Derwent London Posts 5% Total Return, Targets £1bn Disposals and Upgrades 2026 Outlook

Derwent London’s 2025 scorecard and an upgraded 2026 outlook

Derwent London has posted a steadier year, with values turning up and leasing momentum building. Total Accounting Return (TAR) rose to 5.0% in 2025 as EPRA Net Tangible Assets (NTA) climbed 2.4% to 3,225p. The dividend nudged up 1.2% to 81.5p, marking the 18th straight year of growth.

The bigger story is forward-looking. Management has upgraded 2026 portfolio ERV growth guidance to 4% to 7% and is targeting £1bn of disposals over the next three years to recycle into higher-return projects, selective acquisitions and potential buybacks. They also flag medium-term TAR of 7% to 10% per annum and 25% to 30% EPRA EPS growth by 2030.

Key numbers investors should know

Leasing, values and disposals: where the momentum is

Leasing ahead of market rent

In 2025 Derwent signed £11.3m of new leases at 9.9% above December 2024 ERV (estimated rental value – the valuer’s view of market rent). Flex demand stayed firm, with £2.7m of lettings on ‘Furnished + Flexible’ terms.

That pace has quickened into 2026: £1.5m has completed year-to-date, £14.4m is under offer (including all Network W1 offices), and a further £4.4m is in negotiation. This is exactly what you want to see heading into a supply crunch for Grade A space.

Asset management delivering rent uplifts

It was a record year of asset management: £58.9m of activity across 74 deals delivered a 6.4% rent uplift on average. Standouts included an 8.4% review uplift for BCG at 80 Charlotte Street W1 and Adobe’s expansion and regear at White Collar Factory EC1, pushing the WAULT to break to 8.3 years there. EPRA vacancy moved up to 4.1% as space was taken back for projects, but remains low.

Disposals stepped up and more to come

• 2025 disposals totalled £216.1m, including Francis House SW1 (£54.1m) and 4 & 10 Pentonville Road N1 (£26.0m).
• In 2026 so far, the Group has exchanged on 80-85 Tottenham Court Road W1 for £32.6m (a 6.5% premium to December 2025 book) and has c.£240m under offer.

Management now targets £1bn of disposals over three years. Of that, c.£500m is earmarked for development capex; after allowing for the £239m Old Street Quarter EC1 acquisition in late 2027, there’s c.£250m of surplus capital for opportunities such as selective acquisitions and potential share buybacks. This capital recycling is central to the strategy.

Development pipeline: pre-lets, IRRs and a solar kicker

• 25 Baker Street W1 completed in August 2025. Offices 100% pre-let; profit on cost 21%, 7.5% yield on completion and 11.3% ungeared IRR. Residential sales (24 of 41 units) brought in £118.1m proceeds.
• Network W1 (141,200 sq ft) is completing imminently with all offices under offer. Remaining capex to complete 25 Baker Street and Network totals £19m.
• Holden House W1 is on site (completion H2 2028). Greencoat & Gordon House SW1 and Middlesex House W1 are due to start in 2026, with targeted ungeared IRRs of at least 10% and yields on completion above 6.5% across the near-term trio.

There’s also a strategic sustainability angle: the 18.4 MW Lochfauld solar park is expected to energise in H1 2026, generating c.40% of the London managed portfolio’s electricity. Management expects a yield on cost above 9% and c.£1.5m net annual income – both financially attractive and a helpful offset to rising energy costs.

Valuation and reversion: room to grow income

Portfolio values rose 1.7% in 2025, led by a 7.6% uplift on the three on-site West End developments (25 Baker Street, Network W1, Holden House). The West End was +2.2% overall; City Borders dipped (0.9)%. ERV growth of 4.0% was in line with guidance, now upgraded to 4% to 7% for 2026.

The reversionary potential is sizeable at £87.0m, split across major projects (£40.2m headline ERV), smaller refurbishments (£17.4m), letting EPRA vacancy (£11.2m) and reviews/expiries (£18.2m). In plain English: there’s embedded growth to capture as projects complete, incentives burn off and leases reprice.

Balance sheet and funding: solid, with a watch on interest cover

EPRA LTV is 29.4%, comfortably within the sub-30% target, and cash and undrawn facilities total £627m. Net debt/EBITDA improved to 9.0x (from 9.3x), within the Board’s <9.5x guardrail. The Group refinanced extensively in 2025, issuing £250m of 5.25% 7-year unsecured bonds, extending the £450m RCF to July 2029 and repaying the £175m convertible bonds.

Two near-term items to note: £55m of USPP notes were repaid in January 2026 and £175m LMS secured bonds will be redeemed in March 2026. Management expects the weighted average interest rate to dip to below 4.0% by the end of Q1 2026 (from 4.06% at year-end). Interest cover, however, fell to 3.1x from 3.9x, reflecting higher interest costs post-refinancing.

Guidance and what it means for shareholders

• 2026 ERV growth raised to 4% to 7%.
• Near-term EPRA earnings reduction until Network W1 income commences; growth expected in H2 2026 and into 2027.
• Targeting £1bn disposals over three years to fund high-return projects and potentially buy back shares.
• Medium-term ambitions: 25% to 30% EPRA EPS growth by 2030 and TAR of 7% to 10% per annum “over the coming years”.

Positives, pressures and things to watch

What’s working

• Leasing is consistently above ERV, and 2026 has a strong pipeline under offer.
• Development value-add continues to land – 25 Baker Street’s 11.3% IRR is a good proof point.
• Valuation stabilisation and an upgrade to rental growth guidance signal firmer market conditions.
• Balance sheet metrics remain disciplined: EPRA LTV 29.4%, liquidity £627m.
• Solar park offers both strategic and financial benefits, with >9% yield on cost.

Where the risk sits

• EPRA EPS fell 7.6% to 98.4p and interest cover dipped to 3.1x after mid-year refinancing.
• Management guides to a near-term earnings dip before Network W1 income flows – expect H1 2026 to be softer.
• Execution risk around the accelerated £1bn disposal plan – pricing and liquidity must hold.
• EPRA vacancy rose to 4.1% due to project preparations; needs re-leasing or completion to capture reversion.
• Leadership transition: the CEO has announced plans to retire; a comprehensive recruitment process is underway.

Josh’s take: how I’d frame it as a holder

This is a measured turn in the cycle for Derwent: rents are rising, yields have steadied, and the company is using disposals to double down on the parts of London where it has always outperformed. The leasing updates for 2026 are the clincher – all Network W1 offices under offer in a market starved of Grade A space is exactly the setup you want for capturing reversion.

The trade-off is near-term earnings pressure from higher interest costs and the timing lag before new income kicks in. Interest cover at 3.1x is acceptable but leaves less room for shocks; delivering the disposal plan at good prices will matter. On balance, with ERV guidance raised, a clear pipeline of IRR-heavy projects, and LTV kept in check, the medium-term targets of 7% to 10% TAR and 25% to 30% EPS growth by 2030 look credible – provided the team executes on sales and leasing.

For income investors, the dividend rose to 81.5p and is covered c.1.2x by EPRA earnings. For growth investors, the embedded £87.0m reversion and the West End development slate are the levers to watch through 2026-2028.