TIDMDLN
RNS Number : 0771I
Derwent London PLC
10 August 2021
10 August 2021
Derwent London plc ("Derwent London" / "the Group")
ACQUISITION OF TWO WEST PROPERTIES AND NEW JV WITH
LAZARI INVESTMENTS
Derwent London is pleased to announce three off-market West End
transactions with Lazari Investments.
We have exchanged contracts to acquire two properties in
London's Knowledge Quarter(1) , totalling 182,100 sq ft for
GBP214.6m inclusive of costs. The combined rent is GBP5.3m p.a., or
c.GBP30 per sq ft, reflecting a net initial yield of 2.5%. The two
acquisitions offer considerable opportunities for asset management
and longer- term development opportunities.
In addition, we have signed a detailed memorandum of
understanding with Lazari Investments to establish a new 50:50
joint venture which is expected to acquire three properties already
owned by them in Baker Street W1 totalling 122,200 sq ft. Derwent
London's initial consideration for the joint venture will be
GBP64.4m inclusive of costs and our share of passing rent will
initially be GBP2.6m. The joint venture adds an exciting
development opportunity opposite our 19-35 Baker Street project due
to start later in 2021.
West End Properties
The largest property being acquired is 250 Euston Road NW1 which
totals 165,900 sq ft and sits on a 1.6 acre site(2) . This freehold
office building is let in its entirety to University College London
Hospital ('UCLH') on a lease expiring in 2039. The passing rent is
GBP4.7m or just GBP28 per sq ft, which is subject to 2.5% fixed
annual increases compounded every five years. The next uplift is
due in April 2024 when there is also a tenant break with breaks
every 5 years thereafter. In the longer term, there is an
opportunity to create a larger scheme on this potential Life
Science site. The total consideration is GBP189.9m inclusive of
costs, and the initial yield is 2.5% reflecting the low passing
rent.
The second property acquisition is 171-174 Tottenham Court Road
W1 which lies opposite our Network Building. The purchase is a
freehold office and retail building totalling 16,200 sq ft and is
multi-let, producing an income of GBP0.6m. This property, together
with adjoining UCLH and UCL interests, forms an important strategic
holding in a larger block with longer term development potential.
The total consideration is GBP24.7m inclusive of costs providing a
net initial yield of 2.6%.
Baker Street Joint Venture
The new joint venture is expected to acquire three leasehold
properties: 38-52, 54-60 and 66 Baker Street W1 totalling 122,200
sq ft with a passing rent of GBP5.2m. The leasehold interests range
from 38 to 46 years. The total consideration equates to a net
initial yield of 4.0%.
Together with a fourth property owned by the freeholder, The
Portman Estate, these buildings form a 1.0 acre island site capable
of significant redevelopment. Our preliminary studies show this
could be up to c.240,000 sq ft. Subject to receiving planning on
the larger scheme and a regear of the headlease, we will pay the
vendor an additional GBP7.25m of deferred consideration. There is
the potential to obtain vacant possession at the end of 2024 which
gives the joint venture an opportunity to commence on site just
before completion of our 19-35 Baker Street project opposite,
another freehold owned by The Portman Estate.
Initial impact on Earnings and NAV
We are disclosing the following additional information as this
is a Class 2 transaction.
Based on the initial rental income, we expect the combined
transactions to have a c.GBP4m p.a. positive impact on the Group's
EPRA earnings, assuming a cost of debt of c.1.5%.
The expected current market valuation for the two property
acquisitions is c.GBP198m, 7.8% below the gross purchase
consideration, which approximates to the usual market allowance for
purchasers' costs.
The initial consideration for our share of the joint venture
includes an element of hope value for future planning uplift and
the regearing of headleases. The current market value of our 50%
interest is estimated at c.GBP50m. We anticipate the valuation will
rise significantly upon a successful planning and headlease
regearing outcome.
The purchase consideration will be met from our existing undrawn
facilities and cash.
Paul Williams, Chief Executive of Derwent London, said:
"These are exciting acquisitions in a strong market. We are
further investing in central London's Knowledge Quarter with
potential Life Science opportunities and extending our development
pipeline. We are confident that combining our skills with our
strong long-term relationships with Lazari Investments, UCLH and
The Portman Estate will ensure these growing West End areas
continue to benefit from the provision of best in class, high
quality and sustainable business accommodation."
