During the housing boom of the mid-1930s, two brothers, Frank and Irving Sinclair, realised that old houses with sitting tenants could be bought cheaply. They formed a company, Mountview Estates (MTVW), and began buying properties in North London. Their plan was to keep them until they became vacant, and then sell them at a profit. Mountview still follows this strategy, and is still mostly owned by the Sinclair family, but it has a problem. The family is at odds with itself.
Rent controls dampened Mountview’s profits until they were replaced by planning regulations in 1968, but they were boosted by increasing house prices. In 1950, the average new house cost £1,891. By the time Duncan Sinclair, the son of one of the founders, joined the company in 1977, high inflation had pushed up the average cost to £19,925. After 1990, when he became the executive chairman, the market took off again and by 2015 the average price had risen tenfold again to £197,890.
The latest annual report says that the group now owns 1,824 properties subject to regulated tenancies, which are still gradually being sold off whenever tenants move out. It can only acquire more when others sell, because no new regulated tenancies have been created since the 1998 Housing Act. The company also owns 212 properties with life tenancies. These pay low, or even no rent, so were bought at a large discount to the value that they’d have with vacant possession. Besides these, it owns 256 more conventional assured tenancy properties and 1,177 freehold and leasehold ground units.
Apart from 24 properties in Belsize Park, which are valued annually as investments, its freehold and long leasehold interests go onto the balance sheet at the prices paid for them. The directors say that “we are always going to wait for vacant possession” and since nobody can tell when this will be for each property, their current market value is irrelevant. The last external valuation was carried out in 2014, and the directors see no point in doing another one. The upshot is that Mountview’s shares trade at a premium to its published book value.
Duncan Sinclair is still the chief executive, and the only other executive director is the company secretary, Marie Bray, who joined the company in 1996. The Sinclair family owns just over half the shares, and this ‘concert party’ is represented by one non-executive director. The other two non-execs were considered to be independent when they were appointed a few years ago. The Murphy family would like to have their own director on the board as well, for they hold another quarter of Mountview’s shares, which are mostly owned by Duncan Sinclair’s sister. But their attempts to have one appointed have so far been frustrated.
The dispute is really about the power resting with Duncan Sinclair and how much scrutiny he comes under. He receives about £1mn a year, and pay has become a rumbling issue. It costs £2mn to employ both him and Bray, compared with £2.5mn for the other 24 employees. That seems high for a £450mn company with an operating profit that’s fallen to less than £35mn a year. Another concern is that executives’ bonuses haven’t changed much and don’t seem very aligned to profits. The directors counter that profits are lumpy because they depend on the cost of properties and their sale proceeds, which are influenced by external factors beyond the executives’ control.
This year, the independent shareholders voted against a change of pay policy that attempted to formalise these stable bonuses by rebalancing the mix: the executives’ guaranteed pay is to go up by over half, and in theory the bonuses are to come down to compensate, although the proposal leaves open the possibility of them not reducing at all. The reason the directors gave was that Mountview’s long-term strategy has reduced the “inherent risk of the operations” and so it would be appropriate to rebalance “executive remuneration packages to better reflect this profile”. Since risk-free pay is worth more than pay subject to the discretion of the remuneration committee, this could be regarded as a pay rise.
At the annual meeting in August, the Sinclair concert party voted on all the resolutions, and the pay policy was approved. But the re-election of the independent directors required a different poll, one confined to the independent shareholders, and those resolutions were defeated. However, by a quirk of governance, the concert party votes can be included in all the resolutions proposed at different general meetings. The directors have called a general meeting for 21 November so that the two directors who were rejected can be re-elected. We can be confident that they will be – for the company has gone through this same pantomime in each of the past five years.
