Public debt financing gives listed sector an edge: Kempen

The listed property sector is in a 'perfect' position to benefit from distressed situations, says analyst Boudewijn Schoon of Amsterdam-based Kempen & Co.

Many larger listed companies have been turning increasingly to bond markets which gives them access to relatively cheap debt and makes them independent from bank lending. 'This gives them an edge over non-listed companies,' says Schoon. 'The listed property companies that have access to affordable finance often also have a European focus. As a result they can go against the trend of banks (or bank financed companies) and selectively pick up opportunities in more peripheral markets that are increasingly cut off from financing.'

Since investment markets for prime are increasingly crowded in established markets, Schoon expects those companies with access to bond markets to add most value in the peripheral parts of their portfolios as well as in established markets. The growing access of larger listed property companies to corporate bond markets also partly explains their strong performance in 2012, Schoon noted. 'The corporate bond market played an important role for listed property companies during 2012 as it did for the broader economy. Companies previously not active on the listed bond markets have increasingly used this route to raise debt.'

The volume of plain vanilla bonds but also convertible bond issues by listed property companies accelerated during 2012 and Schoon expects this trend to continue based on current CDS (credit default swaps) pricing and share price levels. 'The historically low interest rate environment should result in a further search by investors for secure yield and subsequently good quality bond product. The security of income can be provided by the corporate itself or by securing the bond on a pool of underlying assets.'

Mortgage debt is easier to issue but corporate debt makes a company more flexible in its access to public debt markets. Most listed property companies have so far chosen to issue corporate secured bonds instead of asset secured bonds, Schoon pointed out. The value of access to public debt markets is also reflected in the current pricing of bonds with spreads ranging from a very low 60 basis points (bps) for Unibail-Rodamco (3.3 year bond maturity) to up to 220 bps for British land (7-year bond maturity).

In an interview in the January/February edition of PropertyEU, Klépierre's CEO Laurent Morel points out that his company more than doubled its liquidity to €2 bn last year thanks not least to a string of successful bond issues. 'We are well on track - we do not need to do any significant refinancing until 2015,' he said.

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