Nick Atty <[EMAIL PROTECTED]> wrote:
>On Mon, 23 Oct 2006 17:22:40 +0100, Adrian Stott wrote:
>
>>AIUI (confirmation, Eugene?) BW manages its investment property using
>>the conventional principle that real capital value must be maintained
>>or increased as the *first* priority, and income generated and taken
>>second.
>Returning to the idea of funding the waterways through property, what
>happens if there is a property value slump or living by canals suddenly
>becomes unfashionable? Or what happens if the management decide to do
>something that sounds very reasonable - albeit slightly risky - and end
>up getting badly burned? Suddenly we are back in the position of no
>money for the waterways.
The first aim of sound investment is capital preservation. If the
market starts to fall, it is usually thought prudent to reduce your
exposure to it (i.e. cash out, and wait for a bottom, after which you
start reinvesting).
However, a decrease in capital value would not imply "no money for the
waterways", as what BW is spending on the waterways is the *income*
from the portfolio, not the capital. Most commercial real estate in
UK is on long (e.g. 25-year) leases, and the (typically) 5-yearly rent
reviews are "upwards only" - i.e. the rent is reset to market, but
only if the market rent is higher than was being paid to date; the
rent is never reduced. The tenant is obliged to keep paying until the
end of the term. In other words, the income is dependendable over a
longer period, typically longer than the market cycle of property
(capital) values.
It is therefore reasonably unlikely that "Suddenly we are back in the
position of no money for the waterways" would ever occur.
Steve Wood <[EMAIL PROTECTED]> wrote:
>If we fund waterways through property sales as opposed to rental income
>etc., which is what Adrian implied previously if I'm not mistaken, we
>will run out of property and therefore money in the none to distant future.
Yes.
>TBW taught us in the 80s that selling the family silver was a
>sound way to run the economy ;-)
It is hard to get income out of silver. If you need income, you
should indeed "sell the family silver" and put the resulting capital
into something productive.
Steve Wood <[EMAIL PROTECTED]> wrote:
> >My impression (I'm too lazy to do the tedious investigation) is that
> >the value of the portfolio has been growing steadily, as well as
> >providing useful income (again, confirmation, Eugene?).
>
>If you're never going to sell it why the interest in whether it is
>managed on that basis?
The income (i.e. return) an investment produces is usually a
percentage of its capital value. Assets in the same class (e.g.
commercial office buildings of the same quality) tend to produce about
the same percentage return. So, the higher the capital value of the
portfolio, the higher the return it is likely to produce. Which means
you need at least to retain the real (i.e. inflation-adjusted) capital
value of the real estate porfolio, to ensure that the income you get
from it doesn't decline in real terms.
>I do think BW
>should retain the parts of its property portfolio that define the
>waterside environment, but for heritage not commercial reasons. By that
>I mean the physical infrastructure of the canal, plus related (listed)
>buildings, ancient monuments etc. They would still be free to derive
>income from those buildings but the focus should be on heritage.
AIUI, that is exactly what BW does now.
>It may well be very old fashioned to say it but I do believe that BW is
>a national asset and belongs in the public sector. It is not a viable
>business in a commercial sense simply because it has insufficient
>sources of income.
I agree that BW cannot support itself on income from boating. I
acknowledge this means that the difference between that income and
BW's expenses must be funded by government, if the waterways are to
survive.
BW is currently owned 100% by the government. I see no reason to
change that. I'm not against it philosophically, I just can't see any
benefit from doing so.
However, none of that means that BW should not be run in a
businesslike manner. Business principles are most likely to produce
an efficient use of resource IMHO. Neither does it imply that it must
be supported by an annual and undependable handout. Having a more
secure source of income (such as from a property endowment) will make
the waterways more secure, which I think is something most waterway
enthusiasts want?
> Most of its customers (walkers etc.) don't pay to use it and there is no easy
> way to get them to pay except through general taxation.
I agree (with some minor exceptions). The endowment would,
indirectly, have been provided by general taxation.
Adrian
Adrian Stott
07956-299966
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