Matrix European Real Estate Share Discussion Threads

[tim00] 25/2/2010 16:49

As you may know Karl, accrual accounts try get at the underlying resource implications for the company - for example retailers are not allowed to "book" the cash received from selling gift vouchers until the voucher is used, because the recipient may decide to return the voucher for cash. Many companies get into trouble with the authorities by fiddling the figures by booking cash receipts too early. In MERE's case, the gap between our two estimates is mostly down to differences in measuring interest costs and the cost of the interest rate swap. Just for my interest, I might try to understand these differences better in the coming days.

[karldinnel] 25/2/2010 16:37

Ah... So a p/e ratio of only about 3x. How disappointing!! How will the share price hold up now...???

[tim00] 25/2/2010 16:25

The £35 mn is not the net figure that we care about Karl. From it one has to deduct (at least) interest payments on the debt. Doing that one derives a figure of about £15 mn. That's the underlying net cash inflow in 2009. My estimates that I quoted earlier were doing the same thing but using accrual accounting from the income statement. That results in a somewhat lower net figure of about £10 mn. Accrual accounts are normally the more reliable, but we don't really have a full explanation for the difference. Anyway, something between £10-15 mn per annum is the figure to focus on.

[karldinnel] 25/2/2010 15:55

Just been looking more closely at the annual report.

Apart from the latest NAV of 293p, what I find even more interesting is the cash flow figures.

While the headline "loss" for the year was £50m, this figure incorporates the full effect of the fall in asset values which are written off against income.

If you strip these out (and also the similar adjustments for mark to market on the values of the interest rate and exchange swaps) one gets a very different picture of the underlying situation.

In fact, looking at "real" income and expenditure, it can be seen that last year MERE generated a positive cash flow of £35m on operating (see page 24 et seq and footnote 27 to the accounts).

This would put MERE on an effective p/e ratio of 1...

What do you think, Tim?

[karldinnel] 25/2/2010 12:59

Well, if you look at Benko's Signa Capital Web site it does seem like he is involved in quite a few office buildings in Vienna. Maybe there is a competition concern there and they need to check it out...

This guy is a property wunderkind, no doubt, but I'd be very surprised if they felt he had too much going on in Vienna...

[tim00] 25/2/2010 12:53

thanks Karl. I had assumed that's what they were about, I'm interested too in how long they take to reach a decision, but I guess we have no way of knowing about that.

[karldinnel] 25/2/2010 12:40

Rene Benko's Signa Capital Web site could be worth checking every now and then for news on the IZD deal. Meanwhile, investing in one of his funds might be an idea (especially if you think he will end up getting a good deal on the IZD tower):

[karldinnel] 25/2/2010 09:36

OK. From what I can tell (and I am using my schoolboy German again so bear with me), the BWB is just like any other country's competition authority. Its two main aims are to:

(i)ensure effect competition and prevent competitive distortions.

(ii) ensure compatibility with "Community law" (I presume that means EU law)


So, they want to ensure that there aren't cartels operating in Austria. In the property market, I can't see the IZD takeover being a problem unless the guy buying it owns 90% of the office blocks in Vienna or something, which is highly unlikely...

[karldinnel] 25/2/2010 09:17

I'll be selling 10,000 when we hit 180p, not before. The rest I'll let ride and hopefully we'll end up with a small discount to NAV, and a reinstated divi, in a year or so's time...

I'll see what I can do, Tim...

[tim00] 25/2/2010 09:08

A favour please Karl. Can you use your googling skills to see what you can find out about the Austrian Federal Competition Commission? It would appear they have to OK the IZD transaction, though I can't imagine this would be a problem.

[tim00] 25/2/2010 08:01

I've modified my post above to reflect the accounts definition of the LTV. This gives a slightly higher figure.

[phil1969] 24/2/2010 23:37

Great work Tim, thanks.

what a great week, MERE up 20%+, SOLG up 20%+ and just back from the Villa game 3-1 to Villa, happy days....

