Chelsfield builds on a tough site:The Investment Column

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The Independent Online
Chelsfield's three-for-10 rights issue to raise pounds 102m did nothing to upset the property company's premium rating. The shares closed 5p lower at 249p yesterday, slightly above the notional ex-rights price and well ahead of brokers' net asset value forecasts for the end of the year of about 220p.

Compared to the rest of the tired property sector, where companies are on average trading at a discount to projected net assets, that is quite a vote of confidence in the management of Elliott Bernerd, who founded the business 10 years ago and, after passing on some of his rights entitlement, will still own nearly a quarter of the shares.

So how justified is the market's love affair with Chelsfield and how much of the good news is already in the price?

As a financial dealmaker the company has an enviable record, and the acquisition of the final 10 per cent of the Merry Hill shopping centre, announced with the cash-call, is the final move in a flawless strategy to get hold of one of the country's biggest retail sites. The pounds 10.3m price tag for the final tenth of the equity was actually the most expensive slice and Chelsfield has now bought the whole centre for a little over pounds 40m. It is conservatively worth pounds 250m and, with low average rents and plenty of adjoining land to develop, the potential is enormous.

Regional shopping centres are currently the property sector's hottest assets and if you were to put Merry Hill on a similar valuation footing as Donny Gordon's Capital Shopping Centres sites at Thurrock and Gateshead this asset alone could make the stock market premium look justifiable.

But the biggest potential probably lies in London, where Chelsfield has control of a proposed retail and housing development in White City, an inexplicably derelict site within minutes' drive of some of the country's most affluent residential areas.

Chelsfield has spent pounds 50m putting together the site and reckons it will need to spend a further pounds 200m to build the development. BZW, the company's broker, believes the finished product could be worth pounds 500m.

The property sector has split in recent years between the dull majority of rent collectors and a handful of bright, entrepreneurial companies with the management and skills to prosper in a low-inflationary environment not obviously conducive to making money out of bricks and mortar. Burford, Argent, even Hammerson seem to have got the hang of creating value in this difficult market. Chelsfield too and the shares are worth the apparent premium. Good value.

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