Grand City Properties (GCP) has issued its biggest single straight bond transaction valued at €1 billion at a historically low rate of 0.125% and with a term of 7 years. The issuance was backed by a strong book of more than €2 billion, underlining the high demand. Moody’s rates the bonds at Baa1 and S&P at BBB+, in line with GCP’s good credit rating.
Grand City Properties S.A. has launched a tender in parallel to buy back bonds worth €600 million at a rate of 1.7% due in 2024, and bonds worth €550 million due in 2025. GCP’s goals of buying back more expensive and shorter debt, while issuing cheap and longer debt, will likely drive the firm’s fund from operations in the next few years while consolidating its debt structure.
The issuance of the €1 billion straight bond comes after the issuance of €700 million worth of perpetual notes carried at the end of 2020, at a record low rate of 1.5%, while buying back €500 million worth of perpetual notes with a 2022 call date and bearing a coupon of 3.75%.
Extremely strong investors demand allowed Grand City Properties to significantly reduce the spread of the perpetual notes. This led to a 1.5% final coupon, setting a new record for the lowest Euro yield for a perpetual note by a real estate company ever. Perpetual notes are used to fortify the balance sheet and the equity base of a company. These are key factors in Grand City Properties’ conservative financial policy and helps with diverse financial sources.
Perpetual notes, like common shares, use coupons that may be delayed at the discretion of the company. Another noteworthy attribute is that they don’t have a maturity date, and this means the company may redeem them, at its own discretion, on certain dates.
Grand City Properties S.A. is traded on the Frankfurt Stock Exchange’s Prime Standard under the symbol GYC, and specializes in value-add residential real estate opportunities in areas that are densely populated, mainly in London and Germany. As of September 2020, GCP owns more than 60,000 apartments, with 26% of the portfolio being located in Berlin, 18% in NRW, 13% in Halle, Leipzig, and Dresden, and 17% is in London.
The strategy used by the company is to improve properties by intensive tenant management and repositioning, and then to create additional value by increasing rental and occupancy levels. Grand City Properties was founded by Yakir Gabay in 2004. The main shareholder is Aroundtown, the largest listed commercial real estate company in Germany, which holds 40% of GCP.
Grand City Properties maintains moderate leverage, high liquidity, and a solid capital structure, and does not have significant debt that will mature before 2024. The real estate giant also boasts a low-cost debt percentage (around 1.3%) proportionally to its unencumbered assets at a 79% high (worth about €6.7 billion) of the portfolio’s value. GCP also has convertible and straight bonds, well-diversified funding sources, straight common equity, mortgage debt, and perpetual notes.