Public Services Properties Share Discussion Threads

[blueliner] 09/10/2011 08:03

Just for the record I had two small buy limit orders in for both Thurs & Fri at around 65.5 - 66.25p, never got a sniff. Even though there were 10,000 trade lots going through at those prices & lower.
Not being given away or perhaps I should try another broker.

[woodcot] 08/10/2011 11:08

My average price in PSPI is 67p which looking forward over the medium term (24months) I believe will make a good return.

At that level I'm looking at over 10% yield and I also believe there is good potential for growth in the share price because there will be a restructuring of PSPI portfolio of properties/assets. I don't believe the dividend will be cut which I think some on this BB feel must happen.

In my opinion they refinanced the 140 post offices in the US to sell off however I don't believe there is much equity to be had in these assets but I also believe they will sell off the one Switzerland asset which I believe will have a substantial amount of equity.

They will retain the UK and German assets and max any potential value by the way of refurbishment and utilising/generating extra beds, they may even think it's worth having a few of Southern Cross properties if they fit well with PSPI's strategy.

We shall see, time will tell.

[osirisra] 06/10/2011 10:14

Hurrah we go above the ridiculously low level of 65p.

[woodcot] 05/10/2011 22:30

Arbuthnot Securities Ltd

30 Sep 2011

PUBLIC SER.PROPS.INVS. (DI)* [Buy]
PSPI.L / 65.00p / £66.59m / TP: 123p

Interim results

Interim results for the six months to 30th June this year from PSPI, the specialist real estate investment and financing company, highlights that the group continues to reap the benefits of a fully let portfolio, long term leases, indexed rental income and conservative leverage. Additionally, the capital expenditure programme embarked upon in 2010 aimed at delivering internally driven growth opportunities via the refurbishment and extension of the existing care home portfolio continues, which should provide a medium-term benefit to the value of the portfolio.

Key highlights:

Cash rental income of £8.5m (+2.2% YoY, vs £8.3m)
Adjusted earnings of £5.0m (+44.4% YoY, vs £3.5m)
Adjusted NAV of 148.3p (+3.5% YoY, vs 143.3p)
Adjusted EPS of 4.9p (+15.6% YoY, vs 4.2p)
Interim dividend of 2.5p (0% YoY, vs 2.5p)
LTV ratio of 50% (vs 52%)

The core of the group's portfolio includes 39 UK-based care homes, 14 care homes in Germany and Switzerland, and 140 post offices in the US. Visibility is provided by the weighted average lease term of 20 years and a revenue base that is subject to RPI indexation.

Strategic review

Accompanying today's results is the news that management has commenced a review of the group's asset base to explore options to maximise shareholder value and address the disparity between the share price and the group's net asset value. We view this move as encouraging, and see scope for the outcome of this review to act as a catalyst for the share price over the medium term.

Valuation

Interim results demonstrate that the underlying trading performance from PSPI is clearly at odds with recent share price performance, with the latter being impacted by negative sentiment towards the sector. Therefore, we believe the discount to NAV is excessive. With potential for this valuation gap to narrow the implied full year dividend of 7p, translating to a dividend yield of 10.8% that is covered by recurring revenues, enhances the valuation case for us.

Our recommendation remains Buy and we maintain our target price of 123p.

[davidosh] 05/10/2011 16:51

FYI if anyone wants to add their thoughts on this one...

[goliard] 04/10/2011 13:23

Stemis, thanks that is helpful to see.

[grahamburn] 04/10/2011 12:39

Brief mention in Motley Fool roundup of exceptionally-high-yielding shares written on 30 September:

Public Service Properties Investments
PSPI is another company I looked at more closely a year ago. At the time the shares were 74p. It has since paid out 7p in dividends and today announced that it swung to a half year profit and said it is doing well despite market conditions.
It made underlying per-tax earnings of 4.9p per share in the first half, declared an interim dividend of 2.5p and has a NAV per share of 118.4p and adjusted NAV per share (including deferred tax) of 148.3p. This looks a high-yielding bargain to me.

