Public Services Properties Share Discussion Threads

[kenny] 02/10/2012 16:16

scrubs, I have no evidence on Germany so offer no opinion other than noting that the yield is low at 7.258% therefore not offering great interest cover.

PSPI cannot play hardball with the banks because the banks hold all the cards namely the properties. Banks seem to have developed arrangements with third party investors who step in to sell the loans/property so they do get them off their books.

I assume you agree that with what is going on with post offices in the US, that they are also unsaleable?

[c1d] 02/10/2012 16:09

Interesting debate.
I agree with Kimboy2's logic. Recent comments from Begbie Traynor and Jon Moulton confirm that banks are very reluctant to pull the plug unless they absolutely have to. They have a clear preference to give companies every opportunity to work through their problems not least to avoid having to recognise any debt impairments.
This gives the board or someone else the space to realise value from the assets. I don't expect the share price to get back to historic highs but it seems too low to me at the moment.

[scburbs] 02/10/2012 16:08

Kenny,

The benefit of the non-recourse loans is if the UK and the US are basket cases they can be let go without losing the value in Germany. The Swiss property can not due to the 50% guarantee.

My view is that the UK properties are unsaleable (due to the seriously poor covenant) and the banks won't want them. Therefore, extend and pretend or exercise your security should be the only offer made to the banks. PSPI need to play hardball rather than considering raising equity.

However, that doesn't mean PSPI is uninvestable if there is sufficient value in Germany. Do you have any evidence of 10% yields being the norm in Germany where the dynamics on occupancy/fees are not suffering in the same manner as the UK?

Equally the lenders in Germany will not have had their view of the sector tainted in the way that lenders in the UK have and, therefore, refinancing in Germany should be easier.

[loverat] 02/10/2012 16:04

Kimboy2

I know you have expressed opinions on the value for shareholders before but what do you currently think a relaistic share price would be taking into account how the market discounted this before and with the strategic review transaction having being completed?

Not a share price prediction competition - just interested in the varying opinions. Kenny I would assume would say these are worth 0p so it will interesting to see what other opinions there are.

[kenny] 02/10/2012 16:03

Kimboy2 - please re-read my post and you will see I have computed the yields on an annualised basis.

By definition an asset play is where the share price is less than the asset value. In this case, as with Southern Cross and any other instance, the assets are only worth what someone will pay for them. Assets are also over valued when market prices are less than shown in the accounts. Have you reviewed European Care's accounts. As mentioned previously, they have valued properties they paid £10m for at £60m on an "operational lease" basis. That has proved to be the wrong basis.

Southern Cross was similar but inverse. It sold it's properties at inflated prices and leased them back at an annual rent increasing by about 3.5% pa. After a few years the obvious happened – it could not longer afford the rents (because they were based on inflated care home values which increased annually, as occupancy fell and inflation in food and power took off) so was bust.

If European Care has to ask for a rent reduction, where does that leave PSPI?

[kimboy2] 02/10/2012 15:48

Hi Kenny
I haven't changed my stance on the non recourse loans and a rollover is the logical outcome of this fact.

The last thing that a bank wants to do is to take an asset on to its books, have to manage it and try and sell it. Much easier to let the company do this why they try and sell it.

The rental figures are for 6 months and I think the will more than cover the (revised) administrative expenses. PSPI is an asset play though.

[kenny] 02/10/2012 15:47

Following on from my above post, I question what is the point of investing in PSPI if a) all the income after expenses needs to be applied to pay down loans, as it has in the last year b) no dividend, c) NAV shrinking as PSPI has to move to "proper" valuations e.g. care homes being sold on 10% yields in the real market d) no further financial support from the 46% shareholder and e) the threat of massive dilution to keep the banks from taking control.

It is not an investable company for private investors. As I stated on the Southern Cross board some time ago; leave it to the professionals who - whatever transpires in future - one way or another, will take whatever value remains or whatever loss lies ahead.

[kenny] 02/10/2012 15:25

Thanks for the figures Kimboy2.

I note you have changed your stance from the advantages of non-recourse loans to the bank will roll over the loans. Bit of a sterile and circular discussion if I shoot down one argument only for you to change tact. Either the banks are going to call in the loans in which case there is unlikely to be anything left for shareholders or they are going to roll-over the loans. The latter will, as in other instances, carry terms namely PSPI will be required to a) reduce the loan to value ratio by way of raising money and b) they will need to pay a much higher interest rate.

