Michael Foster
Beneath the old-established heavyweights, top developers and wheeler-dealers there is a gang of smaller, active property companies which rarely hit the headlines but aim to expand operations by doing deals and developments in the traditional manner. They avoid the issue of heaps of shares to buy growth, and tend to have conservative, younger managements.
They include companies like Sheraton, Estates & General, Hardanger, Dencora, CALA, McInerney, Raglan — and Clarke Nickolls & Coombs, the former sweet company where Richard Mais, the son of former Peachy chairman Lord Mais, is in the saddle. All these companies have enjoyed varying rates of earnings growth; all of them should avoid the worst of property crashes. In CN&C’s case, profits are now beginning to take off in the wake of hard work put in to improve a stodgy recent record.
CN&C started life in 1872 as a partnership of people from fruit merchants Gray Barrow & Co, who reckoned there was money to be made from the candied peel business. They bought three-quarters of an acre at Hackney Wick, east London, and put in £16,000 to start off the business.
By 1876, they were making jam, lozenges and gums. They opened shops in Bishopsgate, Southwark and Peckham and expanded the Hackney Wick site. Profits were £5,900 by 1885; CN&C became a public company a hundred years ago last January. George Mathieson became chairman; his descendant, James Mathieson, retired earlier this year, saying as he left: “Nepotism may be a dirty word in these egalitarian times, but the practice has served the company well.”
By the first world war, post-tax profits at CN&C were £20,000; but trade was badly disrupted in the years that followed. Post-war boom profits back home helped revenue to £60,000, but in the 1920s and 1930s performance slumped. The company also expanded operations into South Africa and Ireland and took control of the Tom Smith cracker company.
Second world war rationing scarcely helped the sweet business; nearly half the CN&C factory in Hackney was destroyed in the Blitz. Despite post-war restructuring of the Clarnico confectionery operation, and the merger of Tom Smith with a rival operation owned by Mackintosh (later Rowntree Mackintosh), profit levels were hit. CN&C sold Clarnico to Trebor in 1972; the outbreak of Christmas cracker price wars, and the departure of some senior managers, persuaded Rowntree and CN&C to get shot of Tom Smith in 1985 for around £650,000.
Stripped of such interests, CN&C has developed its reputation as a property company. It had, in fact, been leasing spare factory and shop space since the early 1900s, particularly on its Hackney Wick estate which eventually extended over 16 acres. The first leasing of spare factory space was to the Oriental Waterproofing Syndicate in 1910.
CN&C also bought an old brickfield in the Thames marshes, filled it with factory waste and resold the land as building plots. It bought land in Nazeing and Epping, Essex, for resting horses. After the sale of Clarnico to Trebor, CN&C kept its East End estates plus its old factory in the Dublin suburb of Terenure (80,000 sq ft, and potentially up for sale).
After CN&C got used to being an employer of 12 people instead of 1,200, it began to redevelop its Hackney estate. Its first major scheme was a warehouse on a 4 1/2-acre site which was sold in 1973 at a profit of £600,000. The company survived the mid-1970s crash and started looking for opportunities in the South East.
Through all these years the Mathieson family ran CN&C; they still have 20% of its shares. A serious-minded individual called Richard Mais joined the company 12 years ago. He is the son of Lord Mais, who had to sort out the mess at Peachey following the suicide of Sir Eric Miller and brought in John Brown as company supremo.
Richard Mais is a former employee of the Lyon group. “I certainly learned a lot from Ronnie Lyon,” says Mr Mais. “I also learned the need for caution in any situation.”
Mr Mais brought an important deal to the party in 1980, in the shape of a partnership with the J M Jones building company run by Quentin Jones, who Mr Mais has known for 25 years. It kicked off with the development of shops, offices and homes in the centre of Reading, and became formed into a 50/50 company called Beacontree Estates (named after CN&C’s then new HQ near Stratford Broadway).
Beacontree set out to specialise in sheds near Heathrow and then got interested in hi-tech space. Mr Mais reckons that rents for such space in this area have at least doubled to £12 per sq ft since Beacontree moved into it.
Beacontree has generated a huge amount of project-management fees over the last seven years. It has masterminded the completion of more than 500,000 sq ft, and around 700,000 sq ft is being built, in places like High Wycombe, Woking, Crawley, East Grinstead and Slough (where Beacontree has a property at 1 London Road.)
In one interesting scheme, Beacontree has taken on the construction of a hotel (for Norfolk Capital) and a leisure centre on the old Reading pop festival site with the full backing of the local council, which has given permission for nearly 200,000 sq ft of commercial and hi-tech space elsewhere in return. Higgs & Hill have taken on one scheme; on the other Beacontree is building a hi-tech business park.
At Staines, Beacontree is building the 140,000-sq ft Pine Trees estate, which has one of the largest pine trees ever imported from the Continent on its grounds. Rents for the hi-tech space would be around £11 per sq ft; the offices would fetch £16. BUPA has just taken a 15,000-sq ft unit.
Mr Mais is happy with Beacontree’s achievements, but now recognises that its methods of securing project management fees from investors does not offer CN&C the kind of return it can make by putting up more of the equity. The priorities of J M Jones is getting construction work and C&NC in seeking rental income are no longer necessarily compatible. The plan is to finish existing projects within Beacontree, as both sides go their separate ways (except, presumably, on an ad hoc project basis).
