UPDATE 1-Derwent NAV falls, but London lettings rise

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LONDON, Aug 29 (Reuters) - Real estate investor Derwent London (DLN.L) said its adjusted net asset value fell by 9.1 percent in the half year to the end of June as the property market in the UK capital showed increasing signs of stress.

Derwent London, which specialises in office redevelopment and investment mainly in London's West End district, posted a half-year adjusted net asset value of 1,637 pence per share after the value of its portfolio slipped 161.9 million pounds ($296.5 million) to 2.5 billion.

While Britain's deepening property depression continued to erode the value of its assets, Derwent said tenant demand for its affordable, well-located space remained strong.

The company said it had let 26,700 square metres of space in the period, generating an 11 million pounds increase in annual rental income, almost 3 million pounds more than the group generated in new rental income in the whole of 2007.

Against the slowing economic backdrop, it said it had squeezed its overall vacancy level to 4.2 percent from 4.5 percent and made a profit of 2.1 million pounds on 56 million pounds worth of sales of non-core assets. "Notwithstanding difficult times, the group remains in a strong position," said Chairman Robert Rayne in a statement. "The portfolio contains latent value to be unlocked over future years."

Derwent's gross property income rose 13.9 percent to 57.5 million pounds over the period and it said it would raise its interim dividend 8.7 percent to 8.15 pence. Recurring pretax profit climbed to 17.3 million pounds versus 12.3 million a year before. (Reporting by Sinead Cruise; Editing by David Holmes) (See www.reutersrealestate.com for the global service for real estate professionals from Reuters)