* Rights issue fatigue nears for property sector investors
* Bad news for smaller firms looking to raise cash
* Weak share prices, grim prospects undermine cash calls
By Sinead Cruise
LONDON, Feb 24 (Reuters) - British property sector investors are preparing to shut the door on new rights issues after being besieged by over 2 billion pounds ($2.9 billion) in cash calls by top names, condemning smaller firms to an uncertain future.
FTSE 100 titans Land Securities, British Land and Hammerson have all secured rights issues this month but shareholders are running out of cash and the appetite to rescue smaller peers trailing in their wake.
"Queuing is seen as a special gift of the British, fair and orderly, but it's looking a little less so in the UK REIT sector at the moment," Nomura analyst Mike Prew said.
"The rights process may dribble into the second quarter but money is getting more discerning, with the 'going concern' risk concentrated in the small caps," Prew said.
The signs of rights issue fatigue do not bode well for firms still hoping to tap institutions for funds to soothe loan-to-value ratios swollen by a record 27 percent crash in UK commercial property prices last year.
Mall owner Liberty International, industrial property landlords Segro and Brixton and asset manager Warner Estate Holdings are staging fiercely competitive beauty parades to convince investors they are most deserving of their support.
"There is a finite amount of capital available so investors will discriminate between issues based on portfolio quality and management strength," said Patrick Long, a director at Lazard, who advised Hammerson on its issue.
But many more companies are still pondering such roadshows, and the longer they wait, the harder it will be to attract institutions overwhelmed by competing demands for their cash.
WEAK BALLAST
Recent share price performance and alarming projected returns for UK commercial property undermine the cash calls.
Average real estate share price discounts to net asset value have widened to 59 percent after months of extreme market volatility, according to JPMorgan estimates.
Investment Property Forum forecasts for another 12.3 percent drop in bricks and mortar values by end-2010 have driven many risk-averse institutions further away from property. Luring them back will be no small feat.
"It is certainly a question of how much appetite is left," said a senior European equities manager, who asked not to be named.
"We are fatigued, holding as we do to the three (blue chips) that have raised so far. The market expects to hear from Liberty, Brixton and Segro, but they will struggle to find underwriting among the banks," the manager said, adding that Liberty had the stronger pulling power of the trio.
The post-rights issue performance of small business landlord Workspace adds to the worry. Its shares are trading at its 10 pence offer price less than a month after its 90 million pounds rights issue, after a 78 percent tumble this year.
SHORT-TERM SOLUTION
Even if stalwart investors take up their rights, some analysts claim the fundraising efforts merely suspend rather than stop the rot in Britain's tortured listed property market.
Rights issue proceeds may relieve short-term debt problems but they are no remedy for the potent combination of plunging real estate values and barren credit markets, which remain beyond a property company's control.
"There does appear to be capital out there, but two of the key things blocking the movement of that money are the continued lack of debt and unusually brittle sentiment," Phil Clark, joint head of property at Aegon Asset Management, told Reuters.
"UK real estate is certainly looking cheap on a relative basis to historic prices but investors remain concerned as to whether capital value falls will bottom out at around 50 percent peak to trough or slide a little further. They are still trying to judge possible outcomes of many great unknowns," he said.
If investors are unwilling to bail out cash-poor real estate companies, they may be forced to sell more assets at fire sale prices to raise the funds needed or consider debt-for-equity swaps like house builder Crest Nicholson, Nomura's Prew said.
But a fresh wave of asset discounting -- on top of the 40 percent falls already seen -- could extend peak-to-trough assumptions on the drop in UK real estate prices from around 50 percent to as much as 70 percent.
"The Investment Property Databank (IPD) index will never have been so closely watched as it will be for the February data when we'll see if the real estate market crash deepens or shows signs of slowing," Prew said.
"However, most REIT portfolios are underperforming IPD and futures are predicting another circa 30 percent fall in values. In that case some REITs could risk re-entering their 'covenant danger zone' as early as the summer," he said.
(See www.reutersrealestate.com for the global service for real estate professionals from Reuters)
(Editing by Richard Hubbard)