Monday, June 18, 2012

Report on QED Investor/Analyst Meeting, 18 June

I've just got back home from the Quintain Estates (QED) meeting at their Head Office, in Grosvenor Street, London. The meeting was arranged (as always!) by David Stredder (thanks very much Dave!) and thanks also to Quintain's CEO, FD, and a couple of other Directors for taking the time to brief a group of about 30 private shareholders. I wish all companies were as shareholder-friendly as this, it really is impressive.

The meeting was mainly going through some presentation slides on a screen, with both the newish CEO, Max James, and the highly-regarded FD, Rebecca Worthington, taking centre stage.

These slides are publicly available, being on QED's website, here is the link first to their results slides for y/e 31 March 2012;

There's not really any point in me rehashing those slides, as they're all pretty self-explanatory, so check them out! For me, these are the key points from their latest results;

  • Gross profit rose marginally to £27.8m, but most of this was absorbed by costs, leaving behind only £5.8m in adjusted profit before tax (up from £3.6m prior year)
  • Another revaluation loss this year on the properties resulted in overall loss before tax of £43.5m (£48.1m loss pr.yr.)
  • EPRA NAV per share fell from 125p to 116p
  • No dividend is paid
  • Net debt peaked at £535m, now falling from disposals, targeting 40% LTV by 31/3/2013 (48% at 31/3/2012)
  • Debt maturity is fine, with cashflows matching repayments due in next few years, and most debt not due until 2016. Difficult to extend maturities beyond 5 years

The main thing to note with QED is that it's basically 2 large London development projects, Wembley & Greenwich. Added onto that is a Fund Management property business, with over £2bn assets under management, and some other niche property businesses, mainly iQ (student accommodation), Quercus (health & care homes), and SeQuel (their name for secondary property assets), plus a recently acquired West End property mgt business. Most of their businesses are JVs with various partners, which seems a good model as it allows flexibility & makes it easier to raise funds.

The reason there is such a deep discount to NAV is probably because QED's main assets are development projects, which therefore consume cash rather than generating it. Hence no divi. However, QED is now starting to look interesting as an investment, in my opinion, because their 2 main projects are actually now being built. So we're at the start of the delivery phase. As the CEO said (convincingly, didn't sound like spin to me),
"We've got real momentum in what we're bringing forward. We've reached a tipping point in projects, finances, and fund management scale".

There seemed a definite buzz with the Directors, who have today announced a highly significant deal with a billionaire Hong Kong investor, Dr Henry Cheng, through his investment vehicle, Knight Dragon.

Full details of the transaction are given here;

In a nutshell, at the moment QED own the land, and have a 50% JV with Lend Lease for the development. Knight Dragon have bought the Lend Lease 50% share, plus 10% of QED's share, so now hold 60% of the whole project, including the freehold (which was previously 100% owned by QED, I think).

QED will also earn developer & project manager fees, and recoup it's infrastructure expenditure previously incurred, but most importantly won't have to stump up any more cash for development of Greenwich - and very importantly, there's no risk of QED needing another Rights Issue to fund Greenwich, so it seems a pretty positive deal to me.

As slide 2 of the above presentation shows, QED will receive cashflows from the deal of around £150m over the next 6 years, plus development gains (which are estimated to be £10m p.a.).

They sounded buoyant about the London property market generally, saying that foreign demand is very strong. They see Greenwich as being an area that will be in demand for residential property at £600-650 psf, as it's opposite Canary Wharf, where 100,000 people work, many of whom would like to be closer.

By recyling capital, this frees up money to develop the Wembley site, especially the London Designer Outlet Centre, which looks very interesting. Note also that the LDO will be let on turnover rents to the non-food (also not the cinema) shops, and the beauty of those is that the actual rent is often substantially more than the base rent. Hence could be big upside for QED if the centre trades well.

The CEO said that in summary, their new partner is, "a big gorilla with a lot of money to drive forward this project". When asked how they met the new partner, they said that QED Directors had gone round the world presenting to about 10 of the richest investment groups in the world. They found much more interest in Asia than from the Middle East. Also, the properties being built in Greenwich will appeal to Asian buyers, as they like new build, and like Canary Wharf.

The CEO also commented that this deal to fund Greenwich, "takes Quintain off the back foot, and onto the front foot", which I think is real. Their Balance Sheet is shored up, and the Directors seem buoyant now they have funding in place to develop their 2 main projects.

I like the Directors here, they seem straight & competent. We got direct answers to questions, and there seemed no evasion or hype.

We touched on other points, including cost cutting - they said that costs & headcount had been reduced, and that they were lean. But then proceeded to serve drinks & food in a palatial Board Room in their prime Mayfair offices! So there is clearly a lot of cost in there still that probably could come out. I did enjoy the food though, M&S rolls & nibbles, mini quiches, etc. I also had 2 glasses of a pleasant red wine, many thanks for that. It also gave us a chance to chat more informally with the Directors, which was appreciated.


Please bear in mind that all of this is my personal opinions only. I am not offering any advice either way, this is just for information purposes, and please do your own research (DYOR).

However, I came away from the meeting feeling that today's deal is very significant, and now means QED can forge ahead with development of Greenwich. Both their main projects are now real - i.e. actually being built, although Greenwich could take 10-20 years of rolling build programmes to complete. At some point the economy will begin improving, and that's when QED shares could get really interesting, once you start to factor in bigger future development gains.

In the meantime we get to buy the shares for just over a third of NAV, so a good measure of downside protection factored into the price. I suppose the main risk is that of economic calamity triggering a meltdown in London property prices. Personally I doubt that is a serious risk, but who knows.

It wouldn't surprise me to see the shares rise nicely from here, 60p is the short-term target I've got in mind, so a 50% gain looks possible, but of course that's purely guesswork, as none of us have a clue what the market will actually do. That would still leave the shares trading at a discount of almost 50% to NAV, so it seems a hardly demanding target.

(in the interests of full disclosure, I have a small long position in this share)

Please feel free to comment or query below.

Regards, Paul.


  1. Hi Paul

    Just wanted to say thank you for the report and good luck with the blog. I'm sure it will get traction rapidly.



  2. Thx Jon! :-) Already over 1,000 hits per day, so people must like what I'm doing!

  3. It's your writing style :)

    A combination of forensic analysis =useful
    and wide-eyed enthusiastic innocence "Ooh look, you can put a picture in!" =entertaining