If the quoted property sector has a problem, it is not in raising money but in spending it.

Whoever you ask, the story is the same. Too many buyers chasing too few deals, particularly in prime London real estate, which has been given added lustre to foreign purchasers by a weak pound. Meanwhile, the banks, the biggest owners of potentially saleable properties, are reluctant to take the hit from baling out near the bottom.

So, five months after it secured £166 million through a rights issue, Great Portland Estates (GPE) should be commended for finding an apparent path round that impasse. In the first West End development deal struck with a bank, GPE has agreed to buy two Central London sites and restructure the debt held on them by Germany’s Eurohypo, the specialist lender. The arrangement is innovative. GPE, which is committing £88 million to the scheme, will keep the first £26 million of profit on the project.

The next £51 million will be split between GPE and Eurohypo, while any excess over that will be shared with Dubai’s Istithmar, which held the equity in the sites. With both lender and vendor able to retain an exposure to future profits, that structure could prove a template for more such deals, especially given the demands on larger taxpayer-backed banks to show long-term returns. Further, lenders appear keen to deal only with developers with proven track records in realising value from such schemes, a requirement that should put GPE near the top of the list.

GPE’s interim results were novel in other respects. Notably, it became the first London-listed property developer to provide tangible evidence that the trough has passed. The company’s portfolio was valued at £1.05 billion at September 30: down 2.7 per cent over six months, but up 2.6 per cent over three, the first such increase since 2007. Further, vacancy rates are falling — down from 7.8 per cent to 5.8 per cent at the half-year stage — while GPE predicts that the West End rental market should have returned to growth by the second half of 2010.

Tempus advised “buy” in May, since when the shares have gained 18 per cent. At 282½p, or a 10 per cent premium to forecast March 2010 net asset value, that remains the case.

Micro Focus International

The stock market is still none the wiser as to why Stephen Kelly stepped down as chief executive of Micro Focus International in September. Neither did yesterday’s first-half trading update from the FTSE 250 software developer provide any clues on the search for his successor.

But what it did do, in the space of just two paragraphs, was eradicate any lingering concerns over the strength of the underlying business. Like-for-like revenue growth in the six months to October 31 was 5 per cent, which implies a pick-up over the past three months after a lacklustre first quarter. More important, Borland and Compuware, the two US companies that Micro Focus bought for $193 million in July, collectively its biggest deals since its float four years ago, are performing ahead of plan. The shares surged by 20 per cent in response.

If criticism can be levelled, it is that the company appears guilty of “low-balling” post-acquisition cost savings at the point of purchase. Micro Focus now expects operating margins at its new charges of 30 per cent, against 15 per cent previously. But the relief is that the new owner appears to be doing a good job in retaining Borland and Compuware’s customers, something that could not be assumed given both companies’ poor track records.

Irrespective of pressure on corporate IT budgets, Micro Focus’s niche — enabling old-style mainframe computers to run on new, low-cost hardware — should continue to prosper. On the view that the newly acquired businesses could provide scope for additional profit upgrades and that Micro Focus’s discount to the software sector still has room to close, the shares, at 410½p, or 12 times next year’s earnings, should be bought on weakness.

Ultra Electronics

It is tempting to read the 4 per cent fall in Ultra Electronics as disappointment that Douglas Caster is stepping down. Mr Caster was part of the buyout of Dowty’s defence electronics division, Ultra’s forerunner, in 1993 and, in his four and a half years as chief executive, he has taken the company into new territories (Australia and the United Arab Emirates), expanded its presence in nuclear controls (both military and civil) and, above all, maintained its momentum in producing 15 per cent annual earnings growth through thick and thin. But the succession is orderly in the extreme — Mr Caster will not step down until April 2011 — and his replacement, Rakesh Sharma, head of Ultra’s second-biggest division, is a known quantity.

What unsettled the stock market was Ultra’s disclosure of “recent evidence of delays” in UK contract awards: an admission that tighter public finances are starting to take their toll. For now, that is no more momentous than a handful of deals — MoD contracts for cryptography and nuclear submarine sensors — taking longer to close than expected. Whereas that update might have proved a bombshell from a racier rival, Ultra’s conservative approach to forecasting means it should not be given too much weight. International markets should take up the slack, such that the company is confident of producing 9 per cent underlying growth, which it should be able to supplement with bolt-on acquisitions.

But it is Ultra’s exposure to “smart” defence applications, a strong balance sheet and vulnerability to takeover from a larger contractor that, at £13.09, or 13 times earnings, is cause to hold on.

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