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Post by supernumerary on Sept 6, 2018 10:40:09 GMT
With a first charge of £1.2m i.e. 80% of the a bricks and mortar valuation of £1.5m, this ablrate loan of £600K is effectively underpinned by a second charge 80-120% LTV based on this (bricks and mortar) valuation. A 13% return seems quite low for this huge level of risk if the business were to fail. Am I missing something? Good question. In the details section of the Ablrate loan page, the security valuation is: £2,800,000.00 How has that £2,800,000.00 figure been determined?
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wysiati
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Post by wysiati on Sept 6, 2018 10:50:33 GMT
With a first charge of £1.2m i.e. 80% of the a bricks and mortar valuation of £1.5m, this ablrate loan of £600K is effectively underpinned by a second charge 80-120% LTV based on this (bricks and mortar) valuation. A 13% return seems quite low for this huge level of risk if the business were to fail. Am I missing something? Good question. In the details section of the Ablrate loan page, the security valuation is: £2,800,000.00 How has that £2,800,000.00 figure been determined? See p8 of the borrowing proposal.
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Post by supernumerary on Sept 6, 2018 11:08:44 GMT
See p8 of the borrowing proposal. Thanks for the 'heads up'! 7.5 X Fair Maintainable Operating Profit = Market Value 7.5 X £375,940 = £2,819,550 Rounded down to £2,800,000...
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blender
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Post by blender on Sept 6, 2018 11:43:09 GMT
in the docs we can find that the freehold was bought at 2.8mln in 2008 from some people in denmark. Thanks.
In the valuation, page 23, under proposed purchase price. 'We have been advised that the sale price of this property is £2,800,000'
I guess that cannot be the price agreed for the freehold, because it is the full valuation of the property as a going concern. They are raising £1.8M for this purchase, and you would wonder where the other £1M was coming from. Not from the business, which needs working capital, imo.
We tend to criticise valuations, but istm, as a non-expert, this is a thorough and transparent valuation. This care home is in an area of oversupply, is dependent on local authority funding - which elsewhere in the country is subsidised by private funders, their costs are increased by regulation and increases in the 'living wage'. I would say the current rent is hard to sustain and they should get a good deal on the freehold.
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Post by Deleted on Sept 6, 2018 11:51:02 GMT
My quick reading of the accounts does not show a happy ship, it has a history of budgetery failure, I note that the corporate body is over expensive (as it is a vehicle for the development of care groups), they don't seem to be keeping the Care Quality Commission happy either. Their move to try and lower their rents by buying the building makes sense, but fails to resolve their poor control of bed usage and bed pricing, at 64% LTV it is less than my feared 70% figure.
It looks like their budgetting process was over optimistic, however, if I was the owner of this business and I could not control the rate for the bed, the number of beds and cost of labour then the only thing left is to try and reduce the rent. I think it is a tight wedge he is stuck in. Which is perhaps why the other lender feels the need to have the first charge to themselves.
I'm happier than I expected with the figures but I'll sit on my hand on this one.
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andy1
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Post by andy1 on Sept 6, 2018 12:01:03 GMT
I do like that this is a real business which has been trading for a long time but I don't think they can afford this.
Paying back £600k over 4 years at about 25% interest is going to cost about £240k per year + interest on £1,200k @ 10%? + still paying one rental £215k = about £575k. The business doesn't seem to generate that much cash.
I know their forecast cost for finance and rent is only £480k so maybe my assumptions are wrong somewhere. I think on balance I'm out though.
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ceejay
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Post by ceejay on Sept 6, 2018 12:01:21 GMT
For me, the big problem with the valuation is that it is based on the business as a profitable going concern - whereas the valuation is only relevant in the case where the business is struggling.
This wouldn't be such a problem if the asset were more general purpose - things like homes, warehouses and office blocks can have a value to many different kinds of buyer, so that in the case of a distressed sale then there is a chance of getting a reasonable sale value.
But this is a very specialised asset: if you wanted to repurpose it to, say, student accommodation or a hotel (to pick a couple of random examples) then you'd have to spend a lot of money on it, reducing the security value.
Then add in the second charge aspect...
Too rich for me, I'm out.
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Post by ladywhitenap on Sept 6, 2018 12:20:20 GMT
The home may have been running for 18 years but the company now running has only been incorporated 4 years and the director identified as responsible was made a director last year around the time the CQC found the establishment as needing improvement. According to the CQC website, there has been a revised assessment made this year and the report is pending. It is a shame this is not published as then we could judge if the new director is effecting a turn around or not.
I'm tending to side with Bobo on this one especially as my ready funds are only modest and we have some other opportunities promised in the pipeline. I might chuck a few sovs in for fun.
LW
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registerme
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Post by registerme on Sept 6, 2018 12:33:35 GMT
I've never been a fan of this industry when it comes to investing, I'll be sitting this one out.
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markyg61
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Post by markyg61 on Sept 6, 2018 12:42:21 GMT
The home may have been running for 18 years but the company now running has only been incorporated 4 years and the director identified as responsible was made a director last year around the time the CQC found the establishment as needing improvement. According to the CQC website, there has been a revised assessment made this year and the report is pending. It is a shame this is not published as then we could judge if the new director is effecting a turn around or not. I'm tending to side with Bobo on this one especially as my ready funds are only modest and we have some other opportunities promised in the pipeline. I might chuck a few sovs in for fun. LW Gotta be worth a monkey at least ?
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Post by Ace on Sept 6, 2018 12:46:27 GMT
Thanks for the insights all. They pretty much confirm my own analysis, but you've raised a couple of pints that I had missed. I'm considering going in for half my usual amount. Looks like I won't need to practice my fff skills!
One point that I wasn't quite clear on is: is the 12 month guaranteed minimum interest held by ABL from the outset, and therefore truly guaranteed, or is this paid monthly from the borrower's income?
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Post by supernumerary on Sept 6, 2018 13:02:09 GMT
ONE MINUTE: £109,613.00 gone!
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Post by supernumerary on Sept 6, 2018 13:02:51 GMT
TWO MINUTES: £171,157.00 gone!!
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Post by supernumerary on Sept 6, 2018 13:03:40 GMT
THREE MINUTES: £192,225.00 gone!!!
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Post by supernumerary on Sept 6, 2018 13:04:29 GMT
FOUR MINUTES: £211,479.00 gone!!!!
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