Living on the Edge

Copyright:David Lawson 1996

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The ebb and flow of property can produce some eery moments of deja-vu. Ten years ago a tide of retail warehouses swept across the country  as  new companies like Do-It-All and Queensway clamoured for space. Today that fervour has returned. Nicholas Vetch and Philip Burks happily surfed the Eighties, producing more than their fair share of sheds until stranded by the ebbtide. Now they are back afloat - although  this time they have brought their own surf boards.

  Edge Properties went public last month via a £5.8m reverse takeover of BDA Holdings, becoming the only quoted property company specialising in retail warehousing.  Vetch and Burks each have a major stake, along with long-time backer TR Property Investment Trust (TRPIT). This is no sudden return, however, as they have never really been away.

  Burks moved from Herring Son & Daw and Vetch from King & Co to cut their development teeth with  Citygrove, which floated in 1986. 'It quickly became  a  sausage machine,' says Vetch. 'Sites came in one end and warehouses out the other.'

 Boredom set in. 'We turned into managers,' says Burks. A sense of foreboding also developed over  such a fragile  company, with no assets and operating on wafer-thin margins.

 They left to set up Edge in 1989 - just in time for the crash. It was no comfort that Citygrove also went down. They could not even buy the company's portfolio from the receiver, and  went 18 months without a sniff of business.

  'But we learned a lot,' says Vetch. 'It turned us from property people into businessmen.'  Edge now demands an average of more than 20% return on each deal and the company has already built the cushion of an investment portfolio worth almost £14m. ERIC saved the couple's bacon.  Edge sniffed out a  Peel Holdings portfolio which was injected into a new arm,  Edge Retail Investment Company (ERIC). This was financed by a private placing because the main company did not have the track record to do a conventional deal.

  'We didn't realise at the time, but the timing was perfect,' says Vetch. Values were recovering and  the £22m portfolio produced a £2m surplus by the time it was sold at the beginning of 1994.

  The impact on Edge was apparent long before profits came in, however. This was effectively a management deal for institutions nervous of direct investment, earning arrangement and management fees as well an equity surplus. 'It gave them confidence that we had a future,' says Vetch.

  Grabbing the chance, Edge recapitalised to expand the main business.  TR Property Investment Trust ended up with a 51% stake after swapping preference shares for buildings.. Edge then sold some of this property for cash to plough back into deals.

  They have never looked back. In fact, there has been little time to even look up, rushing around the country sniffing out sites and stitching together developments. Pre-tax profits went from £77,000 in the 18 months to March 1993 to £979,000 in the half-year to last September. Net assets rose from just over £1m to £6.3m in the same period, stemming from  14,000m2 (150,000 sq ft) of development - 86% of which has been sold.

  Inevitably, raising capital became a problem. Brokers Cazenove persuaded Edge to hold off flotation with the rest of the crowd in 1993, which in hindsight proved the right decision. Many newcomers  have drifted into a backwater since then, trapped by low share prices. Edge doubled in size.

  By last year the pressure was irresistible, but choosing a  merger rather than a straight float brought its own problems. 'We had three preconditions: a management willing to step aside, no hidden problems in their portfolio, and an interesting shareholder list,' says Vetch.

 That reduced a shortlist of 20 companies down to three or four. BDA, floated in 1987 but practically moribund, was the final choice. Chairman Richard Wollenburg is stepping down but remains on the board. Edges's Geoffrey Musson takes over until a permanent appointment can be made.

  Finding the right partner  may prove a doddle compared with the next chapter, however. Edge now has to prove to investors  that it will not fall into the same trap as other minnows. So far, the City appears happy.  Edge  shares are trading at a premium 93p compared with the 85p issue price. But the next year or two will be vital.

  Burks and Vetch are betting heavily on the buoyancy of their sector - which has seen estimated annual returns of 12.5% over the last five years - and their impressive track record.

  'We only ever lost money on one deal - and that was just £40,000,' says Vetch. During that time, they have also built a strong relationship with clients.  'We know exactly what retailers want. In fact, we get a third of our sites from them,' says Burks.

 They have an 18,500m2 (200,000 sq ft) development program and more than £4m more to spend from a rights issue - plus whatever they can raise from   BDA's ragbag of  secondary assets, with a gross value of £5.5m. But the greatest promise may come from the first tide of development.

  Some warehouses are now looking tired and obsolete. 'Remember that value lies in the land rather than buildings,' says Vetch. A return to old surfing grounds may yet bring another sense of deja-vu.