovely. That is all the questions on the webcast. Back to you, Paul.

[Paul Williams, CEO at Derwent London]

Well, thank you very much for everyone attending today. Thank you again for all your friendship and support and interesting questions over the years. I'm going to miss these moments. I will watch Derwent not from afar, but closely, and I'm very confident of good progress. Anyone got any further questions they want to ask later, the team is around. For those who've not had a holiday yet, go and have a nice break. Got lovely weather. Enjoy yourself, and thank you again.

Participants

Executives

• Paul Williams, CEO
• Damian Wisniewski, CFO
• Emily Prideaux, Executive Director
• Robert Duncan, Head of Investor Relations and Strategic Planning

Analysts

• Jonny Coubrough, Analyst at Deutsche Numis
• Paul May, Analyst at Barclays
• Zachary Gauge, Analyst at UBS
• Adam Shapton, Analyst at Green Street