Steve Jones never entertained the prospect of being an accountant the
profession held little attraction for a man more concerned with dictating the
overarching financial direction of a business.
Even now, he sees his role as an accountant as secondary to that of finance
director, with accountancy merely serving as a tool used in crafting a more
For Jones, it’s about information management and comprehending numbers in
terms of the here and now, but also how he prepares a business for the future.
‘I’ve always been more focused on playing an important role in the running of
a business. I’ve never liked numbers for numbers sake it’s not just where
you’ve been but also where you’re going,’ he says.
After university he took on a role at BTR, the forerunner to Invensys, a
manufacturing company producing everything from oil rigs to conveyor belts.
His two year tenure was in a financial analyst role, but his departure came
on the assertion that ‘the company’s view of cost control failed to translate to
my view of salary’.
Not content with settling for a career as a ‘factory accountant’, and craving
diversity and responsibility, an offer at Wiggins Group plc facilitated both of
He quickly learned the basic infrastructure and accounting function to be a
‘complete shambles’, but concedes the opportunity to restore some financial
health to the business was a task to be savoured. ‘I got down to the grunt work
of actually building financial reporting teams and structure and policies. I’d
literally be sitting at home on a Sunday night writing up the cash box. It was
hands on…I saw it as something I could get my teeth into,’ he says.
After four years with Wiggins, Jones left as group financial controller after
he struggled to accept where the group was heading strategically.
Enter Rugby Securities, then part of a larger parent called Hillsdown
Holdings plc and member of the FTSE 100, way back in 1986. Rugby Securities was
a property dealing subsidiary run autonomously to Hillsdown, and as Jones
recalls, the independence allowed him scope to develop
a finance function on his own terms.
‘As long as I sent my numbers in each month that was about it…they just
provided the finance,’ he says.
Rugby Securities employed about a dozen people at the start of Jones’
appointment, turning over between £1m and £2m a year profit. Soon it gathered
pace amid the late 1980s boom, taking on close to 30 employees and recording
annual profits in excess of £20m.
His Wiggins term inadvertently acted as an overture to what unfolded in the
recession of the early 1990s and as co-founding director of Rugby Securities
Limited – now just
Rugby Estates –
Jones is ostensibly well-placed to cope with the current crisis.
According to Jones, the overarching philosophy adopted by Rugby Estates lies
in purchasing property where they can add value, and despite being outbid by
more risk-laden buyers on a number of occasions, the business has maintained its
approach to the market, largely because he’s set to lose more than most. ‘It’s
our own money tied up in the business,’ he says.
Having lived through the recession of the early 90s, he’s confident he can
navigate the business through the chaos but is reticent on how much further
there is to fall. ‘We’re actually in a strong position, although there are no
transactions . . . as we are in the middle of peak uncertainty,’ explains Jones.
While in the midst of the downturn and ‘peak uncertainty’, he’s afforded the
time to look at opportunities beyond the storm, which he says, lies in third
Corporate value in the property sector has fallen significantly, about 20% in
commercial property from the peak of 2007.
After years of debt-fuelled buying by investors, one consolation for Jones
and Co is the fact the business was not geared too highly and they instead built
it on plain, vanilla-type deals at approximately 70% of a property’s value. In
part, its prudence provides a buffer to the business in stymieing further
impacts from the unprecedented fallout in global markets.
‘There was too much lending going on, on too high terms.’
As an investment vehicle, Rugby Estates plc was established by David Tye and
David Wilson, along with Jones, and was designed as an offshoot to Rugby
In 1994 they floated on the London Stock Exchange; a time when interest rates
dropped to 8% and property yields followed suit.
The trio used the prevailing boom period as an opportunity to shy away from
the parent company and emerge as a fully-independent public company. ‘It was a
natural consequence. In the early 1990s Hillsdown had a lot of demergers and
there wasn’t an obvious logical place for us,’ he says.
Readily conceding transactions are at a premium for most players in the
space, Jones won’t be drawn on the degree of downsizing, if any, that has
occurred in the past 12 months.
The commitment to a property development transaction is the ultimate judgment
in a business of this nature, and companies across the board are settling for
conservatism and reining in risk, however minor.
The structure of the business’ property investment vehicles is
three-dimensional, including the ING Covent Garden Limited Partnership,
established in 2002 and comprising a £200m portfolio, and OTwelve Estates
Limited, which was set up in 2006.
The latter vehicle has now built up a £250m portfolio of properties in the
east of London which are set to benefit from infrastructure improvements in the
lead up to the 2012 London Olympic Games.
Soon after London won the bid, Jones and the team set upon investing in
income-developing East London property development.
The third and final vehicle is the Rugby Estates Investment, built on the
concept of a Real Estate Investment Trust which provides favourable tax
treatment to the investor.
Rugby Estates buys private companies which, says Jones, come with a ‘ready
made exit’, and have recorded three REIT acquisitions since the UK government
effectively adopted the regime last year.
While the likelihood of generating such a deal now is slim, Jones is
confident the concept is a potentially lucrative option and is keen to revisit
prospective sales once the market lifts.
Core to securing a REIT deal is sourcing companies of interest, and he’s
using this cooling off period to locate and contact suitable prospects. Leads
are often generated by legal firms, property surveyors and contacts within the
Transaction might not take place right now, but good contacts could secure
deals when the market picks up.
‘We need to meet more people…now is not the time [for deals], but maybe in
one or two years…’
The REIT state of play
Rugby Estates plc has joined a growing list of companies to adopt REIT status
as a viable investment vehicle.
While the concept launched in the US in 1970, it took the much longer for the
UK government to be convinced of its merits.
After decades of lobbying, UK-based businesses have only been able to take
advantage of REITs since becoming effective in 2007, when the government
recognised they could generate tax from this type of vehicle. It was enacted in
the Finance Act of 2006.
There’s an upfront tax payment on the behalf of the investor – 2% of the
value of a property goes into the REIT regime. Historically, capital gains tax
would be extinguished and the Treasury wouldn’t see any of the tax until the
property sold. Because the regime was legislated at the peak of the market, the
government is thought to have gained substantially from its offering.
UK REITs are required to distribute 90% of their income and can be classified
as equity, mortgage or hybrid. They also have the capacity to be publicly or
More recently, Enterprise Inns has reportedly deferred adopting REIT status
because of unforgiving economic conditions. The pub owner’s banks have agreed in
principal to fund the REIT conversion. It’s believed to be a syndicate of 10 to
12 institutions remaining largely unaffected by the credit crunch.
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