The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
Very helpful AdamAnt, thank you - I appreciate the considered response (ignoring the accusations!)
I have received written confirmation from Torridge Council and North Devon Council, following FOI requests I submitted, that neither council pays Auckland anything. If you don't trust me, submit your own FOI requests! If you get a different answer, please let me know.
I'm assuming they are not mistaken and the rent therefore must go through another local authority of some sort (i'm no expert on public sector finances!). Or, perhaps there's a middle man. I am not suggesting there is anything wrong with this.
It seems like most people on this board would rather there was no discussion, no rational cynicism. I find that interesting in itself, because it tells me you are all unsure about your investment. Confident people, don't resort to ad hominem attacks - just saying. And I'm still learning from some of your responses so, selfishly, I'm going to keep posting these entirely rational and justified questions. :)
As for whether my numbers are right, please feel free NOT TO TRUST ME - go and access the filings for Civitas SPV135 Limited and follow them through. You will see that I am not mistaken. I'm half expecting one of you to accuse me of hacking Companies House!
Yeahhh... I wasn't suggesting that CSH were paying themselves but that is an interesting concept. If that were the case, it would effectively make it a Ponzi scheme! But no, I'm just interested to understand what "local authority" is willing to pay over £50k a year to rent a house that just sold for £280k on the open market. Let me know if you have any useful thoughts. :)
I think it's because you now own the shares and a couple of days ago you didnt! When I cover my short, you won't find me bigging these guys up.
As for who actually pays Auckland... that is in fact essential to the investment case.
Punter64! You can U-turn quicker than a hackney cab! You were telling us all how this "stank to high heaven" only days ago and now it's the safest 6% div you know?! lol. Good for you.
My question was genuine. I submitted an FOI to a couple of councils, including the local one (Torridge) and they haven't paid any money to Auckland. So, I'm trying to figure out which entity actually does pay them. "Local authority" is presumably not the local council... But I really don't know where to look. If it's public, then it will be subject to FOI. I just need to find the right entity.
Does anyone know what entity is responsible for paying the likes of Auckland and Falcon? For instance, if we take the example of Civitas SPV135 (sorry to be boring, but it's a tidy example because it is one house), it is a property in Torridge. CSH own the house through Civitas SPV135 and they lease that house to Auckland. Auckland then provide that house for social housing and, presumably, some public sector entity pays the bill... Correct? Would it be Torridge District Council that pays Auckland? Or do you think it might be some other party?
Just look it up on Google...? :)
Or, you could select one of the many Civitas SPVs and have a look at what they say about valuation. For instance, Civitas SPV135 Limited was already mentioned on this chat room. Check out its accounts for the period to March 2019, available on Companies House. On page 10, those accounts say: "The valuation is based upon assumptions including future rental income and the appropriate discount rate."
That's not to say the market value of the property, without any lease, is ignored. But in the case of Civitas SPV135, the only property it owned as of March 2019 had been acquired by it for £286k in February 2019, which was about 6 weeks before the accounts were struck. And yet as of March 2019 it was valued at over £1million.
Clearly, they are marking up properties to reflect the value of the lease terms entered into the with RPs (in the case of SPV135, that was Auckland). Whether that is justifiable is, I think, reliant on the credibility of Auckland and its ability to continue to pay the rent for the full term of the lease.
The other question of course is how much CSH paid to acquire Civitas SPV135. Did they pay the marked up valuation? I had assumed CSH would NOT have paid any premium to the price paid for the property. But CSH's response yesterday has me doubting that assumption...
Yes, exactly RedTom. Riskingit (or whatever your name is) when they write up the valuation of the properties they buy, that write up is justified by the lease agreement they enter into. The higher the annual rent they agree and the longer the term, the higher the NAV. Were the properties to be sold on the open market without any attached lease they would be worth far less than the NAV. Hope that helps clarify.
Well, nobody is getting fired by the looks of things which is probably good for the share price, at least in the immediate term. And lots of words to read through. But, I think most importantly, it seems they all think that selling a business to two directors of CIM is not a related party transaction for CSH... and, in the future, other board members of CIM will sit on the committee to assess the fairness of any such transactions. This is ESG, 2021 styleee... Happy trading.
I haven't looked at TP, but I will if I have the time.
I'm not spinning anything. It's just opinions based on some publicly available information. You don't agree with those opinions? Thats OK. That's what makes a market, my friend. :)
Sorry, yes, Lalani was the shareholder of Auckland until August 2019. Endole is out of date... I should have gone back to the original documents, but I assure you my intentions were not mislead you. In any case, Mawji and Lalani owned it when the transactions I was referring to took place. And Lalani continues to act as a director. As did Mawji until very recently.
