In the balmy market conditions of 1987, property companies raised a staggering £2.5bn by issuing shares. The bull market pulled in foreign punters and allowed small companies to go from 0 to 60 in the property equivalent of 10 seconds.
But times have changed, as this week’s two big deals illustrate. The logic driving Aurora Holding’s sale of Hampton Trust to Southend Property Holdings is simple: the Kiwis are cutting their losses.
Battered by their own troubles at home, the New Zealand companies that bought into the London bull market are calling it a day. Before Christmas, the Chase Corporation sold their 60% stake in Chase Property Holdings for £198.4m.
In Aurora’s case, the losses are real, £26.27m. When Aurora bought its stake, it paid 120p a share; Southend’s cash offer is 85p per share.
This week’s other deal, the agreed merger between two relatively middle-sized British companies, Imry International and City Merchant Developers, is also all about changed market conditions.
The logic here is that in today’s tougher times, one big company is better than two smaller ones. Or, as one stockbroker put it: “One plus one equals three.”
What Imry and CMD say is that together they can be a “powerful new force in the property market”. The merged company has a market capitalisation of £191m, which puts it in the top 20, on a par with the likes of London & Edinburgh Trust and Brixton Estate.
With a bigger asset base, the new Imry Merchant Developers can borrow more, at better rates. The two companies are also fortunate in that the income flow from projects meshes nicely together. CMD’s City developments come on-stream over the next three years, while Imry has the St George’s Hospital redevelopment and The Shires shopping centre in Leicester which will start delivering in 1991.
And then, of course, there are the assorted strengths and skills of the personalities involved. Imry in its current form and CMD are both relatively new creations. As a colleague remarked, the origins of both companies are positively Biblical in their complexity.
CMD was built up by Martin Landau out of what was the UK property arm of the Guinness Peat Group; last May CMD reversed into Rivlin. Imry International was born from the merger between Arbuthnot Properties, run by Martin Myers (ex-Jones Lang Wootton), and the quoted Imry Property Holdings. Martin Myers persuaded David Davies — formerly managing director of Hongkong Land — to join as non-executive chairman.
It is this trio which will be at the helm of the merged company. David Davies will be chairman, with Martin Landau as deputy chairman and Martin Myers managing director and chief executive. Whether an enlarged Imry is big enough for all this talent remains to be seen.
The interesting point is that, were the market still booming, neither party would have wanted to get hitched. It is indeed a sign of the times that the marriage is taking place.
It is also likely that further mergers and takeovers are on the cards. October’s stock market crash has not only closed off a source of capital for property companies but it has also made whole companies affordable again.
From about April until October 1987, many property company shares were trading at a premium to their underlying asset values. Since October, their prices have reverted to the more normal discount.
Certainly Southend, which was interested in Hampton Trust before October, has bagged its game at a much more reasonable price. Similarly, Peachey Property, which is bidding for Estates Property & Investment Trust, will hope to pay less than would have been the case five months ago.
