Public Services Properties Share Discussion Threads

[monis] 29/8/2012 09:16

Do we know what properties they own and where?

[loverat] 29/8/2012 09:15

Interesting article. I wonder what options PSPI are looking at in regard to the German properties. Perhaps they might be the key to unlocking the value here.

[monis] 29/8/2012 09:07

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interesting article imo.

[monis] 24/8/2012 09:15

Has anybody done a comparison between this company and other similar property companies with regard to assets, revenues and market cap etc. Would be interested to see how we slot into the bigger picture.

[hosede] 23/8/2012 17:42

Scburbs
you were spot on when you said all healthcare Cos. were struggling. But why? more and more people are living longer and needing this service, so it should be booming. The problem as I see it as the govt./nation demand a certain standard of care, but are unwilling to pay the price needed to achieve it. Sadly I can't see that changing in the near future. As the value of PSP's (UK)properties is dependent on the level and security of the income the healthcare Cos. pay I don't have a very optimistic view. I am still a holder but at 30p would definitely bail

[scburbs] 23/8/2012 14:38

Davidosh,

Fair point - if ECG shareholders/management also got a terrible deal then at least the negotiating skills of the PSPI board are less called into question. I was assuming some of the unsecured loan noteholders (CULS entities listed below) were related parties, but it may be they are not and only the 12% (1% Esquire topco, 11% management) is what ECG shareholders/management are left with.

Against this, if the old shareholders have been wiped out to 1% then ECG's covenant must be seriously weak (i.e. the negotiating power of the old shareholders must have been restricted to receiving a token amount for facilitating the transaction). The third party creditors will nearly always leave something for the management as they need to incentivise someone to turn it around.

"Following completion of the Transaction, the Company will own 20 per cent. of the ordinary share capital of Esquire. CULS Holders in the European Care Group (being FOFM, ERED, Mavuli and 1492) will convert a proportion of their holdings into Esquire Shares with the balance remaining as debt. Accordingly, after such conversion and the investment of £7 million of new money, CULS Holders will hold the following proportions of the issued ordinary share capital of Esquire on completion of the Transaction:
• ERED – 22.71 per cent.;
• FOFM – 21.99 per cent.;
• 1492 – 11.71 per cent.; and
• Mavuli – 11.59 per cent.
The balance of the ordinary share capital of Esquire will be held by the European Care senior management (11.0 per cent.), further details of whom are set out in Part IV of this document, and Esquire TopCo (1.0 per cent.). Esquire Topco will own 'A' ordinary shares in Esquire. Such shares will not carry any
voting rights but will rank pari passu with the Esquire Shares in terms of income rights and capital rights."

[monis] 23/8/2012 14:29

trickle of trades today.

[davidosh] 23/8/2012 13:23

Worth checking the review of our Mello presentation last month but just to mention that under the restructuring the EC shareholders only ended up with 1% of the equity in their group as the banks took the majority for writing down the debt. In that context EC did not leg over PSPI in the deal and we still have 20% of any upside

[monis] 23/8/2012 08:12

What is also clear is that it does not take many trades to move the price, still unsure why on Tuesday they were asking for such a premium to the ask price at the time.

[greedfear] 22/8/2012 16:54

I'm not surprised risk of the arrangement with ECG wasn't really on the priority list as a large part of ultimate shareholders of ECG and those of PSPI are the same names.

We can talk of risk involved now, but that's all in retrospect (and thus very easy). I suppose (don't know, haven't checked) when all this started up things were looking very rosy. A continuing growth market in the health sector, not enough capacity (in future).
WHAT can go wrong?

Nothing, not then. But things changed unforeseeable and fast. Nobody is able to predict where it'll all end.

For someone buying in now it's all water under the bridge: the past, the arrangement with ECG, the restructuring of UK-assets, everything!
One reality: 14p versus 71p NAV. And do you have trust enough in recovery?

