MEPC fails to raise the pulse: The Investment Column

Property companies have yet to come in from the cold after the boom-and-bust years of the late Eighties and the false dawn of three years ago. In the case of MEPC, the second-largest player in the UK sector, paying an uncovered dividend for several years did little to improve adverse sentiment.

Restoring confidence among investors in the City is clearly taking time as the broadly sideways movement in MEPC's shares over the last 18 months indicates. Even yesterday's news of a respectable 11 per cent rise in first-half pre-tax profits to pounds 67m, including a pounds 5m gain on the sale of fixed assets against pounds 7m last time, created few waves.

The market is still digesting MEPC's recent shift in strategy. In November its 17 European properties, which account for about 5 per cent of group assets, were put up for sale so the group could focus on the UK, Australia and the US. Although MEPC will not confirm the name of the buyer, it is an open secret that it is in the middle of selling the European portfolio to Commerz Grundbesitz Invest (CGI), an investment fund managed by Germany's Commerzbank. MEPC says almost two-thirds of the properties are under legally binding contracts for sale, while "handshake deals" cover the rest. MEPC hopes to complete the sale by the end of the year at about their book value of pounds 185m.

Getting out of Europe now is probably a good move given the fragile state of France and Germany. But increasing exposure to the US property market via the recent pounds 190m purchase of North American Property Unit Trust raises more questions than it answers. MEPC owns large shopping malls in California, Atlanta, Florida and Las Vegas, but the US retail climate for local and national operators remains uncertain. Although the UK commercial property market is still patchy, a lower tax charge and interest charge should ensure pre-tax profits reach pounds 140m (pounds 123m) this year and a maintained 20p dividend is not paid out of shareholders' funds. At 415p, down 3p, the shares stand on an estimated 7 per cent discount to net assets, in line with the top seven developers. Unexciting.