Michael Foster
Optimism is strong in the property sector, and our old-established property companies are working hard to prove that it is not just the likes of London & Edinburgh Trust and Mountleigh who can aim to grow quickly as a result.
Developments put in train by the sector leaders now account for an average worth equivalent to at least a third of their net assets. Their shares are trading around or above the book value of their bricks and mortar; many are switching to a younger, affable but aggressive breed of directors.
Brixton Estate, under the leadership of managing director Douglas Gardner, typifies the trend. Its £100m development programme compares with a net asset worth of £185m, as at December 1986 — one scheme on a 160-acre site at Hersham, Surrey, could raise that total to £200m in due course.
The shares at 245p put a market value of no less than £215m on the company, even though the industrial property sector in which it has 58% of its assets is less popular among investors than shops or offices.
Brixton’s founder, the late Percy Meighar-Lovett, would be pleased at Brixton’s development, given that he started the operation almost by accident in 1924.
It was around that time that he succeeded his father as head of a Hatton Garden pearl trading business, and decided to diversify by buying a string of petrol stations.
One of the first he looked at was in Brixton, on the corner of Camberwell New Road and Brixton Road. It was on a 6-acre site developed as a taxi-cab garage and workshops by a failed French company called the Compagnie Generale des Voitures de Paris, and the premises had been empty for years.
Mr Meighar-Lovett was persuaded to buy the site for £135,000 by agents Savills. To do the deal with the French he was able to use francs stuck on the other side of the Channel because of local currency regulations. However, nothing happened on site for some time because he nearly went bankrupt in the 1930 crash as a result of being owed huge sums of money by French pearl dealers.
But he weathered the storm, and the Brixton property which lent its name to Mr Meighar-Lovett’s company soon started rising in value, with the help of financial backing from Clerical Medical & General (which still has 22% of Brixton). Its value is now £6.72m.
Mr Meighar-Lovett went on to develop various factories and rebuild the offices which had housed his pearl business in Hatton Garden. His company went public in 1935, when its fixed assets were around £250,000 and its pre-tax profits £10,000.
Holborn remained a centre of Brixton’s activities: one of its best-known investments is 58-62 High Holborn, which was built just before the last war when it was requisitioned by the Ministry of Agriculture, which proceeded to breed rats in the basement.
During the war, development ceased and Mr Meighar-Lovett went into the Telecommunications Censorship Department, ending up as deputy director. He retained contacts with many military friends after the war, and remained chairman of the Rifleman’s Association for a quarter of a century.
His boardroom meetings at Brixton were conducted like an Officer’s Mess — with drinks invariably poured at noon — and a number of distinguished servicemen have trooped their way through Brixton’s board of directors. However, although Sir Michael Beetham, Marshal of the Royal Air Force, is a current non-executive director of Brixton, the military tradition at the company is fading.
By 1954, Brixton’s fixed assets were £702,000; pre-tax profits were £100,000. It continued to build assets around Holborn on a string of bomb sites, these developments tending to be Georgian-style office buildings. One of its best-known investments is still Thavies Inn House on Holborn Circus, in which Robert Max-well showed some interest in buying last year, as part of his comprehensive plans to redevelop the area around the Daily Mirror’s premises; he also recently sold a big stake in Arlington — once tipped as a bidder for Brixton.
Brixton also expanded in the industrial field in the 1950s and assets had risen to £2.82m in 1960.
But then Mr Meighar-Lovett suffered two heart attacks, and in 1961 recruited Harry Axton to head day-to-day operations. A keen yachtsman, and popular figure in the property world, Mr Axton initiated major refurbishment schemes at Acton, Addlestone and Edgware for clients like Plessey and the Post Office. He then pulled off the purchase of a huge area of land at Dunstable, which became Brixton’s 1 3/4m-sq ft Woodside Estate. The oldest industrial building on that estate is now some 13 years old; its lease falls in eight years from now, when a rolling redevelopment programme could begin. The buildings are occupied by the likes of Marks & Spencer (whose storeroom serves Brent Cross), GEC and Trusthouse Forte, who recently agreed to take a 45,000-sq ft factory. Rents achieved are typically £3 per sq ft against 65p in the early 1970s.
