Fancy a shares spree? you may have missed the boat

Peter Bill
20 Mar 2009

Imagine, if you will, for one delicious moment, you have £9.6 billion in the bank. Then imagine on Monday you buy the entire share capital of seven big property companies in a daring dawn raid.

What would you get for your £9.6 billion? Nearly £41 billion of property assets and a £22 billion mortgage, according to the last published valuations. But let's play safe and say £31 billion of assets.

For the published numbers are three to six months out of date, and property values have crashed by at least 20% since September.

So have the shares. The top four companies are yours for a mere £8.5 billion. That's British Land, whose market capitalisation this week stood at £3.3 billion; Land Securities (£2.9 billion); Hammerson (£1.8 billion) and Segro (half a billion).

The remaining £1.1 billion will get you Derwent London (valued at £650 million) and Great Portland Estates (valued at £410 million). The £40 million in loose change will buy Brixton, which has half a billion pounds of net assets.

So your £9.6 billion gets you perhaps £31 billion of property lumbered with £22 billion in debts. Perhaps not a bargain, especially as that £31 billion might shrink further and the cost of that debt rise.

That's a real prospect, warns Nomura property analyst Mike Prew: "The City is looking at the prospects for these stocks 12 to 18 months ahead. There are still many worries about refinancing risks and the lack of credit."

Fair enough. But this week's spring weather has brightened the mood. There is a feeling that the bottom of the property market is at least visible. This mood may be transitory. But it has already been reflected by an uptick in share prices.

Land Securities shares have this week risen by 7.5%, Hammerson by 10%, Segro 15% and Derwent as much as 30% on the back of solid results.

A year back, most of the above were ticking along, with the total value of their shares standing at the long-term average of a 10%-20% discount to the net asset value. But even after this week's jumps, the discount for the majority is still more than double last year's figure.

The top four firms have issued stacks more shares and sold off properties since their last published accounts. So it is not easy to work out the discounts today.

However, at a guess Land Securities stands at a 45% discount and Hammerson at 50%. Great Portland and Derwent are in Hammerson territory. Brixton is trading at a plain silly 90% discount.

The question for investors who simply want to buy a few shares is this: when will these discounts return to their long-term average of minus 10%-20%? Well, take a look at what has happened to British Land this week.

The shares have risen by 25%, and the gap between the stock-market value of the business and the net asset value has almost vanished.

It may already be too late to invest that £9.6 billion.

Higgins is over money hurdle in his delivery

The always preposterous idea that a £9.3 billion Olympic budget containing a £2 billion contingency sum was going to be overspent now seems to have vanished.

But a TV programme on BBC2 on Wednesday betrayed the weariness of Olympic Delivery Authority chief executive David Higgins. "The stories are always about money, always money," he complained.

Understandably: it was filmed when Higgins was trying to persuade banks to fund the £1 billion Olympic Village and the £355 million media centre. They are now being built with public money.

Shock horror? Not really in the case of the village, where it must be possible to sell the homes for more than they cost to build. The media centre is a different tale.

But at least Higgins can get on with the job. Letting the white elephant after the media have gone is not his problem.

Bowing out: Portland star who did it his way

An audience of almost 700 jammed the ballroom of Claridge's on Monday to witness the bowing-out of Richard Peskin, the theatrical chairman of Great Portland Estates, who has retired after 42 years with the £1.3 billion London property company.

This is a man who hugs and kisses other men, Russian style; a legendary luncher at Wiltons or The Square, whose self-confessed dietary requirement is "chilled champagne, 12.30pm sharp".

But Peskin is lean, sharp and very clever. He increased the net asset value of Great Portland 49-fold, three times the rate of inflation, since joining in 1967 aged 24 and not long out of Cambridge.

After a short and witty speech, Peskin put on a show, by softly singing Frank Sinatra's My Way with personalised lyrics. The verse beginning: "Lunches, I've had a few" and ending "I don't drink vin du pays, I choose Montrachet," brought a roar of laughter.

Following an inevitably less sparkling response on behalf of the guests by James Furber, senior partner of royal lawyers Farrer & Co, those present got down to the real business of the evening; gossiping about the state of the property market and fixing up meetings to take matters of mutual interest and/or benefit that little bit further.

There was a tang of optimism in the air, which cannot quite be explained away by the magnums of Laurent Perrier champagne poured by the ever-attentive Claridge's staff.

The feeling that the worst is over in London was supported by chat about the hardening of prime West End investment yields. (Translation: really posh office blocks are getting pricier again.)

And that bubble lifted Great Portland Estates. The day after the party, the shares rose, then fell back. That's showbusiness.

Don't write off the Hamptons buzz as spin

Estate agents are past masters of optimism. So it would be natural to dismiss last week's "signs of hope" news from slightly posh Hamptons with a snort of derision.

The 85-strong chain, owned by Middle East giant Emaar Properties, said sales in February rose to their highest for 12 months.

The London and Home Counties-based business gave no details, but one man who knows the numbers says there is substance rather than spin behind the optimism.

He says actual income from selling homes stood at just £700,000 in January, about £8000 per branch. In February, it rocketed to £2.8 million, or more than £32,000 per branch.

This will no doubt please Emaar, which paid £82 million for Hamptons in August 2006, just a year after the 140-year-old firm, based in Grosvenor Square, changed hands for £36 million.