LONDON: Derwent London is issuing a 175 million pounds ($284 million) convertible five-year bond to fund development and acquisitions, capitalising on a shortage of prime office space in central London, and pay down debt.
Chief Executive John Burns said on Tuesday that in the three months to March 31, 2011, the British office landlord had made excellent progress on lettings, and was advancing projects in its development pipeline.
"We are seeing increased opportunities to add to our portfolio and, underpinned by the capital raising we have announced today, will continue to pursue these," he said in the company's interim management statement.
"We remain confident of the prospects for our operating market and our group," he said, noting in a conference call that Derwent was already looking at several properties.
The five-year bonds would be priced at par and were expected to carry a semi-annual coupon of 2.5-3.0 percent, Derwent said in a separate statement, and the size could be raised to 200 million pounds.
It set the conversion price at 25-30 percent premium to the share price between launch and close, less the 20.25 pence dividend to be paid on May 20.
Derwent had 575 million pounds in debt due in 2013 and the bond was a first step in addressing it, Finance Director Damien Wisniewski told Reuters.
"We've got a big development pipeline to fund over the next few years and we're keen to look at new acquisitions.
We've also got substantial refinancing in 2013," he said on the conference call.
By 0920 GMT, Derwent shares were up 0.2 percent at 1734 pence, outperforming a 0.05 percent fall in the broader index of UK property stocks
Panmure Gordon analysts said Derwent's shares traded at a deserved 13 percent premium to net asset value. Derwent was "performing well and currently operates in the market sweet spot." It rated the shares as "Hold" with a 1730 pence target.
DISPOSALS IN FOCUS
Derwent also said on Tuesday it had exchanged contracts on several central London properties — Victory House in Tottenham Court Road for 37.2 million pounds, plus five properties in Covent Garden for 68 million pounds.
The prices were 35 percent above book value, Derwent said, Derwent posted 21 transactions in the first half, total 130,500 square feet and generating annual rental income of 3.6 million pounds, with subsequent lettings of 50,4000 square feet since March 31 for 2.1 million pounds in rental income.
Open market lettings completed so far in the first half had rents 8.3 percent above estimated values at Dec. 31, it said.
London prime office space available for letting fell to 13.8 million sq ft at the end of the first quarter 2011, 35 percent down from the market peak in second-quarter 2009, CB Richard Ellis said earlier this month.