Ucp Share Discussion Threads

[scburbs] 17/10/2011 15:59

I am not convinced with this proxy firm stuff. Levels of independence and who is paying their fees spring to mind. It looks a bit like banks paying credit rating agencies to rate their bonds for sale!

At least the practice is less widespread (HRCO used them as well). However, I would have thought a joint engagement where both sides could put their cases and agreed to respect the findings of ISS/Glass Lewis would be the only valid way to go. If only one side is paying/instrucing them then I would take their thoughts with a pinch of salt (regardless of the merits of the case).

At a minimum their should be a clear disclosure of who has instructed them, who is paying their fees and whether the other side has been asked for their views. This way investors can take a view on their independence. At the moment I am assuming that SC Fund Management have engaged, instructed and paid them with no input from UCP.

Why do ISS recommend a vote against the re-election of all incumbent board members! In what way does that represent best practice corporate governance? Surely this would destabilise the board to lose all that history. What we need is some freshening to increase independence not a wholesale replacement of the board (unless their is evidence why they all need to be replaced).

"Leading Proxy Firms ISS and Glass Lewis Back Shareholder Candidate, Other Changes

October 14th, 2011 - London - The shareholders who requisitioned an upcoming Extraordinary General Meeting of Unitech Corporate Parks PLC have been informed that both ISS and Glass Lewis have recommended votes FOR Board Candidate Sanjay Pandit, and FOR a resolution removing incumbent director Mohammad Khan.

Additionally, ISS recommends AGAINST re-election of all of the incumbent directors except one who was appointed earlier this year, while Glass Lewis endorsed a shareholder-sponsored change in the Company's Articles of Association."

[horndean eagle] 14/10/2011 15:58

Not hugely surprising that both ISS and Glass Lewis have suggested voting in the new director. The points raised are perfectly valid. Not sure why the board are resisting so hard. Hardly going to cause them a whole load of grief if he is elected. With markets firming up and sentiment improving perhaps a Singapore exit might be back on the horizon. Nice to see Donald Lake continuing to put his hand in his pocket for new shares. Would have been much better for both him and us shareholders had he done it when the shares were 3p rather than 26p.

[scburbs] 12/10/2011 08:47

The latest announcement from SC Fund Management is much better as up until now I have had a concern that they were supporting sales of partially completed sites, a guaranteed way of destroying value. However, looked at in the context of comparing such sales with the Unitech offer it is much more sensible.

The key fact is that the board needs to be more independent from Unitech. Loans to Unitech, changing valuation methodology and slashing NAV just as Unitech are bidding for the company and suddenly once they realise the Unitech offer will not pass the leasing activity suddenly improves! You can't get much more smelly than that.

It is time for further fresh blood on the board (although the Singapore REIT guy was also a sensible move, but probably mainly for that one purpose) and with today's announcement having put in more sensible context some of the more wacky ideas having been attributed to Mr Pandit he is starting to look like the right candidate.

[horndean eagle] 11/10/2011 13:19

Not sure whether the recent rumblings from the agitators have finally encouraged the non executive directors to dip their hands in their pockets or not. Long overdue.

[whibbled] 10/10/2011 11:59

Further RNS from SC Fund Management et al....

Some interest reading in 'More Information and Questions for Management' here...

[scburbs] 10/10/2011 08:00

Poor answer to the question about the past (as this is a really a point about independence and terms of dealing with a related party rather than whether it is a current event).

Good to see an indication that Knight Frank will (other things being equal) be increasing the valuation as leasing/construction progresses (albeit from the prudent low base that they have adopted). It would have been useful to see a break down between construction spend and valuation uplift.

[darlocst] 10/10/2011 07:35

UCP's response out this morning, it includes an update on trading & NAV @ 30 Sep 2011:

"Trading update and portfolio valuation

The Board is pleased to announce that it continues to see an increase in tenant take up through the entry into committed leases and pre-lease commitments. As at 30 September 2011, the total committed space (comprising committed leases and pre-lease commitments) amounted to 5.2m sq ft, an increase of 1.9m sq ft since 30 September 2010. A summary of the leasing status by project is set out in the Appendix. In addition, there are currently active negotiations with a number of potential tenants in relation to an additional 1.0m sq ft and options over a further 1.6m sq ft have also been granted.

Subject to the completion of building work as scheduled, the consequent completion of leases and the implementation of indexation as provided in the lease contracts, annualised rental income at the SPV level from the 5.2m sq ft of leased or committed space is now expected (based on current exchange rates) to be at the rate of approximately £33 million per annum from the third quarter of 2013 (UCP's interest is 60 per cent.).

