Twenty per cent-plus falls in Land Securities’ and British Land’s net asset value in the six months to 30 September come as no surprise.
While these are alarming figures in themselves, both of Britain’s biggest property companies have also made reassuring and detailed noises about their debt.
So far, so good.
At present – and barring a property earthquake – neither would need the money to stay solvent. Rather, by asking existing or new shareholders for £500m-£1bn or more of new equity, both could wade into the market to buy property that is now more bargain basement than cheap.
As experts from ING said this week, now is the buying opportunity ‘of the decade’, and there is no point having talented teams gawping from the sidelines as others make hay.
Any rights issues would have to be deeply discounted because there is the danger that LandSecs or British Land shares could fall further and make the offer unappealing.
At the same time, terms offered to new – Middle Eastern? – investors would have to be priced to not offend existing shareholders, repeating Barclays’ mistake.
The arguments against? That rights issues would shake already-fragile confidence and could be misconstrued as a rescue move.
Go for it. Although Citi is in the mire, one of its smartest moves was to raise $50bn of equity as the credit crunch took hold.
With yields set to rise still further, raising cash to buy rock-bottom real estate, as well as shoring up the defences, would be a brave but positive move.
One intriguing footnote from the ING presentation was its recommendation of ‘dull but resilient’ industrial property.
‘Stay overweight’, ING said, reiterating that multi-let industrials are the best-performing UK property sector over the very long term.
While LandSecs and British Land wrestle with their retail- and office-dominated portfolios, industrial specialists Segro and Brixton look better placed than most in the upper echelons of the sector.