Brixton has supplemented its Woodside Estate holdings with the purchase of 25 acres nearby. Known as Woodside Park, 110,000 sq ft of space has already been built there, 40,000 sq ft is under construction and the site could house another 250,000 sq ft. Rents range from £3.75 to £4 per sq ft, depending on size of unit.
Throughout Mr Axton’s years at the helm, Brixton avoided aggressive takeovers, though it did carefully cultivate a City following. Clerical Medical apart, it became especially close to its merchant bank Schroders, and Royal Insurance, which now has a 12 1/4% stake.
From the mid-1960s it started making waves abroad, beginning with an industrial site in Melbourne which had Mr Axton sinking up to his knees in mud when he carried out an inspection. This site became the Sandringham estate. Brixton also built a 180,000-sq ft office block in the city. Although development activity has ceased out there, for the time being, 5 1/2% of Brixton’s portfolio is “Down Under”.
Brixton also went to Belgium (7% of the portfolio), where it has become a major landlord around Brussels Airport; France (just under 1%), in central Paris and Germany (8%), around Dusseldorf and Frankfurt. Mr Gardner says that the excellent income stream justifies the retention of this well-scattered portfolio.
Mr Meighar-Lovett died in 1970. By 1974, Brixton was safely surviving the property crash, boasting £1 1/2m pre-tax profits and £58m in fixed assets. By 1976, profits were £1.95m, lifting to £2.77m in 1978. Important rent reviews on the 210,000-sq ft Holborn Estate and Woodside industrial estate fuelled more growth.
Brixton did some property dealing during this period (£500,000 of 1979’s profits of £3 1/3m came from this source). To supplement cash flow, the company bought 140 acres of land in Houston, which it hoped to sell on in due course. Unhappily, the purchase was badly timed, courtesy of the slump in oil prices. Brixton retains around 105 acres which have now been written down in value and transferred into fixed assets.
Douglas Gardner is not over-optimistic on prospects for Houston, though he notes that local tenants are now signing up for longer leases in the belief that the property market has bottomed. He is working hard to finish letting a 44,000-sq ft office development in New York (at around $24 per sq ft). Around 3.4% of Brixton’s assets are based in the USA.
Harry Axton embarked on the disastrous Fastnet yachting race in 1979 and, after serious storms, was lucky to end up in southern Ireland with minor damage to his boat and head. On the day contact with his boat was lost, Brixton shares went up 3p owing to takeover speculation; when he was found safe they fell back 4p!
Brixton’s profits hit £8.3m in 1983, though the property sector was generally going through a dull patch with institutional interest approaching its nadir. That June Mr Axton handed over the managing director’s reins to Douglas Gardner, who was then property chief at Tarmac.
To fuel fresh development, Brixton issued £15m of 11 1/4% debenture stock in February 1984. It also pulled off the purchase of an office building from Legal & General on Finsbury Square, London EC2, which greatly impressed the stock market.
Brixton rapidly refurbished that building into 87,000 sq ft of space; by stripping off old screed and putting in a raised floor it was able dramatically to increase both the building, floor loading and its appeal to tenants. It was let at around £19 per sq ft; anything up to £40 is now achievable for good, new space; so Brixton should benefit hugely on rent review in 1990-91. At a guess the building is now worth £35m against an all-in development costs of £18m.
George Orwell would be pleased to note that 1984 was not a good year for property. Rising yields kept the valuation surplus for Brixton’s assets down to £7.2m, taking the investment portfolio’s worth to £252m (plus £17m on the trading side). However, Brixton’s voids were only 4.17% of total space; it pulled off lettings of 500,000 sq ft during the year, and profits rose to £8.9m.
