Investment Column: MEPC waits for efforts to pay off

MEPC, the property group, has been a lacklustre performer over the past few years, with net assets per share barely moving since 1992. But management, led by veteran chief executive James Tuckey, has been shaking things up of late, spurred on by the bid approach from rivals Hammerson in March.

In the past three-and-a-half years some pounds 1.8bn of purchases, sales and developments have taken place, leaving around 70 per cent of the portfolio focused on the UK, with another 20 per cent in the US. Mr Tuckey has also attempted to address criticisms that the group has too many small and poorly located properties, cutting the number of sites by 25 per cent. MEPC has been left with an estate equally balanced between office and retail properties, with just over 10 per cent in industrial units.

The fruits of these efforts have yet to come through in the figures. Yesterday's interim results showed pre-tax profits all but wiped out in the six months to March, slumping from pounds 67m to pounds 2.5m. But that represents the pain before the gain. The damage was caused by the decision by the finance director, James Dundas, to unwind a series of expensive interest rate swaps at a one-off cost of pounds 73.2m. The gain will come in the form of an expected pounds 60m of reduced interest costs up to the end of the century.

Mr Tuckey's radicalism does not end there. The group is outsourcing the management of much of its UK estate to allow management to focus on making money. Last September's decision to divide central management of the group's portfolio by type of property rather than by geography has the same aim in mind. The segmentation will allow the easy sale or separate flotation of any underperforming parts of the business.

But the real excitement should come from the pounds 470m purchase and development programme over the next few years, spearheaded by Robert Ware, who has just been appointed corporate development director. The new bias towards leisure and retailing, which saw the pounds 80m acquisition of three factory outlet centres from C&J Clark in April, should put the group in good stead for the future.

Further corporate activity is on the cards. Mr Tuckey's reasons for rejecting Hammerson sound convincing: its pounds 800m development programme represents a big gamble on the recovery in the property market continuing.

While it does, MEPC looks a reasonable bet, especially given net asset value forecasts for the current year moving up to north of 490p a share against a share price of 515p, down 0.5p. However, investors may have to be patient, given the weight of negative sentiment surrounding the group.