Derwent London Says Brexit May Slow Letting; Lowers Guidance -- Update
August 11 2016 - 8:39AM
Dow Jones News
By Olga Cotaga
(Adds analyst comments and share price.)
LONDON--Derwent London PLC (DLN.LN) said the uncertainty caused
by the U.K. vote to leave the European Union is going to take a
toll on the London office market, and as a result, lowered its
expectations on how much in rent it will be able to get in
2016.
"We recognize that, in the short term, political and economic
uncertainty is likely to lower demand," Derwent said.
Derwent, a real estate investment trust with assets in central
London, said it now expects the estimated rental value of its
portfolio to grow between 1% to 5% in 2016, down from a 5% to 8%
previously-guided growth.
Chief Executive John Burns said the change in rent value
expectations comes "from being cautious" and that he would "like a
surprise on the upside."
Derwent said yields might rise marginally in the second half of
the year in response to a lower demand.
After the company ended its half-year period, it had let a total
of 112,600 square feet, almost half of the lettings agreed on in
the six months to June 30. UBS, who had a 'buy' rating for the
company, said these six months were Derwent's "most active
half-year ever."
Just 2% of the commercial space Derwent rents is empty.
Derwent targets middle market rents in areas such as Islington,
Shoreditch and Whitechapel, and only 2.3% of its June rental income
came from tenants in the financial sector.
One of Derwent's big developments, the White Collar Factory,
that is next to the Old Street roundabout, is 56% pre-let, said Mr.
Burns, adding that companies such as Adobe and Capital One are
among those who have reserved some of the office space. The office
tower of the development is 70% pre-let.
The rent agreed on at the White Collar Factory is above the
estimated rental value, the company said. Construction at the
293,000 square feet development is due to complete at the end of
2016.
Other major developments due over the next 18 months are 58%
pre-let.
The chief executive said the company hasn't made any changes to
its developments after Brexit, but reiterated on its cautious
outlook.
UBS said there is a possibility for Derwent to defer its Brunel
building in Paddington after 2019, but added that most probably the
company will go ahead with the scheme as planned. The Brunel
development is expected to be completed in the first half of
2019.
The board raised the interim dividend by 10% to 13.86 pence a
share.
Derwent made a pretax profit of GBP98.5 million ($127 million)
for the six months period, much less than the GBP405 million for
the same period last year, despite gross property and other income
rising to GBP101.4 million from GBP91.1 million.
The revaluation surplus this half-year was of GBP64.5 million,
smaller than the GBP361 million a year earlier. Derwent's adjusted
profit before tax rose 15% to GBP44.8 million.
Shares were down 3.3% at 2725 pence.
Write to Olga Cotaga at olga.cotaga@wsj.com, Twitter
@OlgaCotaga
(END) Dow Jones Newswires
August 11, 2016 08:24 ET (12:24 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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