Aim-traded opportunity fund completed its first big deal this month, paying £74m for a City office block - a cool £61m less than its market price 12 months ago. Now, it is tipped to acquire a 50 per cent stake in British Land's flagship shopping centre, Meadowhall, for £550m; that's £300m less than the price it was marketed for in 2007.
The backing of a Middle Eastern investor reduces the need for debt finance at London & Stamford, and maximises returns, which are estimated to be 9 per cent on its first deal. This week, Nomura real estate analyst Mike Prew issued a buy rating with a 122p price target, commenting that L&S "should be able to assemble a herd of prime-grade cash cows".
For the big real estate investment trusts (Reits) selling prime properties at a discount is cheaper and less dilutive than a rights issue. is reputedly on the cusp of selling its one-third stake in Birmingham's Bullring shopping centre for £200m (again, that's £100m less than it was marketed at last April). The values crystallised by these sales could prove damaging for Liberty International and Hammerson, which are also said to be targeting sales.
Rumours of rights issues at and persist, but the first quoted property company to raise opportunistic capital was £27.7m placing last week. A proposed joint venture with a US pension fund could augment this to £500m, and it hopes to relieve banks of foreclosed property assets.
As for the Reits, JP Morgan research predicts that in a prolonged recession, property equities will underperform the overall equities market by 20 per cent due to funding problems, a sharp increase in property company bankruptcies and more aggressive dividend cuts. Although reit legislation stipulates that 90 per cent of rental income must be distributed to shareholders, analysts are watching to pay dividends in shares in order to conserve cash.
