Derwent London reports strong leasing activity

(Sharecast News) - Derwent London said on Tuesday that leasing activity had remained strong so far this year, as the property investor announced a £50m share buyback and said it had exchanged contracts on £278m of disposals.

The FTSE 250 London office landlord said year-to-date leasing totalled £25.3m, including £20.0m of new leases and £5.3m of renewals and regears.

Open-market lettings were 5.2% ahead of December 2025 estimated rental value, with a further £6.7m under offer.

At Network W1, Derwent has pre-let all office space to Databricks for £14.1m at an average rent of £103 per square foot, or £125 per square foot on the best space.

The rent was 5% above December 2025 ERV and 22% above the company's original underwriting, with the two retail units also let or under offer.

Network W1 reached practical completion on 5 May, and Derwent said the leases were expected to commence in mid-May.

Together with 25 Baker Street W1, the scheme is expected to add £18.9m of incremental rental income in 2026.

The company said its EPRA vacancy rate rose to 5.2% in the first quarter from 4.1% at the end of December, but had subsequently fallen so far in the second quarter.

Derwent said it had exchanged contracts on £278m of disposals year-to-date, at a blended 5.8% initial yield and about 3% below December 2025 book value, as part of its three-year target to sell £1bn of assets.

The disposals included Horseferry House SW1 for £131.8m, or £129.3m net of rental top-ups, with completion due in June; 90 Whitfield Street W1 for £110.5m, due to complete in August; and 80-85 Tottenham Court Road W1 for £32.6m, due to complete in June.

The group has also sold or exchanged on 26 private residential units at 25 Baker Street W1 for £120.9m, including £5.2m in the latest period. It said it was in discussions on a further £120m of potential sales and was reviewing additional assets for disposal.

Chief executive Paul Williams said Derwent had seen "strong activity across the business driven by significant leasing, including the pre-letting of Network at rents well ahead of appraisal".

"Good progress has been made on disposals, with contracts exchanged on £278m of properties in line with our three-year target of £1bn and we are actively engaged in further sales," he said.

Derwent said it had committed to the redevelopment of 50 Baker Street W1, a 236,000 square foot project where it is targeting an ungeared internal rate of return of more than 12%.

Demolition is expected to start in the coming months, with completion anticipated in the second half of 2029.

Three other projects totalling about 290,000 square feet are currently on site, where Derwent is targeting ungeared IRRs of more than 10% based on current rents.

Those include Holden House W1, where demolition is underway and completion is expected in the second half of 2028; Greencoat and Gordon House SW1, where refurbishment works have started and completion is expected in the second half of 2027; and Middlesex House W1, where vacant possession has been secured and completion is expected in the first half of 2027.

The company said its balance sheet, recent disposals and operational momentum had created capacity to return capital to shareholders without compromising growth plans.

It said the £50m buyback was expected to begin on 18 May, following its annual general meeting on 15 May.

"This has enabled us to commit to the redevelopment of 50 Baker Street as planned, where we are seeing very strong rental growth which will further enhance profitability and future earnings, as we continue to selectively invest where we see attractive risk-adjusted returns," Williams said.

"Aligned with our disciplined approach to capital allocation, we are also announcing a £50m share buyback programme which we intend to commence on 18 May."

Net debt was broadly stable at £1.46bn at the end of March, compared with £1.45bn at the end of December, while EPRA loan-to-value was unchanged at 29.4% based on December 2025 valuations.

Derwent said it redeemed two facilities at maturity during the quarter, comprising £55m of 2.68% private placement notes and £175m of 6.5% LMS bonds.

That reduced its weighted average interest rate to 3.9% from 4.1% at the end of December.

Cash and undrawn facilities stood at £383m at the end of March, down from £627m at the end of December, before taking account of the £278m of disposals due to complete in the next few months.

Fitch reaffirmed Derwent's long-term issuer default rating at BBB+ with a stable outlook on 8 May, and its senior unsecured debt rating at A-.

The company said its near and medium-term earnings guidance was unchanged, adding that it remained focused on driving income growth and returns. Its final 2025 dividend of 56.0p per share is due to be paid on 29 May, comprising a 40.0p property income distribution and a 16.0p conventional dividend.

At 0934 BST, shares in Derwent London were down 0.46% at 1,718p.

Reporting by Josh White for Sharecast.com.

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