Michael Foster
Dutch property company Rodamco has brought a new meaning to that well-worn phrase “Doing a Haslemere”. After a month of stock market skirmishing, it has taken control of Haslemere Estates via a £245m takeover bid and gained its first foothold in Britain.
A sale of between 10% and 20% of Haslemere’s portfolio is on the cards. Rodamco aims to complete the company’s current development programme, but from then on its expansion in Britain is likely to be slow but steady.
Rodamco is a £500m company (before tacking on Haslemere), operating out of an unassuming block of offices in Rotterdam. It is an offshoot of Robeco — one of the biggest investment companies in the world, with over £6bn of funds under management.
Robeco was set up as an investment club by a group of Rotterdam businessmen hoping to make some money by buying bombed-out stocks and shares in the wake of the Wall Street crash of 1929. The club started off calling itself the Rotterdamsch Beleggingsconsortium, and converted itself into a limited company in 1933. An ex-naval officer called Willem Rauwenhoff become managing director of Robeco and his bicycle became a familiar sight on Rotterdam’s streets as he sought out potential investors.
Robeco started off investing in Holland, Indonesia (then part of the Dutch empire), Germany and the USA.
It got a quote on the Amsterdam stock exchange in 1938 and in due course exercised its right under Dutch law to issue new shares whenever demand exceeded supply, or repurchase them when the reverse happens. This device ensures that the Robeco (and Rodamco) share price is always roughly in line with its net asset backing.
After the war, Robeco ran down its investments in Indonesia and South Africa and stepped up its holdings in the US. It started investing in West Germany in 1958, and Japan in 1963.
In 1965, Robeco started a new fund, called Rolinco, which aimed to invest in shares offering quick capital gain rather than income. After Rolinco came Utilico — a company set up by Robeco in 1966 to invest in the utilities sector. But Utilico’s prospects were hurt by the world oil crisis of 1974, and it was absorbed by Robeco that year.
Around the time when British voters were deciding whether or not we should stay in the Common Market (in 1975) Robeco caused quite a stir by unloading vast quantities of British shares on the back of a rally in the stock market which started in January. “Clearly you need more than Dutch courage to back our bull market,” said Patrick Sergeant, City editor of the Daily Mail.
Around that time, Robeco set up a new company called Rorento to invest in fixed interest and floating rate securities. It started Rodamco in 1979, and a Dutch savings bank, Roparco, in 1981.
Booming markets
In calendar 1985, Robeco lifted profits from £80m to £86m (working on an exchange rate of F13.9 to the pound). Booming stock markets world-wide helped the value of Robeco’s investments soar from £1.8bn to £2.3bn. Robeco became a heavy seller of US stocks (perhaps prematurely) and a net buyer in Britain.
Robeco made its move into bricks and mortar in 1978 by buying properties from the troubled Dutch storage and distribution group Pakhoed, as well as a big stake in US real estate investment trust Hexalon. It bundled the assets together and put them into a new company in 1979. Robeco thought of calling the operation Rovasco, but eventually plumped for Rodamco. The shares were offered to the public at F1100 each. That valued Rodamco at F1405m.
On day one, 38% of Rodamco’s assets were in the US; 6.1% in Germany; 45% in Holland; 7.9% in Belgium and 2.9% in France. For some time, Rodamco refused to invest in British real estate (it disliked our low yields and was not altogether happy about prospects for the British economy), but it soon tangled with British investors when it took a 25% stake in the European Property Investment Company in September 1979.
EUPIC was set up as a vehicle through which British institutions could invest in Continental real estate in 1973; the management had strong British representation, and an even stronger streak of conservatism. In 1977 Dutch property group Wereldhave attempted to take over EUPIC; two years later it sold its 25% stake in the company to Rodamco (around that time Robeco was also a shareholder in Wereldhave).
Rodamco eventually took control of EUPIC with a company called Zandbergen (where Robeco has a majority stake). By 1983 Rodamco had 95% control of EUPIC; its British managers were ousted.
