Mountview Estates Share Discussion Threads

[tmfmayn] 23/8/2014 18:49

Hi Jonwig

"Can we conclude that the mark-up from purchase to sale is nearly 100%?"

I think it is over 100%. If you look at the sales related to property disposals, and the cost of those sales (i.e. the original cost of the properties) in the accounting notes, then the figure came to 121% in FY14. Over the years the figure has been as low as 76% (2009) and as high as 245% (2008) and has averaged about 160%. So more than double. Of course, the premium is produced by rising house prices as well as the discount disappearing as and when the tenant dies. At the AGM Graham Murphy quite rightly noted the premium in FY14 was the second lowest for the last 15 years, which does seem odd in the current housing climate. But I guess the margin is all dependent on which properties come available for sale in any year, which could be quite random.

Anyway, my sums indicate that if MTVW could sell all of its trading properties at a 160% premium, pay tax on the gains, pay off its debts and realise book value from its investment properties, then the NAV could be £109 a share.

I too was at the AGM, but I did not click your real name with your user name here until after I had left the meeting!

Mayn

[jonwig] 23/8/2014 16:52

Hi topvest.

Break-up of Concert Party suggests possible outer, yes. And new CEO will be chosen on what premiss?

I notice the presentation suggests they may be looking to buy complete companies - margins there will probably be lower?

Incidentally, I mentioned Grainger as the biggest quoted rival. There's a much larger company, William Pears. Though privately-owned, this is FTSE250 size!

[topvest] 23/8/2014 13:47

Thanks for the reporting on the AGM. Yes, very interesting indeed. The possible exit comment is a particularly interesting comment. It may well be the time for the family to crystallise their investment if there is no obvious candidate to take the business forward. Presumably, now is the best time (or close to it) to sell this business as property prices are pretty strong and better to sell the business before the market diminishes too much in size. They can't buy as many regulated tenancies as they can sell.

Why do the portfolio valuation now? It does points to a possible exit in the next 12-24 months as presumably this valuation would be very useful to a bidding party. Has to be worth £100 or so to some other party.

[jonwig] 23/8/2014 09:08

The presentation is on the website now. Link here (click "AGM Presentation 2014):



Some interesting bits:

• Finite amount of stock with an estimated 15-25 year life
• Existing portfolio returns should accelerate [p6]

This was clarified: since regulated tenancies haven't been created since (?)1989, existing tenants will be dying at an accelerating rate. However, returns should reduce as recently bought properties will command higher prices.
Special dividends coming up?

Also, pp 9,10: during the year, 152 RTs bought for £23.01m (ie. average £0.15m per unit) and a different set of 179 were sold for £48.36m (average £0.27m).

Can we conclude that the mark-up from purchase to sale is nearly 100%?

No, of course not, but I'm going to hazard (very speculatively!)that the current NAV of £68 per share will be £100 on the coming revaluation of TPs and a potential £120 on full refurbishment and sale.

[jonwig] 15/8/2014 05:56

Cheers coolen.

Noah's Ark - I take it you don't mean Russell Crowe this year?

[coolen] 14/8/2014 21:42

I have been a holder since Noah built his ark.

Just a note to thank JonWig for his shrewd questions at the AGM and for kindly reporting back to us. Many thanks.

[jonwig] 14/8/2014 17:59

Hi, greatgig... - thanks for reply.

Allsops are doing the valuation.

The presentation did have some numbers which I thought were significant - if it's not uploaded tomorrow, I'll contact them.

[greatgiginthesky] 14/8/2014 15:49

Many thanks for this post. I should be able to make the AGM next year, if MTVW remains independent at that time.

I suppose the response on the matter of the dividend was to be expected. And, fair enough, having a share that does not cut the divi is worth something on its own.

On the revaluation I expect the valuers to be working on the basis of a willing buyer, a willing seller and 3 months to market each property. On publication of the revaluation, I would expect the share price to move to a level equal to a discount of 10 - 20% on the full balance sheet value. The discount reflecting the large family holdings, which kind of preclude a takeover without family approval.

