Here’s some unexpected fallout from the credit crunch – Battersea Power Station is to be listed.
The heavily indebted owner of the derelict site, Real Estate Investment Opportunities, has agreed to seek a long term equity partner and spin off the development in return for new banking facilities from its lenders — HBOS (who else) and NAMA (previously Bank of Ireland).
The Board is pleased to announce that the outstanding waiver relating to the NAV covenant breach on the Battersea Power Station bank facility of £226 million with Bank of Scotland and Bank of Ireland (now NAMA), has been approved subject to completion of legal documentation. New terms have also been negotiated (also subject to completion of legal documentation) whereby the facility is to be extended until August 2011.
To facilitate such investment in the Company and the project, the Board has resolved to pursue a proposal to separate the Battersea Power Station project from the remainder of the REO portfolio into a new separate listed vehicle. This important step will help facilitate the necessary equity investment required to develop the project plus also enabling refinancing and restructuring of all the existing liabilities towards new longer term, development based arrangements. The Board also believes that this is extremely positive for stakeholders as the newly formed vehicle will give relevant stakeholders substantial exposure to this unique development project. Subject to the support of the stakeholders, it is hoped this new listing could be achieved before the end of the calendar year.
REO, which is controlled by Irish property developers Johnny Ronan and Richard Barrett, acquired the iconic London site in December 2006 for £400m – or 40 times what its previous owner, Victor Hwang’s Oriental Property, paid for it.
Unsurprisingly it’s now worth less than they paid – although not by as much as you might think.
From Wednesday’s REO results statement:
Battersea Power Station valuation of £388 million as at 28 February 2010, reduced by 4% in the 14 months since 31 December 2008 (£406 million), but increased by 6% in the 8 months since 30 June 2009 (£365 million).
Quite what the site will be worth as a listed company we don’t know, but Battersea is one the largest urban regeneration projects in central London and in theory quite valuable if planning permission is ever granted. (A decision is expected later this year.)
All of which might make it a better investment than Ocado, the online grocer that is aiming for a £1bn valuation, in its flotation.
Indeed that figure is already causing some head scratching among City analyst.
Here’s Clive Black of Shore Capital:
We baulk at a near £1bn valuation Ocado should not, to our minds, have a stock rating that is structurally detached from its bricks & mortar peers (remember peers that all bar Morrison trade in Ocado’s space). That implies to us the need for c£100m EBITDA within a reasonable period of time from Ocado for the stock to trade at 10x EV/EBITDA multiple (if it has an enterprise value of £1bn), a rating that is 25-30% higher than the world’s most profitable current on-line grocery retailer (Tesco). Given EBITDA of £9m in 2009, rapid margin expansion is necessary. A market capitalisation of £900m, as suggested by the financial and retail press, has no bearing whatsoever to a sensible earnings multiple in reality (after depreciation, financing costs and any taxation) given ongoing losses/micro-profits.