Quadrise Share Discussion Threads

[valedo] 19/6/2012 12:46

Timely new deal at Greenwich
Martin Waller Tempus Times

Last updated at 12:01AM, June 19 2012
Maxwell James has not wasted any time bringing in a partner to develop Quintain Estates and Development's huge scheme close to the O2 in Greenwich. Lend Lease, the Australian company that has held a half-stake in Greenwich Peninsula Regeneration since 2002, has departed, preferring to concentrate on its other London schemes at Elephant and Castle and Stratford.

In its place has come Knight Dragon, an investment vehicle controlled by Henry Cheng Kar-Shun, who, by whatever measure you use, is either Hong Kong's richest man, the second-richest or the third. His company is already active at The Knightsbridge, a condominium for the mega-rich.

The inhabitants of what will eventually be 10,000 new homes at Greenwich will be rather less wealthy, although the development is convenient for anyone working at Canary Wharf. Greenwich is one of Quintain's two big schemes, the other being Wembley City, which includes a Hilton hotel and a retail park, and the funds it receives will be used to develop the latter.

The company has had to cede control of Greenwich to its new Hong Kong partner. Under the terms of the deal, £100 million is going to Lend Lease to buy the Australians out and another £28.8 million will give Knight Dragon another 10 per cent. The new partner is also handing over £50 million for a 60 per cent stake of some land at the site and has agreed to put in £300 million of financing.

The deal is a neat one for Mr James, who became chief executive of Quintain only last month, replacing the founder Adrian Wyatt. The company will develop the site, which could take two decades to complete, and receive a fee. It does not have to put any more money into Greenwich, a relief to long-suffering shareholders.

Quintain had been slackening off development of Greenwich, given the state of the property market, but plainly has taken the view that demand for housing in the capital is sufficient to push ahead with a scheme that will cost £4 billion to complete. The shares, as the graph shows, have suffered grievously as the market has worried about the cash leaking out of the company and the need to reshedule debt.

Those worries are now less pressing and the shares responded yesterday with a 15 per cent rise to 38p. They are still at a huge discount to net assets, which, after completion of the deal, will be 108p a share. Further progress could be slow, though.

[qvg] 19/6/2012 11:31

I found the presentation last night very useful. Thank you to David both for organising it and for getting the timing just right!
I too was impressed by the apparent honesty and competence of the management. They were clearly on a high having completed the Greenwich deal, which seems to give them much needed long term funding for Greenwich in a difficult market. Congratulations are deserved for doing the deal. But in the cold light of day I am struggling to make the numbers for the Greenwich project match the book value.
The cash flow they gave us shows £160m coming in up until 2018. On top of this there is developer's profit. CEO mentioned a figure for their share of around £10m per year. So adding that for years 2014-2018 gives £210m. Discounting the cashflows at 10%, I get an NPV of £127m. This is clearly much lower than the current NAV – I take this as £257m from the 31.3.12 Balance Sheet.
Of course they will still be left with some undeveloped assets at the end of 2018 – but how much? I asked the question, and I thought heard the answer £19m. But when I add that, I get an NPV of only £146m. Maybe I misheard and it was £90m; that puts the NPV up to £169m, still well below £257m.
So I looked for clues in the numbers. The cashflow shows recovery of £38m for infrastructure, and on slide 3 we get £127m invested in infrastructure. So if they are being paid at cost, this suggests around 30% of assets have been sold up to 2018.
Slide 3 also gives a figure of 10,000 total residential units. CEO said they would be selling 300-400 units per year, so say 1,750 up to 2018. This suggests around 17.5% of assets have been sold up to 2018.
Taking the average of these two estimates as 25%, means £193m of assets remain at the end of 2018. But even using that figures gives a disappointing NPV of £201m.
Silly me, I have forgotten that land values go up with time..... It takes an annual rise of 11.5% for a residual asset of £193m to get the NPV to the current book value of £257m. In my personal view a somewhat heroic assumption.
I would appreciate any thoughts on either my approach or my numbers, and of course any more educated view on the true value of the Greenwich and other assets.

[nigelpm] 19/6/2012 10:28

Some good posts here and great report Paul - thanks for sharing.

