Last week’s £175m convertible bond issue by REIT Derwent London shows that the best managements with the right assets still have a choice of finance raising options. Derwent’s issue was notable because UK property companies rarely use convertible bonds, but also for the low cost of the finance. With a 2.75% coupon, the five-year-dated, unsecured bonds were a much cheaper source of funding than senior debt.
The price for the buyers to convert to equity was 30% over the average share price between launch and pricing. There were plenty of takers who believe the central London growth story has legs left. The REIT regime is set to become even more favourable following Budget measures that included the likelihood of dropping the 2% conversion charge and relaxing rules on ownership that had required five or more shareholders.
Against this backdrop, the allure of attractively priced financing like Derwent’s could set more asset owners wondering if, after all, the time could be right to REIT. It was much-anticipated and this week DECO 2011-E5, aka Chiswick Park, hit the road. Viewpoint (back page) is the first of several forthcoming columns to debate how future new issuance should look.