By SIMON MOORE 27/08/2009
Wichford the London main board listed property investment company (ticker code: WICH) invests in commercial properties let to government departments. WICH has 80 properties valued at £550m with 70% in the UK and 30% in Europe. The combination of government backed rents, (60% of which are upward only index linked rental agreements) and long leases (average 9 years but some as long as 16 years) gives us greater confidence in the stability of the portfolio valuation and its income than for other commercial property portfolios.
However the company is highly geared and is currently undergoing a £50m rights issue the proceeds of which will be used to de-gear the portfolio and buy large long-leased secured income properties in the UK. The managers plan to sell the continental European properties when possible and to focus on the UK government market where their expertise is strongest. The managers now own 100% of the management company and hold 20% of Wichford shares. This gives them considerable alignment of interest with other shareholders.
After the rights issue the market value of Wichford should approach £80m. This is near the £100m level at which many other institutional investors would begin to look at the company.
We believe the rights issue will improve the prospects for this company and so have upgraded Wichford to 3 stars.