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I enjoyed a sunny day in Edinburgh on Friday, and a very pleasant AGM and post-AGM discussion with Caledonian Trust’s (LSE:CNN) directors. I’m pleased to report that as a result of the discussions I feel content that the net current asset value I estimated a couple of weeks ago at £44.2m or £3.75 per share is a reasonable figure – but, as you’ll see below, I’m a little worried it might not be available for shareholders.
The property market
The Edinburgh property market is doing well. Overall, prices are rising around 4% pa, but some areas such as Brunstane, where Caledonian has a £7m site with permission for 29 houses, are up 12-14%. Houses from phase one of the development have been selling for the great price of £300 per sqft.
In prime spots such as Belford Road, where Caledonian has permission to build a block of 20 flats, property is selling for between £400 and £600 sqft. I previously estimated the site there to be worth £3.5m without any building work being done. However, it turns out that the completed flats, including a couple of penthouses should be worth £11m. My estimate of build cost is under £3m, so my £3.5m value for the site is really quite conservative.
Douglas Lowe, Chairman and CEO, says that there is a deficit of home building in Edinburgh, a city with 100,000 students, including excellent IT graduates who now attract or create tech businesses.
St Margaret’s House
Concern was raised by shareholders at the AGM that the buyer of St Margaret’s House has got a generous get-out clause – he will only buy if he gains the planning permission he wants, and that might take 18 months. Also, he was granted the option to buy without a break-fee being due should he walk away.
The directors pointed out that the buyer has a high personal reputation and long experience in property development – “track record excellent, we know him” – and so will not back out lightly. He will be spending a lot on planning applications soon, so that shows commitment.
Also the conditions he set are not difficult to discharge within the planning permission Caledonian already has (student flats plus some housing- in all 235,000 sqft).
There were at least two other potential buyers in the running for St Margaret’s House. They made known their irritation that they were not able to top the £15m offer. Thus if the current buyer falls away Caledonian has other options for selling the site – and with the benchmark set at £15m.
Note that the three properties I’ve mentioned already have a market value in their current states of at least £25.5m, and the company has many m
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