And thank you for highlighting my error, regarding this change of ownership. The Social Housing Partnership is a company limited by guarantee, so has no owners. It has two directors though and one of those, Mr Patrick Cottrell, was also a director of CIM Healthcare Properties Plc until June of this year. CIM Healthcare is owned by Civitas Investment Management Limited! Cottrell was a director of a CIM subsidiary and Auckland until June of this year.
Falcon and Auckland represented ~40% of CSH's rental income in recent periods, so I disagree that they are immaterial.
If you think the fact that Lalani and Mawji have other business dealings exonerates them in any potential misgivings in these business dealings then I'd find that surprising, but you would be entitled to that view.
As for costs and upgrades.... This was a property that was written up by nearly 300% in a matter of weeks. I don' think your suggestion explains that.
Here's the critical question... Are Falcon and Auckland credible? If they are, then the 40% rental income is fine and therefore the NAV that is reliant on that rental income is also fine. If they are not credible, then there is a major question mark over CSH's NAV. Both Auckland and Falcon are at least arguably related parties. Both are unaudited. And both are under investigation by the relevant regulator.
It is all on Companies House and the Land Registry, or Endole offers an excellent service which combines much of the two.
The 3-fold uplift I referred to happened in Civitas SPV135 Limited. It was incorporated as a subsidiary of a company owned by Lalani/Mawji in November 2018. It then bought a house for £283k in February 2019 using money borrowed from CSH and was transferred into CSH's ownership on the same day. Prior to the year end of March 2019 (ie within a few weeks of the purchase), that same property was revalued to over £1m. This write up was presumably based on the lease entered into with Auckland for ~£50k a year. Auckland is owned by Lalani who is also a director, and Mawji just stepped off the board (after the recent news).
All of that can be seen in Companies House - check out the March 2019 accounts for Civitas SPV135. You can also do a director search on each of these guys, and just take a look at the companies now called Civitas SPV... The ones I've looked at all show the same pattern. Although generally the mark up is not quite as extreme in percentage terms, there are a large number of these transactions.
My concern therefore is the credibility of Auckland Home Solutions CIC and Falcon Housing Association CIC (also controlled by Lalani and Mawji). According to Shadowfall, these two customers represent something like 40% of CSH's rental income.
As for their other business dealings... I don't have a view. Mr Lalani and Mr. Mawji appear to have incorporated at least 11 new companies in 2021 alone, according to Companies House records. They seem to be breaking into the restaurant industry. Entrepreneurs.
Agreed. But the lower the share price falls, the harder it will be for them to issue new equity. And if the allegations are correct, then issuing new equity could be important in sustaining the business plan.
IMO, there are two sides to this:
1. If the Isle of Man allegations are true, then replacing CIM with a different management team might be positive because the alleged "self-dealing" will presumably stop, to the benefit of CSH.
2. On the other hand, I think the NAV is quite opaque and heavily reliant on the credibility of CIM and its associates.
A). There are lots of subsidiaries (SPVs) and many of these are unaudited. Of course, their figures will be included in the group audit, but it is a fact that many are unaudited.
B). Furthermore, CSH's two largest customers (Falcon and Auckland) are also unaudited and are connected to related parties (Lalani and Mawji). This further muddies the NAV, which is entirely reliant on future payments from those customers. The independent valuer (JLL in the cases I've looked at) is valuing the properties on the basis of the lease terms CSH enters into with its customers - ie Falcon, Auckland etc. In effect, the NAV is the sum of the discounted cash flows of the lease terms for each property. If Falcon and Auckland are not credible entities (no accusations - I'm saying "if"), then that would raise a doubt over the NAV.
From what I've seen, a typical transaction goes like this: A company owned/controlled by Lalani/Mawji creates a new shell company. That shell company borrows money from CSH to buy a property(ies) and, shortly afterwards, the shell company is transferred into CSH. Prior to the end of that same financial period, the property is marked up in value heavily (sometimes as much as threefold!) on the basis of the lease terms entered into with Falcon or Auckland - which are also controlled by Lalani/Mawji. So, if you stop trusting CIM and its partners then, arguably, you should also stop trusting the NAV.
There is of course a point when the debt covenants play a role. Right now, they are miles away from tripping those, but... you know, bankers are lovely people until they're not.
If there is a change of manger, I think that would be net negative. And this situation is a little unusual because the people investigating and responding to the criticism are not the people being criticised. Nobody is saying the board of CSH have done anything wrong - it is CIM who are in the hot seat. So perhaps a change is more likely than in a typical short target.
Final point... Perhaps all the above is priced in and the market now expects CIM to be fired. But in my view the proportion of the NAV that is reliant on future cash flows, and therefore reliant on the credibility of CIM and its associates, is very high - much higher than 20%.
I remain short, and so I am bias. I don't work for Shadowfall, and I don't work in the property industry, so you should also assume I lack subject matter expertise. good luck.
