Public Services Properties Share Discussion Threads

[grahamburn] 19/12/2011 08:48

Doesn't appear much real progress has been made.

In the Interim Statement we had:

"Despite the Group's progress, the Company's shares have persistently been trading at a significant discount to Net Asset Value. In order to attempt to address the discount, the Board of Directors has resolved to commence a review of the Group's assets and the Company as a whole, and the strategic options available to maximise shareholder value. The Board is being advised on this review, which is being conducted jointly with the Asset Manager, by Smith Square Partners, an independent corporate finance advisory firm. There can be no assurances that the outcome will result in any specific action or actions, and no timetable has been set for its completion."

Now we have:

"The Directors believe that the Company's current share price of 51.5p does not adequately recognise the value of the cash flows of the underlying assets, and are therefore considering whether other owners and/or corporate and financing structures could better reflect that value.

The Board has appointed local advisers to review the Company's options, including testing market appetite, in respect of its real estate assets located in Switzerland, Germany and the United States. The Board is also at a preliminary stage of considering all options for the Group's UK assets. In parallel the Board is reviewing the Group's distribution and dividend policy to shareholders.

There can be no assurances that the strategic review will result in any specific action or actions and no timetable has been set for its completion. Further announcements will be made in due course, as appropriate."

Not really much difference after two and half months, as today's statement is simply a reiteration of known facts about the assets and liabilities, save for some minor re-financing in respect of the short-term bridging loan from Elliott which was a must given its imminent expiry.

[goliard] 19/12/2011 08:41

I think there is more to come out here. The banking risk is considerable and they may find it virtually impossible to refinance. The bank could even force a sale. The RNS didn't give any new info, but at least we know the board are aware of the problems. Not an enviable position and I say good luck to the board, as some sort of major restructuring now seems inevitable. Whether this will be positive for shareholders is hard to say, but I can't see many bidders for their assets, other than perhaps the German properties and I expect these to go first and for subsequent deals to disappoint.

[horndean eagle] 19/12/2011 08:25

The dividend review is a just a sneaky way of saying we cannot afford to pay the dividend.

[joe say] 19/12/2011 08:19

Personally think that this is a good RNS - the summary portfolio position highlights the valuation madness here, and the discount applied given the sector/single tenant issue

However, all risks have a price and surely we're below that reasonable level ?

[goliard] 19/12/2011 07:57

Nice to have an update, even though it doesn't provide much reassurance. Lloyds will want their loan repaid and they may struggle to find another lender in this market. We may see a bounce today based on investors looking at break up value, but I wouldn't be too optimistic overall.

[adam] 18/12/2011 22:23

I think the bank want it refinanced as otherwise a fire sale might require them to take a haircut. The informal extension is probably in the light of the fact that the loan is performing, all be it that it has reached maturity. I think the bulk of their properties are the Leipzig government offices. Their annual report states


The Company is pleased to report its financial results for the year ended 31 December 2010.

The Company's two principal assets at 31 December 2010 were a 94.9% interest in a partnership which owns four buildings in Leipzig, Germany leased to the Free State of Saxony (the "Leipzig Properties") and a 20.07% equity holding in Public Service Properties Investments Limited ("PSPI") a property investment company listed on the Alternative Investment Market ("AIM") of the London Stock Exchange which primarily invests in property leased to specialist operators in the care home sector in the UK and Germany.

The Leipzig Properties were constructed in 1995 and leased until 31 March 2020 to the Free State of Saxony (Covenant strength AAA), which has the right to extend the lease for an additional period of 5 years. Annual rent payable under the lease is currently €8.9 million and is subject to periodic escalations. The purchase price for this acquisition was €166 million, which was principally financed by a €121 million senior debt facility lead by the Royal Bank of Scotland plc – Niederlassung, Frankfurt ("RBS") which was concluded on 4 January 2008.