[owenski] 19/6/2012 10:21

For the record, I've been to the Greenwich site and believe this will over time be a highly successful project. However, Wembley as an area is a dump, I'm not optimistic on that one, think it would be better to hive that off and focus on Greenwich.

[owenski] 19/6/2012 10:14

Paul

Read your report, rather good to read, yes I think it secures QED's future from the indebted owner of assets it could never afford to develop to a smaller partner in a project the land of which is now owned by another.

Your comments above 'stress' how good their teams are, one can translate that therefore as; we will continue to pay ourselves highly, because we're worth it. They'll probably cut some non entities wage bill but not theirs.

I wanted to go to the meeting myself but lost interest in QED some time ago, had I had more notice of the 'new deal' I would have made the time.

Good to see that they were prepared to meet with PI's.

Liked your report, am sure that the share price will go higher but its still not one for me.

Cheers and GL

[ronwilkes123] 19/6/2012 10:04

but pauly the key fact is that the shares have fallen nearly 50% in a year, this is an abysmal performance, isnt it ?

huge seller at 39p it would seem imo

[paulypilot] 19/6/2012 09:57

Owenski,

I agree about the opulent Mayfair offices. This was mentioned at the meeting yesterday, and the CEO hinted that a move to cheaper offices would be considered.
I also questioned them on whether the sector's big salaries, bonuses & expense accounts are a thing of the past? They replied that significant cost savings & headcount reduction had been made, but they to weigh up cost against individual's value to the business - they stressed several times just how good their teams are, saying they maximise the upside and mitigate the downside very well. This felt genuine to me, as it was heavily stressed by both CEO & FD in what seemed a genuine belief, rather than just a bullet point on a list.

Regards, Paul.

[jaws6] 19/6/2012 09:54

owenski
plus they can plan in advance which money they getting from jv, so no worries on debt because of agreed money in advance.

[ronwilkes123] 19/6/2012 09:49

huge resistance at 39p, not sure it can break it in the short term, standard life probably getting too excited on the sell side

[owenski] 19/6/2012 09:40

The deal ensures the survival of QED, retains 40% and doesn't own the freehold. They'll be able to pay down debt, alot of which was pushed further out anyway. Good for QED they can continue to fund their opulant offices and renumerations not so sure about shareholders.

[jaws6] 19/6/2012 09:00

J p Morgan on QED to 43p

[redartbmud] 19/6/2012 08:18

Pauly

Thanks for the report. It makes the strategy very clear going forward and explains the fundamentals that have been responsible for the share price discount to NAV.
Subject to the world global economy not falling off a cliff, and a successful development, we should see some value emerge.

red

[quepassa] 19/6/2012 08:01

Great write-up on Page 25 of to-day's FT. Almost half-page article. Good to see Quintain back in the serious financial press .

The article gives back-ground on HK-based Knight Dragon, the investment vehicle of HK billionaire, Dr. Henry Cheng Kar-Shun. - Quintain have clearly found a formidable partner with very deep pockets and undoubted track-record in property development with whom to build out Greenwich. This is excellent.

The same FT article contains the following quote from Harm Meijer of JP Morgan Chase:-

"This is a game-changer for the company and, to be honest, I am a bit surprised that the shares are only up 20 per cent"

ALL IMO. DYOR.

QP

[jaws6] 19/6/2012 07:32

Paul
Nice to meet up yesterday and tks for info.
will look later on blog.
J
Edit
David- Tks for fixing that meeting .

[aberdare] 19/6/2012 07:26

Hello Paul Thanks for posting your blog very good and lets hope that qed progress in line with your opinion.

[paulypilot] 18/6/2012 23:54

Hi,

I attended the QED investor presentation this evening, and have done a write-up of it on my Blog here, for anyone interested;


Regards, Paul.

[horndean eagle] 18/6/2012 15:55

Lend lease reporting a £25m gain on the deal whereas QED reporting a loss from the transaction. Does this mean QED have been valuing Greenwich much higher than LL have been recently. If so why? My own personal opinion is QED have been very aggressive with valuations hence the very poor returns over the last couple of years in a generally improving market. Also slightly worrying that LL don't really see much of a return from Greenwich. They have deep pockets. If they thought it were attractive they would surely have taken QED out of the equation. Still lots of unanswered questions. Hopefully today's meeting will help on that front.

