View from City Road: Time for a rethink on MEPC

The market's disillusionment with MEPC yesterday - its shares fell 27p to 523p - emphasised what can happen when expectations get out of kilter with reality.

It showed that the rush of investment interest in UK property is several steps ahead of the demand from occupiers that will finally push up rents and allow companies to increase their dividends.

Figures for the year to September showed that net assets per share, the key measure for a property company, fell 7 per cent to 416p, way below most analysts' forecasts. Earnings failed to cover the 20p dividend, maintained as a carrot to shareholders who stumped up pounds 220m in the summer.

What the figures underlined was the supertanker effect that makes property investment a fundamentally high-risk business. When a share investor gets it wrong, he can jump out quickly. When property companies head off in the wrong direction it is difficult to steer them back on to a growth tack.

A 3.1 per cent rise in the value of MEPC's investment portfolio, compared with a 2.7 per cent drop when development properties were included, showed two things. The market has indeed turned, but those companies that put up the wrong sort of properties at the wrong time have missed out on the improvement and will continue to do so.

Like many of its peers, MEPC now has shares worth more than the underlying value of its assets, even looking a year out and assuming tightening yields. Since sterling's exit from the European exchange rate mechanism, the property sector has outperformed a buoyant stock market by 71 per cent. The market's pause for thought yesterday was not before time.