[c1d] 22/8/2012 16:24

scburbs,
If you look under incompetence in the dictionary you should find a photo of the PSPI board! Can't disagree that the board should have seen the risks of their arrangements with ECG earlier.
Regards

[greedfear] 22/8/2012 15:55

I've done my homework on this one. Now I just hold and wait. I am going to wait for the inevitable rerating of this share. That may not happen today, not tomorrow, but it will happen. If I didn't think this was going to at least 30p within 6-12 months I wouldn't even bother to hold. Just too much opportunities out there.

I think the recent activity might have been the prelude of nicer things to come. Things that might take care of a 50-100% rise in share price soon.

[loverat] 22/8/2012 15:38

Good posts folks.

Just been looking back on the trades this last couple of weeks. Looks like someone bought 69K of these at 14.25p and then sold them when the price dipped a few days later for 11p.

That's a nice loss of about £2,500

The trading patterns you see on some of these shares are fascinating. Each trade a different story I guess. The sells today also. I seriously think people borrow on their credit cards to trade shares.

[scburbs] 22/8/2012 15:01

c1d,

I used to have a stake, but sold out after it was clear all care home companies were struggling. I am not holding at the moment, but might buy some. I need to assess the market value of the German properties to value the company. I haven't been able to do that yet. The level of income profitability is also something I need to check. So unfortunately I can't provide a meaningful value at the moment. It would appear that the company would have to be managed really badly for the current share price to not represent great value, but management haven't got a great record.

As to the ECG deal, you have to remember that the relevant subsidiaries were ringfenced from the rest of the group. The worst case scenario was that they would have lost the net assets in those subsidiaries and not got anything in exchange.

Hang on - isnt't that exactly what happened (bar the option value in the 20% equity stake)! So when you say least worst, they don't appear to have got very far away from the worst case.

The so called saving grace for PSPI is that by giving the net value to ECG rather than to the bank they make ECG a stronger covenant for paying rents on the remaining ECG leases. The ECG negotiators must have enjoyed that one! You have to give us the assets for nothing otherwise we won't be able to pay the rent on the other assets! Even after giving £43m to ECG they still aren't a good tenant covenant (if it had made them a good covenant then the deal would have looked much better - but raising them to the level of a poor covenant is not a great result).

[c1d] 22/8/2012 13:46

scburbs,
What do you think the potential value of the share price is? It seems we are both holders even if it is for different reasons and I am interested in your view.

I read the deal with ECG differently. It got PSPI out of a big hole with its refinancing needs and if things go well (which of course they may not) then PSPI should see value from the investment in the future. Given the difficult circumstances (which I agree are mostly self inflicted) I didn't see it as a terrible deal just the least worst available.

I think that if the directors can't turn things around someone else will step in and do the job for them. I don't have any faith in the current board and am waiting for someone to put them out of their misery. I think that the gap between valuations and net assets makes it possible for everyone to make a profit at the current share price

[scburbs] 22/8/2012 13:11

c1d,

You have hit on the mirror image of the problem here!

1. Colliers valuation performance has been appalling. Just track the valuations. They may be independent, but they have been awful - basically just stepping down the valuations every 6 months with no real understanding of the true value.

2. Directors ability to realise value? Well they have just given away £154m of property for a net realisation of nil! This provides no support for the ability of the directors to realise value and no support for the independent valuations.

[scburbs] 22/8/2012 13:01

Loverat,

I agree there is value in the UK assets due to their income profits. I didn't mean the UK asset are worthless. I just said they would be currently unsaleable (due to the ECG covenant risk) other than at a distressed valuation.

It wouldn't make sense for PSPI to sell at a distressed valuation as these assets are performing relatively well (1.77 rent cover).

These assets should generate a good income profit and, therefore, will have more value for PSPI to hold rather than sell and PSPI could potentially return to being a high yielder (especially for holders from the current share price!). However, it would be nice to have something a bit clearer from the board on future strategy. If they decide to sell up then the net value from the UK assets could be limited and the German assets will be key.

I am here because I can see the potential value and the very significant upside. It is just how to balance that against the very real risks and the opportunities available elsewhere.

