Citi support lends boost to Valad Author: Carolyn Cummins COMMERCIAL PROPERTY EDITOR Date: 27/03/2010 Words: 522 Source: SMH Publication: Sydney Morning Herald Section: Property Page: 20
VALAD Property has found some much-needed support from the sharemarket, with the Citi property analysts issuing an upgrade for the the embattled stock to a buy, based on a series of assumptions, such as asset sales, that would boost earnings. The group has been one of the hardest hit during the past two years with high debt and exposure to overseas markets. Its share price remained at close to 10? for the past 18 months, while the property sector was being hit by the financial crisis.
To help repair Valad's balance sheet, it has been speculated the group's Valad Capital Services (VCS) might look to sell its stake in the $1 billion Top Ryde shopping centre, which is under construction.
The centre is owned by private investor Bevillesta but has partial funding through Valad's VCS. The project will be a 78,000-square-metre regional anchored by Myer, Woolworths, Big W, Franklins and Aldi, with 280 specialty stores and 3055 car spaces.
Top Ryde City is a completely new development; the old centre was demolished.
There has been speculation that listed real estate investment trusts would be keen to make an offer for all of the centre if Bevillesta could be persuaded to sell.
Jackie Tin at Citi said Valad's corporate debt facility was now only $200 million.
"We believe Valad will most likely aim for a new facility on expiry of its debt in September 2011, with the ability to redraw and potentially lower margins [to less than 300 basis points] if a lower gearing covenant than the current 55 per cent is accepted," she said.
"Valad also has $72 million of asset level and other corporate debt expiring over the next 12 months, with 50 per cent to be repaid from current liquidity. There are also $200 million convertible notes due in February 2013."
Ms Tin said she had upgraded the stock to a buy recommendation, based on her new target price of 14?. She said the price was a mid-point level between what the group would be worth broken up and sold as separate divisions and its value as a going concern.
Simon Wheatley at Goldman Sachs JBWere said for Top Ryde, Valad had an initial investment of $60.6 million in preference equity, which was made in 2007 by VCS, while the last reported amount owing to Valad, including accrued coupons, was $80.4 million.
"We expect the initial amount owing including accruals is now closer to $90 million but has been written down meaningfully from this level," Mr Wheatley said. "Repayment of the VCS preference equity position is technically not due for several years yet [believed to be three years post completion], however we believe the potential sale of half of the centre offers Valad an early payback opportunity.
"Valad needs to agree to release a mortgage over the property to facilitate title transfer in any achieved sale."
Mr Wheatley said it was understood that Bevillesta wanted to retain management of the asset post-sale, which he said would meaningfully reduce its attractiveness to a number of larger investors.
"Perhaps indications of a better price for a full sale of the asset [thus freeing up management rights] may trigger a full sale and ... free up Valad's position in this project," he said.
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