My New Normal: Prestbury Investment Chairman Nick Leslau
The pressures of running a listed company in a time of crisis can find you anywhere, even if you’re working from home in the idyllic English countryside.
But from there he has being fielding calls from panicked investors pushing down the share price of Secure Income REIT, the listed company Prestbury manages. The company has a market capitalisation of £1B and owns assets including Alton Towers, Manchester Arena and a portfolio of private hospitals.
This crisis will likely throw up opportunities longer-term, but it also could instigate a period of austerity for the UK and countries around the world not seen since the Second World War, Leslau said.
And like hundreds of millions of people around the world forced to stay at home at the moment, he has one wish above all: to see the family from whom he is separated.
Bisnow: Describe your work-from-home life.
Leslau: We are very fortunate to have a lovely country house on the Oxfordshire/Gloucestershire border and my wife and I left London two weeks ago with two of our grown-up sons and their girlfriends. Our eldest is in the Caribbean with his wife and our two small grandchildren from where they have been unable to return. They are in a lovely place, especially for the kids, but it’s horrible not to have your family around at times like this.
My wonderful office is a floating two-bedroom guesthouse on our lake. It’s a wonderful place to stay calm and from which to work, although I haven’t been feeling my calmest recently.
I am so fortunate and not a moment of the day goes by when I am not hugely grateful for having my loved ones around, but also feeling desperate for those who are in lockdown in really challenging circumstances with little space and worried about loved ones who they cannot visit.
I wake at around 6.30am and my wife and I go for a long walk in the fields with Yogi, our boxer, then a quick bowl of porridge and I am off to my office, where I have been working very long hours in a very different way to our London HQ. There is something very intense about working in these hugely challenging times and from home. I speak to my colleagues so much more now than at HQ as there are no distractions and every call and conference call seems to count so much more.
The very decent year-end results for our quoted business, Secure Income REIT, were out a couple of weeks ago and we were pretty pleased with them and thought the 30 or so presentations to shareholders we were programmed to do would be very straightforward.
As events of the last fortnight evolved, every presentation was more and more challenging, with REIT share prices — including our own — tanking daily as blind panic on the part of sellers was met by a buyer strike.
On each call we had to respond to the previous evening’s edicts from the [prime minister] and Chancellor, and we were giving running commentaries on what that meant for our business without much time to truly digest and reflect on what it meant.
Bisnow: How are you transitioning your life and business to the homefront?
Leslau: Working from here has been wonderful. I am tooled up with all the office gizmos and as a property investment business, connectivity with the office has been really good.
I love being surrounded by my family in the same location so I can see them often, if only for a cuppa, which has made dealing with the business during a challenging time so much easier.
It has made me appreciate that there are so many things which I miss and now appreciate so much more as a result of this levelling experience.
We have plenty of food, a lovely wine cellar and, until two days ago, plenty of hens laying wonderful eggs. An ambitious fox managed to get into the coop and the result was Tarantino-esque.
There is now not a laying hen for sale to be had in the whole county!
Bisnow: What is the state of your business at the moment?
Leslau: SIR enters this crisis with its lowest-ever gearing, at 32%, and £234M of unfettered cash in the bank. Our debt structures are very robust with very significant head room, but it is fair to say that with so many tenants across our entire sector going from successful operating businesses to zero income overnight, the constant intense stress testing we do on a monthly basis did not include a global pandemic. Pretty well everything else, but not that.
Where we are fortunate is that the vast majority of our tenants are very substantial businesses with huge brand equity and owners with appropriately big balance sheets.
I do not have concerns about being paid rent but we will have to “lean in” and shoulder a share of the immediate cashflow issues, as receiving zero revenue is not these businesses’ faults. These are all incredibly successful businesses and will be again as soon as we are through this period. We will of course be supporting our partners, which have seen their cashflow disappear, because they have very long-term futures. This is what partnerships are about and our relationships go back as long as 16 years. We have a very high degree of confidence they will be going strong in another 16 years too.
Bisnow: What is your greatest business concern right now?
Leslau: Based upon the science as it played out, the experts went from anticipating as many as 250,000 deaths to now under 6,000.
The Chancellor has been extraordinary with his lightning decision-making and largesse in maintaining the financial stability of business and the individual.
