Land Securities joins search for investor help with £756m cash call

Liberty International also mulls issue as sector peers raise £2bn in two weeks
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The Independent Online

Land securities became the latest property group to turn to shareholders for money yesterday, while its rival Liberty International said it was considering ways to raise funds as the dash for cash among developers continued.

Britain's largest real estate company, which built Birmingham's Bullring, joined the scramble for capital with a £756m rights issue, the biggest yet in the current flurry of sector share offerings. Real estate companies have now raised more than £2bn through rights issues in a fortnight and there seems little chance of respite.

They are gunning for capital as real estate prices crash dramatically, putting them at risk of falling foul of their banks. The lending agreements underpinning their debt often specify that a ratio of assets to borrowings be maintained, meaning that when property prices fall they need to raise capital to keep their creditors at bay.

Liberty, meanwhile, said it is considering options to raise cash, which one person familiar with the matter said could involve a rights issue or share placing worth more than £500m, up from the £350m the company was understood to have been previously considering.

But with so many developers jumping into the fray, the appetite for real estate shares – however discounted – could soon start to dry up, making it harder and harder for firms to raise cash through this route. "There is growing concern over the appetite and depth of shareholder pockets to back forthcoming issues as the queue continues to expand," Tina Cook, an analyst at Charles Stanley, said.

Land Securities, a major landlord to the Government, is selling 291 million shares at 270p as part of a multi-pronged plan to prop up its ailing balance sheet.

The five-for-eight rights issue follows the sale of more than £3.4bn of assets since April, the mothballing of several large development projects and a 10 per cent cull in its workforce. The real estate investment trust will also cut its dividend payout pool to £212m from £307m, in line with weaker tenant demand for offices and shops.

Land Securities expects to declare a 7p per share dividend in the quarter to 31 March, and in every quarter thereafter until March 2010.

The company agreed in January to sell its Trillium building services outsourcing unit for £750m after a long process, but this was a lot less than investors had expected from the sale.

The rights issue offer price, at a 51 per cent discount to the closing price on 18 February, is fully underwritten by Citigroup, JP Morgan Securities and UBS. Citi, JPMorgan Cazenove and UBS are acting as joint bookrunners, and BNP Paribas, HSBC and RBS Hoare Govett are acting as co-lead managers.

Albright Investments, a unit of Peel Holdings, which holds approximately 5.8 per cent of Land Securities, will take up its full rights entitlement.

The Land Securities issue follows similar plans announced last week by rival FTSE 100 property developers British Land and Hammerson, which between them hope to raise £1.3bn of fresh equity to reduce debt and finance new acquisitions. The industrial landlords Brixton and Segro are also considering rights issues.

Average values have sunk by almost 40 per cent since the end of the debt-fuelled real estate boom in the summer of 2007, and few expect a recovery any time soon as businesses retrench and rope in their space requirements.