Public Services Properties Share Discussion Threads

[mctmct] 08/6/2012 14:12

The latest sale (14,000 at 10p) looks desperate. The MMs really don't want to hold stock, it seems.

[greedfear] 08/6/2012 14:00

Hm. I'm starting to get the feeling that PSPI will be taken over (by Elliott). I've seen this happen before: a very gradual slide down of the share price accompanied by very little volume.
Thinking of adding (again).

[hosede] 08/6/2012 11:21

Scburbs
Take your point, and I'm inclined to hang on in here and - as you say - buy more at a certain point, but as has been said on this board before, the value of the properties lies purely in the rents they bring in not in any freehold sale value.

[scburbs] 08/6/2012 09:04

Hosede,

Not sure I agree that refinancing is a problem for property cos in particular (i.e. compared to other businesses). Property cos have real assets that the loans can be secured against. Property companies have been able to access alternative sources of funding such as the US bond private placement market and getting loans from insurance companies entering the sector rather than from banks. Non-property companies will struggle to secure this type of funding (particularly from insurers who are specifically entering the real estate lending market).

However, what you need to get this sort of funding is a low loan to value and a secure covenant. If you change your comment to refinancing is a real problem for overleveraged property companies or those with weak covenanted tenants creating cashflow risk then I would completely agree. However, refinancing would be a problem for any business in a parallel situation (although perhaps more property companies are carrying higher level of debts which might make it look like a particular problem for property companies).

Someone push this under 10p it is almost starting to look interesting!

[hosede] 07/6/2012 17:38

The problem seems to be that banks not only have virtually no money to lend, but are desperate to call in any loans they consider even minutely at risk, in order to invest the money in (safe?) bonds even though the interest rate is tiny. It's a very sad strategy, but it means refinancing is a real problem for business in general and property cos. in particular.

I don't know a lot about healthcare cos. Like many others here, I failed to realise I was effectively investing in one! Are we saying that Southern Cross was just a particularly badly run Co. or is the whole business model unsustainable at the rates the Govt. currently pays? If the latter, then the Govt. will have to make changes - these people have to be looked after by SOMEONE, and just like the Govt. controlled utilities, that someone has to be allowed to make a profit of some sort.

[greedfear] 07/6/2012 15:36

Do not catch a falling knife they say.
Could not help myself.
This has been going down last month or so with very little volume.
Added.

[greedfear] 23/5/2012 13:23

I've added some. It goes south allright but without any volume. Bad market in general is responsible for decline in share price imo. I can see this going to 40p in no time.

[empirestate] 19/5/2012 21:53

plenty of fear written into the share price and doesn't appear to be a let up. can imagine some rebound if they refinance. the loan to value numbers looked quite healthy. put on the radar waiting for a glimmer of hope.

[greedfear] 09/5/2012 15:15

Still seems to be a little selling pressure. Not much, but enough to keep us where we are now. Any sign of improvement and I'll add. (I do have a feeling -but not more than that- that there are others out there ready for pushing the buy button too if....)

[greedfear] 08/5/2012 00:03

Scburbs- thank you for taking the trouble of looking into ECDC. I'll respond on the ECDC Thread, don't want to be too much off topic on this BB.

[scburbs] 07/5/2012 21:52

Greedfear,

ECDC is a difficult one to value. It has multibagging potential if things go well, but can only fall 100% if they don't! I guess you like your investments high risk/high return!

The key seems to be the cash burn and the equity value in both Romanian shopping centres (such as Cascade the largest equity asset which looks in reasonable shape) and Trade Centre Sliven (which appears to hold cash for a development that is going nowhere?). Do you know how much cash is in Trade Centre Sliven and what control they have over getting it back?

Really the question here is do you trust the manager (the market doesn't seem to)? They have a choice of calling it quits now (and letting the dogs go) which should generate an excellent profit for shareholders from today's price or ploughing on regardless with the particular danger that recurring losses and cash injections to Galleria Plovdiv (or other dogs) could hurt the equity value. As Galleria Plovdiv is by far the largest asset by value if it is propped up then this could be a serious risk to shareholder funds (as leasing seems very weak). Perhaps they should let it go or only agree to fund in exchange for significant release of banks debts.

It is noticeable that despite the discounted valuation none of the normal arbtirage/value activist investors are here. The absence of activist investors reduces the prospects for the managers being kept in check. Given the dependence on limited good assets you need serious local knowledge to invest here, but its certainly cheap.

If they had a clear strategy of selling Cascade/Romanian shopping centres once let up, getting the cash back out of Trade Centre Sliven, letting any dogs go and then returning the surplus to shareholders then I would probably be a buyer. However, it looks like they might still try and prop Galleria Plovdiv up which makes them a risky investment.

[lkfjmdku] 07/5/2012 15:25

very oversold

[lkfjmdku] 07/5/2012 15:25

Strategic review initiated in late 2011 continues

Management initiated a strategic review in 2011 to address the issues undermining investor confidence and supplement efforts already in train to stabilise group finances. The immediate focus was to refinance a single £83m facility due to mature in September 2012, secured by a portion of its UK assets. However, it simultaneously appointed advisers to test buyer appetites for non-core assets in the US, Germany and Switzerland. Other issues for consideration included corporate and financing structures and the dividend policy. The aim was to establish a more appropriate equity value, to match the steady, visible cash flows generated by its care-home assets.


