Uk Commercial Property R... Share Discussion Threads

[skyship] 05/12/2008 09:28

Interesting interview on Bloomberg this morning with Patrick Sumner - Head of Property Equity Investent with Henderson Global Investors. He runs three funds which on average are invested c.43% USA, c.43% Asia (inc Japan) & only 7% Europe. Nevertheless, when asked which would be his preferred Market at the moment.....Answer:-----The UK!

Why. Because the UK has the most reactive stockmarket and the property sector has been in constant decline for almost 2yrs. At current levels it already over-discounts practically all the bad news - excepting perhaps a prolonged deflation. Even so the principal REITS are on 7%-10% yields and are not really threatening LTV breaches. He believes prices are too low as they have been professionally shorted as a compensating play to the CMSB market in the States. Not exactly sure what that is all about (Commercial Mortgage market perhaps); but the inference is that the shorts will be squeezed if the Fed underwrites that Market - as it may well do.

[ptolemy] 05/12/2008 09:19

Thanks for link. Somethings there I didn't know.

Big institutional buying today, I see (trades 3 to 16 this am). Only joking! Reinvested divis, I guess.

Chopshs,
I don't think its being cynical to think they might invest in property to increase their fees, it's their mandate to build shareholder value and that means growing the business!

[skyship] 04/12/2008 14:28

Ptolemy - they are all institutional trades - almost without exception. UKCM is a TOP250 "SETS" stock, so the trades are mainly computer generated and indicated by the letters "AT". Also most trades are booked on the Iceberg basis, ie the computer inputs any number of random small trades all totalling the Fund Manager's requirement to BUY/SELL, say, 100k or they are randomly generated as part of a tracker fund portfolio. The PI trades are almost invariably indicated with the letter "O" – though I do see my BUY trade No.41 yesterday was indicated "OK" for some – perhaps ADVFN thought it a good buy!!

Anyway, this link explains the nomenclature:

[chopshs] 04/12/2008 13:49

The exception is if the NAV falls in due course to less than the buy back price.... That is if you're a long term investor and I suppose the manager should be looking long term. The share buy backs from 13 months or so ago don't look quite so clever now.... Similarly within several other PIT's.
Reasons to delay include if the company thinks it will be able to pick up stock cheaper later (and that must be a reasonable possibility).
If you're being cynical then you could also wonder whether the manager will prefer to spend the money on property in due course, which will increase their fees. I have a cynical streak but I'm not suggesting that here!
On balance I'm in the school which believes it's difficult to argue against some buy backs at the current price.

[ptolemy] 04/12/2008 13:44

Skyship,
Good discussion and of course I agree with the mathematics. Our divergence seems, therefore, to be the definition of "shareholder value."

You appear to say shareholder value = NAV

I believe shareholder value = total shareholder return = share price performance + dividends + any other cashback.

On anothre note, judging by the buy/sell activity its interesting to not the number of small chareholders. Whilst watching the trades I haven't seen a single large transaction go through.

[skyship] 04/12/2008 12:27

Ptolemy - agreed, we're on the same wavelength re the value to be found, we just disagree in the timing - that's what makes a Market!

Can I just finally say that I have total humility about my investment prowess, usually pretty good, but really caught on the hop by the severity of the decline in the tertiary oil sector - which is where all my losses are. The reason I say "guarantees increased shareholder value" is that it is 100% true. It is a simple question of mathematics, ergo:

1,000,000 shares in issue, net assets of £1,000,000 = NAV of 100p/share

Buy-in 100,000 shares at, say, 75p (or any figure that is at a discount to the prevailing NAV). Issued shares now 900,000, net assets now £925,000, therefore NAV INCREASES to 102.8p, ie UP 2.8%. Hence shareholder value increased.

I'm sorry, but buybacks work on the basis of simple mathematics when applied to NAV-based investments. Incontrovertible fact.

Of course, it can most certainly be argued that the Company should conserve cash and do nothing; but it cannot be argued that buybacks do not increase shareholder value when applied at a discount to prevailing asset values. It is why the Board sought our approval to do so....

[ptolemy] 04/12/2008 10:00

Dozens of IT Cos have done share buybacks.

I reacted cautiously to your note 31 because of your use of the 'G' word. You believe a share buyback guarentees increased shareholder value. I adopt greater humility in my investment approach.

What can they do with the cash?
1. Pay a special divi, 2. buyback shares, 3. take advantage of their position of strength to buy assets and to make the company bigger/stronger.

1 and 2 they can do anytime (assuming they have cash). 3 can best be done at times of market turmoil - such as now. If the can't find a better opportunity for the cash than buying their own shares, it doesn't say much about their competence as property managers.

Bottom line is we're on the same page. In the longer term it looks a good investment.

[skyship] 03/12/2008 16:10

PTOLEMY - Sorry, but I do believe that on this occasion you are missing the point. As I stated in Post No.28 above: "I know that buybacks have a chequred history, but for asset valuation investments such as property companies and investment trusts, they are a very sensible way of using market aberrations to increase NAVs."

Property companies and investment trusts are valued on the basis of Net Asset Value / share. As such, they are unlike the rest of the quoted trading companies which have been buying-up share capital; and then made to look foolish as the shares continue to descend, or plummet as in the case of the Banks.

