Metric has the measure of retail property

Since the bosses of Metric Property quit British Land to set up their own specialist real estate investment trust (Reit), they have rarely been out of the news. Chief executive Andrew Jones was head of retail at the FTSE property giant, working alongside fellow Metric directors Valentine Beresford and Mark Stirling for 15 years, managing its £4.8bn retail portfolio.

Of course, Metric is a much smaller concern, , and it focuses on acquiring out-of-town retail parks from distressed sellers - an area that could produce rapid returns as Metric's team put its skills to work.

Since its share listing, Metric has bought or exchanged contracts to acquire eight properties (seven out-of-town retail parks and a Morrison supermarket) worth £128m. The locations are varied and sometimes uninspiring, including Wick, Bedford, Congleton and Northern Ireland. Buying cheap is the chief aim of property investors, but Metric hopes to raise rental values, too.

Seven out of Metric's eight sellers were "motivated" (ie, distressed), typically private property companies who borrowed heavily to buy retail parks in the last property boom and anticipated difficulty refinancing the loans secured on them. Metric expects to do more deals this year as further refinancings loom.

Metric's aim is to enhance the value of their properties by better management. This might include bringing in better tenants, getting permission to extend stores or sign longer leases at higher rents.

By the end of September, Metric's first five acquisitions were valued 7 per cent more than their purchase price. Considering three were only acquired in September, this shows how quickly the Metric's skills can bring results. Consequently, City analysts think Metric's net asset value (NAV) will rise faster than the property sector average.

Upon acquisition, average rents across its portfolio were £13.30 per sq ft. However, broker Matrix reckons that, by introducing new retailers and rejigging units, average rents could be upped to £18.20 per sq ft. Allowing for capital spending on refurbishment, Matrix's property analyst, Alison Watson, estimates this could generate a surplus of 22p a share over the next three years. Better still, assuming Metric spends its remaining firepower, which could be £230m, this could generate an additional 27p per share (before acquisition costs), a figure not reflected in her forecasts.

Today's subdued consumer spending environment means rental values could stall, so why should retailers take more out-of-town space? Because that's a better place to be than the high street, and lots of 25-year leases in high-street shopping centres built in the late 1980s boom are now coming to expiry so retailers have the chance to quit for better selling space. Mothercare is a good example, recently outlining a plan to shift stores out of town. It has already taken one unit from Metric, in the process raising the rent on the outlet from £14.50 per sq ft to £20 per sq ft.

"From the retailer's perspective, they can get three times the space for half the rent," says Metric's Andrew Jones, adding: "They have the opportunity today to take the space that best suits their business today not 25 years ago."

Arcadia's boss, Sir Philip Green, recently announced he will close 300 town-centre stores in next three years as leases expire, and his Top Shop brand has successfully transferred to larger outlets in retail parks. A further indicator is provided by British Land, which reported average retail park rental uplifts of 20 per cent . The fact that the development of new shopping centres has ground to a halt should also work in favour of rental growth in the longer term.