To help negotiations with prospective lenders, PSPI and ECG are expected to combine their respective property and operating assets. That should ease the credit approval process, ie improve lender collateral and the terms available (maturity, margin and covenants) on new facilities. No details were disclosed, but PSPI said it would seek shareholder approval for the proposed deal.


Better debt terms should contribute to a more stable financial base that matches visible revenues. Assuming the proposal only covers that part of the UK portfolio required as security for the debt, external appraisals of PSPI's other UK assets (also let to ECG) could conceivably benefit, if the deal improved ECG's covenant strength and PSPI's strategic options for the rest of the UK portfolio.
The group continues to review options for potential sales of non-core assets in US, Germany and Switzerland. While no disposals have been announced at this time, the year-end valuations still suggest a significant level of equity could be released over time.

Challenges remain for UK care-home operations

ECG has seen portfolio occupancy fall during rebuilding periods and take longer than expected to rebuild in a tight market. Care homes undergoing expansion or development were c 57% occupied at late March 2012. Occupancy in the rest of the UK portfolio was 86-88% throughout 2011, but dropped to 83% by late March 2012. Three homes (c 4% of total registered beds in the UK portfolio) are currently empty, either being refurbished or under review by ECG relative to challenging operator returns.

In addition, PSPI reported that expansion and refurbishment projects managed by ECG have taken longer than expected to be completed and costs have overrun. These factors contributed to deterioration in ECG's operational performance, lower year-end asset values and a reduction in the expected capital uplift. These facts could also support a potential combination as a sensible solution to create value over the longer term.

European Care Group: New executive team since August 2011

ECG is a private company, so there is limited transparency on certain areas of its finances and operations. It appointed Ted Smith and David Manson as, respectively, its new CEO and FD in August 2011. This team ran specialist care group Craegmoor until its acquisition by the Priory Group in April 2011 and has taken full responsibility for day-to-day management and upgraded personnel during the last six months.
ECG has previously reported that local government authorities have referred residents later than in the past and, as a result, it saw core occupancy decline by c 3% in its last financial year, in line with sector trends. General occupancy for mature properties in ECG's portfolio is approximately 85%.
ECG owns a majority of its care facilities, a key differentiator between it and some of its industry peer group. A potential combination with a majority of PSPI's UK assets would presumably further strengthen this position.

[lkfjmdku] 07/5/2012 15:24

Public-Service-Properties
2 May 2012 Update
Price
17.5p
Market Cap
£19m

The recent sharp fall in the share price reflects concerns over the lack of firm news on the refinancing of an £83m debt facility due to mature this September and c £5m of mark-to-market provisions for interest rate swaps linked to this financing. The FY11 statement confirmed negotiations are proceeding, with PSPI likely to seek to combine most of its UK assets with the businesses and assets of its tenant, European Care Group (ECG). That structure appears to improve the appeal for lending banks, as security would include property and operating assets. PSPI said it would seek shareholder approval if the combination was seen as an appropriate transaction to be recommended by the board and that it would have an impact on future strategy, valuation and prospects. We will resume forecasts when the details of any potential transaction and new debt are confirmed.

Finances: Improvement awaits refinance and asset sales
PSPI is fully compliant with all debt service and LTV covenants. FY11 interest cover (EBITDA/finance cost) was 2.3x and year-end debt £142.2m (FY10: £148.5m), ie 54% LTV (FY10: 52%), having committed a further £8.4m capex to the investment programme, which is approaching completion. Underlying FY11 earnings, adjusted for non-cash/one-off items were ahead y-o-y, on the back of a 3.3% rental uplift for the portfolio overall and lower interest costs after redemption of more expensive debt since 2010; it repaid £30.7m of debt in FY11 and secured £27.7m of new facilities. Ironically, RPI at 5% drove rental growth but actually put further pressure on ECG's margins, already affected by lower occupancy. Indeed, reduced operator margins and rent cover contributed to the fall in year-end asset valuations.

Valuation: Deal to provide certainty and possible re-rating
PSPI passed its final dividend, putting the priority on stabilising group finances in the face of pressure on care-home occupancy and margins, both in the UK and abroad. At this point, however, the share price attributes zero value to PSPI's UK portfolio, a highly pessimistic assessment of the prospects. End FY11 NAV/share was 108.3p (FY10: 130.6p), but that figure may well be affected by the proposed combination, depending on the structure of the deal.

[greedfear] 05/5/2012 19:09

Who or what is Liverpool? lol

OT: I'm invested in ECDC. Any thoughts on that? I would value your opinion. Cheers!

[scburbs] 05/5/2012 16:58

Greedfear,

Fair enough, it was post 1194 that I wasn't keen on.

"Let me try to explain." and "Think you get the picture here..." is the main wording I wasn't keen on as you were bordering on condescension there.