This progress will be reflected in the valuation of the portfolio as at 30 September 2011 to be included within UCP's interim results.

Knight Frank, which has been commissioned by the Board to provide an updated open market valuation report of the projects, has confirmed that the aggregate valuation of the projects as at 30 September 2011 is approximately INR25.28 billion, which is some 9.8 per cent higher than the 31 March 2011 valuation of INR 23.03 billion. (55p in GBP)

[scburbs] 03/10/2011 10:33

Sensible response from the EGM requistioners. Good questioning on the Unitech loans and the massive NAV write down during the offer period. Good tongue in check humour on narrowing the NAV discount!

"He [Sanjay Pandit] is committed to:

· ensuring UCP's shareholders' interests are upheld

· being mindful of future capital allocation

· credible and timely reporting of NAVs

· seeking to bridge the gap between share price and NAV (notably NOT by bringing the NAV down)

· seeking an exit process which maximizes realizable value per share such that shareholders investments are monetized into cash on or prior to December 2014

· better shareholder communication, transparency and disclosure

· being candid with shareholders about any obstacles to value realization

· pursuing a constructive and mutually beneficial arrangement with Unitech whilst upholding UCP's interests

· seeking to work constructively with fellow UCP Board members

· seeking shareholder input to ensure the Board represents the will of shareholders at all times

Contrary to the implications of the UCP Board's circular to shareholders convening the EGM, neither the EGM requisition signatories nor Mr. Pandit are inclined to pursue an immediate sale of all properties. No resolution demanding such a strategy has been requisitioned.

That said, we all believe that it is important to maximize realizable NAV per share by December 2014 and we are open to any combination of continued development/leasing, sales/auctions (including a potential Singapore listing of the vehicles owning certain projects) and share repurchases/dividends that best achieves that outcome with realistic assumptions."

[whibbled] 28/9/2011 18:17

RNS after Market Close........................

17:05 Unitech Corp Parks - Annual Financial Report RNS

RNS Number : 1373P
Unitech Corporate Parks Plc
28 September 2011

Unitech Corporate Parks PLC

(the "Company")

Posting of Annual Report 2011

The Annual Report and Financial Statements for the year ended 31 March 2011, together with the Notice convening the Annual General Meeting of the Company to be held on 21 October 2011, are being sent to shareholders today.

These documents will shortly be available on the Company's website in accordance with AIM Rule 26:

www.unitechcorporateparks.com

[scburbs] 27/9/2011 11:24

DLF close to proving that there is liquidity in the market for disposals, no indication how the values compare to book.

"New Delhi: India's largest realty firm DLF and green building developer The 3C Company are likely to sell their IT park in Noida to Infrastructure Development Finance Company (IDFC) for about Rs 500 crore.

...

Apart from Noida IT Park, DLF has approached the Board of Approval (BOA) under Commerce Ministry to sell about 24-acre in Pune IT SEZ, in which it has about 70 percent stake.

According to sources, DLF is in talks with private equity firm Blackstone to sell IT SEZ at Pune and the deal size is expected to be around Rs 900 crore."

[scburbs] 20/9/2011 16:29

This is no good at all. How are these guys supposed to push up the price with HSBC flooding the market with their shares.

[scburbs] 20/9/2011 10:27

With interest rates paid by ISH at 12-13% they are reporting basic NAV of 75.9p and adjusted NAV of 95.4p. It looks like ISH are reporting significant write up from the expected completion of their development sites (i.e. there development work is still profitable (or at least they are showing it as such!) even with current interest rates and with their very aggressive percentage of development financing).

"(1) Reported NAV per share is not considered the best method of evaluating performance as it excludes valuation surpluses attributable to development properties intended for sale and includes the impact of deferred tax liability on valuation surpluses. Adjusted NAV per share at 31 March 2011 and at 31 March 2010 includes all investments at current valuations in proportion to the Group's shareholdings and a provision for a potential income tax liability in respect of the Vivarea project, but excludes the impact of the deferred tax provision arising on valuation surpluses, on the net assets of the Company and is considered by the Board to be a more appropriate method of evaluating the performance of the Company than Reported NAV per share."

[scburbs] 20/9/2011 10:24

ISH are geared pretty aggressively which must be hurting with interest rates so high. UCP has a significant advantage is having raised rather more equity which has been funding the first proportion of development (although ISH is much further forward with its development).

"The Indian SPVs remain well funded to meet the development requirements of the area currently under construction. Against the estimated cost of c.INR 34.3 billion (c.£476 million) for the area currently under development (excluding Vivarea, which will be self-funded), the SPVs have secured funding of c.INR 32.4 billion (c.£450 million) comprising:

· shareholders equity of c.INR 4.2 billion (c.£59 million),

· debt facilities of c.INR 26.3 billion (c.£365 million) and

· security deposits received/receivable on the lettable area constructed or currently under construction of c.INR 1.9 billion (c.£26 million).