Just hope my little bubble doesn't burst.

[karldinnel] 24/2/2010 21:13

Thanks for that wonderful analysis, Tim. Great stuff!

[n1mgn] 24/2/2010 20:16

timoo

that is fantastic thank you , i shouldnt buy anymore , but i just think its the completely wrong price , might just have to raid my piggy bank again .

[tim00] 24/2/2010 19:22

Annual rental income figures are as follows (converted to EUR @1.124 EUR to the £ = end-Dec rate).

Gross rents are EUR 62 mn. Deduct operating expenses (rates etc) of 13 mn = 49 mn. Deduct admin of 9 mn = 40 mn. Deduct interest payments of 25 mn = 15 mn. Deduct costs of interest rate swap of 3 mn = 12 mn. That is the underlying rental income for 2009. Once IZD is sold, I estimate rental income net of operating expenses will fall by 15 mn to 34 mn. But interest payments will fall by nearly 50% from 25 to 13 mn. This leaves net rental income post IZD sale of 9 mn. But in addition, admin costs to the Manager will fall sharply (fees are a fixed percentage of the size of the balance sheet, which is shrinking rapidly), and legal fees will fall sharply. I guess this will recover another 3 mn, giving net rental income of about 12 mn, or about £10 mn. ie little changed on the 2009 figures. Once the LBG shares are repurchased, and there are 33.9 mn shares outstanding, that equates to about 30p per share net rental income per annum.

[tim00] 24/2/2010 19:00

n1mgn

this is my understanding to date, but I really need the weekend to go through the accounts very carefuly to fully understand them.

Cash is currently EUR 21 million, bank debt 442 million, property assets exc IZD 398 mn, shareholders' equity 124 million. IZD held for sale EUR 220 million (includes a cash sweep of 13 mn: net value is 207 mn). As I understand it, the 29 mn LBG debt repayment has already been netted off cash and debt in the accounts, complying with the LBG refinancing agreement.

Once IZD is sold, the 148.5 million IZD loan from the 220 mn is paid off. The surplus, 220-148.5=71.5 is added to cash. So cash then rises from EUR 21 mn to EUR 92 mn. Outstanding loans fall to EUR 293 mn. LTV is defined as debt net of cash divided by (net debt plus net equity) = (293-92)/((293-92+124) = 61.8%. This is the accounts definition of the LTV, I need to check whether this definition is also used by LBG in the refinancing agreement.

I'll come back shortly on rental income.

[n1mgn] 24/2/2010 18:31

timoo , finding these accounts a bit hard to suss ,

i would like to know cash now and cash after izd sale assun=ming 60mill release , paying down ltv to 60% ( 29mil)

also what would be the rental amount after izd has gone against finance costs

if u can help much appreciated

[tim00] 24/2/2010 17:24

it's worth noting that because of MERE's currency hedges, the NAV actually benefits from sterling rising against the euro. But I agree with n1mgn anyway that it's rental yield that is the key. I'm pleased that MERE's occupancy rate and rental arrears are still both very good, so I'm hopeful it will ride out the recession pretty well. As that becomes more certain, the gap to NAV should close sharply.

[n1mgn] 24/2/2010 17:17

interesting article , but to be honest i dont buy into that arguemaent at all i have the opposite view , by the way i own a currency business and have a fx trading hedge fund . the uk is in big trouble and i think there is worse to come , but i believe europe is in a worse state. commercial property i think is a good buy at these levels purely on yield , but have a compl;ete opposite view on residential.

[karldinnel] 24/2/2010 17:00

OK. Hopefully he has now finished whatever it was he was trying to achieve.

Anyway, enough of that nonsense. Have a look at this. Another reason to be in European assets:

[n1mgn] 24/2/2010 16:10

karl , i personally am only interested in mere and relevant news , i think we have all said thank you enough times for you highlighten the austrain article
.its your chioce if you want to share information and i am gratful for any you do

can we pls get back on MERE thats what this thread is for.