As the Directors of UKCM stated earlier this year:

"It is the Board and Manager's intention to monitor opportunities in
the market carefully for investment opportunities and to continue
with the use of share buy backs through the utilisation of existing
cash resources and any appropriate debt facility to enhance returns
to shareholders."

Buybacks IN OUR CASE do exactly that - ENHANCE RETURNS TO SHAREHOLDERS.

I hope the Board took advantage of today's sell-off to hoover up some cheap stock; as I did....

Incidentally, you may well be right that we haven't yet seen the worse; however a further 15% property valuation decline from 30th September would give us an NAV of c.68p. So at 50p one is buying into a 26% NAV discount + a 10.5% Yield.

[ptolemy] 03/12/2008 15:36

Skyship, good points. I'm just not sure we've seen the worst. How many CEO have said your words in the last 12 months? Namely "buybacks at these levels undoubtedly can guarentee shareholder value"

There's an opportunity cost associated with spending you cash; if great opportunties arise they can't take them or need to need to borrow. Seems to me in this climate the strong should buyout the weak (or preferably, the best parts of the weak).

I'll buy when the market has a 'death plunge day' (if they haven't wasted money on a buyback!)

[pip_uk] 03/12/2008 14:33

No problem with your recommendation at all SKYSHIP, I too have been a buyer at these level`s and will continue to be so on any weakness.
Regards.

[skyship] 03/12/2008 14:22

PTOLEMY - "If I were UKCM I'd be much more concerned about preserving cash than using it to provide temporay support to the share price."

hmmm - seems to me quite clear that investing in property in the current climate cannot guarantee increases in shareholder value, whereas share buybacks at these levels undoubtedly can. At the last count (15th Oct'08)we had CASH reserves of £64m, so no-one reading the stats can possibly say that
there is any need to conserve CASH - remember UKCM is totally ungeared!

No. Buybacks must be undertaken when there is a perverse disparity between
the share price and the underlying NAV. That is why shareholders approved
the Scheme. There are times for buybacks; and now is most undoubtedly an
extremely good time. Though I suspect they won't be able to buy many, they
should certainly be attempting to do so.
===============================================================

Pip_uk - sorry I was a bit early with my recommendation elsewhere. Obviously
there is a liquidation firesale taking place, so the share price may remain under water for a few days - who knows. Personally I topped-up again @ 50p.

[ptolemy] 03/12/2008 09:09

If I were UKCM I'd be much more concerned about preserving cash than using it to provide temporay support to the share price. The fact they aren't doing it suggests they beleive matter will get worse before better. But that's no surprise, they said that in the recent statement.

There appears to be good value here at some point but I'm not sure we're there in the cycle....yet.

[pip_uk] 03/12/2008 08:56

I certainly have,bought a few yesterday and look forward to an interesting ride.
To find a property company that is ungeared must be virtually unheard of.
Strange old world, when things are motoring you tend to overlook this type of solid firm, and go for the high flyers,so it`s with thanks to you SKYSHIP for flagging this up.
Another good dividend payer is CHESNARA just thought it might interest someone with good divi`s in mind.
See you on MW`s.
Cheers.

[skyship] 03/12/2008 07:53

Certainly should. I just wish they'd take advantage of this second major dip to renew buybacks. I know that buybacks have a chequred history, but for asset valuation investments such as property companies and investment trusts, they are a very sensible way of using market aberrations to increase NAVs.

[topvest] 02/12/2008 21:34

Should be held as they have no debt and earnings cover on the dividend.

[skyship] 02/12/2008 11:26

Topped-up with a few @ 51.75p. Yld (if divi held) = a tad over 10%.

[skyship] 01/12/2008 15:25

Having sold out on the great rally back to 65p, I'm happy to be back in today @ 53.75p. Yield = 9.76%.......NAV discount, who knows, perhaps in the range of 25%-28%.

[skyship] 29/10/2008 13:40

This high volume really does provide a splendid opportunity to recommence the buybacks.

They have just 12.87m shares in Treasury after the last buyback on 27 November 2007 when they bought 450,000 shares @ 73.5p per share.

[chopshs] 27/10/2008 14:35

Good luck Skyship. If that doesn't prove to be a good long term investment we're all in very serious trouble...

[skyship] 27/10/2008 13:46

chops - topped up today @ 53.25p...

[chopshs] 27/10/2008 13:16

Even though I've been bearish I can't believe how quickly this has fallen. With the share price at 52p, it's at a 35% discount to NAV (ungeared), with a 10% divi.
See SLI's IMS today for a comment on how bad things are. Have rarely read anything so gloomy from the horse's mouth.
I'm not buying but at this price I can see why UKCM might be perceived as good value. Agree they ought to start some buybacks.

[skyship] 26/10/2008 17:27

Not Manu - thnx for that - certainly the property portfolio is a class act.

I see the following statement in the Apr'08 Finals:

"No further shares have been bought back since the period end. Your Board will continue to use share buy backs in future where it believes that it will enhance shareholder value while giving careful consideration to the Company's cashflows and development and asset management opportunities as they arise and will carefully monitor the effectiveness of the programme."

Wouldn't be at all surprised to see a few buybacks kicking in at these levels.

I also see that ADVFN have got the dividend yield wrong. Better to base yld projections upon 4 x 1.3125p = 5.25p. So the yield @ 56p = 9.4%. Having sold a few properties that could well reduce to 5.00p for a yld of 8.9%. Looks good to me!