I am sure there will be a letter from GRI in the file somewhere along the lines of "when you're ready you know where we are". Not so sure, though, that it would be a cash offer. I'd rather have shares for CGT reasons.

Once again, many thanks.

[jonwig] 14/8/2014 07:44

I went up to London yesterday for the AGM, It was well worthwhile.

There was a presentation to begin with (it will be put on the website - not there yet).
Not much there which isn't in the AR, and I didn't take notes as I expect to find it on the website. Will come back to that.

A Mr Murphy asked some questions. (His wife holds 15.3% - AR p13.) He was really quite ignorant, I thought, of how quoted PLCs work. I won't go into details, as it's hardly worthwhile!
The new chairman got rather exasperated with him but handled it pretty well, considering. I'm told he's like that every year.

The fact that the search for a new CEO (when Duncan Sinclair retires) has already lasted two years concerned Murphy and another questioner. But there may be a sub-text here ... see later.

I had my own questions:

• that I thought the dividend was still a bit stingy.
It was pointed out that the dividend had never been cut, and was consistent with their cautious policy.

• what planning was taking place to re-balance the company as the number of regulated tenancies dries up.
They are aware of this, but gave no details.

• more details wanted on the form of the revaluation of trading properties.
Likely to be very detailed and undertaken annually thereafter. The revaluation will not take account of any potential uplift of a property when it comes vacant. In that sense, as I mentioned earlier, the values thrown up will be considerably in excess of the stated balance sheet values, but lower than the potential sales values.
Message - don't be disappointed when the numbers come out! (Late November?)

It was interesting to see Andy Brough in the audience. He holds lots of shares in his own personal capacity, not as head of one of Schroders' equity teams.

The best part of the meeting was the chance to talk to some other investors afterwards.
One long-term holder explained that the sub-text here was that part of the family wanted an "outer" - most probably a cash takeover. Reasons given match closely those mentioned by "greatgig..." above:

- break-up of concert party (remember, it totalled more than 50%),
- revaluation exercise to put a more transparent number on the assets,
- flexible but close retirement of CEO and no obvious or willing successor within the family.

Who might be interested? Grainger [GRI] was mentioned ... worth following their progress a bit more closely?

My own feelings - a definite "hold". I'm reluctant to actually buy more at this level, as I've been moving into cash recently in any case. But if there is a market correction, I'd add around £70 I think.

[greatgiginthesky] 05/7/2014 12:26

Yes. My take on the old Concert Party Agreement is that it bound all the members to vote in a particular fashion. However, now some members of the family are no longer part of that concert party AND the new agreement allows members to vote whichever way they wish to at a general meeting.
Another idle piece of speculation on my part surrounds the unfortunate death of Keith Langrish-Smith. His 307,000 shares are worth £27million and if held in his own name there would have been a substantial CGT liability on sale. However, now those shares will have been inherited at a new, higher base value for CGT purposes, thus making it rather more tempting for the new holders to be looking to cash in. As I say, just my idle speculation.

[jonwig] 05/7/2014 10:27

I think I was misunderstood: the current "valuation" of a run-down property will be higher than its cost (on the balance sheet), but won't reflect the further value to be added after refurbishment.

In other words, even a current re-valuation will understate the potential!

greatgiginthesky - re the Sinclair family split(?), asking for a current valuation can probably only have one interpretation, yes! Maybe one faction wants an outer.

[greatgiginthesky] 05/7/2014 10:03

But the properties are already listed on the balance sheet at "...the lower of cost and net realisable value." So, in theory, a valuation now should only ever result in a higher value than on the balance sheet.

[chector177] 03/7/2014 19:23

Seems a reasonable assumption. However Jonwig is warning most of the properties are run down and I think he is suggesting the valuation will have a negative impact

[greatgiginthesky] 03/7/2014 16:28

If you take a close look at the RNS on 5th September 2013 regarding the new Sinclair Family Concert Party Agreement you will find the following sentence:
"This revised agreement sets out certain terms of conduct between the concert party members, including the event of an offer being made for the Company."

