Land Securities has launched a £755.7m deeply discounted rights issue to repair its balance sheet.
The UK's largest listed property company will raise the new equity by offering its shareholders 290.8m new shares at 270p each on the basis of five new ones for every eight held.
The price is more than half LandSecs' share price of 568p at the close of trading yesterday. Any shares that are not bought by shareholders will be taken up by underwriters, UBS, Citi and JP Morgan Cazenove.
The rights issue, which was widely expected, is the third by a major listed property company in the last two weeks, as plunging property values have put the major REITs at risk of breaching loan-to-value covenants.
Analysts believe the rights issue window will be virtually shut following LandSecs' issue because institutional money for the battered property sector is running dry. Only Liberty International next week and, possibly, Segro, are regarded as companies that might succeed in having an issue underwritten.
'We have a good track record of creating value for shareholders through the property cycle and have decided to seek further capital at this stage to ensure that the company's balance sheet is appropriately structured,' said LandSecs' chief executive Francis Salway. 'This will help protect the business against the downside risk of further falls in property values and thereafter position the business to exploit attractive market opportunities.'
Although LandSecs has sold a lot of property - £3.4bn - since the property market began to slow down in 2007, it said 'the pace of valuation decline has, in recent months, exceeded the pace at which assets can be sold to counteract the impact of falling values on the group's balance sheet position, and this represents an ongoing risk'.
It said that between 1 October 2008 and 31 January this year its portfolio plunged in value by 20.1% to £9.97bn. The valuation was affected not just be a continuing rise in yields but also by a 5.4% drop in rental values.
LandSecs is also cutting its dividend by 31% to 28p a share for the full year. 'The board has determined that it would be prudent to reset its current dividend to a level that we believe is sustainable and provides the potential for future growth,' said Salway.