In February 1983, Rodamco’s asset worth rose to Fl1bn (£256m at 1986 rates): 47% of its assets were in offices, 41% in shops and 12% in warehouses. Rodamco’s Hexalon arm took an option to buy the huge State Street Bank Building in Boston (later exercised), and a bright lawyer called Paul van Romunde (a major mover in the bid for Haslemere) joined Rodamco’s.
During 1983, Rodamco began buying property shares around the world. In Japan, it bought stakes in Mitsui Real Estate and Mitsubishi Estate; in Singapore it had a dabble in Singapore Land. “Our investments in Japan have more than quadrupled since we bought them,” says Rodamco boss Cornelis van Rijn. “Let’s not talk about Singapore Land.”
Rodamco also bought shares in Land Securities and Haslemere. “The interests we have acquired are in companies with an excellent record,” it said.
US expansion
As Rodamco slowly lifted its Haslemere stake towards 12%, it continued expanding in the USA through Hexalon (whose properties now have a total worth of over $500m and include two huge office blocks in New York’s Wall Street and Fifth Avenue). Despite the poor state of parts of the US property market, Rodamco’s local voids only rose from 3.9% to 5.2% in 1984-85; nevertheless letting managers were changed and the company said: “developments must be watched closely”.
Rodamco’s 47.5% stake in Hexalon represented 56.7% of total assets, worth £410m in February 1985. Rodamco also bought a 10% stake in Utrecht’s huge Hoog Catharijne office and shopping complex from the local Civil Servants pension fund. Some small refurbishments were started. But the weakness of the Dutch property market meant that its representation in Rodamco’s portfolio declined to 17.7%.
In the year to February 1985, Rodamco’s profits rose to £23m (£13.6m), though the growth in earnings per share was much less impressive. The issue of substantial numbers of shares during the year meant Rodamco had nearly £200m in cash, or near-cash, to spend on acquisitions.
Rodamco announced plans to buy some offices in Paris, and grow in Australia (its main investment out there at present is shares in the Schroder Darling Property Fund), and Peter Barrington (ex-Hammerson) is advising on possible expansion.
Participation
Last summer, Rodamco got rid of an office investment in Denver, and some Dutch supermarkets. It revealed assets of over £500m, and began talking to Haslemere about participating in the redevelopment of the 60,000-sq ft Capel House, on London’s New Broad Street.
Haslemere directors ignored stock market rumours that Rodamco could be about to make aggressive moves. Six months later, Rodamco made a hostile bid for Haslemere, valuing its shares and convertible loan stock at £230m.
Haslemere was founded in 1943 by the late Fred Cleary, who saved Max Joseph (the founder of Grand Metropolitan) from bankruptcy by signing a contract for the Aberdeen Park Estate in Highbury just before the second world war broke out.
David Pickford, a former Hillier Parker surveyor, joined Fred Cleary at Haslemere in 1949. From his earliest years, he took a great interest in building renovation; in the mid-1970s, he said: “It’s the quality of buildings and the quality of life that’s important. If you get that right, the money follows.”
Haslemere started out as a residential property company, but grew rapidly as a commercial property developer in the 1950s and 1960s. It became Britain’s leading refurbishment expert; hence the catch-phrase “Doing a Haslemere” developed.
Haslemere financed its activities conservatively. It was an early proponent of funding schemes in partnership with institutions; critics occasionally muttered that Haslemere gave away too much of the action. But Haslemere argued that their methods allow a much larger portfolio spread — and often give them half the income from a scheme for less than half its cost.
Neither Mr Cleary, nor Mr Pickford, held controlling shareholdings in Haslemere in the early 1970s and a build up of strategic shareholdings was inevitably.
Wheeler-dealer Christopher Selmes of Grendon Trust was first on the scene (his latest object of attention is Delyn Packaging). In the mid-1970s an 18% stake was built up by the South African Schlesinger family’s Throgmorton Securities, which had ambitions to build a giant UK property base.
