Investors Chronicle: ‘First Property is a shrewd operator’
Simon Thompson analyses First Property Group’s recent announcements on sales we’ve completed, new leases we’ve signed, and our share price. The columnist reports the sale of our share in the CH8 tower in Warsaw “generating an eye-catching internal rate of return (IRR) of 63 per cent since its acquisition in 2014” and argues “there is still a glaring valuation anomaly still to exploit…”
He adds: “Effectively, you are getting a free ride on these investments and a fund management business that manages £602m of third-party assets even though the company has a track record of outperformance, delivering an IRR of 25 per cent (including dividends) since 2006.”
Simon Thompson: Stock picking value open to future gains https://t.co/MaKbWKZ26N
— Investors Chronicle (@IChronicle) May 4, 2020
Press Release: Warsaw’s CH8 Tower sells for €44 million (£38 million): First Property Group PLC completes transformational sale as Polish market bucks negative trends
First Property Group PLC, the property fund manager and investor, announces the sale of its [50.3] per cent interest in the CH8 Tower – also known as Chałubinskiego 8 – in central Warsaw for €44 million (£38 million).
Chief Executive Ben Habib argues the deal reflects the strength of Poland’s economy as commercial property transactions hit record rates ahead of coronavirus crisis. The sale nets Group their largest ever cash windfall of £16.7 million (€19.6 million), substantially increasing their future purchasing power into the hundreds of millions.
Investors Chronicle: “Exploiting market mispricing”
“Cash in on a free ride” Simon Thompson points out that if the sale of CH8 completes that “after the repayment of the bank loan secured against it, First Property will receive €19.6m (£17.8m) of cash proceeds to boost its proforma cash pile to £26.4m, a sum that is only £2m shy of the company’s market value of £28.5m. Non-recourse borrowings will be slashed to around €52m (£47.3m), secured against the remaining eight directly held properties that are worth €70m (£63.6m). Effectively, you are getting a free ride on the £16.3m equity in the eight remaining directly held properties even though they generate an annualised yield of around 10 per cent on market value, significantly higher than the 1.84 per cent average annual interest charged on the debt, so produce strong cash flow. You also have a free ride on First Property’s investments in 10 of the 13 funds it manages…worth a further £30.3m. The depressed market capitalisation also fails to attribute any value whatsoever to the asset management business which should generate an operating profit of £2m on £4m of management fee income in the 12 months to 31 March 2020.”