Equity raises could be ‘key differentiator’ for listed propcos
Equity is proving increasingly attractive for real estate companies chasing fresh funds, according to analysts at investment bank Peel Hunt – and could leave some of the big listed names well-positioned to move quickly on new investments.
In a new note, Peel Hunt real estate analyst Matthew Saperia pointed to recent equity raisings from self-storage company Lok‘nStore, student accommodation developer Unite and shopping centre owner Capital & Regional, totalling a combined £345m.
“Could we see more companies looking to pursue similar strategies, particularly given the future optionality an enlarged equity base may afford?” wrote Saperia.
Equity is proving increasingly attractive for real estate companies chasing fresh funds, according to analysts at investment bank Peel Hunt – and could leave some of the big listed names well-positioned to move quickly on new investments.
In a new note, Peel Hunt real estate analyst Matthew Saperia pointed to recent equity raisings from self-storage company Lok‘nStore, student accommodation developer Unite and shopping centre owner Capital & Regional, totalling a combined £345m.
“Could we see more companies looking to pursue similar strategies, particularly given the future optionality an enlarged equity base may afford?” wrote Saperia.
Saperia added that the rise in risk-free rates and upward pressure on lending margins has brought about a “material increase in borrowing costs”.
“Recent long-term borrowing has been struck at rates north of 6%, which compares to our estimate of the cost of in-place borrowings of circa 3%,” he said.
“This undoubtedly presents a challenge for growth strategies, even as asset values have adjusted downwards.”
Peel Hunts calculates that it will be accretive for both Lok’nStore and Unite to use the proceeds of their share sales to pay down their existing revolving credit facilities, “given prevailing rates”.
“This raises a wider debate around the future use of debt, and its ability to enhance returns for shareholders,” Saperia said.
“From an income perspective, the benefits are now much more marginal and therefore we do not believe it is a surprise that the owners and managers are willing to see negligible dilution to net assets per share to deliver enhanced earnings.”
He added: “Growing the equity base, in our view, also provides future optionality and this is something that could become a key differentiator as more assets come to the market.
“The ability to transact quickly, and with a high degree of certainty, could offer up some attractive opportunities.”
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