Street Address:

Fill out form to get a quote





More Property News


Bridging Loans

Business Mortgages

Buy to let Mortgages


Commercial Mortgages

Hedging Interest Rate Risk

Long Term Loans -Debentures

Life Insurance

Loans with Profit Share

Mezzanine Loans

More UK Property News

Options and warrants

Offset Mortgages

Property Development

Stock Market Launch

Swaps to reduce loan costs

Syndicated Loans

Stock Market Launch


Stock Market Launch - When a property company launches on the stock market a lot of information is disclosed. An investor can take advantage of this and use the prospectus  to learn as much as possible assuming one is looking for a company to invest in. The information is contained in the prospectus and this is what needs to be analyzed. But fist we need to consider the variety of ways that a company can get itself listed on the stock market. Firstly there is an introduction this is when a company already has a large number of shareholders and is not looking to raise new capital. The company just would like their shares listed on the stock market.

A second method is called a placing or intermediaries offer and this is where a large number of shares are sold privately to investors. The investors in this case are often the clients of the investment bank that is doing the placing. Sometimes the shares can also be placed with a variety of investment banks to be sold to their clients. This can help raise the profile of the placing.

The third method is the offer for sale or IPO as known in USA and this gives the public the chance to buy into the stock. In this case a prospectus and application form are available from brokers and banks. In this case the shares are offered at a fixed price which is determined by the investment bank hat is organizing the launch. The price is often comparable to other similar companies that are already trading on the market. However sometimes the shares are quoted a little under market value so that it provides an incentive for investors to come in.

Companies can launch the two markets is on the London Stock Exchange or the Alternative Investment Market. The main difference between two markets is that the LSE requires a three year track record between the two markets and the AIM requires less than this. at

There are a number of points that need attention when analyzing a prospectus. Firstly attention must be paid to whether the shares that are being offered are new shares or whether these are existing shares that are being unloaded by present shareholders. If the sale is to present shareholders the proceeds of the sale go to the shareholders and not the company itself.

Sometimes when a private company has been been built and existing shareholders want to bring it to market the reason can be simply the the existing shareholders want to cash out s when because they feel that the company is not going to grow anymore which might be for various reasons such as the real estate cycle is peaking out or they may feel that the property company is peaking out. This should be taken as a potential warning sign for new investors.

Investors must consider a number of factors when analyzing a company that is coming to market such as what kind of property company is it. For example a company might be an investment company where its primary source of cash flow is rents or it might be a development company where its primary source of income is the sale of new development it conducts. In this case the company would be classed as a trader. Or it might be a company that develops property and retains them for investment, or it might be a dealer which is a company which makes its money by the buying and selling of property owns. Any investor can often find this information in the prospectus of the company.

The type of property company is important because it helps the investor analyze the quality or risk of investing in the company. For example if the company derives a large amount of its rent from investment property this might be deemed as a more stable form of income than a property trader who might fall on hard times if they are unable to sell their development, or if development funding drys up or if asset values fall. It is also important for potential investors to recognize the quality of the assets that the company holds as these also will be important in determining how profitable the company will be in the long run which will ultimately affect its share price. In many cases if the company is an investment company the shares will often be quoted at a discount to net asset value. For example lets say the net asset backing is
£1 per share. In this case the shares might be offered to the public at a discount of say 80p per share. If the property company is a trading company the shares might be valued in in a different way which might be based on another yardstick such as the PE ratio. Which is the price of a stock divided by its earnings. In this case it it possible that the price of the shares will be above net asset value. This difference in the way the property companies are valued is important for the investor because it reflects the risk of the investment. We can illustrate this with an example. Lets say that property trading company Focusnet  has assets of 50p per share and lets say that their projected earnings are 10p per share for the year. On a price earnings ratio of 10 the stock market might value the property at £1per share. This might be inherently risky for the investor because the investor because if the property market goes bad to to funding problems or a fall in values and the trading company is not able to sell its development for the anticipated price than the final backstop for the companies share price will be the asset values that the trading company Focusnet owns. At this stage the assets might be worth only 40 to 50p a big drop for from £1 which would cause the value of the shares to fall and the investor to lose money. This is why it is important for the investor to look at as many factors as possible when analyzing a development company such as the quality, skill and reputation they have as a developer and how long they have been developing for. For example if a property company is launching after only a track record of a couple of years and their track record was achieved during a bull market. Then it might be wise to treat this record with more skepticism and conduct a deeper analysis.

