European Real E Share Discussion Threads

[colonel a] 07/5/2015 13:58

This certainly suggests that things are moving in the right direction.

But does anybody have any suggestions as to how the property valuations between La Gaude and Panrico are split ?
Taking the total as being £25.7 million at year end.

The Murcia property was only 3.2m euros but I'm not aware of any reference which would indicate how the remaining 3 sites compare.

Any suggestions ?

[redhill9] 04/5/2015 08:38

Thanks flyfisher, that is indeed potentially good news for ERET. Having a tenant that isn't likely to go bust should hopefully make the property far more marketable.

[sleepy] 03/5/2015 22:55

Thanks flyfisher

[flyfisher] 03/5/2015 19:00

Better news for the ongoing viability of Spanish tenant panrico.

''Panrico begins to see light at the end of the tunnel. Having combined losses since 2008 for a total amount of 808.3 million euros and see how their sales were reduced by almost half, the company finally routed the path of profitability. Last year the red numbers have already been reduced from 80 million to just 5.5 million, representing nearly 94 percent less. And, according to company sources confirmed, "annual EBITDA or gross operating profit of 20 million, also achieving for the first time in eight years net profit reached.

In less than two years, Carlos Gila, CEO, has managed to avoid bankruptcy and final settlement of the company, ensuring its future viability.

[colonel a] 10/4/2015 11:44

Of course buying or selling under any conditions would be a whole lot easier if the Market Makers could be even slightly bothered to "make" a market.

[colonel a] 04/4/2015 11:12

If Kaiserlautern sells before any other news breaks then , as I think you hint, the share price will drop significantly post distribution.
I would not be surprised to see the discount widen to >50% in that situation.

However, a decent price for Kaiserlautern could see holders almost completely de-risked from current levels.

Personally I have never expected to sell ERET {not least because of the punitive spread} hoping for a progressive, and eventually profitable, return from the wind down.

As to whether I'd buy more after a substantial post Kaiserlautern distribution, ...

[redhill9] 01/4/2015 14:14

Agree about Kaiserlautern sale probably being imminent as soon as lease amendment formalised. Note 3(d) to accounts suggests as much to me.

That should generate a further cash distribution within a few months. In effect the Spanish and French properties appear to be in the share price for very little. If there is a cash distribution after sale of German properties the subsequent share price will be interesting!

[colonel a] 01/4/2015 12:52

Yes, as you would expect, but whilst IBM had right of occupancy nothing concrete could be planned.
The whole site is now available as from Oct 1.

Similarly, I would not be surprised to see Kaiserslautern sold soon after the lease extension is official.

At the moment the share price reflects an expectation that the company will realise barely 50% of the current property valuations.

If Kaiserslautern sold on a 6% yield it would pretty much achieve the equivalent figure on its own.
And yet Schroder are primarily incentivized on the return from La Gaude ?

I am very bullish but do recognise that there could be an extended period of inactivity and it is not impossible that the share price will languish ~ £1 for some time.

[redhill9] 01/4/2015 12:22

Yes but ERET have already intimated it could take some time.

[redhill9] 01/4/2015 09:28

IBM give notice:

The Board of European Real Estate Investment Trust Limited ("the Company") has received a notice from IBM confirming their departure of the property owned by the Company in La Gaude, Nice, France at the end of September 2015.

As referred to in the annual accounts published on 20 March 2015, IBM are in occupation of the property in La Gaude on a lease arrangement whereby they can give 6 months' notice to vacate. IBM occupy the property on the basis of a 12 year lease from 2003. As announced on 1 July 2013 IBM vacated one third of the property in exchange for a capital payment and a rent reduction. IBM has now given 6 months' notice to vacate the remaining properties on the 30 September 2015.

Discussions are already taking place with a project team consisting of a development partner and architect to explore the most viable options for the future use of the land and buildings on the site.

[redhill9] 23/3/2015 16:03

Thanks janvrot.

[janvrot] 23/3/2015 13:26

As far as I am aware
- The GBP3080 tax provided for is for sale of Duren.
- The tax referred to in note 13 relates to a potential tax liability in France.

Here are my notes on the GBP3080mil liability. The calculation below shows that if one translates these items to EU we find that a tax payment of EU1 010 was made during the year. This reduced the liability from EU4 926 to EU3 916.

It is interesting to me that the full EU4 926 was not paid as it was recognised as a current liability in 2013. It is unusual for tax authorities not demand their money asap so there must be some type of a dispute.

