After a summer slowdown, property share issues are back.
Hibernia, Hammerson, Assura Group and Kennedy Wilson Europe have together raised well in excess of £1bn in little more than a fortnight.
Housebuilder Miller Homes, on the other hand, has not been as fortunate. Two weeks ago, it was forced to pull its initial public offering, citing “recent financial markets volatility”.So what is behind the latest spate of capital raisings from the REITs and why have they been able to raise equity successfully, while Miller was unable to get its float off the ground?
The reason for the rush is partly seasonal, believes Liberum analyst Michael Burt. “It is fair to say that fundraising fatigue had set in by the end of the first half,” he says. “Fund managers had piles of IPO prospectuses on their desks stacked six foot high. Now after a lull in August people are coming back.”
According to Burt, each of the REITs had good reasons for tapping the capital markets. Kennedy Wilson’s raise was in keeping with its long-held growth ambitions. Hammerson was looking to fund its VIA Outlets venture in Europe and purchase of Highcross shopping centre, while Hibernia was eyeing the growing number of acquisition opportunities in Ireland. Assura was also preparing for acquisitions and deleveraging.
“It shows that the markets are still open to fundraisings that are consistent with strategy and ideally accretive to earnings and NAV,” says Burt. “There is a willingness to back companies if they can at least tick some of these boxes.”
The other encouraging feature of the share placements is that they are “front footed”, motivated by the need to fund expansion rather than pay down debt, he says. For example, Hibernia has already spent €398m (£313m) since its IPO in December and needed more funds to be in the mix for what CEO Kevin Nolan told Property Week was a “phenomenal” array of buying opportunities in Ireland at the moment. Nolan estimated there were currently about €2.5bn (£1.98bn) of assets for sale and a lot more in the pipeline.
The share issues have not all been without criticism. For example, some have questioned why Hammerson was looking to buy the remaining stake in Highcross, when earlier in the summer it was selling a 10% stake in the shopping centre.
However, none of the placements have failed. The same cannot be said for Miller Homes, which pulled its IPO earlier this month, despite an estimated valuation of £450m that Shore Capital analyst Robin Hardy described as “conservative”.
Hardy says it was a pity the IPO failed as it would have given small cap fund managers exposure to the housebuilding sector and offered significant growth potential.
The building sector analyst attributes the failure of the IPO mainly to the recent weakness of the stock market, although he concedes Miller’s debt may have been an issue. Fellow builder Redrow trades at a subdued price/ earnings ratio of 8.9% that Hardy says is indicative of investor aversion to debt in the sector.
The IPO was also affected by growing nervousness about residential sales. Shares in other listed house builders, residential property companies and self-storage players have been hit hard recently amid concern over falling central London prices and the mooted mansion tax. Over the past month, shares in Berkeley, Barratt and Crest Nicholson have all fallen by double-digit margins, Safestore and Big Yellow Group have slumped 10.3% and 7.4% and Grainger has fallen 11.6%.
Elsewhere, property companies are holding up against the wider market. REITs have fallen 4.7% over the past month, which is considerably better than the 7.1% slump in the FTSE All-Share over the same period. As the latest run of share placements demonstrate, at this stage in the cycle, property companies are still on the hunt for deals — and investors are so far more than willing to back them.