* Aims to raise 50 mln pounds in 2009's first main LSE float
* Pre-marketing starts this week
* Management to take 1 pct of the IPO
* To buy 330 residential flats in London at discount
* Targets internal rate of return (IRR) of 15 percent
By Daisy Ku
LONDON, July 7 (Reuters) - London Residential Opportunities Ltd (LRO) has started pre-marketing its 50 million pound ($81 million) listing during the usually quiet summer period as it believes now is the right time to invest in London apartments.
The initial public offering (IPO), which is expected in
early September, would be the first mainboard flotation on the
London Stock Exchange
"What we want to combine is sufficient confidence in the
future for people to invest, without leaving it too long before
the property opportunities disappear," said Chief Executive
Officer Paul Pedley
Issuers would generally avoid launching a deal in the summer due to the difficulties in meeting potential investors during the holiday season.
After the two week pre-marketing period with Matrix Corporate Capital, which arranged the listing, the team will start bookbuilding in mid-August, when many European fund managers are still on holiday.
The deal also comes as peers NewRiver and Landbank dropped their bigger IPO plans. [ID:nL741330]
In the last UK property downturn in the 1990s, it took until 1998 before house prices in London returned to their 1989 levels, but Pedley, with 30 years of experience in the business, said things would be different this time.
"What happened in the early 1990s and took several years, is actually happening extremely quickly this time, probably over a period of 12 to 18 months," he added. "Some time around now is the ideal time to begin the process."
As the credit crisis removed housebuilders' ability to refinance balance sheets and residential property buyers' access to mortgages, London flats have fallen about 20 percent from their peak, according to the Nationwide House Price Index.
The UK housing market has shown signs of improvement lately.
The Nationwide report for May showed prices rising for three out of the last four months, by a total of 3 percent since February after 16 months of falls.
Mortgage approvals also increased, reaching 43,000 in May, up from their trough of 28,000 in November, but still less than half their long-term average and only one third of their 2007 peak, according to the Bank of England.
The company is looking to buy flats from smaller developers.
While big housebuilders such as Taylor Wimpey
"The big boys will always be far more aggressive in cutting prices ... The pressure will stay on the smaller developers, because they haven't got the financial muscles; they can't take the pain," said Pedley.
The LRO acquisition team has visited over 100 developments in the past 10 months and has identified 2,500 potential completed and uncompleted residential properties in the city.
The company is seeking to buy about 330 units over 15 developments at an average price of 325,000 pounds.
Initially, acquisitions would be funded by the IPO proceeds, but as properties let, generating a net rental yield of 5.3 percent, the company will seek bank finance.
The loan to valuation ratio, however, will be kept low at 65 percent, with rental incomes covering 1.25 times the interest.
The LRO management will invest 500,000 pounds in the IPO, representing 1 percent of share capital on offer. ($1=.6176 Pound) (Editing by Will Waterman)