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I went to the AGM and - predictably - it was a bit of a non-event, although I had some interesting discussions post-meeting, not on bid issues, which are clearly the topic du jour. We will have to wait until the 6th August meeting. I understand that the Scheme Document should be out tomorrow or the start of next week, at latest. Attendance was down on the last few years for obvious reasons, but at least all the board turned up and made themselves available for questions after the formal business, when I suspect that they would rather have been elsewhere. I saw that a few advisors from CBRE also attended, presumably mainly to check that nothing off piste was discussed.
Not hard to see why CBRE are so keen on the deal. I will be voting against.
DC's departure was announced in the 3 July paper posted to shareholders, setting out the acquisition terms. The statement said hat "As a result of the recent change in Telford Homes' strategy to focus on the BTR market, [DC] has agreed with the board of Telford Homes that there is no long term need for his role on the Board of Telford Homes and that he would prefer to look for other opportunities." I wonder.
In the overall scheme of things, I cannot get as worked up as ISS with the re-election of PwC as auditors. One way or another, TEF is virtually certain to delist and so this issue is somewhat academic. That same comment applies more generally to a number of ongoing issues that I had intended to explore next Thursday. I will probably attend, but it probably be a rather awkward meeting, especially as the BoD will not be able to comment on the key issues that shareholders really want to discuss. I hope that the Scheme Document is issued before the AGM, but we don't even know when that is due to happen.
The problem is that, now this bid has been accepted, the TEF business has to operate within relatively tight constraints and so it is effectively in limbo. I don't want a rushed sale (because I hope that there will be better bids forthcoming), but long term stupor would be very damaging. I wonder how many of the management team will hang around for very long. I see that David Campbell is already off.
PIs will not determine the vote, but will have an influence. I do not regard this as a done deal and hope/expect that other interested parties will make better offers than this low ball bid. I will be voting against this bid, both in direct shares I hold and (much more hassle) in nominee holdings.
I hope that there will be better offers that are now teased out from the likes of Greystar. I don’t think that much of the recommended bid price.
Interesting comments from BKG in the Outlook section of their final results, which came out this morning. They note that the number of new construction starts has been slowing down over the last few years (for obvious reasons) and that is now translating through to markedly less completions, so that the shortage as against the target in the draft London Plan becomes ever more marked.
The CEO goes on to state that "Sales continue to be split broadly even between owner occupiers and investors, with overseas investors continuing to see relative value in the London market". So, somewhat different to TEF's recent experience - and the average selling price for BKG homes is quite a bit higher than the average price of TEF properties.
Bit of a surprise. It was only last week that JDS said that TEF were not targeting individual investors and that no overseas launches were planned following the Galliards experience. I assume this is low key and led by the agents. Let's hope that they unearth some interest.
By the way, did anyone else pick up on the suggestion JDS made in response to a question from an analyst that TEF might be prepared to get involved in the letting or management of BTR apartments - something that TEF have always avoided like the plague? I assume that comes on the back of detailed feedback from institutional investors. Very different risk profile, so maybe something to talk about at the AGM.
On the whole, the final numbers (in particular gross revenues, EPS, margins and NAV per share) were better than I expected, based on the March 2019 Edison forecast, although PBT was slightly lower. Like others, I also noted the material increases in admin and selling expenses. I hope that Edison will now produce an updated note.
Aside from the points already made in the various posts, a few things not mentioned in the final results or the presentation/analyst briefing struck me:-
1. Radio silence on the circa 700 home deal with a major land owner in East London announced back in October 2018, where we were told in the interims that further details would be announced "in the near future". If it happens, it would the biggest scheme aside from Nine Elms, so I was surprised that nothing was said about it.
2. Apart from the indication that pretty much anything other than Greenford is now a candidate for BTR, no detail as to any selected sites and rough timetable. Most of the schemes on the books are under 200 homes (once affordable housing is stripped out), so it looks as if new sites will need to be acquired to feed Invesco.
3. The timetable for signing the build contract with Greystar for Nine Elms has slipped still further, although the presentation talks about signing being imminent, so hopefully there will be an formal RNS in the next few days.
For those who have the time, the audio webcast of the analysts meeting this morning (link on the TEF website as well as in the RNS this morning) is worth a listen, particularly the Q&A which followed the formal presentation.
All a bit weird, particularly when you look at the likes of Watkins Jones, which the market views very differently, for reasons which largely escape me (although they have been successful as well in the private sector student accommodation market). If you believe in the fundamentals, then what a fantastic time to invest. Just under two weeks before we get updated details. I imagine that they are working very hard at HQ. For example, failure to sign the 9 Elms contract would be a miss and it is a long time since we heard anything about their major East London JV with a major landowner. I could go on...
Yes, I am struggling to understand why TEF decided that they could expect to receive consent for a scheme with less than 50% of affordable housing. They must have looked at this in considerable detail and received professional advice. As to Rapper's question, I am not convinced that this rather painful scheme translates that directly into a hit on the share price. It is only one of many schemes, a number of them very complex - e.g. Chrisp Street.
For all the current problems, I regard the shares at this level as a great buying opportunity and I am adding as many as I can at the current pricing. Whether that is sensible or not will become clear over the next few years. It isn't doing me any favours at the moment in the Strictly Bricks competition.
