There’s more chance of making money but less chance of keeping it

My father died more than 60 years ago, so I was a young man when I lost him. However, one piece of advice that he gave me still rings true today and that is: “Under a Labour government, you have more chance of making money but less chance of keeping it”.

The Budget we have just witnessed is in my view a typical 1970s Labour one, with increased borrowing and public spending, when in fact with our huge national debt, we need lower borrowing and public spending. Coupled with the proposed new workers’ rights, Labour are not creating a pro-business environment, but then leopards do not change their spots.

That said, these conditions do create opportunities, which is why my listed main market shell company, Pristine Capital Plc, is stepping up its search for a reverse takeover opportunity, be it a commercial portfolio or private property company. I was concerned that with a possible significant hike in capital gains tax, shareholders in family property companies might hold back. However, the rise from 20% to 24% which is the higher rate, is less than expected and will in my view have limited effect on what we are trying to do.

As I pen this article, medium-term interest rates are going the wrong way, so in our calculations on potential future deals, we will have to be creative as to how we finance, so that we limit our risk.

The strength of the commercial market will always depend on tenant demand, whatever the sector, and the rise in Employers National Insurance, will cause companies, particularly smaller ones, to limit their hiring or even reduce headcount. While this may impact demand for space from the private sector, I have operated in a number of difficult markets and it is likely to lead to increased demand from more state controlled or state financed companies. I remember the 70s and as an agent letting office buildings to the government or their quangos. We will see more of this particularly in the regions, where we operate.

People ask me why I operate in the listed sector. The answer is that it presents unique opportunities. When buying other companies, one can issue shares, which a private company cannot do. The advantage for the seller is that if they do not wish to crystallise any capital gain, they can take shares rather than cash, so rolling over the potential gain.

I co-founded Palace Capital with Stanley Davis and Andrew Perloff in 2010, when we acquired 29.9% of Leo Insurance, which had a market cap of only £108,000. Using the public markets and changing the name of course, we acquired a subsidiary of Quintain in 2013, partly paid for in shares at 200p and then acquiring Property Investment Holdings in 2014 entirely for shares at 310p. We ultimately built a portfolio worth circa £280m.

Andrew Jones at LondonMetric did something similar when it acquired A&J Mucklow, with the majority of the consideration in shares and CT Property Trust & LXI REIT entirely in shares. This has helped propel the business into the FTSE 100. He is a shining example of how to build and successfully run a listed property company.

One of the arguments constantly used against me is that I need to be of significant scale to operate in the listed sector. I have never subscribed to this argument. Yes, LondonMetric and SEGRO are success stories, but there are others that just do not deliver the returns. In the Tempus column in The Times on 16 October last, the following comment was made in relation to Landsec, which has seen hardly any change in its market cap in 25 years: “But over the past decade, the stock has failed to deliver any shareholder returns whatsoever – indeed, both Landsec and rival British Land have lost investors’ funds, with a return of negative 9.7% & 8.5%, respectively.”

My co-founder Andrew Perloff, who since he co-founded Panther Securities, has produced stellar returns for his shareholders. I was with a shareholder at his AGM this June who has been an investor in Panther for more than 40 years. He was not the slightest bit interested in most of the larger property companies. He said that they just do not perform.

On the day I stood down at Palace, we announced record results for the financial year, with a property return of 12.5% and an accounting return of 14.8%, and it was all looking positive in terms of further organic growth or consolidation. These were paths that the company decided not to follow after I left, and the market is making its judgement. The returns were there and in all my time with Palace we never had a problem with liquidity in the shares.

This is why I am not concerned on this issue with my new vehicle. I have Stanley Davis with me who was my chairman at Palace and who successfully sold his share registration business IRG to Capita. In a nutshell, back the people.

In the 80s and 90s when I was running our listed agency firm, Sinclair Goldsmith, we had a fantastic bank manager in Douglas Gunn at the Bank of Scotland in Threadneedle Street. He always looked at the people first and the balance sheet last. He backed the Beckwiths and rejected Maxwell. The rest is history.

Once the post-Budget debate dies down, we must accept that we have this government until 2029 and take advantage of the opportunities my late father told me will come. How we keep the monies that we hope to make is another matter.