Unite Group (UTG) has become the latest property company to launch a retail bond in a bid to reduce its reliance on banks. The student-housing provider is aiming to raise £50m-£75m of debt directly from private investors, who will receive an annual coupon of 6.125 per cent. The bonds will mature in June 2020, though like other retail bonds they will also be tradable on the London Stock Exchange's ORB market.
Unite's bond follows hot on the heels of similar property offerings by Primary Health Properties (PHP), CLS Holdings (CLI), Workspace (WKP) and St Modwen (SMP). The coupon is higher than average, reflecting Unite's position towards the upper end of the risk spectrum running from utility-like rent collectors such as PHP to developers like St Modwen. Unite used to be primarily a developer, but has been transforming itself since the property crash into a more traditional property company.
Unite has already made strides towards diversifying its sources of funding, raising £121m in a landmark deal with the insurer Legal & General (LGEN) in May. Partly as a result of that deal, non-bank lenders account for some 30 per cent of Unite's debt, says chief executive Mark Allan - but he'd like to increase that share further. The group's loan-to-value ratio (LTV) will fall to just over 50 per cent by the end of the year, he stresses.
The bond comes with the same covenants as the other more recent issues. It is not secured on any property, but Unite has committed not to let its net LTV exceed 75 per cent or its interest-rate cover slip below 1.5 times.
A more unusual bond in the offing is to be launched by Alpha Plus Group, an unlisted for-profit schools provider backed by property veteran Sir John Ritblat. Alpha Plus wants to raise £50m from private investors to refinance a loan facility. It is expected to pay about 5.5 per cent, but - uniquely for a retail bond on ORB - it will be secured against six schools and one nursery, with about £84m of assets, mainly in property, between them.
