Specialist real estate investment trust prices share issue for big investors with placing price set just above, rather than below, the current share price.
GCP Student Living (DIGS) wants to issue more shares to raise money for its development in Mile End, east London called Scape Canalside which is on the Queen Mary’s University campus.
The real estate investment trust (Reit) had a ‘forward purchase agreement’ on the development meaning it has first refusal on the property, which will house 412 beds and is just being completed.
The price of the property is expected to be in excess of £90 million.
Like other investment trusts, GCP can issue up to 10% more shares without getting special permission from shareholders. That gives it a limit of about £63 million.
‘If [the placing] raises any equity it means we have less to borrow from the bank [to fund the purchase],’ said Nick Barker, director of GCP's fund manager, Gravis Capital Management.
‘Whatever equity we raise, we will be happy with. We are different to other Reits that raise money and then go shopping. We get the opportunity [secured through forward purchase agreements] and then articulate it to shareholders, and if they like it they can join us for the opportunity and we are hoping the same will happen this time.’
The new shares will be issued at 162.5p, a 1.4% premium to the net asset value. Unusually, the placing price is above the current share price of 161p, up 0.6p today.
However, Barker said that while the more expensive price may not appeal to individual shareholders it could be attractive to ‘investors on larger scales who want to invest in GCP and will do so through the place’ such as wealth managers.
The trust has been to market two to three times a year since it launched in 2013, enabling it to grow from £70 million to £659 million today, equivalent to an annual shareholder return of 12.8%.
The agreement to buy Scape Canalside was agreed in October 2017 and is ‘an asset that sits at the core of the student housing strategy that we follow’, said Barker, who said there is a limited number of student accommodation developments in London.
Last week, the trust announced it had entered into a conditional forward purchase agreement to purchase student resident called Scape Surrey in Guildford, home of the University of Surrey. The project, that will add 544 beds to GCP’s portfolio, is set to be completed for the 2020/21 academic year.
Barker said it was ‘really hard to tell’ whether Brexit would reduce the popularity of the current, or any future raise.
‘We have seen a few, not necessarily Reit raises, but other equity raises take place recently and some have been incredibly well subscribed,’ he said.
‘There is still appetite for the right type of opportunity.’
Separately, Starwood European Real Estate Finance (SWEF) has raised £40 million in an oversubscribed share placing launched last week. The property debt fund will ue the money to replenish its credit facilities ahead of further investments.