They are probably incurring penalty charges. If the underlying assets are performing OK as it seems, then the shareholders of USI will take a bath, much less so senior bond holders. As far as I can see equity was 77m CHF (£52m) at the Interim stage including 32m CHF (£21m) investment in PSPI. Some of the debt is mezzanine (convertible and loss absorbing from a bondholders' point of view), so i suspect senior bond holders are not concerned about a haircut but want it off their balance sheet.

In October 2006, the Company issued CHF 15 million of 3.5% subordinated Convertible Notes due in 2011 that are unconditionally and irrevocably guaranteed by, and convertible into registered shares of the Company. During 2010, the Company issued CHF 13,215,200 of 4.0% subordinated Convertible Notes due in 2015. Of these CHF 9,914,000 were converted from the CHF 15 million Notes due in 2011.


As noted PSPI shares booked on a consolidated basis not market value which would be £10m lower. So perhaps they have some wiggle room. I'm not sure though a fire sale of the PSPI shares would be a bad thing for PSPI, though I don't think it will happen like that. I think USI will refinance and proceed with the plan, but clearly the debt market is difficult and will require some effort.

[kimboy2] 17/12/2011 10:14

No resolution to USI's tribulations;



They seem to be about £50m short of the desired financing. I can't really see th attration of this company merging with anyone. The logic is a liquidation sale and the return of any equity to shareholders.

I think it is RP&C pushing for a deal to protect their income. Anyway they haven't got an extension to their loan and if this proposed merger, and alternate financing, doesn't come off I expect administration and liquidation.

The only problem with this is that they own 20% of PSPI, which is about £10m at today's prices.

If PSPI bought them at current prices, assuming asset values are correct, it would be worth 10p/shares.

IMV the obvious route is a merger with EC/Esquire perhaps with buying the shares from USI. It may be a problem as to who's interests RP&C are actually pursuing.

[adam] 14/12/2011 17:40

Maybe this ?

[kimboy2] 14/12/2011 13:51

One factor may be what is going on at USI who hold 20% of PSPI. The are in financial straits and have loan extensions which expire on 16th December.

They are in discussions with 'a leading healthcare provider' with regard to an AIM float and are seeking finance.

I notice that the PSPI shares are in the USI balance sheet at the NAV rather than the market price.

Given the precarious state of USI I would have thought that this holding may be somewhat footloose.

[ptolemy] 14/12/2011 13:11

I haven't followed the thread closely in recent weeks, so not sure if this was posted (or relevant?). Post offices for sale in USA.



Since following the stock in 2008, I've not understood the logic of continuing to hold the US properties.

[envirovision] 14/12/2011 12:38

2010 "The Directors expect that, in the absence of any unforeseen circumstances, the Company will pay a dividend which will represent a yield of 10 per cent."

..................Well it looks like the unforeseen circumstances are here. Libor is rising, banks can no longer finance themselves so wont be able to lend easily and businesses will not be able to refinance. There is nothing stopping libor rising, each and everyday it nudges up a little more and there is nothing on the horizon that even hints of reversing this.

This time we don't have the USA to save us all and when the EU try to come up with an enfeebled solution, everytime the uk is in like flynn to ruin it.

[adam] 14/12/2011 12:17

Well the share price cratering indicates there is a problem or forced/redemption selling.

As far as book value is concerned given that the portfolio is fully let on long lease terms, the value-in-use or a NPV valuation seems appropriate. The running yield seems supportive of the NAV, never mind the current share price discounting that by half.

The build out valuation was only to get a ball park feel for the replacement cost. I accept that there is a lot of guesswork involved because there are so many variables.

Either there is a problem and they will have to make an announcemnt or the shares will bounce.

[goliard] 14/12/2011 08:47

Huge number of assumptions Adam and comparing costs to Ireland doesn't feel right.

[fenners66] 14/12/2011 08:39

Adam,
Question is what income does a bed generate in the 2 regions and are these comparable?

