When Damian Wisniewski arrived at commercial property developer Derwent London in 2011, the UK economy was still in a nervous state- with fear of a double dip recession on many people’s minds.
But the London-focused group has rallied in the years Wisniewski has been running its finance function, capitalising on the buoyant market for commercial property at the heart of the capital.
In its 2017 results, Derwent London said demand by companies to rent large amount of space had seen 45% of its 623,000 sq ft of space under construction already pre-let. It has also doubled the size of its development pipeline with planning consent last year to 853,000 sq ft.
Its rental income increased 10.4% on the previous year to £161.1m, thanks to a record number of new lettings during the 12 month period.
Wisniewski was well prepared for the role, having landed senior roles at an early age-including 13 years spent under entrepreneur Elliott Bernerd at the property group Chelsfield he built up.
Combining the confidence of a pianist at the Royal Academy of Music where he is now a trustee and precision of an engineering degree gained from Imperial College London, he was well prepared for Chelsfield’s meteoric growth including its flotation.
Senior finance roles that followed at Wood Wharf Limited Partnership and Treveria Asset Management, brought their own challenges. The first required managing the complex politics of three owners and the latter addressing the difficulty of debt that overshadowed the company’s assets. “It was a tricky time, but then you learn quite a lot about managing in crisis,” says Wisniewski.
Capitalising on experience
These previous roles prepared him for Derwent London, formed from a 2007 merger, that he says “really brought all these things together.” Derwent London had come through the financial crisis well- the only one of the big REITS (real estate investment trust) not to need a deeply discounted rights issue.
But despite a relatively strong balance sheet, Derwent London was in “lock down mode” over fears of a double dip recession. The time was right to seek out value add projects.
“The early days were about building this up- but in such a way it didn’t threaten the business in any way,” says Wisniewski. “It was bringing projects on, bringing in more flexible financing from a largely secured pattern to unsecured- which gave us much more flexibility.”
The result has been that in the last 3 years, Derwent London has both grown the value of its assets while increasing its earnings by around 65%, and the divi by 50%.
Wisniewski says that’s vital as “a real estate business is valued essentially on the back of its cash flow. In order to build up cash flow you have to take risk, but it’s also matter of balance,” he adds.
“If you look at our balance sheet and earnings over the last few years you will see that there’s quite a nice smooth transition on both. That needs a lot of forward planning and scenario planning,” he says.
Now the group is to focused on capturing the continued upside of the London property market, that remained surprisingly buoyant despite the ruptures caused by the 2016 Brexit referendum. “The business is in particularly good shape- we’ve got very low leverage,” says Wisniewski.
Derwent London sold about £500m worth of property last year, which is more than the group intended to sell, because market conditions were very strong, providing cash to fund future developments as well as paying out a special dividend.
The next stage requires ‘capturing reversion’, industry speak for converting income from the value created from acquiring assets. “The job of the last few years has been very much to focus on that, to get the next generation of projects that will drive the reversion,” she says.
Ond of the challenges has been acquiring new properties-with favoured shorter leases and low rents- “buildings that need money spent on them in improving areas,” says Wisniewski. “People were holding on because they didn’t want to lose the income.”
Derwent London is well placed with 5-10 years’ worth of projects to keep its team busy. In the meantime, projects such as Soho Place, above the Tottenham Court Road Crossrail station, one of its biggest ever, are ongoing.
“Low leverage gives you the opportunity to take on different levels of risk, but what we tend to do is start projects off, so that pushes the risk profile up, we then de-risk them as we go along,” says Wisniewski. “We then look to bring tenants in. It’s very rare for us to finish a project without having all of it let,” he insists.
How positive is he about the central London commercial market? “We’re slightly surprised how well it’s gone. But our shares are trading at a discount, as are the other London office players as well. Would we be at the same discount without Brexit? Probably not,” he suggests.
Wisniewski is confident about London, where the group has all its assets, in a set of hubs in emerging locations such as those near Crossrail stations. “The city has got some fantastic attributes that will not disappear with Brexit, we’ve got a fantastic group of people working here- from the UK but also from around the world, we’ve got the language, the legal system, the education system, as well as the culture of London,” he says.
“The other thing that I think has been fascinating has been that big companies have committed to London post the Brexit decision,” says Wisniewski.
“Brexit did not stop Facebook, Google, Apple, Expedia committing huge amounts of capital to this city on the basis that they can still attract great people to work here. I feel that’s really important for London because those big companies bring smaller companies with them, the satellite companies that follow,” he adds.
Wisniewski even asserts that a slightly cooling off was possibly welcome. “London was probably due to grow at a rate that was too aggressive, before the Brexit vote. We still think there will be people working- it may be slightly slower than it would have been, but that might not be actually such a bad thing,” he says. “The fact there has been less building in the West End and the areas we focus on has also helped to sustain rents. So we’re not seeing rents fall yet.”
Sticking to the knitting is important. “London is a huge city- there is enough for us here,” says Wisniewski. “One of the things we and our shareholders like is the fact that we have this focus and we haven’t been persuaded to move into areas we don’t know very well.”
Voted by Corporate Knights as one of the world’s 100 most sustainable companies in its latest list, means a lot to a company that takes it value system seriously. “It’s hugely important and its becoming increasingly important,” says Wisniewski.
“It’s partly about what we do and its partly about how we’re seen externally, as part of the community. Buildings don’t mean very much on their own, they’re occupied by people and it’s not just the people in the building, it’s the people around the building that make them work,” he adds.
“We have clusters of buildings –equating to quite a lot of ownership in some areas- so you can start to make a real impact. That’s vital when reputation of a business is so important, as is trust and building confidence in relationships, these are the things that stand out,” says Wisniewski.