Slough Estates slides after house broker raises concerns about its US business

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Disappointment at Slough Estates' results for the first half of this year within Merrill Lynch, the property group's broker, unsettled the shares yesterday.

They fell 24.5p to 636p in one of the steepest declines by any constituent of the FTSE 100 after Merrill found Slough's 7.4 per cent growth in net asset value (NAV) - a key barometer - to 730.8p a share to have fallen shy of its 742p target.

Merrill, the joint broker to Slough alongside UBS, told clients that lacklustre NAV growth in the US could be a source of concern but continued to recommend that they buy Slough shares.

Overall profits before tax, after adjustment for one-off gains and a rerating of property values, of £68.1m were 22 per cent higher and in line with the estimates made by the broker.

Slough, the owner of six of the country's 10 largest business parks, benefited from fewer vacancies and higher rental prices during the first six months of 2006. Vacancies were pared to 7.4 per cent from 8.2 per cent at the end of December, while industrial property prices increased by an estimated 7 per cent.

An acquisition spree in the past year has seen Slough snap up the Heywood, Woodside and Treforest industrial parks.

Outside the UK, the company has spent £410m in Germany and the Netherlands to pare reliance on the domestic market, from which about two-thirds of its revenues are derived.

A restructuring of Slough's domestic business by its chief executive Ian Coull led him to embark on a 10 per cent reduction in its workforce of about 400 and end its involvement in the management of construction projects.

Alongside yesterday's results, Slough reiterated that it would apply to convert into a tax-efficient Real Estate Investment Trust (Reit) at the beginning of next year. At the last Budget, Gordon Brown prompted a rerating of the traditionally fusty sector by clearing their path for conversion. After a one-off payment equal to 2 per cent of the value of its £5.6bn property portfolio, Slough will then be exempt from corporation tax.

The company will pay an interim dividend of 6.9p, up from 6.5p in 2005.