There is shareholder unrest at small-cap shopping centre operator London & Associated Properties (LAS:23p), a minnow of the stock market with a market capitalisation of £19.5m, ahead of the company’s annual general meeting (AGM) on Wednesday 12 June 2019. The action is led by Andrew Perloff, chairman of property company Panther Securities (PNS:380p), who holds a 3.44 per cent interest in London & Associated Properties through the Maland Pension Fund. The board's proposed annual remuneration of £1.9m is 12 times the £153,000 cash payout declared to shareholders who suffered a £2.5m reversal on their equity in 2018, and the company has just announced a big write-off following a loan default on one of its investments.
It’s not the first time London & Associated Properties directors have come under pressure. A year ago, Mr Perloff unsuccessfully lobbied the company’s board to use some of the surplus funds realised from the disposal of its flagship asset, Brixton Markets, to buy out all non-Heller shareholders at a significant premium to the prevailing share price. The action was unsuccessful not surprisingly given that the Heller family controls 56.35 per cent of London & Associated Properties’ issued share capital of 85.3m shares. Brixton Markets was sold for £37.25m in April 2018 and the company realised £20.5m of cash from the disposal net of borrowings.
It’s not difficult to see why Mr Perloff is disgruntled. That’s because the remuneration of London & Associated Properties’ directors remains disproportionately high for a company whose net asset value per share is no higher than it was at the end of 2014 and has plunged by a third since the end of 2009.
Moreover, equity shareholders had to shoulder a £2m post-tax loss in 2018 and to compound matters, having received a minuscule 0.3p a share total dividend at a cost to the company of £255,000 for the 2017 financial year, the board has declared a payout of 0.18p a share in the 2018 accounts. Minority shareholders’ who hold 43.65 per cent of the equity, including fund manager Cavendish Asset Management, which has a 9.45 per cent stake, will share a total dividend of £67,020 between them for the 2018 financial year. In stark contrast, the 2018 accounts reveal that the directors’ total remuneration more than doubled to £1.9m, an eye-watering amount given that the net assets attributable to equity shareholders actually declined by £2.5m to £43.3m last year.
Mr Perloff has written to fellow shareholders in a strongly worded letter that holds no punches, noting that “despite the almost unanimous shareholders’ criticism raised at last year’s AGM with regards to the board’s rapacious remuneration – and the chairman’s (Sir Michael Heller) refusal to answer most questions about the company, put by shareholders, the board have awarded themselves massive unwarranted bonuses”. Mr Perloff adds that he is “personally astonished at the non-executives on the board who have failed to even try to rein in the Heller family’s greed.”
This situation is likely to escalate as Mr Perloff is proposing to prepare a complaint to the London Stock Exchange and “if action is not taken to redress these matters, I believe it is appropriate to write to the Department for Business, Energy and Industrial Strategy to ask for an investigation [of Sir Michael Heller and his family’s private companies].” Specifically, this could involve an investigation for the entire family group as there may be inter-linked transactions with London & Associated Properties.
In a further twist to compound matters, and after the company’s 2018 annual report was published, London & Associated Properties made an announcement to the London Stock Exchange at 5pm on Tuesday 28 May 2019 in which it stated that both the company and Oaktree Capital Management have declined to inject further capital into their Harrogate Portfolio joint venture following a revaluation by the senior lender, so resulting in a breach of the loan to value covenant. Consequently, the mezzanine provider, DRC, has indicated its intention to take over the equity of the Harrogate Portfolio, comprising three shopping centres, in accordance with the terms of the mezzanine loan documentation. London & Associated Properties owns a 3.17 per cent interest in the Harrogate Portfolio, which will be written off at a capital loss of £1.78m.
Mr Perloff has raised this secondary matter in a letter he sent to fellow London & Associated Properties shareholders last Friday in which he concludes “how is it possible that in the current circumstances the Remuneration Committee, or the directors, could justify £1.35m bonuses [including a £500,000 bonus paid to Andrew Heller as a director of 41.5 per cent associate company Bisichi Mining] between three Heller family members? Perhaps, small shareholders may feel that in light of this new substantial loss, the Heller’s may wish to waive last year’s bonuses.”
Corporate governance issues at London & Associated Properties, and an unwillingness of the board to align their interests with those of minority shareholders, prompted me to advise selling the shares two years ago even though they were trading on a 50 per cent plus discount to book value. It would appear that little has changed since then, which is why the share price discount to net asset value is little changed.
London & Associated Properties shareholders wishing to contact Mr Perloff can do so by e-mail: andrew.perloff@pantherplc.com or by telephone on 01707 667300. Mr Perloff is suggesting that shareholders vote against a raft of Resolutions (1, 2, 4, 5, 7, 9, 10, 11, and 12) at the AGM or appoint him as proxy to vote on their behalf. It is certainly set to be a heated affair, albeit shareholders have an early start as it commences at 10am at the company’s Mayfair head office.
