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London office developer Great Portland Estates plans to raise £350mn in a fully underwritten rights issue to pursue “compelling new investment opportunities” as the commercial property market bottoms out.
Chief executive Toby Courtauld, who is known for his well-timed acquisitions after the 2008 global financial crisis, said on Thursday: “We have always had a very countercyclical process at GPE. And we have a track record of reading that cycle.”
The company said it had identified £1.4bn in near-term acquisition targets, and was a net buyer of property in the year to March for the first time since 2013.
The move comes as property values have slumped because of higher debt costs and nervousness surrounding office demand and flexible working. Morgan Stanley analysts said the decision showed “a proven management team calling the bottom of the London office cycle”.
The fundraising comes as GPE, whose office buildings are home to private equity group KKR and law firm Clifford Chance’s new City premises, announced that the value of its £2.3bn portfolio of mostly London office and retail had dropped 12 per cent in the year to March. Three-quarters of its properties are in London’s West End.
But GPE said its vacancy rate had fallen to 1.3 per cent, from 2.5 per cent last year, because of high demand for new office space, especially in the West End. The central London office vacancy rate was about 8.8 per cent, GPE said, but the West End had less availability and there was almost no supply of “prime” space. Courtauld said these were “the sorts of spaces and buildings that proper corporations will look for”.
The FTSE 250 group, which is based on the historic estate of the dukes of Portland, said property prices were bottoming out as interest rates in the UK stabilised.
Courtauld said: “We have seen a correction in asset values over the past 18 months with central London commercial real estate now trading in line with levels last seen in 2009 in real terms.”
GPE raised about £300mn in the years after the financial crisis but then sold off properties, starting in 2014, to return £616mn to shareholders. Courtauld said the company had about £600mn of properties to sell, but decided against raising money through sales until market conditions improved. “We just think today is a way better time to be buying than to be selling,” he said.
GPE said the capital raise would reduce its loan-to-value ratio to 18.2 per cent and give it £450mn in investment capacity.
In a sign of the divisions in the office market, smaller-listed office landlord Helical on Thursday reported a 22 per cent like-for-like decline in property values in the year to March as its vacancy rate edged down to 17.6 per cent.
The company announced the departure of chief executive Gerald Kaye and said it planned to cut its dividend by 60 per cent, but rejected the idea of selling assets to pay shareholders.
GPE’s move to raise capital came a day after British Land said it was looking for an additional investor to back an office tower pre-let to Citadel, which would free capacity for the landlord to invest in new developments.
It follows an oversubscribed rights issue by warehouse landlord Segro in February, which raised £900mn. GPE said it would publish a prospectus for the issue on Friday, and conclude in early June.
