Copyright: David Lawson 1996
James Tuckey seems lost in the huge office overlooking one of London's most fashionable squares. But the room never feels entirely empty. Strong impressions persist of crowded meetings; strategy discussions, briefings, presentations - even celebrations. As always, the MEPC chief executive is polite and charming, blending easily into the calm St James's elegance. Again, however, not everything is as it seems.
He would probably prefer the crowds, considering deeply-held views that the company is run by teams rather than a small cabal. There are also subtle signs that it has not always been so easy to smile. A few more grey hairs; extra lines around the eyes.
Such intangibilities say as much as cold, hard figures about the emergence from the shadows of one of Europe's top property companies. MEPC has been the City's whipping-boy for as long as some teenage scribblers can remember. All the more satisfying, then, to suddenly transform into its darling. Words like 'superior growth prospects' and 'excellent portfolio' drop from brokers' lips - a far cry from the expletives deleted for so many years.
This change of heart is not just because of the 10% surge in profits to 122.6m and relatively small 3% fall in net asset value to 457p a share. Nor is it simply a knee-jerk reaction to the sharp deal completed this month which will see 183m of shopping centres from North American Property Unit Trust taking centre stage while assets in Europe go up for sale.
Ironically, overseas strategy has long been a main source of criticism. Even more ironic, faults at home in finance and development during the Eighties are now been seen as prime reasons why MEPC will outperform rivals like Land Securities and British Land in the next few years.
Few dispute the basis of the City's past antagonism. Even Tuckey agrees with some. 'We have not tried to flinch from the fact that in the mid-Eighties we embarked on a development programme that produced too much space,' he says.
But rarely have attacks been so trenchantly personalised. Tuckey knew what to expect after seeing his predecessor, Sir Christopher Benson, face the music. 'But Chris soaked it up and gave as good as he got,' says the head of a rival property company. 'James is a different animal. I think he felt increasingly frustrated that people did not appreciate what really goes on at MEPC.'
Last year he made massive inroads into changing hearts and minds in what some observers interpreted as a crisis public relations campaign. 'It was nothing of the sort,' he says. 'But we realised we could do more to explain strategy.
'We needed to show that it was not such a few of us making policy in London, so business heads were brought in from around the world to talk to brokers and shareholders. Analysts were shipped across the Atlantic to savour the growth potential.
'There was a slow build-up in 1995 of the impression that we were going in the right direction.'
But what of the old jibes? The share price, for instance, has been dire for more than five years and underperformed the rest of property sector by 14% between 1993 and 1995.
Many analysts felt top management was protecting its back by bribing investors with a consistent 20p dividend paid every year despite declining rents. Again Tuckey begs to differ. 'I have a strong board of directors with some powerful non-executives. I can't see me being able rolling them over to save my skin.'
There was a modern logic to these payouts, anyway. 'We took a stand against short-termism. We stood on the edge of a valley, looking out to see profits falling but also rising again on the other side. Cutting dividends would have told the world we were in real trouble as we could see no way of reaching that slope. In any case, what difference would it make? A 5p cut would have yielded only 20m.'
But lack of even that amount of cash kept MEPC on a tight rein for most of this decade, however. 'It made us very focused,' says Tuckey. The company bided its time, clearing out unpromising property when it could and buying for the future. Last year it sold £140m worth at an exit yield of 9% and bought £75m worth of investments at more than 8%.
Overdevelopment in the Eighties was not down to misreading the market but a 15-month delay in completion of the flagship Alban Gate office block. 'We knew rents would fall and had timed the scheme to be let before then,' says Tuckey.
That development programme has a multiplier effect, as Tuckey hates pre-letting and always fixes finance as soon as possible on buildings. 'I make no excuses. Pre-lets can rob you of future income and fixing costs is a prime prerequisite of management.
But this finance was fixed at the wrong time in the cycle, leaving MEPC paying around 10% in average interest compared with 9.25% by Land Securities and less than 9% by British Land.
Both will turn to MEPC's advantage in the next couple of years, however. Letting in the slump means over-renting affects only 15% of the portfolio, so returns will rise faster than among rivals. Re-financing will also bring fat returns. David Tunstall at Merrill Lynch says pre-tax profits could benefit by £10m a year if the average cost of finance can be pulled back by 100 basis points over the next four years.
Meanwhile the NAPUT assets are being integrated into the existing US portfolio, run by a management team renown for extracting maximum value. More money is likely to flow across the Atlantic as investors queue to buy the 184m European property at yields as low as 6.5% compared with US investment at up to 9%.
'One advantage is that we don't have to sell quickly,' says Tuckey. In fact, he does not have to sell at all, as the NAPUT deal stands on its own. Tuckey insists that this is no panic measure, even though it is only a year since MEPC said it would expand in Europe. 'We have made good money there but there is little chance of getting a critical mass and we can make more elsewhere,' he says.
That is not necessarily in the US. The 340m Australian portfolio is also set for expansion and the UK - which still makes up almost three-quarters of the portfolio - is finally stirring into life again.
Development is back on the agenda. 'We have been through some pain but that has not put us out of the business,' says Tuckey. Nisho/Iwai has given the long-awaited 16,730m2 (180,000 sq ft) Petershill office scheme next to St Paul's a flying start by paying 9m for a third of the scheme. Now Schroder Investment Management is said to be considering taking the rest at rents of more than 322/m2 (30/sq ft).
An aborted shopping centre in Staines - planned to be the Lakeside of West London until the slump intervened - is being revived for retail warehousing. More of the same is half pre-let in Sutton Coldfield. The shopping centres division, which had an 'excellent' Christmas, could be swollen in a few years if planners give the go ahead for a another department store and 35 shops to expand the Guildford retail centre.
But a rejuvenated MEPC is also pushing new frontiers. Tuckey is fascinated by leisure developments, buying parks in Cheshire and London last year. 'They are at the stage retail warehouses were a decade ago,' he says. And the concepts fit well into shopping centres like Sheffield in the UK and Northridge, the California mall rebuilt after the earthquake.
Big industrial schemes like the 27,880m2 (300,000 sq ft) Milton Park, Oxfordshire, are also high on the agenda. 'We went for three last year and just missed. They are our main shortage,' says Tuckey.
It seems like old times again. The firm is jockeying with British Land for second place in the property league - and re-entry to the FTSE100 - with British Land. Looks like the teenage scribblers will have to find another whipping boy.
FIVE-YEAR RECORD (£m)
95 94 93 92 91
Gross rents 373 347 324 320 308
Net property income 257 234 212 214 214
Pre-tax profit 122 111 81 95 139
Property 3401 3365 2703 2932 3392
Shareholders' Funds 1862 1926 1622 1511 1975
Loan capital 1398 1330 960 1290 1497
Earnings/share 21 20 15.5 19 29
Dividend 20 20 20 20 20
Net asset value (diluted) 457 473 416 445* 564*
Share price (30 Sept) 394 444 496 273 502
Net Gearing (%) 62 62 48 82 70
* 91 and 92 NAV restated for 1:5 rights issue in 93