If I were to tell you about a share that has:
- Almost halved in value
- Is run by one of the UK’s most respected names in property
- Has a list of blue chip clients
- Who’s price is fully backed with it’s UK property assets in fact it is trading at a discount to net asset value of 17% according to its trading statement ending June 07
And best of all Yields just over 9%
Would you be interested?
Credit crunch
Like any financial crisis the recent credit crunch has caused investors to re-evaluate their risk and investment priorities. One sector that has suffered particularly badly is property as the market prices in higher borrowing costs and slowing or potentially falling asset values. This in my view has thrown up some very interesting investment opportunities for the Income Monkey which I will investigate in the coming months.
One such opportunity is a company called Mapeley.
http://www.mapeley.com/
Property outsourcing
You probably have never heard of them but if you have ever visited an Abbey National premises or been inside a tax office then the chances are you will have been inside one of their properties. This is because one of the key aspects about Mapeley is that they are what is called an outsourcing company. This means that they look after every aspect of their clients property requirements which means that the Abbey National or HMRC don’t have to worry about getting their buildings fixed or dealing with planning departments or buying new properties or disposing of surplus space. All of it is taken care of by Mapeley. The benefit for Mapeley is that they receive a regular income from these blue chip organisations as well as any rent from the properties they own. They currently own over £2 billion in property and own or manage over 1650 properties. The contracts are not short term either spanning a 25 year period.
Why the city has fallen out of love with Mapeley
The share price of Mapeley peaked back in April at just over £40, since then it has been pretty much a down hill run with the shares falling as low as £19.64 in September in the wake of the ‘credit crunch’.
The city has fallen out of love with property shares generally but Mapeley has been particularly hard hit for several reasons:
- It’s A typical business model of outsourcing which makes it hard to value as a property share. Most property companies are either predominantly investment companies or development companies. The former being valued in relation to their asset values (typically at a small discount) or as development companies where profits are the key factor in analysts valuations. Mapeley whilst having an increasing exposure to investment still derives most of its income from outsourcing.
- The market is worried that the company that has only recently been actively investing directly in property may have bought at the peak of the market. In Mapeley’s defence they would argue that their unique position of having a close relationship with clients and a strong regional presence means that they have been able to secure investments at a good price allowing them to retain a strong yield on their portfolio. For instance in their most recent set of interim results they reported that the acquisitions of £75.7 million during the period had a net initial yield of 7.1% which easily covers the cost of any borrowing.
- The big worry for any investor in Mapeley is that they loose one of their outsourcing contract undermining their income and ability to pay a dividend. This is unlikely any time soon as the contracts were for 25 years and any attempt by the companies to get out of them will cost them dearly.
- Outsourcing contracts which were the flavour of the month back at the start of the millennium have fallen out of flavour in recent years as companies have realised they can make potentially more money out of property then they can out of selling widgets. Therefore, few have been signed in the last couple of years. The last one won by Mapeley was back in 2006 with the passport agency to manage 69 offices. This may change soon when companies realise that property prices fall as well as rise and looking after their accommodation requirements is a big cost and hastle to their business.
Mapeley a must for the Income Monkey
The reasons to be attracted by Mapeley are obvious. Look at that great fat income of 190p for the financial year ending December 2007. This equates to a yield of just over 9% covered just over once. The other good thing for income junkies is that the dividend is paid quarterly meaning that you get your hands on your money four times a year. The current forecast from digitalook www.digitalook.com is for a dividend of 208p equating to a mouth watering dividend yield of 9.7% for the year ending December 2008.
The attractive thing for an income investor is that rents rise and the outsourcing contracts are for fixed fees meaning that even if the expected downturn in commercial property prices occur, the rising income should allow the company to continue to pay a large and rising dividend payment.
1 comment:
A very fair summary, thanks.
A couple of points to add on the negative side:
• there was a rumpus back in 2001/2 (I think) about the fact that HMG were outsourcing to a company which paid no UK tax. Not of immediate relevance.
• in each set of results, Mapeley have lots to say about debt refinancing. This may be harder at the moment (though perhaps just a temporary thing).
On the positive side, Mapeley has always traded at a premium to NAV. It's now at a discount of some 28%, which is comparable to the real estate sector average.
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