London’s offices are lying dormant. Property investors are at home trying to guess when, maybe even whether, they will fill up again.
Social distancing will inhibit our lives for the rest of the year, leaving many offices operating at half-capacity — at best. Beyond that, an almighty recession looms.
That alarming backdrop largely explains the 21% slide in Helical’s shares this year. In January, the office owner’s market value was just a shade below its £566.7m net asset value, but the Covid-19 crisis has opened a yawning gap.
Over 35 years, Mike Slade transformed Helical — once Helical Bar — from a steel-maker into an influential real estate player. Last year Slade, 73, who had a penchant for dressing up as Alice Cooper for charity, stood down as chairman. Gerald Kaye, his successor as chief executive, took to the stage at Slade’s leaving do at Claridge’s and said he planned to defend the wicket with a straight bat.
He has been as good as his word, rebuffing several unsolicited approaches that valued Helical below its net asset value.
Yet rumours abound that it will not be long before a private equity firm tests Kaye’s resolve once more.
Kaye, who joined Helical in 1994, has sold off peripheral assets to focus on offices in London and Manchester. The company specialises in buying tired buildings in some of London’s more vibrant neighbourhoods, such as Farringdon and Old Street, and refitting them in a modern, quirky style. It then flips them or lets them.
Helical’s offices, nine in London and four in Manchester, are 83% let and it collected 84% of its March quarter rents, with a further 9% being paid in instalments.
Kaye has been whittling down the leverage, but its loan-to-value ratio still stands at 35% — higher than peers such as Great Portland Estates and Derwent London.
Analysts still do not see a major risk of breaching the covenants on its debt. Helical has drawn down £30m from its revolving credit facility to boost cash reserves to £64m.
The annual results are due this month and Helical may copy others by deferring or scrapping its dividend.
Amid the chaos, the company sold a building near the Barbican last month to a French investor for £48.5m:
a 3.9% yield. That is an encouraging sign. Rock-bottom interest rates and negative bond yields mean other options for long-term returns are few and far between.
There should be enough positives to keep investment coming into London offices, and with a market cap of £437m, Helical looks a manageable target for a brave investor. Buy.