(1) London's Knowledge Quarter is defined as the small area
around Euston Road, Kings Cross and Bloomsbury which has a very
high concentration of academic, cultural, research, scientific and
medical organisations.
(2) The acquisition has been made through the purchase of units
in a Jersey Property Unit Trust (JPUT), the sole asset of which is
the 250 Euston Road NW1 freehold. According to the unaudited annual
accounts of the JPUT for the year ended 31 March 2021, the JPUT's
net income for the year was GBP4.7m.
For further information, please contact:
Derwent London Paul Williams, Chief Executive
Tel: +44 (0)20 7659 3000 David Silverman, Executive Director
Quentin Freeman, Head of Investor
Relations
Brunswick Group Nina Coad
Tel: +44 (0)20 7404 5959 Emily Trapnell
Notes to editors
Derwent London plc
Derwent London plc owns 81 buildings in a commercial real estate
portfolio predominantly in central London valued at GBP5.4 billion
as at 30 June 2021, making it the largest London-focused real
estate investment trust (REIT).
Our experienced team has a long track record of creating value
throughout the property cycle by regenerating our buildings via
development or refurbishment, effective asset management and
capital recycling.
We typically acquire central London properties off-market with
low capital values and modest rents in improving locations, most of
which are either in the West End or the Tech Belt. We capitalise on
the unique qualities of each of our properties - taking a fresh
approach to the regeneration of every building with a focus on
anticipating tenant requirements and an emphasis on design.
Reflecting and supporting our long-term success, the business
has a strong balance sheet with modest leverage, a robust income
stream and flexible financing.
As part of our commitment to lead the industry in mitigating
climate change, Derwent London has committed to becoming a net zero
carbon business by 2030, publishing its pathway to achieving this
goal in July 2020. In 2019 the Group became the first UK REIT to
sign a Revolving Credit Facility with a 'green' tranche. At the
same time, we also launched our Green Finance Framework and signed
the Better Buildings Partnership's climate change commitment. The
Group is a member of the 'RE100' which recognises Derwent London as
an influential company, committed to 100% renewable power by
purchasing renewable energy, a key step in becoming a net zero
carbon business. Derwent London is one of only a few property
companies worldwide to have science-based carbon targets validated
by the Science Based Targets initiative (SBTi).
Landmark schemes in our 5.4 million sq ft portfolio include 80
Charlotte Street W1, Brunel Building W2, White Collar Factory EC1,
Angel Building EC1, 1-2 Stephen Street W1, Horseferry House SW1 and
Tea Building E1.
In January 2021, Derwent London came top of the Property Sector
and 10th position overall in Management Today's Britain's Most
Admired Companies awards 2020. In the year the Group has won
several awards for Brunel Building with the most prominent being
the BCO Best Commercial Workplace award. In 2019 the Group won EG
Offices Company of the Year, the CoStar West End Deal of the Year
for Brunel Building and Westminster Business Council's Best
Achievement in Sustainability award. In 2013 the Company launched a
voluntary Community Fund and has to date supported well over 100
community projects in the West End and the Tech Belt.
The Company is a public limited company, which is listed on the
London Stock Exchange and incorporated and domiciled in the UK. The
address of its registered office is 25 Savile Row, London, W1S
2ER.
For further information see www.derwentlondon.com or follow us
on Twitter at @derwentlondon
Forward-looking statements
This document contains certain forward-looking statements about
the future outlook of Derwent London. By their nature, any
statements about future outlook involve risk and uncertainty
because they relate to events and depend on circumstances that may
or may not occur in the future. Actual results, performance or
outcomes may differ materially from any results, performance or
outcomes expressed or implied by such forward-looking
statements.
No representation or warranty is given in relation to any
forward-looking statements made by Derwent London, including as to
their completeness or accuracy. Derwent London does not undertake
to update any forward-looking statements whether as a result of new
information, future events or otherwise. Nothing in this
announcement should be construed as a profit forecast.
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