Bottom Line: Payout key to MEPC rights

THOSE who wondered why MEPC did not give a clearer indication of the likely final dividend when it announced its interim results two weeks ago had their answer yesterday - it had to have something new to put in the rights issue document. And the dividend is the key to the cash call.

The promise to maintain the final payment gives the new shares a 7.1 per cent yield, more generous than on recent property rights, and is the main reason why shareholders should take them up. The cash call will also ensure that it can fund the dividend while it makes the investment in its portfolio required to boost its income.

The premium yield is needed to compensate for the fact that, refurbishment or not, its income is more likely to fall than rise over the next few years, making dividend increases unlikely for two years and probably more.

Of the seven companies which have raised more than pounds 1bn between them since the start of the year only three - British Land, Brixton Estates and Land Securities - offer the prospect of rising income in the medium term. Hammerson, Slough Estates and Great Portland Estates will struggle along with MEPC - although it can at least claim the distinction of not having cut its payment through the recession.

It is no coincidence that the three that are likely to increase their dividends, along with Great Portland, are also those that are planning to use the money to buy property.

Yields may be falling but they are still 8.5 per cent or more, which means that acquisitions will immediately boost the bottom line. For the others the rights money means they are not forced into selling income- producing properties to repair their balance sheets, but additions to the portfolio are well down the agenda.

As the last of the seven, MEPC should signal the end of the property cash calls. That may be just as well. The calls will increase the sector's market capitalisation by more than a tenth, yet there is still a lack of concrete evidence of a recovery. And the 8p fall in MEPC's shares to 414p yesterday - which, although not exactly hostile, is a far cry from the ecstatic reaction to earlier issues - suggests that the market is starting, belatedly, to take that on board.