Member Info for james188

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.

JDS has to be very careful as to what he says as to future deals and his script is bound to have been vetted by the Nomad, given price sensitivity. What I took away from the podcast was that TEF are close to finalising their long term partner arrangements and that they are keen to emphasise their intention to do future deals with other instils as well. That makes, sense, to avoid too many eggs in one basket. I also noted that TEF signalled an intention to go above 50% as a percentage of BTR deals in the portfolio. That is a big call.

Sain - our posts were made simultaneously! I agree with you.

Looks like a strong pointer as to the identity of at least one of TEF’s intended long term JV partners for BTR. I see that CBRE advised TEF on this deal and I imagine that they are also involved in the selection process as well as Savills, in one way, shape or form.

Just to return briefly to the subject of TEF as a Master Developer. It depends what you mean by that term. I entirely agree that TEF will (and already are) get involved in delivering larger and more complex mixed use sites, but I don't think that is what a Master Developer does, in the strict sense. Urban & Civic are a classic Master Developer, in that they acquire large sites, sort out the main consents and put in the core infrastructure. However, they then (in the main), bring in a mix of builders to build out the site. So, they are essentially a facilitator, like the old development corporations. Letwin described this sort of entity as an Infrastructure Development Company - entirely funded by private sector finance, as there is precious little public sector funding available. I would be hugely surprised if that became the TEF business model anytime soon. In essence, they deliver the end product, having packaged it together in the first place.

Strictly,

The Scottish businessman you are thinking of is (Sir) Tom Hunter. He bought into all sorts of property related businesses - even garden centres, as I recall. It did not end well.

Interesting question. I don't see TEF as a master developer, because that is not their skill set and they do not have the likes of Homes UK as a low cost funder. I hope that TEF will end up with some form of ongoing take out purchaser arrangement for schemes they develop. If that also involved the end purchaser(s) interim funding development costs, so much the better. My understanding is that TEF do not want to put very much equity into any such arrangement. L&Q are an impressive operator, but a very different animal to TEF. That said, I could see some form of collaboration between the two in London. As I have observed before, TEF have been pretty quiet over the last year as to major strategic issues. That will hopefully change.

Some interesting picks there. I looked at Breedon on the same theme, but I prefer to invest in the builders in this sector. One other company that I like and invest in, but a very different model, is UANC (Urban & Civic). They are basically a private sector version of the 1980s development corporations such as LDDC (I remember them very well) who facilitate major sites and are largely funded by Government funds - Homes UK in particular. As Strictly has suggested, I also invest in non- property companies, but UK property is a very interesting play at the moment, so I am ramping up in that sector in particular. Good luck with your picks.

More Fog on the Thames than Fog on the Tyne at the moment. I have just depressed myself by viewing the latest waste of a day that was the Parliamentary debate today. Another hour or so that I will never get back. Wasn't "Alright on the night", or something like that, also a Lindisfarne track? If only.

Strictly; I will revert on your blog on the Curry Challenge, although I am not a curry fan, so I will need to find a comparable currency in which to lose the bet. I am also more much more optimistic than Sain as to the direction of travel for the main builders. That said, I recall that Sain has been pretty accurate over the last year or so.

Final comment, given my previous reference to WJG and whether the share is value for money at the current price (not for me, on that score). Equity Development (you can sign up for free) have just released an interview with the new CEO and the CFO on the results that came out last week. On BTR, I think that they are basically copying TEF, but they look beyond London. They state an intention to gear up in that sector, as distinct from their main base, which is student accommodation. I follow them with interest, as there is much to admire, but I think that there are better picks.

Indeed. It is all rather Fog on the Tyne.

All very true. It just makes me think very hard about the entry price I am paying when I add more, because I have invested many times at different price points, quite a number well below the current SP, but quite a few very materially above.

I am very comfortable with TEF deal specific risk, but the market is in mayhem and who knows what will happen? It does not keep me awake at night, but a supposedly very safe share is actually rather volatile. I trade much less than you (I have yet to sell a TEF share), but that may change. At the end of the day, it is only money. We are all crystal ball glazing, but I have always thought that the standard caution that past performance is no guarantee of future results is hugely trite. What better yardstick do we have? The next year will be interesting.

I am happy with what I regard as an irrationally low price as I am adding to my stock - and a fluctuating price is also fine. What started to really concern me when the price dipped well below 300p was that TEF becomes a clear takeover target and that has to be factored in to the risk profile. It is well known that a number of US and other funds are running the slide rule over what are perceived to be bargain price UK companies. I do not want TEF to be gobbled up on the cheap.

Thanks Strictly - as Steph observes, an excellent analysis. I entirely agree that the market is imposing a TEF specific discount factor, given that the company is still in transition. Coupled to that is the fact that TEF exclusively operates in London, where market sentiment is very negative. For my part, that focus is a very attractive feature, given that there is a massive undersupply of new accommodation and local authorities do not have the cash (or arguably expertise) to step to the plate themselves. I was particularly struck by the chart in the recent Hardman & Co research note on the house building sector that compared Housebuilder share price performance in Q4 2018 against Q3. TEF was bottom of class with a decline of over 30% (although things have since improved) WJG was at the other end of the chart with an increase of over 5% - and the share price improved again last week when it published its final results. Although it is a rather different animal to TEF and the main house builders, it is similar to TEF in relying on a forward funding model and it is increasing its involvement in the BTR market (from a low base). Although it scores well on a number of metrics, it has an eye watering PBV, which was around 4 when I last checked. I mean, why would you?
Anyway, I may also be rambling, but we live in uncertain times. I have long thought that TEF’s share price will only start to really motor when it has locked in the anticipated BTR deals and we know the terms of those deals. Also work to do on the ROE and ROTIC metrics, which lag quite a few of the peer group at present.

Yes, but the fact is that the share price is pretty much identical to where it was in Spring 2016 and way below where it was as recently as June last year, when people where complaining that it was hugely undervalued at around 450p. I say that as a fan, where TEF is my largest individual holding. TEF have had a rather quiet last twelve months or so. We are all waiting for further news on various fronts and delay will spook some holders. I am sure that they are findng market conditions challenging at the moment. That said, I am optimistic as to future prospects.