However, whilst now may be a hugely insensitive time to start debating this, the ultimate economic price for the country will be breathtaking. The Second World War was followed by many years of bitterly painful austerity and, even ignoring the most obvious immediate recessionary period, my fear is that we have seen COVID-19 inadvertently precipitate the sounding of the death knell for many businesses that would have failed in time in any event.
Mass unemployment, a substantially weakened economy after what, if this doesn’t last too long, will be a partial V-shaped recovery, combined with harsh austerity measures to get the house’s books in order could lead to a very difficult time for everyone.
I think in real estate terms, occupational demand for retail, for sure, and for offices, will contract and so many small businesses, including many tech companies kept afloat by the bank of mom and pop, will not receive further funding as they, too, have seen their pensions go down by 30% and their house values fall.
In truth this scourge will sort the commercial wheat from the chaff and it will take a lot of time to find employment for many as industry starts to reshape, as we rely less on globalisation and we start producing much more, closer to home.
Bisnow: What was your lowest low and the highest high these last few weeks?
Leslau: Low points included when a very aggressive panicked seller drove the SIR share price down to half the NAV, from which it has already made a 50% recovery. We were receiving call after call from investors asking, was there something they should know about that we weren’t telling shareholders, which is understandable, but to which a long explanation as to the robustness of our business was required. Each one lasted up to an hour and we did in excess of 30 of those in a few days, which was a little exhausting for Mike [Brown], Sandy [Gumm] and myself, but a crucial part of the campaign to help calm people down and understand the strength of the company and its balance sheet.
The high point was when during one particular presentation I realised just how blessed I am to be surrounded by some amazing colleagues. More below.
Bisnow: What are you doing at home to keep your sanity?
Leslau: There always seem to be chores to do here to keep busy but I do love dropping a fishing line in the lake, hoping vainly to catch one of our big carp or helping muck out the donkeys. I find those both very therapeutic.
Bisnow: What have you learned about your business or the industry in the last few weeks?
Leslau: My colleagues and friends at Team Prestbury, the external manager of SIR, have been incredible. Their understanding of matters both micro and macro and our discussions about the present and future have been so considered, far-ranging and crucial for the positioning of our business in the short and longer term. Equally, our plans for the opportunities this crisis will bring in the future form part of our regular dialogue.
Coupled with a non-executive board, which is incredibly supportive and possesses such incredible wide-ranging commercial experience, it made me feel that if I have learnt anything in my business life, it’s to be surrounded by super-smart, decent and courageous individuals. They are the people you want around when you have to spend time in the trenches.
Only a month or so ago when we knew we were again reporting decent results for SIR, which has delivered nearly 20% compound total annual returns since listing in 2015, with its strongest-ever balance sheet, I recall vividly asking the question: What is it that’s going to seriously damage our industry and discussing that it is likely to be something none of us would ever expect. I did not have a global pandemic in mind.
However, we and UK real estate are in as relatively good a place as it has been in my lifetime to withstand this challenge. Of course there will be huge stresses all around, especially for those in retail property and those with high leverage and evaporating income streams. Developers with lots to sell and no one to buy will be hugely stretched but relatively, the UK real estate market is in good shape and the Bank of England, whose conservatism I have sometimes felt is overdone, get my complete respect today for having forced leverage down through Basel restrictions and slotting.
Bisnow: How do you think the coronavirus could permanently affect the way real estate does business?
Leslau: Home working will become more normal and occupational demand will slowly shrink as tenants of space contract. Many small companies will fail during this time and the funding of them will significantly diminish.
I can see no reason for rents anywhere to grow, except in the very short term with logistics, and every reason for them to fall, in some cases materially.
Bisnow: What are you most hopeful about today?
Leslau: We only truly appreciate people and things when we are denied them. Not being able to see and hug one’s family or friends because the net result could be someone might actually die is so scary.
Most of society has been willing to do what’s right for humanity whilst simultaneously sacrificing a lot for themselves.
I want to believe that as we go forward we never forget the time that we had something taken from us which we so profoundly needed and yet took for granted. I also hope we stop wanting so much, as this experience will prove we actually need so little.
Society sometimes overindulges and binges on too much and because of that we might forget what’s really important. Maybe that will change a little. I profoundly hope so.