Evening chaps and ladies. Does anyone know what the whole Falcon investigation thing means? There seems to be considerable expertise on this board (even without the mighty CH to add his/her knowledge), so I'm hoping someone can explain to me what might happen to Falcon, and what the implications might be to CSH. This is a genuine question... I have no idea what is going to happen. I'm presuming it's bad news, but you know... open to new information. :)
To answer that question fully, you have to take into consideration the company's debt covenants.
Question for the group: Why does Civitas keep buying shell companies from related parties?
How's it going guys? You ok?
There are three types of people: Sheep, wolves and wolf hunters. The sheep don't like the hunters because their guns are loud and scary.
I agree about Blue Prism. I did quite a lot of work on that and decided that the software might be quite sticky. Valuation seemed bonkers, but then... what doesn't these days?
As for why I'm on here... Well, you can think what you like, but I do what I do because I hate fraud. I come on these boards once in a while, when a short thesis in the UK tickles me. Then I try and persuade people of who the real bad guys are. And then i get bored of being accused of having ulterior motives, and I go back to work. It's a waste of my time, I know. No matter, here is the current state of the world:
- Corporate fraud is rampant and almost always goes unpunished.
- The relevant parts of our police force commit most of their resource to prosecuting benefits fraud, and will do everything they can to avoid going after anyone that can "lawyer up".
- The FCA is a sham, designed to give the appearance of regulation, without actually doing very much at all. If you don't believe me, read their annual report - it's a joke - they closed zero criminal cases in the 2019/20 year! Over half of the fines came from one case against Stand Chartered, and they'd been accepting suitcases of cash without any AML checks!
- Cross border fraud is even worse, because there is no cross border police. Europol, for instance, accepts no incoming phone calls.
- The world, each year, becomes more and more corrupt, as Moneyland grows in strength.
- The risk/reward is strongly in favour of breaking the law and pretty much the only people in society countering this trend are journalists, with a tiny bit of support from short sellers.
With that, I wish you well.
Well... I didn't mean to imply this is a Wirecard. But I would say that if you wound the clock back to 2015, say, investors in Wirecard would tell you: "This is not Parmalat!" Indeed, it wasn't Parmalat, it was Wirecard! Lol. No disrespect intended to you or anyone else on the board. I'm just defending someone who I believe to be entirely honourable, in part because he has consistently shown himself to be such. But also because being a dishonourable activist in a country like Britain, where the defamation laws so heavily favour the plaintiff, is a short route to bankruptcy.
Anyway... that's getting back to playing the man, not the ball. Like you say, the most important thing at this point is the quality of the NAV and how well covered the dividend is - clearly this is not a stock for which you close your eyes and back the management. Good luck.
I'm not sure that's right MattTheBrave. Some of what ConcernedInvestor is pointing to does stack up. The IoM entity is clearly connected to and owned at least in part by directors/owners of CIM. That's an undisclosed related party transaction through an IoM shell company. Whether that is illegal or not doesn't really matter because there is pretty much zero financial regulation in the UK anyway. But whether it represents deception and self-enrichment of those directors at the expense of shareholders...? That's perhaps not entirely "nailed on" but it requires some degree of mental gymnastics to conclude otherwise. Even on the "amended" figures as presented in the company's PR hit through their paid service provider, Quoted Data, the transaction seems to be extremely beneficial to the buyers.
I noticed another comment from someone about whether the Times is independent, with reference to the Boohoo coverage. I would point out that several media outlets, including the BBC and the Guardian, were highly critical of Boohoo ahead of and subsequent to Shadowfall's report. This does not necessarily mean Shadowfall pulls all their strings. It could mean that the Kamani family were engaged in wrongdoing. There was quite a lot of evidence supporting that view, including illegal migrant labour working under illegal conditions packaging up clothes for Boohoo brands on behalf of companies connected to the Kamanis. In response to all that activism, including the activism of Shadowfall, many changes were made in the company. For instance, Boohoo bought out the Kamani family's personal stake in Pretty Little Thing at a substantial premium to what most analysts had thought it was worth. Investigations into the illegal labour and Boohoo's governance led to changes. But, notably, none of the big four audit practices have been willing to act as auditor to Boohoo...
Personally, I think it's important for investors to know when they should play the man and when they should play the ball. When you are backing a management team, and you are reliant on their honesty, playing the man is the right move: invest in people you trust. When activists are throwing muck at a company, ignore who they are - it doesn't matter who they are or what their incentives are because you're not investing in them. Focus on what they are saying. Do the facts stand up to challenge?
I don't know who ConcernedInvestor is, but I do know that Matt Earl (Shadowfall) has a tremendous reputation in the industry. Did you know he bravely waged a multi year campaign against Wirecard? He was criminally investigated in Germany for such, and then ultimately given a personal commendation and apology by the German government for the treatment he received in exposing one of Europe's largest ever frauds. Matt Earl is a legend. I am certain he could earn a lot more money by going with the flow, rather than picking fights with bad guys.