TEF know this market inside out, so you have to say that if they did not factor in the required high level of affordable housing for Cambridge Heath Road, then that was a serious mistake. Possible, but rather unlikely. More probably, they underestimated the time and cost that it would take to sort the detail out for a viable scheme. Unfortunately, that is very costly. They could appeal, but that is not their modus operandi and the inevitable delay and cost means that even an eventual win is somewhat academic. An expensive lesson learnt.
Sain,
TfL is perennially cash strapped and looking to sweat its assets (property). As a creature of Statute, that is a real challenge, as there are numerous restrictions - start with the 1999 Greater London Authority Act and keep going until you lose the will to live - on what it can do to realise those assets. It is very hard work.
I think that TfL wanted a JV partner with a fair amount of financial muscle who could inject cash, as well as develop schemes. Grainger fit that bill to a tee, although my limited understanding is that they rely very heavily on third parties to build out their projects, so they are a very different animal to TEF.
I see that Greystar were one of the shortlisted parties and I guess that TEF may have had a subsidiary role as part of the supply chain, particularly as TfL have significant land holdings at Nine Elms. It is not beyond the bounds of possibility that Grainger might team up with TEF on one or more of the TfL schemes, although that is an outside bet, in my view. There is a lot else to go for. Anyone interested in the overall BTR sector could do worse than look at the Grainger recent reports and presentations on this market. They are a serious player.
Sain, I totally agree that TEF need to deliver some deals with instis, having set up the framework. I also recall that they mentioned a significant deal in East London with a major landowner where we await the specifics. I am sure that they are working hard to deliver some tangible results before the end of the current financial year.
As to UANC, you have mentioned a possible tie up before, but I am less convinced, because they have very different strategies and business models. Although UANC are increasingly focussed on schemes within 50/100 miles or so from London, they are building cities and the like. If they found something of sufficient scale in London (very difficult, because you inevitably get dragged into a multiplicity of negotiations with different landowners, which they really want to avoid, for good reason), then I can see that TEF would be an obvious partner. Bring back the development corporations to CPO land and assemble significant sites. It would make sense, but I am not holding my breath.
I think that the Canadian pension funds will be major players in the UK BTR sector, in the same way that they already are in commercial property and infrastructure (Oxford Properties, Caisse de Depots, Borealis etc). I imagine that TEF took a very close look at them when selecting their strategic partners and I would not have been surprised if one of them had featured as a partner. The UK is comparatively cheap for them at the moment and they want/need to invest in long term assets.
Actually, I do disagree with that. The TU released the bad trading news because it had too. You cannot hold back price sensitive information from the market, much though companies may wish to do so. You did not have to be an insider to know that an announcement about the JV was imminent, because the TU expressly said so. As I observed in a post at the time, that was no doubt the very furthest that JDS could go at the time and it was an attempt to minimise the negative sentiment that was understandably triggered.
I took this as a clear buy signal (others headed in the other direction) and would have bought last week, but needed to free up sufficient funds. So, I piled in yesterday and whilst I am not claiming to have single handedly moved the market, I was responsible for two of the largest buys yesterday. It does not take many such transactions to move the price of a small stock like TEF, as many posters here will know. I think it is unfair to accuse the company of leaking insider information.
Turning to the deals, I was slightly surprised (but also quite pleased) that Greystar/Henderson Park were not selected, because the KIO are an excellent backer, but have a longstanding and well deserved reputation for being very tough negotiators who drive a hard bargain. Look how long the Equipment Works deal took to close. I am not suggesting that Invesco and MIG would have been other than demanding, but it gives extra flexibility and introduces a fresh funding source to TEF (Invesco).
The one thing that slightly surprised me was that no specific deals were announced to seed the partnerships. Presumably that is because further work is needed to develop those sites to a state where they can be signed up unconditionally. We know from the TU last week that at least three existing sites are involved. So, what we have are two right of first offer arrangements for the TEF landbank, with TEF still free to deal with other parties such as Greystar who bring sites to them, hence the emphasis by JDS on continuing to work with other parties. I think that is quite neat.
Presumably they decided/were told that the bad news had to be released straight away, at a time when it is clear that they have not yet entered into a legally binding deal with the BTR JV parter(s) - or concluded the deal on Nine Elms, for that matter. So the reference to that deal being "imminent " was to provide limited good news and to emphasise the direction of travel. I recall that TEF were heavily criticised by many for the tone of the Trading Update last Autumn (i.e. far too gloomy and negative). It does not look that way now.
So the share price is more or less back to where it was just before Christmas and I imagine that it will continue to bounce around. If ever proof was needed as to the barriers to entry for builders operating in the London market, the statement today provides it. Given the strategic decision to switch some sites from individual sale to BTR, presumably some of them will be used to seed the new JV. Anyway, it sounds as if we will know fairly soon.
On other developments, it is some considerable time since anything has been said about Chrisp Street Market, which was the topic du jour around this time last year. I wonder what the plans are now for that site.
As someone who is well and truly done lawyering, I would only say that clients quite often go unscripted. That said, JDS is invariably very careful (and he has an accountancy background). It is difficult in what is effectively a live discussion in a very busy life to hone every word to perfection. When I next head out from Waterloo going west, I hope to see the TEF/Greystar flag or equivalent flying at Nine Elms. Perhaps optimistic, as that will be two weeks next Saturday. Whenever, it looks as if the TEF/Greystar relationship is in very good nick.
Cybs,
I think that JDS was simply referring to the pre-construction agreement with Greystar that was announced back in 2017. I agree with you that a further RNS can be expected once a full unconditional construction contract is entered into and I think that was promised in the original RNS. Hopefully we will hear something soon.