Derwent London is to return to the development market in order to time new buildings for the next property cycle.

The central London office specialist is not currently developing projects but John Burns, chief executive, said it was looking at starting smaller schemes.

He said developments in the West End would be timed to meet expected improvements in market conditions towards the end of 2011.

Derwent on Tuesday re­ported that net asset value per share fell almost a fifth to 993p in the six months to June 30, broadly in line with forecasts, after its investment portfolio fell 12 per cent. This wiped £254m from the value of its £1.9bn property portfolio, but still outperformed the quarterly index.

It said rental values were down 11 per cent in the first half of the year, compared with a 4.6 per cent decrease in the second half of 2008. Lettings were about 10 per cent below December valuations, although the company said it had seen signs of stabilisation.

The drop in its investment portfolio contributed to a first-half pre-tax loss of £223.3m, from a loss of £144.7m a year earlier. The initial yield on the portfolio, including rent-free periods, moved to 6.8 per cent, from 6 per cent at the year end. The interim dividend is maintained at 8.15p.

Derwent was one of the few listed property companies not to tap shareholders for cash, either to rescue its balance sheet or for acquisitions.

Mr Burns played down the likelihood of any cash raising, although he did not rule it out in order to find specific acquisitions. The group had committed facilities of £309m at the end of June, and is operating comfortably within its banking covenants.

The loan to value ratio was 44.3 per cent, from 39.7 per cent at the year end, while balance sheet gearing increased from 71.2 per cent to 86.2 per cent. It will close a further £71m of disposals before the end of September. The group has no refinancings until 2011.

Shares in Derwent have outperformed the sector, well ahead of peers such as Great Portland Estates and Shaftesbury, and were on Tuesday trading at a premium to net asset value of more than 20 per cent.

Oriel Securities described Derwent as “a quality share with an expensive rating”.

The shares closed down 30p at £12.30.

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