Land Securities will build its London skyscraper known as the Walkie Talkie without a major letting deal and in spite of a rapidly worsening economic backdrop, Chief Executive Francis Salway said.
The UK's largest real estate investment trust by market capitalisation is developing the 38-storey scheme in London's City financial district, in a JV with Canary Wharf Group, but has no major letting to lower the scheme's financial risk.
We are speculatively developing the building, Salway said on a conference call on Thursday. When asked by Reuters whether the company had the option to pause the scheme if the economic backdrop worsened, Salway said: We are building the project.
Land Securities, which posted a 17 percent year-on-year rise in first-half NAV to 863 pence, previously said it would build the tower unlet, but rising fears of a euro zone breakup means financial services firms may shelve plans to move.
On Wednesday, Great Portland Estates Chief Executive Toby Courtauld said there would likely be no major pre-let deal for its 100 Bishopsgate skyscraper in the next 6-12 months. The scheme would only go ahead with a letting deal in place, he said.
Salway noted the number of inquiries by London office tenants looking for floor space had increased since the middle of the summer, a trend he labelled counter-intuitive.
At 0948 GMT, shares in Land Securities were up 1.6 percent at 687 pence, outperforming a 0.5 percent rise in the broader index of UK property stocks .
Evolution Securities analyst Alan Carter said Land Securities' NAV growth would come solely from its development programme. We fear demand and rental growth will remain muted for the foreseeable future.
The dividend did not compensate for the risk in the development programme, Carter said.
Land Securities first-half results earlier on Thursday saw it book an 11 percent year-on-year rise in portfolio value to 10.8 billion pounds, as the value of its UK malls and central London offices climbed.
The company posted a total return, including rental income, of 4.9 percent, outperforming the Investment Property Databank benchmark of 3.9 percent over the half-year. Its UK shopping centre portfolio was the strongest performer against IPD, returning 3.6 percent in the six-month period.
Land Securities' pretax profit for the six months to end-September was 379 million pounds, down 17 percent from the same period a year earlier. Its dividend was 14.4 pence a share, from 14 pence in 2010.
Meanwhile, Land Securities said the difference between good and bad retail markets was widening and, because of that and a generally bleak outlook for the UK high street, it favoured its larger shopping centres.
The retail property market still faces short and medium term challenges. Consumer weakness is holding back rental growth in the short term, it said.
(Editing by Andrew Macdonald)