MEPC joins the cash call queue: Property company's pounds 222m issue is largest in the sector to date

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The Independent Online
BRITAIN'S second-largest property company, MEPC, yesterday brought the total amount raised by property companies this year to more than pounds 1.1bn when it asked its shareholders for pounds 221.9m for refurbishing and buying property.

The rights issue means that the seven largest property companies have all taken advantage of signs of recovery in the property market to ask their shareholders for money. MEPC had been expected to join the queue when it announced its results two weeks ago but it said yesterday that, although it had already decided in principle to launch a rights, the preparations were not complete.

The cash call came just a day after Hillier Parker, the firm of chartered surveyors, produced the first statistical evidence of an increase in property values and said it believed the market had turned. Property shares have been climbing for most of the year in anticipation of the recovery.

They were given an added fillip earlier this month when George Soros, the financier who earned his reputation by betting against sterling before its exit from the exchange rate mechanism, planned to invest pounds 250m in property in a joint venture with British Land.

James Tuckey, MEPC's chief executive, said: 'The market is changing. There obviously is a whole different atmosphere in the market place.' But he warned that it was still difficult to gauge how the improvement in sentiment would be reflected in property companies' asset valuations.

MEPC said there was evidence of increased interest in buying property from instititions and, in some areas, from tenants interested in renting business.

But Mr Tuckey also warned that the structure of the institutional property market - based on 25-year leases, with upward-only rent reviews - may have changed permanently. Landlords have been forced to offer more flexible terms to attract tenants.

The funds will be used to refurbish and extend the group's portfolio, including building a warehouse at its industrial park near Abingdon, Oxfordshire, and extensions to its shopping centres at Hyde, Cheshire, and Yate, Avon. These three projects will cost between pounds 20m and pounds 25m.

It also intends to purchase properties, although not until market conditions justify investment. Like many of its rivals, it is keen on shopping centres - which are already recovering strongly - but wants to cut its exposure to offices. Mr Tuckey acknowledged that many other buyers were interested but added: 'We have never been afraid of competition.'

Leases on a number of its properties expire in the next few years and the poor letting market means it is unlikely to attract tenants unless it refurbishes them.

The rights issue - the largest in the sector so far - is priced at 350p a share, 25 per cent below its last asset value. Mr Tuckey said that would be diluted by 'a few per cent' because of the cash call. It also said it would hold its final dividend at 14.75p, making a total of 20p. Some in the City had feared it would cut the payment. The shares closed 8p lower at 414p.

Until the funds are invested the issue will cut borrowings to about pounds 1.2bn, or about 60 per cent compared with 82 per cent at the year-end.

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