[ptolemy] 04/10/2011 09:19

Excellent discussion. Thanks.

[kimboy2] 03/10/2011 13:31

I notice that the EC turnover is forecast to increase from £124m in 2010 to £140m in 2011. Similarly the EBITDAR is forecast to increase from £34m to £40m.

[stemis] 03/10/2011 13:03

Goliard

Stemis, I think my issue is that there is a lack of clarity. If it was a case of building a new wing on an existing building then I would completely agree with you. It just doesn't sound like that and, don't forget, the occupancy rates are down, so building of new wings sounds unlikely. If they were really undertaking this sort of building work I would expect a clear statement like, "Due to increased demand for beds at our Newtown facility PSPI has agreed to build a 32 bed new wing...".

What we actually get is "expansion, re-configuration and refurbishment".

Have a look at the interim results presentation page 9

[stemis] 03/10/2011 13:00

The RPI increases have stopped valuations falling, but haven't driven any increases as they have been matching off against the expanding yield.

Well over the last 12 rolling months, yield has increased from 6.60% to 7.03% in the UK but the company has recorded a £9.1m revaluaton gain (3.6%). Not exactly a disaster!

You are right though, the share price won't do much till the refinancing is announced.

[horndean eagle] 03/10/2011 12:59

It was very kind of ECH to write a nice piece in PSPI results. The question arises, why? What they should really be doing is saying nothing at all and making PSPI toil. That way they can get reductions in rent. It is probably in their interests that PSPI fail because they can re-negotiate contracts. PSPI must be offering them something for being so nice but at the moment I have no idea what is but there will definitely be something which will be revealed later on down the line.

[envirovision] 03/10/2011 12:31

grahamburn. I don't disagree with some of the points however I think your missing the point which is its clearly becoming an arrangement with some duress.

[kenny] 03/10/2011 12:03

By doing a search, it is easily possible to find care homes for sale. These other properties would tend to suggest that PSPI's may be over valued. A 7% yield valuation basis may sound reasonable for some other type's of property e.g. offices but currently and perhaps for some years to come, a much higher yield may be appropriate to care homes.

Turning to the dividend, it seems almost certain that this will be cut following the "review" so the only question is whether this pending cut is reflected in the current share price. If, for example, the annual dividends become 3.5p, with little hope of near future valuation improvements, risks in the tenants business and refinancing costs, it seems there could be considerable scope for the share price to adjust downwards.

[scburbs] 03/10/2011 11:52

SteMiS,

The RPI increases have stopped valuations falling, but haven't driven any increases as they have been matching off against the expanding yield. However, if ECG continue to pay (and start paying on the capex projects) then the cash flow is going to be great.

With QE2 about to commence and nominal GDP becoming more important (as a mechanism of stopping debt to GDP increasing in the absence of real GDP growth) it is difficult to see how ECG can survive many more RPI increases. Ideally (from a PSPI shareholder perspective), ECG's shareholders will recognise this and provide the capital to buy out PSPI's properties at a value which is beneficial to both (perhaps 5-10% below the current book value).

Assuming that this doesn't happen it will be very interesting to see how much the banks are prepared to lend against the UK estate in the forthcoming refinancing. This will be much more telling on the true financial position of ECG than the information which has been provided to date. A new loan at 60% LTV at a decent margin would imply all is well. A loan with a high margin (or bifurcated into a lower and higher margin loan) and 50% or lower LTV would imply the banks are worried about ECG as the tenant IMV.

[stemis] 03/10/2011 11:30

Yes but the spend generates an RPI return to valuation as well. However the main benefit is to rental income.

[scburbs] 03/10/2011 10:57

In the time period since the capital was raised the approximate valuation uplift from the capex has nearly halved (from c.27% to 14%).

This is due to the average yield shift from 6.32% to 7%. If this outwards yield shift continues (due to ECH's increased risk) then the returns will be rather meagre.