'---------------------------------
Tax Payable GBP3050 GBP4107 (from balance sheet)
Tax paid GBP814 (from cash flow statement)

ave 1.2408 1.1782
eoy 1.2839 1.1995

EUR
Tax Payable EU3,916 EU4,926
Tax paid EU1,010

Reconcile GBP814 to EU1010
GBP 814
EURGBP 1.2408
EUR 1,010

[redhill9] 23/3/2015 12:40

flyfisher, thank you, yes I noted there were quite a few sub cos still remaining and your suggestion that outstanding tax issues is the reason is very plausible. I agree that would mean the cash isn't yet distributable and may not be for a while, but it's still cash.........

Colonel A, regarding Panrico, ERET did significantly revalue downwards the remaining property last year when Panrico restructured and the lease was re-negotiated. The comments in the results that
The Spanish properties are bespoke in nature and well suited to the occupation by Panrico.
and
Should Panrico’s financial situation not improve and lead to a permanent default on its lease obligations, the impact on the value of the properties, and hence the NAV of the Group, would be material.
suggest that ERET are being prudent in their view. I suspect there's a binary element here - if Panrico returns to trading health then the valuation will prove to be low, if they do default then the NAV will be hit as the bespoke nature of the property will make it difficult to re-let without alteration. Don't forget though that ERET are holding the equivalent of one year's rent as guarantee (c.£1.9m) so there would be some buffer in the event of a default.

[flyfisher] 23/3/2015 11:44

Colonel, Panrico bought the empty Murcia property, despite having no further immediate use for it, effectively buying out the lease. Not the action of a business that expects to fold.
As with your thoughts for a revaluation of the german asset due to lease improvements, so it could be the same for the Spanish assets if panrico return to health.

[colonel a] 23/3/2015 11:30

redhill9,
I think we crossed.
I edited the previous post as I eventually saw note 17.

Reading some previous updates, including the sale of Murcia makes me think that the valuation of the Spanish properties is probably quite low.
{ Guestimate £8m. say}
And should Panrico fold completely most of this would be wiped out.
But Panrico should be benefiting considerably from the fall in oil $.
If their owners believe they are being successful in turning them round then there is a very strong case to buy the properties before the numbers are public and the property valuations respond.

Or maybe I'm just rationalising.

[flyfisher] 23/3/2015 11:20

Redhill, Whilst the company has been rationalizing and winding up some subsidiary holdings, there are several holding companies that are still open.
For example, both of the following are still active, whilst the property has been sold.
MEP Netherlands I BV Netherlands 100%
Matrix German Portfolio No.1 Frankfurt Sarl Luxembourg 100%

It could quite simply be that until the tax questions are settled, the subsid with the possible liability cannot be wound up and release the cash to the parent.

Colonel, I would suggest that the german asset is not prime, which will explain the yield gap.

[redhill9] 23/3/2015 11:02

Colonel A, I thought there was a specific comment about the German properties expected to be sold before end 2015 but can't now see it.

However, Note 17 includes the following:

Properties held for sale are those which, at the year end, were available for immediate sale, being actively marketed and expected to sell within twelve months.

That can't refer to the IBM property in Nice as it is referred to in the Investment Manager's report as "a longer term project" and comments on Panrico seem to indicate, again, a longer term before being in a position to market (although maybe that doesn't have to be true if someone is prepared to buy). I read the comments below regarding extending the German lease as "a done deal" being the only thing required before selling:

The Group has committed to an extension of the ground lease at Kaiserslautern. This will change the ground lease from a renewable ten year arrangement to a fixed duration of 99 years, at a total cost to the Group of €0.5 million. There will be no other changes to the ground lease and the rent payable to the freeholders remains the same. This extension is expected to improve the liquidity of the asset in the investment market. The lease extension is expected be completed in May 2015.

Also, the proportion of rental income from Panrico and IBM would (circumstantially, agreed) fit with those being the held properties and the German properties being those for sale. I'll look again for the specific comment as I'm sure I saw it somewhere in the accounts.

The comment on Page 6 that prime yields have fallen to 4-5% is in the Market Overview and the full quote continues "in most major cities in northern Europe" so doesn't relate specifically to Germany, or to ERET's particular properties there.

[colonel a] 23/3/2015 10:20

redhill9,

Are you sure about which property was held for sale at year end.

I took it the other way as the lease issues meant that they were working towards selling this property {hopefully sorted} but could not class is as "for sale".