“We congratulate Throgmorton on buying into one of the most successful property companies in London,” said Mr Cleary. In December 1973, he revealed that the worth of his investment properties had risen from £62m to over £100m between March and September. The announcement was made at the time of Haslemere’s interim results; some people interpreted it as a defensive gesture, others reckoned that Haslemere did not want to cause a political storm by revealing a whole year’s worth of soaring property values at once.
Either way, Haslemere need not have worried. The property slump engulfed Britain and financial problems at Throgmorton forced it to sell its stake after 1976. Other strategic stakes held by Phoenix Assurance and Hill Samuel’s investment funds were dispersed with time.
Haslemere made small property value write-downs in 1974-76. A few squalls hit its small German property arm, but its revenue account and balance sheet remained strong. Three rights issues (to raise £44m) between 1976 and 1981 showed that Haslemere still believed in financial conservatism as well as conservation.
By the late 1970s, Haslemere joined in the industrial building boom by bringing forward a string of well-conceived warehouse schemes in places like Bishops Stortford and Heathrow. It recognised that small office refurb schemes alone would not be sufficient to fuel growth as its assets grew in value and embarked on two office schemes in central London — 60,000-sq ft Sherborne House, Cannon Street, and the rather ugly Bury Court House at Bevis Marks (with Scottish Amicable), which totals 105,000 sq ft.
The latter two schemes took some time to let, and Haslemere’s revenue record between 1981 and 1985 was unimpressive. Earnings per share in 1984-85 were 5% less than the total for 1980-81, and asset growth was slow. Haslemere made some attempt to get into the retail property scene, with little success, though it did pick up an impressive 100,000-sq ft office, shop and residential scheme on Richmond’s riverside from English Property Corporation.
Fred Cleary retired as chairman in 1983, and became president. He died a year or so later, at the age of 79. Mr Pickford became chairman in Mr Cleary’s place, and Gerald Powell his right hand man.
These changes coincided with a period of weakness for Haslemere’s share price. The shares spent most of 1985 hovering around 500p and barely rose over the year as a whole. Brokers Scrimgeour noted: “The relative premium rating which Haslemere’s shares have traditionally enjoyed has been steadily eroded.” A 5.2% rise in assets per share to 649p in 1984-85 did not inspire.
On the chilly morning of February 13 1986, a messenger was sent on his way from Rodamco’s bankers Kleinwort Benson to Haslemere’s Mayfair headquarters at Carlos Place. He conveyed news of Rodamco’s intention to make a 600p a share bid for the company, while its brokers Rowe & Pitman plunged into the stock market to snap up as many shares in Haslemere as they could. The dawn raid lifted Rodamco’s stake to 24% in short order, and Haslemere’s shares soared from 505p to 620p.
Short-sightedness
Haslemere and its advisers Hill Samuel and brokers Quilter Goodison alleged that Rowe & Pitman had failed to tell institutional investors about Rodamco’s bid when they were raiding the shares, but Rowe & Pitman denied the charge. The Takeover Panel investigated and supported R&P’s point of view. Frankly, selling out to a dawn raider is a pretty short-sighted investment policy at the best of times; R&P were lucky to get as many shares as they did.
Much to Mr Pickford’s surprise, Rodamco had recruited his old pal Maxwell Creasey (ex-MEPC) to assess Haslemere’s portfolio and potential. Rodamco’s Cornelis van Rijn commented: “Haslemere does have a fair amount of attractive property, but some is mediocre and some I would not buy if it was not already in the portfolio.”
Mr Pickford was quick to reject the charge. “We shall fight them on the beaches with sticks and stones,” he vowed. But he was studiously polite about the Dutchmen: “They’re nice people,” he said.
Rodamco fired off their offer document on February 17. It pointed out that Haslemere’s shares had substantially underperformed the property sector in recent years, and that the average increase in assets per share was just 4.95% a year since 1981.
