Soros builds stake in UK's "tortoise" developer

LONDON Fri Jan 11, 2013 12:47pm GMT

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LONDON Jan 11 (Reuters) - Billionaire investor George Soros has built a stake of more than 5 percent in the UK's only listed property company that produced a negative total return in 2012, due to its unfashionable bet on the long-term health of the economy outside London.

The man who made his name and a reported 1 billion pounds ($1.6 billion) by betting Britain would leave the European Exchange Rate Mechanism in 1992, bought the stake in Development Securities through his Quantum fund.

Development Securities shares fell 4.7 percent in 2012 as it refused to borrow excessively or chase central London deals, as part of a strategy that Chief Executive Michael Marx has termed "more tortoise than hare".

A source close to the situation told Reuters on Friday Quantum had built a 5.6 percent stake in the company, whose shares were up 2.7 percent at 164.25 pence by 1238 GMT.

The deal makes Soros, worth 19 billion dollars according to Forbes magazine, one of the five biggest shareholders in Development Securities, which has a market value of about 200 million pounds ($322 million), alongside the likes of institutional investors Fidelity and Blackrock.

The developer, which has investments in Southampton, Slough and Manchester, trades at a discount of about 34 percent to net asset value versus 5 percent or less for larger stocks like Land Securities and British Land, both of which are building London skyscrapers.

UGLY FROGS

"The Quantum Fund is looking for ugly frogs under stones that everyone's missed," said a source close to the deal. "Given where the property market is, you could argue there is downside risk in London and upside risk everywhere else."

Quantum Fund could not immediately be reached for comment outside regular U.S. business hours.

Prices for the best central London offices rose 3.6 percent i n the year to November 2012 as overseas funds clamoured for a slice of a market seen as a safe place to park money, said real estate consultant CBRE.

Values fell 11.4 percent outside the southeast of the country due to the anaemic economy.

Development Securities stock produced a total return including dividends of minus 1.3 percent in 2012, versus 41 percent for Hammerson L> and 37.4 percent for Derwent London, figures from brokerage Jefferies show.

But as more money pours into central London, others are coming around to Marx's way of thinking and there is growing talk about the merits of riskier bets in search of investment yields that can exceed 8 percent versus about 5 percent for the hottest areas of London.

Axa is trying to raise 1 billion pounds to buy buildings around the UK with long leases and Aviva Investors has talked about opportunities beyond London.

"Investors have wanted the immediate cashflow of central London," said Matthew Richardson, director of European real estate research at Fidelity Worldwide Investments. "But they lost sight of the fact that outside London commercial property is driven by supply and demand and nothing is being built." ($1 = 0.6209 British pounds) (Editing by David Holmes)