Your own figures (from the interims) show how hopeless PSPI's position is because the gross yield on the properties before management expenses is:

UK 7.967%
Germany 7.258%
Swiss 7.34%
USA 8.974%

The revised interest rates could easily knock out most of the income leaving little to manage the assets. And that is before any consideration such as occupancy going down meaning the rental becomes even more dubious.

It is not a tenable situation – something must give and it is not going to be the banks so it has to be PSPI.

[kimboy2] 02/10/2012 14:55

If the loan is called then basically the property is put up for sale, which is where we are now.

As long as the interest is being paid the banks will just roll the loan over while efforts are being made to sell, as they have with Switzerland.

The asset/debt situation is;

UK
£47.7m assets
£18.5m debt Dec 2013/Feb 2014
£1.9m rent

Germany
£49.6m assets
£19.7m debt Mar 2013/Mar2019
£1.8m rent

Switzerland
£10.9m assets
£7.3m debt rollover
£0.4m rent

USA
£15.6 assets
£11.9 Aug 2021
£0.7m rent

[kenny] 02/10/2012 14:22

If all the non-recourse loans are called, what is left after the properties are taken by the banks?

I have not seen any research on this point being posted but no doubt someone will have done this before investing, so could post their figures?

[scburbs] 02/10/2012 13:07

Kimboy2, Relatively small (albeit substantial compared to market cap!), but 50% of the Swiss loan is guaranteed by the parent. The rest is non-recourse.

[greedfear] 02/10/2012 11:56

Hear, hear!

[kimboy2] 02/10/2012 11:51

I think people are undervaluing the value of non recourse loans, or the implications of them.

[loverat] 02/10/2012 11:46

Kenny was in this at 6 times the current price when there was a stronger argument to leave the shares well alone.

I think alot of the negativity on here is because many of the ex holders thought this was a value play with a steady dividend and they cannot get their heads around the fact it is now a different type of investment.

At 65p there was virtually no upside in the shares but a dividend twice a year.

At 11.5p there is potential for multiples of the current price and/or a return of cash to shareholders.

I know which scenario I would rather choose.

[hosede] 02/10/2012 11:37

Banks are quite reluctant to pull the plug at the moment - if only because it crystallises their losses.

[greedfear] 02/10/2012 11:35

Like I said. It's not that clear, you're just assuming things will go very wrong and the only way out is an issue of equity.
(better not be in the stock market then because not a lot of companies have a 100% solvability, [if any]).

[loverat] 02/10/2012 11:27

LOL

So kenny's posts over the last year or so is 'research'. Glad he has cleared that up.

To be honest I prefer to research a wide range of information and viewpoints. And I think most people who have invested here are well aware of when the current debts come up for redemption. I hardly think that makes it inevitable there will be a rights issue or a fire sale.

[kenny] 02/10/2012 11:14

You need to read back over the last 250 or so posts on this BB to see my views. Does no one bother to do research before investing?

However, briefly, they have debts coming up for redemption in the next 12 months so unless the banks wishes to "extend and pretend", PSPI goes bust with a fire sale of its assets.

[scburbs] 02/10/2012 11:13

I have to say I can't see it either (although the company has been very quiet on it prospective operating cashflow position).

PSPI has clearly shown that it will give away properties for next to nothing if it can't refi. If the UK assets are as widly overvalued as Kenny believes then why (ignoring how) would PSPI raise more equity to refi them.

[greedfear] 02/10/2012 10:49

Clearly Kenny? Care to explain, because I don't see that. It's okay seeing PSPI as too risky, but don't make things up to justify that view.

[kenny] 02/10/2012 08:17

I would not be interested at 10p or any other price until I see the terms of the rights issue the company clearly needs to undertake.

[loverat] 02/10/2012 08:11

Still looking very weak here. I guess they will have to take the share price down to 10p or thereabouts to get any interest.

[kenny] 28/9/2012 12:28

Loverat - I bow to your superior experience, what sort of overall percentage net returns have you made in the last year and 3 years? Presumably you have beaten leaving it in the bank to earn very little?

[loverat] 28/9/2012 11:43

Thanks for the advice Kenny. As I say, I think we are completely different types of investor. I have a bit of experience under my belt and I tend not to take too narrow or rigid an approach to investing or rely on the wisdom of so called investment gurus or tipsters.