British property companies seek to raise $1.9 billion

Jonathan Buck | September 24, 2009
Article from: The Wall Street Journal

IN the strongest indication yet that confidence is returning to the real-estate sector, UK property companies announced plans to raise more than L1 billion ($1.9 billion) to strengthen their balance sheets.
Renewed signs of life in UK property

A builder works on a house under construction in Surrey Picture: Bloomberg
House builders Barratt Developments and Redrow disclosed plans to raise more than L900 million through rights issues and placements, while Liberty International - the country's largest industrial real-estate investment trust - said it would raise about L310 million through an issue of new shares.

The capital increases are the latest in a burgeoning trend that has seen similar moves earlier this year by house builders Taylor Wimpey, Bovis Homes Group, Berkeley Group Holdings and Bellway.

Home builders have been struggling for more than a year with the worst housing-market conditions in decades. Mortgage financing evaporated in the banking crisis, reducing the number of buyers to a trickle and forcing house prices lower. As a result of falling prices, companies had to put developments on hold and take write-downs on the value of land and work in progress.

However, signs continue to emerge to suggest that conditions in the real-sector have eased. Both Barratt Developments and Redrow said that house prices in the past few months had risen, visitor numbers at sales sites had increased and sales were up.

"We have definitely seen the market stabilise during the calendar year 2009," Redrow chairman Steve Morgan said.

UK house prices in August rose for the third time in four months while the annual rate of decline continued to ease, Lloyds Banking Group said earlier this month. Its Halifax house price index was up 0.8 per cent from July, but down 10.1 per cent from August, 2008.

"Demand for housing has increased since the start of the year due to better affordability and low interest rates," said Martin Ellis, Halifax's housing economist. "This, together with low levels of property available for sale, has boosted house prices over the last few months."

Still, gross mortgage lending in August was 13 per cent lower than in July, the Council of Mortgage Lenders said last week. "Underlying lending levels appear to have stabilised during the summer, with stronger lending for house purchase balanced by lower levels of remortgaging," the CML said.

Those signs of stability have given executives the confidence to prepare for growth.

"We believe this is the right time to refinance and recapitalise the business," Barratt Developments chief executive Mark Clare said.

Barratt Developments announced a fully underwritten placing and 1.3-for-1 rights issue to raise gross proceeds of L720.5 million. Mr Clare said some of the funds would be spent to buy land this year in order to maintain a land bank equivalent to at least three-and-a-half years' work.

Barratt's announcement came as the builder said that an "intensely difficult year" in the UK housing market had resulted in a net loss of L468.6 million for the 12 months ended June 30, compared with a net profit of L86.4 million a year earlier.

Redrow announced a rights issue to raise L156 million. Proceeds from the rights issue will be used to reduce overall levels of gearing by repaying and cancelling up to L135 million drawn under an existing syndicated facility agreement. Redrow also announced the proposed L15 million acquisition of the Harrow Estates business, which focuses on identifying and acquiring brown field land.

The house builder's CEO said the marketplace had shrunk in the past seven or eight years but remained competitive. "The country's need for new homes is greater than it has ever been," Mr. Morgan said.

Industrial landlord Liberty International said it would issue new ordinary shares representing around 9.9 per cent of its total capital, worth about L310 million, so that it can resume investment in its prime UK regional shopping centres and central London assets.

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