Dev Secs sees value in Arena investment
PROPERTY giant Development Securities has announced that the value of its investment in the Manchester Evening News Arena has already increased by almost 20% during the six months that it has owned the asset.
The London-based firm bought the Arena in June last year in a deal which valued the asset at around £62m. It then formed a joint venture partnership with private equity firm Patron Capital, which took a 70% stake in the combined vehicle for an undisclosed sum.
This morning, Development Securities told the City that the value of its Arena investment had increased by 19.8% by the end of 2010.
It said the arena complex was the firm’s “most significant acquisition in 2010”. The lease was also re geared, providing an uplift in the complex’s valuation of £9.5m, of which Development Securities’ share is worth £2.8 million.
The overall net asset value of the company’s portfolio increased by almost 39% to £333.1m, from £244m in 2009. However, an earlier fundraising exercise to raise equity via a share issue meant that net assets per share dropped to 272p, from 297p.
Chairman David Jenkins said that the company made a pre-tax profit of £2.6m, compared with a loss of £11.4m in 2009. The firm raised £100m via a share placing which it has said would be used to seek out value investments in the market.
Jenkins pointed out that net new banking to the property sector had been negative for the past six quarters, yet the proportion of commercial property loans on the banks’ books remained “uncomfortably high” meaning that banks will remain reluctant to invest in the sector.
“Accordingly, we believe that those property businesses such as ourselves with equity able to invest in the near-term into the markets should be able to transact at favourable levels of return.”
The company’s chief executive, Michael Marx, said that Development Securities’ role in the coming years “will be spent for the most part unlocking problem assets with pregnant value or carrying forward modest-sized development schemes which are unable to find sufficient available capital”.
He envisaged that the bulk of development would be in London, and added that its strategy for schemes which have yet to begin – including the Axis joint venture with Property Alliance Group in Manchester and the Curzon Street scheme in Birmingham, would be “to minimise expenditure and wait”
“Outside the South East, speculative development of commercial offices will be a rare phenomenon in current markets,” said Marx.
However, he added that in established city centres with low levels of new product there could be an increase in the prospect of a growth in rental values, which would help to spark new speculative development.
“We see Manchester recovering first,” he added.
Development Securities also said that it expects to achieve planning permission “soon” for its redevelopment plans for the shopping precinct and car park at Hale Barns in Trafford.
Its proposal includes a new 30,000 sq ft foodstore pre-let to Booths, 12,000 sq ft of other retail units and 24 residential units.
It said that the scheme would probably be developed “in conjunction with an institutional development partner”.
