The West End office developer is selling £1 billion of assets and promising 30% earnings growth by 2030, but analysts argue the strategy that made Derwent's reputation no longer works
Derwent London PLC (AIM:DLN) has a problem that a disposal programme and long-dated earnings guidance cannot easily fix. Jefferies downgraded the REIT to underperform on Thursday, cutting its price target from 1,820p to 1,550p, a level that implies a further 15% fall from the current 1,830p and sits at a 44% discount to its estimated 2026 net asset value of 3,282p.
Why the model is broken
The heart of the Jefferies critique is structural. Derwent built its reputation on a "drop, build, sell, repeat" merchant developer model, acquiring buildings, redeveloping them, and crystallising profits on disposal.
That model depended on a set of conditions that no longer hold. Construction costs have roughly doubled. Valuation yields have risen by around 100 basis points over five years. Interest rates have normalised. The profit in the development cycle has shrunk significantly as a result.
What the numbers show
Full-year results confirmed the squeeze. EPRA earnings per share fell 7.6% to 98.4p, NAV rose only 2.4% to 3,225p, and the portfolio revalued by just 1.7%. Net debt to EBITDA stands at 9 times. The dividend crept up 1% to 81.5p.
In response, management announced plans to sell £1 billion of assets over three years, roughly 20% of gross asset value, with proceeds recycled into developments, acquisitions, and share buybacks. EPRA earnings growth of 25% to 30% by 2030 is the target.
Jefferies is unconvinced. With anaemic near-term returns, a stretched balance sheet, and questions over future development yields, the bank sees little to motivate the shares from here.