Foxtons, the London-focused estate agent, plans to raise up to £22m through a share placement to shore up its balance sheet, saying it risks running out of cash should the UK’s coronavirus lockdown continue throughout the summer.
The group said on Friday that revenue could fall as much as 78 per cent if restrictions to contain the pandemic remained in place until the end of August. It added that if property markets were slow to recover, it could face a “liquidity gap” later in the year.
The equity raise, amounting to almost 20 per cent of Foxtons’ issued share capital, “gives us an insurance against a very bad downside, but in happier times it also gives us some dry powder”, said Nic Budden, Foxtons’ chief executive.
“A number of competitors unfortunately won’t survive. There is the opportunity to win market share,” he added.
A quarter of the cash raised will be spent repaying a £5m revolving credit facility.
The UK’s property market has in effect been put on ice for an indefinite period, with the government restricting the marketing and sale of all occupied properties during the virus crisis. Estate agents have explored creative workarounds, such as virtual home tours, but sales activity has all but ground to a halt.
Commissions earned in the first three weeks of lockdown were down 47 per cent on a year earlier, and were likely to fall further in the coming weeks, said Mr Budden. “Things like valuations, viewings and new offers have hit a brick wall.”
Foxtons had received offers on about 20 homes in the past week, following virtual property tours, said Mr Budden. Before the outbreak, weekly offers might have totalled 100, he added.
Lettings, which make up roughly two-thirds of Foxtons’ revenues and which can be rolled on without a home visit, had been more resilient in recent weeks, he said.
Estate agents’ share prices have been hammered as a result of coronavirus and the lockdown. From a pre-outbreak peak of 95p in mid-February, Foxtons had since fallen 60 per cent, and was trading at 38.7p when the market opened on Friday. Shares in the company rose more than 12 per cent on the announcement.
Close to 55m new ordinary shares will be issued, priced at 40p each, a premium of 4.2 per cent on Thursday’s closing price.
Foxtons has sought to cut its outgoings by two-thirds, furloughing 70 per cent of its 1,100 employees and shutting all branches.
It has also asked employees earning more than £40,000 to take a 20 per cent pay cut, and reduced executive pay by the same level.
The company, whose agents drive a fleet of matching Minis, is also negotiating a payment deferral with its vehicle leasing company.
The fundraising was announced alongside first-quarter results, which showed revenues dipped slightly from a year earlier, from £23.8m to £23m. The fall was accounted for by the introduction of a tenant fee ban in June 2019, which prevents agents from charging clients additional fees on new lettings.
The agent had been enjoying a rally in sales activity, with December’s general election viewed as providing homebuyers with some clarity after three years during which uncertainty over Brexit had caused many to pause.
“There might still be pent-up demand if [the lockdown] lasts less than three months. After that, a lot of demand starts to wither on the vine,” said Alastair Stewart, a property analyst.