First Read: Derwent London "£50m Buy Back Program Announced" (Sell) Gauge

Research evidence excerpt

First Read: Derwent London "£50m Buy Back Program Announced" (Sell) Gauge

Forecast returns

Forecast price appreciation -4.4%

Forecast dividend yield 5.0%

Forecast stock return 0.6%

Market return assumption 9.4%

Forecast excess return -8.8%

Company Description

Derwent London is a property investment, development and refurbishment REIT. It specialises

in the London office market, with significant holdings in Fitzrovia (near Tottenham Court

Road) and the Tech Belt (on the fringe of the City, near the Old Street roundabout). Around

half the portfolio has a long-term development angle.

Valuation Method and Risk Statement

The real estate sector can be cyclical and faces risks at a number of levels. First the level of the

economy both macro and local can adversely affect demand and the ability of tenants to pay

rent. Excessive levels of supply can also lead to falling rents. Rising interest rates can impact

the security of the tenant base, lower development margins significantly, and reduce

investment appetite. Interest rates, bond yields and the relative attractions of other asset

classes can all impact property values. Property values can also be affected by changes in

planning, taxes, technology and lease structures. These risks can be amplified in the real

estate sector through development exposure, gearing and the rating. Derwent London’s

portfolio is focused on Central London offices, and therefore share price performance is part

dependent on investment sentiment towards the outlook for that market. It has an active

approach seeking to acquire properties, which offer opportunities through redevelopment

and refurbishment. The group also seeks to sell those properties, which it believes provide

little scope for physical or tenure improvement.