Haslemere resisted the temptation to advertise its case in the press. Instead it printed up some bright blue posters and stuck them on its buildings to remind passers-by that Haslemere is part of Britain’s heritage.
Its subsequent defence document of March 3 made the point that Haslemere’s practice of knocking development interest charges off its profits had depressed profits in recent years. By capitalising interest charges, Haslemere’s earnings per share would have grown at an annual rate of 13.7% over the last five years (though subsequent valuation surpluses would have been smaller).
Share mistake
Agents Cluttons revalued Haslemere’s investment properties to take assets per share to 728p. That included a 27p surplus on trading properties tucked away in Haslemere’s accounts at cost, and indicated a valuation uplift of around 6% over the year. The document said development surpluses could add a further 20p.
Haslemere made the mistake of not pushing the maximum possible asset backing per share to the fore. That would have totalled 760p, after taking account of potential revenue surplus of 13p (including a final dividend) which Haslemere revealed when it had lost the battle. With Rodamco sitting on a quarter of its stock, Haslemere had to pull all the stops out at an early stage to have a hope of staying independent.
But Haslemere’s main mistake was not paying more attention to those rumours of Rodamco’s discontent six months before. As Stock Conversion proved in its successful campaign to keep Stockley at bay, a fair bit of good publicity and bustle in the months leading up to a potential bid can make all the difference to a company’s image.
Haslemere held meetings with the press at the offices of Hill Samuel the day its offer document came out. Hill Samuel’s offices were in the process of being renovated but Mr Pickford and his team did not seem to be in much of a mood to appreciate the work being done.
Things went quiet in the days which followed. Haslemere’s share price stayed safely in the 620p-630p range; bid acceptances of just 0.1% had crept in by March 12, and the company did the rounds reminding people that they weren’t just “nice people.” Gerald Powell said: “We are also very good at our job and aggressively so.”
Haslemere also put adverts in the Dutch press telling the people over there that Rodamco weren’t playing cricket by making a hostile bid.
On March 14, Rodamco raised its bid to 640p. Rowe & Pitman went back into the market to buy Haslemere shares, and by 10.30 that morning Rodamco had 50% control. David Pickford met Rodamco the following week and reluctantly surrendered. A sad little document appeared soon after confirming that position, and mentioning that Haslemere’s potential profits in the year to March 1986 were not less than £7.2m (or 13p a share); hardly enough to set the world alight, but by then nobody cared.
Cornelis van Rijn insists to this day that he never would have paid much more than £245m for Haslemere. He believes he paid a full and fair price, though few doubt that he will be happy enough with his purchase in time.
For the time being, Rodamco has 40% of its money invested in Britain; more than anywhere else in the world. Rodamco would prefer to have a quarter of its cash over here, and will achieve that figure by growing elsewhere and selling Haslemere properties. Central London will be its chief stamping ground; roughly two-thirds of Haslemere’s £350m portfolio are offices in that area.
Rodamco hopes that Max Creasey and the vast bulk of the Haslemere team will stay in its employ. It is scrutinising various job applications and offers of property, and stock market rumours suggest that Rodamco is ready to build on a small stake in Hammerson. But those expecting another major move in the UK from Rodamco in the near future are either over-optimistic, deluded or probably both. And Hammerson would be a tough nut for anyone to crack.
Rodamco’s shares are currently quiet at around Fl 141 (£36), and it has no early plans to go for a British Stock Exchange listing. Since its first listing in 1979, Rodamco’s stock has risen by a solid rather than spectacular 75% in Dutch currency terms (after accounting for scrip and share issues); that progress is likely to be sustained although a certain stodginess in the US and Dutch property markets may impede progress in the near future.
British property shares are currently near all-time highs. Our investment giants would be well advised not to be too complacent about their future, given that foreigners are showing increasing interest in our property market; active newcomers are getting more ambitious, and shareholders seem prepared to support takeovers at well below asset backing (16% below in Haslemere’s case). People who seek financial support from the City can only expect the worst if the City ceases to believe in them.
