U.K. Property Index Dips Most Since 1987 on HSBC Sale

U.K. real estate companies, led by British Land Co., Segro Plc and Brixton Plc, fell the most in more than 21 years on concern the 12.5 billion-pound ($17.8 billion) rights offer by HSBC Holdings Plc, Europe’s largest bank, might derail their own fundraising.

The FTSE 350 Real Estate Index of 18 companies fell 7.9 percent, the biggest fall since October 1987, after HSBC said it wants to tap investors for the cash as it scraps 6,100 jobs and closes U.S. consumer lending units.

Hammerson Plc, Land Securities Group Plc, the largest U.K. real estate investment trust, and British Land, the second- largest REIT, and have announced plans to raise 2.1 billion pounds in share sales to strengthen their balance sheets and avoid breaking lending agreements.

“Investors have a limited pool of capital,” said Mike Prew, an analyst at Nomura International in London. “This adds more to the real estate sector’s refinancing risk. Hammerson probably has the best chance of succeeding by virtue of being first off the starting block.”

Liberty International Plc, the largest owner of shopping centers in Britain, is in talks to raise 350 million pounds of extra equity, and Brixton, the biggest industrial landlord in the country, is looking at different ways of raising capital. Other real estate companies have raised or announced plans to raise almost 240 million pounds from share sales.

Enough Capital?

“Everybody fears that there will not be enough capital to go round,” said Harm Meijer, an analyst at JPMorgan Chase & Co. in London. “We haven’t seen any defaults yet but we will see some companies fall over.”

In January, Merrill Lynch & Co. real estate analyst Bernd Stahli estimated U.K. property companies might need to raise as much as $20 billion of additional capital.

Real estate would be at the “front of the queue” for equity in 2009, Ian Coull, the chief executive of Segro, the largest owner of office parks, said in January.

Segro, which gained the most in 20 years on Feb. 25 when its banks revised the terms of its loan agreements, had its biggest fall since September 1988 when the company said today it is in talks about raising additional equity.

The five largest real estate investment trusts -- Land Securities, British Land, Hammerson, Liberty and Segro -- have combined debt of 19 billion pounds, according to their latest reports. About 700 million pounds of loans are due this year, according to research by Nomura International.

Share Declines

British Land fell 57.8 pence, or 13 percent, to 400 pence, the biggest decline since September 1992. Segro plunged 25.8 pence, or 24 percent, to 81.5 pence, the largest fall since at least September 1988. Brixton slumped 10.25 pence, or 26 percent, to 28.50, the lowest since at least May 1989.

Land Securities Group Plc, which is selling 756 million pounds of new shares, fell 50.75 pence, or 9.2 percent, to 498.25 pence. Liberty dropped 18.5 pence, or 5.4 percent, to 326.5 pence.

To contact the reporter on this story: Peter Woodifield in Edinburgh at pwoodifield@bloomberg.net.

To contact the editor responsible for this story: Alan Mirabella at amirabella@bloomberg.net.

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