Songbird Estates, the firm that owns much of London's Canary Wharf business estate, said financial market stress had cut the value of its portfolio but it had little to fear from the collapse of tenant Lehman Brothers.
In figures for the half-year to June 30, Songbird said the market value of its entire property portfolio fell 9.6 percent to 6.7 billion pounds ($12.46 billion) as radical upheaval in the global banking sector inflicted new injury to Britain's bruised property market.
While acknowledging it had been hit hard by a "rapidly unfolding financial markets crisis", Songbird company secretary John Garwood said the firm had prepared well for the turmoil which triggered the demise of banking giant Lehmans, one of its biggest tenants.
"It was dramatic what happened but I would stress that this rental income is actually protected for up to four years from default under an arrangement with AIG which was put in place to protect us against this type of eventuality," Garwood said.
Garwood said he was still waiting to see whether Japanese bank Nomura would assume responsibility for Lehman's 1 million square foot lease at 25 Bank Street in Canary Wharf after announcing plans to acquire its European investment banking operations earlier this week.
"Nomura have said they will retain a significant number of Lehman's 2,500 employees and we can only assume they will also need to have some space requirement at Canary Wharf," said Garwood.
"We certainly do not assume that there will be a million square feet of space at Canary Wharf coming available at the Lehman building – that is highly unlikely," he said, adding that it would be "logical" for Nomura to leave former Lehman staff in their current home.
Songbird's relatively illiquid B-class shares were unchanged at 97.5 pence at 0812 GMT.
NAV FALLS BUT PROFITS UP
Songbird's adjusted net assets per share tumbled by 30.7 percent to 149 pence, primarily resulting from the fall in the value of its office skyscrapers in Britain's second largest financial centre.
But the company reported underlying pretax profits of 85.8 million pounds compared with 39.5 million pounds achieved in the first half of 2007 on the back of profits from property sales.
The company said it was still too early to gauge how the financial markets meltdown would affect property and rental values across London going forward but it reiterated that Canary Wharf was still 99.7 let with average unexpired lease terms of around 18 years.
Notwithstanding challenging economic conditions, the company said it had let around 200,000 square feet of space during the period at rents ranging from 45 pounds to 49 pounds per square foot.
"Prime rents in the area have dropped by around 2 pounds, which is actually much better than elsewhere," Garwood said, adding that Canary Wharf was still attracting high-profile new tenants such as JPMorgan, Moody's Investor Service and China Construction Bank.
The large population of cash-rich, time-poor workers on the Canary Wharf estate helped Songbird's retail assets perform well over the period, with footfall figures robust in comparison with national averages, Garwood said.