[scburbs] 18/6/2012 15:07

Meanwhile, WELPUT has been reinvesting some of its disposal profits. Key question here is when does the next performance fee pay out given the recent strong performance.

"Schroders-managed WELPUT has exchanged contracts to buy 143-157 Farringdon Road, EC1, for £25.9m - a 6.2% yield.

Nigel Kempner, head of Grafton Advisors, part of Quintain Estates and Development which advises WELPUT, said ...

"It is also a location which we believe will benefit significantly from the new Crossrail station at Farringdon ... The buildings themselves offer great opportunity for a rolling refurbishment programme around existing and new occupiers."

Earlier this month, WELPUT exchanged contracts to buy Buchanan House at 3 St James's Square, SW1, from Aberdeen Asset Management for £66.4m."

Source EGi

[scburbs] 18/6/2012 14:17

Out of the £300m facility, c.£110m for Peninsula Quays is unconditional (P8 presentation). This is the main objective for the next few years.

[nigelpm] 18/6/2012 14:08

Looking at it very simply (I still need to digest the info too) they now have a £300m credit facility and a solid financial partner in exchange for a loss 2p fall in NAV.

I fail to see how the market has overreacted.

There is now a much greater chance of realising the 108p NAV than there was before today's deal.

Ignoring cost of capital etc... effectively the market was pricing 30% chance of NAV being realised before today (33p/110p)

It now puts that at 36% (39p/108p) - if anything the market has underreacted to the news.

[boonkoh] 18/6/2012 13:57

Simply put, I need more time to digest the numbers from this deal - as I'm not quite sure Quintain comes up tops here.

1) Land Lease essentially selling 50% stake in GPRL to Knight Dragon, and Quintain selling 10% to Knight Dragon. Knight Dragon has majority board representation in new JV.

2) Quintain is transferring its shareholding in QML to the new GPRL JV. The existing £50m is still oustanding to Quntain, but now from GPRL instead of QML.

3) Quintain is going to get some initial consideration and a series of payments, essentially payment for the 10% stake it is transferring to Knight Dragon in GPRL.

4) GPRL has agreed to provide £300m credit facility to the JV at 5% above LIBOR.

Some quick points of note:
Although there's now a £300m credit facility, the drawdown will be entirely at the discretion of Knight Dragon, as they now hold majority control of the JV. So if Greenwich is not a priority to them and their funds are tied up elsewhere (i.e. especially if China + Hong Kong property market hits turbulent times), then Quintain will be stuck waiting for a partner to make the move to progerss anything from Greenwich.

Some incremental revenues for Quintain (max £4m/year at height) over the years for services, but also to Pinnacle Regeneration (£2m/year), where the Cheng family have a substantial interest.

£28.8m cash payment to Quintain this year, and £50m over 6 years. Not bad. Quintain could do with the cash to help move forward projects in Wembley.

Overall I need an hour or two to go through the financials in detail, but I think the market is over-reacting in today's jump in the share price The realisation of the value is still very much back-loaded, and expected to be many years down the road, as the 12 year contract with Pinnacle Regeneration shows for this Greenwich site.

[quepassa] 18/6/2012 13:10

Yes, aware of all that thank you.

You miss the point.

"...it may lead...", then again it may not lead.....

The nub is HOW Max James will make/ensure the company gains credibilty and traction and more respect in the investing communities.This is a fantastic step in the right direction but what are the next steps? These things don't just happen on their own.

QP.

[honiton] 18/6/2012 12:58

QuePassa

The management has changed. This deal is broadly welcomed and it may lead to further share price upgrades as management gain credability and the company gains traction.

Not too surprised that JV partner is Chinese based. Berkeley Group have recently opened an office in HKong to deal with this affluent customer base.

[davidosh] 18/6/2012 12:08

Perfect timing for our Mello investor meeting and presentation tonight at the Quintain HQ in Grosvenor Street. Still a few places available if any of you can make it... Www.freesharedata.com/mello