by David Brewerton
The bravest company of 1987 was not Mountleigh, with its ambitious plans to buy the Storehouse retail chain and the successful acquisition of the Pension Fund Property Unit Trust portfolio.
Nor was it MEPC, with its decision to take on Harry Hyams in takeover battle. Who dared, won.
It was little Trevian Holdings. Trevian, a mixture of property trader, would-be investor and estate agent, brought itself to the stock market after October 19 and is battling through a difficult winter.
October 19 was the day everything changed. The world suddenly took fright at the size of the economic imbalances within the United States economy, and markets collapsed all around the world. The level of share prices had come too far, too fast and a correction was inevitable.
But, like a toddler running downhill, the market could not pause to regain its steadiness. It fell over, and then began rolling downhill, over and over, day after day.
Some of the markets where property is most strongly recommended came off worse. Australia and Hong Kong were down much more than London, while London fell more heavily than New York.
Given that, Trevian was either brave or foolish to push ahead with its stock market flotation. The price was adjusted downwards to reflect the changed conditions, but it was still too high. Shares were placed at 70p, but by mid-December had slipped to 66p. In the immediate after-market they did reach 73p, but did not hold that level for long.
The eventual stock market price is probably only half what could have been expected had Trevian come to the market three months earlier. It would have been floated at a much higher price, and the shares would have gone to a premium.
But if the lessons of 1986 and the early part of 1987 are any guide, then the slow starters may in the end put up the best performance. Take Local London, floated at 135p in 1986 and currently standing around 385p, despite the crash.
Compare the after-market performance of Bredero with that of London & Metropolitan. Both were floated in 1986 at the same price, 145p. Bredero was deemed unexciting and the shares did nothing for weeks, whereas London & Metropolitan was acclaimed (by myself included) as one of the hottest properties to come to the market. But now Bredero is still above the issue price, where L&M is barely above 100p.
None of that change took place in the early part of 1987, it was all crowded into the last 10 weeks.
Until October there had been, as we predicted here a year ago, a steady stream of new issues. The property list in the Financial Times went up by a dozen companies, not many of them household names.
The two “best”, or at the least institutionally acceptable, newcomers were undoubtedly Shaftesbury and Stanhope. Both came to the market stuffed with exciting central London properties and developments. Both arrived with big name property men at the head of the boardroom table.
Stanhope is the quoted vehicle of Stuart Lipton, who made his name in the 1970s with a reputation for top quality, technically advanced and imaginatively financed schemes.
His claim to fame in the late 1980s is as the other half of the Broadgate development partnership with Godfrey Bradman’s Rosehaugh. The Stanhope prospectus gave analysts a wonderful opportunity to reassess the Broadgate scheme, and a new game of weighing the Stanhope price against the Rosehaugh price was set up by the analysts.
As each price notched a little higher, the sums would be reworked to establish a higher price for its partner. The disequilibrium provided endless sport and much churning of the shares.
Stanhope, floated at 250p, reached a high before the crash of 317p, but at the middle of December was standing at less than half that. Perhaps the 180p minimum tender price was the “real” value after all.
At the head of Shaftesbury was Peter Levy, whose father, Joe Levy, built up Stock Conversion. The company was built up with certain parts of Stock Conversion, although no deal had been arranged by Peter Levy (who was a Stock Converison director) until after the agreed takeover was completed.
Shaftesbury’s choice development opportunity lies in the heart of London’s theatreland. The company owns a huge chunk of Chinatown, and is set to take advantage of the rapidly rising rental levels being seen in the West End.
A couple of estate agents came to market, John D Wood and de Morgan. John D Wood has been quiet, but de Morgan has already begun to make use of its paper with acquisitions and is being hailed as “the new Abaco”. If that is the case, then it has arrived at exactly the right moment because Abaco, which began its corporate life as a penny shell called Greencoat Properties, is being taken over by British & Commonwealth.
Another market newcomer to start making use of its new status was Power Corporation, a Dublin-based retail specialist in which construction group AMEC have a significant stake. Just before Christmas, Brent Walker, the leisure and property group headed by George Walker, announced a deal with Power which will give it 25% of the famous Trocadero in London. Without public company status, the financing of the deal through Standard Chartered Bank would have been at least more expensive and perhaps impossible.
The Docklands boom in housebuilding came and may have gone, but it brought Kentish Property to the stock market. This was one of the worst hit by the market crash, striking a high of 345p just after flotation but falling to under a pound in the aftermath of Black Monday.
According to figures put together by Nick Hunter Jones, property analyst at Paribas Capital Markets, the year saw £1.7bn of new equity issues from the property sector, both from new flotations and from existing quoted companies seeking additional funds. That was a full £1bn up on the previous year, and a record by far.
That activity has, however, left property companies in a fine financial position to start 1988. Again, according to figures produced by Mr Hunter Jones, the top 50 property companies had net assets of £11.9bn at the end of October. Fixed debt of the same companies was standing at £3.3bn, while floating rate debt was a combined £2.5bn.
Cash amounted to £1.4bn, and cash, in 1988, will be king.
