UK property firm uses private US placement as alternative to bank debt
Great Portland Estates plans to raise $250m-$260m (around £160m) in the US private placement market at the end of this month. It will issue unrated bonds in two seven- and 10-year tranches, priced at a 5.3% average coupon and swapped into sterling.
GPE’s move to tap this market follows private placements by landed estates Grosvenor, Cadogan and Howard de Walden. GPE aims to keep the coupon as low as possible, rather than having very long-term debt. It has a £200m facility due to expire in July 2012, but it is not clear whether this issue will help refinance this facility or is in addition to it.
Finance director Timon Drakesmith could not comment on the financing, but said GPE “always looks for alternative sources of capital” to fund its developments and investment. Like a lot of the other larger REITs, GPE has many US equity investors, offering it potential access to similar institutions for the provision of debt capital.
“It has become an interesting financing tool for long-established property owners,” said Drakesmith, who is joining Hammerson at the end of May. “There is evidence that other listed property companies may seek this form of debt capital to partly compensate for the withdrawal from normal debt markets by mainstream banks.”
With many loans written at the height of the market nearing their five-year maturities, real estate firms are now aware that credit facilities need replacing. With lenders such as RBS, Lloyds and the Irish banks under pressure and deleveraging, they need to look elsewhere. “The US insurance market is pretty vibrant and those institutions are looking to diversify their investment portfolios,” said Drakesmith.