Tamar European Share Discussion Threads

[skyship] 26/4/2013 15:10

I'm wondering whether there might be more to this Patrizia involvement than immediately meets the eye. Why would Rob Brook, a 20%+ shareholder, hand over the management control free gratis to a third party?

Patrizia is a fair sized organisation and manages substantial property assets. Might there be some advantage for them to be managing a UK-listed company?

No idea really; but pleased to see the price steadying following Tiltonboy's opportunistic purchase down at 28p a couple of weeks ago.

This was the brief notice back on Monday of this week:
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UPDATE REGARDING CHANGE OF CONTROL OF INVESTMENT MANAGER

Further to the announcement on 20 December 2012, the Board of the Company confirms that FCA approval has been reached on the change of control of Tamar Capital Group ('Tamar) and that the acquisition of Tamar by Patrizia Immobilien AG ('Patrizia') from the management has now completed.

Tamar is mandated to provide investment management services to the Company through its ownership of Tamar Financial Services Ltd ('TFSL'). The team, led by Rob Brook has now transferred to Patrizia and will continue to manage the Company on a day to day basis.
======================================================

[badtime] 15/4/2013 20:43

Thanks to all posters re all the info over the last few days

[scburbs] 15/4/2013 17:56

Kenny,

You need to take care with the cost ratios. I expect the majority of the £6.4m other income is service charge cost recharges.

"Other income (which relates to cost recharges) and interest income are accounted for on an accruals basis."

This means your 50% ratio is misleading due to costs which are not really being borne by the company. I think the actual ratio is probably closer to 35%.

The company also reports the annual income profit before tax as £2.4m. This calculation seems fine to me (albeit inconsistent with the operating cashflow calc) and the cashflow statement indicates that tax was a net receipt.

So they are paying dividends out of income profits, but it is true that the capital is being eroded by the unrealised and realised losses on disposals.

The management fee steps down from £1.5m to £1m in 2013, a 33% cut which seems fairly competitive to me. The key management incentive is on return of capital and they need to get above 40p before that starts to kick in. They can also get up to £0.5m of disposal fees in 2013 (but need to realise £33m of net proceeds for shareholders to get this - based on 1.5% of net proceeds). I estimate that they would need to sell around 50% of the entire portfolio to get this £0.5m fee.

[langbarb] 15/4/2013 17:38

Kenny thanks for your helpful post. I have been looking at TEIF given the recent slide in price, but not bought in. When you mention the £2.4m net loss before dividend, shouldn't you add back the £3.8mio realised loss on sale? (These actual losses may be looked at if we want to consider the true value of NAV, but I thought they should be excluded from income calculation and ability to generate sufficient income to cover dividend purposes). So you would end up with a profit of £1.4mio, not sufficient to cover the £2.1mio of dividends paid in the year but better than a loss. There's also a £1.8mio tax charge to hit the botton line. The tax paid is way to complex for me to understand, but wonder how this has come up given the loss in the year (possible past crystallised gains?); but if we add it back too, then the dividend is covered by income. Any thought?

[kenny] 15/4/2013 17:13

I had a quick look at TEIF because on the face of it, it does look cheap. However, looking under the bonnet it is not!

The short answer is that expenses are too high to maintain the company - even with a management fee that is reducing. It is actually trading at a loss on income e.g. excluding losses on property disposals. Thumping great big loss in 2012 before dividends!

The figures that really highlight that expenses are too high:

Rental income and other income £23.2m

Expenditure £12.1m

So expenses are taking more than 50% of income - before interest!



In terms of 2012 - ex-unrealised losses, exchange losses and dividends the position seems to have been:

Loss before exchange difference £13.5m
Add back property revaluation loss £11.1m

Net loss before dividends £2.4m

Receiving dividends from this company is simply receiving part of your own capital back in the form of dividends.

Turning to NAV one could take the view it is irrelevant as net assets are being consumed by the annual loss on income, the dividends being paid and continuing property write downs.

Hope it all works out OK for current shareholders but TEIF is not for me. Too much risk that the above factors (which include a management fee for failure) will lead to trouble in future. Only needs more vacancies in France for the dividend to be cancelled - the management fee will not be cancelled!!