Of this estimated project cost of c. INR 34.3 billion (c.£476 million), c.INR 24.2 billion (c.£ 337 million) has been incurred up to 31 March 2011. The Indian SPVs had drawndown debt of c.INR 17.1 billion (c.£238 million) at 31 March 2011. Unutilised facilities stand at c.INR 9.2 billion (c.£127 million). In addition, c.78 per cent. of the saleable residentail area under construction at Vivarea is pre-sold, which will fund the cost of construction of this project.

Debt facilities of c.INR 26.3 billion (c.£365 million) include long term amortizing loans of c.INR 19.0 billion (c.£264 million). The balance of the debt facililities of c.INR 7.3 billion (c.£101 million) is construction debt. It should be noted that all borrowings are at variable interest rates.

...

Having largely secured funding for the area currently under development, the Company is confident of meeting its future development requirements through further debt financing.

With the Reserve Bank of India tightening policy rates (repo rates), the interest rates on the funding secured by the Indian SPVs have increased by c.200-300 bps. The current cost of borrowing of the Indian SPVs is c.12-13 per cent. p.a. Banks continue to observe caution in lending to the real estate sector."

[scburbs] 20/9/2011 10:18

Ishaan continues to make progress and has announced a reduction in management fees (although it isn't a great reduction 2% to 1.75% in the base fee).

"Reduction to the Investment Advisory fees payable to Neerav Investment Advisory Services (Dubai) Limited ('Neerav')"

"Further to the letting reported in the results announcement on 29 June 2011, additional space of c.766,000 sq. ft. has been let or terms agreed across the following projects in the portfolio:

· c.76,000 sq. ft. at Mindspace, Airoli, Navi Mumbai

· c.690,000 sq. ft. at Mindspace, Madhapur, Hyderabad SEZ

As a result, the aggregate area let or terms agreed has increased to c.7.7 million sq. ft., representing c.74% of the lettable area constructed or under construction and c.44% of the aggregate lettable area of the portfolio."

[horndean eagle] 19/9/2011 11:26

Praipus - Nectrus are part of Unitech. They take a management of fee of circa 4.5m from UCP. They have to use these fees to buy shares in UCP. They are effectively forced buyers of UCP. AIUI they will no longer get paid on a quarterly basis unless they are up to date with their existing obligations.

[praipus] 19/9/2011 11:07

Hi Horndean Eagle, pardon my ignorance, "force Nectrus to buy stock"?

[horndean eagle] 19/9/2011 10:54

IIRC Weiss held shares in UCP previously when they were near their lows. They sold out and banked a profit. A lot of positive newsflow since and they are making a return. They are very keen on HRCO so they definitely like Indian property at present. They might struggle to pick up more stock now though. Even less loose stock will force Nectrus to buy stock at higher prices.

[praipus] 19/9/2011 10:40

Looking at the previous posts the arrival of Weiss Asset Management isn't a surprise to anyone!



I'm tracking the rest of Weiss's holdings in post 3 of the WAM thread:

[scburbs] 18/9/2011 17:44

HE,

Absolutely it only makes sense to proceed if the numbers stack up. In the same way that it only makes sense to sell if they can realise a true valuation rather than a distressed one. If they could shift N3 for a decent price then I would be all for it, but I doubt whether they could get much for it.

Even if the construction completion only releases a return on the equity part of the investment funding, leaving the bank finance construction costs at break even or a small profit then it may still make sense to carry on finish the asset as the return on the construction equity piece at 10+% could still generate a decent annual yield vs market cap.

I wouldn't be keen to see much speculative development, but I think they are focussed on building out the assets when they have a decent proportion of committed leases. In reality I think they will struggle to get bank finance for speculative development and they don't have enough firepower level to finance it themselves.

Against this we have to bear in mind that Nectrus get a percentage fee on construction costs so could be incentivised to overdevelop and this needs to be watched.

I hope the rebels give their point of view in an open letter to the board otherwise the vote will presumably go with the board, unless Weiss weigh in with the Rebels and start adding heavily. A scramble with everyone trying to buy before the EGM would be best!

[horndean eagle] 17/9/2011 18:29

Scburbs-

The speculative money is from those who are buying with cash and not debt. Land values are down very sharply from the peaks and are in a pretty depressed state at present. Plenty of cash rich Indians happy to play the long game. Indians also have an affinity with land which might be difficult for us in the UK to understand. Most Indians still retain their ancestral family land and will happily buy more even if they don't make much of an annual return from it.

