Helical should consider putting itself up for sale

Helical (HLCL) needs saving. Tentative signs that interest rates might plateau after last year's surge have seen the values of other London office landlords such as Landsec (LAND) and British Land (BLND) begin to stabilise. But Helical's net asset value, occupancy rate, and net rental income are sinking thanks to the loss of WeWork as a tenant and other vacancies in its portfolio.

Its freefalling net asset value (NAV) means debt to NAV is rising, and equity raises are out of the question because of the hefty discount to NAV. Chief executive Gerald Kaye told Investors' Chronicle that under-offer lettings mean occupancy and NAV will increase by the end of this year. 

But that's a big if. Right now, it's hard to imagine a long-term surge in demand for Helical's City and City-adjacent office buildings. It speaks volumes that Landsec, British Land, Great Portland Estates (GPE) and Derwent (DLN) are running headlong towards the West End, where vacancy rates are lower and footfall is higher.

Helical's dividend is flat, not covered by EPRA or IFRS earnings per share, and unlikely to increase anytime soon. Not when net rental income has fallen because of the evident lack of demand. Kaye said it has signed at record rents in Farringdon and elsewhere. But there isn't enough of this activity to boost its revenue overall. 

With a market cap of less than £300mn, Helical is too small to just ride this out. Kaye declined to comment when asked if Helical would accept a takeover or put itself up for sale as other Reits have done. But, without that sort of cash injection or a complete pivot of its portfolio, it's hard to see things improving long term. Sell.

Last IC View: Hold, 353p, 22 Nov 2022