The group is already in discussions about buying pounds 70m of property and intends to spend about pounds 20m redeveloping one of its existing sites. The City decided this improved its medium-term growth prospects and its shares gained 8p to 197p, 47p above the rights price. This follows the pattern established by rivals such as Hammerson, Land Securities and Brixton Estates, all of which have raised funds recently.
The rise in the shares was despite the warning that it will cut its dividend by a fifth to 8p this year. The cut, which was foreshadowed when it announced its interim results in November, reflects its expectation of a fall in income in the current year. The proposed redevelopment - of offices in Great Portland Street which had been let to the Property Services Agency - will knock pounds 3m off its rental income. It also expects a number of other leases to expire.
But Richard Peskin, chairman and managing director, said the policy of distributing most of Great Portland's income remained. Dividends have been covered 1.1 times by earnings on average for the past 20 years.
Southend Properties also yesterday raised pounds 24.3m through the issue of convertible loan stock which, with Great Portland's rights issue, brings the total raised by property companies this year to more than pounds 900m. Property agents estimate that institutions have between pounds 1bn and pounds 2bn that they want to invest in property. Last week British Land and George Soros, the investment guru, announced a joint venture that could spend up to pounds 1bn by the end of 1996.
Mr Peskin said there was 'no doubt' that prices for some properties had improved since the beginning of the year and, although the rental market remained difficult, interest from tenants was increasing.
The group has already exchanged contracts to buy an office block in Reading for pounds 4.5m, for a yield of 9.5 per cent. The remaining purchases under consideration are also outside London, and include two shopping centres, and are likely to be on similar yields.
The rights issue will initially be put on deposit, cutting borrowings from pounds 402m to pounds 307m, or 50 per cent of net assets. If it is all reinvested, gearing will rise to 70 per cent.
The cash call came as Great Portland announced pounds 34m of profit in the year to March, up from pounds 20.3m last time - although that was after a pounds 14.2m loss on disposal. Net asset value dropped from 212p to 178p as the value of the portfolio fell 9 per cent. The dividend was held at 10p and earnings rose from 4.8p to 11.7p.Reuse content