Anglia seeks to rid itself of specialised arm in wake of failing prospects
By Adrian Morrison
AWG Property, a leading property development outfit in Scotland, is being sold by parent company Anglia Water Group at an asking price of over £30 million after its prospects appear to have been weakened by the softening market.
The sell-off, which comes a year after Anglia was bought by private investment group Osprey for £2.2 billion, is also reportedly the result of the property division becoming less attractive after making top bids for high-profile sites.
The developer has withdrawn from a series of schemes in recent months, including the redevelopment of the former GPO building at 1 George Square in Glasgow and Shell's Aberdeen HQ.
It walked away from its £100m Exchange Court scheme in Edinburgh, which it was developing jointly with Cala Properties and lost its foothold on an office and residential scheme in Newcastle after the region's development agency ripped up its agreement.
Two London-based property developers have been selected as preferred bidders for AWG Property and are currently conducting due diligence.
However, it is believed that Patrick Hegarty, head of Northern Irish property investment group WG Mitchell, is waiting in the wings should the deal collapse. He tabled a bid of £18m, reflecting the value of property assets he holds with AWG in a number of joint ventures. His offer was declined.
Elgin-based construction and development company, Robertson Group, also looked at AWG, but is not thought to have the right debt profile to be able to raise the funds for a purchase. It is thought that senior management at AWG Property had considered a buyout.
Difficulties at the property company started following the appointment of a new group financial director who wanted capital expenditure on-balance-sheet. A company the size of AWG Property, whose assets include Ocean Point in Edinburgh, could not sustain the sort of debt-to-equity ratio that that would incur, so it started using joint ventures to free up cash to fund its schemes and keep its borrowings off the books. The debt element of the very significant schemes it was involved in was largely based on rising capital values. However, capital growth stopped earlier this year and is now falling in some parts.
Given that Hegarty has approximately 15 joint-venture projects with AWG as part of a £250m property investment fund the firms run together, this would give him significant leverage in any negotiations, particularly as AWG cannot dispose of its interests held in joint ventures without its partner's blessing.
The portfolio includes Shawlands Arcade shopping centre and Exchange House on Glasgow's George Street. To date, £135m of the £250m fund has been invested.
Hegarty is believed to be talking to developers about disposing of some of the assets he holds with AWG. The sale is expected to conclude before Christmas.
Alan Kinloch, director with Glasgow development company Dandara, said: "This is the worst possible time to be put on the market. The parent company has probably taken the view that it will not see the sort of growth it thought it would."
An AWG spokesperson said: "The company is considering a number of options for the property division and nothing at this moment has been agreed."