When analyzing a property company it is important to look at a variety of things in the prospectus, such as the history of the property company. How it was formed? Who formed it? How has the company grown over the years? Did it grow by by buying individual properties itself or did it grow by acquiring other property companies. These factors are important because the indicate the particular skillsets that the company has. The longer the a company for instance has has been developing usually the better it will be at doing it. It is also important to examine the management. Is it still the same management that originally founded the company? Do they still own a large percentage of the available shares. In other words what is the percentage of inside ownership. A manager or CEO might be more likely to run a company well if he has an investment in it himself. What are the qualifications of the CEO? What is his history? All these questions will give you an idea of who is running the company.

The next section to to pay attention to is the business itself. What type of development or investment does the company invest in? Are they leisure properties like Hotels or Casinos or are they office buildings, office parks, shopping centers or industrial properties? Does the company specialize in one type of investment such as elderly assisted care or student accommodation? If the the company is a development company are the developments presold or prelet? If they are presold or prelet this can often greatly reduce the risk of the development or developments. Some property development companies intentionally do not look to prelet or presell a development that is under construction. The This is often during a rising market where rents or values are rising fast. This strategy can bring in the greatest profits for the developer, but unfortunately this strategy often is quite risky of the market has drasticly changed by the time the development is completed. Does the company have numerous schemes or developments that it undertakes or does it concentrate on a few at a time. Is the company highly leveraged or geared. This is important because often companies that borrow to much can get caught if their is an interest rate rise or if funding drys up. One must also assess the prospects of the company. How is the company going to be able to make profits in the future. If so how will the revenue be derived? Will it come from rents or sales of new developments? It is future income which will determine the future share price.

The next section to examine is the finances of the company itself. Usually in the prospectus there will be a pro-forma statement where the director has given his estimates of projected future profits. These forecasts will provide the profits, the dividend, and other factors such as the asset ratio. It is from these calculations that other indicators can be calculated such as the PE ratio, yield, and the discount or surplus of the share price to the assets of the company. Analysts and stock market investors will often take these figures and compare them to other property companies in the same sector to to assess the strength and weaknesses of the soon to be listed company. the gearing or leverage of the company will also have to be determined. If the company is highly geared this will definitely be a warning sign, but one must remember that this figure will ultimately be reduced by whatever the cash issue or share amount is that the floatation is raising. One must also check whether the borrowings are for a short or long term and whether the interest rates are fixed or hedged or not. Obviously variable interest rates are a dangerous dent to profits if they are to rise. Also is rental income alone enough to cover the dividend payments? The answer should give you an idea of how the company plans to make money. For example if rental income alone does not cover the dividend payments then this might indicate that the company plans on paying it with a development sale or selling one of its assets or through another method. Also look at the contingent liabilities section of the accounts as this will give you a warning of any liabilities that might be in the companies past like lawsuits, or claims against the company etc. There is also a general information section of the prospectus which can also provide useful information such as the companies Memorandum or Articles of Association which is the companies constitution which will give guidelines on borrowing limits, directors salaries and other useful information.

The balance sheet of the company will also have to be examined. Are properties held as fixed assets or current assets? the answer will often help determine if the company is a trader or an investor as properties held as current assets might indicate they are about to be sold. Also does the company have any joint ventures or interests with associated companies. If so then the associates will have to be analyzed with their strengths and weaknesess  identified. One must also look at the way interest is treated in the accounts. The answer can be found by examining the notes to the accounts. The interest charge in the profit and loss account sometimes is not the entire interest the company is obligated to in one year. Sometimes part of the interest is added or treated as part of the cost of the developments or otherwise known as capitalized. this practice although legal is less conservative then charging the interest against revenue.

Another item to be examined is the valuers or surveyors report. This will be quite an extensive detail of the value of a company and its portfolio. It will contain a description of each property, the leases, the tenure and in the case of developments you will get an estimation of the final appraisal or value of any completed development.