UPDATE: Derwent London Adds To Portfolio With GBP146M Purchase

28th Jul 2010 12:07

(Adds detail and comment.) By Anita Likus Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Landlord and developer Derwent London PLC (DLN.LN) Wednesday stepped into the market for the first time in three years with the GBP146 million purchase of a building at one of London's busiest shopping streets. The deal indicates that banks slowly are beginning to sell real-estate assets that are weighing on their books. Derwent bought the 251,000-square-feet retail and office property Central Cross at 18-30 Tottenham Court Road and 1-2 Stephen Street, which is situated on a 2.1-acre site. The building fronts onto Tottenham Court Road, which is known for its electrical stores and furniture shops. The previous owner of Central Cross was a real-estate fund managed by property investment and development company Glebe Asset Management Ltd. The building was acquired for GBP223.8 million in April 2007 with plans for redevelopment. A person close to the deal said that Lloyds Banking Group PLC (LLOY.LN), the bank that inherited swathes of commercial property loans through the acquisition of HBOS, is involved in the sale through its relationship with the previous owner. A spokesman at Lloyds wasn't immediately available to comment. Derwent has been a net seller of property in recent years, selling around GBP200 million last year and some GBP70 million in 2008. Derwent, which has been tracking the property for over a year, will finance the purchase from its existing secured bank facilities, which are expected to drop to some GBP250 million following the purchase. Its gearing is expected to rise to 41% from 36.5%. It plans to revamp the building, which will allow it to increase the rent. Annual rental income currently is GBP8.1 million from 21 leases to 10 tenants on average rent of GBP34 per square foot. But after a refurbishment, Derwent could collect rent of GBP45 per square foot, which would give it annual rent in excess of GBP10 million. Central Cross has three principal tenants, which account for nearly 90% of the rental income: Bertelsmann AG subsidiary FremantleMedia Group, one of the largest creators and producers of entertainment brands in the world; Ascent Media, a global media company; and S Technologies, the owner of Skype. Derwent said that 33% of the rental income is secured beyond 2020 but that 38% is subject to lease expiries or breaks before December 2011. This will give the company an opportunity to revamp the building. Oriel Securities real estate analysts said, "This is a highly complimentary acquisition adding a substantial block to Derwent's Fitzrovia estate ... it is our view that the north of Oxford Street area has the potential for significant improvement--such initiatives as Crossrail and progression at Middlesex Hospital all bode well." The company now controls 1.5 million square feet of property in the vicinity. Derwent has a reputation for acquiring buildings in London's West End, Fitzrovia north of Oxford Circus, and around Victoria, that can be enhanced through refurbishment, added floors, or complete redevelopment. "This acquisition provides strong income at economic rental levels, together with opportunities for active management, future refurbishment and improvement of the office space, which Derwent specializes in," Chief Executive John Burns said. "We will also be looking to enhance the retail units fronting Tottenham Court Road, which will benefit substantially from nearby infrastructure improvements including Crossrail." At 1056 GMT, Derwent London shares traded up 9 pence, or 0.1%, at 1364 pence. -By Anita Likus, Dow Jones Newswires; +44 20 7842 9407; [email protected] (END) Dow Jones Newswires July 28, 2010 07:07 ET (11:07 GMT)