Now we are told that the 'hidden' value is to be revealed in a valuation.

I may be putting two and two together and getting five, but one possible take on these events is that the Sinclair Family is gearing up for a sale.

[jonwig] 03/7/2014 10:46

chector - I'd very much like to know myself!

AGM is Wed 13 August. I might just go.

[chector177] 03/7/2014 09:25

Thanks Jonwig, so why do you think some shareholders have pushed for a re-valuation, they obviously feel it will benefit them.

[jonwig] 03/7/2014 07:34

Chris, the 2014 Annual Report should be available any day now, but going back to the 2013 document (can be downloaded from the website), the front of the Income Statement (p23)shows:

Taxation – current (6,511)

and looking at Note 9 on p36, we have:

UK Corporation Tax 24% (2012: 26%) 6,511 (6,648)

(You can't easily produce the 24% yourself, because detailed allowances aren't given.)

I don't think the rate of 20% will have been implemented yet.

Forget "deferred tax", it's an accounting number which won't have to be paid, as it will become part of current tax in some future period.

Incidentally, it might be very useful to remember that a large part of their trading properties will be in a pretty dilapidated state - after all regulated tenancy landlords have no great incentive to improve! - so a current revaluation will reflect this. What MTVW does is to refurbish them, so adding value.
In other words, even a current valuation will understate the potential!

[chri5 wright] 02/7/2014 19:15

I appreciate the posts too. Obviously CGT is only paid on gain, not revaluation, and the balance sheet must always value assets at the lower of cost and net realisable value.

I' not sure your right re tax at 20%. That mean ''not sure'', rather than me saying your wrong politely. Lets look into that. I thought that this only applied to a REIT?

For the record, I am a buyer of the stock, not talking it down.

Chris

[chector177] 02/7/2014 15:22

Interesting discussion, I appreciate the posts

[coolen] 02/7/2014 14:37

Jonwig, good point about the transparency: the difference between travelling and arrival !

[jonwig] 02/7/2014 13:23

coolen - think of mining companies ... underground reserves/resources don't appear on the balance sheet, though they appear prominently in the narrative.

Also, mining companies can account for the cost of evaluating reserves as an intangible asset - after all, if you've spent £mm getting a resource estimate, anyone taking you over should recognise the fact!

As for MTVW, I suspect this is one of the issues which has (allegedly) caused boardroom arguments. They don't currently seem to have any intangible assets on their balance sheet: maybe these will appear in a year or so? As you seem to imply, they've taken on a whole load of costs!

I'm actually a bit sad that they've decided to do this - the lack of transparency was an opportunity to buy in 2008/09 and 2010. When they do emerge with a number, look out for some profit-taking, perhaps.

EDIT: I've always wanted to make their AGM, but living oop north in the sticks, that would prove pretty expensive.
Middle of August is out of the question!

[coolen] 02/7/2014 12:29

I'm wondering whether they could get themselves into an accounting mess by trying to revalue stock: ok for year 1, but what happens to the revaluation figure in year 2 after a further 12 months of buys and sells into and out of the pool of stock ?

[chector177] 02/7/2014 11:50

Thanks Jonwig most helpful

[jonwig] 02/7/2014 09:00

Here:

If you buy and sell property as your business you pay Income Tax rather than Capital Gains Tax on any profits you make from the property. This applies whether you are a sole trader or in a partnership. This may include a one-off purchase and sale of a property. You usually pay any Income Tax due by completing a Self Assessment tax return.

If you are a director or shareholder in a company which carries out property trading, any profits on properties disposed of are part of the company's profits. The company will pay Corporation Tax on its profits.



IFRS has "trading properties" valued at lower of cost and current value. Revaluation gains don't appear, but they do on investment properties.

Goodwill is the excess a company pays over book value for an asset. So if MTVW paid £2m for a property given an independent valuation of £1.6m, the balance sheet would show goodwill of £0.4m.