[adam] 13/12/2011 16:38

FWIW. Inland Holmes plc just sold land for £1.8m to build an 80-bed nursing home. (22.5k/bed)



I don't know what the build cost is for an 80-bed home. I found the following



Property consultant Pat Nolan has pointed out that the cost of building and fitting out a typical 60-bedroom nursing home in Dublin has dropped from around €10m in 2006 to around €7m, while the cost of a site has dropped from around €4m to €2.5m per acre.

Let's assume 80 room can be built and fitted out for same = £5.8m or say £5m (£62k/bed)

+ Land acquisiton of £22.5k/bed

= £84k/bed built & fitted

UK property valued at £187m in PSPI accounts. European care state they have 4500 beds. We might then assume 1800 beds to PSPI (based on 40% of EC homes). Thus valued at £100k/bed

£84k/bed estimate for build and fitting compares well then with let and operated property of circa £100k/bed.

Obviously numbers are guesswork, and there is a matter of build quality et al. But the figures indicate valuations are in the right ball-park and the so-called value-in-use is not out of kilter with the cost price. An operator building a new home would be exposed to these costs and also to getting permissioned, recruiting staff, clients et al. Hence the saleable value seems concomitant with the book value.

[ptolemy] 12/12/2011 15:20

Thanks to those who answered my question a few weeks ago about Esquire.

[envirovision] 12/12/2011 15:14

Fresh multi year lows.

[grahamburn] 05/12/2011 19:32

Brief mention (ambiguous in terms of positivity/negativity) in this article on commercial property shares:

[kimboy2] 02/12/2011 09:19

RP&C may well be a substantial organisation. It just seemed odd for them to mention USI and PSPI so prominently on their front page.

I am not underestimating them. They are obviously at the centre of what ever is going on and they are putting their own money into it.

The obvious thing is if they are planning some form of combination then it will likely be among companies that they have an interest in. That is the point of interest of USI and PSPI being on the front page.

One thing that is unknown is the ownership of Esquire. It wouldn't surprise me if Elliot Int. were a significant shareholder.

If it so happened that this was the case then the fact that such a large well funded organisation was a significant shareholder in both EC and PSPI would considerably de-risk PSPI IMV.

[grahamburn] 02/12/2011 08:58

Kimboy2. The RP&C website gives much much more information than you suggest in your post.

A quick glance at the "Recent Transactions" link on their website shows numerous financing operations with a wide range of companies across the world (OK, quite a few with PSPI and USI, but many more as well). Then a glance through "Investment Advisory" reveals even more, whilst a look at the Directors/Management Team page illustrates their size and diversity in terms of expertise.

In short, RP&C is a substantial operation.

Where that leads one in the current situation vis-a-vis PSPI, USI and, maybe Esquire/EC, isn't clear, but don't think RP&C are to be underestimated or under-played.

[kimboy2] 01/12/2011 21:31

The Elliot increase is due to the scrip issue.

USI is interesting. No indication of who the leading health care provider is. I don't quite see the synergy of a combination.

It does seem it is only one other company involved so it won't be a grand coalition.

RP&C seem to have confidence investing E12m. Their website;



Mentions USI and PSPI on the front page and not a lot else. Perhaps that is all they do.

I don't know who the other company are but I would be surprised if EC or Esquire aren't involved. My bet would be Esquire which would in effect float EC as a subsidiary.

The transparency, as well as rhe cash raising, would hopefully have a beneficial effect on PSPI. Perhaps that is why they were so keen on a scrip dividend.

Anyway looks as though we will know one way or another in the next month or so.

[adam] 01/12/2011 20:56

Looks like things are begining to move with USI. An announcement today

[mathisvale] 01/12/2011 20:42

Well if PSPI have a future, then their shares are at a bargain price. Elliot have just spent c. £1m on them. Draw your own conclusions

[woodcot] 01/12/2011 20:05

If Elliott thought that PSPI were doomed they might as well have taken the money when they had the chance to do so rather than take the shares.

Elliot will know what's really going on inside the company and will be the main player in any brokering that will be done.