Also the rent received would mean an 8% yield on a long lease solid German asset which contradicts their statement {Page 6} that prime yields have fallen to 4-5%.

EDIT:
note 17 says Leasehold £16m
Whilst that pushes up the at risk % of the assets does it not also suggest that the change in the leasehold scheduled to become effective in May will result in a very significant upwards valuation of this property ?

[redhill9] 23/3/2015 10:14

Loldemort, I've seen suggestions that European property is rising as well, but it would be inappropriate to apply any general movements against ERET's tiny portfolio, especially with Panrico and IBM comprising two-thirds by value of the total. However, knowing that the market is favourable is at least comforting in the context of imminent sales (hopefully) of the German properties.

The movement in ERET's NAV from 181p to 168p over the period from 31 December 2015 is entirely due to exchange loss of Euro/GBP.

[redhill9] 23/3/2015 10:08

I've just been looking at the composition of the NAV, specifically regarding current and potential cash.

Cash at 31/12/14 was £14.653k representing 49p per share. Adjusting that figure for net Debtors/Creditors reduces it to 41p per share. Properties held for sale currently (i.e. the German assets) are valued at £16,006k and ERET say these are expected to be sold in 2015. If sold at current carried value this would generate 54p per share, giving a cash figure of 95p per share compared to today's share price of around 100p. Effectively that could be interpreted as suggesting the Panrico and IBM properties are in the share price for 5p when their carried NAV value is 87p per share.

It is necessary to recognise of course that the potential 2015 cash of 95p will reduce by 12p due to the cost of redeeming shares on 31 March but as shares are being redeemed sand then cancelled at NAV, the NAV per share won't itself change because of this, simply the cash/asset mix of the NAV will move down/up by 12p.

The above ignores any contribution from operational activity (ERET say they are currently cashflow positive), and impact of further Euro weakness (or at some point, strength?) against Sterling, and the unclear situation with the tax issues mentioned in previous posts. My guess is that when the German properties are sold ERET will be able to make another redemption of something above 50p with scope for maybe another 15p if/when the unbooked tax issue is resolved, but then it will be a question of how long it takes to sell the IBM building (which ERET are quite positive about, but they say it will take time) and the Panrico property, which is clearly problematical if Panrico do default as being a customised building no doubt investment would be required to make it marketable.

With NAV of 168p and a share price of 100p, the discount is 40% reflecting the risks and time issues with Panrico and IBM properties but looks to me to be too high for a situation where the cash prospects look attractive. Any views?

[redhill9] 23/3/2015 09:12

Incidentally, I bought a few at the open this morning at 100.10p which looks good value to me.

[redhill9] 23/3/2015 09:07

Their is an unresolved tax issue regarding property sales for which the directors see a low probability of material liabilities and see no need to make a provision at this time.
Pending the formal outcome of the tax issue they need to retain the cash just in case they are a wrong.

flyfisher, I think you are correct regarding the comment as tax being the reason for not distributing more cash at this time.

The Chairman's Statements includes the comment:
Potential tax liabilities (as described in Note 13) restrict our ability to return significant further funds at this time.

Then looking at Note 13, we see:
As part of routine tax enquiries the Group has certain open items, the tax effect of which has not been provided because the Directors do not consider it probable that further material liabilities will arise.

So, as you say, they don't believe the liability is sufficiently likely to require recognising it in the P&L (and presumably the auditors have agreed with this interpretation) but consider it prudent to hold on to the cash until the matter is resolved. So it's not that distributing cash would itself generate a tax liability (as the Chairman's comment alone might suggest) but that the cash might be required to settle a separate tax liability. Worth noting that if a real liability should arise from this issue, it hasn't yet been recognised in the NAV and there would be a negative impact.

Moving on, there is a separate tax question regarding the tax liability that has been recognised in the P&L and therefore in the NAV that janvrot was referring to above, and I mentioned yesterday. The balance sheet is showing a carried liability of £3,080k described as Income Tax in Note 23 that has been brought forward from at least 2013. Having recognised it in the accounts it is odd that it hasn't been settled; conversely if it hasn't been settled because of a dispute it is odd that ERET don't refer to this in the Notes.

[colonel a] 22/3/2015 17:35

OK,
But by retaining the cash they are implicitly making provision for the tax question going against them, but they don't explicitly provide in the accounts.
I'm not an accountant but that's not how I thought it was meant to work.