News last week that Real Estate Opportunities is to try to spin-off its giant Battersea Power Station regeneration scheme was met by interest in the property and financial markets, but little enthusiasm from REO's shreholders - the shares dropped 42% on the news.
Why? Because by diluting the company's ownership of the scheme, which has an estimated end value of £5.5bn, there is little potential future upside in the company's UK and Irish portfolio. Many REO shareholders were likely holding on to shares as an option on whether Battersea would eventually pay out, and without that option, they have now checked out.
While the debt secured against Battersea has been transferred to NAMA, REO's management is going to be spending a lot of time on other debt negotiations over the next year, as well as the global roadshow designed to find a new investor in Battersea. The company has £371m of convertible loan notes and zero-dividend preference shares which need to be repaid by May next year, and it said that these all need to be restructured and extended as it cannot currently repay.
Spin out Battersea, and that's what you're left with at REO.