Brixton asks for pounds 100m: Rights 'too cheap' as property comes back into favour

BRIXTON Estates yesterday became the latest property company to cash in on the recent enthusiasm for the sector by asking its shareholders for pounds 100.7m to finance expansion.

The main complaint from the City was that the issue had been priced too cheaply, and Brixton's shares were marked up 11p to 207p. The two-for-five rights issue was priced at 155p, a 15.3 per cent discount to net asset value at the end of 1992. But Andrew Causer of James Capel, one of the more optimistic property analysts, was expecting an increase to 190p this year and believes the issue could have been priced at 170p.

Brixton is the third big property company to ask for funds in less than two months. In April, Slough Estates raised pounds 150m through a rights issue, and last week Land Securities launched a pounds 150m convertible bond issue. Analysts expect others - such as Hammerson and MEPC - to follow suit.

The rash of cash calls reflects a sharp swing in sentiment towards property companies since interest rates started tumbling in the wake of sterling's exit from the exchange rate mechanism. The sector has outperformed the rest of the market by 35 per cent since then.

Lands, Britain's largest property owner, added to the excitement last week when it reported that demand for top-quality properties from foreign and domestic institutions was leading to small price increases.

Harry Axton, who retires as Brixton's chairman next month, confirmed signs of an improvement in the investment market. He said there was also more interest from potential tenants, although they were still unwilling to commit themselves.

The rights issue will initially cut Brixton's borrowings to pounds 247m or 60 per cent of shareholders' funds, compared with 114 per cent at the year-end. But it intends to re-invest the money in property and in building its development portfolio.

Marc Gilbard, property analyst at NatWest Securities, said the rights issue also improved the prospects for dividend growth from Brixton. Last year's 8.35p was less than 1.5 times covered by earnings and was likely to fall as the amount of interest charged to developments declined. The rights issue allowed it to boost earnings by buying income-producing properties.