I am not as optimistic about Indian interest rates as you are. I would expect them to remain elevated for a period yet. India's inflation record is not particularly good so borrowing costs may come down but not below 10% anytime soon. Indian banks are very wary of lending to construction sector at present.

The argument about inflation eventually leading to higher rentals obviously makes sense. However the supply dynamics are not helping in this regard. Read through the results analysis and they are quite clear rentals are weak and have not risen. This is despite construction costs rising very sharply year on year. You can argue that this will eventually lead to higher rentals but would you want to base any investment decisions on the hope that rental values will increase? Surely you would want to be more prudent and argue that it should only proceed if the numbers stack up on what rentals are available now?

[scburbs] 17/9/2011 11:53

HE,

If there was that much liquidity sloshing around for speculative land purchases then I suspect residential property sales (another likely target for that type of investor) would be tracking higher than they are. If UCP tried to sell via piecemeal disposals I doubt they would achieve book value.

The main area I would differ is that your conclusions look at what is probably peak interest rates and ignores inflation. I suspect 6% interest rate would be a more normalised sort of level. In addition, interest rates are high to fight inflation so rental values would be increasing. You look at a point of time fixing rents and interest rate and saying the company won't make money, but interest rates are only high to fight inflation. If there is inflation then rents should increase, if there isn't then interest rates will fall. You shouldn't have both fixed rents and very high interest rates.

[horndean eagle] 16/9/2011 19:44

scburbs,

Its all to be found in the results document. The construction costs equate to around 2600 rupees per square foot of space. You can get this figure from looking at their estimated construction costs for the various projects. The rental values mentioned in the results are circa 27-32 rupees per month for IT space in Rajarhat where K1 is based. For Noida they quote rentals ranging from 25-40 rupees per month. If you annualise those the return for K1 (30*12/2600) you get a return of 13.8%. For Noida it works out about 15% (32.5*12/2600). Once you factor in the interest charges whilst construction is being undertaken those returns come in closer to 11.5-12.5%. At that point you have to hope you have fully let those properties or else they will be a drain on cashflow. Even when they are fully occupied you are barely covering your finance charges. G1 and G2 command rentals of 60 rupees a month so you can see it makes sense to develop those. Perhaps you can see why the agitators are so keen to establish exactly what rentals are.

Land is attractive in India and anyone buying would be happy enough just holding onto it and watching it appreciate over time. Whether it would produce an economic return or not in the meantime is neither here nor there. There is so much bent money in India (Indians have more stashed away in Swiss banks than any other nation) that they are happy to play the long game and hold onto some tangible assets.

[scburbs] 16/9/2011 19:14

HE,

Do you have any evidence of the rental yield on construction costs being lower than the NIY on completion?

This sentence is odd.

"However the value of the land without doing nothing is 10m so its not worth bothering doing anything and by building out you actually reduce NAV."

The upshot of this sentence is either that the land is materially overvalued or the construction plans are not sensible or the completed building is being let out too cheaply (presumably with a view to future rental growth).

If developing the land would reduce its "net" value why would anyone buy the land at that price as the land is not income producing? If there is a bubble in land values (e.g. as a non-income bearing store of value like gold) then clearly it would make sense to sell the land. I have not seen any evidence elsewhere of a land value bubble in India making development unattractive. Do you have any evidence to share on this?

[horndean eagle] 16/9/2011 19:06

Kenny,

An example

Land worth 10m
Cost to build the properties on the land 20m
Interest costs on borrowings 13%
Rental income 3m
NIY for valuation purposes 12%

The figures above are there or thereabouts for what UCP face at present. Once built out and assuming its fully let the property at a 12% yield on rental income of 3m is worth 25m. There would therefore only be a 5m surplus on the expenditure. However the value of the land without doing nothing is 10m so its not worth bothering doing anything and by building out you actually reduce NAV. This doesn't even factor in the cost of borrowing the 20m and assumes you fully lease the building out which further reduces NAV.

If rentals increased markedly then it suddenly becomes far more attractive to build out but there is no sign of that happening other than in small pockets at G1 and G2 as an abundance of supply still exists. The other big factor that would change the dynamics is the NIY that the properties could be sold on for. If the NIY was closer to 10% then it still doesn't makes sense to carry out the work or not. At 9% it is probably worth getting out of bed for.

This helps explain why NAV hasn't risen despite all the leasing progress. Im guessing it is also why those requisitioning the EGM are keen to focus on actual rentals and costs of building to see whether it is actually in the companies interests to carry on building out in the current environment. Its also why they are happy enough to sell the company out as it is in its part finished state.