[boystown] 14/4/2013 23:08

Well FWIW, I think this is the best single best investment I've managed to find of late on the entire market and I was a buyer at 31p.

A 55% discount, gearing 42.3% & well within LTV covenants, a sustainable 5.3% yield, and what I regard to be a nicely slightly contrarian focus on France as the right time.

I realise my latter point is debatable, of course, but otherwise - what's the problem?

[scburbs] 13/4/2013 11:41

Hi Langbarb,

The working capital movements are the short term asset/liabilities movements which have not yet converted to cash. The £2.5m is the disclosed £1.6m decrease in receivables (i.e. more of the previous period receivables have been converted to cash than new receivables benefiting operating cashflow) less the £4.1m decrease in payables (more payment of previous period payables than cash deferral from new payables reducing operating cashflow).

The net operating income disclosure is I believe just the rent number. I agree that describing it as net operating income doesn't quite seem right.

On the expenses, the main factor seems to be the increased expenses relating to void properties outlined in note 4. I do not know why that is. I think they have disposed a mixture of yielding and vacant properties and the reported 2.8%fall in vacancy by market rent is largely due to sales as the new leases and move outs were similar. However, the yield on valuation has fallen from 9.1% to 8.5% so you would expect some reduction in operating margin.

Personally I am looking for them to realise the NAV through sales, however, a decent operating margin whilst they do so would be great (their operating margin on NAV is much smaller than ideal as they have surplus cash from the disposal programme and pretty expensive borrowings). I certainly wouldn't want them losing money on an operating basis (hence the concern over the negative £6.6m).

The dividend here is very sustainable (whilst they have surplus cash, but I would rather they got on and returned it which may impact on future sustainability if there is a future other than winding up). The only unknown is what covenant do they need to hit on the Deutsche facility in October to extend it for 2 years. Operating cashflow, financing agreements/maturities/covenants and cash balances are all key to the sustainability. I agree that you should ignore the revaluation movements except for where those movements could threaten a financing covenant or reduce the ability to refinance.

[badtime] 13/4/2013 09:38

Fair comment Scb

[langbarb] 13/4/2013 08:57

Hi scburbs, thank you so much for your insightful posts, they help me lesser knowledgeable investor to better understand the investment opportunities available. I have gone though the finals and would have a few questions for you, as I am trying to become more proficient in reading financial statements.
I agree with you re. the error in the operating cashflow. Afterall the "Unrealised loss on revaluation of investment properties" are added back in the op. cash flow calculation, and so should the realised losses. The questions now:
1) How do you calculate the WC movement you mention above?
2) Under portfolio overview they anticipated operating income for 2013 of £13.154mio, this looks very optimistic, would you know how they could come to this estimate?
3) I noticed form the income statement that the expenses over rental income ratio increased to 72.5% from 66.3%. This tells me that they have disposed of the assets with better income yield, and going forward operating performance could worsen. Is this a concern for you?
4) A rule of thumb I use to decide how sustainable a dividend is, is the following: operating income - operating expenses - cost of financing and see if this covers the dividend. In other words I ignore revaluation gains/losses and any other extraordinary item. Is that a sensible approach? What do you do to gain comfort on dividend sustainability?
thanks

[scburbs] 13/4/2013 00:14

Holts,

No, today was the first time I have had a chance to look at why the cashflow is so bad as I was starting to wonder if I should buy some more, but was worried about operating cashflow.

Badtime,

TEIF is reporting negative operating cashflow of £6.6m, despite a property yield higher than the cost of funds and a relatively low gearing. This sticks out like a sore thumb so regardless of who made the error, assuming it is an error, anyone with experience (i.e. the manager and the board of directors) should be asking why is the operating cashflow so terrible. If there is an error then asking the question would bring the error to light as the question would be incapable of being answered.

After all the results also include this:

"Loss before tax in the year to 31 December 2012 was £11.7m. Key components of this include:


· operating profits less interest £2.4m

· unrealised revaluation losses (£11.1m)

· realised loss on disposals (£3.8m)

· unrealised gain on derivatives £0.8m

The tax charge for the year was £1.8m (2011 - £9.9m)."