"That's what probably happened in the PSPI case." is the wording which illustrates that throughout that post you are speculating. I have asked a perfectly sensible question and you have answered it with a speculative illustration.

However, I accept that you didn't mean anything by it, so there is no problem.

Come on Liverpool! (could spark some more disagreement).

[greedfear] 05/5/2012 14:14

bisiboy- anything is possible! A take over too. That's what is making it so exciting here. So much possibilities, so many parties involved (or may get involved), so much unknown...

Time will tell. As always.

[bisiboy] 05/5/2012 13:04

there are some great quality posts on here.
does anyone think that these may be attractive to another property company
aka someone like daejan.
a stronger company could withstand ecg going bust and find an alternative operator.after all as someone said the residents are going nowhere.

[greedfear] 05/5/2012 10:49

Sccurbs- There is some miscommunication here. I wasn't responding to you. Kenny implied that money from non UK-sales was restricted and consequently had to be used for paying off UK-loans.

Don't know what makes you say I'm speculating? I've read the relevant parts of the document you're referring to. It are UK parts of the group that gave further guarentees to banks lending money to non UK entities.
(As you know the US postoffice part has become non recourse to the group because of new loan august 2011)
Like you say nothing in it seems to suggest that non UK assets are secured with respect to UK entities loans.

It is and was never my intention to attack you, I get the feeling you do feel like that somehow. I'm not used to write in English and may therefore not be clear in what I'm trying to say, be too short in my answers or unintentionally "rude" (but there is no offence intended).

I welcome your views as your contributions makes investment decision making far more balanced for all of us (me included).

Cheers!

[scburbs] 05/5/2012 07:30

Greedfear,

I have never said that money from non-UK sales is restricted. I asked the question as to whether anyone knew what the Euro loans allocated to the UK business were secured against. I did not say that they were secured against German assets and did not speculate about what PSPI had done as I wasn't sure.

If you think this question is nonsense then you are wrong. It happens all the time that companies borrow and use security within other group companies. It is particularly common in real estate because of the transfer tax/capital gains implications of moving assets around. It can be illegal where it links to acquisition financing (financial assistance), but in normal group situations it is common.

Based on your speculative responses I assume you have no idea what the Euro loans are actually secured on, so I have had a quick look this morning.

It is difficult to be 100% sure as there is no specific disclosure that I can find. However, I believe the Euro borrowings in the UK business relate to the Lloyds loan which can be drawn in sterling or Euros.

"Healthcare Properties UK Limited ("HCPUK"), Healthcare Properties (Stonelea) Limited ("HCP Stonelea"), Healthcare Properties LDK Limited ("HCPLDK") and Healthcare Properties (Oxford) Limited ("HCPO") have entered into a senior facilities agreement with Bank of Scotland dated 4 September 2007 (as amended) pursuant to which the Group companies may borrow an aggregate of up to approximately £83 million (drawable in sterling or euros) from Bank of Scotland. Each Group company has entered into a cross guarantee in favour of the bank of the liabilities of the others. The facility is repayable on 4 September 2012 and interest is payable at a margin of 1.25 per cent. over LIBOR. Full security has been granted by the Group companies to the bank."

Page 252



This appears to be the only facility that could be (partially) in Euros that isn't disclosable in the German section, so whilst I am not certain, by the process of elimination this should be the relevant loan.

This is clearly secured against UK assets and there is no suggestion that it is secured against the German assets.

This makes the non-UK asset investment case look much stronger and it is line with your speculation. However, on such critical points speculation without confirmation can prove to be the difference between success or failure as it was perfectly possible for these borrowings to be secured against German property or the German net assets through a share pledge.

[greedfear] 04/5/2012 16:29

I never pay much attention to pro's they really don't deserve that credit. They can't beat indices consistently and often sell out at crazy prices (because it's only other peoples money?).

Thank you for wishing me luck.

[kenny] 04/5/2012 16:25

Cleary the professional shareholders take a dimmer view of PSPI's future then you because they are exiting.

It is only individual shareholders and bottom fishers who are staking their money here. Good luck.

[greedfear] 04/5/2012 16:14

I do not think the banks will be a problem. PSPI + ECG together might just be CF break even (and having assets that far exceed the loans).
Banks are not helping themselves by forced sales of property and it would not do any good for their image (making elderly and disabled people homeless).

Money from sales of non UK assets are not restricted. Nonsense.

Delisting? I would very much welcome that. I do not really care about being able to trade shares. A delisting would be a blessing as I would probably be able to pick up shares far cheaper. (Don't think a delisting will happen though).

[kenny] 04/5/2012 16:03

PSPI and ECG also need to "come together" with one or more banks for a refinancing. A merger is easy, a refinancing difficult if not impossible.

Any money from sale of assets will be restricted cash which can only be used to part repay the banks.

Still possible to save an easy £250k per annum by delisting and with 45% owned by Elliott, they do not get any advantage from the listing so may push for a delisting.

[greedfear] 04/5/2012 15:55

As PSPI and ECG NEED eachother they MUST come to an agreement and because of it there'll be no unnecessary destroying of property value or businesses.