COMMENT: Letter from London

Columnist and author Peter Bill analyses recent developments at Grainger, the listed UK residential landlord which put its German business up for sale in August and is becoming an attractive prey - particularly among US predators looking to expand in Europe.

Will Helen Gordon still be welcome at Grainger on 1 December? On 30 June the £1 bn (€1.4 bn) Private Rented Sector (PRS) landlord said the 56-year-old global head of real estate asset management at RBS was joining on 1 January.

On 13 August Gordon’s start date was pulled forward to 1 December. Just one of a series of moves by the listed company since the start of this year to stave off predators. The same day Grainger announced the German business comprising 2,850 wholly owned units and a quarter stake in 2,750 homes held by Heitman was to be sold. In Britain Grainger owns 3,400 PRS units.

No serious predator had emerged by late August. But US ‘multi-family’ home giants have been reconnoitering Britain for years. Grainger manages just under 20,000 units. In the US, Greystar tends to nearly 400,000, Lincoln 164,000, Pinnacle 132,000, LeFrak 61,000, and Blackstone’s Invitation Homes 45,000.

Potential predator
I had lunch with a possible predator recently. My companion has half a billion sterling in his pocket - and the ability to raise as much again. He gave cogent reasons why the sum of Grainger’s parts is worth more than the whole. The conversation took place before the German break-off was announced.
UK public markets are now in that sweet spot in the cycle. Sellers believe values will rise by another 15%-20% before any downturn.

Buyers feel the same. On 29 July Wembley developer Quintain announced it was selling out to Lone Star for £700 mln. In May 2012 Lazard took a grip on Quintain, installing former employee Max James as chief executive. The business has been knocked into sellable shape over three years by the talented James. Lazard is now helping knock Grainger into shape. The merchant bank has been appointed to sell the German business, valued on the books at £311 mln.

‘Better inside the tent than out....,’ is a thought that will have occurred to Grainger chairman (sic) Baroness Margaret Ford. I spent many an hour in Lazard’s offices in 2012 as media adviser on the $125 mln sale of IPD to MSCI.

The bank has a formidable property team. Margaret Ford ran the Olympic Park Legacy Company. She was appointed Grainger’s chairman in March, after seven years as a non-exec. The 57-year-old Scot has a mind like a razor and a talent for speaking her mind. From 1982-87 she organised the banking union BIFU in Scotland. From 2002-2007 Margaret ran development quango, English Partnerships.

Whole-hearted and fearless
Baroness Ford is a well-connected, whole-hearted and fearless woman. Except when it comes to rodents. During a drink with her at the House of Lords a mouse peeked out from under her chair. A girly scream filled the room. But predators, watch out, Margaret bites. She led a chorus of ‘happy birthday’ (to me) in front of other journalists at MIPIM in 2007. To demonstrate my independence I began to ask ill-judged questions about English Partnerships. I retired from the fray, wounded by her tart responses.

Grainger exposed a wound at their interims on 14 May. A subsidiary holding 1,200 properties was sold for £88 mln in the Spring of 2014 to Clifden Holdings. The buyer failed to make a deferred payment of £35 mln, due in January 2015. Grainger managed to recover half the money, but suffered an £18 mln hit. Two months earlier, on 31 March, boss Andrew Cunningham announced he would retire in February 2016, after 21 years, five months before his 60th birthday. Predators began to sniff blood.

On 26 June Richard Bernstein of Crystal Amber Fund declared a 3% stake. ‘We think it unlikely that Grainger will be independent by Christmas,’ he said. Grainger’s share price has since risen from 210p to 245p, outperforming the FTSE 100 by 15%, boosting Crystal Amber’s stake by £6 mln to £31 mln. On 15 August property traders Kirkmore Securities popped up in the Sunday Times claiming £400 mln of ‘firepower.’ Think of both the above as terriers tormenting a bear.

Grainger is no longer a static target, peaceably grazing its patch, thanks to Margaret Ford, outgoing CEO Andrew Cunningham, and now Lazard. Helen Gordon is highly regarded. A woman of immense good sense, plus, you always sense, a steely resolve, veiled by gracious manners. But the open question is this: has Margaret done enough to keep the CEO’s seat warm for Helen?

Peter Bill is the author of Planet Property and former editor of Estates Gazette