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Helical higher as Numis ups to ‘buy’ after news of financing deal for new London office development

Helical unveiled a £50.4mln five-year development facility with Wells Fargo to part-finance the construction of a 90,000 square feet office development at Farringdon East

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The Numis analysts said, based on a rent of £70 per square foot and a 5% cap rate, they estimate a development profit in the region of £16mln-£18mln

Helical PLC (LON:HLCL) saw its shares rise on Tuesday as Numis Securities upgraded its rating for the property group to ‘buy’ from ‘add’ following news of a financing deal for a new office development in London.

The FTSE SmallCap firm today announced a new £50.4mln five-year development facility with US bank Wells Fargo & Co (NYSE:WFC) to part-finance the construction of a 90,000 Square feet office development at Farringdon East which is due to complete in November 2019.

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It said, that on completion of construction, the facility will convert into an investment facility for the remainder of its term.

In a note to clients, Numis’ analysts commented: “While the margin is not disclosed, HLCL has put in place a forward starting interest rate cap on £40mln of the facility, commencing in Jan-20 and running until Jul-23 at 1.75%; the structure and timing of the cap should avoid Helical becoming over-hedged throughout the build process as funds are drawn progressively.”

They added; “Based on lettings success at other nearby schemes (Barts and Charterhouse Square), we are confident that Helical will be able to let the building to a strong tenant line-up on attractive terms.”

The analysts said that based on a rent of £70 per square foot and a 5% cap rate, they estimate a development profit in the region of £16mln-£18mln on a total capex spend, including the site, of around £100mln.

They noted that Helical shares trade on a 34% discount to its net asset value and yields 3.1%, so given recent share price weakness, they have upgraded their rating for the stock to ‘buy’ with an unchanged target price of 422p.

In late morning trading, Helical shares were 4.4% higher at 335.50p.

Quick facts: Helical

Price: 255.735 GBX

LSE:HLCL
Market: LSE
Market Cap: £310.12 m
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