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Property companies in UK bracing themselves to seek finance from shareholders

The appeal to shareholders will be the only option open to many as other sources of finance dry up according to analysts.

According to research Land Securities, British Land, Hammerson, Liberty International and Segro, the five largest real estate investment trusts, have a combined debt of £19 billion.

Estimates from Nomura International claim that about £700 million of loans are due this year and the banks that granted the finance in better economic times may now be reluctant to provide more credit.

So some companies may be forced to issue new shares or sell assets, both moves that are problematic at a time when there are few buyers around with commercial property values falling 36% since their peak in June 2007.

The companies in the FTSE 350 real estate index need to raise a total of about £13.7 billion of equity, assuming that UK values fall 50% from the market's peak, according to Bernd Stahli of Merrill Lynch.

'This looks problematic as there is a very real possibility that this money is not there to begin with,' he said.

British Land, Hammerson, Liberty, Brixton, and Capital & Regional are among the companies that will be pushed close to breaching bank agreements by the end of the year because of depreciating assets, according to Harm Meijer, an analyst at JPMorgan Chase in London.

Some of the companies are preparing for the need to raise money. 'Real estate will be at the front of the queue for equity this year. There will be companies like us that want to put themselves in a strong position to benefit when the upturn comes,' said Ian Coull, chief executive officer of Segro, a major investor in office parks.

There are solutions, according to Martin Allen, an analyst at Morgan Stanley. 'Companies could potentially mitigate these problems by obtaining amendments to debt-gearing covenants or by cutting dividends, but we don't think these measures would be sufficient to address the problem fully,' he said.

British Land, the largest office landlord in London, has 'no immediate requirement' to raise capital, said spokeswoman Laura De Vere. 'But clearly raising equity is an option that's open to British Land, especially if matched with an opportunity,' she added.

The big question is whether shareholders will be happy to oblige. 'A lot of investors will be against paying just to bail out a balance sheet,' said Toby Courtauld, chief executive of Great Portland Estates.

Patrick Sumner, head of property equities at Henderson Global Investors, said; 'People would rather see their equity diluted than see it go to zero. It's a pretty stark but obvious choice.'