Brixton and Segro mull rights issues to shore up capital

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Segro and Brixton, the commercial property companies, revealed yesterday that they were considering rights issues to strengthen balance sheets battered by the UK’s dire real estate market.

In separate statements before the market opened, the companies admitted they were looking at options to strengthen their finances, including tapping shareholders for more funds.

Both companies’ shares fell on the news, with Brixton dropping 14 per cent to a new all-time low of 41.25p on fears that investors might not be willing to stump up the new cash.

Segro traded up to 8 per cent higher but ended the day down 1 per cent at an 18-year low of 108.75p.

The companies’ announcements came after Brixton’s shares fell 28 per cent and Segro’s lost almost a fifth on Tuesday as panicked investors dumped commercial property stocks.

The groups would be the latest property companies to ask shareholders for more capital but investors may be unwilling to provide yet more cash for the embattled sector.

Hammerson tapped investors for £584m last week and British Land asked shareholders for £740m.

Traders predicted that Land Securities, the country’s biggest commercial property developer, could come to the market for about £750m of funds as early as today.

UK commercial property companies’ balance sheets are stretched after borrowing heavily to buy and develop offices, stores and industrial buildings during the market’s five-year boom that ended in the middle of 2007.

Commercial property values are estimated to have dropped 37 per cent from their mid-2007 peak and are expected to keep tumbling as the recession intensifies, further weakening balance sheets.

Brixton’s shares have dropped 69 per cent this year, making it the worst performer in the FTSE 350 Real Estate Index. The stock has declined for seven straight days, reducing the company’s market value to just £112m.

Brixton said that it could decide to sell assets instead of tapping shareholders for more cash. But forced sales of commercial property could depress prices still further, further undermining the strength of the sector.

Fears about Brixton were heightened by reports that its biggest shareholder, Government of Singapore Investment Corp, lost as much as $33bn (£23bn) last year. It owns 10 per cent of Brixton.

Liberty International bucked the sector sell-off yesterday as speculation grew that it would be able to place new shares with existing shareholders instead of a rights issue.