With operating profits less interest of £2.4m, you need some pretty chunky adjustments to get to negative operating cashflow of £6.6m. Difficult to see what they could be, other than the potential error and the negative working capital movement of c. £2.5m.

[badtime] 12/4/2013 17:42

One assumes the 'error' is by who they hire to prepare the accounts and who signed them off?

[holts] 12/4/2013 16:32

Have you e mailed them?

[scburbs] 12/4/2013 15:56

Still waiting for Patrizia to show their hand, albeit they have been occupied on a €2.5bn German resi portfolio.



TEIF starting to look interesting, but it is falling at too scary a rate to consider adding at the moment. The lack of progress recently has been worrying and the operating cashflow was truly awful without any hint of an explanation.

With a relatively low gearing, achieving negative operating cashflow (€6.6m) must be hard, but they managed it. Even the highly geared IERE dog reports positive operating cashflow.

I have had a look at it to try and work out why they are doing so badly on operating cashflow. It is very difficult to reconcile, the best I can do is that the operating cashflow statement seems to be misstated by £7.6m with the actual operating cashflow being £1m positive (or £3.5m before working cap movements which seems more reasonable).

This relates to the £3.804m realised loss on disposal. As a loss on disposal is not part of the operating cashflow it should be added back in order to get the actual operating cashflow. TEIF have deducted this number which appears to be wrong.

So potentially positive that the operating cashflow may not be as bad as it appears, but less positive as to why they may have such a large error whilst still appearing to balance their accounts! (presumably there is another matching error in the other direction, but who knows).

[tiltonboy] 12/4/2013 10:04

Picked up a few at 28p this morning. I dont particularly like trying to catch a falling knife, but if the value is really there, they look cheap.

[badtime] 10/4/2013 20:59

Wudnt worry sky who ever does catch the bottom?

[flashheart] 10/4/2013 19:38

They did go ex dividend today mind.

[badtime] 10/4/2013 16:39

Hmmm..think I'll hold off ..this may go lower still

[skyship] 10/4/2013 09:32

Bought back 20k sold off higher up - paid 30.85pXD.

BT - you may get them @ your 30p; but to my mind they now look oversold - and as friendless as ever!

[badtime] 26/3/2013 18:26

Maybe tht 30p won't b tht far off

[scburbs] 20/3/2013 11:11

Cash balances are 16p per share, with 9p in the parent company (important as I believe no security arrangements here).

This looks like the key bit to unlocking the cash. Details on the LTV/debt service covenants is a bit vague though (i.e. how much cash to be injected).

"A two year extension to this facility with Deutsche Bank (from December 2013) will be granted on meeting certain loan to value and debt service cover covenant requirements at the October 2013 interest payment date."

Operating cashflow is awful - perhaps a number of rent free agreements on new leases.

Good to see that the gap between the two NAVs is reducing (i.e. adjusted NAV fell 13p, NAV net of all deferred taxes fell 6.2p - implying that this is not all being crystallised on disposals).

[langbarb] 20/3/2013 10:01

can someone clarify the "Unrecognised deferred tax liabilities" which hits the NAV by 14p? Note 10 (b) says "At 31 December 2012, deferred tax liabilities of £19,623,000 (2011: £31,682,000) on temporary differences at the time of initial recognition arising from investment property transactions treated as asset acquisitions have not been recognised in accordance with IAS 12."

Does this mean that sooner or later they will have to be paid and that the actual NAV is 46p? I.e. IF no changes in valuation ever occur from now till liquidation, the investors will be distributed 46p (again for simplicity assuming no fees or associated costs)?

[skyship] 20/3/2013 09:44

Amended statement now out. Still confused as to the real NAV position; whilst the EPS figure seems remarkably high, providing 6x dividend cover!

[badtime] 20/3/2013 09:43

nearer 30p and i will get back in.

[skyship] 20/3/2013 08:36

Don't see any conspiracy here - a simple mistake bizarrely not noticed by the Company or its advisors