Takeover target IWG warns on profit due to growing pains

LONDON (Reuters) - IWG, the London-listed serviced office provider at the centre of a takeover battle, downgraded its 2018 operating profit forecast by 15-20 million pounds on Wednesday, blaming the cost of opening new space and a weak performance in Britain.

The group, which has been approached by private equity firms Terra Firma and TDR Capital and American real estate investment groups Starwood Capital and Prime Opportunities, said it would add about 6.7 million square feet of new space this year, 17 percent higher than its previous guidance.

The company, known for its Regus brand, forecast it would add 275 locations to its network this year, with an associated net growth investment of about 230 million pounds, 30 million pounds more than its previous forecast.

IWG shares fell around 5 percent to 308 pence by 0705 GMT.

"Higher network growth brings additional short-term opening losses, along with incremental overhead costs to support the growth," it said.

"Nonetheless, we are confident that this additional growth investment will generate good returns in the future as we expand our global footprint and network to meet increasing demand."

It added that local management was addressing its current weak performance in Britain.

Analysts at Investec in May downgraded their forecast for IWG's 2018 adjusted operating profit by 10 percent to 178.4 million pounds ($235.9 million).

IWG reported operating profit, including joint ventures, of 163.2 million pounds in 2017.

IWG said on Saturday it was evaluating a possible cash offer for the company from Terra Firma.

Under Britain's takeover rules, Prime Opportunities has until June 26 to decide whether to make an offer, and Starwood and TDR have until June 29.

($1 = 0.7563 pounds)

(Reporting by Paul Sandle; editing by Kate Holton/Keith Weir)