On Friday morning, FT Alphaville ruminated over which UK plcs might be next to appear at the City of London cash machine. We trotted out the usual suspects; Barratt Developments, Punch Taverns and Yell. What we hadn’t considered was the prospect of another round of fund raisings from the commercial property sector.
However, Bart Gysens, the new property analyst at Morgan Stanley, thinks it is a real possibility. While the likes of British Land, Land Securities and Hammerson have sufficient headroom on their balance sheets to cope with another leg down in property prices, as the table below shows…
… Gysens says they might elect to tap the market again rather than persist with their respective disposal programmes.
UK property companies we cover are trying to sell assets to avoid nearing covenants again, and to have balance sheet headroom to buy assets when values have fallen further. In many cases, the assets that are for sale tend to be above-average quality, which is diluting average portfolio quality. So far, we have seen limited disposals as bid-offer spreads remain wide, in our view. Placing, say, an additional 10% of new shares could remove the pressure to sell and give management teams more bargaining power.Indeed, this is already happening in the US, he says. We are witnessing US REITs that have raised equity earlier this year, coming to the market a second time shortly afterwards. But would UK institutions really stump up the cash? Gysens says probably. So far, the UK government has bought back around £50 billion of bonds, increasingly forcing investors up the risk curve. We believe institutional investors are deploying at least part of this cash into the equity market, and particularly into sectors that were out of favour, such as property.We are not so sure, judging by the reaction to his note. Shares in British Land are currently down 9 per cent, Land Securities is off 5.5 per cent and Hammerson is down 5 per cent.
The City of London ATM – FT Alphaville