In recent years Mr Mais has also worked to improve CN&C’s East End estate — a little far out, unfortunately, to benefit from the City’s Big Bang. He says that he has only one void (worth £9,000 a year) in his portfolio, and CN&C enjoys a good income from its multi-storey courtyards. It is only fair to add that few people would ever consider the property prime; it is currently valued on a prospective yield of anything up to 18%.
In the last three years, CN&C has also bought and developed wholly-owned property which should be enjoying some valuable rent reviews in a couple of years. They include offices in the West End of London, Brighton and Cheltenham; rents for some of the properties could more than double. One deal with which Mr Mais is pretty pleased is the purchase of a short lease at Old Broad Street on the City which expires in 1997; National Westminster Bank has leased the 16,000 sq ft of offices which indicates an income of £700,000 on a total purchase price of £2 1/2m. Wright Oliphant, the hyperactive City firm of agents now owned by Brookmount, introduced the deal.
After the completion and sale of a scheme at Burgon Street in the City, CN&C is tackling other projects in the area. One of them is 10,000 sq ft on Philpott Lane in partnership with a company called Eurolynx (backed by the private Heine Brothers of Australia); another on the stocks would comprise retail and office space of similar size. CN&C has also purchased a West End property opposite Rosehaugh’s London HQ in Golden Square for a major refurbishment. It has bought two properties in Coates Crescent, Edinburgh.
Mr Mais says he sees no sign of tenant demand fading as a result of the recent stock market crash, though for the time being he plans to take a back seat on acquisitions. The same is true for a couple of CN&C residential schemes at Holland Park and Cleveland Square in central London: most of these units have yet to be completed and asking prices will typically be around £300,000 each. CN&C has decided to take a trading profit running into six figures on a residential scheme in Victoria where 20 flats may or may not be built by the person who is supposed to have bought it from the person who bought it off CN&C.
CN&C’s other area of activity, courtesy of Mr Mais’ recent efforts, is America, where it has a quarter share of a shopping centre in Los Angeles called Marshalls Plaza alongside J M Jones and the Schurgin Development Corporation. It has a half share in a San Francisco medical centre, alongside Guinness Peat. This scheme was initiated with Martin Landau, who now runs Rivlin.
Mr Mais has no current plans for American adventures, given worries over the local economic situation.
All this activity has taken CN&C’s gross rents from £1m a year in 1983 and 1984 to £1.25m in 1985, £1.5m in 1986 and £911,000 in the first half of this year, indicating that rents for the full 12 months will usefully exceed £1.75m.
Since 1983, however, property sales have been volatile — going from £2.2m to £342,000 to £3m to £1.3m — and interest charges have also tended to rise, with CN&C increasingly relying on borrowings for development finance rather than institutions, who have been cautious of the property market recently. In 1986, total interest charges were £783,000 (£752,000) with capitalisation of interest in the accounts taking the amount going through revenue to £629,000 (£524,000).
As a result, pre-tax profits have not had a wonderful record. The £900,000 earned in 1983 has not been bettered since, with the 1984 total declining to £660,000; 1985 £478,000 and 1986 £693,000. The half year so far has brought in £720,000 on increased development sales.
Problems on a development in Eastleigh did not help CN&C’s performance in the early 1980s: “You can’t win them all,” says Mr Mais. “Any developer who says you can is lying.” CN&C’s full year dividend has stuck at 6.3p (or 3.15p after a recent one-for-one scrip issue) for the last three years.
Assets have, however, shown a growth pattern, going from 174p a share in 1983 and 1984 to 185p in 1985 and 210p last year (or 105p after the scrip). Helped by extra earnings retentions, progress could speed up this year unless valuers start getting cold feet after the stock market crash.
Last December, CN&C’s investment portfolio was judged to be worth £12.9m by Chamberlain & Willows. Development properties were in the books at £6.1m. Net borrowings of around £7.7m were 70% of shareholders’ funds — a sizeable increase on the previous year, perhaps indicating that CN&C would have gone for a rights issues if the stock market had not fallen. The recent fall in interest rates would now make some sort of fixed interest instrument more appropriate.
Meanwhile, the takeover talk which once surrounded CN&C has abated. The Mathieson family has been a firm holder of its share stake for the last 100 years and would not be ready to change its stance just yet. A blocking 29% stake is also held by a company called Caneopen, run by Hong Kong property man Payson Cha, who has a seat on CN&C’s board. Mr Cha has also been involved in the development of the massive Discovery Bay residential scheme in Hong Kong which now has its own stock market quote through the Hongkong Resort Co. Far be it from me to second guess the reason why Mr Cha has taken his stake; perhaps CN&C could be a useful place to park cash while the attitude of Communist China towards Hong Kong after 1997 gets sorted out.
The only other declared stakeholder in CN&C is M&G, with 9 1/2%. (“They’ve just switched us out of their recover fund into their small companies fund,” says Mr Mais. M&G tend to be quite protective of companies in which they hold stakes (witness their recent opposition to bid for Ocean Transport & Trading and Molins from Ron Brierley of New Zealand.)
Peter Jones (ex-Trust securities and now director of New Cavendish Estates) has in the past bought shares in CN&C and made noises about getting control. One property man once compiled an exhaustive dossier on CN&C with the aim of promoting a bid.
But investors are not over excited by such chit-chat at the moment. Clarke Nickolls’ share price has relapsed to 90p from recent highs of 170p and book assets of 105p, and now is not the time to jump on board despite all the hard work being put in by Mr Mais and his team — under the chairmanship of Eric Lyall. Wait until the ramifications of the stock market crash on the property sector become clear.
