Grantchester stacks up warehouses; The Investment Column

Followers of Nigel Wray, the Midas-touched investor behind success stories such as Carlton Communications and Singer & Friedlander, will be interested in his latest little venture. Last year his Burford property group latched onto Grantchester Holdings, a specialist property developer which claims to have built a commanding position in edge-of-town retail developments since its foundation seven years ago. In November Burford demerged Grantchester, having injected a couple of retail parks in Huddersfield and Falkirk, leaving it with a 24 per cent stake in the enlarged group. Since then, the shares have risen almost in a straight line from the launch price of 100p to yesterday's 165p, up another 3.5p.

In the tradition of Mr Wray, who remains a non-executive director, investors have not had to wait long for Grantchester's next blockbuster deal. Yesterday, the group announced pounds 121m of acquisitions and a pounds 65m rights issue which will mean it has tripled the size of its portfolio to pounds 220m in the three months since flotation and doubled the number of units to 100. Shareholders are being offered the new shares at 137p on a seven-for-10 basis.

The centrepiece of the latest deal is the pounds 73.3m acquisition from the development arm of J Sainsbury of seven warehouse development schemes, ranging from Chester to East London, via Swansea and Birmingham. The group is stumping up an extra pounds 16.2m for the more mature former Burford property in Huddersfield, over which it has an option, bringing the total cost of that deal to pounds 21.6m. Grantchester is also extending its reach into the North with a pounds 9.25m deal for a warehouse scheme in Middlesbrough and a couple of retail parks in the central belt of Scotland which are being acquired from Morrison Construction for pounds 23.1m.

Analysts said the deals, being done on yields ranging from 6.8 per cent for the Sainsbury properties to 8 per cent in Middlesbrough, were not exceptional for this type of asset. But Paul Whight, executive chairman, is extremely optimistic that he can squeeze much more out of them.

He points out that recent deals for similar out-of-town warehouses have been done at yields of 5 per cent or below. More importantly, the average rent being paid by Grantchester's blue-chip tenants is still under pounds 10 a square foot. Given lettings done at double that rate in areas as diverse as Croydon, Leicester and Edinburgh, there is clearly the potential to raise that significantly. By means of five-yearly rent reviews and buying out "underperforming" leases, he reckons Grantchester can achieve rent increases of around 25 per cent a year across the portfolio.

Even given initial success on pre-lettings at Huddersfield and the 20 per cent growth notched up over the past three years, that is a tall order. With the shares on a substantial premium to Charterhouse Tilney's net assets per share forecast of 128p for this year and 142p next, they should not be chased.

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