Helical raises the Bar

When veteran property tycoon Mike Slade starts rattling the collection tin, investors waste no time digging into their pockets. Last week, property group Helical Bar, where Mr Slade is the chief executive, announced a surprise placing of 9.7m ordinary shares at 285p each. The offer was completed in no time, raising about £27m after expenses. Helical directors themselves committed £1m to the placing.

The placing adds 10 per cent to Helical's issued share capital, but, unlike other property companies, such as , which is using a rights issue to pay down crippling levels of debt, Helical's motives are about grabbing opportunites.

"We believe the exceptional market conditions, which we are currently witnessing, will present buying opportunities that arise only once or twice in a property career," says Mr Slade, who, at the age of 61, has been around long enough to know. "To date, unlike the early 1990s property crash, we have witnessed few bank and receivership sales, However, with the complete erosion of the equity of the more highly leveraged property operators, we expect the banks increasingly to take control of many assets, and we'll wait and see how they work out these positions."

In the past, Mr Slade has consistently called the property cycle right, with Helical generating profits of more than £300m between 1999 and 2007. And Helical has been preparing for its moment of re-entry into the UK market for some time. It sold many of its assets before the current slump and in October announced a joint venture with an (as-yet-unnamed) US pension fund to buy distressed property loans from UK banks.

True, Helical's finances were not in bad shape before last week's placing, with £40m cash, £42m of unused banking facilities and over £50m of unsecured properties, but now it has more fire power. Yet it won't necessarily have to put in lots of equity to create outperformance, notes Miranda Cockburn, analyst at stockbroker Cazenove. She estimates that, taking Helical's extra £27m as a 10 per cent equity stake, with its partner putting in the other 90 per cent, then, assuming that deals were funded equally between equity and debt, Helical would have well over £500m of purchasing oomph.

There is a clear comparison between Helical and , a property recovery vehicle whose shares are one of our tips of the year. It, too, has augmented its own equity via a sovereign wealth fund.

This makes for a compelling recovery story in Helical's shares, but there are important caveats. First, commercial property values are , and Helical's current portfolio valuation is way past its sell-by date. It was conducted for the March 2008 balance sheet when the net asset value (NAV) figure came out at 352p a share. Cazenove forecasts that Helical's diluted NAV for March 2009 will be more like 283p (see table). The trouble is, this means that Helical's shares now trade 10 per cent above NAV. That makes them really highly rated for a London-listed property company where, on average, the shares trade about 40 per cent below NAV.

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In addition, with further pain to come from both falling property values and tenants defaulting - and arrears represented just over 1 per cent of Helical's rent roll in January - Helical needs to keep a close eye on its own banking covenants, plus £83m-worth of loans that need refinancing within the next two years.

Traditionally, Helical's plan has been to buy assets with angles - gaining substantial uplifts in value through change-of-use planning consents, for example. Mr Slade indicates that prime property will be the first pick in the downturn, because that will come with fewer worries about the tenants, followed by properties with longer-term development angles - though there may be a wait of many years before such buildings can be sold at a profit.