Throughout the mid-1980s, Douglas Gardner has been building up a sizeable development programme for Brixton — Harry Axton is now non-executive chairman. The most important scheme now on the stocks is on 160 acres at Hersham, where Brixton wants to get planning permission for 150,000 sq ft of retail warehousing (with prospective rents of £8.50 per sq ft) and 650,000 sq ft of business space (£10 per sq ft-plus), surrounded by an 80- to 90-acre park, a sports complex, housing for the elderly, a children’s playground, jogging circuit and disease-resistant elms. It will be called Weylands Park.
The land was bought from a private company, run by Eric Lavender who still has a house on the site, called Creeksea Sand & Gravel, and another concern called Burnleave. It was bought on a complicated formula, which should bring Brixton substantial profits on development. It is expected to be worth £100m on completion in the long term.
At the Regent Office Park in Finchley, Brixton is pressing ahead with a 65,000-sq ft scheme, where initial lettings 15 months ago came in at £10 per sq ft. A more recent deal is bringing in £12.50, and £15 could be on the stocks for a smaller office block of 10,000 sq ft soon. By comparison, rents in the area were only £8.75 two and a half years ago.
To add to a recently completed hi-tech unit at Egham, Brixton has applied for planning permission for a two-storey block comprising 30,000 sq ft. It has pressed ahead with the rolling redevelopment of its 300,000-sq ft Westway Estate near White City (on a small part of which Brixton’s old rival Slough Estates has a long lease).
At Southwark Bridge, Brixton has bought a site suitable for £63,000 sq ft of office and office support space from the Prudential (with prospective rents ranging from £27 per sq ft to £15). South of Tower Bridge it has a site suitable for nearly 100,000 sq ft of warehouse space, plus 29 residential units: on the North Circular it has 8 acres mainly for business use.
It is seeking to extend its Feltham Corporate Centre (currently comprising headquarters/production buildings totalling 129,000 sq ft 4 miles from Heathrow Airport) on an extra 4 acres. Work continues on the redevelopment of its Castle Estate, High Wycombe (with likely rents of £10 per sq ft), and construction on a 2-acre site next door. Extra development is planned at Acton Park, near Shepherd’s Bush. The company has bought in freeholds as and when it needs to on various parts of its UK portfolio (now comprising 75% of the total).
Abroad, work has been completed on a 61,500-sq ft warehouse scheme at Hochdahl, Germany. Meanwhile, Doug Gardner is particularly excited about prospects in Belgium, where work has started on 68,000 sq ft of warehouse and office space on its E40 business park at Zaventem. He is keen to expand his office portfolio in Brussels, successfully enlarged two years ago with the purchase of the rump of C H Beazer’s old portfolio; interest rates in Belgium are now low enough to guarantee an income surplus on relatively high-yielding good property.
On the corporate front, Brixton remains strong. Finances are in the hands of Robin Wilson, who eventually succeeded Andrew Nichols after he left to set up high-flying Randsworth Trust with David Holland in 1985-86. Group pre-tax profits last year were £10.8m, some £573,000 of which came from dealing, after interest charges of £10.9m (not including £2.86m of capitalised costs). Earnings per share of 9.79p covered a dividend of 6.5p.
Net assets are £185m (225p a share), after a sizeable revaluation surplus of £23m. Stockbrokers are guessing that Brixton’s assets per share could rise to 270p this year. Net borrowings are larger than they have been in the past at £147m — not surprising in the light of recent development activity. The company has just announced a commercial paper programme, which involves borrowing direct from other companies with a cash flow surplus at a margin typically 9 1/2% point below what is on offer from the bank.
Brixton, regrettably, lacks the glamour of the likes of Randsworth, which has used the enthusiastic support of the stock market to build a net asset from nearly nothing to £100m in the last year. Stock market investors these days are in love with new concepts and managements, and impatient with solid track records. This may yet mean that someone with highly priced paper could aspire to seek control of Brixton via a takeover bid, and stand some chance of success. Fashions will change one day, but in the meantime Mr Gardner and his team must continue to work hard and to reshuffle assets in order to ensure that Brixton retains its independence. Good luck to them.
