Property fund in discount issue
By Daniel Thomas, Property Correspondent
Published: May 29 2008 03:00 | Last updated: May 29 2008 03:00
A £2.9bn shopping centre investment fund managed by Capital & Regional is to raise £300m through a deeply discounted rights issue to prevent a breach of a key debt covenant.
The Mall shopping centre fund, one of the UK’s largest retail property investors, has sent out details for the rescue equityraising to its unit holders, which is expected to be offered at a discount to unit price of about 50 per cent, subject to take-up.
The equity issue is to be fully underwritten by Norwich Union, whose Morley Fund Management is the largest shareholder and fund manager for the Mall.
The sharp drop in the value of the property held by the Mall fund has meant that it is now barely 1 per cent away from breaching a 60 per cent loan-to-value limit on a £300m debt facility. At March 31, the Royal Bank of Scotland facility stood at 58.8 per cent.
This is the first capital-raising in the real estate sector since the onset of the downturn in the commercial property market last year, but analysts expect more to follow as companies look to bail out heavily geared property investment vehicles.
Values of commercial property continue to fall, which would make a breach inevitable for the Mall unless it receives an equity injection. The value of the Mall fell by 4.5 per cent during the first quarter, adding to declines last year.
Capital & Regional has previously said that it would look at ways of raising money for the Mall, either through a sale of assets or through an “equityraising proposal”. It has not given further details.
The non-transferable equity issue is expected to be carried out at a “blended discount” of 50 per cent to the fund’s unit price of 183p at the end of April, making it an attractive proposition for most investors.
People close to the situation say Morley is waiving the underwriting fee for a higher discount than 50 per cent to cover its risk. Other shareholders are being offered a discount of narrower than 50 per cent but the more that accept the issue, the nearer the two margins close to 50 per cent.
The issue is expected to bring down the fund’s gearing to less than 50 per cent, a comfortable position with prices in the market continuing to fall. Capital & Regional and Morley refused to comment.
Capital & Regional itself owns about 24.2 per cent of the fund. Other investors include Prudential, ING Real Estate, Scottish Widows Investment Partnership, Hermes Real Estate and ABP.
Shares in the company, which traded as high as £17 in February last year, yesterday closed down 7.25p at £3.02.