[kimboy2] 03/10/2011 10:44

The valuation increase is IIRC about 120% of the capex and they will be getting 8% of the expenditure each year.

As an alternative to acquisitions, which would yield 8%, it seems sensible to increase the quality of the present stock while getting the same return. The fact that it will also improve the situation of the tennant is a useful by product.

I don't think the fact that they are investing in their own properties can be taken as a signal of the weakness of their tennant.

[grahamburn] 03/10/2011 10:37

envirovision. Don't understand your last post given what both SteMiS and I have both explained in our recent posts. The arrangement seems to be in both companies' best interest.

Whether the close relationship and mutual reliance turns out to be a problem for one or other company, only time will tell!

[goliard] 03/10/2011 10:33

Stemis, I think my issue is that there is a lack of clarity. If it was a case of building a new wing on an existing building then I would completely agree with you. It just doesn't sound like that and, don't forget, the occupancy rates are down, so building of new wings sounds unlikely. If they were really undertaking this sort of building work I would expect a clear statement like, "Due to increased demand for beds at our Newtown facility PSPI has agreed to build a 32 bed new wing...".

What we actually get is "expansion, re-configuration and refurbishment".

I am not saying that I can't be wrong, it just doesn't smell right to me and I agree with envirovision, ie even if I don't like it, it is probably the best thing for them to be doing. I just wouldn't buy the shares.

[envirovision] 03/10/2011 10:20

Basically sounds like they are doing everything they can to help ECH, things must be pretty desperate. However what can PSPI do about it, not a lot really ECH have them over a barrel.

[stemis] 03/10/2011 10:12

In considering the financial position of ECH I note that it says in the interims:-

The EC group owns a majority of its care facilities which sets it apart from several members of the peer group which are facing increased rents and diminishing revenues across the whole of their portfolios.

PSPI owns the vast majority of the properties leased by EC and has agreed a programme of development on a number of facilities which will add a further positive contribution to EC's earnings in the future.

[stemis] 03/10/2011 10:10

I guess my point is that normally it is the tenant that undertakes this work,

it suggests that ECH can't / won't pay for improvements and this is the only way out for both parties that can be made to sound ok to the market

I think you need to re-read what PSPI say

The Company is investing in a number of projects that will add capacity through expansion, re-configuration and refurbishment for a number of properties in the UK portfolio

If the work is capital in nature, i.e structural work like a new wing or a change to the structure of the building then its quite right that the landlord does the work as its the landlords building. It's clear that this isn't normal maintenance work that would fall within dilapidations. ECH will gain from the extra income of the extra capacity and PSPI will see an increase in value of the property and therefore rental yield. Absolutely proper and in keeping with the nature of the relationship between landlord and tenant.

[kimboy2] 30/9/2011 14:12

It is obviously in PSPI's interest to capitalise the rent at 8%. It is in effect no different to actually doing the capex for a return of 8%.

In so far as EC is concerned the question is can they invest the rent saved at a greater %age than 8%. I suspect that they can.

The PSPI report also says;

The parent company of the EC has been raising additional capital during the last six months, some of which has been used to augment working capital in the operating group.

I believe that some of the EC mortgage has been paid off in the last month or so.

[goliard] 30/9/2011 14:10

All valid opinions, but I guess my point is that normally it is the tenant that undertakes this work, not the landlord. Therefore it is the tenant that suffers from the disruption. The sort of deal they are suggesting is only normally seen where a tenant is part of a shopping centre and it undergoes redevelopment leading to decrease in earnings from the tenant (as you are quite rightly saying above). Even then, the rent is simply lowered or compensation paid, rather than rolling it up as some sort of investment. This is far from simple, but it suggests that ECH can't / won't pay for improvements and this is the only way out for both parties that can be made to sound ok to the market - hence our debate. I completely agree that it only relates to some and not all properties and was not ever in doubt about that.

scburbs - as per my earlier post, I completely agree and don't think it would work the other way round!