[c1d] 22/8/2012 12:37

For me there are 2 considerations:

(1) are the assets worth more than the value being implied by the share price? They are 'independently' valued using established methodologies and there is a lot of headroom between this value and the value implied by the current share price I'm never sure how independent someone can be from the person who pays their wages but the share price is way below the aggregate valuation attributed to the properties so I am not too concerned about this.

(2) will the directors (or someone else if they takeover the company) be able to realise sufficient value from the properties by selling them and/or the rental income to pay the bills, refinance bank debt as and when required, and return more value to shareholders than the current share price?

Because I think the answer to both these questions is yes I hold the shares. I think that a discount to net assets of 50% plus a bit for the option value of the EC venture would be more appropriate than the current share price

Regards

[loverat] 22/8/2012 12:28

MONIS

What is striking about this thread is that there are a wide variety of views. There are some who clearly know alot about this type of business but for whatever reason are talking it down. Likewise there are several who know about this business but are over optimistic and talk it up. So with this group of posters, you can get opinions from anything from 0p up to 65p.

There are other knowledgeable posters like scburbs who I would describe as a realist and his views are more balanced and probably from a medium/longer term perspective (and based on the management's performance so far) his points are valid. As for the UK assets, well I would take his comments on board but would not describe these assets as worthless just because of the climate as it currently is. But I would possibly discount the value given by the company which the share price will always do anyway.

At this stage in the cycle and over the shorter term I do see value here. As I say, I think in theory this could touch 30p soon. Probably on this stock however and given the uncertainties I would not push my luck and perhaps I might revise my own target to 25p.

[monis] 22/8/2012 12:12

scurbs you paint a negative picture can you point me towards any rns's which can substantiate your views re the uk assets? If not surely you can only go on the figures and the figures suggest to me that these are undervalued. imo dyor

[monis] 22/8/2012 11:51

scburbs - how much do you think the german assets are worth?

[scburbs] 22/8/2012 11:39

Monis,

You need to bear in mind that the group has just given away £43m in exchange for a 20% equity interest that is currently worthless. In the context of bleeding value that quickly the numbers are less comfortable.

The remaining UK assets are almost certainly unsaleable at the moment as we know that the tenant is of questionable covenant. Those specific assets may have a better performance, but the tenant covenant will also reflect other liabilities of the tenant.

The great hope for PSPI being undervalued is that the German assets are worth close to their book value and that the UK assets can continue to generate a good income profit (and that any debt can be refinanced when needed). The US and Swiss value looks highly questionable. Clearly at the current price there is a lot of potential upside, but if the UK and German valuations don't hold up then the downside is also material. I am not holding, but still following.

Has anyone seen comparables on the transaction yields for German care homes? [PSPI's are averaging 7.2%].

[monis] 22/8/2012 10:12

present market cap of £14.75m these look very good value then imo.

[loverat] 22/8/2012 10:07

A reminder - the post from TMF. I posted up the link yesterday.

PSPI is left with the following assets:

1. UK: £51m - 41% LTV
2. Germany: E58m - 40% LTV
3. Switzerland: £11m – 66% LTV (PSPI would like to dispose of their Swiss assets)
4. US: £16m – 81% LTV

Our results are released on 20th September. Our net asset value is 64p plus 20% of EC (figures depend on half-year valuations)




Apparently they are looking to sell some of the foreign assets and a possibility of a special dividend has been mentioned. I make the approximate net asset value of the foreign assets at about £35 million.

[loverat] 22/8/2012 09:50

MONIS

Part of the difficulty some people have had with this is valuing the remaining assets. The deal was fairly complex and some have expressed doubts over the valuation of the remaining UK assets. However, these are said to be performing well.

Alot of the debt was transferred in the deal and the approximate net asset value is calculated to be around 64p as per my post yesterday. At a market cap of 15 million I would expect these to double assuming everything goes broadly to plan. A target of 30p would make some allowance for possible overvaluation and other uncertainties. It would also bring this fairly close to the SP/NAV ratio we had before.