Actually if you take a careful look at the appendix attached to the presentation one of them gives you a list of debt covenants on all of the the company’s facilities. Only a couple of facilities on the list appear to have a LVR covenant.
Interesting too is at 14 cents they said the portfolio's share market implied valuation was a Cap Rate of 12. At 7.5 cents, the current share price, the implied Cap rate is obviously much higher. Compare this with the independent valuation as at 31 Dec 2008 of the trust’s portfolio which returned a valuation with an actual average Cap Rate of 7.
The worst Armageddon scenario I have read from any analyst or fund manager assumes that should things really crater from here, is for a market bottoming Cap Rate of 8% (may occur).
Clearly there is a huge disconnect between the share market valuation and real property market valuations.
Looking forward, this big deal just done in the UK market (see below) shows the way forward.
Large portfolios will probably be transacted on the basis that the debt stays in place for the new owner so it doesn’t need to seek out its own funding. The lender gets a stronger balance sheet as guarantor so everybody is happy it would seem.
F&C Reit seals £600m Dawnay Day buy 09:14 | 06.03.09 By Jennifer Rigby
AREA Property Partners joins team for one of downturn’s biggest deals
F&C Reit Asset Management and AREA Property Partners – formerly Apollo Real Estate Advisors – have exchanged contracts to buy collapsed company Dawnay Day’s UK property portfolio for more than £600m.
The purchase is one of the most significant transactions since the downturn hit.
The buyers exchanged contracts on Friday last week with administrator BDO Stoy Hayward to buy the 221 properties at the original price agreed in December.
The main creditor, Norwich Union, has agreed to continue to provide between £500m and £550m of debt to F&C Reit through a new loan agreement, which experts have suggested could provide a ‘textbook’ deal framework for lenders looking to avoid large-scale property losses and make big transactions feasible.
The deal is set to complete by 25 March. The loan-to-value ratio is not expected to exceed around 80%.
It is thought that F&C Reit is keen to use this template for more deals with lenders over the next year, when it believes there will be buying opportunities.
F&C Reit, which is acting for its main investor, Trafalgar Overseas, said the purchase was exactly the sort of opportunity it was looking to capitalise on, following the merger of fund manager F&C Asset Management and Leo Noé’s Reit Asset Management.
It has set up a joint investment vehicle to complete the sale with the Apollo European Real Estate Fund III, managed by AREA Property Partners.
Properties such as the Austin Reed store on London’s Regent Street are among the 3.41m sq ft, 70% retail-led portfolio, which also includes assets in locations from Canterbury to Rotherham.
The three companies that owned the properties – Starlight Investments, Insureprofit and Dawnay Day Properties – were placed into administration when parent company Dawnay Day collapsed in July last year.
F&C REIT executive chairman Noé said: ‘The merger between F&C Asset Management and Reit Asset Management in 2008 brought together F&C’s fund management expertise with REIT’s entrepreneurial approach and strong investment track record producing enhanced and significant synergies to be able to target opportunities such as the acquisition of the Dawnay Day property portfolio.
‘We have created immediate value through this transaction by extending our property asset management, adding this portfolio of 221 properties.’
DTZ, which advised the administrator and structured the sale, received 31 bids for the transaction.
Investors were attracted because the vendor provided the debt for the portfolio, which made the purchase more palatable for investors in a debt-strapped market.
Nick Criticos, chief executive of F&C Reit, said: ‘Our skills and ambition secured the deal, which, looking back on 2008, is one of the biggest property transactions carried out for some time.’
MOF Price at posting:
7.5¢ Sentiment: Buy Disclosure: Held
