Property companies lining up for market in 1994

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The Independent Online
AT LEAST 10 private property companies, with a combined market value of up to pounds 500m, are preparing to float on the stock market next year.

They include Pillar Properties, which has assets worth pounds 250m, and a number of smaller companies such as Speciality Shops, Industrial Ownership and Rugby Estates.

All are looking to take advantage of the recent surge in values that has seen property outperform every other domestic sector on the stock market. In the past 12 months, Greycoat has more than tripled its share price, while another three quoted property stocks are in the top 10 performers among companies capitalised at more than pounds 50m.

A sustained period of low inflation and low interest rates has dramatically altered investment returns. With equities currently yielding 4 per cent, bonds below 7 per cent and cash about 6 per cent, property yields of 9-10 per cent looked increasingly attractive earlier this year.

The result has been a massive switch into bricks and mortar, then property stocks, as some pounds 3bn of institutional money chased higher returns. 'I have never seen this sort of feeding frenzy before,' said Robert Maxstead, chief executive of Pillar Properties. 'There's been an extraordinary shift in yields. They are now in excess of the cost of money.'

Institutional demand has pushed yields markedly lower, but they are still higher than returns elsewhere. Anticipated rental growth has also helped to sustain interest in the sector, with many companies valued at a premium to their assets. This makes it the ideal time for them to tap the market. Marc Gilbard, industry analyst at NatWest Securities, said: 'Property companies don't like to dilute their asset value by issuing shares at a discount. They want to raise the maximum amount of capital in order to expand.'

Several companies have already announced plans to go public, among them Fiscal Properties and Chelsfield. Mr Maxstead said Pillar Properties was also considering the possibility of flotation. He added that the company had other kinds of access to capital. But, with an average yield of 9.7 per cent and average lease length of 22 years, Pillar Properties is the sort of investment for which the institutions are hungry.

The same is true of Speciality Shops, which operates high-quality shopping centres. 'We do recognise there's an opportunity out there. We've always prided ourselves on being private, but it is very difficult to raise money as a private company,' said Stephen Jaffe, managing director,

John Sims, managing director of Industrial Ownership and Cinio, its joint venture with the coal board pension fund, also said he had his sights on the stock market. 'If we were to consider flotation - and it is always an issue - we would need to have a story to tell shareholders,' he said.

Industrial Ownership specialises in the intensive management of mixed ownership estates - where tenants can rent, buy or rent with an option to purchase.

A number of smaller specialist operations are also thought to be considering the flotation option.